UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA

Transcription

1 CASE 0:09-cv MJD-FLN Document 763 Filed 04/22/11 Page 1 of 19 UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA U.S. COMMODITY FUTURES TRADING COMMISSION, v. Plaintiff(s) Case No: 09-cv-3332 MJD/FLN TREVOR COOK d/b/a CROWN FOREX, LLC, PATRICK KILEY d/b/a CROWN FOREX, LLC, UNIVERSAL BROKERAGE FX and UNIVERSAL BROKERAGE FX DIVERSIFIED, OXFORD GLOBAL PARTNERS, LLC, OXFORD GLOBAL ADVISORS, LLC, UNIVERAL BROKERAGE FX ADVISORS, LLC f/k/a UBS DIVERSIFIED FX ADVISORS, LLC, UNIVERSAL BROKERAGE FX GROWTH, L.P. f/k/a UBS DIVERSIFIED FX GROWTH L.P., UNIVERSAL BROKERAGE FX MANAGEMENT, LLC f/k/a UBS DIVERSIFIED FX MANAGEMENT, LLC and UBS DIVERSIFIED GROWTH, LLC, R.J. ZAYED, Defendant(s) Receiver.

2 CASE 0:09-cv MJD-FLN Document 763 Filed 04/22/11 Page 2 of 19 UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Case No: 09-cv-3333 MJD/FLN v. Plaintiff(s) TREVOR G. COOK, PATRICK J. KILEY, UBS DIVERSIFIED GROWTH, LLC, UNIVERSAL BROKERAGE FX MANAGEMENT, LLC, OXFORD GLOBAL ADVISORS, LLC, and OXFORD GLOBAL PARTNERS, LLC, and Defendants BASEL GROUP, LLC, CROWN FOREX, LLC, MARKET SHOT, LLC, PFG COIN AND BULLION, OXFORD DEVELOPERS, S.A., OXFORD FX GROWTH, L.P., OXFORD GLOBAL MANAGED FUTURES FUND, L.P., UBS DIVERSIFIED FX ADVISORS, LLC, UBS DIVERSIFIED FX GROWTH, L.P., UBS DIVERSIFIED FX MANAGEMENT, LLC, CLIFFORD BERG, and ELLEN BERG, R.J. ZAYED, Relief Defendants. Receiver.

3 CASE 0:09-cv MJD-FLN Document 763 Filed 04/22/11 Page 3 of 19 MEMORANDUM IN SUPPORT OF THE RECEIVER S MOTION TO ENFORCE THE RECEIVER S SETTLEMENT AGREEMENT WITH GRANT GRZYBOWSKI The Receiver, R.J. Zayed, hereby respectfully moves the Court to (1) order Grant Grzybowski to convey the real property located at 5463 Brookfield Road, South Haven, Minnesota 55382, to the Receiver pursuant to the terms of the Settlement Agreement between the Receiver R.J. Zayed and Grant Grzybowski, and (2) for an award of attorneys fees incurred in the preparation of the pleadings filed herein. BACKGROUND On November 23, 2009, the United States Securities and Exchange Commission ( SEC ) and the United States Commodity Futures Trading Commission ( CFTC ) filed lawsuits against Trevor Cook, Patrick Kiley, and various entities controlled by them (collectively referred to as the Receiver Estates ). Complaint, No. 09-cv-3333 ( SEC case ), Docket No. 1 (Nov. 23, 2009); Complaint for Injunctive and Other Equitable Relief and For Penalties under the Commodity Exchange Act, No. 09-cv-3332 ( CFTC case ), Docket No. 1 (Nov. 23, 2009). On November 23, 2009, the Court established the Receivership in the related SEC and CFTC cases. See Order Appointing Receiver, SEC Docket No. 13 (Nov. 23, 2009); see also Amended Order Appointing Receiver, SEC Docket No. 18 (Nov. 24, 2009); Second Amended Order Appointing Receiver, SEC Docket No. 68 (Dec. 11, 2009); Order Imposing Asset Freeze and Other Ancillary Relief, SEC Docket No. 14 (Nov. 23, 2009); Order Identifying Frozen Accounts, SEC Docket No. 15 (Nov. 23, 2009); Ex Parte 1

