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Hawaii Island Air, Inc. v. Merlot Aero Ltd.

United States District Court, D. Hawaii

January 30, 2015

HAWAII ISLAND AIR, INC., DBA ISLAND AIR, A DELAWARE CORPORATION, Plaintiff,
v.
MERLOT AERO LIMITED, DBA MERLOT.AERO, A NEW ZEALAND LIMITED COMPANY, Defendant

For Hawaii Island Air, Inc., a Delaware Corporation, doing business as Island Air, Plaintiff: Kristin L. Holland, Paul Alston, LEAD ATTORNEYS, Alston Hunt Floyd & Ing, Honolulu, HI.

For Merlot Aero Limited, doing business as merlot.aero, Defendant: Edmund K. Saffery, Regan M. Iwao, Scott K.D. Shishido, LEAD ATTORNEYS, Goodsill Anderson Quinn & Stifel LLLP, Honolulu, HI.

ORDER DENYING MERLOT AERO LIMITED d/b/a MERLOT.AERO'S MOTION TO DISMISS PLAINTIFF HAWAII ISLAND AIR, INC., DBA ISLAND AIR'S COMPLAINT, FILED OCTOBER 13, 2014 [DOC. No. 1] FOR LACK OF PERSONAL JURISDICTION, IMPROPER VENUE, AND/OR FAILURE TO STATE A CLAIM

Barry M. Kurren, United States Magistrate Judge.

Before the Court is Defendant Merlot Aero Limited d/b/a Merlot.Aero's (" Merlot") Motion to Dismiss Plaintiff Hawaii Island Air, Inc., DBA Island Air's Complaint, Filed October 13, 2014 [Doc. No. 1] for Lack of Personal Jurisdiction, Improper Venue, and/or Failure to State a Claim (the " Motion"). (Doc. No. 11.) Merlot seeks dismissal on the grounds that (1) the Court lacks specific jurisdiction over Merlot, which did not avail itself to this forum; (2) New Zealand, not Hawaii, is the proper venue for this case; and (3) Count II of the Complaint is a cause of action that does not exist under New Zealand law.

This Motion came for hearing before the Court on January 16, 2015. After careful consideration of the Motion, the supporting and opposing memoranda, and the arguments of counsel, the Court hereby DENIES the Motion.

FACTUAL BACKGROUND

This action involves a contract for software-related services entered into by Merlot and Plaintiff Hawaii Island Air, Inc., dba Island Air (" Island Air"). Merlot is a New Zealand-based company that develops and provides software programs for airline companies, including " a comprehensive suite of modules for airline operations and crew management, planning, tracking and regulatory compliance to manage operations and ensure overall safety, efficiency and quality of your airline." (Compl. ¶ 8.) Merlot does not have any offices, agents, or employees in Hawaii. (Mot. at 4.)

Island Air is an airline incorporated in Delaware, but has its principal place of business in Hawaii. It is exclusively an inter-island carrier and transports passengers, baggage, freight, and mail within the State of Hawaii. (Compl. ¶ 4; Mem. in Opp'n, Decl. of Edward Davidson (" Davidson Decl.") ¶ 2.)

In or around 2013, Island Air began exploring alternatives to its existing software package used for crew scheduling, systems operation, and flight control. (Compl. ¶ 10.) Island Air allegedly reached out to Merlot's United States office in Washington State to discuss whether Merlot could offer any services to meet Island Air's needs. (Mem. in Opp'n at 3.) Although the parties largely corresponded via telephone and e-mail, Merlot allegedly came to Hawaii twice to make sales presentations to Island Air. (Id.) On or around December 17, 2013, representatives for Merlot and Island Air entered into the merlot.aero Supply Agreement (" Supply Agreement"), which provided that Merlot would provide Island Air with use of its software program known as merlot.aero. (Compl. ¶ 11; Mot., Exh. A.) The Supply Agreement also specified that Merlot would provide on-site training for Island Air employees in Hawaii, technical support from New Zealand, as well as " On-Site Discovery" and " On-Site Support." (Mem. in Opp'n at 5; Mot., Exh. A, Schedule § 2.) The Supply Agreement was for an initial 10-year period, thereafter renewable for three-year terms. (Mot., Exh. A at 1.)

