S.E.C. v. Wells Fargo Bank, N.A.

Opinion overlooks administrative problems when secured creditors don’t file claims.

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Case Type:
Business
Case Status:
Reversed and Remanded
Citation:
16-10942 (11th Circuit, Feb 22,2017) Published
Tag(s):
Ruling:
The Court held that a secured creditor's failure to file a proof of claim on 2 properties in a federal receivership did not result in that creditor's security interests in those properties being extinguished. Although the Court acknowledges a federal court's broad equitable powers in receiverships, it concluded that such power doesn't extend to extinguishing pre-existing state law security interests. The Court looked to bankruptcy law for guidance--liens remain intact in bankruptcy with or without a proof of claim. It also found similar treatment in receivership treatises.
Procedural context:
To be sure, this is not a bankruptcy decision and does not involve a bankruptcy proceeding. Rather, it's a federal receivership proceeding wherein the 11th Circuit relied on bankruptcy law by analogy. Specifically, almost 6 months after the claims bar date in a receivership proceeding, Wells Fargo, who claimed a security interest in receivership property, sought (i) a determination that its failure to file a timely proof of claim for 2 of the receivership properties did not extinguish its security interests in those properties and, alternatively, (ii) leave to file a late claim under Rule 60(b) on grounds of excusable neglect. Later, the receiver argued that the liens were extinguished due to the failure to file timely claims and sought a release of the proceeds on the subject properties. The District Court granted the receiver's motion and, thus, determined that Wells' failure to file claims on the 2 properties extinguished Wells' security interests in those properties. It also rejected Wells' excusable neglect argument. Wells, the District Court reasoned, was obligated to follow the Court's orders, including its bar date order, to protect its rights in the collateral. Wells appealed.
Facts:
After a Ponzi scheme collapsed, the District Court, presiding over a resulting SEC action against the Ponzi scheme perpetrators, appointed a receiver over the affairs, funds, and property of those perpetrators. Wells Fargo, who claimed a security interest in certain of the property being administered by the receiver, filed a timely proof of claim for some but not all of the property that it claimed a security interest in. Its failure to file a proof of claim for the 2 other properties kicked off litigation between Wells and the receiver about the consequences of Wells' failure. See Procedural Context above.
Judge(s):
Jordan and Pryor, Circuit Judges, and Proctor, District Judge (sitting by designation)

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