Evans v. Johnson et al

Filing 53

ORDER that 28 Motion to Dismiss is DENIED. Signed by Judge Miranda M. Du on 6/14/13. (Copies have been distributed pursuant to the NEF - MMM)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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***

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ROBB EVANS OF ROBB EVANS &
ASSOCIATES,
Plaintiff,

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Case No. 2:12-cv-01053-MMD-VCF
ORDER

v.
(Defs.’ Motion to Dismiss
– dkt. no. 28)

KERRY JOHNSON, et al.,

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Defendants.

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I.

SUMMARY
Before the Court is Defendants’ Motion to Dismiss. (Dkt. no. 28.) For the reasons

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discussed below, the Motion is denied.

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II.

BACKGROUND

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Plaintiff Robb Evans of Robb Evans & Associates (“the Receiver”) filed this suit on

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June 20, 2012, arising out of its role as a court-appointed receiver in Federal Trade

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Commission v. Johnson, No. 2:10-cv-2203-MMD-GWF (D. Nev. filed Dec. 20, 2010)

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(“the FTC Action”). After issuing a preliminary injunction against defendants in the FTC

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Action (hereinafter referred to as “the Receivership Defendants”), the Court ordered the

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Receiver to collect and preserve the assets (“the Receivership estate”) that the FTC

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alleges was fraudulently gathered by the Receivership Defendants. Defendants Kerry

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and Barbara Johnson are the parents of Jeremy Johnson, the principal Receivership

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Defendant in the FTC Action. Defendant The KB Family Limited Partnership (“KB”) is a

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limited partnership whose sole partners are Kerry and Barbara Johnson.1

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The Receiver alleges that various defendants in the FTC Action, including Jeremy

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Johnson, unlawfully transferred assets of the Receivership estate to the Johnsons in the

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form of precious metals, stock, cash, and other property. The Receiver alleges that the

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Johnsons did not receive any of these transfers in good faith, and that these transfers

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were not for reasonably equivalent value.

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Utah’s Uniform Fraudulent Transfer Act which are the subject of this Motion, as well as

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The Receiver alleges three violations of

unjust enrichment and refusal to turn over receivership property.

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On July 16, 2012, the Johnsons filed a motion seeking to dismiss the Receiver’s

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Complaint for lack of personal jurisdiction. (Dkt. no. 12.) The Court denied the motion.

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(Dkt. no. 25.) They now move the Court to dismiss the Utah counts for failure to state a

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claim.

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III.

LEGAL STANDARD

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A plaintiff’s complaint must allege facts to state a claim for relief that is plausible

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on its face. See Ashcroft v. Iqbal, 556 U.S. 662, 677 (2009). A claim has “facial

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plausibility” when the party seeking relief “pleads factual content that allows the court to

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draw the reasonable inference that the defendant is liable for the misconduct alleged.”

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Id. Although the Court must accept as true the well-pled facts in a complaint, conclusory

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allegations of law and unwarranted inferences will not defeat an otherwise proper Rule

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12(b)(6) motion. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001).

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“[A] plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires

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more than labels and conclusions, and a formulaic recitation of the elements of a cause

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of action will not do. Factual allegations must be enough to raise a right to relief above

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For convenience, the Court hereafter refers to all three Defendants in this action
as “the Johnsons.”
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the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citations

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and footnote omitted).

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Fraud claims must meet a heightened pleading standard under Federal Rule of

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Civil Procedure 9(b), which requires a party to “state with particularity the circumstances

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constituting fraud.” The plaintiff must plead with particularity “the who, what, when,

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where, and how of the misconduct charged.” Vess v. Ciba-Geigy Corp. USA, 317 F.3d

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1097, 1106 (9th Cir.2003) (internal quotation marks omitted). “Rule 9(b) demands that,

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when averments of fraud are made, the circumstances constituting the alleged fraud be

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specific enough to give defendants notice of the particular misconduct so that they can

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defend against the charge and not just deny that they have done anything wrong.” Id. at

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1108. However, when a plaintiff fails to plead fraud with particularity, “leave to amend

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should be granted if it appears at all possible that the plaintiff can correct the defect.”

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Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 701 (9th Cir.1988).

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IV.

DISCUSSION

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The Johnsons argue that neither the first, second, or third Utah state cause of

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action satisfies either Rule 8’s pleading standards or the heightened pleading

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requirements of Rule 9(b). However, the Johnsons’ alleged fraud is sufficiently pled with

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particularity to satisfy Rule 9(b). The Receiver alleges violations of Utah Code Ann. §

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25-6-5(1)(a) (prohibiting debtor’s transfer if it was made “with actual intent to hinder,

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delay, or defraud any creditor of the debtor”), Utah Code Ann. § 25-6-5(1)(b) (prohibiting

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debtor’s transfer if made “without receiving a reasonably equivalent value in exchange,”

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and either the debtor’s remaining assets were unreasonably small or the debtor intended

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to or believed that the debts would be beyond the debtor’s ability to pay), and Utah Code

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Ann. § 25-6-6(1) (prohibiting debtor from instituting a transfer “without receiving a

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reasonably equivalent value in exchange” and the debtor was either “insolvent at the

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time or became insolvent as a result of the transfer or obligation”).

