Gonzales et al v. Turner et al

United States Bankruptcy Court,
D. New Mexico.
In re Douglas F. VAUGHAN, Debtor.
Yvette Gonzales, Trustee, Plaintiff,
v.
Saul Ewing, LLP, John Doe FN1, and Judith A. Wagn-
er, Chapter 11 Trustee of the bankruptcy estate of the
Vaughan Company, Realtors, Defendants.
FN1. This Memorandum Opinion is a copy of
the original Memorandum Opinion filed in the
above-captioned case file. The Court previ-
ously entered an Order in this adversary pursu-
ant to 11 U.S.C. § 107 protecting the identity
of the defendant listed as JOHN DOE. A few
items of personal information are deleted; the
actual adversary number is also deleted. In all
other respects, the Memoranda are identical.
This version is issued for public availability.
John Doe, Counter–Plaintiff,
v.
Yvette Gonzales, Trustee, Counter–Defendant.
John Doe, Cross–Plaintiff,
v.
Judith A. Wagner, Chapter 11 Trustee of the bankruptcy
estate of the Vaughan Company, Realtors, and Saul
Ewing, LLP, Cross–Defendants.
Judith A. Wagner, Chapter 11 Trustee of the bankruptcy
estate of the Vaughan Company, Realtors,
Cross–Plaintiff,
v.
John Doe,
and
Saul Ewing, LLP, Cross–Defendants.
Bankruptcy No. 7–10–10763 SA.
April 30, 2012.
Background: Trustee of individual debtor's Chapter 7
estate brought adversary proceeding against debtor's at-
torney, as party in possession of unapplied trust funds
allegedly included in “property of the estate,” as well as
against individual who supplied funds to attorney, and
trustee of separate Chapter 11 case of debtor's company,
and this individual and Chapter 11 trustee filed cross-
claims against each other. Parties cross-moved for sum-
mary judgment.
Holdings: The Bankruptcy Court, James S. Starzynski,
J., held that:
(1) even assuming that individual who was induced to
make series of loans to operator of Ponzi scheme prior
to the latter's bankruptcy filing could establish that he
was duped into making loans by debtor's fraud or undue
influence, fact issues precluded entry of summary judg-
ment on constructive trust claims;
(2) while trustee of separate Chapter 11 case of indi-
vidual Chapter 7 debtor's company had standing to as-
sert claim to unapplied trust funds, fact issues precluded
entry of summary judgment in her favor;
(3) prepetition payment from corporate Chapter 11
debtor's account represented transfer of “interest of the
debtor in property”; and
(4) payment that corporate Chapter 11 debtor made
within 90-day preference period in partial repayment of
unsecured $300,000 loan was avoidable as preference.
So ordered.
West Headnotes
[1] Bankruptcy 51 2543
51 Bankruptcy
51V The Estate
51V(C) Property of Estate in General
51V(C)2 Particular Items and Interests
51k2543 k. Property held by debtor as
trustee, agent, or bailee. Most Cited Cases
Effect of imposing constructive trust in bankruptcy
case is to remove trust property from estate and award it
to creditor/beneficiaries at expense of other creditors.
[2] Bankruptcy 51 2543
51 Bankruptcy
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51V The Estate
51V(C) Property of Estate in General
51V(C)2 Particular Items and Interests
51k2543 k. Property held by debtor as
trustee, agent, or bailee. Most Cited Cases
Burden is on party seeking to remove property from
bankruptcy estate on constructive trust theory to estab-
lish the trust requirements.
[3] Bankruptcy 51 2125
51 Bankruptcy
51II Courts; Proceedings in General
51II(A) In General
51k2124 Power and Authority
51k2125 k. Equitable powers and prin-
ciples. Most Cited Cases
Bankruptcy 51 2543
51 Bankruptcy
51V The Estate
51V(C) Property of Estate in General
51V(C)2 Particular Items and Interests
51k2543 k. Property held by debtor as
trustee, agent, or bailee. Most Cited Cases
Prior to undertaking determination of whether as-
sets are subject to constructive trust, so as to be re-
moved from bankruptcy estate, court must consider
whether imposition of constructive trust would be equit-
able, and must weigh the claims of other creditors be-
fore employing any equitable fictions.
[4] Bankruptcy 51 2125
51 Bankruptcy
51II Courts; Proceedings in General
51II(A) In General
51k2124 Power and Authority
51k2125 k. Equitable powers and prin-
ciples. Most Cited Cases
Bankruptcy 51 2543
51 Bankruptcy
51V The Estate
51V(C) Property of Estate in General
51V(C)2 Particular Items and Interests
51k2543 k. Property held by debtor as
trustee, agent, or bailee. Most Cited Cases
One factor for bankruptcy court to consider when
deciding whether it will be equitable to impose con-
structive trust is whether other similarly situated credit-
ors will be harmed.
[5] Bankruptcy 51 2543
51 Bankruptcy
51V The Estate
51V(C) Property of Estate in General
51V(C)2 Particular Items and Interests
51k2543 k. Property held by debtor as
trustee, agent, or bailee. Most Cited Cases
Practical effect of constructive trust in bankruptcy
is to elevate trust beneficiary's claims above claims of
all other creditors, because assets in constructive trust
are not part of bankruptcy estate.
[6] Bankruptcy 51 2164.1
51 Bankruptcy
51II Courts; Proceedings in General
51II(B) Actions and Proceedings in General
51k2164 Judgment or Order
51k2164.1 k. In general. Most Cited Cases
Even assuming that individual who was induced to
make series of loans to operator of Ponzi scheme prior
to the latter's bankruptcy filing could establish that he
was duped into making loans by debtor's fraud or undue
influence, genuine issues of material fact concerning
whether there was any basis in equity for elevating indi-
vidual's claims over claims of other victims of debtor's
Ponzi scheme, who were likewise defrauded, precluded
entry of summary judgment in proceeding brought by
this individual for imposition of constructive trust, in at-
tempt to remove funds from Chapter 7 estate.
[7] Bankruptcy 51 2164.1
51 Bankruptcy
51II Courts; Proceedings in General
51II(B) Actions and Proceedings in General
51k2164 Judgment or Order
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51k2164.1 k. In general. Most Cited Cases
Genuine issues of material fact regarding what con-
trol Chapter 7 debtor had over unapplied trust funds in
possession of debtor's attorney that were traceable to
payment from third party barred entry of summary judg-
ment upon whether such funds were included in
“property of the estate” when debtor filed for bank-
ruptcy. 11 U.S.C.A. § 541(a)(1).
[8] Bankruptcy 51 2547
51 Bankruptcy
51V The Estate
51V(C) Property of Estate in General
51V(C)2 Particular Items and Interests
51k2547 k. Property held in trust or cus-
tody for debtor; deposits. Most Cited Cases
Trustee of separate Chapter 11 case of individual
Chapter 7 debtor's company had standing to assert claim
to unapplied trust funds in possession of debtor's attor-
ney, upon theory that funds could be traced to payment
which company had previously made to third party that
supplied funds to attorney.
[9] Bankruptcy 51 2164.1
51 Bankruptcy
51II Courts; Proceedings in General
51II(B) Actions and Proceedings in General
51k2164 Judgment or Order
51k2164.1 k. In general. Most Cited Cases
While trustee of separate Chapter 11 case of indi-
vidual Chapter 7 debtor's company had standing to as-
sert claim to unapplied trust funds in possession of debt-
or's attorney, on theory that funds could be traced to
payment which company had previously made to third
party that supplied funds to attorney, genuine issues of
material fact on whether funds could be traced pre-
cluded entry of summary judgment.
[10] Bankruptcy 51 2610
51 Bankruptcy
51V The Estate
51V(E) Preferences
51k2606 Elements and Exceptions
51k2610 k. Ownership of interest trans-
ferred. Most Cited Cases
Prepetition payment from corporate Chapter 11
debtor's account represented transfer of “interest of the
debtor in property” of kind potentially avoidable as
preference, though debtor, whose principal was engaged
in longstanding Ponzi scheme, may have obtained funds
by fraudulent means. 11 U.S.C.A. § 547(b).
[11] Bankruptcy 51 2610
51 Bankruptcy
51V The Estate
51V(E) Preferences
51k2606 Elements and Exceptions
51k2610 k. Ownership of interest trans-
ferred. Most Cited Cases
“Interest of the debtor in property,” for preference
purposes, is best understood as property that would
have been part of bankruptcy estate had the challenged
transfer not been made. 11 U.S.C.A. § 547(b).
[12] Bankruptcy 51 2610
51 Bankruptcy
51V The Estate
51V(E) Preferences
51k2606 Elements and Exceptions
51k2610 k. Ownership of interest trans-
ferred. Most Cited Cases
Debtor obtains interest in property, for preference
purposes, even if property is obtained by fraud or bor-
rowed; repayment of fraudulent debt to victim is made
with debtor's funds and can be preference. 11 U.S.C.A.
§ 547(b).
[13] Bankruptcy 51 2701
51 Bankruptcy
51V The Estate
51V(H) Avoidance Rights
51V(H)1 In General
51k2701 k. Avoidance rights and limits
thereon, in general. Most Cited Cases
That recipient of alleged preferential transfer re-
ceived transfer in good faith is no defense to preference-
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avoidance claim. 11 U.S.C.A. § 547(b).
[14] Bankruptcy 51 2606.1
51 Bankruptcy
51V The Estate
51V(E) Preferences
51k2606 Elements and Exceptions
51k2606.1 k. In general. Most Cited Cases
Bankruptcy 51 2701
51 Bankruptcy
51V The Estate
51V(H) Avoidance Rights
51V(H)1 In General
51k2701 k. Avoidance rights and limits
thereon, in general. Most Cited Cases
That individual who received a preference-period
repayment on loan that he was induced to make may
have lacked capacity or been subject to undue influence
in connection with loan was irrelevant to whether this
repayment could be avoided as preference. 11 U.S.C.A.
§ 547(b).
[15] Bankruptcy 51 2606.1
51 Bankruptcy
51V The Estate
51V(E) Preferences
51k2606 Elements and Exceptions
51k2606.1 k. In general. Most Cited Cases
Any exception to preference liability depends on
nature of transfer, not on identity of the creditor receiv-
ing the challenged payment. 11 U.S.C.A. § 547(c).
[16] Bankruptcy 51 2601
51 Bankruptcy
51V The Estate
51V(E) Preferences
51k2601 k. In general. Most Cited Cases
Focus of preference statute is upon effect of chal-
lenged transfer on other creditors of estate. 11 U.S.C.A.
§ 547(b).
[17] Bankruptcy 51 2607
51 Bankruptcy
51V The Estate
51V(E) Preferences
51k2606 Elements and Exceptions
51k2607 k. Insolvency. Most Cited Cases
Bankruptcy 51 2608(1)
51 Bankruptcy
51V The Estate
51V(E) Preferences
51k2606 Elements and Exceptions
51k2608 Time of Transfer
51k2608(1) k. In general. Most Cited
Cases
Bankruptcy 51 2609
51 Bankruptcy
51V The Estate
51V(E) Preferences
51k2606 Elements and Exceptions
51k2609 k. Effect to give more than under
bankruptcy distribution. Most Cited Cases
Bankruptcy 51 2612
51 Bankruptcy
51V The Estate
51V(E) Preferences
51k2606 Elements and Exceptions
51k2612 k. Antecedent debt or contempor-
aneous consideration. Most Cited Cases
Payment that corporate Chapter 11 debtor made
within 90-day preference period in partial repayment of
unsecured $300,000 loan, as payment that was made to
creditor in repayment of antecedent debt, at time when
debtor was insolvent, and that enabled creditor to re-
ceive more than it would otherwise have received in hy-
pothetical Chapter 7 liquidation, was avoidable as pref-
erence. 11 U.S.C.A. § 547(b).
*266 George M. Moore, Moore, Berkson & Gandarilla,
P.C., Albuquerque, NM, for Yvette Gonzales.
Christopher P. Bauman, Bauman, Down & Leon, PC,
Albuquerque, NM, for John Doe.
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Edward Alexander Mazel, Arland & Associates, LLC,
Albuquerque, NM, for Judith A. Wagner.
MEMORANDUM OPINION ON MOTIONS FOR
SUMMARY JUDGMENT—REDACTED PUBLIC
VERSION
JAMES S. STARZYNSKI, Bankruptcy Judge.
This matter is before the Court on competing Mo-
tions for Summary Judgment to determine ownership of
funds now on deposit in the Court Registry. This ad-
versary proceeding started with Trustee Gonzales
(“Gonzales”) filing suit against attorney Saul Ewing,
LLP (“Ewing”) and John Doe (“Doe”) for a turnover of
funds on deposit in Saul Ewing, LLP's attorney trust ac-
count held on behalf of Douglas Vaughan (the Debtor in
this bankruptcy). The suit named Doe as the alleged
source of the funds. Trustee Wagner (“Wagner”),
Chapter 11 trustee of “The Vaughan Company, Re-
altors” case, also claiming the funds, sought to inter-
vene, but was then named as a defendant in Trustee
Gonzales' First Amended Complaint FN2 (“Complaint”)
(doc. 4). Ewing participated by answering the complaint
and cross-claims filed against it, and then was allowed
to interplead the $162,680.70 held in trust. It was then
dismissed as to claims against that amount by all other
parties. (Doc. 27; Receipt of Registry Funds 9/28/10).
