Klein v. Roe
| Docket Number | 21-4065,21-4071,21-4075,21-4076,21-4077,21-4090 |
| Decision Date | 07 August 2023 |
| Parties | R. WAYNE KLEIN, as Receiver, Plaintiff-Appellee, v. JANET L. ROE, an individual, Defendant-Appellant. R. WAYNE KLEIN, as Receiver, Plaintiff-Appellee, v. JEAN R. ARMAND, an individual, Defendant-Appellant. R. WAYNE KLEIN, as Receiver, Plaintiff-Appellee, v. ROGER HAMBLIN, an individual; DIGITAL WAVE ENERGY, LLC, a Utah limited liability company, Defendants-Appellants. R. WAYNE KLEIN, as Receiver, Plaintiff-Appellee, v. JOHN HOWELL, an individual; ROCKING H ENTERPRISES INC., a Texas corporation, Defendants-Appellants. R. WAYNE KLEIN, as Receiver, Plaintiff-Appellee, v. CAREY HADDERTON, an individual, Defendant-Appellant. R. WAYNE KLEIN, as receiver, Plaintiff-Appellee, v. REINHOLD FINKES, an individual, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Appeals from the United States District Court for the District of Utah (D.C. No. 2:19-CV-00719-DN), (D.C. No 2:19-CV-00779-DN), (D.C. No. 2:19-CV-00783-DN), (D.C. No 2:19-CV-00705-DN), (D.C. No. 2:19-CV-00704-DN), (D.C. No 2:19-CV-00761-DN) Steven R. Paul (Denver C. Snuffer, Jr. with him on the briefs), Nelson, Snuffer, Dahle & Poulsen, Sandy, Utah, for Defendants-Appellants.
Jeffery A. Balls, Parr Brown Gee & Loveless, P.C., Salt Lake City, Utah, on the brief for Plaintiff-Appellee.
Before HOLMES, Chief Judge, BACHARACH, and PHILLIPS, Circuit Judges.
Appellants,[1] salespersons who sold solar lenses to investors on behalf of RaPower-3, LLC ("RaPower"), International Automated Systems, Inc., ("IAS"), LTB1, LLC, ("LTB1"), their subsidiaries and affiliates (collectively with RaPower, IAS, and LTB1, the "Receivership Entities"),[2] Neldon Johnson, and R. Gregory Shepard (collectively with Receivership Entities, the "Receivership Defendants"), appeal from the district court's grant of summary judgment to R. Wayne Klein, the court-appointed Receiver ("Receiver"), who now controls the Receivership Entities. In an ancillary action, the government brought suit against Receivership Defendants for allegedly operating a fraudulent and unlawful solar energy tax scheme, in which they encouraged investors to take federal tax deductions for purchasing defunct solar technology. The district court enjoined these entities from continuing to promote the scheme, ordered disgorgement of their gross receipts, and appointed Mr. Klein as the Receiver of the Receivership Entities with full control of their assets and business operations.
Thereafter, the Receiver initiated lawsuits against individuals and entities- including Appellants-that were paid commissions for selling the Receivership Defendants' solar lenses to investors. Among other claims, the Receiver brought claims for avoidance of a fraudulent transfer under the Uniform Voidable Transactions Act ("UVTA"), offer and sale of unregistered securities, and offer and sale of securities by an unregistered broker-dealer or agent. The district court granted summary judgment to Mr. Klein on these claims.
Appellants now appeal the district court's decision. Among other things, they assert that the district court erred in granting summary judgment on the Receiver's UVTA claim, as Appellants allegedly gave reasonably equivalent value for the commissions that they received. They also claim that the district court improperly ordered disgorgement of the commissions paid to Appellants. Having carefully considered all of Appellants' arguments for relief, and exercising jurisdiction under 28 U.S.C. § 1291, we affirm the district court's judgment.
These appeals arise from actions ancillary to United States v. RaPower-3, LLC, 343 F.Supp.3d 1115 (D. Utah 2018). In that case, Mr. Johnson claimed to have invented a solar energy technology, which involved placing arrays of solar lenses on towers. See United States v. RaPower-3, LLC, 960 F.3d 1240, 1244 (10th Cir. 2020). To generate income for the project, Mr. Johnson sold the solar lenses to prospective investors. See id. Specifically, through a multi-level marketing model, "buyers would purchase lenses from one of Mr. Johnson's entities, IAS or RaPower-3 . . . for a down payment of about one-third of the purchase price." Id. In return, the Receivership Defendants promised investors substantial returns and tax benefits.