As relevant to this case, the Supply Agreement further provided a choice-of-law provision, whereby the parties agreed that the Supply Agreement " is governed by the laws of New Zealand and the parties submit to the non-exclusive jurisdiction of the New Zealand courts." (Id., Exh. A § 13(j).)

Broadly speaking, Island Air contends that Merlot breached the Supply Agreement by failing to supply it with a workable software system. Shortly after the installation of the merlot.aero system, Island Air alleges that it experienced significant and repeated software problems, including problems with payroll integration, Aircraft Communications Addressing and Reporting System (" ACARS") compatibility, crew access to data through the Crew Portal, other functionality features, and inadequate customer service. (Compl. ¶ ¶ 15-16.) Island Air claims that it informed Merlot of these issues, but Merlot's inability to resolve the problems rendered the merlot.aero system useless. (Id. ¶ ¶ 17-18.) Ultimately, Island Air decided not to use the merlot.aero system and demanded a refund from Merlot. (Id. ¶ 19.) Island Air claims that, in response, Merlot unilaterally terminated the Supply Agreement and demanded payment in full for the remaining contract term. (Id. ¶ 20.)

Island Air also alleges violation of Hawaii's Uniform Deceptive Trade Practices Act, Hawaii Revised Statutes (" HRS") chapter 481A. Island Air claims that Merlot engaged in deceptive trade practices by misrepresenting the characteristics, uses, and benefits of the merlot.aero system and customer service; misrepresenting the standard, quality, or grade of the merlot.aero system, which is actually lower quality, defective, non-functional, or error-prone such that it is not usable for the purposes Merlot represents; and engaging in other conduct that misrepresents the quality, performance, and standards of the merlot.aero system. (Id. ¶ 28.) Island Air cites largely to Merlot's website, which states that merlot.aero provides " a comprehensive suite of modules for airline operations and crew management; planning, tracking and regulatory compliance to manage operations and ensure overall safety, efficiency and quality of your airline." (Id. ¶ 8.) Merlot's website further claims that Merlot has " revolutionized airline technology to ensure your airline is prepared to embrace the long term as an airline that is safe, secure, scalable, sustainable, flexible, and profitable while providing good value to customers." (Id. ¶ 9.)

Island Air filed the underlying Complaint in this case on October 13, 2014. Subsequently, Merlot filed a complaint with the High Court of New Zealand (Auckland Registry) on November 6, 2014, similarly alleging that Island Air breached the Supply Agreement. (Mot., Exh. B.) As of the hearing on this matter, Island Air had not answered that complaint. (Mem. in Opp'n at 22.)

Merlot now requests that the Court dismiss the Complaint on the basis that the Court lacks personal jurisdiction over it, or, in the alternative, on the basis of forum non conveniens.

DISCUSSION

I. PERSONAL JURISDICTION

Merlot first argues that this case should be dismissed, because the Court lacks personal jurisdiction over it. The Due Process Clause of the United States Constitution[1] requires that Merlot have " certain minimum contacts with [Hawaii] such that the maintenance of the suit does not offend 'traditional notions of fair play and substantial justice.'" See Int'l Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945) (quoting Milliken v. Meyer, 311 U.S. 457, 463, 61 S.Ct. 339, 85 L.Ed. 278 (1940)). To have the required minimum contacts, Merlot must have purposefully availed itself of the privilege of conducting activities in Hawaii, thereby invoking the benefits and protections of Hawaii's laws and leading it to " 'reasonably anticipate being haled into court'" in Hawaii. See Sher v. Johnson, 911 F.2d 1357, 1361 (9th Cir. 1990) (quoting World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980)). Requiring " minimum contacts" " protects the defendant against the burdens of litigating in a distant or inconvenient forum. And it acts to ensure that the States[, ] through their courts, do not reach out beyond the limits imposed on them by their status as coequal sovereigns in a federal system." World-Wide Volkswagen Corp., 444 U.S. at 292 (brackets added).

