Federal Trade Commission v. Johnson

NOT FOR PUBLICATION FILED
APRIL 8 2014
UNITED STATES COURT OF APPEALS
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
FEDERAL TRADE COMMISSION, No. 13-15768
Plaintiff-Appellee, D.C. No. 2:10-CV-2203-MMD
v.
MEMORANDUM*
SHARLA JOHNSON, ORANGE CAT
INVESTMENTS, ZIBBY, LLC, and ZIBBY
FLIGHT SERVICE, LLC
Defendants-Appellants,
ROB EVANS
Receiver-Appellee.
FEDERAL TRADE COMMISSION, No. 13-15778
Plaintiff-Appellee, D.C. No. 2:10-CV-2203-MMD
v.
iPREROGATIVE, LLC, ROTORTRENDS,
LLC, SLI, LLC, and TRIGGER, LLC,
Intervenors-Appellants,
1
DUANE FIELDING, NETWORK AGENDA,
LLC, and ANTHON HOLDINGS, CORP.,
Defendants-Appellants,
ROB EVANS
Receiver-Appellee.
Appeal from the United States District Court
for the District of Nevada
Miranda M. Du, District Judge, Presiding
Argued and Submitted February 3, 2014
Pasadena, California
Before: PREGERSON and BERZON, Circuit Judges, and AMON, Chief
District Judge.**
Sharla Johnson, Orange Cat Investments, Zibby, LLC, Zibby Flight Service,
LLC, Duane Fielding, Network Agenda, LLC, Anthon Holdings Corp.,
iPrerogative, LLC, Rotertrends, LLC, SLI, LLC, and Trigger, LLC appeal from a
March 25, 2013 order (the “clarification order”) of the United States District Court
for the District of Nevada (Du, J.), granting a motion by an appointed receiver to
clarify the scope of a preliminary injunction entered February 10, 2011.
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
**
The Honorable Carol Bagley Amon, Chief Judge, United States District
Court for the Eastern District of New York, sitting by designation.
2
Appellants contend that the clarification order, which confirmed that appellants’
property was within the scope of the preliminary injunction and therefore frozen
and subject to a receivership, was improper, principally because the district court
lacked jurisdiction over the property in question, and because the use of summary
proceedings violated appellants’ due process rights. We find no jurisdictional
defect or due process violation and affirm.
This Court’s “review of the decision to grant a preliminary injunction is
limited and deferential.” In re Focus Media Inc., 387 F.3d 1077, 1081 (9th Cir.
2004) (internal quotation marks omitted). “We review de novo the legal premises
underlying a preliminary injunction, and the decision to grant a preliminary
injunction for an abuse of discretion.” Id. Factual findings are reviewed for clear
error. Thalheimer v. City of San Diego, 645 F.3d 1109, 1115 (9th Cir. 2011).
Initially, we find that, to the extent that the appellants contend that their
assets were not properly part of the receivership estate, their contentions are
meritless. A district court may freeze assets when doing so is necessary to
preserve the possibility of full relief. See, e.g., Johnson v. Couturier, 572 F.3d
1067, 1085 (9th Cir. 2009) (“A party seeking an asset freeze must show a
likelihood of dissipation of the claimed assets, or other inability to recover
monetary damages, if relief is not granted.”). “A court is authorized to impose a
preliminary injunction on assets which were controlled by a party, even if that
3
party did not expressly own or possess those assets.” FDIC v. Garner, 125 F.3d
1272, 1280 (9th Cir. 1997); see also SEC v. Hickey, 322 F.3d 1123, 1125 (9th Cir.
2003) (“[T]he inherent equitable power of a district court allows it to freeze the
assets of a nonparty when that nonparty is dominated and controlled by a defendant
against whom relief has been obtained in a securities fraud enforcement action.”).
The district court found that the assets of each of the appellants were
controlled by the receivership defendants and “held to benefit defendants in their
efforts to keep assets from the receivership.” (E.R. 101-02.) This finding was well
supported by evidence that each of the entity appellants was controlled partially or
entirely by receivership defendants, as well as by proof of asset transactions that
were inexplicable unless the entities were controlled by receivership defendants,
and by evidence that many of the entities were capitalized entirely with funds from
the receivership defendants. Additionally, Sharla Johnson’s assertion that her
assets are not subject to the receivership estate is not pertinent, as the evidence is
that the assets were not in fact her assets. Although she held a substantial interest
in several of the entities at issue in this case, the receiver offered proof that she
contributed no assets or funds of her own to these entities and that she received
other receivership assets from other receivership defendants for little or no
consideration. Based on this factual record, the district court did not clearly err in
4
determining that the assets of each of the appellants were properly considered part
of the receivership estate.
We reject appellants’ further contention that the district court lacked
jurisdiction to include their assets in the preliminary injunction. 28 U.S.C. § 754grants a receiver “complete jurisdiction and control” over receivership property
located within another district so long as the receiver, “within ten days after the
entry of his order of appointment, file[s] copies of the complaint and such order of
appointment in the district court for each district in which property is located.” 28
U.S.C. § 754; see also United States v. Ariz. Fuels Corp., 739 F.2d 455, 460 (9th
Cir. 1984) (“Ariz. Fuels”) (“A receiver achieves jurisdiction and control of
property in districts other than that of appointment by filing copies of the
complaint and order of appointment in the district court where the property is
located.”). The parties acknowledged at oral argument that the required filings
under § 754 were made in each district where the appellants’ assets were located
outside of the forum District of Nevada. Consequently, the district court’s exercise
of jurisdiction over those assets was entirely proper.
Finally, appellants’ due process rights were not violated by the procedures
used by the district court. This Court has long approved of the use of summary
proceedings to determine possession of the assets of nonparties in receivership
proceedings. See CFTC v. Topworth Int’l, Ltd., 205 F.3d 1107, 1113 (9th Cir.
5
1999) (“Topworth”); SEC v. Hardy, 803 F.2d 1034, 1040 (9th Cir. 1986); Ariz.
Fuels, 739 F.2d at 458. Such proceedings “satisfy due process so long as there is
adequate notice and opportunity to be heard.” Topworth, 205 F.3d at 1113. Each
appellant in this case had adequate notice of the receiver’s clarification motion, as
that motion was served on either the owners or managers of each entity, as well as
directly on Sharla Johnson. Additionally, each appellant was afforded the
opportunity to respond to the clarification motion in writing, to submit evidence in
support of that response, and to present oral argument at a hearing on the motion.
Such procedures easily satisfy the requirements of due process.
Sharla Johnson nevertheless asserts that her due process rights were violated
to the extent that her assets – specifically, the Johnsons’ residence – were subject
to the preliminary injunction from the time that injunction was originally issued, as
she was not afforded formal notice of the preliminary injunction itself. But the
preliminary injunction was not a final adjudication of her rights to this property,
and it did not deprive her of the use of the property, just – temporarily – of the
right to alienate it during the pendency of this action.
Further, she was bound by the terms of the preliminary injunction as
someone with actual notice of it before she tried to alienate the house. See Fed. R.
Civ. P. 65(d). Although Sharla Johnson was not served with the preliminary
injunction order, she necessarily had notice of it, at the very latest, by September 9,
6
2011, when she moved to intervene in the case to appeal an order by the district
court permitting the receiver to sell certain property titled in her name under the
terms of the preliminary injunction. She therefore was well aware before she
attempted to transfer that asset in February 2013 that the district court had “frozen”
any transaction concerning the house in the preliminary injunction order.
AFFIRMED.
7