Quilling v. Schonsky , 247 F. App'x 583 ( 2007 )

IN THE UNITED STATES COURT OF APPEALS
United States Court of Appeals
FOR THE FIFTH CIRCUIT Fifth Circuit
F I L E D
September 18, 2007
No. 07-10093
Charles R. Fulbruge III
Summary Calendar Clerk
MICHAEL J. QUILLING,
Receiver for Sardaukar Holdings, IBC,
and Bradley C. Stark,
Plaintiff-Appellee,
v.
JEFFREY MARC SCHONSKY,
Defendant-Appellant.
Appeal from the United States United States District Court
for the Northern District of Texas
No: 3:05-CV-2122
Before REAVLEY, SMITH, and BARKSDALE, Circuit Judges.
JERRY E. SMITH, Circuit Judge:*
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
No. 07-10093
Jeffrey1 Schonsky appeals a summary judgment and the denial of his Fed-
eral Rule of Civil Procedure 60(b) motion to vacate. Finding no error, we affirm.
I.
This case arises out of payments made by Bradley Stark, the treasurer for
Sardaukar Holdings, IBC (“Sardaukar”), a Ponzi scheme, from Sardaukar’s JP
Morgan bank account to Schonsky. Stark transferred (1) $6,195.63 to Ben
Bridge Jeweler #48 on December 17, 2004, for the purchase of a Rolex watch;
(2) $175,000.00 directly to Schonsky on February, 24, 2005; and (3) $6,719.42 to
Alienware on May 5, 2005, for a laptop computer. Michael Quilling has been
appointed receiver for Sardaukar and attempts to recover the value of those
transfers.
On July 1, 2005, the Securities and Exchange Commission (“SEC”) sued
various defendants, including Sardaukar and Stark, for the sale of unregistered
securities. See SEC v. Megafund Corp., No. 3-05-CV-1328-L (N.D. Tex. filed Ju-
ly 1, 2005). The SEC alleged that Stark and Sardaukar had raised over $13 mil-
lion from unwitting investors through a high yield investment program scheme
whereby the “trader” promised to pool investors’ funds, generate high returns by
engaging in arbitrage, send participants a risk-free 10% return per month, and
donate a portion of trading profits to charitable causes. In Megafund, the court
appointed Quilling as receiver for all defendants, with power to
take[] exclusive jurisdiction and possession of the assets, monies,
securities, claims in action, and properties, real and personal, tangi-
ble and intangible, of whatever kind and description, wherever situ-
ated, of [the defendants] and any entities they control (“Receivership
Assets”), and the books and records of [the defendants] (“Receiver-
ship Records”).
1
In his pro se brief, the appellant spells his first name “Jeffery,” but the official docket
sheet shows the name as “Jeffrey.”
2
No. 07-10093
Quilling was
authorized to institute, defend, compromise or adjust such actions
or proceedings in state or federal courts now pending and hereafter
instituted, as may in his discretion be advisable or proper for the
protection of the Receivership Assets or proceeds therefrom, and to
institute, prosecute, compromise or adjust such actions or proceed-
ings in state or federal court as may in his judgment be necessary
or proper for the collection, preservation and maintenance of the
Receivership Assets.
The Receiver is hereby authorized to institute such actions or pro-
ceedings to impose a constructive trust, obtain possession and/or
recover judgment with respect to persons or entities who received
assets or funds traceable to investor monies.
Using his authority as receiver, Quilling sued for $187,915.05, the sum at-
tributable to the amounts given Schonsky by Stark. All transfers were made
from Sardaukar’s JP Morgan Chase bank account, in which investor money had
been pooled. Schonsky does not dispute receiving the funds, the watch, or the
computer, nor does he claim to be an investor.
After Quilling had moved for summary judgment on September 6, 2006,
the district court (per a magistrate judge assigned by consent) issued a schedul-
ing order giving Schonsky until September 26 to respond. On September 25 the
court received a letter from Schonsky in which he admitted to “receiv[ing] mon-
ies from Mr. Stark, who was a friend.” Attached to the letter was a copy of the
scheduling order. Treating the letter as his response to the motion, the court
entered summary judgment in favor of Quilling on December 19, 2006. Schon-
sky filed a rule 60(b) motion to vacate the summary judgment, which the court
denied.
