UNITED STATES DISTRICT COURT FOR THE DISTRICT OF … · See Dkt. 23, Declaration of Grand Casino...

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA

CORPORATE COMMISSION OF THE MILLE LACS BAND OF OJIBWE INDIANS,

Plaintiff,

v.

MONEY CENTERS OF AMERICA, INC., MCA OF WISCONSIN, INC., CHRISTOPHER WOLFINGTON, MARK WOLFINGTON, SEAN WOLFINGTON, JONATHAN ZIEGLER, BAENA ADVISORS, LLC, and REAL ESTATE EMPOWERED, LLC,

Defendants.

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No. 0:12-cv-01015-RHK-LIB MEMORANDUM OF LAW IN SUPPORT OF MOTION BY DEFENDANTS CHRISTOPHER WOLFINGTON, MARK WOLFINGTON, AND REAL ESTATE EMPOWERED, LLC FOR PARTIAL DISMISSAL OF PLAINTIFF’S SECOND AMENDED COMPLAINT

DUANE MORRIS LLP James L. Beausoleil, Jr., Esq. Luke P. McLoughlin, Esq. 30 S. 17th St. Philadelphia, PA 19103 215.979.1000

PATTERSON LAW OFFICE, P.A. Robert B. Patterson, Jr., #169146 5101 Thimsen Avenue, Suite 200 Minnetonka, MN 55345 952.224.2851

Counsel for Defendants Christopher Wolfington, Mark Wolfington, and Real Estate Empowered, LLC

CASE 0:12-cv-01015-RHK-LIB Document 160 Filed 03/04/13 of 37

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TABLE OF CONTENTS

Page

I. PRELIMINARY STATEMENT .............................................................................. 1

II. FACTUAL BACKGROUND .................................................................................. 4

A. Real Estate Empowered................................................................................. 5

B. The Employee Defendants ............................................................................ 5

C. The Initial Complaint, First Amended Complaint, and Second Amended Complaint ...................................................................................... 6

III. ARGUMENT ........................................................................................................... 7

A. The Court Lacks Personal Jurisdiction Over Real Estate Empowered ......... 7

1. The Application of the Multi-Factor Test for Personal Jurisdiction Directs That There Is No Jurisdiction Over Real Estate Empowered .............................................................................. 9

B. The Commission Has Not Pled Facts Necessary to Pierce MCA’s Corporate Veil ............................................................................................. 10

1. A Veil Piercing Claim Shall Be Dismissed Where The Facts Alleged Are Implausible .................................................................. 11

2. MCA was Not Established as a “Sham Entity” And Therefore The Commission Cannot Disregard MCA’s Corporate Form to Sue the Employee Defendants ..................................................... 13

3. MCA Implausibly Alleges That MCA Is a Corporate Fiction ......... 15

C. The Commission’s Non-Veil Piercing Claims Fail Because They Do Not State A Claim Under Fed. R. Civ. P. 12(b)(6) or Fed. R. Civ. P. 9(b) .............................................................................................................. 20

1. Neither Christopher Wolfington, Mark Wolfington Nor Real Estate Empowered Obtained “Vault Cash” From the Commission, Therefore the Commission’s Unjust Enrichment, Conversion, and Constructive Trust Claims Fail As A Matter of Law ......................................................................... 21


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2. The Commission Has Not Pled Facts that the Employee Defendants or Real Estate Empowered Committed a Fraudulent Transfer (Counts IX, X, XI, XII and XIII) .................... 22

a. The Commission Cannot Allege Fraudulent Transfers to Real Estate Empowered, As Any Alleged Transfer Was Prior to any Alleged “Claim” By the Commission ....... 22

b. The Commission’s Claim for “Fraudulent Transfer/Recovery – Preference” Should Be Dismissed as This Claim is Not Cognizable Under Pennsylvania Law ........................................................................................ 24

c. The Commission’s Fraudulent Transfer Claims Against Chris Wolfington and Mark Wolfington are Likewise Insufficient Under Fed. R. Civ. P. 8, 9(b), and 12(b)(6) ........................................................................... 25

3. The Commission Has Not Pled Facts that Christopher Wolfington or Mark Wolfington Committed Fraud ........................ 27

4. The Commission’s Breach of Fiduciary Duty Claim Against Chris Wolfington Must Be Dismissed Because the Commission Does Not Have Standing To Bring The Claim ........... 28

IV. CONCLUSION ...................................................................................................... 30


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TABLE OF AUTHORITIES

Federal Cases

Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009) .......................................................................... 20

Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) ...................................... 4, 20, 23, 29

In re BH S & B Holdings LLC, 420 B.R. 112, 52 Bankr. Ct. Dec. (CRR) 125 (Bankr. S.D. N.Y. 2009) ..................................................................................... 3, 15-16

Buchwald Capital Advisors LLC v. JPMorgan Chase Bank, N.A. (In re M. Fabrikant & Sons, Inc.), 480 B.R. 480 (S.D.N.Y. 2012) ............................................ 26

Edgar v. MITE Corp., 457 U.S. 624 (1982) ...................................................................... 11

In re: Foxmeyer Corporation, supra 290 B.R. .................................................................. 14

George Hyman Constr. Co. v. Gateman, 16 F.Supp.2d 129 (D. Mass. 1998) ............ 16, 18

Gryl ex rel. Shire Pharms. Group PLC v. Shire Pharms. Group PLC, 298 F.3d 136 (2d Cir. 2002) ............................................................................................................... 17

International Shoe Co. v. Washington, 326 U.S. 310 (1945) .............................................. 8

Johnson v. Welsh Equipment, Inc., 518 F. Supp. 2d 1080 (D. Minn. 2007) .................... 7-8

Kranz v. Koenig, 240 F.R.D. 453 (D. Minn. 2007) ........................................................... 25

Lucachick v. NDS Americas, Inc., 169 F. Supp. 2d 1103 (D. Minn. 2001) ........................ 8

Mobil Oil Corp. v. Linear Films, Inc., 718 F. Supp. 260 (D. Del. 1989) ............... 11, 14-15

Parnes v. Gateway 2000, Inc., 122 F.3d 539 (8th Cir. 1997) ........................................... 17

Pearson v. Component Tech. Corp., 247 F.3d 471 (3d Cir. 2001) ................................... 12

Quantum Loyalty Sys., Inc. v. TPG Rewards, Inc., No. 09-022-SLR/MPT, 2009 WL 5184350 (D. Del. Dec. 23, 2009), accepting Report and Recommendation, in part, 2010 WL 1337621 (D. Del. Mar. 31, 2010) ............................................. 12, 14

Rupp v. Thompson, No. C5-03-347, 2004 WL 3563775 (D. Minn. Mar. 17, 2004) ......... 11

Schmelzle v. Alza Corp., 561 F. Supp. 2d 1046 (D. Minn. 2008) ..................................... 23

Stalley v. Catholic Health Initiatives, 509 F.3d 517 (8th Cir. 2007)................................. 10


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Trevino v. Merscorp, Inc., 583 F. Supp. 2d 521 (D. Del. 2008) ................................ Passim

Wellman v. Dow Chem. Co., Civ. No. 05-280-SLR, 2007 WL 842084 (D. Del. Mar. 20, 2007) .............................................................................................................. 12

World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (1980) .................................... 8

Youkelsone v. Washington Mut. (In re Washington Mut., Inc.), No. 08-12229, 2010 WL 3238903 (Bankr. D. Del. Aug. 13, 2010) ............................................................. 11

Zhorne v. Swan, 700 F. Supp. 1037 (D. Minn. 1988) ......................................................... 9

