UBS Financial Services Incorporated v. Harrison

• Court: District Court, D. Arizona
• Decided: May 1, 2023
• Docket: 2:22-cv-00386
• Status: Unknown

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 UBS Financial Services Incorporated, et al., No. CV-22-00386-PHX-DJH

10 Petitioners, ORDER

11 v.

12 Harold Walter Harrison,

13 Respondent. 14 15 UBS Financial Services Inc. and UBS Credit Corp. (collectively “UBS”) have filed 16 a Motion for Entry of Default Judgment (Doc. 16). Defendant Harold Walter Harrison 17 (“Defendant”) was served with the Complaint, Summons, and this Motion; however, he 18 has not answered or otherwise appeared to defend in this action. The Court must decide 19 whether default judgment is proper under Federal Rule of Civil Procedure 55. For the 20 following reasons, the Court will require UBS to file copies of the alleged arbitration 21 agreements it executed with Defendant. 22 I. Background 23 This matter concerns an arbitration award that resolved UBS’s breach of contract 24 and unjust enrichment claims against Defendant. (Doc. 1-2). UBS seeks to confirm the 25 award under Section 9 of the Federal Arbitration Act (“FAA”). 9 U.S.C § 9. Below is an 26 overview of the underlying arbitration proceedings as well as the procedural history of the 27 present action. 28 / / / 1 A. The Underlying Arbitration 2 UBS is a Delaware corporation with its principal place of business in New Jersey. 3 (Doc. 1 at ¶ 2). It operates as a securities broker-dealer and is a member firm of the 4 Financial Industry Regulation Authority (“FINRA”). (Id.) 5 Defendant is formerly employed financial advisor in UBS’s Arizona branch office 6 and alleged to be a resident of Arizona. (Id. at ¶¶ 4, 7). During his UBS employment, 7 Defendant obtained seven loans totaling to $897,104.84 (the “UBS Loans”). (Id. at ¶¶ 7– 8 8). He executed seven promissory notes in connection with his UBS Loans, each of which 9 contained an arbitration clause requiring the parties to resolve disputes through arbitration 10 conducted by FINRA. (Id. at ¶¶ 8, 12). 11 Under the promissory notes, Defendant’s UBS Loans became immediately due and 12 payable to UBS upon his voluntarily resignation on September 12, 2016. (Id. at ¶¶ 9–10). 13 Defendant’s failure to make payments on his UBS Loans prompted the underlying 14 arbitration proceedings. 15 UBS filed a FINRA complaint against Defendant seeking to recover the unpaid 16 balances of the UBS Loans. (Doc. 16 at ¶ 15). UBS asserted claims for unjust enrichment 17 and breach of the seven promissory notes. (Docs. 1 at ¶ 13; 1-2 at 2); see UBS Fin. Servs. 18 Inc. v. Harrison, No. 19-03751 (Fin. Indus. Regul. Auth. July 29, 2021) (Kalish, Arb.). 19 Defendant appeared and participated in the arbitration. (See generally Doc. 1-2). 20 On July 29, 2021, FINRA Arbitrator Marc Kalish found in favor of UBS and issued 21 an Award (Doc. 1-2) (the “FINRA Award”) against Defendant as follows: 22 - $635,492.85 in compensatory damages on the seven unpaid UBS loan 23 balances; 24 - $58.328.67 in interest accrued from Defendant’s voluntary resignation on September 12, 2016, through July 15, 2021; 25 26 - $33.01 per diem from July 16, 2021 until the Award is paid in full; 27 - $40,376.00 in attorneys fees; and 28 1 - $2,150.00 in FINRA fees1 2 (Docs. 1 at ¶ 14; 1-2 at 3–6). The FINRA Award against Defendant amounts to 3 $736,347.52 plus post judgment interest at $33.01 per diem. (Docs. 16 at ¶ 9; 1-2 at 3–6). 4 UBS alleges that Defendant has failed to make any payments under the FINRA Award. 5 B. The Present Action 6 On March 14, 2022, UBS filed a Complaint (Doc. 1) petitioning this Court to 7 confirm the FINRA Award under Section 9 of the FAA. (Id. at ¶ 16). After multiple failed 8 attempts at service upon Defendant, UBS filed a Motion to Extend Time For Service 9 (Doc. 8), which the Court granted. (Doc. 9). 