Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_08-cv-02062/USCOURTS-casd-3_08-cv-02062-0/pdf.json

Nature of Suit Code: 830
Nature of Suit: Patent
Cause of Action: 35:271 Patent Infringement

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FILED"OO --

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF OREGON

MTEC, LLC, a Nevada limited liability

company,

Plaintiff,

v.

WILLIAM NASH, individually and d/b/a

SUPER SOUNDPROOFING COMPANY

Defendants.

ACOSTA, Magistrate Judge:

Findings and Recommendation

CY.08-563-AC

FINDINGS AND

RECOMMENDATION

PlaintiffMTEC, LLC ("MTEC") bringssuitin federal court against defendant WilliamNash

("Nash") alleging patent infringement, trademark infringement, and unfair competition. This court

has subject matter jurisdiction over the case pursuant to 28 U.S.C. § 1338(a).

Presently before the court are the motions filed by Nash to transfer venue to the Southern

District ofCalifornia, quash and strike summons, and for sanctions. Forthe reasons set forth below,

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Nash's motion to transfer venue should be granted, while Nash's motions to quash and strike

summons and for sanctions should be denied.

Background

Viewed in the lightmost favorable to the plaintiff, the facts are as follows. PlaintiffMTEC,

a Nevada corporation, is the owner of patent and trademark rights in the United States covering

sound isolation devices ("covered products"). P.A.C. International, Inc. ("PAC"), a separate

company, was the predecessor in interest to these patent and trademark rights. PAC was an Oregon

corporation, but is now dissolved. The covered products were manufactured for PAC in Australia

by Sound Isolation Systems Proprietary Limited.

FromAugust 1,2001 to December 18,2003, defendant Nash had a distributorship agreement

with PAC to distribute the covered products in the United States. Nash distributed the covered

products under the name Super Soundproofing Company. Nash is a resident ofVista, California,

and he maintains an office in San Marcos, California. Under the distribution agreement, Nash

purchased the covered products "F.O.B. Oregon," signifying that the transfer ofsale occurred in

Oregon, and Nash was responsible for shipping the products to California.

In late 2006, Elzo Gernhart ("Gernhart"), then working for PAC, became aware that Nash

was importing the covered products through another distributor in Australia, allegedly in violation

ofPAC's intellectual property rights. Gernhart contacted Nash to resolve the matter. In response,

Nash sent a letter on December 19, 2006, agreeing to stop using the marks and covered products.

In July 2007, MTEC became the successor in interest to PAC in the patents and trademarks at issue

IOn a motion for improper venue under Rule 12(b)(3), the court must draw all reasonable

inferences in favor ofthe non-moving party, and resolve all factual conflicts in favor ofthe nonmoving party. Murphy v. Schneider National, Inc., 363 F.3d 1133, 1139 (9th Cir. 2004).

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in this suit, and Gernhart became a managing member ofMTEC. In December 2007, Gernhart

became aware that Nash was again engaging in activity that allegedly violated MTEC's intellectual

property rights. MTEC and Nash attempted to resolve the matter, but the talks were unsuccessful.

On May 8,2008, MTEC filed a complaint against William Nash, individually and doing

business as Super Soundproofmg Company, in the United States District Court for the District of

Oregon. The complaint alleged patent infringement, trademark infringement, and unfair

competition.

On May 9,2008, MTEC sent a copy ofthe summons and complaint and a waiver ofservice

to Nash. In response, Nash sent a letter to MTEC's attorney on June 11,2008, refusing to waive

servIce. Consequently, MTEC hired a professional process server to serve the summons and

complaint on Nash. On three separate days, a process server attempted to serve Nash at his business

address in San Marcos, California, but was unsuccessful. On the third day, June 17, 2008, the

process server left a copy of the summons and complaint with a woman in Nash's office. The

following day, the process server mailed a copy ofthe summons and complaint by first class mail

with postage prepaid to Nash's business address.

Consequently, Nash filed a motion to transfer venue to the Southern District ofCalifornia,

a motion to quash and strike summons, and a motion for sanctions. Nash mailed a copy ofthe

motions to MTEC's attorneys on July 16,2008, and filed the motions with the court on July 22,

2008.

