Goldberg v. James E. Campbell Jr. Inc.

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE

In re

WOODBRIDGE GROUP OF COMPANIES,

LLC, et. al.,

Remaining Debtors.

______________________________________ MICHAEL GOLDBERG, in his capacity as Liquidating Trustee of the WOODBRIDGE

LIQUIDATION TRUST,

Plaintiff,

v.

JAMES E. CAMPBELL, JR. INC. (D/B/A CAMPBELL FINANCIAL CORP.) and

JAMES E. CAMPBELL, JR.,

Defendants.

Chapter 11

Case No. 17-12560 (JKS) Jointly Administered Adv. Pro. No. 19-50965 (JKS) Related Adv. D.I. 71-75, 77-78, 80-82, and 84

MEMORANDUM OPINION¹

Before the Court is the Motion for Partial Summary Judgment (the "Motion for Partial Summary Judgment") filed by Michael Goldberg in his capacity as Liquidating Trustee of the Woodbridge Liquidation Trust ("Trustee" or "Plaintiff") and the Cross Motion for Summary Judgment (the "Cross Motion for Summary Judgment") filed by defendant James E. Campbell, Jr. ("Individual Defendant" or "Mr. Campbell"). Having considered the parties' submissions, and for the reasons discussed below, the Motion for Partial Summary Judgment is granted, in part, and denied, in part, and the Cross Motion for Summary Judgment is denied.

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PROCEDURAL BACKGROUND²

On November 27, 2019, the Trustee commenced this adversary proceeding (the

"Adversary Proceeding") by filing the Adversary Complaint: (I) for Avoidance and Recovery of Avoidable Transfers; and (II) for Sale of Unregistered Securities, for Fraud, and for Aiding and Abetting Fraud (the "Complaint") against James E. Campbell, Jr. Inc. (d/b/a Campbell Financial Corp.) (the "Corporate Defendant") and Mr. Campbell (collectively, the "Defendants").³ On October 10, 2020, Mr. Campbell, acting pro se, filed an answer to the Complaint on behalf of himself, and as President of the Corporate Defendant.⁴ On December 3, 2020, the parties entered into a Stipulation Regarding Appointment of Mediator⁵and, on December 4, 2020, the Adversary Proceeding was assigned to mediation and a mediator appointed.⁶Mediation was unsuccessful.⁷

A scheduling order was entered on April 10, 2024.⁸Fact discovery closed on August 30,

2024.⁹

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On October 31, 2024, the Trustee filed the Motion for Partial Summary Judgment,¹⁰ together with a Memorandum of Law,¹¹the Sharp Declaration and Troszak Declaration in support of the motion,¹²and a Request for Judicial Notice.¹³ On December 20, 2024, Defendants, represented by counsel, filed Defendants' Response and Mr. Campbell filed a Cross Motion for Summary Judgment.¹⁴ On January 3, 2025, the Trustee filed the Trustee's Reply,¹⁵including the Nolan Declaration and Second Troszak Declaration.¹⁶

On January 16, 2025, Mr. Campbell filed a Reply in Support of Cross Motion for Summary Judgment.¹⁷On the same date, Defendants filed an Amended Answer.¹⁸

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On January 23, 2025, the Trustee filed a Motion for Leave to file a sur-reply in further support of his Motion for Partial Summary Judgment and in response to Campbell's Reply.¹⁹ The Trustee's Sur-Reply is attached to the Motion for Leave.²⁰ On February 12, 2025, a Notice of Completion of Briefing was filed.²¹On October 16, 2025, a status conference was held in the Adversary Proceeding.²²The Court heard oral argument on the motions on March 25, 2026. This is the Court's decisions on the motions.

FACTUAL BACKGROUND

A. The Chapter 11 Cases On December 4, 2017 (the "Initial Petition Date"), the Woodbridge Group of Companies, LLC and certain of its affiliates commenced voluntary cases under chapter 11 of the Bankruptcy Code; additional affiliates (collectively, the "Debtors" or "Woodbridge") filed petitions the following year.²³

On October 24, 2018, the Court held a contested hearing (the "Confirmation Hearing")²⁴ on the Debtors' First Amended Joint Chapter 11 Plan of Liquidation (the "Plan").²⁵On October 26, 2018, the Court issued its Opinion on Confirmation²⁶and entered an order confirming the

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Plan.²⁷The Opinion on Confirmation and Confirmation Order contain a finding that Woodbridge was operated as part of a Ponzi scheme.²⁸The effective date of the Plan occurred on February 15, 2019 (the "Effective Date").²⁹

Pursuant to the Plan, on the Effective Date, the Liquidation Trust was established to pursue or liquidate Liquidation Trust Assets and make distributions for the benefit of the Liquidation Trust Beneficiaries.³⁰The Liquidation Trust, as successor in interest to the Debtors, has the right and power to file and pursue any and all "Liquidation Trust Actions" without any further order of the Bankruptcy Court.³¹

B. The Ponzi Scheme³²

Under Robert Shapiro's ("Shapiro") control and during the period from August 2012 through December 1, 2017, the prepetition Debtors raised more than $1.29 billion from over 10,000 unsuspecting investors nationwide by selling those investors two primary products: five- year "Units" and twelve- to eighteen-month "Notes."³³The prepetition Debtors represented that

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the Units and Notes would be repaid based on the purported revenues the Debtors would receive from issuing short-term loans to unrelated third-party property owners.³⁴"As marketed by the prepetition Debtors, the Debtors would make short-term loans, between $1 million and $100 million, to bona-fide third-party commercial property borrowers at high rates of interest, approximately 11%-15%, secured by a first-position mortgage on the property. These loans to third-parties would supposedly be provided at loan-to-value ratios of approximately 60%-70%. The result, according to the sales pitch, would be a robust and safe cash-flow stream that would provide revenues for the . . . Debtors to repay the Units and the Notes . . . ."³⁵

"In reality, there was no robust and safe cash flow stream from third party borrowers, as a very small fraction of investor money flowed from the . . . Debtors to unrelated third parties."³⁶ Rather, Shapiro created disguised affiliates to which money was loaned, and which sometimes (but not always) purchased real estate assets with the funds. These "borrowers" did not have bank accounts or any ability to service the required interest payments on an ongoing basis. In addition, they had no ability to retire the debt when due, other than through the sale of real estate, which did not appear to have been contemplated and was not effectuated.

