Plantbikes, LLC v. Bike Nation, Inc. et al

Filing 54

ORDER ON MOTION TO DISMISS FOR LACK OF JURISDICTION; granting in part and denying in part 7 Motion to Dismiss.(Signed by Judge Nelva Gonzales Ramos) Parties notified.(lcayce, 2)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
CORPUS CHRISTI DIVISION
PLANTBIKES, LLC; dba RUGGED
CYCLES,
Plaintiff,
VS.
BIKE NATION, INC., et al,
Defendants.

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§ CIVIL ACTION NO. 2:13-CV-108
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ORDER ON MOTION TO DISMISS
FOR LACK OF JURISDICTION
On May 22, 2014, after jurisdictional discovery, Plaintiff Plantbikes, LLC d/b/a
Rugged Cycles (Rugged Cycles) filed its First Amended Complaint (D.E. 44), asserting
claims against Bike Nation, Inc. (Bike Nation), a corporation with which it had certain
business dealings. Rugged Cycles also asserts claims against First Pacific Holdings, Inc.
(FPH) and Media Nation, Print, LLC (MNP) and others that are part of the Bike Nation
corporate family.

Rugged Cycles alleges that FPH and MNP are involved in, and

profiting from, Bike Nation’s wrongful conduct. The case was removed to this Court on
the basis of diversity jurisdiction pursuant to 28 U.S.C. § 1332. Before the Court is FPH
and MNP’s “Rule 12(b) Motion to Dismiss Plaintiff’s Petition” (D.E. 7) in which they
argue that this Court does not have personal jurisdiction over them. For the reasons set
out below, the motion (D.E. 7) is GRANTED IN PART and DENIED IN PART.

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THE CONTROVERSY
Rugged Cycles is in the business of developing, manufacturing, and selling
bicycles that are intended to be more durable and dependable than ordinary bicycles.
Among its design improvements are a drive train and airless tires that, for instance,
address the problems of broken chains and flat tires. Bike Nation is in the business of
securing contracts with cities for the operation of bicycle rental businesses. In particular,
Bike Nation’s business plan involves setting up various kiosks around the city that permit
bicycle riders to rent bicycles for cross-city transportation, generally on a one-way basis.
According to Rugged Cycles, Bike Nation proposed using Rugged Cycles as the
exclusive supplier of the bicycles necessary for Bike Nation’s rental business. To initiate
their business relationship, Bike Nation and Rugged Cycles entered into a Confidential
Disclosure Agreement (D.E. 44, pp. 32-34) and a Bicycle Supply Agreement (D.E. 44,
pp. 35-43). Rugged Cycles: (1) hired an engineer to act as a go-between to help
communicate the quality of Rugged Cycles’ product to Bike Nation; (2) disclosed trade
secret information to Bike Nation; and (3) incurred costs in increasing its manufacturing
to meet the quantity of bicycles that Bike Nation contracted to buy and to reduce
introductory pricing in anticipation of high volume sales.
Thereafter, according to Rugged Cycles, Bike Nation breached both the
Confidential Disclosure Agreement and the Bicycle Supply Agreement by using Rugged
Cycles’ trade secrets to develop a “second generation” bicycle that it or another company
would manufacture using Rugged Cycles’ basic design features and component part
suppliers. Bike Nation did not place with Rugged Cycles the minimum order for bikes
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that it had promised. Bike Nation thus allegedly exploited Rugged Cycles’ proprietary
information to go into competition with Rugged Cycles. Additionally, Rugged Cycles
contends that Bike Nation is part of a corporate family designed to maintain Bike Nation
as a low-profit, judgment-proof company that generates the basis for profits to be earned
by related business entities. In particular, Bike Nation allows FPH and MNP to profit by
placing advertising on the bicycles it puts in service.
Rugged Cycles has alleged causes of action for breach of contract and fraud
against Bike Nation. The complaint alleges tortious interference with a contract against
FPH and MNP. In addition, as against Bike Nation, FPH, and MNP, Rugged Cycles
asserts: misappropriation of trade secrets; violation of the Texas Theft Liability Act; and
conspiracy to defraud Rugged Cycles of its trade secrets. Last, Rugged Cycles alleges
that Bike Nation, FPH, and MNP are all mere tools or conduits of each other or “alter
egos,” so that the liability of one is ascribed to all.
At issue here is whether Rugged Cycles has demonstrated that FPH and MNP are
subject to this Court’s personal jurisdiction. The first issue Rugged Cycles raised was
whether FPH and MNP had waived their jurisdictional challenge by permitting the entry
of an order extending a preliminary injunction. By separate Order, this Court has rejected
that waiver theory. D.E. 17. Now, having had the benefit of jurisdictional discovery, the
issue is whether FPH and/or MNP are alter egos of Bike Nation such that Bike Nation’s
contacts with the State of Texas are ascribed to them.

