United States District Court, W.D. North Carolina
GUY M. DUGAN, KAREN DUGAN, and MARK S. DUGAN, as trustee of THE GDM FAMILY TRUST, Plaintiffs,
PILIANA M. SCHAMENS, DAVID W. SCHAMENS, INVICTUS CAPITAL GROWTH AND INCOME FUND, LLP, INVICTUS ASSET MANAGEMENT, LLC, INVICTUS INCOME FUND, INVICTUS REAL ESTATE INVESTMENT, LLP, INVICTUS FUNDS, LLC, TRADEDESK FINANCIAL GROUP, INC., TRADEDESK FINANCIAL CORP., TRADESTREAM ANALYTICS, LTD., INVICTUS CAPITAL GROWTH FUND, LLP, INVICTUS HOLDINGS, LLP, and TRADEDESK CAPITAL, LLC, Defendants.
J. CONRAD, JR. UNITED STATES DISTRICT JUDGE.
MATTER comes before the Court on Plaintiffs'
Motion for Default Judgment And To Correct Typographical
Error of Plaintiff's Name in Caption and memorandum in
support (Doc. Nos. 46 and 47). The motion is ripe for
adjudication. For the reasons stated below, Plaintiffs'
motion is granted.
Guy M. Dugan, Karen Dugan, and the GDM Family Trust filed
this lawsuit on August 11, 2015 alleging twelve cause of
action against Defendants: 1) fraudulent inducement; 2)
fraud; 3) breach of fiduciary duty; 4) constructive fraud; 5)
conversion; 6) securities fraud; 7) embezzlement; 8) unfair
and deceptive trade practices; 9) piercing the corporate
veil; 10) civil conspiracy; 11) accounting; and 12) unjust
enrichment and constructive trust. (Doc. No. 1). In brief,
the underlying facts relate to an alleged securities fraud
committed by Defendants in which Plaintiffs invested over
$800, 000 in Defendant Invictus Asset Management
(“IAM”), but instead of investing the money on
Plaintiffs' behalf, Defendants allegedly used the money
for personal gain and benefit. (Id.).
have never had an attorney enter an appearance on their
behalf, with the exception of Phillips Wiegand, Jr., who
settled the claims against him while his Motion to Dismiss
was pending before the Court. (Doc. Nos. 4, 34). Instead,
Defendants David and Piliana Schamens have attempted to
defend themselves and the corporate defendants pro se.
Proceeding pro se, Defendants have not answered or otherwise
responded to the complaint, but have filed a total of four
motions for extension of time to answer. On November 23,
2015, Plaintiffs filed Waivers of Service executed by David
and Piliana Schamens on their own behalf and on behalf of
each of the Corporate Defendants, waiving service and stating
that responses to the complaint were due January 11, 2016. On
that day, Defendants filed their first Motion for Extension
of Time to Answer, seeking an extension “on the grounds
that defendants need additional time to investigate and
prepare and [sic] an adequate Response as well as retain
counsel.” (Doc. No. 32). The Court gave Defendants
until February 1, 2016 to respond to the complaint. (Doc. No.
33). Defendants failed to comply with that deadline, but on
February 10, 2016, filed their second Motion for Extension of
Time to Answer again on the basis that “defendants need
additional time to investigate and prepare and [sic] an
adequate Response as well as retain counsel.” (Doc. No.
36). Additionally, Defendants stated they never received a
copy of the January 14, 2016 order granting Defendants'
first request for an extension and the Clerk of Court told
Defendants that the order was not mailed because the Court
did not have an address on file. (Id.). The Court
granted Defendants' Second Motion for Extension of Time
to Answer and gave Defendants until February 26, 2016 to
respond to the complaint. (Doc. No. 37).
February 29, 2016, again having missed the deadline to
respond to the complaint, Defendants filed their third Motion
for Extension of Time to Answer. (Doc. No. 38). Defendants
sought until March 2, 2016 to respond to the complaint
because their “retained counsel need[ed] time for
coordination to pro hac with local counsel and prepare
answer.” (Id.). The Court again granted
Defendants' requested and ordered that they had until
March 2, 2016 to respond to the complaint. (Doc. No. 39).
