Opinion
No. C-00-00481 EDL
September 25, 2000
I. INTRODUCTION
Plaintiff Bisq'ettes Ceramic Tile, Inc., a California corporation, commenced this commercial dispute action in the San Francisco Superior Court in January 2000. Plaintiff alleges state law claims for breach of contract, breach of fiduciary duty, unfair competition, misappropriation of trade secrets, intentional interference with prospective economic advantage, interference with economic relations, trade libel, slander and fraud.
Defendants are Errol Skinner and Donna Skinner, residents of Georgia doing business in California, and Swede, Inc. dba Banan Appeal, a Georgia corporation doing business throughout the United States, including California (collectively "defendants"). Plaintiff sells decorative ceramic tile products to complement tile manufactured by others, such as defendant Swede, Inc. According to plaintiff, in 1997, plaintiff and defendants began joint merchandising of their ceramic tile products pursuant to an oral agreement. During this joint merchandising effort, defendants allegedly took exclusive control of plaintiff's store displays, vendor relationships and customer contacts. Plaintiff alleges that defendants obtained confidential information regarding plaintiff's designs, manufacturing processes and marketing activities, which defendants used to disparage plaintiff in the marketplace, to misappropriate its confidential business information, and to sell "knock off" products to plaintiff's customers. Plaintiff terminated the joint merchandising agreement in December 1998.
Defendants removed the action to the United States District Court in the Northern District of California on February 10, 2000. On March 7, 2000, defendants moved to dismiss the action for lack of personal jurisdiction, improper venue, and insufficient service of process, or, in the alternative, to transfer the action for the convenience of the parties and witnesses.
On March 30, 2000, at plaintiff's request, the Court continued the hearing on defendants' motion to dismiss to June 13, 2000 to permit the parties to conduct discovery on jurisdictional issues raised by defendants' motion. At the Court's direction, the parties engaged in supplemental briefing after the June 13, 2000 hearing to further address the issues raised in defendants' motion to dismiss.
Subsequently, the Court determined the necessity of a limited evidentiary hearing to address certain disputed facts relevant to personal jurisdiction. This hearing was set by stipulation of the parties for September 21, 2000.
In August 2000, plaintiff notified the Court of Bancroft Masters, Inc. v. Augusta National Inc., 2000 Daily Journal D.A.R. 9197 (9th Cir. 2000), filed on August 18, 2000, which plaintiff argued was dispositive of the personal jurisdiction issue in this case. Accordingly, the Court ordered supplemental briefing on the effect of Bancroft on the instant case. In light of Bancroft, the Court determined that the evidentiary hearing scheduled for September 21, 2000 was no longer necessary.
Upon consideration of the parties' oral arguments and their submissions, good cause appearing, and for the reasons set forth below, the Court DENIES defendants' motion to dismiss for lack of personal jurisdiction, improper venue, insufficient service of process or, in the alternative, to transfer for the convenience of the parties and witnesses.
II. LEGAL ANALYSIS A. Personal Jurisdiction
California law "allows courts to exercise personal jurisdiction over defendants to the extent permitted by the Due Process Clause of the United States Constitution." Core-Vent Corp. v. Nobel Industries AB, 11 F.3d 1482, 1484 (9th Cir. 1993). Thus, this Court need only analyze whether the exercise of jurisdiction comports with constitutional constraints. Defendants must have "certain minimum contacts with [the state] such that the maintenance of the suit does not offend 'traditional notions of fair play and substantial justice.'" International Shoe Co. v. State of Washington, 326 U.S. 310, 316 (1945). The purpose of the minimum contacts requirement is to "protect the defendant against the burdens of litigating at a distant or inconvenient forum" and to "ensure that States . . . do not reach out beyond the limits imposed on them by their status as coequal sovereigns in a federal system." World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 292 (1980). A defendant's activities involving the forum state should be such that the defendant "should reasonably anticipate being haled into court there." World-Wide Volkswagen, 444 U.S. at 297; see Omeluk v. Langsten Slip Batbyggeri A/S, 52 F.3d 267, 270 (9th Cir. 1995).
