Securities and Exchange Comm'n v. Mitchell Stein , 906 F.3d 823 ( 2018 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
SECURITIES AND EXCHANGE No. 15-55506
COMMISSION,
Plaintiff-Appellee, D.C. No.
8:11-cv-01962-
and JVS-AN
HEART TRONICS, INC., WILLIE
JAMES GAULT, OPINION
Defendant-Appellee,
v.
MITCHELL JAY STEIN,
Defendant-Appellant.
Appeal from the United States District Court
for the Central District of California
James V. Selna, District Judge, Presiding
Argued and Submitted March 13, 2018
San Francisco, California
Filed October 11, 2018
Before: J. Clifford Wallace, Marsha S. Berzon,
and Consuelo M. Callahan, Circuit Judges.
Opinion by Judge Wallace
2 SEC V. STEIN
SUMMARY *
Securities Law
The panel affirmed the district court’s summary
judgment in favor of the Securities and Exchange
Commission (“SEC”) on the SEC’s claims that Mitchell
Stein violated various federal securities laws.
The SEC brought a civil enforcement action against
Stein, alleging that while he acted as purported outside
counsel to co-defendant Heart Tronics, he engaged in a
series of frauds designed to inflate the company’s stock price
so that he could profit from selling its securities to investors.
Concurrently with the SEC’s case, the Department of Justice
brought a criminal case, charging Stein with fourteen counts
for the same fraudulent conduct; and Stein was convicted on
all counts.
The panel held that Stein’s criminal conviction
conclusively established all of the facts the SEC was
required to prove with respect to the specified securities
fraud claims. First, both the criminal and civil case involved
the same fraudulent scheme carried out by Stein. Second,
the SEC’s securities fraud claims involved “the application
of the same rule of law” as that involved in the criminal case.
Finally, pretrial preparation and discovery related to the
criminal proceeding could “reasonably be expected” to have
embraced the issues sought to be presented in the SEC’s civil
case. The panel concluded that the district court did not err
*
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
SEC V. STEIN 3
in entering summary judgment based on the preclusive effect
of Stein’s conviction.
The panel rejected Stein’s arguments against the
application of issue preclusion. The panel held that the
district court did not abuse its discretion in denying Stein’s
request for a continuance pending further discovery. Finally,
the panel held that the district court did not err in denying
Stein’s motion for summary adjudication.
COUNSEL
Robert O. Saunooke (argued), Saunooke Law Firm PA,
Miramar, Florida, for Defendant-Appellant.
Allan A. Capute (argued), Special Counsel to the Solicitor;
John B. Capehart, Attorney; Jacob H. Stillman, Senior
Advisor to the Solicitor; John W. Avery, Deputy Solicitor;
Robert B. Stebbins, General Counsel; Securities and
Exchange Commission, Washington, D.C.; for Plaintiff-
Appellee.
OPINION
WALLACE, Circuit Judge:
Mitchell Stein, an attorney, appeals from the district
court’s summary judgment in favor of the Securities and
Exchange Commission (SEC) on the SEC’s claims that Stein
violated various federal securities laws. The district court
entered summary judgment on six of the SEC’s claims on
the ground that Stein’s prior criminal conviction precluded
4 SEC V. STEIN
him from contesting the allegations at issue in the civil case.
We have jurisdiction under 28 U.S.C. § 1291, and we affirm.
I.
In December 2011, the SEC brought a civil enforcement
action against Stein alleging that Stein, while acting as
purported outside counsel to co-defendant Heart Tronics,
engaged in a series of frauds designed to inflate the
company’s stock price so that he could profit from selling its
securities to investors. The alleged scheme was wide
ranging, but centered on allegations that Stein concocted
three false purchase orders with fictitious companies, and
used these orders as the basis for SEC filings and press
releases touting bogus sales of Heart Tronics’ “Fidelity 100”
heart-monitoring system.
The purchase orders at issue ostensibly were agreed to
during September and October 2007. The first purchase
order reflected a sale of 180 units of the Fidelity 100 for
$1.98 million. The SEC alleges that an individual later
identified as Thomas Tribou signed the purchase order and
sent Heart Tronics $50,000 as a deposit. However, the copy
of the order that was counter-signed by the then-CEO of
Heart Tronics and returned to Tribou identified the customer
as “Cardiac Hospital Management” (CHM). The SEC
maintained that CHM was a fictitious entity not known to
Tribou. The second and third purchase orders reflected sales
to a fictional Israeli company called “IT Healthcare” for $3.3
million and $564,000, respectively.
