F.D.I.C. v. Jeff Miller Stables

• Decision Date: 23 July 2009
• Docket Number: No. 07-4436.,07-4436.
• Citation: 573 F.3d 289
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff-Appellee, v. JEFF MILLER STABLES, et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

573 F.3d 289

FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff-Appellee, v. JEFF MILLER STABLES, et al., Defendants-Appellants.

No. 07-4436.

United States Court of Appeals, Sixth Circuit.

Submitted: August 1, 2008.

Decided and Filed: July 23, 2009.

ON BRIEF:

Catherine H. Killam, McHugh & McCarthy, Sylvania, Ohio, for Appellants. Jaclyn C. Taner, Federal Deposit Insurance Corporation, Arlington, Virginia, for Appellee.

Before: KENNEDY, GILMAN, and GIBBONS, Circuit Judges.

GIBBONS, J., delivered the opinion of the court, in which GILMAN, J., joined. GILMAN, J. (pp. 301-04), delivered a separate concurring opinion. KENNEDY, J. (pp. 304-09), delivered a separate dissenting opinion.

OPINION

JULIA SMITH GIBBONS, Circuit Judge.

Jeff and Lori Miller, husband and wife ("Jeff" and "Lori" or "the Millers"), along with their horse-racing operation Jeff Miller Stables and its predecessor in interest Miller Brothers Stables, appeal from the order of the district court requiring them to pay more than $2 million in restitution to the Federal Deposit Insurance Corporation ("FDIC") in its role as receiver for the failed Oakwood Deposit Bank Company. The Millers argue that the district court erred in granting summary judgment for the FDIC because they raised multiple issues of material fact concerning the amount of recovery Ohio law entitled the FDIC to receive. We disagree and hold that Jeff's conclusory statements, without more, are not enough to raise a genuine issue of material fact. Consequently, we affirm the judgment of the district court in its entirety.

I.

The facts giving rise to the instant litigation began to materialize on February 1, 2002, when the Oakwood Deposit Bank Company ("ODBC") of Oakwood, Ohio, failed. The FDIC took over ODBC as its receiver and commenced an investigation to determine the cause of the bank's failure. Investigators quickly surmised that ODBC had failed because its chief executive officer, Mark Steven Miller ("Steve"), had engaged in a massive embezzlement scheme causing losses of more than $48 million. Steve pled guilty to charges of money laundering and embezzlement and is currently serving a 168-month sentence in federal prison. With the criminal investigation at an end, the FDIC, in its role as ODBC's receiver, began to attempt to recover for the bank some of the funds Steve had embezzled from the 1980s until the bank's 2002 failure. The search for recoverable assets led the FDIC to probe the business relationship between Steve and his brother Jeff.

Jeff and Steve were general partners in a horse-racing operation known as Miller Brothers Stables ("MBS"). MBS trained and raced standardbred horses—those that race while pulling a sulky, as in harness racing. The brothers' racing operation began in 1989 when Jeff purchased a 52.85 acre farm (the "Farm") in Paulding County, Ohio, from which the brothers bred and trained their horses. At its zenith, MBS consisted of more than forty standardbred racing horses, a number of foals and yearlings, and a 47.5% stake in Eternal Camnation Stables.¹ In his guilty plea and in an affidavit before the district court in this civil proceeding, Steve admitted that he embezzled the $65,000 Jeff used to purchase the Farm from ODBC. Jeff denied that he had any knowledge of the funds' illicit origin and instead asserted that he believed that the money was a legitimate loan from ODBC. He further claimed to have made regular payments on the $65,000 loan; however, according to Jeff, he made these payments directly to Steve rather than to ODBC.

In 2001, Jeff and Lori joined with Steve, Steve's wife Janet Miller ("Janet"), and another relative Seth Miller ("Seth") to purchase 55.8 acres of land adjacent to the Farm (the "adjacent property"). Jeff and Lori owned a 48% share of the adjacent property. Steve admitted to embezzling from ODBC the $128,340 purchase price for the property. The addition to the Farm, which more than doubled its original size, enabled the Millers to expand their horse-training and breeding operation. It also allowed their son to build a house on a portion of the adjacent property. Jeff and Lori assert that they did not know that Steve had embezzled the funds; they do, however, admit that they made no payments to ODBC or anyone else to repay the money used to purchase the adjacent property. Following the failure of ODBC and Steve's indictment, Jeff transferred all of MBS's assets to a new sole proprietorship, Jeff Miller Stables ("JMS"), in which Steve had no interest. Jeff made the transfer because the rules of the United States Trotting Association ("USTA") prevent any horse whose owner is under indictment from racing in a sanctioned event. The transfer of the assets from MBS to JMS occurred without the payment of any consideration.

