Securities & Exchange Commission v. L.M.E. 2017 Family Trust

• Court: Court of Appeals for the Eleventh Circuit
• Decided: August 15, 2022
• Docket: 21-10195
• Status: Published

Opinion

USCA11 Case: 21-10195 Date Filed: 08/15/2022 Page: 1 of 13

[PUBLISH] In the United States Court of Appeals For the Eleventh Circuit

____________________

No. 21-10195 ____________________

SECURITIES & EXCHANGE COMMISSION, Plaintiff-Appellee, JOSEPH CAPUTO, Intervenor-Plaintiff, versus COMPLETE BUSINESS SOLUTIONS GROUP, INC., d.b.a. Par Funding. et al.,

Defendants,

L.M.E. 2017 FAMILY TRUST, JOSEPH W. LAFORTE, a.k.a. Joe Mack, USCA11 Case: 21-10195 Date Filed: 08/15/2022 Page: 2 of 13

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a.k.a. Joe Macki, a.k.a. Joe McElhone, LISA MCELHONE,

Defendants-Appellants,

THE LME 2017 FAMILY TRUST,

Defendant-Appellee,

LEAD FUNDING, II, LLC,

Intervenor,

RYAN K. STUMPHAUZER, as Receiver for Complete Business Solutions Group, Inc. d.b.a Par Funding and the Other Receivership Entities,

Interested Parties-Appellees. ____________________

Appeal from the United States District Court for the Southern District of Florida D.C. Docket No. 9:20-cv-81205-RAR ____________________ USCA11 Case: 21-10195 Date Filed: 08/15/2022 Page: 3 of 13

21-10195 Opinion of the Court 3

Before NEWSOM, MARCUS, Circuit Judges, and COVINGTON,* DISTRICT JUDGE. NEWSOM, Circuit Judge: In this interlocutory appeal, we must decide whether we have jurisdiction to review a district court order expanding the scope of a previously created receivership estate. Because the re- ceivership-expansion order is neither an order “appointing [a] re- ceiver[]” within the meaning of 28 U.S.C. § 1292(a)(2) nor an order “granting, continuing, modifying, refusing or dissolving [an] in- junction[]” within the meaning of 28 U.S.C. § 1292(a)(1), we hold that we lack jurisdiction to review it and dismiss the appeal. I In July 2020, the Securities and Exchange Commission initi- ated an enforcement action against several entities and individuals, including Complete Business Solutions Group, Inc. d/b/a Par Funding, its controllers Lisa McElhone and Joseph LaForte, and its owner L.M.E. 2017 Family Trust. It alleged that McElhone and LaForte used Par Funding to raise money through unregistered se- curities offerings and to make opportunistic loans to small busi- nesses across America. Simultaneously, the SEC moved for the ap- pointment of a receiver over Par Funding and other defendant

* Honorable Virginia M. Hernandez Covington, United States District Judge for the Middle District of Florida, sitting by designation. USCA11 Case: 21-10195 Date Filed: 08/15/2022 Page: 4 of 13

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entities to protect investor funds that were commingled with or transferred to those companies. The district court granted the un- opposed motion and appointed Ryan Stumphauzer as receiver, au- thorizing him to “take custody, control, and possession of all Re- ceivership Entity records, documents, and materials” and to “take any other action as necessary and appropriate for the preservation of the Receivership Entities’ property interests.” The defendants didn’t appeal the order appointing Stumphauzer as receiver. The following month, the SEC moved to amend the receiv- ership order to include several other entities in the receivership and to clarify the receiver’s powers and duties. The district court granted the motion and issued an amended order that gave Stumphauzer “all powers, authorities, rights and privileges hereto- fore possessed by the officers, directors, managers and general and limited partners of the Receivership Entities” and suspended the powers of the persons in those positions. The defendants didn’t appeal that order either. In October 2020, Stumphauzer moved to expand the receiv- ership estate once again to include entities and properties that had been found to have received proceeds of the fraud scheme. In par- ticular, the receiver sought to include the L.M.E. 2017 Family Trust, which had received commingled investor funds, and McElhone’s personal real estate, which had been purchased with commingled proceeds. The district court granted the motion. It found “a clear necessity for expansion given that tainted funds . . . may be found in the entities and properties identified.” USCA11 Case: 21-10195 Date Filed: 08/15/2022 Page: 5 of 13

