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United States Securities and Exchange Commission v. Battenberg

April 8, 2010


The opinion of the court was delivered by: Honorable Avern Cohn


I. Introduction

This is a securities fraud case. Plaintiff, the United States Securities and Exchange Commission (SEC) sued Delphi Corporation (Delphi) and several of its senior officers, members of its accounting and treasury staff, as well an individual employed by a third party, for their actions resulting in Delphi materially misstating its financial condition and operating results in SEC filings and in offering documents. Following settlements with the SEC, the only defendants that remain are: J.T. Battenberg, Paul Free, James Blahnik, Milan Belans, and Catherine Rozanski, all of whom filed motions for summary judgment. Rozanski later withdrew her motion. The Court held a hearing on the motions on February 3, 2010. At the hearing on the summary judgment motions, counsel for Blahnik stated that he intended to rely on the argument that he is entitled to summary judgment on the grounds that he cannot be primarily liable for violating § 10(b) of the Securities and Exchange Act or Rule 10b-5 because he did not directly make false statements to the investing public. The Court directed Blahnik to present his position in a letter. The SEC submitted a letter response. Blahnik submitted a second letter to which the SEC also responded. The matter is now ready for decision. For the reasons that follow, Blahnik's motion for summary judgment is DENIED.

II. Background*fn1

In approximately August of 2004, the SEC notified Delphi that it had issued a Formal Order of Investigation into matters underlying the complaint in this case. In connection with its investigation, the SEC issued subpoenas to numerous entities, including defendants.

Blahnik was a senior officer at Delphi. During the relevant time, he served as Treasurer and then Vice President of Treasury, Mergers and Acquisitions of Delphi. He reported to defendant Alan Dawes, who was Chief Financial Officer of Delphi. He is not a CPA. However, his positions required a sophisticated understanding of financial matters. In his positions, he oversaw the preparation of Delphi earnings releases and analyst and rating agency presentations that incorporated information concerning GAAP and non-GAAP measures of Delphi's cash flow and liquidity. From January 2000 to August 2001, Blahnik supervised defendant Milan Belans, a CPA, who worked in Delphi's treasury department as Director of Capital Planning and Pension Analysis.

The SEC accuses Blahnik of involvement in activities which resulted in false statements in Delphi's 2000 Form 10-K, 2001 and 2003 offering documents, incorporating the 2000 Form 10-K, and Forms 8-K filed in 2002-2004.

The SEC specifically says that Blahnik had a hand in three schemes, the PGM Transaction with Bank One, the Cores and Batteries Transaction with BBK, and European Factoring. The events surroundings those schemes and Blahnik's purported role in each of them is well known to the parties and the Court. These events were set forth in the Court's October 8, 2008 Memorandum and Order and will not be repeated here.

III. Summary Judgment

Summary judgment will be granted when the moving party demonstrates that there is "no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." FED. R. CIV. P. 56(c). There is no genuine issue of material fact when "the record taken as a whole could not lead a rational trier of fact to find for the non-moving party." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

The nonmoving party's response "must set forth specific facts showing that there is a genuine issue for trial." FED. R. CIV. P. 56(e). Showing that there is some metaphysical doubt as to the material facts is not enough; "the mere existence of a scintilla of evidence" in support of the nonmoving party is not sufficient to show a genuine issue of material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). Rather, the nonmoving party must present "significant probative evidence" in support of its opposition to the motion for summary judgment in order to defeat the motion. See Moore v. Philip Morris Co., 8 F.3d 335, 340 (6th Cir. 1993); see also Anderson, 477 U.S. at 249-50.

IV. Primary Liability/Scheme Liability

As the SEC pointed out at the hearing, Blahnik, and other defendants raised this direct involvement argument in the motions to ...

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