S.E.C. v. Happ

Decision Date10 December 2004
Docket NumberNo. 04-1406.,No. 04-1461.,04-1406.,04-1461.
Citation392 F.3d 12
PartiesSECURITIES and EXCHANGE COMMISSION, Plaintiff, Appellee/Cross-Appellant, v. Robert D. HAPP, Defendant, Appellant/Cross-Appellee.
CourtU.S. Court of Appeals — First Circuit

Peter M. Casey with whom Stephen C. Warneck, Foley Hoag LLP, Gary C. Crossen and Rubin & Rudman LLP were on brief for appellant, cross-appellee.

Thomas Karr, Special Trial Counsel, Securities and Exchange Commission, with whom Eric Summergrad, Deputy Solicitor, Giovanni P. Prezioso, General Counsel, Melinda Hardy, Assistant General Counsel, and Laura Walker, Senior Counsel, were on brief for appellee, cross-appellant.

Before TORRUELLA, Circuit Judge, CAMPBELL, Senior Circuit Judge, and HOWARD, Circuit Judge.

CAMPBELL, Senior Circuit Judge.

The Securities and Exchange Commission (SEC) brought a civil enforcement action in the district court against Robert D. Happ. After a jury trial, the jury returned a special verdict against Happ, finding that he had traded on material, nonpublic information in violation of the federal securities laws. Happ appeals from the district court's denial of his motion for judgment as a matter of law, or in the alternative, for a new trial. Happ also appeals from the monetary remedies imposed by the court — the sum calculated as the disgorgement amount and an additional civil penalty equivalent to the disgorgement amount. The SEC cross-appeals from the portion of the district court's judgment imposing sanctions against the SEC for refusing to stipulate until mid-trial that no telephone call to Happ was made from the office of the SEC's main witness on June 25, 1998, or earlier. We affirm.

I. Factual Background

We recite the facts in the light most favorable to the verdict. See Wennik v. Polygram Group Distribution, Inc., 304 F.3d 123, 126 (1st Cir.2002). Happ was a Director, Chairman of the Board of Directors' Audit Committee, and the acknowledged financial expert on the Board of Directors of Galileo Corporation ("Galileo"), formerly a Sturbridge, Massachusetts manufacturer of fiber-optic and electro-optic products.

On April 20, 1998, Happ participated by telephone in a Galileo Board of Directors meeting. At that meeting, William T. Hanley, the chief executive officer of Galileo, provided information to the Board about "two areas of particular concern." One was that shipments had been impacted for the second quarter due to a jurisdictional dispute between the United States Departments of Commerce and State with respect to export of some products. Hanley testified that "[t]he impact was rather small for the second fiscal quarter, but [he] had discussed [with the Board] the fact that if it continued, it could be substantial in the June quarter." Hanley informed the Board that Galileo believed that the export issues "would be resolved in the June quarter, but if they weren't, they would further — obviously further impact shipments of those products." Hanley also provided the Board with information that Imagyn, a Galileo customer, was past due on $500,000 of the $700,000 it owed Galileo. He indicated that Imagyn "had made some payments in the March quarter," and that Galileo "had assurances from both the CFO of Imagyn and the CEO that [Galileo was] going to be paid." Hanley also noted that Galileo was negotiating an exclusive marketing agreement with a company called Ethicon.

By late June, Galileo was having third quarter financial difficulties. Hanley and Gregory Reidel, Galileo's chief financial officer, met on Thursday, June 25, 1998, two business days before the end of the third fiscal quarter, to discuss these problems. During that meeting, they decided to seek Happ's advice.

Hanley testified at trial that he left two voicemail messages for Happ, one on Thursday, June 25, 1998, and another on Sunday, June 28, 1998. In the first voicemail message, Hanley told Happ that Galileo was "having some difficulties during the quarter and [he] would like [Happ's] advice on these issues," and he requested a meeting with Happ the following Monday or Tuesday. The second voicemail message was "a duplicate of the previous message," reiterating that Galileo was having "some difficulties" and that Hanley wanted to meet with him Monday or Tuesday. Hanley rarely telephoned Happ or requested a one-on-one meeting with a director in his office. On Monday, June 29, Happ called Hanley's assistant to schedule a meeting with Hanley. Thereafter, on the same day, Happ sold all of his 4,000 shares of Galileo stock, excluding stock options, for approximately $47,000, resulting in a profit of approximately $14,500.

