Rizzolo: Offshore Trustee Not A Necessary Party

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Rizzolo: Offshore Trustee Not A Necessary Party

Postby JDA » Wed Jul 27, 2011 7:32 am

Henry v. Rizzolo, 2011 WL 2975539 (D.Nev., Slip Copy, July 21, 2011).

United States District Court,

D. Nevada.

Kirk and Amy HENRY, Plaintiffs,

v.

Fredrick RIZZOLO aka Rick Rizzolo, an individual, Lisa Rizzolo, an individual, The Rick and Lisa Rizzolo Family Trust, Defendants.

No. 2:08–CV–00635–PMP–GWF.

July 21, 2011.

C. Stanley Hunterton, Hunterton & Associates, Donald J. Campbell, J. Colby Williams, Nathanael R. Rulis, Philip R. Erwin, Wade W. Rabenhorst, Campbell & Williams, Peter S. Levitt, U.S. Attorney, Las Vegas, NV, for Plaintiffs.

Kenneth G. Frizzell, III, Law Office of Kenneth G. Frizzell, III, Mark C. Hafer, Anthony P. Sgro, Patti, Sgro & Lewis, Dominic P. Gentile, Margaret W. Lambrose, Paola M. Armeni, Gordon & Silver, Ltd ., Mark B. Bailus, George P. Kelesis, Marc P. Cook, Bailus Cook & Kelesis, Ltd., Las Vegas, NV, for Defendants.

ORDER

PHILIP M. PRO, District Judge.

*1 Presently before the Court is Defendant Lisa Rizzolo, the Lisa Rizzolo Separate Property Trust, and the LMR Trust's ("Lisa Rizzolo") Renewed Motion to Dismiss for Failure to Join a Necessary and Indispensable Party (Doc. # 474), filed on September 30, 2010. Defendants Rick Rizzolo, the Rick and Lisa Rizzolo Family Trust, the Rick J. Rizzolo Separate Property Trust, and the RLR Trust ("Rick Rizzolo"), filed a Joinder to this motion (Doc. # 475) on September 30, 2010. Plaintiffs Kirk and Amy Henry ("the Henrys") filed an Opposition (Doc. # 484) on October 18, 2010. Defendant Lisa Rizzolo filed a Reply (Doc. # 490) on October 28, 2010. Defendant Rick Rizzolo filed a Joinder to the Reply (Doc. # 494) on October 29, 2010.

I. BACKGROUND

Plaintiffs Kirk and Amy Henry ("the Henrys") allege that Defendant Rick Rizzolo owned and operated a strip club, the Crazy Horse Too, through a closely held corporation. (Compl. [Doc. # 1] at 2–3.) The Henrys allege Rick and Lisa Rizzolo operated, or acquiesced in the operation of, the Crazy Horse Too in a criminal manner such that the Crazy Horse Too was a racketeering enterprise. ( Id. at 3.) According to the Henrys, as a result of the criminal operation of the Crazy Horse Too, Kirk Henry was attacked at the club and rendered a quadriplegic. ( Id.) Following Kirk Henry's injury, the Henrys sued Rick Rizzolo in 2001. ( Id.)

The Henrys allege that based on this personal injury lawsuit, in which Rick Rizzolo faced liability in excess of ten million dollars, Defendants Rick and Lisa Rizzolo thereafter engaged in a concerted effort to conceal assets to avoid paying the Henrys. ( Id.) Specifically, the Henrys contend Defendants formed a family trust and transferred assets into the trust to hide and shield assets, and Defendants engaged in a series of transactions, including an allegedly collusive divorce, in which Lisa Rizzolo obtained all assets of value while Rick Rizzolo acquired only the Crazy Horse Too, which Defendants knew or expected would be forfeited due to criminal activity at the club. ( Id. at 3–4.) Plaintiffs also contend Defendants engaged in other transactions, such as loans, gambling debts, and other third party transactions, all of which were designed to conceal assets from the Henrys. ( Id. Based on these allegations, Plaintiffs brought this action against Defendants Lisa and Rick Rizzolo and the Rick and Lisa Rizzolo Family Trust ("Trust"), asserting claims for conspiracy to defraud (count one), common law fraud (count two), and violation of the Nevada Uniform Fraudulent Transfer Act ("NUFTA"). Plaintiffs later amended the Complaint to add as Defendants several other trusts owned or controlled by Lisa and/or Rick Rizzolo. (Second Am. Compl. [Doc. # 200].)

Defendants now renew their motion to dismiss for failure to join indispensable parties.FN1 Defendants argue that because Plaintiffs have alleged Defendants conspired with unnamed attorneys and accountants, Plaintiffs were required to join those attorneys and accountants as indispensable parties once they discovered the identities of those individuals. Defendants also argue that because the attorneys and accountants received funds from Defendants, they are transferees of funds from the alleged asset-concealment scheme, and thus are necessary and indispensable parties to the extent any such transfers would be undone to satisfy the obligations owed to the Henrys. Finally, Defendants argue Plaintiffs have failed to join the trustees of each of the Defendant trusts, and the trustees as legal owners of the trust property are necessary and indispensable parties.

FN1. Defendant Lisa Rizzolo previously moved to dismiss on this same basis. (Mot. to Dismiss for Failure to Join a Necessary & Indispensable Party (Doc. # 216).) The Court denied the motion, stating the motion was "premature because the deadline for filing amended pleadings and adding parties" had not yet expired. (Order (Doc. # 238).)

*2 The Henrys respond that this Court already has rejected Defendants' argument that their claims should be dismissed for failure to join indispensable parties. The Henrys also contend that the attorneys and accountants are not necessary parties because the Henrys have voluntarily dismissed the conspiracy claim, and the attorneys and accountants are not transferees under the NUFTA because they merely facilitated fraudulent transfers between Lisa and Rick Rizzolo. As to the trustees of the trusts, the Henrys argue that only the trust itself, not the trustee, need be named as a party. The Henrys further contend that even if the trustees are necessary parties, they are not indispensable because Lisa and Rick Rizzolo adequately represent the trusts' interests, and the Court can afford complete relief as it can compel Lisa and Rick Rizzolo, as owners and beneficiaries of the trusts, to repatriate assets to the United States.

II. DISCUSSION

Under Federal Rule of Civil Procedure 19(a), a party must be joined as a "required" party in two circumstances: (1) when "the court cannot accord complete relief among existing parties" in that party's absence, and (2) when the absent party "claims an interest relating to the subject of the action" and resolving the action in the person's absence may, as a practical matter, "impair or impede the person's ability to protect the interest," or may "leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest." Fed.R.Civ.P. 19(a)(1). If the Court finds an absent party is "required" under either of these tests, the Court then determines whether joinder is feasible. In re County of Orange, 262 F.3d 1014, 1022 (9th Cir.2001). Joinder is feasible if the person is subject to service of process and his joinder will not deprive the Court of subject matter jurisdiction. Fed.R.Civ.P. 19(a)(1).

If joinder of the necessary party is feasible, then the party will be joined and the action will proceed. If joinder is not feasible, then the Court must determine whether, in "equity and good conscience," the party is "indispensable" under Rule 19(b) such that the action should not proceed without that party. Fed.R.Civ.P. 19(b). In making this determination, the Court should consider:

(1) the extent to which a judgment rendered in the person's absence might prejudice that person or the existing parties;

(2) the extent to which any prejudice could be lessened or avoided by:

(A) protective provisions in the judgment;

(B) shaping the relief; or

(C) other measures;

(3) whether a judgment rendered in the person's absence would be adequate; and

(4) whether the plaintiff would have an adequate remedy if the action were dismissed for nonjoinder.

Id. This list is not exhaustive, and the Court can consider other factors, such as the "interests of the courts and the public in complete, consistent, and efficient settlement of controversies." Paiute–Shoshone Indians of Bishop Community of Bishop Colony, Cal. v. City of Los Angeles, 637 F.3d 993, 1000 (9th Cir.2011).

*3 Impairment of the absent party's interest "may be minimized if the absent party is adequately represented in the suit." Shermoen v. United States, 982 F.2d 1312, 1318 (9th Cir.1992) (quotation omitted). To determine whether an existing party adequately represents an absent party, the court considers whether: (1) the existing party's interests in the suit are such that it "undoubtedly" will make all of the absent party's arguments; (2) the existing party is "capable of and willing to make such arguments"; and (3) "the absent party would offer any necessary element to the proceedings that the present parties would neglect." Id. (quotations omitted).

The Rule 19 inquiry "is a practical one and fact specific, and is designed to avoid the harsh results of rigid application.' " Clinton v. Babbitt, 180 F.3d 1081, 1088 (9th Cir.1999) (quoting Shermoen, 982 F.2d at 1317). The party moving to dismiss bears the burden of persuading the Court that dismissal is warranted. Id. Whether to dismiss lies within the Court's discretion. Shermoen, 982 F.2d at 1317.

