Opinion
Case No. 8:17-cv-02092-TMC-JDA
01-07-2019
Michael J. Fitzgibbons, acting on behalf of the Director of the South Carolina Department of Insurance, in his capacity as the Special Deputy Receiver of the South Carolina Health Cooperative, Inc., a Multiple Employer Self-Insured Health Plan, Plaintiff, v. Alton Atkinson; John Thomas Childs, IV; Larry Busch; De'Shaun Williams; Cherise Raymond; Andre Garcia Littlejohn; Vickie Damon; Winston Cook; Kristin Ketterman; Daniel Wheeler; Regent Financial d/b/a PF Holdings, LLC; King Capital Group; A-Z Consulting, LLC; Intermediary Network; Busch Law Center, LLC; JJLJ Financial; Protege Investments, LLC; IGWT Consulting, LLC; Cook Business Services, LLC; John Does 1-10; Interlink Global Messaging, LLC, Defendants.
REPORT AND RECOMMENDATION OF MAGISTRATE JUDGE
This matter is before the Court on a motion filed by Plaintiff for default judgment against Defendants Alton Atkinson ("Atkinson"); John Thomas Childs, IV ("Childs IV"); Larry Busch ("Busch"); Andre Garcia Littlejohn ("Littlejohn"); Vickie Damon ("Damon"); Winston Cook ("Cook"); Kristin Ketterman ("Ketterman"); Daniel Wheeler ("Wheeler"); King Capital Group ("King"); A-Z Consulting, LLC ("A-Z"); Intermediary Network ("Intermediary"); Busch Law Center, LLC ("Busch Law"); JJLJ Financial ("JJLJ"); Protege Investments, LLC ("Protege"); IGWT Consulting, LLC ("IGWT"); and Cook Business Services, LLC ("Cook Business") (collectively, the "Defaulted Defendants"). [Doc. 240.] Pursuant to the provisions of 28 U.S.C. § 636(b)(1)(B) and Local Civil Rule 73.02(B)(2), D.S.C., this Magistrate Judge is authorized to review all pretrial matters in this case and to submit findings and recommendations to the District Court.
On August 8, 2017, Plaintiff filed the instant action, alleging, among other things, racketeering activity in violation of the Racketeer Influenced and Corrupt Organization Act ("RICO"). [Doc. 1.] Cook and Cook Business were served via certified mail on August 21, 2017 [Docs. 7-1; 9-1]; Ketterman, via private process server on September 22, 2017 [Doc. 21-1]; Busch and Busch Law via private process server on August 31, 2017 [Doc. 6-1; 8-1]; Littlejohn, via private process server on September 25, 2017 [Doc. 52-1]; JJLJ, via private process server on September 25, 2017 [Doc. 53-1]; Protege, via certified mail on November 2, 2017 [Doc. 59-1]; Damon, via private process server on December 10, 2017 [Doc. 66-1]; Childs IV, via private process server on March 22, 2018 [Doc. 142-1]; IGWT, via publication once a week for four consecutive weeks in the Las Vegas Sun and the Independent-Mail, ending on April 5, 2018 [Docs. 147-1; 154-1]; Atkinson and King, via publication once a week for four consecutive weeks in the Independent-Mail and the Toronto Sun, ending April 7, 2018 [Docs. 152-1; 156-1; 158-1; 161-1]; and Wheeler, via private process server on May 7, 2018 [Doc. 177-1].
This Court granted Plaintiff's request to serve IGWT by publication in accordance with S.C. Code 15-9-740 and to serve Atkinson and King by foreign publication, pursuant to Federal Rule of Civil Procedure 4(f). [Doc. 137.]
Cook and Busch filed pro se Answers to the Complaint on September 19, 2017, and October 6, 2017, respectively. [Docs. 12; 26.]
