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Thunderbird Resorts Inc. v. Zimmer

United States District Court, S.D. California

March 28, 2018

THUNDERBIRD RESORTS, INC., a British Virgin Isles Corporation, Plaintiff,
v.
MURRAY JO ZIMMER, an individual; ANGULAR INVESTMENTS CORPORATION, a Panama corporation; MITZIM PROPERTIES, INC., a Nevada corporation; and TALOMA ZULU, S.A., a Panamanian corporation; JACK RAY MITCHELL, an individual, Defendants.

          ORDER: 1. GRANTING DEFENDANT ANGULAR INVESTMENTS CORPORATION'S MOTION TO SET ASIDE ENTRY OF DEFAULT [DOC. NO. 70]; and 2. SETTING A HEARING DATE ON DEFENDANT ANGULAR INVESTMENTS CORPORATION'S MOTION TO DISMISS PURSUANT TO FRCP 12(b)(2), (6), (7) [DOC. NO. 80]

          Hon. John a. Houston United States District Judge.

         INTRODUCTION

         This matter comes before the Court on two motions by Defendant Angular Investments Corporation: (1) a motion to set aside default and default judgment, if any [Doc. No. 79]; and (2) a motion to dismiss Pursuant to Federal Rules of Civil Procedure (“Fed.R.Civ.P.”) 12(b)(2), (6), and (7) for lack of jurisdiction, failure to state a claim, and failure to join a party [Doc. No. 80]. After a careful review of the parties' submissions, and for the reasons set forth below, Defendant's Motion to Set Aside Default is GRANTED and a hearing date SET on Defendant's Motion to Dismiss for Lack of Jurisdiction.

         BACKGROUND

         I. Factual Background

         This matter arises from the international business dealings of two foreign corporations. In 2002, Plaintiff Thunderbird Resorts Inc., a British Virgin Isles corporation (“Plaintiff” or “Thunderbird”) partnered with Defendant Angular Investments Corporation, a Panamanian corporation (“Defendant” or Angular”), forming Grupo Thunderbird de Costa Rica, S.A. (“GTCR”) to operate casinos and related businesses in Costa Rica. Doc. No. 28 at 4-5. Murray Jo Zimmer (“Zimmer”), controlled and operated the business activities of Angular, oversaw the day-to-day operations of the partnership as president of GTCR, and acted as the “country manager” for Plaintiff's operations in Costa Rica. Plaintiff and Defendant Angular agreed to split GTCR's profits equally. Id. However, Plaintiff alleges that between July 2007 and September 2014, Defendant Angular, by and through co-defendant Zimmer convinced Plaintiff to authorize GTCR to pay over $2 million to co-defendant Taloma Zulu, a Panamanian corporation (“TZ”), under false pretenses. Id. Defendant Zimmer advised Plaintiff the payments were for legal and consulting fees and Plaintiff alleges it approved distribution of the fees on this basis. Id. Instead, the funds were paid back to Zimmer, co-defendant Mitzim Properties, Inc (“Mitzim”)[1], which has its principal place of business in California, and others, without Plaintiff's knowledge. In 2015, Plaintiff discovered that over $550, 000 of the funds GTCR paid to Defendant TZ were redirected to Defendant Zimmer in a matter of days. Id.

         II. Procedural Background

         On June 12, 2015, Plaintiff filed a Complaint against Defendants Zimmer, Angular, Mitzim and TZ alleging seven causes of action including breach of fiduciary duty and fraud, a civil RICO claim under 18 U.S.C. § 1961, et seq against all defendants, a state tort action for conversion and equitable claims for constructive trust and accounting. Doc. No. 1. Proof of service, as to Defendant Mitzim was returned executed on July 2, 2015. See Doc. No. 4. On July 13, 2015, Defendant Mitzim answered the Complaint. See Doc. No. 8.

