Ronald M. Whyte, United States District Judge.
Plaintiff Artec Group, Inc. alleges trade secret misappropriation, breach of contract, and related causes of action against three former employees and three corporations. Defendant Axon Business Systems, LLC moves to dismiss Artec's claims against Axon for lack of personal jurisdiction and insufficient service of process. Dkt. No. 85. Artec opposes Axon's motion. Dkt. No. 89. Axon filed a reply. Dkt. No. 95. The court heard argument on March 25, 2016. Having considered the parties' arguments, this court denies Axon's motion.
Artec Group, Inc. is a California corporation specializing in the design and manufacture
Axon Business Systems, LLC is registered and headquartered in the United Arab Emirates; Axon maintains no presence in California. FAC ¶ 19; Dkt. No. 89-1, Mostafa Decl. ¶¶ 3-9. On May 28, 2012, an Artec account manager in Russia sent an unsolicited email to an Axon manager suggesting a partnership between the parties. Id. ¶¶ 10-11. After a follow up email from the Artec account manager, the parties arranged to meet in Dubai and continued to negotiate via email. Id. ¶¶ 12-14. The parties reached agreement and entered into a Non-Exclusive Distribution Agreement, effective August 8, 2012. FAC ¶¶ 20, 76, Mostafa Decl. ¶ 15. Under the Non-Exclusive Distribution Agreement, Axon had the right to distribute Artec's "Broadway 3D" scanners to customers in the United Arab Emirates. FAC ¶ 76; Mostafa Decl. ¶¶ 15-17. The term of the agreement was one year, but certain provisions of the agreement survived its termination. FAC ¶ 77. For example, Axon has a continuing obligation to maintain the secrecy of Artec's confidential information and refrain from selling "products similar to or competitive with" Artec's products in the UAE without Artec's permission. Id. ¶¶ 20, 77-83. Artec also alleges that the parties continued to do business as if the agreement were in effect after the one-year term expired. See Dkt. Nos. 94-1, 90-7, Yukhin Decl. ¶ 14 and Ex. F.
Artec alleges that Axon breached the terms of the Non-Exclusive Distribution Agreement on January 7, 2015 by contracting for the purchase of Artec Broadway 3D devices from defendant A-Star at lower prices than Artec's own wholesale list prices. Id. ¶¶ 11, 90. Artec alleges that the Broadway 3D devices sold to Axon were either "purloined" from Artec's warehouses or "covertly built" by defendants using misappropriated Artec parts and technology. Id. ¶ 142; see also ¶¶ 20, 34, 36 55, 125, 127. Artec informed Axon of the alleged breach through counsel on May 3, 2015, but alleges that Axon refused to cooperate with Artec to remedy the breach. Id. ¶¶ 141-42. Artec asserts seven causes of action related to the alleged breach against Axon: Count Four ("Breach of Written Distributor Agreement"), Count Five ("Unjust Enrichment"), Count Seven ("Breach of Implied Covenant of Good Faith and Fair Dealing"), Count Nine ("Conversion"), Count Thirteen ("Civil Conspiracy"), Count Fourteen ("Constructive Trust"), and Count Sixteen ("Unfair
Axon moves to dismiss for lack of personal jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(2). In response to a motion to dismiss, "the plaintiff bears the burden of demonstrating that jurisdiction is appropriate." Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800 (9th Cir.2004) (citing Sher v. Johnson, 911 F.2d 1357, 1361 (9th Cir.1990)). "Where, as here, the motion is based on written materials rather than an evidentiary hearing, `the plaintiff need only make a prima facie showing of jurisdictional facts.'" Id. (quoting Sher, 911 F.2d at 1361). "Conflicts between the parties over statements contained in affidavits must be resolved in the plaintiff's favor." Id.
