United States District Court, C.D. California
ORDER GRANTING PLAINTIFF’S MOTION FOR DEFAULT
L. REAL UNITED STATES DISTRICT JUDGE
the Court is Plaintiff’s Motion for Default Judgment,
which was filed on May 25, 2016 (Dkt. No. 17). This matter
was taken under submission on June 28, 2016.
has the discretion to enter a default judgment against one
who is not an unrepresented infant or other incompetent
person where the complaint is for an amount that is not
certain on the face of the complaint and where (a) the
defendant has been served with the complaint; (b) the
defendant's default has been entered for failure to
appear; (c) if the defendant has appeared in the action, the
defendant has been served with written notice of the
application at least three days before the hearing on the
application; (d) the court has undertaken any necessary or
proper investigation or hearing in order to enter judgment or
carry it into effect; and (e) plaintiff has filed a written
affidavit addressing the current military status of the
defendant. Fed.R.Civ.P. 55(b)(2); Alan Neuman Prods. v.
Albright, 862 F.2d 1388, 1392 (9th Cir. 1988).
the power to grant or deny relief upon an application for
default judgment is within the Court's sound discretion,
a plaintiff must state a claim upon which he may recover in
order to grant the motion for a default judgment. Sony
Music Entm’t v. Elias, 2004 WL 141959 (C.D. Cal.,
Jan. 20, 2004); Pepsico, Inc. v. Cal. Sec. Cans, 238
F.Supp.2d 1172, 1175 (C.D. Cal. 2002). Upon default, the
well-pleaded allegations of the complaint relating to
liability are taken as true. TeleVideo Sys., Inc. v.
Heidenthal, 826 F.2d 915, 917 (9th Cir. 1987). On the
other hand, a defendant is not held to admit facts that are
not well-pleaded or to admit conclusions of law.
Wecosign, Inc. v. IFG Holdings, Inc., 845 F.Supp.2d
1072 (C.D. Cal. 2012).
Ninth Circuit has articulated the following factors for
courts to consider in determining whether default judgment
should be granted:
(1) the possibility of prejudice to the plaintiff, (2) the
merits of plaintiff's substantive claim, (3) the
sufficiency of the complaint, (4) the sum of money at stake
in the action; (5) the possibility of a dispute concerning
material facts; (6) whether the default was due to excusable
neglect, and (7) the strong policy underlying the Federal
Rules of Civil Procedure favoring decisions on the merits.
Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir.
1986). When analyzing the Eitel factors, the Court
takes all factual allegations in the complaint as true,
except for those relating to damages. TeleVideo Sys.,
Inc., 826 F.2d at 917-18.
was served, failed to appear, failed to respond, and had a
clerk’s default entered against him on May 10, 2016
(Dkt. No. 15). Defendant is neither a minor, incompetent
person, nor in military service.
reviewing the Complaint and Motion for Default Judgment, the
Eitel factors appear to have been met in this case.
The first Eitel factor examines the possibility of
prejudice to Plaintiff. Defendant has failed to appear and
defend this action. Absent entry of default judgment,
Plaintiff will be without recourse against Defendant, and
risk continuing violation of Plaintiff’s rights.
Therefore, this factor weighs in favor of the entry of
second and third Eitel factors examine the merits
and sufficiency of the Complaint. Plaintiff’s Complaint
alleges six causes of action for: (1) Violations of Section
17(a)(1) and (3) of the Securities Act; (2) Violations of
Section 17(a)(2) of the Securities Act; (3) Violations of
Section 10(b) of the Exchange Act and Rules 10b-5(a) and (c);
(4) Violations of Section 10(b) of the Exchange Act and Rules
10b-5(b); (5) Violations of Section 15(a) of the Exchange
Act; and (6) Violations of Section 20(a) of the Exchange Act.
establish its Claims for the violations of anti-fraud
provisions (Claims for Relief 1-4), the Plaintiff must show
“the defendant (1) made a material misrepresentation or
omission (2) in connection with the purchase of a sale or
security (3) with scienter (4) in interstate commerce.”
S.E.C. v. Platforms Wireless Intern. Corp., 617 F.3d
1072, 1092 (9th Cir. 2010); see also S.E.C. v.
Power, 525 F.Supp.2d 415, 419-22 (S.D.N.Y. 2007). First,
Plaintiff’s Complaint alleges that Defendant provided
false information concerning the investment transactions at
issue and the credentials of the parties involved. Second,
Plaintiff claims Defendant provided this information in order
to induce third parties to purchase stock. Third, Defendant
knew these actions were improper as evidenced by
Defendant’s use of fictitious names. Finally, Defendant
used the mails, telephones, and other channels of interstate
commerce to conduct the scheme. Taking all of the well-pleded
allegations as true, the first four Causes of Action are
sufficiently pled and meritorious to proceed with default
establish a claim for the violation of broker-deal
registration provisions under Section 15(a) of the Exchange
Act (Fifth Claim for Relief), Plaintiff must demonstrate that
Defendant “engaged in the business of effecting
transactions in securities for the account of others, ”
without having been registered with the SEC. S.E.C. v.
Wilde, 2012 WL 6621747, *14 (C.D. Cal. Dec. 17, 2012).
Plaintiff properly asserts that Defendant engaged in the sale
of securities with multiple people on multiple occasions,
despite not having been registered with the SEC.
establish a claim for control person liability under Section
20(a) of the Exchange Act (Sixth Claim for Relief), Plaintiff
must demonstrate that “(1) there is a violation of the
Act and (2) the defendant directly or indirectly controls any
person liable for the violation.” S.E.C. v.
Todd, 642 F.3d 1207, 1223 (9th Cir. 2011). As explained
above, the Complaint adequately lays out a violation of the
Exchange Act. The Complaint also lays out how Defendant both
participated in the scheme, and controlled the other
participants in the scheme. The second and third
Eitel factors therefore both weigh in favor of
granting default judgment.
next Eitel factor examines the amount of money at
stake in relation to the seriousness of a defendant’s
conduct. Wecosign, Inc., 845 F.Supp.2d at 1082.
Default judgment is disfavored when a large amount of money
is involved and is unreasonable in light of the potential
loss caused by the defendants’ actions. Vogel v.
Rite Aid Corp., 992 F.Supp.2d 998, 1012 (C.D. Cal.
2014). Plaintiff here requests only the disgorgement of
ill-gotten gains, civil penalties, and prejudgment interest.