Opinion
3:21-cv-1018-JR
05-19-2022
RONALD F. GREENSPAN, in his capacity as COURT-APPOINTED RECEIVER for the RECEIVERSHIP ENTITY, including AEQUITAS COMMERCIAL FINANCE, LLC, an Oregon limited liability company, and CAREPAYMENT, LLC, an Oregon limited liability company, Plaintiff, v. MATRIX CAPITAL GROUP, INC., a New York corporation; and JOHN DOES 1-10, Defendants.
FINDINGS & RECOMMENDATION
Jolie A. Russo, United States Magistrate Judge.
Plaintiff, Ronald F. Greenspan (“Receiver”) is a federally-appointed receiver acting pursuant to Federal Rule of Civil Procedure 66, the provisions of 28 U.S.C. §§ 754, 959, and 1692, as well as this Court's April 14, 2016 Order Appointing Receiver (“Receivership Order”) in the United States District Court for the District of Oregon, Portland Division, Case No. 3:16-cv-00438-JR, captioned Securities and Exchange Commission v. Aequitas Management, LLC, et al.
The Receiver was appointed to marshal and preserve all assets of the Receivership Defendants named in the Enforcement Action, as well as their subsidiaries and/or majority-owned affiliates (collectively the “Receivership Entity”). The Receiver is authorized and empowered to investigate claims and commence legal actions for the benefit, and on behalf of the Receivership Entity, as the Receiver deems necessary and appropriate and brings this action for the benefit and on behalf of the Receivership Entity. In this action, the Receiver seeks avoidance of fraudulent transfers.
Because defendant Matrix Capital Group, Inc. has not appeared, the Receiver moves for entry of a default judgment. For the reasons stated below, the motion should be granted.
BACKGROUND
The SEC alleged that Aequitas defrauded investors into believing they were investing in a portfolio of trade receivables in the healthcare, education, transportation, and consumer credit sectors, when in reality new investments largely served to pay prior investors “gains” or redemptions and pay the operating expenses of an expansive and complex enterprise. Complaint (ECF 1) at ¶ 13. On March 31, 2020, this Court determined as a matter of law that Aequitas was operated as a Ponzi scheme at least as early as July 1, 2014. Id. at ¶ 16.
The Receiver alleges that between July 1, 2014, and March 16, 2016, during which Aequitas was operated as a Ponzi scheme (“Ponzi Period”), defendant received transfers directly from Aequitas Capital Management, Inc. (“ACM”) totaling $16,594.50 nominally referred to as commissions. Id. at ¶ 17. During the Ponzi Period, CarePayment transferred funds to CP Leverage I, LLC in the amount of $25,695.21, which then transferred all of such funds to Defendant, nominally referring to such payments as commissions. Id. at ¶ 18. The Receiver alleges he has demanded return of the funds and that the defendant failed to return those funds. Id. at ¶ 19.
The Receiver asserts Aequitas was operating as a Ponzi scheme when the transfers were made with the actual intent to hinder, delay and/or defraud the Aequitas creditors and investors. Creditor and investor claims arose prior and subsequent to the transfers. Id. at ¶ 24. The Receiver also asserts Aequitas did not receive reasonably equivalent value for the transfers made to defendant at a time when Aequitas was (a) insolvent, or (b) engaged in or obligated to do business in relation to which its remaining assets were unreasonably small following the transfers, or (c) intended to incur, or reasonably should have known it would incur, debts beyond its ability to pay at the time of and as a result of the transfers. Id. at ¶¶ 27-28. The Receiver alleges it is not entitled to avoid the transfers.
Finally, the Receiver alleges unless defendant is ordered to pay the Receivership Entity the amount of $42,289.71, together with interest at the statutory rate of 9% from April 15, 2021, until paid in full, defendant will be unjustly enriched in that amount to the detriment of the Receivership Entity entitling the Receiver to a money judgment against defendant for the total indebtedness. Id. at ¶ 33.
DISCUSSION
Plaintiff seeks a judgment of money damages in the amount of $42,289.71 plus interest.
Entry of default is appropriate “[w]hen a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend.” Fed.R.Civ.P. 55(a). A party has no duty to defend, however, unless the plaintiff properly served the defendant with the summons and complaint, or waives such service, pursuant to Federal Rule of Civil Procedure 4. See Murphy Bros., Inc. v. Michetti Pipe Stringing, Inc., 526 U.S. 344, 350 (1999) (“one becomes a party officially, and is required to take action in that capacity, only upon service of a summons”).
Before the Court decides whether to grant default judgment, Federal Rule of Civil Procedure 55(b)(2) requires the Clerk's entry of default. However, entry of a defendant's default does not automatically entitle plaintiff to a court-ordered judgment. See Draper v. Coombs, 792 F.2d 915, 924-25 (9th Cir. 1986). Indeed, a district court has discretion in deciding whether to enter a default judgment. See Al dab e v. Al dab e, 616 F.2d 1089, 1092 (9th Cir. 1980). In exercising this discretion, the court may consider a number of factors: (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 (the Eitel factors). See Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). Additionally, when a party seeks entry of default judgment, courts have a duty to examine their own jurisdiction-both subject matter and personal. See In re Tuli, 172 F.3d 707, 712 (9th Cir. 1999).