Axon also moves to dismiss for insufficient service of process pursuant to Federal Rule of Civil Procedure 12(b)(5). When the validity of service is contested, plaintiff bears the burden to prove valid service. Brockmeyer v. May, 383 F.3d 798, 801 (9th Cir.2004). "The court may consider evidence outside the pleadings in resolving a Rule 12(b)(5) motion." Wright v. City of Santa Cruz, No. 13-CV-01230-BLF, 2014 WL 3058470, at *6 (N.D.Cal. July 3, 2014) (quoting Fairbank v. Underwood, 986 F.Supp.2d 1222, 1228 (D.Or.2013)).
If no federal statute governs personal jurisdiction, the law of the forum state applies. See Panavision Int'l L.P. v. Toeppen, 141 F.3d 1316, 1320 (9th Cir. 1998). California's long-arm statute is co-extensive with federal standards, so a federal court may exercise personal jurisdiction as long as doing so comports with federal constitutional due process. Id. at 1320. "For a court to exercise personal jurisdiction over a nonresident defendant, that defendant must have at least `minimum contacts' with the relevant forum such that the exercise of jurisdiction `does not offend traditional notions of fair play and substantial justice.'" Schwarzenegger, 374 F.3d at 801 (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945)).
"There are two forms of personal jurisdiction that a forum state may exercise over a nonresident defendant — general jurisdiction and specific jurisdiction." Boschetto v. Hansing, 539 F.3d 1011, 1016 (9th Cir.2008). General jurisdiction requires "`continuous and systematic general business contacts,' that "`approximate physical presence' in the forum state." Schwarzenegger, 374 F.3d at 801(quoting Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 416, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984)). For specific jurisdiction to exist, "the defendant's suit-related conduct must create a substantial connection" with the forum state. Walden v. Fiore, ___ U.S. ___, 134 S.Ct. 1115, 1121, 188 L.Ed.2d 12 (2014). Artec contends that Axon is subject to specific jurisdiction in this case.
The "minimum contacts" necessary to create specific jurisdiction "must arise out of contacts that the `defendant himself `creates with the forum State." Walden, 134 S.Ct. at 1122 (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985)). The analysis "looks to the defendant's contacts with the forum State itself, not the defendant's contacts with persons who reside there." Walden, 134 S.Ct. at 1122. The Ninth Circuit has articulated the following three-prong test for analyzing minimum contacts for specific jurisdiction: (1) the non-resident defendant must purposefully direct activities or consummate some transaction with the forum or resident thereof; or perform some act by which he
The first prong of the test for specific jurisdiction "includes both purposeful availment and purposeful direction." Yahoo! Inc. v. La Ligue Contre Le Racisme Et L'Antisemitisme, 433 F.3d 1199, 1206 (9th Cir.2006). "It may be satisfied by purposeful availment of the privilege of doing business in the forum; by purposeful direction of activities at the forum; or by some combination thereof." Id. "A purposeful availment analysis is most often used in suits sounding in contract. A purposeful direction analysis, on the other hand, is most often used in suits sounding in tort." Schwarzenegger, 374 F.3d at 802 (citations omitted). Purposeful availment analysis is appropriate because all of Artec's claims against Axon are related to the contractual relationship between the parties. See, e.g., Boschetto v. Hansing, 539 F.3d at 1016 ("we have typically analyzed cases that sound primarily in contract... under a `purposeful availment' standard") (emphasis added); Sher v. Johnson, 911 F.2d at 1362 (analyzing purposeful availment for tort and contract claims because all claims arose out of contractual relationship).
The parties agree that a "contract alone does not automatically establish minimum contacts in the plaintiff's home forum" under the purposeful availment test. Picot, 780 F.3d at 1212 (quoting Boschetto, 539 F.3d at 1017). Rather, a defendant must have "performed some type of affirmative conduct which allows or promotes the transaction of business within the forum state." Id. (quoting Sher, 911 F.2d at 1362). Axon argues that Artec cannot show purposeful availment because the Non-Exclusive Distribution Agreement was not negotiated, executed, or performed by Axon in California. While a "showing that a defendant purposefully availed himself of the privilege of doing business in a forum state typically consists of evidence of the defendant's actions in the forum, such as executing or performing a contract there," (Schwarzenegger, 374 F.3d at 802), the court must consider "prior negotiations and contemplated future consequences, along with the terms of the contract and the parties' actual course of dealing" in determining purposeful availment (Picot, 780 F.3d at 1212 (quoting Burger King, 471 U.S. at 47, 105 S.Ct. 1713)).
