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Kamian Schwartzman, In His Capacity As Receiver For the Receivership v. Robert Stinson

August 9, 2011

KAMIAN SCHWARTZMAN, IN HIS CAPACITY AS RECEIVER FOR THE RECEIVERSHIP ESTATE ESTABLISHED BY THE ORDER ENTERED IN S.E.C.
v.
ROBERT STINSON, JR., ET AL., PLAINTIFF,
v.
TALKING WATER, LLC, ET AL.,
DEFENDANTS.



The opinion of the court was delivered by: Schiller, J.

MEMORANDUM

The Receiver brings this lawsuit to recover funds consumed by a Colorado real estate project known as Talking Water. He alleges Defendant J ¼rgen Denk operated Talking Water as a racketeering enterprise in violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"). The Receiver also brings claims against Defendants including Lisa Denk and companies controlled by the Denks alleging RICO conspiracy, unjust enrichment, and fraudulent transfer. The Court granted the Receiver's motion for an ex parte temporary restraining order on July 27, 2011, and conducted a preliminary injunction hearing on August 8, 2011. Having granted the Receiver's motion orally at the hearing, the Court now sets forth its reasoning pursuant to Federal Rule of Civil Procedure 65(d)(1).

I. BACKGROUND

The Receiver filed this action on June 16, 2011, alleging that J ¼rgen Denk, his wife Lisa, and entities associated with the Denks, including Pulse Asset Management, LLC ("Pulse"), LKJ Services, LLC ("LKJ"), and Talking Water, LLC (collectively, the "Denk Defendants") wrongfully obtained and laundered funds that had ostensibly been invested in the Talking Water real estate development project. (See Receiver's Mot. for TRO 3.) The funds at issue in this case originated from entities associated with Robert Stinson. The Court addressed the mechanics of the Stinson Ponzi scheme in granting summary judgment for the Securities and Exchange Commission in a related case, SEC v. Stinson, Civ. A. No. 10-3130, 2011 WL 2462038, at *3-5 (E.D. Pa. June 20, 2011). In brief, Stinson and the "Life's Good Funds" Stinson controlled obtained over $17 million from over 262 investors. Id. at *1. Following an SEC investigation and civil enforcement action, the Court appointed Kamian Schwartzman as Receiver to recover investor funds lost in the Stinson scheme. See id. at *2.

The Receiver has identified $1,065,000 in investor funds originating from the Stinson Ponzi scheme which made their way through the Talking Water project between February 10, 2009 and June 14, 2010. (Receiver's Mot. for TRO 4; see also id. Ex. D, Wire transfer records; Compl. Ex. E, Wire transfer summary.) The Denk Defendants launched the Talking Water development in Montrose, Colorado in 2006. (Receiver's Mot. for TRO 5, 7-8.) J ¼rgen Denk formed Talking Water, LLC as a Colorado corporation that winter, serving as the company's General Manager. (Compl. Ex. F, Talking Water operating agreement § 5.2.) Talking Water, LLC is a single-purpose entity formed to develop the 37-acre Talking Water tract in Montrose. (Id. § 2.1.) Construction was to begin in the fall of 2007. (Compl. Ex. H-2, May 10, 2007 Talking Water information packet.)

Talking Water, LLC made thousands of dollars in monthly payments to Pulse, LKJ, and directly to the Denks. (Compl. Ex. T, Summ. of Talking Water payments to Denk Defs. [Talking Water payment summary]; see also id.Ex. R., Checks dated Nov. 2009 from Talking Water, LLC payable to "Denk" and "Pulse/Denk," respectively.) The Denks, Pulse and LJK received over $907,000 from Talking Water, LLC. (Talking Water payment summary.) Meanwhile, by 2008, the company was $2.3 million in debt due to two mortgage liens on the Talking Water tract. (See Receiver's Mot. for TRO 6.) The debt load was apparently unsustainable; J ¼rgen Denk ultimately wrote to one of his lenders in July of 2008 to request an adjustment in the payments due on one of the mortgages. (Id. Ex. F, July 7, 2008 letter from J ¼rgen Denk to Klenholz Miller & Company.) Talking Water also failed to pay approximately $8,000 in property taxes due for the 2007 tax year, triggering the tax sale of the Talking Water real estate. (Id. Ex. A, May 26, 2011 letter from James Brown re: tax sale of Talking Water, Ex. B, Talking Water tax summary.) Nevertheless, Talking Water, LLC continued monthly payments to Pulse in excess of $11,000 each month in 2007. (See Receiver's Mot. for TRO 4; id. Ex. C, 2007 checks payable to Pulse.)

