MELANIE E. DAMIAN, as receiver of TODAY‘S GROWTH CONSULTANT, INC. (d/b/a THE INCOME STORE) v. BUCKS OF AMERICA, LLC (d/b/a BUCKS OF NEBRASKA) and CODY NEER
Case No. 8:21-cv-1999-WFJ-MRM
UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF FLORIDA TAMPA DIVISION
September 7, 2023
WILLIAM F. JUNG
Ms. Damian, a court-appointed receiver for Today‘s Growth Consultant, Inc. (“TGC“), brings this action to recover approximately $2,400,000 transferred by TGC to Defendant Cody Neer through his web development company, Bucks of America, LLC (“Bucks“). Dkt. 28 at 19. Ms. Damian asserts three claims: Count I—actual fraudulent transfers under the Illinois Uniform Fraudulent Transfer Act (the “IUFTA“),
During a one-day bench trial, the Court heard the testimony of Ms. Damian, Mr. Neer, Emily Merrill (a former accounting manager at TGC), David Kelley (a former CEO of TGC), and Peter Kent (Mr. Neer‘s expert on the issue of web-
FINDINGS OF FACT1
The parties agree that, between at least January 2017 and October 2019, TGC operated as a stereotypical Ponzi scheme. Dkt. S-85 at 17; see also SEC Dkt. 1. Throughout this time, TGC and Kenneth Courtright (TGC‘s founder) allegedly raised more than $75,000,000 from over 500 investors who entered into “Consulting Performance Agreements” under which investors would provide up-front payments in exchange for a minimum guaranteed return on revenues generated by TGC-operated websites. Dkt. 28 at 7–8; SEC Dkt. 1 at 1–4. In reality, TGC was primarily covering its financial obligations to prior investors with the payments of new investors. Id. It appears that TGC‘s business model was never sustainable.
In 2018, Mr. Neer was introduced to Mr. Courtright by a mutual acquaintance for whom Mr. Neer had previously provided ecommerce services. Dkt. S-85 at 136.
Between August and September of 2018, Mr. Neer and TGC executed their first set of transactions (the “First Transaction Bucket“). Dkt. S-85 at 137–38; Dkt. 84-9 at 10; Dkt. 83-10; Dkt 83-11 at 29. The First Transaction Bucket comprised an exchange of $861,000 for ten websites that were already created and operated by Mr. Neer through Bucks. Dkt. 84-9 at 10–11; Dkt. 83-10 at 1–55. Of these websites, DonaldTrumpCollectables.store (“DTC“) was by far the most expensive at $600,000. Dkt. 83-10 at 45–55. This is largely explained by the fact that DTC had received thousands of orders, was operating at a profit, and came with a buyer‘s email list of over 75,000 individuals at the time of its sale. Dkt. 83-9 at 1–5. The other websites included in the First Transaction Bucket, while less profitable, were functioning ecommerce stores of an apparently sophisticated nature. Dkt. 84-9 at 11. They sold for between $64,500 and $12,000 apiece. Dkt. 83-10 at 1–55.
Shortly thereafter, Mr. Neer and TGC engaged in a second set of transactions totaling $155,017.93 (the “Second Transaction Bucket“). Dkt. S-85 at 145; Dkt. 84-
On November 2, 2018, Mr. Neer and TGC entered into a Multi-Site Purchase Contract (the “Agreement“), which was later orally renewed (the “Renewed Agreement“) (collectively, the “Third Transaction Bucket“). Dkt. 83-2 at 1; Dkt. S-85 at 154. The Agreement provided that, in exchange for $1,000,000 and 15% of gross revenues, Mr. Neer would assemble a team of fifteen or more professionals and create 100 ecommerce websites from scratch. Dkt. 83-2 at 1. The Agreement also provided revenue goals for the anticipated websites. At trial, the evidence and testimony tended to show that $10,000 was on the low to average end of pricing for an ecommerce website developed by a Shopify Partner such as Mr. Neer. Dkt. 84-9 at 16; Dkt. S-85 at 148–151; Dkt. 84-7 at 1.
TGC‘s final payment to Mr. Neer from the Third Transaction Bucket occurred on September 28, 2019. Dkt. S-85 at 175. Approximately three months later, Mr. Neer learned that TGC had been shut down due to a United States Securities and Exchange Commission (“SEC“) investigation. Id. Mr. Neer never heard from Mr. Courtright again. His work for TGC essentially ended at this point.
