Kelley v. JPMorgan Chase & Co. et al

Filing 68

MEMORANDUM OPINION AND ORDER overruling 56 APPEAL/OBJECTION OF MAGISTRATE JUDGE DECISION to District Judge. (Written Opinion) Signed by Judge Susan Richard Nelson on 4/9/2018. (SMD)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA

Douglas A. Kelley, in His Capacity as the
Court-Appointed Receiver of Thomas
Joseph Petters; Petters Company Inc., aka
PCI; Petters Group Worldwide LLC; et al.,

File No. 10-cv-04999 (SRN/HB)

Plaintiff,
v.
JPMorgan Chase & Co., JPMorgan Chase
Bank, N.A., One Equity Partners LLC,
Jacques A. Nasser, Lee M. Gardner,
Charles F. Auster, James W. Koven, Rick
A. Lazio, J. Michael Pocock, William L.
Flaherty, Ira H. Parker,

MEMORANDUM OPINION AND
ORDER

Defendants.
and
Ritchie Special Credit Investments, Ltd.,
Rhone Holdings II, Ltd., Yorkville
Investment I, L.L.C., Ritchie Capital
Structure Arbitrage Trading, Ltd., Ritchie
Capital Management, Ltd., Ritchie
Capital Management, L.L.C.,
Movants.

Douglas L. Elsass and Lori A. Johnson, Nilan Johnson Lewis PA, 120 South 6th Street,
Suite 400, Minneapolis, MN 55402; K. Jon Breyer, Lindquist & Vennum LLP, 80 South 8th
Street, Suite 2000, Minneapolis, MN 55402; Kevin M. Magnuson and Steven E. Wolter,
Kelley, Wolter & Scott, P.A., 431 South 7th Street, Suite 2530, Minneapolis, MN 55415,
for Plaintiff.
John R. McDonald, Benjamin E. Gurstelle, and Kevin M Decker, Briggs & Morgan, PA, 80
South 8th Street, Suite 2200, Minneapolis, MN 55402; Alan Craig Turner, David J. Woll,

Isaac Martin Rethy, Joshua C. Polster, and Thomas Charles Rice, Simpson Thacher &
Bartlett LLP, 425 Lexington Ave., New York, NY 10017, for Defendants.
Patrick H. O’Neill, Jr, Larson King, LLP, 30 East 7th Street, Suite 2800, St. Paul, MN
55101, for Movants.
SUSAN RICHARD NELSON, United States District Judge
This matter is before the Court on the Appeal/Objection (“Objection”) [Doc. No. 56]
of Movants Ritchie Special Credit Investments, Ltd., Rhone Holdings II, Ltd., Yorkville
Investment I, L.L.C., Ritchie Capital Structure Arbitrage Trading, Ltd., Ritchie Capital
Management, Ltd., Ritchie Capital Management, L.L.C. (all collectively, “Ritchie”) to
United States Magistrate Judge Hildy Bowbeer’s Order dated January 2, 2018 (“Jan. 2
Order”) [Doc. No. 54] denying Ritchie’s Motion to Intervene in the present suit. For the
reasons stated herein, Ritchie’s Objection is overruled.
I.

BACKGROUND
The facts underlying this lawsuit stem from the well-known Ponzi scheme

orchestrated by Minnesota businessman Thomas Petters. See, e.g., United States v. Petters,
663 F.3d 375, 380–86 (8th Cir. 2011) (affirming Petters’s conviction and 50-year sentence).
As the magistrate judge’s January 2 Order thoroughly sets forth the facts underlying
Ritchie’s Motion to Intervene, this Court recites here only the facts necessary to
contextualize, and rule on, Ritchie’s Objection. 1

1

This Court cites to several orders issued by other courts of this District for background
and because they bear on Ritchie’s Motion to Intervene. To avoid confusion, documents
filed in this case are referenced as “Doc. Nos.,” whereas documents filed in other cases
are referenced by their ECF numbers, i.e. “ECF No.”
2

A. Collapse of Petters’s Ponzi Scheme
For nearly twenty years, Petters operated a massive, multi-billion dollar Ponzi
scheme through which he defrauded a myriad of investors. See id. at 379. This Ponzi
scheme collapsed in 2008 after one of Petters’s employees contacted law enforcement. Id.
On September 24, 2008, federal agents raided Petters’s offices and subsequently arrested
him on October 3, 2008. See Kelley v. JPMorgan Chase & Co., 464 B.R. 854, 856 (D.
Minn. 2011). The collapse of Petters’s Ponzi scheme has led to a host of litigation, as
described below.
B. Legal Actions Generally
1. The Receivership and Bankruptcy Cases
Immediately before Petters’s arrest, the Government commenced a civil action
pursuant to the Fraud Injunction Statue, 18 U.S.C. § 1345, to freeze Petters’s assets and
those of the entities he controlled in order to preserve them for victim restitution and
forfeiture were Petters and the entities ultimately convicted in the criminal proceedings. (See
Compl. Permanent Inj. & Other Equitable Relief, United States v. Petters, No. 08-cv-5348
(ADM/TNL) (hereinafter Receivership Proceedings) (D. Minn. Oct. 2, 2008), ECF No. 1.)
These proceedings are often termed the “Receivership Proceedings” in Petters-related
litigation. After first granting an ex parte temporary restraining order, on October 6, 2008,
the Honorable Ann Montgomery entered a preliminary injunction and later appointed
Douglas A. Kelley (“Kelley”), the Plaintiff here, as an equity receiver (“Receiver”) for
Petters, two of his companies—Petters Company, Inc. (“PCI”) and Petters Group
Worldwide (“PGW”)—as well as several entities owned and controlled by those
3

