restraining order in securities america case

8/7/2019 Restraining Order in Securities America Case

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THE UNITED STATES DISTRICTNORTHERN DISTRICT OF TEDALLAS DIVISION

c{i U.S. DISTRICT COURT;,;t NOR'llmRNDISTRICT OF TEXASIf FILEDqURT FEB J 82011A S ~

BILLITTERI v. SECURITIES 3: 09-cv-O1568-FAMERICA, INC., et al. (Provident AND RELATED CASESRoyalties Litigation)

THIS DOCUMENT RELATES TO:ALL ACTIONS

C. RICHARD TOOMEY, et al. v. 3:10-cv-01833-FSECURITIES AMERICA, INC., et al.

IN RE: MEDICAL CAPITAL Case No. ML 10-2145 DOCSECURITIES LITIGATION (RNBx) (C.D. Cal.)

THIS DOCUMENT RELATES TO: Limited transfer for settlementMcCoy, SACV09-1084 DOC (RNBx) (C.D. purposes as Case No. 3-11-cv-Cal.) 00191-F (N.D. Tex.)

ORDER GRANTING PLAINTIFFS' MOTION FORTEMPORARY RESTRAINING ORDER

BEFORE THE COURT are Plaintiffs Joseph Billitteri, the Sharon KreindelRevocable Trust DTD 02/09/2005, Henry Mitchell, Alvin Sabroff, and June Sabroff's("the Representative Plaintiffs") Motion for Temporary Restraining Order under the AllWrits Act (Billitteri Docket No. 202, Toomey Docket No. 67, and McCoy Docket No.124), filed February 17, 2011. Defendants Securities America, Inc. and SecuritiesAmerica Financial Corporation ("the Settling Defendants") do not oppose the Motion.

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Case 3:09-cv-01568-F Document 210 Filed 02/18/11 Page 1 of 9 PageID 7722


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Earlier on February 17, 2011, the Representative Plaintiffs and the Settling Defendantsjointly filed a Motion for Preliminary Approval of Partial Class Action Settlement(Billitteri Docket No. 199, Toomey Docket No. 64, and McCoy Docket No. 121), whichnotified the Court of a Settlement Agreement reached between the RepresentativePlaintiffs and the Settling Defendants. The parties' Motion seeks the Court's approval ofa Settlement Agreement between the Representative Plaintiffs as representatives of theprospective classes in this case and the Settling Defendants. The RepresentativePlaintiffs seek preliminary approval of the a Settlement Agreement "on behalf ofpersonswho invested through Securities America, Inc. in (I) a series of shale gas venturessponsored by Provident Royalties, LLC between September 2006 and January 2009, and(2) a series of notes sponsored by Medical Capital Holdings, Inc. between November2003 and July 2008." Mot. for Prelim. Approval, Billitteri Docket No. 199, ToomeyDocket No. 64, McCoy Docket No. 121, at 1. Among the relief sought by the parties is acourt order "to preserve the status quo pending the Court's final settlement approvaldetermination, preliminarily enjoining all proceedings in federal or state court and allarbitration proceedings by or on behalf of members of the proposed Settlement Classesagainst Settling Defendants or their Registered Representatives asserting claims arisingfrom its offer and sale ofProvident Securities or Medical Capital Notes." See id. at 2.

More immediately, the parties seek a Temporary Restraining Order that wouldtemporarily stay an arbitration proceeding scheduled to begin on February 22, 2011 inLos Angeles, California, entitled Bryan v. Securities America, which is being conductedbefore the Financial Industry Regulatory Authority ("FINRA") and has been captioned as

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FINRA Arbitration No. 10-01437. The parties also ask the Court to stay two additionalFINRA arbitrations: Guillaume v. Securities America, FINRA Arbitration No. 09-05740,scheduled to begin in Atlanta, Georgia on February 28, 2011, and Albino v. SecuritiesAmerica et ai, FINRA Arbitration No. 09-06150, scheduled to begin in Los Angeles,California on March 1, 2011. The claimants in these arbitrations would apparently bemembers of the proposed settlement class. If the arbitration were to proceed, it wouldexpend funds for legal defense that would otherwise be made available to class members.Additionally, if the claimants in these arbitrations are fully successful, they could receivea significant portion of the funds available to potential class members under the proposedSettlement Agreement. Should the arbitrations be temporarily restrained, funds thatwould otherwise be equitably distributed to members of the potential settlement classwould not be depleted. In the Motion for Preliminary Approval, the parties before theCourt seek similar injunctive relief to enjoin other arbitration proceedings scheduled totake place throughout 20 I I that would have the same potential effect on the fundsavailable to all potential class members as the aforementioned upcoming arbitrations.