"[T]he annual cash flow from sales [of real property] (which sales were not frequent) was well below the amount of principal and interest paid by Shapiro to investors."³⁷For example, as explained in the Sharp Confirmation Declaration, in 2015, $84.1 million in principal and interest payments were made to investors, while the net proceeds of real property sales were only $18.5 million. In 2016, $138.2 million in principal and interest payments were made to investors,

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while the net proceeds of real property sales were only $28.4 million. In 2017, $181.8 million in principal and interest payments were made to investors, while the net proceeds of real property sales were only $71.4 million.³⁸These figures demonstrate that property sales were insufficient to cover payments of principal and interest, and there was no other material source of revenue to make such payments other than from the sale of additional Notes and Units.³⁹ The prepetition Debtors used funds received primarily from new investors to make payments of approximately $425 million of "interest" and "principal" to existing investors.

"Shapiro also used commingled investor money to pay approximately $80 million in commissions, primarily to sales agents who sold the fraudulent 'investments' and used investor money to pay at least $30 million for the benefit of Shapiro and his wife, as well as their related entities . . . ."⁴⁰While funds from the commingled account were used to purchase the Debtors' real properties, these purchases were directly contrary to material representations made to investors.

"Moreover, investments were solicited, and payments of 'interest' were made to existing investors, without regard to whether such investors' investments realized value (or even existed). For example, on certain occasions, Shapiro issued Notes . . . [for] properties that the Debtors never actually acquired . . . ."⁴¹

"In late 2017, Shapiro's fraudulent scheme unraveled. As federal and state investigations intensified and unfavorable press reports began to emerge, the prepetition Debtors found it increasingly difficult to raise new capital from investors. As noted above, the prepetition

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Debtors were reliant on funds from new investors to make the payments promised to existing Unitholders and Noteholders. When new investment dried up, the inability to make the required Notes and Units servicing payments became inevitable; indeed, the prepetition Debtors were unable to make the December 1, 2017 interest and principal payments due on the Notes, which quickly precipitated the filing of the initial Debtors' bankruptcy cases."⁴² C. Defendants Role and Payments From the Debtors

The Trustee alleges that "Defendant James E. Campbell, Jr., worked as an outside broker recruited by the Debtor to sell FPCM's (as defined below) and received commissions."⁴³"The brokers, including Defendant [Mr. Campbell], sold Notes and Units issued by Woodbridge to investors."⁴⁴The process included the brokers locating or marketing to Investors First Position Commercial Mortgages ("FPCM") as documented in "senior position packages," as they were sometimes referenced, which included primarily four documents: (a) Promissory Note in favor of the lender to memorialize the loan, (b) Form of Assignment, (c) Form of Collateral Assignment, and (d) Form of Intercreditor Agreement.⁴⁵"Once the Debtors exchanged the aforementioned forms and confirmed receipt of funds from Investors, the Debtors would issue a letter or email to the broker confirming the investment which would trigger payment of a commission to the broker."⁴⁶

To promote the FPCMs, brokers were issued and circulated to prospective investors Woodbridge marketing items.⁴⁷In the marketing materials, "the Debtors claimed that

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'Woodbridge funds 1-year bridge loan' to property owners. The Debtors touted how they 'thoroughly evaluate[d]', appraised each property and performed a title search (even though in reality, the underlying properties were owned by the Debtors). Each property was represented to 'hold a low loan-to-value (LTV) ratio[].' The investments in FPCMs were represented to be 'secured' loans, with the Debtors offering investors 'assurance that their funds are secured by commercial real estate.' The brochure described FPCMs as a 'safer alternative to help our clients reach their financial goals.'"⁴⁸

The Trustee asserts Defendant sold Notes and Units between 2016 and the Initial Petition Date and Mr. Campbell was paid commissions of $146,166.47 (the "Two Year Transfers"), and $254,861.97 in the four years (the "Four Year Transfers"), prior to the Petition Date.⁴⁹Exhibit A to the Complaint sets forth details regarding commission payments (the "Commission Payment Ledger").⁵⁰

D. The Debtors' and Defendants' Securities Law Violations

"Between 2015 and the Petition Date, numerous state governments flagged Woodbridge Notes and Units as not only unregistered securities, but fraudulent. Many of the events, such as the decrees issued by the States of Texas and Massachusetts, were picked up by news publishing companies."⁵¹According to the Troszak Declaration, "Defendant continued to sell the FPCM

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after the various consent decrees issued by states and the coverage by various publication as evidenced by the Commission ledger, included in Exhibit 4 . . . ."⁵² E. Colorado Securities Commissioner Consent Cease and Desist Order On October 12, 2017, the Staff of Colorado Division of Securities, issued a Verified Petition ("Colorado Petition") for Order to Show Cause Directed to Woodbridge Group of Companies, LLC et al., Timothy C. McGuire, Ronald E. Caskey, and James E. Campbell, Jr. ("Respondents"), Case No. 2017-CDS-052,⁵³petitioning "the Securities Commission to enter an order directing Respondents to show cause why a final cease and desist order should not be issued against them" alleging Respondents "have offered or are offering for sale securities in the form of Respondent Woodbridge's First Position Commercial Mortgage (FCPM) Note Program in Colorado."⁵⁴According to the Colorado Petition, "James E. Campbell, Jr. … is the Registered Agent for Campbell Financial and was formerly licensed as an investment adviser representative with the State of Colorado until 2013. At all times relevant to these allegations, Campbell acted as an independent Woodbridge sales agent through Campbell Financial, where he still serves as President and Control Person."⁵⁵

