Opinion
No. C 03-4535 JW.
July 29, 2004
ORDER DENYING MOTION TO DISMISS FOR LACK OF SUBJECT MATTER JURISDICTION AND GRANTING MOTION TO DISMISS ON FORUM NON CONVENIENS GROUNDS
I. INTRODUCTION
Plaintiff Arsape S.A. ("Plaintiff") filed suit against Defendant JDS Uniphase Corporation ("Defendant") alleging breach of contract and various other claims based upon the cancellation of certain purchase orders between Defendant and Plaintiff's assignor, Donovan Micro-Tek ("DMT"). Asserting that the assignment was collusive and manufactured only to invoke the jurisdiction of this Court, Defendant now moves to dismiss the action for lack of subject matter jurisdiction under Fed.R.Civ.P. 12(b)(1) and 28 U.S.C. § 1359. Additionally, Defendant claims that the assignment is invalid under the terms of the purchase orders and therefore the complaint can also be dismissed for lack of subject matter jurisdiction. In the alternative, Defendant also moves to dismiss the action on forum non conveniens grounds. The Court finds that the assignment was not collusive nor invalid and therefore denies Defendant's motion to dismiss. The Court, however, grants Defendant's motion on forum non conveniens grounds.
II. BACKGROUND
Plaintiff is a manufacturer and seller of electrical products incorporated under the laws of Switzerland with its principal place of business in Switzerland. DMT is Plaintiff's United States distributor, organized under the laws of California with its principal place of business in California. Defendant is a seller of fiber optic communications equipment incorporated in Delaware with its principal place of business in California.In 1997, Defendant's employee contacted DMT and arranged for the purchase of customized stepper motors that Defendant would integrate into its voltage control attenuator ("VCB") as part of its fiber optic communications equipment offerings. Two purchase orders were drafted by Defendant and accepted by DMT without express dispute or change: a July 19, 2000 order for 42,500 stepper motors and a September 5, 2001 order for 30,000 stepper motors. The purchase orders designated that the stepper motors were to be shipped to Defendant's Ontario facilities, F.O.B. Simi Valley, California. For a variety of alleged reasons, Defendant cancelled the orders on April 5, 2001. All contracts and payments were made to DMT who in turn paid Plaintiff while keeping a distributor's margin for itself. Defendant and Plaintiff never contracted with each other.
Effective July 21, 2003, DMT assigned all of its potential claims against Defendant to Plaintiff for ten dollars and did not retain any interest, "present, future, conditional nor contingent, in the pecuniary benefits of the claims." (Plaintiff's Opp. Exhibit A.) Plaintiff in turn, assumed all liability that may arise from the assignment and control of the litigation. Approximately two and a half months later on October 7, 2003, Plaintiff sued Defendant based on diversity jurisdiction.
Defendant asserts that because diversity arises from a collusive or invalid assignment from DMT, a California entity, to the Swiss Plaintiff, the Court has no subject matter jurisdiction. In the alternative, Defendant moves to dismiss the complaint on forum non conveniens grounds.
III. STANDARDS
A. Subject Matter JurisdictionAlthough a federal court has jurisdiction over a suit between "citizens of a state and citizens or subjects of a foreign state," 28 U.S.C. § 1332(a)(2), diversity jurisdiction does not encompass foreign plaintiffs suing foreign defendants. Cheng v. Boeing Co., 708 F.2d 1406 (9th Cir. 1983). Fed.R.Civ.P. 12(b)(1) authorizes dismissal of an action based upon lack of subject matter jurisdiction. When considering a motion to dismiss pursuant to Rule 12(b)(1), a court is not restricted to the face of the pleadings but may review any evidence, such as declarations and testimony, to resolve any factual disputes concerning the existence of jurisdiction. McCarthy v. United States, 850 F.2d 558, 560 (9th Cir. 1988).
A court has the authority to dismiss an action under Rule 12(b)(1) on the grounds of 28 U.S.C. § 1359. Fed.R.Civ.P. 12(b)(1); 28 U.S.C. § 1359. Under § 1359, a district court is prohibited from adjudicating a civil action "in which any party, by assignment or otherwise, has improperly or collusively made or joined to invoke the jurisdiction of the court." The purpose of § 1359 is to prevent manufacturing of federal jurisdiction and to avoid the ability of one party to channel ordinary state law litigation into federal courts at will. Kramer v. Caribbean Mills, Inc., 394 U.S. 823, 828-29 (1969). The party invoking diversity jurisdiction bears the burden of proof to establish that the assignment is proper and valid. Dweck v. Japan CBM Corp., 877 F.2d 790, 792 (9th Cir. 1989).
