Securities and Exchange Commission v. Traffic Monsoon et al
Filing
244
MEMORANDUM DECISION and ORDER denying 197 Motion for Attorney Fees. Signed by Judge Jill N. Parrish on 5/29/2020. (nl)
Case 2:16-cv-00832-JNP Document 244 Filed 05/29/20 Page 1 of 3
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
MEMORANDUM DECISION AND ORDER
DENYING MOTION FOR ATTORNEY
FEES
v.
Case No. 2:16-cv-000832-JNP
TRAFFIC MONSOON, LLC and CHARLES
SCOVILLE,
District Judge Jill N. Parrish
Defendant.
Before the court is a motion for attorney fees brought by defendant Charles Scoville.
[Docket 197]. Scoville filed an interlocutory appeal from this court’s order granting a preliminary
injunction. He retained a Las Vegas law firm to represent him in that appeal. 1 The firm billed
Scoville $188,397.31. After the Tenth Circuit affirmed the preliminary injunction, Scoville
retained a prominent Washington D.C. law firm, Williams & Connolly, to prepare a petition for
certiorari. Williams & Connolly billed Scoville $81,695.91. The Supreme Court denied the
petition. Scoville now moves this court for an order directing the Receiver to pay these bills with
receivership funds. The court DENIES Scoville’s motion for attorney fees.
A defendant in a securities fraud lawsuit does not have a constitutional right to use frozen
assets to pay for an attorney. S.E.C. v. Marino, 29 F. App’x 538, 541–42 (10th Cir. 2002)
(unpublished) (“[A] swindler in securities markets cannot use the victims’ assets to hire counsel
1
The Receiver represents that one of the attorneys that worked on the appeal is Scoville’s cousin.
Case 2:16-cv-00832-JNP Document 244 Filed 05/29/20 Page 2 of 3
who will help him retain the gleanings of crime.” (citation omitted)). A district court, nonetheless,
retains the discretion to unfreeze assets to pay a defendant’s attorneys in full or in part. See
Commodity Futures Trading Comm’n v. Noble Metals Int’l, Inc., 67 F.3d 766, 775 (9th Cir. 1995)
(“A district court may, within its discretion, forbid or limit payment of attorney fees out of frozen
assets.”); F.T.C. v. Elite IT Partners, Inc., No. 2:19-cv-00125-RJS, 2019 WL 1568400, at *1 (D.
Utah Apr. 5, 2019) (“The court has discretion to release receivership funds to pay for an individual
defendant’s attorney’s fees.”).
Where the receivership funds are insufficient to make all of the allegedly defrauded
investors whole, the court must decide who deserves the funds more, the defendant or his alleged
victims. See F.T.C. v. Sharp, No. CV-S89-870 RDF (RJJ), 1991 WL 214076, at *1 (D. Nev. July
23, 1991). A number of courts have rejected requests for access to frozen funds to pay attorneys
where the funds are inadequate pay all claims to the funds. Noble Metals, 67 F.3d at 775;
Commodity Futures Trading Comm’n v. Morse, 762 F.2d 60, 63 (8th Cir. 1985); Elite IT Partners,
2019 WL 1568400, at *2; S.E.C. v. Callahan, No. 12CV1065ADSAYS, 2015 WL 10853927, at
*2 (E.D.N.Y. Dec. 24, 2015) (collecting cases); S.E.C. v. Bravata, 763 F. Supp. 2d 891, 920 (E.D.
Mich. 2011); S.E.C. v. Current Fin. Servs., 62 F. Supp. 2d 66, 68 (D.D.C. 1999).
In this case, the funds held by the receiver are insufficient to make the alleged victims of
Scoville’s Ponzi scheme whole. The Receiver holds about $53 million. But investor losses total
more than $114 million. In addition, the court has determined that there is a high likelihood that
the SEC will prove that Scoville was operating an illegal Ponzi scheme. Moreover, Scoville has
neglected to answer the complaint against him and is in default. Given the high probability that
the frozen assets will be used to repay defrauded investors and because they are not sufficient to
fully compensate the victims, the court determines that it would not be equitable to take money
2
Case 2:16-cv-00832-JNP Document 244 Filed 05/29/20 Page 3 of 3
from victims of the fraud to pay Scoville’s attorneys. See S.E.C. v. Grossman, 887 F. Supp. 649,
661 (S.D.N.Y. 1995) (“[I]t is well-established that there is no right to use the money of others for
legal service.”).
The court notes, moreover, that Scoville waited until after he received the legal services to
seek permission to use the frozen assets to pay the bills for those services. Prior to the appeal, the
court had already denied a request to use the frozen funds to pay for Scoville’s legal fees associated
with the preliminary injunction proceedings. [Docket 79 at 43–44]. Moreover, prior to oral
argument on the appeal and well before the petition for certiorari had been filed, the court ordered
that “Scoville and his counsel shall have no right to payment or reimbursement from the
Receivership Assets for any fees, expenses, or costs incurred in this action or any appeal therefrom.
[Docket 120 at 2]. Thus, the attorneys that worked on the appeal and the petition for certiorari took
the case with the full knowledge of the risk of nonpayment if the appeal were unsuccessful. If
Scoville or his attorneys had wished to be assured of payment, Scoville should have moved the
court for fees prior to incurring the fees.
Scoville’s motion for attorney fees is DENIED.
DATED May 29, 2020.
BY THE COURT
______________________________
Jill N. Parrish
United States District Court Judge
3
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