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NexGen HBM, Inc. v. ListReports, Inc.

United States District Court, D. Minnesota

August 25, 2017

NexGen HBM, Inc., and Home Buyers Marketing, Inc., Plaintiffs,
v.
ListReports, Inc., Ajay Shah, Randy Shiozaki, and Esther Yang, Defendants.

          Michael M. Lafeber and Scott M. Flaherty, Briggs & Morgan, PA, for Plaintiffs.

          Matthew B. Kilby, Randall E. Kahnke, and Lauren W. Linderman, Faegre Baker Daniels LLP, for Defendants.

          ORDER FILED UNDER SEAL

          SUSAN RICHARD NELSON, UNITED STATES DISTRICT JUDGE

         This matter is before the Court on Defendants' Motion to Dismiss for Lack of Personal Jurisdiction or, In the Alternative, to Transfer (“Mot. to Dismiss”) [Doc. No. 33]. For the reasons set forth below, Defendants' Motion to Dismiss is granted.

         I. BACKGROUND

         A. Factual Background

         1. Plaintiffs and Their Products

         Plaintiffs NexGen HBM, Inc. and Home Buyers Marketing, Inc. (collectively, “HBM”) are Minnesota corporations with their principal places of business in Minnesota. (Compl. at ¶¶ 1-2 [Doc. No. 1].) HBM provides products and services that help mortgage lenders “increase their productivity and business origination . . . .” (Id. at ¶ 11.) In relevant part, HBM created Home Scouting, a web-based program that allows users to search for available homes, compare homes for sale, obtain property tax records, view data about individual properties, obtain realtor remarks, and communicate with realtors and lenders, along with other interactive features and targeted search capabilities. (Id. at ¶¶ 15-16.) HBM explains that “[w]hile other companies provide analogous search services to potential home buyers, ” Home Scouting is unique because it is designed to be offered by lenders to home buyers and/or realtors and contains nearly all MLS property listings. (See Id. at ¶¶ 12-13, 18-22, 26.)

         HBM also sells other related technologies, such as Sold Home Alert-a web-based program that alerts home buyers to open houses matching their interests, new listings, and price changes-and a Customer Relationship Management platform (collectively with Home Scouting, “HBM's Proprietary Products”). (See Id. at ¶¶ 11, 17, 22-24.) HBM's Proprietary Products are used by customers nationwide, including in Minnesota. There is no evidence in the record identifying what percentage of HBM's business is done in Minnesota or involves customers based here.

         HBM spent many years and invested millions of dollars to develop, market, and support its Proprietary Products. (Id. at ¶¶ 11, 20.) The Proprietary Products are not publicly available, but instead may only be used by lenders, realtors, and home buyers who are given access to them. (See Id. at ¶ 27; Decl. of Jeff Colville in Opp. to Mot. to Dismiss (“Colville Decl.”) at ¶ 5 [Doc. No. 54].) For instance, to log in to Home Scouting, a HBM client must first provide the user with a unique link or code.[1] (Colville Decl. at ¶ 4.)

         Users must accept HBM's Terms of Use before they can access the Proprietary Products. (Decl. of Matthew B. Kilby in Support of Mot. to Dismiss (“First Kilby Decl.”) [Doc. No. 35], Ex. 1 (“Home Scouting Terms of Use”) [Doc. No. 35-1].) Under the “Privacy Policy” portion of these terms, HBM explains that the information contained in the Proprietary Products “is only for your personal, non-commercial use as a bona fide prospective buyer of such property, and may not be used commercially or disclosed, copied, retransmitted or distributed to any other person.” (Id. at 2.) Later, the user must again agree to only use information obtained from the Proprietary Products for the personal, noncommercial uses previously described. (Id. at 4.) Finally, the Terms of Use state as follows:

