CARROLL et al v. STETTLER et al
MEMORANDUM AND/OR OPINION RE: PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT (DOC. NO.501). SIGNED BY HONORABLE MARY A. MCLAUGHLIN ON 4/18/2013. 4/19/2013 ENTERED AND COPIES MAILED TO PRO SE, UNREPS AND COUNSEL, E-MAILED.(kk, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
THOMAS CARROLL, et al.
WILLIAM STETTLER, III et al.
April 18, 2013
This lawsuit concerns monies that were transferred to
defendants as part of a Ponzi scheme operated by a third party,
The plaintiffs, who lost their investments in
the fraudulent scheme, seek the voidance of these transfers
under the Pennsylvania Uniform Fraudulent Transfer Act and the
equitable doctrine of unjust enrichment.
In the instant motion,
they move for summary judgment against twelve defendants and
Against nine defendants, they seek the return
of investment profits which had been transferred during the
course of the fraud.
Against the remaining three defendants,
who the plaintiffs have deemed “insiders” of the scheme, they
seek the return of investment profits and principal, as well as
salaries and commissions.
In this opinion, the Court addresses the motion as to
the “insider” defendants only.
For the reasons stated below,
the Court grants the motion in part and denies it in part.
Gaddel Enterprises and Lizette Morice
Lizette Morice was the founder and head of Gaddel
Enterprises, Inc., a purported real estate investment firm,
which operated from sometime in early 2006 until July 2007.
Morice represented to the plaintiffs that Gaddel was in the
business of buying tax foreclosed properties from the state and
reselling those properties to relocation firms at a substantial
Tr. Change of Plea Hearing, U.S. v. Morice, No. 08-cr-
132-1, at 13:10-14:14 (Pl. exh. D).
Morice‟s business plan involved obtaining substantial
investments from mortgage brokers as well as individual
As part of the investment pitch, Gaddel falsely
represented that, due to state regulations, it could not be the
owner of record for more than a certain number of properties per
By putting forth a contribution, Gaddel investors
could earn a share of its profits.
Id. at 13-14.
Morice and her colleagues recruited investors at her
New Jersey home, in her Pennsylvania and New Jersey offices, and
The facts presented here are undisputed unless otherwise noted.
Disputed facts are read in the light most favorable to the
nonmoving party, the defendants. Sheridan v. NGK Metals Corp.,
609 F.3d 239, 251 n.12 (3d Cir. 2010).
at elaborate black-tie affairs paid for by Gaddel.
generally contributed around the sum of $1,000, but some
contributed multiples of that amount.
Many of the investors had
personal relationships with Morice and/or her employees.
Verification of Troy McClain (“McClain Verif.”) ¶ 25-27 (Docket
In reality, Morice and Gaddel made no such real estate
transactions, and monies paid to earlier investors were actually
derived from later investors – a chain of events commonly
referred to as a Ponzi scheme.2
On July 23, 2008, Morice pled
guilty to seven counts of mail fraud for conducting a Ponzi
scheme worth over $7 million dollars.3
Id. at 14-16.
“A [P]onzi scheme is a scheme whereby a corporation operates
and continues to operate at a loss. The corporation gives the
appearance of being profitable by obtaining new investors and
using those investments to pay for the high premiums promised to
earlier investors. The effect of such a scheme is to put the
corporation farther and farther into debt by incurring more and
more liability and to give the corporation the false appearance
of profitability in order to obtain new investors.” Hirsch v.
Arthur Andersen & Co., 72 F.3d 1085, 1088 n.3 (2d Cir. 1995)
(internal citations omitted).
In connection with her guilty plea, Morice admitted to the
above-referenced facts. Tr. Change of Plea Hearing, at 13:1016:11. In addition, the Court has granted the plaintiffs‟
motion for judicial notice of the existence of the Gaddel Ponzi
scheme. Order, 7/8/11 (ECF No. 356).
sentenced to ten years in prison in connection with these
Judgment, U.S. v. Morice, at 2 (Pl. exh. E).
The plaintiffs in the instant case consist of a class
of persons or entities who had previously invested in Gaddel and
had incurred a net loss in a defined time period and who were
not paid salaries by Gaddel.
Order, 10/19/11, at 2 (Docket No.
The plaintiffs‟ investments were represented to be “100%
fully refundable throughout the entire process.”
