[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 08-10682 AUGUST 4, 2011
Non-Argument Calendar JOHN LEY
CLERK
________________________
D. C. Docket No. 01-07874-CV-DTKH
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff-Appellee,
versus
PAUL R. JOHNSON,
J & J MANAGEMENT CONSULTING,
a.k.a. 1287769 Ontario Inc.,
et al.,
Defendants,
CATERINA JOHNSON,
Defendant-Appellant.
________________________
Appeal from the United States District Court
for the Southern District of Florida
_________________________
(August 4, 2011)
Before TJOFLAT, PRYOR and BLACK, Circuit Judges.
PER CURIAM:
This is a civil enforcement action brought by the Securities and Exchange
Commission (“SEC”) pursuant to the Securities Act of 1933, 15 U.S.C. § 77t, and
Securities Exchange Act of 1934, 15 U.S.C. § 78u. The action commenced on
December 12, 2001 when the SEC filed a complaint for injunctive relief and the
imposition of civil penalties. The gravamen of the SEC’s complaint was that the
defendants, Paul R. Johnson, John Cook II, Emanuele Cardaci, and Scott
Schoenbauer, were engaging in the fraudulent offer and sale of unregistered
securities issued by Link Express Delivery Solutions, Inc. (“Link”), a South
Florida package delivery company. Johnson founded Link and was its majority
shareholder and president. Johnson’s mother, Caterina Johnson, was named in the
complaint and sued as a “relief defendant.” She owned J&J Management
Consulting, a/k/a 1287769 Ontario, Inc. (“J&J”), also a relief defendant. Paul R.
Johnson diverted a portion of the proceeds, in excess of $1.2 million, to Caterina
Johnson both directly and through J & J over whose bank accounts she had
signatory authority.
On March 6, 2002, Paul R. Johnson moved the district court to stay
proceedings in the case as to him because a Southern District of Florida grand jury
2
had returned a 35-count indictment on January 29, 2002, charging him with
offenses related to the allegations of the SEC’s complaint for civil enforcement.1
The district court granted his motion on March 27, 2002; meanwhile, the case
proceeded against the remaining defendants, Cook, Cardaci, and Schoenbauer, and
the relief defendants, Caterina Johnson and J & J.
The SEC’s claims against the four defendants and the relief defendant J & J
have been resolved via final judgment and are not before us. Only Caterina
Johnson’s case is here. She appeals the default judgment the district court entered
against her, $1.2 million in disgorgement plus $30,180 in interest. Her appeal
raises two issues: (1) whether the district court abused its discretion in denying her
motion to set aside the default judgment; and (2) whether the judgment that Paul
R. Johnson committed the alleged fraud and has been required to disgorge more
than $1.5 million in illicit proceeds constituted an adequate predicate for the
default judgment against her.
The procedural history of Caterina Johnson’s case materially informed the
district court’s exercise of its discretion. We accordingly begin with that history,
1
The indictment charged conspiracy, in violation of 18 U.S.C. § 371, to commit
securities fraud, in violation of 15 U.S.C. §§ 78j(b) and 78ff, and related offenses, including
perjury before the grand jury and the court, in violation of 18 U.S.C. 1623(a). Cook was charged
as a coconspirator and as a codefendant in substantive securities fraud offenses. He was
acquitted following a joint trial with Johnson.
3
then turn to the merits of this appeal.
I.
