Gonzales et al v. Turner et al

OCR transcription for search; preserved printed pages are authoritative

UNITED STATES BANKRUPTCY COURT
FOR THE GISTRICT OF NEW MEATCO

In) ee!
DOUGLAS F. VAUGHAN,
Debtor. Wo. 7-1LO-LGT63 SA
YVETTE GONZALES, Trustee,
Plaintiff,
v Aoyv., Mo. 106-1107 &

SAUL EWING, LLB,

RORERT L, TURNER, @nd

JUDITH &- WAGNER, Chapter

ll Trustee of the bankruptcy estate

of the Vaughan Company, Reaitors,
Defendants.

ROBERT L. TURNER,
Counter-Plaintiif,

.

YVETTE CONZALES, Trustee,

founter-Lefendant.
THIS DOCUMENT IS SEALED

ROBERT L. TURNER,

Crosa-Piaintitt,
Ws.
JUDITH A. WAGNER, Chapler
ll Teugtee of the bankruptcy estete
of the Vaughan Company, Reaiftors, end
SAUL EWING, LLP,

Crass Defendants.

JUDITH A. WAGNER, Chapter

il Trustee of the bankruptcy estate

of the Vaughan Company, Realtors,
Cross-Plaintif£,

Ve

ROBERT L, TURNER, and

SAUL EWING, LLP,
Cress-Defendante.

MEMORANDUM OPINION ON MOTIONS
FOR SUMMARY JUDGMENT

This matter is before the Court on competing Motions for

Summary dudement te determine ownership of funds now on deposit

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AUTHENTICAT

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GPO

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO

In re:
DOUGLAS &. VAUGHBN,
Debter. Wo. T-LO-LO?63 SA
YETTE GOWEZALES, Trustee,
Plaintiff,
y Ady, Ne. 19-1107 6

aBUL BWING, LLF,

ROBERT L. TURNER, and

JUDITH A. WAGNER, Chapter

Li Trustee of the bankruptcy estate

of the Vaughan Company, Realtors,
Defendants.

ROBERT L. TURNER,
Counter-Plaintift,

vv.

YVETTE GONZALES, Trustee,

Counter-Defencant.
THIS DOCUMENT IS SEALED

Cross-Plaintiff,
vv.
JUDITH A. WAGNER, Chapter
11 Trustee of the bankruptcy astate
of the Vaughan Company, Realtors, and
SAUL EWING, LLP,

Crogss-Defendanta,

JODHA. WAGNER, Chapter

11 Trustee of the bankruptcy estate

of the Vaughan Company, Realtors,
Cross-Plaintilt,

Wa

ROBERT L. TURNER, and

SRUL EWING, LLP,
croass-Defendants.

This matter is before the Ceurt on comparing Motions for
Summary Judgment to determane ownership of funds now on deposit

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in the Court Registry. This adversary proceeding started with
rryugtee Gonzeles (“Gonzales”) filing suit against attorney Saul
Ewing, LLP (“Ewing”) and Robert L. Turner ("Turner") for a
turnover of funds on deposit in Saul #wing, LLP’ s attorney trust
account held on behalf of Douglas Vaughan {the Debtor in this
bankruprey). The svit named Turnex as the alleged source of the
funds. Trustee Wagner (“Wagner"}, Chapter 11 trustee of “The
Vaughan Company, Realtors” case, also claiming the funds, adught
toe intervene, but was then named as @ defendant in Trustee
Gonzales’ First Amended Complaint? (“Complaint”) (dec 4). Ewing
participated by answering the complaint and cross-claims filed
againgt it, and then was allowed to interplead the $142,680.70
held in trust. It was then dismissed as to claims against that
amount by all other parties. (Doe 27; Receipt of Registry Funds
o/28/10). Therefore, the Court wiil drop ali further reterentes
to Ewing and its pleadings.

The active pleadings are therefore: Gonzales Pirat Amended

Complaint (dec 4)*, which was answered by Wagner (dec 11) and

gurulalis" Te]

ithe Court has subject matter and personal juxisdiction
pursuant to 28 U.S... §$1334 and 157(5); this is & core
proceeding pursuant to 0 U.S.C. $157 (bi (2) (A) and ([E}: and these
axe findings of fact and conclusions of law as may be required by
Rule 7052 F.R.8.P.

2The Complaint seeks turnover of the trust funds held by
Ewing, g@laimang thal they are property of the Vaughan Chapter 7
estate. Tt names Wagnex and Turner because they beth assert
claims to the funds. It also seexs 8 declarahion that neither
foontinued.. .]

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Torner (doc 19}; Wagner's Crogs-Cilaim against Turner’ {doe 11)

ang Turner’s answer (dec 13); Turner's Amended Cross-Claim

against Wagner and Crese-[sicy should be Counter] Claim against

@e_.. dantinued}

Wagner or Turner have any claims to the funds.

wacnex's Cross-claim against Turner alleges that he
received a preferential transier from VCR and seeks to avoid it

and recover it for the VCR estate.

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Gonzalast [doc 19} and Wagner's answer (doc 30}. The Covnter-
Claim against Gonzales remains unanswered.

Before the final pretrial conference Turner filed a Motion
for Summary Judgment against Gonzales and Wagner [doc 41}. At
the pretrial conference the warties all agreed that this matter

could be disposed of through motions fon summary judgment. This

matter is before the Court on 1) Turner's Motion for Summary

Count 2 adds little new material, but several legal
conclusions: e.g., ownership of the funds in Ewing’s trust
account were never transferred to Mr. Vaughan; Wagner and
Gonzales are not entitied to the unearned attorney fees; and Mr.
Purner ig entatled to a return 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 construetive trust on property that would
atherwise be property of either the Vaughan or VCR estate.

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Judgment? (dec 41) and the response by Wagner (dos 45) and
Turner's reply (doc 54, errata dec 56) and the response by
Genzales {doc 47) and Turner’s reply (dac 38); 2) Gonzales’
Motion for Summary Judgment® tdea 47) and the response by Turner
fdec 58) and the response hy Wagner fdoo 61); Gonzales did net
reply to either response; anc 3} Wagner's Motion fer Summary

Judgment against Turnex’ (doc 67, with brief doc 65 and

fGonzeles hag two theories fox her summary judgment motion

against: Turner: 1) Since Turner is, in xceality, asserting a
_ epnstxuctive trust that Court should review Che case arid

determine that a constructive trust is improper in “Pongi scheme”
eases because all creditors are similarly situated; and 2) under
the dominion and control test applied by the Tenth Circuit, the
Funes in the trust account are estate property. she also has twa
theories for her summary judgment motion against Wagner: aj
Wagner Lacks standing to pursue 4 preference action against
furner in an adversary that relates to the Vaughan personal
bankruptey; and 2} the funds in the Ewing trust are not property
ef the VCR estate.

Waqner’s Motion for Summary Tudgment argues €wo points: J}
the undisputed facts in the recoxd establish a prima facie case
against Turner for a recovery and avoidance of a preferential
transfert, and 2) the ten affirmative defenses asserted by Turner

are meritless.

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supplement to brief dec 69), Turner's response (coc 71) and
Waqner’s Reply {dec Tai.

SUMMARY JUDGMENT

In adversary proceadings Summary Judgment is governed by
ved. R.Bankr.P. 7O86, which incorporates Fed.R.Civ.P. 56, which in
turn provides, in zselevant part:

Rule 56. Summary Judgment
{a} Motion for Summary Judgment or Partial Summary
Sudgment. A party may move for summary judgment.
identifying each claim or detense-—or the part of each
elaim or defense--on Which summary judgment is seognt.
The court shall grant summary judgment if the movant
shows that there ia ne genuine dispute as te any
material fant and the movant is entitled ta judgment as
a matter of law. The court should atate on the recerd
the reasons for granting or denying the motion.
{by ...
{oc} Procedures.
(lL) Supporting Factual Fositions. A party asserting
that a fact cannot be or is genuinely disputed must .
support the assextion by:
{n) citing ko particular parte of materials in the
record, including depositions, documents,
electronically stored information, aftidavits or
declarations, stipulations fineduding these made
for puxposes of the motion only}, admissions,
intercogatory answers, or other materials; or
{B) showing that the materials cited de not
establian the ebsence or presence of a genuing
dispute, o¢ that an adverse party gannel produce
admissible evidence to support the fact .
(2) Objection That a Fact Ts Not Supported by
Zdmisaible Evidence. A party may obiect that the
material cited to support ox dispute a fact cannot be
presented 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 ether
materdals in the record.
(4) Affidavits on Declarations. An affidavit or
declaration used to support or oppose 4 motion mist be

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madé on pecsonal knowledge, set cut facts that would be
aemissible in evidence, and show that the affiant or
dlaclarant is competent to testify on the matters
stated.

{fd}...

(4) Failing to Properly Support or Address & Fact. If
a party fails to properly support an assertion of fact
ox fails to properly addrese another party's assertion
of fact as required by Rule 56(c}, the court may:

{l) give an opportunity to properly support of address
the fact;

(2) consider the fact undisputed for purposes of the
moLion;

(3) grant summary judgment if the motion and supporting
materials—--including the facts considered
undisputed--show that the movant is entitled to it; or
f4) issue any other appropriate order.

fF)...

(¢) Failing to Grant ALL the Requested Relief, If the
eourt does not grant all the relief requested by the
motion, it may enter an order stating any material
fact--inclucing an item of damages or other
relief--that is net genuinely in dispute and treating
the fact as established in the case.

Fed.B.Civ.F. 56. Additionally, New Mexico Local Rule 7056-1
regulates the required procedure:
SUMMARY JUDGMENT

{a} Memoranda. The movant shali file with the metion
a memorandum containing a concise statement in support
of the motion with a jist of authorities. A motion for
summaxcy judgment filed without 4 memorandum may be
summarily denied. & party opposing the motion shall,
within #1 days after service of the motion, file a
memorandum containing a concise statement in opposition
te the motion with a list of suthorities. Tf ne”
response is filed, the cavrt may grant the motien, The
movant may, within 14 days after the service of a
response, file a reply memorandum.

(tb) Undisputed Facts. The memorandum in support of
the motion shail set cut as its opening a concise

statement. of all of the material fects as to which
Movant contends no genuine issue exists. The facts

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shall be numbered and shall reter with particulerity to
thase portions of the record upon which movant relies.

(c} Dasputed Pacts. Ro memorendum in opposition te the

motien shall contain a conelse statement of the
material facts as to which the party contends a genuine
issue does exist. Each Tact in dispute shall be
numbered, shné#ll refer with particularity te those
portions cf the record upon which the opposing party
relies, and shall state the number of the movant'’s fact
that ig disputed. All materiel facts set forth in
movant's statement that are properly supported shall be
deemed admitted unless specifically controverted,

WM LER 7056-1.

The version of Rule 56 quoted ehove becare effective on

December 1, 2010.

See Fad. R. Civ. P. 56 (2019 Advisory

foammittee comments} .