A number of factors are considered in determining whether an assignment is improper or collusive. These factors include: (1) were there good business reasons for the assignment; (2) did the assignee have a prior interest in the item or was the assignment timed to coincide with commencement of litigation; (3) was any consideration given by the assignee; (4) was the assignment partial or complete; and (5) was there an admission that the motive was to create jurisdiction. Attorney Trust v. Videotape Computer Products, Inc., 93 F.3d 593, 595 (9th Cir. 1996).
Although subjective motive is an important factor, where the transfer of a claim is absolute, with the transferor retaining no interest in the subject matter, then the transfer is generally not considered "improperly or collusively made" regardless of the transferor's motive. Kramer, 394 U.S. at 828. It is the "objective fact of who really is the party in interest" that is the most important thing to be determined. Attorney Trust, 93 F.3d at 596. However, even when there is a complete assignment, collusion may be found. Id. Transfers between corporations and its subsidiaries or transfers to a shell corporation are considered presumptively collusive and can only be overcome with proof of legitimate business reasons and consideration of the previously listed factors. Id. Evidence of jurisdictional motive merely heightens the presumption. Nike, Inc. v. Comercial Iberica de Exclusivas Deportivas, S.A., 20 F.3d 987, 992 (9th Cir. 1994). The presumption cannot be rebutted by merely a colorable or plausible business reason. It must be sufficiently compelling that the assignment would have been made absent the purpose of gaining a federal forum.
B. Forum Non Conveniens
A district court has discretion under the doctrine of forum non conveniens to decline to exercise jurisdiction in a case where litigation in a foreign forum would be more convenient for the parties. Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 504 (1947). In dismissing an action on forum non conveniens grounds, the court must find that (1) an adequate alternative forum exists and (2) the balance of private and public interest factors favor dismissal. Piper Aircraft Co. v. Reyno, 454 U.S. 235, 254 (1981); Gulf Oil, 330 U.S. at 507-509.
The defendant bears the burden of establishing that an adequate alternative forum exists. Cheng v. Boeing Co., 708 F.2d at 1411. An alternative forum is ordinarily adequate if the defendant is amenable to service of process in the foreign forum. Piper Aircraft, 454 U.S. at 254. The foreign court's jurisdiction over the case and competency to decide the legal questions involved are also relevant considerations. Leetsch v. Freedman, 260 F.3d 1100, 1103 (9th Cir. 2001). However, it is only in "rare circumstances . . . where the remedy provided by the alternative forum . . . is so clearly inadequate or unsatisfactory, that it is no remedy at all," that this requirement is not met. Lockman Found. v. Evangelical Alliance Mission, 930 F.2d 764, 767 (9th Cir. 1991).
Once the existence of an adequate alternative forum is established, a dismissal is warranted if the private and public interest factors strongly favor trial in a foreign country. Gulf Oil, 330 U.S. at 509. The central focus of the forum non conveniens inquiry is convenience. Piper Aircraft, 454 U.S. at 249. Dismissal will generally be appropriate where trial in plaintiff's chosen forum is established as imposing such "oppressiveness and vexation," Piper Aircraft, 454 U.S. at 241, to defendant as to outweigh plaintiff's convenience. The doctrine is an "exceptional tool" to be employed only sparingly. Ravelo Monegro v. Rosa, 211 F.3d 509, 514 (9th Cir. 2000). Additionally, the plaintiff's choice of forum is ordinarily accorded substantial deference. Piper Aircraft, 454 U.S. at 256. A foreign plaintiff's choice, however, is held to deserve less deference. Id. Nevertheless, "less deference is not the same thing as no deference." Ravelo Mondegro, 211 F.3d at 514.
Private interest factors affecting the convenience of the litigants include: (1) the residence of the parties and witnesses; (2) the chosen forum's convenience to the litigants; (3) access to physical evidence and other sources of proof; (4) whether unwilling witnesses can be compelled to testify; (5) cost of bringing willing witnesses to trial; (6) enforceability of the judgment; and (7) all other practical problems that make trial of a case easy, expeditious and inexpensive. Lueck v. Sundstrand Corp., 236 F.3d 1137, 1145 (9th Cir. 2001). Public interest factors affecting convenience of the forum include: (1) administrative difficulties flowing from court congestion; (2) the "local interest" in having localized controversies decided at home; (3) the interest in having the trial of a diversity case in a forum that is at home with the law that must govern the action; (4) the avoidance of unnecessary problems in conflict of laws, or in the application of foreign law; (5) and the unfairness of burdening citizens in an unrelated forum with jury duty. Gulf Oil, 330 U.S. at 509. The district court should consider the factors together in arriving at a balanced conclusion. Leuck, 236 F.3d at 1145-46.
