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No. 11-55169 IN THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

DAVID ANDERSON et al.,

) ) Plaintiffs-Appellants ) ) v. ) ) CHRISTOPHER COX, et al., ) ) ) Defendants-Appellees. ______________________________ ) DEFENDANTS-APPELLEES’ MOTION FOR SUMMARY AFFIRMANCE AND STAY OF BRIEFING SCHEDULE APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA Case No. SACV 10-00031 JVS (MLGx) ANDRÉ BIROTTE JR. United States Attorney LEON W. WEIDMAN Assistant United States Attorney Chief, Civil Division KEITH M. STAUB [SBN: 137909] Assistant United States Attorney Federal Building, Room 7516 300 North Los Angeles Street Los Angeles, California 90012 Telephone: (213) 894-7423 Facsimile: (213) 894-7819 Attorneys for Defendants-Appellees

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DEFENDANTS-APPELLEES’ MOTION FOR SUMMARY AFFIRMANCE AND STAY OF BRIEFING SCHEDULE I. INTRODUCTION Pursuant to Circuit Rule 3-6, Defendants-Appellees CHRISTOPHER COX, MARY L. SCHAPIRO, CYNTHIA A. GLASSMAN, PAUL S. ATKINS, ROEL C. CAMPOS, ANNETTE L. NAZARETH, TROY A. PAREDES, LUIS A. AGUILAR, ELISSE B. WALTER, and KATHLEEN L. CASEY, all of whom are current and former Chairmen and/or Commissioners of the Securities and Exchange Commission (hereinafter referred to as “SEC”), hereby move the Court to summarily affirm the district court’s dismissal of Plaintiffs-Appellants David Anderson, Nelson L. Reynolds, Sheila Morris, Patrick Cluney, Robert Hollenegg, Allan Treffry and Reece Hamilton’s (hereinafter referred to as “Appellants”) First Amended Complaint and to stay the briefing schedule until the motion for summary affirmance is resolved. Appellants are shareholders in CMKM Diamonds, Inc. (“CMKM”). The action arises out of the sale of stock from CMKM to Appellants, the corporation’s subsequent resolution to self-liquidate, and the involvement of the SEC in that process. Appellants contend that during the liquidation of CMKM’s assets, the SEC repeatedly delayed distribution of money recovered and held in trust for
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Appellants. Appellants’ First Amended Complaint asserts claims for declaratory judgment and deprivation of their Fifth Amendment rights under the Takings Clause and Due Process Clause. This Court should summarily affirm the district court’s dismissal of the action for the following reasons: (1) Appellants’ takings claim is not cognizable because they do not have a proprietary interest in the funds sought; Broad v. Sealaska Corp., 85 F.3d 422, 430 (9th Cir. 1996); (2) Appellants’ due process claim fails because they have no legitimate claim of entitlement to the funds; Board of Regents of State Coll. v. Roth, 408 U.S. 564, 577 (1972); (3) Appellants’ due process claim fails because they do not have a property interest in the funds when the SEC retains discretion to disburse those funds; Erickson v. United States, 67 F.3d 858, 862 (9th Cir. 1995); and (4) Appellants’ claims against the SEC Commissioners in their official capacities are barred by sovereign immunity; Hodge v. Dalton, 107 F.3d 705, 707 (9th Cir. 1997). Because this appeal is clearly controlled by precedent, this Court should summarily affirm the district court’s dismissal. See United States v. Hooton, 693 F.2d 857, 858 (9th Cir. 1982)(per curiam). /// /// ///
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II. STATEMENT OF FACTS AND CASE A. Appellants’ Factual Allegations

Appellants owned shares of CMKM stock. (Exhibit A, First Amended Complaint (“FAC”) at ¶ 6.) In 2005, the SEC allegedly imposed a temporary suspension of trading of CMKM stock based on concerns over the adequacy of publicly available information, and then brought an administrative proceeding alleging CMKM had failed to file required reports. (Id. at ¶¶ 28-29.) In July 2005, an SEC administrative law judge found the facts to be as alleged by the SEC in the administrative proceeding. (Id. at ¶¶ 33-35.) The SEC de-registered the CMKM stock in October 2005. (Id. at ¶ 35.) CMKM then started to wind up its affairs by selling its assets. (Id. at ¶ 35.) Appellants allege that Appellees Glassman, Atkins, Campos and the United States Department of Justice (with alleged assistance from the Department of Homeland Security) operated a “sting operation” and used CMKM to “trap[] a number of widely-disbursed persons who were believed to be engaged in naked short selling of CMKM Diamonds Inc. stock.”1 (Id. at 45.) In a settlement between

The FAC does not define or explain naked short selling, and resolution of this motion does not require definition of that practice. However, some general information on naked short selling is available at http://www.sec.gov/ spotlight/ keyregshoissues.htm.
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CMKM and the short sellers, the short sellers allegedly “promised to pay negotiated amounts to a frozen trust for disbursal at a later time” in return for a promise that the United States government would not prosecute them. (Id. at ¶ 48.) Appellants further allege that money was “collected for the benefit of the shareholders of CMKM... [and] have been placed in a trust, or are otherwise now held in trust, by the Depository Trust & Clearing Corporation [“DTCC”], a privately-owned clearing house for all secured financial transactions which take place in the United States, and the United States Treasury, pursuant to a Trust Agreement on behalf of the shareholders.” (Emphasis added) (Id. at ¶¶ 50-51.) Appellants further allege that Appellees “held and hold the sole and absolute discretion to determine when moneys collected pursuant to the scheme set forth above would and could be released for distribution.” (Id. at ¶ 52.) Appellants allege that “[d]emand for release of said moneys has been repeatedly presented to [Appellees], and each of them, without result.” (Id. at ¶ 54.) Appellants contend that the SEC’s repeated failure to distribute money collected in the trust constitutes a taking of property under the Fifth Amendment to the United States Constitution. (Id. at ¶ 73.) Based on these alleged events, Appellants assert claims for deprivation of their civil rights against current and former Chairmen and/or SEC Commissioners, in their individual and official capacities, under Bivens v. Six Unknown Agents of Fed. Bur. of Narc., 403 U.S.
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388, 297 (1971). B. Procedural Background

