U.S. Commodity Futures Trading Comm'n v. Newcom (In re Newcom)

• Decision Date: 09 December 2019
• Docket Number: Case No. 9:19-bk-01289-FMD,Adv. Pro. No. 9:19-ap-136-FMD
• Citation: 611 B.R. 134
• Parties: IN RE: Scott Glenn NEWCOM, Debtor. U.S. Commodity Futures Trading Commission, Plaintiff, v. Scott Glenn Newcom, Defendant.
• Court: U.S. Bankruptcy Court — Middle District of Florida

611 B.R. 134

IN RE: Scott Glenn NEWCOM, Debtor.

U.S. Commodity Futures Trading Commission, Plaintiff,

v.Scott Glenn Newcom, Defendant.

Case No. 9:19-bk-01289-FMD

Adv. Pro. No. 9:19-ap-136-FMD

United States Bankruptcy Court, M.D. Florida, Fort Myers Division.

Signed December 09, 2019

Melissa C. Chiang, U.S Commodity Futures Trading Commission, Washington, DC, for Plaintiff.

William J. Nissen, Sidley Austin LLP, Chicago, IL, Tampa, FL, for Defendant.

ORDER (1) GRANTING PLAINTIFF'S AMENDED RENEWED MOTION FOR SUMMARY JUDGMENT AND (2) DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

Caryl E. Delano, Chief United States Bankruptcy Judge

THIS PROCEEDING came before the Court for hearing on October 21, 2019, of Plaintiff CFTC's Amended Renewed Motion for Summary Judgment¹ and Scott Newcom's Motion for Summary Judgment .²

Plaintiff, U.S. Commodity Futures Trading Commission ("Plaintiff"), timely filed a complaint³ to determine that a debt owed by Debtor, Scott Glenn Newcom ("Debtor"), is nondischargeable under 11 U.S.C. § 523(a)(2) (the "Complaint").⁴ The debt arises from Plaintiff's March 2013 Order Instituting Proceedings Pursuant to Sections 6(c) and 6(d) of the Commodity Exchange Act, as Amended, Making Findings and Imposing Remedial Sanctions (the "Sanctions Order").⁵ Debtor consented to the entry of the Sanctions Order, in which he was ordered to pay restitution in the amount of $635,457.44 for violations of § 4(a) and § 4b of the Commodity Exchange Act, 7 U.S.C. § 1, et seq. (the "Act").

Plaintiff contends that it is entitled to summary judgment under principles of collateral estoppel. Debtor asserts that he is entitled to summary judgment because, he contends, enforcement of the Sanctions Order is barred by the applicable statute of limitations. As set forth below, the Court will grant Plaintiff's Motion for Summary Judgment and deny Debtor's Motion for Summary Judgment.

A. The Sanctions Order

The following facts are not in dispute. Debtor and Anthony Pulieri ("Pulieri") were the sole owners and principals of Joseph Glenn Commodities LLC ("Joseph Glenn") and JGCF LLC ("JGCF").⁶ In 2010, Joseph Glenn, Debtor, and Pulieri entered into an agreement to act as a dealer for Hunter Wise Commodities LLC ("Hunter Wise"), a company that held itself out as providing commodity trading and related services.⁷

In 2012, Plaintiff instituted an administrative proceeding to determine whether Joseph Glenn, JGCF, Debtor, and Pulieri (collectively referred to in the administrative proceeding and in the Sanctions Order as "Respondents") violated the Act in their solicitation of customers for Hunter Wise. In March 2013, Respondents, including Debtor, consented to the entry of the Sanctions Order to settle the administrative proceeding.⁸

Critical to this Court's ruling, in Section II of the Sanctions Order, Respondents, including Debtor, consented to the use of the Sanctions Order's findings

... in this proceeding and in any other proceeding brought by [Plaintiff] or to which [Plaintiff] is a party; provided, however, that Respondents do not consent to the use of the Offer, or the findings or conclusions in this Order consented to in the Offer, as the sole basis for any other proceeding brought by [Plaintiff], other than in a proceeding in bankruptcy or to enforce the terms of this Order .⁹

Section III of the Sanctions Order includes a summary of the findings, a description of the parties, and the following statement of facts:¹⁰

1. Respondents solicited retail customers, generally by telephone or through their website, to enter into Retail Commodity Transactions as part of a "leveraged program."

2. Respondents represented to prospective customers that: (1) the customer could purchase physical commodities, including gold, silver, copper

, platinum, or palladium, by paying as little as 20% of the purchase price; (2) customers would receive a loan for the remaining portion of the purchase price on which the customer would be charged interest; and (3) upon confirmation of the customer's purchase, the physical commodity the customer purchased would be stored at an independent depository on the customer's behalf in an account in the customer's name.

3. However, when retail customers placed orders to enter into Retail Commodity Transactions, the Respondents did not purchase physical commodities on the customers' behalf, provide loans to customers for the remaining portion of the purchase price, or store any physical commodities for customers.

