Cutcliff et al v. Reuter et al

Filing 93

ORDER entered by Judge Nanette Laughrey. Plaintiff's Motion for Order Awarding Damages and Attorneys' Fees, 83 , is GRANTED. The Court concludes that Judge Dow's proposed findings, 87 , should be adopted and a default judgment should be entered against Vertical Group, LLC. (Cross, Ashley)

UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
CENTRAL DIVISION
TANA S. CUTCLIFF, et al.,
Plaintiffs,
v.
NATHAN P. REUTER, et al.,
Defendants.

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Case No. 2:06-cv-04123-NKL

ORDER
Plaintiffs’ Motion for Order Awarding Damages and Attorneys’ Fees [Doc. # 83]
was referred to Bankruptcy Judge Dennis Dow. He has now submitted Proposed
Findings of Fact and Law. After a de novo review of the record, the Court concludes that
Judge Dow’s proposed findings [Doc. # 87] should be adopted and a default judgment
should be entered against Vertical Group, LLC.
I.

Background
Plaintiffs sued Vertical Group, LLC for fraud arising out of a Ponzi scheme.

Nathan Reuter was a co-defendant and Katherine Reuter is an intervenor. After Vertical
Group failed to defend, the Court entered default against it. [Doc. # 52]. In the
meantime, Nathan Reuter filed for bankruptcy and a judgment was entered against him
by Judge Dow. Subsequently Plaintiff filed its Motion for Order Awarding Damages and
Attorneys’ Fees [Doc. # 83] against Vertical Group. The motion was referred to Judge
Dow because of his familiarity with the dispute. Nathan and Kathleen Reuter have filed

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objections to Judge Dow’s proposed findings and to any entry of final judgment against
Vertical Group [Docs. ## 84, 85, 88, 89, 92].
II.

Discussion
A.

Referral to Judge Dow of Issues Relating to Vertical Group

Co-Defendants Nathan and Kathleen Reuter argue the Bankruptcy Court lacks
subject matter jurisdiction under 42 U.S.C. § 1334(b) to enter findings of fact,
conclusions of law, and a final judgment against Vertical Group. [Docs. ## 84, 85, 88,
92]. Because Judge Dow is not entering any judgment against Vertical Group, the
Reuters’ objection to his subject matter jurisdiction is without merit. It is this Court that
has subject matter jurisdiction and must make a de novo review of the record before
entering any default judgment against Vertical Group.
B.

Entry of Clerk’s Judgment

Nathan Reuter first argues the Court erred in entering a default judgment against
Vertical Group under Federal Rules of Civil Procedure Rule 55(b)(1) because that rule
only applies when a sum certain is owed and the amount is clear on the face of the
complaint.

Mr. Reuter’s argument fails because the Court clearly intended its order of

May 21, 2007 (Doc. # 45), to be an entry of default against Vertical Group and not an
order assessing damages. Even though the term default judgment was used, the order
does not reference damages and only mentions Vertical Group’s lack of interest in
defending. The Clerk’s Judgment (Doc. # 52) is merely a formal recognition of this entry
of default. Therefore, no judgment, either under Rule 55(b)(1) or (2), has been entered
previously. There has only been an entry of default which precludes Vertical Group from
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denying the facts contained in the Complaint which are necessary to establish liability. It
is for this reason that Plaintiffs’ submitted a Motion for Damages and Attorney Fees and
it is the purpose of this Order to assess damages and award attorney fees pursuant to Rule
55(b)(2).
C.

Vertical Group’s Classification as a Partnership

Nathan and Kathleen Reuter argue final judgment against Vertical Group is barred
by claim preclusion and judicial estoppel because Vertical Group has been classified as a
“partnership” by both the Bankruptcy Appellate Panel for the Eighth Circuit and the
Eighth Circuit Court of Appeals. The Reuters argue that because Vertical Group is a
“partnership,” it is not regarded as a separate legal entity and cannot be sued for the
actions of its individual partners, Daryl Woods and Nathan Reuter. [Docs. ## 88, 89].
The Reuters also contend Daryl Woods and Nathan Reuter sometimes operated as a
partnership separate from and outside of Vertical Group, and that therefore, “Vertical
could not have been the vehicle by which Brown and [Reuter] perpetrated the Ponzi
Scheme.” [Doc. #88, at p. 6]. The Reuters’ arguments on behalf of Vertical Group come
too late. To what extent Vertical Group is liable for the acts of Daryl Woods and Nathan
Reuter and to what extent Daryl Woods and Nathan Reuter acted outside or inside the
confines of Vertical Group are all arguments Vertical Group could have raised before an
entry of default was entered against it. Those are all liability arguments which it lost
when it failed to defend itself.
Further, to the extent the Reuters argue Daryl Woods or Nathan Reuter have been
held liable for portions of the wrongdoing, this argument is not relevant to and does not
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preclude default judgment against Vertical Group. At most, these arguments are relevant
to subsequent questions of joint and several liability and contribution claims.
D.

