Securities and Exchange Commission v. Bronson et al, No. 7:2012cv06421 - Document 120 (S.D.N.Y. 2015)
Court Description: MEMORANDUM AND OPINION:For the foregoing reasons, Plaintiff SECs motion for reconsideration is granted in part and denied in part. The Court modifies its Order, (Docket No. 98), and amends the protective order, issued pursuant to Rule 26, in accordance with this Opinion and Order. The Clerk is respectfully requested to terminate the pending motion (Docket No. 105). (Signed by Judge Kenneth M. Karas on 1023/2015) (rj)
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Securities and Exchange Commission v. Bronson et al Doc. 120 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK SECURITIES AND EXCHANGE COMMISSION. Plaintiff; -against- OPINION AND ORDER 12 Civ. 6421 (KMKXJCM) EDWARD BRONSON, E-LIONHEART ASSOCIATES. LLC cl/b/a FAIRHILLS CAPITAL, Defendants, -and FAIRH1LLS CAPITAL, INC., Relief Defendant, — By letters dated February 25,2015 and April 3, 2015, Defendants Edward Bronson and E-Lionhart Associates, LLC d/b/a Fairhills Capital and Relief Defendant Fairbills Capital, Inc. (collectively, “Defendants”) and Plaintiff Securities and Exchange Commission (“Plaintiff SEC”) presented discovery disputes pursuant to this Court’s discovery dispute order dated February 5,2015. On July 8, 2015, the Court issued rulings on the parties’ applications (‘Ordefl. (Docket No. 98). During a telephone conference on July 14. 2015, the parties requested limited clarification and modification of the Order, largely ministerial in nature. The Court also granted Plaintiff SEC leave to move for partial reconsideration of the portion of the Order prohibiting it from disseminating or using. “for the purpose of this litigation or any other purpose.° private documents it obtained in an inter-agcncy exchange from the Federal Bureau of Investigation(”FBI9. By order dated October 13,2015, the Court directed the parties to submit factual assertions ‘setting forth when Plaintiff SEC requested from the FBI a copy of the 41 Boxes (‘41 Boxes’) that the FBI obtained in executing a search warrant at Relief Defendant Dockets.Justia.com Fairhills Capital, Inc.’s offices on November 15. 2012.” (Docket No. 117). The parties dutifully responded, with Plaintiff SEC filing a Declaration of Kevin P. McGrath in Compliance with the Court’s October 13, 2015 Order (“McGrath Compliance Dccl.”), (Docket No. 119), and Defendants filing, an Affirmation of Benjamin 5, Fischer (“Fischer Affirm.”), (Docket No. 118). As stated in the Memo Endorsement dated August 3, 2015, (Docket No. 113), the parties’ joint request for limited clarification and modification is granted. Furthermore, for the reasons set forth below, Plaintiff SEC’s motion for reconsideration is granted in part and denied in part and this Court’s Order shall be modified as set forth in this Opinion and Order. 1. BACKGROUND Plaintiff SEC commenced this action on August 22, 2012, alleging certain violations of Section 5 of the Securities Act of 1933 (the “Act”). (Docket No. 11). Tn lieu of answer, on March 15, 2013, Defendants filed a motion to dismiss the action pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. (Docket No. 17). The Honorable Kenneth M. Karas, United States District Judge, denied Defendants motion on March 31, 2014. (Docket No. 21). It is not clear whether the parties undertook any discovery up until the entry of Judge Karas’ decision. 2 However, at least as of April 11, 2014, the parties actively participated in discovery in this action. On that date, Plaintiff SEC filed a letter pursuant to Rule 37.2 of the Local Rules of the United States District Courts for the Southern and Eastern Districts of New York, seeking a “pre motion discovery conference” in... connection with the parties’ request for the C.ourt to enter a protective order in th...is action. (Docket No. 23). Judge Karas soordered the protective order on Refers to the Complaint filed in this action on August 22, 2012. Judge Karas’ Motion Scheduling Order dated January 8. 20]3 expressly granted a stay of any “pending deadlines foun.d in the Federal Rul.es of Civil Procedure or i.n any applicabl.e statute,” but only up to the date of the fili.n.e of Defendants’ motion to dismiss, (Docket No. 15 at If April 14. 2014. (Docket No. 24). Defendants answered the Complaint on September 5. 