Stein went to great lengths to make the purchase orders
appear legitimate. Specifically, the SEC alleges that Stein
and his personal assistant, co-defendant Martin Carter,
created letters and documents purportedly originating from
CHM and IT Healthcare to create the appearance of
SEC V. STEIN 5
communication between Heart Tronics and its “customers.”
One such letter was from a purported CHM purchasing agent
named “Toni Nonoy” asking for products to be sent to a
“new address” in Japan. Other documents were from
fictitious people supposedly affiliated with IT Healthcare
confirming sales orders and providing updated shipping
instructions. The SEC alleges that all these documents were
fraudulent and that Stein simply made up the names.
During the same period in which Stein drew up the
alleged fraudulent purchase orders, he also orchestrated the
dissemination of press releases reporting the sales. The SEC
alleges that based on information provided by Stein, John
Woodbury, Heart Tronics’ securities lawyer, published three
press releases touting the more than $5 million in purported
sales to CHM and IT Healthcare. The SEC also alleged that
Stein caused the fraudulent sales orders to be incorporated
into Heart Tronics’ SEC filings from approximately
September 2007 through August 2008.
Based on these and other allegations, the SEC asserted
various claims against Stein, including securities fraud in
violation of Section 10(b) of the Securities Exchange Act
(Exchange Act), Exchange Act Rule 10b-5, and Section
17(a) of the Securities Act; aiding and abetting violations of
Section 10(b) and Rule 10b-5; selling or offering for sale
unregistered securities in violation of Section 5(a) and 5(c)
of the Securities Act; falsifying books and records in
violation of Exchange Act Rule 13b2-1; knowingly
falsifying books and records in violation of Section 13(b)(5)
of the Exchange Act; and aiding and abetting Heart Tronics’
violations of the reporting, record-keeping, and internal
controls provisions of the Exchange Act (Sections 13(a),
13(b)(2)(A), and 13(b)(2)(B)) and Exchange Act Rules
(Rules 13a-1, 13a-11, 13a-13, and 12b-20).
6 SEC V. STEIN
Concurrent with the SEC’s case against Stein, the
Department of Justice (DOJ) filed a criminal case against
him in the Southern District of Florida arising out of the
same fraudulent conduct alleged in the civil case. The
fourteen-count indictment charged Stein with three counts of
securities fraud (18 U.S.C. § 1348), three counts of wire
fraud (18 U.S.C. § 1343), three counts of mail fraud
(18 U.S.C. § 1341), one count of conspiracy to commit mail
and wire fraud (18 U.S.C. § 1349), three counts of money
laundering (18 U.S.C. § 1957), and one count of conspiracy
to obstruct justice (18 U.S.C. § 371). The DOJ eventually
moved to intervene and stay discovery in the SEC action
pending the outcome of the criminal proceeding. The district
court granted the unopposed motion and stayed the civil case
in April 2012.
The DOJ’s case against Stein tracked the main
allegations asserted in the SEC’s complaint. During a two-
week trial, the DOJ presented evidence that Stein created
three fraudulent purchase orders for CHM and IT
Healthcare; that he orchestrated the publication of press
releases touting the fraudulent purchase orders; that he made
up documents purported to be from employees of CHM and
IT Healthcare to create the impression the purchase orders
were legitimate; and that he caused the false information to
be incorporated into Heart Tronics’ SEC filings. During
closing arguments, the prosecution focused the jury’s
attention on the “false purchase orders,” “false press
releases,” and “false SEC filings” that underpinned Stein’s
scheme. At the end of trial, the jury returned guilty verdicts
against Stein on all counts. The district court sentenced Stein
to 17 years’ imprisonment, and ordered him to forfeit over
$5 million and pay over $13 million in restitution.
SEC V. STEIN 7
Stein appealed from his judgment of conviction and
sentence, arguing, among other things, that the DOJ failed to
produce material, exculpatory evidence in violation of Brady
v. Maryland, 373 U.S. 83 (1963), and that the DOJ
knowingly relied on false testimony in violation of Giglio v.
United States, 405 U.S. 150 (1972). The Eleventh Circuit
rejected the Brady and Giglio claims, affirmed Stein’s
conviction, but vacated and remanded Stein’s sentence for a
recalculation of actual losses attributable to his fraud. See
United States v. Stein, 846 F.3d 1135 (11th Cir. 2017).