The Representative Plaintiffs and the Settling Defendants ask the Court to exerciseits authority under the All Writs Act to temporarily restrain the arbitrations fromproceeding. The All Writs Act provides, "The Supreme Court and all courts establishedby Act of Congress may issue all writs necessary or appropriate in aid of their respectivejurisdictions and agreeable to the usages and principles of law." 28 U.S.c. 16S1(a). Ina complex class action such as this one, district courts have been ruled to have theauthority to stay proceedings taking place elsewhere "in aid of their respective

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jurisdictions" to assist the courts in the complex task of ensuring resolutions to the claimsbefore it. See In re Baldwin-United Corp., 770 F.2d 328, 338 (2d Cir. 1985) ("Animportant feature of the All-Writs Act is its grant of authority to enjoin and bind non-parties to an action when needed to preserve the court's ability to reach or enforce itsdecision in a case over which it has proper jurisdiction."); see also United States v. NewYork Tel. Co., 434 U.S. 159, 174 (1977) ("The power conferred by the Act extends, underappropriate circumstances, to persons who, though not parties to the original action orengaged in wrongdoing, are in a position to frustrate the implementation of a court orderor the proper administration of justice . . . , and encompasses even those who have nottaken any affirmative action to hinder justice.") (citations omitted).

Furthermore, other courts have held that districts courts have the authority insimilar situations to enjoin litigation in other courts pending the approval of a classcertification and a settlement. For example, in Liles v. Del Campo, 350 F.3d 742 (8thCir. 2003), the Eighth Circuit wrote:

The district court enjoined proceedings in related litigation to preserve thesettlement fund, to eliminate the risk of inconsistent or varyingadjudications that would deplete the fund, to avoid confusion among theclass members, and to save scarce judicial resources. The court actedwithin its discretion in issuing the injunction because enjoining relatedlitigation was necessary to ensure the enforceability of the order approvingthe preliminary settlement and to prevent further draining of the limitedsettlement fund. As the district court found, neither settlement nornotification of class members could be achieved if the settlement fund wereeaten up by litigation in other courts. Without enjoining related litigation,the court ran the risk of undermining the settlement that had beennegotiated and preliminarily approved and of exhausting the only assetavailable for class recovery. We conclude that the court did not abuse itsdiscretion in enjoining related litigation.

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Id. at 746-47; see also In re Joint Eastern & Southern Dist. Asbestos Litig., 134 F.R.D.32, 37-39 (E.D.N.Y. 1990) (enjoining all asbestos litigation pending against thedefendant to preserve a settlement fund pending approval based in part on the Court'sauthority under the All Writs Act). District courts have similarly used this authorityunder the All Writs act to enjoin arbitration proceedings that would interfere with classaction settlements. See Demint v. NationsBank Corp., 208 F.R.D. 639, 644, 644 n.8(M.D. Fla. 2002) (enjoining under the All Writs Act the arbitration of claims that wereresolved under a class action settlement); In re Painewebber Ltd. P'ships Lltig.,No. 94 CIY. 8547 SHS, 1996 WL 374162, at *4 (S.D.N.Y. July 1, 1996) (holding that thedistrict court "may enjoin arbitration-even before judgment has been entered in thisaction-where that injunction would be 'in aid of its jurisdiction' within the terms of theBaldwin-United line of cases").

