Securities and Exchange Commission v. Nadel et al
RESPONSE To Opposition to Late Claim Motion filed by Wells Fargo Bank, N.A.. (Wirth, Steven)
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
SECURITIES AND EXCHANGE
SCOOP CAPITAL, LLC,
SCOOP MANAGEMENT, INC.,
CASE NO.: 8:09-0087-T-26TBM
SCOOP REAL ESTATE, L.P.,
VALHALLA INVESTMENT PARTNERS, L.P.,
VALHALLA MANAGEMENT, INC.,
VICTORY IRA FUND, LTD.,
VICTORY FUND, LTD.,
VIKING IRA FUND, LLC.,
VIKING FUND, LLC., and
VIKING MANAGEMENT, LLC.
REPLY OF WELLS FARGO BANK, N.A. TO RECEIVER'S OPPOSITION
TO MOTION OF WELLS FARGO BANK, N.A. (I) FOR DETERMINATION
THAT THE FILING OF PROOFS OF CLAIM HEREIN IS NOT
NECESSARY TO PRESERVE SECURED CREDITORS' VALID
STATE LAW SECURITY INTERESTS IN, AND CLAIMS AGAINST,
COLLATERAL IN THE RECEIVER'S POSSESSION OR, IN THE
ALTERNATIVE, (II) FOR LEAVE TO FILE LATE CLAIMS
Wells Fargo Bank, N.A. ("Wells Fargo"),1 a valid secured creditor and party in
interest herein, recently filed a motion seeking a determination by this Court that the
filing of proofs of claim in this case is not necessary to preserve certain secured creditors'
Wells Fargo is successor by merger to Wachovia Bank, N.A.
valid state law security interests in, and claims against, collateral in the Receiver's
possession or, in the alternative, (ii) leave to file late claims (Doc. No. 740) (the
Specifically, the Motion relates to the following properties:
approximately 420 acres near Asheville, North Carolina in Buncombe and McDowell
counties (the "Laurel Mountain Property"); and (2) 464 Golden Gate Point, Unit 703,
Sarasota, Florida (the "Sarasota Property"),3 and it should be granted for several reasons.
See Motion at pp. 8-16.
The Receiver filed his opposition to the Motion (Doc. No. 755) (the
"Opposition"). He objected to the Motion for several reasons, none of which support his
baseless theory that secured creditors are required to file proofs of claim in equitable
proceedings such as this. In fact, the Receiver does not cite a single case holding that a
secured creditor with state law property rights and security interests in real property is
required to file a claim in a receivership proceeding. Instead, the Receiver spends over
five pages on the bar date notice – which is markedly similar to those used in chapter 11
bankruptcy cases throughout the country – as a basis to invalidate the Secured Creditors'
state law property rights and security interests in their real property collateral. This
argument, however, is a red herring and should be disregarded. As noted in the Motion
Capitalized terms used but not specifically defined herein shall have the respective meanings ascribed to
them in the Motion.
As noted in the Motion, Well Fargo is (1) a first priority secured lender with respect to the Rite Aid
Property, (2) a first priority secured lender with respect to the Laurel Mountain Property, (3) loan servicer
on a first priority secured loan held by Freddie Mac with respect to the Evergreen Property, and (4) loan
servicer on a first priority secured loan held by Bank of America, N.A. ("BOFA") and a second priority
secured lender with respect to the Sarasota Property. In his Opposition, the Receiver confirms that he
intends to remain current on the Freddie Mac loan with respect to the Evergreen Property and to satisfy the
loan when property is sold. See Opposition, n.1. As such, the Court need not address that loan in the
context of this Motion; accordingly BOFA and Wells Fargo are collectively referred to in this Reply as the
and discussed below, secured creditors are not required to file proofs of claim when
seeking to enforce their claims solely against specific collateral, and the cases cited in the
Receiver's Reply confirm this established legal principle. Alternatively, equity strongly
favors the allowance of untimely claims by the Secured Creditors because there will be
absolutely no prejudice to the receivership as there is no distribution plan in place, and
the Court, all interested parties and Receiver have been on notice of these secured claims
from the outset.
