Patrick Finn & Lighthouse Mgmt. Grp., Inc. v. Moyes
| Decision Date | 30 March 2017 |
| Docket Number | Civil No. 14-1293 (JRT/TNL) |
| Parties | PATRICK FINN and LIGHTHOUSE MANAGEMENT GROUP, INC., as Receiver for First United Funding, LLC and Corey N. Johnston, Plaintiffs, v. JERRY C. MOYES and VICKIE L. MOYES, individually and as Trustees of The Jerry and Vickie Moyes Family Trust; MOYES CHILDREN'S LIMITED PARTNERSHIP; THE JERRY AND VICKIE MOYES FAMILY TRUST; and COOLIDGE 600 ACQUISITION CO., LLC, Defendants. |
| Court | U.S. District Court — District of Minnesota |
Gregory E. Karpenko, Joseph J. Cassioppi, and Ryan T. Murphy, FREDRIKSON & BYRON, P.A., 200 South Sixth Street, Suite 4000, Minneapolis, MN 55402, for plaintiffs.
Douglas L. Elsass and Lori A. Johnson, NILAN JOHNSON LEWIS P.A., 120 South Sixth Street, Suite 400, Minneapolis MN 55402, for defendants.
This case arises from a Ponzi scheme whereby Corey Johnston under the name First United Funding, LLC ("First United") defrauded numerous banks. A Minnesota district court appointed Plaintiffs Patrick Finn and Lighthouse Management Group, Inc. as receiver ("Receiver") for First United and Johnston. Receiver seeks to collect funds on behalf of both the victim banks and First United from the alleged "primary [third- party] beneficiaries" of Johnston's Ponzi scheme: Defendants Jerry and Vickie Moyes (the "Moyeses"), Moyes Children's Limited Partnership ("MCLP"), The Jerry and Vickie Moyes Family Trust (the "Moyes Family Trust"),1 and Coolidge 600 Acquisition Co., LLC ("Acquisition"). Acquisition now moves to dismiss all claims against it for lack of personal jurisdiction, and Receiver and Defendants separately move for partial summary judgment. For the reasons set forth below, the Court will grant Acquisition's motion to dismiss. The Court will also grant in part and deny in part both sides' motions for partial summary judgment.
First United is a Minnesota LLC previously operated by Johnston. ( Johnston, a Minnesota resident, used First United as part of a Ponzi scheme to defraud banks by, among other things, borrowing money from new banks to pay old banks and lying about the security for the loan. (Id.); see also Cmty. First Bank v. First United Funding, LLC, 822 N.W.2d 306, 308-09 (Minn. Ct. App. 2012). After the fraudulent scheme collapsed, a Minnesota district court authorized Receiver to enforce payment obligations owed to First United and investigate claims First United may have against any third party. (Finn Decl., Ex. C at 22-21, 23.) Receiver'sauthority includes both managing claims on behalf of First United's creditors (the "participant banks"), (, and enforcing payment obligations owed to First United, (Finn Decl., Ex. C at 21, 23).
The Moyeses are a husband and wife who reside in Arizona. (Id. ¶ 2.) The Moyeses are the trustees of the Moyes Family Trust, a trust formed under Arizona law that holds assets and interests in companies. (Id. ¶ 3 & Ex. D.) MCLP is a limited partnership formed under Arizona law and holds interests and assets on behalf of the Moyeses' children. (Id. ¶ 4.)
Acquisition is an Arizona LLC with two members: ninety-nine percent interest-holder Carefree Capital Investments, LLC ("Carefree") and one percent interest-holder the Moyes Family Trust. Carefree is owned by the Moyes Family Trust and Jerry Moyes. ( Acquisition is taxed as a partnership and, therefore, is a flow-through entity for income tax purposes. (Ehrlich Aff. ¶¶ 6-7.) The parties agree Acquisition has no contacts with Minnesota and observes technical corporate formalities.
In 2002, First United and Johnston "sold loan participations to banks, promising impressive returns." Cmty. First Bank, 822 N.W.2d at 308. In fact, First United and Johnston conducted "a fraudulent scheme by overselling loan participations." Id. "First United and Johnston sold participations to banks that had already been sold to other banks and sold participations in nonexistent loans." Id. at 309. First United and Johnston paid early bank participants "with funds deposited by later participants, until the scheme collapsed." Id.
