Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_19-cv-04510/USCOURTS-azd-2_19-cv-04510-1/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 28:1331 Fed. Question: Breach of Contract

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Carl Pehr Erik Karlsson, et al.,

Plaintiffs,

v. 

Ronn Motor Group Incorporated, et al.,

Defendants.

No. CV-19-04510-PHX-DWL

ORDER 

INTRODUCTION

This action, which was initiated in June 2019, involves claims against three 

defendants: (1) Ronn Motor Group, Inc. (“RMG”); (2) Ronnal Maxwell Ford (“Ford”), 

who is RMG’s chief executive officer; and (3) Jane Doe Ford, who is Ford’s spouse. (Doc. 

1 ¶¶ 3-5, 19.) During the initial stages of the case, there was very little activity: RMG was 

served in July 2019, never answered the complaint, and had a default entered against it, 

while the Fords were only served in January 2020, after the Court granted Plaintiffs’ motion 

for alternative service.

The service upon the Fords prompted a flurry of activity. Soon after service was 

completed, all three defendants filed a motion to dismiss, arguing that the contract on which 

Plaintiffs’ claims are premised contains a forum selection clause requiring Plaintiffs to 

litigate in federal court in Maryland. (Doc. 22.) In response, Plaintiffs have (1) moved to 

strike the motion to dismiss because RMG, as a defaulted party, cannot file motions (Doc. 

23), (2) moved for default judgment against RMG (Doc. 24), and (3) argued that the 

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dismissal request should be denied on the merits because the claims in this case are based 

in part on a different contract that contains an Arizona forum selection clause (Doc. 27).

The pending motions will be resolved as follows. First, Plaintiffs’ motion to strike 

will be denied because it constitutes a procedurally improper mechanism for opposing the 

relief sought in a motion. Second, Defendants’ motion to dismiss will be granted. 

Plaintiffs overlook that the contract on which they seek to rely contains a forum selection 

clause requiring that suit be filed in Arizona state court, not federal court. Thus, regardless 

of whether the state courts of Arizona or the federal courts of Maryland are the proper 

forum for this lawsuit, it is clear that this Court is not the proper forum. Third, Plaintiffs’ 

motion for default judgment against RMG, to the extent it is not moot, will be denied on 

the merits.

BACKGROUND

On June 20, 2019, Plaintiffs initiated this action. (Doc. 1.) The factual allegations 

in the complaint, which the Court presumes to be true for purposes of the pending motions, 

are as follows.

Plaintiffs are residents and citizens of Sweden who allege they were fraudulently 

induced by Ford to invest in securities offered by RMG. (Id. ¶¶ 1-2, 15, 22.) In July 2017, 

Plaintiffs entered into contracts with RMG, entitled “Subscription Agreements,” that 

required RMG to provide each Plaintiff with “(a) a 10% interest-bearing, unsecured 

convertible promissory note convertible into RMG’s $0.001 par value common stock at a 

conversion price of $1.875 per share, and (b) a two-year warrant to purchase shares of 

RMG’s common stock at a par value of $0.001 per share, at an exercise price of $2.50.” 

(Id.) Around the same time, Plaintiffs and RMG also executed the promissory notes

(“Promissory Notes”) described in the Subscription Agreements, which obligated each 

Plaintiff to lend $58,125 to RMG. (Id. ¶¶ 26, 28.) Plaintiffs sent this money (a total of 

$116,250) to RMG via wire transfer. (Id. ¶¶ 27, 29.) 

In July 2018, the one-year Promissory Notes matured, yet RMG did not remit any 

cash or common stock to Plaintiffs. (Id. ¶¶ 33-36.) Subsequent demands for payment went 

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unanswered. (Id. ¶¶ 37-41.) As a result, Plaintiffs have asserted claims for breach of 

contract, unjust enrichment, breach of the covenant of good faith and fair dealing, 

fraudulent inducement, intentional misrepresentation, negligent misrepresentation, and 

fraud in connection with the sale of securities. (Id. at 8-17.)

