Klein v. Cornelius

FILED
United States Court of Appeals
Tenth Circuit
May 27, 2015
PUBLISH Elisabeth A. Shumaker
Clerk of Court
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
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,
Plaintiff-Appellee,
v. No. 14-4024
WILLIAM R. CORNELIUS, and
CORNELIUS & SALHAB,
Defendants-Appellants.
---------------------------------------------
U.S. COMMODITY FUTURE
TRADING COMMISSION,
Amicus Curiae.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
(D.C. NO. 2:11-CV-01159-DAK)
Berry Dunbar Bowen, Houston, Texas, for Appellants.
David C. Castleberry (Christopher M Glauser, with him on the brief) Manning
Curtis Bradshaw & Bednar LLC, Salt Lake City, Utah, for Appellee.
Before TYMKOVICH, HOLMES, and BACHARACH, Circuit Judges.
TYMKOVICH, Circuit Judge.
This is an appeal from the district court’s grant of summary judgment to the
court-appointed receiver for Winsome Investment Trust, a business entity whose
founder, Robert J. Andres, caused it to illegally distribute funds as part of a Ponzi
scheme. The court found that Andres had fraudulently transferred funds from
Winsome to William T. Cornelius and his law firm, Cornelius & Salhab, and that
the receiver could recover these funds on Winsome’s behalf under the Uniform
Fraudulent Transfer Act (UFTA). Cornelius, who was unaware of the fraud,
raises several challenges to the district court’s jurisdiction and its judgment on
the merits.
We affirm. The receiver was entitled to sue Cornelius in Utah, and no
federal jurisdictional impediments prevent the district court from reaching the
UFTA claim. The district court also correctly concluded the payments to
Cornelius violated the UFTA and the four-year statute of limitations did not bar
the receiver’s claim.
I. Background
The Commodity Futures Trading Commission (CFTC) brought an action in
Utah against Winsome and Andres, alleging that they operated a Ponzi scheme in
violation of the Commodity Exchange Act (CEA). Winsome was a trading pool
that would solicit investors with the promise of large profits. Although its
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investments ultimately collapsed, Winsome, under Andres’s control, gave the
appearance of solvency by paying early investors with funds acquired from later
investors. Winsome also made some payments to vendors and suppliers of the
business, as well as other entities.
Cornelius and his Houston-based law firm were among the recipients.
Between September 2006 and July 2007, Winsome paid Cornelius & Salhab a
total of $90,000 to represent one of Andres’s friends in a criminal proceeding in
New Hampshire. The friend was not otherwise connected to Winsome, and
Cornelius did not provide any services to Winsome directly.
After the CFTC got wind of the Ponzi scheme, it filed suit in Utah federal
court against Winsome and Andres, as well as Andres’s co-conspirator and a
Utah-based company that the co-conspirator controlled. The CFTC sought a
receiver to take over Winsome’s assets. The court appointed R. Wayne Klein,
who became responsible for controlling Winsome’s and Andres’s operations and
records, managing and preserving their assets, collecting money owed to them,
suing when necessary to preserve or increase their assets or to recover improper
payments, and protecting the interests of their investors.
Klein’s investigation of Winsome’s operations revealed a number of
questionable payments that might be recoverable under the CEA or the state
UFTA. These included legal fees paid to Cornelius for representing the New
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Hampshire defendant. Klein filed an action against Cornelius, and the district
court granted summary judgment in Klein’s favor.
We AFFIRM the district court. Pursuant to his appointment as receiver,
Klein was entitled to void the payments to Cornelius as a fraudulent transfer and
preserve them for victims of the Ponzi scheme.
II. Analysis
Cornelius claims the district court made a number of mistakes involving the
Utah court’s jurisdiction to hear claims against him and his firm, both based in
Texas, and in concluding that the payments to the firm were recoverable under the
UFTA. We first address the jurisdictional questions—subject matter jurisdiction,
standing, and personal jurisdiction—and conclude that all were satisfied. We then
discuss the UFTA, finding that the payments violated the Act and that Klein’s
claims were not otherwise barred by its four-year statute of limitations.
