Securities and Exchange Commission v. Blackburn et al

Filing 96

ORDER & REASONS. It is ORDERED that Defendant's 90 Motion to Strike Pursuant to Rule 12(f) of the Federal Rules of Civil Procedure is DENIED. Signed by Judge Carl Barbier. (gec)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA

SECURITIES AND EXCHANGE
COMMISSION

CIVIL ACTION

VERSUS

NO: 15-2451

RONALD L. BLACKBURN, ET AL

SECTION: “J”(1)

ORDER & REASONS
Before the Court is a Motion to Strike Pursuant to Rule
12(f) of the Federal Rules of Civil Procedure (Rec. Doc. 90)
filed by Defendants Ronald L. Blackburn, Andrew V. Reid, Bruce
A.

Gwyn,

and

Michael

opposition

thereto

Securities

and

A.

(Rec.

Exchange

Mulshine

Doc.

94)

Commission

(“Defendants”)
filed

(“SEC”).

by

and

Plaintiff,

Having

an
the

considered

the motion and legal memoranda, the record, and the applicable
law, the Court finds that the motion should be DENIED.
FACTS AND PROCEDURAL BACKGROUND
On December 15, 2014, the SEC filed a complaint against
Defendants for various claims under the Securities Act of 1933
(“Securities

Act”)

and

the

Securities

Exchange

Act

of

1934

(“Exchange Act”). The Complaint alleges a widespread scheme by
the individual Defendants to defraud investors and violate the
antifraud, registration, and reporting provisions of the federal
securities

laws

with

respect

to

Defendant

Treaty

Energy

Corporation (“Treaty”), a publicly traded oil and gas company.

According to the SEC, Defendants Ronald Blackburn, Andrew Reid,
Bruce

Gwyn,

Michael

Mulshine,

Lee

Schlesinger,

and

Samuel

Whitley carried out this scheme between 2009 and 2013 by (1)
concealing that Blackburn, a convicted felon, controlled Treaty
as

de

facto

officer

and

director;

(2)

engaging

in

a

false

promotional campaign intended to artificially inflate Treaty’s
stock

price,

including

issuing

a

January

2012

press

release

falsely claiming a major oil strike in Belize; (3) perpetuating
a fraudulent trading scheme involving the issuance and transfer
of

restricted

Defendants

and

raised

unrestricted
millions

Treaty

of

stock

dollars

through

selling

which

virtually

worthless stock to unwitting investors; and (4) conducting an
illegal

and

interests.
misconduct,

unregistered

The

Complaint

Defendants

offering
alleges

reaped

of

that

illicit

oil
as

and
a

gas

result

profits

working
of

over

of

their
$4.9

million.
On August 12, 2015, the Court denied Defendants’ motion for
summary judgment, noting that Defendants devoted a substantial
portion of their brief to a detailed discussion of the “need to
purge

the

complaint”

in

which

Defendants

asked

the

Court

to

strike a number of allegations pursuant to Rule 12(f) of the
Federal

Rules

of

Civil

Procedure.

(Rec.

Doc.

86,

at

9.)

In

denying Defendants’ motion, the Court explained that a motion
for summary judgment is the entirely improper vehicle to raise

2

that

issue.

whether

Id.

certain

Accordingly,
allegation

the

in

Court

the

declined

Complaint

may

to

consider

be

stricken

pursuant to Rule 12(f) at that time.
Defendants filed the instant Motion to Strike Pursuant to
Rule 12(f) of the Federal Rules of Civil Procedure (Rec. Doc.
90) on September 2, 2015. The SEC filed its opposition (Rec.
Doc. 94) on September 15, 2015. The Court now considers the
motion on the briefs.
PARTIES’ ARGUMENTS
The Defendants ask the Court to strike paragraphs 1, 7, 8,
13, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 28, 32, and 35, and
the introductory captions to sections A, B, and C from the SEC
Complaint. 1

(Rec.

references

to

Doc.

90,

Blackburn

at

as

1.)
a

Defendants

“convicted

argue

felon”

that
or

as

all
a

“criminal” or as having a “criminal background” must be stricken
as scandalous and as amounting to nothing of value. (Rec. Doc.
90-1, at 3.) Furthermore, Defendants contend that references to
their contractual rights and Fifth Amendment rights are equally
inappropriate and irrelevant, and therefore “must be purged from
the infirm SEC Complaint.” Id. at 4-5.

