Opinion
Civil No. 99-2276 (JBS).
December 20, 2002
William A. Harvey, Esquire, Marc H. Stofman, Esquire, Klehr, Harrison, Harvey, Branzburg Ellers, LLP, Cherry Hill, New Jersey, Attorneys for Plaintiffs.
OPINION UPON MOTION FOR DEFAULT JUDGMENT
This matter is before the Court upon motion of plaintiffs, Miles and Rosalie C. Lerman, for default judgment against defendant Rhett H. Kirchhoff, pursuant to Rule 55(b)(2), Fed.R.Civ.P. The Court makes the following findings based upon the evidence presented by plaintiffs, and it will direct the Clerk to enter default judgment against Rhett H. Kirchhoff and in favor of Miles Lerman in the amount of $1,069,371, and in favor of Rosalie C. Lerman in the amount of $733,328.
PROCEDURAL HISTORY
As relevant to the present motion, plaintiffs' complaint alleged that defendant Rhett Kirchhoff was entrusted as a securities broker with the investment of plaintiffs' accounts, and that he misappropriated the Lermans' investment funds and made excessive purchases of high-risk penny stocks without their knowledge or consent. Kirchhoff supplied false and incomplete documentation to the Lermans and their bookkeeper (who was also his wife's aunt), Mrs. Ruth Ginsburg. Kirchhoff lied to Mrs. Ginsburg about these transactions and about his borrowing from the Lermans' margin accounts. As a result of Kirchhoff's fraudulent dealings, the Lermans together lost several million dollars of investment funds.
The Court's prior Opinions and Orders herein, filed June 30, 2000, and March 27, 2002, give a more complete statement of the plaintiffs' allegations. Those Opinions are incorporated by reference.
Plaintiffs' claims against Kirchhoff arise under § 10(b) of the Securities and Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78j(6) and Rule 10b-5 promulgated thereunder for material misrepresentation and omissions in the sale of TSIG stock, for churning and unsuitability; for violation of § 20 of the Exchange Act for control person liability; for violation of the New Jersey Uniform Securities Act; and for common law claims of fraudulent inducement, conversion, negligence and common law fraud.
Plaintiffs further allege, and must demonstrate in this motion, that their claims against Kirchhoff are not dischargeable under Section 523 of the Bankruptcy Code, due to Kirchhoff's fraudulent conduct, which is the threshold issue due to Kirchhoff's filing of bankruptcy in 2000.
In addition to the instant action, the Lermans filed an adversary proceeding against Mr. Kirchhoff in his bankruptcy action pending in the United States Bankruptcy Court for the District of New Jersey, Case No. 00-14062/JHW, Adversary No. 00-1235. On October 19, 2000, the Honorable Judith H. Wizmur, U.S.B.J., entered an Order granting the Lermans relief from the automatic stay to adjudicate their complaint against Mr. Kirchhoff in this action, conditioned upon the requirement that the nondischargeability causes asserted by the Lermans were added to this action. In accordance therewith, on October 24, 2000, this Court entered a companion Order permitting the Lermans to file an amended pleading adding the nondischargeability causes of action which had been asserted in the adversary proceeding.
This Court has subject matter jurisdiction under 28 U.S.C. §§ 1331 and 1367, since plaintiffs have alleged substantial claims arising under federal law, and since their state statutory and common law claims under New Jersey law arise from the same transactions and occurrences, giving rise to supplemental jurisdiction.
I. STANDARD FOR DEFAULT JUDGMENT
By November 6, 2002, it had long been apparent that Rhett Kirchhoff had ceased participation in this litigation or defending the claims against him. Kirchhoff failed to appear at the Final Pretrial Conference on September 13, 2002; he failed to participate in the formulation of the Joint Final Pretrial Order (filed September 24, 2002); and he failed to attend the Settlement and Trial Logistics Conference on November 4, 2002, despite due notice. The Court entered an Order to Show Cause on November 6, 2002, to give Mr. Kirchhoff a final opportunity to appear, defend and explain his prior absences, setting a hearing for November 15, 2002. Kirchhoff failed to appear at the November 15th hearing or to submit opposition. Thus, on November 25, 2002, the Court entered an Order which, among other things, defaulted Rhett Kirchhoff for failure to obey the Court Orders and directives to appear.
