IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA

Transcription

1 United States of America, v. IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA Plaintiff, 1. Thomas Joseph Petters; Petters Company, Inc., aka PCI; Petters Group Worldwide, LLC; 2. Deanna Coleman aka Deanna Munson; CIVIL NO: Robert White; (ADM/JSM) 4. James Wehmhoff; 5. Larry Reynolds, and/or dba Nationwide International Resources aka NIR; 6. Michael Catain, and/or dba Enchanted Family Buying Company; 7. Frank E. Vennes Jr., and/or dba Metro Gem Finance, Metro Gem Inc., Grace Offerings of Florida LLC, Metro Property Financing, LLC, 38 E. Robinson, LLC, 55 E. Pine, LLC, Orlando Rental Pool, LLC, 100 Pine Street Property, LLC, Orange Street Tower, LLC, Cornerstone Rental Pool, LLC, 2 South Orange Avenue, LLC, Hope Commons, LLC, Metro gold, Inc., Douglas A. Kelley, Gary Hansen, Defendants, Receiver, Receiver. MEMORANDUM OF LAW OF ALLEN J. MUNSON IN SUPPORT OF MOTION FOR INJUNCTION

2 TABLE OF CONTENTS Page I. INTRODUCTION... 1 II. FACTUAL BACKGROUND... 1 III. THE STANDARD OF REVIEW... 4 IV. MUNSON IS ENTITLED TO RESTORATION OF HIS ACCOUNT... 4 A. IRREPARABLE HARM B. THE BALANCE OF HARM AND PUBLIC INTEREST... 5 C. THERE IS A FAIR CHANCE OF SUCCESS ON THE MERITS... 6 D. THE PUBLIC INTEREST V. SECURITY SHOULD NOT BE REQUIRED VI. CONCLUSION i

3 I. INTRODUCTION Allen J. Munson brings this Motion seeking to enjoin the Receiver to return to him about $500,000 wrongfully seized without any notice, hearing, or other rudiments of Due Process. II. FACTUAL BACKGROUND Allen J. Munson, the ex-spouse of Deanna Coleman, is not a party in this case, has not been implicated, nor accused of any wrongdoing in regard to the Petters imbroglio. Munson innocently became entangled in this matter because of his former marriage to Coleman, who worked for the Petters organization, was involved in the alleged wrongdoing, unbeknownst to Munson and others, ultimately revealed the alleged fraud in September, 2008, and has plead guilty, along with other Petters' cohorts. Munson claims to be totally innocent and no one has suggested otherwise. He and Coleman were married in 1996, before Coleman began working for the Petters organization. Eleven years later, early in 2007, he began a marital dissolution proceeding in Hennepin County District Court. Affidavit of Allen J. Munson, 2. The case was hotly contested, and a final Divorce Decree entered by Judge Jeannice Reding was filed on August 26, Id., 2. As part of the divorce, Coleman and Munson were to divide certain assets including a US Bank Management Agency Stock account. The Decree stated Munson was awarded one-half of the parties' joint U.S. Bank stock account... to be divided so as to provide each party with one-half of all holdings. Id., 4 and Exhibit 2, pp At the time of the divorce, that account was valued at about One Million Fifteen Thousand 1

4 Four Hundred Forty-Nine and 00/100 Dollars ($1,015,449.00). Munson s 50% share was Five Hundred Seven Thousand Seven Hundred Twenty-Four and 50/100 Dollars ($507,724.50). Id. 1 The divorce began long before Coleman went to Federal authorities and revealed the alleged Petters' wrongdoing in mid-september, Their dissolution was finalized before her revelations. Munson, like others, was unaware of any wrongdoing and shockingly learned about it to his amazement when the news broke in the media in mid- September, about three weeks after the divorce had been finalized. Id., 5. It took some period of time after the divorce to complete the paperwork to divide the assets, consistent with the Court s Order. Munson timely sought to withdraw his portion of the US Bank account, as dictated by the divorce decree. The Bank would not release the funds, without providing any explanation. Munson later learned that Coleman's assets (but not his) were frozen by Order of this Court in mid-october, Id. Nearly four months later, in February, 2009, Munson received a letter from the U.S. Attorney's Office seeking information about whether he had any of Coleman s assets. Exhibit 3. He timely responded, through his counsel, explaining that he and Coleman had divorced, and that all of their assets had already been divided pursuant to the divorce decree, with the exception of the US Bank account, which had been frozen by the Receiver. Id., 6, Exhibit 4. Munson assumed the funds were still frozen since he 1 As a stock account, its value regularly fluctuated and now is probably much lower. 2

