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Atkins v. Calypso Systems, Inc.

United States District Court, D. Arizona

October 8, 2015

Barry M. Atkins, Plaintiff,
v.
Calypso Systems, Inc., et al., Defendants.

ORDER

Neil V. Wake United States District Judge

Before the Court is Defendants’ Motion to Dismiss First Amended Complaint (Doc. 37) and the parties’ accompanying briefs. For the reasons that follow, the Motion will be granted in part and denied in part.

I. BACKGROUND

Plaintiff Barry Atkins is an Arizona resident. Defendant Calypso Systems, Inc. (“Calypso”) is a California corporation whose principal place of business is in California. Defendant Eden Kim is Calypso’s founder and CEO, as well as a California resident.

Atkins’s First Amended Complaint (Doc. 17) alleges the following. In 2007, Kim emailed Calypso’s financial information and sales forecasts to a third party in an attempt to raise capital. (Id. at ¶¶ 16-17.) That email was forwarded to Atkins. (Id. at ¶ 18.) Kim then telephoned Atkins in Arizona and, knowing Atkins was an Arizona resident, emailed Atkins asking for a loan. (Id. at ¶¶ 19-22.) In the following weeks, Kim and Atkins exchanged drafts of a loan agreement via email. (Id. at ¶¶ 23-24.) Eventually Kim signed and emailed to Atkins a final draft, entitled “Memorandum of Understanding, ” which Atkins signed. (Id. at ¶¶ 29-30, Ex. H.)

The agreement, by its terms, affirmed the parties’ “inten[t] to enter into a series of agreements and transactions with the intent to provide for the corporate funding of Calypso.” (Id. at Ex. H.) Atkins’s company, Adventure Ventures, LLC (“Adventure”), agreed to lend Calypso $125, 000 at 6% annual interest, which Calypso agreed to repay by December 15, 2007. (Id.) The agreement also outlined subsequent tranches that Adventure would pay Calypso upon the parties’ achievement of certain benchmarks, and it included two years of Calypso’s revenue forecasts. (Id.) Adventure agreed to use “commercial efforts to raise additional capital to meet [Calypso’s] ongoing requirements” and to exert its “best efforts to achieve the terms and intent of this [agreement] and subsequent agreements.” (Id.) The agreement specified that Calypso was in California, that Adventure was in Arizona, and that the agreement itself “shall be governed under the laws of the state of California.” (Id.)

Calypso did not repay the loan by December 15, 2007. (Id. at ¶ 41.) Kim then assured Atkins the loan would be repaid and asked him to pay Calypso’s outstanding rent of approximately $12, 000. (Id. at ¶¶ 41-42.) Atkins agreed to do so. (Id. at ¶ 43.) Atkins then emailed Kim stating he had decided not to invest further in Calypso. (Id. at ¶ 44.) Kim made further promises that the loan would be repaid. (Id. at ¶ 45.) The parties then entered into a second agreement entitled “Bridge Loan Extension Agreement.” (Id. at ¶ 46, Ex. Q.)

The second agreement purported to be an “extension of term of, ” an “amendment” to, and “pursuant to the terms of” the previous agreement. (Id. at Ex. Q.) The parties agreed to extend the repayment deadline for all outstanding principal ($137, 000) and interest to December 17, 2008, and to convert such principal and interest into shares of Calypso common stock.[1] (Id.)

Calypso did not repay the loan by December 17, 2008. (Id. at ¶ 48.) Throughout the ensuing years, Atkins regularly demanded repayment, maintained contact with Kim, and monitored Calypso’s financial statements. (Id. at ¶¶ 49, 54.) Kim continually assured him that the loan would be repaid once Calypso’s financial condition improved and that Calypso would make an initial public offering upon reaching certain financial benchmarks. (Id. at ¶¶ 50-51.) In reliance on these assurances, Atkins delayed bringing suit. (Id. at ¶ 55.) After a series of emails between Kim and Atkins in 2014, culminating in an August 29 email titled “Settlement Proposal, ” Atkins concluded Kim had been stringing him along with false promises in order to stall legal action. (Id. at ¶¶ 56-65.) Adventure then assigned to Atkins its rights in the loan and security interests with Calypso. (Id. at ¶ 66.) Atkins filed suit on December 17, 2014. (Doc. 1.)

The Court dismissed Atkins’s initial complaint for insufficient service of process. (Doc. 16.) Atkins then filed a First Amended Complaint alleging breach of contract, breach of covenant of good faith and fair dealing, fraud, negligent misrepresentation, unjust enrichment, and conversion. (Doc. 17.) Defendants move to dismiss for lack of personal jurisdiction, failure to state a claim within the governing statutes of limitations, and failure to plead fraud with sufficient particularity. (Doc. 37.)

