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United States Securities and Exchange Commission v. Miller

United States District Court, N.D. Indiana, Hammond Division

September 12, 2019




         Plaintiff United States Securities and Exchange Commission moves for an entry of final judgment against Defendant Earl Miller, seeking a permanent injunction, disgorgement, prejudgment interest, and a civil penalty.[1] For the reasons below, this Court grants Plaintiff's motion for all forms of relief.

         A. Overview of the Case

          Plaintiff alleged that Defendant committed securities fraud under 15 U.S.C. § 78j(b), 17 C.F.R. § 240.10b-5, and 15 U.S.C. § 77q(a), by raising money from investors through “material misrepresentations and omissions.”[2] (DE 1 ¶ 9.) Initially, Defendant was represented by counsel, but his attorneys later moved to withdraw. (DE 44, 45.) Soon after, Defendant moved for appointment of counsel. (DE 47.) Meanwhile, Magistrate Judge Christopher A. Nuechterlein granted the motions to withdraw and ordered Defendant to file a status report advising whether he would seek counsel or proceed pro se.[3] (DE 46.) Defendant stated he would move forward even if he had to do so pro se. (DE 48.) Two weeks later, Judge Nuechterlein denied Defendant's motion for counsel because he “failed to establish that he is not competent to litigate this case on his own behalf, ” but noted that Defendant could “renew his motion . . . at any time during this litigation.” (DE 52 at 2.)

         Defendant then filed a second motion for counsel, arguing that he did not “trust [his] ability to make [legal] decisions on [his] own.” (DE 54 at 4.) Judge Nuechterlein denied that motion as well, noting that a mere lack of confidence does not render one incompetent to represent oneself. (DE 55 at 2.) A week later, Defendant filed a third motion for counsel, which largely rehashed his prior arguments. (DE 56.) Next came multiple failures to obey discovery orders, each coupled with an assurance that Defendant was “willing to cooperate.”[4] Plaintiff also filed an amended complaint (DE 87), which Defendant did not answer. Eventually, enough was enough, and Plaintiff filed a motion for a Rule 37(b) default judgment. (DE 95.) In his response, Defendant emphasized his lack of counsel, argued the merits of Plaintiff's complaint, and again assured this Court that he is “willing and able to do everything that is required of [him].” (DE 104.) Because Defendant neither addressed nor cured the discovery violations, this Court stated that it “will enter default judgment against [Defendant], ” but ordered Plaintiff to file a brief to justify the relief it sought. (DE 110 at 2.) Defendant has since retained counsel. (DE 116.)

         B. Standard of Review

         When a defendant violates securities laws, a court can issue an order permanently enjoining him from violating those laws in the future. SEC v. Holschuh, 694 F.2d 130, 144 (7th Cir. 1982). Additionally, a court can award various forms of monetary relief, including disgorgement, prejudgment interest, and a civil penalty. SEC v. Michel, 521 F.Supp.2d 795, 830-31 (N.D. Ill. 2007). Because each form of relief requires analyzing a different set of factors, this Court will discuss the respective standards of review when relevant.

         C. Analysis

         Plaintiff seeks a permanent injunction, disgorgement, prejudgment interest, and a third-tier civil penalty. Defendant argues that the permanent injunction and civil penalty are unwarranted. Additionally, he seeks an evidentiary hearing to determine the proper amount of disgorgement. He does not explicitly address prejudgment interest.

         (1) Defendant's Procedural Attacks Fall Short

         In his response, Defendant leaves unaddressed most of Plaintiff's substantive arguments. Instead, he launches a series of procedural attacks revolving around whether he contested the allegations in Plaintiff's complaints.[5] These attacks, however, are a day late and a dollar short.

         (a) Defendant Cannot Overcome a Rule 37(b) Default by Virtue of His Original Answer

         Defendant seems to be under the impression that this Court ordered a Rule 55(a) default for “fail[ing] to plead or otherwise defend”: he spends two pages faulting Plaintiff for “neglect[ing] to note that [Defendant] denied the material allegations asserted in [Plaintiff's] original Complaint” and also insists that “only the new and amended allegations of the Amended Complaint were not denied.” (DE 115 at 1.) However, this Court ordered a Rule 37(b) default judgment for Defendant's repeated failures to comply with discovery orders. (DE 110.) That Defendant answered Plaintiff's original complaint is of no moment because it does not cure the discovery violations. Thus, because the basis of the default judgment remains intact, Plaintiff's allegations must be treated as if they were admitted. See United States v. Di Mucci, 879 F.2d 1488, 1497 (7th Cir. 1989) (“As a general rule, a default judgment establishes, as a matter of law, that defendants are liable to plaintiff as to each cause of action alleged in the complaint.”).

         Additionally, Defendant notes that “[n]ot one assertion made by the SEC has ever been established at trial, and generally are completely unsupported by the evidence surrounding this case.” (DE 115 at 2.) The Seventh Circuit swiftly rejected a similar argument made by defendants in default. See Dundee Cement Co. v. Howard Pipe & Concrete Products, Inc., 722 F.2d 1319, 1323 (7th Cir. 1983) (“Initially, defendants argue that the district court erred in entering the default judgment without proof of the allegations in the complaint. This claim of error need not detain us.”). This Court will dispose of Defendant's argument with similar haste: “A default means that the factual allegations of the complaint, except those relating to the amount of damages, are taken as true and can no longer be contested.” Robinson v. Petyo, 2009 U.S. Dist. LEXIS 123136, *16 (N.D. Ind. Dec. 8, 2009) (citing e360 Insight v. The Spamhaus Project, 500 F.3d 594, 605 (7th Cir. 2007)).

         (b) Defendant's Surreply Is Improper

         Defendant filed a surreply that purports to “provide an accurate accounting of the fact setting.” (DE 118.) The surreply, however, is not properly before this Court. Local Rule 7-1(d) provides for the filing of responses and replies, but no surreply. Courts in this district generally allow a surreply only if it “raises or responds to some new issue or development in the law.” Hall v. Forest River, Inc., 2008 U.S. Dist. LEXIS 31564, *2 n.1 (N.D. Ind. Apr. 15, 2008). Here, Defendant's surreply simply argues the merits of Plaintiff's complaint-something that could have been done in an earlier filing.[6] Thus, this Court will not consider the surreply.

         (c) Plaintiff's Complaint Is Sufficient

         Defendant also asserts that some of Plaintiff's arguments are unsupported by allegations in the complaint. (DE 115 at 2.) If true, this would defeat Plaintiff's motion, for a defective complaint cannot give rise to relief, even if the defendant defaulted. Black v. Lane, 22 F.3d 1395, 1399 (7th Cir. 1994) (“The entry of a default order does not . . . preclude a party from challenging the sufficiency of the complaint.”).

         Here, Plaintiff argues in its brief that Defendant “stole over $1 million of investors' funds.” (DE 114 at 3.) Defendant asserts that Plaintiff's complaint failed to allege this. (DE 115 at 2.) Specifically, he claims that “no underlying allegations have been made, nor evidence identified to support such a claim, to even suggest that [Defendant] maintains possession or control over any of the proceeds from the investments that were made.” (Id. at 2-3.) This argument misinterprets Plaintiff's allegation. The “stealing” refers to allegations that Defendant fraudulently collected investments to pay himself and pay off a personal debt. (DE 87 ¶¶ 37-39.) Defendant never invested the money, so there are no proceeds over which to maintain possession or control. Moreover, Plaintiff properly alleged that Defendant controlled that money. (See e.g. DE 87 ¶ 42) (“In one instance, [Defendant] funneled the monies through his ...

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