Securities and Exchange Commission v. Nadel et al

Filing 1345

NOTICE to the Courts to take judicial notice regarding a certified transcript of the 12.8.16 oral argument before the US Court of Appeals for the 11th Circuit in a related proceeding by Wells Fargo Bank, N.A.. (Attachments: # 1 Exhibit A)(Wirth, Steven)

Exhibit A

Page 1
IN THE UNITED STATES COURT OF APPEALS
ELEVENTH CIRCUIT
_________________________________________________
USCA Case No. 16-10942-GG
United States District Court, Middle District of Florida
Case No:
8:09-cv-00087-RAL-TBM
__________________________________________________
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff/Appellee
v.
WELLS FARGO BANK, N.A., Creditor,
Non-Party Creditor/Appellant.
__________________________________________________

Transcript from Oral Argument on December 6, 2016

Before:

Honorable Adalberto Jordan
U.S. Court of Appeals
11th Circuit
Honorable Jill A. Prior
U.S. Court of Appeals
11th Circuit
Honorable R. David Proctor
U.S. District Court Judge
Northern District of Alabama
Sitting by designation

Transcribed By:

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Suzanne M. Peterson
Court Reporter and Notary Public
State of Florida at Large
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A-P-P-E-A-R-A-N-C-E-S

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JAMES P. KEEFE, ESQUIRE
James Hayer, P.A.
2801 West Busch Boulevard, Suite 200
Tampa, Florida 33618

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6

Appearing on behalf of the Receiver
Burton W. Wiand

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KATHERINE EASTMOORE GIDDINGS, ESQUIRE
STEVEN WIRTH, ESQUIRE
Akerman, LLP
401 East Jackson Street, #1700
Tampa, Florida 33602
[e-mail]

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Appearing on behalf of the Creditor
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I N D E X

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PAGE

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PROCEEDINGS

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CERTIFICATE OF TRANSCRIPTION

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E X H I B I T S

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None

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2

P R O C E E D I N G S
MS. GIDDINGS:

Good morning, your Honors.

3

it please the Court, I'm Katherine Giddings.

4

here today with Steve Wirth on behalf of Wells

5

May

Fargo.

6

I'm

Your Honors, the primary issue in this case is

7

whether an administrative claims order in a

8

receivership action can trump long-established

9

substantive law governing vested, secured property

10
11

rights.
Importantly, the Receiver in this case does not

12

dispute that Wells Fargo had vested perfected

13

secured property rights.

14

The Receiver also doesn't dispute that he knew

15

about these rights because he had to, given the

16

perfected recorded security interest.

17
18
19

He just says because Wells Fargo didn't file a
claim, he wins.
Your Honors, until the District Court's ruling

20

in this case, not one court in the entire country

21

has ever found that the failure to file a claim in

22

either a bankruptcy or a receivership proceeding

23

eviscerates a secured creditor's interest in the

24

property.

25

JUDGE JORDAN:

www.anthemreporting.com

Can I ask you one procedural

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question before you get into the rest of your merits

2

argument?

3

MS. GIDDINGS:

Yes, sir, your Honor.

4

JUDGE JORDAN:

It appears that one of the --

5

we're dealing with two properties because with

6

regard to the third, whether you were required to or

7

not, filed a --

8

MS. GIDDINGS:

Correct.

9

JUDGE JORDAN:

Right?

10

So we're only dealing with the remaining two.

11

MS. GIDDINGS:

12
13
14

Yes.

The Sarasota and Laurel

Mountain.
JUDGE JORDAN:

One of those -- and I forget

which one -- there was one that was sold --

15

MS. GIDDINGS:

Correct.

16

JUDGE JORDAN:

-- before the District Court

17

extinguished your interest in liens in the property.

18

Right?

19

MS. GIDDINGS:

Yes, sir, your Honor.

20

JUDGE JORDAN:

Procedurally, tell me when that

21

occurred, along the timeline, and whether or not you

22

had notice of that action by the Receiver.

23

MS. GIDDINGS:

Your Honors, the claims bar

24

order was issued on April 21, 2010, setting a claims

25

bar date of September 2nd.

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The Sarasota property was sold in -- just one
second.

3
4

JUDGE JORDAN:

can get it for us when you come back.

5
6

If you don't have the date, you

MS. GIDDINGS:

Okay.

The Sarasota property was

not sold until April 29, 2015.

7

JUDGE JORDAN:

So this happened --

Was there any -- at that time,

8

had

you already filed your motion for a

9

determination that you were not required --

10

MS. GIDDINGS:

Yes, sir, your Honor.

11

JUDGE JORDAN:

-- a Proof of Claim?

12

MS. GIDDINGS:

We filed that motion in February

13

of 2012.

14

Because see, remember --

15

JUDGE JORDAN:

After the bar date.

16

MS. GIDDINGS:

After the bar date.

17

But remember, the Receiver originally did not

18

take the position that secured claims were included

19

in this order.

20

The claims bar date was September 2, 2010.

21

In October of 2010, only two months later, the

22

Receiver was communicating with Wells Fargo, asking

23

the payoff amounts of the loans.

