Source: https://docs.justia.com/cases/federal/district-courts/arizona/azdce/2:2013cv00949/780193/17
Timestamp: 2017-03-25 12:08:18
Document Index: 706498924

Matched Legal Cases: ['§ 1391', '§ 1391', '§\n1406', '§ 1919', '§ 12', '§ 1919', '§ 1919', '§ 12']

AMENDED ORDER re 16 Order: IT IS THEREFORE ORDERED that Defendants' Motion to Dismiss for Lack of Personal Jurisdiction and Improper Venue for Medbox Incorporated v. Kaplan et al :: Justia Dockets & Filings Log In
Medbox Incorporated, a Nevada
No. CV-13-00949-PHX-GMS
Darryl B. Kaplan; Claudio Tartaglia; and
Eric Kovan;
Pending before the Court is Defendants’ Motion to Dismiss for Lack of Personal
Jurisdiction and Improper Venue. (Doc. 11.) For the following reasons the motion is
granted in part and the action is transferred to the Eastern District of Michigan.1
This action arises out of an Agreement by Plaintiff Medbox, Inc. to purchase a
50% interest in Medvend Holdings, LLC (“Medvend”) from the Defendants Darryl B.
Kaplan, Claudio Tartaglia, and Eric Kovan.2 (Doc. 1, Ex. 1.) After making payments of
Medbox’s request for oral argument (Doc. 12) is denied because the Parties have
had an adequate opportunity to discuss the law and evidence and oral argument will not
aid the Court’s decision. See Lake at Las Vegas Investors Group v. Pac. Malibu Dev.,
933 F.2d 724, 729 (9th Cir. 1991).
When considering a challenge to venue, a court must “draw all reasonable
inferences in favor of the non-moving party and resolve all factual conflicts in favor of
the non-moving party.” Murphy v. Schneider Nat’l, Inc., 362 F.3d 1133, 1138–39 (9th
$600,000, Medbox learned of an action brought by a third party against the Defendants.
(Doc. 10 at 4–5.) As a result, Medbox filed this action seeking a return of its payment and
rescission of the Agreement. (Id. at 23.)
Medbox is incorporated in Nevada but has offices in Arizona and California. (Id.
at 2.) Medbox’s CEO, Dr. Bruce Bedrick, lives and maintains his office in Arizona. (Doc.
12, Ex. 1.) Medbox’s founder, Vincent Mehdizadeh, lives and maintains his office in
California. (Doc. 11 at 3.)
The Defendants are all residents of Michigan who have never lived in Arizona or
owned property here. (Id. at Ex. A–C.) None of them has been to Arizona in over a
decade, and they made no visit to Arizona in connection with this or any other business
transaction. (Id.) Defendant Kaplan primarily negotiated the Agreement from Michigan
over the phone and email with Mehdizadeh in California. (Id.) Defendant Tartaglia was
also involved with the negotiation, and Tartaglia and Kaplan met with Mehdizadeh in
California and Nevada. (Id.) Defendant Kovan was not directly involved in the
negotiations. (Id.)
Defendants did have some contacts with Arizona in connection with this
Agreement. In December 2012, Defendant Kaplan communicated with Bedrick in
Arizona through several phone calls and emails. (Doc. 12 at 13–52.) They entered into a
Non-Disclosure Agreement which listed Medbox’s principal place of business as being in
Arizona. (Id. at 15–17.) These early negotiations included discussions about the price of
the deal and an exchange of information about Medvend’s business. (Id. at 13–52.)
Kaplan made these communications at least partly in his capacity as CEO of Medvend,
and Tartaglia also received many of these emails as the COO. (Id.)
Cir. 2004). When considering a challenge to personal jurisdiction, where conflicts exist
between the facts contained in the parties’ affidavits, depositions, and other discovery
materials, conflicts must resolved in the non-movant’s favor. See Rio Props. Inc. v. Rio
Int’l. Interlink, 284 F.3d 1007, 1019 (9th Cir. 2002). To the extent they are
uncontroverted by Defendants’ affidavit and exhibits, the Court has accepted the
allegations in Medbox’s Amended Complaint and other filings as true and made all
reasonable inferences from them.
After these initial negotiations, Kaplan and Tartaglia met with Mehdizadeh, who
became the primary point of contact for the negotiations. (Id. at 33; Doc 11, Ex. A.)
Those meetings and communications did not involve Arizona. (Doc 11, Ex. A.) In March
2012, after the Agreement had been signed but apparently before it had formally closed,
Kaplan again began to have phone calls and emails with Bedrick in Arizona. (Doc. 12 at
53–103.) Kaplan asked Bedrick, in Arizona, to wire $300,000 and provided him with the
bank routing number. (Id. at 53–57.) Bedrick told Kaplan that he was “not directly
overseeing this transaction” and that he would forward the request to Mehdizadeh. (Id. at
58.) The $600,000 payments were eventually sent from the California office under
Mehdizadeh’s direction. (Doc 11, Ex. A.)
