CASE 0:13-cv-02385-ADM-HB Document 32 Filed 02/06/14 Page 1 of 11
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`UNITED STATES DISTRICT COURT
`DISTRICT OF MINNESOTA
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`M-I Drilling Fluids UK Ltd.,
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`Plaintiff,
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`v.
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`Dynamic Air Inc. and Dynamic Air Ltda.,
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`MEMORANDUM OPINION
`AND ORDER
`Civil No. 13-2385 ADM/JJG
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`Defendants.
`______________________________________________________________________________
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`Scott J. Pivnick, Esq., Adam D. Swain, Esq., Benn Wilson, Esq., Patrick Flinn, Esq., and David
`Kuklewicz, Esq., Alston & Bird LLP, Washington, DC, and Atlanta, GA; and Eric H. Chadwick,
`Esq., Patterson Thuente Pederson, PA, Minneapolis, MN, on behalf of Plaintiff.
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`Kevin P. Hickey, Esq., Carrie L. Hund, Esq., and Steven P. Aggergaard, Esq., Bassford Remele,
`PA, Minneapolis, MN, on behalf of Defendants.
`______________________________________________________________________________
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`I. INTRODUCTION
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`On December 3, 2013, the undersigned United States District Judge heard oral argument
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`on Defendants Dynamic Air Inc. and Dynamic Air Ltda.’s Motion to Dismiss [Docket No. 22].
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`Plaintiff M-I Drilling Fluids UK Ltd. (“M-I”) opposes the motion. For the reasons set forth
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`below, Defendants’ motion is granted and this action is dismissed without prejudice.
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`II. BACKGROUND
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`M-I is a private limited company organized under the laws of the United Kingdom, with
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`its principal place of business in the United Kingdom. Compl. [Docket No. 1] ¶ 2. M-I designs
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`and sells equipment used in the process of drilling oil wells, including on the sea floor. The
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`process for drilling such wells brings “subterranean formation cuttings,” including rock, sand,
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`and other materials to the drilling rig on the water’s surface. See id. ¶ 13. When first brought
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`up, drill cuttings are in a slurry with drilling fluid. This slurry then goes through a separation
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`DYNAMIC AIR INC.
`EXHIBIT 1073
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`CASE 0:13-cv-02385-ADM-HB Document 32 Filed 02/06/14 Page 2 of 11
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`process removing some of the drilling fluid, leaving the cuttings with the consistency of a “very
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`thick heavy paste.” Id. The cuttings must be disposed of safely, typically by transporting them
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`from the drilling rig onto a ship, and then from the ship onto shore for processing and disposal.
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`M-I supplies drilling fluid systems and other equipment designed to improve drilling
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`performance, maximize productivity, and manage the waste generated through the drilling
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`process. Id. ¶¶ 12-13.
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`Defendant Dynamic Air Ltda. is a corporation organized under the laws of Brazil, with
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`its principal place of business in Brazil. Dynamic Air Ltda. is a subsidiary of Defendant
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`Dynamic Air Inc., a corporation organized under the laws of Minnesota, with its principal place
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`of business in St. Paul, Minnesota. Id. ¶¶ 3-4. In late 2011 or early 2012, non-party Petróleo
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`Brasileiro (“Petrobras”) initiated a request for proposal (RFP) process, seeking a pneumatic
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`conveyance system to transport drill cuttings from an oil rig onto a ship. M-I’s “sister company
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`and customer” M-I Swaco do Brasil - Comerico, Servicos E Mineracao Ltda. (“M-I Brazil”)
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`submitted a bid to provide the equipment, as did Dynamic Air Ltda. Id. ¶ 24.
