Securities Industry Commentator by Bill Singer Esq

February 7, 2019

7Cir Affirms District Court's Finding of Wrongful Removal
Jackson County Bank, Plaintiff/Appellee, v. Matthew R. DuSablon, Defendant/ Appellant (Opinion, United States Court of Appeals for the Seventh Circuit, 18-2809 / February 6, 2019) 
Although state-chartered Jackson County Bank ("JCB") was not a registered broker-dealer, it offered brokerage services to its customers via a third-party agreement with INVEST Financial Corporation. JCB employee Matthew R DuSablon was hired in 2007, and by July 2017 was allegedly assigned to identify/establish a new third-party broker-dealer business. DuSablon resigned from JCB on January 8, 2018, and, thereafter the bank claimed that he had transferred customers' accounts from INVEST into his own name and started a competitive business. Accordingly, JCB sued DuSablon in Indiana state court. DuSablon moved to dismiss and argued that JCB was an unlicensed broker-dealer lacking standing; and that Financial Industry Regulatory Authority ("FINRA") rules barred the suit. The state court denied DuSablon's motion, and, in response he removed the case to the United States District Court for the Southern District of Indiana citing that court's exclusive jurisdiction over '34 Securities Act matters. JCB moved for remand to state court, in part, based upon lack of jurisdiction and arguing that DuSabon was gaming the judicial system in order to postpone a preliminary injunction and "run the clock" on his Non-Compete Agreement.
The District Court remanded the cased to state court, and ordered DuSablon to pay $9,035.61 in JCB's costs. DuSablon appealed to the United States Court of Appeals for the Seventh Circuit ("7Cir"), which dismissed his appeal and affirmed the District Court's award. As set forth on Page 5 of the 7Cir Opinion:

DuSablon nonetheless argues that JCB's state law claims involve significant questions of federal securities laws. But DuSablon cannot manufacture a basis for removal by injecting federal issues into a case under these circumstances. See Panther Brands, LLC v. Indy Racing League, LLC, 827 F.3d 586, 589 (7th Cir. 2016) (holding in a breach of contract action that an allegation that a defendant violated federal statutes is insufficient to create subject-matter jurisdiction). This is particularly so because, as the district court observed, DuSablon cited no cases supporting his position nor attempted to apply controlling law, namely Grable & Sons Metal Prods., Inc. v. Darue Eng'r & Mfg., 545 U.S. 308, 314-15 (2005) (invoking federal jurisdiction over state law claim to quiet title to property seized by federal government where the validity of the seizure was "the only legal or factual issue[] in the case"). 

Other considerations support the district court's exercise of discretion. The first is the court's finding that "DuSablon's conduct in defending the motion to remand" suggested that "removal was undertaken at least in part to delay a resolution of the noncompete issues to his benefit and to allow for a second bite at the apple after losing his motion to dismiss in state court." We see no clear error in this finding. The second consideration is the untimeliness of DuSablon's removal. Despite his claimed ignorance of the supposed substantial federal question until JCB responded to his motion to dismiss, DuSablon's motion itself raised many issues of federal law. The district court properly determined that DuSablon was or should have been aware of his asserted grounds for removal more than 30 days prior to his notice of removal.
In response to a Complaint filed in the United States District Court for the District of New Jersey, PHH Mortgage Corporation, one of the nation's largest mortgage loan servicers, agreed to pay $125,00 to each of six servicemembers to resolve allegations that it violated the Servicemembers Civil Relief Act ("SCRA") by unlawfully foreclosing on their six homes without obtaining the required court orders. The SCRA prohibits foreclosing on the home of a servicemember during active military service and one year thereafter without a court order if the mortgage originated prior to the servicemember's period of military service.Pursuant to its Agreement, PHH will train its staff to ensure that servicemembers do not face unlawful foreclosures in the future, and to notify DOJ of future complaints regarding servicemembers' rights.
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As set forth in part in the Press Release:

Keel Marinas, an investment firm specializing in the ownership and operation of marinas, today announced that the Securities and Exchange Commission dismissed all charges against former Timbervest LLC Managing Partners Joel Shapiro, Bill Boden and David Zell. In addition, all prior orders and findings issued by the SEC and its administrative law judges in the case "no longer have any force or effect."

"It was a long, arduous process, but an important one and it is satisfying to have positive closure on events from many years ago"

At the time of the agency's filing against Timbervest, Shapiro, Boden and Zell served as chief executive officer, chief investment officer, and chief operating officer, respectively. Founded in 1998, the Atlanta-based investment firm managed approximately $1.8 billion in timberland and environmental investments across the country. Its fund management business was sold to a U.S.-based private equity firm in 2017.

The ruling successfully concludes several years of proceedings that challenged the constitutionality of the SEC's appointment of administrative law judges, as featured by the Wall Street Journal. Petitions filed by Shapiro, Boden and Zell also challenged the initial rulings based on the equal protection and due process clauses of the U.S. Constitution and statute of limitations. Furthermore, the petitions asserted the agency's findings and remedies, as determined solely within the SEC's internal administrative law process, were unsubstantiated by the body of evidence presented. . . .
Those of us who knew or knew of the Donald in the 80s and 90s formed a dim view of him even back then. Mine hasn't changed much; certainly not for the better. How Sarah Sanders and her evangelical cohorts came to view this classless con-man of a Manhattan dirt peddler as the anointed one of God is a mystery deeper than any I was ever made to ponder in my dozen years in Catholic schools.
In an Indictment filed in the United States District Court for the District of Massachusetts, Talal H. Soffan was charged with fraudulently applying for two bank loans totaling $45,000 for his company, All Waste Management LLP. Soffan concealed his and an associate's prior felony convictions from the bank and, after receiving the loans, Soffan misspent the loan proceeds and defaulted on the loans. Further, using a so-called series of credit card bust-out schemes, Soffan defrauded banks and credit card companies through 27 different accounts obtained in his name, the name of his business, other businesses, and other individuals, resulting in an overall loss of approximately $528,624. Additionally, Soffan conspired with a real estate broker by sending that individual e-mails containing his company's genuine bid and false bids from other companies to ensure that his company received contracts to perform repair and maintenance work on foreclosed properties. Upon receiving some $75,186 in contracts for his company, Soffan allowed the broker to keep about 5% of his company's invoiced amounts. Soffan pled guilty to making false statements to a federally insured financial institution, wire fraud, aggravated identity theft, conspiracy, and bank fraud.