James R. Carnes; Melissa C. Carnes; James R. Carnes Revocable Trust; Melissa C. Carnes Revocable Trust
Documents in this case
- Complaint · · 16 p.
- Stipulation · · 12 p.
Case summary
On April 5, 2023, the Bureau filed a lawsuit against James R. Carnes and his wife, Melissa C. Carnes, both individually and in their roles as co-trustees of two trusts, as a result of James Carnes’s efforts to conceal assets and avoid paying a judgment of more than $43 million to the Bureau. The Bureau obtained the judgment after finding that Carnes and his company, Integrity Advance, LLC, violated multiple laws, including the Consumer Financial Protection Act of 2010, and caused significant harm to consumers. See CFPB v. Integrity Advance, LLC and James R. Carnes, 2015-CFPB-0029 (administrative proceeding); Consumer Financial Protection Bureau v. Integrity Advance, LLC and James R. Carnes, 2:21-mc-206 (D. Kan. July 30, 2021) (judgment). The Bureau’s complaint alleged that James Carnes engaged in multiple fraudulent transactions in violation of the Federal Debt Collection Procedures Act to remove assets and conceal them from the Bureau. Specifically, the complaint alleged that soon after Carnes became aware of the Bureau’s investigation into his illegal payday lending business, he began transferring significant assets to his wife’s trust and that, in total, he transferred more than $12 million to the trust during the Bureau’s investigation and subsequent administrative proceeding. On July 17, 2023, the court issued prejudgment writs of garnishment and attachment freezing assets that had been transferred to the trust, and on November 9, 2023, the court denied Melissa Carnes’ motion to quash those writs. On June 25, 2024, the court entered a stipulated final judgment and order that imposes a $12 million judgment on James and Melissa Carnes. Full payment of this amount is suspended based on a demonstrated inability to pay following, among other things, the Carnes’ payment of $7 million to the Bureau, which will be applied to James Carnes’ $43 million judgment.
Complaint ()
PDF of this document (16 pages)
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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS
CONSUMER FINANCIAL PROTECTION BUREAU, Plaintiff, v.
JAMES R. CARNES, MELISSA C. CARNES, JAMES R. CARNES, AS CO- TRUSTEE OF THE JAMES R. CARNES REVOCABLE TRUST DATED FEBRUARY 10, 2010; MELISSA C. CARNES, AS CO- TRUSTEE OF THE JAMES R. CARNES REVOCABLE TRUST DATED FEBRUARY 10, 2010; JAMES R. CARNES AS CO- TRUSTEE OF THE MELISSA C. CARNES REVOCABLE TRUST DATED FEBRUARY 10, 2010; and MELISSA C. CARNES AS CO- TRUSTEE OF THE MELISSA C. CARNES REVOCABLE TRUST DATED FEBRUARY 10, 2010.
Defendants.
COMPLAINT
CASE NO. 23-2151
The Consumer Financial Protection Bureau (Bureau) brings this action against James R. Carnes (Carnes), Melissa C. Carnes, James R. Carnes, as Co-Trustee of the James R. Carnes Revocable Trust dated February 10, 2010 (JRC Trust); Melissa C. Carnes, as Co-Trustee of the JRC Trust; James R. Carnes, as Co-Trustee of the Melissa C. Carnes Revocable Trust dated February 10, 2010 (MCC Trust); and Melissa C. Carnes, as Co-Trustee of the MCC Trust, and alleges as follows.
Case 2:23-cv-02151-HLT-TJJ Document 1 Filed 04/05/23 Page 1 of 16
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INTRODUCTION 1.
Soon after Defendant Carnes became aware of the Bureau’s investigation into his illegal payday lending business, he began transferring significant assets to the MCC Trust, whose beneficiary is Carnes’ wife. Between 2013 and 2015, Carnes fraudulently transferred $12.3 million from himself (through the JRC Trust) to the MCC Trust. 2.
As co-trustee of the MCC Trust, Carnes has control over the trust and uses it to conduct his personal and business affairs. The fraudulent transfers from Carnes to the MCC Trust were executed by Carnes after he learned of the Bureau’s investigation (with at least one transfer occurring on the same day the Bureau filed its notice of charges against him in November 2015).
3.
