Maverick Bankcard, Inc. v. Nurture Solutions, LLC ( 2023 )

O 1 2 3 4 5 6 7 8 United States District Court 9 Central District of California 10 11 MAVERICK BANKCARD, INC., Case № 2:22-cv-02875-ODW (JPRx) 12 Plaintiff, ORDER DENYING PLAINTIFF’S 13 v. MOTION FOR DEFAULT JUDGMENT [43]; AND 14 NURTURE SOLUTIONS, LLC et al., DISMISSING COMPLAINT WITH 15 Defendants. LEAVE TO AMEND 16 17 I. INTRODUCTION 18 Plaintiff Maverick Bankcard, Inc., moves for entry of default judgment against 19 Defendant Marc Torre. (Mot. Default J. (“Mot.”), ECF No. 43.) For the reasons 20 discussed below, the Court DENIES Maverick’s Motion.1 21 II. BACKGROUND2 22 On or about June 24, 2021, Maverick and Defendant Nurture Solutions, LLC 23 entered into a written Merchant Account Agreement (the “Agreement”). (Compl. 24 ¶ 12, ECF No. 1; id. Ex. A (“Agreement”), ECF No. 1-1.) Defendant Dane Kania 25 signed and executed the Agreement on behalf of Nurture and also personally 26 27 1 Having carefully considered the papers filed in connection with the Motion, the Court deemed the 28 matter appropriate for decision without oral argument. Fed. R. Civ. P. 78; C.D. Cal. L.R. 7-15. 2 The Court derives the background facts from Maverick’s Complaint. (See Compl., ECF No. 1.) 1 guaranteed Nurture’s obligations under the Agreement. (Id. ¶¶ 12–13; Agreement 3, 2 4.) Defendants Torre and Kania own and share a unity of interest with Nurture. 3 (Compl. ¶¶ 5, 14.) 4 Under the terms of the Agreement, Maverick agreed to provide credit and debit 5 card processing services for Nurture, and Nurture agreed to limit transaction volume, 6 bear responsibility for chargebacks,3 and pay all amounts due to Maverick. (Id. ¶ 16.) 7 However, Nurture exceeded its transaction volume limit, incurred excessive 8 chargebacks, and failed to pay Maverick amounts due. (Id. ¶ 17.) As a result, 9 Maverick sustained more than $200,000 in damages. (Id. ¶ 20.) 10 On April 29, 2022, Maverick filed this action alleging a single cause of action 11 for breach of contract against Torre, Kania, and Nurture. (See generally Compl.) In 12 the Complaint, Maverick alleges that Torre is liable for Nurture’s breach of the 13 Agreement because he is Nurture’s alter ego. (Id. ¶¶ 21, 26.) 14 Maverick served the Complaint on Torre, and Torre returned a waiver of 15 service acknowledging receipt. (Waiver Serv., ECF No. 23.) However, Torre did not 16 timely answer or respond to Maverick’s Complaint. Accordingly, on Maverick’s 17 request, the Clerk entered Torre’s default on August 3, 2022. (Req. Default, ECF 18 No. 27; Default, ECF No. 28.) 19 On June 21, 2023, Maverick notified the Court that Maverick, Nurture, and 20 Kania had reached an agreement. As such, the Court granted Maverick’s request to 21 dismiss Nurture and Kania. (Min. Order Dismissal, ECF No. 42.) Following the 22 dismissal, Torre is the only Defendant remaining in this action. (See id.) Thus, 23 Maverick now moves for entry of default judgment against Torre. (Mot.) 24 III. LEGAL STANDARD 25 Federal Rule of Civil Procedure (“Rule”) 55(b) authorizes a district court to 26 grant default judgment after the Clerk enters default under Rule 55(a). However, 27 28 3 A “chargeback” results when a merchant accepts a credit card payment that is later disputed by the credit card holder. (Decl. Benjamin Griefer ISO Mot. (“Griefer Decl.”) ¶ 14, ECF No. 43-2.) 1 before a court can enter a default judgment against a defendant, the plaintiff must 2 satisfy the procedural requirements in Rules 54(c) and 55, and Central District Civil 3 Local Rules 55-1 and 55-2. Even when these procedural requirements are satisfied, 4 “[a] defendant’s default does not automatically entitle the plaintiff to a court-ordered 5 judgment.” PepsiCo, Inc., v. Cal. Sec. Cans, 238 F. Supp. 2d 1172, 1174 (C.D. Cal. 6 2002) (citing Draper v. Coombs, 792 F.2d 915, 924–25 (9th Cir. 1986)). Instead, 7 “[t]he district court’s decision whether to enter a default judgment is a discretionary 8 one.” Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). Generally, after the 9 Clerk enters a default, the defendant’s liability is conclusively established, and the 10 well-pleaded factual allegations in the plaintiff’s complaint, except those pertaining to 11 the amount of damages, “will be taken as true.” TeleVideo Sys., Inc. v. Heidenthal, 12 826 F.2d 915, 917–18 (9th Cir. 1987) (per curiam). 13 IV. DISCUSSION 14 Default judgment is not appropriate here because, at a minimum, Maverick fails 15 to: establish the Court may exercise personal jurisdiction over Torre; show the 16 Servicemembers Civil Relief Act does not apply; or state a claim against Torre. 17 A. Jurisdictional Deficiencies 18 Maverick fails to establish that the Court may exercise personal jurisdiction 19 over Torre. 20 “In most circumstances, a defect in personal jurisdiction is a defense that may 21 be asserted or waived by a party.” In re Tuli, 172 F.3d 707, 712 (9th Cir. 1999). 22 However, when a court considers “whether to enter a default judgment, it may dismiss 23 an action sua sponte for lack of personal jurisdiction.” Id.; see also Zheng v. Li, 24 No. 2:18-cv-8387-PA (JEMx), 2019 WL 1670751, at *2 (C.D. Cal. Mar. 1, 2019) 25 (“[B]efore entering a default judgment, a court must consider whether it has personal 26 jurisdiction over the defaulting defendant . . . .”). 27 Consistent with due process, a court may exercise personal jurisdiction over a 28 defendant if they “have certain minimum contacts with [the forum state] such that the 1 maintenance of the suit does not offend ‘traditional notions of fair play and substantial 2 justice.’” Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (quoting Milliken v. 3 Meyer, 311 U.S. 457, 463 (1940)); Glencore Grain Rotterdam B.V. v. Shinvath Rai 4 Hanarain Co., 284 F.3d 1114, 1123 (9th Cir. 2002). A non-resident defendant may be 5 subject to either general or specific personal jurisdiction. Fed. Deposit Ins. Corp. v. 6 British-Am. Ins. Co., 828 F.2d 1439, 1442 (9th Cir. 1987). 7 General jurisdiction applies where a defendant’s activities in the state are 8 “substantial” or “continuous and systematic.” Sher v. Johnson, 911 F.2d 1357, 1361 9 (9th Cir. 1990). For specific jurisdiction, the Ninth Circuit applies a three-prong test 10 to determine whether a defendant’s contacts with the forum state are sufficient to 11 render the exercise of specific jurisdiction reasonable: (a) the nonresident defendant 12 purposefully directs activities or consummates some transaction with the forum-state, 13 or performs some act by which they personally avail themselves of the privilege of 14 conducting activities in that forum; (b) the claim arises out of or relates to the 15 defendant’s forum-related activities; and (c) the exercise of jurisdiction comports with 16 fair play and substantial justice, i.e., it is reasonable. Schwarzenegger v. Fred Martin 17 Motor Co., 374 F.3d 797, 802 (9th Cir. 2004). The party asserting jurisdiction, here 18 Maverick, bears the burden of satisfying the first two prongs of this test. Id. 19 Under the first prong’s purposeful availment test, in contract cases like this, 20 courts look to whether the defendant took actions “such as executing or performing a 21 contract” demonstrating that it “purposefully avail[ed] [it]self of the privilege of 22 conducting activities in the forum, thereby invoking the benefits and protections of its 23 laws.” Id. That a defendant entered into a contract with a forum resident is not 24 sufficient, alone, to establish purposeful availment. See Burger King Corp. v. 25 Rudzewicz, 471 U.S. 462, 478 (1985). Rather, to have purposefully availed itself of 26 the privilege of doing business in the forum, a defendant must have “performed some 27 type of affirmative conduct which allows or promotes the transaction of business 28 within the forum state.” Sher, 911 F.2d at 1362. 