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Ashmore v. Dodds

United States District Court, D. South Carolina, Anderson/Greenwood Division

July 5, 2017

Beattie B. Ashmore, in his capacity as court-appointed receiver for Ronnie Gene Wilson and Atlantic Bullion and Coin, Inc., Plaintiff,
Jim Dodds, Defendant.


         Plaintiff Beattie B. Ashmore (“the Receiver”), in his capacity as court-appointed receiver for Ronnie Gene Wilson (“Wilson”) and Atlantic Bullion and Coin, Inc. (“AB&C”), filed the instant action against Defendant Jim Dodds (“Defendant”) to recover grossly excessive payments received by Defendant as a return on his investment in the Wilson-AB&C Ponzi scheme.[1] Before the court are the parties' cross-motions for summary judgment (ECF Nos. 70, 71) and the accompanying responses and replies (ECF Nos. 73, 74, 77, 79). For the reasons that follow, the court DENIES IN PART Defendant's motion for summary judgment (ECF No. 71), disposing of seven arguments he raises in support of a ruling in his favor. As explained more thoroughly below, the court determines that it should certify to the Supreme Court of South Carolina questions regarding whether the substantive law of Florida or of South Carolina should apply to the claims brought by the Receiver. As a result, the court reserves ruling on the remainder of Defendant's motion and on the Receiver's motion for summary judgment until after the Supreme Court answers or otherwise disposes of the certified questions.


         A full recitation of the relevant factual and procedural background, customary for most orders addressing summary judgment motions, is unnecessary. Accordingly, the court provides an abridged version of the general posture of this matter here and provides further details where necessary in its analysis below.

         The Receiver is the court appointed receiver in In Re: Receiver for Ronnie Gene Wilson and Atlantic Bullion & Coin, Inc., No. 8:12-cv-02078-JMC, ECF No. 1 (D.S.C. July 25, 2012), a case related to the instant matter. The Receiver alleges that “[o]n February 29, 1996, Defendant made an initial ‘investment' [in the Wilson-AB&C Ponzi scheme] of $28, 300.00.” (ECF No. 1 ¶ 24.) “Subsequently, Defendant made eight additional ‘investments' totaling $306, 500.00 between December 2000 and April 2009, for a total investment of $334, 800.00.” (Id. ¶ 27.) Plaintiff further alleges that “Defendant received $1, 532, 983.00 in returns [from the Wilson-AB&C Ponzi scheme] between March 2004 and December 2011, resulting in a profit of $1, 198, 183.00.” (Id. ¶ 26.)

         Based on his appointment as the receiver tasked with “locating, managing, recouping, and distributing the assets of the Wilson-AB&C investment scheme, ” the Receiver commenced the instant action against Defendant on February 6, 2015, asserting claims for fraudulent conveyance (in violation of the Statute of Elizabeth, SC Code Ann. § 27-23-10 (2014) and/or the Florida Uniform Fraudulent Transfer Act (“FUFTA”), Fla. Stat. Ann. §§ 726.101-726.201) and unjust enrichment. (ECF No. 1 ¶¶ 1, 38-52.)

         Pursuant to the court's fifth amended scheduling order, absent an exception described in the order, discovery was to be completed by April 25, 2017, and motions for summary judgment were to be filed by May 15, 2017. (See ECF No. 67 at 1.) On May 19, 2017, the parties filed their motions for summary judgment.[2] As relevant here, the Receiver argues that, under South Carolina choice of law rules, South Carolina law applies to both his claim for fraudulent conveyance and his claim for unjust enrichment and that Florida law does not apply to these claims (see ECF No. 73 at 6-9; see also ECF No. 70 at 6-12 (applying only South Carolina law to claims)) while Defendant argues that, under South Carolina choice of law rules, Florida law governs both claims and that South Carolina law is inapplicable (see ECF No. 71 at 6-8; ECF No. 74 at 4; ECF No. 77 at 3-5). Also relevant here, the court perceives in Defendant's arguments seven issues that may be decided without first deciding the choice of law issue.


         Summary judgment is appropriate when the materials in the record show 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). A dispute is genuine “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party, ” and a fact is material if it “might affect the outcome of the suit under the governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

         When faced with cross-motions for summary judgment, “‘[courts] consider each motion separately on its own merits to determine whether either of the parties deserves judgment as a matter of law.'” Defenders of Wildlife v. N.C. Dep't of Transp., 762 F.3d 374, 392 (4th Cir. 2014) (quoting Bacon v. City of Richmond, 475 F.3d 633, 638 (4th Cir. 2007)). “In considering each motion, [courts] ‘resolve all factual disputes and any competing, rational inferences in the light most favorable to the party opposing that motion.'” Id. (quoting Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003)).

