Our Los Angeles Business Attorneys were recently asked to analyze whether a certain personal guarantee made orally could be enforced without a writing to its effect. The personal guarantee was made by an individual who was the managing member of the LLC which accepted the consideration and benefit. California law strongly suggests, under the “main purpose” rule that if the consideration is to the benefit of the guarantor, then the oral promise will be enforced.

Cal. Civ. Code § 2794 expressly provides exceptions to the rule that personal guarantees are within the Statute of Frauds. Section 2794(4) provides an exception wherein the promise is upon a consideration “beneficial to the promisor…” See Michael Distributing Co. v. Tobin (1964) 225 Cal. App. 2d 655, 665 (“A recognized exception to the statute occurs, however, when the oral promise is made for a consideration beneficial to the promisor, so that it appears that he gave the promise merely for his own pecuniary or business advantage. In such case it is deemed an original obligation of the promisor and need not be in writing.”) (Emphasis added.)

The Court of Appeal in Tobin supra used the “main purpose” or “leading object” rule approved by the California Supreme Court in Schumm by Whyner v. Berg, (1951) 37 Cal. 2d 174. See Tobin supra 225 Cal. App. 2d at 665. The Berg Court, in adopting the “main purpose” or “leading object” rule, and citing to language from Greenfield v. Sudden Lumber Co. (1937) 18 Cal. App. 2d 709, stated the rule as follows:

Whenever a promise to answer an antecedent obligation of another is made upon a fresh consideration beneficial to the promisor, no matter from what source it may move, the promise is an original one and valid though oral; or, as was said in an early case, whenever the leading and main object of the promisor is not to become surety or guarantor of another, but to subserve some purpose or interest of his own, his promise is not within the statute, although the effect of the promise may be to pay the debt or discharge the obligation of another.

Berg supra, 37 Cal. 2d at 187. Thus, the California Supreme Court has held that a promisor’s oral guarantee which serves his own interests is not within the Statute of Limitations.

In Tobin, the defendant Herbert D. Tobin, was the president and owner of 51 percent of the capital stock of the corporations which Plaintiff delivered lumber and building supplies to in reliance upon an oral promise by defendant Tobin guaranteeing the obligation on behalf of his corporations. See Tobin supra 225 Cal. App. 2d at 659. The trial court entered judgment in favor of Plaintiff and against Defendant Tobin finding that the oral promise was valid since the consideration was beneficial to defendant Tobin personally as the major stockholder of the two corporations. Id. In applying the “main purpose” or “leading object” rule, the Court of Appeal in Tobin supra upheld and affirmed the trial court’s judgment. Id. at 667.

In addition to the holdings cited above in Tobin, Schumm, Greenfield and Berg, other California courts have recognized the exception to the Statute of Frauds writing requirement provided for in Section 2794(4). See Merritt v. J.A. Stafford Co., (1968) 68, Cal. 2d 619, 628 (“It is well settled that whenever the leading and main object of the promisor is not to become surety or guarantor of another but to subserve some purpose or interest of his own, the promise is not within the statute even though performance of the promise may pay the debt or discharge the obligation of another.”); see also Raboff v. Albertson, (1954) 122 Cal. App. 2d 555, 561 (“It could be inferred from the evidence herein that the promise of defendant to pay the said debt was upon a consideration beneficial to the defendant and was an original obligation of defendant.”)

Our Los Angeles Litigation Attorneys were recently asked to review and analyze the grounds for revising written contract provisions based on a claim in fraud, also referred to a contract reformation. Under California law, a contract may be revised on the application of a party aggrieved, so as to express the intention of the party, if through fraud or a mutual mistake, the written agreement does not truly express the intention of the parties. A reformation on these grounds can be done as long as the rights acquired by third persons are not prejudiced. See Cal. Civ. Code § 3399.

Pleading a reformation of contract requires demonstrating (1) the intended agreement intended but not executed; (2) the actual agreement in writing; (3) where or how the actual writing fails to reflect the intended agreement. If a reformation is claimed pursuant to fraud, then the fraud must be pled with the requisite specificity under California law.

The burden of proof carried through trial rests with the party seeking to avoid the actual written agreement. The party seeking to reform carries the burden of proof because it is presumed that “all the parties thereto intended to make an equitable and conscientious agreement.” See Cal. Civ. Code § 3400. The party carrying the burden must also prove the true intent of the parties by clear and convincing evidence. See Shupe v. Nelson, (1967) 254 Cal. App. 2d 693, 700. This evidentiary threshold is greater than the preponderance of evidence standard in most civil actions. If a party carries its burden, then a contract may be revised and then specifically enforced. See Cal. Civ. Code § 3402.

