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Securities and Exchange Commission v. Retail Pro

September 27, 2011

SECURITIES AND EXCHANGE COMMISSION, PLAINTIFF,
v.
RETAIL PRO, INC. (FKA ISLAND PACIFIC, INC.), BARRY M. SCHECHTER, RAN H. FURMAN, AND HARVEY BRAUN, DEFENDANTS.



The opinion of the court was delivered by: Hayes, Judge:

ORDER

The matters before the Court are the Renewed Motion for Judgment as a Matter of Law (ECF No. 176), and the Motion for New Trial (ECF No. 177), filed by Defendant Ran H. Furman.

I. Background

On September 4, 2008, Plaintiff Securities and Exchange Commission ("SEC") filed a Complaint in this Court. (ECF No. 1). The Complaint alleged the following claims against Furman: (1) fraud in connection with the purchase or sale of securities pursuant to Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5; (2) aiding and abetting issuer reporting violations pursuant to Section 20(e) of the Exchange Act, 15 U.S.C. § 78t(e), and Section 13(a) of the Exchange Act, 15 U.S.C. § 78m(a), and Rules 12b-20, 13a-1 and 13a-13 thereunder, 17 C.F.R. §§ 240.12b-20, 240.13a-1 and 240.13a-13; (3) record-keeping violations pursuant to Section 13(b)(2)(A) of the Exchange Act, 15 U.S.C. § 78m(b)(2)(A) and Rule 13b2-1 thereunder; (4) misrepresentations to accountants pursuant to Exchange Act Rule 13b2-2, 17 C.F.R. § 240.13b2-2; (5) internal control violations pursuant to Section 13(b)(5) of the Exchange Act, 15 U.S.C. § 78m(b)(5); and (6) false certification violations pursuant to Exchange Act Rule 13a-14, 17 C.F.R. § 240.13a-14.

On November 18, 2009, the Court issued an Order granting in part and denying in part the SEC's Motion for Summary Judgment. (ECF No. 47). The Court granted summary judgment in favor of the SEC as to the Rule 13b2-1 claim, the Rule 13b2-2 claim and the Section 13(b)(5) claim.

On April 9, 2010, the Court denied Furman's Motion for Reconsideration of the November 18, 2009 summary judgment Order. (ECF No. 58).

On February 15, 2011, a jury trial commenced as to the SEC's remaining claims against Furman. (ECF No. 136).

On February 23, 2011, after the close of the SEC's case, Furman filed a Motion for Directed Verdict pursuant to Federal Rule of Civil Procedure 50(a). (ECF No. 143).

On February 25, 2011, the jury returned a unanimous Verdict, finding the following: "Furman violate[d] Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder"; "Furman aid[ed] and abet[ted] one or more violations by Island Pacific of Section 13(a) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, and 13a-13 promulgated thereunder"; and "Furman violate[d] Rule 13a-14 promulgated under the Securities Exchange Act of 1934." (ECF No. 147 at 1-2).

On March 4, 2011, the SEC filed a Motion for Relief. (ECF No. 160).

On June 23, 2011, the Court issued an Order denying the Motion for Directed Verdict (ECF No. 172), and an Order granting in part and denying in part the Motion for Relief (ECF No. 173). The June 23, 2011 Orders are incorporated by reference into this Order.

On July 8, 2011, the Court issued Final Judgment of Permanent Injunction and Other Relief Against Ran H. Furman. (ECF No. 174).

On August 5, 2011, Furman filed a Motion to Stay Execution of Judgment (ECF No. 175), the Renewed Motion for Judgment as a Matter of Law (ECF Nos. 176, 178), and the Motion for New Trial (ECF Nos. 177, 178).

On August 11, 2011, the Court issued an Order denying the Motion to Stay Execution of Judgment. (ECF No. 179).

On August 23, 2011, the SEC filed oppositions to the Renewed Motion for Judgment as a Matter of Law and the Motion for New Trial. (ECF Nos. 180, 181).

On August 30, 2011, Furman filed replies in support of the Renewed Motion for Judgment as a Matter of Law and the Motion for New Trial. (ECF Nos. 182, 183).

