The Wimbledon Fund, SC CLass TT v. Graybox LLC et al

Filing 186

MINUTES (IN CHAMBERS) - INTERVENOR SULMEYERKUPETZ'S MOTION TO INTERVENE by Judge Christina A. Snyder. The Court finds this motion appropriate for decision without oral argument 168 . Accordingly, the hearing date of August 15, 2016, is vacated, and the matter is hereby taken under submission. In accordance with the foregoing, the Court DENIES SulmeyerKupetz's motion to intervene in this action. (iv)

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL

‘O’

Case No.

2:15-cv-06633-CAS(AJWx)

Title

THE WIMBLEDON FUND, SPC (CLASS TT) V. GRAYBOX, L.L.C.,
ET AL.

Present: The Honorable

Date

August 11, 2016

CHRISTINA A. SNYDER

Catherine Jeang
Deputy Clerk

Not Present
Court Reporter / Recorder

N/A
Tape No.

Attorneys Present for Plaintiffs:

Attorneys Present for Defendants:

Not Present

Not Present

Proceedings:

(IN CHAMBERS) - INTERVENOR SULMEYERKUPETZ’S
MOTION TO INTERVENE (Dkt. 168, filed July 1, 2016)

The Court finds this motion appropriate for decision without oral argument. See
Fed. R. Civ. P. 78; C.D. Cal. Local Rule 7-15. Accordingly, the hearing date of August
15, 2016, is vacated, and the matter is hereby taken under submission.
I.

INTRODUCTION & BACKGROUND

Plaintiff, The Wimbledon Fund, SPC (Class TT) (“Wimbledon”), filed this action
on August 28, 2015 against defendants Graybox, LLC. (“Graybox”), Integrated
Administration (“IA”), Eugene Scher, as trustee of the Bergstein Trust (“Scher”), and
Cascade Technologies, Corp. (“Cascade”) (collectively, “defendants”). Compl. In brief,
the complaint alleges that Wimbledon was the victim of a fraudulent investment scheme
involving an investment advisory company named Swartz IP Services Group (“SIP”).
See generally Id. Wimbledon asserts that in November and December 2011, it invested
$17.7 million dollars with SIP pursuant to a note purchase agreement, but that
subsequently SIP caused this investment to be transferred to various third parties,
including defendants. Id. at 4-6. Wimbledon asserts that these transfers violated its
agreement with SIP and constituted fraudulent transfers in violation of the California
Uniform Fraudulent Transfer Act (“CUFTA”). See id. Accordingly, Wimbledon asserts
claims against defendants for avoidance and recovery of fraudulent transfers pursuant to
California Civil Code §§ 3439.04, 3439.05, and 3439.07. Id. at 7-12.
On September 9, 2015, plaintiff filed a motion for a preliminary injunction in this
action. Dkt. 9. In this motion, plaintiff contended that defendant Graybox was expected
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL

‘O’

Case No.

2:15-cv-06633-CAS(AJWx)

Title

THE WIMBLEDON FUND, SPC (CLASS TT) V. GRAYBOX, L.L.C.,
ET AL.

Date

August 11, 2016

to receive a distribution of settlement funds from an ongoing bankruptcy proceeding in
New York. Plaintiff requested that the Court order a freeze of $2.412 million of
Graybox’s assets—plaintiff’s claimed damages in this action—to preserve the status quo
pending the resolution of this action. Plaintiff argued that without an order freezing
Graybox’s assets it was unlikely that plaintiff would be able to recover on its claims for
fraudulent transfers. On September 29, 2015, the Court issued an order freezing
Graybox’s assets. Dkt. 56. Thereafter, the settlement funds were distributed to Graybox.
Pursuant to the Court’s order, both defendants and their attorneys are prohibited from
taking any action to distribute or otherwise dissipate $2.412 million of those funds
pending further order by the Court.
On July 1, 2016, SulmeyerKupetz, P.C. (“SulmeyerKupetz” or “intervenor”) filed
a motion to intervene in this action. Dkt. 168. In this motion, SulmeyerKupetz states that
it represented defendants Graybox and Bergstein in the bankruptcy proceeding in New
York. As a result of that representation, SulmeyerKupetz states that it is owed legal fees
and contends that it has a senior lien on the settlement funds. SulmeyerKupetz contends
that its interests in the settlement funds are insufficiently represented in this action and
requests that the Court permit it to intervene in this action so that it may protect its
interest in the settlement funds. On August 1, 2016, plaintiff filed an opposition to this
motion, Dkt. 180, and on August 8, 2016, SulmeyerKupetz filed a reply, Dkt 185.
Having carefully considered the parties’ arguments, the Court finds and concludes as
follows.
II.

