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Buckhorn Energy Oaks Disposal Services, LLC v. Clean Energy Holding Co., LLC

United States District Court, D. Montana, Billings Division

March 24, 2017



          TIMOTHY J. CAVAN United States Magistrate Judge

         Plaintiffs Buckhorn Energy Oaks Disposal Services, LLC (“Buckhorn”) and Oaks Disposal Services, LLC (“Oaks”) (collectively, “Plaintiffs”) filed this action against Clean Energy Holding Company, LLC (“Holdings”), Bruce Bentz, T.J. Herrmann, John Walsh, Sheldon Smith (collectively, the “individual Defendants”), and Ken Hostetter, alleging various causes of action related to a debt accrued by a nonparty corporation, Clean Energy Fluid Systems, LLC (“Fluids”). (See generally Doc. 1-1.)

         Plaintiffs' Complaint and Demand for Jury Trial (the “Complaint”) (Doc. 1-1) asserts claims for piercing the corporate veil (Count I); unjust enrichment/quantum meruit (Count II); breach of a personal guaranty against the individual Defendants and Hostetter (Count III); and breach of the covenant of good faith and fair dealing against the individual Defendants and Hostetter (Count IV).

         Pending before the Court is Holdings' and the individual Defendants'[1]Motion to Dismiss for Lack of Personal Jurisdiction or Forum non Conveniens (the “motion”). (Doc. 6.) Defendant Hostetter joins the motion with respect to forum non conveniens and change of venue only. (Doc. 8.) For the following reasons, the Court orders (1) that the motion to dismiss is denied as to the individual Defendants, and denied with leave to renew following jurisdictional discovery as to Holdings; and (2) the motion to transfer venue is denied.

         I. Factual Background

         For the purposes of the instant motion, the Court accepts as true the uncontroverted facts from Plaintiffs' Complaint. Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800 (9th Cir. 2004). In addition, “[i]n ruling on a motion to dismiss for lack of personal jurisdiction, a court may consider declarations, discovery materials, and uncontroverted allegations in the complaint.” Nationwide Agribusiness Ins. Co. v. Buhler Barth GmbH, 2015 WL 6689572, *3 (E.D. Cal. Oct. 30, 2015) (citing ADO Fin., AG v. McDonnell Douglas Corp., 931 F.Supp. 711, 714 (C.D. Cal. 1996)).

         Plaintiffs operate a landfill near Glendive, Montana (the “Montana landfill”), which accepts waste with high levels of radioactivity from the exploration and production of oil and gas. (Doc. 1-1 at ¶ 2.[2]) The Montana landfill was established by Oaks, but was acquired by Buckhorn in April 2014. (Docs. 15 at 2, 7-1 at 1.)

         In late 2013 or early 2014, Fluids entered into an oral contract with Oaks to dispose of waste at the Montana landfill. (Doc. 1-1 at ¶¶ 3-8.) Fluids agreed to make payment to Oaks every fifteen (15) days. (Id. at ¶ 9.) Fluids initially complied with the oral agreement, but later fell in arrears with its payments to Plaintiffs. (Id. at ¶¶ 14-16.) Plaintiffs claim that Fluids owes them approximately $610, 118.20, plus interest. (Id. at ¶ 17.) The instant lawsuit is Plaintiffs' attempt to hold the named Defendants liable for Fluids' debt. (See generally Doc. 1-1.)

         With respect to personal jurisdiction, the individual Defendants are all residents of North Dakota, and Holdings is a North Dakota limited liability company (“LLC”) with its principal place of business in North Dakota. (Doc. 1 at ¶ 3.) Nevertheless, Plaintiffs allege that the Court has personal jurisdiction over all Defendants on the basis that Fluids was merely the alter ego of Defendants. Plaintiffs further allege that the Court has jurisdiction of the individual Defendants because their forum-related activities subject them to specific personal jurisdiction under Montana's long-arm statute.

         Plaintiffs support their allegations with the affidavits of Ross Oakland, the owner of Oaks at the time Fluids began disposing of waste at the Montana landfill, and Gary Ebel, the chief executive officer of Buckhorn after the landfill was acquired from Oaks. (Docs. 15 at ¶¶ 2-3, 17-1 at ¶ 2.)

