# Stanz v. Brown

> District Court, S.D. California · June 8, 2023

URL: https://www.frixlaw.com/law-library/cases/10087745

## Case

- **Court:** District Court, S.D. California
- **Decided:** June 8, 2023
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

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8 UNITED STATES DISTRICT COURT
9 SOUTHERN DISTRICT OF CALIFORNIA
10
11 AARON STANZ, individually and on Case No.: 22-cv-1164-GPC
behalf of JET GENIUS HOLDINGS,
12
INC. as shareholder thereto, ORDER:
13
Plaintiff,
(1) GRANTING REQUESTS FOR
14
v. JUDICIAL NOTICE;
15
JORDAN BROWN, individually and in
(2) GRANTING DEFENDANTS’
16 his capacity as CEO, Director, and
MOTIONS TO DISMISS; AND
Chairman of co-defendants JET GENIUS
17
HOLDINGS, INC. and JET GENIUS
3) GRANTING PLAINTIFF LEAVE
18 FLORIDA HOLDINGS, INC.; JET
TO AMEND
GENIUS HOLDINGS, INC.; JET
19
GENIUS FLORIDA HOLDINGS, INC.;
[ECF Nos. 30, 31, 33, 34, 38]
20 C3 JETS LLC; BOWMAN AVIATION
LLC; JET AGENCY GLOBAL LLC; C3
21
LIMO LLC; BROWN FAMILY TRUST;
22 and DOES 1-20,
23 Defendants.
24
25 On March 2, 2023, Plaintiff Aaron Stanz (“Plaintiff” or “Stanz”) filed his First
26 Amended Complaint (“FAC”) against Defendants Jordan Brown, individually and on
27
1 behalf of Jet Genius Holdings, Inc. and Jet Genius Florida Holdings, Inc. as a
2 shareholder; Jet Genius Holdings, Inc.; Jet Genius Florida Holdings, Inc.; C3jets LLC; Jet
3 Agency Global LLC; C3 Limo LLC; Bowman Aviation, Inc.; Brown Family Trust; and
4 Does 1-20. ECF No. 25 (“FAC” or “Compl.”).
5 All Defendants subsequently filed Motions to Dismiss. ECF Nos. 30, 31, 33, 34,
6 38. Plaintiff filed Oppositions, (ECF Nos. 41, 46, 47, 55, 56),1 and Defendants filed
7 Replies, (ECF Nos. 48, 52, 53, 58, 59). A hearing was held on the motions on May 26,
8 2023 and the matter was taken under submission. For the reasons that follow, the Court
9 GRANTS Defendants’ Motions to Dismiss with leave to amend.
10 FACTUAL BACKGROUND
11 Plaintiff’s action stems from a years-long business relationship with Defendant
12 Jordan Brown in the private aviation industry in which Federal Excise Tax (“FET”) was
13 collected from clients but not remitted to the IRS as required by law. Compl. ⁋ 1. Plaintiff
14 is the co-founder, Chief Technology Officer, major shareholder, and former director of
15 Jet Genius Holdings and major shareholder of Jet Genius Florida Holdings. Compl. ⁋ 8.
16 Defendants Jet Genius Holdings, Inc. (“JGH”) and Jet Genius Florida Holdings, Inc.
17 (“JGFH”) are air charter brokers that match clients with available air charter operators.
18 Compl. ⁋⁋ 9, 10. Plaintiff alleges Defendant Jet Agency Global LLC (“JAG”) is the same
19 company as JGH and JGFH. Compl. ⁋ 14. Defendants JGH, JGFH, and JAG operate
20 together as “Charter Flight Group” (“CFG”). Compl., Exhibit E at 5.
21
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1 Plaintiff’s counsel is reminded of and encouraged to consult the Local Rules prior to
24 any future filings that may occur in this Court. Plaintiff’s counsel has struggled with rules
non-compliance throughout the course of this litigation. Relevant to the pending Motions
25
and Oppositions, Plaintiff is reminded of Local Rule 5.1(a) (type no smaller than 14-point
26 font) and 7.1(h) (briefs exceeding 10 pages must have table of contents and table of
authorities), among others.
27
1 Defendant C3jets LLC (“C3jets”) operates private aircraft for commercial purposes
2 and is believed by Plaintiff to be engaged in various aircraft lease or lease-purchase
3 agreements. Compl. ⁋ 12. Defendant Bowman Aviation, Inc. (“Bowman Aviation”)
4 performs contract services for JGH and JGFH. Compl. ⁋ 13. Defendant C3 Limo LLC
5 (“C3 Limo”) is a company Plaintiff alleges is managed by various members of Brown’s
6 family and uses JGH’s and JGFH’s company address and official email address to
7 conduct business. Compl. ⁋ 15. Plaintiff alleges Defendant Brown Family Trust is a trust
8 listed on JGFH share certificates which were improperly assigned to the trust. Compl. ⁋
9 16. Last, Defendant Jordan Brown (“Brown”) is the Chairman and CEO of JGH and
10 JGFH, and allegedly the sole member of C3jets, JAG, Bowman Aviation, and, along with
11 his wife, is a trustee of the Brown Family Trust. Compl. ⁋⁋ 11, 12.
12 JGH was formed between Plaintiff Stanz, Defendant Brown, and non-party
13 Alexander Wolf (“Wolf”) in California in 2016 to offer a “technical business-to-business
14 logistics platform servicing the private aviation industry.” Compl. ⁋ 22. Originally, Stanz
15 and Brown were each 49.5% shareholders. Compl. ⁋ 22. Brown was, and remains, CEO,
16 and Stanz was Chief Technology Officer and states he used his technical expertise to
17 create JGH’s “GRID” logistics platform, which “significantly decrease[d] time and costs
18 associated with buy-side and sell-side actions required to complete complex transactions
19 for brokering and provisioning a chartered aircraft, at all stages of a transaction,”
20 including lead collection, client contact, quoting aircraft options, generating and sending
21 contracts, provisioning an aircraft, and monitoring staff and resources. Compl. ⁋ 23.
22 Plaintiff essentially alleges that, beginning in 2017, Defendants misappropriated
23 Plaintiff’s intellectual property in a scheme to charge clients for FET, which Defendants
24 represented to clients would be collected and remitted to the IRS as required by law, but
25 instead Defendant Brown used this money to enrich his lifestyle and further the
26
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1 enterprise’s interests. Compl. ⁋ 95.2 Plaintiff states that JGH and JGFH, operating as air
2 charter brokers, are required pursuant to 26 U.S.C. § 4281(a) to pay a FET of 7.5% of the
3 transportation price of air travel as well as a flat fee for each “domestic segment” of
4 travel. Compl. ⁋⁋ 70-71. Plaintiff states that air charter brokers are required to collect the
5 FET from clients, hold this money in trust on their behalf, and remit the FET to the IRS
6 on a regular basis. Compl. ⁋ 71. Plaintiff states a failure to pay FET is a felony criminal
7 violation under 26 U.S.C. § 7202. Compl. ⁋ 70.
