Securities and Exchange Commission v. Alternate Energy Holdings, Inc et al

Filing 284

MEMORANDUM DECISION AND ORDER Defendant Alternate Energy Holdings, Inc.'s Motion to Approve Settlement and to Release Funds, or in the Alternative, to Deposit Funds with the Court (Docket No. 269) is DENIED; Defendant Alternate Energy Holdings , Inc.'s Motion to Approve Payment of Fees and Costs of Aldrich Law Firm, LTD. (Docket No. 271 ) is DENIED; and Plaintiff Securities and Exchange Commissions Motion to Strike Affidavit of John P. Aldrich (Docket No. 282 ) is DENIED as moot. Signed by Judge Ronald E. Bush. ((jp)

UNITED STATES DISTRICT COURT
DISTRICT OF IDAHO

SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,

Case No.: 10-CV-00621-EJL-REB
MEMORANDUM DECISION AND
ORDER RE:

vs.
ALTERNATE ENERGY HOLDINGS, INC.,
DONALD L. GILLISPIE, and JENNIFER
RANSOM,

AEHI’S MOTION TO APPROVE
SETTLEMENT AND TO RELEASE
FUNDS, OR IN THE ALTERNATIVE,
TO DEPOSIT FUNDS WITH THE
COURT

Defendants,
(Docket No. 269)
and
BOSCO FINANCIAL, LLC, and ENERGY
EXECUTIVE CONSULTING, LLC, and BLACK
& LOBELLO, LLC,

AEHI’S MOTION TO APPROVE
PAYMENT OF FEES AND COSTS OF
ALDRICH LAW FIRM, LTD.
(Docket No. 271)

Relief Defendants.

Currently pending before the Court are Defendant Alternate Energy Holdings, Inc.’s (1)
Motion to Approve Settlement and to Release Funds, or in the Alternative, to Deposit Funds
with the Court (Docket No. 269), and (2) Motion to Approve Payment of Fees and Costs of
Aldrich Law Firm, LTD. (Docket No. 271). Having carefully considered the record and
otherwise being fully advised, the Court enters the following Order:
I. BACKGROUND
In June 2012, Defendant Alternate Energy Holdings, Inc. (“AEHI”) and Hamilton
Guaranty Capital, LLC (“Hamilton”) entered into a Financial Service Agreement (the “Financial
Service Agreement”) that required approximately $2 million (the “Advance Payment”) to be

MEMORANDUM DECISION AND ORDER - 1

deposited by AEHI into an escrow account controlled by Black & LoBello, LLC (“Black &
LoBello”), a Las Vegas, Nevada law firm. Shortly after the Advance Payment was deposited
with Black & LoBello, a dispute arose between AEHI and Hamilton concerning the terms of the
Financial Service Agreement and the party that was entitled to receive the Advance Payment. In
August 2012, after receiving conflicting demands for the Advance Payment, Black & LoBello
filed a Complaint for Interpleader against AEHI and Hamilton in Nevada state court. In
September 2012, the Nevada state court ordered that (1) the Advance Payment be placed in a
blocked account that cannot be accessed without further order of the court, and (2) that the
matter be resolved by mandatory binding arbitration pursuant to the terms of the Financial
Service Agreement.
On November 1, 2012, Plaintiff, the Securities and Exchange Commission (the
“Commission”), filed a Motion for Order to Show Cause and Order Freezing $2 Million Held by
Black & LoBello, LLC (“Motion to Freeze”), arguing that, in direct contravention to this Court’s
February 14, 2011 Order on Order to Show Cause,1 Defendant Donald Gillispie secretly
transferred the $2 million Advance Payment to Black & LoBello’s escrow account. See Mot. to

1

In relevant part, U.S. District Judge Edward J. Lodge’s February 14, 2011 Order on
Order to Show Cause states:
Defendant AEHI agrees that it shall, within thirty (30) days of this Order, and every
thirty (30) days thereafter unless ordered otherwise by this Court, provide to the
Commission a complete and accurate accounting of all its expenditures that equal or
exceed $2,500.00.00 (the “Monthly Accounting”). The expenditures covered by the
Monthly Accounting shall include, but not be limited to, transactions that have the
effect of transferring, assigning, selling, hypothecating, changing, wasting,
dissipating, converting, concealing, encumbering, or otherwise disposing of, in any
manner, funds, assets, securities, claims, or other property wherever located and for
any purpose . . . .
See 2/14/11 Order at ¶ 6, pp. 3-4 (Docket No. 56).
MEMORANDUM DECISION AND ORDER - 2