corporations. (See Order Entry Prelim. Inj., Order Appointing Receiver, & Other Equitable
Relief, Receivership Proceedings (D. Minn. Oct. 6, 2008), ECF No. 12.) After several
amendments, Judge Montgomery’s order (“Receivership Order”) also stayed all litigation
against Petters, his corporations, and the Receivership assets, except for claims asserted in
the criminal suit or later filed in bankruptcy proceedings. (See Second Am. Order Entry
Prelim. Inj., Appointment of Receiver, & Other Equitable Relief, Receivership Proceedings
(D. Minn. Dec. 8, 2008), ECF No. 127.)
Shortly after entry of the Receivership Order—Kelley, in his capacity as Receiver,
filed for Chapter 11 bankruptcy for PCI and PGW and their affiliates. See Kelley, 464 B.R.
at 857. Kelley was then appointed as Chapter 11 Bankruptcy Trustee for the PCI and PGW
bankruptcy estates. Id. In his capacity as Bankruptcy Trustee, Kelley has filed hundreds of
adversary proceedings to try to recover fraudulent transfers and stolen funds. Id.
2. The Petters Criminal Case
In December of 2009, a jury convicted Petters of 20 counts of fraud, conspiracy,
and money laundering, and a court within this district sentenced him to 50 years of
incarceration. See Petters, 663 F.3d at 380. Petters’s sentence also included a personal
money judgment in the amount of $3,522,880,614.10. (See Sentencing J., United States v.
Petters, No. 08-cr-364 (RHK/AJB) (D. Minn. Apr. 8, 2010), ECF No. 400 at 6.) The
district court declined to order restitution to Petters’s victims, however, citing, in part, the
extreme difficulty associated with the restitution process in the case and the complexity
of the fact-finding that it would require. See United States v. Petters, No. 08-cr-364
(RHK/AJB), 2010 WL 2291486, at *5 (D. Minn. June 3, 2010). The court noted that the
4

Government could proceed through the remission process instead in order to attempt to
recompense Petters’s fraud victims. Id.
3. Coordination Agreement Between the Government, Bankruptcy
Trustee, and Receiver
In August of 2010, in light of their competing claims to the property associated with
Petters’s fraud, the Government and Kelley—in his capacities as both Receiver and
Bankruptcy Trustee—entered into an agreement to coordinate their efforts (the
“Coordination Agreement”). Recognizing that there was a “significant overlap of identity
between victims of the fraud and creditors of the PCI Estates and the PGW Estates,” the
parties sought “to maximize recovery to victims and creditors and minimize receivership
and bankruptcy expenses through the coordination of their respective efforts for the victims
and creditors.” (Coordination Agreement, Receivership Proceedings (D. Minn. Aug. 18,
2010), ECF No. 1351-1 at 4.) The parties acknowledged that “competing litigation would
result in the overall diminishment of the recovery for victims and creditors alike and undue
delay in the distribution of assets.” (Id.) As such, the Coordination Agreement set forth a
comprehensive plan to wind down the assets of the receivership, forgo government
forfeiture, and litigate intercompany and third party issues in the bankruptcy proceedings.
(Id. at 5–12.)
C. Specific Legal Actions Against Defendants
Before his arrest, Petters had substantial business dealings with the Defendants to
the present suit, JPMorgan Chase & Co. (“JPMorgan Chase”), JPMorgan Chase Bank,

5

N.A. (“JPMorgan Chase Bank”), One Equity Partners LLC, and several individuals 2
involved with these entities (all collectively, “JPMC”). After the collapse of Petters’s
Ponzi scheme, JPMC has been subject to several different lawsuits in different forums, as
described below.
1. The Joint Adversary Proceedings in Bankruptcy Court
Kelley, in his capacity as Bankruptcy Trustee for PCI and PGW, along with the
trustee of the Polaroid Corporation and the trustee of Petters Capital, LLC, filed three
“clawback” cases against JPMC in bankruptcy court in 2010. See Kelley v. JPMorgan
Chase & Co., Case Nos. 10-4443, 10-4444, 10-4445 (Bankr. D. Minn.); See also Kelley,
464 B.R. at 857.3 These cases, referred throughout related litigation as the “Joint Adversary
Proceedings,” seek to recover certain transfers of funds by PCI, PGW, Polaroid and Petters
Capital made to or for the benefit of JPMC. Kelley, 464 B.R. at 857. The plaintiffs in the
Joint Adversary Proceedings allege that these funds were “derived in whole or in part from
proceeds of” Petters’s Ponzi scheme. Id. In January of 2017, the bankruptcy court denied a
motion to dismiss filed by JPMC, and the parties have since been engaged in active
discovery. (Decl. Douglas A. Kelley, Receivership Proceedings (D. Minn. Aug. 17, 2017),
ECF No. 2905 ¶ 4.) As more fully described below, these lawsuits are at the verge of
settlement.

