Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_11-cv-01281/USCOURTS-azd-2_11-cv-01281-1/pdf.json

Nature of Suit Code: 840
Nature of Suit: Trademark
Cause of Action: 15:1125 Trademark Infringement (Lanham Act)

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1

 The Kansas defendants ask us to strike multiple portions of plaintiff's response

pursuant to Rule 12(f), Fed. R. Civ. P. That rule permits us to strike scandalous, impertinent,

redundant, or immaterial material "from a pleading." A response to a motion is not a

pleading. Defendants' requests to strike are denied.

WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Best Western International Inc., 

Plaintiff, 

vs.

I-70 Hotel Corp.; MAS Hotel Group

Corp.; Shamir Bhakta; Kansas Hotel

Corp.; Naresh Bhakta; Mrudulaben

Bhakta, 

Defendants. 

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CV 11-1281-PHX-FJM

ORDER

The court has before it defendants Kansas Hotel Corporation ("KHC"), Naresh

Bhakta, and Mrudulaben Bhakta's ("the Kansas defendants") motion to dismiss for lack of

personal jurisdiction (doc. 88), plaintiff's response (doc. 96) and separate statement of facts

(doc. 97), and the Kansas defendants' reply (doc. 99) and response to statement of facts (doc.

100).1

I

This action centers around two hotels in Kansas and their allegedly unauthorized use

of Best Western symbols. Plaintiff is an Arizona corporation with its principal place of

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business in Arizona. Plaintiff authorizes its member hotels to use Best Western symbols.

A hotel must apply to become a Best Western member.

Naresh ("Nick") Bhakta created I-70 Hotel Corporation ("I-70") in January 2011. I-70

is owned in part by Nick and his wife, Mrudubalen ("Mary") Bhakta. That same month, I-70

purchased the Mid-America Inn. Plaintiff alleges that once the Mid-America Inn was

purchased, its Best Western membership automatically terminated. I-70 submitted a new

membership application to plaintiff in February 2011. The application was denied.

According to plaintiff, it notified I-70 that it must stop using Best Western symbols, but a

visit to the Mid-America Inn in June 2011 revealed that Best Western signs and items

displaying the Best Western logo remained on the property.

In June 2010, Nick incorporated MAS Hotel Group ("MAS"). Both Nick and Mary

were identified as shareholders. MAS purchased the Heart of America Inn in March 2011.

MAS did not submit a membership application to plaintiff. Plaintiff notified MAS in April

2011 that it was required to remove all Best Western symbols from the hotel. Plaintiff

alleges that in July 2011, MAS, through Mary and Nick, misrepresented in membership

applications to the Days Inn and the Knights Inn that the Heart of America Inn was affiliated

with Best Western.

Plaintiff filed this action on June 28, 2011 (doc. 1). The original complaint named I70, MAS, and Shamir Bhakta (Nick and Mary's son) as defendants. An amended complaint

was filed November 30, 2011 (doc. 39). On October 3, 2011, Nick formed KHC and was

appointed its registered agent. Mary is one of KHC's directors. Four days later, I-70 and

MAS conveyed the Mid-America Inn and the Heart of America Inn to KHC. Nick signed

the documents on behalf of I-70 and MAS, and Mary signed the documents on behalf of

KHC.

Magistrate Judge Anderson granted plaintiff's motions to amend the scheduling order

and file a second amended complaint ("SAC") on April 9, 2012 (doc. 72). Plaintiff filed the

SAC on April 10, 2012 (doc. 73). The action was then reassigned to this court. The SAC

alleges that new defendants KHC, Nick, and Mary violated the Uniform Fraudulent Transfer

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Act ("UFTA") by transferring both hotels to KHC with the intent to defraud plaintiff and

hinder enforcement of any judgment that it receives in this action. SAC ¶¶ 186-226. In

addition, the SAC alleges that Nick and Mary committed federal and state trademark

infringement by representing to the Days Inn and the Knights Inn that the Heart of America

Inn was a Best Western member. SAC ¶¶ 62, 125. The Kansas defendants move to dismiss

pursuant to Rule 12(b)(2), Fed. R. Civ. P. for lack of personal jurisdiction.

