Opinion ID: 2803670
Heading Depth: 3
Heading Rank: 1

Heading: Subject Matter Jurisdiction Under the CEA

Text: Cornelius first argues that the CEA does not authorize a receiver to bring state fraudulent transfer claims in federal court against third-party recipients of Ponzi scheme funds. We start with the CEA. Section 13a-1 authorizes the CFTC to bring civil actions in federal court to enjoin violations of the CEA or “to enforce compliance with this chapter, . . . and said courts shall have jurisdiction to entertain such actions.” 7 U.S.C. § 13a-1(a). Among other things, the statute allows a court to prohibit by restraining order the transfer or disposal of assets and to appoint a temporary receiver to administer such an order or “perform such other duties as the court may consider appropriate.” Id; see also SEC v. Vescor Capital Corp., 599 F.3d 1189, 1194 (10th Cir. 2010) (“[T]he district court has broad powers and wide discretion to determine relief in an equity receivership.” (quoting SEC v. Safety Fin. Serv., Inc., 674 F.2d 368, 372–73 (5th Cir. 1982)) (internal quotation marks omitted)). In addition to the CEA, federal law provides receivers a broad grant of authority to sue in federal court to enforce rights over receivership property. 28 U.S.C. § 754. But the statutory scheme does not prevent a receiver from also pursuing state-law claims in federal court. In fact, the general grant of federal question jurisdiction under the CEA brings with it the power to hear “all other claims that are so related to” the original claim as to “form part of the same case or -5- controversy.” 28 U.S.C. § 1367(a). Under this provision and 28 U.S.C. § 754, a receiver may bring ancillary state-law claims against entities alleged to have received unlawful payments. See Peacock v. Thomas, 516 U.S. 349, 356 (1996) (“[W]e have approved the exercise of ancillary jurisdiction over a broad range of supplementary proceedings involving third parties to assist in the protection and enforcement of federal judgments . . . .”); Donell v. Kowell, 533 F.3d 762, 769 (9th Cir. 2008) (holding that § 1367 allowed a receiver to bring a UFTA claim in federal court against a third party under ancillary jurisdiction where the primary lawsuit presented a federal question); Scholes v. Lehmann, 56 F.3d 750, 753 (7th Cir. 1995) (holding that § 1367 allowed a receiver to bring a claim under a state fraudulent transfer act against third parties under ancillary jurisdiction where the primary lawsuit charged the violation of federal securities laws). A suit is ancillary to a receiver’s appointment if it “seeks to accomplish the ends sought and directed by the suit in which the appointment was made.” Eberhard v. Marcu, 530 F.3d 122, 129 (2d Cir. 2008) (quoting Tcherepnin v. Franz, 485 F.2d 1251, 1255–56 (7th Cir. 1973)). Here, the district court enjoined Winsome from violating the CEA and tasked Klein with various responsibilities needed to enforce the injunction. The court not only ordered him to preserve or increase Winsome’s assets, but also empowered him to sue in order to do so—a routine order well within the broad range of remedial functions allowed under § 13a-1. Moreover, it is clear that the -6- state-law claim against Cornelius is ancillary to the court’s injunction against Winsome’s violation of a federal statute, as well as the court’s appointment of Klein to preserve Winsome’s assets and recover improper payments: insofar as Klein alleges that Winsome improperly paid Cornelius, his present claim seeks to accomplish the goals of his appointment. We accordingly conclude the district court had subject matter jurisdiction to resolve Klein’s UFTA claim. 1 In resisting this conclusion, Cornelius argues that any relief against third parties must be achieved through either (1) 7 U.S.C. § 13a-2, which empowers state attorneys general to sue on behalf of their defrauded residents, or (2) 7 U.S.C. § 25, which provides a direct cause of action under the CEA for defrauded investors. But Klein is not acting directly on behalf of Winsome’s investors. He is suing on Winsome’s own behalf. Cornelius next points to the Third Circuit’s decision in CFTC v. American Metals Exchange Corp., 991 F.2d 71, 78 (3d Cir. 1993). He argues it holds that a 1 Cornelius also challenges the district court’s authority to grant equitable relief by ordering him to return the funds, but this argument is without merit. Courts exercising equity jurisdiction have available a full range of equitable remedies. See CFTC v. Wilshire Inv. Mgmt. Corp., 531 F.3d 1339, 1344 (11th Cir. 2008) (holding an “unqualified grant of statutory authority” to issue injunctive relief under the statute also confers authority to issue a “full range of equitable remedies,” including restitution); FTC v. LoanPointe, LLC, 525 F. App’x 696, 699 (10th Cir. 2013) (holding that even though the FTC Act did not expressly authorize courts to grant consumer redress, the grant of authority to provide injunctive relief carried with it “the full range of equitable remedies,” including restitution and disgorgement). -7- receiver cannot seek to benefit defrauded investors by suing on behalf of the entities that defrauded them. But in that case the court only held the district court had miscalculated the amount of monetary relief. Id. at 77–78. In fact, the Third Circuit actually affirmed the district court’s finding that it could impose ancillary relief against a third-party recipient of an unlawful transfer. Id. at 76 (“The district court did not err in imposing the ancillary relief of disgorgement.”). In sum, the district court had subject matter jurisdiction to resolve claims brought under the UFTA on Winsome’s behalf.