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My Fabric Designs, Inc. v. F Media, Inc.

United States District Court, N.D. Texas, Dallas Division

March 2, 2018

MY FABRIC DESIGNS, INC., Plaintiff,
v.
F MEDIA, INC., Defendant.

          MEMORANDUM OPINION AND ORDER

          Sam A. Lindsay United States District Judge.

         Before the court are Defendant F Media, Inc.'s Motion to Dismiss for Lack of Personal Jurisdiction, or Alternative Motion to Transfer Venue (Doc. 4), filed August 17, 2017; and My Fabric Designs, Inc.'s Motion for Leave to File Sur-reply (Doc. 17), filed October 19, 2017. Having considered the motions, legal briefing, pleadings, jurisdictional evidence, record, and applicable law, the court grants Defendant F Media, Inc.'s Motion to Dismiss for Lack of Personal Jurisdiction (Doc. 4); denies as moot its Alternative Motion to Transfer Venue (Doc. 4); and denies My Fabric Designs, Inc.'s Motion for Leave to File Sur-reply (Doc. 17).

         I. Background Facts and Procedural History

         This case arises from an alleged breach of contract by Defendant F Media, Inc. (“F”). Plaintiff My Fabric Designs, Inc. (“MFD”), a Texas corporation, is a “world leader in the business of developing fabric design and manipulation software, headquartered in Dallas, Texas.” Pl.'s Orig. Pet. (“Petition”) ¶ 10, attached as Ex. A. to Notice of Removal (Doc. 1-1). F, a Delaware corporation with its principal place of business in New York, New York, is a “content and e-commerce company, connecting like-minded individuals and communities to share information and ideas and to provide access to niche-focused products and programs in crafts, arts, writing, design, outdoors, and lifestyle.” Affidavit of John Bolton ¶ 7 (“Bolton Aff.”) (Def.'s App. in Supp. of Def.'s Mot. to Dismiss 3) (“Def.'s App.”) (Doc. 6). F's Crafts Division serves artists and crafters and offers instructions and tools for quilting, sewing, crochet, and other crafting areas. Id. ¶ 8. F also operates craft-focused community web sites such as www.quiltingdaily.com, www.quiltmaker.com, and others. Id. ¶ 9. In addition, F sells magazines in stores nationwide, including Texas, and has sponsored a trade show in various cities throughout the country, including in Texas. F has offices in New York, Colorado, Iowa, Massachusetts, New Hampshire, Ohio, Pennsylvania, Wisconsin, and in the United Kingdom, and has a retail presence in New Hampshire. Id. ¶ 21. F has two employees in Texas.[1]

         In or around March 2016, Wayne Walker (“Walker”), employed by MFD, approached F employee, Kristi Loeffelholz (“Loeffelholz”), regarding a potential business relationship under which MFD would develop certain software for F's online platforms of the Crafts Division. At the time, Loeffelholz was the General Manager of F's Quilt Sew Community and was based in Des Moines, Iowa. Also in March 2016, Walker e-mailed Loeffelholz about giving her a brief presentation on the software and asked for her address. Walker and Loeffelholz continued to communicate throughout the Summer of 2016, including discussing a draft Software Licensing and Product Fulfillment Agreement (the “SLPF Agreement”), which Walker e-mailed to Loeffelholz in June 2016.

         On or about September 13, 2016, after continued communications via telephone and e-mail related to the software and proposed SLPF Agreement, the parties executed a letter of intent (“LOI”), which was signed electronically and circulated by e-mail. Pl.'s App. 20. The LOI, signed by Joe Romello of MFD, stated: “By writing you this letter, it is my intent to outline our business relationship going forward with regard to our work to be performed in anticipation of our [SLPF] Agreement.” Id. Under the terms of the LOI, MFD agreed to “create, develop and deliver, at is sole cost, a Preliminary Software Module (‘PSM') suitable to allow [F] to evaluate the software for purposes of determining the suitability of the software to be developed pursuant to the SLPF Agreement.” Id. The LOI further provided that ten days after its execution, “MFD shall thereafter deliver the PSM to [F], who shall then have 14 days (the ‘Evaluation Period') to evaluate the PSM for suitability, however, this time period shall be extended by mutual agreement of the parties to accommodate any development issues that may arise during the evaluation period.” Id. The LOI also stated that within “five days after the end of the Evaluation Period, [F] will notify MFD of its intent not to proceed with execution of the SLPF Agreement, or deliver a copy of the Agreement to MFD via email or other electronic transmission.” Id.