State Cases

Aronson v. Lewis, 473 A.2d 805 (Del. 1984), overruled on other grounds by Brehm v. Eisner, 746 A.2d 244 (Del. 2000) ................................................................ 29

Crosse v. BCBSD, Inc., 836 A.2d 492 (Del. 2003) ...................................................... 12-13

Lufkin & Jenrette, Inc., 845 A.2d 1031, 1039 (Del. 2004) ............................................... 28

Mason v. Network of Wilmington, Inc., 2005 Del. Ch. LEXIS 99 (De. Ch. 2005) ..... 15, 19

Medi-Tec of Egypt Corp. v. Bausch & Lomb Surgical, 2004 Del. Ch. LEXIS 21, 2004 WL 415251 (Del. Ch. Mar. 4, 2004) ............................................................. 11, 14

NACEPF v. Gheewalla, 930 A.2d 92 (Del. 2007) ............................................................ 28

Outokumpu Eng'g Enters. v. Kvaerner Enviropower, 685 A.2d 724 (Del. Super. Ct. 1996) ....................................................................................................................... 15

Rales v. Blasband, 634 A.2d 927 (Del. 1993) ................................................................... 29

Wallace v. Wood, 752 A.2d 1175, 1999 Del. Ch. LEXIS 212 (Del. Ch. 1999) ........... 11-14

State Statutes

12 Pa.C.S. § 5105 .............................................................................................................. 24

Del. Code Ann., tit. 6, § 1304(a) ....................................................................................... 23

Del. Code Ann., tit. 6, § 1305(a) ....................................................................................... 22

Del. Code Ann. tit. 6, § 1305(b) ............................................................................. 24, 26-27

Del. Code Ann. tit. 6, § 1309(3) ........................................................................................ 27


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Rules

Delaware Court of Chancery Rule 23.1 ............................................................................ 29

Fed. R. Civ. P. 8 ............................................................................................................ 25-26

Fed. R. Civ. P. 8(a)(2) ......................................................................................................... 4

Fed. R. Civ. P. 9(b) ........................................................................................... 20-21, 25-26

Fed. R. Civ. P. 12 ............................................................................................................... 13

Fed. R. Civ. P. 12(b)(2) ................................................................................................. 7, 10

Fed. R. Civ. P. 12(b)(6) .............................................................................................. Passim

Fed. R. Civ. P. 23.1 ............................................................................................................ 29

Non-Periodical Publications

http://www.sec.gov/cgi-bin/browse-edgar?company=Money+Centers+of+ America&match=&CIK=&filenum=&State=&Country=&SIC=&owner= exclude&Find=Find+Companies&action=getcompany ................................................ 5


Defendants Christopher Wolfington, Mark Wolfington (together, the “Employee

Defendants”), and Real Estate Empowered, LLC (“Real Estate Empowered”) respectfully

submit this memorandum of law in support of their motion for partial dismissal of the

Second Amended Complaint (“SAC”) filed by Plaintiff Corporate Commission of the

Mille Lacs Band of Ojibwe Indians (the “Commission”).

The Commission continues its pattern of overreaching in these proceedings by

attempting to multiply a straightforward breach-of-contract case into a fishing expedition

into new parties based on spurious new claims. The Commission’s latest overreach

should be rejected. Because the Commission (1) cannot show that this Court has

jurisdiction over Real Estate Empowered, LLC, (2) cannot allege facts sufficient to pierce

the corporate veil of MCA, and (3) cannot otherwise state plausible claims for relief, the

Commission’s claims should be dismissed with prejudice.

I. PRELIMINARY STATEMENT

The Commission is grasping at straws in an attempt to attach to these proceedings

the assets of anyone associated with MCA. Notwithstanding the Court’s explicit

recognition that this suit for $5.6 million dollars is not a suit about fraud, Dkt. 112 (Jan.

8, 2013 Order Denying Commission Motion for Attachment/Injunction) at 8-9, the

Commission attempts to transform the breach-of-contract case with MCA into a veil-

piercing case based on events from 2010 and earlier. But the Commission admits it was

fully reimbursed by MCA with Settlement Funds in 2009, in 2010, in 2011, and from

January 1, 2012 until March 9, 2012. Dkt. 23-24. Only after March 10, 2012, according


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to the Commission, did the Commission provide Vault Cash advances that were not

settled with Settlement Funds. Id.

The Commission has no conceivable basis, let alone a plausible one, to allege that

MCA was formed in 1997 for the purpose of being a legal fiction and therefore defraud

the Commission more than a half-dozen years later. Instead, the Commission again brays

that its Vault Cash has been “stolen,” SAC ¶ 5, and that all of the defendants “are

realizing a significant benefit through their unlawful retention of the Vault Cash.” SAC ¶

111. The Commission is simply unwilling to acknowledge that all Vault Cash has been

provided to its customers, and that this is a basic claim for breach-of-contract against

MCA – not anyone else.

In the face of these basic facts, the Commission has responded to the Court’s

January 8, 2013 denial of its attachment/injunction motion by repackaging its

unsuccessful motion as a Second Amended Complaint that now sues MCA’s CEO and

COO, Real Estate Empowered, as well as two other individuals (John Ziegler and Sean

Wolfington) and a creditor of MCA (Baena Advisors, LLC). The principal focus of the

Commission’s latest pleading is to sue relatives of the Employee Defendants on claims

regarding events from 2010 and prior – events that, again, are conceded by Commission

to precede by more than two years the damages it claims arose on and after March 10,

2012. See Dkt. 23, Declaration of Grand Casino Hinckley CFO Roxanne Hemming, ¶ 10

(outstanding receivable as of day of eviction “consists of Vault Cash provided to MCA

dating back to March 10, 2012, that has not been returned to the Grand Casino Hinckley


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minus deductions for service fees due each day to MCA.”); Dkt. 24, Declaration of Mille

Lacs Casino CFO Vernon Robertson, ¶ 10 (same).

In other words, none of the money the Commission now seeks is for advances

made prior to March 10, 2012. Though the Commission bizarrely claims that MCA was

not only created in 1997 to act as a façade and defraud MCA in 2012 but to “victimiz[e]”

“Native American Tribes” throughout the country, SAC ¶ 4, it is undisputed that all of

the Vault Cash advances from 2009 to March 10, 2012 were reimbursed with appropriate

Settlement Funds. Id. The Commission is again misrepresenting the basic nature of this

dispute over a receivable created in March-April 2012. The Commission may be

concerned that it may not be able to recover $5.6 million from MCA, but that is not a

basis for seeking the extraordinary relief of veil piercing. “Delaware courts have held

that the possibility that a plaintiff may have difficulty enforcing a judgment is not an

injustice warranting piercing the corporate veil.” Trevino v. Merscorp, Inc., 583 F. Supp.

2d 521, 530 (D. Del. 2008); In re BH S & B Holdings LLC, 420 B.R. 112, 52 Bankr. Ct.

Dec. (CRR) 125 (Bankr. S.D.N.Y. 2009) (applying Delaware law) (undercapitalization is

rarely sufficient to pierce the corporate veil).

If that weren’t enough, the Commission’s metastasizing allegations now seek to

add to this case an entity called Real Estate Empowered, which the Commission alleges

improperly received $70,000 from MCA in 2010 and 2011. Aside from the fact that

there is no allegation that the Commission is owed money from 2010 or 2011, the

Commission does not even attempt to contend the Court can exercise personal

jurisdiction over Real Estate Empowered. See SAC ¶ 16 (identifying no basis for


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personal jurisdictional over Real Estate Empowered). Real Estate Empowered has no

connection to Minnesota and the Commission’s attempt to add it as a new defendant

should be dismissed.

