Eskenazi v. Slover, et al
Filing
68
///ORDER granting 50 Motion to Dismiss for Failure to State a Claim; denying as moot 57 Motion to Strike. Because the Slover defendants have not moved to dismiss, the court takes no action with respect to Eskenazi's claim against them. So Ordered by Magistrate Judge Andrea K. Johnstone.(vln)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
Jack Eskenazi d/b/a
American HealthCare Capital
v.
Case No. 17-cv-610-AJ
Opinion No. 2018 DNH 245
Christopher Slover, et al.
MEMORANDUM ORDER
This case involves several players.
Plaintiff Jack
Eskenazi is a California resident who, through his company
American HealthCare Capital, facilitates mergers and
acquisitions in the healthcare industry. 1
Defendant Christopher
Slover is Texas resident who owns and operates defendants
Lakeview Systems and SREHC-New Hampshire ("Slover defendants"). 2
Defendant Eric Spofford is a New Hampshire resident who owns and
operates defendants New Freedom Academy, LLC, Green Mountain
Treatment Center, LLC, and 244 High Watch Road, LLC ("Spofford
defendants").
Eskenazi alleges that in 2015, he entered into separate
written contracts with Lakeview and New Freedom intended to
1
The court refers to Jack Eskenazi and American HealthCare
Capital together as "Eskenazi."
2
Though Eskenazi's original complaint also named Lakeview
Management, Inc. and 50 "Does" as defendants, see doc. no. 1-1
at 3, he omits those defendants from his amended complaint, see
doc. no. 43.
facilitate the sale of healthcare facilities in Effingham, New
Hampshire.
Eskenazi contends that those contracts entitled him
to a finder's fee if Lakeview agreed to sell the healthcare
facilities to New Freedom in whole or in part.
But according to
Eskenazi, Slover and Spofford went behind his back and entered
into a separate agreement under which SREHC leased the
healthcare facilities to Green Mountain.
Eskenazi contends that
Green Mountain later triggered an option under that agreement
and purchased the healthcare facilities outright.
Eskenazi
brings this lawsuit seeking to recover his finder's fee.
The parties consented to the jurisdiction of the
undersigned magistrate judge.
See doc. no. 37.
The Spofford
defendants now move to dismiss (doc. no. 50), arguing, among
other things, that the New Hampshire Real Estate Practice Act,
N.H. Rev. Stat. Ann. § 331-A:1 et seq. ("NHREPA"), bars
Eskenazi's claim against them because Eskenazi was not licensed
to broker real estate in New Hampshire.
Eskenazi objects,
arguing in relevant part that California law governs his
agreement with New Freedom and that California courts have long
recognized a "finder's" exception to that state's broker
regulations. 3
3
The Slover defendants filed a memorandum in support of the
Spofford defendants' motion but have not themselves moved to
dismiss.
2
The court grants the Spofford defendants' motion.
While
California choice-of-law rules apply to this case, under those
rules New Hampshire substantive law governs Eskenazi's contract
with New Freedom.
And under the NHREPA, that contract is
unenforceable because Eskenazi was not a licensed real-estate
broker.
The court therefore dismisses Eskenazi's claim against
the Spofford defendants.
I.
Standard of Review
Under Federal Rule of Civil Procedure 12(b)(6), the court
must accept the factual allegations in the complaint as true,
draw reasonable inferences in the plaintiff’s favor, and
"determine whether the factual allegations . . . set forth a
plausible claim upon which relief may be granted."
Foley v.
Wells Fargo Bank, N.A., 772 F.3d 63, 71 (1st Cir. 2014)
(citation omitted).
A claim is facially plausible "when the
plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the
misconduct alleged."
(2009).
Ashcroft v. Iqbal, 556 U.S. 662, 678
Analyzing plausibility is "a context-specific task" in
which the court relies on its "judicial experience and common
sense."
Id. at 679.
3
II.
A.
Background
Factual background
The court culls the following facts from Eskenazi's amended
complaint and the three contracts attached to that complaint. 4
Eskenazi owns American HealthCare Capital, a mergers and
acquisitions firm that provides financial planning and strategic
consultation primarily to entities in the healthcare industry.
Doc. no. 43 ¶¶ 2, 3.
Slover resides in Austin, Texas, and
conducts business as Lakeview Systems.
Id. ¶ 4.
Slover also
owns and controls SREHC-New Hampshire, a Delaware limited
liability company.
Id.
¶ 5.
Spofford resides in Derry, New
Hampshire, and is the manager and member of New Freedom Academy,
LLC.
Id. ¶ 9.
Spofford also owns and controls Green Mountain
Treatment Center, LLC, and 244 High Watch Road, LLC.
Id. ¶¶ 10,
11.
On or about June 1, 2015, Eskenazi and Lakeview entered
into a finder's fee agreement for the sale of "medical business
4
Though a court typically may not consider facts or
documents outside of the complaint when ruling on a Rule
12(b)(6) motion, the First Circuit recognizes a limited
exception to this rule for "documents the authenticity of which
are not disputed by the parties; for official public records;
for documents central to plaintiffs' claim; or for documents
sufficiently referred to in the complaint." Rivera v. Centro
Medico de Turabo, Inc., 575 F.3d 10, 15 (1st Cir. 2009). As
Eskenazi refers to the attached contracts several times in his
complaint, and as the contracts are central to his claims, the
court may properly consider them.
4
opportunity."
Id. ¶ 17; see also doc. no. 43-1.
Eskenazi
agreed to help Lakeview sell traumatic brain injury facilities
in Effingham, New Hampshire, by introducing Lakeview to
potential buyers.
Doc. no. 43 ¶¶ 19-22.
In return, Lakeview
agreed to pay Eskenazi a finder's fee if one or more of the
buyers Eskenazi introduced offered to purchase the facilities in
whole or in part.
Id. ¶ 23.
Lakeview's behalf.
Slover signed the agreement on
Id. ¶ 18.
On October 26, 2015, Eskenazi entered into a
confidentiality agreement with New Freedom.
doc. no. 43-2.
Id. ¶ 24; see also
Eskenazi agreed to share confidential
information with New Freedom so that New Freedom could evaluate
purchasing the Effingham facilities.
Doc. no. 43-2 at 1.
Written on Eskenazi's letterhead, the confidentiality agreement
was addressed to Spofford at New Freedom's New Hampshire
location.
Id.
The agreement stated that if New Freedom
circumvented Eskenazi in purchasing the facilities, New Freedom
would owe Eskenazi the finder's fee owed under his contract with
Lakeview.
Id.; doc. no. 43 ¶ 25.
The confidentiality agreement
did not contain a place-of-performance clause.
See doc. no. 43-
2.
Just over a month later, SREHC agreed to lease the
Effingham facilities to Green Mountain.
also doc. no. 43-3.
Doc. no. 43 ¶ 31; see
The lease agreement covered all equipment,
5
machinery, and personal property at the Effingham facilities.
Doc. no. 43 ¶ 32.
The lease also granted Green Mountain an
option to purchase the Effingham facilities.
Mountain exercised that option in April 2017.
B.
Id. ¶ 33.
Green
Id. ¶ 36.
Procedural history
Eskenazi initially filed this action in Los Angeles County
Superior Court, alleging counts of fraud and breach of contract.
See doc. no. 1-1 at 3-8.
Invoking federal diversity
jurisdiction, SREHC removed the case to the United States
District Court for the Central District of California.
no. 1.
See doc.
The defendants collectively asked that court to dismiss
the case for want of personal jurisdiction or improper venue or,
alternatively, to transfer the case to the District of New
Hampshire.
See doc. no. 17.
The court granted the defendants'
alternative request and transferred the case to this district
under 28 U.S.C. § 1404(a).
See doc. no. 26.
After some procedural machinations not presently relevant,
Eskenazi filed an amended complaint, alleging one count of
breach of contract against the Slover defendants and one count
of breach of contract against the Spofford defendants.
no. 43.
See doc.
The Spofford defendants moved to dismiss, arguing
(among other things) that the NHREPA bars the claim against them
because Eskenazi was not licensed to broker real estate in New
Hampshire.
See doc. no. 50-1 at 4-6.
6
Eskenazi initially
responded that he was not a "broker" as defined by that statute.
See doc. no. 54 at 2-4.
The Spofford defendants filed a reply,
see doc. no. 55, and, in response, Eskenazi argued for the first
time that he was not subject to the NHREPA because California
law governed his agreement with New Freedom, see doc. no. 56.
After hearing oral argument on July 31, 2018, the court
ordered the parties to submit additional briefing.
The court
specifically directed the parties to brief three issues: (1)
whether California choice-of-law rules apply; (2) assuming so,
whether California or New Hampshire substantive law governs the
confidentiality agreement; and (3) if California substantive law
applies, whether Eskenazi's claim against the Spofford
defendants is barred by that state's broker-licensing
regulations.
Eskenazi and the Spofford defendants each filed
initial briefs on August 22 and response briefs on August 29.
Two days later, the Slover
See doc. nos. 59, 60, 61, 62.
defendants filed a memorandum in support of the Spofford
Doc. no. 63.
defendants' motion to dismiss.
response to that memorandum.
III.
A.
Eskenazi filed a
Doc. no. 66.
Discussion
Choice of law
At the outset, the court must determine whether California
or New Hampshire choice-of-law rules apply.
7
"A federal court
sitting in diversity ordinarily must follow the choice-of-law
rules of the State in which it sits."
Atl. Marine Const. Co. v.
U.S. Dist. Court for W. Dist. of Tex., 571 U.S. 49, 65 (2013).
But when a case is transferred under 28 U.S.C. § 1404(a), the
"state law applicable in the original court also [applies] in
the transferee court." Id. (citations omitted).
As this case
was transferred here under § 1404(a) from the Central District
of California, the court concludes (and the parties do not
meaningfully dispute) that California choice of law applies.
This determination only gets the court so far, however, as
California courts apply two different choice-of-law tests to
contracts: California Civil Code § 1646 and the common-law
governmental-interest test.
applies here.
The parties dispute which test
Eskenazi contends that § 1646 governs contract
interpretation and that this case requires the interpretation of
the confidentiality agreement.
The Spofford defendants counter
that the governmental-interest test applies because the court
must determine whether the confidentiality agreement is valid
and enforceable, not interpret its terms.
California caselaw generally supports the parties' implicit
assumption that § 1646 only applies to contract interpretation.
See, e.g., Castaldi v. Signature Retail Servs., Inc., No. 15-cv737-JSC, 2016 WL 74640, at *5 (N.D. Cal. 2016); Frontier Oil
Corp. v. RLI Ins. Co., 153 Cal. App. 4th 1436, 1460 (2007).
8
But
this position is by no means universal, as courts have also
applied § 1646 to enforceability proceedings.
See, e.g., Pizza
v. Fin. Indus. Regulatory Auth., Inc., No. 13-cv-0688 MMC (NC),
2015 WL 1383142, at *1 (N.D. Cal. Mar. 19, 2015); Henderson v.
Superior Court, 77 Cal. App. 3d 583, 592, 142 (1978).
Without
any clear guidance from the California Supreme Court, the court
is left with conflicting authority on the scope of § 1646's
reach.
The court ultimately need not pick a side, however,
because the outcome is the same under both tests.
As discussed
below, New Hampshire substantive law applies under § 1646 and
the governmental-interest test.
1.
California Civil Code § 1646
The court turns first to § 1646.
Under that provision a
court must interpret a contract "according to the law and usage
of the place where it is to be performed; or, if it does not
indicate a place of performance, according to the law and usage
of the place where it is made."
Cal. Civ. Code § 1646.
In so
doing, a court must "determine the choice of law with respect to
the interpretation of a contract in accordance with the parties'
presumed intention at the time they entered into the contract."
Frontier, 153 Cal. App. 4th at 1450.
If a contract fails to
indicate a place of performance, "[t]he parties' intention as to
the place of performance can be gleaned from the nature of the
contract and the surrounding circumstances."
9
Id.
A contract is
"'made' in the place of acceptance." Costco Wholesale Corp. v.
Liberty Mut. Ins. Co., 472 F. Supp. 2d 1183, 1197 (S.D. Cal.
2007) (citing ABF Capital Corp. v. Grove Properties Co., 126
Cal. App. 4th 204, 222 (2005)).
The confidentiality agreement does not contain choice-oflaw or place-of-performance provisions.
See doc. no. 43-2.
Nor
is a place of performance readily discernable from the agreement
itself or the surrounding circumstances.
While the
confidentiality agreement is written on Eskenazi's letterhead,
and therefore includes a California address, it is addressed to
Spofford at New Freedom's New Hampshire location.
The agreement
contemplates communications between California and New
Hampshire, while referring explicitly to property in New
Hampshire.
