Opinion
NO. 12-CV-479
07-31-2012
Park Construction Corp., et al. v. Eric Olson, et al.
ORDER
The Plaintiffs seek damages from the Defendants arising out of an alleged "ponzi scheme" allegedly perpetrated by Defendant Eric Olson, Defendant Ted Olson, Aaron Olson, and KMO Associates, LLC ("KMO"). The Plaintiffs filed an ex parte petition to attach certain property owned or controlled by the Defendants, pursuant to RSA 511-A8, I. The Court granted the petition on July 2, 2012. The Court held a hearing on July 10, 2012, pursuant to RSA 511-A3 to determine whether to continue the attachment.
The Plaintiffs are: Park Constr. Corp.; Steven Norby, as trustee of the Steven A. Norby Revocable Trust; David Norby; and Mark Norby, as trustee of the Nancy A. Norby Revocable Trust.
The Defendants are: Eric Olson; Ted Olson; Elaine V. Olson and Eric M. Olson, as Trustees of the Elaine V. Olson Revocable Trust; Eric M. Olson and Elaine V. Olson, as Trustees of the Eric M. Olson Trust; TD Bank, N.A.; and GFA Federal Credit Union.
On July 13, 2012, the Court issued a summary Order continuing the attachment with respect to property owned by Defendants Eric Olson and Ted Olson, but vacating the attachment as to property owned exclusively by Elaine Olson. Additionally, the Court enjoined Eric Olson from further disposing of prop- erty or assets under RSA 545-A:7, (c) (1). In its Order, the Court provided that it would "issue a narrative Order in due course." Accordingly, the Court issues the following narrative Order.
I
Plaintiffs brought their Writ in five counts. In Count One, they alleged the tort of conversion; in Count Two they alleged unjust enrichment. In Count Three, they sought a constructive trust; in Count Four, they sought damages for aiding and abetting a breach of fiduciary duty; and finally, in Count Five, they sought damages for a fraudulent transfer under RSA 545-A:4 I. After the ex parte attachment was granted, the Defendants objected.
When a defendant objects to an attachment under RSA 511-A:3, a hearing is held. At the hearing, the plaintiff has the burden of establishing that there is a reasonable likelihood that the plaintiff will recover judgment, including interest and costs, on any amount equal to or greater than the amount of the attachment. Upon satisfying this burden, the plaintiff is entitled to the attachment, unless the defendant establishes to the satisfaction of the court that his assets will be sufficient to satisfy the judgment with interest and costs if the plaintiff recovers the same. Hearings under RSA 511-A:3 are not bound by the Rules of Evidence.
Two witnesses testified at the July 10 hearing: (1) Defendant Eric Olson; and (2) Aaron Olson. The parties also submitted various exhibits for the Court's review, including the affidavit of Samuel R. Seppala ("Seppala"), a former KMO investor. Following the hearing, the Plaintiffs submitted affidavits from each of the Individual Plaintiffs, Steven Norby, David Norby, and Mark Norby ("Nor-bys"). From the evidence presented, the Court sets forth the following relevant facts.
Aaron Olson is Eric Olson's nephew and Ted Olson's cousin. Aaron Olson is not a Defendant in this action.
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The Norbys established Park Construction Corp. ("Park") in 1972. Park is engaged in the heavy construction industry. The Norbys are Parks' sole shareholders and have each worked for Park in some capacity. In January 2011, the Plaintiffs began investing money with KMO Associates, LLC ("KMO"), which is a Massachusetts LLC, with its principal place of business in Rindge, New Hampshire. The Plaintiffs invested with KMO after Aaron Olson, KMO's managing member, solicited money from the Plaintiffs.
KMO was not Aaron Olson's first "investment business." In April 2007, Aaron Olson established AEO Associates, LLC ("AEO"). AEO solicited and received money from several investors, including Mr. Seppala. In 2010, the New Hampshire Bureau of Securities Regulation ("NHBSR") investigated AEO following reports that AEO committed several violations. Following the NHBSR investigation, Aaron Olson ceased operating AEO and established KMO. Aaron Olson never disclosed to the Plaintiffs that the NHBSR investigated AEO.
Over the course of several months, beginning in January 2011, the Plaintiffs invested roughly $15 million with KMO. The money represented much of the Plaintiffs' net worth. Aaron Olson promised the Plaintiffs that their principal investments would be secure and that they would receive "substantial returns" on their investments. Throughout 2011, the Plaintiffs received account statements from KMO showing that they had earned substantial amounts from their investments.
