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Water & Sand International Capital, Ltd. v. Capacitive Deionization Technology Systems

July 7, 2008

WATER & SAND INTERNATIONAL CAPITAL, LTD., PLAINTIFF
v.
CAPACITIVE DEIONIZATION TECHNOLOGY SYSTEMS, INC. DEFENDANTS.



MEMORANDUM OPINION

Now before the Court comes defendant Capacitive Deionization Technology Systems, Inc.'s ("CDT") motion [7] to dismiss, and plaintiff Water & Sand International Capital, Ltd.'s*fn1 ("Water & Sand") motion [10] for leave to file supplemental affidavit. In the event that this Court denies CDT's motion to dismiss, it seeks to transfer venue to the Northern District of Texas pursuant to 28 U.S.C. § 1404(a) or, in the alternative, to stay these proceedings. Upon consideration of the motions, opposition and reply briefs, the entire record herein, and applicable law, the Court finds that the motion to dismiss will be DENIED and that the motion for leave to file will be GRANTED. Further, the Court will DENY defendant's request to transfer this case to the Northern District of Texas or to stay these proceedings.

I. BACKGROUND

Plaintiff Water & Sand is a Delaware corporation with principal place of business in St. Maarten, Netherlands Antilles. (See Compl. ¶ 1.) Chester Nosal, president and sole shareholder of Water & Sand, is an attorney with an office in the District of Columbia. (See id.) Defendant CDT, a Nevada corporation with principal place of business in Addison, Texas, is engaged in the business of water filtration and purification. (See id. ¶¶ 2, 5.) At issue in this dispute are two unpaid loans that Water & Sand made to CDT. (See id. ¶¶ 5--8.) Both loans are memorialized by consolidated demand notes dated November 1, 2006 and November 2, 2006. (See id. ¶¶ 7--8; Promissory Note (Nov. 1, 2006), Ex. 1 to Compl. [hereinafter Note 1]; Promissory Note (Nov. 2, 2006), Ex. 2 to Compl. [hereinafter Note 2].) The promissory notes were signed by former CDT chairman and chief operating officer Dallas Talley, and attested to by former CDT chief financial officer Phil Marshall. (See Compl. ¶¶ 7--8; Note 1; Note 2.) Together Notes 1 and 2 represent CDT's promise to pay Water & Sand principal of $3.2 million plus interest, which had reached a total of $1,462,826 on December 31, 2007, and which continues to accrue at three percent per month. (See Compl. ¶¶ 9--12, 12; Note 1; Note 2.) According to Water & Sand, CDT has failed to make payments on the notes despite Water & Sand's proper demands for payment. (See Compl. ¶ 6.)

Of particular interest at this stage of the proceedings, each demand note contains the following forum selection and choice of law clause:

Moreover, CDT irrevocably consents to personal jurisdiction in the District of Columbia for purposes of any collection action, which may be necessary to insure payment of this note; and it further consents to having any collection action to be heard solely before the courts of the District of Columbia under Nevada law. (Note 1 at ¶ 3; Note 2 at ¶ 4.)

Prior to the initiation of plaintiff's suit in this District, CDT filed two lawsuits in the Northern District of Texas-one against Water & Sand and one against Chester Nosal.*fn2 In the suit against Water & Sand, CDT pursued a usury action alleging that the interest charged in association with the loans exceeded the usury ceiling set by the Texas Finance Code. See Capacitive Deionization Tech. Sys., Inc. v. Water & Sand Int'l Capital, Inc. No. 3:08-cv-038-P, slip op. at 3 (N.D. Tex. Apr. 21, 2008). There, the court found that the same forum selection clause at issue in this case was enforceable. See id. at 6--11. Accordingly, the court granted Water & Sand's motion to dismiss that case. See id. at 2.

CDT's Northern District of Texas suit against Chester Nosal alleges that Mr. Nosal was a fiduciary of CDT who provided services to CDT in the roles of "principal outside counsel" and member of "the company's Advisory Board." See Nosal Am. Compl. (Dec. 5, 2007), ¶ 7. CDT claims that Mr. Nosal breached his fiduciary duty by colluding with Mr. Talley to execute the loan agreements. See id. ¶¶ 11--20. Further, according to CDT, Mr. Nosal fraudulently concealed information from the CDT board of directors, which permitted him to engage in impermissible self-dealing. See id. ¶¶ 15, 20--21. On April 21, 2008, the court denied Mr. Nosal's motion to dismiss and found that CDT had stated a claim. See Capacitive Deionization Tech. Sys., Inc. v. Nosal,No. 3:07-cv-1215-P, slip op. at 10--11 (N.D. Tex. Apr. 21, 2008).Reading the complaint in a light most favorable to CDT and taking its allegations as true, the court found that a question remained as to whether Mr. Nosal represented CDT at the time of the loan agreements. See id. at 11. Further, if Mr. Nosal owed CDT a duty at the time of the loan agreements, it was plausible that he breached that duty by concealing information "when he did not completely apprise the board of directors of details and material terms of the loans." Id. The Texas case against Mr. Nosal remains pending.