Summonses were issued on June 24, 2019. (Doc. 8.) Plaintiffs had until September 

18, 2019 to serve Defendants. Fed. R. Civ. P. 4(m).

On September 5, 2019, Plaintiffs applied for entry of default against RMG, attaching 

a notice of service that indicated RMG had been served on July 8, 2019. (Doc. 11.) The 

next day, the Clerk entered default against RMG. (Doc. 12.) 

Plaintiffs spent the next five months attempting to serve the Fords, but Plaintiffs did 

not file a motion for default judgment as to RMG during this period.

1

 

On February 14, 2020, Plaintiffs filed proof that the Fords had been served.

2

 (Doc. 

21.)

On February 18, 2020, Defendants filed a motion to dismiss. (Doc. 22.) 

On February 21, 2020, Plaintiffs moved to strike the motion to dismiss. (Doc. 23.)

On February 28, 2020, Plaintiffs filed a motion for default judgment against RMG. 

(Doc. 24.)

On March 3, 2020, Plaintiffs filed an opposition to the motion to dismiss. (Doc. 

27.)

On March 6, 2020, Defendants filed a two-paragraph response to the motion to 

strike, stating that Defendants oppose the motion as to the Fords but not as to RMG. (Doc. 

28.) 

1 Plaintiffs filed motions for an extension of time and alternative service as to the 

Fords (Docs. 13, 15, 16), which were granted (Docs. 14, 17). Plaintiffs had attempted 

service at Ford’s place of business six times and were rebuffed, and Plaintiffs hired a 

private investigator who concluded that the Fords were using aliases, P.O. boxes, and fake 

phone numbers to avoid detection. (Doc. 16 at 3.) 

2 On January 21, 2020, the Court ordered that Plaintiffs could serve the Fords via 

USPS certified mail addressed to RMG’s registered agent in Delaware. (Doc. 17 at 6.) 

Plaintiffs were given 14 days to serve the Fords (id.), such that proof of service should have 

been filed by February 4, 2020. On February 14, 2020, Plaintiffs filed proof that the Fords 

had been served via USPS certified mailing on January 23, 2020, which was delivered on 

January 27, 2020. (Doc. 21.)

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On March 10, 2020, the Fords filed a reply in support of the motion to dismiss. 

(Doc. 29 at 2.)

ANALYSIS

I. Motion to Strike

Plaintiffs move to strike the motion to dismiss because a default was entered against 

RMG in September 2019 and “‘[s]o long as parties are in default, they have no right to 

participate in any further proceedings in the case.’” (Doc. 23 at 2, citation omitted.) 

The motion to strike will be denied because it is an inappropriate device for 

opposing a motion to dismiss. “Unless made at trial, a motion to strike may be filed only 

if it is authorized by statute or rule, such as Federal Rules of Civil Procedure 12(f), 26(g)(2) 

or 37(b)(2)(A)(iii), or if it seeks to strike any part of a filing or submission on the ground 

that it is prohibited (or not authorized) by a statute, rule, or court order.” LRCiv 7.2(m)(1). 

A motion to dismiss for improper venue is authorized by Rule 12(b)(3) of the Federal Rules 

of Civil Procedure, and there is no statute or rule permitting a motion to strike a motion to 

dismiss. Thus, the proper way to respond to a motion to dismiss, when the opposing party 

believes the movant is not entitled to relief, is to file a response that explains why the 

motion lacks merit. See, e.g., ACC Indus., Inc. v. Bart St. II, LLC, 2017 WL 7725262, *1-

2 (D. Nev. 2017) (“As defined in Rule 12(f), motions to strike are directed to ‘pleadings’

only. . . . Thus, a motion to strike technically is not available to strike material contained 

in motions and other briefs.”); S. Gensler, 1 Federal Rules of Civil Procedure, Rules and 

Commentary, Rule 12, at 314-15 (2018) (“[M]otions to strike under Rule 12(f) are 

generally viewed with disfavor, perhaps because experience with dubious Rule 12(f) 

motions has led courts to view them skeptically. Thus, while courts acknowledge that 

motions to strike can serve legitimate ends, they certainly do not encourage lawyers to file 

them.”).

