Warfield v. Byron

United States Court of Appeals
Fifth Circuit
F I L E D
June 14, 2005
In the
United States Court of Appeals Charles R. Fulbruge III
Clerk
for the Fifth Circuit
_______________
m 04-10795
_______________
LAWRENCE J. WARFIELD,
AS RECEIVER FOR RESOURCE DEVELOPMENT INTERNATIONAL, ET AL.,
Plaintiff-Appellee,
VERSUS
ROBERT L. BYRON, ET AL.,
Defendants,
KIRK V. EDWARDS, LARRY EDWARDS, ROBERT EDWARDS, SHERRI EDWARDS,
ROGER HETCHLER, SHARYN MEENDERINCK, JIM SMITH, AND KATHY THAUT,
Defendants-Appellant.
_________________________
Appeal from the United States District Court
for the Northern District of Texas
m 3:02-CV-1371-R
______________________________
Before DAVIS, SMITH, and DENNIS, Rules of Civil Procedure. This appeal ensued
Circuit Judges. after the district court had denied the motion.
JERRY E. SMITH, Circuit Judge:* I.
The Edwards Defendants do not dispute
This case is ancillary to the “Underlying their involvement in the Ponzi scheme. Pro-
Lawsuit,”1 in which the SEC contends that a ceeding pro se, they present a lengthy argu-
number of business enterprises controlled and ment that is completely devoid of merit. They
operated an illegal Ponzi scheme. At the contend that district courts of the United
SEC’s request, the district court appointed States (“DCUS”) are the only federal courts
Lawrence Warfield as Receiver for the busi- with jurisdiction to hear claims arising under
ness entities, including Resource Development the Securities Act of 19332 (“Securities Act”)
International, LLC (“RDI”). The court and the Securities Exchange Act of 19343
ordered Warfield to collect, receive, and take (“Exchange Act”). DCUS are courts vested
exclusive custody, control, and possession of with article III judicial power. The Edwards
the defendants’ assets in the Underlying Law- Defendants contend that the portions of the
suit. Act of June 25, 1948, codified at 28 U.S.C. §
1 et seq., create the mistaken impression that
As part of his investigation into the Under- DCUS are synonymous with United States
lying Lawsuit, the Receiver discovered that District Courts (“USDC”).
Kirk Edwards, Larry Edwards, Robert Ed-
wards, Sherry Edwards, Roger Hetchler, The argument continues as follows: Con-
Sharyn Meenderinck, Jim Smith, and Kathy gress promulgated title 28 ostensibly to allow
Thaut (collectively, the “Edwards Defen- all prior violations of federal law to be prose-
dants”) either participated actively in facilitat- cuted in USDC, which are not, the Edwards
ing investments in the scheme or received Defendants argue, article III tribunals (but
assets belonging to the defrauded investors DCUS are). For want of jurisdiction, there-
without exchanging any value. The Receiver fore, claims arising under the Securities and
then filed the instant case against the Edwards Exchange Acts may not constitutionally pro-
Defendants. ceed in USDC. Finally, according to this
tortured reasoning, we would lack jurisdiction,
The district court granted the Receiver’s under 28 U.S.C. § 1291, to entertain appellate
motion for partial summary judgment against review of all USDC decisions within the Fifth
the Edwards Defendants and entered a final Circuit (but we would retain jurisdiction over
judgment. The Edwards Defendants filed a DCUS decisions).
motion under rule 60(b)(4) of the Federal
Ordinarily, we will not consider arguments
*
Pursuant to 5TH CIR. R. 47.5, the court has de-
termined that this opinion should not be published
and is not precedent except under the limited cir-
cumstances set forth in 5TH CIR. R. 47.5.4.
2
15 U.S.C. §§ 77a et seq.
1
SEC v. Res. Dev. Int’l, LLC, No. 02-0605
3
(N.D. Tex.). 15 U.S.C. §§ 78a et seq.
