Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_17-cv-03241/USCOURTS-azd-2_17-cv-03241-2/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Contract Dispute

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Before the Court are Plaintiff’s Motion for Summary Judgment (Doc. 73) and 

Defendant’s Motion to Voluntarily Dismiss Without Prejudice its Counterclaims, or in the 

Alternative, Response in Opposition to Plaintiff Bird’s Motion for Summary Judgment 

(Doc. 90). 

I. BACKGROUND1

A. Arbitration

This dispute arises from an arbitration proceeding initiated by DJO LLC 

(“Defendant”) against Michael Bird (“Plaintiff”) and Bird Medical, LLC (“Bird Medical”).

Defendant manufactures orthopedic medical devices. (Doc. 95 at 2) Plaintiff is the 

president and principal member of Bird Medical. (Doc. 95 at 1) In 2008, Defendant and 

Bird Medical entered into a “Distribution Agreement,” whereby Bird Medical would sell 

Defendant’s medical devices throughout Denver, Colorado. (Doc. 95 at 2) The Distribution 

1 The following facts are undisputed unless otherwise specified.

Michael Bird,

 

Plaintiff, 

vs. 

DJO LLC,

Defendant. 

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No. CV-17-03241-PHX-SPL

ORDER

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Agreement included an arbitration provision. (Doc. 95-1 at 7) Plaintiff signed the 

Distribution Agreement in his official capacity as the president of Bird Medical. (Doc. 95-

1 at 8) In addition, Plaintiff signed two addenda attached to the Distribution Agreement in 

his personal capacity—the “Sales Representative Acknowledgement” and the 

“Certification of Understanding and Compliance with DJO, LLC’s Code of Ethics and 

Compliance Program.” (Doc. 95-1 at 18-19) Both addenda were required to be signed by 

any Bird Medical employee who sold Defendant’s products for a commission. (Doc. 95-1 

at 1) 

The parties operated under the Distribution Agreement until late 2015. (Doc. 95 at 

3-4) Beginning in January of 2016, Bird Medical continued to distribute Defendant’s 

products pursuant to a new agreement with a third party, ORP Surgical, LLC. (Doc. 95 at 

4) That agreement lasted until approximately February of 2017. (Doc. 95 at 4) 

In May of 2017, Defendant filed a demand for arbitration with the American 

Arbitration Association (“AAA”), asserting claims against Bird Medical and Plaintiff for 

breach of contract, breach of good faith and fair dealing, and conversion. (Docs. 74-1 at 

47-55; 95 at 6) Plaintiff objected to the arbitration demand, arguing that he was not a party 

to the Distribution Agreement and was not subject to the arbitration provision. (Doc. 1-1 

at 108) On August 2, 2017, the AAA issued its administrative determination finding that,

absent a court order staying the case, the AAA would proceed with the arbitration against 

Plaintiff. (Doc. 1-1 at 124)

B. Instant Action

On September 19, 2017, Plaintiff filed this lawsuit seeking a declaratory judgment 

determining that: 1) the Court, and not the AAA, is the sole body with authority to 

determine whether the claims asserted against Plaintiff are subject to arbitration; 2) as a 

non-party to the Distribution Agreement, Plaintiff is not subject to the arbitration provision; 

3) Bird Medical is not Plaintiff’s “alter ego;” 4) the nondisclosure provision underlying 

Defendant’s breach of contract claim is void and unenforceable; and 5) Plaintiff is not 

liable for conversion of the alleged missing consigned inventory. (Doc. 1 at 6-9) Defendant 

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answered the Complaint and filed a Countercomplaint for conversion under the theory of 

piercing the corporate veil/alter ego. (Doc. 10)

On September 20, 2017, Plaintiff motioned the Court to stay the arbitration 

proceedings pending a determination of whether Plaintiff is bound by the arbitration 

provision in the Distribution Agreement. (Doc. 6) The Court granted the motion. (Doc. 39) 

On May 11, 2018, Plaintiff motioned for summary judgment regarding the arbitrability of 

the claims against him. (Doc. 29) The Court denied the motion without prejudice to allow 

limited discovery on the issue of alter ego/piercing the corporate veil. (Doc. 46) On August 

23, 2019, after engaging in discovery, Plaintiff renewed its motion. (Doc. 73) Plaintiff 

requests that the Court grant summary judgment in his favor as to Claim One of the 

Complaint and Defendant’s Countercomplaint.

