Celtig v. Patey et al
Filing
84
MEMORANDUM DECISION AND ORDER granting in part and denying in part 29 Brain Edwardss Motion to Dismiss with Prejudice Third-Party Complaint Against Third-Party Defendant Edwards for Lack of Personal Jurisdiction. It is hereby ORDER ED that the Third-Party Complaint filed by Third-Party Plaintiffs Evergreen Strategies, LLC and Relay Advanced Materials, Inc. docket entry 29 is DISMISSED WITHOUT PREJUDICE as to Edwards. Signed by Judge Jill N. Parrish on 9/26/2018. (jds)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
CELTIG, LLC,
MEMORANDUM DECISION AND ORDER
GRANTING IN PART AND DENYING IN PART
MOTION TO DISMISS THIRD-PARTY
DEFENDANT EDWARDS
Plaintiff,
v.
AARON A. PATEY, et al.,
Case No. 2:17-cv-01086-JNP
Defendants.
District Judge Jill N. Parrish
Before the court is Third-Party Defendant Brain Edwards’s Motion to Dismiss with
Prejudice Third-Party Complaint Against Third-Party Defendant Edwards for Lack of Personal
Jurisdiction. For the reasons set forth below, the court GRANTS IN PART and DENIES IN PART
Edwards’s motion. The Third-Party Complaint filed by Third-Party Plaintiffs Evergreen
Strategies, LLC and Relay Advanced Materials, Inc. is dismissed without prejudice as to Edwards.
I.
INTRODUCTION
Third-Party Plaintiffs Evergreen and Relay Advanced Materials (RAM) bring suit against
Third-Party Defendant Brian Edwards, CEO of Celtig, LLC, on two counts: tortious interference
with economic relations and civil conspiracy. Third-Party Complaint ¶¶ 121-26; 153-58. Edwards
moves to dismiss the claims against him for lack of personal jurisdiction. Motion to Dismiss
(“Motion”).
Evergreen and RAM allege personal jurisdiction over Edwards arising from his actions “in
furtherance of the common scheme to commit tortious and contractual breaches” that caused
“tortious injury” to Third-Party Plaintiffs in the state of Utah, “pursuant to Utah Code § 78B-3205(3).” Third-Party Compl. ¶ 13, 22. Evergreen and RAM have not alleged that Edwards is
1
domiciled in the state of Utah, which would subject Edwards to the court’s general jurisdiction.
Therefore, to establish personal jurisdiction over Edwards individually, Evergreen and RAM must
meet their burden of showing that Edwards intentionally caused Third-Party Plaintiffs harm within
the state of Utah. As Evergreen and RAM have failed to allege a prima facie case of conspiracy
involving Edwards, the court must dismiss, without prejudice, the claims against Edwards for lack
of personal jurisdiction.
II.
FACTUAL ALLEGATIONS
A. BACKGROUND
This case involves a business dispute between the parties regarding the substance graphene,
a “unique substance that has not been easily or economically produced.” Third-Party Compl. ¶ 1.
Plaintiff and Third-Party Defendant Celtig L.L.C. is a Tennessee limited liability company that
created a process allowing for the mass production of graphene at low cost.
Third-Party Compl. ¶ 1, 8. On or about March 28, 2017, Evergreen, a Nevada limited liability
company with offices in Utah County, Utah, signed two business agreements with Celtig: the
Definitive Agreement and the Exclusive License and Distribution Agreement (“Licensing
Agreement”).
Third-Party
Compl.
¶¶
6,
25.
On
or
about
the
same
day,
Evergreen and Impel Sales LLC, a Utah limited liability company (Third-Party Compl. ¶ 16),
entered into the “Impel Agreement.” Third-Party Compl. ¶ 65. Finally, as part of the negotiations,
Third-Party Plaintiff Relay Advanced Materials, Inc. (“RAM”), a Delaware corporation whose
principal place of business is Lindon, Utah, was formed “for the purpose of purchasing product
from Celtig.” Third-Party Compl. ¶ 7.
Conflict between the parties concerning the Definitive Agreement arose almost
immediately after the signing. Section 1 of the Definitive Agreement calls for Evergreen to prepay $750,015 for the purchase of 833,350 grams of graphene from Celtig within three business
2
days following execution of the agreement. Third-Party Compl. ¶ 27. Evergreen and RAM allege
that Evergreen pre-paid the $750,015, but Celtig failed to deliver the 833,350 grams of graphene.
Third-Party Compl. 29. Evergreen alleges that Celtig refused to deliver the graphene because it
was unable to produce graphene that met the quality and purity standards to which the parties
agreed. Third-Party Compl. ¶ 30. Evergreen and RAM also allege that Celtig refused to deliver the
graphene because of concerted actions taken by the “Conspirators.” The Conspirators allegedly
mischaracterized the requirements of the Definitive Agreement to make it appear that the $750,015
payment was for graphene that Celtig would produce at a later date and that the graphene would
need to be paid for again before delivery. Third-Party Compl. ¶ 32. These mischaracterizations
made it appear to Celtig that Evergreen breached the Definitive Agreement. Third-Party Compl.
