### Betwe en 1985 and 1992, TGM made sales of rare coins i n 1 

### amounts in excess of approxima tely $50 million. TGM achieved this success, however, by operating as a Ponzi scheme in which in vestors were lured into purchasing rar e coins by the expectation of future profits upon the resale of those coins through TGM. TGM sold its coins at inflated prices; investors who made a profit on res ale did so only because their coins we re resold to other investors at even more inflated prices. ___________ No. 95-2662

___________ John R. Stoebner, Trustee of * the Bankruptcy Estate of * T.G. Morgan, Inc., * * Plaintiff-Appellant, * * Appeal from the United States v. * District Court for the * District of Minnesota. Parry, Murray, Ward & Moxley, * formerly known as Parry, * [PUBLISHED] Murray, Ward & Cannon, * * Defendant-Appellee. *

___________ Submitted: February 15, 1996 Filed: July 31, 1996

___________ Before HANSEN, LAY and JOHN R. GIBSON, Circuit Judges.

___________

PER CURIAM.
T. G. Morgan, Inc. (TGM) is a Minnes ota corporation formerly engaged in the business of selling rare coins for invest ment. Michael W. Blodgett was the founder, pres ident, and majority owner of TGM. Diane Blodgett is his wife. In August, 1991, the Federal Trade Commission sued TGM an d Michael Blodgett (the "FTC Action") for deceptiv e trade practices, seeking permanent injunctive relief and consumer redress. 1

### The Settlement and Litigation Estates consisted of certai n 2 

### assets to be transferred to the FTC by T.G. Morgan, Michae l Blodgett, and his wife, Diane Blodgett. The FTC settlemen t provided that a receiver would liquidate the assets in the tw o estates and disburse the money in each of the estates according to a specified procedure. Assets in the Litigation Estate were sold to fund the legal fund with $3 00,000. All remaining assets in the Litigation Estate were then transferred to the Settlement Estate.
The la w firm of Meshbesher & Spence represented Michae l Blodgett for $250,000. Diane Blodgett originally retained Douglas Kelly to represent her. She t hen terminated her relationship with him, a nd hired Philip Resnick. Blodgett then terminated he r relationship with Resnick and hired Parry, Murray to represe nt her. It appears that the initial transfer of $50,000 to Kelly too k place on March 9, 1992. Michael Blo dgett was criminally prosecuted for mail and wire 3 

### fraud in connection with his actions as president of TGM. He was convicted of mail fraud; this Court affirmed his conviction o n appeal. S ee United States v. Blodgett , 32 F.3d 571 (8th Cir

. 1994), c ert. denied , 115 S. Ct. 1414 (1995). Diane Blodgett wa s not charged.
-2- In Ja nuary, 1992, while the FTC Action was pending, TGM creditor s filed an involuntary bankruptcy petition against TGM. Thereafter, TGM , Blodgett, and the FTC reached a settlement (the "Settlement Agreement") an d the district court entered final judgment on a consent order dated March 4, 1992. Federal Trade Commission v. T.G. Morgan, Inc. , No. 4-91-638 (D. Minn. Mar. 5, 1992). The Settlement Agreement provided for the creation of a "Settlement Esta te," to pay for claims of defrauded coin purchasers, and a "Litigation Estate," to fund legal fees for anticipated crimina l 2 defe nse costs of Michael and Diane Blodgett. The Settlement Agreemen t 3 stipulated that any e xcess funds advanced from the Litigation Estate were to be returned to that estate to be subsequently distributed, if necessary , by the FTC receiver at the direction of Michael Blodgett.
Upon Stoebner's appointment as Trustee of the Bankruptcy

### Subsequent to the filing of the FTC complaint, but prior to 4 

### the entry of judgment, creditors of T.G. Morgan filed a Chapter 7 involu ntary bankruptcy petition against it pursuant to 11 U.S.C

. § 303. T.G. Morgan then converted the bankruptcy case to on e under Chapter 11, but on May 28, 1992, the bankruptcy court conver ted the case to Chapter 7 and appointed John Stoebner the Chapter 7 trustee.

