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Trinchitella v. American Realty Partners LLC

United States District Court, E.D. California

July 27, 2016

RONALD F. TRINCHITELLA, Plaintiff,
v.
AMERICAN REALTY PARTNERS, LLC, et al., Defendants.

          ORDER

         Over the course of one month, representatives of American Realty Partners (ARP) and Performance Realty Management (PRM) called and emailed Ronald Trinchitella, a California resident, to solicit his investment in Arizona real estate. During the solicitations, Mr. Trinchitella was promised an eight percent annual return on his investment, with an overall projected return of fifteen to eighteen percent. After Mr. Trinchitella made an initial investment, ARP and PRM solicited additional investments for several more months. He declined to make further investments until he received his first return. After seeing no returns, and after unfulfilled promises to return his investment, Mr. Trinchitella filed suit in California against ARP, PRM, American Housing Income Trust, Inc. (AHIT), and Sean Zarinegar, AHIT’s CEO, board chairman, and president, and the manager of ARP and PRM. Defendants move to dismiss Mr. Trinchitella’s complaint, contending this court lacks personal jurisdiction, venue is improper, and Mr. Trinchitella is subject to an arbitration agreement for claims against ARP.

         At the hearing on this motion, Scott Judson appeared for plaintiff and Devin Bone appeared for defendants. As described below, defendants’ motion is GRANTED in part and this case is STAYED pending completion of arbitration.

         I. PROCEDURAL HISTORY

         On September 22, 2015, Mr. Trinchitella filed suit in the Superior Court for the County of San Joaquin against three out-of-state corporations and one corporate representative: ARP and PRM, two limited liability companies organized under the laws of Arizona with principle places of business in Arizona, Compl. ¶ 2, ECF No. 1; AHIT, a corporation organized under the laws of Maryland with a principle place of business in Arizona, id. ¶ 4; and Sean Zarinegar, a resident of Arizona, id. ¶ 5. Mr. Trinchitella also named several unknown fictitious defendants, but they have not been identified or served. Id. ¶ 6. The court DISMISSES the Doe defendants. Fed.R.Civ.P. 4(m) (on its own motion, court may dismiss defendants not served within ninety days after complaint is filed); Craig v. United States, 413 F.2d 854, 856 (9th Cir. 1969).

         Mr. Trinchitella’s operative complaint alleges seven claims: (1) breach of written contract, (2) breach of oral contract, (3) promissory fraud, (4) consumer fraud, (5) intentional misrepresentation, (6) negligent misrepresentation, and (7) common law fraud. See generally Compl. Defendants removed the suit to this court on the basis of diversity jurisdiction, Not. Remov. 2, ECF No. 1, and now move to dismiss all of Mr. Trinchitella’s claims. See generally Mot., ECF No. 4-1. Mr. Trinchitella filed an opposition, Opp’n, ECF No. 5, and defendants replied, Reply, ECF No. 7.

         II. FACTUAL BACKGROUND

         In analyzing a motion to dismiss for lack of jurisdiction, the court may rely on the plaintiff’s complaint and the parties’ affidavits. See Ochoa v. J.B. Martin & Sons Farms, Inc., 287 F.3d 1182, 1187 (9th Cir. 2002) (where trial court relied on affidavits and discovery materials to determine personal jurisdiction, dismissal is appropriate only if the plaintiff has not made a prima facie showing of personal jurisdiction); Fields v. Sedgwick Assoc. Risks, Ltd., 796 F.2d 299, 301 (9th Cir. 1986) (same). As such, the court relies on Mr. Trinchitella’s complaint and the parties’ declarations in reviewing the following factual background.

         A. Mr. Trinchitella Invests with ARP

         In January 2014, Jack Combs, the Managing Partner of ARP, called Mr. Trinchitella to solicit an investment in Arizona real estate. Compl. ¶ 9. Mr. Combs informed him a $150, 000 investment would earn an annual return of eight percent or more, with an overall projected return of fifteen to eighteen percent. Id. ¶ 10. Within the next month, Mr. Trinchitella had similar follow-up conversations with Mr. Combs, and with Mr. Zarinegar and Dan Sheriff, the Senior Account Manager of ARP. See Id. ¶¶ 9, 11, 14; Trinchitella Decl. Ex. 1 at 1, ECF No. 5-3. After one such conversation, Mr. Sheriff sent an email thanking Mr. Trinchitella for the discussion. Trinchitella Decl. Ex. 1 at 1. He sent the email from a PRM address with links to the PRM website and an introductory video about PRM. Id.

         During the discussions, Mr. Trinchitella explained he did not want to invest in stock. Compl. ¶ 12. He was assured his investment would not include stock, id., he could be refunded his $150, 000 at any time if he was not happy for any reason, and he would be able to withdraw any earnings once a year without compromising the capital contribution, [1] id. ¶¶ 12-13. While the record does not make clear who gave Mr. Trinchitella these assurances, his complaint suggests it was Mr. Zarinegar, Mr. Combs, or Mr. Sherriff or more than one of them. See id.

