Compassware, Inc. v. BeHealth Solutions, LLC

Filing 21

ORDER DENYING 5 Motion to Dismiss; DISMISSING 13 Motion for Leave to File a Sur-reply. Signed by Judge Sam Sparks. (td)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION

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COMPASS WARE, INC.,
Plaintiff,
CAUSE NO.:
AU-17-CA-01057-SS

-vs-

BEHEALTH SOLUTIONS, L.L.C.,
Defendant.

[I) 1 I)

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BE IT REMEMBERED on this day the Court reviewed the file in the above-styled cause,
and specifically, Defendant BeHealth Solutions, L.L.C. (Behealth)'s Motion to Dismiss for Lack

of Personal Jurisdiction [#5], Plaintiff Compassware, Inc. (Compassware)'s Response [#9] in
opposition, and BeHealth's Reply [#10] in support as well as Compassware's Motion to File
Surreply [#13] and BeHealth's Response [#17] in opposition. Having reviewed the documents,

the relevant law, and the file as a whole, the Court now enters the following opinion and orders.

Background
This is a contract dispute between BeHealth and Cornpassware. BeHealth is a limited

liability company organized under the laws of Virginia, with members in Virginia, Indiana,
Maryland, and California. Not. Removal [#1]. Compassware is a citizen of Texas and Delaware.
Id. The parties' current dispute centers on whether this Court may exercise personal jurisdiction

over BeHealth.
In July 2016 BeHealth hired Chris Dancy, a mobile app developer, to work as an

independent contractor on the development of an app for BeHealth. Mot. Dismiss [#5-2]
Ex. A-i. Dancy lived and worked in Tennessee. Id. [#5] at 2.

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Subsequently, Dancy suggested BeHealth should hire Compassware, a company owned

by Dancy, to provide development services for BeHealth's app. Mot. Dismiss [#5] at 2. BeHealth
proved amenable to this suggestion. Id. However, it appears Dancy did not have employees in
place to perform the work for BeHealth, for in June 2016, Dancy contacted Chris Dauw, an app
developer, and solicited the services of Dauw's development team for work on the BeHealth app.

Dauw and his development team are located in Austin, Texas. Resp. Mot. Dismiss [#9-1] Ex. A
(Dauw Aff.) at 1. Shortly thereafter, in August 2016, Dauw was made CTO of Compassware. Id.
In September 2016, BeHealth investors, executives, and board members attended a

project kick-off meeting with Compassware in Austin, Texas. Id. at 2. Dauw's Texas-based
development team began working on BeHealth's app around the same time, although BeHealth
and Compassware did not enter into contractual agreements until January 2017. Id. at 2-3.

The contractual agreements entered into by BeHealth and Compassware were signed by
BeHealth in Virginia and by Dancy, in his capacity as CEO of Compassware, in Tennessee. Mot.
Dismiss [#5] at 2-3. The agreements also list a Tennessee mailing address for Compassware. id.
[#5-3] Ex. A-2 at 2. However, Dauw, the CTO1 in charge of the development of the app, states

the terms of the contract were negotiated by Dauw from Texas and in large part drafted in Texas.

Dauw Aff. Dauw further states BeHealth was aware the app would be developed exclusively in
Texas, by Dauw's Texas-based development team. Id.

BeHealth representatives subsequently attended meetings with Compassware in Texas on
three separate occasions: January 16, 2017; February

1,

2017; and June 15, 2017. Dauw Aff.

There is no indication BeHealth representatives ever met with Compassware anywhere other

than Texas. See Mot. Dismiss [#5]; Resp. Mot. Dismiss [#9]; Reply Mot. Dismiss [#10].

1

Dauw was subsequently named CEO in June 2017. Dauw Aff. at 3.

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In October 2017, Compassware filed suit against BeHealth in state court for breach of

contract. Supp. Filing [#6-1] Pet. at 1-2. BeHealth removed the suit to federal court in November

2017 and now asks the Court to dismiss for lack of subject matter jurisdiction. Not. Removal
[#1]; Mot. Dismiss [#5].

Analysis
I.

