S. Wayne ANDERSON; Dwight E. Jefferson, Plaintiffs-Appellants,
and
Commodity Futures Trading Commission, Plaintiff,
v.
Calvin P. STEPHENS, Jr.; Charles W. Jones; Eddie Adkerson;
Ellis W. Dalton; Calvin R. Tuck; Fred L.
Barksdale; Robert C. Pruitt; G.H.
Pippin, Appellees,
and
Warren R. Franklin, a/k/a Ricky Franklin, d/b/a Futures
Investment Group, Defendant.
No. 87-2045.
United States Court of Appeals,
Fourth Circuit.
Argued Nov. 2, 1988.
Decided May 11, 1989.
Luis A. Abreu, Danville, Va. (W. Carrington Thompson, Chatham, Va., Clement & Wheatley, Danville, Va., on brief) for plaintiffs-appellants.
Before RUSSELL and HALL, Circuit Judges, and KNAPP, Senior United States District Judge for the Southern District of West Virginia, sitting by designation.
PER CURIAM:
This case presents an appeal by two individuals who invested in a fraudulent commodity futures investment group. They clаim that the district court erred by ordering that their checks, negotiated after the futures bank account was frozen, be included with other funds in the account for the purposes of a pro rata distribution to all investors. For the reasons discussed below, we reverse the judgment of the district court.
I.
Between January 1985 and March 26, 1986, the defendant below, Warren "Ricky" Franklin ("Franklin"), operated the Futurеs Investment Group ("FIG"), an unregistered commodity futures market. One hundred sixty-one private investors, many of whom were friends or relatives of Franklin, invested approximately $1.5 million in FIG.1 By March 26, 1986, because of poor investments, Franklin had only $400,000 left of the $1.5 million. Commodity Futures Trading Commission v. Franklin,
After receiving several complaints about the FIG, the Commodity Futures Trading Commission ("CFTC"), a federal regulatory agency,2 filed а complaint in the United States District Court for the Western District of Virginia. The complaint alleged that Franklin had violated the Commodity Exchange Act by operating a commodity pool without being registered by the CFTC. The CFTC moved for an ex parte order freezing Franklin's assets, for preliminary and permanent injunctions enjoining his activities as a commodity pool operator, and for оther equitable relief. On March 26, 1986 the district court entered an ex parte order that granted CFTC access to FIG's books and records and froze all assets of Franklin and FIG.3 Franklin was ordered to show cause at an April 8 hearing why a preliminary injunction should not issue.
The freeze order was served on Franklin and United Virginia Bank ("UVB"), where Franklin maintained a FIG account, on March 26. On March 27, UVB received a mail deposit from Franklin, totaling $217,320.34, which consisted of twenty-three checks made payable to FIG. Three investors were able to stop payment before their checks were deposited; as a result, the total deposit on March 28 amounted to $199,920.34. The checks issued by appellants S. Wayne Anderson and Dwight E. Jefferson were part of this "post-freeze deposit" on March 28.4
On March 31, 1986, the district court appointed Paul J. Pantano as the Emergency Equity Receiver ("Receiver") for FIG. On April 2, 1986, the CFTC filed its amended complaint, alleging fraud. On April 8, 1986, Franklin failed to appear at the scheduled hearing and the district court entered a preliminary injunction which restrained Franklin and FIG from continuing business activities.
Following his appointment by the court, the Receivеr began to collect and liquidate FIG's assets. The Receiver's Report to the court proposed a distribution plan which provided that all funds deposited in the FIG bank account at UVB after the district court's March 26 freeze order be returned to the originating investors dollar for dollar ahead of distributions to investors whose funds were deposited prior to the freeze order. The Receiver argued that the post-freeze deposit was legally prohibited by the freeze order and thus could not be part of the pool of assets to be distributed among the investors.
On July 21, 1986, several investors whose checks had been deposited before the freeze order filed an objection to the Receiver's proposed plan and requested a hearing. On July 28, 1986, investor Anderson, who had been permitted by the district court to intervene as a plaintiff, filed a motion in support of the Receiver's proposed plan. The district court held a hearing on the Receiver's distribution plan and the subsequent motions, and later, in an order and memorandum opinion, rejected the Receiver's proposal to return the post-freeze order deposits in favor of a plan that called for a pro rata distribution to all the FIG investors. CFTC v. Franklin,
On February 18, 1987, the district court ordered the Receiver to make a final distribution and submit a final accounting of all receivership assets in accordance with the formula set forth in the November 12, 1986 Order. Investor Anderson, joined by investor Jefferson, filed this appeal.5
II.
This case presents the narrow issue of whether it was proper for the district court to rule that checks deposited in FIG's account at UVB after entry of the March 26 freeze order were to be included in the Receiver's general account and distributed prо rata among all FIG investors. Finding that the district court erred, we reverse its decision.
In reaching our decision that checks deposited into Franklin's account after the freeze order was issued cannot be included in the amount to be distributed pro-rata among the investors, we find it necessary to review the rationale of the Receiver's plan and the district court opinion. Thе Receiver's Report recommended that makers of checks deposited after the freeze order receive a refund of 100 percent of those funds, less receivership administrative expenses.6 The Receiver based his argument on the premise that the purpose of a freeze order was to maintain the status quo and prevent additional losses to сustomers. See CFTC v. Muller,
Although the district court adopted the Receiver's Report in part, it rejected the Receiver's suggestion that 100 percent of the funds from the post-freeze order depositors be returned. Instead, the district court held that FIG's assets would be distributed to all investors on a pro rata basis, based on the total value of the fund on March 28, 1986 and including the post-freeze deposit of $199,920.34.
