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Seventh Circuit Warns Intervenors Not to Sleep on Their Rights

13 October 2014 Wisconsin Appellate Law

Vigilantibus non dormientibus, æquitas subvenit.

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It’s an ancient principle of equity, drawn from Roman law: Equity relieves the vigilant, not those who sleep upon their rights. And it sums up quite well the Seventh Circuit’s recent decision in SEC v. First Choice Management Services, Nos. 14-1270 & 14-2284 (Sept. 11, 2014). First Choice did not involve equity (or even cite the maxim); it concerned an untimely motion to intervene. But the principle was the same, and it’s a good lesson for potential intervenors.

The court, in an opinion written by Judge Posner, affirmed the district court’s denial of a motion to intervene as untimely in a receivership proceeding. The proposed intervenor knew that the receiver proposed to sell the property to which the intervenor had an adverse claim six months before the intervenor sought to intervene. Judge Posner and the Seventh Circuit were unwilling to brook that sort of “dawdling,” which created only more work for the receiver, purchaser, and district court.

The case began in 2000 as a suit in which the SEC charged First Choice Management Services with fraud and violating federal securities laws. The district court appointed a receiver and thus began a 14-year effort to track down assets that could be distributed to the victims of First Choice’s $31 million fraud.

Some of those assets were oil leases in Osage, Oklahoma, and in 2003 the receiver identified those leases as receivership assets. In May 2013 the receiver sought the district court’s permission to sell the leases, which the district court gave, as to the plan, in June of that year and, as to the price, in January 2014. It confirmed the sale in May 2014.

The problem was that CRM Energy Partners claimed that it had owned the Osage leases since 2002 and had even been involved in what the court described as “protracted negotiations” with the receiver to reclaim the leases after 2003. But it never was a litigant. Ultimately CRM waited until December 2013 to intervene in the receivership proceeding.

That was too late. The court noted that “CRM had known as early as January 2004, almost ten years before it filed its motion, that the receiver was claiming to own [the Osage leases].” That would have been the best time to intervene. But, as it was, the court found that CRM knew that the district court had approved the receiver’s plan in June 2013 and held that “CRM had no possible excuse for waiting for six months after that before moving to intervene.” CRM “wait[ed] till the last minute to try to throw a monkey wrench into the deal.”

The Seventh Circuit affirmed the denial of the motion to intervene, and it dismissed CRM’s independent appeal challenging the district court’s sale order.