         In October and November 2016, Walker and Loeffelholz continued to engage in communications and exchanged drafts of the proposed SLPF Agreement via e-mail. In the Fall of 2016, Loeffelholz traveled to Houston, Texas once to attend a trade show. While in Houston for the show, she met with a MFD representative. In January 2017, Loeffelholz ended her employment with F.

         The proposed SLPF Agreement explicitly provided that it was only effective “when signed by authorized MFD and F representatives.” Pl.'s App. 12. Ultimately, the SLPF Agreement was not accepted or signed by F. MFD does not challenge that F never signed the SLPF Agreement but contends F led it to believe the deal would come to fruition. According to Gary Gardner, MFD's President, “at no time after the LOI was signed was there any feedback that F and MFD development was not going to fruition.” Affidavit of Gary Gardner (“Gardner Aff.”) ¶ 7. Mr. Gardner further stated the following under oath:

If [the relationship] had continued, MFD and F would have worked together on a continuing basis as partners. As F began to sell MFD custom printed fabrics on site, these sales would have meant that our software would have been constantly updated as F continued to change and refine its site, or expand its inventory. And my experience in the software development field has instructed me that this process[] is never done. In addition, as sales continued, we would have to interact with F.
In exchange for MFD's work, F agreed to commit an advertising budget to promote this joint project of $1, 200, 000 dollars per year. This advertising would have, and was meant to, directly benefit MFD's sales here in Texas. . . .
After we delivered our software to F, we received nothing but positive feedback, and it was clear that the project was successful. And, although we did not receive a signed [SLPF Agreement], employees at F who were involved in the project like Kristi Loeffelholz, and others, told us that the project was approved, and that we should continue work.
We relied on these statements, continued work on the project, and reasonably believed F agreed to the [SLPF Agreement], and F told us, and acted like, this was the case. Later, however, we were informed by other F employees that F had decided to no longer continue the project.

Gardner Aff. ¶¶ 8-11.

         On July 12, 2017, MFD filed suit against F in the 162nd Judicial District Court of Dallas County, Texas, alleging breach of contract, unjust enrichment, fraud, and detrimental reliance. F timely removed the case to this court on August 10, 2017, on the basis of diversity jurisdiction.[2] On August 17, 2017, F moved to dismiss this lawsuit under Federal Rule of Civil Procedure 12(b)(2) for lack of personal jurisdiction or, alternatively, to transfer this lawsuit to the Southern District of New York pursuant to 28 U.S.C. § 1404(a).

         II. Legal Standard - Fed.R.Civ.P. 12(b)(2)

         On a motion to dismiss for lack of personal jurisdiction, the plaintiff bears the burden of establishing a prima facie case for the court's jurisdiction over a nonresident defendant. See Ham v. La Cienega Music Co., 4 F.3d 413, 415 (5th Cir. 1993); Stuart v. Spademan, 772 F.2d 1185, 1192 (5th Cir. 1985). When the court rules on the motion without an evidentiary hearing, the plaintiff may establish personal jurisdiction by presenting a prima facie case that personal jurisdiction is proper, id.; proof by a preponderance of the evidence is not required. International Truck and Engine Corp. v. Quintana, 259 F.Supp.2d 553, 556 (N.D. Tex. 2003) (citing WNS, Inc. v. Farrow, 884 F.2d 200, 203 (5th Cir. 1989)). The court may determine the jurisdictional issue by receiving affidavits, interrogatories, depositions, oral testimony, or any combination of the recognized methods of discovery. Stuart, 772 F.2d at 1192. Uncontroverted allegations in a plaintiff's complaint must be taken as true, and conflicts between the facts contained in the parties' affidavits must be resolved in favor of the plaintiff. Bullion v. Gillespie, 895 F.2d 213, 217 (5th Cir. 1990). Nevertheless, the court is not required to credit conclusory allegations even if they are uncontroverted. Panda Brandywine Corp. v. Potomac Elec. Power Co., 253 F.3d 865, 869 (5th Cir. 2001). After a plaintiff makes a prima facie case, the burden then shifts to the defendant to present “a compelling case that the presence of some other consideration would render jurisdiction unreasonable.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 477 (1985).

