Producer Capital Fund LLC v. Lazarus Films LLC et al
Filing
75
ORDER granting 49 Motion to Dismiss for Lack of Jurisdiction; granting 55 Motion to Dismiss for Lack of Jurisdiction; granting 61 Motion to Dismiss for Lack of Jurisdiction; finding as moot 61 Motion to Dismiss for Failure to State a Claim Signed by Honorable David C Norton on January 16, 2019.(kwhe, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
CHARLESTON DIVISION
PRODUCER CAPITAL FUND LLC,
)
)
Plaintiff,
)
)
vs.
)
)
LAZARUS FILMS LLC, BLUE NINJA,
)
PRODUCTIONS LLC, BIG MONSTER
)
ENTERTAINMENT LLC, JESSIKA
)
AUERBACH, JASON AUERBACH,
)
SCOTT DUTHIE, RUDY VEGLIANTE,
)
and GREEN LEAF PRODUCTIONS, INC.,
)
)
Defendants.
)
_______________________________________)
No. 2:17-cv-03130-DCN
ORDER
The following matter is before the court on defendants Big Monster
Entertainment LLC (“Big Monster”), Blue Ninja Productions LLC (“Blue Ninja”), Green
Leaf Production, Inc. (“Green Leaf”), and Rudy Vegliante’s (“Vegliante”) (collectively,
“defendants”) 1 motion to dismiss, ECF No. 49, Green Leaf’s motion to dismiss, ECF No.
55, and defendants’ motion to dismiss cross-claim, ECF No. 61. For the reasons set forth
below, the court grants the motions to dismiss the complaint, ECF Nos. 49 and 55, and
the motion to dismiss the cross-claim, ECF No. 61.
1
The court acknowledges that Lazarus Films LLC, Jessika Auerbach, Jason
Auerbach, and Scott Duthie are also defendants in this action. However, these defendants
did not join the other defendants in filing a motion to dismiss but instead filed a crossclaim. Therefore, for the purposes of this order, the court will refer to defendants Big
Monster, Blue Ninja, Green Leaf, and Vegliante as “defendants”, and defendants Lazarus
Films LLC, Jessika Auerbach, Jason Auerbach, and Scott Duthie as “cross-claimants.”
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I. BACKGROUND
This case arises out of a financing dispute related to the funding of a television
production known as “Mission Resolve.” Plaintiff Producer Capital Fund LLC
(“Producer Capital”) is the lender to defendant/cross-claimant Lazarus Films LLC
(“Lazarus Films”), the company that undertook the Mission Resolve film project. Blue
Ninja and Big Monster are both companies that guaranteed performance of the loan that
Lazarus Films entered into with Producer Capital. Green Leaf is a corporation that is a
member of Blue Ninja. Jessika and Jason Auerbach, Scott Duthie, and Vegliante are
allegedly all managers of Lazarus Films, Blue Ninja Productions, and Big Monster
Entertainment. Vegliante is also allegedly the CEO of Green Leaf.
On January 12, 2016, Producer Capital made a loan to Lazarus Films, under
which Lazarus Films agreed to pay $384,408.25 and to transfer tax credits under the
Pennsylvania Film Tax Credit Incentive Program by October 1, 2016. As further security
for the loan, Lazarus Films, Blue Ninja, and Big Monster agreed to give Producer Capital
the right, title, and interest in the Mission Resolve television program and the tax credits
issued by the Pennsylvania Film Tax Credit Incentive program. Under this agreement,
Producer Capital would also receive all film equipment, audio visual equipment, cameras,
lighting, and proprietary materials defined as “Film Collateral and Copyright and Tax
Credit Collateral” in the loan documents. Producer Capital alleges that defendants and
cross-claimants have defaulted under the terms of the agreement. Producer Capital
brought this suit to recover the rights to the collateral that it believes it is owed under the
Note—the rights to the Mission Resolve television production and the Pennsylvania tax
credits.