Therefore, the Court will drop all further references to
Ewing and its pleadings.
FN2. The Court has subject matter and person-
al jurisdiction pursuant to 28 U.S.C. §§ 1334
and 157(b); this is a core proceeding pursuant
to 28 U.S.C. § 157(b)(2)(A) and (E); and these
are findings of fact and conclusions of law as
may be required by Rule 7052 F.R.B.P.
The active pleadings are therefore: Gonzales First
Amended Complaint (doc. 4) FN3, which was answered
by Wagner (doc. 11) and Doe (doc. 19); Wagner's
Cross–Claim against Doe FN4 (doc. 11) and Doe's an-
swer (doc. 19); Doe's Amended Cross–Claim against
Wagner and Cross—[sic; should be Counter] Claim
against Gonzales FN5 (doc. *267 19) and Wagner's an-
swer (doc. 30). The Counter–Claim against Gonzales re-
mains unanswered.
FN3. The Complaint seeks turnover of the trust
funds held by Ewing, claiming that they are
property of the Vaughan Chapter 7 estate. It
names Wagner and Doe because they both as-
sert claims to the funds. It also seeks a declara-
tion that neither Wagner or Doe have any
claims to the funds.
FN4. Wagner's Cross-claim against Doe alleges
that he received a preferential transfer from
VCR and seeks to avoid it and recover it for the
VCR estate.
FN5. The Cross- and Counter-claims are in two
counts. The first is entitled “Claim for Undue
Influence” and the second is entitled “In the
Alternative, Claim for Return of Funds.” Both
of these claims contain common allegations
that Doe has dementia and is “highly” suscept-
ible to undue influence, that he apparently
wrote checks for Douglas Vaughan's legal fees
but he has no memory of doing so (Paragraph
13 alleges that the first check was written dir-
ectly to Douglas Vaughan with the memo of
“legal fees.” An unnumbered exhibit attached
to the cross- and counter-claim is a copy of
check 1107 dated February 1, 2010 payable to
“The Vaughan Company Realtors” with the
memo of “legal fees.” Douglas Vaughan is not
The Vaughan Company, Realtors. The Court
believes paragraph 13 is in error.) Therefore,
he believes that Vaughan used undue influence
and/or duress to obtain the checks. He cites the
affidavit of a neuropsychologist that supports
his claims that he is at high risk for susceptibil-
ity to undue influence, and posits that Doe did
not understand what he was doing when he
gave money to Vaughan or his attorneys.
Count 1 repeats some of the common allega-
tions and demands that “the transfer of funds
should be set aside as the products of undue
influence and duress and the remaining funds
should be transferred back to Doe.”
Count 2 adds little new material, but several
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legal conclusions: e.g., ownership of the
funds in Ewing's trust account were never
transferred to Mr. Vaughan; Wagner and
Gonzales are not entitled to the unearned at-
torney fees; and Mr. Doe is entitled to a re-
turn of all unearned fees.
Neither of the Counts suggest in legal terms
what the actual causes of action would be.
What they are attempting to do, however, is
to impose a constructive trust on property
that would otherwise be property of either
the Vaughan or VCR estate.
Before the final pretrial conference Doe filed a Mo-
tion for Summary Judgment against Gonzales and Wag-
ner (doc. 41). At the pretrial conference the parties all
agreed that this matter could be disposed of through
motions for summary judgment. This matter is before
the Court on 1) Doe's Motion for Summary Judgment
FN6 (doc. 41) and the response by Wagner (doc. 45)
and Doe's reply (doc. 54, errata doc. 56) and the re-
sponse by Gonzales (doc. 47) and Doe's reply (doc. 58);
2) Gonzales' Motion for Summary Judgment FN7 (doc.
47) and the response by Doe (doc. 58) and the response
by Wagner (doc. 61); Gonzales did not reply to either
response; and 3) Wagner's Motion for Summary Judg-
ment against Doe FN8 (doc. 67, with brief doc. 65 and
supplement to brief doc. 69), Doe's response (doc. 71)
and Wagner's Reply (doc. 73).
FN6. Doe's Motion for Summary Judgment has
four legal theories: 1) Vaughan had no legal or
equitable interest in the funds in the Ewing
trust account, so they are not subject to
turnover by either trustee; 2) Doe's disabilities
render the transfer (unspecified which transfer)
void, entitling him to a return of the funds (Doe
seems to admit, however, in doc. 41 at p. 7 that
under New Mexico law transactions made
while lacking mental capacity are “voidable”,
not “void”); 3) alternatively, if the funds in
Ewing's trust account were a gift to Vaughan,
Vaughan obtained them through undue influ-
ence so the gift is void or voidable; and 4) as a
matter of law, mental incapacity is a threshold
determination in transactions that are subject to
being set aside as preferential transfers.
FN7. Gonzales has two theories for her sum-
mary judgment motion against Doe: 1) Since
Doe is, in reality, asserting a constructive trust
that Court should review the case and determ-
ine that a constructive trust is improper in
“Ponzi scheme” cases because all creditors are
similarly situated; and 2) under the dominion
and control test applied by the Tenth Circuit,
the funds in the trust account are estate prop-
erty. She also has two theories for her summary
judgment motion against Wagner: 1) Wagner
lacks standing to pursue a preference action
against Doe in an adversary that relates to the
Vaughan personal bankruptcy; and 2) the funds
in the Ewing trust are not property of the VCR
estate.
FN8. Wagner's Motion for Summary Judgment
argues two points: 1) the undisputed facts in
the record establish a prima facie case against
Doe for a recovery and avoidance of a prefer-
ential transfer, and 2) the ten affirmative de-
fenses asserted by Doe are meritless.
SUMMARY JUDGMENT
In adversary proceedings Summary Judgment is
governed by Fed.R.Bankr.P. 7056, which incorporates
Fed.R.Civ.P. 56, which in turn provides, in relevant
part:
Rule 56. Summary Judgment
(a) Motion for Summary Judgment or Partial
Summary Judgment. A party *268 may move for
summary judgment, identifying each claim or de-
fense—or the part of each claim or defense—on
which summary judgment is sought. The court shall
grant summary judgment if the movant shows that
there is no genuine dispute as to any material fact and
the movant is entitled to judgment as a matter of law.
The court should state on the record the reasons for
granting or denying the motion.
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(b) ...
(c) Procedures.
(1) Supporting Factual Positions. A party asserting
that a fact cannot be or is genuinely disputed must
support the assertion by:
(A) citing to particular parts of materials in the re-
cord, including depositions, documents, electronic-
ally stored information, affidavits or declarations,
stipulations (including those made for purposes of
the motion only), admissions, interrogatory an-
swers, or other materials; or
(B) showing that the materials cited do not establish
the absence or presence of a genuine dispute, or
that an adverse party cannot produce admissible
evidence to support the fact.
(2) Objection That a Fact Is Not Supported by Ad-
missible Evidence. A party may object that the mater-
ial cited to support or dispute a fact cannot be presen-
ted in a form that would be admissible in evidence.
(3) Materials Not Cited. The court need consider only
the cited materials, but it may consider other materi-
als in the record.
(4) Affidavits or Declarations. An affidavit or declar-
ation used to support or oppose a motion must be
made on personal knowledge, set out facts that would
be admissible in evidence, and show that the affiant
or declarant is competent to testify on the matters
stated.
(d) ...
(e) Failing to Properly Support or Address a Fact.
If a party fails to properly support an assertion of fact
or fails to properly address another party's assertion
of fact as required by Rule 56(c), the court may:
(1) give an opportunity to properly support or address
the fact;
(2) consider the fact undisputed for purposes of the
motion;
(3) grant summary judgment if the motion and sup-
porting materials—including the facts considered un-
disputed—show that the movant is entitled to it; or
(4) issue any other appropriate order.
(f) ...
(g) Failing to Grant All the Requested Relief. If the
court does not grant all the relief requested by the
motion, it may enter an order stating any material
fact—including an item of damages or other re-
lief—that is not genuinely in dispute and treating the
fact as established in the case.
Fed.R.Civ.P. 56. Additionally, New Mexico Local
Rule 7056–1 regulates the required procedure:
SUMMARY JUDGMENT
(a) Memoranda. The movant shall file with the mo-
tion a memorandum containing a concise statement in
support of the motion with a list of authorities. A mo-
tion for summary judgment filed without a memor-
andum may be summarily denied. A party opposing
the motion shall, within 21 days after service of the
motion, file a memorandum containing a concise
statement in opposition to the motion with a list of
authorities. If no response is filed, the court may grant
the motion. The movant may, within 14 *269 days
after the service of a response, file a reply memor-
andum.
(b) Undisputed Facts. The memorandum in support
of the motion shall set out as its opening a concise
statement of all of the material facts as to which
movant contends no genuine issue exists. The facts
shall be numbered and shall refer with particularity to
those portions of the record upon which movant re-
lies.
(c) Disputed Facts. A memorandum in opposition to
the motion shall contain a concise statement of the
material facts as to which the party contends a genu-
ine issue does exist. Each fact in dispute shall be
numbered, shall refer with particularity to those por-
tions of the record upon which the opposing party re-
lies, and shall state the number of the movant's fact
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that is disputed. All material facts set forth in
movant's statement that are properly supported shall
be deemed admitted unless specifically controverted.
NM LBR 7056–1.
The version of Rule 56 quoted above became ef-
fective on December 1, 2010. See Fed.R.Civ.P. 56
(2010 Advisory Committee comments).
In some respects, the 2010 amendment to Rule 56
works a sea change in summary judgment procedure
and introduces flexibility (and consequent uncer-
tainty) in place of the bright-line rules that obtained
previously. Former Rule 56(e) contained an unequi-
vocal direction that documents presented in connec-
tion with a summary judgment motion must be au-
thenticated:
If a paper or part of a paper is referred to in an affi-
davit, a sworn or certified copy must be attached to
or served with the affidavit.
Fed.R.Civ.P. 56(e)(1) (2009 version). Relying on this
language, the United States Court of Appeals for the
Sixth Circuit routinely held that unauthenticated doc-
uments could not be used to support a motion for
summary judgment. See, e.g., Moore v. Holbrook, 2
F.3d 697, 698–99 (6th Cir.1993). As recently as 2009,
the Court of Appeals stated that unauthenticated doc-
uments do not meet the requirements of Rule 56(e)
and must be disregarded. Alexander v. CareSource,
576 F.3d 551, 558–59 (6th Cir.2009).
Foreword Magazine, Inc. v. OverDrive, Inc., 2011
WL 5169384 at *1–2 (W.D.Mich.2011). Virtually all
other courts agreed. See, e.g.,
Although affidavits are not strictly required by Rule
56 or case law, in practice they are usually necessary
to obtain summary judgment.... [I]t makes sense to
distinguish between affidavits that primarily give
testimony and affidavits that are used primarily to in-
troduce documents so that the court may consider the
documents in determining whether material factual
matter is genuinely in dispute. A party seeking to rely
on material other than affidavits to obtain summary
judgment may nonetheless need to use an affidavit to
place these materials before the court and into the of-
ficial record....
In order for documents not yet part of the court record
to be considered by a court in support of or in opposi-
tion to a summary judgment motion they must meet a
two-prong test: (1) the document must be attached to
and authenticated by an affidavit which conforms to
Rule 56(e); and (2) the affiant must be a competent
witness through whom the document can be received
into evidence....
Documentary evidence for which a proper founda-
tion has not been laid cannot support a summary judg-
ment motion, even if the documents in question *270
are highly probative of a central and essential issue in
the case.
Harris v. Beneficial Oklahoma, Inc. (In re Harris),
209 B.R. 990, 995–96 (10th Cir. BAP 1997)(footnotes
omitted.) See also United States v. Dibble, 429 F.2d
598, 602 (9th Cir.1970) (Unauthenticated summary
judgment exhibits are inadmissible hearsay.); White v.
Wells Fargo Guard Services, 908 F.Supp. 1570, 1579
(M.D.Ala.1995)(Court may not consider documents not
sworn or certified as required by Fed.R.Civ.P. 56.);
Canada v. Blain's Helicopters, Inc., 831 F.2d 920, 925
(9th Cir.1987):
It is well settled that unauthenticated documents
cannot be considered on a motion for summary judg-
ment. In order to be considered by the court,
“documents must be authenticated by and attached to
an affidavit that meets the requirements of [
Fed.R.Civ.P.] 56(e) and the affiant must be a person
through whom the exhibits could be admitted into
evidence.” 10A C. Wright, A. Miller & M. Kane,
Federal Practice and Procedure § 2722 at 58–60 (2d
ed. 1983) (footnotes omitted). This court has consist-
ently held that documents which have not had a prop-
er foundation laid to authenticate them cannot support
a motion for summary judgment. Hamilton v. Key-
stone Tankship Corp., 539 F.2d 684, 686 (9th
Cir.1976); United States v. Dibble, 429 F.2d 598,
601–02 (9th Cir.1970).
