FTC - Forward Threat Control, LLC v. Dominion Harbor Enters., LLC
| Decision Date | 16 September 2020 |
| Docket Number | Case No. 5:19-cv-06590-EJD |
| Court | U.S. District Court — Northern District of California |
| Parties | FTC - FORWARD THREAT CONTROL, LLC, Plaintiff, v. DOMINION HARBOR ENTERPRISES, LLC; DOMINION HARBOR GROUP, LLC; MONUMENT PATENT HOLDINGS, LLC; MONUMENT IP FUND 1, LLC; and FTC SENSORS, LLC, Defendants. |
This is a suit for breach of contract. Plaintiff FTC-Forward Threat Control, LLC ("Forward Threat") agreed to assign its patents to Defendant FTC Sensors, LLC ("FTC Sensors") and in turn, FTC Sensors agreed to pay Forward Threat licensing revenues. Forward Threat did not receive the contractually agreed upon payments, and this lawsuit ensued. Presently before the Court is Defendants Dominion Harbor Enterprises, LLC ("DHE"), Dominion Harbor Group, LLC ("DHG"), Monument Patent Holdings, LLC ("MPH") and Monument IP Fund 1, LLC's ("MIPF") (collectively "Movants") motion to dismiss pursuant to Rule 12(b)(2) for lack of personal jurisdiction. Dkt. No. 32. Movants, who are not parties to the contract, represent that they are Texas LLCs with offices and operations in Texas, and that they lack the requisite minimum contacts with California to confer this Court with personal jurisdiction. Movants' jurisdictional facts are presented primarily through the declaration of Matthew DelGiorno, President of DHE. Forward Threat opposes the motion and requests leave to conduct jurisdictional discovery. Dkt. No. 34. Pursuant to Civil Local Rule 7-1(b), the Court finds it appropriate to take this matter under submission for decision on the basis of the briefing filed by the parties, without oral argument. For the reasons discussed below, Movants' motion will be denied without prejudice to renew the motion after Forward Threat has completed jurisdictional discovery.
Plaintiff Forward Threat is a small business formed and owned by Frank Zajac ("Zajac"). Compl. ¶ 2. Zajac (along with two others) is the named inventor of a group of six patents relating to threat sensor technology. Id. These patents were assigned to Forward Threat (the "Patents"). Id. Defendant DHG is in the business of monetizing patents by, among other things, acquiring patents and forming separate entities for the primary purposes of owning the patents and obtaining compensation for infringement. Id. ¶ 34.
Between April and July of 2015, Zajac1 and David Pridham ("Pridham"), Chief Executive Officer of DHG, negotiated a Patent Purchase Agreement (the "Agreement"). Id. ¶¶ 3, 64. Initially, Zajac proposed to sell the Patents. Id. ¶ 62. Later, Zajac and Pridham negotiated a "promissory note structure tied to monetization" and guaranteed minimum payments over two years. Id. On or about July 31, 2015, Pridham, in his capacity as CEO of DHG, sent Forward Threat a proposed agreement marked "DHG DRAFT OF 07/31/2015" that incorporated these payment terms. Id. ¶ 66; Ans. ¶ 66. During the negotiations, the drafts of the Agreement left blank the name of the entity that would acquire the Patents. DelGiorno Decl. ¶¶ 9, 17.
The Agreement was executed on August 11, 2015. Compl. ¶ 70, Ex. 1. As set forth in the Agreement, Forward Threat agreed to assign the Patents to Defendant FTC Sensors, an entityPridham had created four days prior. Id. ¶¶ 5, 71. FTC Sensors had previously been named Monument Tech Rho ("MTR"). DelGiorno Decl. ¶ 5. FTC Sensors is a Texas limited liability company with its principal place of business in Piano, Texas. Compl. ¶ 47.
The Agreement attached and incorporated by reference a Patent Assignment, which provided in pertinent part that Forward Threat "does hereby sell, transfer, convey, assign and deliver to Assignee all of Assignor's right, privilege, title and interest in, to and under the Patents . . . to be held by Assignee for Assignee's own use and enjoyment" and for the use and enjoyment of Assignee's "legal representatives." Dkt. No. 9-1 at 16. In exchange, FTC Sensors agreed to, among other things, pay Forward Threat (a) 20% of gross recoveries received from licensing and litigation on a quarterly basis commencing with the calendar quarter ending September 30, 2015, and (b) "Guaranteed . . . Future Cash Payment[s]" of $500,000 per year for the first two years (for the periods of July 1, 2015 to June 30, 2016, and July 1, 2016 to June 30, 2017), with "true up payments" due no later than October 15, 2016 and October 15, 2017, respectively. Compl. ¶ 72. The Agreement included a provision requiring FTC Sensors to maintain complete records for the computation and confirmation of payments due to Forward Threat and allowing Forward Threat "to examine and audit" all of FTC Sensors's records and accounts "as may contain information bearing on the amounts payable" to Forward Threat. Id. ¶ 81. The Agreement required FTC Sensors to return the Patents to Forward Threat after two years upon written demand by Forward Threat. Id. ¶ 8.
