United States Sec. & Exch. Comm'n v. Harkins

• Decision Date: 23 August 2022
• Docket Number: Civil Action 19-cv-02418-PAB-MDB
• Parties: UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. TYTUS W. HARKINS, Defendant.
• Court: U.S. District Court — District of Colorado

UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
TYTUS W. HARKINS, Defendant.

Civil Action No. 19-cv-02418-PAB-MDB

United States District Court, D. Colorado

August 23, 2022

ORDER

PHIP A. BRIMMER CHIEF UNITED STATES DISTRICT JUDGE

This matter is before the Court on the Motion to Dismiss Notwithsatanding [sic] the Verdict Under Rule 50 [Docket No. 98] filed by defendant Tytus W. Harkins and Plaintiff United States Securities and Exchange Commission's Motion for Remedies and Final Judgment [Docket No. 99]. The Securities and Exchange Commission (“plaintiff” or “SEC”) responded to Mr. Harkins's motion, Docket No. 100, and Mr. Harkins replied. Docket No. 103. Mr. Harkins responded to the SEC's motion, Docket No. 101, and the SEC replied. Docket No. 102. Former defendant Hartman Wright Group (“HWG”) did not respond.

I. BACKGROUND^[1]

On August 26, 2019, the SEC filed this action against Mr. Harkins and HWG.

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See Docket No. 1.^[2] The SEC brought three claims in this case: (1) fraud in the offer or sale of securities in violation of Section 17(a) of the Securities Act of 1933 (the “Securities Act”), 15 U.S.C. § 77q(a); (2) fraud in the purchase or sale of securities in violation of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5; and (3) the offer or sale of unregistered securities in violation of Sections 5(a) and (c) of the Securities Act, 15 U.S.C. §§ 77e(a), (c). Id. at 19-22, ¶¶ 77-87.

The SEC moved for summary judgment on its third claim, Docket No. 27, which the magistrate judge recommended the Court grant. Docket No. 35. The Court granted the SEC's motion over Mr. Harkins's objections and entered summary judgment for the SEC on its Section 5 claim against Mr. Harkins and HWG. Docket No. 47.^[3] On February 22, 2022, the SEC moved for default judgment against HWG, which had failed to appear. Docket No. 54. The magistrate judge recommended that the Court enter default judgment against HWG, Docket No. 74, which recommendation the Court accepted without objection. Docket No. 75.

From April 4 to April 14, 2022, the Court held a jury trial on the SEC's remaining claims against Mr. Harkins. Docket Nos. 82-89. At the close of the SEC's case, Mr. Harkins moved for judgment as a matter of law pursuant to Federal Rule of Civil

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Procedure 50(a), which the Court denied. See Docket No. 86; Unofficial Tr., Apr. 11, 2022 at 86-91. Mr. Harkins did not make any motions at the close of his case. Unofficial Tr., Apr. 12, 2022 at 145. The jury found that Mr. Harkins violated Sections 17(a)(2) and (a)(3) of the Securities Act as well as Section 10(b)(5) of the Exchange Act and Rule 10b-5, but did not violate Section 17(a)(1). Docket No. 94 at 1-2. After the trial, Mr. Harkins filed a motion styled as a motion to dismiss notwithstanding the verdict, Docket No. 98, and the SEC has moved for remedies. Docket No. 99.

II. MR. HARKINS'S MOTION

Mr. Harkins makes four arguments in his motion for judgment notwithstanding the verdict:^[4] (1) the jury's verdict on Section 17(a)(1) and Section 17(a)(3) is inconsistent; (2) the jury's verdict on Section 17(a)(1) and Rule 10b-5 is inconsistent; (3) the jury's verdict on Section 17(a)(2) and Rule 10b-5 is inconsistent; and (4) the Court should set aside the verdict because of the SEC's unethical conduct. Docket No. 98 at 1-4.

Rule 50 provides that judgment as a matter of law is appropriate where “a party has been fully heard on an issue during a jury trial and the court finds that a reasonable jury would not have a legally sufficient evidentiary basis to find for the party on that issue.” Fed.R.Civ.P. 50(a)(1); Stroup v. United Airlines, Inc., 26 F.4th 1147, 1156 (10th Cir. 2022) (“Judgment as a matter of law is appropriate only if the evidence points but one way and is susceptible to no reasonable inferences which may support the

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nonmoving party's position.” (quoting Elm Ridge Expl. Co., LLC v. Engle, 721 F.3d 1199, 1216 (10th Cir. 2013))). Where a party properly moves for judgment as a matter of law prior to the case being submitted to the jury, that party may renew the motion after the jury returns its verdict. See Fed.R.Civ.P. 50(a)(2), (b). However, the Court should grant such relief “only where the proof is all one way or so overwhelmingly preponderant in favor of the movant so as to permit no other rational conclusion.” Hinds v. Gen. Motors Corp., 988 F.2d 1039, 1045 (10th Cir. 1993). “The renewed motion under Rule 50(b) cannot assert grounds for relief not asserted in the original motion.” Marshall v. Columbia Lea Reg' Hosp., 474 F.3d 733, 738-39 (10th Cir. 2007).