2

These individuals are Jacques A. Nasser, Lee M. Gardner, Charles F. Auster, James W.
Koven, Rick A. Lazio, J. Michael Pocock, William L. Flaherty, and Ira H. Parker.

3

Kelley, in his capacity as Bankruptcy Trustee for PGW, also filed a separate adversary
proceeding against JPMC, Case No. 10-4446. See Kelley, 464 B.R. at 857.
6

2. Receiver’s Civil Suit Against JPMC (This Action)
In December of 2010, Kelley, this time in his capacity as Receiver, initiated the
present suit against JPMC, asserting various counts of fraudulent transfers and unjust
enrichment. (See Compl. [Doc. No. 1].) The Receiver’s Complaint alleges that starting in
2001, Petters held numerous investment accounts at JPMC. (Id. ¶ 16.) It further alleges
that in 2006, Petters issued a personal guaranty and pledged those investment accounts to
JPMC to secure a credit line for PGW. (Id.) In this suit, the Receiver seeks to, inter alia,
recover the approximately $25 million that were held in Petters’s investment accounts
immediately prior to September 30, 2008—a few days after federal agents raided Petters’s
offices. (See id. ¶¶ 59, 114.) The Receiver alleges that after JPMC learned of the September
24, 2008 raid of Petters’s offices, it declared PGW’s credit line in default, seized the
investment accounts, and began liquidating the assets held in those accounts. (Id. ¶ 59.) In
so doing, the Receiver claims, “JPMC stepped ahead of the Ponzi scheme’s victims and
creditors to recover the nearly $20 million that PGW owed under the credit line.” (Id. ¶ 61.)
Relevant here, in January of 2011, JPMC moved this Court to withdraw the
reference to the bankruptcy court of the Joint Adversary Proceedings. See Kelley, 464 B.R.
at 858. JPMC claimed that Kelley as Receiver for PCI and PGW asserted the same
allegations and claims in this civil suit as he asserted in his capacity as Bankruptcy Trustee
of the PCI and PGW bankruptcy estates, such that the Joint Adversary Proceedings shared
common issues of law and fact with the civil suit, warranting their withdrawal from the
bankruptcy court to the district court. Id. JPMC argued that withdrawal was necessary in
order to maximize efficiencies and avoid potentially inconsistent results given that the Joint
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Adversary Proceedings and the civil suit were against the same defendants and “included
identical claims and allegations and ar[ose] out of the same set of transactions.” Id. at 863.
JPMC also argued that withdrawal of the reference was necessary to prevent the “manifestly
unfair and judicially inefficient result of requiring JPMC to defend against duplicative
claims and allegations on competing tracks in separate forums, while its litigation
adversaries get two bites at the same apple.” Id. at 866.
In an order issued in September of 2011, this Court denied JPMC’s motion for
withdrawal of the reference. See id. at 863–67. Of particular importance here, this Court
reasoned that the Receiver’s suit and the Joint Adversary Proceedings were not “an attempt
to get two impermissible bites at the apple, to obtain duplicative recovery, or to otherwise
game the system.” Id. at 867. Rather, this Court explained that Kelley was “attempt[ing] to
coordinate the various actions such that the relief obtained in bankruptcy court would
dovetail with that obtained [in the civil action].” Id. In other words, the various proceedings
were fundamentally intertwined, and would not “be proceeding on separate tracks blindly
ignorant of each other, such that Kelley would be able to get two bites of the apple.” Id. This
Court concluded by noting that apart from withdrawal of the reference to bankruptcy court
of the Joint Adversary Proceedings, there were several mechanisms available to the parties
to coordinate the various actions and preclude improper litigation tactics or duplicative
recoveries. Id. The Court specifically stated that JPMC may, “if necessary, move to stay the
present action until the adversary proceedings sort out whatever issues might be of
relevance in this . . . action.” Id.