LEGAL STANDARD
Rule 24(a) provides as follows:
Intervention of Right. Upon timely application anyone shall be
permitted to intervene in an action: (1) when a statute of the United
States confers an unconditional right to intervene; or (2) when the
applicant claims an interest relating to the property or transaction
which is the subject of the action and the applicant is so situated that
the disposition of the action may as a practical matter impair or
impede the applicant's ability to protect that interest, unless the
applicant's interest is adequately represented by existing parties.

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL

‘O’

Case No.

2:15-cv-06633-CAS(AJWx)

Title

THE WIMBLEDON FUND, SPC (CLASS TT) V. GRAYBOX, L.L.C.,
ET AL.

Date

August 11, 2016

The Ninth Circuit has adopted a four-part test for applying Rule 24(a)(2):
(1) the applicant must timely move to intervene; (2) the applicant must
have a significantly protectable interest relating to the property or
transaction that is the subject of the action; (3) the applicant must be
situated such that the disposition of the action may impair or impede
the party's ability to protect that interest; and (4) the applicant's
interest must not be adequately represented by existing parties.
Arakaki v. Cayetano, 324 F.3d 1078, 1083 (9th Cir. 2003). Each of these elements must
be demonstrated in order to provide a non-party with a right to intervene. League of
United Latin Am. Citizens v. Wilson, 131 F.3d 1297, 1302 (9th Cir. 1997).
III.

ANALYSIS

As stated above, the Ninth Circuit applies a four-part test to determine whether a
party has a right to intervene in an action. In order for a party to have a right to intervene,
all four of these elements must be established. Here, the Court finds that
SulmeyerKupetz has failed to establish all four elements.
First, SulmeyerKupetz’s motion is not timely. “Timeliness is ‘the threshold
requirement’ for intervention as of right.” League of United Latin Am.Citizens, 131 F.3d
at 1302. To determine whether a motion for intervention is timely, the court considers “
‘(1) the stage of the proceeding at which an applicant seeks to intervene; (2) the prejudice
to other parties; and (3) the reason for and length of the delay.’ ” Id. (quoting County of
Orange v. Air California, 799 F.2d 535, 537 (9th Cir. 1986)). “In considering these
factors,” the court “must bear in mind that ‘any substantial lapse of time weighs heavily
against intervention.’ ” Id. (citation omitted).
Here, SulmeyerKupetz became aware of plaintiff’s intention to seek an injunction
that would implicate the settlements funds in August 2015 when plaintiff filed its initial
complaint in this action. Indeed, in response to plaintiff’s motion for a injunction, in
September 2015, Graybox submitted declarations from SulmeyerKupetz stating that its
interests in the settlement funds would be prejudiced by an injunction freezing Graybox’s
assets. Nonetheless, SulmeyerKupetz did not file the instant motion to intervene until
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL

‘O’

Case No.

2:15-cv-06633-CAS(AJWx)

Title

THE WIMBLEDON FUND, SPC (CLASS TT) V. GRAYBOX, L.L.C.,
ET AL.

