McNamara v. Katten Muchin Rosenman LLP
ORDER granting in part and denying in part 127 motion for summary judgment; granting in part and denying in part 137 motion for partial summary judgment; denying 141 motion for summary judgment. Signed on 7/19/19 by District Judge Stephen R. Bough. (Diefenbach, Tracy)
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
THOMAS W. MCNAMARA, as the CourtAppointed Receiver for SSM Group, LLC;
CMG Group, LLC; Hydra Financial Limited
Fund I; Hydra Financial Limited Fund II; Hydra
Financial Limited Fund III; Hydra Financial
Limited Fund IV; River Elk Services, LLC;
OSL Marketing, Inc., a/k/a OSL Group, Inc.;
and related subsidiaries and affiliates,
KATTEN MUCHIN ROSENMAN LLP
Case No. 4:16-cv-01203-SRB
Before the Court is Katten Muchin Rosenman LLP’s Motion for Summary Judgment
(Doc. #141), Katten Muchin Rosenman LLP’s Motion for Partial Summary Judgment (Doc.
#137), and Plaintiff’s Motion for Summary Judgment on Defendant’s Affirmative Defense Nos.
1 and 10 (Doc. #127).
For the following reasons, Katten Muchin Rosenman LLP’s Motion for Summary
Judgment (Doc. #141) is DENIED, Katten Muchin Rosenman LLP’s Motion for Partial
Summary Judgment (Doc. #137) is GRANTED IN PART and DENIED IN PART, and
Plaintiff’s Motion for Summary Judgment on Defendant’s Affirmative Defenses Nos. 1 and 10
(Doc. #127) is GRANTED IN PART and DENIED IN PART.
Richard Moseley Sr. (“Moseley”) was the owner and operator of a payday lending
operation that issued and serviced small, short-term loans, known as “payday loans,” through the
internet to customers across the United States. The operation consisted of lending, marketing,
and customer service entities. The lending entities were “shell corporations” incorporated under
Nevis law until December 2011. In January 2012, new lending entities were incorporated under
New Zealand law. The lending entities had no physical locations, operations, or employees
overseas. The customer service and marketing entities were incorporated under Missouri law
and physically located in Kansas City, Missouri. The customer service entities employed U.S.based employees who processed and serviced loans and handled all other aspects of the payday
lending operation. Correspondence sent to the overseas entities was collected by an overseas
registered agent and forwarded back to the Kansas City-based offices. Until the spring of 2011,
OSL Marketing, based in Kansas City, was used for loan servicing and processing.
Subsequently, River Elk Services, also based in Kansas City, was formed to perform those tasks.
The payday lending operation generally functioned as follows. Potential borrowers
would submit their personal information to a third-party website for loan consideration. A
company called eData used the potential borrowers’ information to create a loan packet,
including a pre-filled loan agreement, and sent it electronically to the potential borrowers and to
one of Moseley’s companies. Then a customer service representative would call the potential
borrowers to confirm whether they wanted the loan. The representative would either speak
directly with the potential borrowers or leave a voicemail. Even if the representative did not
speak directly with a potential borrower, the representative would approve the loan. Once the
representative approved a loan, the loan would be sent to a third-party processer, at which point
the loan would be funded and deposited in the borrower’s bank account.
On June 27, 2018, Moseley was convicted in the United States District Court for the
Southern District of New York and judgment was entered against him on 6 counts related to his
payday lending operation: Count 1, conspiracy to collect unlawful debts in violation of the
Racketeer Influenced and Corrupt Organizations Act (“RICO”);1 Count 2, collection of unlawful
debts in violation of RICO;2 Count 3, conspiracy to commit wire fraud;3 Count 4, wire fraud;4
Count 5, aggravated identity theft;5 and Count 6, False TILA (“Truth in Lending Act”)
disclosures.6 The Court determined that for the time period of 2008–2013, the payday lending
operation generated gross profits of $69,623,528.10. The Court entered a money judgment
Count 1 charged Moseley with participating in a conspiracy to violate the substantive RICO statute from at least in
or about 2004 up to and including in or about September 2014. Count 1 required the jury to find that a payday
lending operation existed, that the operation engaged in or its activities affected interstate or foreign commerce, that
Moseley was employed by or associated with the enterprise, and that Moseley knowingly and willfully agreed with
at least one other person that either he or a coconspirator would participate, either directly or indirectly, in the
conduct of the affairs of the enterprise through the collection of unlawful debt (a debt that is unenforceable because
it carries an illegally high interest rate). (Doc. #160-1, pp. 2296–2307).
Count 2 charged Moseley with the substantive violation of RICO. Count 2 required the jury to find that a payday
lending operation existed, that the operation affected interstate commerce, that Moseley was associated with or
employed by the operation, that Moseley engaged in the collection of an unlawful debt, and that Moseley willfully
and knowingly conducted or participated in the conduct of the affairs of the operation through the collection of
unlawful debt. Under Count 2, the jury could also have found Moseley guilty if it found that another person
committed the crime and that Moseley aided and abetted that person in the commission of the offense. (Doc. #1601, pp. 2307–12).
Count 3 charged that Moseley participated in a conspiracy from at least in or about 2007 through in or about
September 2014 to violate the federal statute that makes it unlawful to commit wire fraud by issuing loans to
consumers that the consumers had not authorized and by then withdrawing payments from the consumers’ bank
accounts without their authorization. Count 3 required the jury to find the existence of a conspiracy to commit wire
fraud and that Moseley willfully and knowingly became a member of the conspiracy with the intent to further its
illegal purpose. (Doc. #160-1, pp. 2312–16).
Count 4 charged that Moseley committed wire fraud from at least in or about 2007 through in or about September
2014. Count 4 required the jury to find that in or about the times alleged in the indictment, there was a scheme or
artifice to defraud others of money or property by false pretenses, representations, or promises; that Moseley
knowingly and willfully devised or participated in the scheme or artifice to defraud with knowledge of its fraudulent
nature and with the specific intent to defraud; and that in the execution of that scheme, Moseley used or caused the
use by others of interstate or foreign wires. Count 4 also charged Moseley with aiding and abetting the wire fraud
offense. (Doc. #160-1, pp. 2316–24).
