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CFTC v. Walsh

United States Court of Appeals for the Second Circuit

May 28, 2010, Argued in tandem; August 13, 2010, Question Certified

Docket Nos. 09-3742-cv, 09-3787-cv (Consolidated for disposition)

Opinion

 [*221]  GERARD E. LYNCH, Circuit Judge:

Relief defendant-appellant Janet Schaberg, sued under the name Janet Walsh, is  [**2] the former wife of Stephen Walsh, a defendant in actions brought by plaintiffs-appellees the Commodity Futures Trading Commission (the "CFTC") and the Securities and Exchange Commission (the "SEC") (together, the "agencies") alleging violations of the anti-fraud provisions of the Commodity Exchange Act and the Securities Exchange Act. The agencies claim that, among other violations of securities law between 1996 and 2009, Walsh and his co-defendant Paul Greenwood misappropriated from funds they managed for various investors as much as 554 million dollars. The agencies seek disgorgement of this money. Although the agencies allege no wrongdoing by Schaberg, they seek disgorgement of whatever proceeds from the fraudulent scheme are in her possession.

The district court (George B. Daniels, Judge) entered ex parte restraining orders freezing the bulk of Schaberg's assets. Subsequently, by decision and order, the district court converted the restraining orders to preliminary injunctions, prohibiting Schaberg from transferring, disposing of or otherwise encumbering essentially any of her assets without the approval of the court.

In these appeals, Schaberg argues that the district court abused  [**3] its discretion in issuing the injunctions, since, she contends, the frozen property is not subject to disgorgement in the proceedings against her husband. In opposition, the SEC and CFTC not only contest Schaberg's arguments but also contend that we lack jurisdiction to hear these appeals.

We conclude that we have jurisdiction to hear these appeals. We further conclude, however, that determining whether Schaberg's assets are properly subject to a freeze by the district court in these proceedings requires us to assess whether Schaberg has a legitimate claim under New York law to the property she acquired in her separation from Stephen Walsh. Since this inquiry addresses unsettled and significant issues of state law, we certify, pursuant to 22 N.Y.C.R.R. § 500.27(a) and 2d Cir. R. 27.2, two questions to the New York Court of Appeals.

BACKGROUND

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618 F.3d 218 *; 2010 U.S. App. LEXIS 16909 **

COMMODITY FUTURES TRADING COMMISSION, Plaintiff-Appellee, -- v.-- STEPHEN WALSH, PAUL GREENWOOD, WESTRIDGE CAPITAL MANAGEMENT, INC., WG TRADING INVESTORS, L.P., WGIA, L.L.C., WESTRIDGE CAPITAL MANAGEMENT ENHANCEMENT FUNDS, WG TRADING COMPANY L.P., WGI L.L.C., K & L INVESTMENTS, Defendants, JANE T WALSH, Relief Defendant-Appellant. SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee, -- v.-- WG TRADING INVESTORS, L.P., WG TRADING COMPANY, LIMITED PARTNERSHIP, WESTRIDGE CAPITAL MANAGEMENT, INC., PAUL GREENWOOD, STEPHEN WALSH, Defendants, ROB IN GREENWOOD, Relief Defendant, JANET WALSH, Relief Defendant-Appellant.

Subsequent History: As Amended September 14, 2010.

Question certified by Commodity Futures Trading Commission v. Walsh, 15 N.Y.3d 828, 935 N.E.2d 793, 2010 N.Y. LEXIS 2639, 909 N.Y.S.2d 2 (Sept. 16, 2010)

Certified question answered by Commodity Futures Trading Commn. v. Walsh, 17 N.Y.3d 162, 951 N.E.2d 369, 2011 N.Y. LEXIS 1704, 927 N.Y.S.2d 821 (June 23, 2011)

Decision reached on appeal by CFTC v. Walsh, 712 F.3d 735, 2013 U.S. App. LEXIS 6801 (2d Cir. N.Y., Apr. 3, 2013)

Prior History:  [**1] Appeals from a memorandum decision and orders of the United States District Court for the Southern District of New York (George B. Daniels, Judge) granting preliminary injunctions freezing certain assets of relief defendant Janet Schaberg. Questions certified.

CFTC v. Walsh, 2009 U.S. Dist. LEXIS 71617 (S.D.N.Y., Aug. 4, 2009)

CORE TERMS

funds, district court, injunctions, court of appeals, proceeds, marital property, preliminary injunction, separate agreement, disgorgement, agencies, relinquished, transferred, marital estate, appeals, good faith purchaser, legitimate claim, questions, certify, freezing, marriage, fair consideration, certification, orders, serious consequences, good faith, state law, temporary restraining order, ownership, spouse, interlocutory order

Civil Procedure, Remedies, Injunctions, General Overview, Appeals, Appellate Jurisdiction, Interlocutory Orders, Preliminary & Temporary Injunctions, Securities Law, Civil Liability Considerations, Equitable Relief, Standards of Review, Abuse of Discretion, Family Law, Property Rights, Characterization, Marital Property, Property Distribution, Real Property Law, Purchase & Sale, Fraudulent Transfers, Torts, Fraud & Misrepresentation, Actual Fraud, Remedies, Certified Questions