United States District Court, S.D. Indiana, Indianapolis Division
Jane Magnus-Stinson, Chief Judge
seven years ago, a jury found Defendant James Cochran guilty
of wire fraud, securities fraud, and conspiracy to commit
wire and securities fraud. Mr. Cochran has since exhausted
his criminal appellate rights, and the Court reopened this
parallel civil proceeding brought by the Securities and
Exchange Commission (the “Commission”)
November 1, 2018, the Commission filed a Motion for Summary
Judgment, [Filing No. 131], to which Mr. Cochran did
not respond. That Motion is now ripe for the Court's
Standard of Review
motion for summary judgment asks the Court to find that a
trial is unnecessary because there is no genuine dispute as
to any material fact and, instead, the movant is entitled to
judgment as a matter of law. SeeFed. R. Civ. P.
56(a). As the current version of Rule 56 makes clear, whether
a party asserts that a fact is undisputed or genuinely
disputed, the party must support the asserted fact by citing
to particular parts of the record, including depositions,
documents, or affidavits. Fed.R.Civ.P. 56(c)(1)(A). A party
can also support a fact by showing that the materials cited
do not establish the absence or presence of a genuine dispute
or that the adverse party cannot produce admissible evidence
to support the fact. Fed.R.Civ.P. 56(c)(1)(B). Affidavits or
declarations must be made on personal knowledge, set out
facts that would be admissible in evidence, and show that the
affiant is competent to testify on matters stated.
Fed.R.Civ.P. 56(c)(4). Failure to properly support a fact in
opposition to a movant's factual assertion can result in
the movant's fact being considered undisputed, and
potentially in the grant of summary judgment. Fed.R.Civ.P.
deciding a motion for summary judgment, the Court need only
consider disputed facts that are material to the decision. A
disputed fact is material if it might affect the outcome of
the suit under the governing law. Hampton v. Ford Motor
Co., 561 F.3d 709, 713 (7th Cir. 2009). In other words,
while there may be facts that are in dispute, summary
judgment is appropriate if those facts are not outcome
determinative. Harper v. Vigilant Ins. Co., 433 F.3d
521, 525 (7th Cir. 2005). Fact disputes that are irrelevant
to the legal question will not be considered. Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
summary judgment, a party must show the Court what evidence
it has that would convince a trier of fact to accept its
version of the events. Johnson v. Cambridge Indus.,
325 F.3d 892, 901 (7th Cir. 2003). The moving party is
entitled to summary judgment if no reasonable fact-finder
could return a verdict for the non-moving party. Nelson
v. Miller, 570 F.3d 868, 875 (7th Cir. 2009). The Court
views the record in the light most favorable to the
non-moving party and draws all reasonable inferences in that
party's favor. Darst v. Interstate Brands Corp.,
512 F.3d 903, 907 (7th Cir. 2008). It cannot weigh evidence
or make credibility determinations on summary judgment
because those tasks are left to the fact-finder.
O'Leary v. Accretive Health, Inc., 657 F.3d 625,
630 (7th Cir. 2011). The Court need only consider the cited
materials, Fed.R.Civ.P. 56(c)(3), and the Seventh Circuit
Court of Appeals has “repeatedly assured the district
courts that they are not required to scour every inch of the
record for evidence that is potentially relevant to the
summary judgment motion before them, ”
Johnson, 325 F.3d at 898. Any doubt as to the
existence of a genuine issue for trial is resolved against
the moving party. Ponsetti v. GE Pension Plan, 614
F.3d 684, 691 (7th Cir. 2010).
forth by the Seventh Circuit Court of Appeals in its decision
affirming Mr. Cochran's criminal conviction, this case
involves Mr. Cochran's dealings with Fair Finance Company
(“Fair”). United States v.
Durham, 766 F.3d 672, 675-76 (7th Cir. 2014). As the
Seventh Circuit explained, “Timothy Durham and James
Cochran bought the business in 2001 through a holding company
formed for that purpose and named Fair Holdings, Inc. Durham
was its CEO, Cochran was its COO and chairman of the
board.” Id. at 676.
They used money invested in Fair to support their lavish
lifestyles and to fund loans to related parties that would
never be repaid. When the company's auditors raised red
flags about its financial status, the auditors were fired.
When Fair experienced cash-flow problems, it misled investors
and regulators so it could keep raising capital.
Eventually the scheme began to unravel. One of the
company's directors, himself under investigation in a
separate matter, alerted the FBI that Fair was being operated
as a Ponzi scheme. After an investigation, the FBI seized
Fair's computer servers and arrested Durham, Cochran, and
Id. at 676.
