UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ALASKA

             1. INTRODUCTION-   The court has already entered a final judgment in this case and the Maags have appealed to the U.S. District Court. The parties have agreed, however, that: (a) the Maags will withdraw their appeal; (b) the court         6 ABR 356  will vacate its final judgment so it can enter this Memorandum more fully explaining its rulings; and, (c) then reenter a final judgment.

             2. DISCUSSION-

             2.1. Procedural History- Plaintiff Larry Compton, the trustee, moved for entry of final judgment against defendants Randy Maag and Alene Maag for the amounts they individually received from the debtors which exceed their respective investments ("net gain") as fraudulent conveyances under Alaska law. Based upon the trustee's motion for summary judgment, filed in this proceeding,⁽¹⁾ and the companion global motion filed in the Bonham Recovery Actions⁽²⁾ adversary proceeding (the BRA), ⁽³⁾ the court entered a final judgment⁽⁴⁾ in favor of the trustee and against defendants for their net gain.

        On the same day that the court entered the judgment, unbeknownst to the court, defendants filed a motion to permit a late opposition and cross-motion for summary judgment⁽⁵⁾ and an opposition to the trustee's summary judgment         6 ABR 357  motions.⁽⁶⁾ Ten days later, defendants moved to vacate the judgment⁽⁷⁾ and filed a notice of appeal.⁽⁸⁾

        The basis of defendants' opposition to the trustee's motion for partial summary judgment filed in the BRA to establish a Ponzi scheme⁽⁹⁾ is that the trustee has failed to plead and prove that the defendants participated in RaeJean Bonham's fraudulent schemes. Also, the Maags have previously joined in various other motions filed by other defendants in the BRA, the most significant of which is the argument that Alaska law does not prohibit the fraudulent conveyance of money.

        The trustee opposed defendants' motion to vacate this court's final judgment. A hearing on the motion to vacate was held on January 11, 2000. During oral argument, the parties agreed (with the court's consent) that the Maags would withdraw their appeal, and the court would vacate entry of final judgment to allow the court to enter this written decision in the Maag adversary proceeding on a number of motions for which the court has previously announced tentative oral decisions.

             2.2. Summers v Hagen and the Transferee's Intent- At oral argument, the court expressed its opinion that it was not necessary for the trustee to plead or prove under Alaska law that a recipient of an actual fraudulent transfer participated in the fraudulent transfer with the actual intent to hinder, delay or         6 ABR 358  defraud the transferor's creditors. The court adopts those statements made at oral argument, including its finding that Summers v Hagen⁽¹⁰⁾ does not add any additional elements to a claim of fraudulent conveyance, but is limited to a common law for conspiracy to participate in a fraudulent conveyance. Under Alaska law it is the actual intent of the transferor, the debtors in this matter, that alone determines whether the transfer was fraudulent.

             2.3. AS 34.40.010- Defendants have also joined in motions challenging the application of AS 34.40.010 to a fraudulent transfer of money.⁽¹¹⁾ I have previously stated my intention to deny these motions, have done so in individual BRA adversaries, and now do so specifically in this adversary proceeding.

        The ancestor of the Alaska Fraudulent Conveyance Act is the English Statute of Elizabeth,⁽¹²⁾ which was adopted in various forms by every state. Alaska's current statute, and its predecessors,⁽¹³⁾ have their roots in Oregon.⁽¹⁴⁾ None of the parties have been able to find a case on point in Alaska or Oregon discussing         6 ABR 359  whether "money" is a proper subject of a fraudulent transfer. The Oregon courts, although after the Alaska law was enacted, have commented on the breadth of coverage of the fraudulent conveyance laws. In Stewart v Black (dealing with a homestead issue, and not whether "money" is property contemplated by the fraudulent conveyance statute), the court said:⁽¹⁵⁾

        In reference to the conveyance of property in fraud of creditors, 12 R. C. L. 505, § 35, states the rule as follows, relative to exempt property: "In the past, there has been some confusion as to what the phrase 'goods and chattels' as used in the statute of 13 Elizabeth includes. It may be stated as a general rule, however, that the statute applies to all property which may be subjected to the payment of debts, and to no other; . . . .

