Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_04-cv-02749/USCOURTS-caed-2_04-cv-02749-2/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Other Contract

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1 Don Hancock, the president, chief executive officer and owner

of plaintiff General Holding, Inc. was present at the hearing.

1

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

GENERAL HOLDING, INC., No. CIV.S-04-2749 DFL DAD

a California corporation,

 

Plaintiff,

v. FINDINGS AND RECOMMENDATIONS

BANCROFT VENTURES LIMITED,

an Isle of Man corporation,

et al.,

Defendants.

__________________________/

This matter came before the court on August 26, 2005, for

hearing on plaintiff General Holding, Inc.’s motion for default

judgment against defendant Bancroft Ventures Limited. David Priebe

and Joseph Wilson appeared on behalf of plaintiff General Holding,

Inc.1 There was no appearance on behalf of defendant Bancroft

Ventures Limited. Having considered all written materials submitted

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2 As requested, plaintiff filed proof of service of the motion

on defendant Bancroft following the hearing. (See Doc. no. 41.)

2

with respect to the motion, and after hearing oral argument, for the

reasons set forth below the court will recommend that plaintiff’s

motion be granted.

PROCEDURAL BACKGROUND

Plaintiff General Holding, Inc. (“General Holding”)

initiated this action by filing its complaint on December 30, 2004. 

Plaintiff filed an amended complaint on March 4, 2005. The named

defendants in the amended complaint are Bancroft Ventures Limited

(“Bancroft”); Derivium Capital (USA), Inc. (“Derivium USA”); Derivium

Capital, LLC (“Derivium”); and Charles Cathcart.

While defendant Bancroft initially appeared in this action

through counsel, by order filed June 9, 2005, the assigned district

judge granted Bancroft’s counsel’s motion to withdraw. That order

required Bancroft to appear through new counsel by July 8, 2005, or

face default proceedings. Bancroft did not appear through new

counsel. Therefore, pursuant to plaintiff’s request, on July 12,

2005, the Clerk of the Court entered default against Bancroft. On

July 19, 2005, plaintiff filed the instant motion along with a

declaration by counsel addressing damages. Despite being served with

all papers filed in connection with the motion for default judgment,

defendant Bancroft has not responded to it.2 Defendants Derivium 

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3 Defendants Derivium USA, Derivium and Mr. Cathcart were

served with the motion through their counsel, Juan Alberto Torres. 

3

USA, Derivium and Cathcart have also failed to respond to the

motion.3

LEGAL STANDARDS

Federal Rule of Civil Procedure 55(b)(2) governs

applications to the court for entry of default judgment. Upon entry

of default, the complaint’s factual allegations regarding liability

are taken as true, while allegations regarding the amount of damages

must be proven. Dundee Cement Co. v. Howard Pipe & Concrete

Products, 722 F.2d 1319, 1323 (7th Cir. 1983)(citing Geddes v. United

Fin. Group, 559 F.2d 557 (9th Cir. 1977)); see also TeleVideo Sys.,

Inc. v. Heidenthal, 826 F.2d 915, 917 (9th Cir. 1987). It is

improper for the court to consider liability issues without first

providing notice to plaintiff that the merits will be addressed. 

Black v. Lane, 22 F.3d 1395, 1398 (7th Cir. 1994). Where damages are

liquidated (i.e., capable of ascertainment from definite figures

contained in the documentary evidence or in detailed affidavits),

judgment by default may be entered without a damages hearing. See

Dundee, 722 F.2d at 1323. Unliquidated and punitive damages,

however, require “proving up” at an evidentiary hearing or through

other means. Dundee, 722 F.2d at 1323-24; see also James v. Frame, 

6 F.3d 307, 310 (5th Cir. 1993).

Granting or denying default judgment is within the court’s

sound discretion, see Draper v. Coombs, 792 F.2d 915, 924-25 (9th

Cir. 1986) (citations omitted), and the court is free to consider a

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variety of factors in exercising that discretion, see Eitel v.

McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). The court may

consider such factors as:

(1) the possibility of prejudice to the

plaintiff, (2) the merits of plaintiff’s

substantive claim, (3) the sufficiency of the

complaint, (4) the sum of money at stake in the

action, (5) the possibility of a dispute

concerning material facts, (6) whether the

default was due to excusable neglect, and (7) the

strong policy underlying the Federal Rules of

Civil Procedure favoring decisions on the merits.

Eitel, 782 F.2d at 1471-72 (citing 6 Moore’s Federal Practice, ¶ 55-

05[2], at 55-24 to 55-26). 

ANALYSIS

This action arises from a stock loan transaction involving 

numerous individuals and entities located in several countries. The

relevant events span a number of years and involve allegedly

fraudulent activity. In sum, the detailed allegations of the welldrafted complaint indicate as follows:

Plaintiff General Holding is a California real estate

development corporation. In 1999, defendant Derivium Capital, LLC

made a loan to plaintiff under a structure Derivium called the 90%

Stock Loan program. Under that program plaintiff pledged and

transferred to Derivium 272,000 shares of stock in a New York Stock

Exchange-traded company called MDC Holdings (“MDC”), then worth

approximately $4.6 million, as collateral for a loan of approximately

$4.1 million. Derivium promised to return the stock collateral once

plaintiff paid the loan balance. Derivium also represented that it

would engage in hedging strategies developed by its principal,

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defendant Charles Cathcart, that would allow it to fulfill its

promise to return the stock even if it appreciated in value by the

end of the loan term.

As the 1999 loan approached its November, 2001, ending

date, plaintiff requested a new loan collateralized by the MDC stock,

which had appreciated. Derivium assured plaintiff that the new loan

had been approved and that funding would be forthcoming. However,

that funding did not occur as promised. Derivium finally disclosed

to plaintiff in March, 2002, that the true lenders under the 90%

Stock Loan program were previously undisclosed foreign firms:

defendant Bancroft, an Isle of Man company, and an Irish/Channel

Islands company called DDA, which is not a party to this action. 

Plaintiff then demanded to pay off the loan balance and obtain the

return of its stock.

Bancroft responded to plaintiff’s demand by indicating that

it had erred as to the term of the hedge it had taken on the loan;

needed time to unwind the hedge; and would return the MDC stock to

plaintiff in November, 2002. Approximately three years later,

Bancroft has yet to return the stock which remains as collateral for

a loan, the term of which expired in November of 2001. Indeed, the

amended complaint alleges that all Derivium did in fact was sell the

stock at the inception of the transaction; use 90% of the proceeds to

fund the loan; and put the other 10% in the bank accounts of Bancroft

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4 The amended complaint speaks mostly of Derivium (i.e.,

Derivium Capital, LLC) as opposed to Derivium USA (i.e., Derivium

Capital (USA), Inc.). However, according to the amended complaint

Derivium USA was formed in 2002 as part of a scheme to continue the

sham stock loan business of Bancroft and Derivium. The amended

complaint alleges that each of the defendants was the agent of the

other defendant and that each defendant acted with the full knowledge

of each other defendant such that all defendants are subject to joint

and several liability.

5 The amended complaint prays for still other types of

injunctive relief and damages, such as treble damages on the RICO

claim and punitive damages, but such relief is not sought in the

instant motion.

6

and DDA. Derivium acknowledges the obligation to return the stock

but blames Bancroft for the difficulties experienced in this regard.4

Through this lawsuit plaintiff seeks to recover the loan

collateral which is now worth over $40 million as well as any decline

in the value of that collateral caused by defendants’ continuing

conversion thereof. Plaintiff also seeks consequential damages.5

The amended complaint alleges the following nine claims for relief:

(1) violation of the Racketeer Influenced and Corrupt Organizations

Act (“RICO”) (against Bancroft, Derivium USA and Cathcart); (2)

tortious interference with contract (against Bancroft); (3)

conversion (against Bancroft and Cathcart); (4) breach of contract

and third-party contract (against Bancroft); (5) aiding and abetting

breach of fiduciary duty (against Bancroft, Cathcart and Derivium

USA); (6) fraud (against Cathcart); (7) fraud (against Bancroft and

Cathcart); (8) money had and received (against Bancroft, Cathcart and

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6 Thus, the only claim not brought against defendant Bancroft

is the sixth claim for relief for fraud, which is brought against

defendant Cathcart only.