Discussion

1. Personal Jurisdiction

This court has personaljurisdictionoverNash, becauseNash failed to properlyraise the issue

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in his motion to transfer venue. The defense oflack of personal jurisdiction must be affirmatively

raised under Federal Rule ofCivil Procedure ("Rule") 12(b)(2). FED. R. CN. PRO. 12(b)(2). Rule

12(h)(1) further provides: "A party waives any defense listed in Rule 12(b)(2)-(5) by: (A) omitting

it from a motion in the circumstances described in Rule 12(g)(2)." FED. R. Cry. P. 12(h)(1). Rule

12(g)(2) provides "a party that makes a motion under this rule must not make another motion under

this rule raising a defense or objection that was available to the party but omitted from its earlier

motion." FED. R. CIY. P. 12(g)(2). Thus, underRule 12, ifa party does not raise the defense oflack

ofpersonal jurisdiction in its first response before the court, the party loses its chance to raise the

defense later. See American Ass'n ofNaturopathic Physicians v. Hayhurst, 227 F.3d 1104, 1106

(9th Cir. 2000) (holding that defendantwho previously filed amotion for improperservice ofprocess

waived the right to contest personal jurisdiction in a subsequent filing). Additionally, a motion for

improper service ofprocess under Rule 12(b)(5) is a separate and distinct issue from a motion fot

lack ofpersonal jurisdiction, which is raised under Rule 12(b)(2). ld. at 1107.

In American Ass'n, defendant Hayhurst, acting pro se, filed a motion to dismiss and asserted

the defense ofimproper service under Rule I2(b)(5). ld. After that motion was denied, Hayhurst

appealed and alleged that the district court did not have personaljurisdiction over him. ld. at 1106.

The Ninth Circuit held thatHayhurst had waived the defense oflack ofpersonaljurisdiction, because

he did not raise it at the time he made a motion for improper service. ld. at 1108. The court also

held that Hayhurst did notmaintain the personaljurisdiction defense byvirtue ofbeingpro se,stating

"a pro se litigant is not excused from knowing the most basic pleading requirements." ld. at 1107-

08. Similarly, Nash's motion to transfer venue and claim ofinsufficient service of process raise

separate and distinct issues underRule 12 and do not serve to raise the issue ofpersonaljurisdiction.

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Also, Nash is not excused from the requirements ofRule 12 by virtue ofbeing a pro se defendant;

indeed a review ofNash's pleadingsin this case shows that he possesses a knowledge ofthe law and

ofstructuring legal arguments such as to approximate the competency ofthe average practitioner.

In sum, Nash has waived his right to dispute personal jurisdiction by not properly raising the issue

in his first motion before the court. Therefore, this court has personal jurisdiction over Nash.

II. Service of Process

Service ofprocess upon Nash was proper. Federal Rule ofCivil Procedure 4(e)(1) provides

that an individual defendant may be served by "following state law for serving a summons in an

action brought in courts ofgeneraljurisdiction in the statewhere the district court is located or where

service is made." FED. R. ClV. P. 4(e)(1). In this case, the case was filed in Oregon, and service was

attempted in California. Thus, service is proper ifit conformed with the state rules ofeither Oregon

or California. The burden is on the plaintiffto demonstrate that proper service was performed. u.s.

v. Ziegler Bolt and Parts Co., 111 F.3d 878, 880 (Fed. Cir. 1997). Because the motion is being

decided without an evidentiary hearing, the plaintiff need only make a prima facie showing that

service was proper. Id. A signed return of service is considered prima facie evidence of valid

service, which can onlybe overcome bystrong and convincing evidence. S.E. C. v. Internet Solutions

for Business Inc., 509 F.3d 1161, 1163 (9th Cir. 2007).

In this case, service was proper under Oregon rules. Oregon Rule of Civil Procedure

("ORCP") 7D(2)(c) allows for office service. OR. R. ClV. P. 7D(2)(c). It states, in relevant part:

Ifthe person to be served maintains an office for the conduct of business, office

service may be made by leaving true copies ofthe summons and the complaint at

such office during normal working hours with the person who is apparentlyin charge.

Where office service is used, the plaintiff, as soon as reasonablypossible, shall cause

to be mailed, by first class mail, true copies ofthe summons and the complaint to the

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defendant at defendant's dwelling house or usual place ofabode or defendant's place

ofbusiness ....

