Jes Solar Company Limited v. Matinee Energy Incorporated et al

Filing 69

ORDER: IT IS ORDERED that the 48 Motion to Set Aside Default is DENIED. The 65 Supplemental Motion to Vacate Default is GRANTED, and the Clerk of the Court shall set aside the default entered against Defendant Chun Rae Kim. The 61 Motion for Jo inder by Chun Rae Kim in the Motion to Set Aside Default is DENIED AS MOOT. The 55 Motion to Strike Paragraphs 9 and 10 is DENIED. The 58 Motion to Strike Reply is DENIED AS MOOT because Plaintiffs have filed a Sur-reply. The 45 Motion to Suppl ement the Motion for Default Judgment is DENIED AS MOOT; the Defendants having now appeared, the matter of damages shall be set for trial. The 41 Motion for Default Judgment remains pending for disposition by trial. The parties shall file a Joint Pretrial Order within 30 days of the filing date of this Order. Subsequently, a Pretrial Conference will be held by the Court. Signed by Senior Judge David C Bury on 7/25/13.(BAC)

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1 WO 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 DISTRICT OF ARIZONA 8 9 10 11 12 13 14 15 Jes Solar Co., LTD, a South Korean Corporation; ) Airpark Co., LTD, a South Korean Corporation; ) and Hankook Technology, Inc., a South Korean ) ) Corporation, ) ) Plaintiffs, ) v. ) Matinee Energy, Inc., a Nevada Corporation; ) Samsun, LLC, a Virginia LLC; S. Chin Kim; ) John S. Lee; Chun Rae Kim; Paul Jeoung; Tong ) ) Soo Chung, ) ) Defendants. _______________________________________ ) CV 12-626 TUC DCB ORDER 16 The Court denies Defendants Matinee, S. Chin Kim and Tong Soo Chung’s Motion 17 to Set Aside Default, grants Defendant Chun Rae Kim’s Supplemental Motion to Vacate 18 Default. The case shall be set for trial as to damages for Defendants Matinee, S. Chin Kim 19 and Tong Soo Chung. A case management scheduling conference shall be held as to 20 Defendant Chun Rae Kim. 21 A. Case Background 22 Plaintiffs filed the Complaint on August 21, 2012, alleging that the Defendants 23 bilked them out of approximately $2,000,000 in advance fees for a bogus solar power plant 24 project to be constructed in Benson, Arizona. Plaintiffs seek damages totaling approximately 25 $5,000,000. 26 On December 11, 2012, the Clerk of the Court entered default against all the 27 Defendants when they failed to appear. On December 13, 2012, the Plaintiffs filed a Motion 28 1 for Entry of Default Judgment and for a hearing to determine the amount of unliquidated 2 damages included in the claims for relief, set a sum certain for damages by calculation, and 3 for the Court to award punitive damages. Still Defendants did not appear. The Court, 4 however, did not set a hearing. 5 Procedure, the Court “may” conduct a hearing to determine the amount of damages, Rule 6 55(b)(2)(B), but a hearing is unnecessary if the evidence submitted is sufficient to support 7 the damages request, or if the amount claimed may be discerned from definite figures in the 8 documentary evidence or affidavits, Transatlantic Marine Claims Agency, Inc. v. Ace 9 Shipping Corp., 109 F.3d 105, 111 (2d Cir.1997), or if the amount claimed is one capable of 10 ascertainment from definite figures in the documentary evidence or affidavits, United Artists 11 Corp. v. Freeman, 605 F.2d 854, 867 (5th Cir.1979). Because the Court’s calendar was 12 extremely heavy at the time, it asked the Plaintiffs to submit the evidence of damages by 13 affidavit. Plaintiff did so on January 28, 2013, by filing a Motion to Supplement the Motion 14 for Default Judgment. Under Federal Rule 55 of the Federal Rules of Civil 15 On May 12, 2013, the Defendants Matinee Energy Inc., Tong Soo Chung, Paul 16 Jeoung, and S. Chin Kim appeared by filing a Motion to Set Aside the Default and 17 Opposition to Motion for Entry of Default Judgment. On April 12, 2013, Defendant Chun 18 Rae Kim filed, pro se, a Motion for Joinder in the Motion to Set Aside the Default. On May 19 15, 2013, after securing counsel, Defendant Chun Rae Kim filed a Supplemental Motion to 20 Vacate Default and Opposed Plaintiffs’ Motion for Entry of Default Judgment. 