Milligan v. May

1

GREGORY S. MILLIGAN, IN HIS CAPACITY AS COURT-APPOINTED RECEIVER FOR GLOBAL CREDIT RECOVERY, LLC, ET AL., Plaintiff, v. JOHN JEFFREY MAY ET AL., Defendants.

CIVIL No. 23-2691-BAH

United States District Court, D. Maryland

September 26, 2024

MEMORANDUM OPINION

Brendan A. Hurson United States District Judge

Plaintiff Receiver Gregory S. Milligan ("Receiver" or "Plaintiff') brought suit against fifty-seven individuals and entities (collectively "Defendants") seeking recovery of "net winnings" or "fictitious profits" Defendants allegedly received as a result of their alleged investment in a multimillion-dollar Ponzi scheme.^[1] ECF 1. Pending before the Court are eight motions to dismiss.^[2] ECF 41 (motion to dismiss filed by Defendants Logic Growth, LLC, and John Jeffrey May ("May Defendants")); ECF 74 (motion to dismiss filed by Defendant Jahed A. Hamrah); ECF 83 (motion to dismiss filed by Defendant Belquis Sadozai); ECF 86 (motion to dismiss filed by, Defendant Zarghoona Sadozai); ECF 95 (motion to dismiss filed by Defendants Double H International Holdings, Inc., and Richard Hall ("Double H Defendants")); ECF 99 (motion to dismiss filed by Defendant Barry G. Morse); ECF 103 (motion to dismiss filed by Defendants Lana Wahl, Vicky Wahl, and George Wahl III ("Wahl Defendants")); ECF 137 (motion to dismiss filed by Defendants Aubrey Carter and Courtney Nowell ("Nowell Defendants")). These motions are ripe for disposition. See ECFs 43, 80 91, 92, 104, 105, 106, and 138 (Plaintiffs respective oppositions); ECFs 45, 90, 97, 98, 111, 107, 108, and 139 (Defendants' respective replies). All filings include memoranda of law and exhibits.^[3] The Court has reviewed all relevant filings and finds that no hearing is necessary. See Loc. R. 105.6 (D. Md. 2023). Accordingly, for the reasons stated below, the motions to dismiss are each DENIED.

I. BACKGROUND

The instant dispute stems from a Ponzi scheme for which Kevin Merrill, Jay Ledford, and Cameron Jezierski ultimately pled guilty in this Court. See ECF 1, at 1 ¶ 1, at 7 ¶ 20; Crim. No. 18-465-RDB (filed Sept. 11, 2018) (hereinafter "Criminal Action"); see also CCWB Asset Invs., LLC v. Milligan, 112 F.4th 171, 175 (4th Cir. 2024). The perpetrators of the scheme "raised over $345 million from more than 230 investors, ... lur[ing] investors by touting significant returns from the purchase and resale of consumer debt portfolios." CCWB Asset Invs., LLC, 112 F.4th at 175. "But instead of investing the cash as promised, they stole a portion of it and used the remainder to pay purported dividends, or 'distributions,' to earlier investors."^[4] Id. A District of Maryland grand jury returned a criminal indictment against Merrill, Jezierski, and Ledford on September 11, 2018. See Criminal Action, ECF 1. Merrill, Jezierski, and Ledford each appeared before the Court for their initial appearances on September 18, 2018, September 24, 2018, and October 2, 2018, respectively. See Criminal Action, ECFs 13,18, and 31.

Subsequent to the filing of criminal case (but before any criminal defendant made their initial appearance in court), on September 13, 2018, the Securities and Exchange Commission ("SEC") brought an enforcement action against Merrill, Ledford, Jezierski, and the entities through which they had perpetrated the Ponzi scheme. See Civ. No. 18-2844-RDB (herein after the "Enforcement Action"), ECF l.^[5] The same day the Enforcement Action was filed, the Court entered an order appointing Gregory S. Milligan as receiver and expressly forbidding that "[t]he Receiver shall not have the power to bring suits in. law or in equity without further Order of this Court."^[6] See Enforcement Action, ECF 11 (hereinafter "Receivership Order"), at 4 ¶ 6. Though the Receivership Order was initially entered under seal at the SEC's request, the case was later unsealed on September 18, 2018-the same date of Merrill's initial appearance in the Criminal Action. See Enforcement Action, ECFs 18 and 19. The Receivership Order was then.amended three times, on November 27,2018, see Enforcement Action, ECF 62 (hereinafter "First Amended Receivership Order"), on September 14, 2021, see Enforcement Action, ECF 484 (hereinafter "Second Amended Receivership Order"), and on October 4, 2023, see Enforcement Action, ECF 769 (hereinafter "Third Amended Receivership Order") (collectively, "Receivership Orders"). The First and Second Amended Receivership Orders contained the same prohibition as to the Receiver, with limited exceptions permitted by ¶ 37 of each of those orders. Enforcement Action, ECF 62, at 5 ¶ 6, at 19-20 f 37; ECF 484, at 5 ¶ 6, at 20-21 ¶ 37. These orders also contained the following:

36. All Ancillary Proceedings not subject to Paragraph 37 below are stayed in their entirety, and all Courts having any jurisdiction thereof are enjoined from taking or permitting any action until further Order of this Court. Further, as to a cause of action accrued or accruing in favor of one or more of the Receivership Parties against a third person or party, or as to any and all claims or causes of action under applicable law that have accrued or are accruing' regarding transfers and transactions of fraudulently obtained investor funds (or proceeds thereof) to third parties, any applicable statute of limitation is tolled during the period in which this injunction against commencement of legal proceedings is in effect as to that cause of action.

