Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_12-cv-00436/USCOURTS-azd-2_12-cv-00436-1/pdf.json

Nature of Suit Code: 830
Nature of Suit: Patent
Cause of Action: 28:1338 Patent Infringement

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UNITED STATES DISTRICT COURT

DISTRICT OF ARIZONA

Great American Duck Races, Inc., )) Plaintiff, ) 2:12-cv-00436 JWS ) vs. ) ORDER AND OPINION ) Intellectual Solutions, Inc., ASAP )

Sales, LLC; Claypool Resources, )

LLC; Mervin Dayan; Vivian Dayan; )

Maurice Dayan; Jennifer Dayan, ) [Re: Motion at Docket 58] ) Defendants. ))

I. MOTION PRESENTED

At docket 58, defendants Mervin Dayan, Vivian Dayan, Maurice Dayan, and

Jennifer Dayan (collectively “the Dayans”) move pursuant to Rule 12(b)(2) to be

dismissed for lack of personal jurisdiction. Plaintiff Great American Duck Races, Inc.

(“plaintiff” or “Great American”) opposes at docket 59. The Dayans’ reply at docket 64. 

Oral argument was heard on February 25, 2013. 

II. BACKGROUND

Great American is an Arizona corporation that manufactures and sells pool and

spa products. One of its products is the Underwater Light Show (“ULS”), which creates

an elaborate light display in swimming pools. ULS is sold at many retailers, including

Target and Walmart. Great American is the exclusive licensee of two patents–United

States Patent Number 7,413,319 and United States Patent Number 7,717,582–both

entitled “METHOD AND SYSTEM FOR UNDERWATER LIGHT DISPLAY,” and both of

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which contain disclosures pertaining to the ULS. Plaintiff maintains that the defendants

in this case have offered for sale virtually identical copies of ULS products that infringe

on both patents. The allegedly infringing products are sold in boxes displaying the

GOOD TIMES mark.

Intellectual Solutions, Inc. (“Intellectual Solutions”) is a Delaware corporation with

its principal place of business in New Jersey. It is an intellectual property holding

company. It owns the GOOD TIMES mark. Intellectual Solutions licenses the GOOD

TIMES mark to Claypool, LLC (“Claypool”). Claypool is a limited liability company

organized under Delaware law with its principal place of business in New Jersey. 

Claypool imports the allegedly infringing products into the United States and sells them

to ASAP Sales, LLC (“ASAP”). ASAP sells the allegedly infringing products to retailers.

Intellectual Solutions, Claypool, and ASAP are each owned by Vivian and

Jennifer Dayan. Their respective husbands, Mervin and Maurice Dayan, have been

delegated managerial authority over each company. Maurice Dayan is the son of

Mervin and Vivian Dayan.

Great American filed suit in federal court asserting claims against ASAP,

Intellectual Solutions, Claypool, Mervin Dayan, Vivian Dayan, Maurice Dayan, and

Jennifer Dayan. Plaintiff has asserted two claims for patent infringement, and one state

law claim for unfair competition.

Intellectual Solutions, Claypool, and the Dayans previously moved the court for

dismissal based on lack of personal jurisdiction. After briefing on the issue, Intellectual

Solutions conceded that plaintiff had made a prima facie showing that it is subject to

personal jurisdiction in Arizona. The court ruled that plaintiff had also made a prima

facie showing that Claypool is subject to personal jurisdiction in Arizona. However, the

court found that it did not have enough evidence to determine whether it could exercise

personal jurisdiction over the Dayans based on a theory of veil piercing as plaintiff

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argued, and thus, the court ordered limited discovery on the issue.1 After a period of

limited discovery, the Dayans filed the current motion to dismiss. Plaintiff defends

against the motion by filing under seal evidence in support of its veil-piercing theory at

docket 63. 

