MEMORANDUM AND ORDER RE: REPORT AND RECOMMENDATION WITH REGARD TO DEFENDANTS’ MOTION TO DISMISS OR TRANSFER (Dkt. Nos. 13 & 25)
This is an action for misappropriation of trade secrets. Defendants filed a Motion to Dismiss for lack of personal jurisdiction, or for transfer to the Eastern District of
On July 21, 2008, Judge Neiman issued his Report and Recommendation, to the effect that Defendants’ motion should be denied. The conclusion of the Report and Recommendation admonished the parties at 20 n. 2 that objections to the Report and Recommendation must be filed within ten days. No objection has been filed.
Having reviewed the substance of the Report and Recommendation and finding it meritorious, and noting that there is no objection, the court, upon de novo review, hereby ADOPTS the Report and Recommendation (Dkt. No. 25).
Based upon this, the court hereby DENIES Defendants’ Motion to Dismiss or Transfer (Dkt. No. 13). This case is hereby referred to Judge Neiman for a pretrial conference pursuant to Rule 16.
It is So Ordered.
REPORT AND RECOMMENDATION WITH REGARD TO DEFENDANTS’ MOTION TO DISMISS OR TRANSFER (Document No. IS)
In this five-count action, the Scuderi Group, LLC (“Plaintiff’), an engine development company located in Massachusetts, alleges that LGD Technology, LLC (“LGD”) and Dr. Zheng (David) Lou (“Dr. Lou”) (together “Defendants”), both located in Michigan, engaged in misappropriation of trade secrets (Count I), breached the parties’ confidentiality and non-disclosure agreements (Count II), breached the covenant of good faith and fair dealing (Count III), engaged in misrepresentation and fraud (Count IV), and violated Mass. Gen. L. ch. 93A (Count V). Defendants have moved to dismiss the complaint on personal jurisdiction grounds pursuant to Fed.R.Civ.P. 12(b)(2). Alternatively, Defendants request that the case be transferred to the Eastern District of Michigan. Defendants’ motion to dismiss or transfer has been referred to this court for a report and recommendation. See 28 U.S.C. § 636(b)(1)(B). For the following reasons, the court will recommend that Defendants’ motion be denied.
II. Background
Under the typical
prima facie
standard for personal jurisdiction, the court must “take those specific facts affirmatively alleged as true and construe them in a light most congenial to the plaintiffs jurisdictional claim ... [and then] add to the mix facts put forward by the defendants, to the extent that they are uncontradicted.”
Platten v. HG Bermuda Exempted Ltd.,
A. Facts Alleged by Plaintiff
Plaintiff is a family-owned engine development company operated primarily by members of the Scuderi family with investors based mainly in western Massachusetts. (Scuderi Aff. ¶ 3.) Stephen Scuderi, Plaintiffs Vice President and General Counsel and Dr. Lou’s principal contact (hereinafter “Scuderi”), works primarily from Plaintiffs office in West Springfield, Massachusetts, and the bulk of his email and phone communications with Dr. Lou were received in Massachusetts. (Id. ¶¶ 1, 4.) LGD, for its part, is a one-person Michigan limited liability company that develops variable valve actuation technologies for improved fuel economy, reduced emissions, and enhanced engine performance. (Lou Dec. ¶ 28.)
During these initial emails, Dr. Lou indicated to Scuderi — specifically in an email dated April 14, 2006 — that he would “treat things confidential” and was willing to sign a non-disclosure agreement (“NDA”). (Scuderi Aff. ¶ 14; Lou Dec., Exh. 3.) Scu-deri avers that he received this email in Massachusetts and relied on Dr. Lou’s confidentiality representations in further exploring the relationship with Defendants. (Scuderi Aff. ¶ 14.) Based on what Scuderi has learned since, he now believes that Dr. Lou’s representation of confidentiality to have been false. (Id.)