         According to Oakland, Fluids initially fell behind in its payments to Oaks in the amount of approximately $200, 000.00. (Doc15 at ¶ 6). After Oakland contacted various individuals at “Clean Energy” about the debt, Defendants Walsh and Hostetter travelled to Montana and personally met with Oakland at Oakland's farm near the landfill.[3] Oakland discussed with Walsh “the past due payments for Clean Energy, and the fact that [he] had determined to cut it off from any further disposal services until they were current.” (Id. at ¶ 5.) According to Oakland, “[Walsh] told [him] that he and a partner from Bismarck, I believe his name was Bruce, were interested in investing in Clean Energy and would see that we were paid.” (Id. at ¶ 7.) Oakland maintains Walsh guaranteed Oaks would be paid every two weeks, and the two shook hands on the promise. (Id. at ¶ 8.)

         Over the course of the next two weeks, Oaks received two money wires totaling $190, 000.00 from the law firm of Smith Bakke Porsberg & Schweigert (“SBPS”), which appears from other exhibits to be Defendant Smith's law firm. (Id. at ¶ 9; see also Doc. 13-6.) Oakland maintains that he continued to allow Clean Energy to dispose of waste at the Montana landfill “[b]ased on [Walsh's] personal assurances at my property in Montana and payments I received from [SBPS].” (Id. at ¶ 10.)

         After the Montana landfill was acquired by Buckhorn, Ebel discovered that “Clean Energy” had again fallen approximately $500, 000.00 behind in its payments for waste deposited in Montana. (Doc. 17-1 at ¶ 6.) Ebel explains that “Clean Energy” “dumped hundreds of loads, totaling 33, 845.47 tons of oilfield waste, ” at the landfill from May of 2014 to June of 2015. (Id. at ¶ 5.) After discovering “Clean Energy's” arrearage to Buckhorn, Ebel spoke to Herrmann, who represented to Ebel “that he and his partners, Walsh, Bentz, and Smith, would make sure Buckhorn was paid.” (Id. at ¶ 11.) Ebel claims that he thereafter had several phone and email contacts with the individual Defendants who “made repeated representations that Buckhorn would get paid.” (Id. at ¶¶ 12, 13.)

         When the debt had grown to approximately $1, 000, 000.00, however, Ebel informed the individual Defendants that he would not accept their waste at the Montana landfill “unless they paid off the balance of their account.” (Id. at ¶ 15.) Ebel claims the individual Defendants “suggested restructuring the debt into a note, and agreed that they would personally guarantee the note to Buckhorn.” (Id. at ¶ 16.)

         Based upon the promises received from the individual Defendants, Buckhorn continued to allow the disposal of waste at the Montana landfill. Ebel makes clear that Buckhorn would not have allowed “Clean Energy” to continue disposing of waste at the landfill without the individual Defendants' personal guaranty. (Id. at ¶ 19.) A few months later, however, Ebel learned that the individual Defendants “had not actually signed the Note and Personal Guaranty and were no longer paying off the account as we agreed.” (Id. at ¶ 20).

         The individual Defendants never informed Ebel that they were not the owners and operators of “Clean Energy, ” and Ebel believed them to be responsible for “Clean Energy's” operational and financial decisions. (Id. at ¶ 17.) Ebel did not discover until later that the individual Defendants were involved in multiple companies with the name “Clean Energy, ” including Holdings and Fluids. In Ebel's experience, the individual Defendants ran all of the businesses as “one combined operation which they referred to as Clean Energy.” (Id. at ¶ 21.)

         Defendants dispute Plaintiffs' personal jurisdiction allegations through affidavits executed by Bentz (Doc. 7-4), Herrmann (Doc. 7-3), Walsh (Docs. 7-5 and 21-1), and Smith (Docs. 7-2 and 21-2). According to Bentz, [4] none of the members of Fluids' ownership group own any part of Holdings, and none of the owners of Holdings own any part of Fluids. (Doc. 7-4 at ¶ 8.) The formal relationship between Holdings and Fluids is a joint venture the two entities created in December, 2013. (Id. at ¶ 10.)

