USA v. Ritchie Special Credit Inv.s
| Decision Date | 02 September 2010 |
| Docket Number | No. 09-2528.,09-2528. |
| Citation | 620 F.3d 824 |
| Parties | UNITED STATES of America, Plaintiff-Appellee, v. RITCHIE SPECIAL CREDIT INVESTMENTS, LTD.; Rhone Holdings II, Ltd.; Yorkville Investments I, LLC; Ritchie Capital Structure Arbitrage Trading, Ltd.; Ritchie Capital Management, LLC, Movants-Appellants, Thomas Joseph Petters, dba Petters Company, Inc., dba Petters Group Worldwide, LLC, dba PCI; Deanna Coleman, also known as Deanna Munson; Robert White; James Wehmhoff; Larry Reynolds, dba Nationwide International Resources, also known as NIR; Michael Catain, dba Enchanted Family Buying Company; Frank E. Vennes, Jr., dba Metro Gem Finance, dba Metro Gem Inc., dba Grace Offerings of Florida LLC, dba Metro Property Financing, LLC, dba 38 E. Robinson, LLC, dba 55 E. Pine, LLC, dba Orlando Rental Pool, LLC, dba 100 Pine Street Property, LLC, dba Orange Street Tower, LLC, dba Cornerstone Rental Pool, LLC, dba 2 South Orange Avenue, LLC, dba Hope Commons, LLC, dba Metro Gold, Inc., Defendants-Appellees, Allen J. Munson, Movant-Appellee, Minnwest Bank M.V; Minnwest Bank Metro, Intervenors-Appellees, Douglas Arthur Kelley, Receiver-Appellee, Gary Hansen, Receiver-Appellee. |
| Court | U.S. Court of Appeals — Eighth Circuit |
OPINION TEXT STARTS HERE
Timothy D. Kelly, argued, Minneapolis, MN, Max H. Kieley, Sarah E. Bushnell, Jennifer S. Wilson, Minneapolis, MN, Brenda Grantland, Mill Valley, CA, on the brief, for appellants.
David W. Fuller, AUSA, argued, Robyn Ann Millencker, AUSA, Ana H. Voss, on the brief, Minneapolis, MN, for appellee.
Before WOLLMAN, SMITH, and BENTON, Circuit Judges.
Ritchie Special Credit Investments, Ltd., et al. (collectively, “Ritchie”) twice sought to intervene into an adversary proceeding initiated by the government pursuant to 18 U.S.C. § 1345 against Minnesota businessman Thomas J. Petters, certain businesses that Petters owned, including Petters Group Worldwide, LLC, (PGW), and other individuals. The § 1345 action alleged that Petters and his associates orchestrated an extensive and long-running Ponzi scheme. 1 The government obtained a temporary restraining order freezing assets, and shortly thereafter Petters stipulated to a preliminary injunction freezing assets, appointing a receiver, and staying litigation against Petters and his corporations and all subsidiaries. Ritchie alleges that it is a secured creditor of Petters's businesses with security interests in certain of the restrained assets. Ritchie attempted to appoint its own receiver in its first motion to intervene but did not directly challenge the injunction. In Ritchie's second motion to intervene-the subject of this appeal-Ritchie challenged the receivership and asset freeze orders. The district court 2 denied Ritchie's second motion to intervene, finding it untimely and that sufficient evidence supported the injunction.
Ritchie makes three arguments on appeal: (1) the district court abused its discretion in finding Ritchie's motion untimely because Ritchie had proper justification for any delay, the litigation had not progressed to a point whereby intervention would be unfeasible, and Ritchie-not the government-would be prejudiced by denying the motion when Ritchie could not adequately protect its security interests in bankruptcy court; (2) the district court violated Ritchie's due process rights by denying the motion; and (3) the injunction lacks evidentiary support as it pertains to PGW and its subsidiaries, and the district court erred in preventing Ritchie to intervene to challenge the injunction on those grounds. For the reasons stated below, we affirm.
This case arises from the government's use of the anti-fraud injunction statute, 3 § 1345, to preserve assets for the benefit of the victims of allegedly the second-largest Ponzi scheme in this country's history, with fraud proceeds in excess of $3.5 billion. 4 Following an investigation into this scheme, Petters and two of his companies, PGW and Petters Company, Inc. (PCI), were indicted for mail fraud, wire fraud, conspiracy, and money laundering. Petters individually was tried by jury and convicted on all counts on December 2, 2009.
The indictment charged that PCI and PGW “did knowingly devise and participate in a scheme and artifice to defraud and to obtain billions of dollars in money and property by means of materially false and fraudulent pretenses, representations, and promises” and that “PGW and its agents made numerous false statements, false representations and material omissions to fraudulently induce investors to provide defendants PCI and PGW with billions of dollars.”