24
25

And so the Receiver did not start taking the
position the secured claims were required to be

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filed until late in 2011.
Shortly after Wells Fargo became aware that the

3

Receiver was taking that position, it filed its

4

motion to determine its interest.

5

JUDGE JORDAN:

That motion was pending and your

6

interests had not been extinguished at the time of

7

that sale.

8
9

MS. GIDDINGS:

That's my understanding, your

Honor.

10

JUDGE JORDAN:

Go ahead.

11

MS. GIDDINGS:

Your Honor, requiring secured

12

creditors to file a claim is inconsistent with this

13

Court's precedent.

14

In In Re Thomas and in In Re Bateman, this

15

Court held that a secured creditor does not need to

16

file a claim or proceedings and look to its lien for

17

satisfaction of a debt.

18

This Court noted that this concept, although

19

now codified in the bankruptcy code, arose from

20

judge-made law from the United States Supreme Court

21

pre-bankruptcy law in Long versus Bullard.

22
23
24
25

This is because a state lien priority law is
not an equitable remedy.

It is a legal status.

Those are bankruptcy cases.

But this Court has

held that it looks to bankruptcy cases to resolve

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issues in receivership proceedings when there is not

2

applicable authority in a receivership context.

3

JUDGE PRIOR:

It looks to me like you only

4

cited two District of Utah cases, one of which was

5

unpublished, for the proposition that this motion

6

apply on the receivership context.

7
8
9

What are we going to make of the fact that
there's so little authority?
MS. GIDDINGS:

Your Honor, I think the fact

10

that there is so little authority is because no

11

Receiver has ever taken the position that a secured

12

creditor has to file a claim.

13

There is a litany of United States Supreme

14

Court precedent that we have cited in a brief in the

15

bankruptcy context from Long versus Bullard,

16

Louisville; Butner versus U.S.

17

But in 1920, in the Marshall versus New York

18

case, the United States Supreme Court in a

19

receivership case reached these exact conclusions

20

that a Receiver appointed by a Federal Court takes

21

property subject to all liens and that those liens

22

take priority as governed by state law.

23

And I would state that this Court has said we

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will look to bankruptcy law when there is nothing in

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the receivership context.

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There is simply no found

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policy reason to deviate from those cases in this

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case.

3

The Receiver's only argument is that the sky is

4

going to fall if the District Court's order is

5

reversed because Receivers have to know what claims

6

are out there.

7

But then he can see if he knew about the claim,

8

and he actually cites as prejudice that fact he

9

couldn't sell the property because there were liens

10

on the property.

11

And also, he cites this Court in writing --

12

JUDGE JORDAN:

One of the reasons why I asked

13

that question at the beginning is if you had a lien

14

on the Sarasota property and that lien had not yet

15

been extinguished by Court order, how was the

16

Sarasota property sold?

17

How did anybody provide title?

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MS. GIDDINGS:

Your Honor, that -- I'm not sure

19

the answer to that question, other than the Court

20

took those proceeds and put them in escrow to --

21

JUDGE JORDAN:

I know.

But that's what the

22

Court did afterwards, which I think was the right

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thing to do, given the uncertainty of what was

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happening.

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But who goes to a closing for a million dollar

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real estate property, sees a lien that hasn't been

2

extinguished by Court order and writes a title

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polity?

4
5

MS. GIDDINGS:

I do not know the answer to your

question, your Honor.

6

And I would be happy to supplement the --

7

JUDGE JORDAN:

That's okay.

8

MS. GIDDINGS:

But what I believe happened was

9

that the Court said we're going to take this money

10

and put it aside, so that will take care of any

11

issues regarding the lien.

12

And the money has been held in escrow, and the

13

Court -- in fact, I think that's one of the problems

14

that the District Court had in this.

15

The District Court saw that once the property

16

was sold, the District Court believe that was part

17

of the receivership at stake.

18

And the claims process -- if you look at the

19

claims order and the notice, it says that you have

20

to file a claim if you want to participate in the

21

receivership distributions.

22
23

But we're not seeking anything from the
distributions.

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We're only seeking to satisfy the liens.

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JUDGE JORDAN:

www.anthemreporting.com

You recognize that -- let's

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assume you got proper notice --

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MS. GIDDINGS:

Yes, sir.

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JUDGE JORDAN:

-- for purposes of this

4
5
6
7
8

question.
MS. GIDDINGS:

Which we don't believe we did.

But yes.
JUDGE JORDAN:

I know.

But I'm asking you to

assume it.

9

MS. GIDDINGS:

Okay.

10

JUDGE JORDAN:

If you got proper notice, then

11

by not filing a Proof of Claim, then you basically

12

forfeited any rights to participate in the

13

receivership proceeding in court and get anything

14

out of that proceeding --

15

MS. GIDDINGS:

Yes.

16

JUDGE JORDAN:

-- anything that was collected

17

That's correct.

by the receiver in that proceeding.

18

MS. GIDDINGS:

Right.

19

And your Honor, the classic example of that is

20

the deficiency claim.

