Commodity Futures Trading Commission v. Nawabi et al

Filing 61

ORDER signed by Chief District Judge Kimberly J. Mueller on 4/14/2023 GRANTING 38 Motion to Strike the 35 Response and DENYING 45 Motion for Relief without prejudice. (Donati, J)

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UNITED STATES DISTRICT COURT

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FOR THE EASTERN DISTRICT OF CALIFORNIA

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COMMODITY FUTURES TRADING

No. 2:22-cv-00717 KJM-JDP

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COMMISSION,

ORDER

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Plaintiff,
v.
ESHAQ M. NAWABI, individually and d/b/a,
NAWABI ENTERPRISE, and HYPERION
CONSULTING INC.,
Defendants.

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Plaintiff Commodity Futures Trading Commission moves to strike defendant Eshaq

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Nawabi’s response to this court’s preliminary injunction and Nawabi moves for limited relief

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from the preliminary injunction’s asset freeze. For the reasons below, the court grants the

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Commission’s motion to strike finding Nawabi’s filing to be improper and redundant, and

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dismisses Nawabi’s motion for limited relief without prejudice.

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I.

BACKGROUND
Plaintiff Commodity Futures Trading Commission (“Commission”) has brought this

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securities action under the Commodity Exchange Act and Commission regulations against

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defendants Eshaq Nawabi, Nawabi Enterprise and Hyperion Consulting Inc. Compl. at 1, ECF

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No. 3. This court initially granted the Commission’s request for an ex parte statutory restraining

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order, which included an asset freeze against defendants. SRO Order at 3–4, ECF No. 8-1 .

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Following a preliminary injunction hearing, Mins. Hr’g, ECF No. 14, the court granted a

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preliminary injunction against defendants, which continued the asset freeze and enjoined

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defendants from “directly or indirectly withdrawing, transferring, removing, dissipating, or

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otherwise disposing of any Assets . . . .” Preliminary Injunction at 3, ECF No. 33. The court

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entered this injunction subject generally to Nawabi’s Fifth Amendment objections. Id. at 2; see

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also Response, ECF No. 35 (raising Fifth Amendment objections). In a separate order, the court

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directed the parties to file a joint status report proposing a process by which Nawabi would assert

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his specific Fifth Amendment objections. Prior Order (Oct. 5, 2022), ECF No. 32. The parties

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complied. Joint Status Report, ECF No. 34. Under their proposal, Nawabi’s Fifth Amendment

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objections would be referred to a magistrate judge for resolution. Id. at 2. In an order it issued

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after Nawabi’s response to the preliminary injunction, the court approved the proposal. Prior

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Order (Jan. 30, 2023), ECF No. 56.

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In his response to the preliminary injunction, Nawabi also requested relief from the asset

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freeze “for ordinary and necessary living expenses and personal property.” Response at 2–3. The

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Commission filed a motion to strike this response, stating Nawabi “improperly s[ought]

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modification” of the preliminary injunction and did not follow the procedures agreed to by the

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parties in asserting his Fifth Amendment rights. Mot. to Strike at 3, ECF No. 38. Nawabi

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opposed this motion, Opp’n to Mot. to Strike, ECF No. 42, and the Commission replied, Reply

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Supporting Mot. to Strike, ECF No. 43.

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Nawabi then filed his motion asking this court for limited relief from the asset freeze,

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stating the freeze is “draconian” and bars Nawabi from the “ability to buy food, pay minimal

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living expenses, and pay counsel to protect his rights.” Mot. for Limited Relief, ECF No. 45;
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Mem. Supporting Mot. for Limited Relief at 2, ECF No. 45-1. The Commission opposed this

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motion. Opp’n to Mot. for Limited Relief, ECF No. 47.

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Separately, the Commission filed a motion for entry of a consent order imposing a

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permanent injunction and other equitable relief against defendants consented to by all parties.

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Mot. for Consent Decree, ECF No. 44. This court entered the decree, which settled all charges

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alleged in the complaint other than the issue of damages and included a permanent injunction

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enjoining defendants from trading commodity interests. Consent Decree, at 2, 19, ECF No. 50.

