Grandesign Advertising Firm, Inc. v. Talon US (Grrandesign) LLC

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 GRANDESIGN ADVERTISING Case No. 3:20-cv-00719-LAB-DEE 11 FIRM, INC., ORDER DENYING MOTION TO 12 Plaintiff DISMISS UNDER FED. R. CIV. P. 13 V. 12(b)(2) [Dkt. 15] 14 | TALON US (GRANDESIGN) LLC 15 and TALON OUTDOOR, LTD., 16 Defendants. 17 || TALON US (GRANDESIGN) LLC, 18 Counterclaimant and 19 Third-Party Plaintiff, ?0 V. 21 GRANDESIGN ADVERTISING 99 FIRM, INC., and AARON GAEIR, 23 Counterclaim 24 Defendant and Third- Party Defendant. 25 26 Plaintiff Grandesign Advertising Firm, Inc. (“Grandesign”) alleges that 27 || Talon US (Grandesign) LLC (“Talon US”) violated the Lanham Act by using 28 || Grandesign’s tradename and breached an Asset Purchase Agreement under 3:20-CV-00719-LAB-DEB

1 || which Talon US acquired part of Grandesign’s business. Grandesign names 2 || Talon US’s ultimate parent, Talon Outdoor, Ltd. (“Talon Outdoor”), a United 3 || Kingdom entity headquartered in London, England, as a defendant, too. 4 Talon Outdoor has moved to dismiss the claims against it for lack of 5 || personal jurisdiction. (Dkt. 15.) Grandesign opposes that Motion and argues 6 || that, at a minimum, it should have an opportunity to conduct jurisdictional || discovery to determine whether Talon US is its foreign parent’s alter ego. 8 Grandesign fails to make the necessary prima facie showing of general 9 || jurisdiction under an alter ego theory, but it alleges enough to establish 10 || specific jurisdiction. The Motion is DENIED. (Dkt. 15.) 11 BACKGROUND 12 Talon Outdoor, a United Kingdom limited company with its principal 13 || place of business in London, sought to expand the operations of its family of 14 || companies to the west coast of the United States. To accomplish that, it 15 || directed one of its subsidiaries to form a new subsidiary, Talon US. The new 16 || entity executed an asset purchase agreement with Grandesign, but payments 17 || under that agreement came from Talon Outdoor and, when the final payment 18 || came due, Grandesign received a notice sent by a Talon Outdoor executive 19 || and directing questions to that executive. 20 Grandesign alleges that Talon Outdoor is liable under the APA since 21 || Talon US is merely an alter ego of its parent. It contends that Talon Outdoor 22 || is subject to the Court’s personal jurisdiction on the same basis. 23 DISCUSSION 24 The burden of proving personal jurisdiction rests with the plaintiff. 25 || Pebble Beach Co. v. Caddy, 453 F.3d 1151, 1154 (9th Cir. 2006). On a 26 || motion to dismiss under Rule 12(b)(2), the plaintiff must make only a prima 2/ || facie showing of personal jurisdiction. American Tel. & Yel. Co. v. Compagnie 28 || Bruxelles Lambert, 94 F.3d 586, 588 (9th Cir. 1996). -2- 3:20-CV-00719-LAB-DEB

1 Courts may exercise either general or specific jurisdiction over a 2 || defendant. Under the former theory, a corporate defendant’s connections 3 || must be “so continuous and systematic as to render it essentially at home in 4 || the forum state.” Williams v. Yamaha Motor Co. Ltd., 851 F.3d 1015, 1020 5 || (2017) (quoting Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 6 | 915 (2011)). Specific jurisdiction, on the other hand, “requires that the 7 || defendant have certain minimum contacts such that the maintenance of the 8 || suit does not offend traditional notions of fair play and substantial justice’— 9 | that is, “the defendant’s suit-related conduct must create a substantial 10 || connection with the forum state.” /d. at 1022-23 (quoting /nt? Shoe Co. v. 11 || Washington, 326 U.S. 310, 318 (1945) and Walden v. Fiore, 571 U.S. 277, 12 || 284 (2014)). 13 Although Grandesign fails to establish that Talon Outdoor has 14 || continuous and systematic contacts with California, it makes the required 15 || prima facie showing that Talon Outdoor’s suit-related conduct create a 16 || substantial connection with California. Accordingly, the Court can exercise 17 || specific personal jurisdiction over Talon Outdoor in this matter. 18 I. Grandesign Fails to Make a Prima Facie Showing of General 19 Jurisdiciton 20 Grandesign offers only one theory supporting general jurisdiction over 21 || Talon Outdoor: that Talon US, which is undisputedly subject to the Court’s 22 || jurisdiction, is Talon Outdoor’s alter ego. (Dkt. 29 at 9.) “The alter ego test is 23 || designed to determine whether the parent and subsidiary are not really 24 || separate entities, such that one entity's contacts with the forum state can be 20 || fairly attributed to the other.” Ranza v. Nike, Inc., 793 F.3d 1059, 1071 (9th 26 || Cir. 2015) (internal marks omitted). To establish that Talon Outdoor and 2/ || Talon US “are not really separate entities” at this stage, Grandesign must 28 || make a prima facie showing “(1) that there is such a unity of interest and -3- 3:20-CV-00719-LAB-DEB