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`Dynamic Air Ltda. won the bidding process, and thereafter designed, sold, and operated
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`at least three pneumatic conveyance systems for Petrobras. In February 2013, Dynamic Air
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`Ltda. installed a system that pneumatically conveys drill cuttings from “P-59,” a drilling rig in
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`Brazilian waters, onto the HOS Resolution, a United States flagged ship. In August 2013,
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`Dynamic Air Ltda. installed a similar system on board the HOS Pinnacle, another United States
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`flagged ship, to remove drill cuttings from “P-III,” another oil rig in Brazilian waters. Id. ¶¶ 24-
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`26. Both ships transport drill cuttings to shore for further processing and disposal. M-I alleges
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`both systems are currently operating. It also alleges Dynamic Air Ltda. installed and is operating
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`a third system on board the P-III rig itself. Id.
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`At issue in this case are five United States patents M-I holds for methods, systems, and
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`apparatuses used in the collection, conveyance, transportation, and/or storage of drilling waste,
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`including the paste-like drill cuttings. The patents are numbered: (1) 6,702,539 (the “’539
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`Patent); (2) 6,709,217 (the “’217 Patent”); (3) 7,033,124 (the “’124 Patent”); (4) 7,186,062 (the
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`“’062 Patent”); and (5) 7,544,018 (the “’018 Patent”). Sometime before the Petrobras RFP, M-I
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`alleges as many as eight M-I Brazil employees who had worked on pneumatic conveyance
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`technology left M-I Brazil to work for Dynamic Air Ltda. Id. ¶ 24. M-I alleges Defendants had
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`never previously designed or sold such systems, and Defendants obtained knowledge of these
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`systems through M-I’s former employees and from closely competing against M-I in past RFPs.
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`M-I claims Defendants have directly infringed and contributed to the infringement of the five
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`patents at issue by making, selling, and using pneumatic conveyance systems such as those on
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`the HOS Resolution and the HOS Pinnacle. Id. ¶¶ 31-85.
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`III. DISCUSSION
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`A. Applicable Standards
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`Rule 12(b)(6) of the Federal Rules of Civil Procedure states that a party may move to
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`dismiss a complaint for failure to state a claim upon which relief can be granted. In evaluating
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`such a motion, the court construes the pleadings in the light most favorable to the nonmoving
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`party, and the facts alleged in the complaint must be taken as true. Hamm v. Groose, 15 F.3d
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`110, 112 (8th Cir. 1994) (citation omitted). The court may not consider matters outside the
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`pleadings in connection with a Rule 12(b)(6) motion, but “documents necessarily embraced by
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`the complaint are not matters outside the pleading[s].” Ashanti v. City of Golden Valley, 666
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`CASE 0:13-cv-02385-ADM-HB Document 32 Filed 02/06/14 Page 4 of 11
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`F.3d 1148, 1151 (8th Cir. 2012) (citation omitted). When considering dismissal based on a lack
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`of personal jurisdiction under Rule 12(b)(2), the ruling court may consider materials outside the
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`pleadings. See, e.g., Dakota Indus., Inc. v. Dakota Sportswear, Inc., 946 F.2d 1384, 1387 (8th
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`Cir. 1991).
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`Defendants move to dismiss the Complaint on three grounds. First, Defendants argue
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`United States patent law does not extend to ships sailing on the high seas or in foreign waters,
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`essentially meaning the Court lacks subject matter jurisdiction. Second, Defendants argue M-I
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`has not demonstrated why personal jurisdiction should attach to Dynamic Air Ltda., a Brazilian
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`subsidiary, because Dynamic Air Ltda. has had limited or no contact with Minnesota. Third,
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`Defendants argue M-I has failed to state a claim against Minnesota parent company Dynamic Air
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`Inc. The Court addresses the latter two arguments, finding them determinative.
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`B. Personal Jurisdiction Over Dynamic Air Ltda.
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`To some extent, the parties overlap their Rule 12(b)(6) and 12(b)(2) analyses, regarding
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`failure to state a claim and a lack of personal jurisdiction, respectively. M-I argues that even if it
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`has failed to state an independent claim against Dynamic Air Inc., Dynamic Air Inc. should
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`remain a party because it shares alter ego liability for infringement with Dynamic Air Ltda. But
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`the parties also argue that the alter ego doctrine justifies exercising personal jurisdiction over
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`Dynamic Air Ltda. Personal jurisdiction, as a threshold matter, will be addressed first.
