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RK Co. v. See

September 22, 2010


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 99-cv-04261-Arlander Keys, Magistrate Judge.

The opinion of the court was delivered by: Williams, Circuit Judge.


Before BAUER, ROVNER, and WILLIAMS, Circuit Judges.

Harvard Scientific Corporation ("HSC") and its founder Jackie R. See claimed to be developing a new product to treat male and female sexual dysfunction. Dr. See touted HSC's soon-to-be success in creating this product in a series of press releases and securities filings. This attracted an investment by RK Company ("RK"). Unfortunately, HSC's claims of success were not true, and following a bench trial, the court found Dr. See violated federal and state securities laws, state deceptive practices law, and committed common law fraud. Dr. See appeals the judgment, and argues that RK Company is not the real party in interest, that the magistrate judge's findings are clearly erroneous, and that the district court abused its discretion in admitting deposition testimony at trial. Dr. See also objects to the awarding of prejudgment interest and the calculation of attorneys' fees to RK. We reject these arguments. Dr. See has waived any argument based on the real party in interest defense, the findings of liability were more than adequately supported, and there was no abuse of discretion in the awarding of prejudgment interest and attorneys' fees. Dr. See has failed to include the transcript of the relevant motion hearing that led to the admitting of the deposition testimony, so we dismiss that claim as well. For these reasons, we affirm the court's judgment.


Though there are a myriad of characters, family relations, and employees involved in this litigation and discussed in the briefs; we only recount those facts that are relevant to our analysis. In 1994, Dr. Jackie See founded HSC, a bio-pharmaceutical development company. Dr. See was HSC's founder, largest shareholder, and served at various points on its board of directors, executive committee and management committee. He was also the director of research and development and intellectual property holder of lypohilized liposome prostaglandin E-1 ("LLPGE-1"), the male sexual dysfunction product that HSC hoped to bring to the market.

To obtain approval to begin clinical trials and test LLPGE-1 on humans, the United States Food and Drug Adminstration ("FDA") required HSC to submit an Investigational New Drug ("IND") application. In an October 1997 meeting between Dr. See and the FDA, the FDA learned that HSC had falsified the findings of a study included in its IND application and told HSC that it must cease further clinical studies until an audit was completed. Despite this meeting and deepening investigations by the FDA throughout 1997 and 1998, HSC released various press releases touting its alleged successes. In November 1997, HSC claimed it had "accelerated its progress" towards the completion of clinical trials. In May 1998, HSC announced that a female dys-function product was moving forward with its male product. In June 1998, HSC released a statement that it had received notification from the FDA that it was free to initiate Phase II clinical trials, and in a separate release, announced it had developed a topically applied sexual dysfunction product. When these statements were released, the FDA clinical hold was still in effect and FDA investigations continued to increase. No clinical trials were moving forward on any products.

In addition to these press releases, HSC filed various forms with the United States Securities and Exchange Commission ("SEC"). In March 1998, for the fiscal year ending December 31, 1997, HSC stated that the Phase I trials of LLPGE-1 showed possible benefits of therapy and that HSC was in substantial compliance with all laws during its October 1997 meeting with the FDA. In a March 1998 filing, for the fiscal quarter ending March 31, 1998, HSC announced plans for its female sexual dysfunction product using LLPGE-1. Dr. See's actual or electronic signature was on both filings.

In June 1998, Barbara Berry, who worked for HSC as its secretary and chief operating officer, was asked by Thomas Waite, HSC's then-chief executive officer,to approach her father, Robert Krilich, about whether he would be interested in investing in HSC. Berry forwarded a solicitation letter to her brother, Robert Krilich, Jr., so that he could send information to their father, who was in prison at the time. Krilich received*fn1 her letter, as well as HSC's SEC filings and press releases. In June and July of 1998, Krilich's investment vehicle, RK Company, purchased 166,667 shares of stock from HSC for $500,000. RK was unable to resell this stock.

In 1999, following a press release acknowledging a May 18, 1999 warning letter from the FDA, HSC stopped operations and went bankrupt. On June 25, 1999, RK filed suit against HSC and a variety of HSC's employees, including Dr. See, for inducing RK to buy HSC stock through its misleading and false press releases, SEC filings, and reports. Following protracted litigation, Dr. See remained the last defendant and the parties agreed to a bench trial and consented to proceeding before a magistrate judge, see 28 U.S.C. § 636(c). The court found for RK on all claims, and Dr. See appeals.


A. "Real Party in Interest" Argument Waived

Dr. See strenuously challenges RK's identity, calling it an unlawful "beast" which does not own the claim and could not have brought this suit. In the midst of*fn2 trial, after Krilich testified that "RK Company" was the name under which he did business, Dr. See investigated RK's identity on an Illinois public records website and discovered that RK was not a legally registered corporation. The next day, Dr. See brought a motion for judgment as a matter of law, claiming that RK was not the party alleged in the complaint. He claims that RK is an unlawful "common law" trust created for tax evasion purposes, and as such, the trust is the "real party in interest" and any action needed to be brought by its trustee.

Rule 17(a) of the Federal Rules of Civil Procedure requires that "an action must be prosecuted in the name of the real party in interest." The "real party in interest" is the person who possesses the right or interest to be enforced through litigation, and the purpose of this procedural rule is to protect the defendant against a subsequent action by the party actually entitled to recover. Fed. R. Civ. P. 17(a) advisory comm.'s note (2009); see also Rawoof v. Texor Petroleum Co., Inc., 521 F.3d 750, 756 (7th Cir. 2008); 4 Moore's Federal ...

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