Finn et al v. Moyes et al
MEMORANDUM OPINION AND ORDER ORDER. 1) Granting Coolidge 600 Acquisition Co., LLC's 128 Motion to Dismiss. 2) Granting in part and denying in part Receiver's 144 Motion for Partial Summary Judgment. (a) The motion is GRANTED as t o the MJV-FUF4 guarantee in Count 8, but DENIED as to the MJV-FUF6 in Count 8. (b) The motion is DENIED in all other respects. 3) Granting in part and denying in part defendants' 147 Motion for Partial Summary Judgment. (a) The motion is GRANTED as to: (1) aiding and abetting breach of fiduciary duty in Count 2; (2) the MJV-FUF6 guarantee in Count 8; (3) the unjust enrichment claim in Count 9; (4) collateral estoppel barring relitigation of damages for Counts 1-5 and 9. (b) The motion is DENIED as to collateral estoppel barring litigation of damages for Counts 6-8. (Written Opinion) Signed by Chief Judge John R. Tunheim on March 30, 2017. (DML)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
PATRICK FINN and LIGHTHOUSE
MANAGEMENT GROUP, INC., as
Receiver for First United Funding, LLC
and Corey N. Johnston,
Civil No. 14-1293 (JRT/TNL)
OPINION AND ORDER
JERRY C. MOYES and VICKIE L.
MOYES, individually and as Trustees of
The Jerry and Vickie Moyes Family Trust;
MOYES CHILDREN’S LIMITED
PARTNERSHIP; THE JERRY AND
VICKIE MOYES FAMILY TRUST; and
COOLIDGE 600 ACQUISITION CO.,
Gregory E. Karpenko, Joseph J. Cassioppi, and Ryan T. Murphy,
FREDRIKSON & BYRON, P.A., 200 South Sixth Street, Suite 4000,
Minneapolis, MN 55402, for plaintiffs.
Douglas L. Elsass and Lori A. Johnson, NILAN JOHNSON LEWIS P.A.,
120 South Sixth Street, Suite 400, Minneapolis MN 55402, for defendants.
This case arises from a Ponzi scheme whereby Corey Johnston under the name
First United Funding, LLC (“First United”) defrauded numerous banks. A Minnesota
district court appointed Plaintiffs Patrick Finn and Lighthouse Management Group, Inc.
as receiver (“Receiver”) for First United and Johnston. Receiver seeks to collect funds
on behalf of both the victim banks and First United from the alleged “primary [third-
party] beneficiaries” of Johnston’s Ponzi scheme: Defendants Jerry and Vickie Moyes
(the “Moyeses”), Moyes Children’s Limited Partnership (“MCLP”), The Jerry and Vickie
Moyes Family Trust (the “Moyes Family Trust”), 1 and Coolidge 600 Acquisition Co.,
LLC (“Acquisition”). Acquisition now moves to dismiss all claims against it for lack of
personal jurisdiction, and Receiver and Defendants separately move for partial summary
judgment. For the reasons set forth below, the Court will grant Acquisition’s motion to
dismiss. The Court will also grant in part and deny in part both sides’ motions for partial
First United is a Minnesota LLC previously operated by Johnston. (Declaration of
Patrick Finn in Supp. of Pls.’ Mot. for Partial Summ. J. (“Finn Decl.”) ¶ 5 & Exs. A-C,
June 17, 2016, Docket No. 151.) Johnston, a Minnesota resident, used First United as
part of a Ponzi scheme to defraud banks by, among other things, borrowing money from
new banks to pay old banks and lying about the security for the loan. (Id.); see also
Cmty. First Bank v. First United Funding, LLC, 822 N.W.2d 306, 308-09 (Minn. Ct.
App. 2012). After the fraudulent scheme collapsed, a Minnesota district court authorized
Receiver to enforce payment obligations owed to First United and investigate claims First
United may have against any third party. (Finn Decl., Ex. C at 22-21, 23.) Receiver’s
The Moyeses, MCLP, and the Moyes Family Trust are collectively referred to as the
authority includes both managing claims on behalf of First United’s creditors (the
“participant banks”), (Aff. of Lori A. Johnson in Supp. of Defs.’ Mot. for Partial Summ.
J. (“Johnson Aff.”), Ex. 1 at 10-12, June 17, 2016, Docket No. 149), and enforcing
payment obligations owed to First United, (Finn Decl., Ex. C at 21, 23).
The Moyes Parties
The Moyeses are a husband and wife who reside in Arizona. (Id. ¶ 2.) The
Moyeses are the trustees of the Moyes Family Trust, a trust formed under Arizona law
that holds assets and interests in companies. (Id. ¶ 3 & Ex. D.) MCLP is a limited
partnership formed under Arizona law and holds interests and assets on behalf of the
Moyeses’ children. (Id. ¶ 4.)
Acquisition is an Arizona LLC with two members: ninety-nine percent interestholder Carefree Capital Investments, LLC (“Carefree”) and one percent interest-holder
the Moyes Family Trust. (Aff. of Gerald F. Ehrlich (“Ehrlich Aff.”) ¶ 6 & Exs. A, C,
June 17, 2016, Docket No. 154.) Carefree is owned by the Moyes Family Trust and Jerry
Moyes. (Decl. of Patrick Finn in Opp. to Am. Mot. to Dismiss Acquisition (“Third Finn
Decl.”) ¶ 8 & Ex. F, July 22, 2016, Docket No. 171.)
Acquisition is taxed as a
partnership and, therefore, is a flow-through entity for income tax purposes. (Ehrlich
Aff. ¶¶ 6-7.) The parties agree Acquisition has no contacts with Minnesota and observes
technical corporate formalities.
UNDERLYING PONZI SCHEME AND EARLY LITIGATION
In 2002, First United and Johnston “sold loan participations to banks, promising
impressive returns.” Cmty. First Bank, 822 N.W.2d at 308. In fact, First United and
Johnston conducted “a fraudulent scheme by overselling loan participations.” Id. “First
United and Johnston sold participations to banks that had already been sold to other
banks and sold participations in nonexistent loans.” Id. at 309. First United and Johnston
paid early bank participants “with funds deposited by later participants, until the scheme
In August 2010, the U.S. Attorney’s Office indicted Johnston on charges related to
operating a Ponzi scheme involving “large commercial and personal loans.” (Finn Decl.,
Exs. E-F.) Johnston pled guilty the following month; as part of the plea, Johnston
admitted to “knowingly and intentionally” engaging in a scheme to defraud banks. (Id.,
Ex. F at 5-6.)
In September 2009, the participant banks commenced an action in state court,
asserting Johnston and First United collectively owed approximately $135 million in
unpaid principal, interest, and fees. Cmty. First Bank, 822 N.W.2d at 309. The state
court appointed Receiver “to recover and to liquidate assets to pay the participant banks’
outstanding claims.” Id. After extensive briefing, the state court approved use of the
“net-investment method” to calculate the participant banks’ damages. Id. at 309-10. This
method did not determine loss based on “the amount each bank was owed on the date that
the receiver was appointed” – the so-called “principal and interest method” – and,
instead, calculated damages based on “the amount a bank ha[d] invested, minus any
funds it ha[d] recovered.” Id. at 309. Thus, “[e]very dollar that First United had paid a
bank [was] subtracted from the bank’s principal investment.” Id.; (see also Second Aff.
of Lori Johnson in Supp. of Mot. for Partial Summ. J. (“Second Johnson Aff.”), Ex. 1 at
2-3, Aug. 12, 2016, Docket No. 188). The state court reasoned that applying the netinvestment method, as opposed to the principal and interest method, ensured participant
banks were not unjustly rewarded for “experienc[ing] ‘legitimate’ profits in the midst of a
pervasive fraud,” and the state court calculated the claim total at $91,193,042. (Second
Johnson Aff., Ex. 1 at 2-5.)
Similarly, at Johnston’s federal-criminal sentencing, the Court applied the same
damages calculation and concluded the government had “shown by a preponderance of
the evidence” that the banks were “due restitution in the amount of $91,193,042.” (Am.
Compl., Ex. G at 48, Feb. 24, 2016, Docket No. 93.) The Court found $91,193,042
would “make the [participant banks] whole,” “fully compensate [the participant banks]
for their losses,” and “restore [the participant banks] to their original state of well-being.”
(Id. at 47 (quoting United States v. Balentine, 569 F.3d 801, 806 (8th Cir. 2009)).) Since
that time, Receiver successfully collected more than $81 million on behalf of the
(Finn Decl. ¶ 6 (stating in June 2016 Receiver had distributed
$81 million to the participant banks); Aff. of Douglas L. Elsass in Supp. of Defs.’ Mot. to
Supp. the Record (“Second Elsass Aff.”), Nov. 3, 2016, Docket No. 195.) Through this
lawsuit, Receiver seeks to collect additional funds which Receiver alleges the Moyes
parties and Acquisition owe First United and the participant banks.
THE MOYES PARTIES’ ALLEGED DEALINGS WITH JOHNSTON AND
$642 Million In Loans from the Ponzi Scheme
In this lawsuit, Receiver alleges the Moyes parties were the primary beneficiaries
of Johnston and First United’s Ponzi scheme. (Finn Decl. ¶ 9.) Receiver asserts that
during the course of the Ponzi scheme, First United provided the Moyes parties over
$642 million in loans – more than ninety percent of the total loans First United issued.
(Id.) The Moyes parties needed the loans, in part, because they faced financial issues in
connection with their ownership of the Phoenix Coyotes hockey team. (Id., Ex. G at
Receiver claims the Moyes parties had actual knowledge of Johnston’s fraudulent
conduct and assisted Johnston and First United in defrauding the participant banks.
Receiver states the Moyeses aided and abetted Johnston by fraudulently over-pledging
loan collateral (id. at 86:3-26, 88:8-90:15; Decl. of Patrick Finn in Supp. of Pls.’ Opp. to
Defs.’ Mot. for Partial Summ. J. (“Second Finn Decl.”), Ex. A at 10:2-21, 14:6-15,
July 22, 2016, Docket No. 169; id., Ex. D at 9-10, id., Ex. E at 14-27; id., Exs. G-L),
obtaining loans from Johnston after learning of the Ponzi scheme (Second Finn Decl., Ex.