IV. DISCUSSION
A. This Court has subject matter jurisdiction.1. DMT's assignment of claims was not improper under terms and conditions of the purchase orders.
Generally, questions of the validity, enforceability or effect of an assignment are governed by the law of the place where the assignment was made. Smith v. Grimm, 534 F.2d 1346, 1351 (9th Cir. 1976). The law of the assignor's domicile may also determine the validity of the assignment.Black v. J.W. Zacharie Co., 44 U.S. 483 (1845). In this case, the assignment was entered into in California when DMT transferred its rights to Plaintiff. Additionally, the parties expressly incorporated California law into the assignment as determinative of their rights under the assignment. Broadcast Music, Inc. v. Hirsch, 104 F.3d 1163, 1167 (9th Cir. 1997) (New York law governs where parties to assignment expressly incorporate New York law to govern the assignment).
Under California law, a provision in a contract against assignment does not preclude the assignment of money damages for breach of contract.Henkel Corp. v. Hartford Accident and Indemnity Co., 29 Cal.4th 934, 944 (2003). The non-assignment clause will only be given effect with respect to assignment of money damages if it expressly prohibits assignment of money damages. Parkinson v. Caldwell, 126 Cal. App. 2d 548, 552 ("where appropriate language is used assignments of money due under contracts may be prohibited."). As there are no allegations that the contract expressly prohibits assignment of money damages, the assignment to Plaintiff of DMT's claims against Defendant is valid.
2. DMT's assignment of claims under the purchase orders was not collusive under 28 U.S.C. § 1359.
Determinations of collusiveness turn on the nature of assignment, that is, whether the assignee is a real party in interest or just a strawman or sham assignment for all practical purposes. Attorney Trust, 93 F.3d at 597. Courts presume that an assignment is collusive in situations where the relationship between assignor and assignee is close and provides an excellent opportunity for manipulation, as in transfers between corporations and its subsidiaries or officers. Id. at 596.
The instant action is not such a case. The relationship between a manufacturer and its contracted distributor is not such an intertwined and close relationship as to give rise to the presumption of collusiveness. Unlike the assignor in Nike, Inc. v. Comercial Iberica de Exclusias Deportivas, S.A., DMT is not a wholly owned subsidiary of its assignee, Plaintiff. Plaintiff and DMT do not have common shareholders and thus, DMT realistically, does not retain any inherent pecuniary interest in the outcome of the litigation outside of the assignment. Additionally, the assignment transfers any and all of DMT's monetary claims to Plaintiff. DMT relinquished all pecuniary benefit from the litigation under the assignment and the declarations provided by plaintiff all assert the nonexistence of collateral agreements to the contrary. As such, there is a strong presumption that the assignment is proper and not collusive. Kramer, 394 U.S. at 828 ("where the transfer of a claim is absolute, with the transferor retaining no interest in the subject matter, then the transfer is not `improperly or collusively made,' regardless of the transferor's motive.").
The other factors of Attorney Trust also militate against dismissal. Neither Plaintiff nor DMT admit that the motive of the assignment was to create jurisdiction. Additionally, Plaintiff is the manufacturer and the party who had the most to lose under the contracts to Defendant. Plaintiff thus seems to be the real party in interest with a prior interest in the claim. Although the transfer of rights was made three years after the alleged breach of contract and less than three months before the instant suit was filed, the parties agree that up until seven months before the assignment, DMT and Defendant were engaged in settlement discussions. It is not unreasonable for an assignment to be delayed based on hopes of settlement outside of court. Courts have found collusiveness based on timing when there were much shorter durations between the assignment and filing of the action. Conversely, courts have also found proper, assignments made much closer to the time of filing. Nike, Inc., 20 F.3d at 989 (assignment three days before filing complaint collusive); Western Farm Credit Bank v. Hamakua Sugar Co., Inc., 841 F.Supp. 976 (Haw. 1994) (assignment one month before filing complaint proper). Therefore, a two and a half month period between the assignment and filing of the complaint is not dispositive of collusiveness.
Plaintiff also asserts that the driving force of the assignment was DMT's allegedly dire financial situation and its inability to bear the expense and exposure of litigation against Defendant. Although Defendant, citing Nike, Inc., takes issue with categorizing such a reason as a "business reason," a reason that is distantly related to litigation does not automatically preclude it from being a "business reason." (Defendant's Reply at 3-4.) The reason may be a business reason if DMT asserts a reason outside of reasons to litigate in federal court, which it has done here. Nike, Inc., 20 F.3d at 993. Unlike plaintiffs in Nike, Inc., there is no assertion here that Plaintiff chose this district because expense of litigation is less costly than litigation elsewhere or that the docket is better managed. Instead, DMT asserts that its financial condition and their potential liability to Defendant warranted assignment, regardless of jurisdiction. DMT's potential liability to Defendant provides a valid explanation for the nominal fee for the assignment. Plaintiff paid DMT only ten dollars for its allegedly $1.3 million in claims. However, Plaintiff also assumed all of DMT's potential liability to Defendant which could potentially reach to an amount much more than the value of DMT's claims. The risks and costs, actual and potential, constitute substantial consideration for the assignments.
