Modulus Global Incorporated v. Patrick Gruhn, et al.

• Court: District Court, D. Arizona
• Decided: February 13, 2026
• Docket: 2:24-cv-03195
• Status: Unknown

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 Modulus Global Incorporated, No. CV-24-03195-PHX-ROS

10 Plaintiff, ORDER

11 v.

12 Patrick Gruhn, et al.,

13 Defendants. 14 15 Before the Court are several Motions to Dismiss for lack of personal jurisdiction 16 (Docs. 48, 51, 52, 53, 54, 55). The Plaintiff responded to each (Docs. 66, 67) and the 17 Defendants replied. (Docs. 70, 72, 73, 74, 75). For the reasons stated, the Court will grant 18 the Motions to Dismiss as to Defendants Brandon Williams (“Williams”), Kephas 19 Corporation, WIB Technologies Inc., and DAAG USA, LLC, and deny the Motion to 20 Dismiss as to Defendants Patrick Gruhn (“Gruhn”), and Stephen Stephens. 21 I. Background 22 Although Plaintiff alleges tort claims, this case arises from two contracts entered 23 between Plaintiff Modulus Global, Inc. (“Modulus”) and Digital Assets AG (“DAAG”).1 24 Modulus is a corporation incorporated in Delaware that “provides advanced, proprietary 25 financial technology products and services.” (Doc. 39 ¶¶ 3, 7). In August 2021, Modulus 26 entered into two Licensing Agreements with DAAG for use of Modulus’ matching engine 27

28 1It is noted “DAAG” is not alleged to be a defendant in this case, rather “DAAG USA” is an alleged defendant and “DAAG” is a party to the two contracts. 1 and source code. (Doc. 39 ¶ 4). Modulus alleges DAAG and the Defendants, through the 2 Licensing Agreements, secretly worked to provide financial company FTX Trading Ltd. 3 (“FTX”) and others with prohibited access to Modulus’ engine and source code.2 What 4 follows are the alleged facts. 5 Defendants Gruhn, Williams, and Stephens3 were aware of Modulus’ software from 6 at least July 18, 2018 (Doc 39 ¶¶ 57–58). Having a pre-existing relationship with then- 7 CEO of FTX Samuel Bankman-Fried, in May 2020, Defendant Williams proposed a deal 8 with FTX to help FTX expand into the European Union. (Doc. 39 ¶ 65). Both Williams 9 and Gruhn incorporated DAAG in July 2020 and entered into two confidential Share 10 Purchase Agreements (the “First SPA” and “Second SPA”) in October 2020 and July 2021, 11 whereby FTX’s associated entity Alameda acquired 20% of DAAG shares in advance of 12 DAAG having begun operating. (Doc. 39 ¶¶ 66–74). The acquisition price in the Second 13 SPA reflected a $370 million valuation of DAAG, which was unusual because at the time 14 DAAG had no active business. (Doc. 39 ¶¶ 74–77). 15 Just a month after receiving payment under the Second SPA, Gruhn contacted 16 Modulus via an online contact form expressing interest in Modulus’ Source Code. (Doc. 17 39 ¶ 78-80). Modulus then began a “careful vetting process” and negotiations with Gruhn 18 and Stephens for the software licenses. (Doc. 39 ¶ 84). Throughout the process, Gruhn and 19 Stephens failed to disclose the close relationship between DAAG and FTX despite the 20 “careful vetting process” and the confidentiality conditions contained in the “License 21 Agreements” (Source Code). (Doc. 39 ¶¶ 82–86). Had Modulus known of this relationship, 22 it would not have agreed to license its Source Code to DAAG. (Doc. 39 ¶ 102). 23 2 Hereafter the “source code” will be referred to as: Source Code. 24 3 Gruhn is identified as a founder, shareholder, and Global IT Director of DAAG (Doc. 39 ¶ 56), as well as President and owner of Kephas Corp. (Doc. 39 ¶ 26), and “owner/member” 25 of DAAG USA (Doc. 51 at 14) and primary owner and CTO of WIB Technologies. (Doc. 26 39 ¶ 28). Although Gruhn’s title at DAAG is undefined, he had authority to sign contracts on DAAG’s behalf. See Doc. 66-2. Williams is identified as a co-founder, shareholder, 27 and Corporate Development Lead of DAAG. (Docs. 39 ¶ 25; 34-4 at 2). These titles are 28 undefined. Stephens is identified as the CEO of WIB Technologies and COO of Kephas Corp. (Doc. 39 ¶ 24, 28). His official role with DAAG is not specified. 1 One day prior to execution of the License Agreements, Stephens introduced 2 Shailesh Nair to Modulus as the project lead for DAAG’s implementation of the licensed 3 Source Code. (Doc. 39 ¶ 93). Nair also had connections with FTX: days before his 4 introduction as the project lead, he opened a personal forked repository in the Go FTX 5 Library on GitHub—a platform for storing and sharing code and files such as the licensed 6 Source Code. (Doc. 39 ¶¶ 87–90, Doc. 39-5 at 3). The Go FTX Library is used by 7 programmers and users to interact with FTX’s exchange. (Doc. 39 ¶ 93). 