Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_15-cv-00600/USCOURTS-azd-2_15-cv-00600-2/pdf.json

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

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WO 

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA

Crestwood Capital Corporation,

 Plaintiff, 

v. 

Andes Industries, Inc., 

 Defendant. 

No. CV-15-00600-PHX-NVW

(Consolidated) 

ORDER 

[Not for Publication] 

[Re: No. CV-15-01810-PHX-NVW 

and No. CV-15-02549-PHX-NVW] 

Devon Investment Inc., 

 Plaintiff, 

v. 

Andes Industries, Inc., 

 Defendant.

No. CV-15-00604-PHX-NVW 

Preston Collection Inc., 

 Plaintiff, 

v. 

Steven Youtsey, 

 Defendant.

No. CV-15-00607-PHX-NVW 

Andes Industries, Inc.; and PCT International, 

Inc., 

 Plaintiffs, 

v. 

EZconn Corporation; and eGtran Corporation, 

 Defendants.

No. CV-15-01810-PHX-NVW 

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Andes Industries, Inc.; and PCT International, 

Inc., 

 Plaintiffs, 

v. 

Cheng-Sun Lan; Kun-Te Yang; Chi-Jen 

Dennis) Lan; Polar Star Management Ltd., 

 Defendants. 

No. CV-15-02549-PHX-NVW 

EZconn Corporation, 

 Plaintiff, 

v. 

PCT International, Inc., 

 Defendant. 

No. CV-16-00508-PHX-NVW 

Before the Court are the following motions: Polar Star Management Ltd.’s 

Motion to Dismiss (Doc. 114, CV-15-02549); Defendant Cheng-Sun Lan’s Motion to 

Dismiss (Doc. 133, CV-15-02549); Defendant EZconn Corporation’s Motion to Dismiss 

Counts I, II, III, VI, VII, VIII, IX, X, XI, and XII (Doc. 26, CV-15-01810); Defendant 

eGtran Corporation’s Motion to Dismiss Counts I, II, III, V, VI, VII, VIII, IX, X, XI, and 

XII (Doc. 28, CV-15-01810); the Renewed Motion for Jurisdictional Discovery by Andes 

Industries, Inc., and PCT International, Inc. (Doc. 84, CV-15-00600); and Cheng-Sun 

Lan’s Motion to Strike Portions of Reply in Support of Renewed Motion for 

Jurisdictional Discovery or, Alternatively, for Leave to File Sur-Reply (Doc. 92, CV-15-

00600). Oral argument was held on June 8, 2016. 

I. OVERVIEW 

This case consolidates six actions involving twelve parties, who form essentially 

two sides to this litigation. Four actions were brought to collect amounts owed on loans 

of nearly $9 million made in 2009-2010 and for unpaid invoices totaling more than $6.6 

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million during 2012-2013, plus interest. Two actions were brought by the borrower and 

purchaser for breach of contract and other claims to obtain, at least, an offset against any 

liability in the four collection actions. The borrower’s and purchaser’s allegations of 

wrongdoing rely substantially on a related case in which the purchaser obtained a 

monetary judgment and permanent injunction for patent infringement. See PCT 

International, Inc. v. Holland Electronics, LLC, CV-12-001797-PHX-JAT. In the present 

case, the borrower, Andes Industries, Inc. (“Andes”), and the purchaser, Andes’ wholly 

owned subsidiary, PCT International, Inc. (“PCT International”),1

 allege that during the 

patent litigation the infringer disclosed emails showing receipt of confidential proprietary 

information about PCT International from a Taiwanese company that manufactured 

products for both PCT International and the infringer. The Taiwanese manufacturer 

seeks to collect $6.6 million from PCT International for unpaid invoices. The 

manufacturer’s allegedly wrongful disclosures of technical development information, 

order information, and corporate financial information to the infringer form the primary 

basis for Andes and PCT International’s twelve claims for breach of contract, fraud, etc., 

and their claims for offset against the collection actions. 

A. The Parties 

As alleged, Andes is a closely held Nevada corporation with its principal place of 

business in Mesa, Arizona. Andes owns PCT International, a closely held Nevada 

corporation with its principal place of business in Mesa, Arizona. PCT International 

develops, manufactures, and sells products for broadband telecommunications networks. 

Andes shareholders include Kun-Te Yang, Dennis Lan, and Polar Star Management Ltd., 

a British Virgin Islands corporation. No shareholder owns a majority interest in Andes. 

 

1

 This Order does not adopt the parties’ confusing and misleading use of “PII” for 

PCT International, Inc. and “PCT” for Andes and PCT International, Inc. collectively. 

The First Amended Complaint implies there is no distinction between the two 

corporations. 

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Steven Youtsey is the founder, President, and CEO of Andes. Kun-Te Yang 

allegedly loaned Youtsey amounts totaling $1,142,500.00, memorialized by a spreadsheet 

signed by Youtsey and dated March 8, 2010. On March 19, 2015, Kun-Te Yang assigned 

his rights and interest in the Youtsey loan to Preston Collection Inc., a British Virgin 

Islands corporation. 

As CEO of Andes, Youtsey executed a promissory note payable to Dennis Lan in 

the amount of $4,700,507.00, plus interest, dated March 11, 2009. It identifies Andes as 

the borrower. On March 19, 2015, Dennis Lan assigned his rights and interest in the note 

to Devon Investment Inc., a British Virgin Islands corporation. 

As CEO/President of Andes, Youtsey executed a promissory note payable to 

Cheng-Sun Lan (“Mr. Lan”) in the amount of $3,000,000.00, plus normal interest and 

$45,000 bonus interest, dated December 20, 2009. It identifies Andes as the borrower. 

On April 1, 2015, Mr. Lan assigned the note to Crestwood Capital Corporation, a British 

Virgin Island corporation wholly owned by Mr. Lan. 

EZconn Corporation is a Taiwanese corporation with places of business located in 

Taiwan and the People’s Republic of China. EZconn is owned by eGtran Corporation, a 

British Virgin Islands corporation with its principal place of business in Taiwan. EZconn 

manufactured broadband telecommunications for Andes and PCT International and also 

for their competitor Holland Electronics, LLC. Andes and PCT International shared 

confidential proprietary information with EZconn, which allegedly was disclosed to 

Holland. EZconn alleges that during 2012 and 2013, PCT International ordered and 

received more than $6,600,000.00 worth of product from EZconn that PCT International 

has not paid for. 

B. The Collection Actions 

On June 26, 2015, EZconn filed a lawsuit against PCT International in Taiwan 

alleging breach of contract. On February 24, 2016, EZconn filed a lawsuit against PCT 

International in this Court, alleging breach of contract, involving the same claims as those 

in the Taiwanese action. In order to avoid duplication, the parties agreed that EZconn 

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would withdraw the Taiwanese action and PCT International would file an answer in the 

Arizona action. EZconn alleges that PCT International materially breached its contracts 

with EZconn by failing to pay for all products ordered, received, and accepted by 

EZconn, including but not limited to specific invoices identified in the Complaint. 

EZconn seeks an award of damages currently calculated as $6,630,091.57, plus interest 

and costs. In its Answer, PCT International alleges that “[a]ny claim by EZconn is 

limited and/or barred, in whole or in part, because those damages are subject to set off” 

based on Andes and PCT International’s claims for breach of contract, fraud, etc. 

In actions filed in this Court, Crestwood Capital Corporation sued Andes, Devon 

Investment Inc. sued Andes, and Preston Collection Inc. sued Youtsey to recover the 

amounts owed under the promissory notes and acknowledged debt assigned to them by 

Mr. Lan, Dennis Lan, and Kun-Te Yang respectively. In each of those actions, Andes or 

Youtsey filed an Answer alleging that any claim for damages “is limited and/or barred, in 

whole or in part, because those damages are subject to set off” based on Andes and PCT 

International’s claims for breach of contract, fraud, etc. 

Under Arizona law, with some exceptions, unless an account debtor has made an 

enforceable agreement not to assert defenses or claims, the rights of an assignee are 

subject to: 

1. All terms of the agreement between the account debtor and assignor 

and any defense or claim in recoupment arising from the transaction that 

gave rise to the contract; and 

2. Any other defense or claim of the account debtor against the 

assignor that accrues before the account debtor receives a notification of the 

assignment authenticated by the assignor or assignee. 

A.R.S. § 47-9404(A). However, the claim of an account debtor against an assignor may 

be asserted against an assignee under this provision only to reduce the amount the 

account debtor owes. A.R.S. § 47-9404(A). 

In summary, EZconn, Crestwood Capital, Devon Investment, and Preston 

Collection seek to recover from Andes and its CEO, Youtsey, amounts due for loans and 

unpaid invoices, plus interest and costs. Andes and Youtsey’s primary defense is that 

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EZconn and the parties who assigned the rights to collect on the loans and invoices—Mr. 

Lan, Dennis Lan, and Kun-Te Yang—are liable for breach of contract, fraud, etc., for 

wrongful disclosures, for which Andes and Youtsey are entitled to offset. 

C. The Actions for Breach of Contract, Fraud, Etc. 

On March 18, 2014, Andes and PCT International sued EZconn, eGtran, Mr. Lan, 

Kun-Te Yang, Dennis Lan, and Polar Star in the U.S. District Court for the District of 

Nevada. When claims against EZconn and eGtran were dismissed for lack of personal 

jurisdiction, Andes and PCT International brought those claims in a new action in this 

Court. Subsequently, the Nevada action against the remaining Defendants was 

transferred to this Court. 

Andes and PCT International allege that they2

 engaged EZconn as a contract 

manufacturer based on assurances that Mr. Lan and EZconn would protect Andes and 

PCT International’s confidential proprietary information disclosed pursuant to their 

contractual agreement. Andes and PCT International also allege that each purchase order 

they sent to EZconn contained detailed Terms and Conditions regarding protection of 

their confidential proprietary information. Andes and PCT International further allege 

that they provided EZconn and eGtran confidential proprietary information, and this 

information was disclosed to Holland. The information allegedly disclosed includes 

technical design information, the prices at which EZconn offered to manufacture products 

for Andes and PCT International, quantities of products Andes and PCT International 

purchased from EZconn, confidential financial information, and information regarding 

customer orders. As a result, Holland allegedly was enabled to market and sell infringing 

products and unfairly compete with Andes and PCT International. In addition, EZconn 

 

2

 The First Amended Complaint alleges that “PCT” engaged EZconn as its 

contract manufacturer and provided EZconn with confidential proprietary information, 

and it defines “PCT” as including both Andes and PCT International. However, the 

contractual relationship appears to have been formed through purchase orders PCT 

International issued to EZconn. 

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allegedly used some of the confidential technical information to develop its own patent 

applications. Andes and PCT International allege that these disclosures not only 

demonstrate breach of contract by EZconn, but numerous torts by EZconn and other 

Defendants, such as breach of fiduciary duty, fraud, unfair competition, etc. 

