# Petition for Writ of Certiorari — Jain v. J.P. Morgan Securities, Inc. (No. 08-838) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386020_0961%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 2009 ## Text Ul se C1) Supreme Court, U.S. FILED No. Q8- 838 OCT 30 2008 In The Supreme Court of AFAR Sites-7* NAVEEN JAIN AND ANURADHA JAIN, Petitioners, We J.P. MORGAN SECURITIES, INC., WILSON SONSINI GOODRICH & ROSATI, P.C., AND PERKINS COIE, LLP, Respondents. ON PETITION FOR A WRIT OF CERTIORARI TO THE COURT OF APPEALS FOR THE STATE OF WASHINGTON PETITION FOR A WRIT OF CERTIORARI Arthur W. Harrigan, Jr. Counsel of Record Timothy G. Leyh Christopher T. Wion DANIELSON HARRIGAN LEYH & TOLLEFSON LLP 999 Third Avenue, Suite 4400 Seattle, Washington 98104 Telephone: (206) 623-1700 Facsimile: (206) 623-8717 Robert B. Gould LAW OFFICES 2110 North Pacific Street, Suite 100 Seattle, Washington 98103 Telephone: (206) 633-4442 Facsimile: (206) 633-4443 RA SESE ERT EA TEE ANE EERE MEL SETEM NIGP ae gh RIN EI LEGAL PRINTERS LLC, Washington DC e 202-747-2400 e leyalprinters.com QUESTION PRESENTED Section 16(b) of the Securities Exchange Act of 1934 (15 U.S.C. § 78p(b)) (“16(b)’) imposes “strict-hability” on insiders who engage in “short-swing” trades of company securities. The Jains were found strictly hable under 16(b). After satisfying their 16(b) liability to the issuer, they sued to recover their losses to the extent they were the result of Respondents’ negligence. Below, the Court of Appeals affirmed dismissal of the Jains’ state law claims, holding they were barred, as a matter of law, by a federal policy against “de facto indemnification” for liability imposed by the federal securities laws. The question presented is: Whether securities professionals can escape liability for their chents’ losses on federal policy grounds where the objectives of the securities statute under which their clients’ loss occurred were satisfied and the professionals’ negligence caused those losses. PARTIES TO THE PROCEEDING Petitioners are Naveen and Anuradha Jain, a married couple. They were plaintiffs in Superior Court, and appellants in both the Court of Appeals and Supreme Court for the state of Washington. Respondents are J.P. Morgan Securities, Inc., Wilson Sonsini Goodrich & Rosati, P.C., and Perkins Coie, LLP. They were defendants in Superior Court and respondents in both the Court of Appeals and Supreme Court for the state of Washington. ll TABLE OF CONTENTS Page PORN FP ois ci cath cadaver sicsavsisbenveoiccpsvanene 1 Parties to the Proceeding ......;.......5.sc0cessvesersesssees il RGUO OF FMCIIOU NIG cos ooo sie vccesccceectscscasetevensevcens vl Petition for Writ of Certiorarl...........................065 1 SI I aos sia Laweuiiani esa nesta acne envee’ 1 I ASG ichideuis ineenannnecunaeseeaenenaeeees 1 statutory Provision Involved.................0....0.. The court instructed the district court that to the extent any of the claims were indemnification claims for lability that Weiszmann incurred under section 16(b), they should be dismissed with preju- dice .36 . 4] 29 The First Golden court's analysis is reinforced by the recent holding in *585Deephaven Capital Memt., LLC v. Schnell37 Deephaven sued Schnell, one of its portfolio managers, alleging that Schnell's 33 First Golden, 942 F.2d at 731. 34 First Golden, 942 F.2d at 732. 35 First Golden, 942 F.2d at 732. 36 First Golden, 942 F.2d at 732. 37 No. 06-844, 2007 WL 38911, 2007 U.S. Dist. LEXIS 1504 (Jan. 5.2007). A-13 trading activities on behalf of funds he managed caused the funds to violate section 16(b).38 The court held that any indemnity for section 16(b) violations would undermine the deterrent purpose of the sec- tion by allowing a wrongdoer to recoup its disgorged profits. It concluded that Deephaven was not en- titled to seek reimbursement for short-swing profits it disgorged, even when the losses resulted from al- legedly rogue trades by one of its own managers.*9 {| 30 The First Golden court remarked that strict lia- bility did not minimize the purpose behind the secur- ities statute.4° If anything, that understates the case. Section 16(b) is draconian. By imposing strict liability, Congress has given notice to insiders that they should exercise great vigilance in the disposi- tion of their shares. The necessity of protecting in- vestors is no less compelling today than it was when Congress wrote the securities act. To allow indemni- fication or de facto indemnification by an insider would run **123 counter to the public policy behind section 16(b). 4 31 The first Golden court's analysis of de facto in- demnity is persuasive. Under its holding, to whatev- er extent funds recovered under a state tort claim are comparable to the funds disgorged under section 16(b), they must be barred as de facto indemnifica- tion. 38 Deephaven, 2007 WI. 38911, 2007 US. Dist. LEXIS 1504, at *1-3. 39 Deephaven, 2007 WL 38911, 2007 U.S. Dist. LEXIS 1504, at *8-10.; Peter J. Romeo & Alan L. Dye, Section 16 Deskbook 371 (2007). 40 First Golden, 942 F.2d at 729. A-14 [6] ¢ 32 The Jains listed equitable indemnity as one of their causes of action. They seek reimbursement by the respondents for the costs and damages result- ing from the judgment and settlement in the 16(b) suit, the attorney fees they expended in defending the section 16(b) action, and the investment losses they claim to have suffered in connection *586 with the bonding requirements for their appeal of the sec- tion 16(b) action. 4] 33 The Jains' request for equitable indemnification reinforces the respondents’ contention that the Jains' claims are merely requests for de facto indemnifica- tion in a different guise. 4] 34 The Jains argue that dismissal of their state tort claims might shield securities professionals from the consequences of their negligence and malprac- tice. Certainly the state has a strong interest in en- forcing its tort laws. Brokers, financial advisors, and lawyers should be answerable in state court for harms they have caused their clients. But, to the ex- tent that state claims constitute any form of indem- nification, the strict liability provisions of section 16(b) would be fatally undermined were insiders able to pursue those claims, however named, against third parties. To permit such claims to proceed would essentially make the insiders whole again, as if they had not been obliged to disgorge their profits in the first place. 4] 35 The Supreme Court made clear that section 16(b)'s arbitrary and sweeping coverage was deemed necessary to insure the optimum prophylactic ef- fect.41 Only by exercising uncompromising rigidity can the courts maintain the prophylactic standard of beh vior imposed by section 16(b).42 4| 36 The Jains' argument that the state has an in- terest in allowing their claims to proceed under sep- arate and distinct legal theories must ultimatcly give way to the bright line, strict liability provisions of section 16(b). We hold that because they seek re- covery of the profits they were required to disgorge to InfoSpace, the Jains' claims constitute de facto in- demnification and present an insuperable bar to re- lief. To the extent the Jains raise other claims, *587 they are governed by state law. Because we hold the Jains' claims are barred, we do not address Perkins's cross-appeal. The ABC rule {7] 4 37 In addition to being barred as de facto in- demnity, the Jains' claims also fail to satisfy the re- quirements of Washington's “ABC rule.” [8] 4] 38 The general rule in Washington is that at- torney fees are not awarded unless permitted by con- tract, statute, or in specific equitable circums- tances.43 One such equitable exception is the so- called “ABC rule,” which allows an award of attorney fees as consequential damages.*4 41 Reliance, 404 U.S. at 422, 92 S.Ct. 596 (quoting Bershad, 428 F.2d at 696). 42 Volk v. Zlotoff, 285 F.Supp. 650, 656 (D.C.N.Y.1968) (quoting Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545 (1928)). 43 Morgan v. Roller, 58 Wash.App. 728, 730, 794 P.2d 1313 (1990). 44 Manning v. Loidhamer, 13 Wash.App. 766, 769, 538 P.2d A-16 {| 39 However, we have consistently held that a par- ty may not recover attorney fees or costs of litigation under the theory of equitable indemnity if, in addi- tion to the wrongful act or omission of A, there are other reasons why B became involved in litigation with C.45 “[T]he critical inquiry under the causation element of equitable indemnity is whether, apart from A's actions, B's own conduct caused it to be ‘ex- posed’ or ‘involved’ in litigation with C."46 **124 4 40 The Jains were not blameless in the transactions giving rise to their liability. The district court laid out how the Jains' own actions caused them to run afoul of section 16(b): The Jains signed papers allowing transfer of funds from the [trusts]. The Jains caused de- posits of trust stock into their personal bro- kerage accounts by forwarding stock certifi- cates to their personal broker. Mr. Jain promised to place shares of the ... trust into escrow to fulfill a personal obligation. The fact that the Jains failed to read their bro- kerage statements, simply signed legal doc- uments without knowing what they were, and *588 mistakenly sent certificates to their personal broker does not make their actions involuntary.... [T]he Jains participated in the transfers and retained more than a degree of contro] over the transactions. Without the participation of the Jains, the transfers would not have happened. 136, 86 Wash.2d 1001 (1975). 45 Tradewell Group, Inc. v. Mavis, 71 Wash.App. 120, 126, 857 P.2d 1053 (1993). 46 Tradewell Group, 71 Wash.App. at 129, 857 P.2d 1053. A717 §| 41 We hold that the Jains' own conduct caused them to be involved in the litigation and, therefore, under the ABC rule they may not recover fees or liti- gation costs. §| 42 The superior court's grant of the respondents’ motions to dismiss is affirmed. { 43 AFFIRMED. I CONCUR: COLEMAN, J. Pro Tem.APPELWICK, C.J. (concurring). §| 44 I concur in the reasoning and result reached by the majority. The majority opinion tacitly acknowl- edges the Jain's claims for attorney fees were not ex: tinguished by section 16(b) 4, 45 1 would however explicitly hold that section 16(b) of the Securities Exchange Act of 1934 E%2 is not a bar to malpractice claims under state tort law. Rather the act limits the relief available under those claims by precluding indemnification for profits dis- gorged for violation of the act. The unavailability of indemnity will be dispositive of claims in some cases, but not necessarily all. FN1. Codified at 15 U.S.C.A. § 78p.(b). Wash.App. Div. 1,2008. Jain v. J.P. Morgan Securities, Inc. 142 Wash.App. 574, 177 P.3d 117 END OF DOCUMENT A-18 APPENDIX C HONORABLE RICHARD JONES IN THE SUPERIOR COURT OF WASHINGTON FOR KING COUNTY NAVEEN JAIN and ANURADHA JAIN, Plaintiffs, VS. J.P. MORGAN SECURITIES, INC., a Delaware corporation, as successor in interest to Hambrecht & Quist LLC; and WILSON SONSINI GOODRICH & ROSATI, a California professional corporation, Defendants. NAVEEN JAIN and ANURADHA JAIN, Plaintiffs, | vs. PERKINS COIE LLP, Defendant. | CONSOLIDATED NO. 03-2-32427-2 SEA [Consolidated with 03-2- 34789-2 SEA and 04-2- 1655-0 SEA) ORDER GRANTING DEFENDANT J.P. MORGAN SECURITIES, INC.'S MOTION TO DISMISS t t | A-19 Before this Court is Defendant J.P. Morgan Securities, Inc.'s Motion to Dismiss. In connection with this motion, the Court has reviewed the following materials: :. Defendant J.P. Morgan Securities, Inc.'s Motion to Dismiss; 2. Defendant J.P. Morgan Securities, Inc.'s Request for Judicial Notice in Support of Defendant J.P. Morgan Securities, Inc.'s Motion to Dismiss; 3. Consolidated Opposition of Naveen and Anuradha Jain to Motions to Dismiss by Wilson Sonsini Goodrich and Rosati, P.C. and J.P. Morgan Securities, Inc.; 4, The Declaration of Timothy Leyh In Support of the Consolidated Opposition of Naveen and Anuradha Jain to Motions to Dismiss by Wilson Sonsini Goodrich and Rosati, P.C. and J.P. Morgan Securities, Inc.; >. Defendant J.P. Morgan Securities, Inc.'s Reply to Opposition to Motion to Dismiss Third Amended Complaint; 6. Defendant J.P. Morgan Securities, Inc.'s Request for Judicial Notice in Support of Defendart J.P. Morgan Securities, Inc.'s Reply to Opposition to Motion to Dismiss Third Amended Complaint; ‘2 Non-Washington Authorities cited in Defendant J.P. Morgan Securities, Inc.'s Reply to Opposition to Motion to Dismiss Third Amended Complaint. The Court has also reviewed the records and files herein, including plaintiffs’ Third Amended Complaint, and has considered the arguments of counsel at a hearing before this Court on April 28, 2006. A-20 Being advised in this matter, the Court hereby finds that the Third Amended Complaint fails to state a claim upon which relief can be granted against defendant J.P. Morgan Securities, Inc. It is hereby ORDERED that defendant J.P. Morgan Securities, Inc.’s Motion to Dismiss is GRANTED, and that plaintiffs’ Third Amended Complaint is dismissed with prejudice. IT IS SO ORDERED. DATED this 5t day of May, 2006. /s/ Richard A. Jones JUDGE RICHARD JONES Presented by: HILLIS CLARK MARTIN & PETERSON PS By /s/ Michael R. Scott Michael R. Scott, WSBA #12822 Brian C. Free, WSBA #35788 BINGHAM MCCUTCHEN LLP David M. Balabanian (admitted pro hac vice) John D. Pernick (admitted pro