II

The plaintiff bears the burden of showing that personal jurisdiction is appropriate. 

Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800 (9th Cir. 2004). When a

motion to dismiss for lack of personal jurisdiction is decided without an evidentiary hearing,

the plaintiff must present a prima facie showing of personal jurisdiction. Id. A plaintiff

cannot rest on bare allegations in the complaint. However, we accept uncontroverted

allegations as true and resolve factual conflicts by accepting plaintiff's version of events. Id.

When no federal statute governs personal jurisdiction, we apply the law of the state

where this court sits. Id.; see also Fed. R. Civ. P. 4(k)(1)(A). In Arizona, personal

jurisdiction is permitted to the extent allowed by the United States Constitution. See Ariz.

R. Civ. P. 4.2(a). Plaintiff argues that we have specific jurisdiction over the Kansas

defendants. Accordingly, plaintiff must show that the Kansas defendants have minimum

contacts with Arizona such that exercising jurisdiction over them will not "offend traditional

notions of fair play and substantial justice." Schwarzenegger, 374 F.3d at 801 (quoting Int'l

Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S. Ct. 154, 158 (1945)). To do so, plaintiff

must show (1) that defendants "purposefully direct[ed] [] activities or consummate[d] some

transaction with the forum or resident thereof; or perform[ed] some act by which [t]he[y]

purposefully avail[ed] [themselves] of the privilege of conducting activities in the forum,

thereby invoking the benefits and protections of its laws;" and (2) that the claim arises from

or relates to the defendants' "forum-related activities." Id. at 802. If the plaintiff is

successful, then the burden shifts to the Kansas defendants, who must "present a compelling

case that the exercise of jurisdiction would not be reasonable." Id. (internal quotation marks

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and citation omitted).

We apply purposeful direction analysis to cases sounding in intentional tort, such as

trademark infringement. See Mavrix Photo, Inc. v. Brand Techs., Inc., 647 F.3d 1218, 1228

(9th Cir. 2011) (applying purposeful direction analysis to a copyright infringement claim, "a

tort-like cause of action"); Revolution Distrib. v. Evol Nutrition Assocs., Inc., CV-11-2120-

PHX-JAT, 2012 WL 2368634, at *4 (D.Ariz. June 21, 2012) (applying purposeful direction

analysis to a trademark infringement claim). It is not certain that the Ninth Circuit would

apply purposeful direction analysis to a fraudulent transfer claim. See Grassmueck v.

Bishop, CV-09-1257-HU, 2010 WL 1742091, at *4 (D.Or. Apr. 5, 2010) (citing United

States v. Neidorf, 522 F.2d 916, 918 (9th Cir. 1975) ("the liability of the transferee of a

fraudulent conveyance. . . [is] based not upon tort but upon quasi-contract.")) (discussing

difference between Fifth and Sixth Circuits as to whether the purposeful direction analysis

should be applied to a fraudulent transfer claim). Here, both parties have applied purposeful

direction analysis to the fraudulent transfer claim. This seems appropriate, as allegations of

fraudulent transfer are effectively allegations of an intentional tort. See Kremen v. Cohen,

5:11-cv-05411-LHK, 2012 WL 44999, at *7 (N.D.Cal Jan. 7, 2012) (characterizing UFTA

violation as intentional tort and applying purposeful direction analysis).

We analyze purposeful direction under a three-part test originating from Calder v.

Jones, 465 U.S. 783, 104 S. Ct. 1482 (1984). Under the Calder effects test, plaintiff must

allege that the Kansas defendants "(1) committed an intentional act, (2) expressly aimed at

the forum state, (3) causing harm that the defendant knows is likely to be suffered in the

forum state." Schwarzenegger, 374 F.3d at 803 (citing Dole Food Co., Inc. v. Watts, 303

F.3d 1104, 1111 (9th Cir. 2002)). An intentional act is one done with the "intent to perform

an actual, physical act in the real world." Id. at 806. Here, plaintiff alleges that Nick and

Mary Bhakta submitted applications with the Days Inn and the Knights Inn that referred to

the Heart of America Inn as a Best Western property. The submission of an application is

an intentional act. Plaintiff also alleges that Nick (signing on behalf of I-70) and Mary

(signing on behalf of KHC) fraudulently sold the Heart of America and Mid-America Inns

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2

 While Nick and Mary attempt to controvert these allegations by affidavit, we must

accept plaintiff's version of events as true. See Schwarzenegger, 374 F.3d at 800.