Mr. Lan, eGtran, and Polar Star moved to dismiss all of Andes and PCT 

International’s claims. EZconn moved to dismiss all of Andes and PCT International’s 

claims except the breach of contract claim. EZconn’s position is that this is a contract 

action and only a contract action. 

On February 26, 2016, the Court ordered that if Andes and PCT International 

contend that amendment of their complaint filed in CV-15-02549 can cure any alleged 

deficiency, they were required to lodge a proposed amended complaint containing all 

further allegations they could make against Mr. Lan and Polar Star. (Doc. 55.) The 

Court further ordered that in the event that Polar Star’s or Mr. Lan’s motion to dismiss is 

granted in any part, no leave would be granted to amend the complaint beyond what was 

offered in the proposed amended complaint. (Id.) 

On March 10, 2016, the Court ordered that if Andes and PCT International 

contend that amendment of their complaint filed in CV-15-01810 and/or their complaint 

filed in CV-15-02549 can cure any alleged deficiency, they were required to lodge a 

proposed amended complaint containing all further allegations they could make against 

EZconn and eGtran. (Doc. 71). They did so (Doc. 72), and the Court will grant leave to 

file the proposed amended complaint. Because the First Amended Complaint does not 

add new claims or parties and the parties moving to dismiss Andes and PCT 

International’s initial complaint responded to the proposed First Amended Complaint in 

their replies, the motions to dismiss will be deemed motions to dismiss the First 

Amended Complaint. 

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II. SERVICE OF PROCESS ON MR. LAN AND POLAR STAR IS 

SUFFICIENT. 

Mr. Lan and Polar Star seek dismissal under Rule 12(b)(4) and (5) for insufficient 

process and insufficient service of process. 

A federal court lacks personal jurisdiction over a defendant unless the defendant 

has been served in substantial compliance with Rule 4 of the Federal Rules of Civil 

Procedure. Crowley v. Bannister, 734 F.3d 967, 974–75 (9th Cir. 2013). Although Rule 

4 should be liberally construed if the defendant receives sufficient notice of the 

complaint, “substantial compliance” requires more than actual notice or simply naming 

the defendant in the caption of the complaint. Id. at 975. 

“[S]ervice of summons is the procedure by which a court having venue and 

jurisdiction of the subject matter of the suit asserts jurisdiction over the 

person of the party served.” Mississippi Publ’g Corp. v. Murphree, 326 

U.S. 438, 444–445 (1946). Thus, before a court may exercise personal 

jurisdiction over a defendant, there must be more than notice to the 

defendant and a constitutionally sufficient relationship between the 

defendant and the forum. There also must be a basis for the defendant’s 

amenability to service of summons. Absent consent, this means there must 

be authorization for service of summons on the defendant. 

Omni Capital Int’l, Ltd. v. Rudolf Wolff & Co., 484 U.S. 97, 104 (1987). 

Polar Star was served in care of its registered agent in the British Virgin Islands on 

July 24, 2014. (Doc. 67, CV-15-02549.) The summons and complaint identified Polar 

Star by the correct name, but the complaint described Polar Star as a Taiwanese 

corporation instead of a British Virgin Islands corporation. Polar Star contends that 

correctly identifying the location of incorporation is essential to the sufficiency of 

process. But there was no confusion about whether Polar Star was the entity named as a 

defendant in the complaint. And Polar Star does not dispute that service was made upon 

its agent who was authorized to accept service. Thus, Polar Star was served in substantial 

compliance with Rule 4. 

Mr. Lan and Polar Star also contend that service upon them was ineffective 

because their summonses were issued by the U.S. District Court for the District of 

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Nevada before the case was transferred. They contend they must be served again with 

summonses issued by this Court. However, they rely on cases requiring that defendants 

be re-served after transfer under 28 U.S.C. § 1406(a) where the transferor court lacked 

personal jurisdiction over the defendants. See McCurdy v. Am. Bd. of Plastic Surgery, 

157 F.3d 191, 195 (3d Cir. 1998); Cornelius v. DeLuca, 709 F. Supp. 2d 1003, 1009 (D. 

Idaho 2010); Wilson v. St. Mary’s Hosp., 822 F. Supp. 1450, 1451 (D. Minn. 1993). If a 

civil action is filed in the wrong district or division, § 1406(a) requires the district court 

to either dismiss the action or transfer it to any district or division in which it could have 

been brought. In the cases cited by Mr. Lan and Polar Star, venue was improper, the 

transferor court lacked personal jurisdiction over the defendant served, the service issued 

by the transferor court was deemed ineffective, and re-service was required. Here, 

however, the transferor court expressly found venue to be proper both in Nevada and in 

Arizona and granted a motion to transfer pursuant to 28 U.S.C. § 1404(a). (Doc. 99 at 4.) 

Under § 1404(a), a civil action may be transferred for the convenience of parties 

and witnesses, in the interest of justice, to any other district or division where it might 

have been brought or to any district or division to which all parties have consented. Polar 

Star was served with process on July 24, 2014, and Mr. Lan was served on November 23, 

2015. On December 14, 2015, Judge Andrew P. Gordon, District Judge for the U.S. 

District Court for the District of Nevada, granted Andes and PCT International’s motion 

to transfer under § 1404(a) despite opposition by EZconn and eGtran. Judge Gordon 

found that the factors identified in Jones v. GNC Franchising, Inc., favored transfer of 

this case to Arizona. 211 F.3d 495, 498-99 (9th Cir. 2000) (identifying factors guiding a 

court’s discretion to transfer a case under § 1404(a)). He also found that venue was 

proper in Nevada because venue is proper in “any judicial district in which any defendant 

is subject to the court’s personal jurisdiction with respect to such action” where all 

defendants are not residents of Nevada and a substantial part of the events giving rise to 

the claim did not occur in Nevada. (Doc. 99 at 3-4, quoting 28 U.S.C. § 1391(b)(3).) 

Judge Gordon expressly found that Defendants Kun-Te Yang, Dennis Lan, and Polar Star 

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had consented to jurisdiction in Nevada and Arizona as shareholders of Andes. 

Therefore, venue in Nevada was proper. Subject matter jurisdiction is not disputed. 

“[S]ervice of summons is the procedure by which a court having venue and 

jurisdiction of the subject matter of the suit asserts jurisdiction over the person of the 

party served.” Mississippi Publ’g Corp., 326 U.S. at 444–445. Service of process issued 

by the U.S. District Court for the District of Nevada, having venue and subject matter 

jurisdiction, was therefore effective. Neither Mr. Lan nor Polar Star must be re-served. 

III. THE COURT HAS SPECIFIC PERSONAL JURISDICTION OVER THE 

CLAIMS ALLEGED AGAINST MR. LAN AND POLAR STAR. 

Mr. Lan and Polar Star seek dismissal under Rule 12(b)(2) for lack of personal 

jurisdiction. 

A. Legal Standard 

The burden to establish personal jurisdiction rests on the plaintiff, but if the 

motion attacking jurisdiction is based on written materials rather than an evidentiary 

hearing, the plaintiff need only make a prima facie showing of jurisdictional facts. 

Mavrix Photo, Inc. v. Brand Techs., Inc., 647 F.3d 1218, 1223 (9th Cir. 2011). Although 

bare allegations are not sufficient, uncontroverted allegations in the complaint must be 

taken as true. Id. Conflicts between statements contained in affidavits must be resolved 

in the plaintiff’s favor. Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800 

(9th Cir. 2004). 

Where there is no applicable federal statute governing personal jurisdiction, the 

district court applies the law of the state in which the court sits. Id. Arizona permits its 

courts to exercise personal jurisdiction “to the maximum extent permitted by . . . the 

Constitution of the United States.” Ariz. R. Civ. P. 4.2(a); see A. Uberti & C. v. 

Leonardo, 181 Ariz. 565, 569, 892 P.2d 1354, 1358 (1995). The Constitution permits a 

court to exercise personal jurisdiction over a nonresident defendant if the defendant has at 

least “minimum contacts” with the forum State such that the exercise of jurisdiction 

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“does not offend traditional notions of fair play and substantial justice.” Int’l Shoe Co. v. 

Washington, 326 U.S. 310, 316 (1945); accord Mavrix, 647 F.3d at 1223. 

Personal jurisdiction can be either specific or general. Picot v. Weston, 780 F.3d 

1206, 1211 (9th Cir. 2015). A court may exercise general jurisdiction over a nonresident 

defendant when the defendant’s affiliations with the State are so continuous and 

systematic that the defendant is “essentially at home” in the forum State. Mavrix, 647 

F.3d at 1223. “This is an exacting standard, as it should be, because a finding of general 

jurisdiction permits a defendant to be haled into court in the forum state to answer for any 

of its activities anywhere in the world.” Schwarzenegger, 374 F.3d at 801. 

When a plaintiff relies on specific personal jurisdiction, the plaintiff must establish 

that jurisdiction is proper for each claim asserted against the defendant. Picot, 780 F.3d 

at 1211. If personal jurisdiction exists over one claim, the court may exercise pendent 

personal jurisdiction over other claims that arise out of the same core facts. Id. To 

decide whether a defendant is subject to specific personal jurisdiction, the Ninth Circuit 

applies a three-part test: 

(1) The non-resident defendant must purposefully direct his activities or 

consummate some transaction with the forum or resident thereof; or 

perform some act by which he purposefully avails himself of the privilege 

of conducting activities in the forum, thereby invoking the benefits and 

protections of its laws; 

(2) the claim must be one which arises out of or relates to the defendant’s 

forum-related activities; and 

(3) the exercise of jurisdiction must comport with fair play and substantial 

justice, i.e., it must be reasonable. 

Id. (quoting Schwarzenegger, 374 F.3d at 802). The plaintiff must prove the first two 

parts. Id. If he does so, the burden shifts to the defendant to show why the exercise of 

jurisdiction is not reasonable. Id. at 1212. 

For a defendant to be subject to specific jurisdiction, “the defendant’s suit-related 

conduct must create a substantial connection with the forum State.” Walden v. Fiore, __ 

U.S. __, 134 S. Ct. 1115, 1121 (2014). A “substantial connection” between the defendant 

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and the State must arise out of contacts that the defendant himself creates with the forum 

State. Id. at 1122. And the contacts to be considered are those with the forum State 

itself, not merely with persons who reside there. Id. “[A] defendant’s relationship with a 

plaintiff or third party, standing alone, is an insufficient basis for jurisdiction.” Id. at 

1123. 

To determine specific jurisdiction over contract claims, the inquiry is whether the 

defendant purposely availed himself of the privilege of conducting activities within the 

forum State, thereby invoking the benefit and protection of its laws. Picot, 780 F.3d at 

1212. “Purposeful availment” consists of more than merely random or attenuated 

contacts with the State. Id. It requires affirmative conduct by the defendant that allows 

or promotes the transaction of business within the forum State. Id. Thus, a defendant’s 

contract with an out-of-state party does not, by itself, automatically confer jurisdiction in 

that party’s State. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 478 (1985); see also

Walden, 134 S. Ct. at 1122-23. On the other hand, jurisdiction is proper over defendants 

who “purposefully ‘reached out beyond’ their State into another by, for example, entering 

a contractual relationship that ‘envisioned continuing and wide-reaching contacts’ in the 

forum State.” Walden, 134 S. Ct. at 1122 (quoting Burger King, 471 U.S. at 479-80). 

