United States v. Goforth , 465 F.3d 730 ( 2006 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 06a0370p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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Plaintiff-Appellee, -
UNITED STATES OF AMERICA,
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No. 04-6362
EDWARD T. AUGUSTINE,
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Intervenor-Appellee, >
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v.
BILLIE D. GOFORTH; MILDRED GOFORTH; AMEDICO, -
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Defendants, -
INC.,
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THOMAS A. GILLEY, as Administrator of the Estate
Defendants-Appellants. -
of George D. Gilley; SHEILA GILLEY,
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Appeal from the United States District Court
for the Middle District of Tennessee at Nashville.
No. 01-01540—William J. Haynes, Jr., District Judge.
Argued: September 11, 2006
Decided and Filed: October 4, 2006
Before: DAUGHTREY and COLE, Circuit Judges; BERTELSMAN, District Judge.*
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COUNSEL
ARGUED: Howard J. Bashman, LAW OFFICES OF HOWARD J. BASHMAN, Willow Grove,
Pennsylvania, for Appellants. John K. Neal, UNITED STATES DEPARTMENT OF JUSTICE,
Washington, D.C., for Appellees. ON BRIEF: Howard J. Bashman, LAW OFFICES OF
HOWARD J. BASHMAN, Willow Grove, Pennsylvania, William P. Suriano, LAW OFFICES OF
WILLIAM P. SURIANO, Riverside, Illinois, for Appellants. John K. Neal, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C., Robert T. Bateman, BATEMAN & BATEMAN,
Clarksville, Tennessee, for Appellees.
*
The Honorable William O. Bertelsman, United States District Judge for the Eastern District of Kentucky,
sitting by designation.
1
No. 04-6362 United States v. Goforth, et al. Page 2
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OPINION
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BERTELSMAN, District Judge. Defendants-Appellants Sheila Gilley and Thomas A.
Gilley, Independent Administrator of the Estate of George D. Gilley (“the Gilleys”), appeal the
district court’s grant of summary judgment to the government on claims under the Federal Debt
Collection Procedures Act (“FDCPA”), 28 U.S.C. § 3304, and common law unjust enrichment. The
Gilleys argue that the district court improperly concluded that Sheila Gilley was unjustly enriched
when (1) a certificate of deposit that she posted as collateral for a $725,000 bank loan to her
husband’s company, against which the government had filed a False Claims Act suit, was returned
to her after the loan was released; and when (2) a loan of $250,000 that she made to her husband’s
company was repaid. Further, the Gilleys argue that the district court improperly found that monthly
payments made to Sheila Gilley by her husband from 1993 to 1996 constituted fraudulent transfers
under the FDCPA.
The government counters that the district court properly found that Sheila Gilley was
unjustly enriched when the loans she made to her husband’s insolvent company were repaid in full,
while the government has never been recompensed for the money that George Gilley fraudulently
obtained from it. The government further argues that the district court correctly found that the
monthly payments made by George Gilley to his wife from 1993 to 1996 were fraudulent under two
separate provisions of the FDCPA because they were not made for “reasonably equivalent value”
and they were made with the actual intent to defraud the government.
We conclude that the district court incorrectly entered summary judgment in the
government’s favor and, therefore, we VACATE that decision in its entirety and REMAND for
proceedings in accord with this opinion.
I. BACKGROUND
In November 2000, the United States of America recovered a $10 million judgment against
a defunct home health care company, Century Health Services, Inc. (“Century”), and two of its
former executives, George D. Gilley and Billie D. Goforth, on claims under the False Claims Act
for misuse of Medicare reimbursement funds.1
Unable to obtain satisfaction of this judgment from the defendants, the government filed suit
in November 2001 against the wives of George D. Gilley and Billie D. Goforth, alleging that the
wives should be held liable under the FDCPA and common law theories of unjust enrichment to
satisfy, at least in part, the judgment rendered against their husbands.2
The government moved for summary judgment in August 2003. The government eventually
reached a settlement with the Goforths but it proceeded to seek summary judgment against the
Gilleys, based on three main arguments. First, the government asserted that Sheila Gilley was liable
1
The lengthy background to this litigation is found both in the district court’s opinion herein, as well as in
United States v. Century Health Serv., Inc., 136 F. Supp. 2d 876 (M.D. Tenn. 2000). That litigation began in 1996 as
a qui tam action by relator Edward T. Augustine (“Augustine”), in which the United States intervened. Augustine is the
intervenor in this action, and he and the government apparently have reached an agreement regarding the relator’s share
of any amount collected on the underlying False Claims Act judgment.
