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Hill v. Duscio

United States District Court, N.D. Georgia, Atlanta Division

February 20, 2018

AL B. HILL, as Receiver for Credit Nation Capital, LLC, Credit Nation Acceptance, LLC, Credit Nation Auto Sales, LLC, American Motor Credit, LLC, and Spaghetti Junction, LLC, Plaintiffs,



         This matter is before the Court on Defendant Antonio Duscio's (“Duscio”) Motion to Dismiss Receiver's Complaint for Damages & Injunctive Relief [34] (“Motion to Dismiss”).[1] Also before the Court is Plaintiff's Motion for Final Default Judgment Against Defendants Neal Jones (“Jones”), Terry Luck (“Luck”), and Walter Padon (“Padon”) [39.3] (“Motion for Default Judgment”).

         I. BACKGROUND

         A. Facts

         Between 2009 and 2015, CN Capital raised money by selling unregistered three-year and five-year promissory notes to investors. ([1] ¶ 17). CN Capital allegedly promised investors a 9% to 11% fixed rate of return and claimed the promissory notes were “100% asset backed.” (Id.). CN Capital represented that it used the money it raised, in part, to purchase life insurance policies, which supposedly resulted in a profit whenever an insured's death benefit on the policy was greater than the total of the purchase price and premiums paid. (Id. ¶ 18). CN Capital also represented that the insurance policies involved life expectancies of three to four years and that it expected to receive a fifteen percent annual return on its portfolio of life insurance settlements. (Id. ¶ 19). CN Capital sold fractional interests in the policies to investors through its affiliate, Credit Nation Acceptance, LLC. (Id. ¶ 20).

         According to Plaintiff, CN Capital, however, was never profitable- “[i]nstead, it was insolvent from [its] inception.” (Id. ¶ 21). CN Capital made a number of false representations to its investors, and failed to inform its investors that that the promissory notes they purchased were in fact unsecured and unsafe investments, that the insurance policies involved life expectancies far longer than three to four years, that CN Capital was losing millions of dollars each year, and that the securities they were investing in should have been, but were not, registered with the SEC. (Id. ¶¶ 24-25, 27-28). Plaintiff states that “[f]rom its inception, CN Capital was a Ponzi scheme, ” in which “[i]nvestors could only receive ‘returns' on their investments so long as new investment money could be brought in to pay interest payments to prior noteholders and pay insurance premiums.” (Id. ¶ 29). Plaintiff states that the “vast majority of investors”-most of which were “elderly people on fixed incomes who have been defrauded out of their life savings”-have lost millions of dollars. (Id. ¶ 32). Defendants-also investors- allegedly invested their money in the promissory notes and life insurance policies, but, unlike the others, received back the full amounts of their investments plus additional payments denominated as interest. (Id. ¶ 33). Defendants thus allegedly profited by receiving money paid in by other investors. (Id.).

         B. Procedural History

         On November 10, 2015, the United States Securities and Exchange Commission (“SEC”) filed a complaint seeking injunctive relief and damages against James A. Torchia (“Torchia”) and the Receivership Companies. The case is currently pending in the Northern District of Georgia as Civil Action No. 1:15-cv-3904-WSD. The SEC alleges that Torchia directed, and the Receivership Companies participated in, fraudulent investment schemes such as the ones described above relating to CN Capital. On April 25, 2016, the Court entered an order granting a preliminary injunction freezing the assets of Torchia and the Receivership Companies and appointing the Receiver. (No. 1:15-cv-3904-WSD [66]).

         On December 28, 2016, Plaintiff filed his Complaint [1] in this action on behalf of the Receivership alleging that certain interest paid to Defendants on the investments they purchased from CN Capital constituted fraudulent transfers, unjust enrichment, and money had and received. Plaintiff is seeking to recover those interest payments and, with respect to Defendant Duscio only, a viatical insurance policy that, at the time the Complaint was filed, had not yet matured. (Id. at 19-20). Plaintiff contends that, “[i]n total, Duscio transferred $1.7 million to Synergy Motor Company and Credit Nation Auto Sales, and Torchia caused CN Capital to pay Duscio $2, 051, 365.62, which is $351, 365.62 more than Duscio's investment.” (Id. ¶ 43). Plaintiff alleges Jones “invested $50, 000 and received back $64, 250, which is $14, 250 more than he invested.” (Id. ¶ 53). Plaintiff further alleges “Luck invested $75, 639.32 and received back $99, 110.34, which is $23, 471.02 more than he invested.” (Id. ¶ 66). Finally, Plaintiff contends that “in total, Padon invested $70, 000 and received back $89, 950, which is $19, 950 more than he invested.” (Id. ¶ 70).