8 On August 20, 2021, Modulus, still completely unaware of DAAG’s involvement 9 with FTX insiders, executed the License Agreements with DAAG. (Id.) The License 10 Agreements included certain essential and key provisions and restrictions, including non- 11 transferability, confidentiality, usage restrictions, technical support and updates, and 12 Arizona choice-of-law and arbitration provisions. (Docs. 44, 44-1). 13 The Licensed Source Code was deployed to DAAG in mid-October, and by the end 14 of the month, FTX was in the process of finalizing the purchase of the remaining 80% of 15 DAAG’s shares. (Doc. 39 ¶ 14-15). Counsel for FTX notably found a due diligence process 16 unnecessary because “they do not have any active business,” “they are not yet operating,” 17 and FTX was “not too concerned” because DAAG was “not up and running yet.” (Doc. 39 18 ¶ 115, Doc. 39-1 ¶ 73-76). Examining DAAG’s financial statements was also “not 19 important for the business going forward.” (Id.). 20 The Third Share Purchase Agreement (“Third SPA”) was finalized on November 21 14th, 2021, and the 20% previously acquired by Alameda was transferred to FTX in a 22 separate share purchase agreement just days later. (Doc. 39-1 ¶¶ 63, 70). After the Third 23 SPA, Defendant Williams parted ways with DAAG and DAAG began to operate as FTX 24 Europe, with Gruhn serving as its head. (Doc. 39 ¶ 138, 192). 25 After this acquisition, Modulus alleges Defendants provided FTX with the Licensed 26 Source Code in violation of the License Agreements and trade secrets law. Historically, 27 FTX’s matching engine and software were notoriously flawed. (Doc. 39 ¶ 4). But 28 approximately one year after DAAG received the Source Code, in October 2022, Samuel 1 Bankman-Fried posted a series of tweets (the “Matching Engine tweets”) touting upcoming 2 improvements to its matching engine. (Doc. 39 ¶¶ 16–17). The tweets indicated these 3 improvements had “been in the works for most of the year.” (Id.). Seven days before FTX’s 4 planned release of these improvements, Stephens sent an email to Modulus’ CEO Richard 5 Gardner asking for an updated version of the Licensed Source Code, requesting: ““We 6 would like to get together soon to go through a technical call about Modulus. Does our 7 license give us access to the latest version of the Modulus system? Can we do that this 8 week?” (Doc. 39 ¶ 176). The acquisition was finally disclosed when Stephens included 9 FTX employees in an emailed meeting invitation regarding the updated Source Code. (Doc. 10 39 ¶¶ 180–86). Other related entities including Defendants Kephas Corp. and WIB 11 Technologies4 also now provide products containing Source Code identical to Modulus’ 12 Source Code. (Doc. 39 ¶¶ 199–207, 218–19). 13 Furthermore, in February 2022 an accounting and professional services firm called 14 BDO USA, LLP was retained by Jen Chan, Chief of Staff for the FTX Group, to “determine 15 the fair value of the [assets and liabilities] of DAAG, acquired by FTX Trading Ltd. on 16 November 14, 2021.” (Doc. 39-7 at A.0147). This report found “the primary rationale 17 behind the acquisition of DAAG was to acquire its operating licenses.” (Id. at A.0149). 18 The list of relevant operating licenses included, notably, “Modulus, Matching engine, 19 Crypto Derivative Exchange.” (Id. at A.0150). 20 Modulus argues these facts and timeline are highly suggestive of the Defendants’ 21 intent to misappropriate Modulus’ Source Code through the License, establishing an 22 inference of culpability. See Soo Park v. Thompson, 851 F.3d 910 (9th Cir. 2017). It is on 23 this factual record that the Court bases its decisions on the Motions to Dismiss. See 24 Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800 (9th Cir.2004) 25 (“[U]ncontroverted allegations in the complaint must be taken as true.”). 26 II. Legal Standard 27

