Free Response in Opposition to Motion - District Court of Arizona - Arizona

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Guttilla Murphy Anderson, P.C.
Ariz. Firm No. 00133300 Patrick M. Murphy (Ariz. No. 002964) Ryan W. Anderson (Ariz. No. 020974) Alisan M. B. Patten (Ariz. No. 009795) 4150 West Northern Avenue Phoenix, Arizona 85051 Email: [email protected] Phone: (623) 937-2795 Fax: (623) 937-6897

Attorneys for the Receiver 6 UNITED STATES DISTRICT COURT 7 DISTRICT OF ARIZONA 8 Lawrence J. Warfield, Receiver,
Guttilla Murphy Anderson, P.C.

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4150 West Northern Ave. Phoenix, Arizona 85051 (623) 937-2795

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Plaintiff, Michael Alaniz, et al. Defendants.

) Cause No. CV 03-2390 PHX JAT ) ) ) ) PLAINTIFF'S RESPONSE TO RADA ) DEFENDANTS' MOTION FOR JMOL ) PURSUANT TO FED. R. CIV. P. 50 ) ) ) ) (Assigned to the Hon. James A. Teilborg)

Plaintiff Lawrence J. Warfield, as court-appointed receiver of Mid-America Foundation, Inc. and Mid-America Financial Group, Inc. (the "Receiver"), herein responds to the Rada Defendants' Motion for JMOL Pursuant to Fed. R. Civ. P. 50-- Statute of Limitations Has Expired on The Receiver's Claims for Violations of Federal Securities Laws ("Defendant's Motion for JMOL"), filed February 15, 2007. This Court previously denied the defendants' oral motion to dismiss the federal securities claims1 as barred by the statute of repose. The defendants, nevertheless, filed the same motion in writing in the form of their Motion for JMOL. Just as it denied the
The Motion for MJOL does not address the Arizona securities fraud claims arising under A.R.S. §44-1991. Those claims, which are applicable to all defendants, are subject to a statutory limitation of two years from the date of discovery. A.R.S. §44-2004(C). Since this lawsuit was filed less than two years after the Receiver's appointment, there is no question that a statute of limitations defense is not available to the defendants on the state law claims, even if the defense had been timely raised in the Joint Proposed Pre-Trial Order, which it was not.
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Case 2:03-cv-02390-JAT

Document 559

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oral motion, this Court should deny the written motion because the Receiver's federal securities claims are not barred by the applicable statutes of limitations or repose. MEMORANDUM OF POINTS AND AUTHORITIES Disingenuously, the defendants misstate the law on the applicable statutes of limitations and repose in their Motion for JMOL. The statutes of limitation and repose applicable to federal securities claims by private litigants were significantly increased by Congress from the periods described in the defendants' motion: In response to the WorldCom disaster, Congress enacted the SarbanesOxley Act of 2002 ("Sarbanes-Oxley"). Section 804 of Sarbanes-Oxley lengthened the statute of limitations for private causes of action alleging securities fraud to allow them to be filed within two years after discovery of the fraud. See 28 U.S.C. § 1658 ("Section 804"). Section 804 provides in pertinent part that a private right of action that involves a claim of fraud, deceit, manipulation, or contrivance in contravention of a regulatory requirement concerning the securities laws, as defined in section 3(a)(47) of the [Exchange Act] [15 U.S.C. § 78c(47) ], may be brought not later than the earlier of-- (1) 2 years after the discovery of the facts constituting the violation; or (2) 5 years after such violation. In re Worldcom, No. 02 Civ.3288 DLC, 03 Civ.338, 2003 WL 22790942, at *5

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(S.D.N.Y. Nov. 25, 2003) (emphasis in original). Such increase in the applicable periods 16 went into effect on July 30, 2002. Pub.L. No. 107-204, § 804(b), 116 Stat. 745, 801 (July 17 30, 2002). 18 There can be no question as to whether the Receiver's claims for federal securities 19 violations were brought within two years of discovery of the facts constituting such 20 violations. The defendants argue that the Receiver discovered his securities claims 21 shortly after his appointment, but, even if that were true, it would be inapposite because 22 this lawsuit was filed less than two years after the Receiver's appointment. On December 23
Case 2:03-cv-02390-JAT Document 559

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21, 2001, this Court entered its Order Appointing Temporary Receiver (herein "Receivership Order") in Civil Action No. 2:01-CIV-2493 PHX JAT, appointing Lawrence J. Warfield as receiver for Mid-America Foundation, Inc. and Mid-America Financial Group, Inc.2 The Receiver filed this lawsuit on December 3, 2003, less than two years after his appointment. Therefore, even if the Receiver became aware of his claims against the defendants on the very day he was appointed, he brought such claims within the applicable statute of limitations. Accordingly, the two-year statute of limitations does not bar the Receiver's federal securities claims. As far as the five-year limitation, if one assumes that this limitation is a statute of repose, then violations of the federal securities laws before July 30, 1999 arguably might be barred.3 The defendants have the burden of asserting the defense, In re Immune Response Secs. Litig., 375 F.Supp.2d 983, 1027 (S.D.Cal. 2005), but defendants have not offered any proof of when the violations occurred. In fact, the securities violations occurred over an extended period of time. The violations started when the defendants first introduced the Mid America CGA to their clients, at which time the defendants produced false and misleading marketing material supplied by Mid America. The violations continued when the defendants made subsequent statements to their clients about the CGA. The violations continued further when the defendants failed to disclose to their clients that the defendants should have, but did not, obtain an audited financial statement. Having presented no evidence of the date on which the violations occurred,

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The Receiver requests the Court take judicial notice of the pleadings on file in this and the Underlying lawsuit. The new limitation periods in 28 USC §1658 enacted under Sarbanes-Oxley were made effective on July 30, 2002. [cite] Any claim that was not barred under the previous three year period (violations after July 30, 1999) would enjoy the extended period of five years, thus extending the time to file a complaint to July 30, 2004. The lawsuit here was clearly filed before then.
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the defendants have wholly failed to establish that the Receiver's federal securities law claims are barred by the five-year limitation. Moreover, the defendants have waived their limitations defense by failing to raise it earlier. They make no mention of the defense in the Joint Proposed Pre-Trial Order filed by the parties over four months ago, nor do they in previous pleadings. Not only have the defendants failed to produce any evidence to identify which securities sales are barred, they waited to the end of trial to raise this issue. For these reasons, the Court should reaffirm its denial of the defendants' Motion for JMOL on the Receiver's federal securities claims. Respectfully submitted this February 16, 2007. GUTTILLA MURPHY ANDERSON, P.C. _/s/Patrick M. Murphy___________ Patrick M. Murphy Attorneys for the Receiver PROOF OF SERVICE This is to certify that on this 16th day of February, 2007, I electronically transmitted the foregoing document to the Clerk's Office using the CM/ECF System for

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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 22 [email protected] Attorney for Defendants Leonard and Elizabeth Bestgen, Robert Carroll, Rudy and Mary 23 Crosswell, Charles Davis, Richard Derk, Orville Frazier, Ronald Kerher, Dwight Lankford, John and Candes Rada, Paul Richards, and Patrick and Andrea Wehrly Case 2:03-cv-02390-JAT Document 559 4 Filed 02/16/2007 Page 4 of 5

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Guttilla Murphy Anderson, P.C.
0758-011(59793)

Steve A. Bryant Steve Bryant & Associates 3618 Mt. Vernon Street, Suite A Houston, TX 77006 Attorneys for Dwight Lankford

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Case 2:03-cv-02390-JAT Document 559

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