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SEC v. Gold Standard Mining Corp Et Al Doc 47 Filed 10 Dec 12

SEC v. Gold Standard Mining Corp Et Al Doc 47 Filed 10 Dec 12

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Case 2:12-cv-05662-PA-CW Document 47

Filed 12/10/12 Page 1 of 3 Page ID #:870

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL Case No. Title CV 12-5662 PA (CWx) Date December 10, 2012

Securities and Exchange Commission v. Gold Standard Mining Corp., et al.

Present: The Honorable Paul Songco Deputy Clerk

PERCY ANDERSON, UNITED STATES DISTRICT JUDGE N/A Court Reporter N/A Tape No.

Attorneys Present for Plaintiffs: None Proceedings: IN CHAMBERS – COURT ORDER

Attorneys Present for Defendants: None

Before the Court is a corrected Motion to Strike Affirmative Defenses filed by plaintiff Securities and Exchange Commission (“Plaintiff”). (Docket No. 40.) Plaintiff moves to strike ten affirmative defenses asserted in the Answer (Docket No. 32) filed by defendant Kenneth Eade (“Defendant.”) Pursuant to Rule 78 of the Federal Rules of Civil Procedure and Local Rule 7-15, the Court finds this matter appropriate for decision without oral argument. The hearing calendared for December 10, 2012 is vacated, and the matter taken off calendar. I. Background

This action involves alleged violations of the anti-fraud and filing provisions of the federal securities laws. The Complaint alleges that defendants Gold Standard Mining Corporation (“Gold Standard”), Zachos, and Gruber & Co. violated, and defendant Eade aided and abetted violations of, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(b); and that defendant Gold Standard violated, and defendant Eade aided and abetted violations of, Section 13(a) of the Securities Exchange Act and Rules 12b-20, 13a-11 and 13a-13. (Complaint ¶ 6.) Plaintiff filed its Complaint on June 29, 2012, and Defendant was personally served on July 5, 2012. Defendant moved, pursuant to Federal Rule of Civil Procedure 12(b)(6), to dismiss Plaintiff’s Complaint, and that motion was denied. Thereafter, on October 23, 2012, Defendant filed his answer alleging twenty-four affirmative defenses. Plaintiff now moves to strike Defendant’s second, third, fourth, fifth, sixth, seventh, eighth, tenth, thirteenth, and fourteenth affirmative defenses under Federal Rule of Civil Procedure 12(f). Defendant opposes the Motion. II. Motion to Strike Affirmative Defenses A. Standard for Motion to Strike

Federal Rule of Civil Procedure 12(f) provides that “the court may order stricken from any pleading any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” “Because of ‘the limited importance of pleadings in federal practice,’ motions to strike pursuant to Rule
CV-90 (06/04) CIVIL MINUTES - GENERAL Page 1 of 3

Case 2:12-cv-05662-PA-CW Document 47

Filed 12/10/12 Page 2 of 3 Page ID #:871

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL Case No. Title CV 12-5662 PA (CWx) Date December 10, 2012

Securities and Exchange Commission v. Gold Standard Mining Corp., et al.

12(f) are disfavored.” Estate of Migliaccio v. Midland Nat’l. Life Ins. Co., 436 F. Supp. 2d 1095, 1100 (C.D. Cal. 2006) (quoting Bureerong v. Uvawas, 922 F. Supp. 1450, 1478 (C.D. Cal. 1996)). “Matter will not be stricken from a pleading unless it is clear that it can have no possible bearing upon the subject matter of the litigation.” Clark v. State Farm Mut. Auto. Ins. Co., 231 F.R.D. 405, 406 (C.D. Cal. 2005) (quoting Cal. Dept. of Toxic Substances Control v. Alco Pacific, Inc., 217 F. Supp. 2d 1028, 1033 (C.D. Cal. 2002)). “Moreover, when considering a motion to strike, courts must view the pleading in the light more favorable to the pleader.” Id. (quoting Lazar v. Trans Union LLC, 195 F.R.D. 665, 669 (C.D. Cal. 2000)). Indeed, “[t]o strike an affirmative defense, the moving party must convince the court that there are no questions of fact, that any questions of law are clear and not in dispute, and that under no set of circumstances could the defense succeed. The grounds for the motion must appear on the face of the pleading under attack or from matter which the court may judicially notice.” S.E.C. v. Sands, 902 F. Supp. 1149, 1165 (C.D. Cal. 1995) (internal quotation and citation omitted). “The function of a 12(f) motion to strike is to avoid the expenditure of time and money that must arise from litigating spurious issues by dispensing with those issues prior to trial....” Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1993), rev'd on other grounds, 510 U.S. 517 (1994). B. Defendant’s Affirmative Defenses

