Lex Tecnica, Ltd. v. Vanguard Field Strategies, LLC

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LEX TECNICA, LTD., Plaintiff v. VANGUARD FIELD STRATEGIES, LLC, et al., Defendants

No. 2:23-cv-00069-APG-EJY

United States District Court, D. Nevada

January 17, 2024

ORDER DENYING DEFENDANTS' MOTION TO DISMISS

[ECF NO. 28]

ANDREW P. GORDON, UNITED STATES DISTRICT JUDGE

Plaintiff Lex Tecnica, Ltd., as assignee of former plaintiff Community Schools Initiative (CSI), sues defendants Vanguard Field Strategies, LLC and Axiom LLC for allegedly defrauding CSI out of over $2.2 million in a failed signature gathering effort in support of a ballot initiative. Lex alleges that the defendants represented themselves as experts in the area who would gather signatures at a 70% validity rate so CSI could collect enough signatures to qualify its ballot initiative under Nevada law. Lex contends that the defendants falsely reassured CSI that the signature gathering effort was going well when in fact it was failing to obtain valid signatures at anything approaching a 70% rate. The Nevada Secretary of State found an average validity rate of 53.3% and the measure failed. Lex asserts claims for breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, fraudulent inducement fraudulent misrepresentation, negligent misrepresentation and deceptive trade practices.

Vanguard and Axiom move to dismiss the claims for fraudulent inducement, fraudulent misrepresentation, negligent misrepresentation, and deceptive trade practices, arguing that these fraud-based claims are personal to CSI and not assignable to Lex. Axiom moves to dismiss all claims against it on the grounds that this court lacks personal jurisdiction over Axiom. Lex responds that the claims are assignable because they seek only pecuniary loss. Alternatively, Lex asserts that CSI should be added back as a plaintiff if the claims are not assignable. Lex also argues that it has adequately established personal jurisdiction over Axiom. Alternatively, it requests jurisdictional discovery.

I deny the defendants' motion to dismiss the fraud-based claims, with leave to amend if Lex chooses to do so. I deny Axiom's motion to dismiss for lack of personal jurisdiction.

I. FRAUD-BASED CLAIMS

The defendants argue that CSI's assignment to Lex is “void ab initio” as to the fraud based claims because fraud claims are personal to the one defrauded and cannot be assigned. The defendants contend that the assignment of these claims fails because Lex seeks damages to CSI's reputation; damages for years of preparatory work, wasted volunteer hours, and stalled political momentum; and punitive damages; all of which are personal to CSI.

Lex responds that the defendants are contradicting themselves because in Vanguard's first motion to dismiss, it argued that CSI lacked standing because it had assigned its rights to Lex and that these same claims were assignable under Nevada law. Additionally, Lex argues that the claims are assignable because Lex seeks only economic damages and does not seek noneconomic damages for emotional distress or physical pain. Lex contends that its request for damages for years of preparatory work and volunteer time lost are concrete expenses. Additionally, Lex argues that CSI's goodwill is an intangible asset capable of being considered in a calculation of economic damages. Alternatively, Lex argues that if these claims were not assignable, then I should give leave for CSI to be added back as a plaintiff for these four claims.

The original and first amended complaints were brought by CSI “with rights assigned in trust to” Lex. ECF Nos. 1 at 2; 9 at 4. Vanguard moved to dismiss, arguing that CSI was not the real party in interest because it had assigned all its rights to Lex. ECF No. 18 at 4. Vanguard also argued that the fraudulent inducement, fraudulent misrepresentation, and negligent misrepresentation claims “each allege only pecuniary loss or economic damages, and therefore, are also assignable.” Id. And it asserted that the deceptive practices claim was assignable. Id. at 5. In response, Lex amended the complaint to drop CSI and substitute itself as the plaintiff in the second amended complaint (SAC). ECF No. 21.

Vanguard (and Axiom) now take the opposite position and assert that these same claims are not assignable. In their reply brief, Vanguard and Axiom state that their position is not contradictory because they were moving to dismiss a complaint filed by a different plaintiff. But Vanguard has taken a contradictory position by asserting that the same claims seeking the same types of relief were both assignable and non-assignable. See ECF No. 9 at 22, 30, 33 (first amended complaint also asserting damages based on reputational damage, loss of preparatory work time, loss of volunteer time, stalled momentum, and punitive damages). Despite this conduct, I must determine whether the claims are assignable because standing is a non-waivable requirement of Article III jurisdiction. Renee v. Duncan, 686 F.3d 1002, 1012 (9th Cir. 2012).