After considering the parties' "prior negotiations, contemplated future consequences, the terms of the contract, and the parties' actual course of dealing," the court concludes that Axon's California contacts are "substantial and not merely random, fortuitous, or attenuated." Vance's Foods, Inc. v. Special Diets Europe Ltd., No. 2:11-CV-02943-MCE, 2012 WL 1353898, at *5 (E.D.Cal. Apr. 16, 2012) (quotation omitted). In Vance's Foods, the court found that defendant had taken "deliberate action" in California when it negotiated and entered into long-term agreements to distribute a California company's products in Europe, even though the distribution agreements were negotiated and formed in Ireland rather than California. 2012 WL 1353898 at *5. Similarly in this case, Axon negotiated and entered into a long-term agreement to distribute California-based
Artec argues that the parties were equal participants in contract negotiations, and that "substantial dealings," even before a contract is executed, may "independently amount to minimum contacts." Juniper Networks, Inc. v. Altitude Capital Partners, L.P., No. C 09-03449 JSW, 2010 WL 5141839, at *6 (N.D.Cal. Dec. 13, 2010) ("as evidenced by Altitude's extensive negotiations with ESR that ultimately culminated in the Purchase Agreement [with a another party], Altitude has contacts with California"); see also Burger King, 471 U.S. at 479-80, 105 S.Ct. 2174 (defendant "deliberately reached out beyond Michigan and negotiated with a Florida corporation for the purchase of a long-term franchise and the manifold benefits that would derive from affiliation with a nationwide organization"). Artec asserts that Axon's purposeful availment is illustrated by 2013 communications from Axon's General Director to an Artec representative in Russia seeking to secure favorable contract terms for Axon. See Yukhin Decl. ¶ 14 and Ex. F. Axon objects that because Artec first reached out to Axon, the negotiations do not reflect Axon's purposeful availment. Axon further argues that Axon never communicated with Artec representatives in California. Axon relies on Vance's Foods, in which the district court emphasized that defendant initiated and aggressively pursued a relationship with plaintiff in California, including by contacting the plaintiff's director at his California home. See 2012 WL 1353898 at *5.
Axon's negotiations with Artec representatives outside of California do not establish purposeful availment. Artec does not allege that Axon negotiated with any Artec employee in California. While the court is not persuaded that a defendant may never establish minimum contacts through negotiations as long as some other party initiated the contact, Artec cites no authority holding that a defendant establishes minimum contacts through negotiations occurring entirely outside of the forum state, no matter how aggressively defendant pursues such negotiations. Such a holding would "mistakenly `allow a plaintiff's contacts with the defendant and forum to drive the jurisdictional analysis.'" Picot, 780 F.3d at 1213 (quoting Walden, 134 S.Ct. at 1125).
