Opinion
CV-18-04715-PHX-JZB
08-16-2022
Patrick Castro, Plaintiff, v. C&C Verde LLC, et al., Defendants.
TO THE HONORABLE STEPHEN M. MCNAMEE, SENIOR UNITED STATES DISTRICT JUDGE:
This Report & Recommendation is submitted pursuant to General Order 21-25:
When a United States Magistrate Judge to whom a civil action has been assigned pursuant to Local Rule 3.7(a)(1) considers dismissal to be appropriate but lacks the jurisdiction to do so under 28 U.S.C. § 636(c)(1) due to incomplete status of election by the parties to consent or not consent to the full authority of the Magistrate Judge,
IT IS ORDERED that the Magistrate Judge will prepare a Report and Recommendation for the Chief United States District Judge or designee.
IT IS FURTHER ORDERED designating the following District Court Judges to review and, if deemed suitable, to sign the order of dismissal on my behalf:
Phoenix/Prescott: Senior United States District Judge Stephen M. McNamee.
REPORT & RECOMMENDATION
Honorable John Z. Boyle United States Magistrate Judge
Defendants C&C Verde LLC, Christopher Conforti, and Nicholas Conforti move to set aside the default judgment entered against them on July 9, 2019. (Doc. 23.) For the reasons explained herein, the Court recommends the motion be denied.
I. Background & Procedural History.
From approximately September 1, 2015 to March 10, 2018, Plaintiff Patrick Castro was employed as a lead tech/shop foreman by Defendant C&C Verde LLC (“C&C”), an automotive repair shop doing business under the name Midas, owned by Defendant Nicholas Conforti (“Nicholas”) and his son, Defendant Christopher Conforti (“Christopher”). (Doc. 1 ¶¶ 6, 17-18; Doc. 23-1 ¶ 2; Doc. 25-3 ¶ 1.) On December 17, 2018, Plaintiff brought suit alleging Defendants failed to compensate him for all overtime hours worked as required under the Fair Labor Standards Act (“FLSA”). (Doc. 1.)
Nicholas and Christopher were served with the Complaint and Summons on December 26, 2018. (Docs. 6, 7.) C&C was served on January 24, 2019 through service on the Arizona Corporation Commission (the “Commission”). (Doc. 12.) Defendants did not answer or otherwise participate in this action. On March 27, 2019, the Clerk entered default as to each. (Doc. 15.) On May 9, 2019, Plaintiff moved for default judgment and submitted an affidavit claiming he was entitled to $22,143.24 in unpaid overtime, an additional $22,143.24 in liquidated damages, and $689.50 in costs, for a total of $44,975.98, for Defendants' violation of the FLSA between December 18, 2015 and March 10, 2018.(Doc. 17; Doc. 17-1 ¶¶ 12-15.) On July 9, 2019, the Court granted Plaintiff's motion and awarded damages accordingly. (Doc. 18; see Doc. 19 (Judgment).) On October 9, 2019, the Court awarded an additional $5,659.50 in attorneys' fees, bringing the total award to $50,635.48. (Doc. 21; see Doc. 20 (Motion), Doc. 22 (Judgment).)
Although the Complaint alleged FLSA violations dating back to September 1, 2015 (doc. 1 ¶ 46), Plaintiff stated he could only recover damages dating back to December 18, 2015 due to FLSA's statute of limitations (doc. 17-1 ¶ 11). FLSA's statute of limitations is three years for willful violations and two years for all others. 29 U.S.C. § 255(a).
On December 20, 2021-nearly two and a half years after the entry of default judgment-Defendants appeared for the first time, filing the present Motion to Set Aside Default Judgment. (Doc. 23.) Plaintiff responded. (Doc. 24.) Defendants filed a “Supplemental Motion to Set Aside Default Judgment and Reply to Plaintiff's Response.” (Doc. 25.) The Court denied Plaintiff's motion to strike this filing as procedurally improper but permitted Plaintiff to respond to it. (Doc. 28; see Doc. 26 (Motion).) Plaintiff did so. (Doc. 32.) Defendants replied. (Doc. 33.) Pursuant to the Court's June 23, 2022 Order (doc. 34), the parties filed supplemental briefs. (Doc. 35 (Defendants' Brief); Doc. 36 (Plaintiff's Brief).)
