SEC. AND EXCHANGE COM'N v. Everest Management Corp.

• Decision Date: 30 January 1979
• Docket Number: No. 71 Civ. 4932 (DNE).,71 Civ. 4932 (DNE).
• Citation: 466 F. Supp. 167
• Parties: SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. EVEREST MANAGEMENT CORPORATION et al., Defendants.
• Court: U.S. District Court — Southern District of New York

466 F. Supp. 167

SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. EVEREST MANAGEMENT CORPORATION et al., Defendants.

No. 71 Civ. 4932 (DNE).

United States District Court, S. D. New York.

January 30, 1979.

COPYRIGHT MATERIAL OMITTED

Robert M. Laprade, Lester Green, S. E. C., Washington, D. C., for plaintiff.

Robert S. Persky, pro se.

OPINION AND ORDER

EDELSTEIN, Chief Judge:

Background

This is a civil action. Plaintiff Securities and Exchange Commission (hereinafter SEC or Commission) alleges by its complaint, filed on November 11, 1971, that forty-four individual and corporate defendants have violated the securities laws¹ and thus seeks permanent injunctive relief against them to protect the public from future violations.² Robert S. Persky (hereinafter Persky), a defendant in this action, is charged with engaging in a series of fraudulent acts involving defendant Microthermal Applications, Inc. (hereinafter Microthermal). Persky is an attorney who served as secretary of and counsel to Microthermal.

On March 1, 1973 Persky was indicted, along with other defendants in this action, for violating the federal securities laws. United States v. Zane, Silverman and Persky et al., 73 Crim. 192 (S.D.N.Y. March 1, 1973). Persky was named in Counts One, Two, Four and Five of the twelve count indictment and charged with conspiring to file and filing a false Form 10-K annual report for Microthermal, failing to file a Form 8-K current report for Microthermal, and fraud in connection with the purchase and sale of Microthermal stock. A jury trial held in May and June of 1973 resulted in Persky's conviction on Count Two (filing a false annual report) and an acquittal on Count One (conspiring to file a false annual report).³ In a second jury trial conducted in January 1975 Persky was convicted on Count Four (fraud in connection with the purchase and sale of stock) after Count Five (failure to file a required current report) was dismissed by the court. Persky's convictions on Counts Two and Four were affirmed by the Second Circuit Court of Appeals in two separate opinions. United States v. Zane, 495 F.2d 683 (2d Cir.) cert. denied, 419 U.S. 895, 95 S.Ct. 174, 42 L.Ed.2d 139 (1974); United States v. Persky, 520 F.2d 283 (2d Cir. 1975). During the pendency of these criminal actions no steps were taken by the SEC to advance this civil suit as against Persky; temporary or preliminary injunctive relief was not sought.

This opinion and order is directly occasioned by a series of motions filed by defendant Persky and the SEC. On October 24, 1977 Persky moved this court for an order of involuntary dismissal pursuant to Rule 41(b) of the Federal Rules of Civil Procedure. The SEC opposed such a dismissal and on November 17, 1977 asked the court to defer "the consideration of . . . Persky's Motion to Dismiss, to a subsequent time . . . in order that the Court may consider defendant Persky's motion in conjunction with a forthcoming motion for summary judgment, to be filed by plaintiff Commission." A motion for summary judgment was noticed by the SEC on January 11, 1978.

In the interest of tidy judicial administration the court has deferred consideration of Persky's motion for an order of involuntary dismissal pending receipt of the SEC's motion for summary judgment. For the reasons set forth below, defendant's motion is denied and the plaintiff's motion for summary judgment is granted.

Persky's Motion to Dismiss for Failure to Prosecute

Defendant Persky seeks an order of involuntary dismissal pursuant to Rule 41(b), Fed.R.Civ.P.,⁴ for failure of the plaintiff Commission to prosecute this action. The thrust of Persky's argument is the passage of time; almost six years passed from the filing of the complaint until Persky moved for a dismissal. During that time, the SEC took no steps to prosecute its claims against Persky. Additionally, Persky alleges that the injunctive relief sought by the Commission would serve no useful purpose since all the complained of acts were terminated prior to the filing of this action and future violations are unlikely.

The Commission advances a number of arguments in opposition to Persky's motion. First, the SEC emphasizes that Persky has not been prejudiced by the passage of time. Second, Persky's failure to raise the issue of delay at an earlier point in time, the Commission maintains, is a relevant factor for the court's consideration. Finally, the SEC argues that injunctive relief is necessary because there exists a reasonable likelihood that Persky will violate the securities laws in the future.

