## United States Court of App eals

F O R T H E E I G H T H C I R C U I T

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No. 1 0- 25 68

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Ri tc hi e Cap it al Man ag em en t, L.L.C.; *
Ri tc hi e Sp eci al Cred it Inv es tm en ts

, *
Ltd .; Rh on e Hol di ng s II , Ltd .; *

Yor kv il le Inv es tm en ts , I, LLC; an d *
Ri tc hi e Cap it al Str uc tu re Arb it rag e *
Trad in g, Lt d., *

* App el la nt s, *
* App eal fro m

th e Uni te d S ta te s

v. * Dis tri ct Co ur t fo r th e Dis tri ct of
* Mi nn es ot a. Mar y Jef fri es an d C am il le Ch ee-Awai

, *

*

* App el le es

. *

__ __ __ __ __ _

Su bm it te d: May 10, 2 01 1
Fi le d: Sep te m

be r 6, 2 01 1

__ __ __ __ __ _

Befo re WOL LMAN, BYE, and SHEPHERD, Circ ui t J ud ge s.

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BYE, Cir cu it Ju dg e.

Thi s cas e rep res en ts a fal lo ut fro m a $3 .65 bi ll io n Po nz i sc he m e pe rp et rat ed by

Mi nn es ot a bu si ne ss m an Tho m as J. Pet te rs

. Ri tc hi e Cap it al Man ag em en t, LLC, an d

th e ot he r ap pe ll an ts (co ll ect iv el y , Ri tc hi e) are in ve st m en t fu nd s who

, li ke ot he r
cred it o r s of Pet te rs an d hi s co m pa ni es , in cu rred su bs ta nt ia l lo ss es as a res ul t ofpa rti ci pa ti ng in Pet te rs ’s in ve st m en t sc he m e. Neit he r Pet te rs no r hi s com pa ni es are

na m ed a s d efen da nt s in th e pr es en t act io n, ho wev er. In st ead

, Ri tc hi e is su in g two

of fic ers of Pet te rs ’s co m

pa ni es , Mar y Je ffri es an d Cam il le Ch ee-Awai

, al le gi ng th ey

as si st ed Pet te rs in ge tt in g Ri tc hi e to lo an ov er $1 00 m il li on to PGW by rep res en ti ng

th e lo an s wou ld be ad eq ua te ly se cu red by th e as se t s o f th e Po la ro id Co rp or at io n.

Ri tc hi e’s fiv e-co un t co m pl ai nt al le ge s vi ol at io ns of th e Ra c k e te er In flu en ced an d

C o r r u pt Org an iz at io ns Act (RIC O), se e 18 U.S.C. § 19 62 (a), (c)- (d ), co m m on l a w
frau d, an d t or ti ou s i nt erfe ren ce wi th th e co nt ract

.

The om is si on of Pet te rs an d hi s co m pa ni es fro m th e c a s e cap ti on is no t

acci de nt al

. The y were pl aced in th e rece iv ers hi p pr oc eed in gs , whi ch are st il l on go in g

in th e Dis tri ct of Mi nn es ot a, an d th e rece iv ers hi p co ur t pr oh ib it ed co m m en cem en t of

an y ne w act io ns “ in te rfer [in g] wit h th e ex c l u s i v e juri sd ic ti on of [th e rece iv ers hi p

co ur t] ov er th e as se ts or do cu m en ts of Defen da nt s,” ab se nt le av e of th e co ur t. Ri tc hi e

th ou gh t i t c o u ld bypas s th is an ti -s ui t in jun ct io n if it su ed ot he r in di vi du al s who

, it

al le ge d, were act iv el y in vo lv ed in t h e frau d. The di st ric t co ur t di sa gr eed

, an d

di sm is se d Ri tc hi e’s cas e on acco un t of th e rece iv ers hi p co ur t’s an ti -s ui t in jun ct io n.
The pre se nt ap pe al fol lo wed

.

W e fin d th e di st r i c t c o ur t erre d in co nc lu di ng Ri tc hi e’s act io n was ba rred by

th e Rec ei ve rs hi p Ord er. Co ns id ered on a te xt ua l le ve l, t h i s or de r di d no t ba r al l

act io ns th at m erel y cal le d for int er pr et at io n of do cu m en ts in th e rece iv er’s po ss es si on

un le ss th is ex erci se ul ti m at el y t hr eat en ed th e rece iv ers hi p as se ts

. Nor di d th e

rece iv ers hi p c ou rt ha ve th e po wer to cas t it s an ti -s ui t in jun ct io n ne t th at br oa dl y
be cau se it s e q u i t a bl e po wers were ci rcu m sc rib ed by it s du ty to pr ot ect th e

rece iv ers hi p as se ts

. W e al so reject Je ffri es ’s an d Ch ee-Awai ’s al te rn at iv e arg um en t

ch al le ng in g th e su ffi ci en cy of Ri tc hi e’s pl ead in gs in th e co m m on la w frau d co un t an d

ch oo se no t to ad dr es s th ei r arg um e nt s rel at ed to ab st en ti on , la ck of cau sa ti on , an d

ab so lu te pr iv il eg e. Acco rd in gl y , we re v e r s e th e jud gm en t of th e di st ric t co ur t an d

rem an d fo r fu rth er p ro ceed in gs

.

-2

-I

Bac kg ro un d In

fo rma ti on

. Und ers ta nd in g th is cas e req ui res a ba si c fam il ia rit y
wit h th e cas t of ch arac te rs i n v o l v ed th erei n. The two m ai n co m pa ni es own ed by

Pet te rs were Pet te rs Gro up W or ld wid e, LLC (PGW) and Pe tte rs Co m pa ny , In c. (P CI).

“ PCI was th e ve nt ur e cap it al arm of th e Pet te rs en te rp ris es th at ut il iz ed si ng le pu rp os e

en ti ti es to ob ta in bi ll io ns of do ll ars of fu nd in g, pu rp or te dl y to acq ui re m erch an di se

fo r sa le to who le sa le rs an d ret ai le rs na ti on wid e. PGW he ld in ve st m en ts in nu m ero us

co m pa ni es , an d it s pr in ci pa l as se t was it s st oc k in Po la ro id .” Ri tc hi e Sp eci al Cred it

In vs ., Ltd

. v. U.S. Trus te e, 62 0 F.3 d 84 7, 85 0 (8 th Ci r. 20 10 ). Po la ro id Co rp or at io n,
who se as se ts were cov et ed by Ri tc hi e, was in di rect ly a who ll y -o wne d su bs id ia ry of

PGW

. The two de fen da nt s na m ed in th e pr es en t cas e are Mar y Je ffri es , th e Pres id en t

of PGW

, th e Ch ie f Ope rat in g Offi cer of PGW an d PCI, an d th e Ch ie f Exe cu ti ve
Offi cer of Po la ro id

, an d Cam il le Ch ee-Awai

, th e Ch ie f Exe cu ti ve Offi cer of Pett ers Cap it al , LLC, PGW ’s su bs id ia ry

.