Michael McNamara served as a "point of contact" for investors interested in the Talking Water development. (Compl. Ex. D-4, 2008 Talking Water informational packet.) McNamara contacted Stinson regarding his funds' investments in the project. (See Compl. Ex. M, Mar. 30, 2010 e-mail from Michael McNamara to Robert Stinson.) McNamara and J ¼rgen Denk represented to Stinson that, among other things: (1) Life's Good, Inc. would be a secured lender in first position on a $700,000 construction loan; (2) the Talking Water project was on schedule to begin construction in 2010; (3) the Life's Good High Yield Fund would receive 19% interest on a $200,000 loan that would mature in one year; and (4) that Talking Water would limit management fees it paid to 2% of "hard costs." (Receiver's Mot. for TRO 5.) Stinson's funds subsequently invested in Talking Water. (Wire transfer records.)

Following the SEC's investigation into Stinson's operations, the SEC discovered Stinson's investments in Talking Water and contacted J ¼rgen Denk to inquire as to the project's status. In a handwritten letter dated July 6, 2010, Denk indicated that "all work for all entitlements" was complete, and that he expected the project to "pull permits and get started with construction" in August of 2010. (Compl. Ex. G, July 6, 2010 letter from J ¼rgen Denk to SEC.) At that time, however, Talking Water, LLC still had to repay back taxes to retake clear title to the development tract. (Talking Water tax summary.) The Receiver wrote to J ¼rgen Denk to determine the project's status in May of 2011. (Receiver's Mot. for TRO 7.) Denk responded that the project was stalled due to a lack of funding. (See id. Ex. G, May 20, 2011 letter from J. Peter Shindel to J ¼rgen Denk.) When the Receiver attempted to follow up, he received no reply. (Receiver's Mot. for TRO 7.) The Receiver then filed this lawsuit in June of 2011.

The Receiver's professional process server made six unsuccessful attempts to serve Defendants, but was initially unable to serve the Denks due to their efforts to avoid service. (See id. at 7, 20.) Meanwhile, the Denks began attempting to sell their primary residence, a commercial property in Iowa, and numerous properties controlled by them through shell companies. (Id. at 8-9.) They also transferred title to their properties in Iowa to a shell company, Lish LLC. Lish obtained the properties via quitclaim deed, in exchange for no consideration. (Id. at 20; see also Mot. for TRO Ex. K, Transfer records for 714 Arden St., Boone IA.) Lish's address is care of Lisa Denk. (Id. Ex. J, Corporate information summary for Lish, LLC.)

In light of the Denks' apparent attempts to liquidate their assets, the Receiver moved for entry of an ex parte temporary restraining order. The Court granted the Receiver's motion on July 27, 2011. In granting the TRO, the Court ordered the parties to appear on August 8, 2011, to show cause why a preliminary injunction should not issue. No defendant attended the hearing. However, counsel for J ¼rgen Denk communicated with the Receiver and asked that he advise the Court of J ¼rgen Denk's discussions and cooperation with counsel for the Receiver. (Aug. 7, 2011 letter from John Meininger to J. Peter Shindel 2.) Denk's counsel has not entered an appearance, and has indicated that he will not file an opposition to the Receiver's motion.

II. STANDARD OF REVIEW

In determining whether to grant a preliminary injunction, a court must consider whether the party seeking the injunction has satisfied four factors: (1) a likelihood of success on the merits; (2) irreparable harm; (3) that the harm to the movant outweighs the possible harm to other interested parties; and (4) that granting relief is in the public interest. Bimbo Bakeries USA, Inc. v. Botticella, 613 F.3d 102, 109 (3d Cir. 2010). The moving party must produce evidence "sufficient to convince the trial judge that all four factors favor preliminary relief." Singh v. Sch. Dist. of Phila., Civ. A. No. 10-2028, 2010 WL 3220336, at *6 (E.D. Pa. Aug. 11, 2010) (quoting Opticians Ass'n of Am. v. Indep. Opticians of Am., 920 F.2d 187, 192 (3d Cir. 1990)).

III. DISCUSSION

A. The Receiver's Reasonable Likelihood of Success ...


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