Fundamental Innovation Systems International LLC v. ZTE Corporation et al

RESPONSE

N.D. Tex.September 8, 2017

IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION FUNDAMENTAL INNOVATION SYSTEMS INTERNATIONAL, LLC, Plaintiff, v. ZTE CORPORATION, ZTE (USA), INC. and ZTE (TX), INC., Defendants. Case No. 3:17-cv-01827-N PLAINTIFF’S OPPOSITION TO ZTE CORPORATION’S MOTION TO DISMISS FOR IMPROPER SERVICE Case 3:17-cv-01827-N Document 68 Filed 09/08/17 Page 1 of 26 PageID 490 i TABLE OF CONTENTS Page INTRODUCTION ...........................................................................................................................1 PROCEDURAL HISTORY.............................................................................................................2 LEGAL STANDARD ......................................................................................................................3 A. The Texas Long-Arm Statute Permits Service on a Foreign Corporation Through Its Domestic Subsidiary ............................................................................3 B. The Court May Permit Service by “Other Means” ..................................................5 ARGUMENT ...................................................................................................................................6 I. ZTEC MAY BE SERVED THROUGH ZTE (USA) ..........................................................6 A. ZTE (USA) Is ZTEC’s Alter Ego in the United States ............................................6 B. ZTEC’s Analysis Fails To Consider the Totality of the Circumstances ................10 C. At Least Two Courts Have Found That ZTE (USA) Is ZTEC’s Alter Ego ..........12 II. IF SERVICE ON ZTEC IS DEEMED INSUFFICIENT, THE COURT SHOULD PERMIT ALTERNATIVE SERVICE ..............................................................................15 A. Service on Defendants’ Attorneys .........................................................................16 B. Service on ZTE (USA)...........................................................................................17 III. FISI’S PROPOSED ALTERNATIVE SERVICE UNDER RULE 4(F)(3) ......................18 CONCLUSION ..............................................................................................................................19 Case 3:17-cv-01827-N Document 68 Filed 09/08/17 Page 2 of 26 PageID 491 ii TABLE OF AUTHORITIES Page Cases Affinity Labs of Texas, LLC v. Nissan N. Am. Inc., No. 13-cv-369, 2014 WL 11342502 (W.D. Tex. July 2, 2014) ..........................5,6,15,16,17,18 Akerblom v. Ezra Holdings Ltd., 848 F. Supp. 2d 673 (S.D. Tex. 2012) .....................................................................................11 Arroyo v. Oprona, Inc., Civ. No. H-16-852, 2016 WL 8607594 (S.D. Tex. Dec. 30, 2016) .........................................11 Berry v. Lee, 428 F. Supp. 2d 546 (N.D. Tex. 2006) ..............................................................................4,8,10 Bridas S.A.P.I.C. v. Gov’t of Turkmenistan, 345 F.3d 347 (5th Cir. 2003) ................................................................................................5,10 Carrico v. Samsung Elecs. Co., Ltd., No. 15-cv-02087-DMR, 2016 WL 2654392 (N.D. Cal. May 10, 2016) ............................16,17 Commercial Union Ins. Co. v. Alitalia Airlines S.p.A., 347 F.3d 448 (2d Cir. 2003).......................................................................................................5 Compass Bank v. Kieve, Civ. No. L-12-46, 2012 WL 12895414 (S.D. Tex. Dec. 10, 2012) ...........................................5 Davies v. Jobs & Adverts Online, Gmbh, 94 F. Supp. 2d 719 (E.D. Va., 2000) .......................................................................................13 EsNtion Records, Inc. v. JonesTM, Inc., No. 3:07-CV-2027-L, 2008 WL 2415977 (N.D. Tex. June 16, 2008) ......................................4 Gramercy Ins. Co. v. Kavanagh, No. 3:10-CV-1254-D, 2011 WL 1791241 (N.D. Tex. May 10, 2011) .................................5,6 Guardian Royal Exch. Assurance, Ltd. v. English China Clays, P.L.C., 815 S.W.2d 223 (Tex. 1991) ......................................................................................................3 Gundle Lining Const. Corp. v. Adams County Asphalt, Inc., 85 F.3d 201 (5th Cir. 1996) .........................................................................................4,5,7,8,10 Hargrave v. Fibreboard Corp., 710 F.2d 1154 (5th Cir. 1983) ..............................................................................................4,10 Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408 (1984) ...................................................................................................................3 Jin Mi Ryung v. TJ Media USA, Inc., No. 13-cv-4935, 2014 WL 631074 (N.D. Cal. Feb. 18, 2014) ................................................18 Case 3:17-cv-01827-N Document 68 Filed 09/08/17 Page 3 of 26 PageID 492 iii Knit With v. Knitting Fever, Inc., Nos. 08-cv-4221, 08-cv-4775, 2010 WL 4977944 (E.D. Pa. Dec. 7, 2010).......................16,17 Lisson v. ING Groep N.V., 262 F. Appx. 567 (5th Cir. 2007)...............................................................................4,5,7,10,12 MLR, LLC v. ZTE Corp., No. 1:09-cv-1023 (E.D. Va.) ..............................................................................................13,14 Moki Mac River Expeditions v. Drugg, 221 S.W.3d 569 (Tex. 2007) ......................................................................................................3 Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306 (1950) ...................................................................................................................5 NTCH-WA, Inc. v. ZTE Corp., No. 12-CV-3110-TOR, 2013 WL 11730654 (E.D. Wa. Jan. 14, 2013) ...............................9,14 Nuance Commc’ns, Inc. v. Abbyy Software House, 626 F.3d 1222 (Fed. Cir. 2010)..................................................................................................6 