Results ByIQ, LLC v. Fanning et al

Filing 25

ORDER by Judge Samuel Conti denying 17 Motion for Default Judgment; denying 18 Motion to Dismiss (sclc1, COURT STAFF) (Filed on 10/18/2011)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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RESULTS BYIQ, LLC,

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Plaintiff,

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v.

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For the Northern District of California

United States District Court

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NETCAPITAL.COM, LLC; NETWIRE,
INC.; NETMOVIES, INC.

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Defendants.

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Case No. C 11-0550 SC
ORDER DENYING DEFENDANTS'
MOTION TO DISMISS AND
DENYING PLAINTIFF'S
APPLICATION FOR DEFAULT
JUDGMENT

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I.

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INTRODUCTION
Plaintiff Results ByIQ ("Plaintiff") has applied for default

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judgment against Defendants NetCapital.com, LLC ("NetCapital.com"),

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NetMovies, Inc. ("NetMovies"), and NetWire, Inc. ("Netwire")

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(collectively, "Defendants").

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Defendants have not filed an Opposition to Plaintiff's application

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but have moved to quash Plaintiff's service of summons and to

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dismiss the Complaint.

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filed an Opposition to Defendants' Motion to Dismiss.

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("Opp'n").

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forth below, the Court DENIES Defendants' Motion to Dismiss.

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Court also DENIES Plaintiff's Application for Default Judgment

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without prejudice.

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///

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ECF No. 17 ("App. for Default J.").

ECF No. 18 ("Mot. to Dismiss").

Defendants have not filed a Reply.

Plaintiff

ECF No. 20

For the reasons set
The

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II.

BACKGROUND
Plaintiff filed a Complaint for wire fraud against Defendants

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on February 7, 2011 and a First Amended Complaint on February 10,

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2011.

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Plaintiff is a California corporation with its principal place of

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business in California and that Defendants are incorporated in

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Delaware with a principal place of business at 165 Nantasket Beach

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Avenue, Hull, Massachusetts, 02045 ("165 Nantasket Beach Ave.").

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FAC ¶¶ 4, 7-9.

ECF Nos. 1 ("Compl."), 4 ("FAC").

The FAC alleges that

All three of the Defendants appear to be

See id. Ex. B ("Consulting Agreement") ¶ 1.

According

United States District Court

For the Northern District of California

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affiliated.

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to the FAC, the Defendants are the alter-egos of John Fanning

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("Fanning").1

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founder, manager, and officer of Defendants.

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Decl.") ¶ 1.

Id. ¶ 13.

Fanning has declared that he is a
ECF 18-1 ("Fanning

Plaintiff alleges that, pursuant to its Consulting Agreement

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with Defendants and at the insistence of Fanning, Plaintiff

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provided Defendants with hundreds of hours of services valued at

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tens of thousands of dollars.

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Consulting Agreement, which was signed by Defendants on October 27,

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2006, Defendants' address is 165 Nantasket Beach Ave.

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("Consulting Agreement").

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Id. ¶ 21, 23-24.

According to the

Id. Ex. A

The Consulting Agreement also provides:

All notices under this Agreement shall be in writing,
and shall be deemed given when personally delivered,
sent by confirmed telecopy or other electronic means, or
ten (10) days after being sent by prepaid certified or
registered U.S. mail to the address of the party to be
noticed as set forth herein or such other address as
such party last provided to the other by written notice.

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Fanning was originally named as a Defendant in the Complaint and
FAC. Plaintiff voluntarily dismissed its claims against Fanning
without prejudice on March 20, 2011. ECF. No. 10.
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Id. ¶ 7.

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Plaintiff alleges that Defendants failed to compensate

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Plaintiff for services rendered under the Consulting Agreement.

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recover, Plaintiff brought claims for violation of the Racketeer

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Influenced and Corrupt Organizations ("RICO") Act, 18 U.S.C. §§

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1961 et seq., fraud in the inducement, fraudulent conveyance,

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breach of contract, account stated, and open book account against

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Defendants.

To

Id. ¶¶ 46-84.

Plaintiff, through a licensed process server, served a copy of

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United States District Court

For the Northern District of California

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the Summons, Complaint, and FAC on Tom Carmody ("Carmody") at 165

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Nantasket Ave. on February 14, 2011.

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Service").

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identified as an officer qualified by law to accept service on

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behalf of [Defendants]."

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that 165 Nantasket Ave. is the principal office of NetWire and

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NetMovies in Massachusetts, as registered with the Massachusetts

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Secretary of State.

ECF No. 8 ("Proof of

The process server declares that Carmody "was

Id.

The process server also declares

Id.

After Defendants failed to answer or otherwise respond to this

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action, the Clerk of the Court entered default on March 17, 2011.