Count 5 charged that from at least in or about 2007 up to and including in or about September 2014, Moseley
committed aggravated identity theft by transferring, possessing, or using the names and bank account numbers of
other individuals in connection with the wire fraud offenses charged in Counts 3 and 4. Count 5 required the jury to
find that Moseley knowingly transferred, possessed, or used a means of identification of another person, during and
in relation to the offense of wire fraud, and that Moseley acted knowingly and without lawful authority. (Doc. #1601, pp. 2324–28).
Count 6 charged that from at least in or about 2004 through in or about 2014, Moseley willfully and knowingly
gave false and inaccurate information and failed to provide information which he was required to disclose under
TILA. Count 6 required the jury to find that Moseley gave false and inaccurate information or failed to provide
information, that the information was required to be disclosed under TILA, and that Moseley acted knowingly and
willfully. Count 6 also charged Moseley with aiding and abetting the false TILA disclosures. (Doc. #160-1, pp.
against Moseley in the amount of $49,000,000, representing the amount of proceeds traceable to
the offenses charged in Counts 1–4.
On September 8, 2014, the Consumer Financial Protection Bureau (“CFPB”) filed a sixcount complaint in the Western District of Missouri against the payday lending entities (the
“Receivership Entities”), Moseley, and other individuals involved in the payday lending
operation for alleged violations of the Consumer Financial Protection Act (“CFPA”), TILA, and
the Electronic Fund Transfer Act (“EFTA”). Specifically, the CFPB alleged 3 counts of CFPA
violations: Count 1, misrepresentations that consumers authorized the loans and were bound by
their terms; Count 2, misrepresentations about loan terms; Count 3, unfair billing practices. The
CFPB alleged one TILA violation: Count 4, inaccurate loan term disclosures, and two violations
of EFTA: Count 5, not obtaining authorization for electronic fund transfers; and Count 6,
conditioning credit on preauthorized electronic fund transfers. The Court appointed Thomas
McNamara as Receiver over the Receivership Entities to manage and exercise control of the
Receivership Entities and their assets. The case was stayed during the resolution of the criminal
proceedings against Moseley. The case settled after Moseley’s conviction and a Stipulated Final
Judgment and Order was entered on August 10, 2018, which included a monetary judgment of
$69,623,528. The judgment was suspended against the defendants of the civil case upon
satisfaction of certain conditions.
Katten Muchin Rosenman LLP (“Katten”) formed an attorney-client relationship with
OSL Marketing, one of the Receivership Entities, in August 2009. Katten’s representation
generally consisted of responding to inquiries from state regulators regarding the Receivership
Entities’ payday lending activities and advising Moseley regarding the structure of his operations
and the loan documents he utilized. The attorney-client relationship terminated in 2012.
Receiver brings the present action against Katten, alleging Katten committed legal malpractice
and breached its fiduciary duty to the Receivership Entities. Receiver alleges Katten gave
negligent legal advice as to the applicability of TILA, EFTA, and CFPA to the Receivership
As to TILA, Receiver alleges Katten failed to advise the Receivership Entities that they
were legally bound by TILA and that therefore their loan documents were required to conform to
TILA requirements. TILA requires that loan terms and costs disclosures be clear and accurate.
Beach v. Ocwen Fed. Bank, 523 U.S. 410, 412 (1999). The CFPB complaint alleges that the
automatic renewal, or “auto-rollover” provision in the loan documents violated TILA. The
disclosures in the “TILA box” on the loan documents assumed the consumer would repay the
loan with a single simultaneous payment of principal, interest, and fees. The disclosure failed to
clarify the automatic renewal term. The effect of this was that consumers’ loans automatically
rolled over and consumers incurred repeated finance charges without repayment of the principal.
As to EFTA, Receiver alleges Katten failed to advise the Receivership Entities that they were
legally bound by EFTA and that loan documents legally needed to conform to EFTA
requirements. The CFPB complaint alleged the loan document provision conditioning the
issuance of loans on the requirement that repayment be made by preauthorized electronic fund
transfers (EFT or ACH processing) violated EFTA. 15 U.S.C. § 1693k(1); 12 C.F.R. §
1005.10(e)(1). As to CFPA, Receiver alleges Katten should have recognized that under the
CFPA the customer service entities were liable for any of the lending entities’ violations and
should have advised the Receivership Entities that CFPA required the loan documents to comply
with TILA and EFTA, which was enacted in July 2010 and went into effect no later than July
2011. Receiver alleges this negligent legal advice resulted in the civil suit CFPB v. Moseley and
the Receivership Entities’ joint and several liability on the resulting damages award.
Katten moves for summary judgment on two grounds: 1) Moseley’s criminal conviction
collaterally estops the Receiver’s malpractice claims; and 2) undisputed facts demonstrate Katten
did not act negligently and Receiver cannot prove “but for” causation. Katten moves in the
alternative for partial summary judgment on two grounds: 1) Katten’s negligence did not cause
the Receivership Entities’ unauthorized debits of consumers’ bank accounts; and 2) the $69
million suspended judgment from the civil case is unrecoverable damage. Receiver moves for
summary judgment on two of Katten’s affirmative defenses: 1) in pari delicto; and 2) intervening
Federal Rule of Civil Procedure 56(a) requires a court to grant a motion for summary
judgment if 1) the moving party “shows that there is no genuine dispute of material fact” and 2)
the moving party is “entitled to judgment as a matter of law.” A nonmoving party survives a
summary judgment motion if the evidence, viewed in the light most favorable to the nonmoving
party, is “such that a reasonable jury could return a verdict for the nonmoving party.” Stuart C.