It is unclear where the contract was made, as
Eskenazi and Spofford signed the agreement on the same day and
neither the agreement itself nor Eskenazi's amended complaint
clearly indicates which party accepted the agreement. 5
The place
of performance and place of acceptance are therefore unclear.
5
As the agreement is on Eskenazi's letterhead and is
addressed to Spofford in New Hampshire, one might reasonably
infer that Spofford was the accepting party. But at this
juncture, the court must draw all reasonable inferences in
Eskenazi's favor. When so drawn, the court concludes that there
is no clear indication where the confidentiality agreement was
accepted.
10
When confronted with such circumstances, California courts
apply the factors set forth in Section 188 of the Restatement
(Second) of Conflict of Law.
See, e.g., Royal Hawaiian
Orchards, L.P. v. Olson, No. CV 14-8984-RSWL, 2015 WL 6039202,
at *3 (C.D. Cal. 2015); Henderson, 77 Cal. App. 3d at 592-93.
That section provides that a contract "will be determined by the
law of the state, which with respect to that issue, has the most
significant relationship to that transaction."
Royal Hawaiian
Orchards, L.P., 2015 WL 6039202, at *3 (internal quotation marks
omitted) (quoting Restatement (Second) Conflict of Laws §
188(1)).
Section 188(2) sets forth a series of factors courts
must consider when determining which state has the most
significant relationship to a transaction: "(1) the place of
contracting, (2) the place of negotiation of the contract, (3)
the place of performance, (4) the location of the subject matter
of the contract, and (5) the domicile, residence, nationality,
place of incorporation, and place of business of the parties."
Id. (quoting Restatement (Second) of Conflict of Laws
§ 188(2)(a)-(e)).
These factors "are to be evaluated according
to their relative importance with respect to the particular
issue."
Restatement (Second) of Conflict of Laws § 188(2).
Applying the § 188 factors, the court concludes that New
Hampshire has the most significant relationship to the
transaction contemplated by the confidentiality agreement.
11
The
first, third, and fifth factors cut both ways for reasons
already stated.
So, too, does the second factor, as it appears
the confidentiality agreement was negotiated electronically in
both California and New Hampshire.
But the fourth factor — the
location of the subject matter of the contract — weighs heavily
in favor of New Hampshire.
The confidentiality agreement
primarily concerns communications from California to New
Hampshire designed to facilitate the sale of a New Hampshire
property.
Based on this fact, the court cannot help but
conclude that the subject matter of the confidentiality
agreement is at very least predominantly in New Hampshire.
New
Hampshire is therefore the forum with the most significant
relationship to the transaction.
As such, New Hampshire
substantive law applies.
2.
Governmental-interest test
The governmental-interest test points in the same
direction.
Under that test, the party seeking to apply foreign
law must first "identify the applicable rule of law in each
potentially concerned state and must show that it materially
differs from the law of California."
Wash. Mut. Bank, FA v.
Superior Court, 24 Cal. 4th 906, 919 (2001).
Where the laws are
materially different, the court must then determine "what
interest, if any, each state has in having its own law applied
to the case."
Id. at 920 (citation omitted).
12
If each state has
an interest, the court must ultimately "select the law of the
state whose interests would be 'more impaired' if its law were
not applied."
Id. (citations omitted).
The parties do not meaningfully dispute that, as applied to
this case, the laws in California and New Hampshire materially
differ.
While both states prohibit a person from brokering real
estate without a license, see N.H. Rev. Stat. § 331-A:3; Cal.
Bus. & Prof. Code § 10130, California recognizes a finder's fee
exception to its licensing requirement and New Hampshire does
not, compare Tyrone v. Kelley, 9 Cal. 3d 1, 8 (1973) (“[O]ne who
simply finds and introduces two parties to a real estate
transaction need not be licensed as a real estate broker. Such
an intermediary or middleman is protected by the finder’s
exception to the real estate licensing laws . . .”) 6 with
Blackthorne Group, Inc. v. Pines of Newmarket, Inc., 150 N.H.
804, 809-10 (2004) (barring the plaintiff, a broker not licensed
in New Hampshire, from recovering a fee even where real estate
was incidental to the transaction).
