DocuSign, Inc. v. Clark

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 DOCUSIGN, INC., Case No. 21-cv-04785-WHO

8 Plaintiff, ORDER DENYING MOTION TO 9 v. DISMISS SECOND AMENDED COMPLAINT AND SCHEDULING 10 PAUL C. CLARK, CASE MANAGEMENT CONFERENCE 11 Defendant. Re: Dkt. No. 46

12 13 Defendant Paul Clark moves to dismiss a Second Amended Complaint (“SAC”) filed by 14 plaintiff DocuSign, Inc. (“DocuSign”), alleging fraud, breach of contract, and other claims arising 15 out of an agreement between the parties for Clark to provide services as an expert consultant in 16 patent litigation. His motion, based on lack of jurisdiction, is DENIED. DocuSign has plausibly 17 pleaded specific jurisdiction: Clark allegedly made misrepresentations in the agreement that 18 induced reliance by DocuSign in California. That satisfies purposeful direction as articulated by 19 the Ninth Circuit. 20 BACKGROUND 21 In or around January 2013, DocuSign hired Clark as an expert consultant in two patent 22 infringement cases it faced in the Eastern District of Texas: Rmail Ltd. v. DocuSign, Inc., No. 11- 23 CV-00299-JRG (filed June 24, 2011) (“the Rmail Litigation”) and RPost Holdings, Inc. v. 24 DocuSign, Inc., No. 12-CV-683-JRG (filed Oct. 25, 2012) (“the RPost Litigation”). Second Am. 25 Compl. (“SAC”) [Dkt. No. 44] ¶¶ 10-12. Clark performed litigation-related work for DocuSign in 26 2013 and early 2014. Id. at ¶ 12. 27 On April 24, 2014, the RPost Litigation was administratively stayed, about which time 1 DocuSign’s counsel that he would no longer work for them “due to DocuSign’s repeated late 2 payment of invoices.” Mot. to Dismiss (“MTD”) [Dkt. No. 46] 4:27-28. 3 The RPost stay was lifted more than four years later, on December 10, 2018. SAC at ¶ 14. 4 Counsel for DocuSign reached out to Clark to resume the consulting arrangement. Id. at ¶ 15. 5 According to DocuSign, Clark “insisted on the parties entering into a formal consulting agreement 6 specifying how [he] would be paid for his services.” Id. Another law firm also sought to hire 7 Clark as an expert consultant in a companion suit filed in the Eastern District of Texas. See MTD 8 at 5:1-11. On March 12 and 13, 2019, Clark and representatives from three firms—Lowe Graham 9 Jones, Crowell & Moring, and Kao LLP—signed an expert consulting agreement (“the 10 Agreement”). See SAC at ¶ 16 (citing Ex. P). Per the Agreement, Clark would provide expert 11 consultation regarding certain patents to facilitate the firms’ representation of 25 clients in the two 12 Eastern District of Texas cases. See id., Ex. P. The Agreement also included the following 13 language: “Dr. Clark has conducted a comprehensive conflicts of interest search and analysis and 14 confirms that neither he nor his company has a conflict of interest in connection with this matter.” 15 Id. at ¶ 17 (citing Ex. P at 3). 16 DocuSign alleges that, unbeknownst to the company, Clark did have such a conflict: three 17 patents issued to Clark before and during the stay of the RPost Litigation. Id. at ¶¶ 18-19. Those 18 patents are U.S. Patent No. 8,695,066 (“the ’066 Patent”), U.S. Patent No. 9,391,957 (“the ’957 19 Patent”), and U.S. Patent No. 10,129,214 (“the ’214 Patent”). Id. at ¶¶ 18-19. 20 The RPost Litigation was dismissed and the case closed on August 20, 2019. Id. at ¶ 26. 21 About two months later, on October 15, 2019, Clark emailed DocuSign’s attorneys over payments 22 related to the litigation. Id. at ¶ 27. A back-and-forth ensued via email, as Clark asserted that 23 DocuSign had not paid two invoices, totaling approximately $105,500. See id. at ¶¶ 28-31. 24 On July 15, 2020, Clark sued DocuSign in Maryland state court, alleging fraud and breach 25 of contract in connection with the unpaid invoice. Id. at ¶ 33. The case settled later that year. Id. 26 On April 12, 2021, Clark sued DocuSign again, this time for infringement of the ’066, 27 ’957, and ’214 patents. Id. at ¶ 34 (citing Ex. A). That case was filed in the District Court for the 1 DocuSign brought this case on June 22, 2021, alleging fraudulent misrepresentation by 2 Clark and seeking declaratory judgement that it did not infringe on the three patents. See Dkt. No. 3 1. It later filed an amended complaint adding claims of negligent misrepresentation and 4 concealment. See Dkt. No. 21. 5 I dismissed the amended complaint, finding that personal jurisdiction was lacking and that 6 the first-to-file rule barred the claims for declaratory relief. Dkt. No. 41. DocuSign filed its SAC 7 on February 8, 2022, dropping the patent-related claims and instead asserting fraud, negligent 8 misrepresentation, concealment, breach of contract, and breach of the implied obligation of good 9 faith and fair dealing. Dkt. No. 44. Clark again moved to dismiss a month later. Dkt. No. 46. 