Personal jurisdiction can be either "general" or "specific." If the defendant's activities within a state are 'substantial' or 'continuous and systematic,' general jurisdiction may be asserted "even if the cause of action is unrelated to defendant's forum activities." Data Disc, Inc. v. Systems Technology Assoc., Inc., 557 F.2d 1280, 1287 (9th Cir. 1977). Where the defendant's activities are not sufficiently continuous and systematic for general jurisdiction, the defendant may still be subject to specific jurisdiction on claims related to its activities or contacts in the state. See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472-73 (1985); see Ballard v. Savage, 65 F.3d 1495, 1498 (9th Cir. 1995).
A plaintiff has the burden of establishing that personal jurisdiction exists. See Data Disc, 557 F.2d at 1285. A court may decide the personal jurisdiction issue without an evidentiary hearing; in that case, the affidavits and discovery material submitted by the plaintiff must establish a prima facie showing of jurisdiction. Id. at 1285-86.
1. General Jurisdiction
For general jurisdiction to apply, a defendant must be domiciled in the forum state, consent to jurisdiction, be served in the forum state or have "substantial" or "continuous and systematic" activities there. Panavision International, L.P. v. Dennis Toeppen, 141 F.3d 1316, 1320 (9th Cir. 1998) (citing Helicopteros Nacionales de Columbia, S.A. v. Hall, 466 U.S. 408, 414-16 (1984)). In making this determination, courts may consider whether the defendant makes sales or engages in business in the state, appoints an agent for service of process in the state, serves the state's markets, is licensed to do business in the state or is incorporated there. Bancroft Masters, Inc. v. Augusta National, Inc., 2000 Daily Journal D.A.R. 9197, 9198 (9th Cir. 2000) (citing Hirsch v. Blue Cross, Blue Shield of Kansas City, 800 F.2d 1474, 1478 (9th Cir. 1986)).
Here, defendants contend that their contacts with California are neither continuous nor systematic.
Defendants Errol Skinner and Donna Skinner reside in Georgia and have never resided in California. See Errol Skinner Decl. ¶ 3; see Donna Skinner Decl. ¶ 3. Defendant Errol Skinner has traveled to California on only five occasions, three of which were connected to his dealings with plaintiff and two of which were personal vacations. See Errol Skinner Decl. ¶¶ 30-32. Defendant Donna Skinner has only traveled to California on four occasions, two of which were connected to her dealings with plaintiff and two of which were personal vacations. See Donna Skinner Decl. ¶¶ 30-32.
Defendant Swede, Inc., a Georgia corporation, has its principal place of business in Georgia. See Errol Skinner Decl. ¶ 4. Defendant Swede, Inc. has never maintained any office or facility in California and has never entered into an employment relationship with any California resident. See Errol Skinner Decl. ¶ 28. Defendant Swede, Inc. has never been licensed or qualified to do business in California and has never appointed an agent for service of process in California. Id. Defendant Swede, Inc. has never maintained a California bank account and has never incurred or paid California state taxes. Id. While defendant Swede, Inc.'s products are sold at three Home Depot locations in Southern California, the contracts and other paperwork relating to sales at these locations are negotiated and handled outside of California and represent a minute portion of defendant Swede, Inc.'s business. See Errol Skinner Decl. ¶ 29.
On the other hand, plaintiff declares that several meetings regarding the joint merchandising agreement were held in San Francisco involving plaintiff and defendants or their representatives. See Deborah Osburn Decl. ¶ 2. According to plaintiff, Banan Appeal purchased materials from plaintiff on a regular basis since August 1998. Id. at ¶ 4. Plaintiff has also submitted a number of declarations from individuals attesting to various continuous contacts by defendants with California. See Mark Beach Decl. ¶¶ 4, 5; see Lisa Carroll Decl. ¶¶ 2, 3; see Alan Vigil Decl. ¶¶ 2, 3; see Rick Thompson Decl. ¶ 2; see Ralph Logan Decl. ¶ 3; see Franco Ciammachilli Decl. ¶ 2.
