# Opposition Brief — International Precious Metals Corp. v. Waters

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386014_0789%3A3

## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 2000
- **Citation:** 530 U.S. 1223

## Text

Supreme Court, U.S.
FILED
? APR 2 4 2000
No. 99-1560
; CLERK
IN THE
Supreme Court of the United States

INTERNATIONAL PRECIOUS METALS CORPORATION,
MULTIVEST, INC., JAMES GROSFELD, individually and
as Trustee of the JASON GROSFELD TRUST, MULTIVEST
REAL ESTATE, INC., S.S. MELBOURNE, INC.
and THE CYPRESS GROUP, INC.,

Petitioners,
v.

WILLIAM WATERS and LINDA BARTHOLOMEW,
individually and on behalf of all those similarly situated,

Respondents.

On PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT

RESPONDENTS’ BRIEF IN OPPOSITION

Saeed
- rose.

Eric G. LIPorF C. BRANDON WISOFF

RARING & LIPOFF Counsel of Record
3070 Bristol, Suite 650 NEIL A. GOTEINER
Costa Mesa, CA 92626-3072 FARELLA BRAUN & MARTEL LLP
(714) 429-2970 235 Montgomery Street

San Francisco, CA 94104
(415) 954-4400

Attorneys for Respondents

159213 @) Counsel Press LLC
(800) 274-3321 + (860) 359-6859

I

QUESTIONS PRESENTED

1. Whether the district court abused its discretion in
following Supreme Court and Eleventh Circuit precedent
permitting class counsel’s fee award to be based on the gross
amount of the settlement fund, where doing so resulted in a fee
award representing a multiplier of only 1.05 on class counsel’s
actual lodestar investment in this seven-year litigation; where
the district court found that defendants’ tactics had prolonged
the litigation and thereby helped reduce the number of claims
filed against the fund; where class counsel conferred a
substantial benefit on the class and would suffer a multimillion
dollar loss if defendants’ approach to fees were taken; where
no class member objected to the fee award; where defendants,
not class members, stand to receive 90% of the proposed
reduction in the fee; where defendants expressly stipulated they
had no objection to the fee award and advocated its
reasonableness to the district court prior to dismissal of the jury;
and where the district court conducted a thorough and
independent fee determination and found the fee to be fair and
reasonable?

2. Whether defendants should be permitted to appeal from
that portion of their settlement agreement in which they
expressly stipulated, in return for class counsel capping its fee
request, that they would not object to a fee award up to the
amount of the cap, where defendants expressly told the district
court that the fee award requested was “well within the range
of reasonable” and where defendants seek to keep all the benefits
of their settlement agreement while simultaneously rejecting
all its burdens? [Note: this question would. become relevant
only if the Court grants review of question No. 1, since the
Eleventh Circuit affirmed the district court’s fee award on the
merits without determining whether defendants should be
precluded from appealing their own settlement. ]

il

TABLE OF CONTENTS

Page
Questions Puaseneee 6.6 5 dsacnc neers 1
Table OF Comtemt .s.ccstctntuss Caner ete aees il
Table Of Cited Antiparities .. .. 66. ccc scenes: iV
Table Of AppemGieee:i:i:0: at 88) The court
found that the case required a higher degree of skill than the
average Class action. (/d. at 89) The court found that class
counsel was actively and continuously involved in the case
to the point of being unable to devote any significant time to
other matters. (/d.) The court found that the fee recoveries
in comparable types of actions approximated 30% of the fund
created for the benefit of the class. (/d. at 87) The court found
that the contingent nature of the case created a substantial
risk for class counsel — only two firms, one with only two
lawyers. The court found that a recovery of out-of-pocket
losses of between 20% and 30% represented ‘“‘a substantial
recovery for an investment-related class action,” a factor
which defendants apparently concede. (/d. at 91) The court
specifically found that the actual dollars paid out would likely
be substantially less than the full $40 million amount of the
gross settlement fund, but that class counsel could not be

287a

Appendix M

faulted for this possibility. (/d. at 91-92; R35-1544 at 6) The
court found that class counsel were the only law firms who
expressed a desire in prosecuting this difficult case at
substantial risk to themselves. (R132-1518 at 92-93) The
court found that settlement discussions were unusually
difficult. (Jd. at 93-94) The court also found that the case
had fulfilled a public policy role in providing an avenue of
redress for investors who had been defrauded through
deceptive and high-pressure sales tactics. (/d. at 94) There
is ample evidence in the record to support each of these
findings which must be reviewed in the light most favorable
to the district court’s determinations, not according to
defendants’ self-serving recital of the facts.

