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Georgetown, LLC v. Kolbeh Capital, LLC

United States District Court, E.D. Michigan, Southern Division

October 13, 2016

GEORGETOWN, LLC, Plaintiffs,
v.
KOLBEH CAPITAL, LLC, et al., Defendants.

          OPINION AND ORDER 1) SETTING ASIDE DEFAULT; 2) DENYING PLAINTIFF'S MOTIONS FOR DEFAULT JUDGMENT; 3) DENYING DEFENDANTS' MOTIONS TO DISMISS; AND 4) ORDERING PLAINTIFF TO SHOW CAUSE

          ROBERT H. CLELAND UNITED STATES DISTRICT JUDGE

         Pending before this court are Plaintiff's Motions for Default Judgment as to All Defendants. (Dkts. ##13, 14.) Also pending are two nearly identical Motions to Dismiss or Set Aside Default by Defendants Berkshire Hathaway, Inc., The Adelpour Group, Dennis Adelpour, and Kolbeh Capital, LLC. (Dkts. ##12, 18.) These Defendants have responded to Plaintiff's motion for default. (Dkts. ##17, 20.) Plaintiffs have also filed a response to the pending motions to dismiss, (Dkt. #18), and Defendants have filed replies, (Dkts. ##21, 22). After a review of the briefs, the court concludes that a hearing is unnecessary, as is any further briefing.[1] See E.D. Mich. LR 7.1(f)(2). For the following reasons, the court will deny Plaintiff's motion for default judgment, set aside the clerk's entry of default, deny Defendants' motions to dismiss without prejudice, and order Plaintiff to show cause for why the case should not be transferred to the Central District of California.

         I. BACKGROUND

         Plaintiff is a Michigan Limited Liability Company bringing claims against Defendants who are all either individuals or entities based in California in connection with a contract for the sale of land in Beverly Hills, California. (Dkt. #1.) Plaintiff alleges that Defendants made misrepresentations as to the reason for the property's below-market price, claiming that it reflected the builder's unwillingness to complete the home following a divorce, when, in reality, the home had not been completed because it was subject to significant undisclosed liens. As a result, Plaintiff claims that it has lost its $82, 500 deposit, which is “still sitting in escrow.” Plaintiff filed its complaint on July 14, 2016, (Dkt. #1), and submitted requests for entry of default on August 16, 2016, purporting to have effected timely service against Defendants by attaching a copy of the complaint to an email addressed to the attorneys of Defendants Kolbeh Capital, LLC, The Adelpour Group, Dennis Adelpour, and Berkshire Hathaway, Inc. (Dkts. ##3, 4.) The clerk of the court has entered default against these Defendants. (Dkts. ##5, 11.)

         Defendants argue that this court does not have personal jurisdiction over them because they were not properly served in accordance with Federal Rule of Civil Procedure 4, nor do they have sufficient minimum contacts with Michigan to be subject to personal jurisdiction within the state. In response, Plaintiff points out that it has complied with Federal Rule of Civil Procedure 5. It further argues that emails from Defendants' attorneys indicated that all correspondence on the matter was to be sent to their attention, so Plaintiff complied with the requirements of Federal Rule 4(h)(1)(B) that service be delivered to an authorized agent. Moreover, it claims that Defendants have purposefully availed themselves of the forum state by contracting with a Michigan LLC.

         Defendants also argue that venue is improper because the Eastern District of Michigan is not the location where any Defendant resides, is not a location where a substantial part of the events giving rise to the claim occurred, nor is it a venue of last resort as proper venue exists in California. Plaintiff responds that a substantial part of the events giving rise to the claim did occur in Michigan because the funds it placed in escrow are central to its claims and originated from a Michigan bank account.

         Finally Defendants argue that the court should grant dismissal because the purchase agreement requires mediation and arbitration of all claims. In response, Plaintiff contends that it attempted in good faith to pursue mediation despite Defendants' intransigence, and the court should not enforce the arbitration provision because the agreement, tainted by fraud, is not enforceable against Plaintiff in any case.

         II. STANDARD

         A. Default Judgment

         In order to obtain judgment by default, the proponent must first obtain a clerk's entry of default pursuant to Rule 55(a). If obtained, then the proponent may file for default judgment by the clerk, or by the court. Fed.R.Civ.P. 55(b). “The court may set aside an entry of default for good cause.” Fed.R.Civ.P. 55(c). When evaluating a motion to set aside a default, the court should consider three factors: 1) whether the plaintiff will be prejudiced; 2) whether the defendant has a meritorious defense; and 3) whether culpable conduct of the defendant lead to the default. United Coin Meter Co., Inc. V. Seaboard Coastline R.R., 705 F.2d 839, 845 (6th Cir. 1986) (citation omitted). “Any doubt should be resolved in favor of the petition to set aside the judgment so that cases may be decided on their merits.” Id. at 846 (citation omitted). Even where a court has entered a final judgment of default, “if service was improper, the default judgment is void and must be vacated[.]” Hooker v. Goldstein & Associates, LLC, No. 12-12232, 2013 WL 6163638, at *5 (E.D. Mich. Nov. 20, 2013) (citations omitted).

         B. Venue

         Pursuant to Federal Rule of Civil Procedure 12(b)(3), a defendant may move to dismiss the plaintiff's complaint for improper venue. Fed.R.Civ.P. 12(b)(3). On a 12(b)(3) motion to dismiss, the plaintiff bears the burden of proving that venue is proper. Audi AG & Volkswagen of Am., Inc., v. Izumi, 204 F.Supp.2d 1014, 1017 (E.D. Mich. 2002). A civil case may be brought in:

(1) a judicial district in which any defendant resides, if all defendants are residents of the State in which the district is located;
(2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of the property that is the ...

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