3

 

3 Additionally, the motion to strike appears to be directed only as to RMG but not as 

to the Fords. (Doc. 23 at 2 [“Defendant Ronn Motor Group, Inc. should not be able to 

completely disregard the default that has been entered against it for months.”].) Plaintiffs 

do not identify any authority suggesting that a court may “strike” a document as it pertains 

to some parties but not others. 

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II. Motion To Dismiss

Defendants move to dismiss under Rule 12(b)(3) because “Plaintiffs admit—and in 

fact affirmatively allege—the governing Subscription Agreements require that ‘disputes 

shall be adjudicated in Montgomery County, Maryland . . . .’” (Doc. 22 at 3 [citing Doc. 1 

¶ 14].) Plaintiffs disagree, identifying what appear to be two overarching reasons why they 

believe venue properly lies in this Court: (1) this Court possess “general jurisdiction” over 

all three defendants in light of RMG’s “continuous and systematic” business activities 

(which include holding itself out as conducting business in Arizona), the Fords’ close 

relationship with RMG, and RMG’s default status in this action; and (2) their claims do 

not arise “solely out of the Subscription Agreements” but instead arise in part from the 

Promissory Notes, which “each contain[] a forum selection clause establishing that Arizona 

is the exclusive jurisdiction and venue governing any dispute arising from them.” (Doc. 

27.)

A. Legal Standard

A forum selection clause is a ground for not exercising jurisdiction over a case, 

similar to abstention in favor of state court jurisdiction or refusal to exercise supplemental 

jurisdiction. Kamm v. ITEX Corp., 568 F.3d 752, 756 (9th Cir. 2009). Federal law governs 

the validity of a forum selection clause. Manetti-Farrow, Inc., v. Gucci Am., Inc., 858 F.2d 

509, 513 (9th Cir. 1988). If the language of the forum selection clause mandates that an 

action be brought in a specified venue, courts must enforce the clause, absent exceptional 

circumstances not at issue here. Docksider, Ltd. v. Sea Tech., Ltd., 875 F.2d 762, 764 (9th 

Cir. 1989) (“[W]here venue is specified with mandatory language the clause will be 

enforced.”).4

Whether a forum selection clause is mandatory or permissive is a question of 

contract interpretation. Hunt Wesson Foods, Inc. v. Supreme Oil Co., 817 F.2d 75, 77 (9th 

4

“A contractual forum selection clause is ‘prima facie valid and should be enforced 

unless enforcement is shown by the resisting party to be ‘unreasonable’ under the 

circumstances.’” Docksider, 875 F.2d at 763 (citation omitted). Here, as in Docksider, no

party alleges “fraud or undue influence underlying the forum selection clause that would 

render its enforcement unreasonable.” Id.

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Cir. 1987). “A primary rule of interpretation is that ‘[t]he common or normal meaning of 

language will be given to the words of a contract unless circumstances show that in a 

particular case a special meaning should be attached to it.’” Id. (citation omitted).

B. The Subscription Agreements

The complaint acknowledges that the Subscription Agreements “indicate that 

disputes shall be adjudicated in Montgomery County, Maryland” (Doc. 1 ¶ 14), and indeed, 

the Subscription Agreements, which are attached to the complaint, provide: 

Notwithstanding the place where this Subscription Agreement may be 

executed by any of the parties hereto, the parties expressly agree that all the 

terms and provisions hereof shall be construed in accordance with and 

governed by the laws of the State of Maryland. The parties hereby agree 

that any dispute which may arise between them arising out of or in 

connection with this Subscription Agreement shall be adjudicated only

before a Federal court located in Montgomery County, Maryland and they 

hereby submit to the exclusive jurisdiction of the federal courts located in 

Montgomery County, Maryland with respect to any action or legal 

proceeding commenced by any party, and irrevocably waive any objection 

they now or hereafter may have respecting the venue of any such action or 

proceeding brought in such a court or respecting the fact that such court is an 

inconvenient forum, relating to or arising out of this Subscription 

Agreement or any acts or omissions relating to the sale of the securities 

hereunder, and consent to the service of process in any such action or legal 

proceeding by means of registered or certified mail, return receipt requested, 

in care of the address set forth below or such other address as the undersigned 

shall furnish in writing to the other.

