98 F.3d 1133 (9th Cir. 1996), 95-55193, S.E.C. v. American Capital Investments, Inc.

Docket Nº:95-55193, 95-55283, 95-55872 and 95-55878.
Citation:98 F.3d 1133
Party Name:D.A.R. 12,831 SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee, v. AMERICAN CAPITAL INVESTMENTS, INC.; Stephen J. Murphy; Kenneth A. Sorensen; Richard D. Otto; Adfin Corporation; Einhorn & Edgerton, Defendants, and John P. Shelton; ACI Investors Protective Association, and Approximately 127 ACI (American Capital Investments) Investors, Defend
Case Date:October 22, 1996
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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Page 1133

98 F.3d 1133 (9th Cir. 1996)

D.A.R. 12,831

SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee,

v.

AMERICAN CAPITAL INVESTMENTS, INC.; Stephen J. Murphy;

Kenneth A. Sorensen; Richard D. Otto; Adfin

Corporation; Einhorn & Edgerton, Defendants,

and

John P. Shelton; ACI Investors Protective Association, and

Approximately 127 ACI (American Capital

Investments) Investors, Defendants-Appellants,

Richard G. Shaffer, Defendant-Appellee.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee,

v.

AMERICAN CAPITAL INVESTMENTS, INC.; John P. Shelton; ACI

Investors Protective Association, and

Approximately 127 ACI (American Capital

Investments) Investors,

Defendants-Appellants,

Richard G. Shaffer, Appellee,

and

Stephen J. Murphy; Kenneth A. Sorensen; Richard D. Otto;

Adfin Corporation, Defendants.

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,

v.

AMERICAN CAPITAL INVESTMENTS, INC., et al., Defendants.

John SHELTON; ACI Investors Protective Association and

Approximately 156 ACI Investors, Appellants,

v.

Richard G. SHAFFER, Court Appointed Receiver for Defendant

American Capital Investments, Inc., Appellees.

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,

and

John P. Shelton, Esq.; Approximately 156 ACI Investors;

ACI Investors Protective Association, Appellants,

v.

AMERICAN CAPITAL INVESTMENTS, INC., et al., Defendants,

and

Richard G. Shaffer, Court Appointed Receiver for Defendant,

American Capital Investments, Inc., Appellee.

Nos. 95-55193, 95-55283, 95-55872 and 95-55878.

United States Court of Appeals, Ninth Circuit

October 22, 1996

Argued and Submitted Aug. 6, 1996.

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Thomas W. Dressler, Dressler, Rein & Evans, Los Angeles, CA, for the appellants.

Charles E. Slyngstad, Musick, Peeler & Garrett, Los Angeles, CA, for the appellee.

Appeals from the United States District Court for the Central District of California, Consuelo B. Marshall, District Judge, Presiding. D.C. No. CV 93-5280-CBM.

Before: FLETCHER and TASHIMA, Circuit Judges, and RESTANI, [*] Court of International Trade Judge.

OPINION

TASHIMA, Circuit Judge:

These cases consist of four consolidated appeals from orders of the district court in a receivership proceeding which was part of a Securities and Exchange Commission ("SEC") civil enforcement action. These appeals stem from the efforts of appellants, defrauded investors ("Investors") of American Capital Investments, Inc. ("ACI"), to upset a judicial sale of ACI-owned real property by appellee Richard G. Shaffer ("Shaffer"), the court-appointed receiver for ACI ("Receiver"). The appeals are from orders: (1) confirming the sale ("Sale Order"); (2) refusing to set aside the Sale Order ("Rule 60 Order"); (3) authorizing an addendum to the sale agreement ("Addendum Order"); and (4) transferring the Investors' claims to the proceeds of the Receiver's sale ("Transfer Order").

We have jurisdiction over the timely appeal from the Transfer Order under 28 U.S.C. § 1292(a)(1). We assert "hypothetical jurisdiction" over the appeals from the remaining orders, as discussed more fully below. We dismiss in part and affirm in part.

I. BACKGROUND

The SEC enforcement action alleged that ACI violated federal securities laws through sales of interests in real estate investments. The SEC prayed for, inter alia, the appointment of a receiver to take control of ACI-related assets. The district court first appointed Shaffer as ACI's temporary receiver, and later as permanent receiver, pursuant to Fed.R.Civ.P. 66 and its general equitable jurisdiction. The Receiver was empowered under 28 U.S.C. § 754 to take possession and control of all assets "belonging to or in the possession or control of ACI and its subsidiaries and affiliates." As required by § 754, the Receiver filed receivership notices in the districts where ACI's real properties were located.

