IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 99-10980
_____________________
SECURITIES AND EXCHANGE COMMISSION
Plaintiff - Appellee
v.
FUNDING RESOURCE GROUP, also known as FRG Trust; QUENTIN
HIX; GENE COULTER; STEVEN C ROBERTS; MVP NETWORK, INC, a
Texas corporation; FMCI TRUST; FUNDERS MARKETING COMPANY
INC, a Texas corporation; RAYMOND G PARR; WILLARD VEARL
SMITH; EARL D MCKINNEY; FORTUNE INVESTMENTS LTD, a Nevada
Corporation; ROBERT CORD, also known as Robert F Schoonover;
WINTERHAWK WEST INDIES LTD; IGW TRUST; CAROLYN DON HICKS;
CARL LADANE WEAVER; HOWE FINANCIAL TRUST, an Indiana
corporation solely for purposes of equitable relief; TREDS
FINANCIAL TRUST, defendant solely for purposes of equitable
relief; MARY ANN BAUCE; HAMMERSMITH TRUST LLC, a Tennessee
limited liability company; HAMMERSMITH TRUST LTD, an Irish
corporation; BRIDGEPORT ALLIANCE LLC, a Nevada limited
liability company; LANDFAIR CUSTODIAL SERVICES INC, a
Tennessee corporation; MICROFUND, a Nevada limited liability
company; AMERICAN PACIFIC BANK & TRUST INC, an Antiguan
corporation; EUROFUND INVESTMENT INC, a Tennessee
corporation; B DAVID GILLILAND; MELODY ROSE
Defendants - Appellees
v.
SALISH INVESTMENTS; FHA SERVICES; HERBERT PRESS; PRESS
FAMILY LP; KUMARASUNDARAM SITTAMBALAM; REX WELLER; VISTA
CAPITAL; GALAXY ENTERPRISES TRADING LTD; SITTAMBALAM
RAJASUNDARAM; BILL FINCH; ROSIE FAN; PLENITUDE LTD; LAURA
NISHIMURA
Movants - Appellants
_________________________________________________________________
Appeal from the United States District Court
for the Northern District of Texas
(3:98-CV-2689)
_________________________________________________________________
September 8, 2000
Before KING, Chief Judge, PARKER, Circuit Judge, and KAZEN,
District Judge.*
PER CURIAM:**
Movants-Appellants appeal the district court’s denial of
their motion to intervene in a civil enforcement action brought
by Plaintiff-Appellee the Securities and Exchange Commission
against Defendants-Appellees. We affirm.
I. FACTUAL AND PROCEDURAL BACKGROUND
Movants-Appellants Salish Investments, FHA Services, Herbert
Press, Press Family LP, Kumarasundaram Sittambalam, Rex Weller,
Vista Capital, Galaxy Enterprises Trading, Ltd., Sittambalam
Rajasundaram, Bill Finch, Rosie Fan, Plenitude, Ltd., and Laura
Nishimura (“Appellants”) brought an action in the United States
District Court for the Middle District of Florida, Tampa Division
(the “Florida action”), against Sterling Management Services,
*
Chief Judge of the Southern District of Texas, sitting by
designation.
**
Pursuant to 5TH CIR. R. 47.5, the court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5TH CIR. R.
47.5.4.
2
Inc., Frederick J. Gilliland, Sterling Assets Services, Ltd.,
Marian Jones, B. David Gilliland,1 Hammersmith Trust, LLC, August
William Christian Mohr, Carlos Ferreto, Bridgeport Alliance,
Ltd., First Global International, Inc., and Eagle Asset
Management, Inc. (collectively, the “Florida defendants”).
Appellants alleged that the Florida defendants had induced them
to invest in monthly high-yield investment programs and short-
term quick-turnaround programs, and then failed to pay profits or
principal, or return funds upon Appellants’ request. Appellants’
May 1999 amended complaint asserted claims for fraud, fraudulent
conveyance, and conversion under Florida state law, as well as
violations of the Racketeering Influenced and Corrupt
Organizations Act (“RICO”), see 18 U.S.C. § 1961 et seq., Section
10 of the Securities Exchange Act of 1934 (the “Exchange Act”),
see 15 U.S.C. § 78(b), and Rule 10b-5 under the Exchange Act, see
17 C.F.R. § 240.10b-5.2 They sought relief in the form of
damages in the amount of the funds they invested; a judgment
setting aside a mortgage taken out on property purchased with
1
B. David Gilliland’s full name is Benjamin David
Gilliland. Appellants referred to “David Gilliland” in their
complaint, and the SEC named “B. David Gilliland” in the
enforcement action. We will likewise refer to Benjamin David
Gilliland as “B. David Gilliland.”
