Securities And Exchange Commission v. Faulkner et al

Brief/Memorandum in Support

N.D. Tex.December 15, 2016

IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION _______________________________________ SECURITIES AND EXCHANGE COMMISSION, § Plaintiff, § § v. § Case No.: 3:16-cv-01735-D § CHRISTOPHER A. FAULKNER, § BREITLING ENERGY CORPORATION, § JEREMY S. WAGERS, § JUDSON F. (“RICK”) HOOVER, § PARKER R. HALLAM, § JOSEPH SIMO, § DUSTIN MICHAEL MILLER RODRIGUEZ, § BETH C. HANDKINS, § GILBERT STEEDLEY, § BREITLING OIL & GAS CORPORATION, § CRUDE ENERGY, LLC, § PATRIOT ENERGY, INC., § Defendants, § § and § § TAMRA M. FREEDMAN and § JETMIR AHMEDI, § Relief Defendants. § § RELIEF DEFENDANT TAMRA M. FREEDMAN’S BRIEF IN SUPPORT OF HER MOTION TO DISMISS AND FOR SUMMARY JUDGMENT Abbe David Lowell, Bar No. 3581651DC Christopher D. Man Christopher R. Cooke CHADBOURNE & PARKE LLP 1200 New Hampshire Avenue, N.W. Washington, D.C. 20036 adlowell@chadbourne.com (202) 974-5600 (phone) (202) 974-6705 (fax) Counsel for Tamra M. Freedman Case 3:16-cv-01735-D Document 78 Filed 12/15/16 Page 1 of 29 PageID 629 i TABLE OF CONTENTS INTRODUCTION .............................................................................................................................1 STATEMENT OF FACTS ................................................................................................................1 A. Allegations In The Complaint....................................................................................1 B. Facts Concerning Ms. Freedman’s Divorce And Separation Of Assets From Mr. Faulkner.....................................................................................................2 ARGUMENT.....................................................................................................................................8 I. APPLICABLE LEGAL STANDARDS ................................................................................8 A. Legal Standard - Motions To Dismiss.......................................................................8 B. Legal Standard - Summary Judgment .......................................................................9 C. Legal Standard - Relief Defendants ..........................................................................10 II. THE SEC HAS FAILED TO ESTABLISH JURISDICTION OVER MS. FREEDMAN OR TO STATE A CLAIM AGAINST HER.........................................................................13 III. MS. FREEDMAN IS ENTITLED TO SUMMARY JUDGMENT BECAUSE SHE PROVIDED FAIR CONSIDERATION FOR THE PROPERTY CONNECTED TO HER PROPERTY SETTLEMENT AND DIVORCE....................................................................15 A. Marital Property (Community Property) Presumptively Includes All Property Acquired During Marriage, Even If Acquired Unlawfully........................................17 B. Ms. Freedman Provided Fair Consideration ..............................................................20 CONCLUSION..................................................................................................................................23 CERTIFICATION OF SERVICE......................................................................................................24 Case 3:16-cv-01735-D Document 78 Filed 12/15/16 Page 2 of 29 PageID 630 ii TABLE OF AUTHORITIES Page(s) Cases Alfonso v. United States, 752 F.3d 622 (5th Cir. 2014) .....................................................................................................9 Ashcroft v. Iqbal, 556 U.S. 662 (2009).............................................................................................................8, 14 Bonilla-Torres v. Wal-Mart Transp. LLC, 309 F. App’x. 882 (5th Cir. 2009) ...........................................................................................10 Celotex Corp. v. Catrett, 477 U.S. 317 (1986)...................................................................................................................9 CFTC v. Kimberlynn Creek Ranch, Inc., 276 F.3d 187 (4th Cir. 2002) ...................................................................................................12 CFTC v. Walsh, 17 N.Y.3d 162 (2011) ........................................................................................................17-20 CFTC v. Walsh, 618 F.3d 218 (2d Cir. 2010).........................................................................................16-17, 20 CFTC v. Walsh, 658 F.3d 194 (2d Cir. 2010)............................................................................................. passim Chhim v. Univ. of Tex. at Austin, 836 F.3d 467 (5th Cir. 2016) ...............................................................................................8, 14 Crane v. Johnson, 783 F.3d 244 (5th Cir. 2015) .....................................................................................................9 Diaz v. Kaplan Higher Ed., LLC, 820 F.3d 172 (5th Cir. 2016) .....................................................................................................9 Douglas v. Delp, 987 S.W.2d 879 (Tex. 1999)....................................................................................................18 Duffie v. United States, 600 F.3d 362 (5th Cir. 2010 ) ..................................................................................................10 FDIC v. Malin, 802 F.2d 12 (2d Cir. 1986)...........................................................................................12, 15-16 Case 3:16-cv-01735-D Document 78 Filed 12/15/16 Page 3 of 29 PageID 631 iii Flanagan v. Oberthier, 50 Tex. 379 (Tex. 1878) ..........................................................................................................19 Flores v. Koster, 2013 WL 664235 (N.D. Tex. Jan. 22, 2013) .................................................................8, 11, 13 FTC v. LeadClick Media, LLC, 2016 WL 5338081 (2d Cir. Sept. 23, 2016) ................................................................10, 12, 16 In re Hanau, 730 S.W.2d 663 (Tex. 1987)....................................................................................................18 Janvey v. Adams, 588 F.3d 831 (5th Cir. 2009) ........................................................................................... passim Janvey v. Golf Channel, Inc., 487 S.W.3d 560 (Tex. 2016)..............................................................................................19, 22 Logsdon v. Logsdon, 2015 WL 7690034 (Tex. Ct. App. Nov. 25, 2015)....................................................................6 McCray v. McCray, 584 S.W.2d 279 (Tex. 1979)....................................................................................................19 Pearson v. Friilingim, 332 S.W.3d 361 (Tex. 2011)..............................................................................................18-19 Scholes v. Lehman, 56 F.3d 750 (7th Cir. 1995) .........................................................................................12, 15-16 SEC v. Amerifirst Funding, Inc., 2008 WL 1959843 (N.D. Tex. May 5, 2008) ..........................................................................13 SEC v. Black, 