Acco rd in g to Ri tc hi e, Je ffri es a n d C he e-Awai co ns pi red wit h Pet te rs , “ th e

pr in ci pa l co ns pi rat or ,” Co m pl

. ¶ 1, to in du ce Ri tc hi e to l o a n P GW well ov er $1 00

m il li on an d th en de pr iv e it of it s se cu rit y in te res t in Po la ro id

. In m ak in g it s de ci si on

to pr ov id e fin an ci ng to PGW in Feb ru ary 20 08 an d th en to ex te nd m at ur it y da te s on

th e no te s in May th ro ug h Sep te m be r 20 08

, Ri tc hi e al le ge dl y rel ie d on Je ffri es ’s an d

Ch ee-Awai ’s rep res en ta ti on s as to th e ex is te nc e, va lu e, an d ex cl us iv it y of it s se cu rit y

in te res t i n Po la ro id an d th e le gi ti m at e na tu re of Pet te rs ’s bu si ne ss es in ge ne ral

. In te rp ret in g Ill in oi s la w to al lo w fo r crea ti on of a va li d se cu rit y in te res t on th e ba si s

of ora l ag reem en ts al on e, Ri tc hi e rel ie s o n t he se rep res en ta ti on s t o a ss ert a se cu rit y

in te res t in Po la ro id as se ts da ti ng ba ck to Ri tc hi e’s fir st lo an to PGW on Feb ru ary 1,

20 08

.

Yet, Ri tc hi e ap pa ren tl y di d no t be li ev e in th e po wer of a writ te n wor d. Rat he r

th an de m an di ng fro m Pet te rs a fu ll -fl ed ge d w r it te n co m m it m en t reg ard in g th e

-3

-se cu rit y in te res t in Po la ro id fro m th e be gi nn in g, Ri tc hi e ex te nd ed it s fir st $3 1 m il li on

lo an on th e st ren gt h of P e t t e r s ’s pe rs on al gu aran ty al on e. The n, on Feb ru ary 19

, 20 08

, Ri tc hi e en te red in to th e Not e Pu rch as e Agr eem en t wit h Pet te rs an d PGW

, in

whi ch Pet te rs al so ag reed to “ en de av or , as so on as reas on ab ly pr act ic ab le

, to se cu re

th is Not e

. . . by a pl ed ge of 10 0% of t h e c a p i t al st oc k of Po la ro id .” Co m pl

. ¶ 58

. Ri tc hi e’s in te res t in cert ai n Po la ro id as se ts was fin al ly m em or ia li zed on Sep te m be r

19

, 20 08

, whe n Ri tc hi e an d Pet te rs ex ecu te d ag reem en ts ex te nd in g m at ur it y da te s on

cert ai n no te s ev id en ci ng PGW ’s ob li ga ti on s to Ri tc hi e. Bec au se Po la ro id was pl aced

un de r th e ba nk ru pt cy pr ot ect io n le ss th an th ree m on th s la te r, ho wev er, th at fo rm al

gr an t of the se cu rit y in te res t m ig ht pr ov e to be to o li tt le to o la te

. Thi s is so be cau se

it is vu ln erab le to be in g a tt ack ed as a pre fere nt ia l t ran sf er.

Recei ver sh ip Acti on

. On Sep te m

be r 24

, 20 08

, jus t fiv e da y s afte r Ri tc hi e go t

Pet te rs to fo rm al ly as si gn th e se cu rit y in te res t in Po la ro id

, th e fed eral au th or it ie s

ex ecu te d se arch warra nt s at PCI’s pr em is es an d at Pet te rs ’s h o u s e

. On Octo be r 2,

20 08

, th e go ve rn m en t co m m en ced an act io n pu rs ua nt to th e Frau d In jun ct io n St at ut e,

18 U.S.C. § 13 45

, to pr es erv e th e as se ts he ld by PCI, PGW

, an d ot he r rel at ed en ti ti es , in cl ud in g P ol aro id , in th e ev en t th ey are or de red to pa y res ti tu ti on to th e v ic ti m s o f

th e al le ge d frau d sc he m e. See Uni te d St at es v. Pet te rs , No. 08 -5 34 8 (D. Mi nn

. 20 08 )
(Mo nt go m ery, J.). Pu rs ua nt to th e p a r ti es ’ st ip ul at io n, th e co ur t en te red th e

pr el im in ary in

jun ct io n free zi ng t h e as se ts of th e na m ed de fen da nt s an d ap po in ti ng

Dou gl as Kell ey as a Rec ei ve r, wit h br oa d po wers of cu st od y , co nt ro l, an d po ss es si on

of th e rece iv ers hi p en ti ti es ’ as se ts

. The co ur t ret ai ne d ex cl us iv e juri sd ic ti on of th e

m at te r fo r al l pu rp os es , an d en joi ne d “ [a]ny an d al l act io ns th at wou ld in te rfer e wit h

th e ex cl us iv e juri sd ic ti on of th is Co ur t ov er th e as se ts or do cu m en ts of Defen da nt s.”
App el la nt A p p ’x at 96 -9 7. The an ti -s ui t pr ov is io n of th e or de r was ph ras ed rat he r
br oa dl y an d b y it s t erm s ap pl ie d t o t hi rd pa rti es :

[E]xcep t by le av e of th is Co ur t, du rin g pe nd en cy of th e

rece iv ers hi p or de red he re in

, Defen da nt s, an d al l in ve st or s, cred it or s,

-4

-st oc kh ol de rs , le ss or s, cu st om ers an d ot he r pe rs on s se ek in g to es ta bl is h

or en fo rce an y cl ai m, r i g ht

, or in te res t ag ai ns t or on be ha lf of
Defen da nt s, an d al l ot he rs act in g fo r or on be ha lf of su ch pe rs on s (ex cep t th e Rec ei ve r), are he reb y en joi ne d fro m ta ki ng act io n th at wou ld
in te rfer e wit h th e ex cl us iv e juri sd ic ti on of th is Co ur t ov er the as se ts or do cu m en ts of De fen da nt s, i nc lu di ng bu t n ot li m it ed to :

. . . D. In it ia ti ng an y ot he r pr oc es s or pr oc eed in g th at wou ld in te rfer e wit h t he Rece iv er’s m an ag in g o r ta ki ng cu st od y , con tro l o r po ss es si on of th e as se ts or d oc um en ts su bjec t t o t hi s R ecei ve rs hi p[ .]

App el la nt App ’x at 9 5- 96

.

Twice aft er t he Rec ei ve rs hi p Ord er was en te red , Rit ch ie so ug ht to in te rv en e,

ur gi ng th e rece iv ers hi p co ur t to ex em pt PGW an d it s who ll y -o wne d s u b si di ary

Po la ro id fro m th e as se t free ze. Bo th ti m es , th e di st ric t co ur t di sa ll owe d th e

in te rv en ti on on acco un t of un ti m el in es s a n d fai lu re to es ta bl is h th e de ni al of

in te rv en ti on wou ld im

pa ir Ri tc hi e’s ab il it y to pr ot ect it s in te res ts

. The Eig ht h Ci rcu it

affi rm ed th e ru li ng s. See Uni te d St at es v. Ri tc hi e Sp eci al Cred it In vs ., Ltd

., 62 0 F.3 d

82 4 (8 th Cir . 20 10 ).

