State ex re. Foy v. Austin Capital Mgmt., Ltd.

• Decision Date: 25 June 2015
• Docket Number: 34,013.
• Citation: 2015 NMSC 025,355 P.3d 1
• Parties: STATE of New Mexico, Plaintiff, ex rel., Frank C. FOY and Suzanne B. Foy, qui tam Plaintiffs, Plaintiffs–Petitioners and Cross–Respondents, v. AUSTIN CAPITAL MANAGEMENT, LTD, Austin Capital Management GP Corporation, Charles W. Riley, Brent A. Martin, David E. Friedman, Will Jason Rottinger, Victory Capital Management, Inc., Keycorp, Berean Capital, Dudley Brown, Tremont Partners, Inc., Tremont Capital Management, Inc., Tremont Group Holdings, Inc., Oppenheimer Funds, Inc., Gary Bland, David Contarino, Bruce Malott, Meyners + Company, Marc Correra, Anthony Correra, Sandia Asset Management, Alfred Jackson, Davis Hamilton and Jackson, Guy Riordan, Juniper Capital, Eileen Kotecki, Dan Hevesi, Henry “Hank” Morris, Julio Ramirez, Paul Cross, Crosscore Management, SDN Investors, Psilos Group, Albert Waxman, Jeffrey Krauss, Stephen Krupa, David Eichler, Darlene Collins, Wetherly Capital Group, Dan Weinstein, Vicky Schiff, Quadrangle Group, Aldus Equity, Saul Meyer, Marcellus Taylor, Matthew O'Reilly, Richard Ellman, Deutsche Bank, Diamond Edge Capital, Marvin Rosen, Carlyle Mezzanine Partners, Carlyle Group, DB Investment Managers, Topiary Trust, Park Hill Group, Dan Prendergast, Catterton Partners, Blackstone Group, Gold Bridge Capital, Darius Anderson, Kirk Anderson, Ares Management, Inroads Group, Camden Partners, HFV, Barrett Wissman, Tag, Ajax Investments, Clayton Dubilier and Rice, Intermedia, Leo Hindery, William R. Howell, Cabrera Capital, Martin Cabrera, Crestline Investors, John Doe # 1 and John Doe # 3 through # 50, Defendants–Respondents and Cross–Petitioners.
• Court: New Mexico Supreme Court

355 P.3d 1
2015 NMSC 025

STATE of New Mexico, Plaintiff, ex rel., Frank C. FOY and Suzanne B. Foy, qui tam Plaintiffs, Plaintiffs–Petitioners and Cross–Respondents
v.
AUSTIN CAPITAL MANAGEMENT, LTD, Austin Capital Management GP Corporation, Charles W. Riley, Brent A. Martin, David E. Friedman, Will Jason Rottinger, Victory Capital Management, Inc., Keycorp, Berean Capital, Dudley Brown, Tremont Partners, Inc., Tremont Capital Management, Inc., Tremont Group Holdings, Inc., Oppenheimer Funds, Inc., Gary Bland, David Contarino, Bruce Malott, Meyners + Company, Marc Correra, Anthony Correra, Sandia Asset Management, Alfred Jackson, Davis Hamilton and Jackson, Guy Riordan, Juniper Capital, Eileen Kotecki, Dan Hevesi, Henry “Hank” Morris, Julio Ramirez, Paul Cross, Crosscore Management, SDN Investors, Psilos Group, Albert Waxman, Jeffrey Krauss, Stephen Krupa, David Eichler, Darlene Collins, Wetherly Capital Group, Dan Weinstein, Vicky Schiff, Quadrangle Group, Aldus Equity, Saul Meyer, Marcellus Taylor, Matthew O'Reilly, Richard Ellman, Deutsche Bank, Diamond Edge Capital, Marvin Rosen, Carlyle Mezzanine Partners, Carlyle Group, DB Investment Managers, Topiary Trust, Park Hill Group, Dan Prendergast, Catterton Partners, Blackstone Group, Gold Bridge Capital, Darius Anderson, Kirk Anderson, Ares Management, Inroads Group, Camden Partners, HFV, Barrett Wissman, Tag, Ajax Investments, Clayton Dubilier and Rice, Intermedia, Leo Hindery, William R. Howell, Cabrera Capital, Martin Cabrera, Crestline Investors, John Doe # 1 and John Doe # 3 through # 50, Defendants–Respondents and Cross–Petitioners.

