S.E.C. v. Flight Transp. Corp., s. 82-1964

• Decision Date: 02 February 1983
• Docket Number: Nos. 82-1964,82-1976,s. 82-1964
• Citation: 699 F.2d 943
• Parties: Fed. Sec. L. Rep. P 99,083 SECURITIES AND EXCHANGE COMMISSION, Appellee, v. FLIGHT TRANSPORTATION CORPORATION, FTC Executive Air Charter, Inc., FTC Cayman, Ltd., and William Rubin, Appellees, Greyhound Leasing & Financial Corporation, Appellant. SECURITIES AND EXCHANGE COMMISSION v. FLIGHT TRANSPORTATION CORPORATION, FTC Executive Air Charter, Inc., FTC Cayman, Ltd., and William Rubin, Appellees, Joyce Rubin, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 943

699 F.2d 943

Fed. Sec. L. Rep. P 99,083

SECURITIES AND EXCHANGE COMMISSION, Appellee, v. FLIGHT TRANSPORTATION CORPORATION, FTC Executive Air

Charter, Inc., FTC Cayman, Ltd., and William

Rubin, Appellees,

Greyhound Leasing & Financial Corporation, Appellant.

SECURITIES AND EXCHANGE COMMISSION v. FLIGHT TRANSPORTATION CORPORATION, FTC Executive Air

Charter, Inc., FTC Cayman, Ltd., and William

Rubin, Appellees,

Joyce Rubin, Appellant.

Nos. 82-1964, 82-1976.

United States Court of Appeals,

Eighth Circuit.

Submitted Nov. 10, 1982.

Decided Feb. 2, 1983.

Robins, Zelle, Larson & Kaplan, Howard A. Patrick, Robert M. Wattson, Carol L. Thacher, Faegre & Benson, Duane W. Krohnke, Minneapolis, Minn., for appellant Joyce Rubin.

Gray, Plant, Mooty, Mooty & Bennett, Edward J. Callahan, Jr., Thomas Darling, John L. Krenn, Minneapolis, Minn., for Greyhound Leasing & Financial Corp.

Meshbesher, Singer & Spence, Ltd., Gerald M. Singer, Daniel J. Boivin, Minneapolis, Minn., for appellee William Rubin.

Jack L. Chestnut, Chestnut & Brooks, P.A., Minneapolis, Minn., Daniel Krasner, Wolf, Haldenstein, Adler, Freeman & Herz, New York City, John A. Cochrane, Cochrane & Bresnahan, St. Paul, Minn., Lowell E. Sachnoff, Charles R. Watkins, Sachnoff, Weaver & Rubenstein, Ltd., Chicago, Ill., Thomas P. Gallagher, Minneapolis, Minn., for class plaintiffs.

Jacob H. Stillman, Associate Gen. Counsel, Richard A. Kirby, Senior Sp. Counsel, Sarah A. Miller, Elliot M. Pinta, Attys., S.E.C., Washington, D.C., for appellee S.E.C.; Paul Gonson, Sol., Washington, D.C., of counsel.

O'Connor & Hannan, Kevin M. Busch, Thomas C. Bartsh, Minneapolis, Minn., for appellee Flight Transp. Corp.

Before ARNOLD, Circuit Judge, HENLEY, Senior Circuit Judge, and DUMBAULD, ^* District Judge.

ARNOLD, Circuit Judge.

Greyhound Leasing & Financial Corporation (Greyhound) and Joyce Rubin appeal from the District Court's denial of their motions to intervene as of right in an SEC enforcement action. We reverse.

I.

Flight Transportation Corporation (FTC), a Minnesota corporation, acts as a holding company for its two subsidiary corporations, FTC Executive Air Charter, Inc., and FTC Cayman, Ltd., which provide aircraft-charter and other general-aviation services. For several years, William Rubin has been President, Chairman of the Board of Directors, and chief executive officer of these corporations.

The Securities and Exchange Commission commenced this action against FTC, its subsidiaries, and Rubin on June 18, 1982, alleging that the defendants had violated and aided and abetted violations of antifraud, reporting, and recordkeeping provisions of the federal securities laws. ¹ The Commission sought an injunction prohibiting further violations by the defendants of these provisions. It also sought appointment of a receiver to take possession of and marshal the assets of FTC and its subsidiaries, an accounting of all proceeds of FTC's allegedly fraudulent securities offerings, and an order of disgorgement ² of all funds received by FTC as a result of those sales of securities. With respect to defendant Rubin, the Commission sought a temporary freeze of his personal assets other than funds deemed necessary by the court for subsistence, an accounting by Rubin of all funds received from FTC and its subsidiaries, and disgorgement of such funds.

The District Court entered a temporary restraining order enjoining the defendants from committing further violations of the securities laws and from disposing of any assets. ³ Next, the court appointed a receiver to take control of FTC and its subsidiaries and stayed, until further order, all court actions regarding the proceeds of FTC's public offerings of securities. These proceeds, which comprised substantially all of FTC's assets, ⁴ included approximately $22 million, raised from two public offerings in June 1982.