A. Unnamed Attorneys and Accountants

The unnamed attorneys and accountants who allegedly conspired with Defendants are not necessary parties. With respect to the conspiracy claim, the Court has granted Plaintiffs' motion to voluntarily dismiss that claim. Moreover, "[i]t has long been the rule that it is not necessary for all joint tortfeasors to be named as defendants in a single lawsuit." Temple v. Synthes Corp., Ltd., 498 U.S. 5, 7 (1990); William Inglis & Sons Baking Co. v. ITT Continental Baking Co., Inc., 668 F.2d 1014, 1053 (9th Cir.1981) (stating a plaintiff is not required to name or sue all co-conspirators who are jointly and severally liable for all damages caused by the conspiracy). Consequently, Plaintiffs never were required to name and join the attorneys and accountants as alleged co-conspirators.

As to the NUFTA claim, Plaintiffs need not name the attorneys or accountants so long as Plaintiffs do not seek to undo a transfer to those individuals. Plaintiffs indicate that they do not seek to undo transfers to the attorneys or accountants for their services, nor do they seek relief against the attorneys and accountants for their alleged role in facilitating fraudulent transfers between Rick and Lisa Rizzolo.

To the extent the attorneys and accountants were conduits through whom fraudulent transfers occurred, they still are not necessary parties. Under the NUFTA, a plaintiff may void a transfer against any transferee made with the actual intent to hinder, delay, or defraud a creditor, unless the transferee took in good faith and for reasonably equivalent value. Nev.Rev.Stat. secs. 112.180(1)(a), 112.220. As Plaintiffs allege Defendants Lisa and Rick Rizzolo orchestrated various fraudulent transfers between themselves, the fact that they may have used the services of attorneys and accountants to facilitate those transfers does not make the attorneys and accountants necessary parties where Plaintiffs seek no relief from these persons who acted as Defendants' agents or were mere conduits for the transfers. See In re Dominion Corp., 199 B.R. 410, 413 (B.A.P. 9th Cir.1996) (holding, in bankruptcy context, that mere conduit acting as facilitator to transfer is not a transferee because it does not exercise dominion or control over the funds passing through its hands); Herup v. First Boston Fin., LLC, 162 P.3d 870, 874 n. 15 (Nev.2007) (stating that fraudulent conveyance cases under the bankruptcy code are "instructive" on issues relating to NUFTA because "the underlying policy of both the UFTA and the Bankruptcy Code is to preserve a debtor's assets for the benefit of creditors," and because of the similarity of the language in UFTA and relevant portions of the bankruptcy code). The Court therefore will deny the motion to dismiss based on the failure to join the attorneys and accountants, as these parties are neither necessary nor indispensable.

B. Trustees of Defendants' Trusts

*4 Plaintiffs name as Defendants five trusts: (1) The Rick and Lisa Rizzolo Family Trust, (2) the Rick J. Rizzolo Separate Property Trust, (3) the Lisa M. Rizzolo Separate Property Trust, (4) the RLR Trust, and (5) the LMR Trust. Assuming without deciding that the trustees are necessary parties under Rule 19(a), the Court is unable to determine if joinder is feasible as to any trustee. Defendants' motion provides no information regarding who the trustees are for these trusts and whether joinder is feasible as to any or all trustees. The only information Defendants provide is to indicate that one trustee is located in the Cook Islands, but Defendants do not even identify which trust has a trustee in the Cook Islands, much less present evidence to that effect. Defendants suggest that joinder would not be feasible as to this trustee but provide no evidence or argument in support. As the Court is unable to determine whether joinder is feasible as to any absent party even if they are necessary, the Court will deny the motion.

Moreover, the Court concludes that to the extent any trust has a Cook Islands trustee, that trustee is not indispensable. Judgment in the trustees' absence might prejudice the trustees in the sense that the trustees presumably have powers to exercise over trust assets, although Defendants have not provided the Court with the trust documents in support of this motion to verify that fact, and the Court will not search the record for the trust documents. However, Defendants do not dispute Plaintiffs' assertion that Defendants Rick and Lisa Rizzolo ultimately exercise control over the trust assets. The impairment to the trustees' interests therefore are minimized, as Lisa and Rick Rizzolo adequately will represent the absent trustees. Lisa and Rick Rizzolo's interests in this action are such that they undoubtedly will make all of the absent trustees' arguments, as they have equal if not greater interest in protecting the trust corpus than the trustees. Lisa and Rick Rizzolo each are represented by counsel, and the same counsel also represent the named trusts. FN2 Thus, the existing parties are willing to and capable of making the trustees' arguments. Finally, Defendants point to no necessary element the trustees would bring to the proceedings that Rick and Lisa Rizzolo would neglect. Indeed, Defendants fail to make any indispensability argument under the relevant Rule 19(b) factors, simply stating that the trustees are indispensable without any elaboration.

FN2. Notice of Appearance (Doc. # 213); Acceptance of Service of Second Am. Compl. & Summons Issued to the Lisa M. Rizzolo Separate Property Trust & the LMR Trust (Doc. # 220); Notice of Association of Counsel (Doc. # 415).

As to the other Rule 19(b) factors, a judgment rendered in the trustees' absence would be adequate because the Court has personal jurisdiction over Lisa and Rick Rizzolo, and the Court could order them to direct the trustees to take appropriate action should Plaintiffs prevail. Defendants have not suggested Plaintiffs have an alternative adequate remedy if the Court dismissed this action for nonjoinder. Further, the courts and the public have an interest in the complete, consistent, and efficient settlement of controversies, which would be frustrated if a defendant could defeat a fraudulent joinder action by moving fraudulently conveyed assets to an offshore trust administered by a trustee not subject to jurisdiction in United States courts, and then claim that failure to join the trustee mandates dismissal under Rule 19. See Nastro v. D'Onofrio, 263 F.Supp.2d 446, 455–56 (D.Conn.2003) (holding trustee of foreign asset protection trust was not an indispensable party where trust beneficiaries were parties to the action and adequately would represent the absent trustee's interests). Such a result would not comport with Rule 19's direction that the Court consider whether in equity and good conscious the matter ought to proceed in the non-joined party's absence.

*5 In sum, Defendants have not met their burden of persuading the Court that dismissal is warranted. The Court, in its discretion, therefore will deny Defendants' motion to dismiss for failure to join indispensable parties.

III. CONCLUSION

IT IS THEREFORE ORDERED that Defendant Lisa Rizzolo, the Lisa Rizzolo Separate Property Trust, and the LMR Trust's ("Lisa Rizzolo") Renewed Motion to Dismiss for Failure to Join a Necessary and Indispensable Party (Doc. # 474) is hereby DENIED.

= = = = = = = A S S E T P R O T E C T I O N = = = = = = = =

Posted by Jay D. Adkisson, a co-author along with Chris Riser of Asset Protection: Concepts & Strategies (McGraw-Hill 2003) with main website http://www.assetprotectionbook.com and blog at http://www.assetprotectionblog.com see also http://www.jayadkisson.com and http://www.risad.com

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Rizzolo: Discovery And Fraudulent Transferees

Postby JDA » Sat Jan 07, 2012 6:57 am

Henry v. Rizzolo, 2012 WL 13725 (D.Nev., Slip Copy, Jan. 4, 2012)

United States District Court, D. Nevada.

Kirk and Amy HENRY, Plaintiffs,

v.

Fredrick RIZZOLO, aka Rick Rizzolo, et al., Defendants.

No. 2:08–CV–00635–PMP–GWF.

Jan. 4, 2012.

C. Stanley Hunterton, Hunterton & Associates, Donald J. Campbell, J. Colby Williams, Philip R. Erwin, Wade W. Rabenhorst, Campbell & Williams, Nathanael R. Rulis, Kemp, Jones & Coulthard, L.L.P., Las Vegas, NV, for Plaintiffs.

Kenneth G. Frizzell, III, Law Office of Kenneth G. Frizzell, III, Mark C. Hafer, Anthony P. Sgro, Patti, Sgro & Lewis, Dominic P. Gentile, Margaret W. Lambrose, Paola M. Armeni, Gordon & Silver, Ltd., Mark B. Bailus, George P. Kelesis, Marc P. Cook, Bailus Cook & Kelesis, Ltd., Herbert Sachs, Las Vegas, NV, for Defendants.

ORDER

Motion to Compel Discovery (# 555)

GEORGE FOLEY, JR., United States Magistrate Judge.