A. Jurisdictional Claims
Cornelius makes three jurisdictional challenges. First, he argues the CEA
does not grant the district court subject matter jurisdiction to hear state fraudulent
transfer claims against third-party recipients of Ponzi scheme funds. Next, he
contends Klein lacked standing to assert the UFTA because Winsome was not a
legal entity that could maintain its own fraudulent transfer claim. Finally, he
claims the district court could not exercise personal jurisdiction over him because
he lacked sufficient contacts with Utah.
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1. Subject Matter Jurisdiction Under the CEA
Cornelius first argues that the CEA does not authorize a receiver to bring
state fraudulent transfer claims in federal court against third-party recipients of
Ponzi scheme funds.
We start with the CEA. Section 13a-1 authorizes the CFTC to bring civil
actions in federal court to enjoin violations of the CEA or “to enforce compliance
with this chapter, . . . and said courts shall have jurisdiction to entertain such
actions.” 7 U.S.C. § 13a-1(a). Among other things, the statute allows a court to
prohibit by restraining order the transfer or disposal of assets and to appoint a
temporary receiver to administer such an order or “perform such other duties as
the court may consider appropriate.” Id; see also SEC v. Vescor Capital Corp.,
599 F.3d 1189, 1194 (10th Cir. 2010) (“[T]he district court has broad powers and
wide discretion to determine relief in an equity receivership.” (quoting SEC v.
Safety Fin. Serv., Inc., 674 F.2d 368, 372–73 (5th Cir. 1982)) (internal quotation
marks omitted)). In addition to the CEA, federal law provides receivers a broad
grant of authority to sue in federal court to enforce rights over receivership
property. 28 U.S.C. § 754.
But the statutory scheme does not prevent a receiver from also pursuing
state-law claims in federal court. In fact, the general grant of federal question
jurisdiction under the CEA brings with it the power to hear “all other claims that
are so related to” the original claim as to “form part of the same case or
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controversy.” 28 U.S.C. § 1367(a). Under this provision and 28 U.S.C. § 754, a
receiver may bring ancillary state-law claims against entities alleged to have
received unlawful payments. See Peacock v. Thomas, 516 U.S. 349, 356 (1996)
(“[W]e have approved the exercise of ancillary jurisdiction over a broad range of
supplementary proceedings involving third parties to assist in the protection and
enforcement of federal judgments . . . .”); Donell v. Kowell, 533 F.3d 762, 769
(9th Cir. 2008) (holding that § 1367 allowed a receiver to bring a UFTA claim in
federal court against a third party under ancillary jurisdiction where the primary
lawsuit presented a federal question); Scholes v. Lehmann, 56 F.3d 750, 753 (7th
Cir. 1995) (holding that § 1367 allowed a receiver to bring a claim under a state
fraudulent transfer act against third parties under ancillary jurisdiction where the
primary lawsuit charged the violation of federal securities laws). A suit is
ancillary to a receiver’s appointment if it “seeks to accomplish the ends sought
and directed by the suit in which the appointment was made.” Eberhard v.
Marcu, 530 F.3d 122, 129 (2d Cir. 2008) (quoting Tcherepnin v. Franz, 485 F.2d
1251, 1255–56 (7th Cir. 1973)).
Here, the district court enjoined Winsome from violating the CEA and
tasked Klein with various responsibilities needed to enforce the injunction. The
court not only ordered him to preserve or increase Winsome’s assets, but also
empowered him to sue in order to do so—a routine order well within the broad
range of remedial functions allowed under § 13a-1. Moreover, it is clear that the
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state-law claim against Cornelius is ancillary to the court’s injunction against
Winsome’s violation of a federal statute, as well as the court’s appointment of
Klein to preserve Winsome’s assets and recover improper payments: insofar as
Klein alleges that Winsome improperly paid Cornelius, his present claim seeks to
accomplish the goals of his appointment. We accordingly conclude the district
court had subject matter jurisdiction to resolve Klein’s UFTA claim. 1
In resisting this conclusion, Cornelius argues that any relief against third
parties must be achieved through either (1) 7 U.S.C. § 13a-2, which empowers
state attorneys general to sue on behalf of their defrauded residents, or (2) 7
U.S.C. § 25, which provides a direct cause of action under the CEA for defrauded
investors. But Klein is not acting directly on behalf of Winsome’s investors. He
is suing on Winsome’s own behalf.
