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Wing v. Gillis

United States Court of Appeals, Tenth Circuit

May 21, 2013

ROBERT G. WING, Receiver for VesCor Capital Corporation, Plaintiff-Appellee,
v.
BRUCE S. GILLIS, individually and as trustee of the Bruce S. Gillis MD MPH Inc. Pension Trust and as trustee of the Cloud Nine Aviation LLC Retirement Trust, Defendant-Appellant.

(D.C. No. 2:09-CV-00314-DB) (D. Utah)

Before LUCERO, Circuit Judge, PORFILIO, Senior Circuit Judge, and TYMKOVICH, Circuit Judge.

ORDER AND JUDGMENT [*]

John C. Porfilio Senior Circuit Judge

Bruce S. Gillis, trustee for the Bruce S. Gillis MD MPH Inc. Pension Trust and the Cloud Nine Aviation LLC Retirement Trust (Trusts), [1] appeals from district court orders granting summary judgment and awarding prejudgment interest to Robert G. Wing, Receiver for VesCor Capital Corporation (Receiver). Exercising jurisdiction under 28 U.S.C. § 1291, we affirm.

BACKGROUND

Val Southwick operated VesCor and a complex network of corporations and limited liability companies as a Ponzi scheme.[2] Together, the Trusts, who were some of the earlier investors in VesCor, purchased over $2.5 million worth of securities from VesCor and received, over time, a return from VesCor of more than $582, 000 on their investments. In August 2006, Dr. Gillis sold the MPH Pension Trust's interest in a VesCor project to Steven Shapiro for $1.24 million (Shapiro Transaction). Three months later, Mr. Shapiro sued Dr. Gillis and the Trusts and Mr. Southwick in Nevada state court. In 2011, Mr. Shapiro and Dr. Gillis and the Trusts entered into a settlement, extinguishing all claims Mr. Shapiro had against Dr. Gillis and the Trusts.

In the meantime, on February 6, 2008, the United States Securities and Exchange Commission (SEC) filed suit against Mr. Southwick and VesCor alleging violations of securities laws.[3] On May 5, the district court appointed the Receiver for VesCor. The Receiver filed many lawsuits against VesCor investors to recover fraudulent transfers in order to distribute money to later investors. He filed this suit on April 9, 2009, asserting a claim for fraudulent transfers based on payments by VesCor to the Trusts in excess of the amounts invested by them.

The parties filed cross motions for summary judgment. The district court granted the Receiver's motion and denied the Trusts' motion. After noting that the Trusts did not challenge the Receiver's assertion that VesCor operated as a Ponzi scheme, the court decided that "the investment returns VesCor paid to the Trusts were fraudulent transfers" and thus the amounts received by the Trusts exceeding their investments must be returned. Aplt. App. at 70. Also, the court decided as a matter of law that it had jurisdiction over the Trusts' property located in California, that California law did not exempt the property from execution, and that the Trusts should be treated the same as other VesCor investors. Lastly, the court decided that MPH Pension Trust was not entitled to offset its liability to the receivership by the amount paid by Mr. Shapiro. The court's judgment ordered the Trusts to return the amounts they made to the receivership estate. MPH Pension Trust was ordered to return $1, 788, 667.66, and Cloud Nine Trust was ordered to return $33, 939.94.

After judgment was entered, the Receiver moved to amend the judgment to include prejudgment interest. The court awarded interest at 5% beginning February 6, 2008, the date the SEC filed its underlying lawsuit against VesCor. The court modified its judgment against MPH Pension Trust to $2, 330, 105.88 and against Cloud Nine Trust to $44, 213.72. The Trusts appeal both the grant of summary judgment and the award of prejudgment interest.

ANALYSIS

I

We review the district court's summary judgment order de novo, and in doing so, we apply the same standard used by the district court. Llewellyn v. Allstate Home Loans, Inc., 711 F.3d 1173, 1178 (10th Cir. 2013). Summary judgment is appropriate "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." Fed.R.Civ.P. 56(a).

A

The Trusts admit that legal authority supports the district court's decision to treat them like other investors and to require them to return the amounts they received in excess of their investment. See Donell v. Kowell, 533 F.3d 762, 770 (9th Cir. 2008) ("[T]he 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."); Scholes v. Lehmann, 56 F.3d 750, 757-58 (7th Cir. 1995) (same). But they present various arguments in an attempt to distinguish themselves from other investors. They argue that the district court erred in not estopping the Receiver from abrogating an October 2004 agreement between VesCor and the Utah Division of Securities requiring VesCor to repay principal and interest to all investors, including the Trusts. The Trusts maintain that there is no authority requiring early investors, such as themselves, to return money to a receiver for distribution to later investors when the government did not adequately supervise the conduct of the organization engaged in the Ponzi scheme. Additionally, the Trusts assert that the equities balance in their favor, because ...


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