Valldejuli et al v. Tax Breaks Incorporated et al

Filing 54

ORDER AND OPINION granting in part and denying in part 43 Motion to Dismiss and granting in part and denying in part 43 Motion to Set Aside Default. The entry of default as to Tax Breaks, Inc., Darius Allen, and Jane Doe Allen is SET ASIDE, a nd all claims against Tax Breaks, Inc., Darius Allen, and Jane Doe Allen are DISMISSED WITHOUT PREJUDICE, but their request for dismissal with prejudice is DENIED. Plaintiffs' request for additional time to perfect service is DENIED. IT IS FU RTHER ORDERED denying 45 Motion to Strike portions fo plaintiffs' response. All claims against Tax Breaks LLC are DISMISSED WITHOUT PREJUDICE. Within 21 days from the date of this order, plaintiffs shall file either a motion pursuant to Fed. R. Civ. P. 55(b), or a notice of non-objection to closure of this case. Signed by Judge John W Sedwick on 3/3/14.(LSP)

UNITED STATES DISTRICT COURT
DISTRICT OF ARIZONA

Manuel Valldejuli, et al.,
Plaintiffs,
vs.
Tax Breaks, Inc., et al.,
Defendants.

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2:13-cv-1168 JWS
ORDER AND OPINION
[Re: Motions at dockets 43 & 45]

I. MOTIONS PRESENTED
At docket 43 defendants Tax Breaks, Inc. (“TBI”) and Darius and Jane Doe Allen
(“Allen”) move to set aside the default judgment entered against them. The motion also
seeks dismissal of plaintiffs’ claims against them pursuant to Fed. R. Civ. P. 12(b)(5) for
failure to properly serve them and asks that the dismissal be with prejudice pursuant to
Fed. R. Civ. P. 41(b). Plaintiffs’ response is at docket 44. The response also includes
a request to again extend the time for service of process. TBI and Allen move to strike
portions of the response at docket 45, where they also set out their reply in support of
the motion at docket 43. Oral argument was not requested and would not aid the court.
II. BACKGROUND
Plaintiffs filed their complaint on June 10, 2013. It named numerous defendants
among whom were TBI and Allen. The complaint was brought on behalf of a class of

persons who were tax preparers for the defendants from January 2013, thru the date of
the complaint.
The complaint sets out fourteen claims. Count One alleges that defendants
violated the Racketeer Influenced and Corrupt Organizations Act. In Count Two
plaintiffs allege that defendants violated the Fair Labor Standards Act by failing to pay
the federal minimum wage. Count Three asserts that defendants violated the Fair
Labor Standards Act by failing to pay overtime. Count Four sets out a breach-ofcontract claim. Count Five purports to state a claim for fraud. Count Six asserts a
breach of the implied contractual covenant to deal fairly and in good faith with the class
members. Count Seven alleges that defendant failed to pay wages owed. Count Eight
purports to state a claim for quantum meruit, while Count Nine advances a claim of
unjust enrichment. Count Ten purports to state a claim for conversion. Count Eleven
alleges that defendant failed to pay the employer’s share of FICA taxes. Count Twelve
alleges that defendant Tax Breaks LLC and TBI were the alter egos of Allen and
defendant Kevin Murphy. Count Thirteen alleges that Tax Breaks LLC and defendant
Family Dollar, Inc. are partners, so that Family Dollar, Inc. is liable for the acts of Tax
Breaks LLC. Finally, Count Fourteen seeks a declaratory judgment. This “kitchen sink”
pleading does not reflect careful legal analysis by plaintiffs’ counsel.
The court denied plaintiffs’ motion for class certification without prejudice to
renewal after all defendants had been served. Thereafter, plaintiffs dismissed their
claims against thirteen of the defendants without prejudice.1 Asked by the court to

1

See dockets 21 and 22.

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clarify against which defendants plaintiffs intended to pursue their claims, plaintiffs
responded on September 9, 2013, that they were pursing claims against Kevin and
Chelsea Murphy (“Murphy”) upon whom process had been served. Plaintiffs further
advised that they “will not be moving forward with claims against [TBI]. But Plaintiffs will
be moving forward against Tax Breaks, LLC and Darius Allen” who had not yet been
served.2 The court then issued an order indicating that because plaintiffs were not
proceeding against TBI, plaintiffs should file a notice of dismissal of that defendant.
The order further warned plaintiffs that they needed to perfect service on the unserved
defendants within the 120-day time frame established by Fed. R. Civ. P. 4(m) or show
good cause for an extension of time for service.3 On September 25, 2013, plaintiffs
filed a notice of dismissal without prejudice of their claims against TBI.4 More than two
months later, on December 5, 2013, plaintiffs moved to re-instate their claims against
TBI saying they really meant to dismiss Tax Breaks LLC, not TBI.5 The motion was
granted and TBI was reinstated.
Plaintiffs moved for the entry of default against Allen, TBI, and Murphy alleging
that all had been properly served, but failed to appear and defend.6 Thereafter, the
Clerk entered the requested default.7 The same day the default was entered, TBI and

2

Doc. 24 at pp. 1-2.

