United States Commodity Futures Trading Commission v. Dinar Corp., Inc. et al

Filing 125

MEMORANDUM OPINION AND ORDER: it is ORDERED: 1) The 101 Order referring Dfts' 96 Motion for Modification of Preliminary Injunction Order for Release of Funds to Pay Attorneys' Fees to the Magistrate Judge is VACATED; 2) Dfts' 96 Motion for Modification of Preliminary Injunction Order for Release of Funds to Pay Attorneys' Fees is GRANTED; 3) The following funds shall be RELEASED to Dfts' counsel: $20,000.00 of the funds held by Ifrah, PLLC, and $75,000.00 of the funds held by Cozen O'Connor. The funds shall be paid as follows: $45,000.00 shall be paid to the firm of Burr & Foreman, LLP; $25,000.00 shall be paid to the firm of Ifrah PLLC for legal services previously rendered; and the r emainder shall be held in trust by Ifrah PLLC for payment of additional reasonable attorney's fees incurred in the defense of this case. In the event that any of the funds held in trust remain unused at the close of this case, Ifrah PLLC shall so notify the court within 7 days of the entry of a final judgment; 4) Paragraph II.6. of the 93 Consent Order of Preliminary Injunction is MODIFIED, as further set out in order. Signed by Chief Judge William Keith Watkins on 2/29/2016. (wcl, )

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF ALABAMA
SOUTHERN DIVISION
U.S. COMMODITY FUTURES
TRADING COMMISSION,
Plaintiff,
v.
DINAR CORP, et al.,
Defendants.

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) CASE NO. 1:15-CV-538-WKW
) [WO]
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MEMORANDUM OPINION AND ORDER
Before the court is the motion for release of funds to pay attorney’s fees
(Doc. # 96) filed by Defendants Husam Tayeh, My Monex, Inc., a Nevada
corporation (“My Monex Nevada”), and Dinar Corp., Inc. Upon consideration of
the motion, the parties’ briefs, the transcript of the hearing on the motion held by
United States Magistrate Judge Terry F. Moorer, and the discussion held on the
record during a telephone conference on January 22, 2016, the court concludes that
the motion is due to be granted.
I. BACKGROUND AND PROCEDURAL HISTORY
On July 27, 2015, Plaintiff United States Commodity Futures Trading
Commission filed a complaint for injunctive relief, civil monetary penalties, and
other equitable relief against Defendants Tayeh, My Monex Nevada, and Dinar
Corp., Inc. (collectively, “Defendants”), and Relief Defendants Theodore S.

Hudson, II and My Monex, Inc., an Alabama corporation (“My Monex Alabama”)
(collectively, “Relief Defendants”), for violations of the Commodity Exchange
Act, 7 U.S.C. §§ 1 et seq. and the regulations promulgated thereunder. (Doc. # 1.)
Plaintiffs also filed an ex parte motion for a statutory restraining order to freeze
Defendants’ and Relief Defendants’ assets, to prohibit Defendants and Relief
Defendants from destroying records, and to require Defendants and Relief
Defendants to allow Plaintiff to inspect and copy records.1 (Doc. # 5.) In addition,
Plaintiff filed a motion for a preliminary injunction to impose the same relief as
Plaintiff sought in the motion for a statutory restraining order. (Doc. # 3.)
On September 3, 2015, the court held a hearing in the case on the following
motions: (1) Plaintiff’s motion for a preliminary injunction (Doc. # 3) as it
pertained to Defendants;2 (2) Plaintiff’s two motions for issuance of orders to
Defendants and their counsel to show cause why they should not be held in
contempt (Doc. # 54; Doc. # 55); (3) Defendants’ motion to dismiss (Doc. # 57);
and Defendants’ motion to stay (Doc. # 59). At the hearing, the parties represented

1

On July 27, 2015, the court entered a Statutory Restraining Order, which froze
Defendants’ and Relief Defendants’ assets, among other relief. (Doc. # 8.) After several
extensions by court order on consent of the parties, the Statutory Restraining Order expired as to
Relief Defendants on August 24, 2015 (Doc. # 43) and as to Defendants on September 22, 2015
(Doc. # 83; Doc. # 93).
2