Plaintiff moves to strike ten of Defendant’s twenty-four affirmative defenses. In Defendant’s second affirmative defense, he asserts that his actions did not proximately cause any of the alleged securities law violations. However, loss causation is not an element of the charges brought by Plaintiff against Defendant. See Gebhart v. SEC, 595 F.3d 1034, 1041 n. 8 (9th Cir. 2010); see also SEC v. Keating, 1992 U.S. Dist. LEXIS 14630 *10 (C.D. Cal., July 23, 1992); SEC v. Apuzzo, 689 F.3d 204, 213 (2nd Cir. 2012) (proximate cause not an element of aiding and abetting liability). Plaintiff is not required to prove proximate cause to establish aiding and abetting violations, and therefore lack of proximate cause is not a sufficient defense to its claims. Accordingly, Defendant’s second affirmative defense is stricken. Defendant’s third affirmative defense asserts that the Complaint is barred by laches. Courts have held that the defense of laches cannot be applied to a government agency when it is acting to enforce a public right or interest. See Costello v. United States, 365 U.S. 265, 281, 81 S. Ct. 534, 5 L. Ed. 2d 551 (1961); SEC v. Keating, 1992 U.S. Dist. LEXIS 14630 *7. The Opposition does not address the affirmative defense of laches. Based on the foregoing, Defendant’s third affirmative defense is stricken. Defendant’s fourth, fifth, sixth, and seventh affirmative defenses allege that Plaintiff’s Complaint fails to state a claim upon which relief can be granted because the Complaint does not meet the pleading requirements of Rule 9(b) of the Federal Rules of Civil Procedure. These four defenses addressing the adequacy of the complaint have already been addressed and rejected in this Court’s order denying Defendant’s motion to dismiss (Docket No. 30). These affirmative defenses are redundant, the
CV-90 (06/04) CIVIL MINUTES - GENERAL Page 2 of 3

Case 2:12-cv-05662-PA-CW Document 47

Filed 12/10/12 Page 3 of 3 Page ID #:872

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL Case No. Title CV 12-5662 PA (CWx) Date December 10, 2012

Securities and Exchange Commission v. Gold Standard Mining Corp., et al.

adequacy of the pleadings has already been addressed, and these assertions are not affirmative defenses on which the Defendant will produce evidence at trial. See SEC v. Sands, 902 F. Supp. 1149 (C.D. Cal. 1995). Accordingly, Defendant’s fourth, fifth, sixth, and seventh affirmative defenses are stricken. In the tenth affirmative defense, Defendant asserts Plaintiff's Complaint is precluded by an unlawful and improper investigation. Improper conduct during an investigation is not an affirmative defense. See e.g. SEC v. Keating, 1992 U.S. Dist. LEXIS 14630 *8 (“[t]he Government cannot be estopped from bringing an action in the public interest simply because of alleged misconduct by one or more of its agents.”); Buntrock v. SEC, 347 F.3d 995, 998 (7th Cir. 2003) (if the SEC’s staff violated legal or ethical rules governing investigations in deciding to bring suit, that is not a defense to the SEC’s suit). The conduct of Plaintiff’s investigation does not appear relevant to Defendant’s culpability in this circumstance. If the alleged unlawful conduct of the investigation rises to the level of a violation of constitutional rights, then Defendant can bring a separate action. Defendant’s tenth affirmative defense is stricken. Defendant’s eighth, thirteenth and fourteenth affirmative defenses relate to the scienter standards applicable to Plaintiff’s claims. The eighth affirmative defense asserts that Defendant did not “intentionally” misrepresent or withhold material facts. In the thirteenth affirmative defense, Defendant asserts that he was unaware that any conduct on his part constituted an alleged violation of securities laws. The fourteenth affirmative defense asserts that Defendant did not act with “extreme” or “severe recklessness.” Plaintiff’s action alleges that Defendant aided and abetted Gold Standard’s violations of the anti-fraud provisions of 15 U.S.C. § 78j(b) and the corporate reporting requirements of § 78m(a). The elements for aiding and abetting charges pursuant to 15 U.S.C. § 78t(e) provide that “any person who knowingly or recklessly provides substantial assistance to another person in violation of a provision of this title . . . shall be deemed to be in violation of such provision to the same extent as the person to whom such assistance is provided.” Plaintiff is not required to prove that Defendant knew that he was violating securities laws. See United States v. Reyes, 577 F. 3d 1069, 1080 (9th Cir. 2009). The provision requires only that the defendant knowingly or recklessly commit the act or acts providing the substantial assistance. Id. Since Plaintiff does not need to prove that Defendant intentionally misrepresented or withheld material facts, that he was aware that his conduct constituted a violation of securities laws, or that he acted with “extreme” or “severe recklessness,” his eighth, thirteenth, and fourteenth affirmative defenses are stricken. Defendant asserts other affirmative defenses, such as the ninth that Defendant did not recklessly misrepresent or withhold material facts and the twelfth that Defendant did not knowingly provide substantial assistance, which sufficiently address his defense as to the elements that Plaintiff must prove. Therefore, Defendant is not granted leave to amend. Conclusion For the foregoing reasons, Plaintiff’s corrected Motion to Strike Affirmative Defenses is granted. IT IS SO ORDERED.
CV-90 (06/04) CIVIL MINUTES - GENERAL Page 3 of 3

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