United States District Court, D. Nevada
RICHARD F. BOULWARE, II, District Judge.
John P. Rohner ("Rohner"), a 71-year-old resident of Las Vegas, Nevada at the time the complaint was filed, is the founder, President, Chief Executive Officer, Treasurer, and director of Inteligentry, Ltd., PlasmERG, Inc., and PTP Licensing, Ltd.
Inteligentry, Ltd. ("Inteligentry") is a Nevada corporation Rohner formed in May 2011 with its principal place of business in Las Vegas.
PTP Licensing, Ltd. ("PTP") is a Nevada corporation Rohner formed in March 2012 with its corporate agent in Las Vegas.
PlasmERG, Inc. ("PlasmERG") is a Nevada corporation Rohner formed in May 2011 with its principal place of business in Las Vegas (Rohner, Inteligentry, PTP, and PlasmERG are collectively referred to as the "Defendants." Inteligentry, PTP, and PlasmERG are collectively referred to as the "Corporate Defendants.").
The Securities and Exchange Commission ("SEC") contends, and Defendants dispute, that PlasmERG is the continuation of a company of the same name incorporated in Iowa in 2008 until its dissolution there in November 2011 ("PlasmERG-Iowa"). None of the companies is or was registered with the SEC for the sale of securities.
The SEC alleges that for years Defendants have engaged in an ongoing fraudulent investment scheme that has defrauded at least 98 people nationwide and abroad out of at least $1.4 million. Compl. ¶¶ 1, 16, ECF No. 1. The SEC further alleges Rohner, directly and through the Corporate Defendants, solicited investors for the scheme by claiming on the companies' websites, during in-person meetings, and over the telephone that he and his companies have developed, tested, and patented an operational "plasma engine" fueled by abundant and inexpensive noble gases. Compl. ¶ 2, ECF No. 1. Defendants claimed that the "plasma engine" would replace the internal combustion engine and could run for several months on a single charge of gas mixture at a cost of less than $1. Compl. ¶ 2, ECF No. 1. The SEC further claims that Defendants lured investors into purchasing stock by claiming that Rohner's companies' stock would be worth billions of dollars when the plasma engine was publicly revealed. To create a sense of urgency for prospective investors and to lull existing investors about the status of the purported engine development, Defendants claimed for more than two years that the "final" engines that would be revealed to the public were only weeks from completion, after which time Rohner company stock would be unavailable for purchase. Compl. ¶ 3, ECF No. 1. However, the SEC claims, Rohner and his companies never ran an engine fueled by noble gases, nor have they obtained patents or trademarks relating to the engine or the plasma technology. Compl. ¶ 4, ECF No. 1.
II. PROCEDURAL BACKGROUND
On Feb. 28, 2013, the SEC pleaded five claims in its Complaint against the Defendants. First, the SEC alleges Rohner, Inteligentry, and PlasmERG violated Securities Act sections 5(a) and 5(c) (15 U.S.C. §§ 77e(a) and 77e(c)) by engaging in the "sale or delivery after sale of unregistered securities" through interstate commerce or the mails. Compl. ¶¶ 41-43, ECF No. 1.
Second, the Complaint alleges Rohner, Inteligentry, PTP, and PlasmERG violated Exchange Act section 10(b) and Rule 10b-5 (15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5) by employing "manipulative and deceptive devices" in the sale of securities. Compl. ¶¶ 44-47, ECF No. 1.
Third, the Complaint alleges Rohner aided and abetted Inteligentry, PTP, and PlasmERG in violating Section 10(b) and Rule 10b-5. Compl. ¶¶ 48-49, ECF No. 1.
Fourth, the Complaint alleges Rohner, Inteligentry, PTP, and PlasmERG violated Securities Action section 17(a) (15 U.S.C. § 77q(a)) through their "use of interstate commerce for purpose of fraud or deceit." Compl. ¶¶ 50-53, ECF No. 1.
Fifth, the Complaint alleges Rohner aided and abetted Inteligentry, PTP, and PlasmERG in violating Securities Action section 17(a) (15 U.S.C. § 77q(a)). Compl. ¶¶ 54-55, ECF No. 1.
Simultaneously with the Complaint, the SEC filed, ex parte and under seal, motions for a temporary restraining order, preliminary injunction, and other orders. ECF Nos. 2, 3. On March 7, 2013, the Court granted the temporary restraining order. Order 11, ECF No. 23.
On March 18, 2013, Rohner and the SEC jointly moved for the Preliminary Injunction. ECF No. 33. The Court issued the proposed order the same day. ECF No. 34. In brief summary, the Defendants were enjoined from selling unregistered securities, committing fraud or employing deceit, or aiding another in doing so. The Defendants were ordered to hold and maintain all assets. They were denied access to financial assets, and their assets were frozen. They were prohibited from destroying records; and they were required to provide an accounting and all records to the SEC. Order, ECF No. 34.
Presently before the court are sixteen motions.First, the SEC has filed a motion to dismiss, ECF No. 50, Rohner's counterclaim for "loss of business, unlawful detention of assets, unlawful detention of funds, restraint of trade, failure to inform and correct and prejudice, " Countercl. 1, ECF No. 48.
