S.E.C. v. Prater

• Citation: 296 F.Supp.2d 210
• Decision Date: 25 November 2003
• Docket Number: No. CIV. 3:03CV1524(MRK).,CIV. 3:03CV1524(MRK).
• Parties: SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. Blake A. PRATER and Wellspring Capital Group, Inc. Defendants.
• Court: U.S. District Court — District of Connecticut

296 F.Supp.2d 210

SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. Blake A. PRATER and Wellspring Capital Group, Inc. Defendants.

No. CIV. 3:03CV1524(MRK).

United States District Court, D. Connecticut.

November 25, 2003.

Franklin C. Huntington, IV, Martin F. Healey, Scott D. Pomfret, U.S. Securities & Exchange Comm., Boston, MA, John B. Hughes, U.S. Attorney's Office-NH, New Haven, CT, for Plaintiff.

Blake A. Prater, Guilford, CT, Pro se.

John B. Kaiser, Stratford, CT, for Defendants.

Memorandum of Decision

KRAVITZ, District Judge.

Currently pending before the Court are Defendants' Motion to Dismiss Complaint, or in the Alternative, Motion to Severely Modify Preliminary Injunction ("Motion to Dismiss") [doc. # 28], filed October 14, 2003, and Defendants' Motion for Immediate and Expedited Ruling [doc. # 41], filed November 25, 2003. For the reasons stated below, Defendants' Motion for Immediate and Expedited Ruling [doc. # 41] is GRANTED, and Defendants' Motion to Dismiss Complaint, or in the Alternative, Motion to Severely Modify Preliminary Injunction [doc. # 28] is DENIED.

I.

Before turning to Defendants' Motion to Dismiss, it is appropriate to recite the events that have transpired in this case since the Court issued its Ruling On Motion for Preliminary Injunction, Order Freezing Assets and Order for Other Equitable Relief ("Preliminary Injunction Ruling") [doc. # 23] on September 26, 2003. In its Preliminary Injunction Ruling, the Court noted that Defendants had not yet "chosen to offer their side of the story" and therefore stated that if the Defendants "believe[d] that they [had] a proper basis for seeking to modify, vacate or dissolve the preliminary injunction and/or asset freeze" the Court would entertain such a motion and would be willing to do so on an expedited basis. Preliminary Injunction Ruling, at 25. In the same ruling, the Court sua sponte ordered the Securities and Exchange Commission ("SEC") to file monthly reports on the progress of its investigation and the status of frozen assets so that the Court could monitor the progress of the SEC's investigation and ensure that the case moved forward promptly to conclusion. The Court also required the SEC to submit by October 14, 2003 a timetable "for bringing this case to a prompt hearing on a permanent injunction" and ordered Defendants to respond to the SEC's proposed schedule within one week—that is, by October 21. Id.

On October 1, 2003, the Court held a telephonic status conference with counsel for the SEC and Joseph Cage, a Louisiana-based lawyer who purported to represent Defendants. [Doc. # 33]. At the time, the Court informed Mr. Cage that if he wanted to represent Defendants, he would need to associate with local counsel who would themselves need to file an appearance on Defendants' behalf and that he, Mr. Cage, would then need to be admitted pro hac vice by the Court. The Court instructed Mr. Cage promptly to retain local counsel, file appearances, and seek admission pro hac vice, and it explained that until he did so, the Court could not accept pleadings Mr. Cage filed on Defendants' behalf. The Court also urged Mr. Cage to answer the SEC's complaint or move with respect to it as promptly as possible since Defendants were currently in default for failure to respond to the SEC's complaint. Mr. Cage agreed to retain local counsel, file appearances on Defendants' behalf, and respond to the complaint.

On October 14, 2003, the SEC filed its first status report [doc. #30] describing its investigation to date and the assets frozen pursuant to the Court's Preliminary Injunction Ruling, approximately $3 million. The SEC also submitted a proposed timetable for bringing this case to a hearing on a permanent injunction, which called for discovery to be completed by May 14, 2004. On the same day, Mr. Cage filed the Motion to Dismiss [doc. # 28] on behalf of the Defendants. Contrary to the Court's instructions on October 1, 2003, at the time the Motion to Dismiss was filed Mr. Cage had not yet been admitted pro hac vice, Defendants had not yet retained local counsel, and no lawyer, Mr. Cage including, had filed an appearance on behalf of the Defendants. Nevertheless, the Clerk's Office docketed the Motion to Dismiss.