7

Derivium USA); and (9) fraudulent conveyance (against Bancroft,

Cathcart, Derivium and Derivium USA).6

Weighing the factors outlined in Eitel v. McCool, 782 F.2d

at 1471-72, the undersigned has determined that default judgment

against defendant Bancroft is appropriate. Defendant has made no

showing that its failure to defend was due to excusable neglect. The

complaint is sufficient, and while the amount of money at stake is

substantial, that amount is merely a result of the nature of the

business transaction in which the parties engaged. There also is no

apparent possibility of a dispute concerning the material facts

underlying the action and there is no reason to doubt the merits of

plaintiff’s substantive claims. The relevant factors weigh in

plaintiff’s favor. Accordingly, while recognizing the public policy

favoring decisions on the merits, the court will recommend that

default judgment be granted. 

Upon determining that entry of default judgment is

warranted, the court must next determine the terms of the judgment. 

According to the amended complaint, in June of 2004, defendant

Cathcart informed plaintiff for the first time that the loan made

through Derivium never had been properly hedged. The next month,

plaintiff filed an arbitration demand against Derivium. On June 13,

2005, the arbitrator found for plaintiff on its claims for breach of

contract, fraud and conversion. The arbitrator awarded plaintiff

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7 The $6,688,748.60 is the difference between the value of the

MDC stock at its highest point in value between the dates of May 13,

2002 (the date plaintiff demanded to pay off the loan balance and

obtain return of the MDC stock) and September 2, 2005 (the date of

plaintiff’s post-hearing submission). Plaintiff has established that

the value of the MDC stock at its highest point in between those

dates was $45,646,049.85 and that the value of the MDC collateral on

September 2, 2005 was $38,957,301.25. Thus, plaintiff seeks to

recover $6,688,748.60 as the decline in the value of the collateral

caused by defendants’ continuing conversion thereof. 

8

$46,558,705.08 in actual damages. This actual damages award was

calculated by combining the value of the MDC stock collateral owed to

General Holding (the published market value of 517,705 shares of MDC

stock as of the date of the arbitration hearing ($40,588,072.00) less

the loan balance at that time ($4,618,937.43)) and consequential

damages of $10,589,570.51, which figure was determined by the

arbitrator based largely on the testimony of Don Hancock.

Through the instant motion, plaintiff seeks the return of

the 517,705 shares of MDC stock; monetary damages of $12,845,755.68;

and post-judgment interest. This is consistent with the prayer for

relief in the amended complaint. It also is supported by the

detailed allegations of the amended complaint; plaintiff’s memorandum

of points and authorities; the arbitration award; portions of the

record of the March 8-10, 2005, arbitration between plaintiff and

Derivium Capital; and the declaration of Mr. Hancock. In this

regard, as explained in plaintiff’s Post-hearing Submission Regarding

the Motion for Default Judgment, the monetary damages of

$12,845,755.68 is made up of $6,688,748.60 for the decline in the

value of the collateral caused by defendants’ continuing conversion,7

plus $10,589,570.71 in consequential damages as testified to by Mr.

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Hancock at the arbitration hearing, less the loan balance of

$4,432,563.63. Therefore, the undersigned will recommend that the

assigned district judge grant plaintiff’s motion for default

judgment.

Finally, plaintiff requests certification under Federal

Rule of Civil Procedure 54(b). Rule 54(b) requires as follows:

When more than one claim for relief is presented

in an action ... the court may direct the entry

of a final judgment as to one or more but fewer

than all of the claims or parties only upon an

express determination that there is no just

reason for delay and upon an express direction

for the entry of judgment.