10 LEGAL STANDARD 11 Under Federal Rule of Civil Procedure Rule 12(b)(2), a defendant may move to dismiss a 12 complaint for lack of personal jurisdiction. The plaintiff then bears the burden of demonstrating 13 that jurisdiction exists. Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800 (9th Cir. 14 2004). The plaintiff “need only demonstrate facts that if true would support jurisdiction over the 15 defendant.” Ballard v. Savage, 65 F.3d 1495, 1498 (9th Cir. 1995). The plaintiff cannot merely 16 rely on the complaint’s bare allegations, however “uncontroverted allegations in the complaint 17 must be taken as true.” Schwarzenegger, 374 F.3d at 800. 18 “Where, as here, there is no applicable federal statute governing personal jurisdiction, the 19 law of the state in which the district court sits applies.” Core-Vent Corp. v. Nobel Indus. AB, 11 20 F.3d 1482, 1484 (9th Cir. 1993). “California’s long-arm statute allows courts to exercise personal 21 jurisdiction over defendants to the extent permitted by the Due Process Clause of the United States 22 Constitution.” Id.; Cal. Civ. Proc. Code § 410.10. “Because California’s long-arm jurisdictional 23 statute is coextensive with federal due process requirements, the jurisdictional analyses under state 24 law and federal due process are the same.” Schwarzenegger, 374 F.3d at 800-01. 25 “There are two types of personal jurisdiction: general and specific.” Fields v. Sedgwick 26 Associated Risks, Ltd., 796 F.2d 299, 301 (9th Cir. 1986). General jurisdiction exists when a 27 defendant’s affiliations with the forum state are “so continuous and systematic as to render them 1 U.S. 915, 919 (2011) (citation and quotation marks omitted). Specific jurisdiction arises when a 2 defendant’s contacts with the forum state give rise to the claim in question. See Helicopteros 3 Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 (1984). 4 The Ninth Circuit employs a three-part test for analyzing specific jurisdiction, commonly 5 known as the minimum contacts test. Glob. Commodities Trading Grp., Inc. v. Beneficio de Arroz 6 Choloma, S.A., 972 F.3d 1101, 1107 (9th Cir. 2020); Freestream Aircraft (Bermuda) Ltd. v. Aero 7 Law Grp., 905 F.3d 597, 603 (9th Cir. 2018). First, the defendant must “purposefully direct his 8 activities or consummate some transaction with the forum or resident thereof; or perform some act 9 by which he purposefully avails himself of the privilege of conducting activities in the forum, 10 thereby invoking the benefits and protections of its laws.” Id. (citation omitted). Next, the claim 11 must “arise out of or relate to” those forum-related activities. Id. Finally, the exercise of 12 jurisdiction must comport with fair play and substantial justice—in other words, it must be 13 reasonable. Id.; see also Boschetto v. Hansing, 539 F.3d 1011, 1016 (9th Cir. 2008). 14 DISCUSSION 15 Under the first prong of the Ninth Circuit’s test for specific jurisdiction, purposeful 16 availment and purposeful direction “are, in fact, two distinct concepts.” 1 Schwarzenegger, 374 17 F.3d at 802. Courts generally use purposeful availment in determining jurisdiction in suits 18 sounding in contract, and purposeful direction in those sounding in tort. Id. 19 I. PURPOSEFUL AVAILMENT 20 “A showing that a defendant purposefully availed himself of the privilege of doing 21 business in a forum state typically consists of evidence of the defendant’s actions in the forum, 22 such as executing or performing a contract there.” Id. But the “mere existence of a contract with 23 a party in the forum state” is not enough. Sher v. Johnson, 911 F.2d 1357, 1362 (9th Cir. 1990) 24 (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 478 (1985)). Rather, courts consider “prior 25 negotiations and contemplated future consequences, along with the terms of the contract and the 26 parties’ actual course of dealing to determine if the defendant’s contacts are substantial and not 27 1 merely random, fortuitous, or attenuated.” Id. (citation and quotation marks omitted). 2 I already held that the mere existence of the Agreement does not establish jurisdiction. See 3 Order Granting Mot. to Dismiss FAC (“First MTD Order”) [Dkt. No. 41] 6:18. DocuSign does 4 not plead that Clark executed the contract in California or performed any work on DocuSign’s 5 behalf there. See generally SAC. I must then focus on the prior negotiations and contemplated 6 future consequences, the Agreement’s terms, and the parties’ actual course of dealing. 