Videotronics, Inc. v. Bend Electronics, CV-R-83-106-ECR.

• Decision Date: 06 June 1983
• Docket Number: No. CV-R-83-106-ECR.,CV-R-83-106-ECR.
• Citation: 564 F. Supp. 1471
• Parties: VIDEOTRONICS, INC., a Nevada corporation, Plaintiff, v. BEND ELECTRONICS, Videotronics of Oregon, Inc., Video Horizons of Oregon, Inc., (an Oregon corporation), Tom Hendrix, an individual; Bill Stanard, an individual, and Ross Brown, an individual, Defendants.
• Court: U.S. District Court — District of Nevada

564 F. Supp. 1471

VIDEOTRONICS, INC., a Nevada corporation, Plaintiff, v. BEND ELECTRONICS, Videotronics of Oregon, Inc., Video Horizons of Oregon, Inc., (an Oregon corporation), Tom Hendrix, an individual; Bill Stanard, an individual, and Ross Brown, an individual, Defendants.

No. CV-R-83-106-ECR.

United States District Court, D. Nevada.

June 6, 1983.

Kenneth J. McKenna, Reno, Nev., for plaintiff.

Valerie N. Strandell and John J. Frankovich, Reno, Nev., for defendants.

ORDER

EDWARD C. REED, Jr., District Judge.

Plaintiff, Videotronics, Inc., a Nevada corporation, seeks a preliminary injunction to restrain defendants from manufacturing, advertising or selling a video amusement device, which plaintiff alleges was developed through misappropriation of trade secrets of plaintiff and through a breach of a confidential relationship between plaintiff and defendants. Plaintiff also seeks to enjoin alleged "palming off" of plaintiff's product, an electronic video poker game machine, by defendants.

The defendants, Video Horizons, Inc., an Oregon corporation, (VHI), Tom Hendrix, Bill Stanard and Ross Brown, have moved to quash the service of summons and complaint heretofore made upon them.

This case was originally filed in the Second Judicial District Court of the State of Nevada and was removed to this Court pursuant to 28 U.S.C. §§ 1441 and 1332.

Hearings upon these motions were held before this Court on May 6 and May 23, 1983, during which evidence and argument were received. The Court has also considered the affidavits and other evidence filed by the parties in connection with their motions and the responses thereto.

FACTS.

Plaintiff is in the business of manufacturing electronic video game devices. As indicated, the particular device at issue in this case is an electronic video poker game. In 1981, defendant Bend Electronics, an Oregon corporation (Bend), began acting as a distributor of plaintiff's products. Bend, which later changed its name to Videotronics of Oregon, Inc., (VO), purchased a considerable quantity of such products from plaintiff and, on that account, it is alleged accumulated a substantial obligation to plaintiff. That alleged obligation is the subject of a separate suit brought in Oregon.

At the time that the dispute over monies claimed to be owed by Bend and VO to plaintiff arose, plaintiff refused to ship any further products to VO. In late 1982 defendant Video Horizons, Inc., (VHI), which plaintiff now asserts is a "substituted corporation" for VO, came into existence. Defendants allege that VO and VHI are completely separate corporate entities and have submitted evidence indicating that these companies have some different officers and directors and to some extent different shareholders. Defendants do not deny that VO and VHI operate in the same premises and use the same telephone number. Plaintiff has submitted evidence that creation of VHI was but a name change for VO, although VO remains as a corporate entity. It is noted that Bend and VO were never in the manufacturing business and that VHI is also in the business of manufacturing and distributing electronic devices.

There is no dispute that Bend and VO did transact business in Reno, Nevada, through their agents. It is also clear that all of the business formerly conducted by Bend and VO is now conducted by and through VHI and that no business is any longer being conducted by VO. Though defendants assert that VO was created to distribute the video poker machines manufactured by plaintiff and ceased doing business when it no longer had machines to distribute, the Court does not see a significant difference between the two corporations where VHI was allegedly created in order to manufacture as well as distribute the very same machines which are the subject of this action.

Significant also is the fact that with only minor differences the corporate structure and stock ownership of VO and VHI involve the same small group of individuals. It is also curious that all of the tangible assets of VO were transferred to VHI upon its incorporation but that many of its outstanding debts have remained unpaid. At the same time a loan of some $10-$15,000 was made by VO to Tom Hendrix (President of both VO and VHI) who in turn loaned the money to the newly created VHI.

The undisputed evidence is that VHI has copied plaintiff's electronic video poker game. Some modifications have been made in the device manufactured and now sold by VHI, but these do not appear to be substantial in relation to the function or design of the device.

