Carney v. Montes et al
ORDER granting in part and denying in part 80 Motion to Dismiss; finding as moot 106 Motion for Protective Order; granting 119 Motion to Withdraw as Attorney. Attorney John P DiManno terminated. Signed by Judge Stefan R. Underhill on 2/21/2014. (Martin, M.)
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
JOHN J. CARNEY, in his capacity as
COURT-APPOINTED RECEIVER for
HIGHVIEW POINT PARTNERS, LLC, et
No. 3:12-cv-00183 (SRU)
JUAN S. MONTES, a.k.a. “BLACK,”
RULING ON MOTION TO DISMISS
This case is ancillary to a Securities and Exchange Commission (“SEC”) enforcement
proceeding against Francisco Illarramendi (“Illarramendi”) for violation of federal securities
laws. The United States District Court for the District of Connecticut created a receivership
estate and appointed John J. Carney (the “Receiver”) as receiver.1 In this action, the Receiver
filed a complaint against Juan S. Montes, a.k.a. “Black” (“Montes”), to recover property for the
benefit of the receivership estate. Montes moves to dismiss the complaint, arguing that the
Receiver lacks standing to bring: any claims the receivership entities could not have brought
themselves, any claims by the receivership entities for wrongdoing in which the receivership
entities participated, fraudulent transfer claims, and any claims related to the Permuta
The receivership entities include: Highview Point Partners; MK Master Investments LP;
MK Investments, Ltd.; MK Oil Ventures LLC; the MK Group; Michael Kenwood Capital
Management, LLC; Michael Kenwood Asset Management, LLC; MK Energy and Infrastructure,
LLC; MKEI Solar, LP; MK Automotive, LLC; MK Technology, LLC; Michael Kenwood
Consulting, LLC; MK International Advisory Services, LLC; MKG–Atlantic Investment, LLC;
Michael Kenwood Nuclear Energy, LLC; MyTcart, LLC; TUOL, LLC; MK Capital Merger Sub,
LLC; MK Special Opportunity Fund; MK Venezuela, Ltd.; and Short Term Liquidity Fund, I,
transactions. Further, Montes argues that the Receiver’s Permuta-related claims are time-barred
and that the Receiver has failed to state a claim for aiding and abetting breach of fiduciary duty,
“money had and received,” unjust enrichment, and for a constructive trust or accounting. For the
reasons stated below, Montes’ motion to dismiss (doc. # 80) is granted in part and denied in part.
Standard of Review
A. Motion to Dismiss for Lack of Subject-Matter Jurisdiction
Under Rule 12(b)(1) of the Federal Rules of Civil Procedure, “[a] case is properly
dismissed for lack of subject matter jurisdiction . . . when the district court lacks the statutory or
constitutional power to adjudicate it.” Makarova v. United States, 201 F.3d 110, 113 (2d Cir.
2000). The party who seeks to invoke a court’s jurisdiction bears the burden of establishing that
jurisdiction. Thompson v. Cnty. of Franklin, 15 F.3d 245, 249 (2d Cir. 1994) (citing Warth v.
Seldin, 422 U.S. 490, 518 (1975)). To survive a motion brought under Rule 12(b)(1), a plaintiff
must allege facts demonstrating that the plaintiff is a proper party to seek judicial resolution of
the dispute. Id. “When considering a party’s standing, we ‘accept as true all material
allegations of the complaint, and must construe the complaint in favor of the complaining
party.’” Thompson, 15 F.3d at 249 (quoting Warth v. Seldin, 422 U.S. 490, 501 (1975)). If a
plaintiff has failed to allege facts supportive of standing, it is within the court’s discretion to
allow or to require the plaintiff to supply, by amendment to the complaint or by affidavits,
further particularized allegations of fact supportive of standing. Id.
B. Motion to Dismiss for Failure to State a Claim
A motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6) is designed
“merely to assess the legal feasibility of a complaint, not to assay the weight of evidence which
might be offered in support thereof.” Ryder Energy Distribution Corp. v. Merrill Lynch
Commodities, Inc., 748 F.2d 774, 779 (2d Cir. 1984) (quoting Geisler v. Petrocelli, 616 F.2d
636, 639 (2d Cir. 1980)).
When deciding a motion to dismiss pursuant to Rule 12(b)(6), the court must accept the
material facts alleged in the complaint as true, draw all reasonable inferences in favor of the
plaintiffs, and decide whether it is plausible that plaintiffs have a valid claim for relief. Ashcroft
v. Iqbal, 556 U.S. 662, 678-79 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007);
Leeds v. Meltz, 85 F.3d 51, 53 (2d Cir. 1996).
Under Twombly, “[f]actual allegations must be enough to raise a right to relief above the
speculative level,” and assert a cause of action with enough heft to show entitlement to relief and
“enough facts to state a claim to relief that is plausible on its face.” 550 U.S. at 555, 570; see also
Iqbal, 556 U.S. at 679 (“While legal conclusions can provide the framework of a complaint, they
must be supported by factual allegations.”). The plausibility standard set forth in Twombly and
Iqbal obligates the plaintiff to “provide the grounds of his entitlement to relief” through more
than “labels and conclusions, and a formulaic recitation of the elements of a cause of action.”
Twombly, 550 U.S. at 555 (quotation marks omitted). Plausibility at the pleading stage is
nonetheless distinct from probability, and “a well-pleaded complaint may proceed even if it
strikes a savvy judge that actual proof of [the claims] is improbable, and . . . recovery is very
remote and unlikely.” Id. at 556 (quotation marks omitted).
This action is an effort to recover approximately $30.7 million in damages and monies
that Illarramendi diverted to Montes in order to sustain a Ponzi scheme. The Receiver alleges
that Montes was an “instrumental” part of Illarramendi’s scheme, working with him, being paid
All background information is taken from the Second Amended Complaint, unless
by him, and funneling assets to him for use in the receivership entities’ illegitimate investment
activities. Specifically, the Receiver alleges that Montes, a senior pension fund investment
manager and official at Petroleos de Venezuela, S.A. (“PDVSA”), received payments directly or
indirectly from Illarramendi in exchange for his approval of certain bond-swap and investment
transactions between PDVSA’s pension funds and receivership entities. These payments,
disguised as investments or payments for professional fees, were purportedly nothing more than
“bribes” and “kickbacks” that Montes received in exchange for nothing of value to the
A. Juan S. Montes
Montes was the corporate manager of finance, investments, and property insurance at
PDVSA and its pension funds, as well as a member of PDVSA’s investment committee.
