IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION

Transcription

1 Case 4:11-cv Document 54 Filed in TXSD on 03/02/12 Page 1 of 8 IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION SECURITIES AND EXCHANGE COMMISSION, PLAINTIFF, vs. BRIAN A. BJORK, THE ESTATE OF JOEL DAVID SALINAS, J. DAVID GROUP OF COMPANIES, INC., J. DAVID FINANCIAL GROUP LP, SELECT ASSET MANAGEMENT LLC, SELECT ASSET CAPITAL MANAGEMENT LLC, SELECT ASSET FUND I, LLC, AND SELECT ASSET PRIME INDEX FUND, LLC. DEFENDANTS. CIVIL ACTION NO. 4:11 CV RECEIVER S MOTION FOR SHOW CAUSE ORDER AND RELATED RELIEF AND BRIEF IN SUPPORT THEREOF TO THE HONORABLE UNITED STATES DISTRICT COURT: Receiver, Steven A. Harr ( Receiver ) files this Motion for Show Cause Order and Related Relief and Brief in Support Thereof, and hereby moves for an order that Gasaway Properties, LP ( Gasaway Properties ) and its principal Richard C. Gasaway (collectively Debtors ) be cited to appear and show cause why they should not be held in contempt for violating this Court s Order Appointing Receiver, respectfully showing the Court the following: I. SUMMARY 1. The Order Appointing Receiver directs third-parties to provide Receivership Assets to the Receiver. Debtors, in clear and willful violation of this Court s Agreed Order Appointing Receiver, have failed to comply with the terms of the order, despite the Receiver s RECEIVER S MOTION FOR SHOW CAUSE ORDER Page v MHDocs _

2 Case 4:11-cv Document 54 Filed in TXSD on 03/02/12 Page 2 of 8 repeated requests. The Receiver is therefore forced to bring the matter before the Court and to seek enforcement of the Court s order. II. FACTS 2. On August 1, 2011, this Court entered an Order Appointing Receiver (the Receivership Order ), wherein Mr. Harr was appointed as Receiver for Brian A. Bjork, The Estate of Joel David Salinas, J. David Financial Group of Companies, Inc., J. David Financial Group, L.P., Select Asset Management, L.L.C., Select Capital Management, L.L.C., Select Asset Fund I, L.L.C., and Select Asset Prime Index Fund, L.L.C., (collectively the Receivership Entities ) The Receivership Order provides broad powers with regard to the turnover of records and assets of the Receivership Entities that it owns or controls. Pursuant to the Receivership Order, the Receiver is authorized to immediately take and have complete and exclusive control, possession, and custody of the Receivership Estate and to any assets traceable to assets owned by the Receivership Estate. 2 The Receivership Order further directs and authorizes the Receiver to: 1 Order Appointing Receiver, a true and correct copy of which is attached hereto as Exhibit A and incorporated by reference. 2 Exhibit A, 4. As defined in the Receivership Order, the Receivership Estate includes Exhibit A, 1. the assets, monies, securities, properties, real and personal, tangible and intangible, of whatever kind and description, wherever located, and the legally recognized privileges (with regard to the entities), of the [Receivership Entities] and all entities it owns or controls ( Receivership Assets ), and the books and records, client lists, account statements, financial and accounting documents, computers, computer hard drives, computer disks, internet exchange servers, telephones, personal digital devices and other informational resources of or in possession of the Defendant, or issued by Defendant and in possession of any agent or employee of the Defendants ( Receivership Records ). RECEIVER S MOTION FOR SHOW CAUSE ORDER Page v MHDocs _

3 Case 4:11-cv Document 54 Filed in TXSD on 03/02/12 Page 3 of 8 [c]ollect, marshal, and take custody, control, and possession of all the funds, accounts, mail, and other assets of, or in the possession or under the control of, the Receivership Estate, or assets traceable to assets owned or controlled by the Receivership Estate, wherever situated, the income and profit therefrom and all sums of money now or hereafter due or owing to the Receivership Estate with full power to collect, receive, and take possession of, without limitation, all goods, chattel, rights, credits, monies, effects lands, leases, books and records, work papers, records of account, including computer maintained information, contracts, financial records, monies on hand in banks and other financial institutions, and other papers and documents of other individuals, partnerships, or corporations whose interests are now held by or under the direction, possession, custody, or control of the Receivership Estate As of the date of this filing, Debtors, in clear and willful violation of this Court s Receivership Order, have continued to ignore the Receiver s repeated requests for payment of a past due Promissory Note and other money owed to Select Asset Prime Index Fund, L.L.C. (Fund II). 5. On January 28, 2010, Fund II loaned Gasaway Properties $155,000. That loan was evidenced by a Promissory Note signed on the same date (the Note ). 4 The Note called for payments to begin on May 5, 2010 and quarterly thereafter until the note matured on February 5, The quarterly payments would not pay off the entire Note. The Note provided for annual interest at a rate of 7%, a default interest rate at the highest rate allowed by law, and a late payment penalty of 5%. Mr. Gasaway guaranteed payment of the Note in a written Guaranty Agreement. 5 The Guaranty Agreement authorizes Fund II to proceed directly against Mr. Gasaway without the need to initiate collection efforts against Gasaway Properties. 6. On September 28, 2010, Fund II provided another $45, to Gasaway Properties on the agreement that Gasaway Properties would repay the amount on the same terms as the Note. On December 30, 2010, Fund II provided another $20, on the same terms. 3 Exhibit A, 5(b). 4 A true and correct copy of the Note is attached as Exhibit B and incorporated by reference. 5 A true and correct copy of the Guaranty Agreement is attached as Exhibit C and incorporated by reference. RECEIVER S MOTION FOR SHOW CAUSE ORDER Page v MHDocs _

