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McNamara v. Hallinan

United States District Court, D. Nevada

September 28, 2019

LINDA HALLINAN, et al., Defendants.


          Gloria M. Navarro, District Judge.

         Pending before the Court is the Motion to Dismiss, (ECF No. 29), filed by Defendants Carolyn Hallinan and Linda Hallinan (collectively “Defendants”). Plaintiff Thomas W. McNamara (“McNamara”) filed a Response, (ECF No. 33), and Defendants filed a Reply, (ECF No. 36).

         Also pending before the Court is Defendants' Motion to Stay Proceedings, (ECF No. 98). For the reasons discussed herein, Defendants' Motion to Dismiss is GRANTED in part and DENIED in part. Furthermore, Defendants Motion to Stay is DENIED as moot.

         I. BACKGROUND

         This case arises from McNamara's exercise of authority as court-appointed monitor (“Monitor”) over the judgment debtor's assets in Fed. Trade Comm'n. v. AMG Servs., Inc., 2:12-cv-00536-GMN-VCF (“FTC v. AMG”). In FTC v. AMG, the Court granted summary judgment in favor of the Federal Trade Commission (“FTC”) and against defendant Scott Tucker (“Tucker”) and his businesses for a payday lending scheme in violation of the FTC Act, 15 U.S.C. § 45(a)(1). See FTC v. AMG, No. 2:12-cv-00536-GMN-VCF, 2016 WL 5791416 (D. Nev. Sept. 30, 2016), aff'd sub nom. Fed. Trade Comm'n v. AMG Capital Mgmt., LLC, 910 F.3d 417 (9th Cir. 2018).

         The FTC initially brought its action against Tucker and his entities in 2012, alleging that Tucker orchestrated a massive payday lending enterprise engaging in criminal and deceptive practices. Their Complaint brought claims for violations of § 5(a) of the FTC Act, the Truth in Lending Act, and the Electronic Funds Transfer Act. The FTC also named as defendants ten entities, including three of Tucker's loan servicing companies (one of which was NM Service Corp. (“NMS”)), three Indian tribes, and four corporate lending companies, all allegedly under Tucker's control in furtherance of his scheme. (See Am. Compl. ¶ 24, ECF No. 20).

         Relevant here, the Court found that the FTC's evidence established that Tucker, through his loan servicing companies, including NMS, directed the creation of sham lending corporations, also under Tucker's control. FTC v. AMG, 2016 WL 5791416, at *6-7. The Court also concluded that the FTC put forth “overwhelming evidence” demonstrating that Tucker and his lending companies operated a common enterprise, for which they are jointly and severally liable for one another's wrongful conduct. Id. at *9.

         The Court granted FTC its requested injunctive relief, enjoining Tucker from assisting “any consumer in receiving or applying for any loan or other extension of Consumer Credit.” Id. at *14. The Court also ordered that Tucker and his entities pay approximately $1.27 billion in equitable monetary relief to the FTC, based on consumer losses between 2008 and 2012. Id. at *12.

         The parties subsequently negotiated a stipulated proposed order to resolve post-judgment matters including, inter alia, a stay of execution, asset freeze pending appeal, and the appointment of a monitor to oversee the freeze and preserve assets to support the Court's monetary judgment, (ECF No. 195). The Court granted the parties' stipulated order (the “Appointment Order”), and appointed McNamara as Monitor, authorizing him to preserve and recover assets on behalf of the Monitorship Estate. (See Appointment Order § VII.R, Ex. A to Am. Compl., ECF No. 20-1). The Appointment Order defines the Monitorship Estate as “[a]ll of Scott Tucker's . . . and the Monitor Entities' Assets, wherever they may be located, in whosever possession they may be found, whether owned directly or indirectly.” (Id. § VI). Monitor Entities are defined as several corporate defendants and entities formerly controlled by Tucker, as well as their successors, assigns, affiliates, subsidiaries. (Id. Definitions § H). Assets, in turn, encompass “any legal or equitable interest in, right to, claim to, any real, personal, or intellectual property wherever located . . . ” (Id. Definitions § A).

         Under the Appointment Order, McNamara is vested with authority to, among other things, “[c]onduct such investigation and discovery . . . as may be necessary to locate and account for additional Assets (including Assets held by either Persons or entities other than a Defendant) belonging to, or held by others for the benefit of, any Defendant or Monitorship Entity, for inclusion in the Monitorship Estate.” (Id. § VIII.G). McNamara is also directed and authorized to initiate or become a party to “proceedings in state, federal or foreign courts that the Monitor deems necessary and advisable to preserve or recover the Monitorship Estate or to carry out the Monitor's mandate under this order.” (Id. § VIII.R). Pursuant to this authority, McNamara filed a series of suits, including the instant one, to claw back allegedly fraudulent transfers on behalf of the Monitorship Estate.

         Prior to McNamara's appointment, Tucker exercised complete and exclusive control over the common payday lending enterprise, including, but not limited to, the Monitor Entities, all related entities, and all assets of the Monitorship Estate. (Am. Compl. ¶ 34). During the period of his control, Tucker, through his various entities, never took any action to address or mitigate the harms caused by his common enterprise, instead electing to conceal his ill-gotten gains. (Id. ¶ 35). According to McNamara, Tucker's efforts to transfer assets were only uncovered and rendered legally actionable upon his appointment as Monitor. (Id.).