1

In their motion to strike, Defendants also note: “As set forth in the
memorandum in support, the proposition that Blackburn was a de facto officer
. . . is so legally flawed as to make the allegation ‘...immaterial and
impertinent...’ and therefore subject to this Motion to Strike.” (Rec. Doc.
90, at 3 n.3.) However, Defendants memorandum in support makes no mention of
this allegation.

3

In opposition, the SEC contends that Defendants’ motion to
strike is legally deficient because the challenged allegations
are highly relevant and central to the SEC’s claims. (Rec. Doc.
94, at 2.) According to the SEC, the Complaint simply states the
relevant and undisputable fact that Blackburn is a convicted
felon. Id. at 4. Moreover, the SEC argues that the Defendants’
assertion
testify

of
in

their
the

Fifth

SEC’s

Amendment

underlying

privilege

and

investigation

refusal
are

to

highly

relevant facts because their refusals may entitle the SEC to an
adverse

inference

against

Defendants.

Id.

Therefore,

the

SEC

maintains that these allegations are directly relevant to its
claims, the evidence supporting those claims, and the procedural
posture of the litigation. Id. In addition, the SEC argues that
Defendants’ motion to strike is untimely. Id. at 5.
LEGAL STANDARD AND DISCUSSION
Pursuant
Procedure,

a

to

Rule

court

12(f)

“may

of

strike

the
from

Federal
a

Rules

pleading

.

of
.

Civil
.

any

redundant, immaterial, impertinent, or scandalous matter.” Fed.
R. Civ. P. 12(f). The court has the authority to act on its own
or

pursuant

to

a

“motion

made

by

a

party

either

before

responding to the pleading or, if a response is not allowed,
within 21 days after being served with the pleading.” Id. Courts
have considerable discretion in deciding whether to grant or
deny a motion to strike. See In re Beef Indus. Antitrust Litig.,

4

600 F.2d 1148, 1168 (5th Cir. 1979). However, motions to strike
are generally disfavored and rarely granted. Augustus v. Bd. of
Pub. Instruction, 306 F.2d 862, 868 (5th Cir. 1962). The action
of striking a pleading “is a drastic remedy to be resorted to
only when required for the purposes of justice.” Id. (quoting
Brown & Williamson Tobacco Corp. v. United States, 201 F.2d 819,
822 (6th Cir. 1953)). For this reason, a motion to strike should
be

granted

“only

when

the

pleading

to

be

stricken

has

no

possible relation to the controversy.” Id. In addition, a motion
to strike generally should not be granted absent a showing of
prejudice to the moving party. See id.
It is normally apparent on the face of the pleading whether
the

challenged

matter

is

objectionable

under

Rule

12(f).

“Redundant” matter consists of allegations that constitute “a
needless

repetition

of

other

averments

in

the

pleading.”

5C

Charles Alan Wright & Arthur R. Miller, Federal Practice and
Procedure

§

1382

(3d

ed.

2004).

“Immaterial”

matter

is

that

which “has no essential or important relationship to the claim
for relief or the defenses being pleaded,” such as superfluous
historical

allegations,

“or

a

statement

of

unnecessary

particulars in connection with and descriptive of that which is
material.”

Id.

Furthermore,

“impertinent”

matter

consists

of

statements that “do not pertain, and are not necessary, to the
issues in question.” Id. Lastly, “scandalous” matter is that

5

which “improperly casts a derogatory light on someone,” id., or
“states anything in repulsive language that detracts from the
dignity of the court.” Florance v. Buchmeyer, 500 F. Supp. 2d
618,

645

(N.D.

challenged

Tex.

material

2007).

