JAMES C. MAHAN, District Judge.
Presently before the court is receiver Robb Evans & Associates LLC's (the "receiver") motion for order compelling defendant Edwin Fujinaga ("defendant") to appear and show cause why he should not be held in contempt of court. (ECF No. 331). Defendant filed a response (ECF No. 334), to which the receiver replied (ECF No. 341).
Also before the court is relief defendant June Fujinaga's ("relief defendant") motion for leave to file state complaint. (ECF Nos. 356, 357). Plaintiff the Securities and Exchange Commission (the "SEC") filed a response (ECF No. 359), to which relief defendant replied (ECF No. 361).
Also before the court is relief defendant's motion for approval of budget and release of funds. (ECF No. 358). The SEC filed a response (ECF No. 362), to which relief defendant replied (ECF No. 364).
Also before the court is the SEC's motion for order directing defendant and relief defendant to vacate property and provide assistance to effectuate transfer of property. (ECF No. 363).
The instant case arises from a Ponzi scheme perpetrated by defendants Edwin Fujinaga and MRI International, Inc. Defendants collected hundreds of millions of dollars for purported investments in medical accounts receivable. Defendants used these funds to repay earlier investments as well as for their own personal expenses. By May 2013, defendants had entirely depleted the invested funds. (ECF No. 118).
Relief defendant June Fujinaga, defendant Edwin Fujinaga's wife, received investor funds to buy real estate. Certain real estate purchased with these proceeds is titled in the name of relief defendant the Yunju Trust. (ECF No. 118).
On September 11, 2013, the SEC filed a civil enforcement action against defendants and relief defendants. (ECF No. 2). On October 3, 2014, the court granted summary judgment in favor of the SEC on liability against defendants. (ECF No. 156). In the same order, the court denied relief defendants' motions to dismiss for lack of subject matter jurisdiction and failure to plead with specificity. (ECF No. 156).
On October 14, 2014, the court granted the parties' stipulation to extend discovery as to relief defendants. Pursuant to the stipulation, the court set a discovery deadline of April 3, 2015, and a dispositive motions deadline of May 3, 2015. (ECF No. 162).
On November 24, 2014, the SEC filed a motion for judgment against defendants. (ECF No. 178). On January 27, 2015, the court granted the motion, holding defendants (1) jointly and severally liable for $442,229,611.70 in disgorgement; (2) jointly and severally liable $102,129,752.38 in prejudgment interest; and (3) individually liable for civil money penalties of $20,000,000.00 each. (ECF No. 188). On the same date, the clerk entered judgment in favor of the SEC in the same amounts. (ECF No. 189).
On February 4, 2015, the SEC filed a motion to certify the court's judgment as final pursuant to Federal Rule of Civil Procedure 54(b). Defendants did not file a response, and the court granted the motion on February 25, 2015. (ECF No. 195). On April 20, 2015, the court denied defendants' motion to reconsider. (ECF No. 210). On May 20, 2015, defendants filed a notice of appeal. (ECF No. 227). On April 4, 2016, relief defendant filed a notice of appeal. (ECF No. 320).
As an initial matter, "[t]he filing of a notice of appeal is an event of jurisdictional significance—it confers jurisdiction on the court of appeals and divests the district court of its control over those aspects of the case involved in the appeal." Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58 (1982); see also Natural Resources Defense Council, Inc. v. Sw. Marine Inc., 242 F.3d 1163, 1166 (9th Cir. 2001) ("Once a notice of appeal is filed, the district court is divested of jurisdiction over matters being appealed.").
However, after the notice of appeal has been filed, the final judgment in an action for an injunction or a receivership, and any proceedings taken to enforce it, are not stayed. See Fed. R. Civ. P. 62(a). This exception also includes orders to pay disgorgement. See SEC v. Clark, 915 F.2d 439, 453 (9th Cir. 1990) ("The SEC's power to obtain injunctive relief has been broadly read to include disgorgement of profits realized from violations of the securities law.") (citations omitted).
