United States District Court, D. Arizona
DAVID G. CAMPBELL, District Judge.
Defendants Custom Arrangements LLC ("CALLC") and Anita Cracauer have filed a motion to dismiss for lack of personal jurisdiction and failure to state a claim. Doc. 10. Defendant David Legg has also filed a motion to dismiss for lack of jurisdiction and failure to state a claim. Doc. 23. Plaintiff Tresóna Multimedia LLC has requested an entry of default against Defendant Legg. Doc. 24. All of the motions are fully briefed. The Court will grant Defendants CALLC and Anita Cracauer's motion to dismiss in part, deny Defendant Legg's motion to dismiss, and deny Plaintiff's request for entry of default.
Plaintiff Tresóna Multimedia LLC is a music copyright licensing company that is registered in the State of Arizona. Doc. 1-1, ¶ 1. Tresóna owns a website that sells custom arrangement licenses for particular pieces of music. Id., ¶ 12. These licenses allow the purchaser to arrange a piece of music for a client (typically a music organization or a "show choir"). Id. Defendant David Legg, who resides in San Diego, California, applied for a custom arrangement license for the song "Black Sheep" on June 22, 2013. Id., ¶¶ 3, 14. On June 23, 2013, Legg signed the "Work for Hire Agreement" for this song. Id., ¶ 14 & Ex. A. Tresóna claims that the Agreement gave Legg the right to arrange Black Sheep for one client - "Nitro Show Choir" - and nothing more. Id., ¶ 16 & Ex. A. Tresóna argues that Legg breached the Agreement by allowing Defendants CALLC and Anita Cracauer to sell his custom arrangement as a "stock arrangement" on their website. Id., ¶ 17.
CALLC is registered in Minnesota and sells licensed arrangements of songs. Id., ¶ 5. Anita Cracauer resides in Minnesota and owns and operates CALLC. Id., ¶¶ 4, 6. Tresóna alleges that CALLC has a history of contacting customers and informing them that it can sell arrangements licensed by Tresóna. Id., ¶ 22. Tresóna also claims that CALLC falsely advertises it ability to grant exclusive rights to particular arrangements, when in fact these arrangements have been licensed by other companies. Id., ¶¶ 34-35. Tresóna alleges that CALLC told Legg that it had permission to sell Legg's arrangement of Black Sheep and thereby induced him to breach his Tresóna contract. Id., ¶ 31-33.
Tresóna sues CALLC and Cracauer for intentional interference with contract, intentional interference with business expectancy, false advertising under the Lanham Act, "liability under piercing of corporate veil, " and conspiracy. Id., ¶¶ 52-81. Tresóna sues Legg for breach of contract and conspiracy. Id., ¶¶ 49-51, 76-81. CALLC and Cracauer argue that the Court lacks jurisdiction over them and that Tresóna has failed to state a claim. Doc. 10. Legg also argues lack of jurisdiction and failure to state a claim. Doc. 23.
II. CALLC and Cracauer's Motion to Dismiss.
A. Personal Jurisdiction.
"Federal courts ordinarily follow state law in determining the bounds of their jurisdiction over persons." Daimler AG v. Bauman, 134 S.Ct. 746, 753 (2014). Arizona has authorized its courts to exercise jurisdiction to the maximum extent permitted by the Due Process Clause of the Constitution. See Ariz. R. Civ. P. 4.2(a); see Menken v. Emm, 503 F.3d 1050, 1056 (9th Cir. 2007). Under the Due Process Clause, a court may exercise jurisdiction over a person who is not physically present within the territorial jurisdiction of the court. Walden v. Fiore, 134 S.Ct. 1115, 1121 (2014). The nonresident generally must have certain minimum contacts with the forum so that the maintenance of the suit does not offend traditional notions of fair play and substantial justice. Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).