The Court should similarly dismiss the veil-piercing claims: the Commission

nowhere plausibly alleges that MCA was formed to act as a corporate fiction. Trevino v.

Merscorp, Inc., 583 F. Supp. 2d 528, 530 (D. Del. 2008). Instead, the Commission

alleges implausibly that MCA was set up by the “Wolfington Family” back in 1997 to

defraud the Commission and other nameless Native American tribes years later in 2012.

This is a textbook case of implausible pleading was already rejected once when it was

pressed as a basis to attach MCA’s monies. Dkt. 112. The allegations should fare no

better a second time.

Because the Commission’s latest attempt to transform this breach-of-contract case

into something else fails to state conceivable, let alone plausible, claims for relief, it

should be dismissed. Fed. R. Civ. P. 12(b)(6); Fed. R. Civ. P. 8(a)(2); Bell Atlantic Corp.

v. Twombly, 550 U.S. 544, 570 (2007).

II. FACTUAL BACKGROUND

For the sake of brevity, the Employee Defendants and Real Estate Empowered

incorporate by reference the facts set forth in the Memorandum of Law in Support of

MCA’s Motion to Dismiss the Second Amended Complaint, Dkt. 141, and add the

following:


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A. Real Estate Empowered

Real Estate Empowered is a Pennsylvania limited liability real estate corporation.

Real Estate Empowered owns in its own name properties in Philadelphia and Delaware

counties in Pennsylvania. Christopher Wolfington is the sole member of Real Estate

Empowered. Real Estate Empowered Decl. ¶¶ 1-6. Real Estate Empowered does not

have any offices, employees, or agents in Minnesota, and the Commission does not allege

otherwise.

B. The Employee Defendants

Christopher Wolfington is the Chief Executive Officer of MCA. He negotiated

and signed the Agreement in 2009 with the Commission. Mark Wolfington is Chief

Operating Officer of MCA. He joined MCA in 2010.

MCA was incorporated in October 1997, and was a publicly traded business

registered with the SEC from January 12, 2005 through November 24, 2008. See January

12, 2005 SB-2; Dec. 31, 2007 10-KSB. 1 MCA filed independently-audited financial

statements when it registered with the SEC. At that time, MCA listed 47 full time

employees, and over $800,000 in property and equipment owned by MCA less

accumulated depreciation.

Between 2009 and 2012, MCA employed approximately 20 individuals at the

Commission’s two casinos. The Commission was an eyewitness to the numerous

1 MCA’s SEC filings are publicly available at http://www.sec.gov/cgi-bin/browse-edgar?company=Money+Centers+of+America&match=&CIK=&filenum=&State=&Country=&SIC=&owner=exclude&Find=Find+Companies&action=getcompany.


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employees that MCA deployed at the Commission’s casinos, and to the successful

settlement of hundreds of millions of dollars of cash advances by those employees.

C. The Initial Complaint, First Amended Complaint, and Second Amended Complaint

After evicting MCA, the Commission filed a Complaint against MCA on April 4,

2012. Dkt. 1. Months later, the Commission demanded that the Court preliminarily

attach MCA’s out-of-state bank accounts and enjoin MCA from running its business.

Dkt. 90. The Court denied the Commission’s motion in its entirety, holding that the

gravamen of the Commission’s suit is a breach-of-contract claim for money damages.

Dkt. 112.

The Commission then amended its Complaint a second time, essentially restating

the allegations from its unsuccessful attachment/injunction motion while bringing the

following eight Counts against new defendants Christopher Wolfington and Mark

Wolfington:

Breach of Contract (Count I) Unjust Enrichment (Count II) Conversion / Intentional Interference With Personal Property (Count III) Declaratory Relief / Constructive Trust (Count V) Fraud/Deceit (Count VI) Fraudulent Transfer – Actual Intent (Count IX) Fraudulent Transfer – Constructive Intent (Count X) Fraudulent Transfer/Recovery – Preference (Count XI).2

Notably, the Commission demanded in its Breach of Contract claim that Mark and

Christopher Wolfington be deemed liable for any breach of the contract between MCA

2 The Commission sued Chris Wolfington for Breach of Fiduciary Duty (Count XIV).


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and the Commission, based on the Commission’s demand that MCA’s corporate veil be

pierced.

Lastly, the Commission added as a new defendant Real Estate Empowered and

sued it for unjust enrichment (Count II), Conversion / Intentional Interference With

Personal Property (Count III); Declaratory Relief/ Constructive Trust (Count V),

Fraudulent Transfer/Recovery – Actual Intent (Count XII), and Fraudulent

Transfer/Recovery – Constructive Intent (Count XIII).

III. ARGUMENT

The Commission’s attempt to multiply these proceedings by repackaging its

unsuccessful attachment/injunction motion as a new Complaint is fatally flawed: there is

no jurisdiction over Real Estate Empowered, the veil piercing claims fail to surmount

Twombly’s plausibility threshold, and the balance of the allegations are legally defective,

generalized, and/or implausible. The Commission’s attempt to attach new defendants

and claims to this suit against MCA should be emphatically rejected.

A. The Court Lacks Personal Jurisdiction Over Real Estate Empowered

The Commission does not even attempt to plead jurisdiction over Real Estate

Empowered. Real Estate Empowered should be dismissed from this case.

A complaint against a defendant must be dismissed where the Court lacks

jurisdiction over that defendant. Fed. R. Civ. P. 12(b)(2).3 A two-step test determines

3 Courts may exercise either specific or general jurisdiction over a party. Where a court premises jurisdiction over a defendant upon the relationship between the plaintiff’s claims and the defendant’s forum-state activities, the court is exercising “specific jurisdiction.” See Johnson v. Welsh Equipment, Inc., 518 F. Supp. 2d 1080, 1088 (D.


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whether a federal court has jurisdiction over a non-resident party: (1) whether the facts

presented satisfy the forum state’s long-arm statute, and (2) whether the nonresident has

minimum contacts with the forum state, so that the court’s exercise of jurisdiction would

be fair and in accordance with due process. See Lucachick v. NDS Americas, Inc., 169 F.

Supp. 2d 1103, 1106 (D. Minn. 2001). Because the Minnesota long-arm statute extends

jurisdiction to the fullest extent permitted by the Due Process clause, the Court need only

decide whether jurisdiction is consistent with the Due Process clause. See id.

Courts in the Eighth Circuit examine five factors to determine whether the

exercise of jurisdiction comports with the minimum contacts4 requirement of the Due

Process clause: (1) the nature and quality of the contacts with the forum state; (2) the

quantity of contacts with the forum; (3) the relation of the cause of action to these

contacts; (4) the interest of the forum state in providing a forum for its residents; and (5)

the convenience of the parties. See id; International Shoe Co. v. Washington, 326 U.S.

310, 316 (1945). Courts do not apply these factors mechanically, and the last two factors

Minn. 2007). When the plaintiff’s claim is not related to the defendant’s contacts with the forum, a court can exercise general jurisdiction based on the defendant’s “continuous and systematic” contacts with the forum. See id. Because there are no allegations in the Second Amended Complaint consistent with a claim of general jurisdiction over Real Estate Empowered, only specific jurisdiction is discussed in this Memorandum.