On August 17, 2015, the court entered a consent order of preliminary injunction as to
Relief Defendants. (Doc. # 21.) In light of the entry of the consent preliminary injunction as to
the Relief Defendants, on August 21, 2015, the court denied the motion for preliminary
injunction (Doc. # 3) in part as moot as to Relief Defendants only. (Doc. # 44.)
2

that they had “negotiated in good faith” and had reached a resolution of the
pending motions. (Doc. # 89 at 3-4 (statements of Plaintiff’s counsel).) The parties
agreed to dismiss their pending motions3 and to the terms of a consent preliminary
injunction. (Doc. # 89 at 3-4.) Further, the parties agreed to engage in limited
expedited discovery as to the number and extent of transactions that were
conducted on a cash basis. (Doc. # 89 at 4-5.) Plaintiff stipulated that any cash
transactions were not subject to the Commodities Exchange Act. (Doc. # 89 at 9.)
The parties agreed that the consent order would include “the standard terms that
[Plaintiff] includes, which is that [Defendants] will make application to the [c]ourt
for a carve-out of attorney’s fees and that [Plaintiff] will reserve its right to object
should it feel that’s necessary.” (Doc. # 89 at 9-10.) The parties stated their
“belief . . . that the carve-out application will, in all likelihood, come from the cash
transactions.” (Doc. # 89 at 10.) At the hearing, Plaintiff did not assert that it
would oppose the payment of attorney’s fees based upon a tainted or comingled
funds argument.
Subsequently, the parties submitted a joint proposed consent order of
preliminary injunction, which the court entered on September 22, 2015. (Doc. #
90; Doc. # 93.) The September 22, 2015 consent preliminary injunction order

3

In agreeing to dismiss the pending motions, Defendants specifically reserved their
argument that the transactions at issue in this case are not “financed” and, therefore, do not fall
within the purview of the Commodity Exchange Act and regulations. (Doc. # 89 at 3-4.)
3

froze Defendants’ assets “derived from or otherwise related to the activities alleged
in the . . . complaint, regardless of when the asset was obtained.” (Doc. # 93 at ¶
II.4.) The September 22, 2015 consent preliminary injunction order further stated:
This court will entertain an application by Defendants for reasonable
and necessary living expenses and attorneys’ fees upon proper written
submission. Proper submission requires that Defendants file such
application under oath with the Clerk of the Court and set forth in
detail, fully substantiated by all relevant documentation, the amount
of funds necessary to pay reasonable and necessary living expenses, a
description of the expenses for which those funds are to be applied, a
description of the assets sought to be used to pay such expenses, and a
description of the derivation of such assets. Within 7 days of
Defendants’ filing of an application for reasonable and necessary
living expenses or attorneys’ fees, [Plaintiff] may object or otherwise
respond to such application.
(Doc. # 93 at ¶ II.6. (emphasis in original).)
By separate order entered on September 22, 2015, in accordance with the
parties’ agreement, the court granted the parties forty-five days to conduct
“expedited discovery limited to gathering records of Defendants’ cash
transactions.” (Doc. # 92 at ¶ 6.) Plaintiff was ordered to “prepare and submit a
spreadsheet of Defendants’ cash transactions,” and the court stated that the
information Plaintiff provided regarding the cash transactions “may be considered
in aid of Defendants’ making application to the court to request attorney fees.”
(Doc. # 92 at ¶ 6.) The court directed Plaintiff to file a status report on or before
December 1, 2015. (Doc. # 92 at ¶ 7.)

4

On October 14, 2015, Defendants filed a motion for release of funds to pay
attorney’s fees (Doc. # 96), which Plaintiff opposes (Doc. # 99).