Irby Co. v. Tipton, 796 F.3d 918, 922 (8th Cir. 2015) (quoting Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248 (1986)). While a plaintiff opposing summary judgment “may not simply
point to allegations in the complaint,” Robbins v. Becker, 794 F.3d 988, 993 (8th Cir. 2015)
(internal quotation marks and citation omitted), the “standard for avoiding summary judgment”
is “relatively lenient.” Amgen Inc. v. Conn. Ret. Plans & Trust Funds, 568 U.S. 455, 479–80
(2013) (citing Anderson, 477 U.S. at 248). The purpose of summary judgment “is not to cut
litigants off from their right of trial by jury if they really have issues to try.” Hughes v. Am.
Jawa, Ltd., 529 F.2d 21, 23 (8th Cir. 1976) (internal quotation marks omitted) (quoting Poller v.
Columbia Broadcasting Sys., Inc., 368 U.S. 464, 467 (1962)).
A. Collateral Estoppel
Katten argues Receiver is attempting to relitigate issues Moseley litigated and lost in his
criminal case, and collateral estoppel bars Receiver’s negligence claims against Katten. Katten
argues that because the criminal investigation revealed Moseley acted knowingly and with
criminal intent, Katten cannot be found negligent for failing to advise the Receivership Entities.
Katten argues Moseley asserted an advice-of-counsel defense in his criminal case substantively
identical to Receiver’s negligence claim against Katten, which the jury rejected. Receiver argues
in the first instance that Katten cannot rely on collateral estoppel at the summary judgment stage
because it failed to plead it as an affirmative defense pursuant to Federal Rule of Civil Procedure
8(a). Receiver argues that even if Katten has not waived its collateral estoppel defense, the
doctrine does not apply because Receiver was not a party or in privity with a party to the
criminal proceedings and because the criminal proceedings did not necessarily and
unambiguously resolve the questions presented in this case.
Collateral estoppel provides that “when an issue of ultimate fact has been determined by
a valid and final judgment, that issue cannot again be litigated between the same parties in
another lawsuit.” Anderson v. Genuine Parts Co., Inc., 128 F.3d 1267, 1272 (8th Cir. 1997)
(internal citation omitted). In the Eighth Circuit, collateral estoppel has five elements:
(1) the party sought to be precluded in the second suit must have been a party, or
in privity with a party, to the original lawsuit; (2) the issue sought to be precluded
must be the same as the issue involved in the prior action; (3) the issue sought to
be precluded must have been actually litigated in the prior action; (4) the issue
sought to be precluded must have been determined by a valid and final judgment;
and (5) the determination in the prior action must have been essential to the prior
Olsen v. Mukasey, 541 F.3d 827, 830– 31 (8th Cir. 2008) (internal citations omitted). Other
Eighth Circuit cases state that the issue sought to be precluded must be identical to the issue
decided in the previous case. See, e.g., Irving v. Dormire, 586 F.3d 645, 648 (8th Cir. 2009);
Wellons, Inc. v. T.E. Ibberson Co., 869 F.2d 1166, 1168 (8th Cir. 1989) (emphasis added).
The Court finds that even if Katten adequately pleaded the collateral estoppel defense, it
still fails. The Court finds that Receiver, even while standing in the shoes of the Receivership
Entities, is not in privity with Moseley as it relates to his criminal case and conviction. “[A]
person is in privity with a party . . . if the interests of the non-party are so closely related to the
interests of the party, that the non-party can fairly be considered to have had his day in court.”
Sumlin v. Krehbiel, 876 F. Supp. 1080, 1081 (E.D. Mo. 1994) (citing Gribben v. Lucky Star
Ranch Corp., 623 F.Supp. 952, 960 (W.D. Mo.1985) (internal quotation marks omitted). The
Court presumes that Moseley’s interest, like a defendant in any criminal case, centered chiefly on
being found innocent and acquitted so that he could maintain his freedom and avoid
imprisonment. Alternatively, the interest of the Receivership Entities as a for-profit business
operation, is presumably to continue operating for profit or to pay off their creditors, regardless
of the status of their owner and operator. While the Receivership Entities, like any business
entity, would certainly be concerned with the criminal allegations and potential convictions of
their owner and operator, their interest is one distinct and dissimilar from the criminal activities
of their owner and operator. “As a general rule, [c]orporations are treated as entities separate
from their officers, directors, and shareholders for purposes of preclusion just as for other
purposes. Without more, judgments entered in actions against any one of them are not binding on
any other.” United States v. Gurley, 43 F.3d 1188, 1197 (8th Cir. 1994) (internal citation and
quotation marks omitted); 18A Edward H. Cooper, Federal Practice and Procedure § 4460 (3d
ed. 2019)). It cannot be fairly concluded that Receiver or the Receivership Entities have had
their day in court through Moseley’s criminal case.
Further, “[a] receiver is an officer of the court.” United States v. Smallwood, 443 F.2d
535, 539 (8th Cir. 1971) (internal citation omitted). “He is not an agent or employee of either
party to the litigation in which he was appointed.” Id. “The appointment of the receiver
remove[s] the wrongdoer from the scene.” Scholes v. Lehmann, 56 F.3d 750, 754 (7th Cir.
1995); see also Zayed v. Associated Bank, N.A., 779 F.3d 727, 737 (8th Cir. 2015) (“[B]ecause
this case involves a Ponzi scheme, the Receivership Entities are considered victims of the fraud
and thus creditors of the Ponzi scheme.”). The Court appointed Receiver over the payday
lending entities to manage their assets in order to ensure the Court’s ability to afford monetary
relief to consumers. The Court appointed Receiver on the belief that Moseley and other
individuals previously in control of the Receivership Entities were not capable of responsibly
and honestly managing the assets based on the criminal allegations underlying Moseley’s
criminal conviction. The Receiver then has no interest in defending Moseley from criminal
charges. Rather, the Receiver’s interest lies in sharp contrast: ensuring victims of Moseley’s
criminal enterprise obtain financial relief. Receiver as Plaintiff in this case, seeking to hold
Katten liable for allegedly negligently advising the Receivership Entities and to recover
monetary damages to benefit harmed consumers, cannot be said to have had its day in court
based on Moseley’s criminal trial. Under Katten’s logic, Moseley’s criminal conviction pardons
Katten from liability for negligence in its attorney-client relationship with the Receivership
Entities. The Court disagrees.
