Arctic Zero, Inc. v. Aspen Hills, Inc. et al

Filing 32

ORDER denying 6 Defendant Aspen Hills, Inc. and Thomas and Nancy Lundeen's Motions to Stay Action Pending Resolution of Iowa State Court Receivership Proceedings; and denying 16 Aspen Hills, Inc. and Thomas and Nancy Lundeen's Motions to Dismiss. This Court retains jurisdiction andthis case will follow its normal course. Signed by Judge Anthony J. Battaglia on 11/20/2017. (acc)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 12 13 14 Case No.: 17-cv-00459-AJB-JMA ARCTIC ZERO, INC., a Delaware Corporation, ORDER: Plaintiff, v. (1) DENYING DEFENDANT ASPEN HILLS AND THOMAS AND NANCY LUNDEEN’S MOTIONS TO STAY ACTION PENDING RESOLUTION OF IOWA STATE COURT RECEIVERSHIP PROCEEDINGS; AND 15 16 17 18 19 ASPEN HILLS, INC., an Iowa Corporation, THOMAS LUNDEEN, an individual, NANCY LUNDEEN, an individual and DOES 1 through 25, inclusive, Defendants. (2) DENYING ASPEN HILLS AND THOMAS AND NANCY LUNDEEN’S MOTIONS TO DISMISS 20 21 22 (Doc. Nos. 6, 16) 23 24 Presently before the Court are Defendants Aspen Hills, Inc. (“Aspen Hills”) and 25 Thomas and Nancy Lundeen’s (collectively referred to as “the Lundeens”) motions to 26 dismiss Plaintiff Arctic Zero Inc.’s (“Plaintiff”) first amended complaint, or in the 27 alternative to stay the action pending resolution of the Iowa State Court Receivership 28 Proceedings. (Doc. Nos. 6, 16.) Having reviewed the parties’ arguments and controlling 1 17-cv-00459-AJB-JMA 1 legal authority, and pursuant to Civil Local Rule 7.1.d.1, the Court finds the matters 2 suitable for decision on the papers and without oral argument. For the reasons set forth 3 below, the Court DENIES both Defendants’ motions to stay and motions to dismiss. 4 FACTUAL AND PROCEDURAL BACKGROUND 5 Plaintiff is a corporation organized under the laws of the state of Delaware with its 6 principal place of business in San Diego, California. (Doc. No. 3 ¶ 4.) Aspen Hills is a 7 former cookie dough manufacturer, organized under the laws of the state of Iowa with its 8 principal place of business in Garner, Iowa. (Id. ¶ 5; Doc. No. 6 at 8.)1 The Lundeens are 9 individuals who reside in the state of Iowa and are co-owners of Aspen Hills. (Doc. No. 3 10 ¶¶ 6, 7.) 11 The events leading up to this dispute arose in 2016, when Aspen Hills recalled 287 12 cases of allegedly negligently manufactured brownie dough. (Doc. No. 6 at 8; Doc. No. 24 13 at 9.) Currently, there are over $11 million in claims being asserted against Aspen Hills. 14 (Doc. No. 6 at 8.) As a result of the substantial claims asserted against Aspen Hills and the 15 limited assets available for distribution, receivership proceedings involving Aspen Hills 16 commenced in Iowa District Court for Hancock County—A.H. Properties v. Aspen Hills, 17 Inc., Hancock County Case No.: EQCV019535. (Id.) 18 Plaintiff and Aspen Hills were in an arrangement that centers on an October 1, 2015 19 Ingredient Supply Agreement. (Doc. No. 3 ¶ 19.) Under this agreement, Aspen Hills, 20 among other things, agreed to indemnify Plaintiff against any and all claims, warranted 21 that each ingredient conformed strictly to all domestic and foreign regulatory requirements, 22 and merited that each ingredient would be fit and sufficient for the purpose intended. (Id. 23 ¶¶ 20–22; Doc. No. 3-1 at 7.) Additionally, Aspen Hills agreed to reimburse Plaintiff for 24 all costs and expenses incurred as a result of a recall of ingredients supplied by it. (Doc. 25 No. 3-1 at 10.) Section 15(a) of the Agreement provides that: 26                                                 27 28 1 Page numbers refer to the CM/ECF page number and not the number listed on the original document. 2 17-cv-00459-AJB-JMA 1 In the event an Ingredient is the subject of a recall (which includes safety notices) initiated by Arctic Zero, Supplier, or a government or consumer protection agency, Supplier will be responsible for all costs and expenses associated with the recall or notice and shall reimburse Arctic Zero, for all costs and expenses incurred by Arctic Zero related to the recall or notice, including recalling, shipping and/or destroying the Ingredient (and where applicable, any products with which the Ingredient has been packaged, consolidated, processed or commingled), including Arctic Zero’s net landed cost of unsold products containing the Ingredient. 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 (Id.) After the recall, Plaintiff allegedly incurred costs and expenses amounting to at least $572,375.33, including the cost of disposed product, lost revenue, credits for products returned to vendors, and various costs associated with transportation, landfill fees, and testing fees. (Doc. No. 3 ¶ 33.) On December 23, 2016, Plaintiff tendered this documentation of its costs and expenses to Mr. Lundeen. (Id. ¶ 34.) Mr. and Mrs. Lundeen are purportedly the corporate alter egos of Aspen Hills acting as the President, Secretary, and Treasurer to the company. (Id. ¶¶ 5, 6, 7.) Plaintiff argues that as “insiders,” the Lundeens in 2016 began to transfer large amounts of money to themselves, leaving Aspen Hills insolvent. (Id. ¶ 36.) In total, the alleged dividends transferred to the Lundeens during 2016 totaled $1,781,700. (Id. ¶ 44.) Thus, after the supposed fraudulent transfers, Aspen Hills was only left with approximately $250,000 or less in cash with an excess of approximately $9,000,000 in liabilities. (Id. ¶ 47.) On or about December 28, 2016, the Honorable Rustin Davenport, District Court Judge for the Second Judicial District of Iowa signed the “Order Granting the Joint Motion for the Appointment of a Receiver” (the “Receivership Order”). (Doc. No. 6 at 9.) The Receivership Order includes a number of elements including that it prohibits any litigation against Aspen Hills without first obtaining leave of the court. (Id.) Currently, Aspen Hills alleges that the business wind-down process is underway with the Iowa Court exercising jurisdiction over all receivership property. (Id. at 10.) 28 3 17-cv-00459-AJB-JMA 1 Moreover, on April 11, 2017, Judge Davenport signed the “Order on Claims Process” to 2 establish an orderly process to address and resolve any claims that have been, or may be 3 asserted against Aspen Hills in light of the financial resources that are available. (Id.) 4 On March 6, 2017, Plaintiff filed its complaint against all Defendants. (Doc. No. 1.) 5 On April 26, 2017, Plaintiff filed its amended complaint alleging causes of action for (1) 6 negligence; (2) express indemnity; (3) breach of contract; (4) declaratory relief only as to 7 Aspen Hills; and (5) fraudulent transfers. (See generally Doc. No. 3.) On May 19, 2017, 8 and June 6, 2017, respectively, Aspen Hills and the Lundeens filed the present motions, 9 their motions to dismiss or stay the action. (Doc. Nos. 6, 16.) On June 2, 2017, and June 10 20, 2017, Plaintiff responded in opposition to the motions. (Doc. Nos. 13, 24.) 11 Subsequently on June 28, 2017, Defendants filed a joint motion to continue the hearing on 12 their various motions, (Doc. No. 28), which was granted on June 30, 2017, (Doc. No. 30). 13 This Order now follows. 