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The permanent injunction does not address the prior asset freeze.1 See generally id.

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The court held a combined hearing and scheduling conference on January 27, 2023.

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James Holl, III appeared for the Commission and Stanley Morris appeared for Nawabi. The court

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now addresses the motion to strike and motion for limited relief, in turn.

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II.

MOTION TO STRIKE

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A.

Legal Standard

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Federal Rule of Civil Procedure 12(f) provides “[t]he court may strike from a pleading . . .

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any redundant, immaterial, impertinent, or scandalous matter.” “Immaterial matter is that which

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has no essential or important relationship to the claim for relief or the defenses being pleaded

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[and] [i]mpertinent matter consists of statements that do not pertain, and are not necessary, to the

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issues in question.” Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1993) (internal marks

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omitted) (quoting 5 Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure

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§ 1382, at 706–07, 711 (1990)), rev'd on other grounds, 510 U.S. 517 (2004).

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The granting of a” motion to strike may be proper if it will make trial less complicated or

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eliminate serious risks of prejudice to the moving party, delay, or confusion of the issues.”

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Taheny v. Wells Fargo Bank, N.A., No. 10-2123, 2011 WL 1466944, at *2 (E.D. Cal. Apr. 18,

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2011) (citing Fantasy, 984 F.2d at 1527-28). However, “[m]otions to strike are disfavored and

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. . . ‘should not be granted unless it is clear that the matter to be stricken could have no possible

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At the January hearing, the parties agreed the preliminary injunction remains in effect to
the extent it includes directives not covered in the permanent injunction. Mins. Hr’g, ECF No.
54.
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bearing on the subject matter of the litigation.’” Neveu v. City of Fresno, 392 F. Supp. 2d 1159,

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1170 (E.D. Cal. 2005) (citations and internal marks omitted). In ruling on a motion to strike, a

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“court[ ] may not resolve disputed and substantial factual or legal issues . . . .” Whittlestone, Inc.

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v. Handi-Craft Co., 618 F.3d 970, 973 (9th Cir. 2010) (internal quotation omitted).

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B.

Analysis

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The Commission moves to strike Nawabi’s response to the court’s preliminary injunction

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order. First, the Commission construes Nawabi’s response as a motion to modify or reconsider

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the preliminary injunction and argues Nawabi did not comply with federal and local rules in

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making his filing, so construed. Mot. to Strike at 3–4. Second, the Commission argues Nawabi’s

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Fifth Amendment objections do not comply with the process agreed upon and memorialized by

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the parties. Id. at 4. The Commission is correct on both points.

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The court construes Nawabi’s response as a request for reconsideration or modification of

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the preliminary injunction because Nawabi asks the court for limited relief from the injunction for

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“ordinary and necessary living expenses.” Response at 2. Because this request does not meet the

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requirements for presenting a motion, see E.D. Cal. L.R. 230, and Nawabi has since properly filed

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a motion requesting relief from the asset freeze, Mot. for Limited Relief, the court exercises its

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inherent authority to strike this filing as improper and unauthorized. See Spurlock v. F.B.I.,

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69 F.3d 1010, 1016 (9th Cir. 1995) (“A district court possesses inherent power over the

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administration of its business. It has inherent authority . . . to promulgate and enforce rules for

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the management of litigation.”); Fed. R. Civ. P. 7(b).

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Nawabi also argues compliance with the preliminary injunction would violate his Fifth

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Amendment rights and in this filing re-asserts these rights “in the broadest possible manner.”

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Response at 4. As discussed above, the court previously acknowledged Nawabi’s assertion of his

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Fifth Amendment rights, Prior Order (Oct. 5, 2022), and has since approved the parties’ proposed

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process for adjudicating any Fifth Amendment objections, Prior Order (Jan. 30, 2023). Unless or

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until that process is modified, Nawabi must avail himself of it. The court strikes this portion of

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Nawabi’s response for the additional reason that it is redundant. Fed. R. Civ. P. 12(f).

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III.

