Sec. v. Microtune Inc.

• Decision Date: 15 February 2011
• Docket Number: Civil Action No. 3:08–CV–1105–B.
• Parties: SECURITIES and EXCHANGE COMMISSION, Plaintiff,v.MICROTUNE, INC., Douglas J. Bartek, and Nancy A. Richardson, Defendants.
• Court: U.S. District Court — Northern District of Texas

783 F.Supp.2d 867

SECURITIES and EXCHANGE COMMISSION, Plaintiff,

v.MICROTUNE, INC., Douglas J. Bartek, and Nancy A. Richardson, Defendants.

Civil Action No. 3:08–CV–1105–B.

United States District Court,N.D. Texas,Dallas Division.

Feb. 15, 2011.

Toby M. Galloway, D. Thomas Keltner, David B. Reece, Jeffrey Alan Cohen, Michael D. King, US Securities & Exchange Commission, Fort Worth, TX, for Plaintiff.Ronald W. Breaux, Emily Wilson Westridge, Jeremy Daniel Kernodle, Lawrence A. Gaydos, Haynes & Boone LLP, Dawn Estes, Taber Estes Thorne & Carr PLLC, Dallas, TX, Susan D. Resley, Elizabeth C. McBride, Orrick Herrington & Sutcliffe LLP, Menlo Park, CA, Christopher M. O'Connell, Preston Burton, Rebecca Lynn Mroz, Russell D. Duncan, Zeno Baucus, Orrick Herrington & Sutcliffe LLP, Washington, DC, Jonathan B. Gaskin, Justin M. Lichterman, Orrick Herrington & Sutcliffe LLP, San Francisco, CA, for Defendants.

MEMORANDUM OPINION AND ORDER

JANE J. BOYLE, District Judge.

Before the Court is Defendant Douglas J. Bartek's (“Bartek”) Motion for Summary Judgment filed June 4, 2010 (doc. 115). Following a hearing on November 19, 2010, the Court denied Bartek's motion in part, reserving ruling on his argument that the SEC's claims are barred by the five-year limitations period found in 28 U.S.C. § 2462 (“Section 2462”).¹ Order Nov. 23, 2010. The precise questions reserved for further consideration were: 1) whether the doctrine of fraudulent concealment, relied on by the SEC, operates to toll the running of the five-year limitations period under the facts of this case, and 2) which of the SEC's proposed remedies were penalties subject to Section 2462. Having provided the parties an opportunity to submit additional briefing and having now reviewed all of the materials submitted in connection with not only Bartek's motion but also Defendant Nancy A. Richardson's Motion for Summary Judgment and the SEC's Motion for Partial Summary Judgment, these issues are ripe for review. For the reasons set forth below, the Court finds that there is no genuine issue of material fact as to whether the SEC met all the requirements of the fraudulent concealment doctrine, and therefore its claims are not tolled. The Court also finds that all of the SEC's proposed relief is properly characterized as penalties subject to Section 2462's statute of limitations, with the exception of disgorgement of Richardson's “in-the-money” profits from the exercise of backdated stock options.

I.BACKGROUND

The SEC filed this enforcement action against Microtune, Inc., a publicly traded company, and two of its former executives, Richardson and Bartek, accusing them of engaging in a fraudulent stock-option backdating scheme between 2000 and mid–2003. According to the SEC, Richardson, Microtune's former Chief Financial Officer and General Counsel and Bartek, its former Chief Executive Officer, fraudulently backdated stock options granted to certain executives and company employees to ensure the options were “in the money” or profitable for the grantees.² The two defendants are further charged with failing to record and report the corresponding expense—resulting from the “in-the-money” transactions—on the company's financial statements and in Commission filings, an omission that purportedly resulted in overstated income and understated expenses. By manipulating stock options and thereafter failing to properly record and recognize the transactions, the SEC maintains that Richardson and Bartek violated a litany of federal securities laws. ³ Among its requested remedies, the SEC seeks civil monetary penalties, officer-and-director bars, a permanent injunction, disgorgement and reimbursement for ill-gotten bonuses and stock profits.⁴ Bartek and Richardson deny the SEC's allegations and, in turn, have raised a number of affirmative defenses to the charges, including and most pertinent here, 28 U.S.C. § 2462's five-year limitations bar.⁵

Summary judgment motions by the SEC, Richardson, and Bartek were filed in June 2010. All three motions have been denied, Order Oct. 29, 2010 and Order Nov. 23, 2010, save and except that portion of Bartek's motion regarding limitations, the subject of this order. A brief dissection of the Court's summary judgment rulings relevant to this analysis is elucidating. The SEC moved for partial summary judgment on Bartek's and Richardson's affirmative defenses, its primary focus being the defendants' limitations defense. SEC Mot. 9–17. The Commission argued that it was entitled to judgment as a matter of law on Richardson's and Bartek's statute of limitations defense because the “discovery rule” and certain equitable tolling principles including “fraudulent concealment” and the “continuing violations doctrine” applied and salvaged claims that would otherwise be barred by the five-year statute of limitations. The SEC also argued that its requested remedies, with the exception of civil monetary penalties, were equitable remedies not subject to limitations. As set forth in this Court's Order dated November 23, 2010 and for the reasons detailed on the record at the hearing held November 19, 2010, Hr'g Tr. Nov. 19, 2010 at 109–13, the Court denied the SEC's Motion for Partial Summary Judgment in its entirety, specifically rejecting the applicability of the discovery rule and the continuing violations doctrine to its claims.