4 CASE 0:09-cv MJD-FLN Document 763 Filed 04/22/11 Page 4 of 19 Statutory Restraining Order, CFTC Docket No. 21 (Nov. 23, 2009); Order Continuing Appointment of Temporary Receiver, CFTC Docket No. 96 (Dec. 11, 2009). The purpose of the Receivership is to marshal, preserve, account for and liquidate the assets of the Receivership for the benefit of the investors who were defrauded by Cook s scheme. See, e.g., Order Continuing Appointment of Temporary Receiver, CFTC Docket No. 96, at 3. Under the Court s Orders, the Receiver is directed to take such action as necessary and appropriate to prevent the dissipation or concealment of any funds or assets or for the preservation of any such funds and assets of the Receiver Estates. Second Amended Order Appointing Receiver, SEC Docket No. 68, I(G). The Court s Orders provide clear instructions to anyone in possession of Receivership assets. All assets of the Defendants and Relief Defendants are frozen, including all other funds, accounts, and other assets to which proceeds from the Defendants offering can be traced or which were acquired with proceeds of the Defendants offering. Order Imposing Asset Freeze and Other Ancillary Relief, SEC Docket No. 14, I. All persons in possession of Receivership assets are ordered to turn over to the Receiver any and all property, including records of any nature, of which any of the Receiver Estates are the owners or have an interest in.... Second Amended Order Appointing Receiver, SEC Docket 68, IX; see also Order Continuing Appointment of Temporary Receiver, CFTC Docket No. 96, I(A) (Receiver authorized to take exclusive custody, control, and possession of all funds, property, and other assets in the possession of, or under the control of the Defendants wherever situated that he has a reasonable basis to believe is related to this action, and that is consistent with this 2

5 CASE 0:09-cv MJD-FLN Document 763 Filed 04/22/11 Page 5 of 19 Court s orders ). I. THE SOUTH HAVEN PROPERTY Grant Grzybowski was an advisor for Defendant Oxford Global Advisors, LLC ( Oxford ), and worked with Defendant Trevor Cook in furtherance of the scheme. (Declaration of Brian Hayes in Support of Receiver s Motion to Order Conveyance of Property to Receiver ( Hayes Decl. ), 2.) Grzybowski presently resides at a residence on the real property located at 5463 Brookfield Road, South Haven, Minnesota (the South Haven property ). (Id., 3.) The South Haven property was paid for with assets of the Receiver Estates. (Id., 5.) Grzybowski purchased South Haven on April 24, 2009, for a total price of $276, (Id., 4.) For his down payment on the property, Grzybowski supplied a cashier s check in the amount of $272, (Id., 6.) The cashier s check Grzybowski supplied as down payment was drawn on funds provided directly to Grzybowski by Trevor Cook through a bank account identified in this Court s Asset Freeze Order as part of the Receiver Estates. (Id., 5-6.); see also Order Imposing Asset Freeze and Other Ancillary Relief, SEC Docket No. 14, at 5-6. Documents produced to and investigated by the Receiver show an April 16, 2009 withdrawal made in a branch store in the amount of $277, Id. Bank records show that Receivership assets and therefore, investor funds paid for the South Haven property. 3

