Securities and Exchange Commission v. Schooler et al, No. 3:2012cv02164 - Document 840 (S.D. Cal. 2014)
Court Description: ORDER Denying 643 Defendants' Motion for Certification of Appeal by Permission. Signed by Judge Gonzalo P. Curiel on 11/5/2014. (All non-registered users served via U.S. Mail Service)(srm)
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Securities and Exchange Commission v. Schooler et al Doc. 840 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 12 SECURITIES AND EXCHANGE COMMISSION, v. Plaintiff, 13 14 15 16 LOUIS V. SCHOOLER and FIRST FINANCIAL PLANNING CORPORATION, dba Western Financial Planning Corporation, CASE NO. 3:12-cv-2164-GPC-JMA ORDER DENYING DEFENDANTS’ MOTION FOR CERTIFICATION FOR APPEAL BY PERMISSION [ECF No. 643] Defendants. 17 18 19 I. INTRODUCTION Before the Court is Defendants Louis V. Schooler (“Schooler”) and First 20 Financial Planning Corporation d/b/a Western Financial Planning Corporation’s 21 (“Western”) (collectively, “Defendants”) Motion for Certification for Appeal by 22 Permission. (ECF No. 643.) Plaintiff Securities and Exchange Commission (the “SEC”) 23 opposed. (ECF No. 787.) Defendants replied to the SEC’s opposition. (ECF No. 807.) 24 The parties have fully briefed the motion. (ECF Nos. 643, 787, 807.) The Court 25 finds the motion suitable for disposition without oral argument pursuant to Civil Local 26 Rule 7.1(d)(1). Upon review of the moving papers, admissible evidence, and applicable 27 law, the Court DENIES Defendants’ motion for certification for appeal by permission. 28 -1- 3:12-cv-2164-GPC-JMA Dockets.Justia.com 1 2 II. BACKGROUND On January 24, 2014, Defendants filed a motion for partial summary judgment. 3 (ECF No. 542.) On March 28, 2014, the SEC filed a motion for partial summary 4 judgment. (ECF No. 563.) On April 25, 2014, the Court issued an order denying 5 Defendants’ motion and granting in part and denying in part the SEC’s motion (the 6 “Summary Judgment Order”). (ECF No. 583.) On May 23, 2014, Defendants filed a 7 motion for partial reconsideration of the Summary Judgment Order. (ECF No. 592.) On 8 July 30, 2014, the Court issued an order denying Defendants’ motion (the 9 “Reconsideration Order”). (ECF No. 634.) 10 On August 13, 2014, Defendants filed a motion for certification for appeal by 11 permission. (ECF No. 643.) Defendants seek permission to appeal both the Summary 12 Judgment Order and the Reconsideration Order. (ECF No. 643, at 1.) Specifically, 13 Defendants seek to appeal the Court’s application of the first Williamson factor. (Id. 14 at 3); see also Williamson v. Tucker, 645 F.2d 404 (5th Cir. 1981). On October 3, 2014, 15 the SEC filed an opposition to Defendants’ motion. (ECF No. 787.) On October 17, 16 2014, Defendants filed a reply to the SEC’s opposition. (ECF No. 807.) 17 18 III. LEGAL STANDARD District courts may certify an issue for interlocutory appeal upon satisfaction of 19 certain criteria. 28 U.S.C. § 1292(b). Those criteria are: (1) the order involves a 20 controlling question of law; (2) there is substantial ground for difference of opinion; 21 and (3) an immediate appeal from the order may materially advance the ultimate 22 termination of the litigation. In re Cement Antitrust Litigation, 673 F.2d 1020, 1026 23 (9th Cir. 1982). The court should apply § 1292(b)’s requirements strictly, and should 24 grant a motion for certification only when exceptional circumstances warrant it. 25 Coopers & Lybrand v. Livesay, 437 U.S. 463, 475 (1978). The party seeking 26 certification to appeal an interlocutory order has the burden of establishing the 27 existence of such exceptional circumstances. Id. “Even then, a court has substantial 28 discretion in deciding whether to grant a party’s motion for certification.” Zulewski v. -2- 3:12-cv-2164-GPC-JMA 1 Hershey Co., No. 11-cv-5117-KAW, 2013 WL 1334159, at *1 (N.D. Cal. Mar. 29, 2 2013). 