Activator Methods Int'l, Ltd. v. Future Health, Inc.

• Decision Date: 06 March 2012
• Docket Number: No. CV-11-1379-PHX-GMS,CV-11-1379-PHX-GMS
• Parties: Activator Methods International, Ltd., an Arizona corporation, Plaintiff, v. Future Health, Inc., an Iowa corporation; Future Health, Inc., a Delaware corporation; Steven Kraus and Jane Doe Kraus, husband and wife, Defendants.
• Court: U.S. District Court — District of Arizona

Activator Methods International, Ltd., an Arizona corporation, Plaintiff,

v. Future Health, Inc., an Iowa corporation; Future Health, Inc., a Delaware corporation; Steven Krausand Jane Doe Kraus, husband and wife, Defendants.

No. CV-11-1379-PHX-GMS

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

Dated: March 6, 2012

ORDER

Pending before the Court is Defendants' Motion to Dismiss. (Doc. 12). For the reasons discussed below, the Motion is denied.

BACKGROUND

Plaintiff Activator Methods International, Ltd. provides "chiropractic care, resources, and training" through its Activator Method technique and mechanical force instrument, the Activator APP. (Doc. 1 at ¶¶16-17). Plaintiff alleges that Defendant Steven Kraus owns or operates Defendant Future Health Inc., a Delaware corporation ("FHD") and that he owned or operated Defendant Future Health Inc., an Iowa corporation ("FHI"). (Id. at ¶¶3, 6). Plaintiff sues Defendants for breach of contract and trademark infringement. (Id. at ¶¶49-89). Defendants Steven Kraus and Jill Kraus (named as "Jane Doe Kraus"), a married couple (collectively "Defendants Kraus" or "Krauses"), bring this Motion.

Plaintiff and Defendant FHI entered into a business relationship on August 6, 2010 by signing the Shared Revenue Partnership Agreement ("SRPA").¹ (Doc. 1 at ¶25). Steven Kraus negotiated and signed the SRPA in Arizona as the Chief Executive Officer of FHI. (Id. at ¶¶10-11; Doc. 1, Ex. 1). The SRPA licensed Defendant FHI to market Plaintiff's software program, develop Plaintiff's software application, and use Plaintiff's trademarks with written approval. (Id. at ¶¶26-28). In return, Plaintiff required FHI to pay various fees including a percentage of sales, uses, and licenses of the Activator APP product. (Id. at ¶¶32-34). If FHI was late or failed to pay its fees, Plaintiff reserved the right to terminate the SRPA. (Id. at ¶35).

According to the Complaint, Defendant FHI sold the Activator APP but failed to pay the sales fees and the minimum yearly fee of $40,000. (Doc. 1 at ¶¶43-44). Plaintiff terminated the SRPA on May 25, 2011 and gave FHI ten days to pay all fees. (Id. at ¶45). Defendant continued to use Plaintiff's trademarks in violation of the SRPA. (Id. at ¶48).

It is undisputed that Defendant FHI is no longer an active corporation. (Doc. 1 at ¶2;

Doc. 11 at ¶1). It is also undisputed that Defendant FHD was incorporated on May 18, 2011, a week before Plaintiff terminated the SRPA. (Doc. 1 at ¶5; Doc. 11 at ¶1). Both parties agree that Defendant FHD "is a successor in interest to Future Health IA." (Doc. 1 at ¶8; Doc. 11 at ¶1). Plaintiff alleges that Defendants Kraus created FHD "to avoid the obligations of [FHI]." (Doc. 1 at ¶7).

Plaintiff brings six counts in this action against Defendants Kraus and Future Health. Plaintiff alleges breach of contract, breach of implied covenant of good faith, unjust enrichment, demand for accounting, federal trademark infringement, and common law trademark infringement. (Doc. 1 at ¶¶49-89). Defendants Steven and Jane Kraus move to dismiss Plaintiff's claims for lack of personal jurisdiction, pursuant to Federal Rule of Civil Procedure 12(b)(2).

DISCUSSION

I. Legal Standard

A. Personal Jurisdiction

When a court resolves a motion to dismiss without holding an evidentiary hearing, plaintiff "need make only a prima facie showing of jurisdictional facts to withstand the motion." Ballard v. Savage, 65 F.3d 1495, 1498 (9th Cir. 1995); see Brainerd v. Governors of the Univ. of Alberta, 873 F.2d 1257, 1258 (9th Cir. 1989). That is, the plaintiff "need only demonstrate facts that if true would support jurisdiction over [defendant]." Ballard, 65 F.3d at 1498.

Federal district courts determine personal jurisdiction over parties based on the forum state's laws. Cubbage v. Merchent, 744 F.2d 665, 667 (9th Cir. 1984). Arizona's long-arm statute applies to this case. See Terracom v. Valley Nat'l Bank, 49 F.3d 555, 559 (9th Cir. 1995); Ariz. R. Civ. P. 4.2(a). According to Arizona Rule of Civil Procedure 4.2(a), a court in Arizona "may exercise personal jurisdiction over parties . . . to the maximum extent permitted by the Constitution."

The Due Process Clause requires that nonresident defendants have certain "minimum contacts" with the forum state such that the exercise of personal jurisdiction does not offend traditional notions of fair play and substantial justice. See Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). The Ninth Circuit applies a three-part test to determine whether a defendant's contacts with the forum state are sufficient to subject him to the state's specific jurisdiction. Personal jurisdiction exists if: (1) the defendant purposefully directed tortious activities at the forum or a resident thereof or performed some act by which he purposefully availed himself of the privileges of conducting activities in the forum, (2) the claims arise out of or result from the defendant's forum-related activities, and (3) the exercise ofjurisdiction is reasonable. See Bancroft & Masters, Inc. v. Augusta Nat'l Inc., 223 F.3d 1082, 1086 (9th Cir. 2000).