14 15 LEGAL STANDARD A. Motion to Dismiss 16 A Rule 12(b)(6) motion to dismiss tests the sufficiency of the complaint. Navarro v. 17 Block, 250 F.3d 729, 732 (9th Cir. 2001). However, “[w]hile a complaint attacked by a 18 Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff’s 19 obligation to provide the grounds of his entitlement to relief requires more than labels and 20 conclusions, and a formulaic recitation of the elements of a cause of action will not do.” 21 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal quotation marks and citation 22 omitted). 23 In reviewing a motion to dismiss under Rule 12(b)(6), the court must assume the 24 truth of all factual allegations and must construe them in the light most favorable to the 25 nonmoving party. See Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337–38 (9th Cir. 1996). 26 Additionally, courts generally do not look beyond the complaint for additional facts when 27 deciding a Rule 12(b)(6) motion. See United States v. Ritchie, 342 F.3d 903, 907–08 (9th 28 Cir. 2003). Further, legal conclusions need not be taken as true “merely because they are 4 17-cv-00459-AJB-JMA 1 cast in the form of factual allegations.” See Roberts v. Corrothers, 812 F.2d 1173, 1177 2 (9th Cir. 1987); W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). Similarly, 3 “conclusory allegations of law and unwarranted inferences are not sufficient to defeat a 4 motion to dismiss.” Pareto v. FDIC, 139 F.3d 696, 699 (9th Cir. 1998). 5 B. Motion to Stay 6 A court’s power to stay proceedings is incidental to the inherent power to control the 7 disposition of its cases in the interests of efficiency and fairness to the court, counsel, and 8 litigants. See Landis v. N. Am. Co., 299 U.S. 248, 254–55 (1936); Single Chip Sys. Corp. 9 v. Intermec IP Corp., 495 F. Supp. 2d 1052, 1057 (S.D. Cal. 2007). A stay may be granted 10 pending the outcome of other legal proceedings related to the case in the interests of judicial 11 economy. See Leyva v. Certified Grocers of Cal., Ltd., 593 F.2d 857, 863–64 (9th Cir. 12 1979). Discretion to stay a case is appropriately exercised when the resolution of another 13 matter will have a direct impact on the issues before the court, thereby substantially 14 simplifying the issues presented. See Mediterranean Enters. v. Ssangyong Corp., 708 F.2d 15 1458, 1465 (9th Cir. 1983). 16 In determining whether a stay is appropriate, a district court “must weigh competing 17 interests and maintain an even balance.” Landis, 299 U.S. at 254–55. “[I]f there is even a 18 fair possibility that the stay . . . will work damage to someone else, the stay may be 19 inappropriate absent a showing by the moving party of hardship or inequity.” Dependable 20 Highway Express, Inc. v. Navigators Ins. Co., 498 F.3d 1059, 1066 (9th Cir. 2007) (citation 21 and internal quotation marks omitted). “A stay should not be granted unless it appears 22 likely the other proceedings will be concluded within a reasonable time in relation to the 23 urgency of the claims presented to the court.” Leyva, 593 F.2d at 864. 24 25 DISCUSSION A. Judicial Notice 26 As a threshold issue, the Court will first turn to Plaintiff and Defendants’ requests 27 for judicial notice. (Doc. Nos. 6-2, 8, 9, 15, 16-9, 26.) Aspen Hills requests judicial notice 28 of (1) a copy of the Receivership Order dated December 28, 2016; and (2) a copy of the 5 17-cv-00459-AJB-JMA 1 April 11, 2017, Order on Claims Process. (Doc. No. 6-2 at 2; Doc. No. 8 at 2; Doc. No. 9 2 at 2.)2 Plaintiff seeks judicial notice of (1) the joint motion for appointment of a receiver 3 filed on December 23, 2016; (2) the Receivership Order; (3) the motion to intervene filed 4 by the Lundeens on April 5, 2017, in Iowa District Court for Hancock County; and (4) the 5 Fourth Report of Receiver, filed on May 16, 2017, in Iowa District Court.3 (Doc. No. 15 at 6 2; Doc. No. 26 at 2.) Finally, the Lundeens request judicial notice of (1) the files in the case 7 of A.H. Properties, LLC v. Aspen Hills, Inc., Case No. EQCV019535; and (2) Exhibits A 8 through F of the declaration of Johannes H. Moorlach. (Doc. Nos. 16-9 at 1–2.) 9 Federal Rule of Evidence 201(b) provides the criteria for judicially noticed facts: a 10 judicially noticed fact must be one not subject to reasonable dispute in that it “(1) is 11 generally known within the trial court’s territorial jurisdiction; or (2) can be accurately and 12 readily determined from sources whose accuracy cannot reasonably be questioned.” Fed. 13 R. Evid. 201(b). A court “must take judicial notice if a party requests it and the court is 14 supplied with the necessary information.” Fed. R. Evid. 201(c). 15 The Court finds judicial notice of both Plaintiff and Defendants’ documents 16 warranted as they are documents of public record related to the Iowa state proceedings. See 17 United States v. S. Cal. Edison Co., 300 F. Supp. 2d 964, 973 (E.D. Cal. 2004) (“Federal 18 courts may ‘take notice of proceedings in other courts, both within and without the federal 19 judicial system, if those proceedings have a direct relation to the matters at issue.’” (citing 20 U.S. ex rel Robinson Rancheria Citizens Council v. Borneo, Inc., 971 F.2d 244, 248 (9th 21 Cir. 1992)). Moreover, “[j]udicially noticed facts often consist of matters of public record.” 22 Botelho v. U.S. Bank, N.A., 692 F. Supp. 2d 1174, 1178 (N.D. Cal. 2010) (citations 23 omitted). However, while “[a] court may take judicial notice of the existence of matters of 24 25                                                 26 2 27 28 The Court notes that Aspen Hills filed three separate requests for judicial notice of the same documents. 3 Plaintiff’s requests for judicial notice mistakenly requested the Court notice the December 23, 2017, and December 28, 2017 Iowa District Court orders. (Doc. No. 15 at 2.) 6 17-cv-00459-AJB-JMA 1 public record, such as a prior order or decision,” it should not take notice of “the truth of 2 the facts cited therein.” Marsh v. San Diego Cty., 432 F. Supp. 2d 1035, 1043 (S.D. Cal. 3 2006). 4 Accordingly, with the limitation stated above in mind, the Court GRANTS Plaintiff, 5 Aspen Hills, and the Lundeens’ unopposed requests for judicial notice. 6 B. Aspen Hills and the Lundeens’ Motions to Stay these Proceedings 7 The Court now turns to the merits of Defendants’ motions to stay. (Doc. Nos. 6, 16- 8 1.) Aspen Hills requests that this Court stay the instant action under the Colorado River 9 and Burford doctrines to allow the Iowa State receivership proceedings to complete its 10 process. (Doc. No. 6 at 18–23.) The Lundeens similarly assert that the Colorado River 11 factors weigh heavily in their favor as well as argue that a stay is appropriate under the 12 Princess Lida doctrine. (Doc. No. 16-1 at 12–14, 21.) In opposition, Plaintiff mounts that 13 there are no grounds for abstention. (Doc. No. 13 at 19–21; Doc. No. 24 at 27–31.) 