The following morning, Happ met with Hanley and Reidel to discuss Galileo's difficulties, including the company's difficulties in obtaining export licenses, the potential uncollectibility of the Imagyn receivables, and the fact that the Ethicon agreement had not yet been consummated. At the end of the meeting, Happ mentioned to Hanley that he had sold his Galileo stock the previous day. Happ told Hanley that he sold the stock because he needed money from the sale to pay some bills.

On July 15, 1998, Galileo's Board met to discuss the financial results for the third quarter. On July 23, 1998, Galileo issued a press release publicizing the difficulties from the third quarter and their impact on Galileo's financial performance. While Galileo had forecast a net profit of $160,000 for the quarter, it reported losses of $3.3 million. The following day, Galileo's stock price dropped 64% from $8.25 to $3 per share. Soon thereafter, Happ purchased 5,000 shares of Galileo stock.

II. Procedural Background

On October 5, 2000, the SEC filed a complaint against Happ alleging that he traded on material, nonpublic information when he sold 4,000 shares of Galileo stock on June 29, 1998, thereby avoiding losses of $34,758, in violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b); Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5; and Section 17(a) of the Securities Act of 1933, 15 U.S.C. § 77q(a).1 After extensive discovery the case went to a jury trial on September 29, 2003.

The court denied Happ's motions for judgment as a matter of law at the close of the SEC's case and at the close of the evidence. On October 9, 2003, the jury returned a special verdict against Happ. After entering final judgment on the verdict, the district court denied Happ's renewed motion for judgment as a matter of law or, in the alternative, for a new trial, as well as Happ's motion for a new trial based on allegedly improper remarks made by the SEC's counsel in its closing argument. The district court ordered Happ to pay $34,758 as disgorgement for loss avoided, $15,726.63 in prejudgment interest, and an additional $34,758 as a civil penalty. SEC v. Happ, 295 F.Supp.2d 189, 200 (D.Mass.2003). Happ appeals from the district court's denial of his motions for judgment as a matter of law and for a new trial, and from the portion of the judgment imposing disgorgement and the civil penalty.2 As part of its final judgment, the court also imposed sanctions on the SEC in the amount of $87,036 for refusing to stipulate until the middle of the trial that the June 25 call did not take place from Hanley's office to Happ's home. Id. at 192-94. The SEC cross-appeals from the sanctions.

III. Analysis
1. Motion for Judgment as a Matter of Law

We review de novo the denial of a motion for judgment as a matter of law, viewing the evidence and reasonable inferences therefrom in the light most favorable to the jury's verdict. Tapalian v. Tusino, 377 F.3d 1, 5 (1st Cir.2004). We will reverse the district court "only if the facts and inferences point so strongly and overwhelmingly in favor of the movant that a reasonable jury could not have reached a verdict against that party." Santos v. Sunrise Med., Inc., 351 F.3d 587, 590 (1st Cir.2003).

A. Judicial Estoppel

Happ argues that the judgment should be reversed because the district court refused to hold the SEC to its original description of the material, nonpublic information Happ allegedly received prior to selling his stock. Happ says that the SEC initially argued, in successfully opposing his motions to dismiss and for summary judgment, that the material, nonpublic information upon which he had acted was Galileo's serious difficulties adversely affecting its third quarter earnings. At trial, however, the SEC's proof was merely that Happ received information from Hanley that Galileo was having "some difficulties" during the third quarter and that Hanley would like Happ's advice on these issues. Even if these difficulties were of a financial nature, the SEC did not show, according to Happ, that they specifically impacted third quarter earnings.

Happ insists that this variance was so fundamental as to call for application of judicial estoppel. This court has stated that "[j]udicial estoppel should be employed when a litigant is `playing fast and loose with the courts,' and when `intentional self-contradiction is being used as a means of obtaining unfair advantage in a forum provided for suitors seeking justice.'" Patriot Cinemas, Inc. v. Gen. Cinema Corp., 834 F.2d 208, 212 (1st Cir.1987) (quoting Scarano v. Central R. Co. of N.J., 203 F.2d 510, 513 (3d Cir.1953)). The proponent must show "that the party to be estopped `succeeded previously with a position directly inconsistent with the one [it] currently espouses.'" Fleet Nat'l Bank v. Gray (In re Bankvest Capital Corp.), 375 F.3d 51, 60 (1st Cir.2004) (quoting Lydon v. Boston Sand & Gravel Co., 175 F.3d 6, 13 (1st Cir.1999)).

