LifeSuccess Productions LLC v. Martinelli et al

Filing 32

ORDER that Defendants Cheryl Fisher and Dreams to Reality, Inc.'s Motion to Dismiss the First Amended Complaint (Doc. 26 ) is denied. IT IS FURTHER ORDERED that Defendants Paul Martinelli and Martinelli and Associate, Inc.'s Motion to Dismiss (Doc. 25 ) is granted in part and denied in part. IT IS FURTHER ORDERED that Defendants' Motions to Dismiss Plaintiff's initial Complaint (Doc. 20 , Doc. 21 ) are denied as moot. Signed by Judge G Murray Snow on 12/10/2013.(KMG)

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1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 LifeSuccess Productions LLC, a Nevada limited-liability company, No. CV-13-01272-PHX-GMS ORDER 10 Plaintiff, 11 v. 12 Paul Martinelli, husband; Kelly Dellasala, wife; Martinelli & Associates, Incorporated, a Florida domestic for profit corporation; Cheryl Fisher, wife; Bo Fisher, husband; and Dreams to Reality, Incorporated, a Florida domestic for profit corporation, 13 14 15 Defendants. 16 17 Pending before the Court are Defendants Paul Martinelli and Martinelli and 18 Associate, Inc.’s Motion to Dismiss (Doc. 25) and Defendants Cheryl Fisher and Dreams 19 to Reality, Inc.’s Motion to Dismiss the First Amended Complaint (Doc. 26). For the 20 following reasons, Martinelli and Martinelli Inc.’s Motion is granted in part and denied in 21 part and Defendants Fisher and Dreams to Reality, Inc.’s Motion is denied.1 22 BACKGROUND 23 24 This case arises out of three contracts. I. Martinelli Separation Agreement 25 Defendant Martinelli worked with Plaintiff LifeSucess Productions LLC (“LSP”) 26 as an officer and manager of LSP-related subsidiaries and as a consultant. (Doc. 23 27 1 28 Also pending are Defendants’ Motions to Dismiss (Docs. 20–21) which regarded Plaintiff’s initial Complaint (Doc. 1). As the Complaint was superseded by the First Amended Complaint (Doc. 23), the Court denies the initial Motions to Dismiss as moot. 1 (“First Amended Complaint”) ¶ 19.) In 2009, LSP decided to end its affiliation with 2 Martinelli. On October 29, 2009, LSP and its subsidiaries presented Martinelli with a 3 Separation Agreement (the “Martinelli Separation Agreement.”) LSP and one of its 4 subsidiaries agreed to pay Martinelli $410,000 as consideration. (Id. ¶ 22.) 5 Under this agreement, Martinelli was required to resign from his positions within 6 LSP and agree to various restrictive covenants and other requirements. (Id. ¶ 21.) He 7 agreed to return LSP property containing confidential, proprietary, and trade secret 8 information as soon as practicable following execution of the agreement. (Id. ¶¶ 23, 26.) 9 Further, the agreement barred Martinelli from soliciting any LSP customers or employees 10 within two years of the agreement. (Id. ¶25.) LSP alleges that Martinelli entered into the 11 agreement and accepted the funds pursuant to the agreement without intending to honor 12 its obligations. (Id. ¶ 28.) Specifically, LSP alleges that Martinelli has failed to undertake 13 reasonable efforts to return LSP property, and thus that he remains in possession of 14 valuable LSP intellectual property and other materials. (Id. ¶ 29.) LSP further alleges that 15 Martinelli is currently attempting or will soon attempt to profit from LSP materials for his 16 own benefit and for the benefit of Martinelli and Associates, Inc. (“Martinelli, Inc.”). (Id. 17 ¶ 30.) 18 LSP asserts that Martinelli has thus materially breached the Martinelli Separation 19 Agreement through these actions (Id. ¶ 32) and by employing Defendant Fisher, despite 20 knowing she was an LSP agent at the time of the Martinelli Separation Agreement and 21 therefore within the ambit of its non-solicitation provision. (Id. ¶ 33.) LSP further asserts 22 that Martinelli has breached the agreement by participating in Fisher’s accessing of LSP 23 information through computers located at Martinelli, Inc.’s offices and by being 24 somehow involved in Fisher’s misappropriation of proprietary LSP information. (Id. ¶ 25 34.) 26 LSP alleges breach of contract and breach of the implied covenant of good faith 27 and fair dealing against Martinelli and intentional interference with contract and 28 conversion against both Martinelli and Martinelli, Inc. (Id. ¶¶ 58–93.) LSP brings some -2- 1 of these claims against both Martinelli and Martinelli Inc. as LSP alleges that the two 2 have such a unity of interest that Martinelli Inc. should be deemed the alter ego of 3 Martinelli. (Id. ¶¶ 51–52.) 