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`Because Minnesota’s long-arm statute is coextensive with the Due Process Clause, a
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`court may only exercise personal jurisdiction if doing so comports with due process. Bell Paper
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`Box, Inc. v. U.S. Kids, Inc., 22 F.3d 816, 818 (8th Cir. 1994). The Due Process Clause requires
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`the nonresident defendant have “minimum contacts” with the forum state such that it “should
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`reasonably anticipate being haled into court there . . . and maintenance of the suit does not offend
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`traditional notions of fair play and substantial justice.” Miller v. Nippon Carbon Co., Ltd., 528
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`CASE 0:13-cv-02385-ADM-HB Document 32 Filed 02/06/14 Page 5 of 11
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`F.3d 1087, 1090-91 (8th Cir. 2008) (quotation omitted); see also Akro Corp. v. Luker, 45 F.3d
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`1541, 1544-45 (Fed. Cir. 1995) (holding the Federal Circuit, like the Eighth Circuit, applies
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`minimum contacts test in patent infringement cases). The Eighth Circuit has stated a five-part
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`test for measuring whether these “minimum contacts” exist:
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`(1) the nature and quality of the contacts with the forum state; (2) the
`quantity of those contacts; (3) the relation of the cause of action to
`the contacts; (4) the interest of the forum state in providing a forum
`for its residents; and (5) the convenience of the parties.
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`Bell, 22 F.3d at 819. “The first three factors are of primary importance.” Id. Both general and
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`specific personal jurisdiction rely on these factors, though general jurisdiction applies only when
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`a defendant has had “systematic and continuous” contacts with the forum, such that the contracts
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`need not relate to the cause of action to satisfy due process. Zumbro, Inc. v. Cal. Natural Prods.,
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`861 F. Supp. 773 (D. Minn. 1994).
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`As discussed above, M-I’s primary attempt to establish personal jurisdiction over
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`Dynamic Air Ltda. relies on the alter ego doctrine.1 In certain circumstances, Eighth Circuit
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`courts have exercised jurisdiction over a nonresident entity if it so controls and dominates a
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`resident entity that finding jurisdiction satisfies due process. See Viasystems, Inc. v. EBM-Papst
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`St. Georgen GmbH & Co., KG, 646 F.3d 589, 596-97 (8th Cir. 2011). Jurisdiction may be
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`appropriate where, for example, the parent corporation operates synergistically with its
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`subsidiary, such that the relationship transcends “mere ownership.” Anderson v. Dassault
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`Aviation, 361 F.3d 449, 452-53 (8th Cir. 2004). The typical situation—and those primarily
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`addressed by Eighth Circuit decisions—have concerned the exercise of personal jurisdiction over
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`1 There is no dispute that the Complaint alleges general personal jurisdiction over
`Dynamic Air Inc., provided a valid claim exists. M-I alleges Dynamic Air Inc. is organized
`under the laws of Minnesota and has its principal place of business in the state. The United
`States Supreme Court has recently reiterated that such facts, which render a party “at home” in
`the state, are sufficient for general jurisdiction. Goodyear Dunlop Tires Operations, S.A. v.
`Brown, 131 S. Ct. 2846, 2851 (2011); Daimler AG v. Bauman, 134 S. Ct. 746, 760-61 (2014).
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`a nonresident parent company due to the actions of its in-state subsidiary. See, e.g., id.
