Securities and Exchange Commission v. Sethi Petroleum LLC et al

Filing 260

MEMORANDUM OPINION AND ORDER Granting in Part Denying in Part re 237 MOTION for Disbursement of Funds (Additional Funds Per Settlement or in the alternative Motion to Have the Court Enter a New Order on its Motion to Allow Interpleader and/or Motion to Reconsider and/or Vacate Orders Granting ANBTX's Motion to filed by American National Bank of Texas. the Courts previous Order Granting Motion to Approve Interpleader (Sethi Dkt. #134; Sambina Dkt. #35) is hereby reinstated. It is further ORDERED that American National is hereby discharged from further liability regarding the accounts and isDISMISSED with prejudice from the above styled cases. Signed by Judge Amos L. Mazzant, III on 4/4/17. (cm, )

United States District Court
EASTERN DISTRICT OF TEXAS
SHERMAN DIVISION

SECURITIES AND EXCHANGE
COMMISSION
v.
SETHI PETROLEUM, LLC and SAMEER
P. SETHI
MARCUS A. HELT, RECEIVER FOR
SETHI PETROLEUM, LLC
v.
SAMBINA PROPERTIES, LTD, SAMBINA
BROOKVIEW CENTER, LTD, SAMBINA
HOMES, LTD, and SAMBINA TRUST

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Civil Action No. 4:15-CV-00338
Judge Mazzant

Civil Action No. 4:15-CV-00760
Judge Mazzant

MEMORANDUM OPINION AND ORDER
Pending before the Court is Intervenor American National Bank of Texas’s Motion to
Disburse Additional Funds Per a Settlement (Sethi Dkt. #237; Sambina Dkt. #56). After
considering the relevant pleadings, the Court finds that the motion should be granted in part and
denied in part.
BACKGROUND
American National Bank of Texas (“American National”) is seeking to interplead funds
into the registry of the Court because American National is caught between conflicting claims to
funds held by it. American National has been holding nine accounts for Praveen Sethi; Shahnaz
Sethi; Sambina Properties, Ltd.; Sambina Brookview Center, Ltd.; Sambina Homes, Ltd.; Shana
Investments, Inc.; PSSB Investments, Inc.; Sambina Trust; Galaxie Properties, Inc.; and Sethi
Tax & Wealth Management, Inc. (“Interpleader Defendants”).

On December 29, 2015, American National filed a Motion to Intervene seeking to
intervene in the above styled cases and to interplead certain funds into the registry of the Court
(Sethi Dkt. #90; Sambina Dkt. #19). American National attached to its motion a Complaint in
Intervention and for Interpleader (“Interpleader Complaint”) seeking to interplead under Federal
Rule of Civil Procedure 22. On January 20, 2016, the Court granted American National’s Motion
to Intervene in the Sethi litigation and considered the Interpleader Complaint as filed in the
papers of the case (Dkt. #107). On February 18, 2016, the Court granted American National’s
Motion to Intervene in the Sambina litigation (Dkt. #25).
On May 4, 2016, American National filed a Motion to Allow Interpleader seeking to
deposit the funds held in this matter into the registry of the court, minus attorney’s fees, and to be
discharged of liability (Sethi Dkt. #131; Sambina Dkt. #32). The Court ruled on the motion in
separate orders. On June 8, 2016, the Court granted the Motion to Allow Interpleader, allowing
American National to deposit the funds into the registry of the Court, minus $8,584.87 in fees;
discharging American National from further liability regarding the accounts; and dismissing
American National with prejudice from this lawsuit (“Interpleader Order”) (Sethi Dkt. #134;
Sambina Dkt. #35). That same day, the Court addressed the fee amount and awarded $8,584.87
in fees and costs (“Fee Order”) (Sethi Dkt. #135; Sambina Dkt. #36). On June 27, 2016,
American National deposited the funds into the registry of the Court, minus its fees (Sethi Dkt.
#143, Exhibit A; Sambina Dkt. #38). Until that time, American National believed that
Interpleader Defendants would appear, making the Interpleader Order binding on those parties.
However, Interpleader Defendants did not make an appearance. On June 27, 2016, American
National filed a motion to reconsider the Interpleader Order due to its concern that the
Interpleader Defendants “may take the position that they have not made an appearance, and they