A at 9:12-10:1; id., Exs. M-N), and continuing to do business with Johnston after
realizing Johnston engaged in a kick-back scheme with the Moyeses’ employee Jim
Miller (Finn Decl., Ex. G at 99:11-100:11; id., Ex. I at 19-25).
Loans to Midtown
In addition to claiming the Moyes parties are culpable for the Ponzi scheme by
virtue of the loans they received from First United, Receiver alleges “[a]lmost all of the
remaining loans were made to persons that the Moyes [p]arties introduced to Johnston.”
(Finn Decl. ¶ 9.) According to Receiver, over the course of the Moyes parties’ dealings
with First United, the Moyeses convinced First United to issue loans to a financiallystruggling real estate project in Utah – Midtown Joint Venture, L.C. (“Midtown”). (Finn
Decl. ¶ 14; id., Ex. K at 92:16-93:6; id., Ex. L.) Receiver alleges (and the Moyes parties
dispute) that the Moyeses and the Moyes Family Trust guaranteed two of First United’s
loans to Midtown – the “MJV-FUF4” loan and the “MJV-FUF6” loan. 2
Receiver’s appointment, Midtown defaulted on its loans. 3 Receiver argues First United is
entitled to collect, but never collected, guarantees on these loans. (Id. ¶ 17.)
Coolidge, Acquisition, and Allegations of Fraudulent Transfer
Finally, Receiver argues the Moyeses and Miller improperly received
approximately $2.7 million that belonged to First United. At one point, Miller and the
Moyeses held interests in a development company known as Coolidge 600, LLC
(Finn Decl. ¶ 29.)
Receiver alleges First United loaned Coolidge
The MJV-FUF4 loan totaled $3,587,000 and the MJV-FUF6 loan totaled $4,378,943.
(Finn Decl. ¶ 18.)
The Moyeses assert that they had no knowledge the loans were in default because the
Moyeses were not the signatories to the loans and all loan proceeds went directly to Midtown.
(See Aff. of Douglas L. Elsass in Opp. to Pl.’s Mot. for Partial Summ. J. (“Elsass Aff.”), Ex. D,
July 22, 2016, Docket No. 173; Second Decl. of J. Kevin Burdette ¶ 3, July 22, 2016, Docket
approximately $2.2 million between November 20, 2003 and January 26, 2004. (Id.,
Exs. W-X.) In March 2004, the Moyeses learned Miller received illegal “kick-backs”
from Johnston related to Coolidge. (Id., Ex. I ¶¶ 20, 58-82.) The Moyeses filed a lawsuit
against Miller and, eventually, entered into a settlement agreement in April 2005. (Id.,
Exs. I, Z.) As part of the settlement, Miller agreed to transfer his interest in Coolidge to
the Moyes Family Trust. (Id., Ex. Z §§ 3.1, 3.8.; Third Finn Decl., Ex. E at 3.)
Coolidge later sold its assets and allegedly transferred sale proceeds in excess of
$8 million to Jerry Moyes in August 2005. (Finn Decl., Ex. AA; Second Finn Decl.,
According to Receiver, approximately $2.7 million of the sum transferred
belonged to First United because of First United’s previous loan to Coolidge. 4 (Finn
Decl., Exs. X, AA-BB.) Instead of transferring these sales proceeds to First United,
Receiver opines Coolidge improperly transferred the money to the Moyeses in violation
of Minnesota law. (Id.)
Arguing in the alternative, Receiver asserts that Coolidge’s records document that
Coolidge transferred First United’s loan to Acquisition and the Moyeses “booked that
transfer as a loan from First United to . . . Acquisition.” (Third Finn Decl. ¶ 13 & Ex. J.)
Receiver claims Acquisition failed to repay the original loan and, instead, paid the money
from the First United loan to Jerry Moyes. (Am. Compl. ¶¶ 270-79.) Receiver argues
neither Acquisition nor Jerry Moyes repaid their loan, (Third Finn Decl. ¶ 13), and thus
First United is entitled to damages for breach of a loan agreement.
Allegedly, First United’s original investment of approximately $2.2 million expanded to
approximately $2.7 million after interest and promised returns. (Finn Decl., Ex. X.)
The Moyeses point out that Receiver never located any loan documents to support
this claim. 5 The Moyeses further disagree with Receiver’s characterization of events,
alleging “the purpose of the transfer [from Acquisition to Jerry Moyes] was part of [the
April 2005] settlement agreement between [Jerry] Moyes and . . . Miller.” (Decl. of
Aaron Evans (“Evans Decl.”) ¶ 5, July 22, 2016, Docket No. 176.) Specifically, the
Moyeses allege the transfer from Acquisition to Jerry Moyes “was for a return on the
investor participation formerly held by Miller.” (Id.)
THE MOYES PARTIES’ DEALINGS WITH RECEIVER
The Moyes parties assert that after the state court appointed Receiver, their
representatives worked in good faith to identify known loans and determine the amounts
the Moyes parties borrowed from First United, ultimately agreeing to repayment terms.
(See Decl. of J. Kevin Burdette (“Burdette Decl.”) ¶¶ 2-4, June 17, 2016, Docket
No. 150.) On June 23, 2010, the Moyes parties signed a “Restructuring and Amended
and Restated Loan Agreement” (“Restructuring Agreement”) and, after four
forbearances, the Moyeses repaid the amounts specifically set forth in the Restructuring
Agreement – approximately $54 million between 2010 and August 2013. (Id. ¶ 3; Finn
Decl. ¶ 21 & Ex. N.)
As evidence of this loan, Receiver points to a balance sheet where the Moyeses’
accountant, Aaron Evans, referenced a “note payable to First United” for approximately
$2.2 million. (Decl. of Aaron Evans (“Evans Decl.”) ¶ 3, July 22, 2016, Docket No. 176; Finn
Decl., Ex. CC.) But Evans testified that, because of insufficient information, he designated the
loan in this way so he could leave it in “suspense” and later determine the nature of the entry.
(Evans Decl., Ex. A at 100:10-101:20, 102:12-103:13, 121:12-122:18.) Evans later attested the
money should have been listed as an equity distribution. (Id. ¶¶ 3-22.) Receiver asks the Court
to disregard Evans’s declaration.
At the time of the Restructuring Agreement’s execution, the parties agreed
insufficient evidence existed to show the Moyeses signed the MJV-FUF4 and MJV-FUF6
guarantees. (Finn Decl., Ex. N §§ 9(z), 18.) 6 The Restructuring Agreement provided that
if Receiver later discovered evidence that the Moyeses signed the MJV-FUF4 and MJVFUF6 guarantees, the Moyeses and the Moyes Family Trust would honor the guarantees
and repay the loans. (Id. § 9(z).) But the parties agreed to certain restrictions regarding
this obligation, requiring Receiver to “present to” the Moyeses “enforceable guarantees
executed by” the Moyeses in order to trigger the Moyes parties’ duty to honor the
In April 2014, Receiver filed this action against the Moyes parties after, allegedly,
discovering evidence the Moyeses were aware of and actively assisted First United and
Johnston’s fraudulent conduct. (Notice of Removal, Attach. 1, Apr. 25, 2014, Docket
During discovery, Receiver uncovered a guarantee of the MJV-FUF4 loan which
both Jerry and Vickie Moyes executed on July 20, 2007.
(Finn Decl., Exs. P-Q.)
Discovery also unearthed internal accounting records reporting that Jerry Moyes
guaranteed both MJV-FUF4 and MJV-FUF6 (id., Exs. R-S), and deposition testimony
from an unrelated trial where Jerry Moyes admitted to executing MJV-FUF6 (id., Ex. V).
Also, as stated above, Receiver obtained evidence during discovery indicating the
The Moyeses also asserted that, after the Ponzi scheme collapsed, many loan documents
could not be found because of Johnston’s haphazard recordkeeping. (Burdette Decl. ¶ 4.)
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Moyeses treated their receipt of the $2.7 million related to Coolidge as a loan from First
United to Acquisition.
(See Receiver’s Mem. in Supp. of Mot. to Amend Compl.,
Oct. 29, 2015, Docket No. 57 at 6-7.)
On October 29, 2015, Receiver moved to amend its Complaint in light of this
evidence in order to add Acquisition as a party and assert a breach of loan agreement
claims against Acquisition and the Moyeses.
(Receiver’s Mot. to Amend Compl.,
Oct. 29, 2015, Docket No. 55.) The Moyes parties opposed the motion, arguing the
Court lacked personal jurisdiction over Acquisition. (Defs.’ Mem. in Opp. to Receiver’s
Mot. to Amend Compl., Nov. 12, 2015, Docket No. 66.)
United States Magistrate Judge Tony N. Leung ultimately granted Receiver’s
motion. (Order, Feb. 19, 2016, Docket No. 84.) While the Magistrate Judge questioned
the Court’s jurisdiction over Acquisition, the Magistrate Judge concluded it was
inappropriate to decide issues of jurisdiction on a motion to amend. (Id. at 6-7.)
Receiver filed an Amended Complaint on February 24, 2016. As relevant to the
partial summary judgment motions, 7 Receiver asserts the following claims: Aiding and
Abetting Breach of Fiduciary Duty (Count 2); Avoidance of Fraudulent Transfers
pursuant to Minn. Stat. § 513.44(a)(1) (Count 3); Breach of MJV-FUF4 and MJV-FUF6
(Count 8); and Unjust Enrichment (Count 9). (Am. Compl. ¶¶ 218-37, 270-94.) The
Court finds Receiver alleges Counts 2-3 and 9 on behalf of the participant banks (id.
Neither party seeks summary judgment on Count 1 (Aiding and Abetting Fraud),
Counts 4-6 (Avoidance of Fraudulent Transfers), or Count 7 (Breach of Loan Agreement). (Am.