¶ 32.
B. THE CONSPIRACY
The “Conspirators” allegedly include Brent Benjamin Woodson, Phillip Cox, Michael
Gunderson, Tibor Kalnoki-kes, David Nielson, David Waite, Brian Edwards, ULLC, Impel Sales,
and “other Doe Defendants.” Third-Party Compl. ¶ 85. According to Evergreen, the Conspirators
“precipitated the instant dispute between Evergreen and Celtig,” and are “liable for any damages
Celtig may prove against Evergreen.” Third-Party Compl. ¶ 124.
The Conspirators allegedly
made it appear that Evergreen breached the Definitive Agreement, but in actuality, it was Celtig
that breached the Definitive Agreement on multiple occasions. Third-Party Compl. ¶ 34-45. Celtig
also allegedly breached the requirements of the Licensing Agreement. Third-Party Compl. ¶ 58.
According to Evergreen and RAM, “some or all of these breaches by Celtig are the result of the
concerted action of some or all of the Conspirators.” Third-Party Compl. ¶ 46.
The Conspirators allegedly also attempted to directly interfere with the business
agreements between Celtig, Evergreen, and RAM by establishing competing businesses. In April
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2017, Cox allegedly formed “a series of companies” to “supplant Evergreen and RAM.” ThirdParty Compl. ¶ 87. On or about August 18, 2017, Woodson and Kalnoki-kes allegedly formed
ULLC for the purpose of competing with RAM, in violation of their employment agreements.
Third-Party Compl. ¶ 70. Nielson and Waite allegedly worked in concert with Woodson and
Kalnoki-kes to establish ULLC. Third-Party Compl. ¶ 80, 82. It is not alleged that Edwards had
any involvement with this part of the scheme.
After six months of failed business negotiations, on or about September 11, 2017, Edwards,
acting on behalf of Celtig, attempted to terminate the Definitive Agreement and the Licensing
Agreement
by
sending
an
email
to
the
President
of
RAM
and
Evergreen.
Third-Party Compl. ¶ 91. According to Evergreen, Celtig’s attempts to terminate the Definitive
Agreement and Licensing Agreement were without cause. Third-Party Compl.
¶¶ 53, 62.
Evergreen and RAM allege that “[b]ut for the tortious activities of the Conspirators, no attempt
would have been made by Celtig to terminate the Definitive Agreement” or the “Licensing
Agreement,” two actions which “furthered the aims of the Conspirators.” Third-Party Compl. ¶¶
54, 62, 63.
RAM and Evergreen did not receive the email terminating the agreements until three days
later, on September 14, 2017, allegedly because Edwards did not address the email to the correct
email address per the notice provisions of the agreements. Instead, Edwards sent the email to the
President’s “relaycorp.com” email, which allegedly had been tampered with by Woodson. ThirdParty Compl. ¶ 92. It is alleged that Woodson, one of the Conspirators, on or about September 7,
2017, used his control of RAM’s email server, “relaycorp.com” to prevent the President of RAM
and Evergreen from accessing his email address. Third-Party Compl. ¶ 90. The correct email
address could not have been tampered with by Woodson. Third-Party Compl. ¶ 91.
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During the same time period, on or about September 12, 2017, someone at RAM informed
Celtig that Woodson was going to be fired in a communication marked “CONFIDENTIAL
INFORMATION.” Third-Party Compl. ¶ 93. Edwards was allegedly bound, as CEO of Celtig, by
the Definitive Agreement and the Licensing Agreement, which contained confidentiality
provisions prohibiting “disclosing confidential information to third parties without the consent of
Evergreen.” Third-Party Compl. ¶ 47. Edwards had been informed the communicated information
was confidential per the terms of the agreements between Celtig and Evergreen. Third-Party
Compl. ¶ 94. Despite this, Edwards told Woodson that he was going to be fired. Woodson quit the
next day, on or about September 13, 2017. Third-Party Compl. ¶ 94.
C. THE LAWSUIT
On September 14, 2017, Evergreen learned that Edwards, Cox, and Celtig had jointly
retained an attorney in Salt Lake City, Utah. Third-Party Compl. ¶ 96. On September 26, 2017,
Celtig filed suit against RAM and Evergreen, alleging, among other things, breach of contract and
fraud. Motion 3. Evergreen and RAM filed their Third-Party Complaint on November 1, 2017.
Evergreen and RAM allege that the Conspirators tortiously and intentionally interfered with
Evergreen’s contractual relationship with Celtig in order to appropriate the benefits of the contracts
for themselves, as well as conspiring to damage Evergreen and RAM’s “relationships with
potential partners.” Third-Party Compl. ¶ 86; 4. As a result of their actions, and the breaches by
Celtig, Evergreen and RAM allege they have been harmed in an amount “which conservatively
exceeds $5 billion dollars [sic].” Third-Party Compl. ¶ 5.
III.