         On September 11, 2015, Plaintiff filed its FAC adding an eighth claim for Breach of Contract and joining Defendant Jack R. Mitchell, the former CEO of Thunderbird and Zimmer's partner in Mitzim Properties. See Doc. No. 28. On December 31, 2015, Plaintiff moved for issuance of Letters Rogatory, as to Defendants Angular and TZ. See Doc. Nos. 45, 46. This Court granted Plaintiff's motions on March 15, 2016, [doc. nos. 54, 55], and requests for international judicial assistance were sent to the appropriate judicial authorities of the Republic of Panama (“Panama”). See Doc. Nos. 54, 55.

         On December 19, 2016, Plaintiff filed proof of service via Letters Rogatory, asserting that service was effected on Angular Investments Corporation's registered agent for service of process on or about August 18, 2016, in accordance with Fed.R.Civ.P. 4(f)(1) and 4(h)(2) and the Inter-American Convention on Letters Rogatory and Additional Protocol. Doc. No. 63.

         On December 30, 2016, Plaintiff filed a request for entry of Clerk default against Defendant Angular. See Doc. Nos. 65. The Clerk of Court entered default against Angular on January 03, 2017. Doc. No. 67.

         On January 27, 2017, Plaintiff filed a motion for default judgment against Angular. Doc. No. 69. The motion went unopposed. This Court held a hearing on Plaintiff's motion. Doc. No. 74. Attorney David H. Lichtenstein appeared on behalf of Thunderbird. Doc. No. 73. Defendant Angular did not appear. Id. On the same date, March 20, 2017, the Court issued a minute order granting Plaintiff's motion for default judgment against Angular and directing Plaintiff to supplement the pleadings regarding damages above “$657, 975 [sic][2]…” Doc. No. 74.

         On April 6, 2017, Plaintiff timely filed its supplemental brief on damages. Doc. No. 75. On May 4, 2017, Defendant Angular appeared and filed a motion to set aside entry of default and default judgment, if any. Doc. Nos. 79, 80. Defendant also incorporated by reference and filed concurrently a motion to dismiss the FAC pursuant to Fed.R.Civ.P. 12(b)(2), (6), and (7). On the same date, Defendant Angular filed a disclosure statement and notice of party with financial interest, pursuant to Fed.R.Civ.P. 7.1 and CivLR 40.2. Doc. No. 81. Defendant Angular's fully briefed motions are now before the Court.

         DISCUSSION

         I. Legal Standard

         Under Fed.R.Civ.P. 4(k), “[s]erving a summons... establishes personal jurisdiction over a defendant who is subject to the jurisdiction of a court of general jurisdiction in the state where the district court is located….” California's long arm statute extends personal jurisdiction to the limit allowed by the Due Process Clause of the federal Constitution. Cal. Civ. Proc. Code § 410.10; Schwarzenegger v. Fred Martin Motor Company, 374 F.3d 797, 800-801 (9th Cir. 2004). Additionally, under the federal long-arm statute, federal courts are permitted “to exercise personal jurisdiction over a defendant that lacks contacts with any single state if the complaint alleges federal claims and the defendant maintains sufficient contacts with the United States as a whole.” Getz v. Boeing Co., 654 F.3d 852, 858 (9th Cir. 2011) (citing Rule 4(k)(2), Fed.R.Civ.P.). However, due process precludes a court from asserting jurisdiction over a defendant unless the defendant has certain minimum contacts with the forum state. In circumstances where a defendant's contacts with a state “are so ‘substantial' or ‘continuous and systematic' as to render [it] essentially at home in the forum State, ” general jurisdiction may be exercised. Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011). “Activity by the defendant need not physically take place in the forum state so as to constitute sufficient contact under the due process test .... The Supreme Court has consistently rejected the notion that absence of physical contacts with a forum state can defeat personal jurisdiction, ‘[s]o long as a commercial actor's efforts are purposefully directed toward residents of another State.' ” Haisten v. Grass Valley Medical Reimbursement Fund, Ltd., 784 F.2d 1392, 1398 (9th Cir.1986) citing Burger King, 471 U.S. at 475-477. In tort cases, “the purposeful direction or availment requirement for specific jurisdiction is analyzed under the ‘effects' test”. Dole, 303 F.3d at 1111 (citing Calder v. Jones, 465 U.S. 783 (1984). A court may exercise specific jurisdiction over a defendant where: (1) the defendant has intentionally acted and purposefully directed his or her activities at the forum state itself or residents of the forum state; (2) the plaintiff's claim arises out of or relates to those activities; (3) defendant's acts cause harm that the defendant knows is likely to be suffered in the forum state and (4) the assertion of personal jurisdiction is reasonable and fair. Id.; Schwarzenegger, 374 F.3d at 802; see also Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985).

