Securities and Exchange Commission v. Malom Group AG et al
Filing
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ORDER Granting 39 Motion to Vacate re 44 Amended Judgment. Therefore, the Amended Final Judgment is hereby VACATED. Signed by Chief Judge Gloria M. Navarro on 4/14/15. (Copies have been distributed pursuant to the NEF - TR)
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UNITED STATES DISTRICT COURT
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DISTRICT OF NEVADA
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SECURITIES AND EXCHANGE
COMMISSION,
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Plaintiff,
vs.
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MALOM GROUP AG, et al.
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Defendants.
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Case No.: 2:13-cv-02280-GMN-PAL
ORDER
Pending before the Court is the Motion to Vacate Final Judgment (ECF No. 39) filed by
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Defendant James C. Warras (“Defendant”). Plaintiff United States Securities and Exchange
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Commission (“Plaintiff” or “SEC”) filed a Response (ECF No. 41). For the reasons discussed
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below, Defendant’s Motion is GRANTED.
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I.
BACKGROUND
Plaintiff filed its Complaint on December 16, 2013, alleging violations of various
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provisions of the Securities Act and Exchange Act. (Compl. ¶¶ 195–212, ECF No. 1).
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Defendant failed to timely file an Answer, and Plaintiff filed a Motion for Entry of Clerks
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Default on January 23, 2014 (ECF No. 14), which was granted on January 24, 2014 (ECF No.
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15). On February 10, 2014, Plaintiff filed a Motion for Judgment (ECF No. 18), which the
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Court granted on September 15, 2014 (ECF No. 37) and amended on October 9, 2014 (ECF
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No. 44). However, before the Court entered default judgment against Defendant, Defendant
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filed an untimely Answer on March 14, 2014 (ECF No. 23), and Defendant filed the instant
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motion on September 29, 2014 (ECF No. 39).
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II.
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LEGAL STANDARD
In considering a motion to set aside a default judgment under Rule 60(b) of the Federal
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Rules of Civil Procedure, three factors should be evaluated: (1) whether the plaintiff will be
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prejudiced, (2) whether the defendant has a meritorious defense, and (3) whether culpable
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conduct of the defendant led to the default. Falk v. Allen, 739 F.2d 461, 463 (9th Cir. 1984). In
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taking these factors into account, the court is sensitive to the principle that default judgments
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are generally disfavored, so courts should attempt to resolve motions for default judgment to
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encourage a decision on the merits. See McMillen v. J .C. Penney Co., 205 F.R.D. 557, 558 (D.
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Nev. 2002) (citing TCI Group Life Ins. Plan v. Knoebber, 244 F.3d 691, 696 (9th Cir. 2001);
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see also United States v. Signed Personal Check No. 730 of Yubran S. Mesle, 615 F.3d 1085,
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1091 (9th Cir. 2010) ( “Crucially, however, ‘judgment by default is a drastic step appropriate
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only in extreme circumstances; a case should, whenever possible, be decided on the merits.’”
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(citing Falk, 739 F.2d at 463)).
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III.
DISCUSSION
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A.
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“[A] defendant's conduct is culpable if he has received actual or constructive notice of
Culpable Conduct
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the filing of the action and intentionally failed to answer.” TCI Group, 244 F.3d at 697 (quoting
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Alan Neuman Productions, Inc. v. Albright, 862 F.2d 1388, 1392 (9th Cir. 1988)). Moreover,
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with regards to whether a defendant intentionally failed to answer, the Ninth Circuit has held
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“that a movant cannot be treated as culpable simply for having made a conscious choice not to
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answer; rather, to treat a failure to answer as culpable, the movant must have acted with bad
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faith, such as an ‘intention to … manipulate the legal process.’” Signed Personal Check No.
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730, 615 F.3d at 1092 (quoting TCI Group, 244 F.3d at 697). Thus, “a defendant's conduct was
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culpable for purposes of the [good cause] factors where there is no explanation of the default
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inconsistent with a devious, deliberate, willful, or bad faith failure to respond.” TCI Group, 244
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F.3d at 698.