2
that were not presented to the district court.4 At the outset it is worth noting two things.
Where the argument involves subject matter First, the Edwards Defendants lack standing to
jurisdiction, however, waiver does not pre- raise many of the following claims stemming
clude us from considering the matter on ap- from the Underlying Lawsuit, because none of
peal.5 We deem the Edwards Defendants’ ar- these arguments relates to the district court’s
gument without merit, and we decline to subject matter jurisdiction over the SEC’s
invalidate much of the last sixty years of complaint.6 Second, the dominant theme of
securities litigation because the “D’s” and the Edwards Defendants’ opening brief is its
“C’s” are capitalized differently in different improper attempt to cast a variety of proce-
statutes. Both original jurisdiction and appel- dural irregularities and substantive legal
late jurisdiction are properly exercised in this disagreements as defects in subject matter
case. jurisdiction. Rule 60(b)(4) is the vehicle for
this chicanery: “On motion and upon such
II. terms as are just, the court may relieve a party
The Edwards Defendants argue that “there or a party’s legal representative from a final
were multiple flaws in the institution of the judgment, order, or proceeding [because] the
underlying prosecution by the administrative judgment is void.”
agency, due process [sic], which is a necessary
element of subject matter jurisdiction [sic]; and A.
subsequent orders and complaint of We review the district court’s decision on
[Warfield], which rendered them [sic] defec- a Rule 60(b)(4) motion de novo. See Carter v.
tive.” They contend specifically that (1) they Fenner, 136 F.3d 1000, 1005 (1998). Where
were not afforded notice and opportunity to be the motion is based on a void judgment under
heard at the administrative level; (2) no clerk’s rule 60(b)(4), the district court has no discre-
seal was originally placed on the summons as tion; the judgment is either void or it is not.
to defendants; (3) the judgments have been See Recreational Props., Inc. v. Southwest
obtained by jurisdictionally fatal fraud; and (4) Mortg. Serv. Corp., 804 F.2d 311, 313-14 (5th
the absence of final judgments in the Un- Cir.1986). As we explain below, however, we
derlying Lawsuit nullifies the district court’s do not apply a strict de novo review to every
subject matter jurisdiction. These points are procedural irregularity.7
without merit.
4
See Little Liquid Air Corp., 37 F.3d 1069,
6
1071 n.1 (5th Cir. 1994) (en banc); Nissho-Iwai Appointment of a receiver is generally subject
Am. Corp. v. Kline, 845 F.2d 1300, 1307 (5th Cir. to collateral attack only in instances of fraud or on
1988). appeal of the initial appointment. See Miller v.
Hockley, 80 F.2d 980, 983 (4th Cir. 1936) (“That
5
See In re Canion, 196 F.3d 579, 585 (5th the action of the Court [appointing a temporary re-
Cir.1999) (“It is well settled . . . that the subject ceiver] cannot be attacked collaterally is virtually
matter jurisdiction of a federal court can be chal- the unanimous holding in the decisions on this
lenged at any stage of the litigation (including for point.”).
the first time on appeal), even by the party who
7
first invoked it.”). See infra notes 10-12.
3
B. and Receivership Order (“Order”) in both the
The Edwards Defendants attack the Re- Eastern and Western Districts of Washington.
ceivership Order because the SEC allegedly In each case then, the clerk signed and sealed
failed to compl y with 5 U.S.C. § 557(c), a the documents.