Kaplan’s later communications with Bedrick in Arizona also involved changes to
Medvend’s website and a discussion about handling referrals. (Doc. 12 at 53–103.)
Bedrick introduced Kaplan to another person in Arizona who was part of a team that was
going to be helping to improve the website. (Id.) That team was also located in Arizona
and Kaplan had communications with a member of that team. (Id.) There were also
communications about a press release and about meetings with reporters to publicize their
new deal. (Id.) Finally, there were communications involving Bedrick, Mehdizadeh,
Kaplan, and Tartaglia about winding down Medvend, LLC as part of the transition to
Medvend, Inc. (Id.) Again, in all of these communications Kaplan was at least partly
acting in his capacity as CEO of Medvend and Tartaglia received many of these emails as
the COO. (Id.)
In May, after hearing about the deal from the press release and news coverage, the
third parties filed their lawsuit against the Defendants. (Doc. 1, Ex. 2.) As a result of the
lawsuit, Medbox sent a letter to the Defendants seeking to end the Agreement. (Doc. 1,
Ex. 3.) This letter noted that the closing of the Agreement had never occurred. (Id.)
Defendants had hired Arizona legal counsel to draft the Agreement, and the Agreement
specified that the closing would occur at the counsel’s office in Arizona or at another
place mutually agreed upon. (Id., Exs. 1, 3.) The letter also laid out the issues now
presented in this action, which is a dispute over whether the Agreement was ever binding
and whether it, and the payments made under it, should be unwound.
Defendants filed their Motion to Dismiss arguing first that venue is improper and
additionally that this Court has no personal jurisdiction over them. Defendants ask that
the action be dismissed or transferred to the District Court for the Eastern District of
Michigan. Defendants also seek attorney’s fees and other costs for their motion.
Medbox argues that venue is proper under 28 U.S.C. § 1391(b)(2), (Doc. 10 ¶ 6),
which provides venue in a diversity action in “a judicial district in which a substantial
part of the events or omissions giving rise to the claim occurred, or a substantial part of
property that is the subject of the action is situated.” In applying this statute, the adjective
“substantial” must be taken seriously. “[S]ignificant events or omissions material to the
plaintiff’s claim must have occurred” here. Gulf Ins. Co. v. Glasbrenner, 417 F.3d 353,
357 (2d Cir. 2005).
“Plaintiff has the burden of proving that venue is proper in the district in which the
suit was initiated.” Hope v. Otis Elevator Co., 389 F. Supp. 2d 1235, 1243 (E.D. Cal.
2005) (citing Airola v. King, 505 F. Supp. 30, 31 (D. Ariz. 1980)); see also Piedmont
Label Co. v. Sun Garden Packing Co., 598 F.2d 491, 496 (9th Cir. 1979). When deciding
a challenge to venue, the pleadings need not be accepted as true, and the district court
may consider facts outside of the pleadings. Argueta v. Banco Mexicano, S.A., 87 F.3d
320, 324 (9th Cir. 1996).
Venue Is Not Proper in the District of Arizona
Venue in this Court is improper because neither a substantial part of the property
at issue nor a substantial portion of the events or omissions occurred in this state. The
property at issue in the Agreement is the purchased membership interest in Medvend and
the $600,000 transferred pursuant to the Agreement. Medvend does business in Michigan
and none of its assets or property is in Arizona. The money paid was transferred from
California to Michigan. Medbox has not demonstrated that any of the property at issue,
let alone a substantial portion of it, is located in Arizona.
Instead Medbox argues that a substantial portion of the events or omission
occurred here in Arizona. The primary events are the entering into of the Agreement and
the transfer and retention of the money. The alleged omissions are the Defendants’ failure
to inform Medbox about the claims that the third parties raised in the other action. The
communications between Defendants and Medbox or others in Arizona that occurred
after the signing of the agreement and transfer of the money are not relevant because they
did not give rise to the complaint.
