Commodity Futures Trading Commission v. Nawabi ( 2023 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 COMMODITY FUTURES TRADING No. 2:22-cv-00717 KJM-JDP 12 | COMMISSION, ORDER 13 Plaintiff, v. 15 ESHAQ M. NAWABI, individually and d/b/a, NAWABI ENTERPRISE, and HYPERION CONSULTING INC., Defendants. 19 20 21 22 Plaintiff Commodity Futures Trading Commission moves to strike defendant Eshaq 23 | Nawabi’s response to this court’s preliminary injunction and Nawabi moves for limited relief 24 | from the preliminary injunction’s asset freeze. For the reasons below, the court grants the 25 | Commission’s motion to strike finding Nawabi’s filing to be improper and redundant, and 26 | dismisses Nawabi’s motion for limited relief without prejudice. 1 I. BACKGROUND 2 Plaintiff Commodity Futures Trading Commission (“Commission”) has brought this 3 securities action under the Commodity Exchange Act and Commission regulations against 4 defendants Eshaq Nawabi, Nawabi Enterprise and Hyperion Consulting Inc. Compl. at 1, ECF 5 No. 3. This court initially granted the Commission’s request for an ex parte statutory restraining 6 order, which included an asset freeze against defendants. SRO Order at 3–4, ECF No. 8-1 . 7 Following a preliminary injunction hearing, Mins. Hr’g, ECF No. 14, the court granted a 8 preliminary injunction against defendants, which continued the asset freeze and enjoined 9 defendants from “directly or indirectly withdrawing, transferring, removing, dissipating, or 10 otherwise disposing of any Assets . . . .” Preliminary Injunction at 3, ECF No. 33. The court 11 entered this injunction subject generally to Nawabi’s Fifth Amendment objections. Id. at 2; see 12 also Response, ECF No. 35 (raising Fifth Amendment objections). In a separate order, the court 13 directed the parties to file a joint status report proposing a process by which Nawabi would assert 14 his specific Fifth Amendment objections. Prior Order (Oct. 5, 2022), ECF No. 32. The parties 15 complied. Joint Status Report, ECF No. 34. Under their proposal, Nawabi’s Fifth Amendment 16 objections would be referred to a magistrate judge for resolution. Id. at 2. In an order it issued 17 after Nawabi’s response to the preliminary injunction, the court approved the proposal. Prior 18 Order (Jan. 30, 2023), ECF No. 56. 19 In his response to the preliminary injunction, Nawabi also requested relief from the asset 20 freeze “for ordinary and necessary living expenses and personal property.” Response at 2–3. The 21 Commission filed a motion to strike this response, stating Nawabi “improperly s[ought] 22 modification” of the preliminary injunction and did not follow the procedures agreed to by the 23 parties in asserting his Fifth Amendment rights. Mot. to Strike at 3, ECF No. 38. Nawabi 24 opposed this motion, Opp’n to Mot. to Strike, ECF No. 42, and the Commission replied, Reply 25 Supporting Mot. to Strike, ECF No. 43. 26 Nawabi then filed his motion asking this court for limited relief from the asset freeze, 27 stating the freeze is “draconian” and bars Nawabi from the “ability to buy food, pay minimal 28 living expenses, and pay counsel to protect his rights.” Mot. for Limited Relief, ECF No. 45; 1 Mem. Supporting Mot. for Limited Relief at 2, ECF No. 45-1. The Commission opposed this 2 motion. Opp’n to Mot. for Limited Relief, ECF No. 47. 3 Separately, the Commission filed a motion for entry of a consent order imposing a 4 permanent injunction and other equitable relief against defendants consented to by all parties. 5 Mot. for Consent Decree, ECF No. 44. This court entered the decree, which settled all charges 6 alleged in the complaint other than the issue of damages and included a permanent injunction 7 enjoining defendants from trading commodity interests. Consent Decree, at 2, 19, ECF No. 50. 8 The permanent injunction does not address the prior asset freeze.1 See generally id. 9 The court held a combined hearing and scheduling conference on January 27, 2023. 