Court Opinion

ID: 2737383
Source: CourtListenerOpinion
Date Created: 2014-09-26 15:01:14.487348+00
Date Added: 2024-06-11T10:03:47.615742
License: Public Domain

Case: 13-12778     Date Filed: 09/25/2014      Page: 1 of 8

                                                                                 [PUBLISH]

                   IN THE UNITED STATES COURT OF APPEALS

                             FOR THE ELEVENTH CIRCUIT
                               ________________________

                                     No. 13-12778
                               ________________________

                        D.C. Docket No. 8:09-cv-00087-RAL-TBM

UNITED STATES SECURITIES & EXCHANGE COMMISSION,

                                                                         Plaintiff-Appellee,

                                           versus

QUEST ENERGY MANAGEMENT GROUP, INC.,

                                                                      Defendant-Appellant.

                               ________________________

                        Appeal from the United States District Court
                            for the Middle District of Florida
                             _________________________

Before WILLIAM PRYOR, Circuit Judge, WOOD,* Chief District Judge, and
EDENFIELD,** District Judge.

PRYOR, Circuit Judge:

        In this interlocutory appeal, we decide whether officers enjoined from taking

any action on behalf of a company may appeal, in the name of that company, the
__________________________

  Honorable Lisa Godbey Wood, Chief United States District Judge for the Southern District of
Georgia, sitting by designation.
**
   Honorable B. Avant Edenfield, United States District Judge for the Southern District of
Georgia, sitting by designation.
              Case: 13-12778     Date Filed: 09/25/2014    Page: 2 of 8

appointment of a receiver. The district court appointed a receiver to take

possession and control over Quest Energy Management Group, Inc., because the

officers were funding the company with proceeds from a Ponzi scheme. In the

order appointing the receiver, the district court enjoined the current officers from

taking any actions on behalf of Quest and vested the receiver with the authority to

“[d]efend, compromise or settle legal actions, including the instant proceeding.”

The officers of Quest, in the name of the company, now appeal the appointment of

the receiver. 28 U.S.C. § 1292(a)(2). The officers do not appeal as shareholders or

in any other individual capacity. The receiver moved to dismiss the appeal for lack

of jurisdiction on the ground that the officers lack standing to appeal on behalf of

the company. Because the district court enjoined the officers from taking any

action on behalf of Quest, including filing this appeal, we grant the motion to

dismiss.

                                I.   BACKGROUND

      This appeal arises out of the appointment of a receiver for a company funded

by proceeds from a Ponzi scheme. The Securities and Exchange Commission sued

Arthur Nadel and two of his investment management companies for operating the

scheme. The district court appointed a receiver to take control of the assets of

Nadel and his codefendants and instructed the receiver to move to expand the

scope of the receivership if he discovered additional entities funded by proceeds

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from the scheme. Over the course of four years, the district court granted ten

motions to expand the scope of the receivership to include additional entities. One

of those entities was Quest Energy Management Group, Inc., an oil and gas

development company owned and operated by Paul and Jeff Downey. Quest

received at least $5.1 million of fraudulent proceeds, which represented eighty

percent of the initial capital for the company and, until the collapse of the scheme,

thirty percent of the total capital for the company.

      In its order expanding the receivership to include Quest, the district court

ordered the receiver to “[d]efend, compromise or settle legal actions, including the

instant proceeding, in which the Receivership Entities or the Receiver is a party,

commenced either prior to or subsequent to this Order, with authorization of this

Court.” And the district court enjoined the officers of Quest from taking any action

on behalf of the company: “Unless authorized by the Receiver, the Receivership

Entities [i.e., Quest] and their principals shall take no action, nor purport to take

any action, in the name of or on behalf of the Receivership Entities.”

      In the face of the injunction, the Downeys appealed the appointment of the

receiver in the name of Quest. Because the notice of appeal listed Quest instead of

the Downeys in their individual capacities, the receiver sought clarification from

their attorney. In an email, the receiver confirmed, “I presume Paul and Jeff

Downey seek to challenge the court’s order to the extent it dispossessed them of

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their interests in the company.” Counsel for the Downeys responded that he would

“clarify as appropriate.” The receiver then asked, “Were you intending to appeal

on Quest’s behalf?” And counsel replied, “No.” In a related proceeding, counsel

acknowledged to a state regulatory body that the expanded receivership divested

the Downeys of any authority to act on behalf of Quest: “I am counsel for Paul

Downey and Jeff Downey in their individual capacities. The Downeys are no

longer involved in, or associated with, Quest Energy as officers, directors, or

employees or in any other capacity pursuant to the actions and direction of the

court appointed Receiver.” (Emphasis added.) Despite these representations, the

Downeys never amended the notice of appeal and counsel later filed a notice of

appearance purporting to represent Quest.

      The receiver then filed a motion to dismiss the appeal for lack of jurisdiction

on the ground that the district court had enjoined the Downeys from taking any

action in the name of the company. The Downeys maintained in briefing and at

oral argument that they have authority to appeal on behalf of Quest. We carried the

motion with the case, and we now grant the motion and dismiss the appeal for lack

of jurisdiction.