8 Plaintiff states Wolf informed him in summer 2018 that JGH had unpaid FET,
9 despite having had adequate capital to meet the IRS demand. Compl. ⁋ 24. Plaintiff
10 alleges the unpaid FET at this time was approximately $935,000, but has since
11 “ballooned to over $6,721,350 . . . .” Compl. ⁋ 24. Plaintiff says that after discovering
12 this, he sought to have JGH’s financials audited at an August 22, 2018 shareholder
13 meeting, but that Brown “admonished Stanz and Shareholder Wolf for bringing up the
14 audit issue, and [stated] that this criminal act was his [(Brown’s)] decision alone . . . .”
15 Compl. ⁋ 25. Plaintiff states the shareholders, “at the demand of Defendant Brown,”
16 voted in favor of the audit firm favored by Brown. Compl. ⁋ 26. Plaintiff alleges the audit
17 was later abandoned. Compl. ⁋ 31.
18 The FAC alleges that after Brown was confronted about the unpaid FET, “he
19 became verbally abusive and hostile, and threatened to disrupt business to the point of
20 bankrupting the company.” Compl. ⁋ 28. Stanz became worried that if Brown bankrupted
21 the company, JGH shareholders, including himself, could become personally liable to the
22 IRS for the unpaid FET. Compl. ⁋ 28. Plaintiff alleges that throughout the audit
23 negotiations and after an attempt by shareholders to “wrest control of JGH from Brown,”
24

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26 2 Plaintiffs FAC at paragraphs 88(a)-(q) identify seventeen instances in which Plaintiff
alleges Defendants collects FET from clients and failed to remit. Compl. ⁋⁋ 88(a)-(q).
27
1 Plaintiff began discussions with JGH to modify the corporate structure in an attempt to
2 protect shareholders and address the FET. Compl. ⁋ 29. Stanz alleges that:
3 Under duress, on November 7, 2018, [he] entered into the
Shareholder Agreement . . . and its contemporaneously
4
executed assignment of intellectual property by Plaintiff to
5 JGH wherein Stanz would relinquish almost half his
shares (lowering him from a 49.5% shareholder to a 25%
6
shareholder) on the condition that revenue would be used
7 to pay the taxes owed to the IRS, that valuable intellectual
property including [GRID] would not be transferred
8
without property documentation or compensation to
9 Plaintiff, and that of the 24.5% share reduction by
Plaintiff, 10% of the shares would be allocated for a
10
properly constructed employee equity incentive plan. As
11 part of the Shareholder Agreement, Brown required
Plaintiff Stanz and Shareholder Wolf to no longer serve on
12
the Board of Directors, under the false promise by Brown
13 and JGH to fill the vacancies with two new independent
Directors.
14
Compl. ⁋ 29 (collectively the “2018 Agreement”); ECF No. 29-1 (Shareholder
15
Agreement); ECF No. 29-2 (Intellectual Property Assignment).
16
Plaintiff states that after the 2018 Agreement, Brown, in violation of JGH Bylaws
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and California law, remained sole Director of JGH. Compl. ⁋ 30. The FAC alleges that
18
Brown at this point “structured JGH to assist in his architecture of a criminal enterprise to
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enrich himself and his family.” Compl. ⁋ 31. Plaintiff states Brown “began directing the
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agents and attorneys of JGH to improperly establish subsidiaries and third-party
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companies to further dilute JGH shareholder value by misappropriating the JGH Platform
22
including the GRID . . . .” Compl. ⁋ 32. Brown is alleged to have used these new
23
companies to ignore his FET obligations and hide assets from the IRS. Compl. ⁋ 33. On
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August 27, 2019, Brown is alleged to have improperly incorporated JGFH in Florida to
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serve as a shell company by which Brown could create a “new entity which would have
26
absolutely no oversight or accountability to the shareholders of JGH.” Compl. ⁋ 34.
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1 Plaintiff states he received a stock certficiate for 959,615 Class A shares of JGFH on
2 April 26, 2022. Compl. ⁋ 51.
3 Plaintiff alleges all of this was done in violation of the 2018 Agreement, which
4 stated Brown would work toward a settlement with the IRS. Compl. ⁋ 32. Instead, the
5 FAC alleges the business continued to generate over $125,000,000 in revenue and the
6 unpaid FET grew to nearly $7,000,000. Compl. ⁋ 33. In addition, Stanz states the
7 employee equity incentive plan, also agreed to the in 2018 Agreement, never materialized
8 and instead Brown allocated shareholdings to the Brown Family Trust. Compl. ⁋ 36.
9 Further, the FAC alleges that Plaintiff’s intellectual property, including GRID, was
10 moved in a series of “undocumented sham transactions” from JGH to JGFH in violation
11 of the 2018 Agreement and Plaintiff was never awarded compensation for such
12 transactions. Compl. ⁋ 38. Plaintiff alleges that Defendant Brown continued to create
13 additional schemes “by making millions of dollars of fraudulent undocumented ‘loans’ to
14 Defendants Brown individually, C3 Jets, JAG, C3 Limo, and Bowman Aviation . . . .”
15 Compl. ⁋ 40 (collectively known as the “undocumented loans”).3 Plaintiff alleges these
16 undocumented loans, absent terms payback terms, were unauthorized disbursements
17 without benefit to JGH or JGFH shareholders. Compl. ⁋ 53.
18 Plaintiff states that in June 2021, Defendants Brown and JGFH approached
19 Plaintiff with a new shareholder agreement that would give Plaintiff JGFH shareholdings
20 and require Plaintiff’s indemnification of Brown for actions in violation of his fiduciary
21 duties, for malfeasance, for fraud, and for failure to pay FET. Compl. ⁋ 42 (the “2021
22 Agreement”) (it does not appear to the Court that Plaintiff signed this agreement).
23

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3 The FAC states Plaintiff discovered the existence of Defendant C3 Limo in May 2022,
25
which uses the JGFH and JGH company address as its registered office and “continues to
26 utilize the JGH Intellectual Property.” Compl. ⁋ 52. Plaintiff also believes C3 Limo
received an undocumented loan from JGFH and JGH. Compl. ⁋ 53.
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1 In October 2021, the IRS contacted Plaintiff to inform him of his individual
2 responsibility for the $1,300,000 in unpaid FET. Compl. ⁋ 43. Plaintiff claims the IRS
3 was holding him personally responsible because his name was listed on a bank card he
4 states he only signed under duress. Compl. ⁋⁋ 43-44. Plaintiff alleges he confronted
5 Brown about the unpaid FET, and Brown admitted on November 4, 2021 that he was the
6 one responsible and that he could “raise the money tomorrow” to address the IRS debt.
7 Compl. ⁋ 46.
8 Plaintiff states that in March 2022, the IRS “increased [its] outreach . . . and
9 informed him that the IRS intended to individually assess [Plaintiff] for Defendant JGH’s
10 unpaid FET.” Compl. ⁋ 50. At this point, Plaintiff alleges he approached Defendants
11 Brown, JGH, and JGFH with a proposal from the IRS to make a small payment of
12 $125,000, which would allow the IRS to defer its individual assessment against Stanz.
13 Compl. ⁋ 50. Brown failed to respond to this proposal or reimburse him for his legal
14 expenses, as Stanz states is required by JGH Bylaws. Compl. ⁋ 50.
