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Carpenter Crest 401 v. Converti

United States District Court, D. Arizona

March 2, 2017

Carpenter Crest 401, Plaintiff,
v.
Rebekah Converti, et al., Defendants.

          ORDER

          HONORABLE G. MURRAY SNOW UNITED STATES DISTRICT JUDGE.

         Pending before the Court is Plaintiff Douglas Lane Probstfeld's Amended Motion for Entry of Default Judgment. (Doc. 17.) Defendants Rebekah Converti and The 2-Acorns, Inc. (collectively, Defendants) were served with Summons and the Complaint on January 27, 2016. (Doc. 11.) On March 7, 2016, after Defendants failed to respond, Plaintiff filed a Motion for Entry of Default Judgment, which the Court construed as a Motion for Entry of Default. (Docs. 12, 13, 14.) On March 8, 2016, the Clerk entered default against Defendants. (Doc. 13.) On April 22, 2016, the Court ordered Plaintiff to file supplemental briefing addressing the factors identified by the Ninth Circuit Court in Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). (Doc. 14.) On May 6, 2016, Plaintiff filed a Motion for Entry of Default Judgment against Defendants pursuant to Rule 55(b) of the Federal Rules of Civil Procedure. (Doc. 15.) Due to several errors in Plaintiff's damage calculations, the Court denied Plaintiff's Motion without prejudice. (Doc. 16.) On November 28, 2016, Plaintiff filed an Amended Motion for Entry of Default Judgment. (Doc. 17.) For the reasons set forth below, the Court will grant Plaintiff's Amended Motion.[1]

         I. Background

         On October 6, 2015, Plaintiff Douglas Lane Probstfeld, Trustee of the Carpenter Crest 401(k) PSP, a tax-exempt profit-sharing plan and trust, filed his Complaint in this action, alleging that Defendants Rebekah Converti and The 2-Acorns, Inc. violated A.R.S. § 44-1991 (Arizona securities fraud), and 15 U.S.C. § 78j (Federal securities fraud). (Doc. 1 ¶¶ 45-58.) Plaintiff also asserts claims against Defendants for: (1) fraud, fraudulent inducement, intentional misrepresentation; (2) negligent misrepresentation; (3) breach of contract; (4) breach of the implied covenant of good faith and fair dealing; and (5) conversion. (Id. ¶¶ 59-93.)[2]

         In support of his claims, Plaintiff alleges that in September 2013, Defendant “Converti solicited investments in a home ‘fix and flip' project through her website and through contacts with various financial advisors.” (Id. ¶ 11.) One of those advisors, Joshua Sharp, informed Plaintiff that with an investment of $350, 000 to cover improvements to a home, Plaintiff would receive either a 15% return on the investment or a 30% net profit share from the home. (Id. ¶¶ 13-17; Doc. 1-1 at 2.) On October 4, 2013, Plaintiff informed Sharp of his interest in the investment opportunity. (Doc. 1 ¶ 21.) On October 6, 2013, Defendant Converti signed a Promissory Note on behalf of The 2-Acorns, Inc., secured by a deed of trust, stating that Plaintiff's $350, 000 would be repaid upon the resale of the home. (Id. ¶ 24; Doc. 1-1 at 5.) The Promissory Note further states that “[b]orrower agrees to pay monthly interest payments, due the sixth of each month starting April 6th 2014, in the amount of [$4, 666.67] if the loan is not paid in full by April 1[], 2014.” (Doc. 1-1 at 5.)

         Plaintiff also alleges that “[o]n October 8, 2013, [he] authorized a wire transfer of $350, 000 from the Carpenter Crest 401(k) Plan and Trust to an account designated by The 2-Acorns, Inc.” (Doc. 1 ¶ 30.) However, Plaintiff discovered, after wiring the money, that a majority of the original investment was used to purchase the home rather than for renovations to the home, and the balance of the money was distributed to Defendants. (Id. ¶¶ 31-32, 92.) On March 7, 2014, Sharp informed Plaintiff that the home would be placed on the market in April; however, Plaintiff received no communications from Defendant Converti, Defendant The 2-Acorns, Inc., or Sharp until May 28, 2014. (Id. ¶¶ 33-35.)