The Turnover Order dealt exclusively with assets in th e 5 

### Settle ment Estate and was silent with respect to the Litigatio n Estate. By the time the distr ict court issued the turnover order, the Litigation Estate had no assets, exhausted by payments t o criminal defense counsel.
-3- Estate, he immediately obtained a district court order directing the FTC

4 receiver to turn over any assets remaining in th e Settlement Estate on the groun d that they were property of the TGM bankruptcy estate. Federa l 5 Trade Commission v. T.G. Morgan, Inc. , No. 4-91-638 (D. Minn. Aug. 21 , 1992) (the "Turnover Order").

Af ter the Turnover Order, Diane Blodgett changed attorneys, hirin g the law f irm of Parry, Murray, Ward & Moxley (Parry, Murray) to replac e Phi lip Resnick. At the time Blodgett severed the relationship, Resnic k possessed $25,649.71 of the retainer he received from Blodgett's previous atto rney, which had in turn had come from the TGM Litigation Estate

. Unsure of the proper disposition of the retainer, Resnick petitioned the district court for direction. The district cour t ordered Resnick to remit the funds to the FTC receiver for disbursement in accordance with the FTC settlement. Federal Trade Commission v. T.G. Morgan, Inc. , No 4-91-638 (D

. Minn. Apr . 20, 1993) (order directing return of excess funds to th e Litigation Estate)

Concern ed that return of the legal funds to the FTC receiver woul d be tantamount to thei r transfer to the Bankruptcy Trustee pursuant to the Turnover Order, Parry, Murray, on behalf of Dian e Blodgett, filed a motion for re consideration. The district court denied the motion fo r
recons ideration in June, 1993, Federal Trade Commission v. T.G. Morgan , Inc. , No. 4-91-638 (D. Minn. June 15,

### In a memorandum to the district court, Stoebner argued that 6 

### legal funds in the possession of the FTC receiver should be turned over to him in compliance with the Turnover Order. The distric t cou rt rejected this argument, noting that turning over the lega l funds may not be consistent with the Settlement Agreement. Although Stoebner alerted the district court and the parties to p ossible grounds for setting aside the Settlement Agreement , Stoebner noted that that issue was not properly before the d istrict court on the 1992 turnover motion, and was not presented in th e motions preceding the district court's June 15, 1993 order denying Diane Blodgett's motion for reconsideration. Stoebner fi led a similar claim against the law firm retained 7 

### to defend Michael Blodgett. In an unpublished decision, thi s Court affirm ed the district court's order granting summary judgment o n the ground that Stoebner was judicially estopped from challenging the Settlement Agreement. Stoebner v. Meshbesher & Spence , 72 F.3d 134 (8th Cir. 1995) (table). Neither Stoebner nor Parry, Murra y raise any claim of judicial estoppel in this action, and, at oral argume nt, both parties agreed the doctrine is not implicated i n this case.
-4- 1993) (order denying Blodgett's motion for reconsideration), noting that its earli er order of April 20, 1993 merely required Resnick and the FT C
rece iver to comply with the terms of the Settlement Agreement, whic h provided t hat excess funds in the possession of an attorney should b e returne d to the Litigation Estate and transferred at the direction o f Michael Blodgett. Michael Blodgett then directed the receiver to transfer 6 the funds to Parry, Murray for its criminal defense of his wife.

