Securities and Exchange Commission v. Wells Fargo Bank, N.A.
2017 U.S. App. LEXIS 3108
| 11th Cir. | 2017Background
- SEC sued after Arthur Nadel’s Ponzi scheme collapsed; the district court appointed a Receiver to marshal and administer defendants’ and relief defendants’ assets, including real properties purchased with scheme proceeds.
- The court established a claims-administration process with a September 2, 2010 claim bar date and a notice stating failure to timely file a Proof of Claim would forever bar claims against the receivership and its property.
- Wells Fargo, a non-party secured creditor, received the claims packet and timely filed a Proof of Claim for one secured loan but failed to file proofs for two other properties secured by its loans.
- After the bar date, Wells Fargo sought a determination that filing was unnecessary to preserve its liens or, alternatively, relief under Rule 60(b); the district court later held Wells Fargo’s failure to file extinguished its security interests and denied relief.
- The Eleventh Circuit reversed, holding a district court in an equity receivership cannot extinguish a creditor’s pre-existing state-law secured interest merely by a receivership claims procedure; secured liens survive unless extinguished under applicable state law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether failure to file a Proof of Claim in the receivership extinguished Wells Fargo’s pre-existing security interests | Receiver: court order made filing mandatory and non-filing forever barred claims; lien extinguished | Wells Fargo: secured liens survive non-filing; filing not required to preserve in-rem rights | Court: reversed — district court erred; non-filing does not extinguish pre-existing state-law security interests |
| Whether the claims-procedure order was a final appealable order | Receiver: order and bar date effectively final and appealable; Wells Fargo’s later motion was untimely | Wells Fargo: the claims-procedure order was not a final judgment extinguishing liens, so appeal after later determination was timely | Court: order was not final; Wells Fargo’s appeal of the later determination is timely |
| Whether bankruptcy principles govern this receivership question | Receiver: (implied) receivership procedures control; bankruptcy cases are inapposite | Wells Fargo: bankruptcy law is analogous/instructive and supports that liens survive non-filing | Court: bankruptcy precedent is instructive and supports that secured liens survive without filing |
| Whether a secured creditor must submit to the receivership to assert deficiency claims | Receiver: failure to file bars participation and distribution | Wells Fargo: filing may be advisable to share in general pool for any deficiency, but not required to preserve collateral rights | Court: secured creditors may file to claim deficiency/distributions, but cannot be forced to forfeit their in-rem lien rights |
Key Cases Cited
- Young v. New Process Steel, LP, 419 F.3d 1201 (11th Cir. 2005) (standard of review for pure legal questions)
- SEC v. Elliott, 953 F.2d 1560 (11th Cir. 1992) (district court’s broad equitable receivership powers)
- SEC v. Tipco, Inc., 554 F.2d 710 (5th Cir. 1977) (district court may set claims procedures and bar dates in receiverships)
- SEC v. Safety Finance Service, Inc., 674 F.2d 368 (5th Cir. 1982) (equitable powers of receivership courts)
- Butner v. United States, 440 U.S. 48 (1979) (property rights, including liens, are governed by state law)
- Marshall v. New York, 254 U.S. 380 (1920) (receiver takes property subject to existing state-law liens)
- In re Bateman, 331 F.3d 821 (11th Cir. 2003) (secured creditors’ liens survive bankruptcy without filing a proof of claim)
- In re Thomas, 883 F.2d 991 (11th Cir. 1989) (proofs of claim required in certain chapters for deficiency claims but liens remain intact)
- Long v. Bullard, 117 U.S. 617 (1886) (pre-Code rule preserving secured creditors’ liens through bankruptcy)