Millennium Drilling Co., Inc. v. House-Meyers et al

Filing 225

ORDER Granting 202 Motion to Dismiss for Lack of Jurisdiction. All of Third-Party Plaintiffs claims against Henson are therefore dismissed. Signed by Judge Miranda M. Du on 9/17/2015. (Copies have been distributed pursuant to the NEF - DC)

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UNITED STATES DISTRICT COURT
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DISTRICT OF NEVADA
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***
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MILLENIUM DRILLING CO., INC.,

Case No. 2:12-cv-00462-MMD-CWH

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Plaintiff,
v.

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BEVERLY HOUSE-MEYERS
RECOVABLE TRUST, et al.,

ORDER
(Third-Party Def.’s Motion to Dismiss – dkt.
no. 202)

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Defendants.
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I.

SUMMARY

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Before the Court is Third-Party Defendant Carter Henson Jr.’s Motion to Dismiss

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(“Motion”). (Dkt. no. 202). The Court has also reviewed a response filed by Third-Party

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Plaintiffs Molly Hamrick, Beverly House-Meyers, and R & M Hamrick Family Trust (dkt.

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no. 215), and Henson’s reply (dkt. no. 222). For the reasons discussed below, the

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Motion is granted.

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II.

BACKGROUND

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A.

Facts

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Plaintiff Millennium Drilling Co., Inc. (“Millennium”) alleges that Defendants

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Beverly House-Meyers Revocable Trust; Grace Mae Properties, LLC; R & M Hamrick

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Family Trust; Robert H. Hamrick; Molly Hamrick; and Beverly House-Meyers acquired

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interests in several partnerships — Falcon Drilling Partners (“Falcon”), Colt Drilling

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Partners (“Colt”), and Lion Drilling Partners (“Lion”) — engaged in oil and gas

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exploration. (See dkt. no. 30 at 2-15.) Millennium, in turn, entered into agreements with

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those partnerships to provide exploratory drilling and related services on certain sites,

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some of which were acquired through an agreement with Third-Party Defendant Patriot

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Exploration Company, LLC (“Patriot”). (Id. ¶¶ 12, 31, 89, 128.) Alleging that Falcon, Colt,

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and Lion defaulted on their obligations under those agreements, Millennium now seeks

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compensation from Defendants for the work Millennium claims to have performed

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pursuant to the agreements. (See id. at 5-6, 9-10, 13, 15.)

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Third-Party Plaintiffs separately allege that they were fraudulently induced into

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purchasing oil and gas investments by Third-Party Defendants Patriot, Henson, and

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Jonathan Feldman, among others. (See Notice of Removal, Exh. 1, Hamrick v. Feldman,

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No. 2:13-cv-0078-MMD-CWH (D. Nev. July 16, 2012) [hereinafter Dkt. no. 1-1, 2:13-cv-

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78].)1 Third-Party Plaintiffs contend that Feldman and Henson created partnerships for

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oil and gas exploration (including Falcon, Colt, and Lion), which they fraudulently

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convinced investors to fund by misrepresenting expected returns and tax benefits. (See

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id. ¶¶ 4.01–4.18.)

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Feldman, according to Third-Party Plaintiffs, is the President of Patriot and

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Millennium, and Henson was Patriot’s Managing Director. (Id. ¶ 4.01.) Patriot is an

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Alaska corporation with an office in Houston, Texas. (Id. ¶ 2.07.) Henson also resides in

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Texas. (Id. ¶ 2.08.)

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B.

Procedural History

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On March 19, 2012, Millennium filed this lawsuit in the District of Nevada. (Dkt.

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no. 1.) Three months later, on June 6, 2012, Third-Party Plaintiffs filed a complaint

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against Third-Party Defendants — but not against Millennium — in Texas state court

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based on the same transactions giving rise to Millennium’s lawsuit. (Dkt. no. 1-1, 2:13-

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cv-78.) Patriot removed the case to the Southern District of Texas. (Notice of Removal,

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2:13-cv-78.) Third-Party Plaintiffs allege breach of fiduciary duty, fraud/fraud in the

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inducement, fraudulent nondisclosure, negligent misrepresentation, breach of contract,

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imposition of constructive trust, and conspiracy. (Dkt. no. 1-1, 2:13-cv-78.)

