Lead Opinion
OPINION
Invеstors lost substantial amounts of their monies due to the fact that the insurance policies underlying the viatical investments in which they had invested were procured through fraud. A receiver was appointed over the entity that served as escrow agent and fiduciary for companies that marketed the viatical settlements, Liberte and Alpha. Later, the receiver’s authority was expanded such that “all claims against former agents and/or brokers of Alpha and Liberte for damages in contract or tort actions arising out of claims by investors are deemed to be assets of the receivership estates and must be filed by the Receiver[ ], if at all.” The investors sought a declaratory judgment that they, and not the receiver, had the right to pursue the arbitration claims they had filed against their broker-dealers alleging fraud and misrepresentation inducing their investments. On cross motions for summary judgment, the district court granted the receiver’s motion, authorizing him to pursue the arbitration claims and declaring that if the investors continue to pursue the litigation, any proceeds will be added to the receivership estate and will be distributed pro rata to the entire class of investors harmed. For the reasons stated below, we REVERSE.
I. BACKGROUND
In 1997, James A. Capwill and Viatical Escrow Services (“VES”) agreed to serve as escrow agents for the handling of investment funds in Liberte Capital Group (“Liberte”) and Alpha Capital Group (“Alpha”) viatical settlements.
Many of the insurance policies underlying the viatical investments that Liberte and Alpha had marketed were procured through fraud. Liberte Capital,
to cover all interests in any and all insurance policies funded by investors which Liberte Capital, LLC or Alpha Capital, LLC contacted, which are or were in the name of James A. Capwill, Capwill & Co., CWN Group or any other name, either as nominee owner or as trustee ... for the purpose of managing and administering insurance policies in which one of the foregoing either is named as owner, beneficiary or Trustee, including, but is not limited to death claims, resсission issues, premium payment issues and anything else reasonably necessary in the management of these insurance policies.
Later, the scope of the receivership extended yet again to cover Capwill’s assets.
In December 2000, Ursula Linke and Angelo Salcedo, purchasers of Liberte viaticáis, filed arbitration claims with the National Association of Securities Dealers, Inc. (“NASD”) against Washington Square Securities, Inc. (“WSSI”), their broker-dealer, alleging that WSSI was liable for its representatives’ fraudulently inducing them to purchase Liberte viaticáis. On January 30, 2001, John Lazar, a Liberte investor who had intervened in the action, moved for class certification, and the district court granted the motion. The motion was granted in order to evaluate Liberte policies and to help oversee decisions concerning the sale or rescission of policies and the proper allocation of proceeds between Liberte and Alpha. On July 15, 2002, Linke and Salcedo filed a complaint against their broker-dealer, WSSI in federal district court. They sought a determination that the arbitration claims they had filed against WSSI before the NASD were not encompassed within the Liberte class action. In September 2002, Larry Thompson filed an arbitration claim against his broker-dealer, Carillon Investments, Inc. (“Carillon”), alleging that its representatives had fraudulently induced him to purchase Liberte investments. The receiver initially approved of these arbitration claims against WSSI and Carillon, and he stated that the arbitration proceedings did not interfere with his duties.
In 2002, however, the receiver began initiating suits to recover the lost investments and the return of commissions. On October 2, 2002, the district court statеd in an order that it “is of the view that all claims against former agents and/or brokers of Alpha and Liberte for damages in contract or tort actions arising out of claims by investors are deemed to be assets of the receivership estates and must be filed by the Receivers, if at all.” J.A. at 1162. Along these lines, on November 7, 2002, the receivership court adopted a pro rata method of disbursement for the Liberte class. We affirmed the disbursement method in Liberte Capital Group, LLC v. Capwill,
On June 26, 2003, the district court determined that the arbitration claims of Linke and Salcedo against WSSI were “distinct from the class claims” and granted Linke’s and Salcedo’s motion regarding arbitrability. J.A. at 1651. However, in so holding, the district court also referenced its October 2, 2002, and April 22, 2003, orders, stating that it had “modified the duties of the Receivers” and that “in addition to their general charge of marshaling assets on behalf of the receivership estates, the Receivers have and continue to file cases against, inter alia, brokerage houses, banks, and insurance agents.” J.A. at 1649-50. We affirmed thе arbitrability ruling in Liberte Capital Group, LLC v. Capwill,
On July 21, 2003, the district court granted Thompson’s motion to intervene in the receivership proceedings. On July 23, 2003, Linke and Salcedo filed a second motion to intervene, claiming that they have a legal interest in their arbitration claim, that their ability to protect that interest after intervention is substantially impaired, and that their interest is inadequately represented by the parties already before the court. On June 9, 2004, the district court granted the motion.
