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SEC v. Cuban
, 634 F.Supp.2d 713 (N.D. Tex.) (Fitzwater,C.J.),
appeal docketed 
, No. 09-10996 (5th Cir. Oct. 13, 2009).IN THE UNITED STATES DISTRICT COURTFOR THE NORTHERN DISTRICT OF TEXASDALLAS DIVISIONSECURITIES AND EXCHANGE §COMMISSION, §§Plaintiff, §§ Civil Action No. 3:08-CV-2050-DVS. §§MARK CUBAN, §§Defendant. §MEMORANDUM OPINIONAND ORDERFollowing the court’s decision granting defendant Mark Cuban’s(“Cuban’s”) motion to dismiss,
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he moves for an award of attorney’sfees and costs under 28 U.S.C. § 2412(b) and the court’s inherentpower. Without suggesting a view on the merits of Cuban’s motion,the court concludes that Cuban should be permitted to conduct somediscovery, followed by supplemental briefing. Accordingly, by thismemorandum opinion and order, the court establishes a discoveryperiod and a supplemental briefing schedule.ICuban moves for an award of attorney’s fees and costs,contending that plaintiff Securities and Exchange Commission(“SEC”) lacked a good faith basis for this lawsuit. Although theSEC does not question the court’s authority to award relief under§ 2412(b) or its inherent power, the SEC maintains that its claims
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The “Wells process” refers to an established SEC procedurewhereby SEC staff may notify persons under investigation of thegeneral nature of the investigation and potential violations beinginvestigated. At that time, the SEC also notifies persons underinvestigation that they may submit a voluntary statement to the SECbefore the staff makes a recommendation regarding whether actionshould be initiated.
See
SEC Enforcement Manual of theCommission’s Division of Enforcement 24-25 (Oct. 6, 2008).- 2 -against Cuban were factually sufficient, that Cuban’s allegationsof investigative misconduct are unfounded, and that Cuban cannotmeet the high standard required to recover the relief he seeks.Cuban maintains that the facts on which the SEC relied tobring this lawsuit were insufficient to support the assertion thathe entered into an agreement to keep information confidential. Heposits that, because the SEC was aware of this defect before itfiled suit, it could not have had a good faith basis for itsinsider trading claim.Cuban also contends that the SEC engaged in misconduct duringits pre-suit investigation. He contends that the “Wells process”
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was improperly initiated before the SEC had substantially completedits own investigation; he complains about the SEC’s handling of hisattorneys’ Wells submissions; and he argues that, during the SECinvestigation, Guy Fauré (“Fauré”), CEO of Mamma.com Inc.(“Mamma.com”), was deposed twice, the second time the same week theSEC closed an investigation of Mamma.com and decided to take noaction against the company. Cuban maintains that in the seconddeposition, the SEC attempted to solicit different answers through
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- 3 -leading questions.Finally, Cuban relies on a series of emails——which Cubandescribes as “harassing”——from an SEC attorney to Cuban.Cuban maintains that the SEC’s entire insider tradinginvestigation was motivated by a bias against him. He argues thatthis bias is demonstrated in a speech in which the SEC Director ofEnforcement lauded the SEC’s pursuit of high profile insidertrading cases.II“As a general rule, litigants must pay their own attorney’sfees.”
Stover v. Hattiesburg Pub. Sch. Dist.
, 549 F.3d 985, 997(5th Cir. 2008) (citing
Alyeska Pipeline Co. v. Wilderness Soc’y 
,421 U.S. 240, 247 (1975)). “The ‘American Rule’ is the startingpoint for fee awards: Even prevailing litigants are ordinarily notentitled to attorneys’ fees from the losing party.”
Blue SkiesAlliance v. Tex. Comm’n on Envtl. Quality 
, 265 Fed. Appx. 203, 206(5th Cir. 2008) (per curiam) (citing
Buckhannon Bd. & Care Home,Inc. v. W. Va. Dep’t of Health & Human Resources
, 532 U.S. 598, 602(2001)). Cuban relies on two grants of authority to recoverattorney’s fees and expenses from the SEC: the court’s inherentpower to award such relief, and 28 U.S.C. § 2412(b), a provision ofthe Equal Access to Justice Act (“EAJA”).
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