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The Court consolidated Third-Party Plaintiffs’ separate lawsuit with case number
2:12-cv-00462-MMD-CWH (“2:12-cv-462”). After consolidation, the Court directed the
parties to file all documents in case number 2:12-cv-462. In citing to any documents filed
in Third-Party Plaintiffs’ separate lawsuit, the Court will refer to “2:13-cv-78.”
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In January 2013, Hon. Melinda Harmon, United States District Judge for the

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Southern District of Texas, granted Patriot’s Motion to Transfer Venue, determining that

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the Nevada and Texas actions involved substantially similar issues. (Transfer Order,

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2:13-cv-78 (Jan. 15, 2013).) The transferred case was assigned case number 2:13-cv-

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00078-MMD-CWH (“2:13-cv-78”). This Court consolidated the two related cases into the

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first-filed Nevada action. (Dkt. no. 79). The plaintiffs and defendants in 2:13-cv-78 were

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designated as Third-Party Plaintiffs and Third-Party Defendants, respectively, in the

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instant case. (Id.)

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On February 25, 2014, the Court granted a motion to dismiss filed by Third-Party

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Defendants Matthew Barnes; Montcalm Co., LLC; and Schain, Leifer, Guralnick

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(“SLG”).2 (Dkt. no. 172.) The Court found that it lacked personal jurisdiction over those

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parties. (Id.; see dkt. no. 168.) The day before oral argument on the motion, Third-Party

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Plaintiffs filed an amended complaint without requesting leave from the Court or

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obtaining the opposing parties’ consent. (See dkt. no. 166.) The Court clarified in the

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dismissal order that the amended complaint was not properly before the Court, and that

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it failed to cure the jurisdictional problems with regard to Barnes, Montcalm, and SLG.

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(See dkt. no. 172 at 4.) Shortly after oral argument, Third-Party Plaintiffs sought leave to

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file a second amended complaint, which the Court denied in light of the late stage of the

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proceedings. (Dkt. nos. 171, 179.)
The Court now addresses Third-Party Defendant Henson’s Motion to Dismiss for

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Lack of Personal Jurisdiction, filed February 5, 2015. (Dkt. no. 202.)

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III.

LEGAL STANDARD

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In opposing a defendant’s motion to dismiss for lack of personal jurisdiction, a

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plaintiff bears the burden of establishing that jurisdiction is proper. Boschetto v. Hansing,

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539 F.3d 1011, 1015 (9th Cir. 2008). Where, as here, the defendant’s motions are based

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The parties had previously stipulated to dismiss Third-Party Defendants Robert
Holt and Elizabeth Holt from the lawsuit. (Dkt. nos. 169, 170.)
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on written materials rather than an evidentiary hearing, “the plaintiff need only make a

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‘prima facie showing of jurisdictional facts to withstand the motion to dismiss.’” Brayton

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Purcell LLP v. Recordon & Recordon, 606 F.3d 1124, 1127 (9th Cir. 2010) (quoting

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Pebble Beach Co. v. Caddy, 453 F.3d 1151, 1154 (9th Cir. 2006)). The plaintiff cannot

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“simply rest on the bare allegations of its complaint,” but uncontroverted allegations in

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the complaint must be taken as true. Schwarzenegger v. Fred Martin Motor Co., 374

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F.3d 797, 800 (9th Cir. 2004) (quoting Amba Mktg. Sys., Inc. v. Jobar Int’l, Inc., 551 F.2d

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784, 787 (9th Cir. 1977)). The court “may not assume the truth of allegations in a

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pleading which are contradicted by affidavit,” Data Disc, Inc. v. Sys. Tech. Assocs., Inc.,

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557 F.2d 1280, 1284 (9th Cir. 1977), but it may resolve factual disputes in the plaintiff’s

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favor. Pebble Beach Co., 453 F.3d at 1154.

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IV.