The court

referred Defendants’ motion for release of funds to the Magistrate Judge (Doc. #
101), and, on December 1, 2015, the Magistrate Judge held a hearing on the
motion. (Doc. # 107.)
Meanwhile, Plaintiff was unable to complete the expedited discovery
necessary to provide the required spreadsheet of cash transactions within the fortyfive day window. Therefore, on October 19, 2015, the court granted Plaintiff’s
unopposed motion (Doc. # 97) to extend the expedited discovery deadline to
December 21, 2015. (Doc. # 98.)
On November 25, 2015, Plaintiff filed a status report detailing the progress
of the expedited discovery. (Doc. # 105.) Plaintiff stated that it had determined
that approximately 14% of the transactions conducted in 2012 and 2013 were cash
transactions. (Doc. # 105 at ¶¶ 2-3.) For the years 2012 and 2013, out of a total
$33,388,310.28 in transactions, $4,655,355.77 was the product of cash
transactions, and $27,642,954.43 was the product of allegedly financed
transactions. (Doc. # 105 at ¶ 2.) In the joint status report, Plaintiff argued for the
first time that, because the Government had seized only $2,000,000.00 in assets,
which is less than the amount of allegedly financed transactions, Plaintiff should be
entitled to hold all seized assets for payment of restitution, disgorgement, and civil
5

monetary penalties. (Doc. # 105 at 4.)
On December 21, 2015, Plaintiff filed a second motion to extend the
expedited discovery deadline. (Doc. # 109.) Defendants opposed the motion on
grounds that they needed funds from the cash transactions to pay for legal expenses
and because they faced continuing financial distress as a result of the ongoing
freeze of all their assets. (Doc. # 110.) On January 22, 2016, the court held a
status conference on the motion. (Doc. # 113.) Because Defendants’ motion for
release of funds to pay attorney’s fees and Plaintiff’s motion to extend the
discovery deadline were intertwined, the court addressed the motion for attorney’s
fees at the January 22, 2016 telephone status conference.4 Following the status
conference, the court denied the motion to extend the expedited discovery period
and instead directed the parties to submit a plan for discovery on the limited issue
of whether the allegedly illegal transactions were “financed” within the meaning of
the pertinent statutes and regulations. (Doc. # 114.)
II. DISCUSSION
“The Commodity Exchange Act drapes the district court with broad
equitable power,” including the power to “freeze a defendant’s assets to ensure the
adequacy of a disgorgement remedy.” CFTC v. Levy, 541 F.3d 1102, 1114 (11th

4

The Magistrate Judge attended the status conference, and the parties were notified of
this fact at the outset of the conference.
6

Cir. 2008). “However, ‘the general federal rule of equity is that a court may not
reach a defendant’s assets unrelated to the underlying litigation and freeze them so
that they may be preserved to satisfy a potential money judgment.’” F.T.C. v.
Lalonde, 545 F. App’x 825, 832 (11th Cir. 2013) (quoting Mitsubishi Int’l Corp. v.
Cardinal Textile Sales, Inc., 14 F.3d 1507, 1521 (11th Cir. 1994)).
Corollary to the court’s equitable discretionary authority to temporarily
freeze personal assets, the court also has discretion to release some frozen assets
for payment of reasonable attorney’s fees in civil cases, although the court is not
automatically required to do so. S.E.C. v. Duclaud Gonzalez de Castilla, 170 F.
Supp. 2d 427, 429 (S.D.N.Y. 2001); see also CFTC v. Noble Metals Int’l, Inc., 67
F.3d 766, 775 (9th Cir. 1995) (holding that “[a] district court may, within its
discretion, forbid or limit payment of attorney fees out of frozen assets,” but that a
district court may grant such relief “in light of the fact that wrongdoing is not yet
proved when the application for attorney fees is made”); CFTC v. Am. Metals
Exch. Corp., 991 F.2d 71, 79 (3d Cir. 1993) (stating the decision to release frozen
funds to pay attorney’s fees “is entrusted to the discretion of the district court”);
F.T.C. v. Lalonde, 545 F. App’x 825, 832 (11th Cir. 2013) (“The Ninth Circuit has
persuasively held [in Noble Metals, supra] that the right to retain counsel does not
require the release of frozen assets so that a defendant in a civil case may hire
attorneys or experts, or otherwise defend his claim.” (emphasis added)). But see
7