Defendants’ complaint about the quantity of material
provided in support of plaintiffs’ counsel’s lodestar is a red
herring since under this Circuit’s “percentage of the fund”
approach, a detailed lodestar analysis is no longer required.
See, e.g., In re Prudential Ins. Co. America Sales Litig., 148
F.3d 283, 342 (3d Cir. 1998) (approving of district court
finding that detailed time summaries were unnecessary since
the lodestar was merely being used to double check the
percentage award); Johnston v. Comerica Mortgage Corp.,
83 F.3d 241, 246-47 (8th Cir. 1996) (reversing district court’s
denial! of class fee award based on failure to provide time
records since counsel reasonably believed the fee would be
based on a percentage of the fund).'® Plaintiffs’ counsel

19. Indeed, it was in large part due to the substantial burden
on district courts in reviewing detailed lodestar documentation that
led this Court in Camden to adopt the “percentage of the fund”
method for calculating fees. 946 F.2d at 773. See also Court Awarded
Attorneys’ Fees, Report of the Third Circuit Task Force, 108 F.R.D.
237, 246 (October 8, 1985).

288a

Appendix M

supplied all the lodestar information that was requested by
the district court and there was no evidence, or even serious
suggestion, that counsel’s lodestar figure of $12.6 million
was inflated. (R132-1480 at 4 9; R33-1502 at Ex. B)
Although defendants supplied no evidence of their fees for
comparison, their admitted expenses exceeded those of
plaintiffs by a substantial margin. Defendants’ further
complaint that counsel’s lodestar was improperly stated using
current hourly rates is meritless. See Camden, 946 F.2d at
775 n.7; Skelton, 860 F.2d at 255 n.5.

In sum, the only evidence offered in support of the
alleged “‘excessiveness” of the fee award is the unfortunate
fact that not as many class members filed claims as plaintiffs
had believed would file claims. The district court specifically
found that this fact was partially of defendants’ creation (due
to delaying tactics and efforts to prevent the remailing of
class notices) and partly due to the district court’s crowded
docket (over which plaintiffs had no control). (R35-1544
at 6) The district court specifically found that it would be
“highly inequitable” under the circumstances of this case to
saddle class counsel with a multimillion loss for
circumstances over which they had little or no control. (/d.)

While defendants assert repeatedly throughout their brief
that the fee and expense award was “more than 400% of the
amounts, relative to the class distributions, heretofore
awarded by the courts of the Eleventh Circuit,” there is
absolutely no evidence in the record to support this assertion
other than defendants’ alleged ex parte telephone survey
which the district court found was self-serving “hearsay” in
direct contradiction with defense counsel’s prior

289a

Appendix M

representations. Indeed, the district court confirmed its
understanding of the methodology used in the NERA report
by calling one of the authors of the report personally. (/d. at
3-4) Moreover, defendants’ suggestion that there were no
unclaimed funds in any of many settlements contained in
the NERA survey lacks credibility on its face. It is well
recognized that class action settlements usually result in
unclaimed balances, the disposition of which is left in the
district court’s discretion. See, e.g., Six Mexican Workers v.
Arizona Citrus Growers, 904 F.2d 1301, 1307 (9th Cir. 1990)
(noting that “[mJost class actions result in some unclaimed
funds,” and discussing the various alternatives used by courts
for distributing such funds). Defendants’ failure to cite to
Camden, a reversionary settlement, is illustrative.

Even assuming any validity to defendants’ survey,
however, and its 400% figure, defendants did not consider
that this seven-year litigation was some five times the median
duration of securities class actions filed in the Southern
District of Florida (R32-1481 at 4 22), went to a five-month
jury trial, posed two much smaller firms (one with two
lawyers) against at least six law firms who unnecessarily
prolonged the litigation, and was much more difficult to
prove than a securities fraud-on-the-market case. Thus, while
defendants’ “statistical” notion (if proven) might have been
of some interest in a different context, it is meaningless
against the long torturous history of this case and the day-
to-day realities faced by the district court, a court which
defendants would now marginalize with attacks on its
integrity.

290a

Appendix M

Ill. THE EXPENSE AWARD WAS ALSO
APPROPRIATE

The district court initially denied virtually all of class
counsel’s claimed expenses, agreeing with defendants that
insufficient backup material had been provided to the court.
Class counsel expressly asked the district court what
materials it would like to review since documentation for
each invoice in a seven-year litigation would fill many boxes.
(R132-1518 at 98-101) The district court requested and
received an affidavit from class counsel and from class
counsel's controller — and class counsel brought their
controller to court for examination and further offered to
provide the district court with backup material for any
questioned item. (/d. at 182-184; R34-1521; R34-1522; R34-
1526) The district court conducted two additional hearings
on the expense application, and allowed or disallowed items
on a category-by-category basis. (R133-1535, R134-1534)
The district court ultimately disallowed in excess of $200,000
of requested expenses, notwithstanding that defendants’
expenses exceeded those of plaintiffs by a substantial margin.

