This previous post highlighted the February 2013 decision by U.S. District Court Judge Richard Sullivan (S.D.N.Y.) in SEC v. Elek Straub, Andras Balogh and Tamas Morvai. Judge Sullivan denied the defendants’ (former executives of Magyar Telekom) pre-trial motion to dismiss and his ruling principally focused on general personal jurisdiction issues, the FCPA’s specific jurisdictional element and statute of limitation issues.
As noted in this previous post, defendants soon thereafter moved to certify Judge Sullivan’s order for interlocutory appeal to the Second Circuit. In pertinent part, the motion stated:
“The defendants respectfully submit that there is substantial ground for difference of opinion regarding the following three questions that lie at the heart of the Order: (i) whether the Court may exercise personal jurisdiction over the defendants; (ii) whether the SEC’s actions is barred by the applicable statute of limitations; and (iii) whether the SEC has adequately pled the use of an instrumentality of interstate commerce.”
Earlier this week, Judge Sullivan denied the defendants’ request for interlocutory appeal.
Judge Sullivan began by setting forth the legal standard for an interlocutory appeal:
“Litigants are generally required to wait for a final judgment before they may appeal. However, a district court may certify an immediate appeal of an interlocutory order if the court finds that the order (1) ‘involves a controlling question of law’ (2) ‘as to which there is substantial ground for difference of opinion’ and (3) ‘that an immediate appeal from the order may materially advance the ultimate termination of the litigation.’ […] District court judges have broad discretion to deny certification even where the statutory criteria are met. […] [An] interlocutory appeal is ‘a rare exception where, in the discretion of the district judge, it ‘may avoid protracted litigation.’ Consequently, ‘federal practice strongly disfavors discretionary interlocutory appeals [as they] prolong judicial proceedings, add delay and expense to litigants, burden appellate courts, and present issues for decisions on uncertain and incomplete records, tending to weaken the precedential value of judicial opinions.'”
As to the three issues presented, Judge Sullivan concluded that the applicable legal standards were not met.
Judge Sullivan also distinguished his opinion from a similar decision (here) in the S.D.N.Y. by Judge Shira Scheindlin granting Herbert Steffen’s motion to dismiss the SEC’s FCPA complaint based on general jurisdiction grounds.
Judge Sullivan stated as follows.
“Defendants also make much of the fact that, just weeks after the Court’s Order, Judge Scheindlin granted a motion to dismiss for lack of personal jurisdiction over a defendant allegedly engaged in covering up a bribery scheme. However, the Court does not find any tension between the decision in [Steffen] and its Order. In [Steffen] Judge Scheindlin acknowledged that ‘there is ample (and growing) support in case law for the exercise of jurisdiction over individuals who played a role in falsifying or manipulating financial statements relied upon by U.S. investors in order to cover up illegal actions directed entirely at a foreign jurisdiction.’ In finding personal jurisdiction to be lacking, Judge Scheindlin did not buck this trend, but rather found the facts before her to be distinguishable from these other cases. As Judge Scheindlin explained, the defendants in the Straub case ‘orchestrated a bribery scheme aimed at the Macedonian government, and as part of the bribery scheme signed off on misleading management representations to the company’s auditors and signed false SEC filings. By contrast, in [Steffen] ‘the SEC did not allege that the defendant directed, ordered or even had awareness of the cover ups that occurred at [the company] much less that he had any involvement in the falsification of SEC filings in furtherance of those cover ups. Nor is it alleged that his position as Group President of [the company] would have made him aware of, let alone involved in falsification of these filings.’ Thus, the situation presented in [Steffen], where the defendant had taken no action with any connection to the United States, is unlike this case and the others cited in the Order. Accordingly, the [Steffen] decision does not provide any reason to find that there is a difference of opinion as to whether personal jurisdiction exists in this case, let alone create ‘substantial doubt’ that the Court’s Order is correct. Moreover, Defendants do not identify any other authority that is inconsistent with the Order.”