        The 9^th Circuit said in In re Bartoni-Corsi Produce, Inc.:⁽¹⁶⁾

        When interpreting state law, federal courts are bound by decisions of the state's highest court. In the absence of such a decision, a federal court must predict how the highest state court would decide the issue using intermediate appellate court decisions, decisions from other jurisdictions, statutes, treatises, and restatements as guidance.

Kind of Property - In respect to the kind of property which may be the subject of a fraudulent transfer, the statute [13 Elizabeth, ch 5] extends to lands, tenements, hereditaments, goods and chattels, and any lease, rent, common or other profits or charge out of land, tenements, hereditaments, goods or chattels. It is important, however, to bear in mind that the common law has not been repealed, and consequently will reach every species of property not included in this enumeration. The source from which the debtor derived the property is wholly immaterial. If the transfer is fraudulent, the grantee can not retain the property on the ground that it has no value.

§ 138. The Universal Rule of To-day, That Creditors Can Attack the Fraudulent Conveyance of Every Asset, Tangible or Intangible.

        The variations above mentioned [discussing the ancient distinction between law and equity] are of historical interest only, because, through judge-made laws, or by aid of statute, the creditor is relieved of subtle distinctions as to the nature of property.

        It was the distinction between law and equity which gave rise to the restrictive list of property which could be fraudulently conveyed. Since, historically, a writ of garnishment or execution would not lie in equity, it would have been fruitless to put into the equitable remedy of fraudulent conveyance property which was not subject to execution. This allowed for such obviously unjust results that         6 ABR 361  judges fudged and bent the law to allow for relief, and included all types of property. One of the best expressions of this history is found in Hall & Farley,⁽¹⁹⁾ a 1905 case from Alabama, that outlines the historic development of fraudulent conveyance statutes and supports a finding that the transfer of money, although not literally identified in the statute, is covered. I hope to shortly expand on this case and the analysis in a more extensive brief on the AS 34.40.010 "money" issue in a memorandum to be filed in the BRA.

        I conclude that the trustee has stated a valid claim for fraudulent conveyance of money under AS 34.40.010 for payments made within six years of the petition date.

             2.4. Ponzi Scheme- In other adversary proceedings in which I have entered final judgments against BRA adversary defendants, the court has granted the trustee's motion for partial summary judgment that the debtors operated a Ponzi scheme as an adjunct to proving his case.⁽²⁰⁾ The court has concluded (and, defendants in this case do not contest) that there is no genuine disputed issue of material fact that debtors operated a Ponzi scheme for the years relevant to the trustee's claims against the defendants.

        The court adopts the reasoning of those cases holding that actual intent to defraud creditors is the only reasonable inference to be drawn from the debtors' operation of a Ponzi scheme.⁽²¹⁾

        6 ABR 362          Without waiving the right to proceed differently in other BRA proceedings, the trustee has elected in the present adversary proceeding to pursue the defendants for their net gain only - that is, the amounts they received over and above the amounts they invested.

        In a Ponzi scheme, payments to the old investors come from the new ones.⁽²²⁾ A Ponzi scheme investor cannot establish that he or she gave value to the debtor for amounts in excess of the amounts invested. Even if the defendants received the payments from Bonham in objective good faith, they cannot establish the affirmative defense provided by AS 34.40.010 because they did not give value for the transfers in excess of their respective investments. Accordingly, final judgment on the trustee's state law fraudulent conveyance claims is appropriate in the amount of the defendants' net gain.

             2.5. Miscellaneous Motions Joined in by Defendants are Denied- The Maags have joined in various other BRA defendants' motions which the court has orally or in writing denied already.