Defendants’ further complaint that the expense award
as a percentage of the fee award is larger than that in most
other cases ignores that few class actions are ever litigated
through trial. See 3 Newberg § 12.55 at 12-122. Expenses
obviously mount over time and increase relative to fees once
the cost of a trial must be absorbed. Cf Crazy Eddie, 824
F. Supp. at 323, 326 (awarding $2 million in expenses and
over 33% of a $42 million reversionary settlement fund in a
case that never went to trial).

29la

Appendix M

IV. THE FEE AND EXPENSE AWARD IS
ASSIGNABLE AS A MATTER OF LAW

Although the record demonstrates that defendants agreed
the fee and expense award would be assignable (supra at
20-21), it is unnecessary for the Court to reach that issue to
affirm the district court’s order. According to defendants’
view, the agreement was “silent” as to whether the fee and
expense award was assignable. (AB 26) The agreement
expressly states that it is to be construed according to Florida
law (R31-1371 at 910.13), and under Florida law it is well
established that contractual rights are freely assignable unless
the agreement expressly provides otherwise. Hall v. O’Neil
Turpentine Co., 47 So. 609 (Fla. 1908); L.V. McLendon
Kennels, Inc. v. Investment Corp. of S. Florida, 490 So. 2d
1374-75 (Fla. 3d DCA 1986). Silence equals free
assignability under Florida law. See also Classic Concepts,
Ine. v. Poland, 570 So. 2d 311, 313 (Fla. 4th DCA 1990).
Even express restrictions are construed narrowly. Cordis
Corp. v. Sonics Int'l, Inc., 427 So. 2d 782, 783 (Fla. DCA
1983) (“ ‘The law draws a distinction... between
performance due under a contract and assignment of the right
to receive contractual payment.’ ”). In fact, even express
restrictions on assignment of the right to receive payment
are void in Florida under the UCC. Florida First Nat'l Bank
v. Fryd Constr. Corp., 245 So. 2d 883 (Fla. 3d DCA 1970);
Fla. Stat. § 679.318(4).”° Thus, regardless of Grosfeld’s

20. Defendants’ response to the clear language of the UCC is
to quote a commentary explaining why specifically enumerated
transactions, not relevant here, were excluded from the Code’s
otherwise comprehensive coverage. Defendants’ ipse dixit is that

(Cont’d)

292a
Appendix M

claims about his intent, counsel’s deferred obligations must
be freely assignable.

Moreover, defendants lack standing to contest the
assignability of the fee and expense award since the
settlement agreement expressly provides that it is an
obligation of class members to be paid by the settlement
administrator from the settlement fund, and not an obligation
of defendants. (R31-1371 at § 7.3) Defendants’ obligation
remains precisely the same regardless of whether class
counsel assign the right to receive payments from the
settlement fund to a third party. Defendants’ position reduces
to hypertechnical spite.

Finally, defendants have not bothered to address the
rational in the Court’s March 25, 1997 order on this issue.
(R33-1515)"!

(Cont'd)

the deferred obligations are “sui generis,” part of a litigation
settlement, and therefore not part of a commercial financing
transaction. But they are. As one respected commentator observes,
“(t]he sale of streams of payment arising out of structured settlements
is big business,” B. Clark. Lump-Summing Structured Settlements
and Other Payment Streams: Selected Legal Issues, Clarks’ Secured
Transactions Monthly, August 1997; cf. Jn re Hayes, 168 BR 717
(Bankr. D. Kan. 1994) (discussing the assignment of structured
settlement payments as creating security interests under the UCC).

21. The “assignability” issue was exhaustively briefed in
plainuffs’ reply on pending motion for sanctions and summary
affirmance. Given space limitations, plaintiffs respectfully refer the
Court to that bnefing.

293a

Appendix M

CONCLUSION

The Court should affirm the district court’s orders in all
respects and award sanctions against defendants and their

counsel.

