HO v. PHOLICIOUS INC.
Filing
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OPINION. Signed by Judge Madeline Cox Arleo on 05/07/2018. (ek)
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
Stacy Ho,
Plaintiff,
Civil Action No. 17-557
v.
OPINION
Pholicious Inc.,
Defendant.
ARLEO, UNITED STATES DISTRICT JUDGE
THIS MATTER comes before the Court on Plaintiff Stacy Ho’s (“Plaintiff”) Motion
for Default Judgment against Defendant Pholicious Inc. (“Defendant”) pursuant to Federal Rule
of Civil Procedure 55(b)(2). ECF No. 7. For the reasons set forth herein, the motion is DENIED.
I.
BACKGROUND
This appears to be a case of a franchise deal gone wrong. Plaintiff wished to open a
“Pholicious” location in the Woodbridge Center Mall in Woodbridge, New Jersey (an eatery that
apparently sells PHO, Vietnamese sandwiches and BOBA tea), and Defendant Pholicious, Inc.
allegedly agreed to accept $40,000 for the right to do so. See Compl. ¶ 5. But even the best laid
plans often go astray. Plaintiff went over budget, the Woodbridge location never opened, and now
Plaintiff seeks a refund of her $40,000 and other compensatory, statutory, and punitive damages
and fees. Id. ¶¶ 13-40.
The Complaint does not include many dates, times, or other specifics, nor are Plaintiff’s
various theories of recovery very clear, but as far as the Court can tell, Plaintiff’s allegations fall
into two general buckets: (1) Defendant knew about, and either failed to disclose or affirmatively
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misrepresented, the amount of money it would actually take to open and run a Pholicious location;
and (2) Defendant or its agents “took advantage of” Plaintiff after she paid the $40,000, demanding
more money and/or refusing to acknowledge the money she had already paid. See id. ¶¶ 7-17.
A. The Budget
Plaintiff alleges that Defendant represented, “[a]t all relevant times,” that $40,000 was the
total cost for opening the Pholicious location in Woodbridge. Id. ¶ 7. She claims “Defendant
intentionally concealed hidden costs and liabilities from Plaintiff in connection with Plaintiff’s
opening a Pholicious restaurant location, and Plaintiff has expended far in excess of the $40,000
Defendant was led to believe the process would cost.” Id. ¶ 12. Plaintiff says she “specifically
advised Defendant of her budget prior to the parties entering into their agreement, and told
Defendant she could not open a restaurant if the costs exceeded that budget.” Id. ¶ 15. She claims
“Defendant assured Plaintiff the process would remain within her budget, but was misleading
Plaintiff when it made that assurance.” Id. ¶ 16.
B. The Payments
Plaintiff further alleges that, after paying $40,000 to Defendant, “Defendant began a
campaign of demanding more and more funds to advance Plaintiff’s efforts, which excess funds
were never disclosed to Plaintiff when Plaintiff entered into her agreement with Defendant.” Id.
¶¶ 6, 8. Defendant allegedly disavowed “knowledge of whether or not it had received Plaintiff’s
money” as well as “the acts of its agents and representative when Plaintiff complained its money
was disappearing and she was being taken advantage of.” Id. ¶¶ 9-10. Plaintiff claims she “went
to Defendant’s COO to advise that Defendant had acted improperly, and the COO’s e-mail
response was, ‘Why should I care?’” Id. ¶ 11.
C. The Complaint
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On that factual basis, the Complaint includes the following claims: (1) breach of contract
(“Count One”); (2) “legal fraud” 1 (“Count Two”); (3) breach of the covenant of good faith and fair
dealing (“Count Three”); (4) violation of the New Jersey Consumer Fraud Act (“NJCFA”),
N.J.S.A. § 56:8-2 (“Count Four”). 2
II.
LEGAL STANDARD
“The district court has the discretion to enter default judgment, although entry of default
judgments is disfavored as decisions on the merits are preferred.” Animal Sci. Prods., Inc. v. China
Nat’l Metals & Minerals Imp. & Exp. Corp., 596 F. Supp. 2d 842, 847 (D.N.J. 2008). Before
entering default judgment the court must: (1) determine it has jurisdiction both over the subject
matter and parties; (2) determine whether defendants have been properly served; (3) analyze the
Complaint to determine whether it sufficiently pleads a cause of action; and (4) determine whether
the plaintiff has proved damages. See Chanel, Inc. v. Gordashevsky, 558 F. Supp. 2d 532, 535-36
(D.N.J. 2008); Wilmington Savings Fund Soc., FSB v. Left Field Props., LLC, No. 10-4061, 2011
WL 2470672, at *1 (D.N.J. June 20, 2011). Although the facts pled in the Complaint are accepted
as true for the purpose of determining liability, the plaintiff must prove damages. See Comdyne
I, Inc. v. Corbin, 908 F.2d 1142, 1149 (3d Cir. 1990).
