Sec. & Exch. Comm'n v. Das

• Decision Date: 29 July 2013
• Docket Number: No. 12–2780.,12–2780.
• Citation: 723 F.3d 943
• Parties: SECURITIES and EXCHANGE COMMISSION, Plaintiff–Appellee v. Rajnish K. DAS, Defendant Stormy L. Dean, Defendant–Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

723 F.3d 943

SECURITIES and EXCHANGE COMMISSION, Plaintiff–Appellee

v. Rajnish K. DAS, DefendantStormy L. Dean, Defendant–Appellant.

No. 12–2780.

United States Court of Appeals, Eighth Circuit.

Submitted: May 16, 2013.

Filed: July 29, 2013.

David A. Zisser, argued, Denver, CO, for appellant.

Nicholas Bronni, Washington, DC, for appellee.

Before SHEPHERD, BEAM, and MELLOY, Circuit Judges.

SHEPHERD, Circuit Judge.

Vinod Gupta lived a life of luxury as the chief executive officer of infoUSA, Inc. From frequent private jet travel to payments and upkeep for the American Princess, his 80–foot yacht, infoUSA reimbursed Gupta, or one of his separate business entities, for a wide variety of expenditures. This arrangement effectively allowed Gupta to reap the benefits of additional income without paying additional income taxes. For some infoUSA employees, this was acceptable because infoUSA was viewed as Gupta's company—he started it, engineered its growth, and had significant influence with the board of directors. The Securities and Exchange Commission (“SEC”) had a different perspective because infoUSA was a publicly traded corporation owned by its shareholders.

As a result of these transactions and reimbursements, the SEC brought a civil enforcement action against former infoUSA chief financial officers (“CFO”) Rajnish Das and Stormy Dean, alleging they violated provisions of the Securities Exchange Act of 1934 (the “Exchange Act”). This appeal concerns only Stormy Dean. After a ten-day trial, a jury found that Dean violated various securities laws, and the district court imposed several civil penalties. Dean now appeals, challenging the district court's handling of the trial, its post-trial findings, and the sufficiency of the evidence against him. We affirm the matter in all respects but one, and remand the case for further proceedings.

I. Background and Procedural History ¹

Headquartered in Omaha, Nebraska, infoUSA was a publicly traded corporation that sold business and consumer databases. Gupta founded infoUSA's predecessor company in 1972 and served as its CEO and chairman until 2008. Dean began working in infoUSA's accounting department in 1995. He served as infoUSA's CFO from January 2000 to October 2003, and again from February 2006 to December 2008.

The SEC made an informal inquiry into infoUSA's activities in late 2007, following a separate lawsuit that infoUSA's shareholders brought against the board of directors in Delaware.² As a result of the SEC inquiry, infoUSA's board of directors formed a director-led committee, and with the assistance of outside legal counsel and forensic accountants, it investigated allegations of improper related-party transactions and misuse of corporate assets.

In 2010, the SEC brought this civil enforcement action against Dean and Das. In the complaint, the SEC asserted the following seven claims against Dean:

(1) Securities fraud in violation of Section 10(b) of the Exchange Act and Rule 10b–5. 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b–5.

(2) Soliciting false proxy statements in violation of Section 14(a) of the Exchange Act and Rule 14a–3 and 14a–9. 15 U.S.C. § 78n(a); 17 C.F.R. §§ 240.14a–3 and 14a–9.

(3) Falsifying books, records, or accounts in violation of Section 13(b)(5) of the Exchange Act and Rule 13b2–1. 15 U.S.C. § 78m(b)(5); 17 C.F.R. § 240.13b2–1.

(4) Certifying false reports filed by infoUSA in violation of Rule 13a–14 of the Exchange Act. 17 C.F.R. § 240.13a–14.

(5) Deceiving auditors in violation of Rule 13b2–2 of the Exchange Act. 17 C.F.R. § 240.13b2–2.

(6) Aiding and abetting infoUSA in filing false SEC filings in violation of Section 13(a) of the Exchange Act and Rules 12b–20 and 13a–1. 15 U.S.C. § 78m(a); 17 C.F.R. §§ 240.12b–20 and 240.13a–1.

(7) Aiding and abetting infoUSA in falsifying books and records in violation of Section 13(b)(2) of the Exchange Act. 15 U.S.C. § 78m(b)(2).

For relief, the SEC requested that the court enjoin Dean from violating the provisions outlined in the complaint, order civil penalties, permanently prohibit Dean from serving as an officer or director of any publicly traded company, and grant such other relief the court deemed just or appropriate.

At trial, the SEC presented substantial evidence to support its claims that infoUSA failed to report related-party transactions ³ and the perquisite benefits ⁴ Gupta received. The SEC called eighteen witnesses, including Dean. The SEC also presented an expert witness, Dr. Steven Henning, a partner of a financial advisory firm, licensed certified public accountant, and former professor. Henning testified that after independently reviewing infoUSA's filings, he believed the filings did not adequately disclose perquisites or related-party transactions. The SEC introduced flight logs of private jet travel, credit card statements, Dean's calendar, and invoices from separate business entities wholly owned by Gupta. The jury heard that infoUSA reimbursed Gupta's private jet travel, yacht payments and expenses, portions of his wedding in South Africa, luxury cars, a home in California, membership dues to approximately thirty private country clubs, and personal life insurance policies. Additionally, infoUSA made payments for some of these expenses by reimbursing Annapurna and Aspen Leasing, businesses Gupta owned. According to the SEC's expert, infoUSA reported zero perquisite compensation related to these personal benefits.

The SEC also presented evidence that Dean knew these payments should have been reported in infoUSA's filings, which Dean certified. When Michael Schultz, infoUSA's chief accounting officer, raised the issue of sorting Gupta's business and personal expenses, Dean told him, “we don't do that here.” Further, Dean had issued a press release in which he stated he “considered some of the expenditures entirely wrong.”

Dean's trial was consolidated with that of Das, who served as infoUSA's CFO from 2003 to 2006. At the close of the SEC's case, Dean moved for judgment as a matter of law; the district court denied the motion. Das then presented two witnesses, but no expert. Dean presented no witnesses or other evidence. After closing argument, the jury deliberated for a few hours and returned a verdict, finding in favor of the SEC on every claim.

The SEC subsequently moved for remedial relief and entry of judgment against Dean. The district court sua sponte ordered that the parties address whether the court could order Dean to pay restitution to infoUSA, whether that restitution should take precedence over a civil penalty, and “whether any supersedeas bond posted by Defendants in the event of an appeal should cover Defendants' obligation for such restitution as well as for any civil penalty.” The district court also asked Dean to address whether, “under applicable law or under contract,” he had a right to seek indemnification from infoUSA for the civil penalties imposed. After considering these issues, the district court permanently enjoined Dean from committing further securities violations, enjoined Dean from acting as an officer or director of a publicly traded company for three years, imposed a $50,000 civil penalty, and noted that Dean had “acted in bad faith toward” infoUSA's shareholders. Finally, although the court did not order Dean to pay infoUSA restitution for attorney fees and expenses, it did bar Dean “from seeking payment, reimbursement, or indemnification from any third party, including Info, for the civil penalties ordered herein.” Dean now appeals.

II. Analysis

Dean raises four argument on appeal: (1) there is insufficient evidence presented to support the jury's findings; (2) the district court erred by admitting the testimony of the SEC's expert witness; (3) the district court abused its discretion in instructing the jury; (4) the district court erred by finding that he acted in bad faith toward infoUSA's shareholders.

A. Sufficiency of the Evidence

Dean contends the district court should have granted judgment as a matter of law because the SEC failed to establish the standard of care that Dean was required to follow as CFO. The SEC responds that because Dean failed to renew his motion for judgment as a matter of law, he waived the argument. “[A] party is not entitled to pursue a new trial on appeal unless that party makes an appropriate postverdict motion in the district court.” Unitherm Food Sys., Inc. v. Swift–Eckrich, Inc., 546 U.S. 394, 404, 126 S.Ct. 980, 163 L.Ed.2d 974 (2006). This rule applies equally whether a party on appeal is seeking judgment as a matter of law or a new trial. Id. at 402, 126 S.Ct. 980. Courts have uniformly applied but limited the Unitherm holding “to sufficiency of the evidence challenges where parties fail to file a postverdict motion under Rule 50(b) after the denial of a Rule 50(a) preverdict motion.” Linden v. CNH Am., LLC, 673 F.3d 829, 833 (8th Cir.2012).

Dean concedes that he failed to file a Rule 50(b) motion after the jury returned its verdict. Dean instead argues that his case is an exception to Unitherm because in a postverdict order, the district court addressed the evidence against Dean and concluded it supported the jury's verdict. Although the district court did generally acknowledge that sufficient evidence existed, it did not engage in any analysis relating to the argument that Dean now raises on appeal—specifically, that the government failed to adequately prove the standard of care he should have observed as CFO. Therefore, we conclude that Dean cannot now challenge the sufficiency of the evidence against him because he failed to file a postverdict motion under Rule 50(b) after the district court denied his Rule 50(a) motion. See Unitherm, 546 U.S. at 404, 126 S.Ct. 980;Linden, 673 F.3d at 833.

B. Expert Witness Testimony

Next, Dean raises two claims with respect to Dr. Steven Henning's expert testimony that, according to Dean, demonstrate the district court abused its discretion by allowing...