Stoebner v. Opportunity Fin., LLC

• Decision Date: 20 November 2018
• Docket Number: No. 17-1097,17-1097
• Citation: 909 F.3d 219
• Parties: John R. STOEBNER, Trustee, Appellant, v. OPPORTUNITY FINANCE, LLC, et al., Appellees. JPMorgan Chase Bank, Amicus on Behalf of Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

909 F.3d 219

John R. STOEBNER, Trustee, Appellant,

v.OPPORTUNITY FINANCE, LLC, et al., Appellees.

JPMorgan Chase Bank, Amicus on Behalf of Appellees.

No. 17-1097

United States Court of Appeals, Eighth Circuit.

Submitted: June 14, 2018

Filed: November 20, 2018

Amy L. Schwartz, John R. Stoebner, Richard T. Thomson, Rosanne H. Wirth, Lapp & Libra, Minneapolis, MN, for Appellant.

Kari Sue Berman, Scott Michael Flaherty, Benjamin Everett Gurstelle, John R. McDonald, Briggs & Morgan, Minneapolis, MN, Jonathan Michael Landy, Christopher Mandernach, Joseph G. Petrosinelli, Allison Jones Rushing, Williams & Connolly, Washington, DC, for Appellee Opportunity Finance, LLC.

Shifali Baliga, Jonathan Michael Landy, Christopher Mandernach, Joseph G. Petrosinelli, Allison Jones Rushing, Williams & Connolly, Washington, DC, Kari Sue Berman, Scott Michael Flaherty, Benjamin Everett Gurstelle, John R. McDonald, Briggs & Morgan, Minneapolis, MN, for Appellee Opportunity Finance Securitization II, LLC.

Shifali Baliga, Jonathan Michael Landy, Christopher Mandernach, Joseph G. Petrosinelli, Williams & Connolly, Washington, DC, Scott Michael Flaherty, Benjamin Everett Gurstelle, John R. McDonald, Briggs & Morgan, Minneapolis, MN, for Appellee Sabes Minnesota Limited Partnership.

Shifali Baliga, Jonathan Michael Landy, Christopher Mandernach, Joseph G. Petrosinelli, Allison Jones Rushing, Williams & Connolly, Washington, DC, Scott Michael Flaherty, Benjamin Everett Gurstelle, John R. McDonald, Briggs & Morgan, Minneapolis, MN, for Appellees Robert W. Sabes, Janet F. Sabes, Steven Sabes.

Thomas Henry Boyd, Michael A. Rosow, Winthrop & Weinstine, Minneapolis, MN, H. Peter Haveles, Jr., Pepper & Hamilton, Kent A. Yalowitz, Arnold & Porter, New York, NY, for Appellee DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main.

Shifali Baliga, Jonathan Michael Landy, Joseph G. Petrosinelli, Allison Jones Rushing, Williams & Connolly, Washington, DC, Kari Sue Berman, Scott Michael Flaherty, John R. McDonald, Briggs & Morgan, Minneapolis, MN, for Appellee Opportunity Finance Securitization, LLC.

Isaac Rethy, Christopher K. Shields, David Woll, Simpson & Thacher, New York, NY, for Amicus on Behalf of Appellee JPMorgan Chase Bank.

Before LOKEN, GRUENDER, and ERICKSON, Circuit Judges.

LOKEN, Circuit Judge.

For many years prior to September 2008, Minnesota businessman Thomas Petters, through his company Petters Company, Inc. ("PCI"), "purported to run a ‘diverting’ business that purchased electronics in bulk and resold them at high profits to major retailers." Ritchie Capital Mgmt., LLC v. Stoebner, 779 F.3d 857, 859 (8th Cir. 2015). Investors, deceived by fabricated purchase orders, provided PCI financing to acquire merchandise for resale. Ritchie Special Credit Invs., Ltd. v. U.S. Tr., 620 F.3d 847, 850 (8th Cir. 2010).

In fact, PCI did not purchase merchandise and sell it to retailers. Its "income" came from investor loans that PCI used to repay earlier investors. Thus, PCI was a multi-billion dollar "Ponzi scheme."¹ Petters also acquired legitimate businesses. His investment company, Petters Group Worldwide, LLC, purchased the stock of Polaroid Corporation in April 2005. Ritchie Capital Mgmt., LLC v. JPMorgan Chase & Co., No. 14-CV-4786 (DWF/FLN), 2017 WL 6403096, at *2 (D. Minn. Dec. 14, 2017). Prior to the acquisition, a separate Petters company, Petters Consumer Brands, LLC ("PettersCB"), paid Polaroid licensing fees for the sale of "Polaroid" branded consumer electronics to prominent retailers.