When customers purchased lenses, they also signed operations and maintenance agreements with LTB1, with LTB1 agreeing to operate and maintain the customers' lenses to produce revenue. See id. LTB1 was supposed to make quarterly payments to the lens purchasers, representing a portion of the revenues earned from the electricity generated from the solar lenses.
No customer ever leased her solar lens to an entity other than LTB1. See Aplts.' App., Vol. VII, at 5 (). Furthermore, customers never took direct physical possession of their lenses. See id. The Receivership Defendants did not even track which lenses belonged to which customer; thus, there was no means for a customer to know which specific lens she owned.
As such, Mr. Johnson's entities retained the lenses and controlled what happened to them. See id. at 6. Indeed, "[t]he Receivership Defendants emphasized how little any customer would have to do with respect to 'leasing out' their lenses: '[s]ince LTB[1] install[ed], operate[d] and maintain[ed] your lenses for you.'" Id. (). However, it was soon determined that Mr. Johnson's purported solar energy technology never had been-and never would be- "a commercial-grade solar energy system that converts sunlight into electrical power or other useful energy." RaPower-3, 960 F.3d at 1244 (quoting RaPower-3, 343 F.Supp.3d at 1150).
Accordingly, the government brought suit against Receivership Defendants, alleging that they were operating a fraudulent and unlawful solar energy tax scheme by encouraging investors to take federal tax deductions for their purchase of defunct solar technology. See id. at 1243. After a bench trial, the district court enjoined the Receivership Entities from continuing to promote the scheme and ordered disgorgement of their gross receipts. See id. The court further ordered the entities to turn over their assets and business operations to Mr. Klein-who now serves as the Receiver of the Receivership Entities. See id. at 1254.
In his role as Receiver, Mr. Klein initiated lawsuits against individuals and entities that were paid commissions for selling the Receivership Defendants' solar lenses to investors. Of relevance here, Appellants acted as salespersons for the Receivership Defendants, selling solar lenses to prospective investors. In exchange for their services, Appellants received commissions from the Receivership Defendants.
The Receiver alleged that Appellants were not licensed under state or federal securities laws to sell securities, and that the lens purchase program was not registered-as it should have been-with the U.S. Securities and Exchange Commission or the Utah Division of Securities as a security. As such, the Receiver sought to recover the commissions that Receivership Defendants paid to Appellants, as those commissions were allegedly obtained pursuant to illegal contracts and in violation of securities laws.
The Receiver brought:
three (3) claims for Avoidance of a Fraudulent Transfer under Utah Code Ann. § 25-6-5(1), § 25-6-8, § 25-6-202(1)(a) and § 25-6-303 (First, Second and Third Claims); a claim for unjust enrichment (Fourth Claim); a claim for Fraud in Offer and Sale of Securities (Fifth Claim); Offer and Sale of Unregistered Securities (Sixth Claim); and Offer and Sale of Securities by an Unregistered Broker-Dealer Agent (Seventh Claim).
Aplts.' Opening Br. at 9.[3]
After discovery, the Receiver filed a motion for summary judgment on his First, Second, Third, Sixth, and Seventh claims against Appellants. The district court granted summary judgment in favor of the Receiver and against all Appellants on the Receiver's First, Sixth, and Seventh claims brought under Utah Code Ann. § 25-6-202(1)(a) (actual fraud); § 61-1-3 (); and § 61-1-7 (), and corresponding federal securities laws. See, e.g., Aplts.' App., Vol. VII, at 2; id. at 31 (District Ct. Mem. Decision and Order Granting in Part Receiver's Mot. for Summ. J., filed Apr. 27, 2021). It then found the Receiver's Second, Third, Fourth, and Fifth claims to be moot. See id at 2. This appeal followed.
Appellants appeal from the district court's judgment, first arguing that the Receiver "failed to allege sufficient material facts to establish the essential elements of a fraudulent conveyance." Aplts.' Opening Br. at 21. Alternatively, Appellants contend that even if the transfers were fraudulent, Appellants met the requirements to invoke the good faith defense-as they took the transfers in good faith and for reasonably equivalent value. See id. at 26. As such, Appellants claim that the transfers were not voidable under the UVTA. Second, Appellants assert that the district court improperly ordered disgorgement of the commissions that they were paid for selling the solar lenses.
The Receiver first argues that "Appellants have not identified any disputed issues of material fact that would preclude summary judgment in favor of the Receiver" on his UVTA claim. Aplee.'s Resp. Br. at 14. The Receiver further contends that Appellants cannot rely on the good faith defense, as they "did not provide reasonably equivalent value to the Receivership Entities in exchange for the payments of commissions to Appellants." Id. at...
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