II. Motion to Set Aside Default Judgment.
Defendants move under Rule 55(c) to set aside the default judgment pursuant to Rule 60(b), arguing there is good cause to do so and because the judgment is void for improper service. (Doc. 23.) Defendants claim they had no notice of this lawsuit until December 15, 2021-five days before filing the present motion-when a Pima County Sheriff's Deputy served a writ of execution on one of their shops and attempted to take equipment from it to fulfill the judgment. (Id. at 1-2.) Thereafter, Defendants state they “immediately went to defense counsel to determine what happened.” (Id. at 2.) III. Applicable Law.
A. Setting Aside Default Judgments.
“The court may set aside an entry of default for good cause, and it may set aside a final default judgment under Rule 60(b).” Fed.R.Civ.P. 55(c). In determining whether there is good cause to set aside a default and default judgment, the Court considers 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 Personal Check No. 730 of Yubran S. Mesle, 615 F.3d 1085, 1091 (9th Cir. 2010) (internal quotation marks and brackets omitted); see also Franchise Holding II, LLC v. Huntington Rests. Grp., Inc., 375 F.3d 922, 925 (9th Cir. 2004) (“The ‘good cause' standard that governs vacating an entry of default under Rule 55(c) is the same standard that governs vacating a default judgment under Rule 60(b).”). “[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.; see also Franchise Holding II, 375 F.3d at 926 (“As these factors are disjunctive, the district court was free to deny the motion [to vacate default judgment] ‘if any of the three factors was true.'” (citation omitted)).
B. Judgments Void for Lack of Proper Service.
“A federal court is without personal jurisdiction over a defendant unless the defendant has been served properly under Fed.R.Civ.P. 4.” Travelers Cas. & Sur. Co. of Am. v. Brenneke, 551 F.3d 1132, 1135 (9th Cir. 2009) (citation omitted). Accordingly, a default judgment against a defendant not served in compliance with Rule 4 is void for lack of jurisdiction and must be set aside pursuant to Rule 60(b)(4). S.E.C. v. Internet Sols. for Bus. Inc., 509 F.3d 1161, 1165 (9th Cir. 2007); see Fed.R.Civ.P. 60(b)(4) (authorizing relief from a void judgment). Strict compliance with Rule 4, however, is not required. Whidbee v. Pierce Cnty., 857 F.3d 1019, 1023 (9th Cir. 2017) (“[F]ederal law does not require strict compliance with service requirements.”). Rather, “Rule 4 is a flexible rule that should be liberally construed to uphold service so long as a party receives sufficient notice of the complaint.” Chan v. Society Expeditions, Inc., 39 F.3d 1398, 1404 (9th Cir. 1994). “[T]he defendant moving to vacate default judgment for improper service of process bears the burden to prove that he is entitled to relief.” Internet Sols., 509 F.3d at 1166. “When a defendant alleges that he was not served with process, ‘ [a] signed return of service constitutes prima facie evidence of valid service which can be overcome only by strong and convincing evidence.'” craigslist, Inc. v. Hubert, 278 F.R.D. 510, 513 (N.D. Cal. 2011) (quoting Internet Sols., 509 F.3d at 1163).
IV. Discussion.
Defendants argue there is good cause to set aside the default and default judgment because they did not engage in culpable conduct; they have a meritorious defense; and Plaintiff would not be prejudiced by reopening the case. (Doc. 23.) Additionally, they argue they were not properly served and therefore the judgment against them is void and must be set aside under Rule 60(b)(4). (Id.) However, as explained below, Defendants were properly served in compliance with Rule 4. Further, Defendants were culpable in failing to answer the Complaint, despite having been properly served. As such, the Court recommends the motion to set aside the default judgment be denied.
A. Defendants were served in compliance with Rule 4.
1. The Confortis were properly served.
Under Rule 4, an individual may be served by:
(1) following state law . . . or
(2) doing any of the following:
(A) delivering a copy of the summons and of the complaint to the individual personally;
(B) leaving a copy of each at the individual's dwelling or usual place of abode with someone of suitable age and discretion who resides there; or
(C) delivering a copy of each to an agent authorized by appointment or by law to receive service of process.Fed. R. Civ. P. 4(e); see Ariz. R. Civ. P. 4.1(d) (same).
a. Nicholas Conforti.