On May 10, 2004, Thompson filed an intervention complaint against then-receiver Victor Javitch, seeking a determination that his arbitration claims against his broker-dealer and his broker belonged to him and not to the receiver. On June 10, 2004, Linke and Salcedo sued the receiver, requesting that the district court declare that they may bring their arbitration claim in their own names and are not required to deliver to the receiver any damages that may be awarded by the arbitrators. On July 21, 2004, the receiver filed answers and counterclaims to the complaints of Linke and Salcedo as well as Thompson (collectively “Appellants”). The receiver requested that the district court enter judgment against Appellants, and he sought a declaration that Appellants must bring their arbitration claims under his name, as the receiver, and that any proceeds recovered by them are assets of the receivership estate or that any recovered proceeds will be deducted from any entitle
On March 15, 2006,
Third, the district court considered equitable arguments. The judge noted that it is generally recognized that a receiver may bring suit to accomplish the objective of the suit for which his or her appointment was made, or under the specific directions of the appointing court, or pursuant to his general duties to receive, control, and manage the receivership property. The court concluded that allowing Appellants to pursue an independent action “would be an affront to the equitable principles currently in place to the detriment of all Liberte investors.” J.A. at 2322. Fourth, the district court held that the receiver is not precluded from pursuing the claims based on the in pari delicto doctrine. Finally, the court stated that it was cognizant of the costs expended by Appellants thus far in litigation and that it was confident that the parties “can come to a mutually agreeable resolution” that would allow Appellants to continue to pursue the litigation, “provided the proceeds of the undertaking are added to the Receivership estate and not do violence to the pro rata ruling currently in place.” J.A. at 2325.
Appellants filed a timely appeal, contending, inter alia, that Appellee lacks standing to pursue the arbitration сlaims, that the district court decision violates the Takings Clause of the Fifth Amendment, that Appellee is attempting to cause Appellants to “lose the same money twice,” and that the equitable doctrine of in pari delicto bars Appellee from asserting the arbitration claims.
II. ANALYSIS
A. Standard of Review
We generally review de novo a district court’s decision to grant summary judgment. See, e.g., Lindsey v. Detroit Entm’t, LLC,
Summary judgment is required “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.
B. The Authority to Pursue the Arbitration Claims
1. A District Court’s Powers in Presiding Over an Equity Receivership
We have recognized that although bankruptcy cases, in which Congress has set forth broad and detailed statutes to guide federal courts, comprise the vast majority of cases involving receiverships, there remains a class of cases in which federal courts may exercise their equitable powers, instituting receiverships ovеr disputed assets in cases within the courts’ jurisdiction. Liberte Capital,
2. Standing
The district court addressed standing, albeit in a perfunctory manner. It examined the issue in light of only one case, Javitch, and concluded that because “[t]he Sixth Circuit [in Javitch ] did not have the precise issue presented and did not opine, contrary to [Appellants’] assertion that [Appellee] could not advance a suit on behalf of the investors, ... [Appellants’] position on this issue is not well taken.” J.A. at 2320.
“The appointment of a receiver is inherently limited by the jurisdictional constraints of Article III and all other curbs on federal court jurisdiction.” Scholes v. Schroeder,
To satisfy the “case” or “controversy requirement” of Article III, which is the “irreducible constitutional minimum” of standing, a plaintiff must, generally speaking, demonstrate that he has suffered “injury in fact,” that the injury is “fairly traceable” to the actions of the defendant, and that the injury will likely be redressed by a favorable decision.
Bennett v. Spear,
Here, the Appellee cannot show that the receivership entities suffered an “injury in fact” that is “fairly traceable” to the actions of WSSI and Carillon. See, e.g., Goodman v. FCC,
We have recognized the general rule that a receiver acquires no greater rights and powers to sue than the person or entity whose property is in receivership. See Javitch,
A number of our cases and those from other jurisdictions apply these general rules to a context closely analogous to the instant action, compelling our conclusion that Appellee lacks standing to pursue Appellants’ arbitration claims. In Jarrett, from April 1980 until December 1981, the plaintiffs purchased contracts for the future delivery of coal from an organization named National Coal Exchange (“NCE”).
We stated that Merrill “did not have general authority to take legal action on behalf of NCE’s customers.” Jarrett,
A further review of the applicable case law reinforces this conclusion, notwithstanding (1) the fact that the receivership was later extended to cover the interests in policies funded by Liberte investors
Our decision in Jarrett, in addition to the authority outside this Circuit cited below, undermines the second argument. In Jarrett, we held that notwithstanding the fact that the receiver sought and obtained permission from the receivership court to file suit on bеhalf of NCE’s customers in
In Scholes v. Schroeder,
The conclusion that the district court exceeded its appointment authority in the instant case finds support in still other federal precedent. In Marwil v. Farah, No. L03-CV-0482-DFH,
Marwil filed suit against Barry Farah, alleging, inter alia, equitable disgorgement on the grounds that the latter negligently misrepresented the value of assets sold to CEG. Marwil,
A number of other cases stand for Scholes’ proposition that fraud on investors that damages those investors is for the investors, and not the receiver, to pursue,
The dissent erroneously claims that “case law clearly indicates that receivers have broad powers to pursue claims on behalf of a receivership estate and individual investors, and that the scope of a receiver’s power is determined by the district court’s appointment orders.” Dis. Op. at 5. The dissent apparently believes that the scope of a receiver’s power is solely determined by the district court, no matter how broad the particular grant. The error in such a conclusion has been sufficiently detailed above and in Scholes,
The dissent arrives at its conclusion that Chilcott “plainly supports an affirmance of the district court’s decision” only by misreading that case. Dis. Op. at 11. Indeed, the dissent makes such a claim notwithstanding the Chilcott Court’s express statement that “[w]e do not, however, reach or decide the standing question.”