II. PERSONAL JURISDICTION

A. Legal Standard

“Where a defendant moves to dismiss a complaint for lack of personal jurisdiction, the plaintiff bears the burden of demonstrating that jurisdiction is appropriate. Where, as here, the motion is based on written materials rather than an evidentiary hearing, the plaintiff need only make a prima facie showing of jurisdictional facts. In such cases, [courts] only inquire into whether the plaintiff’s pleadings and affidavits make a prima facie showing of personal jurisdiction. Although the plaintiff cannot simply rest on the bare allegations of its complaint, uncontroverted allegations in the complaint must be taken as true. Conflicts between parties over statements contained in affidavits must be resolved in the plaintiff’s favor.” Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800 (9th Cir. 2004) (citations and alterations omitted).

“Where, as here, there is no applicable federal statute governing personal jurisdiction, the district court applies the law of the state in which the district court sits. Because [Arizona’s] long-arm jurisdictional statute is coextensive with federal due process requirements, the jurisdictional analyses under state law and federal due process are the same.” Id. at 800-01 (citations omitted); see also A. Uberti & C. v. Leonardo, 181 Ariz. 565, 569, 892 P.2d 1354, 1358 (1995) (“Arizona will exert personal jurisdiction over a nonresident litigant to the maximum extent allowed by the federal constitution.” (citations omitted)).

Personal jurisdiction can be either specific or general. “‘Specific’ or ‘case-linked’ jurisdiction depends on an affiliation between the forum and the underlying controversy (i.e., an activity or an occurrence that takes place in the forum State and is therefore subject to the State’s regulation). This is in contrast to ‘general’ or ‘all purpose’ jurisdiction, which permits a court to assert jurisdiction over a defendant based on a forum connection unrelated to the underlying suit (e.g., domicile).” Walden v. Fiore, 134 S.Ct. 1115, 1121 n.6 (2014) (citations and alterations omitted).

B. General Jurisdiction

“For general jurisdiction to exist over a nonresident defendant . . . the defendant must engage in continuous and systematic general business contacts that approximate physical presence in the forum state. This is an exacting standard, as it should be, because a finding of general jurisdiction permits a defendant to be haled into court in the forum state to answer for any of its activities anywhere in the world.” Schwarzenegger, 374 F.3d at 801 (citations omitted).

Atkins has not shown general jurisdiction. The First Amended Complaint alleges that Calypso is a California corporation and that Kim is a California citizen. (Doc. 17 at ¶¶ 2-3.) There is no allegation that Calypso has any offices in Arizona, that it sends employees to Arizona to transact business, or that it regularly enters into contracts with Arizona residents. There is no allegation that Kim has ever been to Arizona or that he regularly transacts business with Arizona residents. Plaintiff therefore has not shown “continuous and systematic” contacts between Defendants and Arizona that “approximate physical presence” in the state.

Atkins asks for an opportunity to conduct discovery in order to ascertain whether general jurisdiction exists. But Defendants have challenged only the formal sufficiency of his jurisdictional allegations, not their veracity. (Doc. 37 at 2-6.) As a result, discovery would not aid Atkins. La Reunion Francaise SA v. Barnes, 247 F.3d 1022, 1026 n.2 (9th Cir. 2001). Therefore discovery on this matter will not be permitted.

C. Specific Jurisdiction

The Ninth Circuit employs “a three-part test to assess whether a defendant has sufficient contacts with the forum state to be subject to specific personal jurisdiction:

(1) The non-resident defendant must purposefully direct his activities or consummate some transaction with the forum or resident thereof; or perform some act by which he purposefully avails himself of the privilege of conducting activities in the forum, thereby invoking the benefits and protections of its laws;
(2) the claim must be one which arises out of or relates to the defendant's forum-related activities; and
(3) the exercise of jurisdiction must comport with fair play and substantial justice, i.e. it must be reasonable.

The plaintiff has the burden of proving the first two prongs. If he does so, the burden shifts to the defendant to set forth a compelling case that the exercise of jurisdiction would not be reasonable.” Picot v. Weston, 780 F.3d 1206, 1211-12 (9th Cir. 2015) (citations omitted).

“The exact form of [the] jurisdictional inquiry depends on the nature of the claim at issue. For claims sounding in contract, [courts] generally apply a ‘purposeful availment’ analysis and ask whether a defendant has purposefully availed [himself] of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws. For claims sounding in tort, [courts] instead apply a ‘purposeful direction’ test and look to evidence that the defendant has directed his actions at the forum state, even if those actions took place elsewhere.” Id. at 1212 (citations and alterations omitted).

In either instance, the proper focus is on “the relationship among the defendant, the forum, and the litigation.” Walden v. Fiore, 134 S.Ct. 1115, 1121 (2014) (citations omitted). “[I]t is the defendant’s conduct that must form the necessary connection with the forum State that is the basis for its jurisdiction over him. To be sure, a defendant’s contacts with the forum State may be intertwined with his transactions or interactions with the plaintiff or other parties. But a defendant’s ...


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