         The party seeking summary judgment shoulders the initial burden of demonstrating to the court that there is no genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the movant has made this threshold demonstration, the non-moving party, to survive the motion for summary judgment, may not rest on the allegations averred in his pleadings. Rather, the non-moving party must demonstrate that specific, material facts exist which give rise to a genuine issue. See Id. at 324.

         III. ANALYSIS

         A. Preliminary Issues

         Before turning to the two claims at issue, the court must first address a number of arguments raised by Defendant that do not appear to be specifically directed at either of the claims or that the court believes are appropriate to address preliminarily for other reasons. Specifically, Defendant argues that the court should rule in his favor because (1) the Receiver lacks standing to bring the claims; (2) the Receiver's claims are barred because the Receiver is in pari delicto with Defendant; (3) the Receiver's claims are barred because other investors in the Ponzi scheme are in pari delicto with Defendant; (4) the Receiver should be equitably estopped from pursuing his claims; (5) the recovery the Receiver seeks should be denied because Defendant is protected by the Bankruptcy Code's safe harbor provisions in 11 U.S.C. § 546(e); (6) Defendant is entitled to an equitable set-off with respect to investments he made prior to Wilson commencing his Ponzi scheme; and (7) there is no evidence that Defendant received a certain check from AB&C. (See ECF No. 71 at 2-6, 9-11, 13-16, 20-23, 28-29; ECF No. 74 at 6-7, 17-26, 30-31; ECF No. 77 at 2-3, 6, 9-10, 13-15.) The court addresses each of these arguments in turn.

         1. Standing

         The Fourth Circuit has concisely explained both the constitutional and the prudential dimensions of standing:

         The standing doctrine has both constitutional and prudential components. In order to satisfy the constitutional component of standing, a party must meet three requirements:

(1) the party has suffered an injury in fact that is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical; (2) the injury is fairly traceable to the challenged action of the defendant; and (3) it is likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.
With regard to the prudential component of standing, courts generally recognize [some] self-imposed constraints[, including that] . . . the plaintiff generally must assert his own legal rights and interests, and cannot rest his claim to relief on the legal rights or interests of third parties.

Bishop v. Bartlett, 575 F.3d 419, 423 (4th Cir. 2009) (internal citations, quotation marks, and brackets omitted) (citing, inter alia, Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167 (2000); Allen v. Wright, 468 U.S. 737 (1984); Valley Forge Christian Coll. v. Ams. United for Separation of Church & State, Inc., 454 U.S. 464 (1982); Warth, 422 U.S. 490). “In determining whether a party has standing to bring suit, the party invoking the jurisdiction of the court bears the burden of establishing standing.” Id. at 424. “The standing requirement applies to each claim that a plaintiff seeks to press.” Bostic v. Schaefer, 760 F.3d 352, 370 (4th Cir. 2014) (citing DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 352 (2006)).

         Defendant appears to assert that the Receiver lacks standing to bring the two claims at issue because, in Defendant's view, the Receiver has capacity to bring suit only to recover assets on behalf of AB&C, Wilson, and the Receivership Entities they controlled. (See ECF No. 71 at 2-3, 20-21; ECF No. 74 at 6-7, 30; ECF No. 77 at 6, 11.) The assets that the Receiver seeks to claw-back by bringing the two claims, Defendant argues, never belonged to AB&C, Wilson, or the Receivership Entities because all assets held by AB&C were held in trust for investors and were never assets owned by AB&C, Wilson, or the Receivership Entities. (See ECF No. 71 at 2-3, 20-21; ECF No. 74 at 6-7, 30; ECF No. 77 at 6, 11.) Thus, Defendant asserts, the claims by the Receiver to recover assets must be brought, if at all, by the investors and cannot be brought by the Receiver, who may only bring claims on behalf of AB&C, Wilson, and the Receivership Entities. (See ECF No. 71 at 2-3, 20-21; ECF No. 74 at 6-7, 30; ECF No. 77 at 6, 11.) In other words, Defendant asserts that the Receiver lacks standing to bring the claims. (See ECF No. 71 at 2.)

