Welk Resort Group, Inc. v. Newton Group Transfers, LLC et al

Filing 15

ORDER granting 8 Motion to Dismiss. Defendants motion to dismiss is granted. Plaintiffs complaint is dismissed without prejudice for lack of subject matter jurisdiction. Plaintiffs first amended complaint, if any, is due no later than seven (7) days from the date of this Order. Signed by Judge Roger T. Benitez on 2/6/2018. (anh) (sjt).

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 WELK RESORT GROUP, INC., Case No.: 3:17-cv-00990-BEN-MDD Plaintiff, 12 13 v. 14 ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS NEWTON GROUP TRANSFERS, LLC; THE NEWTON GROUP ESA, LLC, 15 Defendants. 16 17 18 Before the Court is the motion to dismiss Plaintiff’s complaint filed by Defendants 19 Newton Group Transfers, LLC and The Newton Group ESA, LLC (together, “Newton”). 20 (Docket No. 8.) The motion is fully briefed. For the reasons that follow, Newton’s 21 motion is GRANTED. BACKGROUND1 22 This diversity action arises out of the alleged interference with contractual relations 23 24 between Plaintiff Welk Resort Group, Inc. (“Welk”) and its timeshare customers by 25 Defendant Newton. Welk is a corporation, organized and existing under the laws of the 26 27 28 The following overview of the facts are drawn from the allegations of Plaintiff’s Complaint (Docket No. 1). The Court is not making findings of fact. 1 1 3:17-cv-00990-BEN-MDD 1 State of California, with its principal place of business in the State of California. Welk 2 develops vacation ownership properties in California, Missouri, and Cabo San Lucas, 3 Mexico. Welk also sells timeshare ownership. 4 5 6 Both Newton Group Transfers, LLC and The Newton Group, LLC are limited liability companies organized and existing under the laws of the State of Michigan. In essence, Welk alleges that since approximately October 2016, Newton has been, 7 inter alia, “engaging in a scheme designed to disrupt Welk’s relationships with its client 8 timeshare owners, which includes sending unsolicited and knowingly fraudulent and 9 misleading correspondence to Welk’s timeshare owners.” (Compl. ¶ 13.) As a result of 10 the alleged wrongful conduct, Welk claims “performance under the established contracts 11 [with its customers] has become more difficult and expensive” and it has “suffered 12 monetary and non-monetary damages, including reputational damage and the expenditure 13 of time and energy in maintaining its established relationships with timeshare owners.” 14 (Id. ¶ 2.) 15 Subsequently, Welk filed this action against Newton asserting three claims for 16 relief: (1) interference with contractual relations, (2) violation of the California Vacation 17 Ownership and Time-Share Act, and (3) Violation of the California Unfair Competition 18 Law. Newton now moves to dismiss Welk’s complaint for failure to establish diversity 19 jurisdiction and for failure to state a claim. 20 21 DISCUSSION “It is a fundamental principle that federal courts are courts of limited jurisdiction.” 22 Stock W., Inc. v. Confederated Tribes of the Colville Reservation, 873 F.2d 1221, 1225 23 (9th Cir. 1989) (quoting Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 374, 24 (1978). Under Rule 12(b)(1) of the Federal Rules of Civil Procedure, a defendant can 25 move a court to dismiss an action for lack of subject matter jurisdiction. Fed. R. Civ. 26 Proc. 12(b)(1). Even though the motion is brought by the defendant, it is the plaintiff’s 27 burden to establish jurisdiction in a motion to dismiss for lack of subject matter 28 jurisdiction. See Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375 (1994) 2 3:17-cv-00990-BEN-MDD 1 (“It is to be presumed that a cause lies outside [federal court] jurisdiction . . . and the 2 burden of establishing the contrary rests upon the party asserting jurisdiction.”) (internal 3 citations omitted). 4 A Rule 12(b)(1)2 jurisdictional attack may be facial or factual. White v. Lee, 227 5 F.3d 1214, 1242 (9th Cir. 2000). A defendant presenting a facial attack asserts that the 6 allegations contained in a complaint are insufficient on their face to invoke federal 7 jurisdiction. See Safe Air v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). A Rule 8 12(b)(1) motion will be granted if, on the face of the complaint, and when considered in 9 its entirety, the complaint fails to allege facts sufficient to establish subject matter 10 jurisdiction. 11 According to Welk’s complaint, federal diversity jurisdiction exists pursuant to 28 12 U.S.C. § 1332 (a)(1) (diversity jurisdiction based on claims between citizens of different 13 states). (Compl. ¶ 8.) “To establish federal jurisdiction under § 1332(a)(1), the 14 proponent must allege (1) the parties are completely diverse, and (2) the amount in 15 controversy exceeds $75,000.” Naffe v. Frey, 789 F.3d 1030, 1039 (9th Cir. 2015) (citing 16 28 U.S.C. § 1332(a)(1); McNutt v. Gen. Motors Acceptance Corp. of Ind., 298 U.S. 178, 17 189 (1936)). 18 Newton only challenges the existence of the second requirement. It argues that 19 Welk’s complaint does not allege it has actually lost any contracts and lacks allegations 20 “supporting a reasonable inference that its alleged expenditure of ‘money, time and 21 energy’ exceeds the jurisdictional minimum[.]” (Mot. at p. 2.) Welk counters that “it is 22 well settled that a general averment that the damages exceed the minimum jurisdictional 23 limit is sufficient, and that a request for injunctive relief alone can be sufficient to meet 24 the minimum jurisdictional amount pursuant to the ‘either viewpoint’ rule.” The Court 25 26 27 28 The Court’s reference to Rules in this Order are to the Federal Rules of Civil Procedure, unless otherwise stated. 