RECEIVERSHIP SOURCEBOOK Presented by: STEPHEN J. KOROTASH, Dallas K& L Gates Author: PHILLIP S. STENGER, Grand Rapids, MI Stenger & Stenger, P.C. State Bar of Texas RECEIVERSHIPS IN TEXAS 2011 November 4, 2011 Austin CHAPTER 3
TABLE OF CONTENTS INTRODUCTION... 1 CHAPTER 1... 4 LEGAL AND STATUTORY BASIS... 4 CHAPTER 2... 9 JURISDICTIONAL ISSUES... 9 2.01 In General... 9 2.02 Ancillary or Supplemental Jurisdiction... 9 2.03 Personal Jurisdiction/ 754... 12 2.04 Removal and Transfer of Venue... 18 CHAPTER 3... 21 LITIGATION BY AND AGAINST THE RECEIVER AND THE RECEIVERSHIP ESTATE... 21 3.01 In General... 21 3.02 Fraudulent Transfer Actions... 23 3.03 Relief Defendants\Disgorgement Applications... 27 3.04 Other Causes of Action... 28 3.05 Statutes of Limitation... 28 3.06 Summary Proceedings... 29 CHAPTER 4... 30 ACTIONS FOR CONTEMPT... 30 4.01 In General... 30 4.02 Nature and Elements of Contempt... 30 4.03 The Impossibility Defense In General... 32 4.04 Self-Induced Impossibility... 33 4.05 Liability of Third Parties... 36 4.06 Procedure... 37 CHAPTER 5... 39 RECEIVER STANDING/IN PARI DELICTO... 39 CHAPTER 6... 48 JURISDICTION, VENUE AND SERVICE ISSUES RELATED TO A RECEIVER S ACTION AGAINST A FOREIGN THIRD PARTY... 48 6.01 In General... 48 6.02 Jurisdictional Issues Relating To Foreign Defendants... 48 6.03 Forum Non Conveniens... 50 6.04 Service Under The Hague Convention... 52 CHAPTER 7... 54 DISTRIBUTION OF DISGORGEMENT FUNDS TO INVESTORS... 54 7.01 Nature of Disgorgement... 54 7.02 Distribution Plans... 56 7.03 Use of Summary Procedures and Administration of the Estate... 62 7.04 Appeals... 65 CHAPTER 8... 67 iii
THE RIGHT OF THIRD PARTIES TO INTERVENE IN RECEIVERSHIP PROCEEDINGS... 67 8.01 In General... 67 8.02 Interventions in SEC Actions/ 15 U.S.C. 78u(g)... 68 8.03 Right to Appeal when Party has not Intervened... 69 CHAPTER 9... 70 SEC RECEIVERS IN FOREIGN COURTS... 70 9.01 In General... 70 9.02 There Must Be Sufficient Connection Between the Jurisdiction Appointing the Receiver and the Jurisdiction Where the Receiver Wishes to be Recognized... 71 9.03 SEC Receivers Will Generally Not Be Recognized in Foreign Jurisdictions.... 73 9.04 Practical Suggestions... 76 CHAPTER 10... 77 SALE OF PROPERTY... 77 10.01 In General... 77 10.02 Implementing the Sales Procedures... 79 CHAPTER 11... 82 THE IMPACT OF BANKRUPTCY ON THE SEC RECEIVERSHIP... 82 11.01 In General... 82 11.02 The Bankruptcy Code... 82 11.03 The Bankruptcy Court Is Not An Appropriate Venue For The SEC To Conduct Its Case.... 87 11.04 The SEC s Tool Against Bankruptcy; Withdrawal Of Reference... 87 CHAPTER 12... 89 RECEIVER S DUTY TO INVEST FUNDS... 89 CHAPTER 13... 91 RECEIVER S DUTY TO REPORT AND KEEP ACCURATE ACCOUNT... 91 CHAPTER 14... 92 TAX ISSUES EFFECTING RECEIVERSHIPS... 92 14.01 Qualified Settlement Fund... 92 14.02 Tax Filing Obligations... 93 14.03 Receiver Liability for Taxes... 94 14.04 IRS Notice Requirements... 95 14.05 Tax Effect on Investors... 96 CHAPTER 15... 97 A FEW PRACTICAL TIPS... 97 15.01 Secure the Records... 97 15.02 Control The Mail... 97 15.03 Understand The Case... 98 15.04 Post A Website... 98 15.05 Maintain An Investor Data Base... 98 CHAPTER 16... 99 CONCLUSION... 99 iv
APPENDICES Appendix 1 Selected Cases Haile v. Henderson National Bank, 657 F.2d 816, 822 (6 th Cir. 1981) Scholes v. Lehmann, 56 F.3d 750, 755 (7 th Cir. 1995) Appendix 2 Selected Statutes 28 U.S.C. 1367 28 U.S.C. 1692 28 USC 754 28 USC 959 Federal Rule of Civil Procedure 66 Uniform Fraudulent Transfer Act Appendix 3 Table of Cases Appendix 4 Receivership Alerts CFTC v. Eustace (Distributions) CFTC v. Forefront Investments Corp. (Authority to File Pleadings) Commodity Futures Trading Com'n v. Lake Shore Asset Management Ltd. (Criminal Contempt Referral) Donell v. Kowell (Recovery of Investment Profits) Eberhard v. Marcu (Standing/In Pari Delicto) FTC v. Cleverlink Trading Limited & Quilling v. Stark (Nationwide Personal Jurisdiction/28 U.S.C. 754) Gradel v. Piranha Capital (Jurisdiction of Receivership Court) Gustin v. Hoffman (Standing) Hays v. Adam (Standing of Receiver) Hodgson v. Gilmartin (Venue/28 U.S.C. 754) v
Norwest Bank v. Malachi Corp. (Court has Broad Powers in Equity Receivership) Quilling v. Cristell (Nationwide Personal Jurisdiction/28 U.S.C. 754) SEC v. Byers (Injunction Against Bankruptcy Filing/Stay of Proceeding Against Receivership Entities) SEC v. Capital Consultants LLC (Appeal of Distribution Plan) SEC v. Ross, et al. (Nationwide Service/28 U.S.C. 754) SEC v. T-Bar Resources LLC (Sale of Real Property) Standifer, Le, & Krell v. SEC (Barton Doctrine) Terry v. June (Recovery of Profits plus Principal Investment) U.S. Small Business Administration v. Integrated Environmental Solutions (Jurisdiction/28 U.S.C. 754) USA v. Petters (Intervention/Lift of Stay) Warfield v. Alaniz (Standing/Status of Repose) Williamson v. PricewaterhouseCoopers LLP (In Pari Delicto Doctrine) vi