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LLC v. Sourcis, Inc.

United States District Court, D. Minnesota

January 17, 2019

Ready 4 A Change, LLC, Plaintiff,
v.
Sourcis, Inc., d/b/a Sourcis, and Shahram Elli, a/k/a Ron Elli, Defendants.

          Bradley John Haddy, Minnesota Esquire, LLC, Mendota Heights, MN, for plaintiff Ready 4 A Change, LLC.

          Dawn C. Van Tassel, Van Tassel Law Firm, LLC, Minneapolis, MN, for defendants Sourcis, Inc., and Shahram Elli.

          MEMORANDUM OPINION AND ORDER

          Eric C. Tostrud United States District Judge

         This is a lawsuit between two business organizations that once worked together. Defendant Sourcis, Inc. (“Sourcis”), a California corporation, provided website-development and search-engine-optimization services under a contract to plaintiff Ready 4 A Change, LLC (“R4AC”), a Minnesota-based business. Defendant Shahram Elli (“Elli”) is Sourcis's Chief Executive Officer. R4AC alleges that the parties' business relationship went bad because Defendants breached their contract and misappropriated confidential information and intellectual property belonging to R4AC. R4AC asserts a series of exclusively state-law claims against Defendants and seeks damages greater than $500, 000. Thus, the case is in federal court on the basis of diversity jurisdiction.

         Defendants seek dismissal on several alternative grounds: a lack of personal jurisdiction, the passing of statutes of limitation, a failure to plead facts establishing essential elements of claims, federal preemption, and improper venue. Defendants alternatively seek transfer of venue to the United States District Court for the Eastern District of California under 28 U.S.C. § 1404(a). Because Defendants lack “minimum contacts” with Minnesota and “maintenance of the suit [in Minnesota would] offend traditional notions of fair play and substantial justice, ” Daimler AG v. Bauman, 571 U.S. 117, 126 (2014) (citation and internal quotation marks omitted), personal jurisdiction over Defendants is lacking. The lack of personal jurisdiction warrants transferring the case to the United States District Court for the Eastern District of California.

         I

         R4AC is a limited liability company organized under Minnesota law and based in Minnesota. Am. Compl. ¶ 1 [ECF No. 7].[1] R4AC's sole member is Judy Dohm (“Dohm”), and she is a Minnesota citizen, see Second Dohm Aff. ¶¶ 1, 6, 9 [ECF No. 32], making R4AC a Minnesota citizen. See, e.g., Cypress Creek Renewables Dev., LLC v. Sunshare, LLC, No. 18-cv-2756 (PJS/DTS), 2018 WL 5294571, at *1 (D. Minn. Oct. 24, 2018) (“For purposes of diversity jurisdiction, a limited liability company (LLC) takes the citizenship of its members and sub-members and sub-sub-members.”). R4AC provides medical-tourism services, including promoting and coordinating weight-loss and plastic-surgery procedures performed in Mexico. Am. Compl. ¶ 6; Def. Index of Exs. (“Index”), Ex. E ¶ 1 [ECF No. 17].

         Sourcis provides web-development and search-engine-optimization services; it is incorporated under California law and maintains its principal place of business in Folsom, California. Am. Compl. ¶¶ 2, 7; Elli Decl. ¶ 5 [ECF No. 15]. Sourcis maintains no presence in Minnesota. It has no office, employee, or property in Minnesota; it has not worked in Minnesota; it has targeted no advertising at Minnesota customers. Elli Decl. ¶¶ 10-11. Elli, Sourcis's CEO, is a California citizen. See Am. Compl. ¶ 3; Elli Decl. ¶¶ 2, 5. He never has been to Minnesota. Elli Decl. ¶ 12.

         R4AC contracted with Sourcis for the provision of “web development and search engine optimization services.” Am. Compl. ¶¶ 8-9; see also Elli Decl. ¶¶ 6-9; Index, Ex. A. The parties' submissions do not align about when they began working together, and this discrepancy warrants discussion. Sourcis says it was “about March 2010.” Elli Decl. ¶ 6. In support of its assertion that the parties' relationship began “about March 2010, ” Sourcis filed what it alleges is a “true and correct copy of [its] form services agreement” with R4AC, Elli Decl. ¶ 8, and that document is dated March 20, 2010, Index, Ex. A.[2] Also, Elli testifies in his declaration that Dohm contacted him “[i]n or about March 2010 . . . to discuss the possibility of Sourcis performing Internet marketing services for R4AC.” Elli Decl. ¶ 6.