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ECF No. 9 ("Entry of Default").

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for default judgment in the amount of $259,131.05.

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Default J. at 2.

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to dismiss for lack of proper service pursuant to Rule 12(b)(5) of

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the Federal Rules of Civil Procedure.

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///

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///

On June 20, 2011, Plaintiff moved
App. for

Approximately two weeks later, Defendants moved

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Mot. to Dismiss at 1-2.

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III. LEGAL STANDARD

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A.

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Under Rule 12(b)(5) of the Federal Rules of Civil Procedure, a

Rule 12(b)(5)

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defendant may move for dismissal due to insufficient service of

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process.

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have jurisdiction over a defendant unless the defendant has been

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served properly under Fed. R. Civ. P. 4 . . . .

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substantial compliance with Rule 4 'neither actual notice nor

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simply naming the defendant in the complaint will provide personal

See Fed. R. Civ. P. 12(b)(5).

"A federal court does not

[W]ithout

United States District Court

For the Northern District of California

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jurisdiction.'"

Direct Mail Specialists, Inc. v. Eclat

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Computerized Tech., 840 F.2d 685, 688 (9th Cir. 1988) (citations

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omitted).

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burden of establishing that service was valid under Rule 4."

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Brockmeyer v. May, 383 F.3d 798, 801 (9th Cir. 2004).

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issues concerning service of process may be determined by the

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district court through affidavits, depositions, or oral testimony.

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United States v. Coker, 09-CV-02012-JAM-DAD, 2010 U.S. Dist. LEXIS

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117637, at *9 (E.D. Cal. Oct. 21, 2010).

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unable to satisfy its burden of demonstrating effective service,

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the court has discretion to either dismiss or retain the action.

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See Stevens v. Sec. Pac. Nat'l Bank, 538 F.2d 1387, 1389 (9th Cir.

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1976).

"Once service is challenged, plaintiff[] bear[s] the

Factual

If the plaintiff is

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B.

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After entry of a default, the Court may enter a default

Default Judgment

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judgment.

Fed. R. Civ. P. 55(b)(2).

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so, while "discretionary," Aldabe v. Aldabe, 616 F.2d 1089, 1092

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(9th Cir. 1980), is guided by several factors.

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matter, the Court must "assess the adequacy of the service of

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Its decision whether to do

As a preliminary

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process on the party against whom default judgment is requested."

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Bd. of Trs. of the N. Cal. Sheet Metal Workers v. Peters, No. C-00-

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0395 VRW, 2000 U.S. Dist. LEXIS 19065, at *2 (N.D. Cal. Jan. 2,

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2001).

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should consider whether the following factors support the entry of

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default judgment: (1) the possibility of prejudice to the

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plaintiff; (2) the merits of plaintiff's substantive claim; (3) the

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sufficiency of the complaint; (4) the sum of money at stake in the

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action; (5) the possibility of a dispute concerning material facts;

If the Court determines that service was sufficient, it

United States District Court

For the Northern District of California

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(6) whether the default was due to excusable neglect; and (7) the

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strong policy underlying the Federal Rules of Civil Procedure

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favoring decisions on the merits.

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1471-72 (9th Cir. 1986).

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default the factual allegations of the complaint, except those

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relating to the amount of damages, will be taken as true."

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v. United Fin. Group, 559 F.2d 557, 560 (9th Cir. 1977).

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"necessary facts not contained in the pleadings, and claims which

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are legally insufficient, are not established by default."

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v. Life Ins. Co., 980 F.2d 1261, 1267 (9th Cir. 1992).

Eitel v. McCool, 782 F.2d 1470,

"The general rule of law is that upon

Geddes
However,

Cripps

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IV.

DISCUSSION

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A.

Defendants' Motion to Dismiss

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Defendants move to dismiss the FAC on the grounds that

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Plaintiff failed to effect proper service.

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According to the Proof of Service, Plaintiff served a copy of the

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Summons and Complaint on Carmody at 165 Nantasket Beach Ave.

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However, Fanning declares that Defendants have not done business at

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165 Nantasket Beach Ave. since 2008 and that Carmody "is not an

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Mot. to Dismiss at 2.

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officer, director, manager or employee of any of the Defendants."

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Fanning Dec. ¶ 5.

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for service of process, registered with the Delaware Secretary of

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State, is Rick Bell ("Bell"); Bell's business address is in

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Delaware; all of Defendants are Delaware corporations with

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principal places of business in Delaware; none of Defendants are

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registered as foreign corporations to do business in Massachusetts;

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and NetMovies and NetWire allowed their authorizations to do

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business in Massachusetts to expire in 2008.

United States District Court

For the Northern District of California

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Fanning also declares that: Defendants' agent

Id. ¶¶ 2-4.

