Commodity Futures Trading Com'n v. American Commodity Group Corp.

• Decision Date: 28 November 1984
• Docket Number: No. 84-5026,84-5026
• Parties: COMMODITY FUTURES TRADING COMMISSION, Plaintiff-Appellee, v. AMERICAN COMMODITY GROUP CORP., et al., Defendants, Willa M. Ott, Appellant. Non-Argument Calendar.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 862

753 F.2d 862

40 Fed.R.Serv.2d 1231

COMMODITY FUTURES TRADING COMMISSION, Plaintiff-Appellee, v. AMERICAN COMMODITY GROUP CORP., et al., Defendants, Willa M. Ott, Appellant.

No. 84-5026.

Non-Argument Calendar.

United States Court of Appeals, Eleventh Circuit.

Nov. 28, 1984.

Leonard Bloom, Boca Raton, Fla., Whitney Adams, Washington, D.C., John S. Freud, Miami, Fla., for plaintiff-appellee.

Appeal from the United States District Court for the Southern District of Florida.

Before TJOFLAT, HILL and ANDERSON, Circuit Judges.

PER CURIAM:

PROCEDURAL BACKGROUND AND FACTS

On February 25, 1982, the Commodity Futures Trading Commission ("CFTC"), an independent federal regulatory agency, sued various corporate and individual defendants ("defendants") for violations of the Commodities Exchange Act, as amended, 7 U.S.C.A. Sec. 1 et seq. Commodities Futures Trading Commission v. American Commodity Group Corp., et al., C.A. No. 82-6108 (S.D.Fla. filed Feb. 25, 1982). Defendants were in the business of selling futures contracts for the purchase of silver, gold, platinum, and copper in the form of bullion and coins. David L. Bentley, one of the individual defendants, is president of the corporate entities, and exercised effective control over their assets prior to the lawsuit. Another defendant, Universal Precious Metals, Inc. ("UPMI") was actually the entity which entered into the futures contracts with members of the public. On January 7, 1983, the district court in the CFTC action issued a "Final Order of Permanent Injunction." The order found by a preponderance of the evidence that the defendants had

[b]y use of the mails and other means and instrumentalities of interstate commerce, directly or indirectly, ... employed devices, schemes or artifices to defaud clients or participants or prosepective clients or participants; and ... engaged in transactions, practices, and a course of business which operates as a fraud or deceit upon clients or participants or prospective clients or participants; and ... failed to deal fairly with clients or prospective clients in violation of Sec. 4o(1) of the [Commodity Exchange] Act....

The district court enjoined the defendants from a wide range of activities, basically prohibiting them from participating in their commodities futures businesses in any way. In addition, they were prohibited from "dissipating, concealing or disposing of, in any manner, any assets, choses in action, or other property of [UPMI] wherever situated...." Finally, the district court appointed William Nortman ("Nortman") as equity receiver. Nortman's basic Nortman was given two specific powers relevant here. He was "authorized and empowered to initiate such actions as may in his opinion be necessary and appropriate to recover from any person, corporation, partnership or other entity, any money, funds, credits or other assets of [UPMI] or any customer of [UPMI] which may have been converted, embezzled, misappropriated, or otherwise improperly transferred or dissipated...." Nortman was also ordered to make an accounting of "all assets and liabilities of [UPMI] together with all funds received and paid out, together with an accounting of all salaries, commissions, fees, loans, and commodity futures transactions in connection with the sale of the [UPMI] precious metals contract from May, 1981, to and including the date of such accounting...."

responsibility was to try to recover, on behalf of the defrauded customers, monies which had been illegally taken by the defendants in the course of their business dealings.

Nortman hired the accounting firm of Oppenheim, Appel, Dixon & Co. ("Oppenheim") to perform the accounting called for by the district court order. Oppenheim's report found that customers were owed an estimated $5.8 million. The report reveals a massive fraud perpetrated by the defendants upon their customers, the purpose of which was to siphon off monies paid by the contract purchasers to the individual defendants, particularly David Bentley, for their personal use. ¹ The Oppenheim report also made the following statement:

During our analysis of the above brokerage accounts, it came to our attention that $51,000 was apparently paid to Willa H. Ott, the wife of David Bentley, from the [UPMI] account of Midelton James & Co., Ltd.

