Miller v. Parker et al
Filing
39
MEMORANDUM DECISION AND ORDER granting 34 Motion for Summary Judgment. Signed by Judge David Nuffer on 10/22/13 (alt)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH, CENTRAL DIVISION
GIL A. MILLER, as Receiver for
IMPACT PAYMENT SYSTEMS, LLC,
and IMPACT CASH, LLC,
MEMORANDUM DECISION and ORDER
GRANTING RECEIVER’S MOTION FOR
SUMMARY JUDGMENT
Plaintiff,
v.
Case No. 1:12-cv-61-DN-EJF
LARRY PARKER, SR., an individual,
and LILLI PARKER, an individual,
District Judge David Nuffer
Defendants.
Defendants Larry and Lilli Parker (the Parkers) are investors in Impact Payment Systems,
LLC and Impact Cash, LLC (together, Impact). Plaintiff is the court-appointed receiver in SEC
v. Clark. 1 For the benefit of the estate, the Receiver seeks the return of the amount the Parkers
received from Impact in excess of their investments as a fraudulent transfer. The Receiver filed
a motion for summary judgment 2 and the Parkers did not respond. To prevail on a motion for
summary judgment the Receiver must show that there is “no genuine dispute as to any material
fact and that [the Receiver] is entitled to judgment as a matter of law.” 3 This order grants the
motion for summary judgment, declaring that the Parkers must return to the estate the amount
they received from Impact in excess of their initial investment, plus post-judgment interest.
1
Case No. 1:11-cv-46-DN (Impact Payment Systems, LLC and Impact Cash, LLC are named defendants).
2
Receiver’s Motion for Summary Judgment and Memorandum in Support (Motion), docket no. 34, filed May 28,
2013.
3
Fed. R. Civ. P. 56(a).
UNDISPUTED FACTS
The following factual statements from the Receiver’s motion for summary judgment are
not disputed.
1.
The Parkers invested $462,000 in Impact. However, $252,000 of that money did
not belong to the Parkers, but was money raised from John & Priscilla Van Osdel. The Van
Osdels filed a claim with the receivership for the return of their investment. The Receiver has
validated the Van Osdels’ claim. 4
2.
The Parkers received payments from Impact totaling $634,600 (this total includes
the above referenced $252,000). In total, the Parkers received $172,600 more from Impact than
they invested. 5
3.
From August 29, 2007 to March 31, 2009, Impact made payments directly to the
Parkers’ personal account. From April 1, 2009 to October 29, 2010, Impact made payments to a
bank account controlled by the Parkers, but in the name of Parker-Morris Financial Investments
LLC. 6
4.
Parker-Morris Financial Investments LLC (Parker-Morris) is a Utah limited
liability company that was registered in April 2007. 7 Gary Henrie was the registered agent of
Parker-Morris and John Scott Clark was its manager. 8
5.
Gary Henrie is former legal counsel for Impact. 9
4
See Expert Report of David Bateman, dated March 29, 2013 (Bateman Report) at13, attached as Exhibit A to
Motion, docket no. 34-1.
5
See id. at 12-13.
6
See Declaration of David Bateman, dated May 16, 2013, ¶¶ 7 and 8, attached as Exhibit B to Motion, docket no.
34-4.
7
See Certified Copy of Articles of Organization for Parker-Morris, dated April 6, 2007, attached as Exhibit C to
Motion, docket no. 34-5.
8
Id.
9
Declaration of Gary R. Henrie, dated June 13, 2012, ¶¶ 2-3, attached as Exhibit D to Motion, docket no. 34-6.
2
6.
In 2009, Company Management Fund, LLC replaced John Scott Clark as the
manager of Parker-Morris. 10 Company Management Fund, LLC was managed by Gary Henrie
alone. 11
7.
The Utah Division of Corporation’s records reflect that the Parkers have never
been members or managers of Parker-Morris.
8.
This Court has already determined that Impact was operated as a Ponzi scheme. 12
9.
Gil A. Miller was appointed as Receiver in this matter on March 25, 2011. 13 Mr.
Miller has concluded that Impact was operated with the characteristics of a Ponzi scheme since
at least 2006. 14
10.
Mr. Miller and the accountants working with him conducted a thorough analysis
of Impact’s business operations and its accounting records. They relied on the
contemporaneously kept records at Impact and on bank records obtained by subpoena. 15 A
detailed description of the methods employed is contained in the expert reports of Mr. Bateman
and of Gil A. Miller.
11.
Impact commingled investor funds through intercompany and inter-account
transfers. 16
10
See Certified Copy of Summary of Online Changes for Parker-Morris, dated June 2, 2009, attached as Exhibit E
to Motion, docket no. 34-7.
11
See Certified Copy of Articles of Organization for Company Management Fund, LLC, attached as Exhibit F to
Motion, docket no. 34-8.
12
See Order on Receiver’s Motion to Approve Plan of Distribution at 4, ¶ 4, docket no. 184, filed May 11, 2012 and
Order at 2, docket no. 360, filed April 10, 2013 (each filed in SEC v. John Scott Clark et al., Case No. 1:11-cv-46DN).
13
Order Appointing Receiver, Imposing Asset Freeze and Prohibiting Destruction of Documents at 2, ¶ 2, docket
no. 8, filed March 25, 2011 in SEC v. Clark et al., Case No. 1:11-cv-46-DN.
14
See Expert Report of Gil A. Miller at 3, dated March 29, 2013 (Miller Report), attached as Exhibit G to Motion,
docket no. 34-9.
