A “Virtual” Home Is Not a Home: Court Sanctions Plaintiffs for “Reckless Disregard” in Deciding the Proper Forum for Their Litigation

Usually, one benefit of being a plaintiff is deciding in what forum to pursue litigation.  Generally, even a foreign-based plaintiff may pursue litigation in a U.S. forum where a defendant may be found or in which there is a substantial connection to the litigation.  There are, however, limits on a plaintiff’s choice of forum, and a recent decision in Tapgerine LLC v. 50Mango, Inc. demonstrates that pushing those limits may result in sanctions.

In Tapgerine—a case in which all three parties are Ukrainian entities—Judge Alsup sanctioned plaintiffs Tapgerine LLC and TapMedia (“Plaintiffs”) for filing a complaint against defendant 50Mango, Inc. in the United States and for opposing 50Mango’s motion to dismiss on forum non conveniens grounds.  Judge Alsup concluded that Plaintiffs’ “reckless disregard in ascertaining the proper forum” and their improper purpose of the litigation constituted bad faith sufficient to warrant sanctions.  In so holding, Judge Alsup appears to place squarely on plaintiffs a duty to exercise some modicum of diligence when determining whether venue is proper.

Plaintiffs sued 50Mango for trade secret misappropriation in the Northern District of California in November 2016.  50Mango moved to dismiss shortly thereafter for forum non conveniens.  50Mango argued that it and Plaintiffs are based primarily in the Ukraine.  In response, Plaintiffs argued that all the sources of proof for their case were located in the United States and that the “Ukraine was too war-torn and unstable to provide an adequate remedy.” Plaintiffs also argued that 50Mango maintained a “virtual” place of business in Delaware and that Plaintiffs had a presence in the United States as well.  Prior to ruling on the motion to dismiss, Judge Alsup issued an order seeking supplemental evidence to corroborate the existence of the parties’ real presence in the United States.  Rather than providing the Court with evidence of their presence in the United States, Plaintiffs voluntarily dismissed their complaint, prompting 50Mango to file a motion for attorneys’ fees.

50Mango argued in its motion for sanctions that Plaintiffs acted in bad faith when choosing the Northern District as a forum in order to force 50Mango to endure the expense and inconvenience of litigating in the United States.  50Mango highlighted that Plaintiffs, prior to filing, knew that all of the relevant witnesses, documents, and other evidence were located in the Ukraine. 50Mango also argued that Plaintiffs misled their attorneys into believing that 50Mango’s servers (which allegedly hosted the trade secrets) and the relevant witnesses were located in the United States.  In response, Plaintiffs argued that at the time of filing they were unaware of 50Mango’s presence in the Ukraine and that they dismissed their complaint once they learned that the key evidence was not in the United States.

Judge Alsup was not convinced.  He first rejected Plaintiffs’ arguments regarding the location of the evidence.  In particular, he noted that Plaintiffs knew that their former employees, alleged to have misappropriated the trade secrets, were all still in the Ukraine, “eviscerat[ing] [P]laintiffs’ asserted ignorance of the location of key witnesses.”  Also unpersuasive was Plaintiffs’ voluntary dismissal of their complaint.  Given that Plaintiffs had sued 50Mango in the Ukraine shortly after filing the present litigation, Judge Alsup believed the dismissal was an attempt to avoid providing the Court-ordered supplemental evidence that would “reveal their scheme.”  Perhaps most damning was Plaintiffs’ attempt to mislead the Court regarding Plaintiffs’ purported presence in the United States, leading Judge Alsup to characterize their representations as a “severe overstatement of [P]laintiffs’ actual presence.”

Ultimately, Judge Alsup concluded that Plaintiffs’ recklessness in failing to ascertain the proper forum and the improper purpose of the litigation constituted bad faith sufficient to warrant sanctions and ordered Plaintiffs to pay over $30,000 in legal fees to 50Mango.  As this decision illustrates, a plaintiff has to exercise some diligence in determining whether its chosen forum is appropriate.  The failure to do so may constitute bad faith and subject a plaintiff to sanctions.