On October 15, 2012, Chief Judge Claudia Wilken of the United States District Court for the Northern District of California denied defendants’ motion for certification of an interlocutory appeal of the court’s prior order denying defendants’ motion to dismiss. SEC v. Sells, No. 11-04941 (N. D. Cal. Oct. 15, 2012). A split will therefore remain amongst district courts as to whether the Supreme Court’s holding in Janus Capital Group Inc. v. First Derivative Traders, 131 S. Ct. 2296, 2303 (2011), applies to cases involving Section 17(a) of the Securities Act of 1933 or in cases alleging scheme liability under Section 10(b) of the Securities Exchange Act of 1934. Janus held that a defendant could only be liable under Rule 10b-5(b) for material misstatements if the defendant “made” the statements.
Last October, the SEC filed suit against defendants Christopher Sells and Timothy Murawski, former executives at medical device company Hansen Medical, Inc., for their alleged involvement in a financial manipulation scheme designed to enhance the company’s sales and income. Defendants sought dismissal of the action in part on Janus grounds. The district court denied the defendants’ motion to dismiss, finding that to allow liability for defendants’ alleged conduct would not be inconsistent with Janus. Defendants subsequently sought certification to the Ninth Circuit of two Janus-related issues: first, whether the SEC could bring scheme liability claims under Rule 10b-5(a) and (c) based upon an alleged misstatement that the defendant did not “make” under Janus; and second, whether Janus applied to claims under Section 17(a) of the Securities Act of 1933.
In denying defendants’ motion, Judge Wilken emphasized that such motions should only be granted in exceptional circumstances. In order to meet its burden of establishing that such exceptional circumstances exist, the party seeking certification of an interlocutory order must establish that three factors are met: (1) the issue to be certified involves a “controlling question of law,” (2) there exists a “substantial ground for difference of opinion” on the issue, and (3) it is likely that an interlocutory appeal will “materially advance the ultimate termination of the litigation.” The court ultimately held that defendants did not meet their burden on the third prong. On the contrary, the court held, an immediate appeal would likely delay, rather than advance, the conclusion of the case. Moreover, resolution of the issues on which defendants sought appeal would not address all claims asserted against either defendant because even if those claims were dismissed, the SEC’s aiding and abetting claims would still remain in play. This is not the first time a district court has declined to certify Janus-related issues for interlocutory appeal, and it remains to be seen if or when the Ninth circuit will have an opportunity to rule on these important issues.