*1 This matter is before the Court on Plaintiffs' Motion to Compel Discovery as to Defendant Kimtran Rizzolo and Request for Sanctions (# 555), filed on November 17, 2011; Defendant's Opposition to the Motion to Compel Discovery and Request for Sanctions (# 558), filed on November 30, 2011; and Plaintiffs' Reply in Support of Their Motion to Compel and for Sanctions (# 562), filed on December 9, 2011. The Court conducted a hearing in this matter on December 20, 2011.

BACKGROUND

Plaintiffs Kirk and Amy Henry filed an underlying Nevada district court lawsuit against Frederick Rizzolo, aka Rick Rizzolo, and the Power Company, Inc., d/b/a The Crazy Horse Too in October 2001 to recover damages for severe bodily injuries that Kirk Henry sustained when he was allegedly assaulted and battered by agents of Rick Rizzolo and the Crazy Horse Too. The Henrys subsequently entered into a $10 million settlement with Rick Rizzolo and the Power Company which provided for an initial payment of $1 million and that the $9 million balance would be paid from the proceeds of the sale of the Crazy Horse Too nightclub which was seized by the Federal Government. The initial payment of $1 million was made to the Henrys. The City of Las Vegas subsequently revoked the business and liquor licenses of the Crazy Horse Too, and the Henrys were unable to recover any of the promised settlement proceeds from the sale of that now defunct business.

The Henrys filed this action against Rick Rizzolo, his ex-wife Lisa Rizzolo, and the Rick and Lisa Rizzolo Family Trust on May 16, 2008, alleging that Defendants had engaged in fraudulent transfers of their community assets in an attempt to shield them from Plaintiffs' claim. During the course of discovery in this case, it was revealed that in 2008, Defendant Rick Rizzolo sold his interest in TEZ Real Estate LP ("TEZ"), which operated a "gentleman's club" in Philadelphia, Pa. (also apparently named "Crazy Horse Too"), to his partner Vincent Piazza for $2,999,000.00. Rick Rizzolo received an initial payment of $999,000 from the sale which he transferred to the Cook Islands bank account of the RLR Trust. At Rick Rizzolo's direction, the trustee disbursed $600,000 of the funds to Lisa Rizzolo, $200,000 to Rick Rizzolo's father, Bart Rizzolo, and $100,000 to Rick Rizzolo's lawyers. Another $90,000 was later transferred to a limited partnership that Rick Rizzolo controls.

Rick Rizzolo also assigned the first $789,000 of the remaining payments due from the sale of his interest in TEZ to his father, Bart Rizzolo. Pursuant to this assignment, Vincent Piazza or his agents made monthly payments to Bart Rizzolo in the total amount of $325,513.81. After Bart Rizzolo died in 2010, Mr. Piazza paid another $407,482.22 to Bart Rizzolo's widow, Defendant Kimtran Rizzolo. See Plaintiff's Motion for Summary Judgment (# 554), p. 6; Exhibit 12, filed November 7, 2011. Neither Rick Rizzolo nor Kimtran Rizzolo have disputed Plaintiffs' allegations regarding the payment of the TEZ proceeds to Bart and Kimtran Rizzolo. See Defendant Rick Rizzolo's Opposition to Motion for Summary Judgment (# 559) and Defendant Kimtran Rizzolo's Opposition to Motion for Summary Judgment (# 561). Defendants contend, however, that the payments were in satisfaction of loans or other debts that Rick Rizzolo owed to Bart Rizzolo and therefore do not constitute fraudulent transfers under NRS 112.180.1 of the Nevada Uniform Fraudulent Transfer Act.FN1

FN1. Defendant Rick Rizzolo did not disclose his ownership interest in TEZ, the sale of that interest or distribution of the sales proceeds in his initial discovery responses. This information only came to light during the course of motions to compel and for sanctions that the Henrys filed. See Order (# 437), filed on August 10, 2010. Rick Rizzolo also did not disclose these matters to his probation officer as required by the conditions of supervision. For that and other violations of his probation, he was sent back to prison.

*2 Defendant Kimtran Rizzolo ("Kimtran") was joined as a defendant in the Third Amended Complaint (# 539), filed on August 1, 2011. Kimtran filed her Answer (# 547) on September 2, 2011. Plaintiffs served interrogatories and requests for production on Kimtran's attorney on September 9, 2011. Although Kimtran's counsel asserted that Plaintiffs' counsel granted an extension of time for Kimtran to serve her discovery responses, Plaintiffs' counsel denies that any such extension was granted. See Motion to Compel (# 555), Exhibits 5 and 6 (letters exchanged between counsel on October 31 and November 1, 2011). Kimtran served her answers to interrogatories and responses to request for production on November 4, 2011. Id. Exhibits 8 and 9. Plaintiffs contend that Kimtran waived her right to object to the discovery requests by failing to serve timely objections. Plaintiffs also contend that Kimtran's responses to other interrogatories and requests for production were non-responsive and inadequate. Plaintiffs request an order compelling Kimtran to provide full and complete discovery responses without objection.

Plaintiffs attached a copy of the transcript of Kimtran Rizzolo's October 12, 2011 deposition to their motion. Motion (# 555), Exhibit 3. Plaintiffs point out that despite the fact that the deposition was taken over a month after the written discovery requests were served on her attorney, Kimtran testified that she did not recall ever seeing the discovery requests and she had not been requested to gather any documents. Id. pp. 74–81. Kimtran also indicated at the beginning of the deposition that she had difficulty understanding English. Id. p. 6. Plaintiffs' counsel stated that he offered to have a translator present for the deposition, but that Kimtran's lawyer declined. Id. p. 8. Kimtran thereafter responded to many questions by stating that she did not understand, did not recall or did not know the answer. Although Kimtran was born in Vietnam, she has resided in the United States since approximately 1980. Id. pp. 13–14. She worked for many years as a manicurist and owned her own shop. Id. pp. 20–22. When confronted with a contradiction or inconsistency in her answers, Kimtran was apparently able to understand and attempt to correct her previous responses. During the deposition Kimtran also testified that she felt dizzy and was not feeling well, but did not wish to postpone the deposition to another day. Id. p. 58.

DISCUSSION

Defendant objected to Interrogatory Nos. 2 and 3 and Request for Production No. 6 on the grounds that they are "too broad." Defendant's attorney failed to establish, however, that he obtained an extension of time from Plaintiffs' counsel to respond to the discovery requests. Defendant's objections are therefore overruled based on her failure to timely serve objections. See USF Ins. Co. v. Smith's Food and Drug Center, Inc., 2011 WL 2457655, *3 (D.Nev.2011) citing Richmark Corp. v. Timber Falling Consultants, 959 F.2d 1468, 1473 (9th Cir.1992). See also Sweeney v. UNLV Research Foundation, 2010 1756875 (D.Nev.2010), citing Senat v. City of New York, 255 F.R.D. 338, 339 (E.D.N.Y.2009).

*3 Defendant's objections are also invalid. Rule 26(b) of the Federal Rules of Civil Procedure permits discovery into "any matter, not privileged, that is relevant to the claim or defense of any party." The rule contemplates liberal discovery and relevancy under the rule is extremely broad. See Klein v. Freedom Strategic Partners, LLC, 2009 WL 1606467, *2 (D.Nev.2009). Rule 69(a)(2) also authorizes a judgment creditor to obtain discovery in aid of execution on a judgment. The scope of postjudgment discovery is "very broad" and the creditor is entitled to obtain information from partes and non-parties alike, including information about assets upon which execution can issue or about assets that have been fraudulently transferred. Andrews v. Raphaelson, 2009 WL 1211136, at *3 (E.D.Ky.2009), citing United States v. Conces, 507 F.23d 1028, 1040 (6th Cir.2007) and Magnaleasing, Inc. v. Staten Island Mall, 76 F.R.D. 559 (S.D.N.Y.1977). See also T–M Vacuum Products, Inc. v. Taisc, Inc., 2008 WL 5082413, *2 (S.D.Tex.2008), citing 3 James Wm. Moore et al., MOORE'S FEDERAL PRACTICE–CIVIL sec. 69.04 (2008) and 12 Charles A. Wright & Arthur R. Miller, FEDERAL PRACTICE & PROCEDURE sec. 3014 (1997).

When this action was commenced, the Henrys had not yet obtained a judgment against Defendant Rick Rizzolo in regard to his obligations under the settlement agreement. The absence of a judgment, however, did not bar Plaintiffs from pursuing this action. See Order (# 117), citing Farris v. Advantage Capital Corp., 217 Ariz. 1, 170 P.3d 250 (Ariz.2007) and Friedman v. Heart Inst. of Port St. Lucie, Inc. ., 863 So.2d 189 (Fla.2003). The Plaintiffs have since obtained a $9 million Nevada judgment against Defendant Rick Rizzolo. See Plaintiffs' Motion for Summary Judgment (# 554), Exhibit 2 (copy of Nevada District Court Judgment entered on September 2, 2011). While discovery in this case may not technically be governed by Rule 69(a)(2), its purpose is identical to that generally pursued by a judgment creditor. Accordingly, the same "very broad" scope of discovery authorized under Rule 69(a)(2) applies in this case.

