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Kelley v. JPMorgan Chase & Co.

United States District Court, D. Minnesota

April 9, 2018

Douglas A. Kelley, in His Capacity as the Court-Appointed Receiver of Thomas Joseph Petters; Petters Company Inc., aka PCI; Petters Group Worldwide LLC; ., Plaintiff,
v.
JPMorgan Chase & Co., JPMorgan Chase Bank, N.A., One Equity Partners LLC, Jacques A. Nasser, Lee M. Gardner, Charles F. Auster, James W. Koven, Rick A. Lazio, J. Michael Pocock, William L. Flaherty, Ira H. Parker, Defendants. and Ritchie Special Credit Investments, Ltd., Rhone Holdings II, Ltd., Yorkville Investment I, L.L.C., Ritchie Capital Structure Arbitrage Trading, Ltd., Ritchie Capital Management, Ltd., Ritchie Capital Management, L.L.C., Movants.

          Douglas L. Elsass and Lori A. Johnson, Nilan Johnson Lewis PA, K. Jon Breyer, Lindquist & Vennum LLP, Kevin M. Magnuson and Steven E. Wolter, Kelley, Wolter & Scott, P.A., for Plaintiff.

          John R. McDonald, Benjamin E. Gurstelle, and Kevin M Decker, Briggs & Morgan, PA, Alan Craig Turner, David J. Woll, Isaac Martin Rethy, Joshua C. Polster, and Thomas Charles Rice, Simpson Thacher & Bartlett LLP, for Defendants.

          Patrick H. O'Neill, Jr, Larson King, LLP, for Movants.

          MEMORANDUM OPINION AND ORDER

          SUSAN RICHARD NELSON, UNITED STATES DISTRICT JUDGE

         This matter is before the Court on the Appeal/Objection (“Objection”) [Doc. No. 56] of Movants Ritchie Special Credit Investments, Ltd., Rhone Holdings II, Ltd., Yorkville Investment I, L.L.C., Ritchie Capital Structure Arbitrage Trading, Ltd., Ritchie Capital Management, Ltd., Ritchie Capital Management, L.L.C. (all collectively, “Ritchie”) to United States Magistrate Judge Hildy Bowbeer's Order dated January 2, 2018 (“Jan. 2 Order”) [Doc. No. 54] denying Ritchie's Motion to Intervene in the present suit. For the reasons stated herein, Ritchie's Objection is overruled.

         I. BACKGROUND

         The facts underlying this lawsuit stem from the well-known Ponzi scheme orchestrated by Minnesota businessman Thomas Petters. See, e.g., United States v. Petters, 663 F.3d 375, 380-86 (8th Cir. 2011) (affirming Petters's conviction and 50-year sentence). As the magistrate judge's January 2 Order thoroughly sets forth the facts underlying Ritchie's Motion to Intervene, this Court recites here only the facts necessary to contextualize, and rule on, Ritchie's Objection.[1]

         A. Collapse of Petters's Ponzi Scheme

         For nearly twenty years, Petters operated a massive, multi-billion dollar Ponzi scheme through which he defrauded a myriad of investors. See Id. at 379. This Ponzi scheme collapsed in 2008 after one of Petters's employees contacted law enforcement. Id. On September 24, 2008, federal agents raided Petters's offices and subsequently arrested him on October 3, 2008. See Kelley v. JPMorgan Chase & Co., 464 B.R. 854, 856 (D. Minn. 2011). The collapse of Petters's Ponzi scheme has led to a host of litigation, as described below.

         B. Legal Actions Generally

         1. The Receivership and Bankruptcy Cases

         Immediately before Petters's arrest, the Government commenced a civil action pursuant to the Fraud Injunction Statue, 18 U.S.C. § 1345, to freeze Petters's assets and those of the entities he controlled in order to preserve them for victim restitution and forfeiture were Petters and the entities ultimately convicted in the criminal proceedings. (See Compl. Permanent Inj. & Other Equitable Relief, United States v. Petters, No. 08-cv-5348 (ADM/TNL) (hereinafter Receivership Proceedings) (D. Minn. Oct. 2, 2008), ECF No. 1.) These proceedings are often termed the “Receivership Proceedings” in Petters-related litigation. After first granting an ex parte temporary restraining order, on October 6, 2008, the Honorable Ann Montgomery entered a preliminary injunction and later appointed Douglas A. Kelley (“Kelley”), the Plaintiff here, as an equity receiver (“Receiver”) for Petters, two of his companies-Petters Company, Inc. (“PCI”) and Petters Group Worldwide (“PGW”)-as well as several entities owned and controlled by those corporations. (See Order Entry Prelim. Inj., Order Appointing Receiver, & Other Equitable Relief, Receivership Proceedings (D. Minn. Oct. 6, 2008), ECF No. 12.) After several amendments, Judge Montgomery's order (“Receivership Order”) also stayed all litigation against Petters, his corporations, and the Receivership assets, except for claims asserted in the criminal suit or later filed in bankruptcy proceedings. (See Second Am. Order Entry Prelim. Inj., Appointment of Receiver, & Other Equitable Relief, Receivership Proceedings (D. Minn. Dec. 8, 2008), ECF No. 127.)

         Shortly after entry of the Receivership Order-Kelley, in his capacity as Receiver, filed for Chapter 11 bankruptcy for PCI and PGW and their affiliates. See Kelley, 464 B.R. at 857. Kelley was then appointed as Chapter 11 Bankruptcy Trustee for the PCI and PGW bankruptcy estates. Id. In his capacity as Bankruptcy Trustee, Kelley has filed hundreds of adversary proceedings to try to recover fraudulent transfers and stolen funds. Id.

         2. The Petters Criminal Case

         In December of 2009, a jury convicted Petters of 20 counts of fraud, conspiracy, and money laundering, and a court within this district sentenced him to 50 years of incarceration. See Petters, 663 F.3d at 380. Petters's sentence also included a personal money judgment in the amount of $3, 522, 880, 614.10. (See Sentencing J., United States v. Petters, No. 08-cr-364 (RHK/AJB) (D. Minn. Apr. 8, 2010), ECF No. 400 at 6.) The district court declined to order restitution to Petters's victims, however, citing, in part, the extreme difficulty associated with the restitution process in the case and the complexity of the fact-finding that it would require. See United States v. Petters, No. 08-cr-364 (RHK/AJB), 2010 WL 2291486, at *5 (D. Minn. June 3, 2010). The court noted that the Government could proceed through the remission process instead in order to attempt to recompense Petters's fraud victims. Id.

         3. Coordination Agreement Between the Government, Bankruptcy Trustee, and Receiver

         In August of 2010, in light of their competing claims to the property associated with Petters's fraud, the Government and Kelley-in his capacities as both Receiver and Bankruptcy Trustee-entered into an agreement to coordinate their efforts (the “Coordination Agreement”). Recognizing that there was a “significant overlap of identity between victims of the fraud and creditors of the PCI Estates and the PGW Estates, ” the parties sought “to maximize recovery to victims and creditors and minimize receivership and bankruptcy expenses through the coordination of their respective efforts for the victims and creditors.” (Coordination Agreement, Receivership Proceedings (D. Minn. Aug. 18, 2010), ECF No. 1351-1 at 4.) The parties acknowledged that ‚Äúcompeting litigation would result in the overall diminishment of the recovery for victims and creditors alike and undue delay in the distribution of ...


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