Pl. Mot. exh.
II (Docket No. 501-48).
The defendants all received financial transfers from
Morice and Gaddel sometime between April 2006 and July 2007.
particular, defendants Albin E. Delgado, James Martin, and Troy
McClain were salaried employees of Gaddel.4
The remaining ten
defendants are non-employee investors who are not the subjects
of this opinion.
The Court has included certain statements made by the
defendants in its factual recitation. James Martin submitted a
letter, which the Court docketed onto the record and instructed
parties that it would be considered an opposition. Docket No.
511. Martin also appeared at oral argument. Troy McClain
submitted a brief in opposition and appeared at oral argument.
Of the three defendants, only McClain is represented by an
attorney. Albin Delgado failed to submit any opposition to the
motion for summary judgment and did not appear at oral argument.
Albin E. Delgado
Albin Delgado was a paid employee of Gaddel
As of June 2006, early in the Ponzi scheme, he
held a supervisory sales role at Gaddel.
Pl. Mot. exh. H-I.
At a June 7, 2006 team meeting, Delgado prepared a
list of rules for a Gaddel sales meeting.
information regarding how to “become a salesperson,” namely
having a credit check and a urine sample.
In addition, it
included substantive instructions as to how to pitch investments
For example, it stated that “[n]o photos of any
kind are to be taken of the properties by potential buyers or
salespeople (no exceptions).”
It also stated that “[u]nder no
circumstance is a buyer or salesperson to be on the property or
in the driveway;” instead, buyers were “only allowed to briefly
park in front for a visual.”
Failure to adhere to this rule
would “result in termination.”
Delgado, District Manager.”
The document was signed “Albie
Pl. Mot. exh. I.
Albinator Enterprises, Inc. is an entity owned by Delgado.
Compl. at ¶ 19 (Docket No. 427); Pl. Mot. exh. H at 1.
James Martin was also a paid employee of Gaddel
He worked at Gaddel from November 2006 through
He was primarily recruited and trained by Troy
McClain, who he understood to have previous experience in the
James Martin Dep. 144:3-13; 246:4-249:13;
283:17-24 (Pl. exh. G).
Unlike McClain and Delgado, Martin was not the head of
any sales team.
In his capacity as a sales consultant, he
visited potential investors and discussed the program‟s
opportunities with them.
Once a week, he attended a sales
meeting in the Gaddel office.7
Martin communicated with McClain,
and to a more limited extent with Morice, regarding sales
pitches and promotion proposals.
His commission was one-and-a-
Martin Marketing is an entity owned by Martin. Am. Compl. ¶
16. Chantel Martin is the wife of James Martin. She was not
employed by Gaddel or Morice in any capacity. Tr. Hr‟g 3/13/13
In the excerpted portion of Martin‟s deposition accompanying
the plaintiffs‟ motion for summary judgment, the Court did not
see testimony from Martin regarding the frequency of his
presence in Gaddel offices. During oral argument, Martin
represented that he only went to the office for Monday sales
meetings. Tr. Hr‟g 3/13/13 53:19-24. The plaintiffs did not
contest Martin‟s statement.
half percent for each property closing.
Martin was responsible for selling investments to
named plaintiffs Thomas Carroll and Kimberly Baker.
As part of
his sales pitch, he gave plaintiffs a “Frequently Asked
Questions” document, which included references to the fact that
the investment entailed no risk and was not a pyramid scheme.
At deposition, Martin testified that he knew of no other
opportunities that would produce such results.
testified that at the time, he believed that Gaddel could turn a
$1,000 investment into $1 million dollars in two years.
347:20-34; 533:11-19; 534:3-12; see also Pl. Mot. exh. J.
It is uncontested that Martin invested at least
several thousand dollars of his own money in Gaddel.8
It is also
uncontested that Martin invested on behalf of his wife, and that
Martin recruited his mother and sister-in-law to invest, as
Specifically, the plaintiffs contend that Martin invested
$8,000. Pl. Mot. at 26. Martin stated during deposition that
he invested around $80,000. Martin Dep. 454:6-9; see also Tr.
Hr‟g 3/13/13 51:14-17. This discrepancy reflects an issue
regarding amounts purportedly invested in Gaddel commercial
properties, which was a disputed subject among a number of
Id. 459:23-464:11; 454:6-9; see also Pl. Am. Compl. ¶ 16;
Pl. Mot. exh. QQ.