Paradigm Entertainment, Inc. v. Video Sys. Co., Ltd., No. 99-cv-2004, 2000 WL 251731 (N.D. Tex. Mar. 3, 2000) .................................................11 Rio Props., Inc. v. Rio Int’l Interlink, 284 F.3d 1007 (9th Cir. 2002) ...........................................................................................5,6,16 RPost Holdings, Inc. v. Kagan, No. 2:11-cv-238-JRG, 2012 WL 194388 (E.D. Tex. Jan. 23, 2012) .........................................5 Sheets v. Yamaha Motors Corp., U.S.A., 891 F.2d 533 (5th Cir. 1990) .....................................................................................................4 Shinde v. Nithyananda Foundation, No. 13-cv-00363-JGB, 2014 WL 12597121 (C.D. Cal. Aug. 25, 2014) .................................16 Stream SICAV v. Wang, 989 F. Supp. 2d 264 (S.D.N.Y. Oct. 7, 2013) ..........................................................................17 U.S.A. v. ZTE Corp., No. 3:17-cr-120 (N.D. Tex.) ......................................................................................................8 Volkswagenwerk Aktiengesellschaft v. Schlunk, 486 U.S. 694 (1988) .........................................................................................................3,10,17 Williams v. eAdGear Holdings USA, Inc., No. SA-13-CA-125-OLG, 2014 WL 12561661 (W.D. Tex. Jan. 7, 2014) ........................11,12 Rules Fed. R. Civ. P. 4(e). .........................................................................................................................3 Fed. R. Civ. P. 4(f). ...............................................................................................................3,5,6,15 Case 3:17-cv-01827-N Document 68 Filed 09/08/17 Page 4 of 26 PageID 493 iv Fed. R. Civ. P. 4(h). .........................................................................................................................3 Case 3:17-cv-01827-N Document 68 Filed 09/08/17 Page 5 of 26 PageID 494 1 INTRODUCTION Plaintiff Fundamental Innovation Systems International, LLC (“FISI” or “Plaintiff”) hereby submits its opposition to Defendant ZTE Corporation (“ZTEC”)’s Motion to Dismiss for Improper Service. FISI filed its complaint in this case against ZTEC, ZTE (USA), and ZTE (TX) (collectively, “ZTE” or “Defendants”) based on their infringement of FISI’s patents relating to charging of mobile devices via USB connections. FISI directly served the U.S.-based Defendants, ZTE (USA), Inc. and ZTE (TX), Inc., which are wholly-own subsidiaries of ZTEC and authorized sellers of infringing consumer electronics and mobile devices under the ZTE brand. ZTE (USA) and ZTE (TX) have not challenged the sufficiency of that service. ZTEC is based in China, and was served on or about May 15, 2017 through ZTE (USA). Publicly available information demonstrates that ZTE (USA) is ZTEC’s alter ego to conduct business in the United States. ZTE (USA) and ZTEC share officers and executives, attorneys, websites and social media accounts, and ZTEC has used ZTE (USA)’s employees and assets and frequently represented ZTE (USA)’s facilities and operations as its own. Although ZTEC argues that ZTEC and ZTE (USA) observe corporate formalities and maintain separate offices and accounts, the Fifth Circuit has cautioned that these factors, by themselves, are not determinative. Indeed, ZTEC made the same arguments before two different courts in attempts to quash service effected through ZTE (USA) and both of those courts rejected ZTEC’s arguments, finding that ZTE (USA) serves as ZTEC’s domestic agent for service of process. FISI is also working to effect service through the Hague Convention procedures, however, those procedures will likely take at least 18 months to be completed. FISI should not be forced to endure such an unreasonable delay before pursuing its claims-particularly when there is no procedural barrier to proceeding against ZTE (USA) and ZTE (TX). Federal Rule of Case 3:17-cv-01827-N Document 68 Filed 09/08/17 Page 6 of 26 PageID 495 2 Civil Procedure 4(f)(3) authorizes this Court to order alternative service of process on foreign defendants-particularly when service under the Hague Convention would unnecessarily add delay and expense to the case. Federal courts, including courts in this district, have ordered that service of process through a defendant’s legal counsel and/or domestic subsidiary are both appropriate alternatives. Accordingly, in the event that the Court concludes that service on ZTEC through ZTE (USA) is not permitted under other provisions of Texas and federal law, FISI respectfully seeks that same relief here. PROCEDURAL HISTORY FISI filed its complaint of patent infringement against Defendants on February 13, 2017, in the Eastern District of Texas. See Dkt. 1. After confirming that ZTEC would not agree to waive service, FISI engaged a foreign process server to serve ZTEC through the Hague Convention procedures. A copy of the Summons, Complaint, and other required documents, along with Chinese translations thereof, were forwarded to the Central Authority of China for service upon ZTEC on May 3, 2017. See Declaration of Celeste Ingalls (“Ingalls Decl.”) ¶ 8. To date, FISI has not received confirmation of service, and the Central Authority in China does not provide a means for querying the status of a service request. Id. ¶ 9. In parallel with its attempts to serve ZTEC through the Hague Convention, FISI also effected service on ZTEC through its domestic agent in Texas, ZTE (USA), as permitted under controlling Supreme Court and Fifth Circuit law. On May 15, 2017, a copy of the Amended Complaint, civil cover sheet, and summons were served upon ZTE (USA). See Dkt. 29. ZTEC, however, did not file an answer during the time allotted under the Federal Rules. During subsequent discussions, counsel for Defendants indicated that they intended to dispute the sufficiency of service on ZTEC. Thereafter, on August 18, 2017, ZTEC filed the instant motion. Case 3:17-cv-01827-N Document 68 Filed 09/08/17 Page 