DISCUSSION

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A two-part analysis governs whether a court retains personal jurisdiction over a

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nonresident defendant. “First, the exercise of jurisdiction must satisfy the requirements of

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the applicable state long-arm statute.” Chan v. Soc’y Expeditions, Inc., 39 F.3d 1398,

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1404 (9th Cir. 1994). Since “Nevada’s long-arm statute, NRS § 14.065, reaches the

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limits of due process set by the United States Constitution,” the Court moves on to the

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second part of the analysis. Baker v. Eighth Judicial Dist. Court ex rel. Cty. of Clark, 999

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P.2d 1020, 1023 (Nev. 2000). “Second, the exercise of jurisdiction must comport with

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federal due process.” Chan, 39 F.3d at 1404-05. “Due process requires that nonresident

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defendants have certain minimum contacts with the forum state so that the exercise of

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jurisdiction does not offend traditional notions of fair play and substantial justice.” Id.

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(citing International Shoe v. Washington, 326 U.S. 310 (1945)). Courts analyze this

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constitutional question with reference to two forms of jurisdiction: general and specific

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jurisdiction. Here, Third-Party Plaintiffs assert only specific jurisdiction with regard to

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Henson. (See dkt. no. 215 at 5-6.)

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Specific jurisdiction exists where “[a] nonresident defendant’s discrete, isolated

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contacts with the forum support jurisdiction on a cause of action arising directly out of its
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forum contacts.” CollegeSource, Inc. v. AcademyOne, Inc., 653 F.3d 1066, 1075 (9th

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Cir. 2011). Courts use a three-prong test to determine whether specific jurisdiction exists

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over a particular cause of action:

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(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 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.

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Id. at 1076 (quoting Schwarzenegger, 374 F.3d at 802). The party asserting jurisdiction

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bears the burden of satisfying the first two prongs. Id. (citing Sher v. Johnson, 911 F.2d

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1357, 1361 (9th Cir. 1990)). If it does so, the burden shifts to the party challenging

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jurisdiction “to set forth a ‘compelling case’ that the exercise of jurisdiction would not be

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reasonable.” Id. (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476–78

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(1985)).

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Third-Party Plaintiffs seek to invoke this Court’s jurisdiction over Henson based on

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actions he allegedly carried out while serving as the Managing Director of Patriot

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between 2005 and 2007.3 (See dkt. no. 215 at 3-5.) In that role, Henson was responsible

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for “evaluating and providing technical advice on all aspects of the Company’s

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investments and activities.” (Dkt. no. 215-3 at 1.) Third-Party Plaintiffs claim that Henson

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and Feldman4 created entities — including Falcon, Colt, Lion, Millennium, and Patriot —

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through which they defrauded Third-Party Plaintiffs. (Dkt. no. 1-1, 2:13-cv-78, at 9.) They

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further allege that Henson and Feldman conspired in, aided, and abetted each other’s

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Henson claims that he was merely an employee of Patriot. Third-Party Plaintiffs,
however, attached to their response a letter offering Henson the position of “Managing
Director” of Patriot. (See dkt. no. 215-3 at 1.) During his deposition, moreover, Henson
acknowledged that “Managing Director” was his only title while he worked for Patriot.
(Dkt. no. 215-1 at 13.)
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Initially, Third-Party Plaintiffs claimed that Barnes was similarly involved in
creating these entities and in using them to engage in fraud. (See dkt. no. 1-1, 2:13-cv78.) The Court, however, dismissed Barnes from this lawsuit for lack of personal
jurisdiction. (Dkt. no. 172.)
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fraudulent conduct, both individually and as agents of Patriot and Millennium. (See id. ¶¶

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4.11-4.18.) Henson, for example, provided information about Patriot’s drilling operations

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to Feldman, who relayed that information to outside investors — including Third-Party

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Plaintiffs — through quarterly reports. (Dkt. no. 215 at 3-5.) Taken together, Third-Party

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Plaintiffs argue, these actions constitute knowing and intentional tortious behaviors

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directed toward Nevada, which are sufficient to establish specific jurisdiction over

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Henson. The Court disagrees.

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A.

