Opinion ID: 777652
Heading Depth: 2
Heading Rank: 5

Heading: SECO's Opposing Contentions

Text: 31 SECO advances several contentions to defeat the authority of the District Court to order a pro rata distribution. None has merit. 32 U.C.C. claim. SECO contends that its claim should be governed by U.C.C. [Rev.] § 8-503(a) (1996), which states that all interests ... held by the securities intermediary ... for the entitlement holders, are not property of the securities intermediary, and are not subject to claims of creditors of the securities intermediary (emphasis added). But as the District Court noted in rejecting SECO's U.C.C. claim, U.C.C. [Rev.] § 8-503, Official Comment 1, states that in insolvency proceedings the applicable insolvency law governs. Credit Bancorp (Plan) I, 2000 WL 1752979, at . An insolvency proceeding is any assignment for the benefit of creditors or other proceedings intended to liquidate or rehabilitate the estate of the person involved. U.C.C. § 1-201(22) (1996). We agree with the District Court that receiverships are insolvency proceedings, and that the law of federal equity receiverships applies. 33 Bailment claim. SECO characterizes its transactions with CBL as involving the delivery of securities for the purpose of securing future loans or advances. Based on this characterization, SECO contends that its relationship with CBL was that of bailor and bailee, or pledgor and pledgee. SECO notes that under the law of bailment, as the District Court recognized, a bailee acquires only a possessory interests in the property pledged, while the bailor retains legal and equitable title. See Credit Bancorp (Plan) I, 2000 WL 1752979, at  ( `In a bailment relationship, title to the property remains in the bailor.') (quoting Ralph A. Veon, Inc. v. Hinks (In re Ralph A. Veon, Inc.), 12 B.R. 186, 189 (Bankr.W.D.Pa.1981)); Cornelius v. Berinstein, 183 Misc. 685, 50 N.Y.S.2d 186, 188 (N.Y.Sup.Ct.1944). SECO's argument fails, however, because, as described above, SECO transferred legal title to the Vintage Petroleum shares to CBL, and the law of bailment therefore does not apply. 34 Takings Clause claim. Whether or not a court's action in ordering a pro rata distribution among fraud victims is even cognizable under the Takings Clause, see Corporation of the Presiding Bishop v. Hodel, 830 F.2d 374, 381 (D.C.Cir.1987) (The question of whether courts, as opposed to legislative bodies, can ever `take' property in violation of the Fifth Amendment is an interesting and by no means a settled issue of law.), SECO has no such claim here. SECO transferred its shares into CBL accounts. It was that action that ultimately permitted the District Court to include the shares in the pro rata distribution.