Securities and Exchange Commission v. Coddington
1:13-cv-03363
| D. Colo. | Dec 11, 2020Background:
- SEC sued Jesse Erwin, Seth Leyton, Lewis Malouf, Daniel Coddington, Golden Summit entities, and relief defendants including Coddington Family Trust alleging securities fraud tied to a mortgage collateral trading program.
- Coddington Family Trust was served January 14, 2014; it answered through counsel on March 18, 2014, but counsel withdrew and no new counsel entered an appearance after October 18, 2017.
- SEC moved to strike the Trust’s answer; Magistrate Judge recommended striking, no objections were filed, and the Court adopted the recommendation; the Clerk entered default on September 15, 2020.
- SEC moved for default judgment against Coddington Family Trust; the Trust did not respond to the motion.
- The Complaint alleges the Trust received transfers of ill-gotten funds from the fraud, provided no consideration, and was unjustly enriched; the Court found personal jurisdiction over the Trust and that the pleadings support disgorgement.
- The Court ordered disgorgement of $1,591,962.79 plus prejudgment interest of $665,220.36 (total $2,256,765.35), directed payment to the SEC for distribution to victims, and entered final judgment under Rule 54(b).
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Personal jurisdiction over Coddington Trust | Trust is Colorado-formed with principal place in Colorado; court has jurisdiction over related defendants, enabling jurisdiction over relief defendant | Trust did not contest jurisdiction (no response) | Court found personal jurisdiction and subject-matter jurisdiction existed |
| Default / failure to defend | Trust failed to appear after counsel withdrew; SEC moved to strike answer and enter default | No opposition after answer was struck | Court struck the answer, Clerk entered default, and default treated as admission of well-pleaded facts |
| Entitlement to disgorgement (liability) | Trust received transferred ill-gotten funds, provided no consideration, unjust enrichment; SEC supports claim with pleadings and documentary affidavit | Trust did not contest liability | Court held the Complaint and supporting evidence establish disgorgement liability against the Trust |
| Amount of disgorgement and interest | SEC submitted affidavit calculating net ill-gotten funds and prejudgment interest totaling $2,256,765.35 and sought no hearing | Trust did not object or supply alternative calculations | Court accepted SEC’s calculations, ordered disgorgement $1,591,962.79 plus $665,220.36 prejudgment interest, and entry of final judgment |
Key Cases Cited
- In re Rains, 946 F.2d 731 (10th Cir. 1991) (default judgment appropriate when adversary process halted by unresponsive party)
- Williams v. Life Sav. & Loan, 802 F.2d 1200 (10th Cir. 1986) (personal jurisdiction required before entering default judgment)
- Marcus Food Co. v. DiPanfilo, 671 F.3d 1159 (10th Cir. 2011) (default judgment void without personal jurisdiction)
- Tripodi v. Welch, 810 F.3d 761 (10th Cir. 2016) (judgment on default must be supported by sufficient basis in the pleadings)
- SEC v. George, 426 F.3d 786 (6th Cir. 2005) (jurisdiction over primary defendant confers jurisdiction over relief defendants for disgorgement)
- SEC v. Cherif, 933 F.2d 403 (4th Cir. 1991) (relief-defendant principles for asset recovery)
- Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155 (2d Cir. 1992) (well-pleaded allegations in complaint deemed admitted upon default)
- Liu v. SEC, 140 S. Ct. 1936 (2020) (Supreme Court limited disgorgement to net profits awarded for victims)