2
Although Appellants asserted that the Tampa district
court had jurisdiction over its action because their claims arose
from the Securities Act of 1933 (the “Securities Act”), see 15
U.S.C. § 77a et seq., as well as RICO and the Exchange Act, the
complaint did not list a claim under that statute.
3
invested funds; treble damages under RICO; a judgment declaring
that Frederick Gilliland, Sterling Management Services, Inc., and
Sterling Asset Services, Ltd. were each other’s alter ego; and
various injunctions.
Hammersmith Trust, LLC, B. David Gilliland, and Bridgeport
Alliance, LLC, defendants in the Florida action, are also
involved in a civil enforcement action filed by the Securities
and Exchange Commission (the “SEC”) in the United States District
Court for the Northern District of Texas, Dallas Division (the
“enforcement action”) in November 1998. The SEC brought this
action against Funding Resource Group, Quentin Hix, Gene Coulter,
Steven C. Roberts, MVP Network, Inc., FMCI Trust, Funders
Marketing Company, Inc., Raymond G. Parr, Willard Vearl Smith,
Earl D. McKinney, Fortune Investments, Ltd., Robert Cord,
Winterhawk West Indies, Ltd., IGW Trust, Carolyn Don Hicks and
Carl Weaver (the “enforcement action defendants”). The SEC
contended that the enforcement action defendants participated in
fraudulent Ponzi or pyramid schemes orchestrated by Funding
Resource Group, MVP Network, and FMCI Trust, in which the
defendants sold unregistered (and allegedly nonexistent) “prime
bank” securities issued by Funding Resource Group, MVP Network,
and FMCI Trust. The SEC’s second amended complaint asserted that
the enforcement action defendants had violated (1) § 10(b) of the
Exchange Act and Rule 10b-5; (2) § 17(a)(1) of the Securities Act
of 1933 (the “Securities Act”), see 15 U.S.C. § 77e; (3)
4
§§ 17(a)(2) - (3) of the Securities Act, see 15 U.S.C. § 77q(a);
and (4) §§ 5(a) and 5(c) of the Securities Act, see 15 U.S.C.
§ 77v(a).
In addition, the SEC alleged that Hammersmith Trust, LLC, B.
David Gilliland, and Bridgeport Alliance, LLC, among others,3
received some of the approximately $14 million in proceeds of the
enforcement action defendants’ allegedly illegal sales. Seeking
to disgorge these funds, the SEC brought a fifth claim for unjust
enrichment against Hammersmith Trust, LLC, B. David Gilliland,
Bridgeport Alliance, LLC, and the other equitable defendants.
The district court subsequently entered orders against the
equitable defendants, including Hammersmith Trust, LLC, B. David
Gilliland, and Bridgeport Alliance, LLC, that froze their assets,
required them to submit an accounting, enjoined them from
destroying records, and appointed Michael J. Quilling as receiver
over their assets.4
3
The SEC also alleged that Howe Financial Trust, Treds
Financial Trust, Mary Ann Bauce, Hammersmith Trust, Ltd.,
Microfund, LLC, Landfair Custodial Services, Inc., American
Pacific Bank & Trust, Inc., Eurofund Investment Inc., and Melody
Rose (collectively with B. David Gilliland, Hammersmith Trust,
Ltd., and Bridgeport Alliance, LLC, the “equitable defendants”)
received wrongfully obtained funds from defendants.
4
The district court initially froze these parties’ assets
and appointed Michael J. Quilling as receiver in orders dated
January 21, 1999 and March 11, 1999. It unfroze the assets
pursuant to an agreed order dated March 26, 1999. When B. David
Gilliland and the Hammersmith Trust entities failed to make the
payments to the receiver required by the March 26 order, the
district court held B. David Gilliland in contempt of court. On
July 22, 1999, the district court entered another order freezing
5
On June 11, 1999, Appellants brought a motion to intervene
in the enforcement action. Appellants asserted that they were
defrauded through the same Ponzi scheme at issue in the
enforcement action and induced to purchase types of unregistered
securities substantially similar to those sold by the enforcement
action defendants. Appellants specifically contended that the
enforcement action defendants had enlisted “the additional
parties listed in the Florida [action] to defraud [Appellants]
into investing in the same form of foreign investment.”