6 CASE 0:09-cv MJD-FLN Document 763 Filed 04/22/11 Page 6 of 19 II. THE SETTLEMENT AND OCCUPANCY AGREEMENTS BETWEEN GRZYBOWSKI AND RECEIVER The $272, cashier s check Grzybowski used as his down payment on the South Haven property was a loan from Trevor Cook. (Hayes Decl., 6.) After identifying the $272, as a loan, the Receiver contacted Grzybowski s attorney, Frederick Goetz, in January 2010 about securing a mortgage on the South Haven property so that the loan, plus interest, could be repaid to the Receiver Estates. (Id., 8.) Grzybowski does not dispute, and has never disputed, that the entire amount was a loan from Trevor Cook. (Id.) The Receiver provided Grzybowski with ample time to organize financing and secure a mortgage on the property so that Receivership funds may be repaid to the Receiver Estates. (See id., 9.) The Receiver allowed Grzybowski over four months to try to arrange a mortgage on the property to repay the Receiver Estates, but Grzybowski was unable to do so. (Id.) The Receiver then entered into a Settlement and Occupancy Agreement with Grzybowski to preserve the Receivership Asset and recover the investor funds used to purchase the South Haven property. (Id., 10.) A. The Occupancy and Indemnity Agreement On or around June 9, 2010, the Receiver and Grant Grzybowski entered into an Occupancy and Indemnity Agreement ( Occupancy Agreement ) relating to the South Haven property. (Id., 10, 1 Ex. A.) The Occupancy Agreement allowed Grzybowski to remain on the property under certain conditions and obligations. Under the Agreement, Grzybowski agreed to maintain the property, at his own expense, in better 4

7 CASE 0:09-cv MJD-FLN Document 763 Filed 04/22/11 Page 7 of 19 condition than it existed at the time of the Agreement. (Id., 1 Ex. A.) The Occupancy Agreement limited the occupants of the home to Grzybowski, his two sons and one dog. (Id.) The Occupancy Agreement also required Grzybowski to maintain casualty and fire insurance on the property. (Id.) The Occupancy Agreement also required Grzybowski to timely pay all mortgage payments, loan payments, taxes, and other fees and expenditures relating to the South Haven property. (Id.) Any violation of the Occupancy Agreement was classified as cause for eviction, and in such a case Grzybowski agreed to vacate the property within thirty (30) days of receiving notice to vacate. (Id.) B. The Settlement Agreement Also on or around June 9, 2010, the Receiver and Grant Grzybowski also entered into a Settlement Agreement relating to the debt owed to the Receiver Estates. (Id., 10, 1 Ex. A.) Grzybowski explicitly acknowledged a debt to the Receiver in the amount of $297,500, and agreed to make monthly payments to the Receiver with the balance due on or before September 1, (Id., 1 Ex. A.) Like the Occupancy Agreement, the terms of the executed Settlement Agreement allow the Receiver to take immediate possession, custody and control of the South Haven property if Grzybowski fails to make any monthly payment. (Id.) Violations of the Occupancy Agreement are also considered breaches of the Settlement Agreement, again allowing the Receiver to take immediate possession, custody and control of South Haven. (Id.) 5

8 CASE 0:09-cv MJD-FLN Document 763 Filed 04/22/11 Page 8 of 19 In the event of a violation of the Occupancy Agreement or a missed payment under the terms of the Settlement Agreement, Grzybowski agreed to promptly assign his interest in the [South Haven] Property to the Receivership and [] execute any paperwork necessary to accomplish this transfer. (Id.) C. Receiver s December 2010 Inspection of South Haven In accordance with Paragraph 4 of the Occupancy Agreement, on December 28, 2010, representatives of the Receiver inspected the South Haven property. (Id., 11.) At that time, the Receiver s agents found Grzybowski to be cooperative and maintaining the property in decent condition. (Id.) During the inspection, Grzybowski acknowledged his overdue payments to the Receiver and offered to make partial payment immediately while trying to arrange financing for the balance. (Id., 12.) On January 4, 2011, Grzybowski made a partial payment of $2,500 to the Receiver. (Id., 13.) On January 12, 2011, Grzybowski s attorney indicated that his client secured new employment and would pay off the remaining past due balance by the end of January. (Id., 14.) D. Violations of the Agreements Since entering into the Settlement and Occupancy Agreements in June of 2010, Grzybowski has violated the terms of the Agreements on several occasions. 1. Grzybowski has failed to make several loan payments. On January 31, 2011, the Receiver had not yet received the promised additional payments from Grzybowski. The Receiver contacted Grzybowski s attorney to inquire about the past due payments, which, after January 31, 2011, totaled $5,000. (Id., 15.) 6