Accepting that the SEC successfully urged in pretrial proceedings that Galileo was having serious difficulties affecting its third quarter earnings, the doctrine of judicial estoppel is nonetheless inapposite....

To continue reading

Request your trial
81 cases
  • Sec. & Exch. Comm'n v. Sabrdaran
    • United States
    • U.S. District Court — Northern District of California
    • May 15, 2017
    ...conduct; and (6) whether the defendant is employed in the securities industry. Gowrish , 2011 WL 2790482, at *9 (citing SEC v. Happ , 392 F.3d 12, 32 (1st Cir. 2004) ); see also, e.g., SEC v. Mellert , No. C03-0619 MHP, 2006 WL 927743, at *1 (N.D. Cal. Mar. 29, 2006) (same); SEC v. Yun , 14......
  • Sec. And Exch. Comm'n v. Platforms Wireless Int'l Corp.
    • United States
    • U.S. Court of Appeals — Ninth Circuit
    • July 27, 2010
    ...“demonstrate that the disgorgement figure was not a reasonable approximation.” First City Fin., 890 F.2d at 1232; see also SEC v. Happ, 392 F.3d 12, 31 (1st Cir.2004); SEC v. Lorin, 76 F.3d 458, 462 (2d Cir.1996) (per curiam). We place this burden on the defendants because information is no......
  • Sec. & Exch. Comm'n v. Hallam
    • United States
    • U.S. Court of Appeals — Fifth Circuit
    • July 19, 2022
    ...202 & cmt. C ( Am. L. Inst. 1936).31 The Federal Debt Collection Procedures Act of 1990. Huffman , 996 F.2d at 801.32 See SEC v. Happ , 392 F.3d 12, 31 (1st Cir. 2004) ; SEC v. Lorin , 76 F.3d 458, 462 (2d Cir. 1996) ; SEC v. Teo , 746 F.3d 90, 105–07 (3d Cir. 2014) ; HUD v. Cost Control Mk......
  • Sec. & Exch. Comm'n v. Sharp
    • United States
    • U.S. District Court — District of Massachusetts
    • September 6, 2022
    ...See SEC v. Happ, 295 F.Supp.2d 189, 198 (D. Mass. 2003) (Keeton, S.J.) (acknowledging disgorgement as not punitive), aff'd, 392 F.3d 12 (1st Cir. 2004); v. Gordon, 822 F.Supp.2d 1144, 1159-61 (N.D. Okla. 2011) (holding disgorgement to be non-punitive in nature and rejecting the argument tha......
  • Request a trial to view additional results
3 books & journal articles
  • CHAPTER 10 - 10-9 Expenses for Failure to Admit: The "Admit-or-Pay" Rule
    • United States
    • Full Court Press Texas Discovery Title Chapter 10 Requests for Admission — Texas Rule 198
    • Invalid date
    ...simply because the requesting party subsequently loses the claim on some other basis." (citations omitted) (quoting SEC v. Happ, 392 F.3d 12, 34 (1st Cir. 2004))); Berry v. Office of the Fayette Cty. Sheriff, No. 5: 14-356-DCR, 2015 U.S. Dist. LEXIS 82352, at *5, 2015 WL 3916126 (E.D. Ky. J......
  • § 11.11 OTHER-ACTS EVIDENCE IN CIVIL CASES
    • United States
    • Carolina Academic Press Understanding Evidence (CAP) Title Chapter 11 Other-acts Evidence
    • Invalid date
    ...aircraft, boats, industrial equipment, drugs, cosmetics, tobacco farm products, and containers.91--------Notes:[90] E.g., S.E.C. v. Happ, 392 F.3d 12, 30 (1st Cir. 2004) ("Due to the similarity of the violations alleged here and in the CAI Wireless episode, we think the letters were admissi......
  • § 11.11 Other-Acts Evidence in Civil Cases
    • United States
    • Carolina Academic Press Understanding Evidence (2018) Title Chapter 11 Other-Acts Evidence
    • Invalid date
    ...aircraft, boats, industrial equipment, drugs, cosmetics, tobacco farm products, and containers.91 --------Notes:[90] E.g., S.E.C. v. Happ, 392 F.3d 12, 30 (1st Cir. 2004) ("Due to the similarity of the violations alleged here and in the CAI Wireless episode, we think the letters were admiss......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT