Court Opinion

ID: 7802470
Source: CourtListenerOpinion
Date Created: 2022-08-22 17:01:18.018185+00
Date Added: 2024-06-11T16:29:28.231477
License: Public Domain

Appellate Case: 21-4036     Document: 010110727691   Date Filed: 08/22/2022   Page: 1
                                                                             FILED
                                                                 United States Court of Appeals
                                      PUBLISH                            Tenth Circuit

                       UNITED STATES COURT OF APPEALS                   August 22, 2022

                                                                     Christopher M. Wolpert
                              FOR THE TENTH CIRCUIT                      Clerk of Court
                          _________________________________

  TAMMY B. GEORGELAS, as Receiver
  for Roger S. Bliss, an individual, and
  Roger S. Bliss d/b/a Roger Bliss and
  Associates Equities, LLC, a Utah limited
  liability company, Roger Bliss and
  Associates Club LLC, and Bliss Club LLC,

        Plaintiff - Appellee,

  v.                                                      No. 21-4036

  DESERT HILL VENTURES, INC.,

        Defendant - Appellant.

  –––––––––––––––––––––––––––––––––––

  TAMMY B. GEORGELAS, as Receiver
  for Roger S. Bliss, an individual, and
  Roger S. Bliss d/b/a Roger Bliss and
  Associates Equities, LLC, a Utah limited
  liability company, Roger Bliss and
  Associates Club LLC, and Bliss Club LLC,

        Plaintiff - Appellee,

  v.                                                      No. 21-4037

  DAVID HILL,

        Defendant - Appellant.
                       _________________________________

                    Appeal from the United States District Court
                                for the District of Utah
                (D.C. Nos. 2:16-CV-00514-RJS & 2:16-CV-00522-RJS)
Appellate Case: 21-4036    Document: 010110727691        Date Filed: 08/22/2022    Page: 2

                          _________________________________

 Stephen K. Christiansen, Christiansen Law, PLLC (Joshua B. Cutler with him on the
 briefs), Salt Lake City, Utah, for Defendant-Appellants.

 Julianne P. Blanch, Parsons Behle & Latimer (Katherine E. Venti with her on the brief),
 Salt Lake City, Utah, for Plaintiff-Appellees.
                          _________________________________

 Before MORITZ, EBEL, and EID, Circuit Judges.
                   _________________________________

 EBEL, Circuit Judge.
                          _________________________________

       These consolidated cases arose from a 2015 Securities and Exchange

 Commission (“SEC”) civil enforcement action against Roger Bliss, who ran a Ponzi

 scheme through his investment entities (collectively, “the Bliss Enterprise”).1

 Mr. Bliss was ordered to repay millions of dollars to the victims of his fraudulent

 scheme, and the district court appointed Plaintiff-Appellee Tammy Georgelas as

 Receiver to investigate the Bliss Enterprise’s books and seek to recover its property.

       Defendant-Appellant David Hill was employed by the Bliss Enterprise from

 2011 to 2015, providing administrative and ministerial services to the company. He

 received salary payments from the Bliss Enterprise both directly and through

 Defendant-Appellant Desert Hill Ventures, Inc. (“Desert Hill”), of which Mr. Hill

 was president. After the district court ordered Mr. Bliss to disgorge funds from his

 1
  “Ponzi schemes are fraudulent business ventures in which investors’ ‘returns’ are
 generated by capital from new investors rather than the success of the underlying
 business venture. This results in a snowball effect as the creator of the Ponzi scheme
 must then recruit even more investors to perpetuate the fraud.” In re Armstrong, 291
 F.3d 517, 520 n.3 (8th Cir. 2002).
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 scheme, the Receiver brought these actions against Mr. Hill and Desert Hill. The

 Receiver asserted that the Bliss Enterprise estates were entitled to recover the

 $347,000 in wages paid to Defendants, in addition to $113,878 spent by the Bliss

 Enterprise on renovations to Mr. Hill’s house, under Utah’s Uniform Fraudulent

 Transfers Act (“UFTA”), Utah Code Ann. § 25-6-1 et. seq. (2016).2

       The district court granted summary judgment to the Receiver, finding that the

 wages received by Defendants from the Bliss Enterprise and the funds paid by the

 Bliss Enterprise for the renovations were recoverable by the estates under the UFTA.