The venue of a suit for infringement of copyright is not determined by the general provision governing suits in the federal district courts. Rather, copyright actions are subject to the venue provision set forth in the Copyright Act in 28 U.S.C. § 1400(a). 28 U.S.C. § 1400(a) provides that “[c]ivil actions, suits, or proceedings arising under any Act of Congress relating to copyrights or exclusive rights in mask works or designs may be instituted in the district in which the defendant or his agent resides or may be found.”

Courts have rejected attempts by a plaintiff to argue venue using a state-wide jurisdictional analysis. See Milwaukee Concrete Studios, Ltd. v. Fjeld Manuf Co., 8 F.3d 441, 446 (7th Cir. 1993) (“It is not sufficient that [defendant] would be subject to personal jurisdiction under the … long-arm statute by virtue of contacts with another district in [the] state.”) Thus, for purposes of venue, the focus is whether a DotCom would be subject to personal jurisdiction in a foreign state. “The court uses basically the same procedure to decide a motion to dismiss for improper venue as it does for deciding a motion to dismiss for lack of personal jurisdiction.” See Brayton Purcell LLP v. Recordon& Recordon, 361 F. Supp. 2d 1135, 1138 (N.D. Cal. 2005)

A Court’s ability to exercise jurisdiction over an out of state business is determined by an array of federal cases which have interpreted the limits of the Constitution over the years. In a world where online consumption and business transactions are exceeding traditional “brick and mortar” consumption, DotComs who transact with consumers across all 50 states are also seeing lawsuits brought in every jurisdiction across the nation. The question for DotComs getting sued then becomes whether they would be subject to a Court’s jurisdiction even though there is no physical presence in that particular state or jurisdiction where the Court resides.

Our Los Angeles Business Litigation Attorneys were recently asked to defend a Los Angeles based DotCom against a lawsuit for copyright infringement filed in Idaho Federal Court. Our client had no physical presence in Idaho, had very few consumer transactions in Idaho and thus, pursuant to Constitutional “minimum contacts” requirements, the Los Angeles DotCom should not be subject to suit in Idaho.

Minimum Contacts – The Court’s power to exercise personal jurisdiction over a non-resident defendant is limited by both the applicable state personal jurisdiction statute (long-arm statute) and the Due Process Clause. See Dole Food Co., Inc. v. Watts, 303 F.3d 1104, 1110 (9th Cir. 2002); see also Sher v. Johnson, 911 F.2d 1357, 1360 (9th Cir. 1990). However, as the Ninth Circuit recognized, the Idaho Legislature intended to exercise all of the jurisdiction available under the Due Process Clause. See Lake v. Lake, 817 F.2d 1416, 1420 (9th Cir. 1987). Thus, resolution depends upon the issue of due process. See Pebble Beach Co. v. Caddy, 453 F.3d 1151, 1155 (9th Cir. 2006).

Due process requires that, in order for a non-resident defendant to be haled into court, that defendant must have certain “minimum contacts” with the forum state such that the traditional notions “‘of fair play and substantial justice’” are not offended. See Sher, 911 F.2d at 1361 (quoting International Shoe Co. v. Washington, 326 U.S. 310, 320 (1945)). Additionally, “the defendant’s ‘conduct and connection with the forum State must be such that the defendant ‘should reasonably anticipate being haled into court there.’” Id. (quoting World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980)). The focus is primarily on “the relationship among the defendant, the forum, and the litigation.” See Shaffer v. Heitner, 433 U.S. 186, 204 (1977).

General v. Specific Jurisdiction – States may exercise general or specific jurisdiction over non-resident defendants. See Helicopteros Nacionales de Colombia S.A. v. Hall, 466 U.S. 408, 414-15 (1984). General jurisdiction can be asserted when the defendant’s activities in the forum state are “continuous and systematic” or “substantial.” See Perkins v. Benguet Consol. Mining Co., 342 U.S. 437, 445, 447 (1952); see also Lake, 817 F.2d at 1420. To find specific jurisdiction, the Court looks to the three-part test as applied in Lake, 817 F.2d at 1420.

