Securities & Exchang v. Wolfson ( 2007 )

FILED
United States Court of Appeals
Tenth Circuit
UNITED STATES CO URT O F APPEALS
September 25, 2007
FO R TH E TENTH CIRCUIT
Elisabeth A. Shumaker
Clerk of Court
SEC URITIES A N D EX CH A N GE
C OM M ISSIO N ,
Plaintiff-Appellee,
v. No. 06-4130
(D.C. No. 2:02-CV-1086)
A LLEN Z. WO L FSO N , (D. Utah)
Defendant-Appellant,
and
M ERVYN A. PHELAN, SR.; DAVID
W OLFSON; ROBERT H. POZNER;
M ERVYN A. PHELAN, JR.; CRAIG
H. BROW N; JOHN W .
C RU IC KSH A N K , JR .; FEN G SHUI
CONSU LTANTS, formerly known as
W orld Alliance Consulting; A-Z
PROFESSION AL CON SULTAN TS
RETIREM ENT TRU ST; AZW
IRREV O CA BLE TR UST; SA LOM ON
GR EY FINA NC IAL; AN GELO
PAU L KO UPAS; KY LE ROW E;
CH RISTOPHER RO UN DTR EE,
Defendants.
OR D ER AND JUDGM ENT *
*
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of
this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is
therefore ordered submitted without oral argument. This order and judgment is
(continued...)
Before TA CH A, Chief Judge, KELLY and O’BRIEN, Circuit Judges.
Allen Z. W olfson appeals from the district court’s order granting summary
judgment to the Securities and Exchange Commission (SEC) in this civil
enforcement action. Although SEC’s counsel entered an appearance, the SEC did
not file a responsive brief in this appeal. M r. W olfson has requested that default
be entered against the SEC for failure to respond. W e deny his motion for entry
of default and affirm the district court’s grant of summary judgment.
FACTS
The summary judgment evidence presents the following material facts.
M r. W olfson, working with certain other defendants named in the SEC’s
complaint, played a key role in a fraudulent scheme designed to artificially inflate
the stock price of a corporation known as Freedom Surf, Inc. Over the course of
several months, M r. W olfson attempted to create the false appearance of market
demand for the stock by using nominees under his control to call in ever-higher
bid and ask prices for the stock. In fact, the demand for the stock was generated
by trading from accounts controlled by M r. W olfson. After the price had been
artificially inflated by these spurious trades, M r. W olfson delivered 25,000 shares
*
(...continued)
not binding precedent, except under the doctrines of law of the case, res judicata,
and collateral estoppel. It may be cited, however, for its persuasive value
consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
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to defendant Salomon Grey Financial Corporation, at a discount of 50% from the
current bid price. Salomon Grey then marked up the price of the shares and sold
them to investors before the share price crashed.
In a criminal action in the Southern District of New York, M r. W olfson
pleaded guilty to criminal charges arising from this fraudulent scheme. He
admitted under oath in his criminal proceedings that he agreed to take steps to
inflate the price of Freedom Surf stock. According to his sworn statement in
allocution, he agreed to raise the price of the stock in order to defraud investors
and in order to enrich himself as well as others.
The SEC brought this civil enforcement action against M r. W olfson and the
other defendants who allegedly engaged in the price manipulation of Freedom
Surf stock. It charged that M r. W olfson had violated Section 17(a) of the
Securities Act of 1933, 15 U.S.C. § 77q(a); Section 10(b) of the Securities
Exchange Act of 1934, 15 U.S.C. § 78j(b); and Rule 10b-5 thereunder, 17 C.FR.
§ 240.10b-5. After granting summary judgment for the SEC against M r. W olfson,
the district court entered a final judgment (1) enjoining M r. W olfson from
violating the securities law s and (2) ordering disgorgement of wrongful profits
and payment of interest and penalties.
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ANALYSIS
1. Standard of Review
W hen reviewing the district court’s summary judgment order, we view the
evidence in the light most favorable to the non-moving party. Herrera v. Lufkin
Indus., Inc., 474 F.3d 675, 680 (10th Cir. 2007). “Summary judgment is
appropriate ‘if the pleadings, depositions, answers to interrogatories, and
admissions on file, together with 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.’” Id. (quoting Fed. R. Civ. P. 56(c)).
2. Due Process
On appeal, M r. W olfson first contends that the district court denied him due
process by “just skipping the trial and adjudicating [him] guilty.” Aplt. Br. at 2.
He claims that the district court scheduled a trial but issued a final judgment
“[w]ithout a hearing or notice.” Id. The record does not bear out M r. W olfson’s
contentions.
M r. W olfson had ample notice, notwithstanding the scheduling of a trial
date, that the district court was considering the SEC’s motion for sum mary
judgment. SEC filed its motion for summary judgment on February 15, 2006.
Contemporaneously with the filing of this motion, it mailed a notice to the pro se
defendants, including M r. W olfson, informing them that it had “asked the C ourt
to decide this case without a trial, based on written materials[.]” R., Vol. IV,
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doc. 152, at 1 (emphasis added). On February 27, 2006, M r. W olfson requested
an extension of time in which to respond to the motion for summary judgment.
On M arch 6, he filed an answer to SEC’s complaint and three affidavits with the
district court.