Separately, Richardson and Bartek filed voluminous motions for summary judgment. As set forth in this Court's Order dated October 29, 2010 and for the reasons detailed on the record at the hearing on the same day, Hr'g Tr. Oct. 29, 2010 at 83–86, Richardson's motion was denied in its entirety. Bartek's motion, at issue here, was later denied in part, Order Nov. 23, 2010 and Hr'g Tr. Nov. 19, 2010 at 157–60, the Court reserving ruling and calling for additional briefing on Bartek's limitations defense as it relates to the SEC's reliance on the doctrine of fraudulent concealment. The Court also left open the issue of which remedies sought by the SEC were “penalties” subject to Section 2462. The briefing is now complete on these issues and the motion is ripe for determination.⁶

II.LEGAL STANDARD

Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is appropriate when the pleadings and record evidence show that no genuine issue of material fact exists and that, as a matter of law, the movant is entitled to judgment. Hart v. Hairston, 343 F.3d 762, 764 (5th Cir.2003). In a motion for summary judgment, the burden is on the movant to prove that no genuine issue of material fact exists. Provident Life & Accident Ins. Co. v. Goel, 274 F.3d 984, 991 (5th Cir.2001). To determine whether a genuine issue exists for trial, the court must view all of the evidence in the light most favorable to the non-movant, and the evidence must be sufficient such that a reasonable jury could return a verdict for the non-movant. See Chaplin v. NationsCredit Corp., 307 F.3d 368, 371–72 (5th Cir.2002).

When the party with the burden of proof is the movant, it must establish each element of its claim as a matter of law. Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir.1986). If the nonmovant bears the burden of proof at trial, the summary judgment movant need not support its motion with evidence negating the non-movant's case. Latimer v. SmithKline & French Labs., 919 F.2d 301, 303 (5th Cir.1990) Rather, the movant may satisfy its burden by pointing to the absence of evidence to support the non-movant's case. Id.; Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994).

Once the movant has met its burden, the burden shifts to the non-movant, who must show that summary judgment is not appropriate. Little, 37 F.3d at 1075 (citing Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). “This burden is not satisfied with ‘some metaphysical doubt as to the material facts,’ ... by ‘conclusory allegations,’ ... by ‘unsubstantiated assertions,’ or by only a ‘scintilla’ of evidence.” Id. (citations omitted). A non-moving party with the burden of proof must “identify specific evidence in the record and articulate the manner in which that evidence supports that party's claim,” Johnson v. Deep E. Tex. Reg'l Narcotics Trafficking Task Force, 379 F.3d 293, 301 (5th Cir.2004) (citation omitted), and “come forward with ‘specific facts showing that there is a genuine issue for trial.’ ” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (emphasis in original) (citation omitted). See also John G. Mahler Co. v. Klein Karoo Landboukooperasie DPK, 58 F.3d 636, 1995 WL 371037, at *3 n. 2 (5th Cir. June 5, 1995) (explaining that Celotex, 477 U.S. at 324, 106 S.Ct. 2548 and Fed.R.Civ.P. 56(e) require that the burden of proving the discovery rule remains with the party seeking to use it, even on summary judgment when that party is the non-movant).

In appropriate cases, the Court may also grant summary judgment against the movant even though the opposite party has not actually filed a motion for summary judgment. In re Caravan Refrigerated Cargo, Inc., 864 F.2d 388, 393 (5th Cir.1989) ( citing Landry v. G.B.A., 762 F.2d 462, 464 (5th Cir.1985)). See also 10A Wright & Miller, Fed. Prac. & Proc. § 2720 (3d ed.) (granting summary judgment in favor of nonmoving party may be appropriate in certain cases as “the judge already is engaged in determining whether a genuine issue of material fact exists and the parties have been given an opportunity to present evidence designed either to support or to refute the request for the entry of judgment”).

III.ANALYSIS

A. Section 2462

There is no express statute of limitations for enforcement claims brought by the SEC under the Securities Act of 1933 or the Exchange Act of 1934, though 28 U.S.C. § 2462 provides:

Except as otherwise provided by Act of Congress, an action, suit, or proceeding for the enforcement of any civil fine,...