FILED United States Court of Appeals Tenth Circuit
UNITED STATES CO URT O F APPEALS November 2, 2007 Elisabeth A. Shumaker FO R TH E TENTH CIRCUIT Clerk of Court
M ERRILL SCOTT & ASSOCIATES, LTD ; PH O EN IX O V ER SEA S A D V ISER S; G IB RA LTA R PERM ANENTE ASSU RANCE, and No. 07-4078 each of their respective subsidiaries (D.C. No. 2:02-CV-230-TC) and affiliated entities, (D. Utah)
Plaintiffs-Appellees,
DAVID K. BROADBENT, as Receiver for M errill Scott & Associates, Ltd., and each of their respective subsidiaries and affiliated entities,
Plaintiff-Counter- Defendant-Third-Party- Defendant-Appellee,
v.
CONCILIUM INSURANCE SER VIC ES; C ON CILIU M R EAL ESTA TE A N D MO R TG A G E SER VIC ES; C ON CILIU M PLA N N IN G G RO U P; C ON CILIUM M ERCH ANT CAPITA L G RO UP, U tah corporations; R OD B. R EAD; DREW RO BERTS,
Defendants,
CG I INTER NATIONAL H OLD INGS, a Delaware corporation,
Defendant-Counter- Claimant, v.
RO BERT J. HIPPLE,
Defendant-Appellant,
and
ESTATE PLAN NING INSTITUTE; HOLLAND & HART, a Colorado lim ited liability company; R EH A DEAL; JAM ES L. BARNETT; GIL A. M ILLER; PRICEW ATER HOUSE CO OPERS LLP,
Third-Party-Defendants,
IN TER NA TIO N A L PLA N N IN G ASSOCIATES,
Third-Party- Defendant-Counter- Claimant-Third- Party-Plaintiff.
OR D ER AND JUDGM ENT *
Before HA RTZ, PO RFILIO, and TYM KOVICH, Circuit Judges.
* After examining the briefs and appellate record, this panel has determined unanimously that oral argument would not materially assist the determination of this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore ordered submitted without oral argument. This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. It may be cited, however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
-2- Plaintiff-appellee David K. Broadbent (“Receiver”) in his capacity as
Receiver for M errill Scott & Associates, Ltd. (“M errill Scott”) was awarded
summary judgment against defendant-appellant Robert J. Hipple after the district
court determined that M r. Hipple breached his fiduciary duties as an officer and
director of M errill Scott. M r. Hipple appeals, contending among other things that
the complaint should have been dismissed pursuant to Federal Rule of Civil
Procedure 19(b) for failure to join an indispensable party.
Exercising jurisdiction under 28 U.S.C. § 1291, we affirm in part, vacate in
part, and remand for further proceedings. W e affirm the district court’s denial of
M r. Hipple’s motion to dismiss for lack of jurisdiction, because the court
unquestionably had jurisdiction over the action in which the Receiver was
appointed, and this action was clearly filed in furtherance of the Receiver’s goals.
W e also affirm the district court’s decision to strike M r. Hipple’s motion for
summary judgment as untimely. W e must vacate, however, its award of summary
judgment to the Receiver because we conclude that decision was based on an
incomplete analysis in that the district court failed to consider whether Estate
Planning Institute was an indispensable party under Rule 19. W e therefore
rem and this action for consideration of that issue, as discussed in detail below.
-3- I. Background Facts
A. M errill Scott and Estate Planning Institute
From August 15, 2001, to O ctober 15, 2001, M r. Hipple served on M errill
Scott’s board of directors and as its President and Chief Executive Officer. At the
time, M errill Scott was on the brink of insolvency. Although it marketed itself as
a global financial services provider for wealthy individuals, the Securities and
Exchange Commission later charged that M errill Scott was actually part of an
elaborate ponzi scheme orchestrated by its founder and owner, Patrick M . Brody.
One aspect of M errill Scott’s business w as legitimate and profitable, however. It
encompassed a group of individuals who provided fee-based tax and financial
planning services through a related entity called Estate Planning Institute (“EPI”).
The district court described EPI as a captive law firm of M errill Scott, a
characterization with which M r. Hipple disagrees. Although he admitted at his
deposition that when he arrived at M errill Scott, there was virtually no financial
separation between it and EPI, he went on to testify that one of his first tasks as
m anaging director w as to separate and formalize the relationship between the tw o
entities. Under his direction, in September 2001, EPI and M errill Scott entered
into an agreement under which M errill Scott agreed to provide marketing and
administrative services to EPI, which in turn agreed to provide the actual
financial planning services to clients. Under this new arrangement all clients that
-4- were formerly considered clients of M errill Scott became clients of, and signed
retainer and other agreements with, EPI.