         R4AC's position on this issue is not consistent. In her first affidavit filed in this case, Dohm testifies that Sourcis's “submission of an agreement is fabricated.” First Dohm Aff. ¶ 6 [ECF No. 26]. According to Dohm, the “document was created far after we had agreed to terms, did business, and was [sic] no longer working together.” Id. Dohm's affidavit does not specify when Sourcis and R4AC began working together. See generally Id. However, in a declaration Dohm filed in a separate lawsuit involving R4AC in a California state court, she testified that R4AC used a different “web development company until January 30, 2010[, ] at which time Ron Elli from Sourcis was hired as a replacement to handle both our database and web development for [R4AC].” Index, Ex. E ¶ 6. An email thread filed as an exhibit to an affidavit submitted by R4AC's counsel in this above-captioned case seems to show that Dohm and Elli were engaged in initial communications concerning a business relationship and a possible contract circa March 2009. Haddy Aff. ¶ 6, Ex. 1 [ECF No. 25]. Finally, R4AC alleges in its amended complaint that the parties entered into an agreement “about August 2007, ” but cites no authority for this allegation. Am. Compl. ¶ 8. To recap then, Sourcis and Elli say the parties' relationship began in March 2010; various submissions by R4AC and Dohm say that it began around January 30, 2010 (Dohm's California declaration), or in March 2009 (the email thread attached to R4AC's counsel's affidavit), or in August 2007 (the amended complaint). No. party says whether the agreement had a defined time period (e.g., month-to-month, term of months, one year, etc.).

         R4AC was referred to Sourcis by another Sourcis customer. Elli Decl. ¶ 7. Like Sourcis, the party who referred R4AC to Sourcis was a business located in California. Id. In other words, R4AC's identification of Sourcis did not result from anything Sourcis did in Minnesota, from any advertisements Sourcis may have targeted at potential customers in Minnesota, or from any Internet presence Sourcis may have maintained-or at least there is no evidence showing that happened. The services Sourcis provided to R4AC are not described precisely or comprehensively in the parties' pleadings or briefs. It seems enough to say that the services were intended to improve and increase traffic to R4AC's websites. Elli Decl. ¶ 10; Index, Ex. A; Mem. in Opp'n at 2 [ECF No. 24]. To enable Sourcis to provide its services, R4AC gave Sourcis access to some of R4AC's proprietary information including website data, databases, pricing, operation methods, business relationships, customer data, and financial data. Am. Compl. ¶¶ 8-9, 12, 17. During R4AC and Sourcis's business relationship, Dohm and Elli traveled together to Chicago to attend conferences and to Mexico to perform market research. Elli Decl. ¶ 12; First Dohm Aff. ¶¶ 7-8. Apart from those travels, Sourcis undertook all of its work on behalf of R4AC in California. Elli Decl. ¶ 10. R4AC acknowledges that Sourcis's work resulted in “a dramatic increase” in the online traffic for R4AC. Mem. in Opp'n at 2.

         At some point, the parties' relationship went bad. R4AC alleges essentially that Sourcis and Elli “fraudulently converted” R4AC's proprietary information for Sourcis's own use “to directly compete with R4AC in the medical tourism industry.” Am. Compl. ¶¶ 12-15. These allegations form the core of R4AC's claims in this case. Elli testifies that Sourcis stopped providing services to R4AC “[a]s a result of R4AC's failure to pay.” Elli Decl. ¶ 13. Regarding the timing of their breakdown, the parties are imprecise but relatively consistent. Sourcis says it was “late summer of 2012.” Id. R4AC does not discuss the timing of the parties' breakdown in its papers in this case, but in the declaration that Dohm filed in the California lawsuit, she described a series of events from June through October 2012 as leading to the breakdown. Index, Ex. E ¶¶ 65-70, 80-84. Accepting the earliest factually-supported date the parties' relationship could have begun-which would appear to be March 2009, Haddy Aff. ¶ 6, Ex. 1-the relationship lasted more than three years, but less than four.

         II

         “Personal jurisdiction . . . is an essential element of the jurisdiction of a district . . . court, without which the court is powerless to proceed to an adjudication.” Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 584 (1999) (second alteration in original) (citation and internal quotation marks omitted). “When personal jurisdiction is challenged by a defendant, the plaintiff bears the burden to show that jurisdiction exists.” Fastpath, Inc. v. Arbela Techs. Corp., 760 F.3d 816, 820 (8th Cir. 2014) (citations omitted). “To successfully survive a motion to dismiss challenging personal jurisdiction, a plaintiff must make a prima facie showing of personal jurisdiction over the challenging defendant.” Id. (citations omitted). “But where, as here, the parties submit affidavits to bolster their positions on the motion, and the district court relies on the evidence, the motion is in substance one for summary judgment.” Creative Calling Sols., Inc. v. LF Beauty Ltd., 799 F.3d 975, 979 (8th Cir. 2015) (citation omitted). At the summary-judgment stage, ...


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