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Thomas Carroll, et al. v. William Stettler

April 18, 2013


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


This lawsuit concerns monies that were transferred to defendants as part of a Ponzi scheme operated by a third party, Lizette Morice. The plaintiffs, who lost their investments in the fraudulent scheme, seek the voidance of these transfers under the Pennsylvania Uniform Fraudulent Transfer Act and the equitable doctrine of unjust enrichment. In the instant motion, they move for summary judgment against twelve defendants and their entities. Against nine defendants, they seek the return of investment profits which had been transferred during the course of the fraud. Against the remaining three defendants, who the plaintiffs have deemed "insiders" of the scheme, they seek the return of investment profits and principal, as well as salaries and commissions.

In this opinion, the Court addresses the motion as to the "insider" defendants only. For the reasons stated below, the Court grants the motion in part and denies it in part.

I. Factual Summary*fn1

A. Gaddel Enterprises and Lizette Morice

Lizette Morice was the founder and head of Gaddel

Enterprises, Inc., a purported real estate investment firm, which operated from sometime in early 2006 until July 2007. Morice represented to the plaintiffs that Gaddel was in the business of buying tax foreclosed properties from the state and reselling those properties to relocation firms at a substantial profit. Tr. Change of Plea Hearing, U.S. v. Morice, No. 08-cr-132-1, at 13:10-14:14 (Pl. exh. D).

Morice‟s business plan involved obtaining substantial investments from mortgage brokers as well as individual investors. As part of the investment pitch, Gaddel falsely represented that, due to state regulations, it could not be the owner of record for more than a certain number of properties per quarter. By putting forth a contribution, Gaddel investors could earn a share of its profits. Id. at 13-14.

Morice and her colleagues recruited investors at her New Jersey home, in her Pennsylvania and New Jersey offices, and at elaborate black-tie affairs paid for by Gaddel. Investors generally contributed around the sum of $1,000, but some contributed multiples of that amount. Many of the investors had personal relationships with Morice and/or her employees. Id.; Verification of Troy McClain ("McClain Verif.") ¶ 25-27 (Docket No. 537-1).

In reality, Morice and Gaddel made no such real estate transactions, and monies paid to earlier investors were actually derived from later investors -- a chain of events commonly referred to as a Ponzi scheme.*fn2 On July 23, 2008, Morice pled guilty to seven counts of mail fraud for conducting a Ponzi scheme worth over $7 million dollars.*fn3 Id. at 14-16. She was sentenced to ten years in prison in connection with these charges. Judgment, U.S. v. Morice, at 2 (Pl. exh. E).

The plaintiffs in the instant case consist of a class of persons or entities who had previously invested in Gaddel and had incurred a net loss in a defined time period and who were not paid salaries by Gaddel. Order, 10/19/11, at 2 (Docket No. 417). The plaintiffs‟ investments were represented to be "100% fully refundable throughout the entire process." Pl. Mot. exh. II (Docket No. 501-48).

The defendants all received financial transfers from Morice and Gaddel sometime between April 2006 and July 2007. In particular, defendants Albin E. Delgado, James Martin, and Troy McClain were salaried employees of Gaddel.*fn4 The remaining ten defendants are non-employee investors who are not the subjects of this opinion.

B. Albin E. Delgado

Albin Delgado was a paid employee of Gaddel

Enterprises.*fn5 As of June 2006, early in the Ponzi scheme, he held a supervisory sales role at Gaddel. Pl. Mot. exh. H-I. At a June 7, 2006 team meeting, Delgado prepared a list of rules for a Gaddel sales meeting. It included information regarding how to "become a salesperson," namely having a credit check and a urine sample. In addition, it included substantive instructions as to how to pitch investments in properties. For example, it stated that "[n]o photos of any kind are to be taken of the properties by potential buyers or salespeople (no exceptions)." It also stated that "[u]nder no circumstance is a buyer or salesperson to be on the property or in the driveway;" instead, buyers were "only allowed to briefly park in front for a visual." Failure to adhere to this rule would "result in termination." The document was signed "Albie Delgado, District Manager." Pl. Mot. exh. I.

C. James Martin

James Martin was also a paid employee of Gaddel

Enterprises.*fn6 He worked at Gaddel from November 2006 through July 2007. He was primarily recruited and trained by Troy McClain, who he understood to have previous experience in the mortgage industry. James Martin Dep. 144:3-13; 246:4-249:13; 283:17-24 (Pl. exh. G).

Unlike McClain and Delgado, Martin was not the head of any sales team. In his capacity as a sales consultant, he visited potential investors and discussed the program‟s opportunities with them. Once a week, he attended a sales meeting in the Gaddel office.*fn7 Martin communicated with McClain, and to a more limited extent with Morice, regarding sales pitches and promotion proposals. His commission was one-and-a- half percent for each property closing. Id. 166:12-167:3; 246:21-247:6; 554:6-556:5.

Martin was responsible for selling investments to named plaintiffs Thomas Carroll and Kimberly Baker. As part of his sales pitch, he gave plaintiffs a "Frequently Asked Questions" document, which included references to the fact that the investment entailed no risk and was not a pyramid scheme. At deposition, Martin testified that he knew of no other opportunities that would produce such results. He also testified that at the time, he believed that Gaddel could turn ...

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