         On May 28, 2014, Defendant Converti informed Plaintiff that none of the renovations were complete and the home would be foreclosed if Plaintiff did not provide more money. (Id. ¶ 35.) Plaintiff demanded an explanation for what happened to his money. (Id. ¶ 36.) Defendant Converti explained in a June 3, 2014 email that only $100, 000 of Plaintiffs investment was used to remodel the home, and the rest of the investment was used to purchase the home and for closing costs. (Id. ¶ 36.) Defendant Converti further told Plaintiff that “[i]t was my fault for closing the deal before it was 100% financed knowing I could not finish the deal without the additional funds.” (Id. ¶ 40.)

         Plaintiff also alleges that Defendant Converti told Plaintiff the contractor she allegedly hired “ripped her off.” (Id. ¶ 37.) However, Plaintiff asserts that Defendants did not make any effort to engage a contractor to renovate the property, never sought a construction permit, and did not complete any remodeling or renovations on the property. (Id. ¶¶ 38-39.) Defendants did not contribute additional funds to avoid a foreclosure on the property and did not make any payments to Plaintiff at any time. (Id. ¶¶ 41, 44.) Plaintiff further asserts that although Sharpe represented otherwise, Defendants did not have any “slush” funds “at any time either to acquire or renovate the home or to make payments to the first lien holder.” (Id. ¶¶ 14, 42.) As a result, Plaintiff claims, “[o]n June 26, 2014, the first lien holder foreclosed on the home, and it was sold at a trustee sale pursuant to A.R.S. § 33-801 et seq.” (Id. ¶ 43.)

         On January 27, 2016, Plaintiff served the Summons and Complaint on Defendants. (Doc. 11.) Neither Defendant answered the Complaint or otherwise appeared within the time frame required by Rule 12 of the Federal Rules of Civil Procedure. On March 7, 2016, Plaintiff filed his Motion for Entry of Default against Defendants. (Doc. 12.) On March 8, 2016, the Clerk entered default against Defendants. (Doc. 13.) On April 22, 2016, the Court ordered Plaintiff to file supplemental briefing. (Doc. 14.) Plaintiff subsequently filed a Motion for Default Judgment. (Doc. 15.) The Court denied Plaintiff's Motion without prejudice based on numerous errors in Plaintiff's damage calculations. (Doc. 16.) On November 28, 2016, Plaintiff filed an Amended Motion for Entry of Default Judgment. (Doc. 17.) Plaintiff asks the Court to enter judgment in his favor for (1) $350, 000 in principal; (2) $102, 666.74 in unpaid monthly interest payments (22 months); and (3) $4, 666.67 in additional monthly interest payments until the principal amount of $350, 000, plus all accrued interest, has been paid in full to Plaintiff. (Id.)

         II. Discussion

         a. Jurisdiction

         “When entry of judgment is sought against a party who has failed to plead or otherwise defend, a district court has an affirmative duty to look into its jurisdiction over both the subject matter and the parties.” In re Tuli, 172 F.3d 707, 712 (9th Cir. 1999). (stating that where the Court properly raised, sua sponte, the issue of whether it could exercise personal jurisdiction over Iraq before deciding whether it could enter default judgment against it in an effort to “avoid ent[ry of] a default judgment that can later be successfully attacked as void”). As detailed below, the Court finds that it has both subject matter jurisdiction over this action and personal jurisdiction over the parties.

         1. Subject Matter Jurisdiction

         Plaintiff alleges Defendants violated 15 U.S.C. § 78j. (Doc. 1 ¶¶ 54-58.) Therefore, pursuant to 28 U.S.C. § 1331, this Court has federal question jurisdiction over Plaintiff's federal claims. See 28 U.S.C. § 1331 (“The district courts shall have original jurisdiction of all civil actions arising under the Constitution, law, or treaties of the United States.”). Furthermore, the Court has supplemental jurisdiction over Plaintiff's related state law claims. See 28 U.S.C. § 1367(a) (. . . in any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution.”). Therefore, the Court is satisfied that it has subject matter jurisdiction over this action.

         2. Personal Jurisdiction

         i. Defendant Converti

         Personal jurisdiction over a defendant may be acquired “by personal service of that defendant or by means of a defendant's ‘minimum contacts' with the jurisdiction.” Cripps v. Life Ins. Co. of N. Am., 980 F.2d 1261, 1267 (9th Cir. 1992). Here, Plaintiff alleges that Defendant Converti is a resident of Maricopa County, Arizona and was personally served on January 27, 2016, at a residence in Gilbert, Arizona. (Doc. 11.) Thus, the Court is satisfied that it has personal jurisdiction over Defendant Converti.

         ii. Defendant The 2-Acorns, Inc.

