Firefighters' Retirement System et al v. Citco Group Limited et al

Filing 963

RULING granting 960 MOTION for Default Judgment as to Alphonse "Buddy" Fletcher, Jr. and Fletcher Asset Management, Inc. as to liability. The Court will set a hearing for Plaintiffs to provide evidence regarding the amount of damages that are warranted in this case. Signed by Chief Judge Shelly D. Dick on 2/22/2019. (SWE)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF LOUISIANA
FIREFIGHTERS’ RETIREMENT
SYSTEM, ET AL

CIVIL ACTION

VERSUS

13-373-SDD-EWD

CITCO GROUP LIMITED, ET AL
RULING
This matter is before the Court on the Motion for Default Judgment Against
Defendants, Alphonse “Buddy” Fletcher, Jr. and Fletcher Asset Management, Inc.1 by
Plaintiffs, Firefighters’ Retirement System (“FRS”), Municipal Employees’ Retirement
System of Louisiana (“MERS”), and the New Orleans Firefighters’ Pension & Relief Fund
(“NOFF”) (collectively “the Louisiana Funds” or “Plaintiffs”). Defendants, Alphonse
“Buddy” Fletcher, Jr. and Fletcher Asset Management, Inc. (collectively “the Fletcher
Defendants”) have not filed an Opposition to this motion. For the following reasons, the
Court finds that Plaintiffs’ Motion should be granted.
I.

BACKGROUND
The Fletcher Defendants were made party to this action in connection with their

role as the investment manager of a fund called Leveraged, in which Plaintiffs invested,
and allegedly lost, $100 million.2 The Complaint, accusing the Fletcher Defendants and

1
2

Rec. Doc. No. 960.
See, generally, Rec. Doc. No. 1-3.

50254 
Page 1 of 11 

various other individuals and entities of violating various Louisiana securities laws, among
other state law claims, was filed in the 19th Judicial District Court on March 1, 2013 and
removed to this Court on June 11, 2013.3 On July 9, 2013, the Fletcher Defendants filed
a Motion to Dismiss Pursuant to Rule 12(b)(2) For Lack of Personal Jurisdiction.4 This
Court denied that Motion in a September 30, 2016 Ruling.5 Since that Ruling, no answer,
claim, or responsive pleadings have been filed by the Fletcher Defendants. So, on
January 17, 2019, Plaintiffs requested that the Clerk of Court enter a preliminary default
as to the Fletcher Defendants.6 The Clerk did so on January 22, 2019.7
Now, Plaintiffs argue that they are entitled to three default judgments against the
Fletcher Defendants – one for FRS in the amount of $45 million plus interest, one for
MERS in the amount of $40 million plus interest, and one for NOFF in the amount of $15
million plus interest. Plaintiffs claim that they “have satisfied the procedural prerequisites
to entering a default judgment”8 and that the amount of their damages “is a sum certain
or a sum that can be made certain by computation.”9 After considering the relevant
factors, the Court concludes that executing a default judgment is appropriate under the
circumstances.

3

Rec. Doc. No. 1.
Rec. Doc. No. 57.
5
Rec. Doc. No. 324.
6
Rec. Doc. No. 942.
7
Rec. Doc. No. 946.
8
Rec. Doc. No. 960-11, p. 4.
9
Rec. Doc. No. 960-11, p. 1.
4

50254 
Page 2 of 11 

II.

LAW AND ANALYSIS
A. Default Judgment
The United States Court of Appeals for the Fifth Circuit has outlined a three step

process to obtain a default judgment: (1) a defendant's default; (2) a clerk's entry of
default; and (3) a plaintiff’s application for a default judgment.10 The service of summons
or lawful process triggers the duty to respond to a complaint.11 A defendant's failure to
timely plead or otherwise respond to the complaint triggers a default.12 Accordingly, Rule
55 provides that the clerk must enter a party's default “[w]hen a party against whom a
judgment for affirmative relief is sought has failed to plead or otherwise defend, and that
failure is shown by affidavit or otherwise....”13
After the Clerk of Court has found a defendant to be in default, the Court may,
upon motion by a plaintiff, enter a default judgment against the defaulting defendant.14
Default judgments are “generally disfavored in the law” in favor of a trial upon the merits.15
Indeed, default judgments are considered “a drastic remedy, not favored by the Federal
Rules and resorted to by courts only in extreme situations.... [T]hey are ‘available only
when the adversary process has been halted because of an essentially unresponsive