S.E.C. v. Dowdell, 175 F. Supp. 2d 850, 855 (W.D. Va. 2001) (“The case law is
anything but consistent on whether defendants in this type of civil enforcement
action may be permitted to pay attorney’s fees with a portion of their frozen
assets.” (collecting cases)).
“Considerations weighed by courts in determining whether to pay attorney
fees from frozen funds include preserving the funds for defrauded victims and
maintaining fairness in the legal proceedings, particularly proceedings involving
complex matters.” S.E.C. v. Petters, No. CIV. 09-1750 ADM JSM, 2010 WL
4922993, at *1 (D. Minn. Nov. 29, 2010) (citing Dowdell, 175 F. Supp. 2d at 855–
56). “While the primary purpose of freezing assets is to facilitate compensation of
defrauded investors in the event a violation is established at trial, ‘the
disadvantages and possible deleterious effect of a freeze must be weighed against
the considerations indicating the need for such relief.’” Gonzalez, 170 F. Supp. 2d
at 429 (quoting S.E.C. v. Manor Nursing Centers, Inc., 458 F.2d 1082 (2d Cir.
1972)).
In opposition to Defendants’ motion for release of funds, Plaintiff concedes
Defendants’ attorneys are entitled to be compensated for the work they claim to
have performed. However, Plaintiff argues that Defendants are not entitled to use
a portion of the frozen funds for the undisputed legal bill because Defendants’
application failed to comply with the terms of the September 22, 2015 Consent
8

Preliminary Injunction Order, which required Defendants to support their
application for release of funds with an affidavit containing a “description of the
derivation of . . . assets” to be unfrozen. (Doc. # 99 at 1; Doc. # 108 at 10; Doc. #
93 at ¶ II.6.) However, as Defendants point out, (Doc. # 108 at 11), by agreement
and by court order, Plaintiff was responsible for “prepar[ing] and submit[ting] a
spreadsheet of Defendants’ cash transactions” for consideration “in aid of
Defendants’ making application to the court to request attorney fees.” (Doc. # 92
at ¶6.) In September 2015, neither the court nor the parties contemplated that a
spreadsheet would not be produced within a reasonable time for Defendants to
apply for attorney’s fees.

Plaintiff’s inability to provide Defendants with an

accounting prejudiced Defendants’ ability to support their motion for release of
funds with an affidavit describing the derivation of the assets to be unfrozen. In
keeping with the court’s authority to interpret and apply its own orders in these
unforeseen circumstances, the court finds that Defendants’ application should not
be denied on grounds that they failed to submit an affidavit detailing the source of
the funds.
Plaintiff relies solely on the consent preliminary injunction order (Doc. # 93)
as grounds for placing the burden on Defendants to establish that funds to be
unfrozen are not tainted. Apart from that order, neither party has established which
of them has the legal burden at this point in the proceedings to demonstrate
9

whether the frozen funds are the product of illegal activity. 7 U.S.C. § 13a-1(b)
grants the court the authority to freeze assets “[u]pon a proper showing” by
Plaintiff. In this case, however, Defendants’ assets were frozen by consent, and
not on the basis of any finding or stipulation that Plaintiff made a “proper
showing” to support the injunction. In fact, as part of the agreement reached at the
September 3, 2015 hearing, Defendants preserved their argument that none of the
transactions or funds at issue are subject to the Commodities Exchange Act. (Doc.
# 92 at 2-3.) Moreover, as a result of the same legal work for which Defendants
now seek funds, at least some transactions (the cash transactions) are not governed
by the Act. Because there has been no finding that Plaintiff made a “proper
showing” of a Commodities Exchange Act violation or that the frozen funds are
related to such a violation, the court will not assume that, at this point, Defendants
carry the burden of demonstrating that the funds they seek to access are untainted
funds.
Plaintiff argues that payment of attorney’s fees is not appropriate because
proceeds from cash transactions have been so comingled with proceeds from other
funds that they cannot be separately identified and, therefore, all funds should be
considered tainted by the alleged violations of the Commodities Exchange Act.5

5

The court notes that Plaintiff was able to determine that approximately 14% of
transactions conducted in 2012 and 2013 were cash transactions, and Plaintiff was also able to
10