Cornelius next points to the Third Circuit’s decision in CFTC v. American
Metals Exchange Corp., 991 F.2d 71, 78 (3d Cir. 1993). He argues it holds that a
1
Cornelius also challenges the district court’s authority to grant equitable
relief by ordering him to return the funds, but this argument is without merit.
Courts exercising equity jurisdiction have available a full range of equitable
remedies. See CFTC v. Wilshire Inv. Mgmt. Corp., 531 F.3d 1339, 1344 (11th
Cir. 2008) (holding an “unqualified grant of statutory authority” to issue
injunctive relief under the statute also confers authority to issue a “full range of
equitable remedies,” including restitution); FTC v. LoanPointe, LLC, 525 F.
App’x 696, 699 (10th Cir. 2013) (holding that even though the FTC Act did not
expressly authorize courts to grant consumer redress, the grant of authority to
provide injunctive relief carried with it “the full range of equitable remedies,”
including restitution and disgorgement).
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receiver cannot seek to benefit defrauded investors by suing on behalf of the
entities that defrauded them. But in that case the court only held the district court
had miscalculated the amount of monetary relief. Id. at 77–78. In fact, the Third
Circuit actually affirmed the district court’s finding that it could impose ancillary
relief against a third-party recipient of an unlawful transfer. Id. at 76 (“The
district court did not err in imposing the ancillary relief of disgorgement.”).
In sum, the district court had subject matter jurisdiction to resolve claims
brought under the UFTA on Winsome’s behalf.
2. Standing
Next, Cornelius contends that Klein does not have standing to bring a
UFTA claim because Winsome itself cannot bring such a claim. He reasons that
because Winsome is unincorporated and was subject to Andres’s control, it is a
mere alter-ego for Andres and therefore has no capacity to sue in its own right.
Although Cornelius concedes Klein could nonetheless sue as a receiver for
Andres’s assets, he argues that Andres himself would not have a UFTA claim
against third-party recipients of Winsome’s funds. We disagree with Cornelius’s
assertion that Winsome cannot sue in its own right.
The UFTA provides rights and remedies for defrauded creditors. See Utah
Code Ann. §§ 25-6-5, 25-6-8. But receivers may only sue to redress injuries to
the entity in receivership, and not directly on behalf of the entity’s creditors.
Scholes, 56 F.3d at 753 (citing Caplin v. Marine Midland Grace Trust Co., 406
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U.S. 416 (1972)); see also Janvey v. Democratic Senatorial Campaign Comm.,
Inc., 712 F.3d 185, 190 (5th Cir. 2013); Marion v. TDI Inc., 591 F.3d 137, 147
(3d Cir. 2010); Wuliger v. Mfrs. Life Ins. Co., 567 F.3d 787, 798–99 (6th Cir.
2009); Eberhard, 530 F.3d at 132; Smith v. Arthur Andersen LLP, 421 F.3d 989,
1002 (9th Cir. 2005); Goodman v. FCC, 182 F.3d 987, 991–92 (D.C. Cir. 1999);
Fleming v. Lind-Waldock & Co., 922 F.2d 20, 25 (1st Cir. 1990).
The question then becomes whether Winsome itself qualifies as a defrauded
creditor under the statute. The answer is yes, a business entity abused by a Ponzi
scheme qualifies as a defrauded creditor. A Seventh Circuit case illustrates the
point. In Scholes, 56 F.3d at 753, the court considered a state fraudulent transfer
act similar to the UFTA. The defendant created corporations that sold interests in
limited partnerships. Instead of using the sales’ proceeds for their stated
purposes, the corporations, under the defendant’s control, paid various third
parties. When a receiver for the corporations sued the third parties to recover the
transfers, the third parties argued that because the corporations themselves had
made the transfers, the corporations could not have been injured by them. The
third parties asserted that the receiver was essentially acting on behalf of the
injured creditors (those who had bought interests in the limited partnerships),
rather than the corporations the receiver had been authorized to represent. The
court disagreed, finding that because the corporations had been “evil zombies”
under the defendant’s “spell,” they had been injured. Id. at 754. In essence, the
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corporations were creditors themselves. See Janvey v. Brown, 767 F.3d 430, 437
(5th Cir. 2014) (holding that entities used by Ponzi schemers to make fraudulent
transfers are considered defrauded creditors under the UFTA); Wing v.
