Petition for Writ of Certiorari — Shelton v. Barnes

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Supreme Court, U.S.

rin & BB

96115 2 JAN 21 1997

No. 96-

OFFIQE OF THE CLERK

IN THE

Supreme Court of the United States

OCTOBER TERM, 1996

JOHN P. SHELTON; ACI INVESTORS PROTECTIVE

ASSOCIATION, AND 155 OTHER DEFRAUDED REAL ESTATE

INVESTORS IN AMERICAN CAPITAL INVESTMENTS, INC.,

. Petitioners,

WILLIE BARNES, as successor to RICHARD G. SHAFFER,

receiver for AMERICAN CAPITAL INVESTMENTS, INC.; and

the SECURITIES AND EXCHANGE COMMISSION,

ee Respondents.

Petition for Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

PETITION FOR WRIT OF CERTIORARI

THOMAS W. DRESSLER

(Counsel of Record)

PATRICK J. EVANS

SCOTT J. REIN

PATRICK A. FRAIOLI, JR.

DRESSLER REIN EVANS &

SESTANOVICH LLP

1800 Century Park East

Tenth Floor

Los Angeles, California 90067

(310) 551-3100

Counsel for Petitioners

WILSON - Epes PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

QUESTIONS PRESENTED

(1) Whether a general federal law of equity receiver-

ship exists under which a federal court receiver may dis-

regard the state law property rights of persons who are

not parties to the receivership action and sell their sepa-

rate interests in property owned jointly with the receiver-

ship defendant over their objections, in derogation of their

state law rights, and in a manner contrary to state receiv-

ership law.

(2) Whether an order confirming a receiver’s sale of

real property is “final” for purposes of appeal, or, as the

Court below held, raises issues of appellate jurisdiction so

doubtful and complex as to warrant invocation of the “as-

sumed appellate jurisdiction” doctrine of WNorion v.

Mathews, 427 U.S. 524 (1976).

(i)

PARTIES TO THE CASE

The Respondents to this Petition are Mr. Willie Barnes,

as successor to Mr. Richard G. Shaffer, deceased, not in-

dividually but as Receiver for American Capital Invest-

ments, Inc.; and the Securities and Exchange Commission,

at whose suit the Receiver was appointed. The Petitioners

are Mr. John P. Shelton, the ACI Investors Protective

Association, an unincorporated association under Cali-

fornia law, and its 156 members. Mr. Shelton and the

155 other investors (husbands and wives counting as one

individual) are not named parties or defendants to the

SEC’s Receivership action, but are parties in interest be-

cause of their investment in securities promoted by the

Receivership Defendant, American Capital Investments,

Inc., a California corporation, and their ownership of

property in the possession of the Receiver.

Petitioners’ names are:

Alpers, Robert Campbell, Robert

Anderson, Robert Carroll, Doug

Armstrong, John Castro, Jerry

Aucoin, Gerard Christman, Robert & Marie

Bailey, Henry Clemens, Jess & Catherine

Bailey, Howland & Ann Cockrum, James & Maria

Bailey, Joseph Coie, James & Patricia

Barker, Lee & Florence Colbert, Richard H.

Barker, Milton Colley, Mildred

Bauchiero, Wallace, Jr. Corn, Erna

Benton, Francis Crawford, Robert

Bilile, Ray G. Critton, Beatrix & Lee

Poley, Jerry & Willene De Ciutiis, Alfred

orghi, Richard Dickson, Dan

Bradford, Elizabeth Eisenberg, Todd & Sharia

Bryant, Lloyd Ellenbogen, Richard &

Bullington, Eugene Steph

Burkhard, Wil Fernyhough, Lila

Burtschi, Henry Fitzgerald, Lawrence, J.

Cable, Walt & Marilyn Fletcher, A. Martyn

iii

Galka, Ray

Gammage, Kennedy & Joan

Geller, Mike

Gillette, Jeanne

Goodwin, William

Groeper, Larry

Hale, Tom

Harrison, Herb

Harrow, Larry

Hartanov, Andrew

Harthorn, Randy

Hart, Roger

Harvey, John

Hing, Bill

Hirsch, Uri

Hordis, Victor

Horn, Dennis & Jayne

Horton, William & Jo

Humiston, Matthew

Humphrey, Gordon

Hennings, Don

Johnson, Eddie & Ann

Kauffman, Ray

Keifer, Mel & Judith

Kennedy, Brian

Klasewitz, Zev J.

Kobylt, Monic J.

Kolesar, Michael L.

Kregzde, John

Kresbach, Mike

Kwan, Reddy

La Plante, Bruce

La Pointe, Jackie

a Pointe, Richard

Lee, Gary & Beverly

Leonard, Mary

Levin, Neal

Lev, Ira

Lindhal, Robert & Shirley

Linscott, Jon & Julia

Linton, Lucky

Madsen, Nellie

McAdam, Robert

McBride, Donald

McDonald, Barry

Metten, Cari F.

Meucci Engineering, Inc.

Meccu-Harmar Associates

Meucci, Raymond M.

Miller, Linda & John

Minney, Jack L.

Moller, James

Moore, James & Jean

Morrison, James & Jean

Morrison, R. Al

Murdock, Stan

Myerson, Gary

Myers, Andrew & Vicki

Nason, Fred Jr.

Nason, Richard

Newman, Bill

Oettinger, Elizabeth

Onaga, George

Ordonez, Amparo

Orosz, Jordan

Owen, Robert

Palluth, William

Patterson, Nancy

Pekny, Frank P.

Petryni, Thaddeus

Pfeifer, Bert

Phalen, William

Phillips, David

Pirtle, Lynne

Porter, Russ

Powell, Odette

Ramer, Alan

Rogazione, Mike & Sharon

Rogers, Bob & Sandra

Rogers, Mike

Rohr, John & Elaine

Rosenberg, Reinhardt

Ross, David

Schultz, Ed

Schumacher, Art

Shadek, James

Shaw, William D.

Shelton, John & Ivy

Shue, Donat

Smay, Betty F.

Smith, Marion

Smoll, Allen & Helen

Stafford, Gilbert

Summers, Edward

Sweeney, Allen & Donna

Tanner, Marc

Taylor, Virgil & Janet

Telaneus, Dick

Thaemert, Victor & Pat

Tobey, G. Al

Upton, Donald

Vandenbroek, Abe

Cannote, Richard

Vincent, Earl

Vinson, Willis D., Jr.

Vollmer, Charles A.

Wade, Gary

Wallstrom, Doris

Warnas, Joseph J.

Warner, Barry & Sondra

Weigand, Eugene

Weise, Robert & Jean

Wilson, Jeff

Winnett, Harold

Yates, Bruce

Yoshida, Edward

Ziegler, Phil & Roseanne

TABLE OF CONTENTS

QUESTIONS PRESENTED ....WWWW00

PARTIES TO THE CASE .............

TABLE OF AUTHORITIES ..

OPINION BELOW

FU) BRAG BPE vice cass css anndincotvstecntea pase

STATUTORY PROVISION INVOLVED

9 ey |. 1s eee aa eE

REASONS FOR GRANTING THE WRIT

THE OPINION BELOW EVISCERATES

BOTH O’MELVENY & MYERS v. FDIC AND

ATHERTON v. FDIC, RESURRECTING THE

OVERUSE OF FEDERAL COMMON LAW

OF RECEIVERSHIPS THIS COURT SO

RECENTLY AND AUTHORITATIVELY

REJECTED

A. The Ninth Circuit Improperly Created Fed-

eral Common Law by Fiat, Holding It Was

Unnecessary to Identify a Conflict Between

a Uniquely Federal Policy or Interest and

State Law

B. Application of the Federal Common Law

Rule Created by the Ninth Circuit in This

Case Will “Disrupt Commercial Relationships

Predicated On State Law”

THE NINTH CIRCUIT HAS RENEWED AND

INTENSIFIED THE CONFLICT AMONG

THE CIRCUITS THAT EXISTED PRIOR TO

O'MELVENY & MYERS AND ATHERTON

(v)

Page

TABLE OF CONTENTS—Continued

Ill. THE NINTH CIRCUIT’S UNFOUNDED AS-

SERTION OF AUTHORITY TO PROMUL-

GATE FEDERAL COMMON LAW IN ANY

FEDERAL RECEIVERSHIP CASE CONTRA-

VENES BOTH THE UNITED STATES CON-

STITUTION AND THE EXPRESSED IN-

TENT OF CONGRESS 23

A. The Sole Cited Basis for the Ninth Circuit’s

Usurpation of State Common Law Is a Mis-

quoted Treatise on Receiverships 26

IV. THERE IS NO QUESTION THAT A SALE

CONFIRMATION ORDER IS IMMEDIATELY

APPEALABLE AS A FINAL ORDER 27

V. THE INVOCATION OF THE “ASSUMED

APPELLATE JURISDICTION” DOCTRINE

WAS UNNECESSARY AND IMPROPER 28

CONCLUSION 50

vii

TABLE OF AUTHORITIES

Uases Page

Allen v. Ramsay, 179 Cal. App. 2d 843, 4 Cal. Rptr.

575 (1960) 1, 27

Atherton v. Federal Deposit Insurance Corpora-

tion, U.S. ——, 1997 WL 9781 (January

14, 1997) passim

Beazer East, Inc. v. Mead Corp., 34 F.3d 206 (3d

Cir. 1994), cert. denied, - U.S. ——, 115 S.Ct.

1696, 131 L.Ed.2d 559 (1995) 22

Bories v. Union Building & Loan Ass’n, 141 Cal.

74 P. 552 (1903) 27

Browning-Ferris Ind. v. Muszynski, 899 F.2d 151

(2d Cir. 1990) 28, 29

California National Bank of Sacramento v. El

Dorado Lime & Minerals Co., et al., 213 Cal. 494.

2 P.2d 785 (1931) 27

City of Milwaukee v. Illinois and Michigan, 451 U.S

304, 101 S.Ct. 784, 68 L.Ed.2d 114 (1981) 13, 24

Cross-Sound Ferry Services. Inc. v. I.C.C., 934

F.2d 327 (D.C. Cir. 1991) 29

DiVall Insured Income Fund, Ltd. Partnership v.

Boatmen’s First Natl. Bank, 69 F.3d 1398 (8th

Cir. 1995) 22

Downey v. Humphreys, 102 Cal. App. 2d 323, 227

P.2d 484 (1951) 27

Erie R.R. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817,

82 L.Ed. 1188 (1938) 13

Erust & Young v. FDIC, 967 F.2d 166 (1992) 22

FDIC v. Massingill, 30 F.3d 601 (5th Cir. 1994) 22

FDIC v. O'Melveny & Myers, 969 F.2d 744 (9th Cir.

1992) 22

First National Bank v. Shedd, 121 U.S. 74, 7S. Ct.

807, 30 L.Ed. 877 (1886) 28

In re San Vincente Medical Partners Ltd., 962 F.2d

1402 (9th Cir. 1992), cert. denied, 113 S. Ct. 210

(1992) 7,8

James v. Metropolitan Life Insurance Co., 896

F. Supp. 1006 (D. Nev. 1995) 23

Kamen v. Kemper Financial Services, Inc., 500

U.S. 90, 111 S. Ct. 1711, 114 L.Ed.2d 152

(1991) 11, 18, 21, 25

vill

TABLE OF AUTHORITIES—Continued

Marshall v. New York, 254 U.S. 380, 41 S. Ct. 1438

(1920) L,

Northwest Airlines, Inc. v. Transport Workers

Union of America, 451 U.S. 77, 101 S. Ct. 1571,

67 L.Ed.2d 750 (1981) 13,

Norton v. Mathews, 427 U.S. 524 (1976) 28,

O'Melveny & Meyers v. FDIC, 512 U.S. 79, 114

S. Ct. 2048, 129 L.Ed. 67 (1994) pass

People v. California, etc. Trust Co., 168 Cal. 241,

141 P. 1181 (1914)

Pescatore v. Pan American World Airways, Inc.,

97 F.3d 1 (2d Cir. 1996)

Remington Investments, Inc. v. Kadenacy, 930

F. Supp. 446 (C.D. Cal. 1996)

RTC v. Diamond, 45 F.8d 665 (2d Cir. 1995),

cert. denied, — U.S, ——-, 115 S. Ct. 2609, 1382

L.Ed.2d 853 (1995)

RTC v. Maplewood Invs., 31 F.3d 1276 (4th Cir.

1994)

RTC v. Blasdell, 930 F.Supp. 417 (D. Ariz. 1994)

Sage v. Railroad Company, 96 U.S. 712, 24 L.Ed.2d

641 (1877)

SEC v. American Principals Holdings, Inc., 817

F.2d 1349 (9th Cir. 1987)

Texas Industries v. Radcliff Materials, Inc., 451

U.S. 630, 101 S. Ct. 2061, 68 L.Ed.2d 500 (1981). 138,

Tisza v. Communications Workers of America, 958

F.2d 298 (7th Cir. 1992)

U.S. v. Grable, 25 F.3d 298 (6th Cir. 1994)

U.S. v. Kimbell Foods, Inc., 440 U.S. 715, 99 S. Ct.

1448, 59 L.Ed.2d 711 (1979) passi

U.S. v. Northrop Communication, 59 F.3d 9538

(1995)

Voorhees v. Jackson, 35 U.S. (10 Pet.) 449, 9 L.Ed.

190 (1836)

Statutes

28 U.S.C. § 959

Treatises

2 R. Clark, Clark on Receivers (3d ed. 1992)

26. ‘

PaSsstn

IN THE

Supreme Court of the United States

OCTOBER TERM, 1996

JOHN P. SHELTON; ACI INVESTORS PROTECTIVE

ASSOCIATION, AND 155 OTHER DEFRAUDED REAL ESTATI

INVESTORS IN AMERICAN CAPITAL INVESTMENTS, INC..

‘ Petitioners,

WILLIE BARNES, as successor to RICHARD G. SHAFFER.

receiver for AMERICAN CAPITAL INVESTMENTS. INC.: and

the SECURITIES AND EXCHANGE COMMISSION.

Respondents.

Petition for Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

PETITION FOR WRIT OF CERTIORARI

Petitioners the ACI Investors Protective Association,

an unincorporated association under California law, and

its members, John P. Shelton and 155 other investors in

real estate investments promoted by defendant in receiver-

ship American Capital Investments, Inc., a California cor-

poration, respectfully pray that a writ of certiorari issue

to review the decision of the United States Court of Ap-

peals for the Ninth Circuit in this matter.

OPINION BELOW

The opinion of the Court of Appeals for the Ninth

Circuit is officially reported at 98 F.3d 1133 (9th Cir.

1996) and is reprinted as Appendix A hereto at 1a-28a.

There were four separate consolidated appeals before the

Ninth Circuit: (1) the appeal of the District Court Order

confirming the sale at issue; (2) the appeal of the Order

denying Petitioners’ Rule 60 motion to set aside confirma-

tion of the sale; (3) the appeal of the Order imposing an

injunction against collateral attacks on the sale confirma-

tion Order; and (4) the appeal of the Order approving

certain modifications of the confirmed sale. These four

Orders of the United States District Court for the Central

District of Columbia are reprinted as Appendix C at 39a-

45a (Sale Confirmation Order); 29a-38a (Order on F.

Rule Civ. Pro. 60(b) Motion); 46a-47a (Injunction

against Collateral Attack) and 48a-49a (Modification of

Sale Terms).

JURISDICTION

The Court of Appeals’ Opinion was filed October 22,

1996. This Court has jurisdiction under 28 U.S.C.

§ 1254(1).

STATUTORY PROVISION INVOLVED

28 U.S.C. § 959 provides:

Trustees and receivers suable; management; State

laws

(a) Trustees, receivers or managers of any prop-

erty, including debtors in possession, may be sued,

without leave of the court appointing them, with re-

spect to any of their acts or transactions in carrying

on business connected with such property. Such ac-

tions shall be subject to the general equity power of

such court so far as the same may be necessary to the

ends of justice, but this shali not deprive a litigant of

his right to trial by jury.

(b) Except as provided in section 1166 of title 11,

a trustee, receiver or manager appointed in any cause

pending in any court of the United States, including

a debtor in possession, shall manage and operate the

property in his possession as such trustee, receiver or

manager, according to the requirements of the valid

laws of the State in which such property is situated,

in the same manner that the owner or possessor there-

of would be bound to do if in possession thereof.

STATEMENT

The court below declared by fiat that there is a federal

common law of receiverships which permits any federal

court receiver to disregard state created property rights

and state limits on the powers of a receiver. without a

showing of a compelling federal interest and in contraven-

tion of a federal statute mandating the use of state law.

The court below disavowed the established rule that

the guiding principle [in deciding to create a federal

rule of decision] is that a significant conflict between

some federal policy or interest and the use of state

law .. . must first be specifically shown.

Atherton v. Federal Deposit Insurance Corporation,

U.S. , 1997 WL 9791 (January 14, 1997) (citations

omitted), finding that the mere exercise of federal equi-

table power in bringing property into the possession of

the court through appointment of a receiver conferred

power to create a federal rule of decision in derogation

of the admitted limitations on the defendants’ title and

the rights of others under state law. (Pet. App. 18a-24a).

At issue was a receiver’s sale of real estate, allegedly

for the benefit of the Petitioners. who were defrauded by

the receivership defendant in connection with their pur-

chase from the defendant of partnership and other inter-

ests in several parcels of real estate. The Petitioners are

substantially all of the defrauded investors and they hold

interests in the real estate as partners (both limited and

general) in some real_estate and pursuant to deeds for

fractional undivided interests in other real estate. Because

the shareholders of the defendant corporation were com-

pelled to “disgorge” their interests in the real estate as

part of the remedy obtained by the plaintiff Securities

and Exchange Commission (“SEC”) in its final judgments

against the defendants, the Petitioners are the only parties

holding an interest in the real estate.

