Freitag v. Valeiras

— 1 — — 2 — — 3 — — 4 — — 5 — — 6 — — 7 — 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA — 10 — 11 KRISTA FREITAG, Court-appointed Case No.: 21-cv-1625-LAB-AHG permanent receiver for ANI 12 Development LLC, American ORDER: National Investments, Inc., and their 13 subsidiaries and affiliates, 1) GRANTING PLAINTIFF 14 KRISTA FREITAG’S MOTION FOR Plaintiff, SUMMARY JUDGMENT, [Dkt. 32]; 15 and v. 16 2) DENYING DEFENDANT 17 HORACIO VALEIRAS, Trustee of HORACIO VALEIRAS’S MOTION The Valeiras Family Trust Dated July FOR SUMMARY JUDGMENT, 18 20, 2007, and DOES 1 through 10, [Dkt. 31] inclusive, — 19 — Defendants. — 20 — — 21 — 22 Plaintiff Krista Freitag (the “Receiver”), the Court-appointed permanent 23 receiver for ANI Development, LLC (“ANI Development”); American National 24 Investments, Inc.; and their subsidiaries and affiliates (collectively, “Receivership 25 Entities”), filed this suit on September 16, 2021, against Defendant Horacio 26 Valeiras, trustee of The Valeiras Family Trust dated July 20, 2007 (“VFT”), alleging 27 that the Receiver is entitled to $468,041.03 (the “Profit Amount”) plus prejudgment 1 Voidable Transactions Act (“CUVTA”), codified in California Civil Code 2 section 3439, et. seq. (Dkt. 1). On April 20, 2023, Valeiras filed a Motion for 3 Summary Judgment on the Receiver’s fraudulent transfer claim asserting summary 4 judgment is proper because VFT didn’t make an investment into the Ponzi scheme. 5 (Dkt. 31). On the same day, the Receiver also filed a Motion for Summary Judgment 6 or Partial Summary Judgment asserting summary judgment is proper because VFT 7 was an investor in the Ponzi scheme and received fictitious profits.1 (Dkt. 32). Each 8 party submitted a response in opposition to the other party’s motion, (Dkt. 35, 36), 9 and reply briefs, (Dkt. 37, 38). 10 The Court having read and considered all materials in support of and in 11 opposition to the motions rules as follows. 12 I. Background 13 A. Ponzi Scheme Generally 14 It’s undisputed that Gina Champion-Cain, in connection with the Receivership 15 Entities she controlled, perpetrated a Ponzi scheme from 2012 to 2019 where 16 investor money was solicited to fund loans to liquor license applicants. (Dkt. 33 at J17 1 In support of her motion for summary judgment or partial summary judgment, — 18 — the Receiver requests judicial notice of documents introduced or filed in cases before this Court: (1) SEC v. Champion-Cain et al., No. 19-cv-1628-LAB-AHG — 19 — (“SEC Action”); (2) United States v. Champion-Cain, No. 20-cr-2115-LAB (“Champion-Cain Criminal Action”); (3) Valeiras v. Freitag, No. 21-cv-156920 LAB-AHG (“Valeiras Dec. Relief Action”); and (4) Freitag v. Levene et al., No. 21-cv-1754-LAB-AHG (“Levene Action”). (Dkt. 32-4). Courts may take — 21 — judicial notice of court records from another case. Almont Ambulatory Surgery Ctr., LLC v. UnitedHealth Grp., Inc., 99 F. Supp. 3d 1110, 1125 (C.D. Cal. 2015) — 22 — (citing United States v. Howard, 381 F.3d 873 , 876 n.1 (9th Cir. 2004)); see also Gamarro v. Walgreen Pharmacy Servs. Midwest, LLC, No. 22-cv-01811-MEMF — 23 — (SPx), 2023 WL 2713987 , at *2 (C.D. Cal. Mar. 30, 2023) (citing Harris v. Cnty. of Orange, 682 F.3d 1126 , 1132–33 (9th Cir. 2012) and United States v. Black, — 24 — 482 F.3d 1035, 1041 (9th Cir. 2007)) (“Documents on file in federal and state court are undisputed matters of public record and therefore appropriate for — 25 — judicial notice.”). “But the Court ‘can only take judicial notice of the existence of those matters of public record . . . but not of the veracity of the arguments and — 26 — disputed facts contained therein.’” Almont Ambulatory Surgery Ctr., LLC, 99 F. Supp. 3d at 1125 (emphasis in original) (quoting United States v. S. Cal. Edison — 27 — Co., 300 F. Supp. 2d 964, 974 (E.D. Cal. 2004)). The Court GRANTS the Receiver’s request for judicial notice but doesn’t take judicial notice of any 1 1–2). California state law requires liquor license applicants to deposit funds equal 2 to the license purchase price in an escrow account while the application is pending 3 with the state. (Dkt. 1 ¶ 9). Champion-Cain used this regulatory requirement as an 4 alleged investment opportunity. (Id.). She represented to investors that their funds 5 were being loaned to liquor license applicants at a high interest rate to help them 6 meet California’s liquor license regulatory requirements (“the ANI Loan Program”). 7 (Id.; Dkt. 33 at J-16). She solicited investors by informing them that Chicago Title 8 Company (“Chicago Title”) was the escrow company. (Dkt. 33 at J-17). In this 9 scheme, ANI Development used Chicago Title as the escrow company for the ANI 10 Loan Program. (Id. at J-3). 11 These investment opportunities were entirely fictitious, and any profits paid to 12 early investors were financed by newer investors. (Dkt. 1 ¶ 11). On August 28, 13 2019, the SEC filed a complaint against Champion-Cain and ANI Development for 14 violations of federal securities law. (Id. ¶ 12; Dkt. 32-5 at Ex. 182; 33 at J-125–26). 15 The very next year, the United States charged Champion-Cain with conspiracy, 16 securities fraud, and conspiracy to commit securities fraud and obstruction of 17 justice. (Dkt. 1 ¶ 15; 32-5 at Ex. 233; 33 at J-129–30). Champion-Cain agreed to 18 waive indictment and entered into a plea agreement in which she admitted the 19 liquor license loan investment opportunities were part of a fraudulent Ponzi scheme. 20 (Dkt. 1 ¶ 15; 32-5 at Ex. 244; 33 at J-131–32). 21 Kim Peterson was an early investor in the ANI Loan Program and founded 22 Kim Funding, LLC (“Kim Funding”) and other entities (collectively, “Peterson — 23 — 24 2 See Compl., SEC Action (S.D. Cal. Aug. 28, 2019), ECF No. 1. The Court cites this document as Dkt. 32-5 at Ex. 18 moving forward. — 25 — 3 See Information, Champion-Cain Criminal Action (S.D. Cal. July 22, 2020), 26 ECF No. 1. The Court cites to this document as Dkt. 32-5 at Ex. 23 moving forward. 27 4 See Plea Agreement, Champion-Cain Criminal Action (S.D. Cal. July 22, 2020), ECF No. 5. The Court cites to this document as Dkt. 32-5 at Ex. 24 1 Entities”) to help solicit investors to invest in the ANI Loan Program. (Dkt. 33 at J2 13, J-18, J-22). The Peterson Entities, including Kim Funding, were insiders in the 3 fraudulent scheme because they were involved at a “more intimate level” than the 4 typical investor. (Id. at J-18; Dkt. 32-5 at Ex. 21, 452, 4545). “The Peterson Entities 5 were explicitly created to raise capital for investment in the liquor license lending 6 scheme.” (Dkt. 32-5 at Ex. 21, 452). Furthermore, Kim Funding was a one percent 7 equity holder and fifty percent voting member of ANI Development. (Dkt. 1 ¶ 10; 8 32-5 at Ex. 21, 452). As a result of being insiders, those investors solicited by 9 Peterson, and not the Peterson Entities themselves, were found to be the proper 10 claimants because “most of the funds solicited by Peterson were transferred directly 11 to Chicago Title without moving through the Peterson Entities.” (Dkt. 32-5 at Ex. 21, 12 453–54). 13 B. Valeiras’s Involvement 14 i. 2014 HAV Agreement 15 In late 2014, Peterson and Champion-Cain each spoke with Valeiras about 16 how to become a potential investor and how the ANI Loan Program functioned. 