While the Court has not yet ruled on the pending Motion for PreliminaryApproval, it is the opinion of the Court that a temporary restraining order is appropriateto preserve the status quo and ensure that the conditions for reaching a SettlementAgreement remain in place as the Court considers the Motion for Preliminary Approval.It is true that, unlike in Baldwin-United or Liles, the Court is enjoining arbitrationproceedings rather than litigation in another court. However, this Order does not providefor a long-standing injunction of arbitrations involving the Settling Defendants' sale ofProvident Securities, but merely provides for a temporary restraining of thoseproceedings while the Court considers the Motion for Preliminary Approval. Therefore,the Court will have an opportunity to consider the question of whether the Court has the

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authority to enjoin an arbitration being pursued subject to a potential class member'sagreement with the Settling Defendants, or whether such relief would be appropriate,when the Court rules on the pending Motion for Preliminary ApprovaL See In re PiperFunds, Inc., 71 F.3d 298, 302-03 (8th Cir. 1995) (holding that a district court's reason forenjoining an arbitration, preserving a carefully negotiated class settlement agreement,was not a sufficient basis to limit an opted-out class member's contractual right toarbitrate); contra Painewebber, 1996 WL 374162 at *4 (holding that "it would beincongruous if the Court had the authority to stay pending litigation, but not to enjoinarbitration, 'in aid of its jurisdiction' even before judgment is entered.").

In Baldwin-United, a case in which the Second Circuit affirmed a district court'sactions in staying potential state court litigation by non-parties, the district court issued atemporary restraining order on other litigation and held a hearing before issuing aninjunction upon state court litigation. Baldwin-United, 770 F .2d at 333. The Courtbelieves such an action is appropriate here. For the purposes of this TemporaryRestraining Order, the Court's exercise of its authority under the All Writs Act willpreserve the funds available to the Settling Defendants for the proposed SettlementAgreement from being depleted by the costs to defend the arbitration and potentialarbitration awards until the Court determines whether to grant preliminary approval of thepartial class action settlement and whether to preliminarily enjoin all federal, state, andarbitration proceedings related to the Settling Defendants' sale of Provident Securities orMedical Capital Notes. A Temporary Restraining Order issued at this time is "needed to

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prevent third parties from thwarting the court's ability to reach and resolve the merits ofthe federal suit before it." Id. at 338-39.

Accordingly, the instant Motion for Temporary Restraining Order is GRANTED. IIt is ORDERED that the following arbitrations are TEMPORARlLY RESTRAINEDFROM PROCEEDING:1. Bryan v. Securities America, FINRA Arbitration No. 10-01437, February 22 March 4, 2011, Los Angeles, CA: $2.5 million damages sought.2. Guillaume v. Securities America, FINRA Arbitration No. 09-05740, February 28 March 4, 2011, Atlanta, GA: $200,000 damages sought.3. Albino v. Securities America et ai, FINRA Arbitration No. 09-06150, March 1 March 4, 2011, Los Angeles, CA: $2.1 million damages sought.This Temporary Restraining Order shall remain in effect until the Court has issued adecision on the pending Motion for Preliminary Approval, including the decision to

enjoin any arbitrations against the Settling Defendants for claims arising out of its sale ofProvident Securities or Medical Capital Notes, which shall be issued no later than March7, 2011 at 5:00 p.m., unless such deadline is altered by the Court. A hearing regardingthe Motion for Preliminary Approval and its request for additional injunctive relief shalltake place on March 3, 2011 at 2:00 p.m.

In accordance with the requirement that those subject to a temporary restrainingorder receive appropriate notice of its terms, the Clerk's office is instructed to providenotice of this Order to the following individuals at its earliest opportunity:

IThis resolves Billitteri Docket No. 202, Toomey Docket No. 67, and McCoyDocket No. 124.7



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Brvan et af v. Securities America. Inc. - FINRA No. 10-01437CounselRobert UhlPhilip M. AidikoffRyan BakhtiariAidikoff, Uhl & Bakhtiari9454 Wilshire Boulevard, Suite 303Beverly Hills, CA 90212Tel: 310-274-0666Fax: [email protected]@[email protected] Arbitration Panel (Contact Through FINRA Case Administrator)Case Administrators: Christina Rovira and Ianthe PhilipsArbitrators: Kendall C. Reed (Chair); Kenneth E. Kreh; Chester FiresteinFINRA Dispute Resolution300 South Grand Avenue, Suite 900Los Angeles, CA 90071Tel: 213-613-2680Fax: [email protected]@[email protected] v. Securities America. Inc. and Steve Hoshimi - FINRA No. 09-06150CounselAndrew StoltmannDavid NeemanStoltmann Law Offices, P.e.lOS. LaSalle Street, Suite 3500Chicago, IL 60603-1002Tel: 312-332-4200Fax: [email protected]@stoltlaw.com

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