15
See Bateman Report at 5; Miller Report at 13.
16
See Bateman Report at 5-8.
3
12.
Although Impact purported to maintain balance records for each investor, those
records were inaccurate. According to an e-mail from one of the accounting employees at
Impact to Scott Clark, many of the investor accounts should have had negative cash balances. At
the time of his e-mail, August 9, 2010, there was a total negative balance of more than $8.3
million. 17
13.
In order to make distributions to investors who had a negative balance, Impact’s
accountants would book entries in the accounting records labeled as “temp loans,” effectively
taking money that had been accounted for as belonging to one investor and paying it to another.
In reality, no transfer of funds was necessary as all of the money was in a single account. 18
14.
Tori Jackson, who filled an accounting position with Impact, testified that
distributions were sent to investors when companies had negative balances. 19
15.
Impact Payment Systems had losses totaling $1,056,055 as of December 31,
16.
Impact and its related companies did not show an operating profit in any year
2009. 20
when distributions to investors were made. The Impact entities realized a collective net loss of
nearly $3 million during that time. 21 Nevertheless, they distributed over $52.6 million. 22
17.
When Impact’s records include an appropriate bad debt adjustment, none of the
$52.6 million in payments could have been made with operating profits. The only source for
these distributions was from principal invested by other investors. 23
17
See id. at 8 n.11.
18
See id. at 8.
19
Jackson Beutler Dep. 123:10, May 9, 2011(relevant portions attached as Exhibit H to Motion, docket no. 34-10).
20
See Bateman Report at 8.
21
See id. at 11.
22
Id.
4
18.
Dirk Pace, an Impact accounting employee, testified that since the time he was
hired by the company in September 2008, it recorded a loss each year and used investor money
to cover those losses. 24
19.
One of Impact’s accountants, Brandon Cowley, testified in his deposition that
new investor money that was supposed to be used to fund payday loans came into Impact
accounts and left the accounts within the same week to pay out old investors who had requested
dividend payments or liquidation proceeds. 25
20.
Impact investors were promised large returns for their investments. Some
investors were promised up to an 80% annual return. Others were told they would double their
money in a year, or even within months. Investors were typically led to believe they were
making between 30% and 40% in annual returns. 26
21.
Impact used investor funds that were supposed to be used for payday loans to
cover expenses. 27
Fraudulent Transfer Law and the Ponzi Presumption
Under the Utah Uniform Fraudulent Transfer Act,
a transfer made . . . by a debtor is fraudulent as to a creditor . . . if the debtor made
the transfer . . . with actual intent to hinder, delay, or defraud any creditor of the
debtor; or without receiving a reasonably equivalent value in exchange for the
transfer. 28
23
Id.
24
Pace Dep. 17:12, October 7, 2011 (relevant portions attached as Exhibit I to Motion, docket no. 34-11).
25
Cowley Dep. 28-29, May 24, 2011 (relevant portions attached as Exhibit J to Motion, docket no. 34-12).
26
See Miller Report at 8.
27
See id. at 10.
28
Utah Code Ann. § 25-6-5(1)(a), (b).
5
The Receiver’s burden of proving actual intent on summary judgment is conclusively established
by proving the entities under his control were operated as a Ponzi scheme. 29
Under the Uniform Fraudulent Transfer Act (UFTA), once it is established that a debtor
acted as a Ponzi scheme, all transfers by that entity are presumed fraudulent. 30 “Where causes
of action are brought under UFTA against Ponzi scheme investors, the general rule is that to the
extent innocent investors have received payments in excess of the amounts of principal that they
originally invested, those payments are avoidable as fraudulent transfers.” 31 Once a receiver
proves a company operated as a Ponzi scheme, he has conclusively established that it transferred
investment returns with the intent to defraud the investors, making the transfers to the investors
“fraudulent transfers” within the meaning of the UFTA. 32
Summary judgment is appropriate if “there is no genuine issue as to any material fact and
the movant is entitled to judgment as a matter of law.” 33 Based on this standard, and for the
reasons mentioned above, the Court grants the Receiver’s motion for summary judgment.
ORDER
IT IS HEREBY ORDERED that the Receiver’s Motion for Summary Judgment 34 is
GRANTED.
29
See Warfield v. Byron, 436 F.3d 551, 558 (5th Cir. 2006) (citing Scholes v. Lehmann, 56 F.3d 750, 757 (7th Cir.
1995)).
30
See Wing v. Dockstader, No. 11-4006, 2012 WL 2020666, at *2 (10th Cir. June 6, 2012) (citing Donnell v.
Kowell, 533 F.3d 762, 770 (9th Cir. 2008)).
31
Donell v. Kowell, 533 F.3d 762, 770 (9th Cir. 2008) (citations omitted).
32
Wing v. Gillis, No. 2:09-cv-314-DB-BCW, 2012 WL 994394, at *2 (D.Utah 2012).
33
Fed. R. Civ. P. 56(c).
34
Docket no. 34.
6
IT IS FURTHER ORDERED that Larry Parker, Sr., and Lilly Parker, jointly and
severally, must return $172,600 to the receivership estate, plus interest at the statutory postjudgment rate pursuant to 28 U.S.C. §§ 1961(a) and 1961(b).
IT IS FURTHER ORDERED that trial and related dates are STRICKEN. The clerk is
directed to close the case.
Signed October 22, 2013.
BY THE COURT
________________________________________
District Judge David Nuffe
7
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