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The defendants appealed, contending that they weren’t af- forded an adequate opportunity to be heard before the receivership estate’s expansion. Stumphauzer has moved to dismiss the defend- ants’ appeal for lack of jurisdiction.1 Because this appeal stems from an interlocutory order—i.e., a nonfinal decision in an ongoing case—we must first determine our jurisdiction to review it. 2 II Appellate jurisdiction is generally limited to “final decisions of the district courts.” 28 U.S.C. § 1291. Congress, however, has granted appellate jurisdiction over certain categories of district court orders that don’t fall within § 1291’s final-judgment rule. As relevant here, 28 U.S.C. § 1292(a) authorizes appellate review of: (1) Interlocutory orders of the district courts of the United States . . . granting, continuing, modifying, re- fusing or dissolving injunctions, or refusing to dis- solve or modify injunctions, except where a direct re- view may be had in the Supreme Court; [and]

1 Stumphauzer also challenges the standing of one of the defendants—the L.M.E. 2017 Family Trust—to challenge the district court’s order. Because we conclude that we lack jurisdiction to entertain this appeal, we needn’t address the Trust’s standing. See Nationwide Mut. Ins. Co. v. Barrow, 29 F.4th 1299, 1301 (11th Cir. 2022) (“If we lack jurisdiction, our only remaining function is to announce that we lack jurisdiction and dismiss the cause.”). 2 “We review de novo questions of our jurisdiction.” United States v. Amo- deo, 916 F.3d 967, 970 (11th Cir. 2019). USCA11 Case: 21-10195 Date Filed: 08/15/2022 Page: 6 of 13

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(2) Interlocutory orders appointing receivers, or re- fusing orders to wind up receiverships or to take steps to accomplish the purposes thereof, such as directing sales or other disposals of property.

It is undisputed that § 1291 doesn’t provide jurisdiction here because the order expanding the receivership estate was just an in- terim order entered in the course of an ongoing enforcement ac- tion. Stumphauzer contends, most prominently, that § 1292(a)(2) doesn’t provide jurisdiction either because the expansion order was not an “order[] appointing [a] receiver[].” Because he was ap- pointed by the July 2020 order, not the October 2020 order that underlies this appeal, he says that the expansion order falls outside § 1292(a)(2)’s ambit. For their part, the defendants contend that the expansion order falls within § 1292(a)(2) because it “appoint[ed]” Stumphauzer as the receiver over assets not previously subject to his control. Separately, they assert that the expansion order can be characterized as an order “granting” (or “modifying”) an injunction and is thus appealable under § 1292(a)(1). 3 A Because it addresses receiverships specifically, we begin with § 1292(a)(2). Again, that section provides for the immediate appeal of interlocutory orders doing any of three things: (1) “appointing receivers”; (2) “refusing . . . to wind up receiverships”; and

3 Section 1292(b) isn’t implicated here because the district court never certified the expansion order for immediate appeal. USCA11 Case: 21-10195 Date Filed: 08/15/2022 Page: 7 of 13

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(3) refusing “to take steps to accomplish the purposes” of winding up receiverships, “such as directing sales or other disposals of prop- erty.” 28 U.S.C. § 1292(a)(2); see also Netsphere, Inc. v. Baron, 799 F.3d 327, 331–32 (5th Cir. 2015) (explaining that every circuit to ad- dress the issue has held that § 1292(a)(2)’s “refusing orders” clause modifies the phrase “to take steps to accomplish the purposes thereof”). Section 1292(a)(2)’s text clearly shows that Congress au- thorized appellate jurisdiction over what we’ll call “front-end” and “back-end” receivership-related orders—i.e., initial orders estab- lishing receiverships and later orders refusing to wind them up. But it remained silent as to interim receivership-related orders. Given the general principle that “[s]tatutes authorizing appeals are to be strictly construed,” California Coastal Comm’n v. Granite Rock Co., 480 U.S. 572, 579 (1987), we take Congress’s silence in that re- spect to indicate that mid-stream orders entered in the normal course of receivership proceedings are not immediately appealable. See, e.g., Netsphere, 799 F.3d at 332–33 (reasoning that orders en- tered in the normal course of a receivership are unappealable); United States v. Solco I, LLC, 962 F.3d 1244, 1250 (10th Cir. 2020) (same); Florida v. United States, 285 F.2d 596, 600 (8th Cir. 1960) (construing § 1292(a)(2) strictly and disposing of argument that an expansion order was “in practical effect the appointment of a re- ceiver”); 16 Charles Alan Wright & Arthur R. Miller, Federal Prac- tice and Procedure § 3925 (3d ed. 2015) (“Orders entered in the course of a receivership administration generally are not appeala- ble as such.”). USCA11 Case: 21-10195 Date Filed: 08/15/2022 Page: 8 of 13