MOTION FOR LIMITED RELIEF
District courts have discretion over the imposition of, and granting of relief from, an asset

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freeze. Reebok Int'l, Ltd. v. Marnatech Enters., Inc., 970 F.2d 552, 562-63 (9th Cir. 1992); F.T.C.

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v. Trek All., Inc., 81 Fed. Appx. 118, 119 (unpublished) (9th Cir. 2003) (“[T]he district court did

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not abuse its discretion in deciding that modification of the [asset freeze] order was not warranted

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in the circumstances . . . .”). “In exercising this discretion, courts tend to look for evidence of the

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defendant's overall assets or income.” S.E.C. v. Priv. Equity Mgmt. Grp., Inc., No. 09-2901, 2009

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WL 2058247, *3 (C.D. Cal. July 9, 2009).

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Here, Nawabi asks for relief from the preliminary injunction’s asset freeze “for reasonable

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and necessary living expenses.” Mem. Supporting Mot. for Limited Relief at 2–3. Specifically,

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he asks the court for relief to access the following assets: (1) “one motor vehicle or proceeds from

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the sale of motor vehicle up to $3,325”; (2) “ordinarily and reasonably necessary household

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furnishings”; (3) “materials needed for repair or improvement of a residence up to $3,500”;

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(4) “jewelry, heirlooms, and works of art up to $8,725”; (5) “personal property necessary to and

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used in the exercise of trade, business, or profession”; and (6) “earning[s] from any post-asset

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freeze employment unrelated to the Commodities business and granting such other and further

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relief as the [c]ourt deems just.” Motion for Limited Relief at 2–3. This is the first time Nawabi

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has said he has a need to access these assets. See Partial Opp’n, ECF No. 21 (making no mention

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of need in prior partial opposition to preliminary injunction).

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On this record, the court finds the requested relief is not warranted because Nawabi:

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(1) has not disclosed the assets that are available to him and (2) has not identified with

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particularity, in verifiable fashion, the expenses for which he seeks relief. First, Nawabi has

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refused to cooperate with the Commission and the court’s Receiver in identifying and locating

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various assets, instead asserting his Fifth Amendment right in response to all requests for

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information. Opp’n to Mot. for Limited Relief at 2. Accordingly, this court has “no information

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as to the totality of assets available to” Nawabi and no information from which it could make an

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informed decision about the appropriateness of the relief requested. Id. at 3. In its opposition, the

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Commission points to multiple court decisions that have refused to grant relief from an asset
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freeze when defendants have not provided financial information, including where the basis of

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defendants’ refusal was the invocation of their Fifth Amendment rights. See id. at 3–4 (collecting

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cases). The court agrees as a matter of principle, that it cannot grant relief from the asset freeze if

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it cannot first determine what assets are available to Nawabi.

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Second, although Nawabi lists several categories of assets he wishes to access, he does not

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document the expenses he says are necessary with sufficient particularity. For example, Nawabi

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asks for “personal property necessary to and in the exercise of trade, business, or profession,” and

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“earning[s] from any post-asset freeze employment” but has not identified what business or

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profession he is engaged in and what exact assets he requires. See Mem. Supporting Mot. for

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Limited Relief at 2–3; Opp’n to Mot. for Limited Relief at 5 n.3. The Commission believes

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Nawabi is unemployed. Opp’n to Mot. for Limited Relief at 5 n.3. Because the court does not

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have the information required to determine the validity of Nawabi’s request, it denies Nawabi’s

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motion without prejudice. Sec. & Exch. Comm'n v. Bivona, No. 16-01386, 2016 WL 2996903,

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at *3 (N.D. Cal. May 25, 2016) (collecting cases where “[c]ourts have refused to modify an asset

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freeze without evidence of actual need”).

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IV.

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CONCLUSION
For the reasons above, the court grants the Commission’s motion to strike, ECF. 38,

and denies Nawabi’s motion for relief, ECF No. 45, without prejudice.

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This order resolves ECF Nos. 38 and 45.

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IT IS SO ORDERED.

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DATED: April 14, 2023.

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