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`In some cases, federal courts have extended jurisdiction in the converse situation. In
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`other words, courts have sometimes exercised jurisdiction over a foreign subsidiary based on the
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`parent company’s in-state business. However, the exercise of jurisdiction must be determined on
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`a case-by-case basis, and is generally appropriate only where the corporations are alter egos, or
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`the parent company has taken in-state actions on behalf of the subsidiary. See, e.g., Digi-Tel
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`Holdings, Inc. v. Proteq Telecomm. (PTE), Ltd., 89 F.3d 519, 523-24 (8th Cir. 1996); Dainippon
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`Screen Mfg. Co., Ltd. v. CFMT, Inc., 142 F.3d 1266, 1271 (Fed Cir. 1998); 4A Charles Alan
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`Wright & Arthur R. Miller, Federal Practice and Procedure § 1069.4 (3d ed.) (“There is a
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`reluctance to exercise personal jurisdiction over a subsidiary merely because its parent
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`corporation is doing business in the forum state.”).
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`In this case, M-I has not demonstrated why jurisdiction should be exercised over
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`Dynamic Air Ltda. based on Dynamic Air Inc.’s Minnesota contacts. M-I does not allege or
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`argue that Dynamic Air Inc. took in-state actions on behalf of Dynamic Air Ltda., or that
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`Dynamic Air Ltda. otherwise took advantage of its corporate relationship with Dynamic Air Inc.
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`to conduct business in Minnesota. See Digi-Tel, 89 F.3d at 523-24. And, in its pleadings, M-I
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`does not establish prima facie evidence of an alter ego relationship between Defendants. M-I’s
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`only evidence is two printouts of Dynamic Air Inc.’s website, on which Dynamic Air Ltda. is
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`listed as an “international office” for Brazilian sales. Adam D. Swain Decl. [Docket No. 28]
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`Exs. 1, 2. While website statements regarding a corporate relationship may be relevant to alter
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`ego analysis, M-I’s evidence standing alone does not demonstrate sufficient control or
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`dominance over Dynamic Air Ltda. See Epps v. Stewart Information Servs. Corp., 327 F.3d
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`642, 650 (8th Cir. 2003). On the other hand, M-I acknowledges that Dynamic Air Ltda.
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`separately bid for and won the Petrobras RFP process, and that Dynamic Air Ltda. has its own
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`CASE 0:13-cv-02385-ADM-HB Document 32 Filed 02/06/14 Page 7 of 11
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`employees and independent headquarters in Brazil. Under these circumstances, M-I has not
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`demonstrated a sufficiently synergistic relationship between Dynamic Air Inc. and Dynamic Air
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`Ltda., such that jurisdiction over the Brazilian company is appropriate.
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`The Complaint includes two additional allegations attempting to establish personal
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`jurisdiction over Dynamic Air Ltda., but neither succeeds. First, M-I alleges Dynamic Air Ltda.
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`conducts “regular and systematic business” with Dynamic Air Inc. in the state of Minnesota.
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`Compl. ¶ 7. Even if this allegation were not entirely conclusory, conducting business in
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`Minnesota is alone not sufficient to render the subsidiary “at home” in the forum state. See
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`Daimler AG, 134 S. Ct. at 760-61 (2014). Second, M-I alleges the Court has jurisdiction over
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`Dynamic Air Ltda. pursuant to Rule 4(k)(2) of the Federal Rules of Civil Procedure. Compl. ¶ 9.
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`Under Rule 4(k)(2), a court may exercise jurisdiction over a nonresident defendant if the plaintiff
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`serves a summons on the defendant, the defendant is not subject to the jurisdiction of any state
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`court, and exercising jurisdiction is consistent with the United States Constitution and laws.
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`Here, Defendants argue, and M-I does not dispute, that M-I has failed to serve Dynamic Air
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`Ltda. with a summons. In addition, M-I has failed to demonstrate Dynamic Air Ltda.’s contacts
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`with the United States such that exercising jurisdiction would satisfy due process. See, e.g.,
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`Synthes (U.S.A.) v. G.M. Dos Reis Jr. Ind. Com. De Equip Medico, 563 F.3d 1285, 1295-96
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`(Fed. Cir. 2009). Thus, neither of these avenues lead to personal jurisdiction.