ANALYSIS
A. PERSONAL JURISDICTION GENERALLY
Edwards moves to dismiss with prejudice Evergreen and RAM’s Third-Party Complaint
against Edwards for lack of personal jurisdiction. A court may dismiss a party for lack of personal
5
jurisdiction under Rule 12(b)(2) of the Federal Rules of Civil Procedure. Such a dismissal is
without prejudice. Hollander v. Sandoz Pharm. Corp., 289 F.3d 1193, 1216 (10th Cir. 2002). 1
When personal jurisdiction is contested at the pleading stage, courts may determine
whether it exists based on the pleadings and affidavits. Shrader v. Biddinger, 633 F.3d 1235, 1239
(10th Cir. 2011). The plaintiff bears the burden of establishing personal jurisdiction. Id. A plaintiff
makes this prima facie showing “by demonstrating, via affidavit or other written materials, facts
that if true would support jurisdiction over the defendant.” Melea, Ltd. v. Jawer SA, 511 F.3d 1060,
1065 (10th Cir. 2007) (citation omitted). The court must accept as true well-pleaded allegations in
the plaintiff’s complaint so long as they are not contradicted by an affidavit. Id. In this case, neither
party has submitted affidavits or other evidence in connection with the motion to dismiss, thus all
facts are drawn from the third-party complaint and responsive pleadings, and all well-pled
allegations in the complaint are accepted as true. See Shrader, 633 F.3d at 1242 (limiting “facts
that must be accepted for purposes of the jurisdictional analysis to those well pled (that is,
plausible, non-conclusory, and non-speculative)” (internal quotation marks and citation omitted)).
A federal court sitting in diversity may only assert personal jurisdiction over a defendant
if the defendant is subject to the jurisdiction of a court of general jurisdiction in the state in which
the district court is located and the exercise of personal jurisdiction comports with the due process
clause of the Fourteenth Amendment. Melea, 511 F.3d at 1065. Under the first prong, the court
looks to Utah law for the limits of its jurisdiction. See Fed. R. Civ. P. 4(k)(1)(A). Both parties
1
Personal jurisdiction “is an essential element” of this court’s jurisdiction, “without which the
court is powerless to proceed to an adjudication.” Ruhrgas AG v. Marathon Oil Co., 526 U.S.
574, 584 (1999) (citing to Employers Reinsurance Corp. v. Bryant, 299 U.S. 374, 382 (1937).
Therefore, dismissal with prejudice would be contrary to the established rule that dismissals for
lack of personal jurisdiction are without prejudice. Hollander v. Sandoz Pharm. Corp., 289 F.3d
1193, 1216 (10th Cir. 2002).
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allege that Edwards “resides” in Tennessee. Third-Party Compl. ¶ 13; Motion 3. As Edwards is an
out-of-state defendant, the court must look to Utah’s long-arm statute. Utah’s long-arm statute
extends jurisdiction “to the fullest extent permitted by the due process clause of the Fourteenth
Amendment.” Utah Code Ann. § 78B-3-201(3). Accordingly, the personal jurisdiction analysis in
this case involves only the second-prong inquiry: whether the exercise of jurisdiction over Edwards
comports with the due process clause of the Fourteenth Amendment. See Melea, 511 F.3d at 1065.
B. DUE PROCESS
Under the due process clause, a court may exercise personal jurisdiction over a defendant
so long as (1) the defendant “purposefully established minimum contacts with the forum State”
and (2) the assertion of personal jurisdiction comports with notions of “fair play and substantial
justice.” Old Republic Ins. Co. v. Cont’l Motors, Inc., 877 F.3d 895, 903 (10th Cir. 2017) (quoting
Burger King Corp v. Rudzewicz, 471 U.S. 462, 476 (1985)).
1. Minimum Contacts
A defendant’s contacts, depending on their quality and quantity, may give rise to either
general or specific jurisdiction. Id. The court only has general jurisdiction over an individual
domiciled in the state. “For an individual, the paradigm forum for the exercise of general
jurisdiction is the individual’s domicile. . . .” Goodyear Dunlop Tires Operations, S.A. v. Brown,
564 U.S. 915, 924 (2011). Here, Evergreen and RAM allege that Edwards is a resident of
Tennessee. Third-Party Compl. ¶ 13; Motion, 3. They do not allege that he is domiciled in Utah.
They have not argued that the court has general jurisdiction over Edwards. As such, Evergreen and
RAM have not established that the court has general jurisdiction over Edwards.
In the absence of general jurisdiction, the court turns to an analysis of specific jurisdiction,
the first element of which is the minimum contacts analysis. A court may find the necessary
minimum contacts if: (1) the defendant “purposefully directed its activities at residents of the
7
forum state,” and (2) the plaintiff’s injuries “arise out of the defendant’s forum-related activities.”
