Opinion
6:21-cv-01592-MK
06-07-2022
NINKASI HOLDING COMPANY, INC., an Oregon corporation; and NINKASI BREWERY, LLC, an Oregon limited liability company, Plaintiffs, v. NUDE BEVERAGES, INC., a Colorado corporation; and MXM BEVERAGES LTD., doing business as NUDE BEVERAGES CO., a Canadian corporation, Defendants.
FINDINGS AND RECOMMENDATION
MUSTAFA T. KASUBHAI (HE / HIM) UNITED STATES MAGISTRATE JUDGE
Plaintiffs Ninkasi Holding Company, Inc., and Ninkasi Brewery LLC (“Plaintiffs”) brings this action against Defendants Nude Beverages, Inc. (“Nude”) and MXM Beverages LTD (“MXM”), alleging breach of contract and breach of duty of good faith and fair dealing. See Compl., ECF No. 1. MXM has filed a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(2) for lack of personal jurisdiction. ECF No. 9. For the reasons below, MXM's motion should be DENIED without prejudice and the parties should be ordered to conduct limited discovery on the issue of whether the Court has personal jurisdiction over MXM.
BACKGROUND
Plaintiffs manufacture and package alcohol beverage products in Eugene, Oregon. Compl. ¶ 8, ECF No. 1. Defendant Nude develops recipes for hard seltzer beverage products. Id. ¶ 9. Defendant MXM is the parent company of Nude and owns all intellectual property under which Nude sells its beverage products. Id. ¶ 10.
In December 2019, Plaintiffs and Defendant Nude entered into a Co-Packing Agreement in which “Plaintiffs agreed to manufacture and package certain beverage products for sale by Nude.” Id. ¶ 11.
On November 19, 2020, Plaintiffs and Defendant Nude entered into a Manufacturing Services Agreement, (“MSA”). Id. ¶ 13. The MSA replaced the prior Co-Packaging Agreement, which was effectively terminated on the day the MSA was agreed on. Id. The MSA outlined the relationship between Defendant Nude and Plaintiff. Id. ¶¶ 14-17.
On the same day, Plaintiffs and Defendant MXM entered into a Guaranty Agreement, whereby MXM agreed to “absolutely and unconditionally guaranty the payment to Ninkasi Brewery of any indebtedness, liabilities or obligations whatsoever owed by Nude to Plaintiffs by virtue of the MSA.” Id. ¶19. The Guaranty Agreement also provided, among other things, that:
• MXM represented and warranted that it had reviewed Defendant Nude's financials such that Defendant MXM was fully apprised of Nude's financial condition;
• MXM conducted its own credit analysis of Nude;
• MXM agreed that Plaintiffs had no obligation to institute suit or exhaust its legal remedies against Nude to enforce the Guaranty Agreement;
• MXM agreed that the Guaranty Agreement would be governed by Oregon law;
• MXM and Plaintiffs agreed that the prevailing party would be entitled to recover reasonable attorney fees in connection to any action brought pursuant to the Guaranty Agreement.Id. ¶¶ 20-21; see also Ridge Decl., Ex. 1, ECF No. 17.
In reliance on the MSA and Guaranty Agreement, Plaintiffs incurred significant costs and purchased additional equipment to meet Defendant Nude's requested and projected production volumes.
Nude failed to pay Plaintiffs several invoices pursuant to the MSA, and Plaintiffs were not reimbursed by MXM pursuant to the Guaranty Agreement. Id. ¶ 25. Thereafter, Plaintiffs brought claims for breach of contract, breach of duty of good faith and fair dealing, as well as quantum meruit against Defendants Nude and MXM. Id. ¶¶ 27-33; 58-65.
STANDARD OF REVIEW
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(2) allows a defendant to move for dismissal on the grounds that the court lacks personal jurisdiction. The plaintiff bears the burden of establishing that the district court has personal jurisdiction over a defendant. Harris Rutsky & Co. Ins. Servs. v. Bell & Clements Ltd., 328 F.3d 1122, 1128 (9th Cir. 2003). “Personal jurisdiction over each defendant must be analyzed separately.” Id. at 1130; Brainerd v.Governors of the Univ. of Alta., 873 F.2d 1257, 1258 (9th Cir. 1989).