15 On May 3, 2022, the IRS notified Plaintiff that it had assessed him for $1.3 million
16 of the unpaid FET. Compl. ⁋ 54. Plaintiff states that at this point, he proposed to
17 Defendants that a possible solution was to merge Defendants JGH, JGFH, C3 Jets, and
18 JAG. Compl. ⁋ 54. Plaintiff negotiated an extension with the IRS until August 8, 2022 to
19 allow time for the proposed merger. Compl. ⁋ 56. Proposed merger drafts and balance
20 sheets were sent to Plaintiff, Shareholder Wolf, and all Defendants, and it was at this
21 point that Plaintiff noticed “more than $10,000,000 of the balance sheet items . . . were
22 not addressed in the proposed merger” and included millions of dollars in undocumented
23 loans. Compl. ⁋⁋ 55-57.
24 Plaintiff states he later learned that Brown further harmed the business when he
25 threatened the life of the CEO of Executive Charter Services (“ECS”) in late July 2022.
26 Compl. ⁋⁋ 62, 65. Plaintiff states that there had been talks of ECS acquiring JGH and
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1 satisfying the FET debt, and that as a result of Brown’s threats, the deal fell through.
2 Compl. ⁋⁋ 62-66.
3 On July 29, 2022, the IRS informed Plaintiff that it would accept a payment of
4 $100,000 from Defendants in exchange for not filing a lien against Plaintiff. Compl. ⁋ 61.
5 Plaintiff informed Defendant Brown of this, but he has yet to comply. Compl. ⁋ 62.
6 Plaintiff filed his initial Complaint in this Court on August 8, 2022. ECF No. 1. Plaintiff
7 later filed a Motion to Amend, (ECF No. 16), which this Court granted, (ECF No. 24).
8 On March 3, 2023, Plaintiff filed the First Amended Complaint. ECF No. 25. Plaintiff
9 alleges two causes of action pursuant to federal law: (1) violation of RICO, 18 U.S.C. §
10 1962; and (2) violation of the Defend Trade Secrets Act, 18 U.S.C. § 1836(b)(1). Plaintiff
11 alleges eight state law causes of action: (1) violation of the California Uniform Trade
12 Secrets Act; (2) breach of contract; (3) breach of fiduciary duty; (4) fraud; (5) conspiracy;
13 (6) accounting; (7) unjust enrichment; and (8) equitable indemnity. Compl. ⁋⁋ 92-220.
14 Plaintiff seeks damages, attorneys’ fees, and injunctive relief. Compl. at 74-81.
15 LEGAL STANDARDS
16 Defendants’ Motions to Dismiss argue that Plaintiff’s Complaint should be
17 dismissed under Federal Rule of Civil Procedure (“Rule”) 12(b)(1) for lack of subject
18 matter jurisdiction, Rule 12(b)(6) for failure to state a claim, and Rule 12(b)(7) for failure
19 to join an indispensable party. Some Defendants also move under Rule 12(f) to strike
20 portions of Plaintiff’s FAC.
21 I. Federal Rule of Civil Procedure 12(b)(1)
22 Rule 12(b)(1) permits dismissal of a claim for lack of subject matter jurisdiction.
23 Fed. R. Civ. P. 12(b)(1). Dismissal for lack of subject matter jurisdiction should be
24 granted if the complaint, considered in its entirety, fails to allege facts sufficient to
25 establish subject matter jurisdiction. In re Dynamic Random Access Memory (DRAM)
26 Antitrust Litig., 546 F.3d 981, 984-85 (9th Cir. 2008). The Plaintiff bears the burden of
27
1 proving that a federal court has subject matter jurisdiction. Spokeo, Inc. v. Robins, 578
2 U.S. 330, 338 (2016); see also McCauley v. Ford Motor Co., 264 F.3d 952, 957 (9th Cir.
3 2001) (citing McNutt General Motors Acceptance Corp., 298 U.S. 178, 189 (1936)).
4 A Rule 12(b)(1) attack may be facial or factual. Safe Air for Everyone v. Meyer,
5 373 F.3d 1035, 1039 (9th Cir. 2004). In a facial attack, defendant asserts that the
6 allegations in the complaint are insufficient to prove federal subject matter jurisdiction.
7 Id. The court resolves a facial attack as a Rule 12(b)(6) motion to dismiss—the court
8 accepts the factual allegations in the complaint as true and determines if the allegations
9 are sufficient to properly invoke federal jurisdiction. Leite v. Crane Co., 749 F.3d 1117,
10 1121 (9th Cir. 2014). In a factual attack, defendant disputes the very truth of the factual
11 allegations themselves that are said to invoke subject matter jurisdiction. Safe Air for
12 Everyone, 373 F.3d at 1039. To resolve a factual attack, the court is permitted to review
13 evidence beyond the complaint. Id.
14 Defendants do not appear to dispute the truthfulness of the underlying allegations,
15 simply that they do not give rise to federal subject matter jurisdiction. Thus, this is a
16 facial attack, and the Court will determine whether the allegations in Plaintiff’s
17 Complaint, taken as true, sufficiently support a finding of subject matter jurisdiction.
18 II. Federal Rule of Civil Procedure 12(b)(6)
19 Rule 12(b)(6) permits dismissal for failure to state a claim upon which relief can be
20 granted. Fed. R. Civ. P. 12(b)(6). Rule 8(a)(2) states that a pleading must contain “a
21 short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.
22 R. Civ. P. 8(a)(2). A plaintiff is not required to provide “detailed factual allegations,” but
23 the plaintiff must plead sufficient facts that, if accepted as true, “raise a right to relief
24 above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 545 (2007). A
25 complaint will survive a motion to dismiss when it contains enough facts to “state a claim
26 to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting
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1 Twombly, 550 U.S. at 570). A claim is plausible when the factual allegations permit “the
2 court to draw the reasonable inference that the defendant is liable for the misconduct
3 charged.” Iqbal, 556 U.S. at 678. Further, under Rule 9(b), when the complaint includes
4 allegations of fraud, a party must “state with particularity the circumstances constituting
5 fraud or mistake.” Fed. R. Civ. P. 9(b).
6 The Court is not required to accept as true “allegations that are merely conclusory,
7 unwarranted deductions of fact, or unreasonable inferences.” In re Gilead Scis. Sec.
8 Litig., 536 F.3d 1049, 1055 (9th Cir. 2008). “Threadbare recitals of the elements of a
9 cause of action, supported by mere conclusory statements, do not suffice.” Iqbal, 556
10 U.S. at 678.
11 III. Federal Rule of Civil Procedure 12(b)(7)
12 Under Rule 12(b)(7), a defendant may move to dismiss for a failure to join a party
13 under Rule 19. Fed. R. Civ. P. 12(b)(7). A Rule 19 motion poses three questions: (1)
14 whether the nonparty should be joined under Rule 19(a); (2) if the nonparty is necessary
15 under Rule 19(a), whether it is feasible to order the nonparty be joined; and (3) if joinder
16 is not feasible, whether the case can proceed without the nonparty, or whether the
17 nonparty is an “indispensable party” such that the action must be dismissed. Upper Deck
18 Co. v. Flores, 569 F. Supp. 3d 1050, 1070 (S.D. Cal. 2021) (citing EEOC V. Peabody W.
19 Coal Co., 400 F.3d 774, 779 (9th Cir. 2005)).
20 IV. Federal Rule of Civil Procedure 12(f)
21 Rule 12(f) states that a court “may strike from a pleading an insufficient defense or
22 any redundant, immaterial, impertinent, or scandalous matter.” Fed. R. Civ. P. 12(f).
