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CWT Canada II Limited Partnership v. Danzik

United States District Court, D. Arizona

January 26, 2018

CWT Canada II Limited Partnership, an Ontario, Canada Limited Partnership, et al., Plaintiffs,
Elizabeth J. Danzik, an Individual, et al., Defendants.


          David G. Campbell United States District Judge.

         The three consolidated cases in this matter concern business disputes among the various parties - disputes which have been the subject of many lawsuits. Before the Court are five fully briefed motions. The Court addresses each below.[1]

         I. General Background.

         Dennis Danzik (“Dennis”) is the chief executive officer of RDX Technologies, Corp. (“RDX”), a now-defunct corporation. Dennis also owns Danzik Applied Sciences, LLC (“DAS”). Dennis and his spouse, Elizabeth Danzik (“Elizabeth”), own Deja II, LLC (“Deja”). CWT Canada II Limited Partnership (“CWT Canada”) and Resource Recovery Corporation (“RRC”) entered into a transaction to sell their company, Changing World Technologies, L.P. (“CWT LP”), to RDX. CWT Canada and RRC also entered into a transaction to purchase RDX stock. Kevin Bridges was the chief financial officer of RDX. Tony Ker was the chairman of the RDX board, and Richard Carrigan was a board member. Jean Noelting, Bruce MacFarlane, and Brian Appel were senior officers of CWT LP.

         On March 4, 2016, CWT Canada and RRC sued Elizabeth and Deja, alleging that Elizabeth received $730, 000 that Dennis stole from them, and that she defrauded them in the separate RDX stock transaction. CWT Canada II, LP v. Elizabeth J. Danzik, No. 16-cv-00607-DGC (the “Elizabeth Action”). Next, CWT Canada and RRC sued DAS, Bridges, Carrigan, and Ker, alleging that they knew of and aided in Dennis's fraudulent theft scheme. CWT Canada II, LP v. Kevin Bridges, No. 16-cv-02577-DGC (the “Bridges Action”). Finally, Dennis and RDX sued CWT Canada, RRC, Noelting, MacFarlane, and Appel, alleging that they defrauded him into the purchase of CWT LP. Dennis M. Danzik v. CWT Canada II, LP, No. 17-cv-00969-DGC (the “Dennis Action”). On September 27, 2017, the Court granted the parties' motion to consolidate these actions and directed the parties to make subsequent filings in the Elizabeth Action.[2]

         These cases come after CWT Canada, RRC, and Noelting already obtained a judgment against Dennis and RDX in New York state court. GEM Holdco, LLC, et al. v. Changing World Technologies, L.P., et al., Index No. 650841/2013 (Sup. Ct. N.Y. Cty.) (the “New York Action”). Another action - by Dennis and RDX against CWT Canada, RRC, Appel, Noelting, and MacFarlane - remains pending in a Canadian court. RDX Technologies Corp. v. Appel, File No. 1401-09394 (Ct. of Queens Bench, Alberta, Canada) (the “Canada Action”).

         II. 12(b)(6) Standard.

         Four of the motions seek dismissal under Rule 12(b)(6). A successful motion to dismiss under Rule 12(b)(6) must show either that the complaint lacks a cognizable legal theory or fails to allege facts sufficient to support its theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). A complaint that sets forth a cognizable legal theory will survive a motion to dismiss if it contains “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim has facial plausibility when “the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). “The plausibility standard is not akin to a ‘probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. (citing Twombly, 550 U.S. at 556).

         III. The Bridges Action.

         CWT Canada and RRC sued DAS and various other defendants in the Bridges Action, and Defendant Ker has filed a counterclaim against them. Bridges Doc. 81. CWT Canada and RRC moved to dismiss the counterclaim. Bridges Doc. 86. Ker filed an amended counterclaim ten days later (Bridges Doc. 88), and then a second amended counterclaim (“SAC”) (Doc. 99). CWT Canada and RRC have filed a motion to dismiss the SAC. Doc. 107.

