Picus v. Kushner Carlson ( 2017 )

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
JON PICUS, Plaintiff/Appellant,
v.
KUSHNER CARLSON PC, Defendant/Appellee.
No. 1 CA-CV 17-0053
FILED 12-5-2017
Appeal from the Superior Court in Maricopa County
No. CV 2016-001261
The Honorable Jo Lynn Gentry, Judge
REVERSED AND REMANDED
COUNSEL
Law Offices of Kyle A. Kinney PLLC, Scottsdale
By Kyle A. Kinney
Counsel for Plaintiff/Appellant
The Entrekin Law Firm, Phoenix
By B. Lance Entrekin
Counsel for Defendant/Appellee
PICUS v. KUSHNER CARLSON
Decision of the Court
MEMORANDUM DECISION
Judge Jennifer B. Campbell delivered the decision of the Court, in which
Presiding Judge Michael J. Brown and Judge Patricia A. Orozco1 joined.
C A M P B E L L, Judge:
¶1 Jon Picus (“Picus”) appeals the superior court’s dismissal of
his complaint for lack of personal jurisdiction over an out-of-state law firm
defendant. For the following reasons, we reverse and remand.
FACTS AND PROCEDURAL BACKGROUND
¶2 According to the facts alleged in the complaint2, Picus is a
resident of Arizona. Picus first met Elizabeth Frazier (“Frazier”), a
California resident, in February or March 2015. Picus and Frazier
discovered they had similar business ideas for a website concerning the sale
and maintenance of medical equipment, and agreed to start a company
together. They founded Trilogy Imaging Partners, LLC (“Trilogy”) as a
member-managed Arizona limited liability company with its principal
place of business in Maricopa County. Picus and Frazier agreed each would
have a 50-percent membership/management interest in Trilogy.
¶3 With Picus’s approval, Frazier engaged the law firm of
Kushner Carlson, PC (“KCPC”)—a California professional corporation—to
draft Trilogy’s operating agreement in April 2015. Frazier informed Picus
that KCPC had represented her in a previous personal matter, but neither
Frazier nor KCPC disclosed the full extent of the past representation or
relationship. KCPC drafted Trilogy’s operating agreement, which specified
it “shall be governed by the laws of the State of Arizona” and that venue
1The Honorable Patricia A. Orozco, retired Judge of the Arizona
Court of Appeals, Division One, has been authorized to sit in this matter
pursuant to Article VI, Section 3 of the Arizona Constitution.
2 A plaintiff must allege facts in the complaint supporting personal
jurisdiction; if the plaintiff makes a prima facie showing of jurisdiction, the
defendant has the burden of rebuttal, although any contradictions must be
resolved in favor of the plaintiff. In re. Cons. Zicam Prod. Liab. Cases, 212 Ariz.
85, 89-90, ¶ 8 (App. 2006).
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Decision of the Court
for any action arising out of a dispute from the agreement “shall be in the
County of Maricopa, State of Arizona.”
¶4 In August 2015, Frazier arranged for KCPC to prepare a
retainer agreement between KCPC and Trilogy. The agreement states that
it is “made by and between Kushner Carlson . . . and Trilogy Imaging
Partners, LLC” as “Client” to provide “[g]eneral corporate representation.”
It provides that “Client agrees to pay for all costs and expenses paid or
owed by Client.” The agreement further provides that jurisdiction and
venue of any non-fee related dispute between KCPC and Trilogy shall be in
Orange County, California. The retainer agreement was only signed by
Frazier, who did so “on behalf of Trilogy Imaging Partners, LLC.” KCPC
never offered Picus a conflict waiver addressing any past or present
representation of Frazier, nor did it inform him that no KCPC attorney was
licensed to practice law in Arizona.
¶5 Picus and Frazier’s business relationship began to deteriorate.
Picus alleges that, beginning shortly after Trilogy’s formation, Frazier
started mismanaging company funds and his own efforts generated most
of Trilogy’s revenue.
¶6 In November 2015, Frazier demanded sole management over
Trilogy. Shortly thereafter, a KCPC attorney provided legal advice, based
on Arizona law, about restructuring the company. Frazier wanted to
procure day-to-day management authority of Trilogy, and while Picus was
open to granting Frazier the type of authority typically given to a chief
operating officer, he was not agreeable to relinquishing his own
management interest. The KCPC attorney advised that this management
arrangement could be accomplished only by changing the structure of the
partnership from member-managed to manager-managed, which would
have put Frazier in complete control. Frazier instructed KCPC to prepare a
proposed amended operating agreement stripping Picus of his
management authority and changing the jurisdiction and venue in the
event of a dispute from Arizona to Orange County, California. Picus
refused to sign the proposed amended operating agreement.
¶7 Picus and Frazier’s relationship continued to deteriorate. In
January 2016, Frazier instructed KCPC to prepare a buyout offer to Picus
on her behalf, but Picus rejected the offer. In February 2016, KCPC sent a
letter to Picus demanding he sell his membership interest to Frazier or face
litigation. In this letter, KCPC represented itself as “general corporate
counsel for Trilogy Imaging Partners, LLC.”
