Thomas Ayer v. Michael White

• Court: District Court, C.D. California
• Decided: March 4, 2022
• Docket: 2:21-cv-08773
• Status: Unknown

Opinion

Case 2:21-cv-08773-RSWL-RAO Document 23 Filed 03/04/22 Page 1 of 13 Page ID #:396 O 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 CV 21-08773-RSWL-RAO x 12 THOMAS AYER, an individual; ALEXIS AYER, ORDER re: Motion to 13 an individual; and HOVIK Dismiss [12] GROZIAN, an individual, 14 Plaintiffs, 15 16 v. 17 MICHAEL WHITE, an individual; DAVID GREEN, 18 an individual; R4U 19 VENTURES, a Texas limited liability company; and 20 DOES 1-50 inclusive, 21 Defendants. 22 23 Currently before the Court is the Motion to Dismiss 24 filed by Defendants Michael White, David Green, and R4U 25 Ventures (collectively, “Defendants”). Having reviewed 26 all papers submitted pertaining to this Motion, the 27 Court NOW FINDS AND RULES AS FOLLOWS: the Court GRANTS 28 the Motion. 1 Case 2:21-cv-08773-RSWL-RAO Document 23 Filed 03/04/22 Page 2 of 13 Page ID #:397

1 I. BACKGROUND 2 A. Factual Background

3 The Complaint alleges as follows: 4 Plaintiffs are all individuals residing in 5 California. Compl. ¶¶ 1-3, ECF No. 1. Defendants 6 Michael White and David Green are individuals residing 7 in Texas. Id. ¶¶ 4-5. Defendant R4U Ventures, LLC 8 (“R4U”) is a limited liability company organized under 9 Texas law with its principal place of business in Texas. 10 Id. ¶ 6. 11 In February 2021, Defendant White sent an email to 12 Plaintiff Thomas Ayer offering to sell him a lot in 13 Texas for $40,000. Id. ¶ 16; Compl. Ex. A, ECF No. 1-1. 14 For an additional $90,000 per lot, Defendants offered to 15 construct a new single-family home for rental purposes 16 using Defendants’ lot acquisition teams, lenders, 17 building crews, refinance lenders, and property 18 management company. Compl. ¶ 16; Compl. Ex A. In April 19 2021, Defendant Green similarly solicited Plaintiff 20 Grozian by proposing contracts for the sale of two Texas 21 properties to Grozian. Compl. ¶ 17. Plaintiffs agreed 22 to the terms of Defendants’ offers and purchased a total 23 of seven Texas properties from Defendants.1 Id. ¶¶ 19, 24 21. 25 Each transaction involved the sale of a vacant, 26 1 Defendants received $40,000 for each of the seven Texas 27 properties as follows: $160,000 from Plaintiff Thomas Ayer, $40,000 from Plaintiff Alexis Ayer, and $80,000 from Plaintiff 28 Hovik Grozian. Id. ¶ 24. 2 Case 2:21-cv-08773-RSWL-RAO Document 23 Filed 03/04/22 Page 3 of 13 Page ID #:398

1 unimproved lot in Texas to one of the California

2 Plaintiffs and construction of a new house suitable for

3 rent within 90-120 days or less. Id. ¶ 22. Once R4U 4 received deposits from Plaintiffs, Defendants placed 5 deeds for the vacant lots in escrow to be transferred to 6 Plaintiffs in exchange for the remaining amount owed. 7 Id. ¶ 19. Defendants also formed a Texas limited 8 liability company for each Plaintiff (the “Texas LLCs”) 9 on their behalf.2 Id. ¶ 23. For each LLC, Defendants 10 listed their own lawyer as the registered agent for 11 service of process. Id. 12 None of the unimproved lots had a market value 13 greater than $4,000, but the value to Plaintiffs came 14 from the promised features of Defendants’ lot 15 acquisition teams, building crews, and competent 16 property management. Id. ¶ 24. In total, Defendants 17 received $394,942 from Plaintiffs, comprised of $280,000 18 in purchase money funds and $114,942 in advances in the 19 form of bank draws. Id. 20 Days after receiving the $114,942 in advances, 21 Defendant White emailed Plaintiffs and asked that 22 Plaintiffs pay Defendants directly rather than work 23 through the bank draw process. Compl. Ex. D., ECF No. 24 1-4. Plaintiffs declined. Compl. ¶ 28. By July 2021, 25