Dated: October 20, 1998

Respectfully submitted,

NEIL A. GOTEINER
GARY S. ANDERSON

C. BRANDON WISOFF
KAREN P. KIMMEY
FARELLA BRAUN

& MARTEL LLP

235 Montgomery Street
San Francisco, CA 94104
Telephone: (415) 954-4400

ERIC G. LIPOFF

RARING & LIPOFF

3070 Bristol, Suite 650
Costa Mesa, CA 92626-3072
Telephone: (714) 429-2970

By: /s/ C. Brandon Wisoff
C. Brandon Wisoff

Attorneys for Plaintiffs
WILLIAM WATERS and
LINDA BARTHOLOMEW
and those similarly situated

294a

APPENDIX N — MOTION OF PLAINTIFFS-
APPELLEES FOR LEAVE TO FILE SUPPLEMENTAL
BRIEF TO ADDRESS ONE MISTATEMENT IN
DEFENDANTS-APPELLANTS’ REPLY BRIEF
DATED NOVEMBER 30, 1998

UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT

No. 97-5074

WILLIAM WATERS AND LINDA BARTHOLOMEW,
individually and on behalf of all those similarly situated,

Plaintiffs-Appellees,
VS.

INTERNATIONAL PRECIOUS METALS CORPORATION,
MULTIVEST, INC., JAMES GROSFELD, Individually and
as Trustee of the Jason Grosfeld Trust, MULTIVEST REAL
ESTATE, INC., S.S. MELBOURNE, INC., and THE
CYPRESS GROUP, INC.,

Defendants-Appellants.

MOTION OF PLAINTIFFS-APPELLEES FOR LEAVE
TO FILE SUPPLEMENTAL BRIEF TO ADDRESS ONE
MISTATEMENT IN DEFENDANTS-APPELLANTS’

REPLY BRIEF

295a

Appendix N

NEIL A. GOTEINER ERIC G. LIPOFF

GARY S. ANDERSON RARING & LIPOFF

C. BRANDON WISOFF 3070 Bristol, Suite 650

KAREN P. KIMMEY Costa Mesa, CA 92626-3072

FARELLA BRAUN Telephone: (714) 429-2970
& MARTEL LLP

235 Montgomery Street

San Francisco, CA 94104

Telephone: (415) 954-4400

Attorneys for Plaintiffs and Appellees
WILLIAM WATERS and LINDA BARTHOLOMEW
and those similarly situated

296a

Appendix N

CERTIFICATE OF INTERESTED PERSONS
AND CORPORATE DISCLOSURE STATEMENT

In accordance with F.R.A.P. 26.1 and Eleventh Circuit
Rules 26.1-1, 26.1-2, 26.1-3, and 27-1, undersigned, counsel
state that the following are interested persons and entities:

Gary S. Anderson (Counsel for Appellees/Plainti ffs)
Linda Bartholomew
(Appellee/Plaintiff, Class Representative)
R. Lawrence Bonner (Counsel for Appellants/Defendants)
Victor F. Caldwell (Counsel for Appellants/Defendants)
Justin Y.K. Chu (Counsel for Appellants/Defendants)
Certified Class of MultiVest Options, Inc. for Customers
(Appellees/Plaintiffs)
John L. Cooper (Counsel for Appellees/Plaintiffs)
Copart, Inc.
Cravath, Swaine & Moore
(Counsel for Appellants/Defendants)
The Cypress Group, Inc. (Appellant/Defendant)
Paul M. Dodyk (Counsel for Appellants/Defendants)
Farella Braun & Martel LLP
(Counsel for Appellees/Plaintiffs)
Neil A. Goteiner (Counsel for Appellees/Plaintiffs)
James Grosfeld, individually and as Trustee of the Jason
Grosfeld Trust (Appellant/Defendant)
Nancy Grosfeld (Defendant in Conveyance Litigation below)
Homer & Bonner (Counsel for Appellants/Defendants)
Honigman, Miller, Schwartz & Cohn
(Counsel for Corporate Defendants below)
International Precious Metals Corporation
(Appellant/Defendant)

297a

Appendix N

Robert M. Jackson

(Counsel for Corporate Defendants below)
Martin I. Kaminsky (Counsel for Appellants/Defendants)
Karen P. Kimmey (Counsel for Appellees/Plaintiffs)
Jeffery R. Knight (Counsel for Appellants/Defendants)
Eric G. LIPOFF (Counsel for Appellees/Plaintiffs)
Edward T. McDermott (Counsel for Appellants/Defendants)
MultiVest, Inc. (Appellant/Defendant)
MultiVest Real Estate, Inc. (Appellant/Defendant)
Jeffrey P. Newman (Counsel for Appellees/Plaintiffs)
Pollack & Kaminsky (Counsel for Appellants/Defendants)
L. Louis Raring (Counsel for Appellees/Plaintiffs)
Raring & Lipoff (Counsel for Appellees/Plaintiffs)
S.S. Melbourne, Inc. (Appellant/Defendant)
Michael R. Siebecker (Counsel for Appellants/Defendants)
The Honorable Ursula Ungaro-Benages (Trial Judge below)
Steven C. Wasinger (Counsel for Corporate Defendants below)
William Waters (Appellee/Plaintiff, Class Representative)
C. Brandon Wisoff (Counsel for Appellees/Plaintiffs)

