Inherent.Com v. Martindale-Hubbell

• Citation: 420 F.Supp.2d 1093
• Decision Date: 10 March 2006
• Docket Number: No. C 05-3515 MHP.,C 05-3515 MHP.
• Parties: INHERENT.COM aka Inherent, Plaintiff, v. MARTINDALE-HUBBELL, Lexis/Nexis Inc. and Does 1 through 200, inclusive, Defendants.
• Court: U.S. District Court — Northern District of California

Page 1093

420 F.Supp.2d 1093

INHERENT.COM aka Inherent, Plaintiff, v. MARTINDALE-HUBBELL, Lexis/Nexis Inc. and Does 1 through 200, inclusive, Defendants.

No. C 05-3515 MHP.

United States District Court, N.D. California.

March 10, 2006.

Patrick Earl Catalano, Law Offices of Patrick E. Catalano, San Francisco, CA, for Plaintiff.

Zesara C. Chan, Tracy A. Donsky, Shartsis Friese LLP, San Francisco, CA, for Defendants.

MEMORANDUM & ORDER

Defendant's motion to dismiss or, in the alternative, to transfer

PATEL, District Judge.

On July 29, 2005 plaintiff Inherent.com ("Inherent") filed this action in the Superior Court of the State of California against defendants Martindale-Hubbell ("Martindale") and Lexis/Nexis, Inc. ("LexisNexis") alleging breach of contract and fraudulent acquisition of trade secrets. On August 30, 2005 Martindale and LexisNexis removed the action to this court. Now before the court is the defendants' motion to dismiss the action pursuant to the first-to-file rule or, in the alternative, defendants' motion to transfer the action to the federal district court of New Jersey pursuant to 28 U.S.C. section 1404. Having considered the arguments presented and for the reasons stated below, the court enters the following memorandum and order.

BACKGROUND

Martindale and LexisNexis are not legal entities but are divisions of Reed Elsevier, Inc. ("Reed") which specializes in the provision of various products and services used by the legal profession. Inherent provides internet-related services for professional organizations such as law firms and legal professional associations. See Corcoran Dec. ¶ 3. Reed's principal place of business is in Newton, Massachussetts and LexisNexis' principal place of business is in Miamisburg, Ohio. At the inception of the relationship between Inherent and Martindale, Inherent's principal place of business was in Portland, Oregon. Although LexisNexis is a named defendant in the lawsuit, substantially all the disputed activity occurred with its affiliate Martindale, and thus LexisNexis has adopted Martindale's arguments in the current motion. Def.'s Mot. at 3.

Since the mid-1990s, Martindale and Inherent have had a significant business relationship. In 1996, the parties entered into a Marketing Alliance Agreement ("MAA") to "market and provide Internet Web facilities for lawyers and law firms." Corcoran Dec., Exh. A. This MAA provided for the resolution of any disputes between the parties through arbitration in New Jersey or New York. Id. ¶ 11. Although the MAA expired in 2002, during its effective period, Inherent generated revenues in excess of $200,000 through Martindale's sales to its customers. Despite the expiration of the MAA, the two companies continued to engage in substantial business dealings with one another. Martindale paid Inherent over $93,000 in 2003, $67,000 in 2004 and $78,000 in 2005 thus far. Id. ¶ 8. Indeed since January of 2000, Inherent has received in excess of $1,000,000 from Martindale. Additionally, executives of Inherent have made trips to Martindale's New Jersey offices approximately forty times during the course of their business relationship, the great majority of these trips being made by the president of Inherent, Debra Kamys.

In August of 2004, Ms. Kamys approached Martindale about the feasibility of a purchase of Inherent by Martindale. Concomitant with the acquisition negotiations, the parties executed a non-disclosure agreement ("Non-Disclosure Agreement" or "NDA") on November 1, 2004. Pursuant to this NDA, which is governed by New Jersey law, the parties were prohibited from using confidential, proprietary or trade secret information disclosed during the run-up to the proposed acquisition. Little Dec., Exh. A ¶¶ 1,6. The parties continued their acquisition negotiations and on May 25, 2005 Ms. Kamys visited the headquarters of Martindale in New Jersey where she was presented with a proposed non-binding letter of interest ("Letter of Interest"). The Letter of Interest was drafted by Martindale in New Jersey, sent to Inherent in Oregon for signing and then returned to Martindale in New Jersey. See Little Dec. ¶¶ 7-16 and Exh. C. The final form of the Letter of Interest was executed on June 17, 2005 with a stated purpose of providing a "preliminary non-binding indication of interest in acquiring the web site development, management and hosting applications and services business ... of Inherent.com, Inc .... and [detailing Martindale's] proposed next steps to move this potential transaction forward." Id., Exh. B at 1 (emphasis added). The Letter of Interest also noted that "any [resulting acquisition] transaction based upon this indication of interest will be subject to ... [a number of] conditions precedent." Id. at 2. One such key condition was the completion of the legal and business due diligence of Inherent. After the execution of the Letter of Interest, Martindale began its due diligence of the target company. On June 28, 2005 (a mere eleven days after the execution of the Letter of Interest) Martindale informed Inherent that based on some discoveries during its initial due diligence, it no longer desired to proceed with the acquisition. As a result, Martindale asserts that all confidential files were returned to Inherent pursuant to the requirements of the NDA. Little Dec. ¶ 17. From August 2004 (when Ms. Kamys first approached Martindale about the proposed acquisition) through June 2005 (when this Letter of Interest was signed), Martindale and Inherent exchanged a substantial amount of telephone calls, e-mails and in person meetings in Oregon and in New Jersey. Id. ¶ 7; Kamys. Dec. ¶¶ 11, 12.