         A federal court has jurisdiction over a nonresident defendant if the state long-arm statute confers personal jurisdiction over that defendant, and if the exercise of jurisdiction is consistent with due process under the United States Constitution. Ruston Gas Turbines, Inc. v. Donaldson Co., Inc., 9 F.3d 415, 418 (5th Cir. 1993). Because the Texas long-arm statute extends to the limits of federal due process, Schlobohm v. Schapiro, 784 S.W.2d 355, 357 (Tex. 1990), the court must determine whether (1) the defendants have established “minimum contacts” with the forum state; and, (2) whether the exercise of personal jurisdiction over the defendants would offend “traditional notions of fair play and substantial justice.” Ruston Gas, 9 F.3d at 418 (citing International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)).

         The “minimum contacts” prong is satisfied when a defendant “purposefully avails itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections of its laws.” Burger King, 471 U.S. at 475. The nonresident defendant's availment must be such that the defendant “should reasonably anticipate being haled into court” in the forum state. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980). This test “ensures that a defendant will 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 a third person.'” Burger King, 471 U.S. at 475 (citations omitted). The “minimum contacts” prong of the inquiry may be subdivided into contacts that give rise to “specific” personal jurisdiction and those that give rise to “general” personal jurisdiction. Marathon Oil Co. v. A.G. Ruhrgas, 182 F.3d 291, 295 (5th Cir. 1999). Specific jurisdiction is only appropriate when the nonresident defendant's contacts with the forum state arise from, or are directly related to, the cause of action. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 n.8 (1984). “The inquiry whether a forum State may assert specific jurisdiction over a nonresident defendant ‘focuses on ‘the relationship among the defendant, the forum, and the litigation.'” Walden v. Fiore, ___ U.S. ___, 134 S.Ct. 1115, 1121 (2014) (quoting Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 775 (1984) (in turn quoting Shaffer v. Heitner, 433 U.S. 186, 204 (1977)). “For a State to exercise jurisdiction consistent with due process, the defendant's suit-related conduct must create a substantial connection with the forum State.” Id. As such, “the relationship must arise out of contacts that the ‘defendant himself' creates with the forum state.” Walden, 134 S.Ct. at 1122 (quoting Burger King, 471 U.S. at 475).

         The exercise of general personal jurisdiction is proper when the nonresident defendant's contacts with the forum state, even if unrelated to the cause of action, are continuous, systematic, and substantial. Helicopteros, 466 U.S. at 414 n.9. Recently, the Supreme Court clarified that courts may exercise general jurisdiction over nonresident defendant corporations when “‘their affiliations with the State are so continuous and systematic as to render them essentially at home in the forum State.'” BNSF Ry. Co. v. Tyrrell, ___ U.S. ___, 137 S.Ct. 1549, 1558 (2017) (quoting Daimler AG v. Bauman, ___ U.S. ___, 134 S.Ct. 746, 754 (2014)) (internal quotation marks omitted). Whether the defendant corporation is “essentially at home” does not “focus solely on the magnitude of the defendant's in-state contacts.” Id. at 1559 (quoting Daimler, 134 S.Ct. at 762 n.20) (internal quotation marks omitted). Instead, courts must examine the defendant corporation's “activities in their entirety, nationwide and worldwide.” Daimler, 134 S.Ct. at 762 n.20. When activities in a particular forum are “so substantial and of such a nature as to render the corporation at home in that State” in light of all of the corporation's activities, a court may exercise general jurisdiction. BNSF Ry., 137 S.Ct. at 1558 (quoting Daimler, 134 S.Ct. at 761 n.19) (internal quotation marks omitted).

         The corporate defendant's place of incorporation and principal place of business are the “paradigm” forums where it is “at home.” Id. at 1558 (quoting Daimler, 134 S.Ct. at 760; Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 924 (2011)) (internal quotation marks omitted). Corporate defendants may be at home in additional forums, but such a forum is an “exceptional case.” Id. (quoting Daimler, 134 S.Ct. at 761n.19); see also Monkton Ins. Servs., Ltd. v. Ritter, 768 F.3d 429, 432 (5th Cir. 2014) (“It is, therefore, incredibly difficult to ...


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