United States District Court, N.D. California, San Jose Division
ORDER GRANTING DEFENDANTS' MOTION TO DISMISS FOR
LACK OF PERSONAL JURISDICTION; DENYING DEFENDANTS' MOTION
FOR SANCTIONS [RE: ECF 17, 19]
LABSON FREEMAN, UNITED STATES DISTRICT JUDGE
the Court are two related motions: Defendants' Motion to
Dismiss for Lack of Personal Jurisdiction (ECF 17) and
Defendants' Motion for Rule 11 Sanctions (ECF 19). The
Court heard oral argument on Defendants' motions on June
27, 2019 (“the Hearing”). Having considered the
oral argument, briefing, and relevant law, and for the
reasons set forth below, the Court hereby GRANTS
Defendants' motion to dismiss on the grounds that
Plaintiff has failed to show that Defendants purposefully
directed their allegedly tortious actions at California and
DENIES Defendants' motion for sanctions because the
instant action was not filed for an improper or frivolous
purpose and is not barred by the Rooker-Feldman
November 15, 2018, Plaintiff Michael Aquino filed this
diversity action against Defendants Michael Edward Breede and
Alan Adair Moss (collectively, “Defendants”).
See generally Compl., ECF 1. The Complaint alleges a
single cause of action: tortious interference with
contractual relations. Id. ¶¶ 62-69.
Plaintiff is a citizen of New Jersey. Id. ¶ 3.
Defendant Breede is a citizen of Connecticut. Id.
¶ 4. Defendant Moss is a citizen of Utah. Id.
allegation against Defendants of tortious interference with
contractual relations concerns a 2017 sale of assets by
Integrated Surgical, LLC (“Integrated Surgical”).
According to the Complaint, Integrated Surgical was a
privately held medical device development company
headquartered in Palo Alto, California, that developed a
revolutionary family of electrical medical devices. Compl.
¶ 6. Defendants state that Integrated Surgical is a
now-dissolved Connecticut entity, whose business and
operations were at all times located in Connecticut, and
dispute Plaintiff's assertion in the Complaint that
Integrated Surgical was headquartered in Palo Alto.
See Motion to Dismiss (“MTD”) at 3;
see also Breede Decl., Ex. A to Request for Judicial
Notice in Support of Defendants' Motion to
Dismiss (“RJN”), ECF 18.
was a managing member of Integrated Surgical. Breede Decl.
¶ 2, Ex. A to RJN, ECF 18. Moss was a member of
Integrated Surgical. Moss Decl. ¶ 2, Ex. C to RJN, ECF
18. Plaintiff was a member of a separate company, No. Plume
and Gloom, LLC (“NPG”). Compl. ¶ 12. In his
capacity as a member of NPG, Plaintiff invested “a
significant amount of cash in Integrated Surgical.”
Id. Plaintiff was therefore an investor in
Integrated Surgical and alleges that he was entitled to
receive information about Integrated Surgical's business.
2015 to 2017, Defendants indicated that Integrated
Surgical's intellectual property (“IP”)
assets had significant value. Compl. ¶ 13. In April
2015, NPG purchased an 8% membership interest in Integrated
Surgical for $500, 000. Id. Plaintiff extrapolates
that Integrated Surgical was therefore valued at
approximately $6, 250, 000 at that time. Id.
According to the Complaint, Integrated Surgical was
represented by counsel in California from Wilson Sonsini
Goodrich & Rosati (“WSGR”). Id.
¶ 55. Plaintiff alleges that at least one member of
WSGR, Mr. Daniel Koeppen, was a member of WS Investment
Company, LLC, which invested in Integrated Surgical. See
Id. ¶ 9. Mr. Koeppen is an attorney residing within
and licensed to practice law in California. Id.
2016, members of Integrated Surgical made various efforts to
sell Integrated Surgical's IP assets. Compl. ¶ 14.
In December 2016, Breede indicated that Integrated Surgical
would engage a broker to sell its IP assets. Id.