23 “The function of a 12(f) motion to strike is to avoid the expenditure of time and money
24 that must arise from litigating spurious issues by dispensing with those issues prior to
25 trial . . . .” Whittlestone, Inc. v. Handi-Craft Co., 618 F.3d 970, 973 (9th Cir. 2010).
26 “[M]otions to strike should not be granted unless it is clear that the matter to be stricken
27
1 could have no possible bearing on the subject matter of the litigation.” Colaprico v. Sun
2 Microsys., Inc., 758 F. Supp. 1335, 1339 (N.D. Cal. 1991).
3 REQUESTS FOR JUDICIAL NOTICE
4 Defendant JGFH filed a Request for Judicial Notice in support of its Motion to
5 Dismiss. ECF No. 30-3. JGFH requests judicial notice of the following documents:
6 1. The initial Complaint, filed in this action, on August 8, 2022 by Plaintiff Aaron
7 Stanz.
8 2. The First Amended Complaint, filed in this action, on March 3, 2023 by Plaintiff
9 Aaron Stanz.
10 Defendants Jordan Brown; JGH; C3 jets; Bowman Aviation; JAG; and C3 Limo
11 request judicial notice of the following documents:
12 1. Case docket of case filed on May 21, 2018 in the Southern District of California by
13 the Securities and Exchange Commission (“SEC”) against Bud Genius, Inc. and
14 Aaron Stanz, Case No. 18-cv-1005.
15 2. Complaint filed in U.S. SEC v. Bud Genius, Inc., et al., S.D. Cal., Case No. 18-cv-
16 1005.
17 3. Consent of Aaron Stanz filed on May 22, 2018 in U.S. SEC v. Bud Genius, Inc., et
18 al., S.D. Cal., Case No. 18-cv-1005.
19 4. Consent of Bud Genius, Inc. filed on May 22, 2018 in U.S. SEC v. Bud Genius,
20 Inc., et al., S.D. Cal., Case No. 18-cv-1005.
21 5. Final Judgment as to Aaron Stanz filed on May 24, 2018 in U.S. SEC v. Bud
22 Genius, Inc., et al., S.D. Cal., Case No. 18-cv-1005.
23 6. Final Judgment as to Bud Genius, Inc. filed on May 24, 2018 in U.S. SEC v. Bud
24 Genius, Inc., et al., S.D. Cal., Case No. 18-cv-1005.
25 7. Certified copy of the Complaint for Injunctive and Other Relief filed by the State
26 of Illinois on February 10, 2009 against U.S. Credit Find, Inc. and Aaron Stanz in
27
1 Case No. 2009-CH-0021, before the State of Illinois in the Circuit Court of the
2 Seventh Judicial Circuit, Sangamon County, Illinois.
3 8. Certified copy of the Answer filed on March 9, 2009 in People of the State of
4 Illinois v. U.S. Credit Find, Inc., et al., Case No. 2009-CH-0021.
5 9. Certified copy of the Final Judgment and consent Decree filed on May 22, 2009 in
6 People of the State of Illinois v. U.S. Credit Find, Inc., et al., Case No. 2009-CH-
7 0021.
8 ECF Nos. 31-2; 33-2; 34-2; 38-2.
9 Defendants JAG, C3 Limo, and Bowman Aviation request judicial notice of two
10 additional documents:
11 1. A true and correct copy of Florida Division of Corporations Entity Details for C3
12 Limo, LLC.
13 2. A true and correct copy of Florida Division of Corporations Entity Details for
14 Bowman Aviation, Inc.
15 ECF Nos. 33-2; 34-2.
16 The Court “may judicially notice a fact that is not subject to reasonable dispute
17 because it: (1) is generally known within the trial court’s territorial jurisdiction; or (2) can
18 be accurately and readily determined from sources whose accuracy cannot reasonably be
19 questioned.” Fed. R. Evid. 201(b). Public records, including judgments, complaints, and
20 other publicly filed documents, are “proper subjects of judicial notice.” Shetty v. Cwalt,
21 Inc., 2017 WL 3394161, at *2 (N.D. Cal. Aug. 8, 2017) (citing United States v. Black,
22 482 F.3d 1035, 1041 (9th Cir. 2007)). “A court may take judicial notice of ‘matters of
23 public record’ without converting a motion to dismiss into a motion for summary
24 judgment.” Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001).
25
26
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1 Here, the documents requested for judicial notice are publicly filed records.
2 Plaintiff does not oppose Defendants’ requests for judicial notice. Accordingly, the Court
3 GRANTS the requests for judicial notice.
4 DISCUSSION
5 Defendants advance a number of arguments for why Plaintiff’s FAC should be
6 dismissed in its entirety. For the most part, the arguments overlap.
7 I. PLAINTIFF’S DERIVATIVE CLAIMS
8 Plaintiff’s FAC appears to allege causes of action individually, as well as “on
9 behalf of Jet Genius Holdings, Inc. and Jet Genius Florida Holdings, Inc. as a shareholder
10 . . . .” Compl. at 1. To the extent that Plaintiff proceeds on behalf of JGH and JGFH, the
11 Court interprets this as a derivative suit. Defendants JGH and JGFH argue Plaintiff does
12 not have standing to bring his action on behalf of JGH and JGFH shareholders because
13 Plaintiff has failed to comply with Federal Rule of Civil Procedure 23.1, California law,
14 and Florida law, which requires Plaintiff to first make a demand to the board of directors
15 prior to commencing a derivative action in court, or to plead with particularity why such
16 demand would have been futile. ECF No. 30-1 at 13 (JGFH); 38-1 at 10-12 (JGH).
17 Further confusion is created by the fact that Plaintiff’s FAC does not specify which
18 claims are derivative or direct.
19 A derivative suit allows individual shareholders to bring “‘suit to enforce a
20 corporate cause of action against officers, directors, and third parties.’” Kamen v.
21 Kemper Financial Services, Inc., 500 U.S. 90, 95 (1991) (emphasis in original) (quoting
22 Ross v. Bernhard, 396 U.S. 531, 534 (1970)). To prevent abuse, a prerequisite to a
23 derivative suit is that the shareholder demonstrate “‘that the corporation itself had refused
24 to proceed after suitable demand, unless excused by extraordinary conditions.’” Id. at 96
25 (quoting Ross, 396 U.S. at 534). This prerequisite has been codified in Rule 23.1, which
26 states in relevant parts:
27
1 (a) Prerequisites. The rule applies when one or more
shareholders or members of a corporation . . . bring a
2
derivative action to enforce a right that the corporation or
3 association may properly assert but has failed to enforce. . .
(b) Pleading Requirements. The complaint must be
4
verified and must:
5 . . .
(3) state with particularity:
6
(A) any effort by the plaintiff to obtain the desired
7 action from the directors or comparable authority
and, if necessary, from the shareholders or
8
members; and
9 (B) the reasons for not obtaining the action or not
making the effort.
10
Fed. R. Civ. P. 23.1 (a), (b)(3)(A) & (B).
