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Quinn v. Cornerstone Strategic Advisors

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA


August 27, 2007

BRIAN C. QUINN, AN INDIVIDUAL, PLAINTIFF,
v.
CORNERSTONE STRATEGIC ADVISORS, LLC., CORNERSTONE STRATEGIC ROGER K. FULLER, AND ADVISORS, LLC, A UTAH LIMITED D. MICHAEL BISHOP'S MOTION LIABILITY COMPANY; DOING BUSINESS AS CSA STRATEGIC ADVISORS, LLC; DEFENDANTS.

The opinion of the court was delivered by: Hon. John A. Houston United States District Judge

ORDER GRANTING DEFENDANTS TO DISMISS PURSUANT TO FED.R.CIV.P. 4(m) [DOC. # 77]

INTRODUCTION

Pending before this Court is the motion filed by defendants Cornerstone Strategic Advisors, LLC, aka CSA Strategic Advisors, LLC, Roger K. Fuller, and D. Michael Bishop ("the Cornerstone defendants") to dismiss plaintiff's first amended complaint for failure to serve the complaint timely pursuant to Federal Rule of Civil Procedure 4(m). The motion has been fully briefed by the parties. After a careful consideration of the pleadings and relevant pleadings presented, and for the reasons set forth below, this Court GRANTS defendants' motion and dismisses the Cornerstone defendants without prejudice.

BACKGROUND

The instant case, alleging fraud and malpractice based on an Internal Revenue Service ("IRS") rejection of a tax deduction involving investment of foreign currencies, was filed on December 3, 2004. Shortly thereafter, various motions to dismiss were filed and some defendants were dismissed.*fn1 On October 13, 2005, an order was issued requiring plaintiff to show cause ("OSC") why the defendants that remained after motion practice should not be dismissed for failure to prosecute. Specifically, the OSC sought plaintiff's explanation why he had failed to serve to defendants Cornerstone Strategic Advisors, Roger K. Fuller, Michael D. Bishop ("the Cornerstone defendants"), Meisha E. Kresser and Gordon Brown*fn2 pursuant to Federal Rule of Civil Procedure 4(m).*fn3

An OSC hearing was held on November 17, 2005, and, upon the representation of attorney Christopher Villaseñor, appearing specially, that prior counsel's serious illness delayed the prosecution of this case, the OSC hearing was continued to January 26, 2006. The January 26, 2006 OSC hearing was again continued to February 16, 2006, based on the representations of attorney Villaseñor that the case would proceed apace. Counsel indicated that a first amended complaint and a motion for default judgment as to the Groh defendants would be filed by February 15, 2006. The February 16, 2006 hearing was apparently vacated and continued to March 2, 2006.

A first amended complaint ("FAC") was filed on February 28, 2006.*fn4 Plaintiff effected service of the FAC upon defendants Cornerstone and Fuller on October 11, 2006 and defendant Bishop on January 10, 2007.

The instant motion to dismiss was filed on February 1, 2007, but the motion did not specify a hearing date. Therefore, the Court issued an order directing the filing of the parties' responsive briefing and setting a hearing date for March 22, 2007. Plaintiff filed an opposition to the motion on March 2, 2007 and the Cornerstone defendants filed a reply brief on March 9, 2007. The motion was taken under submission without oral argument on March 16, 2007 and the hearing date was vacated. On March 20, 2007, this Court directed the parties to submit further briefing on certain issues presented by the parties which were not fully developed in the pleadings presented. Plaintiff's supplemental pleading was filed on April 13, 2007 and the Cornerstone defendants' pleading was filed on April 27, 2007.

DISCUSSION

The Cornerstone defendants move for an order dismissing the claims against them in the FAC pursuant to Federal Rule of Civil Procedure 4(m).

Legal Standard

Rule 4(m) of the Federal Rules of Civil Procedure provides that: If service of the summons and complaint is not made upon a defendant within 120 days after the filing of the complaint, the court, upon motion or on its own initiative after notice to the plaintiff, shall dismiss the action without prejudice as to that defendant or direct that service be effected within a specified time; provided that if the plaintiff shows good cause for the failure, the court shall extend the time for service for an appropriate period.