17 (Dkt. 33 at J-14–15). Peterson represented to Valeiras that he and his company, 18 Kim Funding, were investors in the ANI Loan Program. (Id. at J-19). Valeiras formed 19 a limited partnership called HAV in 2013, and entered into an agreement with 20 Peterson in December 2014 (the “2014 HAV Agreement”). (Id. at J-6–8, J-28, J-32; 21 Dkt. 31-6), The 2014 HAV Agreement provided Kim Funding financing up to 22 $2,000,000 that would be “used to fund escrow accounts of applicants seeking to 23 obtain approvals of transfers of licenses from the California Department of Alcohol 24 Beverage Control.” (Dkt. 31-6 at 1). It stated that Kim Funding was affiliated with 25 ANI Development, and that Chicago Title would accept the proceeds of each loaned — 26 — 27 5 See Order Approving Receiver’s Recommended Treatment of Claims, SEC Action (S.D. Cal. Feb. 24, 2023), ECF No. 958 at 14, 16. The Court cites to this 1 amount. (Id.). As a result of the 2014 HAV Agreement, HAV became an investor in 2 the ANI Loan Program, and by February 2016 it increased its investment to 3 $6,000,000 and the standardized investment return rate was 15.6% for liquor 4 license loans that successfully closed and ten percent for loans that were 5 unsuccessful. (Dkt. 33 at J-33–36). Peterson and Valeiras disputed over the 6 interest rate, so Valeiras decided, on HAV’s behalf, to withdraw from the ANI Loan 7 Program in September 2017; however, HAV didn’t received back its funds and 8 purported returns until June 2018. (Id. at J-89, J-92). 9 ii. 2016 VFT Agreement 10 In February 2016, Peterson asked Valeiras about a “bridge loan.” (Id. at J11 37). Valeiras decided that VFT would make the loan because any loan to Kim 12 Funding would have to be from a source other than HAV, which was already fully 13 invested based on its risk tolerance. (Id. at J-39–42). For the additional investment, 14 Peterson proposed the initial concept to Valeiras: 15 What I was thinking was that you do say $2 million like we have done before (Same Loan Request and Escrow documents provided), with — 16 — the understanding that within 60-90 days you get taken out of those 17 Escrows, at which time, you get your money back and interest and assign to whomever I identify, your position in those Escrows. That — 18 — way, you are secured much like you are already with the $6 Million. — 19 — 20 (Id. at J–44; Dkt. 31-7 at 1). Valeiras responded with a counteroffer: “I was 21 rethinking structure. Since I have to pay interest on my [home equity] loan every 22 month, maybe it makes sense to make this a loan to Kim Funding, secured on 23 something, that pays interest monthly at 15% per year on outstanding balances.” 24 (Dkt. 33 at J-45; 31-8 at 1). In February 2016, VFT agreed to make the loan, and 25 the following month the parties entered into an agreement (the “2016 VFT 26 Agreement”), which was a modified version of the 2014 HAV Agreement. (Dkt. 33 27 at J-48–50, J-54; see also Dkt. 31-10). The 2016 VFT Agreement provided Kim 1 of applicants seeking to obtain approvals of transfers of licenses from the California 2 Department of Alcohol Beverage Control.” (Dkt. 31-11 at 16; accord Dkt. 33 at J-57, 3 J-65). The 2016 VFT Agreement stated that Kim Funding was affiliated with ANI 4 Development, and that Chicago Title would accept the proceeds of each loaned 5 amount. (Dkt. 31-11 at 1; 33 at J-55–58). 6 The two parties officially terminated the 2016 VFT Agreement on 7 November 7, 2017. (Dkt. 33 at J-94). However, between March 7, 2016, and July 8 12, 2017, VFT made five transfers of money to Chicago Title, totaling $3,300,000. 9 (Id. at J-74–75). Between April 8, 2016, and November 8, 2017, VFT received 10 twenty-one transfers of money from Kim Funding, totaling $468,041.03. (Id. at J11 78–79). Between September 29, 2016, and November 10, 2017, VFT received 12 eight transfers of money from Chicago Title, totaling $3,300,000. (Id. at J-76–77). 13 iii. 2019 HAV Agreement 14 In December 2018, Peterson approached Valeiras to rejoin as an investor or 15 enter into another bridge loan. (Id. at J-95–96). HAV declined to come back as an 16 investor, but Valeiras agreed to do another bridge loan on behalf of HAV for 17 $3,000,000 for ninety days at fifteen percent. (Id. at J-95–97). Valeiras declined the 18 opportunity for another bridge loan on VFT’s behalf. (Id. at J-97). Kim Funding 19 repaid the bridge loan from HAV in April 2019. (Id. at J-98). Two months later, HAV 20 entered into another agreement for a bridge loan (the “2019 HAV Agreement”), but 21 this time for $6,000,000 at thirteen percent.7 (Id. at J-99–102, J-107, J-110; see — 22 — 6 The Receiver also submitted a copy of the 2016 VFT Agreement. (Dkt. 32-5 23 at Ex. 11). The Court cites to this document as Dkt. 31-11 moving forward. 7 At the time HAV funded the loan pursuant to the 2019 HAV Agreement, — 24 — Frontier was the general partner with a 1.4% interest in HAV, (Dkt. 33 at J-114), VFT was a limited partner with 18.1% interest in HAV, (id. at J-116), Valeiras — 25 — Rollover IRA was a limited partner with 8.5% interest in HAV, (id. at J-117), and Valeiras Roth IRA was a limited partner with 9.5% interest in HAV, (id. at J-119). — 26 — Valeiras was a managing member of Frontier and held a 28% interest, (id. at J115), and VFT was a beneficiary of the Valeiras Rollover IRA and Valeiras Roth — 27 — IRA, (id. at J-118, J-120). The non-Valeiras limited partners, including David Valeiras (Valeiras’s adult son), held approximately 62.5% of the interests in 1 also Dkt. 31-198). The 2019 HAV Agreement provided Kim Funding financing up to 2 $6,000,000 that would be “used to fund escrow accounts of applicants seeking to 3 obtain approvals of transfers of licenses from the California Department of Alcohol 4 Beverage Control.” (Dkt. 31-19 at 1; accord Dkt. 33 at J-101–03). The 2019 HAV 5 Agreement stated that Chicago Title would accept the proceeds of each loaned 6 amount. (Dkt. 31-19 at 1; 33 at J-104, J-112). 7 At the end of 2019, Champion-Cain’s Ponzi scheme was revealed. (See 8 Dkt. 33 at J-123). Some of HAV’s limited partners threatened a lawsuit against 9 HAV, Valeiras, and/or Frontier Global Partners, LLC (“Frontier”). (Id.). To resolve 10 these potential claims, all partners in HAV, excluding VFT, were liquidated through 11 deposits of $1,250,000 by Frontier’s insurer, Chubb, and $1,474,864 by VFT. (Id. 12 at J-124). Valeiras doesn’t dispute that HAV was an investor in the Ponzi scheme 13 starting in 2017. (Dkt. 31-1 at 2). 14 C. The Levin Action 15 In March 2020, a civil action was filed against Chicago Title, Peterson, and 16 other defendants in the Superior Court of California for the County of San Diego 17 entitled Levin et al. v. Chicago Title Co., et al., No. 37-2020-00016983-CU-MC-CTL 18 (“Levin Action”). (Dkt. 33 at J-135). HAV was one of the named plaintiffs. (Id. at J19 136–37). In 2021, the parties in the Levin Action settled and Chicago Title paid HAV 20 approximately $2,730,219, which was distributed as follows: VFT received 21 approximately $2,130,196, Chubb received approximately $456,326, and Frontier 22 received approximately $126,806. (Id. at J-138). When HAV calculated its net loss, 23 it didn’t reduce the $468,041.03 net gain that VFT received under the 2016 VFT 24 Agreement. (Id. at P-99). In December 2021, the Receiver sent Valeiras a revised 25 claim packet that reflected HAV’s recovery rate of 97.62% based on following: 26 (a) HAV paid $27,958,465.20 into the ANI Loan Program pre-receivership; (b) HAV — 27 — 8 The Receiver also submitted a copy of the 2019 HAV Agreement. (Dkt. 32-5 1 received $24,562,018.50 from the ANI Loan Program pre-receivership; and (c) HAV 2 received $2,730,218.84 from Chicago Title post-receivership. (Id. at J-142). HAV’s 3 net loss was around $666,227.86, (id.), but didn’t account for the $1,250,000 4 payment received from Chubb, (see id. at P-118). Neither HAV nor VFT submitted 5 a claim in the receivership. (Id. at J-143–44). 