The opinion of the court was delivered by: SHADUR
MILTON I. SHADUR, UNITED STATES DISTRICT JUDGE.
This Court has just received, by random assignment to its calendar, the Complaint filed by Steven Scholes ("Scholes"), not individually but solely as receiver for Michael Douglas, D & S Trading Group, Ltd., Analytic Trading Systems, Inc., Analytic Trading Service, Inc. and Market Systems, Inc. ("MSI") against Lawrence Schroeder, Jr. ("Schroeder"). Based on this Court's initial review of the Complaint,
counsel for Scholes is ordered to appear at 8:45 a.m. July 31, 1990 to explain why this Court should not consider dismissal of the Complaint and this action for lack of subject matter jurisdiction.
All of the parties for whom Scholes has been appointed receiver are, on the Complaint's own allegations, crooks who engaged in a series of securities frauds involving limited partnership interests in investment partnerships, mulcting large numbers of investors (over 300) of major sums of money ("millions of dollars") (Complaint para. 1). Without their having admitted that, back on November 30, 1989 all of them except MSI had entered into a consent permanent injunction in an action brought against them in this District Court by the Securities and Exchange Commission: SEC v. Douglas, No. 89 C 8407, assigned to this Court's colleague Honorable James Alesia. On that same date Judge Alesia also appointed Scholes (a lawyer with the law firm now acting for him in this case) "as equitable receiver for all funds, assets, choses in action or other property belonging to, in the possession of, beneficially owned by, or in the control of" the consenting defendants in that action. And on July 5, 1990 Judge Alesia entered a like receivership order as to MSI in the same case.
Each of those two receivership appointments, by their terms, granted Scholes the power to:
institute such actions as said receiver deems necessary against those individuals, entities, corporations, partnerships, associations or incorporated organizations which the receiver may claim to have wrongfully, illegally or otherwise improperly misappropriated monies or other proceeds from investors or clients of the [parties for whom Scholes was appointed as receiver].
In the current Complaint Scholes charges Schroeder as being a fellow crook with the parties for whom Scholes has been appointed to act as receiver -- that is, as someone actively engaged in each of the frauds. And each of the several counts in the Complaint asserts that the direct and proximate result of Schroeder's conduct (like the conduct of the asserted culprits for whom Scholes is acting) was to cause damages to the investors.
But the problem that this Court finds with the action, as posed in those terms, is that every claim is asserted by Scholes not really on behalf of the parties for whom he acts as receiver but on behalf of the defrauded investors themselves. Under receivership law Scholes stands in the shoes of the former and not the latter, although it is the investors and not the crooks for whom Scholes stands as surrogate who are the real parties in interest (Fed. R. Civ. P. 17(a)).
Accordingly Scholes is ordered to appear, as stated at the outset of this memorandum opinion and order, at 8:45 a.m. July 31, 1990 to address the jurisdictional questions posed here. This Court recognizes that Judge Alesia's orders do appear on their face to grant authority for the commencement of this action, but that of course cannot control.
It is necessary for Scholes to explain how any ...