28 4WIB Technologies serves as an IT provider for DAAG and Kephas Corp. Kephas Corp. served as an IT provider for FTX Europe. 1 The Arizona and federal rules governing personal jurisdiction are identical, as Arizona’s 2 long arm statute “provides for personal jurisdiction co-extensive with the limits of federal 3 due process.” Doe v. Am. Nat'l Red Cross, 112 F.3d 1048, 1050 (9th Cir.1997) (citing 4 Batton v. Tenn. Farmers Mut. Ins. Co., 736 P.2d 2, 4 (Ariz. 1987)); see also Ariz. R. Civ. 5 P. 4.2(a). “By requiring that individuals have ‘fair warning that a particular activity may 6 subject [them] to the jurisdiction of a foreign sovereign,’ the Due Process Clause ‘gives a 7 degree of predictability to the legal system that allows potential defendants to structure 8 their primary conduct with some minimum assurance as to where that conduct will and will 9 not render them liable to suit.’” Omeluk v. Langsten Slip & Batbyggeri A/S, 52 F.3d 267, 10 270 (9th Cir.1995) (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985) 11 (internal citations omitted)). 12 If a defendant has not had substantial or continuous and systematic contacts with 13 the forum state, the court must determine whether the defendant has had sufficient contacts 14 with the forum state such that the exercise of specific jurisdiction over the defendant would not offend the Due Process Clause. See Int’l Shoe Co. v. Washinton, 326 U.S. 310, 316 15 (1945). To determine whether a defendant has sufficient minimum contacts with a forum 16 state, courts must focus on “the relationship among the defendant, the forum, and the 17 litigation.” Shaffer v. Heitner, 433 U.S. 186, 204 (1977). Courts use a three-part test to 18 analyze whether specific jurisdiction is appropriate: 19 20 (1) The non-resident defendant must purposefully direct his activities or consummate some transaction with the forum or 21 resident thereof; or perform some act by which he purposefully avails himself of the privilege of conducting activities in the 22 forum, thereby invoking the benefits and protections of its laws; (2) the claim must be one which arises out of or relates 23 to the defendant’s forum-related activities; and (3) the exercise of jurisdiction must comport with fair play and substantial 24 justice, i.e. it must be reasonable. 25 LNS Enters. LLC v. Cont’l Motors, 22 F.4th 852, 859 (9th Cir. 2022) (citation omitted). 26 While cases arising out of contract claims typically use the “purposeful availment” 27 test and cases arising in tort typically use the “purposeful direction” test, Herbal Brands, 28 Inc. v. Photoplaza, Inc., 72 F.4th 1085, 1090–91 (9th Cir. 2023), generally the first prong 1 can be satisfied by either purposeful availment, purposeful direction, or a combination of 2 the two. Davis v. Cranfield Aerospace Sols., Ltd., 71 F.4th 1154, 1162 (9th Cir. 2023), cert. 3 denied, 144 S. Ct. 826 (2024). Here, in an action for misappropriation of trade secrets, 4 purposeful direction is the most applicable test. See CollegeSource, Inc. v. AcademyOne, 5 Inc., 653 F.3d 1066 (9th Cir. 2011); Nat’l Specialty Pharmacy, LLC v. Padhye, 734 F. 6 Supp. 3d 922 (N.D. Cal. 2024)); Regal W. Corp. v. Nguyen, 412 F. Supp. 3d 1305 (W.D. 7 Wash. 2019) 8 Under the Calder “effects” test, (Calder v. Jones, 465 U.S. 783 (1984)), the 9 requirement that a defendant’s conduct be expressly aimed at the forum state “encompasses 10 wrongful conduct targeting a known forum resident.” Bancroft & Masters, Inc. v. Augusta 11 Nat’l. Inc., 223 F.3d 1082, 1087 (9th Cir. 2000), holding modified by Yahoo! Inc. v. La 12 Ligue Contre Le Racisme Et L’Antisemitisme, 433 F.3d 1199 (9th Cir. 2006). Nonetheless, 13 personal jurisdiction must still be based on a defendant’s own affiliation with the forum 14 state, not simply a connection to an Arizona resident. See Walden v. Fiore, 571 U.S. 277, 285 (2014). 15 “The party seeking to invoke the jurisdiction of the federal court has the burden of 16 establishing that jurisdiction exists.” Data Disc, Inc. v. Sys. Tech. Assocs., Inc., 557 F.2d 17 1280, 1285 (9th Cir. 1977). When a defendant moves to dismiss for lack of personal 18 jurisdiction, the plaintiff cannot “simply rest on the bare allegations of the complaint, but 19 rather [is] obligated to come forward with facts, by affidavit or otherwise, supporting 20 personal jurisdiction.” Amba Mktg. Sys. v. Jobar Int’l, Inc., 551 F.2d 784, 787 (9th Cir. 21 1977). 22 III. Defendant Brandon Williams’ Motion to Dismiss for Lack of Jurisdiction 23 (Doc. 48) 24 Defendant Brandon Williams filed a Motion to Dismiss for Lack of Personal 25 Jurisdiction. No facts exist to support the existence of general jurisdiction, so only a 26 specific jurisdiction analysis is applicable. The issues here are focused on the first prong 27 of the three-part analysis. 