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MOREHOUSE ACQUISITIONS NO. 1 v. CULLASAJA JOINT VENTURE

September 8, 2005.

MOREHOUSE ACQUISITIONS NO. 1, LLC, a California limited liability company, Plaintiff,
v.
CULLASAJA JOINT VENTURE, et als., Defendants and ARVIDA/JMB MANAGERS, INC., a Delaware Corporation; ARVIDA/JMB PARTNERS, a Florida general partnership; ARVIDA/JMP PARTNERS, L.P. a Delaware limited partnership, Defendants/Judgment Creditors.



The opinion of the court was delivered by: MARILYN HUFF, Chief Judge, District

ORDER DENYING DEFENDANTS' MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION; GRANTING DEFENDANTS' MOTION TO TRANSFER AND TRANSFERRING CASE TO SOUTHERN DISTRICT OF FLORIDA; AND DENYING PLAINTIFF'S MOTION FOR SETOFF AS MOOT
On June 27, 2005, Plaintiff/Judgment Debtor Morehouse Acquisitions No. 1, LLC ("Morehouse") filed a motion for setoff of judgment debtor's claim against judgment creditors' money judgment in miscellaneous case no. 99mc713-H. The miscellaneous case was opened in 1999 to register a judgment from the Southern District of Florida. On August 8, 2005, Defendants Arvida/JMB Managers, Inc., Arvida/JMB Partners, L.P. and Arvida/JMB Partners (collectively referred to as "Arvida") filed an opposition. A reply was filed on August 15, 2005. On August 17, 2005, the Court issued an Order Re Related Case opening a new civil case because the most recent filings consist of substantive legal issues that were not appropriately filed in a miscellaneous case. The Court also directed the parties to brief whether venue should be transferred to the Southern District of Florida pursuant to 28 U.S.C. § 1404(a). On September 6, 2005, the parties filed their briefs on the venue issue. As part of their briefing, Defendants filed a motion to dismiss for lack of personal jurisdiction, or in the alternative, to transfer venue to the Southern District of Florida. The motions are submitted on the papers without oral argument pursuant to Civil Local Rule 7.1(d)(1). For the reasons given below, the Court DENIES Defendants' motion to dismiss for lack of personal jurisdiction, GRANTS Defendants' motion to transfer venue, and DENIES Plaintiff's motion for setoff as MOOT.

Background

  Morehouse is the holder in due course of two promissory notes, named "Contingent Promissory Note" and the "Replacement Promissory Note," (collectively referred to as "the Notes") both held in California. The Notes have a face value in excess of $5,650,000. Arvida is the promissor/obligor under these Notes. The Notes are part of a series of transactions involving a joint venture agreement between Arvida and Security Highlands Limited Partnership ("Security Highlands") in a North Carolina residential and golf course venture, known as the Cullasaja Project. Security Highlands was owned by Security Federal Savings and Loan Association ("Security Federal"). Arvida and Security Highlands each owned a 50% interest in the project. In May 1989, Arvida and Security Highlands each lent $3 million dollars toward the construction of the golf course clubhouse. On May 18, 1989, Cullasaja executed a Revolving Demand Note in the principal amount of $3,000,000 in favor of Security Federal.

  In 1992, Security Federal was seized by the Resolution Trust Corporation. Therefore, on December 31, 1991, Arvida/JMB Partners, L.P. was established and purchased Security Highlands' 50% interest in Cullasaja for $3.3 million, as evidenced by two $1.65 million promissory notes named "Contingent Promissory Notes." In addition, the Agreement on December 31, 1991 obligated Cullasaja and its partners to the repayment of two $3 million Partner Notes, renamed "Replacement Notes." Payments on the Replacement Promissory Note would only be made from the "net cash flow" as defined under the Cullasaja Joint Venture Agreement and any payment on the Contingent Promissory Note must be subordinated to the "Senior Indebtedness" as defined in the December 31, 1991 Agreement.

  In 1995, Morehouse acquired one of the two $1,650,000 Contingent Promissory Notes and one of the two $3,000,000 Replacement Promissory Notes pursuant to an Allonge issued by the Federal Deposit Insurance Corporation acting in its capacity as Receiver for $75,000. (Tallarida Decl., Ex. 8: Opp, Ex. A.)