OR. R. CIY. P. 7D(2)(c).

Here, MTEC submitted an affidavit ofservice, signed by the process server, indicating that

on June 17, 2008, the process server left copies2 ofthe summons and complaint with a woman in

Nash's office who was apparently in charge. MTEC also submitted a signed affidavit ofservice by

mail, indicating that the process server mailed copies of the summons and complaint to Nash's

business address on June 18, 2008.

Nash admits that MTEC did leave copies ofthe summons and the complaint at Nash's place

ofbusiness, but he contends that he never received copies ofthe summons and complaint by mail.

However, a strict reading ofthe rule shows that while a mailing is required, actual receipt ofthe

mailing is not. See McDonald v. Mabee, 243 U.S. 90,92 (1917) (stating that ifa proper method of

service is followed, due process is satisfied even ifthe defendant does not receive actual notice).

MTEC's signed affidavits ofservice are enough to establish a prima facie case of proper service.

Nash has not presented clear and convincing evidence that proper service was not performed.

Therefore, service was proper under Oregon rules.

Similarly, service was proper under California rules. Office service in California is

authorized by California Code of Civil Procedure ("CCCP'') § 415.20(a). CAL. CODE CIY. P. §

415.20(a). It states, in relevant part:

2Nash argues that he received the original summons rather than a "true copy" as the rule

specifies. The requirement that a true copy be served is to ensure that the served party receives

the level ofnotice that the original summons would provide. By receiving the original summons

rather than a true copy ofit, Nash received the level ofnotice the rule contemplates.

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[A] summons may be served by leaving a copy ofthe summons and complaint during

usual office hours in his or her office ... with the person who is apparently in charge

thereof, and by thereaftermailing a copy ofthe summons and complaint by first-class

mail, postage prepaid to the person to be served at the place where a copy of the

summons and complaint were left.

CAL. CODE ClY. P. § 415.20(a). The requirements of office service under CCCP § 415.20(a) are

essentially the same as under ORCP 7D(2)(c). CCCP § 415.20(a) requires that the plaintiffleave

a copy ofthe summons and complaint at the defendant's office with a person who is apparently in

charge, and thereafter mail a copy ofthe summons and complaint to the office address. CAL. CODE

CIY. P. § 415.20(a). In this case, MTEC left a copy ofthe summons and complaint with a woman

in Nash's office who was apparently in charge, and thereafter mailed a copy ofthe documents to

Nash's office address. Therefore, service was proper under California rules.

Furthermore, even ifthere were a defect in service ofprocess, the service would still be valid

under Oregon rules because Nash had actual notice ofthe suit. Under ORCP 7G, any defect in

service does not affect the validity ofservice "ifthe court determines that the defendant received

actual notice ofthe substance and pendency ofthe action." OR. R. CIY. P. 7G. In this case, Nash

referenced the complaint and clearly was aware ofthe pendency ofthe suit against him. See (Def. 's

Motion 2:19-20) (stating "Plaintiff has attempted to plead venue in Oregon, alleging that, 'the

Defendant has conducted numerous business transactions in the State ofOregon'). Therefore, Nash

had actual notice ofthe suit.

In conclusion, service ofprocess on Nash was proper on three separate grounds: it complied

with both Oregon and Californiarules, and Nash had actual notice ofthe suit. Consequently, Nash's

motion to quash and strike summons and proofofservice should be denied.

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m. Venue

Nash argues that venue should be transferred from the District of Oregon to the Southern

District of California. Although Nash seeks to invoke 28 U.S.c. § 1404(a) to transfer venue, §

1404(a) is reserved for situations inwhich the transferring court is a proper venue, and venue should

be transferred "[f]or the convenience of parties and witnesses." 28 U.S.C. § 1404(a) (2008).

However, the thrust ofNash's argument is that the District of Oregon is an improper venue and

therefore the case should be transferred to a proper venue. This situation is governed by § 1406(a),

which provides: "The district court of a district in which is filed a case laying venue in the wrong

division or district shall dismiss, or ifit be in the interest ofjustice, transfer such case to any district

or division in which it could have been brought." § 1406(a). Thus, the court will first determine

whether the District of Oregon is a proper venue, before considering whether Nash's motion to

transfer should be granted "in the interest ofjustice." In this case, the District of Oregon is not a

proper venue, and the interest ofjustice weighs in favor of transfer to the Southern District of

California.