4 Case 4:11-cv Document 54 Filed in TXSD on 03/02/12 Page 4 of 8 Mr. Gasaway has acknowledged this debt in correspondence to the Receiver dated January 28, Gasaway Properties has failed to make any payments on the money loaned to it by Fund II. On January 20, 2012, the receiver demanded payment of $265, representing principal and accrued interest due as of that time. 7 The demand letter provided a copy of the Receivership Order as well as the pertinent documents relating to the loan transaction. Gasaway Properties responded by claiming an offset against money Gasaway Properties and Mr. Gasaway personally invested with Selected Asset Management, L.L.C. and J. David Financial Group of Companies. 8 The Receiver responded by explaining that such offset would not be available because the Debtors had not invested with Fund II, the entity that loaned the money. 9 Debtors have not taken any action to repay any amounts due under the loan transaction. 8. Despite being provided the Receivership Order with the demand for payment, Debtors have willfully disregarded the demand and the Receiver s authority granted by this Court. Debtors should therefore be required to appear and show cause why they should not be held in contempt of Court s Receivership Order. III. ARGUMENT AND AUTHORITIES 9. A court has the inherent power to enforce compliance with its lawful orders and mandates by contempt. Shillitani v. United States, 384 U.S. 364, 370 (1966); Powell v. Ward, 643 F.2d 924 (2d Cir. 1981), cert. denied, 454 U.S. 832 (1981). This power is essential to the 6 A true and correct copy of Mr. Gasaway s January 28, 2012 letter is attached as Exhibit D and incorporated by reference. 7 January 20, 2012 Correspondence from Chris DeMeo to Richard Gasaway, a true and correct copy of which is attached as Exhibit E and incorporated by reference. 8 Exhibit D. 9 February 3, 2012 Correspondence from Chris DeMeo to Richard Gasaway, a true and correct copy of which is attached as Exhibit F and incorporated by reference. RECEIVER S MOTION FOR SHOW CAUSE ORDER Page v MHDocs _

5 Case 4:11-cv Document 54 Filed in TXSD on 03/02/12 Page 5 of 8 proper conduct of the judicial function; without it, courts would be unable to preserve decorum or assert their authority by order or decree. See e.g., In re Williams, 306 F. Supp. 617, 618 (D.D.C. 1969). 10. Congress codified the courts contempt powers in 18 U.S.C. 401, which states in relevant part: A court of the United States shall have power to punish by fine or imprisonment, at its discretion, such contempt of its authority, and none other, as (3) Disobedience or resistance to its lawful writ, process, order, rule, decree, or command. 11. The Receiver seeks an order directing Debtors to show cause why they should not be cited for civil contempt, a remedial device here intended to achieve full compliance with the Court s Receivership Order, for the Receiver s benefit. See Hicks v. Feiock, 485 U.S. 624, 631 (1988); McComb v. Jacksonville Paper Co., 336 U.S. 187, 191 (1949); Petroleos Mexicanos v. Crawford Enterprises, Inc., 826 F.2d 392, (5 th Cir. 1987). The sanctions imposed in civil contempt proceedings ordinarily are conditional, and the contemnor may avoid the sanctions by complying with the order. Hicks v. Feiock, 485 U.S. at ; see also Penfield Co. of California v. SEC, 330 U.S., 585, 590 (1947) In determining whether a contempt proceeding is civil or criminal, the critical features are the substance of the proceeding and the character of the relief that the proceeding will afford. Hicks v. Feiock 485 U.S. at 631. While both civil and criminal contempt proceedings are necessarily expository of the Court's authority, [i]f [a proceeding] is for civil contempt the punishment is remedial, and for the benefit of the complainant. But if it is for criminal contempt the sentence is punitive, to vindicate the authority of the court. Id., 485 U S. at 631, citing Gompers v. Bucks Stove & Range Co., 221 U.S. 418, 441 (1911). In Hicks, the Court explained that the character of the relief did not hinge on the penalty imposed, but the conditional nature of the remedy, stating, [a] conditional penalty... is civil because it is specifically designed to compel the doing of some act. Id., 485 U.S. at 633. Thus, the critical feature that determines whether the remedy is civil or criminal in nature is not when or whether the contemnor is physically required to set foot in a jail but whether the contemnor can avoid the sentence imposed upon him, or purge himself of it, by complying with the terms of the original order. Id., 485 U.S. at 635, n. 7. See also Shillitani v. United States, 384 U.S. at RECEIVER S MOTION FOR SHOW CAUSE ORDER Page v MHDocs _