Tn some respects, the 2010 amendment to Rule 56 works &

sea chenge in

summary judgment procedure and introduces

flexibility (and consequent uncertainty) in place of
the brightcline rules that obtained previously. Former
Rule Sale) contained an unequivecal direction that
decuments presented an connection with &@ summary
judgment motion must be authenticated:
Tf a paper or part of & paper is yeferred te am an
affidavit, a sworn or certified copy must be

attached

to or served with the affidavit.

Ped. R. Civ. FP. Betei fl} (2009 yersioni. Relying on

this language,

the United States Court of Appeals for

the Sixth Circuit routinely heid that unauthenticated
documents could net be used to aupport a motion for
summary judgment. See, 8.o., Moore y._Hoelbroak, 2 F.4a
697, 698-99 (6th Ciz. 1992). As recently as 2009, the
Court of Appeals stated that unauthenticated documents
aoa not ment the requirements of Bule Séle) and must be

disregarded.

Alevander ve. Garesource, 576 F.3d 551,

558-59 féth cir. 2009).

Foreword Majzzin¢e,

Tne. vv. Overerive. ine. 2023 WL 5169384 at

*1-2 (W.D. Mich, 2911). Virtually all other courts agreed. See,

e.g:

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Although affidavits are net strictly required by Rule
56 or gase lew, in practice they are Wsually necessary
to obtain summary judgment.... [I]t makes sense to
distinguish between affidavits that primarily give
testimony and affidavita that are used primarily to
introduce documents soa 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
summaxcy judgment may nenetheless need toe use an
affidavit to place these materials before the court and
into the: official record. ...

Tn order for documents net yet part of the court record
eo be considered by a court in support of or in
apposition te a summary judgment mohion they must meet
a two-prong test: (1) Che document must be attached to
and authenticated by an affidavat which conforms to
Rule 56fe}; and (2) the affiant must be a competent
witness through whom the dacument can he received inte
evidence.

Documentary evidence for which a proper foundation
hes not been laid cannot support a Summary judgment
metion, even if the documents in question are highly
probative of a central and essentisl igsue in the case.

Harris v. Beneficial Oklahoma, inc. In £e Earceisi, #09 B.R. $40,

$95-96 (10% Cir, BAP 1997) (footnotes omitted.) See also Gaited

States v. Dibble, 429 F.2d 598, 6O2 (¢9°* Cir. 1979)

(Unauthenticated summary judgment exhibits are inadmissible

hearsay.); White wv. Welis Fagso 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. 56.5; Canada y, Blain’ s

Helicosters, Inc., 431 F.2d 320, a75 (9th Cir. 1987):

Tt is well settled that. unauthenticated cdecumants
fannet be considered on a motion for summary Judgment.
Tn order to be considered by the court, “documents must
be authenticated oy and attached to an affidavit. that
meets the requirements of IFed.R.Civ.P.] 56(e) and the
affiant mist be a pexson threugh whom the exhibits
could be admitted inte evidence.” 109A C. Wright, &.

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Miller @ M. Kane, Federal Practice and Procedure § 2722
at S8-60 {2d ed. 1983) (footnotes omitted). This court
has consistently held that documents which have not had
a proper foundation laid te authenticate them cannot
support a mofion for summary judgment. Hamilton vw.
Kavetone Tankshin Corm,., 539 F.2d 684, §46 (3th Car.
1976); United States vw. dibbie, 429 F.2d 598, 601-02
{9th Cir. 197O).

gee also Mooney vw. Monumental Life Ins. Co., 123 F.Supp.2d 1008,

1010 (B.D. La. 2000) (Checks submitted as exhibits were not
properly before the court because they were net attached to end
authenticated by an affidavit conforming to Rule 56fe)];

Ttrhvestors Gredit Cari ws Beatie ‘to re Batiei, 9945 F.2d a5, 89

(6th Cir. 1993) (Upon a party's objection, decumentes Filed in

support of or in opposition fo a totion may not be considered by
the court unless they nave entered “the yvecord 46 attachments toa
an appropriate affidavit” and “would be admissible in evidence.”)

These authorities must be read carefully, however,
in Light of the 2010 amendments to Rule 36, which
eliminated the unequivocal requirement that documents
submitted in support of a summacy judgment metian must
be authenticated. Rather, the amended Rule allows a
panty making or opposing @ Summary judgment metian te
cite to materials im the record including, among other
things, “depositions, documents, electronically stered
information, affidavits or declarations” and the like.
Fed. BR. Civ. BF. 56fc) (1)(A). Tf the opposing Party
pelieves that such materials “cannot be presented in a
form that would be admissible in evidence,” that party
must file an objection. Fed. R. Civ. P. S6(c) (4). (As
a tesult of the 2010 amendments, mations to strike are
no lenger appropriate. See Reed vw. Bugtal U8 .A...
t.i.¢., No 08-155, 2031 WI, 9435562 at 45 on, @ (8.0.
Bla. Sapt. 23, 2011}. such motions should be construed
as objections under Rule $6(e) (2). 2d)

Significantly, the ohjection contemplated by the
amended Rule ia not that the material “has not” been
submitted in admissible ferm, but that it “canner” he.

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The comments to the 2010 amendments make it clear ¢nat
the drafters intended to make summary judgment practice
conform to procedure at trial. “The objection
funetions much as an objection at triai, adjusted for
the pretrial setting. The burden is on the proponent
to show thet the material is admissible as presented or
to explain the admissible form that is anticipated.
There is no need to meke a separate motion to strike.”
Fed. R. Civ, BP. 56 (2010 Advisory Committee comments).
The revised Rule therefore clearly contemplates that
the proponent of evidence will hava the ability te
address the opponent's objections, and the Rule allows
the court to give the proponent “an apportunity to
properly support or address the fact," if the court
finds the objection meritorious. Fed. R. Civ. F.

5é(e} (1). Thus, the amendment replaces a clear,
bright-Line rule (“all documents must be
authenticated”) with a muiti-step process by which a
proponent may submit evidence, subject to objection by
the opponent and an opportunity for the proponent ta
either authenticate the document or propose a method to
doing so at trial.

Forewore Magagine, 2011 NL 3199384 at *2.

The new subdivision (c) (3) “reflects judicial opinions and
Jecal rules provisions stating that the court may denide a motion
for summary judgment without undertaking an independent search of
the record.” Fed. R. Civ. B. 56 (2010 Advisory Committee
comments} .

When filing os responding to a motion for summary judgment
the parties must adhere to the federal and lecal rules te promete

efficiency both for the Court and the parties. See Jackson Vv.

Pinnecan, Henderson, Farabow, Garrett & Dunner, 104 F.3d 144,

150-151 {D.c. Cir. 1996);

[The District Court’s local rule on summary
judgement procedures] assists the Giskrict eeurt to
maintain docket control and to decide mations for

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sunmary judgment efficiently and effectively. 4s this

court explained in Gardels vu Ceagtyal Tntel licence

Agency, 637 F.2d 770 im,c. Cir. 1980), with regard ta

the predecessor local yule identical to Local Rule

108 Ch}:
Requiring strict compliance with the local zule is
justified beth by the nature cf summary jodgment
and by the rule's purposes. The moving party's
statement specifies the material facts and g@irects
the district judge and the opponent of summary
judgment to the parts of the record which the
movant believes support nis statement. The
opponent then has the opportunity te responc by
filing a counterstatement anc affidavits showing
genuine factual issues. The procedure
contemplated by the fuie thus isolates the facts
that the parties assert are material,
distinguishes disputed from undisputed facts, and
identifies the pertinent parts of the record.

The D.C, Circuit had previously pointed out tonat --

a district court judge should not be obliged ta sift
through hundreds of pages of depositions, affidavits,
and interrogatories in arder to make hig own analysis
and determination of what may, or may not, be & genuine
issue of material disputed fact. In this respect, a
district court may legitimately look ta and rely upon
counsel to identify the pertinent parts of the record,
to igolate the facts that are deemed to be material,
and to distinguish those facts which are disputed from
those that are undisputed.

When counsel fails to discharge this vital
funotion, he may not be heard to complain that the
district court hes abuged ite diseretion by failing ta
compensate for counsel's inadequate effort.

Twist v. Meese, 854 F.2d 1421, 1425 (D.C. Cir. L988), Gert
denied, 490 U.S. 1065 (1989),

The United States District Court for the Nistriet of New
Mexico recently presented @ complete overview af the legal
atandards for deciding Motions for Summary Judgment in the Tenth
Cireuit:

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Rule Sé(e} states that summary judgment “should be
rendered if thea pleadings, the discovery and disclosure
materials on file, and any affidavits show that there
is no genuine issue as to any material fact and that
the mavant ig entitled te judgement as a matter of law.”
Fed.B,.civ.P. 56a) (2). The movant pears the initiel
burden of “snow[ing] that there is an absence af
evidence to support the nonmoving party's case."
Racehus tndus.,. Ing. ¥o Arvin Indus... Mee, 939 F.2d
a7, 891 (10th Cir. 1991) (internal quotation marks
omitted). S86 Celotex Core. Vv. Catreth, 477 U.8. 31",
323 (1986) ("OL course, 4 party seeking summary judgment
always bears the initial responsibility of informing
the district court of the basas for its mation, and
identifying those portions of the [record], together
with the affidavits, if any, which it believes
demonstrate tne absence of a genuine issue af naberiel
fect .“1 (internal quotation marks omitted). Once the
Mevant fleets this burden, rule SG(e} requires the
non-moying party to designate specific facts showing
that there is a genuine issue for trial. See Celotex
corp. iv. Catrett, 477 U.S. at 324; Anderson vy. Liberty
Lobby, Ing., 477 U.S. 242, 256 (19863; Vitkus wv.
Geatrice Co., li F.3d 1535, 2539 (10th Cin. 1393)
(“However, the nenmoving party may not rest on its
pleadings but must set forth specific facts showing
thak there is a genuine issve for trial as to those
dispositive mattera ror which it caxsries the burden of
proof.) (internal quotation marks emitted) .

The party opposing @ motion for summary judgment
must “set forth epecific facts showing that there is a
genuine issue for trial as te those dispositive matters
for whieh it carries the burden of proof.” Applied
Genetics Ink’. Ine. mw. First Befiliated sacs... Tng.,
912 F.2d 12368, 1241 {10th Cir. 1890). Rule 56 provides
that “an opposing parly may not rely merely on
ezllegations or denials in its own pleading; rather, its
response must—by affidavits ox as otherwise provided in
this rule-set out specific facts showing a genuine
issue for trial.” Fad. R.Civ.?. B6te) (2). It ia not
enough for the party epposing a properly supported
motion for summary judgment to “rest on mere
allegations or denials of his for her! pleadings.”
anderson v. Liberty Lobby, Ing., 277 U.S. at 256, See
Abercrombie v..ity of Catensa, $96 F.2d 1228, 1231
(loth Caixr. 1990): Qtteson v. United States. 622 F.2d
516, $19 (loth Ciz, 1980) ( “However, ‘once & properly
supported summary judgment motion is made, the oppesing

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party may not rest on the allegations contained in his
complaint, but must respond with specific facts showing
the existence cf 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 speculation.”__Colony
Natl Ing. Co.¥- Omer, Ne. 07-2123, 2008 WL 2309005,
ab #1 {G, Kan, June 2, 2008) (citing Fed.R.Civ.P. 56 (a}
and Arse. v. Rive Cross & Blue shield oF Kan... —Imc., 452
F.3c 1193, 1199 {10th Cir. 2006)). “Tn responding to a
motion for summary judgment, ‘a party cannet rest on
ignorance of Tacts, on apecuiation, or on susoieion and
mey not escape summary judgment in the mere hope that
something will turn up at erial.'” Colony Neti ins.
Co, v. Omar, 2008 WL 2308005, at *1 {quoting Conaway wv.
Smith, 653 F.#d 789, 734 flOth Cir. 1968}).

Fo survive summary judgment, genuine factual
issues must exist that “can be sesolved anly by a
Finder of fact because they may reasonably bé resolved
in favor of either party.” anderson v, Liberty Lobby.
tnc,, 477 U.S. ak 250. A mere “scintilia” of evidence
will not zvoeid summary judgment. Vitkus vw. Beatrice
Co., 11 F.3d at i539. Rather, there must be sufficient
avidence on which the fact-finder could reasonably find
fox the nonmoving party. S&& Anderson v, Liberty’
Lobby, Inc., 477 0.5. at 251 {quoting Sohuylkill «
Dausgin Imecev. oo. iw. Munson, a1 u.,5. 442, 448
(187lit; Vatkus ve. Beatrice Co. 11 F.3d at 153%.
“[Tlheare is no evidence for trial unless there is
sufficient evidence favoring the nenmoving party for 4
jury toe méehuin 4 verdict for that party. If the
eyidence is merely coloxable ... or is not
significantly probative, -.. summary judgment may be
granted ." Anderson, wv. Liberty Lobby. Doe. 477 U.S.
at 249 finternal citations omitted). Where a rational
trier of fact, considering the record as a whole, could
not find for the non-moving party, there ig no genuine
issue for trial. See Matsuspite Flec. Indus. Uo.
penith Radio Corn,, 475 U.S. S74, S87 (1988).

When reviewing a motion for summary judgment, the
court should keep in mind three principles. First, ne
court's role ig not to weigh the evidence, but to
assess the thxeeshold issue whether a genvine issue
exists as to material facts requiring a trial. See
Anderson v, Liberty. Loboy, Jue. ATT U.S. at 24%.
Second, the court must resolve all reasonable
inferences and doubts in favor of the non-moving party
and construe all evidence in the light most favorable

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to the non-moving party. S868 Hunt.v. ¢romartie, 526
u.§. 841, 559-55 {1999}. Third, the court cannot
decide any issues of credibility. See Anderson.
Liberty Lobby, Ine. 477 U.S. at 254.

Bhandari v. VHA Southwest Sommyniiy Health Coxrp., 2011 WL 3336525

at *10-11 iD. HLM. #011} (eaitang former Rule 56}.
The 2010 amendments, except for the obvious changes
established by the new materials, were not intended to change

summary judgment standarces or practice.® But given the more

wera ett n. Venere

‘see Letter from Committee on Rules of Practice and
Precedure of the dudicial Conference of the United States te the
Han. John G. Roberts, Chief Justice of the United States,
December 16, 2009 (available at hetn ww wsoourts devs
RulesandPolicies /PederalRulema kin /pendingRules/mronesed super 240
35 , follow link “Summary of Proposed Amendments”) (last
visited March 21, 20912).

The proposed amendments to Rule 56 are intended to
improve the procedures Tor presenting and deciding
summary judgment motions, to make the precedures more
gongistent across the districts, and to close the gap
that has developed between the cule text and actual
practice. The amendments are not intended to cnande
the summary iudement standard or busdens- The
amendments include (1) requiring that a party asserting
a fact that cannot be genuinely disputed provide a
“pinpoint citation” te the record aupporting its fact
position; {2} recognizing that a party may submit an
unsvorn written declaration, certificate, verification,
oc statement under penaity of perjury in accordance
with 28 U.8.C. § 1746 as a substitute for an affidavit
to support or oppose 4 summary iudgment motion; (3)
setting out the court’s aptions when an agsertion of
Fact has not been properly supported by the party or
reaponded to by the other party, including eonsidering
the facet undisputed for purposes of the motion,
granting summary judgment if supported by the motion
and supporting materials, oF affording the party an
opportunity toe amend the motion; (4) setting a time
deadline, subject to variation by local rule ox fourt

arder in @ case, for the filing of a summary judgment
feontinued,..}

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Case 10-01107-s"SEALED"

Case 10-01107-j

“flexible” approach now allowed the mevant in submitting evidence
co support 4 mation for summary judgment y Foreywarc Mecagine, Z011
WL 5169364 at “1, it becomes even more important for movant to
comply with NM LER 7056-1tb) and (¢) in pinpointing the partiongs
ef the tecerd that support the alleged undisputed facts ox to
edmit candidly that movant hopes to prove the fact at trial Lf
neéeqa be,
UNDISPUTED ZACTS

There are two sources fer facts in this adversary. First,
the matters admitted in the answers to the Complaint, cross-
claims and counter-claims; and second, the undisprted facts
established by the motions for summary judgment. As noted above,
elaims and afmissions by Ewing are not considered.
&. BDMISSIONS

The following facta were admitted:
1. This Court has jurisdiction over this adversary proceeding

pursuant to 98 0.5.C. $1334la), 28 U.8.C. $157 (b), and the

+ a

#1... continued)

motion; (5) explicitly recognizing that “partial

summery jucgment" may be entered; and (6) clarifying

the procedure fer chellenging the admissibility of

summary jucement evidence.
The Committee's assurances that the new version of the rule is
not intended to change the respective burdens af the summary
judgment process is not inconsistent with the observation of the
District Court in Eorewerg Macazine that the revisions have
effected & sea change in summary judgment procedure. 2011 WL
5169384 at *1-2. It remains to be seen whether the “new Coke"
version of the tule serves Ge wall as the earlier version af the
cule with ite bright-line rules for submitting evidence. Id.

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administrative order entered March 49, 1992, in the United States
District Court for this district referring cases to this Court,
in that this ection is A core proceeding for turnever pursuant te
11 U.S.C, $542. Venue is proper.

2. Douglas F: Vaughan filed a voluntary petition undex chapter
11 ef the Bankruptcy Code on February 22, #010, and the case Was
converted to a chapter 7 proceeding on May 20, 2010.

a. Plaintiff is the duly appointed Chapter 7 trustee of the
Douglas F. Vaughan chapter 7 ¢etate.

4, on rebruary 22, 2010 tthe “VCR Bacrition Date”), the Vaughan
company, Realtors (“VCR”) filed a voluntary petition under
chapter 11 of the Bankruptey Code.

5. Wagnes is the uly appointed Chapter 11 Trustee of the VOR
bankruptcy estate.

a. myurnec da an individual residing and doing business in
Bernalillo County, New Mexico.

7. Turner admits he wrote a check te VCR that stated “legal
fees” and admits there is 4 proof of claim filed on his behalf
for the $300,000.

B. Wagner assertec tne following affirmative defenses: failure
to stete a claim, lack of standing, plaintiff is not the real
party in interest.

g. Turner asserted the following affirmative defenses: failure

to state a ciaim, the funds are not property of the estate, the

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estate racks ite,

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. TURNER’ S PROPOSED UNDISPUTED. MATERIAL FACTS {doc 41)

Turner listed twelve proposed undisputed material facts.
Gonzales! and Wagner’s responses differ, se the facts wilt be
analyzed ag to each.

i. “Douglas Vaughan ran 4 Ponzi scheme invalving ‘investors’
all ovar the United States,” Gonzales agreed that this was
undisputed. Wagner objected #e this fact as irrelevant and aise
aa lacking a citation to the record as required by the federal
and local xules. ‘The Court agrees that without a record citation

this fact has not technically been established’. However, the

‘In Turner's reply {doc 54) to Wagner’s response to his
Motion for Summary Judgment [doc 45} he states “Wagner disputes
every material fact listed by Turner in the Motion far Summary
Judgment, Wagner disputes the vast majority of the facts based
on illusery technicalities, not becanse 4 genuine issue exists as
bo the facts’ veracity. ... In order to averceme the
technicalities cited by Wagner, at a level which Turnex disputes
ig required, the avidence for each undisputed material fact will
ba discussed individually as follows.” {Dec 54, p. 2.) Turner
mey dispute what is required, but in fact, Fed.E.Ciy.P, 565, MM
LBR 7056-1 and case law are clear. A Summary Audgment movant

must identify the factual record. See WM LBR 7056-i(b):
{sontinued.. .)

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afl. continued)
The [proposed undisputed] facts shall be numbered and
shall refer with particularity to those nertions of ans.
record ubon which movant relies.
fEmphasis added.) Hundreds of cases agres. S88: €.d., Garland
y. Advanced Medical Fund, L. FP, Ll, 86 F,Supp.2d 1195, 1198-935
(W.D. Ga. 2000):

Because they affect the consideration and
deseription of the relevant facts in this case, the
mourt must initially address several iesues concerning
the procedural requisements that accempany the filing
of a motion for summary judgment. This eoeurt’s local
cules require that the movant “attach to the motion a
separate and concise statement of the material facts to
which the movant contends there 16 no genuine issue ta
be tried.” LR 56.1B(1}, N.D. Ga. Moreover, “Taj ll
documents and other record materials relied upon by a
party moving for or opposing a motion for summary
judgment shall be clearly identified for the court.”

LR 56.iB(3}, N.D. Ga. Apparently attempting to comply
with these vules, all parties in this case have filed
separate factual statements with their motions for
summary judgment. Oniy the Garlands and Defendants
Anderson and Advance Textile, however, support their
factual statements with citations to evidence in the
recerd. The other Defendants have failed te do so, and
as @ result, their metions are not in compliance with
the rules of this court. Accordingsy, Flaintiffs urge
the court to deny these motions ss not properly
aupported. Defendants argue, however, that

Fed R.Civ.—. 54 allows a party te move for sumiMary
judgment with ox without suppoxting affidavits, and
therefore the motions are proper. Additionally,
Defendants note thet reference te deposition testimony
and exhibits is made in the supporting menorandum .

The court finds Defendants’ axguments to be
unavailing. The purpose cf the requirements that
movants file separate statements of fact and that
evidence relied upon be clearly idenLified is to allow
the court to compare the factual statement with the
avidence and determine whether or not particuler
inferences can be drawn by the factfinder. In other
words, thase requirements facilitate the court in
avaluating whether or not there exists & deanuine issue
of material fact. The court snould not be made to

fcontinued...]