(Doc. # 99.) Plaintiff also argues that at least $27,000,000.00 in transactions were
allegedly illegal, and because Plaintiff has “only seized [$2,000,000.00] in assets,”
there is “nothing to be dispersed to [D]efendants.” (Doc. # 108 at 8-9.) Plaintiff
argues that, “[t]o the extent that [it] seizes funds . . . in excess of [$27,000,000.00],
then that would be a proper application for the defendants to say, well, there
appears to be an overage; we’d like some of that for our usage. But that’s not
happening here. There’s simply no funds available.” (Doc. # 108 at 9.)
According to Defendants, during the September 3, 2015 negotiations, they
understood that, once the parties determined the percentage of cash transactions,
they would be permitted to use that figure as a basis to apply for attorney’s fees.
Defendants argue that the parties would not have reached an agreement on
September 3, 2015 to resolve their respective motions if Plaintiff “had told
[Defendants], look we’re going to object to your attorney fee application; we’re not
going to get you these numbers within 45 days; we’re going to make it so that you
can’t get paid for the work that you’ve done; and we don’t know whether you’re
ever going to get paid.” (Doc. # 108 at 12), or if Plaintiff had conveyed its position
that no funds should be released for payment of attorneys’ fees until after sufficient
assets had been frozen to cover the tens of millions of dollars in allegedly illegal
transactions. There is no evidence that, at the time the parties’ reached their

determine the respective dollar amounts of cash and allegedly financed transactions for those
years. (Doc. # 105.)
11

agreement, Plaintiff intended to assert arguments that no funds are accessible for
attorney’s fees because all frozen funds are tainted or because the frozen assets are
insufficient to compensate all the alleged.6 Had that been the case, it is unlikely
the parties would have reached an agreement.
The law is unsettled regarding whether all funds in similar circumstances
must be considered tainted, at least up to the amount necessary to cover any
potential judgment in the case. See Dowdell, 175 F. Supp. 2d at 850 (recognizing a
split in authority as to whether frozen assets may be used to pay attorney’s fees);
see also, e.g., Noble Metals, 67 F.3d at 775 (“[T]he frozen assets fell far short of
the amount needed to compensate [the victims of fraudulent futures contracts].
This was reason enough in the circumstances of this case for the district court, in
the exercise of its discretion, to deny the attorney fee application. . . . . We do not,
however, intimate that attorney fee applications may always be denied where the
assets are insufficient to cover the claims. Discretion must be exercised by the

6

The court notes the Eleventh Circuit’s holding in CFTC v. Wilshire Investment
Management Corp., 531 F.3d 1339, 1344-45 (11th Cir. 2008), that the amount of equitable
restitution available under the Commodities Exchange Act, 7 U.S.C. § 13a–1 is based on
restitution and disgorgement of the amount of wrongful gains by unjust enrichment, not on the
total value of allegedly illegal transactions or on the amount required to compensate victims for
their losses. See Levy, 541 F.3d at 1113 (reversing a district court’s “restitution” award in an
amount calculated to compensate victims for their losses on grounds that, “[i]n light of Wilshire,
we are required to conclude that [the defendant] can only be liable in restitution to the extent of
his unjust enrichment”). Plaintiff has made no showing that the amount of the transactions at
issue or the amount of the potential victims’ losses would be equivalent to the amount of unjust
enrichment. In light of Wilshire, the court is wary of Plaintiff’s argument that Defendants may
access frozen funds to pay legal expenses only after Plaintiff has seized sufficient assets to cover
the value of all allegedly illegal transactions or to compensate all potential victims’ losses.
12