B. The Asset Acquisition Agreement
As M r. Hipple came to better understand M errill Scott’s dire financial
condition, he realized that EPI was its only valuable asset. Referring to EPI, he
testified at his deposition that “M errill Scott itself really had essentially no value
other than a collection of fairly talented employees, attorneys, accountants and
some others.” Supp. R. vol. XI, doc. 123, ex. 1 at 146. He therefore
recommended to M r. Brody that they “try to save that group of employees and
that talent and see if something could be made of the financial planning and tax
business by forming a new company with those employees.” Id.; see id. at 175
(“[W ]e were trying to salvage the business out of a bankrupt corporation.”).
M r. Brody agreed with this plan, and on October 12, 2001, M r. Hipple
incorporated International Planning Associates, Inc. (“IPA ”), naming himself as
Chairman, CEO, and sole shareholder. According to M r. Hipple’s own testimony,
IPA was formed for the singular purpose of acquiring M errill Scott’s tax and
financial planning business embodied in EPI. Through mid-October, M r. Hipple
worked with M r. Brody and others to draft the Asset Acquisition Agreement
(“Agreement”), governing the sale of M errill Scott’s tax and financial planning
-5- business. 1 He admits that while he was still a director of M errill Scott he
negotiated the terms of the agreement on behalf of IPA.
The Agreement is dated October 15, 2001. M r. Hipple testified that on that
day, he met with Rodney Read and Dell Gailey, M errill Scott’s two other board
members, to discuss the Agreement and the fact that he would resign as a director
because “[he] was on the other side of the transaction as well.” Id. vol. XII,
doc. 159, ex. B at 221. He went on to testify that “the board then approved the
agreement as drafted and authorized it to be signed after [he] resigned.” Id.
M r. Read signed the agreement on behalf of M errill Scott, and M r. Hipple signed
on behalf of IPA. At the same time, M r. Hipple resigned from M errill Scott’s
board. W ith respect to the specific timing of his resignation and the execution of
the Agreement, he testified:
W e did it all at one time. You know, okay, I’m resigning, you’re approving. I mean, it wasn’t like we had a formal meeting with a stenographer or anything. It was just, this has to be done and documented in the corporate records. So it was documented.
Id. at 221-22.
The Agreement contemplated essentially two separate transactions. First,
IPA agreed to assume approximately $106,000 of M errill Scott debt in exchange
1 The record submitted on appeal does not include a signed copy of the Agreement. There are several unsigned copies of the A greement, however, including one attached to the report submitted by the Receiver’s forensic accounting expert Gil A. M iller. And both the Receiver and M r. Hipple agree that it was executed on October 15, 2001. Having no reason to doubt this representation, we accept it.
-6- for all of the business conducted by EPI. This included “all future income, work
in process, material agreements, employment agreements and confidentiality and
non-disclosure agreements, strategic plans and relationships.” Id. vol. XIII,
doc. 166, ex. A (Amended Expert Report of Gil A. M iller), tab 10 (Agreement)
at 1. Second, in exchange for 15,000 shares of IPA common stock, M errill Scott
agreed to sell certain computer hardware, furniture, and telephone assets listed on
an attached schedule.
According to the Receiver’s expert report, although IPA succeeded to
M errill Scott’s relationship with EPI as contemplated in the Agreement, the actual
amount of debt assumed and paid by IPA amounted to only $14,816. See M iller
Report at 7. M errill Scott also paid certain debts on behalf of IPA, which w ere
never repaid, and thus M r. M iller concluded that the actual consideration received
by M errill Scott in exchange for its tax and financial planning business was a
negative $151,704. According to M r. M iller, in exchange for this amount, IPA
received approximately $2.35 million in client fees and commissions generated by
EPI after the Agreement was executed. He also concluded that the vast majority
of the clients who paid those fees were contacted by M errill Scott before October
15, 2001. Finally, he noted that there was no evidence of 15,000 shares of IPA
stock ever being issued to M errill Scott. M r. Hipple disputes virtually all of these
findings. He does not dispute, however, that after October 15, 2001, he worked
exclusively for IPA. At his deposition, he admitted to establishing bank accounts
-7- for IPA and EPI, securing office space for IPA, and taking other action in
furtherance of his plan to completely separate the company from M errill Scott.
