Securities and Exchange Commission v. One or More Unknown Purchasers of Securities of Telvent GIT, SA
Filing
72
OPINION re: 66 MOTION to Continue SEC's Motion to Continue Briefing on Defendants' Motion For Summary Judgment. filed by Securities and Exchange Commission, 59 CROSS MOTION to Dismiss the Complaint.CROSS MOTION for Summar y Judgment. filed by Antoine Khalife, Iris Capital Securities SAL. Thus, because the Zagano factors weigh in the SEC's favor and defendants have not shown that they will suffer substantial prejudice, the SEC's motion to dismiss the action without prejudice is granted. Defendants' motion for summary judgment is therefore moot and, accordingly, is denied. SO ORDERED.(Signed by Judge Thomas P. Griesa on 4/17/2013) (ama)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
11 Civ. 3794
v.
ONE OR MORE UNKNOWN PURCHASERS
OF SECURITIES OF TELVENT GIT, SA, et al.,
OPINION
Defendants.
This is an action brought by the United States Securities and Exchange Commission
against various purchasers of shares and options in the Spanish company Telvent GIT,
S.A. Because of the timing of these transactions relative to Telvent’s acquisition by
Schneider Electric S.A., a French company, the SEC suspected that the purchasers of these
securities may have been acting with the benefit of inside information. However, the SEC
reports that, since the inception of this lawsuit, it has been unable to identify the source of
any material, non-public information relating to the transactions and, therefore, moves to
dismiss its own case without prejudice. Defendants, however, have subsequently moved for
summary judgment.
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Though the case was filed nearly a year and a half ago, it remains in its early stages. No
initial conference has been held, the parties have not exchanged initial disclosures, no
discovery plan has been set, and accordingly no formal discovery has begun. The SEC has
so far conducted a single telephonic deposition, of defendant Antoine Khalife, obtained
voluntarily produced documents, and submitted document requests and interrogatories.
Much of the delay in this litigation’s progress has been due to tangential litigation between
the SEC and a third-party bank affected by an asset freeze in this case. Defendants
answered the SEC’s amended complaint on December 30, 2011.
The instant motion to dismiss was filed by the SEC on May 21, 2012. Five months
later, on October 19, 2012, defendants filed a cross motion for summary judgment. The
parties appear to be in agreement that the case should be dismissed. The question is
whether this should be done with or without prejudice — i.e., whether the court should
grant the SEC’s motion to voluntarily dismiss the case, or whether the court should instead
grant defendants’ subsequent motion for summary judgment on the merits, thus dismissing
the case with prejudice.
The court concludes that defendants’ motion for summary judgment is not yet ripe for
adjudication. While the SEC has had the opportunity to conduct some limited fact
investigation, formal discovery has not yet begun. Defendants’ motion for summary
judgment is based entirely on the SEC’s admission in its letter motion to voluntarily dismiss
the action without prejudice, that it does not have enough evidence to prosecute the case.
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This admission, made before the formal discovery process, is not a sufficient basis for a
final adjudication on the merits.
Though it is too early to grant defendants’ motion for summary judgment, the court
must independently consider whether to grant the SEC’s motion to voluntarily dismiss its
complaint without prejudice. The motion is granted.
Discussion
Once a defendant has answered the plaintiff’s complaint, a court order is required for a
plaintiff to voluntarily dismiss the action without prejudice. Fed. R. Civ. P. 41(a). In
determining whether such an order would be proper, the court first presumes that
dismissal without prejudice is appropriate absent a showing of substantial prejudice beyond
merely the specter of a possible second lawsuit. Kwan v. Schlein, 634 F.3d 224, 230 (2d
Cir. 2011). Absent such a showing, the court determines whether this presumption in favor
of dismissal without prejudice is defeated by the so-called Zagano factors, which include:
plaintiff's diligence in bringing the motion; any “undue vexatiousness” on
plaintiff's part; the extent to which the suit has progressed, including the
defendant's effort and expense in preparation for trial; the duplicative
expense of relitigation; and the adequacy of plaintiff's explanation for the
need to dismiss.
Zagano v. Fordham Univ., 900 F.2d 12, 14 (2d Cir. 1990).
In this case, the Zagano factors clearly weigh in the SEC’s favor. In fact, defendants
have made no substantial effort to show otherwise. Given the very early stage of this
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litigation, and the SEC’s prompt filing of this motion before discovery begins in earnest (a
Zagano factor in its own right), there is no reason to doubt the SEC’s diligence in bringing
this motion. Nor has there been any suggestion that this suit was brought vexatiously, or
that any future re-litigation would be unduly duplicative.
What defendants contend, rather, is that this litigation has already harmed them by
damaging their reputations, and that the SEC should not be allowed to dodge defendants’
motion for summary judgment by voluntary dismissal.
The second of these contentions is easily addressed: plaintiff actually moved to dismiss
its action five months prior to defendants’ filing their motion for summary judgment. It is
therefore a stretch, to say the least, to argue that it was filed in order to evade the motion
for summary judgment.
The first contention, while serious, is also unavailing. It is unfortunate that defendants’
business reputations have been harmed by this SEC action. But there is no reason to think
– and defendants suggest none – that dismissal without prejudice will substantially harm
their reputation further. If anything, it seems more likely that dismissal without prejudice
would at least partially return defendants to the status quo ante. Therefore, this sort of
reputational harm is not sufficient to show “substantial prejudice.” See S.E.C. v. Compania
Internacional Financiera S.A., 11 Civ. 4904, 2012 WL 1856491 (S.D.N.Y. May 22, 2012).
Indeed, it is a regrettable inevitability of litigation that most lawsuits harm the reputations of
their defendants. Therefore, to agree with defendants’ contention – that the reputational
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harm visited upon defendants by the filing of a lawsuit against them amounts to "substantial
prejudice" - would eliminate the possibility of dismissal without prejudice in very many, if
not most lawsuits.
This would particularly hamper SEC enforcement actions which, on the one hand,
tend to inflict greater reputational harm on their defendants but, on the other, frequently
need to be brought on an emergency basis to restrain defendants from engaging in
suspected insider trading (as was the case here). If the SEC were not able to then dismiss
its actions "ritllout prejudice (assuming that the SEC's motion to dismiss was timely and the
action appeared to have been brought in good faith) it would be forced to significantly limit
its emergency enforcement activities for fear that early emergency action would preclude it
from seeking penalties later.
Thus, because the Zagano factors weigh in the SEC's favor and defendants have not
ShO\\IIl that they will sutler substantial prejudice, the SEC's motion to dismiss the action
without prejudice is granted. Defendants' motion for summary judgment is therefore moot
and, accordingly, is denied.
So ordered.
Dated: New York, ~ewYork
April 17, 2013
USDCSDNY
, DOCUMENT
ELECfRONICALLY FILBD
DOC.:
~~-.-~"""!'---DATE FILED: ~~i\ Ii ~13
'1/~ f, - ·
~~----------~------------Thomas P. Griesa
United States DistrictJudge
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