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Binkele v. Ausloos

United States District Court, E.D. Wisconsin

June 20, 2019

ADAM J. AUSLOOS, Defendant.



         1. INTRODUCTION

         1.1 Procedural Background and Motion for Default Judgment

         This case arises from a Financial Industry Regulatory Authority (“FINRA”) arbitration proceeding that Defendant Adam J. Ausloos (“Ausloos”) brought against Plaintiff Robert Binkele (“Binkele”) and Binkele's firm, Centaurus Financial, Inc. (“Centaurus”). Binkele filed suit in this Court seeking declaratory and injunctive relief to preclude the FINRA arbitration proceeding against him on the grounds that (1) the parties never agreed to a FINRA arbitration; (2) Ausloos was never one of Binkele's customers; and (3) Ausloos is no longer associated with a FINRA member, therefore he cannot bring a FINRA claim against Binkele. (Docket #1 at 1).

         On March 1, 2019, Ausloos's attorney accepted service on behalf of Ausloos. (Docket #4). That same day, Binkele filed a motion for preliminary injunction to prevent Ausloos from proceeding on his FINRA arbitration. (Docket #5). On March 22, 2019, Binkele filed a motion for entry of default, which the clerk entered, and a motion for entry of default judgment. (Docket #9). Four days later, Ausloos submitted an answer and a motion to set aside the entry of default. (Docket #10 and #11).

         The Court has discretion to set aside an entry of default for good cause. Fed.R.Civ.P. 55(c). In order to set aside a default, Ausloos must show “(1) good cause for the default; (2) quick action to correct it; and (3) a meritorious defense to the complaint.” Pretzel & Stouffer v. Imperial Adjusters, Inc., 28 F.3d 42, 45 (7th Cir. 1994). So long as Ausloos “did not willfully ignore the pending litigation, but, rather, failed to respond to the summons and complaint through inadvertence, ” good cause exists. Cracco v. Vitran Exp., Inc., 559 F.3d 625, 631 (7th Cir. 2009) (citing Passarella v. Hilton Int'l Co., 810 F.3d 674, 677 (7th Cir. 1987)). Additionally, “[t]his Circuit has a well established policy favoring a trial on the merits over a default judgment.” Sun v. Bd. of Trs. of Univ. of Ill., 473 F.3d 799, 811 (7th Cir. 2007); Parker v. Scheck Mech. Corp., 772 F.3d 502, 505 (7th Cir. 2014).

         Ausloos explains that his attorney failed to respond in a timely fashion due to a misunderstanding. His attorney had previously requested an extension of time to respond to the preliminary injunction motion, but forgot to request an extension of time to respond to the complaint, and operated under the assumption that the extension of time applied to both responses. When his attorney realized the error, he promptly filed the motion to set aside default. Three days later, he filed a robust opposition to the motion for preliminary injunction, in which he argued that FINRA is the appropriate arbitration body because Ausloos purchased an unregistered security from Binkele, and is therefore a “customer” within the meaning of FINRA Rule 12200.

         Ausloos's attorney's inadvertence does not constitute willful ignorance of the pending litigation. Cracco, 559 F.3d at 631. Ausloos also responded quickly and thoroughly to the motion for default judgment, and the defense presented, at this juncture, seems to have merit. Accordingly, the Court will grant Ausloos's motion to set aside the entry of default, and deny Binkele's motion for entry of default judgment. (Docket #9 and #11).

         1.2 Underlying Dispute

         Binkele owns a company called Estate Planning Team, Inc. (“EPT”). He is also a registered representative of Centaurus and a member of FINRA. Ausloos is the managing member of a company called Tax Deferral Trustee Services, LLC (“TDTS”). In March 2017, Ausloos, on behalf of TDTS, contracted with EPT to use EPT's tax and estate planning solutions within a geographical area for an initial fee of $125, 000.00. These “trust and estate planning solutions” that EPT licensed to TDTS consisted of Deferred Sales Trusts (“DSTs”).[1] TDTS was tasked with acting as a trustee and managing the trusts pursuant to EPT's rules. (Docket #6-3 at 3-4); (Docket #13-1 at 31- 32). Additionally, depending on the number of paying members that TDTS originated for EPT in a particular year, the license for exclusive use in a specific geographical area would continue year to year. (Docket #13-1 at 30- 31); (Docket #6-3 at 2-3).

         There are two versions of the sublicense agreement. The March 22, 2017 contract (the “March 22 Contract”) provides that EPT would close at least $55, 000, 000.00 in assets with TDTS every year. (Docket #13-1 at 31). The March 31, 2017 contract (“March 31 Contract”) does not contain this language. See (Docket #6-3 at 3). The March 22 Contract was only signed by Ausloos, and is the version that Ausloos evidently has in his possession. (Docket #13-1 at 36-37). The March 31 Contract was counter-signed by Binkele. Ausloos's writing in the March 22 and March 31 Contracts is identical, suggesting that Ausloos only signed one contract, (likely the March 22 Contract), and that certain pages were later swapped out to create the March 31 Contract.[2]

         Ausloos claims that the contract itself, though fashioned as a sublicense agreement, is actually for an “unregistered security, ” whereby Ausloos paid EPT (or Binkele) $125, 000.00 in exchange for EPT's promise of a guaranteed investment income of $275, 000.00. (Docket #13 at 3). Ausloos claims that this income was guaranteed by the contract's promise of a return on investment of 50 basis points per dollar of DSTs assigned to him by EPT, and by EPT's promise, in the March 22 Contract, to annually close $55, 000, 000.00 with TDTS. Id. However, such income never materialized, and Ausloos began to suspect that something was amiss.

         Both contracts contain identical “Arbitration/Jurisdiction” provisions, which provide that

any dispute arising out of, in connection with, or by reason of this Agreement or the performance of any party hereto contemplated hereunder, or any other disagreement of any nature, type or description regardless of the facts or legal theories which may be involved. . .shall be resolved by confidential binding arbitration before Judicial Arbitration and Mediation Service (“JAMS”). . .Each party hereto hereby agrees to submit to the jurisdiction of any state or federal court sitting in Clark County, Nevada, in any action or proceeding arising out of or relating to ...

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