28 In its Response, Plaintiff claims that “Williams satisfies the first prong of the 1 purposeful direction [test] because misappropriation is an intentional act.” (Doc. 67 at 8).5 2 However, Plaintiff has alleged only that Williams knew about misrepresentations by others 3 in the License Agreement negotiations, knew the Licensed Source Code would be disclosed 4 to FTX under the Third SPA, knew that disclosure of the Licensed Source Code was 5 impermissible, and entered the Third SPA with the purpose of giving FTX access to the 6 Source Code. None of these allegations establish the necessary contacts with Arizona. 7 Although it is noteworthy that Williams is one of only three incorporators and shareholders 8 of DAAG, Modulus has set forth no facts indicating his involvement in securing the 9 Licensing Agreements and he denies all involvement. The allegations regarding Williams’ 10 state of mind are merely conclusory without supporting facts. 11 Plaintiff’s remaining arguments relating to purposeful direction or availment are 12 summarized as follows: (1) DAAG’s contacts with Arizona can be imputed to Williams 13 (Doc. 67 at 6); (2) the License Agreements between DAAG and Modulus create sufficient 14 minimum contacts for the exercise of jurisdiction by creating a “long-term contractual relationship that envisioned substantial connections with Arizona under Arizona law to be 15 resolved, in the event of a dispute, in Arizona” (Id. at 4); and (3) Williams’ representations 16 in the Share Purchase Agreements with FTX Trading amount to purposeful direction 17 because they were contrary to DAAG’s obligations under the License Agreements. (Id. at 18 6–7). These arguments, too, fail to establish the Court’s jurisdiction over Williams. 19 An officer’s or employee’s mere association with a corporation is an insufficient 20 basis for the Court to assert jurisdiction over the employee, even if the Court can assert 21 jurisdiction over the corporation. See Glob. Commodities Trading Grp., Inc. v. Beneficio 22 de Arroz Choloma, S.A., 972 F.3d 1101, 1109 (9th Cir. 2020) (“We do not impute a 23 corporation’s forum contacts to each of the corporation’s employees. Instead, we assess 24 whether each individual had minimum contacts with the forum such that the exercise of 25 jurisdiction over that individual would comport with traditional notions of fair play and 26 27 5 Plaintiff cites LifeSuccess Productions LLC v. Martinelli in support of this contention, where a Defendant 28 was “alleged to have committed the intentional act of misappropriating trade secrets.” But Plaintiff has not set forth facts asserting Williams’ commission of any act of misappropriation. 1 substantial justice.”). 2 Plaintiff argues that “liability attaches to officers and directors of a corporation in 3 their personal capacity when they ‘have knowledge amounting to acquiescence…of the 4 corporate affairs causing or contributing to the injury.’” (Doc. 67 at 7). This argument fails 5 on two fronts: first, potential liability does not equate to personal jurisdiction. Second, even 6 if such knowledge of the acts of others were sufficient to establish the requisite contacts, 7 Plaintiff has not sufficiently supported this claim with requisite facts. It is noteworthy that 8 Williams is one of only three co-founders and shareholders of DAAG and served as 9 Corporate Development Lead.6 Plaintiff states in its Response that “the Motion [to 10 Dismiss] relies on Williams’ declaration as to his non-involvement with Modulus…But 11 non-involvement does not preclude acquiescence—or willful blindness.” (Doc. 67 at 7). 12 However, the Court cannot exercise personal jurisdiction based on a speculation of willful 13 blindness; there must be facts. In the face of a motion to dismiss for lack of personal 14 jurisdiction, Plaintiff cannot “simply rest on the bare allegations of the complaint, but rather [is] obligated to come forward with facts, by affidavit or otherwise, supporting personal 15 jurisdiction.” Amba Mktg. Sys. v. Jobar Int’l, Inc., 551 F.2d 784, 787 (9th Cir.1977). In the 16 absence of support for Plaintiff’s allegations, the Court cannot presume Williams had 17 “knowledge amounting to acquiescence.” 18 Plaintiff’s arguments regarding the License Agreements (Source Code) between 19 DAAG and Modulus and the SPAs between DAAG and FTX similarly fail to establish 20 jurisdiction over Williams. Williams is not alleged to have solicited, negotiated, signed, 21 nor was he named in the License Agreements with Modulus. (Doc. 69). Plaintiff alleges 22 the Court find that Williams was aware of misrepresentations in those negotiations; that 23 Williams entered into the third Share Purchase Agreement with FTX knowing that it was 24 inconsistent with DAAG’s obligations to Modulus; that he entered that agreement for the 25 purpose of allowing FTX to acquire Modulus’ Source Code; and, generally, that he “either 26 supplied to FTX or had reason to know that DAAG would improperly supply to FTX” 27 28 6 This title is undefined in the First Amended Complaint. (Doc. 39). 