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Shuster v. Shuster

United States District Court, D. Arizona

January 1, 2017

Jason and Devon Shuster, Plaintiffs,
v.
Stanford Jay Shuster, Defendant.

          ORDER AND OPINION [Re: Motions at Dockets 5 and 8]

          JOHN W. SEDWICK SENIOR JUDGE, UNITED STATES DISTRICT COURT

         I. MOTIONS PRESENTED

         At docket 5 defendant Stanford Jay Shuster (“Defendant”) moves, pursuant to Federal Rule of Civil Procedure 12(b)(2), for an order dismissing the complaint of plaintiffs Jason and Devon Shuster (“Plaintiffs”), supported by a declaration from his counsel, Brian P. Worthington (“Worthington”), at docket 6, and his own declaration at docket 7. At docket 8 Plaintiffs move to strike the motion and, alternatively, oppose it. At docket 9 Defendant opposes Plaintiffs' motion and replies in support of his motion, supported by a second declaration from himself at docket 11 and a second declaration from Worthington at docket 12. At docket 10 Defendant objects to certain evidence Plaintiffs submitted in support of their filing at docket 8.[1] Finally, at docket 13, Plaintiffs reply in support of their motion.

         Oral argument was requested but would not assist the court.

         II. BACKGROUND

         This case involves a series of disputes between Plaintiffs and Defendant. According to the complaint, plaintiff Jason Shuster (“Jason”) and his father, Defendant, each owned 50% of three companies: Arthur Shuster, Inc. (“ASI”), Lodging Supply, Inc. (“LSI”), and Shuster Purchasing Solutions, LLC (“SPS”) (collectively, “the Companies”). “In mid-2014, disagreements emerged between [Defendant] on one hand and [Plaintiffs] on the other regarding the control and direction of the Companies and the amount of money [Defendant] was taking out of the Companies.”[2] This led Jason and Defendant to execute a settlement agreement under which they terminated their co-ownership of the Companies (“Settlement Agreement”): Defendant sold his interest in SPS to Jason in exchange for Jason's interests in ASI and LSI.

         The parties' current dispute centers around Plaintiffs' allegation that Defendant has failed to honor certain obligations under the Settlement Agreement. Plaintiffs filed an action against Defendant in Arizona Superior Court involving four causes of action: (1) a declaration that the Settlement Agreement is enforceable and of the parties' rights and responsibilities thereunder; (2) breach of contract; (3) bad faith; and (4) specific performance. Defendant removed the case to this court under 28 U.S.C. § 1441(b) and now moves to dismiss for lack of personal jurisdiction.

         III. STANDARDS OF REVIEW

         Plaintiffs' motion to strike is governed by Local Rule of Civil Procedure 7.2(m)(1), which states that a party may file a motion to strike “if the party seeks to strike any part of a filing on the ground that it is not authorized by statute, rule, or court order.” With regard to Defendant's motion, “[w]here a defendant moves to dismiss a complaint [pursuant to Rule 12(b)(2)] for lack of personal jurisdiction, the plaintiff bears the burden of establishing that a court has personal jurisdiction over a defendant.”[3] If, as here, the motion is based only upon written materials, rather than an evidentiary hearing, the plaintiff is required only to make a prima facie showing of personal jurisdiction.[4] Uncontroverted allegations in the complaint are taken as true, and conflicts between parties over statements contained in affidavits are resolved in favor of the plaintiff.[5]

         “Where, as here, there is no applicable federal statute governing personal jurisdiction, the district court applies the law of the state in which the district court sits.”[6]Arizona Rule of Civil Procedure 4.2(a) authorizes the exercise of jurisdiction to the extent permitted by federal due process requirements.[7] Due process requires that the defendant “have certain minimum contacts with [the forum] such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.”[8]

         IV. DISCUSSION

          A. Plaintiffs' Motion to Strike

         Rule 55(a) provides that “[w]hen a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise, the clerk must enter the party's default.” The parties agree that Defendant failed to plead or otherwise defend by the October 6, 2016 deadline for doing so. Plaintiffs filed a default application the next day at 2:29 p.m.[9] But, at 4:43 p.m. later that same day, and before the clerk decided Plaintiffs' default application, Defendant filed the present motion to dismiss. In light of Defendant's motion, the clerk did not grant Plaintiffs' default application.