To aid its investigation, the FDIC hired a team of forensic accountants to examine ODBC's books and to determine if any of the transactions were fraudulent. The accountants traced the money Steve advanced from ODBC to various ledger accounts of MBS. If the accountants saw that the offsetting entries contained even a very general description such as "time deposit" or "note," they did not label the underlying transfer of funds as fraudulent. Nor did the accountants label as fraudulent transactions between deposit accounts held by different entities Steve controlled. The accountants instead identified several specific ledger accounts as the source of fraudulent funds and traced those funds from the bank to the Miller-related entities. The forensic accountants labeled only these funds as fraudulent. The accountants' May 2004 report concluded that MB S received $1,722,223 in fraudulent transfers from ODBC. MB S also benefitted from $182,117 of fraudulent cashier's checks drawn on ODBC and paid to third parties on MB S's behalf, making the total amount of embezzled funds used by Steve to maintain MBS as a going concern $1,904,340. This sum was in addition to the funds Steve embezzled to purchase the Farm and the adjacent property.

Armed with this information, the FDIC filed suit against Jeff, Lori, MBS, and JMS on September 28, 2004, seeking disgorgement of the sums of money by which Jeff, Lori, and Jeff's horse-racing operations had been unjustly enriched.² Importantly, the FDIC did not allege that Jeff and Lori had actual knowledge of Steve's embezzlement scheme. On March 23, 2007, the district court entered summary judgment in favor of the FDIC as to the $65,000 used to purchase the Farm and the $61,870 used to purchase the adjacent property.³ The district court, however, denied summary judgment as to the FDIC's claim for the more than $1.9 million that Jeff's racing operation allegedly benefitted from the funds Steve embezzled from ODBC. The district court held that the FDIC had failed to prove that Steve had not committed fraud on the partnership. Fraud on the partnership would prevent the imputation of knowledge of Steve's embezzlement to Jeff and thereby prevent the FDIC's recovery. See Ohio Rev.Code Ann. § 1775.11. Following this partial denial of its summary judgment motion, the FDIC unsuccessfully sought reconsideration of the district court's order and permission to file an interlocutory appeal.

On August 31, 2007, the district court entered an order requiring the parties to brief the issue of who held the burden of proving fraud on the partnership under Ohio law. After hearing arguments from counsel, the district court concluded that Jeff, as the party asserting the exception, bore the burden of proving that Steve had defrauded the partnership. The district court determined that in light of the evidence presented by both parties, Jeff had not carried his burden to prove fraud. The district court also held that the nearly two-hundred pages of purse receipts reflecting the earnings of MB S's winning horses over the period from 1998-2001 did not undermine the forensic accountants' conclusions. Consequently, the district court entered summary judgment on the FDIC's final claim in the amount of $1,904,340. The Millers timely filed their appeal.

II.

The Millers argue that the district court erred in granting summary judgment on each of the three claims made by the FDIC for restitution. Jeff and Lori contend that genuine issues of material fact exist thereby making summary judgment inappropriate. We review a district court's grant of a summary judgment motion de novo. Smith Wholesale Co. v. R.J. Reynolds Tobacco Co., 477 F.3d 854, 861 (6th Cir.2007). Summary judgment is appropriate where there are no genuine issues of material fact in dispute, and one party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c) (emphasis added). The moving party may meet is burden by "`showing' ... that there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). "By its very terms, this standard provides that the existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment. ..." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A trial is required only when "there are any genuine factual issues that properly can only be resolved by a finder of fact because they may reasonably be resolved in favor of either party." Id. at 250, 106 S.Ct. 2505. Thus, "[t]he mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient" to require a trial, id. at 252, 106 S.Ct. 2505; but we must be careful to draw "all justifiable inferences" in the nonmovant's favor. Id. at 255, 106 S.Ct. 2505. Summary judgment is "an integral part of the Federal Rules as a whole, which are designed `to secure the just, speedy, and inexpensive determination of every action'" rather than a "disfavored procedural shortcut." Celotex, 477 U.S. at 327, 106 S.Ct. 2548 (quoting Fed.R.Civ.P. 1).

A.

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