Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_10-cv-01800/USCOURTS-azd-2_10-cv-01800-1/pdf.json

Nature of Suit Code: 710
Nature of Suit: Fair Labor Standards Act
Cause of Action: 29:201 Denial of Overtime Compensation

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1

 This motion followed two previously filed motions for leave to amend (docs. 20 &

26), defendants’ first response (doc. 29), and plaintiff’s reply (doc. 40). These motions are

now moot. We consider them only to the extent that they are incorporated by subsequent

filings. 

WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Laura Perryman, 

Plaintiff, 

vs.

William Dorman, et al.,

Defendants. 

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No. CV-10-1800-PHX-FJM

ORDER

The court has four motions before it. First, we have plaintiff’s third corrected motion

for leave to file an amended complaint (doc. 39), defendants’ response (doc. 46), and

plaintiff’s reply (docs. 50).1

 Second, we have plaintiff’s motion to dismiss defendant’s

counterclaims (doc. 30), defendant’s response (doc. 42), and plaintiff’s reply (doc. 45).

Third, we have defendant Drake International’s motion to dismiss for lack of personal

jurisdiction and improper service (doc. 36), plaintiff’s response (doc. 44), and defendant’s

reply (doc. 51). Fourth, we have defendants’ motion to quash plaintiff’s subpoenas duces

tecum and for a protective order (doc. 38), plaintiff’s response (doc. 41), and defendants’

reply (doc. 43). 

This dispute arises from plaintiff’s employment with defendant Kryterion Services,

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Inc. from January, 2009 until July, 2010. We previously granted in part and denied in part

defendants’ motion to dismiss, dismissing several claims and allowing plaintiff’s claims for

violations of the Fair Labor Standards Act (“FLSA”) and the Arizona Wage Act to proceed

(doc. 15). 

I

We first consider plaintiff’s motion for leave to amend her complaint (doc. 39).

Plaintiff seeks to add new claims for: (1) breach of contract; (2) unjust enrichment; (3) fraud;

(4) libel and slander; (5) declaratory invention ownership; and (6) inequitable conduct.

Defendants contend these claims are futile and/or insufficient. 

A

In her claim for breach of contract, plaintiff alleges that she and defendant William

Dorman entered into an oral agreement through which plaintiff would be compensated for

overtime work in future quarters, because at the time defendant Kryterion had financial

problems. Plaintiff claims that defendants have failed to pay her in accordance with that

agreement for overtime hours worked from January 19, 2009 through May 31, 2010.

Defendants argue that plaintiff has failed to plead her claim with sufficient specificity, and

that her claim is barred by the Statute of Frauds and/or the applicable statute of limitations.

To state a claim for breach of contract, plaintiff must allege: (1) the existence of the

contract; (2) its breach; and (3) resulting damages. Graham v. Asbury, 112 Ariz. 184, 185,

540 P.2d 656, 657 (1975). While plaintiff’s complaint lacks details about the specific terms

of the contract, we conclude that she sufficiently states a claim for breach. Plaintiff alleges

the existence of an oral contract for deferred overtime compensation. Third Amended

Complaint, ¶ 22. Plaintiff further alleges that she performed her responsibilities, and

defendant breached by not compensating her for the work. Id., ¶¶ 23–25. She also alleges

damages, in the form of withheld compensation and benefits. Id., ¶¶ 28–29.

The Arizona Statute of Frauds prevents plaintiff from bringing an action arising out

of an oral agreement which is not to be performed within one year of its making. A.R.S. §

44-101(5). Plaintiff has not alleged the exact date that the parties entered into the oral

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contract, or the date by which defendants were supposed to pay her. While the statute could

present a problem if the parties agreed not to pay plaintiff for more than one year after they

entered into the contract, without more information we cannot tell if that was the case. We

therefore cannot yet determine that adding a breach of contract claim would be futile due to

the Statute of Frauds. The same is true of any statute of limitations problems. See A.R.S.

