Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

McNamara v. Katten Muchin Rosenman LLP

United States District Court, W.D. Missouri, Western Division

July 19, 2019

THOMAS W. MCNAMARA, as the Court-Appointed Receiver for SSM Group, LLC; CMG Group, LLC; Hydra Financial Limited Fund I; Hydra Financial Limited Fund II; Hydra Financial Limited Fund III; Hydra Financial Limited Fund IV; River Elk Services, LLC; OSL Marketing, Inc., a/k/a OSL Group, Inc.; and related subsidiaries and affiliates, Plaintiff,



         Before the Court is Katten Muchin Rosenman LLP's Motion for Summary Judgment (Doc. #141), Katten Muchin Rosenman LLP's Motion for Partial Summary Judgment (Doc. #137), and Plaintiff's Motion for Summary Judgment on Defendant's Affirmative Defense Nos. 1 and 10 (Doc. #127).

         For the following reasons, Katten Muchin Rosenman LLP's Motion for Summary Judgment (Doc. #141) is DENIED, Katten Muchin Rosenman LLP's Motion for Partial Summary Judgment (Doc. #137) is GRANTED IN PART and DENIED IN PART, and Plaintiff's Motion for Summary Judgment on Defendant's Affirmative Defenses Nos. 1 and 10 (Doc. #127) is GRANTED IN PART and DENIED IN PART.

         I. Background

         Richard Moseley Sr. (“Moseley”) was the owner and operator of a payday lending operation that issued and serviced small, short-term loans, known as “payday loans, ” through the internet to customers across the United States. The operation consisted of lending, marketing, and customer service entities. The lending entities were “shell corporations” incorporated under Nevis law until December 2011. In January 2012, new lending entities were incorporated under New Zealand law. The lending entities had no physical locations, operations, or employees overseas. The customer service and marketing entities were incorporated under Missouri law and physically located in Kansas City, Missouri. The customer service entities employed U.S.-based employees who processed and serviced loans and handled all other aspects of the payday lending operation. Correspondence sent to the overseas entities was collected by an overseas registered agent and forwarded back to the Kansas City-based offices. Until the spring of 2011, OSL Marketing, based in Kansas City, was used for loan servicing and processing. Subsequently, River Elk Services, also based in Kansas City, was formed to perform those tasks.

         The payday lending operation generally functioned as follows. Potential borrowers would submit their personal information to a third-party website for loan consideration. A company called eData used the potential borrowers' information to create a loan packet, including a pre-filled loan agreement, and sent it electronically to the potential borrowers and to one of Moseley's companies. Then a customer service representative would call the potential borrowers to confirm whether they wanted the loan. The representative would either speak directly with the potential borrowers or leave a voicemail. Even if the representative did not speak directly with a potential borrower, the representative would approve the loan. Once the representative approved a loan, the loan would be sent to a third-party processer, at which point the loan would be funded and deposited in the borrower's bank account.

         On June 27, 2018, Moseley was convicted in the United States District Court for the Southern District of New York and judgment was entered against him on 6 counts related to his payday lending operation: Count 1, conspiracy to collect unlawful debts in violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”);[1] Count 2, collection of unlawful debts in violation of RICO;[2] Count 3, conspiracy to commit wire fraud;[3] Count 4, wire fraud;[4]Count 5, aggravated identity theft;[5] and Count 6, False TILA (“Truth in Lending Act”) disclosures.[6] The Court determined that for the time period of 2008-2013, the payday lending operation generated gross profits of $69, 623, 528.10. The Court entered a money judgment against Moseley in the amount of $49, 000, 000, representing the amount of proceeds traceable to the offenses charged in Counts 1-4.

         On September 8, 2014, the Consumer Financial Protection Bureau (“CFPB”) filed a six-count complaint in the Western District of Missouri against the payday lending entities (the “Receivership Entities”), Moseley, and other individuals involved in the payday lending operation for alleged violations of the Consumer Financial Protection Act (“CFPA”), TILA, and the Electronic Fund Transfer Act (“EFTA”). Specifically, the CFPB alleged 3 counts of CFPA violations: Count 1, misrepresentations that consumers authorized the loans and were bound by their terms; Count 2, misrepresentations about loan terms; Count 3, unfair billing practices. The CFPB alleged one TILA violation: Count 4, inaccurate loan term disclosures, and two violations of EFTA: Count 5, not obtaining authorization for electronic fund transfers; and Count 6, conditioning credit on preauthorized electronic fund transfers. The Court appointed Thomas McNamara as Receiver over the Receivership Entities to manage and exercise control of the Receivership Entities and their assets. The case was stayed during the resolution of the criminal proceedings against Moseley. The case settled after Moseley's conviction and a Stipulated Final Judgment and Order was entered on August 10, 2018, which included a monetary judgment of $69, 623, 528. The judgment was suspended against the defendants of the civil case upon satisfaction of certain conditions.

