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Aquino v. Breede

United States District Court, N.D. California, San Jose Division

August 29, 2019

MICHAEL EDWARD BREEDE, et al., Defendants.



         Before the Court are two related motions: Defendants' Motion to Dismiss for Lack of Personal Jurisdiction (ECF 17) and Defendants' Motion for Rule 11 Sanctions (ECF 19). The Court heard oral argument on Defendants' motions on June 27, 2019 (“the Hearing”). Having considered the oral argument, briefing, and relevant law, and for the reasons set forth below, the Court hereby GRANTS Defendants' motion to dismiss on the grounds that Plaintiff has failed to show that Defendants purposefully directed their allegedly tortious actions at California and DENIES Defendants' motion for sanctions because the instant action was not filed for an improper or frivolous purpose and is not barred by the Rooker-Feldman doctrine.

         I. BACKGROUND

         A. General Background

         On November 15, 2018, Plaintiff Michael Aquino filed this diversity action against Defendants Michael Edward Breede and Alan Adair Moss (collectively, “Defendants”). See generally Compl., ECF 1. The Complaint alleges a single cause of action: tortious interference with contractual relations. Id. ¶¶ 62-69. Plaintiff is a citizen of New Jersey. Id. ¶ 3. Defendant Breede is a citizen of Connecticut. Id. ¶ 4. Defendant Moss is a citizen of Utah. Id. ¶ 5.

         Plaintiff's allegation against Defendants of tortious interference with contractual relations concerns a 2017 sale of assets by Integrated Surgical, LLC (“Integrated Surgical”). According to the Complaint, Integrated Surgical was a privately held medical device development company headquartered in Palo Alto, California, that developed a revolutionary family of electrical medical devices. Compl. ¶ 6. Defendants state that Integrated Surgical is a now-dissolved Connecticut entity, whose business and operations were at all times located in Connecticut, and dispute Plaintiff's assertion in the Complaint that Integrated Surgical was headquartered in Palo Alto. See Motion to Dismiss (“MTD”) at 3; see also Breede Decl., Ex. A to Request for Judicial Notice[1] in Support of Defendants' Motion to Dismiss (“RJN”), ECF 18.

         Breede was a managing member of Integrated Surgical. Breede Decl. ¶ 2, Ex. A to RJN, ECF 18. Moss was a member of Integrated Surgical. Moss Decl. ¶ 2, Ex. C to RJN, ECF 18. Plaintiff was a member of a separate company, No. Plume and Gloom, LLC (“NPG”). Compl. ¶ 12. In his capacity as a member of NPG, Plaintiff invested “a significant amount of cash in Integrated Surgical.” Id. Plaintiff was therefore an investor in Integrated Surgical and alleges that he was entitled to receive information about Integrated Surgical's business. See id.

         From 2015 to 2017, Defendants indicated that Integrated Surgical's intellectual property (“IP”) assets had significant value. Compl. ¶ 13. In April 2015, NPG purchased an 8% membership interest in Integrated Surgical for $500, 000. Id. Plaintiff extrapolates that Integrated Surgical was therefore valued at approximately $6, 250, 000 at that time. Id. According to the Complaint, Integrated Surgical was represented by counsel in California from Wilson Sonsini Goodrich & Rosati (“WSGR”). Id. ¶ 55. Plaintiff alleges that at least one member of WSGR, Mr. Daniel Koeppen, was a member of WS Investment Company, LLC, which invested in Integrated Surgical. See Id. ¶ 9. Mr. Koeppen is an attorney residing within and licensed to practice law in California. Id.

