Quantum Research Int'l v. SPG Inst.

• Decision Date: 28 June 2022
• Docket Number: Civil Action 5:21-cv-01680-AKK
• Parties: QUANTUM RESEARCH INTERNATIONAL, INC., Plaintiff, v. SPG INSTITUTE, INC., SP GLOBAL, INC., DANIEL TOLLEY, and THOMAS D. BURNS, SR., Defendants.
• Court: U.S. District Court — Northern District of Alabama

QUANTUM RESEARCH INTERNATIONAL, INC., Plaintiff,
v.
SPG INSTITUTE, INC., SP GLOBAL, INC., DANIEL TOLLEY, and THOMAS D. BURNS, SR., Defendants.

Civil Action No. 5:21-cv-01680-AKK

United States District Court, N.D. Alabama, Northeastern Division

June 28, 2022

MEMORANDUM OPINION

ABDUL K. KALLON UNITED STATES DISTRICT JUDGE

This lawsuit alleges a scheme to defraud defense contractors and technology companies, including several based in Alabama, through the “Autonomy Research Network Consortium” or “ARCNet.” Quantum Research International, Inc. sues SPG Institute, Inc., SP Global, Inc., and two executives for apparently leading the operation. Doc. 23. The defendants move to dismiss on personal jurisdiction grounds and also argue that Quantum agreed to arbitrate its claims and fails to plead claims for which it is entitled to relief. See doc. 29. Having considered the briefing, docs. 31; 32, the court will grant the motion, doc. 29, so the parties can submit to mandatory arbitration.

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I.

Under Rule 12 of the Federal Rules of Civil Procedure, a litigant may move to dismiss the claims against it for lack of personal jurisdiction or for failure to state a claim upon which relief can be granted. FED. R. CIV. P. 12(b)(2), 12(b)(6). A litigant may also move to dismiss because of a binding arbitration clause. See Baptist Hosp. of Miami, Inc. v. Medica Healthcare Plans, Inc., 376 F.Supp.3d 1298, 1304 (S.D. Fla. 2019) (citing FED. R. CIV. P. 12(b)(1)).

With respect to personal jurisdiction, the court first considers Alabama's long-arm statute. See Olivier v. Merritt Dredging Co., 979 F.2d 827, 830 (11th Cir. 1992). Interpreting this statute, “the Supreme Court of Alabama has extended the jurisdiction of Alabama courts to the extent permissible under the due process clause of the Fourteenth Amendment.” Id. The relevant inquiry is thus whether the exercise of personal jurisdiction would violate the Fourteenth Amendment. See Id. This, in turn, requires consideration of whether the defendants “engaged in minimum contacts with the State of Alabama” and whether “the exercise of personal jurisdiction over the defendants would offend ‘traditional notions of fair play and substantial justice.'” Id. at 830-31; see Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). See also Horizon Aggressive Growth, L.P. v. Rothstein-Kass, P.A., 421 F.3d 1162, 1166 (11th Cir. 2005).

Under Rule 12(b)(6), a complaint fails to state a claim if it does not plead

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factual allegations that, taken as true, “raise a right to relief above the speculative level” and render it “plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). This standard “does not require ‘detailed factual allegations,' but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Iqbal, 556 U.S. at 678. In other words, the plaintiff must “plead[] factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”^[1] Id.

Finally, if a valid arbitration agreement exists, a court may compel arbitration by dismissing the case in lieu of issuing a stay when all of the issues raised must proceed to arbitration. Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164 (5th Cir. 1992); Baptist Hosp. of Miami, Inc., 376 F.Supp.3d at 1304; Caley v. Gulfstream Aerospace Corp., 333 F.Supp.2d 1367, 1379 (N.D.Ga. 2004) (granting motions to compel arbitration and to dismiss), aff'd, 428 F.3d 1359, 1379 (11th Cir. 2005).

II.

SPGI, a Virginia-based nonprofit, acts as a “conduit” between the U.S. Air Force Research Laboratory-the Department of Defense's research arm-and sub-

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awardees that work on federal contracts. See doc. 23 at 3-4. In this role, SPGI distributes funds from AFRL and must “adequately safeguard all assets and assure that they are used solely for authorized purposes.” See id.

In February 2019, AFRL allegedly awarded to SPGI a contract identified as Cooperative Agreement No. FA8650-19-2-6983. Id. at 3. Soon after, Daniel Tolley, a Virginia citizen who serves as SP Global's president and SPGI's treasurer, “established a ‘consortium' called the Autonomy Research Network Consortium (‘ARCNet').” Id. at 4-5. Tolley “represented to the public that businesses could join [ARCNet] for a fee and then be eligible to bid on projects under the Cooperative Agreement.” Id.

