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Atlas International Marketing, LLC v. Car-E Diagnostics, Inc.

United States District Court, N.D. California, San Jose Division

July 9, 2014

ATLAS INTERNATIONAL MARKETING, LLC, a Nevada limited liability company, Plaintiff,
v.
CAR-E DIAGNOSTICS, Inc., a Texas corporation; CHIN-YANG SUN, an individual, Defendants.

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS AND COMPEL ARBITRATION [Re: Docket No. 13]

EDWARD J. DAVILA, District Judge.

Presently before the Court is Car-E Diagnostics, Inc. ("Car-E" or "Plaintiff") and Chin-Yang Sun's (collectively, "Defendants") Motion to Dismiss and Compel Arbitration. Having reviewed the parties' submissions, the Court found this matter appropriate for decision without oral argument and vacated the hearing date. Civil L.R. 7-1(b). For the reasons explained below, Defendant's motion is GRANTED IN PART AND DENIED IN PART.

I. BACKGROUND

The following facts are taken from Plaintiff's First Amended Complaint ("FAC"), Docket No. 8.

Plaintiff Atlas International Marketing ("AIM") is a limited liability company organized and existing under the laws of the State of Nevada, with its principal place of business in the State of Idaho. FAC ¶ 1. Defendant Car-E Diagnostics, Inc. is a corporation organized and existing under the laws of the State of Texas and doing business in the State of California. FAC ¶ 2.

Between 2008 and present, Plaintiff has been developing a process by which the automotive industry can certify used vehicles by obtaining the most accurate current condition information available. FAC ¶ 6. The process involves an efficient means of obtaining a vehicle's current condition, and vehicles that meet Plaintiff's criteria are certified and qualify for a limited warranty, which dealers or auctions can then transfer with the vehicle when sold. Id . The certification process, which includes a limited warranty, was created as a tool for auto auctions and dealers to use to improve margins, build trust with customers, and increase transparency in the used vehicle sales process. Id.

In or about 2001, the U.S. Patent and Trademark Office issued Defendant Chin-Yang Sun a certain patent, patent number 6, 240, 329, which patent relates to certain software used in the testing of vehicles with an on-board diagnostic port (the "Patent"). FAC ¶ 7. In 2009, Defendant Chin-Yang Sun established Car-E for the purpose of marketing and selling products and services related to the Patent (the "Car-E Products and Services"). Id.

The basic concept of the Car-E Products and Services is as follows: 1) The provider of the Car-E Products and Services (the "Service Provider") must acquire certain hardware, including a laptop computer and connections that link the computer to the vehicle being tested (the "Machine"). Id . 2) The Service Provider pays Defendants a certain amount per vehicle tested, or can opt for unlimited monthly tests for a flat fee per Machine per month. Id . 3) The Service Provider tests used vehicles using the Machine, which produces a report on the current internal condition of the tested vehicle. Id . The report is generated through Defendants' software located on Defendants' servers. Id.

From 2001 through June 2012, Defendants Chin-Yang Sun and Car-E attempted to market and sell the Car-E Products and Services, but were largely unsuccessful. FAC ¶ 8. In spring 2012, Plaintiff contacted Defendant Chin-Yang Sun to discuss a strategic partnership. Id . On or about April 9, 2012, the parties entered into a mutual non-disclosure agreement ("NDA"). Id . Thereafter, Defendant Chin-Yang Sun informed Plaintiff about the Car-E Products and Services in more detail, and informed Plaintiff that it had no active customers and had never made any significant revenue from the Car-E Products and Services. Id . The parties entered into a strategic partnership to market and sell Plaintiff's certification process, which incorporates the Car-E Products and Services. Id.

Following the execution of the NDA, through one of its strategic agent relationships, Plaintiff began working on a sizeable agreement with ADESA, the nation's second largest auto auction. FAC ¶ 9. ADESA auctions approximately 7.7 million vehicles per year, which equates to approximately twenty five percent (25%) of all auctioned vehicles in the United States. Id.

After meeting with ADESA's key executives at its corporate headquarters, ADESA entered into an agreement with AIM, which initiated a pilot program utilizing the process developed by AIM after entering in the NDA with Car-E. FAC ¶ 10. The pilot program was proceeding better than expected and ADESA was ready to move into the rollout phase of the agreement in early June 2013. Id . However, shortly after AIM and ADESA began discussing the terms of the rollout, ADESA stopped utilizing the process and stated it did not want to use the process anymore. Id . This did not make sense to AIM until it learned of Defendant Chin-Yang Sun's actions. Id . During late May and early June 2013, Plaintiffs became aware of each of the following:

a. Defendant Chin-Yang Sun has contacted several of the "players" in this deal and complained that he was not making any money on the ADESA deal. Id.
b. Defendant Chin-Yang Sun contacted several of the "players" in the ADESA deal and stated that Plaintiff is making $60 per vehicle in an effort to cut Plaintiff out of the deal. Id.
c. Defendant Chin-Yang Sun has been working with ADESA on a strategy to bypass Plaintiff in this deal by having ADESA cancel the program and then enter into a deal directly. Id.
d. One of Plaintiff's strategic partners informed Plaintiff that he was told the ADESA deal is going forward, but it will be done ...

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