1 || ownership such that the separate personalities of the two entities no longer 2 || exist and (2) that failure to treat them as one would result in fraud or injustice.” 3 || Id. at 1073 (marks omitted, quoting Doe v. Unocal Corp., 248 F.3d 915, 926 4 || (2001)). 5 The unity of interest of prong requires “a showing that the parent 6 || controls the subsidiary to such a degree as to render the latter the mere 7 || instrumentality of the former.” /d. The parent must have “pervasive control... 8 || suchas... [its] dictat[ion of] every facet of the subsidiary’s business—from 9 || broad policy decisions to routine matters of day-to-day operation.” /d. The 10 || parent’s mere involvement in day-to-day operations, as opposed to its control 11 || over or dictation of them, doesn’t suffice to label the subsidiary an alter ego. 12 || See id. at 1073-74. 13 Grandesign’s showing falls short of this standard. It alleges: 14 1) Talon Outdoor negotiated the APA and made payments under that 15 agreement on Talon US’s behalf, (Dkt. 1 Jf] 20, 28, 30); 16 2) Talon Outdoor, on its website, listed Talon US’s offices as Talon 17 Outdoor offices, (id. □□ 21), and assigns its employees email 18 addresses through Talon Outdoor’s domain, talonoutdoor.com, (id. 19 T 29); 20 3) Talon US doesn’t “keep minutes of major corporate decisions, 21 ensur[e] proper capitalization, maintain[] the distinction between 22 corporate assets and parent assets, and maintain[] separate bank 23 accounts,” with Talon US continuing to have no bank account 24 through July 2019, (id. JJ 22, 23); 20 4) Talon US “shadow-operated off of Grandesign’s infrastructure,” (id. 26 4] 23 (emphasis added)), paying business expenses, payroll, and 2/ contractors through Grandesign’s infrastructure and relying on 28 Grandesign for insurance, (id. □□□ 23-25); -4- 3:20-CV-00719-LAB-DEB

1 5) “Directives to Grandesign from Talon typically come from Talon 2 Outdoor executives or employees, not Talon US,” (id. J 27); 3 6) Talon US and Talon Outdoor have substantial overlap in directors 4 and management personnel, (id. Jf] 29-32); 5 7) That Talon Outdoor’s CEO, Barry Cupples, directed Aaron Gaeir, 6 Grandesign’s former CEO and then Talon US’s Chief Revenue 7 Officer, to copy Cupples “on all mails to any colleagues at Talon on 8 this side of the pond,” that is, communications with Talon Outdoor; 9 8) That one of Talon US’s managers “was surprised,” five days after 10 Gaeir’s termination, that Talon US wouldn't be paying Gaeir the Final 11 Earnout Payment in dispute in this case, and “stated that he was 12 under the impression that the payment had to be made and had 13 already been made,” (id. Jf] 34, 36); and 14 9) Talon US “acted based on purported authorization from various 15 sources,’ including individuals purporting to hold titles with Talon US 16 while also serving as executives of Talon Outdoor or other entities 17 in the Talon family (id. J 35). 18 But none of this amounts to pervasive control of Talon. The payment of 19 || large, extraordinary expenses is anything but a day-to-day operation. The 20 || sharing of a website, while suggestive of a close relationship, doesn't indicate 21 || control. Talon US's use of Grandesign’s infrastructure suggests that Talon 22 || US wasn't fully fleshed-out, but it speaks more to Grandesign’s own leverage 23 || over Talon US than it does to Talon Outdoor’s control. 24 That “[d]irectives to Grandesign from Talon” came from Talon Outdoor 25 || doesn't move the needle, either—were these “directives” in connection with 26 || Grandesign’s duties to Talon US? Did they relate to the APA, or to day-to- 2/ || day operations? Without more specificity, this vague allegation doesn’t speak 28 || to the level of control that Talon Outdoor exerted over Talon US. -5- 3:20-CV-00719-LAB-DEB

