Cisco Systems Inc v. Link US, LLC

          ORDER GRANTING MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION AND GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS COUNTERCLAIM

          CHARLES R. BREYER UNITED STATES DISTRICT JUDGE

         Cisco Systems, Inc. and Cisco Technology, Inc. (collectively, “Cisco”) have sued Link U.S. (“Link”) and its President, Basem Toma, for allegedly importing and selling counterfeit Cisco goods. Link's counterclaim asserts that Cisco is the party engaged in unfair competition, because it wrongfully undermines competition in the secondary market for its goods. Cisco has moved to dismiss the counterclaim while Toma has moved to dismiss for lack of personal jurisdiction or improper venue.

         Toma's motion is granted and Cisco's motion is granted in part and denied in part. Cisco has not adequately alleged that Toma committed intentional acts expressly aimed at California, while Link has not adequately alleged most of the theories underlying its unfair competition claim. However, it appears possible that these defects could be remedied if the parties are allowed a chance to plead additional allegations. Therefore, dismissal is without prejudice, and Cisco's request to conduct jurisdictional discovery is granted.

         I. BACKGROUND

         Cisco sells “networking and communications hardware, software, and services that utilize cutting-edge technologies to transport data, voice, and video within buildings, across cities and campuses, and around the world.” Compl. ¶ 12 (dkt. 1). Cisco alleges that Link has unlawfully “imported, sold, offered for sale, distributed, transported, or assisted in or caused the importation, sale, offer for sale, distribution, or transportation” of counterfeit Cisco goods. Id. ¶ 27-29. It alleges that Toma is the President of Link and therefore “intimately involved in, [sic] operating LINK, ” “actively involved in the day-to-day management and operations of LINK, ” and the alter ego of Link. Id. ¶¶ 4, 30-31. Toma is a resident of North Carolina. Id. ¶ 4.

         Cisco alleges that U.S. Customs and Border Protection has seized counterfeit Cisco goods “being imported by LINK, and shipped to addresses associated with LINK, on thirteen (13) separate occasions.” Id. ¶ 33. It also alleges that on several occasions a Cisco investigator ordered Cisco goods from Link which proved to be counterfeits. Id. ¶¶ 44-60. The counterfeit items were shipped to the investigator in Berkeley, California. Id. ¶¶ 45, 52, 56. The return addresses on two of the packages the investigator ordered included Toma's name. Hewitt Decl. ¶ 5 (dkt. 46-2).

         Link's counterclaim alleges that Cisco has attempted to stifle competition in the secondary market for its equipment, in violation of California's Unfair Competition Law (“UCL”). Amended Answer ¶¶ 134-64 (dkt. 28). Link identifies four examples of this ostensibly anticompetitive behavior. First, it claims Cisco misleads consumers into believing it is unlawful to buy its products from independent resellers by describing such sales as “unauthorized” and “peril[ous].” Id. ¶¶ 146-49. Second, Cisco ostensibly “target[s] independent resellers such as LINK for unwittingly importing suspected counterfeit goods, while turning a blind eye to comparable conduct by participants in the Cisco ‘Authorized Network.'” Id. ¶ 150. Third, Cisco allegedly claims that users who buy its equipment from independent resellers are not authorized to use the software on that equipment, in an effort to sidestep copyright law's first sale doctrine. Id. ¶¶ 151-54. Finally, Cisco ostensibly misleads consumers by designating certain equipment sold on the secondary market “used” simply because it has previously been owned or sold. Id. ¶¶ 155- 57.

         Cisco has moved to dismiss Link's counterclaim for failure to state a claim. Cisco's MTD (dkt. 32). Toma, in turn, has moved to dismiss the claims against him for lack of personal jurisdiction or, in the alternative, improper venue. Toma's MTD (dkt. 40).

         II. TOMA'S MOTION TO DISMISS

         A. Legal Standard

         Under Federal Rule of Civil Procedure 12(b)(2), a defendant may move to dismiss for lack of personal jurisdiction. The plaintiff bears the burden of establishing the court's personal jurisdiction over a defendant. Cubbage v. Merchent, 744 F.2d 665, 667 (9th Cir. 1984). In assessing whether personal jurisdiction exists, the court may consider evidence presented in affidavits or order discovery on jurisdictional issues. Data Disc, Inc. v. Systems Tech. Assoc., Inc., 557 F.2d 1280, 1285 (9th Cir. 1977). “When a district court acts on a defendant's motion to dismiss under Rule 12(b)(2) without holding an evidentiary hearing, the plaintiff need make only a prima facie showing of jurisdictional facts to withstand the motion to dismiss.” Ballard v. Savage, 65 F.3d 1495, 1498 (9th Cir. 1995). A prima facie showing is established if the plaintiff produces admissible evidence which, if believed, would be sufficient to establish personal jurisdiction. See Harris Rutsky & Co. Ins. Servs., Inc. v. Bell & Clemens Ltd., 328 F.3d. 1122, 1129 (9th Cir. 2003). “[U]ncontroverted allegations in [plaintiff's] complaint must be taken as true, and conflicts between the facts contained in the parties' affidavits must be resolved in [plaintiff's] favor.” Brayton Purcell LLP v. Recordon & Recordon, 606 F.3d 1124, 1127 (9th Cir. 2010).

         Pursuant to Federal Rule of Civil Procedure 12(b)(3), a party may move to dismiss an action based on improper venue. Once the defendant challenges venue, the plaintiff bears the burden of establishing that venue is proper. Piedmont Label Co. v. Sun Garden Packing Co., 598 F.2d 491, 496 (9th Cir. 1979). When considering a Rule 12(b)(3) motion to dismiss, the pleadings need not be accepted as true, and the court “may consider facts outside of the pleadings.” Argueta v. Banco Mexicano, S.A., 87 F.3d 320, 324 (9th Cir. 1996).

