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Following is SOLV resonse to SEC memorandum to modify injunction. It was scanned from copies obtained from the bankruptcy court clerk. I apologize if my scanning software is not as accurate as it should be.
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In Re:
SOLV-EX CORPORATION,
#850283729,
Debtor.
SOLV-EX CORPORATION
Plaintiff,
vs .
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION,
Defendant.
RESPONSE TO MOTION TO MOD IFY PRELIMINARY INJUNCTION
AND PROTECTIVE ORDER
Solv-Ex Corporation ("Solv-Ex") for its Response to the Securities and Exchange Commissions ("SEC") Motion to Modify Preliminary Injunction and Protective Order states:
1. The Memorandum filed by the SEC refers to the Affidavit of Andra C. Ozols, which was filed in support of the SEC's Memorandum in Opposition to Solv-Ex Corporation's Request for Temporary Restraining Order dated August 17, 1997. That Affidavit was considered by the Court prior to granting the preliminary injunction in September, 1997.
2. Further, the SEC fails to disclose in this, its third attempt to avoid the preliminary injunction, who the potential witnesses it wishes to use are. Of note is the fact that the only support for the Motion, other than the Ozols Affidavit, is the Affidavit of Kathleen Addleman, an attorney who is employed by the
No. 11-97-14361 MA
Adv. No. 97-1159 M
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SEC. Solv-Ex contends that any such Motion should be supported by an Affidavit of an anticipated technical witnesses in order to demonstrate to the Court the contentions made by the SEC with respect to the difficulty of finding technical experts not affiliated with competitors or employed by competitors of Solv-Ex.
3. Solv-Ex contends that most of its competitors are from foreign or multi-national corporations which have vested interests in existing technologies and which have a vested interest in casting doubts on Solv-Ex technologies. Further, the information that the competitors would be able to learn would assist them with their own research activities, at the expense of the Debtor's estate, were competitors used as experts.
4. Solv-Ex believes that using such competitors would cause irreparable and irreversible damage to Solv-Ex, especially since the damages suffered by Solv-Ex cannot be compensated by money damages in that the uses to which Solv-Ex technologies would be put would be outside of the protection of the United States laws.
5. Solv-Ex believes that exposure of its confidential and proprietary information could be made, however, to experts knowledgeable in the areas of Solv-Ex technologies if 1) the experts were identified to Solv-Ex and the specific information which the experts were to be given was to be properly documented and communicated to Solv-Ex prior to the interview of such witnesses so that Solv-Ex would have an opportunity to seek a protective order, if it felt that such witness was inappropriate and; 2) any work subsequently performed by such experts for competitors, or potential competitors, involving Solv-Ex's
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confidential and proprietary information, would automatically subject the individual and the competitor, or potential competitor, to the jurisdiction of the United States District Court for the District of New Mexico.
6. Solv-Ex contends that it is important in its reorganization to understand that once confidential and proprietary information is disclosed, it is almost impossible to prevent its dissemination to competitors. Solv-Ex further contends that independent experts in the fields that Solv-Ex technologies are available and can testify as to the legitimacy and validity of Solv-Ex's technological representations as disclosed in materials provided to the public.
7. As shown by the Affidavit of Herbert M. Campbell II, attached hereto and incorporated herein by reference as Exhibit "A", Solv-Ex representatives had received information that the Commission staff had completed its investigation in December of 1997, as disclosed in a telephone conversation between Herbert M. Campbell II and Andra Ozols, the lead investigator for SEC. SolvEx was advised that written complaints which specifically detailed any alleged violations of Solv-Ex, or its employees, were being completed and would be submitted prior to the end of December, 1997. No such complaints have ever been presented to Solv-Ex. Solv-Ex does not understand how an investigation, which has been ongoing for two (2) years and which has resulted letters to Solv-Ex officers advising them of purported misstatements and misrepresentation of a technical nature about Solv-Ex's technology, could have come about without any technological expert witness which the SEC now contends it needs to retain.
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The Affidavit of Jennie Behles, to be filed herein, reflects that the SEC has previously stated to John Rendall's attorney that the SEC had all facts it needed and any technical response would need to come from Solv-Ex.
