GEOFF WINKLER V. THOMAS MCCLOSKEY, JR., ET AL, No. 22-55856 (9th Cir. 2023)
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The district court appointed a receiver to claw back profits received by investors in a Ponzi scheme that was the subject of a Securities and Exchange Commission enforcement action. The receiver filed suit against certain investors, alleging fraudulent transfers from the receivership entities to the investors. The district court concluded that the receiver was bound by arbitration agreements signed by the receivership company, which was the instrument of the Ponzi scheme. The district court relied on Kirkland v. Rune.
The Ninth Circuit reversed the district court’s order denying a motion to compel arbitration. The panel held that EPD did not control because it addressed whether a bankruptcy trustee, not a receiver, was bound by an arbitration agreement. Unlike under bankruptcy law, there was no explicit statute here establishing that the receiver was acting on behalf of the receivership entity’s creditors. The panel held that a receiver acts on behalf of the receivership entity, not defrauded creditors, and thus can be bound by an agreement signed by that entity. But here, even applying that rule, it was unclear whether the receiver was bound by the agreements at issue. The panel remanded for the district court to consider whether the defendant investors met their burden of establishing that the fraudulent transfer claims arose out of agreements with the receivership entity, whether the investors were parties to the agreements and any other remaining arbitrability issues.
Court Description: Arbitration The panel reversed the district court’s order denying a motion to compel arbitration and remanded for further proceedings in a fraudulent transfer action.
The district court appointed a receiver to claw back profits received by investors in a Ponzi scheme that was the subject of a Securities and Exchange Commission enforcement action. The receiver filed suit against certain investors, alleging fraudulent transfers from the receivership entities to the investors. The district court concluded that the receiver was bound by arbitration agreements signed by the receivership company that was the instrument of the Ponzi scheme. The district court relied on Kirkland v. Rune (In re EPD Investment Co.), 821 F.3d 1146 (9th Cir. 2016), which affirmed the bankruptcy court’s denial of a motion to compel arbitration of a bankruptcy trustee’s action to avoid fraudulent transfers by the bankruptcy debtors, who ran a * The Honorable Kathleen Cardone, United States District Judge for the Western District of Texas, sitting by designation.
Ponzi scheme, to the defendants, who invested in the scheme.
The panel held that EPD did not control because it addressed whether a bankruptcy trustee, not a receiver, was bound by an arbitration agreement. Unlike under bankruptcy law, there was no explicit statute here establishing that the receiver was acting on behalf of the receivership entity’s creditors. The panel held that a receiver acts on behalf of the receivership entity, not defrauded creditors, and thus can be bound by an agreement signed by that entity. But here, even applying that rule, it was unclear whether the receiver was bound by the agreements at issue. The panel remanded for the district court to consider in the first instance whether the defendant investors met their burden of establishing that the fraudulent transfer claims arose out of agreements with the receivership entity, whether the investors were parties to the agreements, and any other remaining arbitrability issues.
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