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`Because the Court ultimately finds that the alter ego doctrine has not been sufficiently
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`alleged to establish personal jurisdiction, it similarly holds that alter ego liability has not been
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`sufficiently alleged to justify piercing the corporate veil and exposing Dynamic Air Inc. to
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`infringement liability.
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`C. Failure to State a Claim Against Dynamic Air Inc.
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`In their motion, Defendants argue M-I has stated conclusory and insufficient allegations
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`of infringement against Dynamic Air Inc. M-I responds that even a basic recitation of patent
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`infringement elements should survive dismissal under notice pleading requirements for patent
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`claims.
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`M-I has failed to state a plausible claim against Dynamic Air Inc. The factual allegations
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`in the Complaint focus almost exclusively on Dynamic Air Ltda. Specifically, M-I alleges that:
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`Dynamic Air Ltda. poached M-I Brazil’s employees, Dynamic Air Ltda. submitted a bid and
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`won the RFP process, and Dynamic Air Ltda. installed and operated the pneumatic systems at
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`issue. Compl. ¶¶ 24-26. In just a single instance, M-I describes Dynamic Air Inc. as having a
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`role in the alleged infringement, and even then, the role is summarily alleged. Namely, M-I
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`alleges, “Dynamic Air Ltda. was the winner of the bidding process, and, upon information and
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`belief, thereafter along with Dynamic Air [Inc.] designed, sold and operated such a system on the
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`HOS Resolution . . . .” Id. ¶ 24 (emphasis added). Nowhere else in the Complaint does M-I
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`allege factual specifics concerning Dynamic Air Inc. Attempting to buttress its pleading, M-I
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`cites allegations pertaining to “Defendants” as a group. But many of these broad allegations
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`logically refer to Dynamic Air Ltda. alone. For instance, M-I specifically names Dynamic Air
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`Ltda. as the party which installed a pneumatic conveyance system on the HOS Pinnacle. M-I
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`further alleges “Defendants” as a group then transported the drill cuttings from the ship for
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`further processing, even though M-I does not allege Dynamic Air Inc. had any role in the
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`installation or operation of the system. On its face, the Complaint fails to plausibly identify
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`conduct by Dynamic Air Inc. that has allegedly infringed the patents in suit.
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`M-I attempts to escape this conclusion by arguing Form 18, in the Appendix to the
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`CASE 0:13-cv-02385-ADM-HB Document 32 Filed 02/06/14 Page 9 of 11
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`Federal Rules of Civil Procedure, states a more lenient pleading standard. Form 18 provides a
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`sample complaint for patent infringement, and thus states the basic requirements for an
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`infringement claim:
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`(1) an allegation of jurisdiction; (2) a statement that the plaintiff owns
`the patent; (3) a statement that defendant has been infringing the
`patent ‘by making, selling, and using [the device] embodying the
`patent’; (4) a statement that the plaintiff has given the defendant
`notice of its infringement; and (5) a demand for an injunction and
`damages.
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`In re Bill of Lading Transmission & Processing Sys. Patent Litig., 681 F.3d 1323, 1334-35 (Fed.
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`Cir. 2012) (citation omitted). The Federal Circuit has held that because the United States
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`Congress adopted Form 18, the form qualifies as an amendment to the Federal Rules of Civil
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`Procedure. Id. Thus, to the extent Form 18 conflicts with Rule 8 pleading standards, Form 18
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`must control. Id.
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`However, the Federal Circuit has further held that Form 18 and Rule 8 do not necessarily
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`conflict. K-Tech Telecomm., Inc. v. Time Warner Cable, Inc., 714 F.3d 1277 (Fed. Cir. 2013).
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`In K-Tech, the Federal Circuit held that Form 18 does not alter the notice and facial plausibility
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`requirements of Rule 8, and that a conflict between the two standards need not occur because a
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`complaint satisfying Form 18 may also satisfy Rule 8. See K-Tech, 714 F.3d at 1284-85. Thus,
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`under Form 18, a patent infringement complaint must still be evaluated in terms of whether it
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`places the defendant on notice of the allegedly infringing conduct, and whether it states a facially
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`plausible claim of infringement. Id. at 1284, 1286-87.