4 The Due Process clause requires that there be “minimum contacts” between the defendant and the forum state. This requirement is satisfied if the defendant’s conduct and connection with the forum state is such that the defendant should reasonably anticipate being haled into that state’s court. Lucachick, 169 F. Supp. 2d at 1106 (citing World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 291 (1980). In addition, the maintenance of the suit in the forum state must not offend traditional notions of fair play and substantial justice. International Shoe Co. v. Washington, 326 U.S. 310 (1945).


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are to be considered, but are not determinative. The application of these factors confirms

that the Court lacks jurisdiction over Real Estate Empowered.

1. The Application of the Multi-Factor Test for Personal Jurisdiction Directs That There Is No Jurisdiction Over Real Estate Empowered

Real Estate Empowered is a Pennsylvania LLC with a Pennsylvania address. As

set forth in the attached affidavit, Real Estate Empowered does not have any offices,

employees, or agents in Minnesota. Real Estate Empowered Decl. ¶¶ 4-6. It has not

conducted any business in Minnesota, nor has it directed any marketing efforts toward

Minnesota. Id. The Commission does not allege otherwise.

To satisfy specific personal jurisdiction, there must be a connection between the

cause of action and Defendant’s contacts with the forum state. Here, the Second

Amended Complaint fails to allege any connection between Real Estate Empowered and

Minnesota. See SAC ¶ 16. There are no simply allegations that Real Estate Empowered

had contacts with Minnesota that relate to the transactions at issue in this case – only an

allegation that Real Estate Empowered received $70,000 in 2010 and 2011 that the

Commission believes was unwarranted. Real Estate Empowered is a Pennsylvania LLC

with no ties to Minnesota and which would be inconvenienced by the need to travel to

Minnesota to defend this lawsuit. Nor does Minnesota have a distinct interest in this suit

by the Commission against Real Estate Empowered.

This Court cannot assert jurisdiction over Real Estate Empowered without

evidence of minimum contacts with the forum, even if the Commission contends that

Real Estate Empowered improperly received $70,000. See Zhorne v. Swan, 700 F. Supp.


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1037, 1039 (D. Minn. 1988) (refusing to find personal jurisdiction over a corporation

which had no contacts with the forum state but which was allegedly being used to shield

fraudulently obtained assets). The application of the multifactor test described above

makes clear that jurisdiction over Real Estate Empowered is utterly lacking.

In light of the foregoing, the Second Amended Complaint should be dismissed

pursuant to Federal Rule of Civil Procedure 12(b)(2) because the multi-factor test for

personal jurisdiction has plainly not been met. The Court should dismiss all of the claims

against Real Estate Empowered based on a lack of jurisdiction over Real Estate

Empowered.

B. The Commission Has Not Pled Facts Necessary to Pierce MCA’s Corporate Veil

The veil-piercing claim (Count I, Breach of Contract) against the Employee

Defendants should be dismissed per Fed. R. Civ. P. 12(b)(6). The Commission has not

pled facts necessary to take the extraordinary step of piercing MCA’s corporate veil.5

The Commission, faced with proceeding against an insolvent entity for breach of

contract, now improperly attempts to attach to these proceedings the assets of anyone

associated with MCA with the last name Wolfington. Because the new claims against the

5 To avoid dismissal, a Complaint must include “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 547 (2007). A “formulaic recitation of the elements of a cause of action” will not suffice. Id. at 555; accord Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009). Rather, the complaint must set forth sufficient facts to “nudge[] the[] claim[] across the line from conceivable to plausible.” Twombly, 550 U.S. at 570. Stated differently, the plaintiff must “assert facts that affirmatively and plausibly suggest that [he] has the right he claims . . . , rather than facts that are merely consistent with such a right.” Stalley v. Catholic Health Initiatives, 509 F.3d 517, 521 (8th Cir. 2007) (citing Twombly, 550 U.S. at 554–57).


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Employee Defendants are based on the erroneous premise that MCA is a legal fiction,

they should be dismissed.

1. A Veil Piercing Claim Shall Be Dismissed Where The Facts Alleged Are Implausible

Veil piercing claims are frequently dismissed on the pleadings because, under

Delaware law,6 the corporate entity is only disregarded in “exceptional circumstances”

and “[p]ersuading a Delaware court to disregard the corporate entity is a difficult task.”

Mobil Oil Corp. v. Linear Films, Inc., 718 F. Supp. 260, 270 (D. Del. 1989); Wallace v.

Wood, 752 A.2d 1175, 1999 Del. Ch. LEXIS 212 (Del. Ch. 1999). Delaware public

policy is fundamentally against disregarding the corporate form, as the corporations and

their limited liabilities have been acknowledged for decades as necessary to economic

growth and to the development of new enterprises. See, e.g., Medi-Tec of Egypt Corp. v.

Bausch & Lomb Surgical, 2004 Del. Ch. LEXIS 21, 2004 WL 415251, at *8 (Del. Ch.

Mar. 4, 2004).

“[C]ourts routinely consider, and grant, motions to dismiss for failure to allege

facts sufficient to support the imputation of liability on an alleged alter ego.” Youkelsone

v. Washington Mut. (In re Washington Mut., Inc.), No. 08-12229, 2010 WL 3238903, at

6 Delaware law applies because Minnesota courts apply the internal affairs doctrine, that “the law of the state of incorporation normally determines issues relating to the internal affairs of a corporation.” Rupp v. Thompson, No. C5-03-347, 2004 WL 3563775, at *3 (D. Minn. Mar. 17, 2004); see also Edgar v. MITE Corp., 457 U.S. 624, 645 (1982) (“[O]nly one State should have the authority to regulate a corporation’s internal affairs-matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders-because otherwise a corporation could be faced with conflicting demands.” ).


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*11 (Bankr. D. Del. Aug. 13, 2010) (whether sufficient facts are pled to pierce the

corporate veil is a “proper subject for resolution on a motion to dismiss”). See, e.g.,

Quantum Loyalty Sys., Inc. v. TPG Rewards, Inc., No. 09-022-SLR/MPT, 2009 WL

5184350, at *7 n.64 (D. Del. Dec. 23, 2009) (Report and Recommendation) (granting

president and CEO’s motion to dismiss based upon inability to pierce the corporate veil

where the complaint lacked “any facts evidencing fraud or inequity”), accepting Report

and Recommendation, in part, 2010 WL 1337621 (D. Del. Mar. 31, 2010); Trevino v.

Merscorp, Inc., 583 F. Supp. 2d 521, 529 (D. Del. 2008) (granting motion to dismiss to

the extent that corporate veil would not be pierced so as to hold shareholders of

mortgagee liable for alleged overcharges, where plaintiffs failed to sufficiently allege

“injustice” or unfairness); Wellman v. Dow Chem. Co., Civ. No. 05-280-SLR, 2007 WL

842084, at *2 (D. Del. Mar. 20, 2007) (granting motion to dismiss where employee of

subsidiary attempted to pierce the corporate veil).

To state a veil-piercing claim in Delaware, “the plaintiff must plead facts

supporting an inference that the corporation, through its alter-ego, has created a sham

entity designed to defraud investors and creditors.” Crosse v. BCBSD, Inc., 836 A.2d 492

(Del. 2003) (emphasis added); Wallace ex. rel. Cencom Cable Income Partners II v.

Wood, 752 A.2d 1175, 1183-85 (Del. Ch. 1999). In order to succeed on an alter ego

theory of liability, “plaintiffs must essentially demonstrate that, in all aspects of the

business, the corporation and its shareholders actually functioned as a single entity and

should be treated as such.” Pearson v. Component Tech. Corp., 247 F.3d 471, 485 (3d

Cir. 2001) (emphasis added). The degree of control required to pierce the veil is


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“exclusive domination and control” to the extent that the company has no “legal or

independent significance of [its] own.” Wallace, 752 A.2d at 1183 (emphasis added).