Even if Receiver and Moseley were in privity, the Court finds that the issue sought to be
precluded in this case, whether Katten negligently advised the Receivership Entities regarding
the applicability of TILA, EFTA, and CFPA, is not the same as the issues involved and actually
litigated in the Moseley criminal case. The issues litigated in the Moseley criminal case
concerned Moseley’s criminal liability for conspiracy to collect and collection of unlawful debts
in violation of RICO, conspiracy to commit and commission of wire fraud, aggravated identity
theft, and false TILA disclosures spanning a time period of 2004–2014. The jury’s guilty verdict
on these issues established criminal liability regarding Moseley; the jury verdict did not establish
whether Katten committed malpractice or breach of fiduciary duty for failure to advise the
Receivership Entities for the 2009–2012 time period, resulting in the Receivership Entities’ civil
Katten argues that because the jury found Moseley acted knowingly and willfully in
regard to the charges of conspiracy to commit and commission of wire fraud, aggravated identity
theft, and false TILA disclosures, Katten could not have negligently advised the Receivership
Entities. The jury’s finding that Moseley acted knowingly and willfully does not equate to a
finding that the Receivership Entities acted knowingly and willfully. See Sequa Corp. v. Cooper,
128 S.W.3d 69, 76 (Mo. Ct. App. 2003) (“Knowledge of an agent with regard to any business
over which his authority reaches is notice, or knowledge, of the principal. The recognized
exception to this rule is when the agent is acting adversely to the principal's interest.”) (internal
citation omitted); F.D.I.C. v. O’Melveny & Myers, 969 F.2d 744, 749 (9th Cir. 1992) (finding
Receiver not estopped from bringing legal malpractice claim on behalf of corporation based on
fraudulent acts of corporate officers) (reversed and remanded on other grounds). A finding that
Katten breached a duty to the Receivership Entities resulting in the Receivership Entities’ civil
liability is not precluded by a jury’s finding that Moseley acted knowingly and willfully resulting
in his criminal conviction.
Katten argues “[t]he Receivership Entities cannot relitigate in this action whether
Moseley knowingly directed them to use materially misleading TILA disclosures or to engage in
unauthorized ACH debits.” (Doc. #143, p. 45). Katten argues that “[b]ecause the Receivership
Entities cannot relitigate whether Moseley knowingly violated the law, the Receivership Entities
cannot prove Moseley acted innocently or negligently based on Katten’s advice.” (Doc. #143, p.
45). Katten analogizes this case to, among others, Juan v. Growe, 547 S.W.3d 585, 595 (Mo. Ct.
App. 2018). In Growe, the Missouri Court of Appeals held that the plaintiffs’ claim that
allegedly negligent legal advice to enter into a settlement agreement led to their criminal
convictions and monetary judgment failed because their own criminal acts, not the negligence of
their lawyers, led to their convictions and damages. The other cases cited by Katten hold the
Here, neither Receiver nor the Receivership Entities was a plaintiff in Moseley’s criminal
case. Further, Receiver does not seek a finding that Katten’s negligence caused Moseley’s
criminal convictions and $49 million monetary judgment. Receiver seeks a finding that Katten’s
negligence led to the Receivership Entities’ civil liability and the corresponding $69 million
judgment. Moseley does not seek to relitigate his mens rea or seek to prove that he acted
innocently or that Katten’s negligence is to blame for his criminal conviction. Moseley is not a
party to this action. Receiver seeks a finding that Katten acted negligently, which led not to
Moseley’s criminal convictions for RICO violations, wire fraud, aggravated identity theft, and
false disclosures under TILA, but which led to the Receivership Entities’ civil settlement and
judgment entered against them for violations of TILA, EFTA, and CFPA.
Katten also argues that the jury’s rejection of Moseley’s advice-of-counsel defense
precludes Receiver from claiming Katten acted negligently. The elements of an advice-ofcounsel defense differ from the elements of malpractice and breach of fiduciary duty. The
advice-of-counsel defense required a finding that Moseley, “before acting[,] [m]ade a full and
complete good-faith report of all material facts to an attorney he or she considered competent;
[r]eceived the attorney’s advice as to the specific course of conduct that was followed; and
[r]easonably relied upon that advice in good faith.” (Doc. #160-1, p. 2335). The advice-ofcounsel defense emphasizes the criminal defendant’s actions of reporting material facts,
receiving particular advice, and reasonably relying on the advice. Alternatively, a claim of
malpractice or breach of fiduciary duty focuses not on the actions of the receiver of legal advice,
but the giver of the advice. A legal malpractice claim requires the existence of an attorney-client
relationship; negligence or breach of contract by the attorney, proximate cause, and damages.
Klemme v. Best, 941 S.W.2d 493, 495 (Mo. 1997); Richka Enterprises, Inc. v. American Family
Mutual Ins. Co., 200 F.Supp.2d 1049, 1052 (E.D. Mo 2001). A claim for breach of fiduciary
duty requires the same, plus that there is no other tort remedy. Id. The jury in Moseley’s
criminal case did not make a specific finding regarding Katten’s attorney-client relationship with
the Receivership Entities, what that attorney-client relationship agreement provided, whether
Katten breached the agreement or its duty, and whether such breach proximately caused the
Receivership Entities’ civil liability and resulting damages based on violation of TILA, EFTA,
and CFPA underlying CFPB v. Moseley.
The jury in Moseley’s criminal case did not “actually litigate” the actions of Katten for
the time period it represented the Receivership Entities, nor did the jury analyze the effect
Katten’s actions had on the Receivership Entities’ civil liability. Olsen, 541 F.3d at 830. While
the Court acknowledges the relationship between Moseley’s criminal case and the present
negligence action between Receiver and Katten, the connection is too attenuated to satisfy the
requirements of collateral estoppel. Accordingly, Receiver is not collaterally estopped from
suing Katten for legal malpractice and breach of fiduciary duty, and Katten’s motion for
summary judgment in its favor on grounds of collateral estoppel is denied.
