Justia Civil Procedure Opinion Summaries

The SEC investigated Gentile for his role in a penny-stock manipulation scheme in 2007-08 and civilly sued Gentile, who was indicted for securities fraud violations. The criminal prosecution was dismissed as untimely. The SEC separately investigated securities transactions through an unregistered broker-dealer in violation of the Securities and Exchange Act of 1934, 15 U.S.C. 78o(a): Traders Café, a day-trading firm, maintained an account with Gentile’s Bahamian broker-dealer, which was not registered in the U.S. The SEC issued a Formal Order of Investigation into Café in 2013. Without issuing a new Formal Order, the SEC informed Gentile that he was a target in that investigation.The SEC subpoenaed Gentile for testimony. He refused to comply. The SEC did not seek enforcement against Gentile but subpoenaed Gentile’s attorney and an entity affiliated with Gentile’s Bahamian broker-dealer, which also refused to comply. The SEC commenced enforcement actions against those entities. Gentile unsuccessfully moved to intervene; the Florida district court ordered compliance. Gentile filed suit in New Jersey, seeking a declaration that the Café investigation was unlawful, requesting the quashing of the subpoenas, and seeking an injunction to prevent the SEC from using the fruits of that investigation against him.The Third Circuit affirmed the dismissal of the suit. The APA’s waiver of sovereign immunity, 5 U.S.C. 702, includes an exception for “agency action committed to agency discretion by law,” section 701(a)(2); sovereign immunity prevents judicial review of the Formal Order of Investigation. View "Gentile v. Securities and Exchange Commission" on Justia Law

After the district court granted defendants' Federal Rule of Civil Procedure 12(b)(6) motion to dismiss with prejudice plaintiffs' second amended complaint alleging violations of the federal securities laws and entered judgment for defendants, plaintiffs brought a motion under Federal Rules of Civil Procedure 59(e) and 60(b) for relief from the judgment and for leave to file a third amended complaint.The Second Circuit affirmed the district court's denial of the motion and held that plaintiffs are not entitled to relief under Rules 59(e) and 60(b). The court held that the district court applied the correct legal standard to plaintiffs' post-judgment motion by considering whether plaintiffs were entitled to relief under Rules 59(e) or 60(b), and committed no abuse of discretion in denying the motion on the grounds that plaintiffs had failed to identify an adequate basis for relief pursuant to those rules. In this case, plaintiffs failed to proffer any newly discovered evidence that would entitle them to relief under Rules 59(e) or 60(b) and, even if the purported newly discovered evidence was indeed new, the result would be the same because amendment would be futile. View "Metzler Investment GmbH v. Chipotle Mexican Grill, Inc." on Justia Law

This appeal stemmed from an attempt to hold Defendant Paul Robben liable for securities fraud. Various Plaintiffs alleged that Robben fraudulently induced them to purchase ownership interests in a Kansas limited liability company named Foxfield Villa Associates, LLC (“Foxfield”). Plaintiffs argued that those interests were securities under the Securities Exchange Act of 1934. Plaintiffs contended Robben violated section 10(b) of the 1934 Act (its broad antifraud provision) and SEC Rule 10b-5 (an administrative regulation expounding upon that antifraud provision) when engaging in his allegedly deceitful conduct. The Tenth Circuit Court of Appeals determined that the specific attributes of the LLC interests in this case lead it to conclude the interests at issue were not securities as that term was defined by the Securities Exchange Act of 1934. The Court affirmed the district court's order declining to characterize the LLC interests as securities, thus granting summary judgment to defendants on those grounds. View "Foxfield Villa Associates v. Robben" on Justia Law

Petitioners solicited foreign nationals to invest in a cancer-treatment center. A Securities and Exchange Commission investigation revealed they misappropriated the funds. The SEC may seek “equitable relief” in civil proceedings, 15 U.S.C. 78u(d)(5). The SEC brought a civil action for disgorgement equal to the amount raised from investors. Petitioners argued that the remedy failed to account for their legitimate business expenses. The Ninth Circuit affirmed an order holding Petitioners jointly and severally liable for the full amount.The Supreme Court vacated A disgorgement award that does not exceed a wrongdoer’s net profits and is awarded for victims is equitable relief authorized under section 78u(d)(5). Equity practice has long authorized courts to strip wrongdoers of their ill-gotten gains; to avoid transforming that remedy into a punitive sanction, courts restrict it to an individual wrongdoer’s net profits to be awarded for victims. These long-standing equitable principles were incorporated into section 78u(d)(5).If on remand the court orders the deposit of the profits with the Treasury, the court should evaluate whether that order would be for the benefit of investors, consistent with equitable principles. Imposing disgorgement liability on a wrongdoer for benefits that accrue to his affiliates through joint-and-several liability runs against the rule in favor of holding defendants individually liable but the common law permitted liability for partners engaged in concerted wrongdoing. On remand, the court may determine whether Petitioners can, consistent with equitable principles, be found liable for profits as partners in wrongdoing or whether individual liability is required. The court must deduct legitimate expenses before awarding disgorgement. View "Liu v. Securities and Exchange Commission" on Justia Law