Plaintiff has failed to establish a prima facie case that defendants' limited contacts with California are continuous and systematic. Therefore, the Court lacks general jurisdiction over defendants.
2. Specific Jurisdiction
The existence of specific jurisdiction is determined by the application of a three-pronged test. First, the defendant must do some act or consummate some transaction by which he purposefully avails himself of the privileges of conducting activities in the forum state, thereby invoking the benefits and protection of its laws. Second, the claim must be one which arises out of or results from the defendant's forum-related activities. Third, the exercise of jurisdiction must be reasonable. See Panavision, 141 F.3d at 1320 (citing Omeluk, 52 F.3d at 270).
a. Purposeful Availment
The purposeful availment requirement "ensures that a nonresident defendant will not be haled into local courts solely as the result of 'random, fortuitous or attenuated' contacts with the forum state." Panavision, 141 F.3d at 1320 (quoting Burger King, 471 U.S. at 475). A foreign act that is aimed at, and has effect in, the forum state satisfies the purposeful availment requirement. See Calder v. Jones, 465 U.S. 783, 788-89 (1984). To meet the effects test, courts must examine: (1) whether the defendant acted intentionally; (2) whether the defendant's actions were aimed at the forum state; and (3) whether the resulting action "caus[ed] harm, the brunt of which is suffered — and which the defendant knows is likely to be suffered — in the forum state." See Panavision, 141 F.3d at 1321. A foreign act is aimed at the forum state "when the defendant is alleged to have engaged in wrongful conduct targeted at a plaintiff whom the defendant knows to be a resident of the forum state." See Bancroft, 2000 Daily Journal D.A.R. at 9198.
In Bancroft, plaintiff Bancroft Masters, Inc. ("BM"), a seller of computer and networking products and services in California, sued defendant Augusta National, Inc. ("ANI"), the corporation operating the Augusta National Golf Club in Augusta, Georgia. See Bancroft, 2000 Daily Journal D.A.R. at 9198. ANI held a federally registered trademark for the mark "Masters" and operated a website found at "masters.org." Id. In 1995, BM properly registered the domain name "masters.com" with Network Solutions, Inc. (NSI). Id. According to BM, sometime in 1997, ANI sent a letter to NSI challenging BM's use of "masters.com." Id. ANI also sent a letter to BM in California demanding that BM cease and desist its use of "masters.com" and transfer it to ANI. Id. Under NSI's dispute resolution policy, triggered by ANI's letter, BM chose to file a declaratory relief action against ANI seeking a judgment declaring non-dilution and non-infringement. Id. Thereafter, the district court granted ANI's motion to dismiss for lack of personal jurisdiction. Id. The Bancroft court reversed, finding that the district court had specific jurisdiction. Id.
In reaching that decision, the Bancroft court found that BM had demonstrated purposeful availment by ANI. See Bancroft, 2000 Daily Journal D.A.R. at 9199. ANI acted intentionally when it sent the letter to NSI. Id. The letter was expressly aimed at California because it targeted BM, a California corporation doing business almost exclusively in California. Id. Finally, the letter's effects were primarily felt, as ANI knew they would be, in California. Id. The court reasoned that ANI was well-aware that BM currently held the "masters.com" name and that BM would be affected by NSI's dispute resolution procedures. Id.
Here, under the test enunciated in Bancroft, plaintiff has established purposeful availment by defendants. First, defendants acted intentionally when they entered into the joint merchandising agreement with plaintiff. In addition, plaintiff declares that at an August 1998 meeting with defendant Errol Skinner in plaintiff's office in California, Errol Skinner told Deborah Osburn, plaintiff's president, that the joint merchandising agreement would only succeed if plaintiff fired Mark Beach, its Home Center Operations Manager, and replaced him with Errol Skinner as plaintiff's exclusive marketing representative. See Deborah Osburn Decl. ¶ 3. Deborah Osburn agreed to this arrangement and acceded to defendant Errol Skinner's request that he receive the title of Vice President of Marketing for plaintiff. Id. at ¶ 3. Plaintiff agreed to compensate Banan Appeal for defendant Errol Skinner's services by providing materials to Banan Appeal and by reimbursing Banan Appeal for half of Errol Skinner's travel expenses. Id. at ¶ 3.