Fed.R.Civ.P. 4(m). The Ninth Circuit recently explained that "Rule 4(m) ... requires a district court to grant an extension of time when the plaintiff shows good cause for the delay. Additionally the rule permits the district court to grant an extension even in the absence of good cause." Efaw v. Williams, 473 F.3d 1038, 1040 (9th Cir. 2007) (internal citations omitted)(emphasis in original).

Good cause, at a minimum, means excusable neglect. Boudette v. Barnette, 923 F.2d 754, 756 (9th Cir. 1991).*fn5 A plaintiff may also show good cause if he establishes that: "(a) the party to be served received actual notice of the lawsuit; (b) the defendant would suffer no prejudice; and (c) plaintiff would be severely prejudiced if his complaint were dismissed." Id. (citing Hart v. United States, 817 F.2d 79, 80-81 (9th Cir. 1987). Even in the absence of good cause, this Court has broad discretion to grant an extension. In re Sheehan, 253 F.3d 507, 513 (9th Cir. 2001). The Ninth Circuit has determined that a specific test need not be applied in deciding whether the exercise of such discretion, absent good cause, is warranted. Id.

Analysis

The Cornerstone defendants seek dismissal on the grounds that they were not served with process within the time constraints allowed under Rule 4(m), contending that good cause cannot be shown and a discretionary extension should not be granted under the circumstances here. See Doc. # 77 at 7-8. The Cornerstone defendants point out that, even though this Court, based on the representation that the proceedings would proceed apace, granted plaintiff an extension to effect service in January 2006 more than a year after the original complaint was filed, plaintiff still failed to serve the FAC upon them within the 120 day period provided by Rule 4(m). Id. The Cornerstone defendants contend this late service requires their dismissal from this case. Id. at 8.

A. Good Cause

As explained previously, plaintiff can meet his burden of demonstrating good cause if he shows the neglect in service was excusable. In addition, plaintiff may demonstrate good cause by showing the three Boudette factors weigh in his favor: (a) actual notice was received; (b) defendants would not be prejudiced; and (2) plaintiff would be severely prejudiced. Boudette, 923 F.2d at 756.

1. Excusable Neglect

Plaintiff contends the delay in service of process on these defendants was excusable, explaining*fn6 that he first attempted, through a private investigator, to serve the Cornerstone defendants in late 2004 or early 2005*fn7 at their "abandoned office in Salt Lake City, Utah ... [but the defendants] had moved and left no forwarding address." Id. at 5. In May 2006, plaintiff states he hired a new private investigator*fn8 who subsequently located defendants Cornerstone and Fuller. Id. Then, plaintiff claims, when new counsel stepped in on July 6, 2006, it caused a two month delay in the forwarding of the summons and complaint to Utah for service of process on those two defendants. Id. According to plaintiff, defendant Bishop's whereabouts were not discovered until mid-December 2006, due to his having moved without providing a forwarding address. Id. Plaintiff states he subsequently re-hired his prior private investigator who "found an alternate address for [defendant] Bishop." Id. Based on these representations, plaintiff argues that the Cornerstone defendants "are solely or partially to blame for the delay, as they attempted to secret themselves [to avoid] service of process ... [and to] avoid the consequences" of having to defend against plaintiff's allegations. Id. at 5-6.

The Cornerstone defendants, in reply, contend that plaintiff cannot point to "a single act that supports his claims" regarding defendants' evading service and "secret[ing] themselves." Reply at 6. The Cornerstone defendants point out that plaintiff fails to identify what actions he, or his private investigators, actually took to locate the defendants, presenting evidence that they did nothing to circumvent plaintiff's ability to locate them for service of process. Id. at 6-7; see Bishop Decl. ¶¶ 4-5; Fuller Decl. ¶¶ 3-8. In fact, the Cornerstone defendants claim plaintiff could have easily found them through available resources such as conducting an on-line search of the internet, requesting change of address information through the United States Postal Service, requesting information through the Utah State Division of Occupations and Professional Licensing department, or even simply looking them up in the phone book. Id.; see, , Bishop Decl., Exh. A, Fuller Decl., Exh. B. In addition, the Cornerstone defendants find it "telling that another San Diego resident - Kevin Slatnick - sued these same defendants near the same [time] and was able to effect service of process on October 15, 2005 ... [and served process] at the same address [where] plaintiff ... served [defendants] Fuller and Cornerstone." Id. at 7-8. The Cornerstone defendants note defendant Bishop actually filed an answer in the Slatnick matter before he was even served. Id. at 8.