2
Defendants 2 and cross-claimants initially brought various motions to dismiss after
Producer Capital filed its complaint. ECF Nos. 16, 18, 20, 23. After the issue was fully
briefed, the court held a hearing on April 17, 2018, during which it granted the motions
due to lack of personal jurisdiction and gave leave to Producer Capital to file an amended
complaint to clarify each defendant’s relationship to South Carolina and establish
jurisdiction. Producer Capital had also filed a motion for a preliminary injunction, but
the court found it to be moot given the lack of jurisdiction. On July 20, 2018, Producer
Capital filed an amended complaint and added Green Leaf as a defendant. ECF No. 46.
Then defendants brought another motion to dismiss for lack of personal jurisdiction,
failure to state a claim, and absence of an indispensable party on August 1, 2018. 3 ECF
No. 49. On August 23, 2018, Green Leaf also brought a motion to dismiss, which is
largely duplicative of defendants’ motion. ECF No. 55. Producer Capital responded to
both motions in separate but largely duplicative pleadings on August 29, 2018. ECF Nos.
57, 58.
In addition, after Producer Capital filed its amended complaint, cross-claimants
brought a cross-claim against defendants alleging unjust enrichment and seeking a
declaratory judgment, equitable indemnification, and conversion for equipment
purchased for the Mission Resolve project. 4 ECF No. 56. Defendants filed a motion to
2
Excluding Greenleaf. Greenleaf was not an original party to the case.
Greenleaf is included as a movant in this motion, despite the fact that it also
separately filed an individual motion to dismiss.
4
Cross-claimants mention that defendants filed a related action in Pennsylvania
state court on April 6, 2018: Green Leaf Productions, Inc. v. Lazarus Films LLC, Jessika
Auerbach, and Blue Ninja Productions. Cross-claimants explain that defendants failed to
mention this despite the fact that the hearing before this court was on April 17, 2018.
Cross-claimants allege that this suit is an “end-around” in an attempt to address the issues
raised in the cross-claim. ECF No. 68 at 4.
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dismiss the cross-claim on September 12, 2018. ECF No. 61. Cross-claimants responded
on October 8, 2018, ECF No. 68, and defendants replied on October 15, 2018, ECF No.
71. The court held a hearing on the three motions on January 9, 2019. The motions are
now ripe for the court’s review.
II. STANDARD
A Rule 12(b)(6) motion for failure to state a claim upon which relief can be
granted “challenges the legal sufficiency of a complaint.” Francis v. Giacomelli, 588
F.3d 186, 192 (4th Cir. 2009) (citations omitted); see also Republican Party of N.C. v.
Martin, 980 F.2d 943, 952 (4th Cir. 1992) (“A motion to dismiss under Rule 12(b)(6) []
does not resolve contests surrounding the facts, the merits of a claim, or the applicability
of defenses.”). To be legally sufficient, a pleading must contain a “short and plain
statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P.
8(a)(2).
A Rule 12(b)(6) motion should not be granted unless it appears certain that the
plaintiff can prove no set of facts that would support his claim and would entitle him to
relief. Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993). When
considering a Rule 12(b)(6) motion, the court should accept as true all well-pleaded
allegations and should view the complaint in a light most favorable to the plaintiff.
Ostrzenski v. Seigel, 177 F.3d 245, 251 (4th Cir. 1999). “To survive a motion to dismiss,
a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to
relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial
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plausibility when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Id.
III. DISCUSSION
A. Motions to Dismiss Complaint
The two motions to dismiss the amended complaint are largely the same and
reiterate arguments made during the first round of motions to dismiss. Because Green
Leaf’s motion is nearly identical to defendants’ motion and Green Leaf is also one of
defendants, the court will refer to the arguments as belonging to defendants. First,
defendants argue that the court has no jurisdiction over them. Next, they argue that
Producer Capital failed to state a claim due to the invalidity of the purported guaranty
agreement, and even if the agreement were valid, it requires arbitration in California.
Defendants then argue that Producer Capital did not plead the fraud allegations with
sufficient particularity. In defendants’ final and new argument, they argue that (1)
Producer Capital did not seek leave from the court to add Green Leaf as a party, as the
court only gave Producer Capital permission to amend its complaint with regard to
jurisdictional deficiencies; and (2) relief is possible for all parties in existing litigation in
Pennsylvania, so the amended complaint should be dismissed.
Because jurisdiction is required to address defendants’ other arguments, the court
will consider jurisdiction first. In evaluating a challenge to personal jurisdiction under a
state’s long-arm statute, the court engages in a two-step analysis. Ellicott Mach. Corp. v.