26 2 While Plaintiffs initially purchased the properties in their own name, the contracts were later amended to identify each 27 Plaintiff’s respective LLC as the buyer of each property. See Decl. of Michael White in Supp. of Mot. to Dismiss (“White 28 Decl.”) Exs. 1C, 1D, 1E, ECF Nos. 12-4, 12-5, 12-6. 3 Case 2:21-cv-08773-RSWL-RAO Document 23 Filed 03/04/22 Page 4 of 13 Page ID #:399

1 more than the promised 90-120 days had passed on

2 Plaintiff Thomas Ayer’s original purchases with no

3 progress reports from Defendants. Id. ¶ 29. Plaintiffs 4 then traveled from California to each of the seven 5 construction sites in Texas and found each lot 6 undisturbed and unimproved; no work had been performed 7 on six of the seven investments, and only minimal work 8 had started on the remaining property. Id. ¶ 31. 9 Plaintiffs demand rescission of all transactions, 10 return of all sums paid to Defendants, and payment of 11 costs, fees, and interest incurred to third parties 12 related to these transactions. Id. ¶ 36. Despite a 13 mediation provision in each contract, Defendants have 14 refused Plaintiffs’ demands to mediate and to provide 15 evidence of the money received. Id. ¶ 39. 16 B. Procedural Background 17 Plaintiffs filed their Complaint [1] on November 8, 18 2021. Defendants filed this Motion [12] on December 2, 19 2021. Plaintiffs filed their Opposition [15] on January 20 4, 2022. Defendants replied [21] on January 11, 2022. 21 II. DISCUSSION 22 A. Legal Standard 23 Federal Rule of Civil Procedure Rule 12(b)(2) 24 authorizes dismissal of an action for lack of personal 25 jurisdiction. Once a defendant moves to dismiss for 26 lack of personal jurisdiction, the plaintiff bears the 27 burden of demonstrating that jurisdiction is 28 appropriate. Schwarzenegger v. Fred Martin Motor Co., 4 Case 2:21-cv-08773-RSWL-RAO Document 23 Filed 03/04/22 Page 5 of 13 Page ID #:400

1 374 F.3d 797, 800 (9th Cir. 2004). Where the motion is

2 “based on written materials rather than an evidentiary

3 hearing, the plaintiff need only make a prima facie 4 showing of jurisdictional facts” to survive dismissal. 5 Id. (internal quotation marks omitted). The court may 6 consider evidence presented in affidavits to assist in 7 its determination of jurisdictional issues. Data Disc, 8 Inc. v. Sys. Tech. Ass’n, Inc., 557 F.2d 1280, 1285 (9th 9 Cir. 1977). Although the plaintiff cannot rely on the 10 bare allegations of the complaint, uncontroverted 11 allegations in the complaint must be taken as true and 12 conflicts between statements contained in the parties’ 13 affidavits must be resolved in the plaintiff’s favor. 14 Schwarzenegger, 374 F.3d at 800. 15 B. Analysis 16 Defendants argue that this Court lacks personal 17 jurisdiction over them because they have never conducted 18 business in California and have no connection to this 19 forum. Defs.’ Mot. to Dismiss (“Mot.”) 4:21-5:20, ECF 20 No. 12. Plaintiffs counter that jurisdiction exists 21 because Defendants “used interstate electronic 22 communications” to target Plaintiffs and solicit them to 23 enter various real estate transactions as part of a 24 fraudulent scheme. Pls.’ Opp’n to Mot. (“Opp’n”) 2:11- 25 22, ECF No. 15. Because Plaintiffs concede that general 26 jurisdiction over the Defendants is lacking, the Court 27 addresses only whether the facts giving rise to this 28 Action establish specific jurisdiction over Defendants. 5 Case 2:21-cv-08773-RSWL-RAO Document 23 Filed 03/04/22 Page 6 of 13 Page ID #:401