¶ 15. On February 7, 2017, Breede informed investors
that Integrated Surgical had entered an agreement with
Gerbsman Partners (“Gerbsman”) to act as a broker
for the IP sale. Id. ¶ 16. Plaintiff alleges
that Gerbsman is based in California and that Breede,
“in cooperation with his California attorneys, ”
contacted Gerbsman to sell Integrated Surgical's assets.
Id. Plaintiff further alleges that “because
Integrated Surgical had limited capital, Breede personally
advanced the money to pay Gerbsman for their services and was
responsible for providing Gerbsman with the information
necessary to perform its function.” Id.
about February 17, 2017, Gerbsman posted a public article
online stating that it had been retained to sell the assets
of Integrated Surgical, “which was headquartered in
Palo Alto;” that the founding partners had invested
$1.5 million in Integrated Surgical; and that Integrated
Surgical held 5 issued U.S. patents and 14 U.S.
non-provisional patent applications. Compl. ¶ 17. The
article further stated that two of Integrated Surgical's
products were evolutionary and revolutionary. Id. By
June of 2017, two companies were potential bidders for
Integrated Surgical's assets. Id. ¶ 19.
However, on or about July 6, 2017, one of the two companies
indicated that it would not be making an offer. Id.
The remaining company was named “Conmed.”
Id. ¶ 20.
about July 14, 2017, Conmed expressed interest in purchasing
the IP assets, but had not proposed a price or terms and
conditions. Compl. ¶ 20. On July 17, 2017, Conmed
indicated that it would offer only $300, 000 to purchase
Integrated Surgical's IP assets. Id. ¶ 22.
Several members of Integrated Surgical then expressed their
concern that Conmed's offer was but a fraction of the
valuation previously referenced by Breede and Moss in their
limited disclosures to the members of Integrated Surgical.
Id. On July 18, 2017, Breede indicated that Conmed
had increased its offer to $350, 000 and needed an answer by
the next morning. Id. ¶ 23.
19, 2017, at approximately 9:15 a.m., Plaintiff, Breede, and
others held a teleconference wherein Plaintiff informed
Breede that NPG had voted to reject the Conmed deal and that
he (Plaintiff) would personally be making an offer to
purchase Integrated Surgical's IP assets. Compl. ¶
24. Plaintiff advised Defendants that he would pay $360, 000
for the assets, which was $10, 000 greater than the amount
offered by Conmed, and that he would agree to the form of
Asset Purchase Agreement proposed by Integrated Surgical as
an additional inducement. Id. Plaintiff alleges that
Breede, Moss, and Koeppen then orally accepted
Plaintiff's offer and stated they would “call again
later to finalize the terms.” Id.
further alleges that on July 19, 2017, at approximately 1:15
p.m., Breede, Moss, Koeppen, and two others participated in
an additional teleconference to finalize the agreement with
Plaintiff. Compl. ¶ 25. Later that day, at 5:21 p.m.,
Breede sent Plaintiff an email stating, “can you give
me an update?” Id. ¶ 26. At 5:57 p.m.,
Plaintiff responded, stating, “Ok all set. I will wire
250k into acct tomorrow. I will be away till Sunday with
little access to mail or phone all other paperwork can be
handled by Dan and John and Mike.” Id. ¶
27. At 6:01 p.m., Breede responded to Plaintiff,
“Thanks for the update and I look forward to the
executed document. I will turn it around first thing
tomorrow.” Id. ¶ 28.
20, 2017, at 11:05 a.m., Breede emailed Plaintiff requesting
that Plaintiff send him a copy of the contract so that he had
the correct version, and further indicated that he would
sign. Compl. ¶ 29. At 11:32 a.m., Breede sent an email
to Plaintiff's attorney, John Cansdale
(“Cansdale”), and requested the exact name of the
purchasing entity so that the sale documents could be
executed. Id. ¶ 30. At 1:20 p.m., Breede
emailed Cansdale stating, “I expect to finalize within
the hour.” Id. ¶ 31. At 3:57 p.m., Breede
followed up with an additional email stating, “Dan
[Koeppen] sending now. Please wire.” Id.
