Haak v. Dishon

Gary K Haak, Plaintiff, v. Terry Dishon, et al., Defendants.

No. CV-17-03576-PHX-ROS

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

September 24, 2018

ORDER

Plaintiff Gary Haak ("Haak") alleges that, after being hired by a company owned by Defendants Terry and Luci Dishon (the "Dishons"), the Dishons and Defendant Terry Dunken ("Dunken") fraudulently induced Haak into providing services by promising Haak he would be compensated when the company was sold. Haak further alleges he never received this compensation, nor the compensation due him under his employment agreement. Finally, Haak alleges the Dishons made misrepresentations in connection with the company's subsequent bankruptcy proceedings, and that Defendants Craig Power ("Power") and Stephen R. Smith ("Smith") provided legal services in connection with the bankruptcy. Defendants now move to dismiss Haak's claims. Regarding Defendants Power's, Smith's, and Dunken's motions, these will be granted as the Court lacks personal jurisdiction over these Defendants. The Dishons' motion will also be granted, since Haak's contract and fraud claims do not allege sufficient facts, since the fraudulent inducement claim lacks the requisite particularity. However, these deficiencies may be curable, and Haak will be granted leave to amend.

BACKGROUND

Haak's amended complaint, (Doc. 6), alleges the following: Haak is an Arizona resident who was hired by MCI Partners ("MCI"), a Delaware limited liability company, as Vice President of Operations at some time in 2012. MCI was owned by Defendants Terry and Luci Dishon ("the Dishons"), both of whom were, at all relevant times, North Dakota residents. At the time, the Dishons also owned and operated several other companies, including Dishon Disposal, a North Dakota oil field waste disposal company.

Haak alleges he had an employment agreement with MCI, but "agreed to defer raises and provided services [for] which he was never paid." Haak does not allege how long he worked for MCI, or exactly what services he performed as Vice President of Operations, except to note that he terminated an employee at the Dishons' direction.

Haak further alleges that, later in 2012, the Dishons, both Montana residents, sold Dishon Disposal.¹ To effectuate the sale, Dishon Disposal was first merged into Waste Deep, a Nevada corporation, and then sold to another company, Digerati Technologies ("Digerati"). In connection with this sale, on November 15, 2012, the Dishons and Defendant Terry Dunken ("Dunken"), a Texas resident, allegedly instructed Haak to "sign the transfer documents for Waste Deep." Haak alleges he did so because he was told he was the only person available to sign the documents and because he was promised he would be compensated and receive stock shares following the sale.

The transfer of the companies was completed on November 26, 2012. However, following the sale, Digerati never paid the Dishons, and, in turn, the Dishons never compensated Haak. Instead, Digerati filed for bankruptcy in the Southern District of Texas. Haak alleges Defendants Stephen Smith ("Smith") and Craig Power ("Power"),² both Texas residents, provided representation during the bankruptcy proceedings. Haakalso alleges the Dishons made misrepresentations and omissions in connection with the bankruptcy, and fraudulently filed Waste Deep's Articles of Incorporation.

Haak filed the instant suit in December 2017, bringing three claims against the Defendants. The first is a breach of contract claim in which Haak alleges he has not been compensated for the services he provided per the employment agreement and that he has not been compensated for signing the Articles of Incorporation. Haak alleges his damages are approximately $4.3 million. In his remaining claims, Haak says he was "fraudulently induced" into signing Waste Deep's transfer documents, and that Defendants committed fraud during the bankruptcy proceeding and fraudulently filed Waste Deep's Articles of Incorporation.

Defendants now move to dismiss Haak's claims. As to Defendants Power, Smith, and Dunken, they separately move to dismiss on many grounds, including on the shared basis that this Court cannot exercise personal jurisdiction over them. (Docs. 18; 20; 34). The Dishons also move to dismiss, arguing this Court lacks subject matter jurisdiction over Haak's bankruptcy fraud claims, and that each of Haak's allegations must be dismissed because they are grounded in fraud and do not satisfy Rule 9(b)'s heightened pleading standard. (Doc. 27). Haak responded to each, (Docs. 36; 37; 40; 46), and Defendants Power, Smith, and the Dishons replied, (Docs. 38; 41; 48).

ANALYSIS

Defendants move to dismiss Haak's claims for a variety of reasons including lack of subject matter jurisdiction, lack of personal jurisdiction, and failure to state a claim. (Docs. 18; 20; 27; 34). Because the issue of personal jurisdiction is dispositive as to Defendants Power, Smith, and Dunken, the analysis begins there.

