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Commission v. Small Business Capital Corp.

United States District Court, N.D. California, San Jose Division

July 29, 2014



EDWARD J. DAVILLA, District Judge.

I. Introduction

Presently before the Court is Natalie Feathers' ("Prospective Intervenor") Motion to Intervene in a securities fraud case brought by Plaintiff Securities Exchange Commission ("SEC") against Defendants Mark Feathers, Small Business Capital Corp. ("SBCC"), Investors Prime Fund, LLC ("IPF"), and SBC Portfolio Fund, LLC ("SPF") (collectively, "Defendants"). See Docket Item No. 704. Per Civil Local Rule 7-1(b), the motion was taken under submission without oral argument. Having fully reviewed the parties' pleadings, this Court DENIES the Motion to Intervene.

II. Background

This action involves two mortgage investment funds, IPF and SPF, both managed by Defendant Mark Feathers through his company SBCC. Order Granting Mot. for Summ. J., Docket Item No. 591 at 2. The offering documents of IPF and SPF identified SBCC as the sole manager of the funds and Defendant Mark Feathers and the Prospective Intervenor were the only signatories on the bank accounts of SBCC, IPF, and SPF. Id.

On June 21, 2012, the SEC filed a Complaint against Defendants, alleging two counts of fraud under the Securities Act of 1933 ("Securities Act") and the Securities Exchange Act of 1934 ("Exchange Act"); one count of violation of the Exchange Act as an unregistered broker-dealer; and one count of violation of the Exchange Act for controlling person liability. Docket Item No. 1. On July 10, 2012, this Court issued a Preliminary Injunction and Order (1) Freezing Assets, (2) Prohibiting Destruction of Documents, (3) Requiring Accountings, and (4) Appointing a Permanent Receiver ("Injunction Order"). Docket Item No. 34. In the Injunction Order, the Court appointed Thomas Seaman ("Receiver") as permanent receiver of the funds, granting him "full power over all funds, assets, collateral, premises" as equity receiver of SBCC, IPF, and SPF. Id . On May 23, 2013, the SEC filed a Motion for Summary Judgment (Docket Item No. 477), which was granted by this Court on August 16, 2013 (Dkt. No. 591). The Court found that Defendants committed two counts of fraud under the Securities Act and the Exchange Act, SBCC violated the Exchange Act as an unregistered broker-dealer, and Defendant Mark Feathers and SBCC were liable as control persons in violation of the Exchange Act. Dkt. No. 591. On August 29, 2013, Defendant Mark Feathers appealed the Court's order to the Ninth Circuit. Def.'s Notice of Appeal, Docket Item No. 593.

On November 15, 2013, the Receiver filed a Motion to Approve Omnibus and Specific Claim Objections ("Claims Motion"). Docket Item No. 626. Four days later, the Receiver filed a Motion for Approval of Distribution Plan and Authorization to Make Interim Distributions ("Distribution Motion"), requesting approval to make an interim distribution of $19 million to the holders of allowed claims and reserve the remaining cash in the receivership estate. Docket Item No. 628. On February 14, 2014, the Court held a hearing regarding these motions and later issued an order authorizing the Receiver to make a distribution of $15 million and to set aside $4 million in the receivership estate, pending further order of the Court. Am. Order Granting Claims Mot., Docket Item No. 714; Am. Order Granting Distribution Mot., Docket Item No. 715.

Ten days after the hearing on the Receiver's motions, on February 24, 2014, Prospective Intervenor filed the instant Motion to Intervene, alleging that the Court's Injunction Order in July 2012 not only froze Defendants' assets, but also Prospective Intervenor's personal assets (held jointly with Defendant Mark Feathers) and her investment in IPF. Dkt. No. 704 at 2. On March 5, 2014, the SEC filed an Opposition (Docket Item No. 734) and Prospective Intervenor filed a Response on March 10, 2014 (Docket Item No. 752). Defendants do not oppose this Motion.

III. Legal Standard

Federal Rule of Civil Procedure 24 provides for two types of intervention-intervention as of right and permissive intervention. Under Rule 24(a), a prospective intervenor may intervene in litigation as of right when a federal statute confers an unconditional right, or when the prospective intervenor claims that his interest may, as a practical matter, be impaired by disposition of the pending action and that interest is not adequately represented by existing parties. Fed.R.Civ.P. 24(a). The Ninth Circuit has held that to intervene as of right, a prospective intervenor must: (1) file a timely motion; (2) identify a significant protectable interest relating to the property that is the subject matter of the action; (3) suffer practical impairment of an interest if intervention is not granted; and (4) be inadequately represented by existing parties. Arakaki v. Cayetano , 324 F.3d 1078, 1083 (9th Cir. 2003). Failure to satisfy any of these requirements is fatal to a motion to intervene. Perry v. Proposition 8 Official Proponents , 587 F.3d 947, 950 (9th Cir. 2009). If all four requirements are satisfied, a district court must grant the motion to intervene. United States v. State of Washington , 86 F.3d 1499, 1503 (9th Cir. 1996).

Under Rule 24(b), the second type of intervention is permissive intervention. Fed.R.Civ.P. 24(b). The Ninth Circuit has held that a court may grant permissive intervention when the prospective intervenor files a timely application, shares a common question of law or fact with the main action, and the court has an independent basis for jurisdiction over intervenor's claims. Donnelly v. Glickman , 159 F.3d 405, 412 (9th Cir. 1998). Unlike intervention as of right, even if all three requirements are satisfied, the district court has discretion to deny permissive intervention. Id.

Further, Rule 24(c) provides that a motion to intervene must "state the grounds for intervention and be accompanied by a pleading that sets out the claim or defense for which intervention is sought." Fed.R.Civ.P. 24(c). However, the Ninth Circuit has approved motions to intervene without a pleading or other technical defect "where the court was otherwise apprised of the grounds of the motion." Beckman Indus., Inc. v. Int'l Ins. Co. , 966 F.2d 470, 474 (9th Cir. 1992).

IV. Discussion

The Prospective Intervenor moves to intervene in this litigation based on both intervention as of right and permissive intervention. Because Prospective Intervenor is proceeding in intervention pro se, the Court has liberally construed her submissions. See Abassi v. Immigration & Naturalization Serv. , 305 F.3d 1028, 1031-32 (9th Cir. 2002).

A. Intervention as of Right

As discussed supra, a court must examine four requirements to grant intervention as of right: (1) the timeliness of the motion; (2) the identification of a significant protectable interest; (3) practical impairment of the prospective intervenor's interest; and (4) the inadequacy of representation by existing parties. Wilderness Soc'y v. U.S. Forest Serv. , 630 F.3d 1173, 1177 (9th Cir. 2011). Failure to ...

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