Katten argues there is no genuine dispute of material fact regarding whether Katten
negligently advised the Receivership Entities. Katten argues that it advised Moseley on multiple
occasions that the auto-rollover provision on the Receivership Entities’ loan documents created
regulatory risk, that the provision should be replaced with a single-payment structure, and that
Moseley needed to move all operations offshore to escape liability under U.S. law for the
Receivership Entities’ operations. Katten argues it also consistently provided Moseley with loan
agreement drafts that changed the auto-rollover term to a single-payment-in-full structure.
Katten argues Moseley understood Katten’s advice and knowingly rejected it.
Receiver argues that at no point during Katten’s representation of the Receivership
Entities did Katten explicitly tell Moseley that the loan agreements violated the law. Receiver
argues that when Moseley was transitioning to New Zealand-based operations, he requested that
Katten modify the loan documents and Katten failed to respond in a meaningful or timely way to
Moseley. Receiver alleges that by the time Katten responded to him, he had been using an
entirely different loan document. Receiver also argues that Katten was negligent in advising
Moseley that the Receivership Entities could avoid complying with U.S. law by making loans
through overseas shell corporations, even if his call center remained in the U.S., as long as the
operation avoided the appearance of a relationship between the lenders and the call centers.
Receiver argues that, had Katten told Moseley that U.S. law applied regardless, he would have
complied with U.S. law and avoided making unlawful loans.
A legal malpractice claim requires the existence of an attorney-client relationship,
negligence or breach of contract by the attorney, proximate cause, and damages. Klemme, 941
S.W.2d at 495; Richka, 200 F.Supp.2d at 1052. A claim for breach of fiduciary duty requires the
same, plus that there is no other tort remedy. Id. “A legal malpractice action thus is founded on
an attorney's duty to exercise due care or to honor express contract commitments.” Id. “In
addition, an attorney has the basic fiduciary obligations of undivided loyalty and confidentiality.”
“Summary judgment is rarely appropriate in a negligence action because such a claim
often encompasses a multitude of factual issues, and abstract concepts which become particularly
elusive when applied to varying concrete situations.” Burk v. Thorson, Inc., 66 F. Supp. 2d
1069, 1073 (D. Minn. 1999) (citing Hughes v. American Jawa, Ltd., 529 F.2d 21, 23 (8th Cir.
1976)). “Negligence is always a question for the jury when there is conflicting evidence on the
issue or where, the facts being undisputed, reasonable minds could draw different conclusions
therefrom.” Ross v. Presley, 359 S.W.3d 156, 160 (Mo. App. S.D. 2012) (internal citation
omitted). Whether a defendant breached its legal duty is a question of fact, “and unless no
reasonable minds could draw different conclusions from the facts, the issue should be for the jury
to decide.” Webb v. Adams, 527 S.W.3d 121, 124 (Mo. App. E.D. 2017) (internal citations
omitted). “Genuine issues of material fact as to the element of causation preclude summary
judgment.” Ross, 359 S.W.3d at 160.
The Court finds that a genuine dispute of material fact exists as to whether Katten
breached its duty to the Receivership Entities. Viewing the evidence in the light most favorable
to Receiver as the nonmoving party, a reasonable jury could find that Katten breached its duty to
the Receivership Entities by failing to advise explicitly that U.S. law applied to the Receivership
Entities’ operation and that the loan documents they were using violated the law. This dispute
alone warrants denial of summary judgment. Katten argues that it repeatedly advised Moseley
that his loan documents created regulatory risk. However, Katten identifies no place in the
record that demonstrates Katten advised Moseley that his loan agreements in fact did not comply
with applicable law. Katten relies heavily on time entries, billing records, deposition testimony,
and declarations of Katten attorneys to support its argument that it sufficiently advised Moseley.
None of these pieces of evidence show that Katten explicitly advised Moseley that the payday
lending operation was bound by U.S. law. Beyond that, the billing records and time entries are
at times significantly less detailed than the Katten attorneys’ deposition testimony and
declarations regarding the same matter. It is for the jury to decide whether it finds the testimony
credible, whether it is corroborated by other evidence, and whether the evidence demonstrates
Katten breached its legal duty to the Receivership Entities.
The record also reflects a dispute as to whether draft loan documents and emails Katten
sent to Moseley sufficiently addressed the unlawful aspects of the loan documents. Receiver
describes and supports with evidence more than one instance in which Katten sent a draft loan
document to Moseley that suggested some changes to bring the document into compliance with
U.S. law but failed to correct other noncompliant aspects. A jury, and not the Court, should
decide whether such evidence demonstrates negligence on the part of Katten. Further, a
reasonable jury could find that because Katten knew the OSL Marketing call center, with whom
Katten was contracted to provide legal services, was located in Kansas City, Katten knew or
should have known the payday lending operation was not completely offshore and accordingly,
had reason to know and explicitly advise Moseley that the loan documents in fact violated U.S.
Katten argues that Receiver’s only argument is there was no written documentation
corroborating the Katten attorneys’ declarations and deposition testimony. Katten cites
Schoonejongen v. Curtiss-Wright Corp., 143 F.3d 120, 130 (3d Cir. 1998), for the proposition
that “if a moving party has demonstrated the absence of a genuine issue of material fact—
meaning that no reasonable jury could find in the nonmoving party's favor based on the record as
a whole—concerns regarding the credibility of witnesses cannot defeat summary judgment.” As
discussed above, Receiver’s argument is not limited to the credibility of Katten attorneys, and
genuine issues of material fact remain for trial. A reasonable juror could infer from the evidence
in the record that Katten failed to advise Moseley as to the Receivership Entities’ need to comply
with U.S. law and that the loan documents were unlawful as a result.
