Federal Trade Commission v. CWB Services, LLC et al

Filing 423

ORDER denying Receiver's 231 Motion for Turnover of Property of the Receivership Estate Transferred to Wyandotte Nation/eData Solutions Inc. Signed on 10/4/16 by District Judge Dean Whipple. (Francis, Alexandra)

IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF MISSOURI
WESTERN DIVISION
FEDERAL TRADE COMMISSION,
Plaintiff,
v.
CWB SERVICES, LLC, et al.,
Defendants.

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No. 14-00783-CV-W-DW

ORDER
Before the Court is the Receiver’s Motion for Turnover of Property of the Receivership
Estate Transferred to Wyandotte Nation / eData Solutions Inc. (Doc. 231) (the “turnover
motion”). The Receiver moves for an order directing Wyandotte Nation to return $11,825,819.31
transferred by FRH LLC; Incrementum Group LLC; Anasazi Group LLC; Namakan Capital
LLC; Sandpoint Capital LLC; and Basseterre Capital LLC (collectively, the “Receivership
Defendants”) to Wyandotte Nation between July 2012 and August 2014. The Receiver also seeks
a judgment against Wyandotte Nation for the same amount. Wyandotte Nation is not a party to
the underlying action, and has filed a Response (Doc. 256) and Suggestions (Doc. 257) in
opposition to the turnover motion. Non-party eData Solutions, Inc. has also filed a Response
(Doc. 258) and Suggestions (Doc. 259) in opposition to the turnover motion. The Receiver has in
turn filed Reply Suggestions (Doc. 292) in support of the turnover motion. Upon consideration,
the turnover motion will be denied.
The Receiver alleges that the $11.8 million transferred by the Receivership Defendants to
Wyandotte Nation represents “proceeds of an illegal consumer payday lending scheme.” Thus,

the Receiver asks the Court to exercise its “broad equitable powers [] to direct the return of
proceeds of the underlying fraud” under two alternative theories.
In the first theory, the Receiver asserts the funds should be held in a constructive trust for
the benefit of the consumers defrauded by the payday lending scheme. The Receiver states that
the Court has the authority to direct the return of such funds “from a non-party regardless of
whether that non-party committed any wrong doing, simply by showing the non-party has been
unjustly enriched.” According to the Receiver, the $11.8 million received by Wyandotte Nation
constitutes proceeds of the fraudulent consumer lending activity of the named Defendants in this
action, and as a result, Wyandotte Nation has no legitimate right to said proceeds.
The second theory posits that where a non-party received proceeds of an underlying fraud
for less than reasonable equivalent value, the Court may order the return of the funds under the
applicable fraudulent transfer statutes, such as the Missouri Uniform Fraudulent Transfer Act,
MO. REV. STAT. §§ 428.024. See Fleming Cos., Inc. v. Rich, 978 F. Supp. 1281, 1296 (Mo. App.
1997). In this matter, according to the Receiver, Wyandotte Nation failed to give reasonably
equivalent value to the Receivership Defendants in exchange for the $11.8 million received.
The parties agree that Wyandotte Nation is a federally-recognized Indian Tribe. See 25
U.S.C. § 861. Thus, the Receiver anticipates in the turnover motion that Wyandotte Nation might
assert the defense of sovereign immunity. The Receiver states that the turnover motion “is
brought by the Receiver appointed by the Court in this action brought by the Federal Trade
Commission under the Federal Trade Commission Act.” The Receiver then argues that the
Federal Trade Commission Act (“FTC Act”) is “a general Act of Congress and a federal statute
of general applicability as to which tribal sovereignty does not apply.” See e.g., FTC v AMC
Servs., Inc., No. 2:12-CV-00536-GMN, 2014 WL 910302 (D. Nev. Mar. 7, 2014).

