Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Thomas Carroll, et al. v. William Stettler

August 10, 2012


The opinion of the court was delivered by: McLaughlin, J.


This action arises from a Ponzi scheme run by Lizette Morice and her company, Gaddel Enterprises, Inc. (collectively, "Gaddel"). Class representative plaintiffs, Thomas Carroll and Kimberly Baker, have brought this class action lawsuit to void and recover fraudulent transfers under the Pennsylvania Uniform Fraudulent Transfer Act ("PUFTA"), 12 Pa. Cons. Stat. Ann. §§ 5101-5110. Alternatively, they seek restitution based on the common law theory of unjust enrichment.

The plaintiffs now move for default judgment against 86 defendants ("Defaulted Defendants") who they claim were properly served but have failed to timely respond.*fn1 The Court grants the motion in part and denies the motion in part as set forth below.

I. Factual Background*fn2

Plaintiffs Thomas Carroll and Kimberly Baker and the members of the class were victims of a Ponzi scheme conducted by Lizette Morice,*fn3 who defrauded investors through her company, Gaddel Enterprises, Inc. Morice falsely represented to investors that Gaddel purchased foreclosed properties at below market value and sold them to large corporations at a substantial profit. Among other misrepresentations, investors were told that for a minimum of $1,000, they would receive a share of the profit. In reality, no real estate transactions ever occurred. Am. Compl. ¶¶ 1, 2, 14, 24.

Through the operation of the scheme from 2006 to 2007, Morice received over $7 million in investments. In order to keep the scheme running, Gaddel paid out $5,467,871.95 to a group of investors (the "Net Winner Defendants") who benefitted from the scheme. Id. ¶¶ 1, 2, 3, 12, 23, 50. Morice, with the help of various Gaddel employers who solicited or caused others to solicit investors for the scheme (the "Gaddel Insiders"),*fn4 defrauded approximately 2,600 investors. The class representative plaintiffs were two of the largest individual investors, having invested and lost a total of $57,000. Id. ¶¶ 3, 22, 37, 38, 40.

II. Analysis

A. Proper Entry of Default

Federal Rule of Civil Procedure 55(b)(2) provides that a district court may enter default judgment against a party when default has been entered by the Clerk of Court.*fn5 Fed. R. Civ. P. 55(b); E. Elec. Corp. v. Shoemaker Const. Co., 652 F. Supp. 2d 599, 604 (E.D. Pa. 2009).

The Clerk of Court entered default as to all of the Defaulted Defendants save one. No default entry appears on the docket as to defendant ADO Investment Corporation ("ADO"), the company of defendant Fausto V. Santana.*fn6 Indeed, the docket does not reflect proper service on defendant ADO. Because Mr. Santana, identified as a Gaddel Insider, invested in Gaddel both as an individual and through ADO, the plaintiffs sued both, seeking to hold them jointly and severally liable. However, although a separate summons was issued for ADO, the docket reflects service only on Mr. Santana as an individual defendant, not as the owner of his company. See Fed. R. Civ. P. 4(c) (stating that a copy of the summons and complaint must be served); ECF No. 156 (proof of service only of summons against Mr. Santana). The Court therefore denies the motion for default judgment as to defendant ADO. Furthermore, pursuant to Rule 4(m), the Court will dismiss the action against ADO without prejudice unless the plaintiffs demonstrate proof of service as to this defendant on or before September 1, 2012. Fed. R. Civ. P. 4(m). The Court also denies the motion for default judgment without prejudice as to Mr. Santana because he has filed for bankruptcy since the instant motion was filed, and the case is stayed as to him. See ECF Nos. 546, 547.

Default was entered against the remaining Defaulted Defendants. However, the Court will vacate the entry of default against pro se defendant Stephen Cuspilich. Proper entry of default requires that 1) the party be properly served and 2) the served party does not timely respond. See Fed. R. Civ. P. 55(a) ("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 must enter the party's default."). It appears from the docket that defendant Stephen Cuspilich, who was served on July 27, 2010, sent a letter to the Court requesting dismissal of the case. ECF No. 70 (affidavit of service). That letter was received by the Court on August 16, 2010, before his answer was due. ECF Nos. 194 (reflecting receipt of letter on August 16, 2010); 195 (letter requesting dismissal). The Court will consider this pro se defendant's letter a timely response, vacate the default entered against Mr. Cuspilich, and deny the instant motion as to him.

The remaining Defaulted Defendants were properly served and have failed to timely file a responsive pleading. See Fed R. Civ. P. 12 (stating that a defendant must serve an answer within 21 days of being served with the summons and complaint); Pls.' Mot. for Default J., Ex. A (specifying the dates on which each of the Defaulted Defendants was served). Therefore, their default entries were proper.

B. Stating a Claim

Even after default is entered, it remains for the court to consider whether the unchallenged factual allegations constitute a legitimate cause of action, since a party in default does not admit mere conclusions of law. DirecTV v. DeCroce, 332 F. Supp. 2d 715, 717 (D.N.J. 2004), rev'd on other grounds, DIRECTV, Inc. v. Pepe, 431 F.2d 162 (3d Cir. 2005); 10 C. Wright, A. Miller & M. Kane, Federal Practice & Procedure ยง 2688, at 63 (3d ed. 1998). This Court has ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.