Securities & Exchange Commission v. Resource Development International LLC

United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
December 21, 2005
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
Clerk
05-10070
Summary Calendar
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff-Appellee,
v.
RESOURCE DEVELOPMENT INTERNATIONAL LLC; ET AL,
Defendants,
DAVID EDWARDS; JAMES EDWARDS; GERALD J. STOCK,
Defendants-Appellants.
Appeals from the United States District Court
for the Northern District of Texas
02-cv-605
Before HIGGINBOTHAM, BENAVIDES, and DENNIS, Circuit Judges.
PER CURIAM:*
Defendants-Appellants challenge the district court’s denial of
their motion to vacate its final judgment against Appellants. For
the reasons that follow, we affirm the final judgment.
*
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that this opinion should not be published and is not precedent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.
I. Background
On March 25, 2002, the Securities and Exchange Commission
(“SEC”) filed a complaint against eleven defendants and four relief
defendants in the United States District Court for the Northern
District of Texas. Three of the defendants have appealed the final
judgment in the case: James Edwards (“J. Edwards”), David Edwards
(“D. Edwards”), and Gerald J. Stock (“Stock”) (collectively the
“Appellants”). The complaint alleged that Appellants violated the
registration and anti-fraud provisions of the federal securities
laws by engaging in a scheme to defraud investors of almost $100
million. In addition to the complaint, the SEC filed: (1) an
Application for Appointment of Receiver, (2) an Application for
Issuance of Preliminary Injunction and Ex Parte Temporary
Restraining Order and orders freezing assets, requiring an
accounting, requiring preservation of documents, repatriation of
assets, surrender of passports, and authorizing expedited discovery
(the “TRO Application”), (3) a memorandum and exhibits in support
of these applications, and (4) a Certificate under FED. R. CIV. P.
65(b).
The district court, on March 25, 2002, granted both SEC
applications and appointed a temporary receiver (“Receiver”) (1) to
take control of Appellants’ assets, (2) to require Appellants to
deliver their assets to the Receiver, and (3) to enjoin Appellants
from (a) disturbing these assets, (b) interfering with the
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operations of the Receiver, or (c) filing a bankruptcy action. In
addition, the clerk issued summonses for the SEC to serve on
Appellants. J. Edwards and Stock were served on March 27, 2002,
and D. Edwards on March 28, 2002.
On March 27, 2002, the district court issued an amended TRO
ordering Appellants to produce an accounting within ten days. A
hearing was held on April 11, 2002, at which time the court issued
a Preliminary Injunction Order (the “Injunction”). Among other
things, the Injunction required Appellants to produce an accounting
within seventy-two hours.
On April 18, 2002, D. Edwards and J. Edwards filed a document
captioned “Response by Special Visitation,” and Stock filed an
identically captioned document on April 24, 2002. On May 7, 2002,
the court granted the SEC’s motion for an interlocutory default
judgment against Appellants permanently barring them from violating
the federal securities laws.
On March 26, 2002, J. Edwards withdrew $28,900 from his bank
account. On March 29, 2002, D. Edwards removed business records
and had a locksmith change the locks on his office, which had been
seized by the Receiver. J. Edwards and D. Edwards were served with
an order requiring their presence at a May 8, 2002, hearing.
Neither Appellant attended. The district court held both
Appellants in civil contempt, and struck their respective “Response
by Special Visitation” filings because their actions violated the
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court’s orders. Stock filed a petition for bankruptcy in the
United States Bankruptcy Court for the Eastern District of
Wisconsin on May 24, 2002. He was served with an order requiring
his presence at a July 22, 2002, hearing. Stock did not attend.
The court also held Stock in civil contempt for failing to attend
the hearing and for instituting a bankruptcy action in violation of
the court’s orders and struck Stock’s “Response by Special
Visitation.”
On October 1, 2002, the court denied the Edwardses’ motion to
vacate the interlocutory judgment. On November 10, 2004, the court
issued a final judgment against the Appellants. On January 10,
2005, Appellants filed notices of appeal. Two days later, the
district court denied the Edwardses’ motion to vacate final
judgment.
II. Discussion
We review de novo a challenge to the subject matter
jurisdiction of the district court. Robinson v. TCI/US West
Communc’ns Inc., 117 F.3d 900, 904 (5th Cir. 1997). A question
about subject matter jurisdiction may be presented at any time by
any party. FED. R. CIV. P. 12(h)(3); Gaar v. Quirk, 86 F.3d 451,
453 (5th Cir. 1996).
Appellants raise three subject matter jurisdiction arguments
in their appeal. Their attempts to characterize certain due
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process arguments as subject matter jurisdiction arguments fail.
First, J. Edwards and D. Edwards assert that the “United States
District Courts” are unconstitutional as only the “district courts
of the United States” are valid. They argue that Congress replaced
Article III district courts with the United States District Courts
through its Act of June 25, 1948, Pub. L. 773, 62 Stat. 869 (“the
Act”). Claiming Congress created new, unconstitutional courts, J.
Edwards and D. Edwards contend the district court lacked
jurisdiction. Not only does it use the two terms interchangeably,
the Act, in section 2(b), emphasizes that the courts therein
referenced “shall be construed as continuations of existing law.”
The Supreme Court, in reference to the Act, has stated that “no
changes of law or policy are to be presumed from changes of
language in the revision unless an intent to make such changes is
clearly expressed.” Fourco Glass Co. v. Transmirra Prods. Corp.,
353 U.S. 222, 227 (1957) (discussing the Act). Moreover, we
addressed this exact argument in Warfield v. Byron and “decline[d]
to invalidate much of the last sixty years of securities litigation
because the ‘D's’ and ‘C's’ are capitalized differently in
different statutes.” 137 Fed. Appx. 651, 654 (5th Cir. 2005)
(unpublished). Therefore, the argument is rejected.
Second, Appellants claim the SEC should have held an
administrative hearing before filing the action against them in
federal district court. Appellants argue that the failure to do so
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meant the SEC lacked standing to bring the action and the district
court accordingly lacked jurisdiction. We disagree. The SEC
brought the action under the Securities Act of 1933 and the
Securities Exchange Act of 1934, which both entitle the SEC to
bring actions against securities defendants in the first instance
in federal district court. 15 U.S.C. §§ 77t(b), 78u(d)(1) (2000).
Third, Stock argues he was charged with violating a regulation
that was never published in the Federal Register, and therefore the
charge was invalid and the court lacked jurisdiction. Stock was
charged with violating 17 C.F.R. § 240.10b-5, which was published
in the Federal Register. Consequently, Stock’s argument fails.
Appellants also raise a number of due process arguments on
appeal. Their arguments are not addressed, however, because
Appellants waived their due process arguments by failing to raise
them below. “Failure to raise a due process objection before a
district court waives that objection on appeal.” Newby v. Enron
Corp., 394 F.3d 296, 309 (5th Cir. 2004). Not only did they fail
to raise a due process argument below, Appellants failed to file an
answer to the complaint or a motion to dismiss. Appellants filed
documents entitled “response[s] by special visitation” after the
twenty-day period allotted for serving answers by Federal Rule of
Civil Procedure 12(a). Moreover, this document was stricken by the
district judge. In sum, having waived any due process arguments,
Appellants have not preserved them for appeal.
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V. CONCLUSION
Appellants raise three subject matter jurisdiction arguments
on appeal. Each argument fails. Appellants also waived their due
process arguments. For the foregoing reasons, we AFFIRM the final
judgment.
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