Wells Fargo Was Not Required to File Proofs of Claim to Preserve the
Secured Creditors' State Law Security Interests In, and Claims Against,
Their Real Property Collateral
The Receiver primarily relies on Rielse v. Margolies, 279 U.S. 218, 224 (1929) to
support his theory that every creditor, including secured creditors, must file a proof of
claim in a receivership case. Unfortunately for the Receiver, Margolies does not even
address the implication of the filing of proofs of claims by secured creditors (or any
creditors for that matter).
Instead, the Morgolies Court addressed the ability of a
plaintiff/unsecured creditor to litigate his claims outside of the receivership, the res
judicata effect of a ruling procured in state court, and an unsecured creditor's right to
share in a general fund of assets to be distributed pro rata to unsecured creditors. Id.
The Margolies Court ultimately held that it was proper for a plaintiff/unsecured creditor
to litigate his breach of contract claims in state court and that the judgment procured
therein was binding in the federal receivership case.
Id. at 226-27.
Margolies has no application here and should be disregarded.4
Next, the Receiver relies on a series of bankruptcy cases which he alleges hold
that secured creditors must file proofs of claim in bankruptcy. The first set of cases are
chapter 13 reorganization cases where individual debtors were seeking to retain their
primary residences and cure any default arrearages owed to their secured lenders over the
course of a chapter 13 plan. See In re Strong, 203 B.R. 105, 112 (Bankr. N.D. Ill. 1996);
In re Parrish, 326 B.R. 708 (Bankr. N.D. Ohio 2005); In re Macias, 195 B.R. 659, 663
(Bankr. W.D. Tex. 1996). While a secured creditor is required to file a proof of claim in
a chapter 13 case in order to have its arrearages paid over the life of the chapter 13 plan,
the non-filing of the claim does not affect the validity of its claims against, and security
interests in, their collateral. In fact, irrespective of whether a secured lender files a proof
of claim in a chapter 13 case, a chapter 13 debtor is nonetheless required to make its
monthly loan payments (less any arrearages) to their secured lenders outside of the plan.
See, e.g., In re Parrish, 326 B.R. at 718 ("As a practical matter, secured creditors
routinely file proofs of claim in chapter 13 cases so that they can receive payment
through the chapter 13 plan on any arrearage due.") (emphasis supplied). Thus, a secured
creditor is only required to file a proof in a chapter 13 case if it seeks to have its loan
arrearages paid over the course of the plan; otherwise it must wait to recover such
amounts after the plan is fully consummated.
In fact, Margolies actually contradicts the Receiver's assertions that all rights to receivership property
must be adjudicated in the receivership court so that all assets can be distributed before the receivership is
concluded. See Opposition at p. 10. The Receiver's recent lawsuit against Wells Fargo in Sarasota County
Circuit Court also belies these assertions. Id., Exh. A, Parts I and II.
Next the Receiver relies on chapter 11 bankruptcy cases which do not help his
cause. In In re MarketXT Holdings Corp., 336 B.R. 67, 71 (Bankr. S.D.N.Y. 2006), the
court determined that an assignee of a pre-petition lawsuit that failed to file a proof of
claim prior to the bar date was precluded from participating in the distribution of the
proceeds of the lawsuit. Three facts in that case were significant. First, the underlying
assignment agreement was rejected by the debtor, thus resulting in a breach of the
agreement and the assignee having a general unsecured claim for its damages. See 11
U.S.C. § 365(g)(1); 11 U.S.C. § 502. Id. at 69. Second, the court determined that the
assignee's rights were derivative of the debtor and thus at most the assignment granted
the assignee a participation interest in the proceeds of the lawsuit. Third, the assignee's
lien did not come into existence until a judgment was entered or a settlement was reached
(which had not yet occurred), and the lien did not relate back to the date of the prebankruptcy assignment. Id. at 71-72; see Law Research Serv. v. Martin Lutz Appellate
Printers, 489 F.2d 836, 838 (2d Cir. 1974) (citing Okin v. Isaac Goldman Co., 79 F.2d
317, 319 (2d. Cir. 1935).