A. The District of Oregon is not a proper venue.

Venue for patent infringement cases is governed by 28 U.S.C. § 1400(b). 28 U.S.C. §

1400(b) (2008). Section 1400(b) states: "Any civil action for patent infringement may be brought

in the judicial district where the defendant resides, or where the defendant has committed acts of

infringement and has a regular and established place ofbusiness." 28 U.S.c. § 1400(b). Section

1400(b) is the sole and exclusive venue provision for patent infringement cases, and parties are not

permitted to circumvent the statute by establishing venue under the general venue statute in 28

U.S.C. § 1391. Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222, 229 (1957).

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Similarly, the inclusion of additional causes of action does not establish venue under § 1391. See

Hoffacker v. Bike House, 540 F.Supp. 148, 149 (C.D. CaL 1981). Once venue is challenged as

improper, the plaintiffbears the burden ofshowing that venue is proper. See Piedmont Label Co.

v. Sun Garden Packing Co., 598 F.2d 491, 496 (9th Cir. 1979). Consequently, venue will be proper

in the District ofOregon ifMTEC has shown that either: (1) Nash resides in Oregon, or (2) Nash

committed acts of infringement in Oregon and has a regular and established place of business in

Oregon. 28 U.S.C. § 1400(b).

1:. Nash does not reside in Oregon.

Nash does not reside in Oregon. The first prong of § 1400(b) states that venue is proper

where "the defendant resides." 28 U.S.C. § 1400(b). It is undisputed that Nash resides in the

Southern District of California. Furthermore, Nash's business and home mailing addresses are

located in the Southern District ofCalifornia. Therefore, Nash is a resident ofthe Southetn District

ofCalifornia for venue purposes. Consequently, the first prong of § 1400(b) is not satisfied.

MTEC correctly points out that § 1400(b) incorporates the provision of § 1391(c) for

determining the residence of corporate defendants. VE Holding Corp. v. Johnson Gas Appliance

Co., 917 F.2d 1574, 1580 (Fed. Cir. 1990). Section 1391(c) provides: "Forpurposes ofvenue under

this chapter, a defendant that is a corporation shall be deemed to reside in any judicial district in

which it is subject to personal jurisdiction at the time the action is commenced." 28 U.S.C. §

1391(c). Courts have expanded the definition of corporate defendant in § 1391(c) to include

unincorporated associations. Denver and Rio Grande Western Railroad Co. v. Brotherhood of

Railroad Trainmen, 387 U.S. 556, 559-60 (1967). In Denver, the Supreme Court held that a labor

union could be considered a corporation for purposes ofestablishing venue. fd. Similarly, the Ninth

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Circuit held that an unincorporated partnership between two corporations could be considered a

corporation for purposes ofvenue. Decker Coal Co. v. Commonwealth Edison Co., 805 F.2d 834,

841-42 (9th Cir. 1986). Decker Coal Company was a joint venture between Wytana, Inc., a

Delaware corporation, and Western Minerals, Inc., an Oregon corporation. [d. at 837. Decker had

many employees, coal properties, mining equipment and supplies at its mine in Montana. [d. at 842.

The court concluded that for purposes ofvenue, Decker was properly considered a corporationwith

principal place ofbusiness in Montana. [d.

In this case, Nash is an individual and not a corporation, partnership, or unincorporated

association. Nash's company is not incorporated or organized as a partnership or other entity. It

appearsto be nothing more than a sole proprietorship. Super Soundproofing is simply the name that

Nash uses when conducting his sole proprietorship. Although the Ninth Circuit is silent on the

matter, at least one court has held that a sole proprietorship is not a "corporation" for purposes of

§ 1391(c). Blue Compass Corp. v. Polish Masters ofAmerica, 777 F.Supp. 4, 5 (D. Vt. 1991).

Therefore, Nash's residency cannot be established under the provision for corporations found in §

1391(c). Because Nash is a resident ofthe Southern District ofCalifornia, venue is not proper in

Oregon based on the first prong of § 1400(b).