         On March 29, 2017, the Court granted Plaintiff Al B. Hill's and Defendant Joyce Wisdom's Joint Motion to Dismiss Claims Against Defendant Wisdom [30] and dismissed Plaintiff's claims against Wisdom with prejudice. ([31]). On April 14, 2017, the Court granted Defendants Beverly Leverton's and Lynn Leverton's and Plaintiff Al B. Hill's Joint Motion to Dismiss Claims Against the Leverton Defendants [33] and dismissed the claims against the Leverton's with prejudice. ([37]).

         On April 12, 2017, Duscio filed his Motion to Dismiss.[2] Duscio asserts that (1) Plaintiff fails to state a claim upon which relief may be granted pursuant to Fed.R.Civ.P. 12(b)(6); (2) the claims of fraud are not stated with particularity as required by Fed.R.Civ.P. 9(b); (3) the Court lacks subject matter jurisdiction; and (4) Plaintiff lacks standing . Duscio specifically contends that the Complaint fails to specify the fraudulent transfers statute under which Plaintiff seeks to hold Duscio liable and otherwise fails to sufficiently plead the required elements to allege that Duscio transfers that were fraudulent. ([34] at 5). Duscio also argues that Plaintiff has failed to plead unjust enrichment because an express contract exists between CN Capital and Duscio for the investments, and “Georgia courts have consistently rejected claims for unjust enrichment where, as here, there is an enforceable contract that governs the rights and obligations of the parties.” (Id. at 14). Duscio employs the same reasoning to support why he argues that Plaintiff has failed to state a claim for money had and received. He asserts: “Like the unjust enrichment claim, the money had and received claim should be dismissed based on the existence of Duscio's contracts with Receivership [Companies] as the theory of money had and received ‘applies only when there is no actual legal contract.'” (Id. at 15). On April 26, 2017, Plaintiff filed his Brief in Opposition to Defendant Duscio's Motion to Dismiss [38] (“Response”).

         On August 10, 2017, Plaintiff filed his Motion for Default Judgment against Jones, Luck, and Padon. Plaintiff contends that “[d]espite due and proper service, [Jones, Luck, and Padon] have failed to plead, defend, or otherwise respond to the Summons and Complaint served on them within the time prescribed by the Federal Rules of Civil Procedure, i.e., Neal Jones, by January 31, 2017; Terry Luck, by February 1, 2017; and Walter Padon, by January 30, 2017.” ([39.3] at 2). Plaintiff further alleges that, “[b]y failing to plead or otherwise respond, the [d]efaulting Defendants have admitted each paragraph of Plaintiff's Complaint, specifically including those paragraphs and statements concerning the fraudulent transfers directed to the [d]efaulting Defendants in furtherance of the Ponzi scheme while CN[Capital] was insolvent, and also including their liability for unjust enrichment and money had and received. Additionally, the Defaulting Defendants admit those paragraphs setting forth the amounts claimed by Plaintiff, including interest.” ([39.3] at 4) (citations omitted).


         A. Motion to Dismiss

         On a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, the Court must “assume that the factual allegations in the complaint are true and give the plaintiff[] the benefit of reasonable factual inferences.” Wooten v. Quicken Loans, Inc., 626 F.3d 1187, 1196 (11th Cir. 2010). Although reasonable inferences are made in the plaintiff's favor, “‘unwarranted deductions of fact' are not admitted as true.” Aldana v. Del Monte Fresh Produce, N.A., 416 F.3d 1242, 1248 (11th Cir. 2005) (quoting S. Fla. Water Mgmt. Dist. v. Montalvo, 84 F.3d 402, 408 n.10 (11th Cir. 1996)). Similarly, the Court is not required to accept conclusory allegations and legal conclusions as true. See Am. Dental Ass'n v. Cigna Corp., 605 F.3d 1283, 1290 (11th Cir. 2010) (construing Ashcroft v. Iqbal, 556 U.S. 662 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)).

         “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). Mere “labels and conclusions” are insufficient. Twombly, 550 U.S. at 555. “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.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556). This requires more than the “mere possibility of misconduct.” Am. Dental, 605 F.3d at 1290 (quoting Iqbal, 556 U.S. at 679). The well-pled allegations must “nudge[] their claims across the line from conceivable to plausible.” Id. at 1289 (quoting Twombly, 550 U.S. at 570).

         B. Motion for Default Judgment

         Rule 55(b) of the Federal Rules of Civil Procedure provides that default judgment may be entered against defaulting defendants as follows:

(1) By the Clerk. If the plaintiff's claim is for a sum certain or a sum that can be made certain by computation, the clerk-on the plaintiff's request, with an affidavit showing the amount due-must enter judgment for that amount and costs against a defendant who has been defaulted for not appearing and who is neither a minor nor an incompetent person.
(2) By the Court. In all other cases, the party must apply to the court for a default judgment. . . . If the party against whom a default judgment is sought has appeared personally or by a representative, that party or its representative must be served with written notice of the application at least 7 days before the hearing. The court may ...

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