Cr imi na l Acti on

. In Decem be r 20 08

, a fed eral gr an d jury ret ur ne d an

in di ct m en t ag ai ns t Pet te rs , PCI, an d PGW on ch arg es o f m ai l frau d, wire frau d,

m on ey la un de rin g, a n d co ns pi racy to co m m it th e sa m e of

fen se s. Pet te rs was

co nv ic te d of th e twen ty ch arg es ag ai n s t h im an d se nt en ced to fif ty y ears ’

im pr is on m en t. The ap pe al fro m hi s co nv ic ti on s a nd se nt en ce is cu rren tl y pe nd in g
be fo re th is co ur t. See Uni te d St at es v. Tho m as Pet te rs , No. 10 -1 84 3 (8 th Ci r., arg ue d

Feb . 17 , 20 11 ).

Pol ar oi d’ s Ban kr u p tc y Acti on

. On Decem

be r 18

, 20 08

, th e Rec ei ve r fil ed a
vol un ta ry pe ti ti on fo r rel ie f un de r Ch ap te r 11 of th e Ban kr up tc y Co de (la te r co nve rt ed

in to Ch ap te r 7) on be ha lf o f Po la ro id , am on g o th er Re cei ve rs hi p e nt it ie s. See In r e

-5

-Po la ro id Co rp ., No. 08 -4 66 17 ( B a n k r

. D

. Mi nn ., fil ed Dec. 18

, 20 08 ). Kell ey was

ap po in te d as Ch ap te r 11 tru st ee fo r PGW an d PCI. In th a t cap aci ty, Kell ey 1

co m m en ced an ad ve rs ary pr oc eed in g ag ai ns t Ri tc hi e se e k i n g to se t as id e Ri tc hi e’s

li en s ag ai ns t Po la ro id as frau du le nt an d pr efer en ti al tra ns fers

. In th is pr oc eed in g, he

m ai nt ai ne d t ha t “ li te ral ly d ay s be fo re or aft er th e Po nz i s ch em e co ll ap se d, Ri tc hi e .

. . or ch es tra te d a se rie s of tra ns act io ns ta rg et ed at se cu rin g th e va lu e of Po la ro id an d

ot he r as se ts own ed or co nt ro ll ed by T ho m as Pet te rs in a fin al -h ou r at te m pt to sh or e

up , con ceal an d c ov er m il li on s o f do ll ars in lo ss es .” App el le es App ’x at 1 16

.

Ri tc hi e vi go ro us ly di sp ut ed Kell ey ’s acco un t of ev en ts

. It co un te red Po la ro id

was ne ve r in ne ed of ba nk ru pt cy pr ot ect io n an d “ Je ffri es ’s an d Kell ey ’s so le pu rp os e

in pl aci ng Po la ro id in to ba nk ru pt cy was a ba d fait h att em

pt to vo id [Ri tc hi e’s] (an d

ot he rs ’) se cu rit y in te res ts in Po la ro id .” Co m pl

. ¶ 10 9. In th e ad ve rs ary-pro ceed in g

co un te rcl ai m , Ri tc hi e so ug ht a de cl arat io n th at it s se cu rit y in te res t in cert ai n Po la ro id

as se ts was va li d, ad va nc in g m an y of th e sa m e al le ga ti on s th at are rai se d in th e pr es en t

co m pl ai nt

.

The ba nk ru pt cy co ur t au th or iz ed th e sa le of Po la ro id as se ts un en cu m be red by

Ri tc hi e’s li en , bu t pr ov id ed fo r at ta ch m en t of Ri tc hi e’s li en , to th e ex te nt it is

de te rm in ed to be va li d, to th e pr oc eed s of th e sa le

. Acco rd in g to Ri tc hi e’s co m pl ai nt

in th e pr es en t cas e, th e ba nk ru pt cy co ur t al lo wed th e sa le to pro ceed ba se d, in pa rt,

on th e swo rn affi da vi t of Je ffri es av erri ng th at “ Ri tc hi e in ve st ed at le as t $1 46 m il li on

in to PCI as pa rt of th e frau du le nt Po nz i sc he m e,” an d th at “ at no ti m e d i d Ri tc hi e

in ve st in

, or ad va nc e an y fu nd s to Po la ro id or to PGW fo r th at m at te r.” Co m pl

. ¶ 11 1.

In ex ch an ge for

he r “ co op erat io n wi th Kell ey ’s pl an s to fo rfei t PGW’ s as se ts to th e

Ri tc hi e ob

je c t e d t o Kell ey ’s ap po in tm en t as a tru st ee, arg ui ng hi s ro le as a 1

Rec ei ve r in th e rece iv ers hi p act io n di sq ua li fie d hi m fro m th e ap po in tm en t as a

co m m on tru st ee of th e joi nt ly ad m in is te red es ta te s in th e b a n k r u p t c y co ur t. The
ba nk ru pt cy ov erru le d Ri tc hi e’s ob jecti on , an d th is co ur t affi rm ed

. Ri tc hi e Sp eci al
Cred it Inv s., Ltd ., 62 0 F .3d at 8 56

.

-6

-Gov ern m en t,” R i t c hi e’s th eo ry pr oc eed s, Je ffri es was al lo wed to ret ai n a m il li on

do ll ar b on us sh e h ad rece iv ed fro m PCI. Co m

pl . ¶ 11 2. 2

Po la ro id ’s ad ve rs ary co m pl ai nt ag ai ns t Ri tc hi e a n d on e of Ri tc hi e’s two

co un te rcl ai m s ag ai ns t Po la ro id rem ai n pe nd in g in th e ba nk ru pt cy co ur t, awai ti ng th e
de ci si on on a m ot io n fo r su m m ary jud gm en t fi le d b y

th e Tru st ee.

Dis tr ic t Co ur t Pro ceed in gs

. Una bl e to in te rv en e in th e rece iv ers hi p act io n an d

no t ha vi ng m

uc h lu ck in th e ba nk ru pt cy fo ru m , Ri tc hi e fil ed th is cas e al le gi ng RICO

vi ol a t i o n s , co m

m on la w frau d, an d to rti ou s in te rfer en ce wit h a co nt ract ag ai ns t

Je ffri es an d Ch ee-Awai

. The de fen da nt s m ov ed to di sm is s th e cas e cl ai m in g, am on g

ot he r th in gs , t ha t th e an ti -s ui t pr ov is io n in t h e R e c e iv ers hi p Ord er ba rred Ri tc hi e’s

act io n. Th e d is tri ct co ur t ag reed , no ti ng :

[I]t is ob v i o u s th at th e gr av am en of th [e] Co m pl ai nt al le ge s [PGW] in co nju nc ti on wit h th e de fen da nt s frau du le nt ly in du ced th em to

e x t e n d lo an s in ex ch an ge fo r Po la ro id ’s se cu rit y in te res ts

. In or de r t o ad dr es s th e pl ai nt iff

s’ cl ai m , th is Co ur t wou ld ne ces sa ril y be req ui red to

co ns ul t an d in te rp ret Pet te rs G r o u p W or ld wid e’s lo an do cu m en ts an d
fin an ci al st at em en ts

, do cu m en ts ex pr es sly gove rn ed by the Rec ei ve rs hi p Ord er, an d s pe ci fic al ly m en ti on ed in th e p la in ti ffs ’ co m pl ai nt

.