1 1. Specific Personal Jurisdiction

2 A court may assert specific jurisdiction over a

3 claim for relief that arises out of a defendant’s forum- 4 related activities. Rano v. Sipa Press, Inc., 987 F.2d 5 580, 588 (9th Cir. 1993). Specific personal 6 jurisdiction is established if a plaintiff can show: (1) 7 the defendant has performed some act or transaction 8 within the forum or purposefully availed himself of the 9 privileges of conducting activities within the forum; 10 (2) the plaintiff's claim arises out of or results from 11 the defendant’s forum-related activities; and (3) the 12 exercise of jurisdiction over the defendant is 13 reasonable. Axiom Foods, Inc. v. Acerchem Int'l, Inc., 14 874 F.3d 1064, 1068 (9th Cir. 2017). The plaintiff 15 bears the burden of satisfying the first two elements. 16 Id. “If the plaintiff meets that burden, the burden 17 shifts to the defendant to present a compelling case 18 that the exercise of jurisdiction would not be 19 reasonable.” Id. at 1068–69 (internal quotations marks 20 omitted). 21 Plaintiffs have failed to establish the first 22 element of the test for specific jurisdiction. Because 23 this determination is dispositive, the Court need not 24 address the latter two prongs of the analysis. 25 a. Purposeful Availment and Purposeful 26 Direction 27 A purposeful availment analysis is most often used 28 in suits sounding in contract, while a purposeful 6 Case 2:21-cv-08773-RSWL-RAO Document 23 Filed 03/04/22 Page 7 of 13 Page ID #:402

1 direction analysis is most often used in suits sounding

2 in tort. Schwarzenegger v. Fred Martin Motor Co., 374

3 F.3d 797, 802 (9th Cir. 2004). Here, Plaintiffs assert 4 nine causes of action that include both tort and 5 contract claims.3 See generally Compl. Because both 6 tort and contract claims are alleged, the Court analyzes 7 Defendants’ activities under both the purposeful 8 availment and purposeful direction tests. See Picot v. 9 Weston, 780 F.3d 1206, 1212 (9th Cir. 2015). 10 i. Purposeful Availment 11 For contract claims, a court has personal 12 jurisdiction over a defendant only where the defendant 13 has “purposefully availed himself of the privilege of 14 doing business in a forum state . . . such as [by] 15 executing or performing a contract there.” 16 Schwarzenegger, 374 F.3d at 802. However, the existence 17 of a contract between plaintiff and defendant does not 18 automatically establish minimum contacts in the 19 plaintiff's home forum; rather, there must be “actions 20 by the defendant himself that create a substantial 21 connection with the forum State.” Picot, 780 F.3d at 22 1212 (quoting Burger King v. Rudzewicz, 471 U.S. 462, 23 475 (1985)). In other words, the defendant must have a 24 relationship to the forum state beyond just its

25 3 The nine claims are: 1) violation of Civil RICO (18 U.S.C. 26 § 1961); 2) fraud; 3) negligent misrepresentation; 4) breach of fiduciary duty; 5) violation of California Penal Code § 496; 6) 27 avoidance of fraudulent transfers; 7) recovery of fraudulent transfers; 8) breach of contract; and 9) unjust enrichment. See 28 generally Compl. 7 Case 2:21-cv-08773-RSWL-RAO Document 23 Filed 03/04/22 Page 8 of 13 Page ID #:403