Where a defendant moves to dismiss a complaint for lack of personal jurisdiction, the plaintiff bears the burden of demonstrating that jurisdiction is appropriate and, when the motion is based on written materials, the plaintiff need only make a prima facie showing of jurisdictional facts. Sher, 911 F.2d at 1361. The plaintiff cannot " simply rest on the bare allegations of its complaint, " Amba Mktg. Sys., Inc. v. Jobar Int'l, Inc., 551 F.2d 784, 787 (9th Cir. 1977), but uncontroverted allegations in the complaint must be taken as true. AT& T v. Compagnie Bruxelles Lambert, 94 F.3d 586, 588 (9th Cir. 1996).

A. General Jurisdiction

First, the Court examines whether it has general jurisdiction over Merlot. " General jurisdiction exists when a defendant is domiciled in the forum state or his activities there are 'substantial' or 'continuous and systematic.'" Panavision Int'l, L.P. v. Toeppen, 141 F.3d 1316, 1320 (9th Cir. 1998) (citing Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414-16, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984)); see also Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 801 (9th Cir. 2004) (" This is an exacting standard, as it should be, because a finding of general jurisdiction permits a defendant to be haled into court in the forum state to answer for any of its activities anywhere in the world." (citation omitted)).

In the present case, the Court does not have general jurisdiction over Merlot. It is undisputed that Merlot is not domiciled in Hawaii, and there is no evidence that it engaged in " substantial" or " continuous and systematic" activities in or aimed at Hawaii. Island Air appears to concede that there is no evidence supporting the exercise of general jurisdiction over Merlot: " Island Air does not have enough information, without jurisdictional discovery, regarding [Merlot's] other Hawaii activities to know if general jurisdiction exists." (Mem. in Opp'n at 9 n.3.) Thus, the Court agrees that it lacks general jurisdiction over Merlot.

B. Specific Jurisdiction

Even in the absence of general jurisdiction, the Court may exercise specific jurisdiction over Merlot if the cause of action arises out of Merlot's contacts with or activities in the forum state. See Roth, 942 F.2d at 620.

The United States Supreme Court has made clear that the exercise of specific jurisdiction is proper where " the contact proximately result from actions by the defendant himself that create a 'substantial connection' with the forum State." Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985) (emphasis and citation omitted). It has stated:

Where a forum seeks to assert specific jurisdiction over an out-of-state defendant who has not consented to suit there, this " fair warning" requirement is satisfied if the defendant has " purposefully directed" his activities at residents of the forum, Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 774, 104 S.Ct. 1473, 1478, 79 L.Ed.2d 790 (1984), and the litigation results from alleged injuries that " arise out of or relate to" those activities, Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414, 104 S.Ct. 1868, 1872, 80 L.Ed.2d 404 (1984). Thus " [t]he forum State does not exceed its powers under the Due Process Clause if it asserts personal jurisdiction over a corporation that delivers its products into the stream of commerce with the expectation that they will be purchased by consumers in the forum State" and those products subsequently injure forum consumers. World-Wide Volkswagen Corp. v. Woodson, supra, 444 U.S., at 297-298, 100 S.Ct., at 567-568. Similarly, a publisher who distributes magazines in a distant State may fairly be held accountable in that forum for damages resulting there from an allegedly defamatory story. Keeton v. Hustler Magazine, Inc., supra; see also Calder v. Jones, 465 U.S. 783, 104 S.Ct. 1482, 79 L.Ed.2d 804 (1984) (suit against author and editor). And with respect to interstate contractual obligations, we have emphasized that parties who " reach out beyond one state and create continuing relationships and obligations with citizens of another state" are subject to regulation and sanctions in the other State for the consequences of their activities . Travelers Health Ass'n v. Virginia, 339 U.S. 643, 647, 70 S.Ct. 927, 929, 94 L.Ed. 1154 (1950). See also McGee v. International Life Insurance Co., 355 U.S. 220, 222-223, 78 S.Ct. 199, 200-201, 2 L.Ed.2d 223 (1957).