11
Rule 23.1 “contemplates both the demand requirement and the possibility that
12
demand may be excused,” however, “it does not create a demand requirement of any
13
particular dimension.” Kamen, 500 U.S. at 96. Rather, a district court should look to state
14
law to determine if the futility exception to the demand requirement is met or if any
15
demand actually made on behalf of the shareholder is sufficient. Id. at 92. Here, JGFH is
16
incorporated in Florida and Florida law controls; JGH is incorporated in California and
17
California law controls. Compl. ⁋⁋ 9, 10. Plaintiff makes no allegation in the FAC that he
18
initiated pre-suit demand to either JGH or JGFH. As such, the Court will determine if
19
Plaintiff has met the standard for the futility exception under JGH’s and JGFH’s
20
respective state laws.
21
A. JGFH Demand Futility
22
Florida law requires a derivative suit complaint to be “verified and allege with
23
particularity . . . [t]he reason or reasons the shareholder did not make the effort to obtain
24
the desired action from the board of directors or comparable authority.” Fla. Stat. §
25
607.0742(2)(c) (2020). The Court finds that Plaintiff has not adequately alleged with
26
particularity why pre-suit demand on JGFH would have been futile. Plaintiff states,
27
1 “[n]otice to the Board for JGFH further was futile, as the JGH shareholders and Plaintiff
2 were not provided with executed copies of the governance documents or structure of
3 JGFH, it was incorporated without Plaintiff’s or the JGH’s shareholders’ knowledge, its
4 Board was comprised of parties unknown to Plaintiff which upon information and belief
5 is solely Brown, and Defendant Brown substituted new shareholders and classes of shares
6 within JGFH in conflict of the original structure of JGH and the Shareholder Agreement.”
7 Compl. ⁋ 37. Defendant further states demand was futile because “Plaintiff was never
8 informed he was a shareholder or that [] governance documents existed.” Compl. ⁋ 51.
9 The Court does not see how these allegations relate to demand futility. Plaintiff
10 alleges he was never given JGFH governance documents, including incorporation
11 documents, bylaws, or Board resolutions, however Plaintiff does not state he asked for
12 them, or why these documents are necessary in the first instance to his demand. Compl. ⁋
13 51. The Court is further confounded by Plaintiff’s allegation that he was not aware he
14 was a shareholder of JGFH where his FAC states that he received a stock certificate
15 representing 24.5% of JGFH Class A Shares on April 26, 2022, approximately three
16 months before filing his initial Complaint. See Compl. ⁋ 51. As such, Plaintiff has not
17 sufficiently pled demand futility as it relates to JGFH.
18 B. JGH Demand Futility
19 As to JGH, California law requires a Plaintiff “[1] allege[] in the complaint with
20 particularity plaintiff’s efforts to secure from the board such action as plaintiff desires, or
21 the reasons for not making such effort, and [2] allege[] further that plaintiff has either
22 informed the corporation or the board in writing of the ultimate facts of each cause of
23 action against each defendant or delivered to the corporation or the board a true copy of
24 the complaint which plaintiff proposes to file.” Cal. Corp. Code § 800(b)(2). Under
25 California law, “general averments that the directors were involved in a conspiracy or
26 aided and abetted the wrongful acts complained of will not suffice to show demand
27
1 futility.” Bader v. Anderson, 101 Cal. Rptr. 3d 821, 833 (Cal. Ct. App. 2009). Instead,
2 “‘the court must be apprised of facts specific to each director from which it can conclude
3 that that particular director could or could not be expected to fairly evaluate the claims of
4 the shareholder plaintiff.’” Id. (quoting Shields v. Singleton, 19 Cal. Rptr. 2d 459, 466
5 (Cal. Ct. App. 1993)).
6 The Court finds Plaintiff has not met these two requirements in § 800(b)(2).
7 Plaintiff states that “[f]ollowing the Board Coup, any effective effort which could be
8 afforded by Plaintiff or the JGH shareholders to seek recourse was futile, as Defendant
9 Brown improperly constituted the entirety of JGH’s Board . . . .” Compl. ⁋ 37. This is the
10 only explanation Plaintiff provides as to why he did not serve demand on the JGH Board
11 and is not sufficient. This statement is exactly the type of “general averment” California
12 law seeks to avoid. However, even if the Court were to find that demand would have
13 been futile, Stanz has not alleged he met the second requirement under § 800(b)(2) to
14 provide JGH, in writing, the ultimate facts of each cause of action alleged in the FAC or
15 provide the JGH Board a proposed copy of the complaint Plaintiff intended to filed.
16 Thus, the Court finds Plaintiff has not shown he met the prerequisites to bring
17 derivative claims against JGH or JGFH in this Court. Plaintiff should either initiate
18 demand on JGH and JGFH Boards or allege with further particularity why such demand
19 is futile under Florida and California law. As such, the Court DISMISSES all derivative
20 claims asserted by Plaintiff on behalf of JGH and JGFH shareholders.
21 II. PLAINTIFF’S INDIVIDUAL FEDERAL CLAIMS
22 Plaintiff also asserts his causes of action individually. Compl. at 1. Thus, the Court
23 must determine if Plaintiff has pled sufficient facts to state a claim for each cause of
24 action. Plaintiff asserts two federal causes of action: (1) violation of RICO pursuant to §§
25 1962; and (2) violation of the Defend Trade Secrets Act pursuant to § 1836(b)(1).
26 / / /
27
1 A. First Cause of Action: RICO, 18 U.S.C. § 1962
2 Pursuant to 18 U.S.C. § 1962, Plaintiff alleges Defendants associated for a
3 common purpose to misappropriate Plaintiff’s intellectual property and to “collect more
4 than $5,000,000 in charged but unpaid FET from the CFG Enterprise’s clients.” Compl. ⁋
5 93. Although Plaintiff’s FAC is difficult to follow, it appears Plaintiff pleads both 18
6 U.S.C. §1836(b), misappropriation of trade secrets, and mail and wire fraud under 18
7 U.S.C. §§1341, 1343 as predicate acts. Compl. ⁋ 93, 98. Defendants do not dispute that
8 these statutes can properly serve as predicate acts and primarily argue Plaintiff has not
9 sufficiently pled injury under civil RICO. Plaintiff appears to plead claims under 18
10 U.S.C. §§ 1962(a)-(d). The Court discusses each in turn.
11 i. 18 U.S.C. § 1962(a)
12 18 U.S.C. § 1962(a) states that “[i]t shall be unlawful for any person who has
13 received any income derived, directly or indirectly, from a pattern of racketeering activity
14 . . . to use or invest, directly or indirectly, any part of such income, or the proceeds of
15 such income . . . in . . . operation of . . . any enterprise.” The Ninth Circuit has reasoned
16 that “a plaintiff seeking civil damages for a violation of section 1962(a) must allege facts
17 tending to show that he or she was injured by the use or investment of racketeering
18 income.” Nugget Hydroelectric, L.P. v. Pac. Gas and Elec. Co., 981 F.2d 429, 437 (9th
19 Cir. 1992). A plaintiff “must include allegations of injury from the use and investment of
20 racketeering proceeds, not merely injury from the predicate acts of racketeering
21 themselves.” Sea-Land Serv., Inc. v. Atl. Pac. Intern., Inc., 57 F. Supp. 2d 1048, 1054 (D.