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PICUS v. KUSHNER CARLSON
Decision of the Court
¶8 In February 2016, Picus filed a complaint in Arizona against
both Frazier and KCPC. The complaint alleged claims of breach of contract,
breach of fiduciary duty, and breach of covenant of good faith and fair
dealing against Frazier, and claims of aiding and abetting, breach of
fiduciary duty, and malpractice against KCPC. Pursuant to a settlement
agreement, Frazier was dismissed from the case. KCPC filed a motion to
dismiss Picus’s claims in August 2016 for lack of personal jurisdiction. The
superior court found that Picus could not make a showing of the necessary
connection between KCPC and Arizona to establish personal jurisdiction,
and granted KCPC’s motion to dismiss Picus’s claims without prejudice.
DISCUSSION
¶9 Arizona courts may exercise personal jurisdiction to the
greatest extent allowed by the United States Constitution. Ariz. R. Civ. P.
4.2(a); Planning Grp. of Scottsdale, LLC v. Lake Mathews Mineral Properties,
Ltd., 226 Ariz. 262, 265, ¶ 12 (2011). Under the Due Process Clause of the
Fourteenth Amendment, personal jurisdiction may be either general or
specific, Planning Grp., 262 Ariz. at 265, ¶ 13, but always requires a fact-
intensive inquiry to determine whether its exercise comports with
traditional notions of “fair play and substantial justice,” Williams v. Lakeview
Co., 199 Ariz. 1, 3-4, ¶ 8 (2000) (citations omitted). A state may exercise
general jurisdiction over its own citizens and “over non-resident
corporations whose activities in the state are systematic and continuous.”
Planning Grp., 226 Ariz. at 265, ¶ 13 (citations omitted). A state may exercise
specific jurisdiction “over a defendant who has sufficient contact with the
state to make the exercise of jurisdiction reasonable and just with respect to
that claim.” Id. (citation omitted). Picus argues that Arizona has specific
personal jurisdiction over KCPC.
¶10 Specific jurisdiction over an out-of-state defendant is
appropriate when that defendant has “minimum contacts” with the forum
state. World-Wide Volkswagen Corp. v. Woodsen, 444 U.S. 286, 291 (1980).
Minimum contacts exist when (1) the defendant has purposefully availed
itself of the privilege of conducting business in Arizona, (2) the claim results
or arises out of the defendant’s activities in Arizona, and (3) it is reasonable
for the forum state to exercise jurisdiction over the defendant. Austin v.
CrystalTech Web Hosting, 211 Ariz. 569, 574, ¶ 18 (App. 2005); see also Beverage
v. Pullman & Comley, LLC, 232 Ariz. 414, 417 ¶ 9 (App. 2013), aff’d as modified,
234 Ariz. 1 (2014).
¶11 We view the facts alleged in the complaint in the light most
favorable to the plaintiff, but review de novo the superior court’s dismissal
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for lack of personal jurisdiction. Rollin v. William V. Frankel & Co., Inc., 196
Ariz. 350, 352, ¶ 5 (App. 2000) (citation omitted).
I. Purposeful Availment
¶12 Through its interpretation of federal case law, the Arizona
Supreme Court has articulated how to evaluate the first prong of the
specific-jurisdiction analysis, purposeful availment: “Considering all of the
contacts between the defendants and the forum state, did those defendants
engage in purposeful conduct for which they could reasonably expect to be
haled into that state’s courts with respect to that conduct?” Planning Grp.,
226 Ariz. at 268, ¶ 25. The requirement of purposeful availment “ensures
that a defendant will not be haled into a jurisdiction solely as a result of
random, fortuitous, or attenuated contacts, . . . or of the unilateral activity
of another party or a third person.” Batton v. Tenn. Farmers Mut. Ins. Co., 153
Ariz. 268, 271 (1987) (citations omitted).
¶13 In Planning Group, a California limited partnership sought
investment capital for a new mining operation from an Arizona limited
liability company. 226 Ariz. at 264, ¶ 2. In soliciting the Arizona LLC’s
investment, the California LP sent it numerous letters, email, faxes, and
reports, and participated in several telephone calls with its representatives
located in Arizona. Id. at 268-69, ¶ 28. Although the California LP had no
physical presence in Arizona, the supreme court held that these actions
constituted purposeful direction into Arizona’s specific jurisdiction. Id. at
268-69, ¶¶ 28-31.
¶14 By contrast, the supreme court also found that a second
company involved in the negotiations between the California LP and the
Arizona LLC, had not purposefully directed its dealings into Arizona. Id. at
271, ¶ 40. The second company had prepared a due diligence report
detailing the mining project. Id. at 264, 271, ¶¶ 4, 40. Even though the second
company was a stakeholder in the project and would profit from the
Arizona LLC’s investment, id. at 264-65, ¶ 5, the court noted that it is “not
enough that a defendant know that he is dealing with an Arizona resident
then located in another state; the requisite activity must instead be
purposefully directed at the forum.” Id. at 271, ¶ 41. Merely preparing and
circulating the report with no knowledge that it would reach Arizona was
insufficient for Arizona to exercise specific jurisdiction over the second
company. Id. at 271, ¶¶ 40-41.