Compl. ¶¶ 212-17, 238-79.) The Court finds Receiver asserts Counts 1 and 4-5 on behalf of the
participant banks, (id. ¶¶ 217, 240-41, 251-52), and Count 6-7 on behalf of First United (id.
¶¶ 260-63; 276-278).
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¶¶ 225, 228-29, 289-91, 294), and Counts 8 on behalf of First United (id. ¶¶ 276-77,
After Receiver filed the Amended Complaint, Acquisition filed a motion to
dismiss for lack of personal jurisdiction. Around the same time, both sides filed crossmotions for partial summary judgment – Receiver on Counts 3 and 8, and Defendants on
Counts 2, part of 8, and 9. Defendants also request the Court find that Receiver is
precluded as a matter of law from re-litigating the issue of damages.
MOTION TO DISMISS – LACK OF PERSONAL JURISDICTION
Standard of Review
The Court must first address whether it may exercise personal jurisdiction over
When a party challenges personal jurisdiction under Fed. R. Civ. P.
12(b)(2), and where, as here, the parties have conducted discovery, Receiver has “the
burden of proving by a preponderance of the evidence the facts necessary to establish
personal jurisdiction over [Acquisition].” Safco Prods. Co. v. WelCom Prods., Inc., 730
F. Supp. 2d 959, 963 (D. Minn. 2010) (quoting Pieczenik v. Dyax Corp., 265 F.3d 1329,
1334 (Fed. Cir. 2001)). The Court must view all facts in the light most favorable to
Receiver and resolve all factual conflicts in Receiver’s favor. Janel Russell Designs, Inc.
v. Mendelson & Assocs., Inc., 114 F. Supp. 2d 856, 861 (D. Minn. 2000).
The Court can exercise personal jurisdiction over a nonresident defendant if
(1) Minnesota’s long-arm statute, Minn. Stat. § 543.19, is satisfied; and (2) the exercise
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of personal jurisdiction does not offend due process. See Stanton v. St. Jude Med., Inc.,
340 F.3d 690, 693 (8th Cir. 2003). Because Minnesota’s long-arm statute extends the
personal jurisdiction of Minnesota courts as far as due process allows, In re Minn.
Asbestos Litig., 552 N.W.2d 242, 246 (Minn. 1996), the Court need only evaluate
whether the exercise of personal jurisdiction comports with the requirements of due
process, Guinness Imp. Co. v. Mark VII Distribs., Inc., 153 F.3d 607, 614 (8th Cir. 1998).
Due process requires that Acquisition have “certain minimum contacts” with the
forum state “such that the maintenance of the suit does not offend ‘traditional notions of
fair play and substantial justice.’” Int’l Shoe Co. v. Washington, 326 U.S. 310, 316
(1945) (quoting Milliken v. Meyer, 311 U.S. 457, 463 (1940)). Sufficient minimum
contacts exist if Acquisition’s “conduct and connection with the forum State are such that
[it] should reasonably anticipate being haled into court there.” World-Wide Volkswagen
Corp. v. Woodson, 444 U.S. 286, 297 (1980).
There must be some act by which
Acquisition “purposefully avails itself of the privilege of conducting activities within the
forum State, thus invoking the benefits and protections of its laws.” Hanson v. Denckla,
357 U.S. 235, 253 (1958). But contacts that are merely random, fortuitous, attenuated, or
the result of “unilateral activity of another party or a third person” do not support
Burger King Corp. v. Rudzewicz, 471 U.S. 462, 474 (1985)
(quoting Helicopteros Nacionales de Colombia, S.A. v. Hall, 366 U.S. 408, 417 (1984)).
To determine whether Acquisition has sufficient contacts with the forum state, the
Court examines five factors: “(1) the nature and quality of contacts with the forum state;
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(2) the quantity of the contacts; (3) the relation of the cause of action to the contacts;[ 8]
(4) the interest of the forum state in providing a forum for its residents; and
(5) convenience of the parties.” Epps v. Stewart Info. Servs. Corp., 327 F.3d 642, 648
(8th Cir. 2003). Whether personal jurisdiction can be asserted over a corporation under an
alter-ego theory is a question of state law. See BioFuels Automation, Inc. v. Kiewit
Energy Co., No. 10-610, 2010 WL 3023391, at *2 (D. Minn. July 28, 2010).
Acquisition argues this Court lacks personal jurisdiction over it. Specifically,
though Carefree Capital Investments and the Moyes Family Trust own Acquisition, 9
Acquisition asserts it is not the alter ego of the Moyeses. Receiver responds that the
record shows Acquisition is the alter ego of the Moyeses, and therefore, the Court may
exercise personal jurisdiction over Acquisition.
In Minnesota, a foreign corporation may be subject to personal jurisdiction by
virtue of its subsidiary’s activities in the forum, but “the companies must be organized
and operated so that one corporation is an instrumentality or alter-ego of the other.”
The third factor distinguishes general and specific jurisdiction. Wessels, Arnold &
Henderson v. Nat’l Med. Waste, Inc., 65 F.3d 1427, 1432 & n.4 (8th Cir. 1995). General
jurisdiction is present when a defendant has “continuous and systematic” contacts with the forum
state and may be sued over any controversy, independent of whether the cause of action has a
relationship to the defendant’s activities. Helicopteros Nacionales, 466 U.S. at 416. Specific
jurisdiction refers to jurisdiction over causes of action arising from or related to the defendant’s
actions within the forum state. Burger King, 471 U.S. at 472-73.
Under general principles of alter-ego liability, “an ownership interest in the entity is not
dispositive. Veil piercing is an equitable remedy, and courts are to consider ‘reality and not
form’ in determining a party’s involvement in a corporate enterprise.” Equity Tr. Co. Custodian
ex rel. Eisenmenger IRA v. Cole, 766 N.W.2d 334, 339 (Minn. Ct. App. 2009) (quoting Hoyt
Props., Inc. v. Prod. Res. Grp., LLC, 736 N.W.2d 313, 318 (Minn. 2007)).
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Zimmerman v. Am. Inter-Ins. Exch., 386 N.W.2d 825, 828 (Minn. Ct. App. 1986); see
also JL Schwieters Constr., Inc. v. Goldridge Constr., Inc., 788 N.W.2d 529, 535-36
(Minn. Ct. App. 2010). To assess “whether to pierce the corporate veil in order to
exercise personal jurisdiction over a foreign corporation,” Minnesota courts consider the
alter-ego factors set forth in Victoria Elevator Co. v. Meriden Grain Co., 283 N.W.2d
509, 512 (Minn. 1979). 10 Hunter-Keith, Inc. v. Gen. Elec. Credit Corp., No. 4-84-804,
1987 WL 8592, at *5 n.8 (D. Minn. Apr. 1, 1987). Jurisdictions other than Minnesota
have held a court may exercise personal jurisdiction over an individual out-of-state
shareholder – as opposed to an out-of-state parent corporation – whose dominance and
control establishes that a company with ties to the forum-state is simply the shareholder’s
alter ego. E.g., Lakota Girl Scout Council, Inc., v. Harvey Fund-Raising Mgm’t Inc., 519
F.2d 634, 636-38 (8th Cir. 1975). But see Stratasys, Inc. v. ProtoPulsion, Inc., No. 102257, 2011 WL 2750720, at *8 (Minn. Ct. App. July 18, 2011) (noting Minnesota courts
have not yet adopted the practice of exercising personal jurisdiction over an individual
shareholder based on an alter-ego theory).
And, more importantly, the Minnesota
Supreme Court has not addressed whether personal jurisdiction can be established based
The Victoria Elevator factors include
insufficient capitalization for purposes of corporate undertaking, failure to
observe corporate formalities, nonpayment of dividends, insolvency of debtor
corporation at time of transaction in question, siphoning of funds by dominant
shareholder, nonfunctioning of other officers and directors, absence of corporate
records, and existence of corporation as merely facade for individual dealings.
283 N.W.2d at 512.
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on an alter-ego theory in the reverse – over an out-of-state corporation based on an
individual shareholder’s in-state contacts. 11
Assuming without deciding that the Court can have personal jurisdiction over an
out-of-state corporation by virtue of an individual shareholder’s in-state contacts, the
Court must assess whether Acquisition subjected itself to jurisdiction in Minnesota by
virtue of the Moyeses’ in-state activities. See Scott v. Mego Int’l, Inc., 519 F. Supp.
1118, 1125-26 (D. Minn. 1981). Receiver argues that under the Victoria Elevator factors,
Acquisition is the Moyeses’ alter ego because: (1) Acquisition is a mere instrumentality
used to hold the Moyeses’ money; (2) Acquisition is insufficiently capitalized;
The Court questions whether, as a general matter, alter-ego liability can occur under
this approach. The Amended Complaint seeks to hold Acquisition liable for the Moyeses’
failure to repay First United because Acquisition is the Moyeses’ alter ego. (See Am. Compl.
¶¶ 192-93, 275-78.) This type of veil piercing is generally known as “outside reverse piercing.”
Lawrence Leasing, Inc. v. Northwoods Pallets, LLC, No. 15-0360, 2016 WL 1081126, at *3
(Minn. Ct. App. Mar. 21, 2016) (quoting Postal Instant Press, Inc. v. Kaswa Corp.,
77 Cal. Rptr. 3d 96, 101 (Cal. Ct. App. 2008)).
In March 2016, the Minnesota Court of Appeals held in Lawrence Leasing that
Minnesota – unlike California and Georgia – “has not adopted outside reverse piercing.” Id.
(citing Postal Instant Press, 77 Cal. Rptr. 3d at 101; Acree v. McMahan, 585 S.E.2d 873, 882
(Ga. 2003)). In Lawrence Leasing, the district court applied outside reverse piercing and held
two companies, Northwoods and NWP, liable for a majority shareholder’s debts. Id. at *1-2.
Northwoods and NWP appealed, arguing the district court abused its discretion when it pierced
the corporate veil. Id. at *2. The Minnesota Court of Appeals agreed that Northwoods and NWP
could not be held liable for the majority shareholder’s debts under an alter ego theory of liability.
Id. at *3.
Similarly, in this case, Receiver seeks to hold Acquisition liable for the Moyeses’ debt,
arguing Acquisition is the alter ego of the Moyeses. (Am. Compl. ¶¶ 192-93, 275-78). Under
the Minnesota Court of Appeals’ Lawrence Leasing decision, veil piercing in this instance would
be impermissible. But “[t]his Court is not bound to follow the opinion of the Minnesota Court of
Appeals.” Nelson Distrib., Inc. v. Stewart-Warner Indus. Balancers, 808 F. Supp. 684, 687
(D. Minn. 1992). Because neither party addressed the issue of outside reverse piercing and
Receiver failed to establish personal jurisdiction under the traditional approach, the Court
declines to determine whether the Minnesota Supreme Court would agree with Lawrence
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(3) Acquisition has taken no actions since 2005 and simply holds a loan for the Moyeses;
and (4) failure to pierce the corporate veil would result in injustice and fundamental
unfairness to Receiver.
But, even if the Victoria Elevator factors show a corporation is an alter ego for
liability purposes, there must also be an allegation of sufficient minimum contacts to give
rise to personal jurisdiction. See Hunter-Keith, Inc., 1987 WL 8592, at *5-6 & n.8
(noting the Victoria Elevator factors are part of the inquiry but also analyzing the actions
the foreign entity took in Minnesota while acting through the alter-ego entity); see also
QA1 Precision Prods., Inc. v. Impro Indus. USA, Inc., No. 04-23, 2005 WL 1862324, at
*4 (D. Minn. Aug. 4, 2005) (holding personal jurisdiction under Minnesota law requires
the Court to “analyze whether the corporation [with in-state contacts] functioned as an
instrumentality of the principals a party is attempting to reach by piercing the corporate
veil”); JL Schwieters Constr., Inc., 788 N.W.2d at 535-36 (noting the importance of the
out-of-state company exerting substantial control over the LLC with in-state contacts and
finding the out-of-state company “us[ed] the LLC as a conduit for its own business”).
Thus, exercising personal jurisdiction is only appropriate if the out-of-state party
“so controlled and dominated the affairs of the [party with in-state contacts] that the
latter’s corporate existence was disregarded so as to cause the [party with in-state
contacts] to act as the [out-of-state party]’s alter ego.” Epps, 327 F.3d at 649; see also
Lakota Girl Scout Council, 519 F.2d at 637 (“Long-arm derivative jurisdiction over a
foreign parent corporation has been found where the [out-of-state party] so controlled and
dominated the activities of its resident subsidiary that the latter’s separate corporate
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existence was in effect disregarded.”); JL Schwieters Constr., Inc., 788 N.W.2d at 536
(“[T]he evidence was overwhelming that [the parent company] dominated and controlled
the business and treated it as his [or her] own.” (quoting Lakota Girl Scout Council, 519
F.2d at 638)).
Here, Receiver does not, and cannot, allege that Acquisition – the out-of-state
company – so controlled and dominated the in-state activities of the Moyeses such that
the Moyeses were acting as Acquisition’s alter ego. See Lakota Girl Scout Council, 519
F.2d at 637. Specifically, there are no allegations that the Moyeses acted on behalf of
Acquisition in their business dealings with Johnston or First United such that the Court
can impute the Moyeses’ in-state contacts to Acquisition.
Instead, Receiver sets forth numerous allegations that the Moyeses dominated and
controlled the actions of Acquisition. But only one of Acquisition’s actions directed by
the Moyeses related, in any way, to Minnesota: Coolidge allegedly transferred proceeds
from a loan it received from First United – the Minnesota contact – to Acquisition and
Acquisition, at the behest of the Moyeses, transferred the First United loan proceeds to
the Moyeses. (Am. Compl. ¶¶ 192, 272-74.) To the extent this transaction related to
Minnesota, the Court finds this contact is too attenuated to confer personal jurisdiction.
See Burger King, 471 U.S. at 474. Acquisition did not subject itself to jurisdiction in
Minnesota by virtue of the Moyeses’ in-state activities, by acting as an instrumentality of
the Moyeses in their business dealings with First United, or through its own Minnesota
contacts. See JL Schwieters Constr., Inc., 788 N.W.2d at 535-36; QA1 Precision Prods.,
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Inc., 2005 WL 1862324, at *4. Thus, Receiver failed to show the Court should disregard
Acquisition’s corporate form and exercise personal jurisdiction.
For this reason, the Court finds it lacks personal jurisdiction over Acquisition and
will grant Acquisition’s motion to dismiss for lack of personal jurisdiction.
Standard of Review
Summary judgment is appropriate when there are no genuine issues of material
fact and the moving party can demonstrate it is entitled to judgment as a matter of law.
Fed. R. Civ. P. 56(a). A fact is material if it might affect the outcome of the lawsuit, and
a dispute is genuine if the evidence is such that it could lead a reasonable jury to return a
verdict for either party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A
court considering a motion for summary judgment must view the facts in the light most
favorable to the non-moving party and give that party the benefit of all reasonable
inferences to be drawn from those facts. Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 587-88 (1986). Summary judgment is appropriate if the nonmoving
party “fails to make a showing sufficient to establish the existence of an element essential
to that party’s case, and on which that party will bear the burden of proof at trial.”
Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). “To defeat a motion for summary
judgment, a party may not rest upon allegations, but must produce probative evidence
sufficient to demonstrate a genuine issue [of material fact] for trial.” Davenport v. Univ.
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of Ark. Bd. of Trs., 553 F.3d 1110, 1113 (8th Cir. 2009) (citing Anderson, 477 U.S. at 24749).
Count 2 (Aiding and Abetting Breach of Fiduciary Duty)
The Moyes parties first move for summary judgment on Receiver’s Aiding and
Abetting Breach of Fiduciary Duty Claim. To prove its claim, Receiver must show:
“(1) [First United] . . . commit[ed] a tort that cause[d] an injury to [the participant banks];
(2) the defendant[s] [knew] that [First United’s] conduct constitute[d] a breach of duty;
and (3) the defendant[s] . . . substantially assist[ed] or encourage[d] [First United] in the
achievement of the breach.” Witzman v. Lehrman, Lehrman & Flom, 601 N.W.2d 179,
187 (Minn. 1999). Receiver must also show a fiduciary duty existed between First
United and the participant banks. See Varga v. U.S. Bank Nat’l Ass’n, 952 F. Supp. 2d
850, 855 (D. Minn. 2013) (“It is axiomatic that liability for aiding and abetting a breach
of fiduciary duty cannot exist without an underlying breach of that duty.”).
The Moyes parties argue Receiver failed to raise a genuine issue of material fact
regarding the existence of a fiduciary relationship between Johnston/First United and the
participant banks. To support their claim, the Moyes parties cite a series of cases where
courts held banks who participate in loans together do not owe each other fiduciary duties
absent unequivocal contract language. See, e.g., First Citizens Fed. Sav. & Loan Ass’n v.
Worthen Bank & Tr. Co., 919 F.2d 510, 514 (9th Cir. 1990); Aaron Ferer & Sons Ltd. v.
Chase Manhattan Bank, 731 F.2d 112, 122 (2d Cir. 1984); Nat’l Minority Supplier Dev.
Council Bus. Consortium Fund Inc. v. Hessian & McKasy, P.A., No. 04-1670, 2005 WL
- 20 -
3526587, at *6-7 (D. Minn. Dec. 22, 2005) (applying Minnesota law). These courts
reasoned that “[i]n the context of loan participation agreements among sophisticated
lending institutions, . . . fiduciary relationships should not be inferred . . . . [because]
[b]anks and savings institutions engaged in commercial transactions normally deal with
one another at arm’s length and not as fiduciaries.” First Citizens, 919 F.2d at 514.
Receiver responds noting that, under Minnesota law, “agents” owe fiduciary duties
to their principals. See, e.g., Witt v. John Blomquist, Inc., 81 N.W.2d 265, 266 (Minn.
Receiver highlights that First United’s standard participation agreement
authorized First United “to generally act as agent for all Participants.” (Second Finn
Decl., Ex. U § 2.2 (emphasis added).) Accordingly, Receiver argues a fact issue remains
regarding the existence of a fiduciary relationship and, as such, the Court should deny the
Moyes parties’ motion for summary judgment.
The existence of a fiduciary relationship is generally a question of fact. Minn.
Timber Producers Ass’ns v. Am. Mut. Ins. Co. of Bos., 766 F.2d 1261, 1268 (8th Cir.
But “[t]he court is not precluded . . . from resolving the issue on summary
judgment if the undisputed facts establish that no fiduciary duty exists.” H Enters. Int’l,
Inc. v. Gen. Elec. Capital Corp., 833 F. Supp. 1405, 1422 (D. Minn. 1993).
In National Minority, a court in this district addressed the question of whether a
fiduciary relationship exists under Minnesota law between two sophisticated commercial
lending institutions absent express contractual language to the contrary.
3526587, at *6-7. There, a lead bank (Windsor) entered into a participation agreement
with a participant bank (BCF) to extend loans to a third-party borrower. Id. at *1. Under
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the terms of the participation agreement, Windsor agreed “to act as trustee of the Loan
Documents on behalf of the BCF and as the agent in collection of the Participation
Interest of the BCF in the Loan.”
Id. (emphasis added).
The borrower ultimately
engaged in an embezzlement scam and a series of lawsuits ensued. Id. at *1-2. BCF
filed a complaint alleging breach of fiduciary duty against Windsor under the
participation agreement. Id. at *4. Windsor moved for summary judgment, arguing that,
even though Windsor was called an “agent” in the participation agreement, Windsor did
not owe a fiduciary duty to BCF because “in the context of loan participation agreements
among sophisticated lending institutions, fiduciary relationships should not be inferred
absent unequivocal contractual language.” Id. at *6 (citing First Citizens, 919 F.2d at
514). The Court agreed, finding that
nothing in the Agreement indicated that Windsor owed a fiduciary duty to
BCF. The fact that the Agreement indicate[d] that [Windsor was] to ‘act as
trustee of the Loan Documents on behalf of the BCF and as the agent in
collection of the Participation Interest of the BCF in the Loan’ d[id] not
create a fiduciary duty.
