Opinion
6:21-cv-01801-MK
11-28-2022
BRIAN ECKELMAN, Plaintiff, v. RENTGROW, INC.; and CLEARA, LLC, Defendants.
FINDINGS AND RECOMMENDATION
MUSTAFA T. KASUBHAI United States Magistrate Judge.
Plaintiff, Brian Eckelman, filed this action alleging violations under the Fair Credit Reporting Act (“FCRA”), against Defendants Rentgrow, Inc. (“Rentgrow”) and Cleara, LLC (“Cleara”). First Am. Compl., ECF No. 25 (“Am. Compl.”). Cleara did not file an answer. See Docket, Civil Case No. 6:21-cv-01801-MK. Plaintiff moved for an entry of default and the Clerk's office entered Cleara into default status. Pl.'s Mot. for Entry of Default Judgment, ECF No. 30 (“Pl.'s Mot.”); Clerk's Entry of Default as to Cleara, ECF No. 31. Plaintiff now moves for entry of default judgment against Cleara. Pl.'s Mot., ECF No. 30. Cleara moves to vacate the entry of default and to dismiss claims against it based on lack of personal jurisdiction. Mot. to Vacate Default Judgment and for Dismissal Based on Lack of Personal Jurisdiction, ECF No. 34 (“Def.'s Mot.”). For the reasons that follow, Cleara's motion to vacate the entry of default should be GRANTED and Plaintiff's motion for a default judgment should be DENIED as moot. Cleara's motion to dismiss claims for lack of personal jurisdiction should be GRANTED with leave to amend.
Rentgrow is not in default. Plaintiff seeks default judgment only against Cleara. Rentgrow is discussed to the extent that the party is relevant.
There is no default judgment. The Court understands that while Defendant may have used the terms entry of default and default judgment interchangeably, the Court will refer to the remedy Cleara seeks as a motion to vacate the entry of default.
BACKGROUND
Plaintiff lived in Oregon at the time of the alleged wrongful conduct against Defendants. Am. Compl. ¶¶ 14-15, ECF No. 25. Cleara is a Pennsylvania corporation and maintains its principal place of business in Maryland. Id. at ¶ 17. Cleara provides wholesale background data to various entities, which included Rentgrow. Davidson Decl. ¶ 9, ECF No. 36. Rentgrow is a business registered in the State of Florida and maintains its principal place of business in Massachusetts. Am. Compl. ¶ 8, ECF No. 25. Rentgrow assembles and merges information contained in databases and provides its clients tenant screening reports. Id. at ¶¶ 8, 33. One of those reports included Plaintiff's criminal history from Cleara. Id. at ¶ 43.
Around November 2021, Plaintiff's spouse received a prospective employment opportunity in Michigan. Id. at ¶¶ 14-15. While living in Oregon, Plaintiff and his spouse applied for an apartment in Michigan. Id. at ¶ 21. Plaintiff understood that the apartment and the prospective employment opportunity were affiliated with each other. Id. at ¶ 51; Eckelman Decl. ¶14, ECF No. 34-1. The apartment complex denied Plaintiff's application. Am. Compl., ¶¶ 3031, ECF No. 25. According to the “denial letter,” the apartment complex denied Plaintiff's application based on an expunged criminal record. Id. at ¶¶ 40, 42. Plaintiff alleges that the employment opportunity fell through because the apartment complex denied Plaintiff's application. Id. at ¶ 51.
Rentgrow provided the information within the denial letter to the apartment complex. Id. at ¶ 33. In turn, Rentgrow's report was based on a report provided by Cleara. Id. at ¶ 43. Plaintiff alleged that Cleara “maintains the most powerful multi-state, multi-jurisdictional, multi-county search in the industry consisting of over 1,500 unique sources and 850 million records.” Id. at ¶ 45.
In May 2022, Plaintiff filed an Amended Complaint alleging that Defendants violated the FCRA. Id. at ¶ 1. For purposes of personal jurisdiction, Plaintiff alleged that Cleara regularly transacts business, directs business, and voluntarily and purposefully avails itself of the protections of the District of Oregon. Id. at ¶ 5. Plaintiff also alleged that Cleara is a “consumer reporting agency” as that term is defined under 15 U.S.C. § 1681a(f). Id. at ¶ 11.