None of the events or omissions involved the Defendants being physically present
in Arizona. Some of the early negotiations occurred by phone and email with the CEO in
Arizona, but the finalization of the agreement involved communications with
Mehdizadeh in California and meetings in Nevada and California. Defendant Kaplan led
these communications but Defendant Tartaglia also received some of the emails and
attended the meetings as well. Defendant Kovan was not directly involved with any of
the negotiations. The only action or omission by Kovan appears to have been the signing
of the Agreement in Michigan. The other Defendants also signed in Michigan, and it was
in Michigan that they have retained or spent the money received. Some of that money
was originally requested from the CEO in Arizona, but it was actually sent by
Mehdizadeh from California. The Agreement was drafted by counsel in Arizona, but it
was based on negotiations that primarily occurred outside of Arizona, and it was signed
by both sides outside of Arizona. The formal closing of the Agreement was schedule to
occur in Arizona, but the time and place was subject to change and it never occurred. The
fact that one end of some of the phone calls and emails was in Arizona is not enough to
establish that a substantial part of the events or omissions occurred in Arizona.
Finally, Medbox argues that the effects of the omissions were clearly felt in
Arizona. However, the statute directs the Court to consider “events or omissions” and not
impact. It is true that “the locus of the injury [i]s a relevant factor” in deciding proper
venue. Myers v. Bennett Law Offices, 238 F.3d 1068, 1076 (9th Cir. 2001); see also Fiore
v. Walden, 688 F.3d 558, 587–88 (9th Cir. 2011) cert granted, 133 S.Ct. 1493 (2013).
But only as one factor or one event. Again, if the locus of the injury was the sole and
decisive factor, then the personal jurisdiction and venue inquiries would meld into one
minimum-contacts test. Jenkins Brick Co. v. Bremer, 321 F.3d 1366, 1372 (11th Cir.
2003); but see Astro–Med, Inc. v. Nihon Kohden Am., Inc., 591 F.3d 1, 12 (1st Cir. 2009)
(focusing on where the harm was felt rather than where the actions occurred). Plaintiff’s
home forum would always win, and that is not the law. The law specifies a different line
of inquiry for personal jurisdiction (minimum contacts) and venue (whether “a substantial
part of the events or omissions” occurred in the forum state).
It is worth noting that the Supreme Court heard arguments earlier this month in an
appeal of Fiore v. Walden and one of the issues in that case is the question of whether
venue is proper in a state where the effects are felt. Whether or not the Supreme Court
adopts a test requiring greater consideration of effects, the outcome in this case will not
change. Even if venue could be legally established by the impact or injury, it is not clear
factually in this case what portion of the injury was felt in Arizona and what portion in
California. The money came from the California office of Medbox and there is no
explanation of why the effect from the loss of that money would have been substantially
felt in Arizona.
Based on the allegations of the Amended Complaint, the affidavits, and the other
exhibits submitted, the Court cannot conclude that a substantial part of the events or
omissions occurred in Arizona. Venue in Arizona is improper because neither the
property nor the events and omissions requirements from 28 U.S.C. § 1391(b)(2) is met.
Given the lack of venue, the Court has discretion to dismiss this case or, in the
interest of justice, transfer it to a district where it could have been brought. 28 U.S.C. §
1406(a). The Court will exercise its discretion to transfer this case to the Eastern District
of Michigan, where most of the events and omissions giving rise to these claims
occurred. Although both sides would prefer a different outcome, neither objects to the
propriety of this transfer.
Defendants also ask for attorney’s fees and related expenses, and costs under 28
U.S.C. §§ 1919–1920, Federal Rule of Civil Procedure 54(d), and Ariz. Rev. Stat. § 12-
341.01. 28 U.S.C. § 1919 authorizes courts to order the payment of costs when an action
is dismissed. Here, the action is being transferred and not dismissed, and this Court
chooses not to award costs under § 1919.
Rule 54(d)(1) contains a presumption that costs other than attorney’s fees will be
awarded to the prevailing party. “[A] defendant is not a “prevailing party” for Rule 54(d)
purposes when an action is dismissed for jurisdictional reasons . . . .” Harris v. Stonecrest
Care Auto Ctr., LLC, 559 F. Supp. 2d 1088, 1090 (S.D. Cal. 2008) (citing Miles v.
California, 320 F.3d 986, 988 (9th Cir. 2003)). Here, the matter is simply being
transferred for jurisdictional reasons to an appropriate venue. There is no prevailing party
and costs will not be awarded under Rule 54(d).
Rule 54(d)(2) provides the procedure for requesting attorney’s fees. Arizona law
authorizes a discretionary award of attorneys’ fees in contract actions, but only to
successful parties. Ariz. Rev. Stat. § 12–341.01(A). Medbox has not succeeded in any
contract action and no attorney’s fees will be awarded.
IT IS THEREFORE ORDERED that Defendants’ Motion to Dismiss for Lack
of Personal Jurisdiction and Improper Venue (Doc. 11) is granted in part.
IT IS FURTHER ORDERED that the Clerk of Court is directed to transfer this
action to the Eastern District of Michigan.