21 The defaulted Defendants are Defendant Matinee, a Nevada corporation, engaged 22 in the development of power plant projects involving solar power in the states of California, 23 Arizona, and Nevada. (Amended Complaint (AC) (Doc. 25) at 24.) Defendants S. Chin 24 Kim, Paul Jeoung, and Tong Soo Chung are employees of Matinee: Tong Soo Chung is the 25 CEO of Matinee East-Asia region, (AC at 36) and S. Chin Kim is the Vice President of 26 Matinee, (AC at 43). Defendant Chun Rae Kim is the son-in-law to Defendant John S. Lee, 27 28 2 1 the owner of Defendant Samsun, a Virginia corporation, engaged in assisting with Matinee 2 solar power plant construction projects. Defendants Samsun and John S. Lee have not 3 appeared in the case. B. Federal Rule Civil Procedure 55 4 5 Default is governed by Fed.R.Civ.P. 55(a) and entry of default judgment is made 6 pursuant to Fed.R.Civ.P. 55(b)(2). Entry of default, here, was provided for as follows: 7 “[w]hen a party against whom a judgment for affirmative relief is sought has failed to plead 8 or otherwise defend as provided by these rules and that fact is made to appear by affidavit 9 or otherwise, the clerk shall enter the party's default.” 10 Plaintiffs seek a default judgment under Fed.R.Civ.P. 55(b), which provides: 11 “Judgment by default may be entered . . . By the Court. [And],. . . If the party against whom 12 judgment by default is sought has appeared in the action, the party . . . shall be served with 13 written notice of the application for judgment at least 3 days prior to the hearing on such 14 application. If, in order to enable the court to enter judgment or to carry it into effect, it is 15 necessary to take an account or to determine the amount of damages or to establish the truth 16 of any averment by evidence or to make an investigation of any other matter, the court may 17 conduct such hearings or order such references as it deems necessary and proper and shall 18 accord a right of trial by jury to the parties when and as required by any statute of the United 19 States.” 20 Defendants seek to set aside the default, under Rule 55(c), which provides: “The 21 court may set aside an entry of default for good cause . . ..” In determining whether good 22 cause exists, a court must consider three factors: “‘(1) whether the plaintiff will be 23 prejudiced, (2) whether the defendant has a meritorious defense, and (3) whether culpable 24 conduct of the defendant led to the default.’”Brandt v. Am. Bankers Ins. Co. of Fla., 653 F.3d 25 1108, 1111 (9th Cir.2011) (quoting Falk v. Allen, 739 F.2d 461, 463 (9th Cir.1984)). These 26 factors are disjunctive, Brandt, 653 F.3d at 1111 (quoting Falk, 739 F.2d at 463), meaning 27 28 3 1 that the court may refuse to set aside the default if it holds any one of the three factors is true. 2 U.S. v. Signed Personal Check No. 730 of Yubran S. Mesle, 615 F .3d 1085, 1091 (9th 3 Cir.2010). 4 In applying the Falk v. Allen factors, the Court must remember that a judgment by 5 default is a drastic step which is appropriate only in extreme circumstances, and a case 6 should, whenever possible, be decided on the merits. Mesle, 615 F.3d at 1091 (quoting Falk, 7 739 F.2d at 463). In the context of setting aside a default, rather than a default judgment, the 8 Court’s discretion is especially broad. Brady v. United States, 211 F.3d 499, 504 (9th Cir. 9 2000), O'Connor v. State of Nev., 27 F.3d 357, 364 (9th Cir.1994). 10 In the motion to set aside the default, the Defendants Matinee, S. Chin Kim, Paul 11 Jeoung and Tong Soo Chung decline to respond item by item to the allegations in the 12 Complaint “because of the extreme complexity of the case” and because it is unnecessary. 13 (Motion (Doc. 48) at 3.) Defendants assert the “Plaintiffs bear the burden of establishing that 14 there is some factual basis to the Complaint and damages.” Id. Defendants, however, bear 15 the burden of demonstrating the factors tip in their favor for determining whether or not to 16 set aside the default. Franchise Holding II, 375 F.3d at 926. And, all facts alleged in the 17 Complaint are taken as true until and unless the default is set aside. Cripps v. Life Insur. Co. 18 of North Am., 980 F.2d 1261, 1267 (9th Cir. 1992). 