Following Stein’s conviction, the SEC moved for
summary judgment, arguing that Stein’s conviction
precluded him from contesting the SEC’s allegations in the
civil proceeding. The district court concluded that Stein’s
criminal conviction “necessarily decided” the facts needed
to establish his liability in the civil case, and entered
summary judgment in favor of the SEC on the following
claims: securities fraud in violation of Section 10(b) of the
Exchange Act, Exchange Act Rule 10b-5, and Section 17(a)
of the Securities Act; aiding and abetting violations of
Section 10(b) and Rule 10b-5; falsifying books and records
in violation of Exchange Act Rule 13b2-1; knowingly
falsifying books and records in violation of Section 13(b)(5)
of the Exchange Act; and aiding and abetting Heart Tronics’
violations of the reporting and internal controls requirements
of the Exchange Act and Exchange Act Rules. This appeal
followed.
II.
We review a district court’s summary judgment de novo.
Branch Banking & Trust Co. v. D.M.S.I., LLC, 871 F.3d 751,
759 (9th Cir. 2017). We also review de novo whether issue
preclusion is available. Dias v. Elique, 436 F.3d 1125, 1128
(9th Cir. 2006). If issue preclusion is available, the district
8 SEC V. STEIN
court’s decision to apply the doctrine is reviewed for abuse
of discretion. Id.
III.
Issue preclusion bars parties from relitigating an issue if
the same issue was adjudicated in prior litigation. Resolution
Tr. Corp. v. Keating, 186 F.3d 1110, 1114 (9th Cir. 1999).
The form of the doctrine at issue here is “offensive
nonmutual issue preclusion,” which prevents “a defendant
from relitigating the issues which a defendant previously
litigated and lost against another plaintiff.” Syverson v. IBM
Corp., 472 F.3d 1072, 1078 (9th Cir. 2007) (quoting
Parklane Hosiery Co. v. Shore, 439 U.S. 322, 329 (1979)).
A party invoking a defendant’s prior criminal conviction as
the basis for offensive preclusion must demonstrate: (1) the
prior conviction was for a serious offense; (2) the issue at
stake in the civil proceeding is identical to the issue raised in
the prior criminal proceeding; (3) there was a full and fair
opportunity to litigate the issue at the prior trial; and (4) the
issue on which the prior conviction is offered was actually
litigated and necessarily decided at trial. Ayers v. City of
Richmond, 895 F.2d 1267, 1271 (9th Cir. 1990); see also
Syverson, 472 F.3d at 1078.
We typically look to four factors (sometimes referred to
as the Restatement factors) to determine whether two issues
are “identical” for purposes of issue preclusion:
(1) Is there a substantial overlap between the
evidence or argument to be advanced in
the second proceeding and that advanced
in the first?
(2) Does the new evidence or argument
involve the application of the same rule
SEC V. STEIN 9
of law as that involved in the prior
proceeding?
(3) Could pretrial preparation and discovery
related to the matter presented in the first
action reasonably be expected to have
embraced the matter sought to be
presented in the second?
(4) How closely related are the claims
involved in the two proceedings?
Howard v. City of Coos Bay, 871 F.3d 1032, 1041 (9th Cir.
2017); see Restatement (Second) of Judgments § 27 cmt. c
(Am. Law Inst. 1982). These factors “are not applied
mechanistically.” Howard, 871 F.3d at 1041; see Jack H.
Friedenthal, Mary Kay Kane & Arthur R. Miller, Civil
Procedure § 14.10 (5th ed. 2015) (“The assessment of the
similarity of issues necessary to decide whether collateral
estoppel should preclude relitigation of a particular issue
varies with the facts of each case.”).
IV.
We begin our analysis by comparing the record in the
DOJ’s criminal case with the allegations in the SEC’s
enforcement action, to determine whether the issues actually
litigated and determined in the criminal proceeding are
identical to those raised in the civil proceeding. 1
1
Stein’s argument that issue preclusion is inapplicable due to a lack
of identity of issues is apparently limited to the SEC’s claims for
violations of Section 10(b) of the Exchange Act, Exchange Act Rule
10b-5, and Section 17(a) of the Securities Act. We therefore do not
consider the identity of issues between Stein’s criminal proceeding and
10 SEC V. STEIN
As outlined above, the DOJ’s criminal case against Stein
focused on his scheme to inflate Heart Tronics’ stock price
by creating false purchase orders, and using those purchase
orders as the basis for false press releases and SEC filings.
