# DRINV LLC v. Richardson

> District Court, N.D. Oklahoma · March 18, 2020

URL: https://www.frixlaw.com/law-library/cases/10386324

## Case

- **Court:** District Court, N.D. Oklahoma
- **Decided:** March 18, 2020
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF OKLAHOMA
DRINV LLC, MCRA LLC, and )
DAVE RISI, )
)
Plaintiffs, )
)
v. ) Case No. 19-CV-0219-CVE-JFJ
)
DOUGLAS RICHARDSON and )
SMART PRONG TECHNOLOGIES, INC., )
)
Defendants. )
OPINION AND ORDER
Now before the Court are Defendant’s Motion for Summary Judgment and Brief in Support
Thereof (Dkt. # 23) and Plaintiffs’ Motion for Partial Summary Judgment on the Issue of Whether
the Transfer at Issue was Fraudulent (Dkt. # 27). The parties do not dispute that defendant Douglas
Richardson embezzled a substantial amount of money from his employer, Smart Prong
Technologies, Inc. (Smart Prong), and there is also no dispute that Richardson transferred his shares
of Smart Prong stock back to Smart Prong immediately after his embezzlement was discovered.
Plaintiffs are shareholders who allege that the transfer of shares was fraudulent under the Uniform
Fraudulent Transfer Act, OKLA. STAT. tit. 24, § 112 et seq. (UFTA), because they were also
defrauded by Richardson and the stock transfer placed Richardson’s assets out of their reach. Dkt.
# 27. Smart Prong argues that the stock is being held in a trust for the benefit of shareholders,
including plaintiffs, and there is no evidence suggesting that transfer of stock was intended to
defraud plaintiffs. Dkt. # 23.
I.
Smart Prong employed Richardson as its chief financial officer (CFO) beginning on
December 29, 2013. Dkt. # 23-1, at 1. Jim Weaver is the founder of Smart Prong and the chairman
of its board of directors. Id. On June 14, 2016, Richardson contacted Weaver and asked to meet with

Weaver in person, and they had a meeting the same day. Id. At the meeting, Richardson admitted
that he had embezzled approximately $750,000 from Smart Prong, and later that same day he made
the same admission to Smart Prong’s president, Michael Freeman. Id. at 2. Weaver and Freeman
demanded that Richardson immediately resign as CFO, and Richardson’s resignation was effective
on June 14, 2016. Id. at 4. Also on June 14, 2016, Richardson assigned all of his shares of Smart
Prong stock back to the company, but the stock was worth significantly less than the amount he had
embezzled. Id. at 2, 5. The parties engaged in settlement negotiations and drafted a Confidential

Release, Reimbursement & Indemnification Agreement (Settlement Agreement) in which
Richardson admitted that he had embezzled funds from Smart Prong, and the parties agreed that the
shares of stock Richardson had transferred back to Smart Prong would be treated as partial
consideration for the Settlement Agreement. Dkt. # 27-7. A subsequent audit of Smart Prong’s
finances revealed that Richardson had actually embezzled over $4.2 million from Smart Prong, and
Smart Prong rescinded the Settlement Agreement due to Richardson’s fraudulent misrepresentations
concerning the scope of his embezzlement. Dkt. # 27-8. The stock that Richardson returned to
Smart Prong is currently being held in a mitigation trust. Dkt. # 23-1, at 2. The beneficiaries of the

mitigation trust are Smart Prong’s shareholders who paid value for their shares prior to the discovery
of Richardson’s embezzlement, and the stock will remain in the trust until a liquidation event occurs.
Id. at 2-3. Weaver states that the purpose of the mitigation trust is to obtain the highest possible
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value for the shares in order to compensate Smart Prong’s shareholders as much as possible. Id. at
3. When the shares are liquidated, Richardson will receive credit against the debt he owes Smart
Prong. Id. On September 8, 2016, Smart Prong sent notice to its shareholders of Richardson’s
embezzlement, and plaintiffs received a copy of the notice. Dkt. # 23-1, at 3; Dkt. # 23-2, at 5-7.