Calculation of Damages

“When a default judgment is entered on a claim for an indefinite or uncertain
amount of damages, facts alleged in the complaint are taken as true, except facts relating
to the amount of damages, which must be proved in a supplemental hearing or
proceeding.” Everyday Learning Corp. v. Larson, 242 F.3d 815, 818 (8th Cir. 2001). ‘“It
is a familiar practice and an exercise of judicial power for a court upon default, by taking
evidence when necessary or by computation from facts of record, to fix the amount which
the plaintiff is lawfully entitled to recover and to give judgment accordingly.”’
Stephenson v. El-Batrawi, 524 F.3d 907, 915-16 (8th Cir. 2008) (quoting Pope v. United
States, 323 U.S. 1, 12 (1944)). “The need for a hearing is within the sound discretion of
the district court under [Rule] 55(b)(2)(B)” and a hearing is not needed where the record
sufficiently supports the district court’s damages award. Stephenson, 524 F.3d at 916.
Having reviewed the record de novo, the Court will take as true the facts alleged in
Plaintiffs’ Complaint except for facts relating to damages. The Court has also considered
Plaintiffs’ sworn affidavits. The Court finds Plaintiffs’ affidavits credible and sufficient
to determine damages against Vertical Group. Neither Nathan nor Kathleen Reuter
contests the credibility of these affidavits.
Kathleen Reuter objects to any punitive damages being assessed against Vertical
Group because only the actions of Nathan Reuter and Daryl Brown might justify punitive
damages – not any action by Vertical Group. [Doc. # 88]. Under Missouri law, a court
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may only award punitive damages against a defaulting defendant upon the plaintiff
producing substantial evidence that demonstrates that imposition of punitive damages is
warranted under the factors set forth by the Supreme Court in BMW of North America v.
Gore, 517 U.S. 559 (1996). Duvall v. Maxey, 249 S.W.3d 216, 223-24 (Mo. Ct. App.
2008). Taking the facts of the Amended Complaint as true, Vertical Group lured small
businesses into a bait-and-switch investment relationship, whereby it defrauded and stole
money from corporations, individuals, and trusts using a “Ponzi” scheme. The Court
agrees with Judge Dow’s finding that punitive damages against Vertical are appropriate
here and finds that Judge Dow’s 2:1 punitive damage ratio is not excessive. Plaintiffs
were financially vulnerable and Vertical Group engaged in repeated, reprehensible
conduct that subjected Plaintiffs to intentional malice, trickery, and deceit. The fact that
Brown and Reuter engaged in this conduct does not preclude the entry of punitive
damages against Vertical Group.
For these reasons, the Court adopts Judge Dow’s proposed Findings of Fact and
Conclusions of Law.
E.

Plaintiffs’ Interest in Kathleen Reuter’s Trust and Nathan Reuter’s
Liability for Vertical Group

Nathan Reuter argues that Judge Dow’s proposed findings of fact suggest that
should Plaintiffs become judgment creditors of Vertical Group, the Plaintiffs will be
holders of an interest in Kathleen Reuter’s trust, of which Nathan Reuter is a co-trustee.
Nathan Reuter seeks to clarify that the Bankruptcy Court has found that the trusts contain
spendthrift clauses and that the bankruptcy estate’s interest in Kathleen Reuter’s trust is
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confined to the bankruptcy trustee’s right to act as a co-trustee. Kathleen Reuter also
contends Plaintiffs have failed to articulate a reasonable legal claim as to how Nathan
Reuter may be personally liable for a judgment against Vertical Group is not relevant to
entering a judgment against Vertical Group.
These arguments may be relevant to questions of joint and several liability or in
the event Plaintiffs seek a creditor’s bill against Nathan Reuter, but neither of these
arguments are relevant to whether a final default judgment should be entered against
Vertical Group. They are not appropriately addressed at this stage of litigation.
III.

Conclusion and Final Judgment
The Court has reviewed de novo Plaintiffs’ claims for damages. Finding Nathan

and Kathleen Reuter’s objections without merit, the Court adopts the proposed findings
of fact and conclusions of law submitted by Judge Dow and enters final judgment against
Vertical Group, LLC as follows:
Plaintiff
LaDonna
Henderson
Michael
Trom
James A.
“Tony”
Fields
James D.
“Jim” Fields
Patricia
Reitz
James
Haeflinger
Tana
Cutcliff

Actual
Damages

Interest

Punitive
Damages

Attorney
Fee Award

Total

$292,728.00

$57,551.13

$585,456.00

$13,975.42

$949,710.55

$175,000.00

$37,819.18

$350,000.00

$8,152.33

$570,971.51

$100,000.00

$19,068.49

$200,000.00

$4,658.47

$323,726.96

$50,000.00

$9,534.25

$100,000.00

$2,329.24

$161,863.49

$50,000.00

$9,534.25

$100,000.00

$2,329.24

$161,863.49

$100,000.00

$19,506.85

$200,000.00

$5,390.52

$324,897.37

$50,000.00

$9,643.84

$100,000.00

$2,695.26

$162,339.10

6

Terry
Schippers
James
Teegarden

$50,000.00

$9,490.41

$100,000.00

$2,695.26

$162,185.67

$50,000.00

$9,819.18

$100,000.00

$2,695.26

$162,514.44

s/ Nanette K. Laughrey
NANETTE K. LAUGHREY
United States District Judge
Dated: January 21, 2014
Jefferson City, Missouri

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