After the SEC obtained appointment of a permanent

receiver and, later, “final judgments” and _ injunctions

against the defendants, the sole issue remaining in the

case was the disposition of the real estate interests ac-

cumlated by the receivership defendants. The Petitioners,

who formed a “Securities Owners Protective Association”

under California Law (Corporations Code at §25000 et

seq.), determined that their interests were best served by

“spinning off” the real estate in kind to themselves and

terminating the receivership. The receiver appointed at

the SEC’s instance, for reasons of his own which were

never made clear to the Petitioners, determined to sell the

real estate to a third party over the unanimous objections

of the sole parties entitled to ownership of the real estate.

The Petitioners argued that California State law gov-

erned the case and that for the reasons this Court

elucidated in O’Melveny & Meyers v. FDIC, 512 US.

79, 114 S.Ct. 2048, 129 L.Ed. 67 (1994), the receiver

merely “stepped into the shoes” of the defendants. There-

fore, the receiver could not convey a title superior to that

owned by the receivership defendant. The receiver ar-

gued (and the Ninth Circuit agreed) that the mere exer-

cise of the court’s equitable power to appoint a receiver

and the receiver’s possession of the real property without

more conferred “full power” (Receiver’s Answering Brief

below at 38) over the property—including a power of sale

without regard to the title of co-owners.

California State law is squarely to the contrary, as is

the law of other States as declared by this Court: “a

receiver appointed by a federal court takes property sub-

ject to all liens, priorities or privileges existing or accru-

ing under the laws of the State.” Marshall v. New York,

254 U.S. 380, 385, 41 S.Ct. 143, 145 (1920) (Applying

New York Law). Compare, Allen v. Ramsay, 179 Cal.

App. 2d 843, 854, 4 Cal. Rptr. 575, 583 (1960) “any

defense good against the original party is good against the

receiver,” and the other California authorities discussed

below.

The decision below revivifies the debate, which this

Court has twice recently attempted to end (O’Melveny

and Atherton), over the ability of the federal courts to

fashion their own “federal common law” in receivership

cases. Indeed, the rule stated by the court below is far

more sweeping than the rule stated by the same circuit

overturned in O’Melveny. The prior overturned decision

was at least a case where a government agency was the

receiver, acting under a Statutory scheme specifically con-

templating that a government agency would be receiver

and where the government held a pecuniary interest of its

own. The instant case states an expanded general au-

thority applicable to all federal receiverships without re-

gard to the identity of the receiver or the interest of the

federal government. The decision throws into confusion

real property investors and syndicators, if not all commer-

cial relations generally, with its Sweeping pronouncement

that a federal court sitting in receivership can disregard

rights and obligations of the parties created under state

law—as it comports with the court’s own view of federal

“equity.”

The case commenced August, 1993 when Plaintiff SEC

obtained an injunction against Defendant American Capi-

tal Investments, Inc., a California corporation (“ACT”)

and certain of its related individual shareholders. prin-

cipals and officers (collectively, “Defendants”), for violat-

ing federal securities law through sales of interests in a

number of real estate investments. The Petitioners (here-

inafter at times the “Investors”) are substantially all of

the victims of ACI’s fraud who purchased interests in

some or all of the ACI real estate ventures. The Investors

hold approximately 95% of the monetary claims against

the ACT estate.

In late 1993, the district court issued an injunction

shutting down ACI and appointed Mr. Richard G. Shaffer

as ACI’s receiver* (the “Receiver”). The Receiver took

possession of ACT’s assets, materially consisting of direct

individual interests under deeds in real estate or indirect

interests as “managing general partner” in supposed

limited partnerships which in turn owned real estate. The

district court entered “Final Judgments and Orders”

against the Defendants forcing them to disgorge their

interests in ACI, and continued the receivership for the

1 Mr. Shaffer has since died and has been replaced as receiver

by Mr. Willie Barnes.

purpose of liquidating the ACI estate. Although the il-

legal investment scheme had been shut down, the De-

fendants had given up their interests, and ail that remained

was the determination of estate claimants’ rights and dis-

position of assets to satisfy their claims, the SEC stead-

fastly refused to allow liquidation of the real properties

through a bankruptcy or to even consider any proposal

other than a sale of the real properties to a “secret buyer”

over the Investors’ unanimous opposition.

There was no question as to the state of title to the real

estate under State law. In ACI’s investment scheme,

Investors were at times “limited partners” in partnerships

which held title to real properties. However, ACI never

validly formed two of these limited partnerships, and

therefore, under California law, the limited partnerships

were really general partnerships. Investors were also

holders of undivided direct interests in real properties by

conveyances under unrecorded deeds ACI had delivered

to them. In either case, ACI shared title to the properties

as a tenant in common with either a partnership or one

or more individual Investor deed holders.°

The Investors opposed the sale on the basis that the

Receiver had no authority to sell 100% of the interests

in the properties. The objection was simple: the Receiver

could only sell ACI’s interests in the real properties; he

could not sell the interests of Investors holding deeds or

the property interests owned by the partnerships in which

the Investors were partners. The Investors argued that

the Receiver, as successor to ACI, did not have the power,

under state law, to sell real property in violation of ACI’s

partners’ rights. Citing 28 U.S.C. § 959(b), the Investors

noted that Congress had made it clear that the federal

2 Although the Investors argued that the Receiver had no right to

sell the real property interests they held under the deeds, neither

the district court nor the Ninth Circuit explicitly addressed the

source of the Receiver’s power to sell such interests. Presumably,

the same “federal common law” which permitted the Receiver to

sell the partnerships’ real property in violation of California law

also allowed him to sell the interests held by Investors under deeds.

courts were bound to observe state law in a federal re-

ceivership proceeding. Nevertheless, over the unanimous

objections of the Investors, ACI’s co-owners under deeds

and its partners, and in complete derogation of their state

law rights, the Receiver eventually purported to sell 100%

of the interests in the real properties to corporations owned

by the Canadian financier family, the Belzbergs.

The district court ignored the Investors’ argument that

it and the Receiver had no right under state law to sell

the Investors’ and the partnership’s real property interests.

In the order confirming the sale, the district court found

that “ACI owns eight parcels of property . . . [and] hoids

title to three parcels with California limited partnerships,

of which ACI is the general partner.” Pet. App. 40a.

Relying upon In re San Vicente Medical Partners Ltd..

962 F.2d 1402 (9th Cir. 1992), cert. denied, 113 S.Ct.

210 (1992), the district court rested its ability to order

the sale on (1) the partnerships’ properties having been

included in the receivership order and taken into the

possession of the court appointed receiver, (2) the court

having personal jurisdiction over the partnerships and

their property, and (3) the Investors having received

notice of the sale and “an opportunity to be heard.” Pet.

App. at 41a-43a. Without any analysis of relevant state

law, the district court also summarily found that ACI. “as

general partner of the limited partnerships,” could sell

partnership assets. Thus, the court could order “the sale

of the properties not owned solely by ACI.” 7d.

Following the court’s entry of the sale order. the In-

vestors moved under Rule 60 to set aside the sale order

because, among other reasons, it was void for lack of

subject matter jurisdiction and based on mistakes of fact

and law. The Investors reiterated their argument that the

district court could not sell their real property interests

over their objections, and explained that San Vicente,

which held that a partnership of an investment conglom-

erate, which was drawn into receivership proceedings by

the placement of its general partner’s parent company in

receivership could be forced to pay its share of receiver-

ship administrative expenses, did not and could not sup-

port the sweeping proposition that a federal court could

authorize and order a sale of real property interests in

violation of the interest owners’ state law rights. The

Investors pointed out that the district court had been

mistaken in finding that ACI, as “general partner” had

authority to sell the partnerships’ real properties, because

the partnerships, both under their partnership agreements

and as a matter of California law, had been dissolved

upon the Receiver’s appointment. Once dissolved, the

general partner had no authority to sell partnership prop-

erty. Further, as noted, two of the limited partnerships

had not been properly created, and thus, under California

law, were general partnerships.

In its order denying the Investors’ Rule 60 motion to

set aside the sale order, the district_court again relied on

San Vicente, and again confused personal jurisdiction, sub-

ject matter jurisdiction, possession versus title, and part-

nership property as opposed to property held directly by

ACI. The court repeated that the partnerships’ real prop-

erty was in the possession of the Receiver under the

receivership order, that the court had personal jurisdiction

over the Investors based on their “minimum contacts,”

and that the Investors had been given notice and an oppor-

tunity for a hearing. Pet. App. at 33a. Citing San Vicente,

the court found that it could ignore California law en-

tirely, and that it did not matter that the partnerships had

been dissolved under California law and the express terms

of the partnership agreements, because, based on San

Vicente, the Receiver was the Receiver for the partner-

ships’ property, and not the general partner of the part-

nership. Pet. App. at 34a-35a, n.4. Thus, merely because

the Receiver had possession of the partnerships’ properties

under the receivership order, state law was irrelevant, and

the district court could authorize the sale of 100% of

the real property interests. In essence, the district court

held that it had “special powers” under the “law of federal

equity :eceiverships”, which permitted it to sell the In-

vestors’ real property interests over their objections and

in violation of their state law rights.

The district court entered two further orders effectuat-

ing the sale. First, the district court enjoined collateral

attacks on the sale and ordered that the Investors’ claims

to their property be deemed “transferred” to the sale pro-

ceeds. (Pet. App. D) Second, the court approved amend-

ments to the sales contract, all designed to enable the

purchaser to obtain title insurance notwithstanding the

Investors’ inevitable appeal. (Pet. App. E) Petitioners

timely appealed from the four orders entered by the dis-

trict court which collectively provided for the sale of

ACI’s real estate interests—as well as the separate prop-

erty interests of the Investors in the same real estate:

the Sale Order, entered December 7, 1994 (Pet. App. C

at 39a-45a), which confirmed the sale, and the Rule 60

Denial Order, entered on January 31, 1995 (Pet. App.

B at 29a-38a), which denied the Investors’ Rule 60 Mo-

tion, and the “transfer” and “amendatory” orders.

The Ninth Circuit initially dismissed the Sale Order and

Rule 60 Denial Order Appeals as premature interlocutory

appeals of “sale” orders that were not appealable. How-

ever, in response to the Investors’ Petition for Rehearing,

which cited the Court’s long-standing opinions that a

receivership sale order is a final appealable order, the

Ninth Circuit withdrew its April 27, 1995 dismissal order

and reinstated the two appeals. Unfortunately, although

the Investors had also asked for an emergency stay of

the sale and expedited review of their Rehearing Petition,

the Ninth Circuit’s about face to correct its error was slow

to occur and not announced until August, 1995.

Meanwhile, in June, 1995, based on the amended Sale

Order, the Receiver purported to “close” the sale and

convey interests in the properties held by ACI and the

Investors to the Belzberg-controlled corporations. The

Investors interests’ held under unrecorded deeds of which

both the Receiver and the Belzbergs had notice were

ignored in the conveyance documents. With respect to

the interests held by the partnerships, the Receiver signed

the deeds as authorized signatory for ACI, acting as “gen-

eral partner” of the non-existent “limited” partnerships.

Thus, the Receiver purported to convey real property in

the name of California limited partnerships that did not

exist as a matter of California law; and the district court

held he could do so because “federal common law” pro-

vided the Receiver with such power. Pet. App. 33a-35a;

41a-42a.

Since it had been conceded that the sale could not have

proceeded under California State law, the Investors con-

tended that the only way to uphold the sale would be for

the Ninth Circuit to concur with the district court that

there was indeed a “federal common law” that could be

used to trump the Petitioners’ state law rights. Thus, not

surprisingly, the Ninth Circuit identified the “key issue”

as “whether the district court exceeded its jurisdiction” in

confirming the Receiver’s sale purporting to convey title

to real property “in which appellants claim legal interests”,

and stated the question as “[D]oes California partnership

law or the federal law of equity receivership control the

Receiver’s power to convey title?” Pet. App. 17a.

Noting that the district court “twice addressed its juris-

diction to conduct a sale of partnership assets, first in the

Sale Order and second in the Rule 60 Order,” the court

chose to “address only [the district court’s] second more

considered ruling,” in which “the district court abandoned

its prior reliance on ACI’s status as general partner of

the limited partnerships as a basis for its power to confirm

the sale.” Jd. at 19a. Thus, the Ninth Circuit made it

clear that the district court’s power to order the sale had

to exist, if at all, based on “federal common law.”

Indeed, the Ninth Circuit found that there was such a

federal common law, stating that “Appellants’ assertion

that ‘there is no federal common law of receiverships’ is

vastly overstated.” The court distinguished O’Melveny,

Na SP

finding that it was limited to its facts and irrelevant. Id.

at 23a. The court then held that federal common law

of equity receiverships, and not state law, governed the

rights of the owners of the real estate interests. Id. In

so holding, the Ninth Circuit, like the district court, relied

almost exclusively on “the federal common law rules re-

garding the powers of equity receiverships” and San Vi-

cente. Id. In so holding, the Ninth Circuit also found that

28 U.S.C. § 959(b), the federal statute which embodies

Congress’ considered judgment that state law apply to

determine substantive rights in federal receiverships, was of

no import. Pet. App. 20a.

The Ninth Circuit simply announced, without authority,

that there was indeed a federal common law that per-

mitted the district court to order the sale of property not

owned by the corporation in receivership. The court did

not apply or even mention this Court’s clearly enunciated

four part test for determining whether or not a federal

common law should be found as set forth in U.S. v.

Kimbell Foods, Inc., 440 U.S. 715, 99 S.Ct. 1448, 59

L.Ed.2d 711 (1979). Moreover, it ignored the require-

ment, first stated in Kimbell Foods but later more fully

explained in Kamen v. Kemper Financial Services, Inc.,

500 U.S. 90, 111 S.Ct. 1711, 114 LEd.2d 152 (1991),

that before applying a federal common law rule of de-

cision, a federal court must consider how a uniform

federal rule will affect commercial and contractual rela-

tionships that are based on state law. Indeed, the Ninth

Circuit’s new “federal common law of receiverships”

renders rights conferred by contracts made under state

law useless in a federal receivership proceeding.

Aside from its announcement of new federal receiver-

ship common law, the Ninth Circuit also questioned

whether it had jurisdiction to consider the appeals, a

question upon which it had already reversed itself when

it initially incorrectly dismissed the Investors’ appeals.

Finding “tension” between two unquestioned century old

decisions of this Court that hold a receivership sale order

is appealable and one of its own decisions, the Ninth

Circuit failed to follow this Court’s binding precedent and

did not assert jurisdiction. Instead, it asserted “hypotheti-

cal jurisdiction.”

The Ninth Circuit heard oral argument on the four

appeals on August 6, 1995 and entered its opinion on

October 22, 1996.

REASONS FOR GRANTING THE WRIT

The central issue in this case is whether there is a

judge-made “federal common law” which grants a receiver,

who controls and possesses real property in the receiver-

ship in which other estate creditors have interests as co-

owners under state law, the right to sell the real property,

including the co-owners’ interests, over their objections

and in violation of their rights under state law. The

Ninth Circuit found that there is such a “federal common

law,” and that it grants a receiver such power, calling

its hoiding “. . . a conclusion firmly rooted in the common

law of equity receiverships.” Pet. App. 20a.

The Ninth Circuit’s ruling in the case below is far-

reaching and extraordinary, and merits review by this

Court for four reasons. First, the decision defies decades

of binding authority of this Court regarding the applica-

bility of federal common law rules of decision to actions

involving state created rights, culminating in the recent

O'Melveny & Myers v. Federal Deposit Insurance Corp.,

512 U.S. 79, 114 S.Ct. 2048, 129 L.Ed.2d 67 (1994)

and Atherton v. Federal Deposit Insurance Corp., ——

US. ——, -S. Ct. “, L.Ed.2d ——, (West-

law citation 1997 WL 9781 (U.S.)) (January 14, 1997).

Second, the decision below resurrects the very same con-

flict among the Circuits, which this Court resolved in

O’Melveny (and reiterated in Atherton) where this Court

held that federal common law should not be applied

except in the rarest of instances, aiid only after applying

the tests set forth in Kimbell Foods and O'Melveny. Third,

the ruling below ignored both the Constitutional limita-

tions on the powers of the federal courts and the specific

federal statute, 28 U.S.C. § 959(b), which instructs that

federal receivers must follow State law in their manage-

ment and operation of receivership properties. Fourth, the

ruling below refused to follow binding authority of this

Court regarding the appealability of a receivership court's

sale order and questioned whether or not a receivership

sale conducted under a void order can be challenged after

“closing” of the sale, fundamentally expanding and mis-

applying the “assumed appellate jurisdiction” doctrine and

creating a further conflict with other circuits, which apply

the doctrine only where there is a complex and unsettled

question of appellate jurisdiction. Here, if there was ju-

risdiction to confirm the sale, the closing of the sale

moots the appeals. But where there is no jurisdiction,

there can be no lawful sale, and as this Court has held,

a court can determine on appeal that the sale was void

and therefore conveyed no title. See Voorhees v. Jackson,

35 U.S. (10 Pet.) 449, 9 L.Ed. 490 (1836).

First and foremost, the Ninth Circuit was fundamentally

wrong in failing to apply to this case the clear standards

for the creation and application of federal common law

consistently enunciated by this Court throughout this cen-

tury. This case fits squarely within the line of cases

beginning with Erie R.R. v. Tompkins, 304 U.S. 64, 58

S. Ct. 817, 82 L.Ed. 1188 (1938), continuing up through

United States v. Kimbell Foods, 440 U.S. 715, 99 S.Ct.

1448, 59 L.Ed.2d 711 (1979), and culminating in O’Mel-

veny * and Atherton.

Second, the Ninth Circuit has resurrected the uncer-

tainty that existed prior to O'Melveny concerning how and

when federal courts may create and apply federal common

law to displace substantive State law in federal receiver-

* See also, Kamen v. Kemper Financial Services, Inc., 500 U.S.