        These include a motion by Richard Deuser involving an issue where the defendant claims to have netted less than he was paid.⁽²³⁾ The trustee, in the present adversary, seeks to recover only the net excess.

        6 ABR 363          The court has also orally denied a motion based on several miscellaneous issues, e.g., failure to state a claim or failure to allege the proper elements for relief.⁽²⁴⁾

        Some of the motions have been more or less replicated by other defendants, but those mentioned in this Memorandum are the principal ones, and the court has generally denied relief to the defendants, except on isolated issues, such as denial of relief for any usury claims.⁽²⁵⁾

             2.6. Calculation of Judgment- The parties agree that Randy Maag invested a total of $30,000 and received a total of $50,000, for a net gain of $20,000. The parties also agree that Alene Maag received $63,500 from Bonham. There is no overlap between the monies received by Randy Maag and Alene Maag. Defendants contend that Alene Maag invested $20,000 with RaeJean Bonham, but there is no evidence of such investment. Ms. Maag was under an affirmative obligation on summary judgment to submit admissible evidence demonstrating a genuine issue of material fact as to the amounts invested. Having failed to provide any admissible evidence of the amounts invested by Ms. Maag, summary judgment is appropriate that Randy Maag had a net gain of $20,000 and Alene Maag had a net gain of $63,500.

        The transfers of $20,000 to Randy Maag and $63,500 to Alene Maag being fraudulent conveyances under Alaska law, and there being no affirmative defenses, final judgment shall be entered in the principal amounts against the respective         6 ABR 364  defendants. The trustee is entitled to prejudgment interest at the federal rate from the date the complaint was filed, costs, and attorney fees under Alaska Rule of Civil Procedure 82.

             3. CONCLUSION- A separate order will be entered that the judgment will be vacated, provided that the defendants stipulate to vacate their pending appeal. If they do, the court will enter a new judgment, based on this Memorandum, giving the defendants thirty days to file a new appeal.

If they do not withdraw their appeal, vacating the final judgment is out of the court's hands due to the pending appeal.

DATED: March 10, 2000

HERBERT A. ROSS
U.S. Bankruptcy Judge

N O T E S:

        6 ABR 356  1. Motion for Partial Summary Judgment on Fraudulent Conveyance Causes of Action; and for Rule 54(b) Final Judgment, Docket Entries 16 and 19, filed April 24, 1998.

        6 ABR 356  2. Bonham Recovery Actions, a proceeding to jointly administer certain pre-trial issues in numerous related adversary proceedings, Adversary No. F95-00897-168-HAR (BANCAP 96-4281).

        6 ABR 356  3. Motion for Partial Summary Judgment that Debtor Operated a Ponzi Scheme; and on Fraudulent Conveyance Causes of Action; and for Rule 54(b) Final Judgment for Preference Recipients and Against "Net Gainers" to the Extent of Their Net Gains, filed in the Bonham Recovery Actions, Adv. No. F95-00897-168-HAR (BANCAP 96-4281), at Docket Entry 318 on January 9, 1998.

        6 ABR 356  4. Final Judgment, Docket Entry 29, filed November 19, 1999.

        6 ABR 356  5. Motion to Permit Late Filed Opposition and Cross-Motion for Summary Judgment, Docket Entry 33, filed November 19, 1999.

        6 ABR 357  6. Opposition to Motion for Summary Judgment on Net Gain; Defendants' Motion for Summary Judgment on State Court Fraudulent Conveyance and Common Law Fraud Claim and Defendants' Motion to Dismiss for Failure to State a Claim for Fraud, Docket Entry 31, filed November 19, 1999.