John Rendall's Affidavit, attached hereto and incorporated herein by reference as Exhibit ~B~, demonstrates that Koch Exploration, which has purchased the assets and leases of Solv-Ex in Alberta, will be evaluating the technology of Solv-Ex for six (6) months. Independent verification of Solv-Ex is available for reference by the SEC.
8. It is also Solv-Ex's understanding, as set forth in the Affidavit of Herbert M. Campbell II, that SEC staff has been in regular communication with counsel for the Plaintiff's in a currently pending class action against Solv-Ex in the United States District Court for the Southern District of New York. Solv-Ex is concerned that allegations that have been made against it in the pleadings in the class action may have come from individuals who are competitors or who are employed by competitors of Solv-Ex, who in turn have had conversations, subsequent to the Court Order of September, 1997, with SEC staff.
9. Solv-Ex believes that independent experts are available to assess the validity of the Solv-Ex technologies. Independent experts may not be acceptable to the SEC because they have not selected them. However, this Court has the authority to limit the power of the SEC in its investigations. See General Motors Corporation v. Director of National Institute of OccuPational safety and Health. Department of Education and Welfare, 636 F.2d 163 (6th Cir., 1980), cert. denied. 454 U.S. 877 (1981). In that
120974)01001TDAWIA117044.
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particular case, the United States District Court was authorized by the 6th Circuit Court of Appeals to fashion a Protective Order when enforcing a Subpoena by means of safeguarding against the improper disclosure of confidential business information.
10. The SEC is seeking to obtain from the Court an Order authorizing it to conduct an unfettered investigation into Solv-Ex Corporation as well as its technologies. The Commission, as shown by its numerous attempts to avoid the effect of the Preliminary Injunction and Protective Order, does not believe that it should be constrained in its investigation. However, conduct such as the agency is attempting to pursue, would deprive Solv-Ex of its most substantial remaining property interest without appropriate safeguards. Solv-Ex contends that this is not permitted under the law. See Board of Regents v. Roth, 408 U.S. 564 (1972), limited in parts and other grounds, Paul v. Davis, 424 U.S. 693 (1976); Curtis Ambulance of Florida. Inc. v. Board of Countv Comm'rs., 811 F.2d 1371 (lOth Cir., 1987).
11. As stated by one United States District Court,
"A failure to provide adequate protection to assure confidentiality, when disclosure is compelled by the government, amounts to an unconstitutional "taking" of property by destroying it, or by exposing it to the risk of destruction by public disclosure or by disclosure to competitors". WearlY v. FTC, 462 Fed. Supp. 589, 598 (d.n. j ., 1978). Vacated on other grounds, 616 F.2d 662 (3rd Cir., 1980).
12. Solv-Ex contends that it is being subjected to an investigation by the agency using broad discretionary powers which appear to be subject to no particular investigatory standards. Further, whether the investigation is completed or continuing
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apparently depends upon the agency official with whom Solv-Ex is dealing. Solv-Ex contends that the SEC should not exercise broad discretionary power under the general health, safety and welfare without some type of standard. Southern Coop. Dev. Fund v. Driggers, 696 F.2d 1347 (llth Cir., 1983).
13. The United States District Court for the District of New Mexico observed in its opinion affirming the decision of this Court to grant a Preliminary Injunction that the Court was skeptical that the SEC would even adhere to its own Freedom of Information Act procedures based upon the content of a letter of the SEC of August 11, 1997. The District Court went on to find that this Court's Preliminary Injunction struck the proper balance between assuring the continuing viability of the SEC's investigation and of protecting Solv-Ex's proprietary information.
WHEREFORE, on the basis of the foregoing, Solv-Ex requests that the Motion of the Securities and Exchange Commission be denied.
Respectfully submitted,
EASTHAM JOHNSON MONNHEIMER & JONTZ, P.C.
By -
R. Thomas Dawe
Attorneys for Plaintiff
500 Marquette NW, Suite 1200
P.O. Box 1276
Albuquerque, New Mexico 87103
(505) 247-2315
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I hereby certify that a true copy of the foregoing pleading was mailed this 18 day of May, 1998, to:
Melinda Hardy
Securities and Exchange Commission
450 Fifth Street, N.W., Stop 2-12
Washington, D.C. 20549
Ron E. Andazola, Esq.
Office of the Assistant U.S.
Trustee States
P.O. Box 608 - Room 112
Albuquerque, N ~ 7103-0608
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