Scuderi, for his part, advised Dr. Lou that an NDA would be required for Defendants and Plaintiff to have further discussions about a potential business relationship. (Id. ¶ 7.) Accordingly, Dr. Lou sent multiple communications to Scuderi in April and May of 2006 soliciting entry into a non-disclosure agreement. (Id. ¶¶ 14, 19-21; Lou Dec., Exh. 3, Exh. 5.) As is standard practice in the industry, the NDA would allow Defendants greater access to confidential information, some of which was maintained by Plaintiffs independent engineering contractor, Southwest Research Institute (“SwRI”), which is located in the United Kingdom. (Scuderi Aff. ¶¶ 8, 31.)
On June 8, 2006, Scuderi provided Dr. Lou with a fourteen-paragraph draft NDA. (Id. ¶ 23.) The next day, Dr. Lou sent a revised draft which contained only one edit, as follows, to paragraph fourteen’s venue provision:
14. This Agreement shall be construed andand interpreted and the rights — and in accordance-with the substantive-laws of the-Commonwealth of Massachusetts The -par-ties-hereby submit to-the-jur-isdie-tion-of the courts ofi-the-Gommon G&neepm&g — this—Agreement. This Agreement shall be construed under the laws of the State of Massachusetts.
(Id. ¶ 24.) Although Plaintiff agreed to this change, it notes that Dr. Lou never expressed any of his purported feelings or thoughts regarding the impropriety of venue in Massachusetts. (Id. ¶ 25.) Moreover, Plaintiff points out that the modified paragraph fourteen continued to contain a choice of law provision applying the substantive law of Massachusetts to the NDA. (Id. ¶ 26; Lou Dec., Exh. 7.) Ultimately, the NDA was signed by Plaintiff, Defendants and a representative of SwRI. (Lou Dec., Exh. 7.)
During the parties’ negotiations, Dr. Lou participated in several “1-800” conference calls with SwRI, all of which were made on a Scuderi Group number and were facilitated by Scuderi who participated from Massachusetts. (Scuderi Aff. ¶¶ 17, 18.) Indeed, virtually all of Dr.
On December 20, 2006, after a substantial period of no communication between Defendants and Plaintiff/SwRI, Dr. Lou re-initiated contact with Plaintiff via an email to SwRI and a “ec” to Scuderi. (Id. at ¶ 35, Exh. 4.) A series of emails and other communications followed. One of Dr. Lou’s own emails, dated April 16, 2007, recognizes that the work he was doing with SwRI was on behalf of, and for the benefit of, Plaintiff or, as he put it, “the home team.” (Id. at ¶ 35, Exh. 6.)
Plaintiff also notes that Dr. Lou initiated and engaged in a number of other communications with representatives of Plaintiff seeking further development of their business relationship, including: sending a development plan to Scuderi on June 13, 2006; engaging in discussions at the 2007 SAE Congress regarding a possible consulting arrangement; sending an April 25, 2007 email discussing a contract for development of a prototype by LGD and payments by Plaintiff; a series of telephone conversations with Plaintiffs licensing contractor, Denis Rader (“Rader”) who is located in Connecticut, to discuss a possible consulting and intellectual property agreement; a June 5, 2007 email in which Dr. Lou sent an “LGD-Scuderi IP and Consulting Services Arrangement Proposal” seeking more than $1 million from Plaintiff; and a July 17, 2007 email from Dr. Lou proposing a similar, alternative business arrangement with Plaintiff. (Id. ¶ 32, 38-41, 44, Exh. 1, 7, 8,11.)
Finally, Scuderi avers that at the April 2007 SAE trade show, Dr. Lou “indicated his willingness to travel to provide consulting services to [Plaintiff], without expressing any reservation about exposing himself to the jurisdiction of Massachusetts.” (Id. ¶ 38.) According to Scuderi, “I assured Dr. Lou that [Plaintiff] would pay for any required travel expenses, but that we anticipated that much of his work with [Plaintiff] could be completed from his location in Michigan, as it had been throughout 2006 and early 2007.” (Id.) Scuderi also avers that “[o]n several occasions from April 2006 to [November 2007], Dr. Lou advised me that he was traveling out of the country, sometime for extended periods.” (Id. ¶ 45.)