Old Republic, 877 F.3d at 904 (quoting Shrader, 633 F.3d at 1239).
a. Purposeful Direction/Availment 2
The first consideration in the minimum contacts analysis is whether Edwards purposefully
directed activities at residents of the forum state, in this case Utah. This “requirement ensures that
a defendant will not be haled into a jurisdiction solely as a result of random, fortuitous, or
attenuated contacts, or of the unilateral activity of another party or third person.” Burger King
Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985) (internal quotation marks and citations omitted).
An out-of-state defendant purposefully directs activities at the forum either by “purposefully
avail[ing] itself of the privilege of conducting activities within the state” or when defendant’s
“intentional conduct targets and has substantial harmful effects in the forum state.” Old Republic,
877 F.3d at 918 (quoting Burger King, 471 U.S. at 475) and id. at 907 (quoting Calder v. Jones,
465 U.S. 783, 790–91 (1984)).
Evergreen and RAM have not named Edwards as a defendant because he did business in
the state of Utah. Opposition to Motion to Dismiss (“Opposition”) 2. Edwards did not do business
in Utah in his personal capacity and his role as CEO of a company doing business in the state of
Utah is insufficient to subject him to personal jurisdiction in Utah. Wegerer v. First Commodity
Corp. of Boston, 744 F.2d 719, 726–27 (10th Cir. 1984). In their opposition to the motion to
dismiss, Third-Party Plaintiffs cite to Armed Forces Ins. Exch. V. Harrision, 2003 UT 14, ¶ 19, 70
P.3d 35, 41, arguing that Edwards’s role as an agent for Celtig is “irrelevant,” because any tortious
2
“The purposeful direction and ‘arising out of’ requirements together comprise the minimum
contacts analysis.” Old Republic, 877 F.3d at 909 n.19. The Tenth Circuit “usually use[s] the term
‘purposeful direction’ in the tort context and ‘purposeful availment’ in the contract context.” Id. at
904 n.11. “In any event, the terms ‘purposeful direction’ and ‘purposeful availment’ denote the
same requirement.” Id.
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conduct Edwards committed, even acting as CEO, can subject him to personal liability. Opposition
3. However, Harrison, is not directly applicable here. First, Harrison was a fraud case. Secondly,
although Rusakiewicz v. Lowe, 556 F.3d 1095, 1102 (10th Cir. 2009) expanded Harrison to more
than just fraud cases, neither case supports the exercise of personal jurisdiction over an agent of a
company solely because the company is alleged to have committed wrongful acts. See Proficio
Bank v. Wire Source, LLC, No. 2:11-CV-808, 2012 WL 1448207, at *3 (D. Utah 2012) (citing
Rusakiewicz v. Lowe, 556 F.3d at 1102). Rather, jurisdiction over Edwards must be established
based on his individual contacts, lawful or unlawful, with the forum state.
Evergreen and RAM allege personal jurisdiction over Edwards because “he has
participated in tortious activity which had caused damages to the Third-Party Plaintiffs within the
State of Utah.” Opposition 2; Third-Party Compl. ¶ 22. To establish personal jurisdiction based
on “effects” felt within the state, Tenth Circuit law requires three elements: “(a) an intentional
action . . . , that was (b) expressly aimed at the forum state . . . , with (c) knowledge that the brunt
of the injury would be felt in the forum state.” Old Republic Ins. Co. v. Cont'l Motors, Inc., 877
F.3d 895, 907–08 (10th Cir. 2017) (quoting Dudnikov v. Chalk & Vermilion Fine Arts, Inc., 514
F.3d 1063, 1072 (10th Cir. 2008); see also Newsome v. Gallacher, 722 F.3d 1257, 1268 (10th Cir.
2013) (applying the same three-factor test).
The first question in this case is what “tortious activity” forms the basis for the assertion
of personal jurisdiction. The court cannot evaluate whether Edwards directed tortious activity at
the state of Utah without a clear idea of what tort he allegedly committed. Evergreen and RAM
name Edwards as a third-party defendant in two counts: tortious interference with economic
relations and civil conspiracy. Third-Party Compl. ¶¶ 121–126, ¶ 153–158. What is not entirely
clear is whether Edwards is being sued individually for tortious interference with economic
9
relations, or whether tortious interference with economic relations is simply the tort underlying the
alleged civil conspiracy. Motion 4 n.1. Although Third-Party Plaintiffs’ initial assertion of
personal jurisdiction broadly refers to participation in “tortious activity,” they later assert that
Edwards only acted “in his individual capacity in furtherance of the common scheme to commit
tortious and contractual breaches.” Third-Party Compl. ¶ 13. This is repeated in their opposition
to the motion to dismiss, where they claim Edwards was only named “as a participant in a
conspiracy to commit intentional torts.” Opposition 2. Accordingly, the personal jurisdiction
analysis will focus on whether the court can exercise personal jurisdiction over Edwards based on
his alleged participation in a civil conspiracy.
i. Civil Conspiracy
In Melea, Ltd. v. Jawer, SA, 511 F.3d 1060, 1070 (10th Cir. 2007), the Tenth Circuit held
a conspiracy directed at the forum can form the basis for personal jurisdiction if at least some act
in furtherance of the conspiracy happens in the forum. In Newsome v. Gallacher, 722 F.3d 1257,
1265–66 (10th Cir. 2013), the Tenth Circuit extended Melea to allow the assertion of personal
jurisdiction over co-conspirators whose actions merely targeted the forum. However, to meet their
burden of establishing personal jurisdiction, plaintiffs “must offer more than ‘bare allegations’ that
a conspiracy existed, and must allege facts that would support a prima facie showing of a
conspiracy.” Melea, 511 F.3d at 1069 (quoting Lolavar v. de Santibanes, 430 F.3d 221, 229-30
(4th Cir. 2005)).