In the adversarial bankruptcy proceeding below, Stoebner sought t o
recover the money transferred to Parry, Murray under 11 U.S.C. § 549, whic h allows a bankruptcy trustee to recover post-peti tion transfers by a debtor that are not authorized by the bankru ptcy court. Parry, Murray moved for 7 summary judgment, asserting that Stoebner was collaterally estopped from pursuing the section 549(a) claim based on the district court's June 15, 1993 order denying Blodgett's motion for reconsi deration. Although Parry, Murray failed to plead the affirmative defense of collateral estoppel in its answer, the bankruptcy court construed Parry,

### -5-

Murray's summary judgment motion as one to amend its answer to add th e estoppel defense and expressly allowed the amend ed answer. The court then deni ed Stoebner's motion for summary judgment, granted Parry, Murray' s motion for summary judgment, and entered judgment in favor of Parry, Murra y
on Stoebner's claim. The district court affirmed the bankruptcy court's judgment in an order entered on June 21, 1995. We reverse and vacate the judgment of the district court with directions t o remand to the bankruptcy court for further proceedings.

Discussion

We reject Stoebner's argument that the bankruptcy court improperl y allowed Parry, Murray to raise collateral estopp el in its summary judgment motion be cause Stoebner has failed to show that he lacked notice of th e defense, or that Parr y, Murray's delay prejudiced his ability to respond. See Sanders v. Department of the Army , 981 F.2d 990, 991 (8th Cir. 1992) (per curiam) (distric t court did not have to require formality of amended
answer , and properly exercised discretion to allow government to rais e affirmat ive defense for first time in motion to dismiss, which wa s sufficient notice to plaintiff); see also Camarillo v. McCarthy , 998 F.2d 638, 639 (9th Cir. 1993) (in absence of prejudic e, affirmative defense may be raised for first time in summary judgment motion); but cf. Sayre v
. Musicland Group, Inc. , 850 F.2d 350, 355 (8th Ci r. 1988) (holding no error in deny ing motion to amend answer to include affirmative defense whe n plaintiff's estate would suffer substantial prejudice if forced to rebut defendant's allegations because plaintiff was de ceased). Stoebner has not claimed prejudice, nor is any suggested by the record. The defense o f collateral estoppel was not waived.

Nonetheless, we conclude the Bankrup tcy Court incorrectly determined that collateral estop pel barred Stoebner's section 549 claim. Collateral estoppel "means simply that when an issue of

### -6-

ultimate fact has once been determined by a vali d and final judgment, that issue cannot again be litigated between the same parties in any futur e lawsuit." Schiro v. Farley , 114 S. Ct. 783, 790 (1994) (citation omitted)

. Four elements must exist in order to bar relitigation of a factual issue in a subsequent proceeding: (1) the issue sought to be precluded must be the same as that involved in the prior action; (2) the issue must have bee n litigated in the prio r action; (3) the issue must have been determined by
a va lid and final judgment; and (4) the determination must have bee n essential to the prior judgment. In re Miera , 9 26 F.2d 741, 743 (8th Cir. 1991).

The Bankruptcy Court based its collateral estoppel decision on th e district court's June 15, 1993 order denying Diane Blodgett's motion for
recons ideration of its earlier order regarding the disposition of fund s retained by Resnick. That order, however, meets none of the fou r requirements for collateral estoppel because neither the district court no r the parties in the FT C Action addressed the crucial factual issue in this
case: wh ether the money in the Litigation Estate came from the debtor

. The di strict court simply determined that the FTC Settlement Agreement , rather than the Turnover Order, governed the disposition of the legal fund s and required Resnick to return the money to the Litigation Estate.

The June 15 Order denying Blodgett's motion for reconsideration did not determine Stoebner's rights under section 549 because neither the lega l issue of section 549 nor the factual issue of th e origination of the money received by Parry, Mu rray was before the district court. The question of whether money in the Litigation Estate originally came from the TGM was no t "actually litigated" in the FTC action, was not "determined by" th e distri ct court, and was not "necessary" to the district court' s determination not to reconsider its prior order. Because the requirements for application of collateral estoppel are not

### -7-

present, we reverse the district court's judgment granting summary judgmen t to Parry, Murray.
Judgment reversed with directions to remand to the bankruptcy court for further proceedings.

A true copy.

Attest:

CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.