On October 31, 2016, Smart Prong filed a civil action in Missouri state court against Richardson to
recover the funds that he embezzled. Dkt. # 27-2, at 2.
On December 16, 2015, the Missouri Securities Division (MSD) of the Office of the
Secretary of State opened an investigation into Douglas A. Richardson, CPA, LLC and Richardson
based on anonymous information that he was receiving large sums of money from Missouri
residents, and the investigation revealed that Richardson embezzled approximately $4.5 million from
Smart Prong. Id. at 1-2. The MSD learned that Richardson used his position as CFO of Smart Prong

to solicit investors and he was the sole signatory on the account in which investor funds were
deposited. Id. at 3-5. However, Richardson wrote checks to himself from Smart Prong’s bank
account in amounts in excess of $3 million, and he also received substantial sums from potential
investors that were never deposited into Smart Prong’s bank account. Id. at 5. On July 5, 2016, the
MSD interviewed Richardson and he claimed that he received personal loans from many people, but
he was unable to repay the loans after his construction company collapsed. Id. at 5-6. The MSD
issued a cease and desist order to Richardson and initiated enforcement proceedings against him.
Richardson was charged with six counts of wire fraud and four counts of money laundering in the

United States District Court for the Western District of Missouri. United States of America v.
Douglas A. Richardson, 18-3094-01-CR-S-MDH (W.D. Mo.). The Court has reviewed the docket

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sheet for the criminal case, and Richardson has been convicted on all counts and he is in custody
pending sentencing.
In addition to Richardson’s debt to Smart Prong, he also received loans from various
shareholders of Smart Prong, including Dave Risi, Drinv LLC, and MCRA LLC, and plaintiffs claim

that Richardson owes them $402,021.25 for unpaid loans.1 In March 2018, plaintiffs obtained
judgments against Richardson in Virginia state court on claims for breach of promissory note. Dkt.
# 27-1. Since entry of the judgments, plaintiffs claims that Richardson has taken various actions to
hide his assets. Although plaintiffs cite no evidence to support these assertions, the Court will
assume for the purpose of this Opinion and Order that Richardson engaged in conducted intended
to prevent plaintiffs from collecting on their judgments.
On March 6, 2019, plaintiffs filed a petition in Tulsa County District Court seeking to set

aside Richardson’s transfer of stock to Smart Prong, and they seek a court order allowing them to
levy on the shares. Dkt. # 2-1, at 12. Smart Prong removed the case to this Court on the basis of
diversity jurisdiction. Richardson did not retain counsel to defend against plaintiffs’ claims, and he
has filed a pro se answer (Dkt. # 22). Richardson did not respond to plaintiff’s requests for written
discovery, including requests for admission, and Richardson has admitted certain matters by failing

1 Plaintiffs’ motion for summary judgment (Dkt. # 27) and response to Smart Prong’s motion
for summary judgment (Dkt. # 31) do not cite evidence in the record to support many of
plaintiff’s assertions. Plaintiffs state that “they did not think it necessary to cite to materials
already provided in the record for preliminary matters . . . .” Federal Rule of Civil Procedure
56 plainly requires a party to “cit[e] to particular parts of materials in the record,” and LCvR
56.1 also requires a motion for summary judgment and a response to “refer with particularity
to those portions of the record upon which” the party relies. In this case, plaintiffs’ failure
to provide citations to the record will not affect the Court’s ruling on the pending motions,
but plaintiffs’ counsel is advised that specific citations to evidentiary materials are required
when seeking or responding to a motion for summary judgment.
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to respond to plaintiffs’ discovery requests. Dkt. ## 35, 51. Under Fed. R. Civ. P. 36, Richardson’s
admissions are binding on him but not on any other party. See Kittrick v. GAF Corp., 125 F.R.D.
103 (M.D. Pa. 1989). Plaintiffs and Smart Prong have filed motions for summary judgment (Dkt.
## 23, 27) on the issue of whether Richardson’s transfer of stock to Smart Prong was fraudulent.