§ 12-541(3) (one year statute of limitations for actions for breach of oral or written

employment contract). Because we do not know when the parties entered into the agreement,

or when it was allegedly breached, we cannot conclude that the claim is barred as untimely.

We therefore grant plaintiff leave to amend to add a claim for breach of contract.

B

Plaintiff asserts a new claim for unjust enrichment. Plaintiff claims she is the rightful

owner of any work she produced during the hours for which she was not compensated,

including intellectual property that she allegedly developed. She alleges that defendants are

profiting from using that intellectual property, and thereby have been unjustly enriched. “To

recover on a claim for unjust enrichment, a claimant must show (1) an enrichment, (2) an

impoverishment, (3) a connection between the two, (4) the absence of justification for the

enrichment and impoverishment and (5) the absence of any remedy at law.” Loiselle v.

Cosas Management Group, LLC, 224 Ariz. 207, 210, 228 P.3d 943, 946 (Ct.App. 2010).

Where there is “a specific contract which governs the relationship of the parties, the doctrine

of unjust enrichment has no application.” Brooks v. Valley Nat. Bank, 113 Ariz. 169, 174,

548 P.2d 1166, 1171 (1976).

Plaintiff alleges that two contracts governed her relationship with defendants; a

written Professional Services Agreement (“PSA”), which she attached to her Second

Amended Complaint, and an alleged oral contract. See Second Motion for Leave to Amend,

ex. D (doc. 26); Third Amended Complaint at 8 (doc. 39). Therefore, the remedy for any

wrongful enrichment that defendants’ allegedly received as a result of plaintiff’s employment

must arise out of a breach of contract claim, as the doctrine of unjust enrichment does not

apply. Accordingly, plaintiff’s proposed amendment is futile, and we deny leave to amend

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to add a claim for unjust enrichment. 

C

Plaintiff next seeks to add a claim for fraud. Plaintiff must show that “the tortfeasor

made a false and material representation, with knowledge of its falsity or ignorance of its

truth, with intent that the hearer would act upon the representation in a reasonably

contemplated manner, and that the hearer, ignorant of the falsity of the representation,

rightfully relied upon the representation and was thereby damaged.” Dawson v.

Withycombe, 216 Ariz. 84, 96, 163 P.3d 1034, 1046 (Ct.App. 2007). Plaintiff “must state

with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). 

Plaintiff alleges that defendants made false representations to the United States Patent

and Trademark Office (“USPTO”), and manipulated the value of the company by naming

plaintiff as an inventor. Plaintiff also alleges that defendants have filed for a patent for

technology that she invented without crediting her. Plaintiff claims defendants also

committed fraud before the USPTO by separately representing that plaintiff was the inventor

of concepts that she had not in fact invented. 

Plaintiff’s proposed claim for fraud is futile. First, plaintiff apparently claims that

defendants fraudulently deceived the USPTO. Assuming plaintiff’s allegations are true, she

is not the aggrieved the party; the USPTO is. Second, even if somehow plaintiff was the

proper plaintiff, she has not alleged that she rightfully relied on any falsity, nor that she was

damaged. Therefore, she has not adequately plead a claim for fraud, and we deny leave to

amend to include a fraud claim. 

Additionally, plaintiff requests that four patent applications be suspended, and that her

name be removed from the filings. However, we do not have jurisdiction over claims

stemming from patent applications, as they do not present a justiciable case or controversy

under Article III of the United States Constitution. See GAF Building Materials Corp. v. Elk

Corp. of Dallas, 90 F.3d 479, 482 (Fed. Cir. 1996) (no case or controversy in “dispute over

the validity and infringement of a possible future patent not then in existence.”). A

declaratory judgment of “invalidity” with respect to a “pending patent application would

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have had no legal meaning or effect.” Id. Plaintiff should assert any challenges to the

validity of a patent application in accordance with the agency’s procedures. See 35 U.S.C.