163 F.3d 188 (3d Cir. 1998).....................................................................................................13 SEC v. Cherif, 933 F.2d 403 (7th Cir. 1991) .......................................................................................10-11, 15 SEC v. Colello, 139 F.3d 674 (9th Cir. 1998) ...................................................................................................10 SEC v. Contorinis, 743 F.3d 296 (2d Cir. 2014).....................................................................................................13 SEC v. Offill, 2012 WL 1138622 (N.D. Tex. Apr. 5, 2012) ......................................................................1, 11 Case 3:16-cv-01735-D Document 78 Filed 12/15/16 Page 4 of 29 PageID 632 iv SEC v. Offill, 2012 WL 246061 (N.D. Tex. Jan. 26, 2012) .......................................................................9-10 Smith v. SEC, 653 F.3d 121 (2d Cir. 2011).....................................................................................................11 Statutes V.T.C.A., Family Code § 3.002 (2015) .........................................................................................18 V.T.C.A., Family Code § 3.003 (2015) .........................................................................................18 Tex. Bus. & C. Code § 24.004(a) ..................................................................................................22 Tex. Bus. & C. Code § 24.004(d) ..................................................................................................22 Tex. Bus. & C. Code § 24.009.......................................................................................................22 Other Authorities Federal Rule of Civil Procedure 12 .........................................................................................1, 8-9 Federal Rule of Civil Procedure 56 .............................................................................................1, 9 Richard C.E. Beck, The Innocent Spouse Problem: Joint And Several Liability For Income Taxes Should Be Repealed, 43 Vand. L. Rev. 317, 403 (1990)...............................................21 Case 3:16-cv-01735-D Document 78 Filed 12/15/16 Page 5 of 29 PageID 633 1 INTRODUCTION The Securities and Exchange Commission (“SEC”) has named Tamra M. Freedman a Relief Defendant in this action and now seeks disgorgement of funds from her because it believes she obtained tainted assets from her ex-husband, Defendant Christopher Faulkner, prior to her divorce. “‘[T]he SEC may seek disgorgement from ‘nominal’ or ‘relief’ defendants who are not themselves accused of wrongdoing in a securities enforcement action where those persons or entities (1) have received ill-gotten funds, and (2) do not have a legitimate claim to those funds.’” SEC v. Offill, 2012 WL 1138622, at *2 (N.D. Tex. Apr. 5, 2012) (Fitzwater, J.) (quoting SEC v. DCI Telecomms., Inc., 122 F. Supp. 2d 495, 502 (S.D.N.Y. 2000) (citing SEC v. Cananaugh, 155 F.3d 129, 136 (2d Cir. 1998))). Ms. Freedman moves to dismiss the action against her under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) because the First Amended Complaint fails to allege that she is properly designated a Relief Defendant under both prongs of this test. Ms. Freedman also seeks summary judgement under Federal Rule of Civil Procedure 56 because there is no question that Ms. Freedman obtained the assets in question in good faith and for fair consideration through a property settlement and subsequent divorce from Mr. Faulkner. In other words, she has a legitimate claim to those funds. STATEMENT OF FACTS A. Allegations In The Complaint The First Amended Complaint (DE 22) names Ms. Freedman - Defendant Mr. Faulkner’s “ex-wife” - as merely a Relief Defendant. (DE 22 ¶ 35.) The SEC alleges that Mr. Faulkner controlled and committed securities fraud through Breitling Energy Corporation (“BECC”) and Breitling Oil and Gas Corporation (“BOG”). (Id. ¶¶ 2-3.) Specifically, the SEC alleges: “[I]n 2014 (prior to their divorce), Faulkner transferred at least $2.5 million to accounts in Freedman’s Case 3:16-cv-01735-D Document 78 Filed 12/15/16 Page 6 of 29 PageID 634 2 name. While some of these funds were ultimately returned to Faulkner’s accounts at a later date, more than $1.8 million of these funds were never returned.” (Id. ¶ 101; see also id. ¶ 35 (“During the relevant time period, Freedman received more than $1.8 million in funds from BOG and BECC.”).) The SEC also states the legal conclusion that Ms. Freedman and fellow Relief Defendant, Jetmir Ahmedi, “have no legitimate claims to these funds that they received, or from which they otherwise benefitted directly or indirectly.” (Id.; see id. ¶ 202.) The SEC seeks disgorgement from Ms. Freedman of this $1.8 million. (Id. ¶ 203.) In making these claims, the SEC does not allege that Ms. Freedman continues to retain any of the supposedly tainted funds. In addition, despite the SEC’s awareness that Ms. Freedman subsequently divorced Mr. Faulkner, the SEC makes no effort to address the legitimacy of whatever assets she lawfully obtained through her divorce and separation of assets from Mr. Faulkner. Even if Mr. Faulkner had contributed tainted assets to the marital estate and those assets are now in Ms. Freedman’s possession, as explained below, any taint would have been removed when Ms. Freedman divided the marital estate with her ex-husband in good faith and for fair consideration. B. Facts Concerning Ms. Freedman’s Divorce And Separation Of Assets From Mr. Faulkner Ms. Freedman and Mr. Faulkner married in November 2007. Their marriage later became strained, and they executed a post-nuptial “agreement between spouses” on October 14, 2013. (App. 13-30.) They subsequently separated when Ms. Freedman asked Mr. Faulkner not to come home in June 2014, and Ms. Freedman moved to be closer to her family in California in December 2014 (she moved back to Texas in August 2016). (App. 4-5 ¶¶ 12-14.) Their already-strained relationship devolved quickly upon Ms. Freedman initiating the separation, and their divorce and division of assets became contentious. (App. 4-5 ¶¶ 12-15.) Case 3:16-cv-01735-D Document 78 Filed 12/15/16 Page 7 of 29 PageID 635 3 They began formally separating their assets through a “Partition/Exchange Agreement for Specific Property” on August 13, 2014 (App. 5 ¶ 15, 71-82), and a later “Partition/Exchange Agreement for Specific Property” dated November 20, 2014 (App. 5 ¶ 15, 83-96). Following mediation, a final division of assets was mutually agreed to, with legal representation, through an “Agreement Incident to Divorce” dated December 15, 2015, and made effective as of September 17, 2015. (App. 5 ¶ 15, 148-69.) A “Final Decree of Divorce” was ordered by a Texas district court on January 8, 2016, and the order adopted the 2015 Agreement Incident to Divorce in full. (App. 5 ¶ 15, 170-78.) The Complaint alleges that the transfer of disputed assets from Mr. Faulkner to Ms. Freedman occurred “in 2014” (DE 22 ¶ 101), presumably before their separation and the execution of documents separating their assets, and certainly before the final division of assets