The Court’s holding in National Minority is consistent with Eighth Circuit
precedent applying the law of other jurisdictions.
See, e.g., BancorpSouth Bank v.
Hazelwood Logistics Ctr., LLC, 706 F.3d 888, 895 n.3 (8th Cir. 2013) (noting in a case
applying Missouri law that even though the Court was comparing “the participation
agreement to a business trust for purposes of jurisdiction, [the Court] in no way impl[ied]
the agreement created a fiduciary relationship between the bank and the participants”);
Nw. Bank & Tr. Co. v. First Ill. Nat’l Bank, 354 F.3d 721, 727 (8th Cir. 2003) (“[W]e
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believe that the district court correctly discerned that . . . the Iowa Supreme Court would
not recognize the existence of a fiduciary relationship between two sophisticated
commercial lending institutions absent express contractual language to the contrary.”);
see also LNV Corp. v. Outsource Serv. Mgmt., LLC, No. 13-1926, 2014 WL 5106866, at
*11 (D. Minn. Oct. 10, 2014) (applying New York law and finding “[b]anks who
participate in loans together are not fiduciaries, but act at arm’s length . . . . Any fiduciary
duties between banks participating in a loan must be created by ‘unequivocal language’
in the Participation Agreement” (quoting 330 Acquisition Co. v. Regency Sav. Bank, 306
A.D.2d 154, 155 (N.Y. App. Div. 2003))).
In light of the precedent in National Minority, coupled with similar cases arising
from the Eighth Circuit, the Court finds that while an “agent” generally owes a fiduciary
duty under Minnesota law, the Minnesota Supreme Court would not recognize the
existence of a fiduciary relationship between two sophisticated commercial lending
institutions absent express contractual language to the contrary. See 2005 WL 3526587,
at *6-7. The parties do not dispute that while the participation agreement between First
United and the participant banks outlined a limited duty of care and called First United an
“agent,” the participation agreement does not explicitly discuss fiduciary duties between
First United and the participant banks. 12 (Second Finn Decl., Ex. U §§ 2.2 (relationship
The Minnesota Court of Appeals previously concluded First United acted as an agent
on behalf of nonresident banks for the purpose of personal jurisdiction. See Finn v. Walworth
State Bank, No. 11-2334 et al., 2013 WL 6389521, at *12 (Minn. Ct. App. Dec. 9, 2013). But
the existence of an agency relationship for the purpose of personal jurisdiction does not, itself,
imply the creation of a fiduciary relationship. See BancorpSouth Bank, 706 F.3d at 895 n.3.
- 23 -
of the parties), 5.3 (duty of care)); see also First Citizens, 919 F.2d at 514 (holding no
fiduciary duty existed where the agreement obligated the lead bank to administer the loan
with the same degree of care that the lead bank would exercise in servicing the loan on its
Therefore, there is no genuine issue of material fact regarding the
existence of a fiduciary relationship and the Court will grant the Moyes parties’ motion
for summary judgment on Count 2.
Count 3 (Avoidance of Fraudulent Transfers)
Receiver first moves for summary judgment on its Avoidance of Fraudulent
Transfer claim pursuant to Minn. Stat. § 513.44(a)(1) (2014). 13 Under section 513.44(a),
[a] transfer made or obligation incurred by a debtor is fraudulent as to a
creditor, whether the creditor’s claim arose before or after the transfer was
made or the obligation was incurred, if the debtor made the transfer or
incurred the obligation . . . with actual intent to hinder, delay, or defraud
any creditor of the debtor[.]
“Because the intent to defraud creditors is rarely susceptible of direct proof, courts
continue to rely on ‘badges of fraud’ to determine whether a transfer is fraudulent.”
Citizens State Bank Norwood Young Am. v. Brown, 849 N.W.2d 55, 60 (Minn. 2014). In
general, the existence of fraudulent intent is a question of fact, but, on summary judgment
a district court may decide the question as a matter of law “when no genuine issue of
material fact exists.” Id. at 65.
The Minnesota Legislature amended the Minnesota Uniform Transfer Act in 2015,
renaming it the Uniform Voidable Transactions Act. 2015 Minn. Sess. Law Serv., ch. 17 (West)
(to be codified at Minn. Stat. §§ 513.41-.51). But the modifications only apply to “a transfer
made or an obligation incurred on or after August 1, 2015.” Id. § 13. The transactions at issue,
therefore, fall under the previous version of the statute. (See Am. Compl. ¶ 227.)
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To assess whether a genuine issue of material fact exists with respect to fraudulent
intent, the Court may consider, “among other factors,” whether: (1) the transfer was to an
insider; (2) the debtor retained control of the property transferred after the transfer;
(3) the transfer was disclosed; (4) before the transfer was made the debtor was sued or
threatened with suit; (5) the transfer was of substantially all of the debtor’s assets; (6) the
debtor absconded; (7) the debtor removed or concealed assets; (8) the value of the
consideration the debtor received was reasonably equivalent to the value of the assets
transferred; (9) the debtor was insolvent or became insolvent shortly after the transfer
occurred; (10) the transfer occurred shortly before or shortly after a substantial debt was
incurred; and (11) the debtor transferred the essential assets of the business to a lienor
who transferred the assets to an insider of the debtor. Minn. Stat. § 513.44(b)(1)-(11).
“The presence of several badges of fraud . . . creates an inference of fraud that requires
clear evidence of a legitimate purpose to rebut.” Citizens State Bank, 849 N.W.2d at 66.
Receiver argues no genuine issues of material fact remain related to its fraudulent
transfer claim. Receiver asserts the record shows Coolidge transferred to Jerry Moyes
$2,711,577 in funds that belonged to First United. (Finn Decl., Exs. X, BB.) As such,
according to Receiver, the funds were improperly transferred to Jerry Moyes instead of
First United with the intent to defraud the participant banks. (See id., Exs. AA-BB.) In
addition, Receiver indicates that the following badges of fraud prove, as a matter of law,
that the transfer was made with actual intent to defraud the participant banks:
(1) Johnston’s admission that in 2005 – the time the $2,711,557 transfer was made – he
was “knowingly and intentionally” engaging in a scheme “to defraud and to obtain funds
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from federally insured banks” (id., Ex. F); 14 (2) First United’s (or Coolidge’s) insolvency
at the time of the transfer (id. ¶ 41 & Ex. GG at 4-9); (3) the existence of a lawsuit
between the Moyeses and Miller around the time of the transfer (id., Exs. I, Z); (4) the
failure of Coolidge or the Moyeses to disclose the $2,711,557 transfer to First United’s
creditors (id. ¶ 42); (5) Jerry Moyes’s failure to provide value to First United in exchange
for the transfer; (6) the fact that the Moyeses were “insiders” of Coolidge (id. ¶ 29); and
(7) certain admissions made during the course of this litigation related to the $2,711,557
transaction and Johnston’s fraudulent conduct (Answer to Am. Compl. ¶ 27, Mar. 7,
2016, Docket No. 112; Decl. of Patrick Finn in Supp. of Receiver’s Reply (“Fourth Finn
Decl.”), Ex. B at 5, Aug. 12, 2016, Docket No. 184; Finn Decl., Ex. AA).
Receiver asserts Johnston’s admissions as part of his plea are “direct proof” of
fraudulent intent regarding the transfer from Coolidge to Jerry Moyes. As Defendants point out,
however, any fraudulent transfer that occurred was an “indirect transfer” because Coolidge – a
company in which the Moyeses and Miller had an interest – made the transaction to Jerry Moyes
and not First United. Thus, the Court must determine whether the record shows no genuine issue
of material fact that the transaction between Coolidge and Jerry Moyes was committed with
actual fraud. For this reason, while Johnston’s admissions at the plea hearing may be evidence
of an actual intent to defraud the participant banks, the admission is not dispositive.
Along the same line, Defendants argue that because the relevant transaction occurred
between Coolidge and Jerry Moyes, Receiver lacks standing to assert a fraudulent transfer claim.
But, interpreting the Uniform Fraudulent Transfer Act, the Eighth Circuit has held “[a]n indirect
transfer occurs when the debtor surrenders an asset or interest to a third party for the ultimate
benefit of the alleged transferee.” Kaler v. Craig (In re Craig), 144 F.3d 587, 592 (8th Cir.
1998). Here, Receiver alleges the debtor (Johnston/First United) loaned money to a third party
(Coolidge) for the ultimate benefit of the transferee (the Moyeses). Thus, in light of the broad
interpretation of the word “transfer” under the Uniform Fraudulent Transfer Act, Receiver has
standing to bring the claim. (Finn Decl., Ex. C at 23 (authorizing Receiver to “pursue any and all
claims that First United or Receiver may have against any third party”).)
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The Moyes parties rebut Receiver’s evidence of badges of fraud, noting: (1) the
Moyeses had little involvement with Coolidge (Evans Decl. ¶ 6); 15 (2) the transfer from
Coolidge to the Moyeses occurred under the direction of a now-deceased project manager
(Aff. of Douglas L. Elsass in Opp. to Pl.’s Mot. for Partial Summ. J. (“Elsass Aff.”),
Ex. G at 17:16-18, 66:14-22, July 22, 2016, Docket No. 173; id., Ex. G at PF86429
(“Grant Lane (deceased)”)); (3) Coolidge made the $2,711,557 transfer to the Moyeses as
part of the Moyeses’ settlement with Miller – evidencing the money was not an asset of
Receiver makes several arguments that the Court should disregard Aaron Evans’s
Declaration. First, Receiver argues Evans has no basis to provide testimony regarding Coolidge
because Evans was not involved in Coolidge’s accounting or taxes and Evans is not an expert.
Reviewing the declaration, to the extent the Moyes parties attempt to use Evans’s declaration as
a rebuttal expert opinion, the Court gives little weight to Evans’s opinions. That being said,
Evans has some personal knowledge regarding Coolidge as it relates to the transactions between
Coolidge and the Moyeses – Evans was, after all, the Moyeses accountant and tax preparer.