6 D. Forensic Accounting 7 After the Court appointed the Receiver, she completed a forensic accounting 8 and analysis of the Ponzi scheme. (Id. at P-19). As part of her duties, the Receiver 9 completed a money-in money-out (“MIMO”) accounting to determine whether an 10 investor was a losing investor or a profiting investor. (Id. at P-64–65). The Receiver 11 seeks to recover the $468,041.03 in the alleged fictitious profits that Valeiras, as 12 trustee of VTF, received as part of the 2016 VFT Agreement he made with Kim 13 Funding. (Id. at D-52). 14 Between February 2016 and November 2017, Kim Funding received an 15 aggregate total of $1,188,634.50 directly from ANI Development, of which 16 $858,541.83 was deposited into KP-TPB-1274 (the “Torrey Pines Bank account”) 17 and $330,092.67 was deposited into KP-WFB-4536 (the “Wells Fargo account”) 18 (collectively, the “Kim Funding Accounts”). (Id. at P-35–37). Around the same time, 19 Kim Funding also received an aggregate total of $11,030,629.06 from Chicago 20 Title, of which $7,810,864.64 was deposited into the Torrey Pines Bank account 21 and $3,219,764.42 was deposited into the Wells Fargo account. (Id. at P-39–41). 22 The Kim Funding Accounts had an initial combined balance of $46,853.40 on 23 April 8, 2016. (Id. at P-44). ANI Development and Chicago Title deposited a total of 24 $18,508,111.09 into the Kim Funding Accounts, which Kim Funding was able to 25 disburse $18,332,764.69, leaving a balance of $222,199.80 on November 8, 2017. 26 (Id. at P-45–47). The $468,041.03 VFT received pursuant to the 2016 VFT 27 Agreement was paid out of the Kim Funding Accounts. (Id. at P-54). 1 into numerous accounts, including the Kim Funding Accounts, which prevented an 2 in-depth tracing analysis. (Id. at P-57–58). Deposits into the Kim Funding Accounts 3 were “from Peterson’s family and trust, ANI Development, Chicago Title, and 4 investors.” (Id. at J-81). 5 The Receiver also conducted a “macro” level tracing analysis. (Id. at P-59). 6 The “macro” analysis revealed that out of all the net sources of funds in the Kim 7 Funding Accounts, ninety-eight percent of the net source of funds were funds 8 related to the scheme, including from Chicago Title accounts, ANI accounts, and 9 other investors. (Id. at P-59–62). 10 II. LEGAL STANDARD 11 Summary judgment is appropriate under Federal Rule of Civil Procedure 56 12 where the movant “shows that there is no genuine dispute as to any material fact 13 and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). In 14 order to prevail, the moving party must show the absence of a genuine issue of 15 material fact with respect to an essential element of the non-moving party’s claim, 16 or to a defense on which the non-moving party will bear the burden of persuasion 17 at trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the movant 18 has made this showing, the burden then shifts to the party opposing summary 19 judgment to identify “specific facts showing there is a genuine issue for trial.” Id. 20 at 324. The party opposing summary judgment must then present affirmative 21 evidence from which a jury could return a verdict in that party’s favor. Anderson v. 22 Liberty Lobby, Inc., 477 U.S. 242, 257 (1986). 23 On summary judgment, the court draws all reasonable factual inferences in 24 favor of the non-movant. Id. at 255 . “Credibility determinations, the weighing of the 25 evidence, and the drawing of legitimate inferences from the facts are jury functions, 26 not those of a judge.” Id. (citation omitted). “The mere existence of a scintilla of 27 evidence in support of the plaintiff’s position will be insufficient; there must be 1 court determines whether the record “presents a sufficient disagreement to require 2 submission to a jury or whether it is so one-sided that one party must prevail as a 3 matter of law.” Id. at 251–52. In ruling on a motion for summary judgment, the court 4 only needs to consider cited materials, but may consider other materials in the 5 record. Fed. R. Civ. P. 56(c)(3). The court isn’t obligated to scour the record. 6 Keenan v. Allan, 91 F.3d 1275, 1279 (9th Cir. 1996). Counsel has an obligation to 7 lay out their support clearly. See Carmen v. San Francisco Unified Sch. Dist., 237 8 F.3d 1026, 1031 (9th Cir. 2001). 9 “[W]hen parties submit cross-motions for summary judgment, each motion 10 must be considered on its own merits.” Fair Hous. Council of Riverside Cnty., Inc. 11 v. Riverside Two, 249 F.3d 1132 , 1136 (9th Cir. 2001) (internal quotation marks 12 and brackets omitted). In doing so, the court must consider the evidence submitted 13 in support of both motions before ruling on each of them. Id. 14 III. ANALYSIS 15 A. Evidentiary Objections 16 Prior to addressing the motions for summary judgment, the Court must 17 address the evidentiary objections raised by the parties. The Receiver objected to 18 parts of Valeiras’s declaration based on the following grounds: (1) vague; 19 (2) improper opinion or legal conclusion; (3) lack of foundation; and (4) hearsay. 20 (Dkt. 35-1). The Receiver also objected to a paragraph in Louis A. Mezzullo’s 21 declaration based on the following grounds: (1) vague; (2) lack of relevance; and 22 (3) improper opinion or legal conclusion. (Dkt. 35-2). Finally, the Receiver objected 23 to Valeiras’s portion of the Joint Statement of Undisputed Facts (“JSUF”) based on 24 the following grounds: (1) evidence not admissible; (2) vague or ambiguous; 25 (3) legal conclusion or opinion; (4) misleading or mischaracterization of facts; 26 (5) duplicative of the joint facts; and (6) conflicting evidence presented. (Dkt. 35-3). 27 In a similar vein, Valeiras objected to the Receiver’s portion of the JSUF based on 1 (3) not a material fact; (4) hearsay; (5) lack of foundation; (6) not admissible 2 evidence; (7) conflicting evidence presented; (8) need for personal knowledge; 3 (9) argumentative; and (10) lack of relevance. (Dkt. 36-5). 4 “When evidence is not presented in an admissible form in the context of a 5 motion for summary judgment, but it may be presented in an admissible form at 6 trial, a court may still consider that evidence.” Burch v. Regents of Univ. of Cal., — 7 — 433 F. Supp. 2d 1110, 1120 (E.D. Cal. 2006) (emphasis in original). The Court 8 doesn’t address the entire laundry list of objections the parties raised, but rather 9 focuses on documents or evidence that it relied on to determine whether there’s a 10 genuine issue of material fact in dispute. See Greer v. Cnty. of San Diego, No. 1911 cv-378-JO-DEB, 2023 WL 2316203 , at *6 (S.D. Cal. Mar. 1, 2023) (“Because the 12 Court only relies on [certain] records . . . to reach its conclusion, it will only rule on 13 objections to those documents.”). Moreover, many of the parties’ objections to 14 evidence on grounds of irrelevant, speculative, and/or argumentative, or that it 15 constitutes an improper legal conclusion are duplicative of the summary judgment 16 standard. See Burch, 433 F. Supp 2d at 1119; see also Cherewick v. State Farm 17 Fire & Cas., 578 F. Supp. 3d 1136 , 1156 (S.D. Cal. 2022); Sandoval v. Cnty. of San 18 Diego, 985 F.3d 657, 665 (9th Cir. 2021) (objections for relevance are duplicative 19 of the summary judgment standard). 