Securities and Exchange Commission v. Nadel et al

Filing 1138

ORDER of USCA: Motion for certificate of appealability construed from the notice of appeal filed by Appellant Onique E. White is DENIED. [7115039-2]; Motion to proceed in forma pauperis filed by Appellant Onique E. White is DENIED as MOOT as to 1027 Notice of appeal filed by Quest Energy Management Group, Inc.. EOD: 9/25/14; USCA number: 13-12778-FF. (JNB)

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Date Filed: 09/25/2014

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UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
ELBERT PARR TUTTLE COURT OF APPEALS BUILDING
56 Forsyth Street, N.W.
Atlanta, Georgia 30303
John Ley
Clerk of Court

For rules and forms visit
www.ca11.uscourts.gov

September 25, 2014
Sheryl L. Loesch
U.S. District Court
801 N FLORIDA AVE
TAMPA, FL 33602-3849
Appeal Number: 13-12778-FF
Case Style: U.S. Securities and Exchange C v. Quest Energy Management Group,
District Court Docket No: 8:09-cv-00087-RAL-TBM
The enclosed copy of this Court's Order of Dismissal is issued as the mandate of this court. See
11th Cir. R. 41-4. Counsel and pro se parties are advised that pursuant to 11th Cir. R. 27-2, "a
motion to reconsider, vacate, or modify an order must be filed within 21 days of the entry of such
order. No additional time shall be allowed for mailing."
Sincerely,
JOHN LEY, Clerk of Court
Reply to: Janet K. Mohler, FF
Phone #: [phone]
Enclosure(s)
DIS-4 Multi-purpose dismissal letter

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 13-12778
________________________
D.C. Docket No. 8:09-cv-00087-RAL-TBM
UNITED STATES SECURITIES & EXCHANGE COMMISSION,
Plaintiff-Appellee,
versus
QUEST ENERGY MANAGEMENT GROUP, INC.,
Defendant-Appellant.
________________________
Appeal from the United States District Court
for the Middle District of Florida
_________________________

Before WILLIAM PRYOR, Circuit Judge, WOOD,* Chief District Judge, and
EDENFIELD,** District Judge.
PRYOR, Circuit Judge:
In this interlocutory appeal, we decide whether officers enjoined from taking
any action on behalf of a company may appeal, in the name of that company, the
__________________________


Honorable Lisa Godbey Wood, Chief United States District Judge for the Southern District of
Georgia, sitting by designation.
**
Honorable B. Avant Edenfield, United States District Judge for the Southern District of
Georgia, sitting by designation.

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appointment of a receiver. The district court appointed a receiver to take
possession and control over Quest Energy Management Group, Inc., because the
officers were funding the company with proceeds from a Ponzi scheme. In the
order appointing the receiver, the district court enjoined the current officers from
taking any actions on behalf of Quest and vested the receiver with the authority to
“[d]efend, compromise or settle legal actions, including the instant proceeding.”
The officers of Quest, in the name of the company, now appeal the appointment of
the receiver. 28 U.S.C. § 1292(a)(2). The officers do not appeal as shareholders or
in any other individual capacity. The receiver moved to dismiss the appeal for lack
of jurisdiction on the ground that the officers lack standing to appeal on behalf of
the company. Because the district court enjoined the officers from taking any
action on behalf of Quest, including filing this appeal, we grant the motion to
dismiss.
I.

BACKGROUND

This appeal arises out of the appointment of a receiver for a company funded
by proceeds from a Ponzi scheme. The Securities and Exchange Commission sued
Arthur Nadel and two of his investment management companies for operating the
scheme. The district court appointed a receiver to take control of the assets of
Nadel and his codefendants and instructed the receiver to move to expand the
scope of the receivership if he discovered additional entities funded by proceeds

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from the scheme. Over the course of four years, the district court granted ten
motions to expand the scope of the receivership to include additional entities. One
of those entities was Quest Energy Management Group, Inc., an oil and gas
development company owned and operated by Paul and Jeff Downey. Quest
received at least $5.1 million of fraudulent proceeds, which represented eighty
percent of the initial capital for the company and, until the collapse of the scheme,
thirty percent of the total capital for the company.
In its order expanding the receivership to include Quest, the district court
ordered the receiver to “[d]efend, compromise or settle legal actions, including the
instant proceeding, in which the Receivership Entities or the Receiver is a party,
commenced either prior to or subsequent to this Order, with authorization of this
Court.” And the district court enjoined the officers of Quest from taking any action
on behalf of the company: “Unless authorized by the Receiver, the Receivership
Entities [i.e., Quest] and their principals shall take no action, nor purport to take
any action, in the name of or on behalf of the Receivership Entities.”
In the face of the injunction, the Downeys appealed the appointment of the
receiver in the name of Quest. Because the notice of appeal listed Quest instead of
the Downeys in their individual capacities, the receiver sought clarification from
their attorney. In an email, the receiver confirmed, “I presume Paul and Jeff
Downey seek to challenge the court’s order to the extent it dispossessed them of

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their interests in the company.” Counsel for the Downeys responded that he would
“clarify as appropriate.” The receiver then asked, “Were you intending to appeal
on Quest’s behalf?” And counsel replied, “No.” In a related proceeding, counsel
acknowledged to a state regulatory body that the expanded receivership divested
the Downeys of any authority to act on behalf of Quest: “I am counsel for Paul
Downey and Jeff Downey in their individual capacities. The Downeys are no
longer involved in, or associated with, Quest Energy as officers, directors, or
employees or in any other capacity pursuant to the actions and direction of the
court appointed Receiver.” (Emphasis added.) Despite these representations, the
Downeys never amended the notice of appeal and counsel later filed a notice of
appearance purporting to represent Quest.
The receiver then filed a motion to dismiss the appeal for lack of jurisdiction
on the ground that the district court had enjoined the Downeys from taking any
action in the name of the company. The Downeys maintained in briefing and at
oral argument that they have authority to appeal on behalf of Quest. We carried the
motion with the case, and we now grant the motion and dismiss the appeal for lack
of jurisdiction.
II.