90, 111 S.Ct. 1711 (1991), Texas Industries v. Radcliff Mater»«!s,

Inc., 451 U.S. 630, 101 S.Ct. 2061, 68 L.Ed.2d 500 (1981); North-

west Airlines, Inc. v. Transport Workers Union of America, 451

U.S. 77, 101 S.Ct. 1571, 67 L.Ed.2d 750 (1981); City of Milwaukee

v. Illinois and Michigen, 451 U.S. 304, 101 S.Ct. 784, 68 L.Ed.2d

114 (1981).

ship actions. Not only did the Ninth Circuit’s decision

below eviscerate O'Melveny, it is aiso squarely in con-

flict with the numerous decisions of all other United

States Circuit Courts of Appeal which have followed

O'Melveny and its predecessors in considering the applica-

bility of federal common law to displace state rules of

decision in actions involving state created rights. Because

the Ninth Circuit has limited O'Melveny to its own facts,

there once again exists a conflict among the Circuits over

how and when federal common law may be applied.

Moreover, the United States District Courts in the

Ninth Circuit will now face substantial uncertainty in

dealing with these questions. To the extent these courts

follow the Ninth Circuit’s ruling and adopt federal com-

mon law rules of decision which extinguish the state-

law property rights of innocent co-owners of property in

the possession or control of a federal receiver, as the

District Court did in this case, they will be doing so

in contravention of decades of Supreme Court authority.

Such an incongruity in our judicial system cannot be

tolerated.

Third, the Ninth Circuit exceeded the constitutional

limitations on the lawmaking power of the federal courts

when it applied a judge-made, federal common law rule

of decision, in complete disregard of this Court’s prece-

dents. The Ninth Circuit used its new Federal common

law rule of decision to displace: (!) the explicit Cali

fornia law that created the property rights at issue and the

cause of action under which Petitioners had brought their

claims, and (2) the federal statute which directs that

federal receivers must follow State law in their manage-

ment and operation of any and all receivership properties

in their possession. See 28 U.S.C. § 959(b).

Finally, the Ninth Circuit ignored binding authority of

this Court regarding whether or not a sale order is appeal-

able and whether or not a receivership sale conducted

under a void order can be challenged after “closing” of

the “sale.”

The effect of the Ninth Circuit’s ruling on commerce

and our federal system is profound, as it disregards the

three sources of controlling law in this case. As stated

above, the ruling below ignored this Court’s binding

precedents. Moreover, the Ninth Circuit contravenes the

express intent of the only two sovereigns having jurisdic-

tion over the matters at issue: the State of California and

the United States Congress. Regarding the property rights

at issue below, both the State of California and Congress,

as law-makers, require a State rule of decision to govern

in a receivership involving state law property rights.*

Thus. until the Ninth Circuit’s decision, either the laws of

the sovereign States or the statutes enacted by Congress

provided the rule of decision in actions involving state

law property claims against a receiver. The Ninth Circuit

has now judicially created a third sovereign: the federal

courts, as long as they are applying “the federal common

law of equity receiverships” (as determined by the federal

courts). The result is that in the Ninth Circuit no one—

no creditor, debtor or anyone else entering into a con-

tract or acquiring property under state law—can be

certain that his or her contract or property rights will

be honored in a federal court receivership. Because there

is always a possibility that one with whom a person has

contracted may go into federal receivership, any state law

property rights for which these individuals bargained may

be completely disregarded in the Ninth Circuit, by a fed-

eral receiver applying a judge-made “federal law of equity

receiverships.”

A decision vesting such broad, sovereign lawmaking

authority in the federal courts is not authorized by the

Constitution, any federal statute, any State law, or any

decision of this Court. It must be reversed.

4 See California cases cited in Section IIt. A., below; 28 U.S.C.

§ 959(b).

I. THE OPINION BELOW EVISCERATES BOTH

O'MELVENY & MYERS v. FDIC AND ATHERTON

v. FDIC, RESURRECTING THE OVERUSE OF

FEDERAL COMMON LAW OF RECEIVERSHIPS

THIS COURT SO RECENTLY AND AUTHORITA-

TIVELY REJECTED

It is impossible to defend the Ninth Circuit’s ruling in

this case, given the clear and consistent rules repeatedly

announced by this Court regarding the permissibility of

creating and applying federal common law. If the Ninth

Circuit’s ruling in this case is correct, then either this

Court wrongly decided O'Melveny (and now Atherton)

or, as the Ninth Circuit held below and has stated else-

where, O’Melveny must be confined to its own facts.°

Here, the Ninth Circuit completely misread and mis-

applied O'Melveny and its progenitors. After limiting

O'Melveny to its own facts, the Ninth Circuit displayed

the “. . . runaway tendencies of federal common law <

decried by this Court. O'Melveny, 512 U.S. 79, 114

S.Ct. at 2055. Faced with California law that clearly pre-

vents a Receiver from disposing of the real properties in

his possession over the objections of innocent co-owners,

the Ninth Circuit applied a “federal common law” rule of

decision to uphold the sale. It did so without identifying

any “significant conflict between some federal policy or in-

terest and the use of state law” as is required under both

O'Melveny and the well-established Kimbell Foods test.

Id. Incredibiy, the Ninth Circuit did not even mention

Kimbell Foods.

* (Pet. App. 23a) (“O'Melveny concerned only the rule which

governs a receiver’s prosecution of claims on behalf of the corpora-

tion under its control—a fact situation with absolutely no relevance

to this case.” ... “the Court .. . focused on the FDIC receivership

statute. ... [I]n light of that specific statute, the Court found no

basis for a common law of imputing fraud to a corporation.”

See also, U.S. v. Northrop Communication, 59 F.3d 953, 961 at n.4

(1995) (“In O'Melveny, the Supreme Court carefully qualified the

dicta quoted above with the statement that the state law only

presumptively controls to fill gaps in detailed statutory schemes.” )

The Ninth Circuit has substituted, in place of the

O'Melveny and Kimbell Foods tests, its own peculiar no-

tion of the “broad equitable powers” and “wide discretion”

attributable to the federal courts in the administration of

receiverships. Yet the Ninth Circuit never explains why,

in the first instance, it may resort to this “broad equitable

power” when deciding substantive rights, or why such

broad administrative powers enable a federal receiver to

do that which a state court-appointed receiver never could

—dispose of real property in contravention of co-owners’

rights under state law. In stark contrast to this Court’s

ruling in O'Melveny (and now Atherton), the Ninth

Circuit’s ruling provides that the District Court had the

power to promulgate a federal rule of decision which

supplanted Petitioners’ state law property rights simply

because the property in which Petitioners have an interest

was in the possession of a receiver appointed by a federal

court. who had succeeded to the state-created property

rights of the insolvent wrongdoer.

Mere possession and control of receivership property

cannot give a receiver the right to sell what the receivership

estate does not own. O'Melveny makes clear that neither

federal jurisdiction over the insolvent entities now in

receivership, nor the Receiver’s appointment by a federal

rather than a state court, gives the federal district court

the authority to create new, federal common law to decide

the substantive, state-created property rights of innocent

third parties asserting state law claims against the receiver

in the receivership action. In O’Melveny, where “. . . the

FDIC was asserting . . . [negligence] causes of action

created by California law”, this Court stated that

the remote possibility that corporations may go into

federal receiverships is no conceivable basis for

adopting a special federal common law rule divesting

States of authority over the entire law of imputation.

O'Melveny, 512 U.S. 79, 114 S.Ct. at 2052-2053. See

also, Texas Industries v. Radcliff Materials, Inc., 451 USS.

630, 640-647, 101 S.Ct. 2016, 2067-2070 (1981).

The same is true of the state-created claims in this

case. The mere happenstance that a federal, rather than

state, receivership was imposed upon the insolvent entities

in this case, was found by the Ninth Circuit to be deter-

minative of the defrauded investors’ substantive rights. Yet,

this is clearly not the law after O'Melveny, nor was it

even the law in any other Circuit prior to O’Meiveny.

Rather, under this Court’s well-established precedents, the

lower federal courts are presumptively required to borrow

the applicable rule of state law, either in the first instance

because federal common law may not be applied at all

or, in the second instance, because any federal rule of

decision adopted should incorporate the state law as its

content, in accordance with established principles of

federalism."

Finally, the Ninth Circuit’s holding that “O'Melveny

does not control the instant case”, (Pet. App. 23a), is

plainly wrong. This Court made clear in O'Melveny that

its ruling was not restricted to the facts of that case, despite

the Ninth Circuit’s attempt to impose such limits in this

> ase .

It seems to us . . . inefficient to pretermit the retro-

activity issue on the basis of the FDIC’s concession

[that FIRREA would be applicable], since that would

make our decision of limited value in other cases. As

we proceed to explain, even assuming the inapplica-

bility of FIRREA this is not one of those cases in

which judicial creation of a special federal rule

would be justified.

O'Melveny, 512 U.S. 79, 114 S.Ct. at 2055. Moreover,

this peculiar Ninth Circuit limitation on O'Melveny will,

no doubt, in the Ninth Circuit’s view, also apply to Ather-

ton, since the FDIC brought suit in both cases, and, accord-

ing to the Ninth Circuit, this means the opinions have “ab-

solutely no relevance” to receivership cases where the re-

ceiver is sued under state law. Pet. App. 23a.

8 See cases cited at footnote 3.

A. The Ninth Circuit Improperly Created Federal

Common Law by Fiat, Holding It Was Unnecessary

to Identify a Conflict Between a Uniquely Federal

Policy or Interest and State Law

In O'Melveny, this Court made clear that

what is fatal to respondent’s position is that it has

identified no significant conflict with an identifiable

federal policy or interest. . . . Our cases uniformly

require the existence of such a conflict as a precondi-

tion for recognition of a federal rule of decision.

512 U.S. 79, 114 S.Ct. at 2054. Here, the Ninth Cir-

cuit applied a judge-made federal common law rule of de-

cision without even discussing, let alone establishing, the

existence of any uniquely federal interest or policy that

would require a federal court to fashion a federal rule of

decision. In flat contradiction of this Court’s precedents,

the Ninth Circuit’s ruling is nothing more than a willing-

ness to justify any action by a federal receiver, rather than

“interfere” with the receiver’s unfettered discretion.

The true breadth of the Ninth Circuit’s new rule be-

comes apparent when one realizes that the facts of this

case evince absolutely no federal policy or interest,

as opposed to the far stronger, yet still insufficient facts

in O’Melveny, where at least the FDIC, as receiver, was

asserting its quickly rejected “more money” for the govern-

ment rationale. Jd. at 2052. Here, the Receiver was de-

fending a real estate sale to a third party against claims of

title brought by his beneficiaries and innocent real prop-

erty co-owners under California law. There was no money

to be had for the government; indeed, once the fraudulent

scheme had been shut down, there was no identifiable

government interest at all. In O’Melveny, the FDIC was

asserting the bank’s claims on behalf of the estate against

alleged wrongdoers in an attempt to secure as great a

sum as possible for the innocent victims and the United

States as insurer; any monies obtained would inure to the

benefit of the United States’ fisc. Here, even that insuffi-

cient federal interest is not present. The Receiver was

simply administering the estate of an insolvent California

corporation and related partnership entities. The parties

whose property rights he sought to foreclose were actually

the victims of the fraud of the insolvent receivership estate

—the entity to whose rights the receiver had succeeded.

Thus, this case presents an even stronger argument against

application of federal common law than even O'Melveny,

in which this Court reiterated that “. . . there is no federal

policy that the [FDIC] fund should always win.” So, too,

there is no federal policy that the receiver should always

win in a dispute over state created property rights.

O'Melveny, 512 U.S. 79, 114 S.Ct. at 2055.

Finally, in the case below the insolvent wrongdoers had

long since disappeared from the scene, and the only inter-

est the receiver was asserting was his own interest (on

behalf of the insolvent corporation) in maximizing the

insolvent corporation’s fisc by selling the property in his

possession, without having to take into account petition-

ers’ unquestioned property rights therein under California

law, or the fact that the Receiver was acting as a fiduciary

for the Petitioners.

Neither the Ninth Circuit nor even the Receiver him-

self contended in this case that the Receiver in any sense

represented the United States or its interests. To empha-

size the point, in O'Melveny, this Court rejected the con-

tention that the FDIC, when acting not in its corporate

capacity but as receiver for a failed bank, was asserting

the rights of the United States:

[T]he FDIC is not the United States, and even if it

were we would be begging the question to assume

that it was asserting its own rights rather than, as

receiver, the rights of [the failed bank].

Id. at 2053. Atherton confirms O’Melveny’s instruc-

tion on this point. Atherton, USS. 1997 WL

9781, at p.9. Here, the Receiver’s only uniquely federal

interest or attribute is his appointment by a federal court

rather than a state court.

Because the facts of this case disclose nothing more

than litigation of entirely state law claims between pri-

vate parties, there is no federal policy or interest at stake.

As a result, the Ninth Circuit could not apply federal

common law to deprive petitioners of their substantive

rights under California law.

B. Application of the Federal Common Law Rule

Created by the Ninth Circuit in This Case Will

“Disrupt Commercial Relationships Predicated On

State Law”

The Ninth Circuit’s unbridled deference to a federal

receiver cannot justify a federal common law to displace

clear California law and deprive innocent parties, whose

misfortune was to co-own property with the insolvent

receivership estate, of their state law property rights.

Such a result would enable a federal, but not a state-

appointed, receiver to disregard all the state law property

rights of any party or creditor or other person having an

interest in a federal receivership. The rights have been

created by the State of California as sovereign. As this

Court has repeatedly held, federal courts may not cav-

alierly substitute judge-made, federal rules of decision,

where “private parties have entered legal relationships

with the expectation that their rights and obligations would

be governed by state-law standards.” Kamen v. Kemper

Financial Services, Inc., 500 U.S. 90, 98-99, 111 S.Ct.

1711, 1717 (1991). There are few interests less federal

in character than a cause of action brought under state

law to enforce state law created property rights.

In a federal receivership action in the Ninth Circuit,

state law rights now mean nothing. The decision estab-

lishes law that clearly will “disrupt commercial relation-

ships predicated on state law.” Kimbell Foods, 440 USS.

at 728-729.

Il. THE NINTH CIRCUIT HAS RENEWED AND

INTENSIFIED THE CONFLICT AMONG THE

CIRCUITS THAT EXISTED PRIOR TO OMELVENY

& MYERS AND ATHERTON

Prior to this Court’s O’Melveny ruling, there existed

a clear conflict among the Circuits regarding the power of

———s

a federal court to apply federal common law to create

federal rules of decision in receivership actions, in deroga-

tion of the state-created rights of parties before the court

in the receivership action. Prior to that ruling, the Ninth

Circuit’s first O’Melveny opinion, FDIC v. O’Melveny &

Myers, 969 F.2d 744 (9th Cir. 1992), conflicted squarely

with the Fifth Circuit’s opinion in Ernst & Young v.

FDIC, 967 F.2d 166 (1992).

The very same peculiar, individualized notions of

“equity” invoked by the Ninth Circuit to support its first

O’Melveny opinion have been even more broadly claimed

in the instant case. The Ninth Circuit here went beyond

its first O’Melveny opinion to hold that the “broad equi-

table powers” of the federal court, in any receivership ac-

tion which it administers, are the source from which flows

the clear and unmistakable power to fashion its own fed-

eral common law rule of decision which terminates the

State-created property rights of innocent co-owners of

property in the possession of the receiver.

Both prior to and following this Court’s ruling in

O’Melveny, Circuit Courts of Appeals other than the

Ninth Circuit have properly refused to grant such unfet-

tered power to the lower federal courts. These cases “rec-

ognize that O’Melveny constricts the ability of a federal

court to craft a uniform federal rule.” Pescatore v. Pan

American World Airways, Inc., 97 F.3d 1, 11, at n.9 (2d.

Cir. 1996). See DiVall Insured Income Fund, Ltd. Part-

nership v. Boatmen’s First Natl. Bank, 69 F.3d 1398,

1402 (8th Cir. 1995); RTC v. Diamond, 45 F.3d 665,

671 (2d Cir. 1995), cert. denied, US. ef

S.Ct. 2609, 132 L.Ed.2d 853 (1995); Beazer East, Inc.

v. Mead Corp., 34 F.3d 206, 212 (3d Cir. 1994),

cert. denied, —— US. ——, 115 S.Ct. 1696, 131

L.E.2d 559 (1995); FDIC v. Massingill, 30 F.3d

601, 604 (Sth Cir. 1994); RTC v. Maplewood Invs., 31

F.3d 1276, 1294 (4th Cir. 1994). The Ninth Circuit

has squarely resurrected the very same conflict that ex-

isted prior to this Court’s O’Melveny ruling. Furthermore,

by seeking to limit O’Melveny to its own facts, the Ninth

Circuit has deepened the conflict among the Circuits even

after O’Melveny by applying its own, limited version of

O’Melveny in the Ninth Circuit while other Circuits ap-

ply the more expansive version intended by this Court.

Finally, by apparently limiting O'Melveny to its own facts,

the Ninth Circuit has invited not only the other Circuit

Courts of Appeals but also the lower courts within the

Ninth Circuit, which had, of course, been properly ap-

plying O’Melveny, to do the same."

Given the clear and unmistakable import of this Court’s

O’Melveny opinion, the Ninth Circuit’s limitation on the

ruling is both plain error and cause for grave concern.

Atherton is unlikely to chasten the Ninth Circuit; the

court will simply place the same limitations on Atherton

that it did on O’Melveny. This Court should utilize this

case to resolve the obvious conflicts created by the

Ninth Circuit’s continuing attempts to construe O’Melveny

narrowly.

Ill. THE NINTH CIRCUIT’S UNFOUNDED ASSERTION

OF AUTHORITY TO PROMULGATE FEDERAL

COMMON LAW IN ANY FEDERAL RECEIVER-

SHIP CASE CONTRAVENES BOTH THE UNITED

STATES CONSTITUTION AND THE EXPRESSED

INTENT OF CONGRESS

The principle enunciated by the Ninth Circuit in this

case—that a federal court supervising any federal receiver-

ship may create and apply its own federal common law

to displace state-created substantive property rights of co-

owners of property in the hands of a receiver—is broad

7 The district courts in the Ninth Circuit have been following this

Court’s rulings, as expressed in O’Melveny and the other cases in

the Erie-Kimbell Foods-O’Melveny-Atherton line of cases. In the

Ninth Circuit, at least, the district courts will now be forced to

question whether they or the Ninth Circuit have been misreading

and mis-applying O’Melveny. See, e.g., James v. Metropolitan Life

Insurance Co., 896 F. Supp. 1006, 1008-1009 (D. Nev. 1995) ; RTC

». Blasdell, 930 F. Supp. 417, 429 (D. Ariz. 1994). See also,

Remington Investments, Inc. v. Kadenacy, 930 F. Supp. 446, 450-451

(C.D. Cal. 1996).

indeed. The breadth of this new principle stands in stark

contrast to the narrow interpretation the Ninth Circuit

gave this Court’s ruling in O’Melveny. Given the facts

of the respective cases, moreover, it appears that the

Ninth Circuit has announced a rule far broader than even

the one it announced in its first O’Melveny decision. In

so doing, it has fundamentally altered U.S. Constitutional

law as it applies to receiverships administered by federal

courts.