22 Haw. 1999).
23 Here, Plaintiff states the injuries to his reputation, intellectual property, and the
24 personal assessment by the IRS were caused by Defendants’ investment of the
25 fraudulently collected FET into the enterprise. Compl. ⁋ 112. However, the Court finds
26 these injuries are not distinct from the injuries he alleges elsewhere in the FAC and is not
27
1 distinct from the injuries he claims result from the racketeering activities themselves. See
2 Compl. ⁋⁋ 103-104, 107-108, 112-113. Thus, the Court finds Plaintiff has not sufficiently
3 pled a distinct injury resulting from the Defendants’ investment of any alleged
4 racketeering proceeds, and this claim must be DISMISSED.
5 ii. 18 U.S.C. § 1962(b)
6 18 U.S.C. § 1962(b) states that “[i]t shall be unlawful for any person through a
7 pattern of racketeering activity . . . to acquire or maintain, directly or indirectly, any
8 interest in or control of any enterprise which is engaged in, or the activities of which
9 affect, interstate or foreign commerce.” § 1962(b) requires “a specific nexus between the
10 control of the enterprise and the racketeering activity.” Sea-Land, 57 F. Supp. 2d at 1055.
11 Plaintiff has not met this burden. Plaintiff has not pled facts showing that there is a nexus
12 between Defendants’ control of the enterprise and the alleged scheme to collect and not
13 remit clients’ FET. Thus, Plaintiff has failed to plead a cause of action under § 1962(b),
14 and the claim must be DISMISSED.
15 iii. 18 U.S.C. §§ 1962(c)
16 Under 18 U.S.C. § 1962(c), a plaintiff must allege the defendant participated in
17 “(1) the conduct of (2) an enterprise that affects interstate commerce (3) through a pattern
18 (4) of racketeering activity or collection of unlawful debt.” Eclectic Props. East, LLC v.
19 Marcus & Millichap Co., 751 F.3d 990, 997 (9th Cir. 2014) (citing 18 U.S.C. § 1962(c)).
20 As to the Section 1962(c) claim, Defendants argue Plaintiff has not adequately pled
21 causation under civil RICO. See ECF No. 30-1 at 15. The Court agrees for the reasons
22 stated below.
23 iv. 18 U.S.C. § 1964(c)
24 RICO's provision for civil actions provides that “[a]ny person injured in his
25 business or property by reason of a violation of section 1962 of this chapter may sue …
26
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1 and shall recover threefold the damages he sustains and the cost of the suit, including a
2 reasonable attorney's fee.” 18 U.S.C. § 1964(c).
3 To maintain a cause of action under RICO, a plaintiff must show not only that the
4 defendant's violation was a “but for” cause of his injury, but that it was the proximate
5 cause as well. Holmes v. Secs. Inv. Prot. Corp., 503 U.S. 258, 268 (1992)). This means
6 there must be “some direct relation between the injury asserted and the injurious conduct
7 alleged.” Id. Directness of the relationship is important for three reasons. “First, the less
8 direct an injury is, the more difficult it becomes to ascertain the amount of a plaintiff's
9 damages attributable to the violation, as distinct from other, independent, factors.” Id. at
10 269-270. Second, courts would have to adopt complicated apportionment rules to avoid
11 multiple recoveries. Id. Third, directly injured victims can generally be counted on to sue,
12 “without any of the problems attendant upon suits by plaintiffs injured more remotely.”
13 Id. (citing Associated Gen. Contractors of California, Inc. v. California State Council of
14 Carpenters, 459 U.S. 519, 541–42 (1983)). These three policy concerns guide a court's
15 evaluation of the directness of the injury under RICO. Id. at 270.
16 At its core, the case involves Federal Excise Tax that was allegedly collected by
17 JGH from clients but not remitted to the IRS as required by law. Compl. ⁋ 1. From there,
18 it is difficult to follow what Plaintiff alleges is his precise RICO injury, but the Court
19 makes out the following allegations of injury and finds each defective in turn. See Compl.
20 ⁋⁋ 103-104. First, Plaintiff states he “suffered injury derivatively to his reputation and
21 business.” Compl. ⁋ 103. He states that his interests as a shareholder have been damaged
22 due to the fraudulently charged FET. Id. However, shareholders do not generally have
23 standing to assert RICO claims in an individual capacity. Ahn v. Hanil Dev. Inc., 2010
24 WL 11520673, at *2 (C.D. Cal. Jan. 21, 2010); see also, Gaff v. Fed. Deposit Ins. Corp.,
25 814 F.2d 311, 315 (6th Cir.), on reh'g in part, 828 F.2d 1145, 1147-48 (6th Cir. 1987)
26 (finding that as a general precept of corporate law a shareholder of a corporation does not
27
1 have a personal or individual right of action for damages based solely on an injury to the
2 corporation). A shareholder “must show either an injury distinct from that to other
3 shareholders or a special duty between [the defendants and the shareholder] if they are to
4 having standing to assert RICO claims based on injury to the corporation.” Sparling v.
5 Hoffman Const. Co., Inc., 864 F.2d 635, 640 (9th Cir. 1988). Plaintiff has shown neither.
6 Any injury to his interests as a shareholder resulting from the collected and unremitted
7 FET is not distinct from that of any other shareholder. Any “derivative[ injury to] his
8 reputation and business” is just that—derivative—and does not meet the direct, proximate
9 cause standard required under civil RICO. Further, Plaintiff has not pled that the
10 Defendants owed him a special duty.
11 Second, Plaintiff states he has suffered injury as a result of Defendants’ use of his
12 intellectual property to commit criminal acts, and that the use of his intellectual property
13 in the commission of crimes has damaged the value of his property. Compl. ⁋ 103. For
14 the reasons discussed below, the Court finds that Plaintiff has not pled with particularity
15 the substance of his intellectual property, and thus this cannot establish a legitimate injury
16 under § 1962(c). Further, to prevail on his misappropriation of IP theory, Plaintiff will be
17 required to demonstrate that his assignment of IP to JGH was obtained through fraud.
18 This additional inquiry means any injury to Plaintiff resulting from the misappropriation
19 of IP is “too remote” to form direct injury because the link between the failure to pay
20 FET and harm to Plaintiffs’ IP is “purely contingent” on whether he was fraudulently
21 induced to relinquish his rights. Holmes, 503 U.S. at 271. As the Holmes Court observed:
22 “quite apart from problems of proving factual causation, recognizing claims of the
23 indirectly injured would force courts to adopt complicated rules apportioning damages
24 among plaintiffs removed at different levels of injury from the violative acts, to obviate
25 the risk of multiple recoveries.” Holmes, 503 U.S. at 269.
26
27
1 Third, Plaintiff states he has suffered injury as a result of the $1.3 million that has
2 been personally assessed against him by the IRS. Compl. ⁋ 104. Proximate cause analysis
3 under civil RICO looks to who is the direct victim of the allegedly wrongful conduct. In
4 Anza v. Ideal Steel Supply Corp., 547 U.S. 451 (2006), the Court found plaintiff had not
5 pled proximate cause because the plaintiff was not the “direct victim of th[e] conduct”;
6 the direct victim was “the State that was being defrauded” via lost tax revenue Anza v.
