In re Mjk Clearing, Inc.
| Decision Date | 11 September 2002 |
| Docket Number | Adversary No. 01-4283.,Adversary No. 01-4257. |
| Citation | 286 B.R. 862 |
| Parties | In re MJK CLEARING, INC., Debtor. Maple Securities U.S.A. Inc., Plaintiff, v. James P. Stephenson, Trustee, Advanced Clearing, Inc., Defendants. |
| Court | U.S. Bankruptcy Court — District of Minnesota |
Steven J. Heim, for plaintiff.
MEMORANDUM ORDER GRANTING SUMMARY JUDGMENT
This proceeding came on for hearing on the Motion for Summary Judgment of defendant James P. Stephenson. Stephen M. Mertz and Ted R. Cheesebrough appeared for Stephenson. Steven J. Heim appeared for the plaintiff.
This court has jurisdiction over this matter pursuant to the Securities Investors Protection Act of 1970 and in particular the Protective Decree entered against the debtor under 15 U.S.C. § 78eee(b), as well as under 15 U.S.C. §§ 78eee(b)(2), 78eee(b)(4), and 28 U.S.C. §§ 1331 and 1332.
The plaintiff, Maple Securities U.S.A., Inc., is a Delaware corporation and a registered broker-dealer with the Securities and Exchange Commission. The debtor, formerly known as Miller Johnson & Kuehn, is a corporation organized under the laws of Minnesota with its principal place of business in Golden Valley, Minnesota. The debtor, until it suspended business activities on September 25, 2001, was engaged in the business of securities brokerage and trading. Defendant Advanced Clearing, Inc., now known as Ameritrade, is a Nebraska corporation and a registered broker-dealer with the Securities and Exchange Commission.1
Maple and MJK entered into a Master Securities Loan Agreement dated July 15, 1999. The agreement has been amended from time to time. Pursuant to the MSLA, if one party borrowed securities from the other, the borrower would deposit with the lender cash or other collateral in an amount equal to at least one hundred percent of the market value of the loaned securities. The lender would pay the borrower a cash collateral fee for any cash given as collateral for loaned securities at a rate agreed between the parties, and would hold that collateral as security for the borrower's obligations with respect to the loan. Moreover, the MSLA provided that if the value of the securities increased in the market, the borrower would provide additional cash collateral to the lender. Conversely, if the value of the securities decreased, the stock lender would return the amount of the decrease. This process is known as "marking to market," which serves to equalize the value of the securities and the cash collateral. Under the MSLA each party could act as both a lender and a borrower of securities, and pursuant to this agreement the debtor periodically loaned securities to Maple in return for cash collateral, while at other times Maple loaned securities to the debtor in return for cash collateral.
Maple and the debtor entered into numerous transactions prior to September 27, 2001, the day Stephenson was appointed. Moreover, the debtor involved itself in numerous stock lending and borrowing transactions with companies other than Maple. In each of these lending and borrowing transactions the debtor acted as a lender or a borrower of securities pursuant to a Master Securities Loan Agreement similar to the agreement between the debtor and Maple. For example, the debtor and defendant Advanced Clearing, Inc. were parties to a MSLA dated May 26, 2000, that was substantially similar to the MSLA between the debtor and Maple.
The debtor's securities lending business involved transactions for one of three purposes: (1) loaning stock held by the debtor to raise capital; (2) borrowing stock to make deliveries; or (3) serving as a conduit/intermediary between parties. In this last type of transaction, often referred to as a conduit transaction, the debtor would borrow securities from one party and loan those same securities to another party. In return, the debtor would receive cash collateral from the party to whom it loaned the securities, and the debtor would then post cash collateral with the party from which it borrowed securities as collateral for its own obligations. Maple alleges that the debtor borrowed securities from Advanced Clearing, Inc., and posted with Advanced the cash collateral given to the debtor by Maple, and in return for that cash collateral, Advanced loaned the debtor stocks which the debtor in turn loaned to Maple.
All cash collateral received by the debtor from any party to which the debtor loaned securities was automatically reflected as a debit on the debtor's account at the Depository Trust Company. Similarly, for every transaction in which the debtor borrowed securities, the debtor's DTC account reflected a credit representing the transfer of cash collateral out of the account. On any given day the debtor's DTC account reflected numerous debits and credits that were the result of the plethora of securities transactions in which the debtor participated. Each of these debits and credits were aggregated at the end of the day, providing a net amount for the debtor's DTC account. As a consequence, any cash collateral posted by Maple or any other borrower of the debtor was commingled with other cash collateral received by the debtor from various securities transactions that day. Maple has claimed that $1,414,780.192 in cash collateral funds and/or proceeds from such funds, previously held by Advanced Clearing, Inc. and now held in escrow by the trustee3, are the property of Maple, not the debtor's estate, and should be returned to Maple.