The evidence presented at the criminal trial was that Stein
drafted one purchase order attributed to CHM for $1.98
million, two false purchase orders attributed to IT Healthcare
for $3.3 million, and three false press releases; and then he
profited from selling Heart Tronics’ securities to investors
while materially false information was in the market. In light
of this evidence, the jury found Stein guilty of (among other
offenses) three counts of securities fraud in violation of 18
U.S.C. § 1348, which means it found the following facts
proved beyond a reasonable doubt, as instructed by the trial
judge: (1) Stein “knowingly executed or attempted to
execute a scheme or artifice to defraud;” (2) Stein “did so
with intent to defraud;” and (3) “[t]he scheme to defraud was
in connection with any security of Heart Tronics, Inc.” See
Emich Motors Corp. v. Gen. Motors Corp., 340 U.S. 558,
569 (1951) (explaining that trial courts assessing the
preclusive effect of a prior criminal conviction based on a
general verdict determine which issues were necessarily
decided by examining the pleadings, evidence submitted,
jury instructions, and other parts of the record).
The same fraudulent scheme that underpinned Stein’s
criminal conviction served as the basis for the SEC’s claims
that Stein violated Section 10(b) of the Exchange Act,
Exchange Act Rule 10b-5, and Section 17(a) of the
Securities Act. “Section 17(a) of the Securities Act, and
the SEC’s other claims. Brownfield v. City of Yakima, 612 F.3d 1140,
1149 n.4 (9th Cir. 2010) (“We review only issues which are argued
specifically and distinctly in a party’s opening brief”) (quoting
Greenwood v. FAA, 28 F.3d 971, 977 (9th Cir. 1994)).
SEC V. STEIN 11
Section 10(b) of the Exchange Act and Rule 10b-5, prohibit
fraudulent conduct or practices in connection with the offer
or sale of securities.” SEC v. Dain Rauscher, Inc., 254 F.3d
852, 855 (9th Cir. 2001). These antifraud provisions prohibit
schemes to defraud, and they prohibit “making a material
misstatement or omission in connection with the offer or sale
of a security by means of interstate commerce.” Id. at 855–
56. Securities fraud in violation of Section 17(a)(1), Section
10(b), and Rule 10b-5 require a showing of scienter, while
violations of Sections 17(a)(2) and (3) require a showing of
negligence. Id. at 856.
Having considered the records in the criminal and civil
proceedings in light of the relevant Restatement factors, we
conclude that Stein’s conviction determined the identical
issues the SEC was required to prove to establish Stein’s
liability for securities fraud. First, both the criminal and civil
case involve the same fraudulent scheme carried out by
Stein: an effort to inflate Heart Tronics’ stock price by using
false purchase orders and false press releases to profit from
the sale of the company’s securities. A review of the civil
complaint, the criminal indictment, and the trial transcript
indicates there is a “substantial overlap” between the
evidence and argument to be advanced in the SEC’s
enforcement action and that advanced by the DOJ at trial,
and that the claims involved are “closely related.”
Restatement (Second) of Judgments § 27 cmt. c; see
Howard, 871 F.3d at 1041. Therefore, these factors support
the conclusion that the issues previously decided in the
criminal trial are identical to those at issue in the civil case.
Second, the SEC’s securities fraud claims involve “the
application of the same rule of law” as that involved in the
criminal case. Restatement (Second) of Judgments § 27 cmt.
c. Stein’s conviction required the jury to find (1) a scheme
12 SEC V. STEIN
or artifice to defraud, (2) with fraudulent intent, (3) in
connection with any security. See 18 U.S.C. § 1348. These
findings encompass the SEC’s claims, which require proof
of the same elements except that Section 17(a) prohibits
fraud “in the offer or sale of any securities,” which was what
was at stake in the criminal trial, and Sections 17(a)(2) and
(3) do not require scienter. Therefore, the DOJ proved
beyond a reasonable doubt the same issues the SEC needed
to prove only by a preponderance of the evidence. There is
no difference in the applicable legal standards that would
affect the outcome of the civil case.