This Court has subject matter jurisdiction pursuant to 28 U.S.C. §§ 754, 959, and 1692.
The Court has personal jurisdiction over the defendant because, as alleged in the complaint, defendant has sufficient minimum contacts with Oregon and purposefully availed itself of Oregon's laws and protections. This action arises out of defendant's contacts and business dealings in Oregon.
The Receiver asserts claims for avoidance of actual fraudulent transfers, or constructive fraudulent transfer, or unjust enrichment.
A. Avoidance of Fraudulent Transfers
Under Oregon's Uniform Fraudulent Transfer Act (“UFTA”), “a plaintiff can prevail on a fraud claim in two ways: (1) that the transfer was made ‘with actual intent to hinder, delay, or defraud any creditor[, ]' Or. Rev. Stat. § 95.230(1)(a); or (2) that the transfer constituted constructive fraud due to inadequate consideration for the property conveyed and the insolvency or near insolvency of the debtor. ORS 95.230(1)(b); Or. Rev. Stat. § 95.240.” Doughty v. Birkholtz, 156 Or.App. 89, 964 P.2d 1108, 1112 (1998). Actual intent to defraud can be drawn from the factors of fraud listed in the statute including the value of the consideration and that Aequitas was insolvent during or shortly after the transfer. Or. Rev. Stat. § 95.230(2) (h-i); Morris v. Nance, 132 Or.App. 216, 221, 888 P.2d 571, 575 (1994) (inference of actual intent to be drawn from the presence of listed factors or other suspicious factual circumstances surrounding the transfer). Here, the complaint alleges violation of UFTA. In addition, the complaint alleges entitlement to relief. See Or. Rev. Stat. § 95.260(1)(a) (in action under section 95.230 a creditor may obtain avoidance of the transfer).
B. Eitel Analysis
As noted above, in exercising its discretion to award a default judgment, the Court considers the seven factors under Eitel, 782 F.2d at 1471-72.
(1) Factor One: Possibility of Prejudice to Plaintiff
In assessing this factor, courts have considered whether plaintiff would be without recourse for recovery if the motion for default judgment is denied. See, e.g., J & J Sports Prods., Inc. v. Cardoze, 2010 WL 2757106, at *5 (N.D. Cal. July 9, 2010); PepsiCo, Inc. v. California Sec. Cans, 238 F.Supp.2d 1172, 1177 (C.D. Cal. 2002). Plaintiff has no recourse to obtain relief other than through this action against this defendant.
(2) Factors Two and Three: Merits of Claims and Sufficiency of Complaint
Upon entry of default, this Court must take the well-pleaded factual allegations of the complaint as true. See Geddes v. United Fin. Grp., 559 F.2d 557, 560 (9th Cir. 1977) (“The general rule of law is that upon default the factual allegations of the complaint, except those relating to the amount of damages, will be taken as true.”); Cripps v. Life Ins. Co. of N. Am., 980 F.2d 1261, 1267 (9th Cir. 1992) (“In reviewing a default judgment, this court must take the well-pleaded factual allegations of [the complaint] as true.”).
As noted above, the complaint establishes plaintiff's claims sufficient to prove liability.
(3) Fourth Factor: Sum of Money at Stake
Under the fourth Eitel factor, “the court must consider the amount of money at stake in relation to the seriousness of [defendant's conduct.” PepsiCo, 238 F.Supp.2d at 1176-77; see also J&J Sports Productions, 2010 WL 2757106, at *5 (“a large sum of money at stake would disfavor default damages, ” such as a request for $114,200 in damages); Board of Trustees of the Sheet Metal Workers v. Vigil, 2007 WL 3239281, at *2 (N.D. Cal. Nov. 1, 2007) (“[D]efault judgment is disfavored if there were a large sum of money involved”).
The Receiver seeks $42,289.71 plus interest to recover the fraudulent transfer. Courts balance the amount of damages against the other Eitel factors. See Craigslist, Inc. v. Naturemarket, Inc., 694 F.Supp.2d 1039, 1060 (N.D. Cal. 2010) (holding that damages in the range of one to five million dollars did not defeat entry of default judgment when the defendant had engaged in willful infringement and refused to respond to allegations in the lawsuit); see also Khraibut v. Chahal, 2021 WL 1164940, at *15-25 (N.D. Cal. Mar. 26, 2021) (allowing total judgment of $1,735,442.20 for workplace discrimination, breach of contract, failure to pay wages, retaliation and fraudulent misrepresentation). Given the seriousness of the conduct in failing to return funds earned during a Ponzi scheme, this factor favors granting judgment as requested. See Rode v. Credio, 2016 WL 5339682, at *5 (D. Ariz. Aug. 3, 2016), report and recommendation adopted, 2016 WL 5109866 (D. Ariz. Sept. 20, 2016) (In light of the egregious conduct alleged to have occurred, the Court finds the judgment plaintiff seeks of $175,000 is proportional to the defendant's alleged conduct).
