Gartner v. SEC, CV-94-8410-RAP (RMC).

• Decision Date: 27 November 1995
• Docket Number: No. CV-94-8410-RAP (RMC).,CV-94-8410-RAP (RMC).
• Citation: 913 F. Supp. 1372
• Court: U.S. District Court — Central District of California
• Parties: Michael GARTNER, Plaintiff, v. SECURITIES AND EXCHANGE COMMISSION, Manuel Real, Rory C. Flynn, C.J. Rinaldi, Aaron Ward, Cheryl Scarboro and Does 1-10, Defendants.

913 F. Supp. 1372

Michael GARTNER, Plaintiff, v. SECURITIES AND EXCHANGE COMMISSION, Manuel Real, Rory C. Flynn, C.J. Rinaldi, Aaron Ward, Cheryl Scarboro and Does 1-10, Defendants.

No. CV-94-8410-RAP (RMC).

United States District Court, C.D. California.

November 27, 1995.

COPYRIGHT MATERIAL OMITTED

Michael Gartner, Los Angeles, CA, pro se.

Kathleen Cody, Securities and Exchange Commission, Washington, DC and Robert I. Lester, Assistant United States Attorney, Los Angeles, CA, for Defendants.

JUDGMENT

PAEZ, District Judge.

Pursuant to the Order of the Court approving the recommendations of the United States Magistrate Judge, and adopting the same as the facts and conclusions of law herein,

IT IS ADJUDGED that pursuant to Fed. R.Civ.P. 54(b) Judgment be entered dismissing with prejudice the Complaint and action against defendants Securities and Exchange Commission, Manuel Real, Rory C. Flynn, C.J. Rinaldi, and Cheryl Scarboro.

ORDER ADOPTING REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE

CHAPMAN, United States Magistrate Judge.

Pursuant to 28 U.S.C. Section 636, the Court has reviewed the Complaint and other papers along with the attached Report and Recommendation of the United States Magistrate Judge, and has made a de novo determination of the Report and Recommendation.

IT IS ORDERED that:

(1) the United States Magistrate Judge's Report and Recommendation is approved and adopted in its entirety; except as modified in paragraphs 7a and 9.

(2) the Report and Recommendation is adopted as the findings of fact and conclusions of law herein;

(3) the United States of America is substituted for defendants Rory C. Flynn, C.J. Rinaldi, Cheryl Scarboro, and Aaron Ward (except as to Aaron Ward on the 4th claim to the extent it asserts a Bivens claim) and the caption in this case is corrected to read: Garner v. United States of America, et al.;

(4) Claims # 1 and # 2, the causes of action for violation of the double jeopardy clause of the Fifth Amendment and the excessive fines clause of the Eighth Amendment, are dismissed with prejudice;

(5) based on judicial immunity, the Complaint and action are dismissed with prejudice as to defendant Judge Manuel Real, and Judgment should be entered accordingly;

(6) based on sovereign immunity, the Complaint and action are dismissed with prejudice as to defendant Securities and Exchange Commission, and Judgment should be entered accordingly;

(7) the Complaint and action are dismissed as to defendants Rory C. Flynn, C.J. Rinaldi, and Cheryl Scarboro due to lack of subject matter jurisdiction, and Judgment should be entered accordingly; and

(7a) Claims 1, 2, & 3 are dismissed as to defendant Aaron Ward for lack of subject matter jurisdiction;

(8) Claim # 4, the cause of action against defendant Ward for illegal search and seizure of plaintiff's sister's home, is dismissed with leave to amend; provided plaintiff shall file a First Amended Complaint setting forth only this claim, within thirty (30) days from the date of the order herein. Failure to timely file a First Amended Complaint may result in a recommendation that this action be dismissed with prejudice. The First Amended Complaint shall cure the deficiencies noted herein, shall be complete in itself, and shall not add new claims or defendants;

(9) The Court finds that there is no just reason to delay entry of final judgment against plaintiff and in favor of defendants Manuel Real, Securities and Exchange Commission, Rory C. Flynn, C.J. Rinaldi and Cheryl Scarboro pursuant to Fed.R.Civ.P. 54(b).

IT IS FURTHER ORDERED that the Clerk shall serve forthwith a copy of this Order and the Judgment of this date on the parties.

REPORT AND RECOMMENDATION OF A UNITED STATES MAGISTRATE JUDGE

CHAPMAN, United States Magistrate Judge.

This report and recommendation is submitted to the Honorable Richard A. Paez, United States District Judge, pursuant to the provisions of 28 U.S.C. § 636 and General Order 194 of the United States District Court for the Central District of California.