Dockstader, 482 F. App’x 361, 363 (10th Cir. 2012) (interpreting Scholes to hold
that the receiver was a creditor of the scheme). Likewise, Winsome was under
Andres’s improper control when he fraudulently transferred its funds, and it was
injured in its own right.
But Cornelius asserts that unlike the corporations in Scholes, Winsome has
no independent existence because it does not fall into any category of business
recognized by Texas law and was entirely subject to Andres’s control. He likens
Winsome to Andres’s personal bank account.
In determining whether an entity has the capacity to sue or be sued, we
look to the law of the state in which the district court is located. Fed. R. Civ. P.
17(b)(3). Utah law is contrary to Cornelius’s position. “When two or more
persons associated in any business . . . transact such business under a common
name . . . they may sue or be sued by such common name.” Utah R. Civ. P. 17(d).
Formal legal recognition of the association is unnecessary. See Weber Cnty. v.
Ogden Trece, 321 P.3d 1067, 1075–76 (Utah 2013).
Under Utah law, Winsome is an association of investors who pooled
resources together and transacted business under the common name of Winsome
Investment Trust. It had joint venture contracts with the investors on behalf of
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the Trust, including bank accounts and other indicia of independence and
separateness. Over the course of its existence, it made payments to some
investors and even had its own website.
We thus agree with the district court that Winsome is an independent entity
under Utah law and see no impediment for Klein to assert standing on behalf of
Winsome to pursue a UFTA claim.
3. Personal Jurisdiction
Finally, Cornelius argues that the district court’s exercise of personal
jurisdiction violates the Constitution because he was not properly served with a
complaint and does not have minimum contacts with the state of Utah.
Our case law requires that before “a federal court can assert personal
jurisdiction over a defendant in a federal question case, the court must determine
(1) whether the applicable statute potentially confers jurisdiction by authorizing
service of process on the defendant and (2) whether the exercise of jurisdiction
comports with due process.” Peay v. BellSouth Med. Assistance Plan, 205 F.3d
1206, 1209 (10th Cir. 2000) (quoting Republic of Panama v. BCCI Holdings
(Lux.) S.A., 119 F.3d 935, 942 (11th Cir. 1997)) (internal quotation marks
omitted).
As an initial matter, federal law allows nationwide service of process under
the CEA. Klein’s claims were based on 28 U.S.C. § 754, which provides that “[a]
receiver appointed in any civil action or proceeding involving property . . .
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situated in different districts” is entitled to “complete jurisdiction and control” of
that property, “with the right to take possession thereof.” Section 754 moreover
grants receivers the capacity to sue in any federal district court. In addition, 28
U.S.C. § 1692 provides that where a receiver is appointed for property located in
different districts, “process may issue and be executed in any such district as if
the property lay wholly within one district.” In short, § 754 authorizes receivers
properly appointed in one federal district to sue for, and take possession of,
property in other districts, and § 1692 extends the appointing court’s territorial
reach to all districts in which receivership property is located. Read together,
they allow nationwide service of process for receivers pursuing receivership
property. SEC v. Ross, 504 F.3d 1130, 1145–46 (9th Cir. 2007); SEC v. Bilzerian,
378 F.3d 1100, 1105–06 (D.C. Cir. 2004); Am. Freedom Train Found. v. Spurney,
747 F.2d 1069, 1073 (1st Cir. 1984); Haile v. Henderson Nat’l Bank, 657 F.2d
816, 823–24 (6th Cir. 1981).
Having established that Cornelius is amenable to service of process in a
district in which receivership property is located, we still must determine whether
suing a Texas defendant in Utah accords with the minimal constitutional
requirements of due process. Unlike service of process, “[t]he requirement that a
court have personal jurisdiction flows . . . from the Due Process Clause. It
represents a restriction on judicial power not as a matter of sovereignty, but as a
matter of individual liberty.” Omni Capital Int'l, Ltd. v. Rudolf Wolff & Co., 484
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U.S. 97, 104 (quoting Ins. Corp. of Ir. v. Compagnie des Bauxites de Guinee, 456
U.S. 694, 702 (1982)) (internal ellipses and quotation marks omitted).
Cornelius asserts that in evaluating his due process claim, we must apply
the minimum contacts analysis spelled out in International Shoe Corp. v.
