Replies to post #163583 on Conversion Solutions Holdings (fka CSHD)

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Doc 26
OCR

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
Civil Action No. 1:06-CV-2568-CC (N.D. Ga.)

SECURITIES AND EXCHANGE COMMISSION,

Plaintiff,:

v.
CONVERSION SOLUTIONS HOLDING CORPORATION and
RUFUS PAUL HARRIS : a/k/a PAUL RUFUS HARRIS,
Defendants.

PLAINTIFF'S BRIEF IN OPPOSITION TO DEFENDANT HARRIS'S MOTION TO COMPEL DISCOVERY AND FOR SANCTIONS FOR FAILING TO DISCLOSE

Plaintiff, Securities and Exchange Commission ("Commission") files this Brief in Opposition to Defendant Rufus Paul Harris's Verified Motion to Compel Discovery and Motion for Sanctions for Failing to Disclose ("Motion to Compel Discovery and for Sanctions for Failing to Disclose").

INTRODUCTION

Defendant Harris has not conferred with Plaintiff's counsel as required by Fed.R.Civ.P. 37(a)(2) with regard to his Motion to Compel Discovery and for Sanctions for Failing to Disclose. Moreover, Harris's motion does not meet the procedural requirements of N.D.Ga. 37.[1]. Were the court to reach the merits of Harris's motion in spite of these defects, it should nonetheless deny the motion because it rests on a misunderstanding of the relevant law and a misstatement of the relevant facts.

PROCEDURAL POSTURE

The Complaint in this matter was filed on October 24, 2006. [1] On October 26, 2006, the Court issued an Order to Show Cause, Temporary Restraining Order, Order Prohibiting Destruction of Documents, and Order Expediting Discovery. On November 4, 2006, Harris was served with the Summons and Complaint, along with other associated documents. Harris's Answer to the Complaint was thus due to be filed not later than November 24, 2006. Conversion was served with the Summons and Complaint, along with other associated documents, through its registered agent for service of process, Harvard Business Services of Lewes, Delaware, on October26, 2006. Conversion's Answer to the Complaint was thus due to be filed not later than November 15, 2006.

[1] On the same day, the Securities and Exchange Commission exercised its statutory authority under Section 12(k) of the Securities Exchange Act of 1934 [15 U.S.C. §781(k)] to suspend trading in the securities of Conversion Solutions Holding Corp. for a ten-day period. The trading suspension was never part of the instant lawsuit, and this brief does not address various issues raised by Defendant Harris concerning it.

On November 7, 2006, this Court entered a preliminary injunction against Harris based on his consent. In the same order, the Court provided that Plaintiff could continue to take expedited discovery. On November 16, 2006, Plaintiff filed the returns of service of process for both Harris and Conversion with the Court. Thereafter, on November 16, 2006, Plaintiff applied to the Clerk for an entry of default as to Conversion. On November 17, 2006, the Clerk entered a default as to Conversion. On November 28, 2006, Plaintiff applied to the Clerk for an entry of default as to Harris. On November 29, 2006, the Clerk entered a default as to Harris.

On April 24, 2007, Harris filed with the Court a document styled "Defendant Conversion Solutions Holding's Answer and Defenses to Complaint for Injunctive and Other Relief'. On May 11, 2007, Plaintiff moved to strike this Answer. Subsequently, on May 15, 2007, Harris moved that the Clerk's entry of default be set aside and filed another Answer. On October 30, 2007, the Court granted Plaintiff's motion to strike the Answer and denied Harris's motion to set aside the entry of default as to himself individually and as to Conversion. On November 7, 2007, Harris filed a "Motion for Reconsideration/Rehearing of the Court's October 30, 2007 Order Entered by This Court" and a related Motion for Enlargement of Time to File Supplemental Affidavits. On November 16, 2007, Plaintiff filed a brief opposing both the motion for reconsideration and the motion for enlargement of time. On December 17, 2007, Harris filed two documents: a "Verified Motion to Compel Discovery and Motion for Sanctions for Failing to Disclose" and a "Supplemental Affidavit in Support of Motion for Reconsideration and in Opposition to Plaintiffs Motion for Default Judgment and Supporting Memorandum of Law."

FACTS

Defendant Harris appeared, under subpoena, for his own deposition on October 30, 2006. Because Harris was over six hours late for his deposition, he returned to continue his testimony on November 1, 2006.