Second, the SEC has moved to hold Rohner in civil contempt and for the appointment of a receiver to manage Inteligentry, PlasmERG, and PTP. ECF No. 109.
Third, Inteligentry, PlasmERG, and PTP have moved to dismiss the second and fourth causes of action, violations of Section 10(b) and Section 17(a), against Inteligentry, PlasmERG, and PTP for failure to plead fraud with adequate particularity. ECF No. 121.
Fourth, the SEC has moved for partial summary judgment against Rohner, PlasmERG, and Inteligentry on the first claim. ECF No. 129.
Fifth, Rohner has moved to dismiss PlasmERG-Iowa as a party. ECF No. 140.
Sixth, Inteligentry, PlasmERG, and PTP have moved for a release of $24, 341.58 to pay unpaid attorney's fees. ECF No. 158.
Seventh, Rohner has moved to remove restraint order. ECF No. 169. In this motion, Rohner also "removes his signature Joining' the SEC [ECF Nos. 33-1 & 33-2] on this action." Mot. to Remove Restraint Order 1, ECF No. 169.
Eighth, Inteligentry, PlasmERG, and PTP's counsel has moved for instruction regarding what to do with some seized property returned by the FBI to counsel's office. ECF No. 178.
Ninth, Rohner has moved to hold the SEC in civil contempt "due to the SEC's willful disobedience of the Court's Asset Freeze and Preservations Order issued as part of it's [sic] Restraining Order.... As well as the courts [sic] order... stipulating a stay' and other encroachments." Mot. for Order 1, ECF No. 179.
Tenth, Rohner has filed a motion to dismiss "for lack of basis, proof of wrongdoing and fact." Mot. to Dismiss 1, ECF No. 183.
Eleventh, Rohner has moved for funds to be unfrozen to pay legal expenses and storage costs. ECF No. 184.
Twelfth, Inteligentry, PlasmERG, and PTP have moved for a release of $12, 846.25 to pay unpaid attorney's fees. Mot. for Release of Funds, 6:13-14, ECF No. 215. This is request is in addition to the earlier motion, ECF No. 158, for $24, 341.58.
Thirteenth, the SEC has moved for partial summary judgment on its second, third, fourth, and fifth claims against Rohner, Inteligentry, PlasmERG, and PTP. ECF No. 233.
Fourteenth, Rohner has filed a motion "to clarify PlasmERG, Inc (Iowa) status in this case." Mot. to Clarify 1, ECF No. 243.
Fifteenth, Rohner has moved to have the seized items returned to and held by the law firm of Gordon Silver (counsel for the Defendant Corporations) be released to the investors' new corporation. ECF No. 246; see also Mot. for Instruction, ECF No. 178.
Sixteenth, Rohner has filed a Motion to Release Frozen Funds to Pay Attorney Fees, ECF No. 257.
On December 1, 2014, the Court held a hearing on fifteen of these sixteen motions ("the Hearing"),  indicated its preliminary rulings and noted that a written order would follow This written order follows.
III. STATEMENTS OF LAW
A. Motions to Dismiss
To survive a motion to dismiss, a complaint need not contain "detailed factual allegations, " but it must do more than assert "labels and conclusions" or "a formulaic recitation of the elements of a cause of action...." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). In other words, a claim will not be dismissed if it contains "sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face, " meaning that the court can reasonably infer "that the defendant is liable for the misconduct alleged." Id. at 678 (internal quotation and citation omitted). The Ninth Circuit, in elaborating on the pleading standard described in Twombly and Iqbal, has held that for a complaint to survive dismissal, the plaintiff must allege non-conclusory facts that, together with reasonable inferences from those facts, are "plausibly suggestive of a claim entitling the plaintiff to relief." Moss v. U.S. Secret Service, 572 F.3d 962, 969 (9th Cir. 2009). "Generally, a district court may not consider any material beyond the pleadings in ruling on a Rule 12(b)(6) motion. However, material which is properly submitted as part of the complaint may be considered." Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1555 n.19 (9th Cir. 1989) (citations omitted).
Allegations of fraud or mistake in a complaint are exposed to heightened scrutiny. In pleading such allegations, the plaintiff "must state with particularity the circumstances constituting fraud or mistake." Fed.R.Civ.P. 9(b). The plaintiff must also "set forth what is false or misleading about a statement, and why it is false." Ebeid ex rel. U.S. v. Lungwitz, 616 F.3d 993, 998 (9th Cir. 2010) (internal quotations omitted). Thus, claims of fraud or mistake must meet Rule 8's plausibility requirement as well as Rule 9(b)'s particularity requirement. Cafasso, U.S. ex rel. v. General Dynamics C4 Systems, Inc., 637 F.3d 1047, 1055 (9th Cir. 2011).