On September 25, 2001, the debtor notified federal regulators that it lacked sufficient net capital under applicable federal and self-regulatory rules to continue operations. On September 27, 2001, at the request of the Securities Investors Protection Corporation,4 the district court entered a Protective Decree against the debtor under 15 U.S.C. § 78eee(b), appointed James P. Stephenson as trustee pursuant to 15 U.S.C. §§ 78aaa-111, and referred the case to the bankruptcy court.
Maple has asserted four claims against the trustee relating to securities lending transactions entered into with the debtor. These claims include declaratory judgment/injunctive relief, specific performance/novation, unjust enrichment, and constructive trust. The trustee moves for summary judgment on all of Maple's claims.
Summary judgment as set forth in Rule 56(c)5 is proper if the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). An issue of material fact is genuine if it has a real basis in the record. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). "A genuine issue of fact is material if it `might affect the outcome of the suit under the governing law.'" Hartnagel v. Norman, 953 F.2d 394, 395 (8th Cir.1992) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). The court is required to view all evidence in the light most favorable to the non-moving party and to give that party the benefit of all reasonable inferences to be drawn from the underlying facts disclosed in the pleadings. Trnka v. Elanco Prod. Co., 709 F.2d 1223, 1225 (8th Cir.1983).
Procedurally, the movant has the initial responsibility of informing the court of the basis for its motion and identifying those parts of the record which show a lack of genuine issue. Celotex Corp., 477 U.S. at 323, 106 S.Ct. 2548. The moving party must show the court that there is an absence of evidence to substantiate the non-moving party's case. Id. at 325, 106 S.Ct. 2548. The movant discharges its burden by asserting that the record does not contain a triable issue and identifying that part of the record which supports the moving party's assertion. City of Mt. Pleasant, Iowa v. Associated Electric Cooperative, 838 F.2d 268, 273 (8th Cir.1988).
When the moving party has carried its burden under Rule 56(c), the burden of production shifts to the non-moving party, and it must do more than simply show there is some metaphysical doubt as to the material facts. Matsushita, 475 U.S. at 586, 106 S.Ct. 1348. The non-moving party must go beyond the pleadings and by its own affidavits, depositions, answers to interrogatories, and admissions on file, establish that there are specific and genuine issues of material fact that warrant a trial. Celotex, 477 U.S. at 325, 106 S.Ct. 2548. The non-moving party must establish specific significant probative evidence supporting its case. Johnson v. Enron Corp., 906 F.2d 1234, 1237 (8th Cir.1990). If the evidence presented is merely colorable or is not significantly probative, the non-moving party has not carried its burden and the court must grant summary judgment to the moving party. See Fed.R.Civ.P. 56(e).
After carefully reviewing the record, I conclude that the trustee has met his burden and that Maple failed to present a genuine issue of any material fact. There is no dispute regarding any of the material facts in this case. The only disputes that exists are about the law and whether Maple's claims can somehow rise in priority over the many general unsecured claims of the debtor's creditors. I conclude that the trustee is entitled to judgment as a matter of law on all four of Maple's claims.
I turn first to count two of Maple's complaint which is pretty much dispositive....
To continue reading
Request your trial
-
In re Mjk Clearing, Inc.
...Even if FBW had an interest in either the cash in possession of the trustee, the trustee could avoid such interests.13 In re MJK Clearing, Inc., 286 B.R. 862, 874. The trustee as hypothetical lien creditor can avoid, under 11 U.S.C. § 544(a)(1), any interest of FBW in the funds transferred ......
-
Minn. Vikings Football Stadium, LLC v. Wells Fargo Bank, Nat'l Ass'n
...an adequate remedy, a question closely tied to the question of irreparable injury. See Maple Secs. U.S.A. Inc. v. Stephenson (In re MJK Clearing, Inc.) , 286 B.R. 862, 876 (Bankr.D.Minn.2002) ; Metro. Sports Facilities Comm'n v. Minn. Twins P'ship , 638 N.W.2d 214, 227 (Minn.Ct.App.2002). I......
-
In re Indian River Estates, Inc., No. 02-36330.
...priority scheme set up by Congress. In re Lewis W. Shurtleff, Inc., 778 F.2d 1416, 1419 (9th Cir.1985); In re MJK Clearing, Inc., 286 B.R. 862, 881 (Bankr.D.Minn.2002). This is because preexisting interests in property are not subordinated or eliminated by the subsequent creation of a const......
-
In re Brook Valley IV
...with full disclosure); see also In re Wilde Horse Enters., Inc., 136 B.R. 830, 842 (Bankr.C.D.Cal.1991). 32. In re MJK Clearing, Inc., 286 B.R. 862, 879-880 (Bankr.D.Minn.2002); see also N.S. Garrott & Sons v. Union Planters Nat'l Bank, 772 F.2d 462, 466 (8th Cir.1985) (stating that imposit......