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to KHC. The alleged fraudulent transfer of the hotels is also an intentional act. See Amoco

Chem. Co. v. Tex Tin Corp., 925 F. Supp. 1192, 1200 (S.D.Tex. 1996) (alleged out-of-state

asset transfer to avoid company obligations was an intentional act under Calder).

Next, plaintiff must show that the Kansas defendants expressly aimed their conduct

at Arizona. This prong is satisfied when "the defendant is alleged to have engaged in

wrongful conduct targeted at a plaintiff whom the defendant knows to be a resident of the

forum state." Dole Food, 303 F.3d at 1111 (internal quotation marks and citation omitted).

Plaintiff has alleged sufficient facts to suggest that KHC, Nick, and Mary expressly aimed

their allegedly fraudulent transfer of the hotels at the plaintiff in Arizona. Specifically,

plaintiff alleges that the Kansas defendants transferred the hotels to KHC just four days after

its incorporation in order to prevent plaintiff from obtaining a meaningful judgment in the

action before this court.2

The same cannot be said about the allegations of trademark infringement against Nick

and Mary. Plaintiff alleges that Nick and Mary misrepresented in new membership

applications that the Heart of America Inn was affiliated with Best Western. Although

plaintiff alleges that Nick and Mary were aware that plaintiff was an Arizona resident, this

alone is insufficient. See Brayton Purcell LLP v. Recordon & Recordon, 606 F.3d 1124,

1129 (9th Cir 2010) (that harm from copyright infringement is foreseeable within the forum

is not enough; conduct must be "expressly aimed at the forum"). Plaintiff has not shown that

Nick or Mary individually targeted plaintiff in Arizona by submitting the applications. See

Bancroft & Masters, Inc. v. Augusta Nat'l Inc., 223 F.3d 1082, 1088 (9th Cir. 2000)

(discussing importance of "individualized targeting" in satisfying Calder effects test).

Plaintiff does not allege that any Arizonans saw the applications, or that plaintiff saw the

applications. Plaintiff does not allege that the Bhaktas' actions in using plaintiff's name on

the applications was an act of infringement that placed them "in direct competition" with

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plaintiff in Arizona. See Brayton Purcell, 606 F.3d at 1130-31 (copying California plaintiff

law firm's website placed defendant law firm in direct competition for California clients, and

constituted express aiming of copyright infringement at California). And plaintiff does not

allege that the other hotel chains were headquartered in Arizona. We conclude that the

plaintiff has not presented a prima facie showing that the Bhaktas' use of the Best Western

name on franchise applications was conduct expressly aimed at Arizona.

Under the final prong of the Calder effects test, plaintiff must show that the Kansas

defendants' actions caused harm that they knew was likely to be suffered in the forum state.

A corporation can suffer economic harm both where its principal place of business is located

and where the acts occurred. Mavrix Photo, 647 F.3d at 1231. Harm sufficient to establish

personal jurisdiction may be felt in multiple forums. Id. Contrary to the Kansas defendants'

argument, "the 'brunt' of the harm need not be suffered in the forum state." Yahoo! Inc. v.

La Ligue Contre Le Racisme Et L'Antisemitisme, 433 F.3d 1199, 1207 (9th Cir. 2006).

Here, plaintiff alleges that the harm from being unable to collect any judgment it might

receive as the result of the Kansas defendants' fraudulent transfer would be felt here in

Arizona, both the location of this action and plaintiff's principal place of business. We

conclude that plaintiff has shown sufficient jurisdictional harm in Arizona for the fraudulent

transfer claim.

Finally, we address whether plaintiff has shown that the fraudulent transfer claim

arises from the Kansas defendants' forum-related activities. See Schwarzenegger, 374 F.3d

at 802. Despite plaintiff's failure to expressly argue this point in their response, we conclude

that it has sufficiently alleged that the fraudulent transfer claim arises from the Kansas

defendants' allegedly fraudulent transfer of the hotels to KHC. Indeed, the fraudulent

transfer claim would not exist "but for" the sale of the hotels, which as discussed above was

expressly aimed at Arizona.