STANDARD OF REVIEW

“We review de novo whether we have jurisdiction . . . before addressing the
merits.” Doe No. 1 v. United States, 749 F.3d 999, 1003 (11th Cir. 2014). And

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“[w]e review standing determinations de novo.” CAMP Legal Def. Fund, Inc. v.
City of Atlanta, 451 F.3d 1257, 1268 (11th Cir. 2006).
III.

DISCUSSION

Article III of the Constitution of the United States limits the subject matter
jurisdiction of federal courts to “Cases” and “Controversies.” U.S. Const. Art. III,
§ 2. “[T]he core component of standing is an essential and unchanging part of the
case-or-controversy requirement of Article III.” Lujan v. Defenders of Wildlife, 504
U.S. 555, 560, 112 S. Ct. 2130, 2136 (1992). Accordingly, standing “is the
threshold question in every federal case, determining the power of the court to
entertain the suit.” Warth v. Seldin, 422 U.S. 490, 498, 95 S. Ct. 2197, 2205
(1975). “In the absence of standing, a court is not free to opine in an advisory
capacity about the merits of a plaintiff’s claims, and the court is powerless to
continue.” CAMP Legal Def. Fund, Inc., 451 F.3d at 1269 (citation and internal
quotation marks omitted). To establish standing, a litigant ordinarily “must assert
his own legal rights and interests” and cannot assert the rights or interests of
someone else. Warth, 422 U.S. at 499, 95 S. Ct. at 2205. And “th[e] obligation on
the court to examine its own jurisdiction,” including whether the parties have
standing, “continues at each stage of the proceedings.” Cuban Am. Bar Ass’n, Inc.
v. Christopher, 43 F.3d 1412, 1422 (11th Cir. 1995).

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Although our Court has never addressed whether former officers who are
enjoined from taking any action on behalf of a company may appeal that injunction
in the name of the company, we hold today that they cannot. When the district
court expanded the receivership to include Quest, it forbade the Downeys from
taking any action on behalf of Quest and instead vested the legal rights and
interests of Quest in the receiver. Based on the plain language of that order, the
Downeys lack standing to appeal in the name of Quest.
The Downeys argue that it would be “illogical” to prohibit them from
appealing in the name of Quest because then only the receiver could appeal the
grant of his own motion, but the Downeys misrepresent the receiver’s argument.
The receiver does not contend that only he can appeal his appointment. He
suggested in his briefing and at oral argument a host of other paths that the
Downeys could have pursued that would have fallen short of violating the
injunction. For example, the Downeys could have “moved the District Court for
leave to . . . appeal the Expansion Order in Quest’s name,” “ask[ed] for a . . . stay
for the purpose of appealing the decision,” “formally intervene[d],” or “appeal[ed]
the Expansion Order in their individual capacities.” Cf. Inland Empire Ins. Co. v.
Freed, 239 F.2d 289, 292 (10th Cir. 1956) (“[W]e will assume that the directors,
who are also stockholders, have a litigable interest in the proceedings; that they are
in court by their attorney with standing to challenge the order of the District Court

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on appeal.” (emphasis added)); Lincoln Printing Co. v. Middle W. Utilities Co., 74
F.2d 779, 783–84 (7th Cir. 1935) (holding that district court did not abuse its
discretion when it permitted a stockholder to intervene for the purpose of appealing
the denial of a petition to wind down a receivership). But the Downeys refused to
pursue any of those options.
The Downeys’ conduct is especially puzzling in the light of their
representations to the receiver. When the receiver asked counsel for the Downeys
whether they intended to file the notice of appeal on behalf of Quest, in violation
of the injunction, counsel responded that they did not intend to file the notice on
behalf of Quest and would “clarify as appropriate.” Yet counsel never made any
such clarification. Throughout this appeal, the Downeys have assured our Court
that “[t]his appeal . . . is being brought on behalf of Quest,” and that any “attempt
to pretend or assert that any party other than Quest is the party making the appeal
is wrong and not reflected [i]n the record[].”
The receiver relies on Raley v. Hyundai Motor Co., 642 F.3d 1271 (10th Cir.
2011), to support his argument that the Downeys cannot appeal on behalf of Quest,
and we agree with the approach taken by the Tenth Circuit. In considering whether
an individual could appeal an adverse judgment against her guardian, the Tenth
Circuit dismissed the appeal because the individual failed to establish that the court
had jurisdiction to hear an appeal in her name. Id. at 1279. The court refused to

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“look beyond the notice of appeal and scour the record to figure out who does and
doesn’t wish to appeal,” id. at 1277, and was “loath simply to guess whether
someone wishes to invoke and become subject to [its] jurisdiction,” id. at 1278.
Because “[i]t is the appellant’s burden, not [the court’s], to conjure up possible
theories to invoke [the court’s] legal authority to hear [an] appeal,” the court
observed that it “ha[d] no duty to follow” where “an appellant fail[ed] to lead” and
dismissed the appeal. Id. at 1275, 1279. Like the Tenth Circuit in Raley, we are not
satisfied that the Downeys have standing to appeal on behalf of a company over
which they have no authority.
IV.

CONCLUSION

We GRANT the receiver’s motion and DISMISS the appeal for lack of
jurisdiction.

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