Troy McClain was also a paid employee of Gaddel.9
began working at Gaddel around January 2006 as a salesperson.
On or around July 2006, he was promoted to become the head of
Dream Team, one of six sales teams.
He worked out of the Gaddel
office in Morrisville, Pennsylvania.
As head of the Dream Team,
he managed 6 to 8 other salespeople.
He did not receive any
additional compensation after this promotion.
Def. McClain Opp.
exh. 1 (“McClain Verif.”) ¶ 12, 15-16, 26-27.
At the direction of Morice, McClain recruited Martin
to join Gaddel.
He also trained Martin and was the point person
when Martin delivered investment money to the main office.
Martin Dep. 143:7-144:17.
Morice provided McClain with information related to
the property sales, including how the program worked and which
properties were purchased and sold as part of the foreclosure
McClain then relayed this information through his
McClain also owns and operates the entity Troy McClain Rental
Enterprises, Inc. Am. Compl. ¶ 21.
sales presentations to potential investors.
McClain Verif. ¶
McClain was an authorized signatory for the Dream
Team‟s corporate bank account.
However, McClain has stated that
he did not have access to these bank accounts, and that his
signatures were forged on other corporate documents.
had no knowledge about the network of mortgage brokers or
Morice‟s corporate contacts.
Id. ¶ 16-17, 25, 30; see also Tr.
Hr‟g 3/13/13 34:9-35:13.
In addition to being a salesperson, McClain also took
on service roles for Morice.
every six weeks.
For example, he cleaned the office
He also provided chauffeur services for guests
of Morice at meetings and for social events.
Id. ¶ 27.
It is uncontested that McClain invested at least seven
thousand dollars in Gaddel.10
It is also uncontested that
McClain spent some of his own money hiring a secretary and
organizing sales meetings.
Plaintiffs contend that McClain only invested $7,000 in
Gaddel. Pl. Mot. at 26. McClain stated that he invested
$20,000 -- $9,000 in the residential property program and
$11,000 in the commercial property program. McClain verif. ¶
The plaintiffs commenced this action to void transfers
related to investment profits, principal, salaries, and
commissions, which were paid to the defendants from Gaddel
Claiming relief under the Pennsylvania Uniform Fraud
Transfer Act as well as the equitable doctrine of unjust
enrichment, the plaintiffs now move for summary judgment under
Fed. R. Civ. P. 56(a) on both counts.12
Pennsylvania Uniform Fraudulent Transfer Act
The plaintiffs‟ first claim derives from
Pennsylvania‟s version of the Uniform Fraud Transfer Act.
Pa. Con. Stat. § 5101, et seq.
Under PUFTA, creditors may
obtain voidance of a transfer or obligation made to another
party under three conditions: 1) the plaintiffs are “creditors”
These monies would subsequently be distributed pro rata among
the plaintiffs and class members.
The defendant is entitled to summary judgment if there “is no
genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(a). The moving party bears the initial burden of
demonstrating an absence of genuine issues of material fact.
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). An issue is
genuine if there is a sufficient evidentiary basis for a
reasonable jury to find for the non-moving party; it is material
if it may affect the outcome of the suit under governing law.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
as defined by the statute; 2) the transfers were made with
actual fraudulent intent; and 3) there are no viable defenses.
Id. § 5104(a)(1); 5107(a)(1); 5108(d).
Courts in this district
have routinely accepted the application of PUFTA in Ponzi scheme
situations, so long as all three criteria are met.
v. Malvern Preparatory Sch., 716 F. Supp. 2d 395, 397-98 (E.D.
Pa 2010); Schwartzman v. Sierra Capital Res., LLC, No. 11-7395,
2012 WL 5354595, at *3 (E.D. Pa. Oct. 31, 2012); Schwartzman v.
Hutchison, No. 11–1349, 2011 WL 4471059, at *3 (E.D. Pa. Sept.
The plaintiffs must first establish that they are
creditors of Gaddel.
As defined by the statute, a person is a
creditor if he “has a right to payment.”
12 Pa. Con. Stat. §
Here, the plaintiffs have presented undisputed
evidence that Gaddel investments were “100% fully refundable
through the entire process.”
This was made clear in sales
presentations as well as on receipts.
