Free Motion for Judgment - District Court of Arizona - Arizona

1 Burton M. Bentley, Esq. (Bar No. 00980) BURTON M. BENTLEY, P.C. 2 5343 North 16th Street, Suite 480 Phoenix, Arizona 85016 3 (602) 861-3055 4 (602) 861-3230 fax Attorney for Defendants 5 6 7 8

IN THE UNITED STATES DISTRICT COURT IN THE DISTRICT OF ARIZONA CAUSE NO. CIV 03 2390-PHX-JAT Plaintiff, vs. MICHAEL ALANIZ, et al. Defendants. RECEIVER, RADA DEFENDANTS' MOTION FOR JMOL PURSUANT TO FED. R. CIV. P. 50 ­ STATUTE OF LIMTATIONS HAS EXPIRED ON THE RECEIVER'S CLAIMS FOR VIOLATION OF FEDERAL SECURITIES LAWS

9 LAWRENCE J. WARFIELD, 10 11 12 13 14 15 16 17 18 19 20 21 22

The following Defendants: Leonard & Betty Bestgen Robert Carroll Rudy & Mary Crosswell Charles Davis Dwight Lankford Paul Richard Patrick & Andrea Wehrly

23 (collectively "Defendants"), by and through counsel undersigned, hereby submit this 24 25 26 27 28

Motion for Judgment as a Matter of Law ("JMOL") pursuant to Federal Rules of Civil Procedure, Rule 50(a)(1) and (a)(2). The accompanying Memorandum of Points and Authorities supports this Motion.

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1 The following documents are hereby incorporated by reference:

Complaint, SEC v.

2 Dillie, Case. No. CIV 01-2493 PHX JAT, dated December 20, 2001; The Plaintiff's 3 4

Complaint filed on December 3, 2003; The Plaintiff's Third Amended Complaint filed

5 on April 14, 2005; The Court's Order in SEC v. Dillie, Case No. CIV 01-2493 PHX 6 7 8

JAT, dated June 7, 2002; Declaration of Lawrence J. Warfield in Support of Receiver's Motion for Partial Summary Judgment, Exhibit 2; Declaration of Lawrence J. Warfield, Robert

9 Response to Rada Defendants Motion for Summary Judgment, Exhibit 10; 10 11 12

Dillie's Deposition dated March 19, 2002; Memorandum in Support of Petition for Order Holding Defendants, Relief Defendant and Josh Dillie in Contempt of Court, Re:

13 Petition No . 8, Case No. CIV 01-2493 PHX JAT, filed dated March 15 2002; the Rada 14 15 16

Defendants' Separate Statement of Facts in Support of Motion for Summary Judgment ("SSFSMSJ") dated December 30, 2005; and the Court's Amended Order Supercedes

17 (sic) August 1, 2006 Order, dated September 5, 2006. 18 19 20 21 22 23 24 25 26 27 28

MEMORANDUM OF POINTS AND AUTHORITIES I. Introduction and Factual Background The Securities and Exchange Commission ("SEC") filed a claim against Robert Dillie, President of Mid-America Foundation ("MAF") on December 20, 2001. In the Complaint, the SEC alleged in the Statement of Facts: 13. Since at least 1997, Mid-America has used its purported charitable status to fleece elderly investors. Through a nationwide network of commissioned sales agents, Mid-America and Dillie sold investment contracts denominated as CGAs to elderly investors who sought safe, steady income,

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1 2 3 4

tax benefits, and chartable donations. It is estimated that Mid-America sold CGA's valued at over $54 million. Complaint, SEC v. Dillie, Case. No. CIV 01-2493 PHX JAT, dated December 20, 2001, ¶ 13. Lawrence Warfield, ("Plaintiff" or "Receiver") was appointed by the court as a

5 result of that filing and in this matter on December 21, 2001. Declaration of Lawrence 6 7 8