         In response (see ECF No. 79 at 3), the Receiver points out that, in a related case, this court already determined that he had standing, noting that “multiple federal courts of appeals and district courts have held that ‘a federal equity receiver has standing to assert the claims of a receivership entity against third-party recipients of the entity's assets that have been fraudulently transferred by the principal of the Ponzi scheme, '” Ashmore v. Owens, No. 8:15-cv-02373-JMC, ECF No. 62 at 4 (D.S.C. June 2, 2017) (brackets and ellipsis omitted) (quoting Janvey v. Democratic Senatorial Campaign Comm., Inc., 712 F.3d 185, 191 (5th Cir. 2013) (collecting cases)). The Receiver also disputes Defendant's characterization of the assets at issue, asserting that the monies given by investors for the purchase of silver became assets of AB&C. (See ECF No. 79 at 3.)

         The court notes that Defendant's arguments regarding standing are not entirely clear. First, it is not clear whether his arguments are directed to both the fraudulent conveyance and unjust enrichment claims or to only the fraudulent conveyance claim. To the extent it is necessary to address the Receiver's standing to bring both claims in his complaint, the court's analysis below applies to both. Second, it is not clear whether Defendant argues that the Receiver has failed to demonstrate an injury in fact (an element of constitutional standing) or that he has only asserted legal claims of third parties (a matter of prudential standing) or instead asserts some amalgamation of these arguments. Accordingly, the court's analysis addresses both these arguments.

         The court begins its analysis by looking to Scholes v. Lehmann, 56 F.3d 750 (7th Cir. 1995), the Seventh Circuit's leading case on standing issues raised in circumstances like those in play here. In Scholes, a Ponzi schemer, Michael Douglas, created three corporations, caused the corporations to create limited partnerships, and then caused the corporations to sell interests in the partnerships to investors. Id. at 752. In reality, the monies given by the investors in exchange for an interest in the partnerships were not used for the business for which the partnerships were ostensibly created but, instead, were used by Douglas to run a Ponzi scheme. Id. In a later civil enforcement action, the district court appointed a receiver on behalf on both Douglas and the three corporations. Id. When the receiver brought fraudulent conveyance actions against winning investors, they argued that he was attempting to bring a claim on behalf of the losing investors but lacked standing to do so and that he could not bring a claim on behalf of Douglas and the three corporations because they were the perpetrators, not the victims, of the Ponzi scheme. Id. at 753-54.

         The Seventh Circuit began by noting the baseline principle that “an equity receiver may sue only to redress injuries to the entity in receivership.” Id. at 753 (citing, inter alia, Caplin v. Marine Midland Grace Trust Co., 406 U.S. 416 (1972)). The Seventh Circuit then pointed out that the three corporations the receiver represented, which were legal entities separate from Douglas, sustained injuries when Douglas caused them to take money that “should have been used for the stated purpose of the corporations[]” and instead conveyed the money to further the ends of Douglas' Ponzi scheme. Id. at 754. As a result, Douglas “removed assets from the corporations for an unauthorized purpose and by doing so injured the corporations, ” and the investors became “tort creditors of the corporations from which they had been inveigled into buying limited-partner interests.” Id. Once Douglas was removed from the picture, the corporations were “[f]reed from his spell” and “became entitled to the return of the moneys-for the benefit not of Douglas but of innocent investors-that Douglas had made the corporations divert to unauthorized purposes.” Id. (citing, inter alia, McCandless v. Furlaud, 296 U.S. 140, 159-61 (1935); Texas & Pacific Ry. v. Pottorff, 291 U.S. 245, 260-61 (1934)). “That the return would benefit the limited partners is just to say that anything that helps a corporation helps those who have claims against its assets.” Id.

         Assuming that the Receiver is correct that the assets that were allegedly wrongfully transferred to, and retained by, Defendant were assets belonging to AB&C, then the Receiver, who brings this action on behalf of AB&C, has standing under the theory espoused in Scholes. AB&C was harmed when Wilson caused its assets to be used in his Ponzi scheme rather than to be used for the legitimate business purpose for which AB&C had been created, and the Receiver has standing to claw-back funds that were wrongfully diverted by Wilson. That the ultimate purpose of the action is to benefit losing investors in the Ponzi scheme (who are tort creditors of AB&C) has no impact on the Receiver's standing. This view-that a federal equity receiver representing a corporate entity used to perpetrate a Ponzi scheme has standing to bring claims against third-party recipients of the entity's assets that were wrongfully transferred by the Ponzi scheme's principal- has been accepted by a number of the federal courts of appeals, see Janvey, 712 F.3d at 191 n.4 (collecting cases), by a district court within the Fourth Circuit, see Bell v. Disner, No. 3:14cv91, 2014 WL 6978690, at *5 (W.D. N.C. Dec. 9, 2014), and has been viewed favorably by both South Carolina courts, see Myatt v. RHBT Fin. Corp., 635 S.E.2d 545, 547-48 (S.C. 2006), and Florida courts, see Freeman v. Dean Witter Reynolds, Inc., 865 So.2d 543, 550-53 (Fla. Dist. Ct. App. 2003).