14 At the outset, the Court notes that it does not find abstention appropriate under the 15 Burford doctrine. Aspen Hills argues that under First Penn-Pac. Life Ins. Co. v. William R. 16 Evans, Chtd., 304 F.3d 345 (4th Cir. 2002), this Court should abstain from interfering with 17 the state court receivership under the Burford doctrine. (Doc. No. 6 at 22.) However, not 18 only is this a fourth circuit case and thus not dispositive, but the court in this case clearly 19 stated that the underlying policy of the Burford doctrine is that 20 21 22 23 Courts should abstain from deciding cases presenting “difficult questions of state law bearing on policy problems of substantial public import whose importance transcends the result in the case then at bar,” or whose adjudication in a federal forum “would be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern.” 24 25 Id. at 348. Similarly, in Tucker v. First Maryland Sav. & Loan, Inc., 942 F.2d 1401, 1407 26 (9th Cir. 1991), the Court concluded that Burford abstention “is designed to limit federal 27 interference with the development of state policy. It is justified where the issues sought to 28 be adjudicated in federal court are primarily questions regarding that state’s laws.” Such 7 17-cv-00459-AJB-JMA 1 concerns about state law policy considerations are not readily apparent in the instant action 2 nor has Aspen Hills alleged any facts to support such a finding. Thus, the Court will focus 3 its attention on both parties’ arguments under the Colorado River doctrine. 4 Under the Colorado River doctrine, a federal court may abstain from exercising its 5 jurisdiction in favor of parallel state proceedings where doing so would serve the interests 6 of “[w]ise judicial administration, giving regard to the conservation of judicial resources 7 and comprehensive disposition of litigation.” Colorado River Water Conservation Dist. v. 8 United States, 424 U.S. 800, 817 (1976); see also Moses H. Cone Mem’l Hosp. v. Mercury 9 Constr. Corp., 460 U.S. 1, 15 (1983). Only in “exceptional circumstances,” may a federal 10 court decline its “‘virtually unflagging obligation’ to exercise federal jurisdiction, in 11 deference to pending parallel state proceedings.” Montanore Minerals Corp. v. Bakie, 867 12 F.3d 1160, 1165 (9th Cir. 2017) (citation omitted). A stay is preferable to dismissal because 13 it “ensures that the federal forum will remain open if, for some unexpected reason, the state 14 forum proves to be inadequate.” Daugherty v. Oppenheimer & Co., Inc., No. C 06–7725- 15 PJH, 2007 WL 1994187, at *3 (N.D. Cal. July 5, 2007). 16 Colorado River and Ninth Circuit opinions identify non-exhaustive factors that are 17 relevant to whether it is appropriate to stay proceedings: “(1) which court first assumed 18 jurisdiction over any property at stake; (2) the inconvenience of the federal forum; (3) the 19 desire to avoid piecemeal litigation; (4) the order in which the forums obtained jurisdiction; 20 (5) whether federal law or state law provides the rule of decision on the merits; (6) whether 21 the state court proceedings can adequately protect the rights of the federal litigants; (7) the 22 desire to avoid forum shopping; and (8) whether the state court proceedings will resolve 23 all issues before the federal court.” R.R. St. & Co. Inc. v. Transp. Ins. Co., 656 F.3d 966, 24 978–79 (9th Cir. 2011); Holder v. Holder, 305 F.3d 854, 870 (9th Cir. 2002). These factors 25 should be weighed in a “pragmatic, flexible manner with a view to the realities of the case 26 at hand” and “with the balance heavily weighted in favor of the exercise of jurisdiction.” 27 Moses, 460 U.S. at 16, 21. Factors that are irrelevant to the particular inquiry are 28 disregarded. See Nakash v. Marciano, 882 F.2d 1411, 1415 n.6 (9th Cir. 1989). 8 17-cv-00459-AJB-JMA 1 “The threshold question in deciding whether Colorado River abstention is 2 appropriate is whether there are parallel federal and state suits.” ScripsAmerica, Inc. v. 3 Ironridge Global LLC, 56 F. Supp. 3d 1121, 1147 (C.D. Cal. 2014) (citing Chase Brexton 4 Health Servs., Inc. v. Maryland, 411 F.3d 457, 463 (4th Cir. 2005)). In the Ninth Circuit, 5 “exact parallelism [between the two suits] . . . is not required. It is enough if the two 6 proceedings are ‘substantially similar.’” Nakash, 882 F.2d at 1416. 7 Here, the state court action and this action both name Aspen Hills as a Defendant. 8 (Doc. No. 16-3 at 2; Doc. No. 16-6 at 2.) Moreover, the claims that are the subject of the 9 present motion—negligence, express indemnity, and breach of contract—are substantially 10 similar if not identical to the causes of action listed in the proof of claim filed by Plaintiff 11 in the Iowa state court petition. (Doc. No. 3; Doc. No. 6-7.) Further, the relief Plaintiff 12 seeks also appears to be substantially identical. In state court, Plaintiff seeks, inter alia, 13 damages in the amount of at least $622,375.33, attorney’s fees, and other damages for 14 Aspen Hills’s alleged fraudulent transfers in an effort to delay or defraud creditors. (Doc. 15 No. 6-7 at 7–8.) In this case, Plaintiff similarly seeks damages, but in the amount of 16 $572.375.33, in addition to a preliminary and permanent injunction enjoining the Lundeens 17 from transferring or otherwise disposing of any further property, attorney’s fees, and 18 punitive and compensatory damages. (Doc. No. 3 at 15.) 19 Consequently, as there is substantial overlap between the factual allegations, legal 20 issues, and relief sought in the proof of claim filed in the state proceeding and the present 21 federal action, the Court concludes that the threshold requirement of parallel federal and 22 state actions is met. The Court will now examine the Colorado River factors to determine 23 if abstention is warranted. 24 i. 25 The Court’s first concern is “avoiding the generation of additional litigation through 26 permitting inconsistent disposition of property.” Colorado River, 424 U.S. at 819. Both 27 Aspen Hills and the Lundeens contend that the state court has established jurisdiction over 28 the res, thus this factor strongly favors abstention. (Doc. No. 6 at 19; Doc. No. 16-1 at 19.) Jurisdiction over any Property at Stake 9 17-cv-00459-AJB-JMA 1 In direct contrast, Plaintiff argues that it does not seek relief with respect to the “Aspen 2 Hills res,” but instead the instant action is an in personam action. (Doc. No. 13 at 24; Doc. 3 No. 24 at 19.) 4 5 6 7 8 9 10 11 The Court finds pertinent to this discussion is the distinction between in personam and in rem actions, described as follows: Actions are, as to their object, either in personam or in rem. An action in personam has for its object a judgment against a person, as distinguished from an action in rem that has as its object a judgment determining the status of property. If the entire object of the action is to determine the personal rights and obligations of the defendants, then the suit is in personam; but if the object is to determine rights in specific property as against all the world, the action is in rem. 12 Am. Alt. Ins. Corp. v. Am. Prot. Ins. Co., No. 1:11–CV–01865–AWI (SKO), 2013 WL 13 1281939, at *3 (E.D. Cal. Mar. 25, 2013) (quoting 1A Cal. Jur. 3d Actions § 30)). 