Bakken Res., Inc. v. Edington

BAKKEN RESOURCES, INC., Plaintiff, v. EDINGTON, ET AL, Defendants.

15 Civ. 8686 (ALC)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

March 29, 2019

OPINION AND ORDER

ANDREW L. CARTER, United States District Judge:

Plaintiff Bakken Resources, Inc. (the "Company" or "Bakken") brings this action against Joseph Edington, Jerod Edington, Ryan Edington, IWJ Consulting Group, Inc. ("IWJ"), Triax Capital Management, Inc. ("Triax"), American Cordillera Mining Corporation ("Cordillera"), and Marycliff Investment Corp (collectively the "Edingtons" or "Defendants") alleging causes of action under: Racketeering Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §1962; Section 10 of the Securities Exchange Act of 1934, 15 U.S.C. § 78j; Section 17 of the Securities Exchange Act of 1934, 15 U.S.C. § 78q; and various state law claims. ECF No. 41. The following motions are currently before the Court: 1) Defendants' Motion to Dismiss these actions for lack of personal jurisdiction, improper venue, and failure to state a claim; 2) Plaintiff's motion to transfer venue; and 3) the Parties' Motions for Sanctions. For the reasons discussed below, Defendants' motion to dismiss is GRANTED, Plaintiff's motion to transfer is DENIED, and the Parties' motions for sanctions are DENIED.

BACKGROUND

I. Factual Background¹

A. The Parties

Bakken is a Nevada Corporation with securities registered under Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 781(g), and with its principal place of Business in Montana.² FAC. ¶10.

Joseph R. Edington ("Edington") served as Bakken's promoter, agent, and principal during the Company's forming stages in late 2010. Id. ¶16. Edington is domiciled in Washington. Id. ¶13. Jerod Edington ("Edington II") and Ryan Edington ("Edington III") are Edington's sons and are also domiciled in Washington. Id. ¶¶ 17-18.

IWJ was a Nevada limited liability company. Edington II served as IWJ's managing member and Janelle Edington served as IWJ's registered agent. Id. ¶ 21. IWJ regularly appears in consulting agreements mentioned in public disclosures filed by the various public reporting companies that the Edingtons have directly or indirectly controlled. Id. Triax Capital Management, Inc. was a Nevada corporation. Id. ¶ 22. Marycliff Investment Corp. was a Washington corporation registered to Edington and served as another location where theEdingtons placed assets. Id. ¶ 23. Cordillera is a Nevada Corporation that Edington transferred silver mining assets belonging to Bakken to. Id. ¶ 24.

B. The Edingtons' Relationship with Bakken

Edington was introduced to Holms by Holms' half-brother, Allan Holms, which led to a series of meetings between Val Holms and Edington. These meetings first took place in Spokane, Washington around December 2009. Id. ¶ 57. Edington discovered that Val held valuable oil and gas assets in North Dakota.³ Id. ¶ 58. As a result, Edington proposed that Val Holms put his mineral assets into a public shell company as part of a reverse merger transaction to create a public company based on those assets. Id. ¶ 60.

Edington encouraged Holms to use a shell company called Multisys Language Systems, Inc. ("MLS") to perform a reverse merger transaction involving his mineral assets. Id. ¶ 75. Edington drafted a June 28, 2010 Private Placement Memorandum ("PPM") during the summer of 2010 and used it to raise certain investor funds for the entity the MLS reverse merger would create. Id. ¶ 82. Edington primarily solicited his investor contacts for the PPM. Edington's family and other affiliates were significant or controlling shareholders, directors, and officers of MLS. These persons, as well as MLS itself, were inactive.

Holms Energy, LLC ("Holms Energy") contributed Holms' previously held oil and gas mineral interests to MLS. Id. Throughout the reverse merger process, Edington controlled MLS by installing his daughter and other confidants as significant holders. Id. ¶ 91. He also directed Edington II to draft the MLS documents required under the Exchange Act. The MLS reversemerger transaction closed, and Bakken formed in November 2010. Id.⁴ ¶ 94. Val Holms served as Bakken's CEO and chairman and Edington allegedly chose the other board members. Id. ¶ 93. Edington served as Bakken's outside consultant after the reverse merger.

In January 2011, Edington accompanied Holms to New York City to promote Bakken's stock. They spoke with potential investors and met other individuals to assist in the campaign. Id. ¶ 102. In late February 2011, after returning home from the business trip, Holms decided to pursue stock promotional and fundraising efforts in New York City and hired Joel Brownstein as a stock promoter and shareholder liaison. Id. ¶ 103. Brownstein acquired an office in New York City at 41 Madison Avenue. Id. ¶ 104.

Later in 2011, Bakken discovered Edington misrepresented his background. Id. ¶ 105.⁵ Bakken later retained outside corporate and securities counsel in New York City to investigate Edington. Id. ¶ 109. Defendants opposed the investigation and Edington II wrote several disparaging and unsubstantiated e-mails criticizing outside counsel. Id. ¶ 111. In May of 2011, Holms determined that Edington's questionable regulatory past, misstatements, and overall behavior was unacceptable and notified Edington and the other Defendants to cease any further work relating to Bakken. Id. ¶ 113.