J. Warfield, Response to Rada Defendants' Motion for Summary Judgment, Exhibit 10, ¶ 1. The Receiver spent over a year chasing down Robert Dillie to get an Declaration of Lawrence Warfield, Response to Rada

9 interview with him. 10 11 12

Defendants' Motion for Summary Judgment, Exhibit 10, ¶¶ 2-17. On January 16, 2002, 26 days after the his Receiver was appointed, MAF documents were delivered to

13 the Receiver. Memorandum in Support of Petition for Order Holding Defendants, 14 15 16

Relief Defendant and Josh Dillie in Contempt of Court, RE: Petition No . 8, Case No. CIV 01-2493 PHX JAT, filed dated March 2002, p. 9, Section "V. Removal of

17 Receivership Records". Over 70 banker boxes, approximately 4 lateral cabinets, were 18 19 20

delivered to the Receiver personally on that date.

Memorandum in Support of

Petition for Order Holding Defendants, Relief Defendant and Josh Dillie in

21 Contempt of Court, RE: Petition No . 8, Case No. CIV 01-2493 PHX JAT, filed 22 23 24

dated March 2002, p. 9, Section "V. Removal of Receivership Records", and Footnote 1. The January 16, 2002 delivery date was confirmed by Robert Dillie in

25 testimony on September 30, 2002. Transcript of Hearing Re: Order to Show Cause, 26 27 28

September 30, 2002 Testimony of Robert Dillie, p. 14, lns. 9-10.

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1

The Order Appointing Receiver, ordered the Receiver "to collect, receive and take

2 exclusive custody and control and possession of certain assets of the defendants and 3 4

relief defendants. Declaration of Lawrence J. Warfield in Support of Receiver's

5 Motion for Partial Summary Judgment, Exhibit 2, ¶ 3. 6 7 8

On December 3, 2003, almost two years following his appointment, the Receiver caused a nine-count Complaint to be filed against 147 defendants including the A Third Amended Complaint increased to 11 counts, was filed by the

9 Defendants. 10 11 12

Receiver on April 14, 2005. Count Seven of the Third Amended Complaint alleges that the defendants violated Section 12 of the Federal Securities Act of 1933, Section 10(b)

13 of the Federal Securities and Exchange Act and the Exchange Act Rule 10b-5, with all 14 15 16

other claims being state claims. SSFSMSJ ¶ 7 and Third Amended Complaint, ¶ 162. Later, the Receiver claimed that it was not until Dillie's deposition that "my

17 counsel discovered that Dillie utilized a network of agents to sell MAF CGAs." 18 19 20 21 22 23 24 25 26

Declaration of Lawrence J. Warfield, Response to Rada Defendants' Motion for Summary Judgment, Exhibit 10, ¶20. II. Standard for Granting Motion for Judgment as a Matter of Law Under Federal Rules of Civil Procedure Rule 50(a)

"A motion for judgment as a matter of law may be made at any time before the case is submitted to the jury." Fed. R. Civ. P. 50(a)(2). The motion must specify the judgment sought and the law and facts that entitle the movant to the judgment." Id.

27 Federal Rule 50 further provides: 28

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"If a party has been fully heard on an issue during a jury trial and the court finds that a reasonable jury would not have a legally sufficient evidentiary basis to find for the party on that issue, the court may: (A) resolve the issue against the party; and (B) grant a motion for judgment as a matter of law against the party on a claim or defense that, under the controlling law, can be maintained or defeated only with a favorable finding on that issue. Id. III. Legal Argument

A. The Statute of Limitations and Repose Bar the Receiver's Claims For Violation of Federal Securities Law "Congress imposed an explicit statute of limitations for each of the private claims created by the 1933 ("33") and 1934 ("34") acts...each of these provides for a one-year time period after discovery of the alleged securities violation combined with a three-year

15 period of repose." (emphasis added). Securities and Exchange Commission v. Rind, 16 17 18

991 F. 2d 1486, 1489 (9th Cir. 1993) citing § 13 of the 1933 Act, 15 U. S. C. § 77m, §§ 9(e) and 18(c) of the 1934 Act, 15 U. S. C. §§ 78i(e) and 78r(c). Claims under §10(b)

19 and Rule 10b-5 are untimely unless "commenced within one year after the discovery of 20 21 22

the facts constituting the violation and within three years after such violation." Rind, 991 F. 2d, 1489 citing Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.