hac vice) 3 Embarcadero Center San Francisco, CA 94111 Telephone: (415) 393-2000 Attorneys tor J.P. Morgan Securities Inc. Notice of Presentation Waived; Accepted as to Form: DANIELSON HARRIGAN LEYH & TOLLEFSON LLP A-21 By /s/ Michael R. Scott Arthur W. Harrigan, Jr.. WSBA #1751 for Timothy G. Leyh, WSBA #14583 pursuant to email authorization Randall T. Thomsen, WSBA #25310 999 Third Avenue, Suite 4400 Seattle, WA 98104 Telephone: (206) 623-1700 LANE POWELL PC Larry Ganges, WSBA #8118 John R. Necleman, WSBA #19752 1420 Fifth Avenue, Suite 4100 Seattle, WA 98101-2338 Telephone: (206) 223-7000 LAW OFFICES OF ROBERT B. GOULD Robert B. Gould, WSBA #4353 2110 North Pacific Street, Suite 100 Seattle, WA 98103-9181 Telephone: (206) 633-4442 Attorneys for Plaintiff A-22 Hon. Richard A. Jones SUPERIOR COURT OF WASHINGTON FOR KING COUNTY NAVEEN JAIN and ANURADHA JAIN, Consolidated No. 03-2-32427-2 SEA Plaintiffs, [Consolidated with 03-2- Vs. 34789-2 SEA and 04-2- 1655-0SEA] J.P. MORGAN SECURITIES, INC., a \ORDER GRANTING Delaware corporation, |WILSON SONSINI'S as successor in interestIMOTION TO DISMISS to Hambrecht & Quist [THIRD AMENDED LLC; and WILSON |COMPLAINT SONSINI GOODRICH & ROSATI, a California professional corporation, Defendants. Pending before this Court is defendant Wilson Sonsini Goodrich and Rosati’s Motion to Dismiss Third Amended Complaint. In connection with this motion, the Court has reviewed the following materials: :. Defendant Wilson Sonsini Goodrich and Rosatis Motion to Dismiss Third Amended Complaint; A-23 4 Declaration of Gregory J. Hollon in Support of Wilson Sonsini Goodrich and Rosati’s Motion to Dismiss Third Amended Complaint and Exhibits A-C attached thereto; 3. Consolidated Opposition of Naveen and Anuradha Jain to Motions to Dismiss by Wilson Sonsini Goodrich and Rosati, P.C. and J.P. Morgan Securities, Inc.; 4. Declaration of Timothy G. Leyh in Support of the Consolidated Opposition of Naveen and Anuradha Jain to Motions to Dismiss by Wilson Sonsini Goodrich and Rosati, P.C. and J.P. Morgan Securities, Inc. and the exhibits attached thereto: 5. Defendant Wilson Sonsini Goodrich and Rosati's Reply in Support of Opposition to Motion to Dismiss Third Amended Complaint; 6. Jains Request for Leave to File Surreply to New Argument in Wilson Sonsini Goodrich and Rosati’s Reply in Support of Motion; 7. Defendant Wilson Sonsini’s Opposition to Plaintiff's Request for Leave to File Surreply; and 8. The Jains’ Reply in Support of Request for Leave to File Surreply to New Argument in Wilson Sonsini Goodrich and Rosati’s Reply in Support of Motion and Jains’ Surreply; 9. Wilson Sonsini’s Reply to Surreply. The Court has also reviewed the records and files herein, including plaintiffs’ Third Amended Complaint, and has considered the arguments of counsel at a hearing before this Court on April 28, 2006. Being advised in this matter, the Court hereby finds that the Third Amended Complaint fails to state a claim upon which relief can be granted against defendant Wilson Sonsini. It is hereby ORDERED that defendant Wilson Sonsini Goodrich and _ Rosati’s Motion to Dismiss _ is A-24 GRANTED, and that plaintiffs’ Third Amended Complaint is dismissed with prejudice. IT IS SO ORDERED. DATED this 4t day of May, 2006. /s/ Richard A. Jones HONORABLE RICHARD JONES Presented by: McNAUL EBEL NAWROT & HELGREN PLLC By /s/ Robert M. Sulkin Robert M. Sulkin, WSBA #15425 Gregory J. Hollon, WSBA #26311 Attorneys for Defendant Wilson Sonsini Goodrich & Rosati, P.C. Approved as to form /s/ Timothy G. Leyh A-25 The Honorable Richard Jones SUPERIOR COURT OF WASHINGTON FOR KING COUNTY NAVEEN JAIN and ANURADHA JAIN, husband and wife, and their Maritial Community, Plaintiffs, Vs. J.P. MORGAN SECURITIES, INC.,a Delaware corporation, as successor 1n interest to Hambrecht & Quist LLC, et al, Defendants. NAVEEN JAIN and ANURADHA JAIN, Plaintiffs, VS. PERKINS COIE LLP, Defendant. Case No. 03-2°32427-°2 SEA [Consolidated with 03-2- 34789-2 SEA and 04-2-1655- 0 SEA] ORDER GRANTING PERKINS COIE’S MOTION TO DISMISS PLAINTIFFS’ SECOND AMENDED COMPLAINT AND DENYING PLAINTIFFS’ MOTION FOR PARTIAL SUMMARY JUDGMENT A-26 This matter came for hearing on the motion of Perkins Coie LLP ("Perkins”) to dismiss the Second Amended Complaint filed against it by plaintiffs Naveen and Anuradha Jain ("Plaintiffs"), and Plaintiffs’ Motion for Partial Summary Judgment Striking Perkins Coie’s Affirmative Defense of Federal Preemption With Respect to Plaintiffs’ Litigation Malpractice Claims. The Court has reviewed the records submitted in regard to these motions, including but not limited to the following: 1. Perkins Coie’s Motion to Dismiss Second Amended Complaint; 2. Declaration of Keith D. _ Petrak, Including Request for Judicial Notice in Support of Perkins Coie’s Motion to Dismiss Second Amended Complaint; 3. Defendant J.P. Morgan’ Securities, Inc.'s Motion to Dismiss; 4. Defendant J.P. Morgan Securities, Inc.'s Request for Judicial Notice in Support of Defendant J.P. Morgan Securities, Inc.'s Motion to Dismiss; 5. Defendant Wilson Sonsini Goodrich and Rosatis Motion to Dismiss Third Amended Complaint; 6. Declaration of Gregory J. Hollon in Support of Wilson Sonsini Goodrich and Rosati’s Motion to Dismiss Third Amended Complaint and Exhibits A-C attached thereto; ‘# Consolidated Opposition of Naveen and Anuradha Jain to Motions to Dismiss by Wilson A-27 Sonsini Goodrich and Rosati, P.C. and J.P. Morgan Securities, Inc.; 8. December 2, 2005 Order Denying Plaintiffs Motion: (1) To Strike Perkins Motion to Dismiss Litigation Malpractice Claims; and/or (2) To Strike Extra-Pleading Materials Presented in Support of That Motion; and/or (3) For a CR 56(f) Continuance of Motion Hearing until Following Completion of Expert Deposition Discovery; And Denying Plaintiffs Motion for Extension of Time to Respond to Perkins Coie’s Motion to Dismiss Litigation Malpractice Claims 9. Defendant J.P. Morgan Securities, Inc.'s Reply to Opposition to Motion to Dismiss Third Amended Complaint; 10. Wilson Sonsini Goodrich and Rosati's Reply in Support of Motion to Dismiss Third Amended Complaint; 11. Plaintiff Jains’ Opposition to Perkins to These Motion to Dismiss; 12. Plaintiffs, Motion for Partial Summary Judgment Striking Perkins Cooties Affirmative Defense of Federal Preemption with Respect to Plaintiffs’ Litigation Malpractice Claims; is. Plai..tiffs’ Offer of Intended and/or Hypothetical Proof Re: Proximate Cause Arguments Made in Perkins Motion to Dismiss; 14. Declaration of Robert J. Adolf; 15. Declaration of John A. Strait In Support of Jains’ Motion to Strike, etc.; 16. Perkins Coie’s Consolidated Reply in Support of Motion to Dismiss Second Amended Complaint and Opposition to Plaintiff's Motion for Partial Summary Judgment: 17. Plaintiffs’ Reply in Support of Motion for Partial Summary Judgment Striking Perkins Coie’s Affirmative Defense of Federal Preemption with Respect to Plaintiffs Litigation Malpractice Claims; 18. May 2, 2006 Letter from Larry Gagnes; and 19. May 3, 2006 letter from Bradley S. Keller. Having considered the foregoing record and the arguments of counsel, and finding as a matter of law that Plaintiffs’ Second Amended Complaint for Damages and Other Relief against Perkins fails to state a claim upon which relief may be granted, and that further amendment would be futile, it is hereby ORDERED, ADJUDGED AND DECREED that Plaintiffs’ motion is denied, Perkins’ motion is granted, and Plaintiffs’ claims against Perkins as set forth in Plaintiffs’ Second Amended Complaint for Damages and Other Relief are hereby dismissed with prejudice. DATED this 4 day of May, 2006. /s/ Richard A. Jones THE HONORABLE RICHARD JONES A-29 Presented by: BYRNES & KELLER LLP By /s/ Keith D. Petrak Peter D. Byrnes, WSBA #00446 Bradley S. Keller, WSBA #10665 Keith D. Petrak, WSBA #19159 Attorneys for Defendant Perkins Coie, LLP A-30 APPENDIX D United States District Court, W.D. Washington. Naveen and Anuradha JAIN, Plaintiffs, Vv. INFOSPACE, INC, et al., Defendants. No. C03-2897P. Filed Sept. 23, 2003. Jan. 9, 2004. represented by G. Val Tollefson, Danielson Harrigan & Tollefson, Seattle, WA, Lead Attorney, Attorney to be Noticed, John R Neeleman, Larry Steven Gangnes, Lane Powell Spears Lubersky, Seattle, WA, Lead Attorney, Attorney to be Noticed, Timothy G Leyh, Danielson Harrigan & Tollefson, Scattic, WA, Lead Attorney, Attorney to be Noticed, Randall Thor Thomsen, Danielson Harrigan & Tollefson, Seattle, WA, Attorney to be Noticed, for Naveen Jain, Plaintiff. represented by G. Val Tollefson, John R Neeleman, Larry Steven Gangnes, Timothy G Leyh, (See above for address), Lead Attorney, Attorney to be Noticed, for Anuradha Jain, husband and wife, and the Ma- rital Community, Plaintiff. represented by Brian D Buckley, Stellman Keehnel, Gray Cary Ware & Freidenrich LLP, Seattle, WA, Lead Attorney, Attorney to be Noticed, for InfoSpace Inc, a Delaware corporation, Defendant. represented by Brian D Buckley, Stcllman Keehnel, (See above for address), Lead Attorney, Attorney to be Noticed, for Mellon Investor Services LLC, a New Jersey corporation, as successor in interest to Cha: seMellon Shareholder Services, LLC, Defendant. represented by David M Balabanian, McCutchen A°3]1 Doyle Brown & Enersen, San Francisco, CA, Lead Attorney, Attorney to be Noticed, John D Pernick, Bingham Mccutchen (SF), San Francisco, CA, Lead Attorney, Attorney to be Noticed, Michael Ramsey Scott, Hillis Clark Martin & Peterson, Seattle, WA, Lead Attorney, Attorney to be Noticed, for JP Mor- gan Securities Inc, a Delaware corporation as suc” cessor in interest to Hambrecht & Quist LLC, De- fendant. represented by Brian D Buckley, Stellman Keehnel, (See above for address), Lead Attorney, Attorney to be Noticed, for Ellen Alben, Defendant. represented by Brian D Buckley, Stellman Keehnel, (See above for address), Lead Attorney, Attorney to be Noticed, for Alex Alben, and their Marital Com- munity, Defendant. ORDER GRANTING PLAINTIFFS' MOTION TO REMAND PECHMAN, J. *1 This matter comes before the Court on Plaintiffs’ motion to remand. (Dkt. No. 6.) Having reviewed all of the pleadings and supplemental materials and having heard oral argument on the matter, the Court GRANTS Plaintiffs’ Motion to Remand. De- fendants argue that the Plaintiffs' (‘the Jains”) state law tort claims are really claims for reimbursement or indemnification of the Jains' Section 16(b) liability. under the Securities and Exchange Act (“the SEA” or “the Act”). According to Defendants, federal law bars indemnification for Section 16(b) liability. Based on this, Defendants maintain that there is removal ju- risdiction under the artful pleading doctrine. How- ever, Defendants have failed to meet the require- ments of the artful pleading doctrine. The Jains' A°32 claims are not necessarily federal in character. Nor is a federal question an element of their state law tort claims. Instead, Defendants' argument is prop- erly characterized as a defense based on a federal question. As a defense, it cannot provide the basis for removal jurisdiction. BACKGROUND This case stems from the Dreiling v. Jain case (“the Dreiling \itigation”), CO1-1528P. On May 14, 2003, this Court entered summary judgment against the Jains, concluding that they had engaged in prohi- bited short-swing trading in violation of Section 16(b) of the SEA. On August 22, this Court entered judgment against the Jains, ordering them to dis- gorge the profits from these trades, totaling approx: imately $200 million dollars plus prejudgment inter- est. In August, the Jains filed this law suit in state court against two securities firms that worked with Infos- pace, Infospace's general counsel, and Infospace. The Jains claim that all of these Defendants were negli- gent and breached their fiduciary obligations to the Jains, which caused the damages chat the Jains in- curred as a result of the Dreiling litigation. They al- so seek equitable subrogation against all Defen- dants, and claim unjust enrichment against Infos- pace. Defendants removed the Jains' D & O insurers suit. In their removal notice, Defendants claimed that the federal district court has removal jurisdiction be- cause “plaintiffs' claims implicate and depend upon a substantial federal question.... [T]he Jains' claims A-33 depend upon whether indemnity is available for Sec- tion 16(b) liability. The federal case law is clear that Section 16(b) liability cannot be indemnified.”(Notice of Removal, § 3) ANALYSIS The removal statute 1s strictly construed against removal jurisdiction. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir.1992).“Federal jurisdiction must be rejected if there is any doubt as to the right of re- moval in the first instance.’