III. STANDARD OF REVIEW

“Where a defendant moves to dismiss a complaint pursuant to Federal Rule of

Civil Procedure 12(b)(2), for lack of personal jurisdiction, the plaintiff bears the burden of

establishing that a court has personal jurisdiction over a defendant.”2 Where the motion

is based only upon written materials, rather than an evidentiary hearing, the plaintiff is

required only to make a prima facie showing of personal jurisdiction.3 This prima facie

burden holds even after the court has ordered limited jurisdictional discovery.4

Uncontroverted allegations in the complaint are taken as true, and conflicts over

statements contained in affidavits are resolved in favor of the plaintiff.5

“Where, as here, there is no applicable federal statute governing personal

jurisdiction, the district court applies the law of the state in which the district court sits.”6

Arizona Rule of Civil Procedure 4.2(a) authorizes the exercise of jurisdiction to the

extent permitted by federal due process requirements.7

 Due process requires that the

defendant “have certain minimum contacts with [the forum] such that the maintenance

1

Doc. 31.

2

Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800 (9th Cir. 2004).

3

Dole Food Co., Inc. v. Watts, 303 F.3d 1104, 1108 (9th Cir. 2002).

4

Bauman v. Daimler Chrysler Corp., 644 F.3d 909, 918-19 (9th Cir. 2011) (applying the

prima facie burden after jurisdictional discovery). 

5

Brayton Purcell LLP v. Recordon & Recordon, 575 F.3d 981, 985 (9th Cir. 2009).

6

Fred Martin Motor Co., 374 F.3d at 800.

7

Ariz. R. Civ. P. 4.2(a).

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of the suit does not offend traditional notions of fair play and substantial justice.”8

Federal courts that have considered the issue conclude that “it is compatible with due

process for a court to exercise personal jurisdiction over an individual . . . that would not

ordinarily be subject to personal jurisdiction in that court when the individual . . . is an

alter ego . . . of a corporation that would be subject to personal jurisdiction in that court.9

The theory behind finding personal jurisdiction in such alter-ego situations is that,

because the corporation and individual are considered to be the same entity, the

jurisdictional contacts of one are the jurisdictional contacts of the other for purposes of

the due process analysis.10

IV. DISCUSSION

Plaintiff asserts that Intellectual Solutions, Claypool, and ASAP are alter-egos of

the Dayans and that the Dayans should be kept in the lawsuit and held liable for the

actions of their companies. In diversity actions, federal courts apply state law when

evaluating alter-ego status.11 In Arizona, “alter-ego status . . . exist[s] when there is

such unity of interest and ownership that the separate personalities of the corporation

and owners cease to exist.”12 Factors bearing on this question include: payment of

salaries and expenses of the corporation by shareholders; failure to maintain corporate

formalities; undercapitalization; commingling of corporate and personal finances;

plaintiff’s lack of knowledge about a separate corporate existence; owners’ making of

8

Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (internal quotations omitted).

9

Patin v. Thoroughbred Power Boats Inc., 294 F.3d 640, 653 (5th Cir.2002); see also

Estate of Thomson ex rel. Estate of Rakestraw v. Toyota Motor Corp. Worldwide, 545 F.3d 357,

362 (6th Cir.2008); American Tel. & Tel. Co. v. Compagnie Bruxelles Lambert, 94 F.3d 586, 591

(9th Cir.1996). 

10Patin, 294 F.3d at 653. 

11Hambleton Bros. Lumber Co. v. Balkin Enterprises., Inc., 397 F.3d 1217, 1227 (9th Cir.

2005).

12Dietel v. Day, 492 P.2d 455, 457 (Ariz. Ct. App. 1972). 

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interest-free loans to the corporation; and diversion of corporate property for personal

use.13 

A finding of alter-ego status is not enough for the court to be able to disregard the

corporate form under Arizona law. In order to impose liability on an individual through

veil piercing, there must also be a showing that the observance of the corporate form

would sanction a fraud or promote injustice.14 Thus, plaintiff must also set forth at least

a prima facie showing that failure to include the Dayans in this case would create an

injustice. 

The court notes that unlike Intellectual Solutions, which is a corporation, Claypool

and ASAP are limited liability companies. Both parties assume that veil piercing under

an alter-ego theory applies to limited liability companies, but “it has not been explicitly

determined under Arizona law whether a party may pierce the [LLC] veil.”15 Regardless,

this court concludes that the rationale behind piercing the veil of a corporation would

also apply to an LLC given the similar liability shields that are provided by corporations

and LLCs to their respective owners.16

A. Alter Ego Status

Based on the deposition excerpts and documents filed in support of its

opposition, plaintiff has made at least a prima facie showing that Intellectual Solutions,

Claypool, and ASAP are the alter egos of the Dayans based on a failure to maintain

corporate formalities; the Dayans’ lack of knowledge about the separate corporate

13See Deutsche Credit Corp. v. Case Power & Equip. Co., 876 P.2d 1190, 1195 (Ariz.