Id. at 472 (internal footnote omitted) (emphasis added).

Based on the principles elucidated above, the Ninth Circuit applies a three-part test to determine whether a court may exercise specific jurisdiction:

(1) The nonresident defendant must do some act or consummate some transaction with the forum or perform some act by which he purposefully avails himself of the privilege of conducting activities in the forum, thereby invoking the benefits and protections of its laws;
(2) the claim must be one which arises out of or results from the defendant's forum-related activities; and
(3) exercise of jurisdiction must be reasonable.

See Panavision Int'l, 141 F.3d at 1320 (quoting Omeluk v. Langsten Slip & Batbyggeri A/S, 52 F.3d 267, 270 (9th Cir. 1995)). As to the first prong, which tests for " purposeful availment, " the Ninth Circuit's standard is different for tort and contract actions. The term " purposeful availment" is used when examining both tort and contract claims, " to include both purposeful availment and purposeful direction, but availment and direction are, in fact, two distinct concepts. A purposeful availment analysis is most often used in suits sounding in contract. A purposeful direction analysis, on the other hand, is most often used in suits sounding in tort." Schwarzenegger, 374 F.3d at 802 (internal citations omitted).[2]

Moreover, specific jurisdiction must be established for each claim separately. See Data Disc, Inc. v. Sys. Tech. Assocs., Inc., 557 F.2d 1280, 1289 n.8 (9th Cir. 1977) (" Where, as here, a plaintiff raises two separate causes of action, the court must have in personam jurisdiction over the defendant with respect to each claim."). Thus, the court examines Island Air's claims separately to determine whether it has specific jurisdiction over Merlot for each claim.

1. Count I -- Breach of Contract

a. Purposeful Availment

First, the Court examines whether Merlot " purposefully availed" itself to the privileges and benefits of transacting business in Hawaii. Although a court cannot exercise jurisdiction over a party as a result of " random, " " fortuitous, " or " attenuated" contacts,

[j]urisdiction is proper, however, where the contacts proximately result from actions by the defendant himself that create a " substantial connection" with the forum State. McGee v. International Life Insurance Co., supra, 355 U.S., at 223, 78 S.Ct., at 201; see also Kulko v. Superior Court of California, 436 U.S. [84], at 94, n.7, 98 S.Ct. [1690], at 1698, n.7, 56 L.Ed.2d 132 [1978]. Thus where the defendant " deliberately" has engaged in significant activities within a State, Keeton v. Hustler Magazine, Inc., supra, 465 U.S., at 781, 104 S.Ct., at 1481, or has created " continuing obligations" between himself and residents of the forum, Travelers Health Assn. v. Virginia, 339 U.S., at 648, 70 S.Ct., at 929, he manifestly has availed himself of the privilege of conducting business there, 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.

Burger King Corp., 471 U.S. at 475-76 (emphasis in original) (brackets added).

In the context of a contract claim, " a court must examine the circumstances surrounding the contract in making that determination. Accordingly, this court examines 'prior negotiations and contemplated future consequences, along with the terms of the contract and the parties' actual course of dealing.'" Evans v. Boston Red Sox, Civil No. 13-00262 SOM-BMK, 2013 WL 6147675, at *5 (D. Haw. Nov. 22, 2013) (quoting Burger King Corp., 471 U.S. at 479); see also Schwarzenegger, 374 F.3d at 802 (" A showing that a defendant purposefully availed himself of the privilege of doing business in a forum state typically consists of evidence of the defendant's actions in the forum, such as executing or performing a contract there.").