The Ninth Circuit uses a three-part test to analyze whether a party's minimum contacts satisfy due process. In re W. States Wholesale Natural Gas Antitrust Litig., 715 F.3d 716, 741-42 (9th Cir. 2013), cert. granted sub nom. Oneok, Inc. v. Learjet, Inc., 134 S.Ct. 2899 (2014). Under this three-part test, specific jurisdiction exists only if: (1) the defendant purposefully availed himself of the privileges of conducting activities in the forum, thereby invoking the benefits and protections of its laws, or purposely directed conduct at the forum that had effects in the forum; (2) the claim arises out of the defendant's forum-related activities; and (3) the exercise of jurisdiction is reasonable. See id. at 741-42 (citing Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 802 (9th Cir. 2004)). The Ninth Circuit evaluates "purposeful direction under the three-part effects' test traceable to the Supreme Court's decision in Calder v. Jones .... [T]he effects' test requires that the defendant allegedly have (1) committed an intentional act, (2) expressly aimed at the forum state, (3) causing harm that the defendant knows is likely to be suffered in the forum state.'" Schwarzenegger, 374 F.3d at 803 (quoting Dole Food Co. v. Watts, 303 F.3d 1104, 1111 (9th Cir. 2002)) (citing Calder v. Jones, 465 U.S. 783 (1984)).
"When a defendant moves to dismiss for lack of personal jurisdiction, the plaintiff bears the burden of demonstrating that the court has jurisdiction over the defendant." Pebble Beach Co. v. Caddy, 453 F.3d 1151, 1154 (9th Cir. 2006). "Where, as here, the defendant's motion is based on written materials rather than an evidentiary hearing, the plaintiff need only make a prima facie showing of jurisdictional facts to withstand the motion to dismiss." Mavrix Photo, Inc. v. Brand Techs., Inc., 647 F.3d 1218, 1223 (9th Cir. 2011). "The plaintiff cannot simply rest on the bare allegations of its complaint, ' but uncontroverted allegations in the complaint must be taken as true." Id. (quoting Schwarzenegger, 374 F.3d at 800). The Court may not assume the truth of allegations in a pleading that are contradicted by an affidavit, but factual disputes are resolved in Plaintiff's favor. Id. .
1. Custom Arrangements.
a. Purposeful Direction.
This Court's jurisdiction over CALLC turns on the first-prong of the Ninth Circuit's test for personal jurisdiction: whether Defendants expressly aimed their conduct at Arizona. Tresóna cites Ninth Circuit precedent stating that the express aiming requirement is satisfied when "the defendant is alleged to have engaged in wrongful conduct targeted at a plaintiff whom the defendant knows to be a resident of the forum state." Menken, 503 F.3d at 1057. Defendants argue that mere knowledge of Tresóna's location in Arizona is no longer sufficient under the Supreme Court's decision in Walden v. Fiore, 134 S.Ct. 1115 (2014). See Doc. 30 at 6-11. The Court agrees.
As clarified by Walden, personal jurisdiction does not exist merely because a defendant engages in wrongful conduct targeted at a plaintiff whom the defendant knows to be located in a particular state. "The proper question is not where the plaintiff experienced a particular injury or effect but whether the defendant's conduct connects him to the forum in a meaningful way." Walden, 134 S.Ct. at 1125. "[T]he plaintiff cannot be the only link between the defendant and the forum." Id. at 1122.
Tresóna claims that CALLC, a Minnesota company, acquired a musical arrangement from Legg, a California resident, knowing that this would interfere with a contract between Legg and Tresóna, an Arizona company. The only link between CALLC and Arizona in this acquisition is the location of Tresóna. Under Walden, that is not enough to establish personal jurisdiction. CALLC must have engaged in conduct that connects it to Arizona in a meaningful way. Walden, 134 S.Ct. at 1125.
But when this fact is added to other relevant facts alleged in the complaint - that CALLC intentionally induced Legg to breach his contract with Tresóna and specifically engaged in false advertising about arrangements licensed by Tresóna - the Court finds that a prima facie case of jurisdiction has been established. Tresóna alleges that CALLC engaged in conduct directly intended to cause breach of a Tresóna contract, and publicly advertises its ability to accept and grant exclusive use of arrangements licensed by Tresóna. Doc. 1-1, ¶¶ 71-72. Tresóna also alleges that CALLC "contacts custom arrangers personally, informing them it can sell the custom arrangements licensed by Tresóna as stock arrangements[.]" Id., ¶ 22. As illustrated by two Ninth Circuit cases, this conduct satisfies the effects test.