App el la nt App ’x at 7 3- 74

.

Si nc e Ri tc hi e ha d fil ed it s op en in g br ie f, Kell ey , act in g as a tru st ee in th e PCI 2

ba nk ru pt cy cas e, co m

m en ced cl awb ack act io ns ag ai ns t bo th Je ffri es an d Ch ee-Awai

req ue st in g di sg or ge m en t of al l pr oc eed s rece iv ed th ro ug h th e op erat io n of th e Po nz i

sc he m e. See Kell ey v. Je ffri es , No . 1 0- 44 00 (Ban kr . D. M i nn ., fi le d Oct. 8, 20 10 );
Kell ey v. Ch ee-Awai , No. 1 0- 43 98 (Ban kr . D. Min n., fi le d Oct . 8, 2 01 0)

.

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-II

W e rev ie w th e di st ric t co ur t’s di sm is sa l of Ri tc hi e’s act io n de no vo , ta ki ng al l

fact s al le ge d in th e co m

pl ai nt as tru e. Troo ie n v. Man so ur , 60 8 F.3 d 10 20

, 10 26 (8 th

Ci r. 20 10 ). To th e ex te nt Ri tc hi e ch al le ng es th e rece iv ers hi p co ur t’s au th or it y to

en te r th e an ti -s ui t in

jun ct io n, we rev ie w th e rece iv ers hi p co ur t’s ex erci se of po wer fo r
ab us e of di sc ret io n. SEC v. Hick ey , 32 2 F.3 d 11 23

, 11 28 (9 th Ci r. 20 03 ); se e al so
Lib ert e Cap it al Grp

. v. Cap wil l, 46 2 F.3 d 54 3, 55 1- 53 (6 th Ci r. 20 06 ) (em ph as iz in g

th e b read th of t he rece iv ers hi p c ou rt’s p owe rs in en te rin g a n a nt i-s ui t i nju nc ti on ).

A

In de ci di ng whe th er th e an ti -s ui t in jun ct io n in th e Rec ei ve rs hi p Ord er pr ev en ts

th is li ti ga ti on , we st art wit h it s te xt

. The p r o v i s i on in qu es ti on ap pl ie s to “ al l

in ve st or s , cred it or s

. . . se ek in g to es ta bl is h or en fo rce an y cl ai m , rig ht

, or in te res t

ag ai ns t or on be ha lf of Defen da nt s,” am on g ot he r cl as se s of pe op le

. App el la nt App ’x

at 95

. Bec au se “ Defen da nt s” in th e rece iv ers hi p c a s e i n c l u de PGW an d “ an y
affi li at es , su bs id ia rie s, di vi si on s, su cces so rs , or as si gn s own ed 10 0% or co nt ro ll ed ”
by th e rece iv ers hi p de fen da nt s, App el la nt App ’x at 80

, cred it or s se ek in g to es ta bl is h

an in te res t in Po la ro id

, PGW ’s who ll y -o wne d su bs id ia ry , fal l with in th e pu rv ie w of

th is cla us e. Rit ch ie is on e o f su ch cred it or s.

Thi s i s n ot th e en d of ou r te xt ua l an al y si s, h owe ve r. Even su it s af fect in g t he

rece iv ers hi p de fen da nt s do no t ru n afo ul of t h e an ti -s ui t in jun ct io n un le ss th ey

“ in te rfer e wit h th e Rec ei ve r’s m an ag in g or tak in g c us to dy, con tro l o r po ss es si on of

th e as se ts or d oc um en ts su bjec t t o t hi s R ecei ve rs hi p.” App el la nt App ’x at 9 6. The

pa rti es ag ree Ri tc hi e’s act io n ag ai ns t Je ffri es an d Ch ee-Awai do es no t in te rfer e wit h

th e as se ts of th e rece iv ers hi p as su ch

, bu t di sa gr ee on wha t it m ean s to “ in te rfer e wit h

th e Rec ei ve r’s m an ag in g o r ta ki ng cu st od y , con tro l o r po ss es si on of . . . do cu m en ts

su bjec t to th is Rec ei ve rs hi p.” W hi le Ri tc hi e arg ue s fo r a li te ral in te rp ret at io n of th e

-8

-ph ras e fo cu si ng on th e Rec ei ve r’s ph y si cal po ss es si on of th e do cu m en ts

, Je ffri es an d

Ch ee-Awai ur ge a m or e fu nc ti on al ap pr oa ch e nc om pa ss in g no t on ly ph y si cal

po ss es si on of t he rece iv ers hi p d oc um en ts bu t al so th ei r in te rp ret at io n.

W e th in k Ri tc hi e’s vi ew is m or e lo y al to th e te xt of th e Rec ei ve rs hi p Ord er. Qui te si m

pl y , th e or de r do es no t men ti on th e in te rp re ta ti on of th e rece iv ers hi p
do cu m en ts as on e of th e ev il s it was in te nd ed to pr ev en t. Je ffri es ’s an d Ch ee-Awai ’s

su gg es te d co ns tru ct io n wou ld req ui re th e co ur t to read th e ne w wor d in to th e se nt en ce
wit ho u t an y si gn th e co ur t in te nd ed it to be th ere. Cf. Ju ng v. Gen

. Cas

. Co

. of

W is co ns in

,

__

_ F.3 d

__

_, 20 11 W L 34 44 5 6 6

, a t * 3 (8 th Ci r. 20 11 ) (ref us in g to

“ read [] a requ ire m en t i nt o t he st at ut e th at si m pl y is no t t he re”)

.

Nor do es th e su gg es te d co ns tru ct io n fit in th e ov eral l sc he m e of th e se nt en ce.

See Uni te d St at es v. St an ko

, 49 1 F.3 d 40 8, 41 6 (8 th Ci r. 20 08 ) (d es cri bi ng th e m ax im

of no sc it ur a so ci is

, un de r whi ch “ a wor d is kn own by th e c o m pa ny it ke ep s” )
(in te rn al qu ot at io n m ark s an d c it at io n o m it te d) . The s y nt act ic fun ct io n o f th e no un

“ do cu m en ts ” is th e sa m e as th at of th e no un “ a s s e t s”
– bo th are in di rect ob jects

fo ll owi ng th e wor ds “ Rec ei ve r’s m an ag in g or ta ki ng cu st od y , co nt ro l or po ss es si on .”