Appellants alleged that (1) B. David Gilliland “was one of the
masterminds behind this international scheme” and created an
“elaborate web of corporations . . . to facilitate this scheme
and to launder the money received from investors;” (2) Fred
Gilliland assisted B. David Gilliland in his unlawful enterprise;
(3) Hammersmith Trust, LLC and Hammersmith Trust, Ltd.5
(collectively, the “Hammersmith Trust entities”) constituted
alter egos of B. David Gilliland; and (4) Bridgeport Alliance,
Ltd. (a defendant in the Florida action) was possibly a sister
corporation to, alter ego of, or the same corporation as
Bridgeport Alliance, LLC (an equitable defendant in the
enforcement action). The SEC, B. David Gilliland, Hammersmith
the parties’ assets, enjoining them from destroying books and
records, requiring them to make interim accountings, authorizing
expedited discovery, and reinstating the receiver.
5
Hammersmith Trust, Ltd. was not named as a defendant in
the Florida action.
6
Trust, Ltd., and Hammersmith Trust, LLC filed oppositions to the
motion.
The district court addressed the motion to intervene at a
hearing held on July 22, 1999. The SEC informed the court that
it did not consent to the intervention. The receiver informed
the court that he was going to “go find [the] money” in
possession of Hammersmith Trust, LLC6 and “use it to give to all
the Hammersmith investors, pro rata, including [Appellants].”
The receiver also stated that he had discussed this plan with
Appellants’ counsel and that he thought Appellants’ counsel was
“happy [with the plan] at this point.” Appellants’ counsel,
however, proceeded to argue the merits of the motion to intervene
to the court. After questioning Appellants’ counsel with regard
to whether the Appellants needed the SEC’s consent to intervene
and whether the SEC adequately represented the Appellants’
interest, the court stated:
Let me tell you about . . . your intervention, I’m
going to deny it without prejudice at this time. Let’s
get on down the road and let’s see – and you visit with
Mr. Quilling, because unlike [the SEC], Mr. Quilling’s
only mission in life is to recover monies for people
like you represent.
And if you feel like he’s not doing a good job of it,
you get back with me. But right now I’m going to deny
[the motion to intervene].
6
The receiver was referring to the Nevis, West Indies-
based Hammersmith Trust, LLC.
7
In its order filed July 27, 1999, the district court denied
Appellants’ motion to intervene without prejudice.7 Appellants
timely appeal.
II. DISCUSSION
A. Jurisdiction and Standard of Review
Under the law of this circuit, a denial of a motion to
intervene as a matter of right under Federal Rule of Civil
Procedure 24(a) is an appealable final decision. See Edwards v.
City of Houston, 78 F.3d 983, 992 (5th Cir. 1996) (en banc). We
review a denial of such a motion de novo. See id. at 995. This
court has provisional jurisdiction to review a denial of a motion
for permissive intervention under Rule 24(b) for an abuse of
discretion. See id. at 992. Unless we find an abuse of
discretion, we lack jurisdiction over the permissive intervention
claim and are constrained to dismiss the appeal thereof. See
Woolen v. Surtran Taxicabs, Inc., 684 F.2d 324, 330-31 (5th Cir.
1982).
B. Intervention as of Right
Appellants contend that they are entitled to intervene as a
matter of right pursuant to Rule 24(a)(2). That section imposes
four requirements: (1) the applicant must file a timely
7
The district court also dismissed Appellants’ counsel’s
application to appear pro hac vice as moot.
8
application; (2) the applicant must claim an interest in the
property or transaction that is the subject of the action; (3)
the applicant must show that disposition of the action may as a
practical matter impair or impede the applicant’s ability to
protect that interest; and (4) the applicant’s interest must not
be adequately represented by existing parties to the litigation.
See FED. R. CIV. PROC. 24(a)(2). “[A]bsence of even one of the
four factors required by rule 24(a)(2) is sufficient to defeat
intervention . . . .” United States v. Franklin Parish Sch. Bd.,
47 F.3d 755, 758 (5th Cir. 1995).
As an initial matter, we note that it appears from the
record that Appellants failed to attach a complaint to their
motion to intervene as dictated by Rule 24. See FED. R. CIV. PROC.