In Opposition, Plaintiff offers the declaration of Paul

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Charlton ("Charlton"), the manager of Plaintiff.

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("Charlton Opp'n Decl.") ¶ 3.

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number of documents Charlton retrieved from the Internet on July

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18, 2011, indicating that Defendants' business address is 165

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Nantasket Beach Ave., including: internet domain records for

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NetCapital.com, NetWire, and NetMovies; public records from the

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Massachusetts Secretary of State for NetMovies and NetWire;

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multiple documents from www.netcapital.com authored after January

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2008; and a "contact page" for www.netwire.com.

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ECF 20-1

Attached to the declaration are a

Id. ¶ 4, Exs. A-I.

Charlton declares that Defendants never provided Plaintiff

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with notice of an address different from the one provided in the

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Consulting Agreement -- 165 Nantasket Beach Ave. –- and that

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Carmody is known to him as the Chief Marketing Officer of

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NetCapital.com.

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Smilowitz ("Smilowitz"), who allegedly served Defendants at 165

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Nantasket Beach Ave. on February 15, 2011, told him that Carmody

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orally accepted service on behalf of Defendants.

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told Charlton that 165 Nantasket Beach Ave. had a sign naming

Id. ¶¶ 11, 14.

Charlton also declares that Stuart

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Smilowitz also

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NetCapital.com as a tenant.

Additionally, Charlton declares that,

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after a diligent search of the public records, he determined that

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neither NetMovies nor NetWire is currently registered to do

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business in the state of Delaware.2

Id. ¶ 15.

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Defendants did not file a Reply in support of their Motion to

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Dismiss or otherwise challenge Plaintiff's Opposition or the facts

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set forth in Charlton's Opposition Declaration.
Under Rule 4(h) of the Federal Rules of Civil Procedure, a

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plaintiff may serve a corporate defendant "by delivering a copy of

United States District Court

For the Northern District of California

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the summons and of the complaint to an officer, a managing or

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general agent, or any other agent authorized by appointment or by

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law to receive service of process."

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Alternatively, a plaintiff may follow the state law for service of

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process in the state where the district court is located or where

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service is made.

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corporate defendant may be served "by delivering a copy of the

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summons and of the complaint to an officer, to a managing or

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general agent, or to the person in charge of the business at the

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principal place of business thereof within the Commonwealth, if

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any; or by delivering such copies to any other agent authorized by

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appointment or by law to receive service of process."

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Civ. P. 4(d)(2).

Fed. R. Civ. P. 4(h)(1)(B).

Fed. R. Civ. P. 4(h)(1)(A).

In Massachusetts, a

Mass. R.

Plaintiff has met its burden of demonstrating effective

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service.

The Proof of Service shows that Smilowitz served the

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Complaint, FAC, and Summons on Carmody at 165 Nantasket Beach Ave.

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Charlton also declares that the Delaware address offered by
Defendants is actually the address of the agent for service of
process for NetCapital.com and that none of the Defendants have
employees who work at the address. Charlton Opp'n Decl. ¶ 12.
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approximately one week after the action was filed.

Proof of

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Service at 1-2.

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an officer qualified by law to accept service on behalf of

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[Defendants]."

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attached to the FAC and has not been challenged by Defendants,

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identifies Defendants' address as 165 Nantasket Beach Ave. and

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provides that all notices under the Consulting Agreement shall be

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delivered to that address.

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provided Plaintiff with an address different from the one in the

Smilowitz declares that Carmody was "identified as

Id. at 2.

The 2006 Consulting Agreement, which was

Charlton declares that Defendants never

United States District Court

For the Northern District of California

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Consulting Agreement.

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Plaintiff has offered a variety of documents indicating that

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Defendants' address remains 165 Nantasket Beach Ave., including

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public records from the Massachusetts Secretary of State.

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Decl. Exs. A-I.

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Charlton Opp'n Decl. ¶ 11.

Further,

Charlton

In light of the evidence offered by Plaintiff, the Court finds

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Defendants' Motion to Dismiss and Fanning's declaration

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unpersuasive.

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service of process are located in Delaware and that Defendants have

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not done business at 165 Nantasket Beach Ave. since 2008.

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Decl. ¶¶ 2-4.

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their address is identified as 165 Nantasket Beach Ave. in the

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Consulting Agreement.

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Plaintiff of a change of address.

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any of the evidence offered by Plaintiff showing that Defendants'

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address remains 165 Nantasket Beach Ave.

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that Carmody "is not an officer, director, manager or employee of

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Defendants."

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position with Defendants at the time of service.

Fanning declares that Defendants and their agent for

Fanning

However, Fanning and Defendants do not dispute that

Id. ¶ 5.