Ct. App. 1994). 

14Gatecliff v. Great Republic Life Ins. Co., 821 P.2d 725, 728 (Ariz. 1991)

15All Custom Exteriors, Inc. v. Bilyea, No. 1-CA-CV-10-0702, 2011 WL 5964528, at *4

(Ariz. Ct. App. Nov. 29, 2011). 

16NetsJets Aviation, Inc. v. LHC Communications, LLC, 537 F.3d 168 (2d Cir. 2008)

(applying the principles of corporate veil piercing to LLCs under Delaware law and noting that

emerging case law illustrates that LLC veil piercing and corporate veil piercing are similar).

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existences; undercapitalization; members making interest-free loans to the corporate

entities; and commingling of corporate and personal finances.

1. Failure to maintain corporate formalities/lack of basic information

The three companies are blurred both in the minds of the Dayans and in practice. 

The Dayans’ understanding of who manages what company is muddled. Vivian testified

that both Mervin and Maurice manage all three companies, but the evidence shows that

Mervin is the designated manager of Intellectual Solutions and Claypool, and Maurice is

the designated manager of ASAP.17 The Dayans’ answers to plaintiff’s interrogatories

state that Mervin is the designated manager of Intellectual Solutions and is assisted

from time to time by Maurice, but Maurice’s affidavit does not mention that he does any

work for Intellectual Solutions and only says that he has management responsibilities

for ASAP.18 Mervin’s affidavit says he is also involved in the management of ASAP, but

then he testified at his deposition that he does not do anything for ASAP.19 Not only is

there a lack of complete understanding about who is in charge of each company, the

owners of the companies, Jennifer and Vivian, do not actually know the difference

between the three companies.20 

The evidence shows a blurring of the companies in practice as well. All three

companies share an office.21 All three companies are listed as insureds on one

commercial property insurance policy, which appears to have been obtained only after

the filing of this lawsuit.22 The companies share the same financial officer, Warren

Sidosky. Sidosky’s affidavit submitted by the Dayans in support of the motion states

17Doc. 63, Exh. 6 at 21-22.

18Doc. 63, Exh. 8; Doc. 58-3.

19Doc. 58-1; Doc. 63, Exh. 4 at 41.

20Doc. 63, Exh. 6 at 22; Doc. 63, Exh. 7 at 8.

21Doc. 63, Exh. 6 at 10; Doc. 63, Exh.3.

22Doc. 63, Exh. 3 (evidence of commercial insurance policy).

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that he is the CFO of Intellectual Solutions, but the defendants’ answers to plaintiff’s

interrogatories state that Sidosky is the CFO of Claypool.23 Mervin, as the Rule 30(b)(6)

representative of Intellectual Solutions, testified during deposition that Sidosky is an

employee of Claypool who does work for Intellectual Solutions as needed, but Mervin

was not sure if Intellectual Solutions paid Claypool for Sidosky’s services to the

corporation and did not know how Sidosky was paid for his work.24 Maurice, as the

Rule 30(b)(6) representative of ASAP, testified during deposition that Sidosky is the

accountant for ASAP, even though he admitted that ASAP does not pay Sidosky’s

salary and does not technically employ Sidosky.25 Financial decisions related to

Claypool and Intellectual Solutions are often made by Stanley Nasberg, who is the

family’s financial advisor and not listed as an employee of any of the three companies.26

Plaintiff’s evidence not only indicates that the Dayans have blurred the

boundaries between the corporate entities and do not understand the companies’

distinct existences, it shows that they have failed to follow corporate formalities.

Intellectual Solutions’s Certificate of Incorporation states that an annual meeting of the

shareholders shall be held on June 21st of every year and that a secretary must keep

minutes of these meetings, but the Dayans could not give details about any meetings

and did not provide minutes for any meetings.27 Mervin testified that there had been an

informal meeting that year, but he could not provide details. He was not sure if

Intellectual Solutions has a secretary or treasurer.28 Vivian, one of the owners of

23Doc. 58-5; Doc. 63, Exh. 9. 