Washington. 326 U.S. 310 (1946). International Shoe held that consistent with
the Fourteenth Amendment, a state court cannot exercise jurisdiction over a
defendant “not present within the territory of the forum” unless the defendant
maintains minimum contacts with that state. Id. at 316. Likewise, a federal court
cannot exert jurisdiction over a nonresident defendant unless the defendant has
minimum contacts with the state in which the court is located. Newsome v.
Gallacher, 722 F.3d 1257, 1264 (10th Cir. 2013).
But we apply a different standard “in a federal question case where
jurisdiction is invoked based on nationwide service of process.” Peay, 205 F.3d
at 1212. In Peay, we held that in those circumstances, “the Fifth Amendment
requires the plaintiff’s choice of forum to be fair and reasonable to the
defendant.” Id. To defeat federal jurisdiction, a defendant must establish that the
“chosen forum will make litigation . . . gravely difficult and inconvenient” or, in
other words, the forum district burdens the defendant with “constitutionally
significant inconvenience.” Id. (internal quotation marks omitted). We look to
non-exclusive factors in considering whether defendants have met this burden,
such as (1) the extent of contact with the forum state, (2) the inconvenience of
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having to litigate in a foreign jurisdiction, (3) judicial economy, (4) the probable
situs of the discovery proceedings, and (5) the nature of the defendant’s activities
and its impact beyond his state’s borders. Id.Even though a Utah entity paid for his legal services, Cornelius maintains
he has no other contacts with Utah and thus the court has no personal jurisdiction
over him. But like in the district court, Cornelius provides no argument going to
the other factors, and the insignificance of contact is only one consideration.
While it may not be decisive that Winsome’s payment originated in Utah,
Cornelius shoulders the burden of showing constitutionally significant
inconvenience created from defending the UFTA claims in Utah. He has not done
so.
Cornelius asserts in his reply brief that Peay does not apply because he was
not a party to the original federal question claim. Although Klein and the district
court have relied on Peay throughout these proceedings, Cornelius never made
this argument or even addressed Peay in his opening brief. The argument is
therefore waived. United States v. Wayne, 591 F.3d 1326, 1336 n.9 (10th Cir.
2010); see also Fed. R. App. P. 28(a)(8)(A). But in any event, the better analysis
is that Klein’s UFTA claim is ancillary to the CFTC enforcement action, and that
action involves a federal question. The UFTA claim is therefore “part of the
same case or controversy” as the federal question claim, 28 U.S.C. § 1367, and is
necessary to enforce judgments in the original case. See Peacock, 516 U.S. at
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356. And where a district court exercises personal jurisdiction over a defendant
for a federal question claim, it may exercise personal jurisdiction over that same
defendant for a supplemental state-law claim. United States v. Botefuhr, 309 F.3d
1263, 1272 (10th Cir. 2002). Other courts have gone a step further, holding that
where a receiver enjoys nationwide service of process and properly serves an out-
of-state defendant, who was not a party to the federal question suit, for an
ancillary claim, the court has personal jurisdiction over that defendant. See
Haile, 657 F.2d at 821, 826; see also SEC v. Vision Commc’ns, 74 F.3d 287, 291
(D.C. Cir. 1996) (holding that had the receiver complied with the filing
requirements of § 754, so as to establish control over state contract rights in a
foreign district, “the court might then have been able to enjoin [foreign] non-
parties [to the original federal question action] . . . from interfering with the
court’s receiver’s control” over those rights). But because Cornelius has waived
any argument to the contrary, we need not resolve this issue in this case.
Next, Cornelius makes a statutory argument, contending that §§ 754 and
1692 do not confer in personam jurisdiction over him. He contends that only an
in rem claim against the receivership property can be maintained in the district
where the property is located—here, the legal fees paid to Cornelius in Texas. He
points to a First Circuit case, American Freedom Train Foundation, 747 F.2d at1073–74, but that case is readily distinguishable since the receiver there had not
served proper process on the out-of-state defendants, id. at 1072. In direct
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contrast to Cornelius’s position, the court actually concluded that “minimum
contacts analysis . . . is simply inapposite” where § 754 and § 1692 are satisfied.