(Doc. 1-9 at 7-8; Doc. 1-11 at 2 [emphasis added].) The Subscription Agreements were 

signed by both Plaintiffs. (Doc. 1-9 at 10; Doc. 1-11 at 6.)

The language of the forum selection clause in each Subscription Agreement is 

mandatory. It provides that “any dispute which may arise between [the parties] arising out 

of or in connection with this Subscription Agreement shall be adjudicated only before a 

Federal court located in Montgomery County, Maryland” and further specifies that the 

parties “submit to the exclusive jurisdiction of the federal courts located in Montgomery 

County, Maryland with respect to any action or legal proceeding commenced by any party 

. . . relating to or arising out of this Subscription Agreement or any acts or omissions 

relating to the sale of the securities hereunder.” (Doc. 1-9 at 7-8; Doc. 1-11 at 2 [emphasis 

added].) Such language is sufficient to mandate that an action arising out of the 

Subscription Agreements be brought in a federal court in Montgomery County, Maryland. 

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Docksider, 875 F.2d at 763–64.

In light of this mandatory language, Plaintiffs’ arguments concerning why this Court 

possesses “general jurisdiction” over Defendants (Doc. 27 at 2, 4-7) are irrelevant. 

Defendants are not moving to dismiss based on a lack of personal jurisdiction—they are 

moving to dismiss based on a valid forum selection clause. And absent a showing “that 

trial in the contractual forum will be so gravely difficult and inconvenient that [Plaintiffs]

will for all practical purposes be deprived of [their] day in court”—which has not been 

made here—“there is no basis for concluding that it would be unfair, unjust, or 

unreasonable to hold [Plaintiffs] to [their] bargain” regarding the exclusive venue for 

actions arising out of the Subscription Agreements. M/S Bremen v. Zapata Off-Shore Co., 

407 U.S. 1, 18 (1972).

C. The Promissory Notes

Plaintiff’s other argument is that “Arizona is the choice of venue in the Promissory 

Notes signed by RMG” and “the forum selection clause in the Promissory Notes should 

control.” (Doc. 27 at 2-3.) 

The Promissory Notes, also attached to the complaint, provide:

The parties expressly agree that all the terms and provisions hereof shall be 

construed in accordance with and governed by the laws of the State of 

Arizona. The parties hereby agree that any dispute which may arise 

between them arising out of or in connection with this Agreement shall be 

adjudicated before a court of competent jurisdiction in the State of Arizona 

and they hereby submit to the exclusive jurisdiction of the courts of the 

State of Arizona with respect to any action or legal proceeding commenced 

by any party and irrevocably waive any objection they now or hereafter may 

have respecting the venue of any such action or proceeding brought in such 

a court or respecting the fact that such court is an inconvenient forum.

(Doc. 1-13 at 5; Doc. 1-14 at 5 [emphasis added].) Like the language in the Subscription 

Agreements, the language of the forum selection clause in the Promissory Notes is 

mandatory.

Nevertheless, the difficulty with Plaintiffs’ reliance on the Promissory Notes is that 

this Court—the United States District Court for the District of Arizona—does not qualify 

as “a court[] of the State of Arizona.” (Doc. 1-13 at 5; Doc. 1-14 at 5.) Under Ninth Circuit

law, federal courts are deemed to be “in” their home states, but not “of” them. Doe 1 v. 

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AOL LLC, 552 F.3d 1077, 1082 (9th Cir. 2009). Thus, in AOL, the Ninth Circuit held that 

a forum selection clause conferring exclusive jurisdiction upon “the courts of Virginia” did 

not encompass “state and federal courts in Virginia” and instead “refer[red] to Virginia 

state courts only.” Id. at 1081. 