For tort claims, the inquiry is whether the defendant purposely directed his actions 

at the forum State, regardless of where the actions took place. Picot, 780 F.3d at 1212. 

“Purposeful direction” occurs where the defendant “(1) committed an intentional act, (2) 

expressly aimed at the forum state, (3) causing harm that the defendant knows is likely to 

be suffered in the forum state.” Id. at 1214. “[A]n intentional act is an external 

manifestation of the actor’s intent to perform an actual, physical act in the real world, not 

including any of its actual or intended results.” Washington Shoe Co. v. A-Z Sporting 

Goods Inc., 704 F.3d 668, 674 (9th Cir. 2012). “Express aiming” exists “when the 

defendant is alleged to have engaged in wrongful conduct targeted at a plaintiff whom the 

defendant knows to be a resident of the forum state.” Id. at 675. But “mere injury to a 

forum resident is not a sufficient connection to the forum.” Picot, 780 F.3d at 1214 

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(quoting Walden, 134 S. Ct. at 1125)). “[A]n injury is jurisdictionally relevant only 

insofar as it shows that the defendant has formed a contact with the forum State.” Id. 

B. Mr. Lan 

On December 18, 2009, Steven Youtsey as CEO/President of Andes Industries, 

Inc., executed a “12% Promissory Note plus bonus interest” on behalf of Andes. The 

note is dated December 20, 2009, and identifies Andes as the borrower and Mr. Lan as 

the payee. The December 20, 2009 Note requires a total payment of $3,135,000.00 due 

in full on March 20, 2010. It states that it “shall be governed, construed and interpreted 

by, through and under the Laws of the State of Arizona.” (Doc. 1-1 at 4; Doc. 30 at 2-3.) 

Mr. Lan is the 100 percent equity owner of Crestwood Capital Corporation. (Doc. 29 at 

53.) On April 1, 2015, Mr. Lan assigned all of his rights, title, and interest in the 

December 20, 2009 Promissory Note to Crestwood to recover and collect all amounts due 

under or arising from enforcement of the December 20, 2009 Promissory Note. (Doc. 1 

at 3.) Two days later, on April 3, 2015, Crestwood filed an action in this Court to recover 

the money that Andes borrowed from Mr. Lan, plus interest, costs, and attorneys’ fees. 

(Doc. 1.) 

Mr. Lan is subject to personal jurisdiction in this Court on the claims asserted. 

First, under A.R.S. § 47-9404(A), all the claims asserted against Mr. Lan could be 

litigated up to full recoupment in Crestwood’s collection action whether or not he is 

subject to personal jurisdiction in Arizona. Second, Mr. Lan would be subject to any 

counterclaim to the full extent of the claim by bringing an action on his note in this state. 

Fed. R. Civ. P. 13(b). He cannot escape that jurisdiction by endorsing his note to himself 

in the form of his wholly owned corporation two days before filing the action. Rule 

13(b) is not so easily evaded to the prejudice of the party Mr. Lan has sued in this Court 

through his wholly owned corporation. 

Third, apart from Rule 13(b), Mr. Lan’s suit-related conduct created a substantial 

connection with the State of Arizona to the extent of claims against him arising out of the 

same transaction or occurrence or series of transactions or occurrences as his collection 

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action. By filing an action in this Court to collect on a promissory note through a 

nominee without economic interest apart from his own, Mr. Lan purposely availed 

himself of the privilege of conducting activities within the forum State, thereby invoking 

the benefit and protection of its laws. Further, Mr. Lan allegedly “negotiate[d] loan 

agreements with PCT by which he obtained, directly or indirectly, promissory notes and 

security interests in Andes stock and PCT’s valuable intellectual property,” obtained 

confidential proprietary information, and disclosed PCT’s intellectual property and 

confidential proprietary information to competitors. These are intentional acts expressly 

aimed at a plaintiff whom the defendant knows to be a forum resident. Therefore, the 

Court has personal jurisdiction over Mr. Lan. 

C. Polar Star 

On August 1, 2000, New Elite Technologies, Inc., a Taiwanese company, received 

1,250,000 shares of Andes stock through a Stock Exchange Agreement. The Agreement 

states that Steven Youtsey and New Elite Technologies, Inc., were all of the shareholders 

of OptiSolutions, Inc., an Arizona corporation, and that Youtsey, Kun-Te Yang, Goldman 

Financial, LLC, Ronald Clark, Wade Ferguson, and Roger and Sybil Ferguson were all of 

the shareholders of PCT International, a Nevada corporation. It further states that the 

PCT International shareholders and the OptiSolutions shareholders wish to transfer all of 

their respective PCT International and OptiSolutions stock to Andes in exchange for 

common stock in Andes, resulting in PCT International and OptiSolutions becoming 

wholly owned subsidiaries of Andes. It acknowledges that Andes is intended to be a 

holding company of PCT International and OptiSolutions, Inc. 

The Agreement further states, “All parties consent and agree to the jurisdiction of 

the state and federal courts in Maricopa County, Arizona, but an action hereunder may be 

brought in any forum having jurisdiction.” (Doc. 125-5 at 8.) It also states: “This 

Agreement shall be binding on and inure to the benefit of the parties and their respective 

successors. No party may assign any right or obligation hereunder without the prior 

express written approval of Andes.” (Id.) 

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On June 29, 2004, New Elite Technologies, Inc., merged with Infomax Optical 

Technology Corp., another Taiwanese company, and the new company was named 

Infomax Optical Technology Corp. (Doc. 125-4.) On May 4, 2009, Infomax Optical 

Technology Corp. sold its shares in Andes to Polar Star Management Limited. (Doc. 

125-3.) On May 31, 2010, Andes issued a certificate showing Polar Star Management 

Limited as the owner of 1,250,000 shares of Andes common stock, apparently all of the 

stock originally issued under the Stock Exchange Agreement to New Elite Technologies, 

Inc. (Doc. 125-2.) 

Polar Star contends that its “arms-length” purchase of stock from Infomax does 

not make it a successor to Infomax, and therefore it is not bound by the August 1, 2000 

Stock Exchange Agreement. But the terms of the Agreement suggest otherwise. The 

Agreement creates Andes as a holding company of PCT International and OptiSolutions, 

Inc. It issued Andes stock to only the shareholders of PCT International and 

OptiSolutions, Inc. The Andes stock issued under the Agreement represented 100% of 

Andes’ outstanding stock as of the Agreement’s effective date. It states that Andes stock 

is not registered, will be restricted stock, and will be subject to the transfer restrictions 

and purchase options and obligations set forth in the Bylaws for Andes. It also states, 

“The shares to be received by each Shareholder are being acquired for investment and 

not, directly or indirectly, with a view to, or in connection with, the distribution or resale 

of such shares.” (Doc. 125-5 at 5.) Further, it prohibits assignment of any right or 

obligation without the prior express written approval of Andes. Polar Star could not have 

acquired Andes stock without permission from Andes and compliance with its Bylaws. 

The rights and obligations of New Elite Technologies, Inc., as an owner and investor in 

Andes were assumed by Polar Star when it acquired the stock. Polar Star is therefore 

bound by New Elite Technologies, Inc.’s consent to “the jurisdiction of the state and 

federal courts in Maricopa County, Arizona.”3

 

3

 Polar Star’s contention that the present lawsuit is not “an action hereunder” the 

Stock Exchange Agreement confuses jurisdiction with forum selection. Under the 

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Therefore, the Court has personal jurisdiction over Polar Star based on consent. 

IV. THE FIRST AMENDED COMPLAINT STATES TWO CLAIMS FOR 

WHICH RELIEF CAN BE GRANTED—BREACH OF CONTRACT AND 

BREACH OF THE IMPLIED DUTY OF GOOD FAITH AND FAIR 

DEALING. 

EZconn moves for dismissal under Rule 12(b)(6) of the Federal Rules of Civil 

Procedure of all claims pled against it except Count IV, which alleges breach of contract 

solely against EZconn. Polar Star, Mr. Lan, and eGtran move under Rule 12(b)(6) for 

dismissal of all claims pled against them. 

Count V alleges intentional interference by Mr. Lan and eGtran with the 

contractual relationship between PCT International and EZconn. Count VII alleges fraud 

against Mr. Lan, EZconn, and eGtran. Count IX alleges breach of the implied duty of 

good faith and fair dealing against EZconn and eGtran. The remaining counts, I, II, III, 

VI, VIII, X, XI, and XII, allege claims against all Defendants. 

Counts I, II, III, VI, VIII, X, XI, and XII could be dismissed for failing to give 

each Defendant fair notice of what the claim is and the grounds upon which it rests. See

Fed. R. Civ. P. 8(a); Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th 

Cir. 2008). A claim must be stated clearly enough to provide each defendant fair 

opportunity to frame a responsive pleading. McHenry v. Renne, 84 F.3d 1172, 1176 (9th 

Cir. 1996). “Something labeled a complaint . . ., yet without simplicity, conciseness and 

clarity as to whom plaintiffs are suing for what wrongs, fails to perform the essential 

functions of a complaint.” Id. at 1180. However, these claims also fail to state a claim 

upon which relief can be granted and will be dismissed under Rule 12(b)(6). 

 

Agreement, the parties consented to “the jurisdiction of the state and federal courts in 

Maricopa County, Arizona,” and also agreed that any action arising under the Agreement 

could be litigated in any forum having jurisdiction. 

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A. Legal Standard 

A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the 

plaintiff’s pleadings. All allegations of material fact are assumed to be true and are 

construed in the light most favorable to the nonmoving party. Cousins v. Lockyer, 568 

F.3d 1063, 1067 (9th Cir. 2009). Dismissal under Rule 12(b)(6) can be based on “the 

lack of a cognizable legal theory” or “the absence of sufficient facts alleged under a 

cognizable legal theory.” Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 

1990). To avoid dismissal, a complaint need contain only “enough facts to state a claim 

for relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 

(2007). The principle that a court accepts as true all of the allegations in a complaint 

does not apply to legal conclusions or conclusory factual allegations. Ashcroft v. Iqbal, 

556 U.S. 662, 678 (2009). “A claim has facial 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. “The plausibility standard is not akin to a 

‘probability requirement,’ but it asks for more than a sheer possibility that a defendant 

has acted unlawfully.” Id. 