III

Alternatively, plaintiff argues that personal jurisdiction can be obtained over Nick and

Mary Bhakta because I-70 and MAS are their alter egos. An officer, director, or shareholder

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of a corporation may be liable for the corporation's torts if plaintiff shows that (1) the

individual participated in or authorized the actions or (2) the corporation is the alter ego of

the individual. Maloof v. Raper Sales, Inc., 113 Ariz. 485, 488, 557 P.2d 522, 525 (1976).

If I-70 and MAS are mere alter egos, plaintiff argues we can impute both corporations'

conduct (and thus, our personal jurisdiction over these defendants) to Nick and Mary Bhakta.

To disregard the separateness of the corporate form and find that I-70 and MAS are alter

egos, plaintiff must show "(1) unity of control and (2) that observance of the corporate form

would sanction a fraud or promote injustice." Gatecliff v. Great Republic Life Ins. Co., 170

Ariz. 34, 37, 821 P.2d 725, 728 (1991).

Plaintiff argues that it has established unity of control because it alleged in its

complaint that I-70 and MAS are alter egos, because Nick is the registered agent for MAS

and I-70, and because both Nick and Mary have an ownership interest in MAS and I-70.

Stating a corporation is an alter ego, however, is a legal conclusion rather than a factual

allegation. The fact that both Nick and Mary were a part of I-70 and MAS is not dispositive.

See United States v. Bestfoods, 524 U.S. 51, 61-62, 118 S. Ct. 1876, 1884 (1998)

(duplication of corporate officers does not necessarily mean that the corporate veil between

a parent and its subsidiary will be pierced). Plaintiff has not presented any additional

evidence to support its allegations of unity of control. For example, plaintiff has not shown

that either Nick or Mary commingled personal and corporate funds or diverted company

property for personal use. See Activator Methods Int'l, Ltd. v. Future Health, Inc., CV-11-

1379-PHX-GMS, 2012 WL 715629, at *3 (D.Ariz. Mar. 6, 2012) (collecting cases stating

that corporation was not an alter ego of an owner absent evidence of commingling of funds

or abuse of corporate structure for improper purposes). Moreover, failing to recognize I-70

and MAS as alter egos of Nick and Mary would not accomplish fraud or promote injustice.

Plaintiff has asserted trademark infringement claims against I-70 and MAS, and both have

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3

 This includes an allegation that MAS used the Best Western name on the

applications submitted to the Days Inn and the Knights Inn. SAC ¶ 62.

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already appeared as defendants in this action.3

This does not necessarily mean, however, that we cannot exercise personal jurisdiction

over Nick and Mary Bhakta on the trademark infringement claims. Although personal

jurisdiction must be present for "each claim asserted against a defendant," the Ninth Circuit

has explicitly adopted the doctrine of pendent personal jurisdiction. Action Embroidery

Corp. v. Atl. Embroidery, Inc., 368 F.3d 1174, 1180-81 (9th Cir. 2004). The doctrine permits

a court to "assert pendent personal jurisdiction over a defendant with respect to a claim. . .

so long as it arises out of a common nucleus of operative facts with a claim in the same suit

over which the court does have personal jurisdiction." Id. at 1180. The facts "need not

exactly track the facts underlying the claims for which there is personal jurisdiction, so long

as the core facts are the same." Fiore v. Walden, 657 F.3d 838, 858 (9th Cir. 2011). Here,

the core facts underlying plaintiff's fraudulent transfer claim (the transfer of the hotels to

KHC in October 2011) differ from the core facts underlying Nick and Mary's alleged

trademark infringement (submission of franchise applications using Best Western’s name in

July 2011). As a result, pendent personal jurisdiction is not available for the trademark

infringement claims.