         B. Discussion

         1. Waiver

         Before reaching the merits of Toma's objection to personal jurisdiction, it is necessary to consider Cisco's contention that he has waived this defense. Opp'n to Toma's MTD at 8-9 (dkt. 46-1). Cisco claims that Toma waived his objection to personal jurisdiction by “act[ing] in a way that is inconsistent with raising or maintaining it.” Id. at 8. It is true that the Ninth Circuit has recognized that a personal jurisdiction defense can be waived by “deliberate, strategic behavior.” Peterson v. Highland Music, Inc., 140 F.3d 1313, 1318 (9th Cir. 1998). For example, the defense would be waived if a defendant engaged in “‘sandbagging' by raising the issue of personal jurisdiction on a motion to dismiss, deliberately refraining from pursuing it any further when his motion is denied in the hopes of receiving a favorable disposition on the merits, and then raising the issue again on appeal.”^[1] Id.

         The acts Cisco points to as demonstrating Toma's waiver of his personal jurisdiction defense fall far short of “deliberate, strategic behavior.” Cisco complains that Toma “has waited nearly eight months after filing of his Amended Answer to bring the instant motion and . . . has participated in case management conferences, discovery, and multiple stipulations seeking extensions of deadlines to allow all parties to pursue settlement discussions.” Opp'n to Toma's MTD at 8. As Toma points out, much of the eight-month delay is attributable to continuances that Cisco either agreed to or actively sought. See, e.g. Joint Stipulation (dkt. 30). In any event, the Ninth Circuit has rejected the argument that requesting a continuance waives objections to personal jurisdiction. Benny v. Pipes, 799 F.2d 489, 493 (9th Cir. 1986) (“Generally, a motion to extend time to respond gives no hint that the answer will waive personal jurisdiction defects.”). Similarly, courts have concluded that participating in discovery does not waive challenges to personal jurisdiction. Zuckerman v. Green Earth Techs., Inc., CV 10-1240 PA (FFMx), 2010 WL 11549406, at *5 n.3 (C.D. Cal. Apr. 30, 2010). Finally, as Toma points out, Cisco can hardly claim to be prejudiced by any delay in bringing this motion when the hearing is set for the same day as its own motion to dismiss and no trial date has been set. In short, Toma's participation up to this point and the moderate delay in briefing the instant motions hardly amounts to deliberate, bad-faith delay in raising personal jurisdiction as a defense.

         Indeed, the facts here fall short of even Cisco's single, non-binding authority, Plunkett v. Valhalla Investments Servs., Inc., 409 F.Supp.2d 39 (D. Mass. 2006). In that case, over a year passed between the filing of the answer and the defendants' motion to dismiss for lack of personal jurisdiction. Id. at 42. In that time, they “1) participated in a scheduling conference and engaged in a colloquy with the Court with respect to the nature of the case, 2) conducted discovery, 3) consented to Alternative Dispute Resolution, 4) entered into a stipulation and protective order with the plaintiff and 5) moved the Court to allow [their] Ohio counsel to appear pro hac vice.” Id. Even by Cisco's account the delay in this case is shorter and Toma's participation in the litigation less extensive. Toma has not waived his objection to personal jurisdiction.

         2. Alter-Ego Theory

         Cisco appears to suggest that jurisdiction over Toma is appropriate because he is an officer and employee of Link and Link is properly subject to personal jurisdiction in this Court. See Opp'n to Toma's MTD at 9-10. Although “a person's mere association with a corporation that causes injury in the forum state is not sufficient in itself to permit that forum to assert jurisdiction over the person. . . . [T]he corporate form may be ignored in cases in which the corporation is the agent or the alter ego of the individual defendant.” Davis v. Metro Prods., Inc., 885 F.2d 515, 520 (9th Cir. 1989). “To apply the alter ego doctrine, the court must determine (1) that there is such unity of interest and ownership that the separate personalities of the corporation and the individuals no longer exist and (2) that failure to disregard the corporation would result in fraud or injustice.” Flynt Distrib. Co. v. Harvey, 734 F.2d 1389, 1393 (9th Cir. 1984). The Ninth Circuit has found this standard met when, for example, the individual defendants were “the sole shareholders of the corporations and the sole partners of the partnerships, ” “converted the assets of the various corporations and partnerships for their own use and dealt with them as if they were one, ” and left a number of the corporations undercapitalized. Id. at 1393-94.

         Cisco pleads no comparable facts regarding Toma's relationship with Link. See generally Compl. In fact, its only allegations of an alter ego relationship are conclusory statements that Toma controls Link's day-to-day operations and is the alter ego of Link. See, e.g. id. ¶ 31 (“On information and belief, TOMA controls LINK, [and] LINK is the alter ego of TOMA.”). Conclusory allegations with no factual support are insufficient to demonstrate the applicability of the alter ego doctrine.

         Indeed, Cisco does not appear to argue otherwise, contending instead that “proving alter ego liability . . . is not necessary if Cisco sufficiently alleges . . . that Toma himself has committed tortious acts.” Opp'n to Toma's MTD at 10. It is true that “[a] corporate officers is, in general, personally liable for all torts which he authorizes or directs or in which he participates.” See Transgo, Inc. v. Ajac Transmission Parts Corp., 768 F.2d 1001, 1021 (9th Cir. 1985). However, as explained below in the analysis of specific jurisdiction, Cisco has not plausibly alleged Toma's participation in any tortious act.

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