At the close of the SEC's case, Mr. Harkins made an oral motion pursuant to Rule 50(a), arguing that the SEC had not proven that he acted with recklessness or negligence, which are the relevant mental states necessary for liability under the particular securities laws. See Unofficial Tr., Apr. 11, 2022 at 86. Thus, Mr. Harkins's Rule 50(a) argument was limited to questioning the sufficiency of the evidence. In his post-trial motion, however, Mr. Harkins makes no arguments regarding the sufficiency of the evidence to support the jury's verdict. See generally Docket No. 98. Rather, Mr. Harkins argues that the jury's verdict was inconsistent and that the SEC committed misconduct. Id. Because Mr. Harkins's renewed motion rests on different grounds than his pre-deliberation motion, Mr. Harkins has waived any challenge to the sufficiency of the jury's evidence, and the Court may not consider his new arguments. See Perez v. El Tequila, LLC, 847 F.3d 1247, 1255 (10th Cir. 2017) (“Arguments presented in a Rule 50(b) motion cannot be considered if not initially asserted in a Rule 50(a) motion.”).

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Thus, to the extent Mr. Harkins seeks to use Rule 50(b) to set aside the jury's verdict based on insufficient evidence, the Court will deny his motion. See Marshall, 474 F.3d at 738-39; Home Loan Inv. Co. v. St. Paul Mercury Ins. Co., 827 F.3d 1256, 1265 (10^th Cir. 2016) (noting that compliance with Rule 50 is “mandatory” (citing Unitherm Food Sys., Inc. v. Swift-Eckrich, Inc., 546 U.S. 394, 404 (2006))); Mountain Dudes v. Split Rock Holdings, Inc., 946 F.3d 1122, 1131 (10th Cir. 2019) (“In order to preserve for appeal an argument challenging the sufficiency of the evidence, the movant must raise the same argument in both a Rule 50(a) and a Rule 50(b) motion.” (citing Unitherm, 546 U.S. at 399-402 (“Otherwise, an appellate court is ‘without power' to grant relief under Rule 50.”))).

The Court next considers whether Mr. Harkins may object to alleged inconsistencies in the jury's verdict. Because Mr. Harkins is proceeding pro se, the Court reviews his pleadings liberally without acting as his advocate. See Haines v. Kerner, 404 U.S. 519, 520-21 (1972); Hall v. Bellmon, 935 F.2d 1106, 1110 (10th Cir. 1991). A new trial because of an inconsistent verdict is not granted “lightly.” Johnson v. Ablt Trucking Co. Inc., 412 F.3d 1138, 1143 (10th Cir. 2005).^[5] “When reviewing claims that a jury verdict is inconsistent, [the reviewing court] must accept any reasonable view of the case that makes the jury's answers consistent.” Loughridge v. Chiles Power

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Supply Co., 431 F.3d 1268, 1275 (10th Cir. 2005) (quoting Heno, 208 F.3d at 852).

Mr. Harkins failed to object to the alleged inconsistency in the verdict before the jury was discharged. See Unofficial Tr., Apr. 14, 2022 at 1-7. The Court must first determine whether this constitutes waiver. The Tenth Circuit has held that a “failure to object to general jury verdicts on the ground of inconsistency before the jury is discharged constitutes waiver, unless the verdict is inconsistent on its face such that the entry of judgment upon the verdict is plain error.” Resol. Tr. Corp. v. Stone, 998 F.2d 1534, 1545 (10th Cir. 1993) (citing Hinds, 988 F.2d at 1047). “However, when the verdicts are special verdicts[,] a party is not required to object to the inconsistency before the jury is discharged in order to preserve that issue for a subsequent motion before the district court.” Id. (citing Bonin v. Tour W., Inc., 896 F.2d 1260, 1263 (10th Cir. 1990)).

The Court must first determine whether the verdict in this case was a general verdict or a special verdict. “[T]he hallmark of a general verdict is that it requires the jury to announce the ‘ultimate legal result of each claim.'” Johnson, 412 F.3d at 1142 (quoting Zhang v. Am. Gem. Seafoods, Inc., 339 F.3d 1020, 1031 (9th Cir. 2003)). “A special verdict, by contrast, presents the jury with specific questions of fact.” Id. The verdict form in this case asked the jury to determine whether the SEC proved, by a preponderance of the evidence, its two claims. See Docket No. 94. On the first claim under Section 17(a), the verdict form asked whether the SEC proved a violation of Section 17(a)(1), Section 17(a)(2), and/or Section 17(a)(3). Id. at 1. For the second claim, the verdict form asked whether the SEC proved its second claim. Id. at 2. Because the verdict form did not “present[] the jury with specific questions of fact,” it

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was a general verdict form. See Johnson, 412 F.3d at 1142.

Mr. Harkins does not direct the Court to a place in the record where he lodged an objection to the alleged inconsistency before the jury was dismissed, and the Court finds none. See Unofficial Tr., Apr. 14, 2022 at 1-7. The Court therefore must determine whether “the verdict is inconsistent on its face so that the entry of judgement on the verdict is plain error.” See Hinds, 988 F.2d at 1047 (citation omitted). “A verdict that resolves separate and distinct causes of action in favor of both parties is not inconsistent on its face.” Harris Market Research v. Marshall Marketing & Comm., Inc., 948 F.2d 1518, 1522 (10th Cir. 1991).

Mr. Harkins identifies three alleged inconsistencies. First, he argues...