Id. at 1073 (quoting Haile, 657 F.2d at 826). 2
Similarly, he relies on Gilchrist v. General Electric Capital Corp., 262
F.3d 295, 301 (4th Cir. 2001), for the proposition that “in rem jurisdiction over
property in other districts does not give a district court personal jurisdiction over
persons in such other districts absent an express congressional grant of personal
jurisdiction.” But Gilchrist is unpersuasive because that case did not consider
§ 1692 and its express congressional grant of personal jurisdiction.
In sum, §§ 754 and 1692 establish nationwide service of process for Klein’s
UFTA claims, and Cornelius has not shown his due process rights are violated by
having to defend himself in the District of Utah. Accordingly, the district court
properly exercised personal jurisdiction over Cornelius.
B. Fraudulent Transfer
Cornelius makes three arguments contesting the district court’s application
of the UFTA. He argues that (1) Texas law applies, (2) the transfer was not
2
Cornelius mentions Omni Capital International, Ltd. v. Rudolf Wolff &
Co., 484 U.S. at 106, for the proposition that the CEA’s private cause of action, 7
U.S.C. § 25, does not provide nationwide service of process. But as already
discussed, Klein brings no cause of action on behalf of Winsome’s investors. He
brings an action as Winsome’s receiver, and §§ 754 and 1692 establish service of
process for any district in which receivership property is located.
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fraudulent as contemplated by the Act, and (3) in any event, Klein’s claim is
barred by the four-year statute of limitations.
1. Choice of Law
Cornelius argues that Texas law, rather than Utah law, applies. Even if it
does, the distinction is of no practical significance, as the relevant provisions use
identical language. See Tex. Bus. & Com. Code Ann. § 24.005; Utah Code Ann.
§ 25-6-5.
2. The Transfer
The UFTA provides that a transfer “is fraudulent as to a creditor” under
two circumstances: (1) the debtor made the transfer or incurred the obligation
“with actual intent to hinder, delay, or defraud any creditor of the debtor;” or (2)
the debtor made the transfer or incurred the obligation “without receiving a
reasonably equivalent value” and was either engaged in “a business or a
transaction for which the remaining assets of the debtor were unreasonably small
in relation to the business or transaction” or “intended to incur, or believed or
reasonably should have believed that he would incur, debts beyond his ability to
pay as they became due.” Tex. Bus. & Com. Code Ann. § 24.005(a); Utah Code
Ann. § 25-6-5(1). And because Ponzi schemes are insolvent by definition, we
presume that transfers from such entities involve actual intent to defraud. Wiand
v. Lee, 753 F.3d 1194, 1201 (11th Cir. 2014); Democratic Senatorial Campaign
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Comm., 712 F.3d at 196; Donell, 533 F.3d at 770; Wing, 482 F. App’x at 363;
SEC v. Madison Real Estate Grp., 647 F. Supp. 2d 1271, 1279 (D. Utah 2009).
Cornelius denies that Winsome engaged in a Ponzi scheme, but the record
permits no other conclusion. Klein’s investigation revealed that Andres had
solicited investors for Winsome and had led them to believe Winsome’s expertise
in identifying investment opportunities would yield large profits. But even
though none of Winsome’s investments made money, it told investors the
ventures were profitable and paid them with money gathered from other investors.
In addition, Winsome sent much of its money to U.S. Ventures—the entity
controlled by Andres’s Utah-based co-conspirator—and to Andres and his wife.
Winsome sustained this operation for a while by paying third-party marketers to
find new investors, but it could not secure other sources of income. It was
insolvent throughout, yet continued to pay early investors with funds from later
investors and thereby increased its insolvency as time went on. Its payments to
Cornelius occurred over a ten-month period in which its insolvency grew
dramatically. In summary, Andres was operating a Ponzi scheme through
Winsome at the time of the transfer to Cornelius. We therefore presume that he
intended to defraud Winsome in making the transfer.
Cornelius offers very little evidence to the contrary, aside from the fact that
neither Cornelius nor the criminal defendant he represented knew about the
scheme. But nothing in the UFTA requires that a transferee be aware of the
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fraud. SEC v. Res. Dev. Int’l, LLC, 487 F.3d 295, 301 (5th Cir. 2007) (applying
the UFTA under Texas law); Plotkin v. Pomona Valley Imports, Inc. (In re
Cohen), 199 B.R. 709, 716–17 (B.A.P. 9th Cir. 1996).