Defendants failed yet again to meet the Court-ordered
deadline to respond, Plaintiffs filed a Motion for Entry of
Default on March 3, 2016. (Doc. No. 40). On March 4, 2016,
Defendants filed their Reply to Motion for Entry of Judgment,
though it more resembled a fourth Motion for Extension of
Time to Answer seeking until March 7, 2016 to file their
response to the complaint because “Counsel [had] been
retained but [was] out of state and [had] yet been unable to
complete arrangements with local counsel to pro hac vice with
the Court in order to legally file with the Court the
appropriate answers and motions due to scheduling conflicts,
” but assuring the Court that “[a]n Answer and
corresponding motions have been prepared and ready to be
filed upon local counsel completing the agreement to pro hac
out of statement [sic] counsel. Upon information and belief,
these filings will be made on Monday, March 7.” (Doc.
No. 41). On March 7, 2017, the Court denied Defendants'
then-latest request for an extension, and the Clerk of Court
entered default against Defendants. (Doc. Nos. 42, 43, 44).
Defendants did not file an answer or other response on March
case went silent for four months until, on July 22, 2016, the
Court instructed Plaintiffs to file a motion for default
judgment within fourteen days. (Doc. No. 45). Accordingly, on
August, 5, 2016, Plaintiffs filed their Motion for Default
Judgment and supporting memorandum and affidavits. (Doc. Nos.
46-47, 50-53). On September 12, 2016, Defendants filed their
fifth request for an extension in this case-a Motion to
Extend Time for Response to Plaintiffs' Motion for
Default Judgment. (Doc. No. 55). Defendants represented that
“[t]his case was settled and the terms of the
settlement were abided by (see Exhibit A). Plaintiff's
[sic] Counsel did not inform either the Defendant that they
had not dismissed this action per the terms of the agreement
and instead, have proceeded with a motion for default
judgment in both State and Federal Court.”
(Id.). Defendants requested a hearing and to have
until September 19, 2016 to respond to the Motion for Default
Judgment. (Id.). On September 13, 2016, the Court
obliged Defendants' request for an extension and granted
the motion, giving Defendants until September 19 to respond
to the Motion for Default Judgment. (Doc. No. 56). Yet again,
Defendants failed to respond within the extra time allotted.
November 10, 2016, Plaintiffs filed a Notice of Settlement
and Motion to Stay Entry of Default Judgment or Dismissal
until February 15, 2017, stating that the parties needed 95
days to consummate the confidential terms of the settlement.
(Doc. No. 57). The Court granted Plaintiffs' motion, but
after a one-week extension of the stay to consummate the
terms of the settlement, Plaintiffs' requested a ruling
on the pending Motion for Default Judgment. (Doc. Nos.
April 27, 2017, the Court scheduled a hearing on
Plaintiffs' Motion for Default Judgment, which was held
on June 2, 2017. The morning of the hearing, less than an
hour before it began, David Schamens, still unrepresented in
this matter, filed a Motion for Continuance and a Motion to
Enforce Settlement or Alternatively to Vacate the Entry of
Default. (Doc. Nos. 65 and 66). Defendants' Motion for
Continuance sought to continue the hearing because, among
other things, “[d]ue to opposing counsel's
interference with pro hac counsel, Defendants are left with
no counsel at this time and have been forced to make a motion
pro se . . . .” (Doc. No. 65). At the hearing, the
Court first heard the parties on Defendants' Motion for
Continuance and denied the motion. Next, the Court heard the
parties on the Motion for Default Judgment, and at the
conclusion of the hearing took the motion under advisement.
(Doc. No. 67).
STANDARD OF REVIEW
entry of default judgment is governed by Rule 55 of the
Federal Rules of Civil Procedure which provides in relevant
part that “[w]hen a party against whom a judgment for
affirmative relief is sought has failed to plead or otherwise
defend, and that failure is shown by affidavit or otherwise,
the clerk must enter the party's default.”
the entry of default, the defaulted party is deemed to have
admitted all well-pleaded allegations of fact contained in
the complaint. Ryan v. Homecomings Fin. Network, 253
F.3d 778, 780 (4th Cir. 2001); Weft, Inc. v. GC Inv.