On December 12, 2019, the United States District Court for the Northern District of Illinois appointed Ms. Damian to serve as TGC‘s receiver. SEC Dkt. 19. She took custody of TGC‘s operations, shut down TGC‘s existing ecommerce websites, and began investigating TGC‘s records immediately thereafter. Dkt S-85
The records established that TGC paid Mr. Neer $2,451,594.44. Dkt. 83-11 at 29. Analysis further demonstrated that, of the 178 websites delivered through the Third Bucket of Transactions, all but four were operating at a loss prior to being shut down. Dkt. 83-5. TGC‘s entire website portfolio (a combination of 2990 ecommerce and authority websites) was eventually valued at $1,600,000. Dkt. S-85 at 33.2 To this date, TGC has been unable to recoup anywhere near the full value it paid to obtain and operate Mr. Neer‘s websites. Dkt. 83-30 at 1; Dkt. S-85 at 34.
LEGAL STANDARDS
I. Fraudulent Transfers
In relation to actual fraudulent transfers, the IUFTA provides that:
A transfer made or an obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor‘s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation . . . with actual intent to hinder, delay, or defraud any creditor of the debtor[.]
In relation to constructive fraudulent transfers, the IUFTA provides that:
A transfer made or an obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor‘s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation . . . without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor . . . was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or . . . intended to incur, or believed or reasonably should have believed that he would incur, debts beyond his ability to pay as they became due.
Reasonably equivalent value, whether analyzed in the actual or constructive fraudulent transfer context, is a question of fact. See In re First Com. Mgmt. Grp., Inc., 279 B.R. 230, 235 (Bankr. N.D. Ill. 2002) (citing In re Image Worldwide, Ltd., 139 F.3d 574, 576 (7th Cir.1998)). While there is no “fixed mathematical formula” for determining it, important factors to consider include “fair market value” and whether “the [transaction] was an arm‘s length transaction between a willing buyer and a willing seller.” Barber v. Golden Seed Co., 129 F.3d 382, 387 (7th Cir. 1997) (citations and internal quotations omitted). “[T]he debtor need not collect a dollar-for-dollar equivalent[,]” id. (citations and internal quotations omitted), but “the debtor should receive . . . ‘an amount not disproportionately small as compared with the value of the property of obligation’ the debtor has given up.” In re Churchill Mortg. Inv. Corp., 256 B.R. 664, 678 (Bankr. S.D.N.Y. 2000), aff‘d sub nom., Balaber-Strauss v. Lawrence, 264 B.R. 303 (S.D.N.Y. 2001). “In determining whether reasonably equivalent value was received under the [I]UFTA, courts should consider how that phrase has been construed under the Bankruptcy Code.” In re Knippen, 355 B.R. 710, 734 (Bankr. N.D. Ill. 2006), aff‘d sub nom. Knippen v. Grochocinski, No. CIV.A. 07 C 1697, 2007 WL 1498906 (N.D. Ill. May 18, 2007) (citations omitted).
Under Illinois law, “[u]unjust enrichment is a ‘quasi-contract’ theory that permits courts to imply the existence of a contract where none exists in order to prevent unjust results.” In re Lancelot, 451 B.R. at 842 (citation omitted). A plaintiff seeking to establish an unjust enrichment claim must show that: “(1) the defendant has unjustly retained a benefit to the plaintiff‘s detriment, and (2) the defendant‘s retention of the benefit violates the fundamental principles of justice, equity, and good conscience.” MetroPCS v. Devor, 215 F. Supp. 3d 626, 634–35 (N.D. Ill. 2016).3 “When two parties’ relationship is governed by contract,” however, “they may not bring a claim of unjust enrichment unless the claim falls outside the contract.” Util. Audit, Inc. v. Horace Mann Serv. Corp., 383 F.3d 683, 688–89 (7th Cir. 2004) (citations omitted).