21

the loan was for two million and the property was

22

sold for 1.5 million, we would only get that

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1.5 million.

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25

Because if the property -- if

And if we had not filed a claim, then we would
not be entitled to get that half a million.

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JUDGE JORDAN:

So you're stuck with whatever

you realize on the sale of the property.

3

MS. GIDDINGS:

4

time, that's unsecured.

5

Right.

Because at that point in

But at this point, the property sold for less

6

than what our entire loan is, so we should get that

7

entire amount.

8
9

And I think that there are many reasons -- if
you look at the claims order and the claims notice,

10

if you do file a notice -- I mean you do file a

11

claim, then you give up a lot of rights.

12

subject yourself the receivership.

13

right to a jury trial.

14

You do

You give up the

And if a Receiver seeks -- just like a

15

bankruptcy proceeding.

16

divest an entity of their interest in the property,

17

then the proper way for that Receiver to do it is to

18

institute a separate action.

19

If a Receiver seems to

And they actually did that in the Wiand case

20

that is pending before this Court on appeal on a

21

different issue.

22

I think it's really important, your Honor, to

23

the In Re -- and I'm hoping I'm saying this right --

24

the In Re Nguyen case that the receiver relies on to

25

show harm.

He says that a Receiver needs to know

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what claims are out there and talks about the harm

2

that was going to be caused.

3

bankruptcy case, by the way, that he's relying on.

4

JUDGE PRIOR:

And that's a

If you were to agree with your

5

position on the first point of the argument you are

6

making now, there's no reason to reach the clause

7

issue --

8

MS. GIDDINGS:

9

If you decide for restoration 1, then it moots

10

Correct, your Honor.

all the other issues.

11

But I just want to point out to the Nguyen Woo

12

case goes on to discuss in detail that that harm --

13

that concepts do not apply to secured creditors

14

because they pass outside of the proceedings, and it

15

says that secured claims are different.

16

And I would say that harm is going to be caused

17

if you do not reverse the order, because the Supreme

18

Court said in Butner versus United States:

19

uniform treatment of proper interest by both State

20

and Federal Court serves to review uncertainty and

21

discourage forum shopping.

22

The

And so I will save the rest of my time for

23

rebuttal, your Honors.

24

JUDGE JORDAN:

25

MR. KEEFE:

www.anthemreporting.com

All right.

Thank you very much.

May it please the Court, Sean Keefe

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on behalf of the Receiver, Burton W. Wiand.
Your Honors, I have to disagree with my

3

respective colleague regarding what she described as

4

the primary issue here before the Court.

5

The primary issue here before the Court is

6

whether or not a District Court supervising a

7

federal equity receivership, all the broad powers

8

that they had in that capacity, whether or not it

9

had the right to require any and all potential

10

claimants, secured or unsecured, to file a claim

11

before the claims bar.

12

JUDGE PRIOR:

13
14
15
16

Would a bankruptcy court have

such a power in the bankruptcy context?
MR. KEITH:
power.

A bankruptcy court does have that

Yes, sir.

JUDGE PRIOR:

It can terminate security

17

interests for failure to comply with an

18

administrative order that preexisted the bankruptcy

19

estate?

20
21
22

MR. KEEFE:

We believe it does and we believe

we cite to a case that shows an example.
JUDGE JORDAN:

If you have a case to that

23

extent, that is against all authority in the United

24

States.

25

I think you misapprehended the issue.

The issue is not whether the District Court can

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set an order requiring people and creditors secured

2

and otherwise to file Proofs of Claim.

3

that it does have that right.

4

The question is:

I'll accept

What can the District Court

5

do to a secured creditor and its in rem lien if it

6

fails to proceed.

7
8
9

And it seems to me --

I'm flabbergasted by this case.

I really am.

I can't believe that this happened.
But it seems to me that what the secured

10

creditor loses by not filing a Proof of Claim is the

11

ability to participate in any distributions from the

12

receivership proceeding.

13

So if there's excess money that the Receiver is

14

able to marshal from third parties, fraudulent

15

transfers, et cetera, et cetera, and it's in a

16

deficient position, it's stuck.

17

after its real estate and enforce that lien through

18

a foreclosure or some other real estate remedy.

19
20
21

It can only go

You said -- I'm talking a lot, but I am really,
really troubled by this case.
You told the District Court when you filed your

22

motion, when the SEC filed its motion to appoint a

23

Receiver, that the appointment of a Receiver was

24

based in equity.

25

Is that correct?

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MR. KEEFE:

2

JUDGE JORDAN:

3

That is correct.
And you are telling me that what

happened here is equitable?

4

MR. KEEFE:

Yes.

5

JUDGE JORDAN:

You sold a property before the

6

District Court had extinguished, rightfully or

7

wrongly, Wells Fargo's interest.

8
9
10

By Court order, you, as a Receiver, did not
have the right to extinguish any rights that Wells
Fargo had in the Sarasota property.

11

MR. KEEFE:

12

where you're --

13

Okay, your Honor.

Right?

JUDGE JORDAN:

No, no, no.

