Delta Techs. v. Old Belt Extracts, LLC

• Docket Number: B323431
• Decision Date: 23 January 2024
• Parties: DELTA TECHNOLOGIES, LLC, Plaintiff and Appellant, v. OLD BELT EXTRACTS, LLC DBA OPEN BOOK EXTRACTS, Defendant and Respondent.
• Court: California Court of Appeals

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DELTA TECHNOLOGIES, LLC, Plaintiff and Appellant, v. OLD BELT EXTRACTS, LLC DBA OPEN BOOK EXTRACTS, Defendant and Respondent.

B323431

California Court of Appeals, Second District, Third Division

January 23, 2024

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

APPEAL from an order of the Superior Court of Los Angeles County No 22STCV15432, Thomas D. Long, Judge. Reversed with directions.

The Federici Law Firm and Michael L. Federici for Plaintiff and Appellant.

Haight Brown & Bonesteel, William Ireland, Arezoo Jamshidi Frantz Ward, Thomas G. Haren, Kelly C. Bokoch, and Meghan C Lewallen for Defendant and Respondent.

EDMON P. J.

INTRODUCTION

Plaintiff Delta Technologies, LLC (Delta) appeals the trial court's order of dismissal after granting defendant Old Belt Extracts LLC's (OBX) motion to quash for lack of jurisdiction and to dismiss for forum non conveniens. Delta argues the court erred in concluding it could not exercise personal jurisdiction over OBX, a North Carolina company, and in finding that California is an inconvenient forum.

We reverse. As a matter of law, OBX had minimum contacts with California through its contractual relationship with Delta, a California company, and thus there is no constitutional impediment to requiring Delta to defend this action in California. Further, the trial court abused its discretion by granting the forum non conveniens motion without considering California's strong interest in providing its resident a forum. We therefore direct the trial court to vacate its order dismissing the action, deny OBX's motion to quash for lack of personal jurisdiction, and reconsider OBX's motion to dismiss based on forum non conveniens.

FACTUAL AND PROCEDURAL BACKGROUND

I. Underlying Agreement

Delta is a California company that manufactures and distributes hemp and hemp-derived products. OBX, a Delaware company with its principal place of business in North Carolina, is a larger scale manufacturer, developer, and researcher of the same types of products and is licensed in North Carolina to produce hemp.

In December 2020, Delta's owner, Alexander Jacobs, contacted OBX. After the initial contact, Jacobs met virtually with Nicole Brown, OBX's Chief Innovation Officer (CIO), and another OBX executive to discuss OBX's ability to develop a new process to extract tetrahydrocannabivarin (THCV) from raw hemp materials.

Delta shipped a sample of its cannabidivarin (CBDV) distillate to OBX in North Carolina to test the efficacy of the extraction process. The parties then entered into an oral agreement in March 2021 to continue to develop the extraction process using Delta's raw materials. In exchange for Delta furnishing raw materials to OBX, OBX was to provide Delta with half of the THCV produced, and then either to purchase the remaining waste materials or return them to Delta.

In the following months, Delta shipped hemp materials to OBX's North Carolina facilities for processing, and OBX shipped THCV to Delta in California. OBX's final shipment of THCV was unusually larger and purer than the first two, leading Delta to believe OBX did not use Delta's materials to create the final batch of THCV. OBX also did not return or account for hemp waste material that Delta believes is worth hundreds of thousands of dollars.

II. Delta's Lawsuit and OBX's Motion to Dismiss

In May 2022, Delta sued OBX alleging (1) breach of an oral contract, (2) fraud, (3) conversion, (4) receipt of stolen property, and (5) unfair business practices. In addition to compensatory damages, Delta also sought treble damages and attorney fees under Penal Code section 496, subdivision (c).^[1] Delta alleged OBX failed to send Delta sufficient THCV, used Delta's materials in a Ponzi scheme with other customers' orders, and committed larceny by failing to return Delta's hemp materials.