7 Although DocuSign previously hired Clark in connection with the Rmail and RPost 8 Litigation, that relationship lasted little more than a year before Clark terminated it. See SAC at ¶¶ 9 10-13. The parties then did not work together for more than four years while the RPost litigation 10 was stayed. Id. at ¶¶ 13-14. The extended hiatus indicates that Clark’s work for DocuSign was 11 limited; it does not show that his contacts with California were substantial. 12 Nor does the Agreement itself. As I previously noted, the Agreement’s terms focus on two 13 cases in Texas. See SAC, Ex. P at 1. It instructs Clark to send his invoices to lawyers in 14 Washington and New York. See id. at 2. Nowhere is California mentioned. Moreover, the 15 Agreement was signed by lawyers from three law firms representing 25 different clients. See id. at 16 4. Even accepting as true DocuSign’s allegation that Clark “was aware” that it is a California 17 entity, DocuSign was but one of 25 companies covered by the Agreement. See SAC at ¶ 46. 18 Rather than show that Clark made substantial contact with California, this suggests that the contact 19 was random, as California happened to be one of an unknown number of states where the three 20 law firms and 25 clients covered by the Agreement were located. 21 DocuSign argues that Clark’s negotiations over the Agreement and regular interactions 22 with DocuSign’s counsel in California establish substantial contacts with California. See Oppo. at 23 15:3-23 (citing SAC at ¶¶ 43, 46). But sending letters—or in this case, emails—and making 24 phone calls to a forum state is not enough to establish purposeful availment. The Ninth Circuit 25 said exactly this in Sher, holding that “[t]hese contacts, by themselves, do not establish purposeful 26 availment; this is not the deliberate creation of a ‘substantial connection’ with California.” 911 27 F.2d at 1362. Nor has DocuSign shown that the emails promoted business in California, as they 1 lawsuits in Texas. See id. (stating that accepting payment from a California bank, making phone 2 calls and sending letters to California did not promote business in California because the business 3 promoted “was legal representation in Florida, not California”); see also MTD at 3:12-13 (“Clark 4 did not effectuate performance of his expert services in California.”). 5 Considering the prior negotiations between Clark and DocuSign, the terms of the 6 Agreement, and the parties’ actual course of dealing, DocuSign has not shown that Clark’s 7 contacts with California were substantial, as required by the purposeful availment analysis. 8 II. PURPOSEFUL DIRECTION 9 Purposeful direction occurs when the defendant has: (1) committed an intentional act; (2) 10 expressly aimed at the forum state; (3) causing harm that the defendant knows is likely to be 11 suffered in the forum state. Schwarzenegger, 374 F.3d at 803 (citing Calder v. Jones, 465 U.S. 12 783 (1984)). To determine whether an act is “expressly aimed at the forum state,” courts consider 13 two factors. Morrill v. Scott Fin. Corp., 873 F.3d 1136, 1143 (9th Cir. 2017). First, “the 14 relationship must arise out of contacts that the defendant himself creates with the forum state,” not 15 the plaintiff’s contacts. Id. Second, courts look to the defendant’s contacts “with the forum state 16 itself,” not with persons who reside there. Id. The fact that a defendant’s conduct affected a 17 plaintiff with connections to the forum state does not establish jurisdiction. Walden v. Fiore, 571 18 U.S. 277, 291 (2014). 19 The parties dispute whether to follow the “effects test” articulated in Calder, as Clark 20 wants, or the analysis of Paccar International, Inc. v. Commercial Bank of Kuwait, S.A.K., 757 21 F.2d 1058 (9th Cir. 1985), in light of the Ninth Circuit’s decision in Freestream Aircraft. There, 22 the court held that when an intentional tort is committed within the forum state, “Paccar, not 23 Calder, is the proper starting place.” Freestream Aircraft, 905 F.3d at 606. Under Paccar, “[t]he 24 commission of an intentional tort in a state is a purposeful act that will satisfy the first two 25 requirements” of the minimum contacts test. See 757 F.2d at 1064. In other words, the purposeful 26 direction standard would be satisfied. See id.; Freestream Aircraft, 905 F.3d at 603. 