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Court can and will take judicial notice of the files in the
Vaughan bankruptcy and VCR pankruptcy, and the evidence presented
on the record in thosa cases, and take notice of its pricr
Memorandum Opinion and find that the fact is undisputed.

ran “Mr, Tuxsner and Mr, Vaughan were Long-standing friends.”
Wagner disputed this fact put also objected as lacking 4 eltation
to the record. The Court agrees thet without a recerd citation
this fact nas not been established. Therefore, Tarner fact 2 is
disputed ase to Wagner. Gonzales failed to respond to Turner fact

2 and would therefore be deemed to admit it if it were properly

supported. Sea NM LER W056-Lie). Towever, as Wagner pointed

ay. continued}
guess the sources of a movant's version of the relevant
facts. indeed, the movant has an “initial
responsibility of informing the district court of the
basis for its motion, and igentifying those portions of
‘the pleadings, depositions, answers to
interrogatories, and admissions on file, together with
affidavits, if any,’ which it believes demonstrates the
absenes of a genuine issue of matexial fact.” Celotex
Coru, v. Catrett, 477 U.S. S17, 323, 106 §.ct. 2548, 91
L.Ed.20 265 (1986). See alse Clark v, Goats § Clark,
Tno,, 929 F.2d 604, 806-09 (Jith Cir, 1991) (neting
that Celotex did net overrule prior precedant that
movant had initial burden of showing absence of genuine
issue of material fact and declining to address for
first time on appeai whether that burden hac been met
because “[t]o do sa would require us to discharge the
movant's Rule 55 responsibility of searching the record
and identifying material in support of its motion”).
Moreover, citations soatterced throughout a legal orief
do not comply with the requirement that sources be
“clearly identified.”

(The Garland Court summarijy denied the nonconforming motions.

86 F.Supp.2d at 119%).

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mut, the fact ia not supported by a record reference so Gonzales
is not deemed to accept fact 2. In summary, fact 2 is disputed.
3. “During the peried of May 2009 through february, 2010 Hr.
Vaughan borrowed funds from Mr. Turner on a monthly basis in
amounts totaling $3,650,000 from Turner in a series of eleven
transactions, The amount does not include two checks thet were
apparently intended to be for legal fees. See Proofs of Claim,
Bmended 314 (The Vaughan Cempany, Realtors) and Amended 2568
(Deuglas F. Vauqhan).* Wagner disputes fact 3. She arques that
the proofs of claim ere inadmissable because they were signed by
Tuxner’s attorney, not Turner, and the checks attached to the
claims are not properly authenticated because they are not
certified copies nor have they been authenticated by any other
means. Turner, citing Fed.R.Civ.?. S6[{c) (2}, argues in hie reply
briet that his undisputed facts are supported by appropriate
evidence. (Coc $4, pp. 5-6). Yhe Court agrees that the checks
attached to the claims weolcd be admissible under a hearsay
objection as business records. The procf of claim can be
tensidered = summary of the checks. Gongaies failed to respond
to Turner fact 3. In summary, the Court Finds Turner fact 3 is
undisputed,

4, “Mr. Turner paid $290,000 te Saul Ewing, LLC. See Exnibit B
to Answer to Amended Complaint and Counterclaims.” Wagner

objects rq Enis fact because the Exhibit B referred to is a copy

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of a check that has not been authenticated. Gonzales failed to
respond to Turner fact 4 80 ig deemed to admit at. The Court
Finds it admissible for the reasons stated in Turner fact 3. In
summary, Turner fact 4 is undisputed.

5. “Saul Ewing deposited the $200,000 check inte its trust
account.” Wadner objects because there isino éitation to the
record. The Court agrees. Furthermore, Turner 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, sa it
is hearsay. Gonzales did not respond to Turner fact 5, but tae
Court finds it inadmissable. In summary, Turner fact & is
disputed,

6. “Seul Ewing earned over thirty thousand dollars in
attorney's fees duxing its representation of Mr. Vaughan, which
it cemoved from the $200,000 it held in trust.” Wagner objects
because there ig no citation to the recorc. The Court agrees.
Furthermore, Yurner nas not laid a foundation for knowing what
Saul Bwing earned and the only way Ae couid know this is if
someone told him, so it is hearsay. Gonzales did net respond te
Turner fact 6, but the Court finds it dnadmissable. In summary,
Turner fect 6 is disputed.

tT. “Saul Ewing has placed the remaining £162, 499.39 into the
Court Registry with permission of the Court and makes no claim to

the remaining funde.” Wagner objects because there is no

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a

citation te the record. The Court agrees that it has no duty toe
search the record for this information, but if appears on the
docket so the Court will find it undisputed. Gonzales agreed

with fact 7, In summary, the Court finds thie fact undisputed,

1 it improperly rélies on

gleadings drafted by Turner's attorneys, and 7) it improperly
relies on Turner’s own inadmissible affidavit. Gonzales objects

te Turner fact $3 because the Swanda affidavit is dated several

ltirner Facts 8 through 11 will be discussed together.

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months aftex the subject checks were written, and because it
directiy conflicts with Turner's awn affidavit (main case, doc
t36-1) in which Turner stated he paid the attorney retainer of
$900,000 because Douglas F. Vanghan was @ friend.

Turner's feets 9 through 11 pick out certain statements in

the Swanda affidavit as undisputed facts. Wagner and Ganzeles

raise the same objections to those facts.

Rule 702 governs the admissibility of expert
testimony. It allows a qualified ing@ividual wha
possesses “scientific, technical, or other spectalized
knowledge” to testify as an expert if “it will sesdst
the trier of fact to understand the evidence or to
determine a fant in issue.” FRE 702, A witness may be
qualified by “knowledge, skill, experience, training,
or education." jd. The expert may offer his or her
opinion on matters cutside the scope o£ his personal
knowledge only if “(1) the testimony is based upon

_suffictent facts or data, (2) the testimony is the
product of reliable principles 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 7O2 has three major requirements: (1) the
proffered witness muat be an axpert, 1.@., must be
qualified; (2) the expert must teatify ehaut matters
xequiring scientific, technical or specialized

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knowledge; and {3) the expert's testimony must assist
the trier of fact.” Pineda vy, Ford Motor Ce., 320 F.3d
237, 244 (3d Cir. #308).

The “proponent of expert testimony must establish
his expert is qualified and his testimony is admissible
by a preponderance af the evidence." Poust ¥.
Huntleizsh Healthcare, 999 F.Supp. 478, 490 {D. Nd.
1992}. The Covrt has an onligation to act 46 a
“gatekeeper” to ensure the “reliabllity and relevancy
af expert testimony’ presented te the finder of fact.
Kumho Tire Co. y. Carmichae)], $26 U.S. 137, 1la2, 12%
S.ct. 1167, 443 L.Ed.2d 238 (1999); See also Daubert +.
Merrell Dow Phasms., 509 U.S. 579, 592-593, 113 3.€t.
2786, 125 L.Ed,¢ad 469 (1993).

To add in this inquiry, Daubert and United States
we. Downing, 753 F.¢d 1224 (3d Cir, 1995}, cite several
factors for the Court ite consider in éxamining the
expert's methodology: “(1}) whether a method conglsts of
a testable hypothesis; (2) whether the methog has heen
subject to peer review; {3} the known or potential rate
of error: {4} the existence and maintenance of
Standards contxolling the technique's operetion; (5)
whether the method is generally accepted; (6) the
relationship of the technique te methods which have
becn esteblishec to be raliable; {7) the qualification
of the expert witness testifying based on the
methedelegy; and (8) the non-judicial uses to which the
methed has been put.” In tg Faoli RR. vad POR
Litigation, 35 F.3d T1?, 742 (3d Cir. 1994) eiting
Daubert and United States vi Downing, 753 F.2d 1224 [3d
Cir. 1985).

Fancastes, ne. ¥. Comcast Coma. F.gupp.dd oo, 2911 -WL

6426292 at *13-14 [B. Mig. 2011).

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Faced with a proffer of expert scientific
testimony, then, the b¢ial judge trust detarmine at tha
evntset, pursuant toe Rule 104(a}, whether the expert is
proposing to testify to (1) selentific knowledge that
(2) will agsist the trier of fact to understand or
getermine a fact in issue. This entails a preliminary

agpsessment cf whether the reasoning oF methodology
underlying the testimony is scientifically valid and of
whether that reasoning ar methodology oroperly can e
applied ta the facts in issue.
(Factnotes omitted. } Furthermore, the affidavit answers none ai
the questions the Supreme Court found relevant to admission of
expert testimony: 1) “Ordinatily, a key question te be answered
in determining whether a theory oF technique is scientific
knowledge that will assist the trier of fact will be whether it
can be fand has been) tested.” Id. at 593; 2) “Another
pertinent consideratian ie whether the theory or technique has
been subjected to peer review and publication,” dId.; 3) “(T]he
court ordinarily should consider the known ox potential rate of
error.” Id, at 594; and 4) “* Finally, ‘general acceptance’ can
yet have a bearing on the inquiry. A ‘reliability assessment
does not se¢quire, although it dees permit, explicit
identification of a yelevant scientific community and ah express
determination of a particular degree af 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 of cress-ezamination. This,
however, is a motion for summary judgment and the buréen is on

the movant ta eatablish that there is admissifple evidence before
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the Court. Farris v. Intel Cgem., 494 F-Supp.2d 1174, 1161 {2.

N.M. 2007). The Court must do more than simply take the
“expert’s word for it.” Id. at 1182 (Citation omitted.) See

alsa Zameonik wv. Indian Prairie School District #204, 636 F.3d

B74, B81 ¢7™ car. 2011) (An expext must explain how he used his
expertise te generate the conclusions. “Mere conclusions"

without describing the inferential process are useless to the

eourt, ]

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3, 2010 affidavit does not attach copies of doruments to which it
cefers. Vhe Court agrees with Wagner and finds that Turner fact
12 is subject to a genuine cispuie.

In his reply brief, Turner attempts to supply citations to
the record in support of his purportedly undisputed facts. Whale
minor correction ot supplementation in a reply brief for
incerrect or Wissing support in the initial brieg is certainly
pexmissible, in this case the wholesale attempt to do in the
reply brief what was the required showing in the initial brief is
perhaps tuo little and certainly toc late, The purpose of a
repiy brief is to present legal arguments against matters raised

in the response. See Springs Indus... Inc. vy. American Motoziats

Ina. Co., 137 FRB. 238, 239-40 (N.D. Tex, 1391):

tt cannot serioausly be disputed Lhat a movant is
obligated te File with a motion the evidentiary
materials necessary to justify the relief if seeke.
the office of the reply briaft permitted by Rule 5.1(f)
ig to rabut the nonmovant's response, thereby
persuading the court that the movant is entitled te the
relief vequested by the motion. The document ia te
contain argument, not néw supporting materials.
It is nut a place te introduce new factual assertions that
properly belong in the opening brief. Furthermore, allowing new
factual assertions in # reply deprives the respondent of an
oppertunity fo controvert the new factual assertions. Id. at

*39. When the record citations were nok in the motion, neither

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Wagner nor Gonzales had a duty te search through the recerd for
instances of the alleged facte and then attempt te controvert

them because facts without mitations to the record need na

response. See Green v. Ney Mexicg, 420 F.3d 1189, 1196 {lo cir.
2005) (lf a reply contains new information (defined es either new
evidence or new legal arguments), the Court needs to give the
nonmeving party an opportunity to respond only if the Court will
rely on that new material. Zt is not an abuse of discretion ta
Aqnore the new Material and preclude a4 surreply-} See also Agia me

v. Bnericen Cyuarantes and Liability Ing. Ge., 233 F.3e 1242, 1248

(£0% Cir, 2000) (An argument raised for the first time in reply 1s
“nok sufficlant."}
co GONZALES’, PROROSED UNDISPUTED MATERIAL FACTS {dec 47),

Most of the Gonzales’ proposed facts suffer the game problem

as Turner’s. Facts 1 through 5, 7, 3, 11 and 12 contain no
citation to the record. The Court will simply ignore these.
6. “on or about February 3, 2g10, VOR wrate a check ta Turner
for $700,000 in partial repayment ef the funds Loaned on February
1, 2010 from Turner to YOR (“Vaughan Company, Realtors”): The
$700,000 check was noted in VCR's books as a ‘repayment of
principal.’ (VCE Trustee's Answer to Amenced Complaint and Cross
Claims, 91 10, Gecket Na. 11}.”