In CE Distrib., LLC v. New Sensor Corp., 380 F.3d 1107 (9th Cir. 2004), Plaintiff CE, an Arizona company, claimed that New Sensor, a New York company, had intentionally interfered with its exclusive distributor agreement for Jensen speakers. In finding express aiming, the court highlighted the following facts:
CE alleges that it had a previous business relationship with New Sensor spanning a period of several years. New Sensor was aware that CE was based in Arizona and was the sole United States distributor of Jensen speakers. CE alleges that New Sensor's actions were intended to undermine CE's status as the sole distributor of Jensen speakers in the United States.... [Based on these facts, ] the first (intentional act) and second (aimed at Arizona) requirements for specific personal jurisdiction are met.
Id. at 1111-12. Here also, CALLC knows of Tresóna's presence in Arizona. See Doc. 26 at 22-24 (Declaration of Mark Greenburg). Tresóna alleges that CALLC falsely advertises its ability to accept arrangements licensed by Tresóna (Doc. 1-1, ¶¶ 71-72), an action that arguably "intended to undermine" Tresóna's business.
In Brayton Purcell LLP v. Recordon & Recordon, 606 F.3d 1124 (9th Cir. 2010), Brayton Purcell and Recordon were two law firms that specialized in elder abuse law. Id. at 1126. Brayton claimed that Recordon's website featured material that it had copied from Brayton's website. Id. at 1127. Finding that Recordon had expressly aimed its conduct at California, the court emphasized that "[g]iven the paucity of firms with elder abuse expertise, any use of the infringing material by Recordon to advertise on its website places Recordon in direct competition with Brayton Purcell throughout California." Id. at 1129. Here also, Tresóna and CALLC operate in the specialized field of licensing custom arrangements for musical performances, most often by show choirs. Doc. 1-1. By falsely advertising its ability to grant exclusive use of arrangements licensed by Tresóna (Doc. 1-1, ¶¶ 35, 71-72), CALLC was placing itself "in direct competition" with Tresóna throughout Arizona. In addition, CALLC allegedly induced Legg to breach his contract with Tresóna by making false statements. Doc. 1-1, ¶¶ 31-33.
These cases do not appear inconsistent with Walden. The central lesson of Walden is that personal jurisdiction does not exist merely because an out-of-state defendant commits tortious acts against a plaintiff whom the defendant knows to reside in a particular state. Rather, jurisdiction must be based on a defendant's contacts with the forum. Case law has established that certain actions by an out-of-state defendant - such as publishing a libelous story about a famous California resident ( Calder ), taking extensive action to undermine a person's business ( CE Distrib. ), or directly competing with a person ( Brayton ) - create contacts with that person's forum.
By inducing Legg to breach his contract with Tresóna and falsely advertising its ability to accept and grant exclusive use of arrangements licensed by Tresóna, CALLC took actions to undermine and directly compete with Tresóna, thereby connecting itself to the State of Arizona. As required under the effects test, Tresóna has also shown that CALLC intentionally committed these acts with knowledge that Tresóna would suffer harm in Arizona. See Schwarzenegger, 374 F.3d at 803. Based on these allegations, Tresóna has satisfied the first part of the test for specific jurisdiction.
b. "Arising Out Of."
The next question is whether Tresóna's claims arise out of these forum-related activities. The Ninth Circuit uses "a but for' test to determine whether a particular claim arises out of forum-related activities[.]" Ballard v. Savage, 65 F.3d 1495, 1500 (9th Cir. 1995). Tresóna has asserted four claims against CALLC: intentional interference with contract, intentional interference with business expectancy, false advertising under the Lanham Act, and conspiracy. Doc. 1-1, ¶¶ 52-81.
Clearly, Tresóna's false advertising claim would not have arisen but for CALLC's alleged false advertising. Similarly, Tresóna's conspiracy claim against CALLC appears to be based on CALLC and Cracauer's alleged conspiracy to commit false advertising and acquire Tresóna's music. The conspiracy claim, therefore, also arises out of CALLC's forum-related activities.
Tresóna's intentional interference claims also arise out of CALLC's forum-related activities. Tresóna alleges that CALLC, while knowing of Tresóna's Arizona location and while engaging in false advertising about its ability to market arrangements licensed by Tresóna, intentionally induced Legg to breach his contract with Tresóna by making false representations. Tresóna's complaint alleges that CALLC induces such breaches not only by its false advertising regarding Tresóna-licensed arrangements, but also by directly contacting arrangers of Tresóna's songs and telling them that it can sell their arrangements. Id., ¶ 22. Such direct representations, like false public advertising about CALLC's ability to market Tresóna's music, are directly aimed at Tresóna, and the intentional interference claims appear to arise from such contacts. Id., ¶¶ 53, 54.
