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Herold v. Andlinger & Company Incorporated

United States District Court, D. Arizona

October 2, 2018

Stephan Herold, Plaintiff,
v.
Andlinger & Company Incorporated; VP360 Holdings LLC; Andlinger Capital VP360 LLC; Charles E Ball; and Complete Integrated Solutions LLC, Defendants.

          ORDER

          DAVID GH CAMPBELL SENIOR UNITED STATES DISTRICT JUDGE

         Plaintiff Stephan Herold sued Defendants Andlinger & Company, Andlinger Capital VP360 (together “Andlinger”), Charles Ball, VP 360 Holdings (“VP 360”) LLC, and Complete Integrated Solutions (“CIS”) for breach of contract, fraudulent concealment, tortious interference, and fraudulent transfer arising from a failed financing deal for Herold's company, Visual Pro 360, Inc. (“Visual Pro”). Doc. 1. Andlinger, Ball, and VP360 move to dismiss under Rule 12(b)(2), and (6). Doc. 20. Defendants also seek sanctions. Docs. 20, 41. The motions are fully briefed, and oral argument will not aid in the Court's decision. See Fed. R. Civ. P. 78(b); LRCiv 7.2(f). For the reasons that follow the Court will grant Defendants' motion.

         I. Background.

         The Court accepts Plaintiff's factual allegations as true for purposes of this motion to dismiss. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Because all Defendants argue that Herold's claims are now precluded based on a prior state adjudication, the Court includes a detailed account of the prior proceedings.

         A. The Underlying Dispute.

         Herold is the owner of Visual Pro, an Arizona company that provides mobile video technology for security and safety purposes, such as police body cameras. Doc. 1 ¶ 1. In 2014, Herold began discussions with Ball, managing director of Andlinger & Company, regarding Andlinger & Company potentially investing in Visual Pro. Id. ¶¶ 2, 8. In November 2014, Herold, Ball, and Visual Pro's chief executive officer, Jeff White, signed an agreement binding them to “exclusive negotiations concerning $2.3 million in equity funding” for Visual Pro. Id. ¶ 2. Ball told Herold that the agreement was necessary to protect both parties because Andlinger would invest time and money in due diligence and Herold would forego other sources of financing and divulge confidential Visual Pro information. Id. ¶ 16.

         Shortly after entering into the agreement, Herold turned negotiations over to White. Id. ¶ 19. In January 2015, Ball and White secretly formed CIS, a Delaware limited liability company, and in February 2015 they transferred the $2.3 million to CIS with Andlinger & Company and White as 70% and 30% owners respectively. Id. ¶ 2, 35. Before the money was transferred to CIS, Herold suspected that a side deal existed and initiated Chapter 7 bankruptcy proceedings on behalf of Visual Pro to protect its assets. Id. ¶ 26. Ball and White also took Visual Pro property, including its tradenames and other intellectual property, websites, databases, equipment, inventory, customers, and employees. Id. ¶¶ 2-3, 23, 29, 32. Ball and White subsequently registered CIS in Arizona and began business operations in Tempe. Id. ¶ 2. Visual Pro's loss of the financing deal and its other property forced it into bankruptcy and “destroyed the value of” Herold's employment and stock contracts with Visual Pro. Id. ¶¶ 2, 4.

         B. The State Case.[1]

         On May 12, 2016, Herold, his ex-wife, and another equity holder in Visual Pro filed a complaint in Maricopa County Superior Court against White, CIS, and Andlinger. Doc. 20-1 at 2-15; see Herold v. White, CV2016-006544 (Maricopa Cty. Superior Ct. May 12, 2016). The complaint asserted eight claims: conversion, misappropriation, tortious interference, fraudulent concealment, common law fraud, negligent misrepresentation, breach of fiduciary duty, and unjust enrichment. Id.

         Andlinger moved to dismiss for lack of personal jurisdiction. Doc. 20-1 at 17-28. After an evidentiary hearing, the court granted the motion, finding Andlinger lacked minimum contacts with Arizona sufficient to support jurisdiction. Doc. 20-1 at 44-50. Herold repeatedly sought reconsideration on several different grounds, including “newly discovered evidence.” Id. at 64-66; Doc. 20-2 at 2-4, 37-39, 52. The court denied reconsideration and entered final judgment in favor of the Andlinger defendants on February 21, 2017. Doc. 20-2 at 57-58. Herold did not appeal, and the state court later denied his request to reopen the time to file an appeal. Doc. 20-2 at 60-63.

         Remaining defendants White and CIS moved to dismiss the state action for failure to state a claim. The court converted the motion to one for summary judgment and granted the motion on all but two claims. Doc. 20-1 at 52-62. The court found that all claims against CIS failed because Herold and the other plaintiffs alleged no damages from CIS's conduct that were personal to them - the claims “belong[ed] only to Visual Pro.” Doc. 20-1 at 53. With respect to Herold's claims against White, the court found: (1) the misappropriation and conversion claims failed because the property belonged to Visual Pro's bankruptcy estate, not Herold; (2) Herold failed to present evidence supporting a successor liability theory; (3) the fraudulent concealment claim failed for four independent reasons; (4) the fraud and negligent misrepresentation claims failed because Herold presented no evidence of reasonable reliance on any false representation causing injury; (5) the unjust enrichment claim failed because Herold did not allege that he conferred any benefit on White; and (6) Herold created a triable issue on his breach of fiduciary duty and tortious interference claims. Id.

         C. The State Case Settlement.

         Herold and the other plaintiffs in the state case entered into a settlement agreement with White and CIS. Doc. 41-1 at 145-58. A notice of settlement was filed on January 17, 2018, and the superior court removed the case from the active calendar pending dismissal on March 19, 2018. Doc. 47-4 at 9, 11. In the interim, Herold filed a motion to reinstate the case on the active calendar because the defendants violated the terms of the settlement agreement by sending the settlement check to a third party instead of the agreed upon trust account. Doc 47-4 at 1. On April 26, 2018, the court reinstated the case to the court's active calendar and set the case for trial.[2] Doc. 41-1 at 160-68.

         D. The Bankruptcy Settlement.

         On December 15, 2016, the bankruptcy court approved a settlement agreement in Visual Pro's Chapter 7 bankruptcy proceedings. Doc. 20-2 at 98-111; In re Visual Pro 360, Inc., 2:15-bk-00968-GBN (U.S. Bankr. Ct. D. Ariz.). The agreement is signed by White individually and on behalf of CIS and VP360 Holdings, a representative of Andlinger Capital VP360, a representative of Andlinger and Company, Visual Pro's Chapter 7 trustee, and a representative of Southstar Financial, LLC. Doc. 20-2 at 109-11. The agreement is not signed by Herold and does not refer to him.

         On March 8, 2018, another judge of this Court dismissed Herold's attempt to appeal the bankruptcy court's approval of the settlement. Doc. 41-1 at 141-68.

         E. Dismissal of CIS

          On September 21, 2018, Herold and CIS stipulated to a dismissal of CIS with prejudice, and the Court granted the dismissal. Doc. 48; Doc. 49. Accordingly, the Court will ...


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