The Bureau brings this action under the Federal Debt Collection Procedures Act of 1990, 28 U.S.C. §§ 3001-3308, for avoidance of multiple fraudulent transfers to the extent necessary to satisfy the debt to the Bureau, including all available remedies and any other relief the circumstances may require.
JURISDICTION AND VENUE 4.
This Court has subject-matter jurisdiction over the Bureau’s claims because this action presents a federal question, 28 U.S.C. § 1331, and is brought by an agency of the United States, 28 U.S.C. § 1345.
5.
Venue is proper in the District under 28 U.S.C. § 1391 because all defendants reside in Kansas, the trusts’ principal place of administration is in Kansas, and a substantial part of the events or omissions giving rise to the claims occurred in this district.
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PARTIES 6.
The Bureau is an agency of the United States charged with regulating “the offering and provision of consumer financial products or services under the Federal consumer financial laws.” 12 U.S.C. § 5491(a). The Bureau has independent litigating authority. 12 U.S.C. § 5564.
7.
Defendant James R. Carnes is a natural person residing in Mission Hills, KS, and is a judgment debtor of the Plaintiff Consumer Financial Protection Bureau. Carnes is the settlor/grantor and co-trustee of the JRC Trust and is also the co-trustee of the MCC Trust. 8.
Defendant Melissa C. Carnes is a natural person residing in Mission Hills, KS and is James R. Carnes’ wife. Melissa C. Carnes is the settlor/grantor and co-trustee of the MCC Trust and is also the co-trustee of the JRC Trust.
FACTS 9.
On January 11, 2021, the Bureau’s Director issued a final order against Integrity Advance, LLC and James R. Carnes (Bureau Final Order). The Bureau Final Order held, among other things, that the disclosures in Integrity Advance’s loan agreement violated the Truth in Lending Act (TILA) and the Consumer Financial Protection Act (CFPA); that through Integrity Advance’s use of the loan agreement, both Integrity Advance and Carnes engaged in deceptive and unfair practices; that Integrity Advance violated the Electronic Funds Transfer Act (EFTA) and the CFPA when it conditioned credit on repayment by preauthorized electronic fund transfers; and that as a result of Integrity Advance’s use of remotely created checks, both Integrity Advance and Carnes engaged in unfair practices. Further, the Director concluded that restitution to harmed customers was appropriate; that Integrity Advance and Carnes should both Case 2:23-cv-02151-HLT-TJJ Document 1 Filed 04/05/23 Page 3 of 16
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be liable for civil money penalties; and that they should be required to assist the Bureau in identifying customers entitled to redress.
10.
The Bureau Final Order required that, within 30 days after service of the order, Integrity Advance and Carnes pay restitution of $38,453,341.62 to the Bureau. The Bureau Final Order further required Integrity Advance to pay a civil money penalty of $7,500,000 and Carnes to pay a civil money penalty of $5,000,000 to the Bureau. 11.
The Acting Director denied Carnes and Integrity Advance’s requested stay pending appeal but stayed the effective date of the Bureau Final Order to permit them an opportunity to seek a stay from the Court of Appeals. The new effective date for the Bureau Final Order was April 7, 2021.
12.
Integrity Advance and Carnes did not seek a stay pending appeal in the Court of Appeals and failed to comply with the Bureau Final Order. 13.
When Carnes refused to comply with the Bureau Final Order, the Bureau obtained an order and judgment from the district court for the District of Kansas on July 30, 2021 for the payment of restitution of $38,453,341.62 to the Bureau, as well as a civil money penalty of $7,500,000 against Integrity Advance and a civil money penalty of $5,000,000 against Carnes, in Consumer Financial Protection Bureau v. Integrity Advance, LLC and James R. Carnes, 21-mc- 206 (D. Kan. July 30, 2021) (ECF Nos. 21, 22).
14.
The Bureau Final Order was affirmed by the Tenth Circuit Court of Appeals on September 15, 2022 and a petition for certiorari was filed on March 1, 2023. See Integrity Advance, LLC, et al. v. Consumer Financial Protection Bureau, 48 F. 4th 1161 (10th Cir. 2022), petition for cert. filed, 2023 WL 2388430 (U.S. Mar. 1, 2023) (No. 22-838). Case 2:23-cv-02151-HLT-TJJ Document 1 Filed 04/05/23 Page 4 of 16
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15.