Pl. Mot. exh. II.
even though the right has not been reduced to judgment, the
plaintiffs qualify as creditors under PUFTA.
E.g., In re
Arbogast, 466 B.R. 287, 321 (Bankr. W.D. Pa. 2012).
“Actual Fraudulent Intent”
Second, the plaintiffs must demonstrate that Gaddel
transferred money to the defendants with the actual intent to
The mere existence of a Ponzi scheme is sufficient to
establish an actual fraudulent intent.
See Hecht, 716 F. Supp.
2d at 395; Schwartzman, 2011 WL 4471059 at *3; see also In re
Slatkin, 525 F.3d 805, 814 (9th Cir. 2008); S.E.C v. Res. Dev.
Int‟l, LLC, 487 F.3d 295, 301 (5th Cir. 2007).
In the instant case, Morice has admitted that she
operated a Ponzi scheme.
Change of Plea Hearing, 13:10-16:11.
The Court has previously granted the plaintiffs‟ motion for
judicial notice of the existence of the Gaddel Ponzi scheme.
Order, 7/8/11 (ECF No. 356).
This undisputed evidence is
sufficient to establish PUFTA‟s second requirement.
“Good Faith” Affirmative Defense
Finally, PUFTA allows for an affirmative defense
commonly referred to as the “good faith” affirmative defense.
transaction is not voidable under PUFTA if a transferee
demonstrates that 1) he took in good faith and 2) for a
“reasonably equivalent” value.
12 Pa. Con. Stat. § 5108.
As a preliminary matter, the Court holds that the
submissions by defendants McClain and Martin are sufficient to
invoke the affirmative defense, even if their answers do not
mention the defense by name.
See generally Fed. R. Civ. P.
Defendant McClain‟s answer asserted “all defenses and
protections available under 12 Pa. Con. Stat. § 5108.”
Answer (Docket No. 434).
Defendant Martin‟s answer asserted
that he had no inside information and that he was not a Gaddel
Martin Answer (Docket No. 9).
In light of defendant
Martin‟s pro se status, the Court will “apply the applicable
law, irrespective of whether the pro se litigant has mentioned
it by name.”
Dluhos v. Strasberg, 321 F.3d 365, 369 (3d Cir.
In contrast, after answering the complaint, which also
did not mention the good faith defense by name, defendant
Delgado has not submitted anything else to the Court.
to submit any opposition to the plaintiffs‟ motion for summary
judgment, and he did not appear at oral argument.
evidentiary record in front of this Court does not contain
sufficient facts on which to support a defense of good faith on
behalf of Delgado.
Thus, the Court will grant the plaintiffs‟
motion against Delgado and his entities as to the PUFTA claim,
and it will analyze the good faith defense as to defendants
Martin and McClain only.
“Good Faith” under PUFTA
The first prong of the good faith defense is a showing
that the transferee took in good faith.
To assess good faith,
courts analyze “whether the investor has sufficient knowledge to
place him on inquiry notice of the voidability of the transfer.”
Hecht, 716 F. Supp. 2d at 401. (internal citations omitted).
If the defendant ignored red flags which revealed the
true nature of the scheme, or there is other evidence that the
investment was too good to be true, then a court may find that
the defendant has not met his burden of proving good faith.
E.g., id.; In re Burry, 309 B.R. 130, 136 (Bankr. E.D. Pa.
Relevant factors include the investor‟s financial
sophistication, the number and nature of red flags, and whether
the monies the investor obtained likely deterred him from
investigating or taking other appropriate action.
Forte, No. 09-63, 2012 WL 1719145, at *6 (E.D. Pa. May 16,
This inquiry is subjective:
a transferee must
demonstrate that he acted without “actual fraudulent intent.”
Id., at *5.
After examining the evidence on the record in its
entirety, the Court finds that there is a genuine dispute as to
whether defendants Martin and McClain were on inquiry notice of
the Gaddel Ponzi scheme.
It holds that the plaintiffs are not
entitled to judgment as a matter of law.
First, with regard to defendant Martin,13 his exposure
to the inner-workings of Gaddel was limited.
Martin was several
rungs removed from Morice on the Gaddel hierarchy.
employment at Gaddel began months after the Ponzi scheme began,
and he only worked there for about seven months.
hold a leadership role in the company.