The bottom line is that the Subscription Agreements contain a forum selection 

clause requiring litigation in certain federal courts in Virginia while the Promissory Notes 

contain a forum selection clause requiring litigation in the state courts of Arizona. This 

Court is neither. Thus, Plaintiffs’ claims will be dismissed without prejudice due to 

improper venue.5 

D. Scope Of Dismissal

Based on the forum selection clauses, Plaintiffs’ claims against all three Defendants

will be dismissed. Although the dismissal arguably should apply only to the Fords—it 

seems odd to allow RMG to profit from a dismissal motion filed after it defaulted—that 

outcome would only delay the inevitable. As explained in Part III infra, Plaintiffs are not 

entitled to a default judgment against RMG at this time (in part because the forumselection-clause issue means that RMG possesses a potentially valid defense), and it seems 

pointless to dissolve the default as to RMG just so RMG can file another motion to dismiss 

based on improper venue. Additionally, the presence of the forum selection clauses gives 

this Court a basis “not [to] exercise[e] jurisdiction over [the] case, similar to abstention in 

favor of state court jurisdiction or refusal to exercise supplemental jurisdiction.” Kamm, 

568 F.3d at 756. See also Howard Brown Co. v. Reliance Ins. Co., 66 B.R. 480, 482 (E.D. 

Pa. 1986) (granting defendant’s motion challenging venue, which was filed after entry of 

default).

...

5 The Court notes that it may be necessary, in a future lawsuit, for the court overseeing 

the litigation to decide how to reconcile the seemingly contradictory forum selection 

clauses. Primary Color Sys. Corp. v. Agfa Corp., 2017 WL 8220729, *6 (C.D. Cal. 2017)

(noting that courts have various options when presented with contradictory clauses, 

including “undertak[ing] a fact-intensive analysis to determine which forum-selection 

clause should be enforced”). But it is apparent that this Court—which isn’t the appropriate 

forum under either agreement—shouldn’t be the court making that decision. 

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III. Motion for Default Judgment

Because Plaintiffs’ claims against RMG have been dismissed without prejudice 

based on improper venue, it follows that Plaintiffs’ motion for default judgment against 

RMG must be dismissed as moot.

The motion for default judgment also fails on the merits. After entry of default, the 

facts alleged in the complaint are assumed to be true, except as to damages. Geddes v. 

United Fin. Grp., 559 F.2d 557, 560 (9th Cir. 1977) (“The general rule of law is that upon 

default the factual allegations of the complaint, except those relating to the amount of 

damages, will be taken as true.”).

The “decision whether to enter a default judgment is a discretionary one.” Aldabe 

v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). The following factors, known as the Eitel

factors, may be considered when deciding whether default judgment is appropriate: (1) the 

possibility of prejudice to the plaintiff, (2) the merits of the claims, (3) the sufficiency of 

the complaint, (4) the amount of money at stake, (5) the possibility of factual disputes, (6) 

whether the default was due to excusable neglect, and (7) the policy favoring decisions on 

the merits. Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986).

A. Default Judgments Are Disfavored

In every case, the seventh factor—the policy favoring decisions on the merits—

generally weighs against default judgment. After all, the Court’s “starting point is the 

general rule that default judgments are ordinarily disfavored” because “[c]ases should be 

decided upon their merits whenever reasonably possible.” Eitel, 782 F.2d at 1472. On the 

other hand, the existence of Rule 55(b) of the Federal Rules of Civil Procedure, which 

authorizes default judgments, “indicates that this preference, standing alone, is not 

dispositive.” PepsiCo, Inc. v. California Sec. Cans, 238 F. Supp. 2d 1172, 1177 (C.D. Cal. 

2002). Put simply, “the default mechanism is necessary to deal with wholly unresponsive 

parties who could otherwise cause the justice system to grind to a halt. Defendants who 

appear to be ‘blowing off’ the complaint should expect neither sympathy nor leniency from 

the court.” 2 Gensler, Federal Rules of Civil Procedure Rules and Commentary, Rule 55, 

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at 119-20 (2020).