BACKGROUND

On December 15, 1994, Michael Gartner (hereafter "plaintiff"), a federal prisoner proceeding pro se and in forma pauperis, filed this Bivens action¹ against defendants Securities and Exchange Commission ("SEC"), three SEC attorneys, United States District Judge Manuel Real, and Aaron Ward, Postal Inspector. By this action, plaintiff seeks "to reverse" a civil judgment against him in SEC v. Interlink Data Network, Inc., District Court for the Central District of California, Case No. CV 93-3073R, 1993 WL 603274 ("the SEC action")², a civil disgorgement action, on the grounds the SEC action violated the double jeopardy clause of the Fifth Amendment and the excessive fines clause of the Eighth Amendment, and seeks damages for libel, slander and "outrageous government conduct" by defendants.

In the SEC action, plaintiff failed to answer the complaint and refused to respond to any of the SEC's discovery requests, claiming his Fifth Amendment privilege against self-incrimination. By order dated August 26, 1993, the district court (defendant Real) held plaintiff to be in contempt for violating injunctions freezing his assets, and ordered plaintiff taken into custody. The district court ordered that a default judgment be entered against plaintiff and, subsequently, that summary judgment be granted for the SEC. The district court found that plaintiff violated the registration provisions of the Securities Act of 1933 (15 U.S.C. Sections 77e(a) and (c)), the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934 (15 U.S.C. Sections 77q(a), 78j(b)), and the broker-dealer provisions of the Securities Exchange Act of 1934 (15 U.S.C. Section 78o(a)), and issued permanent injunctions prohibiting the defendants from further violations of the Securities and Exchange Acts. The district court also ordered plaintiff to disgorge assets totalling $12,285,035.00, as a reasonable approximation of the assets he and his companies had fraudulently obtained, and to pay prejudgment interest.

The district court, in an unpublished opinion, details the facts underlying the judgment against plaintiff in the SEC action.³ Summarily stated, the district court held that plaintiff, the company he founded, Interlink, and an alter-ego company sold unregistered securities through bogus public offerings. By this means, plaintiff raised over $12 million for the purported installation of a fiber-optic cable network in downtown Los Angeles and the manufacture of related fiber-optic cable and video telephones. Among other misrepresentations, investors were falsely told that Interlink owned patents for certain fiber-optic technology, that Interlink was currently installing a fiber-optic cable network, and that the securities would be publicly traded, were safe and would supply a guaranteed return. In fact, plaintiff's companies were shams and plaintiff used the funds obtained from investors to buy extravagant personal items.

In this action, plaintiff's primary claim is that the SEC action constitutes a second proceeding against him in violation of the double jeopardy clause of the Fifth Amendment for the same acts which are the basis of a pending criminal case,⁴ which, plaintiff alleges commenced on May 18, 1993, when federal postal inspectors searched plaintiff's offices and seized their contents (Claim # 1).⁵ Plaintiff argues that the asset forfeitures resulting from the SEC action are punitive⁶ in nature; thus, the SEC action constitutes double jeopardy. (Complaint, p. 4).

Plaintiff's second claim alleges that the judgment in the SEC action, requiring the forfeiture of assets, is excessive and in violation of the excessive fines clause of the Eighth Amendment because it included all of his assets, without regard to how each asset was obtained ("Claim # 2"). (Complaint, p. 5).

Plaintiff's third claim alleges libel and slander arising from false statements made by defendants SEC, SEC attorneys and Ward to various news services, who subsequently republished the information. Plaintiff also alleges that defendant SEC attorneys made slanderous statements to shareholders and employees ("Claim # 3"). (Complaint, p. 6).

Finally, plaintiff alleges that defendant Ward conducted an illegal search of the residence of plaintiff's sister and unlawfully seized assets and personal effects, including family photo albums ("Claim # 4"). (Complaint, p. 6).

On March 14, 1995, defendants SEC and SEC attorneys filed a motion to dismiss, pursuant to Fed.R.Civ.P. 12(b)(1) and (b)(6). Plaintiff filed an opposition to the motion on March 17, 1995, and a "Supplemental Opposition" on May 1, 1995. Defendants Real and Ward filed their motion to dismiss on May 8, 1995. Plaintiff filed an opposition to defendants Real's and Ward's motion on June 5, 1995, and defendants Real and Ward filed their reply on June 7, 1995. On August 28, 1995, plaintiff filed a motion for summary judgment on his double jeopardy claim.⁷

Defendants SEC attorneys and Ward, on June 26, 1995, filed a motion to substitute the United States for them, pursuant to 28 U.S.C. Section 2679(d)(1), as to the common-law libel and slander claims (Claim # 3) and any common-law tort claim arising out of the allegedly illegal search of plaintiff's sister's home (Claim # 4). Plaintiff filed an opposition to the motion on July 17, 1995, but did not present any evidence, such as a declaration. Defendants filed their response on July 21, 1995.

DISCUSSION

A motion to dismiss for failure to state a claim, pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6), should be granted when it is clear that plaintiff can prove no set of facts in support of the claim that would entitle him to relief. Neitzke v. Williams, 490 U.S. 319, 326-27, 109 S.Ct. 1827, 1832-33, 104 L.Ed.2d 338 (1989); Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232-33, 81 L.Ed.2d 59 (1984). In considering the motion to...