As the assignment was neither invalid under the terms of the purchase orders nor collusive under 28 U.S.C. § 1359, this Court has diversity jurisdiction over the instant case pursuant to 28 U.S.C. § 1332(a)(2). The Court therefore denies Defendant's motion to dismiss the complaint for lack of subject matter jurisdiction. .
B. The suit should be dismissed on forum non conveniens grounds.
Plaintiff is a foreign corporation that has chosen to sue Defendant in its home forum and principal place of business, California. Defendant moves to dismiss the complaint on forum non conveniens grounds asserting that the public and private interest factors balance in favor of an alternate forum; in this case, Ontario where Defendant has its VCB production facilities. The doctrine of forum non conveniens is an "exceptional tool" to be used "sparingly" in situations where there exists an alternate forum and trial in the plaintiff's chosen forum would be unnecessarily burdensome to the defendant and court. Leuck, 236 F.3d at 1145; Piper Aircraft, 454 U.S. at 241. A forum is deemed unsatisfactory only in "rare circumstances" when the remedy available in the alternate forum is "so inadequate or unsatisfactory that it is no remedy at all." Lockman Found., 930 F.2d at 767. Here, there is no serious dispute that Ontario would not offer an adequate alternative forum. Thus, the main contention is with regard to the second factor.
Both parties contend that their respectively chosen forum would be more convenient and it is clear that evidence important to this dispute exists in both the United States and Canada, as well as Switzerland. However a forum non conveniens inquiry is not based upon the number of witnesses or quantity of evidence in each location, but upon the "materiality and importance of the anticipated [evidence and] witnesses' testimony" and their convenience and accessibility to the chosen forum. Leuck, 236 F.3d at 1146.
Plaintiff asserts that the material events of the litigation have a strong connection with California, noting that the initial contact between DMT and Defendant was made in California, the purchase orders were accepted in California, and the purchase orders designated the goods to be F.O.B. California. Plaintiff additionally claims that a substantial quantity of evidence exists in California in the form of paper and electronic documentation at the DMT office. However, much of this evidence is under the control of Plaintiff as an assignee to DMT and Plaintiff can therefore bring much of this evidence to any forum. As Plaintiff was also able to obtain declarations from their two material witnesses, Terry Donovan and Rob Renshaw, Plaintiff should not have much difficulty having them answer interrogatories or using other devices to utilize their testimony. Defendant also plans to join DMT as a party in a suit in Ontario, which should solve any problems regarding discovery of DMT's documents and testimony by DMT employees, Terry Donovan and Rob Renshaw.
Further, Plaintiff does not dispute that much of the development and design effort occurred between Plaintiff and Defendant in Ontario and Switzerland. Plaintiff asserts, among other things, claims for breach of contract, prevention and, or alternatively, hindering of performance, and absence of good faith and fair dealing with regard to the development effort of the stepper motors. Integral to these claims are the development, design, engineering, manufacturing, marketing and sales of Defendant's VCB product line; all of which occurred in Ontario and Switzerland. Many of Defendant's employees with personal knowledge of this matter are no longer employed by Defendant but allegedly reside in Ontario. Defendant nor this Court would have the ability to compel these witnesses to testify or attend trial in California. Therefore the private interest factors weigh in favor of dismissal.
The public interest factors also weigh in favor of dismissal. Although citizens of California have some interest in the contractual obligations of corporations located in their state, this interest is slight, especially when the suit involves an Ontario facility and a foreign company. This would burden citizens in an unrelated forum with jury duty. Additionally, the dispute between the parties regarding applicable law, indicates to the Court potential problems during trial. The Court makes no determinations regarding whether to give effect to the choice-of-law provision in the purchase orders. However, the applicable law issue demonstrates to the Court that dismissal would permit avoidance of unnecessary problems in conflict of laws or in the potential application of foreign law.
The balance of both public and private factors show that the suit bears little connection with the forum and trial in this district would be inconvenient for both the Defendant and the Court. As a foreign plaintiff's choice of forum deserves less deference than that of a citizen plaintiff, dismissal on the grounds of forum non conveniens is appropriate.
V. CONCLUSION
For the reasons stated above, the Court denies Defendant's motion to dismiss for lack of subject matter jurisdiction but grants the motion on forum non conveniens grounds.