Securities and Exchange Commission v. Chairez

Background

The Securities and Exchange Commission sued Karina Chairez in December 2020. The Commission alleged violations of federal securities laws concerning broker-dealer registration. Chairez did not answer or otherwise respond to the complaint. The clerk entered a default, and the court later entered a default judgment ordering permanent injunctive relief, repayment of funds with prejudgment interest, and a civil monetary penalty. The opinion’s procedural history states that the original default judgment was granted on April 7, 2022, followed by an amended default judgment; the opening and conclusion refer to the judgment as having been entered on July 11, 2022.

In October 2024, Chairez moved to overturn the default judgment, saying that she had not received notice of the civil case or its filings. The court treated the request as a motion under Federal Rule of Civil Procedure 60(b)(4), which allows relief from a judgment that is legally void. A judgment may be void if the court never obtained personal jurisdiction—the court’s authority over the defendant—because service of the lawsuit was defective.

Service of the Lawsuit

The Commission served the summons and complaint by leaving them with Pedro Esparza, identified in the proof of service as Chairez’s father and co-resident, at 1434 Coffee Road in Modesto, California, on February 26, 2021. The Commission also mailed copies to that address. The service relied on Federal Rule of Civil Procedure 4(e)(2)(B) and California Code of Civil Procedure section 415.20(b), which permit delivery at a person’s dwelling or usual place of abode to someone of suitable age and discretion who lives there.

The Commission presented evidence connecting Chairez to the Coffee Road address. This included tips submitted to the Commission, records using names associated with Chairez, bank and investigative records, surveillance showing a vehicle registered to Chairez at the address, and a criminal-case filing identifying property at that address. The Commission also presented evidence that Chairez described having built a life in Modesto where Esparza and Chairez’s mother had settled.

The court noted that process servers had first tried other methods and locations. They investigated the Coffee Road and Lou Ann Drive addresses, made repeated attempts at the latter address, and conducted surveillance before leaving the papers with Esparza. The process server stated that, on information and belief, the Coffee Road address was Chairez’s usual place of abode.

Notice of the Case

Chairez stated that she did not learn about the lawsuit until October 7, 2024, when the Commission served her at a federal correctional facility with papers from a later administrative proceeding. The court rejected that assertion. It found that the Commission had served Chairez with an order in that administrative proceeding at her October 3, 2023 sentencing hearing, and that the order expressly referred to this district-court case and the default judgment.

Court’s Analysis and Ruling

Judge Colleen McMahon held that Chairez had not met her initial burden of showing that service was defective. Her motion stated that she had not received notice but did not identify how the service rules had been violated, did not state that the Coffee Road address was not her usual place of abode in 2021, and did not provide evidence that she lived elsewhere at that time.

The court concluded that service complied with the federal and California service rules and that the Coffee Road address was a valid place for service. It also concluded that Chairez had not shown that she lacked notice of the case before the default judgment. The court therefore denied Chairez’s motion to vacate the default judgment and directed the clerk to remove the motion from the list of open motions.