Neither Integrity Advance nor Carnes have made any payment in satisfaction of the Judgment.
Carnes’ Transfers of More than $12 Million to the MCC Trust During the Bureau’s Investigation (First through Fourth Transfer)
16.
Sometime on or after January 7, 2013, Carnes learned that Integrity Advance, LLC, a company he controlled and ran, was under investigation by the Consumer Financial Protection Bureau.
17.
Carnes had an indirect ownership interest in Integrity Advance. Hayfield Investment Partners was the 100% owner of Integrity Advance. Carnes was the 100% owner of Willowbrook Marketing, LLC, which was the majority owner of Hayfield. 18.
Along with Edward Foster, Carnes was one of two primary employees at Integrity Advance and listed himself as Integrity Advance’s President and Assistant Corporate Secretary. 19.
On January 7, 2013, the Bureau served a Civil Investigation Demand (CID) on Integrity Advance.
20.
On January 23, 2013, Integrity Advance’s counsel met with Bureau enforcement staff and made representations about the dates by which Integrity Advance could respond to certain interrogatories and document requests. These representations were presumably based on information received from the client, Integrity Advance. At the time, Carnes was the President of Integrity Advance and ran its affairs.
21.
On January 24, 2013, the day after Integrity Advance’s counsel met with Bureau enforcement staff, Carnes submitted an application to set up an account at Wells Fargo Advisors on behalf of the JRC Trust. On February 14, 2013, and February 25, 2013, this JRC Trust account received funds in the amount of $6,412,161.76 and $2,179,806.22, respectively, stemming from Carnes’ sale of his payday lending business. Case 2:23-cv-02151-HLT-TJJ Document 1 Filed 04/05/23 Page 5 of 16
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22.
Since Carnes is the settlor of the JRC Trust, which is a revocable trust, the property of the JRC Trust is subject to the claims of Carnes’ creditors. K.S.A. 58a-505(a)(1). 23.
Approximately six months after the Bureau had served its CID on Integrity Advance, on or about June 3, 2013, Carnes, in his capacity as co-trustee of the JRC Trust, transferred $2,200,000 from a JRC Trust bank account at Wells Fargo Advisors to a bank account owned by the MCC Trust at Stephens, Inc. (First Transfer). The wire transfer record shows that Carnes authorized the transfer.
24.
On September 25, 2013, the JRC Trust account received an additional $5,226,000 from Carnes’ sale of EZ Corp stock, which Carnes received as part of his sale of his payday lending business.
25.
On October 25, 2013, Integrity Advance submitted interrogatory responses and document productions to the Bureau in response to the Bureau’s January 7, 2013 CID that identified Carnes’ ownership interest in and management role at Integrity Advance. 26.
Subsequently, on November 18, 2013 and December 16, 2013, the JRC Trust’s Wells Fargo Advisors account received wire transfers of additional payments of $3,000,142.59 and $2,483,283.47, respectively, stemming from Carnes’ sale of his payday lending business. 27.
On November 25, 2013, Integrity Advance submitted additional interrogatory responses to the Bureau in response to the Bureau’s January 7, 2013 CID. In response to Interrogatory 21 of that CID, Integrity Advance disclosed that Carnes provided information and reviewed the written responses on behalf of the Company. 28.
On December 5, 2013, Carnes, as co-trustee of the JRC Trust, made a wire transfer of $7,000,000 from the JRC Trust account at Wells Fargo Advisors to the MCC Trust account at Stephens, Inc. (Second Transfer).
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29.
On or about December 19, 2013, Carnes, as co-trustee of the JRC Trust, made a wire transfer of $3,117,325.00 from the JRC Trust account at Wells Fargo Advisors to the MCC Trust account at Stephens, Inc. (Third Transfer). 30.
On March 14, 2014, Carnes drafted a check for $656,533.36 from the MCC Trust account at Stephens, Inc., made payable to the JRC Trust, with the term “loan” in the notes section, which was then deposited into the JRC Trust account at Wells Fargo Advisors. 31.
On October 23, 2014, Enforcement counsel conducted a call and sent a Notice and Opportunity to Respond and Advise (NORA) letter to Carnes’ counsel stating that Enforcement Counsel was considering recommending that the Bureau take legal action against Integrity Advance and Carnes.
