United States District Court, D. Arizona
ORDER
DOMINIC W. LANZA UNITED STATES DISTRICT JUDGE.
Pending
before the Court are motions for attorneys' fees filed by
Defendants Vemma Nutrition Company (“Vemma
Nutrition”)[1] (Doc. 166), Vemma International Holdings
Incorporated (“Vemma Holdings”) (Doc. 167),
Bethany and Tom Alkazin (“the Alkazins”) (Doc.
168), and Haresh Mehta (“Mehta”)[2] (Doc. 169). For
the following reasons, Vemma Nutrition's motion will be
denied, Vemma Holdings' and the Alkazins' motion will
be granted in part and denied in part, and Mehta's motion
will be granted. The Court will award $47, 833.18 to Vemma
Holdings, $21, 228 to the Alkazins, and $11, 536 to Mehta, to
be assessed against Edwards and his counsel in this action,
Florin Ivan (“Ivan”) and Justin Clark
(“Clark”), with Edwards responsible for 60% of
the overall award and Ivan and Clark each responsible for
20%.
BACKGROUND
On July
3, 2017, Plaintiff initiated this action by filing a pro
se Complaint. (Doc. 1.) On August 25, 2017,
Plaintiff-now represented by Clark-filed a First Amended
Complaint (“FAC”). (Doc. 13.)
I.
Dismissal of Vemma Nutrition
On
September 15, 2017, Vemma Nutrition-the only Defendant served
at that time-filed a Motion to Compel Arbitration and Dismiss
Action (Doc. 18), arguing that “the parties'
contract included a broad arbitration clause requiring
arbitration of any dispute relating to the parties'
‘relationship.'” (Doc. 18 at 1-2.) The motion
specified that if the motion were granted, Vemma Nutrition
would “file an application for recovery of its
attorneys' fees pursuant to [LRCiv] 54.2 and A.R.S.
§ 12-341.01.” (Id. at 2.)
In his
response, Edwards argued that the contract containing the
arbitration clause was a “clickwrap” agreement in
which a user becomes an “Affiliate” of Vemma
Nutrition by filling out an online application and clicking
an “OK” button to assent to Vemma Nutrition's
terms-but someone else enrolled him without his knowledge or
consent, such that he neither clicked the button nor saw the
terms. (Doc. 24 at 2-6.) He further argued that the adhesion
contract was unenforceable due to unconscionability, in part
because Vemma retained the right to modify the contract at
any time, without the other party's assent. (Id.
at 6-10.) Finally, he argued that his claims-namely,
copyright infringement and breach of other contracts (not the
one containing the arbitration clause)-fell outside the scope
of the agreement containing the arbitration clause.
(Id. at 10-15.)
On
January 31, 2018, the Court issued a 16-page opinion granting
the motion, holding that Edwards's claims against Vemma
Nutrition were subject to arbitration and thus dismissing
those claims without prejudice. (Doc. 61.) The Court held
that even if Edwards had been enrolled as an Affiliate by
another person “without his knowledge or permission,
” Edwards subsequently ratified the contract by (1)
participating as an Affiliate between 2007 and 2015, which
required annual membership renewal, and (2) cashing at least
45 commission checks from Vemma Nutrition, which included
endorsement language stating, “I have read, agreed with
and am in compliance with current Vemma policies and
procedures.” (Id. at 4.) The Court added,
“The fact that Plaintiff did not see Vemma's
policies and procedures, which include the Arbitration
Provision, does not mean that he did not agree to the
Arbitration Provision” because he “could easily
have accessed” it. (Id. at 6.)
However,
the Court agreed with Edwards that the agreement was an
adhesion contract and that “the unilateral modification
clause is substantively unconscionable.” (Id.
at 7.) The Court found the unilateral modification provision
to be “particularly salient in this case because Vemma
[Nutrition] modified its Arbitration Provision with
Plaintiff.” (Id. at 8.) Specifically, when
Edwards was enrolled as an Affiliate in 2007, the Arbitration
Provision applied to disputes “relating to any
relationship between or among Vemma, its officers, employees,
distributors or vendors, ” but it was modified by 2015
to apply to disputes “relating to any relationship
between or among Vemma, its Affiliates, officers,
employees, distributors or vendors.” (Id. at
8-9, emphasis added.) The Court thus severed the
unconscionable unilateral modification provision and held
that the 2015 contractual language was not binding on
Edwards, but the 2007 language was. (Id. at 10.)
The
Court then analyzed whether Edwards could be considered a
“distributor, ” discussed evidence for and
against construing “distributor” in a manner that
would include Edwards, and determined that the 2007 Agreement
was “ambiguous” as to the meaning of
“distributor.” (Id. at 12-14.) In light
of this ambiguity, the Court applied the “presumption
of arbitrability” and construed
“distributor” to include Edwards. (Id.
at 14-15.)