The dissent misrepresents Fleming v. Lind-Waldock & Co.,
The dissent’s reliance on McGinness v. United States,
The dissent’s discussion of Javitch is also misleading and unpersuasive. For example, the dissent again attempts to attribute portions of McGinness to the Javitch Court, yet the Javitch decision simply describes what this Court held in McGinness, and it never adopted those statements as it own or otherwise affirmed them, as the dissent implies. Compare Javitch,
Furthermore, although the dissent makes much of the claim of the district court in the instant case that nothing in Javitch stands for the proposition that a receiver may never be authorized to pursue claims on behalf of individual investors, it is worth noting that nothing in Javitch stands for the proposition that a receiver may ever be authorized to pursue claims on behalf of individual investors. The dissent apparently believes that simply because the question was not directly answered, it is рermissible for it to assume the answer in the favor of the conclusion it today posits. That point aside, the district court’s-and hence the dissent’s — statement is actually incorrect, as it ignores the suggestive language in Javitch that is consistent with our holding today. See id. at 625, 627 (emphasizing that “although the stated objective of a receivership may be to preserve the estate for the benefit of creditors, that does not equate to a grant of authority to pursue claims belonging to the creditors”).
Finally, the dissent fails to explain how or why it ignores the portions of Jarrett cited above. See
Consequently, a review of the cases cited by the dissent demonstrates that it reaches its conclusion that a receiver’s powers — no matter how broad — are determined solely by the district court’s appointment orders only by misrepresenting and misstating precedent. Its approach, constituting a vast departure from the extensive case law cited above, also fails to suggest any principled reason for such a departure.
Appellee asserts two remaining arguments in support of his contention that he has standing to pursue Appellants’ arbitration claims: (1) VES had standing to pursue the claims as trustee over investor funds, and hence so does Appellee as successor-trustee, and (2) he has independent standing to pursue the claims by virtue of the district court’s assignment of investor property. Each of these arguments fails.
First, Appellee claims that “VES functioned as a trustee over investor accounts, and as such, had independent standing to assert claims relating to the trust property.” Appellee’s Br. 27. He argues that VES and Appellants thus have concurrent standing to assert the arbitration claims. In support of this claim, he cites our precedent for the proposition that trustees have standing to maintain any action to remedy an injury with respect to trust property. Appellee’s Br. 28 (quoting In re Cannon,
For several reаsons, this argument fails. First, and most importantly, it seems that Appellee misses the point entirely. Indeed, he claims that he has the right to sue for “tortious conduct resulting in the diminishment of trust property ” and that “trustees have standing to maintain any action to remedy an injury with respect to trust property.” Appellee’s Br. 28, 31 (emphasis added). Yet the instant action does not concern tortious conduct that injures or diminishes property in trust. Rather, it concerns tortious conduct that induced the decision to place property in trust. Indeed, the claims arising from that tortious conduct never were trust property. This distinction was emphasized in Knauer v. Jonathon Roberts Fin. Group, Inc.,
For our purposes, it is useful to think of Ponzi schemes as being comprised of two phases. First, the schemer solicits and receives money for investment, guaranteeing high returns while doing little with the money to produce actual profits. While in this first stage, the schemer may generate some income for himself by charging a fee or paying himself a salary with the funds, this “sales” step is not the source of most of his Ponzi gains. After all, the Ponzi schemer is not content to enrich himself modestly by extracting fees or salaries from the funds he has solicited. Rather, the schemer realizes most of his gains by appropriating large sums of money from the solicited funds, the pace of the with*663 drawals accelerating as he is ready to disband the Ponzi entity and make off with its assets. This “embezzlement” step of the Ponzi scheme depletes the Ponzi entity of resources, which are diverted to the entity’s principal, the schemer.
Id. at 283. Having made that distinction, the court concluded that “we believe the district court was probably correct in concluding that [the receiver] had no standing to pursue the Ponzi sales claims---- Any claim relating to the fraudulent sales rightfully belongs to the wronged investors.” Id. at 234. Knauer thus makes explicit that while Appellee may be correct that he has right to sue for “tortious conduct resulting in the diminishment of trust property” and that “trustees have standing to maintain any action to remedy an injury with respect to trust property,” those propositions do not vest him with authority to assert Appellants’ arbitration claims in the instant case, as claims involving injury or diminishment of trust property are not the type of claim at issue here.