provision of the Administrative Procedure Act
(“APA”). This argument is frivolous, because The Northern District of Texas uses an
the APA’s notice and hearing requirements do embossed seal on photocopying, meaning that
not apply to trial de novo in court.8 The SEC the absence of a visible seal on a photocopy
initiated the relevant legal action; it did not does not demonstrate that a seal was not on
adjudicate it (nor did it conduct a hearing of the original. Moreover, each summons was
the sort the APA contemplates). undeniably signed by the clerk. The presence
or absence of the clerk’s signature on the
C. summons may or may not be disputable, but
The Edwards Defendants contend that the this is of no moment, for such defects are not
SEC Complaint failed to invoke the district fatal if they do not prejudice the defendant.10
court’s subject matter jurisdiction because the In the instant case, they do not.11 For many of
complaint lacked the court clerk’s seal. They
further argue that the absence of such a seal
invalidates the district court’s in personam 10
This circuit does not appear to have ruled on
jurisdiction because copies mailed between the quantum of prejudice arising from a defective
districts could not bear that seal. Finally, they seal necessary to create the type of jurisdictional
aver that the seal’s absence from the summons defect that would render the district court proceed-
invalidates the district court’s in personam ing void. The law in other circuits suggests that
jurisdiction. defects that do not prejudice the defendant are
considered irregularities rather than jurisdictional
The claim that 28 U.S.C. § 1691, through defects.
its reference to “process,” contemplates a
complaint is incorrect.9 Moreover, the Re- In United Food & Commercial Workers Union
v. Alpha Beta Co., 736 F.2d 1371, 1382 (9th Cir.
ceiver properly secured the clerk’s signature
1984), the court held that the mere presence of an
and seal for certified copies of the Complaint incorrect responding time in a summons is not a
jurisdictional defect and does not warrant a dis-
missal. Another circuit ruled along those same
8
Section 556 applies to hearings required by §§ lines where the summons failed to state any re-
553-554. sponding time at all. See Sanderford v. Prudential
Ins. Co., 902 F.2d 897, 899-900 (11th Cir. 1990).
9
That statute states: “All writs and process The absence of any showing of prejudice by the
issuing from a court of the United States shall be defendant was, in each case, a key factor. More-
under the seal of the court and signed by the clerk over, there is no analytic justification for a different
thereof.” The supplemental notes in 28 U.S.C.A. inquiry into prejudice with respect to court orders,
§ 1691 contain a cross reference to FED. R. CIV. P. which fall within the purview of § 1691’s reference
4. A close reading of the rule reveals that the seal to “process.”
requirement applies only to the summons, not to the
11
complaint. None of the cases the Edwards Defen- We acknowledge that inquiry into prejudice
dants cite stands for the proposition for which it is might be read in tension with the de novo review
cited. (continued...)
4
the same reasons, we reject the argument that tion.12
the absence of the seal on certified copies of
the Order nullifies the district court’s jurisdic- D.
The Edwards Defendants argued in their
rule 60(b)(4) motions that the Receiver’s
failure to identify all Receivership Assets13
within thirty days of his appointment, and to
submit to the district court a report about
11
(...continued) those assets, created a jurisdictional defect
requirement for certain motions under rule voiding the Receiver’s appointment. The
60(b)(4). We conclude that the circumstances Edwards Defendants cite no authority on this
surrounding the absence of a seal on photocopies, issue, but only cross-reference the record).
although a “jurisdictional defect” in some sense,
does not, without prejudice, rise to the level of de-
The Receivership Order, issued in March
ficiency that would render a legal proceeding void
for want of in personam jurisdiction, the condition
2002, states:
that requires us to vacate the judgment.
Indeed, rule 60(b) sets forth no specific stan- 12
The Edwards Defendants argue that the
dard of review; that standard is located in the case- Receiver did not comply with 28 U.S.C. § 754 by
law. Although that caselaw indeed indicates that failing to affix a seal to the certified copies. Sec-
decisions under rule 60(b)(4) should be subject to tion 754 does not, on its face, require certification
judicial review, those holdings, as we note above, or the affixation of a seal:
always seem premised on the rule 60(b)(4) error
rising to a level rendering the entire district court A receiver appointed in any civil action or pro-
proceeding void. ceeding involving property, real, personal or
mixed, situated in a different district shall, upon
The parties provide little guidance on this issue giving bond as required by the court, be vested
and concern themselves almost exclusively with the with complete jurisdiction and control of all
merits of the procedural defect claim. If there is such property with the right to take possession
any caselaw, published or unpublished, to the thereof . . . . Such receiver shall, within ten
contrary, the Edwards Defendants do not identify days after the entry of his order of appointment,
it. file copies of the complaint and such order of
appointment in the district court for each dis-
Alternately, the Receiver argues that factual de- trict in which property is located. The failure to
terminations, such as the presence or sufficiency of file such copies in any district shall divest the
a seal, require an abuse of discretion review. For receiver of jurisdiction and control over all such
that proposition the Receiver cites McDonald v. property in that district.