In addition to Mr. Harris, Plaintiff has deposed seven other witnesses pursuant to the expedited discovery authorized by this Court's October 26 and November 7, 2007 Orders. Defendant Harris was provided with advance notice of each of these seven depositions; however, he did not attend any of them, not even those conducted locally in Atlanta or telephonically, which he presumably could have attended at little or no cost. The following table shows the depositions that Defendant Harris was provided notice of, but failed to attend:

Date of Notice Deposition Date Witness Location

10/26/2006 - 11/2/2006 (postponed from 10/31/2006 at
request of counsel for witness) Benjamin Stanley Atlanta, GA

10/27/2006 (call-in instructions provided 10/30/2006) 10/31/2006 Janet McGrath, Euroclear Bank New York, NY
(telephonic)

10/31/2006 (call-in instructions provided 11/1/2006) 11/3/2006 Frank Cristiano, Fidelity Management & Research Co. Boston, MA
(telephonic)

12/11/2006 - 1/9/2007 Darryl S. Horton Detroit, MI

12/11/2006 - 1/10/2007 Thomas Benson Detroit, MI

6/18/2007 - 6/26/2007 James P. Gee Atlanta, GA

9/11/2007 - 10/18/2007 Michael D. Alexander Fort Worth, TX


To Plaintiff's knowledge, Defendant Harris has not conducted any type of discovery in this case. To date, Plaintiff has not received notice of a single deposition, subpoena for documents, request for admission, or interrogatory by Defendant Harris. Moreover, to the best of Plaintiff's knowledge, Mr. Harris has not ordered any transcripts from the court reporting firm that transcribed the depositions taken by Plaintiff.

Defendant Harris claims in paragraphs 3 and 4 of his Motion to Compel Discovery and for Sanctions for Failing to Disclose that he conducted a "Rule 26 meeting" with counsel for Plaintiff on November 3 and 6, 2006. This claim is false. Harris has represented himself pro se throughout this lawsuit. Accordingly, counsel for Plaintiff has accepted and responded to numerous phone calls and e-mails from him at various times. These communications have varied widely in content [2]; however, none of them bore any resemblance to a conference pursuant to Fed.R.Civ.P. 26(f) to develop a discovery plan.

[2] Harris called counsel for Plaintiff on a number of occasions to discuss various proposals to "put assets into" Conversion Solutions. On May 9, 2007, Harris e-mailed counsel for Plaintiff concerning an apparently fraudulent deal in which an unidentified third party had offered to "place" with Conversion Solutions "U.S. Treasury Check Number(s) in denominations of $500M, totaling $2B." A copy of counsel for Plaintiff's reply e-mail to Harris, quoting his entire original message, is attached as Exhibit A to this Brief. In paragraph 9 of the Supplemental Affidavit he filed with the Court on December 17, 2007, Harris made the following bizarre, false allegation: "At one point during the negotiations, I supplied $2,000,000,000.00 in treasury checks to Alana BLACK and her assistant, I asked Alana to work with me and place them into CSHD to fund it and she stated that she would talk with the higher up's [sic] and contact me back. She never made the return call or followed up." This slanderous, baseless claim appears to be a reference to the May, 2007 e-mail exchange between Harris and counsel described above and attached as Exhibit A.

Next, Defendant Harris appears to claim in paragraph 4 of his Motion to Compel that counsel for Plaintiff offered to send him copies of all evidence gathered concerning the case, from whatever source, including trading records and free copies of all deposition transcripts. This claim is false.

In paragraph 9 of his Motion, Harris claims that counsel for Plaintiff "tricked him into a default situation" by negotiating with him. This claim is false. As discussed above, counsel for Plaintiff has spoken with Harris on numerous occasions throughout the case. During several of these discussions, Harris attempted to raise the issue of settlement. However, none of these conversations were meaningful or substantive settlement discussions. Moreover, counsel for Plaintiff never provided Harris with any assurance that Plaintiff would not seek entry of default if he failed to file an Answer.

In paragraph 11 of his motion, Harris claims that counsel for Plaintiff "seized the records of the Defendant" and would not grant him access to those records. This claim, too, is false. Plaintiff has not obtained any evidence in this case from criminal authorities, through seizure or otherwise.

