Universitas Education, LLC v. Avon Capital, LLC, 124 F.4th 1231 (10th Cir., 2024).
Opinion 2024 Oklahoma Federal Compliance Receiver Opinion2024UniversitasComplianceReceiver
Related Article: None.
AI Synopsis
♦ The Tenth Circuit affirmed the district court’s re-entry of summary judgment and receivership orders in a long-running collection action stemming from a $30 million insurance fraud scheme. The litigation followed a prior appellate vacatur which had found that the judgment creditor, Universitas, allowed its registered New York judgment to expire under Oklahoma’s five-year enforceability statute before the district court issued its initial order. Upon remand, the district court re-adopted its summary judgment and receivership rulings after Universitas re-registered the judgment. The Tenth Circuit rejected the debtors' jurisdictional arguments, holding that the district court properly exercised its power to maintain the status quo and that re-registering the foreign judgment cured the enforceability defect without requiring a new lawsuit. Addressing the merits, the court dismissed the appellants' claim that Oklahoma law restricted the creditor’s remedy to a charging order. The court clarified that while charging orders are the exclusive remedy against a member's interest in an LLC, they do not preclude a receivership over the LLC’s own assets—in this case, a $6.7 million insurance portfolio—when the entity itself is the judgment debtor. Given the extensive history of fraudulent transfers and the use of shell companies to hide assets, the court found that the district court acted well within its equitable discretion to appoint a receiver to carry the judgment into effect. This decision effectively prevents judgment debtors from using corporate structures and procedural "gaps" to evade long-standing financial obligations. ♦
Universitas Education, LLC v. Avon Capital, LLC, 124 F.4th 1231 (10th Cir., 2024).
United States Court of Appeals, Tenth Circuit.
UNIVERSITAS EDUCATION, LLC, Petitioner/Judgment Creditor - Appellee,
v.
AVON CAPITAL, LLC, a Connecticut limited liability company, Respondent/Judgment Debtor,
Asset Servicing Group, LLC, Respondent/Garnishee,
and
SDM Holdings, LLC, Respondent/Garnishee - Appellant.
Avon Capital, LLC, a Wyoming limited liability company, Intervenor.
Universitas Education, LLC, Petitioner/Judgment Creditor – Appellee,
v.
Avon Capital, LLC, a Connecticut limited liability company, Respondent/Judgment Debtor,
and
Asset Servicing Group, LLC; SDM Holdings, LLC, Respondents/Garnishees.
Avon Capital, LLC, a Wyoming limited liability company, Intervenor - Appellant.
Universitas Education, LLC, Petitioner/Judgment Creditor - Appellee,
v.
Avon Capital, LLC, a Connecticut limited liability company, Respondent/Judgment Debtor,
and
Asset Servicing Group, LLC; SDM Holdings, LLC, Respondents/Garnishees.
Avon Capital, LLC, a Wyoming limited liability company, Intervenor - Appellant.
Ryan T. Leonard, Esq., Receiver.
Universitas Education, LLC, Petitioner/Judgment Creditor – Appellee,
v.
Avon Capital, LLC, a Connecticut limited liability company, Respondent/Judgment Debtor,
and
Asset Servicing Group; SDM Holdings, LLC, Respondents/Garnishees.
Avon Capital, LLC, a Wyoming limited liability company, Intervenor - Appellant.
Nos. 23-6125 and 23-6167, Nos. 23-6126 and 23-6168, Nos. 24-6066 and 24-6033
No. 24-6006
FILED December 31, 2024
PAGE_1237
Appeal from the United States District Court for the Western District of Oklahoma (D.C. No. 5:14-FJ-00005-HE)
Attorneys and Law Firms
Francis M. Schneider (Alan L. Rupe, with him on the briefs), Lewis Brisbois Bisgaard & Smith LLP, Wichita, Kansas, for Appellant Avon Capital.
Jeffrey R. Sandberg, Palmer Lehman Sandberg, PLLC, Dallas, Texas, for Appellant SDM Holdings, LLC.
Joseph Karam, Alexandria, Virginia (Joseph L. Manson III, Law Offices of Joseph L. Manson, III, Alexandria, Virginia, on the briefs), for Petitioner-Appellee Universitas Education, LLC.