under the Agreement Incident to Divorce and subsequent Decree. The SEC does not contest that Ms. Freedman had no knowledge of Mr. Faulkner obtaining any property through fraud during their marriage, and she did not even know that the SEC suspected him of any wrongdoing until she was contacted by the SEC around May 2016. (App. 3-4 ¶ 9.) Additionally, no enforcement action was taken against her until the FBI seized her Range Rover on June 24, 2016. (App. 3-4 ¶ 9.) Thus, Ms. Freedman did not have reason to know that Mr. Faulkner was even suspected of fraud until several months after her divorce was final, and nearly three years after she and Mr. Faulkner had formally begun separating their assets. Nor did Ms. Freedman have any reason to believe that any of the property she would obtain through divorce proceedings were obtained by fraud. The SEC has not claimed that Ms. Freedman’s financial contributions to the marital estate were fraudulent, nor has the SEC claimed that Mr. Faulkner’s income stream from the many sources outside the fracking industry Case 3:16-cv-01735-D Document 78 Filed 12/15/16 Page 8 of 29 PageID 636 4 were fraudulently obtained. Additionally, Mr. Faulkner represented in the 2013 Agreement that the agreement was made “without the intention to defraud or prejudice preexisting creditors.” (App. 13 ¶ 2.) In Section 2.5 of both of the 2014 Partition/Exchange Agreements, Mr. Faulkner represented that the property (mostly money) conveyed to Ms. Freedman “will be free of all claims” that then existed or that “may arise following the execution of the Agreement.” (App. 73, 84-85.) In Section 3.1 of both Partition/Exchange Agreements, Ms. Freedman obtained “the full, free, and unrestricted right to manage the property” she obtained. (App. 73-74, 85.) Thus, Ms. Freedman did not hold the assets she obtained through these agreements in any “custodial” capacity for Mr. Faulkner - this was her property and she had no reason to believe any of it was obtained fraudulently. The same is true of the 2015 Agreement Incident to Divorce and January 2016 Decree, which clearly followed any prior transfer of property from Mr. Faulkner to her in 2014. The 2015 Agreement Incident to Divorce provided that the assets Ms. Freedman received were “her sole and separate property.” (App. 152-53 Sec. B.) Demonstrating that Ms. Freedman was unaware of any fraud involving BECC, Ms. Freedman negotiated to obtain $1,000,000 in BECC stock upon the date of the divorce and, if the price of BECC increased in the future, she could receive additional shares. (App. 155-56 ¶ 1.3.) If Ms. Freedman had believed that BECC had engaged in securities fraud and would face an enforcement action by the SEC, Ms. Freedman certainly would have sought a very different division of assets, one that would not tie her financial future to BECC stock. In any event, Mr. Faulkner immediately breached his obligation to provide this stock under the Decree. Although BECC stock was trading for value at the time of the divorce, Mr. Faulkner never delivered the $1,000,000 in BECC stock to Ms. Freedman. Similarly, the 2015 Case 3:16-cv-01735-D Document 78 Filed 12/15/16 Page 9 of 29 PageID 637 5 Agreement also assigned Ms. Freedman the right to repayment of a $250,000 loan Mr. Faulkner had provided Mr. Hajardi. (App. 157-58 ¶ 1.6.) Although Mr. Hajardi apparently repaid that debt to Mr. Faulkner, Mr. Faulkner never transferred that payment to Ms. Freedman. (App. 6 ¶ 19.) Additionally, the 2015 Agreement obligated Mr. Faulkner to pay Ms. Freedman’s monthly rent of $5,000 per month for 36 consecutive months. (App. 156-57 ¶ 1.4.) Mr. Faulkner failed to make any of those payments. (App. 6 ¶ 18.) In April 2016 (prior to the SEC’s proceedings), Ms. Freedman initiated enforcement proceedings against Mr. Faulkner to obtain this and other property that Mr. Faulkner failed to convey. (App. 6 ¶ 20, 179-85.) Mr. Faulkner also expressly agreed to indemnify Ms. Freedman for any debt or liability, including any action by Mr. Faulkner concerning his “dealings with Breitling Energy Corporation, Breitling Royalties Corporation, Breitling Oil and Gas Corporation or any other interest in which Husband has an interest.” (App. 163-64 ¶ 4.4.) The Decree approves the 2015 Agreement Incident to Divorce (App. 171-72 ¶ 5), and contains its own indemnification provision with respect to any debt by one former spouse that burdens the other (App. 173-74 ¶ 13). Mr. Faulkner has not honored this indemnification obligation with respect to this litigation either. Nor can there be any doubt that Ms. Freedman provided substantial consideration as part of her divorce and the related separation of assets.1 Each of the agreements provided Mr. Faulkner with a substantial portion of the marital community property. The 2015 Agreement 1 With respect to the Ranger Rover seized from Ms. Freedman by the FBI, the 2015 Agreement Incident to Divorce awarded that vehicle to Ms. Freedman. (App. 152-53 § 1.1.B.w-6.) In the November 2014 Partition/Exchange Agreement, Ms. Freedman and Mr. Faulkner divided holdings in two Bank of America accounts equally, except that an additional $50,000 of those funds was awarded to Mr. Faulkner. Identical notations appear on Schedules A and B addressing the property of each note: “This 50,000 to C.A.F. is in consideration for the Range Rover motor vehicle C.A.F. purchased for T.M.F.” (App. 95-96.) Case 3:16-cv-01735-D Document 78 Filed 12/15/16 Page 10 of 29 PageID 638 6 Incident to Divorce incorporated into the Decree lists extensive assets provided to Mr. Faulkner, including their home (Inwood Residence); cash; the then-existing stock in BECC and BOGG; the entire interest in 28 other companies (as opposed to new stock in BECC that would be issued to Ms. Freedman), including Grand Mesa Investments, Inc.; a valuable Rolex watch; and a new 2014 Mercedes S63 AMG, a new 2014 Range Rover (different from Ms. Freedman’s Range Rover) and a 2006 Bentley Flying Spur. (App. 148-51 § 1.1.A, 160-61 § 1.11.) The two 2014 Partition/Exchange Agreements also gave Mr. Faulkner a pricey new 2014 McLaren MP4 sports car and the couple split the cash in various accounts roughly 50/50. (App. 81-82, 95-96.) All the Agreements also reflect that Ms. Freedman was giving up valuable rights. The two 2014 Partition/Exchange Agreements required Ms. Freedman to acknowledge that she may be surrendering rights she may otherwise have pursuant to these Agreements. (App. 78, 91.) In particular, Ms. Freedman gave up any claim to alimony, support or maintenance, and her right to engage in discovery of Mr. Faulkner’s assets in the 2015 Agreement Incident to Divorce (even though she suspected he may have concealed assets, which he apparently did as to the loan amount due from Mr. Hajardi). (App. 161 ¶ 2.1, 165 ¶ 4.9, 6 ¶ 19.) The Texas court that approved the divorce found that this was an arms-length “mediated settlement agreement between the parties,” who were both represented by counsel, and “that the division of property . . . is also fair and equitable to both Petitioner [Ms. Freedman] and Respondent [Mr. Faulkner].” (App. 171-72 ¶ 5, 172-73 10; see also Logsdon v. Logsdon, 2015 WL 7690034, at *8 (Tex. Ct. App. Nov. 25, 2015) (“Community property does not have to be divided equally.”).) There is no reason for this Court to second-guess the Texas court’s finding that the division of assets in the divorce was “fair and equitable” because Ms. Freedman had contributed substantially to the couple’s marital estate during their marriage. Most notably, Ms. Freedman Case 3:16-cv-01735-D Document 78 Filed 12/15/16 Page 11 of 29 PageID 639 7 worked in several different capacities during the marriage to contribute to their marital estate, including income and assets transferred into Grand Mesa Investments, Inc. (“Grand Mesa”), an entity that was granted in its entirety to Mr. Faulkner under the Agreement Incident to Divorce and subsequent Decree. She was the Director of Marketing at Divertirse in Dallas from the time they were married in 2007 through May 2009. (App. 2 ¶ 6.) Divertirse was the holding company for the couple’s nightclub, Lotus, and the funds from that business were transferred into Grand Mesa. Ms. Freedman then served as a Field Marketing Manager at Trend Micro from May 2009 through August 2011, earning between roughly $90,000 - $94,000 per year. Her paychecks from Trend Micro were deposited into Grand Mesa. (App. 2-3 ¶ 7.) Ms. Freedman later went to work part-time with her then-husband at BECC, from October 2011 through August 2014, as both a Marketing Consultant and a Personal Assistant to Mr. Faulkner in his capacity as CEO. (App. 3 ¶ 8.) Because Ms. Freedman was essentially working for herself, at a company largely owned by her and her husband, Ms. Freedman did not draw a salary. But her work for BECC contributed substantially to its profitability and resulting contributions to the assets and income of Grand Mesa. In addition to the direct and indirect value of her employment, Ms. Freedman also contributed to the marital property by selling two investment houses under her own name. In September 2013, she purchased a home in Dallas, Texas. (App. 4 ¶ 10, 7-12). After a total investment of roughly $396,261 into the property, including renovations and marketing, Ms. Freedman sold the home in February 2014 for a profit margin of $28,739. (App. 4 ¶ 10, 42, 65- 70.) In December 2013, she purchased another investment home in Los Angeles, California. (App. 4 ¶ 11, 31-32.) After a total investment of $982,464 into the Los Angeles home, Ms. Freedman sold the property in February 2015 for a profit margin of $82,536. (App. 4 ¶ 11, 106, Case 3:16-cv-01735-D Document 78 Filed 12/15/16 Page 12 of 29 PageID 640 8 145-47.) The profits Ms. Freedman earned on the sales of these homes, like the direct and indirect value of her employment engagements, contributed to the total marital property that was divided through the divorce proceedings. ARGUMENT I. APPLICABLE LEGAL STANDARDS A. Legal Standard - Motions To Dismiss Federal Rule of Civil Procedure 12(b)(1) permits the Court to dismiss for “lack of subject matter jurisdiction” and Rule 12(b)(6) permits the Court to dismiss for “failure to state a claim upon which relief can be granted.” In applying these Rules, the Fifth Circuit explained: “We take the well-pleaded factual allegations in the complaint as true, but we do not credit conclusory allegations or allegations that merely restate the legal elements of a claim.” Chhim v. Univ. of Tex. at Austin, 836 F.3d 467, 469 (5th Cir. 2016). “A pleading that offers ‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of action will not do.” Ashcroft v. Iqbal, 556 U.S. 662, 677 (2009) (quoting Bell Atlantic Corp. v. Twombley, 550 U.S. 544, 555 (2007)). “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not ‘show[n]’ - that the pleader is entitled to relief.’” Id. (quoting F.R.C.P. 8(a)(2)). The complaint must allege “more than a sheer possibility that a defendant has acted unlawfully.” Id. Consequently, “pleadings must show specific, wellpleaded facts, not merely conclusory allegations to avoid dismissal.” Flores v. Koster, 2013 WL 664235, at *1 (N.D. Tex. Jan. 22, 2013). As to the Rule 12(b)(1) jurisdictional claims, “a trial court ‘has the power to dismiss for lack of subject matter jurisdiction on any one of three separate bases; (1) the complaint alone; (2) the complaint supplemented by undisputed facts evidenced in the record; or (3) the complaint Case 3:16-cv-01735-D Document 78 Filed 12/15/16 Page 13 of 29 PageID 641 9 supplemented by undisputed facts plus the court’s resolution of disputed facts’” Crane v. Johnson, 783 F.3d 244, 251 (5th Cir. 2015) (quoting Wolcott v. Sebelius, 635 F.3d 757, 762 (5th Cir. 2011)). “The burden of proof for a Rule 12(b)(1) motion to dismiss is on the party asserting jurisdiction.” Alfonso v. United States, 752 F.3d 622, 625 (5th Cir. 2014). B. Legal Standard - Summary Judgment Federal Rule of Civil Procedure 56(a) provides: “The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” A party moving for summary judgment will prevail if “the non-moving party has failed to make a sufficient showing on an essential causal element of [its] case with respect to which [it] has the burden of proof.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). In this case, “the SEC will have the burden of proof at trial on its claims against the defendants and relief defendants,” and “[w]hen a party moves for summary judgment on a claim for which the opposing party will bear the burden of proof at trial, the moving party can meet his or its summary judgment obligation by pointing the court to the absence of admissible evidence to support the opposing party’s claim. Once the moving party does so, the opposing party must go beyond its pleadings and designate specific facts showing that there is a genuine issue for trial.” SEC v. Offill, 2012 WL 246061, at *2 (N.D. Tex. Jan. 26, 2012) (Fitzwater, J.) “[T]he party opposing summary judgment is required to identify specific evidence in the record and to articulate the precise manner in which that evidence supports his or her claim.” Diaz v. Kaplan Higher Ed., LLC, 820 F.3d 172, 176 (5th Cir. 2016) (quoting Ragas v. Tenn. Gas Pipeline Co., 136 F.3d 455, 458 (5th Cir. 1998) (emphasis in Diaz). “This burden is not satisfied with ‘some metaphysical doubt as to the material facts,’ by ‘conclusory allegations,’ by ‘unsubstantiated assertions,’ or by ‘only a “scintilla” of evidence.’” Duffie v. Case 3:16-cv-01735-D Document 78 Filed 12/15/16 Page 14 of 29 PageID 642 10 United States, 600 F.3d 362, 371 (5th Cir. 2010 ) (quoting Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994) (en banc)). This burden is particularly heavy when there is a presumption in favor of the movant, which is the situation in this case. See, e.g., Bonilla-Torres v. Wal-Mart Transp. LLC, 309 F. App’x. 882, 883 (5th Cir. 2009). “Summary judgment is mandatory if the opposing party fails to meet this burden.” Offill, 2012 WL 246061, at *2. C. Legal Standard - Relief Defendants Ms. Freedman’s involvement in this litigation is quite limited, as she has only been named as a relief defendant. “A relief defendant (sometimes referred to as a nominal defendant) may be joined to aid the recovery of relief and has no ownership interest in the property which is the