M. HANNAH LAUCK, District Judge.
This matter comes to bar on the briefing submitted pursuant to this Court's Memorandum Opinion and Order regarding whether to permit limited jurisdictional discovery ("Gillison I"). (ECF Nos. 42, 43.) Plaintiffs Felix Gillison, Jr.
The Court dispenses with oral argument because the materials before it adequately present the facts and legal contentions, and argument would not aid the decisional process. Accordingly, the matter is ripe for disposition. The Court exercises jurisdiction pursuant to 28 U.S.C. § 1331.
This case arises out of a purported "sham business operation" orchestrated by Lead Express and its principal and alter ego, Takehisa Naito.
Plaintiffs represent some of the thousands of consumers whose consumer reports Lead Express obtained from Clarity Service, Inc. ("Clarity"), "a nontraditional consumer-reporting agency that specializes in assembling subprime consumer data." (Id. ¶ 12.) "Unlike traditional consumer-reporting agencies, most of Clarity's major customers did not buy its data to determine if a loan applicant would pay his or her bills." (Id. ¶ 13.) Rather, companies like Lead Express secretly purchase Clarity's consumer reports for the purpose of targeting vulnerable customers who might seek high-interest loans. By using Clarity, Defendants could bypass Experian's more stringent credentialing and conceal the role of La Posta Tribal Lending Enterprise ("La Posta Lending")
Plaintiffs allege that Clarity obtained their consumer reports from Experian and sold them to Lead Express, who would "purportedly" utilize the information to evaluate consumers for loans. (Id. ¶ 15.) In accordance with this practice, Lead Express executed an "end user" agreement with Clarity, in which Lead Express represented that it constituted the "end user" of the consumer reports.
In spite of Lead Express's certification that it was the "end user" of the consumer reports, Lead Express never provided a "firm offer of credit" to Plaintiffs, and Plaintiffs never applied for credit with Lead Express or authorized Lead Express to pull their reports.
Plaintiffs assert two related class claims against the Defendants: (1) a violation of 15 U.S.C. § 1681b(f) ("Count One"); and, (2) a violation of 15 U.S.C. § 1681q ("Count Two").
After Plaintiffs filed their Second Amended Complaint, Defendants moved to dismiss it under three separate theories: (1) lack of subject-matter jurisdiction because the Plaintiffs did not have standing to bring this lawsuit;
Before briefing on the Motion to Dismiss concluded, Plaintiffs filed the Motion for Permission to Take Jurisdiction-Related Discovery (the "Motion for Discovery"). (ECF No. 31.) Plaintiffs requested that the Court permit the parties to conduct discovery for 90 days if the Court found that Plaintiffs had not established personal jurisdiction.
In Gillison I, the Court found that Plaintiffs' Second Amended Complaint "fail[s] to make a prima facie showing of specific personal jurisdiction." (Gillison I 19.)
In the interest of justice, and to clarify the record, the Court ordered parties to brief the need for jurisdictional discovery in light of Gillison I.
Discovery under the Federal Rules of Civil Procedure is generous in scope and freely permitted, and district courts "have broad discretion in [their] resolution of discovery problems that arise in cases pending before [them]." Mylan Labs., Inc. v. Akzo, N.V., 2 F.3d 56, 64 (4th Cir. 1993) (alterations in original) (quoting In re Multi-Piece Rim Prods. Liab. Litig., 653 F.2d 671, 679 (D.C. Cir. 1981)). A district court does not abuse its discretion by denying jurisdictional discovery "[w]hen a plaintiff offers only speculation or conclusory assertions[.]" Carefirst, 334 F.3d at 402; see also Base Metal Trading, Ltd v. OJSC "Novokuznetsky Aluminum Factory," 283 F.3d 208, 216 n.3 (4th Cir. 2002) (finding the district court did not abuse its discretion in denying jurisdictional discovery where "the plaintiff simply want[ed] to conduct a fishing expedition in the hopes of discovering some basis of jurisdiction"); Reynolds & Reynolds Holdings, Inc. v. Data Supplies, Inc., 301 F.Supp.2d 545, 554 (E.D. Va. 2004) ("The court does not abuse its discretion to deny jurisdictional discovery when the plaintiff raises only `bare allegations' to dispute defendant's affidavits denying jurisdictional acts or contacts.").