Trade Secrets. For the purpose of this Terms of Use, “Trade Secrets” means any information which is proprietary to or owned by HBM II relating to the Home Scouting Report, now existing or reasonably foreseeable, whether in a written, electronic, verbal, or other form, and includes, without limitation, the following: (a) all websites designed, created and developed by HBM II or its affiliated companies, including all passwords, text, content, color schemes, images, graphics, information, look and feel, layout, methodology, metrics, graphical interfaces and functionality for each website; (b) information and materials comprising or relating to any current, future or proposed products or services; (c) analyses, factual evaluations and/or summaries of real estate listings, compilations, data bases, studies or other printed or electronic documents prepared by anyone in connection with the review or evaluation of any information developed by or pertaining to HBM II; (d) copyrights, patents, patents pending, electronic records, computer processes, computer systems, computer hardware configurations, software source codes and software owned, developed or acquired by HBM II; and (d) other information relating to HBM II that is not commonly known to persons or other sources outside of HBM, whether or not specifically marked or identified as “confidential” or “trade secret” by HBM II.
Limitations on Use of Trade Secrets. You agree that you will not: (a) disclose, reveal, divulge, disseminate or deliver (collectively, “Disclose”) any Trade Secrets to any third party; (b) use, utilize, employ, lecture upon, publish, rewrite, reproduce or reverse engineer (collectively, “Use”) any Trade Secrets, for your benefit or for the benefit of any other person or entity; or (c) authorize or permit any third person or entity to Disclose or Use any Trade Secrets;
Miscellaneous. If you are found to be in violation of the terms of this Terms of Use, your access to this website may be temporarily or permanently disabled and you may be held liable for all expenses and damages, including court costs and attorneys' fees, incurred by HBM II, or any of its Affiliated Companies, caused by your failure to abide by the terms and conditions of this Agreement.
You must agree to the Terms of Use set forth herein before you can view listings that match your search criteria on your free Home Scouting Report website. By clicking on the “I Accept” button below you (1) agree to the Terms of Use set forth above and (2) authorize us to share the information collected with the real estate broker and loan officer who may have referred you to us and with others as set forth in the Privacy Policy herein.

(Id. at 5.) Notably, the Terms of Use do not contain a forum-selection or choice-of-law clause, nor do they mention HBM's geographic location in Minnesota.

         HBM's Proprietary Products are hosted on servers located in Minnesota. (Colville Decl. at ¶ 21.) When a user selects the “Contact Us” tab of the Home Scouting website, a telephone number containing a “952” area code associated with Minnesota appears. (Id., Ex. C [Doc. No. 54-3].)

         2. Defendants and Their Business

         Defendant ListReports, Inc. (“ListReports”) is a California corporation with its headquarters in California. (Decl. of Ajay Shah in Supp. of Defs.' Mot. to Dismiss (“First Shah Decl.”) at ¶ 5 [Doc. No. 41].) ListReports has no offices or employees in Minnesota, is not registered to do business in Minnesota, nor does it pay taxes or own any property in Minnesota. (Id.) The company is a relatively recent start up and originally developed and sold products designed to help lenders and realtors create flyers and websites related to home sale events like open houses and property listings. (Compl. at ¶ 28; see Suppl. Decl. of Michael M. Lafeber (“Third Lafeber Decl.”) [Doc. No. 119], Ex. A at PM-012190[2] [Doc. No. 120].) As described below, ListReports later expanded its product offerings.

         Defendant Ajay Shah (“Shah”) is the co-founder and CEO of ListReports. (First Shah Decl. at ¶ 1.) Shah is a resident of California, has never lived in or visited Minnesota, and owns no property in Minnesota. (Id. at ¶ 4.) Defendant Randy Shiozaki (“Shiozaki”) is the co-founder and Head of Design for ListReports. (Decl. of Randy Shiozaki in Supp. of Defs.' Mot. to Dismiss (“Shiozaki Decl.”) at ¶ 1 [Doc. No. 37].) He is a resident of California, has never lived in Minnesota or visited (other than perhaps for a layover at the airport), and owns no property in Minnesota. (Id. at ¶ 4.) Defendant Esther Yang (“Yang”) is a Designer at ListReports. (Decl. of Esther Yang in Supp. of Defs.' Mot. to Dismiss (“Yang Decl.”) at ¶ 1 [Doc. No. 38].) She is a resident of California, has never lived in or visited Minnesota, and owns no property in Minnesota. (Id. at ¶ 4.)