7 Ideal Steel Supply Corp., 547 U.S. 451, 458 (2006). Similarly, in Hemi Group, LLC v.
8 City of New York, N.Y., 559 U.S. 1 (2010), the City of New York sued a New Mexico
9 company that sold cigarettes online because they failed to file information with the State
10 of New York which would have allowed the City of New York to collect tax revenue on
11 cigarettes sold out of the state. The Court in Hemi Group held that the City of New
12 York’s purported injury by way of lost tax revenue was not direct enough to constitute
13 proximate cause under civil RICO because the more direct victim was the State of New
14 York; the State of New York was first in the chain of alleged victims. Hemi Group, LLC
15 v. City of New York, N.Y., 559 U.S. 1, 10-12 (2010). The Court further reasoned that the
16 State of New York was a better situated plaintiff and had incentive to sue defendant Hemi
17 Group because the State of New York had also lost out on tax revenue. Id. at 11-12.
18 In the FAC, Plaintiff claims that Defendants engaged in a scheme to use the JGH
19 Intellectual Property to defraud JGH and JGFH passengers purchasing air transportation
20 of more than $5 million in FET that clients were charged for and which was placed in a
21 “trust fund” for the IRS as required by 26 U.S.C. § 4281. FAC ¶¶ 74-75. Plaintiff further
22 contends that the CFG Enterprise used the wires to charge customers the FET falsely
23 claiming that the collected FET would be remitted to the IRS. FAC ¶ 95. These
24 allegations reveal that the direct victim of the scheme is the United States Government
25 and, possibly, any customers who paid the FET to JGH and may now be held responsible
26 for Defendants’ failure to remit the tax to the IRS.
27
1 With regard to himself, Plaintiff Stanz has failed to sufficiently allege that he is a
2 direct victim of any purported RICO scheme. His alleged injury is premised on an
3 attenuated and convoluted theory that his intellectual property was used to collect the
4 unpaid FET and that the IRS is holding him personally responsible for the unpaid FET
5 because of a JGH bank card he opened allegedly under duress. FAC ¶¶ 43-44, 93.
6 However, as of this time, it does not appear that Plaintiff has paid any money to the IRS.
7 Thus, the Court also cannot say he has suffered injury in the form money actually paid to
8 the IRS.
9 RICO requires “some direct relation between the injury asserted and the injurious
10 conduct alleged.” Id. at 268. Here, Plaintiff is seeking treble damages for amounts owed
11 by JGH customers to the IRS based on a convoluted set of facts that, at best, were
12 indirectly caused by the misappropriation of IP or alleged wire fraud. Plaintiff’s damages
13 theory requires the Court to move well beyond the first step involving the failure to pay
14 the FET and cannot satisfy RICO’s direct relationship requirement. Accordingly, the
15 Court finds Plaintiff’s asserted injuries do not meet the proximate cause requirement
16 under civil RICO 18 U.S.C. § 1962, and the claims must be DISMISSED.
17 v. 18 U.S.C. § 1962(d)
18 18 U.S.C. § 1962(d) makes it “unlawful for any person to conspire to violate any
19 of the provisions of subsections (a), (b), or (c) of this subsection.” A § 1962(d) claim
20 necessarily relies on a claim under one of the other three subsections. See Religious Tech.
21 Ctr. v. Wollersheim, 971 F.2d 364, 367 n.8 (9th Cir. 1992). Because the Court finds
22 Plaintiff has failed to plead a claim under any of the RICO subsections, this cause of
23 action must also be DISMISSED.
24 B. Second Cause of Action: Defend Trade Secrets Act, 18 U.S.C. § 1836(b)(1)
25 18 U.S.C. § 1836(b)(1), the Defendant Trade Secrets Act (“DTSA”), states that the
26 “owner of a trade secret that is misappropriated may bring a civil action . . . if the trade
27
1 secret is related to a product or service used in, or intended for use in, interstate or foreign
2 commerce.” “Trade secret” is defined in 18 U.S.C. §1839(3) and “misappropriation” is
3 defined in § 1839(5). To state a claim under the DTSA, a Plaintiff must plead sufficient
4 facts to show: (1) that he owned a trade secret; (2) the trade secret was misappropriated
5 by Defendants; and (3) Plaintiff suffered damages. Gordon Grado, M.D., Inc. v. Phoenix
6 Cancer and Blood Disorder Treatment Inst., 603 F. Supp. 3d 799, 800 (D. Ariz. May 16,
7 2022). Courts in this Circuit routinely find that although a plaintiff does not need to
8 reveal the exact details of a trade secret, a plaintiff “must ‘describe the subject matter of
9 the trade secret with sufficient particularity to separate it from matters of general
10 knowledge in the trade or of special persons who are skilled in the trade, and to permit
11 the defendant to ascertain at least the boundaries within which the secret lies.’” AlterG,
12 Inc. v. Boost Treadmills LLC, 388 F. Supp. 3d 1133, 1144 (N.D. Cal. 2019) (quoting Alta
13 Devices, Inc. v. LG Elecs., Inc., 343 F. Supp. 3d 868, 881 (N.D. Cal. 2018)). Defendants
14 argue that Plaintiff’s DTSA claim fails because he has not pled his alleged trade secrets
15 with sufficient particularity. See e.g., ECF No. 30-1 at 16-17. The Court agrees.
16 Courts in this Circuit have found that trade secrets defined as “source code,
17 customer lists and customer related information, pricing information, vendor lists and
18 related information, marketing plans and strategic business development initiatives,
19 ‘negative knowhow’ learned through the course of research and development, and other
20 information related to the development of its price-optimization software, including ideas
21 and plans for produce enhancements” were not sufficiently particular to state a claim
22 under the DTSA. Vendavo, Inc. v. Price f(x) AG, 2018 WL 1456697, at *3 (N.D. Cal.
23 Mar. 23, 2018); see also AlterG, 388 F. Supp. 3d at 1145 (citing Vendavo). Trade secrets
24 defined in these “broad, categorical terms” which are “more descriptive of the types of
25 information that generally may qualify as protectable trade secrets,” are not sufficiently
26 particular. See id. at *4.
27
1 Here, Plaintiff alleges the following trade secrets have been misappropriated:
2 The JGH Platform, Plaintiff’s Technical Expertise,
software architecture and source codes, websites,
3
technology infrastructure, business models, web-servers,
4 domain names such as jetcharter.com, jetagency.com, and
flycfg.com, business methods, clients lists, proprietary
5
designs, and trade secrets in the JGH Intellectual Property.
6
Compl. ⁋ 122.
7
Plaintiff’s trade secret allegations are indeed “broad, categorical” allegations that
8
are “more descriptive of the types of information” that may qualify for protection.
