Securities Investor Protection Corp. v. Ambassador Church Finance/Development Group, Inc., s. 85-5132
| Decision Date | 23 April 1986 |
| Docket Number | Nos. 85-5132,85-5133,s. 85-5132 |
| Citation | 788 F.2d 1208 |
| Parties | , Fed. Sec. L. Rep. P 92,708 SECURITIES INVESTOR PROTECTION CORPORATION, Plaintiff, v. AMBASSADOR CHURCH FINANCE/DEVELOPMENT GROUP, INC., Defendant, SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. AMBASSADOR CHURCH FINANCE/DEVELOPMENT GROUP, INC. and Henry C. Atkeison, Jr., Defendants, PINE STREET BAPTIST CHURCH, First Church of the Nazarene, Randall Memorial Free Will Baptist Church, Fairwinds Baptist Church, Southmoor Baptist Church, Westwood Baptist Church, West Gate Baptist Church, First Church of God, First Missionary Baptist Church, Christian Schools, Inc. d/b/a Good Pasture Christian Schools, and Theatre Nashville, Inc., Claimants-Appellees, v. SECURITIES INVESTOR PROTECTION CORPORATION, Defendant-Appellant, Fred D. Bryan, Trustee-Appellee. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Theodore H. Focht, Washington, D.C., Stephen Harbeck (argued), for defendant-appellant.
Julie N. Jones, L. Wearen Hughes (argued), Nashville, Tenn., for Fred D. Bryan.
Frank C. Ingraham, David S. Zinn, Bradley A. MacLean (argued), Robert D. Tuke, Farris, Warfield & Kanaday, Nashville, Tenn., for West Gate Baptist Church.
Seymour Samuels, Jr., Nashville, Tenn., for Theatre Nashville, Inc.
Before: KENNEDY and RYAN, Circuit Judges, and CELEBREZZE, Senior Circuit Judge.
This case arises out of the liquidation of Ambassador Church Finance/Development Group, Inc. ("Ambassador") under the Securities Investor Protection Act of 1970 ("SIPA"), as amended, 15 U.S.C. Secs. 78aaa-78lll. 1 The SIPA created defendant-appellant, Securities Investor Protection Corporation ("SIPC"), and established the "SIPC Fund" to provide for the orderly liquidation of failed securities brokerage firms and for the financial protection of their customers. Under the SIPA, the SIPC maintains the SIPC Fund by levying assessments on almost all brokerage firms. When necessary, the SIPC satisfies the claims of the "customers" of a bankrupt broker-dealer for cash or securities out of the SIPC Fund. 2
Acting upon the application of the Securities and Exchange Commission ("SEC"), the United States District Court for the Middle District of Tennessee appointed trustee-appellee, Fred D. Bryan ("the trustee"), as temporary receiver of Ambassador on November 7, 1974. On December 17, 1974, the District Court found that Ambassador's customers needed the protections of the SIPA and appointed Bryan as trustee to supervise Ambassador's liquidation. In January 1975, the trustee sent a notice to Ambassador's customers, including plaintiffs-appellees, instructing the customers to file their claims with the trustee. Plaintiffs-appellees promptly filed their claims. In April 1975, the trustee asked the SIPC to determine whether plaintiffs-appellees and other similarly situated claimants qualified as "customers" under 15 U.S.C. Sec. 78lll (2). On May 7, 1975, the District Court entered an order authorizing and directing the SIPC to advance, from time to time, to the trustee sufficient funds to permit the trustee to satisfy the claims that customers had filed against the estate. On June 2, 1975, the SIPC advanced funds to the trustee to satisfy the claim of another customer which the SIPC did not dispute.
In April 1976, after considerable delay, the SIPC determined that plaintiffs-appellees did not qualify as "customers" under the SIPA. Plaintiffs-appellees filed objections to the SIPC rejection of their claims and asserted entitlement to "customer" status. The SIPC, the trustee and plaintiffs-appellees proceeded to litigate the claim of Pine Street Baptist Church ("Pine Street") as a "test case" on the issue whether plaintiffs-appellees qualified as "customers." On January 9, 1981, the District Court entered an order declaring that Pine Street qualified as a "customer" under the SIPA and was entitled to the full amount of its claim. In re Atkeison, 446 F.Supp. 844 (M.D.Tenn.1977). SIPC and the trustee appealed. On May 27, 1982, this Court affirmed the District Court's decision. Securities and Exchange Commission v. Ambassador Church Finance/Development Group, Inc., 679 F.2d 608 (6th Cir.1982). When the trustee and the SIPC could not agree whether plaintiffs-appellees were entitled to interest during the previous proceedings, an additional delay occurred before the SIPC paid plaintiffs-appellees' "customer" claims. Finally, in November 1982, the SIPC advanced funds to the trustee to satisfy some of plaintiffs-appellees' claims. In February 1983, the SIPC advanced more funds to pay the remaining claims.
