Securities & Exchange Commission v. Kaleta

Case: 12-20633 Document: 00512279903 Page: 1 Date Filed: 06/19/2013
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
June 19, 2013
No. 12-20633 Lyle W. Cayce
Summary Calendar Clerk
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff
v.
ALBERT FASE KALETA,
Defendant
RONALD ELLISOR; LAVONNE ELLISOR; RICHARD KADLICK; SAILAJA
URI KONDURI; ROBERT FICKS; ET AL,
Appellants
v.
THOMAS L. TAYLOR, III, the receiver for Kaleta Capital Management, Inc.,
BusinessRadio Network, L.P., doing business as BizRadio, doing business as
Daniel Frishberg Financial Services, Inc., doing business as DFFS Capital
Management Inc. and all of the entities they own or control
Appellee
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:09-CV-3674
Case: 12-20633 Document: 00512279903 Page: 2 Date Filed: 06/19/2013
No. 12-20633
Before REAVLEY, JOLLY, and DAVIS, Circuit Judges.
PER CURIAM:*
Ths is an interlocutory appeal arising from a receivership proceeding.
Appellants are a subset of investors who were allegedly defrauded by
Receivership Entities1 in violation of federal securities laws. Appellants
challenge the district court’s approval of a negotiated settlement between the
court-appointed Receiver and third parties referred to collectively as the Wallace
Bajjali Parties, who were closely affiliated with the Receivership Entities.2
Moreover, Appellants challenge the court’s entry of a bar order enjoining them
and other investors from commencing or continuing any legal action against the
Wallace Bajjali Parties that arises from the underlying fraud. We review a
district court’s actions in supervising an equity receivership for an abuse of
discretion. SEC v. Safety Fin. Serv., Inc., 674 F.2d 368, 373 (5th Cir. 1982).
Similarly, we review a district court’s actions in granting an injunction for an
abuse of discretion. Newby v. Enron Corp., 542 F.3d 463, 468 (5th Cir. 2008).
For the reasons that follow, we AFFIRM.
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
1
As defined by the settlement agreement, the “Receivership Entities” are “all entities,
now or hereafter subject to the Receivership Estate, including without limitation” Kaleta
Capital Management, Inc.; Kaleta Capital Management, L.P.; BusinessRadio Network, L.P.
d/b/a BizRadio; Daniel Frishberg Financial Services, Inc. d/b/a/ DFFS Capital Management,
Inc.; “and all of the entities they own or control.”
2
As defined by the settlement agreement, the “Wallace Bajjali Parties” are David
Wallace, Costa Bajjali, and certain entities owned or affiliated with Messrs. Wallace and
Bajjali, namely West Houston WB Realty Fund, L.P.; Wallace Bajjali Investment Fund II, L.P.;
LFW Economic Opportunity Fund, L.P.; Spring Cypress Investments, L.P.; and Wallace Bajjali
Development Partners, L.P.
Among other things, certain of the Wallace Bajjali Parties served as the agent for
Appellants and other investors purchasing promissory notes from BizRadio.
2
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Appellants make two contentions on appeal. First, Appellants argue that
the district court did not have legal authority to enter its bar order. On the
contrary, “the district court has broad powers and wide discretion to determine
the appropriate relief in an equity receivership.” Safety Fin. Serv., 674 F.2d at372–73 (citation and quotation marks omitted). These powers include the court’s
“inherent equitable authority to issue a variety of ‘ancillary relief’ measures in
actions brought by the SEC to enforce the federal securities laws.” SEC v.
Wencke, 622 F.2d 1363, 1369 (9th Cir. 1980) (footnote omitted). Such “ancillary
relief” includes injunctions to stay proceedings by non-parties to the
receivership. See id. at 1368–72 (affirming district court’s order to stay all
persons, including nonparties, from continuing with any proceedings against
receivership entities); SEC v. Stanford Int’l Bank Ltd., 424 F. App’x 338, 340
(5th Cir. 2011) (“It is axiomatic that a district court has broad authority to issue
blanket stays of litigation to preserve the property placed in receivership
pursuant to SEC actions.”).
