Hmong College Prep Academy v. Woodstock Capital, LLC

Background

Hmong College Prep Academy (HCPA), a nonprofit K–12 charter school, sought funding for capital improvements. After communications with Woodstock Capital, LLC and its representatives, HCPA signed an agreement to invest in Woodstock Capital Partners, LP and wired $5 million from a Minnesota-based bank account. HCPA alleged that defendants assured it the investment would comply with its investment requirements and Minnesota law, and later represented that the investment was secure even as its value declined. The opinion states that the investment balance fell to $705,290.83 as of March 31, 2021, and to $70,529.08 as of August 2021.

HCPA filed the lawsuit in Ramsey County, Minnesota. Its claims included rescission and fraudulent inducement against Woodstock Capital, LLC and Clark Reiner, along with breach of contract, negligence, gross negligence, breach of fiduciary duty, specific performance, and promissory estoppel claims against Woodstock Capital, LLC. HCPA sought to undo the subscription agreement, obtain damages, require audited financial statements, enforce the alleged promise to buy out its interest, and recover fees and costs. Defendants removed the lawsuit to federal court.

Defendants’ Motion to Dismiss or Transfer

Defendants moved to dismiss for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2). At this stage, the court had to view the evidence in the light most favorable to HCPA and resolve factual disputes in HCPA’s favor. The court concluded that HCPA made the required initial showing of personal jurisdiction.

The court relied on allegations that defendants contacted HCPA in Minnesota by phone and email to encourage the investment, assured HCPA that the investment would comply with its requirements and Minnesota law, sent required financial statements, and transmitted funds withdrawn from HCPA’s Minnesota-based bank account. The court also concluded that Reiner was subject to personal jurisdiction because it evaluated each defendant’s contacts separately and his contacts were sufficient. The court further stated that personal jurisdiction existed under an intentional-misrepresentation theory because defendants allegedly directed material misrepresentations at HCPA in Minnesota and HCPA suffered the resulting loss there. The court therefore denied dismissal under Rule 12(b)(2).

Defendants also sought dismissal under Rule 12(b)(7), arguing that Woodstock Capital Partners, LP was an indispensable party that had not been joined. The court noted HCPA’s allegation that Woodstock Capital, LLC managed and promoted the partnership’s business and managed its assets and operations. Because defendants did not provide authority showing that Woodstock Capital, LLC was an improper party or evidence showing that Woodstock Capital Partners, LP could not be joined, the court denied the Rule 12(b)(7) request.

Defendants alternatively sought transfer to New Jersey under Rule 12(b)(3) and 28 U.S.C. § 1404(a). The court explained that a permissive forum-selection clause does not require litigation in the listed forum. It rejected transfer to New Jersey or Delaware, reasoning that the clause did not mandate either location and that the agreement’s Delaware choice-of-law provision did not justify transfer because the federal court could apply Delaware law. The court denied the transfer request.

HCPA’s Motion to Remand

HCPA asked the court to remand, or return, the case to Ramsey County for lack of subject-matter jurisdiction. HCPA argued that defendants’ original removal notice did not adequately allege the citizenship of the members of Woodstock Capital, LLC, whose citizenship determines the citizenship of a limited-liability company for diversity jurisdiction.

After HCPA filed its motion, defendants filed an amended removal notice identifying the citizenship of all members of Woodstock Capital, LLC. The court held that the amended notice corrected the deficiency because it was filed within the applicable 30-day period. The court therefore denied HCPA’s Motion to Remand.

Disposition

The court ordered that Defendants’ Motion to Dismiss or Transfer was DENIED and that Plaintiff’s Motion to Remand was DENIED. The opinion resolved only the motions concerning personal jurisdiction, party joinder, venue, transfer, and removal jurisdiction; it did not decide the underlying contract, fraud, negligence, fiduciary-duty, or related claims.