“The general rule is that upon default the factual allegations of the complaint, except those relating to the amount of damages, will be taken as true.” Geddes v. United Fin. Grp., 559 F.2d 557, 560 (9th Cir. 1977). Thus, “a default judgment for money may not be entered without a hearing unless the amount claimed is a liquidated sum or capable of mathematical calculation.” See Davis v. Fendler, 650 F.2d 1154, 1161 (9th Cir. 1981). Here, $42,289.71 is directly traceable to funds transferred from Aequitas Capital Management to defendant for “commissions or referral fees.” The Receiver provides the Court with spreadsheets precisely calculating the transfers during the Ponzi Period based on Aequitas' general ledger. See Declaration of Larissa Gotguelf at Exhibit 1 (ECF 17 at p. 4). In addition, Or. Rev. Stat. § 82.010(1)(a) provides for interest payable for all monies after they become due so long as the amount is ascertainable by simple computation. Wilson v. Smurfit Newsprint Corp., 197 Or.App. 648, 673, 107 P.3d 61, rev dismissed, 339 Or. 407, 122 P.3d 65 (2005). The applicable interest rate is nine percent. Or. Rev. Stat. 82.010(1).
(4) Fifth Factor: Possibility of Dispute Over Material Facts
In addressing the fifth factor, the Court considers whether a dispute concerning material facts exists. As mentioned above, “[u]pon entry of default, all well-pleaded facts in the complaint are taken as true, except those relating to damages.” PepsiCo, 238 F.Supp.2d at 1177. Thus, “[t]he fifth factor . . . weighs in favor of default judgment when the claims in the complaint are well-pleaded.” Joe Hand Prods. v. Holmes, 2015 WL 5144297, at *7 (D. Or. Aug. 31, 2015). Otherwise stated, “[b]ecause all allegations in a well-pleaded complaint are taken as true after the court clerk enters default judgment, there is no likelihood that any genuine issue of material fact exists.” Elektra Entm't Grp., Inc. v. Crawford, 226 F.R.D. 388, 393 (C.D. Cal. 2005).
In accordance with this Court's Order entered on April 21, 2022, granting Plaintiff's Amended Motion for Entry of Default as to defendant Matrix Capital Group, Inc., and this matter
(5) Sixth Factor: Excusable Neglect
The sixth factor pertains to the possibility that the default resulted from excusable neglect. There is no evidence of excusable neglect.
(6) Seventh Factor: Policy Favoring Decisions on the Merits
Factor seven is “the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits, ” specifically the policy that “[c]ases should be decided upon their merits whenever reasonably possible.” Eitel, 782 F.2d at 1472. However, “this policy, standing alone, is not dispositive, especially where a defendant fails to appear or defend itself in an action.” Joe Hand Promotions, Inc. v. Machuca, 2014 WL 1330749, at *6 (E.D. Cal. Mar. 31, 2014). Where a defendant has failed to answer a complaint, it “makes a decision on the merits impractical, if not impossible.” PepsiCo, 238 F.Supp.2d at 1177. Fed.R.Civ.P. 55 allows the court to terminate a case before a hearing on the merits when a defendant fails to defend an action. Id. Thus, the preference to decide cases on the merits does not preclude a court from granting default judgment. PepsiCo, 238 F.Supp.2d at 1177.
In this action, a decision on the merits is impossible because defendant failed to appear, plead, or defend this action. Additionally, all other factors weigh in favor of a default judgment. Therefore, the seventh factor is not dispositive, and the Court is not precluded from entering a default judgment against defendant.
CONCLUSION
The Receiver's motion for default judgment (ECF 16) should be granted. Judgment should be entered as follows: having come before the Court on Plaintiff's Motion for Default Judgment, and the Court being fully advised in the premises, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that plaintiff is awarded a judgment and money award against defendant Matrix Capital Group, Inc. as follows:
1. In the principal amount of $42,289.71, plus interest accruing on the principal amount at the rate of 9% per annum from April 15, 2021, until fully paid; and
2. For plaintiff's costs to be determined under Fed.R.Civ.P. 54(d).
This recommendation is not an order that is immediately appealable to the Ninth Circuit Court of appeals. Any notice of appeal pursuant to Rule 4(a)(1), Federal Rules of Appellate Procedure, should not be filed until entry of the district court's judgment or appealable order. The parties shall have fourteen (14) days from the date of service of a copy of this recommendation within which to file specific written objections with the court. Thereafter, the parties shall have fourteen (14) days within which to file a response to the objections. Failure to timely file objections to any factual determination of the Magistrate Judge will be considered as a waiver of a party's right to de novo consideration of the factual issues and will constitute a waiver of a party's right to appellate review of the findings of fact in an order or judgment entered pursuant to this recommendation.