U.S. S.E.C. v. Talbot
| Decision Date | 14 February 2006 |
| Docket Number | No. 04-04556MMMPLAX.,04-04556MMMPLAX. |
| Citation | 430 F.Supp.2d 1029 |
| Parties | U.S. SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. J. Thomas TALBOT, Defendant. |
| Court | U.S. District Court — Central District of California |
Erica Y. Williams, Luis R. Mejia, Robyn R. Bender, Washington, DC, Nicolas Morgan, Los Angeles, CA, for Plaintiff.
Lance A. Etcheverry, Richard Marmaro, Skadden Arps Slate Meagher and Flom, Lisa A. Callif, Robert H. Horn, Proskauer Rose, Los Angeles, CA, for Defendant.
ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
On June 24, 2004, plaintiff U.S. Securities and Exchange Commission (the "SEC") filed this action against defendant J. Thomas Talbot, alleging that defendant had traded on nonpublic information in violation of Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78j(b), and Exchange Act Rule 10b-5 ("Rule 10b-5"), 17 C.F.R. § 240.10b-5. The SEC asserts that, in his position as a director of Fidelity National Financial, Inc., Talbot learned material nonpublic information regarding the possible acquisition of LendingTree, Inc., and traded on the information, realizing a profit of $67,881.20. The SEC seeks an order requiring Talbot to disgorge this profit with prejudgment interest and to pay civil penalties. It also seeks an order enjoining Talbot from violating the securities laws in the future, and from serving as an officer or director of a publicly held company. The parties have now filed cross-motions for summary judgment.1
Defendant J. Thomas Talbot is a sixty-nine or seventy year-old businessman who resides in Newport Beach, California.2 Talbot received a degree in economics from Stanford University, and a law degree from Hastings College of Law.3 For the past thirty years, Talbot has served on the boards of several publicly traded companies.4 In 1988 or 1989, Talbot joined the board of Fidelity, a public company that is traded on the New York Stock Exchange.5 Talbot served as a Fidelity director until September 19, 2003, when he resigned after being notified of the SEC's investigation, In the Matter of Trading in the Securities of LendingTree, Inc.6 Talbot is currently a director of another publicly traded company, Hallwood Group, Inc.7
Fidelity is a national title insurance company. LendingTree is an online lending and realty services exchange.8 From February to at least May 5, 2003, Fidelity held an ownership interest in LendingTree.9 In February 2003, Douglas Lebda, LendingTree's CEO, notified Fidelity's Executive Vice President, Brent Bickett, of a possible third-party acquisition of LendingTree and asked whether Fidelity would be interested in making an offer.10 Two months later, on April 18 or 19, 2003, Lebda told Bickett that LendingTree had entered into acquisition negotiations with a third party.11 Shortly after speaking with Lebda, and some time prior to April 22, 2003, Bickett relayed the news to William Foley, Fidelity's CEO and Chairman.12
On April 22, 2003, Fidelity held a quarterly meeting of its board of directors that Talbot attended.13 The meeting lasted approximately four to five hours; during this time, the board discussed several different items that were identified on the meeting agenda.14 Near the end of the meeting, Foley raised LendingTree and its potential acquisition by an unnamed third party.15 He told the board that Fidelity would likely benefit if a third party acquired LendingTree.16 Talbot wrote the words "Lending Tree" at the top of his agenda; these were the only notes he took during the meeting.17
On April 24, 2003, two days after the Fidelity board meeting, Talbot purchased 5,000 shares of LendingTree common stock at approximately $13.50 per share.18 Prior to April 24, 2003, Talbot had never traded in LendingTree securities.19 The next day, on April 25, 2003, Lebda contacted Bickett to update him on the status of the proposed tender offer and to give Bickett a Voting Agreement that LendingTree wished to have Fidelity sign.20 Also on April 25, 2001, Fidelity and LendingTree entered into a written letter agreement restricting the use to which Fidelity could put confidential information it received in connection with the proposed tender offer.21 On April 30, 2003, Talbot purchased an additional 5,000 shares of LendingTree common stock at approximately $14.50 per share.22