He did not
understood that some of his supervisors had previous experience
in the mortgage industry, and he has testified that at the time,
he relied on these representations that an investor could
exponentially multiply his original investments.
The Court pauses to address a concern that Martin raised in
his letters and during oral argument regarding his wife, Chantel
Martin. It is undisputed that Chantel Martin was not employed
by Gaddel and did not have access to any insider information.
Tr. Hr‟g 3/13/13 at 52:20-53:6. The plaintiffs have not made
any request to hold her liable for investment principal as an
insider, but rather for the investment profits only. The
analysis for the Martins‟ liability regarding investment profits
is discussed in footnote 14 of this opinion.
The plaintiffs rely primarily on the fact that Martin
crafted certain emails that were sent to Gaddel colleagues,
Pl. Mot. at 24.
One email described how an
$1,000 investment could become $1 million dollars in two years.
The other proposed a contest for sales representatives to
incentivize clearing property inventory at the end of the year.
Pl. Mot. exh. L-M.
They also point to the fact that he stated
at a deposition that he knew of no other opportunity which would
offer such returns.
Pl. Mot. at 24.
However, Martin‟s sales pitches and correspondences
with Morice aligned with Gaddel‟s representations in general –
that investing small amounts of monies in foreclosed properties
can lead to huge returns – and offered no proof that he was
privy to any unique knowledge regarding the scheme.
understanding that no other investment offered comparable
returns is by itself insufficient for the Court to presume
A reasonable jury could find that Martin‟s
belief in his employer, however uninformed, was not so unfounded
that he should have known it was too good to be true.
As to defendant McClain, the Court also finds that
there remain genuine issues of material fact regarding his level
of special access.
On one hand, McClain‟s relationship with
Gaddel began at an earlier stage and he stayed throughout the
whole Ponzi scheme period, taking some leadership role.
However, from the evidence on the record, the information
conveyed by McClain was not unique in comparison to the
information conveyed by others.
It is unclear whether McClain
accessed the Dream Team bank accounts, and even if he did, there
are other reasons to explain why that particular account did not
reflect real estate transactions.
McClain was never deposed by the plaintiffs, but in a
unsworn verification he submitted to the Court, he stated that
he had no knowledge of Morice‟s network of mortgage brokers or
He has also recounted in great detail the
elaborate galas thrown by Morice and the distinguished guests
He emphasized that many of Gaddel‟s investors
were well-respected in the mortgage industry.
McClain Verif. ¶
It would not be unreasonable for a factfinder to believe
McClain‟s version and to find that he was not on inquiry notice
of the scheme.
Thus, the Court holds that there remain genuine issues
as to whether defendants Martin and McClain were on inquiry
notice of the Gaddel Ponzi scheme.14
It now turns to the second
prong of the good faith affirmative defense:
an exchange of
“reasonably equivalent value.”
Exchange for Reasonably Equivalent Value
Second, a defendant seeking to invoke the good faith
affirmative defense must also demonstrate that the monies he
received were exchanged for a reasonably equivalent value.
Pa. Con. Stat. § 5108.
This prong of the good faith affirmative defense
distinguishes between the types of monies that can be avoided
There are three categories of monies at stake:
investment principal, investment profit, and salary/commissions.
A return of the principal of an investment will always be a
“reasonably equivalent value” exchange, because by definition,
the transferor is returning exactly the amount that was
Hecht, 716 F. Supp. 2d at 401.
the investment profits derived from a Ponzi scheme cannot, as a
To the extent that the Court denies the motion for summary
judgment as to Martin and McClain, it denies it as to the
entities Martin Marketing and Troy McClain Rental Enterprises,
Inc., as well. The plaintiffs have not pointed to any facts
that would lead the Court to conclude that the entities ought to
be held liable for actions beyond those of the named defendants.
matter of law, have been “exchanged” for anything of reasonably
equivalent value; they are by definition over and above the
As the Ninth Circuit reasoned, “Amounts
above [the initial investment] are merely used to keep the fraud
going by giving the false impression that the scheme is a
profitable, legitimate business.
These amounts are not a
„reasonably equivalent‟ exchange for the defrauded investor‟s
Donnell v. Kowell, 533 F.3d 762, 777-778 (9th
Finally, there is the issue of sales/commissions that
were paid to an employee on behalf of their sales and brokerage
Courts have been divided as to whether a transfer to
In the instant case, the plaintiffs have conceded that McClain
did not receive any investment profits from Gaddel. Pl. Supp.
