Securities and Exchange Commission v. Souza et al

Filing 94

ORDER signed by Magistrate Judge Dale A. Drozd on 03/10/11 GRANTING 82 Motion for Sanctions; 36 Answer to Complaint filed by David A. Souza is STICKEN and DEFAULT entered against David A. Souza. (Williams, D)

-DAD (TEMP)(PS) Securities and Exchange Commission v. Souza et al

Doc. 94

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 No opposition to the motion to compel was timely filed. By order filed December 20, 2010, defendant was afforded additional time to file opposition and cautioned that failure to do so would be deemed a statement of non-opposition and result in the striking of the answer and entry of default. Because the court had been advised defendant was incarcerated in the Shasta County Jail, the court directed the Clerk of Court to serve defendant at both his address of record and at the Shasta County Jail. The copy of the order mailed to defendant was returned as undeliverable. Plaintiff filed a reply (docket no. 86) advising the court that defendant was released from the Shasta County Jail on December 19, 2010. Therefore, on January 19, 2011, the court granted defendant one further extension of time to file opposition to the pending motion, again cautioned defendant regarding the consequences of failing to file opposition, and ordered the Clerk to serve the January 19, 2011 order on plaintiff's prior address of record. (Docket no. 88.) Nonetheless, no opposition has been filed by defendant. 1
Dockets.Justia.com
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IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF CALIFORNIA SECURITIES AND EXCHANGE COMMISSION, Plaintiff, vs. DAVID SOUZA, et al., Defendants. / Due to defendant's incarceration, plaintiff's motion for sanctions was submitted on the papers. Upon review of the documents in support, no opposition having been filed,1 and good cause appearing therefor, THE COURT FINDS AS FOLLOWS: ORDER No. CIV 09-2421 KJM DAD (TEMP) PS

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In this civil enforcement action,2 plaintiff alleges defendant violated the federal securities laws by fraudulently representing that he was an investment advisor. Plaintiff further alleges that defendant targeted members of a Redding, California church and diverted funds obtained from its members to cover defendant's personal living expenses. Plaintiff moves for sanctions due to defendant's failure to comply with this court's discovery orders. Plaintiff seeks to have defendant's answer stricken and default entered.3 The court has authority to impose sanctions for abuses of the discovery process under Rule 37 of the Federal Rules of Civil Procedure. See Wanderer v. Johnston, 910 F.2d 652 (9th Cir.1990). The drastic sanction of default may be imposed only when the sanctioned party's noncompliance was due to willfulness, fault, or bad faith. See Henry v. Gill Indus., 983 F.2d 943, 946 (9th Cir.1993). Five factors must be weighed in determining whether the sanction of default for noncompliance with discovery is appropriate: "(1) the public's interest in expeditious resolution of litigation; (2) the court's need to manage its docket; (3) the risk of prejudice to the [opposing party]; (4) the public policy favoring disposition of cases on their merits; and (5) the availability of less drastic sanctions." Malone v. U.S. Postal Serv., 833 F.2d 128, 130 (9th Cir. 1987). When a party violates a court order, the first and second factors will favor sanctions and the fourth factor will weigh against sanctions. Determination of plaintiff's motion for terminating sanctions thus turns on the third and fifth factors identified in Malone. See Computer Task Group, Inc. v. Brotby, 364 F.3d 1112, 1115 (9th Cir. 2004). Here, the court finds the third and fifth factor overwhelmingly favor entry of the relief requested by plaintiff. Defendant has repeatedly disobeyed this court's discovery orders. In an order filed June 28, 2010, the court initially directed defendant to make initial disclosures. The matter was referred to the assigned magistrate judge for pretrial management under Local Rule 302(c)(21) after defendant's counsel was allowed to withdraw from representation. See docket no. 43. The answer of the defendant corporation, D.A. Souza Investments, LLC, was stricken on September 8, 2010 and default was entered against this defendant. See docket nos. 68, 74. 2
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See docket no. 50. When defendant failed to comply with that order, plaintiff moved to compel initial disclosures. Plaintiff also moved to compel production of documents. No opposition to those motions were filed by defendant and by order filed September 22, 2010, both motions were granted and defendant was cautioned that failure to comply with the discovery order might result in striking of the answer and entry of default. See docket no. 80. Defendant has again failed to comply with the discovery orders and made no attempt whatsoever to produce relevant documents. The court finds defendant's failure to comply with the court's orders of June 28, 2010 and September 22, 2010 to be willful and in bad faith. The documents sought by plaintiff are essential to development of plaintiff's case and the failure to produce relevant documents, or admit that the documents do not exist, has precluded plaintiff from proper prosecution of the instant litigation. See, e.g. SEC v. Trabulse, 526 F. Supp. 2d 1008, 1015-16 (N.D. Cal. 2007) (absence of records that investment advisor should have maintained as fiduciary has evidentiary value). Defendant has now been warned three times that his answer would be stricken and default entered if he did not comply with the court's orders or file opposition to the pending motion. See docket nos. 80, 84, 88. Under these circumstances, the court finds no alternative lesser sanction is appropriate. See Wanderer, 910 F.2d at 656 (default appropriate sanction where defendants repeatedly failed to comply with discovery orders); see also Computer Task Group, Inc., 364 F.3d at 1116-17 (alternative of lesser sanctions was appropriately considered where the court anticipates continued lack of cooperation and had put a party of notice that continued failure to cooperate in discovery would result in default). Given the record of defendant's intransigent behavior in defending this action and utter refusal to comply with the court's orders, the court finds upon balancing the five factors set forth above that striking of the answer and entry of default is warranted in this case. ///// ///// ///// 3

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JMM

Accordingly, IT IS HEREBY ORDERED that: 1. Plaintiff's motion for sanctions (docket no. 82) is granted. 2. The answer filed on behalf of defendant David A. Souza (docket no. 36) is stricken. 3. The Clerk of Court is directed to enter default against defendant David A. Souza. DATED: March 10, 2011.

sec-souza2421.san.dad.

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