district court in light of the fact that wrongdoing is not yet proved when the
application for attorney fees is made.”); FTC v. RCA Credit Servs., LLC, No. 08–
cv–2062, 2008 WL 5428039, at *4 (M.D. Fla. Dec. 31, 2008) (recommendation of
the magistrate judge recognizing that, following entry of preliminary injunction,
the court has discretion to deny attorney’s fees “if the frozen assets fall short of the
amount needed to compensate consumers for their losses”).
Plaintiff acknowledges that the law in this area is unsettled, but it remains
resolute in its hard-line stance that no attorney’s fees should be paid unless
Defendants can clearly establish the funds come from a completely untainted
source. Plaintiffs rely upon only a few cases in their brief in opposition. (Doc. #
99 at 2-3.) The cases Plaintiff cites as resolute authority are not completely
comparable to the situation at hand. Plaintiff relies almost exclusively on S.E.C. v.
Sunwest Management, Inc., No. 09–6056–HO, 2009 WL 3245879 (D. Or. 2009),
and the other case citations are merely a cut and paste from this one case. Sunwest
Management concerned whether, in determining the most equitable approach to
distributing funds to Ponzi scheme victims at the close of an SEC receivership
case, the court should award funds on a pro rata basis, or whether the court should
instead permit investors who could trace invested funds to recover the traceable
funds, to the detriment of other claimants. 2009 WL 324879, at *9. Thus, the case
provides no meaningful guidance in resolving the equities of releasing funds to pay
13

attorney’s fees from assets that were frozen on the basis of a consent preliminary
injunction entered in a civil enforcement case without a finding of probability of
wrongdoing by Defendants, and Plaintiff’s argument is not well supported.7
Plaintiff cursorily cites S.E.C. v. Lauer, No. 03-80612-CIV, 2009 WL
812719, at *4 (S.D. Fla. Mar. 26, 2009). In Lauer, the district court denied access
to funds frozen in a civil enforcement case for use in a parallel criminal proceeding
on grounds that all funds (even allegedly untainted ones) were subject to a superior
IRS tax lien, all funds were tainted by the fraud, and, in any event, it would be
impossible to differentiate between “tainted” and “untainted” dollars in a
commingled bank account by tracing funds from pre-fraud activities. Lauer, 2009

7

Other cases Plaintiff cursorily cites are similarly unhelpful for resolving the issue facing
this court. See S.E.C. v. Forex Asset Mgmt. LLC, 242 F.3d 325, 331 (5th Cir. 2001) (holding that
“the district court . . . did not abuse its discretion” in distributing the total amount of seized Ponzi
scheme funds to all victims on a pro rata basis even though funds from two victims who
objected to the pro rata distribution had been maintained in a separate bank account); United
States v. Durham, 86 F.3d 70, 73 (5th Cir. 1996) (affirming distribution of funds from a
fraudulent loan financing business on a pro rata basis on grounds that following a tracing
principle would inequitably “allow [one victim] to benefit merely because the defendants spent
the other victims’ funds first”); United States v. Garcia, 37 F.3d 1359, 1365 (9th Cir. 1994)
(holding that, for purposes of proving a criminal violation “under the money laundering statutes,
due to the fungibility of money, it is sufficient to prove that the funds in question came from an
account in which tainted proceeds were commingled with other funds”); S.E.C. v. Byers, 637 F.
Supp. 2d 166, 176 (S.D.N.Y. 2009) aff’d sub nom. S.E.C. v. Malek, 397 F. App’x 711 (2d Cir.
2010) and aff’d sub nom. S.E.C. v. Orgel, 407 F. App’x 504 (2d Cir. 2010) (rejecting Ponzi
scheme victim’s arguments that “a pro rata distribution is unfair, and that the distribution should
instead be made based on level of risk, timing of investment, tracing analysis, or some other
factor”); CFTC v. Eustace, No. CIV.A. 05-2973, 2008 WL 471574, at *7 (E.D. Pa. Feb. 19,
2008) (refusing to distribute receivership funds to victims of a Ponzi scheme on the basis of
tracing methods, instead approving the receiver’s proposed pro rata distribution plan); S.E.C. v.
Better Life Club of Am., Inc., 995 F. Supp. 167, 181 (D.D.C. 1998) aff’d, 203 F.3d 54 (D.C. Cir.
1999) (holding, after finding that a Ponzi scheme existed, that, “when legitimate assets are comingled with illegitimate ones such that the assets cannot be separated out, a constructive trust
[in favor of the Ponzi scheme victims] may extend over the entire asset pool”).
14

WL 812719, at *4. The district court relied on United States v. Ward, 197 F.3d
1076, 1083 (11th Cir. 1999), and its statement that “[o]nce tainted, proceeds cannot
become untainted.” Ward, a criminal case, addressed whether the government is
required to trace the origin of the commingled funds to establish the elements of
the crime of money laundering under 18 U.S.C. § 1956(a)(1)(B)(i). However, in
considering whether assets must be forfeited following a conviction under § 1956,
“[t]he mere pooling or commingling of tainted and untainted funds in an account
does not, without more, render the entire contents of the account subject to
forfeiture.”