On July 13, 2005 Inherent's counsel notified Martindale of his client's belief that Martindale, by declining to proceed with the acquisition, had breached an acquisition contract with Inherent and warned that if the matter was not settled in five days, Inherent would seek to litigate its claims in court. Duckstein Dec., Exh. E at 5. On July 18, 2005 Reed filed for declaratory relief in the Superior Court of New Jersey requesting that the court issue a declaratory judgment stating that Martindale was not in breach of any obligation to Inherent in connection with the acquisition negotiations and that Reed had no liability to Inherent for terminating its preliminary interest in pursuing the transaction. Id., Exh. A at 5. On the same day of the filing, Martindale informed Inherent of its filed complaint and completed service of process on plaintiff on July 20, 2005. Id., Exh. C.

On July 29, 2005 Inherent filed a similar action in the Superior Court of California seeking declaratory relief and damages for breach of contract and for fraudulent acquisition of its trade secrets. Plaintiff claims that this filing was made in California because of the relocation of its business and its key witnesses to San Francisco, California—an event that allegedly occurred prior to the filing of Reed's complaint in New Jersey. According to the Kamys declaration, two of plaintiff's principal witnesses (Ms. Kamys and her husband) have relocated from Oregon to California. Kamys Dec. ¶ 15. Plaintiff supports its claim that a change in Inherent's principal place of business from Oregon to California occurred in early July with a certification of registration issued by the state of California which is dated August 23, 2005. Kamys Dec. Exh. A. Inherent's purported new principal place of business shares an address with that of its San Francisco counsel: 781 Beach Street, # 333, San Francisco, CA. Id. As of August 22, 2005, there was no record of any business under the name of "Inherent" or "Inherent.com" registered with the California Secretary of State. Marinez Dec., Exh. B.¹ As of October 11, 2005 contact information on Inherent's website listed a Portland, Oregon address. Marinez Supp. Dec., Exh. A.² As of October 14 2005 there was no local directory listing for "Inherent.com" or "Inherent" in San Francisco.

On August 15, 2005 Inherent removed the New Jersey action to federal court on diversity grounds. Similarly, on August 30, 2005 Martindale removed the current action to this court. Martindale has identified fourteen witnesses, twelve of whom reside in New Jersey. Little Dec. ¶¶ 18-19. Inherent has identified nine witnesses, seven of whom reside in Oregon. Kamys Dec. ¶ 15.

Now before this court is defendant Martindale's motion to dismiss or transfer the action in light of the previously filed New Jersey action or because of a failure to plead fraud with sufficient particularity. In the alternative, Martindale has filed a motion to transfer the action to the district court in New Jersey. Plaintiff opposes the motions, arguing inter alia that: (1) the first-to-file rule is inapplicable in the present case, (2) equitable considerations weigh in favor of a departure from the first-to-file rule, (3) the New Jersey district court lacks personal jurisdiction over Inherent, and (4) litigation in New Jersey would be inconvenient for Inherent because they did not anticipate litigation in that forum.

Having considered fully the parties' arguments and submissions, and for the reasons set forth below, the court enters the following memorandum and order.

LEGAL STANDARD

I. First-to-File Rule

The first-to file rule is "a generally recognized doctrine of federal comity which permits a district court to decline jurisdiction over an action when a complaint involving the same parties and issues has already been filed in another district." Pacesetter Sys., Inc. v. Medtronic, Inc., 678 F.2d 93, 94-95 (9th Cir. 1982) (quoting Church of Scientology of California v. United States Dep't of the Army, 611 F.2d 738, 749 (9th Cir.1979)); see also Z-Line Designs, Inc. v. Bell'O Int'l, LLC, 218 F.R.D. 663 (N.D.Cal.2003) (Whyte, J.); MP3Board v. Recording Indus. Assoc. of Am., Inc., No. C-00-20606, 2001 WL 804502 (N.D.Cal. Feb. 27, 2001) (Whyte, J.). The "sameness" requirement does...