Securities and Exchange Commission v. Fujinaga et al

Filing 253

ORDER Granting 219 SEC's Motion for Summary Judgment. Signed by Judge James C. Mahan on 7/29/15. (Copies have been distributed pursuant to the NEF - PS)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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***

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SECURITIES AND EXCHANGE
COMMISSION,

Case No. 2:13-CV-1658 JCM (CWH)
ORDER

Plaintiff(s),
v.

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EDWIN YOSHIHIRO FUJINAGA and MRI
INTERNATIONAL, INC., et al.,

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Defendant(s).

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motion for summary judgment against relief defendants June Fujinaga and the Yunju

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reply, (doc. # 233).
I.

Background
The instant case arises from a Ponzi scheme perpetrated by defendants Edwin Fujinaga and

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MRI International,

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purported investments in medical accounts receivable. Defendants used these funds to repay

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earlier investments as well as for their own personal expenses. By May 2013, defendants had

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entirely depleted the invested funds. (Doc. # 118).

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to buy real estate. Certain real estate purchased with these proceeds is titled in the name of relief

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defendant the Yunju Trust. (Doc. # 118).

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On September 11, 2013, the SEC filed a civil enforcement action against defendants and

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relief defendants. (Doc. # 2). On October 3, 2014, the court granted summary judgment in favor

James C. Mahan
U.S. District Judge

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of the SEC on liability against defendants. (Doc. # 156). In the same order, the court denied relief

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specificity. (Doc. # 156).

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ipulation to extend discovery as to

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relief defendants. Pursuant to the stipulation, the court set a discovery deadline of April 3, 2015,

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and a dispositive motions deadline of May 3, 2015. (Doc. # 162).

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On November 24, 2014, the SEC filed a motion for judgment against defendants. (Doc. #

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178). On January 27, 2015, the court granted the motion, holding defendants (1) jointly and

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severally liable for $442,229,611.70 in disgorgement; (2) jointly and severally liable

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$102,129,752.38 in prejudgment interest; and (3) individually liable for civil money penalties of

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$20,000,000.00 each. (Doc. # 188).

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On the same date, the clerk entered judgment in favor of the SEC in the same amounts.

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(Doc. # 189). On February 25, 2015, the court certified the judgment as final pursuant to Federal

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motion to reconsider. (Doc. # 210). On May 20, 2015, defendants filed a notice of appeal. (Doc.

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# 227).
The SEC now timely moves for summary judgment against relief defendants.

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II.

Legal Standard

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The Federal Rules of Civil Procedure allow summary judgment when the pleadings,

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depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,

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show that

the movant is entitled to a

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Fed. R. Civ. P. 56(a). A principal purpose of summary judgment is

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Celotex Corp. v. Catrett, 477 U.S. 317,

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323-24 (1986).
For purposes of summary judgment, disputed factual issues should be construed in favor

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of the non-moving party.

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entitled to a denial of summary judgment, the non-

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James C. Mahan
U.S. District Judge

, 497 U.S. 871, 888 (1990). However, to be

Id.

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In determining summary judgment, a court applies a burden-

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party moving for summary judgment would bear the burden of proof at trial, it must come forward

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with evidence which would entitle it to a directed verdict if the evidence went uncontroverted at

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trial. In such a case, the moving party has the initial burden of establishing the absence of a genuine

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is

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Inc., 213 F.3d 474, 480 (9th Cir. 2000) (citations omitted).

C.A.R. Transp. Brokerage Co. v. Darden Rests.,

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By contrast, when the non-moving party bears the burden of proving the claim or defense,

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the moving party can meet its burden in two ways: (1) by presenting evidence to negate an essential

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element of the non-

-moving party failed

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to make a showing sufficient to establish an element essential to

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party will bear the burden of proof at trial. See Celotex Corp., 477 U.S. at 323-24. If the moving

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party fails to meet its initial burden, summary judgment must be denied and the court need not

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consider the non-moving part

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60 (1970).

See Adickes v. S.H. Kress & Co., 398 U.S. 144, 159-

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If the moving party satisfies its initial burden, the burden then shifts to the opposing party

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to establish that a genuine issue of material fact exists. See Matsushita Elec. Indus. Co. v. Zenith

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Radio Corp., 475 U.S. 574, 586 (1986). To establish the existence of a factual dispute, the

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opposing party need not establish a material issue of fact conclusively in its favor. It is sufficient

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, 809 F.2d 626,

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631 (9th Cir. 1987).
a motion for summary

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Orr v. Bank of Am., NT & SA

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Id. (internal quotation marks omitted). Authentication

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requires that the proponent produce evidence that is sufficient to support a finding that the

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document is what the proponent claims it is. Fed. R. Evid. 901(a).

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...

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...

James C. Mahan
U.S. District Judge

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III.

Discussion

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A. Stay pending appeal

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In their response to the instant motion, relief defendants initially suggest that a stay pending

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appeal may be appropriate.1 Defendants Edwin Fujinaga and MRI International filed a separate

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motion to stay execution of judgment pending appeal, (doc. # 236), which the court will address

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in a separate order.

