Opinion
21-CV-4529 (LGS) (JLC)
09-09-2022
WEIGUO SUN, et al., Plaintiffs, v. GTV MEDIA GROUP INC., et al., Defendants.
To the Honorable Lorna G. Schofield, United States District Judge:
REPORT AND RECOMMENDATION
JAMES L. COTT, UNITED STATES MAGISTRATE JUDGE.
Weiguo Sun, Linda He Cheung, Jia Li Wang, Jiamei Lu, Jun Liu, Mao-Fu Weng, RuQin Wang, Teli Chen, Weixiang Ge, Shuang Wang, Xingyu Yan, Yan Gao, Yi Li, and Ying Liu (collectively, “Plaintiffs”) brought this action against GTV Media Group Inc., Saraca Media Group Inc., Wengui Guo, Lihong Wei Lafrenz, and Voice of Guo Media (collectively, “Defendants”) seeking relief for various securities fraud violations and related state law claims. On October 14, 2021, a default judgment was entered against Lafrenz and Voice of Guo Media, each of whom failed to appear in this action, and the case as against them was referred to me for an inquest into damages. For the reasons set forth below, the inquest into damages should be consolidated with the damages aspect of the trial against those defendants who have appeared in the case.
I. BACKGROUND
Plaintiffs commenced this action on May 19, 2021. See Complaint (“Compl.”), Dkt. No. 1. They assert that Defendants “contrived and conspired to sell the unregistered securities of Defendant GTV to Plaintiffs, through untrue and materially misleading statements that Defendants broadcast to the public-at-large ....” Compl. ¶ 1. Plaintiffs appear to contend that each Defendant held a different role in Defendants' alleged “scheme.” Id. ¶ 4. As against all Defendants, Plaintiffs allege: (1) violations of Sections 5 and 12(a)(1) of the Securities Act of 1933 (count I) (Compl. ¶¶ 174-82); (2) violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder (count III) (Id. ¶¶ 187-97); (3) common law fraud (count IV) (Id. ¶¶ 198-206); and (4) unjust enrichment (count V) (Id. ¶¶ 207-12).They seek a judgment that “Defendants offered and sold unregistered securities in violation of the Securities Act of 1933” and that Defendants are “jointly and severally liable for rescission and/or damages, including punitive damages, as to each Plaintiff in amounts to be proven at trial.” Id. ¶¶ 213-14. Specifically, they allege that “[t]he Defendants are jointly and severally liable for damages, including punitive damages” to each Plaintiff in the following amounts, plus interest:
Plaintiffs also allege violations of Sections 5 and 15 of the Securities Act of 1933 in count II only against Defendant Guo, an appearing Defendant. Compl. ¶¶ 183-86.
1. $430,000.00 to Jia Li Wang;
2. $40,000.00 to Jiamei Liu;
3. $35,000.00 to Jun Liu;
4. $50,030.00 to Linda He Cheung;
5. $45,000.00 to Mao-Fu Weng;
6. $89,980.00 to RuQin Wang;
7. $125,000.00 to Teli Chen;
8. $59,200.00 to Weiguo Sun;
9. $4,500.00 to Weixiang Ge;
10. $100,000.00 to Xingyu Yan;
11. $66,000.00 to Yan Gao;
12. $45,000.00 to Yi Li;
13. $20,000.00 to Ying Liu; and
14. $25,500.00 to Shuang Wang.Id. ¶¶ 215-28.
GTV Media Group Inc., Saraca Media Group Inc., and Wengui Guo (collectively, “appearing Defendants”) have each appeared in this action, but Lafrenz and Voice of Guo Media (collectively, “defaulting Defendants”) have not. On October 14, 2021, a default judgment against defaulting Defendants was entered as to the claims set forth in Counts I, III, IV, and V of the Complaint. Dkt. No. 71. The case was subsequently referred to me to conduct an inquest into damages as to defaulting Defendants. Dkt. No. 70.
