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United States Securities and Exchange Commission v. Benger

United States District Court, N.D. Illinois, Eastern Division

April 9, 2014

UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
STEFAN H. BENGER, et al., Defendants.

MEMORANDUM OPINION AND ORDER

JEFFREY COLE, Magistrate Judge.

Stefan von Hase and CTA Worldwide, S.A., two defendants among several in this case, move for an order vacating the default that was entered against them October 23, 2013. [Dkt. #457].[1] The SEC has objected - and quite vigorously. [Dkt. #471]. Mr. von Hase - resident of the Bahamas and owner of CTA Worldwide - claims that from April through October 2013, he was being treated for alcoholism and could not attend to his obligations and those of his company to participate in this case. Interestingly, Mr. von Hase has not submitted his own declaration or affidavit to support the claim. Instead, he has submitted statements from three Bahamian doctors, two of whom assert that during the seven month period from April through October 2013, he was unable to "confer" with his counsel.

Aside from that, he paints a rather glowing picture of his participation in this lawsuit up to the time of his claimed period of incapacitation. To hear him tell it, he has dutifully responded to complaints, sat for depositions, and traveled to Chicago several times to meet with his attorney. But the reality is quite different.

Background

The SEC filed this suit on February 3, 2009, naming eight defendants and two relief defendants, Mr. von Hase and CTA ("default defendants"). (Dkt. #1). Default defendants moved to dismiss the complaint on the ground (among others) that the court lacked personal jurisdiction over them. (Dkt. #70). Judge Lefkow denied the motion, finding that "both [von Hase] and CTA continually conduct business in the United States and in doing so, have sought to benefit from its laws." SEC v. Benger, 2009 WL 1851186, at *8 (N.D. Ill. 2009).

Default defendants' answer to the Complaint was due on July 14, 2009, but they missed that deadline - by quite a bit. It was not until August 20th that they even sought an extension of time. The excuse was that Mr. von Hase was based in the Bahamas, and his counsel had a trial in Virginia during August. (Dkt. # 153). While this did not account for default defendants' inactivity during the entire month of July, Judge Lefkow nevertheless granted the motion and gave the default defendants until September 4, 2009, to file their answer. (Dkt. # 159). But the default defendants missed that deadline as well. They did not ask for another extension and, without asking for leave to file instanter, simply filed their answer well over a month late, on October 15, 2009. (Dkt. # 180).

On April 1, 2010, the SEC filed an amended complaint which, among other things, converted von Hase and CTA from relief defendants to full defendants. (Dkt. # 238). On April 8, 2010, Judge Lefkow ordered all defendants to respond to the amended complaint by May 6th. (Dkt. # 239). With the exception of the default defendants, all the defendants complied. Again, the default defendants did not seek extra time to file their answer. The SEC subsequently informed default defendants that it would move for a default judgment if they did not communicate their intent to file an answer by May 19th. (Dkt. # 253, Ex. 1). Default defendants ignored the SEC's communication, and the SEC followed through with its motion. (Dkt. # 253).

And so, Judge Lefkow entered the first default judgment against the default defendants on June 22, 2010. (Dkt. # 261). The judge set a remedies prove-up hearing for August 17, 2010. (Dkt. # 258).[2] Judge Lefkow postponed that hearing until September 2, 2010, at which time default defendants asked for leave to file a motion to vacate the default judgment. (Dkt. # 264; 266). They filed their motion on September 9th (Dkt. #267), and the SEC agreed not to oppose it if the default defendants provided complete discovery responses, filed an answer to the complaint, and produced Mr. von Hase for a deposition. On November 16, 2010, the default defendants finally sought and were subsequently granted leave to file their answer to the amended complaint instanter. (Dkt. # 282; 284).