10

See N.Y. Life Ins. Co. v. Brown, 84 F.3d 137, 141 (5th Cir.1996).
Fagan v. Lawrence Nathan Assocs., 957 F.Supp.2d 784, 795 (E.D.La. 2013) (citing Rogers v. Hartford
Life & Accident Ins. Co., 167 F.3d 933, 937 (5th Cir.1999)).
12
N.Y. Life Ins. Co., 84 F.3d at 141.
13
Fed.R.Civ.P. 55.
14
Id.
15
Lacy v. Sitel Corp., 227 F.3d 290, 292 (5th Cir. 2000) (quoting Mason & Hanger–Silas Mason Co. v.
Metal Trades Council, 726 F.2d 166, 168 (5th Cir.1984)).
11

50254 
Page 3 of 11 

party.’”16 Even so, this policy is “counterbalanced by considerations of social goals,
justice and expediency, a weighing process [that] lies largely within the domain of the trial
judge's discretion.”17 In accordance with these guidelines, “[a] party is not entitled to a
default judgment as a matter of right, even where the defendant is technically in default.”18
While “the defendant, by his default, admits the plaintiff’s well-pleaded allegations of fact,”
the Court retains the obligation to determine whether those facts state a claim upon which
relief may be granted.19
Courts have developed a two-part analysis to determine whether a default
judgment should be entered against a defendant.20 First, a court must consider whether
the entry of default judgment is appropriate under the circumstances.21 The factors
relevant to this inquiry include: (1) whether material issues of fact are at issue; (2) whether
there has been substantial prejudice; (3) whether the grounds for default are clearly
established; (4) whether the default was caused by good faith mistake or excusable
neglect; (5) the harshness of a default judgment; and (6) whether the court would think

16

Sun Bank of Ocala v. Pelican Homestead & Sav. Ass'n, 874 F.2d 274, 276 (5th Cir.1989) (quoting H.F.
Livermore Corp. v. Aktiengesellschaft Gebruder Loepfe, 432 F.2d 689, 691 (D.C.Cir.1970)).
17
Rogers, 167 F.3d at 936 (internal citations omitted).
18
Ganther v. Ingle, 75 F.3d 207, 212 (5th Cir.1996); see also Nishimatsu Constr. Co. v. Hous. Nat'l Bank,
515 F.2d 1200, 1206 (5th Cir.1975) (“[A] defendant's default does not in itself warrant the court in entering
a default judgment. There must be a sufficient basis in the pleadings for the judgment entered.”).
19
Nishimatsu Constr. Co., 515 F.2d at 1206; see Lewis v. Lynn, 236 F.3d 766, 767 (5th Cir. 2001) (affirming
the district court's denial of a default judgment because, even if the plaintiff’s factual allegations were found
to be true, the defendants would not have been liable under the law).
20
Taylor v. City of Baton Rouge, 39 F.Supp.3d 807, 813 (M.D.La. 2014); United States v. Chauncey, No.
14–CV–32, 2015 WL 403130, at *1 (M.D.La. Jan. 28, 2015); see also Fidelity & Guaranty Life Ins. Co. v.
Unknown Tr. of Revocable Trust–8407, No. 13–CV–412–PRM, 2014 WL 2091257, at *2 (W.D.Tex. May
16, 2014) (citing cases).
21
See Lindsey v. Price Corp., 161 F.3d 886, 893 (5th Cir.1998).

50254 
Page 4 of 11 

itself obliged to set aside the default on the defendant's motion.22 Second, a court must
assess the merits of the plaintiff's claims and find sufficient basis in the pleadings for the
judgment.23
B. Analysis
1. Jurisdiction to Enter Default Judgment
“A district court has an affirmative duty to look into its jurisdiction both over the
subject matter and the parties before granting a motion for a default judgment, because
‘[a] judgment entered without personal jurisdiction is void.’”24 To that end, the Court notes
that Plaintiffs’ lawsuit was timely removed to this Court pursuant to 28 U.S.C. §1452(a),
and that “related to” bankruptcy subject matter jurisdiction was maintained in this Court
under 28 U.S.C. 1334(b). Indeed, the Fifth Circuit held that “removal was proper based
on the Chapter 11 proceedings, such that the district court had subject matter jurisdiction
at the time of removal.”25 As to personal jurisdiction over the Fletcher Defendants, this
Court previously held, in its Ruling26 on the Fletcher Defendants’ Motion to Dismiss
Pursuant to Rule 12(b)(2) for Lack of Personal Jurisdiction,27 that in the context of the
Federal Rules of Bankruptcy Procedure, which authorizes nationwide service of process,
the district court has personal jurisdiction over any party having minimum contacts with