The default was entered as a sanction under Rule 16(f), Fed.R.Civ.P. Such a default is entirely proper in order to maintain and enforce the effective preparation and management of a civil case. Where a party-defendant drops out and repeatedly refuses to participate, ignoring the orderly processes of the Court expressed in Orders, directives and rules, that party waives the right to defend and to be heard further regarding the merits of the case. In entering default, this Court had considered and balanced the factors formulated in Poulis v. State Farm Cas. Co., 747 F.2d 863, 868 (3d Cir. 1984), namely the following:
Rule 16(f), Fed.R.Civ.P., states:
Sanctions. If a party or party's attorney fails to obey a scheduling or pretrial order, or if no appearance is made on behalf of a party at a scheduling or pretrial conference, or if a party or party's attorney is substantially unprepared to participate in the conference, or if a party or party's attorney fails to participate in good faith, the judge, upon motion or the judge's own initiative, may make such orders with regard thereto as are just, and among others any of the orders provided in Rule 37(b)(2)(B), (C), (D). In lieu of or in addition to any other sanction, the judge shall require the party or the attorney representing the party or both to pay the reasonable expense incurred because of any noncompliance with this rule, including attorney's fees, unless the judge finds that the noncompliance was substantially justified or that other circumstances make an award of expenses unjust.
(1) the extent of the party's personal responsibility; (2) the prejudice to the adversary caused by failure to meet scheduling orders and respond to discovery; (3) a history of dilatoriness; (4) whether the conduct of the party or the attorney was willful or in bad faith; (5) the effectiveness of sanctions other than dismissal, which entails an analysis of alternative sanctions; and (6) the meritoriousness of the claim or defense.
Without belaboring the issue, the Court again finds that allPoulis factors weigh in favor of defaulting defendant Kirchhoff: (1) His responsibility is personal, as he is unrepresented; (2) plaintiffs are prejudiced if his status in the case remains murky; (3) his pattern of non-responsiveness has extended for many repeated occasions; (4) his failure to appear and defend is willful and intentional and he has offered no mitigating explanation despite the opportunity and incentive to do so; (5) a lesser sanction would be ineffective, and moreover he never requested that the trial date — December 2, 2002 — be adjourned or that he be afforded more time to prepare a defense; and (6) his defenses appear to lack any merit, as he has admitted many of the factual allegations that the Lermans have made against him.
When the case was called for trial on December 2, 2002, plaintiffs appeared through counsel and the claims against all defendants other than Rhett Kirchhoff had been either dismissed or settled, and Mr. Kirchhoff again failed to appear. This motion for default judgment followed on December 4, 2002, supported by the certifications of Miles Lerman and David Lerman and the attachments thereto, accompanied by counsel's brief. The Court credits and adopts the facts set forth in the certifications and attachments.
Where, as in this case, default has previously been entered against this defendant, the plaintiffs have the burden under Rule 55(b)(2), Fed.R.Civ.P., to establish that the essential elements of the pleaded claims are present, normally taking the factual allegations in the complaint as true. See Fed.R.Civ.P. 8(d); Comdyne I, Inc. v. Corbin, 908 F.2d 1142, 1149 (3d Cir. 1990); Fehlhaber v. Indian Trails, Inc., 425 F.2d 715, 717 (3d Cir. 1970); D.B. v. Bloom, 896 F. Supp. 166, 170 n. 3 (D.N.J. 1995). The court in its discretion may require some proof of facts that must be established to determine liability. 10A Wright, Miller Kane, Federal Practice and Procedure, § 2688 at 60-61 (citing, inter alia, D.B. v. Bloom, supra, 896 F. Supp. at 170 n. 2). In an abundance of caution, requiring supplemental proof of essential facts would be appropriate in the present case where defendant's default arose not from his failure to answer but instead from the striking of the answer (and defendant's denials) due to his failures to appear and defend.
Before any default judgment can be considered against Kirchhoff, however, the Court addresses the nondischargeability issue.
II. NONDISCHARGEABILITY OF THESE CLAIMS UNDER SECTIONS 523(a)(2)(A) and 523(a)(4) OF THE BANKRUPTCY CODE
The policy that fraudulent debts cannot be discharged in bankruptcy is embraced in Section 523(a)(2)(A) of the Bankruptcy Code, which provides in relevant part:
A discharge under section 727 . . . does not discharge an individual debtor from any debt . . . for money, property, services . . . to the extent obtained by false pretenses, a false representation, or actual fraud. . . .