(Evans Decl. ¶ 2.) Thus, there is no reason for the Court to disregard Evans’s statements about
Coolidge that are based on Evans’s personal knowledge.
Receiver next argues the Court should disregard Evans’s declaration because it is
premised on the Moyeses’ receipt of two transfers from Coolidge, not three. Receiver correctly
points out that Jerry Moyes admitted three transfers occurred on August 25, 2005. (See Fourth
Finn Decl., Ex. B at 5.) It is also true Evans’s declaration only speaks to the two transactions.
But, as stated above, the Court may consider the facts based on Evans’s personal knowledge.
Finally, Receiver argues Evans’s declaration is a “sham affidavit” and should be
disregarded in its entirety. Specifically, Receiver asserts Evans’s declaration is a “sham”
because it contradicts his prior deposition testimony that he “did not know” anything about the
transfer. See, e.g., City of St. Joseph v. Sw. Bell Tel., 439 F.3d 468, 476 (8th Cir. 2006). Evans
did repeatedly answer questions regarding the $2,711,557 transfer in his deposition by stating “I
don’t know.” (Evans Decl., Ex. A at 98:12-17, 100:10-18, 111:13-112:20; 119:13-22.) But, as
stated in Evans’s declaration, after Receiver provided Evans certain documents regarding the
$2,711,557 transfer, Evans provided explicit testimony regarding his recollection of the transfer.
(Evans Decl. ¶ 7 & Ex. A at 110:8-120:14.) Thus, while Evans’s declaration provided additional
information not discussed during the deposition, the declaration is not directly contradictory and,
instead, clarifies his prior testimony. Ladd v. Mohawk Carpet Distribution, L.P., No. 08-6470,
2010 WL 2541651, at *4 (D. Minn. Apr. 1, 2010), adopted by No. 08-6470, 2010 WL 2540702
(D. Minn. June 17, 2010) (“If the ensuing affidavit is not directly contradictory, or if it only
restates or clarifies prior testimony, then it is properly part of the record on summary
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First United (Evans Decl. ¶¶ 3-22; Finn Decl., Ex. Z § 3.1); and (4) Coolidge was solvent
when it made the $2,711,557 transfer (Evans Decl. ¶¶ 23-25; Elsass Aff., Ex. J).
Ultimately, Receiver does produce evidence to support the presence of certain
badges of fraud. Unlike Citizens State Bank, however, the record does not “establish”
these badges of fraud amount to conclusive evidence of fraudulent intent as a matter of
law. 849 N.W.2d at 62-63. Arguably, Receiver has established Coolidge and First
United were insolvent in August 2005. (See Finn Decl., Ex. GG (unrebutted expert report
regarding solvency of Coolidge).) But issues of fact remain regarding the Moyeses’
involvement with Coolidge (compare Finn Decl. ¶ 29, with Evans Decl. ¶ 6), and whether
the transfer involved First United’s money, thereby requiring disclosure to creditors or
value to be paid to First United (Evans Decl. ¶¶ 3-22; Finn Decl., Ex. Z § 3.1).
Further, even if Receiver established certain badges of fraud as a matter of law,
summary judgment is improper if the Moyes parties set forth evidence of a legitimate
purpose. Citizens State Bank, 849 N.W.2d at 66. Here, the Moyes parties presented
evidence the $2,711,557 transfer was part of the settlement agreement between Miller
and the Moyeses. (Finn Decl., Ex. Z § 3.1.) According to the Moyes parties, the
$2,711,557 transfer was a return on the ownership interest formerly held by Miller and
held by Jerry Moyes on the day of the transfer. (Evans Decl. ¶ 5.) Thus, a fact issue
remains regarding whether the $2,711,557 transfer occurred because of a legitimate
purpose or actual fraud.
For these reasons, the Court will deny Receiver’s motion for summary judgment
on Count 3.
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Count 8 (Breach of the MJV-FUF4 and MJV-FUF6 Guarantees)
Receiver next seeks summary judgment on its claim against the Moyeses and the
Moyes Family Trust for breach of the MJV-FUF4 and MJV-FUF6 guarantees. The
Moyes parties contest the motion and cross-move for summary judgment in their favor on
the MJV-FUF6 guarantee.
In an action for breach of contract, including a guarantee, the elements of a
successful claim are:
(a) the formation of the contract; (b) performance by plaintiff of any
conditions precedent to his right to demand performance by defendant; and
(c) a breach of the contract by defendant. These elements of the cause of
action are the fundamental propositions which plaintiff must prove in order
to establish a right of recovery.
Briggs Transp. Co. v. Ranzenberger, 217 N.W.2d 198, 200 (Minn. 1974). As relevant to
the claims underlying the MJV-FUF4 and MJV-FUF6 guarantees, the Restructuring
Agreement provides “[i]f enforceable guarant[ees] executed by [the Moyeses and the
Moyes Family Trust] of any of the loans made by First United to Midtown . . . commonly
referred to as loans MJV-FUF4 [and] MJV-FUF6 . . . are presented to [the Moyeses and
Moyes Family Trust], [the Moyeses and Moyes Family Trust] shall honor such
guarant[ees].” (Finn Decl., Ex. N § 9(z) (emphasis added).)
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Receiver argues it is entitled to summary judgment on its claim regarding breach
of the MJV-FUF6 guarantee. Receiver bases its argument, primarily, 16 on extrinsic
evidence that the Moyeses signed the MJV-FUF6 guarantee. The Moyes parties contest
Receiver’s motion for summary judgment and cross-move for summary judgment
regarding the MJV-FUF6 guarantee.
The Moyes parties argue section 9(z) in the
Restructuring Agreement governs the enforceability of the MJV-FUF6 guarantee and,
because the record plainly shows the conditions of section 9(z) are not met, the Moyes
parties are entitled to summary judgment.
The viability of the MJV-FUF6 claim rests on whether the Restructuring
Agreement governs the enforceability of the guarantee. The Moyes parties allegedly
signed the MJV-FUF6 guarantee on September 28, 2007. (Id. ¶ 18.) In June 2010, after
Johnston’s Ponzi scheme collapsed, the Moyeses and the Moyes Family Trust signed the
Restructuring Agreement to restructure their indebtedness to First United arising out of
the Midtown loans. (Id., Ex. N.) Part of the “benefits from the restructuring of [the
Moyeses’ loans], include[ed], without limitation . . . [that] litigation that would result in
Receiver also argues the terms of MJV-FUF4 include the MJV-FUF6 guarantee and,
therefore, the Moyes parties are required to guarantee repayment under MJV-FUF6. The MJVFUF4 guarantee is a standard form guarantee First United used for all its guarantees with the
Moyeses. The terms of the MJV-FUF4 guarantee provide that the agreement guaranteed “full
and prompt payment when due” of “each and every other of the obligations in connection with
the Loan or sum now or hereafter owing under any agreement now or hereafter entered into
between Lender and Borrower in connection with the Loan or the Property encumbered
therein.” (Fourth Finn Decl., Ex. A at 44697 (emphasis added).) But, for the reasons stated
below, the terms of the Restructuring Agreement govern the MJV-FUF4 guarantee. Thus, the
inclusive language in the MJV-FUF4 guarantee does not relieve Receiver of the requirement to
present an executed copy of the MJV-FUF6 guarantee.
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foreclosure and collection on” the Moyeses’ existing First United loans would be
“prevented.” (Id., Ex. N § T.)
The parties included in the Restructuring Agreement a section regarding loans,
including MJV-FUF6, for which some evidence indicated the Moyeses had guaranteed
the loans, but executed copies of the guarantee agreements could not be found. (Id. ¶ 18
& Ex. N § 9(z).) As stated above, the Restructuring Agreement provides that “[i]f [an]
enforceable guarantee executed by [the Moyeses and the Moyes Family Trust] of . . .
loan MJV-FUF6 . . . [is] presented to [the Moyeses and the Moyes Family Trust]” then
the guarantee will be honored. (Id., Ex. N § 9(z) (emphasis added).)
Receiver now seeks summary judgment on the MJV-FUF6 loan, acknowledging
that it cannot locate the guarantee. Instead, Receiver argues it is not bound by the terms
in section 9(z) and can, instead, seek all legal remedies under the terms of the original
To support its assertion, Receiver cites section 14 of the Restructuring
Agreement, which states: “The remedies herein and in any other instrument, document
or agreement delivered or to be delivered to [Receiver] hereunder or in connection
herewith are cumulative and not exclusive of any remedies provided by law.” (Id. § 14
(emphasis added); see also id. § 28 (“The Borrower acknowledges and agrees that this
Agreement does not constitute waiver of any right of [Receiver] to insist on strict
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compliance by [the Moyeses and the Moyes Family Trust] with each and every term,
condition and covenant of the Loan Documents.” 17).)
But Receiver’s interpretation is contrary to the plain terms of the Restructuring
Agreement. Part of the consideration Receiver provided to enter into the Restructuring
Agreement was to “prevent” “litigation that would result in . . . collection.” (Id., Ex. N
§ T.) Further, the Restructuring Agreement has no meaning if it does not modify terms
that conflict with the existing loans. (See id. § 18 (“[T]his Agreement supersedes all
prior agreements and understandings relating to the subject matter hereof . . . .”
(emphasis added)).) Thus, while the language of the Restructuring Agreement may not
limit the remedies available to Receiver, it does limit the circumstances in which
Receiver can show breach of the MJV-FUF6 guarantee. Specifically, Receiver can only
show breach of the guarantee if it first “presented” an “executed” and “enforceable”
guarantee. (Id. § 9(z).)
Receiver argues that, even if the terms of the Restructuring Agreement control, the
record proves execution of an agreement. To support this claim, Receiver points to the
following evidence: (1) Jerry Moyes’s testimony that he signed and delivered the MJVFUF6 guarantee (id., Ex. V); (2) the Moyeses’ internal records showing Jerry Moyes
guaranteed the MJV-FUF6 loan (id., Exs. R-T); and (3) the general practice between First
United and the Moyeses regarding the Midtown loans (id. ¶ 14 & Ex. L).
