Winer v. Strickland, 2:13-cv-00231

Background

Plaintiffs (the Leo Winer Trust and Michael Pepitone Trust) invested in physical silver/gold through Advantage Metals; Steve Strickland later obtained powers to transfer plaintiffs’ silver and offered an investment in Advantage Trading.
Plaintiffs received accountings from Paul Strickland and alleged discrepancies (e.g., documents showing only $100,000 invested despite higher asserted value of bullion) and intermittent statements; they revoked Steve’s power of attorney and sued Steve, Paul, Advantage Trading and others.
Service/answer: most defendants were not served or dismissed; clerk entered default against Paul; plaintiffs moved twice for default judgment against Paul.
The district court previously denied a default-judgment motion without prejudice, identified pleading deficiencies, and gave plaintiffs a chance to cure; plaintiffs renewed the motion with additional exhibits and an affidavit.
Court concluded plaintiffs’ submissions still failed to plead facts sufficient to establish any of their asserted claims against Paul (fraud, negligent misrepresentation, constructive fraud, breach of contract, unjust enrichment, civil conspiracy, aiding and abetting, securities/Commodities Exchange Act violations), denied default judgment, dismissed all claims against Paul, and closed the case.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether default judgment against Paul is warranted under Rule 55(b)	Paul failed to defend; plaintiffs argue their pleaded allegations and exhibits establish liability across multiple counts	Paul did not answer; court may nonetheless require facts beyond pleadings where claims are legally insufficient	Denied: default judgment improper because plaintiffs did not plead or prove sufficient facts for any claim; dismissal of claims against Paul.
Whether plaintiffs pleaded intentional misrepresentation / fraud with requisite particularity	Plaintiffs contend Paul made false accountings and statements inducing them to act	Paul’s default does not relieve plaintiffs from Rule 9(b) particularity and elements (knowledge, inducement, reliance, damages)	Denied: allegations lack particularized facts showing Paul knew statements were false or induced contract; claims dismissed.
Whether a fiduciary/confidential relationship existed (constructive fraud, aiding/abetting)	Plaintiffs claim trust in Steve extended to Paul and Paul acted as advisor/manager	Evidence shows Paul was advisor to Advantage Trading, not shown to have fiduciary duty to plaintiffs personally; plaintiffs gave no specific facts about Paul’s role	Denied: no facts establishing fiduciary relationship or Paul’s knowing participation; constructive fraud and aiding/abetting dismissed.
Whether contract-based and statutory claims (breach, implied covenant, unjust enrichment, CEA/securities) are supported	Plaintiffs assert an oral agreement or membership in Advantage Trading and violations of commodities/securities law by Paul	Contracts and offering documents show Paul was an advisor to Advantage Trading; plaintiffs did not allege meeting of the minds with Paul or identify specific statutory violations by him	Denied: plaintiffs failed to show a binding agreement between them and Paul or particular statutory violations; claims dismissed.

Key Cases Cited

TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915 (9th Cir.) (defaulted defendant deemed to admit well-pleaded factual allegations but not damages)
Eitel v. McCool, 782 F.2d 1470 (9th Cir.) (factors guiding district court’s exercise of discretion on default judgments)
Cripps v. Life Ins. Co., 980 F.2d 1261 (9th Cir.) (default does not establish facts that are not in the pleadings or legally insufficient)
Swartz v. KPMG, LLP, 476 F.3d 756 (9th Cir.) (Rule 9(b) requires particularity in fraud allegations and identification of each defendant’s role)
Guilfoyle v. Olde Monmouth Stock Transfer Co., 335 P.3d 190 (Nev.) (elements for civil aiding and abetting under Nevada law)