All factual disputes are resolved in favor of the plaintiff. Lake v. Lake, 8th F.2d 1416, 1420 (9th Cir. 1987). A plaintiff cannot “simply rest on the bare allegations of its complaint,” however, uncontroverted allegations in the complaint must be taken as true. Schwarzenegger v.Fred Martin Motor Co., 374 F.3d 797, 800 (9th Cir. 2004) (quoting Amba Mktg. Sys., Inc. v.Jobar Int'l, Inc., 551 F.2d 784, 787 (9th Cir. 1977)).
DISCUSSION
I. Personal Jurisdiction Over MXM
“Federal courts ordinarily follow state law in determining the bounds of their jurisdiction over [defendants].” Picot v. Weston, 780 F.3d 1206, 1211 (9th Cir. 2015) (quoting Daimler AG v.Bauman, 571 U.S. 117, 125 (2014)). Oregon law authorizes personal jurisdiction over defendants to the full extent permitted by the United States Constitution. See Or. R. Civ. P. 4 L; Gray & Co.v. Firstenberg Mach. Co., Inc., 913 F.2d 758, 760 (9th Cir. 1990) (“Oregon's long-arm statute confers jurisdiction to the extent permitted by due process.”). Courts must therefore inquire whether its exercise of jurisdiction over a defendant “comports with the limits imposed by federal due process.” Ranza v. Nike, Inc., 793 F.3d 1059, 1068 (9th Cir. 2015) (quoting Daimler, 571 U.S. at 125).
“Due process requires that the defendant ‘have certain minimum contacts' with the forum state ‘such that the maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice.'” Picot, 780 F.3d at 1211 (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). “The strength of contacts required depends on which of the two categories of personal jurisdiction a litigant invokes” general jurisdiction or specific jurisdiction. Ranza, 793 F.3d at 1068.
For a state to exercise general jurisdiction over a non-resident, the defendant's business activities within the forum state must be “continuous and systematic” or “substantial” enough to “approximate physical presence” in the forum state. Schwarzenegger, 374 F.3d at 801 (quoting Perkins v. Benguet Consol. Mining Co., 352 U.S. 437, 445 (1952)). To determine whether a nonresident business defendant's contacts are sufficiently substantial, continuous, and systematic, a court usually considers their “longevity, continuity, volume, economic impact, physical presence, and integration into the state's regulatory or economic markets.” Tuazon v. R.J. Reynolds Tobacco Co., 433 F.3d 1163, 1172 (9th Cir. 2006). “This is an exacting standard, as it should be, because a finding of general jurisdiction permits a defendant to be haled into court in the forum state to answer for any of its activities anywhere in the world.” Schwarzenegger, 374 F.3d at 801 (9th Cir. 2004).
Specific jurisdiction, which is sometimes referred to as “case-specific” or “case-linked” jurisdiction, depends on an affiliation between the forum state and the underlying controversy. Walden v. Fiore, 571 U.S. 277, 284 n.6 (2014). For a state to exercise specific jurisdiction over a non-resident, the Ninth Circuit employs the following three-prong test to determine if a defendant has sufficient minimum contacts:
(1) The non-resident defendant must purposefully direct his activities or consummate some transaction with the forum or resident thereof; or perform some act by which he purposefully avails himself of the privilege of conducting activities in the forum, thereby invoking the benefits and protections of its laws;
(2) the claim must be one which arises out of or relates to the defendant's forum-related activities; and
(3) the exercise of jurisdiction must comport with fair play and substantial justice, i.e., it must be reasonable.Picot, 780 F.3d at 1211 (emphasis added) (quoting Schwarzenegger, 374 F.3d at 802). The plaintiff bears the burden of satisfying the first two prongs. CollegeSource, Inc. v. AcademyOne,Inc., 653 F.3d 1066, 1076 (9th Cir. 2011). If the plaintiff does so, the burden then shifts to the moving defendant to present “a ‘compelling case' that the exercise of jurisdiction would not be reasonable.” Id. (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476-78 (1985)).