John Holland Party Ltd., 995 F.2d 474, 477 (4th Cir. 1993). First, the long-arm statute
must authorize the exercise of jurisdiction under the facts presented. Id. Second, if the
statute does authorize jurisdiction, then the court must determine if the statutory assertion
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of personal jurisdiction is consistent with due process. Id. South Carolina’s long-arm
statute extends to the outer limits allowed by the Due Process Clause. Foster v. Arletty 3
Sarl, 278 F.3d 409, 414 (4th Cir. 2002). Consequently, the only question before the court
is whether the exercise of personal jurisdiction would violate due process. ESAB Grp.,
Inc. v. Centricut, LLC, 34 F. Supp. 2d 323, 328 (D.S.C. 1999).
The due process test for personal jurisdiction involves two components: minimum
contacts and fairness. See World–Wide Volkswagen Corp. v. Woodson, 444 U.S. 286
(1980). Under the minimum contacts test, a nonresident defendant must have certain
minimum contacts such that the suit does not offend “traditional notions of fair play and
substantial justice.” Int’l Shoe Co. v. State of Wash., Office of Unemployment
Compensation and Placement, 326 U.S. 310, 316 (1945). Due process is satisfied if the
courts asserts personal jurisdiction over a defendant who “purposefully avails itself of the
privilege of conducting activities within the forum state,” Hanson v. Denckla, 357 U.S.
235, 253 (1958), such that it “should reasonably anticipate being haled into court there,”
World-Wide Volkswagen, 444 U.S. at 297. After a showing of the defendant’s
purposeful availment, the reasonableness inquiry balances any burden on the defendant
against countervailing concerns such as the plaintiff’s interest in obtaining relief and the
forum state’s interest in the controversy. See id. at 292.
Personal jurisdiction over a nonresident defendant can be either specific or
general. ESAB Group, Inc., 126 F.3d at 623–24. Producer Capital concedes that there is
no general jurisdiction over defendants. ECF No. 58 at 7. Specific jurisdiction arises
when a cause of action is related to the defendant’s activities within the forum state. See
S.C. Code Ann. § 36-2-803; Helicopteros Nacionales de Colombia, S.A. v. Hall, 466
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U.S. 408, 414 (1984). Defendants argue that the court has no specific jurisdiction over
them. The court agrees.
The Fourth Circuit applies a three-part test when evaluating the propriety of
exercising specific jurisdiction: (1) whether and to what extent the defendant purposely
availed itself of the privileges of conducting activities in the forum state, and thus
invoked the benefits and protections of its laws; (2) whether the plaintiff’s claims arise
out of those forum-related activities; and (3) whether the exercise of jurisdiction is
constitutionally “reasonable.” Christian Sci. Bd. of Dirs. of the First Church of Christ v.
Nolan, 259 F.3d 209, 215–216 (4th Cir. 2001) (citing Helicopteros, 466 U.S. at 414–16;
Burger King v. Rudzewicz, 471 U.S. 462, 472, 476–77 (1985)).
The first prong of the Nolan test for specific jurisdiction concerns whether a
defendant has “purposefully avail[ed] itself of the privilege of conducting activities
within the forum State, thus invoking the benefits and protections of its laws.”
J. McIntyre Mach., Ltd. v. Nicastro, 564 U.S. 873, 877 (2011) (quoting Hanson, 357 U.S.
at 253). The “purposeful availment” element ensures that a defendant will not be haled
into court in a jurisdiction solely as a result of “random,” “fortuitous,” or “attenuated”
contacts or the unilateral activity of another person or third party. Burger King, 471 U.S.
at 475. Even a single contact with the forum state can constitute purposeful availment
sufficient to satisfy due process requirements. Id. at 475 n.18 (“So long as it creates a
‘substantial connection’ with the forum, even a single act can support jurisdiction.”).
Producer Capital contends that defendants have met the purposeful availment
prong because the performance of the guaranty agreement was to take place in South
Carolina, and defendants, specifically mentioning Vegliante, contacted Producer Capital,
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a resident of South Carolina. ECF No. 58 at 8. However, as with its original complaint,
Producer Capital’s amended complaint simply does not contain sufficient details for the
court to determine if defendants purposefully availed themselves of the benefits and
protections of South Carolina law.
