NEW EARTHSHELL CORPORATION v. LYCOS INTERNET LIMITED et al

Filing 16

OPINION. Signed by Judge Claire C. Cecchi on 1/12/15. (jd, )

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

NEW EARTHSHELL CORPORATION,

Civil Action No,: 14-cv-7665

Plaintiff.
OPINION

V.

LYCOS INTERNET LIMITED, et al.,
Defendants.
CECCHI, District Judge.
I.

INTRODUCTION

This matter comes before the Court on the Motion by Plaintiff New Earthshell
Corporation (“Plaintiff’) for a preliminary injunction. ECF No. 9. Defendants Lycos Internet
Limited (formerly known as Ybrant Digital Limited) (“Lycos”) and Online Media Solutions
Limited (“Online,” and collectively, “Defendants”) have opposed the motion. ECF No. 11. The
Court held a hearing on the motion on January 6, 2015. For the reasons set forth below, the
Court denies Plaintiffs application for a preliminary injunction.
II.

BACKGROUND
This action arises out of a transaction between Plaintiff, a Delaware corporation with its

principal place of business in New Jersey. and JoBookit Holdings Limited (“JoBookit”), an
Israeli company that is not a party to this action. On April 1. 2014, Plaintiff sold Viumbe LLC
(“Viumbe”), a digital media company owning several websites, to JoBookit for $2.5 million,
nith SI million paid to Plaintiff at dosing Compi
I

“

8-9 Plaintiff ttended a Sl 5 million loan

to JoBookit to finance the balance of the purchase price. Id.. Pursuant to a Loan and Security
Agreement (the “LSA”), Plaintiffs loan to JoBookit was secured by a security interest in the
“Collateral,” which included “[ajil of the present and future property and assets of [Viumbe],
whether now owned or hereafter arising or acquired.

.

.

.“

P1. ‘s Br. 1, ECF No. 9; Smith Dccl.

Ex. B. ECF No. 1 1-6. Plaintiff contends it perfected its security interest in the Collateral “by

filing a UCC-l financing statement in Delaware, Viumbe’s state of organization.” Compi.

¶ 10.

Plaintiff alleges that, “[bjeginning in at least March 2014, unbeknownst to Plaintiff,
JoBookit and Defendants were actively scheming to divert Plaintiffs Collateral for Defendants’
benefit.” Compi.

¶ 16. Specifically, Plaintiff alleges that Defendants and JoBookit schemed to

divert “most of Viumbe’s revenues—the core of Plaintiffs Collateral,” to Defendants by
entering into a “Supervening Transaction,” pursuant to which Defendants made a $1 million
investment in JoBookit and, in exchange, Viumbe “assigned, transferred, and/or diverted 70% of
its revenues to Defendants,” who took control of Viumbe’s “revenue, accounts receivable and
the proceeds thereof.” Compl.

¶ 22.

Defendants contend that what Plaintiff refers to as the “Supervening Transaction”
actually consisted of two transactions: (1) Defendant Online made an equity investment in
JoBookit pursuant to a Share Purchase Agreement; and (2) Defendant Online agreed to provide
advertising brokerage services for websites that JoBookit acquired with its purchase of Viumbe,
in exchange for a percentage of advertising revenues relating to the websites, pursuant to an
Advertising Representation Agreement. Defs,’ Br, 5-6. Like JoBookit, Defendant Online is an
Israeli company. Compl. ¶4. According to Defendants, Defendant Lycos, an Indian company,
is Defendant Online’s parent company and was not a party to either of the Share Purchase
Agreement or the Advertising Representation Agreement with JoBookit. Defs.’ Br. 5 n.3.

In i\’lav 2014. Plaintiff filed an action in the Southern District of New York against
JoBookit, JoBookit’s CEO and Viumbe, asserting numerous causes of action, including fraud
and breach of contract, related to the transactions and allegations above, See Notice of Removal,
Ex. B, ECF No. 1-7. Plaintiff brought that action in New York because in the loan and security
agreements at issue between Plaintiff and JoBookit, the parties consented to have any disputes
arising in connection with those agreements adjudicated in New York City courts. Id.; P1.’s Br. 3
n. 1.
Separately, Plaintiff filed the instant action against Defendants in New Jersey Superior
Court and moved for a temporary restraining order (“TRO”), enjoining and restraining
Defendants from commingling or transferring any portion of the Collateral in which Plaintiff
claims a security interest—including Viumbe’s “revenues, accounts receivable and the proceeds
thereof.” Notice of Removal, Ex. B.’ On November 17, 2014, Judge Kenneth J. Grispin of the
New Jersey Superior Court granted the TRO. Id. On December 9, 2014, Defendants removed
the action to this Court, and on the following day Defendants filed their opposition to the motion
for a preliminary injunction that was filed by Plaintiff in state court. ECF Nos. I and 4. In their
opposition, Defendants argued, inter alia, that this Court lacks personal jurisdiction over them.
On December 22, 2014, this Court issued an order extending the TRO to January 13,
2015, setting a briefing schedule for Plaintiffs motion for a preliminary injunction in this Court.
and scheduling a hearing on that motion. ECF No. 10. Consistent with Judge Grispin’s TRO