The Agreement included a forum selection clause providing that California courts shall have "sole and exclusive jurisdiction in any dispute or controversy arising out of or relating to" the Agreement. Agreement § 8.6. Further, the Agreement specified that the performance and interpretation of the Agreement "shall be governed by the substantive law of the State of Delaware, USA, exclusive of its choice of law rules." Id.
Pridham, in his role as CEO of DHG, approved virtually all of the material terms of the Agreement before he created FTC Sensors. Compl. ¶¶ 9, 47.
FTC Sensors allegedly breached the Agreement in three respects. Id. ¶ 97. First, FTC Sensors failed to make the contractually required payments. Id. ¶ 16. FTC Sensors made only two payments to Forward Threat in 2016: $6,921.40 on May 3rd and $16,000.00 on September 1st. Id. ¶ 75. FTC Sensors failed to make the "true-up" payment for 2016. Id. ¶ 76. FTC Sensors made no payments in 2017. Id. ¶¶ 77-78.2
Second, FTC Sensors refused to account for the money due to Forward Threat and would not allow Forward Threat to examine and audit FTC Sensors's records. Id. ¶ 82. FTC Sensors acknowledges that Forward Threat asked for copies of FTC Sensors's license and settlements agreements. Answer ¶ 82. FTC Sensors maintains, however, that the agreements have confidentiality provisions that prohibit them from being provided to Forward Threat. Id. ¶ 83.
Third, FTC Sensors refused to transfer the Patents back to Forward Threat. Id. ¶ 87. When Forward Threat demanded the return of the Patents, "FTC Sensors refused to return them and instead held them hostage in an effort to force [Forward Threat] to forfeit its right to review licensing records and the payments it was owed under the Agreement." Id. ¶ 17.3
Forward Threat asserts claims against each of the Defendants named in this action, individually and collectively, for breach of contract, conversion, accounting, unjust enrichment, and quantum meruit.4 Although FTC Sensors is the only Defendant who signed the Agreement,Forward Threat alleges that all of the other Named Defendants are alter egos of FTC Sensors, or alternatively, are vicariously liable for FTC Sensors's actions. Id. ¶¶ 59, 60.
Forward Threat alleges that this Court has specific personal jurisdiction over the Movants pursuant to the Agreement's California forum selection provision because (a) they are alter egos of FTC Sensors; (b) they are intended beneficiaries of the Agreement; (c) their conduct is so closely related to the contractual relationship between Forward Threat and FTC Sensors that it was foreseeable they would be bound by the forum selection provision; (d) DHG negotiated and accepted the forum selection provision in the course of negotiating the Agreement; and (e) Defendants created and undercapitalized FTC Sensors and caused it to agree to the forum selection provision in an attempt to fraudulently and unfairly deprive Forward Threat of the ability to recover damages and other relief for breach of the Agreement. Id. ¶ 28.
When negotiations over the Agreement began, only DHG and Defendant MPH existed. MPH is a "litigation affiliate" of DHG. McHale Decl., Exs. 1, 7-8. In May 2015, while negotiations over the Agreement were ongoing, MPH formed MTR, with Pridham as CEO and MPH as MTR's sole manager. Id., Ex. 12. MTR was to acquire a patent portfolio when the appropriate opportunity presented itself and was not capitalized at its founding. DelGiorno Decl. ¶¶ 25, 28. In early August 2015, which was after the $1 million guaranteed payment and forum selection clause had been added to the Agreement, MTR was renamed to FTC Sensors and designated by Pridham to hold Forward Threat's Patents. Id. ¶¶ 23, 26. Pridham is the CEO of DHG, MPH and FTC Sensors. Answer ¶ 51.
Approximately five months after the Agreement was executed, DHG became the wholly owned subsidiary of Defendant DHE, a holding company. McHale Decl., Exs. 16, 19. DHE, in turn, formed MIPF. Id., Ex. 20. Pridham is the CEO and sole managing member of DHE. Id. Exs. 16, 19; Answer ¶ 51. DHE next became the sole managing member and parent entity forDHG, MPH and MIPF. Id. In May 2019, more structural changes were made. This time, FTC Sensors ceased to be wholly owned and managed by MPH and became wholly owned and managed by MIPF. Id., Exs. 15, 21. In turn, MIPH became wholly owned and managed by MPH. Id. Although the corporate relationships among the Defendants has changed over time, Pridham has kept a role in each entity:
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