Securities and Exchange Commission v. Mapp, III et al

Filing 172

MEMORANDUM OPINION AND ORDER denying 149 Motion for Reconsideration Regarding Motion for Judgment on the Pleadings filed by William E Mapp, III. Signed by District Judge Amos L. Mazzant, III on 12/11/2017. (cm, )

United States District Court
EASTERN DISTRICT OF TEXAS
SHERMAN DIVISION

SECURITIES AND EXCHANGE
COMMISSION
v.
WILLIAM E. MAPP, III

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Civil Action No. 4:16-CV-00246
Judge Mazzant

MEMORANDUM OPINION AND ORDER
Pending before the Court is Defendant’s Motion for Reconsideration (Dkt. #149). After
reviewing the relevant pleadings, the Court finds that the motion should be denied.
BACKGROUND
The issue before the Court concerns the Court’s decision not to dismiss the Securities and
Exchange Commission’s (“SEC”) scheme liability claims in full against Defendant William E.
Mapp, III (“Mapp”) for alleged violations of Sections 17(a)(1), (3) of the Securities Act and Rule
10b-5(a), (c) of the Exchange Act. On September 29, 2017, Mapp filed a Motion for Judgment on
the Pleadings (Dkt. #112). On November 9, 2017, the Court entered a Memorandum Opinion and
Order (the “Opinion”), in which it granted in part and denied in part Mapp’s motion (Dkt. #142).
On November 16, 2017, Mapp filed his Motion for Reconsideration (Dkt. #149). On
November 30, 2017, the SEC filed its response (Dkt. #157).
LEGAL STANDARD
A motion seeking “reconsideration” may be construed under either Federal Rule of Civil
Procedure 59(e) or 60(b). Shepherd v. Int’l Paper Co., 372 F.3d 326, 328 n. 1 (5th Cir. 2004); see
also Milazzo v. Young, No. 6:11-cv-350-JKG, 2012 WL 1867099, at *1 (E.D. Tex. May 21, 2012).
Such a motion “‘calls into question the correctness of a judgment.’” Templet v. HydroChem Inc.,

367 F.3d 473, 478 (5th Cir. 2004) (quoting In re Transtexas Gas Corp., 303 F.3d 571, 581
(5th Cir. 2002)).
“If a motion for reconsideration is filed within 28 days of the judgment or order of which
the party complains, it is considered to be a Rule 59(e) motion; otherwise, it is treated as a Rule
60(b) motion.” Milazzo, 2012 WL 1867099, at *1; see Shepherd, 372 F.3d at 328 n. 1; Berge
Helene Ltd. v. GE Oil & Gas, Inc., No. H-08-2931, 2011 WL 798204, at *2
(S.D. Tex. Mar. 1, 2011)). Mapp filed his motion for reconsideration within 28 days of the order
that denied in part Mapp’s Motion for Judgment on the Pleadings; therefore, the motion will be
considered a Rule 59(e) motion.
A Rule 59(e) motion is “not the proper vehicle for rehashing evidence, legal theories, or
arguments that could have been offered or raised before the entry of judgment.” Templet, 367 F.3d
at 479 (citing Simon v. United States, 891 F.2d 1154, 1159 (5th Cir. 1990)). “Rule 59(e) ‘serve[s]
the narrow purpose of allowing a party to correct manifest errors of law or fact or to present newly
discovered evidence.’”

Id. (quoting Waltman v. Int’l Paper Co., 875 F.2d 468, 473

(5th Cir. 1989)). “Relief under Rule 59(e) is also appropriate when there has been an intervening
change in the controlling law.” Milazzo, 2012 WL 1867099, at *1 (citing Schiller v. Physicians
Res. Grp., 342 F.3d 563, 567 (5th Cir. 2003)). “Altering, amending, or reconsidering a judgment
is an extraordinary remedy that courts should use sparingly.” Id. (citing Templet, 367 F.3d at 479).
“The alternative, Federal Rule of Civil Procedure 60(b)(6) states, “On motion and just terms, the
court may relieve a party or its legal representative from a final judgment, order, or proceeding for
the following reasons: . . . (6) any other reason that justifies relief.” Id.