Purposeful Availment and Purposeful Direction

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“The first prong of the specific jurisdiction test refers to both purposeful availment

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and purposeful direction.” CollegeSource, Inc., 653 F.3d at 1076. Cases involving

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tortious conduct are analyzed under the rubric of purposeful direction. Id. (citing

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Schwarzenegger, 374 F.3d at 802). Courts ask “whether a defendant ‘purposefully

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directs his activities’ at the forum state,” and applies an “effects” test that looks to where

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the defendant’s actions were felt, rather than where they occurred. Yahoo! Inc. v. La

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Ligue Contre Le Racism Et L’Antisemitisme, 433 F.3d 1199, 1206 (9th Cir. 2006) (en

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banc) (quoting Schwarzenegger, 374 F.3d at 803). In contract cases, a court examines

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“whether the defendant ‘purposefully avails itself of the privilege of conducting activities’

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or ‘consummates a transaction’ in the forum, focusing on activities such as delivering

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goods or executing a contract.” Id. (quoting Shwarzenegger, 374 F.3d at 802).

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Here, because Third-Party Plaintiffs’ claims sound in contract and tort, the Court

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will address both approaches to this prong of the specific jurisdiction analysis. See

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Yahoo! Inc., 433 F.3d at 1206 (noting that the first prong “may be satisfied . . . by some

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combination” of purposeful availment and purposeful direction).

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Purposeful Availment

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Purposeful availment occurs when a defendant “‘deliberately’ has engaged in

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significant activities within a state, or has created ‘continuing obligations’ between

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himself and residents of the forum.” Burger King Corp., 471 U.S. at 475-76 (citations

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omitted). A single act associated with a forum state may be sufficient, “[s]o long as it
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creates a ‘substantial connection’ with the forum.” Id. at 475 n.18 (quoting McGee v.

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International Life Ins. Co., 355 U.S. 220, 223 (1957)). Activities constituting purposeful

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availment may include “executing or performing a contract” in a forum state,

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Schwarzenegger, 374 F.3d at 802, or delivering “‘products into the stream of commerce

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with the expectation that they will be purchased by consumers in the forum State’ and

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[where] those products subsequently injure forum consumers.” Burger King Corp., 471

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U.S. at 473 (quoting World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297-98

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(1980)). In assessing purposeful availment, courts have examined parties’ “prior

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negotiations and contemplated future consequences, along with the terms of the

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contract and the parties’ actual course of dealing.” Id. at 479.

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Third-Party Plaintiffs argue that Henson “purposefully avail[ed] [him]self of the

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privilege of conducting activities within” Nevada by conspiring to induce state residents

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to invest in oil and gas prospects. Id. at 475 (quoting Hanson v. Denckla, 357 U.S. 235,

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253 (1958)); (see dkt. no. 215 at 6-7). They assert that Henson provided information

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about oil and gas prospects to Feldman, who, in turn, passed along the information to

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Nevada-based investors. (See dkt. no. 215 at 3-5, 7.) Henson, according to Third-Party

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Plaintiffs, knew both that investors would rely on the information he provided, and that

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certain investors were Nevada residents. (Id. at 7.) Third-Party Plaintiffs, however, have

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not made a prima facie showing that Henson knew or expected that Nevada-based

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investors would rely on this information.

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In his deposition, Henson conceded that he provided periodic written updates on

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oil and gas prospects to Feldman, who was based in either New York or Connecticut.

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(See dkt. no. 215 at 4; dkt. no. 215-1 at 4-5, 7.) Upon reviewing certain reports Feldman

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had sent to outside investors, Henson acknowledged that Feldman’s reports appeared to

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include language from Henson’s updates. (See dkt. no. 215 at 4; dkt. no. 215-1 at 9-10;

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dkt. no. 215-2.) But Henson testified that he did not know whether Feldman had shared

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his updates with investors, or that any of those investors were located in Nevada. (Dkt.

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no. 215-1 at 7, 9-10, 30.) Nor did Henson communicate with outside investors. (Id. at
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13.) Rather, according to Henson’s testimony, Feldman controlled communications with

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investors, while Henson researched and assessed oil and gas prospects from his office

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in Houston. (See id. at 7-8, 11-14.)

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Despite Third-Party Plaintiffs’ assertions that Henson knew or should have known

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that he helped dupe Nevada residents into faulty investments, they have not offered

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evidence to dispute Henson’s deposition testimony. (See dkt. no. 215 at 7.) Instead,

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Third-Party Plaintiffs concede that communications containing Henson’s research “were

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presumably prepared by Feldman in New York.” (Id. at 4.) Moreover, even assuming that

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Henson introduced information on oil and gas prospects into the stream of commerce by

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relaying his updates to Feldman, Third-Party Plaintiffs have not shown that Henson had

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any expectation that this information would be consumed by investors in Nevada. See

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Burger King Corp., 471 U.S. at 473. Thus, to the extent Henson had any connection with

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Nevada-based investors, that contact is too attenuated to show purposeful availment.