As this Court has reminded on several occasions, “fed-

eral courts, unlike state courts, are not general common

law courts and do not possess a general power to develop

and apply their own rules of decision.” City of Milwe

kee, 451 U.S. at 312, 101 S.Ct. at 1790. Yet, the Ninth

Circuit’s ruling seeks to alter fundamentally the role of

the federal courts in our governmental system. By limit-

ing O'Melveny to its own facts and so emphatically en-

dorsing the usurpation of petitioners’ property rights (“we

affirm the District Court’s rulings without hesitation,” )

Pet. App. 10a, the Ninth Circuit has given the district

courts in the Ninth Circuit a blank check to disregard

state law-created property and contract rights, where the

federal court is acting to approve the actions of a federal

receiver, and “in the interests of equity” as defined only

by the court itself (and, presumably, the Ninth Circuit).

Neither the laws of the State of California which, as

sovereign, created the property rights in issue, nor 28

U.S.C. § 959(b), the statute enacted by Congress, which

has directed that these state rights must be respected by

federal receivers, can prevent federal courts in the Ninth

Circuit from fashioning judge-made, federal rules of deci-

sion pursuant to their “broad equitable powers” to admin-

ister receivership actions.

This Court, in O’Melveny and Atherton and their pred-

ecessors, has consistently and unanimously rejected such

judicial attempts to assert lawmaking powers our federal

system reserves for Congress and the State. Despite

O’Melveny, the Ninth Circuit nevertheless has again raised

the issue whether a judge-made federal rule regarding the

rights of a receiver to alter substantive legal relationships

created under state law should be substituted in place of

the state law which created the rights in issue. This Court

should put to rest the Ninth Circuit’s improper repudiation

of controlling law.

Any federal rule of decision created in this case could

and does have one and only one source—the “broad

equitable powers” of the district court. Pet. App. 22a.

More importantly, that power, in the context of re-

ceivership actions, at least, would not be subject to any

limitations at all, other than the district judge’s own,

unfettered discretion. The Ninth Circuit’s decision also

contradicts the clear pronouncements of this Court’s

Kimbell Foods-O’Melveny line of cases and, as a result,

creates in the federal courts a power which neither the

Constitution nor Congress has conferred.

The Ninth Circuit’s ruling below also contravenes the

expressed intent of Congress. This Court’s decisions con-

sistently emphasize that although federal covrts are, in

“few and restricted” instances, permitted to apply federal

common law rules of decision, in doing so, “even

where the federal judiciary’s lawmaking power may

well be at its strongest, it is our duty to respect the will

of Congress.” Northwest Airlines, 451 U.S. at 96; 101

S.Ct. at 1583.

Thus, once Congress addresses a subject, even a sub-

ject previously governed by federal common law, the

justification for lawmaking by the federal courts is

greatly diminished. Thereafter, the task of the fed-

eral courts is to interpret and apply statutory law,

not to create common law.

Id., at n.34.

Federal common law is only a “necessary expedient,”

and when Congress addresses a question previously

governed by a decision rested on federal common law

the need for such an unusual exercise of lawmaking

by federal courts disappears.

City of Milwaukee v. Illinois and Michigan, 451 USS. at

314; 101 S.Ct. at 1791.

The Ninth Circuit’s ruling not only directly undermines

this Court’s rulings in O’Melveny and its predecessors but

also contravenes Congress’ will as embodied in 28 U.S.C.

§$ 959(b). Section 959(b) explicitly directs receivers ap-

pointed by federal courts to apply state law in the man-

agement and operation of the receivership estate. In so

legislating, Congress has explicitly recognized the States’

rights and interests, as sovereigns, to exclusively both cre-

ate and enforce property and contract rights. It is far

beyond the scope of the power and authority of the federal

courts to flatly ignore the expressed intent of Congress by

giving federal receivers the authority to usurp state-created

property and contract rights.

A. The Sole Cited Basis for the Ninth Circuit’s Usur-

pation of State Common Law Is a Misquoted

Treatise on Receiverships

Finally, having concluded that “federal common law”

allowed the Receiver to sell the properties, the Ninth Cir-

cuit then attempted to erect a facade that it was merely

applying a settled principle of state receivership law. Re-

lying exclusively on a well known treatise on receiverships,

the Ninth Circuit purported to show that the sale could

have taken place the same way in a California state court

receivership. However, while the court cited various sec-

tions of the treatise, including Section 482, it omitted to

mention a critical sentence in that section: “The receiver

can only sell the right, title and interest of the defendant

whose property has been placed in the hands of the re-

ceiver or the interest of proper parties to the cause.” 2

Clark on Receivers § 482 (3d ed. 1992). The court did

not analyze or review California law pertaining to a re-

ceiver’s power to sell property not part of the estate. Nor

did the court review the decisions of this Court which

have also held that a receiver merely takes over the rights

and is subject to the defenses of the entity in receivership.

Marshall, as Receiver v. New York, 254 U.S. at 385; 41

S.Ct. at 145.

Had the Ninth Circuit properly quoted Clark or re-

viewed the receivership law of California or any State of

the Union, and this Court’s prior decisions, it would

have found that it is universally accepted that a receiver

does not have the power to do what the Receiver did in

this case. Without citation to a single case, and without

applying the tests which this Court has said must be

applied for federal common law to be found, the Ninth

Circuit announced a new “federal” common law of re-

ceiverships that permits federal court receivers to sell

property in the receivership in violation of the state law

rights of others having an interest in the property.

In fact, California law plainly provides, as held by

numerous decisions of the California courts, that a re-

ceiver has no greater rights than the predecessor entity

he or she was appointed to take over. See, e.g. Allen v.

Ramsay, supra, Downey v. Humphreys, 192 Cal. App. 2d

323. 336. 227 P.2d 484, 494 (1951); California National

Bank of Sacramento v. El Dorado Lime & Minerals Co.,

et al., 213 Cal. 494, 496, 2 P.2d 785, 786 (1931); People

v. California, etc. Trust Co., 168 Cal. 241, 246, 141 P.

1181. 1183 (1914); Bories v. Union Building & Loan

Ass’n, 141 Cal. 74, 74 P. 552 (1903). As a result, Calli-

fornia courts would rule that, under California law, a

receiver cannot dispose of property belonging to others in

the receiver’s possession without their consent. But the

Ninth Circuit plainly transgressed both this Court’s estab-

lished precedents, the applicable state law, and the federal

statute directing federal receivers to comply with appli-

cable state law governing the property in their possession,

choosing instead to apply its own federal rules of decision

regarding petitioners’ substantive property rights.

IV. THERE IS NO QUESTION THAT A SALE CON-

FIRMATION ORDER IS IMMEDIATELY APPEAL-

ABLE AS A FINAL ORDER

Ignoring century old, unquestioned and dispositive au-

thority of this Court, the Ninth Circuit debated whether

or not it had jurisdiction to hear petitioners’ appeal of the

sale order and then failed to answer the question, but

went on to hear the case based on “hypothetical jurisdic-

tion.” In fact, this Court has held that a receivership sale

order is appealable as a final order as a matter of right.

First National Bank v. Shedd, 121 U.S. 74, 7 S.Ct. 807,

30 L.Ed. 877 (1886); Sage v. Railroad Company, 96

U.S. 712, 714, 24 L.Ed.2d 641 (1877). These decisions

have been recognized as the law for over one hundred

years. See, e.g., U.S. v. Grable, 25 F.3d 298, 301 (6th

Cir. 1994). Initially, when the Ninth Circuit did an

about face and reversed its erroneous dismissal of the

investors’ appeals, it clearly recognized that Shedd and

Sage controlled. Yet the Ninth Circuit saw fit in its

final decision to reverse course again and disregard Su-

preme Court precedent, finding a “tension” between this

Court’s decisions and its own rule in SEC v. American

Principals Holdings, Inc., 817 F.2d 1349 (9th Cir. 1987)

Pet. App. Ila. It resolved the “tension” by following

its own rules, rather than the rules of this Court. The

Ninth Circuit ignored this Court’s binding precedents. A

sale order is a final appealable order. There was no need

for “hypothetical jurisdiction.”

V. THE INVOCATION OF THE “ASSUMED APPEL-

LATE JURISDICTION” DOCTRINE WAS UNNEC-

=SSSARY AND IMPROPER

It requires no citation of authority to state that all fed-

eral courts are courts of limited jurisdiction which ought,

in the first instance, to satisfy themselves of their own

jurisdiction. This Court approved an exception to that

rule in Norton v. Mathews, 427 U.S. 524, 528-30 (1976),

finding that the court could reach the merits based on an

assumption of jurisdiction where (1) the resolution of the

jurisdictional issue was not outcome determinative: and

(2) prudential concerns argued against addressing com-

plex and unsettled jurisdictional issues. The existence of

complex and unsettled issues has uniformly been held to

be the pre-requisite of the application of the Norton doc-

trine. See Browning-Ferris Ind. v. Muszynski, 899 F.2d

151, 155 (2d Cir., 1990): Norton endorses the “practice

of avoiding difficult and sweeping jurisdictional questions

in favor of deciding clear cut and narrow issues on the

—

merits.” Where the jurisdictional issue is not difficult, by-

passing jurisdictional issues is expressly disapproved.

Tisza v. Communications Workers of America, 953 F.2d

298, 300 (7th Cir. 1992) (District court jurisdiction ).

The other Circuits have similarly treated the Norton doc-

trine as a rare exception to the practice of establishing the

court’s jurisdiction before proceeding to the merits depend-

ent on the existence of complex and unsettled jurisdic-

tional questions. See, e.g., Cross-Sound Ferry Services,

Inc. v. 1.C.C., 934 F.2d 327, 333 (D.C. Cir. 1991).

The court below has clearly mis-used the Norton doc-

trine since there is no credible case that a sale confirma-

tion order is other than final. The suspicion is unavoid-

able that the invocation of Norton here reflects a desire

to create a alternate and equally unfounded basis to

deny the Petitioners their State law rights in the event that

actions in this Court make it necessary for the Ninth Cir-

cuit to revisit this case. See the Ninth Circuit’s per curiam

Opinion on remand in the O'Melveny case for a similat

approach.

The Norton doctrine does not exist as an excuse for a

Court to avoid admitted jurisdiction which it does not

wish to exercise, but rather to avoid unnecessary “sweep-

ing jurisdictional questions in favor of deciding clear cut

and narrow issues on the merits.” Browning-Ferris, 899

F.2d at 155. Such circumstances simply are not present

in the case at issue. Here, the Ninth Circuit has elected

to avoid an easy and long settled jurisdictional issue in

its rush to make a sweeping, unlawful and dangerous rul-

ing on the merits.

CONCLUSION

For the foregoing reasons, Petitioners pray that this

Court grant this petition for writ of certiorari.

Respectfully submitted,

THOMAS W. DRESSLER

(Counsel of Record)

PATRICK J. EVANS

ScoTT J. REIN

PATRICK A. FRAIOLI, JR.

DRESSLER REIN EVANS &

SESTANOVICH LLP

1800 Century Park East

Tenth Floor

Los Angeles, California 90067

(310) 551-3100

C‘ounse ] ror Pe fationers

APPENDICES

APPENDIX A

UNITED STATES COURT OF APPEALS

NINTH CIRCUIT

Nos. 95-55193, 95-55283, 95-55872 and 95-55878

SECURITIES AND EXCHANGE COMMISSION,

Plaintiff-A ppellee,

AMERICAN CAPITAL INVESTMENTS, INC.; STEPHEN J.

MurPHY: KENNETH A. SORENSEN; RICHARD D. OTTO;

ADFIN CORPORATION; EINHORN & EDGERTON,

Defendants,

and f

Joun P. SHELTON; ACI INVESTORS PROTECTIVE ASSOCIA-

TION, AND APPROXIMATELY 127 ACI (AMERICAN

CAPITAL INVESTMENTS) INVESTORS,

Defendants-A ppellants,

RICHARD G. SHAFFER,

Defendant-A ppellee.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION,

Plaintiff-A ppellee,

AMERICAN CAPITAL INVESTMENTS, INC.; JOHN P. SHEL-

TON; ACI INVESTORS PROTECTION ASSOCIATION, AND

APPROXIMATELY 127 ACI (AMERICAN CAPITAL IN-

VESTMENTS) INVESTORS,

Defendants-A ppellants,

RICHARD G. SHAFFER,

oni Appellee,

STEPHEN J. MURPHY; KENNETH A. SORENSEN;

RICHARD D. OTTO; ADFIN CORPORATION,

Defendants.

SECURITIES AND EXCHANGE COMMISSION,

. Plaintiff,

AMERICAN CAPITAL INVESTMENTS, INC., et al.,

Defendants.

JOHN SHELTON: ACI INVESTORS PROTECTIVE ASSOCIATION

AND APPROXIMATELY 156 ACI INVESTORS,

. Appellants,

RICHARD G. SHAFFER, COURT APPOINTED RECEIVER FOR

DEFENDANT AMERICAN CAPITAL INVESTMENTS, INC.,

Appellees.

SECURITIES AND EXCHANGE COMMISSION,

wii Plaintiff,

JOHN P. SHELTON, Eso.; APPROXIMATELY 156 ACI

INVESTORS: ACI INVESTORS PROTECTIVE ASSOCIATION,

. Appellants,

AMERICAN CAPITAL INVESTMENTS, INC., ef al.,

_ Defendants,

RICHARD G. SHAFFER, COURT APPOINTED RECEIVER FOR

DEFENDANT, AMERICAN CAPITAL INVESTMENTS, INC.,

Appellee.

Appeals from the United States District Court

for the Central District of California

Consuelo B. Marshall, District Judge, Presiding

D.C. No. CV 93-5280-CBM

Argued and Submitted Aug. 6, 1996

Decided Oct. 22, 1996

Before: FLETCHER and TASMIMA, Circuit Judges,

and RESTANI,* Court of International Trade Judge.

* The Honorable Jane A. Restani, Judge of the United States

Court of International Trade, sitting by designation.

PR ARTI RR FEAF »

re , ‘

ect Aa PRI oats

OPINION

TASHIMA, Circuit Judge:

These cases consist of four consolidated appeals from

orders of the district court in a receivership proceeding

which was part of a Securities and Exchange Commission

(“SEC”) civil enforcement action. These appeals stem

from the efforts of appellants, defrauded investors (“In-

vestors”) of American Capital Investments, Inc. (“ACTI’),

to upset a judicial sale of ACI-owned real property by

appellee Richard G. Shaffer (“Shaffer”), the court-

appointed receiver for ACI (“Receiver”). The appeals are

from orders: (1) confirming the sale (“Sale Order’);

(2) refusing to set asid the Sale Order (“Rule 60 Order’);

(3) authorizing an addendum to the sale agreement

(“Addendum Order”); and (4) transferring the Investors’

claims to the proceeds of the Receiver’s sale (“Transfer

Order”).

We have jurisdiction over the timely appeal from the

Transfer Order under 28 U.S.C. § 1292(a)(1). We

assert “hypothetical jurisdiction” over the appeals from the

remaining orders, as discussed more fully below. We dis-

miss in part and affirm in part.

I. BACKGROUND

The SEC enforcement action alleged that ACI violated

federal securities laws through sales of interests in real

estate investments. The SEC prayed for, inter alia, the

appointment of a receiver to take control of ACI-related

assets. The district court first appointed Shaffer as ACI’s

temporary receiver, and later as permanent receiver, pur-

suant to Fed.R.Civ.P. 66 and its general equitable juris-

diction. The Receiver was empowered under 28 U.S.C.

§ 754 to take possession and control of all assets “belong-

ing to or in the possession or control of ACI and its sub-

sidiaries and affiliates.” As required by § 754, the Re-

Mibbiiicinsaiisc ncn >on a

ceiver filed receivership notices in the districts where

ACTI’s real properties were located.

Through imposition of the receivership, the SEC sought

to protect ACI’s creditors and some 200+ investors from

the dissipation of ACI’s assets and to provide for their

compensation.

ACI’s fraudulent scheme purported to offer Investors

joint ventures and limited partnerships in specific real

estate projects. In reality, the money raised went into

an undifferentiated pool. Much of the money raised was

used for unrelated, extravagant expenses and to pay off

prior investors. ACI’s commingling of funds made it im-

possible to trace whose money went to which real estate

purchase. ACI had guaranteed its investors considerable

“profits” on their investment, which could be reinvested

at the election of the investor. However, the amount ACI

owed its investors greatly exceeded the actual equity of

ACI’s real estate investments.

By consent judgments, the ACI defendants disgorged

their interests in ACI. The district court terminated the

underlying fraud case, but continued the receivership, and

previously issued injunctive relief.

In early 1994, the Receiver negotiated an agreement

with JH Financial Group (“JH”) to convey to JH 100

percent fee interests in all eight ACI real properties that

remained in the receivership estate (the “JH sale”). The

JH sale was opposed by the Investors, who believed that

holding the properties until the real estate market im-

proved would realize a higher return. The Investors

began mobilizing against the proposed sale.

Around the same time, the Receiver moved for per-

mission to treat all Investors equally in the division of

the proceeds from the sale of ACI assets. The Investors

did not oppose this motion.’ The district court granted the

1 Indeed, a letter circulated by leaders of the Investors supported

the equal treatment of all ACI investors in the division of ACI’s

motion in its Order Permitting Receiver to Consider All

ACI Investors Equally (“Equal Treatment Order”). The

Equal Treatment Order provided that each investor’s

recovery would be a pro-rata share, based on his or her

net investment. No investor appealed the Equal Treat-

ment Order.