subject of litigation.” Cavanaugh, 445 F.3d at 109 n.7. This is a “rather obscure common law concept.” SEC v. Cherif, 933 F.2d 403, 414 (7th Cir. 1991). A relief defendant is simply someone who has “possession of the funds which are the subject of litigation,” but “has no interest in the property.” Id. at 414 & n.14. A relief defendant “has only a custodial claim to the property.” SEC v. Colello, 139 F.3d 674, 677 (9th Cir. 1998). Thus, the Fifth Circuit has identified “the ‘paradigmatic’ nominal defendant” as “a trustee, agent or depository.” Janvey v. Adams, 588 F.3d 831, 835 (5th Cir. 2009); see also FTC v. LeadClick Media, LLC, 2016 WL 5338081, at *15 (2d Cir. Sept. 23, 2016) (“The typical relief defendant ‘is a bank or trustee, which has only a custodial claim’ to the subject matter of the litigation.” (quoting Colello, 139 F.3d at 676); Cherif, 933 F.2d at 403 (suggesting the only nominal defendants are a “trustee, agent or depositary”). From a jurisdictional standpoint, [a] nominal defendant is not a real party in interest. . . . [Her] relation to the suit is merely incidental and ‘it is of no moment [to her] whether the one or the other side in [the] controversy succeed[s].’ Because of the non-interested status of the nominal defendant, there is no claim against [her] and it is unnecessary to obtain subject matter jurisdiction over [her] once jurisdiction over the defendant is established. Case 3:16-cv-01735-D Document 78 Filed 12/15/16 Page 15 of 29 PageID 643 11 Cherif, 933 F.2d at 414 (internal citations omitted); see also id. at 414-15 (explaining the SEC cannot pursue “contradictory theories of recovery at once” by alleging someone is merely a nominal defendant “while at the same time implying that [the nominal defendant] is a violator of the securities laws”). Thus, “[a] ‘nominal defendant’ is a person who can be joined to aid the recovery of relief without an additional assertion of subject matter jurisdiction only because [she] has no ownership interest in the property which is the subject of litigation.” Janvey, 588 F.3d at 834 (quoting CFTC v. Kimberlynn Creek Ranch, Inc., 276 F.3d 187, 191-92 (4th Cir. 2002)). The Fifth Circuit and this Court have adopted a test for determining when equitable relief can properly be obtained against a named relief defendant. “A relief defendant is not accused of wrongdoing, but a federal court may order equitable relief against such a person where the person (1) has received ill-gotten funds, and (2) does not have a legitimate claim to those funds.” Janvey v. Adams, 588 F.3d 831, 834 (5th Cir. 2009); see Offill, 2012 WL 1138622, at *2 (Fitzwater, J.). “The plaintiff bears the burden of proving that a party is properly joined as a nominal defendant.” Flores v. Koster, 2013 WL 664235, at *2 (N.D. Tex. Jan. 22, 2013) (citing Colello, 139 F.3d at 677 (“[T]he creditor plaintiff must show that the nominal defendant has received ill gotten funds and that he does not have a legitimate claim to those funds.”) (emphasis in original)); see, e.g., Smith v. SEC, 653 F.3d 121, 128 (2d Cir. 2011). Under the second prong of this test, the Fifth Circuit has explained: “The jurisprudence requires only an ‘ownership interest’ to preclude an entity from being a proper relief defendant.” Janvey, 588 F.3d at 834. Even when a named relief defendant has received tainted assets, relief defendants have defeated creditors’ claims in numerous contexts based on claims of “a sufficient legitimate ownership interest.” Id. at 835 (rejecting receiver’s claims in a case brought by the SEC against relief defendants who obtained tainted bank funds “pursuant to written certificate of Case 3:16-cv-01735-D Document 78 Filed 12/15/16 Page 16 of 29 PageID 644 12 deposit agreements with the Stanford Bank, which granted them certain rights and obligations,” and thereby established “a debtor-creditor relationship. . . well before the underlying SEC enforcement action”); see LeadClick, 2016 WL 5338081, at *15-16 (holding named relief defendants were not appropriate relief defendants because “[a]n outstanding loan from a relief defendant constitutes valuable consideration, giving rise to a ‘legitimate claim’ to repayment of the outstanding amount of principal and accrued interest. . . . [e]ven without the formalities of an arm’s length loan agreement”); Kimberlynn Creek, 276 F.3d at 192 (“Receipt of funds as payment for services rendered to an employer constitutes one type of ownership interest and would preclude proceeding against the holder of the funds as a nominal defendant.”). Significant to this motion, a relief defendant’s claim to having obtained a recognized ownership interest in disputed funds through divorce proceedings will defeat the SEC’s claims. CFTC v. Walsh, 658 F.3d 194, 198-99 (2d Cir. 2010) (rejecting CFTC’s claim against a defendant’s ex-wife as a relief defendant because she obtained the assets through a divorce that cleansed the taint of the funds); Scholes v. Lehman, 56 F.3d 750, 755 (7th Cir. 1995) (noting an ex-wife named as a relief defendant could defeat some claims if she could “show that some of the transfers made to her were supported by consideration in the form of a discharge of [her husband’s] legal obligations to her - obligations of child support and the like arising from their divorce”); see also FDIC v. Malin, 802 F.2d 12, 20 (2d Cir. 1986) (shielding assets of wife obtained through a separation agreement against claims of a fraudulent conveyance by husband). “[T]here is a presumption in favor of fair consideration” being exchanged when assets are divided between divorcing spouses as part of a judicially-approved divorce decree. Walsh, 658 F.3d at 198. This Court has characterized a relief defendant’s claims to having believed they acquired the disputed funds Case 3:16-cv-01735-D Document 78 Filed 12/15/16 Page 17 of 29 PageID 645 13 legitimately and for consideration as “a good faith defense.” SEC v. Amerifirst Funding, Inc., 2008 WL 1959843, at *5 (N.D. Tex. May 5, 2008) (Fitzwater, J.).2 II. THE SEC HAS FAILED TO ESTABLISH JURISDICTION OVER MS. FREEDMAN OR TO STATE A CLAIM AGAINST HER The SEC’s complaint fails to establish jurisdiction over Ms. Freedman or to state a claim against her. As a relief defendant, the SEC can only establish jurisdiction over her if it can demonstrate that she is a proper relief defendant. See, e.g., SEC v. Black, 163 F.3d 188, 196-97 (3d Cir. 1998) (Alito, J., on panel) (affirming the lifting of an asset freeze because “the court lacked power over. . . the funds of innocent investors”). To state a claim against Ms. Freedman as a relief defendant, the SEC would have to allege that she “(1) has received ill-gotten funds, and (2) does not have a legitimate claim to those funds.” Janvey, 588 F.3d at 834. The SEC has failed under both prongs of that test. As to the first prong, the Complaint is no better than in Koster, where this Court dismissed a similarly situated relief defendant. 2013 WL 664235, at *3. There, “Plaintiffs have alleged that another defendant transferred funds into his business account with Defendant. 