34,013.

Supreme Court of New Mexico.

June 25, 2015.

355 P.3d 4

Victor R. Marshall & Associates, P.C., Victor R. Marshall, Albuquerque, NM, for Petitioners and Cross–Respondents.

FallickLaw, Ltd., Gregg Vance Fallick, Esquivel Law Firm, LLC, Martin R. Esquivel, Albuquerque, NM, Basham & Basham, P.C., Katherine Ann Basham, Santa Fe, NM, for Respondent and Cross–Petitioner, Bruce Malott.

Rodey, Dickason, Sloan, Akin & Robb, P.A., Andrew G. Shultz, Albuquerque, NM, Fried, Frank, Harris, Shriver & Jacobson, LLP, Peter L. Simmons, New York, NY, for Respondents and Cross–Petitioners, Topiary Trust and DB Investment Managers, Inc.

Simone, Roberts & Weiss, P.A., Norman F. Weiss, Albuquerque, NM, for Respondent and Cross–Petitioner David Contarino.

Montgomery & Andrews, P.A., Stephen S. Hamilton, Santa Fe, NM, for Respondent and Cross–Petitioner, Gary Bland.

The Law Offices of Erica E. Anderson, Erica Anderson, Albuquerque, NM, for Respondent and Cross–Petitioner, Guy Riordan.

OPINION

MAES, Justice.

{1} In this case, we address whether the retroactive application of the Fraud Against Taxpayers Act, NMSA 1978, Sections 44–9–1 to –14 (2007) ( “FATA” or “the Act”) violates the Ex Post Facto Clauses of the United States and New Mexico Constitutions. See U.S. Const. art. 1, § 10, cl. 1 ; N.M. Const. art. 2, § 19. We hold that FATA is constitutional. The treble damages under FATA are predominantly compensatory and may be applied retroactively to conduct that occurred prior to its effective date. We decline to resolve the issue of whether the civil penalties awarded under FATA are punitive and violate ex post facto principles until there is a definitive amount awarded.

BACKGROUND

{2} This appeal concerns the second of two qui tam actions filed by former New Mexico Education Retirement Board (“ERB”) Chief Investment Officer Frank Foy and his wife Suzanne Foy (“Foys”), attacking the management of the investment portfolios of the ERB and of the New Mexico State Investment Council (“SIC”). The Foys “allege that Defendants—who include Wall Street firms and investment advisors, as well as high-ranking state officials—executed fraudulent schemes that led to the loss of hundreds of millions of dollars at the expense of the [SIC] and the [ERB].” State ex rel. Foy v. Austin Capital Mgmt., Ltd., 2013–NMCA–043, ¶ 2, 297 P.3d 357.

{3} A qui tam action is “[a]n action brought under a statute that allows a private person to sue for a penalty, part of which the government ... will receive.” Black's Law Dictionary 1262 (7th ed.1999). The Foys

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filed their first qui tam action, State ex rel. Foy v. Vanderbilt Capital Advisors, LLC, D–101–CV–2008–1895 (“Vanderbilt ”), pursuant to FATA in the First Judicial District Court on July 14, 2008. That complaint included allegations of misconduct dating back to 2003, predating the enactment of FATA in 2007. Section 44–9–12(A) of FATA allows a qui tam plaintiff to bring a civil action for conduct that occurred prior to the effective date of that Act. District Judge Stephen Pfeffer issued a sua sponte order expressing concern “that there may be ex post facto implications arising from the retroactive application of the Act[.]” Following briefing, the district court issued an order dismissing the Foys' claims, finding that the retroactive application of FATA, as authorized by Section 44–9–12(A), was unconstitutional. The district court specifically pointed to the award of treble damages and concluded that the Act “is punitive in purpose or effect.” In order to save the statute, the district court severed the retroactive application language from Section 44–9–12(A), leaving the rest of the statute intact, including treble damages, but inapplicable to anything that occurred prior to 2007, which would exclude from this lawsuit most, if not all, of what allegedly occurred.