Second, the joint merchandising agreement was expressly aimed at California because it targeted plaintiff, which defendants knew was a California corporation doing business in California. Third, the effects of defendants' acts were primarily felt, as defendants knew they would be, in California. Defendants knew that plaintiff and its business would be affected by conduct taken by defendants under the joint merchandising agreement. Plaintiff has presented a prima facie case that the defendants' conduct in inducing plaintiff to place defendant Errol Skinner in the position of plaintiff's exclusive marketing agent and in selling "knock off" products to plaintiff's customers was pivotal to all of plaintiff's claims in this case, whether sounding in tort or contract. Therefore, under Bancroft, plaintiff has made a prima facie showing that defendant "engaged in wrongful conduct targeted at a plaintiff whom the defendant knows to be a resident of the forum state." Bancroft, 2000 Daily Journal D.A.R. at 9198. See also Data Disc, Inc. v.
Systems Technology Assoc., Inc., 557 F.2d 1280, 1287-88 (9th Cir. 1977) (in this action involving a contract, the court found that activities in California by defendant's employees after initial formation of the contract that were meant to facilitate the completion of the contract with plaintiff and to benefit defendant showed purposeful availment of the privilege of carrying out business in California.).
b. Forum-Related Activities
Specific jurisdiction only applies to claims arising out of the nonresident's forum-related activities.
In determining whether the claim arises out of the nonresident's forum-related activities, the proper test is whether the plaintiff would have suffered the alleged injuries but for defendant's forum-related activities. See Ballard, 65 F.3d at 1500.
Here, but for defendants' contacts with California, plaintiff would not have suffered the commercial injuries alleged in its complaint. Most likely, plaintiff would not have entered into a joint merchandising agreement with defendants had defendants not met with plaintiffs in California. Plaintiff would not have suffered its alleged injuries relating to that joint merchandising agreement had defendant Errol Skinner not become plaintiff's exclusive marketing agent, thereby enabling defendants to obtain confidential information about plaintiff's business and to disrupt plaintiff's commercial relationships with others. Therefore, plaintiff has demonstrated a prima facie case that its claims arise out of the defendants' forum-related activities.
c. Reasonableness
When a defendant has purposefully directed its activities, personal jurisdiction is presumptively reasonable. See Sher v. Johnson, 911 F.2d 1357, 1364 (9th Cir. 1990) (citing T.M. Hylwa M.D., Inc. v. Palka, 823 F.2d 310, 315 (9th Cir. 1987)). It is not enough that a defendant show that another forum is more reasonable; rather, a defendant must show a due process violation if it is forced to litigate the action in the chosen forum. Id. A flexible seven factor test is used to weigh reasonableness: (1) the extent of the defendant's purposeful interjection into the forum state; (2) the burden on defendant; (3) the plaintiff's interest in convenient and effective relief; (4) the most efficient forum for judicial resolution of the dispute; (5) the forum states' interest in adjudicating the dispute; (6) the existence of an alternative forum; (7) and the extent of conflicts of law with sovereignty of the defendant's state. See Roth v. Garcia Marquez, 942 F.2d 617, 623-24 (9th Cir. 1991).
Here, defendants have purposefully availed themselves of California such that personal jurisdiction is presumptively reasonable. In addition, the extent of defendants' interjection has been significant.
Although litigation in California would pose some inconvenience to defendants, they have failed to demonstrate that litigation of this case in California would be so unreasonable as to violate due process.