Plaintiffs' fraudulent transfer claim against Defendant Kimtran Rizzolo is based on more than idle speculation. It is undisputed that Defendant Rick Rizzolo arranged for nearly $1 million in the proceeds from the sale of his interest in TEZ to be paid to Bart Rizzolo and, after Bart's death, to his widow Defendant Kimtran Rizzolo. Unless Rick Rizzolo received an equivalent value in exchange for the assignment of these payments, they may be set aside as fraudulent transfers. See NRS 112.190, 112.210 and 112.220. Plaintiffs are entitled to discover any information or documents in Kimtran Rizzolo's possession, custody or control that relate to the payments, including any alleged antecedent debts that Rick Rizzolo owed to Bart Rizzolo.

Plaintiffs are also entitled to discover the current location of the funds and/or whether Bart or Kimtran Rizzolo made any subsequent transfers of the funds. Plaintiffs may be entitled to obtain a money judgment against Kimtran if she has transferred or otherwise disposed of the TEZ sales proceeds. See NRS 112.220.2. Accordingly, information and documents relating to any and all assets in Kimtran's possession, custody or control are relevant and discoverable. Finally, Plaintiffs are entitled to obtain information and documents in Defendant Kimtran's possession, custody or control that may reveal whether Rick Rizzolo made any other transfers of assets to Bart Rizzolo, Kimtran Rizzolo or others.

*4 It is particularly important in this case that Defendant Kimtran Rizzolo be required to provide complete answers and responses to Plaintiffs' written discovery requests. During her deposition, Defendant claimed to have difficulty understanding the English language and she repeatedly responded to questions by stating that she did not understand, did not remember or did not know. Plaintiffs have not moved to compel Kimtran to provide more responsive deposition answers. Based on her real or feigned inability to understand the English language, and lack of recollection, a further deposition may not be useful. There is no legitimate reason, however, why Defendant Kimtran Rizzolo cannot provide full and complete responses to Plaintiffs' written discovery requests with the assistance of her counsel and an interpreter, if necessary. The Court cautions Defendant Kimtran Rizzolo that if she fails to comply with this order, she may be subject to appropriate sanctions under Rule 37(b)(2), which can include a citation for contempt of court. See Rule 37(b)(2)(A)(vii).

Plaintiffs' motion to compel is somewhat unclear in that it sets forth some discovery requests and responses for which no argument is made that further responses are needed or should be ordered. Interrogatory No. 1, for example, asked Defendant to "[s]tate the full name and present address of each person with whom you have engaged in any partnership, business enterprise or business venture since January 1, 2005." Defendant responded by stating that "[t]here are no persons with whom Defendant engaged in any partnership, business enterprise or joint venture." Motion to Compel (# 555), p. 6. Plaintiffs' motion makes no argument that this response is untrue or otherwise insufficient. Absent any argument as to why a discovery response is insufficient, the Court will not order Defendant to supplement her response.

Interrogatory No. 3 asked Defendant Kimtran Rizzolo to "[s]tate the full description and present location and ownership of any asset or property you presently possess. If any such asset or property is not presently owned by you, state the details concerning its disposition by you, including to whom it went, when and for what consideration, including its sales price, if any." Defendant objected to this interrogatory as too broad, and did not answer it in any respect. For the reasons set forth above, Plaintiffs' motion to compel is granted as to Interrogatory No. 3 and Defendant is ordered to provide a full and complete response thereto.

Interrogatory No. 10 asked Defendant to "[list any property you hold or have held as a trustee of a testamentary or inter vivos trust since September 20, 2001, and identify any trust you have created or contributed to for the benefit of others since September 20, 2001. Defendant responded: "None to the best knowledge of Defendant."

Request for Production No. 4 asked Defendant to "[p]roduce all documents which reflect, refer, or relate to any trust under which you are or was a settler or beneficiary, at any time since January 1, 2005 to the present. Defendant responded: "Defendant is unaware of any trust in which she was named as beneficiary or settler. There are no documents to produce."

*5 Plaintiffs point out that these responses are untruthful because Defendant testified at her deposition that she has a living trust and she has produced a deed for her residence which is owned by the "Kimtran Rizzolo Living Trust." Motion (# 555), p. 20, Exhibit 3, pp. 85–86, and Exhibit 13. Given this information, Defendant is ordered to supplement her responses to Interrogatory No. 10 and Request for Production No. 4 and provide true and complete information and documents in response thereto. If Defendant does not have the original or a copy of the trust documents in her actual possession, she should obtain them from the trustee or attorney who prepared the trust. If Defendant is still unable to produce documents in response to Request No. 4 or other requests for production discussed in this order, then she must explain in reasonable factual detail the efforts that she has made to obtain the requested information and documents and why she is unable to provide them.

Interrogatory No. 11 asked Defendant to "[s]tate whether you are an heir-at-law or beneficiary under the terms of the will of any person and list the terms of your entitlement under such will." In response to this interrogatory, Defendant referred Plaintiffs to the Will of Bart Rizzolo that was produced in response to Request No. 12. Plaintiffs state, however, that Defendant did not produce the instructions referred to in the Will regarding the distribution of the decedent's property or explain the contents of those instructions. Motion (# 555), pp. 20–21. Defendant is ordered to supplement her responses to Interrogatory No. 11 and Request for Production No. 12 and provide a full and complete copy of the Will, including the instructions for distribution of the decedent's property.

Interrogatory No. 16 asked Defendant to [i]dentify if you have, at any time since January 1, 2005, entered into any transaction with Bartholomew Rizzolo, Rick Rizzolo, Lisa Rizzolo or any other relative involving the transfer, conveyance, assignment, gift or other disposition of real or personal property and describe the terms thereof." Defendant responded: "To the best knowledge and interpretation of the wording of the Interrogatory herein, Defendant has not entered into any transaction." Defendant's response is evasive since it is unclear what interpretation she or her attorney places on the wording of this interrogatory. The Interrogatory broadly requests a description of any transactions involving the transfer, conveyance, assignment, gift or other disposition of real or personal property with the listed individuals during the stated time period. Again the scope of discovery in the context of the claims in this case is very broad. Defendant is ordered to respond to Interrogatory No. 16, without evasion or qualification, and describe any and all transactions that fall within the scope of the interrogatory.

Interrogatory No. 20 asked Defendant to "[i]dentify any and all attorneys retained or paid for by you for the benefit of Bartholomew Rizzolo, Rick Rizzolo, Lisa Rizzolo, or any other relative and describe the terms of the arrangement." Defendant responded: "To the best knowledge of Defendant, she has not retained any attorney for Bartholomew Rizzolo, Rick Rizzolo and/or Lisa Rizzolo."

*6 Interrogatory No. 20 asks a compound question. Defendant answered only the first part of the question—whether she had retained any attorney for the benefit of the listed individuals. She did not answer the second part of the question, which asked her to identify any lawyers whom she paid for the benefit of the listed individuals. Defendant testified during Rick Rizzolo's probation revocation hearing that she paid his legal bills on demand.

In her response to Interrogatory No. 21 which asked Defendant to "[i]dentify any and all financial obligations, debts, liabilities and responsibilities assumed by you on behalf of Bartholomew Rizzolo, Rick Rizzolo, or Lisa Rizzolo since January 1, 2005," Defendant stated: "My husband, Bart Rizzolo owed money to Rick Rizzolo for purchase of jewelry and directed his wife (Defendant) to pay the obligation by transferring monies owed by Rick Rizzolo for attorney's fees to Kenneth Frizzell, Esq. and Gordon & Silver, Esq." This information should also have been provided in response Interrogatory No. 20 which specifically asks about the payment of attorney's fees on behalf of others, including Rick Rizzolo. In response to either Interrogatory Nos. 20 or 21, Defendant should provide complete information regarding the "terms of the arrangement" regarding her payment of attorney's fees, including the amount of such payments, and all information that Defendant has regarding the alleged debt that Rick Rizzolo owed to Bart Rizzolo for the purchase of jewelry. FN2 The Court therefore orders Defendant to supplement her response to Interrogatory No. 20 and provide complete information relating to her payment of Rick Rizzolo's attorney's fees.

FN2. It does not escape the Court's notice that Defendants make apparently conflicting assertions by, on the one hand, claiming that Rick Rizzolo assigned his interest in the sales proceeds of TEZ to Bart Rizzolo in payment of antecedent debts, and, on the other hand, claiming that Kimtran Rizzolo paid Rick Rizzolo's legal bills because Bart Rizzolo owed him money.

