Tuesday, January 29, 2019

Payments IP Pty Ltd. v. B52 Media LLC (Maryland U.S.D.C.)

Filed: February 23, 2018

Opinion by: Ellen Lipton Hollander

Facts: Payments IP Pty Ltd. (“Payments IP”), an Australian company, allegedly contracted with B52 Media, LLC (“B52”), a Maryland limited liability company, and Maryland resident Lonnie Borck (“Borck”), B52’s owner (Borck and B52 being referred to collectively, as the “B52 Parties”), to purchase a web domain (the “Domain”).  Later that year, Payments IP allegedly discovered that the Domain had been placed on an “administrative freeze” by the domain registrar because the Domain was the subject of a lawsuit pending in California state court. In the California state case, an individual resident of California, Suraj Kumar Rajwani (“Rajwani”), asserted ownership of the Domain (the “California Case”).  Payments IP successfully intervened in the California Case.  Shortly after Payments IP moved to intervene in the California Case, Payments IP filed suit in the United States District Court for the District of Maryland (the “Maryland Case”), asserting claims similar to those asserted by Payments IP in the California Case, including a claim for declaratory judgment regarding ownership of the Domain.  Motions were filed by the defendants in the Maryland Case seeking to dismiss the declaratory judgment claim against Rajwani for lack of jurisdiction and to stay the Maryland Case for so long as the California court retained jurisdiction over the California Case. 

Analysis/Holding:  The Maryland Court first addressed Rajwani’s motion to dismiss for lack of jurisdiction, pursuant to which Rajwani argued that the Court lacked both personal jurisdiction over him and in rem jurisdiction over the Domain.  As to personal jurisdiction, the Court noted that “to assert personal jurisdiction over a nonresident defendant, two conditions must be satisfied: (1) the exercise of jurisdiction must be authorized under the state’s long-arm statute [Md. Code Ann., Cts. & Jud. Procs. § 6-103(b)]; and (2) the exercise of jurisdiction must comport with the due process requirements of the Fourteenth Amendment.”  Regarding the interaction between those two conditions, the Court noted that “the reach of the long arm statute is coextensive with the limits of personal jurisdiction delineated under the due process clause of the Federal Constitution, [and thus] our statutory inquiry merges with our constitutional examination.”  The Court ultimately denied Rajwani’s motion to dismiss for lack of personal jurisdiction, holding that, based on the pleadings and papers filed in the Maryland Case, Payments IP made a prima facie showing of personal jurisdiction because:
 (i) over the course of seven years, Rajwani engaged in extensive negotiations with the B52 Parties (who were domiciled in Maryland) with respect to the Domain;
(ii) Rajwani transferred money to B52 on four occasions, totaling approximately $600,000;
(iii) Rajwani visited Maryland on one occasion in 2015 to meet with Borck in connection with the negotiations over the Domain dispute; and
(iv) Rajwani filed a claim with the Register of Wills in Maryland against the estate of Borck predicated on the underlying transaction involving the Domain. 
However, in light of the procedural posture of the Maryland Case (i.e., early in the proceedings, without having conducted any discovery or any evidentiary hearing on the issue of personal jurisdiction), the Court held that Payments IP must ultimately prove the existence of personal jurisdiction by a preponderance of the evidence.

The Court then addressed Rajwani’s request that the Court abstain from jurisdiction under the so-called “Brillhart/Wilton” doctrine, which allows federal district courts to decline jurisdiction over declaratory judgment actions in certain circumstances; namely, if abstention would save judicial resources.  The Court denied Rajwani’s request because Rajwani sought non-declaratory relief that was so closely related to his declaratory judgment claim that abstaining from jurisdiction as to that claim would not save any judicial resources.

Next, the Court addressed Rajwani’s request for dismissal based on the so-called “Princess Lida” doctrine, which provides that “a federal court may not exercise jurisdiction when granting the relief sought would require the court to control a particular property or res over which another court already has jurisdiction.”  According to Rajwani, the Maryland Case was subject to dismissal because the declaratory judgment claim was an in rem proceeding vis-à-vis the Domain, which was already subject to the in rem or quasi in rem jurisdiction of the California court in the quiet title action.  In the Maryland Case, Payments IP sought declaratory relief against, not only Rajwani and the B52 Parties but also, “all other claimants, known and unknown”; the Court reasoned that, because it did not possess personal jurisdiction over “all other” possible claimants, it must, therefore, obtain in rem jurisdiction over the Domain in order to grant the relief sought by Payments IP.  Based on the fact that the California court had exercised jurisdiction over the Domain prior to the filing of the Maryland Case, and the fact that no one disputed the California court’s jurisdiction, the Court held that, pursuant to the Princess Lida doctrine, the Court did not have in rem jurisdiction over the Domain.  However, rather than dismissing the claim as requested by Rajwani, the Court stayed the claim, because, according to the Court, “the Princess Lida doctrine is one of abstention, rather than subject matter jurisdiction….  Thus, if the Princess Lida doctrine is implicated, this Court should dismiss or stay the declaratory judgment claim, but it does not lack subject matter jurisdiction.”

Lastly, the Court addressed the motions of Rajwani and the B52 Parties to stay the Maryland Case, pending resolution of the California Case, on the basis of so-called “Colorado River” abstention, which provides that a federal district court may, in “exceptional circumstances,” stay federal litigation that is parallel to a state suit.  Specifically, if there exists parallel litigation involving substantially the same parties and substantially the same issues (such that the state action will resolve every claim at issue in the federal action), then a stay of the federal case may be appropriate based upon a balancing of the following six factors:
“(1) whether the subject matter of the litigation involves property where the first court may assume in rem jurisdiction to the exclusion of others;
(2) whether the federal forum is an inconvenient one;
(3) the desirability of avoiding piecemeal litigation;
(4) the relevant order in which the courts obtained jurisdiction and the progress achieved in each action;
(5) whether state law or federal law provides the rule of decision on the merits; and
(6) the adequacy of the state proceeding to protect the parties’ rights.” 
Applying that analysis, the Court first held that the Maryland Case and the California Case were parallel actions because:
(a) the parties were the same in both actions;
(b) both actions concerned the same basic issue (ownership of the Domain) and transactions (the contract to buy the Domain); and
(c) the relief sought by Payments IP in the Maryland Case was “virtually identical to the relief Payments IP seeks as an intervenor in the California case.” 

The Court then held that a stay of the Maryland Case was appropriate based on a balancing of the aforesaid factors because:
(1) the California court had assumed in rem jurisdiction over the Domain (weighing in favor of abstention);
(2) the California and Maryland courts were equally convenient to Payments IP  and any minimal convenience difference as between the other parties was mitigated by the fact that, if the Maryland Case were not stayed, the parties would likely be required to litigate in both forums (either neutral or weighing in favor of abstention);
(3) it was desirable to avoid piecemeal litigation (weighing in favor of abstention);
(4) the California court obtained jurisdiction before the Maryland Court and significantly more progress had been made in the California Case than in the Maryland Case (weighing in favor of abstention);
(5) jurisdiction of the Maryland Case was based on diversity of the parties and there were no federal questions at issue (either neutral or weighing in favor of abstention); and

(6) the California Case was adequate to protect the rights of Payments IP, as evidenced by Payments IP’s decision to intervene in that action before filing the Maryland Case, as well as the progress made in that action (either neutral or weighing in favor of abstention).

The full opinion is available in PDF.

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