Along the same lines, Appellee relies heavily on Cannon, claiming that in that case we “reasoned that an escrow agent has standing to pursue causes of action on behalf of third party trust beneficiaries.” Appellee’s Br. 32-33 (citing Cannon,
This argument suffers from the same defect as that discussed immediately above, as Appellee assumes the result by equating injuries to trust property with injuries to investors in the form of fraudulently inducing them to place their property in trust in the first instance. Another court has already rejected Appellee’s conclusion, stating that it is “extraordinarily troubling to find [the receiver’s] counsel invoking authorities from the bankruptcy area as though they stated any different principle [than the one that the receiver cannot bring causes of action that belong to their investors, as contrasted with claims that belong directly to the companies for whom the receiver is the appoint ed representative].” Scholes,
Finally, it should be noted that Appellee is similarly unconvincing in his attempt to distinguish the cases cited above on the grounds that they involve investors having only a derivative interest in the receivership estate, based on the investors’ equitable interest in the receivership entity itself, whereas the instant case involves
Appellee’s second general argument appears to consist of two subparts: (1) the November 9, 1999 order “operated as an assignment,” such that the receivership estate includes the actual investments, thereby rendering Appellee the successor-in-interest with respect to those investors, and hence any injury to the investors’ property is an injury-in-faet to Appellee; and (2) the October 2, 2002 and April 22, 2003 orders also “operate as assignments,” assigning all ehoses in action relating to the investors’ viatical settlements to Appellee, by virtue of Appellee’s contention that “an assignment operates to confer individual creditors’ standing on a receiver, curing any standing deficiency based on lack of injury-in-fact and enabling him to pursue the creditors’ claims directly,” Appellee’s Br. 38 (citing DeNune v. Consol. Capital of North America, Inc.,
It should be noted that, in connection with this argument, Appellee cites no authority, save for his usual argument in which he concludes that equity receivers can lawfully perform any number of acts simply because although those acts are forbidden by the bankruptcy code, the instant case is not governed by the bankruptcy code. For these reasons, we reject the first subpart of Appellee’s argument.
Appellee’s second claim also fails. Although he relies on DeNune, that case concerned a lawful, agreed-upon assignment.
Furthermore, as stated above, overwhelming authority exists for the proposition that Appellee lacks the authority to pursue Appellants’ arbitration claims even if the district court has declared that he has such right. See, e.g., Scholes,
Finally, in discussing equitable considerations, the district court stated that the receivership court’s directives “are generally aimed at marshaling assets for the benefit of the elass/investors.” J.A. at 2321. It also noted that tracing or matching of investors to policies was not possible, and it therefore concluded that “the result of allowing [Appellants] to pursue
Our precedent compels the conclusion that the district court erred in so holding. In Jarrett, we held that the receiver did not have general authority to take legal action on behalf of the customers/investors of the entity in receivership simply because the receiver had authority to take charge of the entity’s property in order to protect the interests of the customers/investors.
In light of the overwhelming authority that not only states that Appellee has no right to pursue Appellants’ arbitration claims but also refutes the arguments that Appellee attempts to make in seeking affirmance of the district court’s holding, we are “firmly convinced that a mistake has been made,” U.S. v. Whittington,
III. CONCLUSION
For the foregoing reasons, we REVERSE the decision of the district court.
Notes
. Viatical settlements allow investors to invest in another person's life insurance policy. The investor purchases the policy, or a part thereof, at a price less than the policy's death benefit. When the seller of the policy dies, the investor collects the death benefit. The investor’s return is dependent upon the seller’s life expectancy and the actual date the seller dies.
. There have been three General Rеceivers in this case as well as one receiver for the intervening plaintiff Alpha. When Appellants first intervened, Victor Javitch was the General Receiver. Prior to the March 15, 2006 summary judgment order, the General Receivership duties were transferred to William T. Wuliger (“Appellee”), who is also the Alpha Receiver.
. It is important to note that in that case, and in the litany of others we have heard arising out of these facts, we have left unaddressed the issue presented in this appeal, namely who has the right to pursue the arbitration claims. Indeed, we specifically stated,
[W]hether the General Receiver is entitled to bring Linke’s and Salcedo's arbitration claim or recover the proceeds of such an arbitration is a separate issue from whether Linke’s and Salcedo’s claims are arbitrable in the first instance. The parties even concede that the issue of whether the General Receiver owns the claims of individual investors is "currently being litigated in the district court.” Because only the district court’s order of June 26, 2003, regarding the question of arbitrability was referenced in the notice of appeal, we have no jurisdiction to consider in this appeal the extent of the General Receiver’s authority over the claims of individual viatical investors.
