Free Motion for Miscellaneous Relief - District Court of Arizona - Arizona

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Guttilla Murphy Anderson, P.C.

Guttilla Murphy Anderson, P.C.
Ariz. Firm No. 00133300

Ryan W. Anderson (Ariz. No. 020974) Alisan M.B. Patten (Bar No. 009795)
4150 West Northern Avenue Phoenix, Arizona 85051 Email: [email protected] Phone: (623) 937-2795 Fax: (623) 937-6897

Attorneys for the Receiver IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA Lawrence J. Warfield, Receiver, Plaintiff, v. Michael Alaniz, et al. Defendants. ) ) ) ) ) ) ) ) ) ) )

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Cause No. CV 03-2390 PHX JAT MOTION TO ALTER OR AMEND JUDGMENT

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Plaintiff, the Receiver, moves for the correction or amendment of the judgment signed by the Clerk on February 28, 2007, pursuant to rule 60(a), Fed.R.Civ.P. and/or alternatively rule 59(e), Fed.R.Civ.P. Memorandum of Law

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There are four corrections or alterations/amendments needed to the judgment entered by the Clerk of the Court in this matter on February 28, 2007. Marital Communities Should Be Included in the Judgment The marital communities of Defendants Leonard Bestgen, Rudy Crosswell and Patrick Wehrly were not included in the judgment entered by the Clerk. The wives of Leonard Bestgen, Rudy Crosswell and Patrick Wehrly were all defendants in this lawsuit.
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In fact, as set forth in the Court's electronic Docket entry dated February 28, 2007 (copy of which is attached hereto as Exhibit "A"), Elizabeth Bestgen, Mary Crosswell and Andrea Wehrly were all recognized by the Court as defendants against whom judgment was obtained. Accordingly, it appears that the failure to include these defendants, in the formal judgment entered by the Clerk on February 28, 2007, simply was a clerical error and should be corrected pursuant to rule 60(a), Fed.R.Civ.P. As such, the proposed form of amended judgment lodged with the Court corrects this error by including the marital community properties of Leonard Bestgen, Rudy Crosswell and Patrick Wehrly. To the extent this was not a clerical error, the Receiver moves to alter, or amend, the judgment pursuant to rule 59(e), Fed.R.Civ.P. in order to ensure that the judgment properly includes all defendants to the lawsuit (who were not previously dismissed). 2. Postjudgment Interest The judgment fails to provide for an award of postjudgment interest. A postjudgment award is to compensate the receivership estate for the loss of the use of its asset (i.e., the moneys owed to the Receiver on the underlying judgment) while it remains in the defendants' possession. (The "use," to which the moneys paid on this judgment will ultimately be put, is the payment of claims to the Ponzi victims in this matter.) See, Home Savings Bank v. Gilliam, 952 F. 2d 1152, 1162 (9th Cir. 1991) holding the District Court's award of post-judgment interest to be appropriate in that matter relying upon "Kaiser Aluminum & Chem. Corp. v. Bonjorno, 494 U.S. 827, 835, 110 S.Ct. 1570, 1576, 108 L.Ed.2d 842 (1990) (`The purpose of post-judgment interest [under section 1961] is to compensate the successful plaintiff for being deprived of compensation for the loss from the time between the ascertainment of the damage and the payment by the
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defendant.' (quoting Poleto v. Consolidated Rail Corp., 826 F.2d 1270, 1280 (3rd Cir. 1987.)'" Pursuant to rule 58.1(b), Local Rules of Practice of the United States District Court for the State of Arizona ("L.R.Civ.), the following is required in a judgment for an award of money: When a judgment provides for an award of money, the form of judgment prepared must provide a space wherein the rate of interest can be entered by the Court on the date of entry at the rate then authorized pursuant to 28 U.S.C. §1961(a). Again, this omission appears to be one of mere oversight by the Clerk;

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9 accordingly, the proposed form of amended judgment lodged with the Court comports
4150 West Northern Ave. Phoenix, Arizona 85051 (623) 937-2795

10 with rule 58.1(b), L.R. Civ. Alternatively, this request is based upon rule 59(e), 11 Fed.R.Civ.P. 12 The Receiver moves, pursuant to rule 59(e), Fed.R.Civ.P., for the "blank" 13 required for the post-judgment interest rate, as discussed supra, to be "filled in" in the 14 proposed form of amended judgment with the interest rate of 5.05%. This rate is based 15 upon the calculation required under 29 U.S.C. §1961(a), which states in pertinent part 16 that: 17 18 19 20 21 22 23
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"[I]nterest shall be calculated from the date of the entry of the judgment, at a rate equal to the weekly average 1-year constant maturity Treasury yield, as published by the Board of Governors of the Federal Reserve System for the calendar week preceding the date of the judgment. The Director of the Administrative Office of the United States Courts shall distribute notice of that rate and any changes in it to all Federal judges. The pertinent post-judgment interest rate for the calendar week preceding the date of the judgment (i.e., February 28, 2007) was 5.05%. (See Exhibit B attached hereto.)