20 i. Valeiras’s Objections 21 Turning to Valeiras’s objections, the Court relied upon the Receiver’s 22 statements that Valeiras noted was “[u]ndisputed,” “[u]ndisputed, but not a material 23 fact,” or “[d]isputed” because Valeiras had evidence to the contrary. (See generally 24 Dkt. 36-5). The Court will determine whether a fact is material and if there’s a 25 genuine dispute as to any material fact on summary judgment. Fed. R. Civ. P. 56. 26 The Court also relied on the Receiver’s statements as they relate to the 27 forensic accounting performed. First, Valeiras objects to the Court taking judicial 1 at 15–20). As mentioned in footnote one, supra, the Court takes judicial notice of 2 the existence of these documents, but doesn’t take judicial notice of any disputed 3 facts within. Any objections that judicial notice isn’t proper are OVERRULED. 4 Next, Valeiras objects to the Receiver’s forensic accounting and evaluation’s 5 statements about the sources and uses of funds moving through the bank accounts 6 involved in the ANI Loan Program. Valeiras argues the Receiver lacks personal 7 knowledge to make these statements. Objections for lack of personal knowledge, 8 are misplaced in a motion for summary judgment. See Burch, 433 F. Supp 2d 9 at 1119; see also Cherewick, 578 F. Supp. 3d at 1156. The objections for lack of 10 personal knowledge are OVERRULED. 11 Lastly, Valeiras objects to the Receiver’s statements about the forensic 12 accounting and evaluation on grounds that these statements lack proper 13 evidentiary foundation and are contrary to the Receiver’s testimony. Again, the 14 Court will determine whether there is a material fact in dispute, so Valeiras’s 15 objection about contrary testimony is unnecessary. As for the objection based on 16 lack of foundation, “foundation may be laid by testimony of a witness who has 17 personal knowledge.” Cherewick, 578 F. Supp. 3d at 1155 (citing Fed. R. Evid. 18 901(b)(1)). Although Valeiras tries to argue the Receiver’s declaration in unreliable 19 because she admitted her declaration isn’t based on her personal knowledge, 20 Valeiras’s citation to the Receiver’s deposition where she answered that “[m]ultiple 21 people worked on the forensic accounting, including me,” (Dkt. 36-5 at 10), 22 suggests the Receiver does have the requisite personal knowledge to lay the 23 foundation for her statements. The objections to the Receiver’s various statements 24 about the forensic accounting and evaluation lack foundation are OVERRULED. 25 ii. The Receiver’s Objections 26 Turning to the Receiver’s objections, the Receiver didn’t object to any of 27 Valeiras’s statements or evidence the Court relied upon. The Receiver’s Objections 1 B. Summary Judgment 2 The Receiver alleges one cause of action against Valeiras for fraudulent 3 transfer in violation of the CUVTA. (Dkt. 1). The parties in their summary judgment 4 motions don’t dispute that Champion-Cain operated a Ponzi scheme and solicited 5 Valeiras to become an investor. (Dkt. 31-1 at 4; 32-1 at 7; 36 at 6). Instead, the 6 parties dispute whether (1) VFT’s net profit should be considered as part of the ANI 7 Loan Program and (2) VFT should be considered a profiting investor, especially 8 when aggregating the alleged net loss of HAV. (Dkt. 31-1 at 4–19; 32-1 at 20–30). 9 i. Fraudulent Transfer 10 The Receiver seeks to recover the fraudulent transfer of $468,041.03 to 11 Valeiras, as trustee of VFT, for fictitious profits that VFT received in connection with 12 its investment in the Ponzi scheme operated by Champion-Cain under the CUVTA. 13 (Dkt. 32 at 2). The CUVTA states in relevant part: 14 (a) A transfer made or obligation incurred by a debtor is voidable as to a creditor, whether the creditor’s claim arose before or after the — 15 — transfer was made or the obligation was incurred, if the debtor made 16 the transfer or incurred the obligation as follows: — 17 — (1) With actual intent to hinder, delay, or defraud any creditor of 18 the debtor. — 19 — (2) Without receiving a reasonably equivalent value in exchange 20 for the transfer or obligation, and the debtor either: — 21 — (A) Was engaged or was about to engage in a business 22 or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the — 23 — business or transaction. — 24 — (B) Intended to incur, or believed or reasonably should — 25 — have believed that the debtor would incur, debts beyond 26 the debtor’s ability to pay as they became due. — 27 — Cal. Civ. Code § 3439.04 (a). “Courts have routinely applied [CUVTA] to allow 1 investors.” Donell v. Kowell, 533 F.3d 762, 767 (9th Cir. 2008) (citing In re Agric. 2 Rsch. & Tech. Grp., Inc., 916 F.2d 528 , 534 (9th Cir. 1990) and Scholes v. 3 Lehmann, 56 F.3d 750, 755 (7th Cir. 1995)). Because “California’s fraudulent 4 transfer act and the federal bankruptcy code’s fraudulent transfer provisions are 5 almost identical in form and substance,” courts may look to decisions interpreting 6 both in reaching its conclusion. Id. at 769–70 (citing In re AFI Holding, Inc., 525 7 F.3d 700, 703 (9th Cir. 2008)). 8 In a Ponzi scheme, the operator “is the ‘debtor,’ and each investor is a 9 ‘creditor.’” Id. at 767 (citing Lehmann, 56 F.3d at 755 ). “The profiting investors are 10 the recipients of the Ponzi scheme operator’s fraudulent transfer.” Id. Generally, if 11 “innocent investors [] received payments in excess of the amounts of principal that 12 they originally invested, those payments are avoidable as fraudulent transfers.” Id. 13 at 770. According to the Ninth Circuit: 14 The policy justification is ratable distribution of remaining assets among all the defrauded investors. The “winners” in the Ponzi scheme, — 15 — even if innocent of any fraud themselves, should not be permitted to 16 “enjoy an advantage over later investors sucked into the Ponzi scheme who were not so lucky.” — 17 — — 18 — Id. (quoting In re United Energy Corp., 944 F.2d 589 , 596 (9th Cir. 1991)). 19 A receiver may seek to recover on two theories of liability because a transfer 20 can be either “actual fraud” or “constructive fraud” under the CUVTA. Id. The Ninth 21 Circuit described these two theories: 22 Under § 3439.04(a)(1), codifying the “actual fraud” theory, the receiver alleges that the debtor (Ponzi scheme operator) made transfers to the — 23 — transferee (the winning investor) “[w]ith actual intent to hinder, delay, 24 or defraud” the creditors (the losing investors). “[T]he mere existence of a Ponzi scheme is sufficient to establish actual intent” to defraud. In — 25 — re AFI Holding, Inc., 525 F.3d at 704 (internal quotation marks 26 omitted); Agritech, 916 F.2d at 535. Under § 3439.04(a)(2), codifying the “constructive fraud” theory, the receiver alleges that the transfer of — 27 — “profits” to the winning investor was made “[w]ithout receiving a 1 profits gained through theft from later investors are not a reasonably equivalent exchange for the winning investor’s initial investment. See — 2 — Scholes, 56 F.3d at 757 . Proof that transfers were made pursuant to a 3 Ponzi scheme generally establishes that the scheme operator “[w]as engaged or was about to engage in a business or a transaction for — 4 — which the remaining assets of the debtor were unreasonably small in 5 relation to the business or transaction,” § 3439.04(a)(2)(A), or “[i]ntended to incur, or believed or reasonably should have believed — 6 — that he or she would incur, debts beyond his or her ability to pay as 7 they became due,” § 3439.04(a)(2)(B). 8 Id. (alterations in original). Here, although the Receiver alleges recovery of 9 fraudulent transfers on either actual or constructive fraud, (Dkt. 32 at 2), it doesn’t 10 matter because recovery under either fraud theory doesn’t impact the amount 11 recovered from innocent investors, Donell, 533 F.3d at 771 . 