II. Procedural H istory
On January 15, 2002, the SEC filed a civil complaint against M r. Brody and
several M errill Scott entities. On January 23, the district court in that action
entered a stipulated order appointing David K. Broadbent as Receiver for the
M errill Scott defendants. The order directed the Receiver to “take control of
M errill Scott funds, assets, and property wherever situated, with the powers set
forth [therein].” R. vol. X, doc. 164 (order granting summary judgment) at 7
(quotation omitted). In furtherance of this purpose, the order empow ered the
Receiver “to investigate, prosecute, defend, intervene in or otherwise participate
in . . . any state, federal or foreign court proceeding of any kind as may in his sole
discretion be advisable or proper to recover or conserve funds, assets and property
of M errill Scott.” Id. at 8 (quotation and emphasis omitted).
Pursuant to this authority, the Receiver filed this lawsuit against M r. Hipple
on M arch 21, 2002, asserting among others, claims for breach of fiduciary duty,
conversion, and fraudulent conveyance. 2 On April 22, M r. Hipple filed a motion
2 The Receiver named numerous other individuals and entities involved in the transfer of M errill Scott’s assets to IPA , including CGI International Holdings, Inc., another of M r. Hipple’s companies, which the Receiver alleged was the ultimate beneficiary of the asset transfer. Since M r. Hipple stands alone in this appeal, however, we mention only the claims against him and only those as to which he asserts error.
-8- to dismiss under Rule 19(b), arguing that the lawsuit could not proceed without
IPA and EPI, which he claimed were indispensable parties. At the time, both EPI
and IPA were in Chapter 11 bankruptcy proceedings. On August 19, the district
court denied the motion without prejudice based on the parties’ representation
that IPA had emerged from bankruptcy and would be added to an amended
complaint. Although EPI remained under bankruptcy protection, the district court
did not address M r. Hipple’s argument concerning its status as an indispensable
party. On October 28, the Receiver filed his First Amended Complaint, adding
IPA as a defendant. M r. Hipple filed a second motion to dismiss on December
19, 2003, challenging the district court’s subject matter jurisdiction. Curiously,
given that EPI was still not a party to the law suit, he did not reassert his
arguments under Rule 19.
On January 22, 2004, the Receiver moved for partial summary judgment on
his claims against M r. Hipple. M r. Hipple cross-moved for summary judgment
four months later, on M ay 25. On August 20, the district court issued an order
granting the R eceiver’s motion for summary judgment and denying M r. Hipple’s
motion to dismiss on the merits, and striking M r. Hipple’s cross-motion as
untimely. The court rejected M r. Hipple’s challenge to its jurisdiction, drawing
on well-settled law establishing the jurisdiction of federal courts over ancillary
proceedings brought by a receiver in a related action.
-9- It is well established that a federal district court has subject matter jurisdiction in ancillary actions brought in the court where the receiver is appointed to accomplish the ends sought and directed by the suit in which the appointment was made.
Id. at 9 (quotations omitted). The court concluded that this action was both
ancillary to the SEC action in which the Receiver was appointed and consistent
with his authority to recover and conserve the assets of M errill Scott. It went on
to find, based primarily on M r. Hipple’s deposition testimony and the R eceiver’s
expert report, that “M r. Hipple . . . breached [his] fiduciary duties to M errill Scott
by executing a fraudulent transfer of substantially all of M errill Scott’s assets to
IPA for less than reasonably equivalent value.” Id. at 22. The court therefore
granted summary judgment on the Receiver’s breach of fiduciary duty and
fraudulent conveyance claims and declined to reach the issue of whether
M r. Hipple could also be found liable for conversion. In a subsequent order,
dated June 2, 2005, the court determined that M r. Hipple w as personally liable to
M errill Scott for damages in the amount of $3,502,337. This appeal followed.
III. Discussion
M r. Hipple raises numerous issues on appeal, which we condense here for
ease of discussion. First, he contends that the district court erred in failing to
dismiss the action pursuant to his first motion, raising the indispensable party
issue, and his second motion, challenging the court’s subject matter jurisdiction.
Second, he challenges nearly all of the district court’s findings underlying its
-10- award of summary judgment to the Receiver on the fraudulent transfer and breach
of fiduciary duty claims. And finally, he claims the district court abused its
discretion in striking his cross-motion for summary judgment.