3 IV. DISCUSSION 4 A. Controlling Question of Law 5 A “controlling question of law” is one whose “resolution of the issue on appeal 6 could materially affect the outcome of litigation in the district court.” In re Cement 7 Antitrust Litigation, 673 F.2d at 1026. Defendants argue, and the SEC does not dispute, 8 that the first Williamson factor is a controlling question of law. (See ECF No. 643, at 9 4.) The Court agrees. If the GPs were found not to be securities under the second and 10 third Williamson factors, the resolution of the first Williamson factor would determine 11 whether the GPs are, as a matter of law, securities. Accordingly, application of the first 12 Williamson factor is a controlling question of law. 13 B. Substantial Ground for Difference of Opinion 14 To determine whether there exists a “substantial ground for difference of 15 opinion,” the Court looks “to what extent the controlling law is unclear.” Couch v. 16 Telescope Inc., 611 F.3d 629, 633 (9th Cir. 2010). The Court considers factors such as: 17 (1) whether there is a circuit split and the Ninth Circuit has not addressed the issue; (2) 18 whether there is a complicated question under foreign law; and (3) whether there is a 19 difficult question of first impression. Id. (citation omitted). However, just because an 20 issue is one of first impression does not necessarily mean that there is “substantial 21 ground for difference of opinion.” Id. 22 Defendants argue that there is “substantial ground for difference of opinion” as 23 to whether, in assessing the first Williamson factor, the Court should consider: (1) the 24 governing document’s effective date; (2) an investment’s application or subscription 25 stage; (3) California partnership law; and (4) whether the investment vehicle was fully 26 formed. (ECF No. 643, at 6–7.) Defendants further argue that the Summary Judgment 27 Order is inconsistent with this Court’s prior rulings. (Id. at 7.) 28 First, contrary to Defendants’ assertion, the Summary Judgment Order is not -3- 3:12-cv-2164-GPC-JMA 1 inconsistent with this Court’s prior rulings. In deciding both the Preliminary Injunction 2 Order and the Order Denying Defendants’ Motion to Dismiss, the Court was presented 3 with blank sample copies of the GP agreements that had not been filled out or executed. 4 (See ECF No. 44, at 9; ECF No. 212, at 6; see also ECF Nos. 14-1, 43-2, 43-3.) In 5 contrast, in deciding the Summary Judgment Motion, the Court was presented with 6 completed and executed copies of the GP agreements as well as evidence regarding the 7 circumstances surrounding the formation of the GPs. (See ECF No. 583, at 6; see also 8 ECF No. 563-3.) As a result of this additional evidence, it became clear that investors 9 did not have the right to exercise control of the GPs at the time that they invested with 10 the Defendants. Ultimately, the Court’s prior rulings are not inconsistent because they 11 are based upon different facts or evidence. 12 Second, the Court finds that there is no “substantial ground for difference of 13 opinion” as to the application of the first Williamson factor. See Couch, 611 F.3d at 14 633. The first Williamson factor considers the “legal powers” that a partnership 15 agreement gives to investors. See Holden v. Hagopian, 978 F.2d 1115, 1119–20 (9th 16 Cir. 1992). Implicit in such analysis is the effective date and validity of the partnership 17 agreement as those issues govern whether investors have the practical ability to 18 exercise their legal powers. See Koch v. Hankins, 928 F.2d 1471, 1478 (9th Cir. 1991) 19 (citing Hocking v. Dubois, 885 F.2d 1449, 1460 (9th Cir. 1989)) (“[T]he question of 20 an investor’s control over his investment is decided in terms of practical as well as 21 legal ability to control.”) If a partnership agreement were invalid or not yet effective, 22 it would not afford an investor any legal powers until the effective date or until it 23 became valid. A partnership agreement that purports to give legal powers to investors, 24 but is not yet effective or is invalid, does not give any legal powers at the time of 25 investment. See Holden, id. at 1119 n.6 (noting that the focus of the first Williamson 26 factor is on the investor’s expectations at the time of the original investment and not 27 on what occurs after the original investment). 