United States v. Puche, 350 F.3d 1137, 1153 (11th Cir. 2003).

Moreover, in Lauer, by the time the district court entered the order denying access
to funds for legal expenses,8 the court had already “granted summary judgment in
favor of the SEC and against [the defendant] finding that [the defendant]
committed a massive securities fraud.” Id. at *1. In this case, by the terms of the
very agreement that led to the entry of the preliminary injunction, there currently
exists an unresolved dispute over whether any frozen funds are the product of
Commodities Exchange Act violations. Lauer provides little guidance as to the

8

The Eleventh Circuit has not addressed the district court order in Lauer cited by
Plaintiffs. However, in addressing previous orders from the district court refusing to modify the
asset freeze to allow for living and litigation expenses, the Eleventh Circuit noted that,“if
potential disgorgement is greater than the value of the defendant’s assets, the district court can
order a full asset freeze.” S.E.C. v. Lauer, 478 F. App’x 550, 554 (11th Cir. 2012) (emphasis
added). The Eleventh Circuit affirmed the district court’s full freeze order and subsequent
refusals to modify it on grounds that the district court’s orders, “though perhaps heavy-handed”
were not an abuse of “the broad discretion district courts have in this realm.” Id. (emphasis
added).
15

equitable considerations here.
As Defendants point out, several courts have exercised their equitable
authority and broad discretion to release funds to pay attorney’s fees in similar
cases. See, e.g., S.E.C. v. Quinn, 997 F.2d 287, 289 (7th Cir. 1993) (noting that
“the court indicated willingness to release small amounts” of assets frozen by a
preliminary injunction “so that [the defendant] could defend this suit, and on
occasion the court did so”); Dowdell, 175 F. Supp. 2d at 855-56 (granting a motion
to access funds for attorney’s fees based on concerns of fairness and the
complexity of the case); Gonzalez, 170 F. Supp. 2d at 430-31 (allowing
modification of preliminary injunction to pay for attorney’s fees on grounds that
“the inference upon which the freeze was granted may not be supported by the
necessary quantum of proof,” “motions for summary judgment have been made,
yet just argued,” and both defendants “incurred substantial [legal] expenses as a
consequence of this action.”).
The court has weighed the disadvantages and possible deleterious effect of
the freeze against the considerations indicating the need for such relief at this time.
See Gonzalez, 170 F. Supp. 2d at 429. In so doing, the court has considered the
current procedural posture of the case, the preliminary injunction’s primary
purpose of preserving funds for victim restitution if Plaintiff succeeds in proving
its case, the fact that the preliminary injunction was entered by consent without
16

requiring Plaintiff to carry its burden to show that the frozen funds were the
product of illegal activity, the equitable rule that assets unrelated to the illegal
activity may not be preserved to satisfy a potential judgment, and the need for
maintaining fairness in these complex legal proceedings. Lalonde, 545 F. App’x at
832; Noble Metals, 67 F.3d at 775 (noting that a district court has discretion to
grant relief “in light of the fact that wrongdoing is not yet proved when the
application for attorney fees is made”); Petters, 2010 WL 4922993, at *1.
Moreover, in Dowdell, the district judge stated, “[t]his court’s central concern is
the fairness of the proceedings. The court does not believe that it could achieve a
fair result at the preliminary injunction hearing were it to deny defendants the
ability to retain counsel. This is a complex legal matter, and lawyers are essential
to the presentation of issues related to it.” Dowdell, 175 F. Supp. 2d at 856. The
same holds true in the case at hand. In performing the work for which they now
seek compensation, Defendants’ attorneys have thus far presented themselves to be
an asset to the efficient disposition of this case by simplifying issues, and, as a
result of their zealous defense of this action, Plaintiff ultimately acknowledged it
does not have jurisdiction over the cash transactions. Plaintiff does not deny they
have earned their fees.