2
Also named as defendants in this action were the estate of George D. Gilley, who was by then deceased, and
Amedico, Inc., a related corporate entity. Amedico defaulted and the district court entered a judgment against it in the
amount of $500,000. That judgment is not at issue in this appeal.
No. 04-6362 United States v. Goforth, et al. Page 3
under the theory of unjust enrichment in relation to a $740,000 certificate of deposit (“CD”) which
she owned and which, in May 1996, she put up as collateral for a $725,000 loan to Century by South
Holland Bank. The CD was released to Mrs. Gilley in September 1996, when the loan was paid off
with proceeds from the sale of the bulk of Century’s assets to another health care company. Second,
the government asserted that Sheila Gilley was liable under the principle of unjust enrichment for
$250,000, the amount of a loan that she made directly to Century in April 1996, which also was
repaid following the sale of Century’s assets. Third, the government asserted that Sheila Gilley was
liable under the FDCPA for $465,200, the total amount of monthly payments that she received from
her husband from 1977 to 1996, allegedly to cover household expenses.3
The government based only its third claim -- the “household expense” payments -- on the
FDCPA. Its summary judgment motion on the first two grounds rested only on the theory of unjust
enrichment, although it made reference in its brief to the policies and considerations of the FDCPA.
In an opinion and order dated August 17, 2004, the district court found in favor of the
government and entered judgment in the amount of $1,069,600, consisting of: (1) $725,000, the
amount of the South Holland Bank loan to Century which was secured by Sheila Gilley’s CD;
(2) $250,000, the amount of the April 1996 loan made by Sheila Gilley to Century; and (3) $94,600,
the sum of monthly payments made by George Gilley to his wife from 1993 to 1996.4 The court
based its award on the first two components of the judgment on both the FDCPA, 28 U.S.C.
§ 3304(a)(2), and the theory of unjust enrichment. Its award on the third component was based only
on the FDCPA, 28 U.S.C. § 3304(a)(1).
In their timely appeal, the Gilleys challenge all aspects of the district court’s opinion, order,
and judgment.
II. JURISDICTION AND STANDARD OF REVIEW
The district court had jurisdiction over this case pursuant to 28 U.S.C. § 1345 because the
United States was the plaintiff, as well as under 28 U.S.C. § 1331, because the action arose under
a federal statute, the FDCPA. This court has appellate jurisdiction under 28 U.S.C. § 1291.
This court reviews de novo the district court’s grant of summary judgment. Bender v.
Hecht’s Dep’t Stores, 455 F.3d 612, 619 (6th Cir. 2006) (citation omitted). In reviewing the record
in this case, we draw all reasonable inferences in favor of defendants as the nonmovants. Id.
(citation omitted).
III. ANALYSIS
A. Unjust Enrichment5
The elements of an unjust enrichment claim under Tennessee law, which the parties agree
applies here, are: (1) a benefit conferred upon the defendant by the plaintiff; (2) appreciation by the
3
These monthly payments ranged from $1800 to $2000.
4
The court found that, as to the pre-1993 transfers, the government could not prove by clear and convincing
evidence that George Gilley made such payments in order to defraud creditors, as required under 28 U.S.C. § 3304(b).
5
Although the district court relied on the FDCPA in analyzing the two loans at issue, the government concedes
on appeal that it never asserted the FDCPA as a basis for those claims and that it is relying here only on the theory of
unjust enrichment. The government also essentially concedes that it did not seek recovery under the FDCPA as to these
two transactions because such claims would have been time-barred.