B. Facts Alleged by Defendants
As indicated, Dr. Lou is LGD’s president and sole employee and he resides and works in Michigan. (Lou Dec. ¶ 28.) Defendants assert that neither LGD nor Dr. Lou has ever traveled to on conducted business in Massachusetts in connection with their relationship with Plaintiff. (Id.) Defendants also note that Dr. Lou’s April 14, 2006 email, in which he stated he would “treat things confidential,” merely followed up Plaintiffs request for confidentiality. (Lou Dee., Exh. 3.)
Defendants acknowledge that Dr. Lou exchanged information with SwRI.
(Id.)
Nevertheless, Defendants allege the following: that SwRI is located in the United Kingdom; that SwRI is an independent third-party contracted by Plaintiff; that any exchange of business information by both parties (as well as simple well-wishes and small talk) and contemplation of a second meeting in Michigan occurred between Defendants, in Michigan, and SwRI, in the United Kingdom; that Plaintiff, sitting in Massachusetts, watched these email exchanges in silence; and that, in the ma
Defendants also mention Rader, Plaintiffs licensing contractor, but note that he is located in Connecticut. (Id. at 2-3 & n. 2.) According to Defendants, Dr. Lou believed that all correspondence to Denis Rader was directed to Connecticut. (Id. at 3 n. 2.)
Finally, Defendants address the communications between Dr. Lou and Scuderi in the spring and summer of 2007. According to Defendants, these communications were sparse and simply related to either discussions between the parties about the possibility of a continued relationship, unrelated to this litigation, or unsuccessful attempts to resolve the instant dispute pri- or to the filing of Plaintiffs complaint. (See id. at 2-3.)
II. Discussion
The court follows the familiar two-stage personal jurisdiction inquiry: (1) whether Plaintiff has demonstrated that jurisdiction is authorized by the forum’s long-arm statute; and, if authorized, (2) whether such jurisdiction comports with the Due Process Clause of the United States Constitution.
See Daynard v. Ness, Motley, Loadholt, Richardson & Poole, P.A.,
A. Long-Arm Statute
Defendants first argue that Plaintiff is unable to establish personal jurisdiction under the Massachusetts long-arm statute, Mass. Gen. L. ch. 223A, § 3 (hereinafter “section 3”), specifically, subsections (a) or (c), the only subsections Plaintiff cites. 1 Addressing each subsection in turn, the court, in the end, concludes that personal jurisdiction is available under either provision.
As for subsection (a), Defendants assert that the mere exchange of a handful of emails or telephone calls is not enough for them to have “transacted business” in Massachusetts. Moreover, Defendants continue, the causes of action are not ones “arising out” of such contacts but rather, at most, were contacts with SwRI located in the United Kingdom. In response, Plaintiff asserts that “the overall substance and effect” of the parties’ relationship demonstrates that Defendants transacted business in Massachusetts and that their claims arise out of such transaction. The court finds Plaintiffs position more persuasive.
Massachusetts courts construe subsection (a) very broadly.
See, e.g., Tatro v. Manor Care, Inc.,
In view of such precedent, there can be little question — given the parties’ ongoing professional communications with one another concerning an evolving contractual relationship — that Defendants were “transacting business” in Massachusetts. For example, after the initial meet and greet at the industry conference in Michigan — initiated, it should be noted, by Dr. Lou — Defendants reached out multiple times to Plaintiff in Massachusetts to establish a business relationship. During these initial overtures, moreover, Defendants sought further information, including detailed confidences, from Plaintiffs representatives here. Eventually, the parties agreed to enter into an ongoing confidential business relationship, embodied by the NDA, and for more than a year thereafter, Defendants continued to communicate with Plaintiff and its independent contractor, SwRI, in further pursuit of this venture. Indeed, when the communications between the parties slowed, it was Defendants who reached out to Plaintiff again to re-ignite the business collaboration process. And ultimately it was Defendants who sent Plaintiff concrete “business proposals” soliciting a formal financial and business relationship.