19 1. Whether Defendants engaged in culpable conduct 20 “A defendant's conduct is culpable if he has received actual or constructive notice 21 of the filing of the action and intentionally failed to answer.” TCI Group Life Ins. Plan v. 22 Knoebber, 244 F.3d 691, 697 (9th Cir.2001) (emphasis in original). For a failure to answer 23 to be intentional, “the movant must have acted with bad faith.” Mesle, 615 F.3d at 1092. It 24 is not enough that a movant simply made a conscious choice not to answer, id., or 25 26 27 28 4 1 neglectfully1 failed to answer, yet offers a “credible, good faith explanation negating any 2 intention to take advantage of the opposing party, interfere with judicial decisionmaking, or 3 otherwise manipulate the legal process[,]” he or she is not necessarily culpable. TCI Group, 4 244 F.3d at 697–98 (holding family emergency explanation for missing deadline was weak, 5 but not the result of deviousness or willfulness); Bateman v. U.S. Postal Service, 231 F.3d 6 1220, 1225 (9th Cir.2000)). Culpable behavior “usually involves conduct by parties that is 7 calculated to help them retain property in their possession and avoid liability by staying out 8 of court: for instance, when companies act to avoid service in order to thwart their customers' 9 attempts to bring suit against them.” Mesle, 615 F.3d at 1094. 10 Defendants Matinee, S. Chin Kim, Paul Jeoung, and Tong Soo Chung 11 Here, Plaintiffs attempted to serve the Defendant Matinee by serving its last known 12 registered agent, but discovered the agent had resigned without being replaced. Plaintiffs 13 attempted to serve Defendants S. Chin Kim and Paul Jeoung at the Matinee Tucson office, 14 but discovered the office closed and telephones disconnected. There was no forwarding 15 address or telephone number. Defendant Matinee argues it was not deliberately avoiding 16 service of process; there was simply some confusion involved when the company moved its 17 place of business. (Reply (Doc. 57) at 6.) “The default was occasioned by inadvertence by 18 Defendant Matinee when it closed its Arizona office . . ..” (Motion (doc. 48) at 4.) 19 Defendant Matinee charges that the alternative service made by Plaintiffs on it by 20 serving the Arizona Corporation Commission was not proper because Plaintiffs could have 21 served Matinee at its Nevada headquarters, (Complaint (Doc. 25) at 12), and as of September 22 19, 2012, its website reflected a new Nevada statutory agent. 23 Defendants S. Chin Kim and Paul Jeoung complain about being served by 24 publication. They assert that if Plaintiffs had searched Nevada Corporation Commission 25 1 26 Neglect encompasses simple, faultless careless omissions to act. TCI Group, 244 F.3d 27 at 697 (quoting Pioneer Inv. Servs Co.v. Brunswick Assocs Ltd. P'ship, 507 U.S. 380, 388 (1993)). 28 5 1 records, Plaintiffs would have found information for S. Chin Kim, reflecting a San Mateo, 2 California address. Alternatively, Defendants argue that Plaintiffs believed S. Chin Kim 3 resided in either New York or New Jersey, (Complaint (Doc. 25) at 7), but Plaintiffs made 4 no effort to find him there. Plaintiffs believed Paul Jeoung resided in California, (Complaint 5 (Doc. 25) at 10), but Plaintiffs made no effort to find him there. 6 Defendants misstate their challenges because the alternative forms of service utilized 7 in this case were proper under Fed. R. Civ. P. 4(e)(1) and Arizona law.2 More accurately 8 described, Defendants challenge is that the Plaintiffs failed to exercise due diligence in 9 attempting personal service on them. Defendants assert that the record must reflect that in 10 fact, the Plaintiffs did not know the residence of the Defendants. It is not enough to simply 11 allege it; the record must reflect the efforts made by Plaintiffs to locate the Defendants. 12 (Motion (Doc. 48) at 5 (citing Llamas v. Superior Court in and For Pima County, 474 P.2d 13 479, 460 (Ariz. 1970)); Barlage v. Valentine, 110 P.3d 371, 375 (Ariz. App. 2005). 14 Defendant asserts that Plaintiffs were aware he is a prominent attorney and former 15 head of Invest Korea, a South Korean public organization which promotes Korean business. 16 (Complaint (Doc. 25) at 36.) Therefore, Plaintiffs should have served Defendant Tong Soo 17 Chung in South Korea. Plaintiffs, however, chose to serve Defendant Tong Soo Chung at the 18 law offices of Lim, Ruger and Kim, LLP, by service made on Judy Kim. Defendant Tong 19 Soo Chung argues she was not authorized to accept service for him. The Lim, Ruger & Kim 20 law firm, is a California law firm, and Defendant Tong Soo Chung is of counsel with a 21 designated place of practice being Los Angeles and area of practice being “corporate 22 international.” Defendant Tong Soo Chung, CEO of Matinee East-Asia region, directed 23 24 2 27 The Court approved the alternative service by publication of Defendants S. Chin Kim (Doc. 19) and Paul Jeoung (Doc. 20). Under certain circumstances, 16 A.R.S. 4.1(j) , the Arizona Corporation Commission may accept service on behalf of an entity. Plaintiffs asked the Arizona Corporation Commission to accept service for Defendant Matinee, it agreed, and Plaintiffs, accordingly, served Defendant Matinee. 28 6 25 26 1 Plaintiff Hankook Tech to retain Lim, Ruger & Kim, which required Hankook to waive a 2 conflict of interest due to Tong Soo Chung’s status as co-founder and being “of counsel” at 3 the law firm. 4 Accordingly, service was properly made in California by leaving a summons and 5 complaint at a Defendant’s place of business. (Opposition (Doc. 51) at 12-13 (citing Cal. 6 Code. Civ. P. §§ 415.20(b), 416.90, 416.10-416.90). The service documents were given to 7 Judy Kim, the law firm’s administrator, who Defendant Tong Soo Chung argues was not 8 authorized to accept service on his behalf, but in the Ninth Circuit it suffices, if service is 9 made upon “any individual so integrated with the organization that [she] will know what to 10 do with the papers and who stands in such a position as to render it fair, reasonable and just 11 to imply the authority on [her] part to receive service.” Id. at 14 (quoting Edwards v. 12 Occidental Chemical Corporation, 892 F.2d 1442, 1447 (9th Cir. 1990) (quoting Direct Mail 13 Specialists, Inc. v. Eclat Computerized Technologies, Inc., 840 F.2d 685, 688 (9th Cir. 1988)). 14 This Court approved the alternative service for Defendants S. Chin Kim and Paul 15 Jeoung because it believed they were avoiding service of process, which was the same reason 16 the Plaintiffs served Matinee alternatively.3 When these Defendants left Arizona, they 17 simply disappeared leaving no forwarding address or telephone number. They left town 18 owing rent for their offices and owing wages to their employees. Neither their employees 19 nor the landlord knew they were leaving or where they went. Their statutory agent resigned 20 without being replaced. Plaintiffs checked the Nevada State Corporation Commission 21 website mid-August and mid-September, but found no replacement agent. The Court notes 22 that the information for Defendant S. Chin Kim would have reflected a California address, 23 which does not coincide with Plaintiffs’ belief he may reside in New York or New Jersey. 24 Perhaps, Plaintiffs could have chased the Defendants S. Chin Kim, Paul Jeoung, and 25 Matinee longer or tried to serve them in other locals, as they did Defendant Tong Soo Chung. 26 27 28 3 See n. 2. 7 1 But this is not a case where using a form of alternative service has caused the Defendants to 2 be uniformed of the Complaint against them. The record reflects that on September 22, 2012, 3 the Korean Times, a newspaper serving the Korean-America community, reported Defendant 4 Tong Soo Chung disavowed any involvement in the affairs between JES Solar and Matinee, 5 and he said he had not received a copy of the Complaint. But September 27, 2012, the 6 newspaper reported that on September 18, Defendant S. Chin Kim, sent a letter in response 7 to the JES Solar lawsuit asserting the litigation was invalid because JES Solar had filed for 8 bankruptcy.4 9 law firm reflects counsel there was monitoring this lawsuit. The email reported the firm had 10 discovered the amendment of the Complaint to add Plaintiff Hankook, a previous client the 11 firm had represented, and consequently the firm informed the Plaintiff’s attorney that it 12 would not be representing Defendant Tong Soo Chung in the Jes Solar action. Additionally, an email on November 21, 2012, from the Lim, Ruger & Kim 13 As for Defendant Paul Jeoung, he too had actual knowledge of the law suit because 14 he told Defendant Chun Rae Kim’s father-in-law, John S. Lee, in September that Defendant 15 Matinee would be providing an attorney for Defendant Chun Rae Kim. (Supplement (Doc. 16 65: Affidavit ¶ 26.) 17 Chun Ray Kim 18 Defendant Chun Ray Kim admits he was properly served with the Complaint. 