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United States Securities And Exchange Commission v. North Dakota Developments, LLC

United States District Court, D. North Dakota

August 22, 2017

UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
NORTH DAKOTA DEVELOPMENTS, LLC, ROBERT L. GAVIN, and DANIEL J. HOGAN, Defendants, and NORTH DAKOTA DEVELOPMENTS PROPERTY MANAGEMENT LLC, GREAT AMERICAN LODGE LLC, NDD HOLDINGS 1 LLC, NDD HOLDINGS 2 LLC, NDD MODULAR LLC, AUGUSTA EXPLORATION, LLC, and AMES ENGINEERING & DEVELOPMENT SERVICES LLC, Relief Defendants.

          ORDER DENYING TIMOTHY C. EVANSON, JON C. EVANSON, AND DANIEL G. EVANSON'S MOTION TO INTERVENE AND RELIEF FROM ASSET FREEZE

          Daniel L. Hovland, Chief Judge.

         Before the Court is “Timothy C. Evanson, Jon C. Evanson, and Daniel G. Evanson's[1]Motion to Intervene and Lift Injunction Order” filed on July 21, 2017. See Docket No. 139. On July 28, 2017, the Receiver in this case filed a response in opposition to the motion. See Docket No. 141. The United States Securities and Exchange Commission (“SEC”) also filed a response in opposition to the motion on August 1, 2017. See Docket No. 142. For the reasons set forth below, the Evansons' motion to intervene and request to lift the preliminary injunction in this matter is denied.

         I. BACKGROUND

         The SEC commenced this action on May 5, 2015. In its complaint, the SEC alleged North Dakota Developments, LLC, Robert Gavin, and Daniel Hogan engaged in a fraudulent scheme in violation of the anti-fraud and registration provisions of the federal securities statutes. See Docket No. 1. Specifically, the SEC alleged the Defendants made misrepresentations to investors, misappropriated invested funds, and made, and were continuing to make, Ponzi-like payments.

         The SEC filed a motion for a temporary restraining order the same day it filed its complaint against the Defendants. See Docket No. 3. In support of its motion for a temporary restraining order, the SEC contended the fraud was ongoing and, consequently, additional investors would be defrauded if emergency relief was not granted. The Court granted the SEC's motion for a temporary restraining order. See Docket No. 5. On May 18, 2015, the Court converted the temporary restraining order to a preliminary injunction and appointed a receiver to take control of the assets of North Dakota Developments and the Relief Defendants. See Docket No. 20. The preliminary injunction enjoins the Defendants from further violations of specific statutes and from soliciting or accepting further investments.

         According to their motion, the Evansons appear to have entered into a lease agreement[2]with North Dakota Developments to construct temporary housing on the Evansons' property in McKenzie County, North Dakota. See Docket No. 139-1, p. 2. The monthly rent due to Evansons pursuant to the lease agreement was $26, 530.00. Id. North Dakota Developments appears to have breached the lease agreement when a lien was filed against Evansons' property in April 2015. Id. at 3. The Evansons seek to intervene in this action to pursue collection of two security deposits in the amount of $20, 000 and $22, 000, to pursue collection of property taxes due in the amount of $5, 349.76, and to pursue collection of back and future rents due under the lease in the amount of $2, 228, 520.00 plus interest at the rate of 10% per annum.

         In their motion, the Evansons contend the court-appointed Receiver in this case declines to release the security deposits, to pay back rent and future rent, and to reimburse the Evansons for property taxes. The Evansons assert that the preliminary injunction injures the Evansons with no corresponding benefit to the receivership. See Docket No. 139-1, p. 6. Specifically, the Evansons claim the security deposits as their collateral, and the receivership has no interest in those funds. Consequently, the Evansons seek to intervene in this action to protect its ability to obtain satisfaction of their claims against North Dakota Developments. The Evansons also request the Court lift the preliminary injunction so that the Evansons can pursue collection actions against North Dakota Developments.

         II. LEGAL DISCUSSION

         A. INTERVENTION

         Rule 24 of the Federal Rules of Civil Procedure governs intervention by third parties. The Evansons seek to intervene in this case as a matter of right pursuant to Rule 24(a). The SEC and the Receiver contend intervention is unwarranted because the Evansons have failed to satisfy the requirements of Rule 24.

         Rule 24(a) of the Federal Rules of Civil Procedure provides for intervention as a matter of right by an interested third party who:

(1) is given an unconditional right to intervene by a federal statute; or
(2) claims an interest relating to the property or transaction that is the subject of the action, 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.

         Fed. R. Civ. P. 24(a). The Eighth Circuit requires that an application for intervention must satisfy the following tripartite test in order to intervene pursuant to Rule 24(a)(2): “1) the party must have a recognized interest in the subject matter of the litigation; 2) that interest must be one that might be impaired by the disposition of the litigation; and 3) the interest must not be adequately protected by the existing parties.” United States v. Union Elec. Co., 64 F.3d 1152, 1160-61 (8th Cir. 1995). A recognized interest is one that is direct, substantial, and legally protectable. Id. at 1161. An economic interest in the outcome of the litigation is not itself sufficient to satisfy Rule 24(a)(2). Med. Liab. ...


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