Miller v. Wulf

84 F.Supp.3d 1266

Gil A. MILLER as Receiver for Impact Payment Systems LLC, and Impact Cash LLC, Plaintiff

v.Arthur S. WULF, an individual, Defendant.

Case No. 1:12–cv–119–DN.

United States District Court, D. Utah, Northern Division.

Signed Feb. 2, 2015.

Robert G. Wing, Jared N. Parrish, Jennifer R. Korb, Ray Quinney & Nebeker, Salt Lake City, UT, for Plaintiff.

Arthur S. Wulf, Law Offices Arthur S. Wulf, Chicago, IL, for Defendant.

MEMORANDUM DECISION AND ORDER GRANTING [29] RECEIVER'S MOTION FOR SUMMARY JUDGMENT AND [50] DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

DAVID NUFFER, District Judge.

Defendant Arthur S. Wulf (“Wulf”) is an investor in Impact Payment Systems, LLC and Impact Cash, LLC (together, “Impact”). Plaintiff is the court-appointed receiver in SEC v. Clark.¹ The Receiver filed this ancillary action seeking the return as fraudulent transfer, the amount Mr. Wulf received from Impact which exceeds the amount of his original investment together with prejudgment interest. After a careful review of the written memoranda submitted by the parties, oral argument is unnecessary since the motions may be readily decided on the written submissions.²

PROCEDURAL BACKGROUND

On July 17, 2013, the Receiver filed his motion for summary judgment and memorandum in support³ (the “Receiver's Motion”) against Mr. Wulf. Mr. Wulf filed a motion to stay and a motion to strike the Receiver's Motion,⁴ but did not file a substantive response. On February 28, 2014, Mr. Wulf's motion to stay and motion to strike were denied, and he was ordered to file a response to the Receiver's Motion on or before March 20, 2014.⁵ Mr. Wulf did not file a response by the March 20, 2014 deadline. Accordingly, the Receiver's Motion was granted.⁶ Mr. Wulf then filed a motion⁷ on April 7, 2014 asking the court to vacate the order granting the Receiver's Motion because he was out of the country and did not have sufficient opportunity to respond to the Receiver's Motion. Mr. Wulf's request was granted. Mr. Wulf was afforded the opportunity to file his response to the Receiver's Motion on or before May 30, 2014.⁸ Mr. Wulf filed his response on May 29, 2014 (“Wulf's Opposition”), and the Receiver filed a reply to Mr. Wulf's Opposition on June 10, 2014.⁹

On June 10, 2014, Mr. Wulf filed a cross-motion¹⁰ for summary judgment and memorandum in support (“Wulf's Motion”). A memorandum in opposition¹¹ to Mr. Wulf's Motion was filed by the Receiver on June 23, 2014. Mr. Wulf did not file a reply. Mr. Wulf's Motion raises the same or similar arguments as his response to the Receiver's Motion, as such, the two motions are consolidated and determined in this single decision.¹² After full consideration of all the relevant papers, and as more fully explained herein, the Receiver's Motion is GRANTED and Mr. Wulf's Motion is DENIED. Judgment will be entered accordingly.

STATEMENT OF FACTS DEEMED ADMITTED

Pursuant to Rule 56(c) of the Federal Rules of Civil Procedure, a party asserting that a fact is genuinely disputed must support the assertion by citing to particular parts of materials in the record or showing that the materials cited do not establish the absence of a genuine dispute.¹³ The Local Rules of Practice in this district require that a memorandum in opposition to a motion for summary judgment include a concise response to each legal element stated by the moving party and a response to each stated material fact.¹⁴

Under each element that a party disputes as having been met, restate each numbered paragraph from the statement of material facts provided in support of that element in the motion. If the fact is undisputed, so state. If a fact is disputed, so state and concisely describe and cite with particularity the evidence on which the nonmoving party relies to dispute the fact (without legal argument).¹⁵

...