         Throughout 2016, members of Integrated Surgical made various efforts to sell Integrated Surgical's IP assets. Compl. ¶ 14. In December 2016, Breede indicated that Integrated Surgical would engage a broker to sell its IP assets. Id. ¶ 15. On February 7, 2017, Breede informed investors that Integrated Surgical had entered an agreement with Gerbsman Partners (“Gerbsman”) to act as a broker for the IP sale. Id. ¶ 16. Plaintiff alleges that Gerbsman is based in California and that Breede, “in cooperation with his California attorneys, ” contacted Gerbsman to sell Integrated Surgical's assets. Id. Plaintiff further alleges that “because Integrated Surgical had limited capital, Breede personally advanced the money to pay Gerbsman for their services and was responsible for providing Gerbsman with the information necessary to perform its function.” Id.

         On or about February 17, 2017, Gerbsman posted a public article online stating that it had been retained to sell the assets of Integrated Surgical, “which was headquartered in Palo Alto;” that the founding partners had invested $1.5 million in Integrated Surgical; and that Integrated Surgical held 5 issued U.S. patents and 14 U.S. non-provisional patent applications. Compl. ¶ 17. The article further stated that two of Integrated Surgical's products were evolutionary and revolutionary. Id. By June of 2017, two companies were potential bidders for Integrated Surgical's assets. Id. ¶ 19. However, on or about July 6, 2017, one of the two companies indicated that it would not be making an offer. Id. The remaining company was named “Conmed.” Id. ¶ 20.

         On or about July 14, 2017, Conmed expressed interest in purchasing the IP assets, but had not proposed a price or terms and conditions. Compl. ¶ 20. On July 17, 2017, Conmed indicated that it would offer only $300, 000 to purchase Integrated Surgical's IP assets. Id. ¶ 22. Several members of Integrated Surgical then expressed their concern that Conmed's offer was but a fraction of the valuation previously referenced by Breede and Moss in their limited disclosures to the members of Integrated Surgical. Id. On July 18, 2017, Breede indicated that Conmed had increased its offer to $350, 000 and needed an answer by the next morning. Id. ¶ 23.

         On July 19, 2017, at approximately 9:15 a.m., Plaintiff, Breede, and others held a teleconference wherein Plaintiff informed Breede that NPG had voted to reject the Conmed deal and that he (Plaintiff) would personally be making an offer to purchase Integrated Surgical's IP assets. Compl. ¶ 24. Plaintiff advised Defendants that he would pay $360, 000 for the assets, which was $10, 000 greater than the amount offered by Conmed, and that he would agree to the form of Asset Purchase Agreement proposed by Integrated Surgical as an additional inducement. Id. Plaintiff alleges that Breede, Moss, and Koeppen then orally accepted Plaintiff's offer and stated they would “call again later to finalize the terms.” Id.

         Plaintiff further alleges that on July 19, 2017, at approximately 1:15 p.m., Breede, Moss, Koeppen, and two others participated in an additional teleconference to finalize the agreement with Plaintiff. Compl. ¶ 25. Later that day, at 5:21 p.m., Breede sent Plaintiff an email stating, “can you give me an update?” Id. ¶ 26. At 5:57 p.m., Plaintiff responded, stating, “Ok all set. I will wire 250k into acct tomorrow. I will be away till Sunday with little access to mail or phone all other paperwork can be handled by Dan and John and Mike.” Id. ¶ 27. At 6:01 p.m., Breede responded to Plaintiff, “Thanks for the update and I look forward to the executed document. I will turn it around first thing tomorrow.” Id. ¶ 28.

         On July 20, 2017, at 11:05 a.m., Breede emailed Plaintiff requesting that Plaintiff send him a copy of the contract so that he had the correct version, and further indicated that he would sign. Compl. ¶ 29. At 11:32 a.m., Breede sent an email to Plaintiff's attorney, John Cansdale (“Cansdale”), and requested the exact name of the purchasing entity so that the sale documents could be executed. Id. ¶ 30. At 1:20 p.m., Breede emailed Cansdale stating, “I expect to finalize within the hour.” Id. ¶ 31. At 3:57 p.m., Breede followed up with an additional email stating, “Dan [Koeppen] sending now. Please wire.” Id. ¶ 32. At 4:01 p.m., Koeppen sent an email to Cansdale stating, “Please see the asset purchase agreement. The signature pages are to be held in escrow, pending authorization from [] Breede []. Before the signature pages are released, [Breede] needs to see the purchase price of $350, 000 wired into WSGR escrow and the signature pages executed by the buyer [Plaintiff].” Id. ¶ 33.