 Defendants appealed to this court, asserting that the district court erred in denying

 their affirmative defense under Utah Code Ann. § 25-6-9(1) and in finding that the

 renovations were made for Mr. Hill’s benefit, as required under Utah Code Ann.

 § 25-6-9(2)(a). The court agrees with Defendants and, accordingly, REVERSES the

 district court’s summary judgment order and REMANDS for further proceedings.

                                    I.    BACKGROUND

           A. Factual History

       The facts relevant to this appeal are largely undisputed, at least for the

 purposes of summary judgment, and any disputes will be construed in favor of the

 non-movant Defendants. See Banner Bank v. First Am. Title Ins. Co., 916 F.3d 1323,

 1326 (10th Cir. 2019).

 2
  In May 2017, Utah replaced the UFTA with the Utah Voidable Transactions Act.
 But because these cases were filed in 2016, the UFTA governs.
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       Roger Bliss operated the Bliss Enterprise through various entities from August

 2008 through February 2015. Mr. Bliss told investors that his day-trading could earn

 them at least 100% profits on their investments with minimal risk, and he presented

 falsified statements about his current accounts to back up those claims. Over the

 course of the scheme, Mr. Bliss recruited more than 100 investors and raised

 approximately $27.3 million, but he only invested $14 million of those funds in the

 stock market. Of the funds raised, Mr. Bliss lost about $3.5 million in trading, spent

 about $6.7 million on himself or family members, and returned about $16.3 million to

 investors.

       In 2011, Mr. Bliss hired David Hill, through Mr. Hill’s company Desert Hill,

 to perform “administrative and ministerial services” for the Bliss Enterprise. App’x

 Vol. III at 481. Mr. Hill worked full-time for the Bliss Enterprise from September

 2011 to February 2015. His regular tasks included updating investor spreadsheets

 with figures provided to him by Mr. Bliss, circulating statements and investor

 spreadsheets to investors, receiving and maintaining investor agreements between

 Mr. Bliss and investors, handling withdrawal requests and questions from investors to

 send to Mr. Bliss, coordinating Mr. Bliss’s schedule, and maintaining Mr. Bliss’s

 website.

       The Bliss Enterprise paid Mr. Hill a monthly salary for his work, starting at

 $5,000 per month and increasing to as much as $8,000 per month. In total, Mr. Hill

 received $347,000 in salary payments from the Bliss Enterprise, $317,000 of which

 was paid to Desert Hill and $30,000 of which was paid to Mr. Hill directly.

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       In 2014, several years into Mr. Hill’s employment at the Bliss Enterprise, Mr.

 Hill’s wife was diagnosed with Amyotrophic Lateral Sclerosis (“ALS”). Mr. Bliss

 then hired third-party contractors to renovate Mr. Hill’s house to make it accessible

 for his wife’s wheelchair. In total, Mr. Bliss paid $113,878 to the contractors for

 these renovations.

           B. Procedural History

       On February 11, 2015, the SEC filed a civil enforcement action against the

 Bliss Enterprise in federal district court for several counts of securities fraud. On

 June 10, 2015, the court appointed Ms. Georgelas as Receiver. She took control of

 and investigated the Bliss Enterprise’s books and records in an effort to identify and

 recover the estates’ property. On April 19, 2016, the district court entered final

 judgment against Mr. Bliss in the civil enforcement action, enjoining him from

 violating securities laws and ordering him to disgorge $13,880,909.20 in profits he

 made from the scheme.3

       On June 8, 2016, the Receiver filed the first of the lawsuits on appeal here

 against Defendant Desert Hill, and on March 30, 2017, the Receiver filed the second

 lawsuit against David Hill.4 She alleged that the Bliss Enterprise operated as a Ponzi

 3
   In a separate state-court criminal action, Mr. Bliss was convicted of four counts of
 securities fraud and one count of a pattern of unlawful activity and sentenced to a
 prison term plus more than $21 million in restitution.
 4
   Both cases were filed in the United States District Court for the District of Utah,
 which had jurisdiction over these actions pursuant to 15 U.S.C. §§ 77v and 78aa and
 28 U.S.C. §§ 754, 1331, and 1367. Because the SEC action in which the Receiver
 was appointed contained a federal question, the district court had ancillary
 jurisdiction over the state law claims as well. See Klein v. Cornelius, 786 F.3d 1310,
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 scheme and that both Defendants received fraudulent transfers from the Bliss