On March 28, 2002, the clerk of the district court entered a default against
Caterina Johnson pursuant to Rule 55(a) of the Federal Rules of Civil Procedure
for failing to “appear, answer or otherwise plead to the complaint . . . within the
time required by law.”2 On May 17, 2002, the district court entered a “Default
Judgement of Disgorgement as to Relief Defendants [J&J] and Caterina Johnson.”3
The judgment ordered as follows: “Relief Defendants shall pay disgorgement
representing their gain from the conduct alleged in the complaint plus prejudgment
interest thereon. The amount of disgorgement shall be later determined by the
Court upon the SEC’s motion following due notice of hearing, and evidentiary
hearing, held to determine the amount.” On June 27, 2002, the SEC moved the
district court to schedule an evidentiary hearing to set the amount of disgorgement
as to relief defendants. The court granted the motion on July 15, 2002; the
2
Rule 55(a), Entering a Default, states: “When 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 [of the district court] must enter the party’s default.” The proof
of service the SEC filed with the district court on December 28, 2001, established that Caterina
Johnson had been served with the complaint prior to that date, and the record disclosed that prior
to March 28, 2002, she had not filed a pleading or otherwise responded to the complaint.
3
Although the clerk of the district court had not entered a default against J&J, that relief
defendant had not appeared in the case and the SEC had moved the court to enter a default
judgment against both relief defendants.
4
evidentiary hearing would be held before a magistrate judge on August 27, 2002.
On August 22, the SEC presented the court with a memorandum in support
of its June 27 motion to set the amount of disgorgement. Attached to the
memorandum was an affidavit of an SEC staff accountant who had examined the
business and bank records of Link, Paul R. Johnson, and the relief defendants.
According to the accountant, those records demonstrate[d] that Caterina Johnson
directly received approximately $1.2 million in Link investor funds through
accounts maintained by J & J and Defendant Paul Johnson. The records further
showed, excluding disbursements to Caterina Johnson, that J & J retained
approximately $1,640,000 in Link investor funds. The SEC therefore asked the
court to “order Caterina Johnson to disgorge $1.2 million and her company, J&J,
$1,640,000.”
On August 23, 2002, the relief defendants, represented by Caterina Johnson,4
moved the district court to stay further proceedings against them until the criminal
case against Paul R. Johnson concluded5 or, alternatively, to continue the
disgorgement hearing so they could employ counsel, “obtain discovery [and] file
4
Johnson was not appearing as a lawyer. Rather, she was appearing pro se on behalf of
herself and the other relief defendant.
5
The motion represented that Paul R. Johnson would then be available to testify in their
defense of the allegations of the SEC’s complaint (assuming that the court vacated the default
entered on March 28, 2002, which operated as the relief defendants admission that violations of
the securities laws alleged in the complaint had in fact occurred as alleged).
5
challenges to the ‘default”’ and the default judgment. Their motion represented
that they had “an ‘absolute’ defense” to the allegations of the complaint. The
magistrate judge designated to hold the disgorgement hearing denied the motion in
an order entered on August 27. The order stated that the motion was “simply a
delay tactic,” that the relief defendants had “presented absolutely no evidence to
justify a stay of any proceedings as to them.” In a separate order entered the same
day, the magistrate judge rescheduled the disgorgement hearing for October 22,
2002. On October 8, due to a scheduling conflict, he reset the hearing for
November 22, 2002.
On September 5, 2002, the SEC moved the court to issue an order requiring
Caterina Johnson to provide a sworn accounting. On October 17, while the
motion was pending, the SEC noticed her deposition for November 12 at the U.S.
Attorney’s office in Detroit, Michigan.6 She objected to that date and requested the
SEC to provide her with a list of dates during the next month or two so she could
pick an “acceptable date.” The SEC responded by informing her by letter that the
deposition would have to take place before November 22, and asking her to
confirm, by October 25, her availability on November 7, 9, or 12. She did not
respond, so the SEC noticed her deposition for November 12 at the U.S. Attorney’s
6
The office was about nine miles from Caterina Johnson’s residence in Windsor,
Ontario.
6
office in Detroit. Anticipating that Johnson would not appear, the SEC, on October
31, moved the district court to enter an order requiring her to appear for that
deposition. Meanwhile, on October 29, the district court entered an order granting
the SEC’s September 5 motion to compel Caterina Johnson to provide a sworn
accounting. The court directed her to file the accounting “no later than Friday,
November 15, 2002, and that her failure to do so “may result in adverse sanctions.”