1 Modulus’ trade secrets. (Doc. 39 at 134). But Plaintiff has not set forth requisite facts 2 supporting this conclusion, nor has it explained how the acts create minimum contacts with 3 Arizona. (See Doc. 69). See Amba Mktg. Sys. 551 F.2d at 787. 4 Because Plaintiff has failed to establish Williams’ significant and necessary ties to 5 Arizona for personal jurisdiction, the Motion to Dismiss (Doc. 48) will be granted. Plaintiff 6 requests leave to conduct further jurisdictional discovery, but what Plaintiff has proffered 7 is insufficient to show that further jurisdictional discovery would be profitable in 8 establishing personal jurisdiction. 9 IV. Defendant Patrick Gruhn’s Motion to Dismiss for Lack of Jurisdiction (Doc. 51) 10 Gruhn is a resident of Oregon, owns no property in Arizona, and has never lived in 11 or visited Arizona. (Doc. 51-1 at 1–6). Modulus asserts claims against Gruhn for 12 misappropriation of trade secrets under federal and Arizona law, civil conspiracy to commit 13 theft of trade secrets, and fraud. Gruhn’s challenge to personal jurisdiction is largely 14 theoretical, without directly contesting the factual allegations. He nevertheless denies those 15 alleged contacts support the exercise of personal jurisdiction. Consequently, the operative 16 question is whether the conduct alleged by Plaintiff constitutes purposeful direction at the 17 state of Arizona. 18 Gruhn argues personal jurisdiction is inappropriate because under Walden v. Fiore, 19 knowledge that the plaintiff resides in the forum is insufficient to establish jurisdiction 20 because “plaintiff cannot be the only link between the defendant and the forum.” 571 U.S. 21 277, 285 (2014). Although “a defendant’s relationship with a plaintiff or third party 22 standing alone, is an insufficient basis for jurisdiction,” Walden, 571 U.S. at 285 (2014) 23 (emphasis added), Gruhn’s relationship to Modulus does not stand alone. 24 Unlike Williams, Gruhn’s part includes several affirmative acts directed toward 25 Arizona. Gruhn reached out to Plaintiff in Arizona when he submitted the initial online 26 contact form to Modulus expressing interest in the Source Code. (Doc. 39 ¶¶ 78–79). He 27 subsequently negotiated the License Agreements for the Source Code, was listed in the 28 contract as the contact person for DAAG (Doc. 39 ¶ 85; Doc 44 at 1), and later signed an 1 addendum adding another product to the License Agreements (Doc. 66-2). Throughout the 2 negotiations, Gruhn concealed material facts about DAAG’s relationship with FTX. (Doc. 3 39 ¶¶ 106–08). After execution of the License Agreements, Gruhn engaged in carrying out 4 the agreements and implementing the technology, including engaging in substantial email 5 and Slack7 communications with Modulus for guidance in deploying the software. (Doc. 6 66-3). Following the acquisition of DAAG by FTX, Gruhn participated in the disclosure 7 of the Modulus Source Code to FTX and to other defendant entities. (Doc. 39 ¶¶ 134, 189, 8 193–207, 218). 9 These acts and conduct created contacts with Arizona that are by no means “random, 10 fortuitous, or attenuated,” nor the result of the “unilateral activity of another party or a third 11 person.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985). In Walden, the fact 12 of the plaintiff’s residence in the forum state was entirely random and unconnected to the 13 complained of conduct. Walden, 571 U.S. 277 (2014). There, the defendant encountered 14 plaintiffs outside of the forum state and did nothing to the plaintiffs while they were in the 15 forum state; he “never…contacted anyone in, or sent anything…to [the forum state].” Id. 16 at 289. Gruhn, on the other hand, initiated contact with Modulus where it resided in 17 Arizona, requesting further contact, and engaged in significant communication with 18 Modulus in Arizona (Doc 66 at 6).8 19 Defendant further cites to Washington case HDT Bio Corp. v. Emcure Pharms, Ltd., 20 in which the district court found “[the defendant’s] alleged theft of trade secrets [did] not 21

