Burger et al v. Hartley et al

Filing 108

ORDER denying without prejudice 85 Renewed Motions for Entry of Default Judgments. Signed by Judge James I. Cohn on 2/7/2012. (npd)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
CASE NO. 11-62037-CIV-COHN/SELTZER
EDWARD BURGER, AS TRUSTEE
OF THE 2009 HUBBARD FAMILY
TRUST, a New Mexico trust, et al.,
Plaintiffs,
vs.
JOHN HARTLEY, et al.,
Defendants.
_____________________________________/
ORDER DENYING WITHOUT PREJUDICE RENEWED MOTIONS FOR ENTRY OF
DEFAULT JUDGMENTS
THIS CAUSE is before the Court upon “Plaintiffs’ Renewed Motions for Entry
Default Judgments as to Defendants G. Power II, Praetorian G. Power, II, LLC, and
Praetorian Fund, Ltd.” [DE 85] (“Motion”).1 The Court has considered the Motion, notes

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The Motion incorporates by reference: Plaintiff Edward Burger, As Trustee
of the 2009 Hubbard Family Trust’s Motion And Memorandum of Law For Entry of
Default Judgment as to Defendants G. Power II, Praetorian G. Power, II, LLC, and
Praetorian Fund, Ltd. [DE 75], Plaintiff Craig Angelo’s Motion And Memorandum of Law
For Entry of Default Judgment as to Defendants G. Power II, Praetorian G. Power, II,
LLC, and Praetorian Fund, Ltd. [DE 76], Plaintiff Albert Angelo, Jr.’s Motion And
Memorandum of Law For Entry of Default Judgment as to Defendants G. Power II,
Praetorian G. Power, II, LLC, and Praetorian Fund, Ltd. [DE 77], Plaintiff Jerry Bayles’
Motion And Memorandum of Law For Entry of Default Judgment as to Defendants G.
Power II, Praetorian G. Power, II, LLC, and Praetorian Fund, Ltd. [DE 78], Plaintiff
Robert Masterson’s Motion And Memorandum of Law For Entry of Default Judgment as
to Defendants G. Power II, Praetorian G. Power, II, LLC, and Praetorian Fund, Ltd. [DE
79], Plaintiff Dan Meadows’ Motion And Memorandum of Law For Entry of Default
Judgment as to Defendants G. Power II, Praetorian G. Power, II, LLC, and Praetorian
Fund, Ltd. [DE 80], and Plaintiff Praefectus Capital, LLC’s Motion And Memorandum of
Law For Entry of Default Judgment as to Defendants G. Power II, Praetorian G. Power,
II, LLC, and Praetorian Fund, Ltd. [DE 81] (collectively “Motions”). The Court originally
denied these Motions because they were filed before Plaintiffs had obtained a clerk’s
entry of default against these defendants. See DE 82.

