Commodity Futures Trading Comm'n v. Walsh, Docket No. 09-3742-cv
| Decision Date | 13 August 2010 |
| Docket Number | 09-3787-cv.,Docket No. 09-3742-cv |
| Citation | 618 F.3d 218 |
| Parties | COMMODITY FUTURES TRADING COMMISSION, Plaintiff-Appellee,v.Stephen WALSH, Paul Greenwood, Westridge Capital Management, Inc., WG Trading Investors, L.P., WGIA, L.L.C., Westridge Capital Management Enhancement Funds, WG Trading Company L.P., WGI L.L.C., K & L Investments, Defendants,Janet Walsh, Relief Defendant-Appellant.Securities and Exchange Commission, Plaintiff-Appellee,v.WG Trading Investors, L.P., WG Trading Company, Limited Partnership, Westridge Capital Management, Inc., Paul Greenwood, Stephen Walsh, Defendants,Robin Greenwood, Relief Defendant,Janet Walsh, Relief Defendant-Appellant. |
| Court | U.S. Court of Appeals — Second Circuit |
COPYRIGHT MATERIAL OMITTED
Steven L. Kessler (Eric M. Wagner, on the brief), Law Offices of Steven L. Kessler, New York, NY, for Relief Defendant-Appellant Janet Walsh.
Nancy R. Doyle, Assistant General Counsel (Bradford M. Berry, Deputy General Counsel, on the brief), for Dan M. Berkovitz, General Counsel, Commodity Futures Trading Commission, Washington, D.C., for Plaintiff-Appellee Commodity Futures Trading Commission.
Allan A. Capute (Mark D. Cahn, Deputy General Counsel, and Jacob H. Stillman Solicitor, on the brief), for David M. Becker, General Counsel, Securities and Exchange Commission, Washington, D.C., for Plaintiff-Appellee Securities and Exchange Commission.
Before RAGGI, LYNCH and WALLACE, Circuit Judges.*
Relief defendant-appellant Janet Schaberg, sued under the name Janet Walsh, is the former wife of Stephen Walsh, a defendant in actions brought by plaintiffs-appellees the Commodity Futures Trading Commission (the “CFTC”) and the Securities and Exchange Commission (the “SEC”) (together, the “agencies”) alleging violations of the anti-fraud provisions of the Commodity Exchange Act and the Securities Exchange Act. The agencies claim that, among other violations of securities law between 1996 and 2009, Walsh and his co-defendant Paul Greenwood misappropriated from funds they managed for various investors as much as 554 million dollars. The agencies seek disgorgement of this money. Although the agencies allege no wrongdoing by Schaberg, they seek disgorgement of whatever proceeds from the fraudulent scheme are in her possession.
The district court (George B. Daniels Judge ) entered ex parte restraining orders freezing the bulk of Schaberg's assets. Subsequently, by decision and order, the district court converted the restraining orders to preliminary injunctions, prohibiting Schaberg from transferring, disposing of or otherwise encumbering essentially any of her assets without the approval of the court.
In these appeals, Schaberg argues that the district court abused its discretion in issuing the injunctions, since, she contends, the frozen property is not subject to disgorgement in the proceedings against her husband. In opposition, the SEC and CFTC not only contest Schaberg's arguments but also contend that we lack jurisdiction to hear these appeals.
We conclude that we have jurisdiction to hear these appeals. We further conclude, however, that determining whether Schaberg's assets are properly subject to a freeze by the district court in these proceedings requires us to assess whether Schaberg has a legitimate claim under New York law to the property she acquired in her separation from Stephen Walsh. Since this inquiry addresses unsettled and significant issues of state law, we certify, pursuant to 22 N.Y.C.R.R. § 500.27(a) and 2d Cir. R. 27.2, two questions to the New York Court of Appeals.
Janet Schaberg was married to Stephen Walsh from 1982 until 2004. Over this period, Walsh was either a substantial shareholder in or a management partner of a number of business enterprises, including Champion Sportswear, Tanger Malls and the New York Islanders hockey team. As a couple, the Walshes also purchased, and sometimes sold, a number of real estate properties, including condominiums in Florida and New York City, and houses in Port Washington, New York. During the marriage, Schaberg's only employment was as an unpaid volunteer for a series of charitable organizations.
Between August 2000 and February 2009, more than 18 million dollars was wired from accounts registered to Walsh and Greenwood's investment firm, WG Trading Investors, to accounts registered in Schaberg's name. Much of this money was used to pay the Walshes' bills, including their children's college tuition and household expenses. The agencies allege that these transfers represented the fraudulent misappropriation of investor funds.
The Walshes separated in 2004 and began divorce proceedings in early 2005. Schaberg and Walsh negotiated the terms of their separation for some time, finally signing a property settlement and separation agreement on November 1, 2006. Under the terms of the agreement, Schaberg conveyed her ownership interest in a jointly held Port Washington house to Walsh, while she received sole ownership of condominiums in New York City and in Florida. The agreement also provided that Schaberg retained, and Walsh waived all claim to, nearly 5 million dollars held in several checking accounts, and that Walsh agreed to pay Schaberg a total of 12.5 million dollars, first in biannual installments of $500,000 through 2016, and then in biannual installments of $250,000 through 2020. In executing the agreement, both parties waived their rights to any distributive award or equitable distribution with respect to property acquired by the other either before or during the marriage.
