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Lee v. Verimatrix Inc.

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

October 25, 2019

JAMES PYUNG LEE and HEE SOOK NAM, Plaintiffs,
v.
VERIMATRIX, INC., ROBIN “ROSS” COOPER, and INSIDE SECURE, Defendants.

          MEMORANDUM OPINION AND ORDER

          JANE J. BOYLE UNITED STATES DISTRICT JUDGE

         Before the Court is Defendant Robin “Ross” Cooper's motion to dismiss or transfer filed May 21, 2019 (Doc. 15). For the reasons that follow, the Court hereby DENIES IN PART and GRANTS IN PART Defendant Cooper's motion. Although the Court concludes that it lacks personal jurisdiction over all Defendants in this case, the Court DENIES Defendant Cooper's motion to dismiss (Doc. 15) for lack of personal jurisdiction. Rather than dismissing the case, the Court GRANTS Defendant Cooper's motion to transfer venue (Doc. 15) to the Southern District of California, but the Court elects to transfer the case pursuant to 28 U.S.C. § 1406(a), rather than 28 U.S.C. § 1404(a). Further, because the Court exercises its discretion to transfer the case, the Court hereby DENIES Defendant Verimatrix, Inc.'s motion to dismiss (Doc. 18) as MOOT.

         I. BACKGROUND

         This is a declaratory-judgment action arising out of a stock-ownership dispute. Plaintiffs James Pyung Lee and Hee Sook Nam allege that Defendant Cooper, the former Chief Executive Officer of Defendant Verimatrix, Inc., agreed with Plaintiffs to transfer stock shares to Plaintiffs. Doc. 9, Pls.' First Am. Compl., ¶¶ 14-15. According to Plaintiffs, they each provided consideration to receive 220, 000 shares in Defendant Verimatrix. Id. ¶¶ 17-18. On or about March 12, 2003, Plaintiffs allege, Defendant Cooper transferred 220, 000 stock shares to each Plaintiff. Id. Thereafter, a Director of Defendant Verimatrix delivered the endorsed shares to Plaintiffs in Dallas County, Texas. Id. ¶ 15.

         In December 2018, Plaintiffs discovered that Defendant Inside Secure was seeking to acquire shares of Defendant Verimatrix. Doc. 28, App. Supp. Pls.' Combined Resp., Exs. 1-2, ¶ 6. Now, Plaintiffs contend, Defendant Inside Secure's acquisition of Defendant Verimatrix is purportedly complete, but neither Plaintiff has sold his or her shares. Id. ¶ 7.[1] Confusingly, Plaintiffs omit any facts indicating whether they were consulted regarding this acquisition or whether Defendants have denied Plaintiffs' ownership in the stock altogether. See Doc. 9, Pls.' First Am. Compl.; Doc. 27, Pls.' Combined Resp. It appears that the alleged acquisition is an attempt to divest Plaintiffs of their claimed interest in the stock. In any event, this characterization of the allegations does not affect the Court's analysis.

         Plaintiffs filed this declaratory-judgment action in Texas state court on January 9, 2019. Doc. 1-3, Pls.' Orig. Pet., 1. They seek a declaratory judgment stating that: (1) Plaintiffs are owners of Defendant Verimatrix; (2) Plaintiffs own the stock certificates attached to their amended complaint (Doc. 9); and (3) Defendant Cooper had the legal authority to transfer the stock to Plaintiffs. Doc. 9, Pls.' First Am. Compl., ¶ 20. Based on diversity jurisdiction, Defendant Cooper timely filed a notice of removal (Doc. 1). Subsequently, Plaintiffs filed an amended complaint (Doc. 9). Next, Defendant Cooper filed a motion to dismiss or transfer (Doc. 15); Plaintiffs responded (Doc. 27); and Defendant Cooper replied (Doc. 29). Accordingly, Defendant Cooper's motion to dismiss or transfer is now ripe for review.

         In his motion to dismiss, Defendant Cooper seeks dismissal for: (1) lack of personal jurisdiction; (2) improper venue; (3) failure to join a necessary party; and (4) failure to state a claim due to the expiration of the statute of limitations. Doc. 16, Br. Supp. Def.'s Mot., 3. As an alternative to dismissal, Defendant Cooper also contends that transfer of the case is proper under 28 U.S.C. § 1404. Id.[2]

         II. LEGAL STANDARD

         A. Dismissal Under Federal Rule of Civil Procedure 12(b)(2) for Lack of Personal Jurisdiction

         Federal Rule of Civil Procedure 12(b)(2) allows for dismissal of an action when a court lacks personal jurisdiction over the defendant. A plaintiff bears the burden of establishing a trial court's personal jurisdiction over each defendant. Stuart v. Spademan, 772 F.2d 1185, 1192 (5th Cir. 1985). “To satisfy that burden, the [plaintiff] must ‘present sufficient facts as to make out only a prima facie case supporting jurisdiction,' if a court rules on a motion [to dismiss] without an evidentiary hearing.” Lahman v. Nationwide Provider Sols., 2018 WL 3035916, at *4 (E.D. Tex. June 19, 2018) (quoting Alpine View Co. Ltd. v. Atlas Copco AB, 205 F.3d 208, 215 (5th Cir. 2000)).