II. Renewed Motion for Judgment as a Matter of Law

Furman contends that, pursuant to Federal Rule of Civil Procedure 50(b), judgment as a matter of law should be entered in Furman's favor as to each of the claims at issue in the trial. Furman contends: "Judgment as a matter of law must be entered on the SEC's 10(b) claim because there is insufficient evidence that Furman had the requisite scienter"; "judgment as a matter of law must be entered on the SEC's aiding and abetting claim because there is no evidence from which a reasonable jury could conclude that Furman had actual knowledge of any underlying violation by Island Pacific"; and "judgment as a matter of law must be entered on the SEC's rule 13a-14 claim because there is no evidence from which a reasonable jury could conclude that Furman's certifications were false in light of his knowledge." (ECF No. 176-1 at 3, 10, 12).

A Rule 50(b) motion is decided under the same "substantial evidence" standard applicable to arguments made in a Rule 50(a) motion. EEOC v. Go Daddy Software, Inc., 581 F.3d 951, 963 (9th Cir. 2009); see also SEC v. Todd, 642 F.3d 1207, 1215 (9th Cir. 2011) ("A jury's verdict must be upheld if it is supported by substantial evidence. Substantial evidence is evidence adequate to support the jury's conclusion, even if it is also possible to draw a contrary conclusion from the same evidence. The court must not weigh the evidence, but rather should ask whether the plaintiff has presented sufficient evidence to support the jury's conclusion. The evidence must be viewed in the light most favorable to the nonmoving party, and all reasonable inferences must be drawn in favor of that party.") (quotations omitted).

For the reasons discussed in the Court's June 23, 2011 Order denying the Motion for Directed Verdict, see ECF No. 172, the Court finds that substantial evidence supports the jury's Verdict as to each of the claims at issue. The Renewed Motion for Judgment as a Matter of Law is denied.

III. Motion for New Trial

A. Contentions of the Parties

Furman contends that, pursuant to Federal Rule of Civil Procedure 59(a), "Furman is entitled to a new trial because he was substantially prejudiced by several erroneous evidentiary rulings." (ECF No. 177-1 at 7). Furman contends that "Furman was prevented from effectively impeaching the SEC's expert witness"; "Furman was prevented from introducing evidence showing that Milberg Weiss did not sue in connection with the accounting for the QQQ transactions"; "[former Island Pacific contract administrator Joseph] Dietzler was permitted to testify as though he were an expert"; and "[outside auditor] Sally Aubury was permitted to testify as to why Singer Lewak resigned even though that testimony was irrelevant and prejudicial." Id. at 7, 13, 15, 17. Furman contends that he "is entitled to a new trial because of counsel's improper closing argument" and "because the verdict was against the clear weight of the evidence." Id. at 18, 21.

The SEC contends:

Furman's complaints regarding certain of the Court's evidentiary rulings and the Commission's closing argument are ill-founded and, even if the rulings had been erroneous, no prejudice resulted which would warrant a new trial. Furman's final ground for new trial -- that the verdict was against the clear weight of the evidence -- is similarly ill-founded. Notably, although Furman's primary argument is that the evidence failed to establish his scienter, Furman utterly fails to address the Court's detailed analysis of the evidence regarding Furman's knowing behavior set forth in both its Order granting the Commission relief ... (Docket No. 173) and its Order denying Furman's initial motion for a directed verdict (Docket No. 172). (ECF No. 180 at 5).

B. Standard of Review

Federal Rule of Civil Procedure 59 provides that "[t]he court may, on motion, grant a new trial ... for any reason for which a new trial has heretofore been granted in an action at law in federal court." Fed. R. Civ. P. 59(a)(1)(A). "The trial court may grant a new trial, even though the verdict is supported by substantial evidence, if the verdict is contrary to the clear weight of the evidence, or is based upon evidence which is false, or to prevent, in the sound discretion of the trial court, a miscarriage of justice." United States v. 4.0 Acres of Land, 175 F.3d 1133, 1139 (9th Cir. 1999) (quotation omitted); see also Todd, 642 F.3d at 1225 ("A motion for a new trial is granted if the verdict is against the great weight of the evidence, or it is quite clear that the jury has reached a seriously erroneous result.") (quotation omitted). "Upon the Rule 59 motion of the party against whom a verdict has been returned, the district court has the duty to weigh the evidence as the court saw it, and to set aside the ...


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