7 of 26 PageID 496 3 LEGAL STANDARD Service of process on a corporation is governed by Federal Rule of Civil Procedure 4(h). If served within the United States, a corporation may be served “in the manner prescribed by Rule 4(e)(1) for serving an individual.” Fed. R. Civ. P. 4(h)(1)(A). Rule 4(e)(1) permits service “following state law for serving a summons in an action brought in courts of general jurisdiction in the state where the district court is located or where service is made.” Fed. R. Civ. P. 4(e)(1). Service of foreign corporations is governed by Federal Rule of Civil Procedure 4(f). See Fed. R. Civ. P. 4(h)(2). Under Rule 4(f), foreign service can be accomplished by any one of three methods: “(1) by any internationally agreed means of service that is reasonably calculated to give notice, such as those authorized by the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents; (2) if there is no internationally agreed means, … as prescribed by the foreign country’s law for service in that country … or (3) by other means not prohibited by international agreement, as the court orders.” Fed. R. Civ. P. 4(f)(1)-(3). A. The Texas Long-Arm Statute Permits Service on a Foreign Corporation Through Its Domestic Subsidiary In Volkswagenwerk Aktiengesellschaft v. Schlunk, the Supreme Court held that when permitted by a state’s long-arm statute, service on a foreign corporation may be effected by serving its domestic subsidiary, without following the Hague Convention procedures. 486 U.S. 694, 707 (1988) (“Where service on a domestic agent is valid and complete under both state law and the Due Process Clause, our inquiry ends and the Convention has no further implications.”).1 1 Schlunk applied the Illinois long-arm statute, but courts have recognized that the Texas long-arm statute “reach[es] as far as the federal constitutional requirements of due process will allow.” Moki Mac River Expeditions v. Drugg, 221 S.W.3d 569, 575 (Tex. 2007) (quoting Guardian Royal Exch. Assurance, Ltd. v. English China Clays, P.L.C., 815 S.W.2d 223, 226 (Tex. 1991)); see also Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 413 (1984) (recognizing that the Texas “long-arm statute reaches as far as the Due Process Clause of the Fourteenth Amendment permits”). Case 3:17-cv-01827-N Document 68 Filed 09/08/17 Page 8 of 26 PageID 497 4 Consequently, the Fifth Circuit has recognized that “even if a domestic subsidiary is not explicitly authorized by its foreign parent corporation as an agent for service, the subsidiary might still be capable of receiving such service.” Lisson v. ING Groep N.V., 262 F. Appx. 567, 570 (5th Cir. 2007). “[A]s long as a foreign corporation exercises such control over the domestic subsidiary that the two entities are essentially one, process can be served on a foreign corporation by serving its domestic subsidiary-without sending documents abroad.” Id. (quoting Sheets v. Yamaha Motors Corp., U.S.A., 891 F.2d 533, 536 (5th Cir. 1990)). In determining whether service on a foreign corporation may be effected through its domestic subsidiary, courts in this District have examined whether the foreign corporation is “an alter ego” of its domestic subsidiary, or whether the two operate as a “single business enterprise.” Berry v. Lee, 428 F. Supp. 2d 546, 554 (N.D. Tex. 2006); see also EsNtion Records, Inc. v. JonesTM, Inc., No. 3:07-CV-2027-L, 2008 WL 2415977, at *4-*6 (N.D. Tex. June 16, 2008). Both inquiries examine similar non-exhaustive factors for indications whether the foreign corporation and its domestic subsidiary are distinct entities, including the following: daily operations of the corporations are separate; formal barriers are erected between management of the companies; those with whom the corporations come in contact are apprised of their separate identity; there are separate books and accounts; and there are separate tax returns. Conversely, factors weighing in favor of fusing the corporations and/or individuals include the following: common business names, business departments, offices, directors or officers, employees, stock ownership, financing, accounting, and payment of wages by one corporation to another corporation's employees and the rendering of services by employees of one corporation on behalf of another corporation. Berry, 428 F. Supp. 2d at 554.2 The Fifth Circuit has also stated that “the fact that [] two companies share substantially the same name, the same counsel at trial and on appeal, and the 2 ZTEC cites Hargrave v. Fibreboard Corp., 710 F.2d 1154, 1160 (5th Cir. 1983), as establishing five exhaustive factors governing the alter ego determination. See Mot. at 7. But the Fifth Circuit has examined the alter ego standard numerous times since Hargrave, and has identified many other factors relevant to the determination. See, e.g., Gundle Lining Const. Case 3:17-cv-01827-N Document 68 Filed 09/08/17 Page 9 of 26 PageID 498 5 same internet site, strongly suggests a connection” permitting service on the domestic subsidiary. Lisson, 262 F. Appx. at 570 (quoting Commercial Union Ins. Co. v. Alitalia Airlines S.p.A., 347 F.3d 448, 469 (2d Cir. 2003)). The final determination must consider “the totality of the circumstances in which the instrumentality functions. … No single factor is determinative.” Bridas S.A.P.I.C. v. Gov’t of Turkmenistan, 345 F.3d 347, 359-60 (5th Cir. 2003). B. The Court May Permit Service by “Other Means” “Rule 4(f)(3) provides for service at the court’s direction when not prohibited by international agreement.” Gramercy Ins. Co. v. Kavanagh, No. 3:10-CV-1254-D, 2011 WL 1791241, at *1 (N.D. Tex. May 10, 2011). Courts can order service under Rule 4(f)(3) through a variety of methods, “including publication, ordinary mail, mail to the defendant’s last known address, delivery to the defendant’s attorney, telex, and most recently, email.” Rio Props., Inc. v. Rio Int’l Interlink, 284 F.3d 1007, 1016 (9th Cir. 2002).3 The Court can also allow multiple forms of alternative service at once. See id. at 1017. “Courts have broad discretion in ordering service under Rule 4(f)(3) so long as the service is consistent with the due process requirements of reasonable notice and an opportunity to be heard.” Gramercy, 2011 WL 1791241 at *1 (citing Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950)); see also Rio Props.. 