§ 302 (“Any person at any time may file a request for reexamination by the Office of any

claim of a patent on the basis of any prior art cited under the provisions of section 301 of this

title.”); 37 C.F.R. § 1.291 (a) (describing procedure for public protests against pending patent

applications). In fact, plaintiff suggests she is working with the USPTO to file her

allegations. See Third Amended Complaint, ¶ 16. We therefore deny plaintiff leave to

amend her complaint to request that any patent application be suspended, or her name

removed from any application. 

D

Next, plaintiff asserts claims for libel and slander. Plaintiff alleges that Eric Walton,

a manager at defendant Kryterion, attacked plaintiff by making false and disparaging

statements about her to vendors, consultants and employees. Plaintiff further alleges that

defendant William Dorman, CEO of Kryterion, was aware of Mr. Walton’s actions, and did

nothing to stop them. Plaintiff claims that the libel and slander were part of a scheme of

defendant Dorman’s to mitigate the impact of plaintiff’s findings about security problems at

defendants’ business, and that the attack on plaintiff was an attempt to cover up defendants’

own deficiencies.

To state a claim for defamation, plaintiff must allege: (a) a false and defamatory

statement concerning another; (b) an unprivileged publication to a third party; (c) fault

amounting at least to negligence on the part of the publisher; and (d) either presumed or

actual special harm caused by the publication. See Restatement (Second) of Torts § 558

(1977); Boswell v. Phoenix Newspapers, Inc., 152 Ariz. 1, 3, 730 P.2d 178, 180 n.1 (Ct.App.

1985) (citing Restatement (Second) of Torts § 558). A publication which impeaches the

honesty, integrity, or reputation of a person is libelous per se, and plaintiff need not plead

special damages. Peagler v. Phoenix Newspapers, Inc., 114 Ariz. 309, 316, 560 P.2d 1216,

1223 (1977).

Plaintiff’s generalized accusations about a “personal attack” and “false disparaging

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2

 Although plaintiff does not mention the Declaratory Judgment Act, it is possible that

plaintiff seeks a declaration of ownership of the disputed IP, just as defendants do. See

Counterclaims at 13 (doc. 28). If this were the case, we would deny leave to amend to add

this claim for the same reasons we dismiss defendants’ Declaratory Judgment counterclaim.

See Section II, D, infra. 

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statements” are insufficient to state a claim for defamation. Plaintiff does not a cite a single

specific defamatory statement, nor a particular instance of publication. Plaintiff’s proposed

claim for libel and slander does not contain “well-pleaded factual allegations,” which

“plausibly give rise to an entitlement to relief.” Ashcroft v. Iqbal, __ U.S. __, __, 129 S.Ct.

1937, 1950 (2009). Plaintiff has not stated a claim for libel or slander, and so we deny leave

to amend to include it. 

E

Plaintiff next seeks to add a claim for “declaratory invention ownership.” Plaintiff

alleges that defendants directed plaintiff develop intellectual property during uncompensated

hours from January to May, 2010, and planned to not compensate her for the developments.

She further alleges that during this period she was under no contractual obligation to assign

the intellectual property to defendant. Plaintiff claims that she developed a “scalable and

innovative approach to online proctoring (known as ‘OLP’),” and that defendants schemed

to deny her compensation for the assignment of rights to that development. Third Amended

Complaint, ¶ 51. She further alleges that defendants knowingly and willfully failed to name

her as the rightful inventor, and their deceptive practices were in violation of 35 U.S.C. §

261. Plaintiff alleges that she has since filed a provisional patent, and that defendant’s filing

with the USPTO violates 35 U.S.C. 102(f). Plaintiff seeks damages stemming from

defendants’ failure to state the rightful inventor, and a grant of declaratory ownership. 

Because we cannot discern the basis of plaintiff’s proposed claim for declaratory

invention ownership, we deny leave to amend to include it.2

 The first statutory provision that

plaintiff cites, 35 U.S.C. § 261, governs the assignment of patent and patent applications.