On February 22, 2018, with Ketterman, Busch Law, Littlejohn, JJLJ, Protege, and Damon not having filed a pleading or otherwise participated in the case, Plaintiff filed a request for entry of default against those Defendants [Doc. 129], and the Clerk entered default against them the next day [Doc. 131]. On May 21, 2018, with Childs IV, Intermediary, A-Z, IGWT, Atkinson, King, and Cook Business not having filed a pleading or otherwise participated in the case, Plaintiff filed a request for entry of default against those Defendants [Doc. 173], and the Clerk entered default against them two days later [Doc. 175]. Finally, on May 31, 2018, with Wheeler not having filed a pleading or otherwise participated in the case, Plaintiff filed a request for entry of default against him [Doc. 179], and the Clerk entered default against him the next day [Doc. 185].
On May 31, 2018, Plaintiff filed a motion for leave to amend his Complaint [Doc. 182], which this Court granted on July 18, 2018 [Doc. 215]. Plaintiff filed his Amended Complaint [Doc. 218] the following day. He did not re-serve any of the Defendants who were already in default. See Fed. R. Civ. P. 5(a)(2) ("No service is required on a party who is in default for failing to appear. But a pleading that asserts a new claim for relief against such a party must be served on that party under Rule 4."). On July 30, 2018, Plaintiff filed a certificate of service as to Cook and Busch after sending both a copy of the Summons and Amended Complaint via U.S. Mail to the addresses they provided the Court when filing their responses to Plaintiff's original Complaint. [Doc. 222.] On September 7, 2018, neither Cook nor Busch having responded to the Amended Complaint, Plaintiff requested entry of default as to those two Defendants and the other Defaulted Defendants. [Doc. 231.] That same day, Williams and Raymond each filed pro se answers to the Amended Complaint. [Docs. 234; 235.] The Clerk entered default against the Defaulted Defendants on September 10, 2018. [Doc. 233.] On November 1, 2018, Plaintiff then filed a motion for default judgment against the Defaulted Defendants. [Doc. 240.]
On December 8, 2017, Raymond and Williams had filed identical motions to dismiss, contending that Plaintiff lacks personal jurisdiction over them; that venue is improper in South Carolina; that the Federal Arbitration Act requires that this matter be arbitrated; that Plaintiff failed to join a necessary party; and that Plaintiff is in violation of the first to file rule. [Docs. 64; 65.] On May 18, 2018, the undersigned issued a Report and Recommendation recommending that the motions be denied [Doc. 170], and on August 16, 2018, District Judge A. Marvin Quattlebaum, Jr. adopted the Report and Recommendation and denied the motions [Doc. 225.]
BACKGROUND
Plaintiff, the duly appointed special deputy receiver for South Carolina Health Cooperative, Inc. ("SCHC"), alleges that Defendants collectively conspired to defraud SCHC out of millions of dollars. [Doc. 218 at 4-5 ¶¶ 9, 13.] SCHC is a multiple employer welfare arrangement ("MEWA"). [Id. at 3 ¶ 3; 15-16 ¶ 20.] MEWAs are insurance arrangements whereby a group of member employers pool contributions to provide dental, health, and short-term disability benefits to their employees. [Id. at 15 ¶ 18] MEWAs are not fully insured; thus, they are statutorily prohibited from receiving guaranty fund protection. [Id. ¶ 19.] Because SCHC was a MEWA, Plaintiff alleges that the South Carolina Department of Insurance ("SCDOI") imposed financial requirements on SCHC. [Id. at 15-16 ¶ 20.] Plaintiff alleges that SCHC's licensing order required that it maintain a loss reserve in an amount set by the SCDOI, which was initially $5,000,000. [Id. at 16 ¶ 20.] SCDOI allowed SCHC to fund the loss reserve with an irrevocable stand-by letter of credit ("LOC"). [Id. ¶ 21.] The LOC would serve as a last-resort resource to pay claims in the event SCHC was declared insolvent. [Id. ¶ 22.]