For a debt to be nondischargeable under Section 523(a)(2)(A), a plaintiff must prove that: (1) the debtor misrepresented a material fact; (2) the debtor obtained money or services through the representation; (3) the debtor knew at the time that the statement was false; (4) the debtor intended the creditor to rely on the statement; (5) the creditor actually and justifiably relied on the statement; and (6) the creditor sustained damage which was the proximate result of the false representation. In re Thomas, 255 B.R. 648, 653 (Bankr. D.N.J. 2000). See also In re DeBaggis, 247 B.R. 383, 388 (Bankr. D.N.J. 1999). The burden of proving that a debt is nondischargeable is upon the creditor, who must establish each element by a "preponderance of the evidence." In re DeBaggis, supra (citing Grogan v. Garner, 498 U.S. 279, 287-88 (1991); Starr v. Reynolds, 197 B.R. 204, 205 (Bankr. D.N.J. 1996)). Once established, Section 523(a)(2)(A) excludes from discharge "any liability arising from money, property, services, etc. that is fraudulently obtained, including treble damages, attorney's fees, and other relief that may exceed the value obtained by the debtor." Michener v. Brady, 243 B.R. 253, 259 (E.D. Pa. 2000) (citing Cohen v. De La Cruz, 523 U.S. 213, 223-24 (1998)).
The overwhelming evidence in this case establishes that the Lermans' claims against Mr. Kirchhoff are not dischargeable under Section 523(a)(2)(A) of the Bankruptcy Code. The undisputed certification of Miles Lerman and deposition testimony of Mrs. Ginsburg, as well as the admissions of Mr. Kirchhoff himself, prove each and every element of nondischargeability.
It is clear that Mr. Kirchhoff made material misrepresentations to the Lermans, both directly and through Mrs. Ginsburg, regarding his unauthorized purchases of high-risk securities with money borrowed from the Lermans' margin accounts without their permission. Mr. Kirchhoff sent the Lermans fraudulent account statements that either substantially understated the purchases of these high-risk stocks, or completely omitted mention of any such purchases. When Mrs. Ginsburg confronted Mr. Kirchhoff with the statement irregularities and unexpected margin balances, Mr. Kirchhoff repeatedly lied to Mrs. Ginsburg regarding the nature of the trades he was making in the Lermans' accounts and the resulting risk of financial loss they were exposed to as a result. Moreover, Mr. Kirchhoff concealed his relationship with the principal of the issuer of these high-risk stocks and the fact that he received a "loan" from the principal, co-defendant Robert Gordon, which went into default prior to and remained unsatisfied during the time he was making the unauthorized purchases.
There is no question that Mr. Kirchhoff knew that the written and oral misrepresentations he made to the Lermans were not true when he made them. There is also no question that Mr. Kirchhoff intended for the Lermans to rely on these material misrepresentations so that he could continue to conceal his unauthorized use of the Lermans' accounts. The Lermans' reliance on these misrepresentations is both understandable and justified. As certified by Miles Lerman, the Lermans were not sophisticated investors. They communicated their low-risk investment goals to Mr. Kirchhoff and relied upon his promise to carry out their clearly stated objectives. The fraudulent account statements sent by Mr. Kirchhoff appeared to confirm that Mr. Kirchhoff was complying with this agreement. Moreover, Mr. Kirchhoff took advantage of his familial relationship with the Lermans' bookkeeper Mrs. Ginsburg, who had primary responsibility for monitoring their accounts.
At the point when Mr. Kirchhoff's lies could no longer conceal his fraudulent activity, Mr. Kirchhoff signed a statement admitting to his unauthorized transactions in the Lermans' margin accounts and his responsibility to return all losses sustained by the Lermans as a result. Unfortunately, as with Mr. Kirchhoff's other "promises" to the Lermans, he never repaid the Lermans for these losses. By the time the Lermans discovered the truth behind Mr. Kirchhoff's lies, they had sustained huge financial damages. As set forth in the Certification of David Lerman, Mr. Kirchhoff made unauthorized purchases of hundreds of thousands of shares of these high-risk penny stocks which became worthless. In addition, the Lermans incurred massive margin account interest debt. In all, the Lermans sustained over two million ($2,000,000) dollars in damages as a direct result of Mr. Kirchhoff's fraudulent activity.
Accordingly, Mr. Kirchhoff is not the "honest but unfortunate debtor" that is entitled to the benefits of discharge afforded by the Bankruptcy Code. In re DeBaggis, supra. The record proves beyond the requisite preponderance of the evidence that the Lermans' claims against Mr. Kirchhoff are not dischargeable under Section 523(a)(2)(A) of the Bankruptcy Code.