/d. The removing party has the burden of proof that removal was proper. /d. When removal is premised on a federal question, the removing party must establish the federal nature of the claim. Removal analysis begins with the well-pleaded com- plaint rule, in which federal question jurisdiction ex- ists only when a federal question is present on the face of the plaintiff's properly plead complaint. Rivet v. Regions Bank of Ia., 522 U.S. 470, 475 (1998) (cit- ing Caterpillar Inc. v. Wilhams, 482 U.S. 386, 392 (1987)). Moreover, a plaintiff may defeat removal by choosing not to plead independent federal claims. ARCO Envtl. Remediation v. Dep't of Health and Envtl. Quality, 213 F.3d 1108, 1114 (9 Cir.2000). Both parties agree that neither of the complaints in these actions explicitly set forth a federal cause of action. *2 Nonetheless, Defendants argue that this Court has removal jurisdiction under the artful pleading doctrine. A plaintiff may not defeat removal of a fed- eral claim by artfully pleading it as a state claim or omitting to plead necessary federal questions. Pivet, A-34 522 U.S. at 475,Franchise, 22. The artful pleading doctrine applies when either 1) federal law complete- ly preempts state law, 2) the claim is necessarily federal in character, or 3) the right to relief depends on the resolution of a substantial, disputed federal question. ARCO, 213 F.3d at 1114. (A recent Ninth Circuit opinion combined 2) and 3) into one stan- dard, with two sub-parts. Lippitt v. Raymond James Fin. Servs., 340 F.3d 1033, 1041-42 (9th Cir.2003). This appears to be merely a semantic difference .) Both parties agree that the SEA does not completely preempt the field. However, Defendants contend that the Jains' claims are necessarily federal in character and that the Jains' right to relief depends on resolution of a sub- stantial, disputed federal question. The Defendants' two arguments stem from their basic premise that the Jains' claims are really claims for reimburse- ment or indemnification disguised as state law claims. Defendants cite a Tenth Circuit case for the proposition that the SEA prohibits indemnification for Section 16(b) liability. First Golden Bancorpora- tion v. Weiszmann, 942 F.2d 726 (10 Cir.1991). Therefore, according to Defendants, the Jains must show that their Section 16(b) liability can be indem- nified. In other words, indemnification for Section 16(b) liability is a condition precedent to Jains' state law claims. In contrast, if a defendant's basis for removal juris: diction is a federal question defense, as opposed to an affirmative federal claim that plaintiff disguised as a state law claim, there is no removal jurisdiction. It is settled law that a defense based on a federal question does not establish federal jurisdiction. This A-35 is true “even if the defense is anticipated in the plaintiff's complaint and both parties agree that the defense is the only question truly at issue in the case.” Franchise Tax Bd. of Cal. v. Constr. Laborers Vacation, 463 U.S. 1, 14 (1983).“A defense is not part of a plaintiff's properly pleaded statement of his or her claim.” Arvet, 522 U.S. at 475. The Jains con- tend that Defendants' argument is a federal question defense. IL. The Jains' Claims Are Not Necessarily Federal in Character Defendants' “necessarily federal” argument rests on two provisions of the SEA. First, Section 16(b) liabil- ity cannot be waived or altered by agreement. 15 U.S.C. § 78cc(a). Second, federal courts have exclu- sive jurisdiction over all suits “brought to enforce any liability or duty created by this chapter or the rules and regulations thereunder.” § 78aa. According to Defendants, Plaintiffs' claims, which are really an attempt to seek reimbursement or indemnification for their Section 16(b) liability, undermine the pro- hibition on waiving or altering liability by agree- ment. In essence, Defendants argue that by seeking reimbursement or indemnification from the securi- ties firms and Infospace for the Jains' Section 16(b) liability, the Jains would be escaping their Section 16(b) liability, or “shifting their entire 16(b) liability onto Defendants,” in violation of § 78cc(a). Moreover, by doing so, they are attempting to escape enforce- ment of their Section 16(b) liability. This challenge to the enforcement of Section 16(b) liability triggers the exclusive jurisdiction provision in § 78aa. *3 A similar issue was addressed by the Ninth Cir A-36 cuit in Lippitt.The plaintiff alleged that marketing by brokerage firms of a “callable certificate of depo- sit” violated state unfair competition laws. Defen- dant claimed that the exclusive federal jurisdiction provision in § 78aa of the SEA supported removal jurisdiction. 340 F.3d at 1036. The Ninth Circuit re- jected this argument. The court held that plaintiff's claims did not fall within the scope of § 78aa because plaintiff was not attempting to enforce any provision of the Act. Rather, he sought to enforce state law. /d. at 1037. Like the plaintiff in Lippitt, the Jains‘ claims do not touch upon the enforcement of their Section 16(b) hability. They are not seeking through this lawsuit to challenge their Section 16(b) liability or to escape enforcement of their Section 16(b) liability. In fact, the Jains’ Section 16(b) liability is the premise upon which their state law claims rest. If they were chal- lenging the validity of their Section 16(b) liability, they could not allege negligence by Infospace, its general counsel, and two securities firms for “caus- ing” that hability. This lawsuit does not challenge the liability itself; success on the merits would not negate the fact that they were held strictly liable for Section 16(b) violations. Instead, the Jains are mere- ly seeking to hold other partics accountable for neg- ligence in causing the damages they incurred as a result of their Section 16(b) liability. Like the plain- tiff in Lippitt, the Jains' state law claims do not fall within the scope of the Act. As such, the exclusive jurisdiction provision of § 78aa is not triggered. De- fendants' argument that the Jains are directly chal- lenging a right or liahility under the SEA mischarac- terize the Jains' claims. A-37 The Court does not find Bunker Ramo-Electra Corp. v. Fairchilds Industries, Inc. persuasive on this is- sue. 639 F.Supp. 409 (D.Md.1986). That court held in dicta that indemnification for Section 16(b) liability would violate § 78cc because it would allow the viola- tors to waive their Section 16(b) liability “since they would not have to return their short-swing prof: its...."/d. at 419.First, the Jains have alleged negli- gence, not indemnification. Despite the fact that the result be the same, these are legally distinct causes of action. Second, the Jains must disgorge their short-swing profits regardless of whether they can prove as a matter of law and fact that the Defen- dants were negligent, causing the damages the Jains incurred in the Dreiling litigation. They are not waiving their Section 16(b) liability. Defendants’ reliance on ARCO is equally misplaced. In determining whether a claim is necessarily feder- al in character, ARCO looked to the language of the federal statute upon which the defendant premised removal jurisdiction. 213 F.3d at 1115. Like the SEA, the federal statute at issue in ARCO, the Com- prehensive Environmental Responsibility, Compen- sation, and Liability Act (the Superfund legislation), conferred exclusive federal jurisdiction in limited circumstances. Under this Act, exclusive federal ju- risdiction existed when a plaintiff's claims chal- lenged a Superfund cleanup. The court held that an action challenged Superfund cleanup if the action was related to the goals of the cleanup. Plaintiff sought disclosure of certain cleanup documents. As such, the plaintiff's claim was not related to Super- fund cleanup goals. Therefore, plaintiff's claim was not necessarily federal in character. /d. Defendants seize upon this language and argue that, unlike the A-38 plaintiff's claims in ARCO, the Jains' claims directly challenge the goals of Section 16(b) liability by seek- ing to pass their liability on to other parties, in viola- tion of § 78cc. However, the Jains' claims do not di- rectly challenge the strict lability goal of Section 16(b). As discussed above, their Section 16(b) liabili- ty is the premise of their state law claims. Prevailing on their state law claims would not negate the fact that they were deemed liable under Section 16(b). *4 For this reason, this is case is not analogous to Gilson v. Chock Full O'Nuts Corp. 331 F.2d 107 (2d Cir.1964). In Gilson, the Second Circuit concluded that awarding attorney's fees to sharcholder's coun- sel who brought a Section 16(b) violation to the at- tention of the corporation was within the scope of the Act because it was a remedy incidental to the federal right created by Section 16(b). Unlike attorney's fees, which are appropriately deemed instrumental to the enforcement of Section 16(b), barring a person found liable under Section 16(b) from alleging negligence against another for causing the Section 16(b) dam- ages incurred is not instrumental to the enforcement of Section 16(b). While it may or may not undermine the policy behind Section 16(b), that argument is more appropriately characterized as a federal ques: tion defense. Il. Federal Law Is Not an Element of the Jains' State Law Claims Under the third prong of the artful pleading doc- trine, federal jurisdiction exists over a state law claim if the right to relief depends on the resolution of a substantial, disputed federal question. In ana- lyzing a state claim under this prong, both Lipprtt A°39 and ARCO look to whether a substantial, disputed question of federal law is a necessary element of the plaintiff's state law claim. Without this requirement, it would be difficult to impossible to determine when an issue is a substantial and disputed federal ques- tion supporting removal jurisdiction versus when an issue is a defense that happens to raise a substantial and disputed federal question upon which the merits of the case may turn, but which cannot support re- moval jurisdiction. The law is clear that a federal question defense cannot support removal jurisdic- tion, no matter how central it is to the resolution of plaintiffs claims, nor how novel or complex the fed- eral question may be. Azvet, 522 US. at 475, Franchise Tax Bd., 463 U.S. at 14. Without a clear and systematic way of distinguishing an artful- ly plead federal claim from a federal question de- fense, resolution of the kinds of questions presented in this motion would lead to inconsistent and see- mingly random results wherein removal jurisdiction would sometimes exist but not others. The necessary element requirement provides a clear and systematic way to distinguish the two. In Lippitt, the court re- viewed the elements of plaintiff's state law unfair competition claim, finding that “his allegations [were] sufficient ... to sustain the elements of his [unfair competition] claim without resort to federal law.” 340 F.3d at 1043. In ARCO, the court held that the plaintiffs right to relief seeking disclosure of state agency documents was not predicated on federal law. 213 F.3d at 1116. Like these two cases, federal law is not a necessary element of the Jains' claims in either of their complaints. The Jains allege that two securities firms, Infos- pace's general counsel, and Infospace were negligent A-40 and breached their fiduciary duties in handling the transactions that lead to the short-swing purchases. The Jains' claims against these Defendants rests so- lidly in tort law. Defendants argue that the Jains' claims in this case are indemnity or reimbursement claims in disguise. However, Defendants have pre- sented no authority indicating that the elements of negligence and breach of fiduciary duty are the same as those for indemnification. Indemnity is defined as “a duty to make good any loss, damage, or lability incurred by another; the right of an injured party to claim reimbursement for its loss, damage, or liability from a person who has such a duty; reimbursement or compensation for loss, damage, or lability in tort....” Black's Law Dictionary (7 ed.1999). Thus, it seems that a claim for indemnification or reim- bursement only requires showing that the Defen- dants had an obligation to “make good” or reimburse the Jains and have failed to fulfill that obligation. The Jains have not alleged this. They have alleged negligence and breach of fiduciary duty, which re- quires them to show that the Defendants owed the Jains a duty of care, the Defendants breached that duty, and the breach was the actual and proximate cause of damages suffered by the Jains. While the ultimate outcome might be the same if the Jains prevail on their state law claims-i.e. the Jains will recover the amount of damages they incurred as Sec: tion 16(b) liability-this does not mean that the Jains' negligence and breach of fiduciary duty state law claims are equivalent to claims for indemnification or reimbursement. *5 Defendants argue that two of the elements of the Jains' negligence claims depend on federal law, namely causation and damages. According to Defen- dants, only insider-traders can be the legal cause of Section 16(b) lability. Therefore, the Jains must prove that Defendants were the legal cause of their Section 16(b) liability. This mischaracterizes the Jain's claims. The Jains are not claiming that the Defendants caused their liability, but rather that the Defendants caused the prohibited short-swing pur- chases, which lead to the assignment of Section 16(b) liability. Similarly, Defendar.ts argue that the Jains have not suffered legally-cognizable damages be- cause they were never entitled to the short-swing profits in the first place. However, contrary to De- fendant's argument, the Jains' damages are an es- tablished fact based on the judgment in the Dreiling litigation. Defendants argument that such damages are not legally cognizable