Jurisdictional discovery can be appropriate when a plaintiff files a motion containing "specific and substantive" allegations regarding a court's jurisdiction, see, e.g., Mamo, 2006 WL 572327 at *2, or when "`significant gaps in the record' exist[]" regarding the court's jurisdiction over the defendant. Weinstein v. Todd Marine Enters., 115 F.Supp.2d 668, 676 (E.D. Va. 2000) (quoting Coastal Video Commc'ns Corp. v. The Staywell Corp., 59 F.Supp.2d 562, 571 (E.D. Va. 1999)).
When a district court considers a challenge to personal jurisdiction without conducting an evidentiary hearing, the plaintiff need only make a prima facie showing of personal jurisdiction, rather than show jurisdiction by a preponderance of the evidence. Carefirst, 334 F.3d at 396; see also Combs v. Bakker, 886 F.2d 673, 676 (4th Cir. 1989); Machulsky v. Hall, 210 F.Supp.2d 531, 537 (D.N.J. 2002) ("[A]t no point may a plaintiff rely on the bare pleadings alone in order to withstand a defendant's Rule 12(b)(2) motion to dismiss for lack of personal jurisdiction." (quoting Patterson v. Fed. Bureau of Investigation, 893 F.2d 595, 603-04 (3d Cir. 1990)).).
"The [c]ourt, in deciding whether a plaintiff has met th[e] burden [of making a prima facie case supporting personal jurisdiction], must construe all relevant pleading allegations in the light most favorable to the plaintiff, assume credibility, and draw the most favorable inferences for the existence of jurisdiction." Brooks, 242 F. App'x at 890. Still, a plaintiff cannot rely on "bare pleadings alone" after a defendant properly challenges personal jurisdiction. Machulsky, 210 F. Supp. 2d at 537 (quotation omitted). Instead, "the plaintiff must sustain its burden of proof in establishing jurisdictional facts through sworn affidavits and competent evidence. . . . [A] plaintiff must respond with actual proof[], not mere allegations." Id. (quotation omitted).
Federal courts exercise personal jurisdiction in the manner provided by state law. New Wellington Fin. Corp. v. Flagship Resort Dev. Corp., 416 F.3d 290, 294 (4th Cir. 2005). Therefore, a district court must first decide whether Virginia state law permits the court to exercise personal jurisdiction over the defendant, and second, whether the exercise of such jurisdiction comports with the due process requirements of the Fourteenth Amendment. Id.; Christian Sci. Bd. of Dirs. of the First Church of Christ, Scientist v. Nolan, 259 F.3d 209, 215 (4th Cir. 2001); ESAB Group, Inc. v. Centricut, Inc., 126 F.3d 617, 622 (4th Cir. 1997).
"Because Virginia's long-arm statute extends personal jurisdiction to the extent permitted by the Due Process Clause, `the statutory inquiry necessarily merges with the constitutional inquiry, and the two inquiries essentially become one.'" Young v. New Haven Advocate, 315 F.3d 256, 261 (4th Cir. 2002) (quoting Stover v. O'Connell Assocs., Inc., 84 F.3d 132, 135-36 (4th Cir. 1996)) (internal citation omitted). Accordingly, the inquiry becomes whether the defendants maintain sufficient minimum contacts with the forum state so as not to offend "traditional notions of fair play and substantial justice." Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (quoting Milliken v. Meyer, 311 U.S. 457, 463 (1940)).
"The standard for determining the existence of personal jurisdiction over a nonresident defendant varies, depending on whether the defendant's contacts with the forum state also provide the basis for the suit." Carefirst, 334 F.3d at 397. If a defendant's contacts with the state also constitute "the basis for the suit, those contacts may establish specific jurisdiction. . . . [I]f the defendant's contacts with the State are not also the basis for suit, then jurisdiction over the defendant must arise from the defendant's general, more persistent, but unrelated contacts with the State."