Appellants argue that the cases cited by the district court in entering its
bar order are distinguishable from the case at bar. However, because this is a
case in equity, it is neither surprising nor dispositive that there is no case law
directly controlling the district court’s bar order. See Gordon v. Dadante, 336 F.
App’x 540, 549 (6th Cir. 2009) (“[N]o federal rules prescribe a particular
standard for approving settlements in the context of an equity receivership;
instead, a district court has wide discretion to determine what relief is
appropriate.”). As the district court correctly remarked, “These case distinctions
do not mandate a different outcome here. This Court, as any court of equity,
considers legal precedent, including the types of stays or injunctions imposed by
other courts. However, receivership cases are highly fact-specific.”
We have reviewed the factors considered by the district court in entering
the bar order, namely the necessity of the bar order for securing Messrs.
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Wallace’s and Bajjali’s personal guarantees to pay the Receivership Estate, and
the fact that the settlement expressly permits Appellants and other investors to
pursue their claims by “participat[ing] in the claims process for the Receiver’s
ultimate plan of distribution for the Receivership Estate.” Further, contrary to
Appellants’ contentions, the bar order is not “of unlimited duration and scope”;
rather, the investors continue to retain all other putative claims against the
Wallace Bajjali Parties that do not arise from the allegedly fraudulent notes that
underlie this action.3 We conclude that the district court’s analysis was sound
and thus the court did not abuse its discretion in entering the bar order.4
Second, Appellants argue that the district court abused its discretion by
approving the settlement based on allegedly false information regarding the
Wallace Bajjali Parties’ financial condition. Appellants concede on appeal “that
the Receiver was not fully informed by the Wallace Bajjali Parties at the time of
the original settlement deal, and that, therefore, the settlement should have
been rejected at the time of the Motion for Reconsideration” filed by Appellants
3
In particular, the bar order applies only to “BusinessRadio Note Holders” who might
seek to bring a legal action “against any of the Wallace Bajjali Parties arising out of, in
connection with, or relating in any way to the BusinessRadio Note Plan, the loans made to
BusinessRadio or its related entities by the BusinessRadio Note Holders, and/or the notes
issued by BusinessRadio or its related entities to the BusinessRadio Note Holders[.]”
4
Appellants make the additional, related argument that the bar order violated the
Anti-Injunction Act. The Anti-Injunction Act prohibits federal courts from granting an
injunction to stay proceedings in a state court, with certain exceptions. 28 U.S.C. § 2283. It
is well established that the Act applies only to pending state court proceedings; the Act “does
not preclude injunctions against a lawyer’s filing of prospective state court actions.” Newby,
302 F.3d at 301 (citing Dombrowski v. Pfister, 380 U.S. 479, 484 n.2, 85 S. Ct. 1116, 1119 n.2
(1965)); B & A Pipeline Co. v. Dorney, 904 F.2d 996, 1001–02 n.15 (5th Cir. 1990) (“There was
no state court action pending in the instant matter at the time the district court issues its
injunction. Therefore, the Anti–Injunction Act does not apply.”). Here, Appellants state in
their own brief that they “wish to pursue litigation against the Wallace Bajjali Parties,
potentially in state court.” (Emphasis added.) That is, Appellants have not argued that they
have pursued any state court proceedings. They do mention in a footnote that they filed a
state lawsuit on January 6, 2012, but that action was apparently non-suited at some point not
specified in Appellants’ briefs. Accordingly, the Anti-Injunction Act does not apply.
4
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after the district court’s approval of the settlement. We interpret Appellants’
argument as a challenge to the district court’s denial of Appellants’ motion for
reconsideration, rather than a challenge to the district court’s initial approval
of the settlement.
After Appellants filed their motion for reconsideration, updated evidence
was presented by Appellants and the Wallace Bajjali Parties about the latter’s
development projects. As far as the record shows, the district court remained
fully informed of the business activities and financial dealings of the Wallace
Bajjali Parties and thoroughly considered both old and new evidence in arriving
at its decision to deny Appellants’ motion for reconsideration. As the district
court stated, “the concerns expressed by the objectors are [not] meaningful
grounds to re-trade the deal or to deny the approval” of the settlement. We find
no abuse of discretion in the district court’s conclusion that the equities
warranted denial of Appellants’ motion for reconsideration.
AFFIRMED.
5