In deciding a motion to dismiss under Rule 12(b)(6), “[a] court may consider 

evidence on which the complaint ‘necessarily relies’ if: (1) the complaint refers to the 

document; (2) the document is central to the plaintiff’s claim; and (3) no party questions 

the authenticity of the copy attached to the 12(b)(6) motion.” Marder v. Lopez, 450 F.3d 

445, 448 (9th Cir. 2006). Here, the parties submitted declarations and other evidence to 

be considered regarding personal jurisdiction, but the Court has not considered materials 

outside the pleadings to decide whether the First Amended Complaint states a claim upon 

which relief can be granted. 

B. The First Amended Complaint Fails to State Any Claim Against Polar 

Star. 

The First Amended Complaint affirmatively alleges that Polar Star did nothing. It 

alleges that no representative of Polar Star ever visited Andes and PCT International’s 

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facilities or directly interacted with Andes and PCT International. It alleges that all of 

Polar Star’s communications with Andes and PCT International have come through Mr. 

Lan and representatives of EZconn and/or eGtran, but it does not allege that Polar Star 

actually had any communications with Andes and PCT International. It alleges that Polar 

Star is a shareholder of Andes, but only as a proxy for Mr. Lan. It alleges that all actions 

with respect to Polar Star’s shareholder interest have been directed and controlled by Mr. 

Lan. It alleges that Andes has not held formal shareholder meetings or elections, and 

most substantial business decisions for Andes and PCT International were addressed 

through communications between Mr. Lan and Youtsey. It alleges that Mr. Lan directed 

and controlled the actions of Polar Star, but it does not allege any wrongful actions that 

Mr. Lan caused Polar Star to take. Moreover, Andes and PCT International’s 

characterization of Polar Star as a “corporate insider,” privy to confidential financial and 

other information through its shareholder status, is contradicted by their allegations that 

Polar Star had no interaction with Andes and PCT International. 

Counts I, II, III, VI, VIII, X, XI, and XII are the only claims that apply to Polar 

Star, they do not allege any actions taken specifically by Polar Star, and they make only 

conclusory factual allegations inconsistent with facts pled regarding Polar Star. Count I 

for breach of fiduciary duty alleges that Defendants “entered into special, confidential 

relationships with [Andes and PCT International] as integrally involved corporate 

insiders of [Andes and PCT International].” Polar Star could not have been “integrally 

involved” without any communication or interaction with Andes and PCT International, 

without any shareholder meetings, and without participation in substantial business 

decisions. Count II alleges “Defendants each provided substantial assistance and 

knowingly participated in breaches of fiduciary duty committed by the other 

Defendants,” but as pled, Polar Star did not do anything, much less provide substantial 

assistance to anyone. Count III alleges Polar Star and the other Defendants owed a duty 

to maintain confidentiality of certain information, but there was no alleged 

communication between Polar Star and PCT International, or anyone else, from which 

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Polar Star could have obtained confidential proprietary information, and no alleged action 

taken by Polar Star that could be construed as usurpation of corporate opportunities. 

Counts VI, VIII, X, XI, and XII fare no better. The First Amended Complaint alleges, in 

essence, that Polar Star is a repository for Mr. Lan’s ownership interest, and nothing 

more. 

Therefore, all claims against Polar Star will be dismissed. 4

C. The First Amended Complaint Does Not Allege Facts Supporting Any 

Alter Ego Liability for Any Defendant. 

It is undisputed that EZconn manufactured products for PCT International, PCT 

International did not pay for all of the products it received, and Andes did not repay 

certain loans it received from Mr. Lan, Kun-Te Yang, Dennis Lan.5

 Andes and PCT 

International contend they are not legally liable for the unpaid invoices and loans because 

EZconn wrongful disclosed and misused Andes and PCT International’s confidential 

proprietary information. They seek to offset damages they may obtain for EZconn’s 

actions against the amount PCT International owes to EZconn and also against Andes’ 

debt to Mr. Lan, Dennis Lan, and Kun-Te Yang. Andes and PCT International seek to 

impose liability for EZconn’s actions on Mr. Lan, Dennis Lan, and Kun-Te Yang by 

characterizing Mr. Lan as “the mastermind” and all of the Defendants as 

indistinguishable alter egos of each other: 

As PCT has alleged, Mr. Lan directed and controlled the operations of each 

of the other Defendants who also committed the identified wrongful 

 

4

 The First Amended Complaint pleads the same allegations regarding Kun-Te 

Yang and Dennis Lan as it pleads regarding Polar Star, i.e., they hold Mr. Lan’s 

shareholder interest in Andes as his proxies and have had no direct interaction or 

communication with Andes and PCT International. Andes and PCT International 

initiated service on Kun-Te Yang and Dennis Lan through the letters rogatory process 

and had not received proof of service as of March 4, 2016. Kun-Te Yang and Dennis 

Lan have not appeared in this Court and have not joined in the present motions to 

dismiss. 

5

 Whether the loan from Kun-Te Yang was made to Youtsey personally or on 

behalf of Andes and PCT International is disputed. 

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conduct. Thus, each Defendant’s wrongdoing is attributable to Mr. Lan. 

Indeed, PCT alleges that each defendant functioned as Mr. Lan’s alter ego. 

Accordingly, the Complaint details an interwoven scheme to harm PCT, 

with Mr. Lan as the mastermind. 

(Doc. 73 at 8.) 

The First Amended Complaint alleges that Mr. Lan was “the mastermind of the 

harm” to Andes and PCT International, directing and controlling all of the other 

Defendants and acting through the other Defendants. (Doc. 72 at 7.) It alleges that KunTe Yang, Dennis Lan, Polar Star, EZconn, and eGtran each functioned as “Mr. Lan’s 

proxy and alter ego,” and eGtran also functioned as an alter ego of EZconn. 

The First Amended Complaint alleges that Mr. Lan acted through the other 

Defendants to wrongfully seize control over the intellectual property, confidential 

information, and business of Andes and PCT International, in which the Defendants own 

a minority interest, and divert profits to EZconn, a company in which, at relevant times, 

Defendants have owned a controlling majority interest. It alleges the other Defendants 

acted under Mr. Lan’s direction and control, abusing their positions as suppliers, 

fiduciaries, and shareholders of Andes and PCT International. It also alleges that Mr. 

Lan was a de facto shareholder of Andes, but directed that his shareholder interest be held 

by Kun-Te Yang, Dennis Lan, and Polar Star, each of whom functioned as Mr. Lan’s 

proxy and alter ego. The First Amended Complaint further alleges that Mr. Lan 

participated in meetings of Andes’ Board of Directors and was involved in substantial 

business decisions for Andes and PCT International through persons he identified to act 

on his behalf, including Kun-Te Yang, Dennis Lan, Polar Star, and employees and 

executives of EZconn and eGtran. 

Thus, the First Amended Complaint alleges that Mr. Lan is liable for the 

wrongdoing of each of the other Defendants because each Defendant functioned as Mr. 

Lan’s alter ego. It also alleges that each of the other Defendants is liable for Mr. Lan’s 

actions because each Defendant functioned as Mr. Lan’s alter ego. 

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1. Mr. Lan’s Alter Ego Liability for EZconn and eGtran

The term “alter ego” is used in the context of “piercing the corporate veil” to 

impose liability on an individual for the actions of a corporation: 

As a general rule, a corporation will be treated as a legal entity until 

sufficient reason appears to disregard the corporate form. The corporate 

fiction will be disregarded when the corporation is the alter ego or business 

conduit of a person, and when to observe the corporation would work an 

injustice. The alter-ego status is said to exist when there is such unity of 

interest and ownership that the separate personalities of the corporation and 

owners cease to exist. 

Where a corporation is operated and maintained for the purpose for which it 

was incorporated and not as a mere shield of the stockholders, the corporate 

form should not be disregarded. If a corporation was formed or is 

employed for fraudulent purposes then clearly the corporate fiction should 

be disregarded. . . . But it must be noted that a legitimate purpose of 

incorporation is to avoid personal liability and if the corporate fiction is too 

easily ignored and personal liability imposed, then incorporation is 

discouraged. If there is no unification of interests and intermingling of 

funds, so that the corporation loses its separate identity, then the owners 

should not be personally liable. 

Dietel v. Day, 16 Ariz. App. 206, 208, 492 P.2d 455, 457 (1972) (citations omitted). 

Corporate directors and officers are not personally liable for torts committed by the 

corporation unless they have participated in the tort or were negligent in the management 

or supervision of the corporate affairs causing or contributing to the injury. 

Bischofshausen, Vasbinder, & Luckie v. D.W. Jaquays Min. & Equip. Contractors Co., 

145 Ariz. 204, 210-11, 700 P.2d 902, 908-09 (Ct. App. 1985). 

The First Amended Complaint alleges that, at times relevant to this action, Mr. 

Lan owned or controlled, directly or indirectly, EZconn and eGtran. It alleges that 

EZconn functioned as an alter ego of Mr. Lan and of eGtran, and eGtran owned and 

controlled EZconn. It further alleges that Mr. Lan was part of eGtran’s executive 

management and served as a Senior Vice President of the company, and eGtran 

functioned as an alter ego of Mr. Lan and EZconn. It vaguely alleges that Mr. Lan 

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“intermingled his business dealings with those of eGtran and EZconn,” but it does not 

allege that Mr. Lan intermingled his personal funds with those of eGtran and EZconn. 

The First Amended Complaint does not allege facts showing such unity of interest 

and ownership between Mr. Lan and EZconn or Mr. Lan and eGtran that the separate 

personalities of the corporation and owners ceased to exist. It does not allege facts 

showing that EZconn or eGtran operated as a shield for Mr. Lan rather than for the 

purpose for which either was incorporated. It does not allege facts showing that Mr. 

Lan’s personal funds were intermingled with those of either EZconn or eGtran. It does 

not allege that either EZconn or eGtran failed to observe corporate formalities. The First 

Amended Complaint does not allege facts necessary to impose alter ego liability on Mr. 

Lan for the actions of EZconn or eGtran. 

2. Mr. Lan’s Alter Ego Liability for Kun-Te Yang, Dennis Lan, 

and Polar Star

The First Amended Complaint seeks to stretch application of alter ego liability 

from personal liability for corporate actions to personal liability for actions of another 

individual and to avoid reliance on a theory of vicarious, respondeat superior, or agency 

liability. Andes and PCT International offer no authority to support such an expansion of 

alter ego liability. In fact, they acknowledge that they have pled alternative claims 

because their allegations of alter ego liability may fail. But even if alter ego liability 

could be imposed on Mr. Lan for the actions of other individuals, the First Amended 

Complaint does not allege facts suggesting such unity of interest and ownership that the 

separate personalities ceased to exist. See Dietel, 16 Ariz. App. at 208, 492 P.2d at 457. 