         Bentz states that Fluids opened a waste processing plant in 2012. (Id. at ¶ 9.) Earthworks, Inc. (“Earthworks”) began managing the plant in December 2013, and it was Fluids, through Earthworks, who incurred the debt to Plaintiffs. (Id. at ¶¶ 11, 13.) “The members of Holdings were investors and did not intend to operate or manage the plant in any way, shape, or form.” (Id. at ¶ 12.) Bentz denies that any of the individual Defendants “have met with or been to the plant of the plaintiff, ” although Walsh admits in his second affidavit that he did meet with Oakland at Oakland's farm. (Id. at ¶ 19; Doc. 21-1 at ¶ 2.

         Smith maintains in his second affidavit that Earthworks paid the “approximately $195, 000.00” debt to Oaks. (Doc. 21-2 at ¶¶ 4-6.) Smith denies that any of the individual Defendants “ever agreed to personally guarantee the indebtedness to Buckhorn.” (Id. at ¶ 10.) Rather, Smith claims that the Fluids/Holdings joint venture proposed to pay $80, 000.00 per month to Plaintiffs for the indebtedness and any new charges incurred. (Id. at ¶ 28.)

         II. Legal Standard

         The plaintiff bears the burden of demonstrating that jurisdiction is appropriate when a defendant moves to dismiss a complaint for lack of personal jurisdiction. Poliseno v. Credit Suisse Securities (USA), LLC, 2013 WL 1767951, *2 (D. Mont. April 24, 2013) (citing Schwarzenegger, 374 F.3d at 800). Where the motion is based on written materials rather than an evidentiary hearing, the plaintiff need only make a prima facie showing of jurisdictional facts. Id. A court's duty is to inquire into whether the plaintiff's pleadings and affidavits make a prima facie showing of personal jurisdiction, accepting the plaintiff's allegations as true. Id. Although the plaintiff cannot simply rest on the bare allegations of its complaint, uncontroverted allegations in the complaint must be taken as true. Conflicts between parties over statements contained in affidavits must be resolved in the plaintiff's favor. Schwarzenegger, 374 F.3d at 800 (quotations and citations omitted).

         Where, as here, no applicable federal statute governs personal jurisdiction, the district court must apply the law of the state in which the district court sits. Id. Thus, Montana law will govern whether the Court has personal jurisdiction over defendants. See Omeluk v. Langsten Slip and Batbyggeri A/S, 52 F.3d 267, 271 (9th Cir. 1995).

         Mont. R. Civ. P. 4(b)(1) governs personal jurisdiction in Montana. Rule 4(b)(1) embodies principles of both general and specific jurisdiction. General jurisdiction may lie if a nonresident defendant maintains “substantial” or “continuous and systematic” contacts with the state so as to be “found within the state, ” and “subject to the state's jurisdiction even if the cause of action is unrelated to the defendant's activities with the forum.” Bi-Lo Foods, Inc. v. Alpine Bank, 955 P.2d 154, 157 (Mont. 1998). Specific jurisdiction, on the other hand, will extend to “any person ‘as to any claim for relief arising from the doing personally, or through any employee or agent, of any of the . . . acts'” set forth in Rule 4(b)(1). Milky Whey, Inc. v. Dairy Partners, LLC, 342 P.3d 13, 17 (Mont. 2015).

         The exercise of personal jurisdiction must also comport with traditional notions of fair play and substantial justice embodied in the due process clause. Id. The Ninth Circuit has recognized that Mont. R. Civ. P. 4(b)(1) “permits the exercise of personal jurisdiction over nonresident defendants to the maximum extent permitted by federal due process. As a result, the jurisdictional analyses under state law and federal due process are the same.” King v. American Family Mut. Ins. Co., 632 F.3d 570, 578-579 (9th Cir. 2011) (quotations and citations omitted).

