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Matthys v. Narconon Fresh Start

United States District Court, D. Colorado

May 4, 2015

CHARLES MATTHYS, a Texas citizen; TYLER MATTHYS, a Texas citizen; and LINDA PHILLIPS, a New Mexico citizen, Plaintiffs,

For Charles Matthys, a Texas Citizen, Tyler Matthys, a Texas Citizen, Linda Phillips, a New Mexico Citizen, Plaintiffs: David Evan Miller, Saeed & Little LLP, Indianapolis, IN; Ryan Andrew Hamilton, Hamilton Law LLC, Las Vegas, NV.

For Narconon Fresh Start, doing business as A Life Woth Saving, Inc., Association for Better Living and Education International, Narconon International, Defendants: Ryan Christopher Gill, Steven L. England, Lewis Brisbois Bisgaard & Smith, LLP-Denver, Denver, CO.



This matter comes before me on three motions to dismiss. Docs. # 25, 28, 29. I have reviewed the motions and all related pleadings and exhibits. Oral argument would not materially assist me in deciding the motions. As I explain below, I DENY the motions of defendants Association for Better Living and Education International (" ABLE" ) and Narconon International (" NI" ) seeking dismissal of all claims for lack of personal jurisdiction [Doc. # 28] and for failure to state a claim of alter ego liability [Doc. # 29]. ABLE, NI, and the other defendant, Narconon Fresh Start, d/b/a A Life Worth Saving, Inc. (" Fresh Start" ) (collectively, " Defendants" ) have also filed a motion [Doc. # 25] arguing that Charles Matthys, Tyler Matthys, and Linda Phillips (" Plaintiffs" ) have failed to state a claim with respect to certain counts in their complaint. I GRANT IN PART AND DENY IN PART that motion and I DISMISS Linda Phillips' contract claim, Plaintiffs' negligent infliction of emotional distress claim, and Plaintiffs' RICO claim.

I. Background

The facts in this section are drawn from Plaintiffs' complaint. In February 2014, Charles Matthys was searching for a substance abuse treatment program for his son, Tyler Matthys. 1st Am Compl. ¶ 12 [Doc. # 16]. Charles spoke with employees of Fresh Start, who convinced him to send Tyler to a Fresh Start facility in Fort Collins, Colorado. Id. ¶ 13. Fresh Start uses the " Narconon" treatment program. Id. ¶ 14.

The Fresh Start employees told Charles that the Narconon program has a 75% " success rate" ; that Narconon's " New Life Detoxification sauna program" would " eliminate Tyler's drug cravings by making him sweat out residual drug toxins in his cells" ; that Fresh Start would provide Tyler " extensive drug and addiction counseling from duly qualified professionals" ; that Tyler would " be under the care of a doctor or nurse" ; and that Tyler's health insurance would cover at least 50% of the cost of the program. Id. ¶ ¶ 15, 54. The Fresh Start employees directed Charles to the Narconon website, which made similar claims. Id. ¶ 16. In addition, Fresh Start's representatives and website represented to Charles " that religion is not part of the Narconon treatment program." Id. ¶ 17.

Charles " agreed to send [Tyler] to Fresh Start" " [b]ased on these representations." Id. ¶ 18. Fresh Start charged a " $31,000 fee," which Charles, together with Tyler's grandmother, Linda Phillips, paid with funds Charles and Linda borrowed from Linda's bank. Id. ¶ 19. Tyler entered Fresh Start on or about February 20, 2014. Id. ¶ 18. Tyler left Fresh Start on April 2, 2014, " because he was not receiving substance abuse counseling and he did not feel safe." Id. ¶ 40.

On May 8, 2014, Charles, Tyler, and Linda brought this lawsuit, in which they allege that Tyler did not receive the secular substance abuse treatment that Fresh Start promised. Plaintiffs allege that Tyler's treatment consisted of reading the works of L. Ron Hubbard, the founder of the Scientology religion, regarding Scientology doctrines and concepts. Id. ¶ ¶ 21-22. They allege that treatment is " used to recruit patients into the Church of Scientology." Id. ¶ 35. In addition, Plaintiffs contend that " at no point did Narconon staff ever speak to Tyler about the specifics of his life or his drug use and its causes." Id. ¶ 37. Plaintiffs allege there were no qualified counselors and no doctors, nurses, or other medical professionals on site, and that treatment was provided by former Fresh Start patients. Id. ¶ 20. While a sauna program was offered, Plaintiffs allege it was not " scientifically and medically proven as effective," as advertised. Id. ¶ 31. Rather, Plaintiffs say it poses health risks in that it requires " sitting in extreme temperatures for hours" and " ingest[ing] extreme doses of Niacin and other vitamins." Id. ¶ 29. Plaintiffs also allege they were misled by Fresh Start's claims that the program has a 75% success rate and that Tyler's health insurance would pay 50% of the program's fee. Id. ¶ ¶ 34, 39.

Plaintiffs bring the following claims against Fresh Start, ABLE, and NI: (1) breach of contract; (2) fraud; (3) fraudulent concealment; (4) negligence; (5) intentional infliction of emotional distress; (6) negligent misrepresentation; (7) violation of the Colorado Consumer Protection Act, Colo. Rev. Stat. § 6-1-101, et seq. (" CCPA" ); (8) violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961, et seq. (" RICO" ); (9) unjust enrichment; and (10) negligent infliction of emotional distress. 1st Am. Compl. ¶ ¶ 48-101 [Doc. # 16]. Plaintiffs allege that Fresh Start is liable on each count based on its own conduct. Plaintiffs allege that ABLE and NI are liable for Fresh Start's conduct because Fresh Start was their alter ego. Id. ¶ ¶ 42-47. Plaintiffs allege Fresh Start and NI are subsidiaries of ABLE, which " oversees the drug rehabilitation, education, and criminal justice activities of the Church of Scientology." Id. ¶ 6.

