Transient Path, LLC v. Stones South Bay Corp.

Background

Transient Path develops gambling software. It licensed software to Stones South Bay Corp., doing business as Seven Mile Casino, and King’s Casino Management Corp., doing business as The Saloon at Stones Gambling Hall and The Tavern at Stones Gambling Hall. The licensing agreements prohibited decompiling, reverse assembling, reverse engineering, modifying, copying, and distributing Transient Path’s software. The agreements also required any action to enforce rights or obligations under them to be brought only in a court of competent jurisdiction in New York State’s Westchester County.

Transient Path alleged that the defendants reverse engineered its source code, copied its software, and released competing software. Its amended complaint asserted breach of contract, trade-secret misappropriation under the federal Defend Trade Secrets Act and New York common law, and copyright infringement.

Defendants’ Motion

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(2), which concerns personal jurisdiction—the court’s authority over a defendant—and Rule 12(b)(6), which concerns whether a complaint adequately states a claim. Although the motion cited both rules, the defendants’ brief focused exclusively on personal jurisdiction. The defendants argued that the forum-selection clause did not apply to the lawsuit, that it did not cover the copyright and trade-secret claims, and that Elevation Entertainment Group was not bound because it did not sign the licensing agreements. They also argued that Transient Path lacked capacity to sue under New York Business Corporation Law § 1312(a) because it was allegedly doing business in New York without registering there.

Forum-Selection Clause

The court held that the clause was mandatory because it required “[a]ny action” under the agreements to be brought only in Westchester County. The court rejected the defendants’ argument that the clause was one-sided because it expressly stated that Transient Path consented to jurisdiction but did not contain identical language for the licensees. Reading the agreement as a whole, the court concluded that the clause required both sides to litigate covered disputes in the designated forum.

The court treated the clause as narrow because it covered actions to declare or enforce rights or obligations under the agreements. The contract claim was covered, and the trade-secret claims were also covered because, according to the court, Transient Path could prevail on those claims only by showing that the defendants used its trade secrets in violation of the licensing agreements. The copyright claim was different: the court held that it arose under federal copyright law and could be asserted without relying on the agreements. It therefore fell outside the clause.

The court also held that the clause could be enforced against Elevation even though Elevation was not a signatory. The amended complaint adequately alleged that Elevation actively managed and participated in the signatory defendants’ operations and the performance of the agreements, handled communications and payments, and allegedly acted with the signatory defendants to harm Transient Path. The court found that it was foreseeable that Elevation would be bound by the forum-selection clause.

The court rejected the defendants’ arguments that enforcement was unreasonable because the case was filed in Manhattan rather than at a courthouse in Westchester County and because the clause was confusing. It concluded that the Southern District of New York has jurisdiction over Westchester County and that the clause was enforceable. The defendants had not made the required showing that enforcement would be unreasonable, unjust, fraudulent, or the product of overreaching.

Capacity to Sue

The court also denied dismissal under New York Business Corporation Law § 1312(a). That statute can prevent an unauthorized foreign corporation from maintaining an action in New York, but the defendants had the burden to show that Transient Path conducted permanent, continuous, and regular business activity in New York. The court found that the defendants’ showing—that Transient Path managed licensed casino-management software from New York—at most demonstrated an isolated business activity connected to services provided in California. That was insufficient under the statute.

Disposition

The court granted the defendants’ motion to dismiss in part and denied it in part. It granted the motion as to Transient Path’s copyright claim, identified as Count V, because that claim was outside the scope of the forum-selection clause. In all other respects, it denied the motion, including as to the contract and trade-secret claims, personal jurisdiction over the defendants, jurisdiction over Elevation, and the capacity-to-sue argument. Judge Loretta A. Preska directed the Clerk of Court to terminate the listed motions.