II. Procedural History

On November 4, 2015, Holms and Bakken filed their original Complaint against Defendants alleging RICO violations, fraud, breach of fiduciary duty, tortious interference withprospective business advantage, civil conspiracy, malicious prosecution, conversion, unjust enrichment, and violations of the Securities Exchange Act. ECF No.1. Bakken's FAC, filed on March 28, 2016, withdrew all of Holms' claims and reasserted Bakken's allegations and claims. On May 4, 2017, Defendants moved to stay the action pending the disposition of Bakken's state court actions in Montana and Nevada. ECF No. 68. Plaintiff filed its opposition memorandum on May 26, 2017, and the Court denied the motion on March 15, 2019. ECF Nos. 74,76.

On July 5, 2018, Defendants filed the instant Motion to Dismiss for lack of personal jurisdiction, improper venue, and failure to state a claim. ECF No. 99. On the same day, Defendant filed a Motion for Sanctions against Plaintiff for asserting the RICO claim. ECF No. 101. Plaintiff filed its oppositions on July 9, 2018, and Defendants replied on August 1, 2018, ECF Nos. 106, 109-111.⁶ The Court considers these motions fully briefed.

DISCUSSION

The Court will address each Motion individually.

I. Defendant's Motion to Dismiss

A. Legal Standard

On a motion to dismiss, "the plaintiff bears the burden of establishing that the court has jurisdiction over the defendant." DiStefano v. Carozzi N. Am., Inc., 286 F.3d 81, 84 (2d Cir.2001) (citation omitted); see also In re Terrorist Attacks on Sept. 11, 2001, 714 F.3d 659, 673 (2d Cir. 2013); Fed. R. Civ. Pro. 12(b)(2). Prior to discovery, a plaintiff may survive scrutiny of personal jurisdiction over the Defendants by presenting, "[A] prima facie case [that] requires... fact specific allegations or evidence showing that activity that constitutes the basis ofjurisdiction has taken place." Chirag v. MT Marida Marguerite Schiffahrts, 604 F. App'x 16, 19 (2d Cir. 2015) (citing Jazini v. Nissan Motor Co., 148 F.3d 181, 185 (2d Cir. 1998); see also In re Terrorist Attacks, 714 F.3d at 673 ("In order to survive a motion to dismiss for lack of personal jurisdiction, a plaintiff must make a prima facie showing that jurisdiction exists." (citation omitted)). All jurisdictional allegations "are construed in the light most favorable to the plaintiff and doubts are resolved in the plaintiff's favor [.]" A.I. Trade Fin., Inc. v. Petra Bank, 989 F.2d 76, 79-80 (2d Cir. 1993). However, the court "will not draw argumentative inferences in the plaintiff's favor" and need not "accept as true a legal conclusion couched as a factual allegation." In re Terrorist Attacks, 714 F.3d at 673 (citations omitted); see also Licci ex rel. Licci v. Lebanese Canadian Bank, SAL, 673 F.3d 50, 59 (2d Cir. 2012).

Here, the Court must engage in a two-part analysis: 1) determine if "a statutory basis" exists to exercise personal jurisdiction," Marvel Characters, Inc. v. Kirby, 726 F.3d 119, 128 (2d Cir. 2013); and 2) determine if the exercise of jurisdiction comports with due process, Sonera Holding B.V. v. Çukurova Holding A., 750 F.3d 221, 224 (2d Cir.) (per curiam), cert. denied, — U.S. —, 134 S.Ct. 2888, 189 L.Ed.2d 837 (2014). In the first inquiry, the court "applies the forum state's personal jurisdiction rules" unless a federal statute "specifically provide[s] for national service of process." PDK Labs, Inc. v. Friedlander, 103 F.3d 1105, 1108 (2d Cir. 1997) (internal quotation marks omitted). Plaintiff's RICO allegations incorporate the jurisdiction provisions of 18 U.S.C. § 1965(b), which allows for "national service or process" and, thus, guides the Court's first jurisdictional analysis. See Hitachi Data Sys. Credit Corp. v. Precision Discovery, Inc., 331 F. Supp. 3d 130, 145 (S.D.N.Y. 2018).

A. RICO Jurisdictional Requirements

The Second Circuit maintains that 18 U.S.C. § 1965 "does not provide for nationwide personal jurisdiction over every defendant in every civil RICO case, no matter where the defendant is found." PT United Can Co. Ltd. v. Crown Cork & Seal Co., Inc., 138 F.3d 65, 71 (2d Cir. 1998). See 18 U.S.C. § 1965.⁷ Rather, the court explained, "a civil RICO action can only be brought in a district court where personal jurisdiction based on minimum contacts is established as to at least one defendant." Id.⁸ Once plaintiff establishes the court's personal jurisdiction over one defendant, the statute authorizes the court's nationwide personal jurisdiction over co-defendants where the "ends of justice" so require. Id. To comply...