6 Case 4:11-cv Document 54 Filed in TXSD on 03/02/12 Page 6 of A party commits contempt when it or he violates a definite and specific court order requiring him to perform or refrain from performing a particular act or acts with knowledge of that order. Whitfield v. Pennington, 832 F.2d 909, 913 (5 th Cir 1987), cert. denied 487 U.S (1988), quoting SEC v. First Financial Group of Texas, Inc., 659 F.2d 660, 669 (5 th Cir. 1981). 13. In a civil contempt proceeding, the Movant has the burden of establishing by clear and convincing evidence: (1) that a court order was in effect; (2) that the order required certain conduct by the respondent; and (3) that the respondent failed to comply with the court s order. Petroleos Mexicanos v. Crawford Enterprises. Inc., 826 F.2d at The defendant s intent to violate the court s order or his willfulness are not prerequisites for a civil contempt sanction. See McComb v. Jacksonville Paper Co., 336. U.S. 198, 191(1949); Whitfield V. Pennington, 832 F.2d 909, 913 (5 th Cir. 1987), cert. denied, 487 U.S (1988). Instead, the question is simply whether a party has complied with the court s order. See Jim Walter Resources. Inc. v. Int l Union, United Mine Workers of America, 609 F.2d 165, 168 (5 th Cir. 1980); Donovan v. Mazzola, 716 F.2d 1226,1240 (9th Cir. 1983), cert. denied, 464 U.S (1984). In this case, the answer to that question is clearly No. Debtors refusal to respond to the Receiver s demand for payment made pursuant to the Receivership Order constitutes contempt of that order and justifies the sanctions sought in this motion. IV. RELIEF SOUGHT 15. First, the Receiver respectfully requests that this Court immediately order Richard C. Gasaway and Gasaway Properties, LP to appear and to show cause as to why they should not be held in civil contempt. Second, the Receiver requests that the Court set a show cause hearing as soon as reasonably practical. Third, in the event this Court finds Mr. Gasaway and Gasaway RECEIVER S MOTION FOR SHOW CAUSE ORDER Page v MHDocs _

7 Case 4:11-cv Document 54 Filed in TXSD on 03/02/12 Page 7 of 8 Properties, LP in contempt, the Receiver requests that this Court order the incarceration of Mr. Gasaway until such time as his contempt is purged, levy a fine against Mr. Gasaway and Gasaway Properties, LP sufficient to compel future compliance, and compensate the Receiver for the fees and expenses expended as a result of said failure to comply, 11 together with such other directives and sanctions as this Court deems appropriate. Respectfully submitted, MUNSCH HARDT KOPF & HARR, P.C. /s/ Steven A. Harr Steven A. Harr 700 Louisiana, Suite 4600 Houston, Texas (713) (Telephone) (713) (Telecopy) ATTORNEY S FOR THE RECEIVER CERTIFICATE OF CONFERENCE By letters dated January 20, 2012 and February 3, 2012, the Receiver has advised debtors of this debt and requested payment in order to avoid court action. Debtors responded by asserting they do not owe the debt because of an offset against monies invested in the Receivership Entities. This Motion is therefore presented to the court for resolution. /s/christopher D. DeMeo Christopher D. DeMeo 11 The Receiver asks that the Court declare that the Receiver is entitled to recover his attorney s fees and costs, and grant the Receiver leave to submit an affidavit with regard to the fees and costs incurred in these proceedings. RECEIVER S MOTION FOR SHOW CAUSE ORDER Page v MHDocs _

8 Case 4:11-cv Document 54 Filed in TXSD on 03/02/12 Page 8 of 8 CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the foregoing document has been served on all counsel of record via electronic filing and first class mail on this 2nd day of March, 2012, as follows: Timothy S. McCole Securities and Exchange Commission Fort Worth District Office Burnett Plaza, Suite Cherry Street, Unit #18 Fort Worth, Texas I hereby certify that a true and correct copy of the foregoing document has been served on the following via certified mail, return receipt requested, and first class mail on this 2nd day of March, 2012, as follows: Richard C. Gasaway Gasaway Properties, LP 309 Hunters Lane Friendswood, Texas /s/christopher D. DeMeo Christopher D. DeMeo RECEIVER S MOTION FOR SHOW CAUSE ORDER Page v MHDocs _

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