“Turner responded that he had no knowledge of fact 6 and that

“eeapecially with regard to how such a check was céflected in

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WeR's books.” (Doc 58, p.2)- This response is totelly
inadequate to controvert the fact. The issue is not whether
Turner has this information; the issue ig whether Turner has any
avidence that contradicts the statement.

[In ruling on & motion for symmary ipdgment, ]
[tlhe covrt has one task and one task only: te decide,
based on the evidence of record, whether there is any
material dispute of facet that requires 4 trial.
Anderson v. Liberty Lobby, ine.+ 477 W.8. 242, 249-50,
106 S.Ct. 2505, 2511, 91 L.Bd.2d 202 (1986); 10 Wright,
Miller & Kane $ 2722, at 574-78. The parties, in turn,
bear a concomitant burden to identify the evidence that
will Eecilitate this assessment. Thus, as
Fed. B.Civ. Proc. 56[e) makes clear, a party opposing
summary judgment may not rely on the allegations of hez
pleadings. Rather:

[[]he advarse party's response, by affidavits of

as otherwise provided in this rule, must set farth

apecific fagts showing that there is a genuine
issue for trial. If the adverse party does not so
respond, summary judgment, if appropriate, Bhnall
be entered against the acverse party. —
{Emphasis supplied). This requirement ig more than a
technicality: as the now familiar trilogy af 1986 tases
from the Supreme Court established, if the non-movant
does not come forward with evidence that woule
reasonably pexmit the finder of fact to find in her
favor on a tlaterial question, then the court must enter
summary judgement against her. Matsushita Elen. =Indis.
Co, yu, genith Badio Cori. 475 U.S. 574, 585-87, 106
ct. 1348, 2395-56, $9 L.Ed.2d 336 (1986); Gelotex
Core. ve Catrett, 477 U.S. 217, 322-24, 106 9.ct, 2548,
3557-53, 91 1.ed.2d 265 11986); Andergen, 477 U.3. at
49-52, 106 8.ct. at 2511-12, The burden on the
nen-movant ig mot onerous. IQA Wright, Milles & Kane §
2727, at 148. She need not tender evidence in 2 form
that would be admissible at trial (Of course, the
evidence set forth must be of a king admissible at
trial. E.a., Gustevich v. Ar & Tt Communications, 1c.
972 F.2d 845, 849 (7th Cir. 1992); Fed, R.Civ.F.
5gte).); she may cely on affidavits or any other
materials of the kind identified in Rule 56([<c).
Celotex, 477? U.a, al 374, 106 $.0t. at 2553. Morecgver,
the noen-movant need not match the movant witness for

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witness, nor persuade the court that her case is
convincing, she need only come forward with appropriate
eyidence demonstrating that there is a pending dispute
af material fact. Anderson, 477 U.S. at 248-49, 106
S.Ct. at 2510 (quoting First Nat. Bank of Arizons vis,
Cities Sery. Co., 391 U.S. 2535, 288-89, 88 3.0¢. 1575,

1592, 20 L.Ed.2d 569 (19681); see also id. 477 U.8. at

253,

106 $.Ct. at 2513; Sarsha v. Sears, Roebuck £ Cc.,

3 F.3d 61035, 1641 (7th Cir. 1993); Jackson v.
Dyckworth, 955 F.2d 21, 22 (7th Cir. 4992); Dameron v.

Frances Slocum Bank ¢ Trust Co., 824 F.2d 570, B75 {7th

Cir.

19e7)}.

laldridge vw. American Boechst Core., 24 F.3d O18, 920-21 (7F" Cir.

$994) (Former Rule 56). See else Adler v. Wal-Mart Stores, Inec.,

144 F.34 664, 671 (10°* Cis. 1998):

Tf the movant carries this initial buxden, the

nonmovant that Would bear the burden of persvasion at
trial may not simply rest upon its pleadings; the
burden shifts toe the nommevant to go beyond the
pleadings and “set foxth specific facts” that would be
admissible in evidence in the event of trial from which
a rational trier of fact could find for the nenmovant.
Fod.R.Giv.P. S6(e); see Lujan, National wildlife

Fed'

, 497 U.S. 871, 888-89, 119 S.ct. S177, 111

L.Ed. 2d 695 (19903; Celotex, 477 U.S. at 324, 106 3.Ct.
2548; Ande) , 477 U.S. at 246, 106 S.Ct. 2505. to
accomplish this, the facts must be identified boy
reference to affidavits, deposition transcripts, or
specific exhibits incorporated therein, See Thomes v.
Wichita Coca-Cola Bottling Co,, 968 F.2d i022, 12a
flOth Cic.}, cert. denied, 506 U.&. yO13, 113 8.¢n.

635,

121 L.Ed.24 586 (1997). Thus, although our review

is de neve, we conduct that review from the perspective
of the district court at the time it mace its ruling,
ordinarily limiting our review to the materials
adequately brought to the attention af the distriet
eourt by the parties.

Wagnes agrees that Gonzales fact 6 is undisputed as far as

it goes, but further states that Wagner claims that thet $200,000

check given to Turner represents the seme Eunds Turner gave to

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Ewing. Her theory of the case is that Ewing held traceable
funds.

tin summary, the Court fincs Genzeles fact 6 undisputed.
a. “Turner paid the legal fees for the Vaughan Retainer,
because Debtor was a friend of Tusner’s; (Ex. 1, Affidavit of Bab

L. Turner, Gated March 14, 20103."

’ In summary, based on these responses and also other evidence
in the cecord, the Court finds that Gonzales fact 8 is disputed.
io, “Ewing and Curlett never met Turnex, never spoke to Turner
ar communicated with Turner in any manner whatsoever; (See
attached Ex. 2, Affidavit of Ewing, and the Bffidavit of Ber L.
Turner deted Bpril 3, 7010 that is Be. ¢ te Docket No. 7 in thie
peoceeding} .“

Turner's response again denies knowledge, so he is deemed to
admit that fact 10 is undisprted. Wagner agrees it is
undisputed.

13. “Turner filed an Amended Proof of Claim in this bankruptey
case For teney that Turner loaned te the bebtor in the amount of
$5,905,000 (POC No, 258-2).%

Turner admits that fact 13 is undispoted.

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Wagner agrees that proofs of claim were filed, but she
further demonstrates that the details offered in support of the
validity snd 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 MATERIAL, FROTS [doc 65)

1. “On February 22, 2010 (the ‘petition Date’), VCR filed a
voluntary petition under Chapter lil of the Bankruprey Cade. See
Wagner’s Crose-Claims, 7 1. Turner's Answer, 7 1.”

2. “wagner is the duly appointed Chapter 11 Trustee of the
WOR! s bankruptcy estate. Hee Wagner's frogs-Cleims, 7 4;
Turner's Answer, 7 1; see also Certification of Commencement of
Case and Appointment af Chapter lL Trustee (the “Cextification"),
atcached hereto as Exhibit 1, and incorporated herein by this
reference.”

3. “turner is an individual regiding anc deing Susinese in
Bernalillo Counky, New Mexico. See Wagner's fress-Claims, 7 3,
Turner's Anawer, 7 1.”

4. “The Court has jurisdiction over this adversary proceeding
pursuant to 28 U.S.C. § 1334. See Wagner’s Cross-Claims, q 5,
Tarner's Anawer, J 1.”

5. “Venbe is proper in this Court. See Wagner's Crosa-Claims,

6, Turner’s Answer, fi 1.”

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&. “aecording to the books and records of VCR, Turner regularly
hegan investing in VOR’ s promissory note program as early as .
1996, periodically investing in inorements ranging irom $60, 000
to $500,000, usually at a rate of 27%. Turner's notes generally
amortized over a period of 24 months. Turner also invested
$1,000,000 in September 2009; and VCR issued an interest-only
note, bearing interest at 205, with a maturity date of September
2012. At times, Turner held multiple notes concurrently. dee
Réfidavit of Gudith A. Wagner, attached hereto 4s ExhMiLbLE 2 [the
‘Wagner Affidavit’), 4 1g.”

Turner’s response to Wagner proposed fact 4 is:

Turner is not in possession of VCR's books and

therefore ig not in a position te investigate Ms.

Wagner's allegation. Therefore, Mr. Tuxnex disputes

Waqnex’s Fact 4,
Turner's Response, doc Tl, p.3. This response igs totally
inadequate to controvert the fact. the issue is not whether
Turner bas this information; the issue de whether Turner has any
ayidence that contradicts this statement. The Court finds that
Wagner fact 6 is undisputed. See alsa discussion, supra,
regarding Gonzales proposed fact &.
7. “Torner invested at least $6,170,000 in VCR’S note program
from early 1996 to Tebruary 2010. During the same period, Turner
received payouts in excess of 64,500,000.00. VCR books and

recerds reflect payments to Tuner in the four-year period prior

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to the Petitien Date totaling $2,586,048.76. Wagner Affidavit, ql
io 7 ,

Turner's response to fact 7 was the same 4s to fact 6, i.e...

tack of knowledge. ‘Therefore, fact 7 is undisputed,
Be “On August 20, 2010, Turner filed his Amended Proof of
Claim, No. 314-2, in the amount of $5,605,900.00. See Glaims
Register in VCR case, Ne. if-10759."
a. Son or about Fepruary 1, 2010, Turner wrote & check to VCR
in the amount of $300,000. See Wagner’s eress-Claims, 2 14,
Turner's Answer, f 3."
iO. “the $300,000 check was written from Turner's Bank of
Bmerica account neo. 160075388 f*Turner’s BOA Becount’), on check
no. LLO?. See 7 13, Turner’s Cross-Claims, and Exhibit 5,
thereto.”
ti. “The $300,000 was deposited into VCR's operating account af
Chaxter Bank, account no. 42017516 (‘VCR's Operating Account! }
and commingled with all of VCR's monies. Wagner Affidavit, W1 6,
a, 10."

