Hafen v. Strebeck

• Decision Date: 04 October 2004
• Docket Number: No. 2:04 CV 507DAK.,2:04 CV 507DAK.
• Parties: John HAFEN and John Reed, Plaintiffs, v. Sid STREBECK, Defendants.
• Court: U.S. District Court — District of Utah

338 F.Supp.2d 1257

John HAFEN and John Reed, Plaintiffs, v. Sid STREBECK, Defendants.

No. 2:04 CV 507DAK.

United States District Court, D. Utah, Central Division.

October 4, 2004.

Matthew N. Evans, Esq., Holme Roberts & Owen LLP, Salt Lake City, UT, for Plaintiffs.

Sean N. Egan, Esq., Kearns Bldg, Salt Lake City, UT, for Defendants.

MEMORANDUM DECISION AND ORDER

KIMBALL, District Judge.

This matter is before the court on Defendant Sid Strebeck's Motion to Dismiss. A hearing on the motion was held on September 22, 2004. At the hearing, Defendant was represented by Sean N. Egan and Plaintiffs were represented by Matthew N. Evans. The court took the matter under advisement. The court has considered carefully the memoranda submitted by the parties as well as the law and facts relating to the motion. Now being fully advised, the court renders the following Memorandum Decision and Order.

BACKGROUND

According to Plaintiffs' Complaint, the acts that form the basis of this action involve conversations made via telephone by Defendant Strebeck to Plaintiff Hafen, while Hafen resided in Utah, and correspondence sent by Strebeck to Hafen in Utah. Plaintiffs Hafen and Reed have an ownership interest in software marketed under the name EV4 ("Software"). Strebeck procured physical possession of the Software by foreclosing on assets of a company called Versidata. Versidata had previously acquired a license to use the Software from Hafen and Reed. Versidata owed Hafen and Reed in excess of $188,000 for the use of the Software.

John Reed is a resident of Washington. John Hafen is a resident of Provo, Utah. However, it is unrebutted that at times relevant to this action, he also resided in the State of Washington. Strebeck is a resident of New Mexico, and the Software is physically located in Oklahoma.

On September 13, 2002, Strebeck telephoned Hafen, who was in Provo, Utah at the time, to talk about the Software. During this conversation, Strebeck allegedly represented that he had a million dollar deal with a company called Reynolds & Reynolds to further develop the Software. Strebeck also allegedly represented that he was going to get a $500,000 investment from Dealers Diversified for marketing the Software to car dealers across the country, which could generate millions of dollars in revenues. Plaintiffs allege that Strebeck made these representations in order to induce Hafen and Reed to forego repossessing the Software.

In addition, Plaintiffs claim that Strebeck told Hafen that he would either pay Plaintiffs in full the money owed by Versidata for use of the Software, cash them both out of their rights to the Software, and/or provide them with an interest in the profits obtained from the use of the Software. At that time, the Software had a value of approximately $1,000,000.

In reliance on Strebeck's alleged representations in the September 13, 2002 conversation, which were confirmed in a follow up letter from Strebeck to Hafen, Plaintiffs refrained from repossessing the Software and permitted Strebeck to continue to use the Software. Plaintiffs contend that they have since learned that Strebeck did not have a deal with Reynolds & Reynolds, he did not have a deal with Dealers Diversified, and he never intended to satisfy the obligations to them.

Plaintiffs allege that in subsequent conversations directed to Hafen in Utah, Strebeck retracted his promises and refused to satisfy the obligations owed to them for the Software. Plaintiffs claim they have not received compensation from Strebeck for allowing him to use the Software. Plaintiffs further allege that because of the passage of time and the failure to update the Software, the Software has lost most of its value.

Plaintiffs' Complaint alleges three causes of action against Strebeck: (1) intentional misrepresentation based upon Strebeck's knowingly false representations that induced Plaintiffs not to repossess their rights to the Software; (2) negligent misrepresentation based on Strebeck's reckless misrepresentations which caused Plaintiffs' not to exercise their rights; and (3) breach of fiduciary duty based on Strebeck's superior knowledge about the facts relating to the Software and his intended uses of the Software and his failure to act with reasonable care or in a manner that served the best interests of Plaintiff with regard to the Software.

DISCUSSION

Strebeck brings the present motion to dismiss arguing that this court lacks personal jurisdiction over him. Alternatively, if the court finds that it does have jurisdiction, Defendant moves for dismissal of each of Plaintiffs' claims, arguing: (1) Plaintiffs have not pled fraud with particularity under Rule 9(b) of the Federal Rules of Civil Procedure; (2) Plaintiffs have not adequately plead negligent misrepresentation and such claim is barred by the economic loss rule; and (3) Plaintiff's breach of fiduciary duty claim fails because Defendant has no such duty as a matter of Utah law.

