Securities — Summary Judgment on Scienter Appropriate in Light of Defendants’ Invocation of Fifth Amendment Rights - Joseph Hage Aaronson

Commercial Litigation and Arbitration

Commercial Litigation and Arbitration

Securities — Summary Judgment on Scienter Appropriate in Light of Defendants’ Invocation of Fifth Amendment Rights

From SEC v. Lyttle, 2008 U.S. App. LEXIS 17048 (7th Cir. Aug. 7, 2008):

The defendants argue that because scienter is a state of mind, summary judgment can almost never be granted in favor of a plaintiff who has the burden of proving scienter, as the SEC did. For it is always possible, they say, that a reasonable jury would credit a defendant's testimony that he believed the representations were true.***

Even when a party's subjective beliefs are critical to liability, it is not always true that the case cannot be decided on summary judgment — as the present case illustrates. The defendants are under indictment for fraud and refused to testify in this case. Their refusal is privileged by the self-incrimination clause of the Fifth Amendment. But the consequence of their refusal is that they cannot testify to their state of mind. Without such testimony to contradict the mountain of circumstantial evidence (circumstantial with regard to the defendants' inmost beliefs, at any rate) that the SEC presented, evidence reinforced by the inference (permissible in a civil case) of guilt from their refusal to testify, as in SEC v. Colello, 139 F.3d 674, 677-78 (9th Cir. 1998), no reasonable jury could doubt that they had acted with scienter, see LaSalle Bank Lake View v. Seguban, 54 F.3d 387, 391-92 (7th Cir. 1995); Doe ex rel. Rudy-Glanzer v. Glanzer, 232 F.3d 1258, 1264 (9th Cir. 2000), whatever the precise definition of the word.

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