Court: District Court, D. Delaware; July 13, 2017; Federal District Court
Nespresso USA filed a complaint for declaratory judgment regarding non-infringement of ECC’s U.S. Patent No. 9,113,746 on December 21, 2015. ECC responded with a counterclaim alleging patent infringement, Sherman Act violations, unfair competition, and unjust enrichment against Nespresso USA, Nestlé Nespresso SA, Nestlé SA, and Nestec SA. Nestlé and Nestec moved to dismiss the case based on lack of personal jurisdiction.
Nestlé and Nestec, both Swiss corporations, are part of a corporate hierarchy that includes Nespresso USA as a subsidiary. ECC claims that Nestlé and Nestec are involved in the U.S. marketing and sales of Nespresso machines. It cites Jean-Paul Gaillard's declaration, asserting that Nestlé SA is responsible for key decision-making regarding Nespresso products and that Nestec acts primarily as a service entity. In contrast, Nestlé and Nestec deny these allegations and provide declarations indicating they lack substantial contacts with the U.S., including the absence of business registration, property, and operational presence in the country. Their representatives assert that Nestec operates independently with its own board, and neither corporation was involved in the design or manufacture of Nespresso's Original Line machines. The court will grant the motion to dismiss based on these findings.
A case must be dismissed for lack of personal jurisdiction over the defendant as per Fed. R. Civ. P. 12(b)(2). The plaintiff is responsible for proving that the defendants are subject to the court's jurisdiction, typically by alleging sufficient facts to establish a prima facie case of personal jurisdiction due to the absence of an evidentiary hearing. Personal jurisdiction is based on state statutory law and U.S. constitutional due process, with the Delaware long-arm statute interpreted broadly to maximize jurisdiction consistent with due process. Due process requires that a defendant have minimum contacts with the forum state to avoid offending traditional notions of fair play and substantial justice. Jurisdiction is categorized into specific and general types: specific jurisdiction applies when a defendant purposefully directs activities at forum residents, leading to litigation arising from those activities. In contrast, general jurisdiction does not depend on the cause of action's relation to the forum; it exists when a defendant's contacts are so substantial that they are considered "at home" in the forum state. Recent Supreme Court rulings suggest that specific jurisdiction is central to modern jurisdictional theory, while general jurisdiction has diminished in significance.
General jurisdiction is assessed by determining if Nestlé or Nestec are "at home" in Delaware, as established in Daimler AG v. Bauman. Both companies, organized in Switzerland with their principal places of business there, lack ties to Delaware that would make them subject to general jurisdiction. The principal place of business, defined as the "nerve center," is identified as Switzerland for both entities, thus precluding general jurisdiction in Delaware.
For specific jurisdiction, ECC argues that Nestlé and Nestec fall under the stream of commerce theory, claiming these companies purposefully availed themselves of conducting activities in the U.S. market, particularly through the development and sale of Nespresso products. However, the court finds this argument unconvincing, noting that Nestlé did not introduce Nespresso machines into the U.S. market and had no involvement in their design, manufacture, distribution, or sale. Additionally, Nestlé does not influence decisions made by Nestec or Nespresso USA. Consequently, ECC fails to establish that either company placed the Nespresso machines into the U.S. or Delaware markets, which is necessary for a finding of specific jurisdiction.
ECC asserts that Nestlé and Nestec can be held liable for Nespresso USA's actions as their parent companies. However, Third Circuit precedent establishes that mere ownership of a subsidiary does not suffice for imposing liability on the parent. ECC must prove that Nestlé and Nestec were involved in introducing Nespresso machines into the U.S. market, which it has not demonstrated, thus weakening its argument. Additionally, ECC claims Nestec's ownership of patents for Nespresso machines subjects it to personal jurisdiction, but case law indicates that patent ownership alone does not establish jurisdiction over a foreign company in the U.S. Without further evidence, particularly given the dismissal of related patent claims, ECC fails to show a prima facie case for personal jurisdiction based on the stream of commerce theory.
Regarding agency theory, ECC argues that Nestlé and Nestec control Nespresso USA, citing shared corporate officers and branding practices. However, the evidence presented does not meet ECC's burden of proof. The court considers the overlap of officers and directors, financing methods, and management responsibilities, finding the connections insufficient to establish an agency relationship as they represent only a minor overlap, which is not determinative for liability. Thus, the court concludes that the evidence does not support personal jurisdiction over Nestlé or Nestec.
The argument positing that Nestlé's annual review, which attributes financial successes to Nespresso USA, demonstrates agency over Nespresso USA in matters of patent infringement or antitrust is insufficient. It neglects to address whether such corporate practices are standard for large corporations with subsidiaries. Additionally, the presentation of subsidiaries' financials as a whole does not support the claim of agency. The mere establishment of corporate policies by Nestlé for its subsidiaries does not constitute evidence of agency. Nestec's ownership of U.S. patents also fails to establish the necessary contacts for personal jurisdiction, leading to the conclusion that ECC has not presented a prima facie case for agency theory or personal jurisdiction over Nestlé and Nestec in Delaware.