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 II. The Fisher/Dreams, Agreements Inc. Independent Contractor and Separation Defendant Fisher served as Vice President of Operations of Dreams to Reality, Inc. (“Dreams, Inc.”), a Florida corporation. (Id. ¶¶ 9–10, 35.) At some point in 2011, Fisher, on behalf of Dreams, Inc., entered an Independent Contractor Agreement with LSP (the “Independent Contractor Agreement”). (Id. ¶ 35.) Under this agreement, Fisher agreed not to engage in any affiliation that would create a conflict of interest and not to use LSP confidential, proprietary, or trade secret information for any purpose outside of performing services for LSP. (Id. ¶ 36.) This information included the Infusionsoft Database, a database of LSP client information. (Id. ¶ 37.) LSP alleges that Fisher and Dreams, Inc. have such a unity of interest that Dreams, Inc. should be deemed Fisher’s alter ego. (Id. ¶ 39.) As such, LSP brings claims against Fisher, acting through Dreams, Inc. LSP alleges that Fisher and Dreams, Inc. breached the Independent Contractor Agreement by rendering services to Martinelli and/or Martinelli, Inc. that created an impermissible conflict of interest. (Id. ¶ 40.) Further, LSP alleges that Fisher, acting through Dreams, Inc., misappropriated LSP information for use in Martinelli’s business. (Id. ¶ 41.) Finally, LSP alleges that Fisher failed to return all confidential, proprietary and trade secret protected information to LSP as required by the agreement. (Id. ¶ 42.) As of January 15, 2013, LSP terminated its affiliation with Fisher and Dreams, Inc. through a Separation Agreement (the “Fisher/Dreams, Inc. Separation Agreement”). (Id. ¶ 43.) Under this agreement, Fisher and Dreams, Inc. represented that they had not improperly disclosed any LSP confidential, proprietary or trade secret materials. (Id. ¶ 44.) Fisher and Dreams, Inc. also represented that they had returned all LSP property to LSP and retained no copies of any LSP materials. (Id. ¶¶ 45–46.) LSP alleges that Fisher -3- 1 and Dreams, Inc. breached the Fisher/Dreams, Inc. Separation Agreement by disclosing 2 confidential LSP information to Martinelli, by failing to return all confidential, 3 proprietary, or trade secret information to LSP, and by retaining copies of such 4 information. (Id. ¶¶ 47–50.) 5 LSP brings claims for breach of both the Independent Contractor Agreement and 6 Fisher/Dreams, Inc. Separation Agreement and breach of the Implied Covenant of Good 7 Faith and Fair Dealing under both contracts against Dreams, Inc. (Id. ¶¶ 94–119.) 8 Finally, LSP brings claims of trade secret misappropriation, unjust enrichment, 9 and for preliminary and permanent injunctive relief against all Defendants. (Id. ¶¶ 120– 10 43.) Defendants now move to dismiss all claims. (Docs. 25–26.) ANALYSIS 11 12 I. Personal Jurisdiction 13 A. Legal Standard 14 “The party seeking to invoke the court’s jurisdiction bears the burden of 15 establishing that jurisdiction exists.” Scott v. Breeland, 792 F.2d 925, 927 (9th Cir. 1986) 16 (citing Data Disc, Inc. v. Systems Tech. Assocs., 557 F.2d 1280, 1285 (9th Cir. 1977)); 17 Cubbage v. Merchent, 744 F.2d 665, 667 (9th Cir. 1984). “When a defendant moves to 18 dismiss for lack of personal jurisdiction, the plaintiff is ‘obligated to come forward with 19 facts, by affidavit or otherwise, supporting personal jurisdiction.’” Id. (quoting Amba 20 Mktg. Sys., Inc. v. Jobar Int’l, Inc., 551 F.2d 784, 787 (9th Cir. 1977)). “The mere 21 allegations of a complaint, when contradicted by affidavits, are not enough to confer 22 personal jurisdiction over a nonresident defendant.” Chem Lab Products, Inc. v. 23 Stepanek, 554 F.2d 371, 372 (9th Cir. 1977) (citing Taylor v. Portland Paramount Corp., 24 383 F.2d 634, 639 (9th Cir. 1967)); Data Disc, 557 F.2d at 1284 (citing Taylor, 383 F.2d 25 at 639). 26 To establish a prima facie case for personal jurisdiction, the plaintiff has the 27 burden of showing that: (1) the forum state’s long-arm statute confers jurisdiction over 28 the nonresident defendant; and (2) the exercise of jurisdiction comports with principles of -4- 1 due process. Omeluk v. Langsten Slip & Batbyggeri A/S, 52 F.3d 267, 269 (9th Cir. 2 1995). Arizona’s long-arm statute confers jurisdiction to the maximum extent allowed by 3 the Due Process Clause of the United States Constitution. Ariz. R. Civ. P. 4.2(a); Doe v. 4 American Nat’l Red Cross, 112 F.3d 1048, 1050 (9th Cir. 1997). Due process requires a 5 nonresident defendant to have “certain minimum contacts with [the forum] such that the 6 maintenance of the suit does not offend traditional notions of fair play and substantial 7 justice.” Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (internal citation 8 omitted). There are two types of personal jurisdiction, general and specific. Burger King 9 Corp. v. Rudzewicz, 471 U.S. 462, 473 n.5 (1985). 10 Specific jurisdiction is analyzed under a three-pronged test: “(1) [t]he non-resident 11 defendant must purposefully direct his activities or consummate some transaction with 12 the forum or resident thereof; or perform some act by which he purposefully avails 13 himself of the privilege of conducting activities in the forum, thereby invoking the 14 benefits and protections of its laws; (2) the claim must be one which arises out of or 15 relates to the defendant's forum-related activities; and (3) the exercise of jurisdiction must 16 comport with fair play and substantial justice, i.e. it must be reasonable.” Mavrix Photo, 17 Inc. v. Brand Tech., Inc., 647 F.3d 1218, 1227–28 (9th Cir. 2011). 18 B. Defendants Fisher and Dreams, Inc. 19 Defendants Fisher and Dreams, Inc. move to dismiss all claims against them on 20 the grounds that the Court lacks personal jurisdiction. (Doc. 26.) LSP contends that the 21 Court may assert specific personal jurisdiction over Fisher and Dreams, Inc. under a 22 purposeful direction analysis. (Doc. 29 at 4.) LSP alleges that Dreams, Inc. breached its 23 contracts with LSP and breached the implied covenant of fair dealing in those contracts. 24 Further, LSP alleges that both Fisher and Dreams, Inc. misappropriated LSP trade secrets. 25 Thus, the claims against Fisher and Dreams, Inc. sound in both tort and contract.2 26 27 28 2 Unlike the Martinelli Separation Agreement, neither the Fisher Separation Agreement nor the Independent Contractor Agreement contain forum-selection clauses selecting Arizona. Both agreements are governed by the laws of the State of Nevada. (Doc. 23 ¶ 108.) -5- 1 Under the first of the three prongs of specific personal jurisdiction analysis, the 2 Ninth Circuit typically uses a purposeful direction test for cases sounding in tort and a 3 purposeful availment test for cases sounding in contract. Schwarzenegger v. Fred Martin 4 Motor Co., 374 F.3d 797, 802 (9th Cir. 2004). Although these tests are distinct, the Ninth 5 Circuit has also recognized that the first prong “may be satisfied by purposeful availment 6 of the privilege of doing business in the forum; by purposeful direction of activities at the 7 forum; or by some combination thereof.” Yahoo! Inc. v. La Ligue Contre Le Racisme Et 8 L’Antisemitisme, 433 F.3d 1199, 1206 (9th Cir. 2006). Additionally, if a court has 9 personal jurisdiction over a defendant with respect to one claim, it can also often exercise 10 jurisdiction over other claims, so long as they arise out of a common nucleus of operative 11 facts or form part of the same case or controversy. Washington Shoe Co. v. A-Z Sporting 12 Goods Inc., 704 F.3d 668, 673 (9th Cir. 2012) (discussing pendent personal jurisdiction 13 and supplemental subject matter jurisdiction). 14 Here, where there are both contract and tort claims, either test can apply. The 15 Court will analyze personal jurisdiction under a purposeful availment analysis. To do so, 16 the Ninth Circuit uses the three-part “effects” test derived from the Supreme Court’s 17 decision in Calder v. Jones, 465 U.S. 783 (1984). Id. at 803. Under Calder, “purposeful 18 availment is satisfied even by a defendant ‘whose only ‘contact’ with the forum state is 19 the ‘purposeful direction’ or a foreign act having effect in the forum state.’” Id. The 20 “effects” test “requires that the defendant allegedly have (1) committed an intentional act, 21 (2) expressly aimed at the forum state, (3) causing harm that the defendant knows is 22 likely to be suffered in the forum state.” Id. (citations omitted). 