In August 2010, the U.S. Attorney's Office indicted Johnston on charges related to operating a Ponzi scheme involving "large commercial and personal loans." (Finn Decl., Exs. E-F.) Johnston pled guilty the following month; as part of the plea, Johnston admitted to "knowingly and intentionally" engaging in a scheme to defraud banks. (Id., Ex. F at 5-6.)
In September 2009, the participant banks commenced an action in state court, asserting Johnston and First United collectively owed approximately $135 million in unpaid principal, interest, and fees. Cmty. First Bank, 822 N.W.2d at 309. The state court appointed Receiver "to recover and to liquidate assets to pay the participant banks' outstanding claims." Id. After extensive briefing, the state court approved use of the "net-investment method" to calculate the participant banks' damages. Id. at 309-10. This method did not determine loss based on "the amount each bank was owed on the date that the receiver was appointed" - the so-called "principal and interest method" - and, instead, calculated damages based on "the amount a bank ha[d] invested, minus anyfunds it ha[d] recovered." Id. at 309. Thus, "[e]very dollar that First United had paid a bank [was] subtracted from the bank's principal investment." Id.; . The state court reasoned that applying the net-investment method, as opposed to the principal and interest method, ensured participant banks were not unjustly rewarded for "experienc[ing] 'legitimate' profits in the midst of a pervasive fraud," and the state court calculated the claim total at $91,193,042. (Second Johnson Aff., Ex. 1 at 2-5.)
Similarly, at Johnston's federal-criminal sentencing, the Court applied the same damages calculation and concluded the government had "shown by a preponderance of the evidence" that the banks were "due restitution in the amount of $91,193,042." (Am. Compl., Ex. G at 48, Feb. 24, 2016, Docket No. 93.) The Court found $91,193,042 would "make the [participant banks] whole," "fully compensate [the participant banks] for their losses," and "restore [the participant banks] to their original state of well-being." (Id. at 47 (quoting United States v. Balentine, 569 F.3d 801, 806 (8th Cir. 2009)).) Since that time, Receiver successfully collected more than $81 million on behalf of the participant banks. Through this lawsuit, Receiver seeks to collect additional funds which Receiver alleges the Moyes parties and Acquisition owe First United and the participant banks.
In this lawsuit, Receiver alleges the Moyes parties were the primary beneficiaries of Johnston and First United's Ponzi scheme. (Finn Decl. ¶ 9.) Receiver asserts that during the course of the Ponzi scheme, First United provided the Moyes parties over $642 million in loans - more than ninety percent of the total loans First United issued. (Id.) The Moyes parties needed the loans, in part, because they faced financial issues in connection with their ownership of the Phoenix Coyotes hockey team. (Id., Ex. G at 15:4-16:9, 45:6-48-23.)
Receiver claims the Moyes parties had actual knowledge of Johnston's fraudulent conduct and assisted Johnston and First United in defrauding the participant banks. Receiver states the Moyeses aided and abetted Johnston by fraudulently over-pledging loan collateral , obtaining loans from Johnston after learning of the Ponzi scheme (Second Finn Decl., Ex. A at 9:12-10:1; id., Exs. M-N), and continuing to do business with Johnston after realizing Johnston engaged in a kick-back scheme with the Moyeses' employee Jim Miller (Finn Decl., Ex. G at 99:11-100:11; id., Ex. I at 19-25).
In addition to claiming the Moyes parties are culpable for the Ponzi scheme by virtue of the loans they received from First United, Receiver alleges "[a]lmost all of the remaining loans were made to persons that the Moyes [p]arties introduced to Johnston." (Finn Decl. ¶ 9.) According to Receiver, over the course of the Moyes parties' dealings with First United, the Moyeses convinced First United to issue loans to a financially-struggling real estate project in Utah - Midtown Joint Venture, L.C. ("Midtown"). (Finn Decl. ¶ 14; id., Ex. K at 92:16-93:6; id., Ex. L.) Receiver alleges (and the Moyes parties dispute) that the Moyeses and the Moyes Family Trust guaranteed two of First United's loans to Midtown - the "MJV-FUF4" loan and the "MJV-FUF6" loan.2 Prior to Receiver's appointment, Midtown defaulted on its loans.3 Receiver argues First United is entitled to collect, but never collected, guarantees on these loans. (Id. ¶ 17.)
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