         “When considering the motion to dismiss, ‘allegations in a plaintiff's complaint are taken as true except to the extent that they are contradicted by defendant's affidavits.'” Lahman, 2018 WL 3035916, at *4 (alterations incorporated) (quoting Int'l Truck & Engine Corp. v. Quintana, 259 F.Supp.2d 553, 557 (N.D. Tex. 2003) (citing Wyatt v. Kaplan, 686 F.2d 276, 282-83 n.13 (5th Cir. 1982))). Further, “[a]ny genuine, material conflicts between the facts established by the parties' affidavits and other evidence are resolved in favor of [the] plaintiff for the purposes of determining whether a prima facie case exists.” Valdez v. Kreso, Inc., 157 F.Supp.2d 722, 725 (N.D. Tex. 2001) (citing Jones v. Petty-Ray Geophysical Geosource, Inc., 954 F.2d 1061, 1067 (5th Cir. 1992) and Bullion v. Gillespie, 895 F.2d 213, 217 (5th Cir. 1990)).

         A federal court sitting in diversity may exercise personal jurisdiction over a nonresident defendant to the same extent as a forum-state court. Wilson v. Belin, 20 F.3d 644, 646 (5th Cir. 1994). A Texas state court can exercise jurisdiction over a nonresident if two preconditions are met: (1) the nonresident must be amenable to service of process under Texas's long-arm statute; and (2) the assertion of jurisdiction over the nonresident must comport with the due process clause of the Fourteenth Amendment. Jones, 954 F.2d at 1067. Because Texas's long-arm statute has been held to extend to the limits of due process, the Court need only determine whether jurisdiction over the defendants is constitutionally permissible. Schlobohm v. Schapiro, 784 S.W.2d 355, 357 (Tex. 1990).

         To meet the federal constitutional test of due process, two elements must be satisfied: (1) the defendant must have purposefully availed itself of the benefits and protections of the forum state by establishing “minimum contacts” with that state such that it should reasonably anticipate being haled into court there; and (2) the exercise of jurisdiction over the defendant must not offend traditional notions of fair play and substantial justice. Jones, 954 F.2d at 1068.

         The “minimum contacts” prong of the due process analysis can be met through contacts giving rise to either specific or general personal jurisdiction. Gundle Lining Constr. Corp. v. Adams Cty. Asphalt, Inc., 85 F.3d 201, 205 (5th Cir. 1996). “General personal jurisdiction is found when the nonresident defendant's contacts with the forum state, even if unrelated to the cause of action, are continuous, systematic, and substantial.” Marathon Oil Co. v. A.G. Ruhrgas, 182 F.3d 291, 295 (5th Cir. 1999). In contrast, specific personal jurisdiction is established through the defendant's contacts with the forum state that arise from, or are related to, the cause of action. Gundle Lining, 85 F.3d at 205. The specific-jurisdiction inquiry “focuses on the relationship among the defendant, the forum, and the litigation.” Walden v. Fiore, 571 U.S. 277, 283-84 (2014) (internal citations and quotation marks omitted).

         To find specific jurisdiction over a defendant, a court must find that “the defendant's suit-related conduct . . . create[s] a substantial connection with the forum [s]tate.” Id. at 284. This connection “must arise out of contacts that the defendant himself creates with the forum [s]tate, ” and it must be based on “the defendant's contacts with the forum [s]tate itself, not the defendant's contacts with persons who reside there.” Id. at 284-85 (emphasis in original) (internal citations and quotation marks omitted). Thus, a defendant cannot be “haled into court” based on the “‘random, fortuitous, or attenuated' contacts he makes by interacting with other persons affiliated with the [s]tate.” Id. at 286 (internal quotation marks omitted) (quoting Burger King v. Rudzewicz, 471 U.S. 462, 475 (1985)). And a defendant's physical entry into the forum state, whether in person or through an agent, is “a relevant contact” in assessing personal jurisdiction, but it is not a prerequisite to jurisdiction. Walden, 571 U.S. at 285.

         III. ANALYSIS

         A. Personal Jurisdiction

         The Court now turns to whether it has personal jurisdiction over Defendants Cooper, Verimatrix, and Inside Secure. Plaintiffs do not explicitly indicate whether they contend that Defendants are subject to general or specific jurisdiction-or both. See Doc. 9, Pls.' First Am. Compl., ¶¶ 6-11; Doc. 27, Pls.' Combined Resp., 2-4. But because their arguments focus exclusively on Defendants' contacts with Texas that relate to the cause of action, Plaintiffs' arguments sound only in specific jurisdiction. See Gundle Lining, 85 F.3d at 205.

         For example, in their amended complaint, Plaintiffs allege that Defendants Cooper and Verimatrix have “minimum contacts with the state of Texas via their entry to Texas and targeting of Texas residents to conduct a [sale] of . . . stock and transfer of stock certificate[s].” Doc. 9, Pls.' First Am. Compl., ¶ 10. And in their response, Plaintiffs contend that “Defendants clearly knew that Plaintiffs were Texas residents, they aimed their activities at Texas, and the[y] knew that the brunt of those activities would be felt in Texas.” Doc. 27, Pls.' Combined Resp., 4. Further, Plaintiffs' only argument supporting personal jurisdiction over Defendant Inside Secure rests on the notion that, because Defendant Verimatrix is “allegedly a subsidiary of Inside Secure, ” and there is personal jurisdiction over Defendant Verimatrix, the Court has personal jurisdiction over Defendant Inside Secure. Id. at 7.

         Given Plaintiffs' failure to allege general jurisdiction over any defendant in the case, this Court focuses its analysis exclusively on whether it has specific jurisdiction over each Defendant. Moreover, because Plaintiffs rely on the same arguments to support a finding of personal jurisdiction for both Defendant Cooper and Defendant Verimatrix, the Court addresses personal jurisdiction over these Defendants together.

         1. Defendants Cooper and Verimatrix

         The Court first examines whether it has specific jurisdiction over Defendants Cooper and Verimatrix. Plaintiffs contend that Defendants Cooper and Verimatrix “have minimum contacts with the state of Texas” by virtue of “their entry to Texas and targeting of Texas residents to conduct a [sale] of a stock ...


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