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BHL Boresight, Inc. v. GEO-Steering Solutions, Inc.

United States District Court, S.D. Texas, Houston Division

June 26, 2017

BHL BORESIGHT, INC., et al. Plaintiffs,
v.
GEO-STEERING SOLUTIONS, INC., et al. Defendants.

          OPINION AND ORDER

          MELINDA HARMON UNITED STATES DISTRICT JUDGE

         Pending in the above-referenced cause are the following Defendants' Motions to Dismiss: Statoil Gulf Services LLC (“Statoil”) and Alfonso Zaza's (“Zaza”), Doc. 230; Geo-Steering Solutions, Inc. and Geo-Steering Solutions USA, Inc. (collectively, “GSSI”), Doc. 232; Pleasant Solutions, Doc. 246; Neil Tice (“Tice”), Doc. 259; Darrell Joy (“Joy”), Doc. 317; and Byron Molloy (“Molloy”), Docs. 333, 334. Molloy's Opposed Motion to Strike Arguments from BHL Boresight's Sur-Reply is also pending. Doc. 357. After considering the Motions, the Court denies Molloy's Motion to Strike, and grants in part and denies in part Defendants' Motions to Dismiss for the reasons that follow.

         I. Background

         Because the facts of this case have been extensively recited in this court's prior Opinion and Order, Doc. 140, the Court only recites what is necessary to understand the context in which the present motions arose.

         The parties in this case dispute the source of Defendant GSSI's geosteering software, Geo-Direct. Plaintiff BHL contends that Defendants unlawfully used its proprietary software to develop Geo-Direct. As a result, BHL initiated this suit against Defendants GSSI and Statoil on March 10, 2015. Doc. 1.

         In its Original Complaint, BHL asserted claims against Statoil and GSSI for violations of the Computer Fraud and Abuse Act (“CFAA”), Electronic Communications Privacy Act (“ECPA”) (Counts I-III), unjust enrichment (Count V), and civil conspiracy (Count VIII). Id. ¶¶ 28-51, 60-64, 77-80. BHL also alleged misappropriation of trade secrets (Count IV) and civil theft (Count VII) against GSSI and breach of contract (Count VI) against Statoil. Id. ¶¶ 52-59, 65-76. GSSI responded by asserting counterclaims against BHL for: request for declaratory judgment of independent creation of the GSSI software (Count I), request for declaratory judgment that the GSSI software is an original work (Count II), request for declaratory judgment that GSSI did not copy BHL's software in creating GSSI's software (Count III), Lanham Act violation (Count IV), common law unfair competition (Count V), state antitrust violation (Count VI), tortious interference with existing contract (Count VII), and tortious interference with prospective business relationships (Count VIII). Doc. 19 at ¶¶ 10-56. The parties filed cross motions to dismiss and on March 29, 2016, this Court dismissed BHL's ECPA and unjust enrichment claims and GSSI's state antitrust, tortious interference with existing contract, and tortious interference with prospective business relationships counterclaims without prejudice. Doc. 140.

         After receiving permission from the Court, BHL filed its First Amended Complaint (“FAC”) on August 29, 2016, in which it amended its claims and added additional Defendants Pleasant Solutions, Joy, Tice, Molloy, and Zaza. Doc. 209-1. All Defendants responded by filing the pending Motions to Dismiss. Docs. 230, 232, 246, 259, 317, 334. These Motions are now ripe for consideration.

         II. Motions to Dismiss for Lack for Personal Jurisdiction

          Two Defendants, Molloy and Pleasant Solutions, attack their inclusion in this suit with their Motions to Dismiss for Lack of Personal Jurisdiction pursuant to Federal Rule 12(b)(2). Because jurisdictional matters must be resolved first, the Court begins with these Motions. See, e.g., United States v. Tex. Tech Univ., 171 F.3d 279, 285 n.9 (5th Cir. 1999) (“[C]ourts must . . . decide issues of personal jurisdiction before ruling on the merits.”).