‘Plaintiffs Complaint asserts nine purported causes of action in connection with
Defendants’ interference with their security interest in the Collateral: (1) Collection and
Enforcement by a Secured Party under U.C.C. 9-607; (2) U.C,C. 9-609: Secured Party’s Right to
Take Possession After Default; (3) Impairment of Collateral; (4) Tortious Interference with
Contract (5) Conersion (6) Lnust Ennchmcnt (7) Constructie Trust (8) Declarator
Judguent; and (9) Accounting.

and in light of the personal jurisdiction issue raised by Defendants, this Court instructed both
parties to include in their briefing whether this Court has jurisdiction over Defendants. On
December 22. 2014. Plaintiff filed its motion for a preliminary injunction. On December 29,
2014, Defendants opposed the motion, arguing that Plaintiff does not satis the standard for a
preliminary injunction and that this Court does not have personal jurisdiction over Defendants.
In addition to the instant motion, currently pending before the Court is Defendants’ motion to
dismiss this action for lack of personal jurisdiction and for failure to state a claim. ECF No. 12.
ilL

LEGAL STANDARD

A party seeking the extraordinary remedy of a preliminary injunction bears the burden of
establishing that the following four factors weigh in favor of granting the injunction:

“[ 1]

that he

is likely to succeed on the merits, [2] that he is likely to suffer irreparable harm in the absence of
preliminary relief, [3] that the balance of the equities tips in his favor, and [4] that an injunction
is in the public interest.” Ferring Pharms., Inc. v. Watson Pharms., Inc., 765 F.3d 205 (3d Cir.
2014) (internal citations and quotations omitted).
The question of personal jurisdiction is a threshold issue that the Court should address
before considering the merits of Plaintiff’s preliminary injunction application. See Small v.
Camden County, 728 F.3d 265, 269-70 (3d Cir. 2013>;

eDietDrusProds.Liak.Liti,, 282

F.3d 220, 229-30 (3d Cir. 2002) (internal citations and quotations omitted) (“[P]reliminary

matters such as

...

personal jurisdiction

..

should be raised and disposed of before the court

considers the merits or quasi-merits of a controversy.”).

Once the issue whether a court lacks personal jurisdiction over a defendant is raised. “the
plaintiff bears the burden of showing that personal jurisdiction exists.” Marten v. Godwin, 499
F.3d 290, 295-96 (3d Cir. 2007) (citing Gen. Flee. Co. v. Deutz AG, 270 F.3d 144, 150 (3d Cir.
4

2001 )). “[A] federal district court may assert personal jurisdiction over a nonresident of the state
in which the court sits to the extent authorized by the law of that state.” Id. (citing Provident
Nat’l Bank v. Cal. Fed, Say. & Loan Ass’n, 819 F.2d 434, 437 (3d Cir. 1987); Fed. R. Civ. P.
4(k)( 1 )(A)). In New Jersey, the long-arm statute permits jurisdiction over non-resident
defendants “to the full extent permitted by the United States Constitution.” Am. Fin. Resources,
Inc. v. Money Source. Inc., No. 14-1651, 2014 WL 1705617. at *5 (D.N.J. Apr. 29, 2014) (citing
Carteret Say. Bank, FA v. Shushan, 954 F.2d 141, 145 (3d Cir. 1992)).

There are two general types of personal jurisdiction that reflect the requirements of the
Due Process Clause of the Fourteenth Amendment—general jurisdiction and specific
jurisdiction. Marten, 499 F.3d at 296. While “general jurisdiction exists when a defendant has
maintained systematic and continuous contacts with the forum state[, s]pecific jurisdiction exists
when the claim arises from or relates to conduct purposely directed at the forum state.” Id.
(citing Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414-15 (1984)). In
certain circumstances, personal jurisdiction may exist based on the effects of a non-resident
defendant’s conduct in the forum state. Id. at 297 (citing Calder v. Jones, 465 U.S. 783 (1984)).
The Third Circuit has interpreted Calder to allow the plaintiff to demonstrate personal
jurisdiction by satisfying the following three elements, known as the “effects test”:
(I) The defendant committed an intentional tort;
(2) The plaintiff felt the brunt of the harm in the forum such that the forum can be said to be
the focal point of the harm suffered by the plaintiff as a result of that tort;
(3) The defendant expressly aimed his tortious conduct at the forum such that the forum can
be said to he the focal point of the tortious activity.
hL (citing IMO Indus, v. Kiekert AG, 155 F.3d 254, 265-66 (3d Cir. 1998)).