24Doc. 63, Exh. 1 at 12-13.

25Doc. 63, Exh. 3, at 21-22.

26Doc. 63, Exh. 1 at 36, 38; Doc. 63, Exh. 2 at 18.

27Doc. 63, Exh. 1.

28Doc. 63, Exh. 1 at 9-11.

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Intellectual Solutions, testified at her deposition that there have been meetings, but she

was not sure when these meetings were held or for what company.29 

The Dayans also lack a basic understanding about the three companies, despite

the fact that they are the owners and managers of the companies. The owners, Vivian

and Jennifer, are not sure what the three companies do and could not describe how the

companies are different.30 They have never seen financial reports for the companies.31

Even the managers of the three companies, Mervin and Maurice, do not know anything

about the companies’ profits, losses, accounts receivable, or indebtedness.32

2. Undercapitalization

Plaintiff has put forward enough evidence to make a prima facie case that the

three companies were not adequately capitalized upon formation.33 Neither the owners,

Vivian or Jennifer, nor the managers, Mervin or Maurice, could testify about the initial

capitalization of the companies. Mervin, as the manager of Intellectual Solutions, did

not know how much capital Intellectual Solutions had at its formation.34 The Dayans’

attorney represented on the deposition record that the initial capitalization of Intellectual

Solutions was not a lot of money.35 As for Claypool, Mervin testified on behalf of

Claypool that family and friends gave him money to fund the company, but when

testifying on behalf of ASAP, Mervin clarified that he was not sure if he put that money

29Doc. 63, Exh. 6 at 12. 

30Doc. 63, Exh. 6 at 22; Doc. 63, Exh. 7 at 8.

31Doc. 63, Exh. 6 at 13; Doc. 63, Exh. 7 at 10.

32Doc. 63, Exh. 1 at 24, 36, 38; Doc. 63, Exh. 2 at 34-35; Doc. 63, Exh. 3 at 10, 12, 43,

57, 63.

33Norris Chemical Co. v. Ingram, 679 P.2d 567, 570 (Ariz. Ct. App. 1984) (noting that

when determining whether the corporate form should be disregarded the capitalization of a

corporation is evaluated at the time that it is established). 

34Doc. 63, Ex. 1 at 38-40.

35Doc. 63, Exh. 1 at 49.

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toward ASAP or Claypool.36 The Dayans’ interrogatory answers state that Vivian and

Jennifer capitalized ASAP, but Jennifer could not testify as to whether she made any

contribution.37 Furthermore, there is evidence that ASAP was formed in 2010 but did

not have a bank account until 2011, and as of January 2012, there is evidence that

ASAP had little cash on hand.38 While not enough to prove undercapitalization in fact, it

is enough to meet the requisite prima facie showing, and the Dayans did not submit

anything to clarify the capitalization issue. 

3. Members making interest-free loans to the corporate entities

Mervin testified that Claypool has outstanding loans from friends and family, but

he could not provide any details regarding these loans and did not have written

documentation about the loans.39 He asserted that Claypool owes him money as well,

but he could not provide details and did not submit written documentation related to any

loans despite plaintiff’s request for loan documentation during discovery.40 Claypool

transfers funds to Intellectual Solutions so that Intellectual Solutions can pay its

corporate debts, but there are no loan documents associated with these transfers.41

One of Claypool’s bank statements shows that Claypool paid $50,000 to Jacob Dayan,

Mervin’s son, as repayment for a loan Jacob made only three days before the

repayment.42 Again, there is no written documentation of this loan. Stanley Nasberg,

the family’s financial advisor, withdrew $50,000 from Claypool’s bank account in what

36Doc. 63, Exh. 2 at 18; Doc. 63, Exh. 3 at 10.

37Doc. 63 Exh. 10; Doc. 63, Exh. 7 at 9. 

38Doc. 63, Exh. 10.

39Doc. 63, Exh. 2 at 26. 

40Doc. 63, Exh. 2 at 27.

41Doc. 63, Exh. 1 at 35-36.

42Doc. 63, Exh. 2 at 43.

