Court Opinion

ID: 4569482
Source: CourtListenerOpinion
Date Created: 2020-09-24 20:00:52.941231+00
Date Added: 2024-06-11T13:29:31.053328
License: Public Domain

NOT FOR PUBLICATION                           FILED
                    UNITED STATES COURT OF APPEALS                        SEP 24 2020
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                           FOR THE NINTH CIRCUIT

U.S. SECURITIES & EXCHANGE                      No.    19-17045
COMMISSION,
                                                D.C. No.
                Plaintiff-Appellee,             3:16-cv-00270-MMD-CBC

 v.
                                                MEMORANDUM*
DEAN PROPERTIES, LLC,

                Respondent-Appellant,

and

DAVID B. KAPLAN; et al.,

             Defendants,
______________________________

MATTHEW B. KAPLAN,

                Intervenor.

                   Appeal from the United States District Court
                            for the District of Nevada
                  Miranda M. Du, Chief District Judge, Presiding

                    Argued and Submitted September 15, 2020
                            San Francisco, California

Before: WATFORD, FRIEDLAND, and MILLER, Circuit Judges.

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      In this civil enforcement action initiated in federal court in Nevada by the

Securities and Exchange Commission (“SEC”) against David Kaplan for alleged

violations of federal securities law, the district court ordered a freeze on assets

owned by David and his wife, Lisa. Shortly after his assets were frozen, David

consented to the entry of a judgment against him for over $4 million in a separate

lawsuit in Virginia brought by Dean Properties, LLC, which alleged it was a victim

of the same fraudulent activity that was the basis of the SEC’s claims against the

Kaplans. Dean Properties then obtained a lien based on the consent judgment and

attempted to execute the lien on a property in Nevada owned by Lisa. The district

court in this case issued an order enjoining Dean Properties from executing the lien

on the Nevada property and, further, from executing on any of the Kaplans’

properties. Dean Properties appealed that order. We affirm.

      1. The district court did not abuse its discretion in enjoining Dean Properties

from executing on the Nevada property or on the Kaplans’ other properties. See

SEC v. Wencke, 622 F.2d 1363, 1372 (9th Cir. 1980) (stating standard of review).

A district court overseeing an SEC enforcement action has “broad equitable

powers . . . to shape equitable remedies to the necessities of [the] particular case[].”

Id. at 1371. In particular, a court may stay non-party litigation against the

defendant in an SEC enforcement action while the defendant’s assets are being

“marshalled and preserved against further misappropriation and dissipation,” and

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the defendant’s “financial affairs . . . need[] to be clarified for the benefit of

innocent [victims].” Id. at 1372; see also SEC v. Universal Fin., 760 F.2d 1034,

1038-39 (9th Cir. 1985) (affirming, in an SEC enforcement action, a stay of non-

party litigation against the defendants’ assets to “preserve[] the status quo” and to

prevent competing claims from causing “havoc”). The district court here

determined that enjoining Dean Properties from pursuing the Kaplans’ assets was

necessary to “preserve assets for disgorgement and civil penalties” and to prevent

“injured investors [from] rac[ing] to the courthouse and enter[ing] side deals” with

the Kaplans. That determination was supported by the record. The injunction was

therefore not an abuse of discretion.

      We clarify, however, that although the district court’s order did not specify

the duration of the injunction, the injunction is not permanent. A stay of non-party

litigation must be lifted once the purposes of the stay have been accomplished. See

SEC v. Wencke, 742 F.2d 1230, 1232 (9th Cir. 1984) (holding that non-parties

could proceed with their claims against the defendants’ assets by the time those

assets had been “disentangled” and were ready for distribution). Accordingly, the

district court should lift the injunction once it determines that the SEC has made

sufficient efforts to secure disgorgement and civil penalties from the Kaplans.

      2. The district court did not deny Dean Properties due process in ordering

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the injunction.1 Dean Properties contends it was not given “notice and an

opportunity to be heard” before the district court entered the injunction. To the

contrary, Dean Properties was able to submit briefing and participate in a hearing

when the SEC moved to stay Dean Properties’ attempt to execute on the lien

against the Nevada Property and later to enjoin Dean Properties from pursuing any

of the Kaplans’ properties. See United States v. Alisal Water Corp., 431 F.3d 643,

657-58 (9th Cir. 2005).

      3. Nor did the district court’s injunction effect a taking of Dean Properties’

property without just compensation in violation of the Takings Clause of the Fifth

Amendment. To the extent claims of judicial takings are cognizable, Dean

Properties has not made one out here. See Vandevere v. Lloyd, 644 F.3d 957, 963

n.4 (9th Cir. 2011) (noting that a plurality of Justices wrote in Stop the Beach

Renourishment, Inc. v. Florida Department of Environmental Protection, 560 U.S.

702 (2010) (plurality opinion), that a court “can ‘take’ private property”). We

made clear in Wencke that a district court’s equitable power to stay litigation

against the defendant in an SEC enforcement action supersedes any property right

a non-party has to enforce a state court judgment against the defendant for the

      1
         Contrary to the SEC’s contention, Dean Properties did not lack standing to
assert its constitutional challenges to the district court’s decision. Dean Properties
articulated a cognizable injury by asserting that it had a lien but was being
prohibited from enforcing it.

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duration of the stay. See 622 F.2d at 1368-72. Thus, the district court “did not

contravene . . . established property rights” in temporarily staying Dean Properties’

efforts to enforce its judgment against the Kaplans. Stop the Beach

Renourishment, 560 U.S. at 733 (plurality opinion).

      4. Finally, the district court did not err in denying Dean Properties’

“Countermotion for Declaratory Relief.” “A request for declaratory relief is

properly before the court when it is pleaded in a complaint for declaratory

judgment.” Arizona v. City of Tucson, 761 F.3d 1005, 1010 (9th Cir. 2014); see 28

U.S.C. § 2201. But requests, like Dean Properties’, that are “raised . . . by motion”

are procedurally defective and cannot be considered. Arizona, 761 F.3d at 1010.

      AFFIRMED.

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