“The exact form of [a court's] jurisdictional inquiry depends on the nature of the claim at issue.” Picot, 780 F.3d at 1212. For claims sounding in contract, courts in the Ninth Circuit “generally apply a ‘purposeful availment' analysis and ask whether a defendant has ‘purposefully avail[ed] [themself] of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.'” Id. (quoting Schwarzenegger, 374 F.3d at 802). For claims sounding in tort, courts “apply a ‘purposeful direction' test and look to evidence that the defendant has directed his actions at the forum state, even if those actions took place elsewhere.” Id.
Defendant MXM argues that this case is controlled by State ex rel Sweere v. Crookahm, 289 Or. 3, (1980) (“Sweere”) where the Oregon Supreme Court found it did not have personal jurisdiction over an out-of-state guarantor. While Sweere is certainly relevant for this Court to consider, where a state's long-arm statute reaches its zenith under the Federal Constitution-as is the case here-the relevant inquiry is governed by the decisions of the United States Supreme Court and Ninth Circuit. See Chan v. Soc'y Expeditions, Inc., 39 F.3d 1398, 1405 (9th Cir. 1994) (“Thus, because the long-arm statute is coextensive with the outer limits of due process, we need analyze only the second part of the test.”); Shuford Mills, Inc. v. Rainier Travel Serv., Inc., 296 F.Supp. 240, 242 (D. Or. 1969) (explaining that the Oregon legislature intended the state's long-arm statute “to reach the outer limits of federal constitutional due process” and that “[w]hat those outer limits are [ ] is a federal question [that] are controlled by the decisions of the Supreme Court of the United States and other federal court decisions”). In other words, since the Oregon Supreme Court decided Sweere over forty years ago, the United States Supreme Court and Ninth Circuit have issued decisions that are binding on this Court's analysis of the scope of personal jurisdiction as permitted by the Due Process Clause. As such, the Court turns to whether the exercise of personal jurisdiction over MXM comports with that standard.
In any event, Sweere is distinguishable. There, the court found no jurisdiction because the execution of the guaranty occurred several months after the parties entered into a contract and the goods had been shipped out of state. 289 Or. at 8-10. Here, by contrast, the Guarantee Agreement was entered into contemporaneously with the November 2020 MSA, which expressly terminated prior Co-Packing Agreement. See Compl. ¶¶ 13, 19. The fact that there had been a prior similar agreement between Plaintiffs and Nude makes this case distinguishable from Sweere i.e., the guarantee in this agreement was bargained for simultaneously with the MSA. Ridge Decl. ¶ 2.
The Ninth Circuit has not directly addressed the question of whether a parent corporation's guaranty of its subsidiary corporation's obligations in the forum state may give rise to personal jurisdiction over the guarantor corporation. However, the court has addressed whether a court may exercise personal jurisdiction over an individual who personally guaranteed a corporation's obligations in a forum state-twice affirming that personal jurisdiction was proper. Forsythe v. Overmyer, 576 F.2d 779, 782-84 (9th Cir. 1978) (citations omitted); Glob. Commodities Trading Grp., Inc. v. Beneficio de Arroz Choloma, S.A., 972 F.3d 1101, 1110 (9th Cir. 2020) (citations omitted). A careful reading of those cases demonstrates that they supply the appropriate analytical framework here.
Although Global Commodities abrogated Forsythe in part, the decision made clear that its “holding in Forsythe that a personal guaranty of a corporation's debt may give rise to personal jurisdiction over a corporate officer remains good law.” Glob. Commodities, 972 F.3d at 1110. The Court additionally notes that in some cases, a parent-subsidiary relationship can form the basis for personal jurisdiction. See, e.g., Harris Rutsky & Co. Ins. Servs. v. Bell & Clements Ltd., 328 F.3d 1122, 1134-35 (9th Cir. 2003). Because Plaintiffs' complaint does not plead facts sufficient to invoke this theory, the Court declines to discuss the issue further.