In addition to making “a threshold showing that a conspiracy existed,” plaintiffs must
demonstrate “that the defendants participated therein.” Lolavar v. de Santibanes, 430 F.3d at 229
(citing McLaughlin v. McPhail, 707 F.2d 800, 807 (4th Cir. 1983)). In Newsome, 722 F.3d at
1266, the court accepted the plaintiff’s contention that personal jurisdiction could be analyzed
identically for all co-conspirators. In that case, the defendants were all board members of the same
10
company, domiciled in Canada, and were all alleged to have participated in the conspiracy in
identical ways. Thus, for personal jurisdiction purposes, they were identical. But that is not the
case here.
In this case, the “Conspirators” have different domiciles, worked for three separate
companies, and had varying involvement in the alleged conspiracy. Edwards was CEO of Celtig.
Third-Party Compl. ¶ 13. Woodson, Kalnoki-Kes, Nielson, and Waite were all employees of
RAM. Third-Party Compl. ¶ 9-15. Cox and Gunderson both worked for Impel. Third-Party Compl.
¶¶ 10, 11. Utah Lake Legacy Coalition LLC (ULLC) is not defined in the Third Party Complaint.
Accordingly, in order to establish personal jurisdiction under a conspiracy theory, Evergreen and
RAM must establish that Edwards himself actively participated in the conspiracy to harm ThirdParty Plaintiffs in Utah.
Under Utah law, a civil conspiracy requires proof of five elements: “(1) a combination of
two or more persons, (2) an object to be accomplished, (3) a meeting of the minds on the object or
course of action, (4) one or more unlawful, overt acts, and (5) damages as a proximate result
thereof.” Pohl, Inc. of Am. v. Webelhuth, 2008 UT 89, ¶ 29, 201 P.3d 944, 954-55 (internal citation
omitted). In this case, Evergreen and RAM allege that (1) “The Third Party Defendants”; (2)
“combined for the object of intentionally interfering with the [sic] Evergreen and RAM’s existing
and potential economic relations”; (3) that “there was a meeting of the minds of these Third Party
Defendants on the object or the course of action,”; (4) the “Third Party Defendants unlawfully and
overtly breached contracts . . . in furtherance of this civil conspiracy” and (5) “Evergreen and RAM
have been damaged in an amount to be determined at trial as a result of this conspiracy.” ThirdParty Compl. ¶¶ 153-58. These base allegations are insufficient to establish civil conspiracy.
11
Evergreen and RAM allege that Edwards combined with the other Third-Party Defendants
for the object of tortiously and intentionally interfering with Evergreen’s economic relations with
Celtig in order to appropriate the benefits of the contracts for themselves, as well as interfering
with Evergreen and RAM’s potential investors. Third-Party Compl. ¶¶ 4, 86. As evidence of this,
Evergreen and RAM allege that Cox, Woodson, and Kalnoki-kes formed “a series of companies,”
including ULLC, to “supplant Evergreen and RAM.” Third-Party Compl. ¶¶ 70, 87. Nielson and
Waite allegedly aided Woodson and Kalnoki-kes to establish ULLC. Third-Party Compl. ¶¶ 80,
82. The existence of the competing companies is some evidence that the Conspirators intended to
interfere with the business relationships of the companies; however, it is not alleged that Edwards
had any involvement with this part of the scheme.
Although Evergreen and RAM identify Edwards as one of a combination of two or more
persons who pursued a wrongful object, they fail to establish a meeting of the minds between
Edwards and the other alleged conspirators. To establish a meeting of the minds, Evergreen and
RAM allege that Edwards communicated with the other conspirators. Third-Party Compl. ¶ 33. In
Melea, 511 F.3d at 1070, the court refused to assert personal jurisdiction over a defendant whose
only forum-related action with regard to the purported conspiracy was receiving communications
from Colorado. In this case, Edwards sent and received correspondence to and from Utah, but there
is no direct evidence that this correspondence was part of a conspiracy. Edwards was CEO of
Celtig. He signed documents and correspondence on behalf of Celtig. He is the only named ThirdParty Defendant who worked for Celtig. But that does not make him “necessarily involved” in a
conspiracy. Opposition 4.
Besides general allegations that Edwards communicated with Conspirators, Evergreen and
RAM assert only two actions by Edwards in furtherance of a conspiracy. First, they assert that
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Edwards deliberately sent the wrongful termination notices regarding the Definitive and Licensing
Agreements to an email account that Woodson had compromised. Third-Party Compl. ¶ 91.
