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Whaley v. Esebag

United States District Court, W.D. Arkansas, Fayetteville Division

October 10, 2018

WHALEY ET AL. PLAINTIFFS
v.
JIMMY ESEBAG and UNITED LISCENSING GROUP, INC. DEFENDANTS

          OPINION AND ORDER

          P.K. HOLMES, III CHIEF U.S. DISTRICT JUDGE

         Before the Court are Defendants Jimmy Esebag and United Licensing Group, Inc.'s (“Defendants”) motion (Doc. 13) to dismiss for lack of personal jurisdiction or to abstain[1] and amended brief (Doc. 26) in support. Plaintiffs Justin Whaley, Rodney Redman, Ron Whaley, M. Sean Hatch, Michael Bahn, Jodie Daniels, and Tom Maddi (“Plaintiffs) filed a response (Doc. 28) in opposition with leave of Court. Defendants then filed a reply (Doc. 31) to the response. For the following reasons, Defendants' motion (Doc. 13) is GRANTED.

         I. Background

         Plaintiffs assert causes of action for violations of the Securities Exchange Act, California Corporations Code, fraud, unjust enrichment, and unfair competition. (Doc. 14, p. 5). Plaintiffs, with the exception of Tom Maddi, are all Arkansas residents. (Doc. 8, p. 2). Mr. Maddi is an Illinois resident. (Doc. 8, p. 2). Plaintiffs are all affiliated with the Gyde Group, LLC, an Arkansas LLC headquartered in Arkansas that invests in merchandising and marketing opportunities. (Doc. 8, p. 3). Defendant Jimmy Esebag is a citizen of the state of California. (Doc. 8, p. 2). His company, United Licensing Group, Inc. (“ULG”), is a corporation organized under the laws of the state of California, with its principal place of business in Los Angeles, California. (Doc. 8, p. 2; Doc. 28, p. 4). Plaintiffs Justin Whaley, Rodney Redman, Sean Hatch, Michael Bahn and Jodie Daniels first met with Mr. Esebag on January 25, 2017 to discuss a potential opportunity to market a product called Dr. Boost. (Doc. 8, p. 3). This meeting took place at Mr. Esebag's office in Los Angeles, California. (Doc. 28-1, p. 1). Plaintiffs allege that Mr. Esebag was very interested in working with them because of their connections with Walmart, headquartered in Bentonville, Arkansas. (Doc. 28-1, p. 1).[2] Mr. Esebag told Plaintiffs that once Dr. Boost was ready for market, he would invest $20 million of his own funds in a large-scale advertising campaign. (Doc. 8, p. 4). Mr. Esebag also shared with Plaintiffs that Dr. Boost was in the final stages of development and the product would be available for sale in June 2017. (Doc. 8, p. 4). Plaintiffs allege that Mr. Esebag's statements regarding the product were knowingly false and that they relied on those statements in making their investment in ULG. (Doc. 8, p. 4).

         On January 31, 2017, Plaintiffs participated in a Skype call with Mr. Esebag further discussing the Dr. Boost opportunity. (Doc. 8, p. 4). Plaintiffs followed up this call with a second in-person meeting with Mr. Esebag regarding the product at his home in Los Angeles, California on February 27, 2017. (Doc. 8, p. 4). Following the February 2017 meeting, Mr. Esebag and Plaintiffs communicated by telephone, text message, and email regarding a potential partnership on the Dr. Boost venture. (Doc. 8, p. 4; Doc. 28, p. 3). As a result of these conversations, Plaintiffs and Defendants agreed that Plaintiffs would become a partner in the Dr. Boost venture by purchasing a minority interest in ULG. (Doc. 8, p. 4; Doc. 28, p. 4). On May 8, 2017, Plaintiffs again met with Mr. Esebag in California to discuss the purchase of a minority interest in ULG. (Doc. 8, p. 5). At this meeting Mr. Esebag and Plaintiffs Sean Hatch and Justin Whaley agreed upon a minority interest purchase price of $25 million dollars for a 25% interest in ULG, to be paid in installments detailed in the payment schedule. (Doc. 8, p. 5).

         On May 10, 2017, Mr. Esebag emailed Plaintiffs the first draft of the Memorandum of Understanding (“MOU”) memorializing the parties' agreement. (Doc. 8, p. 5). Over the course of the next several days, Defendants and Plaintiffs again exchanged emails and phone calls to negotiate the payment schedule. (Doc. 8, p. 5). On May 16, 2017, Plaintiffs wired Jimmy Esebag $2, 500, 000 from their Arkansas bank account. (Doc. 8, p. 5). Between May 16, 2017 and June 23, 2017, the parties exchanged emails and calls to attempt to finalize the terms of the MOU regarding the payment schedule. (Doc. 8, p. 6). Plaintiffs allege that Mr. Esebag falsely represented in these communications that the parties would renegotiate the deal if the Dr. Boost sales failed to support Plaintiffs' obligations to ULG. (Doc. 28, p. 5). The parties finalized the MOU on June 23, 2017. (Doc. 8, p. 6). The MOU is governed by California law. (Doc. 8, p. 7).

