Ritchie Capital Management LLC v. Jeffries (Stay of Litigation)

653 F.3d 755 (8th Cir. Sept. 6, 2011)

Ritchie Capital Management LLC v. Jeffries is an important case because it shows the limits of a court’s power to enter stays of litigation in receiverships. An investor in a Ponzi scheme brought suit against two officers of receivership entities for common law and RICO fraud. Defendants argued that the receivership order barred suit against them because the suit would involve interpreting documents that fell under the receivership order. The order barred “[i]nitiating any other process or proceeding that would interfere with the Receiver’s managing or taking custody, control or possession of the assets or documents subject to this Receivership.”

The district court agreed because the court would be required to “consult and interpret” documents that were expressly governed by the receivership order. The court of appeals reversed on two grounds. First, the terms of the receivership order did not mention allowing interpretation of the documents under the receiver’s control, but only provided that actions that would interfere with the exclusive jurisdiction of the district court over the documents were barred. Second, the court, analogizing to bankruptcy law, found that even if the order did bar interpretation of the documents, doing so would exceed the court’s equitable powers because the litigation was between third-parties, and judgment against the officers would not have an effect on the receivership estate. The court noted that if, for example, the officers had absolute indemnification from the receivership entities or the suit would otherwise impact the assets of the receivership estate the court would have the power to bar the lawsuit.