1 The plaintiff bears the burden of demonstrating that the exercise of personal 2 jurisdiction is proper. Ziegler v. Indian River County, 64 F.3d 470, 473 (9th Cir. 3 1995). The plaintiff cannot “simply rest on the bare allegations of its complaint,” and 4 although well-pleaded allegations are taken as true, Schwarzenegger, 374 F.3d at 800, 5 “bare bones assertions of minimum contacts with the forum or legal conclusions 6 unsupported by specific factual allegations will not satisfy a plaintiff’s pleading 7 burden,” Swartz v. KPMG LLP, 476 F.3d 756, 766 (9th Cir. 2007) (internal quotation 8 marks omitted). 9 First, Maverick does not allege facts establishing that Torre’s citizenship or 10 waiver of service subject him to general jurisdiction in California. Maverick alleges 11 only that Torre’s residence is unknown, (Compl. ¶ 3), and the record reflects that 12 Torre is a resident and citizen of Utah, (see Decl. Trevor R. Witt ISO OSC Resp. ¶ 8, 13 ECF No. 12 (attesting that Torre resides in Utah); Waiver Serv. (reflecting that Torre 14 executed the waiver of service in Utah).) Thus, Torre is not subject to general 15 personal jurisdiction as a resident or citizen of California. Additionally, Torre’s 16 waiver of service alone does not establish this Court’s personal jurisdiction over him. 17 C.f. Fed. R. Civ. P. 4(k)(1)(A) (providing that a waiver of service establishes personal 18 jurisdiction over a defendant “who is subject to the jurisdiction of a court of general 19 jurisdiction in the state where the district court is located.”). 20 Next, Maverick has not alleged any facts to satisfy the specific jurisdiction 21 purposeful availment test. Maverick alleges that Torre, Kania, and Nurture 22 “transacted sufficient business with the State of California such that it is proper for a 23 California-situated court to exercise both specific and general personal jurisdiction 24 over each of them.” (Compl. ¶ 11.) This is a legal conclusion, unsupported by any 25 factual allegations, and does not suffice to establish any form of personal jurisdiction 26 over Torre. See Swartz, 476 F.3d at 766. The only apparent connection to California 27 in this case is Maverick’s location. (See Compl. ¶ 1.) But Maverick’s location in 28 California is also insufficient to establish personal jurisdiction over Torre. See Axiom 1 Foods, Inc. v. Acerchem Int’l, Inc., 874 F.3d 1065, 1068 (9th Cir. 2017) (“[T]he 2 minimum contacts analysis examines ‘the defendant’s contacts with the forum State 3 itself, not the defendant’s contacts with persons who reside there.’” (quoting Walden 4 v. Fiore, 571 U.S. 277, 285 (2014))). 5 As Maverick fails to establish personal jurisdiction over Torre, the Court 6 DENIES the Motion for Default Judgment on this basis. 7 B. Procedural Deficiencies 8 Additionally, Maverick fails to satisfy the procedural requirements for entry of 9 default judgment. 10 Local Rule 55-1 requires that the movant establish: (1) when and against which 11 party default was entered; (2) the pleading to which default was entered; (3) whether 12 the defaulting party is a minor or incompetent person; (4) that the Servicemembers 13 Civil Relief Act (“SCRA”) does not apply; and (5) that the defaulting party was 14 properly served with notice if required under Rule 55(b)(2). 15 Regarding the fourth requirement, the SCRA protects servicemembers from 16 default judgments entered in their absence while they are in military service. See 17 50 U.S.C. § 3931(b); C.D. Cal. L.R. 55-1. Accordingly, a plaintiff seeking entry of 18 default judgment must file an affidavit stating whether the SCRA applies, i.e., whether 19 the defendant is in military service. 50 U.S.C. § 3931(b)(1); C.D. Cal. L.R. 55-1(d). 20 If the court is “unable to determine whether the defendant is in military service” based 21 on the affidavits submitted, the court “may require the plaintiff to file a bond in an 22 amount approved by the court” before entering judgment. 50 U.S.C. §3931(b)(3) (“If 23 the defendant is later found to be in military service, the bond shall be available to 24 indemnify the defendant . . . should the judgment be set aside in whole or in part.”). 