3

Doc. 25.

4

Doc. 26.

5

Doc. 33.

6

Doc. 41.

7

Doc. 42.

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Allen appeared specially through counsel and moved to set aside the default as to TBI
and Allen and to dismiss the claims against them with prejudice.8
III. DISCUSSION
A. Default
Plaintiffs do not oppose the request to vacate the entry of default as to
defendants TBI and Allen.9 Accordingly, the defaults of TBI and Allen will be set aside.
B. Dismissal With Prejudice
TBI and Allen ask that the claims against them be dismissed with prejudice, an
outcome which in proper circumstances is authorized by Fed. R. Civ. P. 41(b). When
considering whether to dismiss claims with prejudice the court must consider a variety
of factors : “(1) [T]he public’s interest in expeditious resolution of litigation; (2) the
court’s need to manage its docket; (3) the risk of prejudice to the defendants; (4) the
public policy favoring disposition of cases on their merits, and (5) the availability of less
drastic sanctions.”10
TBI and Allen contend that the first two factors weigh in favor of a dismissal with
prejudice. With respect to the first factor, the court disagrees. The complaint in this
case concerns actions which commenced in January 2013. Thus, there remains ample
time for an expeditious resolution of the dispute. With respect to the second factor, it is
always a subject of concern when counsel’s ineptitude frustrates reasonable efforts at

8

Doc. 43.

9

Doc. 44 at p. 2.

10

Omstead v. Dell, Inc., 594 F.3d 1081, 1084 (9th Cir. 2010) (quoting Henderson v.
Duncan, 779 F.2d 1421, 1423 (9th Cir. 1986)).

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case management. However, in the circumstances here where plaintiffs’ counsel is not
guilty of malfeasance, but only misfeasance in the early stages of the litigation, this
factor does not support a dismissal with prejudice.
Concerning the third factor, TBI and Allen say that they have been substantially
prejudiced by the passage of time. The argument is unpersuasive; relatively little time
has passed since January 2013, when their allegedly wrongful conduct commenced.
They also contend that they have been prejudiced by the incompetent manner in which
plaintiffs’ counsel has pursued this case—naming a multitude of defendants only to
dismiss nearly all of them, and even dismissing TBI when plaintiffs’ counsel meant to
dismiss Tax Breaks LLC. The court agrees that plaintiffs’ counsel has displayed
incompetence, but thus far it has not seriously prejudiced TBI and Allen.
The fourth factor clearly weighs against dismissal with prejudice. The primary
goal of our system of civil litigation is to decide disputes on their merits. A dismissal
with prejudice at this stage would frustrate that goal.
Finally, with respect to the fifth factor, it is obvious that a less drastic sanction is
available. The court could dismiss the claims against TBI and Allen without prejudice.
The court might also consider other sanctions which would allow the case to continue
following proper service but impose some penalty on plaintiffs, such as an award of
costs.
In sum, the court does not find a sufficient basis for a dismissal with prejudice.

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C. Appropriate Remedy
The court now addresses more generally the request to dismiss the claims
against TBI and Allen for insufficient service of process. A party may challenge
sufficiency of service pursuant to Fed. R. Civ. P. 12(b)(5). The plaintiff has the burden
of establishing the validity of service.11 The motion to dismiss accurately points to the
defect in plaintiffs’ attempt to perfect service of process by publication. They were
required to publish the notice in a newspaper in Maricopa County. They did not do so.
Plaintiffs do not contest that fact. Rather, they rely on good intentions—publication in
Dallas was better—and an ad hominem attack on Allen as a “con man” evading service
of process. Plaintiffs have not established validity of service, so TBI and Allen are
entitled to a remedy.
Plaintiffs had ample opportunity to perfect service of process. They had the
initial 120 days provided by Fed. R. Civ. P. 4(m). The court warned them well before
that time expired that they needed to perfect service. The court’s order added that if
more time were needed in light of the difficulty in serving TBI and Allen, plaintiffs should
move for an extension of time.12 In a motion which recounted the substantial but
unsuccessful efforts they had made to serve defendants, plaintiffs sought an extension
of time for service of 90 days.13 The court granted the 90-day extension.14

11

See e..g., Dickerson v. Napolitano, 604 F.3d 732, 752 (2d Cir. 2010); 5B Charles A.
Wright & Arthur R. Miller, Federal Practice and Procedure: Civil § 1353 (3d ed. 2013).
12

Doc. 25.