{4} Three months after the complaint in Vanderbilt was unsealed, the Foys filed a complaint under FATA against Austin Capital Management and several other defendants also in the First Judicial District Court. After a series of recusals, excusals, and administrative assignments, all of the judges of the First Judicial District were excused. This Court appointed Judge John Pope to preside over the case.

{5} The Foys raised the retroactivity issue with Judge Pope, seeking a ruling that FATA is constitutional. In response, Defendants Park Hill Group, Blackstone Group, and Prendergast provided Judge Pope with a copy of Judge Pfeffer's previous ruling that the retroactive application of FATA is unconstitutional and asked for a similar ruling. On July 8, 2011, Judge Pope ruled that the retroactive application of FATA is unconstitutional and explicitly “adopt[ed] and incorporate[d] the reasoning and analysis” contained in Judge Pfeffer's earlier decision. The Court of Appeals granted leave for the Foys to file an interlocutory appeal. The Court of Appeals affirmed “the district court's legal conclusion that retroactive application of FATA is unconstitutional and the court's decision to sever the retroactive aspects from the statute.” See Foy, 2013–NMCA–043, ¶ 52, 297 P.3d 357. This appeal and cross-appeal follow.

DISCUSSION

I. The Attorney General's Prior Knowledge of Incriminating Information Does Not Bar the District Court From Proceeding in Austin Capital

{6} Before addressing the issue of the retroactivity of FATA, we first address the issue of subject matter jurisdiction raised by Cross-petitioner Bruce Malott. See Wilson v. Denver, 1998–NMSC–016, ¶ 8, 125 N.M. 308, 961 P.2d 153 (“Prior to addressing the substantive issue certified for interlocutory appeal, we raise, sua sponte, the question whether the district court had subject matter jurisdiction over these election contests.”). Malott argues that the district court lacked subject matter jurisdiction over the Foys' second-filed FATA action, Austin Capital. Malott's most salient argument is that the district court was barred under FATA from hearing Austin Capital. See § 44–9–9(B) (“No court shall have jurisdiction over an action ... against an elected or appointed state official ... if the action is based on evidence or information known to ... the attorney general when the action was filed.”) The district court tentatively rejected this argument. See Foy, 2013–NMCA–043, ¶ 4, 297 P.3d 357. The Court of Appeals declined to address the issue of subject matter jurisdiction, holding that “both arguments would benefit from factual developments and legal arguments to the court below.” Id. ¶ 5.

{7} In determining whether a court has subject matter jurisdiction, we “ask whether [the matter before the court] falls within the general scope of authority conferred upon such court by the constitution or statute.” State v. Chavarria, 2009–NMSC–020, ¶ 11, 146 N.M. 251, 208 P.3d 896 (alteration in original, internal quotation marks and citation omitted). “The source of a district

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court's subject matter jurisdiction derives from the New Mexico Constitution.” Lu v. Educ. Trust Bd. of N.M., 2013–NMCA–010, ¶ 9, 293 P.3d 186. Under Article VI, Section 13 of the New Mexico Constitution, “[t]he district court shall have original jurisdiction in all matters and causes not excepted in this constitution, and such jurisdiction of special cases and proceedings as may be conferred by law....” Id. (emphasis added). In other words, “New Mexico district courts are courts of general jurisdiction having the power to hear all matters not excepted by the constitution and those matters conferred by law.” Lyndoe v. D.R. Horton, Inc., 2012–NMCA–103, ¶ 12,...