10 James Holl, III appeared for the Commission and Stanley Morris appeared for Nawabi. The court 11 now addresses the motion to strike and motion for limited relief, in turn. 12 II. MOTION TO STRIKE 13 A. Legal Standard 14 Federal Rule of Civil Procedure 12(f) provides “[t]he court may strike from a pleading . . . 15 any redundant, immaterial, impertinent, or scandalous matter.” “Immaterial matter is that which 16 has no essential or important relationship to the claim for relief or the defenses being pleaded 17 [and] [i]mpertinent matter consists of statements that do not pertain, and are not necessary, to the 18 issues in question.” Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1993) (internal marks 19 omitted) (quoting 5 Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure 20 § 1382, at 706–07, 711 (1990)), rev'd on other grounds, 510 U.S. 517 (2004). 21 The granting of a” motion to strike may be proper if it will make trial less complicated or 22 eliminate serious risks of prejudice to the moving party, delay, or confusion of the issues.” 23 Taheny v. Wells Fargo Bank, N.A., No. 10-2123, 2011 WL 1466944, at *2 (E.D. Cal. Apr. 18, 24 2011) (citing Fantasy, 984 F.2d at 1527-28). However, “[m]otions to strike are disfavored and 25 . . . ‘should not be granted unless it is clear that the matter to be stricken could have no possible 1 At the January hearing, the parties agreed the preliminary injunction remains in effect to the extent it includes directives not covered in the permanent injunction. Mins. Hr’g, ECF No. 54. 1 bearing on the subject matter of the litigation.’” Neveu v. City of Fresno, 392 F. Supp. 2d 1159, 2 1170 (E.D. Cal. 2005) (citations and internal marks omitted). In ruling on a motion to strike, a 3 “court[ ] may not resolve disputed and substantial factual or legal issues . . . .” Whittlestone, Inc. 4 v. Handi-Craft Co., 618 F.3d 970, 973 (9th Cir. 2010) (internal quotation omitted). 5 B. Analysis 6 The Commission moves to strike Nawabi’s response to the court’s preliminary injunction 7 order. First, the Commission construes Nawabi’s response as a motion to modify or reconsider 8 the preliminary injunction and argues Nawabi did not comply with federal and local rules in 9 making his filing, so construed. Mot. to Strike at 3–4. Second, the Commission argues Nawabi’s 10 Fifth Amendment objections do not comply with the process agreed upon and memorialized by 11 the parties. Id. at 4. The Commission is correct on both points. 12 The court construes Nawabi’s response as a request for reconsideration or modification of 13 the preliminary injunction because Nawabi asks the court for limited relief from the injunction for 14 “ordinary and necessary living expenses.” Response at 2. Because this request does not meet the 15 requirements for presenting a motion, see E.D. Cal. L.R. 230, and Nawabi has since properly filed 16 a motion requesting relief from the asset freeze, Mot. for Limited Relief, the court exercises its 17 inherent authority to strike this filing as improper and unauthorized. See Spurlock v. F.B.I., 18 69 F.3d 1010, 1016 (9th Cir. 1995) (“A district court possesses inherent power over the 19 administration of its business. It has inherent authority . . . to promulgate and enforce rules for 20 the management of litigation.”); Fed. R. Civ. P. 7(b). 21 Nawabi also argues compliance with the preliminary injunction would violate his Fifth 22 Amendment rights and in this filing re-asserts these rights “in the broadest possible manner.” 23 Response at 4. As discussed above, the court previously acknowledged Nawabi’s assertion of his 24 Fifth Amendment rights, Prior Order (Oct. 5, 2022), and has since approved the parties’ proposed 25 process for adjudicating any Fifth Amendment objections, Prior Order (Jan. 30, 2023). Unless or 26 until that process is modified, Nawabi must avail himself of it. The court strikes this portion of 27 Nawabi’s response for the additional reason that it is redundant. Fed. R. Civ. P. 12(f). 