284 F.3d at 1016. Corp. v. Adams County Asphalt, Inc., 85 F.3d 201, 208-09 (5th Cir. 1996) (identifying twelve factors to “be used when determining whether a subsidiary is the alter ego of the parent”); Bridas S.A.P.I.C. v. Gov’t of Turkmenistan, 345 F.3d 347, 359 (5th Cir. 2003) (noting the “extensive list of circumstances that courts have developed to guide alter ego determinations” and collecting cases). 3 Federal courts in this state have consistently adopted the Ninth Circuit’s holding in Rio Properties in determining that alternative service on foreign defendants pursuant to Rule 4(f)(3) is proper. See, e.g., RPost Holdings, Inc. v. Kagan, No. 2:11-cv-238-JRG, 2012 WL 194388, at *2-*3 (E.D. Tex. Jan. 23, 2012); Compass Bank v. Kieve, Civ. No. L-12-46, 2012 WL 12895414, at *3-*4 (S.D. Tex. Dec. 10, 2012); Affinity Labs of Texas, LLC v. Nissan N. Am. Inc., No. 13-cv- 369, 2014 WL 11342502, at *2-*4 (W.D. Tex. July 2, 2014). Case 3:17-cv-01827-N Document 68 Filed 09/08/17 Page 10 of 26 PageID 499 6 “[S]ervice of process under Rule 4(f)(3) is neither a ‘last resort’ nor ‘extraordinary relief.’” Rio Props., 284 F.3d at 1015. Instead, “[i]t is merely one means among several which enables service of process on an international defendant.” Id. There is therefore no “hierarchy of preferred means of service” under Rule 4(f), and “service ordered pursuant to Rule 4(f)(3) is as favored as service available under other subparts.” Gramercy, 2011 WL 1791241, at *1. A plaintiff need not “attempt to effect service under Rule 4(f)(1) or Rule 4(f)(2) prior to requesting the authorization of an alternative method of service pursuant to Rule 4(f)(3).” Affinity Labs of Texas, LLC v. Nissan N. Am. Inc., No. 13-cv-369, 2014 WL 11342502, at *1 (W.D. Tex. July 2, 2014). This is all the more applicable where a state signatory to the Hague Convention is not cooperating with foreign service. Nuance Commc’ns, Inc. v. Abbyy Software House, 626 F.3d 1222, 1239 (Fed. Cir. 2010). ARGUMENT I. ZTEC MAY BE SERVED THROUGH ZTE (USA) There is no dispute that ZTE (USA) is a wholly owned subsidiary of ZTEC. See Dkt. 53- 2 ¶ 4. Nor does ZTEC contend that FISI’s manner of service upon ZTE (USA) was itself defective. The only dispute raised by ZTEC is whether ZTE (USA) is legally capable of receiving service on behalf of ZTEC. If so, then service upon ZTEC was valid and complete when FISI effected service on ZTE (USA) as ZTEC’s domestic agent and alter ego, and service through the Hague Convention or alternative means is not required. A. ZTE (USA) Is ZTEC’s Alter Ego in the United States Ample evidence exists demonstrating that ZTE (USA) is an alter ego entity that conducts ZTEC’s business in the U.S. As an initial matter, ZTEC and ZTE share substantially similar company names, retain common legal counsel, and share control over certain websites-all facts which the Fifth Circuit has stated “strongly suggest[] a connection” for the purposes of service Case 3:17-cv-01827-N Document 68 Filed 09/08/17 Page 11 of 26 PageID 500 7 on a foreign corporation via its domestic subsidiary. Lisson, 262 F. Appx. at 570. “ZTE Corporation” and “ZTE (USA)” share the “ZTE” brand name, and Defendants’ publications frequently refer to both entities (individually and collectively) as simply “ZTE.” See, e.g., Hagiz Decl. Ex. 1 (ZTE (USA) press release); id. Ex. 2 (ZTEC press clipping).4 ZTEC and ZTE (USA) have also retained common legal counsel, both in this matter and in others. See Dkts. 60-65 (appearances of counsel on behalf of all Defendants); Hagiz Decl. Ex. 3 (granting Power of Attorney to Pillsbury Winthrop Shaw Pittman on behalf of ZTEC and ZTE (USA) in a patent office proceeding). ZTEC and ZTE (USA) also appear to jointly maintain the website www.ztedevice.com and affiliated sites. For example, www.ztedevice.com states it is copyright ZTEC (see Hagiz Decl. Ex. 4), but following links to social media accounts from the website automatically redirects users to pages maintained by ZTE (USA) (see Hagiz Decl. Ex. 5). ZTEC and ZTE (USA) also exhibit other factors that courts in this Circuit consider in determining whether service may be made on a domestic subsidiary. For example, ZTEC and ZTE (USA) share at least two officers: Lixin Cheng, the CEO and Chairman of ZTE (USA), also serves as CEO of ZTEC’s Mobile Devices unit (see Hagiz Decl. Ex. 6)5; and Matthew Bell, Chief Compliance Officer at ZTE (USA), also serves as Chief Export Compliance Officer for ZTEC (see Hagiz Decl. Ex. 7). In fact, the Capital IQ Report for ZTE (USA), which ZTEC cites in its Motion, identifies Mr. Bell and Mr. Cheng as the only “Key Executives” at ZTE (USA). Compare Dkt. 53-4 at 4 (Capital IQ Report listing executives for ZTE (USA)), with Dkt 53-3 at 8 (Capital IQ Report listing executives for ZTEC); see also Gundle, 85 F.3d at 208 (listing as an 4 “Hagiz Decl. Ex. __” refers to the exhibits annexed to the Declaration of Ron Hagiz in Support of Plaintiff’s Opposition to ZTE Corporation’s Motion to Dismiss, filed concurrently herewith. 