Through these positions, he was personally involved in and was responsible for transactions
between PDVSA’s pension funds and the receivership entities. Over the course of almost five
years, Montes regularly communicated with Illarramendi to facilitate those transactions.3 He
also negotiated the payment of bribes for himself and on behalf of other PDVSA officials for
approval of bond-swap transactions and PDVSA’s pension funds’ investments in the MK Funds,
a receivership entity. In August 2010, Montes resigned from his positions at PDVSA and the
PDVSA pension funds.
In 2004, Illarramendi worked as an independent consultant for PDVSA’s United States
affiliate. After a brief tenure there, his position was terminated and, along with two partners,
Illarramendi formed Highview Point Partners. The Receiver alleges that Illarramendi’s
reputation at PDVSA was tarnished after his departure and, thus, Illarramendi disguised his
financial interactions with PDVSA by using an alternate identity. Montes often used the
nickname “Black,” when corresponding with Illarramendi; Illarramendi used this nickname in a
spreadsheet listing bribe payments made to Montes. In other correspondence, Illarramendi and
Montes used the aliases, “Carmelo Luizo” and “Lisandro Cuevas.”
B. The Scheme
The scheme, a result of Illarramendi’s attempts to cover up a massive trading loss, began
at least as early as October 2005. With the complicity of his associates, Illarramendi embarked
on an elaborate scheme to hide the “hole” between the real assets held by the funds containing
investor monies entrusted to Highview Point Partners, LLP (“HVP Partners”) and the liabilities
owed as a result of trying to conceal losses. The scheme involved the use of offshore entities and
bank accounts and a complex web of transfers, loans, and transactions with numerous persons
and entities that were often poorly or falsely documented on the books and records of HVP
Partners and related hedge funds. When the entire scheme was revealed, the “hole” amounted to
more than $300 million.
Christopher Luth, Francisco Lopez, and Illarramendi formed HVP Partners in 2004, each
holding a one-third ownership share.4 The purpose of HVP Partners was to act as the investment
manager of the Offshore Fund, a hedge fund to be nominally based in the Cayman Islands
(which, the Receiver alleges, was dominated and controlled by HVP Partners). By January 2006,
with over $72 million of assets in the Offshore Fund under the control of HVP Partners, the
hedge fund was transformed into a “master-feeder” structure by creating the Master Fund,
turning the Offshore Fund into an offshore feeder fund, and creating Highview Point L.P., as a
domestic feeder fund. As part of this change in structure, the Master Fund was incorporated in
the Cayman Islands in 2006 and power over the fund was handed to HVP Partners.
In October 2005, Illarramendi entered into a failed deal that generated substantial losses.
Rather than disclose the losses, Illarramendi decided to conceal them. He transferred proceeds
received in the transaction to investors other than the Offshore Fund, in amounts greater than the
Christopher Luth and Francisco Lopez are defendants in another suit filed by the
initial investment to make it appear as if those investors had received profits rather than a loss.
This resulted in a cash shortfall that the Offshore Fund absorbed and that was concealed on its
books. The shortfall was approximately $5.2 million dollars, or roughly ten percent of the net
asset value reported on the Offshore Fund’s books.
Illarramendi subsequently directed another entity, GlobeOp, the HVP Funds’
administrator, to record entries in the books falsely reflecting that the $5.2 million in funds had
been transferred to and invested in Ontime Overseas, Inc. (“Ontime”). Illarramendi could not
cover the $5.2 million hole and directed Ontime to transfer $7.4 million to the Offshore Fund to
make it appear that the falsely-recorded investment in Ontime was being redeemed.
To fund the transfer to Ontime, Illarramendi transferred $5.5 million from HVP Partners’
Wachovia bank account. Illarramendi caused HVP Partners to fund these fraudulent transfers
primarily through a loan to HVP Partners from a bank at which an HVP co-founder was a
director. Over the next five years, there were a series of additional transactions designed to hide
the losses, including transactions involving “off the books” bank accounts and the “Permuta”
1. “Off the Books” Bank Accounts
To conceal the hole, Illarramendi engaged in various transactions that were not recorded
in the books and records of HVP Partners and MK Capital, including using accounts in the
names of shell companies such as Naproad Finance, S.A. (“Naproad”) and HPA, Inc. (“HPA”).
Illarramendi also used the shell companies’ bank accounts to make transfers and other payments
to Montes. The accounts were under the control of Illarramendi and HVP Partners and contained
commingled funds from the receivership entities, HVP Funds, and other third parties.
Receiver. See Carney v. Lopez, et al., 03:12-cv-00182 (SRU).
2. The Permuta Market
The “permuta market” or “swap market” was a type of currency exchange market
operating in Venezuela that Illarramendi used to engage in a series of transactions with PDVSA
in order to further his scheme. The permuta market operated as an unofficial currency exchange
market in which parties could buy Venezuelan government bonds in bolivars and sell them in
U.S. dollars. Through this market, a person could purchase a bolivar-denominated bond through
Venezuelan brokerage firms, swap it for a dollar-denominated bond, and then sell the dollardenominated bond to receive U.S. currency outside Venezuela. Illarramendi raised dollars from
investors and purchased bolivar-denominated securities which were then transferred to PDVSA
pension funds. The PDVSA funds, in turn, would exchange these bonds for dollar-denominated
bonds at the official exchange rate. Illarramendi would then use an entity to sell the dollardenominated bonds on the open market. The difference between the “official” currency
exchange rate and the unofficial permuta market exchange rate could allow investors to achieve
substantial profits. Illarramendi, however, paid most of this profit in bribes and kickbacks to
Montes and other middlemen for facilitating the transactions.
3. Illicit Payments Montes Allegedly Negotiated in Exchange for Approving PDVSA
Pension Fund Investments.
In at least two transactions, the Receiver alleges, Montes negotiated illicit payments for
approving PDVSA pension fund investments. In the first, the “Harewood Transaction,” Montes
and Illarramendi negotiated a deal in which Illarramendi would purchase underperforming
securities from the pension funds in exchange for a $100 million investment by the pension
funds in the MK Special Opportunity Fund (“SOF”), a receivership entity.5 The pension fund
In negotiating and executing this transaction, Illarramendi and Montes attempted to
conceal their communications by using fictitious names and web-based email accounts to
agreed not to withdraw its investment in SOF for one year, after which Illarramendi promised he
would return the pension fund’s $100 million investment along with a guaranteed rate of return
of 8%. In March 2010, the parties executed the agreement and HVP Partners and another
receivership entity, Michael Kenwood Ventures (“MKV”), transferred $10 million and $25
million, respectively, to PDVSA. The shares were then transferred to another receivership
entity, the Short Term Liquidity Fund, I, Ltd. (“STLF”). On or around August 4, 2010, STLF
redeemed the shares for $18 million, effectively having paid about $17 million dollars in excess
of what the shares were worth. The proceeds of the transaction were paid to principals of the
MK Group, not to STLF, MKV, or HVP Partners, the parties that financed the transaction. Five
days later, STLF paid $5.5 million to Montes and other PDVSA officials. The Receiver alleges
that Montes received this payment in exchange for approving the transaction and that Montes
was aware that the MK Funds had paid much more than the actual value of the Harewood shares
and understood that the purpose of the transaction was to remove under-performing assets from
PDVSA’s books in exchange for an inflated purchase price.
