USAA CASUALTY INSURANCE COMPANY VS SWAGWAY, LLC

Tentative Rulings

Case Number: *******7030    Hearing Date: May 11, 2021    Dept: 40

MOVING PARTY: Specially Appearing Defendant Swagway LLC

OPPOSITION: Plaintiff USAA Casualty Insurance Company a/s/o Gurkan Aksu

Specially Appearing Defendant Swagway LLC moves to quash Plaintiff USAA Casualty Insurance Company a/s/o Gurkan Aksu (Plaintiff) service of summons and complaint. Defendant is an Indiana company that makes and sells hoverboards. Defendant’s X1 hoverboard allegedly caught fire and damaged the property of Plaintiff’s insured.

Specific Jurisdiction: California’s long-arm statute authorizes California courts to exercise jurisdiction on any basis consistent with the U.S. Constitution or the California Constitution. (Code of Civ. Proc. ;410.10; Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 444-445.) There are two types of personal jurisdiction: general jurisdiction and specific jurisdiction. General jurisdiction exists when the defendant’s contacts “are so continuous and systematic as to render them essentially at home in the forum State.” Goodyear Dunlop Tires Operations, S.A. v. Brown (2011) 564 U.S. 915, 919; quotation omitted. Here, only specific jurisdiction is at issue.

A court may exercise specific jurisdiction over a nonresident defendant only if “(1) the defendant has purposefully availed himself or herself of forum benefits; (2) the controversy is related to or arises out of the defendant’s contacts with the forum; and (3) the assertion of personal jurisdiction would comport with fair play and substantial justice.” Pavlovich v. Superior Court (2002) 29 Cal.4th 262, 269; internal quotations and citations omitted. The plaintiff has the initial burden of showing facts to support the first two factors, and then the burden shifts to the defendant for the third factor. Snowney v. Harrah’s Entertainment, Inc. (2005) 35 Cal.4th 1054, 1062.

Purposeful Availment

The purposeful availment prong is satisfied “when the defendant purposefully and voluntarily directs his activities toward the forum so that he should expect, by virtue of the benefit he receives, to be subject to the court’s jurisdiction based on his contacts with the forum.” (Pavlovich, supra, 29 Cal.4th at p. 269; internal citation and quotation omitted.) Merely placing goods into the “stream of commerce” is insufficient to establish jurisdiction. The defendant must have targeted the forum as “it is not enough that the defendant might have predicted that its goods [would] reach the forum State.” J. McIntyre Machinery, Ltd. v. Nicastro (2011) 564 U.S. 873, 882.

Plaintiff argues that Defendant has purposefully availed themselves of the benefits of doing business in California based on the following. First, on Swagtron’s website, a recall notice for the X1 hoverboard was posted. The recall notice stated that the hoverboard had been sold at “mass merchandisers, department stores, home improvement stores and others nationwide and online at Amazon.com, Modells.com, Target.com and other online retailers,” which would logically include retailers in California. (Decl. Shkolnikov, Ex. J.) Second, Defendant’s general counsel and its two distributors (Pro-Com Products, Inc. and Zake USA) are headquartered at the same address in the City of Industry. The CEO/CFO of Pro-Com—which is incorporated in California—and the President of Zake USA is Jianqing Zhu (Zhu), the owner/manager of Defendant. Third, Zake USA also advertised, distributed, and sold Swagway products in California through Evine Live, a television home shopping network.

On the other hand, Defendant disputes these allegations. First, the general counsel was employed by Pro-Com and was only occasionally used by Defendant for legal matters. Second, Defendant Swagway and Swagtron are not the same entity. The story is that Defendant was forced to drop the Swagway name after being sued by the Segway company. Defendant contracted with a company called 3BTech, Inc.—Zake USA is 3BTech’s dba—to handle the recall, which was hosted on Swagtron’s website. (Decl. Zhu, ¶ 10; Decl. Shkolnikov, Ex. F.) Third, although Zhu was formerly the CEO of Pro-Com, he is not currently the CEO or CFO. Finally, Pro-Com does not distribute Swagway products and Zake USA is just a website.

The Court defers on a decision to allow Plaintiff to conduct jurisdictional discovery.

Continuance: “A trial court has the discretion to continue the hearing on a motion to quash service of summons for lack of personal jurisdiction to conduct discovery on jurisdictional issues.” Healthmarkets, Inc. v. Superior Court (2009) 171 Cal.App.4th 1160, 1173.

Allowing Plaintiff to conduct jurisdictional discovery will clarify several issues needed to make a decision. Although the hoverboards were sold through national retailers and Evine Live, it is unclear to what extent Defendant intentionally directed the X1 hoverboards to California. The relationship between Defendant, its distributors, and the other entities is also unclear. For example, Pro-Com lists Swagtron as being one of their brand partnerships, while Defendant denies Swagtron is the same entity as Swagway. (Supp. Decl., Ex. M.) But a technology news website quotes Zhu—described as Swagway’s CEO—discussing “the Swagtron,” Swagway’s new hoverboard. (Supp. Decl., Ex. K.)

Further discovery may clarify these relationships.

Conclusion: Specially Appearing Swagway LLC’s Motion to Quash Service of Summons is CONTINUED. Plaintiff is to conduct jurisdictional discovery.