5 According to his LinkedIn profile, Mr. Cheng was appointed as CEO Mobile Devices in April 2017. However, before that, he also served as Senior Vice President of ZTEC for North America. Id. Case 3:17-cv-01827-N Document 68 Filed 09/08/17 Page 12 of 26 PageID 501 8 alter ego factor that “the parent and the subsidiary have common directors or officers”). ZTEC has also pledged ZTE (USA)’s assets in connection with its own debts. For example, ZTEC was recently charged in this District with unlawfully exporting U.S. goods to Iran and obstructing a corresponding Department of Justice investigation. See generally U.S.A. v. ZTE Corp., No. 3:17- cr-120 (N.D. Tex.). As part of ZTEC’s plea agreement, it agreed to forfeit “any assets of its U.S. subsidiary, ZTE USA, Inc.” in the event that ZTEC did not satisfy the money judgment entered against it. Hagiz Decl. Ex. 8, at ¶ 13(c). No ZTE (USA) representative executed the agreement-ZTEC unilaterally bound ZTE (USA).6 Id. at 15; see also Gundle, 85 F.3d at 208 (listing as an alter ego factor that “the parent uses the subsidiaries property as its own”). And ZTE (USA) represents and performs work on behalf of ZTEC. See id. at 209 (listing as an alter ego factor that “the daily operations of the two corporations are not kept separate”); Berry, 428 F. Supp. 2d at 554 (“rendering of services by employees of one corporation on behalf of another corporation”). For example, J. Ray Wood, ZTE (USA)’s Chief Patent Counsel, issued a power of attorney on behalf of both ZTEC and ZTE (USA) in connection with a patent office proceeding. See Hagiz Decl. Ex. 3. ZTE (USA) has also initiated trademark opposition proceedings to challenge proposed marks that may cause confusion with ZTEC’s registered marks. See Hagiz Decl. Ex 10. ZTEC also frequently characterizes ZTE (USA)’s business operations as its own. See Berry, 428 F. Supp. 2d at 554 (listing as an alter ego factor whether “those with whom the corporations come in contact are apprised of their separate identity”). For example, in testimony presented to Congress in 2012, Zhu Jinyun, ZTEC’s then-SVP for North America and Europe, 6 In addition, the FBI’s investigation of ZTEC’s illegal activities included extensive investigation of ZTE (USA), its facilities, its documents and records, and its managers. See Hagiz Decl. Ex. 9, at ¶ 57. Case 3:17-cv-01827-N Document 68 Filed 09/08/17 Page 13 of 26 PageID 502 9 stressed ZTEC’s “focus[] on its success as a multinational company” and noted that ZTEC “operat[es] in 140 countries,” including the United States. Hagiz Decl. Ex. 11, at 1. ZTEC’s representative also stated that ZTEC’s “ultimate success depends on [its] ability to serve as a trusted partner for US telecom carries.” Id. at 6. The testimony makes no reference to ZTE (USA), despite the fact that ZTE (USA), in fact, carries out ZTEC’s operations in the United States. See also NTCH-WA, Inc. v. ZTE Corp., No. 12-CV-3110-TOR, 2013 WL 11730654, at *2 (E.D. Wa. Jan. 14, 2013) (finding that ZTEC’s Congressional testimony represented that “ZTE USA is essentially the conduit through which ZTE Corp. sells its commercial telecommunications equipment in the United States”). ZTEC similarly refers to ZTE (USA)’s partnerships with other companies and organizations in the United States as ZTEC’s own partnerships. For example, in 2014, a ZTE (USA) press release announced that ZTE (USA) had become “the official smartphone sponsor of the New York Knicks, Houston Rockets and Golden State Warriors.” Hagiz Decl. Ex. 1. ZTEC subsequently issued a similar press release, stating that “China’s ZTE Corp announced a deal … with the New York Knicks to become the pro basketball team’s smartphone sponsor.” Hagiz Decl. Ex. 12 (emphasis added). ZTE (USA)’s domestic offices have also historically displayed ZTEC’s logo on the walls, see, e.g., Hagiz Decl. Ex. 13, and ZTE (USA)’s website prominently features and makes use of ZTEC’s registered trademarks. See Hagiz Decl. Ex. 14 (screen grab of ZTE (USA) website); id. Ex. 15 (ZTEC trademark information). As shown above, substantial evidence exists demonstrating the alter ego relationship between ZTEC and ZTE (USA), satisfying many of the factors commonly considering by courts in this District and Circuit. Under a totality of the circumstances approach, the Court may properly find that ZTE (USA) acts as ZTEC’s alter ego in the United States, and may be served Case 3:17-cv-01827-N Document 68 Filed 09/08/17 Page 14 of 26 PageID 503 10 with process on behalf of ZTEC. See Schlunk, 486 U.S.at 707; Lisson, 262 F. Appx. at 570; Berry, 428 F. Supp. 2d at 554. B. ZTEC’s Analysis Fails To Consider the Totality of the Circumstances ZTEC’s Motion does not consider all factors relevant to the alter ego analysis under a “totality of the circumstances” approach, as required by Fifth Circuit law. See Bridas, 345 F.3d at 359-360; Gundle, 85 F.3d at 209. Instead, ZTEC focuses on a subset of non-exhaustive factors articulated in Hargrave-specifically, whether the foreign corporation and the domestic subsidiary maintain separate facilities and accounting systems-to the exclusion of all other indicators of an alter ego relationship. See Mot. at 7. But the Fifth Circuit has expressly cautioned against that approach in Bridas: “The district court erred in premising its conclusion solely upon the existence of corporate formalities and an absence of comingling of funds and directors. Alter ego determinations are highly fact-based, and require considering the totality of the circumstances in which the instrumentality functions. No single factor is determinative.” 345 F.3d at 359-60 (emphasis added) (internal citations omitted). Accordingly, it would be reversible error to consider only whether ZTEC and ZTE (USA) share facilities, employees, and accounting systems, to the exclusion of other relevant evidence, in deciding whether ZTEC exercises sufficient control over ZTE (USA) to warrant service on ZTEC through ZTE (USA).7 7 ZTEC’s motion is also incorrect on the facts. For example, as noted above, ZTEC and ZTE (USA) do not have wholly distinct leadership. The two “Key Executives” at ZTE (USA)- Lixin Cheng and Matthew Bell-are also officers at ZTEC. Compare Dkt. 53-4 at 4, with Dkt 53-3 at 8; see also supra p. 7. ZTEC’s unilateral agreement to pledge ZTE (USA)’s assets as part of its plea agreement with the U.S. Attorney’s Office and the Department of Justice similarly indicates that the companies’ property and accounts are not truly separate. See Hagiz Decl. Ex. 8, at ¶ 13(c); see also supra p. 7. ZTEC’s use of ZTE (USA) to represent it before the U.S. Patent & Trademark Office, and ZTEC’s representation of ZTE (USA)’s operations as its own, see supra pp. 8-9, both further suggest that the