United States Securities and Exchange Commission v. Collector's Coffee Inc.
- Victor Marrero
- 1:19-cv-04355
- U.S. District Court · Southern District of New York
- 5
In SEC v. Collector’s Coffee, Judge Groote partly granted the SEC’s reconsideration motion, denied Kontilai’s motion, and required tax-return production.
The SEC and Mykalai Kontilai were directly affected. The SEC could file additional briefing about whether Kontilai could withhold real-property records under the Fifth Amendment, and Kontilai was required to produce tax returns in his possession since the 2014 tax year or submit an affidavit explaining efforts to obtain any missing returns.
What happened
United States Securities and Exchange Commission v. Collector’s Coffee Inc. involved competing requests to reconsider an earlier order about Mykalai Kontilai’s tax returns and real-property records.
The SEC asked to revisit the decision not to require Kontilai to produce real-property records, arguing that an earlier order had prevented him from relying on the Fifth Amendment. Kontilai asked the court to reconsider the requirement that he produce tax returns, arguing that the SEC had not met the required burden.
The court partly granted the SEC’s motion by allowing it to file a brief on Kontilai’s Fifth Amendment argument, denied Kontilai’s motion, and ordered him to produce tax returns in his possession since 2014. Judge Soo Groote signed the opinion.
The detailed version
- United States Securities and Exchange Commission v. Collector's Coffee Inc. · No. 1:19-cv-04355
- Victor Marrero
- June 1, 2020
Background
On April 24, 2020, the court ordered Mykalai Kontilai to produce all tax returns in his possession since the 2014 tax year. The court also denied the Securities and Exchange Commission’s request to require Kontilai to produce his real-property records. The SEC and Kontilai each sought reconsideration of those rulings.
Standard for reconsideration
Under Local Civil Rule 6.3, reconsideration is generally appropriate only when the moving party identifies controlling law or information the court overlooked that could change the result. The opinion also explains that reconsideration may be warranted for an intervening change in controlling law, new evidence, clear error, or manifest injustice. A party generally may not use reconsideration to present arguments that it could have raised earlier or to relitigate issues already decided.
The SEC’s motion
The SEC argued that an earlier order by Judge Schofield had required Kontilai to comply with the temporary restraining order and had effectively prevented him from asserting a Fifth Amendment privilege against self-incrimination regarding the real-property records. The court rejected that reading. It explained that Judge Schofield had directed Kontilai to use a particular procedure to seek relief from the temporary restraining order, but had not ruled on the merits of any Fifth Amendment objection.
The court agreed that Kontilai had not followed that procedure, particularly because his former attorney had agreed to the production at issue. But the court declined to conclude that Kontilai had therefore lost his Fifth Amendment rights. It stated that courts have accepted delayed assertions of the privilege and that the privilege should not be treated as waived too readily.
The court nevertheless accepted that the SEC reasonably focused on the effect of Judge Schofield’s order rather than addressing the substance of Kontilai’s Fifth Amendment argument. It therefore granted in part the SEC’s motion for reconsideration, allowing the SEC to file a brief addressing only whether Kontilai could withhold the real-property records based on the Fifth Amendment. The SEC’s brief was due June 8, 2020, and Kontilai could file a reply by June 15, 2020. The opinion did not decide the underlying Fifth Amendment issue in this order.
Kontilai’s cross-motion
Kontilai argued that the court had overlooked a nonconstitutional argument that the SEC had not met the heightened burden sometimes required to obtain tax returns in discovery. The court found that Kontilai had not actually raised that argument clearly in his earlier briefing. Instead, his earlier brief argued that tax returns generally were unavailable to federal agencies other than the Internal Revenue Service and relied on a Seventh Circuit decision that was not binding in the Southern District of New York.
The court therefore denied Kontilai’s reconsideration motion on the ground that he had not previously raised the argument. The court also addressed the argument’s merits and concluded that the SEC had met the heightened burden. It found that the tax returns were relevant to the fraud claims because they could show whether Kontilai had income from sources other than Collector’s Coffee Inc. and whether he believed he was receiving a salary from that company. The court also found a compelling need because Kontilai was not offering other contemporaneous documents that would show his income, and because he had placed his income at issue by claiming that Collector’s Coffee owed him a salary.
Disposition
The SEC’s motion for reconsideration was granted in part. The SEC was permitted to brief Kontilai’s ability to withhold the real-property records under the Fifth Amendment. Kontilai’s cross-motion for reconsideration was denied. The court also ordered Kontilai to produce, by June 8, 2020, all tax returns in his possession since the 2014 tax year. If he could not produce all of them, he had to submit an affidavit describing in detail the steps he had taken to obtain the missing copies.
Judge Soo Groote signed the opinion.
Read the full 5-page opinion on CourtListener, the free public archive maintained by the Free Law Project.