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DSMC, Inc. v. Convera Corp.

August 29, 2002

DSMC, INC., PLAINTIFF,
v.
CONVERA CORP., DEFENDANT., AND NGT LIBRARY, INTERVENOR-APPLICANT



The opinion of the court was delivered by: Signed: Emmet G. Sullivan, United States

MEMORANDUM OPINION

Plaintiff DSMC, Incorporated ("DSMCi") filed this lawsuit against defendant Convera Corporation alleging violations of the Uniform Trade Secret Act and the common law torts of civil conspiracy and unjust enrichment. DSMCi later amended its complaint to include allegations of violations of federal copyright laws. The claims against Convera are related to a contract between DSMCi and National Geographic Television Library, Inc. ("NGTL"), as a result of which, alleges DSMCi, Convera was allowed to access plaintiff's trade secrets.

The case comes before the Court on Convera's motion to dismiss for improper venue and/or to transfer the case to the Eastern District of Virginia, Convera's motion to dismiss for failure to state a claim and/or for a more definite statement, NGTL's motion to intervene, NGTL's motion to stay all proceedings pending arbitration between DSMCi and NGTL, and Convera's motion to compel arbitration. Upon review of the many motions filed in this case, the oral argument of counsel, and the applicable statutory and case law, this Court will GRANT NGTL's motion to intervene, DENY Convera's motions to dismiss, DENY Convera's motion to compel arbitration, and DENY NGTL's motion to stay these proceedings.

BACKGROUND

DSMCi is a Maryland corporation with its principal place of business in Beltsville, Maryland. DSMCi is engaged in the business of software and systems integration and employs its proprietary software, architecture, and techniques to provide digitizing, cataloguing, archiving, and hosting services to media and non-media organizations that possess extensive audio, video and picture libraries. Convera is a Delaware corporation with its principal place of business in Vienna, Virginia. Convera, a far larger corporate entity than DSMCi, is a direct competitor of DSMCi in the design, development, marketing, implementation and support of products and services pertaining to the digitizing and management of audio, video, and picture libraries.

In September of 2000, DSMCi entered into a contract with NGTL that was designed to preserve and organize NGTL's unique film footage archive. NGTL is a subsidiary of National Geographic Television, which produces documentary television programs related to nature, natural history, world cultures, science, exploration, and other topics consistent with the education and conservation mission of its parent organization, the National Geographic Society. The contract required DSMCi to convert NGTL's video footage to digital format, and create a mechanism for organizing and searching that content, among other things. The contract required DSMCi to support the project through July of 2001.

The contract between DSMCi and NGTL included a confidentiality provision designed to protect DSMCi's trade secrets. DSMCi contends that it has spent over ten thousand hours and a million dollars developing valuable and proprietary trade secrets which include the software, architecture and functionality it used in the NGTL project.

DSMCi alleges that in May 2001, it determined that NGTL had violated the confidentiality agreement by providing unauthorized access to its trade secret information to Convera. DSMCi alleges that at least as early as May 2001 NGTL and Convera conspired to allow Convera to copy the software and architecture of the digital media system designed for NGTL by DSMCi. Among other things, DSMCi alleges that NGTL provided are user name and access to the system to an affiliate of Convera. As a result, DSMCi alleges, Convera was able to reverse engineer and copy DSMCi's trade secrets.

Both NGTL and Convera deny DSMCi's allegations. NGTL responds that DSMCi's performance was continually deficient and consistently missed performance deadlines. NGTL contends that as a result of DSMCi's deficient performance, NGTL decided to not renew the contract and transferred the hosting function to another vendor. In the summer of 2001 NGTL informed DSMCi that it would be transferring the contract to Convera.

The contract between DSMCi and NGTL contained a provision requiring arbitration of any contract disputes. On October 31, 2001, after initial attempts at mediation, DSMCi filed a formal arbitration demand on NGTL. That arbitration is ongoing.

On November 1, 2001, DSMCi filed this lawsuit against Convera, alleging wrongful appropriation of trade secrets, unjust enrichment, and civil conspiracy. Convera responded by filing a motion to dismiss for improper venue or in the alternative to transfer the case to the Eastern District of Virginia. Convera also filed a motion to dismiss for failure to state a claim or in the alternative for a more definite statement. On December 17, 2001, NGTL filed a motion to intervene and a motion to stay this proceeding pending the outcome of the arbitration between NGTL and DSMCi. On February 28, 2002 plaintiff amended its complaint to include claims under federal copyright laws. Convera renewed its motions to transfer and to dismiss.

This Court heard argument on the pending motions on April 9, 2002. At that hearing the Court identified further issues to be briefed by the parties and the intervenor-applicant. After fully briefing those issues, on April 25, 2002, defendant Convera filed a motion to compel arbitration. The briefing of that motion was completed on May 10, 2002.