Liberte Capital,
. Moore’s Federal Practice states that “when a receiver was appointed over a fund, the receiver was the proper party to bring suit against the brokers for the alleged solicitation of investors." 13 Moore’s Federal Practice § 66.08[l][b] (3d ed. 2005) (citing Commodity Futures Trading Comm’n v. Chilcott Portfolio Mgmt.,
In Chilcott, Thomas Chilcott had operated a Ponzi scheme, attracting nearly $80 million in investments for a commodities pool from around 400 people.
In reversing the district court, the Tenth Circuit noted that the district court was correct in holding that Johnson had the capacity to initiate the action for "soliciting” investors. Chilcott,
Accordingly, while upon a first reading of the Moore’s Federal Practice statement quoted above one may рossibly conclude that it lends support to Appellee’s position in the instant case, a thorough reading of the case used to support that quote indicates that the fact that the receivership estate was extended to cover the interests in policies funded by Liberte investors, if anything, further undermines Appellee’s position. Indeed, when the standing issue arose later in the course of the Chilcott litigation, the district court held that Johnson lacked standing to assert claims under the Commodity Exchange Act and the Securities Exchange Act because the deception and misrepresentations harmed defrauded investors, not the fund, which was actually the beneficiary of that deception. Johnson v. Chilcott,
. The Chilcott Court declined to reach the standing issue because it was not decided by the district court.
. The dissent mischaracterizes the holding in Chilcott, claiming that "the Court expressly held that ‘the Receiver had the capacity to bring the Receiver’s action and was the proper real party in interest to bring [a] suit’ on behalf of individual investors.” Dis. Op. at 11 (quoting Chilcott,
. If one were to accept the dissent's approach, a federal appellate court would be deemed to have "implicitly adopted" the district court’s reasoning whenever the appellate court discusses the district court's reasoning and then decides the case by employing an alternative approach. Such reasoning is clearly inconsistent with the proper interpretation of appellate precedent.
. The dissent fails to appreciate this logical distinction, instead choosing to make much of its contention that Appellee “has successfully brought both ‘pre-purchase’ and ‘post-purchase’ claims on behalf of investors in the past.” Dis. Op. at 2. However, to the extent that the three cases it cites have all been dismissed, one is left to wonder how the dissent arrived at its characterization of those claims as "successful[ ].” Indeed, there is actually evidence as to just the opposite, as Appellants claim that Appellee "has not generally sued broker-dealers on the ground that they are liable because their registered representatives recommended Liberte investments to their clients.” Appellants’ Br. 9. The dissent’s other contention fails entirely to address the pre- and post-purchase distinction and instead assumes the result, claiming that Appellee has the authority to raise the arbitration claims simply because he has filed suit alleging harm under similar theories.
. Appellee’s contention that any error here is harmless is simply incorrect. Indeed, whether Appellants are permitted to pursue their arbitration claims and retain the proceeds of those claims, rather than simply share pro rata in the proceeds of those claims if Appellee actively pursues them — which Appellants allege he has in fact not done — results in the conclusion that the district court's error was surely not harmless.
. Because we so hold on the standing issue, we do not reach Appellants' remaining arguments. Furthermore, our decision renders moot the Appellee’s motion to strike portions of the Appellant's brief and motion to strike supplemental authority.
Dissenting Opinion
dissenting.
The majority finds that the district court erred in granting Appellee (“the Receiver”) authorization to pursue the arbitration claims. I find that the majority’s conclusion contravenes established case law that recognizes a district court’s broad equitable powers to define the scope of a receiver’s authority. Since there is simply no legal basis for usurping and encroaching
DISCUSSION
I. Standard of Review
As an initial matter, the majority’s fails to set forth the correct standard of review. The record clearly shows that the district court granted summary judgment in favor of the Receiver. The majority appears to argue that the district court’s decision should be reviewed for abuse of discretion because the district court’s “ultimate decision was founded on equitable concerns.” (Appellee’s Br. at 21) This standard of review is unsupported by case law. See, e.g., Carter v. RMH Teleservices, Inc.,
II. The Arbitration Claims
Appellants allege violations of securities laws, fraud, breach of fiduciary duty, breach of contract, and negligence against the brokerage firms on the grounds that the broker-dealers sold Liberte investments to them through misrepresentations and by failing to disclose material facts and circumstances. Appellants seek actual damages and rescission, the benefit of the bargain, consideration paid for the securities, lost opportunity costs, model portfolio damages, prejudgment interest, and an award of attorneys’ fees, costs, and punitive damages.