However, plaintiff does not allege that any assignment has occurred, so it is unclear how

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defendants could have violated the statute. Second, plaintiff alleges defendants violated 35

U.S.C. § 102(f), which prevents a person who did not invent the subject matter sought to be

patented from receiving a patent. Again, if plaintiff believes defendants’ patent application

contains false information, plaintiff should notify the USPTO, in accordance with the

agency’s policies and procedures. We do not have jurisdiction to intervene in the patent

application process. 

F

Next, plaintiff seeks to add a claim for inequitable conduct. Plaintiff alleges that

defendants omitted plaintiff, the true inventor, from the patent applications, “in a pattern of

false statements and misrepresentations as to inventorship.” Third Amended Complaint, ¶

56. Plaintiff claims that defendants’ affirmative misrepresentation, failure to disclose

material information, and submission of false information, with an intent to deceive,

constitute inequitable conduct. 

We do not know of a cause of action for “inequitable conduct.” Inequitable conduct

is normally a defense to a claim of patent infringement, not a claim upon which relief can be

granted. See Lazare Kaplan Int’l, Inc. v. Photoscribe Technologies, Inc., __ F.3d ___, ___,

2010 WL 5176746, *15 (Fed. Cir. 2010). We therefore deny plaintiff leave to amend to add

this claim. 

G

Finally, defendants contend that in her Third Amended Complaint, plaintiff does not

include her claims for Denial of Overtime Wages and Unpaid Wages, and that those claims

should be dismissed. Response at 7 (doc. 46). Defendants are correct that the proposed

amended complaint as it appeared on the court’s CMECF system omitted pages 13 and 14,

although the copy that plaintiff lodged with the court contains those two pages. That error

has been corrected. See Motion to Amend (doc. 39). We note that the copy plaintiff

included with her reply for her Motion to Amend does contain all pages (doc. 50).

Accordingly, plaintiff has not abandoned her claims for violations of the Arizona Wage Act

and the FLSA, and we do not dismiss them. 

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3

 We note that counter-defendant Gary Perryman did not sign plaintiff Laura

Perryman’s motion to dismiss Gary Perryman. See Motion to Dismiss Counterclaims at 15.

Laura Perryman is not a lawyer, and therefore cannot represent her husband. Accordingly,

Gary Perryman should have signed the motion to dismiss him. See Fed. R. Civ. P. 11(a)

(“Every pleading, written motion, and other paper must be signed by at least one attorney of

record in the attorney's name--or by a party personally if the party is unrepresented.”).

However, because we deny the motion, it is not necessary to remedy the procedural defect.

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In sum, we grant plaintiff leave to amend to add a claim for breach of contract. Due

to futility, we deny plaintiff leave to amend to include claims for unjust enrichment, fraud,

libel and slander, declaratory invention ownership, and inequitable conduct. 

II

Plaintiff moves to dismiss defendants’ counterclaims (doc. 30). She seeks to dismiss:

(1) her husband Gary Perryman as a counter-defendant; (2) defendants’ breach of contract

claim; (3) defendants’ misappropriation of trade secrets claim; and (4) defendants’

declaratory judgment claim. 

A

Defendants allege that Gary Perryman is plaintiff Laura Perryman’s husband, and that

plaintiff Perryman’s actions were done for and on behalf of the marital community.

Counterclaims, ¶ 2 (doc. 28). Plaintiff claims Gary Perryman should be dismissed because

defendants have failed to state a claim against him, as he was not employed by defendants

or party to any contract with them. Motion to Dismiss Counterclaims at 6. Defendants claim

that Gary Perryman is a proper party, pursuant to A.R.S. § 25-215(D), which requires that

for actions on debts or obligations contracted for the benefit of the community, both spouses

shall be jointly sued. 