is a defense to the damage element that the Jains must prove. The Court notes that state court judges commonly rule on complex and novel issues of federal law. There is no reason to suggest that only federal court judges have the abili- ty to decide the issues presented in this case. Lastly, ARCO’ s analysis of the necessary element requirement provides further support for this Court's conclusion. In holding that the plaintiff's claims was not predicated on federal law, the court distinguished two cases where federal question ju- risdiction existed for state law claims, beth of which are equally distinguishable here. 213 F.3d at 1116. In one, an element of the plaintiff's state law tort claim was the breach of a duty created by federal law. Sable v. General Motors Corp., 90 F.3d 171 (6th Cir.1996). In the other, an element of the plaintiff's state law breach of warranty claim was an agree- ment created by federal law. Marcus v. AT & T, 138 F.3d 46 (2d Cir.1998). Here, the contract providing A-42 for Section 16(b) liability was not created by federal. law, regardless of the fact that it covered a federal | law violation. : CONCLUSION Defendants have failed to establish removal jurisdic- tion under any of the prongs of the artful pleading doctrine. The Jains' state law tort claims are not necessarily federal in character. Nor is a federal question an element of their state law tort claims. Instead, Defendants' argument that the Jains' claims are really claims for reimbursement or in- demnification barred by federal law is a federal question defense. As such, it cannot provide the ba- sis for removal jurisdiction. Therefore, the Court GRANTS Plaintiffs' motion to remand. The clerk is directed to provide copies of this order to all counsel of record. W.D.Wash.,2004. Jain v. Infospace, Inc. Not Reported in F.Supp.2d, 2004 WL 212999 (W.D.Wash.) A-43 APPENDIX E United States District Court, W.D. Washington. Thomas R. DREILING, on behalf of INFOSPACE, INC., Plaintiff, v. Naveen JAIN and Anuradha Jain, husband and wife, and their marital community, the Jain Family Irrevocable Trust, the Naveen Jain Grat No. 1 Trust, and the Anuradha Jain Grat No. 1 Trust, De- fendants, and Infospace, Inc., Nominal Defendant. No. C01-1528P. Aug. 22, 2003. In action seeking disgorgement of profits earned by corporate insiders in short-swing trades, plaintiff filed motion for judgment, and defendants filed mo- tion for partial summary judgment. The District Court, Pechman, J., held that: (1) in calculating short-swing profits required to be disgorged, pur- chase price of the shares transferred from trust ac- counts to insiders personal accounts was $0; (2) in- siders could not avoid liability for short-swing profits by returning the money to the trusts; and (3) balance of equities favored award of prejudgment interest. Motions granted in part and denied in part. *1236 William H. Beaver, Jr.,.Karr Tuttle Campbell, Seattle, WA, for Naveen Jain Grat No 1 Trust, De- fendant. Beth Ann Colgan, Harry H. Schneider, Jr., Brent Snyder, Perkins Coie, Seattle, WA,.for Jain Family A-44 Irrevocable Trust, Defendant. Timothy P Crudo, Paul H Dawes, David M. Fried- mam, Latham & Watkins, San Francisco, CA, Mark Maynes, Stokes Lawrence, Seattle, WA, Kevin Mi- chael Paulich, Wolfstone, Panchot & Block, Seattle, WA, John C. Tang, Aaron Levine & Associates, Washington, DC, for InfoSpace Inc, Interested Party. Judith A Endejan, Graham & Dunn, Seattle, for Seattle Times Company, Intervenor. Christine E Gardiner, Karr Tuttle Campbell, Seat- tle, for Anuradha Jain Grat No 1 Trust, Defendant. Douglas W_Greene, Barry M. Kaplan, Perkins Coie, Seattle, for Kellett Partners LP, Stiles A Kellett, Jr, Defendants. Arthur W. Harrigan, Jr., G. Val Tollefson, Danielson Harrigan & Tollefson, Seattle, WA, for Anuradha Jain, Defendant. Jonathan P Meier, Stephen John Sirianni, Richard E. Spoonemore, Sirianni & Youtz, Seattle, WA, for Thomas R Dreiling, Plaintiff. Elaine L Spencer, Graham & Dunn, Seattle, WA, for Seattle Times Company, Intervenor. ORDER GRANTING PLAINTIFF'S MOTION FOR ENTRY OF JUDGMENT AND DENYING DEFENDANTS' MOTION FOR PARTIAL SUMMARY JUDGMENT PECHMAN, District Judge. ™he Court having concluded as a matter of law that -efendants are liable for short-swing trades, Plain- tiff moves for entry of judgment against Defendants Naveen and Anuradha Jain (“the Jains” or “Jain De- fendants”). (Dkt. No. 140.) The Jain Defendants move for partial summary judgment that they en- gaged in no short-swing trades, and alternatively A-45 that they realized no profit on the trades. (Dkt. No. 196.) Plaintiff moves to strike numerous declara- tions, exhibits, and briefing by Defendants as im- permissibly seeking reconsideration of the Court's prior order on liability. (Dkt. No. 198.) Because De- fendants may not attempt to relitigate liability at this stage of the proceeding, Plaintiff's motion to strike is GRANTED in part. Because the Jain De- fendants engaged in short-swing trades by transfer- ring for no cost millions of shares from Trust ac- counts to personal accounts, they are required to disgorge the profit from these trades. Accordingly, Plaintiffs motion for entry of judgment is GRANTED and the Jain Defendants'*1237 motion for partial summary judgment is DENIED. BACKGROUND On the parties’ stipulation to present the issue of liability to the Court on summary judgment, the Court concluded that the Jain Defendants engaged in prohibited short-swing trades in violation of Sec- tion 16(b) of the 1934 Securities and Exchange Act, 15 U.S.C. § 78p(b). At issue now is the Jain Defen- dants' disgorgement of the profit from their short- swing trades, as well as prejudgment interest ~-> that profit. In its prior order, the Court concluded that, in December 1998, Mr. Jain purchased, for the purposes of Section 16(b), 1,000,000 shares of InfoS- pace stock through his agreement to place Trust shares into an escrow account to satisfy a personal obligation. The Court also concluded that, on May 24, 1999, the Jains purchased 2,490,472 shares of InfoSpace stock by transferring these shares from the Trusts to their personal brokerage accounts. There is no dispute regarding the Jains' sale of In- A-46 foSpace stock within six months of the above pur- chases. On April 6, 1999, the Jains sold 1,000,000 shares of InfoSpace stock, receiving $85,600,000.00. On April 12, 1999, the Jains sold 210,000 shares of InfoSpace stock, receiving $17,955,000.00. On May 13, 1999, the Jains sold 1,800,000 shares of Infos- pace stock, receiving $98,966,696.05. In light of this Court's prior order, and accounting for stock splits, the Jains within six months purchased more shares than they sold, so that all profits realized from the above sales of $202,551,696.05 must be disgorged. ANALYSIS This matter comes before the Court on summary judgment. Summary judgment is not warranted if a material issue of fact exists for trial. Warren v. City of Carlsbad, 58 F.3d 439, 441 (9th Cir.1995), cert. denied, 516 U.S. 1171, 116 S.Ct. 1261, 134 L.Ed.2d 209 (1996). The underlying facts are viewed in the light most favorable to the party opposing the mo- tion. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). “Summary judgment will not lie if ... the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Li- berty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). I. Plaintiff's Motion to Strike Plaintiff moves to strike: (1) 15 declarations filed by Defendants on June 23, 2003, except for paragraphs 1-5, 16-17, 28, and 29, 44 of the Naveen Jain Decla- ration; (2) all exhibits to these declarations except for No. 25 to Mr. Jain's Declaration; (3) page 1 A-47 through page 11 In. 10, and page 15 In. 8 through page 20 In. 17, of Mr. Jain's opposition to Plaintiffs motion for entry of judgment; (4) the Anuradha Jain and Trusts' opposition to the motion for entry of judgment; and (5) the Jain Defendants' motion for partial summary judgment. The Court largely agrees with Plaintiff that the ma- jority of Defendants' briefing is an untimely attempt to reconsider this Court's summary judgment order on liability. The Court has already denied reconside- ration of liability, and all of the above motions, dec- larations, and exhibits come outside the ten-day pe- riod for reconsideration. Local Rule CR 7(h)(2). Anu- radha Jain and the Trusts submit a brief that con- tests that there was a change in beneficial owner- ship, even though this issue was decided on sum- mary judgment. Mr. Jain also contends that there is no purchase without an exchange of consideration, even though this was also addressed on summary judgment. Mr. Jain again raises the argument, re- jected on reconsideration, that there was no pur- chase because the *1238 transactions were res- cinded. Defendants make numerous new arguments regarding how trusts are regulated under Washing- ton law, none of which were pled on summary judg- ment, and none of which are relevant to a determi- nation of liability or damages under Section 16(b). In pari delicto is a new defense to liability that was not pled or argued on summary judgment or reconside- ration. In sum, Defendants raise issues already de- cided, as well as new arguments, well past the date for reconsideration. The Court will not entertain these untimely submissions and allow Defendants to relitigate hability. A-48 The only issue properly before the Court at this time is the question of judgment. Accordingly, Plaintiff's motion to strike is GRANTED in part. The Court strikes the 15 declarations filed by Defendants on June 23, 2003, and all exhibits to these declarations, except for paragraphs 5, 28, and 29 and Exhibit No. 25 of the Naveen Jain Declaration. Pages 1 through 11 In. 10 and page 15 ln. 20 through page 20 In. 17 of the Jains' opposition to Plaintiffs motion for entry of judgment are stricken. The Court strikes pages 2 to 11 In. 6 of Anuradha Jain and the Trust's opposition to Plaintiffs motion for entry of judgment. The Court strikes page 6 In. 10 to page 10 In. 4, and page 11 In. 16 to page 14 In. 6, of the Jain Defendants' motion for partial summary judgment. IT. Entry of Judgment {1}[2][3] Section 16(b) was enacted for the purpose of preventing the unfair use of information which may have been obtained by a statutory insider through his or her relationship to the issuing corporation. Kay v. Scientex Corp., 719 F.2d 1009, 1012 (9th Cir.1983). Congress recognized that short-swing speculation by stockholders with advance, inside in- formation would threaten the goal of the Securities Exchange Act to insure the maintenance of fair and honest markets. Jd. Section 16(b) was aimed at pro- tecting the public by preventing directors, officers, and principal stockholders of a corporation from spe- culating in the stock on the basis of information not avallable to others. Jd. (citations and quotations omitted). Under the statute, all profit realized by the short-swing trades is disgorged to the corporation, and the Court may also allow recovery of prejudg- ment interest. Whittaker v. Whittaker Corp., 639 A-49 F.2d 516, 522, 533 (9th Cir.1981), cert. denied, 454 U.S. 1031, 102 S.Ct. 566, 70 L.Ed.2d 473 (1981). Sec- tion 16(b) is a strict liability statute that “operates mechanically, and makes no moral distinctions, pe- nalizing technical violators of pure heart, and by- passing corrupt insiders who skirt the letter of the prohibition.” Magma Power Co. v. Dow. Chem. Co., 136 F.3d 316, 320-21 (2d Cir.1998). A. Calculating profit [4] “For the purpose of preventing the unfair use of information which may have been obtained by ... [an insider], any profit realized by him from any pur- chase and sale, or any sale and purchase, of any eq- ulty security ... within any period of less than six months ... shall inure to and be recoverable by the issuer.” 