Katten argues it cannot be liable for Moseley’s failure to use the loan documents Katten
drafted in compliance with U.S. law. This argument ignores the allegation that Katten failed to
advise Moseley explicitly that if he did not use such document, he would in fact be violating the
law. It is for the jury to decide whether, if Katten had so advised Moseley, he would have used a
legal loan document and the Receivership Entities would have avoided civil liability. Katten
argues that if Moseley would have accepted Katten’s advice to stop using the auto-rollover
provision, the Receivership Entities would have avoided civil liability. This argument makes the
same mistake and ignores the allegation that Katten’s advice was insufficient in the first place. It
is for the jury to decide what evidence to believe and whether Katten breached its duty to the
Receivership Entities. Katten’s motion for summary judgment on this point is denied.
C. Unauthorized Loans
Katten argues that any alleged negligence in failing to advise the Receivership Entities on
the unlawfulness of their loan documents did not cause unauthorized loans to be issued, and
therefore Katten cannot be held liable for damages resulting from unauthorized loans. Katten
argues that Moseley independently decided to issue loans to potential customers’ bank accounts
without their authorization by leaving voicemails on their phones and then issuing the loan
without hearing back from the customer. Katten also argues there is no plausible connection
between Katten’s alleged negligence and unauthorized debits because, in the case of
unauthorized debits, the loans were issued with no loan agreement, which precludes TILA,
EFTA, and CFPA violations.
Receiver argues that every loan issued, even to customers who did not authorize the
loans, was unlawfully accompanied by a false and deceptive TILA disclosure and a provision
conditioning credit on preauthorized ACH. Receiver argues that in the absence of Katten’s
negligence, which caused all loans to be unlawful, the CFPB in the civil case would have been
required to prove its claims for unauthorized lending. Receiver argues that the CFPB was able to
avoid that task because ultimately, the authorization issue became a moot point; whether or not
particular loans were authorized did not impact the lawfulness of the loans based on the loan
documents that governed them all. Receiver argues that whether or not some of the loans were
authorized did not impact the Receivership Entities’ civil exposure.
Receiver stresses that the Stipulated Judgment in the civil case did not apportion the
damages award between authorized and unauthorized loans. Receiver also argues that TILA and
the corresponding Regulation Z require disclosures to be made before consummation of the loan,
and therefore Katten became liable at the point potential borrowers viewed the pre-filled loan
agreements, regardless of whether they authorized the loans. Receiver also argues that under
Missouri law and in other circuits, the acceptance of the loan benefits, which occurred when the
loan was deposited into the borrowers’ bank accounts, constitutes consummation, which means
that a lack of authorization does not preclude Katten’s liability.
“It is well-settled in Missouri that a plaintiff alleging legal malpractice has the burden of
proving the existence of an attorney-client relationship, negligence by the attorney, proximate
causation of plaintiff's damages, and damages.” SKMDV Holdings, Inc. v. Green Jacobson,
P.C., 494 S.W.3d 537, 545 (Mo. Ct. App. E.D. 2016) (internal citations omitted). “Failure to
prove any one of these elements defeats a claim for legal malpractice.” Id.
“Proximate, or legal, cause is often described as a limitation on liability, absolving those
actors whom it would be unfair to punish because of the attenuated relation that their conduct
bears to the plaintiff’s injury.” Id. (internal citation and quotation marks omitted). “The most
basic formulation of Missouri's proximate cause test is that conduct can constitute the proximate
cause of any harm that is its ‘natural and probable result.’” Id. “This has been described as a
‘look back’ test, in which the naturalness and probability of the result is assessed from the point
in time after the injury has occurred.” Id. “Foreseeability's role in the proximate cause analysis
is widely understood as a limitation on liability.” Id.
“A court properly interposes its judgment in this determination when the evidence reveals
the existence of an intervening cause which eclipses the role the defendant's conduct played in
the plaintiff's injury.” Id. at 546. “An intervening cause breaks the chain of causation.” Id.
(citing Collins v. Missouri Bar Plan, 157 S.W.3d 726, 732 (Mo.App.W.D. 2005)). “For a later
cause to intervene sufficiently to cut off another defendant's liability for prior negligence, the
later cause must break the chain of events so that ‘the result is no longer the natural and probable
consequence of the primary cause or one which ought to have been anticipated.’” Id. (citing
Love v. Deere & Co., 684 S.W.2d 70, 75 (Mo.App. 1985).
Receiver argues that unauthorized loans led to TILA and EFTA violations, and thus led
to civil liability for such violations in CFPB v. Moseley. Receiver argues that the unauthorized
loan transactions were consummated for purposes of TILA and EFTA liability when the
prospective borrowers “accepted” the funds deposited in their bank accounts without their
consent. The Court rejects this argument. None of the case law Receiver cites in support holds
that an unknowing and unconscious acceptance, procured by fraud, constitutes consummation.
Even assuming, however, that TILA and EFTA contemplate liability for unlawful loan
documents that do not become part of a consummated loan agreement, Receiver does not argue
that Katten had a duty to advise Moseley on the illegality of issuing unauthorized loans.
Katten’s relationship with the Receivership Entities generally involved advising on regulatory
matters and on loan documents. That duty cannot be construed as one in which Katten should
have detected the Receivership Entities’ approving and funding unauthorized loans.
The Receiver’s argument also fails because the customer service representatives’ acts of
approving, issuing, and funding loans without the prospective borrower’s agreement and without
even speaking to the prospective borrower is an intervening cause that “eclipsed the role
[Katten’s] conduct played in the Receivership Entities’ injury.” SKMDV Holdings, 494 S.W.3d
at 545. At no point did Moseley or any other individual associated with the Receivership
Entities directly or indirectly inform Katten about this fraudulent practice that resulted in a
significant amount of unauthorized loans. As a matter of law, the risk that Moseley and the
payday lending operation would use loan documents that Katten aided in drafting to fund loans
customers never authorized was not a reasonable or probable consequence of Katten’s alleged
negligence. It would be “unfair to punish” Katten for the fraudulent issuance of unauthorized
loans “because of the attenuated relation” that the loan agreements bear to the damages flowing
While Receiver minimizes the reality that a large subset of the unlawful loans issued by
the Receivership Entities were not authorized by the prospective borrower, that reality is more
than a mere “additional infirmity.” Rather, the large number of unauthorized loans greatly
expanded the Receivership Entities’ civil liability. The fact that the Stipulated Judgment did not
separate out damages based on authorized or unauthorized loans does not preclude a finding of
intervening cause, as Receiver argues. Both parties have acknowledged the testimony from
Moseley’s criminal case addressing the proportionality of the damages award, as well as Katten’s
expert’s testimony on the matter. The Court anticipates Receiver’s expert may be able to opine
on the proportionality of the damage award as well. Accordingly, Katten’s motion for summary
judgment in its favor on liability for unauthorized loans is granted.