Acco rd in gl y , th e in te rp ret at io n of th e se nt en ce su gg es te d by Je ffri es an d Ch ee-Awai

wou ld tra ns la te in to th e co ur t’s m on op ol y ov er th e in te rp ret at io n of al l do cu m en ts in

th e Rec ei ve r’s m an ag em en t, cu st o d y, c on tro l, or po ss es si on

. It wou ld dr as ti cal ly

ex pa nd th e sc op e of th e an ti -s ui t in jun ct io n to pr ev en t su it s be twee n un rel at ed pa rti es ,
reg ard le ss of th ei r effe ct on th e r e cei ve rs hi p as se ts

, whe ne ve r a su it cal ls fo r th e

in te rp r e t at io n of th e do cu m en ts whi ch ha pp en ed to be in th e po ss es si on of th e

rece iv ers hi p e nt it y . W e th in k s uc h i nt erp ret at io n g oe s t oo far.

Rat he r, we read th e se nt en ce to pr oh ib it ph y si cal in te rfer en ce wit h do cu m en ts

in th e Rec ei ve r’s m an ag em en t cu st od y , po ss es si on or co nt ro l, in wha te ve r m ed iu m

. In te rp ret in g i nt erfe ren ce wi th do cu m en ts in a ph y si cal se ns e is al so co ns is te nt wit h

th e rece iv ers hi p co ur t’s di rect iv e to st ay al l ci vi l di sc ov ery whi le th e pr el im in ary

-9

-in

jun ct io n is in effe ct

. Of co ur se , if th e in te rp ret at io n of do cu m en ts ha s th e po te nt ia l

of affe ct in g th e Rec ei ve r’s “ m an ag in g or ta ki ng cu st od y , co nt ro l or po ss es si on ” of th e

rece iv ers hi p as se ts

, th e cas e wou ld fal l wit hi n th e an ti -s ui t in jun ct io n by vi rtu e of it s

in te rfer en ce wit h th e rece iv ers hi p as se ts

. Thi s is no t th e cas e he re, si nc e no ne of th e

rece iv ers hi p de fen da nt s are na m ed in th e su it

. And si nc e no pa rty arg ue s th e pr es en t

act io n in te rfer es wit h th e Rec ei ve r’s po ss es si on of an y do cu m en ts li te ral ly, Ri tc hi e’s

su it is no t fo recl os ed by the an ti -s ui t i nju nc ti on in th e Rec ei ve rs hi p Ord er.

B

Eve n if we se t as id e th e te xt ua l in te rp ret at io n of th e Rec ei ve rs hi p Ord er, we are
sk ep ti cal of th e rece iv ers hi p co ur t’s po wer to pr eem pt al l act io ns cal li ng fo r th e

in te rp ret at io n of “ do cu m en ts su bjec t to t h i s R ecei ve rs hi p.” W ha te ve r th e pr eci se

sc op e of th is cat eg or y of act io ns , it is si gn ifi can tl y br oa de r an d m or e am or ph ou s th an

t h e gr ou p of act io ns affe ct in g th e as se ts of th e rece iv ers hi p. A fed e r a l c o u r t

su pe rv is in g an eq ui ty rece iv ers hi p ha s in he ren t eq ui ta bl e au th or it y to is su e a va rie ty

of an ci ll ary rel ie f to pr ot ect th e rece iv ers hi p an d, tru e en ou gh

, th e sc op e of th at rel ie f

is no t li m it ed to pa rti es be fo re th e c o u rt. SEC v. W en ck e, 62 2 F.2 d 13 63 , 1 36 9- 71
(9 th Ci r. 19 80 ). Perm is si bl e an ci ll ary rel ie f in cl ud es is su an ce of or de r s i m po si ng
bl an ke t st ay s of li ti ga ti on , in or de r to gi ve th e rece iv er “ a ch an ce to do th e im po rta nt job of m ars ha li ng an d un ta ng li ng a co m pa ny’ s as se ts wit ho ut be in g fo rced in to co ur t by ev ery in ve st or or cl ai m an t.” Uni te d St at es v. Aco rn Tech

. Fu nd

, LP, 42 9 F.3 d 43 8,

44 3 (3 d Ci r. 20 05 ). Bu t th e co ur t’s po wer to st av e of f su it s by th ird pa rti es tu rn s on

th es e su it s’ ab il it y to de pl et e th e res of th e rece iv ers hi p es ta te

. SEC v. By ers , 60 9

F.3 d 87

, 93 (2 d Ci r. 20 10 ); Lib ert e Cap it al Gro up , LLC

, 4 6 2 F .3d at 55 1- 52

. The

co ur t’s eq ui ta bl e po wers do no t reac h cas e s t ha t po se no th reat to th e as se ts of th e

rece iv ers hi p. Cf. SEC v. Ch eri f, 93 3 F.2 d 40 3, 41 3- 14 (7 th Ci r. 19 91 ) (h ol di ng

pr ov is io ns of th e Secu r i ti es Exc ha ng e Act of 19 34 co ns tru ed to au th or iz e th e co ur t

to gr an t eq ui ta bl e rel ie f ne ces sa ry to effe ct ua te th e pu rp os es of th e Act, se e 15 U.S.C.

-1 0-§ 78 u( d)

, (e), do no t au th or iz e th e free ze on th e as se ts of a no n

- p a r ty who ha s no t

be en accu se d o f vi ol at in g a ny secu rit ie s l aws ).

In th is res pe ct

, eq ui ta bl e po wers of th e rece iv ers hi p co ur t are si m il ar to po wers

of th e ba nk ru pt cy co ur t to im po se an au to m at ic st ay pu rs ua nt to 11 U.S.C. § 36 2( a).

“ The go al in bo th se cu rit ie s- frau d rece iv ers hi ps an d li qu id a t i o n b an kr up tc y is

id en ti cal
– th e fai r di st rib ut io n of th e li qu id at ed as se ts .” SEC v. W eal th Mg m t. LLC,

62 8 F.3 d 32 3, 33 4 (7 th Ci r. 20 10 ). The ba nk ru pt cy co ur t can st ay act io ns ag ai ns t an y

pa rty, ev en a no n- de bt or , whe ne ve r th e ob jecti ve of th e act io n is to ob ta in po ss es si on

or ex erci se co nt ro l ov er th e de bt or ’s pr op ert y

. See 11 U.S.C. § 36 2( a)(3 ). Unl es s a

cas e in vo lv es un us ua l ci rcu m st an ces , ho wev er, th e ba nk ru p t c y co ur t can no t ha lt

li ti ga ti on by no n- de bt or s, “ ev en if th ey are in a si m il ar le ga l or fact ua l ne xu s wit h th e
de bt or .” Cro y de n Ass oc s. v. All eco , In c., 96 9 F.2 d 67 5, 67 7 (8 th Ci r. 19 92 ) (q uo ti ng

Mar it im e Elec

. Co

. v. U n i t e d Je rs ey Ban k, 95 9 F.2 d 11 94

, 12 05 (3 d Ci r. 19 92 ));

Sav -A-Tri p, In c. v. Be lfo rt, 1 64 F.3d 11 37 , 11 39 (8t h C ir. 1 99 9)

.

