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Gillison v. Lead Express, Inc.

United States District Court, E.D. Virginia, Richmond Division

December 12, 2018

FELIX GILLISON, JR., et al., Plaintiffs,
LEAD EXPRESS, INC., et al., Defendants.


          M. Hannah Lauck, United States 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 /"). (ECF Nos. 42, 43.) Plaintiffs Felix Gillison, Jr.[1] and Dawn Mays-Johnson ("Plaintiffs") filed their Brief Regarding Their Need for Jurisdictional Discovery (the "Discovery Brief). (ECF No. 44.) Defendants Lead Express, Inc. ("Lead Express") and Takehisa Naito (collectively with Lead Express, "Defendants") responded, (ECF No. 45), and Plaintiffs replied, (ECF No. 46).

         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.[2] For the reasons that follow, the Court shall not allow jurisdictional discovery, and will dismiss the Second Amended Complaint without prejudice.

         I. Procedural and Factual Background

         A. Factual Background[[3]]

         This case arises out of a purported "sham business operation" orchestrated by Lead Express and its principal and alter ego, Takehisa Naito.[4] (Second Am. Compl. ¶ 2.) Lead Express obtains millions of consumer reports on consumers with whom it has no relationship. According to Plaintiffs, because Lead Express has no relationship with these consumers, it obtains reports without a permissible purpose, in violation of 15 U.S.C. § 1681b(f).[5] Plaintiffs also assert that Lead Express obtained the consumer reports under false pretenses, by alleging that it was the "end user" of the reports.[6] (Id. ¶ 16.)

         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")[7] in offering these loans. Such practices also make it more difficult for consumers to know who obtained their report.

         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.[8] (Id. ¶ 16.) Lead Express then obtained consumer reports from Clarity, including more than 30, 000 consumer reports on Virginia consumers during a five-year period. The purpose of obtaining these reports was to ultimately target Virginia consumers for high-interest loans, but Lead Express did not solicit consumers for loans or provide loans to the Virginia consumers directly. Instead, "[i]f the consumer's data obtained from Clarity satisfied Lead Express's loan criteria, an affiliate company, not Lead Express, would solicit the consumer for a loan." (Id. ¶ 26.) Lead Express obtained Gillison's consumer report on January 17, 2014, and Mays-Johnson's report on May 8, 2015, in order to market high-interest loans to them.

         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.[9] (Id. ¶ 23.) Rather, Lead Express purchased the consumer data "in order to obtain leads on potential consumers who may be interested in high-interest loans"-data an affiliate company would use to offer loans to consumers. (Id. ¶¶ 25-26.) Accordingly, Plaintiffs contend, Lead Express "lacked a permissible purpose to obtain Plaintiffs' consumer reports." (Id. ¶¶ 23, 27.)

         B. Procedural Background

         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").[10] Plaintiffs allege that Defendants' violations entitle each consumer to statutory damages between $100 and $1, 000 under § 1681n(a).[11]

         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;[12] (2) lack of personal jurisdiction; and, (3) improper venue. (See Mot. Dismiss, ECF No. 26). Alternatively, Defendants requested that the Court transfer the case to the United States District Court for the Central District of California as the proper venue.[13]

         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 119.)[14] The Court denied Plaintiffs' Motion for Discovery because the requested discovery bore "little relevance to the allegations of specific jurisdiction pleaded."[15] (Id. 29.) On the other hand, the Court considered with trepidation "Defendants' patently inconsistent declarations" regarding their business, finding that the inconsistencies did not give Plaintiffs a fair opportunity to make their case regarding specific personal jurisdiction.[16] (Gillison 731.)

         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 7.

         II. Applicable Legal Standards

         A. Legal Standard to Permit Jurisdictional Discovery

         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 "Novokuznetsk)? 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)).

         B. Personal Jurisdiction; Burden of Proof[17]

         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 Fed.Appx. 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).

         C. Personal Jurisdiction: Legal Standard

         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'Cornell 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." Careflrst, 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."[18] ALS Scan, Inc. v. Digital Serv. Consultants, Inc., 293 F.3d 707, 712 (4th Cir. 2002) (citing Helicopteros, 466 U.S. at 414 & nn.8-9).

         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;[19] (2) whether the plaintiffs' claims arise out of those activities directed at the State;[20] and[J (3) whether the exercise of personal jurisdiction would be constitutionally reasonable."[21] ALSScan, 293 F.3d at 712 (alteration in original) (internal citations omitted). "If, and only if... the plaintiff has satisfied this first prong of the test for specific jurisdiction need [the Court] move on to a consideration of prongs two and three." Consulting Eng'rs, 561 F.3d at 278.

         III. Analysis

         A. The Requisite Showing for Plaintiffs' Claims to Survive

         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] [Plaintiffs' 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 ...

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