23 S. 350, 364, 111 S. Ct. 2773, 2780-81, 115 L. Ed. 2d 321 (1991) rehearing denied. A 24 25 26 27 28

claim is barred if it is not made "one year after the discovery...or after such discovery should have been made by the exercise of reasonable diligence". 15 U. S. C. § 77m. "A statute of limitations is a procedural device that operates as a defense to limit

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1 the remedy available for an existing cause of Action." Court's Amended Order, p. 15, 2 lns. 3-4, citing Duran v. Henderson, 71 S. W. 3d 833, 837 (Tex. Ct. App. 2002). "A 3 4

statute of repose, on the other hand, creates a substantive right to be free from liability

5 after a legislatively-determined period. Id. While a statue of limitations merely bars the 6 7 8

enforcement of a right, a statute of repose extinguishes the claim after the specific time period has expired." Court's Amended Order, p. 15, lns. 5-8 citing Duran, 71 S. W. 3d
th

9 at 837 and U. S. v. Bacon, 82 F. 3d 822, 823 (9 Cir. 1996). The statute of repose cannot 10 11 12

be waived. Court's Amended Order, p. 15, lns. 9-10, citing Duran, 71 S. W. 3d at 837. The statute of limitations for federal securities fraud claims in the '33 Act requires

13 that a cause of action against any party for violation must be filed within three years 14 15 16 17 18 19 20

from the violation or within one year from the time discovery of the fact should have been made. See Rind and Lampf cases above and 15 U. S. C. § 77m. The SEC filed fraud claims against Robert Dillie on December 20, 2001. The Complaint in that case alleged there was a "nationwide network of commissioned sales agents." Complaint, SEC v. Dillie, Case No. CIV 01-2493 PHX JAT, dated

21 December 20, 2001, ¶ 13. Only six months later, the Court in the SEC v. Dillie case, 22 23 24 25 26 27 28

declared unconditionally and sua sponte that the CGA's being sold by Dillie's company MAF, were securities. See Court's Order dated June 7, 2002 and SSFSMSJ, ¶ 10. Paragraph 13 of the SEC v. Dillie Complaint, combined with the Court's sua sponte decision that the CGA's were "securities" was sufficient evidence to put the

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1 Receiver and his counsel on notice that there may have been securities violations. Yet, 2 by his own admission, the Receiver says his counsel "discovered that Dillie utilized a 3 4

network of sales agents" on the day of Dillie's deposition which was not until on March
1

5 19, 2002. 6 7 8 9 10 11 12

If the Receiver's counsel would have read the SEC's Complaint against

Dillie, he would have known about the "network of sales agents." B. There is No Legal Sufficient Basis to Find in Favor of the Receiver on This Issue, The Evidence of the Receiver's Lack of Due Diligence is Un-Impeached and Un-Contradicted Rule 50 provides that if "the court finds that a reasonable jury would not have a legally sufficient evidentiary basis to find for the party ... the court may resolve the issue

13 against the party." Fed.R.Civ.P. 50(A). Also, the Court should give credence to the 14 15 16 17 18 19 20

evidence offered by the Defendants here because it is un-contradicted and unimpeached. First, on January 16, 2002, 70 banker boxes, filling 4 lateral file cabinets were delivered to the Receiver personally, by the direction of Robert Dillie. Memorandum in Support of Petition for Order Holding Defendants, Relief Defendant and Josh