The un us ua l ci rcu m st an ces in whi ch th e ba nk ru pt cy co ur t c a n st ay cas es

ag ai ns t no n- de bt or s are rare

. Rel ia nt Ene rg y Serv

., In c. v. Enro n Can ad a Co rp ., 34 9

F.3 d 81 6, 82 5 (5 th Ci r. 20 03 ). The y typic a l l y ari se whe re “ th ere is su ch id en ti ty

be twee n th e de bt or an d th e th ird -p art y de fen da nt th at th e de bt or m ay be sa id to be th e
real pa rty de fen da nt an d th at a jud gm en t ag ai ns t th e th i r d

- pa rty de fen da nt wil l in

effe ct be a jud gm en t or fin di ng ag ai ns t th e de bt or .” McC art ne y v. In te gr a Nat’l Ban k

N., 10 6 F.3 d 50 6, 51 0 (3 d Ci r. 19 97 ) (in te rn al qu ot at io n m ark s an d ci ta ti on om it te d) ;

se e al so A.H. Rob in s C o. v . Pic ci ni n, 78 8 F.2d 99 4, 9 99 (4t h C ir. 1 98 6) (in di cat in g

a s t a y u n d e r § 36 2( a)(1 ) m ay ap pl y to no n- de bt or whe re, fo r ex am pl e, a th ird pa rty

i s en ti tl ed to ab so lu te in de m ni ty by th e de bt or on acco un t). In ot he r wor ds

, t h e

au to m at ic st ay wil l app ly to no n- de bt or s on ly whe n “ a cl ai m ag ai ns t th e no n- de bt or
wil l ha ve an im m ed ia te ad ve rs e eco no m ic co ns eq ue nc e fo r th e de bt or ’s es ta te .”

-1 1-Que en ie

, Ltd

. v. Ny ga rd In t’l, 32 1 F.3 d 28 2, 28 7- 88 (2 d Ci r. 20 03 ) (li st in g act io ns as

de bt or ’s gu aran to rs or in su rers as ex am pl es of pe rm is si bl e or de rs of st ay ag ai ns t no nde bt or s)

.

The un us ua l-c irc um st an ce ex cep ti on is no t im pl ic at ed whe re, as he re, th e ne w

li ti ga t i o n h a s n o po te nt ia l im pa ct on th e ba nk ru pt en ti ty. Bec au se no rece iv ers hi p
de fen da nt is na m ed in Ri tc hi e’s act io n an d no ne is in pr iv it y wit h J e f f r i es or Ch eeAwai, th e co ur t’s fin di ng s in th e pr es en t cas e can no t ha ve a bi nd in g effe ct on Pet te rs

or ot he r rece iv ers hi p de fen da nt s. Ty us v. Sch oe m eh l, 93 F.3 d 44 9, 45 3 (8 th Ci r.

19 96 ), ab ro ga te d on ot he r gr ou nd s by Tay lo r v. St ur ge ll

, 55 3 U.S. 88 0 (2 00 8)

. Thu s, jus t li ke th e ba nk r u p t c y c o u r t co ul d no t st ay Ri tc hi e’s act io n un de r § 36 2, th e

rece iv ers hi p c ou rt h ad no po wer t o p rev en t Ri tc hi e’s su it fro m go in g fo rward

. 3

III

Rea so ni ng in th e al te rn at iv e, Je ffri es an d C he e-Awai att ack th e co m m on law

frau d co un t in Ri tc hi e’s co m pl ai nt on th e gr ou nd s i t f a i ls to pl ead th at Je ffri es an d

Ch ee-Awai ha d no in te nt io n to gr an t Ri tc hi e th e se cu rit y in te res t in Po la ro id pr io r to

Thi s is no t to sa y th e di st ric t co ur t co ul d no t de ci de to di sm is s or st ay Ri tc hi e’s 3

act io n on rem an d to av oi d du pl ic at iv e li ti ga ti on

. In de pe nd en t fro m an y po wer of th e

rece iv ers hi p co ur t to fo res ta ll pr os pe ct iv e act io n s by t hi rd pa rti es , t he di st ric t co ur t h a s th e au th or it y to refu se to he ar th is cas e if it rai se s is su es th at su bs t a n t i a l l y du pl ic at e th os e rai se d by a cas e pe nd in g in an ot he r co ur t. See Uni te d St at es v. Ri ce, 60 5 F.3 d 47 3, 47 6 (8 th Ci r. 20 10 ) (ci ti ng C o lo

. Ri ve r W at er Co ns erv at io n Dis t. v. Uni te d St at es , 42 4 U.S. 80 0, 81 7 (1 97 6) ); Orth m an n v. App le R iv er Cam pg ro un d,

In c., 76 5 F.2 d 11 9, 12 1 (8 th Ci r. 19 85 ) (ad op ti ng th e fir st -to -fi le ru le ); se e al so Cad le
Co

. v. W ha ta bu rg er of Ali ce, In c., 17 4 F.3 d 59 9, 60 3 (5 th Ci r. 19 99 ). Bec au se th e di st ric t co ur t is “ or di na ril y be tt er po si ti on ed th an [th e co ur t of ap pe al s] to weig h an d
ba la nc e” abs te nt io n- rel at ed fact or s, Bu rn et t v. Ph y si ci an ’s Onl in e, In c., 99 F.3 d 72

, 76 (2 d Cir. 1 99 6) , we exp res s n o v ie w on th e p ro pr ie ty of di sm is si ng or s ta y in g t he

act io n o n a bs te nt io n g ro un ds

.

-1 2-Ri tc hi e’s de ci si on to ex te nd th e fir st lo an

. Ri tc hi e ha d to pl ead th e ab se nc e of in te nt

, 4

th e arg um en t g oe s, be cau se it s th eo ry of co m m on la w frau d was ba se d on

m is rep res en ta ti on s as to a fu tu re ac t.

As an in it ia l m at te r, it is un cl ear whe th er Je ffri es an d Ch ee-Awai at t a c k th e

co m pl ai nt un de r Ru le 9( b) or Ru le 12 (b )(6 ) of th e Fed eral Ru le s of Ci vi l Pro ced ur e.

See Arazi e v. Mu ll an e, 2 F

. 3 d 1 4 56

, 14 64 -6 5 (7 th Ci r. 19 93 ) (tr eat in g th e two

st an da rd s as di ffer en t); bu t se e Pat el v. Co nt em po rary Cl as si cs of Bev erl y Hil ls

, 25 9

F.3 d 12 3, 12 5 (2 d Ci r. 20 01 ) (n ot in g th at

, si nc e Ru le 9( b) do es no t au th or iz e a m ot io n

to di sm is s, co ur ts ha ve us e d R u l e 12 (b )(6 ) to en fo rce it s st an da rd s)

. If it is th e

fo rm er, th ere is no do ub t Rit ch ie ’s co m pl ai nt sa ti sf

ie s th e req ui rem en t to pl ead “ th e
who

, wha t, whe n, whe re, an d ho w: th e fir st pa rag rap h of an y ne wsp ap er s t or y .”