19 Accordingly, he knew an answer was due within 20 days. After he was served with the 20 Complaint, he attests he contacted his father-in-law, who told him that Defendant Matinee 21 would file a timely appearance on his behalf, id. ¶ 26. He also received a copy of the default 22 entered by this Court on December 11, 2012, so he knew Matinee did not appear and answer 23 the Complaint. Again, he contacted his father-in-law and was told that Matinee would file 24 a Motion to Set Aside the Default on his behalf too, but when the motion was filed, he was 25 26 4 27 Jes Solar is not in bankruptcy despite the extreme financial difficulties it experienced as a result of the fraudulent transactions by Defendants. (Opposition (Doc. 51) at 5-7.) 28 8 1 not represented. Accordingly, he was forced to file a Motion to Join, pro se, and then filed 2 a Supplemental Motion to Vacate Default and to Oppose Plaintiffs’ Motion for Default 3 Judgment (Doc. 65). The Court finds that the evidence reflects that Defendant Chun Ray 4 Kim intended to proceed in accordance with the other Defendants. He knew an answer was 5 required, and was content to proceed in accordance with the other Defendants. Only now 6 that he was not represented in the motion to set aside the default does Defendant Chun Ray 7 Kim act independently. 8 Defendants’ Culpability 9 The Court has no problem finding that the Defendants received at the very least 10 constructive notice of the filing of the action. The Court finds that Defendants intentionally 11 chose to not answer the Complaint to take advantage of the opposing party, interfere with 12 judicial decision making, or otherwise manipulate the legal process. 13 Defendants Matinee, S. Chin Kim, Paul Jeoung, and Tong Soo Chung’s assertions 14 of improper service are not only wrong, they do not provide a credible, good faith 15 explanation for their failures to answer. Defendants do not even assert negligence in respect 16 to not answering the Complaint; the only negligence Defendants suggest is related to 17 oversights they made when closing the Tucson office that necessitated alternative service. 18 Culpable behavior “usually involves conduct by parties that is calculated to help them retain 19 property in their possession, and avoid liability by staying out of court: for instance, when 20 companies act to avoid service in order to thwart their customers' attempts to bring suit 21 against them.” Mesle, 615 F.3d at 1094. The Defendants exhibited such culpable conduct, 22 here. 23 This factor tips in favor of not setting aside the default, and especially cuts against 24 setting aside the default for Defendants Matinee, S. Chin Kim, Paul Jeoung, and Tong Soo 25 Chung. 26 2. Whether Defendant has a meritorious defense 27 28 9 1 Defendants Matinee, S. Chin Kim, Paul Jeoung, and Tong Soo Chung 2 After the Plaintiffs responded to the Defendants’ Motion to Set Aside the Default, 3 the Defendants filed a Reply, wherein they raised for the first time substantive defenses: 1) 4 Plaintiffs have not been authorized by the Arizona Corporation Commission to do business 5 in Arizona; 2) there is not complete diversity between the parties, and 3) Plaintiffs’ Amended 6 Complaint fails to allege facts sufficient to support claims for breach of contract, unjust 7 enrichment, conspiracy, fraudulent inducement, and conversion. 8 Plaintiffs ask the Court to strike the Reply or allow it to file a Sur-Reply. The 9 Defendants excuse their violation of the longstanding rule in the Ninth Circuit that a moving 10 party must present all of its evidence or raise all of its legal arguments in a substantive brief, 11 rather than a reply. The excuse is because a motion to set aside a default must necessarily 12 be filed in “fire-drill” mode. “They have discovered they have lost a lawsuit they knew 13 nothing about, they scramble to find counsel to represent them and counsel scrambles to 14 assemble facts and documents from the clients and to research the law. Keeping in mind that 15 timeliness is a key element of a motion to set aside default, counsel files a motion to set aside 16 default with all of the information he has available, balancing the timeliness with 17 completeness. That is what happened in this case.” (Opposition to Motion to Strike (Doc. 18 60) at 2.) Defendants argue the Court should allow the Plaintiffs to file a Sur-Reply. 19 The Court does not believe this is what happened here because the record reflects 20 the Defendants knew about this law suit from its inception. Nevertheless, the Court will not 21 strike the Reply, and will instead allow the Sur-reply. 