Nicholas is one of C&C's owners and its statutory agent. (Doc. 23-1 ¶¶ 1-2; Doc. 35-2 at 2-3.) The Certificate of Service, signed by the process server “under penalty of perjury,” states that Nicholas was served with the Summons and Complaint on December 26, 2018 at 12759 N. White Diamond, Tucson, Arizona, through service on his daughterin-law, Gina Conforti, “[b]y leaving copies at the dwelling, house or usual place of abode of person/entity being served, with a member of the household, 14 years of age or older and explaining the general nature of the papers.” (Doc. 6.) The process server noted he left the papers “on the porch” per Gina's instruction. (Id. (“I spoke to Gina on the phone and she agreed for me to leave [the papers] on the porch.”); see also Doc. 35-1 ¶¶ 2, 5.)
Defendants argue Nicholas was not properly served, alleging that the address where service occurred was not his “usual place of abode” and that he “was a resident of Florida.” (Doc. 23 at 2, 4.) Defendants, however, provide no evidence to support these assertions, much less “strong and convincing evidence,” sufficient to overcome the Certificate of Service-prima facie evidence that service was valid. Internet Sols., 509 F.3d at 1163; craigslist, 278 F.R.D. at 513. Instead, Defendants rely only on Nicholas and Christopher's bare assertions that Nicholas did not reside at that address at the time of service or any other relevant time. (Doc. 23-1 ¶ 3; Doc. 35-1 ¶¶ 2, 3.) However, an allegation that service was improper “must be supported by corrobative evidence by independent, disinterested witnesses.” Flores v. Env't Trust Sols., Inc., 2018 WL 2237127, at *4 (D. Md. May 16, 2018) (emphasis added) (internal quotation marks and citations omitted). Nicholas's own self-serving assertions, and the assertions of Christopher, his co-defendant, who is seeking to set aside the same default judgment, do not constitute “strong and convincing evidence” from “independent, disinterested witnesses.” See craigslist, 278 F.R.D. at 513 (“[W]here a plaintiff has filed a signed return of service, courts regularly find that a self-serving declaration that a person was not served is insufficient to overcome this prima facie evidence of valid service.”); SaxonMortg. Servs., Inc. v. Hillery, 2008 WL 5170180, at *3 (N.D. Cal. Dec. 9, 2008) (“The Court finds that Ms. Hillery has failed to provide strong and convincing evidence that service was not proper. In so finding, the Court acknowledges the declarations provided by Ms. Hillery and her grandson, Tyrone Thames. However, those declarations are not enough to overcome the prima facie case established by Plaintiffs.”).
See Doc. 23-1 ¶ 3 (“I am a resident of Florida and was never served with the Summons and Complaint in [this case].”); Doc. 35-1 ¶¶ 2 (“My father, Nicholas Conforti, did not reside at [the address where service occurred] on December 26, 2018, when service was purportedly made on my father and I by leaving a copy of the Summons, Verified Complaint and Notice to Parties on the porch at that address after allegedly talking to my wife on the phone.”), 3 (“On December 26, 2018, and any other relevant times related to alleged service of process in this case, my father, Nicholas Conforti resided in Florida.”).
Critically, Defendants do not provide any actual evidence of Nicholas's alleged residency in Florida-e.g., a lease, bank statement, identification card, tax statement, or anything else that might bear a Florida address for Nicholas. In ordering further briefing on this very issue, the Court specifically noted the absence of such evidence in the record. (See Doc. 34 (“Defendants do not allege that Nicholas did not live at the service address at the time of attempted service, or provide any evidence beyond Nicholas's self-serving declaration in support of their claim.”).) It then ordered “further briefing from the parties seeking argument and evidence establishing why service on Nicholas Conforti was or was not proper under Fed.R.Civ.P. 4(e).” (Id. (first emphasis added).) However, even before this Order, Defendants had ample opportunity to present evidence of Nicholas's purported residency in Florida-e.g., as an exhibit to their original Motion to Set Aside Default Judgment (doc. 23) or subsequently-filed supplement thereto (doc. 25).
