United States District Court, D. Arizona
Dominic W. Lanza, United States District Judge
before the Court are (1) a motion to dismiss the second
amended complaint filed by defendants Craig Kapreilian,
Herbert Kapreilian, Fruit World Nursery, Inc., and Eastside
Packing, Inc. (collectively, “Defendants”) (Doc.
103), (2) a motion for leave to file a third amended
complaint by plaintiff Pacesetter Consulting LLC
(“Pacesetter”) (Doc. 98), and (3) a “Motion
for Rule 60 Relief” filed by Pacesetter (Doc. 96). The
Court issued a tentative ruling on November 18, 2019 (Doc.
124) and heard oral argument on December 2, 2019. For the
following reasons, the Court will deny the motion to dismiss,
grant in part and deny in part the motion to amend, and deny
the motion for relief.
facts as alleged in the second amended complaint (Doc. 87),
and as established in other judicial proceedings related to
this case, are as follows.
early 2005, Craig Kapreilian, along with nonparties John R.
Norton III, John P. Norton, and Roger Stevenson, launched
Citrines Operations, Inc (“Citrines”).
(Id. ¶¶ 1-2.) Citrines' goal was to
cultivate two orchards' worth of new, proprietary
varieties of mandarins provided by Craig's company, Fruit
World Nursery, Inc (“Fruit World”). (Id.
¶¶ 2, 20-22.) Herbert Kapreilian sold land to
Citrines at a discount, on the condition that fruit produced
from the orchards was packed by his company, Eastside
Packing, Inc. (Id. ¶ 4.) The two orchards gave
rise to two limited partnerships-Phoenix Orchard Group I and
Phoenix Orchard Group II (“POG I” and “POG
II”). (Id. ¶ 5.)
orchard groups began seeking investors. (Id.
¶¶ 6-8.) One such investor was the Judson C. Ball
Revocable Trust (the “Trust”). (Id.
¶ 7.) By April 2008, the Trust had contributed $200, 000
to each orchard group. (Id.)
surface, it appeared to be a sound investment. The Executive
Summary outlining the investment opportunity explained that
Craig, through Fruit World, had conducted “14 years of
world-leading research and development” that resulted
in new mandarin varieties suited to the California growing
season. (Id. ¶ 31.) That research enabled Craig
to produce the mandarins in a cost-effective way, over most
of the year, with high-quality fruit that surpassed what
competitors were putting on the market. (Id.) The
offering documents projected an annualized return of 22.4%
over 25 years, with investors earning back their initial
investments in six years. (Id. ¶ 32.)
the surface, though, the roots were rotten. None of what
Craig claimed about his experience or research was true.
(Id. ¶¶ 39-40). The crops were
particularly susceptible to freezes, and a 2006 freeze almost
entirely wiped out POG I. (Id.) Craig's failures
were so severe that he was fired from his position
maintaining the orchards. (Id.)
trouble didn't end with Craig's lack of expertise,
however. The complaint alleges a variety of side-deals,
unauthorized transactions, unauthorized debts, and
unauthorized personnel decisions made by Citrines and the
Kapreilians. (Id. at 10-16, 17, 18.) These all
deprived POG members of their decision-making rights and
potential profits. (Id. at 3-4, 17.)
State Court Litigation
with the situation, the Trust brought a lawsuit in Maricopa
County Superior Court against POG I, POG II, Stevenson, the
Nortons, and various business entities they controlled. (Doc.
103-1 at 3-6.) The Trust alleged the same factual background
detailed above and brought statutory claims under A.R.S.
§§ 44-1991(A), -1999(B), and -2003(A) and tort
claims for misrepresentation and nondisclosure. (Id.
at 11-13.) The defendants answered and filed a counterclaim
seeking rescission of the Trust's interests in the
orchard groups under A.R.S. § 44-2001(A). (Doc. 103-2 at
state court determined that rescission was appropriate and
entered a declaratory judgment to that effect. (Doc. 103-3 at
6.) Rescission satisfied the Trust's statutory claims.
(Id.) The court noted, however, that rescission did
not satisfy the potential damages under the tort claims and
declined to declare the Trust's tort claims satisfied.
(Id.) The Trust was unsatisfied with rescission and
appealed the decision. Judson C. Ball Revocable Trust v.
Phoenix Orchard Group I, LP, 2018 WL 283049, *1
(Ariz.Ct.App. 2018) (mem. decision) (Trust I). The
Arizona Court of Appeals affirmed the rescission.
the Trust maintained its tort claims, they ultimately failed.