Despite receiving the account statements from Aaron Olson and KMO, Plaintiff Steven Norby and Mr. Seppala grew concerned that their investments were not secure. They met with Aaron Olson to discuss their investments. During the meeting, Aaron Olson admitted that although he had earned money for some of KMO's investors, he had lost a significant amount of money, including the Norbys' $15 million investment. Aaron Olson admitted that only $270,000.00 remained in KMO's accounts. Aaron Olson told them that the NHBSR was investigating KMO and that the State "froze" KMO's accounts.
Several weeks later, Aaron Olson met with Mr. Seppala again to apologize for lying to Mr. Seppala and the rest of the investors. At that time, Mr. Seppala told Aaron Olson that KMO looked like a "ponzi scheme"; Aaron Olson did not deny that KMO was a ponzi scheme. Mr. Seppala told Aaron Olson that the only motive he could see for Aaron Olson's decision to operate a ponzi scheme was that Aaron Olson was afraid to admit to Eric Olson that he lost Eric Olson's investment. Aaron Olson told Mr. Seppala that he was "afraid of his uncle." Aaron Olson also told Mr. Seppala that he had a meeting with his uncle that Monday and asked Mr. Seppala to pray for him.
Unlike the Plaintiffs and Mr. Seppala, both Eric Olson and Ted Olson received substantial sums of money from KMO. Eric Olson received approximately $8 million from KMO in 2011. Ted Olson received approximately $1.2 million. Ted Olson did not invest any funds with KMO. At the July 10 hearing, Eric Olson testified that he was only an investor with KMO, that he knew little about investing, and that he trusted his nephew to invest his funds. He testified that he did not find it strange that his "investments" yielded 100-120% returns in a "down economy." Eric Olson also testified that most of the $8 million was a return on his original investment in KMO, which was approximately $7.2 million. The $7.2 million allegedly resulted from investments with AEO.
Plaintiffs' counsel asked Eric Olson what he did with the $8 million. Eric Olson testified that he put roughly $6 million into "real estate and property overhead." He further claimed that the remaining $2 million went into paying taxes on the $8 million (approximately $330,000) and that he loaned $1.5 million to Ted Olson. Eric Olson also testified that his net worth, through real estate and otherwise, is $8,034,682.00. See Def.'s Exh. 8. However, the document purporting to establish Eric Olson's net worth was self-created and referenced real estate he owned. It lacked any supporting documentation. He did not introduce any evidence of the value of the real estate by an independent appraiser.
When asked about conversations with Aaron Olson allegedly occurring in early 2012, Eric Olson was extremely vague. He initially testified that he met with Aaron Olson once and Aaron "asked for forgiveness"; by the end of Eric Olson's testimony, three meetings took place. Eric Olson testified that he never inquired as to why Aaron Olson asked for forgiveness.
The Court does not credit Eric Olson's testimony. Throughout his testimony, Eric Olson was evasive and inconsistent. His testimony was peculiarly specific regarding facts that supported his version of events, but vague regarding certain incidents that would tend to hurt his case, such as all conversations and meetings with Aaron Olson.
The Court accepts the Plaintiffs' exhibits as well as the negative inferences drawn from the testimony of Aaron Olson, which suggest that Eric Olson and Ted Olson were more than "investors" in KMO. First, the Plaintiffs submitted evidence of a series of "agreements" between Eric Olson and Aaron Olson, which provided:
This agreement is between Eric Olson and KMO Associates, LLC. Eric M. Olson has invested with KMO Associates, LLC $3,503,000 for the purpose of him to invest, at his discretion, in a profitable manner, for a period of 3 months or longer. Any gains will be split 50/50.Plfs.' Exh. 2 (emphasis supplied). The agreements were printed on "Eric M. Olson" letterhead and were usually drafted and signed at Eric Olson's business office. Eric Olson testified that these "agreements" were actually "account statements." He admitted, however, that investment firms generally do not allow their investors to draft account statements. Furthermore, Eric Olson admitted that Aaron Olson never provided him with IRS 1099 forms.