The Fourth Circuit has adopted a three-part test to determine whether specific jurisdiction exists. Reynolds Foil, 2010 WL 1225620, at *2. Specifically, the Court must consider: "(1) the extent to which the defendant purposefully avail[ed] itself of the privilege of conducting activities in the State;[
Plaintiffs bear the ultimate burden to show that the Court has specific personal jurisdiction over Defendants by a preponderance of the evidence. See Carefirst, 334 F.3d at 396. To meet their burden, Plaintiffs must show that Defendants (1) "purposefully avail[ed] [themselves] of the privilege of conducting activities in [Virginia] . . . [(2) that] [P]laintiffs' claims arise out of those activities directed at the State . . . and . . . [(3) that] the exercise of personal jurisdiction would be constitutionally reasonable." ALS Scan, 293 F.3d at 712 (internal citations omitted).
Count One alleges that Defendants improperly obtained Plaintiffs'"consumer reports from Clarity without a permissible purpose," in violation of 15 U.S.C. § 1681b(f). (Second Am. Compl. ¶ 50.) For Count One to survive, Plaintiffs must show both that Defendants have meaningful contacts to Virginia, and that those contacts relate to the allegedly improper acquisition of the reports from Clarity. See Walden, 134 S. Ct. at 1125.
Count Two claims that Defendants knowingly misrepresented themselves to Clarity as the end user of the reports it obtained from Clarity, in violation of 15 U.S.C. § 1681q. For Count Two to survive, Plaintiffs must show both that Defendants have meaningful contacts to Virginia, and that those contacts relate to the allegedly improper misrepresentation to Clarity. See Walden, 134 S. Ct. at 1125.
For the reasons below, the Court finds that granting leave to take limited jurisdictional discovery would not cure the deficiencies in the Second Amended Complaint. The Court will therefore dismiss the case without prejudice.
The Discovery Brief proposes discovery covering six areas: (1) all documents and data Defendants possess about Plaintiffs; (2) "all contracts with any consumer reporting agencies or other entity regarding the obtaining of credit information and selling of credit information or leads for the named Plaintiffs;" (3) "documents in which Defendants claim a loan was offered to named Plaintiffs or Virginia consumers, or named Plaintiffs, or Virginia consumers were considered for a loan;" (4) all communications with non-parties related to the Defendants' declarations; (5) depositions of Naito and Chan Joo Chung;
The Court cannot justify granting discovery for Plaintiffs' broad request for all documents and data that Defendants may possess about Plaintiffs. In support of this request, Plaintiffs describe "suspicions that Defendants" knowingly targeted Virginia consumers when they purchased the batch reports from Clarity. (Disc. Br. 2.) The Second Amended Complaint alleges that Lead Express "secretly purchase[d] consumer reports in batches in order to target vulnerable consumers, including consumers residing in Virginia, who may be interested in high-interest internet loans." (Second Am. Compl. ¶ 12.) According to Plaintiffs, Lead Express has obtained millions of consumer reports in this manner, including over 30,000 consumer reports from Virginians.
Plaintiffs contend that the requested information would ultimately establish specific personal jurisdiction over Defendants because the information "will support Plaintiffs' suspicion that Defendants purposefully and knowingly reached into Virginia seeking to solicit consumers here and did, in fact, solicit some consumers in Virginia pursuant to their scheme." (Disc. Br. 2.) This information, Plaintiffs, contend, "will also likely reveal Defendants' sources of information, which Plaintiffs believe will include databases or courthouses in Virginia." (Id.) The argument cannot prevail.