2 3 3:17-cv-00990-BEN-MDD 1 agrees with Newton that Welk has not met its burden to establish the amount in 2 controversy. 3 In the Ninth Circuit, courts apply the “legal certainty” test to determine whether a 4 complaint meets § 1332(a)’s amount in controversy requirement where, as here, a 5 plaintiff files an action in federal court. Naffe, 789 F.3d at 1039 (citing Pachinger v. 6 MGM Grand Hotel–Las Vegas, Inc., 802 F.2d 362, 363–64 (9th Cir. 1986) (additional 7 citation omitted). “Under this test, ‘the sum claimed by the plaintiff controls if the claim 8 is apparently made in good faith. It must appear to a legal certainty that the claim is 9 really for less than the jurisdictional amount to justify dismissal.’” Id. at 1040 (quoting 10 11 St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288-89 (1938)). The Ninth Circuit has explained that “the legal certainty test makes it very difficult 12 to secure a dismissal of a case on the ground that it does not appear to satisfy the 13 jurisdictional amount requirement.” Id. at 1040. It identified three situations that 14 “clearly meet the legal certainty standard: 1) when the terms of a contract limit the 15 plaintiff's possible recovery; 2) when a specific rule of law or measure of damages limits 16 the amount of damages recoverable; and 3) when independent facts show that the amount 17 of damages was claimed merely to obtain federal court jurisdiction.” Id. (citing 18 Pachinger, 802 F.2d at 364). 19 Based on the factual allegations of Welk’s complaint, the Court finds the third 20 situation applies. In short, other than its conclusory allegation that “the amount in 21 controversy exceeds the sum or value of $75,000,” Welk did not allege any facts to 22 suggest it could meet the amount in controversy. (Compl. ¶ 8.) Although Welk alleges 23 interference with contractual relations, it does not actually identify any specific contracts 24 that were allegedly lost or interfered with (or even a specific amount of damages as a 25 result). Nor does it specify any amount of damages related to its alleged reputational 26 harm, or the “money, time and energy” spent to maintain its relationships with existing 27 clientele. (Id. ¶ 36.) Therefore, without any indication of actual breached contract, 28 “disrupted” contract, or resulting expenditures, the Court concludes that it appears to a 4 3:17-cv-00990-BEN-MDD 1 legal certainty that Welk’s claim is really for less than the jurisdictional amount. Naffe, 2 789 F.3d at 1040. 3 Welk fares no better under the “either viewpoint” rule. The test for determining 4 the amount in controversy under the “either viewpoint” rule “is the pecuniary result to 5 either party which the judgment would directly produce.” In re Ford Motor Co./Citibank 6 (S. Dakota), N.A., 264 F.3d 952, 958 (9th Cir. 2001) (citing Ridder Bros. Inc., v. Blethen, 7 142 F.2d 395, 399 (9th Cir. 1944)). “In other words, where the value of a plaintiff's 8 potential recovery . . . is below the jurisdictional amount, but the potential cost to the 9 defendant of complying with the injunction exceeds that amount, it is the latter that 10 represents the amount in controversy for jurisdictional purposes.” Id. Thus, in order for 11 Welk to defeat Newton’s motion to dismiss under the “either viewpoint” rule, it must 12 appear from the face of the complaint that the potential cost to Newton to comply with 13 any resulting injunction exceeds $75,000. Id. 14 In its opposition, Welk points to its request to enjoin Newton “from soliciting 15 Welk’s timeshare owners, from false and misleading advertising, and from encouraging 16 and/or offering to assist them in breaching their timeshare obligations” before summarily 17 concluding “the value of their unlawful solicitation of Welk’s Clients exceeds $75,000 18 several times over.” (Opp’n at p. 5.) However, reviewing the factual allegations of 19 Plaintiff’s complaint, the Court finds there is simply a dearth of factual allegations to 20 support the jurisdictional requirement from Defendant’s viewpoint. 21 Finally, Welk argues that because it is requesting punitive and exemplary damages, 22 it cannot be said with legal certainty that it would not be entitled to recover the 23 jurisdictional amount. The Court disagrees. Indeed, if all a plaintiff had to allege to meet 24 the amount in controversy was assert punitive or exemplary damages, almost no suit, no 25 matter how small, could meet the jurisdictional requirement, which would 26 “fundamentally violat[e] . . . the principle underlying the jurisdictional amount 27 requirement—to keep small diversity suits out of federal court.” In re Ford Motor Co., 28 264 F.3d at 961. 5 3:17-cv-00990-BEN-MDD 1 In sum, the Court finds Welk has failed to establish diversity jurisdiction and 2 therefore must grant Defendant’s motion to dismiss on this ground.3 Fed. R. Civ. P. 3 12(b)(1). However, the Court shall grant Plaintiff an opportunity to file an amended 4 pleading that corrects the deficiencies identified in this Order. 5 CONCLUSION Defendant’s motion to dismiss is GRANTED. Plaintiff’s complaint is 6 7 DISMISSED without prejudice for lack of subject matter jurisdiction. Plaintiff’s first 8 amended complaint, if any, is due no later than seven (7) days from the date of this 9 Order. 10 IT IS SO ORDERED. 11 12 Dated: February 6, 2018 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 Because the Court finds subject matter jurisdiction lacking, it need not address Newton’s arguments for dismissal for failure to state a claim. 6 3:17-cv-00990-BEN-MDD

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