The term “Loan Documents” in the Restructuring Agreement is a defined term that
may not include MJV-FUF4 and MJV-FUF6, (see Finn Decl., Ex. N, §§ K, O, 7(c)), but, in any
case, provides context for the intention of the parties when signing the Restructuring Agreement.
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A fact issue may very well exist regarding whether Jerry Moyes signed the MJFFUF6 guarantee. But section 9(z) of the Restructuring Agreement requires more than just
execution. Section 9(z) also mandates that Receiver “present” an executed copy of the
MJF-FUF6 guarantee to the Moyeses and the Moyes Family Trust. (Id., Ex. N § 9(z).)
Under general principles of contract law, “presentment” requires “[t]he formal
production of a negotiable instrument . . . for payment.” Presentment, Black’s Law
Dictionary (10th ed. 2014) (emphasis added). While section 9(z) does not provide a
specific means for presentment, the Restructuring Agreement plainly requires Receiver to
produce an executed copy of the MJV-FUF6 guarantee to the Moyeses and the Moyes
Family Trust. Nothing in the record shows that any kind of presentment of an executed
copy of the MJV-FUF6 guarantee. In fact, Receiver admits discovery did not produce an
executed copy of the MJV-FUF6 guarantee for Receiver to present. For this reason, the
Court will deny Receiver’s motion for summary judgment and grant the Moyes parties’
motion for summary judgment on Count 8 as it relates to MJV-FUF6.
Receiver also asserts it is entitled to summary judgment on its claim alleging the
Moyeses and the Moyes Family Trust breached the MJV-FUF4 guarantee. Receiver
argues no genuine issues of material fact remain regarding this claim.
The Moyes parties contest Receiver’s motion and argue Receiver is not entitled to
summary judgment because the record does not show Receiver “presented” an
“enforceable guarantee executed by” the Moyeses and the Moyes Family Trust.
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Instead, the Moyes parties assert the first time Receiver demanded payment under the
MJV-FUF4 guarantee was in Receiver’s summary judgment memorandum. 18 Receiver
responds that it made clear demands for payment when it filed its claim for breach of the
MJV-FUF4 guarantee in this lawsuit and also when a lawyer handed Jerry Moyes a copy
of the executed MJV-FUF4 guarantee during his deposition, (see Decl. of Ellen Penrod
(“Penrod Decl.”) ¶ 4, July 22, 2016, Docket No. 175 (indicating presentment occurred on
the date of Jerry Moyes’s deposition)).
As articulated above, section 9(z) of the Restructuring Agreement requires
Receiver to “present” an executed copy of the MJV-FUF4 guarantee to the Moyeses and
the Moyes Family Trust.
But section 9(z) does not provide a specific method of
presentment or require presentment to occur prior to Receiver filing a lawsuit. See 22
Samuel Williston & Richard A. Lord, A Treatise on the Law of Contracts § 60:64 (4th ed.
While Receiver did not present the MJV-FUF4 guarantee prior to litigation,
Receiver certainly made a demand for payment by filing the lawsuit (see Notice of
Removal, Attach. 1; Fourth Finn Decl. ¶ 1 & Ex. A), and the Moyes parties concede
Receiver provided Jerry Moyes a copy of the MJV-FUF4 guarantee at his deposition,
(Penrod Decl. ¶ 4 (indicating a “presentment date” of September 23, 2015 – the date of
Jerry Moyes’s deposition). Thus, the record establishes Receiver complied with the
Defendants also argue a fact issue remains on the enforceability of the MJV-FUF4
guarantee because the MJV-FUF4 guarantee in the record is not signed by the other guarantors.
But Receiver presents evidence that Defendants’ own files contain executed MJV-FUF4
contracts signed by all of the guarantors. (See Fourth Finn Decl. ¶ 1 & Ex. A at 44701, 44706.)
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terms of section 9(z) to require payment from the Moyes parties under the MJV-FUF4
guarantee. To interpret the Restructuring Agreement to permit the Moyes parties to avoid
their obligation because the lawsuit was filed prior to Receiver presenting an executed
copy of the MJV-FUF4 guarantee is inconsistent with the overall purpose of the
Restructuring Agreement and section 9(z) in particular.
Receiver satisfied the terms of section 9(z) and, therefore, the Court must analyze
whether Receiver is entitled to summary judgment for breach of the MJV-FUF4. The
record shows: (1) the Moyeses and the Moyes Family Trust executed the MJV-FUF4
guarantee (Finn Decl., Ex. P); (2) First United made the loan guaranteed by the MJVFUF4 to Midtown (id. ¶ 18); (3) Midtown failed to pay the principal balance on the loan
or any accrued interest (id. ¶ 38); (4) the Moyeses and the Moyes Family Trust are
obligated for Midtown’s failure to pay under the terms of the guarantee (id., Ex. K at
84:4-15 (Burdette testimony that MJV-FUF4 is enforceable); id., Ex. N § 9(z)
(Restructuring Agreement regarding MJV-FUF4); id., Ex. P (MJV-FUF4 guarantee));
and (5) the Moyeses’ and the Moyes Family Trust’s failure to pay under the terms of the
guarantee damaged First United. Thus, no fact issue remains regarding the Moyeses’ and
the Moyes Family Trust’s liability for breach of the MJV-FUF4 guarantee.
For these reasons, the Court will grant Receiver’s motion for summary judgment
regarding Count 8 alleging breach of the MJV-FUF4 guarantee. 19
Questions of fact remain over the calculation of the amount owed under the terms of the
Restructuring Agreement and MJV-FUF4. (Compare Finn Decl., Ex. DD, with Penrod Decl.,
Ex. A.) The Court, therefore, grants summary judgment only with respect to breach of the MJVFUF4.
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Count 9 (Unjust Enrichment)
The Court must next assess whether the Moyes parties are entitled to summary
judgment on Receiver’s unjust enrichment claim. The Moyes parties argue Receiver’s
unjust enrichment claim fails because, under Minnesota law, an unjust enrichment claim
“is not available where there is an adequate legal remedy or where statutory standards for
recovery are set by the legislature.” United States v. Bame, 721 F.3d 1025, 1030 (8th Cir.
2013) (quoting Southtown Plumbing, Inc. v. Har-Ned Lumber Co., 493 N.W.2d 137, 140
(Minn. Ct. App. 1992)). Receiver asserts its claim does not fail as a matter of law
because it is entitled to pursue unjust enrichment as an alternative claim until Receiver
succeeds on one or more of its related legal and statutory claims.
In Bame, the Eighth Circuit extensively discussed Minnesota law on this issue in
dicta. 721 F.3d at 1029-32. In that case, the government admitted it pled adequate legal
remedies along with a claim of unjust enrichment. Id. at 1030-31. The government
argued the body of caselaw stating “unjust enrichment recovery may not be had where a
party has an adequate legal remedy” did not restrain the government from “pleading and
pursuing unjust enrichment and the adequate legal remedies simultaneously.” Id. at
1031. The government asserted “a party is only precluded from recovering under a
theory of unjust enrichment if it failed to pursue the existing adequate legal remedy at
law.” Id. The Eighth Circuit noted that “some district courts [have been] unwilling to
dismiss an unjust enrichment claim at the pleading stage despite the existence of an
adequate legal remedy, because the federal rules allow for the pleading of claims in the
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alternative.” Id. (citing United States v. R.J. Zavoral & Sons, Inc., 894 F. Supp. 2d 1118,
1127 (D. Minn. 2012); Marty H. Segelbaum, Inc. v. MW Capital, LLC, 673 F. Supp. 2d
875, 880 (D. Minn. 2009)). But the Eighth Circuit questioned whether the same principle
should apply at the summary judgment stage, when “the issue . . . is not one of pleading.”
Id. The Eighth Circuit went on to state that “despite courts’ occasional emphasis of the
failure to pursue a legal remedy, it is the existence of an adequate legal remedy that
precludes unjust enrichment recovery.” Id. (emphasis added). Thus, concluded the
Eighth Circuit, “[d]istrict courts routinely dismiss unjust enrichment claims where the
plaintiff pleaded and pursued both equitable and legal claims simultaneously, as well as
where the plaintiff failed to pursue adequate legal remedies.” Id. (citing In re Viagra
Prods. Liab. Litig., 658 F. Supp. 2d 950, 968-69 (D. Minn. 2009)).
Similarly, here, Receiver argues it is entitled to continue to pursue its unjust
enrichment claim – past the pleading stage – in spite of its admission that adequate legal
remedies exist. Specifically, Receiver argues the Moyes parties were unjustly enriched
by the $2,711,557 Coolidge transfer and the Moyes parties’ breach of the MJV-FUF4 and
MJV-FUF6 guarantees. To recover from these alleged injuries, Receiver brought a
statutory claim pursuant to Minn. Stat. § 513.44(a)(1) to recover the loss from the
Coolidge transfer (Am. Compl. ¶¶ 226-37) and a breach of contract claim regarding the
MJV-FUF4 and MJV-FUF6 guarantees (id. ¶¶ 280-86). Thus, at this stage, Receiver’s
unjust enrichment claim is “merely duplicative” of its legal claims. See Select Comfort
Corp. v. Baxter, 156 F. Supp. 3d 971, 994 (D. Minn. 2016) (granting summary judgment
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because adequate legal remedy existed); Damon v. Groteboer, 937 F. Supp. 2d 1048,
1085-86 (D. Minn. 2013) (same).
Receiver asserts the duplicative nature of the claims is irrelevant because the
Moyes parties contest the legal claims. Thus, according to Receiver, it is entitled to
continue to pursue unjust enrichment as an alternative remedy until Receiver recovers on
its legal claims. But the Eighth Circuit recently weighed in on the theory, holding that
even though a plaintiff does not prevail on a legal claim, an unjust enrichment award
could not survive because “an adequate legal remedy was available.” Ventura v. Kyle,
825 F.3d 876, 887 n.10 (8th Cir. 2016) (emphasis added). Thus, even if Receiver does not
prevail on its legal claims regarding the Coolidge transfer and the MJV-FUF4 and MJVFUF6 guarantees, Receiver would still not be entitled to unjust enrichment damages
because legal remedies are available to Receiver. See id.