8

The parties followed this Court’s suggestion, and on November 11, 2011, Kelley and
JPMC filed a stipulation to stay this action. (See Stipulation to Stay Proceedings [Doc. No.
14].) This Court approved the stipulation on December 1, 2011, and the case has been
stayed since. (See Order Approving Stipulation to Stay Proceedings [Doc. No. 15].) Five
years later, on December 1, 2016, the parties filed a renewed stipulation to stay the action
“pending the issuance of a final, non-appealable order or judgment resolving all claims in
the Joint Adversary Proceedings.” (Stipulation to Stay Action [Doc. No. 24] ¶ 1.) This Court
approved this stipulation on December 15, 2016, and the case has continued to be stayed.
(See Order Approving Stipulation to Stay Action [Doc. No. 27].)
On November 16, 2017, counsel for the Receiver filed a letter alerting this Court that
the Receiver and JPMC had reached a settlement in principle, and were in the process of
executing written settlement agreements. (See Nov. 16 Letter to the Magistrate Judge [Doc.
No. 49].) This settlement reaches not only this case, but Kelley’s cases against JPMC in
bankruptcy court as well. (See Jan. 31 Letter to the Magistrate Judge [Doc. No. 62].) On
January 31, 2018, and again on April 2, 2018, the Receiver and JPMC filed joint letters
apprising this Court that the written settlement agreements were finalized, and that they
expected to seek approval of the settlement “shortly” from various courts, including this
Court and the bankruptcy court. (Id.; Apr. 2 Letter to the Magistrate Judge [Doc. No. 66].)
The parties stated that “[t]his case, as well as the cases now pending before the bankruptcy
court in Minnesota, will be dismissed by the parties when final approval is received from all
[the relevant courts].” (Apr. 2 Letter to the Magistrate Judge.)

9

3. Richie’s Civil Suit Against JPMorgan Chase and JPMorgan Chase
Bank
Ritchie is one of the many investors who suffered staggering monetary losses when
Petters’s Ponzi scheme collapsed. United States v. Ritchie Special Credit Investments, Ltd.,
620 F.3d 824, 832 (8th Cir. 2010) (affirming denial of Ritchie’s second motion to intervene
in Receivership Proceedings). To attempt to recover its losses, Ritchie has been an active
participant in Petters-related litigation from the time of Petters’s arrest. See id. at 826–31.
Apart from moving to intervene, unsuccessfully, in the Receivership Proceedings mere days
after Judge Montgomery issued the Receivership Order, see id. at 829–31, Ritchie has filed
a multitude of direct lawsuits against third parties whom it alleges are partially responsible
for its losses. These defendants include U.S. Bank, N.A. and General Electric Capital Corp.,
to name a few. See, e.g., Ritchie Capital Mgmt., L.L.C. v. U.S. Bank Nat. Ass’n, No. 15-cv2092 (DSD/TNL), 2015 WL 4744528 (D. Minn. Aug. 22, 2015) (dismissed because claims
were time-barred and for failure to state a claim); Ritchie Capital Mgmt. v. Gen. Elec.
Capital Corp., 121 F. Supp. 3d 321 (S.D.N.Y. 2015), aff’d 821 F.3d 349 (2d. Cir. 2016).
In February of 2014, Ritchie sued JPMorgan Chase and JPMorgan Chase Bank,
among others, asserting several claims that are nearly identical to those brought by the
Receiver against JPMC in the instant case. (See Second Am. Compl., Ritchie Capital
Mgmt., L.L.C. v. JPMorgan Chase & Co., No. 14-cv-04786 (DWF/FLN) (hereinafter
Ritchie v. JPMorgan Chase) (D. Minn. Aug.18, 2017), ECF No. 164.) In particular, Ritchie
makes claims to the funds that were in Petters’s investment accounts at the end of
September of 2008, which JPMC liquidated after it learned of the federal raid. (Id. ¶¶ 429–
10

453.) Count 20 of Ritchie’s Second Amended Complaint, for instance, is a fraudulent
conveyance claim, which, like the Receiver’s claims in this case, alleges that “[b]y seizing
and liquidating Petters’s investment accounts after news of the federal raid, JPMorgan
stepped ahead of the fraud scheme’s victims and creditors to recover the nearly $20 million
that Petters Group Worldwide allegedly owed under the credit line.” (Id. ¶ 440.)
After the Honorable Donovan Frank referred Ritchie’s lawsuit to the bankruptcy
court, the defendants in that case moved to dismiss. On August 2, 2017, the Honorable
Kathleen Sanberg issued a report and recommendation (“R&R”) recommending dismissal
of all of Ritchie’s claims. (R&R, Ritchie v. JPMorgan Chase (D. Minn. Aug. 2, 2017), ECF
No. 159.) Ritchie objected, and Judge Frank heard oral argument on Ritchie’s objections on
September 12, 2017. (See Min. Entry, Ritchie v. JPMorgan Chase (D. Minn. Sept. 12,
2017), ECF No. 172.) On December 14, 2017, Judge Frank ruled on Ritchie’s objections,
and held that all of Ritchie’s claims were time-barred by the applicable statute of
limitations. (See Mem. Opinion & Order, Ritchie v. JPMorgan Chase (D. Minn. Sept. 12,
2017), ECF No. 186.) Accordingly, Judge Frank dismissed Ritchie’s entire lawsuit with
prejudice. See Ritchie Capital Mgmt., L.L.C. v. JPMorgan Chase & Co., No. 14-cv-4786
(DWF/FLN), 2017 WL 6403096, at *9 (D. Minn. Dec. 17, 2017), appeal docketed, No. 181130 (8th Cir. Jan. 18, 2018). Ritchie, however, is appealing that decision.
D. Ritchie’s Motion to Intervene and the Magistrate Judge’s Order
On September 7, 2017—a month after Judge Sanberg recommended dismissal of
Ritchie’s direct suit against JPMorgan Chase and JPMorgan Chase Bank, five days before
oral argument before Judge Frank on Ritchie’s objections to Judge Sanberg’s R&R, and
11

