Berven v. LG Chem, Ltd.

RACHEL BERVEN, et al., Plaintiffs, v. LG CHEM, LTD., Defendant.

CASE NO.: 1:18-CV-01542-DAD-EPG

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF CALIFORNIA

April 18, 2019

FINDINGS AND RECOMMENDATIONS RECOMMENDING THAT THE MOTION TO DISMISS FOR LACK OF JURISDICTION BE DENIED AND THAT THE MOTION FOR LEAVE TO AMEND THE COMPLAINT BE GRANTED

TWENTY-ONE DAY DEADLINE

(ECF Nos. 7, 17, 27)

Before the Court, on referral from District Judge Dale A. Drozd (ECF No. 23), are Defendant's Motion to Dismiss for Lack of Personal Jurisdiction (ECF No. 7) and Plaintiffs' Motion for Leave to Amend the Complaint to Add Jurisdictional Allegations (ECF No. 17). For the reasons discussed below, the Court recommends that Defendant's Motion to Dismiss for Lack of Personal Jurisdiction (ECF No. 7) be denied, and that Plaintiffs' Motion for Leave to Amend the Complaint to Add Jurisdictional Allegations (ECF No. 17) be granted.

I. BACKGROUND

A. Plaintiff's Original Complaint

This is a product liability action brought by Plaintiffs, Rachel Berven and James Berven (collectively "the Bervens") against Defendant, LG Chem, Ltd. ("LG Chem"). According to the Complaint (ECF No. 1), in November 2015, Ms. Berven went to Switch to Vapor, a retail store located in California, and purchased an electronic cigarette ('e-cigarette" or "e-cig") and related parts, including a replacement cylindrical battery manufactured by LG Chem—the LG 18650 lithium-ion battery ("18650 battery"). (ECF No. 1.) On February 25, 2016, Ms. Berven decided to replace the battery in her e-cigarette. She removed the old battery, put the lithium-ion battery that she had purchased from Switch to Vapor into her e-cigarette, put the e-cigarette up to her mouth, and pressed the activation button. (Id. at 20-21.) The e-cigarette "suddenly exploded—causing her hair, face, neck, shirt, pants, and thighs to catch on fire." (Id. at 21.) Ms. Berven's resulting injuries include first, second, and third-degree burns to her face, neck, thighs, arm, and hand; a fractured jaw; top and bottom lip split; and two teeth knocked out and another tooth shattered in half. (Id.)

On February 23, 2018, the Bervens filed this product liability action against LG Chem in Stanislaus County Superior Court. The Complaint alleges that the explosion and Ms. Berven's resulting injuries were caused by the defective e-cigarette products, including the replacement battery manufactured by LG Chem. (Id. at 22.) The Complaint brings claims against LG Chem for strict product liability and negligent product liability.

On November 6, 2018, LG Chem removed the action to federal court based on diversity jurisdiction, and on November 9, 2018, LG Chem filed a motion to dismiss for lack of personal jurisdiction. (ECF No. 7.) On December 19, 2018, the Bervens moved for leave to file a first amended complaint ("proposed FAC" or "FAC") to add additional jurisdictional allegations against LG Chem. (ECF No. 17.) LG Chem opposes the motion to amend, arguing that leave to amend should be denied because the Bervens cannot meet their burden of establishing personal jurisdiction and that amendment would accordingly be futile. (ECF No. 21.)

B. Proposed First Amended Complaint

The FAC alleges that the Court has specific personal jurisdiction over LG Chem because the incident occurred in California and LG Chem "has purposefully availed itself of the privileges and benefits of doing business in California." (ECF No. 17-1 at 6.) LG Chem "has past, present, ongoing, and continuing contacts with California by transacting substantial andregular business in this state and manufacturing, distributing, and/or selling goods with the reasonable expectation and knowledge that they will be used in this state and which are in fact used in this state." (ECF No. 17-1 at 5-6.) The FAC includes the following additional allegations in support of personal jurisdiction:

LG Chem is a global supplier of products, and touts its global reach, noting that LG "is literally the company leading the chemical industry in Korea. The company has built the global network for production, sales and R&D not only in Korea but also in main bases across the world and has provided globally competitive products including ABS, polarizers, and EV battery cells, raising its global position as a material supplier . . . LG Chem is committed to becoming a global company." LG also stresses that it is "the only chemistry-based company among global battery cell manufacturers, [which] has led the world lithium-ion battery market . . . positioned as a global leader . . . and has secured the battery production capacity as a global player . . . ."