It is agreed and acknowledged that the investments Eric Olson has made with KMO Associates, LLC are insured for the full principle [sic] amount. In case of incapacitation, death, or an extreme market drop the invested dollars totaling $41,085,720, as of this investment, will be returned to Eric Olson in a timely manner.
The Court also accepts Aaron Olson's testimony. During questioning, Aaron Olson repeatedly invoked his Fifth Amendment privilege against self-incrimination to questions such as whether: (1) Eric Olson pressured Aaron Olson to establish inflated account values and to make extraordinary distributions to Eric Olson and Ted Olson; (2) Plaintiffs' money funded substantial portions of Eric Olson's 2011 distributions; (3) without the Plaintiffs' money, KMO would have failed much earlier; and (4) Eric Olson requested the distributions he took from KMO. Aaron Olson's testimony is informative despite his consistent invocation of his Fifth Amendment privilege.
Under N.H. R. Evid. 512 (d), the court may draw negative inferences from a witness's claim of privilege in a civil case. Where the testifying witness is a non-party, the Court may draw a negative inference against a party so long as the "inference sought is reasonable, reliable, relevant to the dispute, and fairly advanced against the party." Lentz v. Metro. Prop. and Cas. Ins. Co., 768 N.E.2d 538, 543 (Mass. 2002) (emphasis omitted). A negative inference drawn against a party is reasonable and reliable where evidence exists that the non-party invoking the privilege has participated in a joint venture to defraud others. Id.; see also RSA 304-A: 12 (partners are charged with the knowledge of other partners in a partnership).
Here, the evidence establishes that Eric and Ted Olson were joint venturers with Aaron Olson. A joint venture is an association of two or more persons formed to carry out a single business enterprise for profit. State of New Hampshire v. North of the Border LLC, 162 N.H. 206, 221 (2011); see generally, 46 Am.Jur.2d § 13 (2012). Importantly, Eric Olson and Aaron Olson, by agreement, took 50/50 splits of KMO gains. Moreover, the exhibits show that both Eric Olson and Ted Olson received distributions from KMO without ever investing in KMO. The Court finds no support for the claim that the distributions received by Eric and Ted Olson stemmed from original investments with AEO. Nor does the Court believe that the $1.2 million given to Ted Olson was a "loan," since Ted Olson never contributed any funds to KMO.
The Court draws the following inferences from Aaron Olson's testimony: (1) Eric Olson knew that Aaron Olson was inflating earnings through use of fraudulent financial statements; (2) Eric Olson knew that the "statements" he drafted were false; (3) Eric Olson threatened to use the evidence of false financial statements against Aaron Olson, and in return for his silence, Eric Olson received distributions totaling $8 million in 2011; (4) Ted Olson knew that the $1.2 million he received from KMO was fraudulent; and (5) most of Eric Olson's and Ted Olson's disbursements stemmed from the Plaintiffs' $15 million investment. With the foregoing facts and negative inferences in mind, the Court turns to the controlling law.
II
The Plaintiffs request the Court to: (1) continue the ex parte attachment against the Defendants; and (2) enjoin Eric Olson from transferring, alienating, or encumbering any non-New Hampshire real estate or other assets in which he holds an interest, directly or indirectly. As the Court provided in its summary Order, the Plaintiffs' request is GRANTED in part and DENIED in part.
"An attachment is a lien created by judicial process on a defendant's property or right to receive property." N.H. Practice, Wiebusch on NH Civil Practice and Procedure, § 17.01, 17-5 (2010). "Any proponent of a legal or equitable claim may seek an attachment to secure satisfaction of the judgment in the event he or she prevails." Id. at § 17.04. In order to secure an attachment, a plaintiff must "show that there is a reasonable likelihood that the plaintiff will recover judgment including interest and costs on any amount equal to or greater than the amount of the attachment." RSA 511-A: 3.
The Plaintiffs bring action on several theories, including conversion, unjust enrichment, constructive trust, aiding and abetting breach of fiduciary duty, fraudulent transfer under RSA 545-A, and preliminary and permanent injunc- tion.
Conversion occurs when a party exercises dominion over a chattel inconsistent with the rights of another. Pac. and Atl. Shippers, Inc. v. Scheir, 109 N.H. 551, 553 (1968). On the facts found by the Court, the Plaintiffs have established conversion of their property on the part of Eric and Ted Olson.