Su m m erh il l v. Term in ix

, In c., 63 7 F.3 d 87 7, 88 0 (8 th Ci r. 20 11 ) (in te rn al qu ot at io n

m ark s a n d c i ta ti on om it te d)

. The co m pl ai nt is fif

ty pa ge s in le ng th

, an d in cl ud es

fact ua l de ta il s of th e al le ge d frau du le nt pl ot

, i n c l u d i n g in di vi du al s in vo lv ed

, da te s
whe n th e al le ge d m is rep res en ta ti on s to ok pl ace, an d t h e med iu m ov er whi ch th ey

oc cu rred

. The se al le ga ti on s ful fil l th e go al of Ru le 9( b) to “ en ab le th e de fen da nt to

res po nd sp eci fic al ly an d qu ic kl y to th e po te nt ia ll y da m ag in g al le ga ti on s,” Uni te d

St at es ex rel

. J o s h i v

. S t. Luk e’s Hos p., In c., 44 1 F.3 d 55 2, 55 6 (8 th Ci r. 20 06 )
(in te rn al qu ot at io n m ark s an d ci ta ti on om it te d)

, an d Ru le 9( b) req ui res no th in g m or e.

Je ffri es an d Ch ee-Awai al so arg ue th e co un t fai ls to al le ge a su ffi ci en t cau sa l 4

co nn ect io n bet ween th ei r rep res en ta ti on s an d Rit ch ie ’s de ci si on to ex te nd th e lo an s whe re Ri tc hi e se tt le d fo r a pe rs on al gu aran t y f r o m Pet te rs in ex ecu ti ng a writ te n
ag reem en t. Bec au se Je ffri es an d C he e-Awai di d n ot pro pe rly rais e th is is su e in th e di st ric t co ur t (th ey m en ti on it fo r th e fir st ti m e in th ei r rep ly br ie f), we de cl in e to ad dr es s it

. McC la in v. Am

. Eco no m y In s. Co

., 42 4 F.3 d 72 8, 73 4 n.2 (8 th Ci r. 20 05 ).

W e li ke wis e r e f

u s e t o ad dr es s th e m eri ts of Je ffri es ’s an d Ch ee-Awai ’s ab so lu te

pr iv il e g e a r g u men t m en ti on ed in th ei r br ie f on ly by way of a fo ot no te

. Koe hl er v. Bro dy, 483 F.3d 59 0, 5 99 (8t h C ir. 2 00 7)

.

-1 3-Je ffri es ’s an d Ch ee-Awai ’s ch al le ng e fare s no b e t t e r i f it is in te rp ret ed as an

at ta ck on Ri tc hi e’s co m

pl ai nt in a tra di ti on al Ru le 12 (b )(6 ) se ns e. It is in de ed bl ack

le tt er la w th at a “ rep res en ta ti on of th e m ak er’s own in te nt io n to do or no t t o d o a

pa rti cu la r th in g is frau du le nt if he do es no t ha ve th at in te nt io n” at th e ti m e he m ak es

th e m is rep res en ta t io n. See Res ta te m en t (Sec on d) of Tort s § 53 0( 1) ; se e al so

Van de pu tt e v. So de rh ol m , 21 6 N.W .2d 14 4, 14 7 (Mi nn

. 19 74 ) ( s ta ti ng a

rep res en ta ti on as to fu tu re act s is no t act io na bl e un le ss th e pr om is or ha d no in te nt io n

to pe rfo rm at th e ti m e th e pr om is e was m ad e). Howev er, un de r Ru le 9( b) ap pl ic ab le

to co mm o n l a w f

rau d cl ai m s, “ [m ]alic e, in te nt , k no wled ge , a nd ot he r co nd it io ns of

a pe rs on ’s m in d m ay be al le ge d ge ne ral ly.” Fed

. R

. C i v

. P

. 9( b) ; se e In re 20 07

Nov as ta r Fi n. In c., Secs

. Lit ig

., 57 9 F.3 d 87 8

, 8 8 2 (8 th Ci r. 20 09 ) (s ta ti ng th at

, in

co nt ras t to act io ns br ou gh t un de r th e Pri va te Secu rit ie s Lit iga tio n Re fo rm Act, reg ul ar

frau d cl ai m s are su bjec t to th e pl ead in g st an da rd s of Ru le s 8( a) an d 9( b) on ly). The

co ur t m us t dr aw reas on a b l e i n fere nc es in fav or of th e no nm ov in g pa rty, an d th e

m ot io n t o d is m is s u nd er Ru le 12 (b )(6 ) is ap pr op ria te on ly whe n “ it ap pe ars be y on d

do ub t th at th e pl ai nt iff can pr ov e no se t of fact s in su pp or t of hi s cl ai m whi ch wou ld

en ti tl e hi m to rel ie f.” Mo se s.co m Secs

., In c. v. Com pr eh en si ve So ftwa re Sy s., Inc.,

40 6 F.3 d 10 52

, 10 62 (8 th Ci r. 20 05 ) (in te rn al qu ot at io n m ark s an d ci ta ti on om it te d)

.

Ri tc hi e’s co m

pl ai nt sa ti sf

ie s th es e req ui rem en ts

. It op en s with th e al le ga ti on

th at Pet te rs , Je ffri es an d Ch ee-Awai en te red in to a “ frau du le nt sc he m e

. . . to de pr iv e

th e Pl a i nt iff

s

. . . of th e be ne fit s of va lu ab le se cu rit y in te res ts in on e of th e wor ld ’s

m os t-r eco gn iz ed co m

pa ni es , Po la ro id Co rp or at io n (‘Pol aro id ’).” Co m pl

. ¶ 1. “ Afte r

Pl ai nt iff s m ad e th e lo an s,” th e co m pl ai nt co nt in ue s, “ Defen da nt s an d th ei r

co

- c o ns pi rat or s sc he m ed to de frau d Pl ai nt iff s ou t of th e be ne fit of th os e se cu rit y

in te res ts .” Id

. Afte r en um erat in g va rio us co m m un ic at io ns be twee n Ri tc hi e, Pet te rs , Je ffri es , and Ch ee-Awai , th e co m pl ai nt reca ps :

50

. In earl y

20 08 , th e g lo ba l cr ed it cri si s ca us ed Pet te rs an d t he
de fen da nt s to ex pe rie nce dif fi cu lty in obt ai nin g ad di ti on al fin an ci ng

. By
earl y Feb ru ary 20 08

, th is la ck of ne w cap it al le d Pet te rs to us e Po la ro id

-1 4-to at tra ct ad di ti on al m on ey

. Kno win g th at Po la ro id ha d be en pl ed ge d to

Pl ai nt iff s, Defen da nt s en ga ge d i n a n e la bo rat e sc he m e to de la y an d
de pr iv e P l a in ti ffs of th e be ne fit s flo win g fro m th ei r ba rg ai ne d- fo r

se cu rit y in te res ts in Po la ro id so th at th ey m ig ht ob ta in ad di ti on al fu nd s fro m ot he r le nd ers by fraud ul en tl y re-p le dg in g t he Po la ro id ass et s.

