Warfield v. Gardner, CV 04-0974-PHXJAT.

• Decision Date: 29 October 2004
• Docket Number: No. CV 04-0974-PHXJAT.,CV 04-0974-PHXJAT.
• Parties: Lawrence J. WARFIELD, Receiver for CP Direct, Inc., Plaintiff, v. Marc A. GARDNER; North American Bancard, Inc., a Michigan corporation, Defendants.
• Court: U.S. District Court — District of Arizona

346 F.Supp.2d 1033

Lawrence J. WARFIELD, Receiver for CP Direct, Inc., Plaintiff, v. Marc A. GARDNER; North American Bancard, Inc., a Michigan corporation, Defendants.

No. CV 04-0974-PHXJAT.

United States District Court, D. Arizona.

October 29, 2004.

COPYRIGHT MATERIAL OMITTED

Ryan W. Anderson, Guttilla & Murphy PC, Phoenix, AZ, for Plaintiff.

Stephen M. Dichter, James Demosthenes Smith, Jennifer Ann Simmon, Bryan Cave LLP, Phoenix, AZ, for Defendants.

ORDER

TEILBORG, District Judge.

Pending before the Court are Defendants Marc A. Gardner and North American Bancard, Inc.'s ("NAB"): (1) "Motion to Dismiss Complaint (1) for Improper Venue, (2) for Lack of Personal Jurisdiction, or (3) Transfer Venue" (Doc. # 6); (2) Motion to Dismiss RICO Claim (Doc. # 7); and (3) Motion to Dismiss Conversion Claim (Doc. # 8). Plaintiff Lawrence J. Warfield has filed Responses to each of the Defendants' Motions (Docs. 11, 12, 13), and the Defendants have filed Replies in support of their Motions (Docs. 17, 18, 19). Because the Court finds that it has personal jurisdiction over the Defendants, and that Plaintiff has sufficiently pled a conversion claim, it will deny the Defendants' Motions to Dismiss with respect to those issues. Further, because the Court finds that transfer of this case to a different venue is unwarranted, it will deny the Defendants' request for transfer. Finally, because the Court finds that Plaintiff has failed to sufficiently plead a RICO claim, it will grant the Defendant's Motion to Dismiss RICO Claim, but will grant Plaintiff leave to amend to attempt to cure the deficiencies.

I. Background

In September 2002, the State of Arizona filed a Complaint against CP Direct, Inc. ("CP") and its owners, Michael Consoli and Vincent Passafiume, alleging violations of the Arizona Racketeering Act. Plaintiff is the Court-appointed Receiver for the "Receivership Defendants" in that matter, a group that includes CP and its owners. While in existence, CP was a Nevada corporation operating in Arizona. (Compl. at ¶ 1.) Defendant NAB is a Michigan corporation. (Id. at ¶ 15.) Defendant Gardner is NAB's president and a Michigan resident. (Id. at ¶ 14.)

CP formerly marketed and sold nutritional supplements, including a penis enlargement pill known as "Longitude", with sales totaling $77,627,615.99. (Id. at ¶¶ 19.) Approximately 86% of CP's total sales were comprised of credit card transactions. (Id. at ¶ 20.) Because CP could not process its credit card transactions directly, it needed the services of an intermediary agent. (Id. at ¶ 21.) Toward this end, in December 2000, CP contracted with NAB to process its credit card transactions through Global Payment Services ("GPS"). (Id. at ¶ 20.) In return, CP agreed to pay NAB 2.68% of each credit card sale it processed through GPS, as well as various other fees and costs for NAB's services. (Id. at ¶ 22.)

Pursuant to its agreement with GPS, NAB was required to supervise CP's credit card processing, including the calculation CP's chargeback ratio. (Id. at ¶ 23.) This calculation represented the percentage of CP's customers who requested their credit card company to refund money paid to CP.¹ (Id.) Within a year after contracting with NAB, GPS placed CP on its watchlist. (Id. at ¶ 24.) Subsequently, in February 2002, GPS discontinued processing CP's credit card transactions because CP had exceeded the 1% chargeback ratio for three consecutive months. (Id. at ¶ 26.) CP thereafter contracted with alternative credit card processors, but was unable to obtain services enabling it to continue its business at its pervious levels. (Id. at ¶ 28.)