2. Nash does not have a regular and established place ofbusiness in Oregon.

Venue is not proper under the second prong of § 1400(b), because Nash does not have a

regular and established place ofbusiness in Oregon. In order to establish venue under the second

prong of § 1400(b), the district must be one where: (a) the defendant has committed acts of

infringement, and (b) the defendant has a regular and established place ofbusiness. Both ofthese

requirements must be met in order to establish venue. 28 U.S.C. § 1400(b).·

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Although lacking specificity, MTEC's complaint does allege that Nash is "doing business

and committing acts ofpatent infringement in the United States, including Oregon." (Complaint'

7). Acts ofpatent infringement include making, using, or selling the allegedly infringing product.

35 U.S.C. § 271. The Ninth Circuit has held that for a sale to constitute an act ofinfringement in

a given district, the sale must have been consummated in that district. Selfv. Fisher Controls Co.,

566 F.2d 62, 64 (9th Cir. 1977). In Self, the court found that venue was not established where orders

for the allegedly infringing devices were solicited in the district, because the orders Were approved

and consummated outside the district. ld. Butsee Union Asbestos &Rubber Co. v. Evans Products

Co., 328, F.2d 949,952 (7thCir. 1964) (finding that a "completed sale" is not necessary to establish

venue and holding that "two demonstrations of the accused device, added to the systematic and

continuous solicitation of orders within the district, constitute, for venue purposes, a sufficient

degree ofselling to amount to 'infringing sales. "'). MTEC does not allege with any specificity that

Nash consummated any sales ofthe allegedly infringing device in Oregon.

Even assuming that MTEC has established, for venue purposes, that Nash committed acts

of infringement in Oregon, there is no indication that Nash has a regular and established place of

business in Oregon. In assessing whether a defendant has a regular and established place ofbusiness

in a district, the court determines whether the defendant does business in that district through a

permanent and continuous presence there. In re Cordis Corp., 769 F.2d 733, 737 (Fed. Cir. 1985).

Mere solicitation of orders in a district is not sufficient by itselfto establish that a defendant had a

regular and established place of business in the district for purposes of establishing venue. See

Schoofs v. Union Carbide Corp., 633 F.Supp. 4, 6 (E.D. Cal. 1985). It appears from the record that

all ofNash's business operations occurred in the Southern District ofCalifomia. Therefore, Nash

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does not have a regular and established place of business in Oregon. Consequently, venue is not

proper for Nash under the second prong of § 1400(b).

Venue is not proper in the District ofOregon, because MTEChas notsufficiently established

venue under either prong of § 1400(b).

B. Transfer ofVenue

Because venue is improperin the District ofOregon, the court must either dismiss the action

or transfer it to a proper district, pursuant to 28 U.S.C. § 1406(a). For the reasons stated below, the

court should transfer this case to the Southern DistrictofCalifornia. Section 1406(a) provides that

"[t]he district court ofa districtin which is filed a case laying venue in the wrong division or district

shall dismiss, or ifit be in the interest ofjustice, transfer such case to any district or division in

which it could have been brought." 28 U.S.C. § 1406(a).

In order for transfer to be proper, the transferee court must be a proper venue where the case

"could have been brought." 28 U.S.C. § 1406(a). In this case, Nash seeks a transfer to the Southern

District ofCalifornia. That district is a proper venue under the first prong of § 1400(b), because

Nash is a resident there.

To determine whether transfer is "in the interest ofjustice," courts will generally consider

judicial economy, the relative injustice imposed on plaintiff and defendant, whether the statute of

limitations has expired, and whether the action would be re-filed ifthe case were dismissed. Grain

Millers, Inc. v. Pacific Flexpac, Co., 2008 WL 550124, at *2 (D. Or. Feb. 26, 2008). See als.o

William W. Schwarzer et aI., Rutter Group Practice Guide: Fed. Civ. Pro. Before Trial" 4:578.

Transfer is generally preferred over dismissal. Schwarzer et al. at 4:577. However, dismissal is

appropriate when the case was obviously or deliberately filed in the wrong court. Wood v. Santa

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Barbara Chamber ofCommerce, Inc., 705 F.2d 1515, 1523 (9th Cir. 1983).

