Securities and Exchange Commission v. Bartlett, 19622

• Decision Date: 17 February 1970
• Docket Number: No. 19622,19623.,19622
• Citation: 422 F.2d 475
• Parties: SECURITIES AND EXCHANGE COMMISSION, Appellee, v. Ernest A. BARTLETT, Jr., Joe Lee Anderson, E. M. Clem, Gaylord B. Roberson, Joe D. Jeryo, Nyle B. Oswalt, Afton A. Borum, Ralph C. Ingram, Pete Wells, Paul A. Michler, Leslie D. Humphrey, Lawrence T. Davis and Hoyt Borum, Appellants. SECURITIES AND EXCHANGE COMMISSION, Appellee, v. ARKANSAS LOAN AND THRIFT CORPORATION, an Arkansas Corporation; United Loan and Investment Company, an Arkansas Corporation; Savings Guaranty Corporation, an Arkansas Corporation; Ernest A. Bartlett, Hoyt Borum, Afton Borum, Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

422 F.2d 475 (1970)

SECURITIES AND EXCHANGE COMMISSION, Appellee, v. Ernest A. BARTLETT, Jr., Joe Lee Anderson, E. M. Clem, Gaylord B. Roberson, Joe D. Jeryo, Nyle B. Oswalt, Afton A. Borum, Ralph C. Ingram, Pete Wells, Paul A. Michler, Leslie D. Humphrey, Lawrence T. Davis and Hoyt Borum, Appellants.

SECURITIES AND EXCHANGE COMMISSION, Appellee, v. ARKANSAS LOAN AND THRIFT CORPORATION, an Arkansas Corporation; United Loan and Investment Company, an Arkansas Corporation; Savings Guaranty Corporation, an Arkansas Corporation; Ernest A. Bartlett, Hoyt Borum, Afton Borum, Appellants.

Nos. 19622, 19623.

United States Court of Appeals, Eighth Circuit.

February 17, 1970.

Sam Sexton, Jr., of Sexton & Wiggins, Fort Smith, Ark., for appellants in both cases.

Paul Gonson, Asst. Gen. Counsel, Securities and Exchange Comm., Washington, D. C., for appellee; Philip A. Loomis, Jr., Gen. Counsel, David Ferber, Solicitor, and Warren G. Stolusky, Atty., Securities and Exchange Comm., Washington, D. C., and Robert F. Watson, Spec. Counsel, Fort Worth Regional Office, Securities and Exchange Comm., Fort Worth, Tex., on the brief.

Before MATTHES, BLACKMUN and BRIGHT, Circuit Judges.

BRIGHT, Circuit Judge.

In these appeals thirteen former officers, directors and trustees of three Arkansas corporations now administered by a receiver seek to overturn rulings of the district court in connection with that receivership. In No. 19622, they appeal the order denying them the right to "assist" the receiver in collecting accounts owing the defunct corporations; in No. 19623, they appeal the order refusing their motion to vacate the receivership and refer interested parties to the court of bankruptcy as the appropriate forum for further proceedings. The trial court's opinion, Securities & Exchange Commission v. Arkansas Loan & Thrift Corp., 294 F.Supp. 1233 (W.D.Ark.1969), supports the latter order. Our frame of reference is formed from litigation which preceded these questioned orders.

In March of 1968,¹ the Securities and Exchange Commission (SEC) filed an action in the United States District Court for the Western District of Arkansas alleging that defendants Arkansas Loan and Thrift Corporation (AL& T), a corporation engaged in consumer financing with offices in several Arkansas cities, and two of its affiliate companies, United Loan and Investment Company (United) and Savings Guaranty Corporation (Savings),² violated provisions of the Securities Act of 1933³ by using the mails to sell securities not registered with the Commission and to sell securities through fraudulent means.⁴ The SEC also claimed the corporations were insolvent. The trial court, as requested by the SEC, granted immediate relief by temporarily enjoining the defendants, their officers and agents, from engaging in further corporate transactions and appointing a receiver to conserve corporate assets.

Defendants answered, denying the allegations of the complaint and resisting the receivership. However, in a hearing held on September 10, they acknowledged the insolvency of the corporations, consented that the injunction be made permanent and agreed that Lem C. Bryan, the receiver previously appointed by the district court, "proceed with an orderly liquidation of the assets of the defendant corporations". This oral agreement was followed by a formal stipulation executed by the corporations and most of their directors and trustees (including almost all of these appellants). The trial court entered orders conforming to this agreement. This apparent capitulation to the demands of the SEC proved to be shortlived. On October 23, the appellants presented their petition seeking to participate in the liquidation of corporate assets (our No. 19622). The district court denied that petition on November 13. Appellants perfected an appeal from this order on November 27. Thereafter, on December 27, they moved to vacate the receivership (our No. 19623).