9
Vendavo, 2018 WL 1456697, at *4. Plaintiff does not attempt to concretely describe the
10
trade secrets he alleges have been misappropriated or discuss the secrets with any manner
11
of specificity beyond the general nature of the secret at issue. The Proprietary
12
Information and Inventions Agreement (the Intellectual Property Assignment) does not
13
provide any more specification on the types of trade secrets Plaintiff claims have been
14
misappropriated. See Compl., Exh. B (ECF No. 29-2). The failure to provide specific
15
description of the intellectual property is problematic for the additional reason that the
16
Intellectual Property Assignment appears to memorialize an agreement between JGH and
17
Plaintiff that had existed since Plaintiff had commenced his employment with JGH and
18
thus predates any alleged fraud. The Agreement, signed by Plaintiff on November 7,
19
2018 states:
20
“The following confirms and memorializes an agreement
21 that jet Genius Holdings, Inc., . . ., and I (Aaron Stanz)
have had since the commencement of my employment
22
(which term, for purposes of this agreement, shall be
23 deemed to include any relationship of service to the
Company that I may have had prior to actually becoming
24
an employee) with the Company in any capacity and that
25 is and has been a material part of the consideration for my
employment by the Company.”
26
ECF No. 29-2 at 2.
27
1 By failing to specify what intellectual property forms the basis for his § 1836
2 claim, it is not possible to determine whether Plaintiff owns any intellectual property that
3 is not covered by his 2018 Assignment.
4 Accordingly, the Court finds that Plaintiff’s DTSA claim must be DISMISSED. In
5 so doing, the Court does not purport to make any finding as to whether Plaintiff even
6 owned the trade secrets, after November 7, 2018 or at any point, or whether Plaintiff has
7 suffered any damage as a result of any misappropriated trade secrets. If Plaintiff chooses
8 to amend his FAC, he should allege with “greater specificity the types of trade secrets
9 that were misappropriated and the exact technology to which they pertain.” AlterG, 388
10 F. Supp. 3d at 1146.
11 III. SUBJECT MATTER JURISDICTION
12 Because the Court has dismissed both of Plaintiff’s federal causes of action,
13 subject matter jurisdiction cannot exist under 28 U.S.C. § 1331. The Parties dispute
14 whether diversity of citizenship exists to establish diversity jurisdiction under 28 U.S.C. §
15 1332. 28 U.S.C. § 1332(a) requires that (1) the amount in controversy exceed $75,000,
16 and (2) the action is between citizens of different states. The Court finds there is not
17 diversity of citizenship.
18 A. Citizenship
19 A person is a “citizen” of the state in which they are domiciled. Kantor v.
20 Wellesley Galleries, Ltd., 704 F.2d 1088, 1090 (9th Cir. 1983). “A person’s domicile is
21 [their] permanent home, where [they reside] with the intention to remain or to which
22 [they] intend[] to return.” Kanter v. Warner-Lambert Co., 265 F.3d 853, 857 (9th Cir.
23 2001) (citing Lew v. Moss, 797 F.2d 747, 749 (9th Cir. 1986)). A person residing in a
24 state is not necessary a citizen of that state. Id. An individual can reside in a state and be
25 domiciled in another. Mississippi Band of Choctaw Indians v. Holyfield, 490 U.S. 30, 48
26 (1989).
27
1 To determine domicile, a court should analyze a number of factors, including the
2 person’s “current residence, voting registration and voting practices, location of personal
3 and real property, location of brokerage and bank accounts, location of spouse and
4 family, membership in unions and other organizations, place of employment or business,
5 driver’s license and automobile registration, and payment of taxes.” Lew, 797 F.2d at
6 750. A person’s old domicile is not relinquished until a new domicile is established. Id.
7 “A change in domicile requires the confluence of (a) physical presence at the new
8 location with (b) an intention to remain there indefinitely.” Id. Diversity of citizenship is
9 determined at the time the lawsuit is filed. Grupo Dataflux v. Alas Global Group, L.P.,
10 541 U.S. 567, 570-71 (2004).
11 Plaintiff’s initial Complaint filed in this Court on August 8, 2022 stated:
12 Plaintiff . . . is a competent adult citizen of the State of
California for all times relevant in this action until March
13
1, 2022, where he obtained a leasehold in the State of
14 Kansas, but has not yet made his primary residency in the
State of Kansas.
15
ECF No. 1 ⁋ 5; ECF No. 30, RJN 1.
16
Plaintiff’s FAC, filed in this Court on March 2, 2023, states:
17
Plaintiff is a competent adult and was a citizen of
18
California until March 1, 2022, when he obtained a
19 leasehold in the State of Kansas and now is a resident of
the State of Kansas.
20
FAC ⁋ 8.
21
The Court finds this is not sufficient to determine that Plaintiff was a citizen of
22
Kansas at the time he filed his lawsuit. As stated, “residence” is not enough to establish
23
citizenship. Plaintiff would retain his California citizenship until he established his
24
domicile in Kansas, and obtaining a leasehold and becoming a “resident” of the state does
25
not necessarily constitute a change in citizenship. To support his citizenship claim,
26
Plaintiff argues that “[a]fter commencing the underlying action, the IRS transferred [sic]
27
1 Plaintiff’s case to the Kansas department of IRS, thus clarifying for Plaintiff he was free
2 to properly maintain his valid Kansas citizenship.” ECF No. 41 at 8 (citing FAC ⁋ 62). He
3 also states he received mail from Defendants at his address in Kansas. Id.
4 Plaintiff’s bears the burden of proving to this Court that subject matter jurisdiction
5 exists, and his argument does not establish he was a citizen of Kansas at the time his
6 lawsuit was filed. See Grupo Dataflux, 541 U.S. at 570-71. Indeed, the evidence he
7 provides to support his assertion is an event that occurred after the lawsuit was filed (his
8 IRS file was transferred to Kansas “after commencing the underlying action”). Further,
9 simply receiving mail in Kansas, from Defendants or anyone else for that matter, is not
10 enough for the Court to determine that Plaintiff had established a residence and developed
11 an intent to remain in Kansas. Because Plaintiff remains a citizen of California until he
12 establishes domicile in another state, the Court finds Plaintiff has not shown he was not a
13 citizen of California when he filed the initial Complaint. Because at least one of the
14 Defendants (JGH) is a citizen of California, diversity jurisdiction does not exist, and the
15 Court lacks subject matter jurisdiction over Plaintiff’s action. Accordingly, Plaintiff’s
16 remaining state law claims must be DISMISSED.
17 IV. LEAVE TO AMEND
18 “If a complaint is dismissed for failure to state a claim, leave to amend should be
19 granted ‘unless the court determines that the allegation of other facts consistent with the
20 challenged pleading could not possible cure the deficiency.’” DeSoto v. Yellow Freight
21 Systs., Inc., 957 F.2d 655, 658 (9th Cir. 1992) (quoting Schreiber Distrib. Co. v. Serv-Well
22 Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986)). The Court grants Plaintiff leave to
23 amend his First Amended Complaint. Plaintiff should address the deficiencies noted
24 above but take note that Defendants raised a number of arguments in their Motions to
25 Dismiss, and the Court does not purport to have made findings as to each.
26
27
1 CONCLUSION
2 For the reasons above, the Court hereby GRANTS Defendants’ Motion to Dismiss
3 || with leave to amend. If he desires, Plaintiff shall file a Second Amended Complaint on
4 || or before June 30, 2023.
5 IT IS SO ORDERED.
6 || Dated: June 8, 2023 2 aplo Os
7 Hon. Gonzalo P. Curiel
g United States District Judge
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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10087745. Public record. Not legal advice.