Court Opinion

ID: 4667401
Source: CourtListenerOpinion
Date Created: 2021-03-12 21:01:31.999992+00
Date Added: 2024-06-11T08:02:56.569688
License: Public Domain

NOT FOR PUBLICATION                           FILED
                    UNITED STATES COURT OF APPEALS                       MAR 12 2021
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                           FOR THE NINTH CIRCUIT

SECURITIES AND EXCHANGE                         No.    20-56374
COMMISSION,
                                                D.C. No.
                Plaintiff-Appellee,             8:16-cv-00974-CJC-AGR

 v.
                                                MEMORANDUM*
CHARLES C. LIU, XIN WANG a/k/a LISA
WANG,

                Defendants-Appellants,
and

PACIFIC PROTON THERAPY
REGIONAL CENTER LLC; et al.,

                Defendants.

                   Appeal from the United States District Court
                      for the Central District of California
                   Cormac J. Carney, District Judge, Presiding

                            Submitted March 10, 2021**
                               Pasadena, California

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      **
             The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
Before: WATFORD and OWENS, Circuit Judges, and PRESNELL,*** District
Judge.

      Charles Liu and Xin Wang (together, “Appellants”) appeal the district

court’s entry of an asset freeze preliminary injunction. We have jurisdiction under

28 U.S.C. § 1292(a)(1) and affirm the district court’s decision.

      This case involves a violation of Section 17(a)(2) of the Securities Act of

1933. Appellants raised approximately $27 million from Chinese investors to fund

the construction of a California cancer treatment center. Early in the case, the

district court entered a preliminary injunction that froze Appellants’ assets pending

final disposition. The district court later entered summary judgment for the SEC

and found that Appellants misappropriated most of the money they raised. It

ordered Appellants to disgorge the entire amount raised from investors less the

amount remaining in the corporate accounts. Appellants appealed that decision—

first to this court, which affirmed the judgment, and then to the Supreme Court.

The Supreme Court vacated the district court’s judgment, held that any

disgorgement award must not exceed a wrongdoer’s net profits, and remanded the

case to this court. See Liu v. SEC, 140 S. Ct. 1936, 1940 (2020). We then remanded

      ***
            The Honorable Gregory A. Presnell, United States District Judge for
the Middle District of Florida, sitting by designation.

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the case to the district court for proceedings consistent with the Supreme Court’s

opinion.

      After remand, the district court continued the preliminary injunction that

froze all of Appellants’ assets pending its decision on the proper amount of net

profits to disgorge and the extent of joint and several liability. Appellants now

challenge that renewed asset freeze.

      We review a district court’s grant of a preliminary injunction for abuse of

discretion. Does 1-5 v. Chandler, 83 F.3d 1150, 1152 (9th Cir. 1996). We must

uphold a trial court’s decision to grant a preliminary injunction “unless the court

incorrectly applied the law, relied on clearly erroneous factual findings, or

otherwise abused its discretion.” Id. (citation omitted). To freeze a party’s assets,

the requesting party must establish the normal preliminary injunction elements: “1)

irreparable injury, 2) probable success on the merits, 3) a balance of hardships that

tips in the movant's favor, and 4) that a preliminary injunction is in the public

interest.” F.T.C. v. Evans Prod. Co., 775 F.2d 1084, 1088 (9th Cir. 1985) (citation

omitted).1

1
  Appellants challenge only the second prong—likelihood of success on the merits.
The other prongs are clearly met under the circumstances of this case. Indeed,
Appellants do not contest the district court’s finding that if the freeze did not exist,
they would expatriate their assets.

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      Appellants argue that the district court abused its discretion in granting the

injunction because the SEC did not show a likelihood of success in proving that net

profits exist. But the district court was not required to make that finding.2 To obtain

a preliminary injunction, a party must show “probable success on the merits” of the

case, not its entitlement to a specific remedy.3 Id. Here, the district court correctly

found that the SEC is likely to prevail on the merits because liability had already

been established as law of the case. Neither the Supreme Court nor this court

disturbed the district court’s finding that Appellants committed securities fraud.

That is sufficient.

