Securities And Exchange Commission v. Sells et al

Filing 140

ORDER by Judge Claudia Wilken DENYING DEFENDANTS 120 MOTION FOR SUMMARY JUDGMENT. (ndr, COURT STAFF) (Filed on 12/9/2013)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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SECURITIES & EXCHANGE COMMISSION,

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Plaintiff,

ORDER DENYING
DEFENDANT’S MOTION
FOR SUMMARY
JUDGMENT (Docket
No. 120)

v.

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CHRISTOPHER SELLS,

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Defendant.
________________________________/

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United States District Court
For the Northern District of California

No. C 11-4941 CW

Plaintiff Securities and Exchange Commission (SEC) brought

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this securities fraud action against Defendant Christopher Sells

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under the 1933 Securities Act, 15 U.S.C. §§ 77a et seq., and the

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1934 Exchange Act, 15 U.S.C. §§ 78a et seq.1

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partial summary judgment.

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considering the parties’ submissions and oral argument, the Court

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denies the motion.

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Sells now moves for

SEC opposes the motion.

After

BACKGROUND
Sells served as a senior vice president of a California-based

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medical device company, Hansen Medical, Inc., from June 2008 to

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October 2009.

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time, he directed sales of Hansen’s main product, a robotic

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surgical device known as the Sensei Robotic Catheter System.

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Hansen sold roughly two dozen of these devices while Sells was

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employed there.

Docket No. 116, C. Sells Decl. ¶ 2.

During that

Id.

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SEC originally also brought claims against Timothy Murawski but
subsequently reached a settlement with Murawski with respect to those
claims. Final judgment as to Murawski was entered on November 6, 2013.
Docket No. 126.

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In the present action, SEC alleges that Sells participated in

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a scheme to misrepresent the dates of certain sales of the Sensei

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System in order to recognize revenue for the company during

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specific fiscal quarters.

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sought to recognize revenue prematurely from Sensei System sales

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to four hospitals: the Cincinnati VA Medical Center (Cincinnati,

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OH), Yale-New Haven Hospital (New Haven, CT), St. Joseph’s

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Hospital (Atlanta, GA), and St. Barnabas Medical Center

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(Livingston, NJ).

In particular, SEC alleges that Sells

Sells moves for summary judgment on all eight

United States District Court
For the Northern District of California

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of SEC’s claims with respect to the Cincinnati VA, Yale-New Haven,

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and St. Barnabas transactions.

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judgment with respect to the St. Joseph’s transaction.

He does not move for summary

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DISCUSSION

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As explained at the hearing, Sells’ motion must be denied

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because SEC has presented sufficient evidence to meet its summary

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judgment burden.

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evidence to support an inference that Sells knew of -- and

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possibly even facilitated -- the alleged plan to recognize revenue

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prematurely.

Specifically, it has submitted sufficient

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First, with respect to the Yale-New Haven sale, SEC has

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presented evidence that Sells knew that Hansen recognized revenue

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in December 2008 even though the company had failed to complete

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the physician-training requirement that month.

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particular, to e-mails that Sells received on December 28 and

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December 29 stating that Hansen had yet to obtain a physician’s

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signature for the training certificate which it needed to complete

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before recognizing revenue from the sale.

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L. Farnham Decl., Exs. 26, 27.

It points, in

See Docket No. 130-4,

Although Sells submitted evidence
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suggesting that he never instructed Hansen’s clinical account

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manager to forge the physician’s signature on the training

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certificate, this is does not constitute undisputed evidence that

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he lacked scienter.

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suggest that Sells knew that the physician-training requirement

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was never completed in December 2008 and, thus, that the revenue

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from the sale was recognized prematurely.

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The e-mails SEC submitted are sufficient to

Second, with respect to the Cincinnati VA and St. Barnabas
transactions, SEC has presented evidence indicating that Sells

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United States District Court
For the Northern District of California

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knew that the company completed temporary sham installations of

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the Sensei System at these hospitals for the purpose of

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recognizing revenue from the sales before the devices could be

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permanently installed and put to use.

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Farnham Decl., Ex. 61, Henry Decl. ¶¶ 3-4; Docket No. 128-1,

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Franham Decl., Ex. 1, Buck Depo. at 94:10-:24.

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submits documents showing that the Cincinnati VA and St. Barnabas

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signed off on the temporary installations, these documents do not

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exculpate him because SEC’s evidence suggests that the Cincinnati

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VA and St. Barnabas acquiesced to the temporary installations at

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Hansen’s request.

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37, at 3 (September 2008 e-mail from Hansen representative

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proposing temporary installation plan to Cincinnati VA).

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evidence therefore does not demonstrate that the temporary

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installations were not completed for the primary purpose of

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recognizing revenue from the sales prematurely.

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See Docket No. 130-9,

Although Sells

See, e.g., Docket No. 130-9, Franham Decl., Ex.

Sells’

Nor does the fact that members of Hansen’s finance department

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may have known about the temporary installations.

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hearing, these employees may have been complicit in the alleged
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As noted at the

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scheme to recognize revenue prematurely so their knowledge of the

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plan would not necessarily insulate Sells from liability.

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event, SEC has presented sufficient evidence here to raise a

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factual dispute as to whether Hansen’s finance department did know

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about temporary installations.

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Decl., Ex. 15, Ware Depo. 219:9-220:20.

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does not show that he did not participate in the alleged revenue

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recognition scheme nor that he lacked the requisite scienter.

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In any

See Docket No. 130-3, Farnham
Thus, Sells’ evidence

In sum, because the Court must draw all reasonable inferences

United States District Court
For the Northern District of California

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in favor of SEC, Sells is not entitled to summary judgment on the

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claims arising from the Cincinnati VA, Yale-New Haven, or St.

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Barnabas transactions.

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Radio Corp., 475 U.S. 574, 587 (1986) (requiring that all

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reasonable inferences be drawn in favor of the nonmoving party);

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Intel Corp. v. Hartford Accident & Indem. Co., 952 F.2d 1551, 1558

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(9th Cir. 1991).

See Matsushita Elec. Indus. Co. v. Zenith

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CONCLUSION

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For the foregoing reasons, Defendant’s motion for partial

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summary judgment (Docket No. 92) is DENIED.

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conference will be held at 2:00 p.m. on March 5, 2014.

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day jury trial will commence at 8:30 a.m. on March 17, 2014.

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A final pretrial
A twelve-

IT IS SO ORDERED.

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Dated:

12/9/2013

CLAUDIA WILKEN
United States District Judge

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