Opinion
No. C 02-3704 JSW.
December 3, 2004
ORDER GRANTING OHARACHO NOGYO KYODO KUMIAI's MOTION FOR LIMITED INTERVENTION; GRANTING MODIFICATION OF ORDER FREEZING ASSETS
Oharacho Nogyo Kyodo Kumiai ("Oharacho") has filed a motion seeking limited intervention in this action, brought by the Securities and Exchange Commission ("SEC") against defendants Claude Lefebvre, Dennis S. Herula, RMO Assets Management SA ("RMO Assets"), and Watch Hill Capital Management LLC ("Watch Hill"), pursuant to Federal Rule of Civil Procedure 24(a) (b). Oharacho additionally has requested a modification of the Temporary Restraining Order ("TRO"), Order Freezing Assets and Order for Other Equitable Relief ("Order Freezing Assets"), which was converted into a preliminary injunction on October 15, 2002 and October 23, 2002.
After careful consideration of the papers filed by Oharacho, the lack of opposition to the motion by the SEC and Defendants, and having had the benefit of a hearing on the matter, the Court GRANTS the motion for limited intervention and MODIFIES the Order Freezing Assets.
Defendants were served with copies of the motion, but have not filed oppositions and did not appear at the hearing. Oharacho has represented that the SEC does not oppose the request. Memorandum of Points and Authorities at 3.
BACKGROUND Oharacho's Action Against Defendants
Plaintiff Oharacho is a cooperative organized under the Agricultural Cooperatives Law of Japan, with its principal place of business in Okayama, Japan. Oharacho has operated as an agricultural cooperative since 1961 and is comprised of approximately 850 farmers, including rice, livestock, and green vegetable farmers. The cooperative gives farming guidance, markets agricultural products, supplies production materials, provides savings and loans services, and offers insurance to its members.
Oharacho is currently winding up its affairs and is liquidating under the control of an administrator, attorney Shuichi Fujinami, appointed by the Governor of Okayama Prefecture. The administrator's function is similar to that of an American bankruptcy trustee or court-appointed receiver, and he was appointed to act for the benefit of Oharacho's creditors and member farmers.
Prior to the appointment of the administrator, Oharacho's affairs were managed primarily by Yasukazu Doi, and his son, Takanori Doi. In or about October 2002, during the course of an administrative investigation, an official of the Okayama Prefecture discovered that the Dois had mismanaged Oharacho's funds in violation of Japan's Agricultural Cooperatives Law and Oharacho's articles of organization. As a result of this investigation, on or about November 1, 2002, the Governor of the Okayama Prefecture ordered Oharacho to follow the direction of the administrator or face closure. The Governor also issued an administrative order directing Oharacho's orderly liquidation. Since the appointment of the administrator, Oharacho has been working to identify and liquidate its assets for the benefit of its creditors and member farmers.
On April 1, 2003, seeking to recover funds allegedly wrongfully taken by Defendants, Oharacho filed an action in this court. Oharacho Nogyo Kyodo Kumiai v. LeFebvre, et al., 03-1382. Oharacho's complaint in that action alleges facts detailing a sham investment scheme resulting in the misappropriation of millions of dollars. Oharacho claims it was defrauded of this money by the Defendants as follows:
Defendants failed to appear in that action after valid service and, accordingly, upon Oharacho's application the Clerk of the Court entered default against defendant Watch Hill Capital Management, LLC on May 9, 2003, against defendant Claude Lefebvre on June 13, 2003, and against Dennis S. Herula on August 5, 2003. Oharacho's motion for default judgment was granted on March 31, 2004, and judgment was entered against those defendants on April 12, 2004.
In May 2002, Asao Inoue, a general manager of Oharacho, operating under instructions from Yasukazu Doi, then president and director of Oharacho, opened account number 142620049705USD in the named of Oharacho at Commerzbank in Tokyo Japan (the "Commerzbank Account"). On May 15, 2002, Oharacho deposited $14,850,000 into the Commerzbank Account. The funds were converted into a negotiable certificate of deposit ("NCD") that same day. On May 17, 2002, Oharacho requested that Commerzbank send confirmation of the NCD to Watch Hill, care of Harris Trust and Savings Bank in Chicago, Illinois and Refco Capital Markets. On June 24, 2002, Oharacho requested that Commerzbank again send confirmation of the NCD to Watch Hill. This time, confirmation was sent care of Washington Mutual Bank in Tiburon, California, Refco Capital Managements and Lefebvre.