On October 12, 2017, the Securities Commissioner for the State of Colorado issued an Order to Show Cause (the "OSC") Directed to Woodbridge Group of Companies, LLC et al., Timothy C. McGuire, Ronald E. Caskey, and James E. Campbell, Jr., Case No. 2017-CDS-052,

"to show cause why the Securities Commissioner should not enter a final order directing each of the named Respondents to cease offering and selling securities in the State of Colorado, or in the

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alternative, to cease and desist offering and selling securities in the State of Colorado in violation of provisions of the Colorado Securities Act, and imposing such other terms, conditions and sanctions as provided in §11-51-606(1.5)(d)(IV), C.R.S. . . ."⁵⁶

On April 5, 2018, the Colorado Securities Commissioner entered a Consent Cease and Desist Order (the "CCDO"), incorporating the terms of a Stipulation for Consent Cease and Desist Order (the "Stipulation"), executed by Mr. Campbell, in Case No. 2017-CDS-044, In the Matter of Woodbridge Group of Companies, LLC et al., Timothy C. McGuire, Ronald E. Caskey and James E. Campbell, Jr., Respondents. The CCDO ordered, among other things, "Campbell shall immediately and permanently cease marketing and selling interests in the FPCM Note Program in Colorado."⁵⁷

F. The Complaint

The Complaint alleges that the "Defendants sold Notes and Units to unsuspecting Investors, created marketing materials and sales scripts to facilitate the sale of Notes and Units to unsuspecting Investors (often targeting unsophisticated, elderly investors with Individual Retirement Accounts)."⁵⁸It further alleges that "[i]n so doing, Defendants made materially false and fraudulent statements to induce Investors to provide money. In connection with such conduct, Defendants, directly or indirectly, singly or in concert with others, made use of the means or instrumentalities of interstate commerce, the means or instruments of transportation or communication in interstate commerce, and of the mails."⁵⁹The Complaint contains eight claims for relief.

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G. The Trustee's Motion for Partial Summary Judgment The Trustee seeks partial summary judgment in the Trust's favor and against the Defendants as to the following four claims set forth in the Complaint:⁶⁰ The Second and Fourth Claims for relief seek avoidance and recovery of actual intent fraudulent transfers under section 548(a)(1)(A) of the Bankruptcy Code and California Civil Code section 3439.04(a)(1).

The Third and Fifth Claims for relief seek avoidance and recovery of constructive fraudulent transfers under section 548(a)(1)(B) of the Bankruptcy Code and California Civil Code section 3439.04(a)(2).

The Trustee also seeks an award, on all claims for relief, of prejudgment interest on the transfers as permitted by law, costs of suit, and such other and further relief as is just and proper.⁶¹ H. Mr. Campbell's Cross Motion for Summary Judgment

Mr. Campbell alleges that none of the transfers asserted in Claims Two through Five in the Complaint, were received by him and, therefore, he maintains he has no liability relating to the transfers. He seeks summary judgment in his favor and against the Trust as to Claims Two through Five of the Complaint.

JURISDICTION

The Court has subject matter jurisdiction over this Adversary Proceeding under 28 U.S.C. §§ 157(a) and 1334 and the Amended Standing Order of Reference from the United States District Court for the District of Delaware, dated February 29, 2012. Counts Two through Five

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of the Complaint are core within the meaning of proceeding under 28 U.S.C. § 157(b). Venue is proper in this district pursuant to 28 U.S.C. §§ 1408 and 1409.

LEGAL STANDARD

Summary judgment is proper if the movant shows "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law."⁶²An issue is genuine if there is a "sufficient evidentiary basis" on which a reasonable factfinder could find for the non- movant, and a factual dispute is material "only if it might affect the outcome of the suit under governing law."⁶³

The movant bears the initial burden of proving that it is entitled to relief and to demonstrate the absence of any genuine issue of material fact.⁶⁴Once the movant has met its burden, the non-movant "must counter with evidence that demonstrates a genuine issue of fact."⁶⁵The non-movant must adduce more than a mere scintilla of evidence in its favor.⁶⁶It cannot simply reassert factually unsupported allegations contained in its pleadings.⁶⁷A material fact is one which "could alter the outcome" of the case.⁶⁸It is genuine when it is "triable," that is, when reasonable minds could disagree on the result.⁶⁹

When considering a motion for summary judgment, the court must make its determination based upon the materials in the record, which may include depositions,

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documents, affidavits or declarations, and products of discovery.⁷⁰The court must view the evidence in the light most favorable to the non-movant and "draw all reasonable inferences in favor of the non-moving party."⁷¹At the summary judgment stage, the Court does not "weigh the evidence and determine the truth of the matter;" rather, it determines "whether there is a genuine issue for trial."⁷²

If a court finds that there is no genuine dispute of material fact, it may enter judgment as a matter of law, either for or against the movant, in full or in part, applying the applicable substantive law.⁷³"When the evidence yields conflicting inferences, summary judgment is improper, and the action must proceed to trial."⁷⁴

"A cross-motion for summary judgment does not change the standards or analysis by which to grant or deny summary judgment to the moving party, and each moving party still bears the initial burden of demonstrating the absence of a genuine issue of material fact."⁷⁵"[T]he court must rule on each party's motion on an individual and separate basis, determining, for each side, whether a judgment may be entered in accordance with the Rule 56 standard."⁷⁶

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CHOICE OF LAW

The Fourth and Fifth Claims seek avoidance and recovery of actual and constructive transfers under the California Civil Code and/or comparable provisions of law in other jurisdictions that have adopted the Uniform Voidable Transaction Act, the Uniform Fraudulent Transfer Act or the Uniform Fraudulent Conveyance Act. The Trustee asserts that California law applies. In a footnote, the Defendants dispute that California law applies arguing that Colorado or Delaware state law apply, without reference to any statute. In their briefs, neither party provides support for their respective position regarding choice of law,⁷⁷nor identifies how the application of a different state law affects the analysis of the issues presented. At argument, the Trustee argued that Woodbridge's principal place of business was in California, the Notes were issued in California, and the checks were issued in California and dawn from a California institution. The Defendants argued that Mr. Campbell resides, and was licensed in, Colorado and that the Corporate Defendant is a Colorado corporation. Neither party specifically argued application of Delaware law, nor distinguished application of the different state laws.