32.
On November 17, 2015, Enforcement staff informed counsel for Integrity Advance and Carnes that the Bureau would be filing a lawsuit against Integrity Advance and Carnes on the following day, November 18, 2015.
33.
On November 18, 2015, the Bureau filed its notice of charges against Integrity Advance and Carnes. On that same day, Carnes transferred an additional amount ($608,281.25) from the JRC Trust to the MCC Trust account at Stephens, Inc. (under the listed purpose of “loan repayment”) (Fourth Transfer).
34.
The MCC Trust did not provide any reasonably equivalent consideration in exchange for the First, Second, or Third Transfers. 35.
At the time of the First, Second, Third, and Fourth Transfers, Integrity Advance had unlawfully collected millions of dollars in interest and fees from consumers in violation of the TILA, CFPA, and EFTA.
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36.
At the time of the First, Second, Third, and Fourth Transfers, Defendant James R. Carnes had unlawfully collected millions of dollars in interest and fees from consumers in violation of the CFPA and through Integrity Advance’s violations of the TILA, CFPA, and EFTA.
37.
At the time of the First, Second, Third, and Fourth Transfers, Integrity Advance had received a law enforcement inquiry from the Bureau regarding potential violations of federal consumer financial law.
38.
As Integrity Advance’s owner and President and Assistant Corporate Secretary, Carnes was aware of and assisted in the response on behalf of Integrity Advance to the Bureau’s law enforcement inquiry.
39.
As described above, at the time of the Fourth Transfer, Defendant Carnes was aware that the Bureau would be filing a lawsuit against Integrity Advance and Carnes. 40.
When the Bureau propounded post-judgment discovery on Carnes about any family trusts and potential transfers of assets that had occurred from January 1, 2014 to present, Carnes objected and refused to disclose any information concerning the assets of the MCC Trust and any transfers that occurred prior to October 2019, including the First, Second, Third, and Fourth Transfers.
41.
When the Bureau served Rule 45 subpoenas directly on five financial institutions for the account records of the MCC Trust dating back to the beginning of the Bureau’s investigation, Carnes filed a motion to quash, objecting on relevance grounds to those financial institutions disclosing financial transactions that took place between January 1, 2013 and December 31, 2013, including the First, Second, and Third Transfers. Case 2:23-cv-02151-HLT-TJJ Document 1 Filed 04/05/23 Page 8 of 16
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42.
After making the First, Second, Third, and Fourth Transfers, Carnes has regularly authorized and continues to authorize payments to and from the MCC Trust account to fund his various businesses and purchase vehicles, artwork, jewelry, stock, alternative investments, and vacation homes for himself and his family, indicating that he has retained possession or control of the property transferred after the transfer (see Paragraphs 44-52). 43.
After making the First, Second, Third, and Fourth Transfers, by purchasing and retaining vehicles, artwork, jewelry, stock, alternative investments, and real property in the name of the MCC Trust, rather than his own name, Carnes has removed or concealed assets that would otherwise be publicly traceable to him (see Paragraphs 44-52). Carnes’ Removal or Concealment of the First through Fourth Transfers Through Cash, Vehicles, Art, Jewelry, Stock, Alternative Investments, and Real Property Held in the Name of the MCC Trust
44.
The combined cumulative transfers from the JRC Trust to the MCC Trust during the pendency of the Bureau’s investigation of Carnes and Integrity Advance through the date of the filing of the Bureau’s notice of charges (First through Fourth Transfer) is $12,269,072.89 (subtracting $656,533.36 transferred from the MCC Trust to the JRC Trust in March 2014). 45.
Using the fraudulently transferred funds set forth in Paragraphs 16-43 (First through Fourth Transfers), Carnes has removed or concealed fraudulently transferred property by purchasing or retaining other property under the name of MCC Trust. 46.
Carnes maintains separate deposit accounts at various financial institutions under the name of the MCC Trust, including an account at Stephens, Inc. that contained $744,002.41 as of June 30, 2022 and an account at Country Club Bank that contained $132,425.51 as of March 9, 2022.
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47.