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See also Mooney v. Monumental Life Ins. Co., 123
F.Supp.2d 1008, 1010 (E.D.La.2000)(Checks submitted
as exhibits were not properly before the court because
they were not attached to and authenticated by an affi-
davit conforming to Rule 56(e)); Investors Credit Corp.
v. Batie (In re Batie), 995 F.2d 85, 89 (6th Cir.1993)
(Upon a party's objection, documents filed in support of
or in opposition to a motion may not be considered by
the court unless they have entered “the record as attach-
ments to an appropriate affidavit” and “would be ad-
missible in evidence.”)
These authorities must be read carefully, however,
in light of the 2010 amendments to Rule 56, which
eliminated the unequivocal requirement that docu-
ments submitted in support of a summary judgment
motion must be authenticated. Rather, the amended
Rule allows a party making or opposing a summary
judgment motion to cite to materials in the record in-
cluding, among other things, “depositions, docu-
ments, electronically stored information, affidavits or
declarations” and the like. Fed.R.Civ.P. 56(c)(1)(A).
If the opposing party believes that such materials
“cannot be presented in a form that would be admiss-
ible in evidence,” that party must file an objection.
Fed.R.Civ.P. 56(c)(2). (As a result of the 2010
amendments, motions to strike are no longer appro-
priate. See Reed v. Austal U.S.A., L.L.C., No 08–155,
2011 WL 4435562 at *5 n. 6 (S.D.Ala. Sept. 23,
2011). Such motions should be construed as objec-
tions under Rule 56(c)(2). Id.) Significantly, the ob-
jection contemplated by the amended Rule is not that
the material “has not” been submitted in admissible
form, but that it “cannot” be. The comments to the
2010 amendments make it clear that the drafters in-
tended to make summary judgment practice conform
to procedure at trial. “The objection functions much
as an objection at trial, adjusted for the pretrial set-
ting. The burden is on the proponent to show that the
material is admissible as presented or to explain the
admissible form that is anticipated. There is no need
to make a separate motion to strike.” Fed.R.Civ.P. 56
(2010 Advisory Committee comments). The revised
Rule therefore clearly contemplates that the pro-
ponent of evidence will have the ability to address the
opponent's*271 objections, and the Rule allows the
court to give the proponent “an opportunity to prop-
erly support or address the fact,” if the court finds the
objection meritorious. Fed.R.Civ.P. 56(e)(1). Thus,
the amendment replaces a clear, bright-line rule (“all
documents must be authenticated”) with a multi-step
process by which a proponent may submit evidence,
subject to objection by the opponent and an opportun-
ity for the proponent to either authenticate the docu-
ment or propose a method to doing so at trial.
Foreword Magazine, 2011 WL 5169384 at *2.
The new subdivision (c)(3) “reflects judicial opin-
ions and local rules provisions stating that the court may
decide a motion for summary judgment without under-
taking an independent search of the record.”
Fed.R.Civ.P. 56 (2010 Advisory Committee comments).
When filing or responding to a motion for summary
judgment the parties must adhere to the federal and loc-
al rules to promote efficiency both for the Court and the
parties. See Jackson v. Finnegan, Henderson, Farabow,
Garrett & Dunner, 101 F.3d 145, 150–151
(D.C.Cir.1996):
[The District Court's local rule on summary judg-
ment procedures] assists the district court to maintain
docket control and to decide motions for summary
judgment efficiently and effectively. As this court ex-
plained in Gardels v. Central Intelligence Agency,
637 F.2d 770 (D.C.Cir.1980), with regard to the pre-
decessor local rule identical to Local Rule 108(h):
Requiring strict compliance with the local rule is jus-
tified both by the nature of summary judgment and by
the rule's purposes. The moving party's statement spe-
cifies the material facts and directs the district judge
and the opponent of summary judgment to the parts of
the record which the movant believes support his
statement. The opponent then has the opportunity to
respond by filing a counterstatement and affidavits
showing genuine factual issues. The procedure con-
templated by the rule thus isolates the facts that the
parties assert are material, distinguishes disputed
from undisputed facts, and identifies the pertinent
parts of the record.
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The D.C. Circuit had previously pointed out that—
a district court judge should not be obliged to sift
through hundreds of pages of depositions, affidavits,
and interrogatories in order to make his own analysis
and determination of what may, or may not, be a
genuine issue of material disputed fact. In this re-
spect, a district court may legitimately look to and
rely upon counsel to identify the pertinent parts of the
record, to isolate the facts that are deemed to be ma-
terial, and to distinguish those facts which are dis-
puted from those that are undisputed.
When counsel fails to discharge this vital function,
he may not be heard to complain that the district court
has abused its discretion by failing to compensate for
counsel's inadequate effort.
Twist v. Meese, 854 F.2d 1421, 1425
(D.C.Cir.1988), cert. denied, 490 U.S. 1066, 109 S.Ct.
2066, 104 L.Ed.2d 631 (1989).
The United States District Court for the District of
New Mexico recently presented a complete overview of
the legal standards for deciding Motions for Summary
Judgment in the Tenth Circuit:
Rule 56(c) states that summary judgment “should
be rendered if the pleadings, the discovery and dis-
closure materials on file, and any affidavits show that
there is no genuine issue as to any material fact and
that the movant is entitled *272 to judgment as a mat-
ter of law.” Fed.R.Civ.P. 56(c)(2). The movant bears
the initial burden of “show[ing] that there is an ab-
sence of evidence to support the nonmoving party's
case.” Bacchus Indus., Inc. v. Arvin Indus., Inc., 939
F.2d 887, 891 (10th Cir.1991)(internal quotation
marks omitted). See Celotex Corp. v. Catrett, 477
U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)
(“Of course, a party seeking summary judgment al-
ways bears the initial responsibility of informing the
district court of the basis for its motion, and identify-
ing those portions of the [record], together with the
affidavits, if any, which it believes demonstrate the
absence of a genuine issue of material fact.”) (internal
quotation marks omitted). Once the movant meets this
burden, rule 56(e) requires the non-moving party to
designate specific facts showing that there is a genu-
ine issue for trial. See Celotex Corp. v. Catrett, 477
U.S. at 324, 106 S.Ct. 2548; Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91
L.Ed.2d 202 (1986); Vitkus v. Beatrice Co., 11 F.3d
1535, 1539 (10th Cir.1993) (“However, the nonmov-
ing party may not rest on its pleadings but must set
forth specific facts showing that there is a genuine is-
sue for trial as to those dispositive matters for which
it carries the burden of proof.”)(internal quotation
marks omitted).
The party opposing a motion for summary judg-
ment must “set forth specific facts showing that there
is a genuine issue for trial as to those dispositive mat-
ters for which it carries the burden of proof.” Applied
Genetics Int'l, Inc. v. First Affiliated Secs., Inc., 912
F.2d 1238, 1241 (10th Cir.1990). Rule 56 provides
that “an opposing party may not rely merely on alleg-
ations or denials in its own pleading; rather, its re-
sponse must-by affidavits or as otherwise provided in
this rule-set out specific facts showing a genuine is-
sue for trial.” Fed.R.Civ.P. 56(e)(2). It is not enough
for the party opposing a properly supported motion
for summary judgment to “rest on mere allegations or
denials of his [or her] pleadings.” Anderson v. Liberty
Lobby, Inc., 477 U.S. at 256, 106 S.Ct. 2505. See
Abercrombie v. City of Catoosa, 896 F.2d 1228, 1231
(10th Cir.1990); Otteson v. United States, 622 F.2d
516, 519 (10th Cir.1980) (“However, ‘once a properly
supported summary judgment motion is made, the op-
posing party may not rest on the allegations contained
in his complaint, but must respond with specific facts
showing the existence of a genuine factual issue to be
tried.’ ” (citation omitted)). Nor can a party “avoid
summary judgment by repeating conclusory opinions,
allegations unsupported by specific facts, or specula-
tion.” Colony Nat'l Ins. Co. v. Omer, No. 07–2123,
2008 WL 2309005, at *1 (D.Kan. June 2, 2008)
(citing Fed.R.Civ.P. 56(e) and Arqo v. Blue Cross &
Blue Shield of Kan., Inc., 452 F.3d 1193, 1199 (10th
Cir.2006)). “In responding to a motion for summary
judgment, ‘a party cannot rest on ignorance of facts,
on speculation, or on suspicion and may not escape
summary judgment in the mere hope that something
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will turn up at trial.’ ” Colony Nat'l Ins. Co. v. Omer,
2008 WL 2309005, at *1 (quoting Conaway v. Smith,
853 F.2d 789, 794 (10th Cir.1988)).
To survive summary judgment, genuine factual is-
sues must exist that “can be resolved only by a finder
of fact because they may reasonably be resolved in
favor of either party.” Anderson v. Liberty Lobby,
Inc., 477 U.S. at 250, 106 S.Ct. 2505. A mere
“scintilla” of evidence will not avoid summary judg-
ment. Vitkus v. Beatrice Co., 11 F.3d at 1539. Rather,
*273 there must be sufficient evidence on which the
fact-finder could reasonably find for the nonmoving
party. See Anderson v. Liberty Lobby, Inc., 477 U.S.
at 251, 106 S.Ct. 2505 (quoting Schuylkill & Dauphin
Improv. Co. v. Munson, 81 U.S. 442, 448, 14 Wall.
442, 20 L.Ed. 867 (1871)); Vitkus v. Beatrice Co., 11
F.3d at 1539. “[T]here is no evidence for trial unless
there is sufficient evidence favoring the nonmoving
party for a jury to return a verdict for that party. If the
evidence is merely colorable ... or is not significantly
probative, ... summary judgment may be granted.”
Anderson v. Liberty Lobby, Inc., 477 U.S. at 249, 106
S.Ct. 2505 (internal citations omitted). Where a ra-
tional trier of fact, considering the record as a whole,
could not find for the non-moving party, there is no
genuine issue for trial. See Matsushita Elec. Indus.
Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106
S.Ct. 1348, 89 L.Ed.2d 538 (1986).
When reviewing a motion for summary judgment,
the court should keep in mind three principles. First,
the court's role is not to weigh the evidence, but to as-
sess the threshold issue whether a genuine issue exists
as to material facts requiring a trial. See Anderson v.
Liberty Lobby, Inc., 477 U.S. at 249, 106 S.Ct. 2505.
Second, the court must resolve all reasonable infer-
ences and doubts in favor of the non-moving party
and construe all evidence in the light most favorable
to the non-moving party. See Hunt v. Cromartie, 526
U.S. 541, 550–55, 119 S.Ct. 1545, 143 L.Ed.2d 731
(1999). Third, the court cannot decide any issues of
credibility. See Anderson v. Liberty Lobby, Inc., 477
U.S. at 255, 106 S.Ct. 2505.
Bhandari v. VHA Southwest Community Health
Corp., 2011 WL 1336525 at *10–11 (D.N.M.2011)
(citing former Rule 56).
The 2010 amendments, except for the obvious
changes established by the new materials, were not in-
tended to change summary judgment standards or prac-
tice. FN9 *274 But given the more “flexible” approach
now allowed the movant in submitting evidence to sup-
port a motion for summary judgment, Foreword
Magazine, 2011 WL 5169384 at *1, it becomes even
more important for movant to comply with NM LBR
7056–1(b) and (c) in pinpointing the portions of the re-
cord that support the alleged undisputed facts or to ad-
mit candidly that movant hopes to prove the fact at trial
if need be.
FN9. See Letter from Committee on Rules of
Practice and Procedure of the Judicial Confer-
ence of the United States to the Hon. John G.
Roberts, Chief Justice of the United States,
December 16, 2009 (available at http:// www.
uscourts. gov/ Rules And Policies/ Federal
Rulemaking/ Pending Rules/ proposed Sup Ct
1210. aspx, follow link “Summary of Proposed
Amendments”) (last visited March 21, 2012).
The proposed amendments to Rule 56 are in-
tended to improve the procedures for
presenting and deciding summary judgment
motions, to make the procedures more con-
sistent across the districts, and to close the
gap that has developed between the rule text
and actual practice. The amendments are not
intended to change the summary judgment
standard or burdens. The amendments in-
clude (1) requiring that a party asserting a
fact that cannot be genuinely disputed
provide a “pinpoint citation” to the record
supporting its fact position; (2) recognizing
that a party may submit an unsworn written
declaration, certificate, verification, or state-
ment under penalty of perjury in accordance
with 28 U.S.C. § 1746 as a substitute for an
affidavit to support or oppose a summary
judgment motion; (3) setting out the court's
options when an assertion of fact has not
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been properly supported by the party or re-
sponded to by the other party, including con-
sidering the fact undisputed for purposes of
the motion, granting summary judgment if
supported by the motion and supporting ma-
terials, or affording the party an opportunity
to amend the motion; (4) setting a time dead-
line, subject to variation by local rule or
court order in a case, for the filing of a sum-
mary judgment motion; (5) explicitly recog-
nizing that “partial summary judgment” may
be entered; and (6) clarifying the procedure
for challenging the admissibility of summary
judgment evidence.
The Committee's assurances that the new
version of the rule is not intended to change
the respective burdens of the summary judg-
ment process is not inconsistent with the ob-
servation of the District Court in Foreword
Magazine that the revisions have effected a
sea change in summary judgment procedure.