CONCLUSIONS OF LAW
Given the applicability of the Ponzi scheme presumption, the outcome of the instant case primarily turns on two issues: (1) whether Mr. Neer accepted TGC‘s transfers in good faith; and (2) whether Mr. Neer provided reasonably equivalent value. If both predicates are established, no transfer is voidable, and it would not be
I. Good Faith
In order to carry his burden of establishing good faith, Mr. Neer must show by a preponderance of the evidence that: (1) the subject transactions were arm‘s length transactions; (2) he had “an honest belief in the propriety of the activities in question;” (3) he had “no intent to take unconscionable advantage of others;” and (4) he had “no intent to, or knowledge of the fact that the activities in question will hinder, delay, or defraud others.” In re Lancelot, 451 B.R. at 841 (citation omitted).
The Court finds that Mr. Neer has carried this burden. As an initial matter, there is no evidence in the record that suggests the existence of a personal or professional relationship between Mr. Neer and Mr. Courtright prior to the execution of the First Transaction Bucket. Mr. Neer credibly testified that he had been
Mr. Neer also had an honest belief in the propriety of his business activities with TGC. Prior to meeting Mr. Courtright, Mr. Neer was an accomplished ecommerce expert who had secured a Shopify partnership and worked with companies like Target in the ecommerce realm. Dkt. S-85 at 129–35, 148. Upon visiting Mr. Courtright at TGC‘s headquarters, Mr. Neer was shown offices filled with over a hundred employees and all the trappings of legitimacy. Id. at 137. It follows that there was no reason for Mr. Neer to even consider that his business activities might end up helping Mr. Courtright perpetuate fraud on TGC‘s investors. The opportunity to work with an apparently successful ecommerce entity like TGC
This brings the Court to whether Mr. Neer had an intent to take unconscionable advantage of TGC or defraud others, as well as whether Mr. Neer had knowledge that his activities might do the same. On these points, Ms. Damian primarily relies on (1) a chain of emails in which Mr. Neer allegedly mislead Mr. Courtright as to the value of DTC and (2) her own conclusory allegations that Mr. Neer was aware that “TGC lacked the resources to be able to build and manage the high volume of websites” called for in the Agreement. Dkt. 51 at 10–11. Ms. Damian maintains that these pieces of evidence outweigh all of the other evidence in the record that tends to show Mr. Neer‘s good faith.
The Court is not persuaded. Contrary to Ms. Damian‘s assertions, Mr. Neer did not mislead Mr. Courtright in his email correspondences about DTC. The numbers Mr. Neer alluded to concerning DTC‘s sales were largely corroborated by attached charts whose accuracy has never been called into question. Ms. Damian
The notion that Mr. Neer was acting in bad faith because he was allegedly aware that TGC lacked necessary resources to manage numerous ecommerce
Simply put, these are not the actions of one who is acting in bad faith. Ms. Damian cannot plausibly claim otherwise without evidentiary support, which she has failed to produce. A preponderance of the evidence demonstrates that Mr. Neer accepted TGC‘s payments with the sincere belief that TGC could make this venture work. His subsequent actions establish an intent to go above and beyond his contractual obligations to achieve success for everyone involved. In view of this, the Court finds that Mr. Neer acted in good faith throughout his relationship with TGC.5
As noted above, reasonably equivalent value is an issue of fact. It is “appropriate to analyze whether reasonably equivalent value exists by focusing on the consideration exchanged between the debtor and the defendant, rather than focusing on the conduct of debtor‘s management[.]” In re First Com. Mgmt. Grp., Inc., 279 B.R. 230 at 239. Ultimately, Mr. Neer bears the burden of establishing reasonably equivalent value by a preponderance of the evidence.6
Before moving to analyze each of the transaction buckets individually, however, it is important to reiterate a handful of facts relevant to all the subject transactions. First, it is undisputed that Mr. Neer was a highly qualified ecommerce professional at the time he began working with TGC. He had experience working for Thompson Reuters and Target as well as consulting for notable figures such as Kevin Harrington. Dkt. S-85 at 129–30; Dkt. 84-9 at 8–9. Mr. Neer had also created and managed successful ecommerce websites and hosted yearly workshops for eCommerce Brand Academy. Dkt. S-85 at 134. Second, Ms. Damian has failed to put forth any evidence rebutting Mr. Neer‘s position that the fair market value for
a. The First Transaction Bucket.
