Judge Thomas D. Long, Case 22STCV15432 2022-07-27 Tentative Ruling

On May 9, 2022, Plaintiff Delta Technologies LLC filed this action against Defendant Old Belt Extracts LLC alleging (1) breach of oral contract, (2) fraud, (3) conversion, (4) receipt of stolen property, and (5) unfair business practices.

“A court of this state may exercise jurisdiction on any basis not inconsistent with the Constitution of this state or of the United States.” (Code Civ. Proc., § 410.10.) “The Due Process Clause protects an individual’s liberty interest in not being subject to the binding judgments of a forum with which he has established no meaningful ‘contacts, ties, or relations.’” (Burger King Corp. v. Rudzewicz (1985) 471 U.S. 462, 471-472 (Burger King).) A state court may not exercise personal jurisdiction over a party under circumstances that would offend “traditional notions of fair play and substantial justice.” (Asahi Metal Industry Co., Ltd., v. Superior Court of California, Solano County (1987) 480 U.S. 102, 113.)

A defendant, on or before the last day of his or her time to plead or within any further time that the court may for good cause allow, may serve and file a notice of motion and motion to quash service of summons on the ground of lack of jurisdiction of the court over him or her. (Code Civ. Proc., § 418.10, subd. (a)(1).) The court may dismiss without prejudice the complaint in whole, or as to that defendant, when dismissal is made pursuant to Section 418.10. (Code Civ. Proc., § 581, subd. (h).)

When a defendant moves to quash service of process on jurisdictional grounds, the plaintiff has the initial burden of demonstrating facts justifying the exercise of jurisdiction. (Jayone Foods, Inc. v. Aekyung Industrial Co. Ltd. (2019) 31 Cal.App.5th 543, 553.) Once facts showing minimum contacts with the forum state are established, the defendant has the burden to demonstrate that the exercise of jurisdiction would be unreasonable. (Ibid.) “The plaintiff must provide specific evidentiary facts, through affidavits and other authenticated documents, sufficient to allow the court to independently conclude whether jurisdiction is appropriate. [Citation.] The plaintiff cannot rely on allegations in an unverified complaint or vague and conclusory assertions of ultimate facts. [Citation.]” (Strasner v. Touchstone Wireless Repair & Logistics, LP (2016) 5 Cal.App.5th 215, 222.)

Plaintiff is a manufacturer and distributor of hemp and hemp-derived products, and Defendant is a larger scale manufacturer, developer, and researcher of the same types of products. (Complaint ¶¶ 15-16.) In December 2020, Plaintiff met virtually with Nicole Brown, Chief Innovation Officer for Defendant, and Dave Neundorfer, Chief Executive Officer for Defendant, to discuss Defendant’s ability to develop a new process to derive tetrahydrocannabivarin (“THCV”) from raw hemp materials paid for and provided by Plaintiff to Defendant at its facilities in North Carolina. (Id. at ¶¶ 17-18.) In March 2021, the parties agreed that Plaintiff would provide raw materials to Defendant, Defendant would provide Plaintiff with all the THCV produced from half of the raw materials, and Defendant would either purchase the remaining half of the materials or return the remaining materials and waste. (Id. at ¶ 23.)

Into October 2021, Plaintiff periodically sent the materials to Defendant. (Id. at ¶ 24.) In April 2021, Defendant issued an apology for its poor responsiveness. (Ibid.) The final shipment in February 2022 was unusually larger and more pure, leading Plaintiff to believe Defendant was using Plaintiff’s materials in a Ponzi scheme with other customers’ orders. (Id. at ¶¶ 27-31.) Defendant has not yet accounted for waste material that Plaintiff believes is worth multiple hundreds of thousands of dollars. (Id. at ¶¶ 33-34.)

Personal jurisdiction may be either general or specific. Plaintiff does not argue that Defendant is subject to general personal jurisdiction. Plaintiff contends that Defendant is subject to specific jurisdiction. (Opposition at p. 10.)