the lack of the response by the deadline of January 17, 2012, the record in the case,
and is otherwise fully advised in the premises.
I. BACKGROUND
On September 16, 2011, Plaintiffs filed suit against Defendants John Hartley
(“Hartley”), John A. Mattera (“Mattera”), Bradford van Siclen (“van Siclen”), John Ray
Arnold (“Arnold”), Praetorian G. Power II, LLC (“Praetorian”), G. Power II (“G. Power”),
First American Service Transmittals, Inc. (“FAST”), and Praetorian Fund (“Praetorian
Fund”). See Complaint [DE 1]. Plaintiffs filed an Amended Complaint [DE 19] on
October 28, 2011. Pursuant to Section 10(b) of the Securities and Exchange Act of
1934, Plaintiffs seek rescission, and alternatively, to recover substantial damages from
Defendants, related to $4.525 million Plaintiffs invested to acquire shares in Praetorian
and/or G. Power, based on false representations that such interests would provide
indirect ownership of Series A Preferred shares in Fisker Automotive Inc. Am. Compl. ¶
1. After making the investment, Plaintiffs never received the closing documents
reflecting their shares in Praetorian. Id. Plaintiffs later learned that Defendants did not
own any shares in Fisker Automotive. Id. Plaintiffs also bring claims for conversion
(against Defendants FAST, Arnold, Mattera, van Siclen, Praetorian, and G. Power),
breach of fiduciary duty (against Defendants FAST and Arnold only), constructive trust
and injunctive relief (against Defendants FAST, Arnold, Praetorian, G. Power, Mattera,
and van Siclen), rescission (against Defendant Praetorian only), breach of contract
(against Defendant Praetorian only), conspiracy (against all Defendants), and civil theft
(against all Defendants).
In the Amended Complaint, Plaintiffs allege that “Defendants were agents of
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Praetorian, G. Power, [Praetorian] Fund and First American, and for all the reasons
described herein, those entities were simply vehicles for their scheme to defraud.” Am.
Compl. ¶ 132. They also allege “that some or all of the Defendants stole these
moneys; the above referenced circumstances do not allow Plaintiffs to rule out
anybody.” Id. ¶ 162. Defendant van Siclen is alleged to have acted on his own behalf
and as an agent for Praetorian and G. Power. Id. ¶ 171. He is also alleged, as the
managing director of Praetorian Fund, to be an agent of Praetorian Fund. Id. ¶ 172.
On November 29, 2011, Defendants Praetorian, G. Power, and Praetorian Fund
(collectively “the Praetorian Defendants”) filed a notice of non-action which states that
they will not be filing an answer or affirmative defenses and will not oppose entry of a
default judgment against them. See DE 39. On December 28, 2011, Plaintiffs moved
for entry of clerk’s default against the Praetorian Defendants. See DE 83. A clerk’s
default was entered as to the Praetorian Defendants on December 29, 2011. See DE
84. Plaintiffs now move for entry of final default judgment against the Praetorian
Defendants pursuant to Federal Rule of Civil Procedure 55(b).
II. ANALYSIS
District courts have “the authority to enter default judgment for failure to
prosecute with reasonable diligence or to comply with its orders or rules of procedure.”
Wahl v. McIver, 773 F.2d 1169, 1174 (11th Cir. 1985). Federal Rule of Civil Procedure
55(a) provides, in pertinent part, that a default may be entered “[w]hen a party against
whom a judgment for affirmative relief is sought has failed to plead or otherwise defend
as provided by these rules.” Fed. R. Civ. P. 55(a). A defaulted defendant is deemed to
“admit[] the plaintiff's well-pleaded allegations of fact.” Nishimatsu Constr. Co., Ltd. v.
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Houston Nat’l Bank, 515 F.2d 1200, 1206 (5th Cir. 1975). The defendant, however, “is
not held to admit facts that are not well-pleaded or to admit conclusions of law.” Id.;
accord Cotton v. Mass. Mut. Life Ins. Co., 402 F.3d 1267, 1278 (11th Cir. 2005).
“Entry of judgment by default is a drastic remedy which should be used only in extreme
situations.” Wahl, 773 F.2d at 1169. “There is a strong preference that cases be heard
on the merits instead of imposing sanctions that deprive a litigant of his day in court.”
Owens v. Benton, 190 Fed. Appx. 762, 763 (11th Cir. 2006).
“Courts have recognized . . . that in certain circumstances a default judgment is
inappropriate if it results in inconsistency among judgments.” Marshall & Ilsley Trust
Co. v. Pate, 819 F.2d 806, 811 (7th Cir. 1987). The Supreme Court recognized this
proposition in Frow v. De La Vega, 82 U.S. 552 (1872). In Frow, the plaintiff filed a
complaint charging eight defendants with a “joint conspiracy” to defraud him of a piece
of real property. Of these eight defendants, Frow failed to file a timely answer and the
district court entered a pre-trial default judgment against him. The district court
ultimately decided the merits of the case against the plaintiff and dismissed the
complaint. Frow appealed the default judgment to the Supreme Court. Ruling in favor
