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United States v. Petters et al.: US District Court : CIVIL PROCEDURE - intervention for purpose of motion to lift stay; once denied, parties dismissed

United States of America,
Civil No. 08-5348 ADM/JSM
Thomas Joseph Petters; Petters Company,
Inc., a/k/a PCI; Petters Group Worldwide, LLC;
Deanna Coleman, a/k/a Deanna Munson;
Robert White; James Wehmhoff; Larry
Reynolds and/or d/b/a Nationwide International
Resources, a/k/a NIR; Michael Catain and/or d/b/a
Enchanted Family Buying Company;
Frank E. Vennes, Jr., and/or d/b/a Metro Gem
Finance, Metro Gem, Inc., Grace Offerings
of Florida, LLC, Metro Property Financing,
LLC, 38 E. Robinson, LLC, 55 E. Pine, LLC,
Orlando Rental Pool, LLC, 100 Pine Street
Property, LLC, Orange Street Tower, LLC,
Cornerstone Rental Pool, LLC, 2 South
Orange Avenue, LLC, Hope Commons, LLC,
Metro Gold, Inc.,
Douglas A. Kelley,
Gary Hansen,
Nagendra Setty, Esq., Fish & Richardson, PC, Atlanta, GA, and John C. Adkisson, Esq., Fish &
Richardson, PC, Minneapolis, MN, on behalf of LG Electronics, Inc.
Michelle S. Rhyu, Esq., Cooley, Godward, Kronish, LLP, Palo Alto, CA, and Jane S. Welch,
Esq., Morrison, Fenske & Sund, PA, Minnetonka, MN, on behalf of Zenith Electronics, LLC.
Daniel C. Beck, Esq., Winthrop & Weinstine, PA, Minneapolis, MN, on behalf of Acorn Capital
Group, LLC.
1 Receiver Douglas A. Kelley (Receiver Kelley) and Plaintiff United States of America
(the United States) submitted a Motion to Amend and Clarify the Preliminary Injunction and
Receivership Orders [Docket No. 91], which included a request that the Court clarify that the
stay of litigation applies to Polaroid. As stated on the record during oral argument on December
5, 2008, when the stay of litigation was ordered on October 22, 2008, the Court intended that the
stay apply to Polaroid, and the Second Amended Order for Entry of Preliminary Injunction,
Appointment of Receiver, and Other Equitable Relief [Docket No. 127] (the Second Amended
Order) entered on December 8, 2008, clarifies that point. Therefore, the requests by LGE,
Acorn, and Zenith to modify the stay of litigation are denied.
Terrence J. Fleming, Esq., Lindquist & Vennum, PLLP, Minneapolis, MN, on behalf of Receiver
Douglas A. Kelley.
Gregory G. Brooker, Esq., and Robyn A. Millenacker, Esq., Assistant United States Attorneys,
Minneapolis, MN, on behalf of Plaintiff.
J.D. Jackson, Esq., Dorsey & Whitney, LLP, Minneapolis, MN, on behalf of Interlachen Harriet
Investments Limited.
On December 5, 2008, the undersigned United States District Judge heard oral argument
on the Motions to Intervene by LG Electronics, Inc. (LGE) [Docket No. 79]; Acorn Capital
Group, LLC (Acorn) [Docket No. 103]; and Zenith Electronics, LLC (Zenith) [Docket No.
115]. LGE, Acorn, and Zenith each assert they are entitled to intervene in this case either as a
matter of right or permissively for the limited purpose of requesting that the Court modify
previously entered orders to clarify that the provisions staying litigation against the receivership
do not apply to litigation against Polaroid Corporation (Polaroid).1 Alternatively, LGE, Acorn,
and Zenith request that the Court lift the stay to allow them to proceed with their respective
pending lawsuits against Polaroid in other jurisdictions. For the reasons set forth below, the
motions are granted in part and denied in part.
This action was brought by the United States pursuant to the Fraud Injunction Statute, 18
U.S.C. 1345, to freeze the assets of the named defendants, as well as any affiliates,
subsidiaries, divisions, successors, or assigns that are owned 100% or controlled by them. The
purpose of the action was to preserve the assets for restitution to victims of an alleged fraud
scheme in the event that related criminal actions alleging this fraud scheme result in convictions
and orders to pay restitution. The procedural history detailing the issuance of the preliminary
injunction, which, among other things, established the receivership and ordered the stay of
litigation against the receivership, is described in the Courts previous orders (particularly the
Second Amended Order) and is incorporated by reference.
