United States District Court, D. Arizona
ORDER
Rosemary Marquze, Judge
Pending
before the Court are four Motions to Dismiss. (Docs. 99, 110,
156, 157.)[1]The Court held oral argument on September
16, 2019, and took the Motions under advisement. (Doc. 215.)
The Motions to Dismiss filed by Defendant ADAB Ocean Harvest,
S. De R.L. De C.V. (hereinafter “Defendant” or
“ADAB Mexico”) (Docs. 99, 156) will be addressed
below. The Motions to Dismiss filed by
Plaintiff/Counterdefendant Ocean Garden Products Inc.
(hereinafter “Plaintiff” or “OG”)
(Doc. 110) and the Motion to Dismiss filed by Pacific Ocean
Harvest, S. De R.L. De C.V. (Doc. 157) will be resolved
separately.
I.
Background
ADAB
Mexico is a Mexican company located in Nogales, Arizona. It
was originally established as a maquiladora processing shrimp
on behalf of Blessings, Inc. (“Blessings”), an
Arizona corporation located in Tucson, Arizona. Like
Blessings, ADAB Mexico is wholly owned by brothers David and
Abraham Mayorquin, both of whom are domiciled in Arizona.
On July
2, 2018, Plaintiff initiated a lawsuit against Blessings and
David, alleging breach of contract and other claims (Doc. 1)
(the “Contract Action”). Plaintiff filed a First
Amended Complaint (“Alter-Ego FAC”), the
operative pleading in the Contract Action, on January 29,
2019. (Doc. 86.) The Alter-Ego FAC adds Abraham and ADAB
Mexico as defendants under an alter-ego theory.
(Id.) On February 22, 2019, ADAB Mexico filed a
Motion to Dismiss pursuant to Federal Rule of Civil Procedure
12(b)(2) (“Alter Ego MTD”). (Doc. 99.) The Alter
Ego MTD was fully briefed on July 29, 2019. (Docs. 166, 184.)
On May
22, 2019, Plaintiff initiated a separate lawsuit against
numerous defendants, including ADAB Mexico, asserting claims
under Arizona’s Uniform Fraudulent Trade Act
(“UFTA”) (Doc. 1 in case number CV-19-284) (the
“UFTA Action”). After case numbers CV-18-322 and
CV-19-284 were consolidated, Plaintiff filed a First Amended
Complaint (“UFTA FAC”), the operative pleading in
the UFTA Action. (Doc. 154.) On July 9, 2019, ADAB Mexico
filed a Rule 12(b)(2) Motion to Dismiss (“UFTA
MTD”) (Doc. 156), which was directed at
Plaintiff’s original UFTA Complaint but which both
parties agree may be treated as seeking dismissal of the
claims asserted against ADAB Mexico in the UFTA FAC. (Doc.
186 at 4; Doc. 197 at 3 n.2.) The UFTA MTD was fully briefed
on August 26, 2019. (Docs. 186, 197.)
In both
the Alter Ego MTD and the UFTA MTD, ADAB Mexico moves for
dismissal under Federal Rule of Civil Procedure 12(b)(2) for
lack of personal jurisdiction.
II.
Allegations of FACs Concerning ADAB Mexico
With
respect to ADAB Mexico, Plaintiff’s Alter-Ego FAC
alleges the following: ADAB and Blessings are sister
companies, both of which are solely owned and controlled by
David and Abraham. (Doc. 86 at 2-4, 12.) David is
Blessings’ President and Chief Executive Officer
(“CEO”), and David and Abraham are the sole
officers of ADAB Mexico. (Id. at 3-4.) ADAB Mexico
does not have an independent board of directors or any
officers or directors except David and Abraham. (Id.
at 12.) ADAB Mexico and Blessings operate as a single
enterprise, with Blessings serving as the sales and marketing
arm and ADAB Mexico as the processing arm. (Id. at
3-4, 11.) Administrative functions of ADAB Mexico are
frequently performed by Blessings’ employees; ADAB
Mexico uses Blessings’ trucks, equipment, and premises;
and Defendants produced documents of ADAB Mexico in discovery
in this case as proof of Blessings’ damages.
(Id. at 12-13.) David and Abraham commingled the
assets of Blessings and ADAB Mexico in order to isolate the
debts of their shrimp business with Blessings and the profits
with ADAB Mexico, thereby shielding the business’s
assets from creditors like OG. (Id. at 2, 11-12.)
