United States District Court, S.D. California
ORDER GRANTING PLAINTIFF'S MOTION FOR PARTIAL
SUMMARY JUDGMENT [ECF, 22]
JILL L. BURKHARDT UNITED STATES MAGISTRATE JUDGE.
a Securities and Exchange Commission enforcement action
against Defendants Strategic Global Investments, Inc. and
Andrew Fellner related to their entrance into the Colorado
retail marijuana industry. Plaintiff's First Amended
Complaint alleges that in early 2014, Defendants issued press
releases and a Form 1-A Filing that contained false and
misleading information in violation of Section 10(b) of the
1934 Securities Exchange Act and SEC Rule 10b-5 promulgated
thereunder, and Section 17(a)(2) of the 1933 Securities Act.
(ECF No. 18 at 9.) In addition, the operative complaint
alleges that Defendant Fellner aided and abetted Defendant
Strategic's violations of the same. (Id. at
SEC now moves for summary judgment against Defendants
Strategic and Fellner as to their violations of Section 10(b)
of the 1934 Exchange Act and SEC Rule 10b-5 only. (ECF No.
22.) Defendants oppose the motion. (ECF No. 24.) The Court
held a hearing on Plaintiff's motion for partial summary
judgment on March 16, 2017. (See ECF No. 31.) Having
considered the parties' papers, supporting evidence, and
oral arguments, and for the reasons set forth below, the
Court hereby GRANTS Plaintiff's motion. (ECF No. 22.)
Strategic is a San Diego-based, Delaware corporation that was
formed in 2008. (ECF No. 18, ¶ 11; ECF No. 19, ¶
9.) Strategic's common stock is a penny stock that is
traded on the OTC Pink marketplace. (ECF No. 18, ¶¶
11-12; ECF No. 19, ¶¶ 9-10; ECF No. 24 at 2.)
Fellner, a resident of Carlsbad, California, acquired a
controlling interest in Strategic in 2010. (ECF No. 18,
¶ 13; ECF No. 19, ¶ 11.) Fellner serves as the
Chief Executive Officer, Secretary, Treasurer, and Sole
Director of Strategic. (Id.)
Legalization of Recreational Marijuana in Colorado
November 6, 2012, Colorado voters approved Amendment 64,
which legalized recreational marijuana in Colorado as a
matter of state law. On December 10, 2012, the State of
Colorado amended its constitution to provide that the use of
marijuana should be legal in the state and regulated in a
manner similar to alcohol. Colo. Const. art. 18, §
16(1)(a). On May 28, 2013, the Colorado legislature enacted
the Colorado Retail Marijuana Code, Colo. Rev. Stat. §
12-43.4-101 et seq., which provides the statutory
framework for the regulation of retail marijuana
establishments in the State. Two aspects of the
constitutional amendment and its implementing regulations are
relevant to this action.
the Colorado Retail Marijuana Code prohibits all retail
marijuana establishments, including marijuana cultivation
facilities, from operating until licensed by the Colorado
State Licensing Authority and approved by the local
jurisdiction. Colo. Rev. Stat. §§ 12-43.4-103(17),
-309(2) (2016). At all times relevant to this action, the
Code prohibited the issuance of a marijuana cultivation
facility license to “[a]n owner who has not been a
resident of Colorado for at least two years prior to the date
of the owner's application.” Colo. Rev. Stat.
§ 12-43.4-306(k) (2013). The Code defined
“owner” to mean “any person having a
beneficial interest, as defined by the state licensing
authority in a retail marijuana establishment other than a
holder of a permitted economic interest.” Colo. Rev.
Stat. § 12-43.4-103(12) (2013).
Colorado State Licensing Authority promulgated rules related
to Colorado's Retail Marijuana Code on September 9, 2013.
See 1 Colo. Code Regs. § 212-2 (2013). The
rules further defined “owner” as “the
Person or Persons whose beneficial interest in the license
is such that they bear risk of loss other than as an insurer,
have an opportunity to gain profit from the operation or sale
of the establishment, and have a controlling interest in a
Retail Marijuana Establishment license, and includes any
other Person that qualifies as an Owner pursuant to Rule R
204.” 1 Colo. Code Regs. § 212-2.103 (2013). Rule
R 204.D stated that “ownership of a share or shares in
a corporation . . . which is licensed . . . constitutes
ownership and a direct financial interest.” 1 Colo.