In both California (2016) and Colorado (2025), the Uniform Voidable Transactions Act (UVTA) superseded the Uniform Fraudulent Transfer Act (UFTA). Whereas, Delaware has adopted the UFTA. The UVTA replaces the "fraudulent" language with "voidable." The actual fraudulent intent statutes for California, Colorado, and Delaware,⁷⁸as well as the constructive

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fraudulent transfer statutes for those states,⁷⁹are substantially similar. Because the Court finds that there are no material differences between California, Colorado, and Delaware law for purposes of the actual and constructive fraudulent transfer analyses, under the facts of this case, an in-depth choice of law analysis is unnecessary, and the Court will apply the California statute.

THE AMENDED ANSWER

Defendants filed an Amended Answer, including affirmative defenses, after the conclusion of briefing on both motions. Federal Rule 15(a)(2), made applicable by Bankruptcy Rule 7015, permits "a party to amend its pleading only with the opposing party's written consent or the Court's leave."⁸⁰Attached to Campbell's Reply is an email exchange between counsel for the parties in which the Trustee's counsel consents to the Amended Answer.⁸¹Although the Trustee's Sur-Reply argues the Campbell Cross Motion Reply did not set forth "good cause" to amend the pleading retroactively, the Trustee did not move to strike the Amended Answer nor dispute that the Trustee consented to the amendment.

In view of the written consent of the opposing party, and the lack of formal opposition, the Amended Answer stands. At oral argument, the Court inquired about the effect of the Amended Answer on the proceeding, and both parties indicated that neither additional discovery nor briefing was necessary.

An Amended Answer supersedes the original Answer, and facts that are not repeated or incorporated into the Amended Answer will no longer bind the pleader as judicial admissions.⁸²

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A superseded pleading (such as the original Answer), however, may be offered as evidence⁸³and may be used to rebut a subsequent contrary assertion.⁸⁴

DISCUSSION

The Trustee seeks to avoid the transfers under theories of both actual fraud and constructive fraud under the Bankruptcy Code and California State law.⁸⁵First, the Trustee argues that the transfers are avoidable as actual intent fraudulent transfer (Second and Fourth Claims) because the existence of a Ponzi scheme is sufficient to establish actual intent to hinder, delay, or defraud creditors under the Bankruptcy Code and state law. The Trustee also maintains that the "badges of fraud" independently establish the actual intent to defraud. Second, the Trustee argues that the transfers are avoidable as constructive fraudulent transfers (Third and Fifth Claims) because the Debtors were insolvent and the Debtors received no value for the transfers.

The Defendants argue the Motion must fail due to disputed material facts as to who received any alleged transfers and the amount received by each of the Defendants and the lumping of Defendants despite there being two separate and distinct Defendants who maintained corporate formalities.

In his Cross Motion for Summary Judgment, Mr. Campbell argues that none of the transfers were received by him and, therefore, maintains he has no liability relating to the transfers.

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A. Second and Fourth Claims: Actual Intent Fraudulent Transfers The Second and Fourth Claims seek the avoidance and recovery of actual intent fraudulent transfers under section 548(a)(1)(A) of the Bankruptcy Code and California Civil Code section 3439.04(a)(1), respectively.

Section 548(a)(1) of the Bankruptcy Code provides, in relevant part, that a trustee may avoid a transfer of an interest of the debtor in property that was made within two years before the petition date with "actual intent to hinder, delay, or defraud" creditors.⁸⁶ Section 544(b) of the Bankruptcy Code permits a trustee to avoid any transfer of a debtor's property that would be avoidable by an unsecured creditor under applicable state law.⁸⁷ Under the California Uniform Voidable Transactions Act (the "CUVTA"),⁸⁸section 3439.04(a)(1) of the California Civil Code, the "actual intent" inquiry is the same as under section 548(a)(1)(A) of the Bankruptcy Code.⁸⁹The CUVTA, however, provides for a four-year lookback period.⁹⁰

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1. The Payments to Defendants Were Transfers of Debtors' Property A "transfer" under the Bankruptcy Code is defined as "each mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with - (i) property; or (ii) an interest in property."⁹¹Similarly, under the California Civil Code a "transfer" is defined as "every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and includes payment of money . .

. .".⁹² According to the Debtors' books and records, "Defendant, James E. Campbell, Jr., was paid out of the Debtors' main operating account $146,166.47 in the two years and $254,861.97 in the four years, prior to the Petition Date."⁹³Exhibit A to the Complaint, the Commission Payment Ledger, identifies the transfers from the Debtors to Defendants in the two and four years prior to the Petition Date.⁹⁴The Second Troszak Declaration, however, states (i) 23 checks totaling $36,730.00 were payable to the Individual Defendant; (ii) 1 check totaling $112.00 was payable to Defendant James Campbell, Jr. Inc., and (iii) 127 checks totaling $197,294.00 were payable to Campbell Finance Corp.⁹⁵Copies of the 151 checks evidencing these transfers are attached to the Second Troszak Declaration.⁹⁶Based on the evidence presented, the Trustee has than one year after the transfer or obligation was or could reasonably have been discovered by the claimant.

