Geddes v. United Financial Group
| Decision Date | 22 August 1977 |
| Docket Number | USI-ANLEGER,No. 75-1468,75-1468 |
| Citation | 559 F.2d 557 |
| Parties | John M. GEDDES, P. M. C. van der Spank, Schutzgemeinschaft derund Anlageberater, for themselves and all others similarly situated, and Enrico Chesi, a creditor, Plaintiffs-Appellants, v. UNITED FINANCIAL GROUP, a corporation, United States Investment Plan, Ltd., a corporation, United Growth Fund, Inc., a corporation, United Income and Growth Fund, Inc., a corporation, Euro-American Real Estate Fund, Inc., a corporation, USI Venture Fund, Inc., a corporation, Fund of Nations, Inc., a corporation, Design Fund, Inc., a corporation, Argus Real Estate, Inc. of California, a corporation, Argus Real Estate, Inc., a corporation, Atlas Properties, Inc., a corporation, Port-West, Inc., a corporation, Standard Growth Properties, Inc., a corporation, Standard Investment Company, a corporation, Taylor and Associates Advertising, Inc., a corporation, United States Investment Bank, a corporation, U.S.I. Management, Ltd., a corporation, U.S.I. Management A. G., a corporation, U.S. Investment Services, Ltd., a corporation, U.S.I.S. Investment Services, a corporation, United States Real Estate Corporation, a corporation, U.S.I. Securities, Inc., a corporation, Harris Management Company, Inc., a corporation, United States Land Investment X, a corporation, International Securities Underwriters, Inc., a corporation, Consolidated Insurance International, Inc., a corporation, U.S.I. Distributors, Inc., a corporation, Unit & Co., a corporation, U.S. Investment Management (UK), Ltd., a corporation, Robert W. Pollock, Douglas K. Pollock, Robert J. Walker, Frank Weigel, Sandra Pollock, Barry Snider, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Thomas H. Carver, Beverly Hills, Cal., Alfred A. Hampson, Hampson & Bayless, Portland, Or., argued, for plaintiffs-appellants.
William E. Tassock, Portland, Or., for defendants-appellees.
Appeal from the United States District Court for the District of Oregon.
Before TRASK, Circuit Judge, and JAMESON, * District Judge.
On October 13, 1971, John M. Geddes and others filed a class action against United Financial Group, Inc., its subsidiary corporations, and Robert Pollock, Douglas Pollock, Sandra Pollock, Robert Walker, Barry Snider, and Frank Weigel. The complaint alleged fraud as well as violations of the Securities Act of 1933, the Securities Exchange Act of 1934, and the laws of the states of Oregon and California. The complaint prayed for, inter alia, compensatory and punitive damages, a preliminary injunction, and appointment of a receiver.
In addition to the instant action, the fraud alleged in the Geddes complaint gave rise to two other lawsuits: SEC v. United Financial Group, Inc., Case No. 72-41 (), and Wenzoski v. Pollock, Marin County, California, Superior Court No. 62826. On July 12, 1972, an order of consolidation was entered, consolidating for purposes of discovery the Geddes and SEC actions.
On March 26, 1973, plaintiffs in the instant case filed a motion for summary judgment against United Financial Group and its affiliated corporations. That motion was granted by the trial court on April 10, 1973, and was affirmed by this court on appeal. Geddes v. United Financial Group, Inc., No. 73-2418 (9th Cir. March 11, 1974). On September 5, 1973, a final judgment against the corporate defendants was entered in the amount of $66,900,000, which sum was "intended to equal (plaintiffs') total investments and deposits in the defendant corporations . . . plus interest thereon at the rate of six percent (6%) per annum from the date of investment . . . ."
On April 30, 1974, pursuant to a motion of the plaintiff class, the district court found that all the individual defendants except Frank Weigel were in default for failure to plead or otherwise defend, as provided by the Federal Rules of Civil Procedure. Defendant Douglas Pollock and defendants Robert Pollock, Sandra Pollock, Robert Walker, and Barry Snider filed motions to set aside the default on May 6 and May 8, 1974, respectively.
Co-counsel for plaintiffs filed an affidavit dated May 3, 1974, averring that the amount due plaintiffs from the individual defendants was $66,900,000 "as appears from the Final Judgment Against Corporate Defendants in this case, filed September 5, 1973." Five months later, October 11, 1974, after protracted settlement efforts, a hearing was held before Judge Belloni at which appellees Walker, Snider, and Douglas Pollock testified as to their financial condition and ability to pay any judgment which might be rendered against them.
After testimony had been taken and evidence received, the district court observed that it would be "in the best interest of the parties in this case to fashion some remedy other than simply a judgment for a large sum of money against these three defendants, which judgment would be uncollectable." The court then proposed that counsel for the individual defendants prepare a decree for the court's signature which would be in lieu of a money judgment against these three defendants-appellees.
Pursuant to the court's suggestion, proposed decrees against Snider, Walker, and Douglas Pollock were prepared. Judgments were then entered for plaintiffs and against defendants-appellees on December 2, 1974. The judgments, which are identical, provide that as to each defendant-appellee:
a. plaintiffs have judgment in the amount of $2500; execution to be stayed for one year;
b. his claim for wages and expense reimbursement and his claim as an investor in United Financial Group, Inc. and its subsidiaries filed with the receiver appointed in SEC v. United Financial Group, Inc., supra, are denied; and
c. any assets owned by defendant-appellee, not heretofore disclosed, or which have been substantially undervalued in said disclosures, are adjudged assets of the receivership estate established in the SEC action.
On December 31, 1974, a member of the plaintiff class, Enrico Chesi, filed notice of appeal from each of the three judgments.
Appellant's initial contention here is that the trial court erred in entering judgments against appellees in amounts less than the $66,900,000 award entered against the corporate defendants in this action. In support of his contention appellant points out that the complaint in this case explicitly alleges that each appellee is "jointly and separately liable with, and to the same extent as, said corporate defendants." Appellant also draws our attention to the allegation in the complaint that appellees used the corporate defendants as a scheme and device to avoid individual liability, and that each of the corporate defendants "was and now is the alter ego of each of said individual defendants." Appellant argues that upon appellees' defaults in this suit, appellees admitted this joint liability for the full amount of $66,900,000.
The general rule of law is that upon default the factual allegations of the complaint, except those relating to the amount of damages, will be taken as true. Pope v. United States, 323 U.S. 1, 12, 65 S.Ct. 16, 89 L.Ed. 3 (1944); Flaks v. Koegel, 504 F.2d 702, 707 (2d Cir. 1974). See also 10 Wright & Miller, Federal Practice and Procedure § 2688, at 280, 284 (1973). Support for this general rule is found in Rule 8(d) of the Federal Rules of Civil Procedure which...
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