                         II.    STANDARD OF REVIEW

      “We review de novo whether we have jurisdiction . . . before addressing the

merits.” Doe No. 1 v. United States, 749 F.3d 999, 1003 (11th Cir. 2014). And

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“[w]e review standing determinations de novo.” CAMP Legal Def. Fund, Inc. v.

City of Atlanta, 451 F.3d 1257, 1268 (11th Cir. 2006).

                                III.   DISCUSSION

      Article III of the Constitution of the United States limits the subject matter

jurisdiction of federal courts to “Cases” and “Controversies.” U.S. Const. Art. III,

§ 2. “[T]he core component of standing is an essential and unchanging part of the

case-or-controversy requirement of Article III.” Lujan v. Defenders of Wildlife, 504

U.S. 555, 560, 112 S. Ct. 2130, 2136 (1992). Accordingly, standing “is the

threshold question in every federal case, determining the power of the court to

entertain the suit.” Warth v. Seldin, 422 U.S. 490, 498, 95 S. Ct. 2197, 2205

(1975). “In the absence of standing, a court is not free to opine in an advisory

capacity about the merits of a plaintiff’s claims, and the court is powerless to

continue.” CAMP Legal Def. Fund, Inc., 451 F.3d at 1269 (citation and internal

quotation marks omitted). To establish standing, a litigant ordinarily “must assert

his own legal rights and interests” and cannot assert the rights or interests of

someone else. Warth, 422 U.S. at 499, 95 S. Ct. at 2205. And “th[e] obligation on

the court to examine its own jurisdiction,” including whether the parties have

standing, “continues at each stage of the proceedings.” Cuban Am. Bar Ass’n, Inc.

v. Christopher, 43 F.3d 1412, 1422 (11th Cir. 1995).

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      Although our Court has never addressed whether former officers who are

enjoined from taking any action on behalf of a company may appeal that injunction

in the name of the company, we hold today that they cannot. When the district

court expanded the receivership to include Quest, it forbade the Downeys from

taking any action on behalf of Quest and instead vested the legal rights and

interests of Quest in the receiver. Based on the plain language of that order, the

Downeys lack standing to appeal in the name of Quest.

      The Downeys argue that it would be “illogical” to prohibit them from

appealing in the name of Quest because then only the receiver could appeal the

grant of his own motion, but the Downeys misrepresent the receiver’s argument.

The receiver does not contend that only he can appeal his appointment. He

suggested in his briefing and at oral argument a host of other paths that the

Downeys could have pursued that would have fallen short of violating the

injunction. For example, the Downeys could have “moved the District Court for

leave to . . . appeal the Expansion Order in Quest’s name,” “ask[ed] for a . . . stay

for the purpose of appealing the decision,” “formally intervene[d],” or “appeal[ed]

the Expansion Order in their individual capacities.” Cf. Inland Empire Ins. Co. v.

Freed, 239 F.2d 289, 292 (10th Cir. 1956) (“[W]e will assume that the directors,

who are also stockholders, have a litigable interest in the proceedings; that they are

in court by their attorney with standing to challenge the order of the District Court

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on appeal.” (emphasis added)); Lincoln Printing Co. v. Middle W. Utilities Co., 74

F.2d 779, 783–84 (7th Cir. 1935) (holding that district court did not abuse its

discretion when it permitted a stockholder to intervene for the purpose of appealing

the denial of a petition to wind down a receivership). But the Downeys refused to

pursue any of those options.

      The Downeys’ conduct is especially puzzling in the light of their

representations to the receiver. When the receiver asked counsel for the Downeys

whether they intended to file the notice of appeal on behalf of Quest, in violation

of the injunction, counsel responded that they did not intend to file the notice on

behalf of Quest and would “clarify as appropriate.” Yet counsel never made any

such clarification. Throughout this appeal, the Downeys have assured our Court

that “[t]his appeal . . . is being brought on behalf of Quest,” and that any “attempt

to pretend or assert that any party other than Quest is the party making the appeal

is wrong and not reflected [i]n the record[].”

      The receiver relies on Raley v. Hyundai Motor Co., 642 F.3d 1271 (10th Cir.

2011), to support his argument that the Downeys cannot appeal on behalf of Quest,

and we agree with the approach taken by the Tenth Circuit. In considering whether

an individual could appeal an adverse judgment against her guardian, the Tenth

Circuit dismissed the appeal because the individual failed to establish that the court

had jurisdiction to hear an appeal in her name. Id. at 1279. The court refused to

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“look beyond the notice of appeal and scour the record to figure out who does and

doesn’t wish to appeal,” id. at 1277, and was “loath simply to guess whether

someone wishes to invoke and become subject to [its] jurisdiction,” id. at 1278.

Because “[i]t is the appellant’s burden, not [the court’s], to conjure up possible

theories to invoke [the court’s] legal authority to hear [an] appeal,” the court

observed that it “ha[d] no duty to follow” where “an appellant fail[ed] to lead” and

dismissed the appeal. Id. at 1275, 1279. Like the Tenth Circuit in Raley, we are not

satisfied that the Downeys have standing to appeal on behalf of a company over

which they have no authority.

                                 IV.   CONCLUSION

      We GRANT the receiver’s motion and DISMISS the appeal for lack of

jurisdiction.

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