On January 16, 2008, Water & Sand filed suit in this Court alleging breach of contract. CDT now moves to dismiss for lack of personal jurisdiction and claims that the parties' forum selection clause is unenforceable. (See Mot. to Dismiss at 5--7.) Additionally, CDT asserts that dismissal is proper because of the pending Northern District of Texas litigation, which was filed before this lawsuit. (See id. at 7--8.) Further, in the event that the Court denies CDT's motion, CDT asks this Court to transfer venue to the Northern District of Texas pursuant to 18 U.S.C. § 1404(a) or, in the alternative, to stay proceedings here pending resolution of the Texas litigation. (See id. at 8--9.)

II. ANALYSIS

A. Personal Jurisdiction

When courts consider a motion to dismiss for lack of personal jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(2), the plaintiff has the burden of establishing a prima facie case that personal jurisdiction exists. See Naegele v. Albers, 355 F. Supp. 2d 129, 136 (D.D.C. 2005) (citing Second Amendment Found. v. U.S. Conference of Mayors, 274 F.3d 521, 524 (D.C. Cir. 2001)). "A prima facie case in this context means that the plaintiff must present evidence sufficient to defeat a motion for judgment as a matter of law." Id. (citing Carter v. Duncan-Huggins, Ltd., 727 F.2d 1225, 1227 (D.C. Cir. 1984)). However, "this burden is 'only a minimal [one].'" Jacobsen v. Oliver, 201 F. Supp. 2d 93, 104 (D.D.C. 2002) (quoting Abramson v. Wallace, 706 F. Supp. 1, 2 (D.D.C. 1989)). In determining whether a basis for personal jurisdiction exists, discrepancies in the record must be resolved in favor of the plaintiff. See Crane v. New York Zoological Soc'y, 894 F.2d 454, 456 (D.C. Cir. 1990). Yet, a court need not treat all of plaintiff's allegations as true. See Naegele, 355 F. Supp. 2d at 136 (citing GTE New Media Servs. v. BellSouth Corp., 199 F.3d 1343, 1349 (D.C. Cir. 2000) (stating that courts should not accept bare allegations and conclusory statements)). Further, courts may rely upon matter outside the pleadings in determining jurisdictional facts. See id. (citing Artista Records, Inc. v. Sakfield Holding Co. S.L., 314 F. Supp. 2d 27, 30 (D.D.C. 2004)).

A court has personal jurisdiction over a defendant if the defendant is both subject to the District of Columbia's long-arm statute and the exercise of jurisdiction comports with the due process clause. Crane, 894 F.2d at 455--56; see also D.C. CODE § 13-423(a) (2007) (long-arm statute). The District of Columbia's "long-arm statute 'permits exercise of personal jurisdiction to the fullest extent permissible under the due process clause.'" Johnson v. Long Beach Mortgage Loan Trust 2001-4, 451 F. Supp. 2d 16, 28 (D.D.C. 2006) (quoting Mouzavires v. Baxter, 434 A.2d 988, 990--91 (D.C. 1981)). The constitutional due process test is typically met if the defendant has "minimum contacts" with the District of Columbia "such that the maintenance of the suit does not offend 'traditional notions of fair play and substantial justice.'" Id. (citing Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). This analysis requires courts to determine whether "the defendant's conduct and connection with the forum State are such that he should reasonably anticipate being hailed into court here." World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980) (citations omitted).

However, the usual due process analysis need not be done when a nonresident defendant contractually agrees to personal jurisdiction in a given state. See Alexander Proudfoot Co. World Headquarters v. Thayer, 877 F.2d 912, 921 (11th Cir. 1989). Because personal jurisdiction is a waivable right, courts do not offend due process when they enforce "freely negotiated" agreements to submit controversies for resolution within a particular jurisdiction provided that the agreements are not "unreasonable and unjust." See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 473 n.14 (1985); see also M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15 (1972) (holding that a forum selection clause should control absent a strong showing that it be set aside as unreasonable, unjust, or invalid); Nat'l Equip. Rental, Ltd. v. Szukhent, 375 U.S. 311, 315--16 (1964) ("[I]t is settled . . . that parties to a contract may agree in advance to submit to the jurisdiction of a given court . . . ."); D.H. Blair & Co. v. Gottdiener, 462 F.3d 95, 103 (2d Cir. 2006) (same).

In this case, as discussed below in Part II.B. of this Opinion, the parties entered into an enforceable contractual agreement to this Court's personal jurisdiction. Because CDT has not made a strong showing that the agreement be set aside, ...


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