9 CASE 0:09-cv MJD-FLN Document 763 Filed 04/22/11 Page 9 of 19 On February 11, 2011, Grzybowski inquired about the Receiver s willingness to allow him to sell the South Haven property to pay off the debt to the Receiver and keep some additional profit for himself. (Id., 16.) The Receiver rejected that request, and stated that the parties should proceed under the terms of the executed Agreements. (Id., 17.) On February 25, 2011, Grzybowski was several months behind in payments with a past due balance of $7,000, and the Receiver informed Grzybowski that the Receiver would be moving forward under Paragraph 7 of the Settlement Agreement and Paragraph 15 of the Occupancy Agreement unless the overdue balance of $7,000 was paid off by March 1. (Id., 18.) As of the date of this filing, the Receiver is owed $9, in past due payments by Grzybowski, and is owed $315, in total. (Id., 31.) 2. Grzybowski violated several terms of the Occupancy Agreement. During his inspection of South Haven, the Receiver s designees found a basement room made up for Grzybowski s brother, who also has been occupying South Haven periodically. (Id., 11.) Paragraph 11 of the Occupancy Agreement specifically restricts occupants of the South Haven property to Grzybowski and his two sons. (Id., 1 Ex. A.) On October 1, 2010, Grzybowski allowed the insurance policy on the property to lapse for non-payment. (See id., 19.) On March 8, 2011, Grzybowski again allowed the insurance policy on South Haven to lapse for non-payment. (See id., 20.) Paragraph 3 of the Occupancy Agreement requires Grzybowski to acquire and maintain casualty and fire insurance on South Haven. (Id., 1 Ex. A.) On or around March 25, 2011, the Receiver became aware of a state tax lien of 7

10 CASE 0:09-cv MJD-FLN Document 763 Filed 04/22/11 Page 10 of 19 $6, filed against South Haven for several years of back taxes, as well as delinquent real estate taxes for 2010 in the amount of $6,452 plus penalty and interest. (Id., 3 Ex. C.) Paragraph 2 of the Occupancy Agreement requires Grzybowski to make timely payments relating to the South Haven property, including taxes. (Id., 1 Ex. A.) Under paragraph 5 of the Occupancy Agreement, Grzybowski also agreed not to encumber the property. (Id.) Black s Law Dictionary defines encumbrance as a claim or liability that is attached to property that may lessen its value, such as a lien or mortgage. BLACK S LAW DICTIONARY 607 (9th ed. 2009). Grzybowski s failure to pay his personal Minnesota income taxes has therefore encumbered the property. E. Receiver s Implementation of the Provisions of the Agreements. On March 28, 2011, the Receiver informed Grzybowski that he was formally requesting Grzybowski assign his interest in South Haven to the Receivership pursuant to Paragraph 7 of the Settlement Agreement and Paragraph 2 of the Occupancy Agreement. (Id., 21.) Also on March 28, 2011, the Receiver provided Grzybowski with a Quit Claim Deed and standard Seller s Affidavit to transfer the property to the Receiver. (Id., 2.2) The Receiver additionally informed Grzybowski that he must vacate South Haven within thirty (30) days, by five o clock in the afternoon on Wednesday, April 27, 2011, pursuant to Paragraphs 10 and 15 of the Occupancy Agreement. (Id.) On April 1, 2011, Grzybowski informed the Receiver he intended to convey South Haven to the Receiver pursuant to the terms of the Settlement Agreement. (Id., 23.) However, Grzybowski also attempted to place several conditions on the transfer. (Id.) On April 5, 2011, the Receiver proposed alternative terms, including a date of May 15, 8

