United States District Court, E.D. Wisconsin
DECISION AND ORDER
WILLIAM C. GRIESBACH, CHIEF JUDGE
Securities and Exchange Commission brought this enforcement
action against Wealth Management LLC, Wealth Management's
founder James Putman, and Wealth Management's former
president and chief investment officer Simone Fevola,
alleging that the defendants violated the Securities Act of
1933, 15 U.S.C. § 77a, et seq.; the Securities
Exchange Act of 1934, 15 U.S.C. § 78a, et seq.;
Rule 10b-5, 17 C.F.R. § 240.10b-5; and the Investment
Advisor Act of 1940, 15 U.S.C. § 80b-1, et seq.
Presently before the court is Lincoln National Life Insurance
Company's motion to intervene pursuant to Rule 24(a)(2)
of the Federal Rules of Civil Procedure. For the reasons
stated below, the motion will be denied.
original action in this case commenced over ten years ago, on
May 20, 2009, when the SEC filed this action against Wealth
Management, James Putnam, Simone Fevola, and six
“relief defendant” funds. On that same date, this
court appointed Ms. Faye Feinstein as the Receiver of Wealth
Management, the various Wealth Management funds, and Employee
Services of Appleton, Inc. See Order Appointing
Receiver, Dkt. No. 8. Ms. Feinstein, in the course of her
Receivership, has retained Quarles & Brady LLP as her
counsel in this action, and both regularly apply to the court
for approval of compensation for their services.
carrying out her duties as Receiver, Ms. Feinstein engaged in
negotiations with the law firm of Melnick & Melnick, SC
to act as special litigation counsel in the action and to
“(a) investigate the potential liability of numerous
entities, including, insurance companies . . . for the losses
sustained by investors in the Brown and Baetis funds; and (b)
consider the pursuit of such claims.” Receiver's
Br. in Opp., Dkt. No. 477, at 7. Following negotiations, the
court authorized the Receiver to execute an engagement letter
and retain Melnick & Melnick, SC See Order, Dkt.
No. 352. Following investigation by Melnick, the firm
informed Ms. Feinstein that it was prepared to pursue
litigation in Wisconsin state court, and in December 2012,
Ms. Feinstein authorized four of the Wealth Management funds
to file suit against various defendants in Outagamie County.
One of those defendants was Lincoln. Lincoln's Br., Dkt.
No. 471, at 4.
to and during the course of the Outagamie County litigation,
both Ms. Feinstein and Quarles had represented Lincoln in
various matters. Lincoln, through its affiants, asserts that
Quarles represented Lincoln in thirteen matters from 2001
until 2009, and that Ms. Feinstein was specifically retained
in actions relating to bankruptcy, foreclosures, and building
code violations in 2010, 2011, 2013, 2014, and 2015. Lincoln
maintains that Ms. Feinstein should have identified the
potential conflict of interest with her Receivership as early
as 2010, but failed to recognize it then, and further failed
to disclose the conflict in 2014 when she was retained in
litigation with the City of Chicago that was unrelated to the
litigation in this action. Id. Quarles, on the other
hand, maintains that Lincoln should have known of a potential
conflict as early as 2013, when Ms. Feinstein informed Mary
Jo Potter, associate general counsel for Lincoln, that Ms.
Feinstein was acting as a Receiver, although Ms. Potter says
she is certain that Ms. Feinstein did not indicate that the
Receivership was involved in litigation directly adverse to
Lincoln. Potter Aff., Dkt. No. 474-2, ¶¶ 9-11.
it was not until July 2018 that Lincoln acted, when the City
of Chicago filed another complaint against Lincoln. The
attorney handling that complaint, Jeffrey Davis, is also
representing Lincoln in the Outagamie County litigation. Upon
investigation, Mr. Davis discovered that Ms. Feinstein, who
was Lincoln's counsel in the City of Chicago litigation,
was also directing the lawsuit against Lincoln in the
Outagamie County litigation in her capacity as a Receiver.
Lincoln's Br., Dkt. No. 471, at 4. Upon discovery of this
potential conflict, Lincoln notified Ms. Feinstein, who
denied any conflict and referred Lincoln to Don Schott,
Quarles' general counsel. Id. In October 2018,
Mr. Davis sent Mr. Schott a letter, demanding that Ms.
Feinstein resign as receiver, that Quarles disgorge all fees
paid by Lincoln to Quarles since 2009, and that Quarles waive
all pending invoices. During a November 2018 phone call, Mr.
Schott informed Lincoln that he had refused Lincoln's
demands and denied that a conflict existed. Id.
