Opinion
No. 97 C 2661
February 22, 1999
MEMORANDUM OPINION AND ORDER
On February 12, 1999, defendant filed a motion for summary judgment on Count I of plaintiff's two-count complaint. Defendant asserts that summary judgment should be granted because, under a "series of recent federal appellate court decisions," plaintiff will be unable to prove the actual use of material inside information that defendant claims is required to prove the violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder (Def.'s Mot. at 1).
Plaintiff quickly responded to defendant's motion by moving to strike it. Plaintiff asserts that defendant's motion is untimely because it was filed long after the court-imposed deadline of May 15, 1998 for filing dispositive motions. Plaintiff also argues that the prior summary judgment motions in the case reveal that the factual issues that are at the core of defendant's new motion are disputed and thus cannot support a summary judgment finding (Pl.'s Mot. to Strike at 1-2).
On February 18, 1999, the District Court referred both of these motions to this Court. The Court has thoroughly reviewed both plaintiff's motion to strike and defendant's summary judgment motion, as well as subsequent correspondence by the parties directed to the motion to strike. In addition, on February 22, 1999, the Court heard argument from the parties on the motion to strike. At the conclusion of that hearing, the Court announced on the record that plaintiff's motion to strike was granted and that defendant's summary judgment motion was stricken. This Memorandum Opinion and Order elaborates on that ruling.
Counsel for defendant submitted a letter dated February 18, 1999 in opposition to the motion to strike; on February 19, 1999, counsel for plaintiff submitted a letter in reply.
I.
The Court begins by setting forth certain relevant procedural history. Defendant's current summary judgment motion is not the first, but the third, summary judgment motion filed in this case.
On August 5, 1997, the District Court denied defendant's motion for summary judgment directed to the insider trading claim. In that ruling, Judge Holderman noted that plaintiff had offered evidence of defendant's scienter, and rejected the contention that this evidence could be overcome by defendant's contentions that (a) the sales were innocent because they were part of an estate plan, (b) the timing of the sales was innocent, and (c) defendant's attorneys approved all the sales (8/5/97 Mem. Op. at 4-5).
Thereafter, on February 8, 1998, then-Magistrate Judge Pallmeyer (who was then the presiding magistrate judge) entered a revised scheduling order. Pursuant to that revised scheduling order, all dispositive motions were to be filed by no later than May 15, 1998.
In line with that scheduling order, on April 8, 1998, plaintiff filed a motion for summary judgment. Defendant vigorously opposed plaintiff's motion. In aid of that opposition, on May 6, 1998, defendant filed a memorandum of law in which he argued the significance of a decision issued on March 27, 1998: Securities and Exchange Commission v. Adler, 137 F.3d 1325 (11th Cir. 1998), which held that in order to establish a claim of insider trading the SEC was required to prove that the defendant used material non-public information (Def.'s 5/6/98 Resp. to Pl.'s Mot. for Sum. Judgment at 8-10). At the same time, the defendant also filed a statement of facts pursuant to Local Rule 12(N), and argued that "[u]nder Adler, these facts create a genuine issue as to whether the information the SEC alleges David Lipson possessed was the basis for the 1995 trades" ( Id. at 10).
Significantly, defendant did not file a cross-motion for summary judgment, or seek a relaxation in the scheduling order in order to do so. Rather, defendant was satisfied at that time merely to attempt to fend off plaintiff's summary judgment motion — hence, his argument that the facts in his Rule 12(N) Statement "create a genuine issue" that precluded summary judgment.
Plaintiff's summary judgment motion was no more successful than was defendant's motion. In a Memorandum Opinion and Order dated November 4, 1998, Judge Holderman denied plaintiff's motion for summary judgment, without reaching the scienter point raised in defendant's brief.
Now, some nine months after the deadline has come and gone for filing dispositive motions, and more than three months after Judge Holderman's denial of plaintiff's motion, defendant has filed a new summary judgment motion. In filing the motion, defendant did not refer to the deadline imposed by the scheduling order, and did not seek leave to file the motion after the deadline. The only explanation offered by defendant for the belated timing came in correspondence to this Court and argument after plaintiff filed its motion to strike.
Moreover, while defendant's current summary judgment motion is in a new package, the substance of what is contained in the motion is not new. The statement of facts defendant has filed in support of the motion is virtually identical to the factual assertions contained in defendant's Rule 12(N) statement filed in opposition to plaintiff's summary judgment motion on May 6, 1998. The key authorities relied upon by defendant in his current summary judgment motion are Adler (which defendant relied upon in opposing plaintiff's summary judgment motion) and two subsequent cases that endorsed (but did not add to) the analysis in Adler — United States v. Smith, 155 F.3d 1051 (9th Cir. 1998), and Clay v. Riverwood Intern. Corp., 157 F.3d 1259 (11th Cir. 1998), cert. denied, 1999 WL 8090 (Jan. 11, 1999). Thus, the factual matter and the legal principles underlying defendant's current summary judgment motion were all available to defendant prior to the May 15, 1998 deadline for filing summary judgment motions.
II.
This Court takes seriously the scheduling orders it issues — and so should the litigants. The Court agrees with the admonition in Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 610 (9th Cir. 1992), that a "scheduling order `is not a frivolous piece of paper, idly entered, which can be cavalierly disregarded by counsel without peril.'" Allowing such disregard of scheduling orders "would undermine the court's ability to control its docket, disrupt the agreed upon course of the litigation, and reward the indolent and cavalier." Id.