A careful examination of the record, including the declarations presented by both parties, reveals that plaintiff does not sufficiently explain the substantial delay in service of the FAC upon these defendants. Specifically, notwithstanding the lack of explanation for the one and a half year delay between his first attempt at service in December 2004 and his second attempt in May 2006, plaintiff does not adequately explain why either of the private investigators he hired could not locate these defendants by resorting to simple and accessible methods, or why it took him almost eight months to serve defendant Fuller and almost ten months to serve defendant Bishop with the FAC after the Court, on January 30, 2006, directed plaintiff (through his new counsel) to comply with the Federal Rules of Civil Procedure in properly serving defendants. See Doc. # 31 at 2 ("Counsel shall serve defendants with the first amended complaint in accordance with the Federal Rules of Civil Procedure and the Local Rules of this District."). Therefore, this Court finds plaintiff has not sufficiently shown the delay in service of these defendants can be characterized as excusable neglect.

2. The Boudette Factors

a. Actual Notice

The parties appear to agree that the Cornerstone defendants received actual notice of the instant lawsuit when they were served with the summons, complaint and FAC on October 11, 2006 and January 10, 2007. See Doc. # 77 at 4; Doc. # 80 at 5; Doc. # 84 at 3; Doc. # 85 at 3. Plaintiff suggests, in his supplemental brief, that "it is very likely ... [the Cornerstone defendants] had actual knowledge of the subject complaint when co-defendants Roger Own Groh and Groh Asset Management, Inc. were served with [p]laintiff's original complaint on or about March 21, 2005." Doc. # 84 at 3. The Cornerstone defendants claim that suggestion is speculative at best. Doc. # 85 at 3. This Court agrees with the Cornerstone defendants. There is nothing in the record to support plaintiff's suggestion that actual notice may have occurred as early as March 2005.*fn9 Therefore, this Court finds that this factor does not weigh in favor of finding good cause.

b. Prejudice to Defendants

Although the Cornerstone defendants present no prejudice argument in their moving papers, they claim, in their reply brief, they relied upon Fedro's opinion letter which was the catalyst of the injuries alleged by plaintiff in the instant complaint. Doc. # 80 at 11; see FAC ¶¶ 4, 14. The Cornerstone defendants thus contend they will be prejudiced if an extension is granted because they are now statutorily barred from bringing a third party complaint for malpractice against Larry C. Fedro. Doc. # 80 at 11. In his supplemental brief, plaintiff contends that no prejudice can be shown because (1) only loss of evidence can constitute prejudice under Rule 4(m); (2) the applicable statute of limitations does not bar the Cornerstone defendants from filing a third party complaint for malpractice against Larry C. Fedro; and (3) even if they are barred from filing a malpractice third party complaint, the Cornerstone defendants could still file a third party complaint against Fedro on other grounds.

1. Prejudice under Rule 4(m)

Plaintiff first disputes the Cornerstone defendant's assertion of prejudice on the grounds that, in the context of Rule 4(m), prejudice is limited to "loss of available evidence or an increased potential for fraud or collusion." Doc. # 84 at 3 (citing Gowan v. Teamsters Union, 170 F.R.D. 356, 360 (S.D.N.Y. 1997); Feliciano v. Reliant Tooling Co., 691 F.2d 653, 657 (3d Cir. 1988)). The Cornerstone defendants disagree, pointing out that neither of the cases cited by plaintiff supports such a restrictive view. Doc. # 85 at 4. Regardless of the fact the two cited are non-binding out-of-district cases, this Court is not persuaded with plaintiff's interpretation of the holdings in those cases. This Court's reading of these cases reveals that neither court stated or even implied prejudice can only be found if evidence would be lost or fraud might be more likely. See Gowan, 170 F.R.D. at 360; Feliciano, 591 F.2d at 657. Therefore, this Court finds plaintiff's first argument unavailing.