Following the collapse of Petters’s ponzi scheme, Polaroid Corporation and related entities (collectively, "Debtors") filed for protection under Chapter 11 of the Bankruptcy Code. The cases were converted to Chapter 7 liquidation proceedings in 2009; John Stoebner was appointed bankruptcy Trustee. Representing Debtors’ creditors, he brought this adversarial suit against Opportunity Finance, LLC and related defendants ("Opportunity Finance") and DZ Bank AG Deutsche Zentral-Genossenschaftsbank ("DZ Bank"), seeking to avoid as fraudulent transfers under the Minnesota Uniform Fraudulent Transfer Act ("MUFTA") over $250 million in loan payments made to defendants by PettersCB in 2003-2005, prior to Petters’s acquisition of Polaroid. See 11 U.S.C. § 544(b)(1) ; Minn. Stat. § 513.44 (2014).² The Second Amended Complaint ("SAC") alleged that two Debtors, Polaroid Holding Company ("PHC") and Polaroid Consumer Electronics, LLC ("PCE"), "are the successors in interest to [PettersCB]." The bankruptcy court³ granted defendants’ motions to dismiss, and the district court⁴ affirmed. Trustee appeals. We affirm.

I. The Issues on Appeal.

The Trustee filed the SAC on November 8, 2013. On December 20, defendants moved to dismiss. See Fed. R. Civ. P. 12(b)(6), as incorporated by Fed. R. Bankr. P. 7012(b). After lengthy argument on March 3, 2014, the bankruptcy court took the motions under advisement. On February 18, 2015, the Supreme Court of Minnesota issued its decision in Finn v. Alliance Bank, holding that the so-called "Ponzi-scheme presumption" previously adopted by some courts cannot be used to establish three elements of a claim under MUFTA -- fraudulent intent, the debtor’s insolvency at the time of the transfer, and the lack of reasonably equivalent value. 860 N.W.2d 638, 645-53 (Minn. 2015). At a December 2015 omnibus hearing in the Chapter 7 proceedings, the Trustee for the first time sought leave to file a third amended complaint to address seven different issues. The bankruptcy court advised that a written decision on the motions to dismiss was imminent and ruled it would not entertain a motion to amend prior to issuing that decision.

In January 2016, the bankruptcy court issued its lengthy decision granting the motions to dismiss on two alternative grounds. In re: Polaroid Corp., 543 B.R. 888 (Bankr. D. Minn. 2016). First, the court held that the Trustee lacked statutory standing to assert claims under MUFTA because he failed to identify any creditor of PHC or PCE, the Debtors alleged to be successors-in-interest to PettersCB, that would have an allowable claim against the Debtors to which it could look for satisfaction to a transfer made by PettersCB before Petters acquired Polaroid. Id. at 903 ; see generally In re Marlar, 267 F.3d 749, 753 (8th Cir. 2001). Second, on the merits, applying the Supreme Court of Minnesota’s decision in Finn, the court held that the SAC failed to state a claim for actual or constructive fraudulent transfer under MUFTA. 543 B.R. at 911-14. The court further ruled that allowing the Trustee to file a third amended complaint would be futile, as the pleading of facts that might demonstrate standing or state a claim would conflict with facts already pleaded. Id. at 903, 914. On appeal, the district court upheld the bankruptcy court’s decision to dismiss on both grounds and further ruled that the bankruptcy court did not abuse its discretion in denying leave to amend because the Trustee unreasonably delayed in requesting leave to amend, defendants would be prejudiced, and any amendment would be futile. Stoebner v. Opp. Fin., LLC, 562 B.R. 368 (D. Minn. 2016).

The Trustee appeals all three rulings, asserting he has statutory standing, the SAC stated claims for actual and constructive fraudulent transfer under MUFTA, and the bankruptcy court erred in not permitting him to amend the SAC. Defendants contest all three assertions; JPMorgan Chase Bank, N.A. ("JPMorgan"), filed an amicus brief in support of the defendants.

This is an unusual fraudulent transfer case because the Trustee seeks to avoid transfers made by a party prior to the time it even arguably became a Chapter 7 debtor. The standing issues are fully briefed, complex, and difficult.⁵ Our conclusion that the bankruptcy court and the district court correctly dismissed the Trustee’s claims on the merits makes it unnecessary to decide the standing issues.

II. The SAC Failed To State a Claim Under MUFTA.

A bankruptcy trustee may "avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim." 11 U.S.C. § 544(b)(1). MUFTA "allows creditors to recover assets that debtors have fraudulently transferred to third parties." Finn, 860 N.W.2d at 644. MUFTA includes both actual and constructive fraud provisions:

(a) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation:

(1) with actual intent to hinder, delay, or defraud any creditor of the debtor; or

(2) without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor:

(I) was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or

(ii) intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor’s ability to pay as they became due.

Minn. Stat. § 513.44(a)(1)-(2) (2014). Section 513.44(b) sets forth a non-exclusive list of factors courts may consider in determining actual intent, commonly referred to as "badges of fraud." Citizens State Bank Norwood Young Am. v. Brown, 849 N.W.2d 55, 60 (Minn. 2014).

When the Trustee filed this adversary suit in December 2010, some courts applying other fraudulent transfer statutes had adopted a "Ponzi scheme presumption" that "allows a creditor to bypass the proof requirements of a fraudulent-transfer claim by showing that the debtor operated a Ponzi scheme and transferred assets ‘in furtherance of the scheme.’ " Finn, 860 N.W.2d at 646 (citation omitted); see Ritchie Capital Mgmt., 779 F.3d at 862 (declining to decide whether to adopt the presumption under 11 U.S.C. § 548(a)(1), the ...