No. 04-6362 United States v. Goforth, et al. Page 4
defendant of such benefit; and (3) acceptance of such benefit under such circumstances that it would
be inequitable for him or her to retain the benefit without payment of the value thereof. Freeman
Indus., LLC v. Eastman Chem. Co., 172 S.W.3d 512, 525 (Tenn. 2005) (citation omitted). “Under
Tennessee law, to establish an unjust enrichment claim, a plaintiff must have conferred a benefit
upon the defendant.” Perry v. The American Tobacco Co., Inc., 324 F.3d 845, 851 (6th Cir. 2003)
(citing Paschall’s, Inc. v. Dozier, 219 Tenn. 45, 407 S.W.2d 150, 155 (1966)).
The government’s claims for unjust enrichment against Sheila Gilley based on the release
of her CD by the South Holland Bank and the repayment by Century of the $250,000 loan fail
because the government conferred no benefit, directly or indirectly, on Sheila Gilley in connection
with these transactions. It is undisputed that the CD was at all times Sheila Gilley’s property and,
upon repayment of the South Holland Bank loan, the encumbrance incurred through its
collateralization was simply released. Sheila Gilley was left with nothing more than what she owned
in the first place. Similarly, the repayment by Century of the $250,000 loan from Sheila Gilley was
simply the fulfillment of a contractual obligation, and it conferred no “benefit” on Gilley.
In analogous circumstances, courts have found that the theory of unjust enrichment may not
be used to allow a stranger to a loan contract or promissory note to seek funds repaid pursuant to
such an agreement. For example, in Comerica v. Suburban Trust and Savings Bank, No. 95-1551,
1996 WL 585888 (6th Cir. Oct. 10, 1996), we held that the repayment of loans by a company who
fraudulently pledged the same collateral to different lenders did not unjustly enrich the lender who
was repaid while other lenders’ loans went unsatisfied. Applying the Michigan standard for unjust
enrichment, which is arguably broader than Tennessee’s, this court nonetheless found that the
repayment of a loan under such circumstances did not support a claim for unjust enrichment:
First, Comerica has failed to establish that Columbia received any “benefit” from
Comerica. The record reflects that Columbia loaned Computer Leasco $1.87 million
in exchange for a promissory note, which was repaid in full. Comerica does not
allege that Columbia was paid more than what was due. Unlike the cases cited by
Comerica, no benefit arose from plaintiff that was inappropriately or illegally
transferred to defendant. . . . Second, no inequity has been shown by Columbia’s
retention of the amounts it was owed. To allow Comerica to recover against
Columbia would be to substitute one promisor, in this case Computer Leasco, with
another, Columbia, an impermissible result under unjust enrichment law.
Id. at *8 (citations omitted). See also Voest-Alpine Trading USA Corp. v. Vantage Steel Corp., 919
F.2d 206, 220-21 (3d Cir. 1990) (holding that trial court exceeded its discretion in fashioning
remedy for fraudulent conveyance by entering judgment for unsecured creditor which was stranger
to loan guarantee contract).
In B.E.L.T., Inc. v. Wachovia Corp., 403 F.3d 474 (7th Cir. 2005), several banks that had lost
money to an insolvent borrower sued another bank, First Union, that had been repaid on loans it
issued to the same borrower. Seeking to recoup those repayments, the plaintiff banks asserted
several theories, including unjust enrichment. The Seventh Circuit rejected their claim, stating:
“Anyway, repayment of a loan is not ‘unjust’ enrichment.” Id. at 477.