2. The Applicable Statute of Limitations

Plaintiff next claims the Cornerstone defendants' assertion that the applicable statute of limitations would bar them from bringing a third party complaint against Larry C. Fedro for malpractice is in error. Doc. # 84 at 3-4. Plaintiff contends that the Florida statute under which such a complaint would be brought does not apply to the Cornerstonedefendants and, even if it does, the statute has not yet run. Id. (citing Fla. Stat. § 95.11). Plaintiff explains that the Florida statute does not apply to the Cornerstone defendants' complaint against Fedro because the statute only limits actions where the parties are in privity, which plaintiff claims they are not. Id. at 4. Plaintiff further explains that the two year limitations period has not yet run because it did not start until the Cornerstone defendants were served with the FAC on October 11, 2006 and January 10, 2007, since that is "when the cause of action was discovered or should have been discovered with the exercise of due diligence." Id. (emphasis omitted).

The Cornerstone defendants dispute plaintiff's lack of privity argument, claiming they were, in fact in privity with Fedro because they "sought and obtained legal advice from [him]" and thus the two year limitations period applies to them. Doc. # 85 at 5-6. The Cornerstone defendants also dispute plaintiff's calculation of the statute's starting point, contending that the statute began to run when plaintiff received a letter notifying him of the IRS rejection of his tax deduction because that is when plaintiff is alleged to have discovered the fraud at issue. Id. at 6-7. This Court agrees with the Cornerstone defendants. Although this Court declines to determine whether, in fact, the Florida statute of limitations applies to the Cornerstone defendants or whether the statute has run, this Court finds that, based on the authority cited and the record presented here, the Cornerstone defendants will most likely be barred from bringing a third party complaint against Fedro for fraud.

3. Other Grounds

Plaintiff, lastly, argues that the Cornerstone defendants, if barred from bringing a malpractice action against Fedro, could still bring a third party complaint against Fedro based on fraud, negligence, breach of contract, or any other ground not barred by the two year statute of limitationsand, therefore, cannot demonstrate prejudice. Doc. # 84 at 4. The Cornerstone defendants contend that these other grounds are either not available to them or insufficient to afford them the relief they would seek in a malpractice action. See Doc. # 85 at 7-8. This Court finds that, even if the Cornerstone defendants could recover under other theories than malpractice, the availability of other grounds for relief does not alleviate the prejudice to the Cornerstone defendants for being denied the opportunity to seek relief as deemed appropriate due to plaintiff's failure to serve the instant complaint timely.

4. Conclusion

Because none of plaintiff's arguments sufficiently negate the Cornerstone defendants' prejudice showing, this Court finds that the Cornerstone defendants have sufficiently established they will be prejudiced if the instant motion is not granted and, thus, this factor weighs against a good cause finding.

c. Prejudice to Plaintiff

Plaintiff claims he will suffer severe prejudice if the motion is granted because the statute of limitations has run on plaintiff's claims.*fn10 Doc. # 80 at 3-4 (citing De Tie v. Orange County, 152 F.3d 1109, 1111 n.5 (9th Cir. 1988)(noting, in dicta, that a statutory bar may be a sufficient justification to grant an extension of time to serve process)). In his supplemental brief, plaintiff expands on his prejudice argument, contending that he would be barred by California's statutes of limitations from re-filing the "core causes of action in the complaint" if the Cornerstone defendant's motion is granted. See Doc. # 84 at 5.

The FAC states that plaintiff discovered defendants' alleged wrongs in January 2004.*fn11

FAC ¶ 50. The Cornerstone defendants point out plaintiff submits a declaration from counsel, in support of his opposition, that states "all causes of action" would be barred but contradictorily argues, in his supplemental brief, that only the "core causes of action" would be time-barred. Id. The Cornerstone defendants contend this contradiction "makes it almost impossible to determine what prejudice, if any, he will experience if the defendants' motion is granted." Id. at 8-9 (citing Norsyn, Inc. v. Bank of India, 2007 U.S.Dist. LEXIS 19212 at *18 (D.Col. March 19, 2007)(finding the plaintiff's prejudice factor either weighed against a good cause finding or was "neutral" based on lack of information as to the extent of any time-bar)).