For claims alleging actual intent to defraud, the UFTA does allow a defense
to entities that provide “reasonably equivalent value” for the payments or to
subsequent transferees after the initial transfer. Tex. Bus. & Com. Code Ann. §
24.009(a); Utah Code Ann. § 25-6-9(1). Cornelius, however, is not a subsequent
transferee, and his legal services in New Hampshire did not confer any benefit
upon Winsome. “The primary consideration in analyzing the exchange of value
for any transfer is the degree to which the transferor’s net worth is preserved.”
Res. Dev. Int’l, 487 F.3d at 301 (quoting Warfield v. Byron, 436 F.3d 551, 560
(5th Cir. 2006)) (internal quotation marks omitted). The transfer only served to
diminish Winsome’s net worth, which was already negative. Moreover, there is
no other cognizable benefit that Winsome could have received. It existed for the
purpose of generating profits for its investors, and defending Andres’s friend in a
criminal matter had nothing to do with that purpose. Thus, Winsome did not
receive reasonably equivalent value in exchange for the payment. Id. at 301–302
(“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.” (quoting Whaley v. Mountainwest Fin. Corp. (In re Whaley), 229 B.R.
767, 775 (Bankr. D. Minn. 1999)) (internal quotation marks omitted)); Hayes v.
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Palm Seedlings Partners–A (In re Agric. Research & Tech. Grp.), 916 F.2d 528,
540 (9th Cir. 1990) (“Any consideration not involving utility for the creditors
does not comport with the statutory definition.” (citing Unif. Fraudulent Transfer
Act § 3 cmt. 2 (1984))). 3
Cornelius is therefore liable under the UFTA for the payments it received
from Winsome.
3. Statute of Limitations
Finally, we reject Cornelius’s claim that the UFTA’s statute of limitations
expired before Klein filed suit.
Under the UFTA, a claim alleging actual intent to defraud must be brought
“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.” Tex. Bus. Com. Code Ann. §
24.010(a)(1) (emphasis added); Utah Code Ann. § 25-6-10(1) (emphasis added).
Whether a plaintiff “knew or with reasonable diligence should have known of a
cause of action is a question of fact for the jury.” Maughan v. SW Servicing, Inc.,
758 F.2d 1381, 1387 (10th Cir. 1985). But a court may grant summary judgment
where “the evidence is so clear that there is no genuine factual issue that the
3
We reached the same conclusion in a related case involving Klein,
Winsome, and virtually identical facts. See Klein v. King & King & Jones, 571 F.
App’x 702 (10th Cir. 2014).
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determinations can be made as a matter of law.” Id. at 1388 (internal quotation
marks omitted).
The fraudulent transfers occurred between September 2006 and July 2007,
and Klein filed suit in December 2011. But Klein was not appointed receiver
until January 2011, and he argues he could not have known of the fraudulent
transfer before he was appointed and could finish an investigation. Cornelius
responds that once it became publicly known Winsome was part of a Ponzi
scheme, the statute of limitations began running against any potential claimant.
We disagree.
First, Cornelius concedes the statute of limitations is tolled under the
UFTA for as long as the entity is controlled or dominated by the wrongdoers. See
Dockstader, 482 F. App’x at 364–65; see also FDIC v. Appling, 992 F.2d 1109,
1115 (10th Cir. 1993) (“Control of the association by culpable directors and
officers precludes the possibility of filing suit because these individuals can
hardly be expected to sue themselves or to initiate any action contrary to their
own interests.” (quoting FSLIC v. Williams, 599 F. Supp. 1184, 1194 (D. Md.
1984)) (internal quotation marks omitted)); Democratic Senatorial Campaign
Comm., 712 F.3d at 190 (“[T]he knowledge and effects of the fraud of the
principal of a Ponzi scheme in making fraudulent conveyances of the funds of the
[entities] under his evil coercion are not imputed to his captive [entities].”).
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Thus, the very earliest that the statute could have begun to run was the
point at which Andres lost control of Winsome and Klein gained it. Klein filed
the complaint in December 2011, within one year of his discovery of a potential
UFTA claim. We therefore agree with the district court that there is no genuine
issue of material fact as to the statute of limitations defense.
III. Conclusion
For the forgoing reasons, we AFFIRM the district court’s grant of summary
judgment to Klein.
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