         Katten Muchin Rosenman LLP (“Katten”) formed an attorney-client relationship with OSL Marketing, one of the Receivership Entities, in August 2009. Katten's representation generally consisted of responding to inquiries from state regulators regarding the Receivership Entities' payday lending activities and advising Moseley regarding the structure of his operations and the loan documents he utilized. The attorney-client relationship terminated in 2012. Receiver brings the present action against Katten, alleging Katten committed legal malpractice and breached its fiduciary duty to the Receivership Entities. Receiver alleges Katten gave negligent legal advice as to the applicability of TILA, EFTA, and CFPA to the Receivership Entities' operations.

         As to TILA, Receiver alleges Katten failed to advise the Receivership Entities that they were legally bound by TILA and that therefore their loan documents were required to conform to TILA requirements. TILA requires that loan terms and costs disclosures be clear and accurate. Beach v. Ocwen Fed. Bank, 523 U.S. 410, 412 (1999). The CFPB complaint alleges that the automatic renewal, or “auto-rollover” provision in the loan documents violated TILA. The disclosures in the “TILA box” on the loan documents assumed the consumer would repay the loan with a single simultaneous payment of principal, interest, and fees. The disclosure failed to clarify the automatic renewal term. The effect of this was that consumers' loans automatically rolled over and consumers incurred repeated finance charges without repayment of the principal. As to EFTA, Receiver alleges Katten failed to advise the Receivership Entities that they were legally bound by EFTA and that loan documents legally needed to conform to EFTA requirements. The CFPB complaint alleged the loan document provision conditioning the issuance of loans on the requirement that repayment be made by preauthorized electronic fund transfers (EFT or ACH processing) violated EFTA. 15 U.S.C. § 1693k(1); 12 C.F.R. § 1005.10(e)(1). As to CFPA, Receiver alleges Katten should have recognized that under the CFPA the customer service entities were liable for any of the lending entities' violations and should have advised the Receivership Entities that CFPA required the loan documents to comply with TILA and EFTA, which was enacted in July 2010 and went into effect no later than July 2011. Receiver alleges this negligent legal advice resulted in the civil suit CFPB v. Moseley and the Receivership Entities' joint and several liability on the resulting damages award.

         Katten moves for summary judgment on two grounds: 1) Moseley's criminal conviction collaterally estops the Receiver's malpractice claims; and 2) undisputed facts demonstrate Katten did not act negligently and Receiver cannot prove “but for” causation. Katten moves in the alternative for partial summary judgment on two grounds: 1) Katten's negligence did not cause the Receivership Entities' unauthorized debits of consumers' bank accounts; and 2) the $69 million suspended judgment from the civil case is unrecoverable damage. Receiver moves for summary judgment on two of Katten's affirmative defenses: 1) in pari delicto; and 2) intervening cause.

         II. Legal Standard

         Federal Rule of Civil Procedure 56(a) requires a court to grant a motion for summary judgment if 1) the moving party “shows that there is no genuine dispute of material fact” and 2) the moving party is “entitled to judgment as a matter of law.” A nonmoving party survives a summary judgment motion if the evidence, viewed in the light most favorable to the nonmoving party, is “such that a reasonable jury could return a verdict for the nonmoving party.” Stuart C. Irby Co. v. Tipton, 796 F.3d 918, 922 (8th Cir. 2015) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). While a plaintiff opposing summary judgment “may not simply point to allegations in the complaint, ” Robbins v. Becker, 794 F.3d 988, 993 (8th Cir. 2015) (internal quotation marks and citation omitted), the “standard for avoiding summary judgment” is “relatively lenient.” Amgen Inc. v. Conn. Ret. Plans & Trust Funds, 568 U.S. 455, 479-80 (2013) (citing Anderson, 477 U.S. at 248). The purpose of summary judgment “is not to cut litigants off from their right of trial by jury if they really have issues to try.” Hughes v. Am. Jawa, Ltd., 529 F.2d 21, 23 (8th Cir. 1976) (internal quotation marks omitted) (quoting Poller v. Columbia Broadcasting Sys., Inc., 368 U.S. 464, 467 (1962)).

         III. Discussion

         A. Collateral Estoppel

         Katten argues Receiver is attempting to relitigate issues Moseley litigated and lost in his criminal case, and collateral estoppel bars Receiver's negligence claims against Katten. Katten argues that because the criminal investigation revealed Moseley acted knowingly and with criminal intent, Katten cannot be found negligent for failing to advise the Receivership Entities. Katten argues Moseley asserted an advice-of-counsel defense in his criminal case substantively identical to Receiver's negligence claim against Katten, which the jury rejected. Receiver argues in the first instance that Katten cannot rely on collateral estoppel at the summary judgment stage because it failed to plead it as an affirmative defense pursuant to Federal Rule of Civil Procedure 8(a). Receiver argues that even if Katten has not waived its collateral estoppel defense, the doctrine does not apply because Receiver was not a party or in privity with a party to the criminal proceedings and because the criminal proceedings did not necessarily and unambiguously resolve the questions presented in this case.