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the district court is divested of jurisdiction over the

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Natural Res. Def. Council, Inc. v. Sw. Marine, Inc., 242 F.3d 1163, 1166

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(9th Cir. 2001). Relief defendants contend that a stay may be appropriate because any duty they

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may

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appealed. (Doc. # 230).

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The issues presented in the instant motion against relief defendants are not before the Ninth

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Circuit on appeal. Therefore, the court does not believe that it has been divested of jurisdiction

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over the instant motion such that a stay is necessary or appropriate.

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or continuation of a stay bears the burden of

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Latta v. Otter, 771 F.3d 496, 498 (9th Cir. 2014). In

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considering whether a stay may be proper, courts consider: (1) likelihood of success on the merits;

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(2) irreparable injury; (3) balancing of hardships; and (4) the public interest. See Nken v. Holder,

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556 U.S. 418, 426 (2009); Lopez v. Heckler, 713 F.2d 1432, 1435 (9th Cir. 1983).

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While relief defendants contend that a stay may be appropriate, they do not address or

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provide any evidence in support of the above factors warranting a stay. (Doc. # 230). Accordingly,

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the court finds that a stay of its ruling on the instant motion is not appropriate. The court will

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resolve the motion for summary judgment against relief defendants on the merits.

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James C. Mahan
U.S. District Judge

Relief defendants have not filed a separate motion to stay the proceedings against them
in this case. Pursuant to District of Nevada Special Order 109(III)(F)(4), a separate document
must be filed on the docket for each purpose. See Stacey v. Mercury Cas. Co., No. 2:14-cv-814JCM-GWF, 2014 WL 3816513, at *1 (D. Nev. Aug. 4, 2014)
for a stay would appropriately be denied for failure to comply with the special order. In any case,
having reviewed the subs
based on the discussion above.
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B. Motion for summary judgment

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The SEC argues that summary judgment is appropriate because there is no dispute that (1)

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relief defendants received $2,383,382.18 from defendant Fujinaga, and (2) relief defendants were

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not entitled to these funds. The SEC seeks disgorgement of these proceeds, to return them to
ictims. (Doc. # 219).

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According to relief defendants, the SEC fails to meet its burden of proving that they were

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exhibits, on the grounds that they are unauthenticated. (Doc. # 230). The court will address the

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proceeds.
i.

Authentication

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hibits

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filed in support of its motion, because those exhibits have not been properly authenticated. Relief

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defendants do not object to consideration of the deposition transcript (exhibit G). However, they

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take issue with the remaining exhibits on the grounds that (1) the bank records (exhibits A through

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E) have not been authenticated by a bank representative, and (2) the copy of the grant deed (exhibit

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Office. (Doc. # 230).

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In an attempt to authenticate the exhibits to its motion, the SEC attaches the declaration of

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its counsel, Richard E. Simpson. In his declaration, Mr. Simpson attests that the attached exhibits

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are true and correct copies of (1) relief defend

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deposition transcript. (Doc. # 219-1).

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of evidence, the

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proponent must produce evidence sufficient to support a finding that the item is what the proponent

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which exhibits may be properly authenticated.

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James C. Mahan
U.S. District Judge

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The court will address the authenticity of the bank records and the grant deed in turn.
a. Bank records and checks

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Relief defendants contend that the bank records attached at exhibits A through E to the

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ed. The court agrees. The sole source of

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purported authentication produced by the SEC is the affidavit of its counsel that the exhibits are

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true and correct copies of the bank records and checks. (Doc. # 219-1).

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An affidavit or declaration in support o

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on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant

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see also Fed.

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R. Evid. 901(b)(1); Orr v. Bank of Am., 285 F.3d 764, 773-74 (9th Cir. 2002).

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United States v.

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Dibble, 429 F.2d 598, 602 (9th Cir. 1970) (holding that exhibits were not authenticated where

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attached to affidavit without supporting facts); see also Beyene v. Coleman Sec. Servs., Inc., 854

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Mr.

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of the financial exhibits. He states that the exhibits are true and correct copies, but fails to inform

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the court as to how they were obtained in a way that would verify that the documents are what the

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SEC claims they are. See Dibble, 429 F.2d at 602.

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Based on the foregoing, the court finds that the bank records have not been properly

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authenticated. As a result, the court will not consider these documents in ruling on the instant

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motion.

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in detail the checks and

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deposits received. Relief defendants do not challenge the fact that these transactions occurred.

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Instead, they argue solely that they have a legitimate claim to the funds at issue.

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Accordingly, the SEC has substantiated its claim for the $2,383,382.18 disgorgement

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amount against relief defendants even without the bank record exhibits. See Fed. R. Civ. P.

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James C. Mahan
U.S. District Judge

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Rule 56(c), the court may . . . consider the fact undisputed for purposes of the motion).
b. Grant deed

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Relief defendants also dispute the authenticity of the grant deeds attached at exhibit F to

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-authenticating if it is accompanied by a

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certificate of acknowledgement lawfully executed by a notary public. Fed. R. Evid. 902(8). The

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deeds of trust included at exhibit F meet this standard. (Doc. # 219-7).