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Accordingly, the proposed amended judgment lodged with the Court includes postjudgment interest at the rate of 5.05% per annum. 3. Taxable Costs Costs shall be allowed as a matter of course to the prevailing party. (See, 54(d), L.R.Civ.) In this case, the Receiver prevailed on five of his nine claims against each of the six defendants. The Ninth Circuit recognizes that a "prevailing party" is not limited to one who prevails on all of his claims. See, K-2 Ski Co. v. Head Ski Co. Inc., 506 F.2d 471, 476-477 (9th Cir. 1974) holding: `In general, a party in whose favor judgment is rendered by the district court is the prevailing party . . . . Although a plaintiff may not sustain his entire claim, if judgment is rendered for him he is the prevailing party.' 6. J. More, Federal Practice P54.70(4), at 1306-1307 (2d ed. 1974). See also, Rule 54.1(d), L.R.Civ.

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Although, the amount of costs will be taxed by the Clerk in response to the Bill 13 of Costs previously filed by the Receiver, the judgment (signed by the Clerk) should at 14 least state that costs are to be awarded to the Plaintiff as the prevailing party. This 15 omission from the judgment signed by the Clerk of the Court was either a clerical error 16 which may be corrected pursuant to rule 60(a), Fed.R.Civ.P., or, if not a clerical error, 17 then the Receiver moves pursuant to rule 59(e), Fed.R.Civ.P., to alter, or amend, the 18 judgment. 19 Alternatively, if the Clerk determines the outcome of the Receiver's Bill of Costs 20 prior to the Court's ruling on this motion, the Receiver requests that the amount of 21 taxable costs awarded be included in the proposed amended judgment lodged with this 22 23
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motion (rather than having one judgment addressing the damages awarded by the jury and another judgment addressing taxable costs). 4. Prejudgment Interest Pursuant to rule 59(e), Fed.R.Civ.P., the Receiver seeks to alter or amend the judgment in this matter to include an award of prejudgment interest to the Receiver1. a. Under both federal and state law analyses, prejudgment interest should be awarded to the Receiver.

In diversity actions, state law determines whether an award of prejudgment 8 interest is appropriate. See, Landsberg v. Scrabble Crossword Game Players, 802 F.2d
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1193 (9th Cir. 1986). This Court has diversity jurisdiction over the parties. Accordingly, Arizona law regarding prejudgment interest would apply. In Arizona, "[p]rejudgment

10 11 interest on a liquidated claim is a matter of right and not a matter of discretion." Trus 12 Joist Corp. v. Safeco Insurance Co. of America, 153 Ariz. 95, 109, 735 P. 2d 125, 139 13 (Ariz. App. 1986). Although the ultimate judgment amount awarded to the Receiver by 14 the jury was less than the full amount sought in his Third Amended Complaint, the claims 15 against defendants are still considered liquidated: 16 17 18 19 20 21 22
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A creditor is entitled to interest on his claim prior to judgment, provided such demand is liquidated. The claim is liquidated if the evidence furnishes data which, if believed, make it possible to compute the amount with exactness without reliance upon opinion or discretion. (Citation omitted.) The award of pre-judgment interest is a matter of right and not a matter of discretion. (Citation omitted.) Appellant contends that since appellees sued for $20,000 and the jury awarded them $17,260, that the damages were unliquidated. We do not agree. The existence of a difference between the amount of damages claimed and the amount awarded does not preclude the award of prejudgment interest.

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The United States Supreme Court held in Osterneck v. Ernst & Whinney, 489 U.S. 169, 109 S.Ct. 987 (1989) that a motion for an award of prejudgment interest properly may be made following a jury verdict pursuant to rule 59(e), Fed.R.Civ.P.