2 Importantly, even where “innocent parties (‘relief defendants’) may be ordered to disgorge the proceeds generated by the illegal conduct[,] imposing such liability upon innocent third parties is elective rather than mandatory.” SEC v. Contorinis, 743 F.3d 296, 304 n.4 (2d Cir. 2014). Disgorgement is an equitable remedy and its “paramount purpose . . . is to make sure that wrongdoers will not profit from their wrongdoing.” Id. at 301 (quoting SEC v. Tome, 833 F.2d 1086, 1096 (2d Cir. 1987)). Because that purpose is not served by punishing innocent relief defendants, courts can instead order the actual wrongdoer to disgorge gains obtained by relief defendants. Id. at 302. There are many circumstances in which a relief defendant, “though unjustly enriched, may have been unaware of any wrongdoing,” and equity would not favor ordering disgorgement against a relief defendant. Id. at 304 n.4. For example, a relief defendant may consume an expensive gifted meal or bottle of wine they would not otherwise have consumed, or spent gifted money in a way they would not have otherwise spent it. Forcing an innocent third-party to repay those costs through disgorgement would be inequitable, and be potentially burdensome. By contrast, it is less likely to be inequitable to order a relief defendant to disgorge a gift like jewelry, where disgorgement of the gift can be made in a way that will leave the relief defendant no worse off than if the gift had never been made. Case 3:16-cv-01735-D Document 78 Filed 12/15/16 Page 18 of 29 PageID 646 14 Nowhere in their amended complaint do they allege that those funds are still in Defendant’s possession . . .” Id. (Carrillo Ramirez, M.J.). The Court granted the motion to dismiss due to “the absence of specific factual allegations meeting the threshold requirements for invoking the nominal defendant mechanism,” and “Plaintiffs have failed to demonstrate that Defendant has been properly named as a nominal defendant in this case.” Id. Here, the SEC alleges only that in 2014 Mr. Faulkner transferred assets “to accounts in Freedman’s name,” while they were still married. (DE 22 ¶ 101.) The SEC does not allege that Ms. Freedman still has possession of the funds her then-husband transferred into their joint accounts or accounts with her name years ago. The SEC does not address what happened to these assets when there was a division of assets between Ms. Freedman and Ms. Faulkner, nor does the SEC address whether Mr. Faulkner (who allegedly deposited these assets) had removed the assets from these accounts prior to the divorce. Thus, the SEC has identified no more than a “mere possibility” of a claim, which the Supreme Court has deemed inadequate. Iqbal, 556 U.S. at 677. As to the second prong, the SEC merely alleges a legal conclusion that Ms. Freedman has “no legitimate claims to these funds.” (DE 22 ¶ 101; see id. ¶ 201 (“no legitimate claims to such funds”). But courts “do not credit conclusory allegations or allegations that merely restate the legal elements of a claim.” Chhim, 836 F.3d at 469. This is especially so when the overall circumstances (here, for example, known divorce proceedings) indicate the bare conclusion to be wrong. Moreover, the Complaint itself notes that the alleged asset transfer occurred “prior to their divorce,” but makes no further mention of the impact the divorce had on the legitimacy of any assets that Ms. Freedman retained. (DE 22 ¶ 101.) Because transfers made pursuant to the division of assets through a divorce “are presumed to have been made for fair consideration,” even where one spouse obtained a tainted asset that is transferred to the other, “a divorce decree Case 3:16-cv-01735-D Document 78 Filed 12/15/16 Page 19 of 29 PageID 647 15 may cleanse such a taint, at least where the innocent spouse acts in good faith and gives fair consideration.” Walsh, 658 F.3d at 198; see also Scholes, 56 F.3d at 755; Malin, 802 F.2d at 20. The SEC has not alleged anything that would overcome the presumption that all assets Ms. Freedman obtained under the Agreement Incident to Divorce were received in return for “fair and equitable” consideration (App. 172-73 ¶ 10), or that would cast doubt upon her good faith. Moreover, the Court can go beyond the face of the Complaint itself and consider the evidence Ms. Freedman has submitted with this motion to substantiate her good faith defense. III. MS. FREEDMAN IS ENTITLED TO SUMMARY JUDGMENT BECAUSE SHE PROVIDED FAIR CONSIDERATION FOR THE PROPERTY CONNECTED TO HER PROPERTY SETTLEMENT AND DIVORCE Ms. Freedman is a far cry from the typical relief defendant - someone serving as merely “a trustee, agent or depository.” Janvey, 588 F.3d at 835. She certainly is not of a “non- interested status,” where it is of “no moment” to her who should obtain the property the SEC seeks. Cherif, 933 F.2d at 414. Ms. Freedman cares a great deal about what happens to the funds that the SEC seeks from her because they are her funds, and funds that are critical to her financial security. Because there should be no dispute that whatever assets Ms. Freedman obtained through her divorce were obtained by her in good faith and for fair consideration, she is entitled to summary judgment. The SEC does not allege any wrongdoing on Ms. Freedman’s part, nor does it even allege that she was aware of wrongdoing by her then-husband when she received her share of assets - whether sometime in 2014 or upon her divorce. To be sure, Mr. Faulkner has denied the allegations against him (DE 70), and Ms. Freedman had no reason to believe anyone suspected him of wrongdoing until the SEC contacted her around May 2016. (App. 3-4 ¶ 9.) Case 3:16-cv-01735-D Document 78 Filed 12/15/16 Page 20 of 29 PageID 648 16 The SEC cannot meet its burden of proving Ms. Freedman is properly designated a relief defendant, as that standard is not easily met. “The jurisprudence requires only an ‘ownership interest’ to preclude an entity from being a proper relief defendant.” Janvey, 588 F.3d at 834. Assets obtained by a spouse through separation agreements and related divorce proceedings provide just such a legitimate ownership interest. See Walsh, 658 F.3d at 198-99 (2d Cir. 2010); Scholes, 56 F.3d at 755; Malin, 802 F.2d at 20. Moreover, “there is a presumption in favor of fair consideration” in such agreements, and the SEC would have to marshal evidence to overcome that presumption. Walsh, 658 F.3d at 198. The SEC has none. The divorce decree and related asset separation agreements between Ms. Freedman and Mr. Faulkner were negotiated at arm’s length by counsel in contested proceedings, and they speak for themselves. See also LeadClick, 2016 WL 5338081, at *15-16 (“[e]ven without the formalities of an arm’s length loan agreement” the agreement defeated claims against a relief defendant). Ms. Freedman and Mr. Faulkner both contributed assets to the marital estate, including whatever assets Mr. Faulkner contributed in 2014, and those assets were divided in a manner that a Texas court has already found to be “fair and equitable.” The Second Circuit’s decision in Walsh - which relied heavily upon the Fifth Circuit’s decision in Janvey - is instructive. Walsh explained: “We agree with [the ex-wife] that if she received her assets only when they were transferred to her