. . . 5 8

. Alm os t im m ed ia te ly [aft er JP Mo rg an ’s lo an was pa id of f ],
Defen da nt s be ga n a ga m e of “ ke ep away” in co nn ect io n wit h th e Pl ai nt iff s’ ba rg ai ne d- fo r in te res ts

. On Feb ru a r y 1 9

, 20 08

, Pl ai nt iff s

en te red in to th e Not e Pu rch as e Agr eeme n t wit h Pet te rs an d PGW

co ve rin g Pl ai nt iff

s’ $3 1 m il li on lo an an d ot he r lo an s m ad e by Pl ai nt iff s

an d rel at ed in ve st m en t fu nd s. Alt ho ug h th e J P M or ga n li en on th e Po la ro id st oc k an d as se ts ha d be en rel eas ed

, Pet te rs rem ai ne d pe rs on al ly
ob li ga te d on th e lo an s. In ad di ti on to PGW ’s pr om is e to gr an t a se cu rit y in te res t in Po la ro id as co ll at eral fo r Pl ai nt iff s’ lo an s, th e no te ev id en ci ng Pl ai nt iff s’ $3 1 m il li on lo an to PGW al so co nt ai ne d th e fo ll owi ng cl au se :

Th i s N ot e is gu aran te ed pe rs on al ly by Tho m as J. Pet te rs , th e own er of al l of th e is su ed an d ou ts ta nd in g st oc k of th e Bo rro wer; pr ov id ed

, ho wev e r , th at th e pa rti es sh al l

en de av or , as so on as reas on ab ly pr act ic ab le

, to se cu re th is

Not e (al on g wit h al l ot he r Not es of th is tra nc he

, pa ri pa ss u) by a pl ed ge of 10 0% of th e cap it al s t o c k of Po la ro id
Hol di ng Co m

pa ny, LLC an d t h e cap it al st oc k of it s on e hu nd red pe rcen t s ub si di ary th e Po la ro id Co rp or at io n .

. . .

59

. Unb ek no wns t to Pl ai nt iff s, Pet te rs an d Defen da nt s ha d no in te nt io n to “ en de av or ” to pl ed ge to Pl ai nt iff s th e cap it al st oc k of

Po la ro id Hol di ng Co m

pa ny, L LC or Po la ro id Co rp or at io n.

Co m pl . ¶¶ 50 , 58 -5 9.

Para gr ap h 59 of it s co m

pl ai nt al le ge s Pet te rs , Je ffri es , an d Ch ee-Awai ha d no

in te nt to “ en de av or ” to pl ed ge th e cap it al st oc k of Po la ro id to Ri tc hi e. Je ffri es an d

Ch ee-Awai ack no wled ge th is pa rag rap h “ co m es cl os e” to sa ti sf y in g th e in te nt -at -th eti m e-o f-p ro m is e el em en t of frau d, bu t co nt en d it rel at es on ly to th e i n te nt of

-1 5-co co ns pi rat or s as of Feb ru ary 19

, 20 08

, whe n Ri tc hi e en te red in to th e Not e Pu rch as e

Agr eem en t wit h Pet te rs refe ren ced in th e pr eced in g Para gr ap h 58

. W hi le th e te xt of

Para gr ap h 59 us es th e sa m e wor d “ en de av or ” th at was us ed in th e Feb ru ary 19

, 20 08

,
ag reem en t refe ren ce d i n P a r a g rap h 58

, it do es no t on it s face co nt ai n an y te m po ral

li m it at io ns

. The re is li ke wis e no te m po ral li m it at io n in co un t fo ur of th e co m pl ai nt

, whi ch ch arg es Je ffri es an d Ch ee-Awai “ sc he m ed to de pr iv e Pl ai nt iff s of th e be ne fit s

of th os e se cu rit y in te res ts in Po la ro id by frau du le nt ly co nc eal in g

. . . Defen da nt s’ an d

th ei r co -co ns pi rat or s’ pl an s to pl ed ge an d th e p l e d g e of Po la ro id as co ll at eral to

ob ta in fro m th ird pa rti es fu nd s an d ot he r be ne fit s fo r P o l aro id

, PGW an d/ or PCI.”

Co m pl

. ¶ 14 0. C o mb i n e d, th es e al le ga ti on s su pp or t an in fere nc e th at Je ffri es an d

Ch ee-Awai ne ve r in te nd ed to pl ed ge Po la ro id as c ol la te ral for Rit ch ie ’s lo an s.

Att em pt in g to di sp el th is in fere nc e, Je ffri es an d C h e e

- A wai po in t to th e

co m pl ai nt al le ga ti on st at in g, “ [a]fter on e of Pl a i n t i f f s ’ fu nd s wire d th e in it ia l $3 1

m il li on to pa y JP Mo rg an , Defen da nt s an d th ei r co -co ns pi rat or s in it ia te d a sc he m e to

de pr iv e Pl ai nt iff

s of the be ne fit s of th ei r se cu rit y in te res t in Po la ro id .” Co m pl

. ¶ 4.

W e do no t read th is st at em en t as an ti th et ic al to th e in fere nc e th at Je ffri es an d Ch eeAwai ha d no in te nt to act on th ei r pr om is es fro m th e be gi nn in g of th ei r de al in gs wit h

Ri tc hi e. Rat he r, th e st at em en t fo cu se s on a di ffer en t t i me f r a me – it rel at es to th e

pa rti es ’ act io ns aft er ob ta in in g th e fir st lo an – an d is in te nd ed to un de rs co r e th e

va li di ty of Ri tc hi e’s se cu rit y in te res t in Po la ro id on ce it ex te nd ed th e fir st lo an to

PGW

. As a fin al po in t, we al so ob se rv e th e co m m on -la w frau d co un t res ts no t on ly

up on Je ffri es ’s an d Ch ee-Awai ’s m is rep res en ta ti on s p r i o r t o Feb ru ary 1, 20 08

, bu t

al so up on th ei r m is rep res en ta ti on s in th e m on th s th at fo ll o w e d

. It is in rel ia nc e on

th e s e m is rep res en ta ti on s, arg ue s Ri tc hi e, th at it ex te nd ed ad di ti on al lo an s to PGW

an d gr an te d ad di ti on al e x t e n s i o n s o n th e m at ur it y da te s of th es e lo an s. In su m , we

fin d n o m eri t i n J effr ie s’s an d C he e-Awai ’s alt ern at iv e ag ru m en t.

-1 6-IV

Fo r th es e reas on s, we rev ers e th e jud gm en t of th e di st ric t co ur t an d rem an d fo r

fu rth er p ro ceed in gs

.

__ __ __ __ __ __ __ __ __ __ __ __ __

-1 7-