Plaintiffs must ultimately establish specific personal jurisdiction based on Defendants' alleged contacts in Virginia that give rise to the causes of action in this suit. In Gillison I, the Court found that Plaintiffs' claim that Defendants impermissibly obtained 30,000 reports on Virginians—rather than from Virginians
Plaintiffs attempt to cure this deficiency by arguing in their Discovery Brief that Defendants obtained information about Plaintiffs from databases or courthouses located in Virginia. But in their Second Amended Complaint, Plaintiffs allege that Defendants obtained the consumer reports from Clarity, a Nevada corporation.
Even were the Court to consider this requested information relevant to the jurisdictional inquiry, Plaintiffs'"suspicions," (Disc. Br. 2), constitute only "speculation" and "conclusory assertions," Carefirst, 334 F.3d at 402. These suspicions do not rise to the level of "specific and substantive allegations" regarding the Court's jurisdiction that would justify jurisdictional discovery. Mamo, 2006 WL 572327, at *2. The Court declines to allow discovery based on these speculative claims about this attenuated nexus.
In their second request, Plaintiffs seek contracts related to obtaining or selling Plaintiffs' credit information. Plaintiffs argue this information would show that Defendants "specifically sought information on Virginia consumers" and would justify the exertion of specific personal jurisdiction over Defendants. (Disc. Br. 3.) Plaintiffs allege this would be especially true "should this information show that Defendants' agreements expressly demanded that entities with whom it dealt provide information on consumers located in Virginia." (Id.)
But Plaintiffs do not assert substantive factual allegations about whether such information exists. Absent any evidence to support this request for discovery, the request constitutes speculation. See Carefirst, 334 F.3d at 402. Plaintiffs offer no basis on which the Court could substantiate their contention that Defendants specifically sought information on Virginia consumers. Further, the assertion appears at odds with their Second Amended Complaint. Although Plaintiffs allege that Defendants obtained "more than 30,000 consumer reports from Clarity on Virginia consumers" during a five year period, (Second Am. Compl. ¶ 19), this represents only a portion of the "millions" of consumer reports that Defendants allegedly obtained, (id. ¶ 2).
Even putting the inconsistencies aside, the Court concludes that, although information showing that Defendants specifically demanded information on Virginia consumers may support Plaintiffs' arguments that Defendants targeted Virginia consumers specifically, these claims lack the specificity or substantiation to grant jurisdictional discovery here. See Mamo, 2006 WL 572327, at *2; see also Base Metal Trading, 283 F.3d at 216 n.3.
Nothing in the Second Amended Complaint supports granting jurisdictional discovery related to documents in which Defendants offered or considered offering loans to Plaintiffs because such documents do not sufficiently relate to the causes of action in the Second Amended Complaint. The allegations in the Second Amended Complaint aver that Defendants impermissibly obtained consumer information about Defendants because Lead Express was not the end user of the reports. Plaintiffs allege that Defendants never provided a "firm offer of credit" to Plaintiffs, and that Lead Express obtained "millions of consumer reports on consumers with whom it has no relationship." (Second Am. Compl. ¶¶ 2, 23.)
To the extent the requested documents may show that Defendants have some contacts with Virginia, they could not show that those contacts form the basis of this suit because the requested documents would not sufficiently relate to the causes of action here: improperly obtaining consumer reports from Clarity as to the named plaintiffs, and misrepresenting themselves as the end user to Clarity as part of that acquisition. See ALS Scan, 293 F.3d at 712. The Court also concludes that any discovery as to unknown class members is too attenuated to allow.
The Court previously noted "startling inconsistencies" in declarations submitted by both Naito and Chung in this case, when compared with a declaration Naito submitted in another case related to Lead Express's business practices.
Plaintiffs seek information about "the process that went into creating the declarations, including any edits or suggestions for changes made by Defendants or Mr. Chung." (Disc. Br. 4.) This information, Plaintiffs state, will show "whether Defendants took affirmative steps to conceal information that would tie their business activities to Virginia." (Disc. Br. 5.)