D. Civil Judgment
Katten argues the $69 million Stipulated Judgment is unrecoverable damage because it is
uncollectible and because it is suspended under its terms. Katten also argues there is no evidence
that the $69 million was reasonable mitigation, which it argues is required to prove damages in a
case where the underlying claim was settled. Katten further argues that statutes of limitations for
TILA, EFTA, and CFPA lessen the amount of damages, as does the effective date of the CFPA
and the window of time during which Katten represented the Receivership Entities. Katten also
argues the $69 million figure is unrecoverable profit from criminal acts.
Receiver argues the Stipulated Judgment is collectible because Receiver was not a
plaintiff in the underlying civil action. Receiver argues the terms of the Stipulated Judgment do
not deem the Stipulated Judgment uncollectible. Receiver argues it is not required to parse the
settlement on a claim by claim basis and no proof of reasonableness is required. Further,
Receiver argues Missouri Courts have held that an entry of judgment constitutes damages for
statutes of limitation purposes, that the retroactive effect of the CFPA remains unclear to date,
and that the damages flowing from the time period during which Katten represented the
Receivership Entities exceed $69 million. Receiver also argues it is not seeking to recover from
Moseley’s criminal conviction, but from the civil settlement, in order to provide redress to
“Settlements do not necessarily preclude damage claims.” SKMDV, 494 S.W.3d at 548
(internal citation omitted). “Public policy favors settlements, and malpractice victims should not
be completely precluded from . . . settling . . . underlying claim[s], particularly when the plaintiff
can show that settlement was justified.” Id. “Although a settlement of an underlying lawsuit
injects some speculation into a claim for attorney malpractice, it does not preclude a plaintiff
from proving malpractice so long as the plaintiff can establish a causal link between the alleged
negligence and any loss incurred.” Id. at 548–49. “In litigation cases, the plaintiff's obligation is
to “prove that the settlement was necessary to mitigate . . . damages, . . . or that plaintiff was
driven to the necessity of settling because, if the case had not been settled, plaintiff would have
been worse off.” Id. at 549 (internal citation and quotation marks omitted).
The Court disagrees with Katten’s argument that because the Stipulated Judgment is
suspended, meaning the Receivership Entities’ liability on the Judgment is suspended, then
Receiver cannot use the $69 million figure as a starting point for calculating damages. Katten
cites to Selimanovic v. Finney, 337 S.W.3d 30, 33 (Mo. App. E.D. 2011). In Selimanovic, a wife
hired an attorney to file a wrongful death suit against her husband’s employer after he was killed
at work. When the attorney failed to file a claim before the statute of limitations expired, the
wife sued the attorney for legal malpractice. The court found there was no collectible judgment
because the co-employees who would have been liable for the wrongful death action had no
assets to satisfy the judgment. The court found that “if a wrongful death lawsuit had been filed
and an adverse judgment had been entered against them, they would have had to claim
bankruptcy; and the effect of bankruptcy would have been to clear an adverse judgment and
prevent future garnishment to satisfy the judgment.” Id. There would also have been a workers’
compensation lien on any recovery from the wrongful death action.
These are simply not the facts of this case. The Stipulated Judgment damages award is
not uncollectible; there is no language in the Stipulated Judgment that would prevent
garnishment or describes any liens on the judgment. Unlike in Selimanovic, there was a
monetary judgment entered in the underlying civil action in this case. In Selimanovic, Plaintiff
was barred from even bringing a claim in the underlying action because the claim was barred by
the statute of limitations. The Stipulated Judgment is suspended, not uncollectible, as to the
Defendants in the civil case, and in no way impacts Receiver’s ability to collect on a malpractice
claim from Katten. Further, the Stipulated Judgment directs that if any defendant receives any
funds from any source, the defendant is to turn the money over to be applied toward the
The Court also disagrees with Katten’s characterization of the $69 million Stipulated
Judgment as profit from criminal acts. Moseley’s criminal case was separate and apart from the
civil case the CFPB brought against Moseley, other individuals, and the Receivership Entities.
That the $69 million damage calculation is borrowed from the criminal case does not make the
civil judgment one of profit from criminal acts. The Court does, however, recognize that a
portion of these damages are associated with the issuance of unauthorized loans caused by
Moseley’s fraud. As discussed further below, given the Court’s finding related to unauthorized
loans, the Court will address this issue in its order on the parties’ Daubert motions.
None of the cases cited by Katten hold that Receiver’s expert testimony needs to prove
“reasonable mitigation.” The test is whether “the settlement was necessary to mitigate . . .
damages, . . . or that plaintiff was driven to the necessity of settling because, if the case had not
been settled, plaintiff would have been worse off.” SKMDV, 494 S.W.3d at 549 (emphasis
added). Given the Court’s finding that Katten cannot be liable for unauthorized loans, the Court
will not analyze the parties’ arguments regarding whether the civil settlement was necessary,
considering much of the argument includes discussion of the expert reports and unauthorized
loans. The Court recognizes the settlement was not apportioned based on unauthorized and
authorized loans. The Court will address this issue in its order on the parties’ Daubert motions.
Katten’s motion for summary judgment on the ground that the Stipulated Judgment is
unrecoverable is denied.
E. In Pari Delicto
Receiver argues summary judgment is proper in its favor on Katten’s in pari delicto
defense. Receiver argues in pari delicto does not apply to Receiver in this case because Receiver
is acting for the benefit of consumers as a court-appointed equity receiver. Katten argues
Receiver’s claims are barred by in pari delicto because Receiver stands in the shoes of the
Receivership Entities. Katten argues Moseley and the Receivership Entities’ wrongdoing was
deliberate, and a deliberate wrongdoer cannot recover for an illegal act in which it participated.