298a

Appendix N

PLEASE TAKE NOTICE that before the Eleventh Circuit
Court of Appeals, Elbert P. Tuttle Court of Appeals Building,
56 Forsyth Street, N.W., Atlanta, Georgia, 30303, plaintiffs-
appellees (“plaintiffs”) hereby move the Court pursuant to 11th
Cir. R. 27-1 (c)(10) and (d), for permission to file the
accompanying supplemental two page brief to address one of
defendants-appellants’ (“defendants”) misstatements in which
defendants claim that a declaration filed after the case was
closed, was part of a motion before the district court. The
misstatement is material to this Court’s jurisdiction to hear this
appeal. Plaintiffs previously asked defendants to correct this
misstatement in their brief to obviate any further motion practice.
Defendants declined to do so, declined to point out where they
believed that plaintiffs were mistaken on the facts stated in
plaintiffs’ supplemental brief, and declined to consent to
plaintiffs filing the supplemental brief.’ Plaintiffs are therefore
constrained to file this motion to correct defendants’
misstatement.

Defendants agreed to settle this class action and that they
would not object to a fee request of one-third of the total
settlement fund plus expenses (Plaintiffs’ Brief, pp.20-22
collecting record citations). Defendants did not take any issue
when the district court stated on the record on March 31, 1997
that defendants had assured the court in chambers during
preliminary approval discussions, and before the jury was
dismissed, that: “a fee of one-third of the gross amount of the
settlement fund would be well within the range of reasonable.”
(Plaintiffs’ Brief, p. 28, quoting R132-1518 at 42:10-18).

1. See correspondence between parties’ counsel, attached
collectively as Exhibit A to the accompanying November 30, 1998
declaration of Neil A. Goteiner.

299a
Appendix N

Defendants now in their Reply Brief repeatedly claim
for the first time that they did deny the district court’s March
31, 1997 in-court statement (Defendants’ Reply Brief, pp.6,
22, 24,25-26). Defendants also claim that plaintiffs’ assertion
that defendants did not deny the court’s statement, was
“false.” (Defendants’ Reply Brief, p. 24). To support their
claims, defendants quote what they characterize as their
“promptly” filed declaration of Paul Dodyk, “in support of ”
defendants’ Fed. R. Civ. P. 52(b) and 59(e) motion, filed on
April 21, 1997. (Defendants’ Reply Brief at pp. 6, 24).

The record, however, is that defendants never suggested
that the district court was incorrect until after the court
closed the case. Plaintiffs’ Supplemental Brief demonstrates
specifically that: (a) defendants did not file this quoted
Dodyk declaration “in support of ,” or in connection with,
any motion, (6) defendants filed the quoted Dodyk
declaration on May 9, 1997, not on April 21 (R35-1546)
(defendants do not provide the date of the quoted declaration
in their Reply Brief); and (c) defendants filed their-quoted
Dodyk declaration (dated May 8) after receiving the district
court’s May 8, 1997 faxed Order denying defendants’ Rule
52/59(e) motion, and the district court’s May 8, 1997 Order
closing the case (R35-1544, R35-1545).

Plaintiffs’ Supplemental Brief also demonstrates that Mr.
Dodyk did serve and file before the case was closed a
declaration in support of defendants’ Rule 52(b)/59(e)
motion, a declaration in which he also stated that he had
reviewed the March 31 transcript. (R34-1532, 94 1,18). This
April 24 Dodyk declaration, however, did not refer at all to
the district court’s March 31 statement, which defendants
now say they denied.

300a
Appendix N

The Court’s clear understanding of what defendants told
the district court before the jury was dismissed regarding
defendants’ support of plaintiffs’ requested fee, and the
related chronology of the district court’s on-the-record
statements and defendants’ silence, is material to the Court’s
review of this appeal. Indeed, defendants have conceded that
their response to the district court’s March 31 statement, and
their effort to demonstrate that that March 31 statement
mischaracterized the record, is critical to their right even to
be before this Court.’