In light of all relevant equitable considerations, the

preliminary injunction will modified to allow for the requested attorney’s fees.
As a result of the delay in the initial accounting, the exact percentage of cash
17

transactions has not been determined. However, the range is somewhere between
14% – 50%. Therefore, at a minimum, Plaintiff has acknowledged that 14% of
the transactions they have reviewed are cash transactions (i.e., they are clean) and
are not subject to Plaintiff’s forfeiture action. The court is confident that, at
present, the attorney’s fees can be covered without exceeding 14% of the frozen
funds.9 Not only did the parties agree to allowing attorney’s fees on the basis of
the percentage of cash transactions, but equity supports it. Therefore, the court
will grant the relief requested at this time. Further, until such time as Plaintiff
produces a spreadsheet of Defendants’ cash transactions, the court will consider
well-supported applications from Defendants for reasonable attorney’s fees up to
the amount of $280,000.00 without requiring Defendants to first file an affidavit
detailing the source of the funds.
III.

CONCLUSION

Accordingly, it is ORDERED:
1.

The Order referring Defendants’ Motion for Modification of Preliminary

Injunction Order for Release of Funds to Pay Attorneys’ Fees (Doc. # 96) to the
Magistrate Judge (Doc. # 101) is VACATED;
2.

Defendants’ Motion for Modification of Preliminary Injunction Order for

9

Fourteen percent of two million is $280,000.00, which well exceeds the current request
for attorney’s fees.
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Release of Funds to Pay Attorneys’ Fees (Doc. # 96) is GRANTED.
3.

The following funds shall be RELEASED to Defendants’ counsel:

$20,000.00 of the funds held by Ifrah, PLLC, and $75,000.00 of the funds held by
Cozen O’Connor. The funds shall be paid as follows: $45,000.00 shall be paid to
the firm of Burr & Foreman, LLP; $25,000.00 shall be paid to the firm of Ifrah
PLLC for legal services previously rendered; and the remainder shall be held in
trust by Ifrah PLLC for payment of additional reasonable attorney’s fees incurred
in the defense of this case. In the event that any of the funds held in trust remain
unused at the close of this case, Ifrah PLLC shall so notify the court within 7 days
of the entry of a final judgment.
4.

Paragraph II.6. of the September 22, 2015 Consent Order of Preliminary

Injunction (Doc. # 93) is MODIFIED as follows:
This court will entertain an application by Defendants for reasonable
and necessary living expenses and attorneys’ fees upon proper written
submission. Proper submission requires that Defendants file such
application under oath with the Clerk of the court and set forth in
detail, fully substantiated by all relevant documentation, the amount
of funds necessary to pay reasonable and necessary living expenses, a
description of the expenses for which those funds are to be applied, a
description of the assets sought to be used to pay such expenses, and a
description of the derivation of such assets.
However, the
requirement that a motion for attorney’s fees include a sworn
description of the derivation of assets is suspended until such time
as the Commission produces a spreadsheet of Defendants’ cash
transactions, or until such time as the total amount of all
reasonable attorney’s fees sought by Defendants exceeds the sum
$280,000.00, whichever occurs first. In the event that the
Commission provides the spreadsheet to Defendants, the
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Commission shall promptly notify the court that it has done so.
Within 7 days of Defendants’ filing of an application reasonable and
necessary living expenses or attorneys’ fees, the Commission may
object or otherwise respond to such application.
All other provisions of the September 22, 2015 Consent Order of
Preliminary Injunction (Doc. # 93) remain unmodified and in full force and effect.
This order does not affect any requirements for applications for living expenses,
including the requirement that such applications be supported by an affidavit
describing the derivation of any assets sought to be released. (Doc. # 93 ¶ II.6.)
DONE this 29th day of February, 2016.
/s/ W. Keith Watkins
CHIEF UNITED STATES DISTRICT JUDGE

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