The district cоurt distinguished the two cases in point, In re Vermont Real Estate Investment Trust,
Finally, the district court held that equity dictated that all FIG funds be distributed on a pro rata basis, because all FIG investors could claim that their money was held in a constructive trust because of Franklin's fraudulent conduct.
III.
It is well settled that "in an action brought to enforce the requirements of remedial statutes such as [the Commodity Exchange] Act, a district court has broad discretion to fashion appropriate relief." Muller,
Turning to the language of the freeze order itself, we hold that thе freeze order implicitly prohibited any banking activity with regard to the FIG account at UVB. Ambiguity in an order may arise from what is excluded from, as well as what is included in, the four corners of a paper.7 When such an ambiguity arises from a court's order, as we find it did in this case, it becomes the duty of the reviewing court to construe the order to give it full effect.8 In our review, we are conscious that "[T]he meaning of an ambiguous judgment or order 'must be determined by what preceded it and what it was intended to execute.' " Hendrie v. Lowmaster,
Our holding in this case is supported by what scant caselaw there is on this topic. In two cases, investors who depositеd money with business entities after those entities had ceased doing business were permitted to recover their funds in full.10 For example, in In re Vermont Real Estate Investment Trust,
The facts of In re Vermont are substantially similar to the present case and thus merit discussion in detail. In In re Vermont, an investment trust received in the Monday morning mail two checks written by plaintiff. That afternoon, the trust mailed those checks to its bank for deposit. That evening, the trustees of the trust suspended all stock transactions. On Wednesday, the bank received the checks and deposited them in the trust's account. Neither the trust nor its agents (1) contacted the bank to stop further processing of deposits, or (2) contacted plaintiff to advise him to stop payment on his check. All orders and checks received after the cessation of business were returned to thе investors.
The court in In re Vermont held that under state law, "when [plaintiff's] monies were truly obtained the Trust had suspended its securities transactions. Because of this suspension, the Trust was unable to deal with [plaintiff's] purchase order and, correspondingly, should not have dealt with his remittances."
Similarly, in In re Bengal Trading Corp.,
Although not arising under Virginia law, cases like In re Vermont and In re Bengal are both instructive and decisive in the case before us. We hold that UVB was precluded by law from initiating any activity with the FIG account after the March 26 freeze order. As a result, the checks comprising the March 28 post-freeze deposit cannot be included in the assets to be distributed on a pro-rata basis.
IV.
We are not unmindful of what may be interpreted as a disparity in treatment between those individuals whose money was deposited before the freеze order and those individuals whose checks were deposited on March 28. We recognize that all FIG investors will suffer because of Franklin's illegal activities. Yet because of Franklin's random selection of certain checks for deposit on March 28, some investors may suffer less than others. Ultimately, our decision means that each individual whose check was deposited оn March 28 will get back the amount of that check, minus administrative expenses, while those individuals whose checks were deposited before the freeze order will most likely recover about 25-30 cents on each dollar invested.11 However sympathetic we may be to the pre-freeze depositors, we cannot uphold the district court's order to include the post-freеze deposit in the pool of assets to be distributed on a pro rata basis.
We reverse the judgment of the district court and remand for proceedings consistent with this opinion.
REVERSED and REMANDED.
Notes
An investor could buy a share in FIG for $5,000
The CFTC was established by the Commodity Futures Trading Commission Act of 1974, Pub.L. 93-463, 88 Stat. 1389. The CFTC is charged with enforcing the provisions of the Commodity Exchange Act, 7 U.S.C. Secs. 1, et seq. (1982)
The language of the March 26, 1986 freeze order stated in pertinеnt part:
B. IT IS HEREBY FURTHER ORDERED that all assets of Franklin and FIG be frozen and that they and any of their officers, directors ... or any person in active concert ... with any of them ..., are prohibited from:
Dissipating, concealing, withdrawing, or disposing of, in any manner, any assets, choses in action, or other real or personal property of Franklin and FIG,.... (Emphasis added.)
Franklin apparently carried investors' сhecks in his briefcase and deposited them in random order when he needed to make a purchase. Thus, checks dated March 21 were deposited before the freeze order, while checks dated March 10 were not deposited until after the freeze order. In March 1986, Franklin had received from investors a total of sixty-five checks amounting to about $440,000. Forty-two of thesе checks were deposited before March 26, and the remaining twenty-three comprised the mail deposit received by UVB on March 27
Shortly after Franklin was served with the freeze order, he disappeared from his home. By motion to the court, investor Calvin P. Stephens was substituted for Franklin for purposes of this appeal. Mr. Stephens' deposits to the FIG account were made prior to the freeze order
The Receiver proposed that the Receivership's assets be distributed in the following order:
Expenses of administration of the Receivership, including legal and accounting fees;
Return of funds deposited in the FIG account after the Court's freeze order;
Return of residual funds to FIG investors on a pro rata basis. These payments would be made rеgardless of any purported profits or losses on the investments, and would be reduced by the full amount of any payments that were made to FIG investors as purported profits on their investments;
Claims of the United States, if any, pursuant to 31 U.S.C. Sec. 3729; and
Claims of third party creditors of FIG, if any
Thus, a reviewing court has much more latitude when determining the scope of a court order than, say, when determining the scope of a consеnt decree. See, e.g., United States v. Armour & Co.,
We are, of course, mindful of the inherent deference due a district court when it construes its own order
This hypothetical situation is not as absurd as it might initially seem, given Franklin's unexplainable deposit on March 28. Indeed, the district court attributed Franklin's March 28 deposit to "either remorse or stupidity."
Cf. In re North American Coin & Currency, Ltd.,
The record before us indicates that if the post-freeze deposit were included in the final distribution of assets, each FIG investor would receive approximately 38.4 cents on the dollar