Shortly thereafter, on June 23, 1982, two underwriters, ⁵ on their own behalf and on behalf of all persons who purchased FTC's securities in the June 1982 offerings, commenced a class action seeking, among other things, imposition of a constructive trust on the $22 million in proceeds. Next, on June 29, 1982, several creditors ⁶ of FTC filed an involuntary bankruptcy petition against FTC in the Bankruptcy Court for the District of Minnesota. Apparently in response to that bankruptcy filing, the District Court, on July 2, 1982, amended its stay order specifically to stay all bankruptcy proceedings against FTC or Rubin and all proceedings in any state or federal court against Rubin, FTC, and its subsidiaries. After the stay order was entered, Greyhound ⁷ and Joyce Rubin, ⁸ the appellants, moved to intervene as of right in the SEC action.

Greyhound had leased two airplanes to FTC for a term of ten years at a monthly rental of approximately $75,000. The receiver took possession of both planes but did not pay the rent for June, July, and August 1982 or the required state registration fee on one of the planes. ⁹ In denying Greyhound's motion to intervene, the District Court said that Greyhound could file a complaint in a federal court against FTC on the debt, separate from the SEC action. Apparently, though, nothing could be done beyond the filing of a complaint. The court continued,

But I have not said that you can foreclose on collateral or anything like that; however, file your case and get in here, and you can be in the same boat as these other people, and you can join in these deliberations.

I am going to deny your motion to intervene.

Joint Appendix (Jt.App.) at 382.

On August 16, 1982, the court entered a written order denying Greyhound's motion to intervene:

This Court finds that petitioner's motion to intervene is premature, as it does not allege a present, direct interest but rather a possible interest which may hypothetically be injured if particular events do not occur. Further, petitioner has failed to meet the requirements of Rule 24(a)(2) of the Federal Rules of Civil Procedure in that it has not shown that its interests will be adversely affected by the outcome of the proceedings herein as the stay order entered by this Court and the appointment of a Receiver serve to adequately protect the petitioner's interest.

Jt.App. at 141. ¹⁰

The other appellant, Joyce Rubin, after she filed an action for divorce in a state court against William Rubin, moved to intervene in the SEC action and for a modification of the stay order so that her divorce action could proceed. In denying the motion to intervene, the court held:

that the requirements of Rule 24(a)(2) have not been met insofar as petitioner Rubin has been unable to show that the disposition of the instant matter will, as a practical matter, impair or impede her ability to protect her interest.... Furthermore, this motion is denied as there is no intervention as a matter of right in Securities and Exchange Commission actions. Securities and Exchange Commission v. Everest Management Corp., 475 F.2d 1236 (2d Cir.1972); Securities and Exchange Commission v. Canadian Javelin Ltd., 58 F.R.D. 182 (S.D.N.Y.1973). And as intervention would unnecessarily complicate the issues in this action, it is denied. Parklane Hosiery Co. Inc. v. Shore, 439 U.S. 322 [99 S.Ct. 645, 58 L.Ed.2d 552] (1979).

Jt.App. at 140. The court explained the extent of its ruling at the hearing on the motion, saying, "We won't pay any money over until she is heard, one way or another. However, I am not going to let her intervene now." Jt.App. at 329. With regard to her request that the divorce action be allowed to proceed, the court modified its stay order so that the Rubins' marriage could be dissolved. However, no property interests were to be adjudicated in the state courts:

[G]et the divorce, talk about child custody, talk about what he may or may not owe her; however, in the context of what his assets are in this company, I am not going to allow any adjudication of that. We will make that decision--what his assets are and what her assets are--that will be done in this court.

Jt.App. at 325-26. Thus, the court ordered that "[a]ll aspects of the marriage dissolution relating to property settlement ... be held in abeyance pending the outcome of the above-named [SEC] action." Jt.App. at 140.

Because we believe that both appellants were entitled to intervene, we reverse.

II.

Under Rule 24(a)(2) an applicant for intervention as of right must show (1) that he "claims an interest relating to the property or transaction which is the subject of the action," (2) that "he is so situated that the disposition of the action may as a practical matter impair or impede his ability to protect that interest," and (3) that his "interest is [not] adequately represented by existing parties." Fed.R.Civ.P. 24(a)(2). ¹¹ Our reasons for concluding that these requirements have been satisfied will be set out for each appellant in turn.

A.

The appellees argue that Greyhound has no interest in the question of the defendants' liability for violation of the federal securities laws. This argument fails to recognize, however, that if its claims are to be satisfied, Greyhound must as a practical matter look to the $22 million presently in the hands of the receiver, which is virtually the only property FTC now has and which the SEC seeks to have "disgorged."

Likewise, the appellees argue that Greyhound's unliquidated creditor's claim against FTC is insufficient to support intervention. When the District Court denied intervention, however, Greyhound had a specific property interest: a reversionary interest, as lessor, in the airplanes, which were then in the receiver's possession. Then, with the District Court's approval, the receiver returned the planes to Greyhound, and Greyhound now has only an unliquidated claim for damages for breach of the lease. Even though a creditor with an unliquidated claim cannot generally intervene in an action brought by another creditor, but must bring his own,...