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Dream Team Holdings LLC v. Alarcon

United States District Court, D. Arizona

October 7, 2016

Dream Team Holdings LLC, et al., Plaintiffs,
v.
Rudy Alarcon, et al., Defendants.

          ORDER

          Douglas L. Rayes United States District Judge

         Plaintiffs have filed a motion to remand, (Doc. 10), a motion to compel arbitration, (Doc. 13), a request for judicial notice, (Doc. 15), and two motions to expedite, (Docs. 26, 51). All the motions are fully briefed, and no party has requested argument. For the reasons stated below, Plaintiffs' motion to remand is denied, Plaintiffs' motion to compel arbitration is denied, Plaintiffs' request for judicial notice is granted in part, and Plaintiffs' motions to expedite are denied.

         BACKGROUND

         This lawsuit arises out of the parties' joint management of a marijuana dispensary. On March 30, 2016, Defendants Rudy Alarcon and Kristen Abelon met with Plaintiff Green Light Holdings, LLC (Green Light) to discuss forming Dream Team Holdings, LLC (Dream Team) to further their joint venture. The parties executed a Term Sheet, which “set[ ] forth the terms and conditions of an Operating Agreement of Dream Team Holdings, LLC[.]” (Doc. 18-1 at 2.) The Term Sheet noted that the “effective date of the Operating Agreement . . . shall be the date upon which the Company's Articles of Organization are filed with the Arizona Corporation Commission.” (Id.) The parties agreed that the Term Sheet “represents a legally binding agreement between the parties hereto regarding the principle terms of the Members' agreement to operate the Company, which will be evidenced by a formal Operating Agreement . . . to be effective upon [the filing of the Articles of Organization for Dream Team].” (Id. at 14.) The Term Sheet further provided that “if an Operating Agreement is not entered into between the parties, this Term Sheet shall continue in full force and effect.” (Id.)

         After further negotiations, the parties drafted a Memorandum of Understanding (MOU), which set forth the steps necessary to finalize the joint venture. (Id. at 20.) It explicitly stated: “No Joint Venture or Partnership Formed.” (Id.) It also contemplated formation of Dream Team, noting that “Upon execution of the MOU, the Parties shall form Dream Team Holdings, LLC . . . by filing the Articles of Organization[.]” (Id.) Once the MOU is executed, the parties would then prepare and execute an Operating Agreement, “which shall substantially reflect the business terms set forth on the . . . Term Sheet[.]” (Id. at 21.) The parties never executed the MOU, no Articles of Organization were filed, and negotiations eventually halted.

         On April 29, 2016, Green Light brought suit against Defendants alleging, inter alia, breach of contract and fraud. The lawsuit named Dream Team as a Plaintiff even though no articles of organization had been filed with the Arizona Corporation Commission. On May 9, 2016, Defendants Rudy Alarcon, Kristen Abelon, and Energy Clinics, LLC (Energy Clinics) removed the case to federal court on the basis of diversity jurisdiction. Defendants argue that Dream Team did not exist at the time Plaintiffs filed their complaint and assert that Dream Team was created solely for the purpose of destroying diversity jurisdiction. Defendants also assert that after negotiations fell through, the parties never agreed to form Dream Team. On May 11, 2016, Dream Team's articles of organization were filed by Plaintiffs' counsel naming Alarcon as a member. On May 27, 2016, Alarcon filed suit in Maricopa County Superior Court to dissolve Dream Team, arguing that he never consented to becoming a member and that Dream Team was fraudulently organized. On May 31, 2016, Plaintiffs moved to compel arbitration and stay the case, citing an arbitration provision in the Term Sheet.

         REQUEST FOR JUDICIAL NOTICE

         Plaintiffs request that the Court take judicial notice of Alarcon's state court complaint seeking to dissolve Dream Team. (Doc. 15.) Plaintiffs argue that the state court complaint alleges that Dream Team is an Arizona resident, and thus “there was no evidence or factual basis to justify removal jurisdiction based on diversity of citizenship” in the instant case. (Id. at 3.) Plaintiffs claim that this constitutes Defendants' admission that remand is appropriate. Plaintiffs also seek sanctions for failing to inform the Court “that they are no longer contesting that federal diversity jurisdiction exists.” (Id. at 5.)

         “The court may judicially notice a fact that is not subject to reasonable dispute because it . . . can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned.” Fed.R.Evid. 201(b)(2). Courts routinely take judicial notice of proceedings in other courts “if those proceedings have a direct relation to matters at issue.” United States ex rel. Robinson Racheria Citizens Council v. Borneo, Inc., 971 F.2d 244, 248 (9th Cir. 1992) (internal quotation marks omitted).

         The request for judicial notice is granted in part. The state court proceedings relating to the dissolution of Dream Team are relevant to this case. As such, the Court will take judicial notice of Alarcon's state court complaint.

         The Court will not, however, issue sanctions against Defendants. Contrary to Plaintiffs' argument, the fact that Alarcon alleges that Dream Team is a resident of Arizona in the state court complaint does not undermine Defendants' basis for removal in the instant case. Defendants do not dispute Dream Team's citizenship. Instead, they argue that Dream Team should not be considered for purposes of diversity jurisdiction because it was not formed at the time of the complaint and Defendants did not consent to its formation. Plaintiffs' argument misses the point, and the request for sanctions is inappropriate.

         MOTION TO REMAND

         Plaintiffs argue this case must be remanded to Maricopa County Superior Court because complete diversity does not exist between the parties. They assert that although Dream Team was not yet organized at the time the complaint was filed, this defect was cured by filing the articles of organization two weeks later. Even if it was not cured, Plaintiffs argue that Dream Team should be treated as an unincorporated business association for purposes of diversity jurisdiction. Alternatively, Plaintiffs argue that even if Dream Team is not considered for purposes of diversity, complete diversity still does not exist between the parties.

         I. ...


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