Nevada “prohibits the assignability of certain causes of action, regardless of how the assignment is accomplished” because some claims “are personal in nature and meant to recompense the injured party.” Reynolds v. Tufenkjian, 461 P.3d 147, 150-52 (Nev. 2020). To determine whether a cause of action is assignable, Nevada law analyzes “the nature of the claim to be assigned and . . . the public policy considerations that would be implicated if assignment were permitted.” Id. at 151-52 (quotation omitted). Those policy considerations include whether the type of damages are “non-economic losses such as physical pain and mental anguish” versus claims more akin to recovery for loss of property. Id. at 153-54 (quoting Maxwell v. Allstate Ins. Cos., 728 P.2d 812, 506-07 (Nev. 1986)).

For example, “claims for personal injury torts are not assignable,” but “when a tort claim alleges purely pecuniary loss, . . . the claim may be assigned.” Id. at 154. Fraud and intentional misrepresentation claims are generally unassignable because they are personal to the one defrauded. Id. at 151 (citing Prosky v. Clark, 109 P. 793, 794 (Nev. 1910)). In contrast, negligent misrepresentation claims are assignable because “Nevada law only recognizes negligent misrepresentation claims in the context of business transactions,” so “the nature of such a claim is not to recover for a personal injury, but instead is more akin to a claim seeking recovery for a loss of property.” Id. at 153. “Claims alleging damages to property, rather than personal damages, are generally assignable.” Id. “Additionally, because a claim for negligent misrepresentation in Nevada can only be based on pecuniary loss, assigning such claims does not implicate . . . public policy concerns . . . because they do not include non-economic losses such as physical pain and mental anguish.” Id. at 153-54 (quotation omitted).

In the SAC, Lex alleges that the defendants made false representations to CSI to induce it to enter into the contract and continued to falsely represent the success of the signature gathering effort to induce CSI to pay for more signature gathering. CSI asserts it was damaged by paying over $2.2 million, its reputation was damaged, it lost “years in preparatory work for the initiative,” “volunteer hours” were “wasted,” and there was “stalled political momentum.” ECF No. 21 at 28, 30. Lex also seeks punitive damages. Id. at 31, 33.

The defendants argue that requesting damages for reputational harm, lost preparatory work, volunteer hours, stalled political momentum, and punitive damages are not assignable because they go beyond pecuniary loss and are personal to CSI. Lex responds that all claims were properly assigned because they seek only pecuniary damages involving economic damages or lost property, not physical injury or mental anguish. Lex notes that damages for lost preparatory work and wasted volunteer hours can be quantified as expenses. It also contends that reputation is goodwill, which is an intangible asset that can be considered in an economic damage calculation.

As an initial matter, under Reynolds, a negligent misrepresentation claim is assignable because it is limited to pecuniary loss. I therefore deny the defendants' motion to dismiss this claim as being unassignable.

The fraud-based claims are also assignable because the claims' nature is akin to a recovery for loss of property, and they do not implicate the public policy concerns at issue in Prosky or Maxwell. The request for reputational damage to a political action committee is a pecuniary loss akin to goodwill of a business or damage to property, not a personal injury. See Ford v. Ford, 782 P.2d 1304, 1308-09 (Nev. 1989) (assigning monetary value to a medical practice's goodwill in the context of a divorce); cf. Clark Cnty. Sch. Dist. v. Virtual Educ. Software, Inc., 213 P.3d 496, 504 (Nev. 2009) (stating that under Nevada law, “where communications concern the goods or services provided by a business entity, a plaintiff generally seeks to redress injury to economic interests”).^[1] Likewise damages for lost preparatory work and wasted volunteer hours seek pecuniary damages for the value of that time, not for physical injuries or mental anguish.^[2]

Finally the defendants do not provide sufficient authority for me to conclude that Nevada would hold that where a claim is otherwise assignable, punitive damages are not also assignable. The original motion contains no law for this proposition. In their reply, the defendants cite to Ninth Circuit law that the Jones Act is limited to “pecuniary” losses, and that punitive damages are non-pecuniary. See Kopczynski v. The Jacqueline, 742 F.2d 555, 560-61 (9th Cir. 1984). They also cite to a Ninth Circuit...