14 In making this distinction, the Ninth Circuit has focused on the potential of the 15 federal court’s interference with property under control of the State Court. See Hawthorne 16 v. Savings F.S.B. v. Reliance Ins. Co. of Illinois, 421 F.3d 835, 855 (9th Cir. 2005). In 17 Hawthorne, Hawthorne Savings, a financial corporation, sued its Insurer, Reliance, in 18 California state court for contract-based-claims. Id. at 838. The suit was removed to the 19 U.S. District Court for the Central District of California based on diversity jurisdiction. Id. 20 While the suit was pending, Reliance was placed in rehabilitation proceedings and 21 ultimately in liquidation proceedings, in which “[a]ll actions, including arbitrations and 22 mediations, currently pending against Reliance in the courts of the Commonwealth of 23 Pennsylvania or elsewhere [were] stayed.” Id. at 840. Subsequently, “[w]hile the 24 liquidation proceedings were ongoing, Reliance moved to dismiss the Hawthorne lawsuit 25 on the ground that the liquidation order vested the Pennsylvania Commonwealth Court 26 with ‘exclusive’ jurisdiction over claims against Reliance and enjoined any continued 27 prosecution of claims against Reliance in other fora.” Id. However, the district court denied 28 10 17-cv-00459-AJB-JMA 1 the motions to dismiss, the case went to trial, and a jury verdict of nearly $1 million dollars 2 was rewarded to Hawthorne. Id. at 841. 3 The Ninth Circuit Court of Appeals then analyzed whether the district court properly 4 exercised jurisdiction. Although Hawthorne analyzes abstention in regards to insurance 5 law, this Court finds instructive the Hawthorne court’s reasoning: 6 not every suit brought against a receivership defendant is deemed to interfere with the res. The distinction is commonly made between the liquidation of a claim and the enforcement of the claim after it has been reduced to judgment. Thus, an action in personam to establish the extent of an insolvent's liability on a claim is held not to interfere with the receivership res. By the same token, any attempted attachment or levy against the res made in connection with a judgment is normally in rem and directly opposed to the court's dominion over the res. Accordingly, an in personam action against the receivership defendant need not be brought in the receivership court. 7 8 9 10 11 12 13 14 Id. at 855 (quoting Fuhrman v. United Am. Insurors, 269 N.W. 2d 842 (Minn. 1978)). 15 Based on the language of California’s Insurance Code, the Ninth Circuit ultimately 16 determined a judgment against an insolvent insurer would not interfere with the liquidation 17 proceedings. 18 Thus, despite Aspen Hills and the Lundeens’ arguments that this Court will be 19 exercising control over the same property as the Iowa court, (Doc. No. 6, at 16), this Court 20 does not assert dominion or control over the Aspen Hills assets nor does it provide a means 21 of enforcement or collection if Arctic Zero prevails. Instead, as in Hawthorne, the Court 22 finds that Plaintiff does not pursue the status of any property in the state claim and the 23 “bare existence of a judgment” in this case would not interfere with the Iowa court’s 24 resolution of the various creditor issues. See Hawthorne, 421 F.3d at 856. As an in 25 personam action, the Court would merely be reducing a claim to judgment, which would 26 not interfere with the receivership property. See U.S. Bank Nat. Ass’n v. Johnny A. Ribeiro, 27 Jr. Family Trust, No. 3:11–cv–00691–RCJ-WGC, 2012 WL 280709, at *1 (D.Nev. Jan. 28 31, 2012) (“But the present case is an in personam contract action for a money judgment 11 17-cv-00459-AJB-JMA 1 against Guarantors, not an in rem case seeking to control the real estate securing the Note. 2 The present case therefore cannot conflict with the state court’s control over the res.”). 3 4 Finding the action in personam, the Court concludes the first factor under Colorado River weighs neutrally because Plaintiff does not seek disposition of any property.4 5 ii. 6 “Piecemeal litigation occurs when different tribunals consider the same issue, 7 thereby duplicating efforts and possibly reaching different results.” Am. Int'l Underwriters, 8 (Philippines), Inc. v. Cont'l Ins. Co., 843 F.2d 1253, 1258 (9th Cir. 1988). The parties 9 dispute whether the state and federal actions raise the same issues or whether piecemeal 10 litigation will occur if this action is not stayed. (See Doc. No. 6 at 19; Doc. No. 13 at 25; 11 Doc. No. 16-1 at 20.) Avoiding Piecemeal Litigation 12 Adjudication of this federal case will unquestionably involve addressing many of 13 the same issues proceeding in Iowa state court. Nonetheless, nothing about this case 14 “raise[s] a ‘special concern about piecemeal litigation,’ which can be remedied by staying 15 or dismissing the federal proceeding.” R.R. Street & Co, 656 F.3d at 979 (citation omitted). 16 “[T]he Ninth Circuit has explained that the concern for avoidance of piecemeal litigation 17 weighs in favor of a stay only when ‘there is evidence of a strong federal policy that all 18 claims should be tried in the state courts.’” Melt Franchising, LLC v. PMI Enter. Inc., No. 19 CV 08-4148 PSG (MANx), 2008 WL 4811097, at *3 (C.D. Cal. Oct. 27, 2008) (citing 20 United States v. Morros, 268 F.3d 695, 706-07 (9th Cir. 2001)). No such clear federal 21 22 23 24 25 26 27 28                                                 4 Relatedly, the Court notes that the Lundeens’ arguments for application of the Princess Lida doctrine is also inapplicable. (Doc. No. 16-1 at 17–19.) Under Princess Lida of Thurn & Taxis v. Thompson, 305 U.S. 456, 466 (1939), “if the two suits are in rem, or quasi in rem, so that the court, or its officer, has possession or must have control of the property which is the subject of the litigation in order to proceed with the cause and grant the relief sought the jurisdiction of the one court must yield to that of the other.” As the Court has now concluded that this instant case is not in rem, the Court need not analyze the parties’ arguments under the Princess Lida doctrine. 12 17-cv-00459-AJB-JMA 1 policy exists in this case. Therefore, this factor does not support an entry of a stay. See U.S. 2 Bank Nat. Ass’n, 2012 WL 280709, at *2 (holding that “where Plaintiff has sued two sets 3 of defendants, one in state court to recover on a promissory note, and the other in federal 4 court to recover on a guaranty of that promissory note, [this] represent[s] a rare litigation 5 pattern making abstention in the latter-filed federal case appropriate.”). 6 As to the Lundeens, the Court notes that the proceedings with Aspen Hills in Iowa 7 State Court do not affect Plaintiff’s personal claims against them. The Receivership Order 8 clearly delineates that it is an action in rem and that the Receiver is to collect on the assets, 9 modify any agreements necessary to the company’s business, enforce payment obligations, 10 and dispose of the company’s assets through a liquidation sale process. (Doc. No. 16-4 at 11 15.) Moreover, the Lundeens are only part of the state court action through their motion to 12 intervene granted on April 7, 2017. (Doc. No. 16-6.) Consequently, Plaintiff’s causes of 13 action for negligence, breach of contract, and fraudulent transfers against the Lundeens 14 individually would not run the risk of piecemeal litigation. 15 Thus, this factor weighs against abstention. 