Plaintiffs-appellees brought this action directly against the SIPC to recover interest on their claims for the seven and one-half year period that the SIPC had delayed in paying their claims. The SIPC filed a motion to join trustee-appellee as a defendant. The District Court granted the motion. On November 5, 1984, the District Court, following a short trial, held that plaintiffs-appellees could recover interest directly from the SIPC. The District Court's order gave plaintiffs-appellees ten days to submit calculations showing the amount of interest due. On January 9, 1985, the District Court ordered the SIPC to pay the following amounts of interest directly to plaintiffs-appellees by January 31, 1985:
Pine Street Baptist Church $12,515.61
First Church of the Nazarene 11,375.80
First Church of God 10,201.40
Theatre Nashville, Inc. 10,201.40
First Missionary Baptist Church 18,891.50
West Gate Baptist Church 48,136.24
Randall Memorial Free Will Baptist
Church 48,594.40
Southmoor Baptist Church 14,690.07
Fairwinds Baptist Church 14,335.35
Westwood Baptist Church 35,107.25
Christian Schools, Inc. 8,602.17
The District Court awarded six percent per annum interest compounded annually for the period from June 2, 1975, the date when the SIPC first advanced money to the trustee to pay a "customer" claim that the SIPC did not contest, to March 31, 1979. The District Court awarded ten percent annual interest compounded annually for the period from April 1, 1979 to the date of judgment. The SIPC objected to any compounding of interest.
The SIPC raises three issues on appeal: (1) Whether the District Court erred in awarding interest to plaintiffs-appellees for the seven and one-half year period that the SIPC withheld funds from plaintiffs-appellees while unsuccessfully challenging plaintiffs-appellees' claims as "customers" under the SIPA; (2) Whether the District Court could award "compound interest;" and (3) Whether the District Court should have subrogated the SIPC to the rights of plaintiffs-appellees to the extent of any interest payments that the SIPC makes to plaintiffs-appellees. 3 For the reasons stated below, we hold that the District Court erred in awarding interest to plaintiffs-appellees. In light of this disposition, we do not consider the second and third issues.
Initially, we note that the District Court should have dismissed the action because plaintiffs-appellees, as customers, could not bring an action directly against the SIPC. In Securities Investor Protection Corp. v. Barbour, 421 U.S. 412, 95 S.Ct. 1733, 44 L.Ed.2d 263 (1975), the Supreme Court held that the SIPA does not give customers of failing broker-dealers an implied private cause of action to compel the SIPC to take action under the SIPA. In this case, plaintiffs-appellees brought suit against the SIPC. Consequently, the District Court should have dismissed the action because the SIPA does not give plaintiffs-appellees a cause of action against the SIPC.
In addition, the SIPC argues that since liquidation under the SIPA parallels a bankruptcy proceeding, the District Court could award interest against Ambassador's estate only if the estate's assets were sufficient to satisfy the principal amount of all valid claims against the estate. Essentially, a liquidation under the SIPA is a bankruptcy proceeding. Title 15 U.S.C. 78fff(b) provides:
To the extent consistent with the provisions of this chapter, a liquidation proceeding shall be conducted in accordance with, and as though it were being conducted under chapters 1, 3, and 5 and subchapters I and II of chapter 7 of Title 11. For the purposes of applying such title in carrying out this section, a reference in such title to the date of filing of the petition shall be deemed to be a reference to the filing date under this chapter.
Under bankruptcy law, with certain exceptions not applicable in this case, a court cannot award post-petition interest against the debtor's estate unless a surplus exists. 4 In Nicholas v. United States, 384 U.S. 678, 86 S.Ct. 1674, 16 L.Ed.2d 853 (1966), the Supreme Court stated: "It is a well-settled principle of American bankruptcy law that in cases of ordinary bankruptcy, the accumulation of interest on claims against a bankrupt estate is suspended as of the date the petition in bankruptcy is filed." Id. at 682, 86 S.Ct. at 1678 (citation omitted). In Vanston Bondholders Protective Committee v. Green, 329 U.S. 156, 163, 67 S.Ct. 237, 240, 91 L.Ed. 162 (1946), the Supreme Court explained the reason for the rule:
Exaction of interest, where the power of a debtor to pay even his contractual obligations is suspended by law, has been prohibited because it was considered in the nature of a penalty imposed because of delay in prompt payment--a delay necessitated by law if the courts are properly to preserve and protect the estate for the benefit of all interests involved.
Furthermore, the rule reflects "the broad equitable principle that creditors should not be disadvantaged vis-a-vis one another by legal delays attributable solely to the time-consuming procedures inherent in the administration of the bankruptcy laws." Nicholas v....
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