  In 1996, Morehouse filed a lawsuit in Florida against Arvida to obtain the financial records and to determine if it was entitled to payments under the Notes. Arvida maintained that the Notes were not in default and that no payments were due. On the eve of trial, Morehouse moved to dismiss the declaratory relief claim. The Florida court granted Morehouse's motion to dismiss under Federal Rule of Civil Procedure 41 conditioning the dismissal on an award to Arvida of attorney's fees and costs. On November 1, 1999, the United States District Court for the Southern District of Florida entered judgment in favor of Arvida in the amount of $203,254.30 in attorney's fees and $19,695.83 in costs against Morehouse. On December 15, 1999, Arvida registered the judgment in this district in miscellaneous case no. 99mc713. The judgment remains unsatisfied.

  The Notes were the sole asset of Morehouse. Morehouse is a single purpose entity formed to isolate and protect assets from commingling so that its value is not impacted by other assets and liabilities. On June 1, 2004, Morehouse transferred the notes to CN Townhome #1, LLC. On June 30, 2004, CN Townhome filed a suit against Arvida in the Southern District of California seeking the same relief that Morehouse voluntarily dismissed in the Florida action seeking declaratory relief and an accounting of the promissory notes. On February 25, 2005, Judge Benitez granted Arvida's motion to dismiss for lack of personal jurisdiction over CN Townhome and dismissed the case.

  In 2004, Arvida initiated a Proceeding Supplemental in Aid of Execution in the same case number as the 1996 action in the Southern District of Florida against Morehouse and CN Townhome seeking to enforce the judgment against Morehouse. The docket in that case consists of 32 pages with 330 entries.

  Discussion

  A. Motion to Dismiss for Lack of Personal Jurisdiction

  In its briefing, Arvida filed a motion to dismiss for lack of personal jurisdiction. In order to establish that personal jurisdiction over a defendant is proper, it must be shown that (1) California's long-arm statute confers personal jurisdiction over the defendant, and (2) that the exercise of jurisdiction comports with the constitutional principles of due process. Fireman's Fund Ins. Co. v. Nat'l Bank of Cooperatives, 103 F.3d 888, 893 (9th Cir. 1996). Because California's long-arm statute permits the exercise of jurisdiction to the same extent as the Constitution, "the jurisdictional analyses under state law and federal due process are the same." Dole Food Co., Inc. v. Watts, 303 F.3d 1104, 1110 (9th Cir. 2002).

  In order for a court to exercise personal jurisdiction over a nonresident defendant, the defendant must have "minimum contacts" with the forum state "such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice." Rio Props., Inc. v. Rio Int'l Interlink, 284 F.3d 1007, 1019 (9th Cir. 2002) (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). Personal jurisdiction may be either general or specific. Panavision Int'l, L.P. v. Toeppen, 141 F.3d 1316, 1320 (9th Cir. 1998). General jurisdiction exists when a defendant has maintained such "substantial" or "continuous and systematic" contacts with the forum state, so that a court may assert jurisdiction over the defendant for any cause of action, including those unrelated to the forum-related contacts. Bancroft & Masters, Inc. v. Augusta Nat'l Inc., 223 F.3d 1082, 1086 (9th Cir. 2000). If a defendant has not maintained "continuous" or "systematic" contacts with the forum state, a court may nonetheless exercise "specific jurisdiction" over a non-resident defendant if the following requirements have been met:
(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 privileges 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.
Dole Food Co., 303 F.3d at 1111 (citation omitted); see also Helicopteros Nacionales De Columbia, S.A. v. Hall, 466 U.S. 408, 414 (1984). A modification of the three-prong test may be appropriate "over a defendant whose only `contact' with the forum state is the `purposeful direction' of a foreign act having effect in the forum state." Haisten v. Grass Valley Medical Reimbursement Fund, Ltd., 784 F.2d 1392 (9th Cir. 1986) (citing Calder v. Jones, 465 U.S. 783, 789 (1984)). Based on the record in this case, general jurisdiction does not exist. The Court must look at whether specific jurisdiction exists.

  On December 15, 1999, Defendant Arvida registered a judgment from the Southern District of Florida in this district. On December 6, 2004, Arvida obtained a writ of execution. On December 17, 2004, Arvida filed a motion to compel production of documents on third parties. On January 28, 2005, Arvida filed a motion for reconsideration. These affirmative acts by Arvida purposefully availed itself to invoking the benefits and protection of the laws of this district. In addition, the setoff claim arises out of Arvida's attempt to register and execute its judgment against Morehouse. Therefore, the Court's jurisdiction over Defendants is reasonable. The Court finds ...


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