In New Hampshire, one is not allowed to profit or enrich himself at the expense of another contrary to equity. Cohen v. Frank Developers, Inc., 118 N.H. 512, 518 (1978). A defendant is unjustly enriched, and a plaintiff is entitled to restitution, when a court determines that the defendant has received the benefit that it would be unconscionable for the defendant to retain. Nat'l Emp. Serv. Corp. v. Olsten Staffing Serv., Inc., 145 N.H. 158, 163 (2000). The Plaintiffs have established that they are likely to succeed on their unjust enrichment claim.
Relying upon Invest Almaz v. Temple-Inland Forest Prod. Corp., 243 F.3d 57, 82-83 (1st Cir. 2001), and based upon the same facts, the Plaintiffs argue that they have established a cause of action for aiding and abetting breach of fiduciary duty. The Court agrees. Finally, the Plaintiffs have established a fraudulent transfer pursuant to RSA 545-A. Under the circumstances, neither Defendant can plausibly argue that he acted in the good faith belief that the transfers each received were honest returns on some legitimate investments. The same facts give rise to the inference that all or substantial portions of the distributions they took were the property of the Plaintiffs. Moreover, based upon the evidence produced at the hearing, the Court finds that the Defendants have not established to the satisfaction of the Court that their assets will be sufficient to satisfy a judgment with interest and costs if the Plaintiffs recover. See RSA 511-A:3.
Based upon the facts outlined above, the Plaintiffs have established that they will recover judgment in an amount equal to or greater than the $15 million that they seek from the Defendants. Furthermore, the Court is not satisfied that the Defendants' assets are sufficient to satisfy the judgment. Thus, they are entitled to continue attaching the following property to the extent the property exists within the boundaries of this State:
(1) All real estate in New Hampshire owned by Eric Olson, directly or indirectly;See Plfs.' Pet. to Attach at 2.
(2) All real estate in New Hampshire owned by Ted Olson, directly or indirectly;
(3) All accounts in which Eric Olson holds an interest, direct or indirect, at TD Bank, N.A.;
(4) All accounts in which Ted Olson holds an interest, direct or indirect, at TD Bank, N.A.;
(5) All accounts of the Eric M. Olson Trust at TD Bank, N.A.;
(6) All accounts in which Eric Olson holds an interest, direct or indirect, at GFA Federal Credit Union;
(7) All accounts of the Eric M. Olson Trust at GFA Federal Credit Union.
However, the Court DENIES the Plaintiffs' request to continue the attachment with respect to property owned exclusively by Elaine v. Olson. This includes property of the Elaine V. Olson Revocable Trust, where Eric Olson acts only as trustee. The Plaintiffs have failed to prove that they will succeed in a judgment against Elaine V. Olson. Thus, any attachments on such property must be VACATED.
Jurisdictional considerations limit this Court's ability to attach property outside the boundaries of this State. Nonetheless, the Court is not powerless to prevent the transfer of such property. Under RSA 545-A:7, (c) (1), "[i]n an action for relief against a transfer or obligation under [the Uniform Fraudulent Transfer Act], a creditor . . . may obtain: . . . (1) [a]n injunction against further disposition by the debtor or a transferee, or both, of the asset transferred or of other property." The Court's power to prohibit the debtor from transferring such property stems from equity considerations. See RSA 545-A: 7, (c). On the facts alleged, the Plaintiffs have established a reasonable likelihood of success on their Fraudulent Transfer Act claim. That is, they have established an "actual intent to hinder, delay, or defraud [the Plaintiffs]." RSA 545-A: 4, (I) (a). Therefore, the Court GRANTS the Plaintiffs' request to prohibit Eric Olson from transferring, alienating, or encumbering non-New Hampshire real estate or other assets in which he holds an interest, directly or indirectly.
III
Eric Olson moves to extend the deadline for filing a motion to reconsider to (10) days from notice of this narrative Order, as opposed to (10) days from this Court's summary Order. His motion is GRANTED. As a final matter, Counsel for Ted Olson requests a hearing in reference to the ex parte attachment against Ted Olson. This Court may reconsider prior orders until final judgment or decree. Goudreault v. Kleeman, 158 N.H. 236, 249 (2009). Therefore, the Court GRANTS Defendant Ted Olson's request for a hearing on the Court's Order continuing the attachment. See RSA 511-A: 3.
SO ORDERED.
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Richard B. McNamara,
Presiding Justice