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`The Federal Circuit held the plaintiff in K-Tech had successfully stated claims under
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`Form 18 and Rule 8. The plaintiff alleged patent infringement against two parties: DirecTV and
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`Time Warner Cable, Inc. (“Time Warner”). The plaintiff described its patented systems and
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`methods, and indicated how its patent addressed a regulatory requirement for the broadcast of
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`digital television. K-Tech, 714 F.3d at 1285. The plaintiff then referenced a patent held by
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`DirecTV, described its communications with DirecTV, and described its explanation for why
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`DirecTV had infringed. Regarding Time Warner, the plaintiff provided a specific example of a
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`television program broadcast and how Time Warner’s assignment of digital channels to this
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`program infringed the patent. Id. at 1285-86. These allegations were sufficient to place each
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`television company on notice as to what the patents claimed, how the plaintiff understood the
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`infringing systems to work, and why the plaintiff viewed each system as infringing. Id.; see also
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`In re Bill of Lading, 681 F.3d at 1335-36 (finding complaints stated claims because plaintiff
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`alleged, in part, specifically who was infringing and what activities constituted infringement).
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`Even assuming Form 18 establishes a more lenient pleading standard than Rule 8, M-I
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`still has not stated a claim for infringement against parent company Dynamic Air Inc.
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`Undoubtedly, M-I has alleged sufficient facts to successfully state patent infringement claims
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`against subsidiary Dynamic Air Ltda. Through the Complaint, Dynamic Air Ltda. knows what
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`patents are at issue, what conduct and technology is alleged to be infringing, and why. It cannot
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`fairly be said Dynamic Air Inc. has the same understanding. Unlike the plaintiff in K-Tech, M-I
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`has not plausibly alleged infringing conduct by each Defendant. Instead, M-I has alleged a
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`single, conclusory phrase regarding Dynamic Air Inc. See Compl. ¶ 24 (stating Dynamic Air
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`Ltda. infringed “. . . along with Dynamic Air [Inc.]”). The remainder of the Complaint refers to
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`Defendants interchangeably, presumably in an attempt to implicate both. While M-I need not
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`prove its case at this stage, it must plead “factual content that allows the court to draw the
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`reasonable inference that the defendant is liable for the misconduct alleged.” Prism Techs., LLC
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`v. AT&T Mobility, LLC, No. 8:12CV122, 2012 WL 3867971, at *5 (D. Neb. Sept. 6, 2012)
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`(citing Hamilton v. Palm, 621 F.3d 816, 817 (8th Cir. 2010)). Here, it cannot be concluded that
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`Dynamic Air Inc. infringed the patents at issue because M-I has not plausibly alleged any
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`infringing conduct specifically by Dynamic Air Inc.2
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`IV. CONCLUSION
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`Based upon all the files, records, and proceedings herein, IT IS HEREBY ORDERED
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`that:
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`1.
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`2.
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`Defendants Dynamic Air Inc. and Dynamic Air Ltda.’s Motion to Dismiss
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`[Docket No. 22] is GRANTED; and
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`The Complaint [Docket No. 1] is DISMISSED WITHOUT PREJUDICE.
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`LET JUDGMENT BE ENTERED ACCORDINGLY.
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`BY THE COURT:
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`Dated: February 6, 2014.
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` s/Ann D. Montgomery
`ANN D. MONTGOMERY
`U.S. DISTRICT JUDGE
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`2 This action is dismissed without prejudice, potentially allowing M-I the opportunity to
`cure the facial deficiencies in the Complaint and re-file. However, M-I has conceded that M-I
`Brazil has filed a parallel patent action in Brazil against Dynamic Air Ltda., to enforce Brazilian
`patents covering the same methods and technology at issue. Although M-I contends the
`Brazilian patents do not cover all aspects of the U.S. patents, the Brazilian patent action may
`appropriately affect whether M-I can or should re-plead its case here.
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