Liberte Capital Group v. Capwill, 5:99CV818.
| Decision Date | 07 November 2002 |
| Docket Number | No. 5:99CV818.,5:99CV818. |
| Citation | 229 F.Supp.2d 799 |
| Parties | LIBERTE CAPITAL GROUP, Plaintiff, v. James A. CAPWILL, et al., Defendant. |
| Court | U.S. District Court — Northern District of Ohio |
N. Stevens Newcomer, Newcomer & McCarter, Toledo, OH, for Liberte Capital Group, LLC, EJT Management, LLC, Richard Jamieson.
Mark R. DeVan, Larry S. Gordon, Berkman, Gordon, Murray & DeVan, Cleveland, OH, for Sunny Wood Land Development.
William T. Wuliger, Wuliger, Fadel & Beyer, Cleveland, OH, Richard G. Lillie, Lillie & Holderman, Cleveland, OH, for Alpha capital Group, LLC, Integrity Partners Management, LLC.
Heinz E. Ickert, Ickert & Co., LLC, Columbus, OH, pro se.
Gerald R. Kowalski, Cooper & Walinski, Toldeo, OH, Andrew C. Storar, Pickrel, Schaeffer & Ebeling, Dayton, OH, Larry P. Meyer, Manahan, Pietrykowski, Bamman & Delaney, Toldeo, OH, for John Wayne Lazar.
David C. Tryon, Porter, Wright, Morris & Arthur, Cleveland, OH, for Porter Wright Morris & Arthur, LLP.
Leo R. Ward, Ward & Associates, Cleveland, OH, for Andrew J. Capwill.
Carl S. Reumler, Tequesta, FL, pro se.
Victor M. Javitch, Javitch, Block, Eisen & Rathbone, Cleveland, OH, pro se.
Frank Joseph Witschey, Witschey & Witschey, Akron, OH, Laurence M. Landsman, Block & Landsman, Chicago, IL, for Kevin M. Knox.
This matter comes before the Court on the sole issue of the method of disbursement with regard to the Liberte class investors. Jurisdiction in this Court is proper pursuant to 28 U.S.C. § 1331. After careful consideration of the parties' positions and for the reasons stated below, the Court finds that a pro rata method of disbursement with regard to the certified class is appropriate. In addition, the Court certifies an immediate appeal of this action under 28 U.S.C. § 1292(b).
This case revolves around the viatical settlement industry. Plaintiff Liberte Capital LLC ("Liberte") and Intervening Plaintiffs Alpha Capital Group LLC and Integrity Management Partners, LLC (collectively "Alpha") were engaged in the business of purchasing life insurance policies from terminally ill policyholders willing to sell their rights to the policies. Liberte also solicited investors for policies on the lives of seniors without terminal illness. Investors were solicited by Liberte and Alpha to purchase viatical life insurance investment programs whereby investors were matched in many cases with the policy on the terminally ill person or "viator".
In 1997, Liberte entered into an agreement with James A. Capwill and his company, Viatical Escrow Services ("VES"). Under this arrangement, Capwill and VES were to serve as the escrow agent for the handling of investment funds. However, just two years later, Liberte filed suit against Capwill, VES and Capital Fund Leasing ("CFL") alleging, inter alia, misappropriation of escrow funds. Shortly after the inception of the above-captioned litigation various parties, including Alpha, intervened in the litigation. Less than three months after commencement of the subject action, the Court, upon Alpha's request and after a hearing, appointed a Receiver over the assets of VES and CFL. A year and a half later the scope of the Receivership was extended to cover the interests in those policies funded by Liberte investors. Eventually Capwill's assets were also placed under the control of the Receiver.
In September 2000, John Wayne Lazar ("Lazar"), a Liberte investor, also intervened in this litigation. Just four months earlier, the federal government filed a civil forfeiture action against J. Richard Jamieson, Liberte Capital Group, LLC and related entities. United States v. Jamieson, Case No. 3:00 CV 7312 (N.D.Ohio). There, the federal government sought and obtained an injunction enjoining the Jamieson defendants from defrauding the insurance companies and investors.
Due to the overlap between the two civil actions, all judicial officers assigned1 to the relative cases conducted a joint status conference in Akron on August 24, 2000. At that conference, the broad scope of the case was just beginning to emerge as it was apparent that the Liberte and Jamieson litigations were the linchpin for additional civil and potential criminal2 actions.
In 2000, following judicial review, the Receiver was directed to administer the sales of non-fraudulent policies,3 including the Crivello policies. (Doc. No. 777.) One of the Crivello policies was issued on the life of Jacqueline Crivello, Policy No. 94552210 and had a face value of $4.25 million dollars. Policy premiums were advanced by the Receiver to maintain this policy. Before it was sold, that policy matured and the death benefits were paid to the Receiver in January 2001.
