Whaley v. Esebag

          Submitted: September 24, 2019

          Appeal from United States District Court for the Western District of Arkansas - Fayetteville

          Before COLLOTON, ERICKSON, and STRAS, Circuit Judges.

          ERICKSON, CIRCUIT JUDGE.

         Plaintiffs commenced this action in Arkansas federal court after a dispute involving an investment agreement with defendants, a California resident and his California-based business. The district court dismissed the case for lack of personal jurisdiction, and plaintiffs appealed. Because we find the defendants had sufficient contacts with Arkansas to establish personal jurisdiction, we reverse.

         I. Background

         Plaintiffs Justin Whaley, Rodney Redman, Ron Whaley, M. Sean Hatch, Michael Bahn, and Jodie Daniels are residents of Arkansas; plaintiff Tom Maddi is a resident of Illinois. Each plaintiff is affiliated with and has been an employee of The Gyde Group, LLC, an Arkansas-based merchandising and marketing company with extensive experience marketing products to Walmart, Inc. Defendant Jimmy Esebag is a resident of California and the owner of California-based United Licensing Group, Inc. ("ULG").

         On January 25, 2017, five of the seven plaintiffs met in California with Esebag and his assistant, Nicholai Allen, to discuss a potential marketing opportunity involving a new dietary supplement, "Dr. Boost." During the meeting and afterwards, Esebag stated an interest in working with the plaintiffs because of their experience working with Walmart, Inc., which has established its world headquarters in Bentonville, Arkansas. At the heart of the dispute between the parties is the plaintiffs' allegation that Esebag falsely represented that he would invest $20 million of his personal funds when Dr. Boost was ready for market, which he stated would occur by June 2017.

         During the next few weeks, the plaintiffs participated from Arkansas in a number of followup conversations with Esebag via Skype, text, and email. These discussions primarily involved finalizing the terms of the parties' business relationship and developing a marketing strategy. Esebag also emailed a sales pitch to the plaintiffs in Arkansas. During these communications, the parties discussed using Arkansas as a possible test market for the Dr. Boost products, with Walmart, Inc. serving as a potential distribution partner.

         A second in-person meeting took place in California on February 27, 2017. At this meeting the plaintiffs agreed to invest in the Dr. Boost venture by purchasing a minority share of ULG. A third in-person meeting occurred in California on May 8, 2017, when Whaley, Chief Executive Officer, and Hatch, Chief Financial Officer and General Counsel, agreed on behalf of their investment company to pay $25 million for a 25% interest in ULG. The exact payment schedule was to be negotiated in the weeks that followed. Because the plaintiffs did not have $25 million on hand for the investment, they proposed a payment schedule that relied on future income from Dr. Boost to fund their investment obligations.

         On May 10, 2017, Esebag emailed a first draft of the Memorandum of Understanding (MOU) to the plaintiffs. The parties continued to negotiate the payment schedule through a series of emails and telephone conversations spread over the next few days. Notwithstanding that no final payment schedule had been agreed upon, on May 16, 2017, the plaintiffs wired $2.5 million of good faith money to Esebag from their Arkansas bank account. During the next five and half weeks the parties continued to negotiate the terms of the payment schedule using both email and telephone. On June 2, 2017, Esebag shipped samples of Dr. Boost to plaintiffs in Arkansas.

         The parties signed the MOU on June 23, 2017. Under its terms the MOU is governed by California law. The MOU acknowledged the $2.5 million payment, and it required the plaintiffs to make additional payments of $5.625 million every three months, beginning on December 1, 2017. The agreement also provided the plaintiffs with the option to split the first payment into two installments, with due dates on December 1, 2017, and January 31, 2018.

         The plaintiffs assert that it was only after the MOU was signed that they became aware of false statements and misrepresentations made by Esebag during the negotiations. Specifically, they allege Esebag never intended to invest $20 million of his own funds, and he misled them about the timeline for product readiness.

         On July 5, 2017, Esebag traveled to Bentonville, Arkansas, to meet with Whaley and Hatch. During this meeting, the plaintiffs allege that Esebag repeated his false statements and misrepresentations. At about the same time, the plaintiffs made known their concern that they would be unable to make the December payment required under the MOU because Dr. Boost was not yet generating income. Esebag made a second trip to Arkansas on August 10, 2017. The plaintiffs allege that during this meeting Esebag demanded payment of $1 million in October, as an advance on money due to be paid in December under the MOU. According to the ...