1 And even the allegation that Cupples wanted to be copied on 2 || communications between Talon US and Talon Outdoor, while it reaches the 3 || level of day-to-day, doesn’t support a plausible inference that Talon Outdoor 4 || controlled Talon US. To the contrary, that request is just as consistent with 5 || the inference that Cupples sought to maintain control over Talon Outdoor’s 6 || relationship with a separate entity. 7 The Court’s conclusion is confirmed by Talon Outdoor’s affidavits. 8 || Talon Outdoor “is not responsible for securing clients for [Talon US],” 9 || (Dkt. 15-2 J 13), it “does not share any bank accounts with [Talon US]” as of 10 || August 2019, (id. 16), and it funded Talon US’s operations through an 11 || interest-bearing loan. (Dkt. 15-3 J 3). Talon US, for its part, “makes its own 12 || corporate decisions[,] .. .passes its own resolutions,” and maintains separate 13 || accounts and books. (Dkt. 15-4 Jf 18-19.) 14 Grandesign must make a prima facie showing of Talon Outdoor’s 15 || pervasive control of Talon US, and it hasn't done so. The parent entity’s 16 || heavy involvement in the APA isn’t enough to establish the level of day-to- 17 || day control necessary to show that Talon US is a mere alter ego of Talon 18 || Outdoor. Talon US's jurisdictional contacts can’t be imputed to Talon Outdoor 19 || so the Court doesn’t have general personal jurisdiction over that Defendant. 20 ll. Talon Outdoor Is Subject to the Court’s Specific Personal 21 Jurisdiction 22 While Grandesign’s showing isn’t enough to establish general 23 || jurisdiction, it satisfies the standard for specific jurisdiction. A defendant is 24 || subject to such jurisdiction where its “minimum contacts” with a forum suffice 25 || to show that it would not “offend traditional notions of fair play and substantial 26 || justice” for it to face claims against it in that forum. Williams, 851 F.3d at 27 || 1022.1 “(T]he defendant's suit-related conduct must create a substantial 28 Because the Court sits in California, its specific jurisdiction is limited by -6- 3:20-CV-00719-LAB-DEB

1 || connection with” California to be subject to suit here. /d. at 1022-23. 2 A connection to a California-based plaintiff isn’t enough—the 3 || jurisdictional inquiry must “focus[] on the relationship among the defendant, 4 || the forum, and the litigation.” Walden, 571 U.S. at 287. “The proper question 5 || is not whether the plaintiff experienced a particular injury or effect but whether 6 || the defendant’s conduct connects him to the forum in a meaningful way.” /d. 7 | at 290. To exercise specific personal jurisdiction over an out-of-state 8 || defendant, then, the Court must be satisfied that: “(1) the defendant either 9 || purposefully directs its activities or purposefully avails itself of the benefits 10 || afforded by the forum’s laws; (2) the claim arises out of or relates to the 11 || defendant’s forum-related activities; and (3) the exercise of jurisdiction 12 || comports with fair play and substantial justice.” Williams, 851 F.3d at 10123 13 || (internal marks removed). 14 Grandesign’s Complaint successfully invokes the Court’s jurisdiction 15 || under this theory. Talon Outdoor purposefully directed its activities to 16 || California, “expand[ing] its U.S. coverage” by purchasing assets from 17 || Grandesign, a California business. (Dkt. 1 {] 20 (quoting Talon Outdoor press 18 || release).) Its executives negotiated the APA, with Talon Outdoor Chairman 19 || and co-founder Eric Newnham signing the APA as a Manager of Talon US. 20 || (/d. (9 9, 10, 28; Dkt. 1-2 at 46.) It then made payments to Grandesign under 21 || the APA on Talon US's behalf, and when the Earn-Out Payment at issue in 22 || this case came due, a Talon Outdoor executive with no apparent relationship 23 || to Talon US transmitted a notice to Gaeir stating that he would not be 24 || receiving the Earn-Out Payment. (/d. {| 31.) The notice informed him, too, that 25 || any questions should be directed to the same Talon Outdoor executive. 26 California's long-arm statute, too. But that statute permits the exercise of 27 || jurisdiction to the limits of due process, so the analyses for personal 2g || jurisdiction under state law and federal due process are the same. Cal. Code Civ. Proc. § 410.10; Dole Food Co., Inc. v. Watts, 303 F.3d 1104, 1110. -7- 3:20-CV-00719-LAB-DEB

