Ritchie Capital Mgmt. v. Jeffries

• Decision Date: 06 September 2011
• Docket Number: No. 10–2568.,10–2568.
• Citation: 653 F.3d 755
• Parties: RITCHIE CAPITAL MANAGEMENT, L.L.C.; Ritchie Special Credit Investments, Ltd.; Rhone Holdings II, Ltd.; Yorkville Investments, I, LLC; and Ritchie Capital Structure Arbitrage Trading, Ltd., Appellants,v.Mary JEFFRIES and Camille Chee–Awai, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

653 F.3d 755

RITCHIE CAPITAL MANAGEMENT, L.L.C.; Ritchie Special Credit Investments, Ltd.; Rhone Holdings II, Ltd.; Yorkville Investments, I, LLC; and Ritchie Capital Structure Arbitrage Trading, Ltd., Appellants,

v.Mary JEFFRIES and Camille Chee–Awai, Appellees.

No. 10–2568.

United States Court of Appeals, Eighth Circuit.

Submitted: May 10, 2011.Filed: Sept. 6, 2011.

Thomas C. Cronin, argued, John T. Cusack and Steven Scott Shonder, on the brief, Chicago, IL, for appellant.Andrew S. Birrell, argued, Minneapolis, MN, Stacy Ann Broman, Michael Gregory Simpson, Minneapolis, MN, Ian Pitz, Melissa S. Caulum, Madison, WI, Ernesto Rafael Palomo, Terrence Patrick Canade, Chicago, IL, on the brief, for appellee.Before WOLLMAN, BYE, and SHEPHERD, Circuit Judges.BYE, Circuit Judge.

This case represents a fallout from a $3.65 billion Ponzi scheme perpetrated by Minnesota businessman Thomas J. Petters. Ritchie Capital Management, LLC, and the other appellants (collectively, Ritchie) are investment funds who, like other creditors of Petters and his companies, incurred substantial losses as a result of participating in Petters's investment scheme. Neither Petters nor his companies are named as defendants in the present action, however. Instead, Ritchie is suing two officers of Petters's companies, Mary Jeffries and Camille Chee–Awai, alleging they assisted Petters in getting Ritchie to loan over $100 million to PGW by representing the loans would be adequately secured by the assets of the Polaroid Corporation. Ritchie's five-count complaint alleges violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), see 18 U.S.C. § 1962(a), (c)–(d), common law fraud, and tortious interference with the contract.

The omission of Petters and his companies from the case caption is not accidental. They were placed in the receivership proceedings, which are still ongoing in the District of Minnesota, and the receivership court prohibited commencement of any new actions “interfer[ing] with the exclusive jurisdiction of [the receivership court] over the assets or documents of Defendants,” absent leave of the court. Ritchie thought it could bypass this anti-suit injunction if it sued other individuals who, it alleged, were actively involved in the fraud. The district court disagreed, and dismissed Ritchie's case on account of the receivership court's anti-suit injunction. The present appeal followed.

We find the district court erred in concluding Ritchie's action was barred by the Receivership Order. Considered on a textual level, this order did not bar all actions that merely called for interpretation of documents in the receiver's possession unless this exercise ultimately threatened the receivership assets. Nor did the receivership court have the power to cast its anti-suit injunction net that broadly because its equitable powers were circumscribed by its duty to protect the receivership assets. We also reject Jeffries's and Chee–Awai's alternative argument challenging the sufficiency of Ritchie's pleadings in the common law fraud count and choose not to address their arguments related to abstention, lack of causation, and absolute privilege. Accordingly, we reverse the judgment of the district court and remand for further proceedings.

I

Background Information. Understanding this case requires a basic familiarity with the cast of characters involved therein. The two main companies owned by Petters were Petters Group Worldwide, LLC (PGW) and Petters Company, Inc. (PCI). “PCI was the venture capital arm of the Petters enterprises that utilized single purpose entities to obtain billions of dollars of funding, purportedly to acquire merchandise for sale to wholesalers and retailers nationwide. PGW held investments in numerous companies, and its principal asset was its stock in Polaroid.” Ritchie Special Credit Invs., Ltd. v. U.S. Trustee, 620 F.3d 847, 850 (8th Cir.2010). Polaroid Corporation, whose assets were coveted by Ritchie, was indirectly a wholly-owned subsidiary of PGW. The two defendants named in the present case are Mary Jeffries, the President of PGW, the Chief Operating Officer of PGW and PCI, and the Chief Executive Officer of Polaroid, and Camille Chee–Awai, the Chief Executive Officer of Petters Capital, LLC, PGW's subsidiary.