Plaintiff alleges that around this time, Defendants informed CP that by creating a new company and hiding the fact that CP controlled it, CP could avoid its negative chargeback history and resume processing its transactions through GPS. (Id. at ¶¶ 30-31.) Toward this end, and at the Defendants' direction, CP devised a fictitious entity called Nutritional Supplements, Inc., ("NSI"). (Id. at ¶ 31.) Defendants also directed Consoli to provide NAB with various documents purporting to show that NSI was unrelated to CP. (Id. at ¶ 32.) Specifically, NAB directed Consoli to create fraudulent documents to establish that NSI existed and was a going concern, including a forged corporate charter, checks, and forged and fraudulently-prepared state and federal tax returns for NSI. (Id.) Additionally, CP submitted a merchant account application in the name of NSI to Defendants containing fraudulent information in order for CP, as NSI, to obtain a credit card processing account with GPS. (Id. at ¶ 34.) Defendant Gardner thereafter presented NSI's application to GPS without disclosing that NSI was a non-existent company. (Id. at ¶ 35.) Defendant Gardner also represented to GPS that NSI had a licensing agreement with CP that gave it the right to sell Longitude, a document which did not exist at the time. (Id.) Based on the Defendants' representations, GPS accepted NSI as a client and began processing its credit card transactions in February 2002. (Id.) The following month, Defendants informed CP's attorney that GPS was going to audit NAB's client files, and asked him to draft a licensing agreement granting NSI a license to sell Longitude in order to cover up the actual relationship between CP and NSI. (Id. at ¶ 36.)

As a condition of processing CP's (as NSI) credit card purchases for Longitude, Defendant Gardner demanded that CP pay a monthly consulting fee of up to $250,000, with additional bonuses. (Id. at ¶ 37.) The bonus arrangement provided that Gardner would receive an additional $50,000 for every million dollars of sales over eight million dollars per month. (Id. at ¶ 38.) Although Gardner provided no consulting services, in order to continue processing its credit card transactions through GPS, CP paid Gardner $700,000 from CP's funds in three installments during March and April 2002. (Id. at 44.) CP ended the payments when the State of Arizona filed the receivership action. (Id. at 46.)

On May 12, 2004, Plaintiff filed this lawsuit, asserting three claims against the Defendants for: (1) civil RICO violations; (2) conversion; and (3) unjust enrichment. He seeks judgment against the Defendants in the amount of $700,000, plus interest. Alternatively, Plaintiff seeks judgment for $2,100,000, as treble damages pursuant to Arizona Revised Statutes ("A.R.S.") § 13-2314.04, plus interest. The Defendants now move to dismiss the Complaint on several grounds.

II. The Defendants' Motion to Dismiss Complaint (1) For Improper Venue, (2) For Lack of Personal Jurisdiction, or (3) Alternatively, to Transfer Venue

A. Personal Jurisdiction

The Defendants first urge the Court to dismiss Plaintiff's Complaint because the Court lacks personal jurisdiction over them.²

When a defendant moves to dismiss a complaint for lack of personal jurisdiction pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure, the plaintiff bears the burden of demonstrating that jurisdiction is appropriate. Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800 (9th Cir.2004). If the Court rules on the motion based on written materials rather than an evidentiary hearing, "the plaintiff need only make a prima facie showing of jurisdictional facts." Id. In such cases, the Court examines whether the plaintiff's pleadings and affidavits make a prima facie showing of personal jurisdiction. Caruth v. Int'l Psychoanalytical Ass'n, 59 F.3d 126, 128 (9th Cir.1995). "Although the plaintiff cannot `simply rest on the bare allegations of its complaint,' uncontroverted allegations in the complaint must be taken as true." Schwarzenegger, 374 F.3d at 800 (internal citations omitted). Further, the Court resolves conflicting statements in the parties' affidavits in the plaintiff's favor. Id.

A district court sitting in diversity has personal jurisdiction over a defendant to the extent provided by the law of the forum state. Data Disc, Inc. v. Sys. Tech. Associates, 557 F.2d 1280, 1286 (9th Cir.1977). Arizona's long-arm statute provides for personal jurisdiction coextensive with the limits of federal due process. Ariz. R. Civ. P. 4.2(a); Doe v. Am. Nat'l Red Cross, 112 F.3d 1048, 1050 (9th Cir.1997); Cohen v. Barnard, Vogler & Co., 199 Ariz. 16, 13 P.3d 758, 760 (App.2000). Thus, the Court's analysis of personal jurisdiction under Arizona's long-arm statute and the federal Constitution collapse into one, and the Court considers only whether the exercise of jurisdiction over Defendants comports with due process. Glencore Grain Rotterdam B.V. v. Shivnath Rai Harnarain Co., 284 F.3d 1114, 1123 (9th Cir.2002). Specifically, to satisfy constitutional due process, the non-resident defendant "must have at least `minimum contacts' with the relevant forum such that the exercise of jurisdiction `does not offend traditional notions of fair play and substantial justice.'" Schwarzenegger, 374 F.3d at 801 (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945)). Depending on the nature of the Defendants' contacts with Arizona, the Court may exercise either general or specific jurisdiction over them. Because Plaintiff has not presented any argument in support of general jurisdiction, the Court will examine whether specific jurisdiction exists. (See Resp. at 5.)

"A court exercises specific jurisdiction where the cause of action arises out of or has a substantial connection to the defendant's contacts with the forum." Glencore Grain Rotterdam B.V., 284 F.3d at 1123. The Court applies a three-part test when analyzing a claim of specific jurisdiction:

(1) The non-resident defendant must purposefully direct his activities or consummate some transaction with the forum or resident thereof; or perform some act by which he purposefully avails himself of the privilege of conducting activities in the forum, thereby invoking the benefits and protections of its laws;

(2) the...