Plaintiffs and Smart Prong have filed appropriate responses and replies, but Richardson has not filed
a response to either motion.
II.
Summary judgment pursuant to Fed. R. Civ. P. 56 is appropriate where there is no genuine
dispute as to any material fact and the moving party is entitled to judgment as a matter of law.
Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 250 (1986); Kendall v. Watkins, 998 F.2d 848, 850 (10th Cir. 1993). The plain language of

Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon
motion, against a party who fails to make a showing sufficient to establish the existence of an
element essential to that party’s case, and on which that party will bear the burden of proof at trial.
Celotex, 477 U.S. at 317. “Summary judgment procedure is properly regarded not as a disfavored
procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed
‘to secure the just, speedy and inexpensive determination of every action.’” Id. at 327.
“When the moving party has carried its burden under Rule 56(c), its opponent must do more
than simply show that there is some metaphysical doubt as to the material facts. . . . Where the

record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there
is no ‘genuine issue for trial.’” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
586-87 (1986) (citations omitted). “The mere existence of a scintilla of evidence in support of the
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plaintiff’s position will be insufficient; there must be evidence on which the [trier of fact] could
reasonably find for the plaintiff.” Anderson, 477 U.S. at 252. In essence, the inquiry for the Court
is “whether the evidence presents a sufficient disagreement to require submission to a jury or
whether it is so one-sided that one party must prevail as a matter of law.” Id. at 250. In its review,

the Court construes the record in the light most favorable to the party opposing summary judgment.
Garratt v. Walker, 164 F.3d 1249, 1251 (10th Cir. 1998).
III.
Smart Prong argues that it is a legitimate creditor of Richardson and, regardless of his
fraudulent activities, the transfer of his Smart Prong stock back to the company was not improper
under the UFTA. Dkt. # 23, at 8-9. Smart Prong claims that it accepted transfer of the stock in good
faith for reasonably equivalent value, and the transfer is not voidable as to Smart Prong. Plaintiff

responds that the stock transfer to Smart Prong was fraudulent, because Richardson has not received
a reasonably equivalent value for the transfer and there is ample evidence that Richardson engaged
in fraudulent conduct in his business relations with plaintiffs.
Under OKLA. STAT. tit. 24, § 116,2 a transfer by a debtor to a creditor is fraudulent if the
transfer was made:
1. with actual intent to hinder, delay, or defraud any creditor of the debtor; or
2. without receiving a reasonably equivalent value in exchange for the transfer
or obligation, and the debtor:

2 In its motion for summary judgment, Smart Prong argues that plaintiff could not prevail on
a claim under OKLA. STAT. tit. 24, § 117(B). Plaintiffs respond that they are not seeking
relief under this section of the UFTA, and the Court will not consider § 117(B) in this
Opinion and Order. See Dkt. # 31, at 7.
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a. 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
b. intended to incur, or believed, or reasonably should have believed that
he would incur, debts beyond his ability to pay as they became due.
As to actual intent to hinder, delay, or defraud a creditor, courts may consider the following factors
to determine if a transfer was fraudulent:
1. the transfer or obligation was to an insider;
2. the debtor retained possession or control of the property transferred after the
transfer;
3. the transfer or obligation was disclosed or concealed;
4. before the transfer was made or obligation was incurred, the debtor had been
sued or threatened with suit;
5. the transfer was of substantially all the debtor’s assets;
6. the debtor absconded;
7. the debtor removed or concealed assets;
8. the value of the consideration received by the debtor was reasonably
equivalent to the value of the asset transferred or the amount of the obligation
incurred;
9. the debtor was insolvent or became insolvent shortly after the transfer was
made or the amount of the obligation incurred;
10. the transfer occurred shortly before or shortly after a substantial debt was
incurred; and
11. the debtor transferred the essential assets of the business to a lienor who
transferred the assets to an insider of the debtor.
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OKLA. STAT. tit. 24, § 116(B). However, even if a debtor engaged in a fraudulent transfer, a
transaction is not voidable against a transferee who “took in good faith and for a reasonably
equivalent value . . . .” OKLA. STAT. tit. 24, § 120(A).
Many of plaintiffs’ arguments concern Richardson’s fraudulent conduct solely in relation to

his dealings with plaintiffs, but Smart Prong does not dispute that Richardson engaged in this
conduct. However, Smart Prong argues that plaintiffs’ litigation with Richardson and his efforts to
hide assets occurred more than 18 months after the stock transfer that is at issue in this case, and
Smart Prong claims that there is no evidence that it was aware of Richardson’s conduct in relation
to plaintiffs when the stock transfer occurred. Dkt. # 32, at 3-4. Plaintiff has cited no authority
suggesting that a debtor’s post-transfer conduct has any bearing on whether the transfer between a
debtor and a potentially good faith transferee is fraudulent under the UFTA. For the purpose of this

