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McNamara v. Voltage Pay Inc.

United States District Court, D. Nevada

August 28, 2017

Thomas W. McNamara, Plaintiff
Voltage Pay Inc., et al., Defendant



         I appointed the plaintiff receiver to wind up the affairs of a group of companies recently involved in a consumer-fraud scheme (the “Receiver Entities”).[1] These companies' directors were stealing money from consumers through micro-transactions: making illicit charges on accounts that were too small for consumers to notice. The FTC discovered what the directors were doing and sued them, and I appointed the plaintiff receiver to take over their businesses.

         The receiver brings this case against one of the online payment-processing companies that the entities used to carry out their scheme, Voltage Pay Inc.[2] The receiver alleges that Voltage unfairly profited by accepting fees to process the fraudulent charges on consumers' accounts. The receiver wants these fees back and alleges claims against Voltage for fraudulent transfer, unjust enrichment, and accounting.

         Voltage moves to dismiss, arguing that the receiver has not alleged facts to support any of his claims. I agree. The parties' primary dispute is over the fraudulent-transfer claim. This claim is usually brought by a creditor when one of its debtors tries to divert money to a third party so that the creditor can't get to it. If the creditor can show that the debtor intentionally transferred the money to hamper the creditor, or that the transfer was a sham because no value was given to the debtor in return-the creditor can force the third party to disgorge the money.

         The problem here is that the receiver's complaint alleges only that the Receiver Entities paid Voltage in an arms-length transaction for payment-processing services. This would be like treating a burglar's purchase of a crow bar as a fraudulent transfer merely because he later used the tool to carry out a crime. There are no allegations plausibly suggesting that the payment of fees to Voltage was a sham or otherwise a fraudulent transfer of funds. Indeed, the complaint contains few allegations about Voltage at all, alleging only that it was a “middleman” between the Receiver Entities and other payment processors. Because there are insufficient facts to support any claims against Voltage, I grant its motion.


         I recently appointed the receiver after finding that the Receiver Entities's directors committed fraud against consumers by illicitly making charges to their bank accounts.[3] The directors were using the Receiver Entities to obtain consumers' financial information from third-party vendors and run unauthorized charges on their accounts.

         The receiver's complaint alleges almost nothing about what role Voltage played in this scheme. It states that Voltage was a “middleman” between the Receiver Entities and some third party companies that processed payments, that Voltage “worked with” third parties to arrange for payment processing, and that Voltage received “fees, fines, and other amounts” of at least $700, 000 for doing what it did.[4] What the complaint does not say is what Voltage did to earn those fees.[5]


         A. Judgment-on-the-pleadings standards

         The standard governing a motion for judgment on the pleadings is functionally identical to a motion to dismiss.[6] The complaint must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.”[7] While the rules do not require detailed factual allegations, they demand more than “labels and conclusions” or a “formulaic recitation of the elements of a cause of action.”[8] “Factual allegations must be enough to rise above the speculative level.”[9] To survive a motion to dismiss, a complaint must “contain [] enough facts to state a claim to relief that is plausible on its face.”[10]

         B. Fraudulent-transfer claims

         The receiver brings two species of fraudulent-transfer claim: actual fraud and constructive fraud. The actual-fraud version requires proof that the debtor (the Receiver Entities) transferred money “with actual intent to hinder, delay, or defraud any creditor of the debtor.”[11] Presumably, the creditors here are the Receiver Entities that want their money back.[12]

         But the complaint is devoid of any allegation suggesting that money was transferred to Voltage to hinder, delay, or defraud anyone. The only plausible reading of the complaint's facts is that the Receiver Entities paid Voltage in arms-length transactions for its payment-processing services. There are no allegations plausibly suggesting that the payor intended anything else.

         The receiver argues that it is enough to allege that the scoundrel directors of the Receiver Entities committed fraud and used Voltage's services as part of that fraud, but not so. The receiver does not cite any on-point authority, and the relevant case law cuts against his position. Courts regularly refuse to claw back money from innocent third parties involved in fraudulent schemes. Even in the context of Ponzi schemes where investors overtly profit from fraud, the payments to the investors are not necessarily fraudulent transfers.[13] The receiver suggests that Voltage conspired in the consumer fraud because it should have realized that Ideal was illicitly charging customers. That may be, but it does not make the fees that Voltage collected for its payment-processing services a fraudulent transfer. Ultimately, to state a claim under an actual-fraud theory, the receiver must allege specific facts suggesting that Ideal transferred money to Voltage to hinder or defraud a creditor. And he has not done that.

         The receiver fares no better under the constructive-fraud theory. This claim requires proof that (1) the Receiver Entities were insolvent at the time they paid Voltage fees, and (2) Voltage did not give the Receiver Entities anything of “reasonable equivalent value” in return for these fees.[14] In other words, the receiver must allege facts plausibly suggesting that Voltage's fees were a sham rather than a legitimate charge for services rendered. For example, in In re Fitness Holdings Int'l, Inc., a company on the brink of bankruptcy transferred all of its assets to a single shareholder, purportedly to pay the shareholder back for a loan.[15] The Ninth Circuit held that even though the payment was made when the company was insolvent, it ...

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