On November 4, the magistrate judge ordered Caterina Johnson to respond
to the SEC’s October 31 motion “on or before 12:00 noon, Thursday, November
7.” On November 5, she mailed her response.7 In it she stated that she had no
objection to being deposed but could not give the SEC a firm deposition date until
she “was able to consult with associates for their opinion and legal guidance.”
Meanwhile, on November 3, she mailed two motions to the court: “Relief
Defendants’ Motion to Set Aside Default Judgments,”8 and “Relief Defendants’
7
According to the case docket sheet, the court (and presumably the SEC) received the
response the following day.
8
The style of the motion referred to “default judgments.” What the motion actually
sought was the vacation of the defaults entered by the clerk of the court pursuant to Fed. R. Civ.
P. 55(c) on March 28, 2002, so that the relief defendants could answer the complaint’s
allegations. See Fed. R. Civ. P. 55(c) (The court may set aside an entry of default for good
cause.). Although the district court had entered a default judgment of disgorgement on May 17,
2002, it had not yet determined the amount of the disgorgement; therefore, the default judgment
was not a judgment that finally adjudicated the SEC’s claims against the relief defendants.
7
Emergency Motion to Have Disgorgement Hearing Canceled or Grant a Stay.”9
The first motion asserted that the relief defendants had “a bona fide defense against
the allegations in the complaint” and asked the court to set aside the defaults “so
that they can begin to promptly take steps to file pleadings and prepare to defend
themselves against the allegations being made.” The second motion asked the
court to “cancel the Disgorgement Hearing or in the alternative, grant a ‘stay’ for a
minimum of 90 days.”
On November 7, the magistrate judge ordered Caterina Johnson to appear
for deposition on November 12 in Detroit. The next day, the district court denied
the relief defendants’ motion to set aside what she had labeled “default
judgments.” The court treated the motion as having been brought pursuant to Rule
55(c) of the Federal Rules of Civil Procedure, i.e., as seeking the vacation of the
defaults, not default judgments, because the motion employed the “for good cause”
standard for “sitting] aside the entry of a default” by the clerk of the court, instead
of one of the standards for “sitting] aside a default judgment.”10 The court found
9
As was the case with the relief defendants’ August 23 motion, Caterina Johnson
purported to represent both relief defendants.
10
Rule 55(c), Setting Aside a Default or a Default Judgment, states: “The court may set
aside an entry of default for good cause, and it may set aside a default judgment under Rule
60(b).” Fed. R. Civ. P. 60(b), authorizes the district court, “[o]n motion and just terms [to]
relieve a party . . . from a final judgment” for any of the reasons set out in Rule 60(b)’s six
subsections.
8
no “good cause” in any of the grounds stated in the motion. In addition, the relief
defendants showed “no good cause” for their delay in bringing the motion. They
were clearly on notice that the court’s determination on amount of disgorgement
was proceeding to evidentiary hearing as early as July 2002, when the matter was
originally noticed for hearing, and yet waited until November 2002, to bring this
motion.
Caterina Johnson failed to appear for deposition at the U.S. Attorney’s office
in Detroit on November 12 as required by the magistrate judge’s order of
November 7, so, on November 13, the SEC applied to the magistrate judge for an
order requiring her to show why she should not be held in contempt for such
failure. On November 15, the magistrate judge issued an order setting a show
cause hearing for November 22, 2002, the day previously set for the evidentiary
hearing on disgorgement. Also that day, he issued an order denying the relief
defendants’ November 3 motion seeking the cancellation of the November 22
evidentiary hearing on disgorgement or a stay of further proceedings.
On November 18, the SEC moved the district court pursuant to Rule 37 of
the Federal Rules of Civil Procedure for sanctions against Caterina Johnson for
failing to appear for deposition on November 12 and to file the required accounting
with the court by November 15. On November 19, the magistrate judge issued an
9
order stating that the motion would be heard on November 22 “in conjunction
with” the show cause hearing (ordered on November 15) and the evidentiary
hearing on disgorgement.