Request for Production No. 17 asked Defendant to "[p]roduce documents which record, reflect, refer or relate to the payment of legal bills, restitution of any other debts, liabilities or financial obligations on behalf of Rick Rizzolo since January 1, 1995." Defendant responded to this requests by referring to her response to Request No. 13 in which she stated: "No documents are in possession of Defendant."

Unless Defendant paid Rick Rizzolo's attorney's fees in cash and received no receipt, there should be documents in Defendant's possession, custody or control, such as cancelled checks, bank statements, or receipts reflecting such payments. There may also be other documents concerning the payment of the fees or the alleged underlying debt obligation. Because there is no reasonable assurance that Defendant has made a diligent effort to locate responsive documents in her possession, custody or control, there is also no reason to believe that such documents do not exist or that Defendant cannot produce them. Defendant is ordered to supplement her response to Request No. 17 and produce any and all documents in her possession, custody or control that are within the scope of this request.

Interrogatory Nos. 21, 22, 23, 24 and 25. As discussed above, Interrogatory No. 21 asked Defendant to "[i]dentify any and all financial obligations, debts, liabilities and responsibilities assumed by you on behalf of Bartholomew Rizzolo, Rick Rizzolo, or Lisa Rizzolo since January 1, 2005." The only information Defendant provided in response to this interrogatory was her payment of attorney's fees on behalf of Rick Rizzolo.

*7 Interrogatory No. 22 asked Defendant to "[i]dentify any and all contracts, business arrangements, entitlements, assignments, or cash inflows entered into or assumed by you on behalf of Bartholomew Rizzolo, Rick Rizzolo, or Lisa Rizzolo since January 1, 2005." Plaintiff responded to this interrogatory by referring to her response to Interrogatory No. 21.FN3

FN3. It is improper to answer an interrogatory by simply referring to an answer to another interrogatory. Rule 33(b)(3) states that each interrogatory must be answered separately and fully in writing under oath. See also Equal Rights Center v. Post Properties, Inc., 246 F.R.D. 29, 24 (D.D.C.2007) and Landon v. Ernst & Young LLP, 2009 WL 4723708, *2 (N.D.Cal.2009).

As Plaintiffs point out in their motion, it is undisputed that Rick Rizzolo assigned the proceeds from the sale of his interest in TEZ to his father Bart Rizzolo in 2008. After Bart Rizzolo died in 2010, Defendant Kimtran Rizzolo sent a letter to the representative of the purchaser of TEZ notifying her of Bart Rizzolo's death and requesting that all further checks be paid to Defendant as executrix of Bart Rizzolo's estate. Motion (# 555), p. 18, Exhibit 10. Obviously, this information falls within the scope of Interrogatory No. 22 and should have been provided in response thereto. Defendant's failure to provide responsive information about known transactions, including matters that were inquired into during her deposition on October 12, 2011, demonstrates that Defendant has not made an adequate effort to provide complete discovery responses. The Court therefore orders Defendant to supplement her response to Interrogatory Nos. 21 and 22 and provide truthful and complete information in response thereto.

Interrogatory No. 23 asks Defendant to "[i]dentify and describe your involvement in the business entity styled TEZ Real Estate LP." Interrogatory No. 24 asked Defendant to "[i]dentify and describe your involvement in the Crazy Horse Too in Philadelphia, Pennsylvania." Defendant responded to both of these interrogatories with the one word answer: "None." Defendant's responses may be accurate and sufficient so long as she had no involvement or relation to TEZ or the Crazy Horse Too in Philadelphia, other than her receipt of payments resulting from Rick Rizzolo's assignment of proceeds of the sale of his interest in TEZ. Defendant is only required to supplement her answers to the Interrogatory Nos. 23 and 24 if she had some other or additional involvement with TEZ or the Crazy Horse Too in Philadelphia.

Interrogatory No. 25 asks Defendant to "[i]dentify and describe your relationship including all business dealings with Vincent Piazza, Stuart Cohen, and the Piazza Family Limited Partnership or any owner, member, employee or agent thereof." Defendant also responded "None." It is the Court's understanding that Vincent Piazza, Stuart Cohen, and the Piazza Family Limited Partnership were the co-owners or partners with Rick Rizzolo in TEZ. Defendant had at least some relationship with one or more of these individuals or the entity as it relates to her receipt of payments pursuant to the assignment of the proceeds from the sale of Rick Rizzolo's interest in TEZ. Defendant should include that information in a supplemental response and identify and describe any other relationship or business dealings, if any, that she had with the listed individuals, entity or their agents. Accordingly, Defendant is ordered to supplement her response to Interrogatory No. 25.

*8 Request for Production Nos. 1 and 9. Request No. 1 requested Defendant to "[p]roduce all documents including but not limited to statements of account with securities brokerage firms, dividend statements, earning reports, or similar documents which reflect, refer, or relate to any stocks, bonds, debentures, certificates of deposit, or any other security owned by you either alone or jointly with another person at any time since January 1, 2005 to the present date." Defendant responded to this request as follows: "Annuities, Met Life, Prudential and Transamerica attached hereto. No documents are in the possession of defendant."

Request No. 9 requested Defendant to "[p]roduce documents which record, refer, or relate to your domestic and/or foreign bank accounts, regardless of whether the same are held in sole or joint names since January 1, 2005." Defendant responded to this request as follows: "Defendant has no documents as requested in this request but has accounts in Nevada State Bank, City National Bank, and Bank of America."

Plaintiffs state that while they have obtained some documents from financial institutions through use of third party subpoenas, they have not received the investment or bank records for most of Defendant's accounts which allegedly hold millions of dollars. Motion (# 555), p. 19.

As the court recently stated in United States v. Approximately $7400 in United States Currency, 274 F.R.D. 646, (E.D.Wis.2011):

"[F]ederal courts have consistently held that documents are deemed to be within the 'possession, custody or control' for purposes of Rule 34 if the party has actual possession, custody or control, or has the legal right to obtain the documents on demand." Walls v. Paulson, 250 F.R.D. 48, 50 (D.D.C.2008) (citing In re Bankers Trust Co., 61 F.3d 465, 469 (6th Cir.1995); Kifle v. Parks & History Ass'n, No. Civ. A. 98–00048(CKK), 1998 WL 1109117, at *1 (D.D.C. Oct.15, 1998)). A party is obligated to produce her account records when she has the legal right to those records even though the party does not have a copy of the records. See Cohn v. Taco Bell Corp., No. 92 C 5852, 1994 WL 383983, at *4 (N.D.Ill. July 20, 1994); Zervos v. S.S. Sam Houston, 79 F.R.D. 593, 595–96 (S.D.N.Y.1978). See also, Preservation Prods., LLC v. Nutraceutical Clinical Labs. Int'l, 214 F.R.D. 494, 495 (N.D.Ill.2003).

Defendant is ordered to supplement her responses to Requests for Production Nos. 1 and 9 and produce full and complete records for all financial investments and/or accounts within the scope of the requests. To the extent that this requires the Defendant to request records from the financial institutions in which such investments or accounts are held, she is ordered to promptly do so.

Plaintiffs' Request for Sanctions.

Plaintiffs request that Defendant Kimtran Rizzolo be sanctioned pursuant to Rule 37(a) for her failure to sufficiently respond to Plaintiffs' discovery requests. The Court will exercise its discretion under Rule 37(a)(5)(C) and not impose an award of attorney's fees or other sanctions on Defendant at this time. Defendant is cautioned, however, that if she fails to fully and reasonably comply with this order, the Court will impose sanctions for such failure including, but not limited to, awarding Plaintiffs the expenses they incurred in prosecuting the instant motion to compel as well as any future motion, together with other sanctions pursuant to Rule 37(a)(2), as may appear proper.

CONCLUSION

*9 IT IS HEREBY ORDERED that Plaintiffs' Motion to Compel Discovery as to Defendant Kimtran Rizzolo and Request for Sanctions (# 555) is granted in accordance with the foregoing provisions of this order. Defendant Kimtran Rizzolo shall serve fully responsive supplemental responses to the Interrogatories and Requests for Production discussed in this order on or before January 13, 2012. To the extent that Defendant, after exercising due diligence, cannot produce all required information and documents by this deadline, she shall state in her responses the efforts she ... has made to comply and shall promptly further supplement her responses as soon as additional information or documents are obtained.

= = = = = = = A S S E T P R O T E C T I O N = = = = = = = =

Posted by Jay D. Adkisson, a co-author along with Chris Riser of Asset Protection: Concepts & Strategies (McGraw-Hill 2003) with main website http://www.assetprotectionbook.com and blog at http://www.assetprotectionblog.com see also http://www.jayadkisson.com and http://www.risad.com

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Rizzolo: Finding Of Fraudulent Transfer To Insider

Postby JDA » Fri Apr 27, 2012 4:04 pm

Henry v. Rizzolo, 2012 WL 1376968 (D.Nev., April 19, 2012).