Through imposition of the receivership, the SEC sought to protect ACI's creditors and some 200k investors from the dissipation of ACI's assets and to provide for their compensation.

ACI's fraudulent scheme purported to offer Investors joint ventures and limited partnerships in specific real estate projects. In reality, the money raised went into an undifferentiated pool. Much of the money raised was used for unrelated, extravagant expenses and to pay off prior investors. ACI's commingling of funds made it impossible to trace whose money went to which real estate purchase. ACI had guaranteed its investors considerable "profits" on their investment, which could be reinvested at the election of the investor. However, the amount ACI owed its investors greatly exceeded the actual equity of ACI's real estate investments.

By consent judgments, the ACI defendants disgorged their interests in ACI. The district court terminated the underlying fraud case, but continued the receivership, and previously issued injunctive relief.

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In early 1994, the Receiver negotiated an agreement with JH Financial Group ("JH") to convey to JH 100 percent fee interests in all eight ACI real properties that remained in the receivership estate (the "JH sale"). The JH sale was opposed by the Investors, who believed that holding the properties until the real estate market improved would realize a higher return. The Investors began mobilizing against the proposed sale.

Around the same time, the Receiver moved for permission to treat all Investors equally in the division of the proceeds from the sale of ACI assets. The Investors did not oppose this motion. 1 The district court granted the motion in its Order Permitting Receiver to Consider All ACI Investors Equally ("Equal Treatment Order"). The Equal Treatment Order provided that each investor's recovery would be a pro-rata share, based on his or her net investment. No investor appealed the Equal Treatment Order.

The court then turned to the two-step process mandated by 28 U.S.C. § 2001 for approving the sale of receivership property--the appointment of appraisers to appraise the properties, followed by a sale confirmation hearing.

As part of their efforts to thwart the JH sale confirmation, the Investors applied for leave to intervene, file a petition for involuntary bankruptcy, and record warranty deeds to the properties held by some of the Investors. The district court denied intervention and cleared the "wild" warranty deeds (which the Investors were obligated to reconvey to ACI under the investment agreements) from the properties' title. In confirming the sale, the court also denied appellants' application to institute bankruptcy proceedings against ACI. The Investors took no appeals from the orders denying their application to intervene and to record the warranty deeds.

At the sale confirmation hearing, the Investors argued that the Sale Order would exceed the district court's jurisdiction because the Receiver could not deliver legal title to the real properties. Of the eight properties, five were wholly owned by ACI, but title in three was jointly held by ACI and three limited partnerships between ACI and selected investors. The Receiver initially argued that as receiver for ACI, the General Partner of these partnerships, he exercised the authority of the General Partner to convey title to the three properties.

Details about the state of these partnerships and the state of ACI's title emerged over the months that followed the sale confirmation hearing. All three limited partnership agreements provided for the partnership's dissolution upon the appointment of a receiver for the General Partner. It eventually came to light that two of these limited partnerships were never lawfully formed for lack of the proper filing of papers that ACI should have filed with the state. 2

The Investors also argued that the Receiver had not adequately marketed the properties to obtain the best price, and had actually suppressed bidding in favor of the JH sale. They purported to show that the JH sale would not yield sufficient cash proceeds to satisfy the claims of Investors, commercial creditors, or even administrative creditors.

The Investors presented an alternate, supposedly preferable, proposal for the disposition of the properties--transfer of the properties to the Investors. They sketched a plan to pay all non-investor claims in full and to accept the ACI real properties subject to existing mortgages in satisfaction of their own fraud claims against ACI.

In the Sale Order, relying in part on ACI's powers as the General Partner of the limited partnerships, the court concluded that it had jurisdiction and authority, as a federal equity receivership court, to order the sale of the limited partnerships' interests in the properties. As to the merits of the sale, the district court found that the JH sale met the statutory

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requirement of a purchase price of at least two-thirds of the appraised value, and that the sale served the best interests of the Investors and creditors. Citing financing uncertainty, it rejected the Investors' proposal as inadequate under 28 U.S.C. § 2001. Citing their lack of detailed plans for satisfying the claims of creditors, it also found that the Investors' proposal was not in the interests of the estate.

The Investors thereafter moved under Fed.R.Civ.P. 60 to set aside the Sale Order. They argued that the limited partnerships had dissolved upon appointment of the Receiver and that the dissolution terminated ACI's status as General Partner, thus, foreclosing the Receiver's ability to convey the properties without the consent of the Investors. The Investors also asserted that the Receiver had abandoned jurisdiction over the ACI real properties by failing to file timely notice in the various districts where...

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