Opinion ID: 201663
Heading Depth: 2
Heading Rank: 2

Heading: The Lovett Appellants and the Fairway Receivership

Text: 8 Another entity controlled by Kilberg, the Fairway Capital Corporation (Fairway), was also in receivership at the United States District Court for the District of Rhode Island, with the SBA appointed as receiver (Fairway Receiver). In December 2003, the Fairway Receiver filed a motion requesting that it be allowed to participate in civil proceedings against Kilberg and/or the Kilberg Entities. The motion claimed that there had been improper transfers of assets by Kilberg from Fairway to the Kilberg Entities. The Fairway Receiver also moved for partial consolidation of the Fairway receivership estate because Fairway owned two of the Kilberg Entities that had been deemed alter egos of Kilberg, Acropolis and Pantheon. The records used in support of the consolidation motion revealed transfers of funds between Acropolis and the other Kilberg Entities, between Acropolis and Fairway, and between Acropolis and Moneta. 9 On January 8, 2004, the District Court issued an order granting the Fairway Receiver's consolidation motion (Consolidation Order). The Consolidation Order included a finding that Fairway is the true owner of [Acropolis] and [Pantheon] and that Acropolis and Pantheon were alter egos of Fairway up to March 13, 2000. The Consolidation Order also authorized the Fairway Receiver to establish a supplemental claims procedure to allow creditors of Acropolis and Pantheon to make claims against the Fairway Receivership estate. 10 In a separate order, the district court found with regards to the Fairway Receivership that the remainder of the Kilberg Entities not addressed in the Consolidation Order were also alter egos of Kilberg and of each other, and that the Fairway Receiver may seek recovery from each of them on any valid claims it has against any one of them, or against Arnold Kilberg. Even though there was some indication that Moneta was involved in suspicious transfers with the Kilberg Entities, at no time was Moneta adjudicated an alter ego of the Kilberg Entities or of Fairway. 11 Suspecting that Moneta was indeed an alter ego of Fairway and/or the Kilberg Entities, the Lovett Appellants, all creditors of Fairway, sought to assert a claim against Moneta. Instead, however, of going through the process of trying to file a late claim with the Moneta Receiver, or requesting leave from the District Court to file a late claim, the Lovett Appellants chose to file an objection to the Moneta Claims Distribution Order. The district court dismissed the Lovett Appellants' objection to the Claims Disposition Order for lack of standing, stating that it is clear that the Lovett entities had not complied with the bar date as to Moneta; and, therefore, there's no claim pending, and there's nothing for the Lovett entities to object to. 12 The Lovett Appellants timely appealed and now present us with two arguments: first, they argue that they have standing to object to the Claims Disposition Order; and second, that the notice provided by the Moneta Receiver was insufficient. We address each argument in turn.
13 Article III of the Constitution confines the federal courts to deciding actual cases and controversies. Cotter v. City of Boston, 323 F.3d 160, 166 (1st Cir.2003). Part of this requirement is that a plaintiff must have standing, that is, he must establish that (1) he or she personally has suffered some actual or threatened injury as a result of the challenged conduct; (2) the injury can fairly be traced to that conduct; and (3) the injury likely will be redressed by a favorable decision from the court. N.H. Right to Life Political Action Comm. v. Gardner, 99 F.3d 8, 13 (1st Cir.1996). We review the district court's decision on standing de novo, crediting the plaintiff's factual allegations to the extent that they are material and construing those alleged facts, together with the reasonable inferences therefrom, in favor of the plaintiff. Id. at 12. 14 The challenged conduct at issue in this case is the disposition of the claims against the Moneta Receivership, as presented by the Moneta Receiver, and approved by the district court in the Claims Disposition Order. The Claims Disposition Order invited anyone who had claims being adjudicated by the order and was dissatisfied with the recommended disposition to object within thirty days of the order; otherwise, the disposition of the Moneta Receivership estate as to those claims would become final. 15 The Lovett Appellants did not make a claim to the Moneta Receiver prior to the Claims Bar Date, and therefore, they do not have standing to object to the adjudication of a pending claim in the Claims Disposition Order. Moreover, even though the Lovett Appellants may have not known prior to the Claims Bar Date that they possibly had a claim against the Moneta Receiver due to the complex nature of Fairway and Moneta's involvement with the Kilberg Entities, once such evidence began to surface, they did not attempt to file a late claim with the Moneta Receiver. And, with the newly-acquired evidence that they might have a claim against Moneta, the Lovett Appellants could have asked the district court directly to allow their late claim by presenting their theory that Moneta is an alter ego of the Kilberg Entities as its reasonable excuse for delay. See 3 Ralph E. Clark, A Treatise on the Law and Practice of Receivers § 652 (3d ed. 1959) (If a reasonable excuse for delaying to make an earlier claim is shown, the creditor will be admitted at any time before actual distribution, or even after partial payment, if there be a surplus in the hands of the receivers, so as not to interfere with payments already made.). What they could not do was file an objection to the Claims Disposition Order without having a claim that would be affected by that Order. See Claims Disposition Order (stating that any claimant who opposes the Receiver's recommended disposition of its claim  must file a motion within thirty days) (emphasis added). Such a claim is essential because it submits [the claimant] to the court's jurisdiction in respect of all defenses that might be made by the receivers, and of all objections that other claimants might interpose to the validity, amount, or priorities of their claim, and the claimant puts himself in a position, should his interest warrant, to challenge the receiver's acts and demands of other claimants or creditors. Clark, supra, § 626. And, despite the Lovett Appellants' contention, there is nothing in their objection to the Claims Disposition Order that can be construed as a motion for leave to file a late claim with the Moneta Receiver. The district court was correct to dismiss the Lovett Appellants' objection to the Claims Disposition Order for lack of standing.
16 The Lovett Appellants next contend that the Moneta Notice to Creditors did not provide them with fair and reasonable notice and an opportunity to be heard, in violation of the Due Process Clause of the Fourteenth Amendment to the United States Constitution. They argue that this is so because the Notice to Creditors did not alert claimants to the relationship between Moneta and certain Kilberg entities... so as to afford them a reasonable opportunity to submit claims against Moneta based on the conduct of those entities. This, however, is an argument that the Lovett Appellants must make to the district court in their request to file a late claim as evidence of their reasonable excuse for delay[]. The District Court correctly dismissed the Lovett Appellants' objection. 17