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Securities and Exchange Commission v. Schooler

United States District Court, S.D. California

June 3, 2015

LOUIS V. SCHOOLER and FIRST FINANCIAL PLANNING CORPORATION, dba Western Financial Planning Corporation, Defendants.


GONZALO P. CURIEL, District Judge.


Before the Court is Plaintiff Securities and Exchange Commission's (the "SEC") Motion for Partial Summary Judgment on its First and Second Claims for Relief. (ECF No. 1015.) Defendants Louis V. Schooler ("Schooler") and First Financial Planning Corporation d/b/a Western Financial Planning Corporation ("Western") (collectively, "Defendants") oppose. (ECF No. 1063.)

The parties have fully briefed the motion. (ECF Nos. 1015, 1063, 1067.) A hearing on the SEC's motion was held on May 19, 2015. (ECF No. 1073.) Upon review of the moving papers, admissible evidence, oral argument, and applicable law, the Court GRANTS IN PART AND DENIES IN PART the SEC's motion for partial summary judgment.


This is an enforcement action brought by the SEC. ( See ECF No. 1.) The SEC alleges that Defendants defrauded investors in the sale of general partnership ("GP") units which were, as a matter of law, unregistered securities. ( Id. ) On September 4, 2012, the SEC filed its complaint. ( Id. ) On October 22, 2012, this case was transferred to the undersigned judge. (ECF No. 52.) On July 15, 2013, Defendants filed an answer to the SEC's complaint. (ECF No. 255.) On March 28, 2014, the SEC filed a motion for partial summary judgment with regards to whether the GP units were securities. (ECF No. 563.) On April 25, 2014, the Court granted the SEC's motion for partial summary judgment and found that the GP units at issue in this case were securities as a matter of law (the "Securities Order"). (ECF No. 583.) The facts of this case are set forth in further detail in the Securities Order. ( Id. at 1-11.)

On March 13, 2015, the SEC filed the present motion for partial summary judgment on its first and second claims for relief. (ECF No. 1015.) On April 24, 2015 Defendants filed an opposition to the SEC's motion. (ECF No. 1063.) On May 8, 2015, the SEC filed a response to Defendants' opposition. (ECF Nos. 1067.) The SEC moves for summary judgment on its first and second claims for relief: that Defendants violated Section 17(a) of the Securities Act of 1933 ("Section 17(a)"), 15 U.S.C. § 77q(a), Section 10(b) of the Exchange Act of 1934 ("Section 10(b)"), 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated under the Exchange Act of 1934 ("Rule 10b-5"), 17 C.F.R. § 240.10b-5. (ECF No. 1 ¶¶ 67-74; ECF No. 1015.)


Federal Rule of Civil Procedure 56 empowers the Court to enter summary judgment on factually unsupported claims or defenses, and thereby "secure the just, speedy and inexpensive determination of every action." Celotex Corp. v. Catrett, 477 U.S. 317, 325, 327 (1986); FED. R. CIV. P. 56. Summary judgment is appropriate if the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c). A fact is material when it affects the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

The moving party bears the initial burden of demonstrating the absence of any genuine issues of material fact. Celotex, 477 U.S. at 323. The moving party can satisfy this burden by demonstrating that the nonmoving party failed to make a showing sufficient to establish an element of his or her claim on which that party will bear the burden of proof at trial. Id. at 322-23. If the moving party fails to bear the initial burden, summary judgment must be denied and the Court need not consider the nonmoving party's evidence. Adickes v. S.H. Kress & Co., 398 U.S. 144, 159-60 (1970).