The Lermans' claims against Mr. Kirchhoff are also not dischargeable under Section 523(a)(4) of the Bankruptcy Code because Mr. Kirchhoff committed his fraudulent conduct while acting in a fiduciary capacity. Section 523(a)(4) states in relevant part that a debt is exempt from discharge if it was "for fraud or defalcation while acting in a fiduciary capacity. . . ." The existence of a fiduciary capacity is a prerequisite to a finding of liability under Section 523(a)(4). In re Thomas, supra, 255 B.R. at 654 (citing In re Kaczynski, 188 B.R. 770, 773 (Bankr. D.N.J. 1995)).
It is well established that a broker owes a fiduciary duty to his or her client. Sec. Exch. Comm'n v. Zandford, 122 S. Ct. 1899, 1905 (2002) (citing Chiarella v. United States, 445 U.S. 222, 230 (1980) (broker has a duty to disclose arising from a relationship of trust and confidence with client)); Newton v. Merrill, Lynch, Pierce, Fenner Smith, 135 F.3d 266, 270 (3d Cir. 1998) (citing Arleen W. Hughes, 27 S.E.C. 629, 636 (1948) (broker has fiduciary duty of loyalty to his client)). "The fiduciary duty is fundamental to the broker/client relationship" which precludes the broker from bringing "his own interests into conflict with his client's." L. Loss, The S.E.C. and the Broker-Dealer, 1 Vand. L. Rev. 516, 522 (1948). The duties of a securities broker are, if anything, more stringent than those imposed by general agency law. In re Kidder, Peabody Co., Inc., 43 S.E.C. 911, 915 (1968).
Therefore, in addition to the fact that the Lermans' claims against Mr. Kirchhoff are not dischargeable under Section 523(a)(2)(A) because the debt was obtained by fraudulent misrepresentations, the Lermans' claims against Mr. Kirchhoff are not dischargeable because Mr. Kirchhoff fraudulently breached his fiduciary duties to the Lermans. As discussed above, the record is that Mr. Kirchhoff intentionally made unauthorized purchases in the Lermans' margin accounts without their permission and then lied to conceal his actions and the fact that he was benefitting from these transactions. There could not be a more blatant violation of the fundamental fiduciary duty that exists between a broker and his client. The Lermans' claims are therefore not dischargeable under Section 523(a)(4).
The Court finds that the plaintiffs have proved that their claims against Rhett Kirchhoff are not dischargeable in bankruptcy by Kirchhoff under 11 U.S.C. § 523, and the Court next examines the merits.
III. PLAINTIFFS HAVE ESTABLISHED KIRCHHOFF'S LIABILITY
The essential elements of plaintiffs' private right of action under Section 10(b) of the Exchange Act and Rule 10b-5 were summarized in the Court's Opinion filed March 27, 2002, at 11-12, as follows:
A plaintiff bringing a suit under § 10(b) and Rule 10b-5 must prove that the defendant (1) made misstatements or omissions of material fact; (2) with scienter; (3) in connection with the purchase or sale of securities; (4) upon which plaintiffs relied; and (5) that plaintiffs' reliance was the proximate cause of their injury. See Kline v. First Western Gov't Sec., Inc., 24 F.3d 480, 487 (3d Cir.) (citing In re Phillips Petroleum Sec. Litig., 881 F.2d 1236, 1244 (3d Cir. 1989)), cert. denied sub nom., Arvey, Hodes, Costello Burman v. Kline, 513 U.S. 1032 (1994); see also Semerenko v. Cendant Corp., 223 F.3d 165, 174 (3d Cir. 2000) (citing Weiner v. Quaker Oats Co., 129 F.3d 310, 315 (3d Cir. 1997)), cert. denied sub nom., Forbes v. Semerenko, 531 U.S. 1149 (2001).
The Court finds, as stated above, that plaintiffs' evidence proves each essential element of their Section 10(b) and Rule 10b-5 claim against Rhett Kirchhoff. The record is replete with Kirchhoff's knowing omissions and misstatements of material fact about the stocks he was purchasing for the Lermans without their authorization or awareness, especially the investments in penny-stocks like TeleServices International Group, Inc. (TSIG), and its predecessor, Phoenix Information Systems Corporation (PISC). He not only made unauthorized trades and borrowed on margin, but he failed at any timely point to advise the Lermans or their bookkeeper of the true nature of his misconduct until the investments essentially became worthless. He occupied a fiduciary relationship toward plaintiffs, as found above, and he violated their trust. Their reliance upon him was sincere and reasonable. They were damages by his violation of the Exchange Act and Rule 10b-5. The amount of damages proximately caused by Rhett Kirchhoff's breach is discussed below.