There was no written agreement between plaintiff and defendant containing any requirement that defendants maintain secrecy as to any of the equipment, programs, or the design of the equipment which Bend/VO distributed. None of plaintiff's equipment which is the subject of this case appears to have been patented or copyrighted.

I. THE MOTION TO QUASH THE SUMMONS AND COMPLAINT.

The question presented is whether the defendants VHI, Hendrix, Stanard and Brown are subject to the in personam jurisdiction of this Court. Defendants Bend and VO have not joined in this motion and have made general appearances herein, so that the jurisdiction of this Court over those two defendants is not in question.

The burden of proving the existence of a factual basis for the exercise of in personam jurisdiction is on the plaintiff. Northcross v. Joslyn Fruit Co., Inc., 439 F.Supp. 371 (D.Ariz.1977). Rule 4(e) of the Fed.R.Civ.P. allows service of process under the state's long-arm statute. The Nevada long-arm statute, NRS 14.065, has been interpreted as conferring jurisdiction to the limits permitted by the United States Constitution. Davis v. Eighth Judicial District of State of Nevada, 97 Nev. 332, 629 P.2d 1209 (1981). In this regard federal law is controlling on the issue of due process under the United States Constitution. Amba Marketing Systems v. Jobar International, Inc., 551 F.2d 784, 789 (9th Cir.1977).

The United States Supreme Court recently discussed the restriction of the Due Process Clause under the reach of state longarm statutes in World Wide Volkswagen Corporation v. Woodson, 444 U.S. 286, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980). In quoting from the seminal case of International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95, the Court said that "`defendant's contacts with the forum state must be such that maintenance of the suit' does not offend traditional notions of fair play and substantial justice."

For the purposes of determining whether in personam jurisdiction may be obtained over VHI under Nevada's "longarm" statute, NRS 14.065, the Court finds that it has been shown by a preponderance of the evidence that there is no independence between VO and VHI, and that VHI was created in order to continue and expand the activity formerly engaged in by VO. In this connection the Court further finds that traditional notions of fair play and substantial justice are not violated by attributing conduct in the State of Nevada by VO to VHI under these circumstances for the purposes of establishing personal jurisdiction over VHI. By analogy the Court relies upon the line of authority which stands for the proposition that if a subsidiary corporation is so completely dominated and controlled by the parent corporation that it becomes a mere instrumentality of the parent, the parent can be found to be doing business within the forum state for the purposes of subjecting the parent to the jurisdiction of the state courts. Wells Fargo & Company v. Wells Fargo Express Co., 556 F.2d 406 (9th Cir.1977); United Steel Workers of America v. Copperweld Steel Company, 230 F.Supp. 383 (W.D.Pa.1964); 4 Wright & Miller, Federal Practice & Procedure, § 1069, 255-257 (1976).

While the situation posed in the instant case, of course, does not involve a parentsubsidiary corporate relationship, the facts are just as compelling to make such a finding where, as here, one corporate entity is, in effect, merely substituted for that of another. The great overlap in control and management of the two corporate entities is a factor the Court should not ignore. S & S Industries, Inc. v. Nakamura-Tome Precision Industries Company, Ltd., 93 F.R.D. 564 (D.Minn.1982).

In sum, the Court finds that defendant VO did transact business within the State of Nevada, and that the instant action did, in effect, arise from such conduct in that plaintiff's claims go to alleged misappropriation of trade secrets stemming from the transactions conducted by defendant VO's agents in Nevada. Moreover, defendant VHI is also bound by the acts of the agents of VO in Nevada for purposes of determining whether defendant VHI is amenable to service of process in this action pursuant to Rule 4(e) of the Fed.R.Civ.P.

There is insufficient evidence for this Court to find the necessary jurisdictional facts which would subject the three individual defendants, Hendrix, Stanard and Brown, to the jurisdiction of this Court.

The conduct of each of these individual defendants within the State of Nevada appears to have been as agents of the various corporate defendants. The motion to quash should be granted on behalf of defendants Hendrix, Stanard and Brown because, "Under the `fiduciary shield' doctrine, the acts of a corporate officer or employee taken in his corporate capacity within the jurisdiction generally do not form the predicate for jurisdiction over him in his individual capacity. Lehigh Valley Industries, Inc. v. Birenbaum, 527 F.2d 87, 92-93 (2d Cir.1975)." Bulova Watch Co., Inc. v. K. Hattori & Company, Ltd., 508 F.Supp. 1322, 1347 (E.D. N.Y.1981).

II. THE MOTION FOR PRELIMINARY INJUNCTION.

The threshold question as to whether the preliminary injunction should issue is whether either the circuit design (hardware), the character generator mechanism, or computer program (software) of the plaintiff's video poker game constitute a trade secret. Since this is a...