nearly seven years after the Receiver initiated the instant lawsuit against JPMC—Ritchie
filed the Motion to Intervene in this case. (Mot. Intervene [Doc. No. 28].) Ritchie argues
that it is entitled to intervention as a matter of right, or, in the alternative, to permissive
intervention, because Kelley, in his capacity as Receiver, is pursuing claims that “belong to
Ritchie.” (Mem. Supp. Mot. Intervene [Doc. No. 30] at 17.) As described above, Ritchie
believes that it has a claim to the funds that were in Petters’s investment accounts and which
JPMC liquidated after the federal raid. (Id. at 19–26.) Thus, Ritchie seeks to intervene in
order to challenge the Receiver’s standing to assert those very claims against JPMC. (Id.)
Ritchie contends that “Kelley, in his role as Receiver, lacks standing to pursue claims on
behalf of entities who are purported creditors of Petters, when the Receivership entities
participated in and benefited from the Ponzi fraud.” (Id. at 18.) As such, Ritchie contends, it
should be permitted “to intervene in this case to protect [its] interests and demonstrate the
Receiver’s lack of standing.” (Id. at 19.)
The Receiver and JPMC oppose Ritchie’s Motion to Intervene. Each filed separate
briefing, but their opposition is aligned. (See Receiver’s Mem. Opp’n Mot. Intervene
(“Receiver’s Opp’n Mot.”) [Doc. No. 37]; JPMC’s Mem. Opp’n Mot. Intervene (“JPMC’s
Opp’n Mot.”) [Doc. No. 38].) The parties oppose Ritchie’s Motion for two primary reasons.
First, the Receiver and JPMC argue that Ritchie’s Motion should be denied because it is
untimely, filed almost seven years after the filing of this lawsuit. (Receiver’s Opp’n Mot. at
19–22; JPMC’s Opp’n Mot. at 11–13.) The parties characterize Ritchie’s Motion to
Intervene as yet another attempt by Ritchie to circumvent the Receivership Proceedings
overseen by Judge Montgomery, as well as the bankruptcy actions, in order to directly
12

recoup the funds that Ritchie believes it is owed. The parties further argue that Ritchie’s
interests are not impaired by the Receiver’s lawsuit, and that, in any event, Ritchie does not
have a cognizable interest in the litigation in light of Judge Sanberg’s recommendation that
Ritchie’s claims against JPMC—paralleling the Receiver’s claims in this case—be
dismissed.4 (Receiver’s Opp’n Mot. at 22–24; JPMC’s Opp’n Mot. at 13–15.)
Magistrate Judge Bowbeer denied Ritchie’s Motion to Intervene both under Rule
24(a) (intervention of right) and Rule 24(b) (permissive intervention). (See Jan. 2 Order.)
First, the magistrate judge found that Ritchie’s Motion was untimely, warranting denial. (Id.
at 11–17.) She reasoned that significant time had elapsed since the case was filed in 2010,
that “meaningful progress” had been made in the litigation, and that Ritchie had not
proffered any good cause to excuse the delay. (Id. at 15.) The magistrate judge found that
the Receiver’s Complaint was “unambiguous” in its intent to recover from JPMC the funds
JPMC obtained from Petters’s investment accounts, and that “Ritchie undoubtedly was
aware of this litigation based on the efforts it expended in nearly every venue where Petters
litigation was being conducted.” (Id.) With regard to Ritchie’s arguments that it must be
allowed to intervene to challenge Kelley’s standing, the magistrate judge found that “[t]he
issue of whether Kelley has standing to sue JPMC to recover those funds, and the
importance of that issue to Ritchie, should have been evident to Ritchie from the day it first
learned of the complaint in this case.” (Id. at 16.) The magistrate judge found, instead, “a
more plausible explanation for the delay to be that Ritchie has run into dead ends in other