The court then turned to the two-step process man-

dated by 28 U.S.C. § 2001 for approving the sale of

receivership property—the appointment of appraisers to

appraise the properties, followed by a sale confirmation

hearing.

As part of their efforts to thwart the JH sale confirma-

tion, the Investors applied for leave to intervene, file a

petition for involuntary bankruptcy, and record warranty

deeds to the properties held by some of the Investors. The

district court denied intervention and cleared the “wild”

warranty deeds (which the Investors were obligated to

reconvey to ACI under the investment agreements) from

the properties’ title. In confirming the sale, the court also

denied appellants’ application to institute bankruptcy pro-

ceedings against ACI. The Investors took no appeals from

the orders denying their application to intervene and to

record the warranty deeds.

At the sale confirmation hearing, the Investors argued

that the Sale Order would exceed the district court’s juris-

diction because the Receiver could not deliver legal title

to the real properties. Of the eight properties, five were

wholly owned by ACI, but title in three was jointly held

by ACI and three limited partnerships between ACI and

selected investors. The Receiver initially argued that as

receiver for ACI, the General Partner of these partner-

ships, he exercised the authority of the General Partner

to convey title to the three properties.

assets, whether their interests were in the form of deeds, limited

partnership interests, notes, or preferred shares in ACI or affili-

ated entities.

Details about the state of these partnerships and the

state of ACI’s title emerged over the months that followed

the sale confirmation hearing. All three limited partner-

ship agreements provided for the partnership’s dissolution

upon the appointment of a receiver for the General Part-

ner. It eventually came to light that two of these limited

partnerships were never lawfully formed for lack of the

proper filing of papers that ACI should have filed with the

state.”

The Investors also argued that the Receiver had not

adequately marketed the properties to obtain the best

price, and had actually suppressed bidding in favor of the

JH sale. They purported to show that the JH sale would

not yield sufficient cash proceeds to satisfy the claims of

Investors, commercial creditors, or even administrative

creditors.

The Investors presented an alternate, supposedly prefer-

able, proposal for the disposition of the properties—

transfer of the properties to the Investors. They sketched

a plan to pay all non-investor claims in full and to accept

the ACI real properties subject to existing mortgages in

Satisfaction of their own fraud claims against ACI.

In the Sale Order, relying in part on ACI’s powers as

the General Partner of the limited partnerships, the court

concluded that it had jurisdiction and authority, as a fed-

eral equity receivership court, to order the sale of the

limited partnerships’ interests in the properties. As to the

merits of the sale, the district court found that the JH

sale met the statutory requirements of a purchase price of

at least two-thirds of the appraised value, and that the

sale served the best interests of the Investors and creditors.

Citing financing uncertainty, it rejected the Investors’

* Further, in one property where record title was held solely by

ACI, there allegedly existed approximately 40 unrecorded grant

deeds for small, fractional fee interests in the names of individual

investors.

proposal as inadequate under 28 U.S.C. § 2001. Citing

their lack of detailed plans for satisfying the claims of

creditors, it also found that the Investors’ proposal was

not in the interests of the estate.

The Investors thereafter moved under Fed.R.Civ.P. 60

to set aside the Sale Order. They argued that the limited

partnerships had dissolved upon appointment of the Re-

ceiver and that the dissolution terminated ACI’s status as

General Partner, thus, foreclosing the Receiver’s ability

to convey the properties without the consent of the In-

vestors. The Investors also asserted that the Receiver

had abandoned jurisdiction over the ACI real properties

by failing to file timely notice in the various districts where

the properties were located, as required by 28 U.S.C.

§ 754. Lastly, the Investors renewed their attack on the

“bad economics” of the JH sale.

The district court denied the Investors’ motion in its

Rule 60 Order. Relying upon the equitable powers of a

federal receivership court, it concluded it had jurisdic-

tion over the property interests of the limited partnerships

and the partners. It also found the Receiver’s § 754 fil-

ings to be timely, and reaffirmed the Sale Order in its

other essentials.

The Investors appealed from the Sale and Rule 60 Or-

ders, and applied to the district court for a stay of the

JH sale, which was denied.* Thereafter, the Investors

mounted a wide-ranging, extrajudicial campaign to thwart

the sale’s closing. Counsel for the Investors contacted the

purchaser, title insurers, lenders and brokers involved in

the JH sale to inform them of the Investors’ claims and to

warn them of future litigation challenging the conveyance.

Partly in response to this campaign, the purchaser

backed off the initial closing date for the sale. The Re-

3 This court never acted on appellants’ subsequent motion before

it for a stay of the JH sale pending appeal. That motion was dis-

missed as moot after the dismissal of the appeals.

ceiver then moved for the two other orders at issue on

these appeals, the Addendum and Transfer Orders. The

district court granted the Receiver’s motions. The Ad-

dendum Order authorized the execution of an addendum

to the sale agreement that: (1) confirmed a decrease in

the purchase price by $250,000 in accordance with the

terms of the original sale agreement; and (2) extended

the closing date. It also clarified that language in the

Original sale agreement indemnified the purchaser against

claims arising out of the sale, whether filed before or after

the closing date.

The Transfer Order: (1) transferred all interests and

claims of investors in the real properties to the proceeds

of the JH sale; and (2) enjoined the Investors from filing

claims to vindicate their interests, except against the re-

ceivership estate.

The JH sale closed on June 30, 1995. The Investors

portray that sale as a financial disaster for the receivership

estate and as a scandalous giveaway of valuable properties

to a shrewd and unscrupulous purchaser.* The Investors

proffer details about the manner of closing and the subse-

quent sale or foreclosure of ACI properties to show that

the purchaser took unfair advantage of the Receiver in

several different ways.

II. THE ISSUES RAISED

On appeal, the Investors contend that: (1) the district

court exceeded its jurisdiction in confirming a sale pur-

porting to convey title to real property in which the In-

vestors had legal interests; (2) the district court abused

its discretion in rejecting the Investors’ alternative pro-

posal for the disposition of the ACI real properties; (3)

4To this end, the Investors ask this court to take judicial! notice

of much information they have compiled since the closing about

the JH sale and its aftermath. This information discloses the

identity of the true purchaser of the ACI properties—an affiliate

of the Belzberg family of Canada.

the district court abused its discretion by the use of an

equity receivership to liquidate the ACI assets, instead of

permitting the Investors to file a petition for involuntary

bankruptcy; (4) the JH sale is void because it closed based

on the Addendum and Transfer Orders, which the -dis-

trict court had no jurisdiction to issue after this appellate

court had ‘assumed jurisdiction over the Sale and Rule 60

Orders; (5) the Transfer Order exceeded the district

court’s jurisdiction; and (6) the district court deprived

the Investors of their property interests and claims with-

out due process of law.

lif. JURISDICTION

At the threshold, this case presents three close questions

of appellate jurisdiction: (1) whether jurisdiction lies

under 28 U.S.C. § 1291 for the appeals from the Sale

Order, Rule 60 Order, and Addendum Order: (2)

whether these same appeals are now moot because the

JH sale has closed; and (3) whether the appeal from the

Sale Order was timely taken.* Asserting “hypothetical

jurisdiction,” we will reach the merits of all but two of

the issues raised on appeal.

A. Hypothetical jurisdiction

We have applied “hypothetical jurisdiction” where

jurisdiction is disputed to assume, without deciding, the

existence of subject matter jurisdiction in order to reach

the merits of an appeal. In re Grand Jury Subpoena Is-

sued to Bailin, 51 F.3d 203, 206 (9th Cir.), cert. denied.

US. 116 S.Ct. 472, 133 L.Ed.2d 402

(1995); Wong v. Ilchert, 998 F.2d 661, 662-63 (9th

Cir.1993). To assert hypothetical jurisdiction, we re-

® The Receiver concedes this court’s jurisdiction over the appeal

from the Transfer Order, which appellants assert lies under both

28 U.S.C. §§ 1291 and 1292(a) (1). The Receiver doves not contend

that the Transfer Order appeal is moot. Lastly, there is no ques-

tion that the appeals from the Rule 60, Addendum, and Transfer

orders were timely filed under Fed. R.App. P. 4.

10a

quire four elements: (1) the jurisdictional question must

be difficult; (2) the decision on the merits must be clear;

(3) the appeal must be resolved against the party assert-

ing jurisdiction; and (4) undertaking a resolution on the

merits, as opposed to dismissing for lack of jurisdiction,

must not affect the outcome. Bailin, 51 F.3d at 206.

These appeals satisfy all four elements. Appellate juris-

diction is uncertain on all but two issues that the Investors

raise (not including issues relating to the Transfer Order,

where jurisdiction is conceded). As we explain in Part

[V, we affirm without hesitation the district court’s orders.

Finally, our decision on the merits is not outcome deter-

minative. The JH sale stands, as it would on dismissal

for lack of jurisdiction.

B. Statutory basis for apvellate jurisdiction

Appellants assert 28 U.S.C. § 1291 as the basis for

appellate jurisdiction over their appeals from the Sale

Order, the Rule 60 Order, and the Addendum Order.

Two 19th century Supreme Court cases support appel-

lants’ position that a confirmation of sale order is a final,

appealable order. See First Nat'l Bank vy. Shedd, 121

U.S. 74, 85, 7 S.Ct. 807, 812-13, 30 L.Ed. 877 (1887)

(sale order in receivership proceeding is appealable);

Sage v. Railroad Co., 96 U.S. 712, 714, 24 L.Ed 641

(1877) (“We have often decided that a decree confirming

a Sale, if it is final, may be appealed from. ... For relief

against the sale, resort can alone be had to an appeal

from the decree of confirmation.” ).

These precedents find some support in late 20th cen-

tury case law. See In re American Colonial Broadcasting

Corp., 758 F.2d 794, 801-03 (1st Cir.1985) (order au-

thorizing negotiation to sell property not a final order,

but parties can appeal from eventual sale confirmation

order); Los Angeles Trust Deed & Mortgage Exch. v.

SEC, 285 F.2d 162, 165 (9th Cir.1960) (citing § 1291,

without analysis, as jurisdictional basis for appeals from

lla

securities law violation judgments and receivership liqui-

dation order), cert. denied, 366 U.S. 919, 81 S.Ct. 1095,

6 L.Ed.2d 241 (1961).

However, our decision in SEC v. American Principals

Holdings, Inc., 817 F.2d 1349 (9th Cir.1987), suggests,

to the contrary, that the orders in this case are not final

orders appealable under § 1291. In American Principals,

the appellant objected to an order for payment to the

receiver from the assets of the partnerships held in receiv-

ership, and to the authorization of a “spinoff” of some of

the partnerships. /d. at 1350. Because the receivership

proceedings remained ongoing, and because appellant

could later recover the disputed payments through claims

against the receivership estate, we held the order nonfinal.

Id.

We assert hypothetical jurisdiction rather than address

the unresolved tension between Shedd and Sage, on the

one hand, and American Principals, on the other.

C. Mootness

Appellants have essentially conceded that effective relief

from the Sale, Rule 60 and Addendum Orders depends on

whether the JH sale can be set aside. A court must have

the power to unwind the completed sale, or the appeals

from these orders are mont.

There is no authoiity discussing the mootness effect of

a sale’s closing upon an appeal from a sale confirmation

order in an equity receivership proceeding. There is, how-

ever, much authority in bankruptcy. The general rule in

bankruptcy is that, unless the sale order is stayed pending

appeal, the trustee’s acts in accordance with that order

Should not thereafter be subject to reversal, even if the

order is overturned on appeal. Bennett v. Gemmill (In

re Combined Metals Reduction Co.), 557 F.2d 179, 188-

89 (9th Cir.1977). Later cases citing Combined Metals

also cite former Bankruptcy Rule 805, or its subsequent

codification, 11 U.S.C. § 363(m):

12a

Unless an order approving a sale of property . . . is

stayed pending appeal, the sale to a good faith pur-

chaser . . . shall not be affected by the reversal or

modification of such order on appeal, whether or not

the purchaser . . . knows of the pendency of the

appeal.

Fed. R. Bankr.P. 805 (superceded 1983).

We have acknowledged exceptions, albeit ill-defined, to

this rule of mootness. In Taylor v. Lake (In re CADA

Inv., Inc.), 664 F.2d 1158 (9th Cir.1981), we held the

appeal was not moot, despite the sale’s closing in the

absence of a stay, because the language of the sale con-

tract expressly conditioned the conveyance on the out-

come of the appeal from the sale confirmation order. /d.

at 1160. We also relied on the fact that, “in contrast to

other cases in which we have addressed comparable moot-

ness problems, all essential parties are before the court.”

Id.

Case law interpreting CADA Inv. has been inconsistent

on whether the purchaser’s presence before the court is

sufficient by itself to create an exception to the rule of

mootness in the absence of a stay. In Sulmeyer v. Kar-

bach Enter. (In re Exennium, Inc.), 715 F.2d 1401 (9th

Cir.1983), we read CADA Inv. to rest on the contractual

language as the basis for the exception to the stay re-

quirement. See id. at 1404. In contrast, Sun Valley

Ranches, Inc. v. The Equitable Life Assurance Soc’y (In

re Sun Valley Ranches, Inc.), 823 F.2d 1373 (9th Cir.

1987), cited CADA Inv. and other cases for a general

exception to mootneéss where the purchaser is a party to

the appeal, even though there was no stay. See id. at

1375.°

® These cases do not make clear whether, for the mootness ex-

ception to apply, the purchaser must be a party to both the district

court proceedings and to the appeal.

13a

Even if we ignore the limitation spelled out in Exen-

nium, we cannot apply the exception set out in CADA

Inv. and Sun Valley to save these appeals from mootness.

Besides appellants’ failure to obtain a stay of the JH sale

pending appeal, all essential parties are not before the

court.

The Investors point out that attorney Bruce Greene

who appeared before the district court for JH, was also

the registered agent for the Belzberg affiliate that pur-

chased the ACI properties.‘ However, the Investors’ own

requests for judicial notice demonstrate that at least three

of the eight ACI properties included in the JH sale have

since been resold or foreclosed upon.* These properties

are no longer in the hands of the Belzbergs. The Invest-

ors represented at oral argument that the institutions that

foreclosed on two of the properties appeared in district

court and were thus properly “before the court.” Assum-

ing arguendo that this is so, there remains the Solano

Beach property, resold by the Belzbergs to a third party

whom the Investors acknowledge was never before the

district court.

The JH sale conveyed eight bundled properties for the

single price of $24.05 million. The Investors have not

explained how this court can order the unwinding of this

sale without voiding the conveyance of all eight proper-

ties. Their notion of imposing a constructive trust on the

proceeds of the Solano Beach property that remain in the

hands of the Belzbergs is untimely and inadequately

presented.°®

7In response to appellants’ unopposed request, we judicially no-

tice this fact pursuant to Fed.R.Evid. 201(d). The Receiver ac-

knowledged at oral argument that Greene was, during the rele-

vant times in the proceedings below, acting as the registered

agent of the Belzbergs.

8 We judicially notice these facts pursuant to Fed.R.Evid. 201.

® At oral argument, the Investors for the first time raised the

possibility of imposing a constructive trust on the proceeds from

l4a

The Investors raise another, more compelling basis for

a mootness exception. Two of their contentions are that:

(1) the district court did not have the jurisdiction and

power to order the Receiver’s conveyance of the Investors’

interests in the real property; and (2) the sale was void

because the district court lacked jurisdiction to issue the

Addendum and Transfer Orders while the Sale and Rule

60 Orders were still on appeal. These contentions dis-

tinguish the instant case from the many cases applying

the mootness doctrine to judicial sales closed in the ab-

sence of a stay. In those cases, the parties assigned error

to the proceedings, but did not question the court’s juris-

diction to conduct the sale in the first instance. See, e.g.,

Sun Valley, 823 F.2d at 1374; Combined Metals, 557

F.2d at 184-186.

A 19th century Supreme Court case supports the prop-

osition that a sale confirmation order issued without sub-

ject matter jurisdiction may be set aside as void, not-

withstanding the absence of a stay. See Voorhees v. Jack-

son, 35 U.S. (10 Pet.) 449, 9 L.Ed. 490 (1836). In

Voorhees, in response to a challenge to the judicial sale

of property, the Court held that the completed sale was

not subject to collateral attack because the sale was con-

ducted by a court of “competent jurisdiction of the parties

[and] the subject matter, with authority to use the process

it has issued... .” 7d. at 35 U.S. (10 Pet.) at 474. The

Court continued:

The errors of the court do not impair [the proceed-

ings’] validity: binding till reversed, any objection

to their full effect, must go to the authority under

which they have been conducted. If not warranted

by the constitution or law of the land, our most

the sale of property included in the JH sale, rather than voiding

its conveyance. Because this theory was not briefed, we decline to

consider it. See Fed. R.App. P. 28(a) (6); Eberle v. City of Ana-

heim, 901 F.2d 814, 818 (9th Cir.1990) ; Simpson v. Union Oil Co.,

411 F °° 797, 900 n. 2 (9th Cir.), rev’d on other grounds, 396 U.S.

18, . 30, 24 L.Ed.2d 18 (1969).

15a

solemn proceedings can confer no right which is

denied to any judicial act under colour of law... .

Id. If there is such a “ ‘want of jurisdiction, the proceed-

ings are void and a mere nullity, and confer no right...

and may be rejected when collaterally drawn into ques-

tion.” ” Jd. at 477 (citation omitted).

Voorhees appears to allow a collateral attack on a

jurisdictionally void sale, but does not address an attack

on direct review. We believe, under the facts of this case,

such direct review may be necessary to ensure that the

Investors’ jurisdictional challenges receive a fair hearing.

