S.E.C. v. Recile

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 92-3837
(Summary Calendar)
SECURITIES & EXCHANGE COMMISSION,
Plaintiff-Appellee,
VERSUS
SAM J. RECILE,
Defendant-Appellant.
Appeal from the United States District Court
for the Eastern District of Louisiana
(December 3, 1993)
Before JOLLY, WIENER, and EMILIO M. GARZA, Circuit Judges
WIENER, Circuit Judge:
Defendant-Appellant Sam J. Recile appeals from the summary
judgment order (the "Order") entered in favor of Plaintiff-Appellee
Securities & Exchange Commission ("SEC"). In the Order, the
district court concluded that Recile violated the federal
securities registration and antifraud provisions along with the
broker-dealer registration requirements. The district court
consequently granted the SEC's request for equitable and injunctive
relief. As we conclude that Recile has completely failed to
present any arguments raising genuine issues of material fact with
which to challenge the district court's entry of summary judgement,
we dismiss this appeal as frivolous and impose sanctions under
Federal Rules of Appellate Procedure 38.
I
FACTS AND PROCEEDINGS
Sam Recile's dream of building a huge shopping complex, to be
known as Place Vendome, proved to be a nightmare for his investors.
Recile sold investment units for the asserted purpose of financing
the initial stage of development of Place Vendome. He began
selling these units in August 1990 and eventually collected more
than $15,000,000 from hundreds of investors nationwide.
Investor's funds were funneled primarily through Hannover,
Inc., a corporation controlled by Recile and a female friend,
codefendant V. Rae Phillips.1 Through Hannover, Recile offered
and sold securities, called Pre-Acquisition Investment Units
("Investment Units") to the public. Recile solicited purchases of
these Investment Units by offering investors "a share of the profit
[in Place Vendome] in exchange for preacquisition financing." As
Chairman of Hannover, he entered into letter agreements with
investors regarding Investment Units wherein he promised investors
returns of 100% on their investments within six months--a profit
that was to be paid out of long-term financing for Place Vendome
once the land was acquired. Moreover, Recile represented that
1
Phillips was dismissed on December 28, 1992, for her
failure to prosecute this appeal under Local Rule 42.3.
Phillips subsequently consented to a judgment ordering her to
disgorge $675,521.
2
investors' funds would be used to pay "attorneys', architects',
engineers', and planners' fees . . . and related preacquisition
financing costs" for construction of Place Vendome.
While soliciting these funds from investors, Recile repeatedly
represented, in letters signed by him, that: 1) long-term
financing had been obtained for Place Vendome, 2) Hannover had
acquired signed leases for 700,000 square feet of space in Place
Vendome, and 3) the required wetlands permit had already been
obtained from the U.S. Army Corps of Engineers. Recile also
represented to some investors that he had a personal net worth in
the millions, and he touted Hannover as a successful real estate
development corporation that owned a large portfolio of real
estate.
None of these representations were true. The record reveals
that Recile never obtained long-term financing for Place Vendome.
The three companies that Recile represented as providing such
financing for Place Vendome--DSL Capital Corporation, SAE/Carlson,
and Federal Construction Co.--had in fact expressly advised Recile,
unequivocally and in writing, that they did not intend to provide
such financing. Neither had Recile or Hannover acquired any signed
leases for Place Vendome--the representation of Hannover's having
secured leases for 700,000 square feet was patently false. In
addition, Recile did not obtain the necessary wetlands permit from
the Army Corps of Engineers until after he had acquired almost
$8,000,000 from investors and after the SEC had filed the instant
suit. Finally, Hannover--rather than being a successful real
3
estate development company with large real estate holdings--was in
fact a management company that did not own any real estate.
The record further reveals that Recile's representations
regarding his own net worth and the use of the investors' funds
were likewise false. For example, Recile was subject to an
unsatisfied judgment of $250,000. And instead of using the
investors' funds for preacquisition costs only, significant
portions of these funds were diverted for the personal use of
Recile and his friend, Ms. Phillips. For example, approximately
$1,200,000 was used to renovate the property on which they lived.
Another $1,300,000 was used to renovate a house owned by Phillips
and for other real estate projects not related to Place Vendome.
In December 1990, $59,000 was used to purchase a Mercedes Benz for
Phillips' use. Finally, between August 1990 and February 1992
Recile withdrew at least $790,000 for his own personal expenses.
Recile never disclosed these uses of the funds to his investors.
In April 1991, the SEC filed its complaint, and one month
later obtained a preliminary injunction. This injunction
prohibited Recile from selling to anyone other than his wealthy
friends; yet Recile repeatedly violated this prohibition by
acquiring funds from non-approved investors after the injunction
was implemented. Recile also continually misrepresented to the
court and to investors that financing for the project was
imminent.2 In addition, he evaded the reporting and spending
2
For example, at a status conference in June 1991, Recile
told the district court that SAE/Carlson, a large construction
firm, "had agreed by the end of the next week" to issue a
4
limits contained in the preliminary injunction by depositing
investors' funds in an account under the name of Place Vendome of
America, Inc., a company formed after the complaint was filed.