A. Intervention
Claiming both intervention as a matter of right and permissive intervention, LGE, Acorn,
and Zenith have moved to intervene for the limited and sole purpose of requesting the Court to
modify previous orders staying litigation to clarify that the stay of litigation against the
receivership does not apply to Polaroid, or, in the alternative, to petition the court for relief from
the stay as it applies to Polaroid. See Mem. in Supp. of LGEs Mot. to Intervene [Docket No.
81] at 5; Mem. in Supp. of Acorns Mot. to Intervene [Docket No. 104] at 2; Mem. in Supp. of
Zeniths Mot. to Intervene [Docket No. 112] at 1.
Under the Federal Rules of Civil Procedure, a movant may, upon timely application,
intervene in an action as a matter of right if the movant establishes that (1) it has a cognizable
interest in the subject matter of the litigation; (2) the interest may be impaired as a result of the
litigation; and (3) the interest is not adequately protected by the existing parties to the litigation.
Fed. R. Civ. P. 24(a)(2); Mille Lacs Band of Indians v. Minnesota, 989 F.2d 994, 997 (8th Cir.
1993). Even if a movant is unable to meet these requirements, a district court has discretion to
grant permissive intervention if a movants claim or defense and the main action share a
common question of law or fact. Fed. R. Civ. P. 24(b)(1)(B); Med. Liab. Mut. Ins. Co. v. Alan
Curtis LLC, 485 F.3d 1006, 1009 (8th Cir. 2007). In exercising this discretion, the district court
must consider whether permissive intervention will unduly delay or prejudice the adjudication
of the original parties rights. Fed. R. Civ P. 24(b)(3).
The motions by LGE, Acorn, and Zenith to intervene for the limited and sole purpose of
seeking a modification or lifting of the stay of litigation against the receivership are not
conventional motions to intervene. As such, the analytical framework established by Rule 24
does not lend itself well to resolving the issues presented by these motions. In practice,
however, the inquiry required under Rule 24 is a flexible one, and a practical analysis of the
facts and circumstances of each case is appropriate. 6 James Wm. Moore, et al., Moores
Federal Practice 24.03[1][b] (3d ed. 2008); see also Gene Shreve, Questioning Intervention of
RightToward a Methodology of Decisionmaking, 74 Nw. U.L. Rev. 894, 922-23 (1980) (The
[factual] circumstances that serve as a basis for decision are so varied and random that [courts]
would virtually need to create a new rule to describe each case.). Courts have likewise
recognized that the resolution of a Rule 24 motion requires flexibility. See, e.g., Public Serv.
Co. of New Hampshire v. Patch, 136 F.3d 197, 204 (1st Cir. 1998) (The inherent imprecision of
Rule 24[s] individual elements dictates that they be read not discretely, but together, and always
in keeping with a commonsense view of the overall litigation.)(quotation omitted); Donnelly v.
Glickman, 159 F.3d 405, 409 (9th Cir. 1998) (explaining that in determining whether
intervention is appropriate, courts are guided primarily by practical and equitable
considerations, and generally interpret the requirements broadly in favor of intervention).
Rather than attempting to force the factual allegations presented by LGEs, Acorns, and
Zeniths motions into the analytical framework of Rule 24, a practical, commonsense application
of Rule 24 suggests intervention for the limited purpose sought by LGE, Acorn, and Zenith is
appropriate here. See Inmates of the Rhode Island Training School v. Martinez, 465 F. Supp. 2d
131, 136-37 (D. R.I.. 2006) (declining to engag[e] in a convoluted analysis in order to fit the
facts of [the] Motions square peg into the Rules round hole, and relying instead on the
reasonable measure of latitude afforded to the district court in the practical application of Rule
24(a)(2)) (quotation omitted); see also 7C Charles Alan Wright & Arthur R. Miller, Federal
Practice and Procedure 1904 (3d ed. 2008) (commenting that Rule 24 is not a comprehensive
inventory of the allowable instances for intervention and that considerations such as the public
interest may require that intervention be allowed wholly outside the rule) (quoting Missouri-
Kansas Pipe Line Co. v. United States, 312 U.S. 502, 505 (1941)). The heart of the dispute
presented by the motions is not so much the question of intervention but rather the question of
whether the stay of litigation applies to Polaroid and if so, whether the stay should be lifted to
allow LGE, Acorn, and Zenith to proceed with their pending actions against Polaroid. When the
stay of litigation was granted on October 22, 2008, it was expressly contemplated, and the order
provided, that individuals and entities who, like LGE, Acorn, and Zenith, have claims against the
named defendants or their associated entities that are subject to the receivership would be
allowed to petition the Court for relief from the stay. See Am. Order for Entry of Prelim. Inj.,
2 In responding to LGEs, Acorns, and Zeniths motions to intervene, Receiver Kelley
and the United States contend that granting the motions will unduly delay and prejudice the
parties rights in this litigation, as it will indefinitely lead to a flood of motions by similarlysituated
persons across the country that are affected by the receivership stay, and who claim to
have an interest in the assets of the Petters related entities, and, thus, the burden and expense of
responding to such motions would defeat the purpose of the stay. Joint Mem. in Oppn to
Acorns Mot. to Intervene [Docket No. 109] at 11; Joint Mem. in Oppn to LGEs Mot. to
Intervene [Docket No. 100] at 10-11; Joint Mem. in Oppn to Zeniths Mot. to Intervene [Docket
No. 122] at 11. Though not insensitive to this concern, the Court believes that, as was
contemplated when the stay was ordered, considerations of fairness and due process require the
presence of a mechanism to permit nonparties affected by the stay to petition the Court for relief.
