Miller v. Rodak
Filing
10
MEMORANDUM DECISION AND ORDER denying 6 Motion to Dismiss. Signed by Judge David Nuffer on 8/2/12 (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,
Plaintiff,
MEMORANDUM DECISION &
ORDER DENYING MOTION TO
DISMISS
Case No. 1:12cv76 DN
v.
District Judge David Nuffer
TRAVIS RODAK,
Defendant.
Defendant filed a Motion for Dismissal.1 For the reasons set forth below, the motion is
DENIED.
Introduction
Gil A. Miller (Receiver) was appointed receiver for Impact Cash, LLC and Impact
Payment Systems, LLC (Impact). These businesses were formerly operated by John Scott Clark
as a Ponzi scheme. The Receiver filed this action to seek recoupment from the Defendant,
Travis Rodak (Mr. Rodak), who received undisclosed bonuses and other transfers from Impact
and its related entities. The Receiver seeks to set aside the transfers to Mr. Rodak because they
were made in violation of Utah’s Uniform Fraudulent Transfer Act (UFTA). Mr. Rodak now
moves for dismissal under Rules 8(a) and 12(b)(6) of the Federal Rules of Civil Procedure.
Standard of Review – Motion to Dismiss
Under Federal Rule of Civil Procedure 8(a)(2) a pleading must contain “a short and plain
statement of the claim showing that the pleader is entitled to relief.” In Bell Atlantic. Corp. v.
1
Defendant’s Motion for dismissal (Motion to Dismiss), docket no. 6, filed April 30, 2012.
Twombly2 and Ashcroft v. Iqbal,3 the Supreme Court clarified this standard and held that a
complaint will survive a motion to dismiss if it contains “enough allegations of fact, taken as
true, to state a claim to relief that is plausible on its face.”4 When reviewing a Rule 12(b)(6)
motion “a court must accept as true all of the allegations contained in a complaint.”5 However,
mere “labels and conclusions” or “formulaic recitations of the elements of a cause of action” are
not sufficient.6 “[A] plaintiff must offer specific factual allegations to support each claim.”7
“Determining whether a complaint states a plausible claim for relief [is] a context-specific task
that requires the reviewing court to draw on its judicial experience and common sense.”8 “Thus,
in ruling on a motion to dismiss, a court should disregard all conclusory statements of law and
consider whether the remaining specific factual allegations, if assumed to be true, plausibly
suggest the defendant is liable.”9
Factual Background
The following essential facts are alleged in the Receiver’s Complaint:10
8.
Impact operated fraudulently. Mr. Clark told Impact’s investors
their money would be used to fund segregated payday loans, from which they
would receive the net proceeds. He did not operate Impact in this manner.
9.
Mr. Clark made misrepresentations about the nature of investors’
security. He told many of the investors that they would own the payday loans
that were funded by their investment, and that they would also own any
subsequent loans made to a particular borrower.
10.
Impact misrepresented its rate of return, and return on investment,
2
550 U.S. 544, 552 (2007).
3
556 U.S. 662, 679 (2009).
4
Kansas Penn Gaming, LLC v. Collins, 656 F.3d 1210, 1214 (10th Cir. 2011) (internal quotation marks omitted).
5
Id.
6
Twombly, 550 U.S. at 555.
7
Id.
8
Iqbal, 129 S. Ct. at 1950.
9
Kansas Penn, 656 F.3d at 1214.
10
Complaint, ¶¶ 8-17, docket no. 2, filed March 22, 2012.
2
in some instances telling investors they would receive a return averaging 35% to
40% per year. In at least one instance, an investor was told he could double his
money in two weeks.
11.
Mr. Clark did not use funds for the purposes represented to
investors. For example, commingled money went into an entity named Cedar
Marketing, from which Mr. Clark paid undisclosed bonuses to himself, Travis
Rodak and others. Mr. Clark purchased luxury automobiles and recreational
vehicles and a home with company assets, without disclosing these purchases to
investors.
12.
Impact transferred funds to Mr. Radak [sic] using the Cedar
Marketing account as a mere conduit.
13.
Mr. Clark improperly accounted for Impact revenues. He
instructed the accounting department to record all payments from customers as
income instead of allocating the payments between principal, interest and/or fees.