         The purported sale to Plaintiff did not come to pass. On July 20, 2017, at 5:42 p.m., Breede emailed Plaintiff, stating, “I don't have confirmation of the wire, but I think the deal is done.” Compl. ¶ 38 (emphasis added and removed). July 20, 2017 was a Thursday. At 6:38 p.m. on July 20, Cansdale informed Breede that Plaintiff could not make the wire transfer until Monday, July 23, 2017, and that Plaintiff would send the signature page when Plaintiff “gets to an area w computer / service.” Id. ¶ 40. At 6:43 p.m. on July 20, Koeppen emailed Cansdale, stating, “We need to speak as soon as possible. At this point Integrated [Surgical] has to take its signature pages out of escrow with you since we didn't get the wire or signature pages today. There is a material development in the deal that [Plaintiff] should be aware of before we decide how to proceed. To be clear - there is no agreement to sell the assets to [Plaintiff] at this point.” Id. ¶ 41 (emphasis added).

         On July 21, 2017, at 9:57 a.m., Plaintiff faxed Koeppen a copy of the Aquino Asset Purchase Agreement (“Aquino APA”) executed by Plaintiff. Compl. ¶ 43. On July 21, 2017, at approximately 12:45 p.m., Plaintiff, Cansdale, Breede, Moss, and Koeppen participated in a teleconference in which Breede described a “heated conference call” with representatives from Conmed. Id. ¶ 44. Plaintiff alleges that Breede indicated he had been “threated verbally with profanities” by Conmed's representatives and that Conmed had threatened to “sue [Breede] personally and Integrated Surgical if they did not go forward with the deal offered by Conmed.” See Id. At approximately 3:00 p.m. on July 21, Plaintiff, Cansdale, Breede, Moss, and Koeppen participated in another teleconference, in which “Breede and Koeppen expressed their growing concerns regarding the threats they had personally received from Conmed.” Id. ¶ 45.

         Plaintiff alleges that around July 27, 2017, Conmed and Integrated Surgical entered into a separate Asset Purchase Agreement (“Conmed APA”) and that several days thereafter Integrated Surgical “transferred the same IP assets to Conmed which Integrated Surgical had already contracted to sell to [Plaintiff.]” Compl. ¶¶ 48-49. Plaintiff further alleges that the Conmed APA called for closing at the offices of WSGR in San Diego, California, and contained a California forum selection clause naming the Northern District of California. See Id. ¶¶ 58, 59. Similarly, according to the Complaint, the Aquino APA would have closed at the offices of WSGR in San Diego, California, and likewise contained a California forum selection clause naming the Northern District of California. See Id. ¶¶ 55, 56; see also Aquino APA (Draft) §§ 5, 13(i), Ex. B of Ex. A to RJN, ECF 18.

         According to the Complaint, on or about July 27, 2017, Breede and Moss informed Plaintiff that they intended to enter into the Conmed APA, even though Conmed's offer was for a lower price and even though Conmed had attempted to require terms that “were significantly more onerous than those in the Aquino APA.” Compl. ¶ 60. Plaintiff now alleges tortious interference with contractual relations against Breede and Moss, on the basis that Breede and Moss did not accept Plaintiff's higher offer price “because of their concerns about their personal financial standing [due to Conmed's threat to sue them personally], instead of their concern about the best interests of Integrated Surgical.” Id. ¶ 66. Plaintiff further alleges that “Breede and Moss decided to conspire with Conmed to interfere with the contract between Integrated Surgical and [Plaintiff]” and that “Breede and Moss and Conmed conspired to create a fiction that they were legally entitled to have Integrated Surgical enter into a contract with Conmed to sell the assets to Conmed.” Id. ¶¶ 66, 67.