 Enterprise as defined by the UFTA, meaning the amounts paid to Defendants were

 recoverable by the estates. On February 28, 2020, the Receiver filed Motions for

 Summary Judgment against the Defendants. The district court granted the Receiver’s

 Motions for Summary Judgment, holding that Defendants were liable to repay

 $460,878—the combined amount of the salary payments and renovation costs—to the

 estates. Defendants then appealed.5

                           II.    STANDARD OF REVIEW

        This court “review[s] a summary judgment decision de novo.” Banner Bank,

 916 F.3d at 1326. “[S]ummary judgment will not lie if [a] dispute about a material

 fact is ‘genuine,’ that is, if the evidence is such that a reasonable jury could return a

 verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242,

 248 (1986). The court must draw all reasonable inferences in favor of the non-

 movant when examining the record. Id. The movant bears the initial burden of

 demonstrating the absence of a genuine issue of material fact, but once the moving

 party has done so, the burden shifts to the non-movant to establish a genuine issue of

 fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

 1315 (10th Cir. 2015) (citing Donell v. Kowell, 533 F.3d 762, 769 (9th Cir. 2008)).
 This Court now exercises its jurisdiction under 28 U.S.C. § 1291.
 5
   The district court entered two separate orders of final judgment below: one in favor
 of the Receiver against Desert Hill in the amount of $356,552.13, and one also in
 favor of the Receiver against Mr. Hill in the amount of $161,327.13. Desert Hill and
 Mr. Hill filed timely notices of appeal of each final order to this court, which
 consolidated those two cases (Nos. 21-4036 and 21-4037) on appeal for all purposes.
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                                   III.   DISCUSSION

        The UFTA allowed creditors to avoid a debtor’s fraudulent transfer “to the

 extent necessary to satisfy the creditor’s claim.” Utah Code Ann. § 25-6-8 (2016);

 see also Utah Code Ann. §§ 25-6-5, 6 (2016) (defining fraudulent transfers). Under

 the UFTA, “once it is established that a debtor acted as a Ponzi scheme, all transfers

 by that entity are presumed fraudulent.” Wing v. Dockstader, 482 F. App’x 361, 363

 (10th Cir. 2012) (unpublished) (citing Donell v. Kowell, 533 F.3d 762, 770 (9th Cir.

 2008)). Where avoidance of a fraudulent transfer is appropriate, the creditor may

 recover the value of the transfer from “(a) the first transferee of the asset or the

 person for whose benefit the transfer was made; or (b) any subsequent transferee

 other than a good faith transferee who took for value or from any subsequent

 transferee.” Utah Code Ann. § 25-6-9(2) (2016) (emphasis added). But at the same

 time, the UFTA provided an affirmative defense to transferees “who took in good

 faith and for a reasonably equivalent value,” so that funds may not be recovered from

 them. Utah Code Ann. § 25-6-9(1) (2016).

        Here, the Receiver asserted in her Motion for Summary Judgment that the

 payments to Defendants and for the renovations to their house by a third-party

 contractor were fraudulent transfers by the Bliss Enterprise, recoverable from

 Defendants as first transferees or persons for whose benefit the transfer was made.

 The Defendants in turn argued that the Receiver had not adequately proven that the

 Bliss Enterprise was a Ponzi scheme; that Defendants were entitled to an affirmative

 defense under § 25-6-9(1) of the UFTA for the salary payments received in good

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 faith for reasonably equivalent value; and that the funds for the renovations were not

 recoverable under the UFTA because they were paid to the contractors for the benefit

 of Mr. Hill’s wife, not Mr. Hill. See Utah Code Ann. § 25-6-9(2)(a).

           The district court held that the Bliss Enterprise did operate as a Ponzi scheme,

 and so it applied the “Ponzi presumption” that all of its transfers—including those to

 Defendants—were fraudulent. App’x Vol. III at 492. It further rejected Defendants’

 asserted defense under § 25-6-9(1) and held that Mr. Hill was the person for whose

 benefit the transfer for the renovations was made under § 25-6-9(2)(a), justifying

 summary judgment on both of the Receiver’s claims.