This had the effect of overstating revenues and receivables in the financial
statements, which were shown to prospective investors.
14.
He represented to investors that their money would be segregated.
In fact, it was commingled.
15.
Impact was operated as a Ponzi scheme. In addition to
commingling assets, Impact used new investor money to pay old investors.
16.
Impact was therefore insolvent from its inception, and while
insolvent, Impact transferred money to Mr. Rodak.
17.
Impact and its related entities transferred money to Mr. Rodak
with the actual intent to hinder, delay or defraud its creditors.
Discussion
Mr. Rodak is preceding pro se. The Court therefore construes his pleadings liberally.11
Mr. Rodak alleges that the Receiver’s complaint is deficient under Rule 8(a) and Rule 12(b)(6).
Mr. Rodak cites Rule 8(a) and Twombly and simply states “Plaintiff has failed to comply with
the provisions of Rule 8(a),”12 but makes no argument how the complaint is deficient under Rule
8. Mr. Rodak argues that the complaint is deficient under Rule 12(b)(6) because it “has failed to
identify the dates of the purported transfers, the amounts of the purported transfers and the
natures of the purported transfers.”13 Mr. Rodak argues that he has not been given fair notice
until he has been provided specific amounts and dates of each transfer. To support this claim,
11
Haines v. Kerner, 404 U.S. 519, 520-21 (1972).
12
Motion to Dismiss, ¶¶ 20, 21.
13
Id. ¶ 24.
3
Mr. Rodak cites three bankruptcy cases dealing with preferential transfers. However, this case is
governed by the UFTA, not by the Bankruptcy Code.
I. Pleading requirements for fraudulent transfer claim
The Receiver alleges that Impact transferred money to Mr. Rodak in violation of the
UFTA.14 To survive a motion to dismiss, the Receiver must allege facts showing that money
was transferred from Impact to Mr. Rodak and that the transfer violated the UFTA.
The complaint sufficiently alleges that Mr. Rodak received money from Impact. The
Receiver alleges that “commingled money went into an entity named Cedar Marketing, from
which Mr. Clark paid undisclosed bonuses to himself, Travis Rodak and others.”15 Rule 12(b)(6)
requires that a complaint have “enough allegations of fact, taken as true, to state a claim to relief
that is plausible on its face.”16 The Receiver’s allegations are sufficient, without any additional
detail, to create a plausible belief that money was transferred from Impact to Mr. Rodak.
The complaint also alleges facts showing that the transfer from Impact to Mr. Rodak
violated the UFTA because Impact was operated as a Ponzi scheme.17 Under §25-6-5, a transfer
violates the UFTA when there is actual intent to defraud or constructive fraud. The Receiver’s
complaint alleges both intentional and constructive fraud claims; i.e. that Impact transferred
funds to Mr. Rodak with “an actual intent to hinder, delay; or defraud,”18 and that the transfers
were made at a time when Impact was insolvent.19
14
Complaint, ¶ 11.
15
Complaint, ¶ 11.
16
Kansas Penn, 656 F.3d at 1214 (internal quotations marks omitted).
See In re M & L Bus. Mach. Co., Inc., 59 F.3d 1078, 1080 (10th Cir. 1995) (A Ponzi scheme is a “a fraudulent
enterprise in which funds from more recent investors provide the only source to pay interest to prior investors or to
provide the return of principal promised to prior investors.). See also Cunningham v. Brown, 265 U.S. 1 (1924).
17
18
Complaint, ¶ ¶ 2, 17, 20.
19
Complaint, ¶¶ 16, 21.
4
The difference between intentional and constructive fraudulent transfer claims is less
significant in this case because, as a matter of law, fraudulent intent inheres in transfers made
pursuant to Ponzi schemes,20 and Ponzi schemes are insolvent as a matter of law.21 Thus, a
transfer from a Ponzi scheme is both intentionally fraudulent and constructively fraudulent. The
Receiver alleges that Impact misrepresented the rate of return on investments,22 treated
investment money as income,23 and used new investor money to pay old investors,24 showing
that Impact was operated as a Ponzi scheme.25 Therefore the Receiver has stated a valid claim
under the UFTA.