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DISCUSSION
A. Standard of Review
Federal Rule of Civil Procedure 12(b)(2) allows for dismissal of an action where
the Court lacks personal jurisdiction over a defendant. The plaintiff bears the burden of
proving that a nonresident defendant is subject to the Court's jurisdiction. Jones v.
Petty—Ray Geophysical, Geosource, Inc., 954 F.2d 1061, 1067 (5th Cir. 1992). A
federal court sitting in diversity may exercise personal jurisdiction over a non-resident
defendant (1) as permitted under the state's long-arm statute; and (2) to the extent
permitted by the Due Process Clause of the Fourteenth Amendment. Pervasive Software,
Inc. v. Lexware GMBH & Co. KG, 688 F.3d 214, 220 (5th Cir. 2012).
“Because the Texas long-arm statute extends to the limits of federal due process,
the two-step inquiry collapses into one federal due process analysis.”

Mullins v.

TestAmerica Inc., 564 F.3d 386, 398 (5th Cir. 2009) (quoting Johnston v. Multidata Sys.
Int'l Corp., 523 F.3d 602, 609 (5th Cir. 2008)). To satisfy the requirements of due
process, the plaintiff must demonstrate: “(1) that the non-resident purposely availed
himself of the benefits and protections of the forum state by establishing ‘minimum
contacts' with the state; and (2) that the exercise of jurisdiction does not offend
‘traditional notions of fair play and substantial justice.” Id. (quoting Wilson v. Belin, 20
F.3d 644, 647 (5th Cir. 1994)).
“Jurisdiction may be general or specific.” Stroman Realty, Inc. v. Wercinski, 513
F.3d 476, 484 (5th Cir. 2008). Specific jurisdiction exists when the plaintiff's claim
against the nonresident defendant arises out of or relates to activities that the defendant
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purposefully directed at the forum state. Alpine View Co. v. Atlas Copco AB, 205 F.3d
208, 215 (5th Cir. 2000) (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472
(1985)).

In contrast, general jurisdiction requires the defendant to have maintained

“continuous and systematic” contacts with the forum state. Helicopteros Nacionales de
Colombia, S.A. v. Hall, 466 U.S. 408, 415–16 (1984).
There is no question that Bike Nation has sufficient contacts in the State of Texas
to support the assertion of personal jurisdiction against it. Rugged Cycles does not
appear to argue that FPH and MNP have sufficient contacts of their own in Texas. Thus
the question of personal jurisdiction over FPH and MNP is based on Rugged Cycles’ alter
ego theory—that the relationship between the Defendants and their conduct against
Rugged Cycles is such that Bike Nation’s contacts are ascribed to FPH and MNP. In
Bridas v. Gov't of Turkmenistan, 447 F.3d 411, 416–17 (5th Cir. 2006), the Fifth Circuit
concluded that to establish an alter ego claim, a plaintiff must demonstrate (1) that an
abuse of the corporate form occurred, and (2) that this abuse promoted a fraud or injustice
that injured the plaintiff.
When a defendant raises an objection to the court's personal jurisdiction, the
burden is on the plaintiff to make a prima facie showing that jurisdiction exists. Bullion
v. Gillespie, 895 F.2d 213, 216–17 (5th Cir. 1990).

A prima facie case may be

established “by alleging facts in the complaint and affidavits sufficient to establish
jurisdiction over the non-resident defendants.” Caldwell v. Palmetto State Savings Bank,
811 F.2d 916, 917–18 (5th Cir. 1987) (per curiam).

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When a court rules on a motion to dismiss for lack of personal jurisdiction without
holding an evidentiary hearing, it must accept as true the plaintiff's uncontroverted
allegations and resolve any factual disputes in the plaintiff's favor. Stripling v. Jordan
Production Co., 234 F.3d 863, 869 (5th Cir. 2000) (internal citation omitted). Once the
plaintiff satisfies its burden to establish a prima facie case of jurisdiction, the burden
shifts to the defendant to defeat jurisdiction by showing that its exercise would be unfair
or unreasonable. Central Freight Lines, Inc. v. APA Transport Corp., 322 F.3d 376, 384
(5th Cir. 2003). Even in the realm of alter ego allegations, only a prima facie showing is
necessary at the preliminary Rule 12(b)(2) stage. See Hargrave v. Fibreboard Corp., 710
F.2d 1154, 1161 (5th Cir. 1983) (noting that the standard for alter ego jurisdiction is less
stringent than that for alter ego liability; finding the alter ego evidence in that case
insufficient to sustain jurisdiction).
B. Assertions and Evidence of Alter Ego
As a preliminary matter, the Court observes that Rugged Cycles initially sued
Media Nation Print, LLC.