         3. Relevant Third Parties

         Matt Duffy (“Duffy”) is a co-founder of ListReports and occupies a management position at the company, although his exact role is unclear. (See, e.g., Decl. of Michael M. Lafeber (“Second Lafeber Decl.”) [Doc. No. 88], Ex. B at ¶ 000614 [Doc. No. 92].) Duffy is involved with marketing, selling, and supporting ListReports' products around the country. (See Id. at LR000614, 1258, 1765, 1945, 2424, 5265-66.) There is no evidence regarding where Duffy resides.

         Sondra Jovel (“Jovel”) is the Director of Sales for ListReports. (Second Lafeber Decl., Ex. A at ¶ 001152 [Doc. No. 90].) Jovel is also involved with marketing, selling, and supporting ListReports' products around the country. (See Id. at LR001152, 2171, 4312, 5691.) There is no evidence regarding where Jovel resides.

         Prospect Mortgage, LLC (“Prospect”) is a Delaware limited liability corporation with its principal place of business in California. (Kilby Decl., Ex. 6 [Doc. No. 35-6].) Prospect does business in many states and is a registered lender in Minnesota. (See id.) The record contains no evidence regarding what percentage of Prospect's business, if any, is conducted in Minnesota. Until May of 2016, Prospect was a longtime HBM customer who used HBM's Proprietary Products. (See Compl. at ¶ 34; Colville Decl. at ¶¶ 10-12.)

         Skyline Home Loans (“Skyline”) is a longtime HBM customer who uses HBM's Proprietary Products. (See Compl. at ¶¶ 38-39; Colville Decl. at ¶ 18.) The record implies that Skyline does business in many states, but there is no evidence whether that includes Minnesota, and if so, the extent of Skyline's business there.

         4. The Alleged Misappropriation

         From April of 2015 through early 2016, ListReports worked to create a program that would compete with HBM's Proprietary Products. Beginning in April of 2015 and continuing for nearly a year thereafter, Shiozaki and Yang repeatedly logged into Home Scouting using access codes provided to them by Prospect and Skyline. (Compl. at ¶¶ 30- 32; Colville Decl. at ¶¶ 13-14.) In doing so, they had to-and in fact did-agree to HBM's Terms of Use. (Compl. at ¶ 33; Colville Decl., Exs. A, B (containing Shiozaki's and Yang's accepted terms of use and indicating the source of their access codes) [Doc. Nos. 54-1, 54-2].) In total, Shiozaki accessed Home Scouting at least forty-four times while Yang accessed it at least ten times. (Colville Decl. at ¶¶ 13-14.) Shah also admits that he “viewed portions” of Home Scouting “likely in the first half of 2015, ” but does not recall “creating a username or account.” (Decl. of Michael M. Lafeber (“First Lafeber Decl.”) [Doc. No. 72], Ex. C (“Defs.' Ans. to Interrogs.”) at 9[3] [Doc. No. 72-1].)

         HBM alleges that Shiozaki and Yang used these accesses to copy or otherwise misappropriate HBM's Proprietary Products in their efforts to reverse-engineer a competing product. (Compl. at ¶¶ 30, 34.) Shiozaki and Yang do not deny accessing Home Scouting, but claim that they did so in their capacity as ListReports employees and while physically located in California. (Shiozaki Decl. at ¶ 5; Yang Decl. at ¶ 5.) There is no evidence that Shiozaki or Yang had a “proper” purpose for their accesses (e.g., they were personally involved with buying or selling a home, or that ListReports was a contractor, partner, or client of HBM).