We deny plaintiff’s motion to dismiss Gary Perryman.3

 Plaintiff’s husband is a proper

party to this action because if plaintiff is found liable for any of defendants’ counterclaims,

the community may be obligated to satisfy the resulting judgment. Community property may

be liable for an intentional tort committed by one spouse for the benefit of the community,

“where the intent and purpose of the activity leading to the commission of the tort was to

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benefit the community interests.” Garrett v. Shannon, 13 Ariz.App. 332, 333, 476 P.2d 538,

539 (Ct.App. 1970) (citing Rodgers v. Bryan, 82 Ariz. 143, 309 P.2d 773 (1957)). “Benefit

to the community need not be the primary object or intention. All that is required is that

some benefit was intended for the community.” Cadwell v. Cadwell, 126 Ariz. 460, 463, 616

P.2d 920, 923 (Ct.App. 1980). However, in order for defendants to obtain judgment from

the community, the spouses must be sued jointly. A.R.S. § 25-215(D). Therefore,

defendants must join Gary Perryman in order to hold the community liable, in case plaintiff

is found to have incurred obligations for the benefit of the community. 

B

Plaintiff next moves to dismiss defendants’ counterclaim for breach of contract.

Defendants maintain that plaintiff violated the PSA by: (1) attaching to her Response to

Defendants’ Motion to Dismiss a PowerPoint describing Kryterion’s Online Proctoring

Service platform, the Concept Document, and a draft of the patent application corresponding

to the Inventive Concept and the Concept Document; (2) taking defendant Kryterion’s

confidential and proprietary information after terminating her work with defendant, and using

the information to compete with Kryterion; and (3) using the information for her own benefit.

See Counterclaims, ¶¶ 24–25; Response to Motion to Dismiss, ex. A (doc. 9) (sealed).

Defendants allege that as a result of plaintiff’s breach of the PSA, Kryterion “has sustained

and will continue to sustain damages in an amount to be proven at the time of trial.”

Counterclaims, ¶ 33. As explained above, to state a claim for breach of contract, defendants

must allege: (1) the existence of the contract; (2) its breach; and (3) resulting damages.

Graham, 112 Ariz. at 185, 540 P.2d at 657. 

The PSA prohibits plaintiff’s disclosure of defendant Kryterion’s proprietary and

confidential information to any person not employed by Kryterion, requires plaintiff to return

or destroy such information within thirty days of the termination of the PSA, and requires

plaintiff to maintain the confidentiality of such information. Second Motion for Leave to

Amend, ex. D at 20 (doc. 26). The term of the PSA is June 1, 2010 through September 30,

2010, but the agreement states that plaintiff is bound by its confidentiality provisions after

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4

 Plaintiff also argues we should dismiss defendants’ breach of contract claim because

defendants have not shown a likelihood of success on the merits. Motion to Dismiss

Counterclaims at 9 (doc. 30). However, defendants are not required to make such a showing

to survive a motion to dismiss. 

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its termination. Id. at 19, 21.

Defendants have sufficiently alleged breach of contract. First, defendants have clearly

alleged the existence of a contract. Plaintiff and defendant Kryterion were both party to the

PSA, which plaintiff attached to her complaint. Plaintiff argues that no contract existed prior

to the execution of the PSA, but the conduct that defendants allege was in breach of the PSA

occurred after the parties had entered the agreement. Second, defendants have sufficiently

alleged that plaintiff breached the PSA. As of October 5, 2010 (the date plaintiff filed her

Response to Defendants’ Motion to Dismiss), plaintiff possessed copies of a PowerPoint

about the online proctoring system, the “concept document,” and a draft of the patent

application. This alone makes it plausible that she breached the confidentiality provisions

of the PSA. Additionally, our grant of defendants’ motion to seal the documents is not

relevant to the propriety of plaintiff’s possession of them, nor does it foreclose the possibility

that she otherwise shared confidential information. Third, defendants have sufficiently

alleged possible damages by claiming that the confidential information has independent

economic value because it not generally known nor readily ascertainable by proper means

by those who can obtain value from its use. Counterclaims, ¶ 37. 

Defendants have stated a counterclaim for breach of contract. We therefore deny

plaintiff’s motion to dismiss the claim.4

 

C

Plaintiff also moves to dismiss defendants’ counterclaim for misappropriation of

confidential and proprietary information. A claim for misappropriation of trade secrets

involves: (1) acquisition; (2) of a trade secret of another; (3) by a person who knows or has

reason to know that the trade secret was acquired by improper means. A.R.S. § 44-401(2).