13

Doc. 27.

14

Doc. 28.

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Plaintiffs made a considerable effort to perfect service, but despite being given a
an additional 90 days to do so they failed. Plaintiffs request still more time to perfect
service, but their track record does not inspire confidence. This case has been pending
almost nine months and plaintiffs have yet to accomplish service on Allen and TBI. If
this case is dismissed, plaintiffs would remain free to file a new action, but there is an
unusual opportunity also available. They could seek to join or become class members
in a similar lawsuit already pending in this district, Case No. 2:13-cv-1309 NVW (“the
Other Lawsuit”). The remaining defendants in the Other Lawsuit include TBI and Allen.
The underlying facts pled in the complaint in the Other Lawsuit are similar to those pled
in the case at bar. Counsel for the plaintiffs in the Other Lawsuit is the same lawyer
who represents plaintiffs in the case at bar. Given all of the circumstances, it is
appropriate to dismiss the claims against TBI and Allen in this case without prejudice.
TBI and Allen have asked the court to strike numerous passages from plaintiffs’
response. Unfortunately the notion that inappropriate material may be stricken from
motion papers is widespread in the bar. Fed. R. Civ. P. 12(f) authorizes motions to
strike “redundant, immaterial, impertinent or scandalous matter” from “a pleading.” Fed.
R. Civ. P. 7 makes clear that motions are not pleadings.15 Rather than multiply motion
practice with requests to strike material from motion papers, the better practice is simply
to point out why the material in question should not be considered. TBI and Allen did
do that, and the court has not relied on the unsupported assertions made in plaintiffs’
response. The request to strike will be denied.

15

Compare Rule 7(a) with Rule 7(b).

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D. Other Matters
1. Tax Breaks LLC
A review of the record discloses that plaintiffs are not pursing a claim against Tax
Breaks LLC which plaintiffs acknowledge is unrelated to TBI. Accordingly, the court will
dismiss all claims in this case against Tax Breaks LLC.
2. Murphy Defendants
This order does not disturb the entry of default as to defendants Kevin Murphy
and Jane Doe Murphy.16 In the ordinary situation, to draw this lawsuit to a conclusion, it
would be necessary for plaintiffs to move for entry of a default judgment in favor of the
thirteen named plaintiffs and against the Murphy defendants. The Murphy defendants’
liability turns on an alter ego theory which would make them responsible for the actions
of TBI. The Murphy defendants are also defendants in the Other Lawsuit.
To bring what remains of this case to a conclusion, within 21 days, plaintiffs shall
file either a properly supported motion for entry of a default judgment pursuant to Fed.
R. Civ. P. 55(b), which carefully explains how it is that the Murphys are liable and sets
out in detail the damages suffered by each named plaintiff caused by the Murphy
defendants, or a notice of non-objection to the closing of this case without entry of a
judgment against the Murphy defendants and without prejudice to plaintiffs’ ability to
pursue claims against the Murphy defendants in a new lawsuit or in the Other Lawsuit.

16

The affidavits of service with respect to the Murphy defendants show that process was
left with Chelsea Murphy, but the record does not disclose whether Chelsea Murphy is the
spouse of Kevin Murphy as contrasted with a sister, daughter, cousin or other person with the
same last name.

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IV. CONCLUSION
For the reasons set out above, IT IS ORDERED:
1. The motion at docket 43 is GRANTED in part and DENIED in part as
follows: The entry of default as to Tax Breaks, Inc., Darius Allen, and
Jane Doe Allen is SET ASIDE, and all claims against Tax Breaks, Inc.,
Darius Allen, and Jane Doe Allen are DISMISSED WITHOUT
PREJUDICE, but their request for dismissal with prejudice is DENIED.
2. Plaintiffs’ request for additional time to perfect service is DENIED.
3. The motion at docket 45 seeking to strike portions of plaintiffs’
response is DENIED.
4. All claims against Tax Breaks LLC are DISMISSED WITHOUT PREJUDICE.
5. Within 21 days from the date of this order, plaintiffs shall file either a
motion pursuant to Fed. R. Civ. P. 55(b), which complies with the
requirements set out above, or a notice of non-objection to closure of this
case on the terms stated above.
DATED this 3rd day of March 2014.

/S/
JOHN W. SEDWICK
UNITED STATES DISTRICT JUDGE

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