2014. (Docket No. 41). A Calendar Notice for a “Rule (16) conference before Judae Karas was entered on September 24, 2014. (Docket No. 46). Although the conference did not occur as originally scheduled. Judge Karas so-ordered a Case Management and Scheduling Order. uhich was entered on October 29. 2014. (Docket No. 56). The private documents at issue in this motion for reconsideration are those seized among the 41 Boxes by the FBI pursuant to the execution of a search warrant at Relief Defendant Fairhills Capital. Inc.’s offices on November 15, 2012. (McGrath Decl. at 3 ¶ 2). Plaintiff SEC learned of the seizure and requested that the FBI share the 41 Boxes. or at least a summary of the documents seized: the FBI agreed to forward all of the contents of the 41 Boxes. (JL); (McGrath Compliance Dccl. at 2). The communications between Plaintiff SEC and the FBI, from which Plaintiff SEC secured a copy of the 41 Boxes, occurred on September 29-30, 2014. (McGrath Compliance Dccl. at 2). Defendants’ counsel recalls speaking with Plaintiff SEC’s counsel about the 41 Boxes in late fall. (Fischer Affirm. at ¶ 4). Plaintiff SEC performed a privilege review of the contents by creating a separate “filter team,” after Defendants allegedly declined to perform the review. (McGrath Dccl. at ¶ 3-4). Defendants, however, wanted to determine for themselves what documents among the 41 Boxes were privileged or not relevant to the present civil proceedings. (See Docket No. 93) (letter application pursuant to this Couri s di scox cry dispute orderL Thus on Apri] 3. 20 1 5. Defendants soupht relief from. this Court. which the Court cc.nstrued as a motion fhr a protective order ReOrs to the Declaration ot Kex in P. OcGratli in Support ot Plaintiff Securities and Exchanoe Commissions lotion fbr Reconsideration of the Courts Julx S 20 5 Order. Pled in this action on July 24. 2U 5 (Docbe xo. barring PlaintilY SEC from using in this action documents within the 41 Boxes that Defendants deem privileged or not relevant to this action. (Id). By Order dated July 8,2015. the Court eranted Dcfendants application lbr a protective order in connection with die contents of the 41 Boxes. (Docket No. 98 at 9-1 1). A. Ninisterial Alterations to the Order Following a telephone conference on .July 14, 2015, the parties submitted a joint letter dated July 30. 2015 identiRing ministerial changes to the Order. (Docket No. 110). By memo endorsement dated August 3, 2015. the Court granted the parties’ requests. (Docket No. 113). The changes to the Order did not alter the substance of the Court’s direction, but rather clarified the Court’s intent with respect to the parties’ applications. First, the Court modified the portion of the Order stating: Accordingly. Plaintiff SEC shall produce responsive documents of all communications between members of the SEC Penny Stock Task Force charged with investigating violations of Rule 504 (“SEC Task Force’) and the individuals identified in Defendants RFPs 13 and 14.’ (Docket 98 at 5). The Order shall now be construed to read: Accordingly, Plaintiff SEC shall produce responsive documents of all communications concerning Rule 504 between current and former members of the SEC Microcap Fraud Task Force and Microcap Faud Working Group and the individuals identified in Defendants RFP 13. Plaintiff SEC shall also produce responsive documents of all communications between current and former members of the SEC Microcap Fraud [ask Force and Microcap Fraud Working Group and the individuals identified in Defendants’ REP 14 (.Dock.et No. 113 at 1), Second. the Court modified the portion of the Order stating. “Accordingly. Plaintiff SEC slial I identify to Defendants the states in which l)efendanis al1egedl consummated transactions in violation of the Act, Plaintiff SEC also shall produce responsive documents of all -4- communications regarding Rule 504 and State Securities Registration Exemptions, as set forth in Defindants’ RFP 17-19. between: the SEC Task Force and Delaware state regulators and the SEC Task Force and any other State Securities Regulator for those states in which Defendants allegedly committed violations of the Act.” (Docket 98 at 7). The Order shall now he construed to read: Accordingly, Plaintiff SEC shall identify to Defendants the states in which the SEC alleges that offers were made or sales took place in connection with the issuances of securities that the Defendants are alleged to have resold in violation of the Act. Plaintiff SEC also shall produce responsive documents of all conmiunications regarding