Plaintiffs have also alleged and proved that Rhett Kirchhoff violated § 10(b) of the Exchange Act and Rule 10b-5 in an additional way, by churning their accounts. As previously stated in this Court's Opinion herein filed March 27, 2002, at 19:
A claim for churning requires the plaintiff to demonstrate that (1) the broker-dealer, or his agent, engaged in excessive trading in light of the character of the account or investment objectives of the investor; (2) the broker in question exercised control over the trading of the account; and (3) the broker acted with the intent to defraud or with willful and reckless disregard for the interests of the investor. See Rowe v. Morgan Stanley Dean Witter, 191 F.R.D. 398, 407 (D.N.J. 1999) (citing Freundt-Alberti et al. v. Merrill, Lynch, Pierce, Fenner Smith, Inc., 134 F.3d 1031, 1032 (11th Cir. 1998)); see also Angelastro v. Prudential-Bache Sec., Inc., 764 F.2d 939, 943 n. 6 (3d Cir. 1985) (citing Thompson v. Smith Barney, Harris Upham Co., Inc., 709 F.2d 1413, 1416 (11th Cir. 1983)).
Similarly, plaintiffs have satisfied the necessary elements to establish that Kirchhoff knowingly purchased unsuitable investments for plaintiffs' accounts in violation of Section 10(b). The elements of unsuitability were described in this Court's Opinion of March 27, 2002, at 20 as follows:
To establish a claim for unsuitability, a plaintiff must demonstrate (1) the securities purchased were not suited to the buyer's needs; (2) the defendant knew or reasonably believed the securities were not suited to the buyer's needs; (3) the defendant recommended or purchased the unsuitable securities for the buyer anyway; (4) the defendant made material misrepresentations with scienter (or, owing a duty to the buyer, failed to disclose material information) relating to the suitability of the securities; and (5) the buyer justifiably relied to his or her detriment on the defendant's fraudulent conduct. See Rowe, 191 F.R.D. at 410 (citing Banca Cremi, S.A., et al. v. Alex Brown Sons, Inc. et al., 132 F.3d 1017, 1032 (4th Cir. 1997)) (other citations omitted).
Similarly, plaintiffs have proved that Rhett Kirchhoff committed common law fraud. In New Jersey, proof of fraud requires a five-prong showing of these essential elements: (1) a material misrepresentation by defendant of a presently existing or past fact; (2) knowledge or belief by the defendant of its falsity; (3) an intention that the plaintiff rely on it; (4) reasonable reliance on the statement by the plaintiff; and (5) actual damages. Gennari v. Weichert Co. Realtors, 148 N.J. 582, 610 (1997); Jewish Ctr. of Sussex County v. Whale, 86 N.J. 619, 624-25 (1981).
Again, plaintiffs' proofs amply demonstrate each essential element of fraud. Mr. Kirchhoff misrepresented to plaintiffs the nature and extent of their own investments, and he omitted advising them of the truth and of the riskiness of his chosen investments. He knew that his conduct was cloaked with falsity, which he intended his clients to rely upon. The Lermans' reliance upon Kirchhoff, as their broker, was reasonable and usual, especially since they were not sophisticated investors. Because of his undisclosed conduct in such investments, and because he knowingly misrepresented the nature of the portfolio, the plaintiffs were deprived of the means to detect and correct his scheme, with the result that they suffered damages when the portfolio became worthless.
Having found liability under both Section 10(b) and New Jersey tort law, the Court turns to the issue of damages.
IV. DAMAGES
The Court finds that the above-described conduct of defendant Kirchhoff proximately caused the plaintiffs to suffer substantial quantifiable investment losses. The following facts come from the Certifications of Miles Lerman and David Lerman, filed December 4, 2002 herein. The Lermans' fiduciary relationship with Kirchhoff began in 1993. The Lermans were conservative investors of advanced years having investment portfolios consisting primarily of bonds and mutual funds, with no high-risk investments or speculation and no trading in "penny-stocks." They communicated these goals and limitations to Kirchhoff and never authorized him to make any investments in their behalf, nor to make trades by borrowing money from margin accounts, as testified by Miles Lerman and by Rhett Kirchhoff himself.