The SEC filed its Motion for Summary Judgment in June 1992.
This motion claimed that Recile: 1) failed to register the
Investment Units in violation of §5 (a) & (c) of the Securities Act
of 1933,3 2) failed to register as a broker-dealer in violation of
§15(a) of that same act,4 and 3) committed securities fraud in
violation of §10(b)5 and Rule 10b-56 of the Securities Exchange Act
of 1934. The SEC supported its motion by offering extensive
documentation of Recile's fraud and registration violations;
documentation that included the offering materials, the letter
agreements, and depositions and affidavits obtained from investors
and participants in the scheme.
In response to the SEC's motion, Recile requested a
continuance of 60 days. The district court granted a one week
continuance and rescheduled the summary judgment hearing to allow
oral argument. On the day of the hearing, Recile filed an Opposing
$200,000,000 letter of credit for construction financing. To
corroborate this assertion, Recile brought to the conference
George Garfinkle, an employee of SAE/Carlson. This assertion was
false: Recile had secretly paid Garfinkle $20,000 to make this
claim if asked, and SAE/Carlson fired Garfinkle when it learned
of this incident.
3
15 U.S.C. §77e(a) & (c).
4
15 U.S.C. §78o(a).
5
15 U.S.C. §78j(b).
6
17 C.F.R. 240.10b-5.
5
Statement of Material Facts and presented oral argument.
The district court adopted the SEC's Statement of Material
Facts and entered summary judgment for the SEC on all of its
claims. The district court's Order granted the SEC broad-ranging
relief, which included: 1) permanently enjoining Recile from
committing any violation of the federal securities laws, 2)
appointing a receiver and granting the receiver complete authority
to manage the Place Vendome project, and 3) limiting Recile to
spending up to $1,000 a month for personal living expenses.
Recile timely appealed from this Order.
II
DISCUSSION
We liberally construe briefs in determining issues presented
for review; however, issues not raised at all are waived.7
Moreover, Rule 28 of the Federal Rules of Appellate Procedure
mandates that:
The brief of the appellant shall contain . . . [a]n
argument. . . . The argument shall contain the
contentions of the appellant with respect to the issues
presented, and the reasons therefor, with citations to
the authorities, statutes and parts of the record relied
on.8
Even when we thus construe Recile's brief liberally, we
discern but two challenges to the district court's Order. He
argues first that a genuine issue of material fact exists
7
E.g., Atwood v. Union Carbide Corp., 847 F.2d 278, 280 (5th
Cir. 1988), reh. on other grounds, 850 F.2d 1093, cert. denied,
489 U.S. 1079 (1989); Kincade v. General Tire & Rubber Co., 635
F.2d 501, 504-06 (5th Cir. 1981).
8
FED. R. APP. P. 28(a).
6
concerning the fraud claims, and second, that the district court
abused its discretion when it refused to grant him a longer
continuance for the summary judgment hearing. Recile presents no
argument regarding the securities and broker-dealer registration
claims, and he raises only limited argument regarding the fraud
claims.9
A. Summary Judgment Standard of Review
The grant of a motion for summary judgment is reviewed de
novo.10 Although we review the evidence and any inferences
therefrom in the light most favorable to the nonmoving party,11 a
motion for summary judgment shall be granted "if the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine
issue as to any material fact and that the moving party is entitled
to summary judgment as a matter of law."12 And once a properly
supported motion for summary judgement has been made, the nonmoving
party may not rest upon the mere allegations of denials in its
pleadings, but must instead set forth specific facts showing that
there is a genuine issue for trial.13
9
Thus, any arguments not made are considered waived. E.g.,
Atwood, 847 F.2d at 280.
10
E.g., United States Fidelity & Guaranty Co. v. Wigginton,
964 F.2d 487, 489 (5th Cir. 1992).
11
Id.
12
FED. R. CIV. P.56(c).
13
FED. R. CIV. P.56(e) (emphasis added); Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 250 (1986).
7
B. Raising a Genuine Issue of Material Fact
The SEC amply established its entitlement to summary judgment
on the fraud claims. The summary judgment evidence proffered by
the SEC showed, inter alia, that Recile repeatedly misrepresented
to investors that he had obtained long-term financing for and had
leased 700,000 square feet of Place Vendome, when in fact he had
done neither. He further represented to the investors that their
funds would be used to pay preacquisition financing costs, when in
fact over $3,000,000 of the funds were diverted to Recile and his
friend's personal use. Moreover, Recile never disclosed this use
of the funds to his investors. Finally, Hannover Corporation--
which Recile had represented to be a successful real estate
development company owning substantial real estate--was in fact a
management company that did not own any real estate.
In response to the SEC's well documented motion, Recile
offered an "Opposing Statement of Material Facts" consisting
primarily of conclusionary denials, improbable inferences, and
legalistic argumentation.14 On appeal, Recile--after repeatedly
reiterating that a factual dispute exists15--identifies only two
specific facts as disputed. First, Recile contends that the
Mercedes allegedly purchased for Phillips was in fact purchased for
14
In his opposing statement Recile, perhaps intentionally,
did not swear to the truth of his factual statements. Cf. FED.
