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Securities and Exchange Commission v. Wells Fargo Bank, N.A.

United States Court of Appeals, Eleventh Circuit

February 22, 2017

WELLS FARGO BANK, N.A., Creditor, Interested Party-Appellant,

         Appeal from the United States District Court for the Middle District of Florida D.C. Docket No: 8:09-cv-00087-RAL-TBM

          Before JORDAN and JILL PRYOR, Circuit Judges, and PROCTOR, [*] District Judge.

          PROCTOR, District Judge:

         I. BACKGROUND

         Following the collapse of a Ponzi scheme, the district court appointed a receiver to administer the affairs, funds, and property of parties who perpetrated that failed scheme. The district court also established a claims administration process by which those who had claims to property administered by the equity receivership could file proofs of claim. In this appeal, we are called upon to decide whether in such a circumstance a district court may extinguish a non-party's preexisting rights to property under the administration of the equity receivership if that non-party fails to comply with the court's orders regarding filing of proofs of claim. We conclude a district court may not. And, we look to bankruptcy law to aid us in addressing this question of first impression.

         On January 21, 2009, the SEC initiated an action (the "Nadel action") following the collapse of a Ponzi scheme perpetrated by Arthur Nadel. As a result, the district court appointed a Receiver over the Nadel action Defendants. The district court directed the Receiver to "administer and manage the business affairs, funds, assets, choses in action and any other property of the Defendants and Relief Defendants; marshal and safeguard all of the assets of the Defendants and Relief Defendants; and take whatever actions are necessary for the protection of the investors." Accordingly, the receivership exercised authority not only over claims from victimized investors, but also entities and businesses which were funded with, and properties purchased with, proceeds of Nadel's Ponzi scheme. While Wells Fargo is not a party in the Nadel action, it has secured interests in three properties which the Receiver took possession of pursuant to the district court's orders.

         On April 21, 2010, the district court entered an order establishing a claims administration process by which potential claimants (both investors and creditors) could file proof of their claims against the receivership. As part of the claims administration process, the Receiver would mail a claims packet, which contained a Proof of Claim form, to investors and creditors whose property was implicated in the Ponzi scheme. Under authority of the district court order, the packet required that non-investors (including non-party creditors such as Wells Fargo) provide to the Receiver any amount claimed due, together with supporting documents, by the claim bar date.[1] The district court's order required that all creditors submit their claims before the claim bar date, and did not distinguish between secured and unsecured creditors with respect to this requirement. The district court (1) established a deadline of September 2, 2010 for filing a Proof of Claim form and (2) barred any claims asserted after that date.

         Consistent with this process, the Receiver mailed a single claims packet to Wells Fargo at its Atlanta, Georgia address. After receiving this packet, Wells Fargo submitted a Proof of Claim as to its loan that secured one receivership property within the set claim bar date, but did not submit a Proof of Claim detailing its secured interest in the other two receivership properties.


         On February 8, 2012, well after the September 2, 2010 claim bar date, Wells Fargo submitted a motion seeking a determination that the filing of Proofs of Claim was unnecessary to preserve its security interests in, and claims against, collateral in the Receiver's possession (including the two properties for which it failed to submit Proofs of Claim). Alternatively, Wells Fargo's motion sought leave to file belated claims pursuant to Rule 60(b) based on excusable neglect. The district court deferred ruling on the motion.

         On December 7, 2015, the Receiver filed a motion seeking two forms of relief. First, the Receiver's motion sought a determination that Wells Fargo's failure to submit Proofs of Claim for the loans secured by two properties extinguished its interests in those properties. Second, the motion requested the release of the proceeds from the sale of one of the properties for which Wells Fargo did not file a Proof of Claim. Wells Fargo objected to the motion. Nevertheless, the district court granted the Receiver's motion, finding that Wells Fargo's security interests in the two properties were not preserved due to its failure to submit Proofs of Claim. The district court further held that Wells Fargo's Rule 60(b) request was untimely and insufficient. The district court specifically determined that Wells Fargo bore the burden to protect its rights pursuant to the framework set forth in the court's prior order. The district court reasoned that secured creditors such as Wells Fargo, despite their secured interest, were obliged to follow court orders in order to protect their rights to collateral in the receivership proceedings. Wells Fargo appeals the district court's order. After careful review, and with the benefit of oral argument, we agree with Wells Fargo, and reverse and remand this matter to the district court for further proceedings consistent with this opinion.


         The sole issue in this appeal is whether the district court correctly determined that Wells Fargo's failure to file certain proofs of claim in accordance with the district court's procedures extinguished Wells Fargo's secured interest in the receivership properties. This is a question of "pure law, " which we review de novo. See Young v. New Process Steel, LP, 419 F.3d 1201, 1203 (11th Cir. 2005) (holding that "[w]e decide 'pure law' issues de novo, which is ...

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