companies frequently do not observe corporate formalities. Case 3:17-cv-01827-N Document 68 Filed 09/08/17 Page 15 of 26 PageID 504 11 The cases cited by ZTEC do not warrant a contrary outcome. For example, in Paradigm Entertainment, Inc. v. Video Sys. Co., Ltd., the Court found that service on a domestic subsidiary was insufficient because the plaintiff did not offer any evidence to show that the parent corporation exercised sufficient control over its subsidiary. No. 99-cv-2004, 2000 WL 251731, at *3 (N.D. Tex. Mar. 3, 2000). Indeed, the Court’s opinion does not indicate that the plaintiff presented any evidence that the foreign parent controlled the operations of its domestic subsidiary, beyond the mere fact of the parent-subsidiary relationship between the companies. Id. The Court did not, as ZTEC suggests, hold that the existence of separate offices and employees was sufficient to rebut an alter ego relationship in the face of other evidence.8 Arroyo v. Oprona, Inc., is similarly inapposite because the companies at issue in that case did not have a parent-subsidiary relationship at all-rather, they were sister corporations, and neither company exercised control over the other. Civ. No. H-16-852, 2016 WL 8607594, at *5 (S.D. Tex. Dec. 30, 2016). In Akerblom v. Ezra Holdings Ltd., the Southern District of Texas found that the plaintiff’s allegations were largely unsupported conclusory allegations, and did not find jurisdiction on that basis-not because the plaintiff had failed to establish complete control of the subsidiary’s day-to-day operations by the parent corporation. E.g., 848 F. Supp. 2d 673, 683 (S.D. Tex. 2012) (“Akerblom's conclusory allegations concerning the activities of a non-existent entity are insufficient to make a prima facie showing of personal jurisdiction.”); id. at 690 (“Akerblom has not provided evidence that Emas Subsea has worked as an agent for EHL, Ezra Energy, and Emas Offshore.”). Finally, in Williams v. eAdGear Holdings USA, Inc., the Court 8 ZTEC contends that Paradigm also holds that “it is appropriate to look at each company’s stated business activities and objectives” to determine the level of control between a parent and subsidiary. Mot. at 9 n.2. As noted above, ZTEC’s stated activities and objectives (e.g., as presented in its Congressional testimony), include its operations in the United States through ZTE (USA). See Hagiz Decl. Ex. 11. Case 3:17-cv-01827-N Document 68 Filed 09/08/17 Page 16 of 26 PageID 505 12 did not base its finding of an alter ego relationship solely on “shared office space and equipment, commingling of funds, common directors/officers, and a shared source of operating capital” (Mot. at 11), as ZTEC suggests. See No. SA-13-CA-125-OLG, 2014 WL 12561661, at *11-*12 (W.D. Tex. Jan. 7, 2014). Although the Court noted these facts in its analysis, its determination was guided by the fact that the parties frequently entered into contracts and other transactions in which they were not treated as distinct entities: “the contract and related exhibits … reflect that different addresses were not provided for the various entities. In fact, the parties appear to have engaged in a history of referring to a single defendant along with ‘its subsidiary and/or affiliated companies,’ throughout their transactions and dealings.” Id. at *11. Thus, “defendant’s attempt to now maintain an arm’s length approach is disingenuous at best.” Id. In short, ZTEC identifies no precedent binding on this Court that supports its assertion that FISI must satisfy a high legal bar to warrant serving ZTEC through ZTE (USA). Indeed, cases from this District and the Fifth Circuit confirm that the Court may consider many factors to determine whether a foreign corporation exercises sufficient control over its domestic subsidiary; complete control over every aspect of the subsidiary’s operations is not required. See, e.g., Lisson, 262 F. Appx. at 570 (“the fact that [] two companies share substantially the same name, the same counsel at trial and on appeal, and the same internet site, strongly suggests a connection”); C. At Least Two Courts Have Found That ZTE (USA) Is ZTEC’s Alter Ego In at least two previous cases, courts in other districts have found that a plaintiff's service of ZTEC through ZTE (USA) was effective. In both cases, ZTEC moved to dismiss for insufficient service, asserting, as it does here, that ZTEC and ZTE (USA) are separate corporate entities, and that service on ZTE (USA) as agent for ZTEC was improper. Both courts Case 3:17-cv-01827-N Document 68 Filed 09/08/17 Page 17 of 26 PageID 506 13 disagreed, denying ZTEC’s motions and finding that service on ZTE (USA) was sufficient after consideration of the facts regarding the relationship between ZTEC and ZTE (USA). ZTEC does not now advance any new arguments that were not previously considered and rejected by these other courts; accordingly, this Court should reach the same conclusion here and find that service via ZTE (USA) was sufficient. In MLR, LLC v. ZTE Corp., No. 1:09-cv-1023 (E.D. Va.), the plaintiff, MLR, did not attempt to serve ZTEC under the Hague Convention, and instead served ZTEC at ZTE (USA)’s facilities in Virginia. Hagiz Decl. Ex. 16 (MLR Opposition Brief) at 4-5. ZTEC subsequently moved to dismiss the complaint pursuant to Rule 12(b)(5), advancing substantially the same arguments as it has here. Specifically, ZTEC argued that under Virginia law, service on a foreign corporation’s domestic subsidiary is insufficient “so long as the parent and the subsidiary maintain separate corporate identities.” Hagiz Decl. Ex. 17 (ZTEC Motion to Dismiss - MLR) at 4 (quoting Davies v. Jobs & Adverts Online, Gmbh, 94 F. Supp. 2d 719, 722-23 (E.D. Va., 2000)). ZTEC then asserted that “ZTE USA has maintained a separate corporate identity from ZTE CHINA”; “ZTE USA is a separate corporation and is incorporated in New Jersey”; “ZTE USA has maintained its own offices in Virginia and elsewhere in the United States”; ZTE USA has maintained its own financial records and bank accounts, and has filed its own U.S. tax returns”; and “ZTE USA has also hired its own employees.” Id. at 5. ZTEC also submitted a declaration from then-CEO of ZTE (USA), Xiangyang Jiang, attesting to substantially the same facts as the declaration submitted with its motion in this case.9 Compare Hagiz Decl. Ex. 18 with Dkt. 53-2 (Wood Decl.). 