A secret is “a formula, pattern, compilation, program, device, method, technique or process”

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5

 Because we grant plaintiff’s motion, we need not address her arguments that

defendants have not suffered irreparable harm or have an inadequate remedy at law. See

Motion to Dismiss Counterclaims at 8. We also do not address her argument that defendants’

claim for unfair competition should be dismissed, as defendants have not asserted such a

claim. 

6

 Plaintiff does not separately move to dismiss the declaratory judgment counterclaim,

although she does seek to dismiss all of defendants’ counterclaims. See Motion to Dismiss

Counterclaims at 12. Nonetheless, we have an independent obligation to determine that

parties have standing to bring their claims before proceeding to the merits. See Ex parte

McCardle, 7 Wall. 506, 514, 19 L.Ed. 264 (1868).

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that both (a) derives independent economic value from not being generally known or readily

ascertainable by proper means by persons who can obtain economic value from its disclosure

or use, and (b) is the subject of reasonable efforts to maintain its secrecy. A.R.S. § 44-401(4).

Defendants have not stated a claim for misappropriation because they have not

sufficiently alleged the existence of a trade secret. While defendants do allege that the

attached PowerPoint about the Online Proctoring Service platform, the Concept Document,

and the draft of the patent application all contain confidential and proprietary information,

they do not explain the nature of the trade secrets they allegedly contain. See Counterclaims,

¶ 36. It is not enough to point to documents marked as confidential, and allege that the

information they contain “has independent economic value because it is not generally known

to, and not readily ascertainable by proper means, by other persons who can obtain economic

value from their use. Kryterion has made, and continues to make, reasonable efforts to

maintain the secrecy of these items.” Counterclaims, ¶ 37. Defendants fail to specify what

information is not generally known to the public, or to state the kinds of efforts they made

to protect the secrecy of the information they contain. A pleading that offers “a formulaic

recitation of the elements of a cause of action will not do.” Iqbal, __ U.S. at __, 129 S.Ct.

at 1949. We therefore grant plaintiff’s motion to dismiss defendants’ counterclaim for

misappropriation.5

D

Finally, we consider defendants’ declaratory judgment claim.6

 Defendants seek a

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declaration that Kryterion is the true and rightful owner of legal title to the “disputed IP,” as

well as documents or patents or patent applications based on or derived from any of the IP,

including the Concept Document. Counterclaims, ¶ 50. Under the Declaratory Judgment

Act, 28 U.S.C. § 2201, we only consider a claim if “the facts alleged, under all the

circumstances, show that there is a substantial controversy, between parties having adverse

legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory

judgment.” MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127, 127 S.Ct. 764, 771

(2007). See also Scott v. Pasadena Unified School Dist., 306 F.3d 646, 658 (9th Cir. 2002).

“Where a dispute hangs on future contingencies that may or may not occur, it may be too

impermissibly speculative to present a justiciable controversy.” In re Coleman, 560 F.3d

1000, 1005 (9th Cir. 2009) (internal citations omitted). 

We dismiss defendants’ declaratory judgment claim because defendants have not

shown the requisite reality and immediacy. Defendants have sufficiently alleged facts to

support its claim that plaintiff assigned her rights to the IP through either the assignment

clause of the PSA or an implied in fact contract. Counterclaims, ¶ 51–52. However,

defendants have not alleged how the disagreement about the ownership of the IP presents an

immediate and real case and controversy. Patent applications are currently pending before

the USPTO, and the agency will eventually make determinations about the ownership of the

underlying IP. In the meantime, defendants make no allegations as to how plaintiff might

be jeopardizing that process, or otherwise interfering with their use of the IP. In the absence

of a threat of any real and immediate harm to defendants, there is no reason for us to rule on

the ownership of the IP, an issue currently before the USPTO. Because defendants have not

met their burden of presenting an actual case or controversy, we dismiss their counterclaim

brought under the Declaratory Judgment Act. 