None of the Commission’s allegations plausibly alleges that MCA – founded in

1997 and having transacted tens of millions of dollars for numerous customers – is a

corporate fiction. Therefore, the Commission’s allegations against the Employee

Defendants on the basis of veil piercing should be dismissed.

2. MCA was Not Established as a “Sham Entity” And Therefore The Commission Cannot Disregard MCA’s Corporate Form to Sue the Employee Defendants

The Commission brazenly alleges that “MCA is the alter ego of Christopher,

Mark, Sean Wolfington and Jonathan Ziegler (‘Wolfington Family’),” SAC ¶ 51, and that

“The Wolfington Family is jointly and severally liable for MCA’s breach of contract.”

Id. at ¶ 107. But the Commission has not pled facts supporting the claim that Christopher

Wolfington and Mark Wolfington created in 1997 “a sham entity designed to defraud

investors and creditors.” Crosse v. BCBSD, Inc., 836 A.2d 492, 497 (Del. 2003). 7

According to the Commission, “the Commission’s Vault Cash was being used by

Christopher and Mark Wolfington for personal expenses.” Id. at ¶ 159(c). Yet the parties

previously agreed, and Court previously held, that all Vault Cash has been provided to

the casino patrons. Dkt. 112 at 9 (“The parties agree that the Commission willingly and

knowingly advanced MCA the cash and that MCA used it to provide cash-access services

as directed by the Agreement. The parties’ disagreement relates only to MCA’s failure to

7 The Commission does not claim that Real Estate Empowered’s veil should be pierced.


14

repay the Commission’s advances on time (or at all).”). The Commission’s claim that the

Employee Defendants retain Vault Cash, see SAC ¶ 52, is incorrect, as the Commission

knows. Dkt. 112. MCA received Customer Funds from its customers at the casinos, and

used those and other monies to settle Settlement Funds back to the Commission. The

Commission’s primary argument is based on a fundamentally incorrect description of

who possesses Vault Cash.

Moreover, the Commission only points to alleged wrongs by MCA, not MCA’s

corporate structure itself, as being the basis for piercing the veil. This is insufficient

under Delaware law to seek employee liability based on veil piercing. Medi-Tec of Egypt

Corp. v. Bausch & Lomb Surgical, No. 19760-NC, 2004 Del. Ch. LEXIS 21, 2004 WL

415251, at *4 (Del. Ch. Mar. 4, 2004) (holding that plaintiff's alter ego argument fails

because plaintiff has not alleged that the corporate form in and of itself operates to serve

some fraud or injustice, distinct from the alleged wrongs of the underlying corporation);

see also Quantum Loyalty Sys., Inc. 2009 WL 5184350, at *7 n.64 (granting motion to

dismiss where the complaint lacked “any facts evidencing fraud or inequity”); Trevino,

583 F. Supp. 2d at 530-31.

Under Delaware law, “the fraud or similar injustice that must be demonstrated in

order to pierce a corporate veil under Delaware law must, in particular, ‘be found in the

defendants’ use of the corporate form.’” In re: Foxmeyer Corporation, supra 290 B.R. at

236 citing Mobil Oil, 718 F. Supp. at 269; see also Wallace, 752 A.2d at 1184 (“Piercing

the corporate veil ... ‘requires that the corporate structure cause fraud or similar

injustice’”) (citation omitted; emphasis added).


15

“[T]he underlying cause of action[, at least by itself,] does not supply the

necessary fraud or injustice. To hold otherwise would render the fraud or injustice

element meaningless, and would sanction bootstrapping.” Mobil Oil, 718 F. Supp. at 268;

see also Outokumpu Eng'g Enters. v. Kvaerner Enviropower, 685 A.2d 724, 729 (Del.

Super. Ct. 1996) (“The ‘injustice’ must be more than the breach of contract alleged in the

complaint”).

Here, the “structural problem” that the Commission posits is MCA’s insolvency

(discussed below) and an initial loan – one that has not been paid since 2010 – from

Baena. SAC ¶ 74. Those are not the type of allegations that would permit veil piercing.

In re BH S & B Holdings LLC, 420 B.R. 112, 52 Bankr. Ct. Dec. (CRR) 125 (Bankr. S.D.

N.Y. 2009).

3. MCA Implausibly Alleges That MCA Is a Corporate Fiction

The sum total of the Commission’s other veil piercing allegations is a claim that

(1) MCA is insolvent, (2) MCA does not pay dividends, (3) MCA does not retain board

minutes, and (4) MCA was created to “fund . . . lifestyles.” SAC ¶ 53. All of these

contentions evaporate upon inspection, and provide no plausible basis to sue Mark or

Chris Wolfington for any alleged contractual breach by MCA in 2012.

First, under Delaware law, mere insolvency or undercapitalization is not enough

to allege piercing of the corporate veil. Mason, 2005 Del. Ch. LEXIS 99; In re BH S & B

Holdings LLC, 420 B.R. 112, 52 Bankr. Ct. Dec. (CRR) 125 (Bankr. S.D.N.Y. 2009)

(applying Delaware law) (undercapitalization is rarely sufficient to pierce the corporate

veil). And rightly so – otherwise the veil of every insolvent corporation could be pierced.


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Id. Instead, the inquiry “is most relevant for the inference it provides into whether the

corporation was established to defraud its creditors or other improper purpose such as

avoiding the risks known to be attendant to a type of business.” Trevino, 583 F. Supp. 2d

at 530 (dismissing on the pleadings alter ego claim where plaintiff conceded subsidiary

established for legitimate business purpose). When determining whether a subsidiary

was adequately capitalized, courts focus on the initial capitalization: “whether a corporate

entity was or was not set up for financial failure.” George Hyman Constr. Co. v.

Gateman, 16 F. Supp. 2d 129, 152–53 (D. Mass. 1998).

Not only did MCA have a legitimate business purpose when it was founded in

1997, but it continued to have such a purpose and has been a functioning business for

almost 15 years. As the Commission well knows, MCA was publicly traded, was

registered with the SEC, and has had numerous employees, assets, and customers. As

noted above, MCA was incorporated in October 1997, and was a publicly traded business

registered with the SEC from January 12, 2004 through November 24, 2008. See January

12, 2004 SB-2; Dec. 31, 2007 10-KSB. MCA filed independently-audited financial

statements when it registered with the SEC. At that time, MCA listed 47 full time

employees, and over $800,000 in property and equipment owned by MCA less

accumulated depreciation. Between 2009 and 2012, MCA employed approximately 20

individuals at the Commission’s two casinos. The Commission witnessed to the

numerous employees that MCA deployed at the Commission’s casinos, and to the

successful settlement of hundreds of millions of dollars of cash advances by those


17

employees. The Commission, with this direct knowledge of MCA’s legitimate corporate

operations, cannot now say that MCA had no business purpose and was a “sham entity.”

All of this information is publicly available or was provided to the Commission in

discovery – yet the Commission unrestrainedly seeks to sue the Employee Defendants

regardless.8 The Commission’s motivation may be its concern that the Commission may

not be able to recover $5.6 million from MCA, but that is not a basis for veil piercing.

