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United States District Court, S.D. New York

October 7, 2004.


The opinion of the court was delivered by: PETER LEISURE, District Judge


Plaintiff, Securities and Exchange Commission ("SEC"), initiated this action against defendants for violations of the federal securities laws in connection with the registration for the initial public offering of Windfall Capital Corp. ("Windfall") and trading irregularities involving defendant U.S. Environmental, Inc.'s ("USE") stock. Following a bench trial, this Court entered judgment against defendants Michael T. Studer and Castle Securities, Corp. ("Castle") on July 21, 2003 ("order" or "July 21 order").*fn1 The judgment enjoined both defendants and held defendants jointly and severably liable for illegitimate profits and prejudgment interest. Defendant Studer filed this motion for relief or a new trial pursuant to Rule 60 of the Federal Rules of Civil Procedure ("FRCP") pro se*fn2 on October 31, 2003, and supporting memorandum on January 6, 2004. Defendant alleges that on October 1, 2003, he gained possession of exculpatory evidence which was not made available to him or his defense counsel, John E. Lawlor, Esq., during the discovery period of the instant action. For the reasons set forth below, defendant's motion is denied.


  The factual background of this case is explained in detail in the findings of fact of this Court's July 21 order, U.S. Envtl., 2003 WL 21697891, familiarity with which is assumed. On September 13, 1994, SEC brought this action alleging violations of the antifraud provisions of the federal securities laws in connection with the registration for the initial public offering of Windfall and trading irregularities involving defendant USE's stock. On July 21, 2003, after a bench trial, this Court entered judgment granting SEC full relief against defendants Studer and Castle, and finding defendants had violated sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and sections 10(b) and 15(c)(1) of the Securities and Exchange Act of 1934. Defendants Studer and Castle were permanently enjoined from engaging in any future securities related activities. Defendants were also held jointly and severably liable for $134,224 in illegitimate profits and approximately $240,000 in prejudgment interest running from September 30, 1990 to July 21, 2003, calculated pursuant to the Internal Revenue Service's statutory rate. Defendant filed a notice of appeal on August 28, 2003.*fn3 On August 20, 2003, Securities and Exchange Commission issued an Order Instituting Public Administrative Proceedings and Notice of Hearing ("OIP"), pursuant to section 15(b) of the Securities Exchange Act of 1934, against defendants Studer and Castle. Plaintiff's Memorandum in Opposition to Defendant's Motion for a New Trial ("Pl.'s Mem.") at 3. The OIP was to determine if any remedial sanctions should be imposed against defendants. Id. During discovery in preparation for the OIP action, plaintiff sent both defendants electronic copies of all transcripts of SEC's investigatory interviews relevant to the action that were not offered into evidence during the bench trial. Id. at 4. Defendant Studer alleges that two of these transcripts, those of 1990 SEC interviews with Alan Berkun and Paula Morelli, were not made available to either Studer or his legal counsel, during discovery prior to the bench trial before this Court. On this basis, defendant moves for relief or a new trial pursuant to FRCP Rule 60.


  1. Motion for Relief From Judgment or a New Trial

  Construed liberally, defendant's motion is properly analyzed under FRCP Rule 60(b). See LaBounty v. Adler, 933 F.2d 121, 122 (2d Cir. 1991) (obliging courts to construe pro se litigants' papers liberally). Rule 60(b) provides that: On motion and upon such terms as are just, the court may relieve a party or a party's legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b) [ten days post-judgment]; (3) fraud . . ., misrepresentation, or other misconduct of an adverse party; (4) the judgment is void; (5) the judgment has been satisfied, released, or discharged . . .; or (6) any other reason justifying relief from the operation of the judgment.

 Fed.R. Civ. Pro. 60(b). Rule 60(b) further requires that "[t]he motion shall be made within a reasonable time" and within one year of final judgment for subsections (1)-(3). A motion for a new trial is "addressed to the sound discretion of the district court," and the court's decision is reviewed only for abuse of discretion. Nemaizer v. Baker, 793 F.2d 58, 61-62 (2d Cir. 1986). The Second Circuit has stated that Rule 60(b) "`preserves a balance between serving the ends of justice and ensuring that litigation reaches an end within a finite period of time.'" Paddington Partners v. Bouchard, 34 F.3d 1132, 1144 (2d Cir. 1994) (quoting House v. Sec'y of Health & Human Servs., 688 F.2d 7, 9 (2d Cir. 1982)). Although the rule "should be broadly construed to do `substantial justice,' . . . final judgments should not be lightly reopened." Nemaizer, 793 F.2d at 61 (citing Seven Elves, Inc. v. Eskenazi, 635 F.2d 396, 401 (5th Cir. 1981)). Because Rule 60(b) allows extraordinary judicial relief, it is invoked only if the party seeking relief from judgment meets the heavy burden of demonstrating "exceptional circumstances," Paddington, 34 F.3d at 1142, or "extreme and undue hardship." DeWeerth v. Baldinger, 38 F.3d 1266, 1272 (2d Cir. 1994) (internal quotations and citations omitted); see United States v. Int'l Bhd. of Teamsters, 247 F.3d 370, 391 (2d Cir. 2001); Nemaizer, 793 F.2d at 61. Finally, although "[a] pro se litigant . . . `should not be impaired by the harsh application of technical rules,'" they are not excused from the requirement that they produce "highly convincing" evidence to support a Rule 60(b) motion. Major v. Coughlin, No. 94 Civ. 7572, 1997 WL 391121, at *2 (S.D.N.Y. July 11, 1997) (quoting Kotlicky v. U.S. Fid. & Guar. Co., 817 F.2d 6, 9 (2d Cir. 1987); Traguth v. Zuck, 710 F.2d 90, 95 (2d Cir. 1983)).