5 had never been informed otherwise. The Receiver responded to Munson s letter by informing him, for the first time, that the US Bank account had been liquidated by the Receiver. Id., 7, Exhibit. 5. The Receiver told him on February 19, 2009, that the US Bank Account, which belonged onehalf to Munson, has already been liquidated by the Receiver. This was the first time that Munson learned the Receiver had liquidated the US Bank Account. He had no prior notice that his property was going to be appropriated and no opportunity to contest the confiscation. Id., 8. The lack of notice and opportunity to be heard is a violation of Munson's Constitutional Right of Due Process. Munson now brings this Motion seeking an injunction requiring the Receiver to return to him his portion of the US Bank Account awarded to him in the divorce, pending final resolution of this matter. The Motion is brought pursuant to Rule 65(a) of the Federal Rules of Civil Procedure. Munson is not, at the present time, seeking final adjudication of his right to his funds, although he is so entitled. The present Motion only seeks to rectify the transgression of Due Process, reinstating the status quo that existed last fall, by restoring his 50% share of the account to him. He seeks a preliminary injunction to return the funds to him, in a secured account, pending final resolution of this matter. The ultimate question his entitlement to 50% of the account is not now at issue and remains for future resolution. For the reasons set forth below, the Motion should be granted so that the fund is restored to him pending notice and a hearing on the merits. 3

6 III. THE STANDARD OF REVIEW In determining whether to issue a preliminary injunction, the Court considers the four standards developed in Dataphase Sys., Inc. v. CL Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981). They are: (1) the threat of irreparable harm to the movant; (2) the state of the balance between this harm and the injury that granting the injunction will inflict on other parties litigant; (3) the probability that [the] movant will succeed on the merits; and (4) the public interest. Clarifying the third prong of the test, the 8th Circuit last year noted that in challenges to actions by elected officials: Only in a case where a preliminary injunction is sought to enjoin the implementation of a duly enacted state statute, must courts make a threshold finding that a party is likely to prevail on the merits. Planned Parenthood Minn., N.D., S.D. v. Rounds, 530 F.3d 724, (8th Cir. 2008). Because this case does not fall within that criterion, the movant need only establish a fair chance of prevailing. Id. at 732. IV. MUNSON IS ENTITLED TO RESTORATION OF HIS ACCOUNT All of the standards for Injunctive Relief are established here, dictating that Munson's 50% portion of the Account be restored to him. A. Irreparable Harm. Irreparable harm exists here. The assets legitimately awarded to Munson by the Hennepin County District Court, more than $500,000, have been confiscated. Because the Receiver has been granted immunity, Munson cannot prevail in a claim of damages. See Court Order for Entry of Preliminary Injunction, Appointment of Receiver, and Other Equitable Relief, dated October 14, 2008, p.11. The inability to obtain damages invokes 4

7 the irreparability standard in this Circuit. Baker Elec. Co-op., Inc. v. Chaske, 28 F.3d 1466, (8th Cir. 1994); Glenwood Bridge, Inc., v. City of Minneapolis, 940 F.2d 367, (8th Cir. 1991). It is necessary that action be taken now before the liquidated funds are distributed and become virtually impossible to retrieve. Therefore, Munson will suffer irreparable harm if an injunction is not granted. B. The Balance Of Harm And Public Interest In determining the relative harm, the Court considers the balance between [the] harm [to the movant] and the injury that the injunction s issuance would inflict on other interested parties. Pottgen v. Mo. State High Sch. Activities Ass n, 40 F.3d 926, 928 (8th Cir. 1994). The Court must weigh the threat to each of the parties rights and economic interests that would result from either granting or denying the preliminary injunction. Pro Edge, L.P. v. Gue, 374 F. Supp. 2d 711, 751 (N.D. Iowa 2005). There is no harm to the public or the other parties in requiring the Receiver to refrain from liquidating assets without notice and a hearing to Munson. But there is considerable harm to Munson if the Receiver is not enjoined and the assets are distributed to others; he will be deprived of his property and will not be able to recoup the loss. Munson is entitled to notice and an opportunity to be heard, as required under the Due Process provisions of the Fifth Amendment of the U.S. Constitution. Any concern that the funds might be dissipated during the hearing process can be cured by requiring that the restored funds be maintained in a secure, interest-bearing account pending the 5