In the instant motions, ABLE and NI--both California-incorporated and - headquartered corporations, id. ¶ ¶ 3, 7--contend that the Court does not have personal jurisdiction over them because they do not have sufficient minimum contacts with Colorado. Fed.R.Civ.P. 12(b)(2). ABLE and NI also contend that all of Plaintiffs claims fail because Plaintiffs fail to state an alter ego claim against them. Fed.R.Civ.P. 12(b)(6). Finally, all three Defendants argue that Plaintiffs have failed to state their breach of contract, intentional infliction of emotional distress, negligent infliction of emotional distress, CCPA, and RICO claims and, therefore, that those claims must be dismissed. Id. I address Defendants' motions in turn.

II. Motion to Dismiss ABLE and NI for Lack of Personal Jurisdiction [Doc. # 28]

A. Standard of Review

A defendant may move to dismiss a complaint for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2). When a defendant does so, the plaintiff has the burden of establishing that the court has personal jurisdiction over the defendant. Soma Med. Int'l v. Standard Chartered Bank, 196 F.3d 1292, 1295 (10th Cir. 1999). Where the court does not conduct an evidentiary hearing, as here, " the plaintiff need only make a prima facie showing of personal jurisdiction to defeat the motion." Id. (quoting OMI Holdings, Inc. v. Royal Ins. Co. of Canada, 149 F.3d 1086, 1090 (10th Cir. 1998)). The court takes the well-pled allegations of the complaint as true to the extent they are uncontroverted by the defendant's affidavits or other written materials. Taylor v. Phelan, 912 F.2d 429, 431 (10th Cir. 1990). Where the parties' written materials are in conflict, the court resolves all factual disputes in the plaintiff's favor, " and the plaintiff's prima facie showing is sufficient notwithstanding the contrary presentation" by the defendant. Id.

Federal courts sitting in diversity--which is the only basis for subject matter jurisdiction alleged here, see 1st Am. Compl. ¶ 10 [Doc. # 16]--may only exercise personal jurisdiction over a nonresident defendant where both state law and federal due process are satisfied. See, e.g., Doering v. Copper Mountain, Inc., 259 F.3d 1202, 1209-10 (10th Cir. 2001); Taylor, 912 F.2d at 431. " Colorado's long arm statute is coextensive with constitutional limitations imposed by the due process clause. Therefore, if jurisdiction is consistent with the due process clause, Colorado's long arm statute authorizes jurisdiction over a nonresident defendant." Benton v. Cameco Corp., 375 F.3d 1070, 1075 (10th Cir. 2004); accord Keefe v. Kirschenbaum & Kirschenbaum, P.C., 40 P.3d 1267, 1270 (Colo. 2002) (citing Colo. Rev. Stat. § § 13-1-124(1)(a)--(b)). So the relevant inquiry here is whether exercising personal jurisdiction over ABLE and NI comports with due process, a question of federal law. Nat'l Bus. Brokers, Ltd. v. Jim Williamson Prods., Inc., 115 F.Supp.2d 1250, 1253 (D. Colo. 2000) (" Federal law, not state law, guides the due process analysis." ), aff'd, 16 Fed.Appx. 959 (10th Cir. 2001).

" The Supreme Court has held that, to exercise jurisdiction in harmony with due process, defendants must have 'minimum contacts' with the forum state, such that having to defend a lawsuit there would not 'offend traditional notions of fair play and substantial justice.'" Dudnikov v. Chalk & Vermilion Fine Arts, Inc., 514 F.3d 1063, 1070 (10th Cir. 2008) (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945)). Personal jurisdiction may be either general or specific. The exercise of general personal jurisdiction comports with due process where the corporation's " affiliations with the State are so continuous and systematic as to render it essentially at home in the forum State." Daimler AG v. Bauman, 134 S.Ct. 746, 760, 187 L.Ed.2d 624 (2014) (internal quotations, citation, and alteration omitted). Specific personal jurisdiction, by contrast, is " jurisdiction specific to this dispute." Newsome v. Gallacher, 722 F.3d 1257, 1264 (10th Cir. 2013). To determine whether the exercise of specific personal jurisdiction comports with due process, the court asks " (1) whether the defendant purposefully directed its activities at residents of the forum state; (2) whether the plaintiff's injury arose from those purposefully directed activities; and (3) whether exercising jurisdiction would offend traditional notions of fair play and substantial justice." Id.

B. Analysis

Plaintiffs' primary argument is that the Court has specific personal jurisdiction over ABLE and NI by virtue of their involvement with Fresh Start, over which the Court undisputedly has jurisdiction. I begin with Plaintiffs' complaint. Plaintiffs allege that ABLE " controls the time, manner and method of NI's and Fresh Start's businesses by actively managing their daily operations, including conducting inspections of Narconon centers and creating, licensing, and approving their marketing materials." 1st Am. Compl. ¶ 8 [Doc. # 16]. Similarly, Plaintiffs allege that NI " exercises control over the time, manner, and method of Fresh Start's operations." Id. ΒΆ 4. According to Plaintiffs, the three companies have " such unity of interest and ownership . . . that they are inseparable from one another," and their ...

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