         In December of 2015, members of ListReports-including Shah and Duffy-met with members of Prospect in California. (Third Lafeber Decl., Exs. C, D [Doc Nos. 122, 123].) After this meeting, Shah emailed the Prospect team thanking them for the meeting and stating that he was “really looking forward to working with [Prospect] on a significant partnership.” (Third Lafeber Decl., Ex. E [Doc Nos. 124].) That same day, Shah emailed a Prospect employee to schedule a time for a “req's gathering session” so that ListReports could provide Prospect with “fully completed specs and designs and timelines before the end of the year . . . .” (Third Lafeber Decl., Ex. F [Doc. No. 125].)

         On December 21, 2015, Shah emailed Prospect with “some of the designs we've been thinking about” attached. (Third Lafeber Decl., Ex. G at PM-011070 [Doc No. 126].) The attachment contained a PowerPoint presentation listing Shah and Shiozaki as the contacts for any questions. (Id. at PM-011086.) An overview slide explained that the presentation contained “preliminary designs for discussion as we move forward with our partnership.” (Id. at PM-011072.) In relevant part, the slide stated that the proposed designs covered “Home Search (aka HBM Replacement)” and that “finalizing designs is a major first step in accelerating development and launch.” (Id.)

         On March 15, 2016, Shah sent Prospect a letter stating that ListReports was thirty days away from “delivering all key deliverables” including “all components that are currently supplied by HBM within your organization.” (Third Lafeber Decl., Ex. H [Doc No. 127].) Days later, ListReports employees exchanged emails with Prospect-with Shah and Shiozaki copied-aimed at scheduling a product development call. (Third Lafeber Decl., Ex. I [Doc No. 128].) These emails proposed “action items” for ListReports and Prospect. (Id. at PM-008362-63.) Prospect would “provide [a] spreadsheet inclusive of all features that HBM has to ensure HBM replacement product covers the bases.” (Id. at PM-008362.) ListReports would share a “Google Doc” with two Prospect employees “displaying all [the] main features that are being accounted for during Gen 1 launch of HBM replacement product. This can be used to compare against required HBM features.” (Id. at PM-008363.) In a “General Notes” section, the email stated that “[p]rior to launch of HBM replacement, both sides to be mindful of [Prospect's] priority list of Transitioning current HMB [sic] consumers, Transitioning Agents, Transitioning LO's[4] . . . .” (Id.)

         Also in March of 2016, Duffy wrote to a Minnesota-based lender to inquire if it used HBM's Proprietary Products. (Second Lafeber Decl., Ex. D [Doc. No. 96].) Duffy expressed his belief that HBM was “based near” the Minnesota lender. (Id.) Duffy also explained that ListReports was “looking to build a product with some similar functionality” to HBM's Proprietary Products and wanted to know if the Minnesota lender was in an “enterprise arrangement” with HBM. (Id.) The lender said it was not using HBM's Proprietary Products and did not expressly confirm Duffy's suspicion that HBM was located in Minnesota. (Id.)

         ListReports' efforts culminated with the launch of its “Nest.Me” product and related services in mid-2016. (Compl. at ¶ 35.) HBM alleges that Nest.Me is a “knock-off” of its Proprietary Products that contains many of the same “hallmarks, functionality and features . . . .” (Id. at ¶ 36; see Colville Decl. at ¶ 17.) Moreover, HBM claims that Nest.Me “was built and developed specifically to allow for the accessing, importation and downloading of HBM's confidential and proprietary databases, including, without limitation, HBM's private consumer real estate search activity and information databases.” (Compl. at ¶ 37.)

         5. Marketing Nest.Me and the Alleged Misrepresentations

         Since the launch of Nest.Me-and immediately prior to that launch-ListReports has actively marketed, sold, and supported the product nationwide. Relevant here are ListReports' activities in Minnesota. ListReports does not specifically target Minnesota with advertising or other solicitations. (First Shah Decl. at ¶ 6.) However, according to ListReports, it currently has approximately 95 clients who “may be located or reside in Minnesota and who may use the Nest.Me product at issue.” (Defs.' ...


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