Ocean Garden Products Inc. v. Blessings Inc.

          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 ...