         Plaintiffs now move to strike Defendant's motion, arguing that the clerk must enter Defendant's default even though he appeared and defended before the clerk ruled on their application. This argument is contrary to the plain language of Rule 55(a) and the case law interpreting it. Plaintiffs' motion will be denied.

         Plaintiffs' argument founders where they contend Rule 55(a)'s “metric for failure is whether or not a party files a responsive pleading or evidences some intent to defend on or before the deadline to file an Answer.”[10] This reads language into the rule that does not exist (“on or before the deadline to file an Answer”) and ignores the word “has” that appears before “failed.” Because “failed” is proceeded by the present-tense verb “has, ” Rule 55(a) describes a present failure, not one that happened in the past. Thus, the clerk must enter a defendant's default only where the defendant has not yet appeared and defended. Here, Defendant had clearly appeared and defended by the time the clerk reviewed Plaintiffs' default application. Under the circumstances, the clerk correctly refrained from entering his default.

         Although it is relatively rare that a defendant will answer or otherwise defend in the narrow window between the filing of a default application and the clerk's decision on that application, this court addressed this exact scenario in Cowen v. Aurora Loan Servs.[11] The Cowen plaintiffs applied for entry of default on August 5, 2010. One day later, and before the clerk entered the defendant's default, the defendant filed a motion to dismiss. Because the defendant's motion “constitute[ed] otherwise defending an action” under Rule 55(a), the court held that “[e]ntry of default [was] not appropriate.”[12]

         Other courts are in accord.[13] These decisions are consistent with Rule 55(a), Rule 1, [14]and “the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits.”[15]

         The one case Plaintiffs cite in support of their argument, McManus v. Am. States Ins. Co., [16] is factually distinguishable. In McManus, the court could not determine whether the clerk granted the plaintiff's application for entry of default before or after the defendant filed its answer.[17] Given this missing information, the court constructively “deem[ed] the default to have been entered” when the application was received and lodged by the clerk.[18] And, because this event happened before the defendant filed its answer, the court held that the clerk's entry of default was appropriate. Here, in contrast, there is no dispute that Defendant appeared and defended before the clerk entered his default. McManus is inapposite.

         B. Specific Personal Jurisdiction Exists

         As stated above, jurisdiction exists here to the extent allowed under federal due process jurisprudence. Due process allows the exercise of both general and specific personal jurisdiction. The broader of the two, general personal jurisdiction, “requires that the defendant have ‘continuous and systematic' contacts with the forum state and confers personal jurisdiction even when the cause of action has no relationship with those contacts.”[19] “Specific jurisdiction, on the other hand, must be based on activities that arise out of or relate to the cause of action, and can exist even if the defendant's contacts are not continuous and systematic.”[20] Plaintiffs here only contend that specific jurisdiction exists.

         The Ninth Circuit applies a three-prong test for determining whether specific personal jurisdiction exists, under which courts ascertain whether: (1) the non-resident defendant either “purposefully direct[ed] his activities or consummate[d] some transaction with the forum or resident thereof, ” or “perform[ed] some act by which he purposefully avail[ed] himself of the privilege of conducting activities in the forum, thereby invoking the benefits and protections of its laws; (2) the claim “arises out of or relates to the defendant's forum-related activities”; and (3) the exercise of jurisdiction comports “with fair play and substantial justice, i.e. it [is] reasonable.”[21] “The plaintiff bears the burden of satisfying the first two prongs of the test.”[22] “If the plaintiff succeeds in satisfying both of the first two prongs, the burden then shifts to the defendant to ‘present a compelling case' that the exercise of jurisdiction would not be reasonable.”[23]

         1. Defendant purposefully availed himself of the privilege of doing business in Arizona

          The first prong of the specific personal jurisdiction test includes two components: purposeful availment and purposeful direction.[24] “A purposeful availment analysis is most often used in suits sounding in contract. A purposeful direction analysis, on the other hand, is most often used in suits sounding in tort.”[25] Because ...


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