What is more, the service address was not simply the address of “a home in Tucson, Arizona,” (doc. 23 at 4 (emphasis added)); it was an address that Nicholas himself held out as his address to the Arizona Corporation Commission-and, by extension, the public- since June 24, 2015 (see doc. 35-2 at 3). See craigslist, 278 F.R.D. at 515 (“[A] defendant who has repeatedly represented to either the plaintiff or to outside parties that one residence is his place of usual abode may be estopped from later contesting that said residence was the proper location for service of process.”); Neis v. Heinsohn/Phoenix, Inc., 129 Ariz. 96, 100 (App. 1981) (“The public has a right to rely upon Corporation Commission records indicating the existence of a statutory agent.”). Plaintiff noted this fact in his response to Defendants' motion. (Doc. 24 at 4.) However, Defendants offered no explanation for it in their reply, nor at any other point in this litigation. (See Doc. 25.) As it pertained to service, Defendants merely asserted there was “no evidence that [they] intentionally failed to answer.” (Id. at 5-6.) Defendants' supplemental brief is equally silent as to why the service address was listed as Nicholas's address if he did not in fact reside there. (See Doc. 35.)
“While Nicholas Conforti now asserts that he did not reside with Christopher and Gina Conforti at 12579 White Diamond, Oro Valley, AZ 85855, he held out to the public via the Arizona Corporation Commission that this was in fact his address.” (Doc. 24 at 4.)
Therefore, because Defendants provide no evidence that Nicholas did not actually reside at the service address (e.g., evidence of his alleged Florida residency), nor any explanation for why the service address had been listed-since 2015-as his address with the Arizona Corporation Commission, Defendants fail to overcome the presumption that service on Nicholas at the service address was valid as evident by the Certificate of Service. See Internet Sols., 509 F.3d at 1163; Brenneke, 551 F.3d at 1136 (rejecting defendant's allegations of improper service where defendant “offered no evidence to rebut the factual statements in [the process server's] affidavit”). Accordingly, the Court finds that Nicholas Conforti was properly served in compliance with Rule 4(e)(2)(B).
b. Christopher Conforti.
Christopher Conforti is an owner and the managing member of C&C. (Doc. 25-3 ¶ 1; Doc. 35-1 ¶ 4; Doc. 35-2 at 4.) The Certificate of Service, signed by the process server “under penalty of perjury,” states that Christopher (like Nicholas) was served with the Summons and Complaint on December 26, 2018 at 12759 N. White Diamond, Tucson, Arizona, through service on Gina Conforti, his wife. (Doc. 7.) Christopher concedes he resided at this address at the time of service. (Doc. 35-1 ¶ 3.) As with the service of Nicholas, the process server noted that he “spoke to Gina on the phone and she agreed for me to leave [the papers] on the porch.” (Doc. 7.) Notwithstanding this notation, the process server checked a box indicating that Christopher had been served “[b]y personally delivering copies to the person/authorized agent of entity being served.” (Id.)
Defendants argue Christopher was not properly served because Gina is not an authorized agent of Christopher or C&C. (Doc. 23 at 5.) Indeed, there is no evidence supporting such a finding. However, considering the Certificate of Service as a whole and remaining cognizant of the Ninth Circuit's instruction to “liberally” construe Rule 4 in favor of upholding service, Chan, 39 F.3d at 1404, the Court finds that Christopher was properly served in compliance with Rule 4(e)(2)(B) because Gina, who accepted service on behalf of Christopher, was a member of Christopher's household and of suitable age. As such, service that is otherwise valid under Rule 4(e)(2)(B) in light of the circumstances is not rendered invalid simply because the process server (perhaps mistakenly) checked a box indicating that service was done pursuant to Rule 4(e)(2)(A). Such a finding would be inconsistent with the Ninth Circuit's instruction to relax the requirements of Rule 4 where the party has received sufficient notice of the Complaint, notwithstanding any minor defects in the service. Accordingly, the Court finds that Christopher Conforti was properly served in compliance with Rule 4(e)(2)(B). //