         A. First Motion to Dismiss the Counterclaim (Bridges Doc. 86).

         Ker argues that the first motion should be dismissed as moot in light of his amended counterclaim. Bridges Doc. 89. The Court agrees. See Ramirez v. Cty. of San Bernardino, 806 F.3d 1002, 1008 (9th Cir. 2015) (An “amended complaint supersedes the original, the latter being treated thereafter as non-existent.”) (quoting Forsyth v. Humana, Inc., 114 F.3d 1467, 1474 (9th Cir. 1997), overruled on other grounds by Lacey v. Maricopa Cty., 693 F.3d 896 (9th Cir. 2012)). The Court will deny as moot CWT Canada and RRC's motion to dismiss the original counterclaim (Bridges Doc. 86).

         B. Motion to Dismiss the SAC (Doc. 107).

         The SAC asserts claims for abuse of process and defamation. Doc. 99 at 25-26. The following facts are relevant to determining what law applies to the claims. Ker resides in British Columbia, Canada, and served on the board of RDX during and after its acquisition of CWT LP. Doc. 99 at 16, 18-19. CWT Canada is organized in Delaware; has its principal place of business in Ontario, Canada; and its general partner is incorporated and has its principal place of business in Canada. Id. RRC is incorporated in Delaware and has its principal place of business in New York. Id. at 17.

         1. Choice of Law Standard.

         In diversity cases such as these, “the district court must apply the choice-of-law rules of the state in which it sits.” Abogados v. AT & T, Inc., 223 F.3d 932, 934 (9th Cir. 2000). Arizona follows the Restatement's “most significant relationship” test. See Bates v. Super. Ct., 749 P.2d 1367, 1369 (Ariz. 1988); Magellan Real Estate Inv. Tr. v. Losch, 109 F.Supp.2d 1144, 1155 (D. Ariz. 2000); Restatement (Second) of Conflict of Laws. Under this test, the law of the state that has the most significant relationship to an issue governs that issue. In a tort claim, factors to consider include: “(a) the place where the injury occurred, (b) the place where the conduct causing the injury occurred, (c) the domicile, residence, nationality, place of incorporation and place of business of the parties, and (d) the place where the relationship, if any, between the parties is centered.” Magellan, 109 F.Supp.2d at 1156 (quoting Restatement (Second) of Conflict of Laws § 145). “These contacts are to be evaluated according to their relative importance with respect to the particular issue.” Id.

         2. Abuse of Process.

         Ker alleges that CWT Canada and RRC (collectively, “Counterdefendants”) “intimidated, threatened[, ] and attempted to coerce” him to provide testimony against Dennis and RDX in the New York Action. Doc. 99 at 22. He asserts that the New York Action is fraudulent and baseless. Id. at 18-21. He claims that Counterdefendants used tactics such as contacting him without notifying RDX's counsel, lying to him about Dennis, and threatening to sue. Id. at 22-23. When Ker consistently refused to change his testimony, Counterdefendants sued him, first in New York and then in this Court. Id. at 23. Ker asserts that these suits are frivolous and were “initiated and pursued” solely for the improper purpose of coercing him to “flip sides and testify against Dennis Danzik and RDX.” Id. Ker alleges that Counterdefendants have employed this strategy against other key witnesses as well. Id. at 21-22.

         a. Choice of Law.

         In Arizona, an abuse of process claim is generally governed by “the local law of the state where the proceeding complained of occurred, unless, with respect to the particular issue, some other state has a more significant relationship . . . to the occurrence and the parties[.]” Restatement (Second) of Conflict of Laws § 155; see also Xcentric Ventures LLC v. Borodkin, No. CV-11-1426-PHX-GMS, 2012 WL 692976, at *5 (D. Ariz. Mar. 1, 2012). Counterdefendants argue that New York law should apply to Ker's claim based on the New York suit, and that Arizona law should apply to his claim based on the Bridges Action. Doc. 107 at 6-7 (citing Xcentric, 2012 WL 692976, at *5). Ker's response does not address this issue, but it repeatedly cites Arizona law in discussing the abuse of process claim. See Doc. 113 at 10-11. The Court agrees with Counterdefendants.

         The parties do not argue, and the Court does not find, that any state has a more significant interest in these claims than New York and Arizona, respectively. Aside from being the states where the alleged abuses occurred, New York and Arizona have clear connections to the parties and the underlying occurrences giving rise to these claims. More importantly, the choice between New York and Arizona law does not concern a true conflict of laws - the abuse of process claim fails under the law of both states.

         b. Failure to State a Claim.