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was documented as partial repayment of a $200,000 loan Nasberg made to the

company, but the Dayans did not provide any written documentation of this loan.43

4. Commingling of corporate and personal finances

By far the strongest factor weighing in favor of alter-ego status is the pervasive

commingling of the companies’ finances and the Dayans’ personal finances. Mervin

admitted to making personal transfers from Claypool’s bank account.44 Mervin also

testified during his deposition as Claypool’s representative that he took money out of

Claypool’s bank account to give Maurice so Maurice could pay his personal real estate

taxes.45 Maurice admitted that he would receive money from Claypool on occasions

when he asked Mervin or the family’s financial advisor for it.46 There is also evidence

that Maurice’s personal American Express bills were paid out of Claypool’s bank

account.47 Maurice testified that transfers to him out of Claypool’s accounts were

personal loans from Mervin.48 Mervin also testified that the various payments to

Maurice were loans.49 However, in an affidavit filed with the Dayans’ reply brief, Mervin

says that payments to Maurice were actually business draws.50 The affidavit does not

specify why Maurice would be taking draws from Claypool if he considers himself

employed by ASAP, but regardless, given the standard of review, the court resolves all

factual disputes in favor of plaintiff and so the court concludes the transfers to Maurice

43Doc. 63, Exh. 2 at 61.

44Doc. 63, Exh. 2 at 23.

45Doc. 63, Exh. 2 at 48.

46Doc. 63, Exh. 5 at 59.

47Doc. 63, Exh. 2 at 49; Doc. 63, Exh. 5 at 58-59.

48Doc. 63, Exh. 5 at 57.

49Doc. 63, Exh. 2 at 47-49.

50Doc. 64 at ¶ 18.

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were personal in nature as suggested by plaintiff’s evidence. Claypool also provided

$50,000 to another one of Mervin’s sons, Jacob, as repayment for a mysterious threeday loan.51 

Money is freely commingled between companies as well. As noted above,

Claypool transferred money to Intellectual Solutions so that Intellectual Solutions could

pay its bills. Claypool also transferred money to inactive companies. One of these

transfers was to Road Master U.S.A. purportedly to pay for that company’s payroll taxes

even though that company was defunct and inactive about two years prior to the

transfer.52 It appears that Claypool also covered the payroll taxes for other companies,

such as Development Prop. and Mervin, as manager, could not explain why.53 

B. Injustice

While a closer call, the court concludes that plaintiff has also made a prima facie

showing that failure to include the Dayans in this case would result in injustice. “The

term injustice or unjust act as used in the Arizona cases is not easy to define.”54 It really

falls within the realm of equity.55 Given the requirement at this stage that plaintiff simply

make a prima facie case for personal jurisdiction, the scales tip in favor of including the

Dayans. The evidence presented by plaintiff shows that the Dayans use their

companies, particularly Claypool, as personal piggy banks and not like corporate

entities with investors, shareholders/members, and lenders. The evidence also shows

that not only the Dayans but also third-parties like Nasberg and Sidosky have access to

the companies’ assets and can move money from the companies’ accounts without

authorization or recourse. This loose management of company assets works to the

51Doc. 63, Exh. 2 at 42-44. 

52Doc. 63, Exh. 2 at 40-41.

53Doc. 63, Exh. 2 (Bank Account Statement dated 9/30/11).

54Youngren v. Rezzonico, 543 P.2d 142, 144 (Ariz. Ct. App. 1976).

55Id.

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detriment of any creditors of the companies, including a judgment creditor such as

plaintiff would be were it to obtain a judgment against ASAP, Claypool, or Intellectual

Solutions. Furthermore, based on inferences from bank account statements, the fact

that the managers have a complete lack of knowledge about the companies’ finances,

and the fact that Claypool’s tax return for the year 2010 shows that it operated at a

substantial loss, even though it paid salaries and wages of more than $1 million to nine

employees, the court concludes that plaintiff has put forth enough evidence to make an

initial showing that the companies are at least grossly mismanaged and may very well

be insolvent, potentially leaving plaintiff without a complete remedy. 

V. CONCLUSION

Based on the preceding discussion, the Dayans’ motion to dismiss for lack of

personal jurisdiction pursuant to Rule 12(b)(2) is DENIED. 

DATED this 15th day of March 2013.

 /s/ 

JOHN W. SEDWICK

UNITED STATES DISTRICT JUDGE

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