Contract – Creditor’s Rights – Promissory Note – Receiver Suit – Jurisdiction

Robb Evans & Associates LLC v. Holibaugh. (Lawyers Weekly No. 10-01-0624, 15 pp.) (Shedd, J.) No. 09-1429, June 29, 2010; USDC at Greenbelt, Md. (Messitte, J.) 4th Cir.

Holding: A receiver appointed pursuant to an FTC enforcement action against a fraudulent debt counseling scheme wins summary judgment in its action to recover receivership property, payment on a promissory note, from a business associate who borrowed $1.34 million for a restaurant from the perpetrator of the fraud; the 4th Circuit says the note was a negotiable instrument and the receiver’s action was timely under D.C. law.

In an order stipulating judgment in the Federal Trade Commission’s action against Ameridebt Inc., DebtWorks Inc. and Andris Pukke, the district court appointed Robb Evans & Associates LLC (REA) as the equity receiver over Pukke’s assets. One of those assets is Infinity, an entity owned by Pukke that made loans to his friends, family and business associates. Infinity lent $1.34 million to Jeffrey Holibaugh for a restaurant. Holibaugh defaulted on the $1.34 million loan balance and REA filed this action as receiver to collect on the note. The district court granted summary judgment to REA.

On appeal, Holibaugh argues the district court erred in holding that it has ancillary subject-matter jurisdiction over this action based on REA’s appointment as receiver in the FTC enforcement action. He contends that when Congress enacted 28 U.S.C. § 1367 in 1990, it eliminated common-law ancillary jurisdiction as applied to this case. We disagree.

Although § 1367 governs ancillary jurisdiction over claims asserted in a case over which the district court has federal subject matter jurisdiction, it does not affect common-law ancillary jurisdiction over related proceedings that are technically separate from the initial case that invoked federal subject matter jurisdiction, which remains governed by case law.

Next Holibaugh argues the district court erred in holding that the Note is a negotiable instrument and applying a six-year statute of limitations under D.C. Code § 28:3-118(a) to conclude that the action is not time-barred.

The clear language of the note makes it “payable to the order of an identified person,” and Holibaugh did not obligate himself to any additional “undertaking or instruction” in contravention of Code § 28:3-104(a)(3). Because the note constitutes a negotiable instrument, the applicable statute of limitations period is six years and it is undisputed that REA’s lawsuit was filed within that time period.

Finally, there is no factual dispute over whether the parties intended that Holibaugh be personally responsible on the note, as he acknowledged that he signed the note as a borrower, not on behalf of the company as a guarantor. Holibaugh’s testimony regarding Pukke’s oral representations about the restaurant being liable on the note is excluded pursuant to the parol evidence rule.

Summary judgment for the receiver affirmed.

Dissent

Gregory, J.: In light of Finley v. U.S., 490 U.S. 545 (1989), and its progeny, § 1367 can only be read to abrogate the common-law doctrine that courts have the power to hear any and all new claims against additional parties brought by a receiver.

The receiver here was appointed to manage Pukke’s assets in an FTC civil enforcement action. The district court lacked jurisdiction to hear the suit under § 1367, both because it was filed after the underlying suit was resolved and because there was no connection between appellant or the cause of action and the underlying FTC suit. Because neither § 1367 nor any other statutory provision grants the district court jurisdiction to hear this claim, I would vacate the judgment and remand with instructions to dismiss for lack of subject matter jurisdiction.