Date

August 11, 2016

July 1, 2016—nearly eleven months after plaintiff filed its initial complaint. In its
papers, SulmeyerKupetz provides no explanation as to why it could not have filed its
motion to intervene at an earlier stage in this litigation. Moreover, there has been
substantial activity in this action in the eleven months since plaintiff filed its initial
complaint. As just a few examples: (1) the Court has ruled on several motions to dismiss;
(2) a related action was transferred to this Court from the Southern District of Texas and
associated with this action; and (3) the Ninth Circuit has ruled on an interlocutory appeal
of this Court’s order freezing Graybox’s assets. Accordingly, by any definition,
SulmeyerKupetz’s motion is untimely. See also United States v. Oregon, 913 F.2d 576,
589 (th Cir. 1990) (“A party seeking to intervene must act as soon as he ‘knows or has
reason to know that his interests might be adversely affected by the outcome of the
litigation.’ ”); Wilson, 131 F.3d at 1304 (“ ‘[C]ourts generally have been reluctant to
allow intervention when the applicant appears to have been aware of the litigation but has
delayed unduly seeking to intervene.’ ”). In addition, allowing SulmeyerKupetz to
intervene at this late stage would likely prejudice plaintiff. SulmeyerKupetz seeks to file
a five-count cross-complaint asserting claims relating to its entitlement to legal fees from
defendants Graybox and Bergstein. Allowing SulmeyerKupetz to file its cross-complaint
would likely delay and unnecessarily complicate these proceedings by effectively
creating a “case within a case.” For all of these reasons, the Court finds that
SulmeyerKupetz has failed to demonstrate that its motion to intervene is timely.
In addition, the Court finds that SulmeyerKupetz has failed to demonstrate that it
has a “significantly protectable interest” relating to this action. A proposed intervenor
“has a ‘significantly protectable interest’ in an action if (1) it asserts an interest that is
protected under some law, and (2) there is a ‘relationship’ between its legally protected
interest and the plaintiffs claims.’ ” California ex rel. Lockyer v. US., 450 F.3d 436, 441
(9th Cir. 2006) (emphasis added). Here, even assuming that SulmeyerKupetz has a valid
attorneys’ lien against the settlement funds, that interest bears no relationship to
plaintiff’s claims in this action. Plaintiff’s claims relate to the missapropriataion by
defendants of plaintiff’s roughly $17 million investment with SIP. Other than Bergstein
and Graybox, there is no connection between these claims and SulmeyerKupetz’s claimed
attorneys’ lien. Moreover, while the Court’s injunction has the effect of freezing the
settlement funds, plaintiff’s claims have no connection to those funds and do not
expressly target those funds. Indeed, as the Court explained in its order granting
plaintiff’s motion for a preliminary injunction: “Wimbledon is not specifically targeting
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL

‘O’

Case No.

2:15-cv-06633-CAS(AJWx)

Title

THE WIMBLEDON FUND, SPC (CLASS TT) V. GRAYBOX, L.L.C.,
ET AL.

Date

August 11, 2016

the settlement proceeds as the only Graybox asset to be frozen. Rather, it is seeking to
freeze any and all assets Graybox may possess to prevent Graybox from dissipating those
assets prior to resolution of this action.” Dkt. 56, at 9. Accordingly, even assuming
SulmeyerKupetz has a valid interest in the settlement funds, that interest does not appear
to be sufficiently related to this action to warrant intervention.
Finally, the Court finds that SulmeyerKupetz has failed to demonstrate that
disposition of this action will impair or impede its ability to protect its interest in the
settlement funds. Assuming arguendo that plaintiff is successful in this action and
obtains a judgment against defendants, it is unclear how that will impair
SulmeyerKupetz’s interest in the settlement funds. As already stated, plaintiff’s claims
do not target the settlement fund nor do they challenge SulmeyerKupetz’s claimed
interest in the settlement funds. As such, even if plaintiff obtains a judgment against
defendants, that will not prevent SulmeyerKupetz from asserting its interest against the
settlement funds. Moreover, if SulmeyerKupetz is correct, and its interest in the
settlement funds is indeed the senior interest, it will likely have priority over plaintiff in
collecting its unearned legal fees.
Accordingly, because SulmeyerKupetz has failed to establish all of the elements
required in order for a party to have a right to intervene, the Court DENIES
SulmeyerKupetz’s motion.1

1

In the alternative, SulmeyerKupetz argues that it meets the requirements for
permissive intervention. “An applicant who seeks permissive intervention must prove
that it meets three threshold requirements: (1) it shares a common question of law or fact
with the main action; (2) its motion is timely; and (3) the court has an independent basis
for jurisdiction over the applicant's claims.” Donnelly v. Glickman, 195 F.3d 405, 412
(9th Cir. 1998). Here, as already explained supra, the Court finds that SulmeyerKupetz’s
request to intervene is untimely. And, the Court finds that, apart from the mere
involvement of defendants Graybox and Bergstein, SulmeyerKupetz’s claims for unpaid
attorneys’ fees bear no connection with plaintiff’s claims for fraudulent transfer—in other
words, SulmeyerKupetz’s claims do not share a “common question of law or fact with the
main action.” Accordingly, SulmeyerKupetz has also failed to demonstrate that it
satisfies the requirements for permissive intervention.
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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL

‘O’

Case No.

2:15-cv-06633-CAS(AJWx)

Title

THE WIMBLEDON FUND, SPC (CLASS TT) V. GRAYBOX, L.L.C.,
ET AL.

IV.

Date

August 11, 2016

CONCLUSION

In accordance with the foregoing, the Court DENIES SulmeyerKupetz’s motion to
intervene in this action.
IT IS SO ORDERED.
00
Initials of Preparer

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:

00

CMJ

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