Fed. R. Civ. P. 54(b); see Baker v. Limber, 647 F.2d 912, 916 (9th

Cir. 1981)(applying Rule 54(b) to default judgment). With respect to

judgments under Rule 54(b), the Ninth Circuit has stated as follows:

Judgments under Rule 54(b) must be reserved for

the unusual case in which the costs and risks of

multiplying the number of proceedings and of

overcrowding the appellate docket are outbalanced

by pressing needs of the litigants for an early

and separate judgment as to some claims or

parties. The trial court should not direct entry

of judgment under Rule 54(b) unless it has made

specific findings setting forth the reasons for

its order. Those findings should include a

determination whether, upon any review of the

judgment entered under the rule, the appellate

court will be required to address legal or

factual issues that are similar to those

contained in the claims still pending before the

trial court. A similarity of legal or factual

issues will weigh heavily against entry of

judgment under the rule, and in such cases a Rule

54(b) order will be proper only where necessary

to avoid a harsh and unjust result, documented by

further and specific findings.

Morrison-Knudsen Co., Inc. v. Archer, 655 F.2d 962, 965

(9th Cir. 1981).

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Here, the court finds that it is unlikely that Bancroft

will appeal any entry of default judgment since it did not even file

any opposition to the pending motion. If Bancroft were to proceed to

appeal, the court recognizes that plaintiff’s claims against

defendants arise from the same factual events and that such a factual

similarity weighs heavily against Rule 54(b) certification. 

Nonetheless, the papers filed in support of plaintiff’s motion

indicate that Bancroft is a fleeting entity. Bancroft has abandoned

other lawsuits in the United States and ceased doing business here

only to withdraw to the Isle of Man and then to other foreign

jurisdictions. Any further delay would prejudice plaintiff’s attempt

to begin enforcing a judgment against Bancroft, which would amount to

a “harsh and unjust result.” Morrison-Knudsen Co., Inc., 655 F.2d at

965.

Further, the nature of liability sought by plaintiff favors

the entering of judgment as requested. The second and fourth claims

brought against Bancroft in the amended complaint are for tortious

interference with contract and breach of contract and third-party

contract, respectively, and brought against Bancroft solely. See

Angelo Iafrate Const., LLC v. Potashnick Const., Inc., 370 F.3d 715,

722 (8th Cir. 2004)(“Parties are not similarly situated and a default

judgment does not establish inconsistent judgments, however, if the

liability of the defaulting party is based on independent wrongful

acts or a legal theory distinct from the one under which the

answering party prevailed.”). The other claims, while brought

against Bancroft along with other defendants, involve joint and

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several liability. See In re Uranium Antitrust Litigation, 617 F.2d

1248, 1256-58 (7th Cir. 1980) (affirming default judgment in

antitrust case on grounds that, because liability in antitrust cases

was joint and several, nonliability of some defendants would not

preclude liability of other defendants). Therefore, under the

circumstances, the undersigned further will recommend that the

district judge expressly determine that there is no just reason for

delay and direct the entry of judgment against defendant Bancroft. 

CONCLUSION

Accordingly, for the reasons stated above, the court HEREBY

RECOMMENDS that:

1. Plaintiff’s motion for default judgment be granted;

2. The district court expressly determine pursuant to Rule

54(b) that there is no just reason for delay and direct the entry of

default judgment against defendant Bancroft on plaintiff’s claims

brought against it; and

3. Defendant Bancroft be directed to (1) return to

plaintiff 517,705 shares of MDC Holdings stock, plus any additional

shares that may be issued as dividends subsequent to the date of any

judgment entered herein; (2) pay monetary damages of $12,845,755.68;

and (3) pay post-judgment interest.

These findings and recommendations are submitted to the

United States District Judge assigned to the case pursuant to the

provisions of 28 U.S.C. § 636(b)(l). Within ten (10) days after

being served with these findings and recommendations, any party may

file written objections with the court and serve a copy on all

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parties. Such a document should be captioned “Objections to Findings

and Recommendations.” The parties are advised that failure to file

objections within the specified time may waive the right to appeal

the District Court's order. Martinez v. Ylst, 951 F.2d 1153 (9th

Cir. 1991).

DATED: November 15, 2005.

DAD:th

Ddad1\orders.civil\generalholding.default.judg.f&r.v2

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