  In the instant action, defendant's motion does not reference specific subsections of Rule 60, however, the Court believes subdivision (b)(2) is the most relevant to defendant's argument. Defendant argues that new evidence quashes, or at minimum lessens, his responsibility for the securities violations found in this Court's July 21 order. He further argues that this evidence was in plaintiff's possession at the time of trial but was not made available to defendant or his counsel until October 1, 2003. This claim clearly sounds in subsection (b)(2). Rule 60(b)(6) is inapplicable because it requires a showing that, among other things, "the asserted grounds for relief are not recognized in clauses (1)-(5)." Nemaizer, 793 F.2d at 63. Thus, because section (b)(2) controls defendant's claims, section (b)(6) is not properly considered by this Court.

  II. Defendant's claim analyzed pursuant to Rule 60(b)(2)

  A party moving for relief or a new trial under Rule 60(b)(2) faces "an onerous standard." Int'l Bhd. of Teamsters, 247 F.3d at 392. Defendant must show (1) that the newly discovered evidence existed at the time of the proceeding; (2) defendant was justifiably ignorant of the evidence because it could not previously have been discovered despite exercising due diligence; (3) the evidence is admissible and would have likely changed the outcome of the proceeding; (4) the evidence is not "merely cumulative or impeaching." Id.

  Defendant fails to meet the second requirement under Rule 60(b)(2), justifiable ignorance, because if he or his counsel had exercised due diligence, the evidence could have been discovered in time for trial or a Rule 59 motion for a new trial. According to plaintiff representatives' sworn statements, the allegedly exculpatory transcripts excerpted in defendant's motion papers were made available to all defendants and their counsel beginning in 1994 and continuing through April 2001. Declaration of Alexander M. Vasilescu, Esq. ("Vasilescu Decl.") ¶¶ 11-13 (swearing to the availability of the transcripts from 1999-April 2001); Declaration of Clark S. Abrams, Esq. ("Abrams Decl.") ¶¶ 2-3 (swearing to the availability of the transcripts from 1994-1998). Because of the voluminous quality, the transcripts at issue and all other investigatory transcripts were held at SEC's New York offices. Vasilescu Decl. ¶ 11. Defense counsel was invited to inspect and tag whichever transcripts counsel wished to copy. Id. SEC's principal counsel on the matter from 1994-1998, Mr. Abrams, does not specifically remember if Mr. Lawlor ever visited SEC's office but does remember that defendant Studer did not visit. Abrams Decl. ¶ 5. SEC's principal counsel on the matter from 1999-present, Mr. Vasilescu, states that during his many discovery-related conversations with Mr. Lawlor, Mr. Lawlor never showed any interest in reviewing the transcripts. Vasilescu Decl. ¶ 13. Further, SEC actually introduced portions of the transcripts at issue while deposing other witnesses, thus evidencing that Studer and Mr. Lawlor were quite aware of the transcripts' existence. Id. ¶ 16.

  The only "evidence" defendant offers to refute plaintiff's sworn statements is defendant's recollection of a phone call between himself and Mr. Lawlor wherein Mr. Lawlor stated that the Berkun and Morelli transcripts "were not made available to him in discovery."*fn4 Defendant Michael T. Studer's Memorandum in Support of Defendant's Motion for Relief or a New Trial ("Def.'s Mem.") at 2. However, defendant fails to submit a statement from Mr. Lawlor corroborating this claim. Nor does defendant have any personal knowledge of what was available during discovery. Transcript of October 21, 2003 SEC OIP Hearing, Vasilescu Decl., Exhibit 6 ("Exh. 6") at 29-30. Further, when testifying during SEC's OIP proceeding, Studer demonstrated a murky recollection of his phone call with Mr. Lawlor: "[Mr. Lawlor] told me verbally that it was not available, the two [transcripts] that I'm introducing today. He didn't know . . . he did represent to me that he did not see the two that I'm introducing today." Id. at 30-31.