Pursuant to 11th Cir. R. 27-1(a)(3), plaintiffs also refer
the Court to: (1) defendants’ prior September 9, 1998 motion
to supplement the record with declarations of defendants’
counsel, (2) this Court’s October 6, 1998 Order instructing
defendants inter alia not to include in the appeal materials
outside of the district court record, and (3) the Court’s
November 4, 1998 Order inter alia striking appellants’
October 13, 1998 corrected brief.’ Contrary to their merits
Reply Brief, defendants in their September 23, 1998 reply
brief in support of their September 9 motion to supplement

2. Defendants acknowledge that silence in response to the district
court’s statement that they supported plaintiffs’ fee request, would be:
“an admission which is obviously highly prejudicial;” the “obvious
effect of the court’s statement is to undermine defendants’ appellate
position in a manner which is immune from effective appellate review.”
(Defendants’ October 16 Opening Brief, at 31).

3. Also on November 4, the motions panel granted defendants’
motion for a 7 page extension of page limitation for defendants’
Reply Brief, resulting in defendants’ 32 page, 11 point type, printed
brief.

30la

Appendix N

the record, attempted to explain why they should be allowed
to file these declarations because defendants had not
“litigated” below the district court’s statement about
defendants’ support of plaintiffs’ fees (Jd. pp. 3-4).
Defendants proceeded on September 23 to explain to the
motions panel that since the district court’s order of May 8,
1997: “concluded the district court’s proceedings with
respect to the amount of plaintiffs’ counsel’s fee, defendants
had no subsequent opportunity or reason to address that issue
further below.” (/d. at 13, emphasis added). Similarly
defendants in that same September 23 reply brief noted that:
“the court’s passing reference to the matter in the hearing of
March 31, 1997 merited no response because that observation
was irrelevant to the issue before the Court.” (/d. at n.4,
emphasis added).

And yet in their merits Reply Brief, defendants now
claim that they did respond to the district court’s March 31
statement as part of their April 21 motion, and now offer
Mr. Dodyk’s declaration filed on May 9, after the case closed,
lo support their claim.

302a
Appendix N
CONCLUSION

Plaintiffs respectfully request that the Court grant this
motion for leave to file a supplemental brief and that the
Court accept the accompanying supplemental brief for filing.

Daied: November 30, 1998
Respectfully submitted,

NEIL A. GOTEINER

GARY S. ANDERSON

C. BRANDON WISOFF
KAREN P. KIMMEY
FARELLA BRAUN & MARTEL
235 Montgomery Street

San Francisco, CA 94104p
Telephone: (415) 954-4400

By: s/ Neil A. Goteiner
Neil A. Goteiner

Attorneys for Plaintiffs
WILLIAM WATERS and LINDA
BARTHOLOMEW and those

similarly situated

303a
APPENDIX O — ORDER OF THE UNITED STATES
COURT OF APPEALS FOR THE ELEVENTH CIRCUIT
DENYING APPELLEES’ MOTION TO FILE A

SUPPLEMENTAL BRIEF DATED AND FILED
DECEMBER 22, 1998

IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT

No. 97-5074

WILLIAM WATERS; LINDA BARTHOLOMEW, individually
and on behalf of all those similarly situated,

Plaintiffs-Appellees,
versus

INTERNATIONAL PRECIOUS METALS CORPORATION;
MULTIVEST INCORPORATED; ET AL.,

Defendants-Appellants.

On Appeal from the United States District Court for the
Southern District of Florida

ORDER:

Appellees’ motion for leave to file a supplemental brief
is DENIED.

s/ [illegible]
UNITED STATES CIRCUIT JUDGE

nn

304a

APPENDIX P — ORDER OF THE UNITED STATES
COURT OF APPEALS FOR THE ELEVENTH
CIRCUIT DENYING PETITION FOR WRIT OF
MANDAMUS DATED AND FILED APRIL 17, 1996

IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT

—

IN RE:
JAMES GROSFELD,
Petitioner.

On Petition for Writ of Mandamus to the United States
District Court for the Middle District of Florida

BEFORE: KRAVITCH, ANDERSON and BIRCH,
Circuit Judges.

BY THE COURT:

Multivest, Inc. and International Precious Metals
Corporation’s “joinder” in the Petitioner Grosfeld’s petition
for writ of mandamus, construed as a motion to adopt this
petition, is GRANTED.

Petitioner’s petition for writ of mandamus is denied.