Legal Standard for the exercise of General Jurisdiction – General jurisdiction exists if a DotCom’s contacts with the foreign jurisdiction are considered “continuous and systematic,” Helicopteros, 466 U.S. at 416, and the exercise of jurisdiction satisfies “traditional notions of fair play and substantial justice.” See Reebok Int’l Ltd. v. McLaughlin, 49 F.3d 1387, 1391 (9th Cir. 1995). “The standard for establishing general jurisdiction is fairly high and requires that the defendant’s contacts be of the sort that approximate physical presence.” See Bancroft & Masters, Inc. v. Augusta Nat’l Inc., 223 F.3d 1082, 1086 (9th Cir. 2000) (internal citation and quotation marks omitted); see also Gates Learjet Corp. v. Jensen, 743 F.2d 1325, 1331 (9th Cir. 1984). Several factors to consider when determining general jurisdiction include: “whether defendant makes sales, solicits or engages in business in the state, serves the state’s markets, designates an agent for service of process, holds a license, or is incorporated there.” See Bancroft & Masters, Inc., 223 F. 3d. at 1086. Moreover, “engaging in commerce with residents of the forum state is not in and of itself the kind of activity that approximates physical presence within the state’s borders.” Id.

Legal Standard for the exercise of Specific Jurisdiction – When specific jurisdiction is asserted, a three part test applies: (1) the non-resident defendant must purposefully direct his activities or consummate some transaction with the forum or resident thereof; or perform some act by which he purposefully avails himself of the privilege of conducting activities in the forum, thereby invoking the benefits and protections of its laws; (2) the claim must be one which arises out of or relates to the defendant’s forum-related activities; and (3) the exercise of jurisdiction must comport with fair play and substantial justice, i.e. it must be reasonable. See Lake, 817 F.2d at 1421. The plaintiff bears the burden of satisfying the first two prongs of the test. See Sher, 911 F.2d at 1361. If the plaintiff fails to satisfy either of these prongs, personal jurisdiction is not established in the forum state. If the plaintiff succeeds in satisfying both of the first two prongs, the burden then shifts to the defendant to “present a compelling case” that the exercise of jurisdiction would not be reasonable. See Burger King Corp. v. Rudzewicz, 471 U.S. 462-, 476-78 (1985).

The Ninth Circuit has adopted a three part test to determine whether a company has “purposefully directed its activities in the forum state. This test adopted from the Supreme Court’s decision in Calder v. Jones, 465, U.S. 783 (1984) requires a showing that defendant (1) committed an intentional act, (2) expressly aimed at the forum state, (3) causing harm that the defendant knows is likely to be suffered in the forum state. Id. Thus, the Calder Test requires a further analysis of facts and law in determining the ability of a Court to exercise jurisdiction.

Following the above analysis and by weaving facts and law together, our Los Angeles Litigation Attorneys were able to procure a report and recommendation from the assigned District Court Judge that the case at issue in Idaho should be dismissed for lack of personal jurisdiction against the Los Angeles based DotCom entity. It is important to mention that the facts supported a dismissal, however, it is critical that the motion to dismiss be well presented and organized so that the District Court is walked through the step-by-step analysis of Constitutional law and the facts at issue.

Internet Defamation – Liability of Website v. Author

Internet users can and do post everything and anything on the Internet. When a false or unprivileged Internet posting exposes a person or business to hatred, contempt, ridicule, or obloquy, or which causes him/her to be shunned or avoided, or which has a tendency to injure him/her in his occupation, then the posting could constittue libel and also give rise to a false light action.

The Internet is a common and accepted means for people to publish statements and if someone has posted defamatory statements about you or your business you do have a claim against the Internet poster. “[P]laintiffs who contend they were defamed in an Internet posting may only seek recovery from the original source of the statement.” Barrett v. Rosenthal, (2006) 40 Cal.4th 33, 58. An Internet posting constitutes a publication for purposes of a defamation/false light action because the libelous communication is being made to a large number of persons as distinguished from one individual or a few. See Kinsey v. Macur, (1980) 107 Cal. App. 3d 265, 270.

There are many websites that allow its users to create and generate content in which the websites will post that can and do make for defamatory statements that would be actionable against the author. These websites carry exclusive licenses for all user generated content and thus can post or take down the libelous publication. Keep in mind that various safe harbor provisions immunize websites who fall into the “online content provider” category, from defamation lawsuits. In other words, one cannot sue a website for the act of allowing someone to post a defamatory statement.