The First Amended Complaint alleges that Andes shareholders Kun-Te Yang, 

Dennis Lan, and Polar Star acted as Mr. Lan’s proxies and under his control. It alleges 

they were “corporate insiders” and caused Andes and PCT International harm. But the 

First Amended Complaint also alleges that Kun-Te Yang, Dennis Lan, and Polar Star 

never visited PCT International’s facilities and never directly interacted with Andes and 

PCT International. It alleges that Andes did not hold shareholder meetings. It alleges 

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that most substantial business decisions for PCT were addressed through communications 

between Mr. Lan and Mr. Youtsey. It does not allege that Kun-Te Yang, Dennis Lan, 

and Polar Star actually did anything. Therefore, the First Amended Complaint does not 

plausibly allege that any of the shareholders committed any wrongdoing for which Mr. 

Lan could be liable, and even if it did, Mr. Lan would not be liable for them as his alter 

egos. 

3. eGtran’s Alter Ego Liability for EZconn

A parent corporation may be held liable for the acts of its subsidiary when the 

individuality or separateness of the subsidiary corporation has ceased. Gatecliff v. Great 

Republic Life Ins. Co., 170 Ariz. 34, 37, 821 P.2d 725, 728 (1991). To establish such 

liability, “plaintiffs must prove both (1) unity of control and (2) that observance of the 

corporate form would sanction a fraud or promote injustice.” Id. “Substantially total 

control may be proved by showing, among other things: stock ownership by the parent; 

common officers or directors; financing of subsidiary by the parent; payment of salaries 

and other expenses of subsidiary by the parent; failure of subsidiary to maintain 

formalities of separate corporate existence; similarity of logo; and plaintiff’s lack of 

knowledge of subsidiary’s separate corporate existence.” Id. “To be held responsible for 

actions of its subsidiary, a parent must actually exercise control such that the subsidiary is 

‘a mere instrumentality.’” Keg Rests. Ariz., Inc. v. Jones, No. 1 CA-CV 15-0054, 2016 

WL 3101794, at *8 (Ariz. Ct. App. June 2, 2016). The key is failure to maintain the 

formalities or the financial distinctness of separate corporations. 

The First Amended Complaint alleges that “eGtran owned and controlled EZconn, 

and directed and controlled the actions of EZconn herein.” (Doc. 72 at 9.) It further 

alleges that eGtran and EZconn share or shared multiple common officers and directors. 

It does not allege facts showing that EZconn failed to maintain formalities of separate 

corporate existence, only that after eGtran acquired EZconn, the Chairman of the Board 

of eGtran approved invoices for PCT International’s purchases from EZconn and 

requested those payments be directed to him and that EZconn personnel began using 

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email addresses with an “@egtran.com” suffix. Such limited and vague allegations do 

not show that the individuality or separateness of the subsidiary corporation had ceased. 

They are insufficient to impose liability on eGtran for the actions of EZconn. 

Thus, the First Amended Complaint fails to allege facts showing that any 

Defendant should be held liable for the actions of another Defendant as an alter ego. 

D. Count IV: Breach of Contract (Against EZconn) 

The First Amended Complaint alleges that the contractual manufacturing 

relationship between PCT International and EZconn required PCT International to 

disclose certain information to EZconn, such as quantities of items PCT International 

ordered from EZconn, the prices PCT International paid EZconn for those items, and 

other information about customer orders. It further alleges that EZconn disclosed this 

information to one of PCT International’s competitors for which EZconn also 

manufactured similar products. As alleged, the Terms and Conditions included in PCT 

International’s purchase orders prohibit EZconn from discussing orders with any third 

party. 

Count IV alleges EZconn breached its obligations under contracts between PCT 

International and EZconn by, among other things: 

a. Wrongfully using [Andes and PCT International] “items, materials, data, 

technical information, [] intellectual property,” and other property for their 

own benefit; 

b. Using [Andes and PCT International]’s property for purposes other than 

production or delivery of products manufactured for [Andes and PCT 

International]; 

c. Using [Andes and PCT International]’s materials and intangibles for the 

benefit of parties other than [Andes and PCT International]; 

d. Reproducing [Andes and PCT International]’s property, including 

materials, data, technical information, and intellectual property without 

[Andes and PCT International]’s prior written authorization; and 

e. Claiming right, title, and interest to inventions utilizing [Andes and PCT 

International]’s intellectual property. 

(Doc. 72 at 27-28.) 

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Count IV alleges a breach of contract claim only against EZconn, and EZconn 

does not move to dismiss Count IV. Therefore, Count IV remains, but it applies only to 

EZconn. 

E. Count IX: Breach of Implied Duty of Good Faith and Fair Dealing 

(Against EZconn and eGtran) 

Arizona law implies a covenant of good faith and fair dealing in every contract. 

Rawlings v. Apodaca, 151 Ariz. 149, 153, 726 P.2d 565, 569 (1986). The essence of the 

implied covenant is “neither party will act to impair the right of the other to receive the 

benefits which flow from their agreement or contractual relationship.” Id. “[A]n implied 

covenant of good faith and fair dealing cannot directly contradict an express contract 

term.” Bike Fashion Corp. v. Kramer, 202 Ariz. 420, 424, 46 P.3d 431, 435 (Ct. App. 

2002). But a party can exercise discretion retained or unforeclosed under a contract in 

such a way as to deny the other a reasonably expected benefit of the bargain. Id. 

Therefore, “Arizona law recognizes that a party can breach the implied covenant of good 

faith and fair dealing both by exercising express discretion in a way inconsistent with a 

party’s reasonable expectations and by acting in ways not expressly excluded by the 

contract’s terms but which nevertheless bear adversely on the party’s reasonably 

expected benefits of the bargain.” Id. Further, “a party may breach the implied covenant 

of good faith and fair dealing even if the express terms of the contract speak to a related 

subject.” Id. 

An action for breach of the implied covenant of good faith and fair dealing may be 

brought in contract or in tort. An action in tort may be brought only where there is a 

“special relationship between the parties arising from elements of public interest, 

adhesion, and fiduciary responsibility.” Wells Fargo Bank v. Ariz. Laborers, Teamsters 

& Cement Masons Local No. 395 Pension Trust Fund, 201 Ariz. 474, 491, 38 P.3d 12, 29 

(2002). But when the remedy sought sounds in contract, the plaintiff is not required to 

prove the existence of a special relationship. Id. 

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Count IX alleges that EZconn and eGtran owed PCT International a duty of good 

faith and fair dealing because EZconn was a party to contracts with PCT International 

and eGtran was the alter ego of EZconn. It further alleges that EZconn and eGtran 

breached their duties of good faith and fair dealing owed to PCT International by “the 

wrongful and illegal conduct alleged herein.” (Doc. 72 at 35.) In addition, Count IX 

alleges that EZconn and eGtran had a special, confidential relationship with Andes and 

PCT International. In response to the motions to dismiss, Andes and PCT International 

state that they plead this claim for breach of the implied duty of good faith and fair 

dealing in the alternative to their claim against EZconn for breach of contract. 

The First Amended Complaint does not allege any facts showing that either 

EZconn or eGtran had a special relationship with Andes and PCT International. 

However, the First Amended Complaint does not seek tort damages, and Andes and PCT 

International do not need to establish a special relationship to state a claim for breach of 

the implied covenant of good faith and fair dealing. 

The First Amended Complaint does not allege that eGtran was a party to any 

contract from which an implied duty of good faith and fair dealing could arise. Other 

than alter ego liability, Andes and PCT International allege no basis for imposing liability 

on eGtran for EZconn’s alleged breach of the implied covenant of good faith and fair 

dealing. As already found, the First Amended Complaint does not adequately plead alter 

ego status between EZconn and eGtran. 

The First Amended Complaint alleges that EZconn breached its contract with PCT 

by wrongfully disclosing PCT’s confidential proprietary information in violation of 

express Terms and Conditions incorporated in their purchase orders and by other actions. 

It also alleges that PCT shared information with EZconn that EZconn secretly used to 

apply for patents. If the alleged disclosures were not related to specific purchase orders, 

the Terms and Conditions may not expressly prohibit EZconn’s actions. To the extent 

that EZconn’s allegedly wrongful actions are not expressly excluded by the contract’s 

terms but “nevertheless bear adversely on [EZconn’s] reasonably expected benefits of the 

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bargain,” the First Amended Complaint sufficiently alleges a claim for breach of the 

implied duty of good faith and fair dealing against EZconn. 

Therefore, Count IX will be dismissed as to eGtran, but not with respect to 

EZconn. 

F. Count V: Intentional Interference with Contract (Against Mr. Lan 

and eGtran) 

To prove intentional inference with contract, a plaintiff must prove: 

(1) existence of a valid contractual relationship, (2) knowledge of the 

relationship on the part of the interferor, (3) intentional interference 

inducing or causing a breach, (4) resultant damage to the party whose 

relationship has been disrupted, and (5) that the defendant acted 

improperly. 

Safeway Ins. Co. v. Guerrero, 210 Ariz. 5, 10, 106 P.3d 1020, 1025 (2005). The “valid 

contractual relationship” must be between the plaintiff and a third party; a party cannot 

tortiously interfere with its own contract. Payne v. Pennzoil Corp., 138 Ariz. 52, 57, 672 

P.2d 1322, 1327 (1983); Restatement (Second) of Torts § 766 (1979) (defining cause of 

action for interfering with the performance of a contract “between another and a third 

person”). 

Count V alleges that Mr. Lan and eGtran interfered with the contract between PCT 

International and EZconn by exercising control over EZconn to breach its contractual 

obligation for Mr. Lan’s and eGtran’s gain. Andes and PCT International acknowledge 

that if EZconn is determined to be the alter ego of Mr. Lan and eGtran, they are not third 

parties to the contract and cannot interfere with their own contract. But Count V fails 

even after alter ego status has been rejected. It alleges nothing more than that a corporate 

officer and a parent corporation are liable for the breaches of contract in which they had a 

role. Therefore, Count V will be dismissed as to Mr. Lan and eGtran. 

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G. Count I: Breach of Fiduciary Duty (Against All Defendants) 

Count II: Aiding and Abetting a Breach of Fiduciary Duty (Against 

All Defendants) 

 “A fiduciary relation exists between two persons when one of them is under a 

duty to act for or to give advice for the benefit of another upon matters within the scope 

of the relation.” Restatement (Second) of Torts § 874 cmt. a (1979). A fiduciary 

relationship is a confidential relationship in which the fiduciary holds superiority of 

position over the beneficiary, which may be demonstrated by a substitution of the 

fiduciary’s will for that of the beneficiary. Standard Chartered PLC v. Price 

Waterhouse, 190 Ariz. 6, 24, 945 P.2d 317, 335 (Ct. App. 1997). It requires “peculiar 

reliance in the trustworthiness of another,” which is more than mere trust in another’s 

competence or integrity. Id. 

“Purely commercial transactions do not give rise to a fiduciary relationship.” 

Urias v. PCS Health Sys., Inc., 211 Ariz. 81, 87, 118 P.3d 29, 35 (Ct. App. 2005) 

(citation omitted). “A commercial contract creates a fiduciary relationship only when 

one party agrees to serve in a fiduciary capacity.” Id. 