In the “Movilway Transfer,” the Receiver alleges that Illarramendi caused STLF to
transfer over $5 million to Movilway, S.L. (“Movilway”), a Spanish telecommunications
company, as a kickback intended for Montes. Moris Beracha, who is a defendant in a related
receivership action,6 stated that this transfer was intended to be an investment in Movilway on
behalf of Montes.
C. Related Proceedings
On March 7, 2011, the United States Attorney for the District of Connecticut filed an
information against Illarramendi, charging him with wire fraud, securities fraud, investment
organize the payment of bribes to Montes and other PDVSA officials.
adviser fraud, and conspiracy to obstruct justice. Illarramendi pled guilty and acknowledged as
part of that plea that he had engaged in a scheme to hide from investors and creditors losses he
had incurred in a failed transaction and that he had used money provided by new investors to the
HVP Funds to pay out returns he promised to old investors. He also admitted to disregarding
corporate formalities and commingling investments in various HVP funds. On June 14, 2011,
the SEC began a civil enforcement action against Illarramendi and others, alleging that they
misappropriated investor assets in violation of securities laws. The SEC also sought an order
freezing the assets of those defendants and the appointment of a Receiver over those assets. In
2011, U.S. District Court Judge Janet B. Arterton appointed John J. Carney as Receiver over
The Receiver’s complaint contains seven counts: Count One alleges a statutory fraud
claim; Count Two alleges unjust enrichment; Counts Three and Four allege participation in and
aiding and abetting breach of fiduciary duty; Count Five alleges “money had and received;”
Count Six requests the imposition of a constructive trust with respect to the transfers from
receivership entities to Montes; and Count Seven requests an accounting of transfers from the
receivership entities. Montes moves to dismiss the complaint in its entirety, arguing that the
Receiver lacks standing to bring these claims and contesting the sufficiency of the pleadings and
the claims asserted therein.
A. The Receiver’s Standing
It is a basic principle of standing that a party must “assert his own legal rights and
interests, and cannot rest his claim to relief on the legal rights or interests of third parties.”
Carney v. Beracha, et al., 03:12-cv-00180 (SRU).
Warth v. Seldin, 422 U.S. 490, 499 (1975). Generally, a receiver stands in the shoes of the
entities in receivership. See Eberhard v. Marcu, 530 F.3d 122, 132 (2d Cir. 2008) (“The
authority of a receiver is defined by the entity or entities in the receivership . . . . A receiver may
commence lawsuits, but stands in the shoes of the corporation and can assert only those claims
which the corporation could have asserted.”) (internal quotations omitted; citations omitted).
Thus, in order to evaluate the Receiver’s standing, I must determine what claims the receivership
entities could have asserted against Montes. This is a potentially complex matter in the context
of a Ponzi scheme, where the receivership entities themselves are alleged to have been
instruments of wrongdoing.
The theory underlying the Receiver’s claims is that the receivership entities were under
Illarramendi’s complete control and dominion as he and his accomplices diverted corporate
assets. In this case, the Receiver argues that Montes’ receipt of fraudulent transfers and other
payments originating from the fraud harmed the receivership entities’ business and property. On
those grounds, the Receiver argues, he has standing to bring these claims on behalf of the
receivership entities. Like many defendants in similar receivership actions, Montes challenges
the Receiver’s standing to bring this action. Montes’ motion to dismiss for lack of standing is
based on four arguments: (1) the Wagoner rule bars the Receiver’s claims; (2) the Receiver may
not assert claims that the receivership entities could not have asserted themselves; (3) the
Receiver lacks standing to bring the fraudulent transfer claim because the receivership entities
are not creditors; and (4) the Receiver lacks standing to bring any cause of action related to the
Permuta transactions because the receivership entities were not harmed. I will address each
argument in turn, although there is substantial overlap among them.
1. The Wagoner Rule
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The Second Circuit’s so-called “Wagoner rule” provides that, “when a bankrupt
corporation has joined with a third party in defrauding its creditors,” the bankruptcy trustee for
that corporation lacks standing “to recover against the third party for the damage to the
creditors.” Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 118 (2d Cir. 1991). It is
similar to the affirmative defense of in pari delicto, but rather than functioning as an affirmative
defense, in the Second Circuit it is a prudential standing limitation. See In re Optimal, 813 F.
Supp. 2d 383, 395 (S.D.N.Y. 2011). “The rationale underlying the Wagoner rule derives from
the fundamental principle of agency that the misconduct of managers within the scope of their
employment will normally be imputed to the corporation . . . . Because management’s
misconduct is imputed to the corporation, and because a trustee stands in the shoes of the
corporation, the Wagoner rule bars a trustee from suing to recover for a wrong that he himself
essentially took part in.” Wight v. BankAmerica Corp., 219 F.3d 79, 86-87 (2d Cir. 2000)
In Wagoner, a bankruptcy trustee brought an adversary proceeding against the debtor’s
broker for his alleged churning of the debtor’s account. The debtor was himself accused of
selling worthless notes and loan agreements to members of his church and using the proceeds to
make stock trades on behalf of his wholly-owned corporation, which subsequently went
bankrupt. The trustee of the corporation brought suit against the brokerage house where the
debtor had been trading, alleging that the broker allowed the debtor to use its facilities to trade
with highly leveraged funds in exchange for high commissions and for churning the
corporation’s accounts. The Second Circuit held that the trustee lacked standing to bring a claim
on behalf of the corporation because the corporation had joined with the brokerage house in
defrauding its creditors. Wagoner, 944 F.2d at 119-20.
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The central question here is whether the Wagoner rule bars the claims brought by the
Receiver. The Receiver argues that “an equity receiver is a creature of equity and the appointing
court [and] is generally not imputed with the wrongdoing of the insolvent corporate entities he or
she represents.” Pl.’s Mem. in Opp’n to Mot. to Dismiss at 13. Setting forth the approach
adopted by many courts,7 the Seventh Circuit Court of Appeals has held that a receiver for
corporations dominated by a Ponzi scheme principal had standing to assert fraudulent transfer
claims against third parties because the receiver was acting on behalf of corporations that were
instrumentalities in that scheme. Scholes v. Lehmann, 56 F.3d 750 (1995). In Scholes, the
individual perpetuating a Ponzi scheme used corporations he created to transfer funds rightly
belonging to those corporations to other entities. A receiver for those corporations brought a
fraudulent conveyance action against third parties to recover amounts transferred by the
corporations. The Scholes Court held that the receiver had standing to bring the fraudulent
transfer claims—even though the corporations he represented were nominally involved in the
wrongdoing—and declined to impute the corporation’s bad acts to the receiver because to do
otherwise would allow the “wrongdoer . . . to profit from his wrong.” Scholes, 56 F.3d at 754.