21 Dillie in Contempt of Court, Re: Petition No . 8, Case No. CIV 01-2493 PHX JAT, 22 23 24 25 26 27 28
1

filed dated March 2002, p. 9, Section "V. Removal of Receivership Records", and

Robert Dillie's Deposition was taken on March 19, 2002. Appearances included: Marshall Gandy Attorney in Charge representing SEC, Patrick Murphy and Ryan Anderson of Guttilla & Murphy, P.C., attorneys for the Receiver, Gary R. Clapper, Special Investigator, Arizona Corporation Commission and Mr. Lawrence J. Warfield, Receiver. During his deposition Robert Dillie refers to "X number of agents across the country that were marketing it," referring to the CGA's. He went on further to explain "I don't' know an exact number, but it probably was somewhere in neighborhood of 500 to a thousand agents." Deposition of Robert Dillie, dated March 19, 2002, p. 156, lns. 19-25, p. 157, lns. 1-4.

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1 Footnote 1 and Transcript of Hearing Re: Order to Show Cause, September 30, 2 2002 Testimony of Robert Dillie, p. 14, lns. 9-10. These files contained a set of books 3 4

that accurately reflected the financial transactions of MAF and Dillie with a separate file

5 for each CGA buyer/donor. The Receiver's delay in exploring the potential securities 6 7 8 9 10 11 12

claims presents no legally sufficient basis to find that he met the statute of limitations on these claims. Next, the names and addresses of all CGA purchasers and the amount for each purchase together with the names and addresses of all the CGA commission agents, plus the amount paid to each agent was neatly labeled and contained within the Court's files.

13 Only someone with no personal knowledge of the SEC's efforts in SEC v. Dillie could 14 15 16 17 18 19 20

overlook the obvious. The delay in the discovery was unreasonable and showed a lack of reasonable diligence on the part of the Receiver and his counsel. Additionally, the Receiver readily admits that upon his appointment he took "exclusive custody and possession of the business records" of Mid-America. Declaration of Lawrence J. Warfield in Support of Receiver's Motion for Partial Summary

21 Judgment, Exhibit 10, ¶¶ 3-4. Had the business records been read and reviewed by the 22 23 24 25 26 27 28

Receiver and not merely shelved, he could have discovered any potential federal securities law violations. Finally, the Receiver had the MAF records by January 16, 2002 according to undisputed testimony. Even if the Receiver and his counsel discovered the "network of

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1 agents" on March 19, 2002, the Receiver should have filed the federal securities fraud 2 claims by March 19, 2003, yet he failed to do so. 3 4 5 6 7 8

III. Conclusion Had the Receiver been reasonably diligent he could have made the discovery of the commission payments in the documents that were available to him, but he failed to find them or even look though they were in his possession and in plain sight. The

9 Receiver's failure to diligently and timely pursue potential federal securities fraud 10 11 12

claims in this matter, bars all federal securities fraud claims against the Defendants pursuant to the statute of repose and limitations of the '33 and '34 Acts. No legally

13 sufficient evidentiary basis exist to find that the Receiver met the reasonable diligence 14 15 16 17 18 19 20 21 22 23 24

requirement for discovery of the any federal securities claims. Thus, the Court should grant this motion in favor of the Defendants. Dated at Phoenix, Arizona this _____ day of February, 2007.
BURTON M. BENTLEY, P.C.

/s/ Burton M. Bentley Burton M. Bentley Attorney for Defendants Rada /// ///

25 /// 26 /// 27 28

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PROOF OF SERVICE This is to certify that a true copy of the foregoing Motion has been filed electronically with the

3 Court and that the persons on the attached service list designated as "CM/ECF Registered" will be 4 5 6 7 Ryan W. Anderson, Esq. 9 Guttilla & Murphy, PC Attorneys for the Receiver 10 CM/ECF Registered 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8 _/s/___Michele Medlyn Burton M. Bentley ____ served with same by the Court's CM/ECF system; and that the other persons on the attached service list have been served with a copy of the Motion by first class mail this 15th day of February, 2007.

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