In the present case, Island Air generally argues that the negotiation, execution, and performance of the Supply Agreement, executed by Merlot and Island Air, is a sufficient basis for the Court to exercise specific jurisdiction over Merlot, because " [Merlot] came to Hawai'i on multiple occasions to make sales presentations to induce Island Air to enter into the Supply Agreement, conducted two on-site training sessions in Hawai'i, communicated by email and telephone repeatedly with Island Air in Hawai'i, has an affiliate office (or offices) in the United States with employees dedicated to the Island Air account, agreed to service the Supply Agreement for ten years, and knew that Island Air only planned to use [Merlot's] services within Hawai'i[.]" (Mem. in Opp'n at 11.) Island Air points to Merlot's obligation under the Supply Agreement " to conduct at least ten days of on-site training sessions at Island Air's offices in Hawai'i, followed by a decade of ongoing service obligations." (Id. at 13.) It also reiterates that Merlot " knew that Island Air was going to use the [Merlot] services to manage an air fleet which only flies in Hawai'i." (Id.)

Conversely, Merlot takes the position that the Supply Agreement does not constitute its purposeful availment of doing business in Hawaii. Specifically, Merlot argues that the Supply Agreement was, for Merlot's part, negotiated and executed in New Zealand; that the Supply Agreement was to be performed in New Zealand, because, other than two training sessions in Hawaii, the goods and services at issue were to be provided from New Zealand; that the parties largely dealt with each other via e-mails and telephone calls; and that the Supply Agreement's choice-of-law provision designated New Zealand law as the applicable law. (Mot. at 9-10.)

As in initial matter, the Court acknowledges that the mere creation of a contract does not, by itself, subject a defendant to personal jurisdiction in the forum state. See Burger King Corp., 471 U.S. at 478 (" If the question is whether an individual's contract with an out-of-state party alone can automatically establish sufficient minimum contacts in the other party's home forum, we believe the answer clearly is that it cannot."). However, in adopting a " 'highly realistic' approach that recognizes that a 'contract' is 'ordinarily but an intermediate step serving to tie up prior business negotiations with future consequences which themselves are the real object of the business transaction, '" id. at 478-79 (quoting Hoopeston Canning Co. v. Cullen, 318 U.S. 313, 316, 63 S.Ct. 602, 87 L.Ed. 777 (1943)), the Court considers the circumstances surrounding the Supply Agreement to determine whether Merlot purposefully availed itself to this forum.

Merlot seems to focus on whether it first reached out to and initiated contact with Island Air, which the Court acknowledges that it did not. However, based on Merlot's conduct in the execution and performance of the Supply Agreement, Court finds that the creation of " continuing obligations" with Island Air led Merlot to " purposefully avail" itself of the privilege of conducting business in Hawaii. See Travelers Health Ass'n, 339 U.S. at 648.

It is uncontroverted that Island Air flies exclusively in Hawaii and that the merlot.aero system would be used by Island Air employees solely in Hawaii. Merlot knew that Island Air would use its software in Hawaii, as it was to provide on-site support for the initial training and launch of the merlot.aero system, and it would further provide 10 days of training at Island Air. Thus, if the merlot.aero system was faulty or Merlot otherwise breached the Supply Agreement, Merlot would have to know that any injury suffered by Island Air would be felt in Hawaii.

As such, although the negotiations and execution of the Supply Agreement may have occurred in New Zealand on the part of Merlot, the actual performance of the Supply Agreement, the use of the merlot.aero product, the impact of the merlot.aero system, and any anticipated consequence undoubtedly occurred in Hawaii. In light of these facts, it cannot be said that Merlot's contact with the forum state was at all " random, " " fortuitous, " or " attenuated." Thus, the Court determines that Merlot's actions in reaching out to create continuing business relationships and obligations with Island Air in Hawaii subject it to personal jurisdiction in Hawaii.

Nor can Merlot argue that its lack of physical presence in Hawaii should deprive the Court of jurisdiction. As the United States Supreme Court has stated, " jurisdiction may not be avoided merely because the defendant did not physically enter the forum State. . . . [I]t is an inescapable fact of modern commercial life that a substantial amount of business is transacted solely by mail and wire communications across state lines, thus obviating the need for physical presence within a State in which business is conducted." Burger King Corp., 471 U.S. at 476. In other words, " [s]o long as a commercial actor's efforts are 'purposefully directed' toward residents of another ...


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