B. Motions for Summary Judgment
Summary judgment is appropriate when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); accord Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). When considering the propriety of summary judgment, the court views all facts and draws all inferences in the light most favorable to the nonmoving party. Johnson v. Poway Unified Sch. Dist., 658 F.3d 954, 960 (9th Cir. 2011). If the movant has carried its burden, the non-moving party "must do more than simply show that there is some metaphysical doubt as to the material facts.... Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial.'" Scott v. Harris, 550 U.S. 372, 380 (2007) (alteration in original) (internal quotation marks omitted). "In order to carry its ultimate burden of persuasion on the motion, the moving party must persuade the court that there is no genuine issue of material fact." Nissan Fire & Marine Ins. Co. v. Fritz Companies, Inc., 210 F.3d 1099, 1102 (9th Cir. 2000), citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986).
"In considering a motion for summary judgment, of course, the court decides a pure question of law and is not permitted to weigh the evidence or to judge the credibility of witnesses." Neely v. St. Paul Fire & Marine Ins. Co., 584 F.2d 341, 344 (9th Cir. 1978). However, "[t]he general rule in the Ninth Circuit is that a party cannot create an issue of fact by an affidavit contradicting his prior deposition testimony. This sham affidavit rule prevents a party who has been examined at length on deposition from rais[ing] an issue of fact simply by submitting an affidavit contradicting his own prior testimony, which would greatly diminish the utility of summary judgment as a procedure for screening out sham issues of fact." Yeager v. Bowlin, 693 F.3d 1076, 1080 (9th Cir. 2012) (second alteration in original) (internal citations and quotation marks omitted).
C. Civil Contempt
"District courts do, and must, have the authority to punish contemptuous violations of their orders." Reebok Int'l Ltd. v. McLaughlin, 49 F.3d 1387, 1390 (9th Cir. 1995). Specifically,
A court of the United States shall have power to punish by fine or imprisonment, or both, at its discretion, such contempt of its authority, and none other, as (1) Misbehavior of any person in its presence or so near thereto as to obstruct the administration of justice; (2) Misbehavior of any of its officers in their official transactions; (3) Disobedience or resistance to its lawful writ, process, order, rule, decree, or command.
18 U.S.C. § 401. "The moving party has the burden of showing by clear and convincing evidence that the contemnors violated a specific and definite order of the court. The burden then shifts to the contemnors to demonstrate why they were unable to comply." In re Bennett, 298 F.3d 1059, 1069 (9th Cir. 2002).
Civil contempt does not require willfulness and must be remedial or conditional, not punitive and unconditional, in nature. United States v. Laurins, 857 F.2d 529, 534 (9th Cir. 1988). "[I]n civil contempt, if the contemnor's actions subsequently are vindicated, the civil contempt must be vacated absent an opportunity for effective review of the order before it was violated." Britton v. Co-op Banking Grp., 916 F.2d 1405, 1411 (9th Cir. 1990).
The motions will be discussed individually or, when applicable, as groups of related motions. The rulings on these motions are intended to be consistent with the Court's findings and statements made on the record at the Hearing and should be construed so as to be consistent with those statements and findings.
A. SEC's Motion to Hold Rohner in Civil Contempt and to Appoint a Receiver, ECF No. 109
For the reasons given during the Hearing, the Court grants in part and denies in part the SEC's Motion to hold Rohner in Contempt and Appoint a Receiver.
The motion to appoint a receiver is granted. However, as both Rohner and the SEC filed supplements after the Hearing substantially changing their positions regarding the appointment and role of a receiver, ECF Nos. 260, 263, and 265, the appointment of the Receiver is stayed pending a status hearing.
The motion to hold Rohner is Civil Contempt is denied. However, Rohner is ordered to provide to the SEC disclosures in compliance with the temporary restraining order. Rohner's submissions to date have been insufficient for compliance.
At the Hearing (and in his own motion to remove the restraining order, see infra section IV.B), Rohner claims that producing the required documentation is impossible, as he has neither the access to the documentation seized by the FBI nor the knowledge of where accounting information would be stored on the various servers seized. The Court appreciates both the challenge Rohner faces in this endeavor and Rohner's desire not to perjure himself.
Consequently, the Court orders that Rohner shall instead produce documentation listing and describing 1) all personal and company assets that are currently in Rohner's possession, 2) all personal and company assets that were in Rohner's possession at any time after the order freezing assets or seizure of assets, and 3) all transactions and transfers of any assets to any other individuals or entities that took place after the order freezing assets or seizure of assets. This includes any releases of property to former employees as a means of compensation. This includes, but is not limited to, transfers to Sandra Fickas-Reisner and/or Control Systems Consulting. This documentation should include and distinguish physical property, such as prototype engines or computers, and intellectual property, such as patent applications or trademarks.
Rohner shall submit this documentation to the SEC immediately if he has not already done so. This documentation will be submitted under penalty of perjury, so if Rohner wishes to assert any Fifth Amendment or other rights with respect to those statements, Rohner must do so within the context of the disclosure or raise the issue with the Court prior to submission.
Rohner shall not dispose of, transfer, or attempt to sell any other assets, records, or anything related to this case that could potentially fall under the seizure order. Following the appointment of the Receiver, Rohner shall have two weeks from that appointment to turn over any ...