24(c) (“The motion shall . . . be accompanied by a pleading
setting forth the claim or defense for which intervention is
sought.”). Although the filing of a complaint in intervention is
clearly required by the language of the rule, this court has
traditionally “been lenient in hearing the appeals of parties who
have failed to fulfill the provisions of Rule 24(c).” See
International Marine Towing, Inc. v. Southern Leasing Partners,
Ltd., 722 F.2d 126, 129 (5th Cir. 1983). Furthermore, despite
the SEC’s having raised the issue in its opposition to
Appellants’ motion, the district court did not address this
deficiency of Appellants’ motion in his order dismissing the
motion without prejudice. In addition, it appears from the
9
transcript of the July 22 hearing that the district court
considered the merits of the motion, at least to a certain
extent. As a result, we decline to decide the appeal on these
grounds. See United States v. State of Louisiana, 543 F.2d 1125,
1128 n.4 (5th Cir. 1976). Our refusal to affirm the district
court’s decision on this basis, however, should not be
interpreted as a license to ignore the requirements of Rule
24(c). If and when the Appellants again seek intervention as the
district court has permitted them to do, strict compliance with
the requirements of Rule 24(c) should be exacted.
Although Appellants’ failure to attach a complaint results
in some uncertainty as to what claims they propose to bring in
the enforcement action, it is clear from the Appellants’ brief,
their original motion to intervene, and the amended complaint
from the Florida action that the gravamen of any claims in
intervention would be that they lost $5 million to the Florida
defendants, including B. David Gilliland, the Hammersmith Trust
entities, and Bridgeport Alliance, LLC, in connection with
allegedly fraudulent investment schemes. It is unnecessary to
determine the specific contours of Appellants’ possible claims in
intervention, however, as we conclude that Appellants fail to
satisfy the second requirement of Rule 24(a)(2): a claim of an
interest in the property or transaction that is the subject of
the enforcement action.
10
The plain language of Rule 24(a)(2) states that the would-be
intervenor must claim “an interest relating to the property or
transaction which is the subject of the action . . . .” FED. R.
CIV. PROC. 24(a)(2) (emphasis added). As described in the SEC’s
second amended complaint, the property that is the subject of the
enforcement action consists of $14 million in funds deriving from
the allegedly fraudulent sales of unregistered “prime bank”
securities by the enforcement action defendants. Furthermore,
these sales, coordinated in a Ponzi scheme, constitute the
transaction that is the subject of the enforcement action.
Here, however, Appellants’ interest pertains to the $5
million in funds that they themselves paid to the Florida
defendants, not to the $14 million traceable to the fraudulent
sales of the enforcement action defendants. Appellants maintain,
however, that they have an interest in the enforcement action
because the equitable defendants in that action “may have
received and may be in possession” of funds fraudulently obtained
from Appellants. Even if true, this fact is insufficient to
create the requisite interest. The SEC is not targeting any
funds in the equitable defendants’ possession for disgorgement
other than the discrete group of assets directly traceable to
fraudulent sales of unregistered securities by the enforcement
defendants. The mere fact that the funds to which Appellants
assert their entitlement in the Florida action may be located in
some of the same bank accounts as the funds sought by the SEC in
11
the enforcement action does not place the $5 million within the
scope of the enforcement action.8 Therefore, we conclude that
Appellants may not intervene as a matter of right on this basis.9
Nor does Appellants’ contention that the Ponzi scheme in
which they unwittingly participated was part, or an extension of,
the Ponzi scheme allegedly perpetrated by the defendants in the
enforcement action provide grounds for intervention under Rule
24(a)(2). Even assuming, arguendo, that the Ponzi schemes were
connected, the allegedly fraudulent sales of unregistered
8
We recognize that the appointment of a receiver over B.
David Gilliland’s, the Hammersmith Trust entities’, and, assuming
for the purposes of this discussion that Bridgeport Alliance, LLC
is an alter ego or sister corporation of Bridgeport Alliance,
Ltd., Bridgeport Alliance, LLC’s assets -- as well as the
freezing of those assets -- may impair Appellants’ ability to
recover funds from those entities once they have established
their legal right to do so. However, Appellants may not
bootstrap an impairment caused by the enforcement action of an
interest not at issue in the enforcement action into a right to
intervene under Rule 24(a)(2).
