Rinpark SA is a shell company Jay Noland set up in Uruguay. As alleged by the FTC, Rinpark SA was part of the Success by Health pyramid scheme.
Through Rinpark SA, $300,000 is alleged to have been transferred out of the US to Uruguay between August 2019 and January 2020.
Through a second amended complaint (SAC) filed in September 2020, the FTC sought to add Rinpark SA as a defendant.
In October Rinpark SA filed a motion to dismiss, arguing the FTC lacked personal jurisdiction over it.
The FTC argued that in light of the court having jurisdiction over Success by Health and Noland, and Rinpark SA being nothing more than an “alter-ego” of the parties, ‘it follows that the Court possesses personal jurisdiction over Rinpark, too.’
The court rejected this argument, stating that the
evidence and allegations proffered by the FTC fail to satisfy both prongs of the Ninth Circuit’s test for alter-ego status.
Specifically the FTC failed to satisfy the second prong of the alter-ego test,
which requires the FTC to show that that failure to disregard the separate identities of Rinpark and the Domestic Entity Defendants would result in “fraud or injustice.”
Although the SAC includes many allegations that, taken as true, indicate blurred lines and a lack of corporate formalities between Rinpark and the Domestic Entity Defendants, the SAC does not allege (except in conclusory fashion) that Rinpark actually did anything to promote or perpetuate the alleged pyramid scheme (or any of the other challenged conduct in this case).
The FTC had argued Noland used Rinpark to run Success by Health, during his stay in Uruguay between October 2019 to January 2020.
At most, the FTC has alleged that at the time Mr. Noland performed a facially innocuous task (recruiting an employee), he happened to be located in Uruguayan office space that the Domestic Entity Defendants shared with Rinpark.
This is insufficient to meet the FTC’s burden of identifying, with specificity, why excluding Rinpark as a party-defendant from this action would result in fraud or injustice.
Basically what it came down to is not whether Rinpark SA was part of Success by Health, but whether Noland used it as an entity to run or promote Success by Health through.
The FTC’s theory seems to be that Rinpark was part of the same “common enterprise” as the Domestic Entity Defendants because it was controlled by Noland, who “disregarded corporate formalities for the companies he controls . . . and commingled funds” between those companies.
Such allegations, however, only bear on the first element of the alter-ego test— whether there was unity of interest and ownership.
They shed no light on the second element, which is whether failing to disregard Rinpark’s corporate status would, for some specific reason in this case, result in fraud or injustice.
Proof of the first element is not proof of the second.
The court is of the opinion that whatever fraud might have resulted from Noland commingling Success by Health and Rinpark SA, is addressed by the FTC’s Success by Health lawsuit.
Such to the extent Noland might have used Rinpark SA to hide Success by Health funds, the court deferred to the FTC’s claim that
Rinpark doesn’t even have a bank account and that its “operations were funded solely” by other entities.
The evidence presented by the FTC during earlier proceedings suggested that the transfers actually went from the Domestic Entity Defendants to Noland in his personal capacity, without any Rinpark involvement.
The FTC cannot disregard its own allegations for purposes of avoiding dismissal under Rule 12(b)(2).
The court granted Rinpark SA’s motion, removing it as a defendant from the case.
In related news Noland and this fellow individual defendants once again tried to halt proceedings, pending the outcome of the AMG Supreme Court case.
On January 29th the court denied Noland’s motion, based on the court having already rejected a prior motion requesting the same.
The premise of the motion is that a stay is necessary in light of the pending Supreme Court decision in AMG Capital, but the Court considered, and rejected, that exact argument in an order issued on December 3, 2020.
It is surprising that the Individual Defendants did not mention, let alone discuss, that order in their most recent stay motion.
Finally with respect to settlement proceedings, the FTC is seeking relief from having to meet with the defendants in person.
The Individual Defendants have refused to consent to the FTC’s requests, instead insisting that all four FTC Commissioners fly cross-country with FTC counsel to attend an in-person settlement conference with up to 1,000 members of the public in attendance—all in the middle of a global pandemic.
The FTC instead proposes they be allowed to attend settlement proceedings via video conference.
A proposal the Success by Health defendants have apparently rejected.
Against this background, the FTC was surprised by Individual Defendants’ refusal to discuss settlement with the FTC by video teleconference rather than in person.
As a result of Defendants’ refusal to consent to video conference settlement talks, the FTC now seeks an Order expressly authorizing settlement talks to occur by video teleconference.
In their response to the FTC’s motion, the Success by Health defendants bizarrely equate the FTC not attending in person to non-participation.
The very purpose of settlement talks is thwarted if the parties do not participate.
Perhaps sensing the idiocy of requiring FTC attorneys to be stuffed into a room with over a thousand people in the midst of a global pandemic (I say this as someone who spent much of 2020 in self-isolation), the Success by Health defendants concede video-conferencing as an alternative.
If it is essential to conduct talks remotely, then provision must be made so that persons with decision-making discretion be present via Zoom so there can be better communication.
This week Arizona is averaging just shy of 4000 COVID-19 cases a day. This is down from close to 6000 cases a day last week.
I’m not sure how seriously Arizona is taking the pandemic but even with a court order there’s no way you’d get me into a room with 1000+ people for any length of time.
If the rest of the world can substitute video conferencing for in-person meetings, so can the Success by Health defendants.
The FTC has been directed to file its reply to Success by Health’s response by February 5th, after which a decision on the motion will be made.
Update 6th February 2021 – In a reply filed on February 4th, the FTC confirmed the Success by Health defendants had
appear(ed) to have abandoned their demand that settlement talks occur in person.
They also do not object to the absence of the Receiver and her counsel from settlement talks.
Success by Health were still demanding all four FTC Commissioners attend the hearing, which the court denied via a February 4th order.
The same order also gave permission to the FTC’s attorneys to attend the hearing via video conference.
We’ll continue to monitor the case docket for updates.
Update 20th February 2021 – As per a joint report filed on February 17th, the FTC and Success by Health inform the court;
On February 12, 2021, counsel for the FTC, counsel for the Individual Defendants, and the Individual Defendants met via Zoom video conference to discuss the potential settlement of this matter.
The parties were unable to reach a settlement and do not request judicial assistance at this time.
Looks like this one might be going to trial.