Federal District Court, California Dismisses Class Action Suit for Lack of Specific Jurisdiction

Federal District Court, California Dismisses Class Action Suit for Lack of Specific Jurisdiction

On April 01, 2022, the U.S. District Court for the Southern District of California ruled in dismissal of a class action lawsuit filed against Netgain Technology, on the ground of lack of personal jurisdiction over the business. Lee v. NetGain Tech., 21cv1144-LL-MSB (S.D. Cal. Apr. 1, 2022).

The lead plaintiff was a resident of South Carolina, while Netgain Tech is a Minnesota-based company. Plaintiff filed the class action alleging a data breach that affected personal and medical information of patients at Caresouth Carolina, a community health center. The Netgain Tech was the cloud-hosting service for the health center along with many other organizations. As a patient of Caresouth, Plaintiff was required to provide Netgain and Caresouth with personal medical information and was given the assurance that the provided information would be kept safe from unauthorized access. However, on December 03, 2020, network servers of Netgain and Caresouth were infiltrated and access was gained to such network servers. Netgain had to pay a significant amount of money in exchange for a promise that the attackers would delete copies of the data that had been stolen. The same was conveyed to the Plaintiff through a letter on May 17, 2021.

As the matter came before the Court, Netgain filed a motion to dismiss the putative class action for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2).  The provision states that a suit may be dismissed by a district court for lack of personal jurisdiction.

In response to the same, Plaintiff argued that it had filed the suit under specific jurisdiction. Specific jurisdiction exists where “the defendant’s suit-related conduct . . . . create[s] a substantial connection with the forum State.” Walden v. Fiore, 571 U.S. 277, 284 (2014). In order for a federal court to exercise specific jurisdiction over a non-resident defendant it considers following things: (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.

Plaintiff contended that Netgain conducted a major portion of its business in the state of California. Further, it also has an office and employees residing in California. Moreover, it circulates its advertisements and provides services to the residents of California. Therefore, Plaintiff argued that the District Court was the proper forum for the matter in hand.

However, Judge Linda Lopez held that the Court was not an appropriate forum for the present matter. The Court stated that the complaint filed by the Plaintiff revolved around the allegation that Netgain failed to secure information of Caresouth patients. Therefore, the complaint had nothing to do with the company’s operations in San Diego, California. The Court also rejected the motion filed for jurisdictional discovery. It was filed with the reason to establish that the San Diego location was at least partially responsible for the alleged data breach. The same was dismissed by the Court for the reason that the Plaintiff had no evidence to support his claim.