Writing for the court, Judge Richard A. Posner reasoned that:
[t]he appointment of the receiver removed the wrongdoer from the scene. The
corporations were no more [the Ponzi principal’s] evil zombies. Freed from his spell
they became entitled to the return of the moneys—for the benefit not of [the Ponzi
principal] but of innocent investors—that [the Ponzi principal] had made the corporations
divert to unauthorized purposes . . . . Now that the corporations created and initially
controlled by [the Ponzi principal] are controlled by a receiver whose only object is to
maximize the value of the corporations for the benefit of their investors and any creditors,
See, e.g., Janvey v. Democratic Senatorial Campaign Committee, Inc., 712 F.3d 185,
192 (5th Cir. 2013); Wing v. Dockstader, 482 F. App’x 361, 363 (10th Cir. 2012); Grant
Thornton, LLP v. Federal Deposit Ins. Corp., 435 F. App’x 188, 201 (4th Cir. 2011); Donell v.
Kowell, 533 F.3d 762, 770-78 (9th Cir. 2008); Warfield v. Byron, 436 F.3d 551, 558 (6th Cir.
2006); Hodgson v. Kottke Assocs., LLC., 2007 WL 2234525, at *7 (E.D. Pa. Aug. 1, 2007);
Goldberg v. Chong, 2007 WL 2028792, at *10 (S.D. Fla. July 11, 2007).
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we cannot see an objection to the receiver’s brining suit to recover corporate assets
unlawfully dissipated by [the Ponzi principal]. We cannot see any legal objection and we
particularly cannot see any practical objection.
Id. at 754-55. The Receiver argues that this court, like many outside this Circuit, should follow
the Seventh Circuit’s reasoning, rather than expanding the Wagoner rule to cover receivers.
Montes, in response, argues that the Second Circuit does not recognize Scholes and cites cases in
the Second Circuit where a district court applied the Wagoner rule in holding that a receiver
lacked standing to bring certain claims on behalf of entities involved in fraudulent schemes. See,
e.g., Cobalt Multifamily Investors I, LLC v. Shapiro, 2008 WL 833237, at *4 (S.D.N.Y. Mar. 28,
Citing Eberhard, Montes argues that a receiver who does not represent a creditor lacks
standing to bring a fraudulent conveyance claim. Eberhard is important—and Montes is careful
in his reliance on it—because it is the only Second Circuit case to opine on the applicability of
Scholes.8 In Eberhard, the receiver represented only the transferor of assets, that is, the
individual who allegedly engaged in fraudulent conveyances. The Second Circuit held that the
receiver lacked standing to bring fraudulent conveyance claims on the individual’s behalf
because it would allow him to avoid the consequences of his actions. Eberhard, however, relied
Without citing Eberhard or Scholes, the Second Circuit recently addressed the issue of a
SIPA trustee’s standing in In re Bernard L. Madoff Inv. Securities LLC., 721 F.3d 54 (2d Cir.
2013) (“Madoff”). The Court held that the Wagoner rule and the doctrine of in pari delicto
applied to bar a SIPA trustee’s common law claims brought on behalf of the debtor and the
debtor’s customers. Id. at 64 & n.13 (trustee “stands in the shoes of BLMIS and may not assert
claims against third parties for participating in a fraud that BLMIS orchestrated”; “The pleadings
here leave us with no doubt that BLMIS—in whose shoes the Trustee stands—bore at least
“substantially equal responsibility” for the injuries the Trustee now seeks to redress.”) (citation
omitted). That decision does not apply here, where the Receiver has been appointed to bring
claims on behalf of receivership entities that do not bear “substantially equal responsibility” for
the injuries the Receiver seeks to redress. In short, Madoff represents a straightforward
application of the Wagoner rule and the present case represents a straightforward application of
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on Scholes and a subsequent Seventh Circuit case, Troelstrup v. Index Futures Group, Inc., 130
F.3d 1274 (7th Cir. 1997), to distinguish between situations in which the receiver seeks to bring
claims on behalf of a creditor of a transferor and those in which the receiver brings claims on
behalf of a transferor for whom he was not appointed to bring claims. See Eberhard, 530 F.3d at
132-34. The Eberhard Court’s denial of standing to the receiver was limited to the second
situation—where the receiver seeks to bring claims on behalf of the transferor himself.
Expressly endorsing the Seventh Circuit’s analysis in Scholes, the Eberhard Court held
that “a receiver’s standing to bring a fraudulent conveyance claim will turn on whether [the
receiver] represents the transferor only or also represents a creditor of the transferor.” Id. at 133;
see also id. at 131 n.11 (if the corporate entities “had remained within the estate and established
creditor status, the Receiver would have represented a creditor of [the transferor], and as in
Scholes, would have met the standing requirement”). Importantly, in Eberhard, the Second
Circuit adopted the reasoning of Scholes that when transfers are made by corporations that are
completely controlled by the wrongdoer, “the transfers were, in essence, coerced.” Id. at 132.
The corporation then becomes the creditor in the coerced transaction and a receiver for the
coerced corporation has standing to claw back the transfers. Here, as I explain below, the
fraudulent transfer claims are brought on behalf of receivership entities, which are creditors of
the transferor, Illarramendi. Accordingly, under the Eberhard decision, the Receiver has
standing to bring claims against Montes.
In three other cases, courts in the Second Circuit have allowed receivers to bring
fraudulent transfer claims, notwithstanding the Wagoner rule. In Federal Nat. Mortg. Ass’n v.
Olympia Mortg. Corp., 2011 WL 2414685 (E.D.N.Y. June 8, 2011), the district court discussed
the relationship between Eberhard and Scholes and, in part, adopted Scholes’ reasoning. In that
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case, the receiver brought claims to recover funds fraudulently conveyed from a corporation that
had engaged in wrongdoing. The court held that,
[s]ince the wrongdoer in such a scenario is not the corporation proper, but rather the
management which conveyed away the corporation’s assets to the corporation’s
detriment . . . [the corporation’s] receiver has standing to pursue a fraudulent conveyance
claim against the defendants.
Id. at *7. Similarly, in Friedman v. Wahrsager, 848 F. Supp. 2d 278, 289-90 (E.D.N.Y. 2012),
the defendants argued that the receiver’s fraudulent conveyance claims against them should be
dismissed because the receiver could only bring a cause of action that could be brought on behalf
of a creditor or related “shell entities” and that the creditor in that action was the receivership
entity that made the fraudulent conveyance. The district court, citing both Eberhard and
Scholes, held that the receiver could bring its claims to the extent that “defendant’s arguments . .
