Opinion
CASE NO. 03-60175-CIV-ZLOCH
August 27, 2003
OMNIBUS ORDER
THIS MATTER is before the Court upon Defendants, Marc David Shiner, Leon Swichkow, Timothy Wetherald, and Telecom Advisory Services, Inc., and Relief Defendants Equity Service Administration, Inc., Marketing Media, Inc., and USA Media Group, Inc.'s Joint Emergency Motion for Reconsideration of Plaintiff SEC's Emergency Motion for Continuance Alternative Motion to Dissolve Injunction Motion to Dismiss for Egregious Misconduct of the SEC (DE 66), Joint Renewed Motion to Dismiss for Egregious Misconduct of the SEC (DE 75), and Joint Motion to: (i) Strike the Declarations of Bernard McDonough and Thomas Birdwell and (ii) Renewed Motion to Dismiss Pursuant to Fed.R.Civ.P. 37 (DE 79), and Plaintiff, the Securities and Exchange Commission's Motion for Leave to File Surreply on Defendants' Motions to Dismiss for Alleged "Egregious Misconduct" (DE 98). The Court has carefully reviewed said Motions, the entire court file and is otherwise fully advised in the premises.
I. Background
Plaintiff, the Securities and Exchange Commission (hereinafter the "SEC") commenced the above-styled cause by filing a Complaint for Injunctive and Other Relief (DE 1) alleging violations of various federal securities laws by Defendants Marc David Shiner, Leon Swichkow, Timothy Wetherald, and Telecom Advisory Services, Inc. (hereinafter collectively "Defendants"). Specifically, the SEC alleges that Defendants violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, 15 U.S.C. § 77e(a), 77e(c), and 77q(a) and Sections 10(b), 15(a), and 15(c) of the Exchange Act of 1934, 15 U.S.C. § 78j(b), 78o(a), and 78o(c).
On February 10, 2003, the Court held an ex parte hearing on the SEC's Ex Parte Motion for Temporary Restraining Order and Other Emergency Relief (DE 14) and entered a Temporary Restraining Order (DE 21). In its Temporary Restraining Order (DE 21) the Court set an evidentiary hearing on the SEC's Motion for Preliminary Injunction for February 21, 2003. All Defendants were served original process and received notice of the evidentiary hearing.
At the evidentiary hearing the SEC and Defendants Marc David Shiner, Leon Swichkow, Timothy A. Wetherald, and Telecom Advisory Services, Inc., and Relief Defendants Equity Administration, Inc., Marketing Media, Inc., and USA Media Group, Inc. were all represented by counsel and the SEC and the above-named Defendants and Relief Defendants consented to the entry of a Preliminary Injunction and Order Granting Further Relief (DE 41) pending a Final Judgment by the Court. The Court then set this matter for trial on March 17, 2003.
On March 11, 2003, the SEC filed an Emergency Motion for Continuance (DE 55) to continue the March 17, 2003 trial date. By prior Order (DE 65) dated March 12, 2003, the Court continued trial in this matter until June 9, 2003. The Court also set a second evidentiary hearing on the SEC's Motion for Preliminary Injunction for March 24, 2003, the earliest possible time it could hear the matter, because Defendants had not consented to the Preliminary Injunction (DE 41) remaining in effect passed the original trial date of March 17, 2003. On March 13, 2003, Defendants filed the instant Motion (DE 66). On March 24-25, 2003, the Court held an evidentiary hearing on the SEC's Motion for Preliminary Injunction. On May 8, 2003, the Court entered a Preliminary Injunction (DE 101) in favor of the SEC. On May 30, 2003, the Court continued trial in this matter until November 3, 2003 so that the parties could resolve discovery issues and explore the possibility of settlement. See DE 104.
II. Discussion
A. Reconsideration and Dissolving the InjunctionAt the outset, the Court notes that the issues of reconsidering its Order (DE 65) granting the SEC's continuance and dissolving the injunction are moot. At the time the Court continued this matter, it also set an evidentiary hearing on the SEC's Motion for Preliminary Injunction "at the earliest possible time" it could hear the matter. See Fed.R.Civ.P. 65(b). After considering all the evidence presented and the argument of counsel at the March 24-25, 2003 evidentiary hearing, the Court entered a Preliminary Injunction (DE 101) in favor of the SEC. Accordingly, the issues of reconsidering the continuance and dissolving the injunction are moot.