25 Maverick submits an affidavit stating it is “unable to determine whether 26 Defendant Torre is a member of the U.S. military currently on active duty, or whether 27 he is a U.S. citizen serving in the military of a U.S. ally in the prosecution of a war or 28 military action.” (Decl. Trevor R. Witt ISO Mot. (“Witt Decl.”)¶ 12, ECF No. 43-3.) 1 Maverick requests that the Court make this determination for it. (See Mot. 5.) Based 2 on the affidavits Maverick submits, the Court is unable to determine whether Torre is 3 in military service such that the SCRA applies. Accordingly, before the Court will 4 consider entry of default judgment against Torre, Maverick must establish either 5 (i) that the SCRA does not apply, or (ii) that Maverick is willing and able to post a 6 bond equal to the amount of damages it seeks from Torre. 7 At this time, as Maverick fails to establish that the SCRA does not apply, the 8 Court DENIES the Motion on this basis. 9 C. Pleading Deficiencies 10 Finally, Maverick fails to state a claim against Torre in the Complaint. 11 In considering whether entry of default judgment is warranted, courts consider 12 the “Eitel factors”: (1) the possibility of prejudice to plaintiff; (2) the merits of 13 plaintiff’s substantive claim; (3) the sufficiency of the complaint; (4) the sum of 14 money at stake; (5) the possibility of a material factual dispute; (6) whether the default 15 was due to excusable neglect, and (7) the strong policy favoring decisions on the 16 merits. See Eitel v. McCool, 782 F.2d 1470, 1471–72 (9th Cir. 1986). “Of all the Eitel 17 factors, courts often consider the second and third factors to be the most important.” 18 Viet. Reform Party v. Viet Tan-Viet. Reform Party, 416 F. Supp. 3d 948, 962 (N.D. Cal. 19 2019) (internal quotation marks omitted). 20 The second and third Eitel factors require a plaintiff to “state a claim on which 21 the [plaintiff] may recover.” PepsiCo, 238 F. Supp. 2d at 1175 (alteration in original). 22 Although well-pleaded allegations are established as true on default, “necessary facts 23 not contained in the pleadings, and claims which are legally insufficient, are not 24 established by default.” Cripps v. Life Ins. Co. of N. Am., 980 F.2d 1261, 1267 25 (9th Cir. 1992). 26 Maverick asserts a single cause of action against all Defendants for breach of 27 contract. (Compl. ¶¶ 23–29.) Under California law,4 to state a claim for breach of 28 4 California law governs the Agreement. (Griefer Decl. Ex. 1 at 10, ¶ 38, ECF No. 43-2.) 1 contract, a plaintiff must establish the existence of a valid contract, the plaintiff’s 2 performance or excuse for nonperformance, defendant’s breach, and resulting 3 damages to the plaintiff. See Oasis W. Realty, LLC v. Goldman, 51 Cal. 4th 811, 821 4 (2011). Here, Maverick alleges that Kania executed the Agreement on behalf of 5 Nurture, Maverick performed, Nurture breached the Agreement by failing to limit 6 transactions and failing to pay Maverick amounts due, and that Maverick has been 7 damaged as a result of Nurture’s breach. (Compl. ¶¶ 16–20.) These allegations may 8 state a claim for breach of contract against Nurture, but they do not state a claim 9 against Torre. 10 Rather than argue Torre is directly liable, Maverick alleges that Torre is liable 11 for Nurture’s breach of the Agreement because Torre is Nurture’s alter ego. (Compl. 12 ¶¶ 15, 21, 26.) A corporate entity may be found to be the alter ego of its members or 13 shareholders, which allows a plaintiff to hold the members liable for the entity’s 14 harms. Watson v. Commonwealth Ins. Co. of N.Y., 8 Cal. 2d 61, 68 (1936). To state a 15 claim based on alter ego liability, a plaintiff must establish that (1) there is “such unity 16 of interest and ownership that the separate personalities of the corporation and the 17 individual no longer exist,” and (2) the failure to disregard the corporation would 18 result in injustice. Associated Vendors, Inc. v. Oakland Meat Co., 210 Cal. App. 2d 19 825, 837 (1962). 