Plaintiff alleges that Defendants all knowingly participated in a scheme to defraud SCHC and other victims through the sale of fraudulent LOCs that Defendants deceived Plaintiff into believing were legitimate business transactions. [Id. at 25 ¶ 44; 27 ¶¶ 48d, 48e; 37 at ¶ 71; 39 ¶ 75; 40 ¶ 80.] Plaintiff maintains that Defendants derived income from these fraudulent sales, which they then used not only for their personal use, but also to continue the enterprise itself. [Id. at 32-36 ¶¶ 63-64.]
LOC Number 1
Mark Goodman ("Goodman") was a principal and initial investor at Cooperative Solutions for America ("CSA"). [Id. at 16 ¶ 23.] Plaintiff alleges that in late 2011, Goodman advised SCHC's CEO, Littlejohn, to obtain an LOC through Interlink Global Messaging, LLC ("IGM") and its affiliate Protege. [Id. at 16 ¶ 23.] Plaintiff also contends that Goodman introduced Littlejohn to Michael Ciuffo ("Ciuffo"). [Id.] Littlejohn and Ciuffo thereafter negotiated the sale of the first LOC ("LOC No. 1") to SCHC, purportedly from Bank of America. [Id.] Plaintiff alleges that Littlejohn entered into a finder's fee agreement with IGM, committing SCHC to pay $600,000 for IGM's assistance in obtaining LOC No. 1. [Id. ¶ 24.] Plaintiff contends that on or about June 1, 2012, Atkinson entered into an agreement with Childs IV and IGM to "assist" in obtaining the fraudulent LOC in exchange for $275,000. [Id. at 17 ¶ 25.] Around June 2, 2012, SCHC wired $600,000 to IGM's closing agent, Busch Law. [Id. at ¶ 26.] Plaintiff contends Busch Law disbursed $275,000 via wire to Boddie & Associates Trust Account, which retained $5,500 and then disbursed the remainder of that money via wire to JJLJ, King, IGWT, and Regent Financial ("Regent"). [Id.] As for the remainder of the $600,000, Plaintiff alleges Busch Law disbursed it via wire to Sharon Colker, Zion Trust, Kimberly Davidson ("Davidson"), and several Defendants, including JJLJ, King, IGWT, Regent, A-Z, Intermediary, Ciuffo, De'Shaun ("Williams"), Cherise Raymond ("Raymond"), Athena Childs ("Childs"), Zion Trust, and Sharon Colker. [Id.] Following receipt of the funds, Plaintiff alleges that Protege sent LOC No. 1 to SCHC via U.S. Mail. [Id. at 18 ¶ 27.]
Plaintiff alleges that IGWT was a sham entity, of which Damon was a principal and agent [Doc. 218 at 12 ¶¶ 14w, 14y]; that King and Regent were two "of Atkinson's sham entities" [id. at 6-7 ¶¶ 14c, 14d]; that A-Z, Intermediary, and IGM were three "of [Childs IV]'s sham entities [id. at 8 ¶¶ 14g, 14h, 14i]; that Protege is one of Williams' sham entities [id. at 10 ¶ 14q]; and that JJLJ is one of Littlejohn's sham entities [id. at 12 ¶ 14v].
First Renewal of LOC No. 1
LOCs have to be renewed annually. [Id. ¶ 28.] Plaintiff contends that Williams and Littlejohn communicated via electronic mail and during that correspondence Williams indicated that Protege would renew LOC No. 1 for $525,000, even though Plaintiff alleges Williams knew LOC No. 1 was fraudulent. [Id. at 18-19 ¶ 28.] Plaintiff contends that SCHC wired fees to Busch Law to complete the renewal. [Id. at 19 ¶ 29.] Plaintiff contends Busch Law then disbursed the funds via wire to Safefunds.com; Zion Trust; and several Defendants, including JJLJ, Regent, Wheeler, Raymond, Williams, and A-Z. [Id.] Following receipt of the funds, Plaintiff alleges that Protege sent a renewal of LOC No. 1 ("LOC No. 1 Renewal No. 1") to SCHC via U.S. Mail. [Id. ¶ 30.]