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Here, Defendant asserts that he filed an Answer to the Complaint and was never
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informed by Plaintiff that “a motion to file late answer was necessary.” (Mot. to Vacate ¶ 1,
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ECF No. 39). Moreover, Defendant asserts that the reasons for his untimely Answer are
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contained in the Answer. (Id.). In his Answer, Defendant explains that he filed late for the
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following reasons: (1) unfamiliarity with the rules of the Court; (2) significant medical
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procedures from February 2012 to September 2013; and (3) in speaking with his appointed
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criminal attorney, he was “under the opinion that the Criminal Complaint took precedence over
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the SEC complaint so the SEC complaint did not need to be answered.” (Answer ¶ 1, ECF No.
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23). Accordingly, the Court finds that Defendant’s untimeliness was not due to bad faith with
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an intention to manipulate the legal process. Therefore, this factor weighs in favor of vacating
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the default judgment.
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B.
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“A defendant seeking to vacate a default judgment must present specific facts that would
Meritorious Defense
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constitute a defense. But the burden on a party seeking to vacate a default judgment is not
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extraordinarily heavy.” TCI Group, 244 F.3d at 700 (citations omitted). “All that is necessary
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to satisfy the ‘meritorious defense’ requirement is to allege sufficient facts that, if true, would
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constitute a defense.” Signed Personal Check No. 730, 615 F.3d at 1094 (citing TCI Group, 244
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F.3d at 700).
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Here, Defendant raises multiple defenses in the instant motion. First, Defendant asserts
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that he “has not been involved in any transaction when they occurred,” and “[n]one of the
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parties named in the complaint as victims were relying in their decisions to enter into such
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transaction on the Defendant as they did not know the Defendant at that point in time.” (Mot. to
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Vacate ¶ 2). Second, Defendant asserts that “the transactions wrongly described and referred to
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in the Complaint do not represent Securities as defined in Securities Act § 2(a)(l) and Exchange
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Act§ 3(a)(10) as they are Joint Venture Agreement or Funding Commitments with a maturity of
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a few month only and not investment contracts a stipulated by Plaintiff.” (Id. ¶ 3). Third,
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Defendant asserts that “the contracts in question are based on Swiss law and any civil action
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has therefore to take place in Zurich, Switzerland.” (Id.). Fourth, Defendant asserts that the
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alleged victims would not have been the investors under the Joint Venture Agreements. (Id. ¶
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5).
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Although Defendant does not develop these defenses in the instant motion, the Court
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finds that Defendant has met the minimal burden of demonstrating a potentially meritorious
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defense. Accordingly, this factor weighs in favor of vacating the default judgment.
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C.
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“To be prejudicial, the setting aside of a judgment must result in greater harm than
Prejudice
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simply delaying resolution of the case.” TCI Group, 244 F.3d at 701. Similarly, requiring a
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plaintiff to adjudicate a claim on the merits does not constitute prejudice. Id. Rather, the delay
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must result in some tangible harm, such as “loss of evidence, increased difficulties of
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discovery, or greater opportunity for fraud or collusion.” Id. (quotation omitted).
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Here, Defendant filed the instant motion two weeks after the Court entered default
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judgment. Moreover, Plaintiff has not informed the Court of any tangible harm that would
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result in delaying resolution of the case. Accordingly, the Court finds that Plaintiff would not
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be prejudiced if the default judgment against Defendant was vacated. Therefore, this factor
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weighs in favor of vacating the default judgment. In summary, because all of the factors weigh
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in favor of vacating the default judgment, the Court grants Defendant’s Motion to Vacate.
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IV.
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CONCLUSION
IT IS HEREBY ORDERED that Defendant’s Motion to Vacate Final Judgment (ECF
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No. 39) is GRANTED. Therefore, the Amended Final Judgment (ECF No. 44) is hereby
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VACATED.
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DATED this 14th day of April, 2015.
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Gloria M. Navarro, Chief Judge
United States District Court
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