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Securities and Exchange Commission v. David Souza


March 10, 2011



Due to defendant's incarceration, plaintiff's motion for sanctions was submitted on the papers. Upon review of the documents in support, no opposition having been filed,*fn1 and good cause appearing therefor, THE COURT FINDS AS FOLLOWS: In this civil enforcement action,*fn2 plaintiff alleges defendant violated the federal securities laws by fraudulently representing that he was an investment advisor. Plaintiff further alleges that defendant targeted members of a Redding, California church and diverted funds obtained from its members to cover defendant's personal living expenses.

Plaintiff moves for sanctions due to defendant's failure to comply with this court's discovery orders. Plaintiff seeks to have defendant's answer stricken and default entered.*fn3 The court has authority to impose sanctions for abuses of the discovery process under Rule 37 of the Federal Rules of Civil Procedure. See Wanderer v. Johnston, 910 F.2d 652 (9th Cir.1990). The drastic sanction of default may be imposed only when the sanctioned party's noncompliance was due to willfulness, fault, or bad faith. See Henry v. Gill Indus., 983 F.2d 943, 946 (9th Cir.1993). Five factors must be weighed in determining whether the sanction of default for noncompliance with discovery is appropriate: "(1) the public's interest in expeditious resolution of litigation; (2) the court's need to manage its docket; (3) the risk of prejudice to the [opposing party]; (4) the public policy favoring disposition of cases on their merits; and (5) the availability of less drastic sanctions." Malone v. U.S. Postal Serv., 833 F.2d 128, 130 (9th Cir. 1987). When a party violates a court order, the first and second factors will favor sanctions and the fourth factor will weigh against sanctions. Determination of plaintiff's motion for terminating sanctions thus turns on the third and fifth factors identified in Malone. See Computer Task Group, Inc. v. Brotby, 364 F.3d 1112, 1115 (9th Cir. 2004).

Here, the court finds the third and fifth factor overwhelmingly favor entry of the relief requested by plaintiff. Defendant has repeatedly disobeyed this court's discovery orders. In an order filed June 28, 2010, the court initially directed defendant to make initial disclosures.

See docket no. 50. When defendant failed to comply with that order, plaintiff moved to compel initial disclosures. Plaintiff also moved to compel production of documents. No opposition to those motions were filed by defendant and by order filed September 22, 2010, both motions were granted and defendant was cautioned that failure to comply with the discovery order might result in striking of the answer and entry of default. See docket no. 80. Defendant has again failed to comply with the discovery orders and made no attempt whatsoever to produce relevant documents. The court finds defendant's failure to comply with the court's orders of June 28, 2010 and September 22, 2010 to be willful and in bad faith.

The documents sought by plaintiff are essential to development of plaintiff's case and the failure to produce relevant documents, or admit that the documents do not exist, has precluded plaintiff from proper prosecution of the instant litigation. See, e.g. SEC v. Trabulse, 526 F. Supp. 2d 1008, 1015-16 (N.D. Cal. 2007) (absence of records that investment advisor should have maintained as fiduciary has evidentiary value). Defendant has now been warned three times that his answer would be stricken and default entered if he did not comply with the court's orders or file opposition to the pending motion. See docket nos. 80, 84, 88. Under these circumstances, the court finds no alternative lesser sanction is appropriate. See Wanderer, 910 F.2d at 656 (default appropriate sanction where defendants repeatedly failed to comply with discovery orders); see also Computer Task Group, Inc., 364 F.3d at 1116-17 (alternative of lesser sanctions was appropriately considered where the court anticipates continued lack of cooperation and had put a party of notice that continued failure to cooperate in discovery would result in default). Given the record of defendant's intransigent behavior in defending this action and utter refusal to comply with the court's orders, the court finds upon balancing the five factors set forth above that striking of the answer and entry of default is warranted in this case.

Accordingly, IT IS HEREBY ORDERED that:

1. Plaintiff's motion for sanctions (docket no. 82) is granted.

2. The answer filed on behalf of defendant David A. Souza (docket no. 36) is stricken.

3. The Clerk of Court is directed to enter default against defendant David A. Souza.


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