On July 25, 2002, Yasukazu Doi instructed Commerzbank to cancel the NCD and instead transmit the entire balance to an account at Mellon Bank in Pittsburgh, Pennsylvania for the benefit of Merrill Lynch. The funds were transferred to Merrill Lynch account number 321-07822 under the name Watch Hill Capital Management LLC Oharacho Long Term Investment (the "Merrill Lynch Account"). The funds in the Merrill Lynch Account were to be invested on behalf of Oharacho.
Merrill Lynch confirmed the July 25, 2002 deposit and used the entire balance of the account to purchase United States Treasury bills the following day. The Treasury bills had a par value of $14,967,000, paying a yield of 1.61%, and maturing on January 23, 2003. Oharacho has been unable to gain access to or recover those funds.
The Order Freezing Assets
On August 1, 2002, the SEC filed an emergency ex parte motion in this action seeking a temporary restraining order and upon further notice a preliminary injunction pursuant to specified enforcement provisions of the Securities Exchange Act of 1933 and the Exchange Act of 1934. The Court immediately issued the TRO and Order Freezing Assets against all Defendants and an Asset Freeze as to relief defendant Capalbo. The Court additionally set a hearing date for the SEC's motion to convert the TRO to a preliminary injunction.
After several continuances, the Court conducted two hearings on SEC's motion and issued two separate orders: one granting the preliminary injunction against Lefebvre and RMO, and one granting the preliminary injunction and asset freeze against the defendants Herula and Watch Hill, and relief defendant Capalbo.
Approximately $14,850,000 of Oharacho's money remains in the Merrill Lynch Account and is frozen pursuant to the Order Freezing Assets. Oharacho now moves for limited intervention and for modification of the Order Freezing Assets so that it may recover its funds from the Merrill Lynch Account.
DISCUSSION
An applicant seeking to intervene in a pending lawsuit "as of right" pursuant to Federal Rule of Civil Procedure 24(a) must demonstrate that: "(1) it has a significant protectable interest relating to the property or transaction that is the subject of the action; (2) the disposition of the action may, as a practical matter, impair or impede the applicant's ability to protect its interest; (3) the application is timely; and (4) the existing parties may not adequately represent the applicant's interest." United States v. Los Angeles, 288 F.3d 391, 397 (9th Cir. 2002) (internal quotation omitted).
Where an injunction has been issued, such as the Order Freezing Assets here, an applicant is entitled to intervene when "the injunctive relief sought by the plaintiffs will have direct, immediate, and harmful effects upon a third party's legally protectable interests." Forest Conservation Council v. United States Forest Serv., 66 F.3d 1489, 1494 (9th Cir. 1995).
In addition, where a prospective intervenor does not seek to litigate a claim on the merits, but instead limits the relief sought, permissive intervention pursuant to Federal Rule of Civil Procedure 24(b) may be appropriate. See, e.g., Beckman Indus., Inc. v. Int'l Indus., Inc., 966 F.2d 470, 472 (9th Cir. 1992) (approving a limited intervention pursuant to Fed.R.Civ.P. 24(b) for the purposes of modifying a protective order).
Oharacho's motion for limited intervention is proper under either Rule 24(a) or (b). Oharacho has demonstrated to the Court's satisfaction that it meets the four requirements of Fed.R.Civ.P. 24(a). Oharacho has a protectable interest relating to funds that are subject to the Order Freezing Assets. Neither plaintiff SEC nor the Defendants have disputed that Oharacho has a legally protectable interest in the funds. Due to the Order Freezing Assets, Oharacho is not able to access or control its own assets, either for its own use or investment purposes. The Court further finds that Oharacho's application is timely. Litigation on this matter is in the early stages, and Oharacho's intervention will not delay the case or prejudice the parties. Finally, because the funds belong to Oharacho, it has a heightened interest over that of the SEC in obtaining a prompt release of the funds. Therefore, intervention as of right is appropriate.
Permissive intervention pursuant to Rule 24(b) additionally is proper in this case because Oharacho seeks a limited intervention for the purpose of modifying the Order Freezing Assets. See Beckman Indus., 966 F.2d at 472. Accordingly, The Court GRANTS Oharacho's motion for limited intervention.
Following review of Oharacho's request for a modification of the Order Freezing Assets, and in light of the representation that the SEC does not contest the release of the funds in the Merrill Lynch Account, and in light of the failure of the Defendants to oppose the motion despite proper notice, IT IS HEREBY ORDERED that Oharacho's motion to modify the Order Freezing Assets is GRANTED.
As of the date of this Order, the Order Freezing Assets is MODIFIED solely to permit Oharacho to recover, without limitation, all money, proceeds, or equity contained in Merrill Lynch account number 321-07822 under the name Watch Hill Capital Management LLC Oharacho Long Term Investment.