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SECURITIES AND EXCHANGE COMMISSION v. BREED

August 12, 2004.

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
ROBERT BREED, Defendant, and KARINE GOVEIA BREED, PATRICIA BREED, and RICHARD BREED, Relief Defendants.



The opinion of the court was delivered by: CHARLES HAIGHT, District Judge

MEMORANDUM OPINION AND ORDER

Defendant Robert Breed ("Breed") and relief defendants Karine Goveia Breed, Patricia Breed, and Richard Breed (sometimes collectively "defendants") move pursuant to Rule 60(b), Fed.R.Civ. P., for an order vacating the judgments entered against them, and pursuant to Rule 62(b) for an order staying execution of the judgments. For the reasons that follow, defendants' motion is denied. I. BACKGROUND

Defendant Robert Breed is a resident of Florida who was employed as a registered representative at several broker-dealers, including Alexander Wescott & Co., Inc. The relief defendants are all relatives of Robert Breed.

  The Securities and Exchange Commission ("SEC") alleges that from October 1996 to October 1997 Breed received and unlawfully traded or directed trading on tips containing material, nonpublic information about seven publicly traded companies. Breed received tips from Jeffrey Streich, whose source was Marisa Baridis, an employee of Morgan Stanley's Legal Compliance Department with access to confidential information about proposed acquisitions and other material events. Breed traded on these tips knowing they were based on inside information, and in exchange paid Streich a portion of the profits realized from such trades.

  Breed traded six of the seven securities that were the subjects of Streich's tips in his own account for a profit of $54,710. He also tipped or directed trading in the accounts of Patricia Breed (his mother), Richard Breed (his brother), and Karine Goveia Breed (his then-girlfriend, now wife). Patricia Breed traded in five of the seven securities for a profit of $50,000; Richard Breed traded in all seven securities for a profit of $37,540; and Karine Breed traded in four of the securities for a profit of $65,450. Since most of the profits from Breed's illegal trading were realized in the accounts of his family members, each of the relief defendants made money through Breed's unlawful activities.

  On August 21, 2001, the SEC filed a complaint against Breed based on claims arising from the Securities and Exchange Act of 1934, 15 U.S.C. § 78, et seq ("the Exchange Act"). It later added Patricia, Karine, and Richard Breed as relief defendants. After defendants failed to file answers, respond to various responsive pleadings, or appear for noticed depositions, I granted plaintiff's motions for default judgments against them, finding them liable for disgorgement, and holding Robert Breed liable for civil penalties. The Clerk of the Court entered judgments against all defendants.

  II. PROCEDURAL HISTORY

  The long and tortured procedural history of this case is partially recited in the Court's Order of December 3, 2002; Memorandum and Order, 2003 WL 118494 (S.D.N.Y. Jan. 13, 2003); and Memorandum and Order, 2004 WL 1171241 (S.D.N.Y. May 26, 2004), familiarity with which is assumed. It is a story replete with deadlines ignored, motions unopposed, inadequate pleadings, and obstinance demonstrated by defendants and their former counsel. I must now recount the complete procedural history revealed by the record, in order to determine whether the conduct of the defendants and their former counsel is sufficiently egregious, when considered with the other relevant circumstances, to merit default judgments against them.

  Plaintiff first filed a complaint against Robert Breed on August 21, 2001, alleging various violations of the Exchange Act. Breed served an answer on October 1, 2001, denying all the complaint's substantive allegations. The Court having issued a scheduling order on November 28, 2001, plaintiff served Breed a First Set of Documents Request and Rule 26(a) Initial Discovery Disclosures (identifying Patricia, Karine, and Richard Breed), and also served on Patricia Breed a Rule 45 subpoena for documents. The Rule 45 subpoena specified a return date of March 27, 2002.

  By letter to the Court on April 23, 2002, plaintiff indicated that Breed had failed to provide his Rule 26(a) disclosures and had not produced documents. Furthermore, plaintiff advised that Patricia Breed had failed to respond to her Rule 45 subpoena. Plaintiff requested an informal conference pursuant to Local Civil Rule 37.2 to resolve these discovery issues. By May 6, 2002, plaintiff had obtained Breed's Rule 26(a) disclosures as well as documents responsive to its requests, and therefore withdrew its request for a 37.2 conference. On the same day, plaintiff served a First Set of Interrogatories on Breed, requesting information concerning, inter alia, the whereabouts of Patricia, Karine, and Richard Breed.

  On June 6, 2002, I received plaintiff's Unopposed Application for Modification of Scheduling Order. In it, plaintiff stated Patricia Breed had still not responded to its Rule 45 subpoena and that Breed's response to its First Set of Document Requests was "deficient in numerous respects." Unopposed Application, at 3 n. 1. Believing or at least hoping that extending the pretrial deadlines would rectify these delinquencies, I granted plaintiff's application.