A. Subject M atter Jurisdiction
Our proper starting point is determining whether the district court correctly
decided it had jurisdiction, an issue that we review de novo. City of Albuquerque
v. U.S. Dep’t of Interior, 379 F.3d 901, 906 (10th Cir. 2004). The claims against
M r. Hipple neither arise under federal law nor involve diverse parties. The
district court’s exercise of jurisdiction over the Receiver’s claims rested on its
determination that the claims were ancillary to those asserted in the SEC action
already pending before it. M r. Hipple argues that the supplemental jurisdiction
statute is inapplicable because the Receiver’s claims against him are not “so
related” to the SEC’s claims that they “form part of the same case or controversy”
within the meaning of the supplemental jurisdiction statute, 28 U.S.C. § 1367(a).
The district court rightly rejected this argument. The Supreme Court recognized
over 100 years ago that a federal receiver may sue in the court of his appointment
“to accomplish the ends sought and directed by the suit in which the appointment
was made,” and that “such action or suit is regarded as ancillary” to the court’s
original subject matter jurisdiction. Pope v. Louisville, N.A. & C. Ry., 173 U.S.
573, 577 (1899); see Oils, Inc. v. Blankenship, 145 F.2d 354, 356 (10th Cir. 1944)
(“A federal court, which has appointed a receiver in a proceeding of which it has
-11- jurisdiction, has jurisdiction to entertain a suit or proceeding to collect or recover
assets.”); Tcherepnin v. Franz, 485 F.2d 1251, 1255-56 (7th Cir. 1973) (same
quoting Pope).
Here, the district court appointed the Receiver to marshal and preserve the
assets of M errill Scott for the benefit of M errill Scott’s creditors, and this action
against M r. Hipple is consistent with these goals. Even though, as M r. Hipple
argues, the cases on which the district court relied predate the supplemental
jurisdiction statute, he has raised no argument to persuade this court that it need
not follow the principal announced in Pope, nor has he cited any authority
contrary to Pope. Therefore, we conclude the court properly relied upon its
ancillary jurisdiction and did not need an independent basis upon which to
exercise subject matter jurisdiction over the Receiver’s claims. See Tcherepnin,
485 F.2d at 1256. M r. Hipple’s motion to dismiss for lack of jurisdiction was
properly denied.
B. Indispensable Party Issue
In his initial motion to dismiss and on appeal, M r. Hipple contends that EPI
was a necessary party to this action, and that the district court should have
dismissed this action pursuant to Rule 19(b) if joinder of EPI w as not feasible.
Rule 19 requires the district court to “first determine whether the absent party is
necessary to the law suit and, if so, whether joinder of the absent party is
feasible.” Davis v. United States, 192 F.3d 951, 957 (10th Cir. 1999). If joinder
-12- is not feasible, the court must then decide “whether in equity and good conscience
the action should proceed among the parties before it, or should be dismissed.”
Id. at 959. The factors to be weighed by the district court in making this decision
are enumerated in Rule 19(b).
Generally, we review a district court’s determination under Rule 19 for an
abuse of discretion; although, underlying legal conclusions are reviewed de novo.
See id. at 957. In this case, however, there are no legal or factual conclusions for
us to review . The district court denied M r. Hipple’s Rule 19 motion summarily
and without prejudice based on the Receiver’s representation that he intended to
add IPA as a defendant in an amended complaint. After the amended complaint
was filed, no one appears to have raised the issue of whether the law suit could
proceed without EPI. Therefore, the district court never addressed the merits of
M r. Hipple’s argument that EPI is both necessary and indispensable, which are
questions that we have held should be decided by the district court in the first
instance. See Davis, 192 F.3d at 961 (declining to perform the fact-finding
function reserved for the district court to reach issue of indispensability under
Rule 19). 3
3 W hile M r. Hipple’s neglect in failing to raise this issue in his second motion to dismiss might be blamed for the lack of a review able decision as to EPI’s status under Rule 19, we cannot conclude that the issue has been waived. See, e.g., Symes v. Harris, 472 F.3d 754, 760 (10th Cir. 2006) (“The issue of indispensability, generally, is not waivable, and is one which courts have an independent duty to raise sua sponte.”).
-13- M r. Hipple has argued, and testified at his deposition, that after he arrived
at M errill Scott, EPI became a completely separate entity, which M errill Scott and
then IPA serviced pursuant to certain contracts. He further testified that clients
had a direct relationship with EPI and made payments directly to EPI, which then
compensated IPA for its services. The Receiver disputes that EPI was
independent of M errill Scott, but nonetheless contends that M r. Hipple converted
EPI’s earnings for the benefit of IPA and ultimately CGI. Either way it is clear
that funds earned by EPI were ultimately transferred out of EPI and that EPI was
eventually forced into bankruptcy. This alone is enough to convince us of the
possibility that EPI may “claim[] an interest relating to the subject of [this]
action.” Fed. R. Civ. P. 19(a). W hether it does, whether its interest is protected,
and whether its absence leaves any of the defendants at risk of double or
inconsistent obligations are fact questions that the district court is obligated to
examine in the first instance. See Davis, 192 F.3d at 961. W e decline to
undertake such a fact-intensive inquiry. Accordingly, we remand to the district
court to conduct an analysis of all the factors articulated in Rule 19 and to make a
review able determination as to whether EPI is an indispensable party in this
action. On remand, it shall be M r. Hipple’s burden to establish that EPI has an
interest relating to the Receiver’s claims. See id. at 958.