Furthermore, the Courts decision denying LGEs, Acorns, and Zeniths requests to lift the stay
on the ground that the requests are premature at this early stage of the receivership (see infra part
III.B) should discourage a flood of motions by similarly-situated persons.
Appointment of Receiver, and Other Equitable Relief [Docket No. 70] at 2. Therefore, if, as the
movants, Receiver Kelley, and the United States apparently have assumed, the granting of a
motion to intervene for the limited purpose of requesting relief from the stay is a threshold event
that must occur before a nonparty can actually request that the stay be lifted, it would betray the
stated intent of the order staying litigation to now deny, under the guise of Rule 24, such
nonparties the ability to move the Court for relief from the stay.
LGEs, Acorns, and Zeniths motions to intervene for the limited purpose of requesting a
lifting of the stay of litigation are granted.2
B. Lifting of the Stay
As previously noted, the issue of whether the Courts previous orders should be modified
or amended to clarify that Polaroid is not subject to the stay of litigation has been resolved by the
Second Amended Order entered on December 8, 2006. The remaining issue, therefore, is
whether LGE, Acorn, and Zenith should be granted relief from the stay.
The Eighth Circuit has yet to articulate a standard to govern a district courts
3 The Third Circuit has also adopted the Wencke standard. See United States v. Acorn
Tech. Fund, L.P., 429 F.3d 438, 441 (3d Cir. 2005). And several district courts not bound by
either Wencke or Acorn Tech. have relied on the Wencke standard in considering whether to lift
a stay of litigation against a receivership estate. See S.E.C. v. Pittsford Capital Income Partners,
L.L.C., No. 06 Civ 6353, 2007 WL 61096, at *2 (W.D.N.Y. Jan. 5, 2007); F.T.C. v. 3R Bancorp,
No. 04 C 71772005 WL 497784, at *2 (N.D. Ill. Feb. 23, 2005); United States v. ESIC Capital,
Inc., 675 F. Supp. 1462, 1462 (D. Md. 1987).
consideration of whether to lift a stay of litigation imposed in connection with an action brought
under the Fraud Injunction Act, 18 U.S.C. 1345. Nonetheless, LGE, Acorn, Zenith, Receiver
Kelley, and the United States all suggest that the standard laid out by the Ninth Circuit in S.E.C.
v. Wencke, 622 F.2d 1363 (9th Cir. 1980) (Wencke I) and S.E.C. v. Wencke, 742 F.2d 1230,
1231 (9th Cir. 1984) (Wencke II) (collectively Wencke) should apply to the Courts
evaluation of the issue.3
Under the Wencke standard, a district court considers the following factors in deciding
whether to grant relief from a stay of litigation against a receivership and the assets subject to the
receivers control: (1) whether refusing to lift the stay genuinely preserves the status quo or
whether the [movant] will suffer substantial injury if not permitted to proceed; (2) the time in the
course of the receivership at which the motion for relief from the stay is made; and (3) the merit
of the [movants] underlying claim. Wencke II, 742 F.2d at 1231. The consideration of these
factors balances the interests of the receiver and the movant. On the one hand, the factors enable
a district court to remain mindful that (1) [t]he interests of the Receiver are very broad and
include not only protection of the receivership res, but also protection of defrauded investors and
considerations of judicial economy and (2) the purpose of a stay of litigation against the
receiver is to give the receiver a chance to do the important job of marshaling and untangling a
companys assets without being forced into court by every investor or claimant. Acorn Tech.,
4 Acorn argues that its position is unique, claiming that by virtue of its secured interest
in Polaroids assets, it has Fifth Amendment property rights that are being deprived by the stay
of litigation. Mem. in Supp. of Acorns Mot. to Intervene at 12-16. The Court fails to see how
Acorns alleged Fifth Amendment property rights have been deprived. First, the stay merely
temporarily delays Acorns ability to exercise its rights as a secured creditor; it does not amount
to a taking by stripping or depriving Acorn of its rights. Cf. In re Briggs Transp. Co., 780 F.2d
1339, 1342 (8th Cir. 1985) (holding that the bankruptcy codes automatic stay, which
429 F.2d at 443 (quoting Wencke II, 742 F.2d at 1231). In this regard, [a] district court should
give appropriately substantial weight to the receivers need to proceed unhindered by litigation,
and the very real danger of litigation expenses diminishing the receivership estate. Id.