R. CIV. P. 56(e).
15
Recile's bald allegation of a factual dispute is
insufficient, in itself, to create a genuine issue of material
fact. E.g., Fraire v. Arlington, 957 F.2d 1268, 1273 (5th Cir.),
cert. denied, 113 S. Ct. 462 (1992).
8
business purposes, and that this purchase was disclosed to all
potential investors. Even if we accept arguendo Recile's version
of this assertion, it fails in and of itself to create a genuine
issue of material fact. It does so because it does not refute the
other, significantly more important misrepresentations, such as the
false statements regarding the financing and leasing status of
Place Vendome, that amply satisfy the materiality element of a
securities fraud claim.16
Recile's second factual claim is premised on an implausible
inference. He argues that the accounting in the special master's
report reveals that there was no misuse of the investors' funds.
Yet Recile does not dispute the figures contained in those reports-
-figures which ultimately reveal that Recile and Phillips diverted
over $3,000,000 to personal use. To claim that such diversion does
not constitute misuse is simply incredible.17
As a final argument, Recile points to no specific facts but
instead launches a desperation kamikaze strike at his perceived
tormentors: the failure of Place Vendome was due, not to the fraud
16
A material fact is one "that might affect the outcome of
the suit under the governing law." Anderson, 477 U.S. at 250.
And under the governing law, materiality is defined as what a
reasonable investor would consider important in making his
investment decision. E.g., TSC Industries, Inc. v. Northway,
Inc., 426 U.S. 438, 450 (1976). Recile's statements regarding
the long-term financing and leasing status of Place Vendome
clearly qualify as material--the investors were to receive their
100% profit once the property and the long-term financing were
acquired.
17
See, e.g., Matsushita Electric Industrial Co. v. Zenith
Radio Corp., 475 U.S. 574, 586-87 (1986) (holding that nonmovant
cannot manufacture a factual dispute by asking a court to draw
inferences contrary to the evidence).
9
of Recile, but to the "heavy-handed" conduct of the government
coupled with "greedy, self-centered" parties in Baton Rouge. In
addition to having no support in the record, this assertion is
besides the point. Recile was not charged with "fraudulent
failure"--he was charged with making fraudulent statements and
omissions in connection with the sale of securities. Whether the
project should have succeeded or failed--and to whom credit or
fault for the ultimate result belongs--has no bearing on whether
Recile's conduct violated the securities laws.18
C. Discretion and Continuance for Further Discovery
A district court's denial of a request for continuance
pursuant to Rule 56(f) is reviewed only for an abuse of
discretion.19 Moreover, the request need not be granted when the
party opposing the motion "simply rel[ies] on vague assertions that
additional discovery will produce needed, but unspecified facts,"20
particularly when "ample time and opportunities for discovery have
already lapsed."21
Recile failed to identify to the district court what specific
18
See, International Shortstop, Inc. v. Rally's, Inc., 939
F.2d 1257, 1264 (5th Cir. 1991), cert. denied, 112 S. Ct. 936
(1992) (observing that a court need not consider issues not
germane to the claim when deciding a motion for summary
judgment).
19
E.g., United States v. Little Al, 712 F.2d 133, 135 (5th
Cir. 1983); Aviation Specialties, Inc. v. United Technologies
Corp., 568 F.2d 1186, 1189 (5th Cir. 1978).
20
SEC v. Spence & Green Chemical Co., 612 F.2d 896, 900 (5th
Cir. 1980), cert. denied, 449 U.S. 1082 (1981).
21
Id.
10
facts he was going to uncover or develop with additional discovery.
Indeed, Recile failed, much like he has done on appeal, even to
identify the specific issues that the additional discovery would
have addressed. Furthermore, Recile had been involved in discovery
for fifteen months before the hearing on the summary judgment
motion--discovery that focused on facts regarding his mental state
that were within his easy grasp.22 We conclude that under these
circumstances that the district court did not abuse its discretion
in granting Recile's motion for a continuance for a shorter period
than he requested.
III
CONCLUSION
Recile's attempt to overturn the district court's summary
judgement Order fails for want of facts. He failed to proffer any
specific facts to rebut the SEC's summary judgment evidence.
Recile likewise failed to explain how granting his request for a
continuance for a shorter period than he requested denied him the
opportunity to uncover or develop such facts. We thus perceive
this appeal to be nothing more than a frivolous play for time,
delaying the inevitable by wasting the resources of this court and
the SEC alike. Consequently, Recile's counsel is cautioned
henceforth to observe more closely the line between zealous
advocacy and abusive prosecution of meritless appeals; and Recile's
appeal of the Order of the district court is DISMISSED as
22
Recile knew the identity of the investors and contractors
who gave declarations to the SEC. In addition, the majority of
documents in this case were created by or sent to Recile.
11
frivolous, with imposition of sanctions under Federal Rules of
Appellate Procedure 38, assessing double costs to Recile.
12