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Provectus Biopharmaceuticals, Inc. v. Dees

United States District Court, E.D. Tennessee, Knoxville

July 25, 2017

PROVECTUS BIOPHARMACEUTICALS, INC., Plaintiff,
v.
HARRY CRAIG DEES and VIRGINIA L. GODFREY, Defendants.

          H. Bruce Guyton Magistrate Judge.

          MEMORANDUM OPINION

          TRAVIS R. MCDONOUGH UNITED STATES DISTRICT JUDGE.

         Before the Court is Plaintiff Provectus Biopharmaceuticals, Inc.'s (“Provectus”) motion for default judgment. (Doc. 21.) For the reasons stated hereafter, Provectus's motion will be GRANTED IN PART.

         I. BACKGROUND

         Plaintiff Provectus Biopharmaceuticals, Inc. (“Provectus”) initiated the present action against Defendants Harry Dees and Virginia Godfrey on May 5, 2016. (Doc. 1.) According to the allegations in Provectus's amended complaint, Dees was employed as Provectus's Chief Executive Officer (“CEO”) until February 27, 2016. (Doc. 8, at 1.) Since at least 1998, Virginia Godfrey has been married to Dees. (Id. at 2, 5.)

         Provectus is a publically traded company with approximately 22, 000 shareholders and is in the business of developing therapeutic pharmaceutical products for oncological and dermatological indications. (Id. at 2.) As part of his responsibilities as CEO, Dees “traveled throughout the United States . . . to meet with shareholders to discuss the development of drugs and progress of clinical testing.” (Id. at 3.) Dees received advances for travel and entertainment, which were provided to him by wire transfer to his personal accounts. (Id.) According to Provectus's travel and entertainment policy, Dees was required to submit an itemized list of travel expenses and provide supporting documentation for each expense before receiving reimbursement from Provectus. (Id.) Dees did not, however, regularly submit documentation to support his requests for travel expenses, and, when he did submit receipts, the receipts appeared “irregular” or “altered.” (Id.) According to Provectus, Dees received: (1) approximately $698, 000 in advances for travel expense reimbursements in 2013; (2) $819, 000 in travel advances in 2014; and (3) approximately $898, 430 in advances in 2015. (Id. at 4.)

         Beginning in November 2015, Provectus's Chief Financial Officer (“CFO”) began asking Dees to substantiate his travel advances. (Id.) In February 2016, Dees produced receipts totaling $297, 170, which he claimed “substantiated a portion of the $898, 430 he received from Provectus in 2015.” (Id.) However, according to Provectus, most of the receipts and documentation submitted by Dees were “altered and/or forged.” (Id.)

         In February 2016, Dees submitted a letter of resignation to Provectus's CFO. (Id. at 5.) Since his resignation, Dees has refused to speak to any officer, employee, or representative of Provectus. (Id.) According to Provectus, Dees regularly provided monies from fraudulently obtained travel advances to Godfrey, which she used to pay personal and business debts as well as expenses unrelated to any legitimate Provectus business. (Id.) Provectus also contends that Dees used fraudulently obtained travel advances to pay personal debts and expenses, including joint income tax liabilities. (Id.)

         Additionally, Provectus alleges that Dees entered a settlement agreement dated October 13, 2014, which resolved claims against him derivatively asserted by shareholders on behalf of Provectus. (Id. at 9-10.) The underlying case “included allegations that Dees unilaterally approved unreasonably high compensation for himself and other officers in violation of his fiduciary duties.” (Id. at 10.) Under the terms of the settlement agreement, Dees was obligated to repay Provectus $2, 240, 000, along with other legal fees and expenses. (Id.) As of the date of Dees's resignation, he owed Provectus $2, 267, 750. (Id.) The amounts Dees owed under the settlement agreement are secured pursuant to a stock-pledge agreement that grants Provectus a first-priority secured interest in 1, 000, 000 shares of Provectus common stock owned by Dees. (Id.) Provectus has notified Dees that he is in default pursuant to the terms of the settlement agreement and has demanded that Dees pay amounts owed to it under the settlement agreement. (Id. at 11.) Dees refuses to make such payments. (Id.)

         Based on these allegations, Provectus asserts the following causes of action against Dees and Godfrey: (1) conversion; (2) fraud; (3) breach of fiduciary duty; (4) breach of contract; (5) breach of settlement agreement; (6) unjust enrichment; and (7) punitive damages. (Id. at 6-12.) Provectus also requests that the Court appoint a receiver. (Id.)

         Provectus served Dees and Godfrey with summonses and copies of the complaint on May 9, 2016. (Docs. 6, 7.) Provectus also served Dees and Godfrey with additional summonses on June 9, 2016, and June 16, 2016. (Docs. 13-16.) As reflected on Provectus's proofs of service, Godfrey was not personally served; rather, the summonses for Godfrey were left at Godfrey's residence with Dees.[1] (Docs. 7, 13.) Dees and Godfrey, however, did not file answers or responsive pleadings to Provectus's complaint or amended complaint as required by Rule 12 of the Federal Rules of Civil Procedure.

         On June 27, 2016, Provectus filed a request for entry of default against Dees and Godfrey pursuant to Rule 55(a) of the Federal Rules of Civil Procedure. (Docs. 17, 19.) On July 20, 2016, the Clerk of Court for the United States District Court for the Eastern District of Tennessee entered default against Dees (Doc. 18), and on August 16, 2016, entered default against Godfrey (Doc. 20).

         On January 3, 2017, after Provectus moved for default judgment and for a damages hearing, Godfrey moved to set aside the Clerk's entry of default against her. (Doc. 39.) On March 15, 2017, the Court set aside the Clerk's entry of default against Godfrey and set a damages hearing as to Provectus's motion for default judgment against Dees. (Doc. 46.)

         On April 26, 2017, the Court held a damages hearing in connection with Provectus's motion for default judgment against Dees. At the hearing, the Court heard testimony from John R. Glass, interim CFO for Provectus. (See Doc. 53.) Additionally, Provectus submitted post-hearing briefing and exhibits specifically delineating the damages they seek from Dees. (Docs. 57, 58.)

         II. ANALYSIS

         Applications for default judgment are governed by Rule 55(b)(2) of the Federal Rules of Civil Procedure. Following the Clerk's entry of default pursuant to Rule 55(a) and the plaintiff's application for default judgment under Rule 55(b), the complaint's factual allegations regarding liability are taken as true, while allegations regarding damages must be proven. Vesligaj v. Peterson, 331 F. App'x 351, 355 (6th Cir. 2009). The party seeking default judgment bears the burden of establishing damages. Flynn v. People's Choice Home Loans, Inc., 440 F. App'x 452, 457 (6th Cir. 2011).

         In this case, Provectus has asserted claims against Dees for: (1) conversion; (2) fraud; (3) breach of fiduciary duty; (4) breach of contract; (5) breach of settlement agreement; (6) unjust enrichment; and (7) punitive damages. Because Dees has failed to respond to Provectus's factual allegations regarding liability, Provectus's factual allegations ...


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