27 In Paccar, the Ninth Circuit held that a foreign bank’s allegedly fraudulent demand for 1 that this satisfied the first two requirements of the minimum contacts test, as the cause of action 2 arose out of that inducement. Id. In so deciding, the court relied heavily on Data Disc, Inc. v. 3 Systems Technology Associates, Inc, 557 F.2d 1280, 1288 (9th Cir. 1977), which held that “[t]he 4 inducement of reliance in California is a sufficient act within California to satisfy the requirement 5 of minimum contacts where the cause of action arises out of that inducement.” 6 Although the facts in Freestream Aircraft are distinguishable—there, the alleged 7 intentional tort occurred within the forum state itself, where the defendant was accused of making 8 defamatory statements about the plaintiff at an aviation conference—the rule it articulates is clear. 9 See 905 F.3d at 600. It interpreted Paccar as holding that a “non-Californian defendant could be 10 sued in California for an allegedly fraudulent demand for payment made to a California entity” 11 because of the inducement of reliance in California. 905 F.3d at 603. 12 DocuSign concedes that any misrepresentation by Clark “may have been made” in 13 Maryland, where he apparently executed the Agreement. Oppo. at 10:14-16. But it contends that 14 “the inducement of reliance and actual reliance on such misrepresentations occurred in 15 California.” Id. at 10:13-22. And because DocuSign’s fraud claim arises out of that inducement, 16 it argues, purposeful direction is satisfied under Paccar. Id. 17 A plaintiff “need only demonstrate facts that if true would support jurisdiction over the 18 defendant.” Ballard, 65 F.3d at 1498. Accepting DocuSign’s allegations as true, it has met this 19 burden. See Schwarzenegger, 374 F.3d at 800. The SAC alleges that Clark’s misrepresentations 20 about the Agreement’s terms—namely, that he had conducted a comprehensive conflicts of 21 interest check and that no such conflicts existed—induced reliance by DocuSign in California. 22 See SAC at ¶ 17. Inducement of reliance is an element of fraud. See Robinson Helicopter Co., 23 Inc. v. Dana Corp, 34 Cal. 4th 979, 990 (2004). As in Paccar and Data Disc, DocuSign’s cause 24 of action arises out of the alleged inducement of reliance that occurred in California. 25 Clark’s primary response is that DocuSign has not alleged that he made any 26 misrepresentations directly to DocuSign “in California or elsewhere.” Reply [Dkt. No. 50] 7:16- 27 8:1. It argues that any misrepresentations were made to the lawyers who signed the Agreement on 1 clients, who were subject to its terms. This is clear from the language of the Agreement itself, 2 || which expressly stated that counsel was acting “on behalf” of their clients, and referenced both 3 “Defendants” and “Defendants’ counsel” throughout in its terms. See Ex. P at 1-4. 4 Nor has Clark cited any case law that successfully counters the Ninth Circuit’s direction in 5 Freestream Aircraft to apply Paccar, or that purposeful direction is satisfied when a non- 6 || California defendant induces reliance in California. See Reply at 6:16-7:4. Only one of the cases 7 || it cites post-dates Freestream Aircraft, and it made no mention of purposeful direction, only 8 || purposeful availment. See Fletcher v. Donald L. Johnson, PC, No. 18-CV-08671, 2019 WL 9 |} 4383945, at *2 (C.D. Cal. Apr. 26, 2019). 10 Without any authority to the contrary, I am bound by the collective holdings of Freestream 11 Aircraft, Paccar, and Data Disc: the inducement of reliance in California by a non-California 12 || defendant is enough to satisfy the first two requirements of the minimum contacts test. Clark did 5 13 not challenge the third requirement, reasonableness. See MTD at 7:18-11:26. Because personal 14 || jurisdiction exists over Clark with respect to the fraud claim, and because the other claims arise 3 15 || from common nucleus of operative facts (relating to the Agreement’s formation and terms), I 16 || will assert pendent personal jurisdiction over the remaining claims. See NetApp, Inc. v. Nimble 3 17 Storage, Inc., 41 F. Supp. 3d 816, 827 (N.D. Cal. 2014) (asserting pendent personal jurisdiction 18 || over contract-based claims based on the same facts as the tort-based claims over which the court 19 || had personal jurisdiction). 20 CONCLUSION 21 Clark’s motion to dismiss for lack of personal jurisdiction is DENIED. He shall answer 22 || the SAC within 10 days of the issuance of this Order. A Case Management Conference is set for 23 July 5, 2022, at 2 p.m. The Joint Case Management Statement is due on June 28, 2022. 24 IT IS SO ORDERED. 25 Dated: June 14, 2022 . 26 . Orrick 27 United States District Judge 28