“Under the doctrine of in pari delicto, the legal counterpart of the equitable doctrine of
unclean hands, ‘a person cannot maintain an action if, in order to establish his cause of action, he
must rely, in whole or in part, on an illegal or immoral act or transaction to which he is a party.’”
Jo Ann Howard & Associates, P.C. v. Cassity (“Cassity II”), 146 F. Supp. 3d 1089, 1097 (E.D.
Mo. 2015) (quoting Dobbs v. Dobbs Tire & Auto Centers, Inc., 969 S.W.2d 894, 897-98 (Mo.
App. E.D. 1998)). “A party may not maintain a claim for damages, where the cause of action is
based on an unlawful act or transaction in which both plaintiff and defendant participated.” Id.
“This is a principle founded upon [Missouri] public policy, not for the sake of the defendant, but
for the law’s sake, and that only.” Dobbs, 969 S.W.2d at 897 (citations and internal quotation
“The appointment of the receiver remove[s] the wrongdoer from the scene.” Scholes, 56
F.3d at 754; see also Zayed, 779 F.3d at 737 (“[B]ecause this case involves a Ponzi scheme, the
Receivership Entities are considered victims of the fraud and thus creditors of the Ponzi
scheme.”). “[T]he receiver has the power to bring the claims on behalf of [the liquidating entity]
and its creditors, not solely [the liquidating entity].” Jo Ann Howard & Associates, P.C. v.
Cassity (“Cassity I”), 79 F. Supp. 3d 1001, 1017 n.13 (E.D. Mo. 2015). Receivers are acting on
behalf of creditors as well as the entities who have committed the alleged wrongdoing, and
“[w]hile the creditors may not be in the same category as innocent holders of notes, they occupy
a status brought about by reliance upon . . . the corporation conforming to the law.” Joy v.
Godchaux, 35 F.2d 649, 656 (8th Cir. 1929); see also F.D.I.C. v. O’Melveny & Myers, 61 F.3d
17, 19 (9th Cir. 1995) (“[A] party may itself be denied a right or defense on account of its
misdeeds, [but] there is little reason to impose the same punishment on a trustee, receiver or
similar innocent entity that steps into the party’s shoes pursuant to court order or operation of
law.”). When the allegedly “corrupt officers have been removed from [the liquidating entity]
and will not benefit from any recovery by [the Receiver] and the creditors of [the liquidating
entity],” the rationale for in pari delicto disappears. Cassity I, 79 F. Supp. 3d at 1017.
The Court finds that the law has not changed since the Court denied Katten’s two
motions to dismiss this case on the basis of in pari delicto. Neither has discovery revealed new
facts that would change the fact that in pari delicto does not apply to a court-appointed receiver
bringing suit “in order to prevent any irreparable loss, damage, or injury to consumers or to
creditors of the Receivership Defendants[.]” CFPB v. Moseley, No. 14-cv-00789-DW, Doc. #40,
p. 24, ¶XV(D) (W.D. Mo. Oct. 3, 2014). Katten argues that discovery revealed “Moseley has not
been removed from his position as an officer of the Receivership Entities,” and “if Receiver
recovers anything from Katten, it will directly benefit Moseley and the Receivership Entities.”
(Doc. #150, p. 58). The Court is not convinced by Katten’s logic.
The reality that any recovery will pay down the amount owed on the suspended judgment
is only incidental to the fact that the recovery will be turned over to the CFPB to benefit harmed
consumers. The Court tasked the Receiver with instituting “actions or proceedings in state,
federal, or foreign courts that the Receiver deems necessary and advisable to preserve or recover
the Assets of the Receivership Defendants[.]” Id. at ¶XV(L). The Court appointed the Receiver
to “determine, adjust, and protect the interests of consumers and creditors who have transacted
business with the Receivership Defendants.” Id. at ¶XV(G). Any recovery will not line the
pockets of Moseley or benefit the Receivership Entities, as the Receivership Entities are
permanently restrained from conducting business in any way related to lending. As Katten
admits, the judgment is suspended as to Moseley and the Receivership Entities; recovery toward
the Stipulated Judgment benefits them in no way. Moseley and the Receivership Entities are
“removed from the picture and . . . in pari delicto does not apply.” Kelley v. College of St.
Benedict, 901 F. Supp. 2d 1123, 1129 (D. Minn. 2012). Accordingly, Receiver’s motion for
summary judgment on Katten’s in pari delicto defense is granted.
F. Intervening Cause
The Court ruled in Katten’s favor on its motion for summary judgment on unauthorized
loans, finding the Receivership Entities’ act of approving and funding unauthorized loans was an
intervening cause precluding Katten’s liability related to unauthorized loans. Accordingly,
Receiver’s motion for summary judgment in its favor on Katten’s intervening cause defense is
denied as moot.
Accordingly, Katten Muchin Rosenman LLP’s Motion for Summary Judgment (Doc.
#141) is DENIED. Katten Muchin Rosenman LLP’s Motion for Partial Summary Judgment
(Doc. #137) is GRANTED IN PART and DENIED IN PART. Katten’s motion for summary
judgment on Receiver’s claim that Katten’s negligence caused the Receivership Entities’
issuance of unauthorized loans is granted. Katten’s motion for summary judgment on Receiver’s
claims that the $69 million suspended Stipulated Judgment is recoverable damage is denied.
Plaintiff’s Motion for Summary Judgment on Defendant’s Affirmative Defenses Nos. 1 and 10
(Doc. #127) is GRANTED IN PART and DENIED IN PART. Receiver’s motion for summary
judgment on Katten’s in pari delicto defense is granted. Receiver’s motion for summary
judgment on Katten’s intervening cause defense is denied as moot.
IT IS SO ORDERED.
/s/ Stephen R. Bough
STEPHEN R. BOUGH, JUDGE
UNITED STATES DISTRICT COURT
DATE: July 19, 2019
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