11 CASE 0:09-cv MJD-FLN Document 763 Filed 04/22/11 Page 11 of as the date by which Grzybowski must vacate South Haven. (Id., 24 Ex. W.) Grzybowski did not respond to the Receiver for several days. (See id., ) On April 15, 2011, Grzybowski instead proposed to settle the debt of over $315,000 owed to the Receiver for $159,000. (Id., 27 Ex. Z.) On April 18, 2011, the Receiver informed Grzybowski that he would be enforcing the terms of the original Agreements, and if Grzybowski did not provide documents conveying the South Haven property to the Receiver on or before April 20, 2011, the Receiver would file the instant motion to request the Court enforce the Agreements and transfer South Haven to the Receiver. (Id., 28.) On April 19, 2011, Grzybowski again proposed alternative terms to settle his debt to the Receiver, this time extending payments out until August (Id., 29 Ex. BB.) Grzybowski s proposal included monthly payments of only $ between August of 2011 and July of (Id.) The proposal also did not include any calculations of interest, nor did it factor in the full amount of the debt, $315,644. (Id., ) Because Grzybowski s proposal will likely exceed the duration of the Receivership, and because it fails to account for the full debt owed to the Receiver, the Receiver rejected the proposed settlement on April 19, 2011 and again offered to allow Grzybowski to say on the property until May 15, 2011, should he agree to convey the property in accordance with the terms of the Agreements. (Id., 30 Ex. CC.) Grzybowski did not sign the requested documents conveying South Haven to the Receiver on or before April 20, 2011, and the Receiver therefore filed the instant motion requesting the Court convey the property to the Receiver in accordance with the terms of 9

12 CASE 0:09-cv MJD-FLN Document 763 Filed 04/22/11 Page 12 of 19 the Settlement Agreement entered into by Grzybowski and the Receiver. (See id. 1 Ex. A.) III. LEGAL ARGUMENT The Receiver has expended considerable time and resources attempting to recover the Receivership funds fraudulently transferred to (and unjustly enriching) Grzybowski. Grzybowski acknowledged the money he received was a loan and that South Haven was purchased with Receivership funds. (Hayes Decl., 8.) Grzybowski executed a Settlement Agreement with the Receiver to return the stolen investor funds he received from Cook. (Id., 10.) Grzybowski has violated the terms of the Agreements, and has not made any payments since January 3, 2011, and the Receiver therefore asks the Court to enforce the remedies allowed under the Agreements and convey South Haven to the Receiver to allow the Receiver to liquidate South Haven and return the approximately $300,000 to the defrauded investors. A. Grzybowski Must Assign his Interest in South Haven to the Receiver. This Court s Orders give the Receiver exclusive custody, control, and possession of all funds, property, and other assets, wherever situated. See Order Continuing Appointment of Temporary Receiver, CFTC Docket No. 96, I(A). The Orders further freeze all assets that can be traced to proceeds from Cook s scheme, or were acquired with proceeds from the scheme, and direct anyone in possession of said assets to turn them over to the Receiver. See Order Imposing Asset Freeze and Other Ancillary Relief, SEC Docket No. 14, I; Second Amended Order Appointing Receiver, SEC Docket 68, IX. As part of his mandate, the Receiver must prevent the further dissipation of 10