Rule 504 and State Securities Registration Exemptions, as set forth in Defendants’ RFP 17-19, between: current and former members of the SEC Microcap Fraud Task Force and Microcap Fraud Working Group and State Securities Regulators for those states identified by the SEC to Defendants. (Docket iso. 113 at 1-2). Third. the Court modified the portion of the Order stating. “In order to effectuate this protective order, and with the understanding that the information is currently stored on disks, only SEC attorneys of record in this action maY incidentally view the information in the course of viewing non-privileged, non-protected information contained on the same disks.” (Docket 98 at 11). The Order shall now be construed to read: In order to effectuate this Order, only SEC attorneys of record and their paralegals, IT. and other support staff may incidentally view the information in the course of viewing non—privileged. non—protected infbrmation. DoeketNo. 113 at 1, 3). Fourth, the Court n..odii.ied the portion of t.he Order stating, “Pl.aintiff SEC .may retai.n the 4 l Boxes. hut it may not disseminate or use. for the purposes of this litication or any other purpose. personal and pri\ate infbrmation not related to the prosecution of this civil action. DLlendants sh ill proide to Plaintilt SEC a list of all doLuments it deems pLisonal and pr1atL ii a log, no later than July 16. 2015.” (Docket 98 at 10-11). The Order shall now be construed to read: Plaintiff SEC may retain the 41 Boxes. but it may not disseminate or use, for the purposes of this litigation or any other purpose, personal and private information not related to the prosecution of this civil action. Defendants shall provide to Plaintiff SEC a list of all documents it deems personal and private not related to 4 the prosecution of this civil action in a log. The log shall contain sufficient information to identify the nature of the personal and/or private information unrelated to the prosecution of this civil action. (Docket No. 113 at 1,3). B. Application for Partial Reconsideration In addition to the aforementioned changes, Plaintiff SEC also sought leave to move for partial reconsideration of the portion of the Order preventing it from disseminating or using for the purposes of this litigation or any other purpose, personal and private information not related to the prosecution of this civil action.” (Docket No.98 at 10). The Court granted leave for Plaintiff SEC to move for reconsideration on this ground, in part, because the parties did not submit argument or case law on this point. Plaintiff SEC timely moved for partial reconsideration, contending that the Court did not have authority to grant a protective order pursuant to Rule 26 of the Federal Rules of Civil Procedure (“Rule 2e’) with regard to the 41 Boxes since they were obtained Independent of the judicial process or the discovery process in this case.” (Docket Nos. I 05, 1066 at 8-11). Defendants contend that the Court had the authority to issue a protective order pursuant to Rule 26 and its equitable powers to protect non-relevant. ‘ The partie& joint submission stated. seems. (Docket No. 110 at 3). However, the Court believes the parties intended to write deems” and modifies its Order accordingly. Refers 5 to Plaintiff SEC’s notice of motion, filed in this action on July 24,2015. ‘Rcfers to Plaintiff SEC’s memorandum of law in support if its motion for partial reconsideration, tiled in this action on July 24.2015. -6- personal information. (Docket No. I i4 at 6 n.2, 6-10). In its reply, Plaintiff SEC avers, inter cilia, that the Court’s equitable powers are limited to instances of wrongdoing. (Docket No. 1158 at 2-4). 11. LEGAL STANDARD Although none of the parties discussed the rule upon which this Court should reconsider its Order, the Court construes Plaintiff SEC’s motion for partial reconsideration as one made pursuant to Rule 6.3 of the Local Civil Rules ofthe United States District Courts for the Southern and Eastern District ofNew York (“Local Rule. “The decision to grant or deny [such] motion is within the sound discretion of the. . . court.” Dellafave v. Access Temporaries. Inc., No.99 Civ. 6098.2001 WL 286771, at ‘1 (S.D.N.Y. Mar. 22,2001) (alteration provided) (citation omitted). However, it is clear that, in the Second Circuit, granting reconsideration “is an extraordinaiy remec.y to be employed sparingly in the interests of finality and conservation of scarce