2. C&C was properly served.
A limited liability company may be served:
(A) in the manner prescribed by Rule 4(e)(1) for serving an individual; or
(B) 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 and--if the agent is one authorized by statute and the statute so requires--by also mailing a copy of each to the defendant[.]Fed. R. Civ. P. 4(h)(1). Arizona's counterpart tracks the language of Fed.R.Civ.P. 4(h)(1)(B) and similarly provides that a limited liability company may be served:
by delivering a copy of the summons and the pleading being served to a partner, an officer, a managing or general agent, or any other agent authorized by appointment or by law to receive service of process and--if the agent is one authorized by statute and the statute so requires--by also mailing a copy of each to the defendant.Ariz. R. Civ. P. 4.1(i). Additionally, until its repeal on September 1, 2020, A.R.S. § 29-606 permitted service on a limited liability company through service on the Arizona Corporation Commission where the company “fail[ed] to appoint or maintain a statutory agent at the address shown on the records of the [Arizona Corporation Commission].” A.R.S. § 29-606(B) (2020); see Hahne v. AZ Air Time, LLC, 2016 WL 1117747, at *2 (Ariz. App. Mar. 22, 2016) (“[S]ervice of process on a limited liability company can only be accomplished as directed by A.R.S. § 29-606 or Arizona Rule of Civil Procedure 4.1(i).”).
C&C was served through service on the Arizona Corporation Commission on January 24, 2019. (Doc. 12.) Defendants argue C&C was not properly served because “the statutory agent was never served.” (Doc. 23 at 1.) However, this argument is plainly meritless because serving a statutory agent is not the exclusive means for serving a limited liability company under Arizona law, which also permits service on an officer or managing agent-and the Arizona Corporation Commission if the company “fails to appoint or maintain a statutory agent at the address shown the records of the [Arizona Corporation Commission.” A.R.S. § 29-606(B) (2020); Ariz. R. Civ. P. 4.1(i).
In fact, Plaintiff first attempted to serve C&C by serving Nicholas, its statutory agent, at the address listed for him on the records of the Arizona Corporation Commission. (See Doc. 12-1; Doc. 35-2 at 3.) However, service was returned unexecuted because, as noted by the process server, the statutory agent was “not at this address” and lived in Florida “per Gina Conforti.” (Doc. 12-1.) Given that Plaintiff was unable to execute service on C&C through service on its statutory agent at the address on the Commission's records, Arizona law permitted him to serve C&C by serving the Commission. See A.R.S. § 29-606(B) (2020); Hahne, 2016 WL 1117747, at *2; Tropical Bees, LLC v. Barka Grp., LLC, 2017 WL 9888619, at *2 (M.D. Fla. Jan. 25, 2017) (“When the process server was unable to locate the business or the registered agent at the appropriate address, the process server served the Arizona Corporation Commission Office. Thus, service was proper pursuant to the Arizona Rules of Civil Procedure and Arizona statutes.”).
Defendants, however, dispute the validity of that service, asserting it was not proper because the Proof of Service did not indicate whether “duplicate copies” of the papers had been served on the Commission in compliance with A.R.S. § 29-606(B) (2020) (“Service on the commission . . . shall be made by delivering to and leaving with the commission duplicate copies of the process . . . .”). However, the absence of such a notation on the Proof of Service is not “strong and convincing” evidence that the service is invalid. To the contrary, evidence shows that the Arizona Corporation Commission, through its employee, Joana Benitez, accepted service on January 24, 2019. (See Doc. 12 at 2; Doc. 36-1 at 2, 5.) Five days later, Ms. Benitez mailed the Summons and Complaint to C&C at the address shown on the Commission's records. (See Doc. 36-1 at 6; Doc. 35-2 at 4.) Although Nicholas and Christopher both maintain they “do not remember ever receiving any documents regarding this case from the Arizona Corporation Commission,” (doc. 25-3 ¶ 3; doc. 23-1 ¶ 4), their self-serving declarations and mere denials do not render service invalid. See craigslist, 278 F.R.D. at 513; Hillery, 2008 WL 5170180, at *3. Accordingly, the Court finds that C&C was properly served in compliance with Fed.R.Civ.P. 4(h)(1) (A) and 4(e)(1) and A.R.S. § 29-606 (2020).
