FTC-Forward Threat Control, LLC v. Dominion Harbor Enterprises, LLC

Background

FTC-Forward Threat Control, LLC, also called Forward Threat, alleged that it assigned six patents relating to threat-sensor technology to FTC Sensors, LLC under an August 11, 2015 agreement. In exchange, FTC Sensors agreed to pay Forward Threat 20% of gross licensing and litigation recoveries and guaranteed cash payments of $500,000 per year for the first two years. The agreement also required FTC Sensors to maintain records available for audit and to return the patents after two years upon written demand. The agreement selected California courts for disputes and provided that Delaware substantive law would govern the agreement’s performance and interpretation.

Forward Threat alleged that FTC Sensors failed to make the required payments, refused to provide records for an audit, and refused to return the patents. It asserted claims for breach of contract, conversion, accounting, unjust enrichment, and quantum meruit against all defendants. Although FTC Sensors was the only defendant that signed the agreement, Forward Threat alleged that Dominion Harbor Enterprises, LLC; Dominion Harbor Group, LLC; Monument Patent Holdings, LLC; and Monument IP Fund 1, LLC were alter egos of FTC Sensors or were otherwise responsible for its conduct.

The four latter defendants, called the Movants, asked the court to dismiss them under Federal Rule of Civil Procedure 12(b)(2) for lack of personal jurisdiction. They represented that they were Texas limited liability companies with offices and operations in Texas and lacked sufficient contacts with California. Forward Threat opposed dismissal and requested discovery concerning whether California could exercise jurisdiction over the Movants.

Administrative Motions

The court granted Forward Threat’s request to submit supplemental evidence obtained through discovery because the evidence was produced after briefing, was relevant to jurisdiction, and Forward Threat had acted diligently. The court denied Forward Threat’s request to file a surreply, and it denied the Movants’ request to file a response to the proposed surreply. The court concluded that additional briefing on the legal arguments was unnecessary at that time.

Forum-Selection Clause

The court rejected Forward Threat’s argument that the agreement’s California forum-selection clause alone subjected the Movants to personal jurisdiction. The Movants did not sign the agreement and did not consent to the clause. The court distinguished cases involving nonsignatories who enforced or avoided a forum clause, cases involving venue or forum non conveniens, and a case involving an officer who had signed the contract on behalf of his company. The court concluded that Forward Threat had not identified a case holding that a nonsignatory could be brought into a forum that otherwise lacked personal jurisdiction over that nonsignatory.

Alter-Ego Theory

An alter-ego theory can allow a court to attribute one company’s contacts to another company for personal-jurisdiction purposes. The court held that the agreement’s Delaware choice-of-law provision did not govern the alter-ego issue because alter-ego liability was collateral to, and not part of, the agreement. Applying California’s governmental-interest choice-of-law test, the court found differences between Texas and California law but concluded that there was no true conflict for purposes of analyzing personal jurisdiction. The court therefore applied California law.

The court found several facts supporting Forward Threat’s alter-ego theory, especially concerning Dominion Harbor Group. The same individual, David Pridham, was identified as chief executive officer of all defendants and as a managing member of several entities. The record also indicated shared employees, shared offices and equipment among some entities, maintenance of FTC Sensors’ financial and licensing records by Dominion Harbor Group, communications with Forward Threat through Dominion Harbor Group, and a lack of capitalization for FTC Sensors.

The court concluded that Forward Threat had presented evidence tending to support its alter-ego theory, but the record was not sufficiently developed to determine whether the alter-ego test had been met. The court did not continue to the question of whether maintaining the companies’ separate identities would produce an unjust result because the evidence concerning the unity of interest was not yet sufficiently developed.

General Jurisdiction

Forward Threat also argued that the Movants were subject to general personal jurisdiction because they regularly litigated patent cases in California through subsidiaries or litigation affiliates. The court found this argument unpersuasive. Forward Threat offered no legal basis for attributing those affiliates’ California contacts to the Movants or to Pridham, and it had not shown that the affiliates were alter egos of the Movants or Pridham.

Jurisdictional Discovery and Disposition

Jurisdictional discovery is discovery directed to facts bearing on whether the court has authority over a defendant. The court authorized it because a more satisfactory factual showing was needed concerning the Movants’ capitalization and corporate structure, management and financial operations, accounts, corporate records and minutes, agreements among the entities, and whether maintaining the entities’ separate identities would result in injustice or fraud against Forward Threat.

The court emphasized that the discovery authorization did not establish personal jurisdiction. It stated that Forward Threat’s allegations, particularly those concerning Dominion Harbor Group, had substance but were currently insufficient to support jurisdiction. The court therefore denied the Movants’ Rule 12(b)(2) motion to dismiss without prejudice to renewal after Forward Threat had a full and fair opportunity to complete jurisdictional discovery. Only jurisdictional discovery requests could be served, and the court referred disputes about that discovery to a magistrate judge. Judge Edward J. Davila signed the order.