Wing v. Dockstader , 482 F. App'x 361 ( 2012 )

FILED
United States Court of Appeals
Tenth Circuit
June 6, 2012
UNITED STATES COURT OF APPEALS
Elisabeth A. Shumaker
Clerk of Court
TENTH CIRCUIT
ROBERT G. WING, as Receiver for
VESCOR CAPITAL CORP., a Nevada
corporation, VESCOR CAPITAL, INC., No. 11-4006
a Nevada corporation, VESCORP D. Utah
CAPITAL, LLC, a Nevada limited (D.C. No. 2:08-CV-00776-DB)
liability company, VESCORP CAPITAL
IV-A, LLC, a Nevada limited liability
company, and VESCORP CAPITAL IV-
M, LLC, a Nevada limited liability
company,
Plaintiff - Appellee,
v.
BRUCE J. DOCKSTADER; MARILYN
DOCKSTADER; DOCKSTADER
FAMILY TRUST DTD 4/24/91;
DOCKSTADER FAMILY TRUST DTD
5/8/91,
Defendants - Appellants.
ORDER AND JUDGMENT *
Before MURPHY, HOLLOWAY, and GORSUCH, Circuit Judges.
*
This order and judgment is not binding precedent except under the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.
I. Introduction
On October 6, 2008, plaintiff-appellee Robert G. Wing, the court-appointed
receiver for Vescor, Inc., brought suit under Utah’s Uniform Fraudulent Transfer
Act (“UFTA”) against defendant-appellants Bruce J. Dockstader, Marilyn
Dockstader, Dockstader Family Trust dtd 4/24/91, and Dockstader Family Trust
dtd 5/8/91 (collectively “the Dockstaders”). The suit sought to void certain
allegedly fraudulent transfers the Dockstaders received from Vescor, a now-
defunct corporation formerly controlled by Val Southwick, in the course of their
dealings with the company. See Utah Code Ann. § 25-6-8(1)(a). The district
court granted summary judgment in favor of the Receiver, and the Dockstaders
appeal. Exercising jurisdiction pursuant to 28 U.S.C. § 1291, the court affirms.
II. Background
In 2008, Val Southwick pleaded guilty to nine felony counts of securities
fraud in connection with a Ponzi scheme he ran through a complex network of
corporations and limited liability companies. The United States Securities and
Exchange Commission filed suit against Southwick and Vescor, the principal
entity through which Southwick orchestrated his scheme, on February 6, 2008.
On May 5, 2008, the district court appointed Wing as Receiver for Vescor. The
district court granted summary judgment in favor of the Receiver on December 3,
2010. The judgment against the Dockstaders totaled $671,702.66. On appeal, the
Dockstaders argue the Receiver lacked standing, the relevant statute of limitations
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expired before the Receiver filed suit, and the methodology used to compute the
amount of the judgment was flawed.
III. Discussion
A. Standard of Review
The court reviews the district court’s summary judgment order de novo,
applying the same standard as the district court. Doe v. City of Albuquerque, 667
F.3d 1111, 1122 (10th Cir. 2012). Summary judgment should be granted “if the
movant shows that 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).
B. Standing
The Dockstaders challenge the Receiver’s standing to sue under the UFTA,
arguing the statute does not create any remedies for receivers and that the
receivership order did not empower Wing to bring claims on behalf of the
creditors and/or investors of Vescor. The district court rejected this argument,
relying on Scholes v. Lehmann, 56 F.3d 750, 753–55 (7th Cir. 1995). 1 In Scholes,
a panel of the Seventh Circuit held a receiver of an entity which was used to
perpetrate a Ponzi scheme has standing to recover fraudulent transfers as though
the receiver were a creditor of the scheme. Id. The reasoning in Scholes has been
endorsed by the Second and Ninth Circuits. See Donnell v. Kowell, 533 F.3d 762,
1
The district court had rejected similar challenges to the standing of the
Receiver in other ancillary cases similar to this case. See Wing v. Hammons, No.
2:08-cv-620, 2009 WL 1362389 (D. Utah May 14, 2009).
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776–77 (9th Cir. 2008) (applying Scholes to California’s Uniform Fraudulent
Transfer Act); Eberherd v. Marcu, 530 F.3d 122, 132–33 (2d Cir. 2008) (applying
Scholes to New York Debtor & Creditor Law § 276). This court finds the
reasoning in these cases persuasive, and therefore rejects the argument that the
Receiver lacks standing in this case. 2
C. Ponzi Presumption
Much of the district court’s analysis turned on its conclusion that there was
no genuine dispute of material fact that Vescor and its associated entities operated
as one large Ponzi scheme. Under the UFTA, once it is established that a debtor
acted as a Ponzi scheme, all transfers by that entity are presumed fraudulent. See
Donnell, 533 F.3d at 770 (“The mere existence of a Ponzi scheme is sufficient to
establish actual intent to defraud.” (quotation and alteration omitted)). Before the
district court, the Receiver submitted the twenty-eight-page declaration of Gil
Miller, a forensic accountant who concluded Vescor “exhibited characteristics of
a Ponzi scheme at least as early as the year 2000.” The Receiver also submitted
testimony from former Vescor employees, such as Monique Fisher, a former
controller for Vescor who testified Vescor commingled investor money. Initially,
2
In support of their argument that Scholes should not be followed, the
Dockstaders cite a bankruptcy case from the District of Arizona, Aaron v.