In response to the Court's instructions in Gillison I, Defendants submitted revised declarations, (ECF Nos. 45-1, 45-2), and attempt to explain the inconsistencies, (Resp. 5, ECF No. 45). Counsel for Defendants states that "[a]fter investigating the matter, including speaking with Messers. Naito and Chung, their prior declarations should have been more specific and provided more explanation, which would have avoided the issues raised by the Court and any confusion." (Id. 5-6.) The Response does not elaborate on how further specificity or explanation in Turnage would have avoided the present problems.
The Response also states, "Undersigned [C]ounsel did not know of the existence of Mr. Naito's Declaration submitted in Turnage until Plaintiffs cited it in their briefing." (Id. 5.) In Reply, Plaintiffs describe this statement as "utterly stunning, as the `Undersigned Counsel' referred to here was also Counsel for Clarity in Turnage." (Reply 5, ECF No. 46.) Plaintiffs attach a Notice of Appearance from Turnage indicating that "Undersigned Counsel" for Defendants represented Clarity in Turnage. (ECF No. 46-1.)
The Court remains deeply troubled by the declarations submitted by Naito and Chung. As in Gillison I. The Court does not rely on these declarations to reach its finding here. Despite the serious issues with Defendants' declarations, the Court cannot conclude that discovery about their creation would ultimately cure the underlying deficiencies in the Second Amended Complaint, because nothing in the record suggests that discovery about the creation of the declarations would establish specific personal jurisdiction over Defendants. Of course, the Court cautions any party or attorney who submits declarations under oath in this Court to do so with an eye toward the consequences of doing so incorrectly, or even inartfully.
Similarly, the Court cannot find that deposing Naito and Chung would establish specific personal jurisdiction. Although Plaintiffs raise notable concerns regarding the reliability of Naito and Chung's declarations, Plaintiffs nevertheless fail to make "specific and substantive allegations" regarding the Court's jurisdiction based on the declarations themselves. See Mamo, 2006 WL 572327, at *2.
Plaintiffs contend that discovery about the creation of the declarations would show "whether Defendants took affirmative steps to conceal information that would tie their business activities to Virginia." (Disc. Br. 5.) But Plaintiffs do not directly allege that Defendants have concealed information that would tie their business activities to Virginia in a way that would give rise to specific personal jurisdiction. On the record before it, the Court concludes that arguments suggesting that deposing Naito and Chung would result, ultimately, in establishing specific personal jurisdiction over Defendants amount to speculation. The Court declines to order depositions of Naito or Chung.
Finally, the Discovery Brief requests "all documents analyzing the market for high interest loans in Virginia, and any studies completed regarding Virginia consumers, including the named Plaintiffs." (Disc. Br. 5.) Plaintiffs contend this information will "give insight as to the true focus of [Defendants'] business aims and dealings as to Virginia consumers." (Id.) Plaintiffs posit that this information will "confirm[] Plaintiffs' allegations that Defendants obtained thousands of records about Virginia consumers with the express intent of marketing high-interest loans to those Virginia residents." (Id.)
No evidence—indeed, no allegation—exists in the Second Amended Complaint suggesting that Defendants marketed or offered loans to Virginia residents. Instead, the Second Amended Complaint alleges that Lead Express compiled the information for an affiliate company to target Virginia consumers for a loan. The Court cannot alter its finding in Gillison I that nothing in the record exists to allow the Court to impute the actions of these unrelated or affiliate entities to Defendants in this case.
Studies and other information that Defendants may have acquired or developed regarding the market for high interest loans in Virginia, then, have no bearing on the jurisdictional questions before the Court: whether Defendants' actions or activities in Virginia or related to Virginia tie Defendants to Virginia in a meaningful way; and whether those actions or activities relate directly to Defendants' alleged improper acquisition of Plaintiffs' consumer reports. Even were the Court to consider this information relevant, Plaintiffs offer no evidence that these studies exist. The Court cannot allow jurisdictional discovery when such speculative and attenuated allegations do not establish a basis for it to do so.
Because the requested discovery cannot cure the jurisdictional deficiencies in the Second Amended Complaint, the Court shall dismiss the case without prejudice.