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could potentially argue that the Interpleader Order may not be binding on them” (Sethi Dkt. #141
at p. 2; Sambina Dkt. #37 at p. 2). The Court granted American National’s motion and vacated
its Interpleader Order (Sethi Dkt. #177; Sambina Dkt. #43). At this time, the funds remain in the
registry of the Court and American National has retained its fee award.
Since the motion to vacate, American National purportedly reached a settlement with
Interpleader Defendants. On July 28, 2016, counsel for American National emailed the Court’s
judicial assistant about a purported settlement regarding fees and allowing interpleader. That
same day, the Interpleader Defendants’ attorney confirmed that they had reached an agreement
as to fees, but did not mention allowing interpleader or releasing American National from
liability. American National then sought to determine whether the Receiver was opposed or
unopposed to the settlement. Ultimately, the Receiver indicated that he may or may not be
opposed.
While American National was seeking the Receiver’s approval, the Interpleader
Defendants retained new counsel. The new attorneys informed American National that the
Interpleader Defendants no longer agreed to the settlement and that they never agreed to release
American National from liability.
On January 12, 2017, American National filed this motion seeking to enforce the
settlement or enter a new order allowing interpleader and award additional fees, up to $18,042.87
(Sethi Dkt. #237; Sambina Dkt. #56). On January 26, 2017, the Receiver filed a response (Sethi
Dkt. #242; Sambina Dkt. #59). On February 10, 2017, the Interpleader Defendants filed a
response objecting to any additional fees and any future release from liability, but making an
appearance without objection (Sethi Dkt. #247; Sambina Dkt. #63). On February 16, 2017,
American National filed a reply (Sethi Dkt. #251; Sambina Dkt. #64).

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LEGAL STANDARD
Settlement
A federal court has authority to enforce an agreement to settle litigation before it. In re
Omni Video, Inc., 60 F.3d 230, 232 (5th Cir. 1999). In cases based on federal law, the Fifth
Circuit applies state law to the enforcement of settlement agreements unless there is a “strong
federal interest” favoring federal law. Id.; see also Fulgence v. J. Ray McDermott & Co.,
662 F.2d 1207, 1209 (5th Cir. 1981) (applying federal law for Title VII claims). Neither party
argues that an action in interpleader implicates a “strong federal interest.” Thus, Texas law
applies.
Under Texas law, “a settlement agreement must comply with Rule 11 [of the Texas Rules
of Civil Procedure] to be enforceable.” Padilla v. LaFrance, 907 S.W.2d 454, 462 (Tex. 1995).
Rule 11 states “no agreement between attorneys or parties touching any suit pending will be
enforced unless it be in writing, signed and filed with the papers as part of the record, or unless it
be made in open court and entered of record.” Tex. R. Civ. P. 11. To satisfy the writing
requirement, “there must be a written memorandum which is complete within itself in every
material detail, and which contains all of the essential elements of the agreement, so that the
contract can be ascertained from the writings without resorting to oral testimony.” Padilla,
907 S.W.2d at 462 (quoting Cohen v. McCutchin, 565 S.W.2d 230, 232 (Tex. 1978)).
Interpleader
A party may interplead funds into the registry of the court when two requirements are
met: (1) there is a single fund; and (2) two or more adverse claimants claim or may claim rights
in the funds. Fed. R. Civ. P. 22. The court may discharge the stakeholder from further liability if
the stakeholder is disinterested in the funds. Tittle v. Enron Corp., 463 F.3d 410, 424 (5th Cir.