(Doc. 103-6.) The state court determined that Judson Ball,
representative for the Trust, didn't read any of the
relevant materials before investing. (Id. at 5, 7-8,
11.) Because it was Ball's “extreme
carelessness” that led to his alleged injuries, rather
than misrepresentations made by the defendants, the court
granted summary judgment in favor of the defendants.
(Id. at 2, 5, 11.) That decision is currently on
appeal. Judson C. Ball Revocable Trust v. Phoenix Orchard
Group I, 2019 WL 2373855 (Ariz.Ct.App. 2019) (Trust
that litigation was ongoing, the Trust also brought a
derivative action in state court against both orchard groups.
Judson C. Ball Revocable Trust v. Phoenix Orchard Group
I, 431 P.3d 589, 591 (Ariz.Ct.App. 2018) (rev.
denied April 30, 2019) (Trust II). The state
court dismissed the action after the rescission, holding that
the Trust, because it no longer had an interest in the
orchard groups, no longer had standing. Id. The
Trust appealed but the Arizona Court of Appeals affirmed,
concluding that, “because the Trust no longer possesses
any ownership interest in POG, ” it no longer had
standing to pursue the derivative action. Id. at
The Federal Case
point in this affair, the Trust assigned its “right,
title, interest, and claims to economic damages” to
Pacesetter. (Doc. 87 at ¶ 7.) Pacesetter filed this
action in January 2019, alleging the same factual background
detailed above but bringing a variety of tort claims against
the Kapreilians, their respective companies, and other
entities responsible for the “side deals” that
deprived the orchard groups of profits. (Doc. 1.) The
complaint was amended the next month (Doc. 7), and then,
after receiving leave from the Court, was amended again in
June 2019 (Docs. 84, 87).
course of discovery, Pacesetter became aware of a transfer of
some of POG I's property to Agriculture Capital, LLC
(“Agriculture Capital”) in November 2016. (Doc.
83 at 1.) Defendant Tom Avenelis, the owner of the farm
management company now overseeing the orchards, is a member
in Agriculture Capital. (Id.) “Because
[Pacesetter] has a direct claim to conversion of POG assets .
. . counsel requested a disclosure of the sale and closing
documents” related to the property. (Id.)
After Avenelis refused the request, the parties filed a
notice of discovery dispute. (Id.) The Court
construed the notice as a motion to compel and denied the
motion. (Doc 92 at 17-18.) Specifically, the Court concluded
that, because Agriculture Capital was a non-party to this
litigation and because the relevance of the documents was
unclear, an informal request for the documents was improper.
(Id. at 19.)
now seeks leave to amend its complaint for a third time.
(Doc. 98.) The proposed amendment adds new defendants and
three new causes of action, two of which are premised on the
sale of property from POG I to Agriculture Capital. (Doc. 98
at 3; Doc. 98-1 at 1, 36-39.) Pacesetter has also filed a
Rule 60 motion for relief from the Court's order in the
discovery dispute, arguing that the short page limit on
briefs led to “judicial surprise” and that new
evidence has come to light that calls the Court's
decision into doubt. (Doc. 96 at 1.) Avenelis has filed a
response opposing the motion to amend, and Mark Bassetti has
also filed a brief preserving an argument he plans to make in
a motion to dismiss. (Docs. 106 and 107.) Avenelis has also
filed a response to the Rule 60 motion. (Doc. 100.)
the Kapreilians and their companies, Fruit World and Eastside
Packing, have filed a motion to dismiss the second amended
complaint. (Doc. 103.) They primarily argue that the Court
lacks personal jurisdiction over them. (Id. at 5-6.)
Even if jurisdiction is appropriate, Defendants argue the
complaint should still be dismissed because it is barred by
claim preclusion. (Id. at 5.) Pacesetter opposes the
motion, arguing that jurisdiction is proper and that claim
preclusion does not apply. (Doc. 111.)
Defendants' Motion to Dismiss
raise essentially two arguments in their motion to dismiss.
The first is that the Court lacks personal jurisdiction over
them. The Kapreilians and their companies are all citizens of
California, and they argue that their contacts with Arizona
are insufficient to establish either general or specific
jurisdiction for this action. (Doc. 103 at 6-10.) Second,
even if personal jurisdiction exists, Defendants contend that
Pacesetter's claims have already been litigated in the
state court proceedings. (Id. at 10.) This action,
they continue, must therefore be dismissed under the doctrine
of claim preclusion. (Id. at 10-17.) The Court will
address the jurisdictional question first.