pursuant to the separation agreement and if she is a good faith purchaser for value, then her assets are immune from disgorgement. District courts may only require disgorgement of the assets of a relief defendant upon a finding that she lacks a ‘legitimate claim.’” CFTC v. Walsh, 618 F.3d 218, 226 (2d Cir. 2010) (citing Janvey, 588 F.3d at 834 & 835 n.2). The Second Circuit certified two questions to the New York Court of Appeals, one asking whether marital property included proceeds of fraud, and the Case 3:16-cv-01735-D Document 78 Filed 12/15/16 Page 21 of 29 PageID 649 17 second asking about determining fair consideration in divorce proceedings. Id. at 231-32. The New York Court of Appeals answered those questions in the ex-wife’s favor, CFTC v. Walsh, 17 N.Y.3d 162 (2011), and the Second Circuit then held the ex-wife was inappropriately designated a relief defendant, Walsh, 658 F.3d at 199. The New York Court of Appeals answered the certified questions under New York law in a similar manner to how Texas courts have construed Texas law. A. Marital Property (Community Property) Presumptively Includes All Property Acquired During Marriage, Even If Acquired Unlawfully First, Walsh held that New York law “does not require that property be segregated by its method of acquisition,” whether that method is legal or fraudulent, but instead cares only that “a person gains possession” of the property. 17 N.Y.3d at 172 (quoting Black’s Law Dictionary definition of “acquired”). New York law also presumes all property acquired during a marriage is marital property, unless it is clearly separate property. Id. Thus, all property acquired during a marriage, however it was acquired, is presumptively marital property. Id. As the Second Circuit explained, the New York court answered this question “unambiguously and unanimously” in favor of the ex-wife, such that she was entitled to keep the assets as she was “a bona fide purchaser for value given the terms of the separation agreement and divorce.” 658 F.3d at 197. Even with regard to fraudulently acquired marital property, the Second Circuit noted, “a divorce decree may cleanse such taint, at least where the innocent spouse acts in good faith and gives fair consideration.” Id. at 198. On this question, Texas law tracks New York law virtually verbatim, except that Texas calls “community property” what New York calls “marital property.” Like New York, Texas recognizes two classes of property: community property (marital property) and separate property. “Community property consists of the property, other than separate property, acquired Case 3:16-cv-01735-D Document 78 Filed 12/15/16 Page 22 of 29 PageID 650 18 by either spouse during marriage,” and “[p]roperty possessed by either spouse during or on dissolution of marriage is presumed to be community property.” V.T.C.A., Family Code §§ 3.002 & 3.003 (2015); see also Walsh, 17 N.Y.3d at 170 (quoting New York’s statutory definition of marital property as “all property acquired by either or both spouses during the marriage and before the execution of a separation agreement or the commencement of a matrimonial action”) (citing Domestic Restatement Law § 236). There is no reason to believe Texas would construe the word “acquired” any differently than the New York Court of Appeals, or standard dictionaries, in the same context. To the contrary, Texas case law does not distinguish community property based on how property was obtained, but broadly states that “[a]ll property acquired during a marriage is presumed to be community property.” Pearson v. Friilingim, 332 S.W.3d 361, 364 (Tex. 2011); see, e.g., Douglas v. Delp, 987 S.W.2d 879, 883 (Tex. 1999) (“[C]ommunity property under Texas law consists of all property either spouse acquired during the marriage ‘other than separate property.’”); In re Hanau, 730 S.W.2d 663, 667 (Tex. 1987) (“[A]ll property at the time of dissolution of the marriage is presumed community property.”). Like New York law, Texas law cares only that someone acquires or gains possession of the property. In Walsh, the CFTC argued that stolen funds should be an exception from the concept of marital property, so that such funds could be returned to their rightful owner. 17 N.Y.3d at 172. New York rejected that argument because it has a “rule favoring innocent transferees of stolen funds over defrauded owners [that] is rooted in New York’s ‘concern for finality in business transactions.’” Id. (citation omitted). New York, like most states, has long reflected that an innocent purchaser for valuable consideration can retain property that was previously obtained through fraud. Id. Case 3:16-cv-01735-D Document 78 Filed 12/15/16 Page 23 of 29 PageID 651 19 Again, Texas law is no different. Texas construes a community property settlement contained in a divorce decree “as if it were a contract between the parties and the interpretation thereof is governed by the law relating to contracts, rather than laws relating to judgments.” McCray v. McCray, 584 S.W.2d 279, 281 (Tex. 1979) (citations omitted). Like New York law, Texas law seeks to prevent fraudulent transfers, “but it also protects transferees ‘who took in good faith and for reasonably equivalent value.’” Janvey v. Golf Channel, Inc., 487 S.W.3d 560, 574 (Tex. 2016) (quoting Tex. Bus. & C. Code § 24.009). For well over a century in Texas, “[t]he principle is well settled that a bona-fide purchaser of a legal title is not affected by any latent equity founded on trust, fraud, or otherwise, of which he had not notice.” Flanagan v. Oberthier, 50 Tex. 379, 383 (Tex. 1878). Walsh also found that these same concerns “are relevant in the matrimonial realm. Ex- spouses have a reasonable expectation that, once their marriage has been dissolved and their property divided, they will be free to move on with their lives.” 17 N.Y.3d at 173. The Texas Supreme Court has similarly been careful not to “undermine the finality of divorce decrees” or to extend “invitations to relitigate property divisions that former spouses now dislike.” Pearson, 332 S.W.2d at 364. Ms. Freedman is entitled to the same freedom to move on with her life. She and her ex- husband divided all their community property with the approval of a Texas court and through arm’s length mediation by counsel. No innocent spouse under such circumstances should have to worry that, at some indefinite point in the future, someone could seek to disgorge the assets that spouse obtained through a court-sanctioned divorce by claiming that person’s ex-spouse had obtained the property unlawfully years earlier. Like any other innocent purchaser for value, Ms. Freedman should have confidence that courts will respect her property rights. Case 3:16-cv-01735-D Document 78 Filed 12/15/16 Page 24 of 29 PageID 652 20 B. Ms. Freedman Provided Fair Consideration Walsh demonstrates that Ms. Freedman provided fair consideration, as the ex-wife in Walsh was able to establish fair consideration under far less favorable facts. In Walsh, the CFTC challenged whether the ex-wife provided fair consideration for the property she obtained during the divorce. The ex-wife “did not have outside employment during the marriage.” 