B. Defendants engaged in culpable conduct.
“[A] defendant's conduct is culpable if he has received actual or constructive notice of the filing of the action and intentionally failed to answer.” Mesle, 615 F.3d at 1092 (citations omitted). “The Ninth Circuit has established two separate standards for whether consciously failing to respond to a complaint fits the meaning of ‘intentionally' as used in the definition of culpability.” Martinez v. Auto Now Fin. Servs. Inc., No. CV-21-01155-PHX-JAT, 2022 WL 1395728, at *2 (D. Ariz. Apr. 18, 2022). The applicable standard depends on the defendant's “legal sophistication.” Vistancia Dev. LLC v. Preston, No. CV-21-01707-PHX-SMB, 2022 WL 2159053, at *4 (D. Ariz. June 15, 2022). A defendant who is “legally sophisticated” is culpable if he “received actual or constructive notice of the filing of the action and failed to answer.” Mesle, 615 F.3d at 1093 (quotation marks and citation omitted). By contrast, a defendant who is not “legally sophisticated” is culpable only if he “acted with bad faith, such as an intention to take advantage of the opposing party, interfere with judicial decisionmaking, or otherwise manipulate the legal process”; a “conscious choice not to answer” is insufficient. Id. (quotation marks and citation omitted). A defendant's legal sophistication is assessed by considering the defendant's “general familiarity with legal processes or consultation with lawyers at the time of the default.” TCI Grp. Life Ins. Plan v. Knoebber, 244 F.3d 691, 699 n.6 (9th Cir. 2001), overruled on other grounds by Egelhoff v. Egelhoff ex rel. Breiner, 532 U.S. 141 (2001).
Defendants claim they did not engage in any “culpable conduct.” (Doc. 23 at 3-4.) They assert they had “no intention to take advantage of the opposing party, nor any bad faith” and note that C&C “had just settled a case involving the overtime pay of [Plaintiff] along with several other employees.” (Id.) Defendants ask the Court to take judicial notice of the prior litigation and Consent Judgment in Acosta v. C&C Verde LLC, No. CV-17-00295-JAS (D. Ariz.) (“Acosta ”), an action brought by the Department of Labor to recover unpaid wages owed to present and former C&C employees, including Plaintiff. (Id. at 2; see Acosta, Doc. 1.) Pursuant to the Acosta judgment, C&C was ordered to pay Plaintiff $1042.38 in damages, consisting of $521.19 in back wages and an equivalent amount in liquidated damages for FLSA violations between October 1, 2012 and September 30, 2015. (Acosta, Doc. 10 at 4, 8.) Defendants claim this obligation was satisfied. (Doc. 23 at 4.)
The litigation and judgment in Acosta, however, do not establish that Defendants are not culpable in failing to participate in this case. The Acosta judgment covered FLSA violations occurring between October 1, 2012 and September 30, 2015. (See Acosta, Doc. 10 at 4.) Damages awarded in this case, however, were for FLSA violations occurring between December 17, 2015 and March 10, 2018, which were not covered by the Acosta judgment. Although Plaintiff claimed in his Complaint in this case that Defendants' violation of FLSA dated back to September 1, 2015 (doc. 1 ¶¶ 34, 46)-a period covered by the Acosta judgment, in his affidavit submitted in support of his motion for default judgment, he only claimed damages for the period of December 17, 2015 to March 10, 2018 (doc 17-1 ¶ 12). The Court awarded damages accordingly, and thus the damages in this case did not overlap with the damages awarded in Acosta. (See Doc. 18 at 6.) However, the Acosta litigation does establish that C&C and Christopher Conforti, who were named defendants in the case, are familiar with litigation and therefore sufficiently legally sophisticated. Although Nicholas Conforti was not a party to the Acosta litigation, he averred in this litigation that he is “conscientious about legal issues.” (Doc. 23-1 ¶ 6.) Moreover, as an owner of C&C, it is reasonably likely that he was familiar with the Acosta litigation, notwithstanding that he was not a named party to it. The Court, therefore, concludes Defendants are sufficiently familiar with legal processes so as to be considered legally sophisticated. See TCI Grp., 244 F.3d at 699 n.6 (“Absent some explanation [to the contrary], it is fair to expect that individuals who have previously been involved in litigation or have consulted with a lawyer appreciate the consequences of failing to answer and do so only if they see some advantage to themselves.”).
But even if Defendants are not “legally sophisticated,” they nonetheless remain culpable for the default because they engaged in conduct reflecting an intent to obstruct or avoid service. In defense of their failure to answer to the Complaint, Defendants claimed C&C had not been properly served because its statutory agent, Nicholas Conforti, had not been served. (Doc. 23 at 2, 5.) They claimed service on Nicholas at the Arizona address he was served at was improper because he was a resident of Florida. (Id.)