22

Id.
See Nishimatsu Constr. Co., 515 F.2d at 1206.
24
Fagan v. Lawrence Nathan Assocs., Inc., 957 F. Supp. 2d 784, 791 (E.D. La. 2013), citing Sys. Pipe &
Supply, Inc. v. M/V VIKTOR KURNATOVSKIY, 242 F.3d 322, 324 (5th Cir. 2001).
25
Rec. Doc. No. 222, p. 14.
26
Rec. Doc. No. 324.
27
Rec. Doc. No. 57.
23

50254 
Page 5 of 11 

the United States. By that standard, this Court found that the Fletcher Defendants had
the requisite contacts for this Court to assert personal jurisdiction over them. As such, this
Court has jurisdiction to enter a default judgment in this matter.
2. Plaintiffs’ Entitlement to Default Judgment
It is undisputed that the first two steps in the default judgment process outlined by
the Fifth Circuit – the defendant’s default and the clerk’s entry of default – have occurred.
Now, faced with Plaintiffs’ application for a default judgment, the Court is bound to apply
the factors set forth by the Fifth Circuit in Lindsey for analyzing whether an entry of default
judgment is appropriate under the circumstances. The first factor looks to whether
material issues of fact are at issue in the matter.
Plaintiffs’ argument for a default judgment rests on the allegations in their
Complaint pertaining to Section 712(A)(2) of the Louisiana Securities Act (“LSA”). Section
712(A)(2) prohibits the following conduct:
To offer to sell or to sell a security by means of any oral or written untrue
statement of a material fact of any omission to state a material fact
necessary in order to make the statements made, in light of the
circumstances under which they are made, not misleading, the buyer not
knowing of the untruth or omission, if such person in the exercise of
reasonable care could not have known of the untruth or omission.
A review of the Complaint shows that every element of liability under Section
712(A)(2) can be found in the allegations therein. Plaintiffs assert that the Fletcher
Defendants participated in activities that made them a “seller” of Leveraged; that they
made inaccurate and misleading statements in connection with material facts about the
50254 
Page 6 of 11 

sale; and that Plaintiffs relied upon those statements in deciding to invest in Leveraged.28
The Court’s previous denial of the Fletcher Defendants’ Motion to Dismiss was
limited to the issue of personal jurisdiction and, as such, the issue of whether the
allegations in the Complaint are sufficient to state a claim for LSA liability against the
Fletcher Defendants was not before the Court. However, after reviewing the relevant
portions of the Complaint,29 the Court concludes that Plaintiffs did state an LSA claim
sufficient to pass muster under Federal Rule of Civil Procedure 8, which the Fifth Circuit
has held to be the applicable pleading standard for purposes of default judgment
analysis.30 By the allegations in their Complaint, Plaintiffs stated a claim as to each
element of liability under Section 51:712(A)(2).
The law is clear that a defaulting defendant “admits the plaintiff's well-pleaded
allegations of fact.”31 So, because default results in admission of the well-pleaded
allegations in the Complaint, there are no material issues of fact in play. Looking to the
third and fourth Lindsey factors, the grounds for default are clearly established, and there
is no suggestion that the Fletcher Defendants' default was caused by a good faith mistake
or excusable neglect. Indeed, the fact that the Fletcher Defendants filed a Motion to
Dismiss demonstrates that they were fully aware of the case. All of the above suggests
that the execution of the default judgments could be appropriate.
As to the prejudice factor, Plaintiffs offer no argument on this point, and the Court

28

See Rec. Doc. No. 1-3, p. 37, ¶ 162 et. seq.
Rec. Doc. No. 1-3, ¶ 162 – 184.
30
See, e.g. Wooten v. McDonald Transit Assocs., Inc., 788 F.3d 490, 494 (5th Cir. 2015).
31
Nishimatsu Const. Co. v. Houston Nat. Bank, 515 F.2d 1200, 1206 (5th Cir. 1975)
29

50254 
Page 7 of 11 

declines to speculate as to how this six-year litigation process and the bevy of substantive
motions it generated would have been different if the Fletcher Defendants had not
stopped participating in 2016. Nevertheless, the absence of the Fletcher Defendants, who
were the “investment manager”32 of the Leveraged fund in which Plaintiffs invested, and
allegedly lost, $100 million, arguably frustrated Plaintiffs’ ability to recover in this action.
Next, the Court considers the harshness of a default judgment. On one hand, the
execution of three default judgments in the amount of $100 million does strike the Court
as harsh, especially since it appears that Plaintiffs have cherrypicked as the legal basis
for the default judgments the only claim against the Fletcher Defendants that is not called
into question by this Court’s previous Rulings on the issue of prescription. On the other
hand, the Court finds the harshness of that result mitigated somewhat by the fact that the
Fletcher Defendants were served with the Complaint, made an appearance, and even
filed a Motion to Dismiss before abruptly ceasing to participate in this litigation.
The sixth Lindsey factor asks whether the Court would think itself obliged to set
aside the default on the defendant’s motion. The Fifth Circuit has held that “[i]n
determining whether good cause exists to set aside a default judgment under Rule
60(b)(1) we examine the following factors: ‘whether the default was willful, whether setting
it aside would prejudice the adversary, and whether a meritorious defense is
presented.’”33 It is an inherently speculative exercise for the Court to imagine how it would