SPGI, SP Global, Tolley, and Thomas D. Burns, Sr.-a Virginia citizen who serves as CEO of SP Global, chairman of its board, and SPGI's president-allegedly controlled ARCNet. Id. at 5. They began to recruit “several Alabama businesses” to join ARCNet and “used [the businesses'] names for promotional efforts.” Id. at 5. Quantum, among other Huntsville-based companies, bought a “membership interest” in ARCNet, and ARCNet vowed that it and SPGI would “actively solicit opportunities for members, ‘administer and manage the funds collected through the consortium[,]' and ‘[b]e responsible for the management and integration of all [the] [c]onsortium's efforts under the Cooperative Agreement or associated legal mechanisms.'” Id. (quoting doc. 23-2). ARCNet purportedly promised Quantum

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“access to AFRL opportunities under the Cooperative Agreement,” and Quantum joined ARCNet “with the expectation of realizing profits in the future.” Id.

Midway into 2020, things appeared to go as envisioned. In September 2020, “one or more” of the defendants “communicated to Quantum in Alabama about a request for proposal and the possibility of Quantum performing work under a subaward.” Id. at 6. To this end, the defendants provided Quantum with certain materials, including a proposal form; Quantum submitted its proposal; and the defendants relayed it to AFRL. Id. On October 1, 2020, SPGI entered into a “cost reimbursement Subaward Agreement 2020-ARC-S-20013 . . . with Quantum for collecting, securing[,] and monitoring autonomous and artificial intelligence.” Id. From its location in Huntsville, Quantum performed tasks under the Subaward Agreement for several months and sent invoices to SPGI for this work. Id.

But, unbeknownst to Quantum, things had begun to unravel. Allegedly, the defendants had moved “millions of dollars from AFRL . . . into a separate bank account that, by law, was supposed to be used to pay Quantum and other subawardees” and taken the money for themselves and their own businesses. Id. at 6-7. In particular, Tolley and Burns purportedly took over $11 million from the AFRL funds: Tolley allegedly received “personal payments” from the funds, and Burns apparently admitted to “us[ing] money intended for Quantum to pay [the] [d]efendants' rent, salaries and insurance, and . . . [for] affiliated businesses.” Id. At 7

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(citing doc. 23-9). All the while, the defendants purportedly encouraged Quantum to join ARCNet and then to work on the Subaward Agreement. See id.

Eventually, AFRL prevented the defendants from making “advance draws” of the federal funds, pumping the brakes on the apparent operation. See id. SPGI and ARCNet subsequently “issued a suspension of work notice to Quantum in Alabama, . . . and Quantum stopped work.” Id. Quantum and other sub-awardees “complained about the unpaid invoices” to no avail. See id. at 8-9. Quantum claims that at least one of the defendants “communicated with Quantum by telephone and/or by e-mail in Alabama” and “acknowledge[d] that the money was gone.” Id. at 9. At that point, the defendants purportedly represented that “they would pay all outstanding invoices when they secured funding from an outside investor -essentially promising to replace the misappropriated funds with funds from another source.” Id. Quantum thereafter filed this lawsuit, pleading claims for (1) breach of contract against SPGI; (2) quantum meruit against SPGI;^[2] (3) unjust enrichment against all defendants; (4) fraud and deceit against SPGI, Burns, and Tolley; (5) conversion against all defendants; (6) breach of fiduciary duty against SPGI, Burns, and Tolley; (7) conspiracy against all defendants; and (8) violation of the Alabama

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Securities Act against SPGI, Burns, and Tolley. Doc. 23.

III.

In their motion to dismiss, the defendants contend that the court lacks personal jurisdiction, Quantum agreed to arbitrate its claims, and Quantum fails to allege sufficient facts. Doc. 29. The court begins with the threshold questions of jurisdiction and arbitration. As explained below, although the court has personal jurisdiction over the defendants, the parties must arbitrate these claims. Consequently, the court will not address the Rule 12(b)(6) sufficiency of the factual allegations.

A.

The defendants claim that Quantum fails to establish personal jurisdiction for three reasons: (1) SPGI's contracts with Quantum and other Alabama corporations cannot establish the “minimum contacts” necessary for specific jurisdiction; (2) SP Global, Tolley, and Burns were not party to any contract with Quantum; and (3) Tolley and Burns “personally had [no] contacts with Alabama outside of their dealings with SPGI.” Doc. 29 at 7. In short, the defendants assert that “Quantum asserts an insufficient basis for specific personal jurisdiction over . . . SPGI and SP Global, [and] Quantum asserts no basis for specific jurisdiction over . . . Tolley and Burns.” Id. at 8 (emphasis in original).

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1.

A plaintiff can establish a court's personal jurisdiction over a nonresident defendant via general or specific jurisdiction.^[3] Tinsley, 112 F.Supp.3d at 1258 (citing Int'l Shoe Co., 326 U.S. at 316); see Consol. Dev. Corp. v. Sherritt, Inc., 216 F.3d 1286, 1291 (11th Cir. 2000). General jurisdiction exists where the defendants' connections with the forum state “are so ‘continuous and systematic' as to render them essentially at home in the forum State.” Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915,...