         Collateral estoppel provides that “when an issue of ultimate fact has been determined by a valid and final judgment, that issue cannot again be litigated between the same parties in another lawsuit.” Anderson v. Genuine Parts Co., Inc., 128 F.3d 1267, 1272 (8th Cir. 1997) (internal citation omitted). In the Eighth Circuit, collateral estoppel has five elements:

(1) the party sought to be precluded in the second suit must have been a party, or in privity with a party, to the original lawsuit; (2) the issue sought to be precluded must be the same as the issue involved in the prior action; (3) the issue sought to be precluded must have been actually litigated in the prior action; (4) the issue sought to be precluded must have been determined by a valid and final judgment; and (5) the determination in the prior action must have been essential to the prior judgment.

Olsen v. Mukasey, 541 F.3d 827, 830- 31 (8th Cir. 2008) (internal citations omitted). Other Eighth Circuit cases state that the issue sought to be precluded must be identical to the issue decided in the previous case. See, e.g., Irving v. Dormire, 586 F.3d 645, 648 (8th Cir. 2009); Wellons, Inc. v. T.E. Ibberson Co., 869 F.2d 1166, 1168 (8th Cir. 1989) (emphasis added).

         The Court finds that even if Katten adequately pleaded the collateral estoppel defense, it still fails. The Court finds that Receiver, even while standing in the shoes of the Receivership Entities, is not in privity with Moseley as it relates to his criminal case and conviction. “[A] person is in privity with a party . . . if the interests of the non-party are so closely related to the interests of the party, that the non-party can fairly be considered to have had his day in court.” Sumlin v. Krehbiel, 876 F.Supp. 1080, 1081 (E.D. Mo. 1994) (citing Gribben v. Lucky Star Ranch Corp., 623 F.Supp. 952, 960 (W.D. Mo.1985) (internal quotation marks omitted). The Court presumes that Moseley's interest, like a defendant in any criminal case, centered chiefly on being found innocent and acquitted so that he could maintain his freedom and avoid imprisonment. Alternatively, the interest of the Receivership Entities as a for-profit business operation, is presumably to continue operating for profit or to pay off their creditors, regardless of the status of their owner and operator. While the Receivership Entities, like any business entity, would certainly be concerned with the criminal allegations and potential convictions of their owner and operator, their interest is one distinct and dissimilar from the criminal activities of their owner and operator. “As a general rule, [c]orporations are treated as entities separate from their officers, directors, and shareholders for purposes of preclusion just as for other purposes. Without more, judgments entered in actions against any one of them are not binding on any other.” United States v. Gurley, 43 F.3d 1188, 1197 (8th Cir. 1994) (internal citation and quotation marks omitted); 18A Edward H. Cooper, Federal Practice and Procedure § 4460 (3d ed. 2019)). It cannot be fairly concluded that Receiver or the Receivership Entities have had their day in court through Moseley's criminal case.

         Further, “[a] receiver is an officer of the court.” United States v. Smallwood, 443 F.2d 535, 539 (8th Cir. 1971) (internal citation omitted). “He is not an agent or employee of either party to the litigation in which he was appointed.” Id. “The appointment of the receiver remove[s] the wrongdoer from the scene.” Scholes v. Lehmann, 56 F.3d 750, 754 (7th Cir. 1995); see also Zayed v. Associated Bank, N.A., 779 F.3d 727, 737 (8th Cir. 2015) (“[B]ecause this case involves a Ponzi scheme, the Receivership Entities are considered victims of the fraud and thus creditors of the Ponzi scheme.”). The Court appointed Receiver over the payday lending entities to manage their assets in order to ensure the Court's ability to afford monetary relief to consumers. The Court appointed Receiver on the belief that Moseley and other individuals previously in control of the Receivership Entities were not capable of responsibly and honestly managing the assets based on the criminal allegations underlying Moseley's criminal conviction. The Receiver then has no interest in defending Moseley from criminal charges. Rather, the Receiver's interest lies in sharp contrast: ensuring victims of Moseley's criminal enterprise obtain financial relief. Receiver as Plaintiff in this case, seeking to hold Katten liable for allegedly negligently advising the Receivership Entities and to recover monetary damages to benefit harmed consumers, cannot be said to have had its day in court based on Moseley's criminal trial. Under Katten's logic, Moseley's criminal conviction pardons Katten from liability for negligence in its attorney-client relationship with the Receivership Entities. The Court disagrees.

         Even if Receiver and Moseley were in privity, the Court finds that the issue sought to be precluded in this case, whether Katten negligently advised the Receivership Entities regarding the applicability of TILA, EFTA, and CFPA, is not the same as the issues involved and actually litigated in the Moseley criminal case. The issues litigated in the Moseley criminal case concerned Moseley's criminal liability for conspiracy to collect and collection of unlawful debts in violation of RICO, conspiracy to commit and commission of wire fraud, aggravated identity theft, and false TILA disclosures spanning a time period of 2004-2014. The jury's guilty verdict on these issues established criminal liability regarding Moseley; the jury verdict did not ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.