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Suciu v. AMFAC Distributing Corp., 138 Ariz. 514, 520-521, 675 P.2d 1333, 1339-1340 (Ariz. App. 1983). In the instant case, the defendants were sued for specific amounts, i.e., the total amount of specific commissions paid to them for selling fraudulent charitable gift annuities. Accordingly, the damages sought were liquidated and are subject to an award of prejudgment interest. Further, while an award of prejudgment interest is mandatory under Arizona law, it also comports with the general goal of an award of prejudgment interest which is to deter defendants from attempting to benefit from delays in litigation as well as to recompense the victims in this case. See, Trimble v. American Savings Life Ins. Co., 152 Ariz. 548, 733 P.2d 1131 (Ariz. App. 1986). This Court also has jurisdiction over the parties because the Receiver's claims are ancillary to the federal lawsuit brought by the SEC in SEC v. Dillie, Cause Number CIV01-2493 PHX JAT, Dist. Ct. Az. When a court has subject matter jurisdiction because a federal question is involved, the decision whether to grant prejudgment interest is based upon the Court's broad discretion. Nipponkoa Ins. Col, Ltd, v. Watkins Motor Lines, Inc., 431 F.Supp.2d 411 (D.C. N.Y. 2006). If this would cause the Court to analyze the issue of prejudgment interest under federal law, the outcome of the analysis is no different from the analysis under state law. Although 28 U.S.C. §1961(a) does not mention prejudgment interest specifically, the federal courts recognize that: . . . prejudgment interest, like all monetary interest, is simply compensation for the use or forbearance of money owed. (Citation omitted.) No matter what area of law is considered, prejudgment interest, when awarded, is part of a successful plaintiff's complete compensation . See, e.g., West Virginia v. United States, 479 U.S. 305, 310 n. 2, 107 S.Ct. 702, 93 L.Ed. 2d 639 (1987) (breach of contract) (`Prejudgment interest serves to compensate for the loss of use of money due as damages from the time the claim accrues
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until judgment is entered, thereby achieving full compensation for the injury those damages are intended to redress.') Transmatic, Inc. v. Gulton Industries, Inc., 180 F.3d 1343, 1347-1348 (Fed. Cir. 1999).

3 The Ninth Circuit also recognizes that prejudgment interest is a well established 4 remedy: 5 6 7 8
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Prejudgment interest has become a familiar remedy widely recognized by federal courts as a means to make a plaintiff whole against a dilatory defendant . . . . [M]oney has a time value, and prejudgment interest is therefore necessary in the ordinary case to compensate a plaintiff fully for a loss suffered at time t and not compensated until t + 1. Moreover, prejudgment interest is a well-established remedy in this circuit.' (Citation omitted.) United States of America v. Pend Oreille County Public Utility District No. 1 et al., 135

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10 F.3d 602, 613 (9th Cir. 1998). See also, Home Savings Bank v. Gilliam, supra, 952 F.2d at 11 1161, holding that an award of prejudgment interest in cases arising under federal law 12 rests within "the sound discretion of the court" and is governed by considerations of 13 fairness; Wessel v. Buhler, 437 F.2d 279, 284 (9th Cir. 1971) holding that a determination 14 as to whether prejudgment interest will be awarded is a "question of fairness, lying within 15 the Court's sound discretion to be answered by balancing the equities." 16 Here, the defendants received commissions for selling fraudulent charitable gift 17 annuities and, in the process, among other things, committed security fraud. They should 18 not be rewarded by allowing them an "interest free loan" from the pockets of the elderly 19 victims in this case. Instead, an award of prejudgment interest should be awarded in order 20 to provide full compensation to the ultimate recipients of the judgment, i.e., underlying 21 victims. 22 23
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It also is noted that the instant case arose out of federal and state securities fraud claims. Prejudgment interest for securities fraud claims is recognized under federal law. In S.E.C. v. Cross Financial Services, Inc., 908 F. Supp. 718 (D.C. Ca. 1995) involving a request for prejudgment interest for the plaintiff's successful outcome on various claims of securities fraud, the Court held the following: As for the disgorgement request, this type of equitable relief prevents unjust enrichment. (Citations omitted.) The amount of disgorgement should include all gains flowing from the illegal activities. (Citation omitted.) The ill-gotten gains include prejudgment interest to ensure that the wrongdoer does not profit from the illegal activity. S.E.C. v. Cross Financial Services, Inc., 908 F. Supp. 718, 734 (D.C. Cal. 1995). Accordingly, under either state or federal law, the Receiver should be awarded prejudgment interest. b. The appropriate rate of interest.