Granted, Defendants point out that, at times, Plaintiff (in Massachusetts) might not have been as active a recipient of Dr. Lou’s communications as SwRI (in the United Kingdom) or even Denis Rader (in Connecticut). However, Defendants cannot evade the fact that Dr. Lou engaged in, and often initiated, multiple communications with Plaintiff
directly
— as well as
indirectly
through SwRI and/or Rader — as part of the development of an ongoing business and professional relationship.
See also Workgroup Tech. Corp.,
It is also clear that Plaintiffs claims in this case are ones “arising from” Defendants’ transaction of business in Massachusetts. The First Circuit has expressed “no doubt” that the arising from requirement can be met “when the cause of action is for an alleged breach of contract and the business transacted was instrumental in the formation of the contract.”
Hahn,
Regarding subsection (c), Defendants assert that because they never acted in Massachusetts, they did not cause tortious injury by an act or omission in the commonwealth. Plaintiff, however, argues that courts interpreting subsection (c) consistently have held that when out-of-state defendants knowingly sent false representations into Massachusetts (with the intent that they be relied on to the detriment of a Massachusetts resident), and those statements are relied upon by a Massachusetts resident, the defendants have “acted” within Massachusetts. Again, the court finds Plaintiffs position more persuasive.
For one thing, the court, as noted above with respect to subsection (a), believes that Defendants did act in Massachusetts. Moreover, it is “well established” that Plaintiffs allegations of fraud and misrepresentation are “a sufficient basis for jurisdiction under § 3(c).”
La Vallee v. Parrot-Ice Drink Prods, of Am., Inc.,
B. Due Process
Defendants next argue that Plaintiff is unable to establish that the exercise of personal jurisdiction over them would comport with due process. First, Defendants contend that Plaintiffs claims do not arise out of or relate to Defendants’ in-state activities. Second, Defendants argue that they did not purposefully avail themselves of Massachusetts. Third, Defendants assert that it would be extremely harsh to require Dr. Lou and his business to defend themselves in Massachusetts and, hence, that exercising personal jurisdiction over them would be unreasonable. For its part, Plaintiff argues that due process would not be offended by forcing Defendants to defend themselves here. Once again, the court finds Plaintiffs argument more persuasive.
Due process requires the court to find either that it has “specific jurisdiction” over the defendant or “general jurisdiction.”
See generally Harlow v. Children’s Hosp.,
The First Circuit uses a three-part test for determining whether a court has specific jurisdiction over a defendant:
First, the claim underlying the litigation must directly arise out of, or relate to, the defendant’s forum-state activities. Second, the defendant’s in-state contacts must represent a purposeful availment of the privilege of conducting activities in the forum state, thereby invoking the benefits and protections of that state’s laws and making the defendant’s involuntary presence before the state’s courts foreseeable. Third, the exercise of jurisdiction must, in light of the Gestalt factors, be reasonable.
Sawtelle,
1. Relatedness
With respect to the first prong of the analysis, relatedness, the First Circuit prefers a “proximate cause” test to determine whether a claim arises out of, or relates to, a defendant’s contacts in the forum.
Negrón-Torres v. Verizon Communs., Inc.,
Here, the court believes the required nexus is satisfied because, as indicated, the contacts Defendants had with Plaintiff in Massachusetts were instrumental in the formation of the confidential business relationship and the execution of the NDA, both of which are at the center of Plaintiffs claims. As described more fully above, all of the claims at issue in this case allegedly arise from (or were caused by) Defendants’ extensive contacts with Plaintiff, including their solicitation of a business relationship, pursuit of the NDA whereby Defendants gained access to Plaintiffs confidential information, entry into that NDA with Plaintiff, and additional communications with Plaintiff and its agents in pursuit of a further business relationship, during which time Defendants were provided with extensive confidential information belonging to Plaintiff.