12 Admissions, through a guilty plea, that one operated a Ponzi scheme 13 conclusively establishes actual intent under the CUVTA. In re Slatkin, 525 F.3d 805 , 14 814 (9th Cir. 2008) (collecting cases) (“[A] debtor’s admission, through guilty pleas 15 and a plea agreement admissible under the Federal Rules of Evidence, that he 16 operated a Ponzi scheme with the actual intent to defraud his creditors conclusively 17 establishes the debtor’s fraudulent intent under [] California Civil Code 18 § 3439.04(a)(1), and precludes relitigation of that issue.”). Additionally, a factor in 19 determining actual intent under the CUVTA is “[w]hether the transfer or obligation 20 was to an insider.” Cal. Civ. Code § 3439.04 (b)(1). 21 There’s no factual dispute that Champion-Cain began operating a Ponzi 22 scheme in 2012 and continued operating it until 2019. (See Dkt. 32-5 at Ex. 24; 33 23 at J-129–34). This alone is enough to establish that a Ponzi scheme existed and 24 there was actual intent to defraud. See In re Slatkin, 525 F.3d at 814 . However, 25 Valeiras argues that the “Ponzi scheme presumption [can’t] leap from the Ponzi 26 scheme operator to any other person . . . . [N]o court of competent jurisdiction has 27 ever found that Peterson was a co-conspirator or illegally aided and abetted 1 While no court has found Peterson was specifically a “co-conspirator,” this Court 2 previously determined the Peterson Entities were “insiders” of the Ponzi scheme 3 because they had extensive “business relationships [with Champion-Cain and the 4 Receivership Entities], recruitment efforts, compensation structure, and personal 5 relationship” that indicated they were involved at a “more intimate level” than the 6 typical investor. (Dkt. 32-5 at Ex. 21, 451–52). Because the Receiver has 7 established the required actual intent to defraud to consider the transfer fraudulent 8 under section 3439.04(a)(1), the Court applies the “actual fraud” theory of liability. 9 ii. Payments in Furtherance of the Ponzi Scheme 10 “[O]nce the existence of a Ponzi scheme is established, payments received 11 by investors as purported profits—i.e., funds transferred to the investor that exceed 12 the investor’s initial ‘investment’—are deemed to be fraudulent transfers as a matter 13 of law.” In re Slatkin, 525 F.3d at 814 ; see also In re Consol. Meridian Funds, 14 No. 10-17952, 2013 WL 623570 , at *5 (Bankr. W.D. Wash. Feb. 19, 2013) (stating 15 that the Ninth Circuit has adopted a bright line approach “that any return to a lender 16 or investor in a Ponzi scheme in excess of the principal investment will not be 17 treated as value, and therefore cannot be counted in determining whether the return 18 was ‘reasonably equivalent’” (emphasis in original)). 19 The source of the profits received by an investor into the Ponzi scheme is 20 regarded as “theft from the other investors.” In re Slatkin, 525 F.3d at 815 . Although 21 it could be argued that the source of the funds received may have been contributed 22 from a legitimate investment, “in truth none of the trades made by [the debtor are] 23 ‘legitimate’ because the money used for the trades came from investors gulled by 24 [the debtor’s] fraudulent representations.” Id. 25 The length of time since the profits were received also doesn’t matter for 26 determining whether to disgorge the gains received from the scheme. Donell, 533 27 F.3d at 779. In the end, “equity compels that [the investor] share some of the 1 a. VFT Is an Investor in the Ponzi Scheme 2 The Ninth Circuit “has not adopted a rule which treats victims of a Ponzi 3 scheme differently depending upon whether their investment can be characterized 4 as a financial investment, equity investment or loan.” In re Consol. Meridian Funds, — 5 — 2013 WL 623570 , at *6. Keeping equity in mind, courts may “delve behind the form 6 of transactions and relationships to determine the substance.” In re United Energy 7 Corp., 944 F.2d at 596. Both parties agree that the Court should look at the 8 substance of the transaction over the form. (Dkt. 32-1 at 20–21; 36 at 9). 9 In Consol. Meridian Funds, defendants attempted to argue that they were 10 traditional lenders, not equity investors, who were seeking a return of reasonable 11 interest in exchange for the time value of their loans. In re Consol. Meridian Funds, — 12 — 2013 WL 623570 , at *6. However, the court looked at the facts and circumstances 13 surrounding the loans and determined that the loans looked more like investments 14 rather than traditional loans. Id. For example, there were aspects “normally 15 associated” with the investments that were also a part of the loan, such as 16 disclosure packages and subscription agreements. Id. Furthermore, Meridian 17 Funds’s sole purpose was to “offer and sell promissory notes to investors” and the 18 “investors were told that the sole purpose of the investment was to enable the 19 Meridian Funds to invest” those funds into the scheme. Id. As a result, the court 20 found that the payment of interest to the defendants pursuant to the loan’s terms 21 could be subject to the fraudulent conveyance claim. Id. at *7. 22 Here, VFT’s “bridge loan” was no different from other investments solicited 23 by Kim Funding in furtherance of the Ponzi scheme. See Sec. Inv. Prot. Corp. v. 24 Bernard L. Madoff Inv. Sec. LLC, 476 B.R. 715, 725 (Bankr. S.D.N.Y. 2012), 25 supplemented (May 15, 2012), aff’d sub nom. In re Bernard L. Madoff Inv. Sec. 26 LLC, 773 F.3d 411 (2d Cir. 2014) (“[T]ransfers must be assessed on the basis of 27 what they really were.”). As this Court determined, the Peterson Entities were 1 (Dkt. 32-5 at Ex. 21, 452). Both parties agree that Peterson solicited investors to 2 invest in the ANI Loan Program, and in 2014 Peterson solicited Valeiras. (Dkt. 33 3 at J-22–23). 4 Valeiras concedes that he decided to invest in the ANI Loan Program through 5 HAV in 2014, (id. at J-28), but he argues that VFT’s “bridge loan” made in 2016 6 wasn’t meant to be a further investment in the ANI Loan Program, (Dkt. 31-1 at 11– 7 12; 36 at 7, 11; 37 at 2). This characterization is refuted by Valeiras’s concessions 8 and the evidence he submitted. First, in February 2016, Peterson approached 9 Valeiras for an increased investment, but because HAV was “fully invested based 10 on its then risk tolerance,” the funds “would need to come from a source other than 11 HAV,” which prompted Valeiras to propose VFT as the source. (Dkt. 33 at J-37, J12 41–42). Peterson initially proposed an additional investment concept “like we have 13 done before (Same Loan Request and Escrow documents provided).” (Id. at J-44; 14 Dkt. 31-7). Valeiras rejected the proposal and countered with: “I was thinking 15 structure. Since I have to pay interest on my loan every month, maybe it makes 16 sense to make this a loan to Kim Funding, secured on something, that pays interest 17 monthly at 15% per year on outstanding balances.” (Dkt. 33 at J-45; 31-8). Valeiras 18 suggested changing section 1.7 of the 2016 VFT Agreement to reflect the monthly 19 interest payment, but Peterson responded it was better to leave this section alone. 20 (Dkt. 31-9). This appears to be the last email exchanged before the agreement was 21 signed. (See Dkt. 31-11). Nothing in these emails establish that VFT’s loan wasn’t 22 a further investment in the ANI Loan Program. 