While many witnesses in this case are located in California and Georgia, there are just as many residing in other states. See Errol Skinner Decl. ¶ 27; see Donna Skinner Decl. ¶ 27. For those witnesses residing outside of California and Georgia, litigation in either forum would be similarly inconvenient. Plaintiff's interest in convenient and effective relief weighs in favor of California because plaintiff is a California corporation with its facilities and operations based in California. Therefore, Georgia would not be convenient for plaintiff. California has an interest in protecting its corporate citizens, such as plaintiff.
Therefore, plaintiff has demonstrated a prima facie case of reasonableness. See Data Disc, 557 F.2d at 1288 (reasonable because "California has an interest in providing a forum for companies doing business there and the actions of [defendant] did have an impact in California.").
Accordingly, plaintiff has established a prima facie case for all three prongs of specific jurisdiction.
Since the Court has specific jurisdiction over defendants, their motion to dismiss for lack of personal jurisdiction is denied.
B. Venue
When an action is removed from state court, venue is automatically proper in the federal district court located where the state action was pending. See 28 U.S.C. § 1441 (a); Polizzi v. Cowles Magazines, Inc., 345 U.S. 663, 665-66 (1953). By removing the case, defendants waived any objections to venue they might have had. See Seaboard Rice Milling Co. v. Chicago, R.I. P. Ry. Co., 270 U.S. 363, 367 (1926). Therefore, defendants' motion to dismiss for improper venue is denied.
C. Transfer for Convenience of Parties and Witnesses
"For the convenience of the parties, witnesses, and in the interest of justice," a court may transfer an action "to any other district or division where it might have been brought." See 28 U.S.C. § 1404(a).
The plaintiff's initial choice of forum is entitled to significant weight and transfer should not be ordered unless convenience and justice considerations strongly favor venue elsewhere. See Securities Investor Protection Corp. v. Vigman, 764 F.2d 1309, 1317 (9th Cir. 1985).
Here, considerations of convenience and justice do not strongly favor transfer of this action to the United States District Court for the Northern District of Georgia, Atlanta Division. Defendants argue that many witnesses reside in Georgia and that the remainder reside in other Southeastern states. See Errol Skinner Decl. ¶ 27; see Donna Skinner Decl. ¶ 27. However, there are clearly many witnesses residing in California as well as in states other than Georgia. See Deborah Osburn Decl. ¶ 8; see Mark Beach Decl. ¶ 8; see Ralph Logan Decl. ¶ 1; see Alan Vigil Decl. ¶ 5; see Juan Carlos Ugas Decl. ¶ 6; see Errol Skinner Decl. ¶ 27; see Donna Skinner Decl. ¶ 27. Transfer would merely succeed in shifting the inconvenience from the defendants to the plaintiff and would not result in a forum in which the majority of witnesses are located. Further, the interests of justice do not require transfer of this case. California has a greater interest than Georgia in providing a forum for this California plaintiff for its suit asserting California state law claims regarding activities that took place in California. Therefore, defendants' alternative motion to transfer of this action to the United States District Court for the Northern District of Georgia is denied.
D. Service of Process
Federal Rule of Civil Procedure, Rule 4, governs service of process. The provisions of Rule 4 delineating the manner of service are construed liberally to uphold service. See Crane v. Battelle, 127 F.R.D. 174, 177 (S.D.Cal. 1989). Service on individual defendants may be effected by personal service or by service in accordance with the law of the state in which the district court is located. See Fed.R.Civ.P. 4(e)(1) and 4(e)(2). According to the California Code of Civil Procedure, service methods include personal service or substituted service, that is, leaving the summons with a competent individual at the defendant's address and mailing a copy of the summons and complaint by first class mail, postage prepaid, to the defendant's address. See Cal. Civ. Proc. Code §§ 415.10, 415.20 (West 1973 Supp. 2000).
Service on a corporation can be completed by delivering the summons and complaint to an officer of the corporation. See Cal. Code Civ. Proc. § 416.10 (West 1973 Supp 2000).