See also Champion Exposition Servs. v. Hi-Tech Elec., LLC,
2. Purposeful Availment
As for the second prong of the analysis, Defendants argue that they did not purposefully avail themselves of the benefits and obligations of the Commonwealth’s laws because it was not foreseeable that they would be brought into court here. As stated by the First Circuit in
Sawtelle,
As Plaintiff argues, there is no question that Defendants’ contacts with Plaintiff were voluntary. As described, it was Defendants who, after initiating contact with Plaintiff, voluntarily reached out to Plaintiff in Massachusetts in order to (1) establish the parties’ working relationship and possible collaboration, (2) execute the NDA, and (3) obtain Plaintiffs confidential information so as to confer about Plaintiffs engine technology. For these very reasons, the court believes, it was foreseeable to Defendants that they could end up in a Massachusetts court. In short, Plaintiff has demonstrated the purposeful availment prong of the due process inquiry.
To be sure, Defendants put great emphasis on the fact that the parties, at the request of Dr. Lou, deleted the reference to Massachusetts as the “exclusive venue” for construing the NDA. However, Defendants never indicated that they felt that the parties’ relationship was unrelated to
Further, and perhaps most importantly, Defendants cite no case law holding that the deletion of a particular forum selection clause from a draft document means
a fortiori
that the deleted forum lacks personal jurisdiction over the defendant.
Cf. Wolverine Proctor & Schwartz, Inc.,
3. Reasonableness
Finally, Defendants contend, with regard to the third prong of the analysis, that making them defend claims in Massachusetts would be unreasonable in light of the five “Gestalt” factors.
See Sawtelle,
As for the first factor — the burden of appearing in this forum — Defendants have not shown “special, unusual, or other constitutionally significant” circumstances.
Nowak v. Tak How Investments, Inc.,
As to the second and third Gestalt factors, there is little doubt that Massachusetts has an interest in providing its citizens, here Plaintiff, a forum to litigate claims.
See Cambridge Literary Proper
As for the fourth and fifth factors — the administration of justice and the common interest of all sovereigns — the court believes that the most effective resolution of the parties’ dispute would occur here in Massachusetts. As the First Circuit has explained, the “judicial system’s interest in obtaining the most effacious resolution of the controversy ... counsels against furcation of the dispute among several different jurisdictions.”
Pritzker v. Yari,
C. Transfer
Finally, the court does not agree with Defendants’ assertion that, under 28 U.S.C. § 1631, the action should be transferred to the Eastern District of Michigan as a more appropriate venue. Defendants include no elaboration to that assertion, other than the due process concerns addressed above. As indicated, the court, after considering those concerns, nonetheless concluded that personal jurisdiction is proper here in Massachusetts.
IV. Conclusion
For the reasons stated, the court recommends that Defendants’ motion to dismiss or transfer be DENIED. 2
July 21, 2008.
Notes
. In relevant part, section 3 provides as follows:
A court may exercise personal jurisdiction over a person, who acts directly or by an agent, as to a cause of action in law or equity arising from the person's (a) transacting any business in this commonwealth; [or]
... (c) causing tortious injury by an act or omission in this commonwealth^]
Mass. Gen. L. ch. 223A, § 3(a), (c).
. The parties are advised that under the provisions of Rule 3(b) of the Rules for United States Magistrate Judges in the United States District Court for the District of Massachusetts, any party who objects to these findings and recommendations must file a written objection with the Clerk of this Court within ten (10) days of the party's receipt of this Report and Recommendation. The written objection must specifically identify the portion of the proposed findings or recommendations to which objection is made and the basis for such objection. The parties are further advised that failure to comply with this rule shall preclude further appellate review by the Court of Appeals of the District Court order entered pursuant to this Report and Recommendation.
See Keating v. Secretary of Health & Human Services,