LOC Number 2
During 2013, Plaintiff alleges that SCDOI required that SCHC's reserve account be increased by $3,000,000. [Id. ¶ 31.] Plaintiff contends that Littlejohn and Williams communicated via email, agreeing that Protege would provide a second LOC ("LOC No. 2") in exchange for $350,000, despite knowledge that LOC No. 2 was fraudulent. [Id. at 19-20 ¶ 31] Plaintiff alleges that on or about November 25, 2013, SCHC wired $350,000 to Busch Law. [Id. at 20 ¶ 32.] Plaintiff contends Busch Law then disbursed the proceeds via wire to several Defendants, including Cook Business, Williams, Raymond, Regent, JJLJ, Busch Law, Childs IV, and Intermediary. [Id.] Following receipt of the funds, Plaintiff alleges that Protege sent LOC No. 2 to SCHC via U.S. Mail. [Id. ¶ 33.]
Second Renewal of LOC No. 1
During June 2014, Plaintiff alleges Williams again represented that Protege would renew LOC No. 1 for $525,000, despite knowledge that LOC No. 1 was fraudulent. [Id. at 21 ¶ 34.] To facilitate the renewal, Plaintiff wired $525,000 to Velocity Partners, LLC. [Id. ¶ 35.] Plaintiff contends the proceeds were then disbursed via wire to Paragon Venture Group; and several Defendants, including Regent, Raymond, Williams, Ketterman, Childs IV, and JJLJ. [Id.] Following receipt of the funds, Plaintiff alleges that Protege sent the second renewal of LOC No. 1 ("LOC No. 1 Renewal No. 2") to SCHC via U.S. Mail. [Id. at 22 ¶ 36.]
Subsequent Activity
Plaintiff contends that LOC No. 2 was due for renewal on November 20, 2014. [Id. ¶ 37.] Plaintiff alleges that on October 24, 2014, however, the Alabama Securities Commissioner notified Chiles Stifle, then-CFO of SCHC, of a fraud case being pursued against several Defendants named in the present matter. [Id.] Stifle forwarded the notice to SCHC's then-president, David Black, who sent it to SCDOI. [Id.] SCDOI informally confirmed that LOC No. 1 and LOC No. 2 were fraudulent on October 27, 2014, and formalized that confirmation with a letter from Bank of America on November 10, 2014. [Id. ¶ 38.] Plaintiff alleges that SCHC was placed into rehabilitation and, on the last day of coverage, had an unpaid liability of $11,379,000. [Id. ¶ 39.]
Plaintiff then filed the instant action on August 8, 2017. [Doc. 1] He filed his Amended Complaint on July 19, 2018. [Doc. 218.] Against all Defendants, the Amended Complaint alleges racketeering activity in violation of the RICO Act and conspiracy to violate the RICO Act, predicated on violations of the mail and wire fraud statutes, 18 U.S.C. §§ 1341 and 1343, respectively. [Doc. 218 at 24-41.] The Amended Complaint also alleges against all Defendants, civil conspiracy; conversion; unjust enrichment; engaging in unfair and deceptive trade practices in violation of the South Carolina Unfair Trade Practices Act. [Id. at 43-47.] Finally, the Amended Complaint alleges a claim of fraudulent misrepresentation against Williams. [Id. at 41-42.]
APPLICABLE LAW
Rule 55(a) of the Federal Rules of Civil Procedure states that the clerk must enter a party's default "[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." After the clerk enters default, the opposing party may seek a default judgment under Rule 55(b). However, Rule 55(c) provides that "[t]he court may set aside an entry of default for good cause." The Fourth Circuit Court of Appeals has held that "[a]lthough the clear policy of the Rules is to encourage dispositions of claims on their merits, 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) (internal citations omitted).