For the purpose of summary judgment, all material facts of record meeting the requirements of Fed.R.Civ.P. 56 that are set forth with particularity in the movant's statement of facts will be deemed admitted unless specifically controverted by the statement of the opposing party identifying and citing to material facts of record meeting the requirements of Fed.R.Civ.P. 56.¹⁶

Mr. Wulf's Opposition memorandum does not comply with Fed.R.Civ.P. 56(c). Wulf is an attorney proceeding pro se. While pro se pleadings are generally construed liberally, such is not the case for a pro se litigant who is an attorney.¹⁷ Although Wulf asserts that Impact was not operated as a Ponzi scheme, he does not specifically controvert the facts set forth in the Receiver's numbered statement of facts which bear on the Ponzi nature of Impact. Also, Mr. Wulf cites no facts from the record to challenge the facts presented by the Receiver and fails to restate each numbered paragraph from the Receiver's statement of material facts. Given Wulf's failure to abide by D.U.Civ.R. 56–1, the following factual statements from the Receiver's Motion are deemed admitted:

1. Mr. Wulf invested $60,000 in Impact.¹⁸

2. He received $94,500 from Impact. He therefore received $34,500 more than he invested.¹⁹

3. Gil A. Miller was appointed as Receiver in this matter on March 25, 2011.²⁰

4. Mr. Miller has concluded that Impact was operated with the characteristics of a Ponzi scheme since at least 2006.²¹

5. 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.²²

6. Impact commingled investor funds through intercompany and inter-account transfers.²³

7. Impact's financial records were not audited by a reputable accounting firm.²⁴

8. 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.²⁵

9. 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.²⁶

10. Tori Jackson, who filled an accounting position with Impact, testified that distributions were sent to investors even when companies had negative balances.²⁷

11. Impact Payment Systems had losses totaling $1,056,055 as of December 31, 2009.²⁸

12. Impact and its related companies did not show an operating profit in any year when distributions to investors were made. The Impact entities realized a collective net loss of nearly $3 million during that time.²⁹ Nevertheless, they distributed over $52.6 million.³⁰

13. 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.³¹

14. Dirk Pace, an Impact accounting employee, testified that since he was hired by the company in September 2008, it recorded a loss each year and used investor money to cover those losses.³²

15. 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.³³

16. 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 percent in annual returns.³⁴

17. Impact used investor funds that were supposed to be used for payday loans to cover expenses.³⁵

18. Impact used investor funds to support Mr. Clark's standard of living.³⁶

19. One person, Scott Clark, was principally responsible for Impact's operations.³⁷

Mr. Wulf has failed to raise a genuine issue of material fact which would require a trial. In addition, based on the following legal analysis, it is clear that the Receiver is entitled to judgment as a matter of law.

SUMMARY JUDGMENT STANDARD

“The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”³⁸ When analyzing a motion for summary judgment, the court must “view the evidence and draw all reasonable inferences therefrom in the light most favorable to the party opposing summary judgment.”³⁹ However, “the nonmoving party must present more than a scintilla of evidence in favor of his position.”⁴⁰ A dispute is genuine only “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.”⁴¹

ANALYSIS

I. Impact was a Ponzi Scheme

Previous opinions have found, relying on the same evidence presented by the Receiver here, that Impact was operated as a Ponzi scheme.⁴² Mr. Wulf has offered no evidentiary facts to rebut the previous findings, or offered any reason to depart from the earlier determination. The undisputed facts of the Receiver's Motion establish that Impact was a Ponzi scheme.

Mr. Wulf's principal argument is that Impact cannot have been a Ponzi scheme because it operated a real business.⁴³ This misses the point. “[S]eemingly legitimate business activity does not insulate companies from a finding that they were operated as part of a Ponzi scheme.”⁴⁴ Ponzi schemes sometimes use legitimate operations to attract investors, but the existence of that legitimate business does not preclude a finding that the company operated a...