Plaintiff served process on Cleara's registered agent. Summons, ECF No. 27. Cleara did not file an answer because Cleara's registered agent delivered the summons to a law firm that no longer represented Cleara. Davidson Decl. ¶ 10, ECF No. 36. The law firm did not notify Cleara. Id. at ¶ 14.
In June, Plaintiff moved for an entry of default against Cleara. Pl.'s Mot. for Entry of Default, ECF No. 30. The next day, the Clerk of Court entered Cleara into default status. Clerk's Entry of Default, ECF No. 31. Subsequently, Plaintiff moved for an entry of default judgment. Pl.'s Mot., ECF No. 34. Rentgrow informed Cleara of the pending litigation around the time Plaintiff filed his motion for default judgment. Id. at ¶ 11. When Cleara learned of the litigation in July, Cleara obtained counsel shortly thereafter. Davidson's Decl. ¶¶ 11-12, ECF No. 36. Cleara then moved to vacate the entry of default and for dismissal based on lack of personal jurisdiction. Pl.'s Mot., ECF No. 30. Cleara attached an affidavit to that motion in which Plaintiff denies that the company transacts or solicits business from any person or entity in Oregon. Davidson's Decl. ¶ 7, ECF No. 36.
DISCUSSION
As explained below, Cleara's default status should be vacated and Plaintiff's motion to enter a default judgment against Cleara should be denied as moot. Cleara's motion to dismiss for lack of personal jurisdiction should be granted with leave to amend.
I. Vacate
A. Legal Standard
A court may set aside an entry of default for good cause. Fed.R.Civ.P. 55(c). “To determine ‘good cause,' a court must consider three factors: (1) whether the party seeking to set aside the default engaged in culpable conduct that led to the default; (2) whether it had no meritorious defense; or (3) whether reopening the default judgment would prejudice the other party.” United States v. Signed Pers. Check No. 730 of Yubran S. Mesle, 615 F.3d 1085, 1091 (9th Cir. 2010) (cleaned up) (“Mesle”). “This standard . . . is disjunctive, such that a finding that any one of these factors is true is sufficient reason for the district court to refuse to set aside the default.” Id. The Ninth Circuit has repeatedly emphasized its strong preference for decisions on the merits over a judgment by default. Id. Although the Ninth Circuit has adopted the three-factor test as a guide to deciding a motion to set aside default judgment, the preference for allowing cases to be decided through the normal course of litigation is the lens through which the factors are examined. See id. (“[J]udgment by default is a drastic step appropriate only in extreme circumstances; a case should, whenever possible, be decided on the merits.”). The three-factor test is applied more leniently to entries of default than to default judgment. Id. at 1091 n.1.
B. Analysis
Cleara asserts that the Court should vacate the entry of default because Cleara lacked the requisite culpability, Cleara has a meritorious defense, and Plaintiff would not suffer prejudice.
1. Culpable Conduct
Cleara argues that it did not intentionally fail to respond to Plaintiff's summons. Def.'s Mot. 3-4, ECF No. 35. Rather, Cleara asserts that it failed to respond based on a communication mistake between Cleara's registered agent, former attorney, and current attorney.
“[A] defendant's conduct is culpable if [the party] has received actual or constructive notice of the filing of the action and intentionally failed to answer.” TCI Grp. Life Ins. Plan v. Knoebber, 244 F.3d 691, 697 (9th Cir. 2001) (“Knoebber”); see also Meadows v. Dominican Republic, 817 F.2d 517, 521 (9th Cir. 1987) (defendant “intentionally declined” service). Culpability is distinguished from excusable neglect and must be “willful, deliberate, or evidence of bad faith.” Knoebber, 244 F.3d at 697. The Ninth Circuit has established two separate standards for whether a party has “intentionally” failed to answer such that they are culpable, which hinges on the legal sophistication of the parties. See Mesle, 615 F.3d at 1093 (discussing the difference between sophisticated and non-sophisticated parties).