23 Second, turning to the agreements themselves, they indicate that Valeiras 24 was aware that the loan was a further investment in the ANI Loan Program. As a 25 starting point for the 2016 VFT Agreement, Peterson and Valeiras used the 2014 26 HAV Agreement, (Dkt. 33 at J-52; 31-10), where the loan agreement was made 27 between HAV and Kim Funding, including Peterson and the Peterson Family Trust, 1 used solely to fund the escrow accounts in the ANI Loan Program, Kim Funding 2 was affiliated with ANI Development, and Chicago Title would accept the 3 proceeds.9 (Id.). The same language was used in the 2016 VFT Agreement.10 (See 4 Dkt. 31-11). The difference is that the title of the 2016 agreement includes “bridge” 5 and HAV was substituted for Valeiras as trustee of VFT. (Id.). Simply changing the 6 title of the agreement from “Loan and Guaranty Agreement” (as used in the 2014 7 HAV Agreement) to “Bridge Loan and Guaranty Agreement” (as used in the 2016 8 VFT Agreement) when the other terms are nearly identical doesn’t prove the bridge 9 loan wasn’t a further investment in the ANI Loan Program. See In re Consol. 10 Meridian Funds, 2013 WL 623570 , at *6. 11 Valeiras argues that he made material modifications to the 2016 bridge loan 12 agreement. (Dkt. 31-1 at 4, 11–12; 36 at 12). Specifically, he changed the language 13 to ensure the interest rate wasn’t “dictated by the ANI Loan Program in any 14 respect,” (Dkt. 31-1 at 12; 36 at 12), and that Kim Funding was required to pay 15 monthly interest, (Dkt. 31-1 at 5–6, 9–11, 14; 33 at J-62; 36 at 9). While the Court 16 recognizes there are differences in the 2014 HAV Agreement and the 2016 VFT 17 Agreement, the purpose of the agreements appear identical to other agreements 18 made by investors in the scheme—including Valeiras. VFT, like other investors, 19 made an agreement to provide funds to Kim Funding in connection with the ANI 20 Loan Program, wired funds directly to Chicago Title for use in the scheme, and 21 received a list of purported liquor license escrows. (Dkt. 31-17; 32-2 ¶ 31). The 22 Receiver testified that “one of the many ways in which funds moved” is the principal 23 goes into the program and then the investment return or interest earned comes — 24 — 25 9 Investors who were investing in the ANI Loan Program regularly wired their funds directly to Chicago Title. (Dkt. 33 at P-70). 26 10 The agreement terminating the 2016 VFT Agreement also stated VFT agreed to make funds available to Kim Funding “for the purpose of funding Escrow — 27 — Accounts for License Applicants.” (Dkt. 31-17). Nearly identical language from the 2014 and 2016 agreements was used in the 2019 HAV Agreement. (See 1 back directly from Chicago Title.11 (Dkt. 31-3 at 18:9–18). Ultimately, it didn’t matter 2 who paid because the language of the agreements is clear that Kim Funding was 3 responsible to pay “all principal and unpaid accrued interest” when due. (Dkt. 31-6 4 at 2; 31-11 at 2). Valeiras’s deletion of language that tied the interest rate to the 5 success of the escrow accounts and addition of language that required Kim Funding 6 to provide monthly payments doesn’t suggest the transaction wasn’t a further 7 investment in the ANI Loan Program. 8 Valeiras also argues that the 2016 VFT Agreement with Kim Funding was in 9 good faith and for value. (Dkt. 31-1 at 6–7, 10–13; 36 at 14; 37 at 3–4). He claims 10 Kim Funding “received 100% of the fictitious interest from the ANI Loan Program 11 when liquor license escrows purportedly closed with the bridge loan funds Kim 12 Funding borrowed.” (Dkt. 36 at 14). The evidence in the record doesn’t support 13 these contentions. First, Valeiras admits that Kim Funding didn’t receive any 14 interest when the liquor license escrows closed because there were no actual 15 escrows in the Ponzi scheme. (See Dkt. 31-1 at 1–2 (“When escrows successfully 16 closed in the ANI Loan Program (which we now know was never) . . . .”)). Second, 17 the Court doesn’t understand the value VFT provided when Kim Funding only 18 raised money for the Ponzi Scheme. (Dkt. 32-5 at Ex. 21, 452; 33 at P-63). 19 Valeiras’s reliance on In re United Energy Corp., 944 F.2d at 596, is unpersuasive 20 because there was nothing of value being generated from the ANI Loan Program. 21 Third, the email communications and 2016 VFT Agreement don’t mention that Kim 22 Funding would receive 100% of the interest from the liquor license escrows. (See 23 Dkt. 31-7, 31-8, 31-9, 31-11). Rather, as mentioned above, the 2016 VFT — 24 — 25 11 The Receiver observed that investors, including Banc of California; VFT; La Jolla Bridge, LLC; ROJ, LLC; and others, received monthly or quarterly — 26 — payments from the scheme. (Dkt. 32-2 ¶ 31; 33 at P-66). ROJ, LLC agreed to turn over its fictitious `profits, with prejudgment interest, to the Receiver for — 27 — transferring money to and receiving money from Kim Funding used for the ANI Loan Program. See Joint Motion for Judgment, Freitag v. ROJ, LLC et al., 1 Agreement was nearly identical to the agreements signed on HAV’s behalf. 2 Further, if VFT meant to make the loan to Kim Funding who would have 3 control over the funds, then VFT could’ve easily transferred the money directly to 4 Kim Funding instead of Chicago Title, or Kim Funding could’ve requested that 5 Chicago Title make any transfers of money directly to it instead of back to VFT. 6 Funds being transferred directly to Chicago Title and then returned directly back to 7 VFT doesn’t indicate that Kim Funding had any control. (See Dkt. 32-5 at Ex. 3, 8 Ex. 4; 33 at J-74–75, J-76–77). Instead, this indicates that Valeiras didn’t make a 9 loan to Kim Funding for value, but made a further investment in the ANI Loan 10 Program on VFT’s behalf. See Donell, 533 F.3d at 778 (concluding that although 11 the investor thought he “was getting what looked like real profits in return, in fact he 12 never received, ‘reasonably equivalent value’ for his investment, just cash that was 13 moved around in an elaborate shell game”). 14 While the Receiver has introduced evidence to show VFT invested in the ANI 15 Loan Program, Valeiras fails to provide any evidence to raise a genuine issue of 16 material fact that VFT wasn’t investing in the ANI Loan Program. The facts 17 demonstrate that Kim Funding was established to raise capital for the ANI Loan 18 Program; Peterson approached Valeiras for an “additional” investment, which 19 Valeiras accepted on VFT’s behalf because HAV was already at its maximum risk 20 tolerance; and Valeiras wired money to Chicago Title with the understanding that 21 the funds were used solely for the ANI Loan Program. Overall, the circumstances 22 surrounding the classification of the 2016 VFT Agreement as a “bridge loan” doesn’t 23 preclude the Receiver from recovering the Profit Amount from VFT. Equity requires 24 that Valeiras share some of the hardship equally with those who lost their initial 25 investment. Donell, 533 F.3d at 780 . 26 b. In-Depth Tracing Analysis Not Required 27 It’s long been established that tracing isn’t required when dealing with a Ponzi 1 account is “made up of the fruits of the frauds perpetrated against a myriad of 2 victims” it would be wrong to presume the money out was money the wrongdoer 3 was legally and honestly allowed to use); Donell, 533 F.3d at 774 (declining to 4 require tracing because it’s “unsupported by law and would be unmanageable in 5 practice”). In a Ponzi scheme, one doesn’t have to demonstrate the source of each 6 transfer to determine whether it was legitimate. In re Slatkin, 525 F.3d at 814 -15 7 (requiring the return of purported profits received by an investor because these 8 profits are considered theft from other investors and would prevent injustice); 9 Donell, 533 F.3d at 774 (quoting In re Lake States Commodities, Inc., 253 B.R. 866 , 10 872 (Bankr. N.D. Ill. 2000)) (“[T]he trustee need not match up each investment with 11 each payment made by the debtor and follow the parties’ characterizations of the 12 transfers. This may be the only workable rule in the typical Ponzi scheme case.” 13 (alteration in original)). 