         The overriding constitutional principle is that maintenance of an action in the forum must not offend “traditional conception[s] of fair play and substantial justice.” International Shoe Co. v. Washington, 326 U.S. 310, 320 (1945). Each defendant's connection with the forum state must be independently assessed to determine jurisdiction. Calder, 465 U.S. at 790.

         Even where personal jurisdiction is determined to be appropriate, “[a] federal court is without personal jurisdiction over a defendant unless the defendant has been served in accordance with Fed.R.Civ.P. 4 (citations omitted).” Travelers Cas. & Sur. Co. of Am. v. Brenneke, 551 F.3d 1132, 1135 (9th Cir. 2009). “So long as a party receives sufficient notice of the complaint, Rule 4 is to be liberally construed to uphold service. However, neither actual notice nor simply naming the defendant in the complaint will provide personal jurisdiction without substantial compliance with Rule 4.” (Citations and quotes omitted). Id. When serving a corporation outside of the United States, service must comport with an internationally agreed upon means, if any, that is reasonably calculated to give notice. See Fed.R.Civ.P. 4(h)(2); 4(f)(1). Unless waived, proof of service must be provided to the court according to the applicable treaty or convention. Fed.R.Civ.P. 4(1)(2)(A).

         If sufficient notice is provided, failure to make a timely answer or otherwise defend will justify entry of default. Fed.R.Civ.P. 55(a). Rule 55(c) of the Federal Rules of Civil Procedure permits a federal court to “set aside an entry of default for good cause, and … set aside a final default judgment under Rule 60(b).” Although the requisites for setting aside an entry of default under Rule 55(c) are less rigorous than those for setting aside a judgment, the Court should consider the factors in Falk v. Allen, 739 F.2d 461 (9th Cir.1984. Franchise Holding II, LLC. v. Huntington Restaurants Grp., Inc., 375 F.3d 922, 925 (9th Cir. 2004); See also Hawaii Carpenters' Trust Funds v. Stone, 794 F.2d 508, 513 (9th Cir.1986). These factors include: “(1) whether the plaintiff will be prejudiced, (2) whether the defendant has a meritorious defense, and (3) whether culpable conduct of the defendant led to the default.” Brandt v. Am. Bankers Ins. Co. of Fla., 653 F.3d 1108, 1111 (9th Cir.2011) (quoting Falk, 739 F.2d at 463). The Court is free to deny relief on any of these three bases. Id. (quoting Franchise Holding II, 375 F.3d at 926). However, it need not deny relief based solely upon a finding of defendant's culpability, when a meritorious defense is presented and prejudice to the Plaintiff can be cured. See Brandt, 653 F.3d at 1111. The party moving to set aside default has the burden of proving that it is entitled to relief. Id. “Where timely relief is sought from a default ... and the movant has a meritorious defense, doubt, if any, should be resolved in favor of the motion to set aside the [default] so that cases may be decided on their merits.” Mendoza v. Wight Vineyard Mgmt., 783 F.2d 941, 945-46 (9th Cir. 1986) (quoting Schwab v. Bullock's Inc., 508 F.2d 353, 355 (9th Cir. 1974)).

         II. ANALYSIS

         A. Motion to Set Aside Default and any Default Judgment

         Angular moves to set aside default and default judgment, if any, pursuant to Fed.R.Civ.P. 55(c), or alternatively, Rule 60(b). Filed concurrently, and incorporated by reference in its motion to set aside default, Angular asserts four defenses in a motion to dismiss.Angular moves to dismiss Plaintiff's FAC on the grounds that: (1) this Court lacks personal jurisdiction (Fed.R.Civ.P. 12(b)(2)); (2) Plaintiff lacks standing to pursue the claims asserted, (3) the FAC fails to join a party under Rule 19 ...


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