15 U.S.C. § 78p(b). “Profit” is understood in its ordinary sense as “the excess of returns over ex- penditures ... the excess of the price received over the price paid for the goods sold” S & S. Realty Corp. v. Kleer Vu Indus., Inc., 575 F.2d 1040, 1043 (2d Cir.1978). [5] In calculating the profit realized as a result of stock purchases, courts use the “lowest purchase price, highest sale price” method. Whittaker, 639 F.2d at 530. Under this rule, called the Smolowe rule after the leading case on the matter, the highest sales price is matched with the lowest purchase price in any given six month period. /d. at 530-31. In analyzing the legislative *1239 history of the sta- tute, the court in Smolowe concluded: The statute is broadly remedial. Recovery runs not to the shareholder, but to the corporation. We must A-50 suppose that the statute was intended to be tho- roughgoing, to squeeze all possible profits out of stock transactions, and thus to establish a standard so high as to prevent any conflict between the selfish interest of a fiduciary officer, director, or stockholder and the faithful performance of his duty. The only rule whereby all possible profits can be surely recov- ered is that of lowest price in, highest price out with- in six months. | Smolowe v. Delendo Corp., 136 F.2d 231, 239 (2d Cir.1943), cert. denied, 320 U.S. 751, 64 S.Ct. 56, 88 L.Ed. 446 (1943). {6] Calculating the profit in this case is straightfor- ward. The Jains paid nothing for shares that were transferred, therefore their purchase price is $0. Within six months of acquiring the InfoSpace shares for nothing, the Jains’ sold shares _ for $202,551,696.05. Consistent with the definition of profit and the “lowest in, highest out” rule, therefore, the Jains' profit is calculated at $202,551,696.05. The Jains contend that, even though they acquired the InfoSpace shares for nothing, the Court should nonetheless impute a price to the shares because the Jains ultimately returned the shares to the Trust. A number of cases recognize that a value may be im- puted to shares when non-monetary consideration is given. For example, courts will place a dollar value on intangible assets or non-monetary consideration, such as hours worked for a corporation in return for stock. See, e.g., Truncale v. Blumberg, 88 F.Supp. 677 (S.D.N.Y.1950). In this matter, however, the Jains gave neither monetary nor intangible consid- eration for the InfoSpace shares. The shares were A-51 transferred to the Jains for no consideration. As the Court decided on summary judgment and reconside- ration, such a transfer-even if it was an unautho- rized transfer, with no consideration given, and later rescinded-can be a purchase for the purpose of Sec- tion 16(b) because of the possibility for speculative abuse. Because no consideration was given for the InfoSpace shares, the Jains' cost was nothing, and therefore to “squeeze all possible profits out of’ the stock transactions requires disgorgement of $202,551,696.05. Defendants' proposal that the Court should impute the market price of the InfoSpace shares at the time the Jains transferred the shares from the Trusts to themselves, or alternatively at the time the Jains returned the shares to the Trusts, is particularly problematic. This suggestion fails to capture the profit that the Jains realized from the transfers, be- cause the market price of the shares at the time of transfer or return is not related to the profit that an insider might make in transferring shares to a per- sonal account. To illustrate, an insider might trans- fer a thousand shares valued at $10 each, speculate with those shares to make a profit by buying and selling when the shares are valued at less than $10 each, and then return the shares when they are again valued at $10 each. In such a case, the profit made by the insider through speculation has no rela- tion to the market value of the shares at the time of transfer or return. Such an application of Section 16(b) not only fails to disgorge the profits realized by the transfer, but invites abuse and manipulation of the statute. {7] The Jains argue that Plaintiffs proposed judg- A-52 ment is unconstitutional and punitive because it forces disgorgement of all profit on the sale of the In- foSpace shares even though the Jains eventually re- turned an equal number of shares to the Trusts. Be- cause the share transfers were unauthorized, the Jain Defendants contend *1240 that had they not returned the shares, they might have faced liability to the Trusts for conversion. The Jains insist that, because the transfers were rescinded, disgorgement of all profit would in effect mean the Jains paid twice for the shares at issue. {[8][9][10] The Jains cannot use their conduct in avoiding liability to the Trusts under state or other federal law as a method to avoid Section 16(b) dis- gorgement. “The determination that an act is illegal under state law and the Internal Revenue Code does not make the rescission of that act free from federal securities law problems.... The exercise of the duty to rescind ... does not immunize the rescinding transac- tion from securities law liability.” Oliff v. Exchange Int'l Corp., 449 F.Supp. 1277, 1293 (N.D_II1.1978), aff'd, 669 F.2d 1162 (7th Cir.1980), cert. denied sub nom., 450 U.S. 915, 101 S.Ct. 1358, 67 L.Ed.2d 340 (1981). The Jains' conduct in transferring shares simply subjected them to multiple legal obligations. “The fact that other state or federal laws may have affected a penalty or caused defendants in a section 16(b) proceeding to take a particular action does not prevent a finding of section 16(b) liability.” Jd. As this Court ruled on summary judgment and on re- consideration, the Jains' transfers of the stocks from the Trusts and subsequent short-swing sales sub- jected them to liability because of the possibility of speculative abuse. The collateral obligations the Jains acquired regarding the transferred shares, and A-53 the actions they took in response to these obliga- tions, do not impact the calculation of short-swing profits. Therefore, the profit realized by the Jains by short-swing trades is $202,551,696.05. Although courts recognize that Section 16(b) may be harsh in application, Defendants cite no authority for finding the statute unconstitutional. Section 16(b) has been applied for decades, and this Court declines the invi- tation to strike the statute as unconstitutional. B. Prejudgment Interest [11][12] Whether prejudgment interest is awarded as part of a Section 16(b) recovery is a question of fair- ness to be answered by balancing the equities. Whittaker, 639 F.2d at 533. Although prejudgment interest is generally considered a part of Section 16(b) recovery, it is denied when its exaction would be inequitable. Jd. The burden is on the insider to “show there is an overriding inequity in allowing in- terest in order to overcome the granting of interest.” Id. [13] In weighing the equities, the Court takes into account several factors: (1) whether the insider acted innocently or knowingly; (2) whether the insider re- paid the corporation promptly upon demand; and (3) whether there has been substantial delay caused by the insider. Whittaker at 533-34. 1. Appropriateness of Prejudgment Interest [14][15] The Court's consideration of the first factor is not a one-dimensional question of subjective good or bad faith. Whittaker, 639 F.2d at 533. The type and degree of the insider's inadvertence, the position A-54 of the insider in the corporation, and other circums- tances of each case are considered. Jd. Even when bad faith may have been absent, interest 1s still sometimes awarded. /d. The insider's good faith must be shown; bare allegations are not sufficient. Id. [146] The Court cannot conclusively determine whether the Jains acted in either good faith or bad faith. However, Mr. Jain's status as a key insider weighs in favor of prejudgment interest. Mr. Jain *1241 was the founder, Chairman of the Board of Directors, and CEO of InfoSpace. The Jains claim that they were victims of a combination of errors and oversights by others. Nonetheless, without the par- ticipation of the Jains, the purchases would not have happened. The Jains transferred shares to their per- sonal accounts by signing letters of authorization and claim to have failed to notice the discrepancies in their account statements. Mr. Jain personally signed SEC filings representing that he had placed shares into escrow. Although the Jains may not have acted in bad faith, they clearly were not diligent in their transactions with the Trusts. The second factor rewards an insider who repays the corporation promptly upon demand. Prompt pay- ment has been taken as betokening good faith and justifying denial of interest, especially when the prompt repayment means the corporation has not lost use of the money for a long time. Whittaker, 639 F.2d at 534. The second factor favors the Plaintiff. The Jains did not offer to repay the profits upon filing of the law- suit. Though it is important to note that the corpora- A-55 tion did not decide to bring suit, the corporation non- etheless has been deprived of the use of the money at issue for several years because of the Jains' actions. The third factor in balancing the equities is the length of time involved. When there has been sub- stantial delay between transactions and complaint or between complaint and judgment, courts consider who was responsible for the delay an important fac- tor in allowing interest for such periods. Whittaker, 639 F.2d at 534. Considerations of delay favor an award of prejudg- ment interest. Several years have passed since the complaint and this ruling on judgment. The Court ultimately agrees with the lability and judgment arguments that Plaintiff advances in this litigation. While it is understandable that Defendants would litigate this matter, they are nonetheless responsible for the delay between complaint and judgment. Defendants have failed to mect their burden of show- ing that an award of prejudgment interest is ine- quitable. The factors to weigh in deciding to award prejudgment interest favor Plaintiff. Defendants have enjoyed the profits from the short-swing trade for years, and have had the opportunity to invest and earn from these profits. Accordingly, the Court GRANTS Plaintiffs request for prejudgment inter- est. 2. Calculation of Interest In awarding prejudgement interest, the Ninth Cir- cult favors application of the federal post-judgment interest rates specified in 28 U.S.C. § 1961. Western A-56 Pacific Fisheries, Inc. v. S.S. President Grant, 730 F.2d 1280, 1289 (9th Cir.1984). The parties do not dispute that interest for transactions completed on April 6 is calculated at 4.732% per year, compounded yearly, and for transactions completed on May 24, 1999 the interest is 4.727%. Neither have the parties disputed that interest should be awarded from the date of the sales which produced the profit that the Jains have since held. The Jains realized $85,600,000.00 in profit from the April 6, 1999 sale. The Court awards prejudgment interest at a rate of 4.732% per year from the date of the sale to the date of this order. Defendants have not contested that the calculation of this award amounts to $18,297,057.00 plus $13,352.00 for each day after June 13, 2003. Therefore, the Court awards $18,297,057.00 plus $921,288.00 in prejudgment in- terest, for a total of $19,218,345.00 on the April 6, 1999 sale. The Jains realized $116,951,696.05 in profit from the April 6 and May 13, 1999 sales and the May 24, 1999 purchase. The *1242 Court awards prejudgment in- terest of 4.727% per year on this amount from the date of the purchase to the date of this order. Defen- dants have not contested that the calculation of this award amounts to $24,095,542.98 plus $18,219.26 for each day after June 13, 2003. Therefore, the Court awards $24,095,542.98 plus $1,257,128.94, for a total of $25,352,671.92 in prejudgment interest on the May 24, 1999 purchase. C. Total Judgment The Court orders disgorgement of $202,551,696.05 in A-57 profit. Preyjudgment interest on this sum amounts to $44,571,016.92. Total judgment is for $247,122,712.97. II. Separate Judgment Under Rule 54(b) Plaintiff requests that the Court enter separate judgment on the claims against the Jain Defendants in accordance with Fed.R.Civ.P. 54(b). “[T]he Court may direct the entry of a final judgment as to one or more but fewer than all of the claims or parties only upon an express determination that there is no just reason for delay and upon an express direction for the entry of judgment.” Fed.R.Civ.P. 54(b). The only Defendants remaining after resolving this motion are the Trusts. Withholding judgment until the claims of the Trusts are resolved only serves to delay any appeal of the claims of the Jain Defendants, who have already indicated through a motion for interlo- cutory appeal that they wish to appeal this Court's decision. There being no just reason to delay entry of judgment, the Court will enter separate judgment on the claims against the Jain Defendanis. CONCLUSION The Jain Defendants engaged in short-swing trades by transferring for no consideration millions of In- foSpace shares from Trust accounts to personal ac- counts within six months of selling InfoSpace shares. Under Section 16(b) the Jain Defendants are re- quired to disgorge the profit from these trades. Ac- cordingly, Plaintiff's motion for entry of judgment is GRANTED and the Jain Defendants' motion for par- tial summary judgment is DENIED. The Court or- ders disgorgement of $202,.551,696.05 of profit from A-58 short-swing trades. Prejudgment interest on this sum amounts to $44,571,016.92, for a total judgment of $247,122,712.97. The Court authorizes publication of notice of Plaintiff counsel's forthcoming request for fees in The Wall Street Journal and The Seattle Times. W.D.Wash.,2003. Dreiling ex rel. Infospace, Inc. v. Jain 281 F.Supp.2d 1234 END OF DOCUMENT APPENDIX F United States District Court, W.D. Washington. Thomas R.