14

MR. KEEFE:

16

JUDGE JORDAN:

Let's talk to the

questions one by one.

15

I understand

Okay.
You, as the Receiver -- Mr.

17

Wiand as the Receiver -- I don't mean to personalize

18

this -- did not have the ability to personally

19

extinguish the liens of Wells Fargo for failure to

20

file a Proof of Claim.

Correct?

21

MR. KEEFE:

22

JUDGE JORDAN:

23

At the time that Mr. Wiand sold the Sarasota

24

property, the District Court had not extinguished

25

Wells Fargo's lien.

www.anthemreporting.com

Correct.
Okay.

He did not.
Perfect.

Correct?

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MR. KEEFE:

No, it did.

2

JUDGE JORDAN:

3

MR. KEEFE:

4

I understand what your Honor is getting at in

When had --

I believe April of 2015.

5

referencing the previous questions to opposing

6

counsel, and I may suggest we may want to do some

7

supplemental briefing on this issue --

8
9
10

JUDGE JORDAN:

No.

Give me what you think the

timeline was.
MR. KEEFE:

-- because the bank did not object.

11

Because it was -- the --

12

JUDGE JORDAN:

13

MR. KEEFE:

14

JUDGE JORDAN:

That's not the point.

It is.
Was there a Court order

15

extinguishing Wells Fargo's lien for failure to file

16

a Proof of Claim before you sold the Sarasota

17

property?

18

MR. KEEFE:

Before, no.

19

JUDGE JORDAN:

20

MR. KEEFE:

21

JUDGE JORDAN:

That's what I'm saying.

May I direct -How could you sell a property --

22

the order appointing Receiver said that you held

23

property and were able to marshal property subject

24

to whatever orders the District Court was going to

25

issue.

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3

There was no order extinguishing that lien.
How could you sell it?
MR. KEEFE:

No.

Your Honor, that's why I think

4

we'll need to do additional briefing on this

5

because --

6
7
8
9
10

JUDGE JORDAN:

I just

want you to tell me how that happens.
MR. KEEFE:

Because both the -- regarding the

Sarasota property, there were additional financial
institutions involved in, I believe.

11

JUDGE JORDAN:

12

MR. KEEFE:

13

I don't want briefing.

It doesn't matter.

It does.

If I may answer the

question.

14

The parties had agreed, including the title

15

company, to present this in a motion to the District

16

Court to the receivership court to sell the property

17

free and clear of all liens and that the parties

18

would reserve their rights to challenge whether or

19

not any of the vested interests were extinguished.

20
21

JUDGE JORDAN:
to that?

22

MR. KEEFE:

23

JUDGE JORDAN:

24
25

Did Wells Fargo expressly agree

I believe they did but -If they did, that's a whole

different ball game.
You're telling me that after telling the

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District Court that they weren't required to file a

2

Proof of Claim that all of this was just wrong.

3

They agreed to have their property sold free and

4

clear subject to later litigation?

5
6
7

MR. KEEFE:

I want to be clear on this, your

Honor.
My recollection of that is they did, but they

8

were reserving all of their arguments -- all the

9

arguments that they're presenting today.

10

I'm not trying --

11

JUDGE JORDAN:

If you are right about that --

12

if you are correct that Wells Fargo expressly

13

allowed that to happen, then I take back everything

14

I said about the sale of the property.

15

that's a different ball game.

16
17
18

I didn't see that in the record, but it may be
there somewhere.
MR. KEEFE:

I want to be completely candid with

19

the Court regarding that.

20

memory from back in April, 2015.

21

careful.

22

Because

I'm going off of my
I have to be very

I don't want to mislead the Court.

I know that opposing counsel -- excuse me --

23

co-counsel at opposing counsel's table assisted in

24

that, and he might be able to assist lead counsel on

25

that matter.

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I have to be very careful about my language

2

because I don't remember exactly the procedural

3

posture of how that happened.

4
5
6

JUDGE JORDAN:

That's okay.

We'll figure it

out.
JUDGE PROCTOR:

Following up on that, then that

7

would be a waiver, not the Receiver's authority

8

through the District Court to affect the preexisting

9

security interests of an entity that was brought

10

into the receivership.

11

MR. KEEFE:

12

JUDGE PROCTOR:

Correct?

I -- I -If it occurs after the

13

receivership, it doesn't go to your authority as the

14

Receiver to affect security interests that

15

preexisted your receivership.

16
17

MR. KEEFE:
authority.

It's not the Receiver who has the

It's the District Court supervising --

18

JUDGE PROCTOR:

Fine.

And I understand.

19

It seems to me you're wanting to have it both

20

ways in that respect.

21

that argument we stand behind the District Court.

22

In some areas, you say in

And on the takings clause, you say we're not a

23

state actor even though the only authorities we have

24

were provided to us by the District Court.

25

Different issue.

www.anthemreporting.com

I don't want to take you off track

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there.

2

But what I'm suggesting you do is this:

3

argument now is different than the arguments you

4

presented in your brief, it seems.

5
6
7

MR. KEEFE:

In what way, your Honor?