2011 WL 5169384 at *1–2. It remains to be
seen whether the “new Coke” version of the
rule serves as well as the earlier version of
the rule with its bright-line rules for submit-
ting evidence. Id.
UNDISPUTED FACTS
There are two sources for facts in this adversary.
First, the matters admitted in the answers to the Com-
plaint, cross-claims and counter-claims; and second, the
undisputed facts established by the motions for sum-
mary judgment. As noted above, claims and admissions
by Ewing are not considered.
A. ADMISSIONS
The following facts were admitted:
1. This Court has jurisdiction over this adversary
proceeding pursuant to 28 U.S.C. § 1334(a), 28 U.S.C.
§ 157(b), and the administrative order entered March
19, 1992, in the United States District Court for this dis-
trict referring cases to this Court, in that this action is a
core proceeding for turnover pursuant to 11 U.S.C. §
542. Venue is proper.
2. Douglas F. Vaughan filed a voluntary petition
under chapter 11 of the Bankruptcy Code on February
22, 2010, and the case was converted to a chapter 7 pro-
ceeding on May 20, 2010.
3. Plaintiff is the duly appointed Chapter 7 trustee
of the Douglas F. Vaughan chapter 7 estate.
4. On February 22, 2010 (the “VCR Petition
Date”), the Vaughan Company, Realtors (“VCR”) filed
a voluntary petition under chapter 11 of the Bankruptcy
Code.
5. Wagner is the duly appointed Chapter 11 Trustee
of the VCR bankruptcy estate.
6. Doe is an individual residing and doing business
in Bernalillo County, New Mexico.
7. Doe admits he wrote a check to VCR that stated
“legal fees” and admits there is a proof of claim filed on
his behalf for the $300,000.
8. Wagner asserted the following affirmative de-
fenses: failure to state a claim, lack of standing, plaintiff
is not the real party in interest.
9. Doe asserted the following affirmative defenses:
failure to state a claim, the funds are not property of the
estate, the estate lacks title, the transfer was in good
faith without knowledge of the bankruptcy, he lacks ca-
pacity, and he was subject to undue influence and
duress.
In the discussion that follows, for the proposed
facts listed in the three summary judgment motions,
each proposed fact is listed in quotation marks. If there
are no comments to the fact, this means that the other
parties did not dispute it.
B. Doe's PROPOSED UNDISPUTED MATERIAL
FACTS (doc. 41)
Doe listed twelve proposed undisputed material
facts. Gonzales' and Wagner's responses differ, so the
facts will be analyzed as to each.
1. “Douglas Vaughan ran a Ponzi scheme involving
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‘investors' all over the United States.” Gonzales agreed
that this was undisputed. Wagner objected to this *275
fact as irrelevant and also as lacking a citation to the re-
cord as required by the federal and local rules. The
Court agrees that without a record citation this fact has
not technically been established FN10. However, the
Court can and will take judicial notice of the files in the
Vaughan bankruptcy and VCR bankruptcy, and the
evidence presented on the record in those cases, and
take notice of its prior Memorandum*276 Opinion and
find that the fact is undisputed.
FN10. In Doe's reply (doc. 54) to Wagner's re-
sponse to his Motion for Summary Judgment
(doc. 45) he states “Wagner disputes every ma-
terial fact listed by Doe in the Motion for Sum-
mary Judgment. Wagner disputes the vast ma-
jority of the facts based on illusory technicalit-
ies, not because a genuine issue exists as to the
facts' veracity.... In order to overcome the tech-
nicalities cited by Wagner, at a level which
Doe disputes is required, the evidence for each
undisputed material fact will be discussed indi-
vidually as follows.” (Doc. 54, p. 2.) Doe may
dispute what is required, but in fact,
Fed.R.Civ.P. 56, NM LBR 7056–1 and case
law are clear. A summary judgment movant
must identify the factual record. See NM LBR
7056–1(b):
The [proposed undisputed] facts shall be
numbered and shall refer with particularity
to those portions of the record upon which
movant relies.
(Emphasis added.) Hundreds of cases agree.
See, e.g., Garland v. Advanced Medical
Fund, L.P. II, 86 F.Supp.2d 1195, 1198–99
(N.D.Ga.2000):
Because they affect the consideration and de-
scription of the relevant facts in this case, the
court must initially address several issues
concerning the procedural requirements that
accompany the filing of a motion for sum-
mary judgment. This court's local rules re-
quire that the movant “attach to the motion a
separate and concise statement of the materi-
al facts to which the movant contends there
is no genuine issue to be tried.” LR 56.1B(1),
N.D. Ga. Moreover, “[a]ll documents and
other record materials relied upon by a party
moving for or opposing a motion for sum-
mary judgment shall be clearly identified for
the court.” LR 56.1B(3), N.D. Ga. Appar-
ently attempting to comply with these rules,
all parties in this case have filed separate fac-
tual statements with their motions for sum-
mary judgment. Only the Garlands and De-
fendants Anderson and Advance Textile,
however, support their factual statements
with citations to evidence in the record. The
other Defendants have failed to do so, and as
a result, their motions are not in compliance
with the rules of this court. Accordingly,
Plaintiffs urge the court to deny these mo-
tions as not properly supported. Defendants
argue, however, that Fed.R.Civ.P. 56 allows
a party to move for summary judgment with
or without supporting affidavits, and there-
fore the motions are proper. Additionally,
Defendants note that reference to deposition
testimony and exhibits is made in the sup-
porting memorandum.
The court finds Defendants' arguments to be
unavailing. The purpose of the requirements
that movants file separate statements of fact
and that evidence relied upon be clearly iden-
tified is to allow the court to compare the
factual statement with the evidence and de-
termine whether or not particular inferences
can be drawn by the factfinder. In other
words, these requirements facilitate the court
in evaluating whether or not there exists a
genuine issue of material fact. The court
should not be made to guess the sources of a
movant's version of the relevant facts. In-
deed, the movant has an “initial responsibil-
ity of informing the district court of the basis
for its motion, and identifying those portions
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of ‘the pleadings, depositions, answers to in-
terrogatories, and admissions on file, togeth-
er with affidavits, if any,’ which it believes
demonstrates the absence of a genuine issue
of material fact.” Celotex Corp. v. Catrett,
477 U.S. 317, 323, 106 S.Ct. 2548, 91
L.Ed.2d 265 (1986). See also Clark v. Coats
& Clark, Inc., 929 F.2d 604, 606–09 (11th
Cir.1991) (noting that Celotex did not over-
rule prior precedent that movant had initial
burden of showing absence of genuine issue
of material fact and declining to address for
first time on appeal whether that burden had
been met because “[t]o do so would require
us to discharge the movant's Rule 56 re-
sponsibility of searching the record and
identifying material in support of its mo-
tion”). Moreover, citations scattered
throughout a legal brief do not comply with
the requirement that sources be “clearly iden-
tified.”
(The Garland Court summarily denied the
nonconforming motions. 86 F.Supp.2d at
1199).
2. “Mr. Doe and Mr. Vaughan were long-standing
friends.” Wagner disputed this fact but also objected as
lacking a citation to the record. The Court agrees that
without a record citation this fact has not been estab-
lished. Therefore, Doe fact 2 is disputed as to Wagner.
Gonzales failed to respond to Doe fact 2 and would
therefore be deemed to admit it if it were properly sup-
ported. See NM LBR 7056–1(c). However, as Wagner
pointed out, the fact is not supported by a record refer-
ence so Gonzales is not deemed to accept fact 2. In
summary, fact 2 is disputed.
3. “During the period of May 2009 through Febru-
ary, 2010 Mr. Vaughan borrowed funds from Mr. Doe
on a monthly basis in amounts totaling $3,650,000 from
Doe in a series of eleven transactions. The amount does
not include two checks that were apparently intended to
be for legal fees. See Proofs of Claim, Amended XXXX
(The Vaughan Company, Realtors) and Amended
XXXX (Douglas F. Vaughan).” Wagner disputes fact 3.
She argues that the proofs of claim are inadmissable be-
cause they were signed by Doe's attorney, not Doe, and
the checks attached to the claims are not properly au-
thenticated because they are not certified copies nor
have they been authenticated by any other means. Doe,
citing Fed.R.Civ.P. 56(c)(2), argues in his reply brief
that his undisputed facts are supported by appropriate
evidence. (Doc. 54, pp. 5–6). The Court agrees that the
checks attached to the claims would be admissible un-
der a hearsay objection as business records. The proof
of claim can be considered a summary of the checks.
Gonzales failed to respond to Doe fact 3. In summary,
the Court finds Doe fact 3 is undisputed.
4. “Mr. Doe paid $200,000 to Saul Ewing, LLC.
See Exhibit B to Answer to Amended Complaint and
Counterclaims.” Wagner objects to this fact because the
Exhibit B referred to is a copy of a check that has not
been authenticated. Gonzales failed to respond to Doe
fact 4 so is deemed to admit it. The Court finds it ad-
missible for the reasons stated in Doe fact 3. In sum-
mary, Doe fact 4 is undisputed.
5. “Saul Ewing deposited the $200,000 check into
its trust account.” Wagner objects because there is no
citation to the record. The Court agrees. Furthermore,
Doe has not laid a foundation for knowing what account
the check was deposited in and the only way he could
know this is if someone told him, so it is hearsay.
Gonzales did not respond to Doe fact 5, but the Court
finds it inadmissable. In summary, Doe fact 5 is dis-
puted.
6. “Saul Ewing earned over thirty thousand dollars
in attorney's fees during its representation of Mr.
Vaughan, which it removed from the $200,000 it held in
trust.” Wagner objects because there is no citation to the
record. The Court agrees. Furthermore, Doe has not laid
a foundation for knowing what Saul Ewing earned and
the only way he could know this is if someone told him,
so it is hearsay. Gonzales did not respond to Doe fact 6,
but the Court finds it inadmissable. In summary, Doe
fact 6 is disputed.
7. “Saul Ewing has placed the remaining
$162,699.38 into the Court Registry with permission of
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the Court and makes no claim to the remaining funds.”
Wagner objects because there is no citation to the re-
cord. The Court agrees that it has no duty to search the
record for this information, but it appears on the docket
so the Court will find it undisputed. Gonzales agreed
with fact 7. In summary, the Court finds this fact undis-
puted.
*277 8.FN11 “Mr. Doe has Alzheimer's dementia.
See Affidavit of Rex Swanda, ¶ 4, Exhibit A to Answer
to Amended Complaint and Counter-claims.” This affi-
davit was executed on August 19, 2010 and, in part, de-
scribes the results of Mr. Swanda's neuropsychological
examination of Mr. Doe that he conducted on May 26,
2010. Wagner disputes Fact 8. Wagner claims that the
Swanda affidavit fails to properly support the allega-
tions and conclusions reached therein and is not admiss-
ible evidence because 1) it fails to lay a proper founda-
tion to qualify Swanda as an expert, 2) it fails to set
forth the methodology Swanda used, 3) it fails to set
forth whether such methodology is generally regarded
as reliable by the scientific community, 4) it fails to
support its contention that cognitive deterioration has
developed over a period of several years, 5) it only
provides a snapshot of Doe's alleged cognitive ability
several months after the subject checks were written, 6)
it improperly relies on pleadings drafted by Doe's attor-
neys, and 7) it improperly relies on Doe's own inad-
missible affidavit. Gonzales objects to Doe fact 8 be-
cause the Swanda affidavit is dated several months after
the subject checks were written, and because it directly
conflicts with Doe's own affidavit (main case, doc.
136–1) in which Doe stated he paid the attorney retainer
of $200,000 because Douglas F. Vaughan was a friend.
FN11. Doe facts 8 through 11 will be discussed
together.
Doe's facts 9 through 11 pick out certain statements
in the Swanda affidavit as undisputed facts. Wagner and
Gonzales raise the same objections to those facts.
9. “Mr. Doe is unable to weigh the risks and bene-
fits of the financial decisions and lacks the capacity to
enter into contracts. Id. at ¶ 6–7.”
10. “Mr. Doe is highly susceptible to undue influ-
ence, especially from individuals with whom he has
regular contact. Id. at ¶ 8.”
11. “Mr. Doe could not understand what he was do-
ing when he gave Saul Ewing money for Mr. Vaughan's
legal fees. Id. at 9.”
Rule 702 governs the admissibility of expert testi-
mony. It allows a qualified individual who possesses
“scientific, technical, or other specialized knowledge”
to testify as an expert if “it will assist the trier of fact
to understand the evidence or to determine a fact in
issue.” FRE 702. A witness may be qualified by
“knowledge, skill, experience, training, or education.”
Id. The expert may offer his or her opinion on matters
outside the scope of his personal knowledge only if
“(1) the testimony is based upon sufficient facts or
data, (2) the testimony is the product of reliable prin-
ciples and methods, and (3) the witness has applied
the principles and methods reliably to the facts of the
case.” FRE 702. Put another way, “Rule 702 has three
major requirements: (1) the proffered witness must be
an expert, i.e., must be qualified; (2) the expert must
testify about matters requiring scientific, technical or
specialized knowledge; and (3) the expert's testimony
must assist the trier of fact.” Pineda v. Ford Motor
Co., 520 F.3d 237, 244 (3d Cir.2008).