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No. 07-10093
II.
A.
We review a summary judgment de novo, applying the same standard as
does a district court. United States v. Lawrence, 276 F.3d 193, 195 (5th Cir.
2001). Summary judgment is proper where “the pleadings, depositions, answers
to interrogatories, and admissions on file, together with the affidavits, if any,
show that there is no genuine issue as to any material fact and that the moving
party is entitled to a judgment as a matter of law.” FED. R. CIV. P. 56(c). The
moving party has the burden to show that “there is an absence of evidence to
support the nonmoving party’s case.” Freeman v. Tex. Dep’t of Crim. Justice, 369
F.3d 854, 860 (5th Cir. 2004) (citing Celotex Corp. v. Catrett, 477 U.S. 317(1986)). The nonmoving party then “must set forth specific facts showing that
there is a genuine issue for trial.” FED. R. CIV. P. 56(e). Mere “metaphysical
doubt” as to material facts is not enough. Matsushita Elec. Indus. Co., Ltd. v.
Zenith Radio Corp., 475 U.S. 574, 586 (1986).
Quilling pursued his claims under the Uniform Fraudulent Transfer Act
(“UFTA”), which provides,
(a) A transfer made or obligation incurred by a debtor is fraudulent
as to a creditor, whether the creditor’s claim arose within a reason-
able time before or after the transfer was made or the obligation was
incurred, if the debtor made the transfer or incurred the obligation:
(1) with actual intent to hinder, delay or defraud any creditor
of the debtor ....
TEX. BUS. & COMM. CODE § 24.005.
Schonsky has not challenged the existence of a Ponzi scheme in the district
court or this court. The issue, then, is whether Quilling presented sufficient evi-
dence that a Ponzi scheme existed. He did.
A Ponzi scheme is “[a] fraudulent investment scheme in which money con-
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No. 07-10093
tributed by later investors generates artificially high dividends for the original
investors.” BLACK’S LAW DICTIONARY 1180 (8th ed. 2004). A record custodian’s
analysis of bank records and sworn testimony to Ponzi scheme asset distribution
is enough to shift the burden of proof to the non-movant. See Warfield v. Byron,
436 F.3d. 551, 559 (5th Cir. 2006). Quilling’s affidavit, attached to the summary
judgment motion, firmly establishes that Sardaukar’s bank account at JP Mor-
gan Chase was in receipt of investor funds and was the source of Stark’s gifts to
Schonsky. That is enough to shift the burden to Schonsky. Because he does not
challenge the Ponzi scheme, there is no dispute as to its existence.
Under the UFTA, transfers made from a Ponzi scheme are presumptively
made with intent to defraud, because a Ponzi scheme is, as a matter of law, in-
solvent from inception. Warfield, 436 F.3d at 558. When construing an identi-
cally worded Washington statute,2 this court held that a transferee’s knowledge
was irrelevant to the determination of whether the transfer was made with in-
tent to delay or defraud a debtor. Id. For this reason, Schonsky’s claim that he
did not know the gifts came from a Ponzi scheme fails. Because Quilling met his
summary judgment burden and Schonsky did not, summary judgment is appro-
priate.
B.
Schonsky argues that the district court abused its discretion by not grant-
ing him rule 60(b) relief. Particularly, he contends that his due process rights
were violated because he did not receive notice of the summary judgment motion
2
There are no Texas Supreme Court cases addressing the requisite mental state nec-
essary under the UFTA, so we must make an “Erie guess” as to the correct construction of the
statute. Mayo v. Hartford Life Ins. Co., 354 F.3d 400, 406 (5th Cir. 2004). In Warfield, 436
F.3d at 558, we made an Erie guess as to the appropriate construction of Washington’s iden-
tically worded UFTA. We agree with the Warfield panel that the statute’s plain meaning is
the best guide to the Texas Supreme Court’s likely view: We conclude that the transferee’s
knowledge is irrelevant to deciding whether transfers were made with an intent to defraud.