As for appearing Defendants, as of February 22, 2022, a stay of the proceedings against Defendant Wengui Guo occurred as a result of Guo's filing a bankruptcy petition in the District of Connecticut, and the parties have been filing status reports with the Court every 60 days regarding the status of the bankruptcy proceeding. Dkt. Nos. 81-89. As to Defendants GTV Media Group and Saraca Media Group, the Court granted a stay of discovery on October 14, 2021 while Plaintiffs pursued recovery in connection with the SEC-administered Fair Fund, which is ongoing. Dkt. Nos. 72, 82.
In support of the inquest inquiry, on November 15, 2021, Plaintiffs filed Proposed Findings of Fact and Conclusions of Law (“Proposed Findings”) and the Declaration of Brian P. Lanciault, Jr. Dkt. Nos. 74, 75. They argue that defaulting Defendants are “each jointly and severally liable to each Plaintiff” on counts I, III, IV, and V, inclusive of punitive damages. Proposed Findings ¶¶ 50, 54, 57, 61, 65.
Defaulting Defendants have not responded.
II. DISCUSSION
“[W]here Plaintiffs' theory is at least joint and several liability (if not true joint liability), a court should not enter final judgment as to damages until after conclusion of the merits-phase of the proceedings against the actively litigating defendants.” Knowles-Carter v. Feyonce, Inc., No. 16-CV-2532 (AJN), 2017 WL 11567528, at *5 (S.D.N.Y. Sept. 23, 2017) (citing cases); see also Grazette v. Rockefeller, No. 20-CV-965 (AJN) (SLC), 2022 WL 252631, at *3 (S.D.N.Y. Jan. 26, 2022). A court “may enter a default judgment against any defendants who default by failing to appear” even when plaintiffs seek joint and several liability against several defendants, but
in such a case where some but not all defendants have defaulted, the courts have consistently held that it is appropriate to enter judgment solely as to liability and not as to the amount of damages to be assessed against the defaulting party, since a separate determination of damages would pose the prospect of inconsistent judgments.Montcalm Pub. Corp. v. Ryan, 807 F.Supp. 975, 978 (S.D.N.Y. 1992) (cleaned up); see also Lite-Up Corp. v. Sony Music Entertainment, Inc., No. 97-CV-1546 (KTD) (MHD),1999 WL 436563, at *2 (S.D.N.Y. June 24, 1999) (“even if the liability is joint and several and thus a default judgment may be entered, it is appropriate to enter judgment solely as to liability and not as to the amount of damages to be assessed against the defaulting party”).
Despite “some disagreement in [the Second] Circuit” as to the exact parameters of when a default judgment may be entered as to liability against one defendant when active litigants remain, courts have upheld in “near-uniform” fashion the principle that final judgment as to damages should wait until after the merits portion of the case. Knowles-Carter, 2017 WL 11567528, at *5; see also Lin v. Grand Sichuan 74 St. Inc., No. 15-CV-2950 (RA), 2022 WL 195605, at *6 (S.D.N.Y. Jan. 21, 2022).
Here, as described above, Plaintiffs' theory of the case asserts joint and several liability among all defendants, both appearing and defaulting. See, e.g., Compl. ¶¶ 1, 197, 213-28. Therefore, at this stage of the litigation it is “premature . . . to calculate the level of damages and enter a final judgment against the [d]efaulting Defendants.” Montcalm Pub. Corp, 807 F.Supp. at 977-78; see also, e.g., Knowles-Carter, 2017 WL 11567528, at *6 (not “proper” to grant requested default judgment “at this time” when relief requested included, inter alia, “sums for which [appearing] Defendants may ultimately be jointly liable”); Lite-Up Corp., 1999 WL 436563 at *3 (determination of damages “premature” with respect to defaulting defendant when plaintiff seeks to impose liability on defaulting defendant for full amount of loss allegedly incurred while seeking to recover same amount from active defendant).