From January of 1997 through April of 1998, Kirchhoff wrongfully opened margin accounts in the Lermans' names and used this money to make purchases of high risk penny stocks, including TSIG and PISC, without their knowledge or authorization. Kirchhoff prepared and submitted fraudulent account statements to the Lermans, misstating the true status of their investment portfolios in order to hide the actual status. For example, Kirchhoff prepared a fraudulent statement in April 1998 which, although listing TSIG stock in the portfolio, inflated ten-fold its value as $2.947 per share, when the actual trading price was 25¢ or less throughout April of 1998. That statement overstated the value of Miles Lerman's account by approximately $1.1 million. Subsequently, in an October 28, 1998 fraudulent statement, Kirchhoff omitted any mention about TSIG stock in the Lermans' accounts, when in actuality Miles Lerman's account contained 400,800 shares of TSIG and Rosalie Lerman's account contained 248,798 shares of TSIG, due to Kirchhoff's churning and other fraud. Kirchhoff continued to lull the Lermans and Mrs. Ginsburg until November 1998 when the Lermans became aware of the margin balances and investment portfolio losses and confronted Kirchhoff.
Kirchhoff compounded this by never advising the Lermans about his financial relationship with Robert Gordon, the issuer of the TSIG stock, from whom he had received a loan which was in default when Kirchhoff was making the unauthorized purchases of TSIG stock for the Lermans' accounts.
The Lermans' investment accounts lost substantial value due to the fraudulent TSIG stock purchases by Kirchhoff, as follows.
For Miles Lerman, Kirchhoff purchased TSIG and PISC stock for a total of $1,322,392, and some was sold for $253,021, leaving a net investment of $1,069,371. The remaining stock was valueless, and the net loss was therefore $1,069,371. Miles Lerman incurred additional damages in the form of margin interest in the amount of $190,619 as of February, 2001. Interest accruing after that date has not been sought. The total of investment losses plus accrued margin interest represents Miles Lerman's damages, in the amount of $1,259,990.
For Rosalie Lerman, Kirchhoff purchased TSIG and PISC stock for a total of $733,328. None was sold. The stock became valueless, and the net investment loss was thus $733,328. To this must be added the margin interest in the amount of $151,903 as of February 2001. The total of investment losses plus accrued margin interest represents Rosalie Lerman's damages, in the amount of $885,231.
In summary, defendant Rhett Kirchhoff is indebted to Miles Lerman in the amount of $1,259,990, and he is indebted to Rosalie Lerman in the amount of $885,231, and the appropriate Default Judgment for these sums will be entered in the accompanying Judgment.
FINAL JUDGMENT BY DEFAULT AGAINST DEFENDANT RHETT H. KIRCHHOFF
This matter having been opened by the Court by Klehr, Harrison, Harvey, Bransburg Ellers LLP, attorneys for plaintiffs Miles Lerman and Rosalie C. Lerman, upon a Motion for the entry of Final Judgment by Default against defendant Rhett H. Kirchhoff; and
Default having been entered against defendant Rhett H. Kirchhoff by Order of the Court dated November 25, 2002 for failure to appear and/or participate in pretrial conferences; and
Defendant Rhett H. Kirchhoff also having failed to appear for the duly noticed trial date of December 2, 2002; and
The Court having considered the pleadings submitted in support of Plaintiffs' Motion for Final Judgment; and
For good cause shown for reasons stated in the Opinion of today's date;
IT IS, this day of December, 2002, hereby
ORDERED as follows:
1. FINAL JUDGMENT in Default is hereby entered against defendant Rhett H. Kirchhoff and in favor of plaintiff Miles Lerman in the amount of One Million, Two Hundred Fifty-Nine Thousand Nine Hundred Ninety Dollars ($1,259,990);
2. FINAL JUDGMENT in Default is hereby entered against defendant Rhett H. Kirchhoff and in favor of plaintiff Rosalie C. Lerman in the amount of Eight Hundred Eighty-Five Thousand Two Hundred Thirty-One Dollars ($885,231); and
3. IT IS ADJUDGED AND DECREED that plaintiffs' claims against defendant Rhett H. Kirchhoff and the Final Judgment in Default resulting therefrom are hereby held to be nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A) and 523(a)(4); and
4. That this is the FINAL JUDGMENT in this case, all other claims having been determined.