The Fourth Circuit has relied on several nonexclusive factors to determine
whether a defendant has purposefully availed itself of a forum in the context of a business
relationship, including:
whether the defendant maintains offices or agents in the forum state;
whether the defendant owns property in the forum state; whether the
defendant reached into the forum state to solicit or initiate business; whether
the defendant deliberately engaged in significant or long-term business
activities in the forum state; whether the parties contractually agreed that
the law of the forum state would govern disputes; whether the defendant
made in-person contact with the resident of the forum in the forum state
regarding the business relationship; the nature, quality and extent of the
parties’ communications about the business being transacted; and whether
the performance of contractual duties was to occur within the forum.
Consulting Eng’rs Corp. v. Geometric Ltd., 561 F.3d 273, 278 (4th Cir. 2009) (citations
omitted). Sporadic business activity within the forum state, including the existence of a
guaranty agreement or a payment made within a state, “do not amount to purposeful
availment of the privilege of conducting activities within” the forum state. Callum v.
CVS Health Corp., 137 F. Supp. 3d 817, 837 (D.S.C. 2015); see also State Bank of
Alleghenies v. Hudnall, 1995 WL 469446, at *2 (4th Cir. Aug. 9, 1995) (“[T]he mere
execution of a guaranty does not invariably subject one to personal jurisdiction in a
foreign forum.”). However, the execution of a guaranty agreement coupled with
additional activity within the forum state can be enough contact to establish specific
jurisdiction. For example, in CresCom Bank v. Terry, the court held that the defendant
purposefully availed himself of the privileges of South Carolina law because he executed
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multiples guaranties with a South Carolina bank, communicated “directly to officers and
employees of the Bank . . . on multiple occasions with regard to the obligations under the
Notes, related mortgages, and the Guaranties,” made personal visits to the bank in South
Carolina, and met in-person with the officers of the bank on multiple occasions. 2012
WL 3115929, at *3–4 (D.S.C. July 31, 2012). Also factoring into the court’s decision
was that the fact that guaranties were governed by South Carolina law. Id. at *4.
Here, the court instructed Producer Capital to file an amended complaint in which
it “delineat[ed] which defendant did which thing in connection with which state,
including South Carolina.” ECF No. 44 at 12. Despite this clear instruction, the
amended complaint did not do so. Producer Capital added just three additional general
references to South Carolina, with now a total of four mentions of South Carolina.
Producer Capital kept the language from its original complaint alleging that “the matters
complained of took place in whole or in part in Charleston County, South Carolina, and
the sums borrowed were to be repaid in Charleston County, South Carolina.” ECF No.
46 ¶ 12. It then added to the preexisting phrase that the “loan agreements giving rise to
this action were to be performed in whole or in part in Charleston County, SC” were also
“funded from accounts held by South Carolina banks, with performance and repayment
of the loans to be completed in South Carolina.” Id. ¶ 10. Producer Capital newly
alleged that Vegliante would direct any inquiries about the funding and the status of the
loan documents to Producer Capital, which was located in South Carolina. Id. ¶ 18. The
final mention of South Carolina was clarification that all of the contracts between
Producer Capital and defendants “were to be performed in South Carolina.” Id. ¶ 45.
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All of these references to South Carolina are insufficient to establish purposeful
availment because they simply show that defendants entered into a contract with a South
Carolina resident without any reason to believe they could be haled into court in South
Carolina. Producer Capital argues that specific jurisdiction exists because (1) the
guaranty agreement were to be performed in South Carolina; (2) the loans were funded
from accounts in South Carolina banks; and (3) communication about the loan was
directed to Producer Capital, located in South Carolina. But these contacts are either too
sporadic or described in too vague of a manner for the court to find that defendants
purposefully availed themselves of the privilege of South Carolina law. While the fact
that the guaranty agreement was to be performed in South Carolina weighs in favor of
finding personal jurisdiction, the lack of other contacts with South Carolina weakens the
significance of this fact. The amended complaint alleges that communication occurred
between defendants and Producer Capital, but it does not explain where or how often the
communications occurred or who called whom. Unlike the defendant in CresCom Bank,
there are no specific allegations of multiple communications with defendants, in-person
or otherwise. Also unlike the defendant in CresCrom Bank, there are no allegations here
that any of the defendants ever visited Producer Capital in South Carolina. Moreover,
unlike the agreement in CresCom Bank, the agreement here is governed by California
law.