According to Ritchie, Jeffries and Chee–Awai conspired with Petters, “the principal conspirator,” Compl. ¶ 1, to induce Ritchie to loan PGW well over $100 million and then deprive it of its security interest in Polaroid. In making its decision to provide financing to PGW in February 2008 and then to extend maturity dates on the notes in May through September 2008, Ritchie allegedly relied on Jeffries's and Chee–Awai's representations as to the existence, value, and exclusivity of its security interest in Polaroid and the legitimate nature of Petters's businesses in general. Interpreting Illinois law to allow for creation of a valid security interest on the basis of oral agreements alone, Ritchie relies on these representations to assert a security interest in Polaroid assets dating back to Ritchie's first loan to PGW on February 1, 2008.

Yet, Ritchie apparently did not believe in the power of a written word. Rather than demanding from Petters a full-fledged written commitment regarding the security interest in Polaroid from the beginning, Ritchie extended its first $31 million loan on the strength of Petters's personal guaranty alone. Then, on February 19, 2008, Ritchie entered into the Note Purchase Agreement with Petters and PGW, in which Petters also agreed to “endeavor, as soon as reasonably practicable, to secure this Note ... by a pledge of 100% of the capital stock of Polaroid.” Compl. ¶ 58. Ritchie's interest in certain Polaroid assets was finally memorialized on September 19, 2008, when Ritchie and Petters executed agreements extending maturity dates on certain notes evidencing PGW's obligations to Ritchie. Because Polaroid was placed under the bankruptcy protection less than three months later, however, that formal grant of the security interest might prove to be too little too late. This is so because it is vulnerable to being attacked as a preferential transfer.

Receivership Action. On September 24, 2008, just five days after Ritchie got Petters to formally assign the security interest in Polaroid, the federal authorities executed search warrants at PCI's premises and at Petters's house. On October 2, 2008, the government commenced an action pursuant to the Fraud Injunction Statute, 18 U.S.C. § 1345, to preserve the assets held by PCI, PGW, and other related entities, including Polaroid, in the event they are ordered to pay restitution to the victims of the alleged fraud scheme. See United States v. Petters, No. 08–5348 (D.Minn.2008) (Montgomery, J.). Pursuant to the parties' stipulation, the court entered the preliminary injunction freezing the assets of the named defendants and appointing Douglas Kelley as a Receiver, with broad powers of custody, control, and possession of the receivership entities' assets. The court retained exclusive jurisdiction of the matter for all purposes, and enjoined “[a]ny and all actions that would interfere with the exclusive jurisdiction of this Court over the assets or documents of Defendants.” Appellant App'x at 96–97. The anti-suit provision of the order was phrased rather broadly and by its terms applied to third parties:

[E]xcept by leave of this Court, during pendency of the receivership ordered herein, Defendants, and all investors, creditors, stockholders, lessors, customers and other persons seeking to establish or enforce any claim, right, or interest against or on behalf of Defendants, and all others acting for or on behalf of such persons (except the Receiver), are hereby enjoined from taking action that would interfere with the exclusive jurisdiction of this Court over the assets or documents of Defendants, including but not limited to:

...

D. Initiating any other process or proceeding that would interfere with the Receiver's managing or taking custody, control or possession of the assets or documents subject to this Receivership[.]

Appellant App'x at 95–96.

Twice after the Receivership Order was entered, Ritchie sought to intervene, urging the receivership court to exempt PGW and its wholly-owned subsidiary Polaroid from the asset freeze. Both times, the district court disallowed the intervention on account of untimeliness and failure to establish the denial of intervention would impair Ritchie's ability to protect its interests. The Eighth Circuit affirmed the rulings. See United States v. Ritchie Special Credit Invs., Ltd., 620 F.3d 824 (8th Cir.2010).

Criminal Action. In December 2008, a federal grand jury returned an indictment against Petters, PCI, and PGW on charges of mail fraud, wire fraud, money laundering, and conspiracy to commit the same offenses. Petters was convicted of the twenty charges against him and sentenced to fifty years' imprisonment. The appeal from his convictions and sentence is currently pending before this court. See United States v. Thomas Petters, No. 10–1843 (8th Cir., argued Feb. 17, 2011).

Polaroid's Bankruptcy Action. On December 18, 2008, the Receiver filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code (later converted into Chapter 7) on behalf of Polaroid, among other Receivership entities. See In re Polaroid Corp., No. 08–46617 (Bankr.D. Minn., filed Dec. 18, 2008). Kelley was appointed as Chapter 11 trustee for PGW and PCI. ¹ In that capacity, Kelley commenced an adversary proceeding against Ritchie seeking to set aside Ritchie's liens against Polaroid as fraudulent and preferential transfers. In this proceeding, he maintained that “literally days before or after the Ponzi scheme collapsed, Ritchie ... orchestrated a series of transactions targeted at securing the value of Polaroid and other assets owned or controlled by Thomas Petters in a...