United States Securities and Exchange Commission v. Collector's Coffee Inc.

Background

The Securities and Exchange Commission brought civil fraud charges against Mykalai Kontilai and Collector's Coffee Inc. The district court referred general pretrial matters to Magistrate Judge Gorenstein, including scheduling, discovery, nondispositive pretrial motions, and settlement. The district court considered six objections to four of Magistrate Judge Gorenstein’s orders.

Under Federal Rule of Civil Procedure 72(a), a district court may overturn a magistrate judge’s order on a nondispositive motion only if the order is clearly erroneous or contrary to law. The court described discovery matters as generally nondispositive and emphasized that magistrate judges have broad discretion in resolving them.

Protective Order

The defendants objected to Magistrate Judge Gorenstein’s grant of a protective order. The court found Kontilai’s objection untimely because it was filed outside the required fourteen-day period. The court found that Collector's Coffee Inc.’s objection violated page limits and that the company had not asked permission to exceed those limits. The court therefore struck both objections. It also stated that, even if considered, the objections were meritless because the defendants had not shown that Magistrate Judge Gorenstein’s ruling was clearly erroneous or contrary to law.

Temporary Restraining Order

The defendants objected to the order keeping a May 14, 2019 temporary restraining order in effect. The order maintained an asset freeze and other relief until the Securities and Exchange Commission’s motion for a preliminary injunction was decided. Judge Marrero stated that the parties had stipulated to continue that relief and that the motion for a preliminary injunction had not yet been adjudicated. The court overruled the objection, concluding that the defendants’ argument that the stipulated relief was a decision on the merits had no factual basis.

Discovery Sanctions

Kontilai objected both to the original discovery-sanctions order and to the order denying reconsideration of that decision. The court declined to consider the objection to the original order because Kontilai had simultaneously sought reconsideration from Magistrate Judge Gorenstein. The court explained that he could pursue an objection under Rule 72 or seek reconsideration, but not both at the same time.

The court denied the objection to the order denying reconsideration. Kontilai argued that Magistrate Judge Gorenstein had incorrectly treated two sets of responses to requests for admission as duplicative. Judge Marrero stated that any error was attributable to the defendants’ own representations and that the sanctions order also rested on alternative grounds. Because Kontilai did not challenge those alternative grounds, the court denied the objection.

Affirmative Defenses

Kontilai objected to an order striking certain affirmative defenses while also seeking reconsideration of that order. The court declined to consider the objection while the reconsideration motion was pending and dismissed the objection as moot. The court stated that Kontilai could file a new objection under the described procedure if he still believed he had a nonfrivolous challenge after the reconsideration ruling.

Ruling and Future Objections

Judge Marrero ordered that the defendants’ six objections to Magistrate Judge Gorenstein’s rulings were denied. The court also required the defendants, before filing any future Rule 72 objection to a nondispositive magistrate ruling, to submit a two-page letter explaining the basis for the objection and requesting permission to file full briefing. Another party could respond with a two-page letter within one week.

Disposition

The court denied the defendants’ objections. It also imposed the advance-letter requirement for future objections.