Court Opinion

ID: 2683370
Source: CourtListenerOpinion
Date Created: 2014-07-14 17:00:34.606892+00
Date Added: 2024-06-11T13:13:24.280812
License: Public Domain

FILED
                                                  United States Court of Appeals
                     UNITED STATES COURT OF APPEALS       Tenth Circuit

                            FOR THE TENTH CIRCUIT                         July 14, 2014

                                                                      Elisabeth A. Shumaker
                                                                          Clerk of Court
R. WAYNE KLEIN, the
Court-Appointed Receiver of U.S.
Ventures LC, Winsome Investment Trust,
and the assets of Robert J. Andres
and Robert L. Holloway,
                                                           No. 13-4131
             Plaintiff - Appellee,                (D.C. No. 2:12-CV-00051-DBP)
                                                             (D. Utah)
v.

KING & KING & JONES,

             Defendant - Appellant.

                            ORDER AND JUDGMENT*

Before MATHESON, PORFILIO, and PHILLIPS, Circuit Judges.

      R. Wayne Klein (“Mr. Klein” or “Receiver”), the court-appointed receiver for

Winsome Investment Trust (“Winsome”), filed this action to recover funds paid from

Winsome to King & King & Jones, P.C. (“KKJ”). The district court granted

summary judgment in favor of the Receiver. KKJ appeals, and we affirm.

*
      After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and collateral
estoppel. It may be cited, however, for its persuasive value consistent with
Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
                                    BACKGROUND

       KKJ is an Atlanta, Georgia, law firm. In 2006, an individual named Enrique

Baca retained KKJ to defend him against pending criminal charges in Georgia state

court, for a fee of $25,000. The payment to KKJ came in the form of two wire

transfers of $12,500 each to KKJ from Winsome’s bank account. KKJ’s state-court

efforts on Mr. Baca’s behalf were successful: in 2007, the charges were dropped.

       The nature of Mr. Baca’s relationship to Winsome, and Winsome’s reasons for

paying KKJ to represent him, do not appear in the record. The record does reflect

that beginning as early as 2005, Winsome was operated as an illegal Ponzi scheme.1

Between 2005 and 2011, it collected millions of dollars from investors, much of

which it lost in a series of ill-fated ventures. It is undisputed that the funds paid to

KKJ to represent Mr. Baca were derived from this Ponzi scheme.

       In January 2011, as the result of an action filed by the Commodity Futures

Trading Commission, Mr. Klein was appointed receiver for Winsome and for a

number of other related individuals and entities. Among his duties as receiver, he

was charged with recapturing and returning investor funds that were diverted as part

of the Ponzi scheme. Mr. Klein then filed this action seeking to recover the $25,000

KKJ received from Winsome. He theorized that the wire transfers from Winsome
1
       A “Ponzi” scheme is “an investment scheme in which returns to investors are
not financed through the success of the underlying business venture, but are taken
from principal sums of newly attracted investments,” and usually attracting investors
by promising them “large returns for their investments.” In re Hedged-Investments
Assocs., Inc., 48 F.3d 470, 471 n.2 (10th Cir. 1995).

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amounted to fraudulent transfers under Utah law, or, alternatively, that KKJ had been

unjustly enriched by them.

      The parties filed cross-motions for summary judgment. The district court

granted the Receiver’s motion for summary judgment and denied KKJ’s motion. The

district court reasoned that although KKJ received the wire transfers in good faith as

payment for legal services provided to Mr. Baca, KKJ provided no value to Winsome

for the funds it received. The beneficiary of the payments from Winsome to KKJ

was Mr. Baca, not Winsome. The district court concluded that the payments, which

amounted to both actual and constructive fraudulent transfers, should therefore be

recouped in favor of Winsome’s investors.

                                      ANALYSIS

      We review the district court’s summary-judgment determination de novo.

S.E.C. v. Thompson, 732 F.3d 1151, 1156 (10th Cir. 2013). Summary judgment

should be granted when “there is no genuine dispute as to any material fact

and . . . the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a).

“In making that determination, a court views the evidence and draws reasonable

inferences therefrom in the light most favorable to the nonmoving party.” Thompson,

732 F.3d at 1156–57 (internal quotation marks and brackets omitted).

      A federally appointed receiver may sue under state uniform-fraudulent-transfer

law to recover assets fraudulently transferred to third parties pursuant to a Ponzi

scheme. Janvey v. Democratic Senatorial Campaign Comm., Inc., 712 F.3d 185, 190

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(5th Cir. 2013). Here, the Receiver relies on Utah’s Uniform Fraudulent Transfer

Act, Utah Code Ann. §§ 25-6-1 to 25-6-14 (“UFTA”). “Because the [UFTA] is

remedial in nature, it should be liberally construed.” Nat’l Loan Investors, L.P. v.

Givens, 952 P.2d 1067, 1069 (Utah 1998).

      Under the UFTA, a transfer is actually fraudulent if it was made “with actual

intent to hinder, delay, or defraud any creditor of the debtor.” § 25-6-5(1)(a). In the

district court, KKJ conceded that Winsome made the transfers with actual intent to

defraud its creditors. See KKJ’s Memorandum in Opposition to Plaintiff’s Motion

for Summary Judgment, Aplee. Supp. App. at 172, 174. The UFTA, however,

provides a good-faith defense in actions seeking to avoid such fraudulent transfers.