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(Doc. 73) On October 7, 2019, Defendant 

responded to the Motion for Summary Judgment and also motioned to voluntarily dismiss

the Countercomplaint without prejudice. (Doc. 90) On November 5, 2019, Plaintiff filed a 

reply to the Motion for Summary Judgment and a response to Defendant’s Motion to 

Dismiss. (Docs. 98, 99) On November 12, 2019, Defendant filed a reply to his Motion to 

Dismiss. (Doc. 103) 

II. LEGAL STANDARD

Under Federal Rule of Civil Procedure (“Rule”) 56, summary judgment is 

appropriate when: (1) no genuine issues of material fact remain; and (2) after viewing the 

evidence most favorably to the nonmoving party, the movant is clearly entitled to prevail 

as a matter of law. See Fed. R. Civ. P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 

(1986). A fact is material when, under the governing substantive law, it could affect the 

outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine 

issue of material fact arises if “the evidence is such that a reasonable jury could return a 

verdict for the nonmoving party.” Id.

2 Although Plaintiff requests a full summary judgment determination, he does not assert 

arguments regarding Claim Two in the Complaint. Therefore, the Court shall treat the Motion as 

one for Partial Summary Judgment.

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In considering a motion for summary judgment, the court must regard as true the 

nonmoving party’s evidence, if it is supported by affidavits or other evidentiary material. 

Eisenberg v. Ins. Co. of N. Am., 815 F.2d 1285, 1289 (9th Cir. 1987). However, the 

nonmoving party may not merely rest on its pleadings; it must produce some significant 

probative evidence tending to contradict the moving party’s allegations, thereby creating a 

material question of fact. Anderson, 477 U.S. at 256-57.

The moving party bears the initial burden of identifying “those portions of the 

pleadings, depositions, answers to interrogatories, and admissions on file, together with the 

affidavits, if any, which it believes demonstrate the absence of any genuine issue of 

material fact.” See Celotex Corp., 477 U.S. at 323. If the nonmoving party would bear the 

burden of persuasion at trial, the moving party may carry its initial burden of production 

by submitting admissible “evidence negating an essential element of the nonmoving party’s 

case,” or by showing that the “nonmoving party does not have enough evidence of an 

essential element of its claim or defense to carry its ultimate burden of persuasion at trial.” 

Nissan Fire & Marine Ins. Co., Ltd. v. Fritz Cos., Inc., 210 F.3d 1099, 1105-06 (9th Cir.

2000).

When the moving party has carried its burden, the nonmoving party must respond with 

specific facts, supported by admissible evidence, showing a genuine issue for trial. See Fed.

R. Civ. P. 56(c). But allegedly disputed facts must be material—the existence of only 

“some alleged factual dispute between the parties will not defeat an otherwise properly 

supported motion for summary judgment.” Anderson, 477 U.S. at 247-48.

III. DISCUSSION

A. Evidence Excluded from Consideration

As an initial matter, Plaintiff argues that Defendant’s Response to the Motion for 

Summary Judgment impermissibly relies on discovery obtained after the discovery 

deadline and in direct violation of this Court’s Order. (Doc. 99 at 2) Plaintiff asserts that

the Court should not consider the evidence when ruling on the Motion for Summary 

Judgment. (Doc. 99 at 2) Specifically, Plaintiff asserts that the following paragraphs in 

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Defendant’s statement of facts should be excluded: 21-24, 27-29, 35-36, 39, 41, 44-49, 72-

74, 81, 87-90, 92-105, 110, and 112-113. (Doc. 99 at 4) In response, Defendant asserts 

that it conducted a forensic examination in the arbitration case which unveiled several 

financial documents in favor of its position in this case. (Doc. 103 at 5) Defendant argues 

that all of the documents should have been produced in response to their discovery requests 

in this case, but Plaintiff failed to do so. (Doc. 103 at 5)

The record confirms that on March 15, 2019, Plaintiff motioned the Court for an 

extension of the discovery deadline to complete the pending forensic examination in the 

arbitration case. (Doc. 50) The Court granted the motion, and Defendant again requested 

an extension. (Docs. 65, 66) The Court denied the second motion for extension. (Doc. 68) 

