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Federal Trade Commission v. American Precious Metals, LLC

United States District Court, S.D. Florida

April 10, 2017

Federal Trade Commission, Plaintiff
v.
American Precious Metals, LLC, et al., Defendants

          ORDER GRANTING MOTION FOR EQUITABLE LIEN.

          Robert N. Scola, Jr. United States District Judge.

         This matter is before the Court on the Federal Trade Commission's (“FTC's”) Motion for Equitable Lien on the Homestead of Defendant Sam J. Goldman. (ECF No. 339). The FTC filed this action under Sections 13(b) and 19 of the Federal Trade Commission Act (“FTC Act”), 15 U.S.C. §§ 53(b) and 57b, and the Telemarketing and Consumer Fraud and Abuse Prevention Act (“Telemarketing Act”), 15 U.S.C. §§ 6101-6108, to obtain permanent injunctive relief, rescission or reformation of contracts, restitution, the refund of monies paid, disgorgement of ill-gotten monies, and other equitable relief for the Defendants' acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a) and the FTC's Telemarketing Sales Rule (“TSR”), 16 C.F.R. Part 310. On November 19, 2012, the Court entered a Stipulated Final Judgment and Permanent Injunction as to Defendant Goldman (ECF No. 300). The final judgment entered a monetary judgment against Goldman, jointly and severally with the Defendants, in the amount of $24, 372, 491. (Id. at 6.) The FTC has collected $372, 573.79 of the judgment. (Mot. for Equitable Lien at 2, ECF No. 339.)

         1. Legal Standard

         Florida courts impose equitable liens on homesteads when the plaintiff can establish that the defendant has used fraudulently obtained funds to invest in, purchase or improve a homestead. See, e.g., In re Financial Federated Title and Trust, Inc., 347 F.3d 880, 887-88 (11th Cir. 2003) (per curiam) (citations omitted) (“[t]he rule. . .that a homestead cannot be employed as an instrumentality of fraud has been restated by the Supreme Court of Florida in numerous cases to impose an equitable lien against homestead property.”); Palm Beach Sav. & Loan Ass'n, F.S.A. v. Fishbein, 619 So.2d 267, 270 (Fla. 1993) (“. . . it is apparent that where equity demands it this Court has not hesitated to permit equitable liens to be imposed on homesteads. . .”). Once an equitable lien is imposed, the property can be sold and the proceeds applied in favor of the lien holder. See SEC v. Kirkland, No. 6:06-cv-183, 2008 WL 1787234, at *5 (M.D. Fla. April 11, 2008) (citing Jones v. Carpenter, 106 So. 127, 129 (Fla. 1925)) (imposing an equitable lien on the defendant's homestead in the amount traceable to fraudulent conduct and granting the receiver's motion to authorize sale of the property).

         In order to obtain an equitable lien on a Florida homestead, a plaintiff must establish by a preponderance of the evidence: (1) the existence of fraudulent or egregious conduct, and (2) the tracing of funds from that conduct to the purchase or improvement of the homestead. In re Financial Federated, 347 F.3d at 888 (noting that the Florida Supreme Court “has upheld the equitable lien cases where the funds obtained through fraud or egregious conduct can be directly traced to the investment, purchase or improvement of homestead.”); In re Mazon, 387 B.R. 641, 646 (M.D. Fla. 2008) (“[w]here tracing funds is involved, a dollar-for-dollar accounting is not required, but the party challenging the homestead exemption has the burden of proving his case by a preponderance of the evidence.”).

         2. Analysis

         The final judgment states that “Defendant Goldman agrees that the facts as alleged in the First Amended Complaint filed in this action shall be taken as true without further proof in any bankruptcy case of subsequent civil litigation pursued by the Commission to enforce its rights to any payment or money judgment pursuant to this Final Order. . .” (Id. at 8.) The allegations in the First Amended Complaint, taken as true by virtue of Goldman's agreement in the final judgment, establish that Goldman was involved in fraudulent conduct. Goldman was an owner or manager of American Precious M s (“APM”) and oversaw its day-to-day operations. (First Am. Compl. ¶ 9, ECF No. 155.) APM lied to consumers about all aspects of their product, falsely telling them that they were likely to earn large profits quickly by investing in precious m s and that the investment was low-risk due to APM's purchase of the physical precious m s in bars, bullion, and coins. (Id. ¶¶ 11-21.) In addition, APM failed to disclose that it took more than 40 percent of consumers' money for fees and commissions and that, as a result of the way in which APM leveraged consumers' funds, consumers were likely to receive equity calls that would require additional payments or risk the liquidation of their investments. (Id. ¶¶ 22-24, 26-27, 32.) As a result of these practices, many consumers lost the equity in their investments. (Id. ¶¶ 29, 31.) Because of these lies and omissions, consumers were induced to send APM more than $24 million. (Mot. for Equitable Lien at 4, ECF No. 339.)