20, 2012, a jury found Mr. Cochran guilty of conspiracy to
commit wire fraud and securities fraud, securities fraud, and
six counts of wire fraud. SeeJury Verdict, U.S.
v. Durham, et al., No. 1:11-cr-42-JMS (SD Ind. June 22,
2012), ECF No. 354. Thereafter, Mr. Cochran was sentenced to
25 years of imprisonment and the Court imposed criminal
restitution in the amount of $202, 830, 082.27.
SeeEntry for November 30, 2012, U.S. v. Durham,
et al., No. 1:11-cr-42-JMS (SD Ind. December 5, 2012),
ECF No. 444. Upon entry of judgment, the Court directed that
restitution be paid to payees listed on a 115-page
spreadsheet that was attached to the judgment.
SeeList of Payees, U.S. v. Durham, et al.,
No. 1:11-cr-42-JMS (SD Ind. December 10, 2012), ECF No.
450-1. On September 4, 2014, the Seventh Circuit Court of
Appeals affirmed Mr. Cochran's conviction, and denied
rehearing on March 10, 2015. SeeMandate of the USCA,
U.S. v. Durham, et al., No. 1:11-cr-42-JMS (SD Ind.
March 18, 2015), ECF No. 537.
the pendency of the criminal case, including the appeal, this
parallel civil action, which was filed on March 16, 2011, was
stayed. On June 8, 2016, the Court ordered the civil case
reopened. [Filing No. 39.] The substance of this
action involves allegations that Mr. Cochran committed civil
violations of the Securities and Exchange Acts of 1933 and
1934 (collectively, the “Securities
Acts”), in particular, Section 17(a) of the
Securities Act, 15 U.S.C. § 77q(a), Section 10(b) of the
Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5, 17
C.F.R. § 240.10b-5 thereunder. [Filing No. 1 at
26-27.] The Commission requested that the Court: (1)
issue an injunction permanently restraining and enjoining Mr.
Cochran from violating Sections 17(a) and 10(b) and Rule
10b-5; (2) order Mr. Cochran to disgorge all ill-gotten gains
derived from his unlawful activities with prejudgment
interest; (3) order Mr. Cochran to pay civil penalties
pursuant to the Securities Acts; and (4) prohibit Mr. Cochran
from acting as an officer or director pursuant to the
Securities Acts. [Filing No. 1 at 28-29.]
January 26, 2017, the Commission moved for summary judgment
on its claims against Mr. Cochran and Mr. Durham. [Filing
No. 68.] On July 13, 2017, in lieu of a response to the
Commission's Motion for Summary Judgment, Mr. Cochran
informed the Court that he “desired” to settle
the matter with the Commission. [Filing No. 79.] On
August 18, 2017, the Court ruled on the Commission's
Motion for Summary Judgment, but only as it related to the
Commission's claims against Mr. Durham. [Filing No.
86.] With regard to Mr. Cochran, the Court stated that
“the Magistrate Judge assigned to this case has been
asked to convene a conference to attempt to resolve the
claims against Mr. Cochran” and that the Court's
Order “only relates to the Commission's claims
against Mr. Durham.” [Filing No. 86 at n.2.]
December 14, 2017, the Commission advised that it had not yet
reached a settlement agreement with Mr. Cochran. [Filing
No. 97.] Five days later, Mr. Cochran filed a document
with the Court in which he argued that the Commission had
relied upon inadmissible hearsay in pursuing its claims
against him and that, in attempting to settle the matter, the
Commission was “trying to get one over on” him.
[Filing No. 99 at 4.] Following additional
settlement efforts before the Magistrate Judge, on February
26, 2018, Mr. Cochran filed a document with the Court in
which he questioned the $183 million disgorgement amount
sought by the Commission in its previous Motion for Summary
Judgment and proposed a new disgorgement amount of
approximately $24.5 million. [Filing No. 108.]
April 13, 2018, the Commission filed a Motion to Determine
Disgorgement with regard to Mr. Durham, in which it advised
the Court that it expected an imminent settlement with Mr.
Cochran. [Filing No. 111 at 2 n.1.] Despite the fact
that this Motion did not pertain to him, Mr. Cochran filed a
response to the Commission's Motion, in which he again
proposed a disgorgement amount of $24.5 million. [Filing
No. 113 at 5.] On June 29, 2018, the Court ruled on the
Commission's Motion as it related to Mr. Durham, and
specifically stated that the Order did not apply to Mr.