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established the transfer of 151 payments to Defendants in the two and four years prior to the Petition Date (the "Transfers").⁹⁷

2. The Transfers Were Made With Actual Intent to Hinder, Delay, or Defraud Creditors

The Trustee relies on the Ponzi scheme presumption to establish that the Transfers were made with actual intent to defraud. The Ponzi scheme presumption posits that "all payments made by a debtor in furtherance of a Ponzi scheme are made with actual fraudulent intent."⁹⁸"If the underlying fraud constitutes a Ponzi scheme, and if the transfer at issue serves to further that scheme, 'actual intent' under the Bankruptcy Code [or Uniform Fraudulent Transfer Act] is presumed."⁹⁹As the Ninth Circuit explained in Kirkland v. Rund:

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Although the Bankruptcy Code contains no provision specifically directed at Ponzi schemes, this Court has long recognized a presumption under which a debtor's actual intent to hinder, delay or defraud its creditors may be inferred from the mere existence of a Ponzi scheme. This is called the Ponzi scheme presumption.¹⁰⁰ Even when a Ponzi scheme is present, the presumption does not relieve the Trustee of the burden to show that the transfers at issue were made "in furtherance of" the Ponzi scheme.¹⁰¹ This is because even where the plaintiff has alleged the existence of a broad, fraudulent scheme,

"the court must focus precisely on the specific transaction or transfer sought to be avoided in order to determine whether that transaction falls within the statutory parameters of an actual[] fraudulent transfer."¹⁰²In sum, the Trustee must prove the Debtors were engaged in a Ponzi scheme and that the Transfers were related to or in furtherance of the scheme.¹⁰³ Here, the existence of a Ponzi scheme has been established¹⁰⁴and is the law of the case.¹⁰⁵Specifically, the Opinion on Confirmation accepts "the conclusions of Mr. Kapila and Mr. Sharp that the Debtors were operated as a Ponzi scheme"¹⁰⁶and finds "the Debtors were

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operated as part of a massive Ponzi scheme."¹⁰⁷The Confirmation Order contains the following findings regarding the existence of the Ponzi scheme:

The evidence demonstrates, and the Bankruptcy Court hereby

finds, that (i) beginning no later than July 2012 through December l, 2017, Robert H. Shapiro used his web of more than 275 limited liability companies, including the Debtors, to conduct a massive Ponzi scheme raising more than $1.22 billion from over 8,400

unsuspecting investors nationwide; (ii) the Ponzi scheme involved the payment of purported returns to existing investors from funds contributed by new investors; and (iii) the Ponzi scheme was

discovered no later than December 2017.¹⁰⁸

The Confirmation Order is a final, non-appealable order. The Court's findings and conclusions are binding in this Adversary Proceeding. There is no genuine dispute that the Debtors operated a Ponzi scheme beginning no later than July 2012 through December l, 2017. A Ponzi scheme having been established, the Trustee must therefore show that the Transfers were made "in furtherance of" that scheme. The Trustee argues that when brokers are paid commissions for their efforts promoting a Ponzi scheme, the commissions are fraudulent transfers under sections 548 and 544 of the Bankruptcy Code.

Courts in various jurisdictions have concluded that commission payments to salespeople, brokers, and agents for bringing in new investors are transfers made "in furtherance of" a Ponzi scheme.¹⁰⁹In Bernard L. Madoff Inv. Sec. LLC, the trustee sought to avoid and recover commissions and fees paid to an entity that recruited and referred victims to a Ponzi scheme. In that case, the bankruptcy judge observed, "it is conceivable that 'certain transfers may be so

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unrelated to a Ponzi scheme that the presumption should not apply,'" but found that commissions were "clearly tainted as payments from a Ponzi schemer to an individual to reward them for locating new investors."¹¹⁰Similarly, in World Vision Entertainment, Inc., the bankruptcy court observed: "A Ponzi scheme is by definition fraudulent. By extension, any acts taken in furtherance of the Ponzi scheme, such as paying brokers' commissions, are also fraudulent. Every payment made by the debtor to keep the scheme on-going was made with the actual intent to hinder, delay, or defraud creditors, primarily the new investors."¹¹¹Likewise, in In re Randy, the trustee sought to recover commissions paid by the debtor to brokers "for their efforts in coopting new investors" into a Ponzi scheme.¹¹²There, the bankruptcy court explained:

The underlying reasoning that courts have used to find that profits paid in a Ponzi scheme to innocent investors are fraudulent transfers applies equally well to commissions paid to brokers who promoted or aided the investment scheme, whether or not they had any culpable intent. Therefore, as a matter of law, when brokers are paid commissions for their efforts in promoting a Ponzi scheme, these commissions are fraudulent transfers under §§ 548 and 544 of the Code.¹¹³

Also, In DBSI, Inc., the trustee alleged that the Ponzi scheme was propped up by the sale of tenant-in-common ("TIC") interests which were sold through a real estate channel and

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licensed real estate brokers and/or agents sold the interests to investors, who received a commission or referral fee for their sales efforts.¹¹⁴The Delaware Bankruptcy Court reasoned:

"Such commissions and referral fees in this context would be made in furtherance of the DBSI Ponzi scheme, as the scheme was dependent upon the brokers/agents' sales of TIC interests to generate cash flow."¹¹⁵The Court found the Ponzi scheme presumption applicable to show fraudulent intent, and found the trustee had adequately stated a claim for the avoidance of actual fraudulent transfers under section 548(a)(1)(A).