Rosepink (In re Global Grounds Greenery, LLC), 405 B.R. 659, 664–65 (Bankr.
D. Ariz. 2009). The district court concluded Global Grounds Greenery was
unpersuasive and applied only in the context of bankruptcy proceedings. This
court agrees.
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in their written opposition to the Receiver’s motion for summary judgment, the
Dockstaders did not dispute that Vescor was a Ponzi scheme. Immediately prior
to oral argument before the district court, the Dockstaders moved to supplement
their memorandum opposing summary judgment in order to challenge whether the
Ponzi presumption applies to Vescor transactions. The district court denied the
motion. As counsel for the Dockstaders reluctantly acknowledged at oral
argument, this ruling has not been adequately challenged on appeal. “[W]e
routinely have declined to consider arguments that are not raised, or are
inadequately presented, in an appellant’s opening brief.” Bronson v. Swensen,
500 F.3d 1099, 1104 (10th Cir. 2007). Further, “[s]cattered statements in the
appellant’s brief are not enough to preserve an issue for appeal.” Exum v. U.S.
Olympic Comm., 389 F.3d 1130, 1133 n.4 (10th Cir. 2004). Moreover, because
the evidentiary materials upon which the Dockstaders now rely in an attempt to
establish a disputed issue of material fact as to whether Vescor was a Ponzi
scheme were never properly submitted to the district court, they are not part of
the record on appeal. See Utah v. U.S. Dep’t of Interior, 535 F.3d 1184, 1195 n.7
(10th Cir. 2008) (“[N]ew evidence not submitted to the district court is not
properly part of the record on appeal.”). The court therefore declines to review
the district court’s application of the Ponzi presumption to all Vescor
transactions.
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D. Statute of Limitations
The Dockstaders argue the statute of limitations has run on any of the
Receiver’s claims pertaining to transactions which occurred before October 6,
2004, four years prior to the date the Receiver filed suit against them. The UFTA
provides:
A claim for relief or cause of action regarding a fraudulent transfer
or obligation under this chapter is extinguished unless action is
brought:
(1) under Subsection 25-6-5(1)(a), within four years after the
transfer was made or the obligation was incurred or, if later,
within one year after the transfer or obligation was or could
reasonably have been discovered by the claimant . . . .
Utah Code Ann. § 25-6-10. The Dockstaders further argue that section 25-6-10 is
a statute of repose, which is not subject to equitable tolling. See Amco Prod. Co.
v. Newton Sheep Co., 85 F.3d 1464, 1472 (10th Cir. 1996) (“While [a statute of
limitations] . . . is ‘a procedural device that operates as a defense to limit the
remedy available from an existing cause of action,’ a statute of repose, in
contrast, ‘creates a substantive right in those protected to be free from liability
after a legislatively-determined period of time.’” (quoting Webb v. United States,
66 F.3d 691, 700–01 (4th Cir. 1995)). Thus, the Dockstaders argue, the
Receiver’s right to enforce fraudulent transfer claims runs from the time each
such transfer took place, not the date of his appointment. Regarding the one-year
discovery period set forth in the limitations statute, the Dockstaders urge that the
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phrase “could reasonably have been discovered” refers to when an objectively
reasonable claimant could have discovered the transfer. 3 According to the
complaint, Vescor was sanctioned by the Utah Department of Commerce as early
as 2002 for offering and selling unregistered securities. The Dockstaders
therefore argue a reasonable claimant could have discovered any allegedly
fraudulent transfers by that date. Further, because the complaint established that
the Vescor Ponzi scheme collapsed on May 31, 2006 when Southwick was unable
to make sufficient payments to investors, the Dockstaders argue a reasonable
claimant certainly could have discovered any fraudulent transfers by then. The
Dockstaders thus conclude the Receiver cannot benefit from the one-year tolling
period because it would have run, at the latest, by May 31, 2007, almost a year-
and-a-half before the Receiver initiated this action.
The one-year tolling period in section 25-6-10 refers to when a transfer
could reasonably have been discovered “by the claimant.” (emphasis added).
The district court concluded the Receiver’s action was timely filed because the
Receiver could not reasonably have discovered any fraudulent transfer prior to his
appointment. Because the Receiver was appointed on May 5, 2008 and filed this
action just over five months later, the court concluded the Receiver’s claims were
3
In support of this contention, the Dockstaders cite SASCO 1997 NI, LLC v.