Turner's response to fact 11 was the same as to Facts & and
7, d.e., lack of knowledge. Therefore, fact 11 is undisputed.
lt. “VCR recorded the $300,900 check from Turner as a ‘loan’ in

VCR's books. Wagqnez Affidavit, yf 10,"

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Turner's respanse to fact 12 was the same as to facts 6, 7

and ll,

i.e., lack of knowledge. Therefore, fact 12 is

——

undisputed.

13. “On ox about February 3, 201¢, yOR wrote Check No. 107608 to

Turner For $200,000. The s700,000 check was noted in VOR’s books

as a ‘repayment of principal.’ see Wagnes Affidavit, 1 40."

Turner's response to fact 13 was the same ag to facts 6, 7;

ll and i2, j.e., lack of knowledge. Therefore, fact 13 is

undisputed.

14, “On February 5, 2010, Check Wo. 107608 was negotiated, and

the #200,900 wags withdrawn from VCR’ s Operating Account. Wagner

Affidavit, 7 10.”

15. “On Webruary 5, e040, Check Mo 107608 was deposited inte

Turner's BOA Account. 8&6 BFuhibit C te Wagner REfidavit.”

16. “The $200,000 transferred from VCR to Turner on February 5,

4910 (the “Transfer") was within 90 days of the VCR Petition

Date. See Exhibit 1 hereto (Certification); see also Wagner

Agfidavit, 1 10 and Exhibit B, ¢, and ® ta Wagner Affidarit.”

i7. “The Transfer was made while VOR wags insolvent. Wagner

Affidavit, J 11."

16. “The Transfer wes made by VCR on account of one or more

antecedent debts owed to Turner tindividually and collectively,

the “Antecedent Debts”). Wegner Affidavit, @ 12."

Turner disputes fact 18. The response states:

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Disputed. Although the debtor owes Turner sums of
money, the $200,000 transfer was nat related To an
antecedent gebt. Mr. Vaughan has admitted that he
exchanged checks with Mr. Turner in order to procure a
check that he could send to Saul Ewing for legal fees.
See Exhibit B at 4:75-5:11, 5:22-6:1, and 6:16+-23.
Despite the notation in VCR's books cited by Ns. Wagner
in her affidavit, Mr. Vaughan hes contradicted that
notation, creating a question of fact. Id.

{Doc Tl, p. 4). “Exhibit BY is @ partial transcript of the
Douglas Ff, Vaughn Section 341 Meeting of Creditors on June 30,
2010. Portions of that transcript are as follows:

46 DOUGLAS F. VAUIGHN [sic]

17 aftec having been first duly swern undex oath,
18 was questioned and testified as foliows:

fat fal Le
eh oen oat

16 BY MR. BAUMAN: .

i7 gg. wr. Yaugh[aln, Tf represent Boh Turner.

18 A. Uh-huh.

19° 0, I owant te ask you ebout two checks Chat were

20 written by Me. Turner. The firat check was for 3200,000
- $1 made out to Saul Ewing, LLC.

22 A. Yes.
23°09. Do you recall that check?
24 A. Yee.

25 0. id you tell Mr. Tuxner to make tne check ant

G1 to Saul Ewing, LLC?

O2 A, Yes, I did.

03 0. And why did - why did you tell Mr. Turner to

4 make thai check out to Saul Ewing, LLC?

a5 A. L had anticipated legal fees and - and that

06 he - the attoxsney in Baltimore sudcested that.

07 0. De you know why the attorney in Baltimore

08 suqgested that it be done that way?

OS A, He assumed, as did loca: counsel, that in the

10 event we declared bankruptcy, it would be, not be clawed
13 back. ,

12 9. 3nd Local counsel was ~~

i323 A. Shay Meagle.

14 Q. There was 4 second check also For $200,000

15 that had a - that was made ouf to The Vaugh[aln Company.
16 In the mano section of the check, it says “Legal Fees.”

17 Do you recall receiving that check?

1B &. The second, no, I don’t.

LOLA in Acuna on Ga onion On fea oes ae ee ee

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5: 19 Q. Do you recall asking Mr. Turner for monies fer
5: 20 legal fees other than the --

5: @1 A. Oh, I do remember.

S$: 22 Initially, the check for — the first check

5: 23 for $200,000 for legal fees, 1 sent that te $eul Bwing,
5: 24 and they told me it should be made out to Saul Ewing, 386
5; 25 I sent it back and then Saul made --

6: O1 Mr. Tornec made a second check aut.

6: 02 @. Did you give the first check back to

6: 03 Mr, Turner?

6+ O04 A. Yes.

6: 05 @. You didn’t deposit that check?

6: 06 A. We,

6: O7 G. If that check shows that Lt was Geposited, do
6: O08 you know why if was deposited?

6: O09 R. I'd be probably surprised if in was, yeah.

6: 10 q. If it was - if it was deposited, would it

&: 11 have been deposited inte the Vaugh[aln Company ——
6: 12 A. Yes,

6; 13 @. - atcount?

6: 14 Bnd then what would it have been uged Tor?

6; 15 &. Operating expenses, I suppose.

6; 16 Oh, © believe I do remember that. I believe

G+ 17 at that time we gave fim a check back for a hundred
6: 18 thousand at that time.

4: 19 0. You gave Mr. Turner 4 sheck back for $100, 0607
6. 20 8A. IT believe so, yeah,

6- 71 20. Sa you received s700,000 and gave him a

6: 22 hundred back?

6: 23 A. Yea.

5: 24 Q. And did you explain to him what happened --

6: 25 AL Yee.

7: G1 9. - to the other hundred?

+, O° What did you explain to him?

7: 05 BA. The first 100 we kept duc to operating

7: O4 expenses. It was a siow time of the year.

7: 05 O:. Did you givé him a promissory note or anything
7: G6 like that for --

7: GF A. I don't remember.

The Court has reviewed Exhibit B and cannot find that anything in
the transeript that contradicts Wagner’s assextion that the
$200,000 transfer was on account of an antecedent debt awed to

Turner. Even if the transcript showed that “Mr. Vaughan has

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aamitted that he exchanged checks with Mr. Turner in order to)
procure a check that he could send to Saul Ewing for legal fees”
that transeript does not dispute Waqner’s facts 3 through 16
which the Court has found undiaputed. All of the transactions
boii dewn to a simple fact that Turner wrote a check to VCR for
$300,000 and VCR subsequentiy paid $260,000 to Tarner in the
preference period. To the extent Vaughan’ s 341 testimony is at
variance, the documents are oiear and his testimony Goes net
raise a material fact question in the Court’s mind. If there
were other transactions with no net effect in the meantime, which
seems to be My. Turner's point, that ig simply not relevant. Or,
perhaps Turner is aggserting @ subsequent new value defense! for
the $200,000 he transferred to wing; the problem with that,
however, ia that Vaughan is not the same debtor as VOR. In

summary, the Court finds Fect 18 undisputed.

Usagtion $47(¢) (4) gives a creditor a defense if it
advanced new value to the debtor after receiving a preferential
payment. It provides:

The trustee may not avoid uncer chis section 2

transier-—

(4) to or for the benefit of a creditor, ta the extent

that, after such transfer, guch crediter gave new value

to ox for the benefit of the debtor--

(Al not secured by an otherwise unavoidable security

interest; and

(Bi on account af which new value the cebtor did not

make an otherwise unavoidable transfer te or fer the

benefit of such creditor.

11 U.S.C. § $47(ce} (4). After Turner received the payment from
VCR the only new value ne gave wea to Vaughan, by sending funds
to Vaughan'’s attorney on behalf of Vaughen.

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19. “The Transfer allowed Turner to receive more than he would
have received had this bankruptcy cese at all times been 4 case
under Chepter 7 of the Bankruptcy Code, the Transfer had not been
made, and Turner had received payment of the antecedent Debt to
the extent provided under the Bankruptcy Code. Bffidavit of
Linda Bloom 7 17 (the “Bloom nefidavit"}, attached hereto as
Exhibit 3 and incorporated herein by this reference."

gurner disputes fact 1c. The cesponse states:

Disputed. Because the transaction was 4
contenparanecus exchange in the same deallax amount, Hr.
Turner did not agtually receive any value from the
debtor that he would net have received had the transfer
not been made. Mr. Vaughan indicated that the exchange
occurred because Saul Ewing had advised him to procure
a retainer cheek from Mr. Turner directly, xather than
running the funds througn VCR's checking account. 3284
Exhibit B. 8s the debtor stopped making payments to
the investors in the Note Program several weeks before
he Transfer, the Transfer’s characterization as 4
repayment of principal is highly auspect. Mr. Turner
would not have teceived the transfer if he had not been
exchanging checks for tha identical amount with the
debter and, therefore, woulg 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 response does nat
cite to the recerd and therefore dees not create a& fact question.
And the sentenne actually eontradicts the record, Wagner facts
g, 10 and 11 show that Turner wrote a check on his Bank of
America account. payable ta VOR an Febcuary 1, 2010 in the amount
of $300,000 that was deposited in VOR"s operating account. Then,

Wagner facts 13, 14 and 15 show that on February 3, 2010 VCR

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wrote a check to Turner for 4700,000 which wes negotiated on

February 5, 2010 by deposit in Turner's Bank of America account.

So, an fact the exchanges were net contemporaneous and they were

in faoh not for the same amount.

The second sentence, discussing Mr- Ewing’s wishes of

instructions, is irrelevant to whether Turner received more than

he would have received in a chapter 7 liquidation. The thizd

gentence, about VCR's failure to make payments on netes hes ho

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support in the record’ but even if it had, if is speculative and
at most argument.

The statement that “Mr. Turner did not actually receive
any value from the debtor that he wouid not have received had the
transfer not been made” is puzzling on its face. If the transfer

had net bean made of course he would not have received the

luurner could have cited to his “Turner’s Statement of
Undisputed Maleriel Facts” in his response to Wagner's Motion for
Summary Judgment, dec 71, p. 2. In hex reply hrief Wagner
addressed the proposed facts set forth by Turner in his response
and the Court agrees that all of Turner's proposed facts are
disputed. First, Turner fact 1 claims that VCR stopped making
payments to investors in late 2009 and early 2010 and citea “Case
10-10763, dec 184-1, (7 37-36." Das 184-1 is an unendarsed copy
at a Lawauit allegedly filed by the 5EC against Vaughan, ¥CR and
another Vaughan entity. It appeara S58 en exhibit to a Motion to
Siemiss or Convert filed by the United States Trustee. It is net
a certified copy, there is no proff that the complaint Was even
Filed or ruled upon. The complaint is simply a eellection of
allegations. It is tetaily inadmissable for the truth of Lhe
facts asserted therein.