4. Instead, the Respondents simply passed all the details of the purchase, customer payments, and financing on to Hunter Wise, whose existence the Respondents did not disclose to retail customers.

5. Similarly, Hunter Wise did not purchase or sell physical commodities, arrange for or provide loans, or store physical commodities in independent depositories in connection with Respondents' customers' Retail Commodity Transactions.

6. The Respondents' customers never owned, possessed, or received title to the physical commodities that they believed that they purchased, no funds were expended by Respondents or Hunter Wise to purchase physical commodities for the customers, and no physical commodities were stored for the customers.

Section IV, paragraph D of the Sanctions Order, includes the following findings:¹¹

First, that §§ 4b(a)(2)(A) and 4b(a)(2)(C) of the Act make it illegal for any person to cheat or defraud another person in connection with any contract of sale of a commodity in interstate commerce; second, that fraudulent solicitation of prospective customers violates § 4b(a) of the Act, and that to establish solicitation fraud, Plaintiff must prove that (1) a misrepresentation occurred, (2) with scienter, and (3) the misrepresentation was material; third, that in their solicitation of customers, Respondents represented to potential clients that they would earn greater returns than they had ever earned before and that investments by existing customers had been profitable, even though they knew that more than 95% of existing customers had lost money, and that Respondents also failed to disclose commissions, service, and interest charges to customers; and fourth, that Respondents, including Debtor, engaged in fraudulent solicitation in violation of §§ 4b(a)(2)(A) and (C) of the Act.

Section IV, paragraph E of the Sanctions Order, includes the finding that Debtor and Pulieri were controlling persons of Joseph Glenn and JGCF, and that the Act provides that controlling persons are liable for violations of the Act to the same extent as the controlled entity.¹²

In a paragraph titled "Findings of Violation," the Sanctions Order finds that Respondents, including Debtor, violated §§ 4(a) and 4b of the Act.¹³

Following a provision for Respondents' (including Debtor's) express consent to the Sanctions Order, Section VI of the Sanctions Order, titled "Order," ordered Respondents, jointly and severally, to pay restitution in the amount of $635,457.44 (the "Restitution Obligation") within ten days of the Sanctions Order to a "Monitor," who was charged with collecting the Restitution Obligation and making distributions to Respondents' customers.¹⁴

Debtor did not pay the Restitution Obligation as required by the Sanctions Order.

B. Debtor's bankruptcy case

On February 18, 2019, Debtor filed a petition under Chapter 7 of the Bankruptcy Code. Plaintiff timely filed the Complaint. Despite initial challenges to Plaintiff's standing, Debtor acknowledged that Plaintiff is authorized to bring an action to enforce compliance with administrative orders such as the Sanctions Order, and that agencies may contest the dischargeability of amounts payable to third parties under such administrative orders.¹⁵

In the Complaint, Plaintiff alleges that the Sanctions Order found that Debtor had defrauded his customers, that Debtor had engaged in fraudulent solicitation in violation of § 4b(a)(2) of the Act, and that Debtor owed the Restitution Obligation in the amount of $640,993.17. Accordingly, Plaintiff asserts that the Restitution Obligation is "a result of money obtained by false pretenses, false representations, or actual fraud, and is therefore not dischargeable pursuant to 11 U.S.C. § 523(a)(2)(A)."¹⁶

In its Amended Renewed Motion for Summary Judgment, Plaintiff contends that the Sanctions Order includes all of the necessary factual findings to establish that the Restitution Obligation is nondischargeable under § 523(a)(2)(A).¹⁷ According to Plaintiff, principles of collateral estoppel entitle it to the entry of a summary judgment determining that the debt is nondischargeable.

Debtor also filed a motion for summary judgment. Debtor contends that "there is no valid and enforceable underlying debt to declare nondischargeable," because Plaintiff's enforcement of the Sanctions Order is barred by both Florida's statute of limitations and the federal statute of limitations.¹⁸

C. The Sanctions Order has collateral estoppel effect in this proceeding.

Principles of collateral estoppel generally apply in dischargeability proceedings under § 523.¹⁹ Collateral estoppel bars the re-litigation of issues previously decided in a judicial or administrative proceeding if the party against whom the prior decision is asserted had a full and fair opportunity to litigate the issues in the prior case.²⁰ Here, the parties agree that the federal law of collateral estoppel applies in this proceeding.²¹

"Under federal law, the application of collateral estoppel requires satisfying the following prerequisites: ‘(1) the issue be identical in both the prior and current action; (2) the issue was actually litigated; (3) the determination of the issue was critical and necessary to the judgment in the prior action; and (4) the burden of persuasion in the subsequent action not be significantly heavier.’ "²²

For the following reasons, the Court finds that all four requisites to collateral estoppel are satisfied in this proceeding. Therefore, Debtor is barred from challenging the...