After receiving the magistrate judge’s November 15 order denying the relief
defendants’ November 3 motion seeking the cancellation of the November 22
evidentiary hearing on disgorgement and a stay of further proceedings, Caterina
Johnson, on November 18, mailed to the district court and the SEC three motions.11
The first motion, “Relief Defendant’s Emergency Motion to Appeal Magistrate’s
Order and Other Relief Prior to Filing with Appellate Court,” was dated November
11 and asked the district court to reverse the magistrate judge’s November 7 order
requiring her to appear for deposition in Detroit on November 12. The second
motion, “Relief Defendant’s Emergency Motion for District Court to Reconsider
Orders Prior to Filing of Appeal with 11th Circuit Court of Appeals,” was dated
November 13 and asked the district court to grant Caterina an “extension[ ] to the
‘Order[ ] to Compel Sworn Accounting’ [and] temporarily cancel/stay the
Disgorgement Hearing currently set for November 22d of 2002.” The third
motion, “Relief Defendant’s Emergency Motion Advising Court of: Inability to
Attend Hearing, Notice of Filing Appeal, Etc.,” was dated November 18 and
11
The motions were filed on her behalf only, i.e., she was not moving the court on behalf
of relief defendant J&J.
10
requested “a Stay of all proceedings, including the upcoming ‘Hearing’ . . . for a
minimum of 21 days, so that C. Johnson may properly prepare and file appropriate
Appellant Pleadings.”
The hearing on disgorgement and SEC’s application for Rule 37 sanctions
went forward on November 22 as scheduled. As to the disgorgement issue, the
magistrate judge issued a Report and Recommendation recommending that the
district court enter final judgments against Caterina Johnson in the sum of $1.2
million plus interest of $30,180 and against J & J in the sum of $1.64 million plus
interest of $41,426. As to sanctions, the magistrate judge recommended that the
district court preclude Caterina Johnson from “filing any pleadings in this case
until such time as she has provided the sworn accounting to the SEC in accordance
with [the court’s] previous Orders.” On February 26, 2003, the district court
entered a final judgment of disgorgement against Caterina Johnson and J & J in the
amounts recommended by the magistrate judge.
On October 31, 2003, the jury in Paul R. Johnson’s criminal case found him
guilty on 28 of the charges contained in the 35-count indictment, and on April 21,
2004, the district court sentenced him to concurrent prison terms totaling 240
months. He appealed his convictions and sentence to this court.12
12
Appeal No. 8-10473. We dismissed the appeal on March 16, 2009 for lack of
prosecution.
11
On July 30, 2004, Caterina Johnson filed three motions with the district
court: (1) motion for reconsideration of its order denying her motion to set aside
default; (2) motion to vacate default judgment pursuant to Rule 60(b) of the
Federal Rules of Civil Procedure; and (3) motion for the appointment of counsel.
The district court denied these motions in an order entered on February 1, 2005.
On August 21, 2006, the district court entered a partial summary judgment
against Paul R. Johnson, finding that he had engaged in the alleged securities fraud
and reserving for subsequent adjudication the amount of disgorgement he would be
required to make. The district court adjudicated that amount and on June 21, 2007,
entered a final judgment of disgorgement against Paul R. Johnson in the amount of
$1,505,850 plus interest.
Caterina Johnson filed her notice of appeal on February 11, 2008, after the
district court disposed of the remaining matters pending in the case.13 We turn now
to her arguments concerning the district court’s rulings on her motion to set aside
13
On December 5, 2007, the district court entered two orders that set the disgorgement
awards against Cook and Cardaci. On April 10, 2008, the district court entered an order vacating
the December 5 orders, thus terminating the case with respect to all SEC claims against all
defendants and relief defendants. An administrative panel of this court, determining whether this
court has jurisdiction of Caterina Johnson’s appeal under 28 U.S.C. § 1291, subsequently ruled
that the April 10 order rendered Caterina Johnson’s notice of appeal, which had been filed in the
interim, timely.