4

Judge Frank had not issued a final order before the magistrate judge held argument on
Ritchie’s Motion to Intervene.
13

attempts to recoup losses from the Petters Ponzi scheme, and resolved here to make a new
run at it by intervening belatedly in the Kelley action against JPMC.” (Id.)
Second, although she found Ritchie’s untimeliness a sufficient reason to deny
intervention, the magistrate judge also found that Ritchie’s Motion should be denied for the
independent reason that Ritchie lacks a legally cognizable interest in the litigation. (Id. at
17–19.) After Ritchie’s Motion to Intervene was taken under advisement by Judge
Bowbeer, but before she issued her January 2 Order, Judge Frank dismissed with prejudice
all of Ritchie’s claims against JPMorgan Chase and JPMorgan Chase Bank, as described
above. (See Section I.C.3, supra.) Accordingly, Judge Bowbeer concluded that “[s]ince
Ritchie’s own case against JPMC has been dismissed, . . . Ritchie does not have an interest
in the instant case that is ‘direct, substantial, and legally protectable.’” (Jan. 2 Order at 19
(quoting United States v. Union Elec. Co., 64 F.3d 1152, 1161 (8th Cir. 1995)).)
Ritchie timely objected to the magistrate judge’s Order. (See Ritchie’s Obj.) In its
Objection, Ritchie renews many of the arguments that it made before the magistrate judge
and which she thoroughly considered. As more fully described below, Ritchie objects to the
magistrate judge’s conclusion that its Motion to Intervene was untimely, as well as her
conclusion that Ritchie lacks an interest in the litigation sufficient to warrant intervention.
II.

DISCUSSION
A district court’s review of a magistrate judge’s order on a nondispositive matter,

such as the underlying motion, is “extremely deferential.” Reko v. Creative Promotions,
Inc., 70 F. Supp. 2d 1005, 1007 (D. Minn. 1999); see also United States v. Raddatz, 447
U.S. 667, 673 (1980). The Court will reverse such a ruling only if it is clearly erroneous or
14

contrary to law. See 28 U.S.C. § 636(b)(1)(A); Fed. R. Civ. P. 72(a); see also D. Minn. LR
72.2(a). “A finding is clearly erroneous when although there is evidence to support it, the
reviewing court on the entire evidence is left with the definite and firm conviction that a
mistake has been committed.” Smith v. AS Am., Inc., 829 F.3d 616, 621 (8th Cir. 2016)
(quotations omitted).
A. Timeliness of Motion to Intervene
Ritchie first objects to the magistrate judge’s conclusion that its Motion was not
timely. (See Ritchie’s Obj. at 17–20.) Intervention as a matter of right and permissive
intervention both require that the party seeking intervention file a “timely” motion. See Fed.
R. Civ. P. 24. The timeliness of a motion to intervene is thus “a threshold issue.” Ritchie,
620 F.3d at 832. While “[t]imeliness is to be determined from all the circumstances,” the
Eighth Circuit considers four specific factors when determining whether a motion to
intervene is timely: “(1) how far the litigation had progressed at the time of the motion for
intervention, (2) the prospective intervenor’s prior knowledge of the pending action, (3) the
reason for the delay in seeking intervention, and (4) the likelihood of prejudice to the parties
in the action.” Id. (quotations and alterations omitted).
Here, analysis of these factors demonstrates that Ritchie’s Motion to Intervene is
clearly untimely, and thus that the magistrate judge’s Order was not clearly erroneous or
contrary to law. Quite the opposite, this Court fully agrees with the magistrate judge’s
conclusion as to each of the timeliness factors. First, by virtue of Kelley’s efforts in
bankruptcy court, this litigation had progressed significantly before Ritchie filed its Motion
to Intervene. As the magistrate judge correctly found, JPMC and Kelley, albeit in his
15