17 N.Y.3d at 168. The CFTC claimed that all the marital property was obtained by the husband through fraud, such that any consideration from the ex-wife was “illusory” because she only bargained for fraudulently-obtained assets with other fraudulently-obtained assets - all drawn from a pool of thoroughly tainted assets to which she had never contributed. Id.; see also Walsh, 618 F.3d at 230 (certifying the question because it was “uncertain whether. . . a spouse pays fair consideration by relinquishing in good faith claims to funds in which she in fact has no legitimate interest”). The New York court answered that if “the spouse relinquished rights to other untainted assets in the marital estate,” that “[c]learly . . . would constitute fair consideration.” 17 N.Y.3d at 175. The court also said the fair consideration requires inquiry beyond the tangible marital property, as a release for “a claim for maintenance,” or “child support,” or “visitation concessions,” or “the waiver of inheritance rights and the relinquishment of other” rights may constitute fair consideration. Id. at 175-76. And this is true “even where the bulk of a marital estate consists of ill-gotten gains.” Id. at 176. Additionally, “transfers made pursuant to a valid separation agreement incorporated into a divorce decree are presumed to have been made for fair consideration.” Id. (citation omitted). As a factual matter, there is no place for the SEC to make the sort of argument against Ms. Freedman that the CFTC made in Walsh. This is not a situation where anybody could Case 3:16-cv-01735-D Document 78 Filed 12/15/16 Page 25 of 29 PageID 653 21 maintain the entirety of the community property was tainted. While the SEC maintains that some of the profits made by Mr. Faulkner were obtained through fraud, it has not claimed that the entirety of what he contributed was obtained through fraud. And, unlike the ex-wife in Walsh, Ms. Freedman worked throughout her marriage and contributed lawful earnings to the marital estate - including earnings wholly unrelated to the BECC business enterprise. On the contrary, Ms. Freedman contributed substantially to the assets divided under the Agreement Incident to Divorce both before and throughout her marriage. Ms. Freedman contributed her personal salary from full-time outside employers to the marital estate. She provided material value to the numerous companies she and her husband invested in, such as Lotus, through her labor. And she took the lead in purchasing, repairing, marketing, and re- selling two houses for profit. Thus, unlike in Walsh, there can be no doubt that Ms. Freedman provided fair consideration by bargaining with her ex-husband over assets that were at least in part (if not substantially) untainted. Additionally, as in Walsh, Ms. Freedman gave up other valuable rights, including claims for alimony, maintenance and inheritance. See Richard C.E. Beck, The Innocent Spouse Problem: Joint And Several Liability For Income Taxes Should Be Repealed, 43 Vand. L. Rev. 317, 403 (1990) (“When property is transferred to the wife in lieu of alimony and in exchange for a waiver of her rights to support, courts often have held the transfer to be supported by adequate consideration, thus putting the property beyond the reach of creditors, including the IRS.”). In Janvey, the Texas Supreme Court recently answered a certified question from the Fifth Circuit concerning the good faith defense under Texas’ fraudulent transfer statute. The Texas Supreme Court upheld the good faith defense claim under Section 24.009 for transferees “who took in good faith for a reasonably equivalent value.” The court noted that the statute “broadly Case 3:16-cv-01735-D Document 78 Filed 12/15/16 Page 26 of 29 PageID 654 22 defined [the] terms ‘value’ and ‘reasonably equivalent value.’” Janvey, 487 S.W.3d at 573. “Reasonably equivalent value” asks whether the transfer “is within the range of values for which the transferor would have sold the assets in an arm’s length transaction.” Tex. Bus. & C. Code § 24.004(d). “[M]athemetical precision” is not required, “but there cannot be a significant disparity between the values exchanged.” Janvey, 487 S.W.3d at 581 n.117. That standard is “conclusively establishe[d]” when there is an arm’s length transaction at market-value rates. Id. at 582. That standard is met here. The assets acquired by Ms. Freedman and Mr. Faulkner during their marriage were community property, and a Texas court already has found that the two engaged in an arm’s length division of those assets with the assistance of counsel and in a manner that was “fair and equitable.” (App. 172-73 ¶ 10.) Mr. Faulkner was quite hostile toward Ms. Freedman then, and he remains so now, such that there is no basis to conclude that he was providing any sort of sweetheart-deal to Ms. Freedman. In addition, while the division of assets between Ms. Freedman and Mr. Faulkner was “fair and equitable,” Ms. Freedman ultimately landed on the losing side of the “reasonably equivalent value” standard because she did not get the agreed-upon division of assets. In determining “value” under Texas law, “value does not include an unperformed promise made. . . .” Tex. Bus. & C. Code § 24.004(a); see Janvey, 487 S.W.3d at 574. And as noted above, Mr. Faulkner has fallen far short of honoring the “fair and equitable” division of assets by not providing Ms. Freedman $1,000,000 in stock upon the divorce, by not assigning her the re- payment of a $250,000 loan (the value of which he misrepresented), by not paying her $5,000 per month rent for 36 consecutive months, and by not now honoring his indemnification Case 3:16-cv-01735-D Document 78 Filed 12/15/16 Page 27 of 29 PageID 655 23 obligations. (See supra at 4-5.) Consequently, Ms. Freedman got shortchanged by at least $1,430,000 on a division of assets that was meant to be “fair and equitable.” In other words, even if the SEC could take issue with the Texas court’s finding that the agreed-upon separation of assets in the divorce was “fair and equitable,” the SEC would have to demonstrate that there was a “significant disparity” in Ms. Freedman’s favor even though she was shortchanged by at least $1,430,000 before there could be any concern that Mr. Faulkner did not get “reasonably equivalent value.” Nothing in the record could support a finding anywhere close to the burden the SEC would have to meet. CONCLUSION Ms. Freedman is not a proper relief defendant and she is entitled to dismissal from and summary judgment in this case. /S/ Abbe David Lowell Abbe David Lowell, Bar No. 3581651DC Christopher D. Man Christopher R. Cooke CHADBOURNE & PARKE LLP 1200 New Hampshire Avenue, N.W. Washington, D.C. 20036 adlowell@chadbourne.com (202) 974-5600 (phone) (202) 974-6705 (fax) Counsel for Tamra M. Freedman Case 3:16-cv-01735-D Document 78 Filed 12/15/16 Page 28 of 29 PageID 656 24 CERTIFICATION OF SERVICE I certify that on December 15, 2016, a copy of the foregoing was filed with the Court's electronic case filing system, thereby effecting service on counsel for all parties. /S/Abbe David Lowell____________ Abbe David Lowell Case 3:16-cv-01735-D Document 78 Filed 12/15/16 Page 29 of 29 PageID 657