The Transfer Order bars appellants from instituting any

collateral attack on the sale. If the Sale Order and/or

Addendum Order are void for lack of jurisdiction, then the

Transfer Order is void, too, as an injunction in further-

ance of a void order. Thus, a fair consideration of the

appeal from the Transfer Order may require consideration

of the jurisdictional powers of the equity receivership

court to order the sale here. And only if appellants can

successfully overturn the Transfer Order, can they be

assured of a right to collaterally attack the conveyance.

Thus, Voorhees may preserve from mootness appel-

lants’ challenges to the jurisdiction of the district court

to order the sale of the ACI properties. Without deciding,

we assert hypothetical jurisdiction over these issues on

this basis.

The Investors, however, raise other issues threatened

by mootness. Out of an abundance of caution, we will

also assert hypothetical jurisdiction over appellants’ con-

stitutional due process claims arising from the Sale, Rule

60, and Addendum Orders.”

But we do dismiss as moot appellants’ two contentions

that merely assign to the district court an abuse of its

10 Appellants also challenge on due process grounds the Transfer

Order. The Receiver does not contend that this ground for appeal

is moot.

l6a

discretion, and no unconstitutionality or lack of jurisdic-

tion. We dismiss the issue of whether the district court

abused its discretion under 28 U.S.C. § 2001, by reject-

ing the Investors’ alternate plan for the disposition of the

ACI properties in favor of the JH sale." We also dis-

miss the issue of whether the district court abused its dis-

cretion by the use of an equity receivership to liquidate

the ACI assets, instead of permitting the Investors to file

a petition for involuntary bankruptcy.

D. Timeliness of notice of appeal from Sale Order

Appellants noticed their appeal from the Sale Order

several days outside the general 30-day period of Fed.

R.App. P. 4(a)(1). The Receiver contends that the ap-

peal from the Sale Order should therefore be dismissed,

because the 60-day period for a case where the govern-

ment is a party is inapplicable here.

There is no case on point involving the timeliness of

an SEC receivership order. Nonetheless, appellants’ argu-

ment for applying the 60-day period is plausible, because

the SEC initiated the receivership and has a direct regula-

tory interest in its outcome. Compare Combined Metals,

557 F.2d at 203-204 (IRS was a creditor, but had no in-

terest in proceedings other than having its claim paid;

therefore, 60-day period was inapplicable). The SEC

filed papers adverse to the Investors in the receivership

proceedings below.” See id.

11 Because we decline to decide this issue, we deny appellants’

requests for judicial notice of facts purporting to establish the

financial unreasonableness, and even scandalousness, of the JH

sale. See United States ex rel. Robinson Rancheria Citizens Coun-

cil v. Borneo, Inc., 971 F.2d 244, 248 (9th Cir.1992) (appeals court

may notice facts if they have a direct relation to matters at issue).

12 The SEC filed oppositions to the Investors’ motions for leave

to file deeds and to intervene, and to their motion to disqualify

the Receiver.

17a

We need not decide this question, as we assert hypo-

thetical jurisdiction, assuming that the appeal was timely

filed.

IV. MERITS

A. Jurisdiction to Convey Title

The key issue on the merits is whether the district court

exceeded its jurisdiction in confirming the Receiver’s sale

purporting to convey title to real property in which ap-

pellants claimed legal interests. Appellants’ challenges

break down into two parts: (1) did the Receiver comply

with the filing requirements of 28 U.S.C. § 754; and (2)

does California partnership law or the federal law of

equity receivership control the Receiver’s power to convey

title?

The jurisdictional limits to the district court’s power

in equity receivership proceedings are issues of law, re-

viewed de novo. See SEC v. American Principals Hold-

ing, Inc. (In re San Vicente Medical Partners Ltd.), 962

F.2d 1402, 1406 (9th Cir.), cert. denied, 506 U.S. 873,

113 S.Ct. 210, 121 L.Ed.2d 150 (1992).

1. Filing requirements of § 754

Appellants contend that the Receiver lost jurisdiction

over the sale properties by not timely filing receivership

notices in the districts where the properties were located.

Under 28 U.S.C. § 754, a receiver will be divested of juris-

diction over property in a district, unless he files notice

in that district within 10 days of the entry of his appoint-

ment order. The Investors assert that the 10-day period

18 This section provides, in relevant part:

A receiver appointed in any civil action or proceeding involv-

ing property, real, personal or mixed, situated in different dis-

tricts shall, upon giving bond as required by the court, be

vested with complete jurisdiction and control of all such prop-

erty with the right to take possession thereof.

Such receiver shall, within ten days after the entry of his

order of appointment, file copies of the complaint and such

18a

commenced with Shaffer’s temporary appointment as Re-

ceiver on September 2, 1993. That order was entered

on September 10. The Receiver argues that the 10-day

period commenced when his permanent appointment was

entered on September 23. Shaffer made the § 754 filings

on September 27.

No case addresses whether the 10-day period of § 754

commences after a temporary appointment, or only upon

a permanent appointment. We need not reach this ques-

tion. Even if Shaffer should have filed notice after his

temporary appointment, his permanent appointment re-

established his jurisdiction, even before 10 days had

elapsed from the entry of his temporary appointment.

The entry of his permanent appointment order set a

new 10-day period running. See SEC v. Vision Com-

munications, Inc., 74 F.3d 287, 291 (D.C.Cir.1996) (re-

appointment of receiver will start the ten-day clock of

$ 754 ticking anew). Further, appellants have not at-

tempted to show prejudice from any late filing. See

United States v. Arizona Fuels Corp., 739 F.2d 455, 460

(9th Cir.1984).

We therefore conclude that Shaffer’s filings on Septem-

ber 27, 1993, effectively maintained his jurisdiction over

the properties.

2. Power to convey partnership assets

Appellants challenge the district court’s assertion of

jurisdiction to convey title to the three real properties

owned in part by the limited partnerships in which the

Investors had partnership interests. The district court

twice addressed its jurisdiction to conduct a sale of part:

nership assets, first in the Sale Order and then in the

order of appointment in the district court for each district in

which property is located. The failure to file such copies in

any district shall divest the receiver of jurisdiction and con-

trol over all such property in that district.

28 U.S.C. § 754.

19a

Rule 60 Order. We address only its second, more con-

sidered ruling on this issue.”

Based on the minimum-contacts analysis of Shaffer v.

Heitner, 433 U.S. 186, 208, 97 S.Ct. 2569, 2581-82, 53

L.E.2d 683 (1977), the district court found it had juris-

diction over the limited partners, the partnerships and

their interests in property. It then concluded it had the

power to include the partnership property in the Sale

Order, based on San Vicente, 962 F.2d 1402.

In San Vicente, the district court ordered administra-

tive expenses of an SEC receivership to be taxed to a

limited partnership in which the receivership corporation

was General Partner. The limited partners appealed, con-

tending that the partnership agreement barred the Gen-

eral Partner from directing any such payments. In af-

firming, we rejected the limited partners’ argument that

the partnership agreement controlled under 28 U.S.C.

\ 959(b), which required the receiver to “manage and

operate the property in his posesssion . . . according to the

requirements of the valid laws of the State in which such

property is situated, in the same manner that the owner

Or possessor thereof would be bound to do if in posses-

sion thereof.” Jd. at 1408.

We first observed that “[g]enerally, federal courts en-

joy wide discretion in fashioning relief and protective

measures in SEC actions. .. .” Id. at 1406. We further

held that the receivership order impliedly included not

only the defendant corporation’s property but also the

limited partnership’s property within the receivership es-

tate. Id. at 1407. The district court had power to do so

where there were sufficient contacts with the forum and

notice and opportunity to participate. Id. at 1408.

Ultimately, we held that the receiver was not acting

as the agent of the General Partner and thus required by

'4In the Rule 60 Order, the district court abandoned its prior

reliance on ACI’s status as General Partner of the limited partner-

ships as a basis for its power to confirm the sale.

‘|

20a

§ 959(b) to assume the General Partner’s role and legal

relationship to the limited partnership. /d. at 1409.

Rather, the receiver was acting as an officer of the court

who directly controlled the limited partnership’s property

under the authority of an equity receivership. /d.

San Vicente supports the district court’s exercise of ju-

risdiction in the case at bench. Appellants do not contest

that there were minimum contacts between the forum and

themselves, the partnerships, and the partnership property.

Nor do they contest that there was notice and an oppor-

tunity to be heard. Here, the appointment order gave the

Receivership possession and control of all assets “belong-

ing to or in the possession or control of ACI and its...

affiliates.” (Emphasis added.) The partnership assets

clearly fell within the scope of this order. The Receiver

was therefore “vested with complete jurisdiction and con-

trol of all such property. .. .” 28 U.S.C. § 754 (emphasis

added).

In selling the properties, the Receivership was exercising

that “complete control.” The Receiver was not acting as

agent of ACI, the ousted General Partner. Consequently,

neither the partnership agreement nor the California law

of partnerships applies.” There is no conflict with § 959

(b), just as there was none in San Vicente.

It is true that San Vicente did not involve the receiver’s

conveyance of title to partnership real property. Nonethe-

less, we conclude that the power of sale is within the

scope of a receiver’s “complete control” over receivership

assets under § 754, a conclusion firmly rooted in the

common law of equity receiverships.

First, we follow the oft-cited general principle that “the

district court has broad powers and wide discretion to

15 Although we conclude they have no legal significance, we judi-

cially notice, pursuant to Fed.R.Evid. 201(d), the state-issued

documents proffered by appellants to demonstrate that two of the

limited partnerships were never lawfully formed.

2la

determine the appropriate relief in an equity receivership.”

SEC v. Lincoln Thrift Ass’n, 577 F.2d 600, 606 (9th

Cir.1978). As we have previously stated:

Unless a statute in so many words, or by a necessary

and inescapable inference, restricts the court’s juris-

diction in equity, the full scope of that jurisdiction

is to be recognized and applied. “The great principles

of equity, securing complete justice, should not be

yielded to light inferences, or doubtful construction.”

Reebok Int'l v. Marnatech Enter., Inc., 970 F.2d 552,

561-62 (9th Cir.1992) (quoting Brown v. Swann, 35

U.S. (10 Pet.) 497, 503, 9 L.Ed. 508 (1836)). Second,

the leading treatise on the law of receiverships teaches:

It is generally conceded that a court of equity having

custody and control of property has power to order a

sale of the same in its discretion. The power of sale

necessarily follows the power to take possession and

control of and to preserve property, resting in the

sovereignty and exercised through courts of chancery,

or courts having statutory power to make the sale.

2 Clark on Receivers § 482 (3d ed. 1992) (emphasis

added) (citing Shedd, 121 U.S. at 87, 7 S.Ct. at 814).

Clark also teaches that a receiver’s sales do not even

purport to convey “legal” title, but rather “good,” equita-

ble title enforced by an injunction against suit. See 2

Clark on Receivers §§ 342, 344, 482(a). 487, 489, 491.

When a court of equity orders property in its custody

to be sold, the court itself as vendor confirms the title

in the purchaser. Neither the court nor [the receiver]

gives a legal title to the purchaser because neither

the court nor its officer has legal title to give.... A

court of equity acts by a process of injunction against

the owner and against the parties to the suit and

protects the purchaser against interference and as-

sures him a quiet title and quiet enjoyment.

22a

Id. at § 487. See also 3 Id. § 920 (“When a receiver of

a partnership sell property he sells as the arm of the

court and not as holder of the legal title”).

The JH sale thus was proper under the common law

of equity receiverships and the reasoning of San Vicente.

Appellants, however, make three, further arguments to

the contrary.

First, they argue that the district court lacked the “full

traditional in rem jurisdiction” necessary to transfer their

property interests, noting that the district court in San

Vicente exercised only quasi in rem jurisdiction in its

order to tax costs. Appellants cite no authority for this

alleged requirement.*® Certainly a decree in equity

cannot transfer title outside the court’s territorial jurisdic-

tion. 2 Clark on Receivers § 482. Here, however, the

Receiver’s filings under § 754 extended the court’s terri-

torial jurisdiction to each district where the properties

were located. See Vision Communications, 74 F.3d at

288-90. The argument is meritless.

We turn now to appellants’ second and third arguments,

which are related—that there is no federal common law

of receiverships. Consequently, they argue, a receiver

does no more than “step into the shoes” of the receivership

defendant under state law and can convey no more title

than the defendant possessed. For support, appellants

rely on O'Melveny & Myers v. FDIC, 512 U.S. 79, 114

S.Ct. 2048, 129 L.Ed.2d 67 (1994), in which the Court

held that state law, rather than federal law, governs the

imputation of corporate officer’s knowledge of fraud to a

corporation, where the FDIC, as receiver, is prosecuting

16 Indeed, the major treatise suggests the contrary. See 2 Clark

on Receivers § 482 (a decree in chancery for conveyance in land

has never been held to come within the principle of proceedings

in rem, so far as to dispense with the service of process on a

party); 1 Clark on Receivers § 47 (8rd ed. 1992) (receivership

proceedings are quasi in rem).

23a

the corporation’s state causes of action. /d. at

, 114 S.Ct. at 2052-53.

In declining to adopt a special federal rule of decision

for imputation favorable to the FDIC, the Court first re-

affirmed the unarguable proposition that “there is no

federal general common law.” /d. at , 114 S.Ct. at

2053 (quoting Erie R.R. v. Tompkins, 304 U.S. 64, 78,

58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938)). It then

focused on the FDIC receivership statute, which provides

than the FDIC shall “by operation of law, succeed to-all

rights, titles, powers, and privileges of the insured depos-

itory institution. .. .” 12 U.S.C. § 1821(d)(2)(A)(Q).

“This language appears to indicate that the FDIC as

receiver ‘steps into the shoes’ of the failed S & L” and

is subject to any defense good against the original party.

O’Melveny, 512 USS. at , 114 S.Ct. at 2054. In

light of that specific statute, the Court found no basis for

a common law rule of imputing fraud to a corporation.

See id. at : , 1T#S.Ct. at 2055-56.

O’Melveny does not control the instant case. O’Melveny

concerned only the rule which governs a receiver’s prosecu-

tion of claims on behalf of the corporation under its

control—a fact situation with absolutely no relevance to

this case. O’Melveny does not question the existence of

other federal common law rules regarding the powers of

equity receiverships. Appellants’ assertion that “there is

no federal common law of receiverships” is thus vastly

overstated. As discussed above, the powers of sale of

federal equity receivers are well-established.’

17 Appellants would also pose a conflict between the powers of

sale of a federal equity receiver and those of an equity receiver

under state common law. To the contrary, however, both types of

receivers can conduct a judicial sale of real property that is prop-

erly within their “possession and control” and within the court’s

territorial jurisdiction, where all parties of interest have been

brought before the court. See 2 Clark on Receivers §§ 482, 491.

24a

We affirm the district court’s jurisdiction and power as

a federal equity receivership court to confirm the sale of

the partnership assets.

B. Orders issued while other Sale Orders were on appeal

Appellants contend that the JH sale is void because it

closed on the basis of the Addendum and Transfer Orders,

amending the terms of sale, which were themselves void

for lack of jurisdiction. The district court issued the Ad-

dendum and Transfer Orders after the Ninth Circuit had

dismissed the Sale Order and Rule 60 Order appeals, but

before the mandate issued. Generally, the filing of a

notice of appeal divests the district court of jurisdiction

over the matters appealed. Griggs v. Provident Consumer

Discount Co., 459 U.S. 56, 58, 103 S.Ct. 400, 401-02, 74

L.Ed.2d 225 (1982). The issuance of a mandate termi-

nates appellate jurisdiction. Fed. R.App. P. 41.

However, a district court may exercise residual juris-

diction over a continuing course of conduct in order to

preserve the status quo. Pyrodyne Corp. v. Pyrotronics

Corp., 847 F.2d 1398, 1403 (9th Cir.), cert. denied, 488

U.S. 968, 109 S.Ct. 497, 102 L.Ed.2d 533 (1988). AIl-

though it cannot adjudicate the substantial rights involved

in the appeal, id., where new facts are created by the

parties, the maintenance of the status quo may require

new action. Hoffman v. Beer Drivers_& Salesmen’s Local

Union 888, 536 F.2d 1268, 1276 (9th Cir.1976).

In the case at bench, the Addendum Order: (1) con-

firmed a $250,000 sales price decrease that was a con-

tingency in the origial sales agreement; (2) extended the

closing date following a campaign of extrajudicial inter-

ference by the Investors with the sale; and (3) clarified,

but did not alter, the terms of the idemnification provision

in the sales agreement. These actions were proper under

Hoffman and Pyrodyne. See Meinhold v. United States

Dept. of Defense, 34 F.3d 1469, 1480 n.14 (9th Cir.

NS iii i i i

25a

1994) (order clarifying original injunction and supervising

compliance is proper under Hoffman); The Sansom Comm

v. Lynn, 735 F.2d 1552, 1554 (3rd Cir.) (extension of

time to purchase properties under consent decree is proper

under Hoffman), cert. denied, 469 U.S. 1017, 105 S.Ct.

431, 83 L.Ed.2d 358 (1984). The Addendum Order

did not materially alter the sale, but rather helped imple-

ment it.

The failure of appellants to gain a stay of the sale

further supports the issuance of the Addendum and Trans-

fer Orders to implement or enforce the earlier Sale Order.

See In re Grand Jury Subpoenas Duces Tecum, 85 F.3d

372, 375-76 (8th Cir.1996) (district court retained

power to enforce its earlier order notwithstanding appeal,

under rule allowing jurisdiction to extent necessary to

enforce a judgment not stayed). The Transfer Order’s in-

junction barring the Investors from pursuing their property

claims, except as against the receivership, embodies a rou-

tine means of quieting, that is, enforcing the title conveyed

in a receiver’s sale. See 2 Clark on Receivers § 487.

We conclude that the Addendum and Transfer Orders

were properly issued pursuant to the district court’s resid-

ual, supervisory jurisdiction.

C. Transfer Order

Appellants briefly, and without citation to authority,

attack the merits of the Transfer Order.** We review

permanent injunctive relief for an abuse of discretion.

United States v. Yacoubian, 24 F.3d 1, 3 (9th Cir.1994).