           On appeal, Defendants no longer contest that the Bliss Enterprise is properly

 considered a Ponzi scheme, but they challenge the district court’s conclusions that (1)

 the salary payments to Defendants were not made in exchange for “reasonably

 equivalent value” as defined by the UFTA, and (2) the money paid by Bliss to the

 contractors for the renovations to Mr. Hill’s house were for the benefit of Mr. Hill as

 defined by the UFTA. Applying de novo review and using the summary-judgment

 standard of proof, this court finds error in the district court’s conclusions on both

 issues.

              A. Mr. Hill’s Wages

           The $347,000 in wages paid by the Bliss Enterprise to Defendants are not

 recoverable by the Receiver if the Defendants took those funds “in good faith and for

 a reasonably equivalent value.” Utah Code Ann. § 25-6-9(1) (2016). Both “good

 faith” and “reasonably equivalent value” are essential elements of this defense,

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 meaning that the Defendants needed to present a genuine dispute of material fact as

 to each of them to avoid summary judgment in the Receiver’s favor. But the

 Receiver did not seek summary judgment on whether Defendants acted in good faith,

 so the district court assumed—as will we—that the Defendants did take the salary

 payments in good faith for purposes of summary judgment.6 Thus, the only question

 before us on this issue is whether the salary payments were “reasonably equivalent

 value” for the services performed by Defendants for the Bliss Enterprise, or at least

 whether there is a genuine dispute of material fact on that issue. Our answer is yes.

       As an initial matter, there is no dispute that the amounts Defendants were paid

 constituted reasonable fees for the services they provided. The dispute on appeal

 instead revolves around what counts as “value” in the context of Ponzi schemes as a

 matter of law. The district court held, and the Receiver argues on appeal, that Mr.

 Hill’s administrative work in “ensuring the smooth operation of the Bliss Enterprise

 and helping to entice new investors into the scheme” legally could not be considered

 reasonably equivalent value “because it helped perpetuate the scheme’s fraud and

 exacerbated the harm to the victims.” App’x Vol. III at 496.

       We do not agree that the services rendered by Mr. Hill as part of a valid

 employment contract ceased to provide “value” simply because they indirectly helped

 Mr. Bliss pull off the logistics of his fraud, and we assume for the purposes of this

 appeal Mr. Hill’s good faith. “The primary consideration in analyzing the exchange

 6
   In other words, we assume, without deciding, that Defendants had no knowledge
 that any of Mr. Bliss’s activities were fraudulent or otherwise unlawful.
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  of value for any transfer is the degree to which the transferor’s net worth is

  preserved.” Klein v. Cornelius, 786 F.3d 1310, 1321 (10th Cir. 2015) (quoting

  S.E.C. v. Res. Dev. Int’l, LLC, 487 F.3d 295, 301 (5th Cir. 2007)). The UFTA states

  that “[v]alue is given for a transfer or an obligation if, in exchange for the transfer or

  obligation, property is transferred or an antecedent debt is secured or satisfied.” Utah

  Code Ann. § 25-6-4 (2016).

         Here, Mr. Hill provided basic administrative services to the Bliss Enterprise,

  pursuant to his employment agreement; the Bliss Enterprise incurred a debt to Mr.

  Hill once he performed the services. Paying his wages discharged that debt, and so

  the monthly salary payments had no effect on the net worth of the Bliss Enterprise.

  In this sense, the “value” of Mr. Hill’s work was no different from that of a janitorial

  company paid to clean Mr. Bliss’s office, and those funds would not be recoverable

  from the janitorial company under the UFTA. See In re Universal Clearing House

  Co., 60 B.R. 985, 998 (D. Utah 1986). The fact that Mr. Hill’s work was more

  directly related to the day-to-day operations of the Ponzi scheme may have bearing

  on whether Mr. Hill acted in good faith—that is, whether he knew of the fraud or

  not—but it does not mean that Hill’s salary payments were not exchanged for

  “reasonably equivalent value” in the form of his administrative work. And this latter

  question of value is the only one we consider today, since we are assuming good faith

  in this appeal.