United States, 898 F.2d 466, 468 (5th Cir. 1990).
McDonald, however, involves a procedural irregu- 28 U.S.C. § 754.
larity considered in the context of a FED. R. CIV. P.
13
4(j) motion to dismiss. Despite the obvious differ- The district court’s Order Appointing Re-
ences in legal authority for the two motions ( those ceiver defines “Receivership Assets” as “the assets,
under rule4(j) and those under rule 60(b)(4)), we monies, securities, [causes of] action, and prop-
see no reason to distinguish our review of the facts erties, real and personal tangible and intangible, of
surrounding a procedural irregularity in those two whatever kind and description, wherever situated
contexts. [the Edwards Defendants].”
5
The Receiver is hereby directed to file with Interlocutory Default Judgment entered
this Court and serve upon the parties, against these defendants leaves only the
within 30 days after this Order, a prelimi- amount of disgorgement against each defen-
nary report setting out the identity, location dant for final determination. The Edwards
and value of the Receivership Assets, and Defendants’ argument that the resolution to
any liabilities pertaining thereto. Further, . the Underlying Lawsuit somehow violated due
. . he shall recommend . . . whether . . . process is pure speculation and, even if it did
claims against [various defendants] should violate due process, it would not bear on the
be adjudged in the Bankruptcy Court. subject matter jurisdiction in this case.
The Order clearly contemplates a preliminary F.
report sufficient to give guidance as to the The Edwards Defendants advance several
appropriate forum in which to pursue certain other theories in their pro se briefs.15 Al-
claims arising from the Ponzi scheme. The though the arguments discussed in the previ-
Receiver satisfied this burden. Moreover, ous subsections are confused and poorly
there is no cited authority for the proposition supported, these other issues, as briefed, are
that a failure to meet the terms of the order utterly unintelligible. We consider them
would create a jurisdictional defect. waived for inadequate briefing.16
E. AFFIRMED.
Finally, the Edwards Defendants urge that,
because no final judgments have been entered
in the Underlying Lawsuit, the Receiver’s
authority to seize assets cannot “relate back”
to the authority derived from the Underlying
Lawsuit.14 The Edwards Defendants cite no
authority and make no argument for how the
“relation back doctrine” should apply here.
Divining the Edwards Defendants’ precise
legal theory on this issue is unnecessary,
because the assumption that there have been
no final judgments in the Underlying Lawsuit
is incorrect. Permanent Injunctive relief has
issued against every defendant in the Underly-
15
ing Lawsuit except William Whalen. The Specifically, they argue that “absent notice
[a] preliminary injunction may not be imposed” and
that the “Receiver lacks venue.”
14
The Edwards Defendants state that the “re-
16
lation back doctrine” controls government interest See FED. R. APP. P. 28(a)(9)(A); United
in private property where a claim arises out of an States v. Martinez, 263 F.3d 436, 438 (5th Cir.
obligation imposed by law. The relation-back doc- 2001) (noting the rule); United States v. Beau-
trine actually refers generally to a broad set of mont, 972 F.2d 553, 563 (5th Cir. 1992) (invoking
principles, each of which operates differently de- the rule where a litigant failed adequately to argue
pending on the legal context in which they appear. the issue).
6