The Court found that Defendant had not made a sufficient showing that the evidence 

produced in the forensic examination regarding the claims against Bird Medical was 

necessary to resolve the issues of arbitrability in this case. (Doc. 68) 

Nevertheless, Defendant’s Response relies on several documents obtained from the 

forensic examination. (Docs. 90, 95, 103) If Defendant believed that Plaintiff failed to 

make sufficient discovery disclosures as required under Rule 26, the proper method to 

address the issue was to file a motion to compel discovery or a Rule 37 motion for 

sanctions. A party may not, however, rely on information obtained outside the discovery 

deadline without the Court’s consent. Therefore, as requested by Plaintiff, the Court will 

not consider any evidence that Defendant obtained through its forensic examination.

B. Plaintiff’s Claims: Arbitrability

Plaintiff argues that he is not the alter ego of Bird Medical, and therefore, he is not 

bound by the arbitration provision in the Distribution Agreement. (Doc. 73 at 6) In 

response, Defendant asserts that Plaintiff, as a non-signatory to the Distribution 

Agreement, is still subject to the arbitration provision under the traditional principles of

contract and agency law. (Doc. 90 at 9) Specifically, Defendant asserts that the doctrines 

of incorporation by reference, direct benefit, and alter ego/piercing the corporate veil all 

compel Plaintiff to participate in the arbitration. (Doc. 90 at 10-13) 

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1. Incorporation by Reference

Defendant argues that this Court dismissed Plaintiff’s first motion for summary 

judgment without prejudice, so the Court never made a final determination as to its original 

incorporation by reference arguments. (Doc. 90 at 8) Defendant maintains that Plaintiff is 

bound to the terms of the Distribution Agreement because he signed the two addenda 

documents in his personal capacity, which incorporated the Distribution Agreement by 

reference. (Doc. 90 at 10) This Court previously found that the addenda signed by Plaintiff

did not clearly reference the Distribution Agreement as required by Arizona law. (Doc. 40 

at 5-7) Defendant has not set forth any additional evidence for the Court to change that 

determination. Therefore, Plaintiff is not compelled to arbitrate under the incorporation by 

reference doctrine. 

2. Direct Benefit

Next, Defendant argues that Plaintiff received a direct benefit from the Distribution 

Agreement. (Doc. 90 at 10-11) Specifically, Defendant asserts that, by signing the addenda, 

Plaintiff was permitted to exploit the Distribution Agreement for his own monetary gain. 

(Doc. 90 at 11) Defendant also maintains that the parties’ dealings made it clear that 

Plaintiff was an intended third-party beneficiary of the Distribution Agreement. (Doc. 90 

at 12-13) 

The direct benefit or equitable estoppel theory provides that a non-signatory may be 

compelled to arbitrate under an agreement if the non-signatory has received a direct benefit 

from the contract containing an arbitration clause and, therefore, should be equitably barred 

from avoiding arbitration. See Schoneberger v. Oelze, 96 P.3d 1078, 1081 (Ariz. Ct. App. 

2004), superseded on other grounds by Arizona Revised Statute § 14-10205.

Though Plaintiff was able to earn a sales commission after signing the addenda, the 

Court finds that such a benefit was indirect. The Distribution Agreement does not 

contemplate that Plaintiff would be the only person able to earn money under the 

contract—indeed, Bird Medical employed other sales representatives who were also 

required to sign the addenda. (Docs. 74-1 at 4; 95-1 at 1) Furthermore, Defendant asserts

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no evidence that Plaintiff attempted to claim a unique benefit directly from the Distribution 

Agreement. See Thomson-CSF, S.A. v. Am. Arbitration Ass’n, 64 F.3d 773, 778-79 (2d Cir. 

1995). Therefore, the Court does not find that Plaintiff is compelled to arbitrate under the 

direct benefit doctrine. 