In addition to the 2005 Mercedes G500 whose title is under Carnes’ name (and therefore subject to collection in CFPB v. Integrity Advance, LLC, et al., 21-mc-206 (D. Kan.)), Carnes retains possession of five other vehicles valued over $300,000 whose titles are listed under the MCC Trust, including make/model, VIN, and insured amounts listed below: a. 2010 Ferrari, ZFF65LJA4A0172295 ($101,557) b. 2009 Lexus LX 570, JTJHY00W694020496 ($28,782) c. 2015 Land Rover Range Rover, SALGS2TF8FA213908 ($48,330) d. 2018 Land Rover Range Rover, SALWR2RE2JA190589 ($101,171) e. 2020 Audi Q5 2.0T Quattro, WA1BNAFY4L2015925 ($49,329) 48.
Carnes retains approximately $800,000 in insured jewelry in the name of the MCC Trust including the following jewelry pieces (and their insured value): a. Diamond pendant ($34,287) b. Ladies Rolex watch ($41,836) c. Ladies platinum ring ($36,981) d. Ladies 14KT white gold diamond tennis bracelet ($33,246) e. Marked Tiffany & Co. platinum and diamond solitaire ring ($248,403) f. One Tiffany & Co. stainless steel Gentleman’s Patek Philippe “Aquanaut” watch ($31,430) g. One 18 KT white gold medium engraved hinged bangle bracelet ($9,909) h. One hand made custom designed ladies diamond bracelet, 4.20 carats black diamonds, 2.42 white diamonds ($14,496) i. One pair diamond “studs earrings”, 4.08 carats ($47,240) Case 2:23-cv-02151-HLT-TJJ Document 1 Filed 04/05/23 Page 10 of 16
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j. One custom designed ladies diamond bracelet, total weight of 37.96 carats ($65,156) k. One pair of 18K yellow gold large inside out hoop earrings ($10,312) l. Patek Phillipe 175th Anniversary watch ($81,611) m. One Tiffany & Co. platinum and diamond ring set ($161,663) n. Jewelers Regulator American Made Case with elaborate fox carving (1880s) ($25,000) 49.
Carnes retains approximately $1.38 million in insured artwork in the name of the MCC trust including the following pieces (and their insured value): a. Kenneth Noland, Untitled ($400,000) b. Robert Indiana, Love ($495,000) c. Milton Avery Painting, Mother and Child ($350,000) d. Wayne Thiebaud, Large Sucker (From Seven Still Lifes and a Rabbit) ($36,000) e. Sean Landers, Tartan Forest 2 ($100,000) f. Chris McCaw, Sunburned GSP#791 (Artic Circle, Alaska) ($16,000) 50.
Carnes also has made investments of approximately $1.9 million in an array of companies and limited partnerships under the name of MCC Trust. The income from these investments are regularly reported on the Carnes’ joint income tax return. These investments (based on original amount invested) include: a. Rock Island Capital Fund II, LP ($500,000); b. Clearview Energy, LP ($200,000);
c. Bio Daf USA, Inc. ($100,000);
d. JEL Resources, LLC (at least $74,000); Case 2:23-cv-02151-HLT-TJJ Document 1 Filed 04/05/23 Page 11 of 16
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e. SCM Walla Walla Investors, LLC ($200,000); f. KCH Emerge, LLC ($90,000);
g. Mer-Sea & Co, LLC ($500,000);
h. Deeyook II, LLC ($100,000);
i. Bird Dog Oil, LLC (at least $100,000).
51.
In addition, on August 17, 2020, Carnes, as co-trustee of the MCC Trust, completed a wire transfer of $2,706,478.64 from the MCC Trust account to First Security Bank in Bozeman, MT to fund the purchase of 14 Double Eagle Way, Unit 7005, Big Sky, MT 59716. Carnes, through the MCC Trust, continues to maintain possession of the property at 14 Double Eagle Way, Unit 7005, Big Sky, MT 59716.
52.
The property in question is part of the Yellowstone Club, a private ski mountain, which is by invitation only and caters exclusively to multi-millionaires and billionaires, and requires yearly dues of tens of thousands of dollars. Count I Fraudulent Transfers Under the Federal Debt Collection Procedures Act, 28 U.S.C. §§ 3304(b)(1)(A), 3306(a) (Against James R. Carnes, individually and in his capacity as co-trustee of the JRC Trust, as transferor, and Melissa C. Carnes, individually and in her capacity as co-trustee of the MCC Trust, as transferee)
53.