We grant plaintiff’s motion to dismiss defendants’ counterclaims for misappropriation

and their claim under the Declaratory Judgment Act, and deny her motion as to counterdefendant Gary Perryman and defendants’ counterclaim for breach of contract (doc. 30).

 

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III

Third, defendant Drake International, Inc. moves to be dismissed for lack of personal

jurisdiction (doc. 36). Drake International claims we lack jurisdiction because the company

does not have sufficient contacts with Arizona, and that plaintiff’s Second Amended

Complaint was not properly served on defendant. See Fed. R. Civ. P. 12(b)(2) & (3).

Defendant alleges that as a Canadian corporation that does business in Canada, it has not

established minimum contacts in Arizona. To withstand a motion to dismiss, plaintiff must

make a prima facie showing of jurisdictional facts, and we resolve all disputed facts in

plaintiff’s favor. Brayton Purcell, LLP v. Recordon & Recordon, 606 F.3d 1124, 1127 (9th

Cir. 2010). To satisfy due process, a nonresident defendant must have at least minimum

contacts with the forum state such that the exercise of personal jurisdiction does not offend

traditional notions of fair play and substantial justice. Boschetto v. Hansing, 539 F.3d 1011,

1015–16 (9th Cir. 2008) (citing International Shoe Co. v. Washington, 326 U.S. 310, 316,

66 S.Ct. 154, 158 (1945)). 

In her complaint, plaintiff alleges that “defendants” operate in Maricopa County,

Arizona. Third Amended Complaint, ¶ 1. However, she does not explain if Drake

International operates in Arizona, or if only Drake Kryterion, Inc. does (which defendants

agree is subject to jurisdiction here). Plaintiff alleges that Drake International is a Delaware

corporation, with its principal place of business in California. See Second Amended

Complaint, ex. A (doc. 26). She also alleges that Drake International is the parent company

of defendant Kryterion, Inc., that it funds Kryterion by transferring funds to the company

weekly, that Kryterion is a shell firm with no assets, and that “Drake and Kryterion are in fact

for the purposes of this case - the same entity.” Third Amended Complaint, ¶ 7. In her

response to defendant’s motion to dismiss, plaintiff does not address defendant’s jurisdiction

claim. See Response to Motion to Dismiss (doc. 44).

Defendants concede that Kryterion is subject to jurisdiction in Arizona, and plaintiff

makes no allegations about Drake International’s contacts here beyond its role as the parent

company of Kryterion. Therefore, the issue is whether Drake International is amenable to

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jurisdiction here solely as a result of its relationship with its subsidiary, i.e., should we

disregard the corporate form and impute Kryterion’s jurisdictional contacts onto Drake

International? 

We disregard the corporate form only if the subsidiary is the parent’s alter ego or the

parent’s agent. Harris Rutsky & Co. Ins. Servs., Inc. v. Bell & Clements Ltd., 328 F.3d

1122, 1134 (9th Cir. 2003). To show that Kryterion is the alter ego of Drake International,

plaintiff must make a prima facie case, “(1) that there is such unity of interest and ownership

that the separate personalities of the two entities no longer exist and (2) that failure to

disregard their separate identities would result in fraud or injustice.” Id. “To satisfy the

agency test, plaintiff must make a prima facie showing that the subsidiary represents the

parent corporation by performing services sufficiently important to the parent corporation

that if it did not have a representative to perform them, the parent would undertake to

perform substantially similar services.” Id. at 1135. The parent’s ownership of the stock of

the subsidiary does not, without more, convert the subsidiary into a general agent for the

parent for jurisdictional purposes. Doe v. Unocal Corp, 248 F.3d 915, 930 (9th Cir. 2001).

Plaintiff has not made a prima facie showing that Kryterion is either the alter ego or

agent of Drake International. Plaintiff’s conclusory allegations that Drake International

funds Kryterion and that they are the same entity are not sufficient. Plaintiff does not specify

how the interests of the companies are unified, or why fraud or injustice would result from

respecting their separate entity status. She also does not allege that Kryterion performed any

services for Drake International, making it Drake’s agent. Because plaintiff has not shown

that Kryterion is either the alter ego or agent of Drake International, she has not met her

burden of establishing that the exercise of jurisdiction over Drake International is consistent

with due process. We grant defendant’s motion to dismiss party Drake International, Inc.