      Appellants also contend that the district court should have calculated an

amount of net profits disgorgement before entering the asset freeze. But asset

2
  Appellants similarly argue that the district court erred in not finding that the SEC
is likely to prove that Appellants should be held jointly-and-severally liable for any
net profits. Like with net profits, the district court was not required to make this
granular finding of fact in order to issue the injunction.
3
  In their reply brief, Appellants claim that the SEC advocates for a standard that
would require only “the mere ‘possibility’ that funds will be needed to satisfy any
equitable remedies ordered” to obtain injunctive relief, which according to
Appellants contradicts Supreme Court case law. See Winter v. Nat. Res. Def.
Council, 555 U.S. 7, 20 (2008). But Winter required a showing that “irreparable
injury is likely in the absence of an injunction.” Johnson v. Couturier, 572 F.3d
1067, 1081 (9th Cir. 2009) (emphasis added). It says nothing about likelihood of
success on the merits. Winter, 555 U.S. at 24 (declining to address “the lower
courts’ holding that plaintiffs have also established a likelihood of success on the
merits”).

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freezes “prevent a defendant from dissipating assets in order to preserve the

possibility of equitable remedies.” Republic of the Philippines v. Marcos, 862 F.2d

1355, 1364 (9th Cir. 1988) (emphasis added). To require a party to show a

reasonable likelihood of the amount of an equitable remedy to obtain an asset

freeze would require showing a definitive entitlement to an equitable remedy and

would run contrary to Marcos.4 Any finding of an amount of equitable relief would

be premature at this stage of the proceedings.

      Appellants also argue that the district court lacked power to grant this

preliminary injunction to secure a penalty. Generally, a district court lacks

authority “to issue a preliminary injunction preventing the defendant from

transferring assets in which no lien or equitable interest is claimed.” Grupo

Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308, 310, 333

(1999). However, that rule applies only to cases seeking exclusively legal damages.

Johnson, 572 F.3d at 1083-84; see also In re Focus Media, Inc., 387 F.3d 1077,

1084–85 (9th Cir. 2004). Here, the SEC seeks a disgorgement award, which is an

equitable remedy, not a penalty. Liu, 140 S. Ct. at 1946 (rejecting proposition that

“disgorgement is necessarily a penalty”). Although the SEC also seeks a monetary

4
 Regardless, there is clearly sufficient evidence in the record to establish the
possibility that Appellants “earned” a substantial net profit from their fraudulent
conduct.

                                          5
penalty alongside disgorgement, that request does not strip the district court of its

ability to enter an asset freeze pending final judgment. The district court’s brief

discussion of both civil penalties and disgorgement in its order continuing the

freeze does not change this conclusion. If necessary, the district court can decide,

in the first instance, whether any frozen assets that remain after satisfying a

disgorgement judgment can be used to satisfy any monetary penalty.

      Finally, Appellants challenge the scope of the injunction. They claim that the

injunction is overbroad because it freezes all their assets, not just the net profits

that Appellants obtained. While “[a]n overbroad injunction is an abuse of

discretion,” Boardman v. Pacific Seafood Grp., 822 F.3d 1011, 1024 (9th Cir.

2016) (citation omitted), we see no basis in the record to alter the scope of the asset

freeze. District courts enjoy “broad latitude” when determining the scope of an

injunction. High Sierra Hikers Ass'n v. Blackwell, 390 F.3d 630, 641 (9th Cir.

2004) (citation omitted). Here, the district court did not breach that broad latitude,

given Appellants’ history of expatriating assets and their refusal to provide an

accounting—or any other information—that would enable the district court to

tailor a narrower freeze. And, as is the case with their second argument, adopting

Appellants’ position would require the district court to calculate an amount of

disgorgement now, prior to any final judgment. Without that finding, it would be

impossible to tailor this injunction solely to those assets that are net profits from

                                            6
the use of investor funds, as Appellants request. But injunctions are merely “a

device for preserving the status quo and preventing the irreparable loss of rights

before judgment.” Sierra On-Line, Inc. v. Phoenix Software, Inc., 739 F.2d 1415,

1422 (9th Cir. 1984). Nothing in our caselaw required the district court to make a

finding as to the amount of equitable remedies prior to final judgment.

       AFFIRMED.

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