Free Motion for New Trial - District Court of Arizona - Arizona

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PLLC 1423 S. HIGLEY RD., SUITE 110 MESA, ARIZONA 85206 TELEPHONE: (480) 633-8100 FACSIMILE: (480) 633-8488 E-MAIL: [email protected] BRIAN A. HATCH, SBN 13864 ATTORNEY FOR BARRY T. JORDAN

BRIAN A. HATCH

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA ) ) ) Plaintiff, ) ) vs. ) ) ) Ronald Stephen Holt; and International Funding ) Association, ) Defendants, ) ) ) and ) ) Annette Holt; American Assets Limited Trust; ) Leonora Street Trust; Dover Childrens Trust; ) Clarendon Avenue Holding Trust; Dublin Holding ) Trust; Jeffery Williams (aka Jeffrey Williams); ) Mari Ann Alston; Pacific Central Asset ) ) Management; and American Benefit Card ) Services, Inc. ) ) Defendants Solely for ) Purposes of Equitable Relief ) _________________________________________ Securities and Exchange Commission,

Cause No.: CV 03-1825 PHX PGR

MOTION FOR NEW TRIAL AND/OR TO ALTER OR AMEND JUDGMENT REGARDING PETITION NO. 24 PETITION FOR INSTRUCTIONS REGARDING PROPERTY LOCATED AT 10620 NORTH 84TH STREET, SCOTTSDALE, ARIZONA

(Oral Argument Requested)

Comes now Respondent Barry T. Jordan, through his counsel undersigned and Pursuant to Rules 59(a) and 59(e) of the Federal Rules of Civil Procedure, moves (i) for a new trial of the claims resolved in favor of the Receiver in the Order Re: Petition No. 24 ("Judgment") signed by the Court on February 6, 2007, and filed by the Clerk on February 8,

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2007 in the above captioned action; and/or (ii) to alter or amend the Judgment. This Motion is supported by the following Memorandum of Points and Authorities, the various motion papers previously filed, the Stipulated Facts filed on January 9, 2007, the evidence presented at the hearing on January 9, 2007 (the "Hearing"), the attached Exhibits, and all other matters of record. MEMORANDUM OF POINTS AND AUTHORITIES I. Standards. Rule 59(a) provides that a new trial may be granted to any or all parties on all or part of the issues for "any of the reasons for which rehearings have heretofore been granted in suits in equity in the courts of the United States." This broad language is explained: " The draftsmen of the rules found that it was impracticable to enumerate all the grounds for a new trial. Thus, the rule is stated in broad terms. It has been said that the general grounds for a new trial are that the verdict is against the weight of the evidence, that the damages are excessive, or that for other reasons the trial was not fair, and that the motion may also raise questions of law arising out of substantial errors in the admission or rejection of evidence or the giving or refusal of instructions. The absence of a listing of specific grounds should not obscure the governing principle. The court has the power and duty to order new trial whenever, in its judgment, this action is required in order to prevent injustice. Any error of law, if prejudicial, is a good ground for a new trial. The other grounds most commonly raised ... are that the verdict is against the weight of the evidence, that the verdict is too large or too small, that there is newly discovered evidence, that conduct of counsel or of the court has tainted the verdict, or that there has been misconduct affecting the jury." 11 CHARLES ALAN WRIGHT, ET AL, FEDERAL PRACTICE AND PROCEDURE § 2805, 54-56 (2d ed. 1995). Rule 59(e) similarly provides for a broad range of relief in cases that "request a substantive alteration of the judgment, not merely the correction of a clerical error, or relief of a type wholly collateral to the judgment." Id. § 2810.1, at 119, 121. Rule 59(e) does not list any specific grounds, such that "the court enjoys considerable discretion in granting or

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denying the motion." Id. at 124. The basic grounds often cited upon which such a motion may be granted are (i) correction of manifest errors of law or fact, (ii) to prevent manifest injustice, (iii) newly discovered evidence, or (iv) if there is an intervening change in controlling law. Id. at 125-127; See also, Sch. Dist. No. 1J, Multnomah County v. ACandS, Inc., 5 F.3d 1255, 1263 (9th Cir. 1993). II. Factual Context. This case concerns Petition No. 24 filed by the Receiver seeking instruction as to disposition of the residential property located on North 84th Street in Scottsdale, Arizona (the "84th Street Property" or "Property"). The Court granted the Petition and ordered that Respondent Barry Jordan vacate the 84th Street Property; that the Receiver prepare the Property for sale; sell the Property; and thereafter distribute the proceeds of the sale to the existing mortgage encumbrance, the Receiver's costs of preparation and sale, including legal fees, then to a creditor of Mr. Jordan, with the remainder to Mr. Jordan's two children. American Assets Limited Trust ("AALT") was named as a defendant for equitable relief in the underlying receivership matter because it purportedly served as the trustee of various trusts that held properties acquired with investor funds. The 84th Street Property was purchased by Mr. Jordan using his own funds, and was titled in the name of the East Maricopa Holding Trust ("EMHT"). AALT was the trustee of the EMHT and the Roger Mills Trust ("RMT") was the trust beneficiary. The Receiver subsequently learned that the Warranty Deed conveying the 84th Street Property to the EMHT contained a material misstatement, and had incorrectly named AALT as the trust beneficiary as well as the trustee. As evidenced by the Stipulated Facts and the facts otherwise presented at the hearing, the true beneficiary is the RMT. The Receiver knew these facts as least as of March of 2004. The Receiver likewise knew that neither the EMHT nor the RMT (sometimes hereafter the "Trusts") held properties acquired with IFA investor funds, and that neither had any other connection to the receivership entities, assets, estate or investor funds.

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II.

Manifest Errors of Law in the Judgment. A. Standing. The Receiver had no standing to assert claims in Petition No. 24, and it

was clear error to grant the relief requested. The Receiver had the burden of establishing standing. Perry v. Village of Arlington Heights, 186 F.3d 1052 (7th Cir. 1999). Standing is an important element of the court's jurisdiction, and is subject to review at any stage in the litigation. Gagan v. American Cablevision, Inc., 77 F.3d 951, 958 (7th Cir. 1996), quoting National Organization for Women, Inc. v. Scheidler, 510 U.S. 294, 255 (1994). The evidence presented in this matter and at the Hearing failed to establish any basis for the Receiver to assert standing in the matter of Petition No. 24. A receiver lacks standing to assert claims of third-parties and standing exists only to assert claims on behalf of the receivership entities. Troelstrup v. Index Futures Group, Inc., 130 F.3d 1274 (7th Cir. 1997). In Troelstrup, the receiver was appointed in a case brought by the Commodity Futures Trading Commission against John Tobin, a trader accused of defrauding investors. The receiver had filed an action against Index, a commission merchant Tobin had used, on the theory that Index's negligence had facilitated the fraud. The district judge also allowed joinder of 57 individual defrauded investors as co-plaintiffs. The Circuit Court held that a receiver only acts in a representative capacity, and therefore lacked standing to pursue claims not on behalf of the entity for which the receiver was appointed, but for investors in that entity. "The receiver is not trying to build up Tobin's [the receivership entity] assets. He is suing a third party on behalf of Tobin's creditors to enforce a personal right of theirs, not a right of Tobin's in which they have an interest by virtue of being his creditors." Id. at 1277. The courts have routinely held that a receiver may sue only to redress injuries to the

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entity in receivership. Scholes v. Lehmann, 56 F.3d 750, 753 (7th Cir.), cert. denied sub nom. African Entr. Inc. v. Scholes, 516 U.S. 1028 (1995). In a unpublished opinion, the First

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Circuit stated the rule as : "An equity receiver, like a bankruptcy trustee, has standing for all claims that would belong to the entity in receivership, and which would thus benefit its creditors and investors, but no standing to represent the creditors and investors in their individual claims." Miller v. Harding, 248 F.3d 1127 (1st Cir. 2000). In the instant case, the claims of the Receiver make no attempt whatsoever to redress any injury to the receivership entities. Indeed, the facts of the instant case show that the claims addressed are even further attenuated than those discussed in the Troelstrup case. In that matter, the receiver attempted to represent the claims of creditors of the receivership estate. The court found that the claims of the 57 investor co-plaintiffs were ancillary to the receiver's third party claim, and held that: "[t]hat to which they are ancillary was never within the district court's jurisdiction." Id. at 1278. In the instant case, the Judgment grants relief to third-parties who have made no claims, and who have no such claims against any receivership entity or otherwise. The Judgment exploits the ordered sale of the Property - not to build up the receivership estate or satisfy claims for diverted investor funds - but to distribute sale proceeds for the benefit of those derivative third-parties who have not come forward. The Receiver has acknowledged, and the uncontroverted evidence has established, that there is no connection between the Property and the investor's funds, and that the Respondent was the source of funds for the Property purchase. The Receiver presented no evidence or argument that would show these derivative third-parties have made any claim against the receivership, or indeed against Mr. Jordan or the Property. In this case, the Receiver has himself acted as the claimant, carrying along ancillary (but unasserted) claims of third-parties, against Mr. Jordan and the EMHT he represents, rather than against a holder of investor funds. The Receiver's schizophrenic position is in direct conflict with the principles of standing and jurisdiction set out in the above argument and case law.

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The Judgment implicitly recognizes the validity of Mr. Jordan's beneficial interest in the Property's trust/owner EMHT by granting distribution of the sale proceeds to Noily Cope, a creditor of Mr. Jordan. Such a claim, even if it had been brought by Mrs. Cope, would have necessarily been derivative of and ancillary to Mr. Jordan's interest in the Property. Likewise, the Judgment recognizes such derivative interest in the series of trusts created by Mr. Jordan by ordering distribution to his children, the beneficiaries of the Crown Oil and Gas trust. Yet, there is no provision in the Judgment for reimbursement to Mr. Jordan of his acknowledged interest in the Property, even though it is uncontested that he was the source of funds for the its purchase and for all subsequent costs of its maintenance and upkeep, even during the pending receivership to date. It is entirely unclear how the Receiver's obligation of repair, sale, and distribution of proceeds under the Judgment, results in any benefit to AALT or the receivership estate. In this case, the facts and law presented clearly demonstrate that the Receiver and this Court have no standing or jurisdiction to consider and decide the legal interests of the derivative third-parties as set out in the Petition and in the Judgment. B. Scope of Receiver's Authority. No substantive right exists to bring a claim against the Property or against Mr. Jordan on behalf of any receivership entity. Referencing the Order Appointing Receiver dated September 18, 2003 and Amended Order of November 6, 2003 (either, the "Order"), the Receiver was appointed to deal with the IFA funds. The Receiver has fiduciary duties as such, but does not thereby gain any right or assume any duty as a successor trustee, is not a trustee in the strict sense and does not hold title to the Property. "[A] receiver is a fiduciary but is not a trustee in the strict sense. He does not hold title to the property which he administers. The scope of his duties is different from that of a trustee." RESTATEMENT (SECOND) OF TRUSTS, Section 16B, Comment (a). In the instant case, the Order did not make the Receiver a successor trustee of AALT, trustee of the Property owner, the EMHT, but only authorized certain actions to deal with IFA funds. See e.g., City of Dubuque v. Iowa Trust, 519 N.W.2d 786 (Iowa 1994).

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Even an appointed successor trustee would hold such interest as a representative only, and such is not a beneficial interest such that creditors or other claimants to the receivership estate or against AALT would have any rights therein. See, BOGERT, TRUSTS, 6th Ed., Section 32. It is axiomatic that the trustee of a trust has a fiduciary duty of loyalty to the beneficiary and to act solely in the interest of the beneficiary. In the instant case, even if the Receiver could be deemed a successor trustee of AALT, those imposed duties toward the EMHT and its beneficiary would be fundamentally at odds with the duties of the Receiver as enumerated in the Order. This conflict is readily apparent in the instant case as set out in the argument above on standing. The Order imposes on the Receiver the duty to collect, possess, and preserve the enumerated Receivership Assets. It is clearly not intended that the Receiver be granted or assume the fiduciary duties of a trustee for the benefit the RMT, a third-party trust entity with no connection to the investor funds or receivership estate. The receiver takes property subject to existing priorities equities and claims, and may not subordinate or prefer in favor of one over the other. Keybank N.A. v. Michael, 737 N.E. 2d 834 (Ind. App. 2000). Similarly, a receiver possesses no rights superior to those rights possessed by the entity for which he was appointed. Carriage Four Assoc. v. Teaneck, 13 N.J. Tax 172 (1993). The facts in the instant case show that there were no claims made against AALT, the Property or against Mr. Jordan, and that the Receiver, on behalf of AALT or otherwise, has no claim against Mr. Jordan or the Trusts. The undisputed evidence presented at the Hearing shows that the Receiver has not considered the Property as part of the receivership estate. The Receiver has taken no action whatsoever consistent with the Order, to collect, possess or preserve the 84th Street Property. The Receiver has made no payments on the indebtedness, has not arranged for insurance or made any payment of premium, has not performed any maintenance or upkeep, has not attempted to lease the Property, and has taken no other action demonstrating any interest of

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the receivership in the Property or the performance of any AALT/trustee obligation. In short, there is no legal or factual support that would grant the Receiver the authority to leapfrog over Respondent's beneficial interest in the Property as Trust Manager for the RMT, and instead act on behalf of the derivative third-parties named in the Judgment. III. The Proper Remedy is to Release the Property to Mr. Jordan. Notwithstanding the unorthodox method by which title to the 84th Street Property is held, the issues presented still center on the use and control of Respondent's home. The Receiver argued, and the Court apparently agreed, that Respondent was not the proper party to take and deal with the Property. The Receiver presented at the Hearing a number of negative allegations, including default on the Property mortgage obligation, a child support order and a default judgment against Mr. Jordan. By placing Mr. Jordan in a bad light, the Receiver convinced the Court to strip him of all rights to the Property, order him to vacate his home, sell the Property, and distribute the proceeds to third-parties. Inexplicably, the Receiver has pursued this action under the Petition in the absence of any claim brought by these third-parties, and with no purpose to build up receivership assets. What is worse, the Receiver has run roughshod over Mr. Jordan, using the Lis Pendens and the receivership to throw title and use rights to the Property into the current state of disarray; and this all during at least the last three years while the Receiver has had full knowledge of the pertinent facts. In order for the Judgment to make any sense, the Court must have considered these negative allegations sufficient to establish the Receiver's right to set aside the trusts as indicated. However, the uncontroverted facts presented at the Hearing by Mr. Jordan's testimony and by the Stipulated Facts, establish the falsity of such allegations, and the Receiver's bad faith in pursuing the same. As to the alleged default in Mr. Jordan's payment of the mortgage obligation to the Richardsons, the evidence established that the Richardsons had agreed to an alternative payment schedule, and indeed that the Lis Pendens filed by the Receiver was the proximate

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cause of the same. In any case, default on such an obligation could not serve as the basis for setting aside a trust under accepted principles of equity. In a similar fashion , and as to the alleged default in payment of Mr. Jordan's child support obligation, the uncontroverted testimony of Mr. Jordan established that such obligation was reduced to an alternative payment schedule, and that such payments were made, and current. Mr. Jordan's uncontroverted testimony further established that, in addition to a lack of any bad intent, the timing of such obligation when compared to the formation of the trusts and the purchase of the Property demonstrated no intent on Mr. Jordan's part to hide assets or avoid obligations through the Trusts. As to the existence of a default judgment against Mr. Jordan, the evidence established that Mr. Jordan knew nothing of that judgment until he was informed of it by the Receiver. Mr. Jordan's uncontroverted testimony further established that, in addition to a lack of any bad intent, and given the timing of such notice when compared to the formation of the trusts and the purchase of the Property, there was no intent on Mr. Jordan's part to hide assets or avoid such obligation through the Trusts. Although the Receiver presented argument on such default judgment to discredit Mr. Jordan and to apparently argue a fraud on creditors, that judgment creditor is not referenced in distribution portion of the Judgment. This is because the default judgment at issue expired and was not renewed, even though the Receiver or his attorney contacted the attorneys representing that judgment creditor, and was aware that the judgment had expired. The undisputed evidence presented in this matter establishes no basis for the Court's implicit finding that the trusts at issue may be set aside and the Property sold and distributed as set out in the Judgment. On the other hand, however, Mr. Jordan presented uncontroverted testimony and evidence that as Trust Manager for the RMT, the beneficial title holder of the Property, he was the only party authorized to deal with the Property. General trust law and the authorization given to the beneficiary under the terms of the EMHT establish this Court's

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authority to release the Property to the beneficial title holder. See generally, BOGERT, TRUSTS, 6th Ed., Sections 32, 98, and 160. IV. Conclusion. The facts and law presented by Respondent Barry Jordan at the Hearing and in this Motion establish that the Receiver had no standing or legal right to the relief requested in Petition No. 24, pursued the claims under the Petition in bad faith, that the Court lacked jurisdiction to consider the claims presented, and erred in granting the Petition on the facts and law presented. WHEREFORE, Respondent Barry T. Jordan respectfully requests this Court enter an order altering or amending the Judgment and/or granting a new trial; and that the Court vacate the Judgment and enter an Order releasing the 84th Street Property from the receivership, removing the Notice of Lis Pendens, and approving Barry Jordan or his nominee as substitute trustee for the East Maricopa Holding Trust, or otherwise releasing the Property and granting its disposition to the care and discretion of Barry Jordan as Trust Manager for the Roger Mills Trust; and that the Court grant Respondent Barry Jordan his costs and reasonable attorneys fees incurred in this matter pursuant to A.R.S. § 12-341.01(C) or A.R.S. § 12-349.

Respectfully submitted this 22nd day of February, 2007.

BRIAN A. HATCH PLLC s/Brian A. Hatch By: Brian A. Hatch, Attorney for Respondent Barry T. Jordan

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PROOF OF SERVICE This is to certify that on this 22nd day of February, 2007, the foregoing document was electronically transmitted to the Clerk's Office using the CM/ECF System for filing, and that

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a Notice of Electronic Filing was transmitted to the CM/ECF registrants on the attached Master Service List; and that a copy of the foregoing document was served by first class mail on the 23rd day of February, 2007 on those persons listed below, and on those persons listed on the attached Master Service List who are not registered participants of the CM/ECF System.

Noily Cope 5128 E. Whitton Avenue Phoenix, AZ 85018

s/Brian A. Hatch Brian A. Hatch

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MASTER SERVICE LIST SEC vs. Ronald Stephen Holt, et al. United States District Court for the District of Arizona CV 03-1825 PHX PGR

Lawrence J. Warfield International Funding 14555 North Scottsdale Road, #340 Scottsdale, AZ 85254 Receiver Patrick M. Murphy Guittilla & Murphy, P.C. 4150 West Northern Avenue Phoenix, Arizona 85051 Registered CM/ECF: [email protected] Counsel for Receiver Marshall M. Gandy Securities and Exchange Commission 801 Cherry Street, Suite 1900 Fort Worth, Texas 76102 Registered CM/ECF: [email protected] Counsel for SEC Merwin D. Grant Grant & Vaughn, P.C. 6225 North 24th Street Suite 125 Phoenix, Arizona 85016 Registered CM/ECF: [email protected] Attorney for Relief Defendant Annette Holt

Ronald Stephen Holt and International Funding, Leonora Street Trust, Dover Children's Trust, Clarendon Avenue Holding Trust, Dublin Holding Trust, Pacific Central Asset Management, American Benefit Card Services, Inc.,

Robert L. Stanford Jeffery Williams aka Jeffrey Williams 8415 W. Alex Avenue Peoria, Arizona 85382 Relief Defendant American Assets Limited Trust c/o Registered Agent Michael Bloomquist 4410 W. Union Hills #7-233 Glendale, Arizona 85308 Relief Defendant Mari Ann Alston 305 Nordina Street Redlands, California 92373 Relief Defendant

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James Vaughn 100 South Antietam Place Tucson, Arizona 85710 Suzanne Ingold Burch & Cracchiolo, P.A. 702 E. Osborn Road #200 P.O. Box 16882 Phoenix, Arizona 85014-5281 Timothy J. Mulreany Commodity Futures Trading Commission Division of Enforcement 1155 21st Street, N.W. Washington, D.C. 20581 Thomas M. Connelly 2425 East Camelback Road Suite 880 Phoenix, Arizona 85016-4208 Michael S. Reeves Attorney at Law 1212 E. Osborn Phoenix, Arizona 85014-5533 Registered CM/ECF: [email protected] Attorney for Defendant Ronald S. Holt

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