On February 22, 2001 Lazar, on behalf of the Liberte investors, filed an emergency motion requesting approval to use proceeds from the sale of Crivello policies to pay premiums on other policies which were at risk of lapsing. Upon consideration of the motion and the input from counsel for the parties, the Court4 directed the Receiver to utilize these proceeds in an effort to save other policies where justified by economic considerations.
In March 2001, the Court granted Lazar's motion for certification and certified the Liberte investors as a class under Fed. Civ. R. 23(b)(1)(B). (Doc. Nos. 992 and 1056). At that time, the Court clarified to all parties that the issue of disbursement would be reserved for the conclusion of this case, at which time a final accounting would be provided by the Receiver's accountant.
To date, the Receiver's efforts, as well as those of class counsel, have resulted in ongoing litigation both in federal5 and state court as he attempts to continue to marshal assets on behalf of the Receivership estate for the benefit of the investors and others. The measure of those efforts is reflected in the periodic Receiver status reports filed with the Court and it is apparent from those reports that the General Receiver has been diligent in his efforts. (Doc. Nos. 787, 887, 1002, 1102, 1212, 1306, 1358, 1436, 1547, 1657, and 1741.)
Following the approval of the Liberte investor class, a Notice of Class Action was directed to each Liberte investor. (Doc. No. 1074.) That notice contained a description of the lawsuit, the insurance policies involved, the class action certification, information concerning the sale of policies, notice of a pro rata proposal to distribute funds, attorney and administrative fees, options available to class members, date of the final hearing on sale distribution formula and other information, such as counsel's name and address, as well as reference sources.
The Crivello investors6 filed objections to the proposed distribution method and simultaneously sought subclass certification. The Court conducted a fairness hearing on August 31, 2001, at which counsel for the Crivello investors was present. The hearing first focused on the fairness of the method of converting policies of insurance to cash for purpose of ultimate distribution, and as no objections were raised with regard to the continued sale of policies, the Court approved converting assets to dollars. The Court then heard arguments on the distribution formula and subclass certification before setting a briefing schedule directing the parties to address both the method of disbursement and creation of subclasses. Additionally, the Court invited the government and others7 to comment on these issues.
Following the August 2001 hearing, the Liberte class filed their memoranda (Doc. Nos. 1242 and 1524), as did the Crivello investors (Doc. No. 1283). In addition, both the government and General Receiver filed amicus briefs. (Doc. Nos. 1322 and 1333.)
On March 14, 2002, the Court denied the Crivello investors' motion for subclass certification but granted them leave to intervene for purposes of presenting their positions relative to the allocation method. (Doc. No. 1461.) In accordance with the Court's determination, the Crivello investors filed additional memoranda. (Doc. Nos. 1513 and 1533.)
Most recently, at the September 23, 2002, status conference conducted in open court and attended by a number of the investors, the General Receiver apprized everyone that the final accounting will most likely be completed in the first quarter of 2003. At that time, counsel for the Liberte Class, the Crivello investors, the government, as well as the General Receiver, briefly reiterated their positions on the issue of allocation and requested an expedited ruling as well as certification of this issue to the Sixth Circuit.
With this background in mind, the Court now turns to the issue of allocation.
It is widely acknowledged that the district court has "`broad powers and wide discretion'" in crafting "relief in an equity receivership proceeding." SEC v. Basic Energy & Affiliated Resources, Inc., 273 F.3d 657, 668 (6th Cir.2001), quoting SEC v. Elliott, 953 F.2d 1560, 1566 (11th Cir. 1992). As noted by this Circuit and other courts, the district court's discretion is derived "from the inherent powers of an equity court to fashion relief." Id. quoting SEC v. Blavin, 760 F.2d 706, 713 (6th Cir.1985); see also SEC v. Safety Finance Service, Inc., 674 F.2d 368, 372 (5th Cir. 1982).
The use of a "summary proceeding reduces the time necessary to settle disputes, decreases litigation costs, and prevents further dissipation of receivership assets." SEC v. Elliott, 953 at 1566. (Citations omitted.) While such a vehicle promotes judicial efficiency, the Court is mindful that the claimants must still be afforded due process. SEC v. Basic Energy & Affiliated Resources, Inc., 273 F.3d at 668. Fundamental to the due process analysis are the concepts of notice and opportunity to be heard. See Cleveland Bd. of Education v. Loudermill, 470 U.S. 532, 542, 105 S.Ct....
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