As a result of these unusual circumstances, the court
determined that the filing of a proof of claim was fatal to the assignee, who was a general
unsecured creditor and at best a future lienholder. Id. at 73.
The Receiver next relies on Liona Corp., Inc. v. PCH Assocs., 949 F.2d 585, 605
(2d Cir. 1991), which also does not support his position. Liona Corp. involved an undersecured creditor that failed to file a proof of claim before the bar date and who sought to
receive distributions from the debtor's general fund to pay its unsecured deficiency claim.
The Liona court also specifically determined that because all parties were on notice of the
claim and because Liona would have to consent to the sale of its collateral, it was not
barred from asserting a claim against the debtor's estate. Id. at 605. Thus, while the
filing of a proof of claim may be advisable under certain circumstances, such when a
claim is only partially secured in order to establish a deficiency claim in order to share
pro rata in the general pool of assets for the unsecured portion of its debt, a proof of
claim is not required to enforce a secured creditor's claim against its collateral outside of
the proceeding. See, e.g., In the Matter of Richard Louis Alexander, 2011 U.S. App.
LEXIS 17110 (7th Cir. Aug. 16, 2011) (holding that a secured creditor who is only
looking to proceed with a foreclosure action against the mortgaged property need not file
a proof of claim to protect its rights to the collateral). The cases cited by the Receiver
confirm this bedrock legal principle.5
Thus, contrary to the Receiver's assertions, the governing rule is that a secured
creditor is not required to file a proof of claim in an equitable proceeding, irrespective of
any bar date order entered in the case. See, e.g., Johnson v. Home State Bank, 501 U.S.
78, 84 (1991) ("Rather, a bankruptcy discharge extinguishes only one mode of enforcing
a claim -- namely, an action against the debtor in personam -- while leaving intact
another -- namely, an action against the debtor in rem"); In re Schwalb, 347 B.R. 726,
753 (Bankr. D. Nev. 2006) (irrespective of whether a secured creditor files a proof of
claim, it is bedrock legal principal "that a secured claim passes through bankruptcy
unaffected absent some affirmative action to set it aside."); see also Louisville Joint Stock
The Receiver's citation to U.S. Nat. Bank of Johnston v. Chase Nat. Bank of N.Y.C., 331 U.S. 28, 33
(1947) is equally unavailing. Johnston merely stands for the proposition that if possession of collateral is
required in order to perfect a creditor's security interest (such as with equity securities), that creditor must
file a claim if that property is in the possession in the Receiver. Here, possession was not required to
perfect the Secured Creditors' security interests, which were properly recorded under state law.
Land Bank v. Radford, 295 U.S. at 589 (“[T]he position of a secured creditor, who has
rights in the specific property, differs fundamentally from that of an unsecured creditor,
who has none.”).
This Court Should Grant Wells Fargo Leave to File Proofs of Claim Because
There is No Prejudice to the Receivership Estate
The Receiver asks this Court to ignore Wells Fargo's valid state law security
interests because the Receiver contends he will be prejudiced. This Court should reject
the Receiver's false cry of prejudice for several reasons. First, as Wells Fargo noted in its
Motion, the Receiver has been fully aware of the claims of the Secured Creditors, and
even listed them in each of his interim reports filed with the Court after the Properties
were brought into the receivership estate. (See, e.g., Doc. Nos. 324, 327, 362, 516, 517
and 647). In response, the Receiver does not contend that he was surprised or unaware
of these claims. He cannot make this argument, because it is clear from the Receiver's
own representations to the Court that the Receiver was indeed aware of these claims.