Before TYMKOVICH, MORITZ, and CARSON, Circuit Judges.
Opinion
TYMKOVICH, Circuit Judge.
Universitas Education, LLC seeks to recover funds it lost in an elaborate insurance fraud scheme. The underlying litigation PAGE_1238 occurred in the Southern District of New York, leading to a civil judgment against multiple defendants. Among the corporate entities allegedly used to perpetrate the fraud was Avon Capital, LLC and several of its affiliates located in Oklahoma, Nevada, and Wyoming. In its efforts to collect on the judgment, Universitas sought to garnish a $6.7 million insurance portfolio held by SDM Holdings, which Avon owns, located in Oklahoma. Universitas claimed the portfolio was the fruit of stolen funds and that Avon and its sister subsidiaries were shell companies of the primary defendant.
After registering the judgment in Oklahoma, Universitas sought summary judgment on its entitlement to the funds. The district court entered summary judgment for Universitas and authorized a receivership over Avon and SDM. Avon and SDM appealed, claiming a myriad of procedural defects and disputes on the merits. On appeal, however, this court vacated the summary judgment order on mootness grounds, without discussing the merits of summary judgment. We determined that the district court could not rely on the registered judgment because its five-year effective term expired before the district court had entered its order. Universitas Educ. LLC v. Avon Cap. LLC (Universitas I), No. 21-6044, 2023 WL 5005654 (10th Cir. Aug. 4, 2023) (unpublished). We remanded for further proceedings.
This appeal is about the district court's jurisdiction and its orders upon remand. After Universitas re-registered the New York judgment, but before the first appeal was concluded, the district court re-entered summary judgment in its favor, and reauthorized the receivership over Avon and SDM. Avon and SDM challenge that ruling, claiming the district court lost jurisdiction over the claims and that Universitas did not properly revive them as required by Oklahoma law. They claim that the district court's only option was to dismiss the suit and that Universitas was required to file a new lawsuit and re-register the New York judgment.
We affirm. The district court retained jurisdiction during the appeal to preserve the status quo, including the exercise of equitable powers over Avon and SDM. The district court properly re-affirmed its summary judgment and receivership orders after it received our mandate, fn1 correctly concluding that Universitas did not need to file a new cause of action.
fn1. A mandate is both a superior court's instructions to a lower court and a jurisdictional event by which jurisdiction transfers from the superior court back to the lower court. Infra (II)(A)(1).
I. Background
Daniel Carpenter devised and carried out an insurance fraud scheme that, among other wrongdoing, defrauded Universitas of thirty million dollars in life insurance proceeds. Mr. Carpenter's scheme involved acquiring third-party life insurance policies from unsuspecting beneficiaries with the promise to hold them in trust, but withholding the benefits when they became due, and laundering the money through a vast web of interconnected shell companies. This fraud was uncovered, and Mr. Carpenter was convicted for his crimes. fn2
---
fn2. Since then, cases involving Mr. Carpenter, his fraudulent activities, and attempts to collect on debts against him have littered the pages of federal reporters. E.g. Universitas Educ. LLC v. Grist Mill Cap'l LLC, No. 21-2690, 2023 WL 2170669 (2d Cir. Feb. 23, 2023), cert. denied, ––– U.S. ––––, 144 S. Ct. 184, 217 L.Ed.2d 74 (2023); United States v. Bursey, 801 F. App'x 1 (2d Cir. 2020); United States v. Carpenter, 941 F.3d 1 (1st Cir. 2019); Universitas Educ., LLC v. Nova Grp., Inc., 784 F.3d 99 (2d Cir. 2015); United States v. Carpenter, 494 F.3d 13 (1st Cir. 2007).
In its efforts to recover losses, Universitas filed a civil lawsuit in the Southern District of New York, naming as defendants PAGE_1239 a group of Mr. Carpenter's corporate entities. One of those entities was Avon Capital, LLC, a Connecticut company. Universitas eventually secured a judgment in that suit for $30.6 million in 2014, of which $6.7 million was against Avon Capital, LLC.