Second, they assert that Edwards breached the confidentiality provisions of the agreement by
informing Woodson that he would be fired. Third-Party Compl. ¶ 94. Edwards denies that Celtig’s
termination of the agreements was wrongful and he further denies that directing an email to an
incorrect address constitutes any proof of a conspiracy. Motion 9-10; see also Reply to Opposition
to Motion to Dismiss (“Reply”) ¶ 16). The court agrees that these events appear to be mere parallel
action and therefore not evidence of an actual agreement. See Bell Atl. Corp. v. Twombly, 550 U.S.
544, 564 (2007).
Even were there proof of a meeting of the minds, to satisfy the fourth element of a civil
conspiracy, case law requires that a plaintiff show that the defendant participated in an underlying
tort. Estrada v. Mendoza, 2012 UT App 82, 275 P.3d 1024, 1029. “Where plaintiffs have ‘not
adequately pleaded any of the basic torts they allege ... dismissal of their civil conspiracy claim’
is appropriate.” Id. (citation omitted). Thus, Evergreen and RAM must establish that Edwards
participated in an underlying tort in order state a claim for civil conspiracy.
ii. Tortious Interference with Economic Relations
The underlying tort on which Evergreen and RAM base their civil conspiracy claim is
tortious interference with economic relations. Under Utah law, tortious interference with economic
relations is an umbrella term encompassing two torts: intentional interference with performance of
a contract (Restatement (Second) of Torts § 766A) and intentional interference with prospective
contractual relations (Restatement (Second) of Torts § 766B). See Leigh Furniture & Carpet Co.
v. Isom, 657 P.2d 293, 301 (Utah 1982), overruled on other grounds by Eldridge v. Johndrow,
2015 UT 21, 345 P.3d 553 (“the right of action for interference with a specific contract is but one
instance, rather than the total class, of protections against wrongful interference with advantageous
13
economic relations”). Many of the elements of the two claims overlap, and courts often analyze
the two claims together under the umbrella of tortious interference with economic relations. See
Anderson Dev. Co. v. Tobias, 2005 UT 36, 116 P.3d 323; St. Benedict's Dev. Co. v. St. Benedict's
Hosp., 811 P.2d 194, 200 (Utah 1991).
The prospective economic relations variant of the tort was first recognized by the Utah
Supreme Court in Leigh Furniture, 657 P.2d 293 (Utah 1982). As originally adopted, a plaintiff
seeking to recover damages was required to prove “(1) that the defendant intentionally interfered
with the plaintiff’s existing or potential economic relations, (2) for an improper purpose or by
improper means, (3) causing injury to the plaintiff.” Id. at 304 (emphasis added). In Eldridge v.
Johndrow, 2015 UT 21, 345 P.3d 553, the Utah Supreme Court abandoned the alternative
formulation of the second element that had allowed a plaintiff to establish a claim of intentional
interference based upon a defendant’s “improper purpose.” Among its articulated reasons for
abandoning the improper purpose alternative were the “problems inherent in proving motivation
or purpose” and the difficulty of providing meaningful guidance on the issue for both courts and
parties alike. Id. at 555; 561-63. Thus, to prove a claim for intentional interference, a plaintiff must
now establish that the interference was accomplished by improper means. Unfortunately, in
abandoning the improper purpose alternative in the tortious interference test, the court did not
specify whether the revised formulation applies to claims for tortious interference with existing
contract, tortious interference with prospective economic relations, or both, although the language
from Leigh Furniture cited by the court had laid out the standard for establishing the newly
formulated tort of interference with prospective contractual relations. See Leigh Furniture, 657
P.2d at 304.
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The scope of the Eldridge opinion is of importance here because it bears on the issue of
whether Edwards, acting in his capacity as CEO of Celtig, utilized improper means in terminating
Celtig’s contract with Evergreen or in breaching the confidentiality provisions of those contracts.
Prior to Eldridge, there was a key difference between the torts of interference with existing contract
and interference with prospective economic relations. In Leigh Furniture, the court held that a
“deliberate breach of contract, even where employed to secure economic advantage, is not, by
itself, an ‘improper means.’” Leigh Furniture, 657 P.2d at 309. “It is settled that one party to a
contract cannot be liable for the tort of interference with contract for inducing a breach by himself
or the other contracting party.” Id. at 301. Thus, to sue for interference with an existing contract, a
plaintiff must establish that the defendant “intentionally and improperly interfere[d] with the
performance of a contract . . . between another and a third person by inducing or otherwise causing
the third person not to perform the contract.” Id. (quoting Restatement (Second) of Torts §766).
In recognizing the theory of efficient breach or the right of a contracting party to breach its
own contract, the court in Leigh Furniture acknowledged that a breach of contract action could
entirely compensate the other party through payment of contract damages, giving defendants an
efficient breach defense in an intentional interference with existing contract tort action. Id. at 301.