9 As MLR’s opposition points out, Mr. Jiang concurrently served as an executive at ZTEC. As noted above, the same is true of ZTE (USA)’s current CEO, Lixin Cheng, who until Case 3:17-cv-01827-N Document 68 Filed 09/08/17 Page 18 of 26 PageID 507 14 The Court did not find ZTEC’s arguments persuasive. After considering the evidence submitted by MLR, demonstrating that, inter alia, ZTEC consistently characterized ZTE (USA)’s business activities as ZTEC’s own business in the United States, the Court concluded that ZTEC was doing business in the United States through ZTE (USA). Hagiz Decl. Ex. 19 (MLR hearing transcript), at 5:15-7:2. Because it was clear that ZTEC was on fair notice of the lawsuit and had an opportunity to defend itself, the Court concluded that any due process considerations had been satisfied, and that service was effective. Id. at 7:3-13. Accordingly, the Court denied ZTEC’s motion to dismiss. Id. at 7:14-17. Similarly, in NTCH-WA, Inc. v. ZTE Corp., ZTEC moved to dismiss pursuant to Rule 12(b)(5), arguing that the plaintiff’s service of process on ZTE (USA)’s registered agent in Washington was insufficient to effect service on ZTEC. 2013 WL 11730654, at *2. The Court disagreed, finding that the plaintiff had sufficiently demonstrated that “ZTE USA is essentially the conduit through which ZTE Corp. sells its commercial telecommunications equipment in the United States.”10 Id. Based on this and other supporting facts, the Court concluded that “ZTE USA operates as ZTE Corp.’s ‘general agent’ in the United States … for service of process purposes.” Id. The Court thus determined that service upon ZTE (USA) was sufficient to effect service on ZTEC. Id. recently also served as SVP at ZTEC for its North American operations, and now serves as CEO of ZTEC’s mobile device unit. See Hagiz Decl. Ex. 6. 10 ZTEC tries to distinguish NTCH-WA by arguing that the Ninth Circuit applies a different standard for service on a domestic subsidiary compared to the Fifth Circuit. Mot. at 12- 13. Even if true, the NTCH-WA court considered similar facts and factors as are relevant under Fifth Circuit law, and concluded that ZTEC exercises control over ZTE (USA). Case 3:17-cv-01827-N Document 68 Filed 09/08/17 Page 19 of 26 PageID 508 15 II. IF SERVICE ON ZTEC IS DEEMED INSUFFICIENT, THE COURT SHOULD PERMIT ALTERNATIVE SERVICE Although FISI is attempting to serve ZTEC in China in accordance with the Hague Convention, Chinese authorities have recently become increasingly less cooperative in responding to requests for service. See Ingalls Decl. ¶ 11. Service in China may take 18 months or more, and the exact time necessary for completion is unpredictable. Id. FISI should not be forced to wait that long to prosecute its claims against ZTEC, particularly when ZTEC has plainly been on notice of FISI’s Complaint for several months at least. Under the circumstances here, alternative service through legal counsel and ZTEC’s domestic subsidiary, ZTE (USA), will apprise ZTEC of the action, afford it an opportunity to appear (to the extent it is not so apprised already notwithstanding the instant motion and the appearance of counsel on its behalf), and is likely the best, fastest, and most reliable methods for effectuating service. See Affinity Labs, 2014 WL 11342502, at *2-*3 (holding that avoiding delays and additional expense from serving defendants in a foreign country are valid justifications for permitting alternative service under Rule 4(f)(3)). As explained below, none of the methods proposed are prohibited by any international agreement with China and both comport with due process. As a signatory to the Hague Convention On The Service Abroad Of Judicial And Extrajudicial Documents In Civil Or Commercial Matters, China had the option to object to certain types of service, which it did as to Article 8, service through “diplomatic or consular agents,” and Article 10, “postal channels” or foreign “judicial officers.” Despite these limitations, courts have found that the methods proposed by FISI below are permissible, even taking into account China’s specific reservations to the Hague Convention. Case 3:17-cv-01827-N Document 68 Filed 09/08/17 Page 20 of 26 PageID 509 16 A. Service on Defendants’ Attorneys Service on ZTEC’s counsel is permissible. For example, in Affinity Labs, the Court found that the Hague Convention does not prohibit service on a defendant’s U.S.-based attorney because such service would not “require the transmittal of service documents abroad,” and thus would not implicate the Hague Convention requirements. 2014 WL 11342502, at *2-*3. Numerous other decisions have ruled likewise. See, e.g., Carrico v. Samsung Elecs. Co., Ltd., No. 15-cv-02087-DMR, 2016 WL 2654392, at *4 (N.D. Cal. May 10, 2016) (noting that “[n]othing in the Hague Convention bars Plaintiffs’ requested service on [a party] through her attorney” even though the country at issue, South Korea, had objected to service under Articles 8 and 10); Shinde v. Nithyananda Foundation, No. 13-cv-00363-JGB, 2014 WL 12597121, at *7 (C.D. Cal. Aug. 25, 2014) (“[S]ervice upon a foreign defendant’s United States-based counsel is a common form of service ordered under Rule 4(f)(3) and nothing in the Hague Convention prohibits such service.”). Alternative service on a defendant’s legal counsel is commonly found to comport with due process. In Affinity Labs, for example, the Court authorized service on the defendants’ attorneys where the same counsel represented all defendants, including the foreign corporation, and the same law firm had represented the foreign corporation in other matters in the United States. 