Wing v. Layton

• Decision Date: 12 July 2013
• Docket Number: Case No. 2:08–CV–708.
• Parties: Robert WING, as Receiver for VesCor Capital Corp., et al., Plaintiff, v. Christopher D. LAYTON, et al., Defendants.
• Court: U.S. District Court — District of Utah

957 F.Supp.2d 1307

Robert WING, as Receiver for VesCor Capital Corp., et al., Plaintiff,

v.Christopher D. LAYTON, et al., Defendants.

Case No. 2:08–CV–708.

United States District Court,

D. Utah,

Central Division.

July 12, 2013.

Jennifer R. Korb, Sally B. McMinimee, Jared N. Parrish, M. David Eckersley, Prince Yeates & Geldzahler, Salt Lake City, UT, for Plaintiff.

Alan L. Smith, Matthew L. Lalli, Stewart O. Peay, Snell & Wilmer, Salt Lake City, UT, Brent A. Larsen, Deaner Malan Larsen & Ciulla, Las Vegas, NV, for Defendants.

William W. Plise, Las Vegas, NV, pro se.

Casey Craig, Henderson, NV, pro se.

MEMORANDUM OPINION AND ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

DEE BENSON, District Judge.

The plaintiff, Robert G. Wing, as Receiver for VesCor Capital Corp. and numerous other related entities controlled by Val Southwick and VesCor, ¹ moves this court for summary judgment, arguing that the undisputed facts show that payments made by VesCor to Christopher D. Layton and Layton's affiliated entities were fraudulent transfers. (Dkt. No. 156.) The defendants, Christopher D. Layton, ATG Capital, LLC, Cromwell Property Management, LLC, Icarus Holdings, Inc., Moriarty, LLC, Siena Office Park 2, LLC, Siena Office Park 3, LLC, Siena Vista, LLC, SOP 871, LLC, SOP Equity, LLC (collectively “Layton”) opposed the motion. (Dkt. No. 172.) At oral argument on the motion, M. David Eckersley appeared on behalf of the Receiver and Matthew L. Lalli appeared on behalf of the defendants. After considering the parties' written and oral arguments, the court requested a status conference on the matter at which time the court asked additional questions and issued a preliminary ruling from the bench, granting the Receiver's motion for summary judgment. This Memorandum Opinion and Order memorializes and explains in greater detail the court's oral ruling.²

FACTUAL BACKGROUND

This action is one of many arising out of the collapse of an alleged Ponzi scheme orchestrated and run by Val Edmund Southwick through a complex web of over 150 corporations and limited liability companies known collectively as VesCor.

VesCor described its business as financing, ownership, development, management and acquisition of commercial and residential real estate in the Western United States. (Dkt. No. 157–1, Amended Expert Report & Disclosure of Gil Miller at 4.) Investors were solicited by managers of the company itself as well as various outside advisors that were paid commissions and/or referral fees for attracting new investors. Investors were typically promised safe investments secured by valid liens on real property. In many cases, VesCor represented that its total debt was no more than 50% or 65% of the fair market value of its assets. ( Id.) Investors were promised, and in the beginning were often paid, annual interest rates of between 10% and 24% per year, with favorable loan discounts often resulting in significantly higher rates of return. ( Id.)

However, in early 2006, VesCor's obligations to investors became too great to pay and VesCor stopped making regular payments of principal and interest to investors. At that time, VesCor began to sell or attempt to sell properties to continue to pay and repay some investors and entered into negotiations with other investors. Even so, Southwick maintained that the fair market value of VesCor's projects could repay all investors in full. ( Id.)

On February 6, 2008, the United States Securities and Exchange Commission filed suit against Southwick and VesCor, alleging violations of the anti-fraud provisions of the Securities Act of 1933 and the Securities and Exchange Act of 1934. On March 31, 2008, in a Utah state court criminal case, Southwick pleaded guilty to nine felony counts of securities fraud. He later was sentenced to serve the maximum time allowed, nine consecutive 1 to 15 year prison terms.

On May 5, 2008, this court appointed Robert G. Wing as Receiver for VesCor. Since then, the Receiver, or others on his behalf, has met with and interviewed various VesCor employees, financial advisors, Southwick, investors and others. The Receiver has also obtained the services of a forensic accountant, Mr. Gil A. Miller, who reviewed and analyzed various financial records, tax returns, investor reports and other contemporaneous VesCor records.