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Accordingly, the court finds that these documents are self-authenticating and the court will

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consider them to the extent appropriate in ruling on the instant motion. In any case, these exhibits

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statement of undisputed facts.
The court will now turn to the substance of the motion for summary judgment.
ii.

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Entitlement to funds

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The SEC contends that relief defendants improperly obtained $2,383,382.18 in fraudulent

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proceeds. (Doc. # 219). Relief defendants do not dispute that they received payments in the

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undisputed facts. 2 (Doc. # 230). However, the parties disagree as to whether relief defendants

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were entitled to these funds such that disgorgement is proper.

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title to the funds at issue. They assert that the SEC has failed to rebut this presumption by

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producing evidence that defendants lack a legitimate claim to the proceeds. On this basis, relief

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defendants contend that the SEC has failed to meet its burden under the summary judgment

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standard, such that the burden never shifts to relief defendants to show a genuine dispute of

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material fact. (Doc. # 230).

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James C. Mahan
U.S. District Judge

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However, relief defendants did submit their own statement of undisputed facts, which
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SEC v. Colello, 139 F.3d 674 (9th Cir. 1998), is factually similar to the instant case and

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dictates the appropriate result here. In Colello, a nominal defendant3 contended that the money he

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obtained was properly awarded to him as fees for legitimate services. Id. at 677. The Ninth Circuit

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found that because Colello repeatedly invoked his Fifth Amendment privilege, the district court

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properly shifted the burden to him to show a legitimate claim to the funds at issue. Id.

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In her deposition, relief defendant June Fujinaga asserted privilege in response to every

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interrogatory regarding the case and the disputed proceeds. (Doc. # 219-8). Relief defendants in

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this case have produced no evidence to substantiate their claim that they were entitled to payment

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as fees for legitimate services.4 (Doc. # 230).

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Relief defendants cite SEC v. Ross, 504 F.3d 1130, 1142 (9th Cir. 2007), in support of their

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argument that they have presumptive title to the funds at issue. That case is distinguishable, and

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did not involve invocation of Fifth Amendment privilege. See Ross, 504 F.3d at 1142 (reversing

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Colello, an adverse inference may be drawn from

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an assertion of privilege.5 139 F.3d at 678. Relief defendants are not entitled to a presumption of

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title in such cases. Id.

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A nominal defendant, referred to as a relief defendant in this case, is a person who
the subject matter of the litigation in a subordinate or possessory capacity as to which there is no
Colello, 139 F.3d at 676 (quoting SEC v. Cherif, 933 F.2d 403, 414 (7th Cir. 1991)).
These defendants are properly joined in securities
Id.

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defendant June Fujinaga produced copies of her W-2 forms showing certain payments as income.
However, relief defendants do not attach the W-2 forms to their response to the instant motion.
Relief defendants have not produced any evidence in support of their alleged right to the funds at
issue. (Doc. # 230).

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James C. Mahan
U.S. District Judge

Plaintiff argues that the court should not draw an adverse inference from her invocation
of the Fifth Amendment, citing Doe ex rel. Rudy-Glanzer v. Glanzer, 232 F.3d 1258 (9th Cir.
2000). This case is factually distinguishable and inapplicable here. See id. at 1265-66 (finding
that adverse inference from invocation of privilege was inappropriate where independent
corroborative evidence of facts being questioned was absent).
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should

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(Doc. # 230). Relief defendants cite no case law in support of this proposition, and the Ninth

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Circuit has explicitly held the contrary. See SEC v. JT Wallenbrock & Assocs., 440 F.3d 1109,

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SEC v. First Pac. Bancorp, 142 F.3d 1186,

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1192 n.6 (9th Cir. 1998) (holding that the SEC need not trace every dollar for disgorgement

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purposes).

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The court has already ruled on disgorgement in this case as to defendants Edwin Fujinaga

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t request as to

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defendants produce no evidence showing otherwise. See First Pac. Bancorp, 142 F.3d 1192 n.6

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(placing this burden on defendants once the SEC produces a reasonable estimate).

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the SEC has produced sufficient evidence that relief defendants possess funds to which they are

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not entitled. As previously addressed,

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of transactions showing that relief defendants received the total amount in question from

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defendants. (Doc. # 219-

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defendant the Yunju Trust holds title to properties obtained with fraudulent proceeds. (Doc. #

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219-7).

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assertion of privilege, warrants summary judgment against relief defendants. See Colello, 139

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inability, and apparent refusal, to produce sufficient evidence in support of claims to funds).

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Relief defendants fail to show any dispute of material fact to preclude summary judgment.

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The cases cited by relief defendants in support of their claims to the funds at issue are

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distinguishable. As provided above, the applicable case law warrants summary judgment against

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relief defendants. The court will therefore grant the instant motion.

James C. Mahan
U.S. District Judge

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IV.

Conclusion
Accordingly,

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summary judgment, (doc. # 219), be, and the same hereby is, GRANTED.
DATED July 29, 2015.

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__________________________________________
UNITED STATES DISTRICT JUDGE

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James C. Mahan
U.S. District Judge

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