In this case, Nash seeks a transfer, not dismissaL Although the statute oflimitations has not

run and MTEC would be free to re-file in a proper venue, it will better serve judicial economy if

MTEC is not forced to re-file the case. Furthermore, there is no indication that MTEC filed suit in

Oregon in bad faith. Therefore, this case should be transferred to the Southern District ofCalifornia,

pursuant to § 1406(a).

IV. Sanctions

Nash has made a motion for sanctions under Rule 11. Nash alleges that MTEC deliberately

filed in an improper venue and filed a faulty proofofservice. Nash claims that these pleadings were

presented in bad faith and were not warranted by existing law, thus violating subsections (1) and (2)

ofRule 11 (b). However, in this case, the court should not to use its discretion to impose sanctions,

because Nash's motion for sanctions was presented improperly andMTEC filed its pleadingsin good

faith.

Sanctions are governed byRule 11. Rule 11(b) states, in relevant part, that when presenting

a paper to the court:

an attorney or unrepresented party certifies that to the best ofthe person's knowledge,

information, and belief, formed after an inquiry reasonable under the circumstances:

(1) it is not being presented for any improper purpose, such as to harass,

cause unnecessary delay, or needlessly increase the cost oflitigation;

(2) the claims, defenses, and otherlegal contentions are warranted byexisting

law or by a nonfrivolous argument for extending, modifying, or reversing

existing law or for establishing new law ....

FED. R. CIv. P. II(b). Rule 11(c)(2) states that "[a] motion for sanctions must be made separately

from any othermotion." Fed. R. Civ. P. 11(c)(2). Nash clearly did not complywith this requirement

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ofRule 11, because he included a motion to transfer venue and quash service of process with his

motion for sanctions. Therefore, Nash's motion for sanctions is invalid.

Nash also did not complywithRule 11 's safe harbor provision. Rule II(c)(2) also states that

a motion for sanctions "must be served under Rule 5, but it must not be filed or be presented to the

court ifthe challenged paper, claim, defense, contention, or denial is withdrawn or appropriately

corrected within 21 days afterservice orwithin anothertime the court sets." Fed. R. Civ. P. 11(c)(2).

This court has not set a different time for correction or withdrawal ofthe complaint Nash served

MTEC with a copy ofthe motion on July 16, 2008, but filed the motion with the court on July 22,

2008, only six days after service. Therefore, Nash did not comply with the safe harbor provision of

Rule 11 because he failed to waittwenty-one days afterserving MTEC with the motion forsanctions

before filing the motion with the court.

However, even ifNash had complied with the requirements for filing a motion for sanctions

underRule 11, the Courtshould still not impose sanctions, becauseMTEC's complaint and affidavit

ofservice were filed in good faith. Contrary to Nash's assertion, it is left to the court's discretion

to decide whether to impose sanctions or not. Fed. R. Civ. P. 11(c)(I). A court may impose

sanctions on a party who signs and :files a paper with the court when the paper is "frivolous."

Townsendv. Holman Consulting Corp., 929F.2d 1358,1362 (9thCir. 1991) (en bane). A paper is

"frivolous" if it is "both baseless and made without a reasonable and competent inquiry." Id.

However, an argument does not need to be correct to be considered made in good faith. Matter of

Yagman, 796 F.2d 1165, 1187 (9th Cir. 1986).

In this case, although the court did not end up agreeing with MTEC's choice ofvenue, there

is nothing to suggest that MTEC filed the case in Oregon inbad faith. Similarly, there is no evidence

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that the affidavits ofservice that MTEC submitted were presented in bad faith. Therefore, the court

should not impose sanctions on MTEC's attorneys.

Conclusion

Defendant's motion to quash and motion to strike summons should be DENIED.

Defendant's motion to transfer venue to the Southern District ofCalifomia should be GRANTED.

Defendant's motion for sanctions should be DENIED.

Scheduling Order

The above Findings and Recommendation will be referred to a United States District Judge

for review. Objections, if any, are due no later than October 7, 2008. If no objections are filed,

review ofthe Findings and Recommendation will go under advisement on that date.

Ifobjections are filed, any party may file a response within fourteen days after the date the

objections are filed. Review ofthe Findings and Recommendation will go under advisement when

the response is due or filed, whichever date is earlier.

DATED this 23rd day of September, 2008.

~HNV. ACOSTA

Uti~y:d States Magistrate Judge

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