For the foregoing reasons, the Court finds jurisdictional discovery unwarranted and will dismiss the Second Amended Complaint without prejudice.
An appropriate Order shall issue.
In Gillison I, the Court determined that Plaintiffs failed to meet their burden. Now, in determining whether the Court will grant leave to conduct jurisdictional discovery, the Court considers whether Plaintiffs' Second Amended Complaint contains "specific and substantive" allegations regarding the Court's jurisdiction that justify granting jurisdictional discovery. See, e.g., Mamo v. BP P.L.C., No. 1:05cv1323, 2006 WL 572327, at *2 (E.D. Va. Mar. 7, 2006).
A person shall not use or obtain a consumer report for any purpose unless—
15 U.S.C. § 1681b(f).
Next, the Court discussed Plaintiffs' theory under the "effects" test, "which gives the Court personal jurisdiction over a defendant if he or she intentionally directed activity in the forum state that caused harm to the plaintiff." (Gillison I 25.) But the Court concluded that the "effects" test, articulated in Calder v. Jones, 465 U.S. 783, 791 (1984), does not eliminate the requirement that the defendant have taken affirmative action to avail itself of the privilege of doing business in the forum state. Because the Second Amended Complaint alleges "injury in Virginia caused by [Defendants'] activities in a foreign state," and not in Virginia, the Court concluded the Second Amended Complaint did not establish personal jurisdiction over Defendants in Virginia. (Gillison I 26.)
In Gillison I, the Court found that some of the information sought in the Motion for Discovery might establish that Defendants had contacts in Virginia, but would not establish that those contacts form the basis of this suit. For example, information about "Defendants' Virginia profits or [Defendants'] marketing in Virginia," does not relate to Plaintiffs' claim that Defendants improperly obtained Plaintiffs' credit consumer reports from Clarity. (Gillison I 31.)
Additionally, the Court concluded Plaintiffs' assertion that Defendants impermissibly obtained over 30,000 consumer reports about Virginia residents did not suffice to support Plaintiffs' claim that Defendants reached into Virginia or offered loans to Plaintiffs.
The Court ordered Defendants to address the inconsistencies because "conflicting descriptions of how Lead Express and Naito conduct business hinders the Plaintiffs' ability to fairly state their case." (Id.) The Court did not rely on the declarations for the purpose of denying the Motion for Discovery in Gillison I.
Over time, "specific jurisdiction has become the centerpiece of modern jurisdiction theory, while general jurisdiction [has played] a reduced role." Id. at 755 (quoting Goodyear, 564 U.S. at 925 (brackets in original)). Specifically, the Supreme Court of the United States has indicated that "[a]s this Court has increasingly trained on the relationship among the defendant, the forum, and the litigation, i.e., specific jurisdiction, general jurisdiction has come to occupy a less dominant place in the contemporary scheme." Id. at 758 (internal quotation and citation omitted).
Appropriately, the Plaintiffs do not seek to establish general personal jurisdiction, and the Court need not address general personal jurisdiction further.
Further, the Supreme Court long has held that the purposeful availment prong of the personal jurisdiction analysis can be met if a defendant's "intentional conduct [in the foreign state was] calculated to cause injury to [the plaintiff] in [the forum state]." Calder, 465 U.S. at 791 ("Jurisdiction over petitioners is therefore proper in California based on the `effects' of their Florida conduct in California."). Calder, however, does not vest jurisdiction in a state merely because it serves as the locus of the plaintiff's injury. See Walden v. Fiore, 134 S.Ct. 1115, 1125 (2014) ("[M]ere injury to a forum resident is not a sufficient connection to the forum.").
The "proper question is not where the plaintiff experienced a particular injury or effect but whether the defendant's conduct connects him to the forum in a meaningful way." Id. (emphasis added); see also ESAB, 126 F.3d at 626 ("Although the place that the plaintiff feels the alleged injury is plainly relevant to the inquiry, it must ultimately be accompanied by the defendant's own contacts with the state if jurisdiction over the defendant is to be upheld.").