This court is vested with broad discretion in determining whether to dismiss an action under Rule 41(b), Fed.R. Civ.P., for failure to prosecute. E. g., Ali v. A & G Co., 542 F.2d 595, 596 (2d Cir. 1976); Joseph Muller Corporation Zurich v. Societe Anonyme De Gerance Et D'Armement, 508 F.2d 814, 815 (2d Cir. 1974). No one standard or single factor controls a court's determination under Rule 41(b); each case must be examined in its own factual circumstances. See Michelsen v. Moore-McCormack Lines, Inc., 429 F.2d 394, 395 (2d Cir. 1970) (per curiam); 5 Moore's Federal Practice ¶ 41.112 at 41-125 (2d Ed. 1978). In reaching its conclusion, a court may balance the strong public policy in favor of deciding cases on the merits with the burden on the administration of justice and prejudice to the defendant caused by the delay. See Moore v. St. Louis Music Supply Co., 539 F.2d 1191, 1193 (8th Cir. 1976); Reizakis v. Loy, 490 F.2d 1132, 1135 (4th Cir. 1974).

Defendant Persky has alleged no prejudice resulting from the Commission's delay in prosecuting this action, not even the usual prejudices caused by the passage of time such as failing memories or the unavailability of witnesses. Although Persky's lack of prejudice is not dispositive of his motion to dismiss, it is a permissible and relevant factor for the court's consideration. See Messenger v. United States, 231 F.2d 328, 331 (2d Cir. 1956); Saylor v. Lindsley, 71 F.R.D. 380, 384 (S.D.N.Y.1976).

Defendant Persky's failure to bring to the court's attention the SEC's delay in prosecuting this action also merits close scrutiny. In cases where proper service is made, as was done in this action, "the correct rule is that the failure of a defendant to call the court's attention to a plaintiff's undue delay in bringing a case on for trial, by formal motion or otherwise, may be considered as a factor in informing the court's discretion." Finley v. Parvin/Dohrmann Co., 520 F.2d 386, 392 (2d Cir. 1975). Throughout an almost six year period dating from the filing of the complaint until Persky moved for a dismissal in 1977, Persky chose not to raise the issue of plaintiff's delay; his silence over that long period of time is not to be ignored.

In weighing the merits of Persky's motion to dismiss, this court also considers the reasons, if any, for the dilatory prosecution of this action. While proffering no express excuse for the long delay in prosecuting this action, the SEC explains that it "decided to proceed with this civil action only as to those defendants who might not be implicated in the criminal aspects of the . . . case."⁵ That decision, in the court's opinion, was a rational one which insured both fairness of defendants and a wise use of prosecutorial and judicial resources. Dismissal for want of prosecution may be denied where a satisfactory explanation for plaintiff's delay exists. 9 C. Wright & A. Miller, Federal Practice and Procedure, § 2370 at 213 (1971).

As the above discussion reflects, the lack of prejudice suffered by Persky, his failure to bring plaintiff's delay to the court's attention, and the SEC's explanation for the delay, are all relevant factors which inform the exercise of the court's discretion; the passage of time alone does not dictate dismissal of an action for want of prosecution. After considering these factors and the amount of time which has passed since the complaint in this action was filed, the court is convinced that dismissal of this action would not be appropriate. Defendant's motion is therefore denied.

The dispute between Persky and the Commission whether injunctive relief is necessary reaches the ultimate issue of this case and is better addressed in the context of the SEC's motion for summary judgment.

SEC's Motion for Summary Judgment

A motion for summary judgment is to be granted only if the moving party establishes that "there is no genuine issue as to any material fact and that he . . . is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). All doubts are to be resolved in favor of the party opposing the motion. SEC v. Research Automation Corp., 585 F.2d 31, 33 (2d Cir. 1978); Heyman v. Commerce & Industry Insurance Co., 524 F.2d 1317, 1320 (2d Cir. 1975). Summary judgment can be granted, on appropriate facts, in suits for injunctive relief brought by the SEC. E. g., SEC v. Research Automation Corp., supra; 6 Pt. 2 Moore's Federal Practice ¶ 56.1754 at 56-1054 (2d Ed. 1976) (citing cases). However, where issues of fact remain concerning either the existence and nature of past violations or the reasonable likelihood of future violations, injunctive relief will not be granted upon motion for summary judgment. Great Western Land & Development, Inc. v. SEC, 355 F.2d 918 (9th Cir. 1966); SEC v. First Guardian Securities Corp., 95 F.Supp. 580 (S.D.N.Y.1950). See SEC v. Koracorp Industries, Inc., 575 F.2d 692 (9th Cir.) cert. denied, ___ U.S. ___, 99 S.Ct. 348, 58 L.Ed.2d 343 (1978).

In support of its motion for summary judgment the Commission argues that Persky's two criminal convictions remove all factual issues concerning the fraudulent conduct alleged in the complaint and also resolve any question concerning the likelihood of future violations. Defendant Persky contends that his two criminal convictions do not establish civil liability for purposes of this suit and that in any event injunctive...