22 Default has been entered in this case and until set aside, the factual allegations of the 23 Complaint are taken as true, but necessary facts not contained in the pleadings, and claims 24 which are legally insufficient, are not established by default.” Cripps, 980 F.2d at 1267. The 25 Court has reviewed the Amended Complaint and finds it pleads facts to support its claims of 26 breach of contract, unjust enrichment, conspiracy, fraudulent inducement, and conversion. 27 28 10 1 The Complaint alleges the Defendants Matinee and Samsun, and their employees 2 and agents, acted together in various ways, such as meeting with Plaintiffs, entering into 3 contracts with Plaintiffs, and demanding advance payments from Plaintiffs, to fraudulently 4 induce Plaintiffs to pay money to the Defendants. (Complaint (Doc. 25) ¶¶ 20-78.) The 5 Complaint alleges Defendants perpetrated the alleged scam first on Plaintiff Hankook from 6 approximately mid-July 2010, id. ¶ 27, to about March, 2011, when Defendants shifted their 7 attention to Plaintiffs Jes Solar and Airpark, id. ¶¶ 41-42. 8 The Complaint alleges the Defendants induced the Plaintiffs to enter into contractual 9 agreements by telling them that Defendants had secured financing from the United States 10 government and JP Morgan Chase for the billion dollar project to construct a solar power 11 plant. Id. ¶¶ 24, 43-44. Defendants caused Plaintiffs to incur expenses and costs, including 12 payments under specified partnership agreements to Samsun for geotechnical investigations, 13 inter-connection impact studies, public relations, and liaison services to JP Morgan Chase. 14 Id. ¶¶ 28, 48-49. Defendants caused Plaintiffs to enter into specified contracts with Matinee 15 whereby Plaintiffs agreed to be a buy-in, “turn-key” contractor for engineering, procurement 16 and construction (EPC contractor) on the allegedly bogus solar power plant project. Id. ¶¶ 17 29,30-31, 52-53. Defendants demanded advance payments from Plaintiffs under various 18 auspices, such as telling Plaintiffs that they needed to put up their money before JP Morgan 19 Chase would issue the line of credit financing, bringing Plaintiffs to meet with Matinee’s 20 well known and prestigious CEO Defendant Tong, id. ¶ 36, and conducting bogus 21 groundbreaking ceremonies in Arizona, id. ¶¶ 58-64. In the end, there was no JP Morgan 22 Chase financing because Matinee failed to provide disclosure of its assets as collateral, id. 23 ¶ 72, and there was no solar power plant construction project. Plaintiffs repeatedly 24 demanded that Defendants move forward with the construction project to no avail. Id. ¶¶ 39, 25 75. The Plaintiffs have incurred several million dollars in losses due to Defendant’s breach 26 of the contracts. Id. ¶¶ 28, 66, 124. These factual allegations support the claims challenged 27 28 11 1 by the Defendants. The conspiracy count does not fail under Arizona law because it is not 2 a stand alone claim, but is a claim that the Defendants conspired to commit fraud. Id. ¶ 101. 3 (Ds’ Reply at 4.) 4 The Defendants’ other two legal defenses also fail. 5 The Arizona statute, A.R.S. § 10-1501, which requires special authorization from 6 the Arizona Corporation Commission for a foreign corporation to transact business in this 7 state, does not apply. The statutory requirements do not apply to conducting an isolated 8 transaction that is completed within thirty days and is not taken in the course of repeated 9 transactions of a like nature. A.R.S. § 10-1501(B)(10). To determine whether a foreign 10 corporation is “doing business,” the Court considers what is actually done in the state, not 11 what could have been done under the contract. L.M. White Contracting Co. v. St. Joseph 12 Structural Steel Co., 488 P.2d 196, 199 (Ariz. App. 1971). There must be something more 13 than an isolated single act; conduct in Arizona must be a substantial part of its ordinary 14 business. Nat’l Union Indem. Co. v. Bruce Bros., Inc., 38 P.2d 648, 651 (Ariz. 1934). And, 15 simply maintaining, defending or settling a legal proceeding does not constitute transacting 16 business within the meaning of the statute. A.R.S. § 10-1501(B)(1). Defendants do not 17 submit any factual basis for application of this statute in this case. 18 The Defendants assert that Defendant Tong Soo Chung is a “stateless” U.S. citizen 19 because he resides in South Korea and that this defeats diversity jurisdiction over the action. 20 Citizenship for diversity purposes requires a showing that the party is a citizen of the United 21 States and is domiciled in a state. Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 22 828-29 (1989); Kantor v. Wellesley Galleries, Ltd., 704 F.2d 1088, 1090 (9th Cir. 1983). In 23 the Ninth Circuit, the longstanding rule is: “[a] person is ‘domiciled’ in a location where he 24 or she has established a ‘fixed habitation or abode in a particular place, and intends to remain 25 there permanently or indefinitely.’” Lew v. Moss, 797 F.2d 747, 749 (9th Cir. 1986). The 26 Court looks to factors such as current residence, voting registration and voting practices, 27 28 12 1 location of personal and real property, location of brokerage and bank accounts, spouse and 2 family, memberships in unions and organizations, place of employment or business, driver’s 3 license and automobile registration, and payment of taxes. Id. at 750. 4 Defendant Tong Soo Chung provides an affidavit in which he attests that he has 5 resided in South Korea since 2002, but he does not assert he is domiciled there and offers no 6 evidence to suggest he intends to remain there permanently or indefinitely. The self-serving 7 affidavit does not rebut Plaintiffs’ evidence that Defendant Tong Soo Chung is employed as 8 an attorney at Lim, Ruger, and Kim, LLP., in its Los Angeles office. Plaintiffs also tender 9 a Schedule A (FEC Form 3) for the Federal Election Commission for the Defendant’s Report 10 of Receipts and Disbursements for an Authorized [election] Committee, which reflects a 11 mailing address for Defendant Tong Soo Chung in Maryland. His domicile in Maryland 12 would not destroy diversity. The Court retains diversity jurisdiction over this action. 13 Chun Ray Kim 14 Defendant Chun Ray Kim asserts he was dragged into the whole matter because his 15 father-in-law, Defendant John S. Lee, the owner of Defendant Samsun, asked him to translate 16 Korean to English on documents and at meetings between the parties. He asserts he runs a 17 tofu restaurant in Virginia, and he was not paid any compensation of any kind for his 18 involvement with Jes Solar. 19 Additionally, Defendant Chun Rae Kim argues that his involvement was minimal, and the 20 actions he took were taken at the express direction of the Plaintiffs. (Supplement Motion (Doc. 65-2): Affidavit ¶¶ 5, 24.) 21 “In fact, the one-hundred and six (106) paragraph Complaint only mentions Mr. Kim 22 in three (3) of its paragraphs. Furthermore, the only paragraph that can be assumed to have 23 been intended to allege conspiracy against Mr. Kim states that Mr. Kim ‘formed a solar 24 energy consulting company [J & A Solar, Inc.] on behalf of the Consortium that consisted 25 of Plaintiffs Jes Solar and Airpark.” (Chun Rea Kim Reply (Doc. 68) at 6; see also 26 27 28 13 1 Complaint at ¶¶ 54, 56.) Defendant Chun Rae Kim cannot be found to have conspired with 2 Plaintiffs to defraud them. 3 Meritorious Defenses 4 Defendants Matinee, S. Chin Kim, Paul Jeoung, and Tong Soo Chung offer no 5 meritorious defenses, and this factor tips against setting aside the default entered against 6 them. Defendant Chun Rae Kim has alleged sufficient facts that, if true, would constitute a 7 defense because a jury might find he was not an agent or employee of Samsun. Except as 8 an agent or employee of Defendant Samsun, the Complaint fails to allege sufficient facts to 9 support the conspiracy charges against Defendant Chun Rae Kim. This factor tips in favor 10 of setting aside the default entered against Defendant Chun Rae Kim. 11 3. Whether the Plaintiff will be prejudiced 12 “To be prejudicial, the setting aside of a judgment must result in greater harm than 13 simply delaying resolution of the case.” TGI Group Life Insur. Plan, 244 F.3d at 700. Rather, 14 “the delay must result in tangible harm such as loss of evidence, increased difficulties of 15 discovery, or greater opportunity for fraud or collusion.” Id. at 701 (citing Thompson v. Am. 16 Home Assur. Co., 95 F.3d 429 (6th Cir.1996)). 17 Plaintiffs argue that delaying entry of the Judgment in this case allows the 18 Defendants more time to abscond or dissipate assets that are the subject of the default. 19 Plaintiffs offered to consent to setting aside the default, if Defendants would provide an 20 accounting of their assets and how Plaintiffs’ funds were disbursed, but Defendants refused. 