The First Transaction Bucket breaks down into the following ten transactions: (1) $600,000 for DTC; (2) $64,500 for TinyHouseSupplyShop.com; (3) $50,000 for BucksOf.com; (4) $30,000 for GrandeurSkincare.com; (5) $30,000 for PerfectPetBoutique.com; (6) $22,500 for AmericanGreatness2020.com; (7) $20,000 for BattleRoyaleCommunity.com; (8) $20,000 for ShopMyAmerica.com; (9) $12,000 for TrampolineAir.com; and (10) $12,000 for LaportaSports.com. Dkt. 83-10 at 1–55; Dkt. 84-9 at 10–11.
The Court finds that Mr. Neer has carried his burden of establishing that DTC was reasonably equivalent in value to $600,000. At the time of the transfer, DTC was a consistently profitable ecommerce store averaging well over $10,000 in sales a month at a profit margin of roughly 50%. Dkt. 83-9 at 1. It also came with a list of
Ms. Damian‘s alleged difficulties in selling DTC after she shut it down during her receivership does not diminish its value at the time of the transfer. To begin with, the Court is aware of no authority indicating that reasonably equivalent value should be evaluated based on future sales value or salability. The only authority which might suggest the propriety of such a method is that which instructs courts to consider “whether the recovery the debtor‘s creditors could legitimately expect to
Moving forward, the Court finds that Mr. Neer has also demonstrated reasonably equivalent value as to TrampolineAir.com and LaportaSports.com—the websites that sold for $12,000 apiece. As previously noted, the fair market value of an ecommerce website properly constructed by a professional of Mr. Neer‘s abilities
Concerning the remaining websites included in the First Transaction Bucket, the Court finds that Mr. Neer has not met his burden of establishing reasonably equivalent value. Unlike TrampolineAir.com and LaportaSports.com, which were essentially sold for the market price of a newly constructed ecommerce website, the remaining websites were sold for between $64,000 and $20,000. Mr. Neer has presented little to no evidence explaining this gap in pricing. Indeed, beyond demonstrating the websites’ attractive features through historic snapshots, Mr. Neer has provided nothing. The Court has no indication of their profitability, marketing history, traffic, or any other metric that could aid in making a proper valuation. This
b. The Second Transaction Bucket
The Second Transaction Bucket is comprised of two parts: (1) a $149,500 pass-through payment for four websites; and (2) a $5,517.93 reimbursement payment for travel expenses. The Court will address each separately.
Thus far, the instant case has exclusively revolved around the issues of good faith and reasonably equivalent value. The Second Transaction Bucket nevertheless requires consideration of a different question; namely, who qualifies as a “first” or “initial” transferee for purposes of the IUFTA? Although the answer is usually straightforward, it is not clear in the context of a true pass-through payment whether the intermediary qualifies as “the first transferee of the asset or the person for whose benefit the transfer was made.”
In Bonded Financial Services, Inc. v. European American Bank, the Seventh Circuit addressed an analogous issue in the bankruptcy context. 838 F.2d 890 (7th Cir. 1988). There, Michael Ryan controlled a currency exchange called Bond Financial Services, Inc. Id. at 891. After Ryan borrowed $655,000 from European American Bank, Bonded put $200,000 at Ryan‘s disposal by sending the Bank a
The Court finds the Bonded court‘s reasoning applicable to the subject $149,000 pass-through payment.8 Mr. Neer credibly testified that TGC sent Bucks an unsolicited $149,000 and instructed Mr. Neer to send the same to a third-party in exchange for four websites. Dkt. S-85 at 145–46. This testimony was never meaningfully challenged by Ms. Damian. Mr. Neer, moreover, provided bank records that show $149,500 coming into Bucks’ account on September 19, 2018, and the same going out of Bucks’ account two days later. Dkt. 84-8 at 25. Hence, just like the Bank in Bonded, Mr. Neer never exercised true “dominion over the money”
The $5,517.93 reimbursement requires a different analysis. Indeed, because there is no indication that courts are hesitant to treat reimbursement recipients as initial transferees under the IUFTA, see In re Apex Auto. Warehouse, L.P., 238 B.R. 758, 773 (Bankr. N.D. Ill. 1999), a determination of reasonably equivalent value is appropriate as to this transfer. On this issue, Mr. Neer testified that the subject reimbursement payment represents payments to Mr. Neer for his team‘s airfare, hotels, and food during their trip to TGC‘s offices in Pennsylvania. Dkt. S-85 at 146–47; Dkt. 84-9 at 12. Mr. Neer further testified that the purpose of his travel was to verify TGC‘s legitimacy in order to further facilitate a deal or deals with Mr. Courtright. Dkt. S-85 at 147. The Court finds $5,517.93 a reasonable figure to pay
c. The Third Transaction Bucket
The Third Transaction Bucket comprises $1,439,500 in payments made to Mr. Neer through Bucks for 178 ecommerce websites and Mr. Neer‘s management services. All of these payments were made pursuant to the Agreement and the Renewed Agreement. As a result, the Court will address them collectively.