The Receiver also alleges other factors indicating that the transfers from Impact to Mr.
Rodak were made with “with actual intent to hinder, delay, or defraud any creditor of the
debtor.”26
The Receiver alleges that investor money was used to pay bonuses to Mr. Rodak
and others.27 Under section 25-6-5(2)(a), actual intent may be inferred when the
transfer was made to an insider.
The Receiver alleges that the bonuses paid to Mr. Rodak were undisclosed.28
Under section 25-6-5(2)(c) actual intent may be inferred when the transfer was
concealed.
20
Wing v. Horn, No. 2:09-CV-00342, 2009 WL 2843342, at *4 (D. Utah Aug. 28, 2009) (This inference is also
supported by section 25-6-5(2)(i) which allows actual intent to be inferred if the debtor is insolvent.).
21
See Warfield v. Byron, 436 F.3d 551, 558 (5th Cir. 2006); Cunningham v. Brown, 265 U.S. 1 (1924).
22
Complaint, ¶ 10.
23
Complaint, ¶ 13.
24
Complaint, ¶ 15.
25
Id.
26
Utah Code Ann. § 25-6-5(1)(a).
27
Complaint, ¶ 2.
28
Id.
5
The Receiver alleges that the transfers to Mr. Rodak were bonuses, not
compensation for value received. Under section 25-6-5(2)(h) actual intent may be
inferred when the value of the consideration received by the debtor was not
reasonably equivalent to the value of the asset transferred.
In addition to the allegation that Impact was operated as a Ponzi scheme, each of these
allegations also constitutes a plausible claim that the transfers to Mr. Rodak violated the UFTA.
II. Rule 9’s applicability to UFTA claims
The Receiver recognized that Mr. Rodak’s arguments appear to claim the particularity
requirement of Rule 9(b) should apply.29 This court has determined that Rule 9’s specificity
requirement does not apply to UFTA “constructive fraudulent transfer claims which turn solely
on the sufficiency of the consideration and the transferor’s financial condition” because neither
fraud nor misconduct is an element of the fraudulent transfer claim.30 In this case, fraud is
alleged to have been committed by Impact, not by Mr. Rodak. Recovery under the UFTA
requires a fraudulent transfer, but does not necessitate wrongdoing on the part of the transferee.
The Receiver’s complaint need only satisfy Rule 8, not Rule 9(b)’s particularity requirement.31
III. Good Faith Acceptance
Mr. Rodak asserts that he was a legitimate employee of Impact and also a creditor of
Impact as the assignee of amounts due to Whitewater Technologies of Utah LLC.32 Under the
statute, the transferee may raise an affirmative defense that the payment was taken in good faith
29
Response to Motion to Dismiss, at 2, docket no. 7, filed May 14, 2012.
30
Wing v. Horn, 2:09-CV-00342, 2009 WL 2843342 (D. Utah Aug. 28, 2009) (“[T]here is no reason to require a
trustee to plead a defendant's fraud or misconduct with specificity if such fraud or misconduct is not an element of
the trustee's fraudulent transfer claim.”) (quoting In re Motorwerks, Inc., 371 B.R. 281, 295 (Bankr. S.D. Ohio
2007).
31
See In re Commercial Fin. Services, Inc., 322 B.R. 440, 450-51 (Bankr. N.D. Okla. 2003).
32
Complaint, ¶¶ 2-3.
6
and for reasonably equivalent value.33 However, this assertion is an affirmative defense, the
merits of which should be left to a later proceeding.34
Conclusion
The Receiver’s complaint alleges facts that show Impact transferred money to Mr. Rodak
under circumstances that violate the UFTA. The Receiver’s complaint plausibly states a valid
claim and is sufficiently detailed to satisfy Rule 8 and Rule 12(b)(6).
ORDER
IT IS HEREBY ORDERED that Defendant’s Motion to Dismiss35 is DENIED.
Dated August 2, 2012.
BY THE COURT:
____________________________
David Nuffer
United States District Judge
33
Utah Code Ann. § 25-6-9 (2006).
34
Horn, 2009 WL 2843342, at *5.
35
Defendant’s Motion for dismissal, docket no. 6, filed April 30, 2012.
7
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