Civil Procedure/Constitutional Law—Personal  Jurisdiction

Smith & Wesson Corp. v. The Wuster, __Ariz. Adv. Rep. __ No. 1CA-CV 160378 (App. Div. I, November 21, 2017) (J. Thumma)

A DEFAULT JUDGMENT IS VOID IF NOT SUPPORTED BY WELL-PLED FACTS WHERE DEFENDANT ESTABLISHES IN UNTIMELY MOTION TO DISMISS THAT PERSONAL JURISDICTION IS LACKING/PLAINTIFFS' CONTACT WITH FORUM STATE IS IRRELEVANT TO ESTABLISHING PERSONAL JURISDICTION OVER NON-RESIDENT DEFENDANT WHERE THERE IS NO EVIDENCE DEFENDANT PURPOSEFULLY AVAILED ITSELF OF THE PRIVILEGE OF DOING BUSINESS IN FORUM STATE

Plaintiffs sued defendant, a California business, in the Arizona Superior Court for breach of an agreement resolving a patent dispute.  Defendant failed to defend and plaintiff applied for entry of default. Defendant did not respond timely. A day after the deadline, defendant filed a motion to dismiss for lack of personal jurisdiction and moved for an enlargement of time to properly file that motion. The trial court denied the motion to enlarge, treated the allegations in the complaint that personal jurisdiction existed as admitted and entered a default judgment. The Arizona Court of Appeals vacated the judgment and dismissed the case without prejudice.

The motion to enlarge time to file a motion to dismiss  was based upon Ariz. R. Civ. P. 6(b)(1)—excusable neglect. The general test for excusable neglect is “whether the neglect or inadvertence is such as might be the act of a reasonably prudent person under the same circumstances.” The burden to prove excusable neglect is upon the moving party and the trial court has substantial discretion in deciding the issue. Defendant claimed a computer crash caused it to miss the deadline to respond to the application for entry of default but that it did respond the day after the deadline. However, defendant offered no explanation for why it did not answer or otherwise plead in response to the complaint in the first instance and therefore the motion to enlarge was properly denied.

In order to establish the existence of personal jurisdiction, plaintiffs would be required to show that (1) defendant “purposefully availed itself of the privilege of conducting business in Arizona; (2) the claim asserted ‘arises out of or relates' to defendant's contact with Arizona; and (3) ‘the exercise of jurisdiction is reasonable.'”

An entry of default serves as a judicial admission of  all “well-pleaded facts” in the complaint. Where the facts are not well-pleaded a default contrary to the actual facts presented is void.  “Because a  judgment entered by default without personal jurisdiction over a defendant who has not appeared is void, a default judgment entered without personal jurisdiction cannot be deemed valid if the defendant filed an untimely responsive pleading asserting that defense.”

Plaintiff argued that the Settlement Agreement and allegations in the complaint stating plaintiffs had a place of business in Arizona and that the defendant was a California corporation with its principal place of business in California and a website allowing it to conduct business nationwide supported personal jurisdiction. However, the agreement  had no forum selection or choice of law provision and the signature blocks on the contract  did not indicate where the contract was signed. While signing a contract may by its nature constitute an intentional, purposeful act,  here the settlement agreement said nothing regarding where that act occurred. There was no evidence presented that defendant actively pursued a contractual relationship in Arizona or that it had any ongoing obligations in Arizona. The mere fact the defendant had a website enabling it to conduct business throughout the United States does not show purposeful conduct  directed at Arizona.  Likewise, the allegation that  the plaintiff had contact with the forum state is not relevant to whether personal jurisdiction can be  exercised over a non-resident defendant.