David and Abraham transferred money and goods received by
Blessings from OG to ADAB Mexico, while giving OG the
impression that the companies were the same. (Id.)
Jurisdiction over ADAB is proper because it is the alter ego
of David, Abraham, and Blessings, and because it “has
purposefully availed itself of the privilege of doing
business in Arizona.” (Id. at 3.)
Plaintiff’s
UFTA FAC makes the following allegations with respect to ADAB
Mexico: At a time when Blessings was in serious financial
distress and facing an existential threat from a criminal
investigation, David and Abraham ran up Blessings’ debt
to OG and transferred millions of dollars from Blessings to
ADAB Mexico, thereby isolating the debts of their shrimp
business in Blessings and the assets in ADAB Mexico. (Doc.
154 at 2, 5-8.) Blessings transferred cash to ADAB Mexico
even after OG filed a state-court lawsuit against Blessings
in 2016. (Id. at 8.) Blessing mischaracterized the
cash transfers in its financial statements by implying that
it had a note receivable from ADAB Mexico, even though no
note or other loan documents were executed between Blessings
and ADAB Mexico. (Id. at 9.) In addition to cash,
Blessings transferred know-how, trade secrets, other
intangible assets, and processing equipment to ADAB Mexico,
and affirmatively concealed the transfers from OG.
(Id. at 9-10.) Blessings is now insolvent and
judgment-proof, while ADAB Mexico is operational primarily
thanks to the millions of dollars fraudulently transferred
from Blessings. (Id. at 2.) Jurisdiction over ADAB
Mexico is proper because it is co-owned by David and Abraham
and it is not a good-faith transferee of the assets
transferred from Blessings. (Id. at 3.)
III.
Legal Standard
“Federal
courts apply state law to determine the bounds of their
jurisdiction over a party.” Williams v. Yamaha
Motor Co., 851 F.3d 1015, 1020 (9th Cir. 2017).
Arizona’s long-arm statute permits the exercise of
jurisdiction to the full extent permissible under the United
States Constitution. Ariz. R. Civ. P. 4.2(a); Davis v.
Metro Prod., Inc., 885 F.2d 515, 520 (9th Cir. 1989). In
order for the exercise of personal jurisdiction over an
out-of-state defendant to comport with the requirements of
due process under the United States Constitution, the
defendant must “have certain minimum contacts”
with the forum state “such that the maintenance of the
suit does not offend traditional notions of fair play and
substantial justice.” Int’l Shoe Co. v.
Washington, 326 U.S. 310, 316 (1945) (internal quotation
omitted).
The
plaintiff bears the burden of establishing that the exercise
of personal jurisdiction is proper. Ranza v. Nike,
Inc., 793 F.3d 1059, 1068 (9th Cir. 2015). This is true
even though the defendant is the moving party on a Rule
12(b)(2) motion to dismiss. Rio Props., Inc. v. Rio
Int’l Interlink, 284 F.3d 1007, 1019 (9th Cir.
2002). But in the absence of an evidentiary hearing, the
plaintiff need only make “a prima facie showing of
personal jurisdiction.” Schwarzenegger v. Fred
Martin Motor Co., 374 F.3d 797, 800 (9th Cir. 2004)
(internal quotation omitted).[2]
Personal
jurisdiction can be general or specific. General personal
jurisdiction exists when the defendant’s affiliations
with the forum state are so “continuous and
systematic” that the defendant can properly be said to
be “at home” in that state. Goodyear Dunlop
Tires Operations, S.A. v. Brown, 564 U.S. 915, 919
(2011) (internal quotation omitted). A corporate defendant is
typically “at home” only in its state of
incorporation and the state in which it has its principal
place of business. See Id . at 924. Specific
personal jurisdiction exists only when “the
defendant’s suit-related conduct . . . create[s] a
substantial connection with the forum State.”
Walden v. Fiore, 571 U.S. 277, 284 (2014). Three
requirements must be satisfied for a court to exercise
specific personal jurisdiction over a non-resident defendant:
(1) the defendant must have “purposefully direct[ed]
his activities or consummate[d] some transaction with the
forum or resident thereof” or “purposefully
avail[ed itself] of the privileges of conducting activities
in the forum, thereby invoking the benefits and protections
of its laws”; (2) the claim must have arisen out of or
relate 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.” Dole Food Co. v. Watts, 303 F.3d
1104, 1111 ...