Artec argues that the lengthy course of dealing between the parties weighs in favor of purposeful availment. Although the contract technically expired after one year, Artec alleges that the parties continued to conduct business for almost three years and engaged in significant correspondence during that time. See Google, Inc. v. Eolas Techs. Inc., No. 13-CV-05997-JST, 2014 WL 2916621, at *3 (N.D.Cal. June 24, 2014) (finding minimum contacts based on, inter alia, defendant's continuing contractual obligations and "length of time" that defendants were subject to the agreement) (citing Burger King, 471 U.S. at 475-76, 105 S.Ct. 2174; Akro Corp. v. Luker, 45 F.3d 1541, 1546 (Fed.Cir.1995)); Principal Residential Mortg., Inc. v. Mac-Clair Mortg. Corp., 336 F.Supp.2d 922, 929 (S.D.Iowa 2004) ("the interstate communications are voluminous and occurred over a period of three years"). As in response to Artec's negotiation argument, Axon objects that Axon
The parties' correspondence — even over a three year period — cannot establish purposeful availment because Axon never corresponded with anyone in California. In all of the cases cited by Artec, the defendant had contacts with the plaintiff in the forum state. See Burger King, 471 U.S. at 475-76, 105 S.Ct. 2174 ("Miami headquarters and the Michigan franchisees carried on a continuous course of direct communications by mail and by telephone"); Akro Corp., 45 F.3d at 1546 (letters to Ohio residents establish purposeful direction); Google, Inc. v. Eolas Techs. Inc., 2014 WL 2916621 at *3 ("Google has identified other contacts with California, including the December 19, 2013 letter sent from Eolas to Google in California."); Principal Residential, 336 F.Supp.2d at 925 ("Plaintiff and Defendant have been in a business relationship for three years, which resulted in Defendant making numerous contacts with the State of Iowa with the help of modern communication technology."). Artec cites no authority holding that the length of a business relationship alone may establish minimum contacts with plaintiff's forum state. Axon communicated only with Artec employees outside of California, and Artec's connection to California cannot serve as the basis for a finding of purposeful availment by Axon. See Picot, 780 F.3d at 1213 ("inquiry is limited to examining contacts that proximately result from actions by the defendant himself.") (quotation omitted).
Artec alleges that several contract terms of the Non-Exclusive Distribution Agreement establish Axon's minimum contacts with the forum state. Specifically, Artec notes that the agreement identifies Artec as a California corporation, calls for any notice to be provided to Artec in California, includes a California choice-of-law provision, invokes U.S. law, and lists prices in U.S. dollars. Axon argues that these terms "individually and collectively fall far short" of establishing purposeful availment. Dkt. No. 95 at 7.
It is true that no single contract term identified by Artec would establish purposeful availment. See, e.g., Royal & Sun All. Ins. Plc v. Castor Transp., LLC, No. 13-CV-01811-BAS(DHB), 2016 WL 633443, at *6 (S.D.Cal. Feb. 17, 2016) (finding delivery of a check made out to defendant in U.S. dollars to an address in California insufficient to establish defendant's purposeful availment); Dynamic Software Servs. v. Cyberbest Tech., Inc., No. C-13-04217 DMR, 2014 WL 3373924, at *9 (N.D.Cal. July 9, 2014) (finding no purposeful availment where "only two significant factors" that might weigh in favor were choice-of-law provision and defendant's apparent knowledge of plaintiff's principal place of business). However, each of the contract terms identified by Artec is relevant to the purposeful availment inquiry. In Burger King, for example, the Supreme Court considered evidence of the contract documents themselves, including evidence that defendant "knew that he was affiliating himself with an enterprise based primarily in Florida," evidence that the contract would be governed by Florida law, and evidence that "all relevant notices and payments" under the agreement must be sent to Burger King's Florida headquarters. 471 U.S. at 478-82, 105 S.Ct. 2174. In this case, the court is persuaded that, taken together, the contract terms weigh in favor of purposeful availment.