Therefore, the Court will grant Defendant’s motion for summary judgment on
Finally, the Moyes parties argue the Court should find, as a matter of law, that
Receiver is precluded from re-litigating the issue of damages because a state court
already approved a damages calculation for the participant banks’ claims and entered
judgment. The Moyes parties argue the doctrine of collateral estoppel – also known as
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issue preclusion – bars Receiver from recovering damages over approximately
$9 million. 20
In Minnesota, a court appropriately applies collateral estoppel where:
(1) the issue was identical to one in a prior adjudication; (2) there was a
final judgment on the merits; (3) the estopped party was a party or in privity
with a party to the prior adjudication; and (4) the estopped party was given
a full and fair opportunity to be heard on the adjudicated issue.
Willems v. Comm’r of Pub. Safety, 333 N.W.2d 619, 621 (Minn. 1983) (quoting Victory
Highway Vill., Inc. v. Weaver, 480 F. Supp. 71, 74 (D. Minn. 1979)). Here, the only
contested element of collateral estoppel is whether the issue of damages presented to the
state court was “identical” to the issue of damages in this case. Receiver’s response to
the Moyes parties’ collateral estoppel argument differs depending on the entity whose
interest – that of the participant banks or First United – Receiver seeks to promote
through a given claim. 21
The $9 million calculation derives from damages judgment issued by the Dakota
County District Court in the amount of approximately $91 million, less the amount Receiver
recovered for the participant banks (to date more than $81 million), for an amount owing on the
original damages judgment of $9 million. (See Johnson Aff., Ex. 1 at 12, id., Ex. 4 at 9, id.,
Ex. 9 at 406; Second Elsass Aff., Ex A.)
Receiver concedes it brought Counts 1 and 2 solely on behalf of the participant banks.
But Receiver contests that it brought Counts 3 through 5 solely on behalf of the participant
banks. Receiver’s argument belies the plain language of the Complaint. (See Am. Compl.
¶¶ 228-29 (Count 3 stating First United and Johnston fraudulently transferred money to damage
First United’s and Johnston’s creditors); id. ¶¶ 240-41 (same for Count 4); id. ¶¶ 251-52 (same
for Count 5).) Receiver also contests that the unjust enrichment claim (Count 9) was brought
solely on behalf of the participant banks, but the Amended Complaint plainly states that
“Receiver is entitled to recover damages for the Victim Participants” and makes no claim
regarding First United. (See id. ¶ 294 (emphasis added).) Thus, the Court finds Receiver
brought Counts 1-5 and Count 9 solely on behalf of the participant banks.
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With respect to claims where Receiver seeks damages on behalf of the participant
banks, Receiver first argues damages for “aiding and abetting” are not the same as
damages for the underlying Ponzi scheme. Receiver contends that, under Minnesota law,
damages are available for aiding and abetting fraud to the extent necessary to “fully
compensate the victims.” See Popp Telecom v. Am. Sharecom, Inc., 210 F.3d 928, 936
(8th Cir. 2000). But aiding and abetting claims “are contingent on a finding” that the
primary actor committed a tort.
Rucki v. Grazzini, No. 09-0694 et al., 2010 WL
1286725, at *7 (Minn. Ct. App. Apr. 6, 2010); see also Taccino v. Allegany Cty., No. 092921, 2010 WL 3191161, at *5 (D. Md. Aug 11, 2010). Consequently, any damages that
resulted from the Moyes parties’ aiding and abetting Johnston and First United were
“coextensive with the damages caused by” Johnston and First United. See Borchers v.
DBL Liquidating Tr. (In re Drexel Burnham Lambert Grp., Inc.), 161 B.R. 902, 910
(S.D.N.Y. 1993); Brewer & Pritchard, P.C. v. AMKO Res. Int’l, LLC, No. 14-13-113,
2014 WL 3512836, at *4 n.6 (Tex. App. July 15, 2014). Receiver cannot show, as a
matter of law, that the Moyes parties’ conduct injured the participant banks more than the
participant banks were injured as a result of the underlying Ponzi scheme. Thus, the state
court’s damages calculation for the underlying Ponzi scheme “fully compensate[d] these
victim[s]” for their loss. (See Am. Compl., Ex. G at 47.)
Receiver’s second argument with respect to damages on behalf of the participant
banks is that the proper measure of damages is the outstanding principal owed, without
any offsets based on interest payments received prior to the collapse of the scheme. To
support this claim, Receiver cites American Bank of St. Paul v. TD Bank, N.A., No. 09- 40 -
2240, 2012 WL 729877, at *2 (D. Minn. 2012), where the Court used this method of
calculating damages in a case regarding aiding and abetting a Ponzi scheme.
What Receiver neglects to explain about American Bank is that no prior court
order set forth a conflicting measure of damages for the same victim banks. See id. In
contrast, the state court fully litigated the issue of how damages should be calculated for
the participant banks damaged by this Ponzi scheme. See Cmty. First Bank, 822 N.W.2d
at 311-13. After extensive briefing – where Receiver argued for the net-investment
method – the state court approved the use of the net-investment method to calculate the
participant banks’ damages. Thus, instead of determining loss based on “the amount
each bank was owed on the date that the receiver was appointed,” 22 the state court found
damages would be calculated by “the amount a bank ha[d] invested, minus any funds it
ha[d] recovered.” Id. at 309. Consequently, said the state court, “[e]very dollar that First
United had paid a bank [was] subtracted from the bank’s principal investment.” Id.
Accordingly, the state court took the $133,924,747 in claims submitted by the participant
banks, (Second Finn Decl. ¶ 18), subtracted “[e]very dollar that First United had paid”
the participant banks, Cmty. First Bank, 822 N.W.2d at 309, and found the participant
banks were damaged in the amount of $91,193,042 as a result of the Ponzi scheme,
(Second Johnson Aff., Ex. 1 at 3). In calculating the damages in this way, the state court
ensured no participant banks were rewarded by making “‘legitimate’ profits in the midst
of a pervasive fraud.” (Id., Ex. 1 at 5.) Therefore, because the state court already
This is the calculation Receiver now asks the Court to apply.
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decided to use the net-investment method to calculate the participant banks’ damages, the
Court declines to apply a conflicting measure of damages.
Finally, Receiver asserts the Court should not limit damages regarding the claims
asserted on behalf of the participant banks because this is a “jury question.” But it is well
established that the federal courts give “full faith and credit to state court judgments,
giving them the same preclusive effect in federal court as they would have in state court.”
Gopher Oil Co. v. Bunker, 84 F.3d 1047, 1051-52 (8th Cir. 1996). Here, the state court
assessed the amount of damages and determined the distribution of the damages for the
participant banks. All Receiver’s claims regarding calculation of the participant banks’
damages, therefore, directly relate to the state court’s decision about how to allocate
damages under the net-investment method. (See Johnson Aff., Ex. 1 at 12 (noting that, at
the time of briefing to the Minnesota Court of Appeals, Receiver had distributed to the
participant banks only $31 million of the $91 million damages award)); Cmty. First Bank,
822 N.W.2d at 309 (discussing net-investment method).
Therefore, the record plainly shows that the issue of damages calculated in the
state court is “identical” to the damages issue in this case with respect to the participant
banks. For this reason, the Court finds that Receiver is precluded as a matter of law from
litigating the issue of damages as to the participant banks.
Receiver separately argues that its claims brought on behalf of First United are not
governed by the state court’s order. To support its claim, Receiver notes that the state
court order only decided the participant banks’ damages, (Johnson Aff.., Ex. 1 at 12
(noting the final order and judgment related to “claims against First United and
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Johnston” (emphasis added))), and that, as a Receiver, it is entitled to “initiate any legal
proceeding deemed necessary to enforce . . . [a] payment obligation, including but not
limited to, collection proceedings including on any guarantees,” (Finn Decl., Ex. C at 21).
The Moyes parties’ only response to Receiver’s argument is that the Amended Complaint
states that it was filed “to recover funds to compensate . . . the victims of Johnston’s
Ponzi scheme.” (Am. Compl. ¶ 9.) But a plain reading of the Amended Complaint
highlights that certain claims were brought on behalf of First United – not the participant
banks. (See id ¶¶ 260-263, 276-77, 286.)
Because the state court order did not pertain to the damages of First United, (see
Johnson Aff., Ex. 1 at 12), the question of damages available for Receiver’s claims
brought on behalf of First United is not barred by the doctrine of collateral estoppel. For
this reason, the Court will deny the Moyes parties’ motion asking the Court to find that
Receiver is precluded as a matter of law from litigating the issue of damages as to claims
brought specifically on behalf of First United.
This case will be placed on the Court’s next available trial calendar.
Based on the foregoing, and all the files, records, and proceedings herein, IT IS
HEREBY ORDERED that:
Coolidge 600 Acquisition Co., LLC’s Motion to Dismiss [Docket No. 128]
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Receiver’s Motion for Partial Summary Judgment [Docket No. 144] is
GRANTED in part and DENIED in part as follows:
The motion is GRANTED as to the MJV-FUF4 guarantee in
Count 8, but DENIED as to the MJV-FUF6 in Count 8;
The motion is DENIED in all other respects.
Defendants’ Motion for Partial Summary Judgment [Docket No. 147] is
GRANTED in part and DENIED in part:
The motion is GRANTED as to:
aiding and abetting breach of fiduciary duty in Count 2;
the MJV-FUF6 guarantee in Count 8;
the unjust enrichment claim in Count 9;
collateral estoppel barring relitigation of damages for Counts
1-5 and 9;
The motion is DENIED as to collateral estoppel barring litigation of
damages for Counts 6-8.
DATED: March 30, 2017
at Minneapolis, Minnesota.
JOHN R. TUNHEIM
United States District Court
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