I. Personal Jurisdiction

When a court's jurisdiction is contested, the plaintiff "bears the burden of establishing personal jurisdiction over the defendant." OMI Holdings, Inc. v. Royal Ins. Co. of Canada, 149 F.3d 1086, 1091 (10th Cir.1998); Electronic Realty Assoc. v. Vaughan, 897 F.Supp. 521, 521 (D. Kan.1995) (citing McNutt v. General Motors, 298 U.S. 178, 189, 56 S.Ct. 780, 80 L.Ed. 1135 (1936)). However, in the preliminary stages of litigation, the plaintiff's burden is only to establish a prima facie case that jurisdiction exists. Electronic Realty, 897 F.Supp. at 521. All factual disputes are resolved in favor of the plaintiff when determining the sufficiency of this showing. Wenz v. Memery Crystal, 55 F.3d 1503, 1505 (10th Cir.1995).

It is well settled that "[t]o obtain personal jurisdiction over a nonresident defendant in a diversity action, a plaintiff must show that jurisdiction is legitimate under the laws of the forum state and that the exercise of jurisdiction does not offend the due process clause of the Fourteenth Amendment." Soma Medical Int'l v. Standard Chartered Bank, 196 F.3d 1292, 1295 (10th Cir.1999). There is no claim in this case that there is general jurisdiction over Defendant in the State of Utah. Therefore, this court must determine whether specific jurisdiction exists over Defendant under the facts of this case.

"[T]he evaluation of specific jurisdiction in Utah mandates a three-part inquiry: '(1) the defendant's acts or contacts must implicate Utah under the Utah long-arm statute; (2) a `nexus' must exist between the plaintiff's claims and the defendant's acts or contacts; and (3) application of the Utah long-arm statute must satisfy the requirements of federal due process.'" National Petroleum Mkt'g, Inc. v. Phoenix Fuel Co., 902 F.Supp. 1459, 1465 (D.Utah 1995) (citations omitted). Plaintiffs' Complaint alleges that Strebeck "transacted business" and "caused an injury" in Utah under Utah's long-arm statute based on Strebeck's telephone conversations with Hafen, who was in Provo, Utah at the time, and Strebeck's correspondence directed to Hafen in Utah. Utah Code Ann. § 78-27-24(1), (3) (2002 & Supp.2003). Utah's long-arm statute provides, in pertinent, part as follows:

Any person ... who in person or through an agent does any of the following enumerated acts, submits himself ... to the jurisdiction of the courts of this state as to any claim arising out of or related to:

(1) the transaction of any business within this state;

. . . . .

(3) the causing of any injury within this state whether tortious or by breach of warranty ...

Id.

The words "transacting business" means activities of a non-resident person in this state which "affect persons or business within the state." Id. § 78-27-23(2) (2002). These words are liberally and expansively interpreted such that "a person may transact business within the state despite an absence of physical presence in Utah." Nova Mud Corp. v. Fletcher, 648 F.Supp. 1123, 1126 (D.Utah 1986). In fact, the entire Utah long-arm statute is intended to be interpreted broadly "so as to assert jurisdiction over nonresident defendants to the fullest extent permitted by the due process clause of the Fourteenth Amendment to the United States Constitution." Utah Code Ann. § 78-27-22; see also Starways, Inc. v. Curry, 980 P.2d 204, 206 (Utah 1999). Accordingly, the Utah Supreme Court "frequently make[s] a due process analysis first because any set of circumstances that satisfies due process will also satisfy the long-arm statute." SII MegaDiamond, Inc. v. American Superabrasives Corp., 969 P.2d 430, 433 (Utah 1998). Therefore, the court will begin its analysis by determining whether the exercise of personal jurisdiction over Defendant under the facts of this case meets federal due process standards.

Under due process standards, a "court may exercise personal jurisdiction over a nonresident defendant only so long as there exist `minimum contacts' between the defendant and the forum state." World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 291, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980) (citations omitted). The "minimum contacts" necessary for specific personal jurisdiction are established "`if the defendant has "purposefully directed" his activities at residents of the forum and the litigation results from alleged injuries that "arise out of or relate to" those activities.'" OMI Holdings, Inc. v. Royal Ins. Co. of Canada, 149 F.3d 1086, 1091 (10th Cir.1998) (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985)).

Strebeck argues that his telephone calls and correspondence to Hafen in Utah are insufficient to establish the minimum contacts required under the Due Process Clause. "It is well-established that phone calls and letters are not necessarily sufficient in themselves to establish minimum contacts." Far West Capital, Inc. v. Towne, 46 F.3d 1071, 1077 (10th Cir.1995). However, "telephone calls and letters may...