In the wake of the Supreme Court's ruling in Janus Capital Group, Inc. v. First Derivative Traders, 131 S.Ct. 2296, 2302 (2011) (holding that "[f]or purposes of Rule 10b-5, the maker of a statement is the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it"), the SEC sought and was granted leave to file its current amended complaint on December 20, 2011. (Dkt. #332-334). Defendants filed various motions to dismiss and for summary judgment and, following extensive briefing and oral argument, the court issued a series of rulings in February and March 2013, granting the motions in part and denying them in part. (Dkt. # 405; 411-413; 415; 418-419). See S.E.C. v. Benger, 2013 WL 593952 (N.D.Ill. 2013); S.E.C. v. Benger, 931 F.Supp.2d 908 (N.D.Ill. 2013); S.E.C. v. Benger, 931 F.Supp.2d 904 (N.D.Ill. 2013); S.E.C. v. Benger, 931 F.Supp.2d 901 (N.D.Ill. 2013); S.E.C. v. Benger, 934 F.Supp.2d 1008 (N.D.Ill. 2013).

After the SEC elected to stand on the surviving claims in its complaint, certain defendants moved for an extension of time to answer. (Dkt. #425). The motion was granted, and the defendants were given until June 13, 2013, to answer the complaint. (Dkt. # 425; 427). Yet again, the default defendants failed to file their answer by the deadline or move for a further extension of time.

On August 26, 2013, Mr. von Hase's counsel filed a motion to withdraw as the default defendants' attorney, explaining that, since early in 2013, his clients had communicated with him less frequently. He had not heard from Mr. von Hase since April 13, 2013, despite sending him thirteen emails and leaving twelve voicemails. (Dkt. #435). He said he made several other efforts to contact Mr. von Hase, from asking his friends about him, to contacting the Bahamian police. Finally, counsel was directed to the honorary German consul who told him he knew Mr. von Hase and explained that he had been drinking heavily and had withdrawn from social contact. (Dkt. # 435). The default defendants' counsel attempted to FedEx a letter to Mr. von Hase, but the delivery service was unable to gain entrance to Mr. von Hase's residence. Conceding that the case must go forward, the default defendants' lawyer asked for leave to withdraw as counsel. (Dkt. # 435). The motion was granted and the default defendants were ordered to answer the complaint by October 7, 2013. (Dkt. # 442). They didn't, of course.

On October 23, 2013, the court granted the SEC's oral motion for entry of default against the default defendants. (Dkt. # 447). Coincidentally, Mr. von Hase's counsel had apparently re-established contact with Mr. von Hase and was allowed to re-enter the case. (Dkt. # 447). He explained that Mr. von Hase had endured a "lengthy hospitalization" for alcoholism. (Dkt. # 471-1, 10/23/2013 Hrg. Tr. at 3:21-25).[3] Given the history of what had occurred with the default defendants, and since "[n]othing is simpler than to make an unsubstantiated allegation, " Parko v. Shell Oil, 739 F.3d 1083, 1086 (7th Cir. 2014) - it is, in part, for that reason that uncorroborated statements in briefs and oral argument don't count, see Clifford v. Crop Production Services, Inc., 627 F.3d 268, 273 n.6 (7th Cir. 2010); IFC Credit Corp. v. Aliano Brothers General Contractors, Inc., 437 F.3d 606, 610-611 (7th Cir.2006); In re: Payne, 431 F.3d 1055, 1060 (7th Cir.2005) - I told Mr. von Hase's counsel that I would need something more than Mr. von Hase's word given through his lawyer, who of course had no first hand information at all. Accordingly, I advised counsel that any motion to vacate the default must be supported by evidence in the form of hospital and doctors' records documenting his stay in the hospital and visits with his doctors. (# 471-1, 10/23/2013 Hrg. Tr. at 9:6-11). Counsel agreed. ( Id. ).

In the wake of this hearing, the default defendants took absolutely no action to cure their default or answer the complaint, waiting over three months - until January 28, 2014 - before filing their Fed.R.Civ.P. 55(c) motion to vacate. (Dkt. # 457). Coincidentally, that was just five days after the SEC had moved for an entry of final default judgment against them. (Dkt. # 451). A briefing schedule was set on January 29th, giving the SEC until February 28th to respond and allowing the default defendants to file a reply by March 14th. (Dkt. # 463). As one might expect, March 14th came and went with no reply from the default defendants and no motion for an extension of time. In fact, no ...


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