This Court disagrees with the Cornerstone defendants. Unlike the plaintiff in Norsyn, plaintiff here presents sufficient information to make an informed decision concerning the extent of any time-bar. According to plaintiff, his various claims carry two, three and four year statutes of limitations under California law (negligence and negligent misrepresentation - two years; fraud and civil conspiracy - three years; breach of fiduciary duty - four years). Doc. # 84 at 5. The Cornerstone defendants do not dispute plaintiff's representation as to the appropriate statute to apply. See Doc. # 85 at 8. Thus, based on plaintiff's representation of the proper limitations period for each claim and upon using the January 2004 date as the starting point, the only claim currently presented in the FAC that would not be barred is the breach of fiduciary duty claim which has a four year limitations period. Therefore, this Court finds that plaintiff has sufficiently shown he will be severely prejudiced if the instant motion is granted because a significant portion of his claims will be barred. Accordingly, this factor weighs in plaintiff's favor.

d. Weighing the Boudette Factors

Based on the above, of the three factors, only plaintiff's severe prejudice weighs in favor of a good cause finding. Plaintiff contends that the severe prejudice of a statute of limitations bar warrants, by itself, a finding of good cause for extending Rule 4(m)'s time constraints. See Doc. # 84 at 5 (citing Mann v. American Airlines, 324 F.3d 1088, 1090 (9th Cir. 2003)). However, this Court finds that neither Rule 4(m)'s explicit language nor the holding in Mann requires the Court to find good cause when a plaintiff demonstrates a statutory timeliness bar but, instead, merely explains that the bar is properly weighed in determining whether to use discretion in granting an extension absent a good cause showing. See Mann, 324 F.3d at 1090. This Court is mindful that plaintiff has shown severe prejudice but that fact, alone, is not enough to warrant a finding of good cause for plaintiff's excessive delay in service of the complaint upon these defendants. Weighing that factor against the Cornerstone defendants' demonstrated prejudice and the lack of actual notice prior to the late service does not, in this Court's view, tip the scales in plaintiff's favor. Accordingly, this Court finds that plaintiff has failed to demonstrate good cause through application of the Boudette factors.

B. Discretionary Extension of Time to Effect Service

Absent a good cause showing, this Court still has the discretion to deny the instant motion and grant plaintiff an extension of Rule 4(m)'s time restraints. The Cornerstone defendants point out that some courts, including one in this District, have declined to grant an extension even when a plaintiff has demonstrated the claims would be statutorily barred if an extension were not granted. See Doc. # 85 at 9-10 (citing Baltierra v. United States Department of Education, 2001 WL 1480297 *2 (S.D.Cal.)(declining to exercise discretion to grant additional time under Rule 4(m) despite statutory bar on some of plaintiff's claims); Glover v. City of New York, 2007 U.S. Dist. LEXIS 7693 at *15 (E.D.N.Y. February 2, 2007)(dismissing action despite statutory bar to re-filing because the plaintiff had already been given an earlier extension and "such inexcusable neglect forfeits the right to proceed on the complaint."); American Commer. Barge Line Co. v. Tug Joan Salton, 2001 WL 262724 *4-5 (S.D.N.Y. March 16, 2001)(dismissing complaint because plaintiff had more than one opportunity to serve timely but still failed to do so)).

After a careful consideration of the circumstances here, this Court finds that the exercise of its discretion to extend Rule 4(m)'s time requirements is not warranted. In October 2005, almost one year after the original complaint was filed, plaintiff was given a de facto extension of time to effect service when the Court granted plaintiff the opportunity to file his FAC by February 2006 and serve it upon the defendants in accordance with Rule 4(m). However, plaintiff still failed to serve the FAC upon the Cornerstone defendants within the required 120 days (due by June 26, 2006 - 120 days after February 28, 2006), effecting service upon these defendants nearly three years after the original complaint was filed and over three months after the 120 day deadline expired. Under these circumstances, this Court is not inclined to exercise its discretion by granting a further extension of time absent a good cause showing. Therefore, plaintiff's FAC is DISMISSED for failure to comply with the time requirements of service under Rule 4(m).

CONCLUSION AND ORDER

Based on the foregoing, IT IS HEREBY ORDERED that the motion of defendants Cornerstone Strategic Advisors, LLC, aka CSA Strategic Advisors, LLC, Roger K. Fuller, and D. Michael Bishop to dismiss plaintiff's first amended complaint for failure to serve the complaint timely pursuant to Federal Rule of Civil Procedure 4(m) [doc. # 77] is GRANTED and the instant complaint is DISMISSED WITHOUT PREJUDICE as against these defendants only.


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