         B. Prior State Court Action

         Plaintiff previously sued Defendants in California state court on substantially similar facts and allegations as those now before this Court. See, e.g., Breede Decl., Ex. A to RJN, ECF 18. On August 27, 2018, the Superior Court of California, County of Santa Clara granted Defendant Breede's Motion to Quash for lack of personal jurisdiction, stating that “Plaintiff has not established by a preponderance of the evidence that this court has personal jurisdiction over Mr. Breede as an individual.” Breede Order at 1, Ex. B to RJN, ECF 18. The Superior Court found that “[a]ll of [Breede's] alleged activities and executed contractual agreements as relied upon in [P]laintiff's argument are within Mr. Breede's capacity as Managing Member of Integrated Surgical. Those contacts with Integrated Surgical do not create minimum contacts for the Managing Member personally. On the other hand, there is substantial evidence making a finding necessary that Mr. Breede is a resident of Connecticut with no personal contacts with Santa Clara County.” Breede Order at 1-2, Ex. B to RJN, ECF 18.

         Similarly, on October 16, 2018, the Superior Court granted Defendant Moss's Motion to Quash for lack of personal jurisdiction pursuant to California Code of Civil Procedure § 418.10(a)(1). See Moss Order at 1-2, Ex. D to RJN, ECF 18. Plaintiff subsequently filed the instant action on November 15, 2018. See generally Compl.


         A. Personal Jurisdiction

         Federal Rule of Civil Procedure 12(b)(2) authorizes a defendant to seek dismissal of an action for lack of personal jurisdiction. Fed.R.Civ.P. 12(b)(2). When a defendant moves to dismiss for lack of personal jurisdiction, the plaintiff bears the burden of demonstrating that jurisdiction is appropriate. Boschetto v. Hansing, 539 F.3d 1011, 1015 (9th Cir. 2008). Where “the defendant's motion is based on written materials rather than an evidentiary hearing, the plaintiff need only make a prima facie showing of jurisdictional facts to withstand the motion to dismiss.” Ranza v. Nike, Inc., 793 F.3d 1059, 1068 (9th Cir. 2015) (internal quotation marks and citation omitted). “[T]he plaintiff cannot simply rest on the bare allegations of its complaint.” Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800 (9th Cir. 2004) (internal quotation marks and citation omitted). However, uncontroverted allegations in the complaint must be taken as true, and factual disputes contained within declarations or affidavits are resolved in the plaintiff's favor. Schwarzenneger, 374 F.3d at 800.

         Where no applicable federal statute governs personal jurisdiction, “the law of the state in which the district court sits applies.” Harris Rutsky & Co. Ins. Servs., Inc. v. Bell & Clements Ltd., 328 F.3d 1122, 1129 (9th Cir. 2003). “California's long-arm statute allows courts to exercise personal jurisdiction over defendants to the extent permitted by the Due Process Clause of the United States Constitution.” Id. The Ninth Circuit has established a three-prong test for whether a court can exercise specific personal jurisdiction: (1) the defendant must have “either purposefully availed itself of the privilege of conducting activities in California, or purposefully directed its activities toward California, ” thereby “invoking the benefits and protections of its laws”; (2) the claim must arise out of or relate to the defendant's forum-related activities; and (3) the exercise of jurisdiction must be reasonable, i.e. it must comport with fair play and substantial justice. Schwarzenegger, 374 F.3d at 802.

         The plaintiff bears the burden of showing that defendants have purposefully availed themselves of the privileges and burdens of a forum state's laws and showing that the claim arises out of forum-related activities. Schwarzenegger, 374 F.3d at 802. If the plaintiff's evidence is insufficient to satisfy either prong, personal jurisdiction is improper. Id. However, if the plaintiff presents sufficient evidence to satisfy the first two prongs, the burden shifts to the defendant to ‚Äúpresent a ...

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