Under the effects test, a defendant may not be “haled into a jurisdiction solely because
the defendant intentionally caused harm that was felt in the forum state if the defendant did not
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expressly aim his conduct at that state.”

.

Thus, to demonstrate personal jurisdiction under the

effects test, the plaintiff must show that “the defendant knew that the plaintiff would suffer the
brunt of the harm caused by the tortious conduct in the forum, and point to specific activity
indicating that the defendant expressly aimed its tortious conduct at the forum.” Id. at 297-98
(internal quotations and citations omitted). With regard to business torts. the Third Circuit has
held that jurisdiction under Calder requires more than a finding that the harm caused by the
defendant’s intentional tort is primarily felt within the forum;” rather, the ‘‘effects test’ can only
be satisfied if the plaintiff can point to contacts which demonstrate that the defendant express/v
aimed its tortious conduct at the forum, and thereby made the forum the focal point of the
tortious activity.” IMO Indus., 155 F.3d at 265. It is not enough to “simply assert[] that the
defendant knew that the plaintiffs principal place of business was located in the forum.” Id.
The typical case thus requires “some type of ‘entry’ into the forum state by the defendant.” Id.
IV.

DISCUSSION

Taking all of Plaintiff’s factual allegations as true, this Court is not satisfied that personal
jurisdiction exists over Defendants in this case, and therefore it would be inappropriate to grant
Plaintiff’s motion for a preliminary injunction.
Plaintiff argues that personal jurisdiction over Defendants exists under the “effects test”
because “Defendants engaged in ‘intentional, and allegedly tortious actions [which] were
expressly aimed at’ New Jersey,” and because Defendants “knew [these actions] would have a
potentially devastating impact upon [Plaintiftl,” which has its principal place of business in New
Jersey, Pl,’s Br. 6. Plaintiff also argues that “Defendants reached into New Jersey and
purposefully took a substantial portion of Plaintiffs Collateral, thereby availing themselves of
the privilege of conducting business in the State and subjecting themselves to New Jersey law.”
6

Id. at 7. Plaintiff has not alleged, however, that Defendants knew that Plaintiffs principal place
of business was in New Jersey. Nor has Plaintiff alleged that Defendants made any contact,
2
with Plaintiff or otherwise, in New Jersey. Plaintiffs allegations arise from a security interest
allegedly acquired under its agreements with JoBookit, which are subject to the jurisdiction of
New York courts. Plaintiffs UCC- 1 financing statement, by which it allegedly perfected its
security interest in the Collateral, was filed in Delaware. Viumbe. the company whose revenues
Plaintiff seeks to sequester to protect its security interest, is a Delaware corporation with a
principal place of business in California. Notice of Removal, Ex. B, ECF No. 1-7.
The allegation that Defendants improperly took possession of Plaintiffs Collateral arises
out of transactions between Defendants, an Israeli company and an Indian company, and
3
JoBookit, an Israeli company. Plaintiff has not contested Defendants’ assertions that (1) these
transactions did not involve Plaintiff directly and (2) the transactions were negotiated and

At the preliminary injunction hearing, Plaintiff argued that Plaintiffs New Jersey
address on the UCC-l form should have put Defendants on notice that they could be sued in
New Jersey by Plaintiff seeking to foreclose on their Collateral. Hr’g Tr. 18, Jan. 6,2015.
Plaintiff never alleged, however, that Defendants had actual knowledge that Plaintiff was
principally based in New Jersey. Indeed, Plaintiff stated the following at the preliminary
injunction hearing in response to the question from the Court whether, aside from New
Earthshell’s address on the UCC filing form, there was any contact between Defendants and
New Jersey:
2

The connection with New Jersey is solely with the principal’s place of business. New
Earthshell. And that the fact that New Earthshell is the senior secured creditor. And that
New Earthsheii has foreclosed on the assets that are not being delivered to New Jersey.
Ad that the effect of being deprived of their assets. their collateral for the loan, are being
felt in New Jersey by the New Jersey corporation, New Jersey based lender.
Id. at 19.
As noted above, Defendants assert that Defendant Lycos is merely the parent company
of Defendant Online, and was not a party to the transactions at issue.
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executed in Israel. are governed by Israeli law and are subject to the jurisdiction of Israeli courts.
Defendants further attest, and Plaintiff has not contested, that Defendant Online “had no
interaction or communications with Plaintiff.

.