The Court begins with the websites themselves.9 Ms. Damian‘s 2019 profit and loss documentation contains figures for 173 of the 178 websites included in the Third Transaction Bucket. Dkt. 83-7 at 1–188. Even assuming that this disparity is due to 5 of the 178 websites not existing or being ready to launch at the time Ms. Damian‘s receivership began, TGC paid Mr. Neer only about $8,320 per functioning site. As discussed extensively above, the unrebutted evidence and testimony presented at trial demonstrated that a person of Mr. Neer‘s skills and background could command $10,000 per ecommerce site constructed. Mr. Neer did, however, testify that a discount would be typical in the context of a high volume contract such as the Agreement and the Renewed Agreement. Dkt. S-85 at 151. Accordingly, if anything, $8,320 per site constitutes a reasonable discount somewhere near fair
On top of providing at least 173 ecommerce websites to TGC at fair market value, Mr. Neer also provided a number of services. These included hands-on ecommerce training for TGC employees, TGC employee access to a $1000 eCommerce Brand Academy course list, Facebook advertisement management, the advantage of Mr. Neer‘s existing relationships with merchandise suppliers, and some level of management for TGC‘s entire ecommerce portfolio. Dkt. S-85 at 153–178. Although it is difficult to put a value figure on these services and benefits in the context of a Ponzi scheme, they were undoubtedly palpable benefits conferred in good faith that raised TGC‘s ability to manage its ecommerce business and generate income therefrom.
Given this combination of goods and services, the Court finds that Mr. Neer provided reasonably equivalent value for TGC‘s $1,439,500 despite the fact that his websites were ultimately unprofitable. It is important to recognize, as Mr. Kent explained, that it takes time and investment for an ecommerce website to become successful. See Dkt. S-85 at 124. Many of the Third Transaction Bucket websites were live for six months or less before being shut down. See Dkt. 83-7 at 1–188. Others were live but wholly unadvertised. Id. And still others had yet to receive their product sourcing. Id. The unprofitability of these websites is therefore unsurprising
A plaintiff seeking to establish an unjust enrichment claim must show that: “(1) the defendant has unjustly retained a benefit to the plaintiff‘s detriment, and (2) the defendant‘s retention of the benefit violates the fundamental principles of justice, equity, and good conscience.” MetroPCS, 215 F. Supp. 3d at 634–35. In light of the foregoing analysis, Mr. Neer has not unjustly retained a benefit to TGC‘s detriment beyond the First Transaction Bucket. The transactions included in the First Transaction Bucket were nevertheless subject to contracts. As a result, Ms. Damian‘s unjust enrichment claim necessarily fails. See Util. Audit, Inc., 383 F.3d at 688–89 (finding that “when two parties’ relationship is governed by contract . . . they may not bring a claim of unjust enrichment unless the claim falls outside the contract.“). Any relief therefrom would also be duplicative of the relief offered by her fraudulent conveyance claims.
REMEDY
“Notwithstanding the voidability of a transfer or an obligation under [the IUFTA], a good-faith transferee or obligee is entitled, to the extent of the value given the debtor for the transfer or obligation, to . . a reduction in the amount of the liability on the judgment.”
CONCLUSION
Accordingly, it is hereby ORDERED and ADJUDGED:
- The Court rules in favor of Defendants on Count III.
- The Court rules in favor of Plaintiff on Counts I and II to the extent explained above.
- Plaintiff is entitled to $153,000 in damages.
- The Clerk is directed to enter judgment accordingly and close the case.
DONE AND ORDERED at Tampa, Florida, on September 7, 2023.
/s/ William F. Jung
WILLIAM F. JUNG
UNITED STATES DISTRICT JUDGE
COPIES FURNISHED TO:
Counsel of Record