10 On June 25, 2022, UBS, via a Florida process server, personally served the 11 Complaint and Summons on Defendant at 5810 Central Avenue, Apartment 102, New Port 12 Richey, Florida 34652. (Doc. 10). Defendant did not file an answer or otherwise appear 13 in this action. 14 On September 8, 2022, UBS moved for the Clerk to enter default (Doc. 12). The 15 Clerk of Court entered default on September 13, 2022, under Federal Rule of Civil 16 Procedure 55(a). (Doc. 13). UBS then filed the pending Motion for Entry of Default 17 Judgment (Doc. 16), which it served Defendant electronically and by mail to his Florida 18 address. (Id. at 6). Defendant did not file a response and the time to do so has passed. 19 LRCiv. 7.2. 20 II. Legal Standard 21 A district court has discretion to grant default judgment against a party after the 22 clerk enters the party’s default. See Fed. R. Civ. P. 55(b)(2); Aldabe v. Aldabe, 616 F.2d 23 1089, 1092 (9th Cir. 1980). “Where a respondent fails to appear in an action 24 to confirm an arbitration award, and default has been entered, courts will first consider the 25 appropriateness of entry of default judgment.” UBS Fin. Servs., Inc. v. Martin, 2014 WL 26 2159280, at *2 (S.D. Cal. May 23, 2014) (applying Fed. R. Civ. P. 55 in the context of 27 arbitration awards); Wells Fargo Advisors, LLC v. Braver, 2012 WL 2990779, at *2 (N.D. 28 1 This amount excludes UBS’s filing and FINRA membership fees. (See Doc. 1-2 at 5). 1 Cal. July 9, 2012) (same); Bd. of Trs. of the Carpenters Health & Welfare Tr. Fund for 2 Cal. v. Cruz, 2008 WL 11518471 (N.D. Cal. July 28, 2008) (same). “[A] district court has 3 an affirmative duty to look into its jurisdiction over both the subject matter and the parties” 4 when considering whether the entry of default judgment is proper. In re Tuli, 172 F.3d 5 707, 712 (9th Cir. 1999). 6 Once a court finds jurisdiction, it must consider: “(1) the possibility of prejudice to 7 the plaintiff, (2) the merits of plaintiff's substantive claim, (3) the sufficiency of the 8 complaint, (4) the sum of money at stake in the action; (5) the possibility of a dispute 9 concerning material facts; (6) whether the default was due to excusable neglect, and (7) the 10 strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the 11 merits.” Eitel, 782 F.2d at 1471–72. In applying these Eitel factors, “the factual 12 allegations of the complaint, except those relating to the amount of damages, will be taken 13 as true.” Geddes v. United Fin. Group, 559 F.2d 557, 560 (9th Cir. 1977). 14 III. DISCUSSION 15 The Court will first assess whether it has subject matter jurisdiction over the case 16 and personal jurisdiction over Defendant. The Court will then evaluate the merits of UBS’s 17 Motion for Default Judgment under the Eitel factors. 18 A. Subject Matter Jurisdiction 19 First, this Court has diversity jurisdiction over this matter under 28 U.S.C. § 1332. 20 Federal courts have diversity jurisdiction when: (1) there is a complete diversity of 21 citizenship among the parties, i.e., no plaintiff is a citizen of the same state as any 22 defendant; and (2) the amount in controversy exceeds $75,000.00. See 28 U.S.C. § 1332. 23 UBS is a Delaware corporation with its principal place of business in New Jersey and 24 alleges that Defendant is a resident of Arizona. (Doc. 1 at ¶ 2, 4). The amount in 25 controversy regarding Defendant’s loans exceed $75,000.00. (Id. at ¶ 8). Additionally, 26 the FAA provides district courts with jurisdiction to review arbitration awards. 27 9 U.S.C. §§ 9–12. 28 / / / 1 B. Personal Jurisdiction 2 Second, the Court has general jurisdiction over Defendant because the Complaint 3 alleges he is a resident of Arizona. (Doc. 1 at ¶ 4); see Goodyear Dunlop Tires Operations, 4 S.A. v. Brown, 564 U.S. 915, 924 (2011) (for an individual, the paradigm forum for the 5 exercise of general jurisdiction is the individual’s domicile). 