S.E.C. v. Resnick
| Decision Date | 31 March 2009 |
| Docket Number | Civil Action No. CCB-05-1254. |
| Parties | SECURITIES AND EXCHANGE COMMISSION v. Michael RESNICK and Mark Kaiser. |
| Court | U.S. District Court — District of Maryland |
Now pending before the court is a motion for summary judgment as to defendant Mark P. Kaiser, filed by plaintiff Securities and Exchange Commission ("the SEC"). The SEC is seeking summary judgment as to Mr. Kaiser on the ground that his conviction on all counts in a prior criminal case collaterally estops him from litigating the current civil charges against him. The issues in this case have been fully briefed and a hearing was held on January 30, 2009. For the reasons stated below, the SEC's motion will be granted as to a substantial part of the relief sought.
The relevant underlying facts in this case are set forth in my June 3, 2008 Memorandum and Order ("June Order"). SEC v. Resnick, 2008 WL 2346021 (D.Md. June 3, 2008). In brief terms, Mr. Kaiser, along with Michael Resnick, is alleged to have participated in a fraudulent scheme to inflate and overstate the financial results of U.S. Foodservices ("USF") and its parent company, Royal Ahold, N.V. ("Ahold") by over $700 million, for at least fiscal years 2001 and 2002, while he was USF's Chief Marketing Officer and member of its executive committee. This fraudulent accounting for promotional allowances was responsible for an approximately $500 million restatement of earnings by Ahold on February 24, 2003, which caused Ahold's stock price to plummet approximately 60%, thereby causing great economic injury to Ahold's many shareholders.1
On July 27, 2004, the U.S. Attorney's Office for the Southern District of New York indicted Mr. Kaiser on six counts of criminal conspiracy and securities law violations arising out of this scheme.2 That same day, the SEC filed a civil complaint, also in the Southern District of New York charging Mr. Kaiser and Mr. Resnick with four equivalent civil counts of securities law violations. The second amended complaint in that case, filed on February 16, 2005, alleged three counts of fraud and other securities law violations, all brought under the same statutory provisions that formed the legal basis for Mr. Kaiser's corresponding criminal charges.3 The civil complaint was transferred from the Southern District of New York to this court on May 9, 2005, in connection with related cases referred by the Judicial Panel on Multidistrict Litigation. See In re Royal Ahold N.V. Sec., "ERISA" Litigation, 269 F.Supp.2d 1362 (Jud.Pan.Mult.Lit.2003).
On November 8, 2006, a jury found Mr. Kaiser guilty on all six criminal counts with which he was charged. On May 18, 2007, he was sentenced to 84 months' imprisonment and fined $50,000. See United States v. Mark Peter Kaiser, No. 04 Cr. 00733-001(TPG) . Notice of appeal was entered on May 31, 2007, and that appeal is still pending in the Second Circuit. Service of Mr. Kaiser's sentence has been stayed pending appeal.
The SEC now moves for summary judgment as to Mr. Kaiser, asserting collateral estoppel. In this motion, the SEC also reiterates its request for the relief sought in the complaint, namely: (1) a permanent injunction against Mr. Kaiser under 15 U.S.C. § 78u(d)(1), enjoining him from further violations of securities laws or regulations; (2) disgorgement, requiring him to disgorge "at least the [$680,500] bonus he received resulting from the inflation of the financial results of USF for the fiscal year 2001 plus prejudgment interest," as well as his salary for 2001 [$429,999] and 2002 [$438,461] (Pl.'s Mot. at 30); (3) an officer and director bar under 15 U.S.C. § 78u(d)(2), preventing him from ever serving as an officer or director of a public company in the future; and (4) a third tier civil monetary penalty under 15 U.S.C. § 78u(d)(3).