Finally, pretrial preparation and discovery related to the
criminal proceeding could “reasonably be expected” to have
embraced the issues sought to be presented in the SEC’s civil
case. Restatement (Second) of Judgments § 27 cmt. c. The
DOJ’s prosecution of Stein involved the same fraudulent
scheme—including the same false purchase orders, fictitious
companies, made-up names, and false press releases—at
issue in the civil action. Given the nearly complete overlap
of facts, there is no issue of significance presented by the
SEC’s action that could be expected to fall outside pretrial
preparation and discovery related to the criminal proceeding.
In sum, the issues the SEC seeks to preclude Stein from
litigating in the civil action are identical to the issues
litigated and decided in the DOJ’s criminal case.
Accordingly, the district court did not err in entering
summary judgment based on the preclusive effect of Stein’s
conviction.
V.
Stein disagrees, and we turn now to his arguments. Stein
first contends that the precise issue as to why the $1.98
million CHM purchase order was fraudulent at issue in this
SEC V. STEIN 13
action was not actually litigated and decided in his criminal
case. Stein argues that the DOJ’s position in the criminal
case was that the CHM purchase order was “all made up”
and “never happened,” while the SEC’s position in this case
is that Tribou signed the CHM order. Stein contends that
because the SEC alleges that Tribou signed the CHM order,
the SEC in effect admits that the order was not fraudulent.
This argument fails. The DOJ’s position regarding the
fraudulent CHM purchase order is, in fact, consistent with
the SEC’s allegations. In the criminal case, the DOJ argued
before the jury that the CHM purchase order was “made up”
on the grounds that CHM was a fictitious company with no
connection to Tribou, and that Stein arranged for Carter to
send fabricated documents from Japan to create the
impression the CHM sales order was real. Likewise, the SEC
alleged that although Tribou contracted to purchase a certain
number of units from Heart Tronics in his personal capacity,
the purchase order counter-signed by Heart Tronics and
returned to Tribou identified the customer as CHM, “a
fictitious entity that was not known to [Tribou].” The SEC
further alleged that Stein “orchestrated an elaborate
scheme”—having a fabricated letter sent from Japan—to
create the illusion that the CHM order was viable. Therefore,
in both the criminal and civil proceedings the underlying
theory was that the CHM purchase order was fraudulent
because CHM was not a real company and was not
connected to Tribou. Accordingly, the issue of whether the
CHM purchase order was fraudulent was actually litigated
and decided at Stein’s criminal trial.
Stein next argues the district court abused its discretion
in applying issue preclusion because its application was
“unfair” under Parklane Hosiery. In Parklane Hosiery, the
Supreme Court explained that although trial courts have
14 SEC V. STEIN
“broad discretion” to determine whether to apply offensive
issue preclusion, the doctrine should not be applied when
doing so “would be unfair to a defendant.” 439 U.S. at 331.
Stein contends that because this circuit would have resolved
his Giglio claim differently than the Eleventh Circuit did,
issue preclusion was unfair under the circumstances.
Under Giglio v. United States, 405 U.S. 150 (1972), a
conviction must be set aside if the prosecution knowingly
uses false testimony, or fails to correct false testimony, and
that testimony was “material.” See Jackson v. Brown,
513 F.3d 1057, 1071–72 (9th Cir. 2008); Hayes v. Brown,
399 F.3d 972, 984 (9th Cir. 2005). False testimony is
“material” if “there is any reasonable likelihood that [it]
could have affected the judgment of the jury.” Dow v. Virga,
729 F.3d 1041, 1048 (9th Cir. 2013) (emphasis omitted)
(quoting United States v. Agurs, 427 U.S. 97, 103 (1976)).
After his conviction, Stein argued on appeal that the DOJ
violated Giglio, partly because it knowingly relied on false
testimony by Tracey Jones (the assistant to the then-Heart
Tronics CEO) and Woodbury. The Eleventh Circuit rejected
this argument, concluding that because Stein was at the time
of the testimony in possession of the evidence needed to
demonstrate the alleged falsity of the testimony, there could
be no Giglio violation. Stein, 846 F.3d at 1150. Stein argues
that the Eleventh Circuit’s resolution of his Giglio claim is
at odds with this circuit’s rule that “the government’s duty
to correct perjury by its witnesses is not discharged merely
because defense counsel knows, and the jury may figure out,
that the testimony is false.” United States v. LaPage,
231 F.3d 488, 492 (9th Cir. 2000). On the basis of this
purported split in circuit court authority, Stein contends that
our court would have concluded that the DOJ’s failure to
correct the testimony at issue entitled him to a new trial.