I. Personal Jurisdiction: Defendants Power, Smith, and Dunken

Defendants Power, Smith, and Dunken move to dismiss arguing, in part, that this Court cannot exercise personal jurisdiction over them. (Docs. 18; 20; 34). To determine personal jurisdiction in a diversity case, a court first looks to the law of the state in which it sits, and then determines whether asserting jurisdiction is a violation of due process.Burnham v. Super. Ct. of California, County of Marin, 495 U.S. 604 (1990). Since Arizona provides for personal jurisdiction coextensive with the limits of federal due process, Doe v. Am. Nat. Red Cross, 112 F.3d 1048, 1050 (9th Cir. 1997), the analysis can be limited to whether asserting jurisdiction over the Defendants satisfies federal due process requirements.

Consistent with due process, a court may exercise personal jurisdiction over a defendant only if the defendant has "certain minimum contacts with the relevant forum such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice." 2 Yahoo! Inc. v. La Ligue Contre Le Racisme Et L'Antisemitisme, 433 F.3d 1199, 1205 (9th Cir. 2006) (en banc) (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)) (internal quotation marks omitted); see also Hanson v. Denckla, 357 U.S. 235, 253 (1958) (defining minimum contacts as "some act by which the defendant purposely avails itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections of its laws"). The plaintiff bears the burden of showing jurisdiction is appropriate. Morrill v. Scott Fin. Corp., 873 F.3d 1136, 1141 (9th Cir. 2017) (citing Schwarzenegger v. Fred Martin Motor Company, 374 F.3d 797, 800 (9th Cir. 2004)).

There are two kinds of personal jurisdiction: general and specific. Helicopteros Nacionales de Colombia v. Hall, 466 U.S. 408, 414 (1984). General jurisdiction exists when the defendant has "continuous and systematic" contacts with the forum state, whereas specific jurisdiction exists when the controversy arises from or is related to the defendant's contact with the forum state. Id. General jurisdiction will be addressed first.

The paradigmatic forum for the exercise of general jurisdiction over an individual is the person's domicile. Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 924 (2011). And for a court to exercise general jurisdiction over a nonresident defendant, the plaintiff must show the defendant's purposeful contacts with the forum state are so continuous and systematic that the defendant is deemed "essentially at home" in the forum state, akin to an individual's domicile. Daimler AG. v. Bauman, 134 US746, 751 (2014).

Here, Haak's complaint recognizes that Defendants Power, Smith, and Dunken are not domiciled in Arizona, but in Texas. In addition, Haak's complaint provides no facts suggesting any of these Defendants' contacts with Arizona were continuous or systematic such that an Arizona court might exercise general personal jurisdiction over them. Helicopteros, 466 U.S. at 417.³ Thus, it is clear this Court lacks general jurisdiction over Defendants Power, Smith, and Dunken.

The next determination is whether these Defendants' contacts with Arizona are sufficient for this Court to exercise specific personal jurisdiction over them for the purposes of this suit. A three part test is used to determine whether a defendant's contacts are sufficient to subject the defendant to specific personal jurisdiction. Morrill v. Scott Fin. Corp., 873 F.3d 1136, 1142 (9th Cir. 2017) (citation omitted). First, the non-resident defendant must either "purposefully direct his activities" toward the forum or "purposefully avail[ ] himself of the privileges of conducting activities in the forum." Axiom Foods, Inc. v. Acerchem Int'l, Inc., 874 F.3d 1064, 1068 (9th Cir. 2017) (citation omitted). Second, "the claim must be one which arises out of or relates to the defendant's forum-related activities." Id. (citation omitted). And third, "the exercise of jurisdiction must comport with fair play and substantial justice," meaning "it must be reasonable." Id. (citation omitted). "The plaintiff bears the burden of satisfying the first two prongs of the test. If the plaintiff fails to satisfy either of these prongs, personal jurisdiction is not established in the forum state." Id. (citation omitted). However, "[i]f the plaintiff meets that burden, the burden then shifts to the defendant to present a compelling case that theexercise of jurisdiction would not be reasonable." Id. at 1068-69 (citation and internal quotations omitted).

Here, Haak's complaint does not allege that Defendants Power, Smith, and Dunken directed any activities towards Arizona, does not reference any activity occurring in Arizona, and does not appear to be related to events concerning Arizona in any way. Specifically, regarding Power and Smith, Haak merely alleges they assisted with the Texas-based bankruptcy...