U.S. Securities and Exchange Commission v. Erwin et al

Filing 22

IT IS ORDERED that the Report & Recommendation 21 is accepted, Defendants' Amended Answer 8 is STRICKEN, and default is hereby entered. IT IS FURTHER ORDERED that the US Securities and Exchange Commission's Motion for Summary J udgment 13 is GRANTED. IT IS FURTHER ORDERED that the US Securities and Exchange Commission shall provide an updated form of Order consistent with this Order and with a recalculation of prejudgment interest on or before 7/10/2015. Signed by Judge Andrew P. Gordon on 6/29/2015. (Copies have been distributed pursuant to the NEF - PS)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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***

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U.S. SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,

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Case No. 2:14-CV-00623-APG-PAL
ORDER

v.
(Dkt. #13, #21)
JAMES LEE ERWIN AND JOINT
VENTURE SOLUTIONS, INC.,
Defendants.

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On December 30, 2014, Magistrate Judge Leen ordered the defendants to obtain counsel
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or defendant James Lee Erwin to indicate he was going to proceed pro se. (Dkt. #15.) When the
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defendants did not respond, Judge Leen issued an order to show cause why the defendants’
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answer should not be stricken and default entered for their failure to comply with her order. (Dkt.
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#16.) The defendants did not respond, and the court’s orders were returned in the mail as
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undeliverable. (Dkt. Nos. 17-20.) On April 9, 2015, Judge Leen recommended I strike the
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defendants’ answer and enter default against them for their willful failure to comply with the
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court’s orders and for their failure to update their addresses. (Dkt. #21.) The defendants did not
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object to this recommendation.
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I conducted a de novo review and Judge Leen’s Report & Recommendation sets forth the
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proper legal analysis and factual basis for the decision. I therefore will strike the defendants’
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answer and enter default against them.
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Although default ordinarily would call for the U.S. Securities and Exchange Commission
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(“SEC”) to move for default judgment and to provide support for any requested remedies, the
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SEC already moved for summary judgment on both liability and the appropriate remedies. The
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defendants did not respond to the motion and are now defaulted in the case. Considering the Eitel
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factors, default judgment is warranted. Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986).
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Because the defendants have ceased participating in the case and have not updated their

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addresses, the SEC is prejudiced by the defendants’ frustration of the court proceedings. The

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SEC has presented evidence on the merits of its case, including evidence that the defendants acted

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as brokers but are not registered brokers, that the joint venture offering and the structured note

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offering were not registered securities, and that defendants offered and sold the securities,

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resulting in sales to five investors. (See, e.g., Dkt. #13-3 at 14, 54-55, 67, 70, 77, 79-102; Dkt.

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#13-4 at 9-26; Dkt. #13-5 at 2-9, 15-42, 44-45, 48; Dkt. #13-6 at 9-11, 49; Dkt. #13-7 at 9-10.)

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The SEC has also presented evidence supporting the calculation of the disgorgement remedy.

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(Dkt. #13-3 at 67; Dkt. #13-6 at 49; Dkt. #13-7 at 23; Dkt. #13-8 at 17, 23.) There is little

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possibility of a dispute concerning material facts given both the defendants’ abandonment of their

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defense and the admissions defendants made in discovery. Default was not due to excusable

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neglect. Rather, as found by Judge Leen, defendants have willfully failed to comply with this

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court’s orders. Finally, although policy favors decisions on the merits, these defendants have

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abandoned their defense, have refused to comply with the court’s orders, and have not maintained

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their contact information with the court. Under these circumstances, default judgment in favor of

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the SEC and against defendants James Lee Erwin and Joint Venture Solutions, Inc. is warranted.

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IT IS THEREFORE ORDERED that the Report & Recommendation (Dkt. #21) is

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accepted, defendants’ amended answer (Dkt. #8) is STRICKEN, and default is hereby entered

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against defendants James Lee Erwin and Joint Venture Solutions, Inc.

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IT IS FURTHER ORDERED that the U.S. Securities and Exchange Commission’s
motion for summary judgment (Dkt. #13) is GRANTED.
IT IS FURTHER ORDERED that the U.S. Securities and Exchange Commission shall

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provide an updated form of order consistent with this order and with a recalculation of

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prejudgment interest on or before July 10, 2015. The disgorgement amount is $129,975, for

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which defendants James Lee Erwin and Joint Venture Solutions, Inc. are jointly and severally

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liable. Consistent with the civil penalties issued in S.E.C. v. Malom Group AG, 2:13-CV-02280-

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GMN-PAL, a related civil action involving similar misconduct, I will issue civil penalties in the

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amount of the gross pecuniary gain. (See Dkt. Nos. 18, 45-46 in 2:13-CV-02280-GMN-PAL);

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S.E.C. v. CMKM Diamonds, Inc., 635 F. Supp. 2d 1185, 1192-93 (D. Nev. 2009). Accordingly,

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the civil penalty for James Lee Erwin is $129,975, and the civil penalty for Joint Venture

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Solutions, Inc. is $129,975.

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DATED this 29th day of June, 2015.

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ANDREW P. GORDON
UNITED STATES DISTRICT JUDGE

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