This case provides an example of that proposition. The facts that are the basis of the current summary judgment motion are facts that defendant presented in May 1998 in opposing the plaintiff's motion. The lead case that defendant cites in support of its current motion — Adler — is the same lead case that defendant cited in May 1998 in opposing the plaintiff's motion. If defendant had filed this summary judgment motion in May 1998, as he plainly could have done, Judge Holderman would have had both this motion and the plaintiff's summary judgment motion before him simultaneously. Judge Holderman then would have been able to determine the most effective and efficient means of addressing both motions, in a way that was both fair to the parties and that would conserve the resources of both the litigants and the Court. Instead, for undisclosed reasons, defendant has chosen to file this motion only now: nine months after the scheduling order deadline, three months after the denial of plaintiff's motion, and with the final pretrial order in the case due on April 30, 1998. Allowing defendant to proceed with this motion now would permit the kind of inefficient, disruptive and piecemeal litigation process that scheduling orders are designed to avoid.
That said, the Court nonetheless would deny the motion to strike if it were persuaded that defendant had demonstrated "good cause" for the delay in filing. Fed.R.Civ.P. 16(b). The foregoing discussion, which shows that defendant could have filed this summary judgment motion prior to the deadline imposed by Judge Pallmeyer, makes it plain that defendant has an uphill battle in making this showing. Not surprisingly, defendant has offered nothing that even approaches a showing of good cause.
First, defendant asserts that the delay in filing is warranted because of the recent federal appellate decisions. The Court disagrees. As explained above, Adler was decided on March 27, 1998, some seven weeks before the deadline for filing summary judgment motions. The subsequent Smith and Clay decisions do not blaze a trial different from Adler , and do not disclose any relevant analysis that was not available from Adler itself. There is no doubt that defendant was well aware of Adler prior to the deadline for filing summary judgment motions, as he featured that decision in his May 6, 1998 memorandum opposing the plaintiff's summary judgment motion. What defendant said about Adler in opposing summary judgment could just have easily been said in a motion seeking summary judgment.
Smith involved an appeal of a criminal conviction for insider trading. The Ninth Circuit, as had the Eleventh Circuit in Adler, held that a violation of the insider trading provisions required actual use of non-public information but nonetheless upheld the conviction. The appeals court found no error in an instruction that "[i]t is enough if the government proves that such inside information was a significant factor in defendant's decision" to sell. 155 F.3d at 1066. In Clay, the Eleventh Circuit — the same circuit that issued Adler — affirmed a grant of summary judgment for the defendants on the ground that the stock appreciation rights were not securities, or puts, calls, straddles, options or privileges with respect to securities, and thus did not fall within the scope of the insider trading laws. 157 F.3d at 1264. The appeals court assumed for the purposes of the analysis that the defendants actually used inside information. Id.
Second, defendant suggests in his letter that it somehow was more appropriate to wait to file his motion until Judge Holderman ruled on the plaintiff's motion for summary judgment. The Court fails to see how that is so, even as a matter of defendant's own strategy — if Judge Holderman had granted the plaintiff's motion, it would be too late for defendant now to claim that he should have summary judgment. In any event, the fact that defendant may see the timing of his motion as strategically wise or advantageous is insufficient to establish good cause for filing a seriatim summary judgment motion that would undermine the orderly process of case management that the scheduling order envisions.
Third, defendant suggests that there is no prejudice to plaintiff because defendant suggested during recent months that he might file such a motion. However, defendant does not state that he was ever given leave to file a motion, and there is no court order granting such leave. Moreover, this argument misconceives the "good cause" standard, which looks first to whether defendant has a good reason for his delay — and no such reason has been offered here. Contrary to defendant's argument, allowing this belated motion would cause prejudice to the plaintiff and the Court: the prejudice of needlessly disrupting a schedule put into place more than one year ago, and needlessly subjecting the plaintiff to multiple briefing and the Court to piecemeal consideration of matters.
Finally, defendant urges that the plaintiff's assertion that fact disputes preclude summary judgment anyway should be addressed on the merits, rather than on a motion to strike. The Court agrees that the motion to strike is not the vehicle for addressing the merits, vel non, of the summary judgment motion. However, the Court would be remiss if it failed to point out that defendant now seeks summary judgment based on the same law and the same facts that he previously claimed created a fact dispute that foreclosed summary judgment.
In this regard, the Court notes that the Adler court reversed a trial court ruling granting one of the defendants summary judgment on one of the insider trading claims. In so doing, the appeals court noted that the defendant's possession of "material nonpublic information gives rise to a strong inference that such information was used," and held that the defendant could not avoid a trial of the issue by offering on summary judgment evidence that the sales were in connection with a pre-existing plan. 137 F.3d at 1339.
In the end, what defendant fails to grasp is that he could have had this motion decided on the merits, had he filed it when he should have — and could have. Because defendant failed to do so, he has forfeited his right to file the motion because he has failed to show good cause for the delay. Courts have not hesitated to enforce scheduling orders in cases where the result has been to effectively foreclose a party from prosecuting or defending the case. Here, of course, the result of defendant's failure to show good cause for failing to abide by the scheduling order is not nearly so extreme. The Court's ruling today leaves the defendant free to present to the trial judge the argument that the "actual use" requirement adopted by Adler should govern the deliberations at trial.
The motion to strike is granted, and defendant's summary judgment motion is hereby stricken.