¶ 32. At 4:01 p.m., Koeppen sent an email to Cansdale
stating, “Please see the asset purchase agreement. The
signature pages are to be held in escrow, pending
authorization from  Breede . Before the signature pages
are released, [Breede] needs to see the purchase price of
$350, 000 wired into WSGR escrow and the signature pages
executed by the buyer [Plaintiff].” Id. ¶
purported sale to Plaintiff did not come to pass. On July 20,
2017, at 5:42 p.m., Breede emailed Plaintiff, stating,
“I don't have confirmation of the
wire, but I think the deal is done.” Compl.
¶ 38 (emphasis added and removed). July 20, 2017 was a
Thursday. At 6:38 p.m. on July 20, Cansdale informed Breede
that Plaintiff could not make the wire transfer until Monday,
July 23, 2017, and that Plaintiff would send the signature
page when Plaintiff “gets to an area w computer /
service.” Id. ¶ 40. At 6:43 p.m. on July
20, Koeppen emailed Cansdale, stating, “We need to
speak as soon as possible. At this point Integrated
[Surgical] has to take its signature pages out of escrow with
you since we didn't get the wire or signature
pages today. There is a material development in the
deal that [Plaintiff] should be aware of before we decide how
to proceed. To be clear - there is no agreement to
sell the assets to [Plaintiff] at this point.”
Id. ¶ 41 (emphasis added).
21, 2017, at 9:57 a.m., Plaintiff faxed Koeppen a copy of the
Aquino Asset Purchase Agreement (“Aquino APA”)
executed by Plaintiff. Compl. ¶ 43. On July 21, 2017, at
approximately 12:45 p.m., Plaintiff, Cansdale, Breede, Moss,
and Koeppen participated in a teleconference in which Breede
described a “heated conference call” with
representatives from Conmed. Id. ¶ 44.
Plaintiff alleges that Breede indicated he had been
“threated verbally with profanities” by
Conmed's representatives and that Conmed had threatened
to “sue [Breede] personally and Integrated Surgical if
they did not go forward with the deal offered by
Conmed.” See Id. At approximately 3:00 p.m. on
July 21, Plaintiff, Cansdale, Breede, Moss, and Koeppen
participated in another teleconference, in which
“Breede and Koeppen expressed their growing concerns
regarding the threats they had personally received from
Conmed.” Id. ¶ 45.
alleges that around July 27, 2017, Conmed and Integrated
Surgical entered into a separate Asset Purchase Agreement
(“Conmed APA”) and that several days thereafter
Integrated Surgical “transferred the same IP assets to
Conmed which Integrated Surgical had already contracted to
sell to [Plaintiff.]” Compl. ¶¶ 48-49.
Plaintiff further alleges that the Conmed APA called for
closing at the offices of WSGR in San Diego, California, and
contained a California forum selection clause naming the
Northern District of California. See Id.
¶¶ 58, 59. Similarly, according to the Complaint,
the Aquino APA would have closed at the offices of WSGR in
San Diego, California, and likewise contained a California
forum selection clause naming the Northern District of
California. See Id. ¶¶ 55, 56; see
also Aquino APA (Draft) §§ 5, 13(i), Ex. B of
Ex. A to RJN, ECF 18.
to the Complaint, on or about July 27, 2017, Breede and Moss
informed Plaintiff that they intended to enter into the
Conmed APA, even though Conmed's offer was for a lower
price and even though Conmed had attempted to require terms
that “were significantly more onerous than those in the
Aquino APA.” Compl. ¶ 60. Plaintiff now alleges
tortious interference with contractual relations against
Breede and Moss, on the basis that Breede and Moss did not
accept Plaintiff's higher offer price “because of
their concerns about their personal financial standing [due
to Conmed's threat to sue them personally], instead of
their concern about the best interests of Integrated
Surgical.” Id. ¶ 66. Plaintiff further
alleges that “Breede and Moss decided to conspire with
Conmed to interfere with the contract between Integrated
Surgical and [Plaintiff]” and that “Breede and
Moss and Conmed conspired to create a fiction that they were
legally entitled to have Integrated Surgical enter into a
contract with Conmed to sell the assets to Conmed.”