         A. Legal Standard

         The Due Process Clause of the Fourteenth Amendment precludes a federal court from assuming personal jurisdiction over a nonresident defendant “unless the defendant has meaningful ‘contacts, ties, or relations' with the forum state.” Luv N' Care, Ltd. v. Insta-Mix, Inc., 438 F.3d 465, 469 (5th Cir. 2006) (citing Int'l Shoe Co. v. Washington, 326 U.S. 310, 319, 66 S.Ct. 154, 90 L.Ed. 95 (1945)). Such contacts can give rise to either general or specific jurisdiction. Id. Where a defendant has “continuous and systematic general business contacts” with the forum state, the court may exercise “general” jurisdiction over any action brought against that defendant. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414-15 & n.9, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984). Where contacts are less pervasive, the court may still exercise “specific” jurisdiction “in a suit arising out of or related to the defendant's contacts with the forum.” Id. at 414 n.8. This case presents only the question of specific jurisdiction.

         The Fifth Circuit has reduced the specific-jurisdiction inquiry into a three-step analysis: “‘(1) whether the defendant . . . purposely directed its activities toward the forum state or purposely availed itself of the privileges of conducting activities there; (2) whether the plaintiff's cause of action arises out of or results from the defendant's forum-related contacts; and (3) whether the exercise of personal jurisdiction is fair and reasonable.'” Id. (quoting Nuovo Pignone v. STORMAN ASIA M/V, 310 F.3d 374, 378 (5th Cir. 2002)). “The ‘minimum contacts' inquiry is fact intensive and no one element is decisive; rather the touchstone is whether the defendant's conduct shows that it ‘reasonably anticipates being haled into court.'” McFadin v. Gerber, 587 F.3d 753, 759 (5th Cir. 2009) (citing Luv N' Care, 438 F.3d at 470). Thus, a defendant may not be haled into a jurisdiction “solely as a result of ‘random, ' ‘fortuitous, ' or ‘attenuated' contacts, or of the ‘unilateral activity of another party or third person.'” Id. (citing Electrosource, Inc., v. Horizon Battery Techs., Ltd., 176 F.3d 867, 871-72 (5th Cir. 1999)).

         In addition to meeting due-process requirements, a federal court's exercise of personal jurisdiction must satisfy the requirements of the forum state's “long-arm” statute. Clemons v. McNamee, 615 F.3d 374, 378 (5th Cir. 2010) (citing Latshaw v. Johnston, 167 F.3d 2008, 2011 (5th Cir. 1999)). Texas's long-arm statute, however, is coextensive with the Due Process Clause. Id.

         When faced with a motion to dismiss for lack of personal jurisdiction, the court may consider admissible affidavits and other materials. Thompson v. Chrysler Motors Corp., 755 F.2d 1162, 1165 (5th Cir. 1985). In the absence of a full and fair evidentiary hearing, however, a plaintiff need only make a prima facie showing of jurisdiction through its own affidavits and supporting material. Cooper v. McDermott Int'l, Inc., 62 F.3d 395, 1995 WL 450209, at *5 (5th Cir. 1995) (unpublished) (citing Thompson, 755 F.2d at 1165). “Prima facie” means “[s]ufficient to establish a fact or raise a presumption unless disproved or rebutted.” Black's Law Dictionary 1310 (9th ed. 2009).

         “To decide whether a prima facie case exists, [the court] must accept as true [the plaintiff's] ‘uncontroverted allegations, and resolve in its favor all conflicts between the facts contained in the parties' affidavits and other documentation.'” Nuovo Pignone, 310 F.3d at 378 (quoting Kelly v. Syria Shell Petroleum Dev. B.V., 213 F.3d 841, 854 (5th Cir. 2000)). This general rule of resolving conflicts in favor of the plaintiff only applies to affidavits and other admissible evidence, however, not merely allegations. Cooper, 62 F.3d 395 (citing Fernandez-Montes v. Allied Pilots Assoc, 987 F.2d 278, 284 (5th Cir. 1993)).

         B. Objections

         As the law makes clear, the procedural posture of the case is important; at this early stage, the Court need not decide whether BHL has proven its contentions, only whether, resolving conflicts in the affidavits in its favor, it has made a prima facie case for personal jurisdiction. See Campbell Pet Co. v. Miale, 542 F.3d 879, 888 (Fed. Cir. 2008). Before the Court may do so, however, it must address a number of objections to the parties' declarations.