Here, although RMG was unresponsive for a long time, it has now retained counsel 

and begun participating in this action—it is not “wholly unresponsive.” Although RMG is 

not entitled to sympathy or leniency, its belated participation means this action could be 

decided on the merits. Thus, the seventh factor weighs against default judgment more 

strongly here than it does in a case where the defendant remains entirely absent.

B. No Indication Of Excusable Neglect

Although RMG is participating now, it has not provided any indication that its 

failure to participate in a timely manner was due to excusable neglect. Although RMG’s 

counsel was unaware of the default at the time counsel filed the motion to dismiss, once 

RMG’s counsel became aware, no excuse was offered. (Doc. 28 at 1.) RMG’s failure to 

oppose the motion for default judgment further suggests that RMG has no excuse. This 

factor weighs in favor of granting default judgment.

C. Amount Of Money At Stake

Plaintiffs state that RMG owes “$116,250.00, exclusive of interest, costs, and fees,” 

and that “[p]rejudgment interest on each of the notes through March 18, 2020 equals 

$15,015.63 . . . each, for a principal balance of $73,140.63 owed to each Plaintiff; 

$146,281.26 collectively.” (Doc. 24 ¶¶ 9, 11.) Plaintiffs also seek $525 in costs and 

$14,220.17 in attorneys’ fees, increasing the total amount sought to $161,026.43. (Doc. 

24-5 ¶¶ 7-9.)

“When the money at stake in the litigation is substantial or unreasonable, default 

judgment is discouraged.” Bd. of Trustees v. Core Concrete Const., Inc., 2012 WL 380304, 

*4 (N.D. Cal. 2012), report and recommendation adopted, 2012 WL 381198 (N.D. Cal. 

2012). Here, the total money judgment sought ($161,026.43) is substantial. This factor 

weighs against granting default judgment.

D. Prejudice To The Plaintiffs

In a typical default judgment scenario, where the defendant remains absent from the 

litigation even after the motion for default judgment is filed, prejudice to the plaintiff is 

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obvious—if the motion for default judgment were denied, the plaintiff would be without 

other recourse for recovery. PepsiCo, 238 F. Supp. 2d at 1177. Here, Plaintiffs can seek 

recovery through the preferred method—litigating the action. Plaintiffs may have suffered 

some prejudice based on the lengthy delay, but that delay was caused in part by Plaintiffs’ 

decision not to file a motion for default judgment until February 28, 2020, which was over 

five months after the Clerk entered default against RMG. Furthermore, Plaintiffs did not 

identify any prejudice in their motion for default judgment. (Doc. 24.) This factor weighs 

against granting default judgment.

E. Meritorious Defense

As for the remaining factors—the merits of the claims, the sufficiency of the 

complaint, and the possibility of factual disputes—Defendants have demonstrated that this 

Court is not the proper venue for this action. Thus, the factors regarding the merits weigh 

strongly against default judgment. See, e.g., Gage v. Somerset Cty., 369 F. Supp. 3d 252, 

260 (D.D.C. 2019) (“[T]he Court need reach only one of [various defenses to default], 

improper venue, which the Court readily finds to be meritorious.”).

F. Ruling As To Default Judgment

The lack of any excuse for the default weighs in favor of granting default judgment, 

but all other factors weigh against it. Thus, the Court will not exercise its discretion to 

grant default judgment. 

***

Accordingly, IT IS ORDERED that:

(1) Defendants’ motion to dismiss (Doc. 22) is granted. Plaintiffs’ claims are 

dismissed without prejudice. 

(2) Plaintiffs’ motion to strike (Doc. 23) is denied.

(3) Plaintiffs’ motion for default judgment (Doc. 24) is denied. 

...

...

...

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(4) The Clerk of Court terminate this action and enter judgment accordingly.

Dated this 21st day of May, 2020.

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