Your

I

disagree.
JUDGE PROCTOR:

The waiver argument essentially

8

that -- you're saying that there was conduct after

9

the receivership in which they have surrendered some

10

rights to their security interests.

11

Is that what

I'm hearing?

12

MR. KEEFE:

No.

13

What we're saying is that when they failed to

14

comply with the claims administration process and

15

file a timely claim, their rights were extinguished,

16

their rights of property.

17

JUDGE PROCTOR:

18
19

company.

That's all we're saying.

That's where we're parting

I'm not sure you're right on that.

MR. KEEFE:

Well, if we examine what the

20

District Court looked at though -- if we look at the

21

order where the Court examined the claims

22

administration process and the order that

23

established the process, the order that established

24

the way notice had to be provided and the same order

25

which established the claimant's bar deadline, it

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2

was clear and unambiguous.
JUDGE JORDAN:

What substantive law gave the

3

District Court the right to extinguish state law

4

secured interest?

5

MR. KEEFE:

The power that many circuits --

6

it's been including this circuit with SEC versus

7

Elliott, the Bender versus Lancer Management that

8

Judge Prior was on the panel for in 2013 -- give

9

wide discretion and wide latitude --

10

JUDGE JORDAN:

What substantive law gave the

11

District Court the right to do this with regards to

12

the preexisting secured interest of Wells Fargo?

13

MR. KEEFE:

The inherent right of a District

14

Court in a federal equity receivership to issue its

15

own case management order and case and claims

16

administration procedure.

17

JUDGE JORDAN:

That inherent right under the

18

supremacy clause trumps a preexisting state law

19

property interest?

20

MR. KEEFE:

It does to the extent that if the

21

bank fails to comply with the process after giving

22

fair notice, it is within the broad discretion of

23

the receivership court to then state my order was

24

clear.

25

It said that any and all entities that wish to

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preserve any claim whatsoever against any

2

receivership entity must file a timely claim so long

3

as notice has been provided.

4

JUDGE JORDAN:

5

interest.

6

You knew that they had an

Claim?

7
8
9

Why did you have to file a Proof of

MR. KEEFE:

Because that's what the Court

required.
JUDGE JORDAN:

10

MR. KEEFE:

11

JUDGE JORDAN:

That's a ridiculous answer.

No, it's -Because if you are saying you

12

need to know to manage the estates and figure out

13

who claims what, who owes what, who demands what,

14

and you know to a legal and moral certainty that

15

Wells Fargo has the lien secured property interest

16

under state law, how is their not filing a claim

17

making it more difficult for you as a Receiver to

18

marshal and pay assets?

19

MR. KEEFE:

Well, because the claims

20

administration process -- the Proof of Claims form

21

solicits information from the potential claimant and

22

allows the Receiver to know exactly how much

23

liability he may be assessed against the entities.

24

And in addition to that --

25

JUDGE JORDAN:

www.anthemreporting.com

What about that didn't you

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already know at the time the claims order was put in

2

place as to Wells Fargo?

3

MR. KEEFE:

We don't know.

Because they never

4

filed a claim with all the relevant information

5

that's asked for in the --

6

JUDGE JORDAN:

What information did you need in

7

order to administer this receivership that you

8

didn't already have at the time that you were aware

9

that they had a secured interest in this property?

10

MR. KEEFE:

There are questions that are part

11

of the Proof of Claim form that went specifically to

12

how -- whether the bank had certain contacts with

13

certain individuals that were running underlying

14

hedge funds and submitted to underlying fraud that

15

led to all of this.

16

There's questions about what --

17

JUDGE JORDAN:

That would not have affected the

18

interest.

19

lawsuit to do something to the interest, but it

20

wouldn't have affected the amount due and owing.

21

I could have allowed you to file another

MR. KEEFE:

But it affects the claims

22

determination motion which the receiver then filed

23

in April of 2011.

24
25

JUDGE JORDAN:

But you are assuming that you

can -- that that process lets you dive into and the

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Supreme Court has made clear time and again that,

2

except for very limited exceptions, property

3

interests are creatures of state law.

4

Is that not right?

5

MR. KEEFE:

6

JUDGE JORDAN:

They are.
And what federal law gives you

7

the right under the supremacy clause to trump state

8

law?

9
10
11

MR. KEEFE:

The law I just -- I've already

cited.
JUDGE JORDAN:

The inherent power of

12

receivership court --

13

MR. KEEFE:

14

JUDGE JORDAN:

15

MR. KEEFE:

16

That's correct.

And I --

-- with no limit.

Of course there's limits, your

Honor.

17

JUDGE JORDAN:

18

substantive power?

19

MR. KEEFE:

What are the limits to that

The limits to that substantive

20

power is that the Court must ensure that there has

21

been a claims administration process that has been

22

fair and equitable, which include --

23
24
25

JUDGE JORDAN:

That's all procedural.

You're

not giving me any substantive limit.
So you're telling me that a District Court that

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obtained subject matter jurisdiction over an SEC

2

equity receivership has no substantive bounds over

3

its power to pierce and extinguish state law

4

security interests, as long as everything is

5

procedurally correct?