         In this case, both parties submitted materials to support their positions. BHL objects to Molloy's Declaration and Pleasant Solutions CEO Thomas Stachura's Affidavit on the grounds that both contain assertions that are irrelevant, hearsay, conclusory, have little probative value, and/or go beyond the issue of personal jurisdiction. Docs. 278, 347. The Court addresses the objected-to submissions in turn.

         i. Stachura Affidavit

         Specifically, BHL argues that the Stachura Declaration should be disregarded because Stachura lacks personal knowledge about communications between Pleasant Solutions employees and GSSI, making his statements about interactions between GSSI and Pleasant Solutions hearsay. Doc. 278 at 12-13. BHL further argues that Stachura's Declaration has little probative value because he is an interested witness offering conclusory statements. Id. at 14-15.

         While BHL requests that the Court disregard the Affidavit in its entirety, BHL only identifies four allegedly problematic statements:

• “Pleasant Solutions has no regular, continuous, systematic contact with the State of Texas” (Stachura Aff ¶ 9);
• the GSSI Defendants “did not inform Pleasant Solutions where it intended to market the software once Pleasant Solutions completed the development.” (Aff ¶ 19);
• “At no time did any employee of Pleasant Solutions knowingly receive a live demonstration . . . .” (Aff. ¶ 26); and
• Pleasant Solutions did not “knowingly acquire any information that was designated, marked or labeled as confidential and proprietary belonging to BHL or any third party, nor any information which it could reasonably have known, based on industry standards, is confidential to third parties” (Aff ¶ 28).

         The Court sustains BHL's objections to the first statement, although it fails to see what strategic advantage BHL gains thereby. BHL argues that the first statement is a “conclusory and legalistic argument that is no substitute for specific facts.” Doc. 278 at 14. The Court agrees that the statement contains a legal conclusion, however, Stachura testifies in prior paragraphs that Pleasant Solutions has no offices; phone numbers or addresses; employees, officers, directors, agents, or representatives; or property or security interests in Texas and has never conducted business in the state. See Doc. 247 at ¶¶ 4-6. In doing so, he provides the proper factual support for Pleasant Solutions' contention that it lacks the necessary contact with Texas to support jurisdiction.

         The Court next finds unpersuasive BHL's argument that the Affidavit should be disregarded because Stachura is an interested witness. The cases that BHL cites in support of this contention are nonbinding and easily distinguishable, and as Pleasant Solutions astutely points out, “the individuals who have the personal knowledge necessary to give affidavits about disputed facts in cases like this simply happen to be the employees or officers of such entities.” Doc. 390 at 8-9.

         Finally, the Court overrules BHL's objection to the last three statements on hearsay grounds. Nowhere in these three statements does Stachura aver that he based this knowledge on what third parties told him. Furthermore, as CEO of the company, he is certainly capable of making a statement based on his own personal knowledge and experience regarding the extent of the relations between the companies. See United Techs. Corp. v. Mazer, 556 F.3d 1260, 1277 (11th Cir. 2009) (concluding that defendant company's managing director's statement that the company “at no time . . . ever assisted Defendant West-Hem in negotiating a price for the blueprints with Anthony DiLorenzo, and did not decide, alone or together with anyone, what Defendant West-Hem should pay Mr. DiLorenzo for those blueprints” was a factual statement based on personal knowledge, not hearsay).

         ii. Molloy Declaration

         BHL renews the hearsay and lack-of-personal-knowledge arguments it leveled at Stachura's Affidavit against Molloy's Declaration, but it further argues that a number of Molloy's statements are conclusory and that, as a whole, the Declaration is improper because it addresses more than jurisdictional issues. Doc. 347. BHL points to the following statement as hearsay: “I learned that Boresight and Myall Hawkins, Boresight's attorney, contacted my employer Chinook Consulting Ltd. in Canada, to locate me and discuss this lawsuit against me. I also learned that Mr. Hawkins actually visited Chinook in Canada to discuss my role in this lawsuit.” Doc. 334-1 ¶ 31.

         The Court agrees with BHL that this statement constitutes hearsay; however, yet again, BHL's victory is hollow because this statement is irrelevant to the 12(b)(2) analysis. Contrary to Molloy's assertion that “[e]verything in [his] declaration pertains to the issue of personal jurisdiction” and is “directly relevant to proving that [he] was merely a peripheral player, ” Doc. 391 at 11, the Court fails to see how an alleged visit to Canada by BHL's counsel has any bearing on whether Molloy himself has the necessary minimum contacts to sustain personal jurisdiction.