Finally,
the Court construed the arbitration clause broadly, such that
the “relationship” between Vemma Nutrition and
Edwards (as a “distributor”) covered claims that
did not arise out of the contract containing the arbitration
clause and had nothing to do with Edwards's role as a
“distributor” or Affiliate. (Id. at
15-16.)
The
Court therefore granted Vemma Nutrition's motion to
compel arbitration and dismissed Edwards's claims against
Vemma Nutrition without prejudice. (Id. at 16.)
II.
First Dismissal Of The Alkazins, Mehta, And Vemma
Holdings
On
November 29, 2017, the Alkazins and Vemma Holdings waived
service. (Doc. 37.) Mehta was served on December 11, 2017.
(Doc. 39.)
In
early 2018, Mehta filed a motion to dismiss the FAC for lack
of personal jurisdiction (Doc. 57), the Alkazins filed a
motion to dismiss the FAC for lack of personal jurisdiction
(Doc. 74), and Vemma Holdings filed a motion to dismiss the
FAC for failure to state a claim. (Doc. 70).
Also in
early 2018, Ivan filed a notice of appearance, which stated
that the law firm Ivan & Kilmark, PLC was appearing on
behalf of Edwards as associate counsel, associating with lead
counsel J. Clark Law Firm, P.L.L.C. (Doc. 68.)
On July
20, 2018, the Court issued an opinion granting all three
motions. (Doc. 99.) As for the two motions to dismiss for
lack of personal jurisdiction, the Court noted that Edwards
asserted specific jurisdiction, as opposed to general
jurisdiction, and determined that the “purposeful
direction” test applied, as opposed to the
“purposeful availment” test. Id. at 4.
Under the purposeful direction test, jurisdiction exists when
the defendant has “(1) committed an intentional act,
(2) expressly aimed at the forum state, (3) causing harm that
the defendant knows is likely to be suffered in the forum
state.” Id. at 5 (quoting Morrill v. Scott
Fin. Corp., 873 F.3d 1136, 1142 (9th Cir. 2017)).
The
Court noted that the FAC “broadly alleges that Mr.
Alkazin has ‘transacted business in this district and
throughout the United States,' but it does not allege . .
. any potential harm in Arizona that would be anything more
than random, fortuitous, or attenuated.” Id.
at 6. The Court determined that the FAC did not allege facts
demonstrating the Alkazins had caused any harm suffered in
Arizona and therefore dismissed the FAC as to the Alkazins,
with leave to amend within 30 days “[i]f Dr. Edwards
has such facts.” Id. at 6-7.
The
Court similarly determined the FAC did not allege facts
demonstrating that Mehta-a resident of South Carolina who
allegedly hid one of Edwards's book scripts in South
Carolina and used Edwards's copyrighted materials to
expand Vemma Nutrition's presence into India-had caused
any harm suffered in Arizona. Id. at 7. The Court
dismissed the FAC as to Mehta without granting leave to
amend. Id.
Finally,
in granting Vemma Holdings' motion to dismiss, the Court
concluded that “the FAC impermissibly refers to the
Vemma corporate defendants without differentiation, ”
noting that the FAC “specifically defines
‘Vemma' to include both Vemma Nutrition and [Vemma
Holdings].” (Doc. 99 at 9.) The Court found that the
lack of differentiation “results in confusion as to
which claims and theories remain against [Vemma Holdings],
” considering that Vemma Nutrition had been dismissed
due to the binding arbitration agreement, and “the FAC
neither alleges that [Vemma Nutrition and Vemma Holdings] are
alter egos, nor does it allege separate facts against Vemma
Holdings that would give rise to independent
liability.” Id. The Court granted Edwards
leave to amend within 30 days, adding that “[t]he
Second Amended Complaint should clearly set out which
allegations apply to [Vemma Holdings].” Id. at
10.
The
Court concluded the opinion with the summation, “The
Court grants the motions to dismiss and allows Plaintiff to
amend the complaint to plead facts showing whether he
suffered harm in Arizona based on the Alkazins' conduct
and to clarify which allegations apply to Defendant [Vemma
Holdings].” (Doc. 99 at 10-11.) The Court then issued
the following orders:
1. Defendant Haresh Mehta's Motion to Dismiss, (Doc. 57),
is GRANTED.
2. Defendants Tom and Bethany Alkazin's Motion to
Dismiss, (doc. 74), is GRANTED with leave to amend
within 30 days.
3. Defendant Vemma International Holdings Inc.'s Motion
to Dismiss, (doc. 70), is GRANTED with leave to amend
within 30 days.
4. Plaintiff John Edwards may amend the complaint to clarify
which allegations and claims apply to Vemma International
Holdings and to state facts, if any, which suggest that
Plaintiff was harmed in Arizona by the conduct of the
Alkazins.
(Doc. 99 at 11.)
III.
Second Dismissal Of The Alkazins, Mehta, And Vemma
Holdings
On
August 20, 2018, Edwards filed a Second Amended Complaint
(“SAC”), which named all of the non-fictitious
Defendants that had been named in the FAC. (Doc. 106-1.) The
SAC was filed and signed by Clark of J. Clark Law Firm, PLLC.