22 7 Slack is a messaging platform often used for workplace communication. See Steven John, 23 ‘What is Slack?’ Everything You Need to Know About the Professional Messaging Program, BUSINESS INSIDER (Feb. 18, 2021), 24 https://www.businessinsider.com/guides/tech/what-is-slack 8 The Court has taken account of Applied Underwriters, Inc. v. Combined Mgmt., Inc., 371 25 Fed. Appx. 834 (9th Cir. 2010) and In re Boon Global Ltd., 923 F.3d 643 (9th Cir. 2019). 26 Applied held “ordinarily ‘use of the mails, telephone, or other international communication simply do not qualify as” purposeful availment or direction, and in Boon, there was no 27 jurisdiction over a defendant who merely signed an agreement in his capacity as C.E.O. 28 Here, Gruhn is alleged to have done more and interacted more directly than the defendants in Applied and Boon. 1 establish a meaningful connection to the United States.” 704 F.Supp.3d 1175, 1191. 2 However, Gruhn’s alleged misappropriation of trade secrets does not stand alone. 3 Although this case is brought in tort, not contract, the License Agreements (Source 4 Code) underly Plaintiff’s claims, and the “negotiations and contemplated future 5 consequences, along with the terms of the contract and the parties’ actual course of dealing” 6 are relevant to determining whether Gruhn “purposefully established minimum contacts 7 within [Arizona].” Burger King Corp., 471 U.S. at 479. Gruhn argues that he was not a 8 party to the contracts between Modulus and DAAG. However, he was a co-founder (Doc. 9 51 at 14), shareholder (Doc. 39 ¶ 56), and Global IT Director (Doc. 39 ¶ 56) of DAAG and 10 engaged in significant affirmative conduct regarding the contracts by conducting the 11 negotiations, carrying out the contracts, and signing the subsequent addendum. (Doc. 66- 12 2). Although Gruhn acted in his representative capacity for DAAG, “the corporate form 13 may be ignored…where there is an identity of interests between the corporation and the 14 individuals,” and “under Arizona law, fraud has provided the basis for asserting jurisdiction 15 in spite of the corporate shield.” Davis v. Metro Productions, Inc., 885 F.2d 515, 520-21 16 (9th Cir. 1989). Modulus has pled facts indicating that DAAG was used by its officers and 17 shareholders for their personal benefit and to carry out the fraudulent misappropriation of 18 Modulus’ Source Code. Thus, it is appropriate to consider Gruhn’s actions even though 19 they were taken on behalf of DAAG. 20 While the relationship created between Modulus, DAAG, and its officers by the 21 License Agreements (Source Code) was much less than the franchise relationship in Burger 22 King Corp., the terms of the License nonetheless “reinforce” Gruhn’s “deliberate affiliation 23 with the forum State and the reasonable foreseeability of possible litigation there.” Id. at 24 482. The License Agreements (Source Code), as negotiated by Gruhn, were comprehensive 25 in that they contained an Arizona choice of law provision, a provision for Arizona-based 26 arbitration, a requirement to report security breaches, a requirement to obtain Modulus’ 27 written permission prior to transferring the Source Code to any third party in the event of 28 an acquisition, and provision for a year of complementary updates and tech support from 1 Modulus. (Docs. 44, 44-1). 2 Throughout the negotiations, Modulus asserts that Gruhn made material omissions 3 amounting to fraud by deliberately concealing the close relationship between DAAG and 4 FTX. (Doc. 39 ¶ 270). By these omissions, Gruhn sufficiently engaged in contacts with 5 Modulus to establish jurisdiction in Arizona. That is, Gruhn deliberately reached out to and initiated contact with Modulus, made 6 material and fraudulent omissions, communicated extensively with Modulus in Arizona, 7 and negotiated a contract under Arizona law. The Court finds his conduct was expressly 8 aimed at Arizona sufficient to support the exercise of jurisdiction such that the Motion to 9 Dismiss will be denied. 10 V. Defendant Stephen Stephens’ Motion to Dismiss for Lack of Jurisdiction 11 (Doc. 54) 12 Defendant Stephen Stephens’ Motion to Dismiss for Lack of Personal Jurisdiction 13 is also before the Court. (Doc. 54). The allegations against Stephens roughly mirror the 14 allegations against Gruhn, except that Stephens is not alleged to have personally reached 15 out to Modulus to initiate contact. 