The “proponent of expert testimony must establish
his expert is qualified and his testimony is admissible
by a preponderance of the evidence.” Poust v.
Huntleiqh Healthcare, 998 F.Supp. 478, 490
(D.N.J.1998). The Court has an obligation to act as a
“gatekeeper” to ensure the “reliability and relevancy
of expert testimony” presented to the finder of fact.
*278Kumho Tire Co. v. Carmichael, 526 U.S. 137,
152, 119 S.Ct. 1167, 143 L.Ed.2d 238 (1999); See
also Daubert v. Merrell Dow Pharms., 509 U.S. 579,
592–593, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993).
To aid in this inquiry, Daubert and United States v.
Downing, 753 F.2d 1224 (3d Cir.1985), cite several
factors for the Court to consider in examining the ex-
pert's methodology: “(1) whether a method consists of
a testable hypothesis; (2) whether the method has
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been subject to peer review; (3) the known or poten-
tial rate of error; (4) the existence and maintenance of
standards controlling the technique's operation; (5)
whether the method is generally accepted; (6) the re-
lationship of the technique to methods which have
been established to be reliable; (7) the qualification of
the expert witness testifying based on the methodo-
logy; and (8) the non-judicial uses to which the meth-
od has been put.” In re Paoli R.R. Yard PCB Litiga-
tion, 35 F.3d 717, 742 (3d Cir.1994) citing Daubert
and United States v. Downing, 753 F.2d 1224 § 3d
Cir. 1985).
Fancaster, Inc. v. Comcast Corp., 832 F.Supp.2d
380, 401–02, 2011 WL 6426292 at *13–14
(D.N.J.2011).
The Court finds that Wagner's objections to Doe
facts 8 through 11 are well taken. The Swanda affidavit
does not set forth sufficient grounds for the Court to
evaluate the reliability, admissibility or even relevancy
of the expert's opinion. See Fed.R.Evid. 104(a); Daubert
v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579,
592–93, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993):
Faced with a proffer of expert scientific testimony,
then, the trial judge must determine at the outset, pur-
suant to Rule 104(a), whether the expert is proposing
to testify to (1) scientific knowledge that (2) will as-
sist the trier of fact to understand or determine a fact
in issue. This entails a preliminary assessment of
whether the reasoning or methodology underlying the
testimony is scientifically valid and of whether that
reasoning or methodology properly can be applied to
the facts in issue.
(Footnotes omitted.) Furthermore, the affidavit an-
swers none of the questions the Supreme Court found
relevant to admission of expert testimony: 1)
“Ordinarily, a key question to be answered in determin-
ing whether a theory or technique is scientific know-
ledge that will assist the trier of fact will be whether it
can be (and has been) tested.” Id. at 593, 113 S.Ct.
2786; 2) “Another pertinent consideration is whether
the theory or technique has been subjected to peer re-
view and publication.” Id.; 3) “[T]he court ordinarily
should consider the known or potential rate of error.”
Id. at 594, 113 S.Ct. 2786; and 4) “Finally, ‘general ac-
ceptance’ can yet have a bearing on the inquiry. A
‘reliability assessment does not require, although it does
permit, explicit identification of a relevant scientific
community and an express determination of a particular
degree of acceptance within that community.’ ” Id.
(Citation omitted.) Normally these questions are
answered at trial when attempting to qualify an expert
witness, and during any voir dire or cross-examination.
This, however, is a motion for summary judgment and
the burden is on the movant to establish that there is ad-
missible evidence before the Court. Farris v. Intel
Corp., 493 F.Supp.2d 1174, 1181 (D.N.M.2007). The
Court must do more than simply take the “expert's word
for it.” Id. at 1182 (Citation omitted.) See also Zamec-
nik v. Indian Prairie School District # 204, 636 F.3d
874, 881 (7th Cir.2011)(An expert must explain how he
used his expertise to generate the conclusions. “Mere
conclusions” without describing the inferential process
are useless to the court.)
*279 In his reply brief, Doe attempts to shift the
burden to Wagner to disprove Swanda's qualifications
and opinions. See doc. 54, p. 6 (“Wagner has attacked
the sufficiency of Dr. Swanda's qualifications and opin-
ions, but did not avail herself of the opportunity to de-
pose Dr. Swanda or hire her own neuropsychologist to
examine Mr. Doe during the discovery period.... Wagn-
er's legal argument falls flat because of Wagner's own
failure to conduct any discovery and her lack of an ex-
pert witness who has examined Mr. Doe.”) But, “the
moving party has both the initial burden of production
on a motion for summary judgment and the burden of
establishing that summary judgment is appropriate as a
matter of law.” Kannady v. City of Kiowa, 590 F.3d
1161, 1169 (10th Cir.2010)(quoting Trainor v. Apollo
Metal Specialties, Inc., 318 F.3d 976, 979 (10th
Cir.2003)). The Court therefore finds Doe's argument
meritless.
Also in his reply brief (doc. 54), Doe attaches new
material as Exhibits E (“Report of Neuropsychological
Consultation”) and F (a resume of Rex M. Swanda,
Ph.D.). Doe argues that Swanda's report was prepared
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upon his appointment by a judge in the Second Judicial
District Court in a family matter under the New Mexico
Uniform Probate Code. Doe suggests that if Swanda is a
state court expert, he should be so considered here, but
provides no legal authority. Furthermore, both Exhibits
E and F are hearsay. They are not attached to an affi-
davit. They are not self-authenticating. They are not
certified copies of state court documents. Indeed,
neither exhibit even mentions a particular judge, gives a
case number, or shows that they were ever even submit-
ted to a court, reviewed by a court, or considered as
evidence in any proceeding.
In summary, the Court finds that Doe proposed
facts 8 through 11 are subject to a genuine dispute. 12.
“To the extent he is able to do so, Mr. Doe has repudi-
ated the transfer of $200,000 of his funds to Saul
Ewing. See Affidavit of Doe, Exhibit C to Answer to
Amended Complaint and Counterclaim.” This affidavit
was executed on April 3, 2010. Wagner objects to this
fact, arguing that the Doe affidavit was executed less
than two months before he was examined by Swanda
and Swanda found him to be incapable of understanding
his actions when he wrote the checks in February.
Therefore, she argues that Doe was not competent to ex-
ecute the April 3, 2010 affidavit. She also objects be-
cause the April 3, 2010 affidavit does not attach copies
of documents to which it refers. The Court agrees with
Wagner and finds that Doe fact 12 is subject to a genu-
ine dispute.
In his reply brief, Doe attempts to supply citations
to the record in support of his purportedly undisputed
facts. While minor correction or supplementation in a
reply brief for incorrect or missing support in the initial
brief is certainly permissible, in this case the wholesale
attempt to do in the reply brief what was the required
showing in the initial brief is perhaps too little and cer-
tainly too late. The purpose of a reply brief is to present
legal arguments against matters raised in the response.
See Springs Indus., Inc. v. American Motorists Ins. Co.,
137 F.R.D. 238, 239–40 (N.D.Tex.1991):
It cannot seriously be disputed that a movant is ob-
ligated to file with a motion the evidentiary materials
necessary to justify the relief it seeks. The office of
the reply brief permitted by Rule 5.1(f) is to rebut the
nonmovant's response, thereby persuading the court
that the movant is entitled to the relief requested by
the motion. The document is to contain argument, not
new supporting materials.
*280 It is not a place to introduce new factual as-
sertions that properly belong in the opening brief. Fur-
thermore, allowing new factual assertions in a reply de-
prives the respondent of an opportunity to controvert
the new factual assertions. Id. at 239. When the record
citations were not in the motion, neither Wagner nor
Gonzales had a duty to search through the record for in-
stances of the alleged facts and then attempt to contro-
vert them because facts without citations to the record
need no response. See Green v. New Mexico, 420 F.3d
1189, 1196 (10th Cir.2005)(If a reply contains new in-
formation (defined as either new evidence or new legal
arguments), the Court needs to give the nonmoving
party an opportunity to respond only if the Court will
rely on that new material. It is not an abuse of discretion
to ignore the new material and preclude a surreply.) See
also Adams v. American Guarantee and Liability Ins.
Co., 233 F.3d 1242, 1248 (10th Cir.2000) (An argument
raised for the first time in reply is “not sufficient.”)
C. GONZALES' PROPOSED UNDISPUTED MA-
TERIAL FACTS (doc. 47)
Most of the Gonzales' proposed facts suffer the
same problem as Doe's. Facts 1 through 5, 7, 9, 11 and
12 contain no citation to the record. The Court will
simply ignore those.
6. “On or about February 3, 2010, VCR wrote a
check to Doe for $200,000 in partial repayment of the
funds loaned on February 1, 2010 from Doe to VCR
(‘Vaughan Company, Realtors'). The $200,000 check
was noted in VCR's books as a ‘repayment of principal.’
(VCR Trustee's Answer to Amended Complaint and
Cross Claims, ¶ 10, docket No. 11).”
Doe responded that he had no knowledge of fact 6
and that “especially with regard to how such a check
was reflected in VCR's books.” (Doc. 58, p. 2). This re-
sponse is totally inadequate to controvert the fact. The
issue is not whether Doe has this information; the issue
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is whether Doe has any evidence that contradicts the
statement.
[In ruling on a motion for summary judgment,]
[t]he court has one task and one task only: to decide,
based on the evidence of record, whether there is any
material dispute of fact that requires a trial. Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 249–50, 106
S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986); 10 Wright,
Miller & Kane § 2712, at 574–78. The parties, in turn,
bear a concomitant burden to identify the evidence
that will facilitate this assessment. Thus, as
Fed.R.Civ.Proc. 56(e) makes clear, a party opposing
summary judgment may not rely on the allegations of
her pleadings. Rather:
[T]he adverse party's response, by affidavits or as
otherwise provided in this rule, must set forth spe-
cific facts showing that there is a genuine issue for
trial. If the adverse party does not so respond, sum-
mary judgment, if appropriate, shall be entered
against the adverse party.
(Emphasis supplied). This requirement is more than a
technicality; as the now familiar trilogy of 1986 cases
from the Supreme Court established, if the non-
movant does not come forward with evidence that
would reasonably permit the finder of fact to find in
her favor on a material question, then the court must
enter summary judgment against her. Matsushita
Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
585–87, 106 S.Ct. 1348, 1355–56, 89 L.Ed.2d 538
(1986); Celotex Corp. v. Catrett, 477 U.S. 317,
322–24, 106 S.Ct. 2548, 2552–53, 91 L.Ed.2d 265
(1986); Anderson, 477 U.S. at 249–52, 106 S.Ct. at
2511–12. The burden on the non-movant is not oner-
ous.*281 10A Wright, Miller & Kane § 2727, at 148.
She need not tender evidence in a form that would be
admissible at trial (Of course, the evidence set forth
must be of a kind admissible at trial. E.g., Gustovich
v. AT & T Communications, Inc., 972 F.2d 845, 849
(7th Cir.1992); Fed.R.Civ.P. 56(e).); she may rely on
affidavits or any other materials of the kind identified
in Rule 56(c). Celotex, 477 U.S. at 324, 106 S.Ct. at
2553. Moreover, the non-movant need not match the
movant witness for witness, nor persuade the court
that her case is convincing, she need only come for-
ward with appropriate evidence demonstrating that
there is a pending dispute of material fact. Anderson,
477 U.S. at 248–49, 106 S.Ct. at 2510 (quoting First
Nat. Bank of Arizona v. Cities Serv. Co., 391 U.S.
253, 288–89, 88 S.Ct. 1575, 1592, 20 L.Ed.2d 569
(1968)); see also id. 477 U.S. at 255, 106 S.Ct. at
2513; Sarsha v. Sears, Roebuck & Co., 3 F.3d 1035,
1041 (7th Cir.1993); Jackson v. Duckworth, 955 F.2d
21, 22 (7th Cir.1992); Cameron v. Frances Slocum
Bank & Trust Co., 824 F.2d 570, 575 (7th Cir.1987).
Waldridge v. American Hoechst Corp., 24 F.3d
918, 920–21 (7th Cir.1994)(Former Rule 56). See also
Adler v. Wal–Mart Stores, Inc., 144 F.3d 664, 671 (10th
Cir.1998):
If the movant carries this initial burden, the non-
movant that would bear the burden of persuasion at
trial may not simply rest upon its pleadings; the bur-
den shifts to the nonmovant to go beyond the plead-
ings and “set forth specific facts” that would be ad-
missible in evidence in the event of trial from which a
rational trier of fact could find for the nonmovant.
Fed.R.Civ.P. 56(e); see Lujan v. National Wildlife
Fed'n, 497 U.S. 871, 888–89, 110 S.Ct. 3177, 111
L.Ed.2d 695 (1990); Celotex, 477 U.S. at 324, 106
S.Ct. 2548; Anderson, 477 U.S. at 248, 106 S.Ct.
2505. To accomplish this, the facts must be identified
by reference to affidavits, deposition transcripts, or
specific exhibits incorporated therein. See Thomas v.