Opinion and Order, the Court will assume that Richardson engaged in fraudulent acts in his business
relations with plaintiffs, but this has little relevance to plaintiffs’ UFTA claim against Smart Prong.
Even if Smart Prong had been aware of Richardson’s dealings with plaintiffs, it is undisputed that
Smart Prong is a legitimate creditor of Richardson and it could take steps to collect on that debt. The
Court will focus on the facts known or knowable to Smart Prong at the time the stock transfer was
made in order to determine whether the transfer should be set aside under the UFTA.
Plaintiffs rely on the § 116(B) factors in an attempt to establish that the stock transfer
between Richardson and Smart Prong was made with the intent to hide Richardson’s assets from

plaintiffs. Plaintiffs argue that Richardson was an insider when the transfer occurred, because
Richardson had just resigned his position as CFO of Smart Prong. Dkt. # 27, at 9. The statute
defines “insider” to include a “director, officer, or person in control” of a corporation. OKLA. STAT.
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tit. 24, § 113.7(4). However, it is undisputed that Smart Prong had discovered Richardson’s
misconduct and the transfer of his stock back to Smart Prong was intended to partially redress his
debt to the corporation. Smart Prong and Richardson were in an adversarial position at the time of
the transfer and, even if Richardson had just resigned as CFO as Smart Prong, he was not receiving

preferential treatment due to his prior employment with Smart Prong. Plaintiffs also argue that
Smart Prong threatened Richardson with suit in order to convince him to assign his stock to Smart
Prong. Dkt. # 27, at 9-10. This argument is supported primarily by Richardson’s failure to respond
to a request for admission that Smart Prong “threatened [Richardson] with a lawsuit after [he] made
the confession” concerning his fraudulent conduct. Dkt. # 26-1, at 8. Plaintiffs admit that
Richardson’s admission is not binding on Smart Prong, and there is no other evidence suggesting
that Smart Prong threatened to sue Richardson before the stock transfer occurred. Even if this were

true, Smart Prong would have had a legitimate basis to bring a lawsuit against Richardson and this
would not have been an empty threat. The Court does not find that Richardson’s alleged status as
an insider or the possibility that Smart Prong threatened to sue Richardson have any tendency to
show that the stock transfer was intended to defraud plaintiffs.
The primary argument between the parties is whether Richardson received “reasonably
equivalent value” for the transfer of stock back to Smart Prong. Plaintiffs contend that Richardson
transferred his shares of stock to Smart Prong without receiving anything of value. Smart Prong
argues that Richardson owed a debt to Smart Prong and it was not required to pay him face value for

the stock. Dkt. # 32, at 8. Instead, Richardson will receive a credit against his debt to Smart Prong
when the shares are sold pursuant to the terms of the mitigation trust. Id. The assignment of stock
took place on June 14, 2016, and Richardson surrendered his shares of stock for the minimal
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consideration of one dollar. Dkt. # 23-1, at 5. Plaintiffs have filed a copy of an unsigned settlement
agreement between Smart Prong and Richardson in which Richardson admits that he embezzled
money from Smart Prong. Dkt. # 27-7, at 1. Part of the consideration for the agreement was the
prior transfer of Richardson’s shares of Smart Prong stock, and at the time the agreement was

executed Smart Prong was not aware of the full extent of Richardson’s embezzlement. Id. at 2.
Smart Prong subsequently sent a letter to Richardson rescinding the settlement agreement, because
it learned that Richardson had substantially misrepresented how much money he had embezzled
from Smart Prong. Dkt. # 27-8, at 1. The letter acknowledges receipt of all prior payments by
Richardson, and the letter does not cancel the mitigation trust that was established for distribution
of the stock returned to Smart Prong by Richardson. Id. Weaver states that the mitigation trust
remains in effect and Richardson will receive credit against the amount he owes Smart Prong once