judicial resources.” Peterson v. Home Depot USA., Inc., No. 11 Civ. 5747,2014 WL 1355622. at ‘I (S.D.N.Y. Apr. 4,2014) (emphasis added) (quotation marks and citation omitted). The moving party may not employ the motion “to start a new round of arguments” nor “should the Court be expected to wade through lengthy papers that simply reiterate in slightly different form the arguments already made in the party’s original papers.” Metropolitan Opera Ass’n v. Local 100, No.00 Civ. 3613,2004 WL 1943099, at ‘2 (S.D.N.Y. Aug. 27, 2004) (quotation marks and citation omitted). Thus. the standard for granting such motion “is strict.” Shrader v. SV Tran.sp. Inc.. 70 F.3d 255, 257 d Cir. 1995). Re&rs to Defendants’ opposition to PlaintitTSECs motion for partial reconsideration, tiled in this action on August 4. 2015. Refers 8 to Plaintiff SEC’s reply memorandum of law in further support of its motion for partial reconsideration, filed in this action on August 10,2015. -7- dotions pursuant to Local Rule 6.3 will be denied “in order to preclude repetitive arguments on issues that have already been considered fully by the Court.’ Park South Tenants Corp. v. 200 Cent. ParkAssocs., 754 F. Supp. 352, 354 (S.D.N.Y. 1991). a/i’d 941 F.2d 112 (2d Cir. 1991) (citation omitted). However, courts may grant such motions: (1 ) “where the Court has overlooked matters or controlling decisions which might have materially influenced the earlier decision.” Id. (citation omitted), or (2) “to correct a clear error or prevent manifest injustice.” Boart Longvear Lal v. Alliance Indus., Inc 860 F. Supp. 2d 407. 417-18 (S.D.N.Y. 2012) (quotation marks and citation omitted). Local Rule 6.3 may not be used to reargue matters already determined by the Court, just because the party is not happy with the original decision. III. DISCUSSION The basis for Plaintiff SEC’s motion is properly grounded in the permissible reasons for reconsideration. Therefore. the Court grants Plaintiff SEC’s motion and reconsiders the portion of its Order granting a protective order on those documents in the 41 Boxes identified by Defendants as “personal and private information not related to the prosecution of this civil action.” (Docket No. 113 at 1. 3). The case law, not previously before this Court, is clear that where a party independently obtains documents before discovery in a particular action, a court may not place limitations on its use under the auspices of Rule 26. Bridge CA. T. Scan Assocs. r. Technicare Corp., 710 F.2d 940, 942, 944-45 (2d Cir. 1983) (reversing the entry of a protective order. either under Rule 26 or courts’ equitable pow ers. over documents obtained prior to the commencement of action); Funcini . llaiithrcchi & OoLsi. Inc.. 1 74 F.R.D. 319. 32324 (S. D.N.Y. 1997) (citations omitted) (identii\ing. inter alia. a Ninth Circuit case in which the court held that a district court could not control discovery obtained in a separate action. hut between the same parties as before it); Liyan He v. C ‘igna Life Ins, Co. of &ew York. No. 14 Civ. -8- 2180. 2015 Wi. 4114523, at *4 n.5 (S.D.N.Y. .lulv 8.2015) (citing Bridge (4.T Sean Assocs., 710 F.2d at 945). Thus. a Rev issue before the Court is whether Plaintiff SEC obtained the 41 Boxes prior to discovery commencing in this action, thereby remaining independent of Rule 26 protections. Rule 26 contemplates a scope of discovery limited to “discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense Rule 26(h)( I ). It does not impose any limitation on the persons or entities from whom discovery is obtained. Rather. Rule 26 anticipates that parties will seek discovery from “any source.” but limits such inquiries: “A party may not seek discovery from anx’ source before the parties have conferred as required by Rule 26(O Rule 26(d)(1). The Federal Rules of Civil Procedure also provide a mechanism by which a party may compel document disclosure from non-parties. Fed. R. Civ. P. 34(c): 45. There are no limits to obtaining disclosure from cooperating non—parties. Id. pass/ni: see United Slates v. Airam Lines (USA). Lid.. 159 F.R.D. 408. 410 (S.D.N.Y. 1994) (noting that securing “cooperation of. . . non-parties” could “reduce costs and facilitate discovery”). Here, there is no dispute that Plaintiff SEC obtained the 41 Boxes over two (2) years after it commenced this action. (See Docket No. 1) (Complaint filed on August 22, 2012); (See \lcGrath Compliance Dccl. at ¶ 2) (Plaintiff SEC initiated communications with the FBI on September 29. 