United States Securities & Exchange Commission v. Reinhard

Citation: 352 F. App'x 309Docket: No. 09-10213

Court: Court of Appeals for the Eleventh Circuit; October 28, 2009; Federal Appellate Court

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Don Warner Reinhard, representing himself, appeals the district court's judgment against him in a civil enforcement action by the Securities and Exchange Commission (SEC) for alleged securities fraud under various federal laws. Reinhard contends that the district court: (a) abused its discretion by denying his request for more time to respond to the SEC's complaint; (b) failed to hear testimony from the process server regarding the service of process; and (c) incorrectly determined that he waived any objection to improper service.

The SEC initiated the action on December 13, 2007, alleging that Reinhard, who controlled an investment firm and a hedge fund, made false statements to clients regarding collateralized mortgage obligations. A process server delivered the complaint to Reinhard's home on February 13, 2008, but Reinhard claims he found the documents on his porch days later, although he does not dispute answering the door. On March 4, 2008, Reinhard’s attorney communicated with the SEC, agreeing to accept service on Reinhard's behalf in exchange for an extension to respond by March 24, 2008. However, on March 20, 2008, Reinhard’s attorney withdrew from the case, prompting the SEC to grant an additional four days for Reinhard to respond.

Reinhard filed a pro se motion on March 26, 2008, seeking more time to respond, claiming he had not received a summons and had engaged an attorney. The district court granted an extension until April 18, 2008. Reinhard later claimed he received the court's order just a day before the deadline and requested an additional sixty days, which the court denied. The SEC moved for a default judgment on June 9, 2008, leading to the clerk entering a default against Reinhard by June 12, 2008. Reinhard's subsequent objection to the default cited his former attorney's withdrawal and argued for dismissal based on an automatic stay from his bankruptcy filing. The appellate court ultimately affirmed the district court's decision.

On July 1, 2008, the SEC opposed Reinhard's request to set aside a default judgment. Subsequently, on July 8, the SEC sought a final default judgment against him. The district court, interpreting Reinhard's "objection and response" as a motion to vacate, denied it, noting that Reinhard had no attorney and no pending motion to withdraw counsel. The court also stated that Reinhard's bankruptcy petition did not prevent the SEC's enforcement actions under 11 U.S.C. § 362(b)(4). The SEC's motion for a default judgment was granted. 

On July 22, Reinhard filed a motion for "reconsideration and clarification," claiming he could not obtain legal counsel but had valid defenses, requesting to proceed pro se. He also argued that the bankruptcy automatic stay barred the SEC's disgorgement request. The district court denied this reconsideration motion. 

On October 3, 2008, the court ordered Reinhard to disgorge $5,857,241.09, plus prejudgment interest and civil penalties, and scheduled a bench trial for December 8, 2008, to determine the total amounts. Reinhard later moved to quash the service of process, contending it was not personally delivered to him. At the December trial, he agreed to resolve the service issue based on prior documents. The court denied his motion to quash, finding he waived any objection and that service was sufficient, as a process server confirmed Reinhard answered the door before slamming it. 

During the trial, the court found Reinhard liable for the alleged fraud amount and ordered disgorgement of the specified funds, imposed a civil penalty of $120,000, and noted Reinhard's argument against the seven-day extension given to respond to the enforcement complaint was unmeritorious given that he had over two months to respond.

Reinhard's reliance on Sicker v. Commissioner is misplaced; the circumstances in that case differ significantly from his situation. In Sicker, the taxpayer was unable to timely file a petition for redetermination due to the IRS's incorrect address, leaving him with only eight days to respond. The court ruled that this was insufficient time as a matter of law. In contrast, Reinhard had over two months to respond to the enforcement complaint, and Sicker pertains specifically to tax deficiency petitions, not extensions for responding to complaints, thereby offering no support for Reinhard's case. 

Additionally, Reinhard's claim that the district court erred in validating service of process without an evidentiary hearing is unfounded. He had consented to resolve the service issue based on existing written submissions. Although he cites Cavic v. Grand Bahama Development Co., that case does not establish a requirement for an evidentiary hearing in similar situations. The district court correctly determined that service was valid under Federal Rule of Civil Procedure 4(e)(1), applying Florida law. Florida precedent supports that service is valid if the individual attempts to evade the process server, as seen in cases where individuals fled into their homes to avoid service. Consequently, the district court's conclusion that Reinhard was properly served stands, resulting in the affirmation of the judgment in favor of the SEC against Reinhard. Furthermore, Reinhard waived any bankruptcy stay issues by failing to raise them on appeal.

The review of the district court's decision to extend deadlines under Fed. R. Civ. P. 6(b) is conducted for abuse of discretion, as established in Woods v. Allied Concord Fin. Corp. Reinhard, who claimed he first discovered the summons and complaint on February 19, 2008, had nearly two months to file his answer. His arguments relating to the timing of responses to complaints versus notices for depositions or hearings are deemed irrelevant. Additionally, the district court's discretion to rule on motions without an evidentiary hearing is also reviewed for abuse, with the court not required to hold such hearings on jurisdictional matters, as per Washington v. Norton Mfg. Inc. Jurisdictional issues may be determined using affidavits and other discovery methods. For service of process, legal conclusions are reviewed de novo, while factual findings are reviewed for clear error. The court concluded Reinhard was properly served, rendering the alternative ruling on waiver of the right to challenge service unnecessary.