the shares are sold for the benefit of shareholders. Dkt. # 23-1, at 3.
The Court finds that Richardson received a reasonably equivalent value for the shares of
stock that he returned to Smart Prong following the discovery of his embezzlement. The UFTA
defines “value” as the transfer of property to secure or satisfy an antecedent debt. OKLA. STAT. tit.
24, § 115.A. There is no dispute that Richardson owed an antecedent debt to Smart Prong at the time
the transfer was made and, although the parties dispute the value of the stock, there is undisputed
evidence that the eventual sale of the stock will be credited against Richardson’s debt to Smart
Prong. Plaintiffs claim that Richardson will receive nothing from the sale of stock due to the

rescission of the settlement agreement, but this statement is not supported by any evidence and it is
not a logical implication from the mere fact of the rescission of the Settlement Agreement. Plaintiffs
complain that Smart Prong did not give any consideration for the transfer of Richardson’s shares,
10
but they do not explain what consideration other than an offset against Richardson’s existing debt
would be reasonable under the circumstances. The mitigation trust established by Smart Prong for
the benefit of shareholders may also incidentally benefit Richardson, because he will likely receive
a greater credit against his debt to Smart Prong than if the shares had been sold immediately upon

transfer. The procedure used by Smart Prong to obtain the return of Richardson’s shares of Smart
Prong stock does not suggest that Smart Prong was attempting to defraud other creditors of
Richardson and, in fact, plaintiffs will eventually receive some value once the shares are sold
pursuant to the terms of the mitigation trust.
The Court will consider other statutory factors concerning the alleged fraudulent nature of
the transfer at issue, even if the factors are not specifically addressed by the parties. Richardson did
not retain control of the stock after it was transferred to Smart Prong, and the transfer was not

concealed from shareholders. Weaver states that Smart Prong sent notice of Richardson’s actions
and the terms of the mitigation trust to shareholders, and Risi testified in his deposition that he
received this notice from Smart Prong. Dkt. # 23-1, at 3; Dkt. # 23-2, at 5. The parties dispute
whether the transfer of stock was for substantially all of Richardson’s assets, but the parties have not
provided sufficient evidence for a determination of this issue. Plaintiffs have alleged that Richardson
engaged in actions to hide his assets, but there is no evidence that Smart Prong engaged in any
conduct to conceal the stock transfer or to hide its own assets from shareholders. Richardson is
currently in custody awaiting sentencing on federal charges of wire fraud and money laundering, and

there is no danger that he will abscond.
The Court has considered the totality of the circumstances and finds no evidence suggesting
that Richardson and Smart Prong engaged in a fraudulent transfer under the UFTA. Neither
11
plaintiffs nor Smart Prong dispute that Richardson engaged in fraudulent conduct in relation to Smart
Prong’s investors, but there is no evidence that Smart Prong knew the extent of Richardson’s
conduct at the time the stock transfer occurred. Smart Prong was a good faith creditor of Richardson
when the transfer occurred, and the stock is currently being held in a mitigation trust to maximize

the benefit to Smart Prong’s shareholders, including plaintiffs. This procedure will also have the
incidental effect of maximizing the credit that Richardson will receive against the debt he owes to
Smart Prong, and plaintiffs’ assertions that Richardson has received nothing of value are meritless.
This is not a case where a debtor engaged in a transfer to hide his assets from his creditors. See
Scottsdale Ins. Co. v. Tolliver, 2012 WL 1581109 (N.D. Okla. May 4, 2012) (debtors fraudulently
created LLCs and transferred their assets into the LLCs for the sole purpose of avoiding a judgment).
Instead, the debtor, Richardson, transferred property to a legitimate creditor, Smart Prong, to partially

satisfy an antecedent debt, and unfortunately the debtor had numerous other creditors who may not
be fully repaid. Smart Prong may have been the first creditor to learn of Richardson’s misconduct,
but this does not make Smart Prong’s actions fraudulent as to other creditors. Smart Prong has
established that it is a good faith creditor under the UFTA and there are no factors present that would
suggest the stock transfer was intended to defraud Richardson’s other creditors.
IT IS THEREFORE ORDERED that Defendant’s Motion for Summary Judgment and
Brief in Support Thereof (Dkt. # 23) is granted, and Plaintiffs’ Motion for Partial Summary

Judgment on the Issue of Whether the Transfer at Issue was Fraudulent (Dkt. # 27) is denied. A
separate judgment is entered herewith.
DATED this 18th day of March, 2020.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10386324. Public record. Not legal advice.