A nonresident defendant may be subject to the specific jurisdiction of the forum “if the defendant has purposefully availed himself or herself of forum benefits [citation], and the ‘controversy is related to or “arises out of” a defendant’s contacts with the forum.’ [Citations.]” (Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 446.) In addition, the assertion of personal jurisdiction must “‘comport with “fair play and substantial justice.”’ [Citations.]” (Id. at pp. 447-448.)

The purposeful availment requirement analyzes whether the nonresident defendant “purposefully directed” its activities at forum residents, “purposefully derived benefit” from forum activities, or “purposefully avail[ed itself] of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.” (Burger King, supra, 471 U.S. at pp. 472-473.) A nonresident who “‘deliberately has engaged in significant activities with a State’ [citation] or has ‘continuing obligations’ between himself and residents of the forum [citation]” has “‘manifestly . . . availed himself of the privilege of conducting business [in the forum], and because his activities are shielded by ‘the benefits and protections’ of the forum’s laws it is presumptively not unreasonable to require him to submit to the burdens of litigation in that forum as well.” (Vons, supra, 14 Cal.4th at p. 446.) “This ‘purposeful availment’ requirement ensures that a defendant will not be hailed into a jurisdiction solely as a result of ‘random,’ ‘fortuitous,’ or ‘attenuated’ contacts.” (Id. at p. 474.) A contract with an out-of-state party does not alone automatically establish sufficient minimum contacts with the forum. (Burger King, supra, 471 U.S. at p. 478.) Factors such as “prior negotiations and contemplated future consequences, along with the terms of the contract and the parties’ actual course of dealing . . . must be evaluated in determining whether the defendant purposefully established minimum contacts with the forum.” (Id. at p. 479.)

Plaintiff argues Defendant invites partnerships with California companies, and “it is not reasonably in dispute that [Defendant]: (1) routinely gets its hemp from Southern California; (2) partners with California businesses in agreements concerning the exact cannabinoid at issue herein, THCV; and (3) has entered into exactly the same kind of research and development deal at issue herein with other California companies.” (Opposition at p. 12.)

Plaintiff cites Defendant’s “Frequently Asked Questions” section of its website, which states that Defendant’s hemp is grown on farms in North Carolina, Virginia, and Southern California. (Opposition at p. 12; Federici Decl. ¶ 3 & Ex. B.) But Plaintiff does not show personal knowledge of the truth of this statement, and Defendant explains it bought one harvest from a Southern Californian farmer in 2019 and the relationship is not ongoing. (Hackett Suppl. Decl. ¶ 5; see Reply at p. 11.)

Plaintiff also contends that Defendant partnered with California-based businesses Radicle Science, Biopharmaceutical Research Corporation, and Hempacco. (Opposition at pp. 7-8, 12.)

Plaintiff cites a press release about the completion of Defendant’s controlled trial on rare cannabinoids with the support of Radicle Science. (Federici Decl. ¶ 4 & Ex. C.) Radicle Science is a Delaware corporation, and it filed a Statement and Designation by Foreign Corporation with a corporate address in Encinitas, California. (Federici Decl., Ex. D.) Plaintiff provides no evidence that any of the partnership and trial were conducted in or have connection to California, and Defendant explains the subjects of the efficacy studies were nationwide and not limited to California. (Hackett Suppl. Decl. ¶ 2.)

On June 14, 2022—after the alleged contacts in this action—Plaintiff announced a collaboration with Biopharmaceutical Research Company. (Federici Decl., Ex. E.) Biopharmaceutical Research Company similarly filed a Statement and Designation by Foreign Corporation showing that it is a Delaware corporation with a corporate address in Castroville, California. (Federici Decl., Ex. D.) Defendant’s manager declares that Defendant has not yet done any work with Biopharmaceutical Research Company. (Hackett Suppl. Decl. ¶ 3.)

