United States District Court, D. Kansas
MEMORANDUM AND ORDER
JULIE A. ROBINSON, District Judge.
This matter is before the Court on Defendant Ahmad Arfaania's Motion to Set Aside Clerk's Entry of Default and Default Judgment (Doc. 16) for lack of personal jurisdiction, arguing Plaintiff failed to properly serve him and that he lacks the minimum contacts with Kansas required for this Court to exercise personal jurisdiction. Plaintiff responded that Defendant was sufficiently served. The Court has already ruled that the record demonstrates that Defendant was served; the Court took the remainder of Defendant's motion under advisement and set it for hearing. The Court heard evidence and argument on personal jurisdiction at a hearing on June 19, 2014. Having considered the briefs, and the evidence and argument presented at the hearing, the Court finds that it may exercise personal jurisdiction over this Defendant. However, the Court amends its prior judgment based on the evidence presented at the hearing, and reduces Plaintiff's actual damages award to $40, 000.
The Complaint in this matter was filed on October 16, 2013, alleging a securities fraud claim under § 10(b) of The Securities Act of 1934 and state law fraud and conversion claims against Defendant Ahmad Arfaania. A clerk's entry of default was filed on December 20, 2013, because proof of service showed Defendant had been personally served, and he had failed to answer by the deadline. On February 19, 2014, Default Judgment was entered against Ahmad Arfaania in the amount of $60, 000, based on the affidavit of Scott Long representing that the claim in this matter was for a sum certain. Plaintiff subsequently obtained writs of garnishment in an effort to satisfy the judgment in this matter.
After obtaining writs of garnishment (to which Defendant objects), Plaintiff sought and received permission to require that the garnishees deposit the garnished funds into the Court registry under Rule 67. Plaintiff has submitted to the Court a proposed Order to Show Cause to Garnishee E*Trade Bank because the amount of funds deposited by E*Trade is less than what it provided in its Answer to the Garnishment. Plaintiff also submitted a proposed Order to disburse the funds held in the Court registry in partial satisfaction of the judgment. There is also a pending Motion for Judgment Debtor Exam (Doc. 15).
At the June 19, 2014 hearing, Plaintiff testified in person; Defendant submitted an affidavit but did not personally appear. Defendant asserts that he did not learn of the clerk's entry of default or default judgment until his E*Trade brokerage account was garnished. Defendant's affidavit asserts that he has never personally traveled to the state of Kansas, nor spoken with Plaintiff either in person or through any type of correspondence. He further contends that he has never made any representation, omission, or solicitation to Plaintiff or anyone else about investments that he believed would be conveyed to anyone in Kansas.
Plaintiff testified that he was approached by a third party, Michael Beckford, to invest in a pool of $250, 000 that would promote penny stocks in order to increase their value. He understood that Beckford was an agent for Defendant Arfaania; Beckford told Plaintiff about Defendant's background and investment experience. Beckford guaranteed that Plaintiff would receive a 50% return on his investment. Beckford instructed Plaintiff to wire his share of the investment, $40, 000, to Defendant's E*Trade account. Plaintiff acknowledges that he never communicated directly with Defendant. Plaintiff wired the money from his personal account at Bank of America, to Defendant's E*Trade account, which is evidenced by a receipt. That receipt includes Defendant's name and address. Plaintiff testified that he did not receive a return or refund on his $40, 000 investment.
A. Personal Jurisdiction
Under Rule 55(c), the Court may set aside a default judgment under Rule 60(b). Defendant argues that the default judgment in this case is void because the Court lacks personal jurisdiction. "A default judgment in a civil case is void if there is no personal jurisdiction over the defendant.'" And if the judgment is void under Rule 60(b)(4), then relief from judgment is mandatory and not discretionary.
Defendant pointed out at the hearing that because this case alleges a Securities Act claim, it is subject to nationwide service of process. An action under the Securities Act may be brought where "any act or transaction constituting the violation occurred" or "in the district wherein the defendant is found or is an inhabitant or transacts business, and process in such cases may be served in any other district of which the defendant is an inhabitant or wherever the defendant may be found."
The Tenth Circuit has explained that when nationwide service of process is authorized by the governing federal statute, "it becomes the statutory basis for personal jurisdiction" provided that due process is satisfied. In such a case, "the Fifth Amendment requires the plaintiff's choice of forum to be fair and reasonable to the defendant. In other words, the Fifth Amendment protects individual litigants against the burdens of litigation in an unduly inconvenient forum."
To show that jurisdiction offends the Fifth Amendment, Defendant must establish that his liberty interests actually have been infringed. In determining whether Defendant has met his burden "of establishing constitutionally significant inconvenience, " the Court should consider:
(1) the extent of the defendant's contacts with the place where the action was filed; (2) the inconvenience to the defendant of having to defend in a jurisdiction other than that of his residence or place of business, including (a) the nature and extent and interstate character of the defendant's business, (b) the defendant's access to counsel, and (c) the distance from the defendant to the place where the action was brought; (3) judicial economy; (4) the probable situs of the discovery proceedings and the extent to which the discovery proceedings will take place outside the state of the defendant's residence or place of business; and (5) the ...