20 In support of alter ego liability against Torre, Maverick alleges “there existed a 21 unity of interest and ownership between” Nurture, Torre, and Kania, “such that any 22 individuality or separateness between them has ceased.” (Id. ¶ 14.) Maverick 23 continues that “the activities and business of [Nurture] were carried out without the 24 holding of directors’ or shareholders’ meetings, and/or without maintaining records or 25 minutes of any such proceedings.” (Id.) Lastly, Maverick alleges that Torre and 26 Kania co-mingled their assets with Nurture and used Nurture to enter into contracts 27 for their own personal benefit. (Id.) 28 1 These allegations do not establish that Torre should be held liable for Nurture’s 2 conduct as its alter ego. They consist of statements of law drawn directly from case 3 authority and culminate with the legal conclusion of alter ego liability. These 4 allegations could appear in any pleading alleging alter ego and are not specific to this 5 case. The Court need not accept general statements of law or legal conclusions as true 6 on default. Beyond these generic statements of alter ego law, Maverick offers no 7 factual allegations specific to this case or these parties that would support the alleged 8 “unity of interest,” the nature of Nurture’s business activities, or Torre’s co-mingling 9 of assets. Absent any supporting factual allegations, Maverick fails to state a claim to 10 recover against Torre under a theory of alter ego liability. 11 Maverick raises a number of additional facts and arguments for Torre’s liability 12 in its Motion and supporting declarations. (See generally Mot; Griefer Decl.; Decl. 13 Dane Kania ISO Mot., ECF No. 43-4.) However, these facts and arguments do not 14 appear in the Complaint and therefore do not aid Maverick in pleading a claim against 15 Torre. See Alan Neuman Prods. v. Albright, 862 F.2d 1388, 1392–93 (9th Cir.1988) 16 (reversing default judgment for plaintiff on RICO claims because the complaint failed 17 sufficiently to allege such claims), cert. denied, 493 U.S. 858 (1989). 18 Maverick’s failure to state a claim against Torre on which it may recover is an 19 additional reason the Court DENIES the Motion.5 20 V. CONCLUSION 21 For the reasons discussed above, the Court DENIES Maverick’s Motion for 22 Entry of Default Judgment against Torre. (ECF No. 43.) 23 24 25 5 Further grounds for denial exist. For instance, Maverick submits evidence purportedly supporting its requested damages, but the printed spreadsheet is unwieldy, with miniscule print spanning dozens 26 of pages. (See Griefer Decl. Ex. 2, ECF No. 43-2); c.f. C.D. Cal. L.R. 11-3.1. Maverick also offers minimal explanation of these documents or how they establish the relief demanded. See Gibson v. 27 Swift Transp. Co. Ariz., No. 5:20-cv-00318-ODW (SPx), 2021 WL 5069585, at *4 (C.D. Cal. 28 May 20, 2021) (“Parties should not submit puzzle pieces as exhibits and expect the Court to build a mosaic on the courtroom walls to decipher whether [damages] should be granted.”). 1 In light of the lack of personal jurisdiction and Maverick’s failure to state a 2 || well-pleaded claim against Torre, the Court sua sponte DISMISSES the Complaint 3 || with leave to amend limited to curing the above-identified deficiencies. Amendments 4|| beyond the scope of this specified leave will not be accepted. Accordingly, the Court 5 || VACATES the default entered against Torre. (ECF No. 28.) 6 If Maverick elects to file an amended complaint, it must do so no later than fourteen days after the date of this Order. Maverick must serve the amended 8 | complaint on Torre within twenty-one days of filing it with the Court and file a proof 9 | of service with the Court immediately thereafter. If Maverick fails to timely file an 10 || amended complaint, the Court will close this case. 11 12 IT IS SO ORDERED. 13 14 December 11, 2023 15 Ser, es 7 OTIS D. HT, II ig UNITED STATES DISTRICT JUDGE 19 20 21 22 23 24 25 26 27 28