  By letter to the Court on July 3, 2002, plaintiff made a second request for a Rule 37.2 informal conference, submitting that it had failed to receive Breed's responses to its First Set of Interrogatories, which had been due on June 25, 2002. See Order, Dec. 3, 2002. As a result of this letter, the Court contacted the office of Kenneth Dunn, Esq., a Florida attorney and defendants' former counsel, on two separate occasions to check on the status of his response. After Court intervention, Breed submitted responses on July 16, 2002. However, even these responses were incomplete.

  On September 5, 2002, plaintiff served Rule 45 document subpoenas on relief defendants, using the address information provided in Breed's July 16, 2002 response to plaintiff's First Set of Interrogatories. This was not the first time plaintiff had attempted service of Rule 45 subpoenas on relief defendants, plaintiff having sought to serve them on April 2002 at their last known addresses. However, none of the relief defendants had responded to these subpoenas. They also failed to respond to plaintiff's re-served Rule 45 subpoenas.

  On October 28, 2002, plaintiff attempted to send a "Wells notice" by FedEx to Karine Breed at her last known address, informing her of its intent to request SEC authority to seek leave to add her as a relief defendant and offering her an opportunity to explain why it should not do so. FedEx informed plaintiff that Karine Breed had moved from that address and left no forwarding address. Plaintiff then left several telephoned messages with Dunn requesting Breed's and Karine's current addresses and telephone numbers. Dunn did not respond to plaintiff's messages.

  On November 14, 2002, plaintiff wrote a letter to the Court detailing these further delinquencies in its discovery proceedings, and requesting, for a third time, a 37.2 informal conference. On the same day, plaintiff at last received an overdue Rule 45 subpoena response from Patricia Breed that was woefully incomplete. The response was a two-page handwritten message indicating that she had destroyed documents including older bank and brokerage account statements, and failing to provide any other necessary documents.

  Following plaintiff's November 14th letter, I ordered a telephone conference be held on December 4, 2002 among the Court and both parties. Plaintiff repeatedly left voice mail messages with Dunn over the next two weeks notifying him of the scheduled conference. But as the date loomed closer, it was clear that there would be no response from Dunn. On December 3, I issued an Order reporting plaintiff's grievances to date and ordering a "live" conference be held at the Courthouse on December 10, 2002. I also held that in the event "Breed or his counsel fail to appear, this Court will enter a default judgment in favor of the plaintiff SEC and against defendant Robert Breed. . . ." Order, Dec. 3, 2002, at 3. On December 6, 2002, the Court received a letter from Dunn stating that he had not been made aware of the scheduled telephone conference of December 4th, and that he would be unable to attend the "live" conference of December 10th. Dunn also reported that notwithstanding the difficulties plaintiffs may have had with FedEx, "Karine Breed has been receiving all of the mail that the SEC has been sending her, including a subpoena that was hand delivered to her at her address." Dunn Letter dated December 6, 2002.

  In light of Dunn's letter, I adjourned sine die the "live" December 10th conference, and ordered a future telephone conference take place. Coincidentally, that telephone conference was also held on December 10, 2002. Pursuant to that conference, I ordered defendant, on or before December 20, 2002, to serve upon SEC and file with the Court the present addresses of Robert and Karine Breed, and directed Dunn to apply for pro hac vice admission to the Southern District of New York, and to appoint local counsel no later than December 27, 2002.

  Dunn ignored these instructions. On December 27, 2002, I received a letter from plaintiff requesting, for the fourth time, a Rule 37.2 conference, and noting that Dunn had failed to submit the present addresses of Robert and Karine Breed and had failed to apply for pro hac vice admission or appoint local counsel. Plaintiff requested a sanction for Dunn's failures and also noted several deficiencies in defendants' responses to plaintiff's interrogatories and document requests. That same day, Dunn responded with a letter to plaintiff, with a copy to the Court, indicating that defendants' discovery responses were being sent that day, that he was seeking a ten day extension to secure local counsel, and that he would not oppose plaintiff's motion to amend the complaint. Notably, Dunn also noted that he "received Breed's affidavit with the correct address on the 23rd, but" was "unaware of its receipt" due to the fact that he was out of the office. Dunn Letter dated December 17, 2002 (emphasis added).

  On January 13, 2003 I issued a memorandum and order granting plaintiff's motion for leave to amend the complaint. 2003 WL 118494. Plaintiff promptly filed its first amended complaint on January 16, 2003, adding Patricia, Richard, and Karine Breed as relief defendants. Plaintiff concurrently served Breed and Dunn with the First Amended Complaint on that day. Karine and Richard Breed were personally served on January 22 and February 3, 2003, respectively.

  On January 17, 2003, Robert Breed submitted a combined affidavit and supplemental discovery responses in which he provided, inter alia, his and Karine Breed's current address. From the time plaintiff filed its First Set of Interrogatories, it took no less than eleven months for Robert ...


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