. mirror the same arguments raised in Scholes.” Id. at 290. Likewise, in Armstrong v. Collins,
2010 WL 1141158, at *33 (S.D.N.Y. Mar. 24, 2010), resonsid. denied, 2011 WL 308260
(S.D.N.Y. Jan. 31, 2011), the court, citing Scholes, held that receivers bringing suit on behalf of
creditors created by a Ponzi principal to perpetuate his fraud had standing to assert fraudulent
In opposition to these cases, Montes cites Cobalt, in which a district court held that the
receiver’s position was “sufficiently analogous to a bankruptcy trustee as to be subject to the
standing limitations set forth in Wagoner and its progeny.” Cobalt, 2008 WL 833237, at *3
(citing Scholes). Montes also cites AKRO Investicni Spolenost, A.S. v. A.B. Watley Inc., 2003 WL
1108135, at *7 (S.D.N.Y. Mar. 13, 2003). The Receiver argues that defendant’s reliance on
AKRO “is misplaced because the court found that the receiver lacked standing on other grounds”
and that the Cobalt Court noted a “viable argument that the Wagoner rule’s standing limitations
may not be applicable to the Receiver.” Pl.’s Mem. in Opp’n to Mot. to Dismiss at 21 n.16.
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Both of these statements are incorrect. The AKRO decision held that the receiver lacked standing
because the Wagoner rule applied and the receiver failed to establish the adverse interest
exception to the in pari delicto doctrine. Cobalt only noted that the magistrate judge’s report, to
which plaintiff objected, observed a “viable argument” that the Wagoner rule may not apply in
that case because the receiver “may be judicially authorized in appropriate cases to pursue claims
on behalf of the investors in the defunct corporation.” Cobalt, at *3 n.7.
Although the Receiver’s attempts to distinguish Cobalt fail, there is a significant
distinction between this case and that one. Nothing in the Cobalt decision indicates that the
corporations were effectively coerced by dominating wrongdoers. Thus, there were no
allegations that permitted the receiver in Cobalt to argue that the corporations were creditors of
the true wrongdoers and therefore that the receiver had standing to bring claims. And,
importantly, both Cobalt and AKRO were decided before Eberhard, so the judges in those cases
did not have the guidance from the Second Circuit as contained in Eberhard.
In sum, the Eberhard Court adopted Scholes, thereby establishing an exception to the
Wagoner rule. In the Second Circuit, when transfers are made by a corporation that is dominated
by the wrongdoer, a receiver appointed to recover assets for the receivership entity—rather than
for a wrongdoer who manipulated the dominated entity—has standing to bring claims on the
corporation’s behalf. See Eberhard, 530 F.3d at 132-34. Accordingly, I hold that, consistent
with Eberhard and Scholes, the Receiver has standing to bring a statutory fraudulent conveyance
claim (including a CUFTA claim) on behalf of any receivership entity that was acting merely as
the instrumentality of Illarramendi’s wrongdoing, which includes each of the receivership
entities. Next, I address whether the doctrine of in pari delicto bars the Receiver’s claims.
2. In Pari Delicto Doctrine
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Although the Wagoner rule, as modified by Eberhard, does not deprive the Receiver of
standing to bring his fraudulent conveyance claims, I must also address whether the in pari
delicto doctrine applies to the Receiver’s claims. It is a “basic principle of agency . . . that the
acts of a corporation’s agents are attributed to the corporation itself.” Harp v. King, 266 Conn.
747, 777-78 (Conn. 2003). The doctrine of in pari delicto provides that actions brought on illegal
or corrupt bargains must fail if the plaintiff has been a significant participant in the subject
wrongdoing, bearing at least equal responsibility for the violations he seeks to redress. In re
Flanagan, 415 B.R. 29 (D. Conn. 2009). Montes argues that Illarramendi’s conduct is properly
imputed to the receivership entities because the Receiver has alleged that Illarramendi controlled
them. Montes also argues that the Receiver cannot bring a CUFTA claim against him because,
under agency principles, the Receiver represents entities that engaged in wrongdoing and, thus,
the in pari delicto doctrine applies.
The imputation principles embodied in the various exceptions and counter-exceptions to
the in pari delicto doctrine each seek to ensure that a wrongdoer does not stand to profit from his
bad acts and that the parties harmed are able to recover, notwithstanding a wrongdoer’s abuse of
agency relationships. Thus, the Receiver’s invocation of the adverse interest exception to in pari
delicto, and Montes’ use of the total abandonment and sole actor rules as counters to the adverse
interest exception, though they reach the same result as both Scholes and Eberhard, are
unnecessary.9 As stated above, the Wagoner rule elevates the doctrine of in pari delicto to a
The adverse interest exception provides that the misconduct of the management of a
corporation will not be imputed to the corporation if the officer acted in his own interest and
adverse to the interest of the corporation. See Cobalt, 857 F. Supp. 2d 419, 431-32 (in pari
delicto does not apply if the fraud was not perpetrated for the benefit of the debtor corporation
but only for the benefit of the wrongdoer). Montes cites cases limiting the application of the
adverse interest exception to cases where the management has “totally abandoned” the
corporation’s interest. See, e.g., Breeden v. Kirkpatrick & Lockhard LLP, 336 F.3d 94, 100 (2d
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prudential standing limitation. See In re Optimal, 813 F. Supp. 2d 383, 395 (S.D.N.Y. 2011).
Thus, the discussion above concerning the applicability of the Wagoner rule to the Receiver’s
standing applies with equal force to Montes’ in pari delicto affirmative defense.
Notwithstanding the doctrine of in pari delicto, the Second Circuit has applied the Seventh
Circuit’s holding in Scholes to allow receivers to bring claims on behalf of receivership entities
involved in a Ponzi scheme. Eberhard, 530 F.3d at 132-34. The Receiver has been appointed to
recover property of the receivership entities. Whether Illarramendi acted adversely to the
interests of the receivership entities, or whether he “totally abandoned” the interests of the
organizations or acted alone in carrying out his bad acts, does not bar the Receiver’s claims; the
Receiver has been appointed to bring claims on behalf of the receivership entities, and
Illarramendi, the wrongdoer, will not benefit from the recovery of receivership property.
3. Whether the Receiver is a “Creditor” for Purposes of the Fraudulent Transfer Claim
CUFTA section 52-552e(a)(1) provides that “a transfer made or obligation incurred by a
Cir. 2003); In re The Mediators, Inc., 105 F.3d 822 (2d Cir. 1997). Because the Permuta
transactions benefitted the receivership entities, Montes argues, Illarramendi did not “totally
abandon” the corporations’ interests and, therefore, the adverse interest exception does not apply.