16 iii. 17 Both Aspen Hills and the Lundeens contend that there are no federal issues involved 18 in this diversity case and thus this factor weighs in favor of abstention. (Doc. No. 6 at 21; 19 Doc. No. 16-1 at 20.) In opposition, Plaintiff suggests that California state law would 20 provide the rule of decision based on the exclusive jurisdiction and governing law 21 provisions of the parties’ Ingredient Supply Agreement. (Doc. No. 13 at 11, 26–27.) The 22 Court agrees with Plaintiff. Controlling Law 23 Though both Defendants are correct that the instant case does not involve any federal 24 issues, the Court cannot ignore the fact that the 2015 Ingredient Supply Agreement states 25 that “all agreements between Supplier and [Plaintiff] will be governed by and construed 26 according to the laws of the state of California . . . .” (Doc. No. 3-1 at 11.) Moreover, as 27 Plaintiff’s state law claims involve “routine issues of state law that this court is fully 28 capable of deciding, there are no rare circumstances here that would justify a stay.” 13 17-cv-00459-AJB-JMA 1 ScripsAmerica, Inc., 56 F. Supp. 3d at 1151 (citation omitted). Thus, this factor weighs 2 against staying this federal action. See Travelers Indem. Co. v. Madonna, 914 F.2d 1364, 3 1370 (9th Cir. 1990) (finding this factor weighed against dismissal or stay because the state 4 law claims were routine). 5 iv. 6 “A district court may not stay or dismiss the federal proceeding if the state 7 proceeding cannot adequately protect the rights of the federal litigants.” R.R. St. & Co., 8 656 F.3d at 981. Aspen Hills argues that Plaintiff’s rights will be adequately protected in 9 the state court receivership proceedings as the receiver will evaluate all claims, file a report 10 with his recommendations, and Plaintiff along with other claimants will have the chance 11 to object. (Doc. No. 6 at 21.) The Lundeens state that as the Receiver has already been 12 given the sole authority to pursue the claims against them, the claims by Plaintiff must 13 logically be adjudicated in the Receivership action. (Doc. No. 16-1 at 20.) Adequacy of State Court 14 In opposition, Plaintiff raises concerns that the Iowa Court would (1) vitiate 15 Plaintiff’s right to litigate its claims in San Diego, the parties’ contractually agreed forum; 16 (2) that the Iowa proceedings’ failure to provide a provision for discovery in the 17 receivership order will deny Plaintiff the right to review documents or information relevant 18 to its claims; and (3) that there are lingering questions about the fairness of the receivership 19 process as Plaintiff alleges that the Lundeens have been fraudulently transferring assets 20 from Aspen Hills. (Doc. No. 13 at 27–28.) 21 Despite the various arguments presented by both parties, the Court notes that the 22 Ninth Circuit has concluded that “[t]his factor involves the state court’s adequacy to protect 23 federal rights, not the federal court’s adequacy to protect state rights.” Travelers Indem. 24 Co., 914 F.2d at 1370. As this case does not involve any federal rights, and the Court is 25 confident that the Iowa Court can fairly and competently adjudicate Plaintiff’s state law 26 claims, this factor does weigh slightly in favor of abstention. However, the Court balances 27 this with the fact that the majority of Plaintiff’s claims against the Lundeens are not covered 28 by the receivership order. Thus, this factor weighs neutrally. 14 17-cv-00459-AJB-JMA 1 v. 2 In the context of the Colorado River doctrine, the Ninth Circuit has held that “forum 3 shopping weighs in favor of a stay when the party opposing the stay seeks to avoid adverse 4 rulings made by the state court or to gain a tactical advantage from the application of federal 5 court rules.” Id. at 1371. The Court considers the “vexatious or reactive nature of either the 6 federal or the state litigation” when determining whether there is forum shopping. R.R. 7 Street & Co., 656 F.3d at 981. Forum Shopping 8 Despite the forum selection clause within the parties’ Ingredient Supply Agreement, 9 the Court highlights that the Receivership Order clearly states that “[w]ithout first 10 obtaining leave of the Court, all . . . creditors . . . are enjoined from[] [c]ommencing, 11 prosecuting, continuing or enforcing any suit or proceeding in law . . . affecting the 12 Company or any party of the Company’s assets in any forum other than this Court[.]” (Doc. 13 No. 6-3 at 12.) Plaintiff’s failure to allege that they obtained leave from the Iowa state court 14 leads to the inference that Plaintiff filed this action seeking to gain a tactical advantage 15 over other creditors in the receivership proceeding. 16 However, the Court also notes that “[t]he desire for a federal forum is assured by the 17 constitutional provision for diversity jurisdiction,” and as such, federal courts are “cautious 18 about labeling as ‘forum shopping’ a plaintiff’s desire to bring previously unasserted 19 claims in federal court.” R.R. Street & Co., 656 F.3d at 982. Thus, taking into account that 20 Plaintiff has alleged a fraudulent transfer claim against both Defendants, a claim not 21 present in the Receivership action, the Court cannot conclude that Plaintiff is forum 22 shopping. Additionally, the Court highlights that Plaintiff’s proof of claim filed in the 23 receivership action informs the state court that it filed the present action. (Doc. No. 6-7 at 24 6–7.) Thus this factor weighs slightly against abstention. 25 vi. 26 “[T]he existence of a substantial doubt as to whether the state proceedings will 27 resolve the federal action precludes the granting of a [Colorado River] stay.” Intel Corp. v. 28 Adv. Micro Devices, Inc., 12 F.3d 908, 913 (9th Cir.1993). “When a district court decides Whether State Proceedings Resolve All of the Issues 15 17-cv-00459-AJB-JMA 1 to dismiss or stay under Colorado River, it presumably concludes that the parallel state- 2 court litigation will be an adequate vehicle for the complete and prompt resolution of the 3 issues between the parties. If there is any substantial doubt as to this, it would be a serious 4 abuse of discretion to grant the stay or dismissal at all . . . .” Id. (quoting Moses H. Cone 5 Mem’l Hosp., 460 U.S. at 28.) 6 The Court notes that Aspen Hills does not address this factor, (see generally Doc. 7 No. 6), and the Lundeens argue that the claims against them have already been defined by 8 the Iowa District Court as assets of Aspen Hills and it has given the Receiver the sole 9 authority to pursue those claims, (Doc. No. 16-1 at 20). Plaintiff responds that the Iowa 10 receivership will not provide resolution as to whether Aspen Hills is the alter ego of the 11 Lundeens and that it has no assurance that its fraudulent transfer claims will be addressed 12 as the state court action is confined to administration of the estate of Aspen Hills. (Doc. 13 No. 24 at 31.) 14 At this point in the litigation and based on the arguments present in the moving 15 parties, the Court is not certain that the Receivership proceedings would be able to 16 adequately protect Plaintiff’s interests as it will not address its fraudulent transfer 17 allegations. This claim is neither pled in Plaintiff’s proof of claim nor is it addressed in the 18 Receivership Order. Accordingly, this factor disfavors abstention. See Smith v. Cent. Ariz. 19 Water Conservation Dist., 418 F.3d 1028, 1033 (9th Cir. 2005) (“‘[T]he existence of a 20 substantial doubt as to whether the state proceedings will resolve the federal action 21 precludes’” a Colorado River stay or dismissal (quoting Intel Corp., 12 F.3d 913)). 