Code Regs. § 212-2.204 (2013).
the constitutional amendment provides that any county,
municipality, or city may enact an ordinance to prohibit the
operation of marijuana cultivation facilities, marijuana
product manufacturing facilities, marijuana testing
facilities, or retail marijuana stores. Colo. Const. art. 18,
§ 16(2)(e), (5)(f). In March 2013, Teller County,
Colorado, exercised the option to prohibit the operation of
all marijuana establishments, including marijuana cultivation
facilities, within the unincorporated boundaries of its
county. Teller County, Colo., Ordinance 18 (March 14, 2013).
Defendants' Involvement in the Colorado Marijuana
February 5, 2014, Defendant Strategic entered into a Stock
Purchase Agreement with Robert Coffy through which Strategic
purchased the only-issued share of common stock in BearPot,
Inc., a Colorado Corporation and controlling entity of an
existing marijuana cultivation facility in Teller County,
Colorado. (See ECF No. 22-14.) At the time that
Strategic acquired BearPot, BearPot's assets included
“equipment with a market value of $10, 000” and
“living plants that are healthy and growing and have a
market value of $5, 000.” (Id., ¶
2.01(f).) BearPot did not own any real property and was
leasing its marijuana cultivation facility. (Id.,
¶ 2.01(g).) Although the Stock Purchase Agreement was
executed on February 5, 2014, Robert Coffy did not
incorporate BearPot in Colorado until February 14, 2014. (ECF
No. 22-15 at 4.)
February 10, 2014, and March 27, 2014, Defendant Strategic
issued six press releases via the website
www.marketwired.com that chronicled its acquisition
of BearPot and entrance into Colorado's recreational
marijuana market. (ECF Nos. 22-7 to 22-12.) Defendant
Strategic specifically identified the purpose of the
shareholder letter quoted in the February 24, 2014 press
release as being to update existing shareholders and
potential investors about Strategic's developments
related to its newly acquired Colorado marijuana cultivation
facility. (ECF No. 22-9 at 2.) The content of the press
releases is the subject of the instant motion and discussed
in greater detail throughout this order.
third quarter of 2014, Strategic decided not to obtain any
marijuana licenses from the State of Colorado and not to
pursue further its marijuana business. (ECF No. 24 at 3-4.)
Strategic abandoned BearPot in October 2014. (Id. at
9, 2014, the SEC issued to Strategic a subpoena seeking
documents that supported some of the statements Strategic
made in its February and March 2014 press releases. (ECF No.
22-13.) Specifically, the SEC requested that Strategic
produce “[a]ll documents evidencing, showing, and
reflecting Bearpot's marijuana facility, including . . .
the location and/or address of such facilities”
(Request No. 4), “[d]ocuments sufficient to identify
the location, specifications . . . and ownership of [the]
‘Marijuana Growing facility located in Teller County,
Colorado, ' as described in a press release issued by
[Strategic] on February 20, 2014” (Request No. 10),
“[a]ll applications, permits, licenses, and other
documents provided to or issued by the State of Colorado,
Colorado's Marijuana Enforcement Division, or any other
regulatory agency in the State of Colorado in connection with
[Strategic]'s and Bearpot's entrance into the
marijuana industry” (Request No. 17), and “[a]ll
documents evidencing, showing, and reflecting Bearpot's
authorization by the State of Colorado to cultivate, grow,
and/or sell marijuana” (Request No. 18). (Id.