On August 2, 2010, the district court dismissed the original complaint, with leave to amend, because Appellants failed to identify a viable property interest, which is a necessary predicate to claims under the takings clause and due process clause.2 (Clerk’s Record 15.) On September 21, 2010, Appellants filed a First Amended Complaint (“FAC”) for declaratory judgment and deprivation of their Fifth Amendment Rights under the Takings Clause and the Due Process Clause. (Exhibit A) Pursuant to the SEC’s motion to dismiss, on December 6, 2010, the district court dismissed the FAC, with prejudice. (Exhibit B, December 6, 2010 order [Clerk’s Record 30].)3 /// ///

See, e.g., Broad v. Sealaska Corp., 85 F.3d 422, 430 (9th Cir. 1996)(Takings Clause); Brewster v. Bd. of Educ. of the Lynwood Unified Sch. Dist., 149 F.3d 971, 982 (9th Cir. 1998)(Due Process Clause).
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In light of the district court’s disposition of the Takings Clause and Due Process Clause claims, the court did not consider Appellees’ argument that their conduct was protected by qualified immunity. Saucier v. Katz, 533 U.S. 194, 200 (2001). (Exhibit B)
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III. ARGUMENT A. The Court Should Grant Summary Affirmance

Summary affirmance of the district court’s dismissal is appropriate when “it is clear from the face of the appellant’s pleadings that . . . the appeal is patently insubstantial or clearly controlled by precedent . . . .” In re Keith, 508 F.3d 1225, 1227 (9th Cir. 2007); See also United States v. Hooton, 693 F.2d 857, 858 (9th Cir. 1982) (per curiam). 1. The district court properly dismissed Appellants’ Takings Claim As the district court noted, Appellants’ takings claim fails because such a claim is not cognizable under the present facts. Broad, 85 F.3d at 430. In Broad, this Court considered the takings claim of a number of shareholders who challenged the creation of a trust that favored one group of shareholders over another. Id. at 425-426. In rejecting the takings claim, this Court noted that, “almost universally,” takings claims involve rights to real property, and plaintiffs cited no cases suggesting that the Takings Clause applied to their personal property. Id. at 430. This Court further noted that shareholders did not “directly own any part of a corporation’s property or assets,” and that shareholders merely held a “proportionate interest in the corporate equity remaining after a corporation
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meets all its other debts and obligations.” Id. Accordingly, this Court concluded that “the plaintiff shareholders have no proprietary interest that could have been taken.” Id. Here, Appellants claim they are entitled to recover their interest in CMKM stock that was placed in a trust. As in Broad, Appellants do not have a proprietary interest in the funds that could have been taken under the Takings Clause. Thus, the district court properly held that Appellants’ takings claim fails to state a claim, and this Court should summarily affirm dismissal of that claim. 2. The district court properly dismissed Appellant’s Due Process Claim The district court properly dismissed Appellants’ due process claim as well. In asserting a procedural due process claim, Appellants must establish: (1) the deprivation of a constitutionally protected liberty or property interest; and (2) a denial of adequate procedural protection. Brewster v. Bd. of Educ. of the Lynwood Unified School Dist., 149 F.3d at 982. Property rights are not created by the Constitution, but are defined by independent sources such as state law, statutes, ordinances, regulations or express and implied contracts. Board of Regents of State Coll. v. Roth, 408 U.S. at 577 (“To have a property interest in a benefit, a person clearly must have more than an abstract need or desire for it. He must have more than a unilateral expectation of it. He must, instead, have a legitimate claim
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of entitlement to it.”). As the district court stated, Appellants have asserted nothing more than a “unilateral expectation” of receiving funds but have not demonstrated a “legitimate claim of entitlement” to such funds. (Exhibit B). Moreover, to the extent Appellants’ claim that the SEC, in its discretion, wrongfully denied release of the alleged trust funds, such a claim does not lie. An individual has no property interest in a particular benefit where a government agency retains discretion to grant or deny the benefit. See, e.g., Erickson v. United States, 67 F.3d 858, 862 (9th Cir. 1995); Greenwood v. FAA, 28 F.3d 971, 976 (9th Cir. 1994); Swanson v. Babbit, 3 F.3d 1348, 1353-54 (9th Cir. 1993). Therefore, this Court should summarily affirm the district court’s decision to dismiss Appellants’ due process claim because they have failed to establish a legitimate claim of entitlement to, or a property interest in, the funds at issue. 3. The district court lacked subject matter jurisdiction for other reasons Appellants improperly asserted claims against the SEC Commissioners in their official capacities, which are barred by sovereign immunity. Hodge v. Dalton, 107 F.3d at 707. /// ///
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B.

This Court Should Grant A Stay

Appellees seek a stay in the briefing schedule until this motion is decided. Appellants’ brief is due August 24, 2011 and Appellees’ brief is due September 23, 2011.

Dated: August 22, 2011

Respectfully submitted, ANDRÉ BIROTTE JR. United States Attorney LEON W. WEIDMAN Assistant United States Attorney Chief, Civil Division /s/ KEITH M. STAUB Assistant United States Attorney Attorneys for Defendants-Appellees

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9th Circuit Case Number(s) CA 11-55169
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