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The Receiver alleges that the Johnsons were beneficiaries of gratuitous transfers

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from Jeremy Johnson meant to unlawfully siphon assets from the Receivership estate.
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This general theory is supported by numerous non-conclusory factual allegations: among

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them, that Jeremy Johnson transferred approximately $50 million of assets to third

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parties; Jeremy Johnson transferred over $1 million of precious metals to Kerry and

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Barbara Johnson as a gift; Kerry and Barbara Johnson received approximately $770,000

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from a Receivership defendant; approximately $102,000 was transferred from a

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Receivership defendant for the benefit of Kerry and Barbara Johnson; and approximately

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$1.7 million worth of shares were transferred for the benefit of KB. (See Compl., dkt. no.

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1 at ¶¶ 16-22.) These transfers occurred during periods of insolvency and investigation

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by the FTC, and the FTC has had claims against the Receivership Defendants since at

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least as early as July 1, 2008. (See Compl. at ¶¶ 14-15.) The Receiver alleges that the

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Receivership Defendants instituted these transfers in order to withhold assets from their

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creditor, the FTC. These allegations, taken as true, paint a coherent narrative that

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supports the Receiver’s fraudulent transaction claims.

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Nevertheless, Defendants argue that the Receiver failed to plausibly plead intent

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with respect to the § 25-6-5(1)(a) claim. The Court disagrees. The Complaint alleges

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the existence of a fraudulent enterprise that was subject to an FTC investigation, and

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which is now the subject of a civil enforcement action. The Receivership Defendants

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who are defending that action are the subject of an asset freeze and a preliminary

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injunction after a court holding that the FTC is likely to succeed on the merits of its civil

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action and that irreparable harm, in the form of unauthorized asset transfers, would

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result without preliminary relief. These facts are either alleged in this Complaint,

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contained in public records that the Court may take judicial notice of, or both. See Mir v.

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Little Co. of Mary Hosp., 844 F.2d 646, 649 (9th Cir. 1988) (“In addition to the complaint,

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it is proper for the district court to ‘take judicial notice of matters of public record outside

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the pleadings’ and consider them for purposes of the motion to dismiss.”). For the same

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reason that an allegation of a Ponzi scheme supported by specific facts satisfies Rule

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9(b)’s pleading requirements related to intent to defraud, so too does this Complaint

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plausibly allege intent to fraudulently transfer in the face of the FTC investigations, the
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issuance of a preliminary injunction, and unreasonable, gratuitous transfers to

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Defendants. See, e.g., Klein v. Capital One Fin. Corp., 4:10-CV-00629-EJL, 2011 WL

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3270438, at *4 (D. Idaho July 29, 2011) (allegation of Ponzi scheme supported with

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specific facts sufficient to plead intent to satisfy Rule 9(b)); see also Arevalo v. Bank of

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Am. Corp., 850 F. Supp. 2d 1008, 1024 (N.D. Cal. 2011) (noting that intent need not be

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pled with particularity under Rule 9(b), only that it meet the plausibility requirement).

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Likewise, the second and third causes of actions are plausibly alleged.

The

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Receiver alleges that the Receivership Defendants were insolvent at the time of the

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transfers, and thus their remaining assets after the transfers were “unreasonably small in

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relation to the business or transaction.” Utah Code Ann. § 25-6-5(1)(b). For the same

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reason, the Receivership Defendants’ alleged insolvency suffices to state a claim under

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Utah Code Ann. § 25-6-6. Defendants demand that the Receiver outline what remaining

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assets the Receivership Defendants held at the time of their various transfers, and when

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precisely they became insolvent in relation to the various transfers. But these questions

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need not be answered in exacting detail, so long as plausible allegations of fraudulent

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transfers are alleged, and these allegations describe “the who, what, when, where, and

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how of the misconduct charged.” Vess, 317 F.3d at 1106. The Receiver has done so

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here.

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V.

CONCLUSION

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The Court’s standard of review on a motion to dismiss is lenient and does not

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require that the Receiver prove his claims at this early stage in the litigation.

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Accordingly, IT IS ORDERED that Defendants’ Motion to Dismiss (dkt. no. 28) is

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DENIED.

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DATED THIS 14th day of June 2013.

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MIRANDA M. DU
UNITED STATES DISTRICT JUDGE

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