In response to this motion, Mr. Kaiser argues that collateral estoppel cannot apply here because the SEC has failed to establish all of the requirements, particularly the requirement that "the party against whom estoppel is asserted ... had a full and fair opportunity to litigate the issue[s] in the previous forum," Sedlack v. Braswell Services Group, Inc., 134 F.3d 219, 224 (4th Cir.1998). He also contests each remedy sought by the SEC. These arguments will be addressed below.
Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment:
should be rendered if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to a judgment as a matter of law.
Fed. R. Civ. Pro. 56(c). The Supreme Court has clarified that this does not mean any factual dispute will defeat the motion:
By its very terms, this standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (emphasis in original).
"A party opposing a properly supported motion for summary judgment `may not rest upon the mere allegations or denials of [his] pleadings,' but rather must `set forth specific facts showing that there is a genuine issue for trial.'" Bouchat v. Baltimore Ravens Football Club, Inc., 346 F.3d 514, 525 (4th Cir.2003) (alteration in original) (quoting Fed.R.Civ.P. 56(e)). The court must "view the evidence in the light most favorable to . . . the nonmovant, and draw all reasonable inferences in her favor without weighing the evidence or assessing the witness' credibility," Dennis v. Columbia Colleton Med. Ctr., Inc., 290 F.3d 639, 644-45 (4th Cir.2002), but the court also must abide by the "affirmative obligation of the trial judge to prevent factually unsupported claims and defenses from proceeding to trial." Bouchat, 346 F.3d at 526 (internal quotation marks omitted) (quoting Drewitt v. Pratt, 999 F.2d 774, 778-79 (4th Cir.1993), and citing Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)).
The doctrine of collateral estoppel bars a party from relitigating an issue of fact or law determined against that party in an earlier action, even if the second action differs significantly from the first one. Montana v. United States, 440 U.S. 147, 153, 99 S.Ct. 970, 59 L.Ed.2d 210 (1979) () (citing Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 n. 5, 99 S.Ct. 645, 58 L.Ed.2d 552 (1979)); United States v. Wight, 839 F.2d 193, 196 (4th Cir.1987). Nonmutual offensive collateral estoppel, the type of collateral estoppel raised here, allows a non-party to a previous action to prevent a defendant in the current action from relitigating issues already decided against him in that previous action. Parklane Hosiery, 439 U.S. at 331-32, 99 S.Ct. 645 ().
The Fourth Circuit has held that, in order for collateral estoppel to apply, the party asserting it must establish that:
(1) the issue sought to be precluded is identical to one previously litigated; (2) the issue must have been actually determined in the prior proceeding; (3) determination of the issue must have been a critical and necessary part of the decision in the prior proceeding; (4) the prior judgment must be final and valid; and (5) the party against whom estoppel is asserted must have had a full and fair opportunity to litigate the issue in the previous forum.
Sedlack, 134 F.3d at 224. Requirements (1) through (3) have been met here.4 The issue of whether requirement (4) has been met was resolved in favor of the SEC in my June Order.5 Thus, the only requirement potentially barring the application of collateral estoppel to this case is the fifth, that "the party against whom estoppel is asserted must have had a full and fair opportunity to litigate the issue in the previous forum."
As an initial matter, the meaning of the phrase "full and fair opportunity to litigate" in this context should be clarified. Mr. Kaiser seems to understand the phrase to refer to the subjective fullness and fairness of specific outcomes of litigation, such as trial results and specific rulings made during trial, issues which he is currently contesting through his appeal in the Second Circuit. For purposes of collateral estoppel, however, the key is the objective fullness and fairness of the opportunity to litigate. Where the non-moving party has had no opportunity to litigate particular issues, then collateral estoppel may not apply to them.6 See Sensormatic Sec. Corp. v. Sensormatic Electronics Corp., 455 F.Supp.2d 399, 412 (D.Md.2006) (). Likewise, where the opportunity to litigate was impeded by adjudicative procedures that were cursory, poor in quality, or otherwise unfair, then collateral estoppel ought not apply. See Montana, 440 U.S. at 164 n. 11, 99 S.Ct. 970 (); Wight, ...
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