1 relationship to the plaintiff who resides there. Id. at

2 1212-13. “A defendant must have performed some type of

3 affirmative conduct which allows or promotes the 4 transaction of business within the forum state. In 5 determining whether such contacts exist, [courts] 6 consider prior negotiations and contemplated future 7 consequences, along with the terms of the contract and 8 the parties’ actual course of dealing.” Id. at 1212 9 (internal quotation marks and citations omitted). 10 Plaintiffs have failed to establish that Defendants 11 purposefully availed themselves of the privileges of 12 California. The Complaint refers to Defendants’ 13 solicitation of California residents to enter into the 14 sales transactions involving the Texas properties. See 15 Compl. ¶¶ 16-17. But even if Defendants initiated the 16 transaction with Plaintiffs, which Defendants dispute 17 through their supporting declarations, Defendants’ 18 solicitation of Plaintiffs alone is insufficient to 19 support a finding of purposeful availment. Other 20 considerations weigh strongly against a finding that 21 Defendants purposefully availed themselves of the 22 privileges of California. 23 Notably, all preliminary negotiations took place 24 via electronic communications, and Defendants were never 25 physically present in California at any point during 26 this process. See Coast Equities, LLC v. Right Buy 27 Properties, LLC, 701 F. App'x 611, 613 (9th Cir. 2017) 28 (holding that contract negotiations between real estate 8 Case 2:21-cv-08773-RSWL-RAO Document 23 Filed 03/04/22 Page 9 of 13 Page ID #:404

1 developers and investors conducted via email and phone

2 communications were not sufficient to establish

3 purposeful availment). Additionally, the contracts 4 concerned only Texas properties, all of the relevant 5 construction was to be performed in Texas, and there is 6 no evidence that Defendants intended the transaction to 7 require any action in California or expected it to have 8 any effect in California whatsoever. See Liggett v. 9 Utah Higher Educ. Assistance Auth., No. 8:19-cv-01589- 10 JLS-ADS, 2020 WL 1972286, at *4 (C.D. Cal. Feb. 3, 2020) 11 (finding a lack of personal jurisdiction where 12 defendants made no purposeful efforts to target the 13 California market and “had no reason to know that its 14 contractual relationship with [plaintiff] might have a 15 substantial effect in California”). 16 In sum, Plaintiffs’ allegations fail to establish 17 that the formation, terms, or actual performance of the 18 contracts created any contacts between Defendants and 19 California. The contracts at issue therefore did not 20 create sufficient minimum contacts to subject Defendants 21 to personal jurisdiction in California. 22 ii. Purposeful Direction 23 Courts apply a three-part effects test when 24 analyzing purposeful direction in the tort context. 25 Schwarzenegger, 374 F.3d at 803 (citing Dole Food Co. v. 26 Watts, 303 F.3d 1104, 1111 (9th Cir. 2002)). The 27 plaintiff must sufficiently allege that the defendant: 28 (1) committed an intentional act, (2) expressly aimed at 9 Case 2:21-cv-08773-RSWL-RAO Document 23 Filed 03/04/22 Page 10 of 13 Page ID #:405

1 the forum state, (3) that caused harm the defendant

2 knows is likely to be suffered in the forum state. Id.

3 Plaintiffs sufficiently allege that Defendants 4 committed intentional acts that Defendants knew would 5 cause Plaintiffs harm in California. See Compl. ¶¶ 17- 6 18, 34-39. However, the Court lacks jurisdiction over 7 Defendants under the effects test because Plaintiff has 8 failed to provide facts showing that Defendants 9 expressly aimed their acts at California. 10 Like the purposeful availment test, the “expressly 11 aimed” analysis “looks to the defendant’s contacts with 12 the forum State itself, not the defendant’s contacts 13 with persons who reside there.” Picot, 780 F.3d at 14 1214. “Mere injury to a forum resident is not a 15 sufficient connection to the forum.” Walden, 571 U.S. 16 at 290. Rather, “an injury is jurisdictionally relevant 17 only insofar as it shows that the defendant has formed a 18 contact with the forum State. The proper question is 19 not where the plaintiff experienced a particular injury 20 or effect but whether the defendant’s conduct connects 21 him to the forum in a meaningful way.” Janus v. 22 Freeman, 840 F. App'x 928, 930 (9th Cir. 2020) (quoting 23 Walden, 571 U.S. at 290). 24 Plaintiffs argue that they have established 25 Defendants’ “express aiming” at California because the 26 Complaint alleges that Defendants targeted California 27 residents and caused them to suffer harm and losses in 28 California. Opp’n 8:2-9. These allegations are 10 Case 2:21-cv-08773-RSWL-RAO Document 23 Filed 03/04/22 Page 11 of 13 Page ID #:406