14 Here, it’s undisputed that between March 7, 2016, and July 12, 2017, VFT 15 made five transfers of money to Chicago Title for a total of $3,300,000. (Dkt. 32-5 16 at Ex. 3; 33 at J-74–75). Between April 8, 2016, and November 8, 2017, VFT 17 received twenty-one transfers of money from Kim Funding for a total of 18 $468,041.03. (Dkt. 32-5 at Ex. 5; 33 at J-78–79). Between September 29, 2016, 19 and November 10, 2017, VFT received eight transfers of money from Chicago Title 20 for a total of $3,300,000. (Dkt. 32-5 at Ex. 4; 33 at J-76–77). These transfers reflect 21 the money exchanged in connection with the 2016 VFT Agreement. (See Dkt. 3222 5 at Ex. 6; 33 at J-80). 23 Valeiras argues “there is no evidence that the source of Kim Funding’s money 24 to pay monthly interest came from the ANI Loan Program.” (Dkt. 31-1 at 9). The 25 Receiver acknowledges that the Kim Funding Accounts received deposits from 26 Peterson Family Trust, ANI Development, Chicago Title, and investors. (Dkt. 33 27 at J-81; 36-3 at 28:15–19). However, the Receiver’s “macro” level analysis 1 the scheme, including funds from Chicago Title accounts, ANI accounts, and other 2 investors.12 (Dkt. 32-2 ¶ 29; 32-5 at Ex. 1, Ex. 2). The evidence shows the money 3 Kim Funding used to pay VFT was necessarily funds from the ANI Loan Program. 4 Although the Receiver needn’t perform a tracing analysis of the Kim Funding 5 Accounts, the “macro” level analysis revealed the commingling of funds related to 6 the ANI Loan Program. Valeiras doesn’t provide any contrary evidence to prove 7 Kim Funding’s money used to pay VFT was from a source that wasn’t involved in 8 the ANI Loan Program. Cf. Shakur v. Schriro, 514 F.3d 878, 892 (9th Cir. 2008) 9 (citing Jenkins v. Cnty. of Riverside, 398 F.3d 1093 , 1095 n.4 (9th Cir. 2005)) 10 (determining a party has abandoned claims that weren’t raised in opposition to the 11 other side’s motion for summary judgment). 12 Moreover, the Receiver asserts she is only trying to recover the $468,041.03 13 in fictitious profits “by avoiding and recovering a portion of the $1,125,000 transfer 14 that Chicago Title made to VFT on November 10, 2017, the last transfer received 15 by VFT on its investment in the scheme” and “that transfer [was] unquestionably a 16 direct transfer to VFT from the Ponzi scheme (the ‘holding funds’ escrow account 17 [that] Chicago Title used for the Ponzi scheme), which can be avoided by the 18 Receiver.” (Dkt. 32-1 at 26 (citing Cal. Civ. Code § 3439.08 (b)(1)(A) and Wiand v. 19 Lee, 753 F.3d 1194, 1203 (11th Cir. 2014)); 38 at 2). In other words, VFT made 20 transfers into the scheme totaling $3,300,000, so this was the maximum restitution 21 it could claim. (Dkt. 35 at 5). The restitution was reduced for each payment VFT 22 received, which was $2,643,041.03 prior to Chicago Title’s final payment of 23 $1,125,000 on November 10, 2017. (Id.). Once Chicago Title transferred the 24 $1,125,000 to VFT, VFT received a total of $3,768,041.03 from the scheme, which 25 is $468,041.03 more than its full restitution claim. (Id. at 6). Valeiras doesn’t contest — 26 — 12 During the period between April 8, 2016, and November 8, 2017, the Kim — 27 — Funding Accounts total balance went from $46,853.40 to $222,199.80, which included deposits totaling $18,508,111.09 and disbursements totaling 1 that he received back a total of $3,768,041.03 in connection with the 2016 VFT 2 Agreement. (See Dkt. 33 at J-76–79). The Receiver has provided enough evidence 3 to show that she may recover the Profit Amount as a fraudulent conveyance. 4 c. Amount the Receiver May Recover 5 Federal courts apply a “netting rule” to determine whether the investor is 6 liable. Donell, 533 F.3d at 771 . Courts look at the amount initially invested and if 7 there were any returns to the investor. Id. If the net is positive, the court determines 8 the actual amount of liability “depending on factors such as whether transfers were 9 made within the limitations period or whether the investor lacked good faith.” Id. If 10 the net is negative, the good faith investor isn’t liable because “payments received 11 in amounts less than the initial investment . . . are not avoidable within the meaning 12 of [CUVTA].” Id. 13 To determine the amount of liability, the Court must net the amounts Valeiras 14 received against any deposits he made. See id. at 773 . In support, the Receiver 15 submitted a declaration and evidence that a forensic accounting was conducted, 16 which verified the total amount received by Valeiras in excess of his deposits was 17 $468,041.03. (Dkt. 32-2 ¶ 32; 32-5 at Ex. 6). While Valeiras argues the 18 $468,041.03 he received from Kim Funding wasn’t part of the scheme, he doesn’t 19 contest receiving a total of $3,768,041.03 in connection with the 2016 VFT 20 Agreement. (See Dkt. 33 at J-76–79). Once Chicago Title made the last payment 21 to VFT on November 10, 2017, for $1,125,000, this put VFT into the “winning 22 investor” category subject to clawback of the fictitious profits. (See id. at J-80; see 23 also Dkt. 32-5 at Ex. 6; 38 at 2, 6). Having reviewed all the supporting 24 documentation submitted by the Receiver, the Court is satisfied that liability in the 25 amount of $468,041.03 is supported by the record. 26 iii. VFT’s Profits May Not Be Aggregated with HAV’s Losses 27 “The creation of a distinct legal entity destroys the identity of interests required 1 Home Serv., Inc., 643 F.2d 1356, 1360 (9th Cir. 1981)); cf. Scholes v. Ames, 850 2 F. Supp. 707, 713 (N.D. Ill. 1994), aff’d sub nom. Scholes v. Lehmann, 56 F.3d 750 . 3 (“[A] claim arising out of an independent transaction with one party may not be used 4 as a set-off against another independent claim, even if the transaction is related to 5 the claim in dispute.”). When two investments are distinct and made under separate 6 names, an investor isn’t entitled to offset the gains of one with the losses of another. 7 Ames, 850 F. Supp. at 713. Although partnerships in California aren’t ordinarily 8 considered a legal entity distinct from their individual partners, when dealing with 9 equity principles, there’s a general tendency to recognize a partnership as a body 10 of itself. Park v. Union Mfg. Co., 45 Cal. App. 2d 401, 405 (1941). 11 The Court is disinclined to aggregate VFT’s profits with HAV’s alleged losses 12 because VFT and HAV are distinct entities. Valeiras contends that the cases cited 13 by the Receiver are all irrelevant because they deal with separate persons or 14 separate legal entities. (Dkt. 36 at 17–18). The Court disagrees. In Hecht v. Inv. 15 #1113, No. 13-5382, 2014 WL 12610217 , at *3 (E.D. Pa. Dec. 1, 2014), the court 16 determined that the husband and wife had separate accounts because they took a 17 position with the IRS that the accounts were separate. But see Armstrong v. Collins, 18 Nos. 01 Civ. 2437(PAC), 02 Civ. 2796(PAC), 02 Civ. 3620(PAC), 2010 WL 19 1141158, at *9, 29 (S.D.N.Y. Mar. 24, 2010) (rejecting that the receiver is entitled 20 to void transfers from two accounts that were net winners without accounting for 21 investments made in four other accounts that were net losers when these six 22 accounts were for the benefit of the husband, wife, and/or their children). Similarly, 23 in Ames, the court treated investments made by the investor and his broker as 24 distinct and separate. Ames, 850 F. Supp. at 713. There the court determined that 25 allowing a setoff would allow for double recovery because the broker also made a 26 claim to recover the investment he made under his own name. Id. at 713–14. 