Legal Standard
The Federal Rules of Civil Procedure allow a defendant to assert lack of personal

jurisdiction as a defense to suit.

FED. R. Civ. P.

12(b)(2).

To determine whether a federal district court sitting in diversity has personal jurisdiction

over a nonresident defendant, the district court considers first whether exercising jurisdiction
over the defendant comports with due process. Religious Tech. Ctr. v Liebreich, 339 F.3d 369,
373 (5th Cir. 2003).

If the requirements of due process are satisfied, the court then determines

whether the exercise of jurisdiction is authorized by the jurisdictional "long-arm" statute of the
state in which the court sits. Id. Because the Texas long-arm statute has been interpreted as

extending to the limit of due process, the two inquiries are the same for district courts in Texas.
Id.; see TEX.

CIV. PRAC.

& REM. CODE § 17.001-17.093.

"The Due Process Clause of the Fourteenth Amendment limits the power of a state court
to render a valid personal judgment against a nonresident defendant." World- Wide Volkswagen
Corp. v. Woodson, 444 U.S. 286, 291 (1980). One requirement of due process is that the

nonresident defendant be properly subject to the personal jurisdiction of the court in which the
defendant is sued. Id.

The United States Supreme Court has articulated a two-pronged test to determine whether
a federal court may properly exercise jurisdiction over a nonresident defendant: (1) the

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nonresident must have minimum contacts with the forum state, and (2) subjecting the
nonresident to jurisdiction must be consistent with "traditional notions of fair play and
substantial justice." Int'l Shoe Co.

v.

Washington, 326 U.S. 310, 316 (1945); Freudensprung

v.

Offshore Technical Servs., Inc., 379 F.3d 327, 343 (5th Cir. 2004).
A defendant's "minimum contacts" may give rise to specific personal jurisdiction

if

(1) the defendant purposely directed its activities toward the forum state or purposely availed

itself of the privileges of conducting activities there; and (2) the controversy arises out of or is
related to the defendant's contacts with the forum state." Id. As the Fifth Circuit has repeatedly
stated, "merely contracting with a resident of the forum state is insufficient to subject the

nonresident to the forum's jurisdiction." Holt Oil & Gas Corp.

v.

Harvey, 801 F.2d 773, 778 (5th

Cir. 1986). Therefore, when analyzing whether a contractual relationship gives rises to sufficient

contacts, courts consider the "prior negotiations and contemplated future consequences" of the
contract, "along with the terms of the contract and the parties' actual course of dealing." Burger

King Corp.

v.

Rudzewicz, 471 U.S. 462, 479 (1985).

The plaintiff has the burden of making a prima facie case by showing a defendant has

sufficient "minimum contacts" with the forum state to justify the state's exercise of either
specific or general jurisdiction. Freudensprung, 379 F.3d at 343. If the plaintiff does so, the
burden shifts to the defendant to show such an exercise offends due process because it is not

consistent with traditional notions of fair play and substantial justice. Id. Finally, when a court
rules on a 12(b)(2) motion to dismiss for lack of personal jurisdiction without holding an
evidentiary hearing, it must accept the non-moving party's jurisdictional allegations as true and
resolve all factual disputes in its favor. Guidry

v.

1999).

ru

US. Tobacco Co., 188 F.3d 619, 625 (5th Cir.

II.

Application
A.

Minimum Contacts

To survive BeHealth's motion to dismiss, Compassware must present a prima facie case
for the exercise of personal jurisdiction over BeHealth.

Wilson

v.

Belin,

20 F.3d 644, 648 (5th

Cir. 1994). Because BeHealth brought the motion to dismiss, all "conflicts between the facts

contained in the parties' affidavits must be resolved" in Compassware's favor. Id.;

see also

Guidry, 188 F.3d at 625. With these principles in mind, Compassware has met its burden of

presenting a prima facie case in support of the exercise of specific jurisdiction.
Compassware has alleged sufficient facts to show the instant controversy arises out of

BeHealth's purposeful minimum contacts with the forum state. Prior to entering into a contract
with Compassware, BeHealth representatives traveled to Austin, Texas to meet with the software

development team. Dauw Aff. at 2. Dauw, the current CEO of Compassware, states BeHealth
was aware prior to signing the contract that the app would be developed exclusively in Texas by

Compassware's Texas-based development team. Id.

at

1-3.

