Dreiling v. Kellett

Full title: THOMAS R. DREILING, on behalf of INFOSPACE, INC., Plaintiff, v. STILES A…

Court: United States District Court, W.D. Washington

Date published: Jul 9, 2003

No. C01-1528P (W.D. Wash. Jul. 9, 2003)

Opinion

No. C01-1528P

July 9, 2003

ORDER DENYING DEFENDANTS' MOTIONS FOR RECONSIDERATION

MARSHA PECHMAN, District Judge

This matter comes before the Court on Defendants' motions for reconsideration. Defendant Naveen Jain moves for reconsideration of this Court's order on summary judgment, (Dkt. No. 157), as do the Jain Trusts and Anuradha Jain, (Dkt. No. 159). Defendants contend that the Court erred in concluding that Defendants are liable under Section 16(b) for trust transactions because: (1) the trustee can rescind the stock transfers and therefore avoid Section 16(b) liability; and (2) no escrow was created. The Jain Trusts also move for a Rule 56(f) continuance to conduct discovery to support an additional motion for reconsideration, which would be filed after the ten day deadline for reconsideration motions. (Dkt. No. 152.)

Motions for reconsideration are disfavored. Local Rule CR 7(h)(1). The court will ordinarily deny such motions in the absence of a showing of manifest error in the prior ruling or a showing of new facts or legal authority which could not have been brought to its attention earlier with reasonable diligence. Id. The Court disagrees with Defendants' contentions of manifest error, and accordingly Defendants motions for reconsideration are DENIED. Because Defendant has failed to demonstrate grounds for a late Rule 56(f) continuance, Defendants' motion is DENIED.

I. Rescission

Defendants argue that the trustee can rescind any transfers from the trusts to the Jains on the grounds that such transfers were invalid because the trustee never approved them. Rescission, Defendants argue, eliminates Section 16(b) liability.

First, this is an inappropriate new argument, and Defendants have failed to show why this issue could not have been raised on the cross-motions for summary judgment. Rosenfeld v. United States Dep't of Justice, 57 F.3d 803, 811 (9th Cir. 1995). The fact that Defendants hired new counsel after losing on summary judgment is not by itself justification for raising new issues on reconsideration and effectively relitigating the prior order.

Second, the Court does not agree on the existence of a broad rule eliminating invalid, later rescinded transactions from Section 16(b) liability. See Oliff v. Exchange Int'l Corp., 449 F. Supp. 1277, 1291 (N.D. Ill. 1978) ("The issue is thus not whether a rescission took place but whether the particular rescission constituted a purchase within the meaning of section 16(b)."). If Section 16(b) liability could be avoided by rescission, then all potential defendants in such actions could simply rescind in the face of a lawsuit. The mere fact that a transfer is invalid does not insulate a person from Section 16(b) liability. See Kay v. Scientex Corp., 719 F.2d 1009, 1013-14 (9th Cir. 1983). The cases that Defendants cite are very narrow exceptions where courts found that rescission demonstrated that there was, in fact, no transaction and no threat of speculative abuse. See Oliff, 449 F. Supp. at 1291-93 (analyzing cases on rescission). Here, in contrast, Plaintiff demonstrated the possibility of speculative abuse.

II. Escrow

Defendant Naveen Jain contends that there is at least a fact issue regarding whether or not an escrow exists. In its Order on the cross-motions for summary judgment, the Court considered the evidence presented by Defendant and concluded that it demonstrated the existence of an escrow. Defendant makes two principle arguments on the escrow issue: (1) that Perkins Coie did not agree to be an escrow agent; and (2) that the SEC filings contained contradictory information supporting the inference that no escrow was created.

Having examined the original briefing on the escrow issue, again the Court finds that both arguments Defendant raises on reconsideration to be new, and therefore inappropriately raised. Rosenfeld, 57 F.3d at 811. Nonetheless, the Court does not agree with Defendant's contentions. Defendant argues that Perkins Coie had to agree to be an "escrow agent" to the transaction in order for the escrow to exist, but cites a 1973 District of Columbia Court of Appeals case for the proposition. (Jain Recon. at 2.) Regardless, the terms of the escrow agreement name InfoSpace as the escrow agent. InfoSpace's counsel, Perkins Coie, had possession of the shares and clearly knew of the agreement. The Court found these undisputed facts sufficient for establishing the existence of an escrow.

Defendant also contends that SEC filings are contradictory. In several cases the filings indicate that Mr. Jain "has agreed" to escrow "beneficially owned" shares, whereas in another the filing states that Mr. Jain had established the escrow with trust shares. The Court does not believe that these differences create an issue of fact. The actions of the parties demonstrate the existence of the escrow. Defendant's motion for reconsideration is DENIED.

III. Rule 56(f) Continuance

The Jain Trust Defendants seek a Rule 56(f) continuance in order to discover information regarding the formation of an escrow and transfer of trust assets. On obtaining this information, Defendants seek to file an additional motion for reconsideration past the ten day deadline.

A Rule 56(f) motion must be brought before the summary judgment hearing. United States v. Kitsap Physicians Service, 314 F.3d 995, 1000 (9th Cir. 2002), citing Ashton-Tate Corp. v. Ross, 916 F.2d 516, 520 (9th Cir. 1990). While other jurisdiction may have recognized exceptions to this rule, Defendants have failed to demonstrate why any exception should apply here.

Although Defendants contend that the Court made an "unexpected finding" regarding the existence of the escrow, and in particular concerning the actions of Perkins Coie, these issues were argued and briefed by the parties. (See, e.g., Pl.'s Mot. Summ. J. at 12) ("Perkins Coie certainly knew that those shares were subject to escrow — it was the very entity that, in drafting the public filings, inserted the statements that the NJGRAT shares had been placed into escrow."). The existence of the escrow was a critical issue on summary judgment, and the Court agreed with the arguments advanced by Plaintiff. Moreover, the parties engaged in significant discovery for nearly a year before submitting cross-motions for summary judgment to the Court. The briefs on the cross-motions for summary judgment were submitted, by stipulation of the parties and order of the Court, past the deadline for dispositive motions. The Court extended the deadline after the parties represented that they expected no trial would be necessary and that the case could be resolved as a matter of law. Defendants' change of attorneys is not grounds for a continuation.

Having failed to show manifest error to the Court, Defendants motions for reconsideration are DENIED. Because Defendant has failed to demonstrate grounds for a late Rule 56(f) continuance, Defendants' motion is DENIED.