United States District Court,

D. Nevada.

Kirk and Amy HENRY, Plaintiffs,

v.

Fredrick RIZZOLO aka Rick Rizzolo, an individual; Lisa Rizzolo, an individual; and The Rick and Lisa Rizzolo Family Trust, Defendants.

No. 2:08–CV–00635–PMP–GWF.

April 19, 2012.

C. Stanley Hunterton, Hunterton & Associates, Donald J. Campbell, Philip R. Erwin, J. Colby Williams, Wade W. Rabenhorst, Campbell & Williams, Nathanael R. Rulis, Kemp, Jones & Coulthard, LLP, Peter S. Levitt, U.S. Attorney, Las Vegas, NV, for Plaintiffs.

Fredrick Rizzolo, Taft, CA, pro se.

Kenneth G. Frizzell, III, Law Office of Kenneth G. Frizzell, III, Mark C. Hafer, Anthony P. Sgro, Patti, Sgro & Lewis, Mark B. Bailus, George P. Kelesis, Marc P. Cook, Bailus Cook & Kelesis, Ltd., Herbert Sachs, Herbert Sachs, Esq., Las Vegas, NV, for Defendants.

ORDER

PHILIP M. PRO, District Judge.

*1 Presently before the Court is Plaintiffs Kirk and Amy Henry's Motion for Summary Judgment as to Defendants Rick and Kimtran Rizzolo (Doc. # 554), filed on November 7, 2011. Defendant Rick Rizzolo filed an Opposition (Doc. # 559) on November 30, 2011. Defendant Kimtran Rizzolo filed an Opposition and Countermotion for Summary Judgment (Doc. # 561) on December 6, 2011. Plaintiffs filed a Reply (Doc. # 563) on December 19, 2011.

I. BACKGROUND

Defendant Rick Rizzolo owned and operated a strip club, the Crazy Horse Too, through a closely held corporation, The Power Company, Inc. (Order (Doc. # 536).) In September 2001, Plaintiff Kirk Henry was injured at the Crazy Horse Too and rendered a quadriplegic. ( Id.) Following Kirk Henry's injury, Plaintiffs sued Rick Rizzolo and The Power Company in Nevada state court in October 2001. ( Id.)

In mid to late 2002, Rick Rizzolo discussed opening a strip club in Philadelphia with Vincent Piazza ("Piazza"). (Pls.' Mot. Summ. J. (Doc. # 554) ("MSJ"), Ex. 4 at 121–23.) Piazza, Rick Rizzolo, and a third party formed a limited partnership, TEZ Limited Partnership ("TEZ"), to purchase real estate in Pennsylvania on which the club would be developed. (MSJ, Ex. 6 at 27.) The limited partners in TEZ were the Piazza Family Limited Partnership ("PFLP"), which was Piazza's entity; Lions Limited Partnership ("Lions LP"), which was Rick Rizzolo's entity; and Rosalia Coscia. ( Id. at 27, 36.) Rick Rizzolo invested approximately $2 million in the venture. (MSJ, Ex. 4 at 123–24.) Rick Rizzolo was going to act as a consultant for the Philadelphia club, but after Rick Rizzolo encountered criminal legal problems in Las Vegas, he requested Piazza buy him out of the deal. (MSJ, Ex. 5 at 38, 45–46, 49.)

In July 2006, Plaintiffs entered into a settlement with Rick Rizzolo and The Power Company and released their claims in the state court personal injury action. (MSJ, Ex. 1.) The release of claims in the state court personal injury action was done in conjunction with plea agreements entered in June 2006 in criminal cases brought in federal court against Rick Rizzolo, The Power Company, and various other individuals, alleging racketeering activity and tax fraud. (United States v. The Power Company, Inc., 2:06–CR–00186–PMP–PAL.) Pursuant to the plea agreements and the release of claims in the state civil action, The Power Company and Rick Rizzolo were to pay Plaintiffs a total of $10 million, with the first million to be paid at the time of the entry of plea. (Doc. # 7 & # 8 in 2:06–CR–00186–PMP–PAL; MSJ, Ex. 1.) The remaining $9 million would be due upon the sale of the Crazy Horse Too. (Doc. # 7 & # 8 in 2:06–CR–00186–PMP–PAL; MSJ, Ex. 1.) The release of claims in the state court action made clear that "[a]lthough it is anticipated that the NINE–MILLION DOLLARS ($9,000,000.00) will be paid from the proceeds of the sale, the obligation to make said payment upon the closing is not contingent upon the realization of net proceeds from the sale sufficient to make the NINE–MILLION DOLLARS ($9,000,000.00) payment." (MSJ, Ex. 1.)

*2 In the meantime, while the sale of the Crazy Horse Too languished, Piazza obtained a third party purchaser for the Philadelphia club, and in October 2007, PFLP and Lions LP entered into an agreement pursuant to which PFLP purchased Lions LP's interest in TEZ. (MSJ, Ex. 5 at 32–36, Ex. 6 at 61, Ex. 7.) Under the buyout, PFLP paid Lions LP $1 million in cash at closing, with another $2 million to be paid to Lions LP through deferred periodic payments obtained through stock puts. (MSJ, Ex. 5 at 32–36, Ex. 6 at 61–62, 65–66, 69–70.)

At the close of escrow on the sale of Lions LP's interest in TEZ in April 2008, PFLP sent a check made out to Lions LP in the amount of $999,000 to Rick Rizzolo's attorney, John Dawson ("Dawson"), which was deposited in Rick Rizzolo's account in the Cook Islands.FN1 (MSJ, Ex. 4 at 149–52, Ex. 6 at 91.) Very shortly thereafter, nearly all the funds were distributed, including $600,000 to Lisa Rizzolo; $200,000 to Rick Rizzolo's father, Bart Rizzolo; $100,000 to the law firm Patti & Sgro; and approximately $80,000 to Dawson. (MSJ, Ex. 4 at 153–65.)

FN1. A separate $1,000 check was paid to Rick Rizzolo individually. (MSJ, Ex. 6 at 91.)

Around this same time, Rick Rizzolo assigned Lions LP's rights to the first $789,000 of the remaining $2 million in payments to Bart Rizzolo. (MSJ, Ex. 6 at 86, Ex. 9.) On July 8, 2008, one of Rick Rizzolo's attorneys faxed to Dawson a "list of loans made by Bart Rizzolo," and inquired of Dawson whether Lions LP could assign the balance due on the sale of the Philadelphia property to Bart Rizzolo "before somebody else seeks to attach the payments" which were not due to begin until the following February. (MSJ, Ex. 4 at 293–94.) At his deposition, Rick Rizzolo was questioned about who he anticipated would seek to attach the payments:

Q: Why was your attorney inquiring of yet another one of your attorneys as to whether or not future payments that were expected to be made pursuant to that sale could be transferred to your father?

A: Because I owed him money.

Q: Excuse me?

A: I owed him money.

Q: Well, but that's not what this document says. It says, Before somebody else seeks to attach the payments.

Q: Do you see that, sir?

A: Yeah.

Q: Who were you afraid was going to seek to attach those payments?

A: What do you mean, afraid?

Q: Well, who did you anticipate would seek to attach the payments?

A: Well, at that time, the government, the IRS, everybody.

Q: The Henrys?

A: The Henrys, whatever.

( Id. at 294–95.)

Despite being under supervised release in relation to his criminal conviction, Rick Rizzolo did not disclose to his probation officer this assignment of payments. (MSJ, Ex. 19 at 9–13.) Rick Rizzolo also was not forthcoming in discovery in this action. During discovery in this case, the Magistrate Judge concluded that—

Defendant Rick Rizzolo's discovery responses in December 2008 and April 2009 regarding his interests in testamentary or inter vivos trusts were clearly deceptive. At the time of these responses, Mr. Rizzolo must have known of the existence of the RLR Trust and that he had transferred $990,000 into the RLR Trust's bank account in April 2008, which shortly thereafter was withdrawn at his request to pay his attorneys fees, to repay loans from Lisa Rizzolo and her trust, to repay a loan from his father, and to cover Mr. Rizzolo's living expenses.

*3 (Order (Doc. # 437) at 9.) The Magistrate Judge further stated that the "trier of fact may conclude that Mr. Rizzolo's false or deceptive answers to interrogatories demonstrate an ongoing intent to conceal his assets or the disposition of those assets." ( Id. at 9 n. 3.)