- DREILING, on behalf of INFOSPACE, INC., Plaintiff, Vv. Stiles A. KELLETT, Jr., an individual; and Kellett Partners LP, a limited partnership, and Naveen Jain and Anuradha Jain, husband and wife, and their marital community, the Jain Family [rrevoca- ble Trust, the Naveen Jain Grat No. 1 Trust, and the Anuradha Jain Grat No. 1 Trust, Defendants, and Infospace, Inc., Nominal Defendant. No. C01-1528P. May 14, 2003. Order Denying Reconsideration July 9, 2003. Shareholder brought suit against settlors of trusts, consisting of corporation's shares, seeking to recover on behalf of corporation short-swing profits allegedly made by settlors based on theory that they pur- chased securities when they moved them from trust to an escrow and into individual trading accounts. Parties moved and cross moved for summary judg- ment. The District Court, Pechman, J., held that: (1) settlors were not beneficial owners, for purposes of claims that transactions were changes in beneficial ownership not subject to short-swing profits; (2) movement of shares from trust to escrow counted as purchase for short-swing profit purposes; (3) no gifts were involved; and (4) there was valid escrow, prec- luding claim of no liability because of no escrow. A-60 Judgment for shareholder. *1216 William H. Beaver, Jr..Karr Tuttle Campbell, Seattle, WA, for Naveen Jain Grat No 1 Trust, De- fendant. Beth Ann Colgan, Harry H. Schneider, Jr., Brent Snyder, Perkins Coie, Seattle, WA, for Jain Family Irrevocable Trust, Defendant Timothy P Crudo, Paul H Dawes, David M. Fried- man, Latham & Watkins, San Francisco, CA, Mark Maynes, Stokes Lawrence, Seattle, WA, Kevin Mi- chael Paulich, Wolfstone, Panchot & Block, Seattle, WA, John C Tang, Aaron Levine & Associates, Washington, DC, for InfoSpace Inc, Interested Party. Judith A Endejan, Graham & Dunn, Seattle, WA, Elaine L Spencer, Graham & Dunn, Seattle, WA, for Seattle Times Company, Intervenor. Christine EK Gardiner, Karr Tuttle Campbell, Seat- tle, WA, for Anuradha Jain Grat No 1 Trust. Defen- dant. Douglas W Greene, Barry M. Kaplan, Perkins Coie, Seattle, WA, for Kellett Partners LP, Stiles A Kel- lett, Jr, Defendants. Arthur W. Harrigan, Jr., Danielson Harrigan & Tol- lefson, Seattle, WA, G. Val Tollefson, Danielson Har- rigan & Tollefson, Seattle, WA, for Anuradha Jain, Defendant. Jonathan P Meier, Stephen John Siriann), Richard IK. Spoonemore, Sirianni & Youtz, Seattle, WA, for Thomas R Dreiling, Plaintiff. ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT PECHMAN, District Judge. This matter comes before the Court on cross-motions for summary judgment. (Dkt.Nos.68, 82.) Plaintiff A-61 alleges that the Jain Defendants engaged in prohi- bited short-swing trades of InfoSpace stock by *1217 transferring shares from the Defendant trusts to personal and escrow accounts. Because these trans- fers are purchases for purposes of determining short- swing trades, Plaintiff's motion for summary judg- ment is GRANTED and Defendants' motion for summary judgment is DENIED. BACKGROUND This is a suit by a shareholder of InfoSpace, Mr. Dreiling, against numerous insider Defendants, al- leging that the insiders engaged in unlawful short swing trading-the purchase and sale (or vice versa) of stock within a six month period. There are two groups of Defendants in this matter: the Jain Defen- dants and the Kellett Defendants. The Kellett De- fendants have settled the claims against them. (Dkt. No. 133.) Currently before the Court are cross- motions for summary judgment on Plaintiff's claims against the Jain Defendants. The Jain Defendants are the Naveen Jain, a founder and former CEO of InfoSpace, Anuradha Jain, and three trusts estab- lished by the Jains for the benefit of their children. This litigation arises from stock transfers from three trusts established by the Jains in mid-1998: the Na- veen Jain Grantor Retained Annuity Trust No. 1 (“NJGRAT”), the Anuradha Jain GRAT (““AJGRAT’”), and the Jain Family Irrevocable Trust (“Family Trust”). The Jains established these trusts for tax purposes. Each of the two GRATs were initially funded with two million shares of InfoSpace stock. The Family Trust purchased one million shares of InfoSpace stock from the Jains. Naveen Jain's broth- A-62 er, Atul Jain, was named as the trustee of both GRATs. The GRATs are irrevocable, and the Jains receive annual annuities from the GRATs. Under the terms of the GRATs, the trustee 1s the owner of the trust estate The remainder of the trust estate of the GRATs is paid out to the Jains' children after the Jains' death. Unlike the GRAT, the Family Trust pays no annuity and the sole beneficiaries are the Jains' children. Plaintiff alleges that the Jain Defendants engaged mm four purchases that subject them to lability for short-swing trades. The first purchase allegedly oc- curred in December 1998, when Mr. Jain took one million InfoSpace shares from a trust and placed this stock 1n escrow to satisfy a personal indemnity obli- gation. The second, third, and fourth purchases took place in May 1999, when the Jains deposited trust shares into their personal trading accounts. Defen- dants argue that the above transactions were not “purchases,” as they are understood under securities law. The first alleged purchase in December 1998 oc- curred when Mr. Jain agreed to place in escrow one million shares of his InfoSpace stock. As InfoSpace was preparing for its initial public offering (“TPO”) in late 1998, the Board of Directors learned that Mr. Jain might have incurred hability on behalf of In- foSpace through option grants and disputes arising out of commercial contracts. InfoSpace hired the law firm PerkinsCoie to investigate, and the Board later required Mr. Jain to personally indemnify the com- pany for potential claims by placing one million shares of his InfoSpace stock in escrow. Mr. Jain ex- ecuted an agreement with InfoSpace to establish an A-63 escrow, with InfoSpace as the escrow agent. Per- kinsCoie drafted a Securities and Exchange Com- mission (“SEC”) amendment filed on behalf of InfoS- pace. (Spoonemore Decl. Ex. 24.) This filing represented that Mr. Jain had placed one million shares of common stock held by the NJGRAT trust in escrow, and that Mr. Jain retained voting control over those shares. (/d. Ex. 25.) Because the NJGRAT trust is irrevocable, Mr. Jain had no authority to transfer these shares. *1218 Over the next year, Mr. Jain signed, or autho- rized his attorney in fact to sign, numerous SEC fil- ings representing that he had placed the NJGRAT shares in escrow. (/d. Exs. 25-34.) A year later, after no claims were made against InfoSpace for Mr. Jain's actions, Mr. Jain requested that the Board re- lease the escrowed shares. In early 2000, the Board officially released Mr. Jain from the indemnity agreement and the shares from escrow. Plaintiff al- leges that the escrow agreement was an unlawful transfer of shares to Mr. Jain from the NJGRAT, triggering liability for short swing trades. Defen- dants contend that no escrow was ever in fact created. Despite the SEC filings, Mr. Jain states that neither he nor InfoSpace officially established the escrow. Defendants' attorneys in this matter, Per- kinsCoie, states that it “is not clear why those [re- porting] mistakes [to the SEC] were made.” (Def's Resp. at 6.) Defendants produce statements from numercus other witnesses testifying to their lack of knowledge of an escrow account. The other alleged purchases in May 1999 occurred when the Jains deposited shares of the trusts into their personal brokerage accounts. In May 1999, In- A-64 foSpace stock split two-for-one. InfoSpace then is- sued new stock certificates representing the new shares and sent these certificates to its shareholders. The NJGRAT and AJGRAT split share certificates were sent to InfoSpace's office, while the Family Trust split share certificate was sent to the Jains' home. These stock certificates were marked on their face as belonging to the trusts. Aithough the trust accounts were held by Banc of America Securities, the Jains sent the shares to their personal broker at Hambrecht & Quist (““H & Q”).! H & Q deposited the Family Trust shares in the Jains’ personal account. H & Q then sent the Jains a draft letter of authori- zation that would “gift” the GRAT split shares to the Jains. After the Jains filled out these forms and re- turned them to H & Q, the shares were deposited in- to the personal trading accounts of the Jains. The Jains held and controlled these shares, for example by voting on them, until 2000, when it is alleged this “transfer error’ was discovered. The Family Trust shares were reconveyed to the trust in May 2000. An InfoSpace paralegal who was responsible for track- ing shares noticed a discrepancy in the Jains’ ac- count. (Haberly Dep. at 14-15.) However, Mr. Jain states that he initiated the request that InfoSpace undertake an internal investigation to determine what stock was held in each account, thereby identi- fying the transfer error. As a result of the investiga- tion, the split shares were transferred back to the GRATs in December 2000. The Jains claim that the transfers were innocent 1 The record is confused regarding whether Nationsbanc or Banc of America was the holder at the time. A-65 mistaken deposits. Mr. Jain states that he mistaken- ly believed that the Jain Trusts maintained accounts at H & Q. The Jains declare that they did not know that signing the letters of authorization would effect a gift of shares from the GRATs to their personal trading accounts. Because they did not read their brokerage statements, the Jains claim they were not aware of the transfers. ANALYSIS The parties stipulated to presenting the issues in this case before the Court on cross-motions for sum- mary judgment. (Dkt. No. 50.)\Summary judgment is not warranted if a material issue of fact exists for trial. *1219 Warren v. City of Carlsbad, 58 F.3d 439, 441 (9th Cir.1995), cert. dented, 516 U.S. 1171, 116 S.Ct. 1261, 134 L.Ed.2d 209 (1996). The underlying facts are viewed in the light most favorable to the party opposing the motion. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). “Summary judg- ment will not lie if ... the evidence is such that a rea- sonable jury could return a verdict for the nonmov- ing party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The party moving for summary judgment has the burden to show initially the absence of a genuine issue con- cerning any material fact. Adickes v. S.H. Kress & Co., 398 U.S. 144, 159, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). However, once the moving party has met its initial burden, the burden shifts to the nonmoving party to establish the existence of an element essen- tial to that party's case, and on which that party will bear the burden of proof at trial. Celotex Corp. v. Ca- trett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 91 A-66 L.Ed.2d 265 (1986). To discharge this burden, the nonmoving party cannot rely on its pleadings, but instead must have evidence showing that there is a genuine issue for trial. Jd. at 324, 106 $.Ct. 2548. Section 16(b) of the 1934 Securities and Exchange Act contains a blanket prohibition on insiders engag- ing in short-swing trades-purchasing and selling (or vice versa) within a six-month window. 15 U.S.C. § 78p(b). This is a bright-line rule designed to combat the possibility of unfair insider trading. An insider may be a corporate officer, director or 10% share- holder. Jd. at (a)(1). If any corporate insider engag- es in short-swing trades, a shareholder may bring suit on behalf of the company, forcing the insider to disgorge all profits to the company. Id. at (b). The principal issue raised in the cross-motions for sum- mary judgment is the legal question of whether the trust transactions are purchases under federal se- curities law. Defendants make three basic argu- ments: (1) because the transfers from trusts to per- sonal or escrow accounts did not constitute a change of beneficial ownership of the InfoSpace shares, none of the four disputed transactions was a purchase; (2) while the transfers from the trust to personal and escrow accounts may be mistakes or gifts, they are not purchases; (3) since no escrow was ever in fact established, Mr. Jain never purchased the InfoSpace that were to be placed in escrow. {1} It should be noted that Defendants' protests of innocent intentions are largely irrelevant since Sec- tion 16(b) imposes strict liability for short-swing trades. The statute requires disgorgement to the company of any profit derived from the matching of any purchase and any sale of an “equity security” A-67 within a six-month period by a statutory insider, ir- respective of intent. Gwozdzinsky v. Zell/Chtlmark Fund, L.P., 156 F.3d 305, 308 (2d Cir.1998). “No showing of actual misuse of inside information or of unlawful intent is necessary to compel disgorge- ment.” Magma Power Co. v. Dow Chem. Co., 136 F.3d 316, 320 (2d Cir.1998). Rather, Section 16(b) “operates mechanically, and makes no moral distinc- tions, penalizing technical violators of pure heart, and bypassing corrupt insiders who skirt the letter of the prohibition.” Id. at 320-21. The statute, therefore, “imposes hability without fault ... within its narrowly drawn limits.” Jd. at 321. I. Change in Beneficial Ownership [2] Section 16 liability for short-swing trades does not attach if the owner of a stock merely changes his or her form of ownership. Such a transaction is not a purchase, but a mere change in beneficial ownership. Changes in beneficial ownership are exempted from Section 16(b) liability.*1220 17 C.F.R. § 240.16a-13. Defendants argue that all four transfers from the trusts to personal and escrow accounts were mere changes in the form of beneficial ownership. Plaintiff argues that the Jain Defendants did not have benefi- cial ownership of the stock in any of the trusts. The general definition of “beneficial owner” is broad, and Defendants urge the Court to interpret the defi- nition to include persons such as the Jains who re- ceive annuities from a trust: [T]he term beneficial owner shall mcan any person who, directly or indirectly, through any contract, ar- rangement, understanding, relationship or other- A-68 wise, has or shares a direct or indirect pecuniary in- terest in the equity securities, subject to the follow- ing. (i) The term pecuniary interest in any class of equity securities shall mean the opportunity, directly or in- directly, to profit or share in any profit derived from a transaction in the subject securities. Rule 16a-1(a)(2). However, the regulations refer to another section to determine how to analyze benefi- cial ownership in the specific context of trusts. (ii) The term indirect pecuniary interest in any class of equity securities shall include, but not be limited to: a a (EK) A person's interest in securities held by a trust, as specified in § 240. 