Memo. at 2 (Docket No. 570). There remain genuine issues as to
the amount invested by Martin, which subsequently affects how
much of the monies transferred were a return on principal and
how much was pure profit. Martin has consistently maintained
that he invested $80,000, making him a net loser in terms of
investment even when taking his salary into account. See, e.g.,
Martin Dep. 454:6-9; Tr. Hr‟g 3/13/13 51:14-17. The plaintiffs
have stated that only $8,000 of these transactions is reflected
in Gaddel and Martin bank accounts. Due to these issues of
material fact, the Court denies the plaintiffs‟ motion with
respect to Martin‟s investment profits. Furthermore, because
Chantel Martin‟s liability is tied to James Martin‟s liability,
the Court denies the plaintiffs‟ motion with respect to Chantel
Martin, as well.
a salesperson or broker in the Ponzi scheme context can ever be
an exchange for reasonably equivalent value.
Some courts, including the Fifth Circuit, have been
reluctant to find that the recruitment of new investors for a
Ponzi scheme can ever constitute value added to the company.
These courts‟ inquiries take into account the nature of the
Ponzi scheme and the defendant‟s role within that Ponzi scheme.
See, e.g., Warfield v. Byron, 436 F.3d 551, 560 (5th Cir. 2006)
(taking the position that analysis of value should consider “the
degree to which the transferor‟s net worth is preserved.”).
Because the selling of investments in furtherance of a Ponzi
scheme serves only to perpetuate an illegal fraud, the value
conferred by the salespeople is illegal in its nature.
the argument goes, no exchange of reasonably equivalent value
could have taken place.
See In re Randy, 189 B.R. 425, 438-39
(Bankr. N.D. Ill. 1995); see also Warfield, 436 F.3d at 560
(citing cases); see also id. (“It takes cheek to contend that in
exchange for the payments he received . . . the Ponzi scheme
benefited from his efforts to extend the fraud by securing new
Other courts have shied away from a per se rejection
of the good faith affirmative defense and have determined that
the defense should be considered on a case-by-case basis. The
Eleventh Circuit, for example, has held that a daughter of the
Ponzi scheme propagator, who received as commission a percentage
of the total revenue, was entitled to present a good faith
In re Fin. Federated Title & Trust, Inc.,
309 F.3d 1325, 1332 (11th Cir. 2002) (citing cases).
concluded that a determination of value given “should focus on
the value of the goods and services provided rather than on the
impact that the goods and services had on the bankrupt
Id.; see also In re Churchill Mortg. Inv. Corp.,
256 B.R. 664, 678 (Bankr. S.D.N.Y. 2000), aff‟d, Balaber-Strauss
v. Lawrence, 264 B.R. 303, 308 (S.D.N.Y. 2001); In re
Carrozzella & Richardson, 286 B.R. 480, 487 (D. Conn. 2002).
The Third Circuit has not weighed in on this circuit split.
This Court is inclined to agree with the Eleventh
The statute‟s iteration of the affirmative defense, as
The Court notes that In re Financial Federated, as well as the
Balaber-Strauss case discussed below, interpret “reasonably
equivalent value” in the context of Section 548 of the
Bankruptcy Code, not of a Uniform Fraudulent Transfer Act.
However, the constructive fraud provisions of PUFTA and the
Bankruptcy Code should be construed uniformly. E.g., Fidelity
Bond & Mortg. Co. v. Brand, 371 B.R. 708, 719-20 (Bankr. E.D.
Pa. 2007); cf. In re Hemstreet, 258 B.R. 134, 137 (Bankr. W.D.
well as its definition of a “reasonably equivalent value,” makes
no mention of a scheme-based analysis of the transaction;
rather, in stating that a transfer is not fraudulent “against a
person who took in good faith and for a reasonably equivalent
value,” the focus is placed on the specific transferee and the
12 Pa. Cons. Stat. § 5108(a); see also 12
Pa. Con. Stat. § 5103(b).
Moreover, the statute‟s Commentary
discussing what is reasonably equivalent value also speaks in
specific terms and states that such analyses of value should be
12 Pa. Con. Stat. § 5103, cmt. 1, 3.
find that sales commissions in the Ponzi scheme context are by
definition not reasonably equivalent would call for a broadbased analysis of the scheme at large.