22 vii. 23 To determine whether a stay is warranted, the relevant factors must be balanced, 24 “with the balance heavily weighted in favor of the exercise of jurisdiction.” Moses H. Cone, 25 460 U.S. at 16. Here, none of the major factors favor a stay. Accordingly, there are no 26 “exceptional circumstances” required for Colorado River deference and both Aspen Hills 27 and the Lundeens’ motions to stay are DENIED. 28 /// The Balance 16 17-cv-00459-AJB-JMA 1 C. Aspen Hills’s Motion to Dismiss 2 As the Court has denied Aspen Hills’s motion to stay, it will now turn to Aspen 3 Hills’s alternative arguments seeking a motion to dismiss Plaintiff’s first amended 4 complaint. (Doc. No. 6.) Aspen Hills asks this Court to dismiss under Rule 12(b)’s 5 “nonenumerated” grounds, including considerations of comity. (Id. at 12–13.) Plaintiff 6 retorts that there are no grounds for dismissal under Rule 12(b) and that Aspen Hills’s case 7 law to support its arguments is inapposite. (Doc. No. 13 at 18.) 8 As already delineated in the legal standard section, a Rule 12(b) motion to dismiss 9 is based on several defenses including lack of subject matter jurisdiction, improper venue, 10 lack of personal jurisdiction, or failure to state a claim upon which relief can be granted. 11 Fed. R. Civ. P. 12(b). Presently, Aspen Hills seeks to argue that a Rule 12(b) motion can 12 be established on “nonenumerated” grounds based on Bilyeu v. Morgan Stanley Long Term 13 Disability Plan, 683 F.3d 1083 (9th Cir. 2012). 14 In Bilyeu, the Ninth Circuit Court of Appeals was reviewing for abuse of discretion 15 the district court’s refusal to grant an exception to the Employee Retirement Income 16 Security Act of 1974 (“ERISA”). Id. at 1088. In analyzing this case, the Ninth Circuit stated 17 that “[c]onsistent with circuit practice addressing exhaustion, we construe [Defendant’s] 18 motion as an unenumerated motion to dismiss.” Id. (emphasis added). The court then 19 continued to state that in addressing this type of motion “a court may look beyond the 20 pleadings and decide disputed issues of fact.” Id. (citing Payne v. Peninsula Sch. Dist., 653 21 F.3d 863, 881 (9th Cir. 2011) (en banc)). 22 It cannot be reasonably disputed that the instant action is not an ERISA case and 23 does not deal with a denial of benefits claim or exhaustion of administrative remedies. 24 Thus, the rational espoused by Aspen Hills that the Court can look to allegations outside 25 the pleading, more specifically to the doctrine of judicial comity, to dismiss Plaintiff’s 26 complaint is erroneous. See Irvin v. Zamora, 161 F. Supp. 2d 1125, 1128 (S.D. Cal. 2001) 27 (“However, the standard changes somewhat for ‘nonenumerated’ Rule 12(b) motions to 28 dismiss that raise the issue of administrative exhaustion. Courts considering 17 17-cv-00459-AJB-JMA 1 ‘nonenumerated’ Rule 12(b) motions on the issue of administrative exhaustion may not 2 only rely on matters outside the pleadings but have broad discretion to resolve any factual 3 disputes.”). 4 Further, Exxon Mobile Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280 (2005), cited 5 by Aspen Hills to argue that dismissal can be based on comity is also not applicable to the 6 present matter. In Exxon Mobile, the Supreme Court was primarily and solely focused on 7 analyzing the Rooker-Feldman doctrine. Id. at 280. As the Court has already concluded 8 that a stay under the Colorado River doctrine is inappropriate, Exxon Mobile’s holding is 9 equally unhelpful in supporting Aspen Hills’s motion to dismiss. 10 Consequently, as Aspen Hills fails to make any further arguments under any 11 applicable Rule 12(b) defense, the Court DENIES Aspen Hills’s motion to dismiss. 12 D. 13 14 Personal Jurisdiction over the Lundeens Next, the Court analyzes the Lundeens’ motion to dismiss for lack of personal jurisdiction. (Doc. No. 16-1 at 9.) 15 Federal Rule of Civil Procedure 12(b)(2) allows a district court to dismiss an action 16 for lack of personal jurisdiction. The Due Process Clause requires a nonresident defendant 17 have certain “minimum contacts” with the forum state such that the “traditional notions of 18 fair play and substantial justice” are not offended. Int'l Shoe Co. v. Washington, 326 U.S. 19 310, 316 (1945). Additionally, “the defendant’s conduct and connection with the forum 20 [must be] such that [the defendant] should reasonably anticipate being haled into court 21 there.” World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980). The focus 22 is primarily on “the relationship among the defendant, the forum, and the litigation.” 23 Shaffer v. Heitner, 433 U.S. 186, 204 (1977). 24 25 26 27 28 The Ninth Circuit uses a three-prong test to determine whether a defendant’s contacts meet the criteria for personal 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 18 17-cv-00459-AJB-JMA 1 forum, thereby invoking the benefits and protections of its laws; (2) the claim must be one which arises out of or relates to the defendant’s forum-related activities; and (3) the exercise of jurisdiction must comport with fair play and substantial justice, i.e., it must be reasonable. 2 3 4 5 Talley v. Chanson, No. 13-CV-1238-CAB(BLM), 2014 WL 12167639, at *3 (S.D. Cal. 6 May 7, 2014) (quoting College Source Inc. v. AcademyOne, Inc., 653 F.3d 1066, 1076 (9th 7 Cir. 2011)). A plaintiff has the burden of satisfying the first two prongs of the test, then the 8 burden shifts to a defendant to “present a compelling case” that would render jurisdiction 9 unreasonable. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 477 (1985). 10 As to the first prong, Plaintiff has adequately pled that the Lundeens as the alter ego 11 of Aspen Hills agreed to the protections of California law by agreeing that California law 12 would govern their Agreement. (Doc. No. 3 ¶¶ 15, 17.) Next, the Lundeens concede that 13 Plaintiff’s allegations under the California Uniform Voidable Transactions Act (“UTVA”) 14 meet the required showings of purposeful availment and relation to the forum under the 15 “calder-effects” test.5 (Doc. No. 16-1 at 10.) Thus, finding the first two elements satisfied, 16 the Court must now consider whether it is reasonable to exercise personal jurisdiction over 17 the Lundeens. In determining reasonableness, the Court must consider: 18 (1) the extent of the defendants' purposeful injection into the forum state's affairs; (2) the burden on the defendant of defending in the forum; (3) the extent of conflict with the sovereignty of the defendant's state; (4) the forum state's interest in adjudicating the dispute; (5) the most efficient judicial resolution of the controversy; (6) the importance of the forum to the plaintiff's interest in convenient and effective relief; and (7) the existence of an alternative forum. 