         Some courts have held that transfers are not made for “reasonably equivalent

  value” when the transferee (even a good-faith transferee) is being paid to directly

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  solicit people to invest in and to be defrauded by the Ponzi scheme. E.g., Warfield v.

  Byron, 436 F.3d 551, 554–55 (5th Cir. 2006); Miller v. Taber, No. 1:12-CV-74-DN,

  2014 WL 317938, at *2 (D. Utah Jan. 29, 2014) (unpublished); Wing v. Holder, No.

  2:09-CV-118, 2010 WL 5021087, at *2 (D. Utah Dec. 3, 2010) (unpublished).

  Defendants call this approach the “referral-fee exception” to the standard definition

  of “value” under the UFTA, Aplt. Br. at 28, because it has only been applied to deny

  the § 25-6-9(1) defense to transferees who were paid by a Ponzi scheme for the

  specific purpose of referring or recruiting new investors to the scheme. Other courts

  have explicitly rejected this approach to the recovery of Ponzi scheme referral fees,

  finding that the referral-fee exception is contravened by the generally accepted

  meaning of “value” and creates an unworkable line-drawing problem. E.g.,

  Windham v. Allen, No. 2:18-CV-00054-JNP, 2020 WL 6743268, at *3 (D. Utah Nov.

  17, 2020) (unpublished); In re Fin. Federated Title & Tr., Inc., 309 F.3d 1325, 1332

  (11th Cir. 2002). This Court has not previously relied on the referral-fee exception

  or any outgrowths of it. See Wing v. Dockstader, 482 F. App’x 361, 365–66 (10th

  Cir. 2012) (unpublished) (recognizing the split of authority on the referral-fee

  exception but finding the issue forfeited).

        We decline to weigh in on the general propriety of the referral-fee exception

  under the UFTA in this case, because it is simply not presented by these facts. Mr.

  Hill was not soliciting investors to join the Ponzi scheme. While new investors may

  have read the website he maintained and existing investors may have spoken with

  him as a conduit to Mr. Bliss, his compensation was not contingent on bringing

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  people into the scheme. The evidence, construed in Defendants’ favor and limited to

  the discrete issue presented to us on appeal, indicates that Mr. Hill’s work was purely

  administrative and administered in good faith. The district court concluded that Mr.

  Hill’s work was “intimately intwined” with the investment scheme, which it believed

  removed any “value” from his work for the purposes of the UFTA. App’x Vol. III at

  496. But the phrase “intimately intwined” lacks independent meaning; anyone from

  landlords to utility providers to accountants could be “intimately intwined” with such

  a scheme if the concept was stretched far enough, yet we do not think that the

  compensation for those services would be recoverable under the UFTA. See In re

  Universal Clearing House Co., 60 B.R. at 999.

        We thus evaluate Mr. Hill’s work under the typical UFTA definition of

  “value,” and find that his salary payments were made for the reasonably equivalent

  value of the debt incurred by the Bliss Enterprise for Mr. Hill’s administrative

  services. These transfers thus had no impact on the company’s net worth, and so the

  Receiver has failed to demonstrate on this record that, as a matter of law, the

  Defendants are not entitled to the § 25-6-9(1) defense based on the “reasonably

  equivalent value” element.7 The district court’s order of summary judgment for the

  Receiver on this issue, requiring Defendants to repay their $347,000 in salary

  payments, is therefore REVERSED.

  7
   Again, we offer no opinion on the good-faith element of the defense, which is not
  before the Court and would be a question for the jury at trial.
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            B. Renovations to Mr. Hill’s House

        Whether the Receiver is entitled to summary judgment to recover the $113,878

  paid by the Bliss Enterprise to independent contractors to renovate Mr. Hill’s house

  depends on a different provision of the UFTA. This transaction, too, is subject to the

  Ponzi presumption that it was a fraudulent transfer. Mr. Hill cannot rely on the § 25-

  6-9(1) affirmative defense because he exchanged no value at all for Bliss’s

  renovations, given that Bliss paid the third-party contractors to do the work on the

  house without asking for anything in return from Mr. Hill. Mr. Hill was not a direct

  transferee of the funds—only the contractors were, but the Receiver did not seek to

  recover the funds from them. Rather, the Receiver sought to recover the renovation

  money from Mr. Hill not because he was a first or subsequent transferee but because

  he was “the person for whose benefit the transfer is made,” against whom judgment

  is allowed under § 25-6-9(2)(a) of the UFTA.