        6 ABR 357  7. Motion to Vacate Final Judgment, Docket Entry 34, filed November 29, 1999.

        6 ABR 357  8. Notice of Appeal, Docket Entry 36, filed December 2, 1999.

        6 ABR 357  9. See, footnote 3.

        6 ABR 358  10. 852 P2d 1165 (Alaska 1993).

        6 ABR 358  11. Motion for Partial Judgment on the Pleadings and Memorandum of Law, BRA Docket Entry 42, filed January 13, 1997 [Original motion filed at Docket Entry 4, in Compton v. Gayle Garrigues, Adv-026 (Bancap 96-4134)]; Defendants' Motion to Dismiss Complaint for Failure to State a Claim, BRA Docket Entry 94, filed March 21, 1997 [Original duplicate of motion filed at Docket Entry 7 in Compton v. Gerard Uphues, et al, Adv-161 (Bancap 96-4274)].

        6 ABR 358  12. 13 Elizabeth, ch 5 (1570); and, see, Frank R. Kennedy, Involuntary Fraudulent Conveyance, 9 Cardozo L Rev 531, 536-37 (Dec 1987); Garrard Glenn, Fraudulent Conveyances and Preferences, §§ 58-60.

        6 ABR 358  13. Carter's Code (1900), § 130, et seq: Compiled Laws of Alaska (1913), § 556, et seq; Compiled Laws of Alaska (1933), § 2872, et seq; Compiled Laws of Alaska - Annotated (1947), Vol 1, § 22-4-1, et seq.

        6 ABR 358  14. See, Laws of Oregon, Jan. 16, 1854; Hill's Ann Laws, § 3059, et seq; O.L. § 10170 (1920) (repealed).

        6 ABR 359  15. Stewart v Black, 22 P2d 336, 337-38 (Ore 1933).

        6 ABR 359  16. Spear v Wells Fargo Bank (In re Bartoni-Corsi Produce, Inc.), 130 F3d 857, 861 (9^th Cir 1997).

        6 ABR 360  17. Orlando F. Bump, Fraudulent Conveyances (Cushings & Bailey, Publ 1882), at page 238 (footnotes omitted; emphasis added).

        6 ABR 360  18. Garrard Glenn, Fraudulent Conveyances and Preferences, § 138 (Baker Voorhis & Co 1940).

        6 ABR 361  19. Hall & Farley v Alabama Terminal & Improvement Co., 39 So 285, 286-91 (Ala 1905).

        6 ABR 361  20. See, footnote 3.

        6 ABR 361-362  21. Hayes v Palm Seedlings Partners-A (In re Agricultural Research and Technology Group, Inc.), 916 F2d 528, 534 (9^th Cir 1990); Jobin v Ripley (In re M&L Business Machines Co., Inc.), 198 BR 800, 806 (D Colo 1996); Martino v Edison Worldwide Capital (In re Randy), 189 BR 425, 438 (Bankr ND Ill 1995); Merrill v Abbott (Independent Clearing House Co.), 77 BR 843, 860 (D Utah 1987); Plotkin v Pomona Valley Imports, Inc. (In re Cohen), 199 BR 709, 717 (9^th Cir BAP 1996); In re Taubman, 160 BR 964, 983 (Bankr SD Ohio 1993).

        6 ABR 362  22. Wyle v C.H. Rider & Family (In re United Energy Corp.), 944 F2d 589, 590 fn1 (9^th Cir 1991).

        6 ABR 362  23. Motion for Partial Summary Judgment to Dismiss Section 548 Count, filed in Compton v Deuser, Adv. No. F95-00897-142-HAR (BANCAP 96-4255), at Docket Entry 10 on March 3, 1997.

        6 ABR 363  24. Notice of Filing Motion to Dismiss for Failure to State a Cause of Action, entered in the BRA, Adv. No. F95-00897-168-HAR (BANCAP 96-4281) at Docket Entry 91 on March 17, 1997.

        6 ABR 363  25. Memorandum Decision Granting Motion to Dismiss (Treated as a Summary Judgment Motion) Claim for Double Damages Under AS 45.45.030, BRA Docket Entry 809, filed January 21, 1999.