Enforcement Action, ECF 62, at 19 ¶ 36; ECF 484, at 20 ¶ 36.^[7] The Third Amended Receivership Order, however, lifted the stay with the following amendment:

38. The Court further modifies the above-described stay in part and amends the Second Amended Order Appointing Temporary Receiver to allow the Receiver, in consultation with Counsel for the SEC, to commence and prosecute such actions or proceedings in this Court to impose a constructive trust, obtain possession, recover judgment, and/or such other remedy that the Court determines just and equitable, with respect to persons or entities who received assets traceable to the Receivership Estate, including but not limited to disgorgement of profits, asset turnover, avoidance of fraudulent transfers, rescission and restitution, or collection of debts.

Enforcement Action, ECF 769, at 21-22 ¶ 38. The same day the Third Amended Receivership Order was entered (October 4, 2023), Receiver Milligan brought this clawback action against Defendants, purported net winners in the Ponzi scheme, to recover the net winnings. See ECF 1, at 2 ¶ 4. Since the complaint was filed, some defendants have been voluntary dismissed, some have answered, and some have moved to dismiss.^[8] See ECFs 46, 64, 65, 110, 116-119, 122, 124, and 125 (notices of voluntary dismissal); ECFs 33,61, and 88 (answers); ECFs 41, 74, 83, 86, 95, 99, 103, and .137 (motions to dismiss for failure to state a claim). The Court now addresses the motions to dismiss, which are ripe for disposition.^[9]

II. LEGAL STANDARD

Federal Rule of Civil Procedure 12(b)(6) governs dismissals for failure to "state a claim upon which relief can be granted." In considering a motion under this rule, courts discount legal conclusions stated in the complaint and "accept as true all of the factual allegations contained in the complaint." Erickson v. Pardus, 551 U.S. 89, 94 (2007); see also Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A court then draws all reasonable inferences in favor of the plaintiff and considers whether the complaint states a plausible claim for relief on its face. Nemet Chevrolet, Ltd. v. Consumeraffairs.com, Inc., 591 F.3d 250, 253 (4th Cir. 2009). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678. As evaluating a complaint under Rule 12(b)(6) is "a context-specific task" the Court may "draw on its judicial experience and common sense." Id. at 679.

"The complaint must offer 'more than labels and conclusions' or 'a formulaic recitation of the elements of a cause of action[.]s" Swaso v. On slow Cnty. Bd. of Educ, 698 Fed.Appx. 745, 747 (4th Cir. 2017) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). At the same time, a "complaint will not be dismissed as long as [it] provides sufficient detail about [the plaintiffs] claim to show that [the plaintiff] has a more-than-conceivable chance of success on the merits." Owens v. Bah. City State's Att'ys Off, 767 F.3d 379, 396 (4th Cir. 2014). In evaluating a motion to dismiss, "a court may take judicial notice of 'matters of public record' and other information that would constitute adjudicative facts under Federal Rule of Evidence 201." Megaro v. McCollum, 66 F.4th 151, 158 (4th Cir. 2023) (citing Goldfarb v. Mayor & City Council of Baltimore, 791 F.3d 500, 508-12 (4th Cir. 2015)).

III. ANALYSIS

Each of the motions to dismiss contain essentially the same arguments, which boil down i to the following bases for dismissal: (1) the suit is barred by the statute of limitations and the Court could not toll the statute of limitations through the Receivership Orders, ECF 41-1, at 5-9; ECF 74-1, at 3-9; ECF 83-1, at 3-9; ECF 86-1, at 3-9; ECF 95-1, at 7-12; ECF 99-1, at 6-8; ECF 103- 1, at 7-13; ECF 137-1, at 3-7; (2) the complaint fails to state a claim for fraudulent conveyance under Rule 12(b)(6), ECF 41-1, at 9-10; ECF 74-1, at 9-12; ECF 83-1, at 9-12; ECF 86-1, at 9-12; ECF 95-1, at 4-6; ECF 99-1, at 8-12; ECF 103-1, at 3-7; ECF 137-1, at 7-9; and (3) the complaint fails to state a claim for unjust enrichment, ECF 41-1, at 10-11; ECF 74-1, at 12-14; ECF 83-1, at 12-14; ECF 86-1, at 12-14; ECF 95-1, at 6-7; ECF 99-1, at 12-13; ECF 103-1, at 7; ECF 137-1, at 9-10....