Motion to Quash or Dismiss. OBX moved to quash service of summons for lack of personal jurisdiction, or alternatively, to dismiss for forum non conveniens. OBX asserted the trial court lacked general jurisdiction over OBX because it was neither registered in nor had its principal place of business in California, and it lacked specific jurisdiction over OBX because the company did not have minimum contacts with California. OBX argued it did not inject itself into California or subject itself to California's jurisdiction because it did not advertise or market to Delta or in California; Delta had sought out OBX, not vice versa; and OBX had only one contract manufacturer^[2] in California. Further, OBX urged that litigation in California would be burdensome because all of the evidence and most of its witnesses were in North Carolina. Finally, OBX asserted that North Carolina had a greater interest in hearing the case because the alleged wrongs occurred in North Carolina and were committed by a hemp producer licensed by North Carolina.

In the alternative, OBX urged the court to dismiss for forum non conveniens because North Carolina was a suitable jurisdiction for the action and the private and public interests weighed in favor of litigation in North Carolina over California. OBX asserted the majority of OBX's witnesses resided in North Carolina, outside of California's subpoena power; any physical evidence pertaining to OBX's facility or manufacturing process were in North Carolina; and it would be less costly and more convenient to try the case in North Carolina.

In support of the motion, OBX's president declared that OBX was a Delaware company registered and licensed to do business in North Carolina, with its principal place of business in North Carolina. OBX did not have offices or facilities in California, did not lease property in California, did not own any businesses or have subsidiaries in California, did not manufacture products in California, and had never been a party to a lawsuit in California or submitted to California jurisdiction. Of the OBX employees who were potential witnesses, four resided in North Carolina, and the other three resided in New York, Ohio, and Massachusetts. OBX had only one contract manufacturer, Tri-Labs Ventures, LLC, based in California.

Delta's Opposition. Delta opposed the motion, urging that OBX had minimum contacts with California because it partnered with California companies, including Delta, sourced hemp from California, and communicated with Delta's employees while they were in California. In support, Delta's owner, Jacobs, stated that he communicated weekly with OBX from California via text message, telephone, online video conferencing, and email. Jacobs attested on several occasions he or one of his employees exchanged products with OBX through OBX's California contract manufacturer, TriLabs, in San Bernardino County. Delta also introduced evidence that OBX's website included a California Proposition 65 compliance letter, stated that OBX sourced hemp from California, and featured a press release announcing OBX's partnership with Radicle Science, Inc., a company with a corporate address in California. Finally, Delta introduced third-party press releases announcing OBX's collaboration with Biopharmaceutical Research Company (BRC), a Delaware corporation with a place of business in California, and Hempacco Co., Inc., a Nevada corporation with its principal office in California.

Delta argued that California's exercise of jurisdiction was reasonable because the lawsuit arose out of OBX's contacts with California, the evidence could readily be brought to California, out-of-state depositions could be conducted by video, and California had an interest in holding large "national players" accountable for injuries to California's small hemp businesses. If Delta were forced to litigate in North Carolina, its litigation costs would increase and it would not have the benefit of treble damages and attorney fees under Penal Code section 496, subdivision (c). Thus, Delta contended that dismissing the action under the forum non conveniens doctrine was inappropriate.

III. Additional Briefing on Reasonableness of Jurisdiction

In July 2022, the court heard argument on the motion and concluded that Delta had established the first two prongs of the specific jurisdiction test-that is, OBX had minimum contacts with California and had purposefully availed itself of the California market. The court continued the hearing for supplemental briefing on the third prong of the specific jurisdiction analysis, i.e., whether it would be reasonable for the court to exercise personal jurisdiction over OBX.

OBX's supplemental brief argued that requiring it to litigate the case in California was unreasonable because although communications and laboratory data could be shared electronically, the hemp materials and its laboratory were both in North Carolina. OBX said: "One of [Delta's] main allegations is that the final shipment was unusually pure and [Delta] alleges that OBX is using the materials 'in a sort of Ponzi scheme.' The procedures and equipment employed by the North Carolina lab in processing the materials will be central to OBX's defense in this matter and may require a physical tour of the facility." OBX asserted it would be a substantial burden to send its management team and two of its laboratory staff to California for trial, and their absence would result in halting OBX's operations. In contrast, only one witness, Jacobs, was in California.

Delta's supplemental brief noted an additional California contact between the parties-namely, a meeting between Jacobs and OBX's CIO, Brown, in Santa Monica to discuss the details of the oral agreement. Delta also pointed to two July 2022 press releases on OBX's website indicating OBX was engaging in further business with California companies. Plaintiff stated: "On ...