Zudkewich, 756 A.2d 469 (N.J. 2001), and Gulf Insurance Co. v. Clark, 20 P.3d
780 (Mont. 2001). Neither case involves a receivership or a Ponzi scheme. The
court is therefore unpersuaded that Utah would adopt such a rule in the context of
this case.
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timely brought. The district court also concluded Utah would likely adopt the
“adverse domination” theory for purposes of computing the statute of limitations.
Under the adverse domination theory, “as long as a corporation is controlled or
‘dominated’ by wrongdoers against whom a cause of action exists, the statute of
limitations is tolled because the wrongdoers cannot be expected to bring an action
against themselves.” Saunders v. Sharp, 793 P.2d 927, 932 (Utah. App. 1990)
(declining to extend doctrine to excuse failure to preserve issue for appeal). This
court agrees. A contrary rule would perversely foreclose from recovery early
transfers in a Ponzi scheme which is successfully run for a long period of time.
Applying the adverse domination theory to this case, all available evidence
established that Southwick used the Vescor entities in a coordinated scheme to
defraud investors. The entities therefore could not reasonably have been expected
to bring claims against themselves, and the district court appropriately concluded
the Receiver’s claims were brought within the applicable statute of limitations.
E. Tax Offsets
The Dockstaders argue they should be entitled to offset from the judgment
any taxes they paid on the monies they received from Vescor. The Dockstaders
cite no authority supporting this argument. The district court, following Donell,
concluded allowing offsets would frustrate the purposes of the UFTA because
there is no principle by which they could be limited, it would introduce difficult
problems of proof and tracing into each case, and any amount offset would
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necessarily come at the expense of other investors. See 533 F.3d at 779. This
court agrees. The district court correctly concluded the Dockstaders are not
entitled to offset taxes paid on their gains from the Vescor Ponzi scheme.
F. Referral Fees
The district court’s judgment against the Dockstaders included amounts
Bruce Dockstader received in exchange for referring new investors to Vescor.
Bruce Dockstader received $146,140 from Vescor for providing contact
information for Vescor to others interested in investing with Vescor. The
Dockstaders argue these payments are not voidable under the UFTA because they
were made in good faith in exchange for reasonably equivalent value. The UFTA
provides: “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
. . . .” Utah Code. Ann. § 25-6-9(1). The Dockstaders argue their good faith was
established because there has been no allegation they were ever aware Vescor was
operating as a Ponzi scheme. The Dockstaders further argue that, by providing
investors to Vescor, Bruce Dockstader provided the company with an economic
benefit for which he is entitled to retain his 5% referral fee.
The Dockstaders rely on several bankruptcy cases for the proposition that
the determination as to whether reasonably equivalent value was given should not
take into account the impact the services had on perpetuating the fraudulent
scheme. No reason is given to apply these bankruptcy cases in the context of a
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receivership action under the UFTA. 4 Outside the bankruptcy context, other
circuits have rejected the Dockstaders’ position. See Warfield v. Byron, 436 F.3d
551, 560 (5th Cir. 2006) (“It takes cheek to contend that in exchange for the
payments he received, the . . . Ponzi scheme benefited from his efforts to extend
the fraud by securing new investments.”). In any event, because the Dockstaders
addressed only one of two alternate grounds upon which the district court based
its order, they cannot prevail on this issue. See GFF Corp. v. Assoc.’d Wholesale
Grocers, Inc., 130 F.3d 1381, 1387–88 (10th Cir. 1997) (noting party’s failure to
address alternative ground for district court’s summary judgment order amounts
to concession of that ground). The district court concluded the Dockstaders are
not entitled to retain any referral fees because Bruce Dockstader was not a
licensed securities broker. Under Utah law it is unlawful for any person to
transact business as a broker-dealer or agent unless licensed by the state. Utah
Code Ann. § 61-1-3(3). The Dockstaders cannot assert any right founded upon an
illegal contract. Sender v. Simon, 84 F.3d 1299, 1307 (10th Cir. 1996). Because
the Dockstaders did not challenge this basis for the district court’s opinion until
their reply brief, the issue is forfeited. United States v. Murray, 82 F.3d 361, 363
4
Among the bankruptcy courts, there is a split of authority on whether
commissions paid for referrals into a Ponzi scheme constitute voidable fraudulent
transfers. Compare Merrill v. Allen (In re: Universal Clearing House Co.), 60
B.R. 985, 1000 (Bankr. D. Utah 1986), with Martino v. Edison Worldwide Capital
(In re Randy), 189 B.R. 425, 438 (Bankr. N.D. Ill. 1995).
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n.3 (10th Cir. 1996) (“We decline to consider arguments raised for the first time
in a reply brief.”).
IV. Conclusion
For the foregoing reasons, the judgment of the district court is affirmed.
ENTERED FOR THE COURT
Michael R. Murphy
Circuit Judge
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