         On February 12, 2014, Mr. Trinchitella accepted the offer to make an investment, sending a check for $150, 000 to ARP and signing the Subscription Agreement PRM sent to memorialize the terms of the investment. Id. ¶ 14; Compl. Ex. A at 11-17, ECF No, 1. At hearing, the parties did not dispute Mr. Trinchitella signed and executed the Subscription Agreement in California.

         Over the next year, Mr. Trinchitella received monthly calls from Mr. Sheriff soliciting further investments in Arizona real estate. Compl. ¶ 19. During the same time frame, he also received a letter from Mr. Zarinegar on PRM letterhead, soliciting further investments. Trinchitella Decl. Ex. 3. In discussions with Mr. Sheriff, Mr. Trinchitella declined to make further investments until he received his first return. Compl. ¶ 19. In January 2015, Mr. Trinchitella called Mr. Sheriff to inquire about the status of his investment and to obtain supporting documentation. Id. Mr. Sheriff assured Mr. Trinchitella ARP was earning a return somewhere between eighteen percent and twenty-two percent, but no documentation verifying these returns was provided. Id.

         A month later, Mr. Zarinegar informed Mr. Trinchitella during a phone call that his investment was being converted to stock as part of a restructuring plan. Id. ¶¶ 20-21. Under this plan, ARP would merge AHIT’s predecessor company, Affinity Mediaworks Corporation, with AHIT, and have AHIT survive as the named entity. Id. ¶ 4. After the merger, ARP units[2]would be converted to shares in AHIT, effectively giving Mr. Trinchitella stock in AHIT. Id. Mr. Trinchitella reiterated he had no interest in investing in stock and requested Mr. Zarinegar return his entire investment in addition to the guaranteed annual return of eight percent. Id. ¶¶ 4, 21. Mr. Zarinegar promised to send a check for $150, 000 by March 2015. Id. ¶ 22. The record does not make clear whether Mr. Zarinegar also promised Mr. Trinchitella a check in the amount of an eight percent annual return. At the time this conversation took place, Mr. Zarinegar had already sent Mr. Trinchitella a copy of the AHIT restructuring plan and a ballot to approve the asset conversion. Trinchitella Decl. Ex 5 at 1-6. The ballot included instructions to complete and return to Sean Zarinegar, who signed “[o]n behalf of Performance Realty Management, LLC.” Id. at 6. The ballot also stated, “Performance Realty is of the opinion” that the stock conversion is the best solution. Id. at 3. The record does not make clear whether Mr. Trinchitella returned this ballot.

         Mr. Trinchitella never did receive the $15, 000 check as promised. Id. ¶ 27. Instead, on April 7, 2015, Mr. Trinchitella received notice of a $36, 156 loss on his investment, far below the promised eight percent positive yearly return. Id. ¶ 26; Trinchitella Decl. Ex. 2 at 1. Mr. Trinchitella had another discussion with Mr. Zarinegar in May 2015, where Mr. Zarinegar promised to send a check by June 18, 2015. Compl. ¶ 25. Mr. Trinchitella never received this check. Id. ¶ 27.

         B. Subscription Agreement

         As noted, Mr. Trinchitella signed and executed a Subscription Agreement establishing the terms of his initial investment. Compl. Ex. A at 11-15. The Subscription Agreement included a choice-of-law provision, which stated,

This Agreement will be governed by and construed in accordance with the laws of the State of Arizona, without giving effect to any choice of law principles that would dictate the application of another State’s law.

Id. at 14. The Subscription Agreement also included an arbitration clause, which provided,

Any controversy, claim, or dispute arising out of or related to this Agreement will be resolved through binding arbitration. The arbitration will be conducted by a sole arbitrator mutually selected by the undersigned and the Company.
If the parties cannot agree upon an arbitrator, each party will select an arbitrator and the two selected arbitrators will mutually select the sole arbitrator to resolve the dispute.
Either party may request and thus initiate arbitration of the dispute by written notice to the other party (the “Arbitration Notice”). The Arbitration Notice will state specifically the dispute that the initiating party wishes to submit to arbitration.
The arbitration will be conducted in Maricopa County, Arizona, and in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect.
Any judgment upon the award rendered by the arbitrator may be enforced through appropriate judicial proceedings in any federal court having jurisdiction.
Prompt disposal of any dispute is important to the parties. The parties agree that the resolution of any dispute will be conducted expeditiously. To that end, the final disposition of the dispute will be accomplished no later than 120 days after the date of the Arbitration Notice.