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It is recognized that in diversity actions, state law determines the rate of prejudgment interest See, Northrop Corp., v. Triad International Marketing S.A., 842 F.2d 1154 (9th Cir. 1988). Under Arizona law, the rate of interest on prejudgment interest awards is 10%. See, A.R.S. §44-1201(A). Accordingly, if this Court holds that Arizona law applies to a determination of an award of prejudgment interest, the rate of 10% per annum should be used in calculating the amount of the interest. If state law does not determine the rate of interest than the rate must be determined by federal law which recognizes that, "`[i]nterest is not recovered according to a rigid theory of compensation for money withheld, but is given in response to considerations of fairness.' (Citation omitted.)" United States of America v. Pend Oreille County Public Utility District No. 1 et al., supra, 135 F.3d at 613.
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The Court in E.E.O.C. v. Wooster Brush Co. Employees Relief Assoc., 727 F.2d 566 (6th Cir. 1984), held that while district courts may use the 28 U.S.C. §1961(a) formula in determining the rate of prejudgment interest, they are not compelled to adopt this approach. The Court in Williams v. Wright, Jr., 783 F.Supp. 1392, 1399-1400 (D.C. Ga. 1992) held that it was appropriate to choose the state's prejudgment interest rate rather than the postjudgment rate in §1961(a) in determining the prejudgment interest rate there. In United States of America v. Pend Oreille County Public Utility District No. 1 et al., supra, the Ninth Circuit awarded prejudgment interest at 90% of prime rate. It was held in S.E.C. v. Cross Financial Services, Inc., supra, 908 F. Supp. 718 (D.C. Cal. 1995) that, in a case involving securities claims, the appropriate rate at which to calculate prejudgment interest was the same rate applicable to postjudgment interest under 28 U.S.C. §1961(a). However, in Western Pacific Fisheries, Inc. v. SS President Grant, 730 F.2d 1280 (9th Cir. 1984), the Court held that the rate specified in 28 U.S.C. §1961(a) was applicable to prejudgment interest claims subject to the equities of each particular case: We conclude that the measure of interest rates prescribed for postjudgment interest in 28 U.S.C. §1961(a) is also appropriate for fixing the rate of pre-judgment interest in cases such as this, where pre-judgment interest may be awarded, unless the trial judge finds, on substantial evidence, that the equities of the particular case require a different rate. Western Pacific Fisheries, Inc. v. SS President Grant, supra, 730 F.2d at 1289. In this case, the equities of this case balance in favor of permitting a prejudgment interest award at the state rate of 10%.

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c.

The date the prejudgment interest award should commence.

In Trimble v. American Savings Life Ins. Co., supra, the Director of Insurance and the Director of Securities brought a lawsuit against American Savings alleging securities and insurance fraud for its sale of an investment/life insurance product called the "Inflation Beater." This product, in reality, was part and parcel of a Ponzi scheme. The Court subsequently entered an injunction against American Savings and approved a plan of reorganization. American was ordered to make payments to the investor-victims with prejudgment interest from the date the investors originally made their payments to American Savings. Here, prejudgment interest should run from the date the defendants received their ill-gotten commissions just as the prejudgment interest in American ran from the date American Savings received its ill-gotten payments. Under federal law, since interest is not subject to a rigid theory of compensation but is given a response to considerations of fairness (Osternek v. Ernst & Whinney, supra, at pages 991-992), the date of commencement should be the date the defendants violated securities laws by accepting commissions for their sale of fraudulent charitable gift annuities. d. Individual prejudgment interest awards

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Attached hereto as Exhibit "B" is a declaration of the Plaintiff, Lawrence J. Warfield ("Warfield Declaration"), which sets forth various calculations of prejudgment interest and the Receiver's recommendation of the appropriate amount. Attached to the Warfield Declaration as Exhibit 1, is a table that calculates the prejudgment interest from the date of the last commission payment at three different rates ­ the Arizona rate of 10%, the federal post judgment rate of 5.05%, and the rate of 7.53%
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which is midway between the other rates. The date of the last commission payment should be used since it is the latest date that the Receiver's claims arose. At that time the defendants possessed all the information they needed to make the Receiver's claim liquidated ­ namely they knew the amount of commissions they had received for facilitating the sale of unregistered charitable gift annuities. Although one could clearly argue that at least some of the award recovered by the Receiver should accrue interest from the dates of earlier commission payments, in an effort to eliminate as many points of contention and simplify the calculation the Receiver has elected to calculate the rate from the date of the last commission payment. For all the foregoing reasons, the Receiver requests an award of prejudgment interest in the proposed form of judgment utilizing the analyses discussed supra. 5. Summary For the foregoing reasons, the Receiver respectfully requests this Court to enter an amended judgment in the form of the proposed judgment lodged with the Court.

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Respectfully submitted this 12th day of March, 2007. 16 GUTTILLA MURPHY ANDERSON, P.C. 17 18 19 20 21 22 23
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____/s/Ryan W. Anderson___________ Ryan W. Anderson Attorneys for the Receiver

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PROOF OF SERVICE This is to certify that on this 12thday of March, 2007, I electronically transmitted the foregoing document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the CM/ECF registrants listed below; and that the persons listed below who are not registered participants of the CM/ECF System have been served with a copy of the foregoing document by first class mail this date.

s/Ryan W. Anderson Ryan W. Anderson Burton M. Bentley ECF Registered [email protected] Attorney for Defendants Leonard and Elizabeth Bestgen, Robert Carroll, Rudy and Mary Crosswell, Charles Davis, Richard Derk, Orville Frazier, Ronald Kerher, Dwight Lankford, John and Candes Rada, Paul Richards, and Patrick and Andrea Wehrly Steve A. Bryant Steve Bryant & Associates 3618 Mt. Vernon Street, Suite A Houston, TX 77006 Attorneys for Dwight Lankford

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0758-011(60485)

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