Tuxner fact ¢@ attempts to authenticate Turner's bank yecords
and demonstrate that the purpose of a specific check was intended
to be a retainer with Ewing through an affidavit executed by
Turner's attorney's legal assistant. Dac 71, exhibit A, is the
affidavit of Philippa F. Schwendimann that states that as part of
her duties for the law firm, she sent a request for decuments to
the Bank of America and that they responded hy praducing
aifidavit exhibits A and B. She aoes not, as part of her
affidavit, state that the affidavit is based on hex personal
knowledge. And, it appears that it igs net. All she can testify
to ig the fact that she sent “x” and ceceived “y". It does net
prove that “y" ig true. Futting hearsay into an affidavit does
not make it admissible for a summary judgment.

Similarly, fact 3 is supported by Schwendimann’s affidavit
ang is based on hearsay.

Fact 4 is supported by a citation to Vaughan's 344 meeting
testimony where he states that Ewing instructed him to de certain
things. The content of what was told to Vaughan is hearsay for
éhe truth of what Ewing asserted, and jnadmiasible oven though if
Wags repeated at a 341 meeting.

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$200,000 on February 5, #2610, If a transfer is not made, hy
definition a recipient receives nothing. But here, there was a
¢ransfer made by VCR - the e200,000 check - which he received and
deposited. In summary, the Court finds Fact 1% undisputed.

THE MERITS OF THE MOTTONS

A TURNER! 5 MOTION FOR SUMMARY JUDGMENT
Most of Turner's proposed facts were not established #5
undisputed. ‘the ones that were are as follows:
1. Douglas Vaughan ran & Ponzi scheme involving ‘investors’ ahl
over the United States.
3 buring the period af May 2003 through February, 2010 Mr.
Yaughan borrowed funds from Mr. Turner on a monthly basis in
amounts totaling $3,650,000 from Turner in a series of eleven
transactions. The amount does not include two checks that were
apparently intended to be for Leqal fees.
4. Mr, Turner paid $200,000 to Saul Xwing, LLC.
7. Saul Ewing nes placed the remaining $162,699.38 inte the
Court Registry with pecmission af the Court and makes no claim to
the remaining funds.
Trem these undisputed facts, Turner must show that there is
no genuine issue of material fact that the funde on deposit with

Ewing are ina constructive trust, This is not possible with the

current facts.

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The effect of imposing 3 constructive trust in &@ bankruptey
case ig to remove the trust property from the state and award it
to the creditor/beneficiaries at the expense of the other
crediters, “The party seeking imposition of a construptive Trust

pears the burden of establishing the trust requirements." Hid).

#001) (eiting In re Seneca Gil, 946 F.20 1445, 1445 (10° cir,
1990)). Under established Tenth Circuit law, before undertaking
the determination of whether agsets are subject to a eonatructivé

trust, the Court must consider whether imposition of @

fonstructive trust would be equitable. will w. Kingler, 275 F.3d

at 927. To do this, the Court mast weigh the claims of the other
ereditors before employing any equitable fictions. Jo. at 328.
One factor is whether other similarly situated creditors would be

harmed. Id, See alse Kajish v. The Landing (Ta re The Landing),

160 B.R. 820, 824 (Bankr, B.D. Mo. 1993):

The practical effect of a constructive trust in a
bankruptcy case is to elevate a plaintifite claims
above the claims of all other creditors becaus? assets
in a constructive trust are not part of the bankruptcy
estate. See In re Kennedy & Cehen, 412 F.2d 1963] at
965 [(Sth Cir, 1980)]. In the matter being considered
here, Lf such a trust were imposed, the Plaintifis
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
debtor) ahead af all other ereditors in that separate
Chapter 7 liquidation preceeding. These resWlts would
disxupt the orderly system of distribution of assets
established in the Code. The congressionally mandated
scheme of priorities is to he respected and enforced by
the Bankruptcy Courts.

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Even assuming that Tornex 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 ang Ewing, he would
have a tort claim, maybe a centract claim, maybe a claim for

. breach of duty cf some relationship, or maybe even same right te
equitable relief, Wagqner’s affidavit, doc. 63-2, P- &, estimates
VCR claims, the vast majority of which ara “Dongi scheme” claims,
as betwean $60 million and $75 million. Each of these creditors
aan allege they were defrauded also. On the current record,
there is no valid reason ta elevate Turner’s claim above otnere
similarly situated.

Therefore, the Court finde that Turner has not shown that
theze ig no genuine issue of material fact concerning his
ownership or entitiement to the funds on deposit. Turner's
Motion fox Summary Judgment must be denied.

a. GONZALES’ MOTION FOR SUMMARY JUDGMEN?

Most of Gonzales’ proposed facts were not established as
undisputed. The ones thal were are:
6. On or about February 3, 2010, VCR wrote 4 eheck to Turner
for $200,000 in partial repayment of the funds loaned on February
L, 2010.from Turners to VCR {“Vaughan Company, Realtors”). The

s200,000 check was noted in VCR's books as a ‘repayment of

principal.’
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10. Ewing and curlett never met Turner, never spoke to Turner or
communicated with Turner in any manner whatsoever,

13. Turner filed an Amended Proof of Claim an this bankruptcy
ease for money that Turner leaned toa the Debtor in the amount of
$5,905,000 (POC Ne. 258-2}.

From these undisputed fants, Gonzales must shaw that there
is no genuine issue of material fact that, 1) as to Tuxner, a} it
would not be equitable for him te assert a congtructive trust
over the $162,000 because he is no differently situated than
other ereditoxs, and b] the funds were under sucn dominion and
control of Vaughan that they can be ruled co be in the astate as
a matter of law; and 2) as to Wagner, a) that she lacks standing
to pursue her claim against Turner in this bankruptcy case, end
bi the funda aré not properly of the VCR estate.

he to Turner, Gonzales has established that the law ia that
a creditor generally cannot elevate his ¢laim over others if they
are similarly situated, Consequently, on the current record Mr.
Turner's motion for summary judgment is being denied. OF course,
this current ruling does net preclude him from rearguing the
position at trial or presenting additional evidence thet would
demenetrete that he ig net, in fact, similaxly 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

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and what waa bo become of the Funds in the event Ewing cid net
apply them all to attorney Fees. There is no evidence of either
Vaughan'’s or Ewing’s understanding regarding the funds or the
oircumatances under which they were deposited. And, es far as
the Court can determine there ig mo easy answer “as a matter oft
law” what becomes of unapplied trust funds supplied by a third
pacty. There is not enough to grant any relief, so the Gonzales
Motion as to Turner will be denied,

| Re te Wagner, the Court finds that Wagner does have standing
to assert a claim to the funds. This does not suggest that tne
Court anticipates she will prevail oan her claim, put she does
have sufficient atanding to argue it. Wagner's claim essentially
moet be either that the Ewing funds are in a constructive trust
for the WOR estate, or that somehow gwing is & recipient of a
transfer and should also be liable with Turner. As noted above,
to prove a constructive trpet she would need toa establish that
the equities allowed the VCR estate to prevail over the Vaughan
unsecured creditess, which was net addressed in the motion by
anyone, and she would have to trace the funde from VCR, through
Turner, and into Ewing. The simple fact that VCR wrote a check
to Turner and he subsequently wrote a check to Ewing does nat
satisfy the tracing requirement. Wagner has elleged that the
same funds pessed from VOR through to Ewing out hag nou

astablished it et this point. To the extent thal Gonzales is

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arguing lack af jurisdiction, the Court finds it has jerisdiction
in the Vaughan bankrupiscy to adjudicate the Wagner oross-claim
against Turner. Sc8 Fed. R.Civ.P,. 13(q) (authorleing cross-claims
against a co-party if the claim relates ta any eroperty that is
the subject matter of the eriginai action}. Additionally, the
Court has independent subject matter jurisdiction over both the
parties and the subject matter.

&s to the second theory, it seems that onea Turner had
dominion and control of the $200,000 he was free to de as he
pleased, including investing in lottery tickets or uranium
atocks. Gonzales’ second argument as to Wagner is essentially
the same as the first. IF Wagner can trace the funde, they mey
be VCR estate property. If she cannot, the funds are not. The
Gonzales Motion as to Wagner will be denied.

Cc. WAGNER'S MOTION FOR SUMMARY JUDGMENT

Wagner established that the following fects were undisputed:
i. On February 22, 2010 {the ‘Patition Date’), ¥COR filed a
voluntary petition under Chapter lil of the Bankruptey Code.
2. Wagner is the duly appointed Chapter 11 Trustee of the VCR's

bankruptcy estate.

Meee Danning vw. Miller (in 2s Builiion Beserve of North
America), 922 F.2d $44, 54% (gt Cir. 1991) (“Io paraphrase Fudge
Fanterbroock, an entity dees not have “dominien over the money”
until it #5, in essence, ‘free to invest the whole [amount] in
lottery tickets or uranium stocks.“) [eiting Bonded Fin. servs ..

vo. Enrorean Am. Rank, 838 F.2d 890, 895 (7 Cix, 1988)).

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Pata

3. Turner if an individual residing and doing business in
Garnalillo County, New Mexice.

4. The Court has jurisdiction over this adversary proceeding
pursuant to 28 U.S.C. & 1334

5, Venue is proper in this Court.

Cy According to the books and records of VOR, Turner regularly
began investing in VCR‘s promissory note program as early a5
1996, periodically investing tn dnecements ranging irom 960,000
to $500,000, usually at a vate of 22%. Turner's nozes generally
amortized over a period of 24 months. Turner alse invested
$1,000,009 in September 2009; anc VCR issued an interest-only
note for the $1,000,000, bearing interest at 20%, with a maturity
date of September 2012. At times, Turner held multipie notes
eoneurrently.

7. Turner invested at Least $6,170,090 in VCR’ es nole program
from early 1996 to February 2010. During the same period, Tuxner
received payouts in excess af g4,300,000.00. VOR books and
recerds reflect payments to Turner jin the four-year period prior
to the Petition Date cotaling $2,586,048.76.

B. On Anuguat 20, 2010, burner Filed his Amended Pronf of Chaim,
Mo. 314-2, in the amount of $5,605,000 .00.

o, On ar about February 1, 20190, Turner weote & chack to VOR in

the amount cf $300,000.

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1b. The $300,G00 check was written from Turner's Bank of America
account no. 160075388 (*Turnerc’s BOA Acecunt’), by check no.
1107.

ll. The £300,000 was deposited into VCR's operating account at
Charter Bank, account no. 92917516 (‘VCR's Operating Account! |
and cottmingled with all of VCR’s monies.

12. VCR recorded the $390,000 checx from Turner as a ‘Loan’ in
VCR's books.

13. On or about February 3, 2010, VCR wrote Check No. 107608 to
Turner for $200,000, Phe $200,000 check was noted in VCR's hooks
as @ ‘repayment of principal.’

15. On February 5, 2014, Check Ne 107608 was deposited ints
Turner's BOA Aécount.

16. The $200,000 transferred from VCR to Turner on February 5,
2010 tthe “Transfer”’) was within 90 days of the YOR Petition
Date.

17. The Transfer was made while VCR was insolvent.

18. The Transfer was made by VCR on account of one or more
antecedent debts owed to Turner tindividually and collectively,
the “Antecedent Debts”) .