Several events occurred on May 5, 2003. First, LendingTree and USA Interactive ("USAI"), a publicly traded company, issued a joint press release announcing an agreement pursuant to which USAI was to acquire all of LendingTree's outstanding capital stock in a stock-for-stock transaction.23 Second, Fidelity and LendingTree entered into a Voting Agreement, which required that Fidelity vote its Lending-Tree shares in favor of the proposed tender offer.24 Third, after the public announcement was made, Talbot sold the 10,000 shares of LendingTree stock that he owned at $20.94 per share, realizing a profit of $67,881.20.25 LendingTree's stock closed at $20.72 per share, increasing $6.03 per share, or 41%.26
It is undisputed that some of the information discussed at Fidelity board meetings is nonpublic and confidential.27 Other Fidelity directors present at the April 22, 2003 meeting considered the information regarding the potential acquisition of LendingTree confidential.28 Talbot testified that all he heard at the board meeting was that "some person or company might be interested in acquiring LendingTree and that Fidelity would benefit if the transaction occurred." He contends that this alleged "rumor" caused him to investigate LendingTree further.29 Talbot was the only individual at the April 22, 2003 board meeting who traded in LendingTree securities between April 22 and May 5, 2003.30
A motion for summary judgment must be granted when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." FED.R.CIV.PROC. 56(c). A party seeking summary judgment bears the initial burden of informing the court of the basis for its motion and of identifying those portions of the pleadings and discovery responses that demonstrate the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Where the moving party will have the burden of proof on an issue at trial, the movant must affirmatively demonstrate that no reasonable trier of fact could find other than for the moving party. On an issue as to which the nonmoving party will have the burden of proof, however, the movant can prevail merely by pointing out that there is an absence of evidence to support the nonmoving party's case. See id. If the moving party meets its initial burden, the nonmoving party must set forth, by affidavit or otherwise as provided in Rule 56, "specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); FED.R.CIV.PROC. 56(e).
In judging evidence at the summary judgment stage, the court does not make credibility determinations or weigh conflicting evidence. Rather, it draws all inferences in the light most favorable to the nonmoving party. See T.W. Electrical Service, Inc. v. Pacific Electrical Contractors Ass'n, 809 F.2d 626, 630-31 (9th Cir. 1987). The evidence presented must be admissible. FED.R.CIV.PROC. 56(e). Conclusory, speculative testimony in affidavits and moving papers is insufficient to raise genuine issues of fact and defeat summary judgment. See Nelson v. Pima Community College, 83 F.3d 1075, 1081-82 (9th Cir.1996) (); Thornhill Pub. Co., Inc. v. GTE Corp., 594 F.2d 730, 738 (9th Cir.1979).
As noted, the parties have filed cross-motions for summary judgment. "[T]he mere fact that the parties make cross-motions for summary judgment does not necessarily mean that there are no disputed issues of material fact and does not necessarily permit the judge to render judgment in favor of one side or the other." Starsky v. Williams, 512 F.2d 109, 112 (9th Cir.1975); see also Fair Housing Council of Riverside County, Inc. v. Riverside Two, 249 F.3d 1132, 1136 (9th Cir. 2001) ( ). Rather, "the court must review the evidence submitted in support of each cross-motion," and consider each motion on its merits. Fair Housing Council of Riverside County, 249 F.3d at 1136.
Section 10(b) of the Exchange Act makes it unlawful for any person to use "manipulative or deceptive device[s]" in connection with the purchase or sale of securities. 15 U.S.C. § 78j(b). Under Rule 10(b)(5), which the SEC promulgated pursuant to section 10(b), one may not "... employ any device, scheme, or artifice to defraud; ... or ... engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security." 17 C.F.R. § 240.10b-5.
Liability for trading on confidential information under section 10(b) and Rule 10b-5 can be predicated on either a "classical" or "misappropriation" theory. United States v. O'Hagan, 521 U.S. 642, 650, ...
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