The majority finds that the arbitration claims are not encompassed by the receivership estate. Essentially, the majority adopts Appellants’ argument — namely, that the Receiver cannot bring the arbitration claims because they are “pre-purchase” claims of fraud and wrongful inducement and that the Receiver can only assert “post-purchase” claims such as the disgorgement of wrongfully disbursed commissions. Although it may be possible to distinguish between “pre-purchase” and “post-purchase” claims, this distinction is simply not meaningful or persuasive. First, the record shows that the Receiver in this case has successfully brought both “pre-purchase” and “post-purchase” claims on behalf of investors in the past. See, e.g., Wuliger v. Moore, No. 03 CV 0734 (N.D.Ohio); Javitch v. Gibson, No. 04 CV 0262 (N.D.Ohio); Wulinger v. Wash. Viatical Settlement Brokers, No. 04 CV 1526 (N.D.Ohio). As the district court aptly noted, the Receiver in this case has pursued claims for
(1) securities violations under both Securities Act of 1933 and Securities Exchange Act of 1934 with the prayer seeking an award of consideration paid by those [ ] investors whose business the Defendant solicited ...
(2) Racketeering Influenced and Corrupt Organizations (“RICO”) seeking an award of treble damages of the amount of investment;
(3) common law fraud seeking an award of damages consisting of the [] investors’ lost investment ...
(4) fraud in the inducement seeking “an award of damages consisting of the [] investors lost investments ... and
(5) breach of contract seeking an award of damages consisting of the [ ] investors lost investments....
III. The Receiver is Authorized to Pursue the Arbitration Claims
Appellants’ principal argument is that the district court “gave the Receiver greater rights to the. [ ] arbitration claims than the Liberte receivership entity had,” and that receivers “can sue only on behalf of the entities for whom they are appointed and cannot sue on behalf of investors in those entities.” (Appellants’ Br. at 16) Appellants cite a plethora of cases in support of this argument. However, most of the cases are inapposite because they concern bankruptcy receivers. A bankruptcy receiver’s duties and functions are different from those of an equity receiver, particularly because the scope of a bankruptcy receiver’s power is set forth in statutes. See, e.g., In re Cannon,
The Receiver has standing to pursue claims against the brokerage firms because he has been expressly authorized by the district court to bring claims on behalf of the receivership estate and defrauded investors. The Receiver is assigned the rights of the parties he is representing. See, e.g., Goodman v. FCC,
Contrary to the majority’s conclusion, case law clearly indicates that receivers have broad powers to pursue claims on behalf of a receivership estate and individual investors, and that the scope of a receiver’s power is determined by the district court’s appointment orders. See, e.g., Javitch,
In Javitch, a receiver sued four brokerage firms for negligence, breach of fiduciary duties and various securities violations on behalf of defrauded individual investors.
Ohio courts have described a receiver as “merely the administrative arm of the court who takes charge of the assets of the partnership for the purpose of conserving them to the ends of equity and for the benefit of creditors generally.” Tonti v. Tonti,118 N.E.2d 200 , 202 (Ohio Ct.App.1951) (emphasis added); see Mine Safety Appliances Co. v. Best,76 N.E.2d 108 , 110 (Ohio Ct. Common Pleas 1947) (stating that the receiver “stands as a ministerial officer of the court not having title to the property, but obtaining his authority by the act of the court alone”). The appointing court defines the powers of the receiver and, therefore, controls his actions.
Javitch,
Similarly, this Court found that determining the scope of the receiver’s appointment was important in Jarrett,
we first address the plaintiffs’ argument that [the receiver’s] actions as corporate receiver for [the company] were taken on their behalf. They base this argument on the receiver’s authority to take charge of all of [the company’s] property to protect the interests of [the] customers. Plaintiffs are correct that as corporate receiver, [the receiver] was charged with the authority to protect their interests in the specific property of the receivership. They err, however, when they equate this limited authority with general authority to represent their legal interests. As corporate receiver, [the receiver] did not have general authority to take legal action on behalf of [the] customers. His authority was limited to preserving the property of the [company’s] receivership for those customers. In this regard, he had authority to sue on behalf of the receivership itself but had no authority to bring a cause of action on behalf of the individual customers.
Id. (citations omitted). In Jwirett, the receiver’s actions were deemed to be attributable to the individual investors only after the district court authorized the receiver to represent the investors. Before the district court expanded the receiver’s powers to encompass the lawsuit on behalf of the investors, the receiver simply could not represent or act on behalf of individual investors.
This Court reached a similar conclusion in McGinness, a case where an Ohio state court “appointed [a] receiver to take possession of property ... for the purpose of satisfying a judgment rendered in a divorce action.”
[t]he appointing court defines the powers of the receiver and, therefore, controls his actions.... Because the receiver does not act under the control of or on behalf of the debtor-taxpayer, he does not stand in the place of the owner of the assets over which he exercises his authority.
Id. at 145^6. The Court found that
[w]hile ... the receiver can acquire no greater legal rights or powers with respect to the property ..., the receiver’s powers are not limited to the legal rights of the debtor-taxpayer. Upon his appointment, the receiver succeeded to the rights of not only the debtor, but also the creditor. He assumed the power to enforce the rights which the creditors, but for the proceedings under which the receiver was appointed, might have enforced in their own behalf.
