from the United States District Court for the District of
Utah (D.C. No. 2:14-CIV-00309-RJS-DBP)
D. Wride (Mark W. Pugsley and Jared N. Parrish with him on
the briefs), of Ray Quinney & Nebeker P.C., Salt Lake
City, Utah, for Richard Seiler, Michelle Seiler, and Christa
E. Doctorman (Matthew D. Cook and Emily D. Holt with him on
the brief), of Parsons Behle & Latimer, Salt Lake City,
Utah, for First Utah Bank, Interested Party-Appellee.
R. Gaylord (Melanie J. Vartabedian with him on the brief), of
Ballard Spahr LLP, Salt Lake City, Utah, for
Theodore J. Weiman, Senior Counsel (Anne K. Small, General
Counsel, Sanket J. Bulsara, Deputy General Counsel, Michael
A. Conley, Solicitor, and Tracey A. Hardin, Assistant General
Counsel, with him on the brief), Securities and Exchange
Commission, Washington, D.C., for Plaintiff-Appellee SEC.
HOLMES, SEYMOUR, and MORITZ, Circuit Judges.
SEYMOUR, Circuit Judge.
Securities and Exchange Commission ("SEC") brought
this civil action against American Pension Services
("APS"), a third-party administrator of
self-directed individual retirement and 401(k) accounts
(collectively "IRA Accounts"), and its President
and CEO, Curtis DeYoung. The SEC alleged that DeYoung
misappropriated $24 million in APS customer funds that APS
had commingled in a Master Trust Account at First Utah Bank
("First Utah"), custodian of the funds. The
district court appointed a Receiver, who ultimately entered
into a Settlement Agreement with First Utah. The settlement
included a Claims Bar Order, which barred all other claims
against First Utah relating to any IRA Accounts established
with APS. Three of the approximately 5, 500 APS clients
(collectively "IRA Account Owners") who had a
financial stake in the receivership entity intervened and
contended that the court could not bar them from filing their
own claims against First Utah. The district court disagreed
and approved the settlement. Intervenors appeal, and we
1992, APS requested that First Utah act as custodian for the
IRA Accounts it held for the benefit of its IRA Account
Owners because APS was not a bank and did not qualify to
serve as custodian under the Internal Revenue Code. APS
entered into a Custodian Agreement with First Utah that
described each of their duties and established a depository
account titled the Master Trust Account. APS's CEO,
Curtis DeYoung, was the sole signatory with authority to
withdraw money from the Master Trust Account.
2009, APS and First Utah renewed the 1992 Custodian
Agreement. Both custodian agreements delegated to APS the
duty to provide all accounting services for IRA Account
Owners with respect to their individual accounts with APS.
The agreements included an indemnity provision that arguably
entitled First Utah and its officers and directors to
indemnity from all claims in connection with APS's
performance under the agreements. APS commingled all of the
IRA Account Owners' cash into the Master Account at First
Utah and maintained all the records reflecting individualized
ownership of the IRA Account Owner funds.
district court found that between 2000 and 2014, DeYoung
misappropriated approximately $24 million from the APS
investors. In so doing, DeYoung falsified "IRA account
statements to assure that the funds missing from the Master
Accounts would reconcile with the cash APS reported to be in
the IRA Account Owner's [sic]
accounts." Aplt. App., vol. 3 at 475, D. Ct. Findings
at ¶ 17.
instituted this action against APS and DeYoung. The district
court subsequently appointed a receiver to gather and manage
the assets of APS and DeYoung. The Receiver was given the
power to, among other things, "pursue, resist and defend
all suits, claims and demands which may now be pending or
which may be brought by or asserted against the Receivership
Estates." Id. at ¶ 20 (quoting Order
2014, the Receiver initiated discussions with First Utah
regarding its potential liability with respect to the
misappropriation of $24 million of IRA Account Owner funds
from the Master Account. The Receiver took depositions and
had access to APS's records, "including documents,
agreements, and records pertaining to the relationship among
APS, First Utah, and the IRA Account Owners, and financial
information regarding First Utah, including the Written
Agreement with the Federal Revenue Bank of San Francisco . .