A corporation’s director owes a fiduciary duty to the corporation and its 

stockholders. Atkinson v. Marquart, 112 Ariz. 304, 306, 541 P.2d 556, 558 (1975). A 

fiduciary duty may exist among shareholders with equal ownership in a closely held 

corporation. E.g., Hollis v. Hill, 232 F.3d 460, 466 (5th Cir. 2000) (shareholders were 

directors, participated personally in the corporation’s management, made money 

principally through salaries as officers, and did not receive large dividends); Clark v. 

Lubritz, 113 Nev. 1089, 944 P.2d 861 (1997) (closely held corporation functioned as 

partnership). In a closely held corporation, majority shareholders, particularly those with 

management responsibilities, have a fiduciary duty to protect the interests of minority 

shareholders. E.g., Mims v. Valley Nat. Bank, 14 Ariz. App. 190, 192, 481 P.2d 876, 878 

(1971); Donahue v. Rodd Electrotype Co. of New England, 367 Mass. 578, 328 N.E.2d 

505 (1975). But Andes and PCT International have cited no authority holding that 

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shareholder status alone imposes a fiduciary duty, even within a closely held 

corporation.6

Count I of the First Amended Complaint alleges that “Defendants, either directly 

or as alter egos, entered into special, confidential relationships with [Andes and PCT 

International] as integrally involved corporate insiders,” and each owed Andes and PCT 

International fiduciary duties. (Doc. 72 at 24.) Count II alleges, “The Defendants each 

provided substantial assistance and knowingly participated in the breaches of fiduciary 

duty committed by the other Defendants.” (Id. at 25.) 

The First Amended Complaint alleges that all of the Defendants owed fiduciary 

duties to Andes and PCT International through (1) Mr. Lan’s special, confidential 

relationship with Andes and (2) as direct or indirect shareholders of Andes. It alleges that 

Youtsey, as president and founder of PCT International, developed a special and 

confidential relationship of trust with Mr. Lan, on behalf of EZconn, beyond that of a 

mere contract manufacturer. The First Amended Complaint also alleges that, because 

Mr. Lan was a trusted business partner, Andes and PCT International allowed Mr. Lan to 

invest in Andes and hold his ownership interest through Kun-Te Yang, Dennis Lan, and 

Polar Star. The First Amended Complaint alleges that Andes operated like a partnership, 

most substantial business decisions were addressed through communications between Mr. 

Lan and Mr. Youtsey, and “these communications were usually facilitated by English 

speaking representatives of EZconn and/or eGtran” because Mr. Lan does not speak 

 

6

 Whether Arizona or Nevada law governs makes no difference in this case. 

However, Andes and PCT International contend that Nevada, the place of Andes’ 

incorporation, applies to the determination of fiduciary duties, relying on AMERCO v. 

Shoen, 184 Ariz. 150, 152 n.1, 907 P.2d 536, 538 n.1 (Ct. App. 1995). The AMERCO

footnote states that no choice-of-law issues were raised, but Nevada law would have 

applied because it was the place of incorporation. It cites §§ 302 and 309 of the 

Restatement (Second) of Conflict of Laws (1971), which provide direction for deciding 

choice-of-law issues when determining a corporation’s obligations to shareholders and 

creditors and a director’s or officer’s liability to the corporation, its creditors, and its 

shareholders. Neither section addresses choice of law when deciding a shareholder’s 

liability. 

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English. (Doc. 72 at 18.) It does not allege any facts supporting Andes and PCT 

International’s claim that Mr. Lan, EZconn, eGtran, or any other Defendant developed a 

special, confidential relationship with Andes and PCT International. 

The First Amended Complaint also does not allege facts showing that any of the 

Defendants had a fiduciary duty to Andes and PCT International because of direct or 

indirect shareholder status. It alleges that no Andes shareholder held a majority position, 

and it does not allege that all shareholders held equal ownership. It does not allege that 

any of the Defendants served as a director, had management responsibilities, or held a 

position of superiority over other shareholders. Even if Mr. Lan could be liable for 

conduct of shareholders Kun-Te Yang, Dennis Lan, and Polar Star, the First Amended 

Complaint does not allege facts imposing fiduciary duties on those shareholders. 

The First Amended Complaint does not allege facts showing that any of the 

Defendants owed a fiduciary duty to Andes and PCT International. Therefore, none of 

the Defendants can be liable for aiding and abetting a breach of fiduciary duty by any 

other Defendant. Therefore, Counts I and II will be dismissed as to Mr. Lan, EZconn, 

and eGtran. 

H. Count III: Usurpation of Corporate Opportunities (Against All 

Defendants) 

“The ‘corporate opportunity doctrine’ prohibits fiduciary usurpation of a corporate 

opportunity. It requires a fiduciary who learns of a corporate opportunity to disclose it to 

the corporation before seeking to appropriate the opportunity for himself.” AMERCO v. 

Shoen, 184 Ariz. 150, 158, 907 P.2d 536, 544 (Ct. App. 1995). 

The First Amended Complaint does not allege facts from which it can be inferred 

that Mr. Lan, EZconn, or eGtran had a fiduciary relationship with Andes and PCT 

International. Therefore Mr. Lan, EZconn, and eGtran cannot be liable for usurpation of 

corporate opportunities. Therefore, Count III will be dismissed as to Mr. Lan, EZconn, 

and eGtran. 

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I. Count VIII: Constructive Fraud (Against All Defendants) 

Constructive fraud is “a breach of a legal or equitable duty which, without regard 

to moral guilt or intent of the person charged, the law declares fraudulent because the 

breach tends to deceive others, violates public or private confidences, or injures public 

interests.” Lasley v. Helms, 179 Ariz. 589, 591, 880 P.2d 1135, 1137 (Ct. App. 1994). 

“While it does not require a showing of intent to deceive or dishonesty of purpose, it does 

require a fiduciary or confidential relationship.” Dawson v. Withycombe, 216 Ariz. 84, 

107, 163 P.3d 1034, 1057 (Ct. App. 2007). 

Count VIII alleges that because of the “special, confidential relationship” between 

Andes/PCT International and Defendants and “Defendants’ status as corporate insiders,” 

Andes and PCT International entrusted Defendants with their confidential proprietary 

information, and Defendants breached their duties to Andes and PCT International by 

disclosing Andes and PCT International’s confidential proprietary information to Andes 

and PCT International’s competitors and by other actions. (Doc. 72 at 34.) 

The First Amended Complaint does not allege facts from which it can be inferred 

that Mr. Lan, EZconn, or eGtran had a fiduciary or confidential relationship with Andes 

and PCT International. Moreover, the First Amended Complaint fails to identify the role 

of each defendant in the alleged fraudulent scheme. See Swartz v. KPMG LLP, 476 F.3d 

756, 764-765 (9th Cir. 2007). 

Therefore, Count VIII will be dismissed as to Mr. Lan, EZconn, and eGtran. 

J. Count VII: Fraud (Against Mr. Lan, EZconn, and eGtran) 

To state a claim for common law fraud under Arizona law, a plaintiff must plead 

nine elements: 

(1) a representation; (2) its falsity; (3) its materiality; (4) the speaker’s 

knowledge of its falsity or ignorance of its truth; (5) the speaker’s intent 

that it be acted upon by the recipient in the manner reasonably 

contemplated; (6) the hearer’s ignorance of its falsity; (7) the hearer’s 

reliance on its truth; (8) the hearer’s right to rely on it; (9) the hearer’s 

consequent and proximate injury. 

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Comerica Bank v. Mahmoodi, 224 Ariz. 289, 291-92, 229 P.3d 1031, 1033-34 (Ct. App. 

2010). In alleging fraud, the circumstances must be alleged with particularity. Fed. R. 

Civ. P. 9(b). Rule 9(b) requires allegations of fraud to be “specific enough to give 

defendants notice of the particular misconduct which is alleged to constitute the fraud 

charged so that they can defend against the charge and not just deny that they have done 

anything wrong.” Bly-Magee v. California, 236 F.3d 1014, 1019 (9th Cir. 2001). 

Plaintiffs alleging fraud “must state the time, place, and specific content of the false 

representations as well as the identities of the parties to the misrepresentations.” 

Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986); 

accord Odom v. Microsoft Corp., 486 F.3d 541, 553 (9th Cir. 2007). 

Rule 9(b) does not allow a complaint to merely lump multiple defendants 

together but requires plaintiffs to differentiate their allegations when suing 

more than one defendant and inform each defendant separately of the 

allegations surrounding his alleged participation in the fraud. In the context 

of a fraud suit involving multiple defendants, a plaintiff must, at a 

minimum, identify the role of each defendant in the alleged fraudulent 

scheme. 

Swartz v. KPMG LLP, 476 F.3d 756, 764-765 (9th Cir. 2007) (internal quotation marks, 

alteration marks, and citations omitted). The representation must relate to either a past or 

existing fact, not “unfilled promises, expressions of intention or statements concerning 

future events unless such were made with the present intention not to perform.” Staheli 

v. Kauffman, 122 Ariz. 380, 383, 595 P.2d 172, 175 (1979). 

Count VII alleges two types of representations made by Mr. Lan and EZconn: (1) 

promises made in 1997 before PCT International began a contractual relationship with 

EZconn and (2) contract terms incorporated into PCT International’s purchase orders. 

All of these alleged representations concern EZconn’s obligation to protect Andes and 

PCT International’s confidential proprietary information. The First Amended Complaint 

does not specifically allege “the time, place, and specific content of the false 

representations as well as the identities of the parties to the misrepresentations.” 

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Count VII summarily alleges that these representations were false and misleading 

when made and that Mr. Lan, EZconn, and eGTran knew these representations were false 

and misleading when they were made. But the representations did not relate to past or 

existing facts, so they could not have been false when made. They are expressions of 

intention or statements about future events, and Andes and PCT International do not 

allege they were made with the present intention not to perform. Instead, Andes and PCT 

International assert that the representations “became palpably false” by “at least 2012,” 

which is when PCT International sued Holland Electronics, LLC, for patent infringement. 

(Doc. 73 at 15, Doc. 74 at 12, Doc. 75 at 13.) 

Count VII alleges that Andes and PCT International reasonably relied on these 

representations and “would not have disclosed [their] confidential proprietary 

information or conducted business with EZconn absent such representations.” (Doc. 72 

at 33.) But the First Amended Complaint alleges that Andes and PCT International 

provided EZconn with confidential proprietary information pursuant to the contractual 

agreement between PCT International and EZconn. Andes and PCT International do not 

allege any reliance beyond performing contractual obligations to EZconn. 

Further, Count VII alleges that “before, during and after these representations, 

EZconn and Mr. Lan were actively disclosing [Andes and PCT International]’s 

confidential proprietary information to [Andes and PCT International]’s competitors, 

while also seeking to convert [Andes and PCT International]’s intellectual property by 

secretly filing patent applications claiming as EZconn’s own intellectual property 

belonging to [Andes and PCT International].” (Id. at 33.) Alleging that Defendants 

disclosed Andes and PCT International’s confidential information before they made the 

representations contradicts the allegation that Andes and PCT International provided 

EZconn the information in reliance on the representations. 