9
We also note that Appellants have not established that
their interest in the $5 million, much less in any part of the
$14 million at issue in the enforcement action, is “direct,
substantial, and legally protectable,” as required under the law
of this circuit. See New Orleans Pub. Serv., Inc. v. United Gas
Pipe Line Co., 732 F.2d 452, 463-64 (5th Cir. 1984) (en banc)
(collecting cases). We assume that Appellants may remedy this
defect by proceeding with the Florida action. Once their right
to the $5 million (or to some other number) is established, they
may doubtless bring a claim to the receiver. It appears from the
district court’s July 22 order that the receiver is considering a
bankruptcy action as a way of dealing with the claims of
defrauded investors, although the SEC asserts in its brief that a
distribution plan – subject to court approval and available for
comment and objection by the claimants – will be established by
the receiver and/or the SEC. In any event, it appears that an
orderly procedure for distributing the funds recovered by the
receiver will ensue after the enforcement action is resolved.
12
securities by B. David Gilliland, the Hammersmith Trust entities,
or Bridgeport Alliance, LLC are not referenced in the SEC’s
second amended complaint, and nowhere else have we discerned an
intent by the SEC to introduce evidence regarding alleged sales
of unregistered securities by anyone other than the enforcement
action defendants in the lawsuit. We are not inclined to stretch
the meaning of “transactions which [sic] are the subject of the
action” to include transactions that are not mentioned by the
parties, much less litigated by them. Because our review of the
briefs, the SEC’s complaint in the enforcement action, and the
Appellants’ complaint in the Florida action does not reveal that
Appellants have an interest in either the property or transaction
that is the subject of the enforcement action, we conclude that
the district court did not err in denying Appellants’ motion to
intervene under Rule 24(a)(2).
C. Permissive Intervention
Appellants also argue that they are entitled to permissive
intervention because they have established a common question of
law or fact as required by Rule 24(b). See FED. R. CIV. PROC.
24(b)(2) (stating that anyone may be permitted to intervene “when
an applicant’s claim or defense and the main action have a
question of law or fact in common”). However, this court has
held that “[p]ermissive intervention is wholly discretionary with
the [district] court . . . even though there is a common question
13
of law or fact, or the requirements of 24(b) are otherwise
satisfied.” New Orleans Pub. Serv., Inc., 732 F.2d at 470-71
(citing WRIGHT & MILLER, FEDERAL PRACTICE & PROCEDURE: CIVIL § 1913)
(internal quotation marks omitted).
Accordingly, when we are asked to review a denial of
permissive intervention, the question on appeal is not
whether “the factors which render permissive
intervention appropriate under Federal Rule of Civil
Procedure 24(b) were present,” but is rather “whether
the trial court committed a clear abuse of discretion
in denying the motion.”
Id. at 471. The clear abuse of discretion standard is a high
one; indeed, a reversal of a district court’s denial of
permissive intervention on appeal “is so unusual as to be almost
unique.” Id.
Here, our review of the record reveals no “extraordinary
circumstances” that would justify a finding of clear abuse of
discretion by the district court. See Cajun Elec. Power Coop.,
Inc. v. Gulf States Util., Inc., 940 F.2d 117, 121 (5th Cir.
1991). Rather, the district court’s remarks at the July 22
hearing demonstrate that he considered the determination of
claims by defrauded investors and the eventual distribution of
funds to those claimants to be within the province of the
receiver, and thus that it was more appropriate for Appellants to
present their claims in the first instance to the receiver than
to the court. The district court’s decision reflected a
pragmatic approach to case management and was manifestly within
the scope of his discretion. As a result, we dismiss the appeal
14
with regard to the district court’s denial of permissive
intervention.10
III. CONCLUSION
For the foregoing reasons, the district court’s denial of
Appellants’ motion to intervene is AFFIRMED.
10
Although we recognize that the district court made no
findings in its order, “in the circumstances of this particular
case, we feel that we can dispose of the question before us
without a full record, since it is more than clear that
appellants are not entitled to intervene.” United States v.
Perry County Bd. of Educ., 567 F.2d 277, 280 (5th Cir. 1978).
15