State ex. rel. Miller v. Lucas

• Decision Date: 05 September 2013
• Docket Number: No. 3-722 / 12-2245,3-722 / 12-2245
• Parties: STATE OF IOWA, ex. rel. THOMAS J. MILLER, Attorney General of Iowa and SUSAN E. VOSS, Commissioner Iowa Insurance Division, Plaintiffs-Appellees, v. ALAN LEE LUCAS, in His Individual and Corporate Capacity; PROSAPIA FINANCIAL; PORSAPIA CAPITAL; PROSAPIA ASSET MANAGEMENT; ASHERLEE MANAGEMENT SERVICES; IGNEOUS VOP SOLUTIONS; CONVENANT ASSET MANAGEMENT; COVENANT INVESTMENT FUND, L.P. (a/k/a Phalanx Technology Holdings, LP); EASTERN IOWA CABLE SYSTEMS, INC.; FYRE WIRELESS, INC., (a/k/a Fyrestorm Cable & Fire and Fyrestorm Wireless Internet, Inc.), Defendants-Appellants.
• Court: Iowa Court of Appeals

STATE OF IOWA, ex. rel. THOMAS J. MILLER, Attorney
General of Iowa and SUSAN E. VOSS, Commissioner Iowa
Insurance Division, Plaintiffs-Appellees,
v.
ALAN LEE LUCAS, in His Individual and Corporate Capacity; PROSAPIA
FINANCIAL; PORSAPIA CAPITAL; PROSAPIA ASSET MANAGEMENT;
ASHERLEE MANAGEMENT SERVICES; IGNEOUS VOP SOLUTIONS;
CONVENANT ASSET MANAGEMENT; COVENANT INVESTMENT FUND,
L.P. (a/k/a Phalanx Technology Holdings, LP); EASTERN IOWA CABLE SYSTEMS,
INC.; FYRE WIRELESS, INC., (a/k/a Fyrestorm Cable & Fire and Fyrestorm Wireless
Internet, Inc.), Defendants-Appellants.

No. 3-722 / 12-2245

COURT OF APPEALS OF IOWA

Filed September 5, 2013

Appeal from the Iowa District Court for Linn County, Sean W. McPartland (motion to dismiss), Stephen B. Jackson Jr. entry of default against Lucas), William L. Thomas (entry of default against entity defendants, and Patrick Grady (motion to set aside default judgments), Judges.

The defendants, Alan Lucas and business entities owned or controlled by Lucas, appeal from default judgments entered against them in an action brought by the State pursuant to Iowa Code chapter 706A (2011) (ongoing criminal

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conduct), Iowa Code section 714.16(2)(a) (consumer fraud), and Iowa Code chapter 502 ("Blue Sky" law). AFFIRMED.

Lawrence F. Scalise and Richard O. McConville of Coppola, McConville, Coppola, Hockenberg & Scalise, P.C., West Des Moines, for appellants.

Thomas J. Miller, Attorney General, and Chantelle Smith and Jessica Whitney, Assistant Attorneys General, for appellees.

Considered by Vogel, P.J., and Danilson and Tabor, JJ.

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DANILSON, J.

The defendants, Alan Lucas and business entities owned or controlled by Lucas, appeal from default judgments entered against them in an action brought by the State alleging violations of Iowa Code chapter 706A (2011) (ongoing criminal conduct), Iowa Code section 714.16(2)(a) (consumer fraud), and Iowa Code chapter 502 (Blue Sky law). The court had subject matter jurisdiction of the matters asserted. We find no abuse of discretion in the denial of Lucas's motion to set aside default judgment. We therefore affirm.

I. Background Facts and Proceedings.

The State filed a petition on February, 10, 2012, asserting various wrong doings in the state of Iowa by the defendant Lucas and the other defendants, each an entity owned or controlled by Lucas. On March 20, 2012, Lucas filed a motion to dismiss.¹ The motion was denied by the district court as untimely and

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otherwise "utterly without merit." No attorney appeared for any of the entities. No answer was filed by any defendant, even though extra time was granted.

Default judgments were ultimately entered against each of the defendants. On September 18, 2012, an order and judgment was entered, which included monetary damages assessed against Lucas. Motions to set aside the default judgments filed by Lucas on his behalf and on behalf of the entity defendants were denied.

The defendants appeal, contending the court erred in denying a pre-answer motion to dismiss grounded on a claim of lack of subject matter jurisdiction, in granting the default judgments, and in failing to set aside the default judgments.

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II. Scope and Standard of Review.

Our review of a district court's ruling on a motion to dismiss is for the correction of errors at law. Mueller v. Welmark, Inc., 818 N.W.2d 244, 253 (Iowa 2012).

In ruling on a motion to set aside a default judgment, the district court is vested with broad discretion and will only be reversed if that discretion is abused. Brandenburg v. Feterl Mfg. Co., 603 N.W.2d 580, 584 (Iowa 1999).

III. Discussion

A. Motion to Dismiss.

Lucas's pre-answer motion to dismiss alleged lack of subject matter jurisdiction based on the "internal affairs doctrine." The district court denied the motion as untimely. However, the court also addressed the merits of the motion, finding the lack-of-subject-matter-jurisdiction claim was "utterly without merit." See State v. Mandicino, 509 N.W.2d 481, 482 (Iowa 1993) (noting subject matter jurisdiction can be raised at any time). We agree with the State's assertion—and the district court's ruling—that the statutory provisions alleged in the petition explicitly provide subject matter jurisdiction to the district court. See Iowa Code §§ 706A.3 (providing for civil proceedings in district court for violations of chapter respecting ongoing criminal conduct), 714.16(7) (providing for civil action for consumer fraud), 502.603 (providing for civil action "[i]f administrator believes that a person has engaged, is engaging, or is about to engage in an act, practice, or course of business constituting a violation of this chapter or a rule adopted or order issued under this chapter").

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With regard to the "internal affairs doctrine," the doctrine is generally recognized as an issue of conflict of law rather than subject matter jurisdiction. See, e.g., Edgar v. MITE Corp., 457 U.S. 624, 645 (1982) ("The internal affairs doctrine is a conflict of laws principle which recognizes that only one State should have the authority to regulate a corporation's internal affairs—matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders—because otherwise a corporation could be faced with conflicting demands.").

So, for example, in a derivative action against a foreign corporation the doctrine requires that the law of the incorporating state governs internal matters, but does not require a dismissal of the action. See State Farm Mut. Auto. Ins. Co. v. Superior Ct., 114 Cal. App. 4th 434...