         BHL also calls out Molloy's statements regarding his relationship with Cody Hembree[1]as conclusory. Doc. 347 at 13-14. Like Molloy's statements regarding Chinook, however, the Court does not believe these statements are relevant to the 12(b)(2) analysis.

         BHL points to a number of other statements in Molloy's Declaration that it argues go beyond the scope of personal jurisdiction and, from there, argues that the entire Declaration should be disregarded. Id. at 14-16. As already discussed, the Court agrees that some of Molloy's statements are of limited relevance in the context of his 12(b)(2) motion. Nevertheless, a number of Molloy's assertions do indeed go to the heart of the personal-jurisdiction dispute. Specifically, Molloy's statements regarding his role within GSSI and his participation in the development of the GSSI software are relevant to the question of whether Molloy purposefully availed himself of the forum such that he should be anticipated being haled into court here.

         Moreover, just because not all of the statements are relevant to the 12(b)(2) analysis, the Court need not disregard the entire affidavit. The Court is well-versed in what can and cannot be considered in the context of Rule 12 motions and rather than disregard the entire Affidavit, simply disregards the allegations not relating to personal jurisdiction in its evaluation of the 12(b)(2) motion.

         C. Analysis

         Objections aside, the Court now turns to the dispositive question presented by Pleasant Solutions and Molloy's Motions to Dismiss: whether specific jurisdiction exists.

         i. Purposeful Availment

         The specific-jurisdiction analysis begins with a determination of whether the defendant has the requisite “minimum contacts” with the state. Luv N' Care, 438 F.3d at 469. To make this determination, the Court “must identify some act whereby [the defendant] ‘purposely availed itself of the privilege of conducting activities there, thus invoking the benefits and protections of its laws.'” Id. at 469-70 (quoting Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 2 L.Ed.2d 1283 (1958)).

         One way to establish “purposeful availment” for minimum-contacts analysis is under the stream-of-commerce theory. Luv N' Care, 438 F.3d at 470. Under this theory, when a nonresident defendant introduces a product into the stream of commerce and thereby benefits from the product's final sale within the forum, he has purposefully availed himself of the forum. Choice Healthcare, Inc. v. Kaiser Found. Health Plan, 615 F.3d 364, 374 n.9 (5th Cir. 2010) (collecting cases). “Generally, parties invoke and courts rely on stream-of-commerce theory where the defendant does not intentionally direct its product to a forum, but rather places the product in the stream of commerce which eventually brings the product to the forum.” Maxum Indem. Co. v. BRW Floors, Inc., 5:15-CV-00167-RCL, 2015 WL 5881584, at *5 (W.D. Tex. Oct. 7, 2015) (citing Nuovo Pignone, 310 F.3d at 381; Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 926, 131 S.Ct. 2846, 2855, 180 L.Ed.2d 796 (2011)).

         There are two variations of the stream-of-commerce theory that have emerged from Supreme Court jurisprudence. Choice Healthcare, 615 F.3d at 373 & n.7. The Fifth Circuit has consistently rejected the “stream-of-commerce-plus theory” in favor of the more relaxed “mere foreseeability” test. Id. See also In re Chinese Manufactured Drywall Prods. Liability Litig., 742 F.3d 576, 586 (5th Cir. 2014)). Under this interpretation:

As long as a participant in this process is aware that the final product is being marketed in the forum State, the possibility of a lawsuit there cannot come as a surprise. Nor would the litigation present a burden for which there is not corresponding benefit. A defendant who has placed goods in the stream of commerce benefits economically from the retail sale of the final product in the forum State, and indirectly benefits from the State's laws that regulate and facilitate commercial activity. These benefits accrue regardless of whether that participant directly conducts business in the forum State or engages in additional conduct directed toward that State.

Asahi Metal Indus. Co., Ltd. v. Superior Court of Cal, 480 U.S. 102, 117, 107 S.Ct. 1026, 1033, 94 L.Ed.2d 92 (1987) (Brennan, J., concurring).

         a) Pleasant Solutions

         Here, BHL argues that Pleasant Solutions developed GSSI's Geo-Direct software with the knowledge that the software was based on BHL's product and the end product would be marketed and sold to Texas oil-and-gas companies. Doc. 278 at 17. ...


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