Midelton James & Co., Ltd. ("Midelton James") is a commodities brokerage house with which UPMI had done extensive business. During its accounting investigation, Oppenheim requested information from Midelton James as to transfers from its UPMI account. Midelton James reported that on September 29, 1982 it had transferred $51,000 to the account of "WHO" at the Heritage Bank (in California). Oppenheim inferred that UPMI had transferred $51,000 to Willa Ott ("Ott"), the wife of defendant David Bentley.

In addition, Nortman had earlier become aware of another transaction involving UPMI and Ott. While investigating the disposition of funds belonging to UPMI, Nortman learned that a UPMI check in the sum of $24,409.28 had been drawn on UPMI's general operating account at the Sun Bank on December 14, 1981, and made payable to Landmark First National Bank. Nortman believed, because of documents he had received, that this check was used to repay a personal loan of Ott's which she had received from the Landmark First National Bank on or about November 16, 1981.

In November 1983, Nortman filed an ex parte application for an order to show cause directed to Willa H. Ott. The application requested that the court issue an order as to why Ott "should not be required to return the sum of $75,409.28 which she illegally and fraudulently converted, embezzled, misappropriated or otherwise improperly had transferred or dissipated from UPMI." Nortman also requested a show cause order why Ott should not be found in violation of the Florida civil theft statute, Fla.Stat.Ann. Sec. 812.035(7) (West 1984), and therefore liable for treble damages and attorney's fees. In addition, Nortman filed an affidavit in support of the ex parte application for order to show cause which stated his belief that the $51,000 telex transfer from Midelton James and the check made payable to Landmark First National Bank were used by Ott for On November 17, 1983, the district judge issued the order to show cause. The order required that Willa H. Ott show cause why she should not be required to return the aggregate sum of $75,409.28 to Nortman and why she should not be liable for treble damages as a result of her violation of the Florida civil theft statute. The court's order scheduled a hearing for December 20, 1983. The record indicates that Ott was served with the order to show cause, Nortman's application for an order to show cause, and Nortman's affidavit in support thereof on November 26, 1983.

her own purposes or for those of her husband, David Bentley. ²

Between the date of service and the hearing date, a 24-day period, Ott did not answer Nortman's application for the order to show cause, ³ nor did she initiate any discovery or request a continuance.

Ott did not appear at the show cause hearing on December 20, nor was an attorney there to represent her. At the hearing, however, a Mr. Field, who was present in the courtroom pursuing other matters related to the CFTC action, told the court that while he "had not been engaged to represent [Ott, he did not] want [the show cause order] to go by default." He declared that Ott's full name is Willa Mary Ott, not Willa H. Ott, as the "WHO" designation in the Midelton James letter would indicate. He claimed that Willa M. Ott was not the "WHO" who received the $51,000 transfer from Midelton James to the Heritage Bank. ⁴

Apparently rejecting Field's protestations, the judge then stated that "[i]t is going to go by default and I'm going to enter an order against Willa H. Ott...." Field then repeated, without adverting to specific evidence, that Ott was unconnected to the Midelton James transfer. At this point, the attorney for Nortman recited the evidence against Ott as incorporated in the show cause application and its supporting affidavit. The judge then indicated that he would rule in favor of Nortman, and requested Nortman's attorney to draft an order. On January 10, 1984, the judge issued an "Order and Judgment" granting Nortman a recovery of the full amount requested, $75,409.28, and treble damages under the Florida civil theft statute in the amount of $226,227.84.

DISCUSSION

On appeal, Ott primarily attacks the judgment below on three grounds: (1) that the default judgment is invalid since service of process was made on Willa M. Ott, not someone with the initials "WHO"; (2) that her due process rights were denied in that she had no opportunity to engage in discovery; and (3) that the granting of treble damages under Fla.Stat.Ann. Sec. 812.035(7) was improper in this case because it amounted to a finding equivalent to a criminal conviction.

In our view, the errors asserted by Ott are not cognizable in this court by virtue of the fact that the district court rendered its decision by default. See Fed.R.Civ.P. 55. Nortman's application for an order to show cause was the functional equivalent of a complaint. Likewise, Ott's position in district court was of...