Cochran. [Filing No. 118 at 1 n.2.] Days later, the
Court noted that Mr. Cochran and the Commission were still in
settlement negotiations, and denied Mr. Cochran's motion
concerning disgorgement as premature, but without prejudice
should settlement not be achieved. [Filing No. 119 at
followed were numerous updates from the Commission regarding
the status of settlement efforts with Mr. Cochran. On August
9, 2018, the Commission advised the Court that it
“anticipates an agreement with Cochran on disgorgement
within two weeks.” [Filing No. 120 at 1.] On
August 23, 2018, the Commission advised that it
“anticipates an agreement with Cochran but recognizes
that receipt, execution, and return of the consent has proven
challenging in the past due to his incarceration.”
[Filing No. 124 at 1-2.] On September 28, 2018,
however, the Commission advised that “[u]nfortunately,
the parties are unable to agree on disgorgement, and
therefore the Commission is asking that the Court proceed
with ruling on its summary judgment motion.”
[Filing No. 126 at 1.] The Court then ordered the
Commission to file one consolidated motion as to Mr.
Cochran's liability and disgorgement. [Filing No.
127.] On October 15, 2018, Mr. Cochran filed a document
with this Court in which he stated that he requested that the
Commission provide him with a breakdown of its proposed
settlement amount but that he had not received one.
[Filing No. 128.]
November 1, 2018, the Commission filed a Motion for Summary
Judgment against Mr. Cochran. [Filing No. 131.] The
Commission notified Mr. Cochran of his right to file a
response to its Motion, [Filing No. 134], however,
Mr. Cochran did not file any response. As such, the
Commission's Motion for Summary Judgment is now ripe for
the Court's review.
Violation of Securities Laws
Motion, the Commission first argues that the jury's
verdict in the criminal trial should be given collateral
effect in this matter to establish the Commission's
claims against Mr. Cochran. With regard to the
Commission's claim based on Section 10(b), 15 U.S.C.
§ 78j(b), the Commission argues that “when the
jury found Defendant guilty, they necessarily found the
existence of all the elements that make up a civil Section
10(b) claim, ” including the scienter requirement.
[Filing No. 132 at 31.] With regard to Section
17(a), the Commission argues that the elements thereof are
substantially similar to Section 10(b), with the addition
that the former prohibits fraud in “connection with the
offer or sale of securities” and “under the facts
here there is no doubt that the jury necessarily concluded
this element was present too.” [Filing No. 132 at
31-32.] In further support of its arguments, the
Commission points to this Court's order regarding the
same civil allegations against Mr. Durham in which this Court
held that Mr. Durham was collaterally estopped from
litigating violations of Section 10(b), Rule 10b-5, and
Section 17(a). [Filing No. 132 at 32.]
Cochran did not file any response to the Commission's
Motion, nor do any of the various documents Mr. Cochran filed
in this Court over the past year address the issue of whether
he committed civil violations of Section 10(b), Rule 10b-5,
and Section 17(a). [SeeFiling No. 113 (Mr.
Cochran's “Motion of . . . Willingness to Negotiate
with the SEC and Discern the Correct Disgorgement”);
Filing No. 128 (Mr. Cochran's “Motion
Report as to Status of Settlement Negotiations with
Securities and Exchange Commission”).]
question presently before this Court is whether, under the
doctrine of collateral estoppel, the jury verdict is
sufficient to conclusively establish that Mr. Cochran also
committed civil violations of Section 10(b), Rule 10b-5, and
doctrine of collateral estoppel (also known as issue
preclusion), holds that “once an issue is actually and
necessarily determined by a court of competent jurisdiction,
that determination is conclusive in subsequent suits based on
a different cause of action involving a party to the prior
litigation.” Our Country Home Enters., Inc. v.
Comm'r of Internal Revenue, 855 F.3d 773, 782 (7th
Cir. 2017) (internal citations omitted). “A party is
constrained by collateral estoppel as a matter of federal law
only where four criteria are satisfied: (1) the issue sought
to be precluded must be the same as that involved in the
prior litigation, (2) the issue must have been actually
litigated, (3) the determination of the issue must have been
essential to the final judgment, and (4) the party against
whom estoppel is invoked must [have been] fully represented
in the prior action.” Grede v. FCStone, LLC,
867 F.3d 767, 776 (7th Cir. 2017) (citations omitted). Under
collateral estoppel, an “outstanding criminal judgment
or disciplinary sanction, as long as it stands, blocks any
inconsistent civil judgment.” Haywood v.
Hathaway, 842 F.3d 1026, 1029 ...