32

Rec. Doc. No. 1-3, p. 7.
Jenkens & Gilchrist v. Groia & Co., 542 F.3d 114, 119 (5th Cir. 2008), quoting In re Dierschke, 975 F.2d
181, 183 (5th Cir.1992).
33

50254 
Page 8 of 11 

rule on a hypothetical motion by the Fletcher Defendants to set aside the three default
judgments. In particular, it is difficult to assess, sight unseen, the merits of any defense
they might assert. Nevertheless, the Court finds that there is a willful character to the
default in this case,34 and the Fifth Circuit has repeatedly held that “once a district court
finds that default was willful, the inquiry ceases.”35
The law is clear that default judgments are drastic and disfavored, in favor of a trial
upon the merits. But the default at issue arguably deprived Plaintiffs of the opportunity for
such a trial, at least with respect to the claims against the Fletcher Defendants. The Court
finds that the Lindsey factors all satisfied and that Plaintiffs’ pleadings provide a sufficient
basis for the judgment. Accordingly, the Court finds that the Motion for Default Judgment
shall be granted as to liability.
3. Damages
A defaulting defendant “concedes the truth of the allegations of the Complaint
concerning the defendant's liability, but not damages.”36 A court's award of damages in
a default judgment must be determined after a hearing, unless the amount claimed can
be demonstrated “by detailed affidavits establishing the necessary facts.”37 If a court can

34

See, e.g., UnitedHealthcare Ins. Co. v. Holley, 724 F. App'x 285, 288 (5th Cir. 2018) (affirming district
court’s finding of willful default where the plaintiff “received notice of the lawsuit [but] took no further action
to respond or stay abreast of the status of the litigation against her”). This holding applies a fortiori to the
Fletcher Defendants, who not only received notice of the lawsuit but filed substantive motions before their
default.
35
Id.; see also Dierschke, 975 F.2d at 184–85 (“Willful failure alone may constitute sufficient cause for the
court to deny [the defendant's] motion”); Lacy, 227 F.3d at 292 (“A finding of willful default ends the inquiry”);
Rogers, 167 F.3d at 939 (affirming the district court's denial of defendant's motion to set aside the judgment
on the sole basis that the default was willful).
36
Ins. Co. of the W. v. H & G Contractors, Inc., 2011 WL 4738197, *4 (S.D. Tex., Oct. 5, 2011).
37
United Artists Corp. v. Freeman, 605 F.2d 854, 857 (5th Cir.1979).

50254 
Page 9 of 11 

mathematically calculate the amount of damages based on the pleadings and supporting
documents, a hearing is unnecessary.38
To meet their burden, Plaintiffs offer affidavits from the Director of each of the three
Louisiana Funds and an affidavit from Plaintiffs’ counsel. After reviewing those affidavits
and the accompanying documentation, the Court finds that it cannot calculate the amount
of damages without a hearing. Although the amount that each fund initially invested in
Leveraged has been shown with precision, the Court will set a hearing for Plaintiffs to
present detailed evidence as to how any amounts recovered via the bankruptcy
settlement process, loan repayments, or other sources may have offset the amount of
Plaintiffs’ damages.

38

Joe Hand Promotions, Inc. v. Alima, No. 3:13–CV–0889–B, 2014 WL 1632158, at *3 (N.D. Tex. Apr. 22,
2014) (citing James v. Frame, 6 F.3d 307, 310 (5th Cir.1993)).

50254 
Page 10 of 11 

III.

CONCLUSION
For the reasons stated above, Plaintiffs’ Motion for Default Judgment Against

Defendants, Alphonse “Buddy” Fletcher, Jr. and Fletcher Asset Management, Inc., is
hereby granted as to liability. The Court will set a hearing for Plaintiffs to provide evidence
regarding the amount of damages that are warranted in this case.
IT IS SO ORDERED.
Signed in Baton Rouge, Louisiana on February 22, 2019.

S

CHIEF JUDGE SHELLY D. DICK
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF LOUISIANA

50254 
Page 11 of 11