Following the refusal, Lincoln attempted to work directly
with the SEC to resolve the conflict, but ultimately filed
this motion to intervene for the purpose of disqualifying Ms.
Feinstein as Receiver of Wealth Management, and to disqualify
Quarles as counsel to the Receiver.
Federal Rule of Civil Procedure 24(a)(2), a party must be
allowed to intervene in an action if it “claims an
interest relating to the property or transaction that is the
subject of the motion, and is so situated that disposing of
the action may as a practical matter impair or impede the
movant's ability to protect its interest, unless existing
parties adequately represent that interest.” A party
has a right to intervene when (1) the motion to intervene is
timely filed; (2) the proposed intervenors possess an
interest related to the subject matter of the action; (3)
disposition of the action threatens to impair that interest;
and (4) the named parties inadequately represent that
interest. Wis. Educ. Ass'n Council v. Walker,
705 F.3d 640, 657-59 (7th Cir. 2013). The party seeking to
intervene has the burden to show that all four criteria are
met. Reid L. v. Ill. State Bd. of Educ., 289 F.3d
1009, 1017 (7th Cir. 2002). Failure to satisfy any one factor
mandates denial of the petition. United States v. City of
Chicago, 908 F.2d 197, 199 (7th Cir. 1990). “In
evaluating the motion to intervene, the district court must
accept as true the non-conclusory allegations of the
motion.” Lake Investors Dev. Grp., Inc. v. Egidi
Dev. Grp., 715 F.2d 1256, 1258 (7th Cir. 1983).
the issue of timeliness first, the court concludes that
Lincoln's motion to intervene was not timely. The Supreme
Court mandates that “the court where the action is
pending must first be satisfied as to timeliness.”
N.A.A.C.P. v. New York, 413 U.S. 345, 365 (1973).
Timeliness is not “limited to chronological
considerations but is to be determined from all the
circumstances.” Lopez-Aguilar v. Marion Cty.
Sheriff's Dep't, 924 F.3d 375, 388 (7th Cir.
2019) (quoting City of Bloomington v. Westinghouse Elec.
Corp., 824 F.3d 531, 534 (7th Cir. 1987)). When
considering whether a motion to intervene is timely, the
court considers four factors: “(1) the length of time
the intervenor knew or should have known of his interest in
the case; (2) the prejudice caused to the original parties by
the delay; (3) the prejudice to the intervenor if the motion
is denied; and (4) any other unusual circumstances.”
Id. (quoting Sokaogon Chippewa Cmty.v.
Babitt, 214 F.3d 941, 949 (7th Cir. 2000)). The test for
timeliness is “essentially one of reasonableness”
and potential intervenors need to be “reasonably
diligent in learning of a suit that might affect their
rights, and upon so learning they need to act reasonably
promptly.” Reich v. ABC/York-Estes Corp., 64
F.3d 316, 321 (7th Cir. 1995) (citations omitted). Whether a
motion to intervene is timely is “committed to the
sound discretion of the district court.” Shea v.
Angulo, 19 F.3d 343, 349 (7th Cir. 1994) (quoting
City of Chicago, 908 F.2d at 199).
policy behind the timeliness requirement is to “prevent
a tardy intervenor from derailing a lawsuit within sight of
the terminal.” United States v. South Bend Cmty.
Sch. Corp., 710 F.2d 394, 396 (7th Cir. 1983).
Furthermore, “[t]he timeliness requirement forces
interested non-parties to seek to intervene promptly so as
not to upset the progress made toward resolving a
dispute.” Grochocinski v. Mayer Brown Rowe &
Maw, LLP, 719 F.3d 785, 797 (7th Cir. 2013). Other
circuits have recognized that the timeliness requirement is a
“guard against prejudicing the original parties by
failure to apply sooner.” Adam Joseph Res. v. CNA
Metals Ltd., 919 F.3d 856, 865 (5th Cir. 2019)
(citations omitted). Here, while Lincoln may not be derailing
a lawsuit within sight of the terminal, Lincoln's
tardiness in filing this motion is greatly upsetting the
progress that was made in settling the original dispute, and
is also upsetting the progress being made in the Outagamie
County litigation. Lincoln's “failure to apply
sooner” is prejudicing the original parties, and thus,
as noted by the Fifth Circuit, the timeliness requirement
must act as a guard against such prejudice.
with the length of time Lincoln knew or should have known of
its interest in the case, the court notes that it
“determine[s] timeliness from the time the potential
intervenors learn that their interest might be
impaired.” Reich, 64 F.3d at 321. Lincoln was
first sued in Outagamie County in 2012, but argues that it
was unaware that Ms. Feinstein and Quarles would not
adequately protect Lincoln's interest in its privileged
information until November 2018, when Quarles denied that a
conflict existed and refused Lincoln's demands.