The record establishes that the Individual Defendant (a) "worked as an outside broker recruited by the Debtor to sell FPCM's and received commissions,"¹¹⁶(b) "sold Notes and Units issued by Woodbridge to investors,"¹¹⁷(c) found new investors to refer to the Debtors,¹¹⁸and

(d) was paid out of the Debtors' main operating account in the two and four years prior to the Petition Date.¹¹⁹As noted above, the Second Troszak Declaration establishes that: (a) 23 checks, in the amount of $36,730.00 payable to Mr. Campbell; (b) 1 check, in the amount of $112.00 payable to Defendant James Campbell Jr., Inc.; and (c) 125 checks, in the total amount of $197,294.00 payable to Defendant Campbell Financial Corp.¹²⁰The Opinion on Confirmation

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found that "Debtors used funds received primarily from new investors to make payments of . . . 'interest' and 'principal' to existing investors. Shapiro also used commingled investor money to pay approximately $80 million in commissions, primarily to sales agents who sold the fraudulent 'investments' . . . ."¹²¹On this record, the Court finds that commission payments to the Defendants were in furtherance of the Ponzi scheme as the scheme was dependent on the sale of FPCMs to generate cash flow to pay principal and interest to existing investors. Further, there is no genuine dispute that the Transfers at issue occurred two and four years prior to the Petition Date, and therefore, the transfers occurred after June 2012 and are within the period of time in which the Ponzi scheme was operated.

Consequently, the Court concludes that the Ponzi scheme presumption is applicable to show fraudulent intent, and that the Trustee has established that the Transfers were made with the intent to hinder, delay, or defraud creditors under section 548(a)(1)(A) of the Bankruptcy Code and California Civil Code section 3439.04(a)(1).

3. The Defenses Asserted Do Not Give Rise to Genuine Issues of Material Fact

The Court next considers whether the Defendants' Response, Cross Motion for Summary Judgment, or Amended Answer sets forth any specific facts or evidence showing that there is a genuine issue for trial.¹²²The Defendants "must do more than simply show that there is some metaphysical doubt as to the material facts."¹²³

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a. Defendants Have Not Countered with Persuasive Evidence Demonstrating a Genuine Issue of Material Fact In the Amended Answer, Defendants admit that Mr. Campbell is an individual residing in Colorado and James E. Campbell, Jr. Inc. (D/B/A Campbell Financial Corp.) is a Colorado corporation,¹²⁴however, Defendants deny acting as a financial advisor and/or broker that sold securities or Notes and received a commission. The evidence establishes otherwise. The Amended Answer is contrary to the Troszak Declaration, the canceled checks, the CCDO and accompanying Stipulation, the Campbell Declaration, and the original Answer.¹²⁵Defendants have not countered with persuasive evidence demonstrating a genuine issue of material fact. To the contrary, as discussed below, the evidence establishes that Defendants acted as a broker, sold Notes, and received commissions.

First, in the original Answer,¹²⁶which is written in the first person by Mr. Campbell, and executed by Mr. Campbell individually and as President of the Corporate Defendant, Defendants admitted acting "as a broker,"¹²⁷selling Woodbridge "commercial mortgage notes",¹²⁸taking advantage of "a loophole in the securities laws that left their intended product free from regulation" and "personally warn[ed] every client before doing business with [him] that it was possible the Division of Securities in Colorado could eventually decide the product must be regulated…".¹²⁹Although the original Answer denied knowledge of the Ponzi scheme, Defendants confirmed selling the investments as part of a "valid business model that was upset

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by unreasonable government interference."¹³⁰The original Answer admitted: "I usually received a smaller percentage commission than normally taken by other Woodbridge brokers. Whereas, most brokers offered their larger clients 6%, I typically offered 7%."¹³¹Defendant(s) admitted that he acted as a broker, sold Notes, and received commissions. Although, the Amended Answer supersedes the original Answer, the original Answer is offered as evidence¹³²and may be used to rebut a subsequent contrary assertion.¹³³Here, the original Answer rebuts the subsequent denial in the Amended Answer that Defendants acted as a broker, sold Notes, and received commissions.

Second, the Court takes judicial notice¹³⁴of the Colorado Petition which corroborates that "James E. Campbell, Jr. … is the Registered Agent for Campbell Financial and was formerly licensed as an investment adviser representative with the State of Colorado until 2013. . ..

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Campbell acted as an independent Woodbridge sales agent through Campbell Financial, where he still serves as President and Control Person."¹³⁵

Third, the Stipulation, executed by Mr. Campbell personally, states James E. Campbell, Jr. "sold … interests in the Woodbridge First Commercial Mortgage Note Program …, for which Campbell was paid a commission."¹³⁶Although Mr. Campbell neither admitted nor denied the allegations, the statement rebuts the Amended Answer. Further, the CCDO, which Mr. Campbell did not contest,¹³⁷ordered: "Campbell shall immediately and permanently cease marketing and selling interests in FPCM Note Program in Colorado."¹³⁸

Fourth, the Campbell Declaration acknowledges receipt of funds from the Debtors. Although the Declaration states "any and all funds would have been attributable to the Corporate Defendant and not him [Mr. Campbell] personally,"¹³⁹at bottom, the Declaration does not deny Defendants receipt of funds from the Debtors as reflected on Exhibit A to the Complaint. A party is bound by what it states in its pleadings.¹⁴⁰

Finally, Exhibit 6 to the Second Troszak Declaration contains copies of the front and back of 151 checks issued by the Debtors and made payable to, and endorsed by, the Defendants.¹⁴¹

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Exhibit 6 also contains the Debtors' monthly bank statements that establish that each check sent from the Debtors to the Defendants was negotiated and subsequently deposited.¹⁴² Defendants' denials in the Amended Answer are insufficient to meet their burden on summary judgment.¹⁴³Defendants "'may not rest upon the mere allegations or denials of [their] pleading, but ... must set forth specific facts showing that there is a genuine issue for trial.'"

Defendants' denials do not rebut the Trustee's documentary evidence (or contrary evidence submitted by the Defendants). Based on the evidence presented, there is no genuine question of material fact as to whether Defendants acted as a broker, sold notes, and received the commission checks.

In addition, Defendants denial of "knowing participation in any way with an illegal Ponzi scheme" does not rebut summary judgment. Courts have established that fraudulent conveyances under section 548(a)(1)(A) are determined by reference to the intent of the debtor- transferor in making the transfer; "the state of mind of the transferee is irrelevant."¹⁴⁴Therefore, the Defendants' state of mind is not a defense to the Trustee's avoidance action.

