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Securities and Exchange Commission v. Sethi Petroleum, LLC

United States District Court, E.D. Texas, Sherman Division

April 4, 2017

SECURITIES AND EXCHANGE COMMISSION
v.
SETHI PETROLEUM, LLC and SAMEER P. SETHI MARCUS A. HELT, RECEIVER FOR SETHI PETROLEUM, LLC
v.
SAMBINA PROPERTIES, LTD, SAMBINA BROOKVIEW CENTER, LTD, SAMBINA HOMES, LTD, and SAMBINA TRUST

          MEMORANDUM OPINION AND ORDER

          AMOS L. MAZZANT UNITED STATES DISTRICT JUDGE

         Pending before the Court is Intervenor American National Bank of Texas's Motion to Disburse Additional Funds Per a Settlement (Sethi Dkt. #237; Sambina Dkt. #56). After considering the relevant pleadings, the Court finds that the motion should be granted in part and denied in part.

         BACKGROUND

         American National Bank of Texas (“American National”) is seeking to interplead funds into the registry of the Court because American National is caught between conflicting claims to funds held by it. American National has been holding nine accounts for Praveen Sethi; Shahnaz Sethi; Sambina Properties, Ltd.; Sambina Brookview Center, Ltd.; Sambina Homes, Ltd.; Shana Investments, Inc.; PSSB Investments, Inc.; Sambina Trust; Galaxie Properties, Inc.; and Sethi Tax & Wealth Management, Inc. (“Interpleader Defendants”).

         On December 29, 2015, American National filed a Motion to Intervene seeking to intervene in the above styled cases and to interplead certain funds into the registry of the Court (Sethi Dkt. #90; Sambina Dkt. #19). American National attached to its motion a Complaint in Intervention and for Interpleader (“Interpleader Complaint”) seeking to interplead under Federal Rule of Civil Procedure 22. On January 20, 2016, the Court granted American National's Motion to Intervene in the Sethi litigation and considered the Interpleader Complaint as filed in the papers of the case (Dkt. #107). On February 18, 2016, the Court granted American National's Motion to Intervene in the Sambina litigation (Dkt. #25).

         On May 4, 2016, American National filed a Motion to Allow Interpleader seeking to deposit the funds held in this matter into the registry of the court, minus attorney's fees, and to be discharged of liability (Sethi Dkt. #131; Sambina Dkt. #32). The Court ruled on the motion in separate orders. On June 8, 2016, the Court granted the Motion to Allow Interpleader, allowing American National to deposit the funds into the registry of the Court, minus $8, 584.87 in fees; discharging American National from further liability regarding the accounts; and dismissing American National with prejudice from this lawsuit (“Interpleader Order”) (Sethi Dkt. #134; Sambina Dkt. #35). That same day, the Court addressed the fee amount and awarded $8, 584.87 in fees and costs (“Fee Order”) (Sethi Dkt. #135; Sambina Dkt. #36). On June 27, 2016, American National deposited the funds into the registry of the Court, minus its fees (Sethi Dkt. #143, Exhibit A; Sambina Dkt. #38). Until that time, American National believed that Interpleader Defendants would appear, making the Interpleader Order binding on those parties. However, Interpleader Defendants did not make an appearance. On June 27, 2016, American National filed a motion to reconsider the Interpleader Order due to its concern that the Interpleader Defendants “may take the position that they have not made an appearance, and they could potentially argue that the Interpleader Order may not be binding on them” (Sethi Dkt. #141 at p. 2; Sambina Dkt. #37 at p. 2). The Court granted American National's motion and vacated its Interpleader Order (Sethi Dkt. #177; Sambina Dkt. #43). At this time, the funds remain in the registry of the Court and American National has retained its fee award.

         Since the motion to vacate, American National purportedly reached a settlement with Interpleader Defendants. On July 28, 2016, counsel for American National emailed the Court's judicial assistant about a purported settlement regarding fees and allowing interpleader. That same day, the Interpleader Defendants' attorney confirmed that they had reached an agreement as to fees, but did not mention allowing interpleader or releasing American National from liability. American National then sought to determine whether the Receiver was opposed or unopposed to the settlement. Ultimately, the Receiver indicated that he may or may not be opposed.

         While American National was seeking the Receiver's approval, the Interpleader Defendants retained new counsel. The new attorneys informed American National that the Interpleader Defendants no longer agreed to the settlement and that they never agreed to release American National from liability.

         On January 12, 2017, American National filed this motion seeking to enforce the settlement or enter a new order allowing interpleader and award additional fees, up to $18, 042.87 (Sethi Dkt. #237; Sambina Dkt. #56). On January 26, 2017, the Receiver filed a response (Sethi Dkt. #242; Sambina Dkt. #59). On February 10, 2017, the Interpleader Defendants filed a response objecting to any additional fees and any future release from liability, but making an appearance without objection (Sethi Dkt. #247; Sambina Dkt. #63). On February 16, 2017, American National filed a reply (Sethi Dkt. #251; Sambina Dkt. #64).

         LEGAL STANDARD

         Settlement

         A federal court has authority to enforce an agreement to settle litigation before it. In re Omni Video, Inc., 60 F.3d 230, 232 (5th Cir. 1999). In cases based on federal law, the Fifth Circuit applies state law to the enforcement of settlement agreements unless there is a “strong federal interest” favoring federal law. Id.; see also Fulgence v. J. Ray McDermott & Co., 662 F.2d 1207, 1209 (5th Cir. 1981) (applying federal law for Title VII claims). Neither party argues that an action in interpleader implicates a “strong federal interest.” Thus, Texas law applies.

         Under Texas law, “a settlement agreement must comply with Rule 11 [of the Texas Rules of Civil Procedure] to be enforceable.” Padilla v. LaFrance, 907 S.W.2d 454, 462 (Tex. 1995). Rule 11 states “no agreement between attorneys or parties touching any suit pending will be enforced unless it be in writing, signed and filed with the papers as part of the record, or unless it be made in open court and entered of record.” Tex.R.Civ.P. 11. To satisfy the writing requirement, “there must be a written memorandum which is complete within itself in every material detail, and which contains all of the essential elements of the agreement, so that the contract can be ascertained from the writings without resorting to oral testimony.” Padilla, 907 S.W.2d at 462 (quoting Cohen v. McCutchin, 565 S.W.2d 230, 232 (Tex. 1978)).

         In ...


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