The assignment of payments to Bart Rizzolo was incorporated into an amendment to the agreement between PFLP and Lions LP in March 2009.FN2 (MSJ, Ex. 10.) Pursuant to this amendment, PFLP paid Bart Rizzolo the periodic payments due for the sale of Lions LP's interest in TEZ starting in April 2009. (MSJ, Ex. 6 at 90.) PFLP paid Bart Rizzolo $325,513.81 from April 2009 through February 2010. (MSJ, Ex. 12.)

FN2. Rick Rizzolo did not disclose this transaction to his probation officer either. (MSJ, Ex. 19 at 9–13.)

On March 19, 2010, Bart Rizzolo passed away. (MSJ, Ex. 15 at 34.) In May 2010, Defendant Kimtran Rizzolo, Bart Rizzolo's widow, contacted PFLP and advised PFLP that Bart Rizzolo had passed away. (MSJ, Ex. 14.) Kimtran Rizzolo directed PFLP to forward all further payments to her as executor of Bart Rizzolo's estate. ( Id .) PFLP thereafter sent payments to Kimtran Rizzolo, until the assignment of proceeds to Bart Rizzolo was satisfied. (MSJ, Ex. 6 at 96, 97–100.) PFLP paid Kimtran Rizzolo $527,482.22 from April 2010 through March 2011. (MSJ, Ex. 14.) Once the assignment of the initial $789,000 was satisfied, PFLP began making payments to Lions LP again. (MSJ, Ex. 6 at 100.)

Due to an accounting error, the last four payments of $30,000 each that were made to Kimtran Rizzolo should have been paid to Lions LP. (MSJ, Ex. 5 at 77, Ex. 6 at 147–49.) On March 25, 2011, Piazza Management Company sent Kimtran Rizzolo a letter advising her that the last four checks were sent to her in error and must be returned. (MSJ, Ex. 18.) Kimtran Rizzolo admits she received notice that the last four payments were made in error, but she has not returned the funds as requested by PFLP even though she has adequate financial resources to do so. (MSJ, Ex. 6 at 147–48, Ex. 15 at 106–12.)

The Crazy Horse Too did not sell until the first priority lienholder foreclosed and the property was sold at auction on July 1, 2011. (Notice of Trustee's Sale (Doc. # 446 in 2:06CR–00186–PMP–PAL).) On September 1, 2011, Plaintiffs' claim for the remaining $9 million was reduced to Judgment in Nevada state court. (MSJ, Ex. 2.)

Plaintiffs brought a fraudulent transfer action in this Court in May 2008, generally alleging that Defendant Rick Rizzolo has engaged in a series of transactions designed to hinder, delay, or defraud Plaintiffs' ability to collect on the amount due to them under the settlement agreement. (Compl.(Doc. # 1).) Plaintiffs amended their Complaint in August 2011 to add Kimtran Rizzolo as a defendant with respect to the payments she received from PFLP. (Third Am. Compl. (Doc. # 539).)

Plaintiffs now move for summary judgment, arguing no genuine issue of material fact remains that Rick Rizzolo assigned the first $789,000 of the proceeds from the TEZ transaction to Bart Rizzolo with the intent to hinder, delay, and defraud Plaintiffs. Plaintiffs contend Rick Rizzolo admitted he executed the assignment with fraudulent intent. Plaintiffs thus seek recovery of all funds transferred through the assignment to Bart and Kimtran Rizzolo. Plaintiffs also argue no genuine issue of material fact remains that Rick Rizzolo fraudulently transferred $200,000 to Bart Rizzolo in April 2008. Plaintiffs contend this Court already has concluded in the related criminal proceedings that Rick Rizzolo's transfer of the $200,000 was part of a scheme to conceal his finances to avoid paying restitution in the criminal action. Plaintiffs also argue they are entitled to the proceeds of Rick Rizzolo's sale of Lions LP's interest in TEZ.

*4 Defendant Rick Rizzolo responds that he did not incur personal joint and several liability with The Power Company to pay Plaintiffs the balance due under the settlement agreement. Rick Rizzolo alternatively argues that even if he is personally liable, the transfers were not fraudulent because an issue of fact remains as to whether they were made to pay antecedent debts Rick Rizzolo owed to Bart Rizzolo. Rick Rizzolo contends a reasonable interpretation of his deposition testimony is that he wanted to satisfy these antecedent debts before Plaintiffs or the IRS could attach the proceeds of the TEZ sale, and that does not amount to fraudulent intent.

Kimtran Rizzolo responds by adopting Rick Rizzolo's response, and also by arguing that she received the property at issue as widow of Bart Rizzolo, who executed his will prior to any Judgment entered against Rick Rizzolo. Kimtran Rizzolo thus argues she is entitled to judgment as a matter of law because the property was transferred prior to Plaintiffs becoming judgment creditors. Kimtran Rizzolo also argues Plaintiffs fail to establish a conspiracy.

II. DISCUSSION

Summary judgment is appropriate if the pleadings, the discovery and disclosure materials on file, and any affidavits show that "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a), (c). A fact is "material" if it might affect the outcome of a suit, as determined by the governing substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). An issue is "genuine" if sufficient evidence exists such that a reasonable fact finder could find for the non-moving party. Villiarimo v. Aloha Island Air, Inc., 281 F.3d 1054, 1061 (9th Cir.2002). Initially, the moving party bears the burden of proving there is no genuine issue of material fact. Leisek v. Brightwood Corp., 278 F.3d 895, 898 (9th Cir.2002). After the moving party meets its burden, the burden shifts to the non-moving party to produce evidence that a genuine issue of material fact remains for trial. Id. The Court views all evidence in the light most favorable to the non-moving party. Id.

A. Rick Rizzolo's Personal Liability, Conspiracy, and Timing of Transfer

The Court already has determined that Rick Rizzolo is personally liable under the settlement agreement. (Order (Doc. # 117) at 2.) The Nevada state court also rejected Rick Rizzolo's argument that he is not personally liable and entered Judgment against him. (MSJ, Ex. 2.) Moreover, the Court previously rejected the argument that Plaintiffs have alleged a conspiracy, or that they must be judgment creditors prior to any transfer Plaintiffs allege was fraudulent as to them. (Order (Doc. # 536) at 8; Order (Doc. # 117) at 2–3.) The Court will not revisit these issues.

B. Antecedent Debts

Nevada's Uniform Fraudulent Transfer Act ("NUFTA") provides several different means for a creditor to establish a transfer was fraudulent. Under Nevada Revised Statutes sec. 112.180(1), a transfer is fraudulent as to a creditor regardless of whether the creditor's claim arose before or after the transfer, if the debtor made the transfer:

*5 (a) With actual intent to hinder, delay or defraud any creditor of the debtor; or

(b) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor:

(1) Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or

(2) Intended to incur, or believed or reasonably should have believed that he would incur, debts beyond his ability to pay as they became due.

Nev.Rev.Stat. sec. 112.180(1). Alternatively, a transfer may be fraudulent as to a creditor whose claim arose before the transfer if the debtor did not receive reasonably equivalent value in exchange for the transfer and the debtor was insolvent or became insolvent as a result of the transfer. Id. sec. 112.190(1). Reasonably equivalent value may consist of satisfaction of an antecedent debt. Id. sec. 112.170(1). Finally, a transfer may be fraudulent as to a creditor whose claim arose before the transfer if the transfer was made to an insider for an antecedent debt, the debtor was insolvent at the time of the transfer, and the insider had reasonable cause to believe the debtor was insolvent. Id. sec. 112.190(2).

To the extent Defendants are arguing that any repayment of a loan to Bart Rizzolo constitutes "reasonably equivalent value" such that the transfer was not fraudulent under sec. 112.190(1), the argument is irrelevant. Plaintiffs' fraudulent transfer claim is brought pursuant to sec. 112.180(1)(a), which requires proof of actual intent to hinder, delay or defraud any creditor of the debtor. (Third Am. Compl. at 7; MSJ at 10.) Where the plaintiff proves actual intent to defraud, the conveyance will be set aside regardless of whether the debtor received reasonably equivalent value. See, e.g., Great Neck Plaza, L.P. v. Le Peep Rests., L.L.C., 37 P.3d 485, 492 (Colo.App.2001) (interpreting the Colorado Uniform Fraudulent Transfer Act and concluding that because the statute "reads in the disjunctive," a plaintiff can prove a fraudulent transfer either by showing actual fraud or by showing constructive fraud); Lyons v. Sec. Pac. Nat'l Bank, 48 Cal.Rptr.2d 174, 185 (Cal.App.1995) ("Subdivision (a) is independent of section (b) and does not require proof of anything more than actual intent to defraud.").