8 outcome of any legal proceeding the Receiver might decide to commence concerning the funds at issue. C. There Is A Fair Chance Of Success On The Merits The ultimate merits Munson's entitlement to his 50% share of the US Bank Account is not now before the Court. The question here is much more restricted: whether Munson is entitled to notice and a hearing before his property is confiscated. The issue on the present Motion is whether the Receiver has the right to confiscate Munsons property without notice or hearing. Munson need only show that he has a fair chance of success. Planned Parenthood Minn., N.D., S.D., 530 F.3d at 732. But his likelihood of success far surpasses this low threshold. The Receiver's confiscation of Munson's money without notice and hearing was blatantly improper. Munson has more than a fair chance of success, he has an excellent one. The Receiver exceeded his authority when he liquidated Munson s Account. The Receiver s rights and duties in this case are derived from an Order For Entry of Preliminary Injunction, Appointment of Receiver, and Other Equitable Relief entered by this Court on October 14, 2008 in which the court issued a preliminary injunction against Petters, a number of his businesses and other individuals, including Coleman, Munson s former spouse. The Order for Preliminary Injunction was entered pursuant to a Stipulation of the parties. Munson is neither a party, nor a signatory, to the Stipulation. The Preliminary Injunction appoints a Receiver and allows the Receiver to conduct an investigation 6

9 seeking assets of the Defendants in the case and to convert assets of the Defendants. The Court did not, however, give the Receiver the power to attach and convert assets of nonparties, like Munson. Since Munson is not a party to this case and the Court has not given the Receiver authority over his assets, the confiscation by the Receiver of Munson's property without notice or hearing must be unwound, and his assets returned to him. Even if the Receiver had authority to act against Munson, which he lacked, he failed to follow fundamental precepts of Due Process in liquidating Munson s portion of the US Bank Account. Property rights cannot be taken without Due Process under the 5th Amendment of the U.S. Constitution. Bd. of Regents of State Coll. v. Roth, 408 U.S. 564, (1972). The right to prior notice and a hearing is central to the Constitution s command of due process. U.S. v. James Daniel Good Real Prop., 510 U.S. 43, 53 (1993). The purpose of this requirement is not only to ensure abstract fair play to the individual. Its purpose, more particularly, is to protect his use and possession of property from arbitrary encroachment-to minimize substantively unfair or mistaken deprivations of property. Fuentes v. Shevin, 407 U.S. 67, (1972) (loss of kitchen appliances and household furniture requires predeprivation hearing). Munson had a Court-ordered property interest in the US Bank Account. The Account was both in Coleman's name "and" his name. It could not be withdrawn without the signature of both of them. He was lawfully awarded half of the account by the Hennepin County District Court in his divorce proceedings. Because Munson had a property interest in the Account, procedural Due Process was required. To determine whether procedural Due Process has been provided, Courts 7

10 apply a "balancing test to determine whether the process adequately balances the private interest at stake, the risk that the process utilized will result in an erroneous deprivation of the private interest, the probable value of additional procedural safeguards, and the state's interest in the procedures provided, including the administrative burden and expense additional procedures would require." In re Claim for Benefits by Hagert, 730 N.W.2d 546, (Minn. Ct. App. 2007). The fundamental requirements of Due Process hearings include notice; an opportunity to be heard with counsel; presentation of evidence and witnesses; crossexamination of adverse witnesses; a neutral-decision maker; and an actual determination. Winegar v. Des Moines Ind. Sch. Dist., 20 F.3d 895 (8th Cir. 1994), cert. denied, 516 U.S. 964 (1994); Matthews v. Eldridge, 424 U.S. 319 (1976). The notice that satisfies Due Process must, of course, state the reasons for the governmental action in order to allow a citizen to contest it. See Trumbull Div., Owens-Corning Fiber Glass Corp. v. City of Minneapolis, 445 F. Supp. 911 (D. Minn. 1978) (Due Process requires that before denying governmental benefits, "[t]imely notice of a renewal or revocation hearing must be given and the reasons upon which possible denial may be based must be stated in the notice... [to allow] adequate time to investigate the charges and prepare its defense ). Munson received none of these rudimentary rights. He had no notice and no opportunity to be heard at all. This constitutes a denial of Due Process. As Justice Frankfurter observed in Joint Anti-Fascist Refugee Comm. v. McGrath, 341 U.S. 123, (1951) (Frankfurter, J., concurring), [F]airness can rarely be obtained by secret, one-sided determination of facts decisive of rights. No better instrument has been 8