capacity as Bankruptcy Trustee, have been engaged in active discovery for a significant
length of time. In fact, in a declaration submitted in connection with the Receivership
Proceedings, Kelley represented to Judge Montgomery that “[t]he Trustees and the parties
to the JP Morgan litigation have been in active discovery[,] . . . [which has] included the
production of hundreds of thousands of documents, interrogatories, and several
depositions.” (Decl. Douglas A. Kelley, Receivership Proceedings (D. Minn. Aug. 17,
2017), ECF. No. 2905 ¶ 4.)
Ritchie’s arguments to the contrary are unpersuasive. Ritchie disagrees with the
magistrate judge’s conclusion as to the progress of the litigation, contending that her
conclusion was erroneously premised on the assumption that “the bankruptcy proceedings
are synonymous with this proceeding.” (Ritchie’s Obj. at 19.) According to Ritchie, “the
trustees’ progress is not the Receiver’s progress.” (Id.) This Court finds Ritchie’s
contentions unavailing at best. This Court—more than six years ago—emphasized that
much of Kelley’s Petters-related litigation—as Receiver and as Bankruptcy Trustee—is
inextricably intertwined, hence why the parties stipulated to a stay of the present action in
order to allow the Joint Adversary Proceedings to move forward. Kelley, 464 B.R. at 866–
67. As such, although this particular action has indeed been stayed, the litigation is not “still
nascent,” as Ritchie argues. (See Ritchie Obj. at 19.) Progress is being made in the Joint
Adversary Proceedings, which undoubtedly affect this action. In fact, Ritchie’s suggestion
that “there necessarily has been no progress in this case” is belied by the fact that, as Ritchie
readily acknowledges, (see id.), the parties have in fact settled in principle. This case has
actually progressed almost through to completion. This Court, like the magistrate judge,
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declines Ritchie’s invitation to put the proverbial blinders on and view the Receiver’s case
against JPMC in isolation. Only by doing so could this Court conclude that this litigation is
“in its infancy,” as Ritchie argues. (Id.) It is not.
The second factor for determining timeliness—the prospective intervenor’s prior
knowledge of the pending action—likewise weighs strongly against granting Ritchie’s
Motion to Intervene. This Court agrees with the magistrate judge that Ritchie was
undoubtedly aware of the pending action, and all its attendant consequences, years before it
sought intervention. The Court need not rehash the myriad of ways Ritchie was put on
notice as to the Receiver’s claims here. On this point, it suffices to highlight that Ritchie’s
suit against JPMorgan Chase and JPMorgan Chase Bank—filed in 2014—makes claims
that are, almost verbatim, identical to those the Receiver included in his Complaint filed in
2010. (Compare Second Am. Compl., Ritchie v. JPMorgan Chase (D. Minn. Aug.18,
2017), ECF No. 164 ¶¶ 440 (“By seizing and liquidating Petters’s investment accounts after
news of the federal raid, JPMorgan stepped ahead of the fraud scheme’s victims and
creditors to recover the nearly $20 million that Petters Group Worldwide allegedly owed
under the credit line.”), with Compl. ¶ 61 (“By seizing and liquidating Petters’ investment
accounts after news of the federal raid, JPMC stepped ahead of the Ponzi scheme’s victims
and creditors to recover the nearly $20 million that PGW owed under the credit line.”)). It
would be difficult to believe that Ritchie was not aware of this litigation since the Receiver
filed his Complaint. And in any event, Ritchie does not seem to dispute that he has long
been aware of the Receiver’s litigation and the Receiver’s intent to recover the funds JPMC
obtained from Petters’s investment accounts and to avoid JPMC’s security in those
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accounts. Rather, as described below, Ritchie’s Objection to the magistrate judge’s Order is
focused on Ritchie’s purported reasons for failing to seek intervention, despite its
knowledge of the lawsuit, until almost seven years after the Receiver had filed his
Complaint.
The third factor—the reason for the delay in seeking intervention—also indicates
that Ritchie’s Motion to Intervene was properly denied. As the magistrate judge correctly
found, Ritchie has failed to show any valid excuse for waiting so long to intervene. Ritchie’s
two primary arguments for its delay are unavailing. Ritchie first argues that it was not until
Kelley as Bankruptcy Trustee argued—in connection with JPMorgan Chase and JPMorgan
Chase Bank’s motion to dismiss Ritchie’s lawsuit then pending before Judge Frank—that
“[the Receiver] maintained a financial stake in and had standing to pursue the claims set
forth in . . . Counts 20 and 21 [of Ritchie’s complaint] solely in his role as the Receiver” that
Ritchie first “learned” of the need to intervene in this case. (Ritchie Obj. at 18.) It is difficult
to understand how this statement could have provided Ritchie with new information, or
information that it did not already have. Kelley’s interest and financial stake in the funds at
issue in Counts 20 and 21 of Ritchie’s complaint is evident from the face of Kelley’s
Complaint in this case. Kelley has always maintained that it seeks to recover the funds that
were in Petters’s investment accounts. That is, naturally, one of the reasons he filed the suit.
And moreover, Ritchie’s argument is rendered particularly unpersuasive in light of Judge
Montgomery’s order in 2015 holding that “[t]he Ritchie Parties’ lawsuit against JPMC
interferes with the Receiver’s action”—this action—“because both seek to recover funds
that JPMC seized from Petters’ investment accounts on September 30, 2008.” (Mem.
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Opinion & Order, Receivership Proceedings (D. Minn. Sept. 14, 2015), ECF No. 2784 at
13; see also id. (“Thus, the Ritchie Parties are seeking to recover for themselves funds from
JPMC which are the same funds the Receiver is seeking to recover for the benefit of all
victims.”).) Plainly, Ritchie cannot claim that it just now learned—or realized—that the
Receiver was asserting claims to the funds that were in Petters’s JPMC investment accounts.
For similar reasons, this Court finds wholly unpersuasive Ritchie’s argument that its
motion is somehow timely because, again in a proceeding before Judge Montgomery,
Kelley asserted that the issue of his standing to pursue claims against JPMC would have to
be decided in the present action. (Ritchie’s Obj. at 18.) As Defendants point out, that is an
unremarkable statement. Without question, a party’s standing to pursue claims is an issue to
be decided in the action where that party is asserting such claims. Again, Ritchie does not in
any way explain how Kelley’s assertion before Judge Montgomery provided information
that Ritchie did not already have. As the magistrate judge correctly noted, any such issues
related to the Receiver’s standing should have been evident to Ritchie from the day it
learned of the Receiver’s Complaint. (See Jan. 2 Order at 16.) In short, Ritchie offers no
credible reasons for its delay in seeking intervention. This Court is in full agreement with
the magistrate judge that a more plausible explanation for Ritchie’s delay is that its own
claims against JPMC were recommended for dismissal—and have since been actually
dismissed as time-barred—and that it viewed intervention in this case as one last
opportunity to salvage its claims. (See id.) But as the Eighth Circuit has stated, “[w]hen a
party had knowledge of all the facts—as Ritchie did—and failed to raise the issue when first