It is possible, but not likely, that counsel for Plaintiff could have helped Defendant Harris understand these factual misstatements, had he conferred with her concerning the Verified Motion to Compel Discovery and Motion for Sanctions for Failing to Disclose before filing it. However, Harris did not confer with counsel for Plaintiff, and does not appear to have made any attempt to do so. Accordingly, counsel for Plaintiff learned of Harris's Motion only when it was filed.

LAW

Rule 26(a) of the Federal Rules of Civil Procedure sets forth certain required disclosures for parties in civil litigation before the federal courts. This court's local rules specify that the initial disclosures required by Fed.R.Civ.P. 26(a)(1) must be made at or within (30) days after the appearance of a defendant by answer or motion. N.D.Ga. 26.1(A).

Plaintiff has found only one case where a defendant sought sanctions against a plaintiff for failure to make disclosures under Fed.R.Civ.P. 26(a) after entry of default against the Defendant pursuant to Rule 55. In that case, the court found plaintiffs to have no obligation to make Rule 26(a) disclosures in light of the entry of default. See Porter v. Brancato, No. Civ. A. 96-2208-KHV, 1997 WL 150050, at *1 (D. Kan. Feb. 24, 1997). Rule 37 of the Federal Rules of Civil Procedure governs motions to compel disclosure or discovery. It requires that any motion to compel Rule 26(a) disclosure include a certification "that the movant has in good faith conferred or attempted to confer with the party not making the disclosure in an effort to secure the disclosure without court action." Fed.R.Civ.P. 27(a)(2)(A).

This district's local rules further specify that any motion to compel disclosure or discovery shall:

(1)Include the certification of counsel with regard to the duty to confer required by Fed.R.Civ.P. 37(a)(2)(A)(B);
(2)Quote verbatim each disclosure, interrogatory, deposition question, request for designation of deponent, or request for inspection to which objection is taken;
(3)State the specific objection;
(4)State the grounds assigned for the objection (if not apparent from the objection); and
(5)Cite authority and include a discussion of the reasons assigned as supporting the motion.

N.D.Ga. 37.1(A)(1-5). Furthermore, "[t]he motion shall be arranged so that the objection, grounds, authority, and supporting reasons follow the verbatim statement of each specific disclosure, interrogatory, deposition question, request for designation of deponent, or request for inspection to which an objection is raised." N.D.Ga. 37.1(A).

ARGUMENT

Harris's Motion should be denied, because he has not complied with the requirement of Fed.R.Civ.P. 37(a) that he certify he has in good faith conferred or attempted to confer in an effort to secure the disclosures without court action.

If the Court nonetheless reaches the merits of Harris's motion, it should be denied because Plaintiff had no obligation to make Rule 26(a) disclosures in light of the entry of default. See Porter v. Brancato, No. Civ. A. 96-2208-KHV, 1997 WL 150050, at *1 (D. Kan. Feb. 24, 1997).


CONCLUSION
For the reasons discussed above, Plaintiff asks that the Court deny Defendant Harris's Verified Motion to Compel Discovery and Motion for Sanctions for Failing to Disclose.

This 4th day of January, 2008.

Respectfully submitted,

Alana R. Black
Senior Trial Counsel Georgia Bar No. 785045 E-mail: [e-mail]
COUNSEL FOR PLAINTIFF
Securities and Exchange Commission
3475 Lenox Road, N.E., Ste. 500
Atlanta, Georgia 30326-1232
Tel: [phone]
Fax: [phone]


Exhibit A

BLACK, Alana R.
From: BLACK, Alana R.
Sent: Wednesday, May 09, 2007 9:49 AM
To: Rufus Paul Harris
Cc: Hicks, William P.
Subject: RE: Legal concerns

Mr. Harris,
Thank you for your e-mail. I would be happy to talk with you about the pending case or about the potential deal described in your e-mail.

While I obviously cannot provide you with any legal advice, one big potential danger is that the treasury checks and other materials described in your e-mail could be forged or fraudulent. If so, then I would like to turn over information about them to the appropriate officials.

Please give me a call at 404-842-7678 to discuss. Thanks. Alana Black

Original Message
From: Rufus Paul Harris [mailto:[e-mail]] Sent: Wednesday, May 09, 2007 5:02 AM
To: BLACK, Alana R.
Subject: Legal concerns
Importance: High
Do you have a problem or concern if I, Rufus Paul Harris proceed with the following potential client?
If you have no legal concerns and everything is verified would the SEC be interested in arranging a meeting about possible placement with CSHD?