Assocs., 630 F.Supp. 1138, 1141 (E.D. N.C. 1986)
(citations omitted); see also Fed.R.Civ.P. 8(b)(6)
(“An allegation-other than one relating to the amount
of damages-is admitted if a responsive pleading is required
and the allegation is not denied.”). Nevertheless, the
defendant is not deemed to have admitted conclusions of law
and the entry of “default is not treated as an absolute
confession by the defendant of his liability and of the
plaintiff's right to recover.” Ryan, 253
F.3d at 780 (citations omitted); see also E.E.O.C. v.
Carter Behavior Health Servs., Inc., No. 4:09-cv-122-F,
2011 WL 5325485, at *3 (E.D. N.C. Oct. 7, 2011). Rather, in
determining whether to enter judgment on the default, the
court must determine whether the well-pleaded allegations in
the complaint support the relief sought. See Ryan,
253 F.3d at 780 (citing Weft, 630 F.Supp. at 1141);
DIRECTV, Inc. v. Pernites, 200 F. App'x 257, 258
(4th Cir. 2006) (“‘[A] defendant is not held to
admit facts that are not well-pleaded or to admit conclusions
of law'”) (quoting Nishimatsu Constr. Co. v.
Houston Nat'l Bank, 515 F.2d 1200, 1206 (5th Cir.
1975)); Arista Records, LLC v. Gaines, 635 F.Supp.2d
414, 416 (E.D. N.C. 2009); 10A Wright, Miller & Kane,
Federal Practice and Procedure § 2688 (3d ed. Supp.
2010) (“[L]iability is not deemed established simply
because of the default ... and the court, in its discretion,
may require some proof of the facts that must be established
in order to determine liability.”).
end, the Fourth Circuit has “repeatedly expressed a
strong preference that, as a general matter, defaults be
avoided and that claims and defenses be disposed of on their
merits.” Colleton Preparatory Acad., Inc. v. Hoover
Univ., Inc., 616 F.3d 413, 417 (4th Cir. 2010)
(citations omitted). Nonetheless, default judgment “may
be appropriate when the adversary process has been halted
because of an essentially unresponsive party.” SEC
v. Lawbaugh, 359 F.Supp.2d 418, 421 (D. Md. 2005). Entry
of default judgment is left to the sound discretion of the
trial court. Duke Energy Carolinas, LLC v. BlackRock
Coal, LLC, No. 3:11-cv-616-RJC-DSC, 2012 WL 1067695
(W.D. N.C. Mar. 29, 2012) (granting default judgment in the
plaintiff's favor after finding that service of the
complaint and summons on defendant was sufficient yet
defendant failed to defend); CF Cloninger Trucking IL
Inc. v. SourceOne Group, Inc., No. 3:08-cv-00320-FDW,
2009 WL 35191 (W.D. N.C. Jan. 5, 2009) (granting default
judgment when defendant failed to defend complaint).
Accord Lawbaugh, 359 F.Supp.2d at 421 (granting
default judgment for permanent injunction, disgorgement and a
civil monetary penalty where defendant failed to answer
complaint alleging securities fraud and misappropriation).
Although the clear policy of the Rules is to encourage
dispositions of claims on their merits, see Reizakis v.
Loy, 490 F.2d 1132, 1135 (4th Cir.1974), trial judges
are vested with discretion, which must be liberally
exercised, in entering [default] judgments and in providing
relief therefrom." United States v. Moradi, 673
F.2d 725, 727 (4th Cir. 1982).
court finds that liability is established, it must then
determine damages. Carter Behavior Health, 2011 WL
5325485, at *4 (citing Ryan, 253 F.3d at 780-81;
Gaines, 635 F.Supp.2d at 416-17). The court must
make an independent determination regarding damages, and
cannot accept as true factual allegations of damages.