of Frow, the Supreme Court wrote:
If the court in such a case as this can lawfully make a final decree against
one defendant separately, on the merits, while the cause was proceeding
undetermined against the other, then this absurdity might follow: there
might be one decree of the court sustaining the charge of joint fraud
committed by the defendants and another decree disaffirming the said
charge, and declaring it to be entirely unfounded, and dismissing the
complainant’s bill. And such acts of incongruity, it seems, did actually
occur in this case. Such a state of things is unseemly and absurd, as well
as unauthorized by law.
Id. at 554.
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Modern courts have interpreted Frow to stand for the following proposition:
[I]f at trial facts are proved that exonerate certain defendants and that as a
matter of logic preclude the liability of another defendant, the plaintiff
should be collaterally estopped from obtaining a judgment against the
latter defendant, even though it failed to participate in the proceeding in
which the exculpatory facts were proved.
Farzetta v. Turner & Newall, Ltd., 797 F.2d 151, 154 (3d Cir. 1986). Several Circuits,
including the Eleventh, have found Frow applies to situations where defendants are
jointly and severally liable, or have closely related defenses. See, e.g., Neilson v.
Chang (In re First T.D. & Inv., Inc.), 253 F.3d 520, 532 (9th Cir. 2001); Wilcox v.
Raintree Inns of Am., Inc., 76 F.3d 394, 1996 WL 48857 (10th Cir. 1996); Gulf Coast
Fans, Inc. v. Midwest Elecs. Imps., Inc., 740 F.2d 1499, 1512 (11th Cir. 1984); U.S. for
Use of Hudson v. Peerless Ins. Co., 374 F.2d 942 (4th Cir. 1967). Other federal courts
have applied the Frow doctrine more narrowly, such as in cases of true joint liability or
cases where the defaulting defendant cannot be liable unless the non-defaulting
defendants are liable. See, e.g., McMillian/ McMillian, Inc. v. Monticello Ins. Co., 116
F.3d 319 (8th Cir. 1997) (Frow not extended to a situation where the co-defendants
share closely related interests but are not truly jointly liable); Whelan v. Abell, 953 F.2d
663, 674-75 (D.C. Cir. 1992) (Frow should apply only when liability is truly joint or
necessary for effective relief); In re Uranium Antitrust Litig., 617 F.2d 1248, 1256-58
(7th Cir. 1980) (Frow rule not extended to cases of joint and several liability if results
are not logically inconsistent or contradictory).
According to Wright, Miller and Kane, the “key” in deciding the application of
Frow to individual cases is to “recognize that the Frow principle is designed to apply
only when it is necessary that the relief against the defendants be consistent. If that is
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not the case, then a default against one defendant may stand, even though the
remaining defendants are found not liable.” 10A Wright, Miller & Kane, Federal
Practice and Procedure § 2690 (3d ed. 1998 & Supp. 2009). Even courts that take a
limited view of the continued force of Frow conclude that the case controls “in situations
where the liability of one defendant necessarily depends upon the liability of the others.”
Int’l Controls Corp. v. Vesco, 535 F.2d 742, 746 n. 4 (2d Cir. 1976); see also In re
Uranium, 617 F.2d at 1257.
Five of the claims brought against the Praetorian Defendants are also brought
against the other Defendants.2 Further, because a corporate defendant can act only
through its employees and agents, all of the claims asserted against the Praetorian
Defendants are based on allegations regarding the other Defendants’ actions,
particularly Defendant van Siclen, who is alleged to be an agent of each of the
Praetorian Defendants. Am. Compl. ¶¶ 132, 171-72. Indeed, throughout the Amended
Complaint, Plaintiffs often refer to the Defendants collectively. Accordingly, the
defenses of the other Defendants will be “closely related” to the defenses of the
Praetorian Defendants, Wilcox, 76 F.3d 394, at *3, and a default judgment against the
Praetorian Defendants would be inconsistent if the other Defendants defeat the claims
against them in this action. Therefore, the Court will deny Plaintiffs’ Motion without
prejudice, pending adjudication of this case on the merits.

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Two claims brought against Defendants Praetorian and G. Power are
brought against four other defendants. Only two claims are brought solely against
Defendant Praetorian.
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III. CONCLUSION
For the reasons stated above, it is hereby ORDERED AND ADJUDGED that
“Plaintiffs’ Renewed Motions for Entry Default Judgments as to Defendants G. Power II,
Praetorian G. Power, II, LLC, and Praetorian Fund, Ltd.” [DE 85] is DENIED without
prejudice.
DONE AND ORDERED in Chambers at Fort Lauderdale, Broward County,
Florida, this 7th day of February, 2012.

Copies provided to counsel of record and pro se parties via CM/ECF.

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