While the evidence produced in connection with this

jurisdictional challenge has included references to “Media Nation,” those references are
not specifically to “Media Nation Print.” There is credible controverting evidence that,
while registered as a California limited liability company, Media Nation Print never
operated in any capacity. D.E. 33. Instead, Rugged Cycles’ evidence reflects some
involvement by Media Nation Enterprises, LLC or Media Nation Outdoor, LLC, both of
which have now been joined in this lawsuit. D.E. 44.

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Because the evidence is insufficient to show that Media Nation Print was involved
in the events at issue or acted as the alter ego of Bike Nation, the Court GRANTS IN
PART the motion to dismiss (D.E. 7) for lack of jurisdiction as to Media Nation Print,
LLC. Because Media Nation Enterprises, LLC and Media Nation Outdoor, LLC are not
joined in the motion to dismiss, the Court will not further address the jurisdictional issue
as to any Media Nation entity.
Among the allegations of the complaint (D.E. 44), Rugged Cycles asserts that
Bike Nation and FPH are part of a corporate family formed by, wholly owned by, and
controlled by, Navin Narang (Narang) and Bradley M. Barlow (Barlow) (¶¶ 14, 15, 112).
Rugged Cycles’ evidence supports this. Narang is the sole shareholder and sole director
of FPH. D.E. 32, p. 1; 48-1, p. 18; 48-3, pp. 19-25. Narang admitted to being an officer
of Bike Nation and FPH and appeared as the corporate representative for the purposes of
deposition of both. D.E. 48-1, p. 6; D.E. 48-1, p. 7. Narang and Barlow are the only
officers or directors of the two entities and they make all the major decisions for them.
D.E. 48-1, pp. 9-10, 13, 21; 48-3, pp. 2-11; 48-4, pp. 4-5; 48-5, p. 9; 48-5, p. 13; 48-6, pp.
5-6.
Dave Campbell, a former President and CEO of Bike Nation testified that he acted
at the direction of Narang and Barlow. D.E. 48-7, p. 1. Campbell produced emails
indicating that Angela Meyer, Executive Vice President of FPH, was tasked with
administrative responsibilities for Bike Nation and, further, that she could not complete
those tasks because “the partners” would not fill her in on the details. D.E. 48-7, p. 2; 4810, pp. 17-19.
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Narang and Barlow are also the only signatories on the Bike Nation bank
accounts. D.E. 48-1, p. 12. Narang initially paid Campell his Bike Nation salary through
FPH and “Media Nation” bank accounts. D.E. 48-7, pp. 1-2. Later, when the checks
were issued through the Bike Nation account for salary or other expenses, the money
funding the Bike Nation account came from “Media Nation” or FPH. Id. In particular, a
three million dollar loan to “Media Nation” was used to pay Bike Nation expenses. Id.
The businesses share a single office address (¶ 8) and resources related to leasing
the same premises, along with certain accounting services. D.E. 48-1, pp. 18-19; 48-5, p.
10; 48-6, pp. 6, 8; 48-7. While Narang denied that FPH and Bike Nation do business at
the same address, he admitted that they had used the same address and the business of
both is conducted wherever he is because he is essentially FPH and so FPH is located
wherever he is. D.E. 32, pp. 1-2. FPH supplied the initial capital funding for Bike
Nation gratuitously. D.E. 48-1, p. 19. D.E. 48-3, pp. 16-17. As Rugged Cycles alleges,
they operate as a single business enterprise, manipulating their respective assets and
liabilities to benefit themselves at the expense of their creditors or other businesses
associating with them (¶¶ 54, 113-14).
Barlow personally appeared in Corpus Christi, Texas to tour Rugged Cycles’
facilities, witnessed its manufacturing processes, took pictures, and learned of Rugged
Cycles’ ongoing research and development plans (¶ 30). This information has been used,
contrary to the agreements between Bike Nation and Rugged Cycles, to benefit FPH,
Narang, and Barlow by enabling them to use Rugged Cycles’ design and processes
without remuneration to Rugged Cycles and while setting up a competing manufacturing
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process. Specifically, Campbell testified that Narang made the decision for Bike Nation
to breach the Bicycle Supply Agreement and obtain similar bikes through other
manufacturers, shipping Rugged Cycles’ bikes to manufacturers in Korea and Portland
for the purpose of duplicating Rugged Cycles’ design. D.E. 48-7, p. 3.
More specifically, Bike Nation’s rental business plan calls for the provision of
bikes in a manner that does not generate a profit for the rental business, but allows FPH
and “Media Nation,” along with Narang and Barlow, to profit by supplying the means for
generating advertising income using space available on the bikes’ baskets (¶¶ 40-44, 72).
As part of that plan, the bicycles must be manufactured at the lowest cost possible and
Bike Nation is using Rugged Cycles’ protected trade secrets, component manufacturer
pipeline, and manufacturing processes to reduce costs and maximize profits for FPH and
its related Media Nation businesses (¶¶ 49-51). Narang and Barlow, controlling all of the
entities involved, had Bike Nation breach its agreements with Rugged Cycles for the
benefit of FPH, while leaving Bike Nation judgment-proof (¶¶ 52-54, 97, 100, 107, 114).
Campbell produced emails demonstrating that Narang, using his email account for
FPH, in coordination with “Media Nation,” worked up promotional materials on Bike
Nation kiosks to get advertising business to spend money to advertise there. D.E. 48-10,
pp. 20-27. Suppliers of parts that were manufactured for Bike Nation presented their
invoices to Media Nation Enterprises and Narang and Barlow had to approve all
payments. D.E. 48-10, pp. 9-12.