Leigh Furniture extended the defense to claims for intentional interference with prospective
economic relations as well; however, the court limited the defense by holding that a deliberate
breach of contract “committed for the immediate purpose of injurying [sic] the other contracting
party” can satisfy the “improper means” prong of a claim for tortious interference with prospective
economic relations. Id. at 309, 311. In other words, if a plaintiff could prove deliberate breach
and an improper purpose, then efficient breach was not a defense in the intentional interference
with prospective economic relations context. In fact, in Leigh Furniture, the court declined to
15
sustain the jury verdict for intentional interference with an existing contract because the defendant
was a party to the contract at issue, but it affirmed the jury verdict for intentional interference with
prospective contractual relations. Id. at 301-02, 311
Given the Utah Supreme Court’s more recent rejection of the improper purpose alternative
in Eldrige v. Johndrow, and its recognition of the inherent problems in proving improper purpose,
it is questionable whether the distinction recognized in Leigh Furniture survived. Eldridge v.
Johndrow, 2015 UT 21, ¶ 45, 345 P.3d 553, 561. It now appears that, under Utah law, a plaintiff
can no longer establish the improper means element of a claim for intentional interference based
solely on the defendant’s motivation for breaching its own contract.
Indeed, it would be
inconsistent with the reasoning of Eldridge to consider a party’s motivation for breaching its
contract in determining whether the party could satisfy the improper means element of a claim for
either tortious interference with existing or prospective economic relations. In other words, the
efficient breach defense is available to defendants in any tortious interference with economic
relations action. This is the same conclusion reached in Vasquez v. Trinity Mission Health, No.
2:11-CV-01002-EJF, 2013 WL 4095157, at *21 (D. Utah 2013) (holding that “[defendant] cannot
tortiously interfere with its own business”).
Evergreen and RAM allege tortious interference with economic relations generally. 3 They
do not differentiate between existing contract and prospective economic relations. This approach
is consistent with Eldridge and other Utah Supreme Court cases that have included tortious
interference with prospective economic advantage in their analysis of tortious interference with
3
Evergreen and RAM allege that (1) the “Conspirators have each intentionally interfered with the Plaintiff’s existing
and potential economic relations with a variety of parties, including Celtig”; (2) the “Conspirators have each used
improper means in doing so, including without limitation breached contractual duties and other duties owed to
Evergreen and RAM”; and (3) “the actions of these Conspirators have caused harm to the Plaintiffs.” Third Party
Compl. ¶ 121–126.
16
economic relations. See Anderson Dev. Co. v. Tobias, 2005 UT 36, 116 P.3d 323 and St. Benedict's
Dev. Co. v. St. Benedict's Hosp., 811 P.2d 194, 200 (Utah 1991). Because the former, pivotal
difference regarding the efficient breach defense appears to have been eliminated by Eldridge, the
court will analyze the claims together as well.
To support their claim for tortious interference, Evergreen and RAM allege that Edwards,
acting on behalf of Celtig, attempted to unilaterally terminate the agreements between Celtig and
Evergreen. Third-Party Compl. ¶ 91. They allege that he did so by sending an email to an email
address that had been compromised by Woodson. Third-Party Compl. ¶ 91. They allege that
Celtig’s attempts (through Edwards) to unilaterally terminate the Definitive Agreement and
Licensing Agreement were breaches of contract undertaken in an attempt to deprive Evergreen of
economic advantages. Third-Party Compl. ¶¶ 53-54. However, because Edwards acted as the agent
of Celtig in communicating with Evergreen and RAM, and Celtig was party to the terminated
agreements, Edwards cannot be held liable for tortious interference, because he was entitled to
terminate the agreements on Celtig’s behalf under an efficient breach theory.
Evergreen and RAM also allege that Edwards acted “in furtherance of this conspiracy” by
providing Woodson with confidential information in breach of confidentiality provisions in the
Definitive and Licensing Agreements. Third-Party Compl. ¶ 94; Opposition 4. Edwards signed
those agreements on behalf of Celtig, and was bound by them in his official capacity. Third-Party
Compl. ¶ 13. Again, however, Celtig’s alleged breach of these agreements does not give rise to a
claim of tortious interference.
To hold Edwards personally liable for tortious interference, Evergreen and RAM would
need to establish that Edwards, acting in his personal capacity, and not on behalf of Celtig,
interfered with the economic relations between Celtig, RAM, and Evergreen. As stated, Edwards
17
cannot be held liable for interfering with the agreements in his role of CEO because he represented
Celtig, which was a party to the agreements. At most, Evergreen and RAM may be able to argue
that Edwards interfered with the employment contract between Woodson and RAM when he
warned Woodson, enabling Woodson to quit before he could be fired by RAM. But Edwards’s
alleged actions did not cause any harm that RAM did not already intend to bring about. And in any
event, the alleged actions do not rise to the level of “improper means” necessary to establish
tortious interference. Under Utah law, to qualify as improper means, an action must be “contrary
to law, such as violations of statutes, regulations, or recognized common-law rules,” including
“violence, threats or other intimidation, deceit or misrepresentation, bribery, unfounded litigation,
defamation, or disparaging falsehood.” SCO Grp., Inc. v. Int'l Bus. Machines Corp., 879 F.3d
1062, 1084 (10th Cir. 2018) (internal quotation marks omitted) (citing Leigh Furniture, 657 P.2d
at 308). As stated by the Tenth Circuit, “A competitor's attempt merely to convince third parties
not to deal with a plaintiff does not meet this requirement.” SCO Grp., 879 F.3d at 1084. Edwards
may have breached a confidentiality agreement, but his communication to Woodson would
constitute only a breach of contract, and such a breach does not qualify as improper means under
Utah law.