305a
APPENDIX Q — EXCERPT FROM THE NATIONAL
FUTURES ASSOCIATION MANUAL, VOLUME SIX,
NUMBER TWO (AS OF JANUARY 1, 2000)
NATIONAL FUTURES ASSOCIATION MANUAL

VOLUME 6, NO. 2
(AS OF JANUARY 1, 2000)

NATIONAL FUTURES ASSOCIATION

200 W. Madison Street 120 Broadway

Suite 1600 Suite 1125

Chicago, IL 60606-3447 New York, NY 10271
(312) 781-1300 (212) 608-8660

Published by Available Business Group

©2000 by National Futures Association
All Rights Reserved. No part of this publication may
be reproduced in any form or by any means without
permission in writing from the copyright holder.
Printed in U.S.A.
Available Business Group
4141 South Peoria Street
Chicago, Illinois 60609
Telephone: (773) 247-4141
Fax: (773) 247-1313

* * aK

306a
Appendix Q

[9021] COMPLIANCE RULE 2-9: SUPERVISION OF
TELEMARKETING ACTIVITY (Board of Directors,
January 19, 1993; revised August 14, 1996; December 16,
1996 and March 10, 1998.)

INTERPRETIVE NOTICE

Over the years, NFA’s Board of Directors has adopted
strict and effective rules to prohibit deceptive sales practices,
and those rules have been vigorously enforced by NFA’s
Business Conduct Committees. The Board notes, however,
that by their very nature, enforcement actions occur after
the customer abuse has taken place. The Board recognizes
that NFA’s goal must be not only to punish such deception
of customers through enforcement actions but to prevent it,
or minimize its likelihood, through fair and effective
regulation.

One NFA rule designed to prevent abusive sales practices
is NFA Compliance Rule 2-9. This rule places a continuing
responsibility on every Member to supervise diligently its
employees and agents 1n all aspects of their futures activities,
including telemarketing. Although NFA has not attempted
to prescribe a set of supervisory procedures to be followed
by all NFA Members, NFA’s Board of Directors believes
that Member firms which are identified as having a sales
force that has received questionable training in sales practices
should be required to adopt specific supervisory procedures
designed to prevent sales practice abuse. Rule 2-9 authorizes
the Board of Directors to require Members, which meet
certain criteria established by the Board, to adopt specific
supervisory procedures designed to prevent abusive sales
practices.

307a
Appendix Q

The Board believes that in order for the criteria used to
identify firms subject to the enhanced supervisory
requirements to be useful, those criteria must be specific,
objective and readily measurable. The Board also believes
that any supervisory requirements imposed on a Member
must be designed to quickly identify potential problem areas
so that the Member will be able to take corrective action
before any customer abuse occurs. The purpose of this
Interpretive Notice is to set forth the criteria established by
the Board and the enhanced supervisory procedures which
are required of firms meeting these criteria.

In developing the criteria, the Board concluded that it
would be helpful to review Member firms which had been
closed through enforcement actions taken by the CFTC or
NFA for deceptive sales practices. The Board’s purpose was
to identify factors common to these Member firms and
probative of their sales practice problems, which could be
used to identify other Member firms with potential sales
practice problems.

One factor identified by the Board as common to these
firms and directly related to their sales practice problems is
the employment history and training, of their sales forces.
For many of these Members, a significant portion of their ~
sales force was previously employed and trained by one or
more of the other Member firms closed for fraud. The Board
believes that the employment history of a Member’s sales
force is a relevant factor to consider in identifying firms with
potential sales practice problems. If a Member firm is closed
for fraud related to widespread telemarketing problems, it is
reasonable to conclude that the Member’s training and

308a
Appendix Q

supervision of: its sales force was wholly inadequate or
inappropriate. It 1s also reasonable to conclude that an AP
who received inadequate or inappropriate training and
supervision may have learned improper sales tactics, which
he will carry with him to his next job. Therefore, the Board
believes that a Member firm employing such a sales force
must have stringent supervision procedures in place in order
to ensure that the improper training its APs have previously
received does not taint their sales efforts on behalf of the
Member.

The Board has determined that a Member will be
required to adopt the specific supervisory procedures over
its telemarketing activities if:

~ for firms with at least five but less than 10 APs, 40
percent or more of its APs have been employed by
one or more Member firms which have been
disciplined by NFA or the CFTC for sales practice
fraud (“Disciplined Firms”);

— for firms with at least 10 but less than 20 APs, four
or more of its APs have been employed by one or
more Disciplined Firms; or

— for firms with at least 20 APs, 20 percent or more
of its APs have been employed by one or more
Disciplined Firms.

For purposes of this requirement, a Disciplined Firm is
defined very narrowly to include only those firms that meet
the following three criteria:

309a

Appendix Q

1. the firm has been formally charged by either the
CFTC or NFA with deceptive telemarketing
practices;

tv

those charges have been resolved; and

4

3. the firm has been closed down and permanently
barred from the industry as a result of those charges.

Attached is a list of firms currently meeting the definition
of a Disciplined Firm. Although this list is current as of the
date of this Interpretive Notice, NFA will provide Members
with updated lists as necessary.