Yet “the statutes and
case law do not call for the court to assess the impact of an
alleged fraudulent transfer in a debtor‟s overall business.”
re Churchill, 256 B.R. at 680.
In Balaber-Strauss, the Southern District of New York
held that brokers, who had originated bogus mortgage investments
and solicited investors, were entitled to an analysis of whether
their services were worth an equivalent value to the company as
264 B.R. at 308.
Disagreeing with Randy, the
court held that the brokers‟ actions as it related to the
overall Ponzi Scheme “is of no relevance” to the inquiry;
rather, “[v]alue is present if the debtor receives a fair
equivalent in exchange for its property or obligation.”
Thus, “for value” should analyze the specific transaction, and
whether the defendant actually performed the services for which
they were paid and whether the commissions were proportionate to
those paid in the industry.
Cf. In re Churchill, 256 B.R. at
In the instant case, reasonable minds could disagree
about whether defendants Martin and McClain provided services
that were reasonably equivalent to the value of the monies paid
out to them.
There is no evidence that either defendant failed
in the scope of their sales employment; quite the contrary, the
evidence presented shows that both were diligent in effecting
sales, reaching out to their contacts on a regular basis.
is also evidence that at least McClain had responsibilities
within Gaddel that were not related to sales.
For example, in
his verification, he states that he performed custodial and
Finally, McClain has also contended that his
compensation was consistent with his prior employment.
Verif. at ¶ 27.
The Court denies the plaintiffs‟ motion as to the
PUFTA claims against defendants Martin and McClain.
the plaintiffs have established that they are creditors under
PUFTA and that the Gaddel transfers were made with actual
fraudulent intent, there remain genuine issues of material fact
as to whether the transfers qualify for the affirmative defense.
The plaintiffs have also put forth a parallel state
law unjust enrichment claim.17
Under Pennsylvania law, a
plaintiff can recover in equity under an unjust enrichment claim
if he demonstrates: (1) benefits conferred on defendant by
plaintiff; (2) appreciation of such benefits by defendant; and
(3) acceptance and retention of such benefits under such
circumstances that it would be inequitable for defendant to
retain the benefit without payment or value. AmeriPro Search,
Inc. v. Fleming Steel Co., 787 A.2d 988, 991 (Pa. Super. Ct.
To a large extent, the plaintiffs‟ unjust enrichment arguments
mirror their PUFTA arguments. Cf. Pl. Mot. at 26 (“For similar
reasons as set forth above, Plaintiffs are also entitled to
prevail on their unjust enrichment claim.”). It does not appear
that the plaintiffs seek any additional remedies in equity above
that which is required under PUFTA.
The most significant element of the doctrine is
whether the enrichment of the defendant is unjust.
also Hecht, 716 F. Supp. 2d at 402 (denying a defendant‟s motion
to dismiss an unfair enrichment claim under Ponzi facts).
Court holds that the plaintiffs have not met their burden on
this factor as to defendants Martin and McClain.18
discussed, these defendants have sufficiently demonstrated that
they may be entitled to an affirmative defense under PUFTA,
because there remain genuine issues as to whether the
transactions were accepted by Martin and McClain in good faith.
The plaintiffs have not cited to any case law for the premise
that a transfer can fail under PUFTA but still be deemed
inequitable as a matter of law.
They also have not pointed to
any facts on the record that would lead to the conclusion in
In conclusion, the Court denies the plaintiffs‟ motion
for summary judgment as to defendants James and Chantel Martin,
Troy McClain, and their respective entities.
Because defendant Delgado did not submit a brief in opposition
or appear at oral argument, the Court does not have any evidence
on the record that would support his position in equity, either.
Thus, the Court grants the plaintiffs‟ motion as to their unjust
enrichment claim against Delgado.
genuine issues of material fact regarding whether the Gaddel
transactions fall under the good faith affirmative defense and
whether the plaintiffs are entitled to remedies in equity.
However, the Court grants the plaintiffs‟ motion as to defendant
Delgado and Albinator Enterprises, Inc.
Without any argument
from Delgado, either in the form of a brief in opposition or
during oral argument, the Court does not have any facts with
which to rebut the plaintiffs‟ contentions against him.
An appropriate order shall issue separately.
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