6

MR. KEEFE:

7

As long as it satisfies due

process.

8

JUDGE JORDAN:

9

MR. KEEFE:

10

And you can reach anything.

Yes.

As long as it satisfied due

process.

11

JUDGE JORDAN:

12

MR. KEEFE:

13

JUDGE JORDAN:

No substantive limit.

That's correct.
Tell me one case, one treatise,

14

one secondary source, one dissenting opinion that

15

has ever said that in either a bankruptcy or a

16

receivership context.

17

MR. KEEFE:

18

Other than the cases I've already

cited, I cannot.

19

But you just mentioned --

20

JUDGE JORDAN:

21

that say that?

22
23

How many cases have you cited

MR. KEEFE:

It doesn't say specifically that,

no.

24

JUDGE JORDAN:

25

country that does that?

www.anthemreporting.com

This is the first case in the

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MR. KEEFE:

That does what?

2

JUDGE JORDAN:

That allows a Federal District

3

Court administering an SEC equity -- and I repeat

4

that word, "equity receivership" -- to pierce and

5

extinguish a state law secured property interest for

6

failure to file a Proof of Claim.

7

This is the first one in the entire history of

8

the country that I've been able -- I went to Westlaw

9

and searched Westlaw old -- Supreme Court old -- so

10

I went back into the 1800s in the Courts of Appeal

11

-- and they weren't even called Courts of Appeal.

12

I couldn't find a single case that allows a

13

Federal District Court to do this, whether it's

14

under the supremacy clause, under broad equity

15

principles or some other power, whether inherent or

16

otherwise.

17

Am I wrong about that?

18

MR. KEEFE:

19

I don't want to come across as being

20
21

I don't disagree with you.

disrespectful or glib in my response.
JUDGE JORDAN:

You're not.

22

discussing an issue.

23

MR. KEEFE:

We're just

24
25

So I apologize if my tone has been

inappropriate.
JUDGE JORDAN:

www.anthemreporting.com

It has not.

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MR. KEEFE:

The converse is equally true, your

2

Honor.

3

whether or not the abuse of discretion burden has

4

been satisfied here.

5

And I think this is important to determine

There is no case that says that a federal

6

Receiver cannot issue a claims administration

7

process that requires all the creditors, secured or

8

unsecured --

9

JUDGE PROCTOR:

Let me ask you on the standard

10

review whether it's de novo abuse of discretion if

11

we determine that the Receiver and the District

12

Court were required to accept the state interests

13

that were in place at the time the receivership was

14

created and that there was no effect on the status

15

of the creditors underlying lien with respect to the

16

creation or administration of the receivership.

17
18

Then doing what happened in this case would be
de novo wrong and an abuse of discretion.

19

Would you disagree with that?

20

MR. KEEFE:

21

And if I could cite what this Court has

I do disagree with that.

22

previously held regarding what constitutes an abuse

23

of discretion -- and this is related to what I was

24

just mentioning in regards to --

25

JUDGE PROCTOR:

www.anthemreporting.com

Anytime there's an incorrect

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application of law, that's an abuse of discretion.

2

Correct?

3

MR. KEEFE:

That's correct.

4

JUDGE PROCTOR:

If there was an incorrect

5

application of law here, the District Court asserted

6

more authority than it actually had and extinguished

7

a state law right that it had no right to

8

extinguish, that would be an abuse of discretion.

9

Right?

10
11

MR. KEEFE:

If -- presuming that the first part

of your question is correct --

12

JUDGE PROCTOR:

13

MR. KEEFE:

14

JUDGE PROCTOR:

Of course.

-- and we don't believe that it is.
That's why I'm saying depending

15

upon how we come out with respect to the substantive

16

question here, the standard review doesn't really

17

make a difference if we were to hold that there was

18

an incorrect assertion of jurisdiction here to

19

extinguish that state security interest.

20

Would you agree with that?

21

MR. KEEFE:

22
23
24
25

I don't agree with that, your

Honor.
JUDGE PROCTOR:

Tell me where you disagree with

that.
MR. KEEFE:

www.anthemreporting.com

Because -- and this is related to

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what Judge Jordan had mentioned a couple moments ago

2

that he couldn't find a case saying that there was

3

authority.

4
5
6

Conversely, there's no case that says
otherwise.
JUDGE JORDAN:

Sure there is.

The Supreme

7

Court said over and over and over again, in

8

different context, eminent domain, bankruptcy, that

9

a secured creditor's claim is not affected by the

10

status -- or the lien is not affected by the bar

11

date order entered in a case.

12

MR. KEEFE:

That's in a bankruptcy case.

13

JUDGE JORDAN:

14

Why are those cases inapplicable to the

Why are -- yes.

Okay.

15

receivership context when bankruptcy courts and

16

receivership courts borrow from each other when

17

there are unsettled questions?

18

Why should there be -- a bankruptcy trustee is

19

doing the exact same thing that a Receiver is doing.

20

It's marshaling assets.

21

finding stuff.

22

certain things.

23

claims.

24

similar.

25

It's suing people.