SEC V. STEIN 15
Assuming Stein is correct that the Eleventh Circuit treats
Giglio claims differently than we do—which we need not
determine—the supposed circuit split does not help him
here. This is because the testimony Stein alleges was false is
not “material,” a concept defined consistently across
circuits. Compare Reis-Campos v. Biter, 832 F.3d 968, 976
(9th Cir. 2016), with Guzman v. Sec’y, Dep’t of Corr.,
663 F.3d 1336, 1348 (11th Cir. 2011). Stein contends that
because Jones and Woodbury received an October 24, 2007
email with a copy of a $50,000 check from Tribou attached,
Jones testified falsely when she stated that she “never
received any backup” on the purchase orders, and Woodbury
testified falsely when he said he “got all [his] information
from . . . Stein” in preparing the SEC filings. But in light of
the evidence that CHM did not exist, that there was no
connection between CHM and Tribou, and that Stein
engaged in an extensive effort to fabricate supporting
documentation for the CHM purchase order, there is no
“reasonable likelihood” that Jones and Woodbury’s
allegedly false testimony “could have affected the judgment
of the jury.” Dow, 729 F.3d at 1048. The case against Stein
was overwhelming, and the prosecution’s correction of the
allegedly false testimony would not have cast meaningful
doubt on Stein’s guilt.
Stein also argues the district court’s application of issue
preclusion was “unfair” because the SEC action affords him
“procedural opportunities unavailable in the first action that
could readily cause a different result.” Parklane Hosiery,
439 U.S. at 331. Specifically, Stein contends that the SEC
action presents him with his “first opportunity” to review
nearly 200 million documents contained in an SEC database.
Stein asserts that reviewing these documents will allow him
to determine whether DOJ prosecutors spoke to an
individual named “Yossi Keret,” who was listed in a public
16 SEC V. STEIN
SEC filing as CFO of an Israeli company, before telling the
jury that Yossi Keret was a fabricated name.
Stein’s argument is baseless. The record indicates that
Stein did, in fact, have access to the 200 million-document
database during his criminal trial. At a pre-trial hearing
before the district judge on April 3, 2013, Stein indicated he
was working his way through the documents to determine
which documents might be relevant for him to use at trial.
Transcript of Hearing Proceeding at 38, United States v.
Stein, No. 11-cr-80205-KAM, ECF No. 146 (Stein stating to
trial judge: “That database, which I’ve given the Court the
address to, is – has 200 million documents. Obviously, all of
those documents are not relevant. . . . However, some of the
documents as I go through them are relevant.”); see also id.
at 43–44. Therefore, the SEC action does not mark Stein’s
“first opportunity” to review the database in question; Stein,
in fact, was reviewing the database in preparation for his
criminal trial.
Moreover, even if Stein did not have access to the
database until after his trial, reviewing the database was not
an opportunity “that could readily cause a different result.”
Parklane Hosiery, 439 U.S. at 331. The individual that
prosecutors argued did not exist was “Yossie” (with an “e”)
Keret, not “Yossi” Keret. “Yossie” Keret, argued the DOJ,
was affiliated with a phony company called “IT Healthcare,”
while “Yossi” Keret was in 2004 apparently the CFO of a
real company called Pluristem Life Systems, Inc. Therefore,
confirmation that the SEC did, or did not, talk to “Yossi
Keret” of Pluristem Life Systems would not likely
undermine the DOJ’s argument that “Yossie Keret” of “IT
Healthcare” was fabricated to make fraudulent purchase
orders appear legitimate.
SEC V. STEIN 17
The district court’s application of issue preclusion was
not unfair.
VI.
We turn now to Stein’s claim that the district court erred
in denying his request to continue the summary judgment
motion to allow for additional discovery pursuant to Federal
Rule of Civil Procedure 56(d). “A district court’s refusal to
continue a hearing on summary judgment pending further
discovery is reviewed for an abuse of discretion.” Swoger v.
Rare Coin Wholesalers, 803 F.3d 1045, 1047 (9th Cir.
2015).