However, whether the debtor received reasonably equivalent value is one of the factors to consider in determining whether the debtor acted with actual intent under sec. 112.180(1)(a). Nev.Rev.Stat. sec. 112.180(2)(h). In determining whether the debtor acted with actual intent under sec. 112.180(1)(a), the fact finder also may consider whether:

(a) The transfer or obligation was to an insider;

(b) The debtor retained possession or control of the property transferred after the transfer;

(c) The transfer or obligation was disclosed or concealed;

(d) Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;

*6 (e) The transfer was of substantially all the debtor's assets;

(f) The debtor absconded;

(g) The debtor removed or concealed assets;

...

(i) The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;

(j) The transfer occurred shortly before or shortly after a substantial debt was incurred; and

(k) The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

Id. sec. 112.180(2).

No genuine issue of material fact remains that the transfer was made to an insider, Rick Rizzolo's father,FN3 at a time when Rick Rizzolo was involved in or threatened with litigation by Plaintiffs. At the time of the transfers, the Crazy Horse Too still had not sold, and under the settlement agreement related to the 2001 litigation, Rick Rizzolo was liable for the difference if the sale of the Crazy Horse Too failed to yield sufficient funds to cover the settlement. By the time of the March 2009 assignment, Plaintiffs had initiated this lawsuit against Rick Rizzolo for other fraudulent transfers.

FN3. Nev.Rev.Stat. sec. 112.150(7)(a)(1) (defining "insider" to include "a relative of the debtor").

No genuine issue of material fact remains that Rick Rizzolo concealed the transfers and the related assets he was transferring. Despite being under supervision by his probation officer and having specific conditions related to the reporting of his financial situation, Rick Rizzolo failed to disclose (1) his receipt of $1 million upon the close of the TEZ sale, (2) the expectation of an additional $2 million in payments from this sale, (3) the April 2008 transfer of $200,000 to Bart Rizzolo, (4) the April 2008 assignment of $789,000 in proceeds to Bart Rizzolo, and (5) the March 2009 amendment to the TEZ purchase agreement effectuating the transfer of proceeds to Bart Rizzolo. During discovery in this matter, Rick Rizzolo was deceptive in his discovery responses regarding these assets and transfers.

In addition to the evidence of concealment, Plaintiffs have presented evidence of actual fraudulent intent. As reflected in the contemporaneous fax transmission and Rick Rizzolo's deposition testimony, the assignment of the first $789,000 in proceeds from the TEZ sale to Bart Rizzolo was, at least in part, an attempt to prevent any of Rick Rizzolo's other creditors from obtaining the money, including Plaintiffs. Although Rick Rizzolo argues his deposition testimony shows only a desire to pay an antecedent debt, not an intent to defraud, Rick Rizzolo presents (1) no evidence Bart Rizzolo actually made any such loans to Rick Rizzolo, (2) no evidence regarding the amount of any such loans such that a reasonable jury could conclude Rick Rizzolo received reasonably equivalent value for the transfers made to Bart Rizzolo, and (3) no evidence that any such loan was a valid and existing debt. Rick Rizzolo cannot avoid summary judgment by suggesting an alternative explanation of his own testimony with no evidence raising a genuine issue of fact in support of his position.

*7 Based on Rick Rizzolo's transfer to an insider of substantial funds in the face of his debts owed in conjunction with civil and criminal proceedings, his concealment of those assets and the transfers, and evidence he did so at least in part to avoid Plaintiffs and other creditors from obtaining those funds, no genuine issue of material fact remains that Rick Rizzolo fraudulently transferred proceeds from the TEZ sale to Bart Rizzolo with the actual intent to hinder, delay, or defraud Plaintiffs. The Court therefore will grant Plaintiffs' Motion for Summary Judgment as to these transfers, and will deny Defendant Kimtran Rizzolo's Countermotion for Summary Judgment.

Pursuant to Federal Rule of Civil Procedure 54(b), the Court hereby directs that the Clerk of Court enter Judgment in favor of Plaintiffs and against Defendants Rick Rizzolo and Kimtran Rizzolo such that Plaintiffs may avoid the transfers to Kimtran Rizzolo in the amount of $1,052,996.03 ($200,000 paid to Bart Rizzolo in April 2008 $325,513.81 paid to Bart Rizzolo under TEZ assignment $527,482.22 paid to Kimtran Rizzolo under TEZ assignment). There is no just reason for delay in entering Judgment as to these fraudulent transfers. Although Plaintiffs allege various other fraudulent transfers between Rick and Lisa Rizzolo as to which there would be some factual overlap on appeal, those are different transfers between different parties and any further delay prejudices Plaintiffs' right to recovery.

III. CONCLUSION

IT IS THEREFORE ORDERED that Plaintiffs' Motion for Summary Judgment as to Defendants Rick and Kimtran Rizzolo (Doc. # 554) is hereby GRANTED.

IT IS FURTHER ORDERED that Defendant Kimtran Rizzolo's Countermotion for Summary Judgment (Doc. # 561) is hereby DENIED.

IT IS FURTHER ORDERED that Judgment is hereby entered in favor of Plaintiffs Kirk Henry and Amy Henry and against Defendants Rick Rizzolo and Kimtran Rizzolo. The transfers to Bart and Kimtran Rizzolo in the total amount of $1,052,996.03 were fraudulent pursuant to Nevada Revised Statutes sec. 112.180(1)(a) and therefore should be avoided. Defendants Rick Rizzolo and Kimtran Rizzolo shall make the necessary arrangements to transfer funds in the amount of $1,052,996.03 to Plaintiffs Kirk Henry and Amy Henry within thirty (30) days. Any such funds transferred to Plaintiffs Kirk Henry and Amy Henry shall be credited toward the Judgment entered against Rick Rizzolo and The Power Company in Kirk and Amy Henry v. The Power Company, Inc., et al., Case No. A440740 in Nevada state court.


= = = = = = = A S S E T P R O T E C T I O N = = = = = = = =

Posted by Jay D. Adkisson, a co-author along with Chris Riser of Asset Protection: Concepts & Strategies (McGraw-Hill 2003) with main website http://www.assetprotectionbook.com and blog at http://www.assetprotectionblog.com see also http://www.jayadkisson.com and http://www.risad.com

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Re: Rizzolo: Offshore Trustee Not A Necessary Party

Postby JDA » Thu Nov 22, 2012 8:43 am

Henry v. Rizzolo, D.Nev. Case No. 08-CV-635 (Oct. 29, 2012).

KIRK and AMY HENRY, Plaintiffs,

v.

FREDRICK RIZZOLO aka RICK RIZZOLO, an individual, LISA RIZZOLO, an individual, THE RICK AND LISA RIZZOLO FAMILY TRUST, Defendants.

No. 2:08-CV-00635-PMP-GWF.

United States District Court, D. Nevada.

October 29, 2012.

ORDER

PHILIP M. PRO, District Judge.

Having read and considered Defendant Lisa Rizzolo's Petition for Living Expenses and Attorney's Fees (Doc. #677), the requested attorney's fees in the amount of $18,770.02 are approved. Additionally, the following living expenses are approved:

8632 Canyon View Drive: $636.60

1104 Ocean Front Way: $8,572.46

Groceries: $1,600.00

Telephone: $138.07

Transportation: $1,907.00

Clothing/dry cleaning: $400.00

Pet care: $202.99

Medical bills: $525.00

Personal care: $100.00

Credit Cards: $1,977.51

Financial Fees: $210.00

Entertainment: $150.00

The Court will require documentary evidence to support the following claimed expenses:

Nevada Power Bill: $1,018.49

Veterinary Care: $375.00

The Court will deny the requested expenses for two housekeepers and dog grooming, and will reduce the requests for expenses in the categories of normal wear and tear of vehicles, clothing, personal care, and entertainment.

IT IS THEREFORE ORDERED that Defendant Lisa Rizzolo may withdraw a total of $18,770.02 from her Cook Islands account to pay for attorney's fees.

IT IS FURTHER ORDERED that Defendant Lisa Rizzolo may withdraw an additional $16,419.63 from her Cook Islands account for personal living expenses.

IT IS FURTHER ORDERED that Defendant Lisa Rizzolo shall provide an affidavit attesting to the accuracy of the requested expenses within ten (10) days of the date of this Order.

IT IS FURTHER ORDERED that Defendant Lisa Rizzolo shall provide documentation to support any further requests for necessary living expenses or attorney's fees.

IT IS FURTHER ORDERED that Defendant Lisa Rizzolo shall provide an affidavit as to the accuracy of any future requested expenses.


= = = = = = = A S S E T P R O T E C T I O N = = = = = = = =

Posted by Jay D. Adkisson, a co-author along with Chris Riser of Asset Protection: Concepts & Strategies (McGraw-Hill 2003) with main website http://www.assetprotectionbook.com and blog at http://www.assetprotectionblog.com see also http://www.jayadkisson.com and http://www.risad.com

Join our LinkedIn Group on Asset Protection at http://www.linkedin.com/groups?mostPopular=&gid=3694878

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