In May 2021, Defendant announced its plans to debut proprietary hemp cigarette flavoring technology with Hempacco at a trade show. (Federici Decl., Ex. G.) Hempacco is a Nevada corporation that filed a California Statement of Information listing a San Diego, California address. (Federici Decl., Ex. H.) Hempacco licenses a patent owned by Defendant. (Hackett Suppl. Decl. ¶ 4.) The trade show was in Las Vegas, Nevada, and there is no evidence that the partnership otherwise involves California contacts. (Federici Decl., Ex. G.)

In sum, these press releases regarding Radicle Science, Biopharmaceutical Research Corporation, and Hempacco do not show purposeful availment.

Plaintiff also notes that Defendant’s website contains a Proposition 65 Statement Letter, “proof positive that they are active enough in the California hemp industry that their lawyers insisted on a California Proposition 65 notice to the public.” (Opposition at p. 12; see Federici Decl., Ex. A.) This letter merely informs customers about the requirements of the regulation concerning California Proposition by explaining what it is and directing customers to a government website for more information on warnings. (Federici Decl., Ex. A.) Compliance with Proposition 65 is “insufficient to show that Defendant purposefully directed its activities to the state of California in a substantial, and not generalized, way.” (Milo Enterprises, Inc. v. Bird-X, Inc. (C.D. Cal., Sept. 12, 2018, No. 218CV03857ABKSX) 2018 WL 6430117, at *3.)

Defendant argues it did not solicit or market to Plaintiff to attract its business. (Motion at p. 13.) Alexander Jacobs, a principal for Plaintiff, “asked around [his] industry colleagues in California and elsewhere to find anyone who could work with THCV, “ and “[Defendant]’s name came up almost immediately.” (Jacobs Decl. ¶¶ 1, 3.) He “do[es] not recall who exactly referred [Plaintiff] to [Defendant], but we eventually found [Defendant] exactly because [Defendant] is so well-known across the hemp industry.” (Id. at ¶ 3.) Defendant is correct that this initial contact would be insufficient, but Plaintiff contends there were further ongoing contacts with Plaintiff and California. (See Opposition at p. 9.)

Defendant admits it has one active contract manufacturer in California. (Hackett Decl. ¶ 26.) Plaintiff assumes this is TriLabs Manufacturing, to which Defendant directed Plaintiff during the course of the transaction. (Opposition at p. 8.) Jacobs and another employee personally drove to meet with agents of TriLabs Manufacturing in San Bernardino County to drop off and pick up products that Plaintiff and Defendant were exchanging. (Jacobs Decl. ¶ 4.) Plaintiff also cites Jacobs’s weekly contact with Defendant’s officer through text message, telephone, online video conferencing, and emails for several months. (Ibid.) These ongoing contacts during performance of the parties’ agreement—an agreement that was understood to be performed over the course of several months (see ibid; Complaint ¶ 24)—show that the “quality and nature” of Defendant’s relationship to Plaintiff in California is not “random,” “fortuitous,” or “attenuated.” (See Burger King, supra, U.S. at p. 480.)

In addition, Plaintiff must show “a connection between the forum and the specific claims at issue.” (Bristol-Meyers Squibb Co. v. Superior Court (2017) 137 S.Ct. 1773, 1781.) The relationship between the forum and claim “must arise out of contacts that the ‘defendant himself’ creates with the forum State.” (Walden v. Fiore (2014) 571 U.S. 277, 284.) Defendant entered into an agreement with Plaintiff, continuously communicated with Plaintiff about the performance of the agreement, and used an agent to coordinate exchanges of products in California. Therefore, there is a connection between California and the claims at issue.