Because the receiver's motion (ECF No. 331) and the SEC's motion (ECF No. 363) involve enforcing a receivership and/or an order to pay disgorgement, this court is the appropriate forum to decide the merits of these motions.
Further, the Ninth Circuit has recognized that the district courts have an inherent power to "preserve the status quo during the pendency of an appeal." Natural Resources Defense Council, Inc., 242 F.3d at 1166. Because the release of funds would diminish the funds available to compensate the victims and represent a change to the status quo of the case prior to a determination on appeal, this court is also the appropriate forum to decide the merits of relief defendant's motions (ECF Nos. 356, 358).
Notwithstanding, Federal Rule of Civil Procedure 62.1 additionally provides that if a motion is made for relief that the court lacks authority to grant because of an appeal that has been docketed and is pending, the court may:
Fed. R. Civ. P. 62.1(a).
On May 15, 2015, in the order appointing Robb Evans & Associates LLC as receiver, the court ordered in relevant part:
(ECF No. 226 at 2-10).
The receiver requests an order compelling defendant to show cause why he should not be held in contempt of court for maintaining a personal bank account (the "secret account") in secret during the past year and converting estate assets for his personal use in violation of the court's order (ECF No. 226 at 8 ¶16, 10 ¶23). (ECF No. 331 at 2-3). The receiver requests that the court enter the following orders:
(ECF No. 331 at 5-6).
In response, defendant contends that it was not his intention to open or maintain the Mutual of Omaha account as a "secret account" and that "[i]t is a matter of public record that the second check deposited to the account was a social security payment." (ECF No. 334 at 4). Defendant further asserts that "[n]ow that the Receiver has taken the $202,706.20 balance remaining in the Mutual of Omaha bank account, [he] is left with no funds of his own to pay for living expenses, including medical necessities." (ECF No. 334 at 4).
The court finds the receiver's requests to be within the scope of authority that the court granted the receiver in its order appointing receiver. (ECF No. 226). Defendant does not dispute the fact that he is in noncompliance with the court's previous orders, but rather contends that he did not open the account in secret.
In light of the foregoing, the court will grant in part and deny in part the receiver's motion. Specifically, the court will enter orders as to (B) through (G) of the receiver's requested orders, but deny its request for a show cause order without prejudice so as to give defendant an opportunity to comply with the court's instant order. Defendant shall have thirty (30) days from the entry of this order to comply with the receiver's requests, the specifics of which are detailed below. Defendant is cautioned that failure to comply with this order may result in contempt proceedings.
Relief defendant asserts that she "made lawful and legitimate loans to HMC Service Center, LLC, CSA Service Center, LLC, and Harmon Primary Care, LLC with funds that were cleared of any impropriety" by the IRS. (ECF No. 356 at 3-4). In particular, she claims that "she was absolved of any wrongdoing by the Department of Treasury Internal Revenue Service" and that from January 12, 2012, through December 31, 2013, she "made loans drawn from her retirement account as a secured party to: HMC Service Center, LLC, CSA Service Center, LLC, and Harmon Primary Care, LLC." (ECF No. 356 at 3). Relief defendant now seeks leave to pursue her "rightful claim to the funds she loaned from her retirement account." (ECF No. 356 at 4).
In response, the SEC asserts that "[t]hese funds are presently under the control of the [r]eceiver appointed by this [c]ourt, awaiting disbursement to a Fair Fund for the benefit of the investors defrauded by [r]elief [d]efendant Fujinaga's husband." (ECF No. 359 at 3). Moreover, the SEC argues that relief defendant fails to cite to any caselaw to support that she is entitled to such relief. (ECF No. 359 at 3). Further, the SEC contends that relief defendant's motion is an attempt to circumvent this court's prior decision by relitigating the issue of whether she had a legitimate claim to these funds as purported loan repayments. (ECF No. 359 at 5).