         In February 2016, during the pendency of the FTC's civil suit against Tucker and his affiliated entities, Tucker was indicted on fourteen felony counts in the Southern District of New York arising from his payday lending operation. (Id. ¶¶ 37-38). On October 13, 2017, Tucker was convicted on all fourteen counts as charged and was subsequently sentenced to serve 200 months in prison. (Id. ¶ 39). In March 2016, Charles Hallinan (“Hallinan”), Tucker's co-conspirator and owner of one half of the profits and assets of NMS, was indicted on seventeen counts in connection with his related payday lending enterprise. (Id. ¶ 40). Based upon evidence gathered in Tucker's indictment, Hallinan was alleged to have participated with Tucker in a conspiracy to collect unlawful debts, make usurious loans, and shield these activities from regulators by engaging in sham transactions. (Id. ¶¶ 41-42). Hallinan was convicted on all seventeen counts in the Eastern District of Pennsylvania on November 27, 2017. (Id. ¶ 43).

         In the present case, McNamara alleges that Defendants-the adult daughters of Hallinan, Tucker's co-conspirator-received hundreds of thousands of dollars from Monitor Entities in the form of purported “interest payments” on a loan. (Am. Compl. ¶¶ 4-5, ECF No. 20). In July 2002, Defendants supposedly made a $500, 000 loan to C.B. Service Corp.-an entity controlled by Tucker, owned by Monitor Entity NMS, and allegedly established as a sham to conceal Tucker and Hallinan's identity and minimize risk of legal exposure. (Id. ¶¶ 13, 67-68). The loan carried an interest rate of 24 percent per annum, based upon which, C.B. Service Corp. sent Defendants monthly payments between 2003 and 2008, totaling $630, 000. (Id. ¶¶ 14-17).

         According to McNamara, the loan was a mechanism designed to deprive NMS and related Tucker-controlled entities of their money by diverting the assets to Defendants, the family of Tucker's close business partner and co-conspirator. (Id. ¶ 15). McNamara contends there was no legitimate purpose behind these payments; rather they were intended to “hinder, delay, or defraud the Monitor Entities, ” in contravention of their interests and against their will. (Id. ¶ 18).

         McNamara filed the instant action to claw back these allegedly fraudulent transfers on behalf of the Monitorship Estate. (Id. ¶ 21). McNamara brings the following causes of action against Defendants: (1) fraudulent transfer; (2) restitution/unjust enrichment; and (3) equitable accounting. (Id. ¶¶ 103-121). Defendants now move to dismiss, contending, inter alia, that McNamara has exceeded his authority under the Appointment Order by bringing this suit. (See generally Defs.' Mot. to Dismiss (“MTD”), ECF No. 29).


         Dismissal is appropriate under Rule 12(b)(6) where a pleader fails to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). A pleading must give fair notice of a legally cognizable claim and the grounds on which it rests, and although a court must take all factual allegations as true, legal conclusions couched as factual allegations are insufficient. Twombly, 550 U.S. at 555. Accordingly, Rule 12(b)(6) requires “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Id. “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. This standard “asks for more than a sheer possibility that a defendant has acted unlawfully.” Id.

         “Generally, a district court may not consider any material beyond the pleadings in a ruling on a Rule 12(b)(6) motion.” Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1555 n.19 (9th Cir. 1990). “However, material which is properly submitted as part of the complaint may be considered.” Id. Similarly, “documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading, may be considered in a Ruling on a Rule 12(b)(6) motion to dismiss. Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994). On a motion to dismiss, a court may also take judicial notice of “matters of public record.” Mack v. S. Bay Beer Distrib., 798 F.2d 1279, 1282 (9th Cir. 1986). Otherwise, if a court considers materials outside of the pleadings, the motion to dismiss is converted into a motion for summary judgment. Fed.R.Civ.P. 12(d).

         If the court grants a motion to dismiss for failure to state a claim, leave to amend should be granted unless it is clear that the deficiencies of the complaint cannot be cured by amendment. DeSoto v. Yellow Freight Syst., Inc., 957 F.2d 655, 658 (9th Cir. 1992). Pursuant to Rule 15(a), the court should “freely” give leave to amend “when justice so requires, ” and in the absence of a reason such as “undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of the amendment, etc.” Foman v. Davis, 371 U.S. 178, 182 (1962).


         Defendants move to dismiss McNamara's Amended Complaint (the “Complaint”) on the following grounds: (a) McNamara's suit exceeds the scope of his authority under the Appointment Order; (b) the fraudulent transfer claim fails because the underlying allegations are not pleaded with sufficient particularity; (c) the unjust enrichment claim is not cognizable under these facts and, regardless, is barred by the applicable statute of limitations; and (d) the claim for equitable accounting fails to state a claim. (MTD 4:16-14:14, ECF No. 29).

         The Court turns first to the threshold issue of whether the Appointment Order vests McNamara ...

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