When parties are legally sophisticated, a court may deem their conduct culpable if they have “received actual or constructive notice of the filing of the action and failed to answer.” Franchise Holding II, LLC. v. Huntington Restaurants Grp., Inc., 375 F.3d 922, 926 (9th Cir. 2004). A sophisticated party's conduct must still be “willful,” unless there is “a demonstration that other equitable factors, such as prejudice, weigh heavily in favor of denial of the motion to set aside a default.” See Mesle, 615 F.3d at 1092-93 (discussing how other factors may affect the culpable conduct factor); see also Woodyard v. Prestige Care, Inc., Case No. 3:21-cv-01247-AC, 2022 WL 309298, at *3 (D. Or. Jan. 27, 2022) (concluding that a party's failure to respond was not willfully done because it was caused by a miscommunication within “corporate structure[s]”).
Although Cleara's registered agent received notice, the Court concludes that Cleara's failure to answer was excusable neglect and was not willful, deliberate, or evidence of bad faith. Cleara's attestations support the conclusion that its conduct was a miscommunication. Moreover, once Cleara received notice of the pending litigation, Cleara acted quickly by filing the motion to vacate.
2. Meritorious Defense
Next, Cleara asserts that vacating default is appropriate because it has a meritorious defense. A defense is meritorious if the defendant has alleged sufficient facts that, taken as true, would constitute a defense. United States v. Aguilar, 782 F.3d 1101, 1107 (9th Cir. 2015). The defendant's burden to meet this standard is minimal. Mesle, 615 F.3d at 1094. A court does not evaluate the plausibility of the facts, but instead leaves that determination for the litigation process. Id. Here, Cleara asserts that a lawsuit under the FCRA is not applicable because they are not a nationwide consumer reporting agency. Specifically, Cleara asserts that it “does not assemble, evaluate, or maintain any credit account information on consumers from furnishers” as required by 15 U.S.C. § 1681a(p). The Court concludes that Cleara sufficiently alleged a meritorious defense.
3. Prejudice
Finally, Cleara argues that Plaintiff will not suffer prejudice because only default has been entered and not a default judgment. A plaintiff is prejudiced if the party's ability to pursue the claim has been “hindered” due to delay resulting in such tangible harms as the loss of evidence, increased difficulties of discovery, or greater opportunity for fraud or collusion. Knoebber, 244 F.3d at 701. “To be prejudicial, the setting aside of a judgment must result in greater harm than simply delaying resolution of the case.” Id. “[M]erely being forced to litigate on the merits cannot be considered prejudicial[.]” Id. Cleara, within a reasonable time, moved to vacate the entry of default. By moving quickly, Cleara mitigated against any harm to Plaintiff related to the loss of evidence, increased difficulties of discovery, or greater opportunity for fraud or collusion.
As previously noted, any one factor is a sufficient reason to set aside an entry of default. Mesle, 615 F.3d at 1091. Cleara has successfully provided reasons to vacate the entry of default. Provided the Ninth Circuit's strong preference for deciding cases on the merits, Cleara's motion to vacate the entry of default should be GRANTED and Plaintiff's motion for default judgment should be DENIED as moot.
II. Personal Jurisdiction
Cleara argues that Oregon lacks sufficient minimum contacts to establish personal jurisdiction. Plaintiff concedes that general jurisdiction is inapplicable. Pl.'s Response 9, ECF No. 39. Plaintiff, however, asserts that Oregon has specific jurisdiction. Id.
A. Legal Standard
When ruling on a motion to dismiss for lack of personal jurisdiction brought under Rule 12(b)(2), the plaintiff bears the burden of proving that the court's exercise of jurisdiction is proper. See Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800 (9th Cir. 2004). When resolving such a motion on written materials, rather than after an evidentiary hearing, the court need “only inquire into whether the plaintiff's pleadings and affidavits make a prima facie showing of personal jurisdiction.” Id. (brackets omitted). Uncontroverted allegations in a complaint must be taken as true, but a plaintiff cannot simply rest on the bare allegations in the complaint. AMA Multimedia, LLC v. Wanat, 970 F.3d 1201, 1207 (9th Cir. 2020); CollegeSource, Inc. v. AcademyOne, Inc., 653 F.3d 1066, 1073 (9th Cir. 2011) (“Where not directly controverted, plaintiff's version of the facts is taken as true for the purposes of a 12(b)(2) motion[.]”). “[D]isputed allegations in the complaint that are not supported with evidence or affidavits cannot establish jurisdiction[.]” AMA Multimedia, 970 F.3d at 1207 (citing In re Boon Glob. Ltd., 923 F.3d 643, 650 (9th Cir. 2019). Conflicts between facts contained in declarations or affidavits are resolved in the plaintiff's favor. Mattel, Inc. v. Greiner & Hausser GmbH, 354 F.3d 857, 861-62 (9th Cir. 2003).