27 Here, Valeiras made it a point to indicate that HAV and VFT were distinct 1 entities “for some purposes.” (Dkt. 32-5 at Ex. 8, 67–68). In 2017, when Peterson 2 approached Valeiras about making another loan, Valeiras “decided that any loan to 3 Kim Funding would need to come from a source other than HAV” because HAV 4 was fully invested based on its risk tolerance. (Dkt. 33 at J-41 (emphasis added)). 5 Then in December 2018, after VFT and HAV terminated their agreements, Peterson 6 approached Valeiras about making another loan, which Valeiras “declined on 7 behalf of VFT, but accepted the opportunity on behalf of HAV.” (Id. at J-97). The 8 only logical conclusion is that Valeiras kept VFT and HAV as distinct entities 9 otherwise it wouldn’t have matter which entity provided the funds. 10 Additionally, HAV, not VFT, asserted an insurance claim against Chubb and 11 sued Chicago Title. (See id. at J-123–24, J-135–38). When HAV calculated its net 12 loss for the settlement in the Levin Action, it didn’t include the $468,041.03 net gain 13 that VFT received under the 2016 VFT Agreement, (id. at P-99), further suggesting 14 that Valeiras believed the entities to be separate and distinct. There may even be 15 a potential double recovery issue if the Court provides a setoff because HAV 16 received its settlement in the Levin Action, where HAV’s losses weren’t reduced by 17 VFT’s profits, and VFT now seeks to further setoff VFT’s profits with HAV’s losses. 18 Ames, 850 F. Supp. at 713 (declining to allow a setoff because it would allow for 19 double recovery). 20 Moreover, when HAV entered into the 2019 HAV Agreement and provided 21 funds, VFT, the Valeiras Rollover IRA, and the Valeiras Roth IRA were limited 22 partners and held approximately 36.1% of the interest. (Id. at P-86). This left 23 approximately 62.5% of the interests in HAV to non-Valeiras limited partners, (id. 24 at P-87), and 1.4% of the interest to Frontier as the general partner, (id. at J-114). 25 Valeiras provides no support that the Court should aggregate the profits and losses 26 when, at the time of the transfer, 62.5% of the partnership consisted of non-Valeiras 27 interests. (See Dkt. 36 at 15–19); cf. In re JTS Corp., 617 F.3d 1102, 1109 (9th Cir. 1 transfer from the perspective of the creditors.”). The fact that HAV bought out its 2 limited partners, excluding VFT, and transferred their interests to VFT after the 3 receivership was established to reflect a net loss on Valeiras’s taxes doesn’t 4 change the MIMO calculation. See Donell, 533 F.3d at 779 (“Decline[d] to permit 5 good faith investors to claim offsets for taxes or other expenses paid in connection 6 with receipt and management of income from a Ponzi scheme.”). 7 Even if the Court was willing to engage in this exercise of aggregation, HAV 8 doesn’t have a net loss. Valeiras requests the Court aggregate VFT’s profits with 9 HAV’s alleged losses, which would result in an overall net loss of $227,961. 10 (Dkt. 31-1 at 14, 18; 31-4 ¶¶ 4–5; 36 at 15–19). According to Valeiras, the Receiver 11 testified that HAV had a net loss of $666,227.97. (Dkt. 36 at 15). The Receiver 12 concedes that she initially determined that HAV had a net loss, but this didn’t take 13 into account the Chubb insurance claim and settlement for $1,250,000. (See 14 Dkt. 31-18; 38 at 9). After taking into account the Chubb insurance claim and 15 settlement, HAV no longer had a MIMO net loss. (Dkt. 38 at 9). The Court agrees 16 that once the Chubb settlement payment was included in the calculations, HAV no 17 longer had a net loss. (See Dkt. 33 at J-142). Once the $1,250,000 is added to the 18 revised claim packet loss of $666,227.86, HAV actually received a profit of 19 $583,772.14. Valeiras doesn’t dispute this math.13 (See Dkt. 36 at 15–19). 20 The Court won’t aggregate VFT’s profits with HAV’s alleged net loss because 21 VFT and HAV are distinct entities, Valeiras intended to keep VFT and HAV as 22 separate and distinct entities, and HAV has recovered its net loss through the 23 settlements with Chubb and Chicago Title. — 24 — 25 13 Additionally, Valeiras argues the Receiver agreed not to pursue a fraudulent transfer claim against VFT after the parties signed the Levin Action settlement. — 26 — (Dkt. 36 at 10, 19–21). The Receiver responds that the estoppel argument is completely frivolous. (Dkt. 38 at 10). The evidence doesn’t establish that the — 27 — Receiver agreed or represented that VFT wouldn’t be subject to a fraudulent transfer claim. (See Dkt. 32-5 at Ex. 15; 36-4; 39); see also Tr. Motion Hearing, 1 C. Prejudgment Interest 2 In cases seeking to recover fraudulent transfers received from Ponzi 3 schemes, courts may, at their discretion, “permit the receiver to recover pre4 judgment interest on the fraudulent transfers from the date each transfer was 5 made.” Donell, 533 F.3d at 772 (citations omitted). Prejudgment interest is an 6 “ingredient of full compensation that corrects judgments for the time value of 7 money.” Id. (internal quotation marks and citation omitted). The court is bound by 8 considerations of fairness in making its determination, and prejudgment interest 9 should be awarded when it’s necessary to make the wronged party whole. See In 10 re Acequia, Inc., 34 F.3d 800 , 818 (9th Cir. 1994). In determining the amount of 11 prejudgment interest awarded, California uses a seven percent per annum rate for 12 fraudulent transfer cases. Cal. Const. art. XV, § 1; see also Default Judgment 13 Order, Levene Action (Oct. 10, 2022), ECF No. 11 (granting seven percent 14 prejudgment interest from date of last transfer to when order was issued). 15 The Court has carefully considered the parties’ arguments and finds that the 16 award of prejudgment interest is consistent with the balance of equities. The 17 prejudgment interest is GRANTED in the amount of $209,230.56 (the “Prejudgment 18 Interest Amount”).14 19 IV. CONCLUSION 20 As the Ninth Circuit stated, “Ponzi schemes leave no true winners once the 21 scheme collapses—even the winners were defrauded, because their returns 22 were illusory.” Donell, 533 F.3d 762 at 779 . “[E]quity compels that [Valeiras, as 23 trustee of VFT,] share some of the hardship equally with those who lost their 24 initial investment.” Id. at 780 . The Receiver’s Motion for Summary Judgment is — 25 — 26 14 The prejudgment interest amount was calculated by: (1) taking the Profit Amount and multiply it by seven percent, (2) then dividing that amount by 365 — 27 — to get the per diem interest amount of $89.76, and finally (3) multiplying $89.76 by the number of days between November 10, 2017, and March 29, 2024, which 1||GRANTED, (Dkt. 32), and Valeiras’s Motion for Summary Judgment is 2 ||DENIED, (Dkt. 31). The Receiver is awarded the Profit Amount and the 3 || Prejudgment Interest Amount, totaling $677,271.59. The Clerk is directed to 4 || enter judgement accordingly and then terminate this case. 5 IT IS SO ORDERED. — 6 — 7 || Dated: March 29, 2024 lau A (Bay 8 United States District Judge ge — 9 — — 10 — — 11 — — 12 — — 13 — — 14 — — 15 — — 16 — — 17 — — 18 — — 19 — — 20 — — 21 — — 22 — — 23 — — 24 — — 25 — — 26 — — 27 — — 28 — — 90 —