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Corporate Commission of The Mille Lacs Band of Ojibwe Indians v. Money Centers of America, Inc.

United States District Court, D. Minnesota

February 18, 2014

Corporate Commission of the Mille Lacs Band of Ojibwe Indians, Plaintiff,
v.
Money Centers of America, Inc., et al., Defendants.

Jane E. Maschka, Michael M. Krauss, Faegre Baker Daniels LLP, Minneapolis, Minnesota, for Plaintiff.

Luke P. McLoughlin, Erin M. Carter, James L. Beausoleil, Jr., Duane Morris LLP, Philadelphia, Pennsylvania, Robert B. Patterson, Jr., Patterson Law Office, PA, Minnetonka, Minnesota, for Defendants.

MEMORANDUM OPINION AND ORDER

RICHARD H. KYLE, District Judge.

INTRODUCTION

This case arises out of a contract dispute between Plaintiff Corporate Commission of the Mille Lacs Band of Ojibwe ("the Commission") and Defendants Money Centers of America, Inc. and MCA of Wisconsin, Inc. (collectively "MCA"). The Commission asserted claims against MCA and its Chief Executive and Chief Operating Officers, Defendants Christopher and Mark Wolfington. The Court previously granted the Commission summary judgment on its breach-of-contract claim against MCA, the Commission dismissed its remaining claims against MCA, and the Court entered judgment against MCA. Only the Commission's claims against the Wolfingtons remain pending. The Commission now moves for partial summary judgment on its piercing-the-corporate-veil claim against Christopher Wolfington and on a fraudulent-transfer claim against Mark Wolfington. Mark Wolfington also moves for summary judgment on the Commission's claims. For the reasons set forth below, each Motion will be granted in part and denied in part.

BACKGROUND

In 2009, the Commission and MCA entered into an agreement for MCA to provide cash-access services at the Commission's casinos ("the Agreement"). According to its terms, the Commission would advance MCA cash each day, MCA would distribute the cash to casino patrons in exchange for a check or debit, and four to six days later MCA would deduct its fees from the amount advanced and wire the balance back to the Commission. Throughout the term of the Agreement, MCA consistently held the advances for longer than four to six days before settling with the Commission, causing the total amount MCA owed to the Commission on any given day to grow. When the Commission terminated the Agreement in April 2012, MCA held approximately $5.6 million in outstanding advances, which it has yet to repay.

In July 2012, the Commission commenced the instant action against MCA seeking repayment of the $5.6 million. During discovery, the Commission learned MCA was insolvent[1] and suspected the Wolfingtons were siphoning corporate funds for personal expenses. The Commission joined Mark and Christopher Wolfington as Defendants, asserting nine claims against them: breach of contract/piercing the corporate veil; unjust enrichment; conversion; constructive trust; fraud; two claims of fraudulent transfer; preference; and breach of fiduciary duty (against Christopher Wolfington only).

In September 2013, the Court granted the Commission summary judgment on its breach-of-contract claim against MCA and dismissed its unjust-enrichment claim (against all parties) and its preference claim (against Mark Wolfington). The Commission then moved the Court to dismiss its remaining claims against MCA and enter judgment against MCA, which the Court granted on December 2, 2013.[2] Only the Commission's claims against the Wolfingtons remain pending. At issue in these Motions are the breach-of-contract/piercing-the-corporate-veil claim against Christopher Wolfington and four remaining claims against Mark Wolfington.[3]

The following facts are undisputed, unless otherwise noted.

MCA's Structure, Finances, and Corporate Records

MCA was incorporated in 1997 in Delaware and was a publicly traded company registered with the Securities and Exchange Commission ("SEC") from 2005 through 2008. Its current corporate status in Delaware is "void" because it has not paid the required annual franchise tax since March 2010. Christopher Wolfington is CEO and majority stockholder and his cousin Mark Wolfington is COO. MCA has two Directors: Christopher Wolfington and his brother-in-law Jonathon Ziegler. Since 2001, MCA has had eight other Directors. At the time it was registered with the SEC, MCA listed 47 full-time employees and between 2009 and 2012, it employed approximately 20 individuals at the Commission's casinos.

MCA has produced minutes for eight board meetings, all of which took place before May 2009. Ziegler, who has been on the board since 2007, could not recall being asked to approve any minutes for board meetings or receiving a copy of any minutes. He also did not know who served as secretary or treasurer, or if MCA had held any shareholder meetings (but he thought it "may have" when it was a public company). MCA has never paid dividends.

MCA maintains general ledgers and records its daily financial transactions. It filed independently audited financial statements when it registered as a public company in 2005 and, most recently, in December 2010. MCA's balance sheets show it has been insolvent since 2004, when it entered into a reverse acquisition and merger and was recapitalized. While the Wolfingtons acknowledge this, they contend the balance sheets are misleading because they reflect only the cost of MCA's assets and not their value; they maintain MCA is not insolvent. MCA's financial statements show it has suffered a net loss every year since 2004 except for 2009, in which it had a $1.2 million net gain. The Commission attributes this purported profit to MCA recording a $1.8 million contract-cancellation fee (that was never paid) as "revenue" when the Ho-Chunk Nation, a Native American tribe with casinos in Wisconsin, terminated its contract with MCA and sued it for more than $5 million of outstanding advances, much like the Commission did here.

Although the Wolfingtons dispute MCA's insolvency, its former comptroller, Bill Brudecki, testified that Mark Wolfington "would choose which bills to pay" and he had the impression that MCA could not pay all its bills as they came due. (Brudecki Dep. 105-06.) This is supported by correspondence among MCA's officers and between MCA and its creditors. For example, in May 2009, MCA's former CFO/COO Jay Walsh wrote to Brudecki and others:

Ok boys I have tried my best to hold this off, but I can[']t any longer Here are our obligations and I think we need to take from ho-chunk
1. We have to pay mercantile[4] another 250k like asap
2. Then pay ba[e]na[5] up on its interest, think we are ...

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