1 III. MOTION FOR LIMITED RELIEF 2 District courts have discretion over the imposition of, and granting of relief from, an asset 3 freeze. Reebok Int'l, Ltd. v. Marnatech Enters., Inc., 970 F.2d 552, 562-63 (9th Cir. 1992); F.T.C. 4 v. Trek All., Inc., 81 Fed. Appx. 118, 119 (unpublished) (9th Cir. 2003) (“[T]he district court did 5 not abuse its discretion in deciding that modification of the [asset freeze] order was not warranted 6 in the circumstances . . . .”). “In exercising this discretion, courts tend to look for evidence of the 7 defendant's overall assets or income.” S.E.C. v. Priv. Equity Mgmt. Grp., Inc., No. 09-2901, 2009 8 WL 2058247, *3 (C.D. Cal. July 9, 2009). 9 Here, Nawabi asks for relief from the preliminary injunction’s asset freeze “for reasonable 10 and necessary living expenses.” Mem. Supporting Mot. for Limited Relief at 2–3. Specifically, 11 he asks the court for relief to access the following assets: (1) “one motor vehicle or proceeds from 12 the sale of motor vehicle up to $3,325”; (2) “ordinarily and reasonably necessary household 13 furnishings”; (3) “materials needed for repair or improvement of a residence up to $3,500”; 14 (4) “jewelry, heirlooms, and works of art up to $8,725”; (5) “personal property necessary to and 15 used in the exercise of trade, business, or profession”; and (6) “earning[s] from any post-asset 16 freeze employment unrelated to the Commodities business and granting such other and further 17 relief as the [c]ourt deems just.” Motion for Limited Relief at 2–3. This is the first time Nawabi 18 has said he has a need to access these assets. See Partial Opp’n, ECF No. 21 (making no mention 19 of need in prior partial opposition to preliminary injunction). 20 On this record, the court finds the requested relief is not warranted because Nawabi: 21 (1) has not disclosed the assets that are available to him and (2) has not identified with 22 particularity, in verifiable fashion, the expenses for which he seeks relief. First, Nawabi has 23 refused to cooperate with the Commission and the court’s Receiver in identifying and locating 24 various assets, instead asserting his Fifth Amendment right in response to all requests for 25 information. Opp’n to Mot. for Limited Relief at 2. Accordingly, this court has “no information 26 as to the totality of assets available to” Nawabi and no information from which it could make an 27 informed decision about the appropriateness of the relief requested. Id. at 3. In its opposition, the 28 Commission points to multiple court decisions that have refused to grant relief from an asset 1 freeze when defendants have not provided financial information, including where the basis of 2 defendants’ refusal was the invocation of their Fifth Amendment rights. See id. at 3–4 (collecting 3 cases). The court agrees as a matter of principle, that it cannot grant relief from the asset freeze if 4 it cannot first determine what assets are available to Nawabi. 5 Second, although Nawabi lists several categories of assets he wishes to access, he does not 6 document the expenses he says are necessary with sufficient particularity. For example, Nawabi 7 asks for “personal property necessary to and in the exercise of trade, business, or profession,” and 8 “earning[s] from any post-asset freeze employment” but has not identified what business or 9 profession he is engaged in and what exact assets he requires. See Mem. Supporting Mot. for 10 Limited Relief at 2–3; Opp’n to Mot. for Limited Relief at 5 n.3. The Commission believes 11 Nawabi is unemployed. Opp’n to Mot. for Limited Relief at 5 n.3. Because the court does not 12 have the information required to determine the validity of Nawabi’s request, it denies Nawabi’s 13 motion without prejudice. Sec. & Exch. Comm'n v. Bivona, No. 16-01386, 2016 WL 2996903, 14 at *3 (N.D. Cal. May 25, 2016) (collecting cases where “[c]ourts have refused to modify an asset 15 freeze without evidence of actual need”). 16 IV. CONCLUSION 17 For the reasons above, the court grants the Commission’s motion to strike, ECF. 38, 18 and denies Nawabi’s motion for relief, ECF No. 45, without prejudice. 19 This order resolves ECF Nos. 38 and 45. 20 IT IS SO ORDERED. 21 DATED: April 14, 2023.