Axon "knew that it was entering into a long-term contractual relationship with a company located in California" because the contract indicated Artec's status as a California corporation. Vance's Foods, 2012 WL 1353898 at *5. Section 11.11 of the
The California choice-of-law provision reinforces Axon's "deliberate affiliation with the forum State and the reasonable foreseeability of possible litigation there." Burger King, 471 U.S. at 482, 105 S.Ct. 2174 (1985); see also Vance's Foods, 2012 WL 1353898 at *6 ("While the choice-of-law clause is not sufficient by itself to determine that Defendants availed themselves of the benefits and protections of the laws of the forum state, it is a relevant factor."). The cases cited by Axon on this point do not say otherwise. In Vista Food Exchange, Inc. v. Champion Foodservice, L.L.C., No. 14 CIV. 804 RWS, 2014 WL 3857053 (S.D.N.Y. Aug. 5, 2014), the court noted that "[g]enerally, a choice of law provision in a contract alone is insufficient to confer jurisdiction," but found that the clause at issue established consent to jurisdiction under New York law. 2014 WL 3857053 at *10 (emphasis added). In Nimbus Data Systems, Inc. v. Modus LLC, No. 14-CV-04192 N.C. 2014 WL 7387200 (N.D.Cal. Dec. 29, 2014), the court found that the choice-of-law provisions contained in related contracts did not support specific jurisdiction because plaintiff's claims arose out of different agreement. 2014 WL 7387200, at *6 ("the dispute arises out of a purchase order agreement that does not itself contain a California arbitration or choice-of-law provisions"). In Dynamic Software Services v. Cyberbest Technology, Inc., No. C-13-04217 DMR, 2014 WL 3373924 (N.D.Cal. July 9, 2014) and Fujitsu-ICL Systems, Inc. v. Efmark Service Co. of Illinois, No. 00-CV-0777 W (LSP), 2000 WL 1409760 (S.D.Cal. June 29, 2000), the district courts merely restated the holding from Burger King that although a "choice-of-law provision may reinforce the defendant's deliberate affiliation with the forum state and the reasonable foreseeability of possible litigation there," such a provision does not confer jurisdiction "by itself." Dynamic Software, 2014 WL 3373924 at *9; Fujitsu-ICL, 2000 WL 1409760 at *5 (provision "may be considered in combination with other contacts"). Nothing in these cases suggests that the court should ignore the choice-of-law provision.
Similarly, while the court is not convinced that contract terms invoking U.S. federal law and pricing products in U.S.
The second prong of the test for specific jurisdiction requires that plaintiff's claims arise out of or relate to the defendant's forum-related activities. This is "measured in terms of but for causation." Bancroft & Masters, Inc. v. Augusta Nat. Inc., 223 F.3d 1082, 1088 (9th Cir.2000), see also Panavision, 141 F.3d at 1322 ("We must determine if the plaintiff.... would not have been injured but for the defendant's ... conduct directed toward [plaintiff] in [the forum]."). Here, Artec's claims against Axon arise out of Axon's alleged breach of the Non-Exclusive Distribution Agreement. Axon argues that Artec's claims do not arise out of Axon's forum-related activities because Artec has not identified any such forum-related activities. This court has determined that Axon purposefully established minimum contacts in this forum as evidenced by the terms of the Non-Exclusive Distribution Agreement. Therefore, the "arising out of" requirement is met.
The third prong of the specific jurisdiction test ensures that the exercise of personal jurisdiction comports with fair play and substantial justice. Jurisdiction is presumed to be reasonable once the first two prongs have been met. See Schwarzenegger, 374 F.3d at 802. The burden then shifts to defendant "to `present a compelling case' that the exercise of jurisdiction would be unreasonable and therefore violate due process." CollegeSource, Inc. v. AcademyOne, Inc., 653 F.3d 1066, 1079 (9th Cir.2011) (quoting Burger King, 471 U.S. at 477-78, 105 S.Ct. 2174)). In determining "whether the exercise of jurisdiction comports with fair play and substantial justice and is therefore reasonable," the court considers the following seven factors:
Id. (quoting Dole Food Co. v. Watts, 303 F.3d 1104, 1114 (9th Cir.2002)). Considering all of the factors, the court finds that Axon has not made a "compelling case" for why exercise of personal jurisdiction would be unreasonable.
Axon addresses only the first, second, and fifth factors. Axon argues that it had "no reasonable notice" that contracting with Artec "might later cause it to be haled into court halfway across the globe." Dkt. No. 85 at 11. However, the court's finding of purposeful availment establishes
Axon does not assert any conflict with the sovereignty of defendant's state, nor does Axon challenge California's interest in adjudicating the dispute or the importance of this forum to the Artec's interest in convenient and effective relief. Neither party addresses existence or availability of an alternative forum. The court concludes that Axon has not presented a compelling case against the court's exercise of personal jurisdiction.