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presented with an opportunity to do so, subsequent intervention is untimely.” Ritchie, 620
F.3d at 833.
Finally, this Court, like the magistrate judge, finds that the final factor—prejudice to
the existing parties—weighs against granting intervention. As already described, the parties
to this action have engaged in extensive discovery, and, at least as of April 2, 2018, have
finalized settlement terms that they intend to present to various courts for approval in the
immediate future. (See Section I.C.2, supra.) As such, the parties clearly would be
prejudiced were Ritchie’s untimely intervention be permitted, as they would have to, at best,
modify their settlement agreement, and, at worst, begin from scratch to accommodate
Ritchie, who, significantly, has been deemed by Judge Frank to have no legally-cognizable
claims against JPMC. The disruption of hard-fought settlement agreements constitutes
prejudice to the existing parties. See, e.g., United States v. Alisal Water Corp., 370 F.3d 915,
922 (9th Cir. 2004) (“In the past, we have affirmed the denial of motions to intervene in
cases where granting intervention might have compromised long-litigated settlement
agreements or delicate consent decrees.”).5
In sum, this Court fully agrees with the magistrate judge that Ritchie’s Motion is
untimely. The magistrate judge properly denied it on this ground.

5

In his Objection, Ritchie makes much of the fact that the parties to this action settled
after Ritchie’s Motion to Intervene was argued. (See Ritchie’s Obj. at 15.) According to
Ritchie, the parties’ settlement “should not be an end around to Ritchie being permitted to
intervene.” (Id.) Ritchie argues that it should be part of the settlement discussions. (Id.)
The Court first notes that even if the parties had not yet reached a settlement, Ritchie’s
Motion to Intervene would still be untimely. Second, the Court notes that Ritchie cannot
possibly be granted “a seat at the settlement table” when it is not a party to this action and
when its own claims against JPMC have been dismissed with prejudice.
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B. Ritchie’s Interest in the Litigation
Ritchie also objects to the magistrate judge’s conclusion that Ritchie’s Motion to
Intervene should be denied because Ritchie lacks a legally cognizable interest in this
litigation. (Ritchie’s Obj. at 20–22.) The magistrate judge observed that “[t]he crux of
Ritchie’s argument in support of its motion to intervene is that it should be allowed to be
heard in Kelley’s case against JPMC because success by Kelley in the instant case could
prejudice Ritchie’s ability to recover against JPMorgan Chase in its own action.” (Jan. 2
Order at 19.) However, the magistrate judge concluded that “[s]ince Ritchie’s own case
against JPMC has been dismissed, . . . Ritchie does not have an interest in the instant case
that is ‘direct, substantial, and legally protectable.’” (Id. (quoting Union Elec. Co., 64 F.3d
at 1161).) Ritchie argues that this Court should not give conclusive weight to Judge Frank’s
order dismissing Ritchie’s case because “[Ritchie] has filed an appeal of that Order and
therefore it is not a final judgment.” (Ritchie’s Obj. at 20.)
This Court is unpersuaded. As correctly found by the magistrate judge, Ritchie has
been adjudged to have no direct claims against JPMC. Ritchie’s claims are time-barred. The
fact that Judge Frank’s order has been appealed, such that there is but a possibility that
Ritchie’s claims against JPMC could be revived, does not alter the analysis of whether
Ritchie presently has an interest in this litigation. Cf. Med. Liab. Mut. Ins. Co. v. Alan
Curtis LLC, 485 F.3d 1006, 1008 (8th Cir. 2007) (“An interest that is ‘contingent upon the
occurrence of a sequence of events before it becomes colorable’ is also not sufficient to
satisfy Rule 24(a)(2).” (quoting Standard Heating & Air Conditioning Co. v. City of
Minneapolis, 137 F.3d 567, 571 (8th Cir. 1998))). Allowing Ritchie to intervene after its
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own claims have been dismissed would be tantamount to giving him a second opportunity
to relitigate his claims in this forum. This Court declines to do so.
III.

ORDER
Based on the foregoing, and all the files, records, and proceedings herein, IT IS

HEREBY ORDERED THAT Ritchie’s Appeal/Objection [Doc. No. 56] to Magistrate
Judge Bowbeer’s Order of January 2, 2018 is OVERRULED.

Dated: April 9, 2018

s/Susan Richard Nelson
SUSAN RICHARD NELSON
United States District Judge

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