Thomas Ayer v. Michael White

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 CV 21-08773-RSWL-RAO x THOMAS AYER, an individual; ALEXIS AYER, ORDER re: Motion to an individual; and HOVIK Dismiss [12] GROZIAN, an individual, Plaintiffs, v. MICHAEL WHITE, an individual; DAVID GREEN, an individual; R4U VENTURES, a Texas limited liability company; and DOES 1-50 inclusive, Defendants. Currently before the Court is the Motion to Dismiss filed by Defendants Michael White, David Green, and R4U Ventures (collectively, “Defendants”). Having reviewed all papers submitted pertaining to this Motion, the Court NOW FINDS AND RULES AS FOLLOWS: the Court GRANTS the Motion. 1 Case 2:21-cv-08773-RSWL-RAO Document 23 Filed 03/04/22 Page 2 of 13 Page ID #:397

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. Id. ¶ 6. In February 2021, Defendant White sent an email to Plaintiff Thomas Ayer offering to sell him a lot in Texas for $40,000. Id. ¶ 16; Compl. Ex. A, ECF No. 1-1. For an additional $90,000 per lot, Defendants offered to construct a new single-family home for rental purposes using Defendants’ lot acquisition teams, lenders, building crews, refinance lenders, and property management company. Compl. ¶ 16; Compl. Ex A. In April 2021, Defendant Green similarly solicited Plaintiff Grozian by proposing contracts for the sale of two Texas properties to Grozian. Compl. ¶ 17. Plaintiffs agreed to the terms of Defendants’ offers and purchased a total of seven Texas properties from Defendants.1 Id. ¶¶ 19, 21. Each transaction involved the sale of a vacant, 1 Defendants received $40,000 for each of the seven Texas properties as follows: $160,000 from Plaintiff Thomas Ayer, $40,000 from Plaintiff Alexis Ayer, and $80,000 from Plaintiff 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 listed their own lawyer as the registered agent for service of process. Id. None of the unimproved lots had a market value greater than $4,000, but the value to Plaintiffs came from the promised features of Defendants’ lot acquisition teams, building crews, and competent property management. Id. ¶ 24. In total, Defendants received $394,942 from Plaintiffs, comprised of $280,000 in purchase money funds and $114,942 in advances in the form of bank draws. Id. Days after receiving the $114,942 in advances, Defendant White emailed Plaintiffs and asked that Plaintiffs pay Defendants directly rather than work through the bank draw process. Compl. Ex. D., ECF No. 1-4. Plaintiffs declined. Compl. ¶ 28. By July 2021,

2 While Plaintiffs initially purchased the properties in their own name, the contracts were later amended to identify each Plaintiff’s respective LLC as the buyer of each property. See Decl. of Michael White in Supp. of Mot. to Dismiss (“White 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, return of all sums paid to Defendants, and payment of costs, fees, and interest incurred to third parties related to these transactions. Id. ¶ 36. Despite a mediation provision in each contract, Defendants have refused Plaintiffs’ demands to mediate and to provide evidence of the money received. Id. ¶ 39. B. Procedural Background Plaintiffs filed their Complaint [1] on November 8, 2021. Defendants filed this Motion [12] on December 2, 2021. Plaintiffs filed their Opposition [15] on January 4, 2022. Defendants replied [21] on January 11, 2022. A. Legal Standard Federal Rule of Civil Procedure Rule 12(b)(2) authorizes dismissal of an action for lack of personal jurisdiction. Once a defendant moves to dismiss for lack of personal jurisdiction, the plaintiff bears the burden of demonstrating that jurisdiction is 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 bare allegations of the complaint, uncontroverted allegations in the complaint must be taken as true and conflicts between statements contained in the parties’ affidavits must be resolved in the plaintiff’s favor. Schwarzenegger, 374 F.3d at 800. B. Analysis Defendants argue that this Court lacks personal jurisdiction over them because they have never conducted business in California and have no connection to this forum. Defs.’ Mot. to Dismiss (“Mot.”) 4:21-5:20, ECF No. 12. Plaintiffs counter that jurisdiction exists because Defendants “used interstate electronic communications” to target Plaintiffs and solicit them to enter various real estate transactions as part of a fraudulent scheme. Pls.’ Opp’n to Mot. (“Opp’n”) 2:11- 22, ECF No. 15. Because Plaintiffs concede that general jurisdiction over the Defendants is lacking, the Court addresses only whether the facts giving rise to this 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; (2) the plaintiff's claim arises out of or results from the defendant’s forum-related activities; and (3) the exercise of jurisdiction over the defendant is reasonable. Axiom Foods, Inc. v. Acerchem Int'l, Inc., 874 F.3d 1064, 1068 (9th Cir. 2017). The plaintiff bears the burden of satisfying the first two elements. Id. “If the plaintiff meets that burden, the burden shifts to the defendant to present a compelling case that the exercise of jurisdiction would not be reasonable.” Id. at 1068–69 (internal quotations marks omitted). Plaintiffs have failed to establish the first element of the test for specific jurisdiction. Because this determination is dispositive, the Court need not address the latter two prongs of the analysis. a. Purposeful Availment and Purposeful Direction A purposeful availment analysis is most often used 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). i. Purposeful Availment For contract claims, a court has personal jurisdiction over a defendant only where the defendant has “purposefully availed himself of the privilege of doing business in a forum state . . . such as [by] executing or performing a contract there.” Schwarzenegger, 374 F.3d at 802. However, the existence of a contract between plaintiff and defendant does not automatically establish minimum contacts in the plaintiff's home forum; rather, there must be “actions by the defendant himself that create a substantial connection with the forum State.” Picot, 780 F.3d at 1212 (quoting Burger King v. Rudzewicz, 471 U.S. 462, 475 (1985)). In other words, the defendant must have a relationship to the forum state beyond just its