        The Receiver asserts that the transfer was made to benefit Mr. Hill because the

  renovations allowed “an ailing member of Mr. Hill’s family—his wife—to move

  more freely and comfortably around the house,” and enabled Mr. Hill to “more easily

  support his wife as her primary caregiver,” particularly given that he worked from

  home. Aple. Br. at 19. The district court agreed, and further stated that “Hill

  continues to live in the home and has retained all the value from the remodel,” given

  that he owns the house. App’x Vol. III at 499. Accordingly, the court held that the

  Receiver was entitled to recover the $113,878 from Mr. Hill.

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         Mr. Hill argues on appeal that the Receiver presented no evidence that he

  directly benefited from the renovations in terms of his role as a caregiver or in terms

  of the value added to his home, precluding summary judgment on those bases. To

  establish a genuine issue of material fact as to whether he benefited, Mr. Hill points

  to the affidavit he submitted to the district court that stated

                The work done on my home was solely for the benefit of my
                wife, and only involved modifications to make my house
                accessible to my wife while she used her wheelchair. The
                modifications were made to ADA standards and included:
                       a. The installation of zero-threshold egress doors;
                       b. Widening doorways and hallways; and
                       c. Ensuring that there were no steps or “lips” from
                       room to room.

  App’x Vol. VI at 964. Thus, Mr. Hill asserts that the sole “person for whose benefit

  the transfer was made” was not him, but his wife. Id. at 978.

         For the purposes of summary judgment, the Receiver asks for too many

  inferences from the meagre evidence presented regarding whether and how Mr. Hill

  benefited from the transfer to pay for the renovations. Viewing the facts in the light

  most favorable to Mr. Hill, we cannot assume that the transfer which paid for the

  renovations to the house increased its value and thus provided a benefit to

  Mr. Hill. We also cannot assume that the transfer made Mr. Hill’s role as a caregiver

  easier. There is likewise no evidence to demonstrate that Mr. Hill took on or was

  freed from any legal obligations as a result of Mr. Bliss’s payment to the contractors.

  Consequently, the Receiver failed to make the required showing below that Mr. Hill

  “actually received a benefit” and that any benefit “derived directly from the transfer.”

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  In re Brooke Corp., 488 B.R. 459, 471 (Bankr. D. Kan. 2013).8 See also In re

  Meredith, 527 F.3d 372, 376 (4th Cir. 2008) (“[A] person must actually receive a

  benefit from the transfer in order to be an ‘entity for whose benefit’ the transfer was

  made . . . . [O]ur purpose ‘is to look through the form of the transaction and

  determine which entity actually benefitted from the transfer.’” (quoting In re

  Compton Corp., 831 F.2d 586, 595 (5th Cir. 1987))). Because a genuine issue of

  material fact remains regarding whether Mr. Hill was the person for whose benefit

  the $113,878 transfer by Mr. Bliss was made under the UFTA, we hold that summary

  judgment in the Receiver’s favor on this question was inappropriate. We thus

  REVERSE and REMAND for further proceedings.

                                  IV.    CONCLUSION

        Based on the foregoing, we REVERSE the district court’s summary judgment

  order as to both the Bliss Enterprise’s transfer of salary payments to the Defendants

  and Mr. Bliss’s transfer of funds for renovations to Mr. Hill’s house. We REMAND

  for further proceedings consistent with this opinion.

  8
    Brooke Corp. and related authorities did not interpret the precise language in the
  UFTA that is at issue here, instead analyzing a phrase in a federal bankruptcy statute:
  “the entity for whose benefit such transfer was made.” 11 U.S.C. § 550. We think
  this language is sufficiently analogous to Utah’s statutory text to provide a baseline
  approach for identifying “the person for whose benefit the transfer is made” under
  § 25-6-9(2)(a) of the UFTA. See Klein v. King & King & Jones, 571 F. App’x 702,
  704 n.2 (10th Cir. 2014) (unpublished) (citing federal bankruptcy statute as
  persuasive authority for interpreting UFTA provision).
                                             15