16 Though he was not a founder and shareholder of DAAG like Gruhn, Stephens is 17 alleged to have deliberately targeted Modulus in a conspiracy to fraudulently obtain its 18 trade secrets. (Doc. 39 ¶¶ 260–63, 266, 272–75). Like Gruhn, Stephens was an integral part 19 of the license negotiations and software implementation. (Doc. 39 ¶ 24). Although 20 Stephens did not personally submit the online form that initiated contact with Modulus, 21 Modulus has alleged sufficient facts that are more than suggestive of joint action in its 22 claims for conspiracy and fraud, including the fact that Stephens learned of and participated 23 in a sales call regarding Modulus’ software in 2018. 24 Thus, like Gruhn, Stephens has purposefully directed his activities toward Arizona 25 and the Motion to Dismiss will be denied. 26 VI. Defendant DAAG USA LLC’s Motion to Dismiss for Lack of Jurisdiction (Doc. 52) 27 Defendant DAAG USA, LLC also filed a Motion to Dismiss for Lack of Personal 28 Jurisdiction. Modulus’ complaint contains five specific allegations regarding DAAG USA: 1 (1) Modulus’ Source Code has been disclosed to DAAG USA, (Doc. 39 ¶ 20); (2) Williams 2 is an owner of DAAG USA, (Doc. 39 ¶ 25); (3) DAAG USA is located in Oregon, (Doc. 3 39 ¶ 221); (4) DAAG USA improperly acquired the Modulus Source Code, (Doc 39 ¶¶ 4 232, 252); and (5) DAAG USA knew or had reason to know that DAAG’s knowledge of 5 the Source Code under the License Agreements (Source Code) was improperly acquired. 6 Id. 7 The three individual and three entity defendants are closely tied together. Gruhn is 8 or was an owner or shareholder of DAAG and all three corporate defendants. DAAG USA 9 was formed in April 2021, (Doc. 51 at 15) which is nine months after DAAG’s 10 incorporation and four months prior to Gruhn’s initial contact with Modulus. In the time 11 since it was formed, Gruhn states, DAAG USA has had no operations. Id. These factual 12 circumstances support the inference that DAAG USA was likely used as an instrumentality 13 in the course of the alleged misappropriation, but Modulus has not presented requisite facts 14 establishing minimum contacts with Arizona. 15 Modulus argues (1) misappropriation of trade secrets is an intentional act—the first 16 prong of the purposeful direction inquiry; and (2) DAAG USA, through Gruhn, knew that 17 the harm caused by its actions would be felt in Arizona—the third prong. To establish the 18 “express aiming” prong, Modulus relies on facts not pled in the First Amended Complaint. 19 As such, it has not yet carried its burden of proving personal jurisdiction over DAAG USA 20 and the Motion to Dismiss will be granted, with leave to amend. 21 VII. Defendant Kephas Corporation’s Motion to Dismiss for Lack of 22 Jurisdiction (Doc. 53) 23 Defendant Kephas Corporation’s Motion to Dismiss for Lack of Personal 24 Jurisdiction is next before the Court. Modulus argues that Kephas is subject to personal 25 jurisdiction by consent and under the purposeful direction test. (Doc. 66 at 11-13). 26 Kephas uses an Arizona-based private registration service called Domains by Proxy 27 to maintain its website. (cite). Part of the Domains by Proxy Agreement (the “DBP 28 Agreement”) includes a representation that the client will use the service “in good faith” 1 and that the domain name will “not be used in connection with any illegal activity.” (Doc. 2 66 at 11). Modulus then asserts that by marketing goods alleged to incorporate 3 misappropriated Trade Secrets on its website, this warranty is breached. Id. Another 4 provision states that any actions related to the DBP Agreement are to be brought in 5 Maricopa Couty. Id. at 12. Because “Modulus’ claims…are closely related to Kephas’ 6 representations and warranties in the DPB agreement,” Modulus contends that the contract 7 with Domains by Proxy amounts to consent to Arizona’s personal jurisdiction. 8 This argument is unavailing. Modulus is not a party to the contract between Kephas 9 and Domains by Proxy and Kephas’ relationship with Modulus is not governed by that 10 contract. In Wallach v. Johnson, this Court declined to exercise jurisdiction where the 11 defendants published defamatory statements about the plaintiffs on a website using 12 Domains by Proxy. 