United States District Court, N.D. California, San Jose Division
ORDER (1) GRANTING MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION AS TO AUDAX, KIMMES, AND BIZJAK AND DENYING MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION AS TO JASKO; (2) GRANTING MOTION TO DISMISS FOR FAILURE TO JOIN AN INDISPENSABLE PARTY AS TO CLAIMS 9-11 WITH LEAVE TO AMEND; (3) DENYING MOTION TO DISMISS FOR IMPROPER VENUE; AND (4) DENYING ALTERNATIVE MOTION TO TRANSFER [Re: ECF 39]
BETH LABSON FREEMAN, District Judge.
Plaintiff Allegro Consultants, Inc. ("Allegro") brings this action to recover monies for software support services rendered to Defendant Wellington Technologies, Inc. ("Wellington"). Allegro sues Wellington and several other defendants that are alleged to be alter egos of Wellington and of each other: Audax Solutions LLC ("Audax"), Todd Kimmes ("Kimmes"), Ed Griglak ("Griglak"), Joseph Jasko ("Jasko"), and James Bizjak ("Bizjak"). Audax, Kimmes, Jasko, and Bizjak move to dismiss the action for lack of personal jurisdiction, failure to join an indispensable party, and improper venue. Alternatively, they request that the Court transfer the action to the Northern District of Ohio.
The Court has considered the briefing and the oral argument presented at the hearing on August 21, 2014. For the reasons discussed below, the motion to dismiss for lack of personal jurisdiction is GRANTED as to Audax, Kimmes, and Bizjak without leave to amend and DENIED as to Jasko; the motion to dismiss for failure to join an indispensable party is GRANTED as to Claims 9-11 with leave to amend; the motion to dismiss for improper venue is DENIED; and the alternative motion to transfer is DENIED.
Allegro is a California corporation that provides software support services. (First Am'd Compl. ("FAC") ¶ 1, ECF 15; Cooper Decl. ¶¶ 4-5) Wellington is an Ohio corporation that buys, sells, repairs, re-manufactures, services, distributes, and generally deals in computer hardware and software. (Jasko Decl. ¶ 2, ECF 40) Effective August 1, 2007, Wellington retained Allegro under a Software Support Services Agreement to provide software support services as ordered by Wellington "from time to time." (Cooper Decl. Ex. B, ECF 51-5) Bizjak, one of Wellington's co-founders, traveled to California to negotiate the agreement. (Cooper Decl. ¶ 4; Bizjak Decl. ¶ 2, ECF 41) Wellington did not order software support services from Allegro for approximately fifteen months after the agreement was finalized. (Cooper Decl. ¶ 5)
In 2008, Wellington was awarded a large contract to maintain servers at AT&T data centers throughout the country. (Cooper Decl. ¶ 5; Jasko Decl. ¶ 4) Wellington requested that Allegro provide software services to support Wellington in fulfilling the AT&T contract, and Allegro did provide such services. ( Id. ) Most of Allegro's work on the contract was done in California. (Cooper Decl. ¶ 5) Jasko, Wellington's President, spent about one week a month in California during the next two years as the AT&T business grew. ( Id. ; Jasko Decl. ¶ 4) Wellington also hired a local California employee and leased office space and a corporate apartment in California. (Cooper Decl. ¶¶ 7-8)
In 2009 and 2010, Wellington lost ten significant contracts, including the AT&T contract. (Jasko Decl. ¶ 6) Wellington was unable to make payments on a $3.5 million line of credit that it had obtained from non-party Liberty Bank. (Jasko Decl. ¶¶ 5-7) Wellington also failed to pay Allegro more than $700, 000 in invoices. (FAC ¶ 27) On December 8, 2010, Wellington and Allegro entered into a Vendor Customer Terms Modification Agreement under which Wellington was to pay Allegro the past-due invoices over a five-year period at 5% interest. (FAC ¶ 31; Cooper Decl. Ex. C, ECF 51-6) Wellington was to make monthly payments of approximately $12, 000 beginning in February 2011. (FAC ¶ 31) Jasko specifically represented to Allegro that Wellington intended to make the required payments. (FAC ¶ 42) Wellington failed to make the payments. (FAC ¶ 31)
In March 2011, Allegro filed suit against Wellington in the Northern District of California, alleging claims for breach of contract and fraud. (Pl.'s Corrected RJN Ex. H, ECF 52-2) Allegro alleges that it dismissed that action without prejudice after reaching an oral agreement with Wellington under which Wellington committed to pay the past-due invoices on an agreed-upon schedule. (FAC ¶ 36) Wellington made payments under the new schedule through June 2012 but then it made only partial payments for some months and no payments at all for other months. ( Id. )