3. Alter Ego/Piercing the Corporate Veil 

Finally, Defendant argues that Plaintiff is compelled to arbitrate under the doctrine 

of alter ego/piercing the corporate veil. (Doc. 90 at 13) Plaintiff argues that Bird Medical 

operates as an independent business and Defendant cannot establish the required elements 

to pierce Bird Medical’s corporate status. (Doc. 73 at 7) 

In Arizona, the corporate status is not “lightly disregarded.” Chapman v. Field, 602 

P.2d 481, 483 (Ariz. 1979); see also All Custom Exteriors, Inc. v. Bilyea, No. 1 CA-CV 

10-0702, 2011 WL 5964528, at *4 (Ariz. Ct. App. Nov. 29, 2011) (explaining that Arizona 

law treats limited liability companies the same as corporations for purposes of alter 

ego/piercing the corporate veil). The corporate status will be disregarded upon a showing 

of: (1) unity of control and (2) that observance of the corporate form would sanction a fraud 

or promote injustice. See Gatecliff v. Great Republic Life Ins. Co., 821 P.2d 725, 728 (Ariz. 

1991). The Court will analyze each of Defendant’s arbitration claims separately. 

a. Breach of Contract and Covenant of Good Faith and Fair 

Dealing

To establish unity of control, Defendant lists several examples: (1) Bird Medical 

was formed only after Plaintiff negotiated the Distribution Agreement with Defendant in 

his personal capacity; (2) Bird Medical makes yearly distributions to Plaintiff regardless of 

the business’s performance; (3) there are several unexplained transfers from Bird Medical’s 

bank account to Plaintiff’s personal account; (4) there are several unexplained bank 

accounts listed on Bird Medical’s balance sheet in 2013; (5) Plaintiff maintained 

insufficient bookkeeping for all of the consigned products in Bird Medical’s possession; 

(6) a bank account is listed on Bird Medical’s corporate records as a business reserve 

account but is maintained under Plaintiff’s name; and (7) Plaintiff wrote off payments for 

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his family vehicle as a business expense. (Doc. 90 at 5, 15) The Court finds that, viewing 

the evidence in the light most favorable to Defendant, Defendant has set forth sufficient 

evidence to raise a genuine issue of material fact as to the unity of control between Plaintiff 

and Bird Medical. 

As to the fairness prong, Defendant argues that it would be unfair to allow Plaintiff 

to escape liability for his personal bad acts that caused the issues in the arbitration. (Doc. 

90 at 16-19) In the claim for arbitration, Defendant asserts that Plaintiff breach the 

Distribution Agreement and the implied covenant of good faith and fair dealing by 

intentionally disclosing confidential pricing information to third parties in an attempt to 

steal customers from Defendant. (Doc. 1-1 at 53-61) In support of this contention, 

Defendant asserts that most of the customers previously serviced by Defendant now 

purchase medical devices through Bird Medical’s new contracted manufacturer. (Docs. 95 

at 12-13; 95-1 at 64-65) 

It is well-settled in Arizona that, “[w]hile it is true that ‘directors are generally 

shielded from liability for acts done in good faith on behalf of the corporation, their status 

does not shield them from personal liability to those harmed as a result of intentionally 

harmful or fraudulent conduct.’” Frank Lloyd Wright Found. v. Kroeter, Nos. CV-08-

1112-PHX-DGC, CV-08-1125-PHX-FJM, 2008 WL 5111092, at *4 (D. Ariz. Dec. 3, 

2008) (quoting Albers v. Edelson Tech. Partners L.P., 31 P.3d 821, 826 (Ariz. Ct. App.

2001)). The Court finds that Defendant asserts a genuine issue of material fact as to whether

it would promote injustice to allow Plaintiff to be protected by Bird Medical’s corporate 

status for his alleged bad faith acts in disclosing confidential information obtained via the 

Distribution Agreement. Therefore, Plaintiff is not entitled to summary judgment for the 

breach of contract and breach of good faith and fair dealing claims.

b. Conversion 

Regarding the conversion claim, although the Court finds that Defendant has set 

forth sufficient evidence to raise a genuine issue of material fact as to the unity of control

prong, the Court further finds that Defendant fails to establish a genuine issue of material 

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fact as to the fairness prong. 