. Any Member firm meeting these criteria will be required
either to operate pursuant to a guarantee agreement or
maintain an adjusted net capital of at least $250,000 for the
entire period during which the Member is required to tape
record its sales solicitations. Any Member opting to maintain
the higher level of adjusted net capital would also be subject
to the financial recordkeeping and reporting requirements
applicable to FCMs. Eligible guarantor futures commission
merchants are those that meet the eligibility requirements
for executing a Supplemental Guarantor Certification
Statement pursuant to NFA Registration Rule 504(a)(2)(B).

Those Members meeting the criteria will be required to
tape record all telephone conversations that occur between
their APs and both existing and potential customers. The
Board believes that tape recording these conversations
provides these Members with the best opportunity to monitor
closely the activities of their APs and also provides these

| |

310a
Appendix Q

Members with complete and immediate feedback on each
AP’s method of soliciting customers. Members meeting the -
criteria must tape record these conversations for a period of
two years and must retain such tapes for a period of five
years from the date each tape is created and the tapes shall
be readily accessible during the first two years of the
five-year period. In retaining the tape recorded conversations,
Member firms must catalog the tapes by AP and date.
Additionally, any Member firm meeting the criteria must
require all its APs to maintain a daily log for sales
solicitations which reflects at a minimum the identity of each
customer or prospective customer the AP spoke with on each
day. A Member firm must be able to promptly produce, upon
request from NFA or the CFTC, all conversations relating
to a specific AP, and only that AP, for a given date.

In addition, for a period of two years, those Members
meeting the criteria will be required to file all promotional
material, as defined in NFA Compliance Rule 2-29(g), with
NFA at least 10 days prior to its first use.

If an NFA Business Conduct Committee disciplinary
proceeding or Commodity Futures Trading Commission
enforcement proceeding has been filed against a Member
firm required to adopt these enhanced supervisory
procedures, then the enhanced supervisory procedures will
remain in effect for the applicable time period specified or
until after the disciplinary or enforcement proceeding is
closed and all appeals are completed or the time for appeal |
has passed without an appeal being filed or perfected,
whichever occurs latest. Member firms shall be required to
retain tapes for the five-year period as specified above.

31 la
Appendix Q

Any Member required to adopt these enhanced
procedures may seek a waiver of the enhanced supervisory
requirements. NFA may grant such a waiver upon a
satisfactory showing that the Member’s current supervisory
procedures provide effective supervision over its employees,
including enabling the Member to identify potential problem
areas before customer abuse occurs.

A Member firm that does not comply with this
Interpretive Notice will violate NFA Compliance Rule 2-9
and will be subject to disciplinary action.

FIRMS THAT HAVE BEEN DISCIPLINED
FOR SALES PRACTICE FRAUD

Ist Commodity Corp. of the Carolinas
Alpine Financial Corp.
American Futures Group Inc.
Apache Trading Corp.
Arnekay Inc.

Atlantic Futures Inc.

Atlantic Mercantile Group Ine.
Bear & Wolf Company, Inc.

BP Financial of Boston Inc.
Bachus & Stratton Commodities, Inc.
Carrington Financial Corp.
Chicago Commodity Corp.
Chilmark Commodities Corp.
Churchill Group Inc.
Commodity Fluctuations Systems Inc.
Commonwealth Financial Group Inc.
Diversified Trading Systems Inc.

312a
Appendix Q

Dunhill Investments Corporation
Durkin & Associates Inc.
England, Mark W.

Financial Services Group Inc.
First Commodity Corporation of Boston
First National Monetary Corp.
First Sierra Corporation
Futures Financial Advisors of Palm Beach
Gabriel Brokerage Inc.
Gemini Investments Inc.
Grandview Holding Corp.

Great American Commodities Corp.
Index Services Inc.
International Futures Strategists, Inc.
International Trading Group Ltd.
Investment Syndication Corp.
JCC Inc.

Jones Commodities Inc. D.E.
Masters Trading Organization Ltd.
Montgomery International Trading Inc.
Multivest Options Inc.

Murlas Commodities Inc.
Nationwide Futures Corp.
Neiman-Lloyds Inc.

Option America Inc.
Preferred Commodity Corporation
Premex Inc.

Presidential Futures Inc.
Stephens E. David Commodities Corp.
Stirn, Barry Gerald
Tara Securities Corp.

Trinity Financial Group Inc.

313a
Appendix Q

Waters Tan & Co. Inc.
Wellington Financial Group Inc.
Whitehall Investors International Inc.
Wolf Commodities Corp. Inc.
Zipkin, William L.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386014_0789%3A3. Public record. Not legal advice.