In late 2012, Liberty Bank informed Wellington that it was electing to foreclose on Wellington's assets, which were collateral for the line of credit that Liberty Bank had extended to Wellington. (Bizjak Decl. ¶ 7) Flagship Technologies, Inc. ("Flagship"), a Minnesota corporation in the business of reselling computer hardware and peripheral equipment, expressed interest in buying the collateral. (Kimmes Decl. ¶¶ 2-5, ECF 42). Flagship had been one of Wellington's suppliers of computer parts and, like Allegro, was one of Wellington's unsecured creditors. (Kimmes Decl. ¶ 3, ECF 42; Kimmes Suppl. Decl. ¶ 3, ECF 54) Flagship's owner, Kimmes, hoped to recoup some of the losses that Flagship sustained as a result of Wellington's delinquent account. ( Id. ) Flagship's wholly owned subsidiary, Westlake Investments, LLC ("Westlake"), formed Audax on April 24, 2013. (Kimmes Decl. ¶ 7, ECF 42; Pl.'s Corrected RJN Ex. G, ECF 52-1). A deal was worked out under which Wellington agreed to voluntarily turn over certain of its assets to Liberty Bank for immediate sale to Audax. ( Id. ¶ 6) On April 12, 2013, Wellington and Liberty Bank entered into an Agreement for Turnover of Collateral and Private Sale. (Jasko Decl. Ex. 4) On April 30, 2013, Liberty Bank and Audax signed a Secured Creditor Asset Purchase Agreement, which provided that it was "effective as of 12:00 midnight (EDT) April 12, 2013." (Kimmes Decl. ¶ 6 and Ex. 2, ECF 42) Under the Secured Creditor Asset Purchase Agreement, Audax paid Liberty Bank $250, 000 cash for certain of Wellington's assets. ( Id. )
On May 14, 2013, Allegro filed the present lawsuit against Wellington, asserting claims for breach of contract and fraud. On February 21, 2014, Allegro filed the operative FAC, adding a number of defendants: Audax; Kimmes, the founder and owner of Flagship; Griglak, a co-founder of Wellington; Bizjak, a co-founder of Wellington; and Jasko, President of Wellington. (FAC, ECF 15) Allegro claims that Audax is merely an alter ego of Wellington; that all of the individual defendants likewise are alter egos of Wellington and of each other; and that the Secured Creditor Asset Purchase Agreement under which Audax purchased certain of Wellington's assets from Liberty Bank is void as a fraudulent transfer of assets for the purpose of avoiding paying Allegro for its services. (FAC ¶ 9) Alternatively, Allegro claims that Audax is a successor or "mere continuation" of Wellington. (FAC ¶ 12)
The FAC asserts claims for: (1) breach of contract against Wellington; (2) fraud against Jasko and Wellington; (3) common counts for money had and received against all defendants; (4) fraud and intentional misrepresentation against all defendants; (5) fraud and negligent misrepresentation against all defendants; (6) fraudulent concealment against all defendants; (7) false promise against all defendants; (8) declaratory relief against all defendants; (9) fraudulent transfer with actual intent to defraud pursuant to California Civil Code § 3439.04(A)(1) against all defendants; (10) constructive fraudulent transfer pursuant to California Civil Code § 3439.04(A)(2) against all defendants; and (11) constructive fraudulent transfer pursuant to California Civil Code § 3439.05 against all defendants.
Defendants Audax, Kimmes, Jasko, and Bizjak move to dismiss the FAC for lack of personal jurisdiction over them, for failure to join Liberty Bank as an indispensable party, and for improper venue. Alternatively, Defendants request that the Court transfer the action to the Northern District of Ohio.
A. Personal Jurisdiction
1. Legal Standard
When a defendant challenges a court's personal jurisdiction over it under Federal Rule of Civil Procedure 12(b)(2), the plaintiff bears the burden of establishing that jurisdiction is appropriate. Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800 (9th Cir. 2004). If the motion is evaluated based upon written materials rather than an evidentiary hearing, "the plaintiff need only make a prima facie showing of jurisdictional facts." Id. (internal quotation marks and citation omitted). Uncontroverted allegations in the complaint are accepted as true, and factual disputes created by conflicting affidavits are resolved in the plaintiff's favor. Id.
"Federal courts ordinarily follow state law in determining the bounds of their jurisdiction over persons." Walden v. Fiore, ___ U.S. ___, ___, 134 S.Ct. 1115, 1121 (2014) (quoting Daimler AG v. Bauman, 571 U.S. ___, ___, 134 S.Ct. 746, 753 (2014)); see also Schwarzenegger, 374 F.3d at 800 ("[T]he district court applies the law of the state in which the district court sits."). California's long-arm statute is coextensive with federal due process requirements. Schwarzenegger, 374 F.3d at 800-01. "The Due Process Clause of the Fourteenth Amendment constrains a State's authority to bind a nonresident defendant to a judgment of its courts." Walden, 134 S.Ct. at 1121. "Although a nonresident's physical presence within the territorial jurisdiction of the court is not required, the nonresident generally must have certain minimum contacts... such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.'" Id. (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)).
A federal district court may exercise either general or specific personal jurisdiction over a nonresident defendant. Daimler, 134 S.Ct. at 754. General jurisdiction exists when the defendant's contacts "are so continuous and systematic as to render [it] essentially at home in the forum State." Id. (internal quotation marks and citation omitted). A nonresident that is subject to the court's general jurisdiction may be sued for claims "arising from dealings entirely distinct" from the forum-related activities. Id. (internal quotation marks and citation omitted). In contrast, specific jurisdiction exists when the defendant's contacts with the forum state are more limited but the plaintiff's claims arise out of or relate to those contacts. Id. A defendant's contacts with a resident of the forum state alone are ...