Similarly, in Nat’l Am. Ins. Co. v. Indiana Lumbermens Mut. Ins. Co., No. 99-2637, 2000
WL 975176 (7th Cir. July 11, 2000), the plaintiffs issued performance bonds to a construction
company which, in turn, used funds intended for certain construction projects to pay creditors on
other projects that were bonded by defendants. When the construction company defaulted on several
projects bonded by the plaintiffs, plaintiffs were forced to perform. Thereafter, they sued the
defendant bond issuers on the theory of unjust enrichment seeking to recover the amounts they had
been repaid by the construction company. The Seventh Circuit rejected this claim as a matter of law,
No. 04-6362 United States v. Goforth, et al. Page 5
stating there could be no unjust enrichment where the alleged “enrichment” was “innocently
conferred by a third party according to a contractual or legal obligation.” Id. at *3 (citations
omitted). Thus, because the defendants’ “benefit” -- not having to perform on their bonds -- was a
consequence of the repayments to creditors that the construction company was contractually
required to make, such benefit was not unjust and did not violate “fundamental principles of justice,
equity, and good conscience.” Id. (citation omitted).
The reasoning of these cases is persuasive. Here, the government was a stranger to the
respective loan agreements between Sheila Gilley, South Holland Bank, and Century. Sheila Gilley
did not receive an unjust benefit just because the loans were repaid: she received nothing more than
that to which she was contractually entitled. The theory of unjust enrichment is simply inapplicable
to these facts.6
The government essentially argues that these transactions are akin to preferences, such as
would be voidable in bankruptcy. A preference, however, is a creature of statute rather than tort.
See B.E.L.T., 403 F.3d at 477 (“Calling the receipt of a preference ‘unjust enrichment’ does not
change matters; a preference by any other name is still a preference and cannot be recovered outside
bankruptcy.”). Moreover, there is no evidence that Sheila Gilley’s possession of the CD or the
$250,000 was fraudulent.
Therefore, we vacate the district court’s grant of summary judgment in favor of the
government on its claim for unjust enrichment against Sheila Gilley.
B. FDCPA
1. § 3304(a)(1)(A)
The district court held that the government was entitled to recover $94,600 from defendants
under the FDCPA, 28 U.S.C. § 3304(a)(1)(A), for monthly transfers made by George Gilley to his
wife from 1993 to 1996. That portion of the FDCPA states:
(a) Debt arising before transfer. -- Except as provided in section 3307, a transfer made or
obligation incurred by a debtor is fraudulent as to a debt to the United States which arises
before the transfer is made or the obligation is incurred if --
(1)(A) the debtor makes the transfer or incurs the obligation without receiving a
reasonably equivalent value in exchange for the transfer or obligation; and
(B) the debtor is insolvent at that time or the debtor becomes insolvent as a result of
the transfer or obligation.
28 U.S.C. § 3304(a)(1) (emphasis added).
The terms “reasonably equivalent value” and “value” are both defined in the FDCPA:
(a) Transaction. -- Value is given for a transfer or an obligation if, in exchange for the
transfer or obligation, property is transferred or an antecedent debt is secured or satisfied,
6
The district court’s opinion contains no analysis as to the unjust enrichment claim. Instead, it recites the
elements of a FDCPA fraudulent transfer claim. As previously noted, however, the government did not premise its
claims as to the two loan transactions on that statute because they likely would have been time-barred. Thus, the
government’s claims as to these two loan transactions rise or fall only on the theory of unjust enrichment.
No. 04-6362 United States v. Goforth, et al. Page 6
but value does not include an unperformed promise made otherwise than in the ordinary
course of the promisor’s business to furnish support to the debtor or another person.
(b) Reasonably equivalent value. -- For purposes of sections 3304 and 3307, a person gives
a reasonably equivalent value if the person acquires an interest of the debtor in an asset
pursuant to a regularly conducted, noncollusive foreclosure sale or execution of a power of
sale for the acquisition or disposition of such interest upon default under a mortgage, deed
of trust, or security agreement.
28 U.S.C. § 3303(a), (b).
The district court held that the payment of household expenses by Sheila Gilley in return for
the monthly payments from her husband would not constitute “reasonably equivalent value” under
the FDCPA. In support, the district court cited one case, Carneal v. Leighton, 237 F. Supp. 2d 104,
110 (D. Me. 2002), in which the court held that under the Maine Uniform Fraudulent Transfer Act,
a husband’s transfer of money to his wife for the payment of household expenses and the support
of the children was fraudulent because he did not receive “reasonably equivalent value” in return.