Even if a defendant has sufficient minimum contacts with a forum state, the contacts must not offend traditional notions of fair play and substantial justice. (International Shoe Co. v. State of Wash., Office of Unemployment Compensation and Placement (1945) 326 U.S. 310, 316, 320.) The court should evaluate (1) the burden on the defendant, (2) the forum state’s interest in adjudicating the dispute, (3) the plaintiff’s interest in obtaining convenient and effective relief, (4) the interstate judicial system’s interest in obtaining the most efficient resolution of controversies, and (5) the shared interest of the several states in furthering fundamental substantive social policies. (Burger King, supra, 471 U.S. at p. 477.) It is the defendant’s burden to show that the exercise of jurisdiction would be unreasonable. (Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 449.)

Defendant’s principal place of business is in Roxboro, North Carolina (Hackett Decl. ¶ 6), and thus it will be burdened by litigation in California. California has an interest in adjudicating disputes involving its citizens, and Plaintiff has a strong interest in obtaining convenient and effective relief at home.

Plaintiff is the only known witness residing in California. (Hackett Decl. ¶ 27.) Defendant has four witnesses in North Carolina, one witness in New York, one witness in Ohio, and one witness in Massachusetts. (Ibid.) The claims for conversion and receipt of stolen property involve property located in North Carolina, so that is presumably where more evidence is located. (See Complaint ¶¶ 34, 59-60, 65.) The most efficient resolution of these controversies therefore weighs in favor of North Carolina.

Plaintiff argues there are important social policies at issue because the fourth cause of action under California Penal Code section 496, subdivision (c) is a strong deterrent for theft and Plaintiff “is not aware of any such North Carolina law of similar policy import or with nearly as powerful a toolkit for deterring theft and providing victims restitution.” (Opposition at p. 16.) Plaintiff also argues, “California courts should lead the charge on holding larger national players [in the ‘the still largely nascent legal hemp market’] to account for taking advantage of California’s large markets and for potentially putting California small businesses such as [Plaintiff] out of business in the process.” (Opposition at p. 16.) But Defendant is a licensed hemp producer in North Carolina. (Hackett Decl. ¶ 5.) This argument equally applies to California and North Carolina, with no persuasive reason why California’s interest outweighs North Carolina’s.

On balance, the Court finds that the contacts and therefore exercise of jurisdiction would offend traditional notions of fair play and substantial justice.

Although Defendant may have had sufficient minimum contacts with California, exercise of California jurisdiction would be unreasonable. Accordingly, the motion is granted.

Alternatively, Defendant asks the Court to dismiss the action for forum non conveniens. (Motion at p. 16.) When a court finds that in the interest of substantial justice an action should be heard in a forum outside this state, the court must stay or dismiss the action in whole or in part on any conditions that may be just. (Code Civ. Proc., § 410.30, subd. (a).) This principle is the codification of the firmly established forum non conveniens doctrine, which provides that a court may resist imposition upon its jurisdiction even when jurisdiction is authorized by the letter of a general venue statute. (Great Northern R. Co. v. Superior Court (1970) 12 Cal.App.3d 105, 108-110.) The doctrine allows a court to decline to exercise the jurisdiction it has over a transitory cause of action when it believes that the action may be more appropriately and justly tried elsewhere. (Stangvik v. Shiley, Inc. (1991) 54 Cal.3d 744, 751 (Stangvik).

The first inquiry is whether there is a suitable alternate forum for trial. (Stangvik, supra, 54 Cal.3d at p. 751.) A suitable alternate forum is one where a defendant is subject to jurisdiction and the plaintiff’s claim is not barred by a statute of limitations. (Ibid.) The alternate forum will not be considered unsuitable by virtue of the fact that it may not be as favorable to a plaintiff as the chosen forum. (Piper Aircraft Co. v. Reyno (1981) 454 U.S. 235, 251-252.) However, if the remedy provided by the alternative forum is so clearly inadequate or unsatisfactory that it is no remedy at all, the unfavorable change in law may be given substantial weight. (Id. at p. 254.) As a business registered to do business in North Carolina with a principal place of business in North Carolina (Hackett Decl. ¶¶ 4-6), Defendant is subject to that state’s jurisdiction. Defendant also states the action is not barred by the statute of limitations. (Motion at p. 17.)

