Patriot Systems, Inc. v. C-Cubed Corp.

• Decision Date: 25 September 1998
• Docket Number: No. 2:97-CV-0536-S.,2:97-CV-0536-S.
• Citation: 21 F.Supp.2d 1318
• Parties: PATRIOT SYSTEMS, INC., a Utah corporation, Plaintiff, v. C-CUBED CORPORATION, a Virginia corporation, and DOES 1-10, Defendants.
• Court: U.S. District Court — District of Utah

21 F.Supp.2d 1318

PATRIOT SYSTEMS, INC., a Utah corporation, Plaintiff, v. C-CUBED CORPORATION, a Virginia corporation, and DOES 1-10, Defendants.

No. 2:97-CV-0536-S.

United States District Court, D. Utah, Central Division.

September 25, 1998.

COPYRIGHT MATERIAL OMITTED

Brent E. Johnson, H. Matthew Horlacher, Holland & Hart, Salt Lake City, UT, for Plaintiff.

William B. Prince, Dorsey & Whitney, Salt Lake City, UT, Stephen D. Bell, Dorsey & Whitney, Denver, CO, James P. Hodges, Kathleen H. McGuan, Reed Smith Shaw & McClay, Washington, DC, for Defendants.

MEMORANDUM DECISION

SAM, Chief Judge.

Before the court is the motion of defendant C-Cubed Corporation to dismiss for lack of personal jurisdiction and improper venue, pursuant to Fed.R.Civ.P. 12(b)(2) and 12(b)(3) The court, having reviewed the briefing submitted by the parties, will rule on the motion without the assistance of oral argument, pursuant to DUCivR 7-1(f).

BACKGROUND

Plaintiff Patriot Systems, Inc. is a Utah corporation engaged in the business of developing, manufacturing, and selling computer software products. Defendant is a computer software company located in Virginia.

In approximately 1993, plaintiff developed and copyrighted a software product named "Route 66", a computer program designed to make certain federal government publications more accessible. In 1994, plaintiff was awarded a contract with the United States Government to supply copies of Route 66. After plaintiff's contract expired, defendant was similarly awarded a federal government contract to provide software for the same government publications. In developing its computer program, defendant entered into agreements with the Folio Corporation (Folio), a company headquartered in Provo, Utah. Defendant used Folio's software and paid royalties to Folio.

Plaintiff claims the computer program defendant developed pursuant to its contract infringed plaintiff's Route 66 copyright. Plaintiff has brought suit against defendant, and Does 1-10, alleging causes of action for: (1) trade secret misappropriation, (2) unfair competition, (3) copyright infringement, (4) intentional interference with prospective economic relations, and (5) punitive damages. In its complaint, plaintiff alleges this court has jurisdiction over defendant because it has "transacted business" within Utah, has "sufficient minimum contacts with the State of Utah to meet federal due process requirements", Complaint, ¶ 3, and has injured plaintiff. Plaintiff asserts venue is appropriate pursuant to 28 U.S.C. § 1391. See Complaint, ¶ 6. Defendant has now filed the instant motion, seeking an order of dismissal for lack of personal jurisdiction and improper venue.

ANALYSIS

"[W]hen the court's jurisdiction is contested, the plaintiff has the burden of proving jurisdiction exists." Wenz v. Memery Crystal, 55 F.3d 1503, 1505 (10th Cir.1995); accord Carver v. H.R. Plus, 992 F.Supp. 1293, 1294 (D.Utah 1998). In the early stages of litigation, this burden may be satisfied by making "a prima facie showing that jurisdiction exists." Wenz, 55 F.3d at 1505; accord Carver, 992 F.Supp. at 1294; Dazey Corp. v. Wolfman, 948 F.Supp. 969, 972 (D.Kan.1996). Allegations in plaintiff's complaint "`must be taken as true to the extent they are uncontroverted by the defendant's affidavits.'" Wenz, 55 F.3d at 1505 (quoting Behagen v. Amateur Basketball Ass'n of the United States, 744 F.2d 731, 733 (10th Cir.1984), cert. denied, 471 U.S. 1010, 105 S.Ct. 1879, 85 L.Ed.2d 171 (1985)); accord Carver, 992 F.Supp. at 1294. However, "only the well pled facts of plaintiff's complaint, as distinguished from mere conclusory allegations, must be accepted as true." Wenz, 55 F.3d at 1505; accord Carver, 992 F.Supp. at 1294; Dazey Corp., 948 F.Supp. at 972. Moreover, "[i]f the parties present conflicting affidavits, all factual disputes must be resolved in the plaintiff's favor, and `the plaintiff's prima facie showing is sufficient notwithstanding the contrary presentation by the moving party.'" Wenz, 55 F.3d at 1505 (quoting Behagen, 744 F.2d at 733); accord Carver, 992 F.Supp. at 1294; Dazey Corp., 948 F.Supp. at 972.