13 CASE 0:09-cv MJD-FLN Document 763 Filed 04/22/11 Page 13 of 19 Receivership funds and preserve any such assets. See Second Amended Order Appointing Receiver, SEC Docket No. 68, I(G). The facts clearly show, and Grzybowski has admitted, the funds used to purchase South Haven came from Cook. This Court has already found that all assets transferred from any Receivership Entity, and all transfers by Cook after August 2005, were made pursuant to the Ponzi scheme. See Order Allowing Summary Proceedings, SEC Docket No. 380, D-E (Jul. 20, 2010); see also Plea Agreement, United States v. Cook, No. 10- cr-00075, Docket No. 7, at 1 3 (D. Minn. Apr. 13, 2010). The funds used to purchase South Haven are therefore Receivership Assets that must be repaid, and South Haven is a Receivership Asset subject to this Court s Orders. Grzybowski attempted to secure independent financing to repay the Receiver Estates. See infra, II. Once it was determined that Grzybowski would be unable to secure other financing, he entered into an agreement with the Receiver to return the assets. See infra, II(A)-(B). Grzybowski was advised by legal counsel when he entered into the Settlement Agreement. (See Hayes Decl., 1 Ex. A.) Grzybowski further acknowledged the jurisdiction of the United States District Court for the District of Minnesota, and agreed to submit any disputes under the Agreements to Chief Judge Michael J. Davis. (Id.) At its most basic level, this matter is simply a contract between two parties entered into freely and with the assistance of counsel. (See Hayes Decl., 1 Ex. A.) Grzybowski has breached the contract on several occasions. See infra, II(D). The Receiver has provided Grzybowski ample opportunity to correct the breaches. (See Hayes Decl., 8-11

14 CASE 0:09-cv MJD-FLN Document 763 Filed 04/22/11 Page 14 of ) The Receiver now simply requests the Court enforce the terms of the Agreement, whereby the breaches by Grzybowski require him to transfer his interest in South Haven to the Receiver. Paragraph 8 of the Settlement Agreement states that the Agreements are governed by Minnesota law. (Hayes Decl., 1 Ex. A.) Under Minnesota law, the construction and effect of a contract is a question of law. See, e.g., Jacobs v. Pickands Mather & Co., 933 F.2d 652, 657 (8th Cir. 1991) (holding the construction and effect of a contract is a question of law, unless a contract s terms are ambiguous); Servais v. T.J. Mgmt. of Minneapolis. Inc., 973 F. Supp. 885, 892 (D. Minn. 1997). Whether the terms of a contract are ambiguous is also a question of law. See, e.g., Boat Dealers' Alliance. Inc. v. Outboard Marine Corp., 182 F.3d 619, 621 (8th Cir. 1999). When the contract is unambiguous, the parties to the agreement are entitled to rely solely on the clear wording of their agreement to define their rights and responsibilities thereunder. See, e.g., Metropolitan Sports Com'n v. General Mills. Inc., 470 N.W.2d 118, 123 (Minn. 1991) (stating that, where there is no ambiguity, the court must determine the parties' intentions from the language used). The rights and responsibilities of the parties are to be determined by examining the four corners of the relevant documents. See, e.g., MacKenzie v. Summit Nat'l Bank, 363 N.W.2d 116, 121 (Minn. Ct. App. 1985) (holding that people who sign documents which are plainly written must expect to be held liable thereon. Otherwise written documents would be entirely worthless and chaos would prevail in our business relations. ) (quoting Watkins Prods., Inc. v. Butterfield, 274 Minn. 378, 144 N.W.2d 56, 58 (Minn. 1966)). 12