“Federal courts ordinarily follow state law in determining the bounds of their jurisdiction over [a defendant].” Picot v. Weston, 780 F.3d 1206, 1211 (9th Cir. 2015) (quoting Daimler AG v. Bauman, 571 U.S. 117, 125 (2014)). Oregon law authorizes personal jurisdiction over a defendant to the full extent permitted by the United States Constitution. See Or. R. Civ. P. 4; Gray & Co. v. Firstenberg Mach. Co., Inc., 913 F.2d 758, 760 (9th Cir. 1990) (“Oregon's long-arm statute confers jurisdiction to the extent permitted by due process.”). Courts must therefore inquire whether its exercise of jurisdiction over a defendant “comports with the limits imposed by federal due process.” Ranza v. Nike, Inc., 793 F.3d 1059, 1068 (9th Cir. 2015) (quoting Daimler, 571 U.S. at 125).
“Due process requires that the defendant ‘have certain minimum contacts' with the forum state ‘such that the maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice.'” Picot, 780 F.3d at 1211 (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)). Specific jurisdiction, which is sometimes referred to as “case-specific” or “case-linked” jurisdiction, depends on an affiliation between the forum state and the underlying controversy. Walden v. Fiore, 571 U.S. 277, 284 n.6 (2014). For a state to exercise specific jurisdiction over a non-resident, the Ninth Circuit employs the following three-prong test to determine if a defendant has sufficient minimum contacts:
(1) The non-resident defendant must purposefully direct his activities or consummate some transaction with the forum or resident thereof; or perform some act by which he purposefully avails himself of the privilege of conducting activities in the forum, thereby invoking the benefits and protections of its laws;
(2) the claim must be one which arises out of or relates to the defendant's forum-related activities; and
(3) the exercise of jurisdiction must comport with fair play and substantial justice, i.e., it must be reasonable.Picot, 780 F.3d at 1211. The plaintiff bears the burden of satisfying the first two prongs. CollegeSource, 653 F.3d at 1076. If the plaintiff does so, the burden then shifts to the moving defendant to present “a ‘compelling case' that the exercise of jurisdiction would not be reasonable.” Id. (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476-78 (1985)).
A. Purposefully Direct
The first prong embodies two distinct, although sometimes conflated, concepts: purposeful availment and purposeful direction. See Washington Shoe Co. v. A-Z Sporting Goods Inc., 704 F.3d 668, 672 (9th Cir. 2012); Brayton Purcell LLP v. Recordon & Recordon, 606 F.3d 1124, 1128 (9th Cir. 2010). “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.” Schwarzenegger, 374 F.3d at 802 (internal citation omitted). Because Plaintiff's claim arises in tort, the Court applies the purposeful direction analysis. See Bernard v. Atlas Score, LLC, No. 3:23-cv-02104-HA, 2013 WL 997083, at 6-7 (D. Or. Mar. 12, 2013) (applying the purposeful direction analysis to a case arising out of the FCRA).
The Ninth Circuit uses a three-part test (the “effects test”) based on the Supreme Court's decision in Calder v. Jones, 465 U.S. 783 (1984), to evaluate purposeful direction claims. Panavision Int'l v. Toeppen, 141 F.3d 1316, 1321 (9th Cir. 1998). “Under this test, the defendant allegedly must have (1) committed an intentional act, (2) expressly aimed at the forum state, (3) causing harm that the defendant knows is likely to be suffered in the forum state.” Brayton Purcell, 606 F.3d at 1128 (internal quotation marks omitted). As to the first and third element, the Court concludes that Plaintiff's allegations support those elements. Cleara's conduct when it provided Rentgrow with a report satisfies the intentional act element. See Wash. Shoe Co., 704 F.3d at 674 (“[A]n intentional act is an external manifestation of the actor's intent to perform an actual, physical act in the real world[.]”). Further, the third element is met because the Ninth Circuit has held that harm due to violations of the FCRA occurs where the plaintiff feels the consequences. See Myers v. Bennett Law Offices, 238 F.3d 1068, 1074 (9th Cir. 2001) (concluding that the FCRA occurs where the plaintiff feels the consequence). However, as explained below, Plaintiff fails to sufficiently allege that Cleara expressly aimed its conduct towards Oregon.