“Because a default constitutes an admission as to liability, the . . . default judgment [can] remain[] valid as to the liability of the defaulting Defendants.” Lin, 2022 WL 195605, at *7 (emphasis in original). However, even in such a circumstance, “the entry of final judgment as to the [defaulting] Defendants [should] await the entry of final judgment as to the appearing Defendants . . . .” Id. (citing Montcalm Pub. Corp., 807 F.Supp. at 978 (“the proper procedure is to consolidate the inquest to determine the level of damages as to the defaulting defendants with the damages aspect of the trial against the non-defaulting defendants”)). See, e.g., Century Sur. Co. v. Whispers Inn Lounge, Inc., No. 13-CV-9049 (LGS), 2014 WL 8392302, at *1 (S.D.N.Y. Dec. 15, 2014) (“In cases of joint and several liability, where a complaint ‘makes a joint charge against several defendants,' and only one defendant defaults, courts should not enter ‘a final decree on the merits against the defaulting defendant alone, pending the continuance of the cause.'”) (citations omitted).
Where a defendant has defaulted, the Court is required to accept all of the plaintiff's factual allegations as true and draw all reasonable inferences in the plaintiff's favor, . . . but it is also required to determine whether the plaintiff's allegations establish [the defendant's] liability as a matter of law.” Related Companies, L.P. v. Ruthling, No. 17-CV-4175 (JSR) (DF), 2019 WL 10947100, at *3 (S.D.N.Y. July 23, 2019) (internal quotation and alteration omitted) (quoting Finkel v. Romanowicz, 577 F.3d 79, 84 (2d Cir. 2009)). Thus, if the “complaint fails to state a cognizable claim, a plaintiff may not recover even upon defendant's default.” Bolivar v. FIT Int'l Grp. Corp., No. 12-CV-781 (PGG) (DF), 2017 WL 11473766, at *13 (S.D.N.Y. Mar. 16, 2017), adopted by 2019 WL 4565067 (Sept. 20, 2019) (internal quotation marks omitted) (citing Allstate Ins. Co. v. Afanasyev, No. 12-CV-2423 (JBW) (CLP), 2016 WL 1156769, at *6 (E.D.N.Y. Feb. 11, 2016), adopted by 2016 WL 1189284 (Mar. 22, 2016)). Notably, in advance of the inquest referral, Judge Schofield did not determine whether the claims for relief, on which damages are predicated, are cognizable as against defaulting Defendants. Therefore, a determination as to defaulting Defendants' liability will need to be made, either as part of the granting of a default judgment, at trial, or upon a renewed inquest if appropriate.
III. CONCLUSION
For these reasons, the inquest into damages should be consolidated with the damages component of the trial against the appearing Defendants. Alternatively, the default judgment previously entered against defaulting Defendants should be vacated without prejudice to refiling after the claims against appearing Defendants are resolved. See Grazette, 2022 WL 252631, at *3 (denying motion for default judgment with leave to refile after claims against appearing defendants resolved).
PROCEDURE FOR FILING OBJECTIONS
Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties shall have fourteen (14) days from service of this Report to file written objections. See also Fed.R.Civ.P. 6. Such objections, and any responses to such objections, shall be filed with the Clerk of Court, with courtesy copies delivered to the chambers of the Honorable Lorna G. Schofield, United States Courthouse, 40 Foley Square, New York, New York, 10007. Any requests for an extension of time for filing objections must be directed to Judge Schofield.
FAILURE TO FILE OBJECTIONS WITHIN FOURTEEN (14) DAYS WILL RESULT IN A WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. See Thomas v. Arn, 474 U.S. 140 (1985); Wagner & Wagner, LLP v. Atkinson, Haskins, Nellis, Brittingham. Gladd & Carwile, P.C., 596 F.3d 84, 92 (2d Cir. 2010); 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72.