Chase Inv. Serv. Corp.. v. Law Offices of Jon Divens & Associates Llc

• Citation: 748 F.Supp.2d 1145
• Decision Date: 14 October 2010
• Docket Number: No. CV 09–9152 SVW (MANx).,CV 09–9152 SVW (MANx).
• Court: U.S. District Court — Central District of California
• Parties: CHASE INVESTMENT SERVICES CORP., Plaintiff in Interpleader,v.LAW OFFICES OF JON DIVENS & ASSOCIATES, LLC, et al., Defendants in Interpleader.Amedraa, LLC, Cross-claimant,v.Law Offices of Jon Divens & Associates, LLC; Jon Divens, Cross-defendants.Betts and Gambles Investments, Inc., and Betts and Gambles Global Equities LLC, Cross-claimants,v.Law Offices of Jon Divens & Associates, LLC; Jon Divens, Cross-defendants.

748 F.Supp.2d 1145

CHASE INVESTMENT SERVICES CORP., Plaintiff in Interpleader,

v.LAW OFFICES OF JON DIVENS & ASSOCIATES, LLC, et al., Defendants in Interpleader.Amedraa, LLC, Cross-claimant,

v.Law Offices of Jon Divens & Associates, LLC; Jon Divens, Cross-defendants.Betts and Gambles Investments, Inc., and Betts and Gambles Global Equities LLC, Cross-claimants,

v.Law Offices of Jon Divens & Associates, LLC; Jon Divens, Cross-defendants.

No. CV 09–9152 SVW (MANx).

United States District Court, C.D. California.

Oct. 14, 2010.

Joseph E. Floren, Kim Alexander Kane, Morgan Lewis and Bockius LLP, San Francisco, CA, Neal S. Salisian, Salisian Lee LLP, P. Daffodil Tyminski, Morgan Lewis & Bockius LLP, Los Angeles, CA, for Plaintiff in Interpleader.Jon A. Divens, Law Offices of Jon Divens & Associates, Beverly Hills, CA, Charles L. Grotts, Charles L. Grotts Law Offices, City of Industry, CA, for Defendants in Interpleader.Jon A. Divens, Law Offices of Jon Divens & Associates, Beverly Hills, CA, for Cross-defendants.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

STEPHEN V. WILSON, District Judge.I. INTRODUCTION AND PROCEDURAL BACKGROUND

Plaintiff–in–Interpleader Chase Investment Services Corp. (“Plaintiff” or “CISC”) filed this interpleader action against several Defendants–in–Interpleader that had conflicting claims to the assets in a CISC securities brokerage account, Account No. CM2–303194 (“the Account” or “the CISC Account”). The Account was opened in late July 2009 by Defendant–in–Interpleader Jon Divens (“Divens”) on behalf of Defendant–in–Interpleader the Law Offices of Jon Divens & Associates, LLC (“JDA”).

Initially, the Account held no assets. However, after two transfers in September 2009, the Account held securities representing interests from three Collateralized Mortgage Obligations (collectively, “the CMOs”). ¹ The securities in the Account included: (1) a CMO designated as the Cobalt CBMS Series 2007–CS Class IO 00.02840 05/15/2046, CUSIP 1907DAG6, with a face value of $1,008,402,393 (hereinafter, “the Cobalt CMO”); (2) a CMO designated as the JPMCC Series 2007–CB19 Class X 00.01240 02/12/2049 MTG SEC, CUSIP 46630VAG7, with a face value of $235,250,000 (hereinafter, “the JPMCC Series CMO”); and (3) a CMO designated as the FNMA Series 2003–W19, Class 1–IO–1 0.33048% 11/25/2043 GTD Remic Pass Thru CTF Whole Loan, CUSIP 31393UA86, with a face value of $305,000,000 (hereinafter, the “FNMA Series CMO”). The three CMOs are interest-only CMOs, which provide the right to receive a portion of the interest payments on the mortgages owned by the CMO. The CMOs earn interest payments on a monthly basis. While the CMOs were in the CISC Account these interest payments were automatically deposited into the Account.

A. The Interpleader Action and Related Crossclaims

In or about late October 2009, CISC started to receive competing claims to the assets held in the Account. In response to those claims, CISC froze the Account on November 17, 2009. On December 14, 2009, CISC instituted this interpleader action naming the following parties who had asserted adverse claims to the assets in the Account: (1) Jon Divens, (2) Law Offices of Jon Divens & Associates, (3) Betts and Gambles Investments, Inc. and its affiliate Betts and Gambles Global Equities, LLC, (4) Midwest Royalties LLC, (5) Bryan Stallings, and (6) Amedraa LLC.

In January 2010, Midwest Royalties LLC informed CISC that Midwest Royalties LLC had been mistaken about the assets in the Account and that Midwest Royalties actually did not have any interest in the CMOs. Thus, Midwest Royalties was dismissed from this action on February 5, 2010. (Order, 02/05/10, Docket No. 55.) Also in January 2010, third-party Core Impact Consulting contacted CISC and asserted an interest in the JPMCC Series CMO held in the Account. Thus, CISC amended the Complaint–in–Interpleader on February 5, 2010 to add Core Impact Consulting as a Defendant–in–Interpleader. ( Id.)