IV

Because plaintiff has presented a prima facie case for personal jurisdiction over the

Kansas defendants on the fraudulent transfer claim, the burden shifts to the Kansas

defendants to show that exercise of jurisdiction would be unreasonable. Schwarzenegger,

374 F.3d at 802. We consider seven factors in assessing reasonableness:

(1) the extent of the defendants' purposeful injection into the forum state's

affairs; (2) the burden on the defendant of defending in the forum; (3) the

extent of the conflict with the sovereignty of the defendant's state; (4) the

forum state's interest in adjudicating the dispute; (5) the most efficient judicial

resolution of the controversy; (6) the importance of the forum to the plaintiff's

interest in convenient and effective relief; and (7) the existence of an

alternative forum.

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CollegeSource, Inc. v. AcademyOne, Inc., 653 F.3d 1066, 1079 (9th Cir. 2011) (quoting

Dole Food, 303 F.3d at 1114)).

First, as discussed above, the Kansas defendants purposefully directed their actions

in allegedly fraudulently transferring the hotels to plaintiff, which would cause harm in

Arizona. This constitutes purposeful injection. Id. at 1080. Acts allegedly designed to

thwart plaintiff's successful recovery in this action are a substantial injection into the judicial

affairs of this forum. Next, we consider the burden on the Kansas defendants of litigating

in Arizona. Given advances in communication and travel, the burden of out-of-state

litigation "is substantially less than in days past." Id. (citation omitted). Indeed, the Kansas

defendants have retained the same lawyers as the original defendants, including Arizona

counsel. Accordingly, this factor does not tip heavily in the Kansas defendants' favor. The

conflict with the sovereignty of Kansas is at most minimal. Both states have enacted the

UFTA, which forms the basis of plaintiff's fraudulent transfer claim. See A.R.S. § 44-1001;

Kan. Stat. Ann. § 33-201. By contrast, this court has an interest in litigating this claim,

which alleges that assets were transferred precisely to avoid any judgment entered for

plaintiff in this court. Similarly, this action has been pending in this district for a year.

Permitting the fraudulent transfer claim to proceed here will promote efficiency by obviating

the need for a new court action in another state, which is in the interest of the plaintiff in

obtaining convenient relief. Finally, whether an alternative forum exists only becomes

relevant if litigation in the forum state is unreasonable. CollegeSource, 653 F.3d at 1080.

Because we conclude that defendants have not shown that litigation in Arizona would be

unreasonable, we do not address this final factor.

V

In conclusion, plaintiff has met its burden of showing a prima facie case for personal

jurisdiction over the Kansas defendants on the fraudulent transfer claim. Plaintiff has not,

however, met its burden of showing that personal jurisdiction over Nick and Mary Bhakta

on the trademark infringement claims is appropriate, and pendent personal jurisdiction is

unavailable.

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Plaintiff asks for jurisdictional discovery to depose the Bhaktas to "determine the full

extent of trademark infringement that occurred as a result of their conduct." Response at 16.

Courts should deny requests for jurisdictional discovery when a party fails to show that

additional discovery would uncover necessary facts to prove that a court has personal

jurisdiction. MMI, Inc. v. Baja, Inc., 743 F. Supp. 2d 1101, 1113 (D.Ariz. 2010) (citing

Autogenomics, Inc. v. Oxford Gene Tech., Ltd., 566 F.3d 1012, 1023 (Fed. Cir. 2009)).

Here, plaintiff has not made any showing how learning more about "the full extent" of

infringement resulting from Nick and Mary's submission of the franchise applications will

prove that these acts were expressly aimed at Arizona. And plaintiff's discovery of who is

currently employed at the hotels and the "true nature" of the asset transfers to KHC will not

uncover necessary facts to find that I-70 and MAS are alter egos of Nick and Mary.

Accordingly, we deny plaintiff's request for jurisdictional discovery.

IT IS ORDERED GRANTING IN PART Kansas Hotel Corporation, Naresh

Bhakta, and Mrudulaben Bhakta's motion to dismiss for lack of personal jurisdiction (doc.

88). The fraudulent transfer claim against Naresh Bhakta, Mrudulaben Bhakta, and Kansas

Hotel Corporation remains. The trademark infringement claims against Naresh Bhakta and

Mrudulaben Bhakta are DISMISSED without prejudice for lack of personal jurisdiction. 

DATED this 19th day of July, 2012.

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