Ginnie Mae (GM), established by 12 U.S.C. 1717(a)(2)(A) to provide stability in the secondary residential mortgage market and promote access to mortgage credit, guarantees mortgage-backed securities (MBS). FMC, a private corporation, was an originator and servicer of government-guaranteed home mortgages and an issuer of MBS in GM’s program. GM learned of FMC actions that constituted the immediate default of the Guaranty Agreements. FMC undertook an investigation and provided the results to GM, while also complying with SEC requests. GM later terminated FMC from its program. The SEC initiated a civil enforcement action, which terminated in a consent agreement, without FMC admitting or denying the allegations but paying disgorgement and penalties. The Consent Agreement provided that it did not affect FMC’s right to take positions in proceedings in which the SEC is not a party but FMC agreed to not take any action or permit any public statement denying any allegation in the SEC complaint FMC later sued, alleging that GM had breached Guaranty Agreements when it terminated FMC from its program and denied violating those Agreements.The Federal Circuit affirmed the Claims Court’s dismissal. FMC’s breach of contract claims are precluded under the doctrine of res judicata. FMC’s action is essentially a collateral attack on the judgment entered in the SEC action. The SEC and GM are in privity for the purposes of precluding FMC’s claims and “successful prosecution of the second action would nullify the initial judgment or would impair rights established in the initial action.” View "First Mortgage Corp. v. United States" on Justia Law

The Second Circuit affirmed the district court's denial of plaintiff's motion to file an amended securities fraud complaint against the manufacturers of an allegedly defective surgical gown. The court held that plaintiff's proposed amendment would be futile, because he failed to raise a strong inference of collective corporate scienter by (1) relying on the knowledge of employees unconnected to the challenged statements or (2) pleading that the challenged statements concerned a key product with which the company's senior management would be expected to be familiar. View "Jackson v. Abernathy" on Justia Law

Petitioner, found liable for multiple securities fraud violations, petitioned for review in the District of Columbia Court of Appeals, which is the wrong court. By the time petitioner realized his mistake and filed the petition in the DC Circuit, the 60 day deadline for filing had passed.The DC Circuit did not pass upon whether the statutory time limit to file a petition for review is jurisdictional and subject to equitable tolling. Instead, the court held that, even assuming it is a non-mandatory claims processing rule, petitioner has failed to demonstrate entitlement to equitable tolling. The court stated that filing a petition for review in a state court that clearly lacks jurisdiction over the petition does not toll the deadline for filing in the DC Circuit court. Furthermore, no extraordinary circumstance beyond petitioner's control prevented him from timely filing in this court and thus he is not entitled to equitable tolling. The court dismissed the petition. View "Young v. SEC" on Justia Law

Investor Recovery Fund, LLC was the assignee of six claims held by individual investors who lost their investments in the Hopkins Northwest Fund, LLC (the fund). Randall Hopkins and Brian Murphy were the principals of the fund, and together they owned and managed Hopkins Financial Services, Inc. (Hopkins Financial). The individual investors formed Investor Recovery for the purposes of asserting a collective claim against Hopkins Financial and the fund’s principals individually (collectively, Hopkins Associates). The fund declared a moratorium on redemptions in 2008, preventing investors from taking their money out of the fund. The individual investors lost their investments when the fund declared bankruptcy six years later. Investor Recovery sued Hopkins Associates, asserting claims of fraud by nondisclosure. The district court granted the principals’ motion for a directed verdict after seven days of trial, concluding that Investor Recovery did not prove that the individual investors’ losses were causally connected to the principals’ alleged nondisclosures. The Idaho Supreme Court addressed the applicable standard of review when considering a directed verdict in a fraud by nondisclosure case. Finding the district court used the wrong standard in entering directed verdict in favor of Hopkins Associates, the Supreme Court reversed the district court’s directed verdict, vacated the judgment, and remanded the case for further proceedings. View "Investor Recovery Fund v. Hopkins" on Justia Law

The issue raised on appeal to the Delaware Supreme Court centered on the validity of a provision in several Delaware corporations’ charters requiring actions arising under the federal Securities Act of 1933 (the “Securities Act” or “1933 Act”) to be filed in a federal court. Blue Apron Holdings, Inc., Roku, Inc., and Stitch Fix, Inc. were all Delaware corporations that launched initial public offerings in 2017. Before filing their registration statements with the United States Securities and Exchange Commission (the “SEC”), each company adopted a federal-forum provision. Appellee Matthew Sciabacucchi bought shares of each company in its initial public offering or a short time later. He then sought a declaratory judgment in the Court of Chancery that the FFPs were invalid under Delaware law. The Court of Chancery held that the FFPs were indeed invalid because the “constitutive documents of a Delaware corporation cannot bind a plaintiff to a particular forum when the claim does not involve rights or relationships that were established by or under Delaware’s corporate law.” The Supreme Court disagreed and reversed, finding that such a provision could survive a facial challenge under Delaware law. View "Salzberg v. Sciabacucchi" on Justia Law

4tdd.com, Inc. ("4tdd"), Thomas Todd Martin III, and Martin & Associates Consulting Company, LLC ("MACC"), petitioned the Alabama Supreme Court for a writ of mandamus to instruct the Mobile Circuit Court ("the trial court") to dismiss a derivative shareholder action filed against them by Sheila Hale, individually and on behalf of the shareholders of Bay Area Nutrition, Inc., on the ground, inter alia, that Hale did not satisfy the requirement of Rule 23.1, Ala. R. Civ. P., that she allege with particularity in her complaint the efforts she had made to obtain the requested relief from the corporate directors of Bay Area Nutrition, Inc. ("BAN"), before filing an action against them. The Supreme Court determined, after careful consideration, that Hale indeed failed to comply with Rule 23.1, and directed the trial court to direct 4tdd.com, Martin and MACC's motion to dismiss. View "Ex parte 4tdd.com, Inc., et al." on Justia Law