On January 22, 2010, Defendant–in–Interpleader Amedraa LLC (“Amedraa”) answered the Complaint–in–Interpleader and asserted several crossclaims against JDA and Divens. (Docket No. 47.) Amedraa alleged that it was the owner of the FNMA Series CMO and that Amedraa had transferred the FNMA Series CMO to JDA in trust in January 2009 to hold in escrow. Amedraa alleged that JDA failed to return the FNMA Series CMO upon demand in February 2009 and that Divens absconded with the FNMA Series CMO, transferring it to several institutions until eventually it was transferred to the CISC Account. Amedraa sought return of the FNMA Series CMO, as well as the interest payments paid on the FNMA Series CMO while it was in JDA's possession.

Defendants–in–Interpleader Betts and Gambles Investments, Inc. and its affiliate Betts and Gambles Global Equities (collectively, “Betts and Gambles”) asserted a similar crossclaim against Divens and JDA on February 12, 2010. (Docket No. 61.) Betts and Gambles alleged that it owned the Cobalt CMO and had transferred it to Divens in February 2009 to hold in escrow for a proposed sale of the Cobalt CMO to a third party. Betts and Gambles alleged that when the sale fell through, they demanded that Divens return the Cobalt CMO but he refused. Betts and Gambles alleged that Divens transferred the Cobalt CMO to several different financial institutions so as to hide it from Betts and Gambles until it finally ended up in the CISC Account. Betts and Gambles sought return of the Cobalt CMO as well as the interest that had accrued on the Cobalt CMO while it was in Divens's possession.

B. Prior Stipulations and Orders

Throughout the course of this litigation, several of the Defendants–in–Interpleader reached stipulations with Divens, JDA, and CISC regarding the assets in the Account. On February 2, 2010, the Court approved a Joint Stipulation between Bryan Stallings (“Stallings”), JDA, Divens and CISC, and ordered that a portion of the JPMCC Series CMO owned by Stallings be released from the Account to Stallings. Stallings was voluntarily dismissed from this action on February 2, 2010. (Order, Docket No. 51.)

On February 23, 2010, the Court approved a Joint Stipulation between Core Impact Consulting, JDA, Divens and CISC, and ordered that the remaining portion of the JPMCC Series CMO owned by Core Impact Consulting be released from the Account to Core Impact Consulting. (Order, Docket No. 72.) Core Impact Consulting was voluntarily dismissed from this action on March 8, 2010. (Docket No. 78.)

On February 23, 2010, the Court approved a Joint Stipulation between Amedraa, JDA, Divens, and CISC, and ordered that the FNMA Series CMO be released from the Account to Amedraa. (Order, Docket No. 71.) The parties stipulated that Amedraa owned the FNMA Series CMO, but could not agree as to who owned the interest that the FNMA Series CMO had earned while it was in JDA's possession. Both JDA and Amedraa assert adverse claims to the interest held in the CISC Account that is attributable to the FNMA Series CMO, as well as the interest earned on the FNMA Series CMO from January 2009 through October 2009 while it was in JDA's possession.

Finally, on April 14, 2010, the Court approved a Joint Stipulation between Betts and Gambles, JDA, Divens, and CISC, and ordered that the Cobalt CMO be released from the Account and transferred to Betts and Gambles. (Order, Docket No. 85.) Although the parties stipulated that Betts and Gambles owned the Cobalt CMO, the parties could not agree as to who owned the interest that the FNMA Series CMO had generated while it was in JDA and Divens's possession. Both JDA and Betts and Gambles assert adverse claims to the interest held in the CISC Account that is attributable to the Cobalt CMO, as well as the interest earned from the Cobalt CMO from February 2009 through October 2009 while the FNMA Series CMO was in Divens's possession.

On March 3, 2010, the Court granted CISC's unopposed Motion to Deem the Account Deposited with the Court (“Motion to Interplead”) and discharged CISC from the action. (Order, Docket No. 75.) On June 10, 2010, the Court granted in part CISC's request for attorneys' fees incurred in connection with the interpleader action and awarded CISC fees of $24,834.90, to be paid from the assets in the Account.

C. Remaining Issues for Trial

In sum, as of the trial date in June 2010, the only remaining disputes were: (1) whether the interest earned on the Cobalt CMO (both while the Cobalt CMO was in the CISC Account and prior to that time when it was in Divens's possession) belongs to JDA or Betts and Gambles; and (2) whether the interest earned on the FNMA Series CMO (both while the FNMA Series CMO was in the CISC Account and prior to that time when it was in JDA's possession) belongs to JDA or Amedraa LLC.

The Court held a bench trial on these issues on June 24 and 25, 2010. The Court heard testimony from James Savor on behalf of Amedraa and Jon Divens on behalf of JDA and himself. Additionally, direct testimony declarations of Evelyn Aardema, one of the member-managers of Amedraa, LLC, and Seth Beoku Betts, the president of Betts and Gambles Investments, Inc., were admitted without objection. Finally, the Court permitted the parties to submit post-trial briefing on an issue of law regarding JDA's status as an entitlement holder under the California Commercial Code.²

Having thoroughly examined the evidence and the testimony of the witnesses, and having considered the arguments and briefs of all parties, the Court makes the following findings of fact and conclusions of law.

II. FACTUAL FINDINGS

As a preliminary matter, the Court notes that resolution of many of the factual disputes between the parties turns in large part on the credibility of the witnesses. In that regard, the Court finds that Divens's testimony was wholly incredible. The Court does not believe that Divens had any agreement with any representative or agent of Betts and Gambles or Amedraa that entitled Divens or...