Sec. & Exch. Comm'n v. First Choice Mgmt. Servs., Inc.

• Decision Date: 11 September 2014
• Docket Number: 14–2284.,Nos. 14–1270,s. 14–1270
• Parties: SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. FIRST CHOICE MANAGEMENT SERVICES, INC., et al., Defendants, CRM Energy Partners and John W. Hannah, Appellants, v. Joseph D. Bradley, Receiver, Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

767 F.3d 709

SECURITIES AND EXCHANGE COMMISSION, Plaintiff

v.FIRST CHOICE MANAGEMENT SERVICES, INC., et al., Defendants

CRM Energy Partners and John W. Hannah, Appellants

v.Joseph D. Bradley, Receiver, Appellee.

Nos. 14–1270

14–2284.

United States Court of Appeals, Seventh Circuit.

Submitted July 17, 2014.

Decided Sept. 11, 2014.

Rehearing Denied Oct. 3, 2014.

Charles J. Kerstetter, Securities and Exchange Commission, Chicago, IL, for plaint.

Kenneth Michael Sullivan, Tressler, LLP, Chicago, IL, for Appellant.

Shawn F. Sullivan, South Bend, IN, for Defendant.

Joseph D. Bradley, South Bend, IN, for Appellee.

Before POSNER, RIPPLE, and WILLIAMS, Circuit Judges.

Opinion

POSNER, Circuit Judge.

This pair of appeals is a sequel to two previous appeals arising from the same lawsuit, see 678 F.3d 538 (7th Cir.2012) ; 709 F.3d 685 (7th Cir.2013), though there is little overlap, and only Bradley, the receiver, was a party to the previous appeals.

The case from which the appeals arise began in 2000 as a suit by the SEC charging First Choice Management Services and others with fraud in violation of federal securities law. The district court appointed a receiver to take charge of the defendants' assets and distribute them among the victims of the $31 million fraud. The receiver went hunting for the assets and found that some of them had been used to acquire oil and gas leases in Texas and Oklahoma. Those leases were therefore receivership assets. He has endeavored to sell them and use the proceeds of their sale to compensate the victims of the fraud. His efforts, which have continued for 14 years, have been slowed down by efforts of third parties to establish ownership interests in the leases.

The present appellants, CRM Energy Partners and John W. Hannah (who is CRM's owner and alter ego, and therefore needn't be discussed separately; we'll use “CRM” to denote both), are such third parties. Eventually CRM sought to intervene in the receivership proceeding in order to contest the receiver's proposed sale of oil leases in Osage, Oklahoma. CRM asserts an ownership interest in those leases and says it's been operating them since 2002. The receiver, however, considers the oil leases to be receivership assets because, as we noted earlier, they had been bought with proceeds of fraud. The district court denied CRM's motion to intervene and went on to approve the sale of the Osage leases to Wilson Operating Company, an oil company in Tulsa. CRM appeals both from the denial of its motion to intervene (No. 14–1270 in this court) and from the district court's approval of the sale (No. 14–2284).

Back in 2002 CRM had made an agreement to sell the Osage leases to Branson Energy, Inc., for $300,000. It contends that Branson didn't pay for the leases, as the agreement required it to do (or at least did not make timely payment in full), and so CRM has had to continue to operate the leases and maintain the wells, at a total cost (it says) of more than $2.5 million. The following year, however, the receiver identified First Choice Management Services, the principal defendant in the SEC's suit, as the true owner of the Osage oil leases, and the district court issued an order freezing Branson's assets. Whether, as a result of its agreement with CRM, Branson had any interest in the Osage leases is unclear, but also, as will become clear, irrelevant.

Protracted negotiations between the receiver and claimants to the leases ensued, and included CRM, though it was not a litigant. With his funds running low as a result of expenses incurred in administering so long-lived a receivership, the receiver decided to sell the Osage leases, and in May 2013 he moved the district court for permission to sell them to Wilson Operating Company. CRM presumably knew of the motion, as it was public, and that the receiver believed that CRM had no compensable interest in the leases, as there was nothing in the motion to suggest that Wilson's purchase would be subject to a claim by CRM. In June 2013 the district court approved the receiver's plan and in January 2014 approved the sale price that the receiver had negotiated with Wilson. The court confirmed the sale itself in May of this year.

CRM moved to intervene in the receivership proceeding last December, to press its claim to a compensable interest in the leases. The district judge denied the motion as untimely, a recognized ground for denying a motion to intervene. E.g., Reich v. ABC/York–Estes Corp., 64 F.3d 316, 321 (7th Cir.1995). CRM had known as early as January 2004, almost ten years before it filed its motion, that the receiver was claiming to own ...