Id. (citing Lawbaugh, 359 F.Supp.2d at
422). While the court may conduct an evidentiary hearing to
determine damages, it is not required to do so, but may rely
instead on affidavits or documentary evidence in the record
to determine the appropriate sum. See EEOC v. CDG Mgmt.,
LLC, No. RDB-08-2562, 2010 WL 4904440, at *2 (D. Md.
Nov. 24, 2010) (citations omitted); EEOC v. North Am.
Land Corp., No. 1:08-cv-501, 2010 WL 2723727, at *2
(W.D. N.C. Jul. 8, 2010).
words of Benjamin Franklin, “You may delay, but time
will not, and lost time is never found again.” It has
been two years since this case appeared before the Court.
Since then, the Court has granted four continuances in order
for Defendants to find counsel and respond to Plaintiffs'
complaint. Despite the ample time afforded to them,
Defendants have continually failed to produce counsel. On
June 2, 2017, the day of the hearing on Plaintiff's
Motion for Default, Defendant David Schamens filed yet
another Motion for Continuance. Yet again, Defendants failed
to procure counsel. Defendants' actions are
impermissible. First, corporate defendants may not appear
before the Court pro se. Second, Defendants' lack of action
betrayed the time afforded to them by the Court. Although
Defendants may continue to drag their feet, the Court will
not. Given Defendant's silence amidst an abuse of time,
Plaintiffs' Motion for Default is ripe and the Court now
takes it under consideration. Accordingly, the Court finds
that Plaintiffs have sufficiently pled facts to support all
of the requisite elements for the claims of fraudulent
inducement, fraud, breach of fiduciary duty, constructive
fraud, conversion, securities fraud, piercing the corporate
veil, civil conspiracy, and unjust enrichment and
constructive trust. The Court does not find sufficient
support for Plaintiffs' claim for unfair and deceptive
trade practice. Furthermore, Plaintiffs do not move the Court
for default judgment for either their embezzlement or
accounting claims and do not discuss them in their Motion for
Default Judgment. The Court therefore considers those claims
first claim that Defendants fraudulently induced
Plaintiffs' investments into the corporate defendants.
"The essential elements of fraud in the inducement are:
(1) False representation or concealment of a material fact,
(2) reasonably calculated to deceive, (3) made with intent to
deceive, (4) which does in fact deceive, (5) resulting in
damage to the injured party." Whisnant v. Carolina
Farm Credit, 693 S.E.2d 149, 157 ( N.C. Ct. App. 2010).
Plaintiffs have fulfilled each of these elements within the
well-pleaded allegations of their Complaint.
Defendants' representations to Plaintiffs were false
representations and concealments of material fact.
Defendants: (1) concealed D. Schamens' status as a
permanently barred investment counselor deemed
“harmful” to investors' interests by the SEC;
(2) misrepresented the status of Wiegand who held himself as
a corporate general counsel when he was not in fact an
attorney; (3) held Piliana Shamens out as the official
representative of the corporate Defendants' acts in order
to conceal David Shamens and Phillips Wiegand's
involvement in corporate operations; (4) misrepresented to
Plaintiffs how their investments would be handled in
conjunction with option strategies in order to make steady
profits; and (5) created fictitious account statements
showing Plaintiffs' investments making significant gains.
(Doc. No. 1 ¶¶ 53, 111, 116). Rather than honor
their statements, Defendants used Plaintiffs' funds for
their personal benefit. (Id. at ¶ 113-14).
the Defendants knew or should have known that the Plaintiffs
would rely on those misrepresentations in making the
determination to invest over $800, 000 with the Defendants.
(Id.) Defendants' misrepresentations were
significant in that they completely masked the manner in
which Plaintiffs' funds were to be used. Rather than
“make steady profits in both up and down markets by
using option strategies, ” Defendants diverted
Plaintiffs' funds to, among other things, purchase
expensive homes. (Id.) As such, Defendants'
misrepresentations were reasonably calculated to deceive
Plaintiffs into entrusting their life savings to the
Defendants and were made with the intent to deceive because
the Defendants used the Plaintiffs' savings for the
Defendants' own personal use and benefit. These
calculated misrepresentations damaged Plaintiffs when they