         To state an abuse of process claim under New York law, Ker must allege (1) “regularly issued process, ” (2) “intent to do harm without excuse or justification, ” and (3) “use of the process in a perverted manner to obtain a collateral objective.” Casa de Meadows Inc. (Cayman Islands) v. Zaman, 908 N.Y.S.2d 628, 632 (App. Div. 2010) (quoting Curiano v. Suozzi, 469 N.E.2d 1324, 1326 (N.Y.App.Div. 1984)). Importantly, “‘the institution of a civil action by summons and complaint is not legally considered process capable of being abused.'” Id.

         To state an Arizona abuse of process claim, Ker must allege “(1) a willful act in the use of judicial process; (2) for an ulterior purpose not proper in the regular conduct of the proceedings.” Fappani v. Bratton, 407 P.3d 78, 81 (Ariz.Ct.App. 2017) (quoting Nienstedt v. Wetzel, 651 P.2d 876, 881 (Ariz.Ct.App. 1982)). Unlike the tort of malicious prosecution, which covers the initiation of civil proceedings with malice and without probable cause, abuse of process addresses misuse of process after proceedings have been initiated. See Joseph v. Markowitz, 551 P.2d 571, 573-74 (Ariz.Ct.App. 1976). As in New York, “abuse of process requires some act beyond the initiation of a lawsuit[.]” Id. at 575. Courts have “explicitly rejected the contention that the initiation of a lawsuit can constitute the necessary act” for abuse of process under Arizona law. Blue Goose Growers, Inc. v. Yuma Groves, Inc., 641 F.2d 695, 697 (9th Cir. 1981) (citation omitted). Courts also have held that an abuse of process claim will not lie where a lawsuit initiated in bad faith is “continued without justification.” Morn v. City of Phx., 730 P.2d 873, 876 (Ariz.Ct.App. 1986). Counterdefendants' “mere persistence in [this] litigation, even if based on an improper motive, does not sustain the tort.” Crackel v. Allstate Ins. Co., 92 P.3d 882, 888 (Ariz.Ct.App. 2004).

         Ker's abuse of process counterclaim, based entirely on Counterdefendants' initiation and pursuit of the New York and Arizona lawsuits, fails to state a claim under New York and Arizona law and will be dismissed.

         3. Defamation.

         The SAC alleges that “around May-December 2015, Jean Noelting and/or Bruce MacFarlane, on behalf of Counterdefendants, spoke with Ryan Johnson and/or Brock Aynsley, accusing Ker of fraud and being in a conspiracy with Dennis Danzik.” Doc. 99 at 23. Ryan Johnson was an RDX investor who worked for the company in investor relations and had relationships with many RDX shareholders, brokerage firms, and money managers. Id. at 23-24. Brock Aynsley was a broker for a large Canadian firm. Id. at 24. The SAC also alleges that around “May-December 2015, Jean Noelting, on behalf of Counterdefendants, spoke with Glenn Davies, ” an RDX director, telling him “that Ker was a liar and would be sued for fraud if he did not turn on Danzik.” Id.

         Ker asserts that he “has been in the public company business since 1996, ” “has derived the majority of his income based on a solid reputation, ” and has suffered “immense harm” as a result of Counterdefendants' statements and RDX's bankruptcy, which he alleges was caused by Counterdefendants' fraud. Id. at 18-19, 24. As a result of RDX's bankruptcy, the Alberta Securities Commission notified Ker that he is ineligible to serve as an officer or director of a public company. Id. at 24. Counterdefendants' actions have allegedly destroyed Ker's reputation, “severely hinder[ing] his ability to raise money and work in his established profession.” Id.

         a. Choice of Law.

         In Arizona, a defamation claim is generally governed by the law of “the state where the publication occurs . . . unless, with respect to the particular issue, some other state has a more significant relationship . . . to the occurrence and the parties[.]” Restatement (Second) of Conflict of Laws § 149; see also Vazirani v. Annexus Distributors AZ, LLC, No. 1 CA-CV 14-0815, 2017 WL 443529, at *6 (Ariz.Ct.App. Feb. 2, 2017).

         The SAC asserts that the Court “should rely on the law of Canada, where the defamation occurred.” Doc. 99 at 25 (citing Vazirani, 2017 WL 443529, at *6). Alternatively, the SAC asserts a defamation claim “pursuant to U.S. law.” Id. at 26. The SAC ...

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