(emphasis added). On the other hand, the factors ensure that there is an appropriate escape
valve, which allows potential litigants to petition the court for permission to sue so that such
individuals are not denied a day in court during a lengthy stay. Id. The burden is on the
movant to prove that the balance of the factors weighs in favor of lifting the stay. ESIC Capital,
675 F. Supp. at 1462-63.
For purposes of these motions, the Court will assume that LGEs, Acorns, and Zeniths
asserted claims are arguably colorable, and, for that reason, the third factor would support lifting
the stay. See id. at 444 (explaining that under the third factor a district court should determine
only whether a movant has asserted a colorable claim). Even having made such an
assumption, the Court is nevertheless convinced that the balance weighs in favor of denying the
motions to lift the stay. Refusing to lift the stay will preserve the status quo. Since Receiver
Kelley was appointed on October 6, 2008, he has dutifully identified, managed, and preserved
the assets for the best interests of all (creditors, claimants, and victims alike). In addition, the
Court is not persuaded that LGE, Acorn, and Zenith will suffer substantial injury by not being
permitted to immediately proceed with litigation against Polaroid.4 Furthermore, when a movant
temporarily delays a secured creditors right to enforce its lien on the collateral does not
constitute a taking). Furthermore, procedural due process is satisfied because Acorn has been
provided both notice of and an opportunity to be heard on the issue of whether the stay should be
modified or lifted to allow Acorn to proceed with its pending action against Polaroid.
seeks to lift a stay in the very early stages of a receivership, even the most meritorious claims
might fail to justify lifting a stay given the possible disruption of the receivers duties. Id. at
443-44. During these early stages, the receivers need to organize and understand the entities
under his control may weigh more heavily than the merits of [a movants] claim. Wencke I,
622 F.2d at 1373-74. Information before the Court reveals a complex matrix of more than
several dozen business entities and subsidiaries owned or controlled by the named defendants.
And the receiver has had little more than two months to begin to unravel these labyrinthine
entanglements. 3R Bancorp, 2005 WL 497784, at *3. Granting relief from the stay at this time
is therefore premature.
Without question, once the receivership estate is completed and a distribution is
contemplated, there will come a time for those claiming an interest in assets subject to the
receivership to make arguments regarding what preferences those interests should have in the
distribution scheme. But first, the receiver must be given full opportunity to marshal the assets
of the receivership estate and then preserve them. See S.E.C. v. Credit Bancorp, Ltd., 93 F.
Supp. 2d 475, 477 (S.D.N.Y. 2000) (holding that the preservation of the receivership estate is
paramount). The requests by LGE, Acorn, and Zenith for a lifting of the stay are denied.
As previously noted, the limited purpose for which LGE, Acorn, and Zenith sought to
intervene was to request relief from the stay of litigation. Inasmuch as the preceding discussion
provides the answer to those requests, there is no need for LGE, Acorn, and Zenith to continue to
be involved in this action, and thus, they are hereby dismissed as intervening parties to this case.
Based on the foregoing, and all the files, records and proceedings herein, IT IS
1. the motions by LGE, Acorn, and Zenith [Docket Nos. 79, 103, and 115] are
GRANTED as to the request to intervene for the requested, limited purpose;
2. the motions by LGE, Acorn, and Zenith [Docket Nos. 79, 103, and 115] are
DENIED as to the requests to clarify, modify, or lift the stay of litigation;
3. having denied the requests for relief from the stay of litigation, LGE, Acorn, and
Zenith are terminated as intervening parties in this action; and
4. LGEs Motion for Leave to File Reply Brief in Support of Motion to Intervene
[Docket No. 139] is DENIED.
s/Ann D. Montgomery
Dated: December 12, 2008.


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