2(314. iI’om which it obtained the 41 Boxes). It also appears that Plaintiff SEC obtained the 41 13 axes afrer the larties commenced discovery, At least by April 11. 20 I 4, the parties had met and conferred v ith regard to a protecti e order. pursuant to Rule 26. v. hieli terms had been agreed to by the parties and submitted to Judge Karas for consideration. (Docket No. 23). Plaintiff SEC admitted to participating in discovery at this time, expressly seeking a Rule 26(( 1) requires panics, unless ordered otherwise. to “confer as soon as practicahle-and in an> e\ cut at least d la> s before a schedulinu eon lerence is to he held or a chedunne order is due under Rule I bib 0 ‘discovery conference.” (Id). Judge Karas so-ordered the protective order on April 14.2014. (Docket No. 24). Defendants answered the Complaint on September 5, 2014. (Docket No.41). In addition, just days before Plaintiff SEC contacted the FBI, on September 24,2014, Judge Karas issued a Calendar Notice for a “Rule (16) conference.” (Docket No. 46). Again, five days later, Plaintiff SEC communicated with the FBI on September 29.2014, which communications prompted the voluntary exchange of the 41 Boxes. (McGrath Compliance Decl. at 2). ¶ Based on this record. the Court finds that Plaintiff SEC obtained the 41 Boxes during the course of discovery in this action for purposes ofdiscovery in this action. Moreover, its ability to obtain documents from the FBI, in these circumstances, is akin to obtaining information from a cooperating non-party, who, as in the case here, voluntarily discloses information and helps streamline the discovery process in this action. See Afram Lines (USA), Lii, 159 F.R.D. at 410 ( “cooperation of. . . non-parties” could “reduce costs and fbcilitate discovery”). Thus, the Court finds that Rule 26 governs the 41 Boxes. See, e.g., Bridge CA.T Scan Assocs., 710 F.2d at 942, 944-45 (2d Cir. 1983) (reversing the entry of a protective order because the documents at issue were obtained prior to the commencement of action). In reconsidering its Order, the Court concludes that it properly entered a protective order, pursuant to Rule 26, over the private documents within the 41 Boxes.’ Notwithstanding the 0 same, the Court did not intend to interfere with Plaintiff SEC’s ability to conduct business pursuant to its authority. Accordingly, the Court modifies its protective order as follows: “‘Because the Court concludes that it properly issued a protective order under Rule 26. it need not address its authority under its equitable powers. In any event, the Court’s equitable power is limited to circumstances where it must prevent a party from introducing Improperly obtained evidence; otherwise the court by allowing the wrongdoer to utilize the information in litigation befbre it, becomes complicit in the misconduct.” Fverni, 174 F.R.D. at 324 (citations omitted). In its Order. the Court concluded that Plaintiff SEC properly obtained the 41 [B]oxes from the FB1.’ (Docket No.98 at 10) (alteration provided). Accordingly, there is no wrong to remedy. -10- Plaintiff SEC may retain the 41 Boxes, but it may not disseminate or use, for the purposes of this litigation or any other purpose, personal and private information not related to the prosecution of this civil action. flowever, this limitation shall not be construed to interfere and shall not interfere with Plaintiff SEC’s use of information for law enforcement activities and to otherwise regulate, administer and enforce the federal securities laws.” Defendants shall provide to Plaintiff SEC a list of all documents it deems personal and private not related to the prosecution of this civil action in a log. The log shall contain sufficient information to identify the nature of the personal and/or private information unrelated to the prosecution of this civil action. IV. CONCLUSION For the foregoing reasons, Plaintiff SEC’s motion for reconsideration is granted in part and denied in part. The Court modifies its Order, (Docket No. 98), and amends the protective order, issued pursuant to Rule 26, in accordance with this Opinion and Order. The Clerk is respectfully requested to terminate the pending motion (Docket No. 105). Dated: October 23, 2015 White Plains, New York SO ORDERED: - Z /)J JUDITH C. McCARTHY United States Magistrate Judge C onzpai c An1Lndd ConhdcntIaiIt\ OrdLr at I a (DoLt No 96) J
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