16a-8(b). Rule 16a-1(a)(2) (emphasis added). Rule 16a-8 spells out how to analyze trust ownership. The “settlor” or founder of the trust is considered the beneficial owner “where they have the power to re- voke the trust without the consent of another per- son.” Rule 16a-8(a)(2)(ii). There is no dispute that the Jains did not have the power to revoke the trusts, therefore the fact that they are settlors does not make them beneficial owners. The beneficiary of the trust is considered a beneficial owner in a number of circumstances: (3) Beneficiaries. A beneficiary subject to section 16 A-69 of the Act shall have or share reporting obligations with respect to transactions in the issuer's securities held by the trust, if the beneficiary is a beneficial owner of the securities pursuant to § 240.16a-1(a)(2), as follows: (i) If a beneficiary shares investment control with the trustee with respect to a trust transaction, the transaction shall be attributed to and reported by both the beneficiary and the trust; (ii) If a beneficiary has tnvestment control with re- spect to a trust transaction without consultation with the trustee, the transaction shall be attributed to and reported by the beneficiary only; Rule 16a-8(b) (emphasis added). The Jains do not fall under either of the above categories. Although the Jains received annuity payments, they did not control the trust or share investment control with the trustee. Therefore, the Jains were not beneficial owners of the trust. Treatises and case law agree that the above analysis directs the determination of beneficial ownership of trusts for purposes of Section 16 liability. See Feder v. Frost, 220 F.3d 29 (2d Cir.2000); Bloomen- thal & Wolff, 3D Securities and Federal Corporate Law § 21.26 at 21-40 (2d ed 2002) (“Beneficiaries of a trust generally will not have the requisite voting or investment control to be beneficial owners for the purpose of determining insider status.”), Loss & Se- ligman, V Securities Regulation at 2425 n. 169 (3d ed.2001). For example, a beneficiary has been held liable under Section 16 when he “purchased” shares with an IOU from a trust of which he was a benefi- A-70 clary. *1221Morales v. Quintiles Transnational Corp., 25 F.Supp.2d 369 (S.D.N.Y.1998). A transfer of InfoSpace shares from the trust to the Jains' per- sonal accounts is a change in beneficial ownership The public policy underlying the reporting and bene- ficiary ownership rules on trusts further bolsters Plaintiffs position. If the Jains did not control in- vestment decisions of the trust, or even have reason to know of the transactions the trustee made, then it would be unfair to count such transactions as pur- chases or sales of the Jains. On the other hand, if the Jains maintained control over the investment deci- sions of the trusts and benefitted from those transac- tions, then the trusts' purchases and sales should be counted as the Jains. Loss & Seligman, V Securities Regulation at 2425-26 (“Where investment control is shared, including consultation between the trustee and beneficiary, both the trust and the beneficiary must report the transaction and are responsible for any resulting short-swing profits”) (citing Sec. Ex. Act. Rel. 28,869 (1991)). Here, because the Jains did not exercise investment control over the trusts, they are not beneficial owners of the shares of the trusts. Normally, this policy operates to protect non- controlling trust beneficiaries from short-swing lia- bility for trust transactions. In this case, however, the transactions at issue were not solely within the corpus of the trusts, but rather a transfer from the trusts to the Jains. Therefore, the Jains' transfer of shares from the NJGRAT, AJGRAT, and Family Trust to their personal trading accounts constituted a change in beneficial ownership. Also, transfer of stock from the NJGRAT trust to an escrow account to satisfy a personal obligation of Mr. Jain effected a change in beneficial ownership. The above analysis disposes of two additional issues raised by the Defendants. Because the Jain Defen- dants admit that they did not report the “misdepo- sits” from the trusts to their personal accounts that effected a change in beneficial ownership, the statute of limitations 1s tolled. Whittaker v. Whittaker, 639 F.2d 516, 528 (9th Cir.1981), cert denied, 454 US. 1031, 102 S.Ct. 566, 70 L.Ed.2d 473 (1981); (Def.'s Resp. at 13). While the shares owned by one's spouse or children may be counted as one's own for purposes of being an insider, the above rules on trusts estab- lish that the Jains are not the beneficial owners of the holdings of the trusts. IT. Stock Transfers from the Trusts as Purchases [3] The term “purchase” is defined in Section 3 of the Securities Exchange Act of 1934, 15 U.S.C. § 78c(a)(13), to include “any contract to buy, purchase, or otherwise acquire.’ Questions often arise as to whether a particular transaction qualifies as a “pur- chase” or “sale” within the meaning of the statute. Courts have answered this question by applying es- sentially two types of analysis. For transactions which are ordinary (e.g. cash for stock) “purchases” or “sales,” generally referred to as “orthodox” trans- actions, Section 16(b) has been strictly applied, using an “objective” analysis. See Whittaker, 639 F.2d at 522. Therefore, in an “orthodox” transaction, Plain- tiff need not show any possibility for speculative abuse-it is presumed. For transactions which are not ordinary “purchases” or “sales,” generally termed “unorthodox” or “borderline” transactions, courts have developed a “pragmatic” or “subjective” analy- sis to test whether the transaction is of the type that Congress sought to prohibit. Jd. Plaintiff argues A-72 that all four stock transfers from the trusts to per- sonal or escrow accounts are “purchases” under both the orthodox and unorthodox analysis. Defendants contend that the 1999 stock transfers from the trusts to the Jains’ personal accounts were *1222 not pur- chases because there was no possibility of specula- tive abuse. Even if an escrow was created, Defen- dants contend that transfer of shares from the NJGRAT trust to the escrow also created no possibil- ity of speculative abuse, and therefore is not a pur- chase. A. Choosing the Analysis There is no clear rule that the Court may apply in this case to determine whether to apply the orthodox or unorthodox test. See Prager v. Sylvestri, 449 F.Supp. 425, 430 n. 6 (S.D.N.Y.1978) (“The distinc- tion between borderline or unorthodox transactions and garden-variety [or orthodox] ones is not overly bright.”). It is clear to the Court, however, that the alleged purchases here are distinct from the arche- typical case of stock-for-cash trades and appropriate- ly categorized as borderline. First, there was no obvious “purchase” in the sense of an exchange of stock for consideration. This lack of consideration may or may not be fatal to the argu- ment that there was a purchase. As one commenta- tor has noted. [C]ertain transactions involving no consideration are not a purchase or a sale under Section 16(b): Gifts, stock splits, stock dividends, and receipt of rights distributed to all stockholders pursuant to preemp- tive rights. Notwithstanding these Section 16(b) cas- A-73 es, transferring a security without receiving consid- eration could be a Section 16(b) purchase and sale under the proper circumstances. Whether or not a transfer for no consideration is a purchase and a sale, transfers for worthless consideration or inade- quate consideration can be Section 16(b) purchases and sales. Jacobs, Disclosure & Remedies Under the Securities Laws § 4:157 (2002). The fact that a transfer with no consideration may or may not be a violation of Section 16(b) raises the considerations of the “unor- thodox” analysis. Also, the Ninth Circuit has treated an “overissue” of stock-stock transferred in error- under the unorthodox analysis. Kay v. Scientex Corp., 719 F.2d 1009, 1011-12 (9th Cir.1983). This is the closest case that the parties cite to the transac- tion at issue here, and the Court considers an erro- neous overissue to be similar to the alleged errone- ous transfers. Because not every allegedly erroneous transfer could be considered to be an orthodox trans- action, it is appropriate to analyze the transactions at issue in this matter under the unorthodox rule. B. Unorthodox analysis [4] The Supreme Court has taught that the focus of the unorthodox test should be whether the transac- tion at issue threatens speculative abuse: Where alternative constructions of the terms of Sec- tion 16(b) are possible, those terms are to be given the construction that best serves the congressional purpose of curbing short-swing speculation by corpo- rate insiders. Thus, in interpreting the terms ‘pur- chase’ and ‘sale,’ courts have properly asked whether A-74 the particular type of transaction involved is one that gives rise to speculative abuse. Kern County Land Co. v. Occidental Petroleum Corp., 411 U.S. 582, 593, 93 S.Ct. 1736, 36 L.Ed.2d 503 (1973). In considering whether the type of trans- action at issue gives rise to the potential for specula- tive abuse, two factors are of primary importance: (1) access to inside information; and (2) the ability to influence the timing of a transaction. Morales ov. Gould Investors Trust, 445 F.Supp. 1144, 1153 (S.D.N.Y.1977), aff'd, 578 F.2d 1369 (2d Cir.1978). Applying Kern, the Ninth Circuit has also empha- sized that “involuntariness” is an important factor in determining whether*1223 or not a transaction con- stitutes a “sale” or “purchase” under Section 16(b). Colan v. Mesa Petroleum Co., 951 F.2d 1512, 1522 (9th Cir.1991). The Supreme Court in Kern noted not just the lack of a possibility of speculative abuse, but also that the defendant-a company undergoing a merger-had no control over the stock transactions. The Ninth Circuit has effectively made involuntari- ness into a second requirement for passing the unor- thodox test. “Absent a showing of involuntariness, we would not be justified in applying the Kern Coun- ty rule.” Jd. The Ninth Circuit in Kay recited very strong language on voluntariness. In determining whether the overissuance of shares is a purchase within the meaning of section 16(b) we find it appropriate to inquire into the voluntary na- ture of the transaction. If an overissuance of stock is done entirely without participation by the recipient of the stock it is doubtful the transaction presents the opportunity for speculative abuse condemned by A-75 section 16(b). If, however, the recipient is instrumen- tal in the overissuance, the opportunity for specula- tive abuse is present. 719 F.2d 1009, 1013 (emphasis added). Other courts have also applied extremely narrow definitions of vo- luntariness: “Case law establishes a stiff test of vo- luntariness. So long as the seller retains any degree of control over a transaction, its actions will not be found to be involuntary.” Sprague Elec. Co. v. Mos- tek Corp., 488 F.Supp. 842, 845 (N.D.Tex.1980) (em- phasis added). Accordingly, the Court evaluates whether the Jains’ transactions were neither volun- tary nor likely to lead to speculative abuse. 1. Voluntariness The Jain Defendants' actions were voluntary. The Jains signed papers allowing transfer of funds from the GRATs. The Jains caused deposits of trust stock into their personal brokerage accounts by forwarding stock certificates to their personal broker. Mr. Jain promised to place shares of the NJGRAT trust into escrow to fulfill a personal obligation. The fact that the Jains failed to read their brokerage statements, simply signed legal documents without knowing what they were, and mistakenly sent certificates to their personal broker does not make their actions in- voluntary. As noted above, their subjective intention is not relevant to a Rule 16(b) analysis. The Jain De- fendants are correct that their actions are “less vo- luntary” than those in the Kay overissue case. See 719 F.2d at 1013. Nonetheless, the Jains partici- pated in the transfers and retained more than a de- gree of control over the transactions. Without the participation of the Jains, the transfers would not A-76 have happened. While the Jains' actions in effecting the transfers may not have been culpable, they were voluntary. 