The First Amended Complaint does not plead a fraud claim with Rule 9(b) 

particularity. Even if it were held to a lesser standard, it fails to state a fraud claim upon 

which relief can be granted. Mr. Lan and representatives of EZconn allegedly gave PCT 

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International assurances about protecting PCT International’s confidential information 

before EZconn and PCT International formed a contractual relationship. As alleged, it 

was necessary for PCT International to provide EZconn with certain information in order 

for EZconn to perform under the contract. When PCT International sent to EZconn 

purchase orders, certain Terms and Conditions allegedly were incorporated. EZconn 

manufactured and delivered to Andes and PCT International the products it ordered, 

which could be considered as accepting the Terms and Conditions. As alleged, EZconn 

breached the terms regarding protecting Andes and PCT International’s confidential 

proprietary information, and Andes and PCT International suffered pecuniary loss. 

Viewing Count VII generously, it alleges no more than a breach of contract claim against 

EZconn. 

In addition, Andes and PCT International contend that any false representation by 

EZconn is attributable to eGtran because EZconn is eGtran’s alter ego. As previously 

concluded, Andes and PCT International have not pled sufficient facts to show alter ego 

status among Mr. Lan, EZconn, and eGtran. 

Therefore, Count VII will be dismissed as to Mr. Lan, EZconn, and eGtran. 

K. Count VI: Tortious Interference with Prospective Economic 

Advantage (Against All Defendants) 

To establish a claim for tortious interference with prospective economic 

advantage, a plaintiff must prove (1) it had a valid contractual relationship or business 

expectancy; (2) the defendant knew of the relationship or expectancy; (3) the defendant 

intentionally interfered, which induced or caused a breach or termination of the 

relationship or expectancy; and (4) the plaintiff incurred damages as a result of the 

disrupted relationship or expectancy. Telesaurus VPC, LLC v. Power, 623 F.3d 998, 

1009 (9th Cir. 2010); Dube v. Likins, 216 Ariz. 406, 412, 167 P.3d 93, 99 (Ct. App. 

2007). “As a general rule, an action for tortious interference with a business relationship 

requires a business relationship evidenced by an actual and identifiable understanding or 

agreement which in all probability would have been completed if the defendant had not 

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interfered.” Dube, 216 Ariz. at 414, 167 P.3d at 101 (citation omitted). The plaintiff 

must identify the specific relationship with which the defendant interfered. Id. “A claim 

for tortious interference with a business expectancy is insufficient unless the plaintiff 

alleges facts showing the expectancy constitutes more than a mere ‘hope.’” Id. at 412, 

167 P.3d at 99. 

The defendant’s conduct must be “improper” before liability will attach. Id. at 

413, 167 P.3d at 100; Miller v. Hehlen, 209 Ariz. 462, 471, 104 P.3d 193, 202 (Ct. App. 

2005). And a competitor’s conduct is not improper if “his purpose at least in part is to 

advance his own economic interests.” Miller, 209 Ariz. at 471, 104 P.3d at 202. A court 

should be cautious in finding liability where the effect of a defendant’s interference is 

only to cause the cancellation of a terminable contract. Id. at 471-72, 104 P.3d at 202-03. 

Count VI alleges that “Defendants wrongfully interfered with [Andes and PCT 

International]’s prospective contractual relationships and economic advantages by, for 

example, wrongfully using [Andes and PCT International]’s valuable intellectual 

property and confidential information to manufacture infringing products sold by Holland 

that embodied [Andes and PCT International]’s patented technology, and assisting 

Holland in the sales of those infringing products.” (Doc. 72 at 30.) Count VI further 

alleges that “[Andes and PCT International] had prospective contractual relationships and 

economic advantages, for example, with existing and customers interested in purchasing 

products embodying [Andes and PCT International]’s proprietary and patented 

technology.” (Doc. 72 at 30.) It provides two examples of business expectancies: (1) an 

opportunity to supply products embodying PCT International’s patented technology to 

Holland Electronics, LLC; and (2) a then-existing relationship with Teléfonos de México, 

S.A.B. de C.V., known as Telmex, through which PCT International was the exclusive 

supplier of products embodying PCT International’s patented technology. 

The first example is contradicted by Andes and PCT International’s allegations 

that Holland is a direct competitor of Andes and PCT International. The First Amended 

Complaint does not allege facts showing that Holland likely would have purchased 

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products from PCT International instead of manufacturing its own using a technology 

different from PCT International’s patented technology. In its responses to the motions 

to dismiss, Andes and PCT International do not defend their allegation that they had an 

opportunity to supply products to Holland. 

Regarding the second example, the First Amended Complaint alleges that before 

Defendants’ wrongful disclosures to Holland, PCT International sold large volumes of 

their products to Telmex, but after the disclosures, Telmex began purchasing those 

products from Holland instead of from PCT International. It does not allege any factual 

basis showing a business expectancy constituting more than mere hope for a continued 

relationship with Telmex and a constant volume of sales. It does not allege which, if any, 

of the Defendants knew about Andes and PCT International’s business expectancy or 

interfered with Andes and PCT International’s relationship with Telmex. 

Moreover, it is not plausible that Mr. Lan, EZconn, and eGtran would act against 

their own self-interest. If Mr. Lan was an indirect shareholder in Andes, reducing PCT 

International’s sales revenues would reduce the value of Mr. Lan’s ownership interest in 

Andes. In addition, damaging PCT International’s earnings would decrease the 

likelihood that Andes could pay its debt to Mr. Lan. If EZconn earned the same profit for 

supplying products to Holland as it did for supplying products to PCT International, there 

would be no incentive for EZconn to facilitate diversion of sales to Telmex from PCT 

International to Holland. 

Count VI does not plead facts showing that Mr. Lan, EZconn, and/or eGtran 

intentionally interfered with a prospective relationship or expectancy, which induced or 

caused a breach or termination of the relationship or expectancy. Therefore, Count VI 

will be dismissed as to Mr. Lan, EZconn, and eGtran. 

L. Count X: Unfair Competition (Common Law) (Against All 

Defendants) 

To maintain an action for unfair competition under Arizona law, a plaintiff must 

show either (1) it was engaged in competitive business with the defendant or (2) the 

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defendant’s actions were likely to produce public confusion. Sutter Home Winery, Inc. v. 

Vintage Selections, Ltd., 971 F.2d 401, 407 (9th Cir. 1992). To be in competition with 

each other, parties must solicit the same trade or solicit the same customers. Id. at 408. 

Count X alleges: 

172. Defendants entered into a secret partnership with at least one 

of [Andes and PCT International]’s competitors, Holland, by which they 

disclosed [Andes and PCT International]’s valuable intellectual property 

and confidential, proprietary information to Holland; and then wrongfully 

used [Andes and PCT International]’s valuable intellectual property and 

confidential, proprietary information to manufacture infringing products for 

Holland that utilized [Andes and PCT International]’s patented technology. 

The Defendants[] then provided additional [Andes and PCT International] 

confidential, proprietary information to Holland for the purpose of unfairly 

competing with [Andes and PCT International]. 

. . . . 

175. Additionally, EZconn, acting at the direction and control of 

Mr. Lan, also converted [Andes and PCT International]’s intellectual 

property by secretly filing patent applications claiming as its own 

intellectual property belonging to [Andes and PCT International], without 

[Andes and PCT International]’s permission or license. 

176. By this wrongful conduct, the Defendants wrongfully created 

confusion as to the true inventorship of products embodying [Andes and 

PCT International]’s patented technology, and wrongfully deprived [Andes 

and PCT International] of [their] reputation as the exclusive inventor of 

such products. 

(Doc. 72 at 36–37.) 

The First Amended Complaint does not allege facts showing that Mr. Lan, 

EZconn, or eGtran engaged in competitive business with Andes and PCT International. 

It alleges only that Holland is a competitor of PCT International, EZconn assisted 

Holland by disclosing Andes and PCT International’s confidential proprietary 

information, and the assistance somehow converted EZconn into a de facto competitor of 

Andes and PCT International. Applying the flawed alter ego theory, Andes and PCT 

International contend that by entering into this secret partnership with Holland, all of the 

Defendants became de facto competitors of Andes and PCT International. However, 

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assisting one of Andes and PCT International’s competitors does not show that Mr. Lan, 

EZconn, or eGtran actually engaged in competitive business with Andes and PCT 

International. The First Amended Complaint does not allege that Mr. Lan, EZconn, or 

eGtran sold or attempted to sell products to Telmex or other alleged customers of Andes 

and PCT International. It does not allege that Mr. Lan, EZconn, or eGtran solicited the 

same trade or customers as Andes and PCT International. It does not allege that Mr. Lan, 

EZconn, or eGtran had any ownership interest in Holland or acted as Holland’s agent. 

The First Amended Complaint also does not allege facts showing that the actions 

of Mr. Lan, EZconn, or eGtran were likely to produce public confusion. The First 

Amended Complaint alleges only that by secretly filing patent applications EZconn 

created confusion, and these actions are attributable to Mr. Lan and eGtran under the 

flawed alter ego theory. It is implausible that an application for a U.S. patent can be filed 

secretly. But if the applications were filed secretly, they could not have created public

confusion. Moreover, if patents were granted to EZconn, then there would be no 

confusion if products were sold embodying the technology covered by EZconn’s patent. 

And if EZconn’s patent applications were denied, the applications could not create 

confusion regarding the true inventorship of products embodying Andes and PCT 

International’s patented technology. 

Viewing Andes and PCT International’s factual allegations in the light most 

favorable to Andes and PCT International, they do not state a claim for unfair 

competition that is plausible on its face. Therefore, Count X will be dismissed as to Mr. 

Lan, EZconn, and eGtran. 

M. Count XI: Unjust Enrichment (Against All Defendants) 

“Unjust enrichment occurs when one party has and retains money or benefits that 

in justice and equity belong to another.” Trustmark Ins. Co. v. Bank One, 202 Ariz. 535, 

541, 48 P.3d 485, 491 (Ct. App. 2002). To establish a claim for unjust enrichment, a 

party must show: “(1) an enrichment; (2) an impoverishment; (3) a connection between 

the enrichment and the impoverishment; (4) the absence of justification for the 

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enrichment and the impoverishment; and (5) the absence of a legal remedy.” Id. The 

doctrine of unjust enrichment does not apply if a specific contract governs the 

relationship of the parties. Id. at 542, 48 P.3d at 492. If enrichment results from failure 

to comply with contractual obligations, breach of contract is the permitted remedy. If 

enrichment results from conduct permitted by the contract, it is not unjust. Id. “If there 

is ‘a specific contract which governs the relationship of the parties, the doctrine of unjust 

enrichment has no application.’” Id. (quoting Brooks v. Valley Nat. Bank, 113 Ariz. 169, 

174, 548 P.2d 1166, 1171 (1976)); accord Summers v. Gloor, 239 Ariz. 222, 368 P.3d 

930, 934 (Ct. App. 2016). 

