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Hoxworth v. Blinder, Robinson & Co.

United States Court of Appeals for the Third Circuit

October 2, 1992, Argued ; December 2, 1992, Filed

Nos. 92-1108, 92-1116

Opinion

 [*913] OPINION OF THE COURT

SLOVITER, Chief Judge.

Defendants challenge the district court's entry of a default judgment, subsequently  [*914]  assessed in the amount of $ 73 million, for disregarding certain court orders and for failing to appear at trial. Defendants argue that the district court did not have the authority to impose default as a sanction under Fed. R. Civ. P. 55 and that the court abused its discretion in holding that their behavior warranted such a draconian order. They [**2]  also challenge the propriety of the court's orders certifying a class action and declining to order the arbitration of the securities fraud claims that are the subject of this dispute.

FACTS AND PROCEDURAL HISTORY

Background

In 1988, three separate class actions were filed in the United States District Court for the Eastern District of Pennsylvania by Dan and Louise Hoxworth, Bradley Gavron, and Barry Brownstein on behalf of investors who claimed to have been defrauded in connection with the purchase and sale of various "penny stocks." 1 The three actions, which were subsequently consolidated for purposes of pretrial proceedings, asserted claims against (1) Blinder, Robinson & Co., Inc. (Blinder, Robinson), a Colorado-based securities dealer through which plaintiffs consummated their stock transactions; (2) Meyer Blinder, the Chairman and President of Blinder, Robinson; and (3) John Cox, the Vice President of Blinder, Robinson. Later, plaintiffs amended their complaint to include a fourth defendant, Intercontinental Enterprises, Inc. ("IEI"), Blinder, Robinson's corporate parent. 2 Meyer Blinder is the President of IEI and the owner of 52% of its stock. John Cox  [**3]  is an officer and director of the corporation.

The complaint alleged that Blinder, Robinson defrauded the purchasers and sellers of twenty-one equity securities (the "class securities") in violation of federal and state securities laws, the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968 (1988 & Supp. II 1990), and common law fiduciary duty. The complaint also sought to hold Meyer Blinder, John Cox, and IEI jointly and severally liable for these acts as "control persons" under section 15 of the Securities Act of 1933 3 [**4]  and section 20(a) of the Securities and Exchange Act of 1934. 4 

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980 F.2d 912 *; 1992 U.S. App. LEXIS 31721 **; Fed. Sec. L. Rep. (CCH) P97,216; 24 Fed. R. Serv. 3d (Callaghan) 614

DAN H. HOXWORTH; LOUISE A. HOXWORTH; BRADLEY GAVRON; BARRY BROWNSTEIN; RICHARD DONALDSON; MARY DONALDSON; ANDRESS KERNICK; EDWARD J. BUSH, ROSE M. WEBER; STANLEY BERNSTEIN; DOROTHY BERNSTEIN; DAVID REIFF; JOEL LIEBERMAN; JANE SCHECK; KENNETH J. HOLTMEYER, on behalf of themselves and all others similarly situated v. BLINDER, ROBINSON & CO., INC.; MEYER BLINDER; JOHN COX; INTERCONTINENTAL ENTERPRISES, INC. BRADLEY GAVRON; DANIEL H. HOXWORTH; LOUISE A. HOXWORTH; BARRY BROWNSTEIN; RICHARD DONALDSON; MARY DONALDSON; ANDRESS KERNICK; EDWARD J. BUSH; ROSE M. WEBER; STANLEY BERNSTEIN; DOROTHY BERNSTEIN; DAVID REIFF; JOEL LIEBERMAN, JANE SCHECK; KENNETH J. HOLTMEYER, on behalf of themselves and all others similarly situated v. BLINDER, ROBINSON & CO., INC.; MEYER BLINDER; JOHN COX; INTERCONTINENTAL ENTERPRISES, INC. BARRY BROWNSTEIN; DON TOWNSEND; DANIEL H. HOXWORTH; LOUISE A. HOXWORTH; BRADLEY GAVRON; BARRY BROWNSTEIN; RICHARD DONALDSON; MARY DONALDSON; ANDRESS KERNICK; EDWARD J. BUSH; ROSE M. WEBER; STANLEY BERNSTEIN; JOEL LIEBERMAN; JANE SCHECK; KENNETH J. HOLTMEYER, on behalf of themselves and all others similarly situated v. BLINDER, ROBINSON & CO., INC.; MEYER BLINDER; INTERCONTINENTAL ENTERPRISES, INC. Meyer Blinder and Intercontinental Enterprises, Inc., Appellants in No. 92-1108 John Cox, Appellant in No. 92-1116

Prior History:  [**1]  On Appeal from the United States District Court for the Eastern District of Pennsylvania. (D.C. Civil No. 88-00285). (D.C. Civil No. 88-00286). (D.C. Civil No. 88-00307).

CORE TERMS

district court, default, discovery, arbitration, plaintiffs', pretrial, defendants', default judgment, orders, deposition, documents, sanctions, scheduled, answered, markup, compel arbitration, class certification, discovery request, entry of default, class action, proceedings, guidelines, memorandum, factors, personal responsibility, class member, trial date, bad faith, certification, dilatoriness

Securities Law, Secondary Liability, Controlling Persons, General Overview, Defenses, Civil Procedure, Pretrial Judgments, Default & Default Judgments, Default Judgments, Judgments, Relief From Judgments, Default Judgments, Entry of Default Judgments, Sanctions, Misconduct & Unethical Behavior, Special Proceedings, Class Actions, Judicial Discretion, Relief From Default, Appellate Review, Certification of Classes, Prerequisites for Class Action, Typicality, Appeals, Standards of Review, Abuse of Discretion, Regulators, Self-Regulating Entities, National Association of Securities Dealers, Governments, Legislation, Statute of Limitations, Civil Liability Considerations, Time Limitations, Initial Offerings, False Statements, RICO Actions, Business & Corporate Compliance, Contracts Law, Contract Conditions & Provisions, Arbitration Clauses, Alternative Dispute Resolution, Arbitration, Pretrial Matters, Judicial Review, Mandatory ADR, De Novo Review, Labor & Employment Law, Collective Bargaining & Labor Relations, Labor Arbitration, Enforcement, Pleadings, Counterclaims, Waiver, Conferences, Pretrial Orders