         Plaintiffs allege that after the parties signed the MOU, Defendants' misrepresentations became apparent. (Doc. 8, p. 7). Plaintiffs assert that Defendants knew that Dr. Boost would not be ready until after June 2017 because Mr. Esebag did not select a manufacturer of the product until August 2017. (Doc. 8, p. 7). Mr. Esebag later informed Plaintiffs that he would not invest the promised $20 million for product marketing. (Doc. 8, p. 8). On July 5, 2017, Mr. Esebag met with Justin Whaley in Bentonville, Arkansas to discuss the state of Dr. Boost. (Doc. 28- 1, p. 4). Plaintiffs allege that Mr. Esebag did not adhere to the agreed upon payment schedule and traveled to Arkansas to personally demand payment at their Arkansas office. (Doc. 8, p. 9).

         Because of continued disagreements between the parties, Mr. Esebag filed suit in Superior Court of the State of California, County of Los Angeles, alleging breach of contract against Justin Whaley, Rodney Redman, Ron Whaley, M. Sean Hatch, Michael Bahn, Jodie Daniels, and Tom Maddi. (Doc. 14, p. 4). The Defendants filed a notice of removal in the United States District Court for the Central District of California. (Doc. 14, p. 5). However, this removal failed. (Doc. 14, p. 3).[3] After the California complaint was filed, Plaintiffs filed the instant action.

         II. Analysis

         Whether the Court can exercise personal jurisdiction over Defendants requires an analysis of two issues: (1) whether the exercise of personal jurisdiction over Defendants is allowed under the forum state's long-arm statute; and (2) whether the exercise of personal jurisdiction over Defendants comports with due process. Dakota Indus., Inc. v. Dakota Sportswear, Inc., 946 F.2d 1384, 1387-88 (8th Cir. 1991). “Arkansas's long-arm statute provides for jurisdiction over persons and claims to the maximum extent permitted by constitutional due process.” Pangaea, Inc. v. Flying Burrito LLC, 647 F.3d 741, 745 (8th Cir. 2011) (citing Ark. Code Ann. § 16-4-101). The sole issue for analysis, then, is whether the Court can exercise personal jurisdiction over Defendants consistent with due process. Plaintiffs bear the burden of persuasion on this issue:

When personal jurisdiction is challenged by a defendant, the plaintiff bears the burden to show that jurisdiction exists. To successfully survive a motion to dismiss challenging personal jurisdiction, a plaintiff must make a prima facie showing of personal jurisdiction over the challenging defendant. A plaintiff's prima facie showing must be tested, not by the pleadings alone, but by affidavits and exhibits supporting or opposing the motion. Where no hearing is held on the motion, we must view the evidence in a light most favorable to the plaintiff and resolve factual conflicts in the plaintiff's favor; however, the party seeking to establish the court's personal jurisdiction carries the burden of proof and that burden does not shift to the party challenging jurisdiction.

Fastpath, Inc. v. Arbela Techs. Corp., 760 F.3d 816, 820 (8th Cir. 2014) (citations and quotations omitted). Because the Court is not holding a hearing on this motion, the evidence is viewed and factual conflicts are resolved in Plaintiff's favor.

         A court may exercise personal jurisdiction over an out-of-state defendant consistent with due process so long as the defendant has minimum contacts with the state such that maintaining the lawsuit does not offend traditional notions of fair play and substantial justice. Int'l Shoe Co. v. State of Wash., Office of Unemployment Comp. and Placement, 326 U.S. 310, 316 (1945). Where the defendant's contacts with the forum state are so systematic and continuous that the defendant can fairly be said to be “at home” in the state, then courts in that state may exercise personal jurisdiction over the defendant in any case or controversy. Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011). When the defendant's contacts are this substantial, a court is said to be exercising “general jurisdiction.” Id. Where the defendant's contacts are too minimal for a court to exercise general jurisdiction, it may still exercise “specific jurisdiction” over those cases or controversies that arise out of or relate to the defendant's contacts with the forum (provided that exercising jurisdiction on the basis of those contacts does not offend traditional notions of fair play and substantial justice). Daimler AG v. Bauman, 571 U.S. 117, 126-28 (2014).

         Plaintiffs do not argue that general jurisdiction is present in this case. Accordingly, the Court's analysis will focus on specific jurisdiction. Specific jurisdiction may be exercised over a person when a case or controversy arises out of that person's contacts with the forum. Int'l Shoe, 326 U.S. at 319 (“[T]o the extent that a corporation exercises the privilege of conducting activities within a state, it enjoys the benefits and protections of the laws of that state. The exercise of that privilege may give rise to obligations; and, so far as those obligations arise out of or are connected with the activities within the state, a procedure which requires the corporation to respond to a suit brought to enforce them can, in most instances, hardly be said to be undue.”). The Eighth Circuit has traditionally employed a five-factor test to determine whether the alleged contacts a defendant has with a forum state are sufficient to exercise personal jurisdiction over the defendant comporting with due process. Fastpath, Inc., 760 F.3d at 821. The Eighth Circuit analyzes “1) the nature and quality of contacts with the forum state; 2) the quantity of the contacts; 3) the relation of the cause of action to the contacts; 4) the interest of the forum state in providing a forum for its residents; and 5) convenience of the parties.” Id. The first three factors are considered the most significant. Id. Indeed, Supreme Court decisions like Bauman and Goodyear clarify that the third factor is of primary importance. Bauman, 571 U.S. at 126-28 (explaining that specific jurisdiction is the adjudicatory authority in suits arising out of or relating to a defendant's ...


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