Kelley v. Coll. of St. Benedict

• Decision Date: 26 October 2012
• Docket Number: Civ. No. 12–822 (RHK/LIB).
• Citation: 901 F.Supp.2d 1123
• Parties: Douglas A. KELLEY, Plaintiff, v. COLLEGE OF ST. BENEDICT, Defendant.
• Court: U.S. District Court — District of Minnesota

901 F.Supp.2d 1123

Douglas A. KELLEY, Plaintiff,

v.COLLEGE OF ST. BENEDICT, Defendant.

Civ. No. 12–822 (RHK/LIB).

United States District Court, D. Minnesota.

Oct. 26, 2012.

James A. Lodoen, Mark D. Larsen, Kirstin D. Kanski, Jeffrey D. Smith, Adam C. Ballinger, Lindquist & Vennum P.L.L.P., Minneapolis, MN, for Plaintiff.

Jerome A. Miranowski, John B. Holland, Stephen M. Mertz, Megan S. Clinefelter, Faegre Baker Daniels LLP, Minneapolis, MN, for Defendant.

MEMORANDUM OPINION AND ORDER

RICHARD H. KYLE, District Judge.

“Ponzi schemes leave no true winners once the scheme collapses.” Donell v. Kowell, 533 F.3d 762, 779 (9th Cir.2008). At its core, this case asks the Court to decide between two “losers” in the lengthy Ponzi scheme orchestrated by Tom Petters. On one hand are the creditors of Petters and his now defunct companies, including the United States. On the other hand is the Defendant, the College of St. Benedict (the “College”), a small liberal-arts college in St. Joseph, Minnesota, that received $2 million in donations from Petters and entities he directed. Plaintiff Douglas Kelley, the Court-appointed receiver for Petters and entities he once controlled, brought this action to recover the donations under the Minnesota Fraudulent Transfer Act (“MFTA”), Minn.Stat. § 513.41 et seq., and the Federal Debt Collection Procedures Act (“FDCPA”), 28 U.S.C. § 3001 et seq. Kelley also asserts a claim for unjust enrichment. The College now moves to dismiss. For the reasons that follow, its Motion will be granted.

BACKGROUND

Petters and others orchestrated and participated in a Ponzi scheme lasting over a decade. They laundered more than $40 billion through two companies Petters controlled, Petters Company, Inc. (“PCI”) and Petters Group Worldwide, LLC (“PGW”), and other affiliated entities.

During the Ponzi scheme, Petters founded a non-profit corporation known as the Thomas J. Petters Family Foundation (the “Foundation”). Ponzi proceeds funded the Foundation, which was “merely a facade [and] provided a vehicle for Petters to display a false persona of wealth, success and altruism that allowed [him] to gain the additional credibility he required to induce more victims to invest money.” (Am. Compl. ¶ 7.) On January 31, 2003, Petters pledged $3,000,000 to the College in return for it agreeing to name an auditorium after his parents. ( Id. ¶ 38.) Over the next 2–1/2 years, he and the Foundation paid $2 million to the College under the pledge, all of which came from fraud proceeds. ( Id. ¶¶ 38–44.) The remaining $1 million was never paid.

In late 2008, the FBI learned of the fraud and the Ponzi scheme imploded; Petters was arrested and later convicted of 20 counts of mail fraud, wire fraud, money laundering, and conspiracy. He is currently serving a 50–year prison sentence. Following his conviction, the Court entered a criminal forfeiture money judgment against him for more than $3.5 billion in fraud proceeds. ( See Doc. No. 395 in Crim. No. 08–364.) That judgment remains outstanding.

Shortly after Petters was arrested, the United States filed an application under the fraud injunction statute, 18 U.S.C. § 1345, asking this Court to place Petters, PCI, PGW, and others into civil receivership. On October 6, 2008, the Court (Montgomery, J.) granted that application and appointed Kelley as the equity receiver for these individuals and companies, as well as the Foundation. He was granted the authority to “sue for, collect, receive, take in possession, hold, liquidate, or sell and manage all assets of these” individuals and entities. Kelley then placed PCI and PGW into bankruptcy and was appointed the trustee of their bankruptcy estates.