Even if the defendant receives actual notice, the manner of service of process must substantially comply with Rule 4 requirements. See Crane, 127 F.R.D. at 177. In exercising its discretion under Rule 4, "a court may consider whether the plaintiff's error resulted from innocent mistake or inexcusable neglect." Id. at 177-78. While a process server's return of process is generally accepted as prima facie evidence of how service was effected, that presumption can be overcome by strong and convincing evidence. See O'Brien v. R.J. O'Brien Assoc., Inc., 998 F.2d 1394, 1398.
Here, plaintiff hired an agency to personally serve defendants in Georgia. The process server employed by that agency returned signed proofs of service indicating that service on all defendants had been completed. See Scott A. Bonzell Decl., Ex. M. According to the proofs of service, defendant Donna Skinner was personally served in her individual capacity, and the business entities, defendants Banan Appeal and Swede, Inc., were served by delivering a copy of the summons and complaint to defendant Donna Skinner as an officer of the companies. Id. Defendant Errol Skinner was served by substituted service, that is, the summons and complaint were left with defendant Donna Skinner as the person apparently in charge and a copy was thereafter mailed by first class mail to defendant Errol Skinner. Id.
Defendants contend in declarations that they were never personally served. See Errol Skinner Decl. ¶ 35; see Donna Skinner Decl. ¶ 35. Defendants also contend that the proofs of service are false, in that they state that personal service was made to an incorrect address. See Errol Skinner Decl. ¶ 33; see Donna Skinner Decl. ¶ 33.
While the apparently incorrect address on the proofs of service is troubling, plaintiff is in substantial compliance with Rule 4. Since plaintiff's counsel, Scott A. Bonzell (Bonzell), hired an agency of process servers and obtained the proofs of service from the agency, he relied on the accuracy of the proofs of service. See Scott A. Bonzell Supplemental Decl. re. Service or Process ¶ 4. When Bonzell learned of defendants' allegations regarding improper service, he contacted the agency. Id. at ¶ 2. On two occasions, Bonzell attempted, through the agency, to reach the process server to secure his declaration for this case, but he was unable to obtain any contact information for the process server, who was no longer employed there. Id. at ¶¶ 2, 3. Bonzell ultimately re-served defendants in accordance with California Code of Civil Procedure section 415.40 by first-class mail, return receipt. Id. Service was deemed complete on June 16, 2000. Id.
The court docket does not reflect that these proofs of service were filed. Plaintiff's counsel is ordered to file the proofs of service with the court.
Plaintiff's alleged error in service resulted from mistake rather than inexcusable neglect. While a better practice would have been to properly re-serve the summons and complaint when plaintiff first learned of a potential service problem, defendants have not claimed prejudice from plaintiff's innocent mistake.
Defendants have failed to present strong and convincing evidence to rebut the presumption raised by the proofs of service that the defendants were properly served in this case. Further, defendants received notice of plaintiff's complaint when copies were mailed in January 2000. See Errol Skinner Decl. ¶ 33; see Donna Skinner Decl. ¶ 33.
Plaintiff substantially complied with Rule 4 and its mistake regarding service was most likely innocent. Further, defendants have not demonstrated prejudice. Therefore, defendants' motion to dismiss for insufficient service of process under Rule 12(b)(5) is denied.
III. CONCLUSION
For the foregoing reasons, defendants' motion to dismiss for lack of personal jurisdiction, improper venue, insufficient service of process, or, in the alternative, to transfer for convenience of parties and witnesses (Docket No. 12) is DENIED.
IV. CASE MANAGEMENT CONFERENCE
Pursuant to Federal Rule of Civil Procedure, Rule 16 and Civil L.R. 16-14, a Case Management Conference will be held in this case on October 10, 2000 at 10:00 a.m. in Courtroom E, 15th Floor, 450 Golden Gate Avenue, San Francisco, CA 94102. This conference shall be attended by lead trial counsel for all parties. No later than October 2, 2000, the parties shall file a joint Case Management Statement and fax a copy to chambers at (415) 522-2002. The proposed schedule should provide for rapid progress of this case to disposition by trial or otherwise.
IT IS SO ORDERED.