         The FTC has submitted excerpts from transcripts of depositions of Goldman and two of his co-defendants that establish that Goldman received more than $2.6 million in fraudulently obtained funds from three different entities. (Id. at 6-7 and Exs. 1-3.) The FTC used a forensic accountant, Melissa Davis, to trace the proceeds that Goldman received from his participation in APM's scheme, and has submitted a declaration from Davis that explains her findings and methodology and provides supporting documentation. (Id. at Ex. 4.) Although Goldman commingled the fraudulently obtained funds with legitimately obtained funds, the commingling of funds does not defeat a claim for an equitable lien. In re Hecker, 316 B.R. 375, 387 (Bankr. S.D. Fla. 2004) (Friedman, J.), affirmed, 264 Fed. App'x. 786 (11th Cir. 2008); In re Mazon, 387 B.R. 641, 646 (M.D. Fla. 2008). However, Florida courts have created certain presumptions for tracing commingled funds. In re Hecker, 316 F.3d at 387. First, courts apply the “lowest intermediate balance rule, ” which presumes that the person who controls the commingled funds will first dissipate his own funds, rather than those that were fraudulently obtained. Id. (citations omitted). Second, courts apply the replenishment rule, which presumes that when funds are replenished in a commingled account, the person who controls the commingled funds will first replenish any fraudulently obtained funds. Id. at 387-88.

         Davis applied both of these presumptions to trace the fraudulently obtained funds using Goldman's bank records. (Mot. for Equitable Lien at 6, 10-16 and Ex. 4, ECF No. 339.) Davis concluded that $428, 604.95 of the funds that Goldman used to pay for his mortgage and other expenses related to the homestead between August 10, 2007 and May 14, 2014 can be traced to fraudulently obtained funds. (Id. at Ex. 4) Therefore, the FTC's motion, along with Davis's declaration and supporting materials, sufficiently establishes that Goldman used fraudulently obtained funds for the investment, purchase or improvement of his homestead.

         In response to the FTC's motion, Goldman submitted an opposition that requests an evidentiary hearing. (Def.'s Resp., ECF No. 355.) However, Goldman's response does not include a single factual allegation to rebut Davis's tracing analysis. Goldman makes several vague statements about what he would show at an evidentiary hearing; for example, that Davis's declaration contains “a myriad of errors, inaccuracies, and omissions.” (Id. at 5, 10). However, Goldman fails to identify a single alleged error in Davis's analysis. The Court notes that Goldman requested two extensions of time to respond to the FTC's motion. (ECF Nos. 346, 351.) In his first request for extension of time, Goldman specifically stated that “The FTC has filed a voluminous amount of documents in support of its Motion for Equitable Lien, requiring Defendant, Goldman to: (1) hire his own forensic accountant to rebut the FTC's forensic accountant's report; (2) file affidavits rebutting facts asserted by the FTC; and (3) submit supporting documents.” (Def.'s Am. Mot. for Extension of Time at 3, ECF No. 346.) In his second request for extension of time, Goldman stated that “Defendant, Sam Goldman is still preparing his Affidavit, and may need to retain the services of a Forensic Accountant to complete his affidavit.” (Second Mot. for Extension of Time at 2, ECF No. 351.) The Court granted both requests for extension of time. (ECF Nos. 350, 353.) However, Goldman's response does not include an affidavit, the report of a forensic accountant, or any supporting documentation.

         Although Goldman is correct that courts do at times conduct evidentiary hearings to determine whether a plaintiff is entitled to an equitable lien, Goldman has not established that there are any disputed facts that would warrant an evidentiary hearing. Florida law requires that the plaintiff show by a preponderance of the evidence that fraudulently obtained funds can be directly traced to the investment, purchase or improvement of the homestead. See In re Financial Federated, 347 F.3d at 888 (noting that the Florida Supreme Court “has upheld the equitable lien cases where the funds obtained through fraud or egregious conduct can be directly traced to the investment, purchase or improvement of homestead.”); In re Mazon, 387 B.R. 641, 646 (M.D. Fla. 2008) (“[w]here tracing funds is involved, a dollar-for-dollar accounting is not required, but the party challenging the homestead exemption has the burden of proving his case by a preponderance of the evidence.”). The FTC has met its burden through the tracing analysis conducted by its forensic accountant, and Goldman has presented no evidence or made any factual allegations to rebut that analysis. Therefore, a hearing is not necessary.

         Goldman made one legal argument in opposition to the FTC's motion, asserting that there is a difference between funds that are used to “maintain” a homestead, as opposed to funds that are used to “improve” a homestead. (Id. at 8-9.) Goldman asserts that the FTC must prove that any fraudulently obtained funds were used to “improve” the property rather than “maintain” the property. (Id. at 9.) Goldman cited to one case in support of this assertion, but it does not create the distinction between improvement and maintenance on which Goldman relies. See In re Mazon, 387 B.R. at 647 (holding that the defendant's exclusive right to use a specific cabana on the common grounds of the condominium was not part of the defendant's homestead).

         Accordingly, the Court grants the Plaintiff's motion for an equitable lien. The Court orders as follows:

         A. Definitions:

1. “Defendant” means Sam J. Goldman.
2. “Liquidator” means the liquidating receiver appointed in this Order. The term “Liquidator” or “liquidating receiver” also includes any deputy receivers as may be named by the Liquidator.
3. “Property” means Defendant's homestead property described as: Lot 19, DELRAY TRAINING CENTER P.U.D., PARCEL B, according to the Plat thereof, as recorded in Plat Book 86, at Page 157, of the Public Records of Palm Beach County, Florida.

         The Property's street address is 15996 D. Alene Drive, Delray Beach, FL 33446.

         B. Equitable Lien

         The Court declares an equitable lien on the Property in favor of the Plaintiff, effective immediately, for Four Hundred Twenty-Eight Thousand Six Hundred ...


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