2019 WL 4977474. The Court said the plaintiffs were “attempting to 13 piggyback off of the forum selection clause contained in the contracts between [the 14 defendant] and GoDaddy and Domains by Proxy.” Id. at *3. The Court found “no logical 15 or causal connection” between the defamation suit and the contracts. Here, as well, there 16 is “no logical or causal connection” between Kephas’ contract with Domains by Proxy and 17 Modulus’ suit. 18 Next, Modulus asserts that Kephas satisfies the purposeful direction test. (Doc. 66 19 at 12). The first prong, commission of an intentional act, is satisfied by the alleged 20 misappropriation of trade secrets. The third prong, harm the Defendant knows is likely to 21 be suffered in the forum state, is likely met as well. However, Modulus’ contention that the 22 second prong, express aiming, is met falls short. Modulus argues Gruhn and Stephens’ 23 contacts with Arizona can be imputed to Kephas through reverse piercing of the corporate 24 veil because they are each an owner or officer of Kephas, and their contacts were intended 25 to benefit Kephas (Id. at 13). However, intent to benefit is not a basis for imputation of 26 forum state contacts. In the same way that “we do not impute a corporation’s forum 27 contacts to each of the corporation’s employees,” we do not simply impute an officer or 28 director’s contacts to the corporation. Kephas was not a party to the License Agreements 1 (Source Code), and there is no evidence that Stephens or Gruhn were acting in their 2 capacity as representatives of Kephas. 3 Modulus argues that reverse piercing of the corporate veil is applicable where an 4 owner or principal “has used multiple entities to hide assets or secretly to conduct business 5 to avoid liability” If Modulus is asserting an alter ego theory, it has failed to allege facts 6 evidencing “such unity of interest and ownership that the separate personalities of [Kephas] 7 and [Gruhn and Stephens] cease to exist. Dietel v. Day, 492 P.2d 455, 457 (Ariz. Ct. App. 8 1972). Because Modulus has not shown sufficient minimum contacts between Kephas and 9 Arizona to satisfy the requirements of Due Process, the Motion to Dismiss will be granted. 10 VIII. Defendant WIB Technologies Inc.’s Motion to Dismiss for Lack of 11 Jurisdiction (Doc. 55) 12 Modulus alleges that WIB Technologies, Inc. received and used Modulus’ Source 13 Code knowing that such access and use was improper. Like its arguments regarding 14 Kephas, Modulus asserts that Gruhn and Stephens’ contacts with Arizona are attributable 15 to WIB because “WIB’s eventual access to the Modulus [Source Code] was a driving force 16 of Stephens’ Arizona contacts.” (Doc. 66 at 14). 17 Stephens and Gruhn, however, were not acting in a representative capacity for WIB. 18 Modulus makes a case that to divorce WIB from Gruhn and Stephens “would be to work 19 an injustice.” (Doc. 66 at 14). As in the case of Kephas, without facts establishing “that 20 there is such unity of interest and ownership that the separate personalities of the two 21 entities no longer exist,” Ranza v. Nike, Inc., 793 F.3d 1059, 1073 (9th Cir. 2015) (citation 22 modified), Modulus cannot justify disregarding the corporate form and imputing Gruhn 23 and Stephens’ contacts to WIB for jurisdictional purposes. An individual’s intent to benefit 24 a third party does not automatically confer personal jurisdiction over the third party. 25 Because Modulus has not set forth facts showing that WIB established minimum 26 contacts with Arizona, the Motion to Dismiss will be granted. 27 Accordingly, 28 IT IS ORDERED Defendant Brandon Williams’ Motion to Dismiss for Lack of Personal Jurisdiction (Doc. 48) is GRANTED. Plaintiff's claims against Defendant 2|| Williams are DISMISSED. 3 IT IS FURTHER ORDERED Defendant Patrick Gruhn’s Motion to Dismiss for 4|| Lack of Personal Jurisdiction (Doc. 51) is DENIED. 5 IT IS FURTHER ORDERED Defendant Stephen Stephens’ Motion to Dismiss 6|| for Lack of Personal Jurisdiction (Doc. 54) is DENIED. 7 IT IS FURTHER ORDERED Defendant DAAG USA, LLC’s Motion to Dismiss || for Lack of Personal Jurisdiction (Doc. 52) is GRANTED. Plaintiff's claims against 9|| Defendant DAAG USA, LLC are DISMISSED WITH LEAVE TO AMEND. 10 IT IS FURTHER ORDERED Defendant Kephas Corporation’s Motion to Dismiss for Lack of Personal Jurisdiction (Doc. 53) is GRANTED. Plaintiffs claims || against Defendant Kephas Corporation are DISMISSED. 13 IT IS FURTHER ORDERED Defendant WIB Technologies Inc.’s Motion to Dismiss for Lack of Personal Jurisdiction (Doc. 55) is GRANTED. Plaintiff's claims against Defendant WIB Technologies Inc. are DISMISSED. 16 Dated this 13th day of February, 2026. 17 fo . 18 — i 20 Senior United States District Judge 21 22 23 24 25 26 27 28

- 16-