Freeze (Docket No. 219). As a result, the Commission moved for an order (1) directing AEHI
and Gillispie to show cause why they should not be held in contempt of the Court’s February 14,
2011 Order, and (2) freezing the $2 million held in Black & LoBello’s escrow account, “thereby
preserving the funds from waste and dissipation until further order of this Court.” See id., p. 1.
On March 13, 2013, the undersigned denied the Commission’s Motion to Freeze, but
nonetheless imposed certain conditions moving forward, speaking to the $2 million’s eventual
distribution. See 3/13/13 MDO (Docket No. 241). Specifically, the March 13, 2013
Memorandum Decision and Order stated in relevant part:
As to this Court’s authority to freeze the $2 million Advance Payment that is already
the subject of an interpleader action in another court, the undersigned questions his
inherent jurisdiction to grant the relief the Commission now seeks – even if inclined
to do so. In other words, it has not been shown (and the undersigned is likewise not
convinced) that this Court can order either (1) the Nevada state court to follow this
Court’s direction concerning the distribution of the interpleaded funds, or (2) Black
& LoBello not to disburse those amounts to a party found to be entitled to the same
following an arbitration award or order of the court.
Therefore, to address the Commission’s concerns, while still keeping intact all
relevant parties’ interests in the Advance Payment while the Nevada state court
proceeding runs its separate course, this Court orders that, once either an informal
agreement between AEHI and Hamilton is reached, an arbitration award is issued,
or a court order is entered regarding the $2 million Advance Payment’s
apportionment (whichever occurs first, even if preceding a court order disposing of
the interpleader action or confirming any arbitration award), (1) Gillispie and AEHI
immediately inform this Court of the status relating thereto (through a formal filing
in this action, served upon all parties to this action), and (2) any and all funds
reverting back to AEHI be frozen until either AEHI, Gillispie, and/or the
Commission moves to set aside this Order freezing those funds. Until then, AEHI
and Gillispie may not expend such funds.
Id. at pp. 19-20. On April 1, 2013, the Commission objected to the March 13, 2013
Memorandum Decision and Order, arguing that the Court should exercise its authority to issue a
freeze order. See Obj. (Docket No. 243).

MEMORANDUM DECISION AND ORDER - 3

On July 17, 2013, the Commission asked again for an order from this Court freezing the
$2 million Advance Payment, arguing that (1) AEHI and Hamilton stipulated to the payment of
arbitration expenses ($10,800) using funds taken from the $2 million Advance Payment, and (2)
did so without notifying the Commission or this Court pursuant to the March 13, 2013
Memorandum Decision and Order. See Renewed Mot. to Freeze (Docket No. 258). Black &
LoBello, Gillispie, and AEHI opposed the Commission’s Renewed Motion to Freeze. See Jones
Aff. (Docket No. 260); Black & LoBello’s Opp. to Renewed Mot. to Freeze (Docket No. 261);
Roth Aff. (Docket No. 262); and AEHI’s Joinder (Docket No. 263).
On November 4, 2013, the undersigned denied the Commission’s Renewed Motion to
Freeze, finding in relevant part:
As a threshold matter, the Commission takes issue with the use of the Advance
Payment to reimburse $10,800 in arbitration expenses, offering the fact of such
payment as a basis to freeze the Advance Payment in its entirety. However, and
notwithstanding the potential merits of any such objection, from the Court’s
perspective, nothing has changed with respect to its ability to grant the relief the
Commission now seeks. That is, any concern the undersigned had as to his
underlying jurisdiction to consider and grant the Commission’s first Motion to
Freeze is not solved by the second, Renewed Motion to Freeze’s mere outline of
events concerning the Advance Payment and arbitration between AEHI and
Hamilton. Simply put, the undersigned remains unconvinced that this Court can
order the Nevada state court to follow a directive from this Court as to the handling
of the Advance Payment – including Black & LoBello’s disbursement of funds from
the Advance Payment pursuant to an order from the Nevada state court. The
Commission offers no compelling legal justification for doing so within its second
Motion to Freeze.
11/4/13 MDO, pp. 4-5 (Docket No. 264) (emphasis in original, citations and footnote omitted).
On November 18, 2013, the Commission objected to the November 4, 2013 Memorandum
Decision and Order, requesting that the Court order the requested freeze. See Obj. (Docket No.
265).