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ANALYSIS
On November 9, 2017, the Court issued its Opinion declining to dismiss the SEC’s scheme
liability claims in full (Dkt. #142). The Court concluded that “[c]onducting a lab test in isolation
to achieve an intended result may constitute a deceptive act in itself that had ‘the principal purpose
and effect of creating a false appearance of fact’ about Servergy and the CTS-1000.”
(Dkt. #142 at p. 12–13). The Court found scheme liability was adequately alleged in the
Amended Complaint based on “Mapp’s actions in hiring lab technicians to test CTS-1000’s utility
and potentially directing them to manipulate the testing to achieve an intended result.”
(Dkt. #142 at p. 12–13).
Mapp argues that such a theory is not alleged in the Amended Complaint because the SEC
has never contended that the October 2010 lab test was manipulated or was independently
fraudulent. According to Mapp, the Amended Complaint only alleges that Mapp and Servergy
made misrepresentations regarding the results of the lab test. Mapp argues that because this theory
was not raised by the Commission in its Response, he did not have an opportunity to address it
prior to issuance of the Opinion.
In its Amended Complaint, the SEC alleged that:
Not only were Mapp’s and Servergy’s power and thermal output claims baseless
and false, but they also falsely represented to investors that an independent lab
confirmed the claims. In reality, the lab they touted did not conduct comparable
testing pitting the CTS-1000 against other servers. Instead, in October 2010, the
lab merely tested the power consumption and thermal output of an early CTS-1000
prototype board in isolation rather than in comparison to any other server.
(Dkt. #40 at ¶ 57).
The SEC further alleged that Mapp had his staff run tests in the presence of investors that
were intended to cast the CTS-1000 in a favorable light, despite knowing that the servers were not
comparable:
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Once prospective investors were identified, Mapp hosted presentations, in person
and virtually through webinars, pitching opportunities to invest in Servergy. During
those presentations, he made materially misleading claims about the state of
Servergy’s technology and its business prospects, and conducted a live
demonstration juxtaposing the CTS-1000’s power efficiency with a Dell server that
Mapp falsely claimed was a comparable product.
(Dkt. #40 at ¶ 16). Furthermore, in its response to Mapp’s Motion for Judgment on the Pleadings,
the SEC stated in support of its scheme liability claims that Mapp “conducted a live demonstration
‘juxtaposing the CTS-1000’s power efficiency with a Dell server’ that was not a comparable
product.” (Dkt. #119 at p. 4).
Again, “[t]he central issue is whether, in the light most favorable to the plaintiff, the
complaint states a valid claim for relief.” (Dkt. #142 at p. 5) (quoting Hughes v. Tobacco Inst.,
Inc., 278 F.3d 417, 420 (5th Cir. 2001)). Taking the Amended Complaint in the light most
favorable to the SEC, the Amended Complaint adequately alleges scheme liability based on an
alleged manipulated lab test and/or demonstration with a Dell server. It can be inferred from the
Amended Complaint that a lab “not conduct[ing] comparable testing pitting the CTS-1000 against
other servers” can be considered a lab test designed “to achieve an intended result.” Additionally,
because the lab test results might not have been necessarily false, a lab test designed to achieve an
intended result can be considered an act with the principle purpose and effect of creating a false
appearance of fact (Dkt. #40 at ¶ 57). This live demonstration is also reiterated in its response to
Mapp’s motion (Dkt. #119 at p. 4). Thus, the Court finds that Mapp had notice of the alleged
conduct in both the Amended Complaint and the SEC’s response to provide him with an
opportunity to address those contentions prior to the issuance of the Opinion.
The Court finds that Defendant has not presented any issue that requires the Court to
reconsider its previous determination. See Templet, 367 F.3d at 479 (A Rule 59(e) motion is “not

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the proper vehicle for rehashing evidence, legal theories, or arguments that could have been offered
or raised before the entry of judgment.”). Defendant has not presented either (1) an intervening
change in the controlling law; (2) newly discovered evidence; or (3) a manifest error of law or fact.
Instead, Defendant merely rehashes arguments that could have been offered or raised in its Motion
for Judgment on the Pleadings. As such, the Court finds that its original decision should stand,
. and Mapp’s motion for reconsideration is denied.
CONCLUSION
It is therefore ORDERED that Defendant’s Motion for Reconsideration (Dkt. #149) is
hereby DENIED.
SIGNED this 11th day of December, 2017.

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AMOS L. MAZZANT
UNITED STATES DISTRICT JUDGE

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