B. Motion to Dismiss for Egregious Misconduct
1. Argument
Defendants argue that the above-styled cause should be dismissed due to the SEC's egregious misconduct. Specifically, Defendants allege that the SEC: (1) obtained the Temporary Restraining Order (DE 21) in this matter in part on the basis of the Declaration of Eugene Travis Credle which contained the statement, allegedly contradicted under oath at a later time, that he relied upon information given to him by Defendants' agent Frank Sutherland when investing in the securities at issue in this matter; (2) obtained the Temporary Restraining Order in part on the basis of the Declaration of Steve Peterson who later perjured himself on the issue of whether or not he attended law school; (3) used Sandra Stephenson, a former employee of On Systems Technology LLC, to perform an allegedly illegal search and seizure of On Systems Technology LLC's computer records by stealing a hard drive from a computer loaned to her by On Systems Technology LLC; (4) purposely withheld audiotapes of meetings between Eugene Travis Credle and On Systems Technology LLC that had been provided to the SEC by Mr. Credle; (5) withheld audiotapes of investor meetings provided to the SEC by Bernard Baake; (6) provided Defendants with an illegible copy of notes taken by Thomas Birdwell concerning investor meetings which were provided to the SEC; and (7) thwarted Defendants efforts to depose Bernard McDonough, Esq., lead SEC investigator in this matter, and refused to produce Mr. McDonough's notes which were reviewed by Mr. McDonough prior to his deposition.The SEC denies any misconduct. As to the charge that Eugene Travis Credle committed perjury, the SEC argues that Mr. Credle later testified that the statement in his Declaration that he relied upon the information given him by Defendants' agent Frank Sutherland was correct.See DE 93, Ex. 1, pp. 70, 74. As to the charge that Mr. Peterson perjured himself, the SEC argues that the issue of whether Mr. Peterson attended law school is unrelated to the issue of whether Defendants were selling securities, that there is no evidence that the SEC knowingly proffered perjured testimony, and that there is no statement in Mr. Peterson's Declaration regarding whether or not he attended law school.
The SEC further argues that there is no evidence to support the accusation that it had Sandra Stephenson steal the computer hard drive. The SEC also argues that it turned over the tapes it received from Mr. Baake and has offered to turn over the tape it received from Mr. Credle, even though the tape from Mr. Credle is an incomplete version of the tapes received from Mr. Baake, which have been turned over to Defendants. Finally, the SEC argues that Thomas Birdwell's notes had been produced to Defendants prior to Mr. Birdwell's deposition and that there was no misconduct in the timing or delay of Bernard McDonough's deposition because Mr. McDonough appeared in Fort Lauderdale as ordered by the Court and Mr. McDonough's notes contained privileged information which needed to be redacted before his deposition could continue.
2. Analysis
The Eleventh Circuit has stated that only "the rarest and most outrageous" government misconduct mandates dismissal of an action.United States v. Edenfield, 995 F.2d 197, 200 (11th Cir. 1993)(quoting United States v. Tobias, 662 F.2d 381, 386-87 (5th Cir. Unit B 1981)). The Eleventh Circuit has also stated that dismissal of an action for discovery misconduct is a "severe sanction" that is "appropriate only as a last resort." Malautea v. Suzuki Motor Co., Ltd., 987 F.2d 1536, 1542 (11th Cir. 1993). Also, there is a "strong public policy against dismissing securities enforcement actions prosecuted for the public good. . . ." SEC v. Lorin, No. 90 Civ. 7461 (PNL), 1998 WL 576895, at *2 (S.D.N.Y. June 18, 1991) (citing United States v. Fields. 592 F.2d 638, 648 (2d Cir. 1978)).
Here, the Court finds that Defendants have not shown that the SEC's alleged misconduct was so egregious or outrageous as to warrant dismissal of the above-styled cause. As to Mr. Credle's alleged perjury, Mr. Credle affirmed that the statement in his Declaration that he relied upon the statements of Frank Sutherland in purchasing the securities at issue in this matter was correct. See DE 93, Ex. 1. pp. 70, 74. As to Steve Peterson's alleged perjury regarding his attendance at law school, there is nothing to suggest that the SEC was aware of whether Mr. Peterson had or had not attended law school, or that the SEC relied upon that assertion, which was not contained in his Declaration. Moreover, there is no evidence to suggest that the SEC acted in bad faith regarding either Mr. Peterson or Mr. Credle.
The alleged discovery misconduct likewise does not warrant dismissal. The Court notes that the parties agreed to an expedited trial of this matter and that at all times relevant to the instant Motions the parties were operating under a strict time schedule and undertaking discovery at a feverish pace. Any delays or complications in providing discovery by the SEC under such circumstances do not warrant dismissal of the above-styled cause. See Malautea, 987 F.2d at 1542 (noting that default as discovery sanction requires willful or bad faith failure to comply with discovery order).