19 20 21 22 23 24 25                                                 26 5 27 28 The Calder effects test is a three-part test requiring that the defendants have “(1) committed an intentional act, (2) expressly aimed at the forum state, (3) causing harm that the defendant knows is likely to be suffered in the forum state.” Dole Food Co. Inc. v. Watts, 303 F.3d 1104, 1111 (9th Cir. 2002). 19 17-cv-00459-AJB-JMA 1 Dole Food Co., Inc. v. Watts, 303 F.3d 1104, 1114 (9th Cir. 2002). The court must balance 2 and weigh all seven factors; none is dispositive. Ziegler v. Indian River Cty., 64 F.3d 470, 3 475 (9th Cir.1995). 4 i. 5 The factor of purposeful interjection is analogous to the purposeful direction 6 analysis. Sinatra v. Nat. Enquirer, Inc., 854 F.2d 1191, 1199 (9th Cir.1988). Because the 7 Court has already determined that the Lundeens purposefully directed their activities 8 toward California through the UTVA, the Lundeens in turn, meet the purposeful injection 9 standard. 10 ii. 11 Unless the inconvenience to the defendants of litigating in the forum state is so great 12 as to constitute a deprivation of due process, it will not overcome clear justifications for 13 the exercise of jurisdiction. Panavision Int’l, L.P. v. Toeppen, 141 F.3d 1316, 1323 (9th 14 Cir.1998) (internal quotation marks and citation omitted). The Lundeens are Iowa citizens, 15 currently participating in an Iowa receivership action. (Doc. No. 16-1 at 11.) Thus, the 16 Lundeens argue that the time, worry, discovery, and legal fees in defending against Plaintiff 17 weighs heavily in their favor. (Id.) In opposition, Plaintiff contends that the burden imposed 18 on the Lundeens needs to be balanced in light of the corresponding burden on it. (Doc. No. 19 24 at 19.) Purposeful Injection The Burden of Defending in the Forum 20 First, the Court notes that cases have been inconsistent in determining whether a 21 corresponding court should take into account the burden on the plaintiff in bringing the 22 claims against the defendant. Compare Pac. Atlantic Trading Co. v. M/V Main Exp., 758 23 F.2d 1325, 1330 (9th Cir. 1985) (“[T]he burden on the defendant is the primary concern” 24 and thus the possible burden on the plaintiff does not dilute the strength of this factor), with 25 Sinatra, 854 F.2d at 1199 (“We examine the burden on defendants in light of the 26 corresponding burden on the plaintiff.”) (citation omitted). However, the Court need not 27 resolve this disconnect today, because the Lundeens would not be so inconvenienced by 28 defending this action in San Diego as to “constitute a deprivation of due process.” Caruth 20 17-cv-00459-AJB-JMA 1 v. Int’l Psychoanalytical Ass’n, 59 F.3d 126, 128–29 (9th Cir. 1995). The Court is sensitive 2 to the burden on the Lundeens as individuals living in Iowa and having to litigate in 3 California. Nonetheless, this slight inconvenience is not enough to “overcome clear 4 justifications for the exercise of jurisdiction.” Id. As the Ninth Circuit stated in 1996, “in 5 this era of fax machines and discount air travel requiring [Defendants] to litigate in 6 California is not constitutionally unreasonable.” Panavision Int’l, 141 F.3d at 1323. 7 Therefore, this factor does not favor the Lundeens. 8 iii. 9 The Lundeens argue that this case is in direct conflict with the express order of the 10 Iowa District Court in the Receivership Action in Iowa. (Doc. No. 16-1 at 12.) Plaintiff 11 responds that its personal claims against the Lundeens do not fall within the asserted scope 12 of the Receivership Order as its claims are asserted under California law. (Doc. No. 24 at 13 19.) The Extent of Conflict with the Sovereignty of Iowa 14 “Normally, a court should refrain from exercising jurisdiction when another state 15 has expressed a substantially stronger sovereignty interest and that state’s courts will take 16 jurisdiction.” Raffaele v. Compagnie Generale Maritime, 707 F.2d 395, 398 (9th Cir. 17 1983). “Litigation against an alien defendant creates a higher jurisdictional barrier than 18 litigation against a citizen from a sister state because important sovereignty concerns exist.” 19 Sinatra, 854 F.2d at 1199. 20 While the Lundeens have presented evidence that the Iowa state court has expressed 21 that Plaintiff was to first obtain leave of court before filing a lawsuit, the Lundeens have 22 not demonstrated the Iowa state court’s particular interest in adjudicating this suit, 23 specifically the fraudulent transfer claims against them. Additionally, this factor is not as 24 significant in cases involving only United States citizens because conflicting policies 25 between states are resolved through choice of law analyses and not through loss of 26 jurisdiction. See Brand v. Menlove Dodge, 796 F.2d 1070, 1076 n.5 (9th Cir. 1986). 27 Plaintiff’s claims per the Ingredient Supply Agreement are to be adjudicated according to 28 California law. Accordingly, this factor weighs in favor of a finding of reasonableness. 21 17-cv-00459-AJB-JMA 1 iv. 2 California’s interest in adjudicating the dispute weighs in favor of finding 3 jurisdiction reasonable. “California maintains a strong interest in providing an effective 4 means of redress for its residents tortuously injured.” Metzger v. Temple of the Ancient 5 Dragon, Inc., No. 16-CV-1299-WQH (NLS), 2016 WL 7242102, at *8 (S.D. Cal. Dec. 15, 6 2016). The complaint alleges that the Lundeens intentionally and negligently caused harm 7 to Plaintiff by causing Aspen Hills to transfer money to them to avoid Aspen Hills’s 8 purported liabilities and obligations to Plaintiff. (Doc. No. 3 ¶¶ 16, 17.) California has an 9 interest in providing a means of redress—a means that would be harmed without Plaintiff’s 10 protection under California’s laws and courts—for its residents regardless of an ongoing 11 receivership action. Therefore, in determining whether it is reasonable to exercise 12 jurisdiction, this factor weighs in favor of reasonableness. The Forum State’s Interest in Adjudicating the Dispute 13 v. 14 As previously mentioned, the ongoing Iowa receivership proceedings do not present 15 a resolution to the personal claims that Plaintiff asserts against the Lundeens. This Court 16 also notes that this Court is now familiar with the claims, facts, and parties involved. 17 Further, the California forum is more convenient for Plaintiff, a corporation with its 18 principal place of business in San Diego. (Doc. No. 3 ¶¶ 9, 10.) Accordingly, this factor 19 weighs against the Lundeens. The Most Efficient Judicial Resolution of the Controversy 20 vi. 21 Effective Relief 22 The Lundeens submit that effective relief can only come through the receivership, 23 stating that “[n]o assets of Aspen Hills, including any possible claw back from the 24 Lundeens, will come to Arctic Zero outside the Receivership process and Iowa court 25 order.” (Doc. No. 16-1 at 13.) As already discussed in great length the Lundeens have not 26 shown that Plaintiff’s personal claims against them can be more effectively remedied 27 elsewhere. Accordingly, the Court finds this factor weighs in favor of Plaintiff. 