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Carroll v. Stettler

United States District Court, Third Circuit

July 31, 2013



MARY A. McLAUGHLIN, District Judge.

This opinion resolves the remaining portion of a motion for summary judgment in a lawsuit seeking to recover transfers made to defendants as part of a Ponzi scheme operation. In two previous opinions, the Court decided the motion as to all but one defendant. The Court now grants in part and denies in part the plaintiffs' motion with regard to the remaining defendant, Penberthy & Penberthy, P.C.

I. Factual and Procedural Summary

The Court incorporates by reference the facts and procedural history stated in its opinions dated April 18, 2013 and May 31, 2013. Docket No. 575, available at 2013 WL 1702636 ("Insider Defendant Opinion"); Docket No. 581, available at 2013 WL 2370566 ("Non-Insider Defendant Opinion"). To summarize, non-party Lizette Morice was the head of Gaddel Enterprises, Inc., a purported real estate investment firm. Morice represented to potential investors that they could earn a share of Gaddel profits by investing in certain properties; in reality, the properties allegedly purchased by Gaddel were fictitious, and the company continuously operated at a loss. On July 23, 2008, Morice pled guilty to seven counts of mail fraud for conducting a Ponzi scheme worth over $7 million dollars. Tr. Change of Plea Hr'g, U.S. v. Morice, No. 08-cr-132-1, at 13:10-14:14.

On May 14, 2010, plaintiffs initiated this lawsuit against recipients of financial transfers from Gaddel between April 2006 and July 2007. The lawsuit sought the recovery of certain monies transferred from Gaddel to the defendants, which would subsequently be distributed pro rata among the plaintiff class. On April 10, 2012, the plaintiffs filed the instant motion for summary judgment against twelve defendants and their entities.

After receiving some form of opposition from ten of the defendants, [1] the Court invited all interested parties to attend an oral argument on March 13, 2013. Among those in attendance at oral argument was counsel from the law offices of Penberthy & Penberthy, P.C. ("Penberthy P.C."). Counsel from Penberthy P.C. are the counsel of record for a number of defendants; the firm is also a named defendant in the case. Due to certain legal complications, the Court did not hear argument from Penberthy counsel.[2] It also did not permit counsel to represent the firm pro se.

In an opinion dated April 18, 2013, the Court issued a decision on the motion as to three defendants and their related entities. The Court held that the plaintiffs were creditors of Gaddel under the Pennsylvania Uniform Fraudulent Transfer Act (PUFTA). Insider Defendant Opinion, 2013 WL 1702636 at *4. It also held that the transfers were made by Gaddel, through Morice, with actual fraudulent intent. Id . However, it concluded that there remained certain factual disputes that called into question whether the transactions fell under the good faith affirmative defense. It thus denied the plaintiffs' motion as to Martin and McClain, but granted it as to Delgado. Id. at *9.

Following the oral argument, and in accordance with discussion with parties, the Court issued an order requiring Penberthy P.C. to inform the Court how it wished to proceed. Order, 3/13/13 (Docket No. 566); Tr. Hr'g 3/13/13 10:10-12:6. Subsequently, despite the Court's repeated attempts to reach counsel, Penberthy P.C. did not file a written response.

Eight weeks after Penberthy P.C.'s time for response expired, the Court issued an opinion as to defendants Accu-Tax, Inc., Batdorf, DeJesus, Angeliki Diamantis, Christina Diamantis, Christopher and Catherine McAstocker, Monaghan, Wisniewski, and their corresponding entities. Non-Insider Defendant Opinion, 2013 WL 2370566 at *1. The Court again found that the plaintiffs were creditors of Gaddel under PUFTA and that the transfers were made by Gaddel, through Morice, with actual fraudulent intent. Id. at *2. However, because the defendants had established, to varying degrees of success, genuine issues of material fact regarding their good faith affirmative defense claims, the Court granted the motion in part and denied it in part. Id. at *3-8.

As to defendant Penberthy P.C., the Court again reserved judgment. Id. at *1, n.1. In a separate order dated May 31, 2013, the Court ordered the plaintiffs to provide additional evidence and legal argument on the judgment it sought against Penberthy P.C. Specifically, the Court was concerned with the fact that some of the transfers to Penberthy trust accounts were made under the instruction of three individuals, Al Rippman, George Kontorousis, and James Wagner, who were investors of Gaddel.[3] It asked the plaintiffs to explain why, as a legal matter, Penberthy did not "at least stand in the shoes of the three defendants and owe only the amount of money that they would have owed if the money had gone directly to them." Second, it asked the plaintiffs to clarify the recovery amount as to each individual defendant, if that the money had gone directly to them instead of into the Penberthy accounts. The Court then allowed Penberthy P.C. two weeks to respond. This order was mailed to all relevant parties, including Penberthy P.C. Docket No. 579.

The plaintiffs filed a timely response on June 14, 2013. Pl. Supp. Mem. (Docket No. 587). In their memorandum, plaintiffs argued that under the language of PUFTA, the Court should look only to the plaintiffs' status as creditors and to Morice's fraudulent intent when making transfers. In addition, they argued that Penberthy P.C. was not entitled to a good faith affirmative defense. Id. at 2. The plaintiffs reiterated their position that under PUFTA, they are entitled to a judgment of $256, 803 against Penberthy P.C., reflecting the full value of the transfers between Penberthy P.C. and Gaddel. Id. at 6.

Factually, the plaintiffs submitted evidence corroborating its previous assertion that a total of $256, 803 was transferred from Gaddel accounts to Penberthy P.C. accounts. Id. at 6. Of that total, plaintiffs submitted evidence that transfers totaling $189, 553 were related to investments made by Rippman, Kontorousis, and Wagner, and that the three individuals had previously invested a sum of $14, 000 in Gaddel. Id. at 3-5. The plaintiffs also pointed to an additional $67, 250 that was transferred to Penberthy P.C. accounts from Gaddel but did not relate to the three investors. Plaintiffs submit that by their review of the evidentiary record, they cannot account for the reason behind these transfers. Id. at 6.

Penberthy P.C. did not respond to the plaintiffs' memorandum by June 28, 2013, the deadline set forth in the Court's order of May 31, 2013. Seeing that the response is now over four weeks overdue, the Court ...

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