*

in connection with the negotiation and

execution of the Share Purchase Agreement or Advertising Representation Agreement” with
JoBookit. Nizri Deel. ¶ 24. Although Plaintiff asserts in its briefing that Defendants
“schem[edj” with JoBookit to “fraudulently obtain Collateral from a New Jersey resident,” Pl.’s
Reply 14, Plaintiff does not allege any specific interaction between Defendants and Plaintiff that
could plausibly constitute intentional targeting of New Jersey. Finally, Plaintiff has not
contested, in its briefing or during the preliminary injunction hearing, Defendants’ sworn
statements that neither Defendant has ever had offices, employees or property in New Jersey and
that neither Defendant has ever been registered to conduct business in New Jersey.

$ Nizn

Deci. ¶J5-8, 13-16.
In short, Plaintiff has only alleged that the harmful effects of Defendants’ conduct were
felt in New Jersey by virtue of the fact that Plaintiff’s principal place of business is in New
Jersey. Thus, this case is similar to that in IMO Industries, 155 F.3d at 266-67, where the Third
Circuit held that this Court lacked personal jurisdiction over a German corporation that was sued
by a company with its principal place of business in New Jersey. There, despite a series of
letters and phone calls between plaintiff and defendant surrounding defendant’s alleged tortious
interference with plaintiffs attempt to sell its subsidiary, because the actions giving rise to the
dispute occurred outside of New Jersey the court held that the plaintiff had failed to show that
the defendant intentionally targeted New Jersey. Id. Similarly, the Court is not satisfied that it
has personal jurisdiction over Defendants in this case, and thus it cannot issue a preliminary
inj unction.
8

Plaintiff argues that this case is distinguishable from IMO Industries because Plaintiff
asserts a security interest in the Collateral, but Plaintiff does not explain why this constitutes a
meaningfiul distinction. Hr’g. Tr. 22-23. Indeed, the Third Circuit explained in IMO Industries
that Calder and its progeny had “cast doubt on the assertion that a company will feel the ‘brunt’
of a tort injury at its principal place of business when that injury is based on damage to contracts
or property not centered in the forum.” 155 F.3d at 263. As discussed above, none of the
transactions here at issue, nor the Collateral, are centered in or located in New Jersey. Further,
Plaintifts claim to a security interest does not automatically render personal jurisdiction proper
in Plaintiff’s home state. See Dollar Say. Bank v. First Sec. Bank of Utah, 746 F.2d 208, 209 (3d
Cir. 1984) (holding that minimum contacts sufficient for personal jurisdiction were not present
where non-resident bank, sued in proceeding to foreclose on collateral by resident plaintiff, “did
no more than borrow from and repay loan to forum bank by wire transfer”).
Plaintiff, in its reply papers, requests the opportunity to conduct jurisdictional discovery.
A plaintiff should be allowed to conduct jurisdictional discovery “[i]f a plaintiff presents factual
allegations that suggest with reasonable particularity the possible existence of the requisite
contacts between [the party] and the forum state.” Toys “R” Us, Inc. v. Step Two, S.A., 318
F.3d 446, 456 (3d Cir. 2003): see also Moinlycke Health Care AB v. Dumex Ned. Surgical
Products Ltd., 64 F. Supp. 2d 448. 454 (ED, Pa. 1999) (“[Ajllowing jurisdictionalJ discovery is

premised on the assumption that further discovery would be worthwhile.”). Plaintiff conceded
during the preliminary injunction hearing that it would not expect jurisdictional discovery to
yield any evidence of contacts between Defendant and the forum beyond what is currently before

the Court. See Hr’g Tr. at 54-58 (“And I agree, I don’t think you are going to find anything from
Lycos or Ybrant or any of the defendant’s subsidiaries that are between my client and them. I
9

agree that would not be there.

.

.

.

But that’s where we have the difference of opinion on how to

look at what jurisdiction controls. Ours is focused solely on the collateral, the location of the
collateral, and the effect of being deprived of the collateral.”). Currently pending before the
Court is Defendants’ motion to dismiss this action for lack of personal jurisdiction and for failure
to state a claim. ECF No. 12. Plaintiffs and Defendants’ arguments regarding jurisdictional
discovery are more properly addressed in ruling upon a motion to dismiss; thus, the Court will
consider those arguments in ruling upon that motion. Based upon the facts and allegations
before the Court at this time, however, the Court is not satisfied that it has personal jurisdiction
over Defendants, and thus the Court must deny Plaintiffs request for a preliminary injunction.
V.

CONCLUSION

Based on the foregoing, Plaintiffs motion for a preliminary injunction is denied. An
appropriate order accompanies this Opinion.

DATED: January 1’-, 2015

/7
CLAIRE C. CECCHI, U.S.D.J.

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