28 /// The Importance of the Forum to the Plaintiff’s Interest in Convenient and 22 17-cv-00459-AJB-JMA 1 vii. 2 Lastly, the Court supposes whether an alternative forum exists. This factor becomes 3 relevant only “when the forum state is shown to be unreasonable.” Corporate Inv. Bus. 4 Brokers v. Melcher, 824 F.2d 786, 791 (9th Cir. 1987). The Lundeens have made no 5 showing that litigating in California would be unreasonable. Therefore, the Court does not 6 address this factor. The Existence of an Alternative Forum 7 After considering the relevant factors, the Court concludes that the Lundeens have 8 failed to present a compelling case that this Court’s exercise of jurisdiction in California 9 would be unreasonable. Accordingly, the Lundeens’ motion to dismiss for lack of personal 10 jurisdiction is DENIED. 11 E. Alter Ego 12 The Lundeens also argue that the alter ego allegations against them are conclusory 13 and lacking supporting factual statements pursuant to Rule 9(b) and 12(b) of the Federal 14 Rules of Civil Procedure. (Doc. No. 16-1 at 13–17.) Plaintiff argues that its complaint is 15 sufficient to show that a unity of interest existed between the Lundeens and Aspen Hills. 16 (Doc. No. 24 at 24.) 17 “Ordinarily, a corporation is regarded as a legal entity, separate and distinct from its 18 stockholders, officers and directors, with separate and distinct liabilities and obligations.” 19 Sonora Diamond Corp. v. Superior Court, 83 Cal. App. 4th 523, 538 (2000). The Sonora 20 Diamond court explained, “[t]he alter ego doctrine prevents individuals or other 21 corporations from misusing the corporate laws by the device of a sham corporate entity 22 formed for the purpose of committing fraud or other misdeeds.” Id. Additionally, the alter 23 ego doctrine serves to bypass the corporate entity to ensure that an injustice does not take 24 place. Neilson v. Union Bank of Cal., N.A., 290 F. Supp. 2d 1101, 1115 (C.D. Cal. 2003). 25 Its “essence . . . is that justice be done . . . [and] [t]hus the corporate form will be disregarded 26 only in narrowly defined circumstances and only when the ends of justice so require.” 27 Mesler v. Bragg Mgmt. Co., 39 Cal.3d 290, 301 (1985) (internal quotations omitted). 28 23 17-cv-00459-AJB-JMA 1 For the doctrine to be invoked, a plaintiff must allege two elements: “(1) that there 2 be such unity of interest and ownership that the separate personalities of the corporation 3 and the individual no longer exist and (2) that, if the acts are treated as those of the 4 corporation alone, an inequitable result will follow.” Id. at 300. 5 Based on the allegations present in the complaint, the Court finds, at least for 6 purposes of the instant motion, that Plaintiff has sufficiently alleged that the Lundeens are 7 the alter egos of Aspen Hills.6 While the Court is not persuaded by Plaintiff’s argument 8 stemming from Thomas Lundeen’s signature on the Ingredient Supply Agreement, (Doc. 9 No. 24 at 24), the allegations of fraud transfers by the Lundeens as insiders, (Doc. No. 3 ¶¶ 10 36–49), demonstrates that the Lundeens “operated the corporation as a mere business tool 11 or conduit for [themselves].” Wimbledon Fund, SPC v. Graybox LLC, CV 15-6633-CAS 12 (AJWx), 2016 WL 7444709, at *10 (C.D. Cal. Aug. 31, 2016). Further, the complaint 13 alleges the Lundeens were both officers, co-owners, agents, representatives, and alter egos 14 of Aspen Hills. (Doc. No. 3 ¶¶ 15, 17.) Additionally, the complaint also contends that the 15 Lundeens “dominated, influenced and controlled Aspen Hills as well as the business, 16 property, and affairs thereof.” (Id. ¶ 50.) Finally, the complaint contains allegations that if 17 proven, would show the Lundeens withdrew a significant portion, allegedly nearly all of 18 Aspen Hills’s assets, leaving the company insolvent. (Id. ¶¶ 90–92.) 19 Further, the complaint asserts facts sufficient to show that recognition of the 20 corporate form would result in injustice. The alleged dividends Aspen Hills transferred to 21 the Lundeens during the year 2016 totaled $1,781,700. (Id. ¶ 44.) Between August 1, 2016 22 and December 23, 2016 alone, the amounts purportedly transferred to the Lundeens 23 amounted to $831,700. (Id. ¶ 44.) In comparison, the amount transferred to the Lundeens 24 25                                                 26 6 27 28 Both parties agree that Federal Rule of Civil Procedure 9(b)’s heightened pleading standard applies to Plaintiff’s veil piercing claims based on fraud. (Doc. No. 16-1 at 15; Doc. No. 24 at 23.) Even under Rule 9(b), the Court finds Plaintiff’s allegations of alter ego sufficient. 24 17-cv-00459-AJB-JMA 1 during 2014 and 2015, the period before the admitted listeria contamination and recall, was 2 allegedly $600,000 and $756,669, respectively. (Id. ¶ 45.) 3 Additionally, Plaintiff also alleges facts to support the contentions that Aspen Hills 4 knew of its liabilities to Plaintiff at the time of the transfers. On September 21, 2016, 5 Thomas Lundeen notified Plaintiff by written correspondence that on September 20, 2016, 6 Aspen Hills had initiated a recall of its products because of the presence of Listeria. (Id. ¶ 7 28.) On October 12, 2016, Mr. Lundeen sent a personal note apologizing to Plaintiff 8 explaining that Aspen Hills’s failure to comply with safety standards had necessitated the 9 recall. (Id. ¶ 30.) On December 23, 2016, Plaintiff provided documentation to Mr. Lundeen 10 which showed the costs it incurred as a result of the recall, amounting to at least $572,375. 11 (Id. ¶ 33.) In this case, recognizing the corporate form and allowing the Lundeens to 12 transfer Aspen Hills’s assets out of Plaintiff’s reach when Plaintiff may have had an interest 13 in it would produce an inequitable result. 14 Accordingly, the Court finds that Plaintiff adequately alleges that the Lundeens are 15 the alter egos of Aspen Hills. Thus, the Lundeens’ motion to dismiss is DENIED. 16 F. Preliminary Injunction 17 On a final note, the Court addresses Plaintiff’s request for a preliminary injunction 18 in its prayer for relief. (Doc. No. 3 at 15.) According to well-established principles of 19 equity, a plaintiff seeking a permanent injunction must follow a four-factor test before a 20 court may grant such relief. See eBay Inc. v. MercExchange, LLC, 547 U.S. 388, 391 21 (2006). A plaintiff must demonstrate “(1) that it has suffered irreparable injury; (2) that 22 remedies available at law, such as monetary damages, are inadequate to compensate for 23 that injury; (3) that, considering the balance of hardships between the plaintiff and 24 defendant, a remedy in equity is warranted; and (4) that the public interest would not be 25 disserved by a permanent injunction.” Id.; see e.g., Weinberger v. Romero-Barcelo, 456 26 U.S. 305, 311–13 (1982). As Plaintiff has made no such showing under these four factors, 27 the Court DENIES its request for a preliminary injunction. The Court does this 28 WITHOUT PREJUDICE so that Plaintiff may file an appropriate motion if it so desires. 25 17-cv-00459-AJB-JMA 1 CONCLUSION 2 As explained more fully above, the Court DENIES Aspen Hills and the Lundeens’ 3 motions to stay and DENIES their motions to dismiss. This Court retains jurisdiction and 4 this case will follow its normal course. 5 6 IT IS SO ORDERED. 7 8 Dated: November 20, 2017 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 26 17-cv-00459-AJB-JMA

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