It's

It gets Court orders to let it do
It sells assets.

It compromises

The Receiver and the Trustee are very, very

And at the end of the day what a receivership

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court does is very tantamount to what a bankruptcy

2

court does in allowing a discharge or not allowing a

3

discharge or having a plan that's approved or

4

confirmed.

5
6
7

Why are the bankruptcy cases not appropriate to
consider here?
MR. KEEFE:

8

be relevant.

9

of all.

Because -- the bankruptcy cases can

They're not necessarily binding, first

But they could be relevant if you have an

10

issue that is -- for which there's no receivership

11

authority.

12

JUDGE JORDAN:

13

authority on this.

14

MR. KEEFE:

15

JUDGE JORDAN:

16
17

There is no receivership

Not on the precise issue but -I know.

And there is bankruptcy

authority for the precise issue.
There are no cases.

You've told me that

18

they're not binding, but the bankruptcy cases can be

19

persuaded.

Right?

20

MR. KEEFE:

Yeah.

21

JUDGE JORDAN:

Okay.

There are no cases

22

directly on point on the receivership context here

23

about being able to extinguish a prior existing

24

state law secured interest.

25

MR. KEEFE:

www.anthemreporting.com

Right.

Right?

Which is why it can't be an

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abuse of discretion.

2

JUDGE JORDAN:

I understand that argument.

3

In the bankruptcy context, there are plenty of

4

cases from the Supreme Court on down that say that

5

can't happen.

6

So if there's an absence of case law on the

7

receivership side, why shouldn't we borrow from the

8

bankruptcy side?

9

MR. KEEFE:

Because even -- and we cite this in

10

our brief.

11

there are issues where secured creditors still need

12

to file some sort of a claim.

13

Even within the bankruptcy context,

JUDGE JORDAN:

Yes.

And even --

The question is not

14

whether they need to file.

15

consequences of failure to file.

16

The question is the

No one disputes that you could have -- I don't

17

dispute, certainly.

18

colleagues -- that the District Court could have

19

made them file a Proof of Claim.

20

I don't speak for my

I understand that.

And by choosing -- assuming they got notice --

21

by choosing not to file one, they forfeited any

22

right they had to participate in the pool of assets

23

that you marshaled, to their detriment.

24
25

But it doesn't mean they lost a property that
they had made a loan on and that they stood first in

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2

line to foreclose on.
So the issue is not whether you could have made

3

them file a Proof of Claim.

4

The question is:

Substantively, under federal

5

supremacy law, can the effective failure to file

6

extinguish a state law interest?

7

That's the question, it seems to me.

8

MR. KEEFE:

9
10
11

your Honor.

And I understand your question,

And I don't want to sound like a broken

record, and I apologize.
But as long as the due process concerns have

12

been satisfied, an entity cannot just sit on its

13

hands and decide to wait and wait and wait.

14

JUDGE PROCTOR:

15

Let me read you a sentence from Clark on

16

That's the issue, though.

receivers.

17

"The appointment of a Receiver does not

18

invalidate liens existing at the time the Receiver

19

is appointed."

20

That's Judge Jordan's point and my point.

21

"Although it may affect or change the remedy or

22

remedies which the lienholder may use to enforce the

23

lien."

24
25

That's your point, but the limitation of your
point is this:

www.anthemreporting.com

That doesn't extinguish the lien.

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It just means that there may be -- the lienholder

2

may be cut off in using the offices of the Receiver

3

to gain remedies to enforce the lien.

4

Your argument takes that principle and blows it

5

up into exponentially larger proportion by saying

6

that failure to file a claim by the bar date

7

extinguishes the lien.

8

creditors right to enforce the lien with certain

9

remedies within the receivership governed by the

10

Court.

11
12

It doesn't merely affect the

And I think that's what this whole case comes
down to, isn't it?

13

MR. KEEFE:

No.

I believe -- and I apologize

14

for having to keep disagreeing with the Court like

15

this.

16

What it comes down to is whether or not the

17

District Court had the inherent authority to have to

18

issue equitable relief -- I didn't mean to cut you

19

off.

20

JUDGE PROCTOR:

Look, the District Court

21

obviously had the inherent authority to establish

22

authority.

23
24
25

The question becomes:

What could the District

Court do if the bar date was not complied with?
Clark on Receivers says here that it doesn't --

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any point of Receiver or action of Receiver -- I

2

think would be the logical extension -- cannot

3

invalidate a preexisting lien.

4

It can affect the way that the lienholder may

5

use certain remedy or remedies within the

6

receivership to enforce the lien.

7

MR. KEEFE:

The appointment of the Receiver

8

does not invalidate the lien.

9

dispute.

10

That part is not in

What invalidated the lien that would extinguish

11

the bank's interest was the failure to comply with

12

the process.

13
14
15

JUDGE JORDAN:

You can wrap up.

This is taking

you way beyond your time.
MR. KEEFE:

I would just close with:

If the

16

Court would -- we invite the Court to look at the

17

SEC versus Hardee matter out of the Ninth Circuit

18

which in detail goes over the importance of a claims

19

administration process in the federal receivership,

20

and it looks at the factors to determine whether or

21

not the process was fair, whether or not the

22

dateline was fair, and whether or not a Court has a

23

right to deny or reject claims.