In considering a motion for default judgment, the Court accepts as true all well-pleaded factual allegations in the Complaint not relating to the amount of damages. See Fed. R. Civ. P. 8(b)(6). Thus, regarding default judgments, the "appropriate inquiry is whether or not the face of the pleadings supports the default judgment and the causes of action therein." Anderson v. Found. for Advancement Educ. & Emp't of Am. Indians, 1999 WL 598860, at *1 (4th Cir. 1999).
If the Court finds that liability has been established, it then must turn to the question of damages. Danielson v. Human, No. 3:12-cv-00840-FDW-DSC, 2014 WL 1765168, at *4 (W.D.N.C. May 2, 2014). The Court cannot simply accept Plaintiff's factual allegations of damages; the Court must make its own damages determinations. EEOC v. Carter Behavior Health Servs., Inc., No. 4:09-cv-122-F, 2011 WL 5325485, at *4 (E.D.N.C. Oct. 7, 2011). To do so, the Court may conduct an evidentiary hearing or it may simply rely on affidavits or documentary evidence in the record. EEOC v. N. Am. Land Corp., No. 1:08-cv-501, 2010 WL 2723827, at *2 (W.D.N.C. July 8, 2010).
DISCUSSION
The Court finds that it would be premature at this stage to enter default judgment. "In cases involving multiple defendants, a district court has the authority to enter final judgment against some parties while allowing the suit to proceed against others, if it determines there is no just reason for delaying the entry of judgment." Alutiiq Int'l Sols. v. OIC Marianas Ins. Corp., No. 2:10-cv-01189-APG-NJK, 2013 WL 3432077, at *2 (D. Nev. July 8, 2013) (citing Fed. R. Civ. P. 54(b)). The decision as to whether there is just reason for delay is committed to the district court's discretion. Id. (citing Curtiss-Wright Corp. v. Gen. Elec. Co., 446 U.S. 1, 8 (1980)). "[I]f default is entered against some defendants in a multi-defendant case, the preferred practice is for the court to withhold granting default judgment until the action is resolved on its merits against non-defaulting defendants: if plaintiff loses on merits, the complaint should then be dismissed against both defaulting and non-defaulting defendants." Animal Sci. Prods., Inc. v. China Nat. Metals & Minerals Import & Export Corp., 596 F. Supp. 2d 842, 849 (D.N.J. 2008). That is especially true of a case in which many of the arguments that may be asserted by the defendants who are not in default could also justify judgments in favor of the defaulted defendants on some or all of plaintiff's claims. See Alutiiq Int'l Sols., 2013 WL 3432077, at *3 ("[W]here the defendants are similarly situated such that they would share or have similar defenses, entering default judgment early could lead to logically inconsistent results if the non-defaulting defendant ultimately proves the plaintiffs claims are invalid."); Jefferson v. Briner, Inc., 461 F. Supp. 2d 430, 434 (E.D. Va. 2006) (explaining that "logically inconsistent judgments resulting from an answering defendant's success on the merits and another defendant's suffering of a default judgment are to be avoided"); see also Bivens v. Roberts, No. 208-cv-026, 2009 WL 411527, at *7 (S.D. Ga. Feb. 18, 2009) ("The Court has yet to rule on whether the plaintiffs' Complaint states a claim for relief against any of the defendants. Particularly in the context of a RICO claim, which requires 'enterprise' liability involving two or more parties . . . it would be imprudent to enter a default judgment before determining whether plaintiffs' Complaint pleads sufficient facts that such an enterprise existed or that the five defaulting defendants were in any way involved in that enterprise."). Because the Court concludes that Williams and Raymond may have defenses that would apply as well to the Defaulted Defendants, the Court recommends denying Plaintiff's motion for default judgment against the Defaulted Defendants without prejudice to the right to renew it at a later time.
RECOMMENDATION
Wherefore, based upon the foregoing, the Court recommends that Plaintiff's motion for default judgment [Doc. 240] be DENIED without prejudice to the right to renew the motion at a later stage in this litigation.
IT IS SO RECOMMENDED.
S/ Jacquelyn D. Austin
United States Magistrate Judge January 7, 2019
Greenville, South Carolina