Wichita Coca–Cola Bottling Co., 968 F.2d 1022,
1024 (10th Cir.), cert. denied, 506 U.S. 1013, 113
S.Ct. 635, 121 L.Ed.2d 566 (1992). Thus, although
our review is de novo, we conduct that review from
the perspective of the district court at the time it made
its ruling, ordinarily limiting our review to the materi-
als adequately brought to the attention of the district
court by the parties.
Wagner agrees that Gonzales fact 6 is undisputed as
far as it goes, but further states that Wagner claims that
that $200,000 check given to Doe represents the same
funds Doe gave to Ewing. Her theory of the case is that
Ewing held traceable funds.
In summary, the Court finds Gonzales fact 6 undis-
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puted.
8. “Doe paid the legal fees for the Vaughan Retain-
er, because Debtor was a friend of Doe's; (Ex. 1, Affi-
davit of Doe, dated March 19, 2010).”
Doe's response agrees that he was a friend, but also
states that he has no memory of writing the check. Wag-
ner points to the Doe affidavit that states otherwise.
In summary, based on these responses and also oth-
er evidence in the record, the Court finds that Gonzales
fact 8 is disputed.
10. “Ewing and Curlett never met Doe, never spoke
to Doe or communicated with Doe in any manner what-
soever; (See Attached Ex. 2, Affidavit of Ewing, and
the Affidavit of Doe dated April 3, 2010 that is Ex. C to
Docket No. 7 in this proceeding).” Doe's response again
denies knowledge, so he is deemed to admit that fact 10
is *282 undisputed. Wagner agrees it is undisputed. 13.
“Doe filed an Amended Proof of Claim in this bank-
ruptcy case for money that Doe loaned to the Debtor in
the amount of $5,905,000 (POC No. XXXX).”
Doe admits that fact 13 is undisputed.
Wagner agrees that proofs of claim were filed, but
she further demonstrates that the details offered in sup-
port of the validity and amount of the claim show that
most of the credit was extended to VCR, not Douglas
Vaughan.
In summary, for what it is worth, the Court finds
fact 13 undisputed.
D. WAGNER'S PROPOSED UNDISPUTED MATER-
IAL FACTS (doc. 65)
1. “On February 22, 2010 (the ‘Petition Date’),
VCR filed a voluntary petition under Chapter 11 of the
Bankruptcy Code. See Wagner's Cross–Claims, ¶ 1.
Doe's Answer, ¶ 1.”
2. “Wagner is the duly appointed Chapter 11 Trust-
ee of the VCR's bankruptcy estate. See Wagner's
Cross–Claims, ¶ 2, Doe's Answer, ¶ 1; see also Certific-
ation of Commencement of Case and Appointment of
Chapter 11 Trustee (the ‘Certification’), attached hereto
as Exhibit 1, and incorporated herein by this reference.”
3. “Doe is an individual residing and doing business
in Bernalillo County, New Mexico. See Wagner's
Cross–Claims, ¶ 3, Doe's Answer, ¶ 1.”
4. “The Court has jurisdiction over this adversary
proceeding pursuant to 28 U.S.C. § 1334. See Wagner's
Cross–Claims, ¶ 5, Doe's Answer, ¶ 1.”
5. “Venue is proper in this Court. See Wagner's
Cross–Claims, ¶ 6, Doe's Answer, ¶ 1.”
6. “According to the books and records of VCR,
Doe regularly began investing in VCR's promissory
note program as early as 1996, periodically investing in
increments ranging from $60,000 to $500,000, usually
at a rate of 22%. Doe's notes generally amortized over a
period of 24 months. Doe also invested $1,000,000 in
September 2009; and VCR issued an interest-only note,
bearing interest at 20%, with a maturity date of Septem-
ber 2012. At times, Doe held multiple notes concur-
rently. See Affidavit of Judith A. Wagner, attached
hereto as Exhibit 2 (the ‘ Wagner Affidavit’), ¶ 10.”
Doe's response to Wagner proposed fact 6 is:
Doe is not in possession of VCR's books and there-
fore is not in a position to investigate Ms. Wagner's
allegation. Therefore, Mr. Doe disputes Wagner's
Fact 6.
Doe's Response, doc. 71, p. 3. This response is
totally inadequate to controvert the fact. The issue is not
whether Doe has this information; the issue is whether
Doe has any evidence that contradicts this statement.
The Court finds that Wagner fact 6 is undisputed. See
also discussion, supra, regarding Gonzales proposed
fact 6.
7. “Doe invested at least $6,170,000 in VCR's note
program from early 1996 to February 2010. During the
same period, Doe received payouts in excess of
$4,500,000.00. VCR books and records reflect pay-
ments to Doe in the four-year period prior to the Peti-
tion Date totaling $2,586,048.76. Wagner Affidavit, ¶
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10.”
Doe's response to fact 7 was the same as to fact 6,
i.e., lack of knowledge. Therefore, fact 7 is undisputed.
8. “On August 20, 2010, Doe filed his Amended
Proof of Claim, No. XXXXX, in the amount of
$5,605,000.00. See Claims Register in VCR case, No.
10–10759.”
*283 9. “On or about February 1, 2010, Doe wrote
a check to VCR in the amount of $300,000. See Wagn-
er's Cross–Claims, ¶ 10, Doe's Answer, ¶ 3.”
10. “The $300,000 check was written from Doe's
Bank of America account no. xxxxx5388 (‘Doe's BOA
Account’), on check no. 1107. See ¶ 13, Doe's
Cross–Claims, and Exhibit B, thereto.”
11. “The $300,000 was deposited into VCR's oper-
ating account at Charter Bank, account no. xxxx7516
(‘VCR's Operating Account’) and commingled with all
of VCR's monies. Wagner Affidavit, ¶¶ 6, 9, 10.”
Doe's response to fact 11 was the same as to facts 6
and 7, i.e., lack of knowledge. Therefore, fact 11 is un-
disputed.
12. “VCR recorded the $300,000 check from Doe
as a ‘loan’ in VCR's books. Wagner Affidavit, ¶ 10.”
Doe's response to fact 12 was the same as to facts 6,
7 and 11, i.e., lack of knowledge. Therefore, fact 12 is
undisputed.
13. “On or about February 3, 2010, VCR wrote
Check No. 107608 to Doe for $200,000. The $200,000
check was noted in VCR's books as a ‘repayment of
principal.’ See Wagner Affidavit, ¶ 10.”
Doe's response to fact 13 was the same as to facts 6,
7, 11 and 12, i.e., lack of knowledge. Therefore, fact 13
is undisputed.
14. “On February 5, 2010, Check No. 107608 was
negotiated, and the $200,000 was withdrawn from
VCR's Operating Account. Wagner Affidavit, ¶ 10.”
15. “On February 5, 2010, Check No 107608 was
deposited into Doe's BOA Account. See Exhibit C to
Wagner Affidavit.”
16. “The $200,000 transferred from VCR to Doe on
February 5, 2010 (the ‘Transfer’) was within 90 days of
the VCR Petition Date. See Exhibit 1 hereto
(Certification); see also Wagner Affidavit, ¶ 10 and Ex-
hibit B, C, and D to Wagner Affidavit.”
17. “The Transfer was made while VCR was in-
solvent. Wagner Affidavit, ¶ 11.”
18. “The Transfer was made by VCR on account of
one or more antecedent debts owed to Doe (individually
and collectively, the ‘Antecedent Debts'). Wagner Affi-
davit, ¶ 12.”
Doe disputes fact 18. The response states:
Disputed. Although the debtor owes Doe sums of
money, the $200,000 transfer was not related to an
antecedent debt. Mr. Vaughan has admitted that he
exchanged checks with Mr. Doe in order to procure a
check that he could send to Saul Ewing for legal fees.
See Exhibit B at 4:25–5:11, 5:22–6:1, and 6:16–23.
Despite the notation in VCR's books cited by Ms.
Wagner in her affidavit, Mr. Vaughan has contra-
dicted that notation, creating a question of fact. Id.
(Doc. 71, p. 4). “Exhibit B” is a partial transcript of
the Douglas F. Vaughn Section 341 Meeting of Credit-
ors on June 30, 2010. Portions of that transcript are as
follows:
3: 16 DOUGLAS F. VAUGHN [sic]
3: 17 after having been first duly sworn under oath,
3: 18 was questioned and testified as follows:
...
4: 16 BY MR. BAUMAN:
4: 17 Q. Mr. Vaugh[a]n, I represent John Doe.
4: 18 A. Uh-huh.
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4: 19 Q. I want to ask you about two checks that were
*284 4: 20 written by Mr. Doe. The first check was
for $200,000
4: 21 made out to Saul Ewing, LLC.
4: 22 A. Yes.
4: 23 Q. Do you recall that check?
4: 24 A. Yes.
4: 25 Q. Did you tell Mr. Doe to make the check out
5: 01 to Saul Ewing, LLC?
5: 02 A. Yes, I did.
5: 03 Q. And why did—why did you tell Mr. Doe to
5: 04 make that check out to Saul Ewing, LLC?
5: 05 A. I had anticipated legal fees and—and that
5: 06 he—the attorney in Baltimore suggested that.
5: 07 Q. Do you know why the attorney in Baltimore
5: 08 suggested that it be done that way?
5: 09 A. He assumed, as did local counsel, that in the
5: 10 event we declared bankruptcy, it would be, not
be clawed
5: 11 back.
5: 12 Q. And local counsel was—
5: 13 A. Shay Meagle.
5: 14 Q. There was a second check also for $200,000
5: 15 that had a—that was made out to The Vaugh[a]n
Company.
5: 16 In the memo section of the check, it says “Legal
Fees.”
5: 17 Do you recall receiving that check?
5: 18 A. The second, no, I don't.
5: 19 Q. Do you recall asking Mr. Doe for monies for
5: 20 legal fees other than the—
5: 21 A. Oh, I do remember.
5: 22 Initially, the check for—the first check
5: 23 for $200,000 for legal fees, I sent that to Saul
Ewing,
5: 24 and they told me it should be made out to Saul
Ewing, so
5: 25 I sent it back and then Saul made—
6: 01 Mr. Doe made a second check out.
6: 02 Q. Did you give the first check back to
6: 03 Mr. Doe?
6: 04 A. Yes.
6: 05 Q. You didn't deposit that check?
6: 06 A. No.
6: 07 Q. If that check shows that it was deposited, do
6: 08 you know why it was deposited?
6: 09 A. I'd be probably surprised if it was, yeah.
6: 10 Q. If it was—if it was deposited, would it
6: 11 have been deposited into the Vaugh[a]n Com-
pany—
6: 12 A. Yes.
6: 13 Q.—account?
6: 14 And then what would it have been used for?
6: 15 A. Operating expenses, I suppose.
6: 16 Oh, I believe I do remember that. I believe
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6: 17 at that time we gave him a check back for a
hundred
6: 18 thousand at that time.
6: 19 Q. You gave Mr. Doe a check back for
$100,000?
6: 20 A. I believe so, yeah.
6: 21 Q. So you received $200,000 and gave him a
6: 22 hundred back?
6: 23 A. Yes.
6: 24 Q. And did you explain to him what
happened—
*285 6: 25 A. Yes.
7: 01 Q.—to the other hundred?
7: 02 What did you explain to him?
7: 03 A. The first 100 we kept due to operating
7: 04 expenses. It was a slow time of the year.
7: 05 Q. Did you give him a promissory note or any-
thing
7: 06 like that for—
7: 07 A. I don't remember.
The Court has reviewed Exhibit B and cannot find
that anything in the transcript that contradicts Wagner's
assertion that the $200,000 transfer was on account of
an antecedent debt owed to Doe. Even if the transcript
showed that “Mr. Vaughan has admitted that he ex-
changed checks with Mr. Doe in order to procure a
check that he could send to Saul Ewing for legal fees”
that transcript does not dispute Wagner's facts 9 through
16 which the Court has found undisputed. All of the
transactions boil down to a simple fact that Doe wrote a
check to VCR for $300,000 and VCR subsequently paid
$200,000 to Doe in the preference period. To the extent
Vaughan's 341 testimony is at variance, the documents
are clear and his testimony does not raise a material fact
question in the Court's mind. If there were other trans-
actions with no net effect in the meantime, which seems
to be Mr. Doe's point, that is simply not relevant. Or,
perhaps Doe is asserting a subsequent new value de-
fense FN12 for the $200,000 he transferred to Ewing;
the problem with that, however, is that Vaughan is not
the same debtor as VCR. In summary, the Court finds
Fact 18 undisputed.
FN12. Section 547(c)(4) gives a creditor a de-
fense if it advanced new value to the debtor
after receiving a preferential payment. It
provides:
The trustee may not avoid under this section
a transfer—
(4) to or for the benefit of a creditor, to the
extent that, after such transfer, such creditor
gave new value to or for the benefit of the
debtor—
(A) not secured by an otherwise unavoidable
security interest; and
(B) on account of which new value the debt-
or did not make an otherwise unavoidable
transfer to or for the benefit of such creditor.
11 U.S.C. § 547(c)(4). After Doe received
the payment from VCR the only new value he
gave was to Vaughan, by sending funds to
Vaughan's attorney on behalf of Vaughan.
