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Bechtle v. Wister

United States District Court, Third Circuit

December 20, 2013

LOUIS C. BECHTLE, in his capacity as Receiver for Donald Anthony Walker Young, Acorn II, L.P., Acorn Capital Management, LLC and Neely Young
v.
DIANA WISTER AND WILLIAM WISTER, h/w, as Trustees of Investor Charitable Remainder Unitrust dated February 21, 2003, ET AL.

MEMORANDUM

JOHN R. PADOVA, District Judge.

Louis C. Bechtle, in his capacity as Receiver (the "Receiver") for Donald Anthony Walker Young ("Young"), Acorn II, L.P. (the "Acorn II Fund" or the "Fund"), Acorn Capital Management, LLC ("Acorn Capital") and Neely Young, asserts claims of common law unjust enrichment and fraudulent transfer under the Pennsylvania Uniform Transfer Act ("PUFTA"), 12 Pa. Cons. Stat. Ann. § 5101 et seq., against Defendants Diana and William Wister, in their capacity as directors of two entities, the Diana S. Wister Charitable Remainder Unitrust ("Unitrust") and the Margaret Dorrance Strawbridge Foundation II of PA (the "Foundation"). The Wisters have filed a Motion to Dismiss the Receiver's Complaint. For the following reasons, we deny that Motion.

I. BACKGROUND

The Complaint alleges that, from 1999 through April 17, 2009, Donald Anthony Young operated a Ponzi scheme through, inter alia, the Acorn II Fund.[1] (Compl. ¶ 2.) Young formed the Acorn II Fund to invest in securities and other instruments of the United States. (Id. ¶ 17.) The Fund solicited and accepted funds from investors, who became Acorn II Fund limited partners. (Id. ¶ 18.) Although the investors were purportedly investing in accordance with the Fund's stated purpose, from the beginning, Young fraudulently and improperly mishandled the funds invested in the Acorn II Fund. (Id.) Essentially, Young combined the capital accounts of the Fund investors and used funds invested by later investors to, among other things, pay "profits" to earlier investors. (Id. ¶ 22.) By paying these false profits, Young was able to attract new investors to the Fund, thereby perpetuating the fraud. (Id.) Young also withdrew investor funds and used them for his and his family's benefit, paying personal expenses and funding personal accounts held in his name and/or jointly with his wife, Neely Young. (Id. ¶ 23.) Throughout the life of the Fund, the investor account statements that Young created for the Fund reflected amounts in the investor capital accounts that exceeded the amount of assets actually in the Acorn II Fund. (Id. ¶ 19.)

The Wisters were limited partners in the Acorn II Fund. (Id. ¶ 29.) On behalf of Unitrust, the Wisters invested $6, 500, 000 in two installments, on March 4, 2004, and December 31, 2004, and they withdrew $6, 138, 242 from the account on May 8, 2007. (Id. ¶ 32 and Ex. C.) On behalf of the Foundation, the Wisters invested a total of $11, 575, 000 on four dates in 2004 and 2006, and they withdrew a total of $11, 842, 755 in 2004 and 2006, with the final withdrawal occurring on April 5, 2006, and amounting to $10, 000, 000. (Id. ¶ 33 and Ex. D.)

On April 17, 2009, the SEC filed a federal Complaint against Young, the Acorn II Fund, Acorn Capital, and Neely Young, and sought both a temporary restraining order and an order freezing the assets of the defendants. (Id. ¶ 2.) See SEC v. Young, Civ. A. No. 09-1634 (E.D. Pa.) (the "SEC Action"). Pursuant to an Order dated June 25, 2009, we appointed the Receiver, whose goal and purpose is to, among other things, investigate, marshal and preserve the assets of the defendants in the SEC Action in order to maximize the recovery available to the investors that had been defrauded during Young's operation of the Ponzi scheme. (Compl. ¶ 6 and Ex. A at 2-3.) In connection with the SEC Action, Young admitted to misappropriating funds of certain investors to pay others and for his and his family's personal benefit. (Id. ¶ 3 and Ex. B at ¶¶ 29-34.) In addition, on July 20, 2010, in a related criminal case, United States v. Young, Crim. A. No. 10-199 (E.D. Pa.), Young pled guilty to charges of mail fraud in violation of 18 U.S.C. § 1341 and money laundering in violation of 18 U.S.C. § 1957. (Id. ¶ 5.)

On April 12, 2011, we granted partial summary judgment in favor of the SEC in the SEC Action; found Young liable for violations of the Securities Act of 1933, 15 U.S.C. § 77q(a), the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and the Investment Advisers Act of 1940, 15 U.S.C. § 80b-6(1), (2), and (4); and entered judgment on liability against Young. SEC v. Young, Civ. A. No. 09-1634, 2011 WL 1376045, *10 (E.D. Pa. April 12, 2011). In doing so, we determined that the undisputed facts were that Young misappropriated more than $23 million in investor funds. Id. at *9.

The Receiver instituted this action against the Wisters, seeking to avoid the transfers made to them by and through the Unitrust and the Foundation, during the course of Young's operation of the Ponzi scheme. The Complaint contains two counts pursuant to PUFTA, 12 Pa. Cons. Stat. Ann. § 5014(a), and two counts of unjust enrichment.

II. LEGAL STANDARD

When considering a motion to dismiss pursuant to Rule 12(b)(6), we "consider... the complaint, exhibits attached to the complaint, [and] matters of public record." Mayer v. Belichick , 605 F.3d 223, 230 (3d Cir. 2010) (citing Pension Benefit Guar. Corp. v. White Consol. Indus., Inc. , 998 F.2d 1192, 1196 (3d Cir. 1993)). We take the factual allegations of the complaint as true and draw all reasonable inferences in favor of the plaintiff. Phillips v. County of Allegheny , 515 F.3d 224, 233 (3d Cir. 2008) (citing Pinker v. Roche Holdings Ltd. , 292 F.3d 361, 374 n.7 (3d Cir. 2002)). Legal conclusions, however, receive no deference, and the court is "not bound to accept as true a legal conclusion couched as a factual allegation." Papasan v. Allain , 478 U.S. 265, 286 (1986) (cited with approval in Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555 (2007)).

A plaintiff's pleading obligation is to set forth "a short and plain statement of the claim, " Fed.R.Civ.P. 8(a)(2), which gives the defendant "fair notice of what the... claim is and the grounds upon which it rests." Twombly , 550 U.S. at 555 (alteration in original) (quotation omitted). The "complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal , 556 U.S. 662, 678 (2009) (quoting Twombly , 550 U.S. at 570). "The plausibility standard is not akin to a probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id . (quoting Twombly , 550 U.S. at 556). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id . (citing Twombly , 550 U.S. at 556). In the end, we will dismiss a complaint if the factual allegations in the complaint are not sufficient "to raise a right to relief above the speculative level." Twombly , 550 U.S. at 555 (citing 5 Charles Allen Wright & Arthur R. Miller, Federal Practice and Procedure § 1216, at 235-36 (3d ed. 2004)).

III. DISCUSSION

A. Counts I and II-PUFTA

Counts I and II assert claims of fraudulent transfer under PUFTA § 5014(a), with Count I asserting a claim against the Wisters as trustees of the Unitrust and Count II asserting a claim against the Wisters as trustees of the Foundation. According to the Receiver, the transfers of funds from the Acorn II Fund to ...


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