. and insurance policies potentially insuring First
Utah." Id. at ¶ 29. In furtherance of
these discussions, the Receiver provided First Utah with a
draft complaint setting forth the nature of the claims the
Receiver intended to pursue against First Utah on behalf of
APS and for the benefit of the IRA Account Owners. All of the
claims, in some form, focused on First Utah's
"failure to take necessary steps to assure the IRA
Account Owners' deposits were safe." Aplt. App.,
vol. 2 at 346.
Utah responded by asserting numerous defenses and
counterclaims it intended to argue if the Receiver or any IRA
Account Owner filed an action against it based on its role as
custodian, including fraudulent inducement by APS and
DeYoung, statute of limitations, rescission, comparative
negligence, and First Utah's right to indemnification
under the 2009 Agreement. The district court noted that
"[e]xtensive investigation, discovery and research were
conducted regarding the claims and defenses raised by First
Utah, Everest [National Insurance Company, First Utah's
insurance provider], and the Receiver on behalf of APS."
D. Ct. Findings at ¶ 33. Moreover, the district court
found the following with regard to the Receiver's claims
against First Utah:
35. The Receiver's claims on behalf of APS against First
Utah are substantially identical to the claims the IRA
Account Owners could assert against First Utah if filed
separately. The defenses and counter claims asserted by First
Utah in defense of such claims are substantially identical to
the defenses and counter claims that could be asserted
against the IRA Account Owners claims. The claims are all
from the same loss, from the same entities, relating to the
same conduct, and arising out of the same transactions and
occurrences by the same actors.
36. After several months of arm's length negotiations
between the Receiver on behalf of APS and First Utah, and
Everest, including three days of mediation with a
professional mediator, all under plain view of the SEC, the
SEC, the Receiver, First Utah and Everest determined it to be
in their respective best interests, to be fair and
reasonable, and in the best interests of the Receivership
Estate, to resolve the claims, defenses, and counter-claims
by entering into the Settlement Agreement.
Id. at ¶ ¶ 35, 36. The district court also
noted the importance of all parties reaching a settlement in
40. The claims, defenses and counter claims of the Receiver,
the IRA Account Owners, the Receivership Estate and First
Utah are complex and so inextricably intertwined such that a
determination of each party's liabilities and rights
independently may be impossible or, at a minimum,
impracticable without extensive litigation.
Id. at ¶ 40.
respect to the financial condition of First Utah at the time
of the settlement negotiations, the district court found:
51. The Receiver undertook an analysis of the financial
condition of First Utah, including reviewing publicly
available financial reports and meeting with and discussing
First Utah's financial condition with key bank personnel
and the Receiver's independent banking consultants.
52. First Utah is a highly regulated, small Utah community
bank with only seven branches, all in Salt Lake County, Utah.
It has limited capital that it can use to fund its portion of
the settlement amount. See Written Agreement;
financial call reports publicly filed by First Utah with the
Utah Department of Financial Institutions.
53. On February 23, 2009, First Utah became subject to a
Written Agreement with the Federal Reserve under the Board of
Governors Federal Reserve System, Docket No. 09-130-WA-RB-SM.
Under the Written Agreement, First Utah was required to
increase its capital. While First Utah was recently released
from the Written Agreement, it remains under a mandate of its
federal regulators to increase its capital. Given First
Utah's current capital structure, First Utah's
contribution toward settlement, although limited, remains
substantial ($2.0 million) in relation to or as a percentage
of its total capital. The settlement contribution will also
reduce its regulatory capital.
54. According to First Utah's current capital structure,
as reflected in the financial call reports publicly filed by
First Utah with the Utah Department of Financial
Institutions, the payment of $2 million by First Utah toward
the settlement will reduce First Utah's capital.
55. In reviewing First Utah's financial condition, the
totals of the aggregated claims asserted by the Receiver ($24
million) and indirectly by the Intervenors and the capital
available from First Utah to satisfy the maximum amount of
such claims, would result in First Utah being unable to pay
the claims were the Receiver to prevail.
56. It is also determined that all of the funds realistically
available from First Utah are being paid to the Receiver and
devoted to the claims-that is the entire $3 million from
Everest and $2 million from First Utah, plus the additional
57. Further, demanding a greater cash contribution from First
Utah would reduce capital to an unreasonably low level for
regulatory purposes which could negatively impact First
Utah's financial stability.
58. In contrast, if the Receiver were to pursue First Utah to
judgment, there is a very real risk that the capital now
available for the settlement payments may be exhausted and/or
substantially limited ultimately resulting in less potential
recovery for the ...