1 || (Dkt. 1-5 at 3.) Five days later, one of Talon US’s two Managers expressed 2 || surprise when he learned that Gaeir didn’t receive payment, stating that he 3 || believed that the payment had been made. (Dkt. 1 7] 34.) 4 These allegations—which aren't contradicted by the affidavits Talon 5 || Outdoor offers—establish a plausible inference that Talon Outdoor, not Talon 6 || US, made the decision that Gaeir wouldn’t be paid. Accordingly, Gaeir’s 7 || claims arise out of Talon Outdoor’s forum-related activities. 8 Finally, the Court finds that the exercise of jurisdiction over Talon 9 || Outdoor comports with fair play and substantial justice. Under this prong, the 10 || Court must consider seven factors: “(1) the extent of the defendants’ 11 || purposeful injection into the forum state's affairs; (2) the burden on the 12 || defendant of defending in the forum; (3) the extent of conflict with the 13 || sovereignty of the defendant's state; (4) the forum state's interest in 14 || adjudicating the dispute; (5) the most efficient judicial resolution of the 15 || controversy; (6) the importance of the forum to the plaintiff's interest in 16 || convenient and effective relief; and (7) the existence of an alternative forum.” 17 || Dole Food, 303 F.3d at 1114 (9th Cir. 2002). 18 As to the first factor, the extent of Talon Outdoor’s purposeful direction 19 || of its activities toward California supports the conclusion that it has sufficiently 20 || purposefully injected itself into California’s affairs. See id. at 1114-15 (noting 21 || overlap between “purposeful injection” and “purposeful availment 22 || requirement.”) 23 For the second, it would be burdensome to require Talon Outdoor, a 24 || UK entity, to defend against a suit in California. But the Ninth Circuit 29 || recognizes that “[mJodern advances in communications and transportation 26 || have significantly reduced the burden of litigating in another country,” and 2/ || that English-speaking defendants face lesser burdens than they otherwise 28 || would. /d. at 1115. Talon Outdoor’s affidavits and the other exhibits submitted -8- 3:20-CV-00719-LAB-DEB

1 || in support of this motion satisfy the Court that the relevant executives are 2 || fluent in English. The second factor weighs against a finding of fair play and 3 || substantial justice, but not heavily. 4 Third, any conflict with the sovereignty of the United Kingdom (beyond 5 || the minor conflict that necessarily occurs when a foreign national faces 6 || litigation in an American court) isn’t apparent here, so this factor, too, weighs || only weakly against a finding of fair play and substantial justice. 8 Fourth is California’s interest in adjudicating this dispute. Grandesign 9 || has its principal place of business in California and the assets it sold remain 10 || in California. (Dkt. 1 Jf] 1, 5.) California has a strong interest in providing a 11 || forum for its residents. See Dole Food, 303 F.3d at 1115-16 (citing Panavision 12 || Intern., L.P. v. Toeppen, 141 F.3d 1316, 1323 (9th Cir. 1998). 13 The fifth factor, efficient resolution, focuses on the location of the 14 || evidence and witnesses. Panavision, 141 F.3d at 1323. Even in 1998, □□□□□ 15 || [was] no longer weighed heavily given the modern advances □□ 16 || communication and transportation.” /d. This factor favors California, as well. 17 || The presence of Grandesign and Talon US offices, the purchased assets, 18 || and Gaeir in San Diego indicates that the case’s center of gravity is here, 19 || rather than in the United Kingdom. 20 Sixth, litigation in California is important to Grandesign’s ability to obtain 21 || convenient and effective relief because doing so permits Grandesign to 22 | litigate its claims against both Talon entities in a single lawsuit in a single 23 || country. While this factor is “not of paramount importance,” it favors the 24 || Court's exercise of jurisdiction over Talon Outdoor. Dole, 303 F.d3 at 1116. 25 Seventh and finally, “whether another reasonable forum exists 26 || becomes an issue only when the forum state is shown to be unreasonable.” 2/ || Sinatra v. National Enquirer, Inc., 854 F.2d 1191, 1201 (9th Cir. 1988). 28 || Because this forum hasn't been shown to be unreasonable, this factor is not -9- 3:20-CV-00719-LAB-DEB

1 || relevant here. 2 Balancing these factors, the Court finds that exercise of jurisdiction over 3 || Talon Outdoor comports with fair play and substantial justice. 4 CONCLUSION 5 Because (1) Talon Outdoor purposefully directed its activities toward 6 || California, (2) the suit arises out of Talon Outdoor’s contacts with California, || and (3) exercise of jurisdiction over Talon Outdoor comports with fair play and 8 || substantial justice, the motion to dismiss for lack of personal jurisdiction is 9 || DENIED. 10 The Court’s finding that the Complaint fails to adequately allege alter 11 || ego ultimately may result in dismissal of Grandesign’s claim against Talon 12 || Outdoor relying the related theory of veil piercing. While serial motions to 13 || dismiss are disfavored, Talon Outdoor may brief this issue via motion to 14 || dismiss under Rule 12(b)(6) filed within 14 days of this Order. 15 16 || Dated: March 24, 2021 l 4. (Buywy 7 en 18 United States District Judge 19 20 21 22 23 24 25 26 2? 28 - 10 - 3:20-CV-00719-LAB-DEB