Subsequently,

BeHealth

representatives traveled to Texas three more times over the next twelve months in order to meet
with Compassware's development team. Id.

These contacts with the forum state were not random or fortuitous. Although Dancy

corresponded with BeHealth from Tennessee and initially listed Brentwood, Tennessee as a
place of business for mailing purposes, BeHealth met with Compassware in Texas prior to
signing the contracts and was informed Compassware's Texas-based development team would

be handling development of the app. Dauw Aff. at 1-3; Mot. Dismiss [#5 at 1-2; Id. Ex. A-2 at
2. BeHealth' s meetings in Texas indicate BeHealth knew Compassware' s primary operations

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were based in Texas and knew performance under the contract would occur in

Texas.2

Moreover,

it does not appear BeHealth ever met with Compassware anywhere other than Texas.

Notwithstanding the Tennessee mailing address supplied by former-CEO

Dancy,3

the parties'

"actual course of dealing" indicates that BeHealth purposefully established minimum contacts
with Texas and that the instant controversy arises out of those contacts. See Burger King, 471
U.S. at 479 (instructing courts to consider "contemplated future consequences" of the contract as

well as "the parties' actual course of dealing")
B.

Traditional Notions of Fair Play and Substantial Justice

As Compassware has made out a prima facie case for the exercise of specific personal

jurisdiction, the Court must next determine whether forcing BeHealth to litigate in Texas would

be so burdensome as to amount to a denial of due process. See id. at 874 (citing McGee

v.

Int'l

Lfe Ins. Co., 355 U.S. 220, 224 (1957)). The factors which may be considered in the "fairness
analysis" include the burden upon the nonresident defendant, the interests of the forum state, the

plaintiff's interest in securing relief; the interstate judicial system's interest in efficiently
resolving controversies, and the shared interest of the several States in furthering fundamental

substantive social policies. Id. (citing Wilson, 20 F.3d at 647 n.3).
As is often the case in diversity suits, the nonresident defendant undoubtedly faces some

burden if subjected to the jurisdiction of the forum state. BeHealth appears to be based in
Virginia. Not. Removal [#1]. Compassware, meanwhile, is a citizen of Delaware and Texas. Id.
Both parties have some interest in local courts providing relief. Whether Texas is the most

In fact, BeHealth's reply indicates Compassware's only development project was the BeHealth app,
suggesting BeHealth knew Compassware's operations were located exclusively in Texas. Reply Mot. Dismiss [#10]
2

at2.
Alaska Mech., Inc., 700 F.2d 10126, 1029 (5th Cir. 1983) ("Nor do we weigh
heavily the fact that [defendant] may have mailed payment checks into the forum state in exchange for the goods.").

Cf Hydro/cinetics, inc.

v.

efficient forum is not the question. At this point, exercising jurisdiction over BeHealth does not
appear to be so burdensome as to offend "traditional notions of fair play and substantial justice."
See Int'l Shoe, 326 U.S. at 316; see also Electrosource, 176 F.3d at 874 (exercise of jurisdiction

over defendant proper because inconvenience did not amount to denial of due process). The

Court therefore declines to dismiss this case under Rule 1 2(b)(2).

Conclusion
The Court finds it may exercise personal jurisdiction over BeHealth. Correspondingly,

BeHealth's motion to dismiss for lack of personal jurisdiction is denied. Finally, because the
Court has denied BeHealth's motion to dismiss, Compassware's motion for leave to file a

surreply is dismissed as moot.
Accordingly,
IT IS ORDERED BeHealth's Motion to Dismiss [#5] is DENIED; and

IT IS FURTHER ORDERED Compassware's Motion for Leave to File a Surreply
[#13] is DISMISSED AS MOOT.

SIGNED this the

day of February 2018.

SAM'r'

SENIOR UNITED STATES DISTRICT JUDGE

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