Under the second prong of the effects test, Plaintiff must demonstrate that Cleara expressly aimed its actions at the forum state. The Ninth Circuit has “emphasized that ‘something more' than mere foreseeability [is required] in order to justify the assertion of personal jurisdiction, . . . and that ‘something more' means conduct expressly aimed at the forum.” Brayton Purcell, 606 F.3d at 1129 (first alteration in original; citations omitted) (quoting Schwarzeneggar, 374 F.3d at 805). For example, in Smith v. Martorello, the Court, relying on several allegations and a declaration by the plaintiff, found that the plaintiff sufficiently alleged that the defendant expressly aimed its conduct at the State of Oregon. Case No. 3:18-cv-01651-AC, 2021 WL 1257941 at *9 (D. Or 2021).
In Smith, the Court concluded that one of the defendants expressly aimed its conduct at Oregon because that defendant (1) “personally structured the scheme to retain control over where and how the lending operation did business,” which included Oregon; (2) knew, at least on one occasion, that money was being deposited into an Oregon bank account; (3) had made approximately 411 loans to Oregon borrowers totaling $338.131.25; and (4) maintained control of the lending operation, which targeted Oregon. As shown in Smith, a complaint must allege conduct that demonstrates that a defendant expressly aimed its conduct at Oregon business operations, had commercial dealings with Oregon businesses, had commercial dealings with Oregon residents, or targeted Oregon residents. Here, the only allegation in the Complaint is that Cleara obtained a single expunged criminal record from Oregon that Rentgrow used in the tenant screening report it provided the apartment complex. This allegation alone is insufficient to establish specific jurisdiction. Accordingly, the motion to dismiss for lack of personal jurisdiction should be granted with leave to amend.
Plaintiff makes two other arguments for jurisdiction, which this Court rejects. First, Plaintiff argues that because Plaintiff resided in Oregon at the time of the harm, specific jurisdiction exists. That argument, however, was rejected by the Ninth Circuit in Axiom Foods, Inc. v. Acerchem Int'l, Inc., which explained that the Supreme Court rejected the premise that it is “a plaintiff's contacts with the defendant and forum [that] drive[s] the jurisdictional analysis.” 874 F.3d 1064, 1070 (9th Cir. 2017). Rather, a district court “must look to the defendant's ‘own contacts' with the forum, not to the defendant's knowledge of a plaintiff's connections to a forum.” Id. (citing Walden, 571 U.S. at 289). Plaintiff also argues that the Court has jurisdiction over Cleara because it is a nationwide consumer reporting agency. The Court also rejects that argument because personal jurisdiction requires examining whether a defendant expressly aims their conduct at the forum state. See Bernard, 2013 WL 997083, at *3 (applying the Calder test to a defendant alleged to be a nationwide consumer reporting agency).
RECOMMENDATION
For the reasons above, Cleara's motion to vacate the entry of default (ECF No. 35) should be GRANTED. Accordingly, Plaintiff's motion for entry of default judgment (ECF No. 34) should be DENIED as moot. Cleara's motion for dismissal for lack of personal jurisdiction (ECF No. 35) should be GRANTED with leave to amend. Any amended complaint is due within 21 days to address the deficiencies raised in the motions to dismiss for lack of personal jurisdiction after the district judge rules on this Findings and Recommendations.
This recommendation is not an order that is immediately appealable to the Ninth Circuit Court of Appeals. Any notice of appeal pursuant to Federal Rule of Appellate Procedure 4(a)(1) should not be filed until entry of the district court's judgment or appealable order.
The Findings and Recommendation will be referred to a district judge. Objections to this Findings and Recommendation, if any, are due fourteen (14) days from today's date. See Fed.R.Civ.P. 72. Failure to file objections within the specified time may waive the right to appeal the District Court's order. Martinez v. Ylst, 951 F.2d 1153, 1157 (9th Cir. 1991).