Further, Montes argues that the application of the adverse interest exception is barred by the
“sole actor” rule, which applies where the corporation gives its agent total control over the
corporation or when the principal and agent are alter egos. See, e.g., Breeden, 336 F.3d at 100; In
re The Mediators, Inc., 105 F.3d at 827 (sole actor rule “imputes agent’s knowledge to the
principal notwithstanding agent’s self-dealing because the party that should have been informed
was the agent itself albeit in its capacity as principal”). Accordingly, Montes argues, because the
Receiver alleges that Illarramendi had “unfettered control” over the receivership entities or was
an alter ego of the receivership entities, the sole actor rule applies.
The cases Montes cites apply New York law. Connecticut law interprets the adverse
interest exception more broadly. See Cobalt, 857 F. Supp. 2d 419, 431-32. Under Connecticut
law, courts “do not consider an extension of the corporation’s life as a result of fraud to be a
material ‘benefit’ sufficient to preclude it from coming within the adverse interest exception to
the in pari delicto defense.” Id. at 431. The Receiver argues that Illarramendi committed the
fraud solely for his benefit and that of certain insiders, and that any benefit to the receivership
entities as a result of the Permuta transactions only served to prolong the receivership entities’
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debtor is fraudulent as to a creditor”:
[If] the creditor’s claim arose before the transfer was made or the obligation was incurred
and if the debtor made the transfer or incurred the obligation . . . [w]ith actual intent to
hinder, delay, or defraud any creditor of the debtor. . . .
Conn. Gen. Stat. § 52-552e(a)(1). Thus, in order to have standing to bring a claim under
CUFTA, a claimant must have been a creditor at the time the alleged fraudulent transfer took
place. Chien v. Skystar Bio Pharm. Co., 623 F. Supp. 2d 255, 267 (D. Conn. 2009).
Montes argues that the Receiver has failed to state a statutory fraud claim because: (1)
only the receivership entities’ creditors have standing to bring such claims; (2) the receivership
entities are not creditors of each other; (3) the receivership entities are not “tort creditors” of
Illarramendi; and (4) the receivership order does not confer standing on the Receiver to bring
claims that the receivership entities could not have brought themselves.
It is true that only the receivership entities’ creditors have standing to bring the CUFTA
claim. It is also true that a receivership appointment order, as Montes argues, “does not give the
Receiver carte blanche to bring claims that would otherwise be barred.” See Eberhard, 530 F.3d
at 134 (“[F]ederal law does not give a receiver, or a district court, the authority to re-write or
ignore state law.”). Regarding the other two of Montes’ assertions, the Receiver offers two
arguments in response. First, the Receiver argues that the receivership entities are “tort
creditors” with respect to the money Illarramendi and Montes stole because the fraudulent
transfers harmed the receivership entities. Montes argues that under the “tort creditor” theory,
Illarramendi is the debtor. Under CUFTA, only property of the debtor qualifies as an asset that
may be recovered and the Receiver seeks to recover payments that were property of the
receivership entities. Thus, Montes argues that the fraudulent transfer claims are invalid.
The line of cases following Scholes, see supra, supports the argument that receivership
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entities have standing to bring UFTA claims. For example, in Armstrong v. Collins, 2010 WL
1141158, at *33 (S.D.N.Y. Mar. 24, 2010), the receiver brought fraudulent transfer claims on
behalf of receivership entities that were used in perpetrating a Ponzi scheme. The court, citing
Scholes, held that similarly-situated entities were UFTA creditors and thus had standing to bring
suit. Id. at *33. Citing the same line of cases, the Receiver also argues that the alter ego
allegations do not preclude the receivership entities’ creditor status. As the Receiver notes,
Scholes stated, “the fact the corporations were alter egos of [defendant] would not affect the
receiver’s standing to bring  fraudulent conveyance suits. The corporations existed and were
abused.” 56 F.3d at 758. Montes’ attempt to use what amounts to a reverse-veil-piercing theory
to void any obligations incurred among the receivership entities is ultimately unavailing. The
allegation that the receivership entities were alter egos of Illarramendi is irrelevant where a
receiver has been appointed to bring claims on behalf of those entities. That Illarramendi
coerced the entities into making fraudulent transfers does not strip the Receiver of the ability to
recover those transfers, whether a receivership entity is a creditor of the wrongdoer or another
receivership entity in a transfer, or whether a receivership entity is a creditor in a transfer to a
third-party debtor. In either event, the Receiver here is a “creditor” for purposes of the
fraudulent transfer claim.
4. Whether the Receiver May Bring Causes of Action Related to the Permuta
It is fundamental that in order to have standing, a plaintiff must have suffered an “injury
in fact.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992). Montes argues that the
Receiver lacks standing to bring any cause of action related to the Permuta transactions because
the receivership entities profited from them and, thus, were not harmed. Montes’ theory is that
the transfers allegedly paid to him were made in exchange for PDVSA’s participation in the
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Permuta transactions, which ultimately benefitted the receivership entities. Thus, the bribes were
part of a transaction that provided a benefit to the receivership entities rather than independent
fraudulent transfers causing them harm. Def.’s Mem. in Supp. of Mot. to Dismiss at 21-22. In
Reider v. Arthur Andersen, LLP, 47 Conn. Supp. 202, 212 (Super. Ct. 2001), the court rejected a
similar argument, holding that the only benefit derived from the artificial prolongation of the life
of the purportedly “benefited” entity inured to the benefit of the persons looting it. See also
Schacht v. Brown, 711 F.2d 1343, 1348 (7th Cir.), cert. denied, 464 U.S. 1002 (1983). The
Receiver argues that the fraudulent payments, in the context of a Ponzi scheme, were harmful to
the receivership entities because they deprived the receivership entities of $30 million and the
new investments, rather than benefitting the receivership entities, “served only to prop up the
Ponzi scheme so that Illarramendi and Montes could continue to loot them.” Pl.’s Mem. in
Opp’n to Mot. to Dismiss at 12. I agree. And although the Permuta transactions may have
generated gains, it would be a strange rule that because one portion of a Ponzi scheme might
have profited an entity at some point in time, any assets connected to that portion of the Ponzi
scheme are beyond the reach of creditors seeking to recover fraudulent transfers. Such a rule
would effectively preclude any fraudulent conveyance actions in the Ponzi scheme context.