The Client is holding the following documents:
(1) 2-page Safekeeping Receipt (dated 7 May 2007) which appears to be:
on the letterhead of Federal Reserve Bank of New York;
signatured stamped by the Federal Reserve's Chairman and Vice Chairman
red-ribbon stamped and sealed by the Federal Reserve
holding the following basic data:
U.S. Treasury Check Number(s) in denominations of $500M, totaling $2B;
Custodial Account No.;
Account Name: (matches the Name of One (1) of the Two (2) Members of the Special
Purpose Company Client; and,
Fed Screen Registration Codes: (a) Access, (b) Security & (c) ID Number
(2) 1-page Reserved Funds Letter (dated 7 May 2007) which appears to be:
(a) on the letterhead of Federal Reserve Bank of New York;
(b) signatured stamped by the Federal Reserve's Chairman and Vice Chairman
(c) red-ribbon stamped and sealed by the Federal Reserve
(d) addressed to the Special Purpose Company Client;
(e) holding the following basic data:
U.S. Treasury Check Number(s) in denominations of 4$500M, totaling $2B; and,
Custodial Account No.;
(f) confirming the following:

(1) said $2B U.S. Treasury Checks have been reserved for up to Three (3) Years; and,
(2) said Checks may be verified by "responsible bank inquiry".
(3) 2-page Statement of Authority (dated 7 May 2007) which appears to be:
on the letterhead of Federal Reserve Bank of New York;
signatured stamped by the Federal Reserve's Chairman and Vice Chairman
red-ribbon stamped and sealed by the Federal Reserve
addressed to the Special Purpose Company Client;
confirming the following:
U.S. Treasury Check Number(s) in denominations of $500M, totaling $2B;
Custodial Account No.;
that the Special Purpose Company has FULL signatory/authority over said Checks;
that said Checks are free and clear of any taxes, levies or duties....
that the account of the Special Purpose Company may be verified by "responsible bank inquiry" and confirmed by "Grey Screen" ONLY to the institution designated by the Special Purpose Company;
that the Federal Reserve performed ALL political, economic and financial due diligence and affirm, "with full bank authority" thall ALL laws have bee complied with good, clean. cleared funds of non-criminal origin and legally earned....
that ANY copy of said instrument/Statement of Authority will be valid and legal as the original, which was issued in "full faith and trust" of the Federal Reserve Bank of New York.
(4) 1-page Confidential Memo (dated 7 May 2007) which appears to be:
on the letterhead of Federal Reserve Bank of New York;
signatured stamped by the Federal Reserve's Chairman and Vice Chairman
red-ribbon stamped and sealed by the Federal Reserve
holding the following data:

(1) U.S. Treasury Check Number(s) in denominations of

Name of the Special Purpose Company; and, "Screening Procedures":
(a) Access Code: <>
(b) Security Code: <>
(c) Related Code: <>
(d) Net Code: <>
(e) Additional Access Code: <>
CUSIP:
SWIFT Code: <>
Screening Code: <>
ISIN:
Command Code: <>
DTC:
UWRTR:
(f) Follow Screen Instructions as
(1) Option 1: (for reserving/blocking

of the "specific" instrument;
Option 2:
Option 3:
(g) If any of the above Options is NOT selected, the "specific" instrument will go off
screen.
Rufus Paul Harris

CERTIFICATE OF SERVICE

I hereby certify that on this 4th day of January, 2008, I mailed by United States Postal Service the preceding BRIEF IN OPPOSITION TO DEFENDANT HARRIS'S MOTION TO COMPEL DISCOVERY AND FOR SANCTIONS FOR FAILING TO DISCLOSE to the following non-CM/ECF participants:

Rufus Paul Harris a/k/a Paul Rufus Harris
383 Clear Creek Road,
N.W.Adairsville,
Georgia 30103-5934

Conversion Solutions Holdings Corporation
c/o Registered Agent
Harvard Business Services
16192 Coastal Highway
Lewes, DE 19958


Alana R. Black
Counsel for Plaintiff
Georgia Bar No. 785045
U.S. Securities and Exchange Commission
Atlanta District Office
3475 Lenox Road, N. E., Suite 1000
Atlanta, Georgia 30326-1232
Tel. No. [phone]
[e-mail]