“Delaware courts have held that the possibility that a plaintiff may have difficulty

enforcing a judgment is not an injustice warranting piercing the corporate veil.” Trevino,

583 F. Supp. 2d at 530.

Second, and contrary to what the Commission claims, MCA’s election not to pay

dividends does not mean its veil can be pierced. After nearly 10 years in the business,

independent auditors noted that MCA had a working capital deficit, and “substantial

doubt about the Company’s ability to continue as a going concern.” Dec. 31, 2007 10-

KSB. Accordingly, MCA made the prudent financial decision not to issue dividends, but

instead to put the funds into financing the business. Dec. 31, 2007 10-KSB (“The future

payment of dividends . . . will depend on our future earnings, financial requirements and

other similarly unpredictable factors. For the foreseeable future, we anticipate that any

8 The Court can consider on this motion the financial statements and publicly available documents that the Commission relied on and referenced in its Second Amended Complaint. Parnes v. Gateway 2000, Inc., 122 F.3d 539, 546 n.9 (8th Cir. 1997); see also Gryl ex rel. Shire Pharms. Group PLC v. Shire Pharms. Group PLC, 298 F.3d 136, 140 (2d Cir. 2002) (court is “free to consider documents that are incorporated into the complaint by reference or attached to the complaint as exhibits, or whose terms and effect are relied upon by the plaintiff in drafting the complaint”).


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earnings that may be generated from our operations will be retained by us to finance and

develop our business and that dividends will not be paid to stockholders.”).

Third, the Commission points to the fact that MCA may not retain board minutes

as grounds for veil piercing, while omitting any mention of MCA’s SEC filings or the

comprehensive financial statements, independent audit, and general ledgers that MCA

uses to run its business (and that the Commission has in its possession). The

Commission’s single blinkered reference to the absence of Board minutes shows that the

Commission’s implausible claims depend on a fundamentally skewed view of MCA and

its structure.

Despite all of the public information about MCA and volumes of information the

Commission has received in discovery, the Commission brazenly takes the absence of

board minutes and tries to inflate that into an absence of corporate formalities altogether.

SAC ¶ 107(a) (Claiming that the “Wolfington Family” failed to “observe corporate

formalities or keep corporate records, including failing to keep minutes to board

meetings”). The Commission’s allegation about this 15-year old company that transacted

tens of millions of dollars is skewed and implausible.

Fourth, the Commission’s portrait of a “Wolfington Family” standing behind the

“façade” of MCA, using Vault Cash for personal expenses, is colorful nonsense built

(again) on the claim of stolen Vault Cash.

The Commission alleges that “shortly after the Commission gave MCA access to

its Vault Cash, Individual Defendants had drained MCA of the funds.” SAC ¶ 133. See

also id. at 159(c) (Averring that “Commission’s Vault Cash was being used by


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Christopher and Mark Wolfington for personal expenses.”). The Commission knows this

statement is not right – MCA received access to the Vault Cash in 2009, and Vault Cash

undisputedly went to the casino patrons until the day MCA was evicted in 2012. The

Commission received all Settlement Funds up to and including the advances made on

March 9, 2012. Thus, there was no “drain[ing] MCA” of the Vault Cash, in 2009 or at

any time.

Nor has the Baena loan that the Commission so heavily criticizes been repaid

since 2010. SAC at ¶89 (“MCA issued payments to Baena of approximately $50,000 per

month from 2006 through at least 2010.”). Had it been, the Commission surely would

have attacked that too, as another form of “draining” Vault Cash. The Commission’s

fraud arguments have that flexibility because they are divorced from the facts.

Respectfully, the Commission’s new allegations of “drainage” – like those in the

attachment/injunction motion – flaunt the facts in search of a fraud theme. Dkt. 112 at 9-

10 (“Although the Commission seeks to imbue this contract dispute with fraudulent

overtones by implying that the funds MCA received from casino customers ‘belonged to

the Commission’ and MCA ‘stole’ them, this contention is not supported by the

Agreement.”). The Court should not permit this.

Finally, and most notably, the Commission makes no effort to explain how any of

its allegations about 2010 and prior render a March-April, 2012 receivable something

other than a traditional corporate receivable. As in its unsuccessful attachment/injunction

motion, the Commission claimed that MCA was set up to defraud the Commission and

nameless other Native American tribes. Compare Dkt. 92 (Mem. in Support of


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Prejudgment Attachment) at 4, 12, with Dkt. 128 (SAC ¶¶ 1, 4, 107(b)). This claim was

utterly baseless but the Commission again persists with this line of attack nonetheless.

The Court should take the Commission’s repackaged allegations and dismiss them.9

In sum, the publicly available documents the Commission cites and the documents

the Commission received in discovery belie the Commission’s own allegations. MCA is

not a “sham entity” or “shell corporation” created only to perpetrate a fraud; it is merely a

corporation like any other, and one that successfully transacted with the Commission for

three years. The Commission is again overreaching out of its desire to secure a judgment

prior to trial. See Mason v. Network of Wilmington, Inc., 2005 Del. Ch. LEXIS 99 (De.

Ch. 2005) (“If creditors could enter judgments against shareholders every time that a

corporation becomes unable to pay its debts as they become due, the limited liability

characteristic of the corporate form would be meaningless.”). MCA’s Employee

Defendants are not liable for any breaches by MCA itself.

C. The Commission’s Non-Veil Piercing Claims Fail Because They Do Not State A Claim Under Fed. R. Civ. P. 12(b)(6) or Fed. R. Civ. P. 9(b)

Not only is there (1) no jurisdiction over Real Estate Empowered, and (2) no

plausible claim for veil piercing, but (3) the Commission’s allegations – including their

9 The Court may recall that the Commission submitted an affidavit in support of its unsuccessful attachment/injunction motion from a certified fraud examiner. That fraud examiner found no fraud, and simply made “observations” that “[b]ased on [her] experience, this pattern of bank activity is unusual.” Where is this examiner now, and where are any of her opinions that might support the extraordinary allegation of veil piercing? Reference to the Commission’s own expert – who was provided MCA’s audit, general ledgers, creditor agreements, bank account statements, cash-flow statements, deposition testimony, and email correspondence – is conspicuously omitted from Plaintiff’s new pleading.


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non-veil piercing claims – otherwise fail to meet the pleading standards of Fed. R. Civ. P.

12(b)(6) and Fed. R. Civ. P. 9(b). For that independent reason, the newly added Counts

against Real Estate Empowered and the Employee Defendants should be dismissed.

First, the Commission makes numerous claims that Real Estate Empowered and

the Employee Defendants are in possession of the Commission’s Vault Cash. E.g., SAC

¶ 111-12, 119, 121. It has been definitively established that all Vault Cash was provided

to the casino patrons or retrieved from the booth when the Commission evicted MCA.

Dkt. 112. There can be no plausible claim that “Vault Cash” is in the possession of the

Employee Defendants or Real Estate Empowered.

Second, the claims of fraudulent transfer should be dismissed because Plaintiff

nowhere contends how any of the allegedly fraudulent acts were themselves out of the

ordinary course of business. Nor does Plaintiff face the fact that the monies it demands

relate to cash advances from March 10, 2012 to April 2, 2012, not before. The Plaintiff

instead makes generalized attacks on MCA’s and its employees’ actions from 2010-2012.

Fraud must be plead with particularity, Fed. R. Civ. P. 9(b), and Plaintiff has not done so.

As such, its non-veil piercing claims should be dismissed.

1. Neither Christopher Wolfington, Mark Wolfington Nor Real Estate Empowered Obtained “Vault Cash” From the Commission, Therefore the Commission’s Unjust Enrichment, Conversion, and Constructive Trust Claims Fail As A Matter of Law

The Commission makes a claim against the Employee Defendants and Real Estate

Empowered for Unjust Enrichment (Count II), Intentional Interference with Personal

Property/Conversion (Count III), and Constructive Trust (Count V) based entirely based


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upon the alleged retention of “Vault Cash” by MCA. SAC ¶¶ 109-123, 129-130.