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C. The Allegations and Evidence Are Sufficient to Sustain Jurisdiction
Uncontroverted allegations are taken as true and conflicts in the jurisdictional facts
are construed in favor of Plaintiff, Rugged Cycles. Pervasive Software, Inc. v. Lexware
GmbH & Co. KG, 688 F.3d 214, 219-20 (5th Cir. 2012). The Court finds that, under this
less stringent standard applicable to alter ego jurisdiction, Rugged Cycles’ allegations are
sufficient to state a prima facie case of alter ego in that it alleges sufficient facts that, if
true, would establish that FPH has used Bike Nation as a mere tool or conduit to benefit
itself or other members of its corporate family without regard to the financial
independence and business integrity of Bike Nation. Rugged Cycles’ evidence supports
its allegations and further demonstrates a prima facie case of alter ego whereby FPH used
Bike Nation to enrich itself by wrongfully using the trade secret information and product
development of Rugged Cycles. While FPH and Bike Nation have offered controverting
evidence, primarily in the form of Narang and Barlow’s denial of blurred corporate
boundaries, that evidence is insufficient to eliminate any factual question on the matter.
According to the standard of review, then, the Court must construe the evidence in favor
of alter ego jurisdiction.
When the facts support the plaintiff’s alter ego theory, the exercise of personal
jurisdiction over the entity without minimum contacts of its own is consistent with due
process concerns for fairness and reasonableness. See generally, Jackson v. Tanfoglio
Giuseppe, S.R.L., 615 F.3d 579, 586 (5th Cir. 2010); Patin v. Thoroughbred Power
Boats, Inc., 294 F.3d 640, 653 (5th Cir. 2002).

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In an alter ego scenario, “the

jurisdictional contacts of one are the jurisdictional contacts of the other . . . .” Patin,
supra.
The uncontroverted factual allegations and the evidence submitted establish a
prima facie case that the separate entities are operated as a unified business to evade an
obligation or justify a wrong. The entities’ claim of limited liability based on their
separate existence will work an injustice as to Rugged Cycles. This is sufficient to
support alter ego jurisdiction. See Spring St. Partners-IV, L.P. v. Lam, 730 F.3d 427, 443
(5th Cir. 2013); SSP Partners v. Gladstrong Investments (USA) Corp., 275 S.W.3d 444,
455 (Tex. 2008); Castleberry v. Branscum, 721 S.W.2d 270, 272 (Tex. 1986).
CONCLUSION
As set out above, the Court finds that the evidence is insufficient to sustain
jurisdiction against Media Nation Print, LLC and the Court GRANTS IN PART the Rule
12(b) Motion to Dismiss Plaintiff’s Petition (D.E. 7) as to the allegations against Media
Nation Print, LLC. The Court DENIES IN PART the motion as it pertains to Defendant
First Pacific Holdings, Inc.
ORDERED this 26th day of June, 2014.

___________________________________
NELVA GONZALES RAMOS
UNITED STATES DISTRICT JUDGE

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