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This plain-text reading of § 1292(a)(2) is bolstered by refer- ence to its statutory neighbor, § 1292(a)(1). That provision more broadly confers jurisdiction over orders “granting, continuing, modifying, refusing or dissolving injunctions, or refusing to dis- solve or modify injunctions.” 28 U.S.C. § 1292(a)(1). It thereby ex- pressly authorizes immediate appeals not only of front- and back- end orders “granting,” “refusing,” or “dissolving” injunctions, but also of mid-stream orders “continuing,” “modifying,” or “refusing to dissolve or modify” them. The contrast is unmistakable. Had Congress wanted to authorize the same robust interlocutory appel- late review of interim receivership-related orders, it could have in- cluded similar language in § 1292(a)(2). It didn’t, and its decision in that respect is “telling.” Meghrig v. KFC W., Inc., 516 U.S. 479, 484–85 (1996); see also Intel Corp. Inv. Policy Comm. v. Sulyma, 140 S. Ct. 768, 777 (2020) (explaining the interpretive “pre- sum[ption] that Congress acts intentionally and purposely when it includes particular language in one section of a statute but omits it in another” (quotation omitted)). The defendants seek to shoehorn the district court’s expan- sion order into § 1292(a)(2)’s language by asserting that it was, in fact, an order “appointing” a receiver because the order said that it “appointed” Stumphauzer as receiver of all the entities described therein. But colloquial usage, while relevant, doesn’t control a stat- ute’s meaning, see Heyman v. Cooper, 31 F.4th 1315, 1320 n.3 (11th Cir. 2022), and “the label used by the district court is not dis- positive in a determination of the appealability of an order under USCA11 Case: 21-10195 Date Filed: 08/15/2022 Page: 9 of 13

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section 1292(a)(2),” In re Pressman-Gutman Co., 459 F.3d 383, 393 (3d Cir. 2006) (citing United States v. Sylacauga Props., Inc., 323 F.2d 487, 490 (5th Cir. 1963)). Moreover, and in any event, the de- fendants’ argument fails to account for the balance of the district court’s order, which was titled “Order Granting Motion to Expand the Receivership Estate,” described the receiver’s motion as seek- ing “to modify” the appointment order, and repeatedly said that it was “expand[ing]” the receivership estate. Text and structure aside, the defendants’ position suffers from an acute line-drawing problem. At oral argument, the de- fendants acknowledged—as they must, given existing precedent— that an order expanding a receivership to include new assets isn’t a new “appoint[ment]” order. See Oral Arg. at 2:00–3:00; see also United States v. Beasley, 558 F.2d 1200 (5th Cir. 1977) (per curiam) (holding that an order directing a party to turn over a certain amount of money to an existing receivership isn’t appealable under § 1292(a)(2)); Wark v. Spinuzzi, 376 F.2d 827 (5th Cir. 1967) (per curiam) (same for bonds); cf. Belleair Hotel Co. v. Mabry, 109 F.2d 390 (5th Cir. 1940) (holding that an order authorizing the receiver to execute a lease for a property in his control isn’t immediately appealable). But, they insisted, an order expanding an existing re- ceiver’s authority to encompass additional entities is different. The asset-entity distinction that the defendants seek to draw is found nowhere in § 1292(a)(2)’s text and makes little practical sense. We can discern no reason why Congress would have wanted to pre- clude immediate appellate review of an order expanding a USCA11 Case: 21-10195 Date Filed: 08/15/2022 Page: 10 of 13

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receiver’s authority to reach a significant new “asset”—say, a $100 million brokerage account—but to authorize interlocutory review of a similar order extending his authority to include a relatively in- significant “entity.” Finally, the defendants’ reading of § 1292(a)(2) contravenes the general policy against piecemeal appeals. As the Supreme Court has said, “[p]ermitting piecemeal, prejudgment appeals . . . undermines efficient judicial administration and encroaches upon the prerogatives of district court judges, who play a special role in managing ongoing litigation.” Mohawk Indus., Inc. v. Carpenter, 558 U.S. 100, 106 (2009) (quotation omitted); see also Birmingham Fire Fighters Ass’n 117 v. Jefferson Cnty., 280 F.3d 1289, 1293 (11th Cir. 2002) (“The Supreme Court, this Court, and our sister circuits all have warned of the dangers of piecemeal appeals . . . .”). That policy is especially salient in the receivership context. A receiver- ship is fluid; its scope will often evolve as proceedings unfold. For just that reason, district courts have “broad powers and wide dis- cretion to determine relief in an equity receivership.” SEC v. El- liott, 953 F.2d 1560, 1566 (11th Cir. 1992). Were we to immediately review all scope-related orders of the sort that this case entails, we would, in effect, become the micromanagers of district courts’ day- to-day administration of receiverships. That is the very sort of meddling the final-judgment rule was designed to prevent. Cf. Solco, 962 F.3d at 1250 (“[Section] 1292(a)(2) creates a narrow ex- ception to the long-established policy against piecemeal appeals.” (quotation omitted)); Netsphere, 799 F.3d at 332 (“We have also USCA11 Case: 21-10195 Date Filed: 08/15/2022 Page: 11 of 13