24
25

And lastly, I could point the Court to the
Bender versus Lancer Management opinion, as well.

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Your Honor, I appreciate your time.

2

And again, if the Court would like a brief

3

regarding the property matter, the Receiver would

4

have no objection.

5

JUDGE JORDAN:

6

at the record ourselves.

7

MR. KEEFE:

8

JUDGE JORDAN:

9
10

We may not.

We'll take a look

Thank you, your Honor.
Ms. Giddings, you've got your

rebuttal time left.
MS. GIDDINGS:

Your Honors, Mr. Wirth, who was

11

trial counsel, was able to shed some light on your

12

question.

13

and explain exactly what happened.

14

Let me just go through a brief timeline

In December 2011, a year and several months

15

past the claims bar date, the Receiver filed a plan

16

of distribution, and that was when it became obvious

17

that the Receiver was saying the secured interest

18

were eviscerated by failing to file a claim.

19

And on February 8, 2012, Wells Fargo filed its

20

motion saying -- at that point in time, the

21

properties had not been sold.

22

Wells Fargo filed its motion asking that it

23

either be able to late file the claims and stating

24

that the Court could not eviscerate secured

25

interest.

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The Court -- because there were other

2

proceedings, the Court deferred ruling on this

3

because there were some disqualification motions.

4

There was this outside proceeding that the Receiver

5

had brought against the Laurel Preserve that's

6

pending here.

7

On April 15, 2015, the District Court denied

8

another entity, BB&T, who made the same claim that

9

Wells Fargo is making here, saying that its secured

10

interest fell outside the receivership, and the

11

Court denied that.

12

Then the Sarasota property came up for sale.

13

And so the Receiver and Wells Fargo entered into an

14

agreement that said, This is a good sales price.

15

will allow you to sell the property with the

16

understanding that this money is going to be held

17

over here until this issue is decided and that our

18

lien effectively transfers to this collateral that

19

you're holding while the Court resolves the issue of

20

whether we had to file a claim to preserve our

21

property interest.

22

JUDGE JORDAN:

23

We

Mr. Keefe was correct that,

although you weren't giving up any claims you had --

24

MS. GIDDINGS:

Right.

25

JUDGE JORDAN:

-- it was an agreement between

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the parties that, given the situation, you were

2

going to sell the property --

3

MS. GIDDINGS:

Right.

4

JUDGE JORDAN:

-- and put the money in escrow.

5

MS. GIDDINGS:

But there was no waiver.

6

This was an agreement that was reached so that

7
8
9

our lien attached to that collateral -JUDGE JORDAN:

Right, right.

But there was no

dispute over the actual sale taking place --

10

MS. GIDDINGS:

Correct.

11

JUDGE JORDAN:

-- as long as the proceeds were

12
13
14

held.
MS. GIDDINGS:

So that's how it was able --

that's how it was able to be sold.

15

Now, the Laurel --

16

JUDGE JORDAN:

Everybody's on the same page.

17

MS. GIDDINGS:

The Laurel Mountain Preserve

18

property has not been sold.

19

The SEC versus Hardee case, your Honor, it says

20

everything that opposing counsel says it says except

21

it's not dealing with secured claims.

22

This Court, based on your questions, I believe

23

that the Court agrees that -- or I hope it agrees --

24

that secured interests cannot be eviscerated by a

25

Court order.

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Page 39
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And I would call the Court's attention to this

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Court's case in FDIC versus LaCentra Trucking.

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says it defies common sense that a Receiver has

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never been presented with a claim when the Receiver

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has known about the claim all along and is arguing a

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"gotcha" based on a procedural nuance.

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It

And again, I would refer this Court to the

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Marshall versus New York case, which is a case in

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the United States Supreme Court in which -- in the

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receivership context, it says that a Receiver

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appointed by a Federal Court takes property subject

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to all liens and those liens take priority as

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governed by state law.

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So we would ask that you reverse the District
Court's order.
JUDGE JORDAN:
much.

All right.

Thank you both very

It's been helpful.

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We're at recess until tomorrow morning.

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(Proceedings adjourned.)

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Page 40
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CERTIFICATE OF TRANSCRIPTION

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STATE OF FLORIDA

)

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COUNTY OF PINELLAS

)

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I, Suzanne M. Peterson, certify that I was

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authorized to and did transcribe the audio that was

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provided to me and that the foregoing pages 4 through 39,

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inclusive, are a true and complete record of said audio

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to the best of my ability.

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I further certify that I am not a relative or

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employee of any of the parties, nor am I a relative or

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Counsel connected with the parties' attorneys or counsel

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connected with the action, nor am I financially

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interested in the outcome of the action.

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DATED this 19th day of December, 2017.

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____________________________
Suzanne M. Peterson
Stenograph Shorthand Reporter
Notary Public State Of Florida

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My Commission Expires March 8, 2018
Commission # FF 087147

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