19. “The Transfer allowed Doe to receive more
than he would have received had this bankruptcy case at
all times been a case under Chapter 7 of the Bankruptcy
Code, the Transfer had not been made, and Doe had re-
ceived payment of the Antecedent Debt to the extent
provided under the Bankruptcy Code. Affidavit of
Linda Bloom ¶ 17 (the ‘Bloom Affidavit’), attached
hereto as Exhibit 3 and incorporated herein by this ref-
erence.”
Doe disputes fact 19. The response states:
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Disputed. Because the transaction was a contempor-
aneous exchange in the same dollar amount, Mr. Doe
did not actually receive any value from the debtor that
he would not have received had the transfer not been
made. Mr. Vaughan indicated that the exchange oc-
curred because Saul Ewing had advised him to pro-
cure a retainer check from Mr. Doe directly, rather
than running the funds through VCR's checking ac-
count. See Exhibit B. As the debtor stopped making
payments to the investors in the Note Program several
weeks before the Transfer, the Transfer's characteriz-
ation as a repayment of principal is highly suspect.
Mr. Doe would not have received the transfer if he
had not been exchanging checks for the identical
*286 amount with the debtor and, therefore, would
not have received more than he would have received
had the transfer not been made.
(Doc. 71, pp. 4–5). The first sentence of the re-
sponse does not cite to the record and therefore does not
create a fact question. And the sentence actually contra-
dicts the record. Wagner facts 9, 10 and 11 show that
Doe wrote a check on his Bank of America account
payable to VCR on February 1, 2010 in the amount of
$300,000 that was deposited in VCR's operating ac-
count. Then, Wagner facts 13, 14 and 15 show that on
February 3, 2010 VCR wrote a check to Doe for
$200,000 which was negotiated on February 5, 2010 by
deposit in Doe's Bank of America account. So, in fact
the exchanges were not contemporaneous and they were
in fact not for the same amount.
The second sentence, discussing Mr. Ewing's
wishes or instructions, is irrelevant to whether Doe re-
ceived more than he would have received in a chapter 7
liquidation. The third sentence, about VCR's failure to
make payments on notes has no support in the record
FN13 but even if it had, it is speculative and at most ar-
gument.
FN13. Doe could have cited to his “Doe's
Statement of Undisputed Material Facts” in his
response to Wagner's Motion for Summary
Judgment, doc. 71, p. 2. In her reply brief Wag-
ner addressed the proposed facts set forth by
Doe in his response and the Court agrees that
all of Doe's proposed facts are disputed. First,
Doe fact 1 claims that VCR stopped making
payments to investors in late 2009 and early
2010 and cites “Case 10–10763, doc. 184–1, ¶¶
37–38.” Doc. 184–1 is an unendorsed copy of a
lawsuit allegedly filed by the SEC against
Vaughan, VCR and another Vaughan entity. It
appears as an exhibit to a Motion to Dismiss or
Convert filed by the United States Trustee. It is
not a certified copy, there is no proof that the
complaint was even filed or ruled upon. The
complaint is simply a collection of allegations.
It is totally inadmissable for the truth of the
facts asserted therein.
Doe fact 2 attempts to authenticate Doe's
bank records and demonstrate that the pur-
pose of a specific check was intended to be a
retainer with Ewing through an affidavit ex-
ecuted by Doe's attorney's legal assistant.
Doc. 71, exhibit A, is the affidavit of Phil-
ippa F. Schwendimann that states that as part
of her duties for the law firm, she sent a re-
quest for documents to the Bank of America
and that they responded by producing affi-
davit exhibits A and B. She does not, as part
of her affidavit, state that the affidavit is
based on her personal knowledge. And, it ap-
pears that it is not. All she can testify to is
the fact that she sent “x” and received “y”. It
does not prove that “y” is true. Putting
hearsay into an affidavit does not make it ad-
missible for a summary judgment.
Similarly, fact 3 is supported by Schwendi-
mann's affidavit and is based on hearsay.
Fact 4 is supported by a citation to Vaughan's
341 meeting testimony where he states that
Ewing instructed him to do certain things.
The content of what was told to Vaughan is
hearsay for the truth of what Ewing asserted,
and inadmissible even though it was repeated
at a 341 meeting.
The statement that “Mr. Doe did not actually re-
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ceive any value from the debtor that he would not have
received had the transfer not been made” is puzzling on
its face. If the transfer had not been made of course he
would not have received the $200,000 on February 5,
2010. If a transfer is not made, by definition a recipient
receives nothing. But here, there was a transfer made by
VCR—the $200,000 check—which he received and de-
posited. In summary, the Court finds Fact 19 undis-
puted.
THE MERITS OF THE MOTIONS
A. Doe's MOTION FOR SUMMARY JUDGMENT
Most of Doe's proposed facts were not established
as undisputed. The ones that were are as follows:
1. Douglas Vaughan ran a Ponzi scheme involving
‘investors' all over the United States.
*287 3. During the period of May 2009 through
February, 2010 Mr. Vaughan borrowed funds from Mr.
Doe on a monthly basis in amounts totaling $3,650,000
from Doe in a series of eleven transactions. The amount
does not include two checks that were apparently inten-
ded to be for legal fees.
4. Mr. Doe paid $200,000 to Saul Ewing, LLC.
7. Saul Ewing has placed the remaining
$162,699.38 into the Court Registry with permission of
the Court and makes no claim to the remaining funds.
From these undisputed facts, Doe must show that
there is no genuine issue of material fact that the funds
on deposit with Ewing are in a constructive trust. This is
not possible with the current facts.
[1][2][3][4][5][6] The effect of imposing a con-
structive trust in a bankruptcy case is to remove the
trust property from the state and award it to the creditor/
beneficiaries at the expense of the other creditors. “The
party seeking imposition of a constructive trust bears
the burden of establishing the trust requirements.” Hill
v. Kinzler (In re Foster), 275 F.3d 924, 926 (10th
Cir.2001)(citing In re Seneca Oil, 906 F.2d 1445, 1449
(10th Cir.1990)). Under established Tenth Circuit law,
before undertaking the determination of whether assets
are subject to a constructive trust, the Court must con-
sider whether imposition of a constructive trust would
be equitable. Hill v. Kinzler, 275 F.3d at 927. To do
this, the Court must weigh the claims of the other cred-
itors before employing any equitable fictions. Id. at 928.
One factor is whether other similarly situated creditors
would be harmed. Id. See also Kalish v. The Landing
(In re The Landing), 160 B.R. 820, 824
(Bankr.E.D.Mo.1993):
The practical effect of a constructive trust in a
bankruptcy case is to elevate a plaintiff's claims
above the claims of all other creditors because assets
in a constructive trust are not part of the bankruptcy
estate. See In re Kennedy & Cohen, 612 F.2d [963] at
965 [ (5th Cir.1980) ]. In the matter being considered
here, if such a trust were imposed, the Plaintiffs
would receive value before any other creditors of the
Chapter 11 estate. The Plaintiffs would also receive a
return of their investment in Option I (a separate debt-
or) ahead of all other creditors in that separate
Chapter 7 liquidation proceeding. These results would
disrupt the orderly system of distribution of assets es-
tablished in the Code. The congressionally mandated
scheme of priorities is to be respected and enforced
by the Bankruptcy Courts.
Even assuming that Doe would be successful in
proving that Mr. Vaughan exerted undue influence over
him and tricked him, through duress or otherwise, to
write checks to VCR and Ewing, he would have a tort
claim, maybe a contract claim, maybe a claim for
breach of duty of some relationship, or maybe even
some right to equitable relief. Wagner's affidavit, doc.
65–2, p. 8, estimates VCR claims, the vast majority of
which are “Ponzi scheme” claims, as between $60 mil-
lion and $75 million. Each of these creditors can allege
they were defrauded also. On the current record, there is
no valid reason to elevate Doe's claim above others sim-
ilarly situated.
Therefore, the Court finds that Doe has not shown
that there is no genuine issue of material fact concern-
ing his ownership or entitlement to the funds on deposit.
Doe's Motion for Summary Judgment must be denied.
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B. GONZALES' MOTION FOR SUMMARY JUDG-
MENT
Most of Gonzales' proposed facts were not estab-
lished as undisputed. The ones that were are:
*288 6. On or about February 3, 2010, VCR wrote
a check to Doe for $200,000 in partial repayment of the
funds loaned on February 1, 2010 from Doe to VCR
(“Vaughan Company, Realtors”). The $200,000 check
was noted in VCR's books as a “repayment of princip-
al.”
10. Ewing and Curlett never met Doe, never spoke
to Doe or communicated with Doe in any manner what-
soever.
13. Doe filed an Amended Proof of Claim in this
bankruptcy case for money that Doe loaned to the Debt-
or in the amount of $5,905,000 (POC No. 258–2).
From these undisputed facts, Gonzales must show
that there is no genuine issue of material fact that, 1) as
to Doe, a) it would not be equitable for him to assert a
constructive trust over the $162,000 because he is no
differently situated than other creditors, and b) the
funds were under such dominion and control of
Vaughan that they can be ruled to be in the estate as a
matter of law; and 2) as to Wagner, a) that she lacks
standing to pursue her claim against Doe in this bank-
ruptcy case, and b) the funds are not property of the
VCR estate.
[7] As to Doe, Gonzales has established that the
law is that a creditor generally cannot elevate his claim
over others if they are similarly situated. Consequently,
on the current record Mr. Doe's motion for summary
judgment is being denied. Of course, this current ruling
does not preclude him from rearguing the position at tri-
al or presenting additional evidence that would demon-
strate that he is not, in fact, similarly situated. Gonzales'
second argument that the funds were under Vaughan's
dominion and control is simply not yet supported by the
record. The record fails to show what control Vaughan
had over the funds and what was to become of the funds
in the event Ewing did not apply them all to attorney
fees. There is no evidence of either Vaughan's or
Ewing's understanding regarding the funds or the cir-
cumstances under which they were deposited. And, as
far as the Court can determine there is no easy answer
“as a matter of law” what becomes of unapplied trust
funds supplied by a third party. There is not enough to
grant any relief, so the Gonzales Motion as to Doe will
be denied.
[8][9] As to Wagner, the Court finds that Wagner
does have standing to assert a claim to the funds. This
does not suggest that the Court anticipates she will pre-
vail on her claim, but she does have sufficient standing
to argue it. Wagner's claim essentially must be either
that the Ewing funds are in a constructive trust for the
VCR estate, or that somehow Ewing is a recipient of a
transfer and should also be liable with Doe. As noted
above, to prove a constructive trust she would need to
establish that the equities allowed the VCR estate to
prevail over the Vaughan unsecured creditors, which
was not addressed in the motion by anyone, and she
would have to trace the funds from VCR, through Doe,
and into Ewing. The simple fact that VCR wrote a
check to Doe and he subsequently wrote a check to
Ewing does not satisfy the tracing requirement. Wagner
has alleged that the same funds passed from VCR
through to Ewing but has not established it at this point.
To the extent that Gonzales is arguing lack of jurisdic-
tion, the Court finds it has jurisdiction in the Vaughan
bankruptcy to adjudicate the Wagner cross-claim
against Doe. See Fed.R.Civ.P. 13(g) (authorizing cross-
claims against a co-party if the claim relates to any
property that is the subject matter of the original ac-
tion). Additionally, the Court has independent subject
matter jurisdiction over both the parties and the subject
matter.
*289 As to the second theory, it seems that once
Doe had dominion and control of the $200,000 he was
free to do as he pleased, including investing in lottery
tickets or uranium stocks FN14. Gonzales' second argu-
ment as to Wagner is essentially the same as the first. If
Wagner can trace the funds, they may be VCR estate
property. If she cannot, the funds are not. The Gonzales
Motion as to Wagner will be denied.
FN14. See Danning v. Miller (In re Bullion Re-
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serve of North America), 922 F.2d 544, 549
(9th Cir.1991)(“To paraphrase Judge Easter-
brook, an entity does not have ‘dominion over
the money’ until it is, in essence, ‘free to invest
the whole [amount] in lottery tickets or urani-
um stocks.’ ”) (citing Bonded Fin. Servs. v.
European Am. Bank, 838 F.2d 890, 895 (7th
Cir.1988)).
C. WAGNER'S MOTION FOR SUMMARY JUDG-
MENT
Wagner established that the following facts were
undisputed:
1. On February 22, 2010 (the ‘Petition Date’), VCR
filed a voluntary petition under Chapter 11 of the Bank-
ruptcy Code.
2. Wagner is the duly appointed Chapter 11 Trustee
of the VCR's bankruptcy estate.
3. Doe is an individual residing and doing business
in Bernalillo County, New Mexico.
4. The Court has jurisdiction over this adversary
proceeding pursuant to 28 U.S.C. § 1334
5. Venue is proper in this Court.
6. According to the books and records of VCR, Doe
regularly began investing in VCR's promissory note
program as early as 1996, periodically investing in in-
crements ranging from $60,000 to $500,000, usually at
a rate of 22%. Doe's notes generally amortized over a
period of 24 months. Doe also invested $1,000,000 in
September 2009; and VCR issued an interest-only note
for the $1,000,000, bearing interest at 20%, with a ma-
turity date of September 2012. At times, Doe held mul-
tiple notes concurrently.