Lincoln's Br., Dkt. No. 471, at 6. Despite Lincoln's
contention, the record reveals that Lincoln should have known
of Ms. Feinstein's potential conflict as early as 2013.
In 2013, the defendant insurance companies in the Outagamie
County litigation filed a motion to dismiss, to which
Stephanie L. Melnick filed an affidavit in opposition. In the
third paragraph of that affidavit, Ms. Melnick indicates that
she attached to the affidavit, as Exhibit 1, the order from
this court appointing Ms. Feinstein as Receiver for Wealth
Management and its relevant funds. See Melnick Decl.
Ex. C, ¶ 3 & Ex. 1, Dkt. No. 478-3. While Lincoln
characterizes this exhibit as “buried, ” the
court does not do the same. Had Lincoln been
“reasonably diligent, ” an act as simple as
reading a document that had been filed in a case to which
Lincoln was a party, Lincoln would have realized then and
there, that Ms. Feinstein may have a potential conflict, and
it could have taken steps to alleviate the problem starting
nearly six years ago. A six-year delay in filing a motion to
intervene is categorically untimely.
even if the court were to conclude that the exhibit was
“buried” and that Lincoln did not know and could
not have known that it had an interest in the case, then the
court can look to Lincoln's own in-house attorneys, who
recall Ms. Feinstein raising her position as a Receiver with
them. In either 2013 or 2015, Ms. Feinstein raised her
position as a Receiver with Mary Jo Potter, Associate General
Counsel for Lincoln. Ms. Potter recalled Ms. Feinstein
mentioning the Receivership and she also recalled Ms.
Feinstein assuring her that the Receivership would not pose a
conflict to Lincoln. Potter Aff., Dkt. No. 474-2,
¶¶ 9-10. Ms. Potter further noted that she did not
understand why Ms. Feinstein had raised the issue of the
Receivership, and that she was never provided with a case
number or a notice of conflict in writing. But Ms. Potter
wasn't the only one who was told of the Receivership.
Eric Deskins, an attorney for Lincoln, had a discussion with
Ms. Feinstein in 2014 in which Ms. Feinstein mentioned her
Receivership. Again, Mr. Deskins says he was not given a case
number, and that he had not understood why Ms. Feinstein
raised the issue. Deskins Aff., Dkt. No. 474, ¶¶
6-7. Lincoln indicates that even after these conversations
took place, Lincoln did not know and could not have known of
its interest in the case. It seems clear that Ms.
Feinstein's statements regarding the Receivership and her
belief that it would not pose a conflict with Lincoln would
be worth questioning and investigating, and it would not seem
reasonably diligent to let such a comment pass without
further inquiry. Based on these conversations, it is possible
that Lincoln should have known of the potential conflict as
early as 2013 or 2015, depending on the year in which Ms.
Feinstein discussed the matter with Ms. Potter. Yet again, we
face a lengthy delay either way, and whether it is a six year
delay or a four year delay, neither would be considered
even if the court assumes that Lincoln did not know or could
not have known as early as 2015 that its interests were
implicated, then Lincoln certainly knew or should have known
in July 2018, when Mr. Davis, allegedly for the first time,
discovered the potential conflict. If we start the
“timeliness clock” in July of 2018, then Lincoln
still waited eight months to file its motion to intervene. In
this circuit, a time frame of eight months, and sometimes
even shorter, has been deemed untimely. See South Bend
Cmty. Sch. Corp., 710 F.2d at 396 (stating that filing
the motion four and a half months from the point of knowledge
was untimely); Atl. Mut. Ins. Co. v. Nw. Airlines,
Inc., 24 F.3d 958, 961 (7th Cir. 1994) (noting that
filing more than three months after the decision was not
“timely by any standard”); In re Testosterone
Replacement Therapy Prods. Liab. Litig., No. 14-C-1748,
2018 WL 5884519 (N.D. Ill. 2018) (stating that filing the
motion at a minimum of three months after having known or
should have known was untimely). Lincoln's defense of
this time frame is that it spent the time between July and
November working with Quarles, Ms. Feinstein, and the SEC to
attempt to resolve the problem directly. However, even if the
court accepts this as true and accepts that the negotiations
broke down in November ...