11 devised for arriving at truth than to give a person in jeopardy of serious loss notice of the case against him and opportunity to meet it. 2 In addition to the absence of Due Process, the Receiver's surreptitious liquidation of Munson's court-awarded property, without notice or opportunity to be heard, transgresses another Constitutional measure: the Full Faith and Credit Clause. Confiscation of the account, which included Munson's 50% ownership, runs roughshod over the valid Divorce Decree entered by Judge Reding in Hennepin County District Court. The disregard of that Decree offends the Full Faith and Credit Clause of Article IV, 1, which requires that public Acts, Records, and judicial Proceedings of a state be honored by other jurisdictions. See also 28 U.C.S. 1738; Employers Reinsurance Corp. v. Mid-Continent Cas. Co., 358 F.3d 757, 765 (10th Cir. 2004). By confiscating Munson's money, awarded to him by a valid state court ruling, the Receiver abrogated the Full Faith and Credit that the Hennepin County Divorce Decree deserves. This violates Article IV, 1. Kahn v. Kahn, 21 F.3d 859, 861 (8th Cir. 1994). In sum, Munson's Constitutional rights were blatantly violated by confiscation of his court-awarded property, without notice or opportunity to be heard. He stands an excellent likelihood of prevailing, let alone a "fair" chance of winning. 2 The individual immunity granted the Receiver from damages does not prohibit this court from requiring that constitutional procedures be followed for equitable relief. Under the Court s Order, the Receiver is an agent of the Court and shall be accountable directly to this Court. See Court Order for Entry of Preliminary Injunction, Appointment of Receiver, and Other Equitable Relief, dated October 14, 2008, p.11. 9

12 D. The Public Interest The public interest will be furthered by a Preliminary Injunction restoring the preliquidation status quo. The public has an interest in assuring that: a) property rights are respected, not ruined; and b) State Court rulings are honored, not harmed. This is especially true of divorce proceedings, a sensitive subject reserved to state court adjudication under the Full Faith and Credit Clause, Article IV, 1 of the United States Constitution. See Kahn, Supra, at 861 (divorce proceedings are exclusive matters of state court jurisdiction). See also Ankenbrandt v. Richards, 504 U.S. 689, 703 (1992). The public interest in maintaining the authority of state courts to handle state proceedings without being abrogated by Federal officials is a strong one, as enshrined in the 10th Amendment's reservation of process to the states, not granted to the Federal government. Thus, all four of the Dataphase standards are satisfied here. Accordingly, a Preliminary Injunction is warranted to cure the lack of notice and a hearing regarding Munson's right to his funds. V. SECURITY SHOULD NOT BE REQUIRED Under Rule 65 of the Federal Rules of Civil Procedure, the Court may condition the issuance of a preliminary injunction on a bond or other security provided by the moving party. Doing so is discretionary, not mandatory, and may be dispersed with if unnecessary. As the authorities explain: "the court may dispense with security altogether if the grant of an injunction carries no risk of monetary loss to the Defendant. WRIGHT, MILLER & KANE Fed. Practice & Procedure, Vol. 11A, Civil 2d 2954, p. 293 (1995). 10

13 If there is no likelihood of monetary harm, security need not be requested. Loquina Oil Corp. v. Transwestern Pipeline Co., 825 F.2d 1461 (10th Cir. 1987); Int. Controls Corp. v. Vesco, 490 F.2d 1334 (2d Cir. 1974) cert. denied. 417 U.S See also Conn. Gen. Life Ins. Co. v. New Images of Beverly Hills, 321 F.3d 878 (9th Cir. 2003) (no security required in absence of evidence of likely damage to defendant due to injunction. But security is not required here because the restored funds, about $500,000, could be held in a separate, interest bearing account in Munson s name, and held for an appropriate period of time, to allow the Receiver the opportunity to commence an action with respect to those funds. If the Receiver does not timely do so, the money should revert to its proper owner, Munson. This can be done without expense to the Receiver or Munson, negating the need for a bond. VI. CONCLUSION For these reasons, the Court should enter an injunction requiring the Receiver to return one-half (1/2) of the funds seized from the US Bank Management Agency Stock Account to Allen Munson. MANSFIELD, TANICK & COHEN, P.A. Dated: March 20, 2009 By: /s/ Marshall H. Tanick Marshall H. Tanick (#108303) Teresa J. Ayling (#157478) 1700 U.S. Bank Plaza South 220 South Sixth Street Minneapolis, MN (612) ATTORNEYS FOR ALLEN MUNSON 11

14