“A transfer or obligation is not voidable under Subsection 25-6-5(1)(a) against a

person who took in good faith and for a reasonably equivalent value or against any

subsequent transferee or obligee.” § 25-6-9(1). KKJ contends that it is entitled to

the defense because it is both a “person who took in good faith and for reasonably

equivalent value” and a “subsequent transferee.”

      In evaluating these defenses, we consider first whether KKJ “took in good

faith and for reasonably equivalent value.” The Receiver concedes that KKJ acted in

good faith. The question is whether KKJ provided “reasonably equivalent value” for

the $25,000 it received.

      The district court concluded that to satisfy this requirement, KKJ must have

provided “reasonably equivalent value” to Winsome. Because the record fails to

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show that the legal services KKJ provided benefitted anyone but Mr. Baca, the

district court further concluded that the “reasonably equivalent value” requirement

was not met. We agree. See, e.g., S.E.C. v. Res. Dev. Int’l, LLC, 487 F.3d 295,

301–02 (5th Cir. 2007) (“A payment made solely for the benefit of a third party, such

as a payment to satisfy a third party’s debt, does not furnish reasonably-equivalent

value to the debtor” (internal quotation marks omitted) (applying Texas UFTA));

Dietz v. St. Edward’s Catholic Church (In re Bargfrede), 117 F.3d 1078, 1080

(8th Cir. 1997) (per curiam) (applying similar provision in Federal Bankruptcy

code);2 see also Dahnken, Inc. v. Wilmarth, 726 P.2d 420, 422 (Utah 1986) (holding,

under Utah’s predecessor Uniform Fraudulent Conveyance Act, that “[s]atisfaction of

an obligation owed the transferee by a third party does not qualify as fair

consideration” for payment by the debtor).3

      Nor is KKJ entitled to the UFTA’s exceptions for subsequent transferees, Utah

Code Ann. § 25-6-9(1), or subsequent good-faith transferees, id. § 25-6-9(2)(b). As a

2
       Bargfrede interpreted the phrase “reasonably equivalent value” used in the
fraudulent transfer provision of the Federal Bankruptcy Code, 11 U.S.C. § 548. The
phrase “reasonably equivalent value” in the UFTA was derived from § 548, and we
therefore find this interpretation persuasive. See Frank Sawyer Trust of May 1992 v.
Comm’r, 712 F.3d 597, 608 n.2 (1st Cir. 2013) (stating cases construing § 548 offer
guidance in interpreting meaning of “reasonably equivalent value” used in UFTA).
3
       “Fair consideration” is a predecessor term to “reasonably equivalent value,”
and serves a similar function to the latter term in the fraudulent transfer context. See
Texas Truck Ins. Agency, Inc. v. Cure (In re Dunham), 110 F.3d 286, 289 (5th Cir.
1997) (equating “fair consideration” with “reasonably equivalent value” for purposes
of § 548).

                                          -5-
direct transferee and recipient of the funds wired from Winsome’s account, who

obtained dominion and control over the funds once they were transferred, KKJ was

not a “subsequent” transferee. Rather, KKJ was the “initial” transferee. See, e.g.,

Bailey v. Big Sky Motors, Ltd. (In re Ogden), 314 F.3d 1190, 1202–05 (10th Cir.

2002) (applying similar “initial transferee” concept in Bankruptcy Code, 11 U.S.C.

§ 550(a)).

       Also, Mr. Baca was not the initial transferee, as KKJ argues. There has been

no showing that the wire transfer gave him actual dominion or control over the funds,

which were wired directly from Winsome’s account to KKJ. See Rupp v. Markgraf,

95 F.3d 936, 938–40 (10th Cir. 1996) (concluding, based on similar Bankruptcy Code

provision in 11 U.S.C. § 550, that individual who caused a corporate debtor to make

a fraudulent transfer to his creditors through his role as corporate principal, but who

never personally had dominion and control of funds, was the “entity for whose

benefit the transaction was made,” and that the recipients of funds were the initial

transferees).

       Finally, we agree with the district court that in addition to being actually

fraudulent, the transfers were constructively fraudulent under § 25-6-5(1)(b). Under

the UFTA, a transfer is constructively fraudulent if it was made without the debtor

receiving “a reasonably equivalent value in exchange” and if either the debtor’s

remaining assets were unreasonably small in relation to the transaction, or the debtor

“intended to incur, or believed or reasonably should have believed that he would

                                          -6-
incur, debts beyond his ability to pay as they became due.” § 25-6-5(1)(b). For

reasons we have already stated, the transfers were not made for reasonably equivalent

value. Furthermore, as the district court recognized, “Winsome’s operation as Ponzi

scheme also shows that Winsome intended to incur, or believed or reasonably should

have believed that it would incur, debts beyond its ability to pay as they became

due.” Aplee. Supp. App. at 209 (internal quotation marks and brackets omitted).

         In sum, the district court correctly determined that the transfers to KKJ were

actually and constructively fraudulent under the Utah UFTA. KKJ is not entitled to

either the good-faith “reasonably equivalent value” or the “subsequent transferee”

defenses under the UFTA. We therefore affirm the grant of summary judgment to the

Receiver, the denial of summary judgment to KKJ, and the judgment of the district

court.

                                                 Entered for the Court

                                                 Gregory A. Phillips
                                                 Circuit Judge

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