However, it has already been definitively established that all Vault Cash was either

provided to casino patrons or obtained by the Commission during its eviction of MCA in

April 2012. Dkt. 112.

In the face of this, the Second Amended Complaint does not plead a single fact

alleging that the Employee Defendants or Real Estate Empowered received any Vault

Cash from the Commission. Because the Commission has not pled even the most basic

allegations that the Employee Defendants and/or Real Estate Empowered obtained any

Vault Cash from the Commission, these claims must be dismissed with prejudice.

2. The Commission Has Not Pled Facts that the Employee Defendants or Real Estate Empowered Committed a Fraudulent Transfer (Counts IX, X, XI, XII and XIII)

a. The Commission Cannot Allege Fraudulent Transfers to Real Estate Empowered, As Any Alleged Transfer Was Prior to any Alleged “Claim” By the Commission

The Commission’s allegations of “fraudulent transfer” bear no relationship to its

allegations of being owed $5.6 million in Settlement Funds for Vault Cash advances

made between March 10, 2012 and April 2, 2012.

With respect to Count XIII, SAC ¶¶ 183-88, any claim that transfers of $70,000 to

Real Estate Empowered were made to defraud the Commission as a creditor pursuant to

Del. Code Ann., tit. 6, § 1305(a) must fail. On the face of the Complaint, these transfers

occurred in 2010 and 2011. SAC ¶ 174. The Commission’s alleged “claim” arose in

March of 2012. Thus, the Commission’s claim did not arise before the allegedly

fraudulent transfers occurred. See Del. Code Ann. tit. 6, § 1305(a) (requiring that the


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claim be fraudulent as to a creditor whose claim arose before the transfer at issue was

made). For that reason, the claim can be swiftly rejected.

Likewise, the Commission has not alleged that the transfers to Real Estate

Empowered were without receiving reasonably equivalent value10 as would be required

pursuant to Del. Code Ann. tit. 6, § 1305(a). Nor has the Commission alleged that the

Real Estate Empowered Transfers were made with an actual intent to hinder, delay

defraud MCA’s creditors, as would be required pursuant to Del. Code Ann., tit. 6,

§ 1304(a). SAC ¶ 179 (referencing only “Wolfington Transfers”). Moreover, the

Commission has not alleged any “badges of fraud” relevant to Real Estate Empowered.

The Commission has not alleged that Real Estate Empowered itself was an insider, just

that Chris Wolfington has an interest in it.

The Commission’s allegations are that “tens of thousands of dollars” had been

transferred to Real Estate Empowered two years prior to the Commission’s alleged

“claim.” These allegations do not state a legally viable claim for fraudulent transfer, and

therefore Counts XII and XIII should be dismissed.

10 The Commission only alleges that there was no transfer of title of property from Real Estate Empowered to MCA. SAC ¶ 184. However, there are no facts pled to determine that value outside of the transfer of a title was not received by MCA. The Supreme Court has held that, to survive a Rule 12(b)(6) motion to dismiss, a complaint must provide for more than just a formulaic recitation of the elements of a cause of action. See Twombly, 550 U.S. at 555. The Commission’s allegations fail to meet that test.


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b. The Commission’s Claim for “Fraudulent Transfer/Recovery – Preference” Should Be Dismissed as This Claim is Not Cognizable Under Pennsylvania Law

While the Commission cites to Delaware law, Pennsylvania law should apply to

the Commission’s Preference Claim (Count XI).11 Minnesota Courts follow a five-factor

test as to which state’s law applies: (1) predictability of results; (2) maintenance of

interstate order; (3) simplification of the judicial task; (4) advancement of the forum

state’s interests; and (5) application of the better rule of law. See Schmelzle v. Alza

Corp., 561 F. Supp. 2d 1046, 1048 (D. Minn. 2008). Minnesota, the forum state, has

little interest here as the Commission is a corporate body politic of the Mille Lacs Band

of the Ojibwe Indians. SAC ¶ 6. The two other states with an interest, Pennsylvania and

Delaware, have both adopted the Uniform Fraudulent Transfers Act; however,

Pennsylvania’s enactment of the Uniform Fraudulent Transfers Act does not contain the

provision which is relied upon by the Commission in Count XI. Compare Del. Code

Ann. tit. 6, § 1305(b) with 12 Pa.C.S. § 5105.

Most of the factors that the Court would consider in its choice-of-law analysis

would appear to have little application to the facts of the present case—i.e., predictability

of results, simplification of the judicial task, and application of the better rule of law.

Finally, with respect to maintenance of interstate order, although MCA may be a

Delaware corporation (SAC ¶ 7), its principal office is alleged to be in Pennsylvania and

11 For Counts IX and X, XII, and XIII, Pennsylvania and Delaware law are nearly identical.


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Christopher and Mark Wolfington are both alleged to be residents of Pennsylvania, SAC

¶¶ 11–12, so Pennsylvania law should apply.

Under Pennsylvania law, Count XI should be dismissed for failure to state a claim

upon which relief may be granted because Pennsylvania’s enactment of the Uniform

Fraudulent Transfers Act does not contain a provision comparable to the one relied upon

by the Commission. Compare Del. Code Ann. tit. 6, § 1305(b) with 12 Pa.C.S. § 5105.

If however, the Court applies Delaware law, Count XI should still be dismissed for the

reasons stated below.

c. The Commission’s Fraudulent Transfer Claims Against Chris Wolfington and Mark Wolfington are Likewise Insufficient Under Fed. R. Civ. P. 8, 9(b), and 12(b)(6)

This Court has concluded that the Rule 9(b) applies to fraudulent conveyance

claims. See Kranz v. Koenig, 240 F.R.D. 453, 455 (D. Minn. 2007) (considering a claim

under the MUFTA). The Commission’s repackaged allegations fail to meet Rule 9(b)’s

specificity requirements.

The Commission has chosen to recycle many of the unsuccessful arguments it

made in its attachment/injunction motion. For example, with respect to Counts XI and X,

the Commission alleges that transfers were made by MCA to pay Mark Wolfington’s

personal taxes and to pay Christopher Wolfington’s personal lines of credit. SAC

¶¶ 53(e), 154. The Commission also alleges that transfers were made to pay the

“Wolfington Loan” to Christopher Wolfington. SAC ¶¶ 95, 154. Just as these events

were not sufficient to justify attaching MCA’s monies, they are not sufficient to justify

claims against Mark and Christopher Wolfington.


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Aside from these previously rejected contentions,12 there are no allegations in

Counts IX and X as to the size of the alleged transfers, there are no allegations as to how

many much transfers are at issue, and there are no allegations as to when any such

transfers occurred. To the extent that such transfers were allegedly made to pay the

Wolfington Loan, there is no allegation as to when that obligation was incurred or how

much this loan was for. SAC ¶¶ 95, 154. Nor is there any connection to the March-April

2012 receivable.