Regarding personal jurisdiction under Federal Rule of Civil Procedure 4(k)(2), ECC has not shown that such jurisdiction aligns with constitutional standards, particularly the Due Process Clause as established by the minimum-contacts standard in International Shoe. Since minimum contacts have not been demonstrated through agency or commerce, jurisdiction under Rule 4(k)(2) is not valid.
ECC also requests jurisdictional discovery, which is typically granted when factual allegations suggest possible contacts with the forum state. However, ECC fails to meet this burden, as its claims are contradicted by declarations from Nestlé and Nestec executives, who assert no involvement in the design or manufacture of Nespresso Original Line machines. Furthermore, ECC's reliance on inadmissible evidence does not suffice for establishing personal jurisdiction, which requires factual evidence beyond mere allegations or unsupported affidavits.
A plaintiff can establish jurisdictional facts through an affidavit, provided it is based on the affiant's personal knowledge or is otherwise admissible. In this case, Gaillard’s declaration lacks the necessary factual evidence to counter a 12(b)(2) motion because statements regarding interactions with Nestlé executives are considered inadmissible hearsay. Similar to the precedent set in *Green Keepers v. Softspikes, Inc.*, where affidavits based on hearsay from unidentified sources were deemed inadmissible, Gaillard's statements do not meet personal knowledge criteria. Additionally, Gaillard's historical experience with Nestlé from 1988 to 1997 cannot be used to infer actions relevant to events occurring from 2009 onward, as such statements would be speculative and lack proper support. The court emphasizes that for a witness to testify, sufficient evidence must establish their personal knowledge. Even if Gaillard's statements were admissible, they would fail to establish a prima facie case, which requires factual allegations that raise issues above mere speculation, as articulated in *Bell Atlantic Corp. v. Twombly* and further clarified in *Ashcroft v. Iqbal*. Thus, the court finds Gaillard’s declaration insufficient to support ECC’s burden of proof.
Standards for reviewing motions under Rule 12(b)(2) differ from those under Rule 12(b)(6), although they are interconnected. Emphasis on plausibility sets a clear standard consistent with Circuit Court precedents. Jurisdictional discovery may be denied if requests are based solely on vague allegations or speculation, as established in cases like Autogenomics, Boschetto, and Carefirst. The Supreme Court's decision in Iqbal defines a claim's facial plausibility as requiring factual content that permits a reasonable inference of the defendant's liability. The evidence presented by ECC lacks this plausibility; for instance, claims that the Nestlé Group operates as an integrated entity or that Nestlé Nespresso SA's CEO interacts with Nestec SA do not substantiate unusual corporate structures or support agency theories without further factual context. Assertions about corporate reporting structures and decision-making responsibilities do not adequately demonstrate jurisdictional grounds, emphasizing that mere assertions are insufficient for jurisdictional discovery.
Granting jurisdictional discovery based on ECC's pleadings would set a precedent allowing any foreign company with a U.S. subsidiary to be subjected to discovery whenever their subsidiary is sued, undermining the principles of the stream of commerce, agency, and minimum contacts test, which require a relationship between the defendant, the forum, and the litigation. Courts have established agency and alter-ego theories for cases where a parent company excessively controls its subsidiary, effectively negating the subsidiary's separate existence. However, the threshold for disregarding corporate separateness is high and should only be met under exceptional circumstances, which ECC has not demonstrated. Even accepting Gaillard's assertions as true, they lack sufficient grounding to justify jurisdictional discovery. The court is also mindful of the high financial burden associated with discovery, particularly in antitrust litigation, where costs can be disproportionately severe. The Supreme Court has cautioned against allowing discovery when there is no reasonable likelihood of forming a viable claim from the complaint. Consequently, ECC has not established a prima facie case for personal jurisdiction, nor does the evidence suggest that jurisdictional discovery would likely reveal personal jurisdiction over Nestlé and Nestec. The court retains the authority to demand specificity in pleadings before allowing extensive factual disputes to proceed.
Nestlé S.A. and Nestec S.A.’s motion to dismiss for lack of personal jurisdiction has been granted. The court’s order confirms this decision, referencing the dismissal of unfair competition and unjust enrichment claims on September 7, 2016, and the dismissal of all claims related to the infringement of the '746 Patent on February 2, 2017. Two motions to amend the answer and counterclaims are currently pending. The court notes ambiguity in Delaware law regarding the relationship between the long-arm statute and the due process clause, as the Delaware Supreme Court has not merged these analyses, although the parties did not contest jurisdiction under the long-arm statute, leading the court to focus solely on constitutional analysis.
