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Securities and Exchange Commission v. Fortitude Group, Inc.

United States District Court, W.D. Pennsylvania

February 10, 2017

SECURITIES AND EXCHANGE COMMISSION, Plaintiff
v.
FORTITUDE GROUP, INC., et al., Defendants.

          Rothstein District Judge

          MAGISTRATE JUDGE'S REPORT AND RECOMMENDATION

          SUSAN PARADISE BAXTER United States Magistrate Judge

         I. RECOMMENDATION

         It is respectfully recommended that Plaintiff's motion for default judgment against Defendant Fortitude Group, Inc. [ECF No. 13] be granted and that a permanent injunction be entered against Defendant Fortitude Group, Inc.

         II. REPORT

         A. Relevant Procedural History

         This action was initiated by Plaintiff Securities and Exchange Commission ("SEC") on February 29, 2016, pursuant to Section 21(d) of the Securities Exchange Act of 1934, 15 U.S.C. § 78u(d), against Defendants Fortitude Group, Inc. ("Fortitude") and Thomas J. Parilla ("Parilla"), Fortitude's chief executive officer. Plaintiff's complaint alleges that Defendants made materially false and misleading statements in various publicly-issued press releases, which falsely characterized Fortitude's purported efforts to enter into the legal marijuana business. (ECF No. 1, Complaint, at ¶ 1).

         On or about April 8, 2016, Plaintiff filed a return of service verifying, inter alia, that the complaint and a summons were served on Defendant Fortitude on March 16, 2016, and, as a result, an answer to the complaint was due from Defendant Fortitude on April 6, 2016 [ECF No. 5]. After Defendant Fortitude failed to file a timely answer, Plaintiff filed a request for the entry of default on May 23, 2016 [ECF No. 11], and default was subsequently entered by the Clerk of Court against Defendant Fortitude on June 2, 2016 [ECF No. 12].

         On July 26, 2016, Plaintiff filed a motion for default judgment against Defendant Fortitude, which is presently pending before this Court [ECF No. 13]. In particular, Plaintiff is requesting the immediate entry of a permanent injunction against Defendant Fortitude, by default, enjoining Defendant Fortitude from violating, directly or indirectly, Section 10(b) of the Securities and Exchange Act ("Exchange Act"), 15 U.S.C. § 78j(b), and Rule 10b-5(b) promulgated thereunder, 17 C.F.R. § 240.10b-5(b). Plaintiff further requests that its claim for a civil monetary penalty against Defendant Fortitude be deferred until such time as the liability of Defendant Parilla is determined. Since the filing of Plaintiff's motion, Defendant Fortitude has not entered an appearance in this action, nor has it responded in any way to Plaintiff's complaint or motion. This matter is now ripe for consideration.

         B. Standard of Review

         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. The entry of default by the Clerk, however, does not automatically entitle the non-defaulting party to a default judgment. Hritz v. Woma Corp., 732 F.2d 1178, 1180 (3d Cir. 1984); D'Onofrio v. Il Mattino, 430 F.Supp.2d 431, 437 (E.D.Pa. 2006). Rather, the entry of default judgment is a matter within the sound discretion of the district court. Hritz, 732 F.2d at 1180. The Third Circuit has enumerated three factors that govern a district court's determination as to whether a default judgment should be entered: "(1) prejudice to the plaintiff if default is denied, (2) whether the defendant appears to have a litigable defense, and (3) whether defendant's delay is due to culpable conduct." Chamberlain v. Giampapa, 210 F.3d 154, 164 (3d Cir. 2000), citing United States v. $55, 518.05 in U.S. Currency, 728 F.2d 192, 195 (3d Cir. 1984). "However, when a defendant has failed to appear or respond in any fashion to the complaint, this analysis is necessarily one-sided; entry of default judgment is typically appropriate in such circumstances at least until the defendant comes forward with a motion to set aside the default judgment pursuant to Rule 55(c)." Mount Nittany Medical Center v. Nittany Urgent Care, P.C., 2011 WL 5869812, at *1 (M.D.Pa. Nov. 22, 2011), citing Anchorage Assocs. V. Virgin Is. Bd. of Tax Rev., 922 F.2d 168, 177 n. 9 (3d Cir. 1990).

         C. Discussion

         1.Entry of Default Judgment

         Here, all three of the foregoing factors weigh in favor of granting default judgment against Defendant Fortitude. At this time, Defendant Fortitude has been in default for ten months and there is every reason to believe that such default will continue for the foreseeable future. Thus, if default judgment is denied, Plaintiff will be prejudiced by its inability to effectively enforce federal securities laws against a violating party for an indeterminable period of time simply because that party chooses to avoid responding to the complaint or to otherwise defend itself. As to the second and third factors, because Defendant Fortitude has failed to participate in this litigation in any way, the Court cannot speculate as to whether it has a litigable defense or whether its default is due to culpable conduct. Thus, entry of default judgment against Defendant Fortitude is appropriate. See, e.g., Broadway Music, Inc. v. Spring Mt. Area Bavarian Resort,Ltd., 555 F.Supp.2d 537, 542 (E.D.Pa. 2008) (entering default judgment where there was "nothing in the ...


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