12
default.14
II.
A.
Pursuant to Rule 55(a) of the Federal Rules of Civil Procedure, the clerk of
the district court must enter a “default” when a party against whom relief is sought
fails to “plead or otherwise defend” the claim. In this case, Caterina Johnson failed
to answer the SEC’s complaint; hence, the clerk entered a default against her on
March 28, 2002.
A default may be set aside for “good cause.” Fed. R. Civ. P. 55(c). “‘Good
cause’ is a mutable standard, varying from situation to situation.” Companions
Interamericana Export-Import, S.A. v. Companions Domincana, 88 F.3d 948, 951
(11th Cir. 1996). In determining whether “good cause” has been shown, the
courts have considered the following: (a) whether the default was culpable or
willful; (b) whether setting it aside would prejudice the adversary, (c) whether the
defaulting party presents a meritorious defense; (d) whether there was significant
financial loss to the defaulting party; and (e) whether the defaulting party acted
promptly to correct the default. Id. If a “party willfully defaults by displaying
either an intentional or reckless disregard for the judicial proceedings, the court
14
We review the district court’s denial of a motion to set aside a default for abuse of
discretion. In re Worldwide Web SYS., Inc., 328 F. 3d 1291, 1295 (11th Cir. 2003).
13
need make no other findings in denying relief.” Id. at 951-52. Moreover, when “a
litigant has been given ample opportunity to comply with court orders but fails to
effect any compliance, the result may be deemed willful.” Id. at 952.
The district court found no good cause in any of the grounds in Caterina
Johnson’s motion to set aside the default. Among other things, no good cause was
shown for the delay in filing the motion—221 days from the entry of the
default—and Caterina Johnson waited until the disgorgement hearing had been
scheduled to file the motion. We find no error in the court’s good cause findings,
and thus affirm its decision to deny the motion.
B.
Rule 55(c) provides that “[t]he court . . . may set aside the entry of a default
judgement under Rule 60(b).” Caterina Johnson contends that the court should
have set aside the default judgment entered against her pursuant to Rule 60(b)(1),
which states: “On motion and just terms, the court may relieve a party . . . from a
final judgment . . . for the following reasons: (1) mistake, inadvertence, surprise,
or excusable neglect. . . . (6) any other reason that justifies relief.”15
Caterina Johnson argues that the district court erred in entering a default
15
Subsections (1) and (4) are the only subsections of Rule 60(b) that conceivable could
apply here. Subsection (1) is inapplicable because there was no mistake, inadvertence or
surprise, and there was no excusable neglect for the reasons the district court found for not
setting aside the default for good cause.
14
judgment against her while the proceedings against Paul R. Johnson were stayed
and the SEC’s allegations against him had yet to be proven. In other words, the
entry of the judgment against him after the default judgment had been entered
against her somehow renders the judgment against her unenforceable.
Caterina Johnson cites Gulf Coast Fans, Inc. v. Midwest Electronics
Importers, Inc., 740 F.2d 1499 (11th Cir. 1984), for the proposition that, in a case
where the liability of one defendant depends on the liability of another, a default
judgment should not be entered against the first until there has been an
adjudication of the liability of the second. Appellant’s Br. at 50-51. Gulf Coast
Fans states only that it is sound policy, when “defendants are similarly situated,”
that “judgment should not be entered against a defaulting defendant if the other
defendant prevails on the merits.” Id. at 1512. Here, of course, Paul R. Johnson
did not prevail on the merits; judgment was entered against him, too. Thus, even if
Caterina Johnson may have an argument based on Gulf Coast Fans for withholding
judgment against her until judgment had been entered against Paul R. Johnson, the
basis for that argument evaporated once judgment was entered against him.
Remanding her case to the district court to satisfy Gulf Coast Fans would be a
pointless exercise, as there now exists a predicate judgment against her as a relief
defendant.
15
AFFIRMED.
16