7. Doe invested at least $6,170,000 in VCR's note
program from early 1996 to February 2010. During the
same period, Doe received payouts in excess of
$4,500,000.00. VCR books and records reflect pay-
ments to Doe in the four-year period prior to the Peti-
tion Date totaling $2,586,048.76.
8. On August 20, 2010, Doe filed his Amended
Proof of Claim, No. XXXXX, in the amount of
$5,605,000.00.
9. On or about February 1, 2010, Doe wrote a check
to VCR in the amount of $300,000.
10. The $300,000 check was written from Doe's
Bank of America account no. xxxxx5388 (‘Doe's BOA
Account’), by check no. 1107.
11. The $300,000 was deposited into VCR's operat-
ing account at Charter Bank, account no. xxxx7516
(‘VCR's Operating Account’) and commingled with all
of VCR's monies.
12. VCR recorded the $300,000 check from Doe as
a ‘loan’ in VCR's books.
13. On or about February 3, 2010, VCR wrote
Check No. 107608 to Doe for $200,000. The $200,000
check was noted in VCR's books as a ‘repayment of
principal.’
15. On February 5, 2010, Check No 107608 was
deposited into Doe's BOA Account.
16. The $200,000 transferred from VCR to Doe on
February 5, 2010 (the *290 “Transfer”) was within 90
days of the VCR Petition Date.
17. The Transfer was made while VCR was insolv-
ent.
18. The Transfer was made by VCR on account of
one or more antecedent debts owed to Doe (individually
and collectively, the “Antecedent Debts”).
19. The Transfer allowed Doe to receive more than
he would have received had this bankruptcy case at all
times been a case under Chapter 7 of the Bankruptcy
Code, the Transfer had not been made, and Doe had re-
ceived payment of the Antecedent Debt to the extent
provided under the Bankruptcy Code.
In this adversary proceeding Wagner seeks to avoid
a preferential transfer under Bankruptcy Code section
547. The United States Supreme Court discussed the
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policies underlying that section in Union Bank v. Wolas
(In re ZZZZ Best Co., Inc.), 502 U.S. 151, 112 S.Ct.
527, 116 L.Ed.2d 514 (1991).
The Bank and the trustee agree that § 547 is inten-
ded to serve two basic policies that are fairly de-
scribed in the House Committee Report. The Commit-
tee explained:
“A preference is a transfer that enables a creditor to
receive payment of a greater percentage of his
claim against the debtor than he would have re-
ceived if the transfer had not been made and he had
participated in the distribution of the assets of the
bankrupt estate. The purpose of the preference sec-
tion is two-fold. First, by permitting the trustee to
avoid prebankruptcy transfers that occur within a
short period before bankruptcy, creditors are dis-
couraged from racing to the courthouse to dismem-
ber the debtor during his slide into bankruptcy. The
protection thus afforded the debtor often enables
him to work his way out of a difficult financial situ-
ation through cooperation with all of his creditors.
Second, and more important, the preference provi-
sions facilitate the prime bankruptcy policy of
equality of distribution among creditors of the debt-
or. Any creditor that received a greater payment
than others of his class is required to disgorge so
that all may share equally. The operation of the
preference section to deter ‘the race of diligence’ of
creditors to dismember the debtor before bank-
ruptcy furthers the second goal of the preference
section—that of equality of distribution.” [H.R.Rep.
No. 95–595], at 177–178 [ (1977) ], U.S.Code
Cong. & Admin. News 1978, pp. 6137, 6138.
Id. at 160–61, 112 S.Ct. 527.
Before addressing the merits of Wagner's prefer-
ence claim, the Court will examine Doe's affirmative
defenses to determine if any of them preclude proof of
any required element FN15.
FN15. But, even before addressing the indi-
vidual affirmative defenses, the Court wants to
clarify a misunderstanding that pervades pref-
erence cases. In many cases, courts state that
there are no defenses to a preference action ex-
cept those specifically listed in sub-section (c).
See, e.g. Gonzales v. Food Marketing Group
(In re Furr's Supermarkets, Inc.), 320 B.R. 1, 6
(Bankr.D.N.M.2004) (“[Section] 547(c) is the
exclusive list of defenses available to preferen-
tial transfers.”) This statement does not mean
that a defendant cannot challenge the elements
that a trustee must prove to establish a prefer-
ence. See 11 U.S.C. § 547(b). In other words, a
defendant is free to allege and attempt to prove
that the transfer was not made with debtor's
property, that it was not a creditor, that there
was no antecedent debt, that the payment was
outside of the preference period, that the debtor
was solvent, or that receipt of the payment did
not improve its position. See, e.g. Sloan v.
Zions First Nat'l Bank (In re Castletons, Inc.),
990 F.2d 551, 555 (10th Cir.1993) (Trustee's
avoidance claim rejected because “she did not
satisfy her burden of proof under § 547(b)(5)”.)
Rather, the statement necessarily means that,
once the elements of section 547(b) are proved
and the preference established, the only re-
maining defenses to the trustee's recovery of
that preference are those set forth in section
547(c). Rushton v. E & S Inter. Enter., Inc. (In
re Eleva, Inc.), 235 B.R. 486, 488 (10th Cir.
BAP 1999)(“Once a trustee has established that
a transfer is a preference, a creditor may assert
a defense as provided in 11 U.S.C. § 547(c).”)
*291 Doe asserted the following affirmative de-
fenses against both the Gonzales claim and the Wagner
claim: failure to state a claim, the funds are not property
of the estate, the estate lacks title, the transfer was in
good faith without knowledge of the bankruptcy, he
lacks capacity, and he was subject to undue influence
and duress. In this portion of the Memorandum, we are
dealing with the Wagner cross-claim. The defense of
failure to state a claim will be dealt with below.
[10][11][12] As to “the funds are not property of
the estate”, we are dealing with a claim that a payment
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by VCR to Doe before VCR's bankruptcy was a prefer-
ence. It is undisputed that Doe wrote a check to VCR
for $300,000. There were no restrictions imposed on
that $300,000 and VCR was free to do with it as it
chose. The Tenth Circuit follows the “dominion and
control” test. Bailey v. Big Sky Motors, Ltd. (In re Og-
den), 314 F.3d 1190, 1202 (10th Cir.2002). “Dominion”
over money is the right to put the money to one's own
purpose. Id. (Citation omitted). There is really no argu-
ment that the $300,000 did not become property of
VCR. It was deposited in its general account and co-
mingled. Several days later VCR wrote a check to Doe
for $200,000. He deposited it.
The Bankruptcy Code does not define “property of
the debtor.” Because the purpose of the avoidance
provision is to preserve the property includable within
the bankruptcy estate-the property available for distri-
bution to creditors—“property of the debtor” subject
to the preferential transfer provision is best under-
stood as that property that would have been part of
the estate had it not been transferred before the com-
mencement of bankruptcy proceedings.
Begier v. Internal Revenue Service, 496 U.S. 53,
58, 110 S.Ct. 2258, 110 L.Ed.2d 46 (1990). If VCR had
not written the check for $200,000 to Doe it would have
been part of the estate. The payment was from property
of the debtor. To the extent Doe may be arguing that
VCR never had an interest in the $300,000, that argu-
ment is also not well taken. Under Ogden, a debtor ob-
tains rights even if the property is obtained by fraud,
Ogden, 314 F.3d at 1198, or borrowed. Id. at 1199.
And, a repayment of a fraudulent debt to the victim is
made with the debtor's funds and can be a preference.
Id. at 1201 n. 7.
As to “the estate lacks title [to the $162,000]”, this
affirmative defense is more properly directed to the
Gonzales claim. It is meaningless in this context.
[13] As to “the transfer was in good faith without
knowledge of the bankruptcy”, it is unclear which
“transfer” Doe refers. First, there was his transfer of
$300,000 to VCR. Second, VCR transferred $200,000
back to Doe. Finally, and irrelevant to Wagner's claim
for a preference, Doe transferred $200,000 to Ewing or
to Ewing as agent for Vaughan. The lack of clarity is ir-
relevant, however, because all three transfers were be-
fore there was a bankruptcy about which knowledge
could be had. Furthermore, the good faith *292 of a
preference recipient is totally irrelevant.
“[A] creditor's state of mind has nothing whatsoever
to do with the policy of equality of distribution, and
whether or not he knows of the debtor's insolvency
does little to comfort creditors similarly situated who
will receive that much less from the debtor's estate as
a result of the prebankruptcy transfer to the preferred
creditor.” H.R.Rep. No. 95–595, 95th Cong., 1st Sess.
178 (1977), 1978 U.S.C.C.A.N. 5787, 5963, 6139.
Clark v. Balcor Real Estate Finance, Inc. (In re
Meridith Hoffman Partners), 12 F.3d 1549, 1557 (10th
Cir.), cert. denied, 512 U.S. 1206, 114 S.Ct. 2677, 129
L.Ed.2d 812 (1994). See also Meoli v. Huntington Nat'l
Bank (In re Teleservices Group, Inc.), 444 B.R. 767,
807 (Bankr.W.D.Mich.2011):
[N]o moral agenda drives the rationale for recovering
a preference. Rather, the requirements for recovery
simply reflect whatever else Congress intended to ac-
complish through Section 547's enactment.
It should come as no surprise, then, that the Section
547(c) defenses give scant attention to the recipient's
good faith. After all, the underlying purpose of a pref-
erential recovery is to ensure a more equitable distri-
bution. Consequently, preference law is indifferent to
whether the recipient of the preference was aware or
not of the inequity created when the preference was
made.
(Footnote omitted.) And see Ogden, 314 F.3d at
1201 (It is generally the effect of the transaction, rather
than the debtor or creditor's intent, that is controlling.);
Gill v. Winn (In re Perma Pacific Properties), 983 F.2d
964, 968 (1992)(Neither the debtor's nor the creditor's
intent or state of mind is dispositive of whether or not a
transfer is a preference.) (Citation omitted.)
[14][15][16] As to Doe's defense that he lacks capa-
city, and he was subject to undue influence and duress,
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any exception to preference liability depends on the
nature of the transfer, not the identity of the creditor.
Meridith Hoffman, 12 F.3d at 1555. Doe's mental status
is also not really pertinent because the focus is the ef-
fect on the other creditors of a transfer by VCR to Doe.
In his reply brief, Doe for the first time claims that the
payment he received was not on account of an ante-
cedent debt and also that the exchange was contempor-
aneous. Neither argument is valid. First, while his
proofs of claim shows that he was an antecedent
“creditor,” as does his Material Fact 3, he argues that
the $200,000 he cashed on February 5, 2010 was not
“on account” of those debts. He does not suggest,
however, what the $200,000 was “on account of” if not
a debt; surely he is not claiming that VCR gifted him
$200,000. He only argues that it was a contemporan-
eous exchange. What was contemporaneous, however,
was his receipt from VCR of $200,000 and his payment
the same day of $200,000 to Ewing as agent for
Vaughan. This is not contemporaneous because there
are different entities. These defenses are not well taken.
[17] Finally, the final issue is whether Wagner has
stated a claim.
To establish a voidable preference the Trustee must
prove all five elements of § 547(b). They are: any
transfer of property of the debtor—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by
the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
*293 (A) on or within 90 days before the date of the
filing of the petition; ...
(5) that enables such creditor to receive more than
such creditor would receive if—
(A) the case were a case under Chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to
the extent provided by the provisions of this title.
Eckles v. Pan American Marketing (In re Balducci Oil
Co.), 33 B.R. 843, 845 (Bankr.D.Colo.1983). There are
actually six elements, the five numbered elements plus
proof that the transfer was of property of the estate.
Wagner has established all elements:
Element Proof
Property of the debtor. Wagner fact 13—the funds came from VCR's checking ac-
count.
1) to or for the benefit of Doe. Wagner facts 13–15.
2) on account of antecedent debt. Wagner fact 18; Doe fact 3; Doe's two proofs of claim; dis-
cussion on page 54.
3) made when debtor was insolvent. Wagner fact 17.
4) made within 90 days of filing. Wagner fact 16.
5) enables Doe to receive more than in liquidation
(“Chapter 7 test”).
Doe fact 19.
Therefore, Wagner is entitled to a judgment on her
cross-claim against Doe, and a separate judgment will
enter awarding her $200,000 plus pre-judgment interest
from the filing of the cross-claim and post-judgment in-
terest from the date of entry of the judgment.
CONCLUSION
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471 B.R. 263
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For the reasons set forth above, the Court finds that
Doe's Motion for Summary Judgment against both
Wagner and Gonzales (doc. 41) is not well taken and
will be denied. The Court also finds that Gonzales' Mo-
tion for Summary Judgment against both Doe and Wag-
ner (doc. 47) is not well taken and will be denied. The
Court also finds that Wagner's Motion for Summary
Judgment against Doe is well taken and a Judgment in
conformity with this Opinion will be entered separately.
Bkrtcy.D.N.M.,2012.
In re Vaughan
471 B.R. 263
END OF DOCUMENT
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471 B.R. 263
(Cite as: 471 B.R. 263)
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