Second, the Receiver has not filed a distribution plan yet, and has not made any
distributions to investors or creditors. As Wells Fargo notes in its Motion, the only
distributions the Receiver appears to have made at this point are to pay himself and his
counsel. Wells Fargo in its Motion cites a number of cases to support the proposition that
where a plan is not yet confirmed, and the debtor was on notice of the existence of a late
claim, there is no prejudice. (See, Doc. No. 740, p. 13-14) (citing In re Lynch, 2004
Bankr. LEXIS 2042 at *4 (Bankr. E.D. Pa. 2004); In re Herman's Sporting Goods, Inc.,
166 B.R. 581, 584 (Bankr. D. N.J. 1994); In re Eagle Bus, 62 F.3d 730, 738 (5th Cir.
1995); In re Beltrami Enterprises, Inc., 178 B.R. 389, 392 (Bankr. M.D. Pa. 1994); In re
Tannen Towers Acquisition Corp.¸ 235 B.R. 748, 755 (D. N.J. 1999). The Receiver does
not directly respond to these cases or to this argument.
Essentially, the Receiver's
response as to why he will be prejudiced is to repeat over and over again that he will be
prejudiced. (See, Doc. No. 755, p. 20). This circularity does not provide a basis for
supporting the Receiver's position. See, e.g., In re O'Brien Environmental Energy, Inc.,
188 F. 3d 116, 127 (3d Cir. 1999) (noting that "prejudice is not an imagined or
hypothetical harm; a finding of prejudice should be a conclusion based on facts in
About the best the Receiver can say to support his claim of prejudice is that if this
Court grants Wells Fargo's Motion, the Receiver "will be forced to expend Receivership
resources in addressing this dispute to the detriment of the Receivership estate." (See
Doc. No. 755, p. 20). Essentially, the Receiver's argument as to prejudice is that he will
be forced to deal with Wells Fargo's claims, and this will cost the receivership estate
money. This argument does not provide a basis for this Court to ignore Wells Fargo's
valid secured claims, nor does it amount to a basis for prejudice. "Otherwise, 'virtually
all late filings would be condemned by this factor.'" In re O'Brien Environmental Energy,
Inc., 188 F.3d at 126 (citing Manousoff v. Macy's Northeast Inc. (In re R.H. Macy &
see also 166 B.R. 799, 802 (S.D.N.Y. 1994) (holding that the depletion of
resources otherwise available for timely filed claims is not prejudice); In re Papp
International, Inc., 189 B.R. 939, 945 (Bankr. D. Neb. 1995).
The Court Should Grant Wells Fargo Leave to File Proofs of Claim
Under the Excusable Neglect Standard
The Court should grant Wells Fargo leave to file proofs of claim and deem them
timely filed under the "excusable neglect" standard established by the Supreme Court in
Pioneer Inv. Services Co. v. Brunswick Assoc. Ltd. Partnership, 507 U.S. 330 (1992). In
Pioneer, the Supreme Court held that when analyzing a claim of excusable neglect,
courts should "tak[e] account of all relevant circumstances surrounding the parties
omission," including "the danger of prejudice to the [nonmovant], the length of the delay
and its potential impact on judicial proceedings, the reason for the delay, including
whether it was in the reasonable control of the movant, and whether the movant acted in
good faith." Id. at 395. The Court "accorded primary importance to the absence of
prejudice to the nonmoving party and to the interest of efficient judicial administration."
Cheney v. Anchor Glass Container Corp., 71 F.3d 848, 850 (11th Cir. 1996). The lack of
prejudice to the Receiver is critical in the Court's analysis to permit Wells Fargo leave to
file the proofs of claim, and the Receiver has asserted no facts or reasoning to support his
assertion of prejudice.
CERTIFICATE OF SERVICE
I hereby certify that on February 28, 2012, I electronically filed the foregoing
with the Clerk of the Court by using the CM/ECF system, which provided notice to all
CM/ECF participants in this case.
I further certify that I mailed the foregoing document and the notice of electronic
filing by first-class mail to the following:
Arthur G. Nadel
FCI BUTNER LOW
Federal Correctional Institution
P.O. Box 999
Butner, NC 27509
/s/ Steven R. Wirth
L. Joseph Shaheen, Jr.
Florida Bar No.: 212385
Steven R. Wirth
Florida Bar No.: 170380
401 East Jackson Street, Suite 1700
Tampa, Florida 33602
Telephone: (813) 223-7333
Facsimile: (813) 223-2837
Counsel for Wells Fargo, N.A.
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