The Motion to Dismiss, which is essentially a 67 page brief, was not accompanied by a motion to file a brief in excess of 40 pages or a separate motion to dismiss, as is required by the Court's rules. See Local Rule 7(a)1, 7(a)2. The Motion to Dismiss also did not request expedited briefing or consideration. As a result, the SEC responded to the Motion to Dismiss in accordance with Local Rule 7 on November 4, 2003 [doc. # 36]. In addition to its brief, the SEC filed a Declaration from Frank Huntington [doc. # 38] and a Fourth Declaration from Scott Pomfret [doc. # 37], along with additional documents that the SEC had discovered during the course of its investigation [doc. # 39].

On October 20, 2003, the Court issued a Ruling on Defendants' Petition for Writ of Habeas Corpus [doc. # 29], which denied a petition for a writ of habeas corpus that Defendant Prater had filed pro se on September 24, 2003 [doc. # 17]. The SEC had filed its response to the Petition on September 26, 2003 [doc. # 21] and Mr. Prater (not Mr. Cage) filed a reply in his own behalf on October 14, 2003 [doc. # 27].

On October 30, 2003, the Court held a second telephonic conference with counsel for the SEC and Mr. Cage, because the Court was concerned that no lawyer had yet appeared on behalf of the Defendants and that the Defendants had not responded to the SEC's proposed timetable as of October 21, as the Court had previously ordered. [doc. # 34]. During this conference, the Court was informed that John Kaiser, a Connecticut lawyer, would appear on behalf of Defendants and move Mr. Cage's admission pro hac vice. As required by the Court, Mr. Kaiser filed his appearance on behalf of all Defendants on October 31. Nonetheless, contrary to the court rules and the explicit instructions from the Court, no lawyer had appeared for Defendants until approximately two weeks after the Motion to Dismiss had been filed. Mr. Cage, whose signature appears on the Motion to Dismiss, did not even move to appear pro hac vice until November 18, 2003,¹ and he has still not been formally admitted to appear in this Court even though he has continued to file pleadings with the Court—namely, the Motion for Immediate and Expedited Ruling —in contravention of court rules and the Court's instructions. Furthermore, even though the Court (at Defendants' request) extended Defendants' time to respond to the SEC's proposed timetable until November 14, Defendants failed to respond to the SEC's proposed timetable on the required date and have still not done so as of the date of this Ruling.

On November 14, 2003, the SEC filed its second status report [doc. # 40], in which the SEC stated, among other things, that it had noticed for November 6th a deposition of Defendant Wellspring Capital Group ("Wellspring") under Rule 30(b)(6) of the Federal Rules of Civil Procedure but that at Defendants' request, the SEC had agreed to postpone the deposition to allow Mr. Kaiser to prepare to defend the deposition. The SEC report further detailed the SEC's efforts to investigate this matter and repeated its request for entry of a schedule in accordance with its proposed timetable, which the SEC stated it had faxed to Defendants' counsel on November 12.

In accordance with the Court's Local Rules, Defendants' reply to the SEC's brief in opposition to the Motion to Dismiss was due on November 18. Instead of filing a reply to the SEC's substantive argument, Mr. Cage filed on behalf of Defendants on November 21 a Motion for Immediate and Expedited Ruling, which the Court now grants despite the fact that it bears the signature of a lawyer who has not yet been admitted to this Court.

The Court includes the foregoing recitation because it shows that at all stages of this proceeding both this Court and the SEC have acted promptly and expeditiously to address the issues raised by this case; by contrast, Defendants and their counsel have repeatedly sought to delay critical events in this case and have failed to respond or otherwise discharge their obligations in a timely and proper manner. Now that Defendants have retained counsel, who have at long last filed an appearance and a motion to appear pro hac vice, it is the Court's fervent hope and its expectation that Defendants will adhere to the requirements of the rules and will bring this case to an expeditious conclusion.

II.

Defendants' Motion to Dismiss does not distinguish between Defendants' arguments for dismissal and their arguments for modification of the injunction. Nonetheless, the Court will consider the arguments for dismissal of the complaint and modification of the injunction separately.

A.

On a motion to dismiss, a court must "accept as true all factual allegations in the complaint," and should not dismiss the complaint "`unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.'" Levitt v. Bear Stearns & Co., 340 F.3d 94, 101 (2d Cir. 2003) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). A court's "task in ruling on a Rule 12(b)(6) motion `is merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof.'" Id. (quoting Ryder Energy Distribution Corp. v. Merrill Lynch Commodities Inc., 748 F.2d 774, 779 (2d Cir.1984)).

Taking the SEC's allegations as true and drawing all reasonable inferences in its favor, as the Court must, it is clear that the SEC has asserted facts which, if proven, would entitle the Commission to the relief it seeks in this case. Those factual allegations were described in great detail in the Court's Ruling on Motion for Preliminary...