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b. Individual Defendant Has Not Countered with Persuasive Evidence Demonstrating a Genuine Issue of Material Fact The Court next considers the Individual Defendant's defenses. In his Cross Motion for Summary Judgment the Individual Defendant maintains that he has no liability relating to the Transfers, and the Campbell Cross Motion Reply asserts the following additional defenses to the Transfers: (1) the date of honor doctrine applies, (2) the Individual Defendant did not have dominion over the checks and, therefore, cannot be considered a transferee, and (3) even if he received the Transfers, the mere conduit defense applies.¹⁴⁵

Mr. Campbell argues that the date of honor doctrine controls the issue of liability between him, the Individual Defendant, and the Corporate Defendant. He contends he is not a transferee because he never actually received the Transfers because the checks were deposited in the Corporate Defendant's account and honored by the bank.

Under the "date of honor" rule, outlined in Barnhill v. Johnson, a transfer made by check is deemed to occur on the date the check is honored.¹⁴⁶The Individual Defendant's reliance on In re Oakwood Markets, Inc., in which the Sixth Circuit adopted the date of honor rule in the context of section 549(a), is misplaced.¹⁴⁷That case addressed transfers made by checks that were received from debtor prepetition but honored by transferee's bank postpetition and were subject to avoidance under section 549(a), which governs postpetition transactions. Here, the

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commission checks were issued (and negotiated) pre-petition and are property of the estate, so the date of honor rule is inapposite.

Importantly, once a trustee demonstrates the right to recover fraudulent conveyances under section 544(b), the trustee must then establish the amount of recovery under section 550(a). Section 550(a) provides: "to the extent that a transfer is avoided under section 544 . . ., the trustee may recover, for the benefit of the estate, the property transferred."¹⁴⁸Section 550 is intended "to restore the estate to the financial condition it would have enjoyed if the transfer had not occurred."¹⁴⁹

Moreover, to the extent a transfer is avoided, section 550(a) permits a trustee to recover from "the initial transferee … or the entity for whose benefit such transfer was made" or "any immediate or mediate transferee of such initial transferee.¹⁵⁰The term transferee is not defined in the Bankruptcy Code, but it is widely accepted that a transferee is one who has "dominion or control" over the money or other asset —"the right to put the money to one's own use for whatever purpose the recipient so desires."¹⁵¹

Mr. Campbell argues even if the Court determines he received the Transfers payable to him individually, he was not a transferee, but a "mere conduit." He maintains he did not have

"dominion" over checks made out to him personally because the checks were purportedly

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deposited in a corporate bank account, and therefore, he is not a transferee but cites no authority to support this proposition.

Application of the "dominion and control" test "requires courts to step back and evaluate a transaction in its entirety to make sure that their conclusions are logical and equitable."¹⁵²As detailed above, the evidence establishes that Mr. Campbell, the President of, and Registered Agent for, the Corporate Defendant, was a broker, sold notes and received commissions. The evidence also demonstrates that checks totaling $36,730.00 were payable to Mr. Campbell, individually, as opposed to the Corporate Defendant.¹⁵³Mr. Campbell did not put forth any evidence to show that he could not exercise legal control over the checks that were payable to him or that he did not have the right to use the checks for his own purposes. There is nothing in the record to suggest that the Debtors issued checks to the Individual Defendant, as an agent for the Corporate Defendant, or that the Individual Defendant was obligated to use the Transfers for the benefit of the Corporate Defendant.

Furthermore, there is nothing in the record to reflect that Mr. Campbell acted as a "mere conduit" in receiving the Transfers solely for the Corporate Defendant and not his own benefit. To successfully assert the "mere conduit" defense to liability as transferee on avoided transfer, Individual Defendant "must establish that it lacked dominion and control over the transfer because the payment simply passed through its hands and it had no power to redirect the funds to its own use."¹⁵⁴As the burden falls on the Individual Defendant to show that he lacked the requisite dominion and control, the mere conduit defense fails.

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Based on the evidence presented, there is no genuine question of fact as to whether Mr. Campbell was as an initial transferee as to the commission checks made payable to him individually.¹⁵⁵

4. Defendants Have Not Established a Defense Under Section 548(c) of the Bankruptcy Code or Section 3439.08(a) of the California Civil Code Section 548(c) of the Bankruptcy Code creates a defense for an initial transferee of a fraudulent transfer if they received the transfer for value and in good faith.¹⁵⁶The CUVTA includes an analogous defense.¹⁵⁷Defendants bear the burden of proof on this defense, and thus to defeat the avoidance of a transfer on summary judgment, Defendants must offer affirmative evidence sufficient to create a material issue of fact as to whether they took for value and in good faith.¹⁵⁸

Defendants have not provided facts or evidence to establish that they have any applicable defenses. Defendants have not submitted evidence establishing that they provided "value" to the Debtors, nor do they dispute the legal standard argued by the Trustee - namely, that the recruitment of new investors to a Ponzi scheme does not constitute "value" for purposes of fraudulent transfer statutes. The value and good faith defense under 11 U.S.C. 548(c) is

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conjunctive, therefore, Defendants must prove they provided "value" and were a "good faith"

transferee. Because Defendants do not offer evidence of value to Debtors, the Court need not adjudicate good faith.¹⁵⁹

5. Conclusion as to Second and Fourth Claims The Court finds that there is no genuine dispute that the Debtors were operated as a Ponzi scheme and that the commissions paid to Defendants for their promotion and sale of the Debtors' fraudulent securities were related to and in furtherance of the Ponzi scheme. The Transfers are avoidable pursuant to section 548(a)(1)(A) and California Civil Code § 3439.04(a)(1). Insofar as the Trustee has met his burden to prove each of the Transfers were made with actual intent to hinder, delay, or defraud creditors, the Court need not reach the merits of the Trustee's argument that the "badges of fraud" also establish actual intent to hinder, delay, or defraud creditors.