When a plaintiff pleads a claim sounding in fraud, Rule 9(b) imposes a heightened pleading
standard, namely: “a party must state with particularity the circumstances constituting fraud or
mistake,” but “[m]alice, intent, knowledge, and other conditions of a person’s mind may be alleged
generally.” Fed. R. Civ. P. 9(b). The circumstances of the fraud must be stated with sufficient
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Plaintiff’s claim for “legal fraud” is reasonably construed as one for common law fraud under
New Jersey law.
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The Complaint also contains a Count Five, for “rescission,” but under New Jersey law rescission
is a remedy, and not an independent cause of action. See, e.g., First Am. Title Ins. Co. v. Lawson,
177 N.J. 125, 143 (2003).
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particularity to put a defendant on notice of the “precise misconduct with which [it is] charged.”
Lum v. Bank of Am., 361 F.3d 217, 224 (3d Cir. 2004). “To satisfy this standard, the plaintiff
must plead or allege the date, time and place of the alleged fraud or otherwise inject precision or
some measure of substantiation into a fraud allegation.” Frederico v. Home Depot, 507 F.3d 188,
200 (3d Cir. 2007).
In addition, prior to granting default judgment, the Court must make explicit factual
findings as to: (1) whether the party subject to the default has a meritorious defense; (2) the
prejudice suffered by the party seeking default judgment; and (3) the culpability of the party
subject to default. Doug Brady, Inc. v. N.J. Bldg. Laborers Statewide Funds, 250 F.R.D. 171, 177
(D.N.J. 2008).
III.
ANALYSIS
The Court has subject matter jurisdiction over this dispute pursuant to 28 U.S.C. § 1332
because Plaintiff is a resident of New Jersey, Defendant is a corporation based in Florida, and the
amount in controversy exceeds $75,000. See Compl. ¶¶ 2-4. The Court has personal jurisdiction
over the Defendants because Plaintiff alleges a substantial portion of events giving rise to the
claims occurred within New Jersey. See id. ¶¶ 5-17.
The Court is not satisfied, however, that Defendant has been properly served. Plaintiff
provided (1) an acknowledgement of service of an individual named Tai Nguen at a location in
King of Prussia, Pennsylvania, who Plaintiff indicated is a “managing agent” of Defendant, see
ECF No. 3; and (2) an affidavit of service of a “John Doe” at the same location, who Plaintiff
indicated is a “person authorized to accept service” on behalf of Defendant, see ECF No. 4. But
Plaintiff fails to specify how the individual “Tai Nguen” (and/or “John Doe”), an individual located
in King of Prussia, Pennsylvania, is qualified under the Federal Rules of Civil Procedure to accept
service for a Florida-based defendant with no alleged ties to Pennsylvania.
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The requirements for serving a corporation, partnership, or association are set forth in Rule
4(h). Under Rule 4(h), when a corporation is served within the United States, it must be served
either (1) “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” or (2) by otherwise following state law for courts of general jurisdiction in the state where
service is made or where the district court is located. Fed. R. Civ. P. 4(h); Fed. R. Civ. P. 4(e)(1).
Under Rule 4(h) and its New Jersey and Pennsylvania analogs, whether an individual
qualifies as a “managing agent” of a corporation “depends on a factual analysis of that person’s
authority within the organization.” Gottlieb v. Sandia Am. Corp., 452 F.2d 510, 513 (3d Cir.
1971); see also O’Connor v. Altus, 67 N.J. 106, 128 (1975); Goldberg v. Mutual Readers League,
Inc., 195 F.Supp. 778, 783 (E.D. Pa. 1961). And this authority must be substantial: “[I]t is
reasonable to expect that such an agent will have broad executive responsibilities and that his
relationship will reflect a degree of continuity.” Gottlieb, 452 F.2d at 513 (citing Aquascutum of
London, Inc. v. S.S. Am. Champion, 426 F.2d 205 (2d Cir. 1970)).
On the record before the Court, it is impossible to determine whether Tai Nguen is a
“managing agent” of Pholicious, Inc., a corporation against which Plaintiff is asking the Court to
impose a default judgment of $215,314.99. Plaintiff’s unsupported legal conclusion that Tai
Nguen is a “managing agent” of Defendant does not suffice, and in any renewed motion for default
judgment, Plaintiff must set out in clear, specific terms the factual and legal basis upon which
Plaintiff is asking this to Court conclude that Defendant has been properly served in this matter. 3
Until such time, default judgment is inappropriate.
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Plaintiff should also note that default judgment cannot be granted on any claims for which
Plaintiff has not sufficiently pled a cause of action. See Chanel, 558 F. Supp. 2d at 535-36. For
fraud-based claims, “the plaintiff must plead or allege the date, time and place of the alleged fraud
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IV.
CONCLUSION
For the reasons set forth herein, Plaintiff’s motion for default judgment, ECF. No. 7, is
DENIED without prejudice. An appropriate Order accompanies this Opinion.
Dated: May 7th, 2018
/s Madeline Cox Arleo__________
Hon. Madeline Cox Arleo
United States District Judge
or otherwise inject precision or some measure of substantiation into a fraud allegation.” Frederico,
507 F.3d at 200.
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