Appellants argue that the injunction is: (1) in support

of a void order; and (2) an improper exercise of control

18 They also, again, attack the district court’s jurisdiction. That

argument has, however, already been dealt with above. The Trans-

fer Order was within the district court’s “broad powers and wide

discretion to determine the appropriate relief in an equity receiver-

ship.” See Lincoln Thrift Ass’n, 577 F.2d at 605-06.

26a

over property not within the court’s in rem jurisdiction. As

discussed above, appellants have not shown the transfer

of their interests and claims to be void. Further, the power

of the district court to enjoin proceedings relating to

interests in the receivership entities, when necessary to

achieve the purposes of the receivership, was stablished in

SEC v. Wencke, 622 F.2d 1363, 1369 (9th Cir.1980).

Appellants’ challenge to the Transfer Order fails.

D. Due Process

Appellants contend that the district court deprived them

of property interests without due process of law, in that:

(1) plenary, not summary, proceedings were required for

the district court to deprive them of their interests in

property; and (2) their remedy for the ACI fraud was

unconscionably limited to recovery against the receiver-

ship estate.

We review de nove whether the district court’s exercise

of jurisdiction as a federal equity receivership court de-

prived appellants of property without due process of law.

See San Vicente, 962 F.2d at 1406.

For the claims of nonparties to property claimed by

receivers, summary proceedings satisfy due process so long

as there is adequate notice and opportunity to be heard.

SEC v. Wenke, 783 F.2d 829, 836-38 (9th Cir.), cert.

denied, 479 U.S. 818, 107 S.Ct. 77, 93 L.Ed.2d 33

(1986); See also SEC v. Universal Fin., 760 F.2d 1034,

1937 (9th Cir. 1985) (where investors had been afforded

virtually all procedural protections which would have

been available in plenary proceedings, and had notice of

the nature of the proceedings, it was not improper for the

district court summarily to adjudicate investors’ claims to

notes).

Appellants cite Arizona Fuels Corp., 739 F.2d 455, for

the proposition that, while summary proceedings are ap

27a

propriate to determine the right to possession of receiver-

ship property, plenary actions must be filed to decide the

ultimate rights to property. See id. at 458-59. However,

Arizona Fuels did not present a situation involving the

ultimate rights to property. See id. Therefore, statements

in that decision purportedly requiring plenary actions are

dicta. Moreover, Arizona Fuels’ exception requiring ple-

nary proceedings applies only to third parties in possession

of the property. See id.

Even if plenary proceedings were appropriate, appel-

lants can_prove no due process violation without showing

prejudice. Wencke, 783 F.2d at 837-38. Appellants must

show how they were prejudiced by the summary pro-

ceedings and how they would have been better able to

defend their interests in plenary proceedings. /d.

In the case at bench, the summary proceedings actually

afforded to appellants gave them full notice and oppor-

tunity to be heard at every critical stage. Appellants have

not even attempted to show prejudice arising from the

nature of the proceedings.

Nor have appellants shown prejudice from their limited

remedy to claims against the receivership estate. ACI’s

massive fraud left its investment ventures a mess of com-

mingled funds, unrecorded deeds, and limited partnerships

stranded in legal limbo. In response, the district court

crafted a comprehensive equitable remedy to protect both

creditors and investors. This remedy included the Equal

Treatment Order, JH sale, and Transfer Order. Cf.

Official Cattle Contract Holders Comm. v. Commons (In

re Tedlock Cattle Co.), 552 F.2d 1351, 1352-53 (9th

Cir.1977) (trustee of bankrupt Ponzi-scheme promoter’s

estate properly applied overriding federal law to apportion

assets to all investors based on their shares of original

investments ).

Appellants have presented only one alternative to the

district court’s comprehensive scheme—their own last-

28a 7

minute purchase proposal, which the district court found

financially dubious and inattentive to the needs of credi-

tors. It rejected the Investors’ proposal only after full

briefing, a hearing, and post-hearing supplemental brief-

ing. Although we have dismissed as moot the issue of

whether the district court abused its discretion in rejecting

this alternate proposal, the district court’s consideration

of the issue satisfied constitutional due process.

Appellants have established no due process violation

in the district court’s treatment of their property interests.

V. CONCLUSION

We dismiss as moot appellants’ challenge to the eco-

nomic merits of the JH sale, and their contention that

ACT’s liquidation should have been handled in bankruptcy.

On all other issues, we affirm the district court’s four

orders herein appealed.

DISMISSED in part, and AFFIRMED in part.

29a

APPENDIX B

[Filed Jan. 30, 1995]

UNITED STATES DISTRICT COURT

FOR THE CENTRAL DISTRICT OF CALIFORNIA

CV 93-5280 CBM (JRx)

SECURITIES AND EXCHANGE COMMISSION,

Plaintiff,

Vv.

AMERICAN CAPITAL INVESTMENTS, INC.,

STEPHEN MURPHY, KENNETH SORENSEN

RICHARD OTTO, and ADFIN CoRrP.,

Defendants.

ORDER RE: RULE 60(b) MOTION

This action was before the Court on a motion by cer-

tain investors of ACI to vacate and set aside pursuant to

Fed. R. Civ. P. 60(b) two orders of this Court relating

to the sale of property (“Orders”). On January 9, 1995,

various parties appeared before the Court, and were

heard. The Court took the motion under submission.

Based on the arguments, papers, evidence and record

presented to the Court, the Court denies the motion.

On September 17, 1993, this Court issued a prelim-

inary injunction placing Defendant ACI in permanent

receivership. Concurrent with the preliminary injunction,

the Court issued findings of fact and conclusions of law.

The Court found that Defendants had violated federal

securities law in connection with the purchase and sale

of securities to investors, and unless an injunction was

granted, there was a reasonable likelihood that Defend-

ants would engage in further violations. Based on the

30a

facts of the case, including the misuse and misappropria-

tion of investor proceeds, the Court found that the ap-

pointment of a permanent receiver over ACI was neces-

sary and appropriate. The order of preliminary injunc-

tion appointed a receiver with “full power over all funds,

assets, premises (whether owned, leased, occupied or

otherwise controlled), choses in action, books, records,

and other property belonging to or in the possession of

or control of ACI and its subsidiaries and affiliates.”

Defendant ACI owns eight parcels of property (col-

lectively, “ACI Properties”), five in California and three

in Florida. ACI holds full title to five of the parcels of

property and shares title to three parcels with California

limited partnerships, of which ACI was the general part-

ner. JH Financial group has offered to purchase the ACI

Projerties for $24.3 million (“JH Sale”). On August 26,

1994, following a hearing, the Court granted the Receiv-

er’s motion for an order authorizing the JH Sale. The

Court’s order approved the sale, based on the best inter-

ests of the ACI estate.

On November 30, 1994, following another hearing,

the Court issued an_order confirming the JH Sale. The

Court rejected the investors’ argument that the Receiver

could not sell the ACI Properties held in part by limited

partnerships, and found that the Court’s exercise of juris-

diction over the limited partnerships did not violate due

process. In addition, the Court rejected an alternate plan

to purchase the ACI Properties proposed by investors of

ACI. The Court further found that the JH Sale was in

the best interests of the estate. Therefore, the Court con-

firmed the JH Sale, including sale of the properties not

owned solely by ACI

Certain investors of ACI now move the Court to vacate

and set aside pursuant to Fed. R. Civ. P. 60 the orders

authorizing and confirming the JH Sale. These investors

(“Moving Investors”) challenge both orders on four dif-

ferent grounds: (1) the Orders are void for lack of sub-

31a

ject matter jurisdiction; (2) the Orders are based on mis-

takes of fact and law; (3) the entry of the Orders was

procured by misrepresentation or fraud; and (4) the

Orders are improvident and inequitable in light of newly

discovered facts." The Receiver opposes the motion.

Rule 60(b) states in relevant part:

On motion and upon such terms as are just, the court

may relieve a party or a party’s legal representative

from a final judgment, order or proceeding for the

following reasons: (1) mistake, inadvertence, sur-

prise or excusable neglect; (2) newly discovered evi-

dence which by due diligence could not have been

discovered in time to move for a new trial under

Rule 59(b); (3) fraud . .. , misrepresentation, or

other misconduct of an adverse party; (4) the judg-

ment is void; . . . or (6) any other reason justifying

relief from the operation of the judgment.

The Moving Investors bear the burden of proving the

existence of a justification for Rule 60(b) relief. See

Cassidy v. Tenorio, 856 F.2d 1412, 1415 (9th Cir.

1988). The Court finds that they have not carried this

burden on any of the grounds asserted.

Jurisdiction

The Moving Investors claim that the Orders are void

because the Court lacks subject matter jurisdiction. They

base this claim on two grounds: (1) there is no jurisdic-

tion over the properties owned in part by the limited

1 As part of this motion, the Moving Investors also ask the Court

to reconsider the investors’ plan since they have raised additional

funds. The Court denies this request because the Moving Inves-

tors have not presented any basis for the Court to relieve them

from the Orders under Rule 60. Moreover, not only has the Court

already rejected the plan after full consideration, but the Court

also finds that the plan still is not a bona fide offer and does not

guarantee at least a 10 per centum increase over the price offered

in the private sale, as required by 28 U.S.C. § 2001(b).

32a

partnerships because under California law and the part-

nership agreements, the appointment of the Receiver ter-

minated ACI’s status as general partner of the limited

partnerships; and (2) the Receiver voluntarily abandoned

jurisdiction over the properties located outside of the

Central District of California because he did not timely

file the required statutory notices. Regardless of the label

used by the Moving Investors, these grounds do not in-

volve tiie subject matter jurisdiction of this Court, they

pertain to personal jurisdiction over the ACI Properties

and property interests at issue. This action arises from

violations or federal securities laws by Defendants. There-

fore, the Court has subject matter jurisdiction pursuant

to 28 U.S.C. § 1331.

Unlike subject matter jurisdiction, defects in personal

jurisdiction can be waived. See Fed. R. Civ. P. 12(h).

The Moving Investors have had opportunities to object to

the Court’s jurisdiction, but they did not raise these

jurisdiction arguments prior to the Rule 60 motion,” and

have not offered any reason why the arguments could

not have been raised at an earlier stage. This is the first

time that the Moving Investors have objected to the

Court’s jurisdiction over the ACI Properties on these

grounds even though they were given notice of the pro-

ceedings in this case, they were permitted to file opposi-

tion to the approval and confirmation of the JH Sale, they

filed opposition to the sale on other grounds, they ap-

peared at hearings regarding the JH Sale, and they were

permitted to be heard at the hearings. Even if the Moving

Investors’ jurisdiction arguments were not waived by their

* However, the Court notes that a similar argument regarding

the authority of the Receiver to enter into the JH Sale under the

partnership agreement and California partnership law was made

by an invester in objection to the motion to authorize the sale. To

the extent that the Moving Investors are making the same argu-

ment, it is again rejected by this Court pursuant to Jn re San

Vicente Medical Partners Ltd., 962 F.2d 1402, 1408 (9th Cir.

1992), cert. denied, 113 S. Ct. 210 (1992).

33a

actions, the Court finds that the Court has personal

jurisdiction.

1. Properties held by both ACI and the limited part-

nerships

At the October 31, 1994 hearing on the confirmation

of the JH Sale a number of investors argued that the

Court should not allow the Receiver to sell the ACI Prop-

erties because some of the properties belong in part to

the limited partnerships, and thus a sale would be a taking

of limited partners’ property in violation of due process. °

However, the Court, relying on In re San Vicente Med-

ical Partners Ltd., 962 F.2d 1402, 1408 (9th Cir. 1992),

cert. denied, 113 S. Ct. 210 (1992), rejected this argu-

ment and found that a court has the power to include the

property of a non-party limited partnership in an SEC

receivership order, as long as the non-party meets the

minimum-contacts standard set out in International Shoe

Co. v. Washington, 326 U.S. 310 (1945), and receives

actual notice and an opportunity for a hearing. The

Court found that under the minimum-contacts analysis of

International Shoe, this Court’s exercise of jurisdiction

over these limited partnerships did not violate due process.

See San Vicente, 962 F.2d 1407. Furthermore, the Court

found that the limited partnerships and the individual

investors received notice and were given opportunity for

a hearing. Therefore, the Court confirmed the sale of the

properties not owned solely by ACI.

3 Investors who spoke at the October 31 hearing also claimed

that a sale of the properties held by the limited partnerships would

be a violation of the limited partnership agreements. The Court

found that a sale by the genéral partner would not violate agree-

ments because the agreements gave the limited partner the power

to sell partnership assets. Thus, to the extent that the Receiver

was exercising ACI’s powers under the limited partnership agree-

ments, a sale would not violate the agreements. Furthermore, the

Court found that ACI’s interest in the limited partnerships was

an asset of ACI and therefore, was made part of the receivership

order.

34a

The Moving Investors now argue that the Court lacks

jucisdiction over the properties owned in part by the

limited partnerships because ACI ceased to be the general

partner of the partnerships under the partnership agree-

ments and California law when the receivership was im-

posed. In order to justify an exercise of jurisdiction over

property, the basis for jurisdiction must be sufficient to

justify exercising jurisdiction over the interests of per-

sons in that property. Shaffer v. Heitner, 433 U.S. 186,

208 (1977). The standard for determining whether the

exercise of jurisdiction over the interests of a person is

proper is the minimum-contacts standard of /nternational

Shoe Co. v. Washington, 326 U.S. 310 (1945). Shaffer,

433 U.S. at 208. Thus, the analysis of this Court to

determine whether the JH Sale violated due process with

regard to the limited partners also applies to the exercise

of jurisdiction by this Court over the property of the

limited partnerships. The limited partners, who have ap-

peared in this Court, were partners in entities that were

formed as California limited partnerships and were oper-

ated in California. Therefore, the limited partnerships

and the limited partners have sufficient minimum contacts

for this Court to exercise jurisdiction over them and over

the property held by them. This is consistent with the

holding of the Ninth Circuit in /n re San Vicente Medical

Partners Ltd., 962 F.2d 1402, 1408 (9th Cir. 1992),

cert. denied, 113 S. Ct. 210 (1992), that a court has the

power to include the property of a non-party limited part-

nership in an SEC receivership order Therefore, the re-

ceivership order in this case properly included the ACI

Properties which were owned in part by the limited part-

nerships.*

4The properties are within the receivership order regardless

of Defendant ACI’s status within the partnership after the re-

ceivership was instituted. Therefore, the provision of the agree-

ments and of California law terminating ACI as general partner

did not limit this Court’s power to impose the-receivership over

the properties controlled by ACI. See San Vicente, 962 F.2d 1402,

35a

2. Jurisdiction pursuant to 28 U.S.C. § 754

A receiver shall be vested with “complete jurisdiction

and control” of property located in a judicial district

where he or she files copies of the complaint and the

“order of appointment.” 28 U.S.C. § 754. Failure to file

such copies “within ten days after the order of his appoint-

ment” shall divest the receiver of jurisdiction and control.

Id. The Moving Investors contend that the Receiver was

divested of jurisdiction over the ACI Properties located

outside this district because he failed to make the required

filing within the ten-day period. The Moving Investors

argue that the Receiver’s order of appointment was the

temporary appointment of a receiver pursuant to a tem.

porary restraining order issued by this Court on Septem-

ber 2, 1993. However, this Court finds that the order of

appointment in this case within the meaning of 28 U.S.C.

§ 754 was the preliminary injunction placing Defendant

ACI in permanent receivership, which was issued by this

Court on September 17, 1993. Therefore, the notices

filed by the Receiver in the Southern District of Califor-

nia and Middle District of Florida on September 27, 1993

pursuant to 28 U.S.C. § 754 were timely. Since the filings

were timely, the Receiver is vested with complete jurisdic-

tion and control of the ACI Properties.

Mistake of Fact and Law

The Moving Investors argue that the Orders should be

set aside because they were based on erroneous informa-

tion about the true financial condition of the ACI Proper-

ties. However, the matters disputed by the Moving Invest-

1409 (9th Cir. 1992) (stating that the receiver “was the receiver

for San Vicente’s property, not the general partner of San Vicente.

Therefore, we hold that section 959(b) [requiring that a receiver

shall manage and operate property according to the requirements

of state law] does not burden the receiver for limited partnership

property with all of the constraints imposed on a general part-

Oi save 2

36a

ors, which pertain to the cash flow of the ACI Properties,

do not affect the fact that the amount offered by the pur-

chaser in the JH Sale is clearly more than two-thirds of

the appraised value of the ACI Properties. The facts

alleged by the Moving Investors, even if accepted as true

for the purposes of this motion, do not amount to a “mis-

take” under subsection (b)(1) of Rule 60. Thus, the

Court’s finding in the Orders that the JH Sale is in the

best interests of the ACI estate will not be disturbed.

Misrepresentation or Fraud

The Moving Investors argue that the Receiver is guilty

of “suppression of the relevant facts and legal doctrines”

because he did not inform the Court that the Section 754

filings were untimely, that he could not deliver market-

able title to the ACI Properties, and he made the “un-

supported assertion of ACI’s long-lost status as limited

partner.” Furthermore, they claim that the Receiver mis-

represented the financial condition of the ACI Properties

to “create a purposefully false appearance of financial

emergency.” Under subsection (b)(3) of Rule 60, the

movant must (1) prove by clear and convincing evidence

that the judgment was obtained through fraud, misrepre-

sentation or other misconduct; and (2) establish that the

conduct complained of prevented the moving party from

fully and fairly presenting its case or defense. Jones v.

Aero/Chem. Corp., 921 F.2d 875, 878-79 (9th Cir.

1990) (per curiam). The rule is aimed at judgments

which were obtained unfairly, not at those which are

factually incorrect. In re M/V Peacock, 809 F.2d 1403,

1404 (9th Cir. 1987). The Moving Investors have not

shown that the Orders were obtained unfairly because

they have not proven by clear and convincing evidence

that the Orders were obtained through misconduct. First,

as explained above, the Section 754 filings were timely.

Second, the marketability of title to the ACI Properties

was not material to the Court’s approval and confirmation

of the JH Sale.* Furthermore, the Receiver’s legal argu-

ments regarding ACI’s status as general partner of the

limited partnerships do not constitute a misrepresentation.