There is a more fundamental argument, however. Profit—or the absence of a transaction
“loss”— is not equivalent to the absence of harm. An entity may profit from a transaction and
yet be harmed by having failed to receive the full amount of profit due. In that sense, bribes paid
to Montes constitute harm to the entities rather than a price paid to earn profits. Accordingly, I
conclude that the Receiver has standing to bring the statutory fraud claims based on the Permuta
B. Counts Two and Five: Unjust Enrichment and “Money Had and Received”
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The Receiver seeks to recover under a theory of unjust enrichment against Montes for his
receipt of money from the receivership entities “in the form of payments and bribes and other
[transfers].” Am. Compl. at ¶ 128.
A plaintiff seeking recovery for unjust enrichment must
prove: (1) that the defendants were benefitted, (2) that the defendants unjustly did not pay the
plaintiffs for the benefits, and (3) that the failure of payment was to the plaintiffs’ detriment.
Hartford Whalers Hockey Club v. Uniroyal Goodrich Tire Co., 231 Conn. 276, 282-83 (1994).
The Receiver also seeks to recover “money had and received.” An action for “money had
and received” is similar to an action for unjust enrichment. See Gold v. Rowland, 296 Conn.
186, 202 n.15 (2010) (“[M]oney had and received . . . is the equivalent of the more modern
action for unjust enrichment.”). Both are equitable actions that allow a party to recover a benefit
conferred on a defendant. See Mendelsohn v. BidCactus, LLC, 2012 WL 1059702 (D. Conn.
Mar. 28, 2012). To meet the elements of a claim for money had and received, the plaintiff must
demonstrate that the defendant received money belonging to the plaintiff, and benefitted from
receipt of that money. SV Special Situations Master Fund Ltd. v. Knight Libertas, LLC, 2011 WL
2680832 (D. Conn. July 8, 2011) (citing Koch v. Stop & Shop Co., Inc., 2003 WL 553280 (Conn.
Super. Ct. Feb. 11, 2003)).
Montes, citing an unreported Connecticut Superior Court case, Brideways Comm’ns
Corp. v. Time Warner, Inc., 1998 WL 638444, at *9 (Conn. Super. Ct. Sept. 4, 1998), argues that
the Receiver has failed to state a claim for unjust enrichment because the complaint includes no
factual allegation that Montes actually benefited from the transactions. That case is inapposite.
There, the court dismissed the defendants’ counterclaim for unjust enrichment not simply
because the plaintiff failed to allege an actual benefit, but also because the defendant alleged that
the benefit at the core of the unjust enrichment claim arose out of the plaintiffs’ institution of the
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Montes also argues that the claim for money had and received fails with respect to the
Movilway and Harewood transactions because the Receiver has not alleged that Montes actually
received any payments from either of those transfers. I need not address the Movilway transfer;
although the Receiver alleges that a transfer was made to Movilway for Montes’ benefit, the
Receiver does not seek to avoid the transfer and has only used that transfer as evidence of
Montes’ and Illarramendi’s relationship. See Am. Compl. at ¶ 107 (“This payment to Movilway
is not included among the Transfers that the Receiver is seeking to avoid in this Action.”). Thus,
there is no claim to dismiss with respect to the Movilway transaction.
With respect to the Harewood transfer, the Receiver has alleged that a payment was
made, upon information and belief, to benefit Montes. Am. Compl. at ¶ 101 (“On or around
August 9, 2010, approximately $5.5 million in bribe payments were made from STLF and, upon
information and belief, intended to pay PDVSA officials, including Montes.”). The Receiver has
also alleged that Montes negotiated a ten percent kickback for his participation in the transfer.
Id. at ¶¶ 102-04. The Receiver admits, however, that he has not alleged that Montes actually
received any payments from the Harewood transfer. Instead, the Receiver states that he “has
alleged the known facts based on his investigation to date” and that discovery will likely uncover
more facts. Pl.’s Mem. in Opp’n to Mot. to Dismiss at 37.
It is a close question but, in light of the complexity of the scheme and the equitable nature
of actions for unjust enrichment and “money had and received,” the motion to dismiss these
equitable claims fails. Although he has not clearly alleged that Montes received money in the
Harewood transfer, the Receiver has alleged that Montes was not entitled to these payments, and
that he received these benefits at the expense of the receivership entities. Accordingly, I deny
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Montes’ motion to dismiss the Receiver’s claims for unjust enrichment and for “money had and
C. Counts Three and Four: Aiding and Abetting Breach of Fiduciary Duty and Conspiracy
to Breach Fiduciary Duty
To state a claim for aiding and abetting a breach of fiduciary duty, a plaintiff must allege
that: “(1) the party whom the defendant aids must perform a wrongful act that causes an injury;
(2) the defendant must be generally aware of his role as part of an overall illegal or tortious
activity at the time that he provides the assistance; (3) the defendant must knowingly and
substantially assist the principal violation.” Efthimiou v. Smith, 268 Conn. 499, 505 (2004)
(quoting Halberstam v. Welch, 705 F.2d 472, 477 (D.C. Cir. 1983)); accord Palmieri v. Lee,
1999 WL 1126317, at *4 (Conn. Super. Ct. Nov. 24, 1999).
The Receiver alleges that Illarramendi had a duty of care and loyalty to HVP Partners and
the MK Entities and duties to act in good faith. Illarramendi also had the duty, the Receiver
argues, not to waste or divert the assets of the receivership entities and the duty not to act in
furtherance of his interests at the expense of HVP Partners and the MK Entities. The Receiver
alleges that Montes “knowingly, or with reckless indifference, aided and abetted Illarramendi by
furnishing indispensable assets and counter-parties necessary to engage in transactions which
provided cover for Illarramendi’s fraudulent activities.” Am. Compl. at ¶ 135. Count Four
alleges that Montes and Illarramendi “willfully and knowingly conspired to breach
Illarramendi’s fiduciary duties.” Id. at ¶ 148. In furtherance of the conspiracy, the Receiver
contends, Montes extracted bribes and other payments from the MK Funds and the HVP Funds.
Montes argues that the Receiver has failed to state a claim for breach of fiduciary duty
because the complaint does not plausibly allege that Montes had any knowledge of the existence
of fiduciary duties Illarramendi owed to the receivership entities, “much less that Montes aided
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and abetted or conspired with Illarramendi’s breach of those duties.” Def.’s Rep. Mem. in Supp.
of Mot to Dismiss at 2. The Receiver need only allege that Montes was “generally aware” of his
role as part of an overall illegal or tortious activity. The complaint alleges that: (1) Montes
received bribes in exchange for his participation in the Permuta transactions and knew or was
recklessly indifferent to Illarramendi’s breach of fiduciary duty (see Am. Compl. at ¶¶ 77-83);
(2) Montes and Illarramendi communicated using pseudonyms and special email addresses to
disguise their actions (id. at ¶ 104); and (3) Montes received a kickback in exchange for
participation in the Harewood transaction and knew that Illarramendi breached his fiduciary
when he overpaid for the Harewood shares and bribed the PDVSA officials (id. at ¶ 103).