1 insufficient to establish jurisdiction under Walden,

2 however. The Supreme Court has made clear that “a

3 theory of individualized targeting, which relies on a 4 plaintiff’s strong connection to a forum and the 5 defendant’s knowledge that the plaintiff is a resident 6 of that forum and will experience foreseeable harm in 7 that forum, on its own will no longer support a finding 8 of express aiming.” Liggett, 2020 WL 1972286, at *6 9 (internal quotation marks omitted) (quoting Deveroux v. 10 TT Mktg., Inc., No. 1:18-CV-487 AWI SAB, 2018 WL 11 3968249, at *2 (E.D. Cal. Aug. 16, 2018)). 12 Plaintiffs describe various acts by Defendants that 13 were aimed at Plaintiffs directly, see Opp’n 4:5-5:7, 14 but none of those acts were aimed at California. The 15 allegedly tortious acts were not performed in 16 California, and all properties and work to be performed 17 pursuant to the contracts were located in Texas. See 18 Compl. ¶¶ 18-22. Defendants’ email exchange with 19 Plaintiffs who happen to live in California is 20 insufficient to establish that Defendants purposefully 21 directed their activities toward California. See Coast 22 Equities, 701 F. App'x at 613. In short, Plaintiffs’ 23 claims must fail because Plaintiffs are “the only link 24 between [Defendants] and the forum.” See Walden, 571 25 U.S. at 285. 26 Plaintiffs’ arguments that Defendant caused them 27 injury in California are similarly unpersuasive. The 28 financial losses Plaintiffs allege are purely personal 11 Case 2:21-cv-08773-RSWL-RAO Document 23 Filed 03/04/22 Page 12 of 13 Page ID #:407

1 and are not “tethered to [California] in any meaningful

2 way.” Id. at 290. Plaintiffs’ injuries do not aid

3 their jurisdictional argument because Plaintiffs would 4 have suffered the same loss in any state they happened 5 to be in at the time Defendants committed their alleged 6 misconduct in Texas. Id. 7 In sum, Plaintiffs have failed to establish facts 8 indicating that Defendants expressly aimed any conduct 9 at California. Because Plaintiffs have failed to meet 10 both the purposeful availment and purposeful direction 11 tests, Plaintiffs cannot establish personal jurisdiction 12 over Defendants for any of their claims. The Court 13 therefore GRANTS Defendants’ Motion and dismiss this 14 Action in its entirety for lack of personal 15 jurisdiction. 16 2. Leave to Amend 17 “The court should give leave [to amend] freely when 18 justice so requires.” Fed. R. Civ. P. 15(a)(2). In the 19 Ninth Circuit, “Rule 15’s policy of favoring amendments 20 to pleadings should be applied with ‘extreme 21 liberality.’” United States v. Webb, 655 F.2d 977, 979 22 (9th Cir. 1981). “Leave to amend should be granted ‘if 23 it appears at all possible that the plaintiff can 24 correct the defect.’” Balistreri v. Pacifica Police 25 Dept., 901 F.2d 696, 701 (9th Cir. 1988) (quoting Breier 26 v. Northern California Bowling Proprietors’ Ass’n, 316 27 F.2d 787, 790 (9th Cir. 1963)). Here, it is conceivable 28 that Plaintiffs may cure the defect in their Complaint 12 Case 2:21-cv-08773-RSWL-RAO Document 23 Filed 03/04/22 Page 13 of 13 Page ID #:408

1 as to jurisdiction by alleging facts establishing

2 Defendants’ contacts with California. The Court

3 therefore grants Plaintiffs 30 days’ leave to amend 4 their Complaint. 5 III. CONCLUSION 6 Based on the foregoing, the Court GRANTS 7 Defendants’ 12(b)(2) Motion and dismisses Plaintiffs’ 8 Complaint without prejudice. Plaintiffs are granted 30 9 days’ leave to amend their Complaint to include facts 10 establishing personal jurisdiction over Defendants. 11 IT IS SO ORDERED. 12 13 DATED: March 4, 2022 _____/s_/_ R__o_n_a_ld_ _S_._W_._ L__e_w______ HONORABLE RONALD S.W. LEW 14 Senior U.S. District Judge 15

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