Id. ¶¶ 66, 67.
Prior State Court Action
previously sued Defendants in California state court on
substantially similar facts and allegations as those now
before this Court. See, e.g., Breede Decl., Ex. A to
RJN, ECF 18. On August 27, 2018, the Superior Court of
California, County of Santa Clara granted Defendant
Breede's Motion to Quash for lack of personal
jurisdiction, stating that “Plaintiff has not
established by a preponderance of the evidence that this
court has personal jurisdiction over Mr. Breede as an
individual.” Breede Order at 1, Ex. B to RJN, ECF 18.
The Superior Court found that “[a]ll of [Breede's]
alleged activities and executed contractual agreements as
relied upon in [P]laintiff's argument are within Mr.
Breede's capacity as Managing Member of Integrated
Surgical. Those contacts with Integrated Surgical do not
create minimum contacts for the Managing Member personally.
On the other hand, there is substantial evidence making a
finding necessary that Mr. Breede is a resident of
Connecticut with no personal contacts with Santa Clara
County.” Breede Order at 1-2, Ex. B to RJN, ECF 18.
on October 16, 2018, the Superior Court granted Defendant
Moss's Motion to Quash for lack of personal jurisdiction
pursuant to California Code of Civil Procedure §
418.10(a)(1). See Moss Order at 1-2, Ex. D to RJN,
ECF 18. Plaintiff subsequently filed the instant action on
November 15, 2018. See generally Compl.
Rule of Civil Procedure 12(b)(2) authorizes a defendant to
seek dismissal of an action for lack of personal
jurisdiction. Fed.R.Civ.P. 12(b)(2). When a defendant moves
to dismiss for lack of personal jurisdiction, the plaintiff
bears the burden of demonstrating that jurisdiction is
appropriate. Boschetto v. Hansing, 539 F.3d 1011,
1015 (9th Cir. 2008). Where “the defendant's motion
is based on written materials rather than an evidentiary
hearing, the plaintiff need only make a prima facie showing
of jurisdictional facts to withstand the motion to
dismiss.” Ranza v. Nike, Inc., 793 F.3d 1059,
1068 (9th Cir. 2015) (internal quotation marks and citation
omitted). “[T]he plaintiff cannot simply rest on the
bare allegations of its complaint.” Schwarzenegger
v. Fred Martin Motor Co., 374 F.3d 797, 800 (9th Cir.
2004) (internal quotation marks and citation omitted).
However, uncontroverted allegations in the complaint must be
taken as true, and factual disputes contained within
declarations or affidavits are resolved in the
plaintiff's favor. Schwarzenneger, 374 F.3d at
no applicable federal statute governs personal jurisdiction,
“the law of the state in which the district court sits
applies.” Harris Rutsky & Co. Ins. Servs., Inc.
v. Bell & Clements Ltd., 328 F.3d 1122, 1129 (9th
Cir. 2003). “California's long-arm statute allows
courts to exercise personal jurisdiction over defendants to
the extent permitted by the Due Process Clause of the United
States Constitution.” Id. The Ninth Circuit
has established a three-prong test for whether a court can
exercise specific personal jurisdiction: (1) the defendant
must have “either purposefully availed itself of the
privilege of conducting activities in California, or
purposefully directed its activities toward California,
” thereby “invoking the benefits and protections
of its laws”; (2) the claim must arise out of or relate
to the defendant's forum-related activities; and (3) the
exercise of jurisdiction must be reasonable, i.e. it must
comport with fair play and substantial justice.
Schwarzenegger, 374 F.3d at 802.
plaintiff bears the burden of showing that defendants have
purposefully availed themselves of the privileges and burdens
of a forum state's laws and showing that the claim arises
out of forum-related activities. Schwarzenegger, 374
F.3d at 802. If the plaintiff's evidence is insufficient
to satisfy either prong, personal jurisdiction is improper.
Id. However, if the plaintiff presents sufficient
evidence to satisfy the first two prongs, the burden shifts
to the defendant to “present a ...