         Plaintiff's Complaint alleges that at all relevant times, Defendant The 2-Acorns, Inc. was a non-resident, Nevada corporation. (Doc. 1 ¶ 4.) Plaintiff alleges that Defendant Converti is the managing agent of The 2-Acorns, Inc. and, therefore, the corporation was properly served under Rule 4 of the Federal Rules of Civil Procedure. (Doc. 1 ¶¶ 8, 25; Doc. 12 at 2-3.)

         Rule 4(h) of the Federal Rules of Civil Procedure provides that a corporation is properly served by “delivering a copy of the summons and of the complaint to an officer, a managing or general agent, or any other agent authorized by appointment or by law to receive service of process . . . .” Defendant Converti was served with the Summons and Complaint for The 2-Acorns, Inc. (Doc. 11.) However, personal service of a corporate agent within the forum state, alone, is not necessarily sufficient to establish that this Court has personal jurisdiction over a nonresident corporation. See Martinez v. Aero Caribbean, 764 F.3d 1062, 1066 (9th Cir. 2014) (“A court may exercise general personal jurisdiction over a corporation only when its contacts ‘render it essentially at home' in the state.”).

         The Court finds, however, that it has personal jurisdiction over The 2-Acorns, Inc. with regard to Plaintiff's federal claim pursuant to 15 U.S.C. § 78aa. Jurisdiction for claims brought under the Securities Exchange Act is governed by Section 27 of the Act. See 15 U.S.C. § 78aa. “So long as a defendant has minimum contacts with the United States, Section 27 of the Act confers personal jurisdiction over the defendant in any federal district court.” Sec. Inv'r Prot. Corp. v. Vigman, 764 F.2d 1309, 1316 (9th Cir. 1985). Thus, because, as detailed below, the Court finds that Plaintiff has sufficiently stated a claim against The 2-Acorns, Inc. for violations of 15 U.S.C. § 78j, Section 27 applies, and Plaintiff need only have alleged Defendant The 2-Acorns, Inc. has minimum contacts with the United States. See Vigman, 764 F.2d at 1316; Go-Video, Inc. v. Akai Elec. Co., 885 F.2d 1406, 1416 (9th Cir. 1989) (“[W]e adhere to our decision in Vigman that, when a statute authorizes nationwide service of process, national contacts analysis is appropriate.”).

         Here, Plaintiff asserts that Defendant is a Nevada corporation, which solicited Plaintiff for an investment property in Arizona. (Doc. 1 ¶¶ 4, 9, 20.) Plaintiff served The 2-Acorns through its agent, Defendant Converti, in Arizona. (Doc. 11.) Therefore, the Court finds that Plaintiff has alleged sufficient contacts within the United States to allow this Court to exercise personal jurisdiction over Defendant The 2-Acorns, Inc. with regard to Plaintiff's federal Securities Act claim.

         The Court further finds that it has pendent personal jurisdiction over Plaintiff's related state law claims. Action Embroidery Corp. v. Atl. Embroidery, Inc., 368 F.3d 1174, 1176 (9th Cir. 2004). Under the pendent personal jurisdiction doctrine, if a district court has personal jurisdiction over federal claims, “then it may, in its discretion, exercise pendent personal jurisdiction over the state-law claims contained in the same complaint.” Id. For such jurisdiction to be proper, Plaintiff's state law claims must “arise[ ] out of a common nucleus of operative facts” as the federal claim over which the court has personal jurisdiction. Id. at 1180. “Pendent personal jurisdiction is typically found where one or more federal claims for which there is nationwide personal jurisdiction are combined in the same suit with one or more state or federal claims for which there is not nationwide personal jurisdiction.” Id. at 1180-81. The decision to exercise pendent personal jurisdiction is within the discretion of the district court and depends on “‘considerations of judicial economy, convenience and fairness to litigants.'” Id. at 1181 (quoting Oetiker v. Jurid Werke, G.m.b.H., 556 F.2d 1, 5 (D.C. Cir. 1977)).

         Here, all of Plaintiff's claims arise from the same nucleus of operative facts. (Doc. 1 ¶¶ 11-44.) Therefore, in the interests of judicial economy, convenience, and fairness, the Court finds it appropriate to exercise pendent personal jurisdiction over Plaintiff's state law claims against The 2-Acorns, Inc.

         b. Standard for Entry of Default Judgment

         i. Rule 55 of the Federal ...


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