In summary, the allegations against Edwards all fail to support claims against him for
tortious interference with existing or prospective economic relations. Because Evergreen and
RAM have failed to establish the underlying tort of intentional interference with economic
relations, they have failed to establish a prima facie case of civil conspiracy involving Edwards.
b. Arising From
The second step in the minimum contacts analysis is to determine whether the claims
brought by Third-Party Plaintiffs “arise out of” Edwards’s “suit-related” contacts with the forum.
Anzures v. Flagship Rest. Grp., 819 F.3d 1277, 1280 (10th Cir. 2016). The claims brought against
18
Edwards in the third-party complaint do arise from his alleged contacts with Utah, which relate
exclusively to the present dispute. As discussed above, however, the contacts as alleged are
insufficient to establish minimum contacts with the forum.
c. Insufficient Contacts
Due process requires that a defendant have minimum contacts with the forum state before
the court may exercise personal jurisdiction over him. Evergreen and RAM have failed to allege
minimum contacts between the state of Utah and Edwards acting in his personal capacity, and thus
have failed to meet their burden of establishing personal jurisdiction over him.
The minimum contacts analysis examines whether a defendant purposefully directed
activity at the forum and whether the claims against him arise from his contacts with the state.
When personal jurisdiction, as here, is based on a civil conspiracy directed at the forum state,
plaintiffs must allege a prima facie case of civil conspiracy involving the defendant. Evergreen
and RAM have failed to allege a prima facie case of civil conspiracy. They have failed to allege
sufficient facts to establish a meeting of the minds between Edwards and other parties. They have
failed to establish that Edwards participated in the underlying tort of tortious interference with
economic relations. Accordingly, the court cannot exercise personal jurisdiction over Edwards.
2. Traditional Notions of Fair Play and Substantial Justice (Reasonableness)
To satisfy due process, a party seeking to establish personal jurisdiction over a defendant
must not only establish that the defendant had minimum contacts with the forum, it must also
establish that the exercise of personal jurisdiction comports with traditional notions of fair play
and substantial justice. See Asahi Metal Indus. Co. v. Superior Court, 480 U.S. 102, 113 (1987).
Third-Party Plaintiffs also fail to satisfy this independent requirement. The court concludes that it
cannot exercise personal jurisdiction over Edwards because doing so would violate notions of fair
play and substantial justice.
19
Whether jurisdiction is reasonable in accordance with traditional notions of fair play and
substantial justice depends on five factors:
(1) the burden on the defendant, (2) the forum state’s interest in
resolving the dispute, (3) the plaintiff’s interest in receiving
convenient and effective relief, (4) the interstate judicial system’s
interest in obtaining the most efficient resolution of controversies,
and (5) the shared interest of the several states in furthering
fundamental social policies.
Pro Execc, Inc. v. Orlux Distrib., Inc., 428 F.3d 1270, 1279–80 (10th Cir. 2005) (citation omitted).
Here, the exercise of personal jurisdiction would be unreasonable. Edwards “resides” in
Tennessee, and the burden on Edwards to travel to Utah would be high. Furthermore, both Utah
and Third-Party plaintiffs’ interests in resolving the dispute efficiently can be satisfied without
Edwards. Any contact he has had with Utah has been in his role as CEO of Celtig and Celtig is a
party to the suit. Thus, naming Edwards as a defendant in his personal capacity is unnecessary.
Under these circumstances, the court accordingly concludes that it would be unreasonable to
exercise personal jurisdiction over Edwards. Evergreen and RAM may choose to pursue further
claims against Edwards, but those actions must be brought in a forum in which he is subject to
personal jurisdiction.
IV.
ORDER
The court GRANTS IN PART and DENIES IN PART Brain Edwards’s Motion to Dismiss
with Prejudice Third-Party Complaint Against Third-Party Defendant Edwards for Lack of
Personal Jurisdiction (ECF No. 29). It is hereby ORDERED that the Third-Party Complaint filed
by Third-Party Plaintiffs Evergreen Strategies, LLC and Relay Advanced Materials, Inc. (ECF No.
24) is DISMISSED WITHOUT PREJUDICE as to Edwards.
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Signed September 26, 2018
BY THE COURT
______________________________
Jill N. Parrish
United States District Court Judge
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