The final question is whether the exercise of jurisdiction would be reasonable. To avoid jurisdiction based on unreasonableness, CALLC "must present a compelling case that the presence of some other considerations would render jurisdiction unreasonable.'" Ballard, 65 F.3d at 1500 (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 477 (1985)) (emphasis in original); see also Tresóna & Masters, Inc. v. Augusta Nat. Inc., 223 F.3d 1082, 1089 (9th Cir. 2000) (finding that a defendant must "demonstrate a compelling case, ' focused on the seven specific factors... in order to establish unreasonableness"). CALLC has not argued or otherwise made a compelling case that jurisdiction would be unreasonable. The Court therefore concludes that the reasonableness requirement is met. Tresóna has made a prima facie case of personal jurisdiction over CALLC.
2. Defendant Anita Cracauer.
Defendant Anita Cracauer is a Minnesota resident and the sole member of Custom Arrangements LLC. Doc. 12. The Court could exercise jurisdiction over Anita Cracauer for two possible reasons: (1) she created her own contacts with Arizona that are sufficient for this Court to exercise jurisdiction, see, e.g., Brink v. First Credit Res., 57 F.Supp.2d 848, 859-60 (D. Ariz. 1999) (citing Davis v. Metro Productions, Inc., 885 F.2d 515, 522 (9th Cir. 1989)); or (2) CALLC is her "alter ego" and jurisdiction over the company creates jurisdiction over her, see, e.g., Flynt Distrib. Co. v. Harvey, 734 F.2d 1389, 1393-94 (9th Cir. 1984), Patterson v. Home Depot, USA, Inc., 684 F.Supp.2d 1170, 1177 (D. Ariz. 2010). Tresóna relies on both reasons, pointing to Cracauer's individual contacts with Arizona and emphasizing that CALLC is her alter ego. Doc. 26 at 12-13.
Tresóna has failed to make a prima facie showing that Cracauer's individual contacts are sufficient for personal jurisdiction. Tresóna's complaint does not differentiate between the actions of CALLC and Cracauer. See Doc. 1-1, ¶ 18. Tresóna argues that the Court should impute CALLC's contacts to Cracauer for the purpose of analyzing personal jurisdiction (Doc. 26 at 12-13), but this is the same as treating CALLC as Cracauer's alter ego, an issue distinct from whether Cracauer's personal contacts with Arizona are sufficient.
Cracauer's only contact with Arizona is Tresóna's assertion that an Arizona company lists Cracauer as a music arranger. Doc. 26 at 13, 37. But personal jurisdiction does not exist "solely as a result of random, ' fortuitous, ' or attenuated' contacts, or of the unilateral activity of another party or a third person.'" Burger King, 471 U.S. at 475 (citations omitted). Cracauer states in a declaration that she never asked or gave permission to the Arizona company to list her name on its website. Doc. 12, ¶ 11; see also Marvix Photo, 647 F.3d at 1223 (finding that for a motion to dismiss for lack of jurisdiction, the court "may not assume the truth of allegations in a pleading which are contradicted by affidavit"). What is more, Tresóna's claims against Cracauer do not arise out of her relationship with another Arizona company.
As for the argument that CALLC is the alter ego of Cracauer, Tresóna has made a prima facie case. "Under the alter-ego' doctrine, a nonresident defendant may be subject to personal jurisdiction even if the defendant has not had any contact with the forum state." Patterson, 684 F.Supp.2d at 1177 (citing Davis, 885 F.2d at 520-21). Thus, jurisdiction may exist "in cases in which the corporation is the agent or alter ego of the individual defendant; or where there is an identity of interests between the corporation and the individuals." Davis, 885 F.2d at 520-21 (citations omitted); see also Doe v. Unocal Corp., 248 F.3d 915, 926 (9th Cir. 2001). Under Arizona law, "corporate status will not be lightly disregarded." Chapman v. Field, 602 P.2d 481, 483 (Ariz. 1979). To demonstrate alter ego status, a ...