As to the allegation that the SEC used Sandra Stephenson to steal computer records from On Systems Technology LLC, the evidence (e-mails between Ms. Stephenson and SEC attorney Mark Braswell) provided by Defendants does not establish that Ms. Stephenson stole the computer hard drive on behalf of the SEC. See DE 66, Ex A. Even assuming Defendants could establish that this evidence was improperly obtained, the appropriate remedy would not be dismissal of the above-styled cause but exclusion of the evidence. See United States v. DiGregorio, 795 F. Supp. 630, 635 (S.D.N.Y. 1992) (finding that appropriate remedy for evidence obtained in violation of Fifth and Sixth Amendments was suppression of evidence and not dismissal of indictment). Moreover, a dismissal based upon "spoliation" of evidence would not be appropriate under these circumstances because the computer hard drive is not the only evidence in this case and the SEC's alleged misconduct was not "so egregious as to amount to a forfeiture of [its] claim" nor "so prejudicial that it [will] substantially [deny] the Defendant[s] the ability to defend the claim." Silvestri v. General Motors Corp., 271 F.3d 583, 593 (4th Cir. 2001).
Taken as a whole, the Court finds that the SEC's alleged misconduct does not warrant the extreme sanction of dismissing the above-styled cause. See Edenfield, 995 F.2d at 200 (considering totality of the circumstances in determining whether dismissal of indictment based upon government misconduct was appropriate).
C. Motion for Leave to File Surreply
Having found that dismissal is not warranted, the Court need not consider a surreply from the SEC. Thus, the SEC's Motion (DE 98) shall be denied as moot.
D. Motion to Strike Declarations
Defendants also move to strike the Declarations of Thomas Birdwell and Bernard McDonough. Defendants argue that Mr. Birdwell's Declaration was not based upon personal knowledge. At the preliminary injunction hearing on March 24, 2003, the Court heard argument on this issue and struck paragraphs 18 through and including 21 of Thomas Birdwell's Declaration. To the extent Defendants seek to strike the remainder of Mr. Birdwell's Declaration, the Court declines to do so.
Defendants also argue that Mr. McDonough's Declaration should be stricken because the SEC conceded at the March 24, 2003 preliminary injunction hearing that it could not prove certain aspects of the Declaration. The Court heard argument on this point and the SEC filed an Amended Declaration of Bernard A. McDonough addressing those aspects of the Declaration which could not be proven. See DE 81. To the extent Defendants seek to strike Mr. McDonough's original Declaration, the Court finds the issue to be moot due to the filing of the Amended Declaration. To the extent Defendants seek to strike the Amended Declaration, the Court declines to do so.
III. Conclusion
In conclusion, the Court declines to dismiss the above-styled cause base upon alleged egregious misconduct of the SEC and declines to strike the Declarations of Thomas Birdwell and Bernard McDonough, except as noted above. Finally, the Court finds all other issues raised by the instant Motions to be moot.
Accordingly, after due consideration, it is
ORDERED AND ADJUDGED as follows:
1. Defendants, Marc David Shiner, Leon Swichkow, Timothy Wetherald, and Telecom Advisory Services, Inc., and Relief Defendants Equity Service Administration, Inc., Marketing Media, Inc., and USA Media Group, Inc.'s Joint Emergency Motion for Reconsideration of Plaintiff SEC's Emergency Motion for Continuance (DE 66) be and the same is hereby DENIED as moot;
2. Defendants, Marc David Shiner, Leon Swichkow, Timothy Wetherald, and Telecom Advisory Services, Inc., and Relief Defendants Equity Service Administration, Inc., Marketing Media, Inc., and USA Media Group, Inc.'s Alternative Motion to Dissolve Injunction (DE 66) be and the same is hereby DENIED as moot;
3. Defendants, Marc David Shiner, Leon Swichkow, Timothy Wetherald, and Telecom Advisory Services, Inc., and Relief Defendants Equity Service Administration, Inc., Marketing Media, Inc., and USA Media Group, Inc.'s Motion to Dismiss for Egregious Misconduct of the SEC (DE 66) be and the same is hereby DENIED;
4. Defendants, Marc David Shiner, Leon Swichkow, Timothy Wetherald, and Telecom Advisory Services, Inc., and Relief Defendants Equity Service Administration, Inc., Marketing Media, Inc., and USA Media Group, Inc.'s Joint Renewed Motion to Dismiss for Egregious Misconduct of the SEC (DE 75) be and the same is hereby DENIED;
5. Defendants, Marc David Shiner, Leon Swichkow, Timothy Wetherald, and Telecom Advisory Services, Inc., and Relief Defendants Equity Service Administration, Inc., Marketing Media, Inc., and USA Media Group, Inc.'s Joint Motion to: (i) Strike the Declarations of Bernard McDonough and Thomas Birdwell and (ii) Renewed Motion to Dismiss Pursuant to Fed.R.Civ.P. 37 (DE 79) be and the same is hereby DENIED; and
6. Plaintiff, the Securities and Exchange Commission's Motion for Leave to File Surreply on Defendants' Motions to Dismiss for Alleged "Egregious Misconduct" (DE 98) be and the same is hereby DENIED as moot.
DONE AND ORDERED in Chambers at Fort Lauderdale, Broward County, Florida, this 27th day ofAugust, 2003.