Moreover, the court has no
trouble concluding that each state has an interest in having its
law apply: New Hampshire has an interest in preventing
unqualified individuals from brokering real estate within its
6
See also Lindenstadt v. Staff Builders, Inc., 55 Cal. App.
4th 882, 893-94 (1997) (reaffirming the existence and validity
of the finder’s exception).
13
borders and California has an interest in protecting entities
that structure their business models around its finder's fee
exception.
The court must therefore determine which state's
interest would be more impaired if its laws were not applied to
the confidentiality agreement.
For reasons similar to those previously discussed, the
court concludes that New Hampshire's interests would be more
impaired if its laws were not applied.
At its core, the
confidentiality agreement was designed to facilitate the sale of
New Hampshire real estate.
Real-estate sales are the precise
sort of transactions the NHREPA was designed to regulate.
By
comparison, California's interests are far more attenuated, as
that state's broker regulations and finder's fee exception
plainly apply to real-estate transactions occurring within
California.
See Cal. Bus. & Prof. Code § 10130 (prohibiting a
person from brokering real estate without a license "within this
state").
The court therefore concludes that New Hampshire
substantive law also applies under the governmental-interest
test.
B.
Substantive law
The Spofford defendants contend that the confidentiality
agreement is void under New Hampshire law because Eskenazi was
not a licensed real-estate broker as required by the NHREPA.
The court agrees.
14
The New Hampshire Supreme Court interpreted the scope of
the NHREPA's licensing requirements in Blackthorne Group, Inc.
v. Pines of Newmarket, Inc.
In that case, the plaintiff
contended that it was not subject to those requirements because
"it acted merely as a business broker [that] facilitated the
sale of the defendant's business as a going concern."
Blackthorne, 150 N.H. at 809.
The New Hampshire Supreme Court
rejected that argument, noting that the NHREPA broadly defined
"real estate" to include "business opportunities which involve
any interest in real estate."
Id. at 809 (quoting N.H. Rev.
Stat. Ann. § 331-A:2, IX) (emphasis in original).
The court
concluded that this broad definition extended the NHREPA's
licensing requirements to any transaction involving real estate
"regardless of whether real estate is 'incidental' to the
transaction" and "no matter how de minimis the real estate
interest."
Id. at 809-10.
The court noted that the statute's
only exemption — for "those who receive a fee from a client
based on site searching services rendered in accordance with a
written contract, rather than on completion of any particular
transaction, and who do not hold themselves out as real estate
brokers" — did not apply, in part because the fee in question
was dependent upon completion of a particular transaction.
Id.
at 809 (brackets, ellipsis, and internal quotation marks
omitted) (quoting N.H. Rev. Stat. Ann. § 331-A:4, VIII).
15
The
court thus concluded that "because the plaintiff lack[ed] a New
Hampshire license, its agreement with the defendant . . . [was]
invalid and unenforceable."
Id. at 808 (citing N.H. Rev. Stat.
Ann. § 331-A:32 (prohibiting any person without a New Hampshire
real-estate license from enforcing a brokerage agreement)).
The same is true in this case.
Even were the court to
accept Eskenazi's argument that the confidentiality agreement
only tangentially relates to New Hampshire real estate,
Blackthorne makes clear that this is enough to be subject to of
the NHREPA's licensing requirements.
And as was the case in
Blackthorne, the NHREPA's narrow exemption to those requirements
does not apply here because Eskenazi's finder's fee became due
on "completion of a particular transaction."
Eskenazi was
therefore required under the NHREPA to secure a New Hampshire
real-estate broker's license.
As there is no dispute that
Eskenazi did not hold such a license when he entered into the
confidentiality agreement, that agreement is unenforceable.
See
N.H. Rev. Stat. Ann. § 331-A:32.
IV.
Conclusion
For the reasons set forth above, the court grants the
Spofford defendants' motion to dismiss (doc. no. 50).
In light
of this determination, the court denies as moot the Spofford
defendants' motion to strike (doc. no. 57).
16
Because the Slover
defendants have not moved to dismiss, the court takes no action
with respect to Eskenazi's claim against them.
SO ORDERED.
__________________________
Andrea K. Johnstone
United States Magistrate Judge
December 12, 2018
cc:
Jonathan Mark Levitan, Esq.
James F. Laboe, Esq.
Jeffrey C. Spear, Esq.
Peter N. Tamposi, Esq.
David Edward LeFevre, Esq.
17
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