The Commission fails to meet the pleading requirements under either Rule 8 or

9(b) by failing to allege the pertinent details of the exact transfers it is claiming are

covered by Counts IX and X. Without knowing the amounts, numbers, or time frames of

the alleged fraudulent transfers or the amount of the Wolfington Loan or when this

obligation was allegedly incurred, Mark Wolfington and Christopher Wolfington cannot

craft a meaningful defense to the allegations of Count IX, X, and XI. See Buchwald

Capital Advisors LLC v. JPMorgan Chase Bank, N.A. (In re M. Fabrikant & Sons, Inc.),

480 B.R. 480, 490-91 (S.D.N.Y. 2012) (affirming dismissal of fraudulent conveyance

12 The Commission previously and unsuccessfully briefed many of these same allegedly fraudulent acts as part of its unsuccessful attachment/injunction motion, and explanations for all of these payments were previously provided at MCA’s November 2012 Corporate Representative Deposition, and that the Commission relies on in its latest pleading (e.g., SAC ¶¶ 50, 64). As discussed in MCA’s briefing of the attachment/injunction motion, what Commission calls “‘advances’ to the COO to pay taxes” was payment of taxes necessary for MCA to obtain a gaming license, Wolfington Dep. at 246:9 – 249:17. Paying down the personal line of credit by CEO was for a line of credit taken out by the CEO using his personal credit, but the funds were used for MCA business, id. at 274:19 – 277:23. This has all been previously put before the Court via the Commission’s unsuccessful motion.


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claims that failed to identify the dates and amounts of the particular transfers alleged to

be fraudulent). Therefore, the Commission’s fraudulent transfer claims should be

dismissed pursuant to Rules 8 and 9(b).

Furthermore, the Commission brings Count XI pursuant to Del. Code Ann. tit. 6,

§ 1305(b). Section 1305(b) provides that “[a] transfer made by a debtor is fraudulent as

to a creditor whose claim arose before the transfer was made if the transfer was made to

an insider for an antecedent debt, the debtor was insolvent at that time and the insider had

reasonable cause to believe that the debtor was insolvent.” Del. Code Ann. tit. 6, §

1305(b). A cause of action under section 1305(b) must be brought within 1 year after the

transfer was made or the obligation was incurred. Del. Code Ann. tit. 6, § 1309(3).

The allegations of Count XI make no reference to any “antecedent debt.” To the

extent that transfers are noted, they do not appear to involve an antecedent debt. SAC ¶

169. It is also unclear if such examples are intended to be illustrative or exhaustive.

Even under Delaware law, given the failure to even plead an antecedent debt, this Count

should be dismissed pursuant to Rule 12(b)(6) for failure to state a claim upon which

relief can be granted.

3. The Commission Has Not Pled Facts that Christopher Wolfington or Mark Wolfington Committed Fraud

To the extent the Commission’s allegations of fraud are against the Employee

Defendants in their individual capacity, those claims fail on their face. The Commission

has not alleged that Christopher or Mark Wolfington made any statement to the

Commission outside of their capacity as agents of MCA, and there is no basis for piercing


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MCA’s corporate veil. The Commission’s dispute is with MCA, not its employees. See

III.B, supra.

4. The Commission’s Breach of Fiduciary Duty Claim Against Chris Wolfington Must Be Dismissed Because the Commission Does Not Have Standing To Bring The Claim

The Commission’s Breach of Fiduciary Duty claim (Count XIV) is based entirely

upon Christopher Wolfington’s role as board member of MCA and his fiduciary duty to

MCA and its shareholders. SAC ¶¶ 190-96. The Commission has not alleged a proper

direct action nor a derivative action for breach of fiduciary duty. See Lufkin & Jenrette,

Inc., 845 A.2d 1031, 1039 (Del. 2004) (“In this case it cannot be concluded that the

complaint alleges a derivative claim. . . . But, it does not necessarily follow that the

complaint states a direct, individual claim. While the complaint purports to set forth a

direct claim, in reality, it states no claim at all.”). Therefore the Commission’s fiduciary

duty claims must be dismissed.

It is black-letter law that a creditor cannot bring a direct claim against an insolvent

corporation for the breach of fiduciary duty; that such a claim is improper was established

in the very case law cited by Plaintiff in the Second Amended Complaint. See NACEPF

v. Gheewalla, 930 A.2d 92, 94 (Del. 2007) (“[W]e hold that the creditors of a Delaware

corporation that is either insolvent or in the zone of insolvency have no right, as a matter

of law, to assert direct claims for breach of fiduciary duty against the corporation’s

directors”).

Nonetheless, the Commission attempts to twist this action into a derivative claim

filed by the Commission on behalf of MCA, and cites to case law relating to derivative


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claims by creditors. See SAC ¶ 197. These citations are to pure dicta and are

inapplicable here. See, e.g., NACEPF, 930 A.2d at 97. The Commission is not a secured

creditor of MCA, nor a continuous stockholder of MCA, but merely a litigant seeking

damages. Dkt. 112, at 10.

It should be telling that the Commission has not only failed to plead facts

necessary to pursue a derivative claim, but that it has not even pled the bare elements of a

derivative claim, such as a demand on the board of directors or futility. Rales v.

Blasband, 634 A.2d 927, 932 (Del. 1993). Delaware courts, as well as federal courts,

require that a party plead with particularity why a demand was not made. See e.g.,

Delaware Court of Chancery Rule 23.1; Fed. R. Civ. P. 23.1. Furthermore, the

Commission does not purport to sue on behalf of MCA for MCA’s recovery, but is

instead suing in its own individual capacity. Because the Commission fails to allege a

direct claim for breach of fiduciary duty, and fails to allege a derivative claim, the

fiduciary duty claims by the Commission should be dismissed.

Not only does the Commission lack standing to sue on a claim for breach of

fiduciary duty, but the Commission has only made the barest of allegations that

Christopher Wolfington breached any fiduciary duty, SAC ¶¶ 192, 195. The Commission

avers generally that Christopher Wolfington received “unknown payments on the

Wolfington Loan,” SAC ¶ 107(a), and contends “[u]pon information and belief,” that

Christopher Wolfington received numerous payments “at the above-market rate of

LIBOR plus 13%.” Id. at ¶ 95. Of course, the Commission does not make any

connection between these “unknown payments” and the March-April 2012 receivable.


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The Commission fails to plead particularized facts that Christopher Wolfington

was not disinterested and independent, or that the challenged transaction was not the

product of a valid exercise of business judgment. Aronson v. Lewis, 473 A.2d 805, 814

(Del. 1984), overruled on other grounds by Brehm v. Eisner, 746 A.2d 244 (Del. 2000).

Instead, the core claim that remains is that, after three years and hundreds of millions of

dollars settled to it, MCA is owed $5.6 million more in Settlement Funds than it provided

in Vault Cash to its customers. That is not a claim for breach of fiduciary duty (even if

the Commission did have standing to bring it, which it does not).

IV. CONCLUSION

The Commission’s Second Amended Complaint repackages the Commission’s

unsuccessful attachment/injunction motion and seeks to multiply these proceedings based

on repeated claims of “fraud” and stolen Vault Cash. The Commission’s efforts should

be rejected. For the reasons set forth above, Real Estate Empowered should be dismissed

for lack of personal jurisdiction, and Counts I-III, V-VI, and IX-XIV should be dismissed

on the pleadings insofar as they pertain to it and the Employee Defendants.

Respectfully submitted,

DATED: March 4, 2013

DUANE MORRIS LLP

s/ Luke P. McLoughlin James L. Beausoleil, Jr., Esq. Luke P. McLoughlin, Esq. 30 S. 17th St. Philadelphia, PA 19103 215.979.1000


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PATTERSON LAW OFFICE, P.A. Robert B. Patterson, Jr., #169146 5101 Thimsen Avenue, Suite 200 Minnetonka, MN 55345 952.224.2851

Counsel for Mark Wolfington, Christopher Wolfington, and Real Estate Empowered, LLC


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