B. Alter Ego Doctrine

When a plaintiff sues both the corporation and an officer, director, or shareholder ofthat corporation, and the court has personal jurisdiction over the defendant corporation, the individual defendant is "held liable for the torts of the corporation" if the plaintiff shows that "(1) [the individual] authorized or participated in the actions or (2) the corporation is [the individual's] alter ego."Maloof v. Raper Sales, Inc., 113 Ariz. 485, 488, 557 P.2d 522, 524 (1976); see Rhoads v. Harvey Publications, Inc., 124 Ariz. 406, 408, 604 P.2d 670, 672 (App. 1979). "Under an alter ego theory, plaintiff[] must prove (1) unity of control and (2) that observance of the corporate form would sanction a fraud or promote injustice." Gatecliff v. Great Republic Life Ins. Co., 170 Ariz. 34, 37, 821 P.2d 725, 728 (1991) (citing Dietel v. Day, 16 Ariz. 206, 208, 492 P.2d 455 (App. 1972)).

Unity of control means there "is such a unity of interest and ownership that the personalities of the corporation and the owners cease to exist." Bischofshausen, Vasbinder, & Luckie v. D.W. Jaquays Min. & Equip. Contractors Co., 145 Ariz. 204, 208-09, 700 P.2d 902, 906-07 (App. 1985) (quoting Ize Nantan Bagowa, Ltd. v. Scalia, 118 Ariz. 439, 442, 577 P.2d 725, 728 (App. 1978)).

Unity of control is shown where the parent corporation exercised "substantially total control over the management and activities of" the subsidiary. Factors establishing "substantially total control" include: stock ownership by the parent; common officers or directors; financing of subsidiary by the parent; payment of salaries and other expenses of subsidiary by the parent; failure of subsidiary to maintain formalities of separate corporate existence; similarity of logo; and plaintiff's lack of knowledge of subsidiary's separate corporate existence.

Taeger v. Catholic Family & Cmty. Services, 196 Ariz. 285, 297, 995 P.2d 721, 733 (App. 1999) (internal citations omitted); see Honeywell, Inc. v. Arnold Const. Co., 134 Ariz. 153, 159, 654 P.2d 301, 307 (App. 1982) (corporation was not an alter ego when there was no "commingling of personal and corporate funds . . . nor evidence presented that [shareholders] diverted corporate property for their personal use[, and] [t]he formalities of corporate meetings were observed and books were kept in some form of order."); see also Chapman v. Field, 124 Ariz. 100, 103, 602 P.2d 481, 484 (1979) (quoting Ferrarell v. Robinson, 11 Ariz. 473, 476, 465 P.2d 610, 613 (App. 1970) (corporation was not an alter ego when "therewas no substantial evidence of intermingling of corporate and personal assets . . . or that the corporate structure was in any way used for other than legitimate corporate purposes.").

C. Prima Facie Showing

When "there is no evidentiary hearing, a plaintiff need only make a prima facie showing of personal jurisdiction . . . [meaning] evidence sufficient to avoid a directed verdict. However, plaintiffs cannot 'simply rest on the bare allegations of the complaint, but are rather required to come forward with facts, by affidavit or otherwise, supporting personal jurisdiction.'" Planning Group of Scottsdale, L.L.C. v. Lake Mathews Minerals Property, Ltd., 224 Ariz. 306, 312, 230 P.3d 365, 371 (App. 2010) ((opinion vacated on other grounds by Planning Group of Scottsdale, L.L.C. v. Lake Mathews Minerals Property, 226 Ariz. 262, 246 P.3d 343 (2011)) (quoting Macpherson v. Taglione, 158 Ariz. 309, 311-12, 762 P.2d 596, 598-99 (App. 1988))) (internal citations and quotations omitted). "[U]ncontroverted allegations in plaintiff's complaint must be taken as true." Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800 (9th Cir. 2004) (citing AT & T v. Compagnie Bruxelles Lambert, 94 F.3d 586, 588 (9th Cir. 1996)). "If there are conflicting facts in the affidavits and pleadings, the facts are decided in the plaintiff's favor." Arizona Til, L.L.C. v. Berger, 223 Ariz. 491, 493, 224 P.3d 988, 990 (App. 2010); see generally Bancroft, 223 F.3d at 1087. "Once the plaintiff makes a prima facie showing of jurisdiction, 'the burden is on the defendant to rebut that argument.'" Macpherson v. Taglione, 158 Ariz. 309, 312, 762 P.2d 596, 599 (App. 1988) (internal citations and quotations omitted). "In cases where a plaintiff survives the motion to dismiss under a prima facie burden of proof, the plaintiff still must prove the jurisdictional facts by a preponderance of evidence at a preliminary hearing or at trial." Patterson v. Home Depot, USA, Inc., 684 F. Supp. 2d 1170, 1175 (D. Ariz. 2010) (citing Data Disc, Inc. v. Systems Technology Associates, Inc., 557 F.2d 1280, 1285 n.2 (9th Cir.1977)).

II. Analysis

This Court has personal jurisdiction over both Defendants Steven and Jill Kraus because Plaintiff pleads sufficient facts in its Complaint for a prima facie showing thatDefendant Future...