The Bureau realleges and incorporates by reference Paragraphs 1-52. 54.
Judgment Debtor Carnes is liable for a debt to the Bureau in excess of $43 million, including for restitution and civil money penalties for violations of the CFPA. This debt constitutes a “debt” under 28 U.S.C. §§ 3002(3)(B) and 3304(b)(1), and Carnes is a “debtor” under 28 U.S.C. §§ 3002(4) and 3304(b)(1).
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55.
As set forth in Paragraphs 16-43, through four different transfers, Carnes transferred cash and investments to the MCC Trust with actual intent to hinder, delay, or defraud a creditor.
56.
Carnes’ actual intent to hinder, delay, or defraud a creditor is demonstrated by the allegations in this Complaint, including the following: a. Melissa C. Carnes is Carnes’ wife and the Settlor/Grantor of the MCC Trust, and the transfers to the MCC Trust were for the benefit of Melissa C. Carnes who is an “insider” within the meaning of 28 U.S.C. §§ 3301(5), 3304(b)(2)(A). See Paragraph 8.
b. After making the First, Second, Third, and Fourth Transfers, Carnes retained control over the assets transferred, including because Melissa C. Carnes granted him power as co-trustee of the MCC Trust, and he directed purchases of assets on behalf of the MCC Trust. 28 U.S.C. § 3304(b)(2)(B). See Paragraphs 42, 44-52. c. Carnes failed to disclose the First, Second, Third, and Fourth Transfers in response to the Bureau’s post-judgment discovery requests on him. 28 U.S.C. § 3304(b)(2)(C). See Paragraph 40.
d. Carnes attempted to further conceal the First, Second, and Third Transfers by attempting to prevent his financial institutions from disclosing them. 28 U.S.C. § 3304(b)(2)(C). See Paragraph 41.
e. At the time of the First, Second, Third, and Fourth Transfers, Carnes had been threatened with suit. 28 U.S.C. § 3304(b)(2)(D). See Paragraphs 16-20. Case 2:23-cv-02151-HLT-TJJ Document 1 Filed 04/05/23 Page 13 of 16
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f. At the time of the Fourth Transfer, the Bureau had filed or was about to file a notice of charges against Integrity Advance and Carnes. 28 U.S.C. § 3304(b)(2)(D). See Paragraph 33.
g. Carnes did not receive reasonably equivalent consideration in exchange for the First, Second, and Third Transfers. 28 U.S.C. § 3304(b)(2)(H). See Paragraphs 23, 28, 29, 34.
h. Carnes removed or concealed assets by purchasing and retaining them in the name of the MCC Trust, rather than his own name. 28 U.S.C. § 3304(b)(2)(G). See Paragraphs 43-52.
57.
The First, Second, Third, and Fourth Transfers should be adjudged fraudulent and avoidable to the extent necessary to satisfy any judgment for the Bureau, and therefore the United States, 28 U.S.C. § 3002(15)(B), in this proceeding. 28 U.S.C. § 3304(b)(1)(A). PRAYER FOR RELIEF Wherefore, the Bureau requests that the Court enter an order: 1. Issuing writs of attachment, garnishment, and sequestration pursuant to 28 U.S.C. §§ 3101-3105 and any other necessary remedy against the assets transferred or other property of the above named defendants;
2. Enjoining defendants against further disposition of the fraudulently transferred property; 3. Declaring that the First, Second, Third, and Fourth Transfers described in Paragraph 23, 28, 29, and 33 be adjudged fraudulent and avoidable to the extent necessary to satisfy any judgment for the Bureau, under 28 U.S.C. § 3306;
4. Attachment of the property fraudulently transferred described above; 5. Judgment liens on the property fraudulently transferred described above; Case 2:23-cv-02151-HLT-TJJ Document 1 Filed 04/05/23 Page 14 of 16
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6. Garnishment of the proceeds of the fraudulent transfers described above; 7. Directing the levy and execution of the judgment by the United States Marshal or his representative, under 28 U.S.C. §§ 3306 and 2001, upon sequestration of any proceeds of the fraudulent transfers described above, with the proceeds to be applied to the judgment in CFPB v. Integrity Advance, LLC, et al., 21-mc-206 (D. Kan.) due the Bureau, together with interest to the date of the payment, plus costs and disbursements of this action, or alternatively, appointing a receiver to identify and conduct the sale of assets held by the MCC Trust, and thereafter pay over the proceeds of such sale to the Bureau in partial satisfaction of the judgment against Carnes in CFPB v. Integrity Advance, LLC, et al., 21mc-206 (D. Kan.);
8. Granting a judgment lien on 14 Double Eagle Way, Unit 7005, Big Sky, MT 59716, which is real property in Madison County, Montana currently under the name of the MCC Trust; and 9. Awarding a money judgment against the Melissa C. Carnes Revocable Trust and Melissa C. Carnes for the value of the respective property and/or funds received as a transferee of fraudulent conveyances of the property of Carnes.