Contrary to the majority’s averments, McGinness cannot be distinguished on the grounds that it involved a receiver appointed under Ohio state law. This Court interpreted and applied McGinness in Javitch and found that “McGinness does not stand for the proposition that a receiver never stands in the shoes of the entity in receivership, but suggests that the question depends on the authority granted by the appointing court and actually exercised by the receiver.” Javitch,
In Fleming, a commodities fraud case, the district court appointed a receiver who
was empowered: to take into his immediate custody, control and possession all assets and property belonging to, or in the possession of, [the investment company] ... to prosecute all claims, choses in action and suits in equity on behalf of [the investment company] and to appear and take necessary or appropriate action in any suit, proceeding or negotiations ... in order to represent and protect the interests of the equity receivership ... to seek and to act subject to further order of the Court in order to prevent irreрarable loss, damage and injury to commodity customers and clients and to conserve and prevent the dissipation of funds.
Admittedly, the First Circuit stated that “representation of the corporation and protection of its assets as the only purview of the receiver,” and found that the “equity receiver cannot assert these investors’ claims.” Id. at 25. However, in reaching this decision the Court emphasized the importance of the receiver’s appointment order by specifically stating that the “[district] judge who had written that [appointment] order subsequently denied [the receiver’s] later request for such authority” and noting with approval the district court’s finding that “the language of the [appointment] order did not grant ... representational power to [the receiver].” Id. Since the First Circuit offers the district court’s reasoning in support of its conclusion, the Court implicitly adopted the district court’s reasoning. This implicit adoption clearly illustrates how the First Circuit’s conclusion was informed by the district court’s interpretation of its appointment order. Contrary to the majority’s position, it is simply not possible to divorce the outcome in Fleming from the language and scope of the receiver’s appointment order. Like the cases discussed above, Fleming indicates that the language of an appointment order is dis-positive in determining the scope of the receiver’s authorization from the district court.
In Chilcott, a case where a receiver “asserted] on behalf of the [receivership estate] substantive rights existing under Federal Law, the Securities Exchange Act, 15 U.S.C. § 78a et seq, and the Commodities Exchange Act, 7 U.S.C. § 1 et seq.,” individual investors opposed a receiver’s lawsuit arguing that “the Receiver had no standing to assert what they say are third-party claims.”
In Chilcott, individual investors brought “actions [ ] based on the role of the intermediary brokers and their employees in the operation of [an] allegedly fraudulent scheme and generally allege[d] that the investors were induced to invest ... through misrepresentations.” Id. at 1481. “In contrast, the Receiver’s action, although naming some of the same defendants, [was] based on the dissipation of the [commodities] pool’s assets rather than on any culpable conduct in soliciting the investments.” Id. Since “Receiver [wa]s asserting only claims of the pool,” the Court noted that “the investors will eventually have to proceed with their individual actions if they are to recover at all on their claims of misrepresentations in the inducement to invest and for damages resulting therefrom.” Id. at 1485 (emphasis in original). However, the Court expressly held that “the Receiver had the capacity to initiate the Receiver’s action and was the proper real party in interest to bring [a] suit” on behalf of individual investors. Id. at 1482. The Tenth Circuit declined to address standing and left the issue for the district court to decide. Notably, the Tenth Circuit stated that standing may be decided based on “evidence produced” by the parties to “support the capacity to sue and the real party in interest.” Id. at 1483. As in the cases discussed above, nothing in Chilcott indicates that there is an inherent limitation in a receiver’s capacity to sue.
Instead of relying on Chilcott, the majority places great weight on the district court’s decision on remand. The majority’s reliance on the district court’s ruling is misplaced because Chilcott — and not the district court decision — sets forth persuasive Tenth Circuit precedent. As stated above, the Tenth Circuit contemplated a
The majority’s reliance on Knauer v. Jonathon Roberts Fin. Group, Inc.,
In Knauer, the Seventh Circuit summarily concluded “that the district court was probably correct in concluding that [a receiver] ... had no standing to pursue the Ponzi sales claims” because the “Ponzi entities themselves are not injured by the sales of securities,” but found that “the diversion of funds ... did arguably constitute injuries to the Ponzi entities, giving [the receiver] standing to pursue” the claims of “embezzlement or taking of the funds.”
Similarly, Scholes contains a dearth of legal reasoning. In Scholes, the district court found that it could not allow a receiver to “bring[ ] causes of action that belong to [the] investors,” and held that “[t] o the extent that the orders tendered to [the court] ... purport to authorize suit on behalf of the investors, those orders are at odds with the fundamental command of Article III.”
Last, in Marwil, the district court found that “[notwithstanding the phrase included in an agreed court order negotiated among counsel in the SEC action, the court simply does not have the power to transfer property (including causes of action) from non-parties (the note holders) to the conservator/receiver.”
In this case, the majority misconstrues the cases discussed above and concludes that the Receiver simply cannot litigate claims on behalf of the individual investors.