Finally, the Moving Investors’ claim that the Receiver

intentionally misrepresented the financial condition of the

ACI Properties is not supported by the evidence in this

case. To the extent that there are disagreements between

the Receiver and the Moving Investors regarding the pre-

cise financial condition of ACI, the Court finds that this

is insufficient to prove misconduct by the Receiver.

Newly Discovered Facts

The Moving Investors contend that because of “newly

discovered evidence” (i.e., information regarding the fi-

nancial performance of the properties) the Court should

grant relief from the Orders pursuant to subsection (b)

(6) of Rule 60. Analyzing this argument under Rule 60

(b)(6),° this relief normally will not be granted unless

the moving part is able to show both injury and that cir-

cumstances beyond its control prevented timely action to

Protect its interests. United States vy. Alpine Land &

Reservior Co., 984 F.2d 1047. 1049 (9th Cir. 1993),

cert. denied, 114 S. Ct. 60 (1993). As they stated prior

5 The marketability of title is a matter between the parties to

the private sale, and is provided for in the contract for the JH

Sale.

* A motion brought under subsection (b) (6) of Rule 60 must be

based on grounds other than those within the other subsections.

Lafarge Conseils Et Etudes, S.A. v. Kaiser Cement & Gypsum

Corp., 791 F.2d 1334, 1337 (9th Cir. 1986). Therefore. the Court

could treat the Moving Investors’ “newly-discovered evidence” ar-

gument as falling within subsection (b)(2). To obtain relief

under this subsection, the Moving Investors would have to show

that the evidence (1) existed at the time the Court entered its

judgment, (2) could not have been discovered through due dili-

gence, and (3) was of such magnitude that it would have been

likely to change the disposition of the case. See Jones v. Aero Chem

Corp., 921 F.2d 875, 878 (9th Cir. 1990) (per curiam). The Mov-

ing Defendants have not made such a showing.

38a

to this motion, the Moving Investors oppose the JH Sale

and maintaain that it is not in the best interests of the

estate because it will give them an insufficient return on

their original investment. Although the Moving Investors

could arguably show injury because a distribution based

on the proceeds of JH Sale will fall far from their orig-

inal investment, they have not shown that circumstances

beyond their control prevented timely action. In fact,

the documents submitted by the Moving Investors show

that they have had the “newly-discovered” information

since at least August 1994. Therefore, the Moving In-

vestors are not entitled to relief under Rule 60(b)(6).

BASED ON THE FOREGOING, the Court finds that

the Moving Investors have not shown any reason under

Rule 60(b) for the Court to grant relief from the Orders

of August 26, 1994 and November 30, 1994, approving

and confirming the ACI sale. Therefore, the Rule 60

motion is DENIED.

IT IS SO ORDERED.

Dated: 1/30/95

s/ Consuelo B. Marshall

CONSUELO B. MARSHALL

Judge

United States District Court

39a

APPENDIX C

[Filed Nov. 3, 1994]

UNITED STATES DISTRICT COURT

FOR THE CENTRAL DISTRICT OF CALIFORNIA

CV 93-5280 CBM (JRx)

SECURITIES AND EXCHANGE COMMISSION.

Plaintiff,

Vv.

AMERICAN CAPITAL INVESTMENTS, INC.,

STEPHEN MuRPHY, KENNETH SORENSEN.

RICHARD OTTO, and ADFIN Corp..,

Defendants.

—_—

—

ORDER RE: CONFIRMATION OF SALE

This action was before the Court following an order by

this Court on August 26, 1994 approving the sale of real

property of Defendant American Capital Investments, Inc.

(“ACI”). Pursuant to that order, the Court held a hearing

concerning the confirmation of the sale of ACI’s proper-

ties to J.H. Financial Group (“JH Sale”). At the October

31, 1994 confirmation hearing, various parties appeared

before the Court, and were heard. The Court took the

matter under submission. Based on the arguments, papers,

evidence and record presented to the Court, the Court

hereby confirms the JH Sale.

A. Receivership of ACI

In September 1993, this Court issued a preliminary in-

junction placing Defendant ACI in permanent receiver-

ship. The order of preliminary injunction appointed a

- 40a

receiver with “full power over all funds, assets, premises

(whether owned, leased, occupied or otherwise controlled),

choses in action, books, records, and other property be-

longing to or in the possession of or control of ACI and

the subsidiaries and affiliates.”

B. Sale of ACI Properties

ACI owns eight parcels of property (collectively, “ACI

Properties”), five in California and three in Florida. Two

of the eight parcels of property held by ACI generate a

profit. Five of the parcels operate at a “substantial” nega-

tive cash flow. Further, ACI holds full title to five of the

parcels of property and shares title to three parcels with

California limited partnerships, of which ACI is the gen-

eral partner.

JH Financial Group has offered to purchase the ACI

Properties for $24.3 million. The terms of the JH Sale

are: (1) $200,000 is placed in escrow; (2) ACI places

the properties in escrow; (3) title is transferred to JH “as-is

and where is”; (4) escrow will close within 60 days from

the Court’s order confirming the sale. ACI owes approxi-

mately $20.5 million on these properties. Thus, the JH

Sale would result in payment of approximately $3.8 mil-

lion to the ACI estate.

The sale to a private party of realty in the possession

of a receiver is governed by 28 U.S.C. § 2001(b), which

states:

After a hearing, of which notice to all interested

parties shall be given by publication or otherwise as

the court directs, the court may order the sale of such

realty or interest or any part thereof at private sale

for cash or other consideration and upon such terms

and conditions as the court approves, if it finds that

the best interests of the estate will be conserved

thereby. Before confirmation of any private sale, the

court shall appoint three disinterested persons to

sea A 1 lil Mo A

IB is cit iil A00Ne ABON eh Mi NLP a Banh PP AI cy AMOS, AY ety

4la

appraise such property or different groups of three

appraisers each to appraise properties of different

classes or situated in different localities. No private

sale shall be confirmed at a price less than two-

thirds of the appraised value. Before confirmation

of any private sale, the terms thereof shall be pub-

lished in such newspaper or newspapers of general

circulation as the court directs at least ten days before

confirmation. The private sale shall not be confirmed

if a bona fide offer is made, under conditions pre-

scribed by the court, which guarantees at least a 10

per centum increase over the price offered in the

private sale.

In August 1994, the Court granted the Receiver’s motion

for an order authorizing a sale of ACI’s properties to JH

Financial Group. The Court allowed the Receiver to

proceed with the JH Sale, subject to certain conditions.

When the Court approved the sale it independently se-

lected two sets of appraisers, one set in Florida and one

set in California. According to these appraisals, the high-

est combined value of the ACI properties is $24.3 million.

and the lowest value is $17.45 million. Therefore. the

JH Sale price is more than two-thirds of the highest

appraised value.

C. Challenge to the JH Sale

The October 31, 1994, hearing on the confirmation of

the JH Sale was attended by the SEC. the Receiver, the

Investor Group, and a number of individual investors.

The Investor Group, and other investors who spoke argued

that the Court should not allow the Receiver to sell the

ACI Properties because some of the properties belong in

* The JH Sale was approved on two conditions: the completion

of independent appraisals of the ACI Properties, and the publish-

ing of notice of the terms of the JH Sale. The Receiver has com-

plied with both of these conditions.

42a

part to the partnerships. However, the Ninth Circuit has

clearly rejected this argument, and held that a court has

the power to include the property of a non-party limited

partnership in an SEC receivership order as long as the

party meets the minimum contacts standard set out in /n-

ternational Shoe v. Washington, 326 U.S. 310 (1945),

and receives actual notice and an opportunity for a hear-

ing. In re San Vicente Medical Partners Ltd., 962 F.2d

1402, 1408 (9th Cir. 1992), cert. denied, 113 S. Ct. 210

(1992). The non-parties at issue here are the limited

partnerships of which ACI is the general partner and in-

dividual investors are the limited partners. Under the

minimum-contacts analysis of Jnternational Shoe, this

Court’s exercise of jurisdiction over these entities, formed

as California limited partnerships and operating in Calli-

fornia, does not violate due process. See In re San

Vicente, 962 F.2d 1407. Furthermore, the limited partner-

ships received notice of the receivership proceedings

through the general partner, Defendant ACI, and were

given opportunity for a hearing. See id. The individual

investors also received notice of the proceedings. There-

fore, this Court may confirm the sale of the properties not

owned solely by ACI.

Investors who appeared at the hearing claimed that a

sale of the properties held by the limited partnerships

would be a violation of the limited partnership agree-

ments. However, as general partner of the limited part-

nerships, ACI is specifically permitted to sell partnership

assets. The partnership agreements provide, in pertinent

part:

10.2 By way of example, and not by way of limita-

tion or the authority of the General Partner, the Gen-

eral Partner shall have the authority, right, power,

and privilege to do or undertake any of the following:

10.2.4 Selling, exchanging, or conveying property

of the Partnership or any portion thereof.

seth reels Wi ghslsatats ‘

43a

Thus, the Receiver, exercising ACI’s interests and pow-

ers under the limited partnership agreements, may sell

the properties. Moreover, ACI’s interest in the limited

partnerships was an asset of ACI and therefore, was made

part of the receivership order.

D. Alternate Plan

Various investors also challenge confirmation of the sale

on the ground that they have a plan which guarantees at

least a 10 per centum increase over the price offered in

the private sale. Following the October 31, 1994 hearing,

a group of investors (not identical to the Investor Group),

filed a “Notice of Investor Overbid,” making an offer to

purchase the ACI Properties at the ten-percent overbid

price stated by the Receiver at the hearing ($2.45 mil-

lion). This notice states that the offer is made “on the

same terms and conditions set forth in the agreement be-

tween the Receiver and J&H Financial [sic] plus ten per-

cent.”* The notice of overbid is apparently designed to

supplement the plan submitted to the Court at the Oc-

tober 31, 1994 hearing (“Plan”).

The Plan proposes to raise the money through letters

of credit and investor pledges. The adequacy of these

sources of financing for incurring debt or repaying debt

is problematic, and the notice of investor overbid does

not offer any assurances that the financing is adequate

and available. Furthermore, the investors did not deposit

any funds in connection with the Plan or the notice of

overbid the Receiver proposes that the Court require an

overbid deposit ($2.43 million), and that part of the de-

posit ($1.5 million for creditor claims) be deemed non-

refundable. In reply, John Shelton, an individual in-

vestor, argues that an overbid is not necessary because

* However, the Receiver states in a declaration submitted to the

Court that counsel for the Investor Group informed him that the

investors’ overbid proposal would not incorporate the purchase of

one of the properties owned by ACI; thus the proposal is not in

accordance with the terms and conditions of the JH Sale.

44a

the investors already own the ACI properties (since De-

fendant Murphy no longer “owns” ACI). However, even

if the investors own the ACI properties, the 10 per cen-

tum increase in price is still required by the statute, and

a deposit of funds would protect the estate.

In light of the uncertain financing of the Plan, the

Court finds that it does not constitute a bona fide offer

which guarantees at least a 10 per centum increase over

the price offered in the private sale, under Section 2001

(b). Cf. United States v. Heasley, 283 F.2d 422 (8th Cir.

1960) (affirming district court’s rejection of overbid offer

not accompanied by earnest money). In addition, no

other “bona fide offers” have been presented to the Court.

E. Interests of the Estate

In the hearing, and in their various papers, the investors

oppose the JH Sale and maintain that it is not in the best

interests of the estate because it will give them an in-

sufficient return on their original investment. They con-

tend that based on their due diligence they can get sig-

nificantly more return on their investments if they are

allowed to regain control of the ACI properties. They

propose that they be allowed to “hold on” to the proper-

ties for another three to six years, ostensibly so that the

values will climb above the current appraised values.

However, they offer no adequate business plan as to

how they can satisfy ACI’s current debt. The best in-

terests of the estate includes not only the interests of the

investors, but also the interests of creditors. The JH

Sale is in the interests of ACI’s creditors because it will

provide funds from which they can be repaid.® Although

3 For example, it has been brought to the Court’s attention that

$197,000 must be available to the estate by December 1, 1994 to

cure a default with a lender for one of the ACI properties. As

part of this order, the Court instructs the Receiver to immediately

notify J.H. Financial Group of the confirmatim of the sale so

that it can decide whether to provide the Receiver with the funds

to cure this default.

nn tnd lata te i abel aA Cw YS

a. ON A a i HA EEG aie dR 4 a ek

Wii dann

45a

a distribution based on the proceeds of JH Sale will fall

far from their original investment, the alternative pro-

posed by the various investors poses the risk of total loss

to the estate.

BASED ON THE FOREGOING, the Court finds that

the JH Sale is in the best interests of the ACI estate.

Therefore, the Court hereby confirms the private sale of

the ACI Properties to JH Financial Group.

IT IS SO ORDERED.

Dated: 11/30/94

/s/ Consuelo B. Marshall

CONSUELO B. MARSHALL

Judge

United States District Court

46a

APPENDIX D

[Filed May 2, 1995]

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

No. CV-93-5280-CBM (JRx)

SECURITIES AND EXCHANGE COMMISSION,

Plaintiff,

VS.

AMERICAN CAPITAL INVESTMENTS, INC.;

STEPHEN J. MURPHY; KENNETH A. SORENSEN;

RICHARD D. OTTo; and ADFIN CORPORATION,

Defendants.

March 27, 1995

Hon. CONSUELO B. MARSHALI

ORDER GRANTING MOTION TO TRANSFER ALL

INTERESTS AND CLAIMS OF INVESTORS IN

ACI PROPERTIES TO PROCEEDS OF RECEIVER-

SHIP ESTATE AND TO BAR ANY OTHER AS-

SERTION OF INTERESTS AND CLAIMS EXCEPT

AGAINST THE ESTATE

The Receiver’s Motion to Transfer All Interests and

Claims of Investors of ACI Properties to Proceeds of Re-

ceivership Estate and to Bar Any Other Assertion of In-

terests and Claims Except Against the Estate was heard

by the Court on March 27, 1995. The Court has con-

sidered the Motion and the arguments in support of and

in Opposition to it. Upon consideration, the Court grants

the Motion.

47a

Any and all interests and claims of investors in or to

the real properties owned by American Capital Invest-

ments, Inc. (“ACI”), whether owned solely or with any

joint venture or limited partnership or other form of busi-

ness or person affiliated in any manner with ACI, are

hereby ordered transferred to the proceeds of the sale of

the properties. “Interests and claims” shall include, with-

Out limitation, interests or claims to the properties, whether

evidenced by a writing, a deed, or otherwise, of every kind,

nature and description based on legal or equitable

theories. “Investors” includes every person who claims,

Or may claim, to be a limited partner in any ACI-

affiliated limited partnership, or a joint venturer, share-

holder, claimant, lienholder, or other person with an in-

terest in or claim to ACI or ACI’s real properties or any

affiliate of ACI or any affiliate’s real properties.

This Order is without prejudice to the interests and

claims of the investors to the extent they are asserted

against the proceeds, but only the proceeds, of the sale

of the real properties after such proceeds are in the sole

possession, custody and control of ACI’s Receiver, pur-

suant to a claim procedure subsequently approved by this

Court.

In accordance with S.E.C. v. Wencke, 622 F.2d 1363,

1370-1371 and n.11 (9th Cir. 1980) and S.E.C. v.

Wencke, 577 F.2d 619 (9th Cir.), cert. denied, 439 US.

964 (1978), all investors and attorneys and other agents

and representatives of investors are barred from taking

any action, directly or indirectly, to enforce or assert any

interests and claims except against the proceeds of the

sale of the real properties after such proceeds are in the

sole possession, custody and control of ACI’s Receiver.

IT IS SOQ ORDERED.

Dated: 5/2/95 s/ Consuelo B. Marshall

CONSUELO B. MARSHALL

United States District Judge

48a

APPENDIX E

[Filed May 3, 1995]

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

No. CV-93-5280-CBM (JRx)

SECURITIES AND EXCHANGE COMMISSION,

Plaintiff,

VS.

AMERICAN CAPITAL INVESTMENTS, INC.;

STEPHEN J. MURPHY; KENNETH A. SORENSEN;

RICHARD D. OTTO; and ADFIN CORPORATION,

Defendants.

March 27, 1995

Hon. CONSUELO B. MARSHALL

ORDER CONFIRMING RECEIVER’S AUTHORITY

TO EXECUTE ADDENDUM TO ACI PROPER-

TIES SALE AGREEMENT, AND ORDER PROVID-

ING THAT AGREEMENT’S INDEMNIFICATION

PROVISION INCLUDES ADVERSE LEGAL AC-

TION AGAINST PROPERTIES’ BUYER

The Court, having considered the Motion of Receiver for

Defendant American Capital Investments, Inc. (“ACI’’)

For Order Confirming Receiver’s Authority to Execute

Addendum to ACI Properties Sale Agreement, and Order

Providing that Agreement’s Indemnification Provision In-

cludes Adverse Legal Action Against Properties’ Buyer,

Epes CP

FT TEN eer CREPES

ce ares

49a

all documents filed in support and finding good and suf-

ficient cause therefor,

HEREBY ORDERS that the Motion is granted; the

Receiver’s authority te execute on behalf of the ACI

receivership estate that document entitled “First Amend-

ment to Sale and Purchase Agreement and Joint Escrow

Instructions,” attached as Exhibit “C” to the Declaration

of Richard G. Shaffer filed in support of the Motion,

is confirmed; and

FURTHER ORDERS that the indemnification provi-

sion, stated in Section 7 of the Sale and Purchase Agree-

ment and Joint Escrow Instructions (“Agreement”) set-

ting forth the terms and conditions of the sale of ACI’s

commercial real estate properties to JH Financial Group,

includes any legal claim or action that may be instituted

either before or after the sale’s closing date by any en-

tity otherwise described as being entitled to indemnifica-

tion under Section 7.1 of the Agreement, or that affects

title to any of the properties, arising from or related to

the transaction involved in the Agreement.

IT IS SO ORDERED.

Dated: 5/2/95 s/ Consuelo B. Marshall

CONSUELO B. MARSHALL

United States District Judge

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