The court granted summary judgment against relief defendants June Fujinaga and the Yunju Trust and ordered relief defendants to pay $2,333,382.00 in disgorgement. (ECF No. 310). In the order appointing receiver, the court enjoined all persons with actual notice of the order from "filing or prosecuting any judicial action or proceeding of any kind, civil or criminal, pertaining to the assets or funds of the [d]efendants . . . except on leave having been granted by this [c]ourt." (ECF No. 226 at 8).
The funds relief defendant seeks to recover in her state court complaint are the same funds currently under the control of the receiver. Relief defendant provides no caselaw or arguments in support of her motion. Rather, the motion merely reasserts arguments previously rejected by the court.
Accordingly, the court will deny relief defendant's motion for leave to file a state complaint.
Relief defendant requests that the receiver either provide her with approximately $5,000.00 for various monthly expenses or pay her monthly expenses so that her credit rating does not suffer. (ECF No. 358 at 3).
In response, the SEC argues that relief defendant fails to address whether she is employed or if anything prevents her from obtaining employment so that she can pay for her personal expenses. (ECF No. 362 at 2). The SEC notes that relief defendant and her son will receive approximately $1,826.00 per month as social security direct deposits. (ECF No. 362 at 2). Further, the SEC asserts that relief defendant has access to these incoming funds to pay for her personal expenses because the receiver has unfrozen the account. (ECF No. 362 at 3).
The relief sought is within the authority of the receiver to grant or deny based on relevant considerations presented to the receiver. Accordingly, relief defendant's motion will be denied.
The SEC requests that the court order defendant and relief defendant to vacate the property located at 9009 Greensboro Lane, Las Vegas, Nevada (the "Greensboro property") and to provide any and all assistance to the receiver to effectuate the transfer of property. (ECF No. 363 at 4). The SEC asserts that defendant and relief defendant have refused to vacate the Greensboro property in contravention of the court's repeated orders (ECF Nos. 226, 346) on the issue. (ECF No. 363 at 3). Further, the SEC maintains that the receiver has sent several requests demanding that defendant and relief defendant vacate the property. (ECF No. 363 at 3-4).
On July 26, 2016, the court denied defendant's motion to stay the sale of his residential property located at 9009 Greensboro Lane, Las Vegas, Nevada, pending the conclusion of his civil and criminal proceedings. (ECF No. 346). The receiver sent a letter dated August 2, 2016, to counsel for both parties seeking access to conduct a site inspection and giving defendant and relief defendant until August 31, 2016, to vacate the premises. (ECF No. 363 at 3). The receiver sent a second letter dated September 16, 2016, giving them five days to vacate the Greensboro property. (ECF No. 363 at 3).
Defendant and relief defendant are to comply with the receiver's requests to the extent that such requests are consistent with the court's order appointing receiver. (ECF No. 226). In the event that defendant and relief defendant fail to comply with the receiver's requests, the receiver is the proper party to raise the issue to the court.
Accordingly, the court will grant in part and deny in part the SEC's motion. Specifically, defendant and relief defendant are to provide any and all assistance requested by the receiver in relation to the Greensboro property provided that such requests are in accordance with the authority granted to the receiver by the court's order appointing receiver.
Accordingly,
IT IS HEREBY ORDERED, ADJUDGED, and DECREED that receiver Robb Evans & Associates LLC's motion for order compelling defendant Edwin Fujinaga to appear and show cause why he should not be held in contempt of court (ECF No. 331) be, and the same hereby is, GRANTED IN PART and DENIED IN PART, consistent with the following:
Defendant is cautioned that failure to comply with the foregoing may result in civil contempt proceedings.
IT IS FURTHER ORDERED that relief defendant June Fujinaga's motion for leave to file state complaint (ECF No. 356) be, and the same hereby is, DENIED.
IT IS FURTHER ORDERED that relief defendant's motion for approval of budget and release of funds (ECF No. 358) be, and the same hereby is, DENIED.
IT IS FURTHER ORDERED that plaintiff SEC's motion for order directing defendant and relief defendant to vacate property and provide assistance to effectuate transfer of property (ECF No. 363) be, and the same hereby is, GRANTED IN PART and DENIED IN PART, consistent with the following: