Securities Exchange Commission
v.
Capital Consultants, LLC

This case is not covered by Casetext's citator
United States District Court, D. OregonMay 11, 2004
Case No. 00-1290-KI. (D. Or. May. 11, 2004)

Case No. 00-1290-KI.

May 11, 2004

Jeffrey R. Patterson, Allen Matkins Leck Gamble Mallory LLP, San Diego, California, Attorney for Thomas F. Lennon, Receiver.

Leon Simson, Brad T. Summers, Ball Janik LLP, Portland, Oregon, Attorneys for PNW, LLC.

Paul G. Dodds, Brownstein, Rask, Sweeney, Kerr, Grim DeSylvia Hay, LLP, Portland, Oregon, Attorneys for Gregory J. Houser.

Milton C. Lankton, Davis Wright Tremaine LLP, Portland, Oregon, Attorneys for Judith Holmes.


OPINION AND ORDER


Before the court is PNW, LLC's ("PNW"), Motion to Enforce Sale Order and to Compel Turnover of Stock Certificates (#1993). The motion concerns stock certificates for EVI Corporation in the possession of Virginia B. Mudd, as Trustee of Virginia B. Mudd Revocable Trust, Gregory J. Houser, and Judith H. Holmes. The parties inform me that the issue between PNW and Mudd has been resolved so I will issue no ruling concerning those certificates.

DISCUSSION

PNW asks me to order Houser and Holmes to turn over EVI stock certificates to PNW. On January 24, 2002, I entered a Sale Order authorizing the Receiver to sell numerous assets for $60 million. The assets were sold "free and clear of all liens, claims, encumbrances, security interests, and rights of ownership asserted by or on behalf of any other party." Investors, defined as clients of Capital Consultants, LLC ("CCL"), whose funds were used to make a loan or invest in equities included in Schedule I or II to the contract, lost right title and interest in the assets. Schedule II listed EVI stock as one of the assets sold. PNW is an assignee of the purchaser of the assets.

Houser possesses EVI stock certificate No. A-2, representing 25,000 shares of Series A Voting Preferred Stock. PNW believed that Holmes possesses EVI stock certificate No. A-4, representing 50,000 shares of Series A Voting Preferred Stock, and stock certificate No. A-33, representing another 50,000 shares. Both object to surrendering their stock certificates.

I. Gregory J. Houser

Houser was a CCL employee from 1974 through early 1997. During his employment, Houser contends that he managed his family's investments as an individual and not as a client of CCL.

Houser appears on CCL's internally maintained client list as client account number 060-98. CCL's client reporting system shows that he held 25,000 shares of EVI. Other CCL documents indicate that Houser was an EVI shareholder, including CCL's Security Cross Reference, CCL's Private Equity Investments, and CCL's Ownership of EVI Stock. Houser purchased the stock at the same time as the purchases made on behalf of CCL clients.

Houser never executed an Investment Advisory Agreement with CCL. To purchase the stock, Houser wrote a check from his personal account directly to EVI and not to CCL. Houser never filed a Proof of Claim to recover from the receivership estate.

I conclude that while employed by CCL, Houser was using CCL's computer and client management software to track his personal investments even though he was not a CCL client. It is also clear that Houser took advantage of investment opportunities that he learned of through his employment with CCL. I find, however, that the EVI stock represented by Houser's certificates were not assets sold by the Receiver because Houser did not purchase them as a CCL client. Thus, Houser does not have to turn his certificates over to PNW.

II. Judith H. Holmes

Holmes notes that Schedule II did not list the specific stock certificates which she possesses and that she does not possess certificates No. A-4 and No. A-33, as PNW believes. Holmes possesses other certificates representing 100,000 shares of Series A Voting Preferred Stock in EVI. She believes that the certificates which PNW listed were ones issued to her in the early 1990s and later reissued when she changed custodians.

PNW argues that Schedule II does not list all of the assets sold by the Receiver because it listed only loan documents and share certificates held in CCL files. The Sales Order requires any third person in possession of any documents related to the assets, as defined in the contract, to turn the documents over to the Receiver.

Holmes executed an Investment Advisory Agreement with CCL and was a client of CCL when the EVI stock was purchased. She later terminated her relationship with CCL for a three year period and eventually reinitiated the relationship with controls on CCL's discretion that were strong enough to qualify her for the tracing exception. The stock was purchased by CCL on Holmes' behalf. She did not take possession of the certificates until she temporarily ended her relationship with CCL. When she restarted the limited relationship, the EVI stock was shown as part of her CCL account but she kept possession of the stock certificates. CCL's client management software and the reports it generates also show Holmes' ownership of the EVI stock. Holmes filed a Proof of Claim listing the EVI shares among the assets under limited management.

I conclude that the shares of EVI stock represented by the certificates Holmes possesses are part of the assets sold by the Receiver. There is no evidence that Holmes purchased the stock outside of her relationship with CCL. Thus, PNW owns those shares free and clear and is entitled to the stock certificates. Accordingly, I require Holmes to turn the stock certificates over to PNW.

CONCLUSION

The Motion to Enforce Sale Order and to Compel Turnover of Stock Certificates (#1993) is granted in part.

IT IS SO ORDERED.