Meanwhile, the United States sought to forfeit certain assets previously held by Petters and others as part of the criminal proceedings against them. This resulted in substantial overlap in the property subject to the bankruptcy proceedings, the receivership action, and the government's forfeiture efforts. To avoid stepping on each other's toes, so to speak, Kelley and the government entered into a “Coordination Agreement” approved by both the Bankruptcy Court and Judge Montgomery. Under that agreement, the government would use its forfeiture powers to recover assets fraudulently transferred by the individuals to certain third parties. In return, Kelley would seek to recover from “religious, charitable, educational and/or political institutions” any “donations and gifts” made “on behalf of [Petters], [the] Foundation or other Receiver entities.” (Def. Mem. Ex. B, § I(B)(3)(b).) ¹

The specter of such “clawback” litigation did not go unnoticed. Indeed, Kelley once publicly estimated that more than $400 million in charitable contributions by Petters and his associates were potentially subject to clawback. See http:// www. startribune. com/ politics/ statelocal/ 146014325. html (last visited October 22, 2012). Apparently concerned that nonprofits, charities, religious organizations and the like would be unable to repay donations long after they had been received and spent, Minnesota's Governor signed legislation on April 3, 2012, redefining the term “transfer” under the MFTA. While claims under the statute were previouslysubject to a six-year statute of limitations, under the new definition a transfer “does not include a contribution of money ... made to a qualified charitable or religious organization or entity unless the contribution was made within two years of commencement of an action under [the MFTA].” Minn.Stat. § 513.41(12) (emphasis added). This amendment applies to any “cause of action existing on, or arising on or after” its effective date, April 4, 2012—that is, the amendment was retroactively applicable. 2012 Minn. Laws 151.

Acting “in his capacity as the court-appointed Receiver of Thomas Joseph Petters [and the] Thomas J. Petters Family Foundation” (Compl. at 1), Kelley commenced the instant action on April 2, 2012, two days before the MFTA amendment took effect. In his Complaint, Kelley asserted four fraudulent-transfer claims against the College, as well as a claim for unjust enrichment, and sought to set aside the pledge in its entirety and recover the $2 million the College had already received. The College moved to dismiss, arguing that the MFTA claims were untimely, based upon the statutory amendment above.

In response, Kelley filed an Amended Complaint that is the subject of the instant Motion. The Amended Complaint asserts four claims under the FDCPA (Counts VI–IX), alleging that the pledge and the funds given to the College were fraudulent transfers. He also continues to assert four claims under the MFTA (Counts I–IV) and a claim for unjust enrichment (Count V). The College now moves to dismiss all of these claims. The Motion has been fully briefed, and the Court heard oral argument on October 4, 2012. The Motion is now ripe for disposition.

STANDARD OF REVIEW

The Supreme Court set forth the standard for evaluating a motion to dismiss in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), and Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). To avoid dismissal, a complaint must include “enough facts to state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 547, 127 S.Ct. 1955. A “formulaic recitation of the elements of a cause of action” will not suffice. Id. at 555, 127 S.Ct. 1955;accord Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. Rather, the party seeking relief must set forth sufficient facts to “nudge[ ] the[ ] claim[ ] across the line from conceivable to plausible.” Twombly, 550 U.S. at 570, 127 S.Ct. 1955. “The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a [party] has acted unlawfully.” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly, 550 U.S at 556, 127 S.Ct. 1955).

When reviewing a motion to dismiss, the Court “must accept a plaintiff's specific factual allegations as true but [need] not ... accept ... legal conclusions.” Brown v. Medtronic, Inc., 628 F.3d 451, 459 (8th Cir.2010) (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955). The complaint must be construed liberally, and any allegations or reasonable inferences arising therefrom must be interpreted in the light most favorable to the non-moving party. Twombly, 550 U.S. at 554–56, 127 S.Ct. 1955. “Determining whether a complaint states a plausible claim for relief will ... be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Iqbal, 556 U.S. at 679, 129 S.Ct. 1937.

ANALYSIS

I. The FDCPA claims (Counts VI–IX)

The Court begins its analysis with the FDCPA claims, the crux of the instant Motion. The College offers two reasons why these claims must be dismissed: (1) Kelley lacks standing under the statute and (2) even if standing existed, the statute permits recovery only of “debts to the United States.” (Def. Mem. at 7–11; Reply at 3–14.) As the standing argument is sufficient to dispose of these claims, the Court need not reach the second argument.

The College's standing argument actually comprises two separate but related contentions. First, it asserts that a federal equity receiver enjoys standing only to bring claims on behalf of entities in receivership. Second, it asserts that only the United States may bring claims under the FDCPA. Because the FDCPA is reserved for the government's exclusive use, and because the government is not in receivership, the College argues that Kelley lacks standing to bring the FDCPA claims. The Court agrees.

A. A receiver may sue only on behalf of receivership entities

The College is correct that an equity receiver may sue only on behalf of the entity (or person) in receivership, not third parties. This is because a receiver “stands in the shoes” of the receivership entity. Lank v. N.Y. Stock Exch., 548 F.2d 61, 67 (2d Cir.1977) (receiver “can assert...