First, Defendant again argues that it would be unfair to allow Plaintiff to escape 

liability for his bad acts that caused the issues in the arbitration. (Doc. 90 at 18-19) As 

stated before, Plaintiff should not be shielded from liability regarding his individual bad

faith acts. Even so, Defendant’s claim for conversion is not based on any alleged bad faith 

acts by Plaintiff. (Doc. 1-1 at 53-61)

In the alternative, Defendant argues that Plaintiff’s loose management of Bird 

Medical’s assets is enough to establish the unfairness prong because Bird Medical lacks

sufficient funds to satisfy potential judgments by creditors such as Defendant. (Doc. 90 at 

17) However, the bank statements disclosed by Plaintiff show that Bird Medical 

consistently maintained several thousands of dollars in its bank account. (Doc. 101 at 180-

217) Defendant sets forth no other evidence to show that Plaintiff caused Bird Medical to 

be consistently underfunded or otherwise incapable of satisfying potential judgments. The

Court finds that Defendant fails as a matter of law to establish that upholding Bird 

Medical’s corporate status as to the conversion claim would sanction fraud or promote 

injustice. Laborers Clean-Up Contract Admin. Tr. Fund v. Uriarte Clean-Up Serv., Inc., 

736 F.2d 516, 524-25 n. 13 (9th Cir. 1984) (explaining that insolvency on its own does not 

equal an inequitable result and the fairness prong will be satisfied only upon a showing that 

a corporation is so underfunded that it is unable to meet its debts that may arise in the 

normal course of business). Therefore, Plaintiff cannot be compelled to arbitrate the 

conversion claim. 

C. Defendant’s Countercomplaint

Defendant motioned the Court to dismiss its counterclaims without prejudice

pursuant to Rule 41, arguing that whether Plaintiff is an alter ego of Bird Medical is 

irrelevant until Defendant obtains an award in the arbitration against Bird Medical. (Doc. 

103 at 9) Defendant asserts that it is willing to withdraw the arbitration claims against 

Plaintiff in his personal capacity if the Court will dismiss the Countercomplaint in this case. 

(Doc. 103 at 9) Plaintiff objects to the Motion to Dismiss and the stipulation to dismiss the 

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arbitration claims, arguing that Defendant is seeking dismissal to avoid an adverse ruling 

on summary judgment. (Doc. 98 at 2) Instead, Plaintiff asserts that the Court should simply 

rule on the Motion for Summary Judgment. (Doc. 73 at 10) District courts generally follow 

the principle that “[v]oluntary dismissals without prejudice are disfavored when the 

plaintiff is ‘plainly seeking to avoid an adverse judgment.’” Raygarr LLC v. Emp’rs Mut.

Cas. Co., No. CV-18-00246-TUC-RM, 2018 WL 4207998, at *5 (D. Ariz. Sept. 4, 2018) 

(quoting Minn. Mining & Mfg. Co. v. Barr Labs., Inc., 289 F.3d 775, 784 (Fed. Cir. 2002)). 

At this stage in the proceeding, the Court finds that allowing a voluntary dismissal without 

prejudice would deprive Plaintiff of a final ruling on his Motion for Summary Judgment.

Therefore, Defendant’s Motion to Dismiss will be denied. Furthermore, for the same 

reasoning set forth in section III.B.3.b., the Court will grant Plaintiff’s Motion for 

Summary Judgment regarding the Countercomplaint for conversion. 

IV. CONCLUSION

For the foregoing reasons, the Court will grant Plaintiff’s Motion for Summary 

Judgment in part. Plaintiff is not subject to arbitrate Defendant’s conversion claim. In 

addition, the Court will dismiss Defendant’s Countercomplaint. However, the Court finds 

that there are still genuine issues of material fact as to whether Plaintiff may be held liable 

under the Distribution Agreement for the breach of contract and breach of good faith and 

fair dealing claims. Accordingly,

IT IS ORDERED that Plaintiff’s Motion for Summary Judgment (Doc. 73) is 

granted in part and denied in part as follows:

1. Plaintiff is not subject to arbitration regarding Defendant’s conversion claim.

2. This case will move forward regarding the breach of contract and breach of good 

faith and fair dealing claims. 

3. Defendant’s Countercomplaint shall be dismissed with prejudice. 

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IT IS FURTHER ORDERED that Defendant’s Motion to Voluntarily Dismiss 

Without Prejudice Its Counterclaims (Doc. 90) is denied. 

IT IS FURTHER ORDERED that the Clerk’s Office shall enter judgment 

accordingly.

Dated this 6th day of March, 2020.

Honorable Steven P. Logan

United States District Judge

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