  Defendant fails to meet the high burden of clear and convincing evidence required for the Court to revisit its July 21, 2003 decision. See Anthony v. City of New York, No. 00 Civ. 4688, 2002 WL 731719, *4 (S.D.N.Y. Apr. 25, 2003) ("[T]he newly discovered evidence must be `highly convincing.'" (quoting Kotlicky, 817 F.2d at 9)). Defendant's account of his phone conversation with Mr. Lawlor leaves this Court in quandary as to whether the transcripts at issue were 1) available; 2) unavailable or; 3) available but Mr. Lawlor failed to review them at SEC's invitation and thus "did not see" the Berkun and Morelli transcripts. Therefore, the evidentiary value of Studer's description of the phone call is not at all "clear" as required under Rule 60. Nor is the evidence that the transcripts were unavailable "convincing" as required under the Rule. Defendant's claim is uncorroborated as lacking a sworn statement of one with personal knowledge of documents available for discovery. Defendant offers no objective evidence other than his own self-serving, post-judgment account of a phone call between him and his attorney. Cf. United States v. Gordan, 156 F.3d 376, 380-81 (2d Cir. 1998) (noting that petitioners post-conviction, self-serving claim of ineffective assistance of counsel required objective corroboration to be considered). Moreover, that SEC freely and voluntarily reproduced the transcripts for defendant during discovery for the OIP hearing tends to show that the transcripts were in fact available. Based on all the evidence before it, this Court finds that the transcripts were available to Mr. Lawlor and defendant during discovery and could have been discovered with due diligence in time for trial or a Rule 59 motion for a new trial. Thus, defendant's motion fails to show that he was justifiably ignorant of the allegedly newly discovered evidence as required for relief from judgment under Rule 60(b)(2).

  Further discussion is necessary, however as "a new trial may be ordered to prevent a grave miscarriage of justice even though the `newly discovered evidence' supporting that order would have been available to the moving party at trial had that party exercised proper diligence." Berry v. Dept. of Corr., No. 93 Civ. 6448, 2004 WL 287666, *4 (S.D.N.Y. Feb. 11, 2004) (quoting Ope Shipping, Ltd. v. Underwriters at Lloyds, 100 F.R.D. 428, 432 (S.D.N.Y. 1983) (Pollack, J.)). This exception to the justifiable ignorance requirement is limited to situations wherein the newly discovered evidence is "practically conclusive." Ope Shipping, 100 F.R.D. at 432. "[T]he evidence must make `a prima facie showing that a different result should have been reached initially.'" Id. (internal citations omitted).

  Taken as a whole, none of the transcript excerpts that defendant identifies satisfy this strict standard. Viewed in the most favorable light, the transcripts arguably cast doubt on the extent of defendant's involvement in the formation and operation of Windfall and Castle. However, this does not exculpate defendant from liability arising from his role as supervisor at Castle. In the July 21 order, this Court found that Studer's contention that he was completely and justifiably unaware of any wrongdoing "[flew] in the face of reality." U.S. Envtl, 2003 WL 21697891, at *24 (internal citations omitted). The reality is that a reasonable person in Studer's supervisory position, reviewing the trading tickets each day, would know or should have known that illegal activity was afoot: "[I]n performing his role as supervisor of the trading desk . . . Studer would have and certainly should have been alerted by a series of indicators that, in fact, a fair and orderly market did not exist for USE securities." Id. at *22. The transcripts do not contradict this Court's finding that Studer would and should have been aware of illegal activity based on several red flags, including: 1) The "volume of trading in any one security by the relatively small firm"; 2) the "fantastic price rise" of USE from $0.05 to $1.50 in three days which could not be attributed to company operations; 3) "the market capitalization of USE, a company with no visible operating functions and very few assets, was approaching $500 million"; 4) end of the day buy and sell orders were for precisely the amount necessary for Castle to close trading with a zero balance; 5) trading patterns evidenced that Castle bought the same number of USE shares as it sold on a given day and; 6) telephone calls from the D'Onofrio Group (co-defendants) to Castle and Studer evidenced more knowledge than an ordinary customer should possess in a fair and orderly market. Id. at *23-24. While the transcripts arguably mitigate Studer's role in creating Windfall and operating Castle, they do not exonerate defendant Studer from this powerful circumstantial evidence of knowledge of the illegal actions.

  Further, "arguably mitigate" is a far cry from the "practically conclusive" standard required under this narrow exception. The transcripts do not disturb this Court's resolve that Studer was intimately involved in the perpetration of securities violations and thus jointly and severably liable with Castle for the ill-gotten gains and the accompanying prejudgment interest. Though the Court cited Studer's role in "the formation of Windfall" as evidence of Studer's intimate involvement, the Court also stated that Studer's role as supervisor at Castle established Studer's intimate involvement. Id. at *26. That Castle was such a small firm and that Studer as head supervisor only had two brokers to supervise, led this Court to surmise that "Studer would have been aware of the status and any developments with regard to Castle's trading of USE securities." Id. Nothing in the transcripts as presented in defendant's motion papers would have led this Court to a different conclusion. Therefore, the transcript excerpts defendant identifies cannot be grounds for relief or a new trial as they were readily discoverable before trial and in time for a Rule 59 motion. Further the Court finds justice is properly served by denying defendant's motion as the transcript excerpts contain no evidence that would approach conclusively altering this Court's determination of Studer's culpability and liability in the July 21 order.


  For the reasons stated above, defendant's motion for relief or a new trial pursuant to Rule 60 of the Federal Rules of Civil Procedure is denied.


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