During the course of this litigation, despite the fact that this Court had not yet ruled on defendants' motions to transfer or dismiss, the parties engaged in discovery. Several discovery motions are also pending before this Court. On March 29, 2002, this Court ordered all discovery stayed until further Order of this Court. Despite this Order, on May 30, 2002 defendant filed a motion to compel discovery, which this Court promptly denied in light of the stay.

DISCUSSION

I. Defendant Convera's Motion to Dismiss for Improper Venue and/or Transfer

Plaintiff's amended complaint includes the following five claims: 1) Misappropriation of Trade Secrets in violation of the D.C. Code; 2) the common law tort of Civil Conspiracy; 3) the common law tort of Unjust Enrichment; *fn1 4) the federal Copyright Act; 5) the federal Digital Millennium Copyright Act. Defendant Convera has moved to dismiss all of these claims for lack of venue pursuant to 12(b)(3), and in the alternative to transfer the case to the Eastern District of Virginia.

Which federal venue statute applies depends on the basis for this Court's jurisdiction. This Court has jurisdiction over plaintiff's first two claims by virtue of diversity of citizenship of the parties, as DSMCi is a Maryland corporation with its principal place of business in Maryland and Convera is a Delaware corporation with its principle place of business in Virginia. The other two claims arise under federal statutes.

A. Diversity Claims

Because some but not all of plaintiff's claims arise under diversity jurisdiction, the venue provision at 28 U.S.C. § 1391(b) applies. That statute states:

A civil action wherein jurisdiction is not founded solely on diversity of citizenship may, except as otherwise provided by law, be brought only in (1) a judicial district where any defendant resides, if all defendants reside in the same State, (2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated, or (3) a judicial district in which any defendant may be found, if there is no district in which the action may otherwise be brought. 28. U.S.C. §1391(b).

With respect to corporations, the venue statute also states: "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." §1391(c).

DSMCi argues that this Court has venue over its diversity claims against Convera by virtue of the Court's personal jurisdiction over Convera. DSMCi argues further that this Court has personal jurisdiction, both because Convera has waived any challenge to personal jurisdiction and because of Convera's contacts with the District of Columbia. Convera responds that it has not waived jurisdiction because it previously brought to this Court's attention its "disagreement" with DSMCi's personal jurisdiction arguments.

This Court has personal jurisdiction over Convera by virtue of Convera's waiver. See Fed. R. Civ. P. 12(g) and (h). Convera's failure to move to dismiss for lack of personal jurisdiction is fatal. See Simpkins v. District of Columbia Govt, 108 F.3d 366, 368 (D.C. Cir. 1997). However, this Court does not have venue simply by virtue of this waiver and must make a separate inquiry into whether personal jurisdiction exists.

The venue statute states "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." § 1391(c) (emphasis added). This language requires an independent inquiry into whether personal jurisdiction was appropriate at the time the plaintiff filed the lawsuit, not as of the time defendant failed to object to jurisdiction. At least one District Court has interpreted this statute to require an independent assessment of jurisdiction. See Wine Markets Intern., Inc. v. Bass, 939 F. Supp. 178 (E.D.N.Y. 1996)(holding that in determining whether party would be subject to personal jurisdiction in state, for purpose of ruling on motion to transfer venue, Court should assess situation as it existed when complaint was filed, irrespective of subsequent consent or waiver). Plaintiff has cited two unpublished district court cases that denied venue challenges based solely on a corporation's waiver of objection to personal jurisdiction. See Chavis v. A-1 Limousine and Home State Ins., 1998 WL 78290, at *3 (S.D.N.Y. 1998); Solit-Tech, Inc. v. Halliburton Co., 1993 WL 315358, at *2 (E.D. Mich. 1993). At least one other District Court has held this as well: Zumbro, Inc. v. California Natural Products, , 861 F.Supp. 773 (D. Minn. 1994). However, none of these cases attempted to account for the statutory language "at the time the action is commenced." § 1391(c). Therefore, this Court does not find these cases persuasive.

Because venue hinges on the existence of jurisdiction at the time a complaint is filed, this Court must make an independent inquiry into the basis for personal jurisdiction. The District of Columbia's personal jurisdiction statutes, D.C. Code § 13-423 and § 13-334, apply here. Section 13-423 provides for personal jurisdiction in the District of Columbia as to a claim for relief arising from the person's--

(1) transacting any business in the District of Columbia;

(2) contracting to supply services in the District of Columbia;

(3) causing tortious injury in the District of Columbia by an act or omission in the District of Columbia;

(4) causing tortious injury in the District of Columbia by an act or omission outside the District of Columbia if he regularly does or solicits business, engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed, or services rendered, in the District of Columbia; Id.

Plaintiff argues that (a)(1) and (a)(3) apply by virtue of Convera's alleged conspiracy with NGTL, and (a)(4) applies directly to Convera's alleged conduct. Convera argues that DSMCi has failed to met the heightened pleading standard for venue based on conspiracy claims, ...


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