21 Plaintiffs assert this shows the Defendants’ intend to continue to delay resolution of this 22 action and the Plaintiffs’ recovery of several million dollars.5 23 24 5 27 Defendants seek to strike this argument, pursuant to Fed. R. Evid. 408, which prohibits the use of a settlement or compromise offer to prove or disprove the validity or amount of a disputed claim or to impeach by a prior inconsistent statement, but the evidence may be considered for other purposes, such as proving bias, prejudice, to negate a contention of undue delay, or prove an effort to obstruct a criminal investigation or prosecution. Here, 28 14 25 26 1 The Court notes that the Defendants Matinee, S. Chin Kim, Paul Jeoung, and Tong 2 Soo Chung have had the advantage of using money that belongs to the Plaintiffs, while 3 Plaintiffs have struggled financially to survive. The Court has found these Defendants are 4 culpable of conduct calculated to help them retain property in their possession and avoid 5 liability by staying out of court, such as acting to avoid service in order to thwart their 6 customers’ attempts to bring suit against them. If Defendant Chun Rae Kim’s defense is true, 7 he has not had such advantages and does not retain Plaintiffs’ property in his possession. 8 The Court finds the factor of prejudice tips decisively against Defendants Matinee, 9 Tong Soo Chung, Paul Jeoung, and S. Chin Kim because setting aside the default creates a 10 continued opportunity for fraud and collusion. Prejudice is less of a factor for setting aside 11 the default against Defendant Chun Rae Kim because he did not avoid service, and he has 12 not absconded with and is not in a position to dissipate the assets that are the subject of the 13 default. 14 C. Conclusion 15 The Court considers: (1) whether the plaintiff will be prejudiced, (2) whether the 16 defendant has a meritorious defense, and (3) whether culpable conduct by the Defendants led 17 to the default. In applying these factors, the Court remembers that a judgment by default is 18 a drastic step which is appropriate only in extreme circumstances, and a case should, 19 whenever possible, be decided on the merits. The Court’s discretion is especially broad to 20 set aside a default as compared to setting aside a default judgment. 21 Defendants Matinee, S. Chin Kim, Paul Jeoung, and Tong Soo Chung have not 22 offered any evidence or argument to tip even one factor in favor of setting aside the default, 23 whereas Defendant Chun Rae Kim has at least presented a possible defense. Because a 24 judgment by default is a drastic step and appropriate only in exceptional circumstances, the 25 27 the Plaintiffs proffer the evidence to show Defendants’ intent to continue conduct that will obfuscate evidence and delay resolution of the case. The Defendants’ Motion to Strike (Doc. 55) is denied. 28 15 26 1 Court sets the default aside for Defendant Chun Rae Kim. As to Defendants Matinee, S. 2 Chin Kim, Paul Jeoung, and Tong Soo Chung, the Court finds this is an exceptional case and 3 denies the Motion to Set Aside the Default. 4 Accordingly, 5 IT IS ORDERED that the Motion to Set Aside Default (Doc. 48) filed by 6 Defendants Tong Soo Chung, Paul Jeoung, S. Chin Kim, and Matinee Energy is DENIED. 7 IT IS FURTHER ORDERED that the Supplemental Motion to Vacate Default 8 (Doc. 65) filed by Chun Rae Kim is GRANTED, and the Clerk of the Court shall set aside 9 the default entered against Defendant Chun Rae Kim. 10 11 12 13 14 15 IT IS FURTHER ORDERED that the Motion for Joinder by Chun Rae Kim in the Motion to Set Aside Default (Doc. 61) is DENIED AS MOOT. IT IS FURTHER ORDERED that the Motion to Strike Paragraphs 9 and 10 (Doc. 55) filed by the Defendants is DENIED. IT IS FURTHER ORDERED that the Motion to Strike Reply (Doc. 58) filed by the Plaintiffs is DENIED AS MOOT because Plaintiffs have filed a Sur-reply. 16 IT IS FURTHER ORDERED that the Motion to Supplement the Motion for 17 Default Judgment (Doc. 45) is DENIED AS MOOT; the Defendants having now appeared, 18 the matter of damages shall be set for trial. 19 20 IT IS FURTHER ORDERED that the Motion for Default Judgment (Doc. 41) remains pending for disposition by trial. 21 22 IT IS FURTHER ORDERED that the parties shall file a Joint Pretrial Order within 23 30 days of the filing date of this Order. Subsequently, a Pretrial Conference will be held by 24 the Court. 25 DATED this 25th day of July, 2013. 26 27 28 16

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