On M arch 9, the district court granted M r. W olfson the requested extension
and ordered him to file a response, if any, to SEC’s motion for summary judgment
on or before April 28. Four days later, he filed his “Affidavit in Support of Trial
by Jury and Statement of Facts W hich [sic] Genuine Issues Exist.” Id., doc. 181.
On April 13, 2006, the district court held a telephone status conference in which
M r. W olfson participated. The minute entry for this conference indicates that the
district court informed the participants that the pending motion for summary
judgment would be decided on the briefs and that it anticipated a ruling in about
three weeks. On M ay 5, 2006, the district court entered its memorandum decision
granting the SEC’s motion for summary judgment.
In sum, M r. W olfson had notice and adequate opportunity to submit
evidence in opposition to the SEC’s motion for summary judgment. The district
court was not required to hold a trial merely because it scheduled a trial date.
Judicial efficiency is served when a district court schedules a trial but also
entertains dispositive motions that may obviate the need for trial. Finally, a
trial-type hearing on a summary judgment motion is not required. See Geear v.
Boulder Cmty. Hosp., 844 F.2d 764, 766 (10th Cir. 1988) (stating that in
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consideration of summary judgment motion “the parties’ right to be heard may be
fulfilled by the court’s review of the briefs and supporting affidavits and
materials submitted to the court.”).
M r. W olfson also contends that he had a Fifth Amendment right to a jury
trial. The right to a jury trial in federal court in a civil case actually is governed
by the Seventh A mendment, which states that “[i]n Suits at common law, where
the value in controversy shall exceed twenty dollars, the right of trial by jury
shall be preserved[.]” B ut it is w ell settled that summary judgment, properly
entered in accordance with the federal rules, does not violate the Seventh
Amendment. See Shannon v. Graves, 257 F.3d 1164, 1167 (10th Cir. 2001) (“The
Seventh Amendment is not violated by proper entry of summary judgment
because such a ruling means that no triable issue exists to be submitted to a
jury.”). M r. W olfson has failed to show that summary judgment was
inappropriately granted and his constitutional argument therefore fails.
3. M erits of Sum mary Judgm ent O rder
M r. W olfson also makes several arguments on the merits concerning the
entry of summary judgment against him. He first argues that summary judgment
was inappropriate because he filed a motion in the New York federal criminal
proceeding seeking to withdraw his guilty plea. He further contends that the plea
should have been set aside because his criminal attorney gave him “bad advice”
and was under a conflict of interest. Aplt. Br. at 3. M r. W olfson does not assert
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that he was actually permitted to withdraw his plea. He fails to demonstrate that
the district court in this action improperly relied on his conviction and admissions
in the prior criminal proceeding. M oreover, to the extent he complains that his
attorney in this action provided him with inadequate representation, “[t]he general
rule in civil cases is that the ineffective assistance of counsel is not a basis for
appeal or retrial.” Nelson v. Boeing Co., 446 F.3d 1118, 1119 (10th Cir. 2006).
M r. W olfson further argues that the only fraud committed in this case
involved false statements made by the former president of Freedom Surf
concerning the value of that company and its stock. He fails to dispute the
evidence that he personally manipulated the value of the stock to produce an
inflated price through bogus sales. During allocution in the prior criminal
proceeding, M r. W olfson admitted that he took these actions knowingly with the
intent to defraud investors. R., Vol. V, doc. 156, tab “B,” at 20. The fact that
there may have been other fraud committed in connection with the scheme is
irrelevant to M r. W olfson’s own guilt.
M r. W olfson also argues that the disgorgement and penalties he was
ordered to pay duplicated the $76,000 already paid by his son and another
$76,000 already paid by John Chapman. He contends, without any citation to the
record, that the total loss to investors was only $76,000. The evidence submitted
by the SEC showed that the actual losses to investors resulting from the Freedom
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Surf scheme w ere considerably in excess of $250,000. His argument therefore
lacks merit.
M r. W olfson contends that he should have received a jury trial because the
SEC’s witnesses lacked credibility and their lack of credibility would have been
apparent to a jury. His argument is entirely conclusory. He fails to identify who
these w itnesses were and what relevance their testimony had to the summary
judgment determination or would have had at trial. M oreover, the most damning
testimony in this case came from M r. W olfson himself, during his allocution in
the criminal proceeding.
Finally, M r. W olfson argues that the district court should have made
specific findings concerning disputed and undisputed issues of fact, particularly
concerning the amounts he was ordered to pay. In its summary judgment order,
the district court made specific and adequate findings concerning the factual basis
for the amount of disgorgement, penalties and interest. See R., Vol. VII, doc.
231, at 14-16. M r. W olfson’s argument therefore lacks merit.
4. M otion for Default Judgment
As noted, the SEC has not filed a brief in this appeal. M r. W olfson
contends that “default” should be entered against the SEC pursuant to Fed. R.
Civ. P. 55(a). The pertinent rule is not Rule 55, but Fed. R. App. P. 31(c). Rule
31(c) provides that “[a]n appellee who fails to file a brief will not be heard at oral
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argument unless the court grants permission.” There was no oral argument in this
case. M r. W olfson’s motion is therefore denied.
The judgment of the district court is AFFIRM ED. M r. W olfson’s “Request
to Enter Default and Certification” is denied. His motion to proceed in forma
pauperis is granted.
Entered for the Court
Deanell R. Tacha
Chief Circuit Judge
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