Once the moving party has satisfied this burden, the nonmoving party cannot rest on the mere allegations or denials of his or hear pleading, but must "go beyond the pleadings and by her own affidavits, or by the depositions, answers to interrogatories, and admissions on file' designate specific facts showing that there is a genuine issue for trial.'" Celotex, 477 U.S. at 324 (citing FED. R. CIV. P. 56 (1963)). If the non-moving party fails to make a sufficient showing of an element of its case, the moving party is entitled to judgment as a matter of law. Id. at 325. "Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial.'" Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citing FED. R. CIV. P. 56 (1963)). In making this determination, the Court must "view [] the evidence in the light most favorable to the nonmoving party." Fontana v. Haskin, 262 F.3d 871, 876 (9th Cir. 2001). The Court does not engage in credibility determinations, weighing of evidence, or drawing of legitimate inferences from the facts; these functions are for the trier of fact. Anderson, 477 U.S. at 255.


A. Evidentiary Disputes

1. Judicial Admissions

First, the statements made by Defendants, (ECF No. 571-1 ¶¶ 9-10), are not, as the SEC argues, "conclusively binding." ( See ECF No. 1067, at 2-3 (citation omitted).) Federal Rule of Civil Procedure 7 generally allows for two types of filings by the parties: (1) "pleadings, " and (2) "motions and other papers." FED. R. CIV. P. 7. Rule 7 further specifies that there are exactly seven types of pleadings, primarily complaints, answers to complaints, and replies to answers to complaints. Id. Ignoring this distinction, the SEC misinterprets American Title Insurance Co. v. Lacelaw Corp., 861 F.2d 224 (9th Cir. 1988), and Ferguson v. Neighborhood Housing Services, 780 F.2d 549 (6th Cir. 1986). With regards to pleadings, those cases do hold that "stipulations and admissions in the pleadings are generally binding on the parties and the Court." Am. Title, 861 F.2d at 224 (citation and quotation marks omitted); Ferguson, 780 F.2d at 551. But Defendants' statements at issue are not contained in the pleadings, they are contained within a response to a statement of facts submitted in conjunction with an opposition to a motion. ( See ECF No. 571-1 ¶¶ 9-10.) This is, of course, not a "pleading" but an "other paper[], " FED. R. CIV. P. 7, and thus not governed by Ferguson. 780 F.2d at 550 ("The primary issue presented by this appeal is the significance and effect of NHS' admission in its answer. ...") (emphasis added). Statements contained in non-pleadings, such as briefs, are governed by the Ninth Circuit's holding in American Title: "statements of fact contained in a brief may be considered admissions of the party in the discretion of the district court." 861 F.2d at 226-27 (emphasis in original). To the extent that Defendants now dispute a statement contained in an earlier non-pleading filing, ( compare ECF No. 1063-1 ¶¶ 8-9 with ECF No. 571-1 ¶¶ 9-10), the Court exercises its discretion and does not consider the earlier statement to be a judicial admission. ( Cf. ECF No. 1029, at 11.)

2. Schooler's 2015 Deposition

Second, Defendants argue that statements from Schooler's 2015 deposition are inadmissible because Schooler was unable to review the transcript pursuant to Federal Rule of Civil Procedure 30(e). (ECF No. 1063-1 ¶ 13.) Though one of Schooler's attorneys, Philip Dyson, declares that Mr. Dyson was not "notified by the certified court reporter that Mr. Schooler's transcript was ready for review, " (ECF No. 1063-2 ¶ 13), the SEC has submitted a letter indicating that another of Schooler's attorneys, Eric Hougen, was notified that Schooler's transcript was available for review, (ECF No. 1067-2, Ex. 4). Ultimately, Rule 30(e) permits introduction of Schooler's original deposition testimony. See Podell v. Citicorp Diners Club, Inc., 112 F.3d 98, 103 (2d Cir. 1997) (original answer admissible even when deponent amends deposition transcript). Furthermore, to the extent that Schooler believed his deposition statements were in error, he could have stated so in his declaration, which he did not directly do. ( See ECF No. 1063-3.) Though he alleges that he never obtained a copy from the court reporter pursuant to Rule 30(e), ( id. ¶ 17), his counsel was in possession of at least the portions of the ...

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