¶15 This court has applied the minimum-contacts principles
articulated in Planning Group to an out-of-state law firm in Beverage. 232
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Ariz. 414. In Beverage, we held Arizona had personal jurisdiction over a
Connecticut law firm that issued an opinion letter to an Arizona client. Id.
at 416, ¶ 4. The law firm was organized and located in Connecticut and had
neither an office nor any attorneys licensed to practice in Arizona. Id. at 416,
¶ 2. The law firm had the client sign a representation letter formalizing the
attorney-client relationship, then prepared a tax opinion letter concerning
the legality of a tax-shelter transaction the client had completed. Id. at 416,
¶¶ 4-5. The law firm accepted a telephone call from the client’s Arizona
agent, sent promotional materials about the firm to the client’s Arizona
agent, and affirmatively agreed to represent the client. Id. at 417, ¶ 11. In
the course of that representation, the law firm analyzed the legality of the
tax-shelter transaction, and then drafted an opinion letter to the client in
Arizona knowing the client would rely on it in filing his taxes. Id. This court
held the client had offered sufficient evidence that the law firm had
engaged in “purposeful conduct for which [it] reasonably could expect to
be haled into an Arizona court.” Id. at 417, ¶ 12.
¶16 Much like the law firm in Beverage, we find that KCPC
purposefully directed its activities into Arizona. KCPC knew that Trilogy
was an Arizona LLC, having drafted the company’s original operating
agreement. KCPC entered into an attorney-client relationship with Trilogy
by signing a retainer agreement to provide “general corporate
representation” for and to be paid by Trilogy. While retained to provide
this “general corporate representation,” KCPC sent a demand letter to
Picus, a managing member of Trilogy, in Arizona. The letter demanded
Picus accept the buyout agreement—which KCPC also prepared—and still
represented KCPC as “general corporate counsel” for Trilogy.
¶17 These contacts were not merely random, fortuitous,
attenuated, or the result of unilateral activity of another party, supra ¶ 12.
Even if KCPC performed all its legal research and writing in California, and
none of its attorneys ever set foot in Arizona, it provided advice on
restructuring the company based on Arizona law. KCPC drafted the
Arizona LLC’s operating agreement, signed a retainer agreement to advise
the Arizona company, and prepared a buyout agreement giving
management authority to one member over the other. In doing so, it
repeatedly held itself out as acting on behalf of Trilogy, an Arizona LLC.
Even if, as KCPC posits, it was truly acting on behalf of Frazier, KCPC
would have been acting in conflict with its retainer agreement with Trilogy
and did not endeavor to make that clear to Picus.
¶18 At this preliminary stage in the proceedings, we view the facts
in the light most favorable to Picus. A. Uberti and C. v. Leonardo, 181 Ariz.
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565, 566 (1995). Considering the aggregate of KCPC’s contacts with
Arizona, we therefore find that KCPC engaged in purposeful conduct for
which it could reasonably expect to be haled into Arizona’s courts.
II. Defendant’s Activities and Reasonableness
¶19 Specific jurisdiction also requires the plaintiff’s claim to arise
out of the defendant’s activities in Arizona. Austin, 211 Ariz. at 574, ¶ 18.
Picus’s complaint seeks damages arising from KCPC’s corporate
representation of Trilogy, alleging the representation favored Frazier over
the best interests of Trilogy itself and that KCPC failed to disclose any
conflict of interest. KCPC’s activities in Arizona—i.e., undertaking general
representation of an Arizona LLC and demanding that a managing member
sell his interest while purporting to act in the capacity of corporate
counsel—are at the root of Picus’s claims of aiding and abetting, breach of
fiduciary duty, and malpractice.
¶20 Finally, exercise of jurisdiction over an out-of-state defendant
must be reasonable. Id. Although the determination of reasonableness
depends upon the evaluation of many factors, generally the existence of
sufficient contacts between the defendant and forum state giving rise to the
suit will justify the exercise of jurisdiction. Planning Grp., 226 Ariz. at 270,
¶ 37. A defendant that has purposefully directed its activities toward the
forum state “must present a compelling case that the presence of some other
considerations would render jurisdiction unreasonable.” Burger King Corp.
v. Rudzewicz, 471 U.S. 462, 477 (1985). Here, the exercise of specific
jurisdiction over KCPC is not unreasonable, and KCPC offers no argument
or evidence to the contrary.
CONCLUSION
¶21 For the foregoing reasons, we reverse the decision of the
superior court and remand for proceedings consistent with this decision.
AMY M. WOOD • Clerk of the Court
FILED: AA
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