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As anticipated, Wyandotte Nation does assert in its opposition that the turnover motion is
barred by sovereign immunity. Specifically, Wyandotte Nation argues the FTC Act is not a
statute of general applicability, but even if it is, it does not abrogate the Nation’s sovereign
immunity. In addition, Wyandotte Nation argues that the Receiver is not the Federal Trade
Commission (“FTC”) and therefore “did not succeed to, nor is he cloaked with, any authority the
FTC may have under the [FTC Act].”
I. Constructive Trust
Under the first theory, the Receiver asks the Court to establish a constructive trust over
the $11.8 million ultimately transferred by the Receivership Defendants to Wyandotte Nation.
However, it matters not whether the FTC Act is a statute of general applicability, or whether
Wyandotte Nation is entitled to sovereign immunity as to the FTC Act, because the Court finds
that the Receiver’s own pleadings demonstrate that such relief is inappropriate.
Federal courts may order equitable relief as to a person against whom no wrongdoing is
alleged in an enforcement action “if it is established that the relief defendant possesses property
or profits illegally obtained and the relief defendant has no legitimate claim to them.” FTC v.
Think Achievement Corp., 144 F.Supp.2d 1013, 1020 (N.D. Ind. 2000) (citations omitted,
emphasis added). A relief defendant can establish a legitimate claim to property by
demonstrating that it provided some services as consideration for the property. FTC v. Bronson
Partners, LLC, 674 F.Supp.2d 373, 392 (D. Conn. 2009); FTC v. Direct Marketing Concepts,
Inc., 569 F.Supp.2d 285, 312 (D. Mass. 2008); FTC v. Transnet Wireless Corp., 506 F.Supp.2d
1247, 1273 (S.D. Fla. 2007), U.S. Commodity Futures Trading Comm’n v. Schiera, No.
CV052660, 2006 WL 4586786 at *6 (S.D. Cal. Dec. 11, 2006).

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Here, the turnover motion itself asserts that Wyandotte Nation provided a broad variety
of legitimate services to the Receivership Defendants in support of the lending activities,
including “providing customer/borrower leads, qualifying the leads, providing a loan
management software system, and buying defaulted consumer loans to sell to third party
collectors.” (Doc. 231 at *3-4). Said services were provided as consideration for the monies at
issue, and no wrongdoing by Wyandotte Nation is alleged. Although the Receiver makes the
conclusory assertion that “Wyandotte Nation have no legitimate claim to these proceeds”, the
turnover motion’s own assertions establish the contrary, that Wyandotte Nation does indeed have
a legitimate claim to the monies. Accordingly, the Court cannot grant the relief requested under
the first theory.
II. Fraudulent Transfer Statutes
The Receiver advances a second theory pursuant to the applicable fraudulent transfer
statutes. The Receiver argues that “[u]nder fraudulent transfer statutes, a transfer is set aside
when it is made with actual intent to hinder, delay, or defraud any creditor, or is made for less
than reasonable equivalent value in exchange for the transfer.” See MO. REV. STAT. §§ 428.024;
Fleming Cos., Inc. v. Rich, 978 F. Supp. 1281, 1299 (Mo. App. 1997). As to this state law claim,
Wyandotte Nation is entitled to sovereign immunity.
It is well-established that “Indian tribes possess the common-law immunity from suit
traditionally enjoyed by sovereign powers.” United States v. Red Lake Band of Chippewa
Indians, 827 F.2d 380, 383 (8th Cir. 1987). As a matter of federal law, an Indian tribe is subject
to suit only “where Congress has authorized the suit or the tribe has waived its immunity.”
Kiowa Tribe of Oklahoma v. Mfg. Techs., Inc., 523 U.S. 751, 754 (1998) (involving state law
suit on promissory note) (citations omitted). Regarding Congressional authorization to bring suit,

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the Supreme Court has stated that “general acts of Congress apply to Indians as well as to all
others in the absence of a clear expression to the contrary.” E.E.O.C. v. Fond du Lac Heavy
Equip. and Constr. Co., 986 F.2d 246, 248 (8th Cir. 1993) (citing Fed. Power Comm’n v.
Tuscarora Indian Nation, 362 U.S. 99, 120 (1960). Tribal sovereign immunity is a threshold
jurisdictional question. Amerind Risk Mgmt. v. Malaterre, 633 F.3d 680, 684 (8th Cir. 2011).
Whether the FTC Act is a statute of general applicability or not makes no difference
under the Receiver’s second theory, as this claim presents a collateral action pursuant to state
law, not federal law, against Wyandotte Nation. The Nation has clearly not waived its sovereign
immunity as to this claim regarding Wyandotte Nation’s commercial activities off Indian lands.
Nor does the Court find explicit congressional abrogation of sovereign immunity from such a
state law action. See Kiowa, 523 U.S. at 754. As a result, the Receiver’s second basis for relief is
barred by Wyandotte Nation’s tribal sovereign immunity from suit.
III. Conclusion
Based on the foregoing, it is ORDERED that The Motion for Turnover of Property of the
Receivership Estate Transferred to Wyandotte Nation/eData Solutions Inc. (Doc. 231) is
DENIED.
SO ORDERED.

Date: October 4, 2016

/s/ Dean Whipple
Dean Whipple
United States District Judge

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