Artec must establish that service was valid under Federal Rule of Civil Procedure 4. See Brockmeyer v. May, 383 F.3d at 801 ("Once service is challenged, plaintiffs bear the burden of establishing that service was valid under Rule 4.")
According to Artec, service was performed pursuant to Federal Rule of Civil Procedure 4(f)(2)(A), which provides for service in a foreign country "by a method that is reasonably calculated to give notice" as "prescribed by the foreign country's law for service in that country in an action in its courts of general jurisdiction." After Axon filed its motion to dismiss, Artec filed a signed notice of service in Arabic, accompanied by an English translation. Dkt. No. 87. Artec claims that this certificate of service establishes valid service because a "signed return of service constitutes prima facie evidence of valid service which can be overcome only by strong and convincing evidence." S.E.C. v. Internet Sols. for Bus. Inc., 509 F.3d 1161, 1166 (9th Cir.2007) (quotation omitted). Axon argues, however, that the certificate is facially insufficient to establish compliance with UAE law as required in response to Axon's motion to dismiss.
Axon cites case law from the Southern District of Texas to establish the requirements for service in compliance with UAE law:
Dkt. No. 85 at 12-3 (quoting Nabulsi v. Nahyan, No. CIV A H-06-2683, 2009 WL 1658017, at *7, 9 (S.D.Tex. June 12, 2009), aff'd sub nom. Nabulsi v. Bin Zayed Al Nahyan, 383 Fed.Appx. 380 (5th Cir. 2010)). Artec does not dispute the accuracy of Axon's statement of the law; rather Artec contends the certificate shows that service was in compliance with UAE service requirements.
Dkt. No. 89 at 25. Artec does not, however, assert that the certificate of service filed with the court discloses "the subject of the notification." The document states that "Mr. Igaz Anwar Khorshed has received a copy of the attached documents," but no documents are attached in Artec's filing. Dkt. No. 87.
Axon challenges Artec's compliance with UAE law on three grounds: 1) the notified party is listed on the certificate as "Hamden Mostafa," rather than Axon, 2) the certificate of service states that "the party required to be notified is in the other branch," implying that the documents were not delivered to the required party, and 3) the certificate of service does not identify or attach the documents served. The court is not persuaded by Axon's first two arguments. Hamdan Mostafa is the CEO of Axon. Dkt. No. 85-1, Mostafa Decl. ¶ 2. `While the certificate lists Hamdan Mostafa as the "notified party," the certificate calls for service at the "headquarter of Axon Business Systems (L.L.C)." The court has no basis for finding that the certificate's information "about the party being served" is not sufficient under UAE law. Similarly, it is not clear from Axon's statement of UAE law or the certificate itself that service is invalid because an Axon manager, rather than the CEO, received the documents. The court finds, however, that Artec has not met its burden to establish valid service because the certificate does not identify or attach documents showing "the subject of the notification." Nabulsi, 2009 WL 1658017 at *9; see also Fed. R. Civ. P. 4(c)(1) ("A summons must be served with a copy of the complaint.").
Although Axon moves to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(5), the "choice between dismissal and quashing service of process is in the
Axon has not alleged that it has not received a copy of the summons and complaint. There is a reasonable possibility that valid service has already occurred, and if not, there is a reasonable prospect that valid service may yet be accomplished. "Failure to prove service does not affect the validity of service. The court may permit proof of service to be amended." Fed. R. Civ. P. 4(l)(3). The court declines to dismiss this action or quash service. Within thirty days of this order, Artec must either 1) amend its proof of service to establish validity of service or 2) effect valid service and provide proof of such service to the court. If Artec fails to comply with this order, Axon may renew its motion for insufficient service of process.
For the reasons stated herein, the court concludes that Artec has made a prima facie showing of personal jurisdiction but has not established valid service. Within thirty days of this order, Artec must either 1) amend its proof of service to establish validity of service or 2) effect valid service and provide proof of such service to the court. Axon's motion to dismiss for lack of personal jurisdiction and insufficient service of process is denied.