It soon became clear that Avon would be difficult to pin down. As we recounted in Universitas I
- Between 2006 and 2007, three Avon [Capital] LLC entities were formed: a Nevada LLC (“Avon-NV”) in June 2006, a Connecticut LLC (“Avon-CT”) in November 2006, and Avon-WY in May 2007. Each of these Avon entities was ninety-nine percent owned by Carpenter Financial and one percent owned by Caroline Financial—both of which were controlled by Daniel Carpenter.Universitas was the sole beneficiary of two life insurance policies totaling $30 million. Carpenter dispersed Universitas's $30 million in life insurance policies among his shell entities via a complex series of transactions. One of these transactions was a $6,710,065.92 transfer from Grist Mill Capital, a shell entity controlled by Carpenter, to Avon-NV's TD Bank account. Although Avon-NV's tax identification number was used to open the TD Bank account, Avon-CT was the entity involved with the ... transactions.Meanwhile, Avon-WY acquired a one hundred percent membership interest in SDM. The payments for the acquisition were made from Avon-NV's TD Bank account on behalf of Avon-WY. Although Avon-WY was administratively dissolved for failure to maintain a registered agent during the transactions, Avon-WY was the signatory on the SDM purchase agreement.
2023 WL 5005654, at PAGE_2 (internal quotation marks omitted).
Universitas registered the New York judgment in the Western District of Oklahoma on November 7, 2014. It sought to garnish the benefits of Avon and SDM's life insurance portfolio. Avon-WY intervened, arguing that it was not the Avon Capital LLC identified by the New York Judgment. The parties disputed whether the various Avon entities were distinct corporations, or mere alter egos of each other.
The district court referred cross-motions for summary judgment, along with follow-on evidentiary motions, to the magistrate judge, who issued a 73-page Report and Recommendation finding that the entities were “one and the same for purposes of their liability to Universitas.” App., Vol. 8 at 1800. The magistrate judge also determined that, because Avon-WY fraudulently acquired the SDM insurance portfolio using stolen funds (provided by Avon-NV), the insurance portfolio was subject to garnishment.
The district court reviewed the magistrate judge's recommendations and agreed with all of them, granting summary judgment to Universitas over the objections of Avon and SDM. App., Vol. 8 at 1931. The district court traced the fraudulently transferred funds to Avon-WY's acquisition of SDM Holdings life insurance portfolio and pierced Avon-WY's corporate veil to allow Universitas to execute the judgment against the insurance portfolio. In an order issued February 11, 2021, the district court enjoined Avon-WY from transferring or disbursing any of its interests in SDM and placed it into a receivership under Oklahoma law.
PAGE_1240
The problem is under Oklahoma Statute § 12-735(B), “[a] judgment shall become unenforceable and of no effect if more than five (5) years have passed from the date ... [t]he last garnishment summons was issued.” By the time the district court entered its order, more than five years had passed since Universitas had filed the New York judgment in Oklahoma—the judgment expired in December 2020 and the district court's order issued February 2021. The New York judgment remained valid, but Universitas did not refile it in Oklahoma before the five-year period ended.
On appeal in Universitas I, SDM and Avon argued that the district court lost jurisdiction when the judgment expired. We agreed, even though Universitas had refiled its judgment during the appeal, but not until after the district court entered summary judgment. The panel found that since Universitas had not refiled its New York judgment before the summary judgment order was entered, under Oklahoma law the court lost the jurisdictional basis for the claims. App., Vol. 16 at 3887. The panel thus found the appeal was moot because of the jurisdictional defect and vacated the district court's orders.
On the same day as our ruling (July 13, 2023) Universitas renewed its summary judgment and receivership requests based on the refiled New York judgment. In the same order the court set a status conference to address the effect of the panel's opinion, but “in the interim,” it “preliminarily” readopted its order enjoining Avon. Id. It ruled a preliminary injunction was necessary to “freeze the status of all parties and their related interests in SDM, based on the facts and circumstances previously addressed, pending the pretrial conference.” Id. at 1892 n.1.
At the status conference on August 15, the district court made clear that although the mandate had not yet been returned to the court, it “didn't want to get in a situation where we had the status quo upset until the case was back here” and to “address some of those preliminary matters and to make sure we don't have some untoward developments simply based on actions taken in the gaps between the time that the Court can address them and when the case is returned from the circuit.” App., Vol. 17 at 4220–21. After the conference, the court issued an order “effective as of the issuance of the mandate” and “subject to the reacquisition of subject matter jurisdiction,” permanently readopting its vacated order, including summary judgment and injunctive relief. Id. at 4083–84. The district court also re-appointed the receiver in a later order.