         As explained above, however, Defendant attempts to distinguish Scholes on the ground that the assets that are alleged to have been wrongfully transferred to, and retained by, Defendant were not the assets of AB&C. Defendant points out that, in Scholes, the assets appear to have belonged to the three corporations that Douglas used to perpetrate his Ponzi scheme, as the investors paid the monies at issue to the corporations in exchange for interests in the partnerships that were owned by the corporations. Here, on the other hand, Defendant argues, the investors caught up in Wilson's Ponzi scheme provided AB&C their assets to hold in trust, and the assets never became the property of AB&C because the parties agreed that AB&C would make investments on behalf of the investors using assets that remained the investors' property. (See ECF No. 74 at 7.) In Defendant's view, the fact that the assets alleged to have been wrongfully transferred and retained never belonged to AB&C precludes the Receiver from asserting that he is bringing claims to recover AB&C's assets, because he is, instead, bringing claims to recover assets that always belonged to the investors. (Id. (citing Fleming v. Lind-Waldock & Co., 922 F.2d 20, 22 (1st Cir. 1990)).)

         Assuming, without deciding, that Defendant's characterization of the assets at issue-that they were assets owned by the investors and not by AB&C-is correct, the court nevertheless concludes that the Receiver has standing to assert the claims in his complaint. At first blush, Defendant's argument seems appealing. After all, if the theory underlying Scholes' approach is that a receiver may seek recovery for an injury to the corporate entity and if the injury of which the receiver complains is a wrongful transfer and retention of assets, then its seems natural to assume that the receiver would seek the recovery of the corporate entity's assets and not some third party's assets. However, this assumption overlooks the fact that a corporate entity in which investors have deposited their assets (without transferring an ownership interest in the assets) not only incurs legal obligations to the investors (whether as a trustee, fiduciary, bailee, or otherwise) with respect to the assets but also obtains legal rights with respect to the assets as against third parties. When a Ponzi scheme principal, such as Wilson, causes AB&C to wrongfully divert the assets by paying off winning investors, the corporate entity, here AB&C, is injured in two ways: (1) it is exposed to liability for wrongfully transferring losing investors' assets to a winning investor because doing so deprived the losing investors of their assets and their opportunity to otherwise invest those assets, and (2) it is deprived of its non-ownership rights, including its rights to use the assets in a legitimate way in the business for which it was created, a use that might have generated profits in the form of fees or commissions. See Marion v. TDI Inc., 591 F.3d 137, 148-49 (3d Cir. 2010). These injuries are fairly traceable to Defendant, a winning investor to whom transfers were made, because, once he was made aware of the wrongful nature of those transfers and of his retention of the assets, he failed to return them. See Wuliger v. Mfrs. Life Ins. Co., 567 F.3d 787, 794-95 (6th Cir. 2009). And the injuries can be redressed by a court order to return the assets to the Receiver who represents AB&C and who will distribute the assets back to the losing investors as AB&C's tort creditors. See Id. at 795. In seeking such an order, the Receiver would be asserting AB&C's rights and not the rights of the losing investors, notwithstanding the Receiver's express purpose of benefitting the losing investors. See id.

         The court notes that other courts have had no trouble applying Scholes' approach where, as here, the principal Ponzi schemer represents to investors that their assets will be invested into some commodity, account, or other investment vehicle, such that the investors ostensibly retain ownership interest in the assets they deliver to the corporate entity the schemer uses. See Wiand v. Lee, 753 F.3d 1194, 1197-99, 1202-03 (11th Cir. 2014); Marion, 591 F.3d at 141-43, 147-49; Zayed v. Associated Bank, N.A., No. 13-232(DSD/JSM), 2015 WL 4635789, at *1-2, *5 (D. Minn. Aug, 4, 2015). The cases Defendant cites to support his view do not persuade the court that Scholes' approach should not apply here. Defendant cites McCandless, 296 U.S. 140, and Scholes v. Ames, 850 F.Supp. 707 (N.D. Ill. 1994), for the proposition that the Receiver may not bring claims on behalf of the investors, but, as explained above, the Receiver has brought the claims in this action on behalf of AB&C. Similarly, although the prohibition on a receiver's bringing claims on behalf of investors in Fleming, 922 F.2d 20, might be read to support Defendant's understanding of Scholes' approach, Fleming more clearly stands for the general proposition that a corporate ...

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