After compiling and reviewing the financial and business records for VesCor, the Receiver asserts that VesCor was in fact a Ponzi scheme. To support this allegation, the Receiver has released several declarations of his expert, Mr. Miller, the forensic accountant. Mr. Miller's professional opinion is that VesCor “exhibited characteristics of a Ponzi scheme” beginning as early as 2000. According to Mr. Miller, although VesCor represented that it was in the business of real estate development and lending, it never exhibited a successful underlying business, as demonstrated by continual losses and negative operating case flow. (Dkt. No. 157–1, Amended Miller Report at 25.) Moreover, VesCor mischaracterized the nature of investment opportunities, mischaracterized the risks associated with the investments, and misstated the security collateralizing the investments. ( Id.) According to Mr. Miller, VesCor actively concealed its losses by paying earlier investors with money raised from later investors. ( Id.)

Additionally, the Receiver obtained testimony from former VesCor employees to establish that the VesCor entities were all part of Southwick's scheme. For example, a controller for VesCor, Monique Fisher, testified that VesCor commingled investor money. According to Ms. Fisher, when there was not enough money in one account to satisfy VesCor's obligations, Mr. Southwick would transfer money between accounts in order to meet VesCor's obligations. (Dkt. No. 157–13, Monique Fisher Dep. at 15.) In addition, Ms. Fisher testified that new investor money was routinely used to pay old investors.

Another VesCor controller, Jeff Galyean, stated:

Incoming investments would generally be deposited into one account, then transferred to the VesCor Capital Corp. bank account. The money in the bank accounts I oversaw was treated as one pool of cash when expenses came due. Southwick approved expenses, and the accounting department drew cash from the various accounts in order to meet VesCor's obligations. If the entity that owed the obligation did not have enough cash in its account, money would be transferred from the accounts of other entities with cash to the entity owing the obligation.

(Dkt. No. 157–14, Jeff Galyean Decla. ¶ 13.)

Defendant Christopher Layton and Layton–Related Entities

On September 19, 2008, the Receiver filed the instant case against Christopher D. Layton and several Layton-related entities, seeking the return of funds Layton received from VesCor because they were fraudulent transfers. (Complaint ¶¶ 54–59.)

Layton was a Principal of VesCor and began working with Southwick and VesCor in April 2001. Layton came to VesCor with a prestigious education and employment experience. He received a Masters in Business Administration from Yale University after matriculating graduate studies at the London School of Economics and graduating from Brigham Young University. Layton's prior employment included Barclays Capital, Seneca Financial and the Nash Corporation in their respective investment banking and mergers and acquisitions divisions.

According to Layton's resume and various VesCor records, he was a Principal of the VesCor Capital group beginning in 2001. (Defs.' Opp'n Mem. at 56, Southwick Decl. ¶ 13.) He was also “a member of [VesCor's] Investment Committee ..., active in transaction sourcing and structuring, capital sourcing, mergers and acquisitions, strategy and portfolio management oversight.” (Pl.'s Mem. in Supp., Ex. H, 12/29/2004 email.) Layton's responsibilities included raising capital for VesCor through direct solicitation of investments and issuance of securities to private investors. According to Layton's resume, he was a “[l]iason with potential and existing investors in addition to nurturing commercial and private industry relationships; interface regularly with legal counsel and investment advisors.” (Dkt. No. 157–1, Amended Miller Report at 5.) ³

Layton was also the Managing Director of a group of companies denominated VesCorp Capital, LLC (with a “p”, as opposed to VesCor) that began operating around June 2003. According to Layton, there came a time when Southwick was planning to leave VesCor to serve a mission for the Church of Jesus Christ of Latter Day Saints. Southwick wanted Layton to take over VesCor, and the VesCorp companies were established by Southwick and Layton as vehicles for transferring VesCor assets to Layton. According to Mr. Miller, VesCorp and VesCor operated as a single economic unit. (Dkt. No. 157–1, Amended Miller Report at 32.) Like VesCor, VesCorp exhibited the characteristics of a Ponzi scheme from its inception. ( Id. at 35.) VesCorp raised $28 million from investors which did not go to any business activity, but was used to pay earlier investors in VesCorp or VesCor. ( Id. at 32.) VesCorp's tax returns for 2004 and 2005 report only losses and book value insolvency. ( Id. at 34.) According to Mr. Miller, VesCorp Capital could not meet its obligations and could not generate a profit because it did not conduct any business designed to make a profit. It took money from investors, giving them notes in return, and that money was then swallowed up into the VesCor commingled accounts. (Dkt. No. 157–1, Amended Miller Report at 32–35.)

Layton was paid a six-figure annual salary for his work with VesCor. ( Id., Ex. 2.) In addition, Layton and/or the entities represented to be affiliated with Layton, including ATG Capital, LLC, Cromwell Property Management, LLC, Icarus Holdings, Inc., Moriarty, LLC, Siena Office Park 2, Siena Office Park 3, SOP 871, and SOP Equity, LLC (collectively the “Layton Affiliated Entities”),...