In February of 2009, the CFTC and SEC each filed multi-count complaints in the United States District Court for the Southern District of New York, alleging a large-scale fraud by Walsh, his partner Paul Greenwood, and various investment vehicles they controlled. Both complaints sought monetary penalties and other forms of injunctive relief from the named defendants, as well as the disgorgement of ill-gotten gains plus pre-judgment interest from the defendants and the relief defendants alike. The complaints named Schaberg as a relief defendant, along with other entities believed to be in possession of proceeds from the fraud, and sought disgorgement from her of the ill-gotten funds.
At the outset of the action, on February 25, 2009, the agencies moved by orders to show cause for preliminary injunctions and temporary restraining orders freezing the assets of the defendants and relief defendants and appointing a receiver. The district court immediately issued temporary restraining orders appointed a receiver in both actions, and, on March 3, 2009, held oral argument on the motions for preliminary injunctions. On May 22, 2009, the court granted both agencies' motions for preliminary injunctions freezing the assets of the primary defendants. In the SEC case, the district court converted the temporary restraining order into a preliminary injunction freezing one of Schaberg's bank accounts as a relief defendant, and ordered her to provide discovery, including deposition testimony, concerning her finances. On May 29, 2009, the district court ordered Schaberg to provide discovery in the CFTC proceedings.
On August 4, 2009, the district court issued a decision and order, granting the CFTC's motion for a preliminary injunction with respect to Schaberg's assets. The court found that the agency had met its burden of demonstrating both that it was likely to succeed in ultimately tracing Schaberg's assets to the proceeds of the fraud and also that Schaberg lacked a legitimate claim to the property. Accordingly, the district court converted the temporary restraining order in the CFTC case into a preliminary injunction, freezing Schaberg's assets in her bank and brokerage accounts. Although the district court did not place Schaberg's assets in receivership, Schaberg was prohibited from transferring, disposing of, or otherwise encumbering any of her real property, jewelry or art without prior notice to the agencies and the receiver, and approval of the court.
On August 20, 2009, the district court issued an order detailing the preliminary injunction in the CFTC case, in accordance with the August 4 order. The district court also issued a revised preliminary injunction in the SEC case, conforming the earlier, narrower injunction in the SEC case to the broader terms of the August 4 order. On August 24, 2009, Schaberg petitioned the court for the emergency release of funds to pay her living expenses and legal fees. The district court referred this petition to the receiver for a recommendation.
Schaberg then appealed to this Court. Since these appeals were filed, some funds have been released to Schaberg and to her creditors by the district court upon the recommendation of the receiver, although Schaberg remains without access to the vast majority of her assets.
Schaberg's notices of appeal together identify four orders of the district court for which she seeks review: (1) the court's February 25, 2009, order granting a temporary restraining order in the SEC case; (2) the court's August 4, 2009, decision and order, converting the temporary restraining order into a preliminary injunction in the CFTC case; (3) the court's August 20, 2009, preliminary injunction in the CFTC case; and (4) the court's order referring Schaberg's application for release of funds to the court-appointed receiver. Schaberg asserts that this Court has jurisdiction to review these interlocutory orders under 28 U.S.C. § 1292(a)(1), which applies to “orders of the district courts ... granting, continuing, modifying, refusing or dissolving injunctions.”
The agencies, however, contend that this provision does not extend jurisdiction to review the orders appealed from here. The agencies assert that, despite its plain language, 28 U.S.C. § 1292(a)(1) grants appellate courts jurisdiction...
To continue reading
Request your trial
-
Giovanniello v. ALM Media, LLC
......ALM MEDIA, LLC, Defendant–Appellee. Docket No. 10–3854–cv. United States Court of ......
-
Myers v. The Hertz Corp.
...intertwined” for pendent appellate jurisdiction to be properly exercised, not the issues presented to the district court. CFTC v. Walsh, 618 F.3d 218, 225 n. 3 (2d Cir.2010); see also id. at 222, 224-25 & n. 3 (declining to exercise pendent appellate jurisdiction over district court's issua......
-
In the Matter of Andrea P. Sherman v. Sec.
...a “mere puppet” or “empty vessel into which the true wrongdoers funneled their proceeds” would be a nominal defendant); CFTC v. Walsh, 618 F.3d 218, 226 (2d Cir.2010) (“The receipt of property as a gift, without the payment of consideration, does not create a ‘legitimate claim’ sufficient t......
-
Sec. & Exch. Comm'n v. Constantin
...of a relief defendant upon a finding that [it] lacks a ‘legitimate claim’ ” to the assets. Commodity Futures Trading Com'n v. Walsh, 618 F.3d 218, 226 (2d Cir.2010). A relief defendant does not have a legitimate claim to assets that it has received as a gift, without payment of consideratio......