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refused to find jurisdiction over other orders issued in the course of a receivership . . . . So have our sister circuits.”). These common-sense considerations confirm what § 1292(a)(2)’s text and structure indicate: We lack jurisdiction over scope-related orders entered in an ongoing receivership. B What about § 1292(a)(1)? The defendants separately assert that because the October 2020 receivership-expansion order incor- porated the district court’s earlier receivership-appointment order that possessed injunctive qualities—in that it required them to turn over certain entities and properties to the newly appointed re- ceiver—it can be appealed as an order “granting . . . an injunction.” See Appellants’ Supplemental Br. at 5–7; Oral Arg. at 7:15–7:30. That argument fails for two reasons. First, it is foreclosed by Su- preme Court precedent, which makes clear that an order appoint- ing a receiver can’t be construed as “embrac[ing] within its terms an injunction or the necessary equivalent of an injunction.” High- land Ave. & B.R. Co. v. Columbian Equip. Co., 168 U.S. 627, 629, 631–32 (1898). In particular, the Court in Highland said that “[o]rders granting injunctions and orders appointing receivers are . . . entirely independent” and “it would savor of judicial legislation to hold that [an order appointing a receiver is] appealable[] as an order granting an injunction.” Id. Second, even if the expansion order incorporated injunctive qualities, it was entered in the con- text of a receivership. We can’t skip over the more specific § 1292(a)(2), which expressly addresses receivership-related orders, USCA11 Case: 21-10195 Date Filed: 08/15/2022 Page: 12 of 13

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to find jurisdiction under the more general § 1292(a)(1), which in- volves on injunction-related orders of all stripes. See Morales v. Trans World Airlines, Inc., 504 U.S. 374, 384–85 (1992) (“[I]t is a commonplace of statutory construction that the specific governs the general.”). In an effort to obtain injunction status, the defendants sepa- rately assert that the district court’s October 2020 expansion order can be understood as an injunction issued under the All Writs Act. See Appellants’ Supplemental Br. at 1. That Act provides, in rele- vant part, that “courts established by Act of Congress may issue all writs necessary or appropriate in aid of their respective jurisdic- tions and agreeable to the usages and principles of law.” 28 U.S.C. § 1651(a). The All Writs Act, we have said, is best understood as a “a residual source of authority.” Klay v. United Healthgroup, Inc., 376 F.3d 1092, 1100 (11th Cir. 2004) (quotation omitted). It allows courts to “protect the jurisdiction they already have, derived from some other source,” but it “does not create any substantive federal jurisdiction.” Id. at 1099. In other words, if a court has equitable or statutory authority to enter an injunction in a cause of action, the All Writs Act isn’t implicated. See id. at 1097–99. To the extent that the appointment of the receiver or the expansion of his duties could be viewed as an injunction at all, the district court possessed freestanding authority to enter it. The Se- curities Exchange Act expressly allows courts to grant “any equita- ble relief that may be appropriate or necessary” when it appears that a person is engaged in acts or practices violative of the USCA11 Case: 21-10195 Date Filed: 08/15/2022 Page: 13 of 13

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securities laws, 15 U.S.C. § 78u(d)(5), and we have held that the “appointment of a receiver is a well-established equitable remedy available to the SEC in its civil enforcement proceedings for injunc- tive relief,” SEC v. First Fin. Grp. of Tex., 645 F.2d 429, 438 (5th Cir. 1981). Given that the district court had both statutory and re- sidual equitable authority to establish and expand the receivership, it had no cause to invoke the All Writs Act to aid its jurisdiction. For all these reasons, the expansion order can’t be recast as an injunction appealable under § 1292(a)(1). III Neither § 1292(a)(2) nor § 1292(a)(1) grants us jurisdiction to consider this appeal because the expansion order was neither an order appointing a receiver nor an order granting (or modifying) an injunction. APPEAL DISMISSED.