(doc. 36).7

 

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IV

Defendants move to quash two subpoenas duces tecum that plaintiff served on two

customers of defendants (doc. 38). Defendants also move for a protective order requiring

plaintiff to “comply with all procedural requirements applicable to the service of subpoenas

upon third parties,” and “to limit her discovery to seek only that information or documents

relevant to claims allowed by the Court to proceed . . . and to exclude any and all requests

for confidential and proprietary information or documents of Defendants.” Proposed Order

at 1 (doc. 38-2). Plaintiff has since withdrawn the subpoenas. Response at 1 (doc. 41).

Therefore, the motion is moot as to these subpoenas. We also deny defendants’ request to

quash any “other identical subpoenas duces tecum, of which Defendants are not aware.”

Motion to Quash and for Protective Order at 1 n.1 (doc. 38). We will not issue an order

regarding subpoenas that may or may not exist. Moreover, we expect that the parties will

attempt to resolve any future discovery difficulties themselves. See Rule 16 Order at 3 (doc.

3). 

We also deny the motion for a protective order as defendants have not shown that

there is good cause to issue an order “to protect a party or person from annoyance,

embarrassment, oppression, or undue burden or expense.” Fed. R. Civ. P. 26(c)(1). The

burden is on defendants to show good cause “by demonstrating harm or prejudice that will

result from the discovery.” Rivera v. NIBCO, Inc., 364 F.3d 1057, 1063 (9th Cir. 2004). 

Defendants explain that such an order is necessary to: (1) prevent plaintiff from

interfering with defendants’ customer relationships; (2) restrict plaintiff from conducting

irrelevant and overly broad discovery; and (3) prevent the disclosure of defendants’

confidential and proprietary information. Motion to Quash and for Protective Order at 3.

Plaintiff has stated her willingness to comply with discovery rules, and to keep all discovery

confidential. Response at 2 (doc. 41). Defendants have not explained why such an

agreement is insufficient. They also do not explain the specific prejudice or harm that would

result from the disclosure of specific documents they wish to protect. See Foltz v. State Farm

Mut. Auto. Ins. Co., 331 F.3d 1122, 1130 (9th Cir. 2003). Therefore, defendants have not

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shown good cause for their proposed protective order.

We deny defendants’ motion to quash and for a protective order (doc. 38).

V

IT IS ORDERED GRANTING IN PART AND DENYING IN PART plaintiff’s

motion for leave to amend (doc. 39). IT IS ORDERED GRANTING plaintiff leave to

amend to add a claim for breach of contract. IT IS ORDERED DENYING plaintiff leave

to amend to add claims for unjust enrichment, fraud, libel and slander, declaratory invention

ownership, and inequitable conduct. In accordance with LRCiv 15.1, plaintiff shall file and

serve an amended complaint that contains only the claims we have allowed to proceed. 

IT IS FURTHER ORDERED GRANTING IN PART AND DENYING IN PART

plaintiff’s motion to dismiss defendants’ counterclaims (doc. 30). IT IS ORDERED

GRANTING plaintiff’s motion to dismiss defendants’ counterclaims for misappropriation

and their claim under the Declaratory Judgment Act. IT IS ORDERED DENYING

plaintiff’s motion as to counter-defendant Gary Perryman and defendants’ counterclaim for

breach of contract. 

IT IS FURTHER ORDERED GRANTING defendants’ motion to dismiss

defendant Drake International (doc. 36).

IT IS FURTHER ORDERED DENYING defendants’ motion to quash and for a

protective order (doc. 38).

We again urge plaintiff to seek the advice of a lawyer. Her lack of legal knowledge

has made this case far more complex than it need be. 

DATED this 2nd day of February, 2011.

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