6 B. Eitel factors 7 Having found jurisdiction over the case and parties, the Court will proceed with the 8 Eitel factors to assess the merits of UBS’s Motion for Default Judgment. The first, fourth, 9 fifth, and sixth factors weigh in favor of entering default. 10 1. Possibility of Prejudice to UBS 11 Defendant has not responded or otherwise appeared in this action. And although 12 Defendant has participated in arbitration, he has not made any payments under the FINRA 13 Award. Thus, without an entry of default judgment, UBS’s damages would remain 14 unrelieved. Therefore, the first factor favors default judgment. 15 2. Merits of UBS’s Claim and Sufficiency of Complaint 16 “Under an Eitel analysis, the merits of plaintiff’s substantive claims and the 17 sufficiency of the complaint are often analyzed together.” Dr. JKL Ltd. v. HPC IT Educ. 18 Ctr., 749 F. Supp. 2d 1038, 1048 (N.D. Cal. 2010). The second and third Eitel factors 19 favor default judgment where the complaint sufficiently states a claim for relief upon which 20 the plaintiff may recover. See Danning v. Lavine, 572 F.2d 1386, 1388–89 (9th Cir. 21 1978)); Pepsico, Inc. v. Cal. Sec. Cans, 238 F. Supp. 2d 1172, 1175 (C.D. Cal. 2002). 22 “Upon entry of default, the facts alleged to establish liability are binding upon the 23 defaulting party.” Danning, 572 F.2d at 1388. “However, it follows from this that facts 24 which are not established by the pleadings of the prevailing party, or claims which are not 25 well-pleaded, are not binding and cannot support the judgment.” Id. 26 Here, UBS has filed a Complaint petitioning this Court to confirm the FINRA 27 Award. (Doc. 1 at ¶ 16). The FAA permits a party to an arbitration to apply to a district 28 court to confirm an arbitration award. 9 U.S.C. § 9. To obtain confirmation, the FAA 1 requires the moving party to file (a) the agreement to arbitrate; (b) the award; and (c) 2 “[e]ach notice, affidavit, or other paper used to confirm, modify, or correct the award . . . . ” 3 9 U.S.C. § 13. A court “must grant such an order unless the award is vacated, modified, 4 or corrected as prescribed in sections 10 and 11 of [the FAA].” 9 U.S.C. § 9; see Stafford 5 v. Baart Behavioral Health Servs., 855 F. App’x 426, 427 (9th Cir. 2021) (granting an 6 arbitration award because there were no grounds for vacatur). 7 As to vacatur, Section 10 provides that a court may vacate an arbitration award 8 where: (1) “the award was procured by corruption or fraud, or undue means;” (2) “there 9 was evident partiality or corruption in the arbitrators, or either of them;” (3) the arbitrator 10 engaged in misconduct; or (4) “the arbitrator exceeded their powers, or so imperfectly 11 executed them that a mutual, final, and definite award” was not made. 9 U.S.C. § 10. As 12 to modification, Section 11 allows the court to modify the award where: (1) “there was an 13 evident material miscalculation of figures or an evident material mistake in the description 14 of any person, thing, or property referred to in the award;” (2) the arbitrator has made an 15 award on a matter not submitted to him; or (3) “the award is imperfect in matter of form 16 not affecting the merits of the controversy.” 9 U.S.C. § 11. 17 Here, UBS has attached the FINRA Award to its Complaint and alleges that “neither 18 party seeks to vacate, modify, or otherwise correct the Award.” (Doc. 16 at ¶ 22). 