While this was going on, Avon and SDM filed petitions for appellate rehearing in Universitas I. On August 4, 2023, we granted in part and denied in part the rehearing petitions and filed an amended opinion without additional briefing or argument. The amended opinion deleted language that confirmed “Universitas's refiling of the expired judgment ... makes the judgment presently enforceable under [Taracorp, Ltd. v. Dailey, 419 P.3d 217 (Okla. 2018)],” and remanded to the district court to conduct “further proceedings.” Id. The amended opinion did not change the central holding or outcome of the appeal. After we filed our amended opinion, the district court reaffirmed and reentered its previous orders “effective as of the issuance of the mandate.” Avon and SDM appealed once the mandate issued and that order became final.
The sequencing of these events can be seen more clearly on a timeline:
PAGE_1241
_[Diagram omitted]
II. Analysis
Avon and SDM raise a combined cascade of nineteen issues on appeal that can be sorted into jurisdictional arguments and merits arguments. We address jurisdictional issues first, before proceeding to the merits.
A. Jurisdiction
“A federal court is clothed with power to secure and preserve to parties the fruits and advantages of its judgment or decree.” Berman v. Denver Tramway Corp., 197 F.2d 946, 950 (10th Cir. 1952). And in post-judgment collection or garnishment proceedings, a district court properly possesses jurisdiction to enforce a federal judgment. Peacock v. Thomas, 516 U.S. 349, 356, 116 S.Ct. 862, 133 L.Ed.2d 817 (1996) (Ancillary jurisdiction is appropriate in “subsequent proceedings for the exercise of a federal court's inherent power to enforce its judgments.”); see also 13 Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure § 3523.2 (5th ed. 2024) (Stating that ancillary jurisdiction “include[s] those acts that the federal court must take in order properly to carry out its judgment on a matter as to which it has jurisdiction.”).
Federal law establishes some of the steps that a judgment creditor must take to collect in a jurisdiction different from the original action. Under 28 U.S.C. § 1963, “[a] judgment in an action for the recovery of money or property entered in any ... district court ... may be registered by filing a certified copy of the judgment in any other district.” Once registered in a new district, the judgment “shall have the same effect as a judgment of the district court of the district where registered and may be enforced in like manner.” Id.
But beyond this federally authorized registration process establishing Article III jurisdiction, state procedure takes over. Under Federal Rule of Civil Procedure 69, “[t]he procedure on execution—and in proceedings supplementary to and in aid of judgment or execution—must accord with the procedure of the state where the court is located.” And Rule 69 “requires only substantial compliance with the procedural provisions of any controlling state statutes or case law.” Bartch v. Barch, 111 F.4th 1043, 1057 (10th Cir. 2024).
Under Oklahoma law, once registered in Oklahoma a foreign judgment is enforceable for five years. Okla. Stat. § 12-735(B). But so long as the original judgment remains enforceable in its home jurisdiction (here, New York), § 12-735 allows that judgment to be refiled, starting a new five-year period of enforceability. PAGE_1242 Taracorp, 419 P.3d 217. New York judgments can be registered for up to 20 years.
In sum, the district court's jurisdiction in this case was established by federal law and guided by state procedure. Yet Avon and SDM attack jurisdiction on three grounds based on Universitas I: (1) they question the district court's authority to issue orders during the prior appeal; (2) they insist the case should have been dismissed in its entirety after the mandate issued in Universitas I; and (3) they argue jurisdiction could not be cured under Oklahoma law by a refiled judgment.
We discuss each argument in turn and ultimately find none persuasive.
1. Jurisdiction Before the Universitas I Mandate
_[Deleted for brevity.]
2. Jurisdiction After the Mandate
_[Deleted for brevity.]
B. Merits
1. Motions to Strike and for Additional Discovery
_[Deleted for brevity.]
2. Summary Judgment
_[Deleted for brevity.]
3. Receivership
Finally, Avon and SDM argue that the district court erred by reappointing a receiver over Avon Capital-WY and its interests in SDM Holdings. According to them, Oklahoma law only allows the court to issue a “charging order,” which acts as a lien on any transferrable interest in an asset, along with a right of foreclosure against that asset. Okla. Stat. § 54-1-504(a). Separately, they also claim the district court abused its discretion by incorrectly weighing the factors for appointing a receiver.
The appointment of a receiver is reviewed for an abuse of discretion. SEC v. Scoville, 913 F.3d 1204, 1213 (10th Cir. 2019). If the appointment of the receiver rests on interpretation of an authorizing statute, the district court's interpretation is reviewed de novo. Navajo Nation v. Dalley, 896 F.3d 1196, 1206 (10th Cir. 2018).
Whether Oklahoma law permits the district court to appoint a receiver, rather than merely issue a charging order, turns on which assets that Universitas seeks to collect. Avon and SDM are both LLCs. Under Okla. Stat. § 18-2034, the typical remedy for collecting on membership interest in an LLC is a charging order.
But the charging order limitation applies only to membership interests, meaning the interest that a member of the LLC has in the LLC itself. Those interests are distinct from the LLC's own assets. See Okla. Stat. § 18-2032 (“A capital interest is personal property. A member has no PAGE_1250 interest in specific limited liability company property.”). Universitas is not seeking to collect against an Avon member, but against the LLC itself, by garnishing assets that are in the possession of SDM. The district court agreed, and any error in that decision does not rise to an abuse of discretion under Oklahoma law.10
fn10. In the alternative, Universitas argues that it should be permitted to recover regardless of the statutory limitations because Avon is engaged in fraud, and the statute provides that “the rules of law and equity shall supplement” the remedies available to creditors. Mattingly Law Firm, P.C., 466 P.3d at 595. Equity favors the appointment of a receiver here. See Oklahoma Co. v. O'Neil, 440 P.2d 978, 987 (Okla. 1968).
Oklahoma law supports the appointment of receivers only when one of the six circumstances in Okla. Stat. § 12-1551(1)–(6) are met. These circumstances include: when property is shown to be in danger of being lost; to carry a judgment into effect; to dispose of or preserve property subject to a judgment during an appeal; or any circumstance in which Oklahoma courts of equity have appointed receivers.
The district court did not abuse its discretion in weighing the circumstances under Okla. Stat. § 12-1551. Avon and SDM provide little analysis beyond simply disagreeing with the district court's weighing of discretionary factors. fn11 Their disagreement rests on the conclusion that Avon-WY is part of a vast network of interrelated entities used to perpetrate fraud—a conclusion that is amply supported by the record and was detailed in the magistrate judge's recommendation. That conclusion naturally led the district court to find that the indebted property was in danger of being lost, removed, or materially injured, that the receivership would assist in the execution of judgment. And prior courts of equity authorized receiverships in similar situations. See Oklahoma Co. v. O'Neil, 440 P.2d 978, 987 (Okla. 1968); Anglo-Am. Royalties Corp. v. Brentnall, 167 Okla. 305, 29 P.2d 120, 121 (1934).
fn11. Avon and SDM failed to raise these disagreements when the district court reappointed the receiver. And arguments waived in the district court must show plain error to succeed on appeal. In Re Rumsey Land Co., 944 F.3d 1259, 1271 (10th Cir. 2019). But Avon and SDM challenged the district court's weighing of the circumstances when the court first imposed a receiver, prior to Universitas I. See App., Vol. 10 at 2438–51. Universitas I did not reach that argument. Given the circumstances, we find it proper to address it now.
The district court did not abuse its discretion.
III. Conclusion
It is worth pausing to reflect on this case's broader context: In 2008, Mr. Carpenter stole $30 million worth of life insurance proceeds that were meant for Universitas. Universitas received its arbitration judgment against Mr. Carpenter and his entities, including Avon, in 2012. That judgment is valid for twenty years. Mr. Carpenter has been tried and convicted for his fraudulent business activities—twice. See generally, United States v. Carpenter, 405 F. Supp. 2d 85 (D. Mass. 2005); United States v. Carpenter, 190 F. Supp. 3d 260, 274 (D. Conn. 2016). He has been sentenced and even fully served out those sentences in the years since Universitas first received its judgment. While Mr. Carpenter's debt to society may have been repaid, his entities’ debts to Universitas certainly have not.
The district court's orders are AFFIRMED.