83 F.4th 720
9th Cir.2023Background
- Essex Capital operated a Ponzi scheme; the SEC sued and the district court appointed Geoff Winkler as Receiver over Essex and affiliates to recover assets for injured investors.
- The Receiver filed a UFTA-based clawback action against Thomas and Bonnie McCloskey, Cornerstone Holdings, LLC, and the McCloskey Trust, alleging they were "net winners" who received approximately $1.24 million more than they invested.
- Appellants moved to compel arbitration relying on an arbitration clause in the Cornerstone Essex Leasing LLC (CE Leasing) Operating Agreement (signed by Essex/Iannelli and CE Holdings) and an arbitration clause in an Essex Guaranty signed by Iannelli/Essex.
- The district court denied the motion to compel arbitration, relying on In re EPD Investment Co., where this Court held a bankruptcy trustee was not bound by prepetition arbitration clauses when pursuing fraudulent-transfer claims.
- The Ninth Circuit held EPD is not controlling because bankruptcy trustees have statutory avoidance powers under 11 U.S.C. § 544, while receivers derive authority from equitable appointment; a receiver acts on behalf of the receivership entity and thus can be bound by agreements signed by that entity.
- Because unresolved questions remain — whether the UFTA claims fall within the arbitration agreements’ scope and whether Appellants are parties/successors to those agreements — the Ninth Circuit reversed and remanded for the district court to decide arbitrability and party status first.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a receiver is bound by arbitration agreements signed by the receivership entity | Receiver: a receiver stands in the shoes of the receivership entity, so entity contracts can bind the receiver | Appellants: the receiver should not escape arbitration clauses the entity signed; receiver steps into entity's obligations | Held: A receiver acts on behalf of the receivership entity and can be bound by agreements the entity signed, subject to equitable exceptions |
| Whether In re EPD (bankruptcy trustee) controls this receivership case | Receiver: EPD reasoning should apply and preclude arbitration | Appellants: EPD governs similar fraudulent-transfer contexts and supports denial of arbitration | Held: EPD does not control — bankruptcy trustees have explicit statutory avoidance powers not present for receivers; different analysis required |
| Whether the receiver is effectively acting for defrauded investors (creditors) so arbitration clauses do not apply | Receiver: receiver's actions ultimately benefit defrauded investors, like a trustee acting for creditors | Appellants: receiver sues to redress injuries to the receivership entity and therefore stands in the entity's shoes for defenses/obligations | Held: Receiver stands in the shoes of the receivership entity (not the creditors) for UFTA claims, per Ninth Circuit precedent (Donell, Scholes) |
| Whether arbitration must proceed now or whether factual questions about scope and parties preclude compulsion | Receiver: arbitration not applicable because Appellants may not be parties and claims may be outside agreement scope | Appellants: arbitrator should decide arbitrability; district court should enforce arbitration | Held: Court must decide (de novo) whether a valid agreement exists, whether Appellants are parties/successors, and whether claims fall within the agreement; remanded for district court to resolve these issues before compelling arbitration |
Key Cases Cited
- Kirkland v. Rund (In re EPD Investment Co.), 821 F.3d 1146 (9th Cir. 2016) (bankruptcy trustee’s avoidance claims and arbitrability analyzed under Bankruptcy Code powers)
- Donell v. Kowell, 533 F.3d 762 (9th Cir. 2008) (receiver has standing under California UFTA to pursue Ponzi-scheme clawbacks)
- Scholes v. Lehmann, 56 F.3d 750 (7th Cir. 1995) (receiver has standing to recover corporate assets dissipated in a Ponzi scheme)
- FDIC v. O’Melveny & Myers, 61 F.3d 17 (9th Cir. 1995) (general rule: receiver takes no better position than party it represents, but certain defenses don’t bind receivers)
- Janvey v. Democratic Senatorial Campaign Comm., Inc., 712 F.3d 185 (5th Cir. 2013) (federal equity receiver may pursue state UFTA claims to recover Ponzi transfers)
- Klein v. Cornelius, 786 F.3d 1310 (10th Cir. 2015) (receiver’s authority to recover Ponzi-scheme distributions under state fraudulent-transfer law)
- Johnson v. Walmart Inc., 57 F.4th 677 (9th Cir. 2023) (court’s role is to decide existence and scope of arbitration agreements)
- Wyle v. C.H. Rider & Family (In re United Energy Corp.), 944 F.2d 589 (9th Cir. 1991) (California and bankruptcy fraudulent-transfer provisions are similar)