19. ‘The Transfer allowed Tuxner to receive more than he would
have received had this bankcuptcy case at all times been a case

under Chapter 7 of the Bankruptcy Code, the Transfer had not been

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made, and Turner had received payment of the antecedent Debt to
the extent provided under the Bankruptcy Code.

tn this adversary proceeding Wagner seeks to avoid a
preferential transfer under Bankruptcy Code section 347. The
United States Supreme Court discussed the policies underlying

that section in Union Bank 3. Wolas ‘In re BREA Best Cow. Ines

502 u.S- 151 (1991).

_ The Bank and the trustee agree that $ 547 is
intended to serve two basic policies that are fairly
deseribed in the House Committee Report. The Committee
explained:

“BR preference is @ transfer that enables a
ereditor to raceive payment af a greater
percentage of his claim against the debtor than he
would have received if the transfer had net been
made end he had participated in the distribution
of the assets of the bankrupt ®state. The purpose
af the preference section is two-fold. First, by
permitting the trustee to avoid prebankruptoy
transfers that oocur within a short period before
bankruptey, creditors are discouraged from racing
to the courthouse to dismember the debtor during
his slide into bankruptcy. The protection thus
afforded the debtor often enables him ta work his
way out of a difficult Financial sitvation through
cooperation with all of his ereditors. Second, and
move important, the preference provisions
facilitate the prime bankruptcy policy of equality
af distribution among creditors of the debtor.

Any orediter that received a greater payment than
others of hie class ia required to disgorge so
that eli may share equally. The opa@ration of che
preference section to deter ‘the race of
diiigence’ of creditors to dismember the delster
before bankruptcy furthers the second geal of the
preference section-that of aquality of
distribution.” [R.R. Rep. Ne. 95-595), at LI7-178
[(1e7Ti], U.g. Cede Cong. & Admin. Hews 1978, pp.
6137, 9138.

te. at 160-61.

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Before addressing the merits of Wagner's preference chaim,

the Court will examine Turner's affirmative Gefenses to determine

if any of them preclude proof of any required element’’.

eeeea ee cee rwan een ei

ua got, even before addressing the ingividuel affirmative
defenses, the Court wants to clarify a misunderstanding that
pervades preference cases. In many cases, courts state that
there aze no Gafenses to a preference action except those
specifically listed in sub-section (c}. See, #.¢. Gonzales v.
Food Marketing Grove {To re Fu rrig Sunegmarkets, Ing.j, 240 BR.
1, & (Bankr. BD. N.M. 2004) (*[Section] 547 (c) is the exclusive
list of defenses available to preferential transfers.”) This
statement does not mean that a defendant cannot challenge the
elements that a trustee must prove Lo establish a preference.
See 11 U.8.c. $ Sait). In other words, a defendant 1s free to
allege and attempt to prove that the transfer was not made with
debtor's property, that ie was not a ereditor, 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, 8.0. Sloan vw. ions
Firat Nat! 1 Bank {Inte Castletens, Ane.., 990 F.,a¢ $851, 555
fldth Cir. 1993) (Trustee's avoidance Claim rejected because “she
did net satisfy her burden of proof under § 547th) (h)".) Rather,
the statement necessarily means that, once the elements of
section S47 (bh) are proved and the preference established, the
only remaining defenses to the trustee’s recovery of Ehat
preference are these set forth in section 547 (ch. BEusbten vi 8 &
& Inter. Enter... Inc. (In tk Eleva. Inc.i, 235 B.R. 486, 488
(las Cir. BAP 1999} ("Once a trustee hag astablished that a
transfer is a preference, a creditor may assert a defense as
provided in 1i u.8.c. 6 Sat{e}).")

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— se

ow

dealing with the Wagner cress-claim. The defense of failure to
atate a claim will be deelt with below.

As to “the funds are not praperty of the estate", we are
dealing with a claim that a payment by VCR to Turner before VCR's
bankruptcy was a preference. It is undisputed that Turner 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
Tenén Circuit follows the “deminion and control” test. Bailey v.

Bia Sky Motors, Ltd, (In re Ocgen), 314 F.3d 1190, 1202 [10° Cis,

2002). “Dominion” over money ig the right to pot the money to
one's own purpose, Id. {Citation omitted}. There is really no
argument that the $300,000 aid not become property of VCR. IC
was deposited in its general account and cocmingled. Several
deys later VCR wreete a check ta Turnor for $200,000. fe

deposited it.

The Bankruptey Code dees not define “property of
the debter.” Because the purpose of the avoidance
provision is to preserve the property includable within
the bankruptcy estate-the property available for
distribution to ereditors-“property of the debtor”
subject to the preferential transfer provision is best
understood as that property that would have been part
of the estate had it not been transferred before the
commencement of bankruptcy proceedings.

Regier v. Interna] Revenue Serviges, 496 U.3, 53, 58 (1930). Tf

VOR hacl not written the check for $290,000 te Turner Lt would
have heen part of the estate. The payment was from property of

the debtor. To the extent Turner may be arguing that VCR never

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had an interest in the $300,000, that argument is also not well
taken. Under Ogden, @ debter obtaing rights even if the property
is obtained by fraud, Ggden, 314 F.3d at 1198, ot borrowed. Id.
at 1199. And, a repayment of a fraudulent Gebt to the victim is
made with the debtor's funds and can be a preference. Id, at
1202 n.7.

As te “the estate lacks title [te the $162,000)", this
affirmative defense is more properly directed to the Gonzales
elaim, It is meaningless in this context.

As to “the transfer was in good faith without knowledge of
the bankruptcy”, it is unclear which “tyansfer” Turner refers.
First, there was his transfer of $300,000 to VCR. Second, VOR
transferred $200,000 back to Turner. Finally, and irrelevant to
Wagner's claim for a preference, Turner transferred $200,090 tao
Ewing or to Ewing as agent for Vaughan. The lack of ¢larity is
irrelevant, however, because all three transfers were before
there was a bankruptcy about which knowledge could he had.
Furthermore, the goed faith of & preference recipient is totally

icrelevant.

“[&) aceditor's state of mind has nathing whatsoever to
do with the policy of equality of distribution, and
whether or not he knows of the debtor's insolvency dees
Little to comfort creditars similaziy situated who will
receive that much less from the debtor's estate as a
result of the prebankruptay transfer to the preferred
creditor.” H.R.Rep. No. 595, 95th Cong., lst Sess. 17é
(1977}, 1978 U.S.C.C.A.N. S787, 5963, 6139,

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Clark v. Baloor Real Estate Finances. tne, (in re Meridi th Hotimen

Partnersl, 12 F.3d 1849, 1557 (10 Cir.|, cert. denied, 512 U.S,

1206 (1994). See alse Meoli_y. Huntinstan Nat'l Bank iin re

Teieservices Group, Inc.l, 444 B.R. 467, 807 (Bankr. W.d, Mich.

2011):

'N]o moral agenda drives the rationale for recovering a
preference, Rather, the remiirements for recovery
simply reflect whatever else cengress intended to
accomplish through Section 5347's enactment.

‘{t should come as no suxprise, then, thet the
Section S47(t) defenses givé scant attentian to the
recipient's good faith. After all, the underlying
purpose of a preferential recovery is toa ensure & more
equitable distribution. Consequently, preference lay
is indifferent to whether the recipient af the
preference was aware or not of the inequity oreated
when the preference Was made -

(Footnete omitted.) Ang see Ogden, 314 F.3d at 1201 (It is
generally the affect of the transaction, rather than the debtor

or creditor's intent, that is eentrolling.); Gillv. Hig fin ce

Perma Pacific Presertigsi, 923 F.2d 964, 963 (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.)

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In has reply brief, Turner for the first time claims that
the payment he received was not on acceunk of an antecedent debt
and elec that the exchange was contemporaneous. Neither argument
is velid. First, while his proofs of claim snows that he was an
antecedent “erediter,” 3s does his Material Fact 3, he argnes
that the $200,000 he cashed on February 5, 2010 was not “on
eccount’ of those debts. He does not suggest, however, what the
$200,000 was “on account of” if net a debt; surely he is net
claiming that VOR gifted him $200,000. He only argues that it
WAS A contemporaneous exchange. hat was contenporaneoua,
however, was his teesipt from VOR of $200,000 and hia payment the
same day of $206,000 to Ewing as agent for Vaughan. ‘This is not
contemporaneous because there are different entities. These
defenses are not weil taken.

Finally, the final issue is whether Wagner has stated a
claim.

To eatabliish a voidable preference the Trustee

must prove all five elements of $ S47(b). They are.

any transfer of property of the debtar=

(l} to or for the benefit of a crediter;

(2) fox of of account of an antecedent debt owed by the

debtor before such transfer was made;

(3) made while the debtor was inselvent;

(4) macde-
(BA) on or within 90 days before the date of the filing

ef the petition;...
(5) thet enables auch craditor to receive mere than

such crediter would receive if+

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fA) the case were 4 case under Chapter 7 of this title;
{B) the transfer had net been made: anc

fC} such crediter received payment of such debt to the
extent provided by the provisions of this title.

Eckles v. Pan American Marketing (in re Balduces O11 Co.) 33
B.R. 843, 845 (Bankr. BD. Cola. 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.

@lements:

Element Proof

nee

Wagner fact 13 - the funcs came
from VOR‘ a checking account,

Property of the debtor.

1) to ox for the benefit of Wagner fects 13-15.

TUENEE. ;

24) On account of antecedent Wagner fact 18; Turner faet 4;

debt. Turner's two proofs of claim;
discussion on page 34.

3} made when debtor was Wagner fact L?.

insolvent.

4) made within 90 days of Wagner fact 1é,

filing.

5) @nables Turner to receive , Turner fact 13.

more than in liquidation
(“Chapter 7 test}.

aa aye eens Pree a =

Therefore, Wagner is entitled to a judgment on her ¢regs-
claim against Turner, and a separate judgment will enter awarding
her $200,000 plus pre-judgment interest From the filing of the
qcroes-claim and post-judgment interast from the date of entry of

the judgment.

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conc Lugs ron

For the reasons set forth above, the Coyrt finds that
Turner’s Motion for Summary Judgment against beth Wagner and
Gonzales {doc 41) is not well taken and will be denied. The
Court alsa finds that Gonzales’ Motion for Summary Judgment
against beth Turner and Wagner (dec 47} ia not well taken and
will be denied. The Court alse finds that Wagner’s Motion for
Summary Judgment against Turner is well taken and a Judgment in

conformity with this Opinion will be entered separately.

Honorable James 8. Starzynski
United States Bankruptay Judge

Date Entered on Gocket: March 28, 2012
Copies toa:

George M Moore

Attorney for Gonzales

Moore, Berksen & Gandarills, F.C.
FO Box 7459

Albuquerque, NM &715¢4

Christopher F. Bauman
Attorney for Turner

Bauman, Dow & Lean, PO

PO Box 20684 '
Albuquerque, NM 87190-D684

Edward Alexander Mazel
Attorney For Wagner
“Arland & Aseociates, LLC
201 Srd ST NW, STE 505
Albuquerque, NM 87102-3331

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