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Stein v. U.S. Securities and Exchange Commission

United States District Court, District of Columbia

February 19, 2019

MITCHELL J. STEIN, Plaintiff,
v.
U.S. SECURITIES AND EXCHANGE COMMISSION, Defendant.

          MEMORANDUM OPINION

          JOHN D. BATES UNITED STATES DISTRICT JUDGE

         The Court already has entered summary judgment for the Securities and Exchange Commission (“SEC”) on the bulk of the claims at issue in this Freedom of Information Act (“FOIA”) case. Currently before the Court are [31] the SEC's renewed motion for summary judgment and [32] Stein's renewed cross-motion for summary judgment on a handful of remaining issues. The parties mainly dispute whether the SEC may continue to withhold requested records under FOIA Exemption 7(A), which exempts from disclosure documents that could reasonably be expected to interfere with civil or criminal law enforcement investigations. 5 U.S.C. § 552(b)(7)(A).[1] Stein also challenges the SEC's search of a discrete set of materials as inadequate under FOIA. For the reasons that follow, the SEC's renewed motion will be granted, and Stein's renewed motion will be denied.

         BACKGROUND

         I. Facts and Procedural History

         The facts and procedural history relevant to this case are more fully set forth in the Court's decision denying Stein's earlier motion for summary judgment and granting in part and denying in part the SEC's earlier motion for summary judgment. See Stein, 266 F.Supp.3d at 354. Briefly, in 2011 the United States indicted Stein for securities fraud, wire fraud, and other crimes related to his work at Heart Tronics, Inc., a medical device company. See Indictment, United States v. Stein, Crim. No. 9:11-80205 (S.D. Fla. Dec. 13, 2011), ECF No. 3. A week later, the SEC filed a civil enforcement action alleging securities violations stemming from much of the same conduct. See Complaint, SEC v. Heart Tronics, Inc., Civ. No. 8:11-1962 (C.D. Cal. Dec. 20, 2011), ECF No. 1. Following Stein's conviction in the criminal case, the district court in the civil case entered summary judgment against Stein on most claims, finding that Stein's criminal conviction collaterally estopped him from challenging his civil liability. See Jury Verdict, Stein, Crim. No. 9:11-80205, ECF No. 212; Minutes in Chambers at 2, 7, Heart Tronics, Civ. No. 8:11-1962, ECF No. 255; Judgment, Heart Tronics, Civ. No. 8:11-1962, ECF No. 277; Decl. of Kenneth Donnelly ¶¶ 15-16, Ex. 1 to SEC's Mot. for Summ. J. (“Donnelly Decl.”) [ECF No. 10-2]. Stein appealed his criminal conviction to the Eleventh Circuit, see United States v. Stein, 846 F.3d 1135 (11th Cir. 2017), and appealed the civil judgment to the Ninth Circuit, see SEC v. Stein, 906 F.3d 823 (9th Cir. 2018).

         In 2017, the Eleventh Circuit affirmed Stein's conviction but remanded to the district court for resentencing. See Stein, 846 F.3d at 1156. After being resentenced, Stein once again appealed his conviction and sentence to the Eleventh Circuit, where his case remains pending. See United States v. Stein, No. 18-13762 (11th Cir. docketed Sept. 5, 2018). Meanwhile, the Ninth Circuit affirmed the district court's entry of judgment against Stein in the civil case. See Stein, 906 F.3d at 834. Nevertheless, that case also remains ongoing: Stein has petitioned the Ninth Circuit for panel rehearing and rehearing en banc and moved to stay consideration of his petition pending the conclusion of his Eleventh Circuit appeal of his conviction and sentence. See Pet. for Panel Reh'g and Reh'g En Banc, SEC v. Stein, No. 15-55506 (9th Cir. filed Nov. 26, 2018), ECF No. 72; Mot. for Misc. Relief, Stein, No. 15-55506 (9th Cir. filed Nov. 26, 2018), ECF No. 77. Both Stein's petition for rehearing and the motion to stay remain undecided.

         II. FOIA Proceedings

         In 2015, while the criminal and civil proceedings remained ongoing, Stein submitted a FOIA request to the SEC seeking two categories of documents: all documents and information described in a privilege log prepared by the SEC in the Heart Tronics action, and all documents and information relating to the investigation of individuals whose identities Stein was accused of fabricating to further his alleged crimes. See Compl., Ex. B. [ECF No. 1]. The SEC withheld most of the first requested category under FOIA Exemption 7(A), which permits agencies to withhold documents that may interfere with ongoing or prospective proceedings stemming from civil or criminal law enforcement actions. See Compl., Ex. D at 1 (citing 5 U.S.C. § 552(b)(7)(A)). With respect to Stein's second category of requests-documents related to the names of individuals he allegedly invented-the SEC stated that any responsive documents were either already made available to Stein or were listed on the Heart Tronics privilege log. Stein, 266 F.Supp.3d at 334.

         After the SEC denied his administrative appeal, Stein filed suit here and the parties each moved for summary judgment. Id. This Court concluded that the SEC had properly withheld most of the privilege log records under Exemption 7(A) because their release may interfere with the Heart Tronics litigation. See id. at 343-47. “Because the work product, internal communications, and deliberative documents that Stein seeks essentially provide a road map for the SEC's case in the [ongoing] Heart Tronics litigation, ” the Court explained, “they are likely to give Stein insight into the way the investigation and the SEC's legal strategies developed that he . . . would not otherwise have, which could make re-litigating the Stein . . . case[]-or possibly even pursuing [it] on appeal-difficult.” Id. at 347.

         As for the second category of documents, the Court determined that the SEC met its FOIA obligations in all respects but one: the search of two one-terabyte hard drives and numerous boxes of hard-copy documents-dubbed the “RenewData materials”-for any responsive records. See id. at 338-43.

         Based on the foregoing, the Court denied Stein's motion for summary judgment and granted in part and denied in part the SEC's motion for summary judgment. The Court then ordered the SEC to search the RenewData materials for documents responsive to Stein's second category of requests and, after producing relevant documents or justifying any withholding decisions, offered the parties the chance to file renewed motions for summary judgment. See Aug. 8, 2017, Order [ECF No. 26].[2] After the parties filed their renewed motions and before the Court rendered its decision, however, the Ninth Circuit affirmed the district court's entry of judgment in the Heart Tronics case, raising whether Exemption 7(A) continued to apply to the privilege log documents. The Court accordingly ordered the SEC and Stein to submit supplemental briefing to address, among other things, whether Exemption 7(A) continued to apply to the privilege log documents. Briefing is now complete and the parties' renewed motions for summary judgment are ripe for resolution.

         LEGAL STANDARD

         District courts determine de novo whether an agency properly withheld requested documents under a statutory exemption to FOIA, and the agency “bears the burden of proving the applicability of claimed exemptions.” Am. Civ. Liberties Union v. U.S. Dep't of Def., 628 F.3d 612, 619 (D.C. Cir. 2011); 5 U.S.C. § 552(a)(4)(B). “Ultimately, an agency's justification for invoking a FOIA exemption is sufficient if it appears ‘logical' or ‘plausible.'” Id. (quoting Larson v. Dep't of State, 565 F.3d 857, 862 (D.C. Cir. 2009)).

         “FOIA cases typically and appropriately are decided on motions for summary judgment.” Georgacarakos v. FBI, 908 F.Supp.2d 176, 180 (D.D.C. 2012) (citation omitted). Summary judgment is appropriate where “the movant shows 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). The court may grant summary judgment in favor of the agency only after the agency has established “that it has ...


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