19 However, apart from stating the seven promissory notes each contain an arbitration clause, 20 UBS has not provided copies of the alleged promissory notes with the agreements to 21 arbitrate as required under 9 U.S.C. § 13(a). Thus, the second and third Eitel factors do 22 not presently weigh in favor of granting the Motion unless UBS provides sufficient 23 evidence of the alleged arbitration agreement in the seven promissory notes. Contra UBS 24 Fin. Servs., Inc. v. Martin, 2014 WL 2159280, at *2 (S.D. Cal. May 23, 2014) (UBS 25 obtained default judgment on its petition to confirm arbitration award when providing the 26 appropriate documents). UBS shall have seven (7) days to provide this Court with copies 27 of the alleged promissory notes and arbitration agreements. 28 / / / 1 3. Sum of Money at Stake 2 Regarding the fourth factor, the Court considers the amount of money at stake in 3 relation to the seriousness of a defendant’s conduct. See Pepsico, 238 F. Supp. 2d at 1176. 4 “If the sum of money at stake is completely disproportionate or inappropriate, default 5 judgment is disfavored.” Gemmel v. Systemhouse, Inc., 2008 WL 65604, at *4 (D. Ariz. 6 Jan. 3, 2008). 7 UBS seeks to enforce the Award to recover the balances of Defendant’s UBS Loans, 8 plus interest, as well as attorney fees and FINRA fees incurred at arbitration. 9 (Doc. 1 at ¶ 14). This amounts to $736,347.52, plus interest. (Docs. 16 at ¶ 9; 1-2 at 3-6). 10 The Court finds this amount is proportionate to the Defendant’s conduct, which constitutes 11 failing to repay UBS for the $897,104.84 in loans it issued, plus interest, under the relevant 12 promissory notes. This fourth factor favors entering default judgment. 13 4. Potential Disputes of Material Fact 14 The time has passed for Defendant to dispute the Complaint’s allegations. At this 15 stage, the allegations are taken as true. See Geddes, 559 F.2d at 560. Therefore, the 16 possibility of dispute is low. This fifth Eitel factor favors entering default judgment. 17 5. Excusable Neglect 18 Defendant was served with the Complaint, Summons, and UBS’s Motion for 19 Default Judgment at 5810 Central Avenue, Apartment 102, New Port Richey, Florida 20 34652. (Docs. 10; 16 at 6). Moreover, Defendant actively participated in the underlying 21 arbitration proceedings and is fully aware of the subject matter, allegations, and damages 22 in this case. There is no indication that Defendant’s failure to defend this action is due to 23 excusable neglect. Therefore, the sixth factor favors entering default judgment. 24 6. Policy Favoring Decisions on the Merits 25 The Court is unable to reach the merits of this case because Defendant has failed to 26 plead or otherwise defend this action. Therefore, this final factor weighs against granting 27 default judgment. 28 In sum, majority of the Eitel factors weigh in favor of entering default judgment. IV. CONCLUSION 2 The Court finds subject matter jurisdiction over the present action, personal 3 || jurisdiction over Defendant, and that the Eitel factors support an entry of default judgment 4|| against Defendant. However, UBS has not yet provided copies of the alleged arbitration agreements contained in the alleged seven promissory notes as required by 6|| 9U.S.C. § 13(a). The Court will allow UBS to file a supplemental brief to cure this □□ deficiency. Failure to do so will result in the Court’s denial of its Motion for Default 8 || Judgment. The Court will defer on conducting a damages analysis until it can resolve the 9|| issues regarding UBS’s noncompliance with 9 U.S.C. § 13. 10 Accordingly, 11 IT IS HEREBY ORDERED that UBS Financial Services Inc. and UBS Credit 12 || Corp. shall within seven (7) days of this Order file copies of the seven promissory notes 13 || with the alleged arbitration agreements in accordance with 9 U.S.C. § 13. 14 Dated this 27th day of April, 2023. 15 16 oC. . fo □□ V7 norable' Diang/4. Hurfetewa 18 United States District Fudge 19 20 21 22 23 24 25 26 27 28

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