MEMORANDUM DECISION AND ORDER - 4

On February 14, 2014, AEHI filed a Notice of Potential Settlement between it and
Hamilton. See Not. (Docket No. 266). On February 18, 2014, the Commission responded to
AEHI’s February 14, 2014 Notice, raising arguments similar to those previously made in its
Motion to Freeze and Renewed Motion to Freeze:
As the Commission’s Renewed Request, and its Objection to the Magistrate’s
Memorandum Decision denying the request describe, AEHI was using some of the
funds that had been “frozen” by stipulation in a Nevada state action in the Black &
LoBello bank account to pay its litigation costs in an Arbitration action that had been
instituted in lieu of litigating the Nevada state court action. Now, in the recently
filed Notice, AEHI has stated its intent to use that frozen money to pay $550,000 to
its opponent in the Arbitration, Hamilton . . . .
Permitting AEHI, by “agreement” with [Hamilton], to dispose of $550,000 of the last
of the remaining funds that AEHI fraudulently obtained from its shareholders would
only compound the harm to shareholders AEHI has already wrought. . . . .
As AEHI’s own filings now make clear, AEHI was duped by [Hamilton]. [Hamilton]
has no legitimate claim to any of the $2 million – and [Hamilton] has never been put
to any test to show why it should be paid any of the money which rightfully belongs
to the shareholders who were defrauded by AEHI. Nevertheless, AEHI now
proposes to use this scare shareholder money to pay off HGC – in the amount of
$550,000 – and to further pay whatever (untallied) expenses AEHI has incurred in
the Arbitration and in parking the shareholders’ money in an attorney’s account in
Las Vegas.
The Court should not permit the parties to an Arbitration to divvy up the money that
AEHI should rightfully be ordered to disgorge, and which should be returned to the
investors who were defrauded. . . . .
See Rep. to Not., pp. 1-2 (Docket No. 267).
On April 2, 2014, AEHI filed the at-issue Motions. See Mot. to Approve Sett. and
Release Funds (Docket No. 269); Mot. to Approve Pymt. of Fees/Costs (Docket No. 271).
Generally, these Motions (1) seek approval by the Court of the proposed settlement between
AEHI and Hamilton, (2) request that the settlement funds be released to AEHI so it can continue
to operate, and (3) reimburse the Aldrich Law Firm for its services in the Nevada state court
MEMORANDUM DECISION AND ORDER - 5

action. On April 23, 2014, the Commission opposed the Motions. See Resp. to Mot. to Approve
Sett. and Release Funds, p. 1 (Docket No. 274) (“Under the guise of a ‘settlement’ of an
arbitration, AEHI proposes paying [Hamilton] $550,000 that belongs to the defrauded investors
of AEHI. AEHI’s stated reasons for paying the $550,000 ransom to HGC make no sense. . . . .
AEHI’s proposal should be declined, and an order freezing the $2 million should be entered by
this Court. AEHI’s request is itself further indication that the $2 million is not safe unless it is
subject to a freeze order by this Court that would preserve the status quo pending this Court’s
assessment of disgorgement against AEHI.”); Resp. to Mot. to Approve Pymt. of Fees/Costs, p.
1 (Docket No. 275) (objecting to reimbursement of costs/fees “as an inappropriate waste of the
few funds remaining after AEHI defrauded members of the public out of $14.5 million” and,
additionally, “AEHI’s Motion to pay from these remaining funds a specific attorney – essentially
choosing one creditor among many, and elevating the creditor above defrauded investors – is
unfair and should be rejected . . . .”).2
On May 13, 2014, U.S. District Judge Edward J. Lodge issued a Memorandum Decision
and Order, addressing (in part), the Commission’s previous objections to the undersigned’s
consideration of the Commission’s Motion to Freeze and Renewed Motion to Freeze. See

2

In its separate response to the Motions, Black & LoBello argues that whatever relief
AEHI is seeking with regard to the settlement and/or settlement funds, it should be pursued in
the Nevada state court action and, following any related order from the Nevada state court, this
Court could then make any ruling as to the released funds. See Resp. to Mot. for Sett., pp. 5-6
(Docket No. 277) (“In other words, if the court in Nevada orders a certain amount to be
disbursed to the Parties, this Court can order that any funds disbursed by the Nevada court to
either Party be dealt with in a specific way, be it deposited with the Court in Idaho or to each
party. But the order for initial disbursement pursuant to a settlement agreement as to the
Advance Fee should be through the Nevada court, as it retains jurisdiction over those funds at
this time. . . . . This Court certainly can make a ruling as to remaining or disbursed funds of the
Advance Fee, after the negotiation has been entered and approved by the Nevada court.”).
MEMORANDUM DECISION AND ORDER - 6