Once it is determined that a suitable alternative forum exists, the Court must “consider the private interests of the litigants and the interests of the public in retaining the action for trial in California.” (Stangvik, supra, 54 Cal.3d at p. 751.) “The private interest factors are those that make trial and the enforceability of the ensuing judgment expeditious and relatively inexpensive, such as the ease of access to sources of proof, the cost of obtaining attendance of witnesses, and the availability of compulsory process for attendance of unwilling witnesses. The public interest factors include avoidance of overburdening local courts with congested calendars, protecting the interests of potential jurors so that they are not called upon to decide cases in which the local community has little concern, and weighing the competing interests of California and the alternate jurisdiction in the litigation.” (Ibid.)

The Complaint alleges Defendant breached the agreement by “failing to account for 88.8kg of the Materials and by only producing and sending approximately 6kg of THCV to Plaintiff for the prior shipments of Materials,” and “Defendant now purportedly holds the final 88.8kg of Materials hostage.” (Complaint ¶¶ 41, 43.) Plaintiff also alleges Defendant’s final shipment was derived from something other than Plaintiff’s materials, and Defendant has withheld any accounting for the waste materials. (Id. at ¶¶ 42, 44.) Evidence regarding the materials and accounting will be located at or near Defendant’s facilities in North Carolina. Defendant has four witnesses in North Carolina, one witness in New York, one witness in Ohio, and one witness in Massachusetts; Plaintiff is the only known witness residing in California. (Hackett Decl. ¶ 27.) Plaintiff acknowledges that the Court would lack jurisdiction to compel the out-of-state witnesses to appear at trial in California. (Opposition at p. 18; see Code Civ. Proc., § 1989.) Plaintiff also admits that discovery requests and depositions can be easily conducted in either state. (Opposition at p. 18.)

Regarding the public interest factors, Plaintiff argues this case involves the theft of materials from within California’s borders. (Opposition at p. 19.) But Plaintiff willingly shipped those materials to Defendant pursuant to the parties’ agreement. Plaintiff also contends, without support, that “[j]urors in California would be far more interested in hearing a case involving an out-of-state ne’er-do-well taking advantage of California’s large markets and potentially putting the jurors’ communities’ local small businesses out of business.” (Opposition at p. 19.) “California courts have held that ‘with respect to regulating or affecting conduct within its borders, the place of the wrong has the predominant interest.’” (Roman v. Liberty University, Inc. (2008) 162 Cal.App.4th 670, 684.) As Defendant notes and as discussed above, the alleged wrongful acts involving hemp manufacturing and conversation of materials occurred in North Carolina by a company registered to produce hemp in North Carolina.

In sum, in the interest of substantial justice, this action should be heard in North Carolina. The motion is granted.

Plaintiff requests that the Court continue the motion to allow it to conduct discovery on jurisdictional issues. (Opposition at p. 9.) “The plaintiff has the right to conduct discovery with regard to the issue of jurisdiction to develop the facts necessary to sustain this burden.” (Mihlon v. Superior Court (1985) 169 Cal.App.3d 703, 710.) The plaintiff seeking a continuance for jurisdictional discovery must demonstrate that discovery is likely to lead to evidence establishing jurisdiction. (In re Automobile Antitrust Cases I & II (2005) 135 Cal.App.4th 100, 127.) Plaintiff does not make any such showing, instead stating only that it “requests time to conduct jurisdictional discovery in light of the offer of proof already made, and to convince the Court the motion should be denied.” (Opposition at p. 19.)

Parties who intend to submit on this tentative must send an email to the Court at SMCDEPT48@lacourt.org indicating intention to submit. Parties intending to appear are encouraged to appear remotely and should be prepared to comply with Dept. 48’s new requirement that those attending court in person wear a surgical or N95 or KN95 mask.

Hon. Thomas D. Long

Judge of the Superior Court