At first blush, it appears we lack jurisdiction to consider the first appeal since this ruling probably does not fall within the statutory command limiting our appellate jurisdiction of interlocutory appeals to those orders refusing "to wind up receiverships or to take steps to accomplish the purpose thereof, such as directing sales or other disposals of property". 28 U.S.C. § 1292 (a) (2). See Wark v. Spinuzzi, 376 F.2d 827 (5th Cir. 1967); Kindy v. Koenke, 216 F.2d 907 (8th Cir. 1954). However, the issue of the trial judge's bias and prejudice urged as the only ground for reversal in the appellants' first appeal is also raised in their second, from the order denying the motion to vacate the receivership. The latter order is specifically made appealable under § 1292(a) (2). Since appeal No. 19623 (vacation of receivership) permits us to consider all issues, we turn to it.

Appellants urge that the trial court erred in directing the receiver to liquidate the defendant corporations as well as claiming that Judge Miller's bias and prejudice require another judge to reconsider the appellants' motion to vacate the receivership.

Though appellants speak of an objection to the court-ordered liquidation of the corporations on jurisdictional grounds, the cases which they cite decide such issues in terms of propriety of the order. Appellants here mount no assault on the general, broad equity powers possessed by federal courts.⁵ They rely principally on Los Angeles Trust Deed & Mortgage Exchange v. Securities & Exchange Commission, 285 F.2d 162 (9th Cir.), cert. denied, 366 U.S. 919, 81 S.Ct. 1095, 6 L.Ed.2d 241 (1961). There, the SEC charged three interrelated investment corporations with violation of federal securities laws, including selling securities by fraudulent means and selling unregistered securities. The plaintiff sought injunctive relief and appointment of a receiver to conserve and liquidate defendants' assets. The Ninth Circuit approved that part of the district court's order empowering the receiver to conserve,⁶ but disapproved its further direction to liquidate, reasoning:

"The trial court has found insolvency in the bankruptcy sense, but there is no apparent reason here why the violation of the Securities Act and the Securities Exchange Act should lead to a different type of final liquidation than that which is had for the normal corporate bankrupt. In true bankruptcy, procedures are better geared for creditors and depositors to give them a day in court and protect their rights. Also, the Bankruptcy Act (11 U.S.C.A. § 1 et seq.) has provisions for reorganization.

* * * * * *

However, a receiver does seem required. But, we are not yet willing to order liquidation. That would establish perhaps generally a special additional penalty for failure to comply with the two Acts of Congress with which we were here concerned and we doubt that this was within the contemplation of Congress. We do not hold that liquidation can not ever be effected. Possibly some circumstances might arise which would justify such a result. And, it could even eventuate in this case, but we hold `not now.\'" 285 F.2d at 182.

Also, appellants refer us to Esbitt v. Dutch-American Mercantile Corp., 335 F.2d 141 (2d Cir. 1965). There, in defense of a suit brought by the receiver to collect obligations owing the corporation, a debtor asserted the receiver lacked power to collect the insolvent's assets. A portion of the court's opinion on which appellees rely reads:

"We see no reason why violation of the Securities Act should result in the liquidation of an insolvent corporation via an equity receivership instead of the normal bankruptcy procedures, which are much better designed to protect the rights of interested parties." 335 F.2d at 143.

However, the court rejected the defense, concluding:

"* * * The receivership has progressed almost to completion without objection and it would apparently not be in the interests of the parties to direct that further proceedings be diverted into bankruptcy channels." 335 F.2d at 143.

The observations of the Second and the Ninth Circuits in these two cases enunciate the familiar equity rule that the federal courts should sparingly exercise their powers to appoint receivers and to administer and liquidate corporations.⁷ Whether it is appropriate to do so depends on the underlying circumstances.

The record before Judge Miller disclosed that after July, 1965, the defendant AL&T had issued more than four million dollars worth of interest-bearing bond investment certificates, many of them to innocent members of the public who apparently thought they were investing in savings accounts similar to those provided by banks and savings and loan associations. AL&T's advertising materials represented that these investments, "thrift savings accounts", were each insured to $25,000.00 and earned the highest available interest (5¾%) with "insured safety". More than 2,100 persons in Arkansas and surrounding states held such securities interests in AL&T and the record reflects that the court was concerned that these creditors' claims be processed and paid to the extent possible, as rapidly as possible.⁸

In denying appellants' motion to vacate the receivership, Judge Miller determined:

(1) Appellants' motion raises no new issue of fact. The court's order of September 23, based on the September 10 proceedings, determined that the interests of the creditors and others are best served by the receiver liquidating the defendant corporations.

(2) As the court has already found, defendants have violated the securities laws and they are insolvent; their former officers, directors and trustees (including some of the appellants) have mismanaged these corporations.

(3) The movants' activities demonstrate lack of cooperation with the receiver in his efforts to promptly liquidate the corporations' assets. Among other things, they still owe personal debts to the corporations.

(4) The receiver shows progress in his efforts to liquidate the...