5/13/14 MDO (Docket No. 281). Relevant here, Judge Lodge rejected the previous denial of the
Commission’s Motion to Freeze and Renewed Motion to Freeze, retroactively granting the same.
See id. at p. 36 (“Plaintiff’s Motions for Order Freezing (Dkt. 219, 258) and Motion and
Objection RE: Order Freezing (Dkt. 265) are GRANTED. The funds currently held in escrow
by Black & LoBello are HEREBY ORDERED to REMAIN in that escrow account pending
further order from this Court.”) (emphasis in original).
II. DISCUSSION
As justification for freezing the $2 million that dominated this action’s motion practice
for the last year and a half, Judge Lodge once-and-for-all concluded:
Having reviewed the record in this case, the court finds that the Motion to Freeze is
well-taken. The funds appear to be the subject of the dispute between the parties in
this case. It also appears AEHI may have transferred the funds in violation of this
Court’s Order. Furthermore, the new materials provided by the SEC regarding the
transfer of funds appears to place those funds in jeopardy of being available for
recovery in this action. In order to ensure those funds are not further transferred and
possibly lost entirely in the event recovery is found to be appropriate in this
securities enforcement action, the Court finds it necessary to order that the funds
remain in their current account unless otherwise ordered by this Court. The Nevada
state court’s order does not adequately protect the funds for this purpose.
Without such relief, the court finds it highly likely that the funds may be lost and,
thus, become unavailable if relief is awarded to the SEC in this case. Further, the
Court finds the SEC has shown a likelihood of success on the merits of the claim as
well as a likelihood that the claimed assets will be dissipated or that relieve may
otherwise be unavailable without this equitable relief. . . . . Accordingly, the Court
will grant the SEC’s Motions to Freeze and order that the $2 million held in escrow
by Black & LoBello remain in that same account unless and until otherwise ordered
by this Court.
Id. at pp. 35-36 (footnotes and internal citations omitted, emphasis added). With such a ruling
and supporting rationale in mind, it would appear that the at-issue Motions, if granted, would
necessarily contravene the recently-imposed freeze – particularly when recognizing Judge

MEMORANDUM DECISION AND ORDER - 7

Lodge’s belief that the Commission may ultimately be capable of recovering/entitled to the $2
million to begin with (which the Commission expressly alleges is the case by virtue of its
Supplemental Amended Complaint).3 The reality that is reflected in Judge Lodge’s May 13,
2014 Memorandum Decision and Order now represents the landscape from which the parties
(and the undersigned) must operate moving forward. Therefore, the Motions are denied.
Notwithstanding the denial of the pending Motions, the undersigned recognizes that the
competing claims to all or portions of the $2 million Advance Payment potentially create the sort
of dispute that more typically exists in a bankruptcy setting. Except, the right to any sort of
underlying judgment or entitlement to the $2 million Advance Payment has not yet been
determined, nor has there been any determination of priorities among entities or individuals
(including as between the SEC, the Aldrich Law Firm, and AEHI’s creditors) to any part of those
funds, even assuming an entitlement to make any such claim to such funds. Based upon the
record now before the Court, the $2 million Advance Payment cannot be disturbed by releasing
certain monies pursuant to a settlement agreement reached by AEHI and Hamilton. Rather, such
monies are, as Judge Lodge made unequivocally clear, frozen for the time being.
Still, if AEHI can supply the Court with legal authority that would justify a
reexamination of this status quo – such as authority that entitles it (or the Aldrich Law Firm) as a
matter of law to take priority of whatever their claim to the funds might be over any other

3

The Court granted the Commission’s Motion to File Supplemental Amended
Complaint, Pursuant to FRCP 15(d) (Docket No. 216). See 3/13/13 MDO, pp. 17 & 21 (Docket
No. 241). In relevant part, the Supplemental Amended Complaint alleges that “[t]he
Commission additionally seeks the freeze and transfer of $2 million that AEHI recently
transferred to Relief Defendant Black & LoBello, LLC pursuant to an undisclosed sham
transaction that dissipated nearly all of AEHI’s remaining investor funds.” See Supp. Am.,
Compl., ¶ 5 (Docket No. 216, Att. 1).
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possible creditor (again, assuming AEHI’s liability) – it is free to so move the Court, while
permitting the Commission to respond thereto. Otherwise, the $2 million Advance Payment
remains frozen.
III. ORDER
For the foregoing reasons, IT IS HEREBY ORDERED that:
1.

Defendant Alternate Energy Holdings, Inc.’s Motion to Approve Settlement and

to Release Funds, or in the Alternative, to Deposit Funds with the Court (Docket No. 269) is
DENIED;
2.

Defendant Alternate Energy Holdings, Inc.’s Motion to Approve Payment of Fees

and Costs of Aldrich Law Firm, LTD. (Docket No. 271) is DENIED; and
3.

Plaintiff Securities and Exchange Commission’s Motion to Strike Affidavit of

John P. Aldrich (Docket No. 282) is DENIED as moot.
DATED: May 27, 2014

Honorable Ronald E. Bush
U. S. Magistrate Judge

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