Considering the factors relied upon by the Fourth Circuit to determine if
purposeful availment exists, the amended complaint falls short of establishing personal
jurisdiction. Defendants do not maintain an office or own property in South Carolina.
While Vegliante individually may have reached into South Carolina to solicit business
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with Producer Capital, the amended complaint contains no details regarding whether any
of the other defendants contacted Producer Capital or made in-person contact with
Producer Capital in South Carolina. Producer Capital gives no information regarding the
nature and extent of communication between Producer Capital and defendants.
In addition, the amended complaint does not indicate that defendants intended to
engage in “significant or long-term business activities” with Producer Capital. See also
Ellicott Mach. Corp., 995 F.2d at 478 (requiring a “long-term relationship with
continuing and wide-reaching contacts” with plaintiff to establish jurisdiction). Based on
the court’s review of the agreement, it appears that the agreement was created in January
2016 and was to be completed by October 2016. The agreement requires payment and
transfer of tax credits without anything more to the relationship. It would be difficult to
characterize this arrangement as “significant or long-term business activities,” nor does it
suggest a “long-term relationship with continuing and wide-reaching contacts.” Finally,
as mentioned above, the agreement states that California law governs. The facts
supporting jurisdiction, that the agreement was to be performed in South Carolina and
Vegliante solicited business from a South Carolina resident, cannot overcome the other
factors against jurisdiction and the insufficient details in the amended complaint for the
court to conclude that defendants purposefully availed themselves of the privileges of
South Carolina law. As such, Producer Capital cannot establish that the court has
specific jurisdiction over defendants, and the court grants defendants’ motions to dismiss
the amended complaint.
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B.
Motion to Dismiss Cross-claim
Cross-claimants seek (1) a declaratory judgment clarifying their rights,
obligations, and liabilities vis-à-vis defendants; (2) indemnity from defendants for any
liability as a result of this suit; (3) damages for conversion for defendants’ alleged failure
to return to cross-claimants $1 million worth of equipment that was jointly owned; and
(4) damages for unjust enrichment as a result of defendants’ alleged failure to return the
equipment. Defendants argue the cross-claim should be dismissed because there is no
personal jurisdiction, the cross-claim fails to state a claim, and any ruling on the crossclaim would interfere with the Pennsylvania state action filed by defendants. 5
As discussed above, there are insufficient allegations in the complaint to establish
personal jurisdiction in South Carolina over defendants. The cross-claim does not
contain any allegations about any relation to South Carolina, and based on the underlying
complaint, it appears that any interaction between defendants and cross-claimants would
not have occurred in South Carolina. Therefore, the court dismisses the cross-claim for
lack of personal jurisdiction. 6
5
In their motion to dismiss the cross-claim, defendants also raise the argument
that cross-claimants previously argued that the complaint should be dismissed for lack of
personal jurisdiction, and under the theory of estoppel, they should be barred from now
arguing that the court has personal jurisdiction. Cross-claimants respond that they were
able to change their position because the amended complaint contains new facts that
support personal jurisdiction; however, in light of the discussion above, the court find this
to be unconvincing.
6
At the hearing on the motions, the parties argued that this court was the best
forum to hear this case, mentioning an aversion to Pennsylvania state court. As the court
pointed out at the hearing, personal jurisdiction is not based on the convenience of the
parties. Moreover, the court sees no reason why the suit could not be filed in federal
court in Pennsylvania, where it would be more likely for Producer Capital to establish
jurisdiction over defendants.
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IV. CONCLUSION
For the foregoing reasons, the court grants the motions to dismiss the complaint,
ECF Nos. 49 and 55, and the motion to dismiss the cross-claim, ECF No. 61.
AND IT IS SO ORDERED.
DAVID C. NORTON
UNITED STATES DISTRICT JUDGE
January 16, 2019
Charleston, South Carolina
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