B. Third and Fifth Claims: Constructive Fraudulent Transfers

1. Debtors Received Less Than Reasonably Equivalent Value in Exchange For the Transfers and Were Insolvent On the Date of Such Transfers The Third and Fifth Claims assert that the Transfers were constructive fraudulent transfers under section 548(a)(1)(B) of the Bankruptcy Code and section 3439.04(a)(2) of the California Civil Code.¹⁶⁰

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To establish that the Transfers were constructively fraudulent under the Bankruptcy Code, section 548(a)(1)(B) requires the Trustee to show that the Debtors received less than reasonably equivalent value in exchange for such Transfers and was insolvent on the date of such Transfers or became insolvent because of the Transfers. Under the Bankruptcy Code, inability to pay debts as they come due constitutes "insolvency" for purposes of the constructive fraudulent transfer test.¹⁶¹

Here, both constructive fraudulent transfer elements are satisfied. First, numerous courts have determined that a salesperson's or broker's solicitation of an additional investor in a Ponzi scheme provides no value to the debtor because it can "only exacerbate the harm to the debtor's creditors."¹⁶²As the Fifth Circuit observed in Janvey v. Gold Channel, Inc., "given that Ponzi schemes, by definition, create greater liabilities than assets with each subsequent transaction, each new investment in the [] Ponzi scheme decreased the value of the estate by creating a new liability that the insolvent business could never legitimately repay."¹⁶³Defendant's recruitment of new investors into the Ponzi scheme provided no value.

Second, the Debtors were insolvent at the time of the Transfers through the Initial Petition Date. As set forth in the Opinion on Confirmation, the Court found "[t]he annual cash

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flow from sales of real property was well below the amount of principal and interest paid by Shapiro to investors."¹⁶⁴For every year from 2013 to 2017, the income derived from the sales of real property was well short of the amount required to pay investors their principal and

"profits."¹⁶⁵The Debtors could not pay investors from their legitimate existing operations.¹⁶⁶ The Debtors used funds received primarily from new investors to make payments to old investors.¹⁶⁷

In addition, the Court found "beginning no later than July 2012 through December 1, 2017," Shapiro used his companies, including Debtors, "to conduct a massive Ponzi scheme."¹⁶⁸ Courts have held that "an enterprise engaged in a Ponzi scheme is insolvent from its inception and becomes increasingly insolvent as the scheme progresses."¹⁶⁹Thus, the evidence establishes that the Transfers were constructively fraudulent under section 548(a)(1)(B) of the Bankruptcy Code.

The Fifth Claim seeks relief under section 3439.04(a)(1) of the California Civil Code.¹⁷⁰ The Complaint does not cite to, nor address a claim under, section 3439.05 of the California Civil Code. The Memorandum, however, addresses the Fifth Claim, on the one hand, citing to, and relying upon, section 3439.05(a) of the California Civil Code; and, on the other hand,

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arguing the evidence establishes constructive fraud under section 3439.04(a)(2) and seeks summary judgment under section 3439.05.¹⁷¹

Although California law allows claims under California Civil Code sections 3439.04(a)(2) and 3439.05 to avoid constructive fraudulent transfers, here the Complaint does not assert a constructive fraudulent transfer claim under section 3439.05, thus summary judgment cannot be considered on that basis. Further, the Motion is silent as to which of the two statutory provisions serve as the grounds for the relief, and the Memorandum, as noted, cites to both sections. "A party is not allowed to raise a claim in summary judgment which was not pled in the operative complaint."¹⁷²Consequently, the Court will not grant summary judgment as to the Fifth Claim.

2. Defendants Have Not Established a Defense Under Section 548(c) of the Bankruptcy Code

As discussed above, Defendants have not sufficiently provided any facts or evidence to establish any applicable defenses.

3. Conclusion as Third and Fifth Claims The Court finds that there are no disputes of material facts that prevent the Court from finding in favor of Trustee and against Defendants on the Third Claim. As to the Fifth Claim, the request for summary judgment is denied as set forth herein.

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C. Prejudgment Interest The Complaint seeks prejudgment interest on the Transfers.¹⁷³In the Memorandum, the Trustee proposes that the Court defer consideration of the prejudgment interest calculation until entry of a final judgment and states: "In the event the Court desires supplemental briefing or evidence on Plaintiff's entitlement to prejudgment interest or the calculation thereof, Plaintiff will submit such briefing or evidence as requested by the Court."¹⁷⁴In light of the absence of argument (and evidence), the Court does not address, nor award, prejudgment interest. D. Mr. Campbell's Cross Motion for Summary Judgment

As discussed above, Mr. Campbell alleges that none of the Transfers asserted in Second through Fifth Claims of the Complaint were received by him and, therefore, he maintains he has no liability relating to the Transfers. He seeks summary judgment in his favor and against the Trustee as to those Claims.

With respect to the Cross Motion for Summary Judgment, Mr. Campbell bears the initial burden of demonstrating the absence of any genuine issue of material fact and that he is entitled to judgment as a matter of law.¹⁷⁵For the reasons discussed above, the evidence establishes summary judgment in the Trustee's favor and against the Defendants as to Second through Fourth Claims in the Complaint and Mr. Campbell has not met his burden as to the Fifth Claim.

"Merely stating statutory elements and repeating conclusory statements is insufficient."¹⁷⁶The Cross Motion for Summary Judgment is denied.

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CONCLUSION

In conclusion, there exists no disputes of material facts that prevent the Court from finding in favor of Trustee and against Defendants with respect to the Second, Third and Fourth Claims.

The Cross Motion for Summary Judgment is denied.

A separate order consistent with this Memorandum Opinion will issue Dated: May 6, 2026 _____________________________

J. Kate Stickles

United States Bankruptcy Judge