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2006). A disinterested stakeholder thus remains neutral as to the allocation of funds and leaves
litigation up to the claimants to decide. Id.
Attorneys’ Fees
A district court has the authority to award reasonable attorneys’ fees in interpleader
actions. Rhoades v. Casey, 196 F.3d 592 (5th Cir. 1999). The award of attorneys’ fees is in the
discretion of the district court, and fees are available when the interpleader is a disinterested
stakeholder, and is not in substantial controversy with one of the claimants. Id. at 603. One
commentator stated that:
Because of the discretionary character of the court’s power, and because its
exercise depletes the fund, costs and fees will not be allowed as a matter of
course. Typically, they are available only when the party initiating the
interpleader is acting as a mere stakeholder, which means that he has admitted
liability, had deposited the fund in court, and has asked to be relieved of any
further liability.
7 Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure
§ 1719 (3d ed. 2007). An attorneys’ fees award in interpleader actions will typically be modest.
Noeller v. Metro. Life Ins. Co., 190 F.R.D. 202, 207 (E.D. Tex. 1999). Five factors have been
identified for consideration: (1) whether the case is simple or involved; (2) whether the
stakeholder performed any unique services for the claimants or the court; (3) whether the
stakeholder acted in good faith and with diligence; (4) whether the services rendered benefitted
the stakeholder; and (5) whether the claimants improperly protracted the proceedings. Id.; see
also Royal Indem. Co. v. Bates, 307 F. App’x 801, 806 (5th Cir. 2009).
ANALYSIS
The purported settlement had three material terms: (1) American National will be allowed
to interplead the funds; (2) American National will be discharged from further liability in these
suits; and (3) American National will be paid a total of $16,000 in attorneys’ fees (Sethi Dkt.
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#237, Exhibit B-1; Sambina Dkt. #56, Exhibit B-1). The Court finds that the parties did not reach
a settlement. However, after analyzing the merits of each claim, the Court finds that American
National is entitled to the first two terms, but it is not entitled to the full amount of attorneys’
fees requested.
Settlement
The parties did not reach a settlement. The Court appointed the Receiver to “collect,
marshal, and take custody, control, and possession of all the funds, accounts, mail, and other
assets of . . . or assets traceable to assets owned or controlled by the Receivership Estate” (Sethi
Dkt. #12 at ¶ 8(b)). And to “perform all acts necessary to conserve, hold, manage, and preserve
the value of the Receivership Estate, in order to prevent irreparable loss, damage, and injury to
the Estate (Sethi Dkt. #12 at ¶ 8(g)). The interpleaded funds were traceable to assets owned or
controlled by the Receivership Estate. American National interpleaded the funds into the registry
of the Court, therefore giving control to the Receiver. As such, the Receiver was a necessary
party to any settlement that would distribute the funds traceable to the Receivership Estate.
American National and the Interpleader Defendants purportedly reached an agreement to three
material terms. The Receiver did not indicate his position until his response to this motion, when
he indicated that he is opposed to any additional fees greater than $2,000.
It is well-settled that an acceptance must not make a material variation to the offer.
United Concrete Pipe Corp. v. Spin-Line Co., 430 S.W.2d 360, 363–64 (Tex. 1968). In
determining whether a change is material, a court must analyze the term in light of the
circumstances of the contract. Amedisys, Inc. v. Kingwood Home Health Care, LLC, 437 S.W.3d
507, 514 (Tex. 2014). A court’s primary concern is to ascertain the intent of the parties as
expressed in the contract. Id. (citations omitted).

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Here, the amount of fees is a material term of the purported settlement. American
National has advocated for additional fees in its motion to vacate, the purported settlement, and
now in this present motion. Further, fees were the only term that Interpleader Defendants even
referenced in their email to the Court. This evidence suggests that fees are a material term to the
settlement. The Receiver’s qualification that the additional funds not exceed $2,000 is a material
change to that term because it eliminates nearly two-thirds of additional fees sought by American
National. Without the Receiver’s agreement, there is no settlement. Therefore, the Court must
analyze American National’s requested relief on its merits.
Interpleader
The Court finds that American National should be allowed to interplead the funds in the
Interpleader Defendants’ accounts because American is caught between competing claims to the
funds. American National has already deposited the subject amounts into the registry of the
Court and closed the accounts, therefore no further action is needed at this time. The Court also
finds that American National is a disinterested stakeholder with regard to the accounts and
should be discharged of further liability regarding the accounts or funds in this dispute.
Attorneys’ Fees
American National argues that it should be awarded additional fees because of the
additional effort it expended to get the Interpleader Defendants to make appearances and agree to
the purported settlement. It asks the Court to either (a) enforce the settlement or (b) enter a new
order allowing interpleader and award additional fees, up to $18,042.87.1 The Interpleader
Defendants argue that American National is not entitled to any fees because American National

