SEC v. CKB168 Holdings, Ltd.
SEC v. CKB168 Holdings, Ltd.
2016 WL 11797147 (E.D.N.Y. 2016)
January 15, 2016
Mann, Roanne L., United States Magistrate Judge
Summary
The SEC requested sanctions against Shern and Leung for violations of Rule 37 of the FRCP. The Court found that they had acted with a culpable state of mind to support spoliation sanctions. The SEC and Shern and Leung are now directed to file submissions addressing the impact of the recent revision to Rule 37 on the Court's previous recommendation.
Additional Decisions
SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
CKB168 HOLDINGS, LTD., et al., Defendants
v.
CKB168 HOLDINGS, LTD., et al., Defendants
13-CV-5584 (RRM)
United States District Court, E.D. New York
Signed
January 15, 2015
Filed January 15, 2016
Counsel
Catherine Pappas, Pro Hac Vice, Securities and Exchange Commission, Philadelphia, PA, Daniel Joseph Maher, Pro Hac Vice, Michael S. Lim, Pro Hac Vice, Stacy L. Bogert, Nancy Tyler, Pro Hac Vice, Devon Staren, John Tavana, Pro Hac Vice, United States Securities and Exchange Commission, Washington, DC, for Plaintiff.Jacob S. Frenkel, Pro Hac Vice, Dickinson Wright PLLC, Washington, DC, for Defendant Rayla Melcher Santos.
Peiwen Chang, Pro Hac Vice, Cogswell Nakazawa & Chang LLP, Long Beach, CA, Zhijun Liu, American Law Groups, PLLC, Flushing, NY, for Defendants Daliang (David) Guo, Rosanna LS Inc., USA Trade Group, Inc., Ouni International Trading Inc., EZ Stock Club Corp.
Allan Schiller, Schiller Law Group, P.C., New York, NY, John Vincent Golaszewski, Casas Law Firm, P.C., New York, NY, Peiwen Chang, Pro Hac Vice, Cogswell Nakazawa & Chang LLP, Long Beach, CA, Zhijun Liu, American Law Groups, PLLC, Flushing, NY, for Defendants Yao Lin, Chih Hsuan (Kiki) Lin, Wen Chen Hwang.
Peiwen Chang, Pro Hac Vice, Cogswell Nakazawa & Chang LLP, Long Beach, CA, for Defendants Toni Tong Chen, Cheongwha (Heywood) Chang, HTC Consulting LLC, Arcadia Business Consulting, Inc.
Zhijun Liu, American Law Groups, PLLC, Flushing, NY, for Defendant E. Stock Club Corp.
CKB168 Holdings Ltd., Pro Se.
WIN168 BIZ Solutions Ltd., Pro Se.
CKB168 Ltd., Pro Se.
CKB168 BIZ Solution, Inc., Pro Se.
Cyber Kids Best Education Ltd., Pro Se.
Hyng Wai Howard Shern, Pro Se.
Rui Ling (Florence) Leung, Pro Se.
Daliang (David) Guo, Berlin, NH, Pro Se.
Joan Congyi, Ma, Arcadia, CA, Pro Se.
Mann, Roanne L., United States Magistrate Judge
ORDER TO SHOW CAUSE
*1 In a Report and Recommendation entered on November 3, 2015, this Court recommended that plaintiff Securities and Exchange Commission (the “SEC”) be granted two adverse inference instructions as sanctions against defendants Hung Wai (Howard) Shern (“Shern”) and Rui Ling (Florence) Leung (“Leung”), based upon their violations of Rule 37 of the Federal Rules of Civil Procedure (the “FRCP”). See Report and Recommendation (Nov. 3, 2015) (“11/3/15 R&R”), Electronic Case Filing (“ECF”) Docket Entry (“DE”) #295. Shern and Leung have each filed objections to this Court's recommendations, see Letter with attachments ... from Howard Shern (docketed Nov. 30, 2015), DE #299; Letter with attachments ... from Florence Leung (docketed Nov. 30, 2015), DE #300, which have not yet been ruled upon by the District Court.
In making its previous recommendations, the Court found that Shern and Leung had acted with “a sufficiently culpable state of mind to support spoliation sanctions,” 11/3/15 R&R at 13 -- either (1) because they were grossly negligent in failing to preserve the requested materials, see id., or (2) because the requested materials never existed in the first place, and Shern and Leung had acted in bad faith by refusing to confirm that fact unequivocally, see id. at 15. Under then-applicable case law in this Circuit, simple negligence was sufficient to demonstrate a culpable state of mind supporting Rule 37 sanctions. See, e.g., Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 113 (2d Cir. 2002) (“[D]iscovery sanctions, including an adverse inference instruction, may be imposed upon a party that has breached a discovery obligation not only through bad faith or gross negligence, but also through ordinary negligence....”).
On December 1, 2015, amendments to the FRCP went into effect. Rule 37(e) now states that:
If electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery, the court:
(1) upon finding prejudice to another party from loss of the information, may order measures no greater than necessary to cure the prejudice; or
(A) presume that the lost information was unfavorable to the party;
(B) instruct the jury that it may or must presume the information was unfavorable to the party; or
(C) dismiss the action or enter a default judgment.
Fed. R. Civ. P. 37(e) (emphasis added). The amended rules govern in “all proceedings in civil cases” commenced after December 1, 2015, and, “insofar as just and practicable, all proceedings then pending.” Order of the Supreme Court of the United States (Apr. 29, 2015), http://www.supremecourt.gov/orders/courtorders/frcv15_5h25.pdf. According to the Advisory Committee's notes, the new Rule 37(e)(2) “rejects cases such as Residential Funding ... that authorize the giving of adverse-inference instructions on a finding of negligence or gross negligence.” Fed. R. Civ. P. 37(e)(2) advisory committee's note to 2015 amendment.
*2 In light of the above, the SEC and Shern and Leung are directed to file submissions, by January 25, 2016, addressing the impact of the recent revision to Rule 37 on this Court's 11/3/15 R&R. In particular, the aforesaid parties are ordered to show cause why, in light of the rule change, the Court should not modify its recommendation so as to deny the SEC's motion for an adverse inference instruction without prejudice, with the right to renew that motion, in the event the case proceeds to trial, and to attempt to make the requisite showing of intent based on the evidence adduced at trial.
SO ORDERED.