15 CASE 0:09-cv MJD-FLN Document 763 Filed 04/22/11 Page 15 of 19 When construing a contract, the Court must give the language of the contract its plain and ordinary meaning. See, e.g., Republic Nat'l Life Ins. v. Lorraine Realty Corp., 279 N.W.2d 349, 354 (Minn. 1979); Brookfield Trade Ctr. v. County of Ramsey, 584 N.W.2d 390, 394 (Minn. 1998); Servais v. T.J. Mgmt. of Minneapolis. Inc., 973 F. Supp. at 892. The Court must also consider the contract as a whole to ascertain the parties intentions. See, e.g., Art Goebel, Inc. v. North Suburban Agencies, 567 N.W.2d 511, 515 (Minn. 1997); Jacobs v. Pickands Mather & Co., 933 F.2d at 657; Chergosky v. Crosstown Bell. Inc., 463 N.W.2d 522, 525 (Minn. 1990); SO Designs USA v. Rollerblade, Inc., 620 N.W.2d 48, 53 (Minn. Ct. App. 2000); Republic Nat'l Life Ins. v. Lorraine Realty Corp., 279 N.W.2d 349, 354 (Minn. 1979). The terms of the Agreements between Grzybowski and the Receiver are unambiguous. The Receiver allowed Grzybowski to use the property and pay off his debt to the Receiver Estates over time, and in exchange Grzybowski was required to, among other things, make timely payments, maintain insurance on the property, not encumber the property, and not allow unauthorized persons to occupy the property. The Agreements are also unambiguous about the Receiver s rights and Grzybowski s responsibilities should Grzybowski fail to meet any of the other terms of the Agreements: the Receiver has the right to take immediate possession, custody and control of the property, and Grzybowski has the responsibility to promptly assign his interest in South Haven to the Receiver and execute any paperwork necessary to accomplish said transfer. Grzybowski undeniably violated the terms of the Agreements, and the clear wording of 13

16 CASE 0:09-cv MJD-FLN Document 763 Filed 04/22/11 Page 16 of 19 the Agreements required him to assign his interest in the Property to the Receiver and vacate the premises by five o clock on April 27, 2011, as per the Receiver s notification. Further, by not fulfilling his agreed upon obligations under the terms of the contract, Grzybowski has violated this Court s Orders by interfering with the Receiver taking control, possession or management of the property subject to the receivership Order Continuing Appointment of the Temporary Receiver, CFTC Docket No. 96, at 8. While it is well established that the Court has broad discretion in determining relief in an equity receivership, in this matter the Receiver just asks that Grzybowski fulfill his agreed upon obligations under the Agreements. See SEC v. Lincoln Thrift Ass n, 577 F.2d 600, 606 (9th Cir. 1978) ( The district court has broad powers and wide discretion to determine the appropriate relief in an equity receivership. ) The Receiver seeks specific performance under Paragraphs 4 and 7 of the Settlement Agreement and Paragraph 15 of the Occupancy Agreement, whereby Grzybowski agreed to promptly assign his interest in the South Haven property to the Receiver, and execute any necessary paperwork to accomplish the transfer, after any violation of the Agreements. B. The Receivership is Entitled to Repayment of Attorneys Fees and Expenses For The Present Motion. The Receiver has been forced to expend considerable time and Receivership funds dealing with Grzybowski s failure to abide by this Court s Orders and his noncompliance with the terms of the Agreements. See generally Order Imposing Asset Freeze and Other Ancillary Relief, SEC Docket No. 14, I; Second Amended Order Appointing Receiver, SEC Docket 68, IX; (Hayes Decl., 1 Ex. A). Grzybowski s debt to the Receiver 14

17 CASE 0:09-cv MJD-FLN Document 763 Filed 04/22/11 Page 17 of 19 Estates is a significant asset of the Receivership; the $315,644 Grzybowski owes the Receiver Estates is the equivalent of more than ten percent of the total funds returned to the defrauded investors to date. (Hayes Decl., 1 Ex. A); See Seventh Status Report of Receiver R.J. Zayed, SEC Docket No. 658 & CFTC Docket No. 614, at 4 (Jan. 14, 2011). The Court s Orders clearly apply to the $272,500 cashier s check Cook gave to Grzybowski. See Order Imposing Asset Freeze and Other Ancillary Relief, SEC Docket No. 14, I ( all other funds, accounts, and other assets to which proceeds from the Defendants offering can be traced ). Because it was purchased with Receivership funds, South Haven is also a Receivership Asset under the Court s Orders. Id. ( all other funds, accounts, and other assets which were acquired with proceeds of the Defendants offering. ). The Receiver has spent over a year trying to work with Grzybowski to facilitate the return of the Receivership funds. (See Hayes Decl., 8-18, ) Additionally, the Receiver had to file the instant motion because of Grzybowski s failure to abide by the agreed upon terms of the Occupancy and Settlement Agreements, whereby he agreed to promptly assign his interest in South Haven to the Receiver, and execute any necessary paperwork to accomplish the transfer, after any violation of the Agreements. Minnesota law only allows an award of attorneys fees when there is a contractual or statutory basis for such an award. See, e.g., Correll v. Distinctive Dental Servs., 636 N.W.2d 578, 582 (Minn. App. 2001); Barr/Nelson, Inc. v. Tonto's, Inc., 336 N.W.2d 46, 53 (Minn. 1983). Federal law similarly disfavors awarding attorneys fees absent a statutory or contractual basis. See, e.g., Swedish Hosp. Corp. v. Shalala, 1 F.3d 1261, 15