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No. 07-10093
filed by Quilling and, in the alternative, that he was ineffectively represented by
counsel with respect to possible settlement.
We review denial of a rule 60(b) motion for abuse of discretion. Seven
Elves, Inc. v. Eskenazi, 635 F.2d 396, 402 (5th Cir. Unit A Jan. 1981). “To over-
turn the district court’s denial . . . it is not enough that a grant of the motion
might have been permissible or warranted; rather, the decision to deny the mo-
tion must have been sufficiently unwarranted as to amount to an abuse of dis-
cretion.” Fackelman v. Bell, 564 F.2d 734, 736 (5th Cir. 1977).
Rule 60(b) provides that
[o]n motion and upon such terms as are just, the court may relieve
a party or a party's legal representative from a final judgment, or-
der, or proceeding for the following reasons: (1) mistake, inadver-
tence, surprise, or excusable neglect; (2) newly discovered evidence
which by due diligence could not have been discovered in time to
move for a new trial under Rule 59(b); (3) fraud (whether heretofore
denominated intrinsic or extrinsic), misrepresentation, or other mis-
conduct of an adverse party; (4) the judgment is void; (5) the judg-
ment has been satisfied, released, or discharged, or a prior judgment
upon which it is based has been reversed or otherwise vacated, or it
is no longer equitable that the judgment should have prospective ap-
plication; or (6) any other reason justifying relief from the operation
of the judgment.
Fed. R. Civ. P. 60 (b). Schonsky did not indicate upon which clause he based his
motion. The district court correctly determined that only clauses 1 and 6 are
applicable.
Concerning clause 1, the court evaluated whether there was “mistake, in-
advertence, surprise, or excusable neglect,” FED. R. CIV. P. 60(b), in light of
Schonsky’s allegation that he had no notice of the pending motion and that his
counsel had withdrawn in July. Neither of these bases was enough. Although
we have held that failure to receive notice is a basis for a rule 60(b) motion under
the “excusable neglect” exception, McKenzie v. Principi, 83 Fed. App’x 642 (5th
Cir. 2003), that is not the situation here.
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No. 07-10093
The district court noted that Schonsky’s letter was responsive to the sum-
mary judgment motion and had a copy of the court’s scheduling order attached.
Although Schonsky alleges that he received no documents from Quilling after
the withdrawal of his counsel on July 21, 2006, the record indicates that Quilling
served his summary judgment motion on Schonsky at his home address, the ad-
dress on file with the court and the address to which the scheduling order went.
“Proof that a letter properly directed was placed in a U.S. post office mail re-
ceptacle creates a presumption that it reached its destination in the usual time
and was actually received by the person to whom it was addressed.” Beck v.
Semerset Techs., Inc., 882 F.2d 993, 996 (5th Cir. 1989).
There is nothing in the record, therefore, to indicate that Schonsky lacked
notice of the summary judgment motion or hearing or that his counsel’s with-
drawal affected his receipt of the pleadings at issue; the evidence is to the con-
trary. The district court therefore did not abuse its discretion in denying the
rule 60(b) motion with respect to clause 1.
Schonsky also asserts that he was entitled to have the summary judgment
vacated because he used the money to care for his ailing father. This contention
arguably falls under the catch-all clause, which allows relief from judgment for
“any other reason justifying relief from the operation of the judgment.” FED. R.
CIV. P. 60(b)(6). The situation must be “extraordinary” to fall within that excep-
tion. United States ex rel. Garibalidi v. Orleans Parish Sch. Bd., 397 F.3d 334,
337 (5th Cir. 2005). Though the main thrust of rule 60(b) is “to balance the prin-
ciple of finality of a judgment with the interest of the court in seeing that justice
is done in light of all the facts,” a claimant cannot rely solely on the court’s sense
of justice. Castleberry v. CitiFinancial Mortgage Co., 230 Fed. App’x 352, 356
(5th Cir. 2007) (per curiam) (quoting Hesling v. CSX Transp., Inc., 396 F.3d 632,
638 (5th Cir. 2005)). Schonsky’s appeal to the care of his father is not enough for
rule 60(b)(6) relief.
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No. 07-10093
The summary judgment is AFFIRMED.
8