Although it strains credulity to believe that Montes was unaware that Illarramendi was breaching
a fiduciary duty to the receivership entities, the Receiver has not alleged that Montes was aware
of Illarramendi’s fiduciary duties to the receivership entities or that the payments came from the
receivership entities rather than Illarramendi himself, and has cited no case for the proposition
that the payment of bribes is enough to establish one’s participation in a breach of fiduciary duty.
Accordingly, I dismiss the Receiver’s breach of fiduciary duty-related claims; because these
defects in pleading may be curable, the dismissal is without prejudice to the filing of a further
amended complaint within 30 days.
D. Counts Six: Constructive Trust
The Receiver requests the imposition of a constructive trust with respect to the transfer of
funds, assets, or property from receivership entities as well as to any profits received by the
defendants in the past or in the future in connection with the receivership entities. A constructive
trust is a remedy, it does not give rise to an independent substantive cause of action. Titan Real
Estate Ventures, LLC v. MJCC Realty Ltd. P’ship., 415 B.R. 29, 44 (D. Conn. 2009) (citing
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Macomber v. Travelers Prop. & Cas. Corp., 261 Conn. 620, 623 n.3 (2002)). I may consider
whether to impose a constructive trust as a remedy after the Receiver has established Montes’
liability. Thus, I dismiss the claim for a constructive trust and convert it to a request for remedy.
E. Count Seven: Accounting
The Receiver requests an accounting of any transfer of funds, assets, or property received
from the receivership entities as well as to any past and future profits in connection with the
receivership entities. Montes argues that a request for an accounting is a remedy, not a
substantive cause of action, relying on a Connecticut Supreme Court case, Macomber v.
Travelers Prop. & Cas. Corp., 261 Conn. 620 (2002). The Receiver responds that an accounting
is a recognized action under Connecticut law and that there is no appellate authority clarifying
the Macomber footnote. Additionally, the Receiver argues that a request for an accounting is a
cause of action where “the facts create a reasonable doubt whether adequate relief may be
obtained at law.” Pl.’s Mem. in Opp’n to Mot. to Dismiss at 49 (citing Makert v. Elmatco Prods.,
Inc., 84 Conn. App. 456, 460 (2004)). I need not resolve the question whether an accounting is a
valid cause of action. As I did with respect to the constructive trust claim, I dismiss the claim for
an accounting and convert it to a request for remedy.
F. Statute of Limitations
A court may dismiss on statute of limitations grounds where facts supporting a statute of
limitations defense are set forth in papers filed by plaintiff himself. Walters v. Indus. &
Commercial Bank of China, 651 F.3d 280, 293 (2d Cir. 2011). The original complaint was filed
on February 3, 2012 and the first amended complaint was filed on July 11, 2012. The second
amended complaint was filed August 31, 2012. Montes seek to dismiss all or part of each claim
pursuant to statutes of limitations.
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1. Count One: Actual Fraud (Conn. Gen. Stat. § 52-552e(a)(1))
Montes seek to dismiss all claims related to the Permuta transactions because they
accrued more than four years before this lawsuit was commenced. The Receiver invokes the
discovery rule of sections 52-522e(a)(1) and 52-552j of CUFTA and argues that the applicable
statute of limitations is one year from the appointment of the Receiver. Under the so-called
“discovery rule” of section 52-522e(a)(1), an action is timely if brought within one year of the
date on which the fraud could reasonably have been discovered by the claimant. See Epperson v.
Entm’t Express, Inc., 338 F. Supp. 2d 328, 344 (D. Conn. 2004), aff’d sub nom. Epperson v.
Entm’t Exp., Inc., 159 F. App’x 249 (2d Cir. 2005). The Receiver brought his actual fraud claim
on February 2, 2012, within one year of the Receiver’s appointment on February 3, 2011. Thus,
the Receiver’s actual fraud claim under CUFTA is timely.
Montes argues that, because Illarramendi’s knowledge of the alleged transfers is imputed
to the receivership entities as of the time that the transfers were made, the discovery period
applicable to the fraudulent transfer claims is one year after the alleged payments were made. In
Armstrong v. McAlpin, 699 F.2d 79, 89 (2d Cir. 1983), the Second Circuit held that a receiver’s
claims were time barred because the shareholders of a corporation accused of securities fraud,
“with reasonable diligence,” could have discovered the fraudulent conveyance within the statute
of limitations. The Receiver, however, could not have discovered the wrongdoing until he was
appointed. And insofar as the corporations were used to carry out the alleged bad acts, the only
person in a position to discover the bad acts was a person involved in perpetrating them. Montes
concedes that there is no clear authority from Connecticut courts on this issue. Accordingly, I
am charged with predicting what the Connecticut Supreme Court would do, and I hold that the
discovery period renewed upon the appointment of the Receiver.
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2. Counts Two and Five: Unjust Enrichment and “Money Had and Received”
The Receiver correctly argues that Count Two, the unjust enrichment claim, is not subject
to the three-year statute of limitations because it is equitable in nature and, thus, the court need
not adhere to statutes of limitation. See Rossman v. Morasco, 115 Conn. App. 234, 256 (2009)
(“Although courts in equitable proceedings often look by analogy to the statute of limitations to
determine whether, in the interests of justice, a particular action should be heard, they are by no
means obliged to adhere to those time limitations.”) (citations omitted). Accordingly, I will not
dismiss the unjust enrichment claims, and will apply a three-year statute of limitations to the
“money had and received” claims here.
3. Counts Six and Seven: Constructive Trust and Accounting
To the extent a constructive trust is a remedy imposed under a court’s equitable powers,
an action for a constructive trust has no statute of limitations. See Cendant Corp., 474 F. Supp.
2d at 383. Similarly, to the extent that I treat the action for an accounting as a remedy, it has no
statute of limitations. Thus, the Receiver’s requests for imposition of a constructive trust and an
accounting are timely.
For the reasons stated above, I grant in part and deny in part Montes’ motion to dismiss
(doc. # 80). I grant without prejudice defendant’s motion to dismiss Counts Three (Participation
in and Aiding and Abetting Breach of Fiduciary Duty) and Four (Conspiracy to Breach Fiduciary
Duty) and convert Counts Six (Constructive Trust) and Seven (Accounting) to remedies. I deny
defendant’s motion to dismiss Count One (Actual Fraud (CUFTA § 52-522e(a)(1)), Count Two
(Unjust Enrichment), and Count Five (Money Had and Received).
It is so ordered.
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Dated at Bridgeport, Connecticut, this 21st day of February 2014.
/s/ Stefan R. Underhill_____
Stefan R. Underhill
United States District Judge
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