However, under Arizona law, C&C (and its officers) is required to “designate and maintain a statutory agent in [Arizona].” A.R.S. § 29-3115(A) (emphasis added). Further, the statutory agent “must have a place of business or residence” in Arizona and “must” be a resident of Arizona. A.R.S. § 29-3115(B) (emphasis added). The statutory agent must also “keep current the information with respect to the agent in the articles of organization.” A.R.S. § 29-3115(C)(3); see Vistancia, 2022 WL 2159053, at *3 (“Under Arizona law, the limited liability company bears the burden of maintaining and updating its address and contact information for the statutory agent.”).
Defendants admit C&C did not comply with these statutes. According to Defendants, C&C's statutory agent did not reside in Arizona. (Doc. 23 at 2; see also Doc. 25 at 7; Doc. 23-1 ¶ 3; Doc. 35-1 ¶ 3 [“On December 26, 2018, and any other relevant times related to alleged service of process in this case, my father, Nicholas Conforti resided in Florida.”].) It would be a windfall to effectively award Defendants' failure to comply with laws designed to ensure that C&C may be properly served by vacating the judgment as to any of them on account of allegedly improper service. Defendants also fault Plaintiff for not following “the procedures for service on a person residing outside Arizona” with respect to service of Nicholas. (Doc. 35 at 4.) However, it is unclear, given Defendants' failure to maintain current information with the Arizona Corporation Commission, how Plaintiff was to determine where to even serve Nicholas. Rather, the burden was on Defendants to provide that information to Plaintiff (and the public) by complying with their statutory duty to maintain current information with the Arizona Corporation Commission. See A.R.S. § 29-3115; Neis, 129 Ariz. at 100 (“The public has a right to rely upon Corporation Commission records indicating the existence of a statutory agent.”).
In Vistancia, the court denied to set aside a default judgment, finding the defendant had “acted in bad faith by failing to maintain correct information with its statutory agent,” which “prevented potential service via its statutory agent.” 2022 WL 2159053, at *4. It found the “failure to update such information” to be “inexcusable neglect and an attempt to take advantage of the opposing party and manipulate the legal process.” Id. This Court similarly views Defendants' noncompliance with their statutory duty to maintain current information with the Arizona Corporation as “inexcusable neglect and an attempt to take advantage of the opposing party,” given that Defendants provided no explanation for why Nicholas allegedly did not reside at the address he registered with the Arizona Corporation Commission. As the court in Vistancia noted, “[i]f such failures are allowed to persist, defendants will continually seek relief from default judgment for improper service even though the fault lies solely in the defendant's failure to maintain an accurate mailing address with the statutory agent.” Id.
Because the Court finds Defendants are culpable for their failure to answer the Complaint, whether Defendants have a meritorious defense is immaterial. Mesle, 615 F.3d at 1091 (“a finding that any one of [the good cause] factors is true is sufficient reason for [the Court] to refuse to set aside the default.”); see also Brandt v. Am. Bankers Ins. Co. of Fla., 653 F.3d 1108, 1112 (9th Cir. 2011) (“A district court may exercise its discretion to deny relief to a defaulting defendant based solely upon a finding of defendant's culpability, but need not.”).
V. Conclusion.
Defendants failed to answer the Complaint and are culpable for that failure. Defendants fail to demonstrate that service was invalid or that good cause exists to set aside the default judgment. Accordingly, IT IS RECOMMENDED that Defendants' Motion to Set Aside Default Judgment (doc. 23) be DENIED.
This recommendation is not an order that is immediately appealable to the Ninth Circuit Court of Appeals. Any notice of appeal pursuant to Fed. R. App. P. 4(a)(1) should not be filed until entry of the District Court's judgment. The parties shall have 14 days from the date of service of a copy of this recommendation within which to file specific written objections with the Court. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6, 72. Thereafter, the parties have 14 days within which to file a response to the objections.
Failure to file timely objections to the Magistrate Judge's Report and Recommendation may result in the acceptance of the Report and Recommendation by the District Court without further review. See United States v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003). Failure to file timely objections to any factual determinations of the Magistrate Judge may be considered a waiver of a party's right to appellate review of the findings of fact in an order or judgment entered pursuant to the Magistrate Judge's recommendation. See Fed.R.Civ.P. 72.