Although Ivan had previously filed a notice of appearance as
associate counsel for Edwards, neither Ivan's name nor
his law firm's name appears on the SAC. (Id.)
On
September 4, 2018, the Alkazins filed a motion to dismiss the
SAC for lack of personal jurisdiction, or alternatively to
compel arbitration (Doc. 112), and Vemma Holdings filed a
motion to dismiss the SAC for failure to state a claim (Doc.
114).
Things
were a little more complicated regarding Mehta because he had
already been dismissed without leave to amend. Thus, the
Court sua sponte questioned the appropriateness of
Edwards's effort to rename Mehta in the SAC. On August
31, 2018, the Court issued a written order stating that it
had reviewed the named parties in the SAC and found that
“Mehta was named as a Defendant after having been
dismissed for lack of jurisdiction . . . and without leave to
amend.” (Doc. 111.) The Court thus ordered Edwards to
show cause, by September 13, 2018, as to why Mehta should not
be dismissed from the action. Id. The Court also set
a status hearing on that date to discuss the parties'
request for extensions of the pending deadlines in the case.
Id. Finally, the Court directed the Clerk of Court
to dismiss Mehta, without further notice, on September 14,
2018 if Edwards failed to comply with the order to show
cause.
On
September 13, 2018, at the status conference, attorneys Clark
and Ivan were both present, but Ivan did all the talking on
behalf of Edwards. (Doc. 124 at 2-13.) During the hearing,
the Court provided Edwards's counsel with the following
explanation concerning the July 20, 2018 order granting the
Alkazins' motion to dismiss with leave to amend and
granting Mehta's motion to dismiss without leave to
amend:
I did dismiss [Mehta], and I didn't give you leave to
amend with respect to him.
I will tell you what my thinking was because he and the
Alkazins . . . the allegations as it pertains to any sort of
damage that they inflicted on . . . the plaintiff in Arizona
were very insufficient. Because all the allegations as it
pertains to . . . Mr. Mehta had to do with his activities in
India, I just didn't see that there was any possibility
you were going to make any claim that there was any damage
done to Dr. Edwards, who is not an Arizona resident, in
Arizona.
Similarly, I felt the same way about the Alkazins . . . .
However, because they are residents of Nevada, I considered
that there was more possibility that you could actually do
that with some specificity, which is why I gave you leave to
amend.
(Doc. 124 at 2-3.)
During
the status conference, Ivan attempted to make arguments
regarding why Mehta should not be dismissed, but the Court
prevented Ivan from doing so, stating, “if you want to
address the Mehta issue, because they're not here, you
probably need to do it in writing.” Id. at 4.
Ivan nevertheless stated that he “didn't see the
words ‘with prejudice'” in the order
dismissing Mehta, and the Court responded by reiterating that
the dismissal was without leave to amend. Id. The
Court added, “[i]f you feel like you want me to
reconsider, or whatever else, if you feel like you still have
access to such a motion, you can file it.” Id.
at 5.
The
status conference ended at 10:27 a.m. (id. at 13),
and Edwards did not file a written response to the order to
show cause by the end of that day. Accordingly, per the
Court's August 31, 2018 order (Doc. 111), the Clerk of
Court dismissed Mehta the following day. (Doc. 120.)
On
September 28, 2018, Edwards filed a “motion for
reconsideration, ” requesting that the Court vacate the
Clerk's summary dismissal of Mehta. (Doc. 121.) The
motion was signed by Ivan. (Id.)
On
October 1, 2018, the Court granted the motion for
reconsideration and reinstated Mehta.[3] (Doc. 122.)
On
October 4, 2018, Edwards filed responses to the motions to
dismiss that had been filed by Vemma Holdings and the
Alkazins. (Docs. 125, 126.) The former response was jointly
signed by Clark and Ivan but the latter response was only
signed by Ivan. (Id.)
On
November 8, 2018, Mehta filed a motion which he titled
“Former Defendant Haresh Mehta's Motion to Clarify
Dismissal and Alternative Renewal of Motion to
Dismiss.” (Doc. 131.)
On
November 19, 2018, Edwards filed a motion to strike
Mehta's motion. (Doc. 136.) Both Clark and Ivan were
identified as counsel of record on the first page of the
motion, but it was signed by Ivan alone. (Id.)
On
December 17, 2018, the Court issued an order denying the
motion to strike Mehta's motion (as well as denying a
different motion to strike that Edwards had filed). (Doc.
143.) Among other things, this order noted that “[i]t
is unfortunate that [Edwards] has wasted so much of the
Court's and the other parties' time by filing
baseless motions to strike.” (Id. at 3.)
On
December 31, 2018, Edwards filed a response to Mehta's
motion to dismiss. (Doc. 144.) Both Clark and Ivan were
identified as counsel of record on the first page of ...