Otimo Music, Inc. v. Royalty Exchange, Inc.

          ORDER on MOTIONS TO DISMISS FIRST AMENDED COMPLAINT FOR LACK OF PERSONAL JURISDICTION

          R. Brooke Jackson United States District Judge

         I. BACKGROUND

         This case arises out of an online auction conducted by Defendant, Royalty Exchange, Inc. (RX) by which Plaintiff, Otimo Music, Inc. (Otimo) purchased purported royalty rights in a music catalog (“Catalog”) associated with the hip hop artist King Lil' G. ECF No. 15 at ¶1-2. Defendant MIH Entertainment, LLC (“MIH”) was the company that sold these rights to Otimo using the RX auction. Id. at ¶2. Defendant Michael Conner (“Conner”), an individual, acted on behalf of MIH in this transaction. Id. at ¶8. Otimo filed a First Amended Complaint raising claims of breaches of contracts against RX and MIH; securities fraud under the Colorado Securities Act against MIH, Conner, and RX; and common law fraud against MIH and Conner. See generally ECF No. 15, First Amended Complaint. Otimo alleges that MIH falsely claimed to have certain unencumbered rights in the Catalog and sold them pursuant to the internet auction operated by RX. Id. at ¶2. Otimo further alleges that RX misrepresented its level of due diligence to verify the legitimacy of the rights being sold, causing it to pay $420, 000 for rights that do not exist or are commercially useless. Id. at ¶1.

         Otimo is a Canadian Corporation located in Montreal, Quebec Canada, and is a citizen of Canada. Id. at ¶4. Otimo is the successor in interest to all of the claims of Ryan Stotland, the individual who made the purchase of the purported royalty rights from MIH on RX. Id. RX is a Delaware Corporation with its principal place of business in Denver, Colorado and is a citizen of Colorado. Id. at ¶5. MIH is a California limited liability company with its principal place of business in Burbank, California. Id. at ¶9. Conner is a citizen of California. Id. at ¶7.

         Otimo's fraud claim arises in connection with a contract that, significant for present purposes, has a forum selection clause that selected Colorado as the forum for commencing litigation. Id. at ¶10. MIH Defendants filed a motion to dismiss for lack of personal jurisdiction, ECF No. 20. Plaintiff filed a response to this motion, ECF No. 22, and MIH Defendants filed a reply to this response, ECF No. 29. This motion has been fully briefed and is ripe for review.

         II. STANDARD OF REVIEW

         As a district court sitting in diversity, I must exercise personal jurisdiction according to both the forum state's long-arm statute and the Constitution. Equifax Servs., Inc. v. Hitz, 905 F.2d 1355, 1357 (10th Cir. 1990). Colorado's long-arm statute confers the maximum jurisdiction permitted under the Due Process Clause of the Fourteenth Amendment. AST Sports Sci., Inc. v. CLF Distribution Ltd., 514 F.3d 1054, 1057 (10th Cir. 2008). Thus, my analysis will focus solely on the constitutional due process analysis.

         Due process for jurisdictional purposes requires two elements. First, defendants must have “minimum contacts” with the forum state. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 291 (1979). The minimum contacts test may be satisfied through a showing of either general or specific jurisdiction. OMI Holdings, Inc. v. Royal Ins. Co. of Canada, 149 F.3d 1086, 1090-91 (10th Cir. 1998). General jurisdiction exists when defendants have “continuous and systematic” contacts in the state, even if those are unrelated to pending litigation. Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011). Specific jurisdiction exists when the defendants “purposely directed” their activities at the forum state and the alleged injuries “arise out of or relate to” those activities. OMI Holdings, 149 F.3d at 1091.

         Second, if sufficient minimum contacts exist, I must determine whether the exercise of personal jurisdiction over defendants offends “traditional notions of fair play and substantial justice.” OMI Holdings, 149 F.3d at 1091 (quoting Asahi Metal Indus. Co. v. Superior Court of Cal., 480 U.S. 102, 113 (1987)). In other words, I must determine whether the exercise of personal jurisdiction over defendants is “reasonable” in light of the circumstances of the case. Id. Minimum contracts and reasonableness work hand in hand. “[T]he weaker the plaintiff's showing on minimum contacts, the less a defendant need show in terms of unreasonableness to defeat jurisdiction.” Trujillo v. Williams, 465 F.3d 1210, 1221 (10th Cir. 2006) (quoting Pro Axess, Inc. v. Orlux Distribution, Inc., 428 F.3d 1270, 1280 (10th Cir. 2005)).

         While personal jurisdiction must comport with due process, jurisdictional objections can be waived. See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 486, at n. 14 (1985) (“We have noted that, because the personal jurisdiction requirement is a waivable right, there are a variety of legal arrangements by which a litigant may give express or implied consent to the personal jurisdiction of the court.”) (internal quotation marks and citation omitted).

         To meet the test described in OMI Holdings, plaintiffs bear the burden of showing that personal jurisdiction exists. However, plaintiff's “burden is light” at this stage. AST Sports Sci., 514 F.3d at 1056. In ruling on a Fed.R.Civ.P. 12(b)(2) motion without holding an evidentiary hearing, plaintiff “need[s] only [to] make a prima facie showing of personal jurisdiction to defeat the motion.” OMI Holdings, 149 F.3d at 1091. To do so, plaintiff must plead sufficient facts to show that, if true, jurisdiction would be proper over defendants. Id. The burden then shifts to the defendants to show that jurisdiction is not proper. Id. Any factual discrepancies must be resolved in plaintiff's favor unless the allegations in the complaint are contradicted by affidavits. Wenz v. Memery Crystal, 55 F.3d 1503, 1505 (10th Cir. 1995). If the latter occurs, plaintiff must submit a counter-affidavit or other written material to support jurisdiction. Melea, Ltd. v. Jawer SA, 511 F.3d 1060, 1065 (10th Cir. 2007).

         III. ANALYSIS

         Otimo raises two arguments to show that the exercise of personal jurisdiction over MIH and Conner would be proper. The first is that MIH consented to Colorado's jurisdiction in executing the Revised Listing Agreement dated June 28, 2017 with RX. This agreement states: “The laws of the State of Colorado govern all matters arising from this agreement and the exclusive forum shall be a federal or state court in Denver County, Colorado.” ECF No. 15, Ex. 2 (“Listing Agreement”) at ¶10.1. Otimo argues that it is an intended third-party beneficiary of the contract and that its dispute with MIH is so interrelated with the Listing Agreement that the forum selection clause is properly invoked. The second argument is that absent a finding of consent to jurisdiction, this Court also has specific personal jurisdiction. Otimo argues that the MIH defendants, in using RX as a platform for selling its purported rights, “purposefully directed” their activities at Colorado, and that Otimo's injuries “arise out of or relate to” those activities so as to establish sufficient minimum contacts. As explained below, I agree that this Court can exercise jurisdiction over MIH pursuant to the forum selection clause of the Listing Agreement. Because I find that MIH consented to jurisdiction in Colorado, I will not address the alternative argument of specific jurisdiction over MIH based on Colorado's long-arm statute. However, because Conner is not a party to this agreement, I must analyze his minimum contacts with the forum and whether the exercise of personal jurisdiction over him comports with traditional notions of fair play and substantial justice. On this basis, again as explained below, I find that this Court also has personal jurisdiction over Conner.

         1) Invoking the Forum Selection Clause of the Listing ...