Although the district court cited no cases contrary to Carneal, we note that the greater weight
of authority holds, in cases applying state statutes comparable to the FDCPA as well as in
bankruptcy cases applying a similar fraudulent transfer provision7, that a debtor does indeed receive
“reasonably equivalent value” when he/she makes payments to his/her spouse (or co-habitant) that
are used for household expenses. See Gonzalez v. Wells Fargo Bank, N.A. (In re Gonzalez), 342
B.R. 165, 172-73 (Bankr. S.D.N.Y. 2006); Slone v. Brennan (In re Fisher), No. 03-33161, 2006 WL
1452498, at *7-8 (Bankr. S.D. Ohio Jan. 20, 2006); Schilling v. Montalvo (In re Montalvo), 333 B.R.
145, 150 (Bankr. W.D. Ky. 2005); Morris v. Vansteinberg (In re Vansteinberg), No. 01-15474, 02-
5151, 2003 WL 23838125, *5-6 (Bankr. D. Kan. Nov. 26, 2003); Reitmeyer v. Meinen (In re
Meinen), 232 B.R. 827, 842-43 (Bankr. W.D. Penn. 1999).
Here, Sheila Gilley submitted affidavit testimony stating that the monthly allowances she
received from her husband were used to pay living expenses such as food, clothing, utilities,
gasoline, property taxes, and travel expenses. The government adduced no evidence to contradict
this testimony. We therefore hold that the district court erred by granting summary judgment to the
government on this claim.
2. § 3304(b)(1)(A)
The district court also held that the monthly transfers from George Gilley to Sheila Gilley
from January 1993 through December 1996 were fraudulent on the alternative ground that they were
made with the intent to hinder, delay, and defraud the government, within the parameters of 28
U.S.C. § 3304(b)(1)(A).
The government argues that the Gilleys have waived any challenge to this alternative holding
because they did not argue it in their opening brief. The Gilleys counter that their extensive
arguments as to “reasonably equivalent value” preserve their challenge to this alternative ground
because the FDCPA provides a defense to claims under § 3304(b) for transfers “with respect to a
7
Section 548(a)(1)(B) of the Bankruptcy Code permits the trustee to avoid “constructive fraudulent transfers”
which are defined, in part, as ones for which the debtor receives “less than a reasonably equivalent value.” 11 U.S.C.
§ 548(a)(1)(B). At least one court has noted the applicability of bankruptcy cases applying this provision to cases
brought under the fraudulent transfer provisions of the FDCPA. See Vancampen v. United States, No. Civ. A. 95-1436-
FGT, 1997 WL 873537, at *4 (D. Kan. July 9, 1997).
No. 04-6362 United States v. Goforth, et al. Page 7
person who took in good faith and for a reasonably equivalent value or against any transferee or
obligee subsequent to such person.” 28 U.S.C. § 3307(a).
We have held that where an argument advanced in an appellant’s opening brief applies to
and essentially subsumes an alternative basis for affirmance not separately argued therein, the
appellant does not waive that alternative basis for affirmance. Stambaugh v. Corrpro Co., No. 03-
3904, 2004 WL 2625036, at *5 (6th Cir. Nov. 17, 2004). Because the Gilleys’ arguments regarding
“reasonably equivalent value” would apply equally to the defense under § 3307(a), this authority
would negate the government’s waiver argument.
However, it is not apparent to us that this defense was raised before the district court. If it
was, we nonetheless conclude that, inasmuch as the Gilleys concede that there is a triable issue
concerning whether and when Sheila Gilley had reasonable cause to believe that her husband was
insolvent, there would likewise be a triable issue as to the “good faith” component of § 3307(a).
IV. CONCLUSION
For the aforementioned reasons, we VACATE the judgment of the district court and
REMAND for proceedings in accord with this opinion.