2. Possibility of Speculative Abuse The Jains’ transfer of shares to their personal ac- counts created the possibility of speculative abuse. The Jains had insider knowledge and influence over the timing of the transfers. Again, it does not matter what the Jains intended or what speculative actions they actually took. Rather, it is clear that the trans- fer of literally millions of shares to a personal ac- count created the possibility of speculative abuse. The Jains could have sold the shares at a high price, repurchased the shares at a lower price, and then transferred the sharcs back to the trusts. The trans- fers created the possibility of selling, or “freeing up” for sale, the Jains' personal shares. The Kay court found as a matter of law that acquisition through an erroneous overissuance and consequent sale for cash demonstrated the possibility of speculative abuse: “When insiders participate in voluntary acquisitions of stock coupled with conventional sales, the possibil- ity of speculative*1224 abuse of insider information is present. Neither proof of actual abuse of insider information nor proof of intent to profit on the basis of such information is necessary under section 16(b).”.. 719 F.2d at 1013. Plaintiff demonstrates both voluntariness and the possibility of speculative abuse. C. Gifting [5] Defendants argue that the transfers may be cha- racterized as gifts. Bona fide gifts are exempted from A-77 Section 16(b). Rule 16b-5 (“Both the acquisition and the disposition of equity securities shall be exempt from the operation of Section 16(b) of the [Exchange] Act if they are bona fide gifts.”). Gifts are not sales or purchases when made in good faith and without sub- terfuge. See Shaw v. Dreyfus, 172 F.2d 146, 142-43 (2d Cir.1949), cert. denied, 337 U.S. 907, 69 S.Ct. 1048, 93 L.Ed. 1719 (1949). There is no evidence that the trusts gifted the shares, or had the authority to gift the shares, to the Jain Defendants. There is no evidence that the Jain Defendants had the power or authority to gift the trust shares to themselves. An allegedly erroneous transfer cannot be reclassified as a gift to escape la- bility for short-swing trades. Because the Jains' transfers of stock in 1999 from the NJGRAT, AJGRAT, and Family trust were vo- luntary and created the possibility of speculative abuse, they constitute purchases for purposes of Sec- tion 16(b) liability. Mr. Jain's placement of NJGRAT shares into an escrow account also was voluntary and created the possibility for speculative abuse, and therefore it is a purchase. Ul. Existence of the Escrow Account [6] Defendants insist that the escrow account of the one million InfoSpace shares from the NJGRAT was never in fact established. Plaintiff argues that the SEC filings and actions of the parties demonstrate the existence of the escrow. On December 11, 1998, Mr. Jain and InfoSpace ex- ecuted an indemnification agreement to establish A-78 the escrow fund at issue. (Spoonemore Decl. Ex. 23 at 1, 4.) That same day, Mr. Jain was to deliver “to the Escrow Agent certificates representing 1,000,000 shares of the Company's Common Stock ...” (Id. at 4.) The agreement appointed InfoSpace as the escrow agent. (/d. at 9.) The agreement stated that Mr. Jain was to have the right to vote the escrowed stock and receive cash dividends, while the escrow agent had the right to possess the escrowed stock. (Id. at 4.) The agreement is governed by Washington law. (Jd. at 10.) In Washington, an escrow is defined as a transaction: wherein any person or persons, for the purpose of effecting and closing the sale, purchase, exchange, transfer, encumbrance, or lease of real or personal property to another person or persons, delivers any written instrument, money, evidence of title to real or personal property, or other thing of value to a third person to be held by such third person until the happening of a specified event or the performance of a prescribed condition or conditions, when it is then to be delivered by such third person, in compliance with instructions under which he or she is to act, to a grantee, grantor, promisee, promisor, obligee, obli- gor, lessee, lessor, bailee, bailor, or any agent or em- ployee thereof. RCW 18.44.011(4). The escrow agreement between Mr. Jain and InfoSpace reflects the encumbrance and transfer of the personal property of one million shares. The escrow provisions of the agreement did not specify which third person was to hold the stock certificates or where the certificate *1225 would be held. The Court does not find it unusual, however, A-79 that the attorneys for InfoSpace, PerkinsCoie, would hold the certificates. See FDIC v. Knostman, 966 F.2d 1133, 1140 (7th Cir.1992). Neither does the failure to identify a third party nor the fact that PerkinsCoie already had possession of the certifi- cates at the time of the agreement's execution pre- vent formation of the escrow. See id. at 1140-41. It is clear that the parties intended and agreed to en- cumber the personal property and establish an es- crow. Cf. Stoebuck, 17 Wash. Prac., Real Estate: Property Law § 7.11 (“delivery” means “intent.” It is possible, and Washington has so held, “for a deed to be delivered though it remains in the grantor's pos- session, provided his intent that it shall pass title is clearly shown.”) The terms of the escrow are not in dispute. Mr. Jain and InfoSpace, with the assistance of PerkinsCoie, represented to the SEC that the NJGRAT shares were placed into escrow. It is un- disputed that PerkinsCoie held the certificates when Mr. Jain and InfoSpace signed the agreement. These actions formed an escrow. Additionally, the Court agrees with Plaintiff that Mr. Jain's pledge of NJGRAT shares created the possibility of speculative abuse. Through the pledge of the NJGRAT shares, Mr. Jain avoided pledging stock he already owned, thereby gaining an opportu- nity to trade a million shares that otherwise would have been encumbered. Mr. Jain incurred no risk that the one million shares from the NJGRAT would decrease in value, since he did not pay for the shares on their transfer. Because Mr. Jain placed in escrow one million shares of the NJGRAT, he effected a pur- chase for purposes of liability under Section 16(b). A-80 IV. Motion to Strike Expert Report Plaintiff moves to strike Defendant's expert report. Defendants’ expert report on securities law does not assist the Court in resolving the cross-motions. Ac- cordingly, Plaintiffs motion to strike is DENIED as MOOT. CONCLUSION Because the transfers at issue in this matter are purchases for purposes of determining short-swing trades, Plaintiffs motion for summary judgment is GRANTED and Defendants’ motion for summary judgment is DENIED. ORDER DENYING DEFENDANTS’ MOTIONS FOR RECONSIDERATION This matter comes before the Court on Defendants' motions for reconsideration. Defendant Naveen Jain moves for reconsideration of this Court's order on summary judgment, (Dkt. No. 157), as do the Jain Trusts and Anuradha Jain, (Dkt. No. 159). Defen- dants contend that the Court erred in concluding that Defendants are liable under Section 16(b) for trust transactions because: (1) the trustee can res- cind the stock transfers and therefore avoid Section 16(b) liability; and (2) no escrow was created. The Jain Trusts also move for a Rule 56(f) continuance to conduct discovery to support an additional motion for reconsideration, which would be filed after the ten day deadline for reconsideration motions. (Dkt. No. 152.) Motions for reconsideration are disfavored. Local A-81 Rule CR 7(h)(1). The court will ordinarily deny such motions in the absence of a showing of manifest er- ror in the prior ruling or a showing of new facts or legal authority which could not have been brought to its attention earlier with reasonable diligence. Id. The Court disagrees with Defendants' contentions of manifest error, and accordingly Defendants motions for reconsideration are DENIED. Because Defendant has failed to demonstrate grounds for a late Rule 56) *1226 continuance, Defendants' motion is DENIED. I. Rescission Defendants argue that the trustee can rescind any transfers from the trusts to the Jains on the grounds that such transfers were invalid because the trustee never approved them. Rescission, Defendants argue, eliminates Section 16(b) lability. First, this 1s an inappropriate new argument, and Defendants have failed to show why this issue could not have been raised on the cross-motions for sum- mary judgment. Rosenfeld v. United States Dep't of Justice, 57 F.3d 8038, 811 (9th Cir.1995). The fact that Defendants hired new counsel after losing on summary judgment is not by itself justification for raising new issues on reconsideration and effectively relitigating the prior order. Second, the Court does not agree on the existence of a broad rule eliminating invalid, later rescinded transactions from Section 16(b) liability. See Oliff vu. Exchange Int'l Corp., 449 F.Supp. 1277, 1291 (N.D.T11.1978) (“The issue is thus not whether a res- cission took place but whether the particular rescis- A-82 sion constituted a purchase within the meaning of section 16(b).”). If Section 16(b) liability could be avoided by rescission, then all potential defendants in such actions could simply rescind in the face of a lawsuit. The mere fact that a transfer is invalid does not insulate a person from Section 16(b) lability. See Kay v. Scientex Corp., 719 F.2d 1009, 1013-14 (9th Cir.1983). The cases that Defendants cite are very narrow exceptions where courts found that res- cission demonstrated that there was, in fact, no transaction and no threat of speculative abuse. See Oliff, 449 F.Supp. at 1291-93 (analyzing cases on rescission). Here, in contrast, Plaintiff demonstrated the possibility of speculative abuse. Ul. Escrow Defendant Naveen Jain contends that there is at least a fact issue regarding whether or not an escrow exists. In its Order on the cross-motions for sum- mary judgment, the Court considered the evidence presented by Defendant and concluded that it dem- onstrated the existence of an escrow. Defendant makes two principle arguments on the escrow issue: (1) that Perkins Coie did not agree to be an escrow agent; and (2) that the SEC filings contained contra- dictory information supporting the inference that no escrow was created. Having examined the original briefing on the escrow issue, again the Court finds that both arguments De- fendant raises on reconsideration to be new, and therefore inappropriately raised. Rosenfeld, 57 F.3d at 811. Nonetheless, the Court does not agree with Defendant's contentions. Defendant argues that Perkins Coie had to agree to be an “escrow agent” to A-83 the transaction in order for the escrow to exist, but cites a 1973 District of Columbia Court of Appeals case for the proposition. (Jain Recon. at 2.) Regard- less, the terms of the escrow agreement name InfoS- pace as the escrow agent. InfoSpace's counsel, Per- kins Coie, had possession of the shares and clearly knew of the agreement. The Court found these un- disputed facts sufficient for establishing the exis- tence of an escrow. Defendant also contends that SEC filings are con- tradictory. In several cases the filings indicate that Mr. Jain “has agreed” to escrow “beneficially owned” shares, whereas in another the filing states that Mr. Jain had established the escrow with trust shares. The Court does not believe that these differences create an issue of fact. The actions of the parties demonstrate the existence of the escrow. Defendant's motion for reconsideration is DENIED. *1227 II. Rule 56(f) Continuance The Jain Trust Defendants seek a Rule 56(f) conti- nuance in order to discover information regarding the formation of an escrow and transfer of trust as- sets. On obtaining this information, Defendants seek to file an additional motion for reconsideration past the ten day deadline. A Rule 56(f) motion must be brought before the summary judgment hearing. United States v. Kitsap Physicians Service, 314 F.3d 995, 1000 (9th Cir.2002), citing Ashton-Tate Corp. v. Ross, 916 F.2d 516, 520 (9th Cir.1990). While other jurisdiction may have recognized exceptions to this rule, Defendants have failed to demonstrate why any exception should A-84 apply here. Although Defendants contend that the Court made an “unexpected finding” regarding the existence of the escrow, and in particular concerning the actions of Perkins Coie, these issues were argued and briefed by the parties. (See, e.g., Pl.'s Mot. Summ. J. at 12) (“Perkins Coie certainly knew that those shares were subject to escrow-it was the very entity that, in drafting the public filings, inserted the statements that the NJGRAT shares had been placed into escrow.”). The existence of the escrow was a critical issue on summary judgment, and the Court agreed with the arguments advanced by Plaintiff. Moreover, the parties engaged in signifi- cant discovery for nearly a year before submitting cross-motions for summary judgment to the Court. The briefs on the cross-motions for summary judg- ment were submitted, by stipulation of the parties and order of the Court, past the deadline for disposi- tive motions. The Court extended the deadline after the parties represented that they expected no trial would be necessary and that the case could be re- solved as a matter of law. Defendants’ change of at- torneys is not grounds for a continuation. Having failed to show manifest crror to the Court, Defendants motions for reconsideration are DENIED. Because Defendant has failed to demon- strate grounds for a late Rule 56(f) continuance, De- fendants' motion is DENIED. W.D.Wash.,2003. Dreiling ex rel. Infospace, Inc. v. Kellett 281 F.Supp.2d 1215 A-85 --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386020_0961%3A1. Public record. Not legal advice.