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American National asks the Court to award it “the additional amount per Doc. Nos. 37 and 141, or at a minimum,
award it the additional amount per the agreement” (Sethi Dkt. #237 at p. 5; Sambina Dkt. #56 at p. 5). Docket No.
141 included additional evidence addressing the Court’s concerns in the Interpleader Order and thus requested the
Court to grant the full $18,042.87 in fees. The agreement was for $16,000 in costs and fees.

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acted wrongfully in withholding the funds. The Receiver—and Interpleader Defendants
alternatively—object to new costs and fees to the extent that they exceed $2,000 because any
additional fees greater than $2,000 would be unreasonable in relation to the time spent preparing
to interplead and to the amount of funds interpleaded.
The Interpleader Defendants’ argument that American National is not entitled to any fees
is without merit. The Court’s Interpleader Order allowed interpleader and released American
National from further liability. No new facts have arisen since that order and therefore the Court
has reaffirmed its holding. American National should be released from further liability with
regard to these funds. However, this holding does not preclude Interpleader Defendants from
asserting a cause of action for actions taken by American National before this interpleader.
As a disinterested stakeholder, American National is entitled to attorneys’ fees.
Application of the factors regarding attorneys’ fees does not involve a complicated analysis: This
was a simple case. The stakeholder performed no unique services for the claimants. The
stakeholder acted in good faith and with diligence once there was litigation. The attorney’s
services benefitted the stakeholder. The only complication involved American National’s motion
to vacate and difficulty in filing the proposed agreed order. In its motion, American National
notes that this jurisdictional issue is still a problem. However, in its reply, American National
refers the Court to Interpleader Defendants’ response, where Interpleader Defendants make it
clear that they are making an appearance.
The Court finds that additional fees would not be reasonable. The Court has already
awarded $8,584.87 in fees and costs for this matter, or approximately 10.2% of the funds
originally available for interpleader. American National asked the Court to vacate its Interpleader
Order because American National was concerned about Interpleader Defendants making

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appearances. While Interpleader Defendants have been difficult since the Court vacated its prior
order, they made an appearance without objection in their response to this motion. Therefore,
American National could have obtained the necessary appearances without compromising its
position or expending additional effort.
Further, American National has not provided any evidence of the new fee amounts.
Rather, American National refers the Court to its prior motion in an effort for the Court to
reconsider a different fee issue. Any award made by looking at reasonable fees for a prior motion
would be an arbitrary determination by the Court. The Court declines to make such a decision,
especially when the award will come from a limited fund and decrease the amount available to
reimburse defrauded investors. As a result, the Court finds that American National should not be
awarded any additional fees or costs.
CONCLUSION
It is therefore ORDERED Intervenor American National Bank of Texas’s Motion to
Disburse Additional Funds Per a Settlement (Sethi Dkt. #237; Sambina Dkt. #56) is hereby
GRANTED in part and DENIED in part.
It is further ORDERED that the Court’s previous Order Granting Motion to Approve
Interpleader (Sethi Dkt. #134; Sambina Dkt. #35) is hereby reinstated. It is further ORDERED
that American National is hereby discharged from further liability regarding the accounts and is
DISMISSED with prejudice from the above styled cases.
The remaining parties are now free to make claims to the funds that have been
interpleaded into the registry of the Court. This Order does not affect any other accounts the
parties may have with American National and nothing in this Order would prevent the
Interpleader Defendants from doing future banking activity or transactions as allowed under

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applicable law, such as opening new accounts or doing other transactions pursuant to currently
opened unrelated accounts.
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The remaining issues in the proceedings remain pending but American National’s
involvement in the proceedings is now concluded and American National is fully and completely
discharged from liability regarding the accounts and disputed funds, and American National is
dismissed with prejudice from the above styled cases.
SIGNED this 4th day of April, 2017.

___________________________________
AMOS L. MAZZANT
UNITED STATES DISTRICT JUDGE

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