3 The nine claims are: 1) violation of Civil RICO (18 U.S.C. § 1961); 2) fraud; 3) negligent misrepresentation; 4) breach of fiduciary duty; 5) violation of California Penal Code § 496; 6) avoidance of fraudulent transfers; 7) recovery of fraudulent transfers; 8) breach of contract; and 9) unjust enrichment. See 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). Plaintiffs have failed to establish that Defendants purposefully availed themselves of the privileges of California. The Complaint refers to Defendants’ solicitation of California residents to enter into the sales transactions involving the Texas properties. See Compl. ¶¶ 16-17. But even if Defendants initiated the transaction with Plaintiffs, which Defendants dispute through their supporting declarations, Defendants’ solicitation of Plaintiffs alone is insufficient to support a finding of purposeful availment. Other considerations weigh strongly against a finding that Defendants purposefully availed themselves of the privileges of California. Notably, all preliminary negotiations took place via electronic communications, and Defendants were never physically present in California at any point during this process. See Coast Equities, LLC v. Right Buy Properties, LLC, 701 F. App'x 611, 613 (9th Cir. 2017) (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- JLS-ADS, 2020 WL 1972286, at *4 (C.D. Cal. Feb. 3, 2020) (finding a lack of personal jurisdiction where defendants made no purposeful efforts to target the California market and “had no reason to know that its contractual relationship with [plaintiff] might have a substantial effect in California”). In sum, Plaintiffs’ allegations fail to establish that the formation, terms, or actual performance of the contracts created any contacts between Defendants and California. The contracts at issue therefore did not create sufficient minimum contacts to subject Defendants to personal jurisdiction in California. ii. Purposeful Direction Courts apply a three-part effects test when analyzing purposeful direction in the tort context. Schwarzenegger, 374 F.3d at 803 (citing Dole Food Co. v. Watts, 303 F.3d 1104, 1111 (9th Cir. 2002)). The plaintiff must sufficiently allege that the defendant: (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. Like the purposeful availment test, the “expressly aimed” analysis “looks to the defendant’s contacts with the forum State itself, not the defendant’s contacts with persons who reside there.” Picot, 780 F.3d at 1214. “Mere injury to a forum resident is not a sufficient connection to the forum.” Walden, 571 U.S. at 290. Rather, “an injury is jurisdictionally relevant only insofar as it shows that the defendant has formed a contact with the forum State. The proper question is not where the plaintiff experienced a particular injury or effect but whether the defendant’s conduct connects him to the forum in a meaningful way.” Janus v. Freeman, 840 F. App'x 928, 930 (9th Cir. 2020) (quoting Walden, 571 U.S. at 290). Plaintiffs argue that they have established Defendants’ “express aiming” at California because the Complaint alleges that Defendants targeted California residents and caused them to suffer harm and losses in 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. TT Mktg., Inc., No. 1:18-CV-487 AWI SAB, 2018 WL 3968249, at *2 (E.D. Cal. Aug. 16, 2018)). Plaintiffs describe various acts by Defendants that were aimed at Plaintiffs directly, see Opp’n 4:5-5:7, but none of those acts were aimed at California. The allegedly tortious acts were not performed in California, and all properties and work to be performed pursuant to the contracts were located in Texas. See Compl. ¶¶ 18-22. Defendants’ email exchange with Plaintiffs who happen to live in California is insufficient to establish that Defendants purposefully directed their activities toward California. See Coast Equities, 701 F. App'x at 613. In short, Plaintiffs’ claims must fail because Plaintiffs are “the only link between [Defendants] and the forum.” See Walden, 571 U.S. at 285. Plaintiffs’ arguments that Defendant caused them injury in California are similarly unpersuasive. The 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 both the purposeful availment and purposeful direction tests, Plaintiffs cannot establish personal jurisdiction over Defendants for any of their claims. The Court therefore GRANTS Defendants’ Motion and dismiss this Action in its entirety for lack of personal jurisdiction. 2. Leave to Amend “The court should give leave [to amend] freely when justice so requires.” Fed. R. Civ. P. 15(a)(2). In the Ninth Circuit, “Rule 15’s policy of favoring amendments to pleadings should be applied with ‘extreme liberality.’” United States v. Webb, 655 F.2d 977, 979 (9th Cir. 1981). “Leave to amend should be granted ‘if it appears at all possible that the plaintiff can correct the defect.’” Balistreri v. Pacifica Police Dept., 901 F.2d 696, 701 (9th Cir. 1988) (quoting Breier v. Northern California Bowling Proprietors’ Ass’n, 316 F.2d 787, 790 (9th Cir. 1963)). Here, it is conceivable 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. 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 establishing personal jurisdiction over Defendants. DATED: March 4, 2022 _____/s_/_ R__o_n_a_ld_ _S_._W_._ L__e_w______ HONORABLE RONALD S.W. LEW Senior U.S. District Judge