18 CASE 0:09-cv MJD-FLN Document 763 Filed 04/22/11 Page 18 of (D.C. Cir. 1993) (explaining the American Rule that each party to litigation bear its own costs); Cooperative Fin. Ass'n v. Garst, 927 F. Supp. 1179, 1186 (N.D. Iowa 1996). However, federal law also carves out several exceptions to the American Rule, including where an individual has willfully disobeyed a court order and where the litigation directly benefits others. See, e.g., Chambers v. NASCO, Inc., 501 U.S. 32, 44 (U.S. 1991). In this instance, Grzybowski has failed to comply with the Court s Orders, and the Receiver s motion would directly benefit the 723 victims of Cook s fraud who have collectively lost over $150 million through the scheme. See Declaration of Tara C. Norgard in Support of the Receiver s Motion for an Order Entering Recognized Claim Amounts and Approving Process for Judicial Resolution of Disputed Claims, SEC Docket No. 714, 16, 2 Ex A (Mar. 15, 2011). Furthermore, as discussed infra, the Court has broad powers and wide discretion in an equity receivership. See infra, III(A) (citing SEC v. Lincoln Thrift Ass n, 577 F.2d at 606); see also SEC v. Elliott, 953 F.2d 1560, 1566 (11th Cir. 1992) ( The district court has broad powers and wide discretion to determine relief in an equity receivership. ). Valuable and extremely limited Receivership funds were needlessly squandered dealing with Grzybowski s noncompliance, and the Court is therefore justified in ordering an equitable remedy. Grzybowski s continuous breaches of the Agreements has taken much needed funds out of the pockets of the defrauded investors, and the Court is therefore justified using its broad powers and wide discretion to order Grzybowski to repay the Receivership -- and thereby the defrauded investors -- the fees and expenses that would 16

19 CASE 0:09-cv MJD-FLN Document 763 Filed 04/22/11 Page 19 of 19 not have been incurred but for Grzybowski s repeated and deliberate noncompliance with the Court's Orders and the Agreements. CONCLUSION The Receiver R.J. Zayed respectfully requests the Court order the conveyance of real property located at 5463 Brookfield Road, South Haven, Minnesota, to the Receiver pursuant to the terms of the Settlement Agreement between the Receiver R.J. Zayed and Grant Grzybowski. The Receiver further requests that the Court award attorneys fees incurred in preparation of the pleadings filed herewith, and impose such other relief or sanctions as the Court deems necessary under the circumstances. Dated: April 22, 2011 Respectfully submitted, s/ Brian W. Hayes R.J. Zayed (MN Bar No. 309,849) Brian W. Hayes (MN Bar No. 294,585) Tara C. Norgard (MN Bar No. 307,683) Russell J. Rigby (MN Bar No. 323,652) Carlson, Caspers, Vandenburgh & Lindquist P.A. 225 S. 6 th Street, Suite 3200 Minneapolis, MN Telephone: (612) Facsimile: (612) bhayes@ccvl.com Designee for Receiver R.J. Zayed 17