28 Moreover, the issue of whether an investment contract is a security and whether -4- 3:12-cv-2164-GPC-JMA 1 an investor is capable of exercising control is not limited to a rigid application of the 2 Williamson factors. See Hocking, 885 F.2d at 1460 (“Of course, under different facts 3 or legal arrangements other factors might give rise to such a dependence on the 4 promoter or manager that exercise of control would be effectively precluded.”); 5 Williamson, 645 F.2d at 424 n.15 (“But this is not to say that other factors could not 6 also give rise to such a dependence on the promoter or manager that the exercise of 7 partnership powers would be effectively precluded.”); see also Sec. and Exch. Comm’n 8 v. W.J. Howey Co., 328 U.S. 293, 299 (1946) (“[15 U.S.C. § 77b(a)(1)’s inclusion of 9 the term ‘investment contract’] embodies a flexible rather than a static principle, one 10 that is capable of adaptation to meet the countless and variable schemes devised by 11 those who seek the use of the money of others on the promise of profits.”) 12 Even if Defendants were correct that application of the first Williamson factor 13 does not consider the events surrounding the formation of a general partnership, there 14 is no “substantial ground for difference of opinion” as to whether, under Howey, the 15 Court can consider evidence that does not fall within the Williamson factors. Ninth 16 Circuit precedent, and even Williamson itself, make clear that determining whether an 17 investment contract is a security depends on the facts of the present case and is not 18 limited to a rigid application of the three Williamson factors. See Koch, 928 F.2d at 19 1475–76; Hocking, 885 F.2d at 1460; Williamson, 645 F.2d at 424 n.15; see also 20 Howey, 328 U.S. at 299. Considering all the evidence that was before the Court in the 21 Summary Judgment Order—including that investors invested money months if not 22 years prior to their general partnership agreements becoming effective—there is no 23 doubt that the investors were denied control at the time of the investment and the GPs 24 constituted securities under Howey. Accordingly, the Court finds that there is no 25 substantial ground for difference of opinion. 26 C. Materially Advance the Litigation 27 Even if there were substantial ground for difference of opinion, § 1292(b) 28 requires that an interlocutory appeal “may advance the ultimate termination of hte -5- 3:12-cv-2164-GPC-JMA 1 litigation.” In re Cement Antitrust Litigation, 673 F.2d at 1026. An interlocutory appeal 2 would “advance the ultimate termination of the litigation” if it would avoid further 3 litigation in this case. See Davis v. Calvin, No. 07-cv-1383-FCD-EFB, 2009 WL 4 981920, at *1 (E.D. Cal. Apr. 10, 2009). § 1292(b) is to be used only in exceptional 5 situations in which allowing an interlocutory appeal would avoid protracted and 6 expensive litigation. U.S. Rubber Co. v. Wright, 359 F.2d 784, 785 (9th Cir.1966). In 7 contrast, an interlocutory appeal that “delay[s] resolution of th[e] litigation” would not 8 materially advance the ultimate resolution of the litigation. Shurance v. Planning 9 Control Intern., Inc., 839 F.2d 1347, 1348 (9th Cir. 1988). 10 Defendants argue that a ruling on this issue by the Ninth Circuit would 11 materially advance the litigation because it would avoid the possibility of a retrial. 12 (ECF No. 643, at 9–10.) However, if Defendants’ appeal were successful, the case 13 would not be terminated. The parties would proceed to trial to decide whether the GPs 14 are securities under Williamson and Howey. All that an interlocutory appeal does is 15 delay the eventual trial of this case and creates the prospect of two separate appeals, 16 one at this time and a second one after the eventual trial. Accordingly, the Court finds 17 that interlocutory appeal would not materially advance the litigation. 18 As Defendants have not met the second and third criteria required by § 1292(b), 19 the Court finds that there are no exceptional circumstances warranting interlocutory 20 review. 21 22 V. CONCLUSION AND ORDER Based on the foregoing, IT IS HEREBY ORDERED that Defendants’ Motion 23 for Certification of Appeal by Permission, (ECF No. 643), is DENIED. 24 DATED: November 5, 2014 25 26 27 HON. GONZALO P. CURIEL United States District Judge 28 -6- 3:12-cv-2164-GPC-JMA
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