-14- C. The Receiver’s M otion for Summary Judgment
M r. Hipple also challenges the district court’s grant of summary judgment
to the Receiver, arguing primarily that EPI’s post-October 15, 2001, earnings
either derived from sources independent of M errill Scott or were subsequently
returned to M errill Scott. W e express no opinion as to the factual or legal
correctness of the district court’s merits determination. W e conclude, however,
that its award of summary judgment was premature given the outstanding
indispensable party issue. Rule 19 requires the district court to make a
preliminary determination as to the necessity of EPI’s presence in the action, the
feasibility of joinder, and ultimately, whether the action can proceed in equity and
good conscience with the parties present if EPI cannot be joined. See Symes v.
Harris, 472 F.3d 754, 760 (10th Cir. 2006). EPI was apparently the sole source
of income for both M errill Scott and IPA. And while the district court referred to
it as a M errill Scott entity and “captive law firm,” R. vol. X, doc. 164 at 3-4, it
never explained the meaning of these characterizations or made any specific fact
findings concerning the extent of EPI’s independence, if any, from M errill Scott,
particularly after M r. Hipple became a managing director. This analysis, which is
necessary to resolve the indispensable party issue, will likely affect the court’s
merits analysis as well. W e therefore vacate the district court’s order granting
summary judgment to the Receiver and remand for reconsideration in light of its
findings on the issue of EPI’s status as an indispensable party.
-15- D. M r. Hipple’s Cross-M otion For Summary Judgment
Finally, M r. Hipple claims that the district court abused its discretion in
striking his motion for summary judgment as untimely. W e reject his challenge
because the motion was clearly late. On December 17, 2003, the district court
entered an order setting December 22 as the dispositive motion cut-off date. The
parties later consented to extending the deadline by an additional thirty days, to
January 22, 2004, and the Receiver filed his motion for summary judgment on
that date. 4 On January 20, M r. Hipple filed another motion, over the Receiver’s
objection, requesting a further extension to February 16. He did not file his
motion for summary judgment, however, until M ay 27, a full three months past
the last extension that he requested.
W e review district court decisions pertaining to docket management and
supervision of the pretrial phase of litigation for abuse of discretion. See Beaird
v. Seagate Tech., Inc., 145 F.3d 1159, 1164 (10th Cir. 1998). The court’s
decision to strike M r. Hipple’s summary judgment motion falls within this
framework. See Arakaki v. Lingle, 477 F.3d 1048, 1069 (9th Cir. 2007) (holding
district court did not abuse its discretion in striking counter motion for sum mary
judgment). Under this standard, “a trial court’s decision will not be disturbed
4 W e reject M r. Hipple’s contention that the Receiver’s motion was also late because it was filed after January 16, 2004. This argument is nothing less than spurious given that M r. Hipple specifically requested that the deadline be further extended to January 22, and the Receiver filed a “Notice of Nonopposition” to this date. R. vol. VII, doc. 115.
-16- unless we have a definite and firm conviction that the lower court has made a
clear error of judgment or exceeded the bounds of permissible choice in the
circumstances.” Beaird, 145 F.3d at 1164 (quotation and alteration omitted).
M r. Hipple has not demonstrated that the district court’s decision to strike his
motion for summary judgment constituted an abuse of discretion. Its decision on
this score is therefore affirmed.
IV. Conclusion
W e AFFIRM the district court’s denial of M r. Hipple’s motion to dismiss
for lack of jurisdiction. W ith respect to the portion of its August 20, 2004, order
granting summary judgment to the Receiver, we VACATE and REM AND for
reconsideration in light of the views expressed in this order and judgment. On
remand, the district court is to analyze the factors set forth in Fed. R. Civ. P. 19
as applicable to M r. Hipple’s argument that EPI is an indispensable party to this
action. W e AFFIRM the district court’s order striking M r. Hipple’s motion for
summary judgment.
Entered for the Court
Timothy M . Tymkovich Circuit Judge
-17-