Moreover, there is no language in any of these cases to support the conclusion that a receiver’s powers are inherently limited. Case law does not support the proposition that receivers are never allowed to pursue claims on behalf of individual investors. Rather, this Court is charged with construing and interpreting the scope of the district court’s appointment orders. Since “the question depends on the authority granted by the appointing court,” a receiver enjoys the powers which the district court grants. Javitch,
In the instant case, the record clearly shows that the district court granted broad powers to the Receiver. The district court’s appointment orders “are generally aimed at marshaling assets for the benefit of the class/investors, among others.” (J.A. 2320-21) (footnote omitted). In this case, the district court authorized the Receiver to take control of Liberte policies to maximize their worth in the best interest of the investors. The Receiver is “authorized to commence litigation against banks who participated in illegal activities of money laundering, RICO violations, negligence, and other tortious conduct which contributed to the depletion of funds from [Capwill’s entities].” (J.A. 2321) (internal quotation marks and citation omitted). The district court allowed the Receiver to recover commissions from Liberte agents and brokers. “Since the claims against agents and/or brokers sounding in contract or tort arose from claims by investors, those claims were ‘deemed to be assets of the receivership estates’ and were only to be pursued by the Receiver[ ].” Id. (citation omitted). The district court also “expanded the Receivers’ responsibilities and authorized them ‘to represent and pursue the interests of the investors directly.’” Id. (citation omitted). These are expansive appointment orders.
The district court also interpreted its appointment orders and concluded that the Receiver was authorized to bring claims on behalf of individual investors. The district court’s decision is supported by the plain language of the appointment orders. The majority fails to give effect to language in appointment orders that empowers the Receiver to bring actions on behalf of individual investors.
IV. Authorizing the Receiver to Pursue the Arbitration Claims is Not Unjust
1. Reimbursement
Appellants argue that they are entitled to retain the benefits of the arbitration claims because they have funded the arbitration claims for more than five years without the Receiver’s assistance. The record shows that the district court was “cognizant of the costs expended thus far by the [Appellants] in pursuit of their arbitration claims.” (J.A. 2325) Indeed, “[t]he Receiver [was] directed to initiate discussions regarding the issue of reimbursement with the [Appellants].” (J.A. 2326) No inequity would result from allowing the Receiver to recover any proceeds from the arbitration claims because the Receiver could reimburse Appellants for any costs already incurred. Appellants simply fail to explain in legal or practical terms why reimbursement is inadequate to compensate them for the expenses and costs they have incurred in the arbitration.
2. Dissatisfaction with the Receiver
Last, Appellants argue that the Receiver has sued few brokerage firms and is “settling claims against Liberte agents for return of commissions, not full compensatory damages.” (Appellants’ Br. at 45) Appellants point to the Receiver’s representations to the district court:
Mr. Newcomber: Investors may have other claims other than just the loss of their money....
Mr. Javitch: That’s exactly the point because we’re [pursuing] only the recovery of the commission.
Mr. Wuliger: No, no. [ ] [W]e are pursuing more than that, but for purposes of resolution .... we have uniformly taken the position, return the commission dollars.
The Court: Well, that’s right.... If someone returns the commission dollars, the case as against the receiver or receivers is done.
Mr. Javitch: Right.
The Court: Now, that does not insulate them from any claims of the individual investors, but I don’t think we can handle that here ... because ... the claims may be wider than those encompassed in the class action.
(J.A. 2081-82) (formatting added). Appellants oppose the Receiver’s settlement of claims against brokerage firms for only the return of wrongfully paid commissions. Essentially, Appellants appear to complain about the Receiver’s litigation or settlement strategy. Appellants do not cite any case law to support the proposition that dissatisfaction with a receiver’s litigation strategy allows class members to pursue independent relief. Settlement inherently involves compromise and is designed to limit exposure to liability, risk and uncertainty. Contrary to the majority’s averments, there is nothing in the record to support a finding that the Receiver’s settlement with brokerage firms on behalf of individual investors in other cases has been unfair, unreasonable, inadequate or otherwisе wrongful.
The majority’s reversal of the district court’s decision will result in substantial
CONCLUSION
For the foregoing reasons, I would affirm the district court’s summary judgment decision.
. Appellants advance nine arguments in support of the proposition that the arbitration claims belong to them: 1) the Receiver is attempting to cause Appellants to lose the same money twice; 2) receivers do not have the power to bring suit directly on behalf of investors in receivership entities; 3) giving the arbitration claims to the Receiver would violate the Takings Clause of the Fifth Amendment; 4) receivers cannot lawfully take claims belonging to investors in a receivership entity; 5) the district court incorrectly interpreted McGinness v. United States,
. Instead of confining itself to discussing the merits of the legal and factual issues presented by this case, the majority resorts to attacking the dissent by inappropriately alleging that it misrepresents applicable case law.
. As members of the underlying class action and active participants in this case, Appellants were in a position to oppose the Receiver’s motions for additional authority to represent individual investors. Appellants consistently failed to object to the district court’s appointment orders.