LG's Company Profile boasts that it is responsible for "manufacturing the first domestic Lithium-ion Battery that is leading the global market with superior technology and productivity." It lists as "major customers" such worldwide brands as LG Electronics, Apple (headquartered in Cupertino, CA), Dell, Hewlett Packard (headquartered in Palo Alto, CA), Bosch, Asus, Lenovo, Stanley Black&Decker, and others. And its most recent Annual Report discloses its drive that "we will become the undisputable top maker of lithium-ion batteries within the next few years."

LG Chem sells its batteries to worldwide markets, utilizing distributors across the globe to ensure the reach of its battery products in all markets. This is particularly true in California, where LG has, upon information and belief, established particular lithium-ion battery distributors to which it ships large quantities of its cylindrical lithium-ion batteries. These batteries are then redistributed, sold, packaged, transported, or provided to end users in California and across the United States for use. The regular course and scope of LG Chem's batteries involves the shipping of huge quantities of its batteries, both the cylindrical lithium-ion battery at issue here, as well as LG Chem's other energy storage products, into and throughout California, and indeed the world. LG Chem's known California distributors—to which it directly ships thousands if not millions of battery products—include the following:

i. Energy Sales, headquartered at 1380 Borregas Ave., Sunnyvale, CA 94089, which states that it is a "value-added assembler and distributor specializing in the most widely accepted brands of batteries," and specifically lists LG Chem as one of its primary suppliers of battery cells for lithium-ion, lithium-polymer, and silver-oxide batteries.

ii. House of Batteries, headquartered at 19010 Talbert Ave., Fountain Valley, CA 92708. That company claims it is a "US-based supplier of LG Chem batteries."

iii. Based on information and belief, during at least the years 2013 to present, LG Chem supplied, sold, shipped, distributed and provided directly to consumers and distributors throughout the State of California, thousands (if not millions) of its products, including cylindrical lithium-ion batteries, which were sold for use, and used, in California. Based on information and belief, LG Chem marketed, advertised, targeted customers, and promoted the sale of its various products, including lithium-ion batteries, to numerous consumers and distributors throughout California. Upon information and belief, those distributors, and other distributors located throughout the United States and the world, in turn sold large quantities of products, including LG lithium-ion batteries to wholesalers and retailers located in California for direct sale to California consumers, where saidproducts were purchased by California residents and used in the State. Based on information and belief, LG's marketing, advertising, sale, distribution network, and provision of batteries to California resulted in the use of thousands, if not millions, of LG products, particularly cylindrical lithium-ion batteries, in the State of California—and comprising one of LG's primary distribution channels for its products.

In addition to the authorized LG Chem batteries shipped directly to California, LG Chem also engages, upon information and belief, in a grading process for the various batteries it manufactures. Upon information and belief, those batteries that fail to achieve a sufficient grade or conform appropriately to standards are not discarded. Instead, in the interests of profit, LG Chem sells those inferior or nonconforming lithium-ion battery products to other distributors, with LG knowing full well that they may be using those batteries for individual electronic or other uses—uses that may not be explicitly authorized, but are certainly permitted by LG Chem in the interest of maintaining its profitability. In addition, based upon information and belief, in the manufacturing process, LG Chem ends up with a significant quantity of batteries with cosmetic defects in the wrapper, without a wrapper at all, or with batteries with other types of cosmetic and other defects. Again, instead of discarding those batteries, LG Chem knowingly sells those substandard batteries to various distributors throughout the world to remove the cosmetically defective or missing wrapper, apply their own wrapping, and then sell those batteries for other uses. Those batteries are then sold to consumers throughout the world, and readily and rapidly reach California shores, all at the reasonable expectation or explicit knowledge of LG Chem. Based on these two avenues, LG Chem ultimately sells huge quantities of lithium-ion batteries that end up in the electronic cigarette market in California, and end up in the hands of California consumers, including upon information and belief, the battery at issue in this matter.

For at least the last six years, it has been well known in the electronic cigarette industry, and based upon information and belief, well known to LG Chem, that its lithium-ion batteries were being used in connection with electronic cigarettes and were even recommended by multiple online sources for e-cig use. For example, the following electronic cigarette

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