In Forsythe, the Ninth Circuit examined whether the owner of a corporation who personally guaranteed the corporation's obligations under a sale-and-leaseback agreement was subject to personal jurisdiction in California, where the plaintiff-buyer brought suit. 576 F.2d at 782. The court found personal jurisdiction was proper because: (1) the contract between the plaintiff and the owner's corporation was “negotiated in California, and was expressly subject to interpretation under California law by California courts”; and (2) the owner “participated personally to secure a benefit for his corporation and, indirectly, himself.” Id. at 783. The court concluded that the defendant “interjected himself into the transaction by assuming personal liability in the event of default on a contract expressly subject to jurisdiction in the California forum” and that the “guaranty was part of the negotiating strategy in California.” Id.
Similarly, in Global Commodities, the Ninth Circuit examined whether the president and secretary of a foreign corporation who personally guaranteed a note was subject to personal jurisdiction in California, where the plaintiff-agricultural commodity supplier brought suit. 972 F.3d at 1104-05. The court held that the plaintiff had made a prima facie showing of personal jurisdiction based on: (1) the parties relationship “over several years, and hundreds of contracts”; (2) payments on prior contracts made in the forum state; (3) the out-of-forum defendant's inducement of the plaintiff to continue business relations by guaranteeing a debt within in California; and (4) whether that promise was made for the “purpose of obtaining benefits from [the forum state] corporation.” Glob. Commodities, 972 F.3d at 1108.
Here, the record is not sufficiently developed to allow the Court to determine whether it has personal jurisdiction over MXM for purposes of this lawsuit. For example, the geographic location of parties' negotiations and the course of dealings between Plaintiffs and MXM is muddied at best. It is further unclear what benefits, if any, the parties derived from the course of negotiations over the agreements entered into in November 2020. That information is critical because the Ninth Circuit has “emphasized that courts must evaluate the parties' entire course of dealing, not solely the particular contract or tortious conduct giving rise to the claim, when assessing whether a defendant has minimum contacts with a forum.” Glob. Commodities, 972 F.3d at 1108.
As such, the Court should deny MXM's motion to dismiss without prejudice and the Court should order limited jurisdictional discovery. See Butcher's Union Loc. No. 498, United Food & Com. Workers v. SDC Inv., Inc., 788 F.2d 535, 540 (9th Cir. 1986) (“Discovery should ordinarily be granted where pertinent facts bearing on the question of jurisdiction are controverted or where a more satisfactory showing of the facts is necessary.”) (citation and quotation marks omitted); Good Job Games Bilism Yazilim Ve Pazarlama A.S. v. SayGames, LLC, No. 20-16123, 2021 WL 5861279, at *1 (9th Cir. Dec. 10, 2021) (unpublished) (reversing district court's grant of a motion to dismiss and remanding for jurisdictional discovery “[b]ecause the record [was] insufficiently developed to resolve personal jurisdiction, and because further discovery . . . might well demonstrate facts sufficient to constitute a basis for jurisdiction”) (citation and quotation marks omitted). Defendants' request for oral argument is DENIED as unnecessary. See LR 7-1(d)(1).
RECOMMENDATION
For the reasons above, MXM's motion to dismiss (ECF No. 9) should be DENIED without prejudice. Jurisdictional discovery should be allowed on the limited issue of whether MXM is subject to this Court's personal jurisdiction. Following the District Judge's ruling on this Findings and Recommendation, the Court will schedule a discovery conference to decide the scope of the jurisdictional discovery and set case deadlines, including deadlines for the closing of pleadings and dispositive motions.
This recommendation is not an order that is immediately appealable to the Ninth Circuit Court of Appeals. Any notice of appeal pursuant to Federal Rule of Appellate Procedure 4(a)(1) should not be filed until entry of the district court's judgment or appealable order. The Findings and Recommendation will be referred to a district judge. Objections to this Findings and Recommendation, if any, are due fourteen (14) days from today's date. See Fed.R.Civ.P. 72. Failure to file objections within the specified time may waive the right to appeal the District Court's order. Martinez v. Ylst, 951 F.2d 1153, 1157 (9th Cir. 1991).