         Since Plaintiffs do not argue that either Holdings or the individual Defendants are subject to general personal jurisdiction, [5] the Court will focus its analysis on specific personal jurisdiction. In order to subject a party to specific personal jurisdiction, the court must find that the defendant had “fair warning that a particular activity may subject [them] to the jurisdiction of a foreign sovereign.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985) (quoting Shaffer v. Heitner, 433 U.S. 186, 218 (1977) (Stevens, J., concurring in judgment)). The Ninth Circuit employs a three-part test to determine whether Burger King's requirements are satisfied with respect to a particular defendant:

(1) The nonresident defendant must do some act or consummate some transaction with the forum 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) [t]he claim must be one which arises out of or results from the defendant's forum-related activities[; and] (3) [e]xercise of jurisdiction must be reasonable.

Omeluk, 52 F.3d at 270 (citing Data Disc, Inc. v. Systems Tech. Assoc., Inc., 557 F.2d 1280, 1287 (9th Cir.1977) and Roth v. Garcia Marquez, 942 F.2d 617, 620- 21 (9th Cir.1991)). The plaintiff bears the burden of establishing the first two requirements. Schwazenegger, 374 F.3d at 802. If a plaintiff does so, the defendant must come forward with a “‘compelling case' that the exercise would not be reasonable.” Id.

         To satisfy the first requirement, a plaintiff must establish the defendant “either purposely availed itself of the privilege of conducting activities [in the forum state], or purposely directed its activities toward [the forum state].” Id. The purposeful availment analysis is generally used in contract cases, such as the instant case, while the purposeful direction analysis is most often used in tort cases. Id.

         III. Discussion

         A. Dismissal of Individual Defendants under Rule 12(b)(2)

         1. Purposeful Availment

         The Court will first consider whether the individual Defendants purposely availed themselves of the privilege of conducting activities in Montana. “Purposeful availment, which satisfies the first part of the Ninth Circuit test, requires a finding that the defendant has performed some type of affirmative conduct which allows or promotes the transaction of business within the forum state.” Doe v. Unocal Corp., 248 F.3d 915, 924 (9th Cir. 2001) (quotations and citations omitted). The Supreme Court explained in Burger King:

[W]e have emphasized the need for a highly realistic approach that recognizes that a contract is ordinarily an intermediate step to serving to tie up business negotiations with future consequences which themselves are the real object of the business transaction. It is these factors - prior negotiations and contemplated future consequences, along with the terms of the contract and the parties' actual course of dealing - that must be evaluated in determining whether the defendant purposefully established minimum contacts within the forum.

Burger King, 471 U.S. at 478-479 (quotations and citations omitted).

         The Court finds that Plaintiffs have made a prima facie showing that the individual Defendants purposely availed themselves of the privilege of conducting activities in Montana. Plaintiffs pled in their Complaint that the individual Defendants “agreed with Plaintiffs to pay their bill in timely installments and to also personally guaranty the amounts owed by [Fluids].” (Doc. 1-1 at ¶ 33.) The affidavits of Oakland and Ebel support this allegation, and further establish that Buckhorn would have denied any further waste disposal in Montana without the individual Defendants' assurances and personal guaranty. (Doc. 17-1 at ¶¶ 16, 19).

         In their opening brief, Defendants concede that Plaintiffs “allege certain ‘oral contracts' by certain Defendants.” (Doc. 7 at 12, n. 2.) But they characterize these allegations as “factually vacuous, ” and do not address them at any length, other than to say that oral such contracts “would not necessarily establish sufficient minimum contacts.” (Id.) After the submission of Oakland's and Ebel's affidavits with the Plaintiffs' response, the individual Defendants do not address the personal guaranty further in their reply, except for a general denial in Smith's second affidavit that such a guaranty was made. (Doc. 21-1 at ¶ 10.)

         Nevertheless, Plaintiffs need only make a prima facie showing of jurisdictional facts, and conflicting statements in the parties' affidavits must be resolved in Plaintiffs' favor. Schwarzenegger, 374 F.3d at 800. The Court must, therefore, resolve the conflicting affidavits in Plaintiffs' favor at this stage. The Court therefore assumes to be true that the individual Defendants repeatedly reassured the ...

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