A party requesting a continuance pursuant to Rule 56(d)
must identify by affidavit “the specific facts that further
discovery would reveal, and explain why those facts would
preclude summary judgment.” Tatum v. City & County of
San Francisco, 441 F.3d 1090, 1100 (9th Cir. 2006). The
facts sought must be “essential” to the party’s opposition to
summary judgment, Fed. R. Civ. P. 56(d), and it must be
“likely” that those facts will be discovered during further
discovery, Margolis v. Ryan, 140 F.3d 850, 854 (9th Cir.
1998).
In his declaration in opposition to the SEC’s motion for
summary judgment, Stein stated that additional discovery
would allow him to confirm or deny the existence of Yossi
Keret and other allegedly made up individuals. Stein
asserted that if he could find Keret, and others, he could ask
them questions about their involvement in the fraudulent
purchase orders.
Stein did not satisfy Rule 56(d). For one thing, he failed
to identify with specificity facts “likely to be discovered”
that would justify additional discovery. Margolis, 140 F.3d
18 SEC V. STEIN
at 854. Rather, the evidence Stein sought was “the object of
mere speculation,” which is insufficient to satisfy the rule.
Ohno v. Yasuma, 723 F.3d 984, 1013 n.29 (9th Cir. 2013);
see also Margolis, 140 F.3d at 854 (affirming district court’s
denial of Rule 56(d) motion where assertions regarding the
evidence that would result from additional discovery were
“based on nothing more than wild speculation”).
Furthermore, Stein did not explain how additional facts
would preclude summary judgment. Stein stated in his
declaration that he “cannot possibly oppose the Motion for
Summary Judgment in an effective manner without
complete and truthful answers to all outstanding discovery.”
But this conclusory assertion is not enough. Stein did not, for
example, point out how particular evidence not yet
discovered was “essential” to his argument that issue
preclusion was inapplicable or unfair. Accordingly, the
district court did not abuse its discretion in denying Stein’s
request for a continuance pending further discovery.
VII.
Finally, Stein contends the district court erred in denying
his motion for summary adjudication with respect to
Paragraph 77 of the SEC’s complaint. Paragraph 77 alleges
in relevant part: “Stein falsely told Rauch [a stock promoter]
that Heart Tronics would imminently announce up to $100
million in sales and that the Company’s stock price was
artificially depressed by naked short sellers.” Stein argues he
was entitled to summary adjudication on this allegation
because he presented evidence that the SEC confirmed
naked short selling of Heart Tronics stock, which means he
could not have lied about the short selling.
The district court did not err. First, Stein’s “evidence”
that the SEC confirmed naked short selling of Heart Tronics
stock was a broken link to an SEC web page. Like the district
SEC V. STEIN 19
court, we could not access the link, nor otherwise confirm its
contents. Absent any evidence negating the SEC’s
allegation, or a demonstration by Stein that the SEC lacks
sufficient evidence to carry its burden, Stein has not
demonstrated the absence of a genuine dispute of material
fact. Nissan Fire & Marine Ins. Co., Ltd. v. Fritz Cos., Inc.,
210 F.3d 1099, 1102 (9th Cir. 2000). Therefore, the district
court did not err in denying Stein’s motion for summary
adjudication on this allegation. Id. at 1102–03 (“If a moving
party fails to carry its initial burden of production, the
nonmoving party has no obligation to produce anything,
even if the nonmoving party would have the ultimate burden
of persuasion at trial.”).
Second, even if Stein produced evidence of naked short
selling of Heart Tronics stock, such evidence would not
demonstrate the absence of a genuine dispute as to the truth
of the SEC’s allegation in Paragraph 77. This is because the
falsity of the statement alleged by the SEC stemmed from
both Stein’s assertions of naked short selling and his
representation that Heart Tronics “would imminently
announce up to $100 million in sales.” A reasonable jury
presented with evidence of naked short selling of Heart
Tronics stock could still decide that Stein’s statement was
materially false based on Stein’s false assertion that Heart
Tronics’ would imminently announce up to $100 million in
sales. Accordingly, the district court did not err in denying
Stein’s motion for summary adjudication. See S. Cal. Darts
Ass’n v. Zaffina, 762 F.3d 921, 925 (9th Cir. 2014) (“A
dispute is ‘genuine’ if ‘a reasonable jury could return a
verdict for the nonmoving party.’” (quoting Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986))).
20 SEC V. STEIN
VIII.
Stein’s criminal conviction conclusively established all
of the facts the SEC was required to prove with respect to
the specified securities fraud claims. Accordingly, we
AFFIRM the district court’s summary judgment. All
pending motions are denied as moot.