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The Court accordingly finds that Third-Party Plaintiffs have not met their burden of

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showing that Henson purposefully availed himself of Nevada’s laws and protections.
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Purposeful Direction

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Third-Party Plaintiffs’ arguments are similarly deficient under the purposeful

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direction framework that applies to their tort-based claims. To assess purposeful

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direction, courts employ an “effects” test, which requires that “the defendant allegedly

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must have (1) committed an intentional act, (2) expressly aimed at the forum state, (3)

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causing harm that the defendant knows is likely to be suffered in the forum state.”

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Yahoo! Inc., 433 F.3d at 1206 (quoting Schwarzenegger, 374 F.3d at 803). As the Ninth

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Circuit has made clear in applying the effects test, an act with foreseeable effects in the

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forum is not sufficient; there must be “something more” ― namely, “express aiming” at

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the forum state. Bancroft & Masters, Inc. v. Augusta Nat’l Inc., 223 F.3d 1082, 1087 (9th

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Cir. 2000), abrogated on other grounds by Yahoo! Inc., 433 F.3d at 1206-08; see also

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Liberty Media Holdings, LLC v. Letyagin, 925 F. Supp. 2d 1114, 1118 (D. Nev. 2013).

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Third-Party Plaintiffs cannot make a prima facie showing of purposeful direction

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because they have not demonstrated that Henson expressly aimed any activity at

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Nevada. They claim that Henson “knowingly directed” intentional torts to Nevada by

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conspiring with Feldman to induce investments in oil and gas prospects. (Dkt. no. 215 at

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9; see dkt. no.1-1, 2:13-cv-78, ¶¶ 4.01, 4.05, 4.11.) They further allege that Henson

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“reached out to harm Third-Party Plaintiffs Hamrick and House-Myers” (dkt. no. 215 at

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9), but offer no evidence to dispute Henson’s testimony that he never communicated

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with outside investors. (See dkt. no. 215-1 at 7-10, 13.) Third-Party Plaintiffs also point

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out that Henson was involved in contracts, invoices, and email communications for

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acquiring interests in and assessing oil and gas prospects. (Dkt. no. 215-3.) Those

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documents, however, do not suggest that Henson directed tortious activity toward

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Nevada; rather, they indicate his involvement in Patriot’s work of analyzing and securing

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oil and gas prospects. (See id.)

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Even after resolving all factual disputes in Third-Party Plaintiffs’ favor, the Court

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finds that Third-Party Plaintiffs have failed to make a prima facie showing of purposeful

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direction. See Pebble Beach Co., 453 F.3d at 1154. Because Third-Party Plaintiffs

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cannot satisfy the first prong of the personal jurisdiction analysis, the Court will grant

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Henson’s Motion.

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B.

Relatedness and Fairness

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The Court finds that Third-Party Plaintiffs have failed to demonstrate an element

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that is necessary to establish specific jurisdiction over Henson. Accordingly, the Court

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will not reach the remaining two prongs of the specific jurisdiction analysis — whether

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Third-Party Plaintiffs’ action arises out of Henson’s forum-related activities, and whether

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asserting personal jurisdiction over Henson is reasonable. See CollegeSource, Inc., 653

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F.3d at 1075.

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V.

CONCLUSION

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The Court notes that the parties made several arguments and cited to several

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cases not discussed above. The Court has reviewed these arguments and cases and
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determines that they do not warrant discussion as they do not affect the outcome of the

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Motion.

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It is therefore ordered that Third-Party Defendant Carter Henson, Jr.’s Motion to
Dismiss for Lack of Personal Jurisdiction (dkt. no. 202) is granted.
All of Third-Party Plaintiffs’ claims against Henson are therefore dismissed.
DATED THIS 17th day of September 2015.

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MIRANDA M. DU
UNITED STATES DISTRICT JUDGE

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