Count XI alleges that all Defendants usurped Andes and PCT International’s 

intellectual property and confidential, proprietary information, which harmed Andes and 

PCT International and unjustly benefited all Defendants financially and furthered their 

business interests. (Doc. 72 at 38.) The First Amended Complaint alleges that 

“Defendants have acted to wrongfully utilize [Andes and PCT International]’s valuable 

intellectual property and confidential information for their own economic benefit, and to 

the detriment of [Andes and PCT International].” (Id. at 5.) The alleged wrongful 

conduct includes falsely claiming ownership over Andes and PCT International’s 

intellectual property and wrongfully using Andes and PCT International’s intellectual 

property and confidential information to boost sales to Holland. (Id.) The First Amended 

Complaint further alleges that “Defendants, under the direction and control of Mr. Lan 

and his affiliates, and for their own economic benefit,” furthered their own business 

interests at the expense of Andes and PCT International and Andes and PCT 

International’s other shareholders by disclosing Andes and PCT International’s 

intellectual property and confidential proprietary information to competitors, including 

Holland, despite expressly agreeing to keep the information confidential. (Id. at 20.) It 

provides examples of wrongful disclosures to Holland, but it does not name any other 

competitors or give examples of any wrongful disclosures to other competitors. (Id. at 

21.) It alleges that “Defendants and Holland” sold large volumes of infringing products, 

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unfairly competed with Andes and PCT International, forced Andes and PCT 

International to change their pricing for patented products, and caused Andes and PCT 

International to lose sales. (Id. at 21-22.) 

Count XI does not include factual allegations regarding which Defendants “acted 

wrongfully,” relying instead on a faulty theory of alter ego liability. The First Amended 

Complaint alleges that Andes and PCT International provided confidential proprietary 

information to EZconn as required by Andes and PCT International’s contractual 

relationship with EZconn. It alleges that the Terms and Conditions of PCT’s written 

purchase orders dictated what EZconn was required to do with the confidential 

proprietary information. With regard to EZconn, because there is “a specific contract 

which governs the relationship of the parties, the doctrine of unjust enrichment has no 

application.” See Trustmark, 202 Ariz. at 542, 48 P.3d at 492. And there are no factual 

allegations that support imposing liability on any Defendant other than EZconn. 

Moreover, the First Amended Complaint does not plausibly allege that any of the 

Defendants received economic benefit from increasing Holland’s sales. 

Viewing PCT’s factual allegations in the light most favorable to Andes and PCT 

International, they do not state a claim for unjust enrichment that is plausible on its face. 

Therefore, Count XI will be dismissed as to Mr. Lan, EZconn, and eGtran. 

N. Count XII: Civil Conspiracy (Against All Defendants) 

Under Arizona law, “there is no such thing as a civil action for conspiracy.” 

Tovrea Land & Cattle Co. v. Linsenmeyer, 100 Ariz. 107, 131, 412 P.2d 47, 63 (1966). 

“The action is one for damages arising out of the acts committed pursuant to the 

conspiracy. The damage for which recovery may be had in such a civil action is not the 

conspiracy itself but the injury to the plaintiff produced by the specific overt acts.” Id. 

Count XII alleges, “Acting under the direction and control of Mr. Lan, with Mr. Lan as 

the mastermind of the conspiracy, the Defendants came to a mutual understanding that 

they would work in concert to harm [Andes and PCT International] as alleged in Counts 

I-XI above.” (Doc. 72 at 39.) Thus, Count XII alleges that all Defendants conspired to 

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commit the breach of contract, fraud, etc., alleged in the other Counts, and Count XII 

would obtain no relief beyond that obtained in Counts I-XI. 

Even if Count XII served a purpose, it fails to state a claim. Liability for civil 

conspiracy requires that two or more individuals agree and accomplish an underlying tort 

that they agreed to commit. Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement 

Masons Local No. 395 Pension Trust Fund, 201 Ariz. 474, 498, 38 P.3d 12, 36 (2002). A 

corporation cannot conspire with itself or with its directors if they are acting in the 

corporation’s behalf. Rowland v. Union Hills Country Club, 157 Ariz. 301, 306, 757 

P.2d 105, 110 (Ct. App. 1988). But when officers of a corporation act for their own 

purposes, they become independent actors, who can conspire with the corporation. Id. 

The First Amended Complaint alleges that Mr. Lan served as an officer of eGtran, 

the parent corporation of EZconn. Mr. Lan cannot conspire with eGtran or EZconn 

unless he is acting independently from the companies, for his own purposes. The First 

Amended Complaint alleges exactly the opposite, i.e., Mr. Lan directed and controlled 

EZconn and eGtran. 

Therefore, Count XII will be dismissed as to Mr. Lan, EZconn, and eGtran.

V. ANDES AND PCT INTERNATIONAL’S RENEWED MOTION FOR 

JURISDICTIONAL DISCOVERY (DOC. 84) AND CHENG-SUN LAN’S 

MOTION TO STRIKE PORTIONS OF REPLY IN SUPPORT OF 

RENEWED MOTION FOR JURISDICTIONAL DISCOVERY OR, 

ALTERNATIVELY, FOR LEAVE TO FILE SUR-REPLY (DOC. 92) ARE 

MOOT. 

Andes and PCT International sought leave to conduct jurisdictional discovery 

because Mr. Lan contested personal jurisdiction. Because the Court has determined that 

it has personal jurisdiction over Mr. Lan, jurisdictional discovery is unnecessary. 

Therefore, the Renewed Motion for Jurisdictional Discovery by Andes Industries, Inc., 

and PCT International, Inc. (Doc. 84) and Cheng-Sun Lan’s Motion to Strike Portions of 

Reply in Support of Renewed Motion for Jurisdictional Discovery or, Alternatively, for 

Leave to File Sur-Reply (Doc. 92) are moot. 

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VI. NO FURTHER LEAVE TO AMEND WILL BE GRANTED. 

Leave to amend should be freely given “when justice so requires.” Fed. R. Civ. P. 

15(a)(2). In deciding whether justice so requires, courts consider five factors: bad faith, 

undue delay, prejudice to the opposing party, futility of amendment, and whether the 

plaintiff has previously amended the complaint. Johnson v. Buckley, 356 F.3d 1067, 

1077 (9th Cir. 2004). “Futility alone can justify the denial of a motion to amend.” Id. 

Leave to amend should be granted if the complaint’s deficiencies can be cured with 

additional factual allegations that are consistent with and do not contradict allegations in 

the challenged pleading. United States v. Corinthian Colleges, 655 F.3d 984, 995 (9th 

Cir. 2011). Dismissal without leave to amend is proper if the complaint cannot be cured 

by any amendment. Id. 

Courts have “especially broad” discretion to deny leave to amend where the 

plaintiff already has had one or more opportunities to amend a complaint. Ascon Props., 

Inc. v. Mobil Oil Co., 866 F.2d 1149, 1161 (9th Cir. 1989). “Leave to amend need not be 

given if a complaint, as amended, is subject to dismissal.” Moore v. Kayport Package 

Exp., Inc., 885 F.2d 531, 538 (9th Cir. 1989). 

Here, Andes and PCT International were ordered to lodge a proposed amended 

complaint containing all further allegations they could make against Mr. Lan, Polar Star, 

EZconn, and eGtran. They were warned that leave for further amendment beyond that 

would not be granted. The proposed First Amended Complaint presumably contains all 

further allegations Andes and PCT International could make, and the Court considered it 

in deciding these motions to dismiss. 

During oral argument, there was discussion regarding emails between EZconn and 

Holland Electronics produced during discovery in PCT International, Inc. v. Holland 

Electronics, LLC, CV-12-001797-PHX-JAT, and whether they might provide a basis for 

further amendment of the First Amended Complaint. Counsel for Andes and PCT 

International stated that he was in the process of finalizing a stipulated protective order to 

permit Andes and PCT International to file the emails in this consolidated case. If 

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necessary, Andes and PCT International would like to amend their complaint to include 

more specific allegations based on the emails. Counsel for EZconn, eGtran, Mr. Lan, and 

Polar Star stated they opposed granting Andes and PCT International leave to amend 

their complaint again because there was no reason for Andes and PCT International’s 

failure to plead in the First Amended Complaint all of the allegations they could have 

made and further amendment would impose unnecessary expenses on EZconn, eGtran, 

Mr. Lan, and Polar Star. To date, neither a stipulated protective order nor the emails have 

been filed in this case. However, because the emails were filed under seal in PCT 

International, Inc. v. Holland Electronics, LLC, CV-12-001797-PHX-JAT, the Court was 

able to review them. Upon review of the emails discussed during oral argument, the 

Court concludes that the emails do not indicate that Andes and PCT International could 

cure pleading deficiencies by further amendment. Thus, it would be futile for Andes and 

PCT International to further amend their pleading if additional factual allegations are 

limited to those consistent with factual allegations in the First Amended Complaint. 

Therefore, no further leave to amend will be granted. 

IT IS THEREFORE ORDERED directing the Clerk to file the proposed First 

Amended Complaint (lodged as Doc. 72). 

IT IS FURTHER ORDERED that Polar Star Management Ltd.’s Motion to 

Dismiss (Doc. 114, CV-15-02549) is granted. The First Amended Complaint is 

dismissed with prejudice as to Polar Star Management Ltd. 

IT IS FURTHER ORDERED that Defendant Cheng-Sun Lan’s Motion to Dismiss 

(Doc. 133, CV-15-02549) is granted. The First Amended Complaint is dismissed with 

prejudice as to Cheng-Sun Lan. 

IT IS FURTHER ORDERED that Defendant EZconn Corporation’s Motion to 

Dismiss Counts I, II, III, VI, VII, VIII, IX, X, XI, and XII (Doc. 26, CV-15-01810) is 

granted in part and denied in part. The First Amended Complaint is dismissed with 

prejudice as to EZconn except for Count IV for breach of contract and Count IX for 

breach of the implied duty of good faith and fair dealing. 

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IT IS FURTHER ORDERED that Defendant eGtran Corporation’s Motion to 

Dismiss Counts I, II, III, V, VI, VII, VIII, IX, X, XI, and XII (Doc. 28, CV-15-01810) is 

granted. The First Amended Complaint is dismissed with prejudice as to eGtran. 

IT IS FURTHER ORDERED that the Renewed Motion for Jurisdictional 

Discovery by Andes Industries, Inc., and PCT International, Inc. (Doc. 84, CV-15-00600) 

and Cheng-Sun Lan’s Motion to Strike Portions of Reply in Support of Renewed Motion 

for Jurisdictional Discovery or, Alternatively, for Leave to File Sur-Reply (Doc. 92, 

CV-15-00600) are denied as moot. 

Dated this 24th day of June, 2016. 

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