is

Any

redundant,

doubt

about

immaterial,

whether

impertinent,

the
or

scandalous should be resolved in favor of the non-moving party.
Wright & Miller, supra, § 1382 (3d ed. Supp. 2015).
As

an

initial

matter,

Defendants’

motion

to

strike

is

untimely. Under Rule 12(f), a motion to strike must be brought
before responding to a pleading. Fed. R. Civ. P. 12(f)(2). The
SEC filed its Complaint on December 15, 2014. (Rec. Doc. 1.) The
Defendants filed their Answer on March 12, 2015. (Rec. Doc. 36.)
The instant motion to strike was filed on September 2, 2015,
approximately

175

days

after

Defendants

responded

to

the

Complaint. (Rec. Doc. 90.) Therefore, the motion was filed well
after the deadline imposed by Rule 12(f).
The

Court

also

declines

to

strike

any

portion

of

the

Complaint on its own initiative, as provided by Rule 12(f)(1).
In

the

instant

case,

none

of

the

challenged

paragraphs

or

captions is redundant, immaterial, impertinent, or scandalous.
The portions of the Complaint that Defendants seek to strike are
highly relevant to the SEC’s claims, which include allegations
that material information regarding Blackburn’s criminal history
was hidden from the investing public. The failure to disclose

6

Blackburn’s criminal history, involvement in other litigation,
and his role in the company is the conduct that the SEC claims
violates the federal securities laws. See SEC v. Enters. Sols.,
Inc., 142 F. Supp. 2d 561, 573 (S.D.N.Y. 2001) (finding that
consultant’s
material

significant

fact

for

participation

purposes

of

in

securities

the

company

fraud

was

because

a

the

consultant had an extensive history of criminal and regulatory
violations). Therefore, the challenged portions of the Complaint
are central to the SEC’s claims, and it cannot be said that they
have “no possible relation to the controversy.” See Augustus,
306 F.2d at 868.
Further,

the

allegations

in

the

Complaint

are

not

scandalous or inappropriate. In support of their motion, the
Defendants rely on Global View Ltd. Venture Capital v. Great
Central

Basin

Exploration,

L.L.C.,

where

the

court

struck

a

portion of the complaint that referred to the defendants as “two
unscrupulous, unprincipled con artists.” 288 F. Supp. 2d 473,
481

(S.D.N.Y.

paragraph

2003).

amounted

The

to

court

nothing

reasoned

more

than

that
“name

the

stricken

calling.”

Id.

However, the SEC Complaint in the instant case is much different
from the complaint in Great Central Basin. Here, the Complaint
simply refers to Blackburn’s criminal history and describes him
as a convicted felon; it does not resort to the type of “name
calling”

that

the

court

struck

7

in

Great

Central

Basin.

Furthermore, Defendants are not prejudiced by the inclusion of
these

allegations

in

the

Complaint,

as

Blackburn’s

admitted

criminal conviction is a matter of public record. 2 Therefore,
these allegations should not be stricken.
The Court also declines to strike portions of the Complaint
regarding

the

privilege

Defendants’

and

refusal

assertion

of

their

testify

in

the

to

Fifth
SEC’s

Amendment
underlying

investigation. Although Defendants argue that the invocation of
the Fifth Amendment privilege and any refusal to testify in the
SEC’s investigation “are not ‘evidence’ of anything,” (Rec. Doc.
90-1, at 4), it is well established that “the Fifth Amendment
does

not

forbid

adverse

inferences

against

parties

to

civil

actions when they refuse to testify in response to probative
evidence offered against them.” Hinojosa v. Butler, 547 F.3d
285, 291 (5th Cir. 2008). Thus, a person’s invocation of the
Fifth

Amendment

proceeding.

Id.

may
at

be

admitted

291-92.

into

Therefore,

evidence
these

in

a

civil

allegations

are

relevant to the SEC’s claims and should not be stricken.
CONCLUSION
Accordingly,

2

In their motion to strike, Defendants admit that “Blackburn entered a plea
in 1999 as to tax-reporting issues and served his sentence.” (Rec. Doc. 90,
at 1 n.1.)

8

IT

IS

HEREBY

ORDERED

that

Defendant’s

Motion

to

Strike

Pursuant to Rule 12(f) of the Federal Rules of Civil Procedure
(Rec. Doc. 90) is DENIED.
New Orleans, Louisiana this 23rd day of September, 2015.

CARL J. BARBIER
UNITED STATES DISTRICT JUDGE

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