2014 WL 11342502, at *4. Similarly, in Rio Properties, the Court authorized such service where it was “clear that [the attorney] was in contact with [the foreign defendant].” 284 F.3d at 1017. Such service was therefore “reasonably calculated in these circumstances to apprise [the foreign defendant] of the pendency of the present action.” Id.; see also Affinity Labs, 2014 WL 11342502, at *4 (finding that service on outside counsel was “reasonably certain to result in [the defendant] receiving notice of the suit”); Knit With v. Knitting Fever, Inc., Nos. Case 3:17-cv-01827-N Document 68 Filed 09/08/17 Page 21 of 26 PageID 510 17 08-cv-4221, 08-cv-4775, 2010 WL 4977944, at *4 (E.D. Pa. Dec. 7, 2010) (“Repeatedly, courts around the country have found that service upon a foreign defendant through counsel is appropriate to prevent further delays in litigation.” (internal quotation marks omitted)). ZTEC has already been in contact with FISI through their U.S.-based legal counsel regarding this dispute. See Dkt. 50 at 1 (Joint Case Management Report submitted on behalf of ZTEC); Dkts. 60-65 (appearances of counsel on behalf of ZTE (USA) and ZTEC). In addition, Defendants’ counsel in this case has also appeared on behalf of ZTEC in other matters in the United States. See, e.g., Hagiz Decl. Ex. 20 (pro hac vice application in ZTE v. Vringo]. Accordingly, “there is no indication that [ZTEC’s attorneys] would not be able to appropriately serve the summons and Complaint on [ZTEC],” and alternative service on Defendants’ counsel is reasonably calculated to apprise ZTEC of this suit. Carrico, 2016 WL 2654392, at *4; see also Affinity Labs, 2014 WL 1134502, at *4. B. Service on ZTE (USA) Service on ZTEC’s domestic subsidiary, ZTE (USA), may also be ordered. In Affinity Labs, the Court permitted alternative service on Nissan Motor Co., Ltd., a Japanese corporation, by serving its domestic subsidiary, Nissan North America. 2014 WL 1134502, at *3-*4. Because the domestic subsidiary was located in the United States, the Court held that such service would not require the transmittal of documents abroad, and thus would not be prohibited by the Hague Convention or any other international agreement between the United States and Japan. Id. at *2; see also Schlunk, 486 U.S. at 707 (holding that service on domestic subsidiary is not prohibited under the Hague Convention); Stream SICAV v. Wang, 989 F. Supp. 2d 264, 278-79 (S.D.N.Y. Oct. 7, 2013) (“Substitute service on a U.S. entity does not trigger the requirements of the Hague Convention.”). FISI is not aware of any international agreement Case 3:17-cv-01827-N Document 68 Filed 09/08/17 Page 22 of 26 PageID 511 18 between the United States and China that would require a different outcome with respect to ZTEC. In light of the close relationship between ZTEC and ZTE (USA), as discussed above, there can be no doubt that service of process on ZTE (USA) is “reasonably certain to result in [ZTEC] receiving notice of the suit.” Affinity Labs, 2014 WL 1134502, at *4; see also Jin Mi Ryung v. TJ Media USA, Inc., No. 13-cv-4935, 2014 WL 631074, at *2 (N.D. Cal. Feb. 18, 2014) (“Serving the domestic subsidiary is reasonably calculated, under these circumstances, to apprise the foreign parent of the pendency of the action and afford the foreign parent an opportunity to respond.”). Indeed, ZTEC clearly has already received notice of this suit and responded with the instant motion. III. FISI’S PROPOSED ALTERNATIVE SERVICE UNDER RULE 4(F)(3) FISI proposes to serve process on ZTEC by using the following means: 1. Sending the amended complaint and other required materials to Defendants’ attorney, Mr. Charles McMahon, at McDermott Will & Emery, both by email and FedEx, using the same email and postal addresses listed in his Notice of Appearance (Dkt. 60): cmcmahon@mwe.com and 444 West Lake Street, Suite 4000, Chicago, IL 60606; 2. Serving the same materials upon the registered agent of ZTE (USA) in Texas.11 Any one of these methods would be sufficient alone to apprise ZTEC of this lawsuit. Together they are more than adequate to satisfy Rule 4(f)(3). 11 As noted above, FISI has already served ZTE (USA) as an agent for ZTEC. To the extent the Court so orders, FISI will re-serve ZTE (USA) pursuant to an order permitting such service under Rule 4(f)(3). Case 3:17-cv-01827-N Document 68 Filed 09/08/17 Page 23 of 26 PageID 512 19 CONCLUSION FISI respectfully requests that the Court deny ZTEC’s motion to dismiss for improper service, or, in the alternative, enter an order permitting alternative service of process on ZTEC through its attorneys in this action or through ZTE (USA). Dated: September 8, 2017 /s/ Elizabeth L. DeRieux S. Calvin Capshaw State Bar No. 03783900 ccapshaw@capshawlaw.com Elizabeth L. DeRieux State Bar No. 05770585 ederieux@capshawlaw.com CAPSHAW DERIEUX LLP 114 East Commerce Avenue Gladewater, Texas 75647 Tel: (903) 236-9800 Fax: (903) 236-8787 Edward J. DeFranco (admitted pro hac vice) eddefranco@quinnemanuel.com Brian P. Biddinger (pro hac vice application forthcoming) brianbiddinger@quinnemanuel.com Joseph Milowic III (admitted pro hac vice) josephmilowic@quinnemanuel.com QUINN EMANUEL URQUHART & SULLIVAN LLP 51 Madison Avenue, 22nd Floor New York, NY 10010 Tel. (212) 849-7000 Fax (212) 849-7100 Kevin P.B. Johnson (admitted pro hac vice) QUINN EMANUEL URQUHART & SULLIVAN LLP 555 Twin Dolphin Drive, 5th Floor Redwood Shores, CA 94065 Tel. (650) 801-5000 Fax (650) 801-5100 kevinjohnson@quinnemanuel.com Attorneys for Plaintiff Fundamental Innovation Case 3:17-cv-01827-N Document 68 Filed 09/08/17 Page 24 of 26 PageID 513 20 Systems International LLC Case 3:17-cv-01827-N Document 68 Filed 09/08/17 Page 25 of 26 PageID 514 21 CERTIFICATE OF SERVICE I hereby certify that on September 8, 2017, I filed this document using the Court’s ECF system, which sent a notice to all counsel of record. DATED: September 8, 2017 By /s/Elizabeth L. DeRieux Attorneys for Plaintiff Fundamental Innovation Systems International LLC Case 3:17-cv-01827-N Document 68 Filed 09/08/17 Page 26 of 26 PageID 515