Plaintiff initially argues defendant's motion should be rejected as procedurally improper in that defendant did not support its motion with affidavits controverting plaintiff's allegations of jurisdiction. The court is inclined to agree with defendant that the jurisdictional allegations in plaintiff's complaint are merely conclusory. Both parties, however, have submitted affidavits and additional documentation for the court's consideration in determining whether plaintiff has sufficiently made a prima facie showing of personal jurisdiction. The court, therefore, declines to dismiss defendant's motion on procedural grounds and will proceed to examine its merits.

Personal Jurisdiction

Relative to personal jurisdiction, the court may exercise either general or specific jurisdiction over a non-resident defendant, based upon the "subject matter of the claim asserted and the number and quality of `contacts' the non-resident defendant has with the forum." Harnischfeger Eng'rs, Inc. v. Uniflo Conveyor, Inc., 883 F.Supp. 608, 611 (D.Utah 1995). In the instant case, as plaintiff argues for specific jurisdiction only, see Memorandum in Opposition at 6 n. 6, the court will focus on this aspect of personal jurisdiction.

"[S]pecific personal jurisdiction gives a court power over a defendant only with respect to claims arising out of the particular activities of the defendant in the forum state." Id. (quoting Arguello v. Industrial Woodworking Mach. Co., 838 P.2d 1120, 1122 (Utah 1992)). Specific jurisdiction exists if the court finds that: (1) "the defendant conducted certain enumerated activities in Utah", (2) "there is a nexus between plaintiff's claim and defendant's conduct", and (3) defendant's contacts with Utah are "such that maintenance of the suit `does not offend traditional notions of fair play and substantial justice.'" Far West Capital, Inc. v. Towne, 46 F.3d 1071, 1074 (10th Cir.1995); accord Harnischfeger Eng'rs, 883 F.Supp. at 612-13.

I. Utah Long-Arm Statute

In applying this three-step test, the court must first consider whether specific statutory acts under the Utah long-arm statute have been satisfied.¹ Plaintiff argues defendant is subject to long-arm jurisdiction because it has tortiously caused injury within Utah, contracted to supply goods in Utah, and transacted business in Utah.

A. Injury

Plaintiff initially contends defendant is subject to jurisdiction in Utah because it has caused tortious injury to plaintiff here. See Utah Code Ann. § 78-27-24(3) (1996). Plaintiff argues defendant has intentionally interfered with plaintiff's prospective economic relations, misappropriated plaintiff's trade secrets, infringed on plaintiff's copyright, and engaged in unfair competition with plaintiff. However, plaintiff has not alleged defendant committed these acts in Utah. Rather, the essence of plaintiff's complaint is that, because of defendant's conduct, plaintiff has suffered financial injury in Utah where it does business.

This court has previously recognized that causing financial injury to a Utah business "has been flatly rejected by the Utah courts as a basis for exercising specific personal jurisdiction." Harnischfeger Eng'rs, 883 F.Supp. at 613; see also cases cited therein. Additionally, this court and the Tenth Circuit have indicated that accepting such an argument "would likely violate federal due process." Id. 883 F.Supp. at 613 n. 6.; see also Far West Capital, Inc. v. Towne, 46 F.3d 1071, 1079 (10th Cir.1995) ("[T]he mere allegation that an out-of-state defendant has tortiously interfered with contractual rights or has committed other business torts that have allegedly injured a forum resident does not necessarily establish that the defendant possesses the constitutionally required minimum contacts."). Accordingly, the court concludes plaintiff's allegations of tortious injury do not support the exercise of personal jurisdiction over defendant under Utah's long-arm statute.

B. Contract to Supply Goods

Plaintiff next argues this court has jurisdiction over defendant because defendant has a current contract to supply its computer program to locations within Utah. See Utah Code Ann. § 78-27-24(2) (1996). The record reveals that the United States Government solicited bids for the purpose of providing it with automated copies of certain government publications. In 1994, plaintiff was awarded the contract. After plaintiff's contract expired, the contract was calendared for rebidding. In 1995, defendant was awarded a two-year contract. When rebidding was set for 1997, defendant was again awarded the contract.

The contracts at issue are between the defendant and the United States Government Printing Office in Washington, D.C. Delivering computer programs to Utah was never the ultimate purpose or goal of defendant's contracts with the government. These contracts were solicited and awarded by the federal government, and the government set forth the specifications and requirements. Moreover, the government provided the delivery instructions for the completed products. Thus, preparations for distribution of the programs, including details regarding how they were to be mailed, were dictated by the government. Plaintiff emphasizes that the contracts call for distribution of defendant's program to perhaps three locations within Utah. However, plaintiff obtained those locations from a distribution list provided by the federal government.² Moreover, defendant entered into, agreed to perform, and has performed all of its obligations pursuant to its government contracts outside Utah. Even the Folio software defendant uses in conjunction with its computer program, although manufactured in Utah, was purchased outside Utah.

Under these circumstances, even if the court were to find that the contracts technically provided a...