Enjoined Officers of Company in Receivership Lack Standing to Appeal Injunction in Name of Company

In United States Securities & Exchange Commission v. Quest Energy Management Group, Inc., No. 13-12778 (Sept. 25, 2014), the Eleventh Circuit held that company officers enjoined from taking action on behalf of their company may not appeal that injunction in the name of the company. The Securities & Exchange Commission previously sued Arthur Nadel and two of his companies for operating a Ponzi scheme. The district court appointed a receiver to take control of Nadel’s assets and, further, instructed the receiver to move to expand the scope of the receivership if he discovered additional entities funded by the scheme. One such entity discovered was Quest Energy Management Group, Inc. (“Quest”) operated by Paul and Jeff Downey. The court expanded the receivership to Quest and additionally enjoined the company’s officers from taking any action on behalf of the company.

The Downeys appealed the appointment of the receiver and their resulting injunction in the name of Quest. The receiver then moved to dismiss the appeal on the ground that the Downeys had been enjoined from taking any action in the name of Quest.

The court granted the receiver’s motion and dismissed the appeal for lack of jurisdiction. It found that, “[w]hen the district court expanded the receivership to include Quest, it forbade the Downeys from taking any action on behalf of Quest and instead vested the legal rights and interests of Quest in the receiver.” (emphasis added). Based on the language of that order, it then found the Downeys lacked standing to appeal in the name of Quest.

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