Id. The Subscription Agreement does not expressly identify the contracting parties. The bottom of the Subscription Agreement, however, shows Mr. Trinchitella’s signature, Mr. Zarinegar’s signature next to the statement “American Realty Partners, LLC, ” and notes the agreement is “accepted” by PRM. Id. at 15. Defendants conceded at hearing that PRM acted on ARP’s behalf when it signed the Subscription Agreement. AHIT is mentioned nowhere in the Agreement.

         III. DISCUSSION

         Defendants argue they are not subject to the jurisdiction of this court, venue is improper, and in any event, Mr. Trinchitella is subject to the arbitration clause in the Subscription Agreement for claims made against ARP. Mot. at 5-20. Mr. Trinchitella contends this court has personal jurisdiction over defendants, venue is proper, and the arbitration agreement at issue is unconscionable and therefore unenforceable. Opp’n at 9-24. The court proceeds to the merits of each issue.

         A. Personal Jurisdiction

         Defendants argue Mr. Trinchitella’s claims must be dismissed because this court lacks general and specific personal jurisdiction. Mot. at 6-7. Mr. Trinchitella responds only to the specific jurisdiction arguments and contends “[d]efendants have invoked the benefits and protections of California’s laws, ” thereby placing this suit properly in this forum. Opp’n at 10. In the absence of any argument discussing or supporting general jurisdiction, the court construes Mr. Trinchitella’s opposition as disclaiming general jurisdiction and relying solely on specific jurisdiction; therefore the court proceeds to address specific jurisdiction only. See Sher v. Johnson, 911 F.2d 1357, 1361 (9th Cir. 1990) (declining to determine whether general jurisdiction existed because plaintiff argued only specific jurisdiction existed).

         Rule 12(b)(2) of the Federal Rules of Civil Procedure provides that a party may move to dismiss a complaint for lack of personal jurisdiction. Although the defendant brings the motion, it is the plaintiff’s burden to establish the court’s personal jurisdiction. See Sher, 911 F.2d at 1361. Where, as here, the court makes the jurisdictional determination without an evidentiary hearing, “the plaintiff need make only a prima facie showing of jurisdictional facts to withstand the motion to dismiss.” Ballard v. Savage, 65 F.3d 1495, 1498 (9th Cir. 1995).

         1. Legal Standards: Specific Personal Jurisdiction

         To make a prima facie showing, the plaintiff “need only demonstrate facts that if true would support jurisdiction over the defendant.” Id. In particular, the plaintiff must convince the court the defendants’ “conduct and connection with the forum State” is such that the defendants “should reasonably anticipate being haled into court there.” Sher, 911 F.2d at 1361 (citing World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980)).

         In ruling on defendants’ motion, uncontroverted allegations in the plaintiff’s complaint must be taken as true, and conflicts between the facts contained in the parties’ affidavits must be resolved in the plaintiff’s favor. Ochoa, 287 F.3d at 1187. The court is not required, however, to accept “conclusory claims” or “legal conclusions” in determining whether the plaintiff has made a prima facie showing. Elowson v. Jea Senior Living, No. 14-02559, 2015 WL 2455695, at *3 (E.D. Cal. May 22, 2015). The court also looks to the personal jurisdiction rules of the forum state in ruling on defendants’ motion, provided the exercise of jurisdiction comports with due process. Scott v. Breeland, 792 F.2d 925, 927 (9th Cir. 1986). California imposes no greater restrictions than the United States Constitution, and as such, “federal courts in California may exercise jurisdiction to the fullest extent permitted by due process.” Id.

         A court may exercise specific personal jurisdiction over a non-resident defendant whose “minimum contacts” with the forum state are “sufficient” in that they relate to the claims made in a case. Sher, 911 F.2d at 1361. The minimum contract inquiry focuses “on the relationship among the defendant, the forum, and the litigation.” Walden v. Fiore, U.S., 134 S.Ct. 1115, 1118 (2014). The Ninth Circuit has established a three-prong test for determining whether the plaintiff has alleged sufficient “minimum contacts”:

(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 privilege 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.

Picot v. Weston, 780 F.3d 1206, 1211 (9th Cir. 2015) (citing Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 802 (9th Cir. 2004)). These prongs are identified in shorthand fashion as: (1) purposeful availment and direction; (2) forum-related conduct; and (3) reasonableness. See Menken v. Emm, 503 F.3d 1050, 1057 (9th Cir. 2007).

         When a plaintiff seeks to invoke specific personal jurisdiction, she must establish jurisdiction for “‘each claim asserted against a defendant.’” Picot, 780 F.3d at 1211 (quoting Action Embroidery Corp. v. Atl. Embroidery, Inc., 368 F.3d 1174, 1180 (9th Cir. 2004)). If personal jurisdiction exists over one claim, but not others, the district court may exercise pendent personal jurisdiction over any remaining claims that arise out of the same “common nucleus of operative facts” as the claim for which jurisdiction exists. Id.

         2. Analysis

         a) Purposeful Availment and ...


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