They do not dispute that they never notified
Nor do they otherwise challenge

Fanning also declares

However, Fanning is silent as to Carmody's

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For these reasons, the Court finds that Plaintiff served

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Defendants in accordance with Rule 4 of the Federal Rules of Civil

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Procedure.

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Dismiss.

Accordingly, the Court DENIES Defendants' Motion to

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B.

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The Court finds default judgment is inappropriate because

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Plaintiff has failed to provide sufficient evidence of its damages.

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Upon default, the factual allegations in the complaint relating to

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damages are not taken as true.

Plaintiff's Application for Default Judgment

Geddes, 559 F.2d at 560.

"The

United States District Court

For the Northern District of California

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plaintiff is required to provide evidence of its damages, and the

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damages sought must not be different in kind or amount from those

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set forth in the complaint."

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Mktg., 768 F. Supp. 2d 1049, 1054 (C.D. Cal. 2011).

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generally require the plaintiff to submit admissible evidence to

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support damages calculations.

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determine damages are not contained in the complaint, or are

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legally insufficient, they will not be established by default."

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Philip Morris U.S.A. Inc. v. Castworld Prods., 219 F.R.D. 494, 498

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(C.D. Cal. 2003).

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Amini Innovation Corp. v. KTY Int'l

Id.

Courts

"If the facts necessary to

In the FAC, Plaintiff seeks judgment against Defendants for

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$163,800 for its first cause of action for RICO violations ($54,000

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in compensatory damages and $109,200 in exemplary and punitive

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damages); $245,700 for its second cause of action for fraud in the

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inducement ($81,900 in compensatory damages and $163,800 in

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exemplary and punitive damages), and $54,600 in compensatory

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damages for its third, fourth, fifth, and sixth causes of action.

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FAC at 12-13.

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post-judgment interest.

Plaintiff also seeks attorney's fees, costs, and
Id.

It is unclear how Plaintiff arrived

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at its different compensatory damages figures.

According to

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invoices attached to the FAC, Plaintiff provided Defendants with

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$41,550 in services at a rate of $150 per hour.

FAC ¶ 23, Ex. D.

In its Application for Default Judgment, Plaintiff seeks total

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damages figures, Plaintiff submits a declaration by Charlton

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stating that Defendants "owe for 364 hours of services rendered at

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the market rate of $225/hour [as opposed to the $150/hour rate

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identified in the invoices attached to the FAC], for a principal

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United States District Court

damages of $245,700.

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For the Northern District of California

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App. for Default J. ¶ 8.

In support of its

amount of $81,900 that remains unpaid since at least January 1,

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2008."3

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provides no other documentary evidence supporting its damages

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figures and no explanation for the inconsistency between the hourly

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rates identified in Charlton's declaration and the invoices

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attached to the FAC.

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"reasonable attorney's fees" of $12,650.

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6.

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declaration of Charlton, which provides no details as to how these

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figures were determined.

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Plaintiff does not specify the hourly rates of its attorneys,

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average local hourly rates for attorneys, or the number of legal

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hours billed, or provide an itemized list of costs.

ECF 17-2 ("Charlton Default J. Decl.") ¶ 7.

Plaintiff

Plaintiff also seeks costs of $781.05 and
App. for Default J. ¶¶ 5-

Again, the only support provided for these figures is the

See Charlton Default J. Decl. ¶¶ 9-10.

The Court finds that Plaintiff has submitted inadequate

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evidence to support entry of default judgment in the requested

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Plaintiff claims it is entitled to treble damages under 18 U.S.C.
§ 1964(c), App. for Default J. ¶ 7, which provides that "[a]ny
person injured in his business or property by reason of a violation
of section 1962 . . . shall recover threefold the damages he
sustains and the cost of the suit, including a reasonable
attorney's fee."

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amount of $259,131.05.

The evidence submitted by Plaintiff does

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not provide sufficient detail for the Court to determine the amount

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owing under the Consulting Agreement or reasonable attorney's fees

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and costs.

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the hourly rate for Plaintiff's services identified in Charlton's

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declaration and the invoices attached to the FAC.

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Plaintiff's Application for Default Judgment is denied without

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prejudice.

The Court is also troubled by the inconsistency between

Accordingly,

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United States District Court

For the Northern District of California

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V.

CONCLUSION
For the reasons stated above, the Court DENIES Defendants

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NetCapital.com LLC, NetMovies Incorporated, and NetWire

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Incorporated's Motion to Dismiss.

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Plaintiff Results ByIQ's Motion for Default Judgment without

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prejudice.

Further, the Court DENIES

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IT IS SO ORDERED.

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Dated:

October 18, 2011
UNITED STATES DISTRICT JUDGE

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