The Ritchie appellants are all entities among the many creditors of Petters, PCI, and PGW. Ritchie alleges that it holds several security interests in Polaroid and another wholly-owned Petters subsidiary, Petters Capital, LLC (“Petters Capital”), worth approximately $225 million. By a series of promissory notes made between February 1, 2008, and February 19, 2008, Petters and PGW borrowed $152 million from Ritchie. On May 9, 2008, Ritchie made additional loans to Petters, PGW, and PCI in the principal amount of $12 million, evidenced by two promissory notes (together with the February notes, the “Ritchie notes”).
On September 19, 2008, Ritchie and the borrowers extended the due date of the Ritchie notes to December 19, 2008, and reduced the interest rate. Polaroid and Petters Capital pledged certain assets to secure the new debt terms: Polaroid delivered a security agreement pledging Polaroid trademarks in Brazil, India, and China and the proceeds and products thereof, and Petters Capital pledged secured and unsecured promissory notes from Polaroid in the face amount of $135 million. The Petters Capital notes were secured by Polaroid's assets. These liens and interests are now in dispute in a pending bankruptcy action. Polaroid v. Ritchie Capital Mgmt., Adv. No. 09-ap-04032, 2009 WL 631370 (Bankr.Minn. Feb. 12, 2009).
On September 26, 2008, after details of a federal investigation into the Petters Ponzi scheme became known, Ritchie served its Petters-associated borrowers with a notice of default that declared all outstanding amounts on the Ritchie notes immediately due and payable and shortly thereafter brought a state court action in Illinois against Petters, PGW, and PCI (“the Illinois action”) to enforce the Ritchie notes. In the Illinois action, Ritchie and other Petters creditors obtained orders entered September 30, 2008, and October 3, 2008, freezing the assets of PGW and PCI and appointing a receiver-William Procida-of the assets of those entities.
On October 2, 2008, the government initiated this action by filing a civil complaint under § 1345 to prevent the dissipation of assets by Petters, PGW, PCI, and others involved in the Ponzi scheme. The district court issued several orders under § 1345 that operated, in relevant part, to: (1) freeze the assets of Petters, PGW, PCI and all entities owned or controlled by them; (2) appoint Douglas A. Kelley as receiver of PGW, PCI, and their related entities, including Polaroid; and (3) stay all litigation against the covered entities.
On October 6, 2008, the government and Petters, individually and as 100 percent owner of PCI and PGW, stipulated to entry of the district court's orders (collectively, “injunction”), which froze Petters's assets and appointed Kelley as receiver of those assets. FBI Special Agent Eileen Rice supported the injunction motion with an affidavit. Agent Rice's investigation included “the execution of numerous search warrants for documents, records, and proceeds from illegal activities, and ... the subsequent investigation and analysis of evidence seized pursuant to these warrants.” Agent Rice's affidavit outlined a scheme whereby Petters, along with employees of PCI and other Petters entities, induced investors to provide financing to PCI based on fictitious documents that Petters's associates prepared. The documents purported to purchase merchandise for PCI, which PCI would then resell. In reality, no merchandise was purchased, and instead the money that Petters raised through PCI was used for his other business ventures and to support his extravagant lifestyle.
The enjoined assets became subject to a receivership that Kelley directed. The scope of the receivership included, inter alia, the corporate assets of PGW and PCI, as named defendants, as well as Polaroid. The injunction also imposed a stay of litigation against the named defendants, including Polaroid, and the receivership assets. The injunction gave Kelley broad powers to take possession of and manage the assets of Petters, PGW, PCI, and other individual and corporate defendants; liquidate and sell assets; and assume control of and manage ongoing businesses. Kelley was also given specific authority to file bankruptcy petitions to preserve assets. The injunction stated that “[a]ny bankruptcy cases so commenced by the Receiver shall during their pendency be governed by and administered pursuant to the requirements of the United States Bankruptcy Code, 11 U.S.C. section 101 et seq., and the applicable Federal Rules of Bankruptcy Procedure.”
Ritchie alleges that neither the stipulation nor the injunction including PGW was based on any new admissible evidence about PGW or its subsidiaries. Ritchie therefore challenges the addition of PGW (with its subsidiaries Petters Capital and Polaroid) to the scope of the injunction, alleging that the court added PGW without the evidentiary showing that § 1345 requires. To support its contention, Ritchie notes that the injunction contains nine findings of fact, but none mention PGW, Petters Capital, or Polaroid. Instead, the findings recite that there is probable cause to believe that “certain Defendants” have committed the fraud described in § 1345.
Ritchie first moved to intervene in...
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