responded to the SEC's subpoena on August 18, 2014. (ECF
No. 22-16.) In response to Request No. 4 regarding the
location of the marijuana cultivation facility, Strategic
produced the documents bates numbered STRATEGIC
00020-STRATEGIC 00030, which consist of several March 2014
invoices for marijuana cultivation equipment that BearPot
purchased. (ECF No. 22-16 at 2; ECF No. 34-18 at 21-31.) The
invoices provide no information as to the location of
BearPot's marijuana cultivation facility. (See
id.) Strategic's August 18, 2014 subpoena response
did not address Request No. 10 regarding the location,
specifications, and ownership of the marijuana cultivation
facility. (See ECF No. 22-16.) In response to
Request No. 17 regarding any permits and licenses issued by
Colorado regulatory agencies, Strategic responded, “No
documents.” (ECF No. 22-16 at 3.) In response to
Request No. 18 regarding BearPot's authorization by the
State to grow or sell marijuana, Strategic responded,
“No documents, other than the laws of the state of
provided the SEC with a supplemental response to the July 9,
2014 subpoena on August 28, 2014. (ECF No. 22-17.) In its
supplemental response to Request No. 4, Strategic produced
the documents bates numbered STRATEGIC 00097- STRATEGIC
000104, which consist of a list of BearPot's January-July
2014 banking transactions, several receipts from May and June
2014 BearPot purchases, a copy of a June 1, 2014 check
written by BearPot for “Equipment, ” and two
invoices, one of which was for electrical services performed
at 847 Ridge Road, Divide, Colorado, on or around March 17,
2014. (ECF No. 22-17 at 2; ECF No. 34-19 at 2-9.) In response
to Request No. 10, Strategic produced the documents bates
numbered STRATEGIC 000105-STRATEGIC 000111, which consist of
an unsigned residential lease for the property located at 847
Ridge Road, Divide, Colorado. (ECF No. 22-17 at 2; ECF No.
34-19 at 10-16.) The parties stipulate that the Ridge Road
property is located in unincorporated Teller County. (ECF No.
22-3, ¶ 4.)
SEC commenced this action by filing a complaint in this Court
on February 29, 2016. (ECF No. 1.) It filed an amended
complaint on July 22, 2016. (ECF No. 18.) Defendants answered
Plaintiff's amended complaint on August 8, 2016. (ECF No.
filed the instant motion for partial summary judgment on
December 20, 2016. (ECF No. 22.) Defendants filed their
opposition to Plaintiff's motion on January 17, 2017.
(ECF No. 24.) Plaintiff filed a reply in support of its
motion on January 20, 2017. (ECF No. 26.) The Court heard
oral arguments on Plaintiff's motion on March 16, 2017.
(ECF No. 31.) As directed by the Court (see ECF No.
32), on March 29, 2017, Plaintiff filed the Appendix to the
November 14, 2016 stipulation of the parties (ECF No. 34),
which had been previously filed as Exhibit 1 to the
declaration of Andrew O. Schiff filed in support of the
SEC's motion for partial summary judgment (see
ECF No. 22-3).
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, 327 (1986). Summary judgment is
appropriate if the materials in the record, 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(a); Albino
v. Baca, 747 F.3d 1162, 1168 (9th Cir. 2014) (en banc).
party's position as to whether a fact is disputed or
undisputed must be supported by: (1) citation to particular
parts of materials in the record, including but not limited
to depositions, documents, declarations, or discovery; or (2)
a showing that the materials cited do not establish the
presence or absence of a genuine dispute or that the opposing
party cannot produce admissible evidence to support the fact.
Fed.R.Civ.P. 56(c)(1). The Court may consider other materials
in the record not cited to by the parties, but it is not
required to do so. Fed.R.Civ.P. 56(c)(3). If a party seeking
summary judgment supports its motion by declaration, the
declaration must set out facts that would be admissible in
evidence and show that the declarant is competent to testify
on the matters stated. Fed.R.Civ.P. 56(c)(4). An affidavit
will not suffice to create a genuine issue of material fact
if it is “conclusory, self-serving . . . [and] lacking
detailed facts and any supporting evidence.” FTC v.
Publ'g Clearing House, Inc., 104 F.3d 1168, 1171
(9th Cir. 1997).
the party seeking summary judgment has carried its burden
under Rule 56(c), the burden shifts to the nonmoving party,
who “must do more than simply show that there is some
metaphysical doubt as to the material facts.” Scott
v. Harris, 550 U.S. 372, 380 (2007) (quoting
Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 586-87 (1986)). The nonmoving party “must
come forward with specific facts showing that there is a
genuine issue for trial.” Matsushita,
475 U.S. at 587. If the nonmoving 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.
Celotex, 477 U.S. at 325.