23 Here, each of the three prongs is satisfied. First, Fisher and Dreams, Inc. are 24 alleged to have committed the intentional act of misappropriating trade secrets. Next, in 25 the Ninth Circuit, the requirement that the intentional act was expressly aimed at the 26 forum state is “satisfied when the defendant is alleged to have engaged in wrongful 27 conduct targeted at a plaintiff whom the defendant knows to be a resident of the forum 28 state.” Bancroft & Masters, Inc. v. August Nat’l, Inc., 223F.3d 1104, 1111 (9th Cir. -6- 1 2002.) Here, the alleged trade secrets are the property of LSP, an entity with its principal 2 place of business in Scottsdale, Arizona. Defendants do not dispute that they knew the 3 location of LSP’s principal place of business, and thus the second prong is satisfied. 4 Finally, the third prong of the Calder test is satisfied as defendants would have 5 known that LSP would likely suffer harm in Arizona from the alleged misappropriation 6 of trade secret information. Therefore, the Court finds that Fisher and Dreams, Inc. are 7 alleged to have purposefully directed their conduct at Arizona. The claims now brought 8 against them arise from this conduct, and the exercise of jurisdiction over these 9 Defendants is reasonable. Therefore, the Court finds that it may exercise personal 10 jurisdiction over Defendants Fisher and Dreams, Inc. and the Motion to Dismiss claims 11 against these Defendants is denied. The Court need not reach the issue of whether 12 personal jurisdiction is also available through the purposeful availment analysis used in 13 contracts cases as both tort and contracts claims are present. 14 C. Claims Against Martinelli, Inc. 15 LSP also brings both contract and tort claims against Martinelli, Inc. Defendant 16 moves to dismiss on the grounds that the Court lacks personal jurisdiction over 17 Martinelli, Inc. However, as above, Martinelli, Inc. is alleged to have intentionally 18 misappropriated trade secrets owned by LSP, an entity it knew to have its principal place 19 of business in Arizona. Further, under the third prong, Martinelli, Inc. can reasonably be 20 said to have known that the harm from this misappropriation would be felt in Arizona. 21 The claims against Martinelli, Inc. arise from this purposefully directed conduct, and the 22 Court finds that it is reasonable to exercise personal jurisdiction over this defendant. As 23 such, the Motion to Dismiss claims against Martinelli, Inc. is denied. The Court need not 24 reach the question of whether personal jurisdiction would also be available under the 25 purposeful availment analysis typically used in contract cases. 26 II. Claims Against Martinelli 27 Martinelli moves to dismiss LSP’s claims for damages against him on the grounds 28 that those claims must be arbitrated under the terms of the Martinelli Separation -7- 1 Agreement. In relevant part, the Martinelli Separation Agreement states that “[t]he parties 2 agree that should any dispute arise between parties relating to this Agreement, the issue 3 shall be submitted to arbitration . . . [n]otwithstanding the above, in the event either party 4 wishes to obtain equitable relief …. enforcing this Agreement, it may bring a claim for 5 such relief in arbitration or in an action in an applicable court in Phoenix, Arizona.” (Doc. 6 6 at 40.) It is thus clear that Plaintiff must bring any damages claims against Martinelli to 7 arbitration, but that it need not do so with any claims for injunctive relief. Plaintiff does 8 not appear to contest this reading. (Doc. 28 at 5.) 9 The only claims against Martinelli under the Martinelli Separation Agreement not 10 subject to this mandatory arbitration provision are any claims for equitable relief. Thus, 11 the Motion to Dismiss Plaintiff’s claims against Martinelli is granted to the extent the 12 remedy sought for any of the causes of action against Martinelli is damages. The Motion 13 is denied to the extent the remedy sought for any of these claims is equitable relief. 14 15 16 17 18 19 20 IT IS THEREFORE ORDERED that Defendants Cheryl Fisher and Dreams to Reality, Inc.’s Motion to Dismiss the First Amended Complaint (Doc. 26) is denied. IT IS FURTHER ORDERED that Defendants Paul Martinelli and Martinelli and Associate, Inc.’s Motion to Dismiss (Doc. 25) is granted in part and denied in part. IT IS FURTHER ORDERED that Defendants’ Motions to Dismiss Plaintiff’s initial Complaint (Doc. 20, Doc. 21) are denied as moot. Dated this 10th day of December, 2013. 21 22 23 24 25 26 27 28 -8-

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