REQUEST FOR TRIAL Comes Now the Plaintiff, Consumer Financial Protection Bureau, and hereby requests a trial on all issues raised herein to be held in Kansas City, Kansas.
ERIC HALPERIN Enforcement Director
DEBORAH MORRIS Deputy Enforcement Director
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Dated: April 5, 2023
/s/____Bradley H. Cohen____________
BRADLEY H. COHEN (D.C. 495145)
STEPHEN C. JACQUES (D.C. 464413)
TIFFANY N. HARDY (D.C. 486240)
Senior Litigation Counsel
Consumer Financial Protection Bureau
1700 G Street, N.W.
Washington, D.C. 20552
Phone: 202-435-9280
Email: [email protected]
KATE E. BRUBACHER
United States Attorney
s/ Wendy A. Lynn___________ WENDY A. LYNN CHRISTOPHER ALLMAN KS S. Ct. No. 296768 KS S. Ct. No. 14225
Assistant U.S. Attorneys 500 State Avenue, Suite 360 Kansas City, KS 66101 Tel. 913-551-7630 Fax 913-551-6541 [email protected]
ATTORNEYS FOR THE CONSUMER FINANCIAL PROTECTION BUREAU
Case 2:23-cv-02151-HLT-TJJ Document 1 Filed 04/05/23 Page 16 of 16
Stipulation ()
PDF of this document (12 pages)
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Case 2:23-cv-02151-DDC-TJJ Document 166 Filed 06/25/24 Page 1 of 12 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS CONSUMER FINANCIAL PROTECTION BUREAU, Plaintiff, v.
JAMES R. CARNES, MELISSA C.
CARNES, JAMES R. CARNES AS CO TRUSTEE OF THE JAMES R. CARNES REVOCABLE TRUST DATED FEBRUARY 10, 2010, MELISSA C. CARNES AS CO TRUSTEE OF THE JAMES R. CARNES REVOCABLE TRUST DATED FEBRUARY 10, 2010, JAMES R. CARNES AS CO TRUSTEE OF THE MELISSA C. CARNES REVOCABLE TRUST DATED FEBRUARY 10, 2010, and MELISSA C. CARNES AS CO TRUSTEE OF THE MELISSA C. CARNES REVOCABLE TRUST DATED FEBRUARY 10, 2010, Defendants.
Case No. 23-cv-2151-DDC-TJJ STIPULATED FINAL JUDGMENT AND ORDER The Consumer Financial Protection Bureau (Bureau) commenced this civil action on April 5, 2023 to avoid fraudulent transfers of over $12 million from the James R. Carnes Trust (JRC Trust) to the Melissa C. Carnes Trust (MCC Trust). The Complaint alleges violations of the Federal Debt Collection Procedures Act, 28 U.S.C. §§ 3001-3308, through fraudulent transfers made to avoid the Bureau’s judgment against James R. Carnes.1 1 On July 30, 2021, the Court entered judgment in favor of the Bureau and against James R. Carnes for restitution in the amount of $38,453,341.62 and for a civil penalty in the amount of $5,000,000, in addition to the other relief set forth in the Bureau Final Order. See CFPB v. Integrity Advance, LLC and James R. Carnes, 21-mc-206-DDC-TJJ (D. Kan. July 30, 2021) (Judgment Enforcement Action) [Docs. 21, 22].
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Case 2:23-cv-02151-DDC-TJJ Document 166 Filed 06/25/24 Page 2 of 12 The Bureau and Defendants agree to entry of this Stipulated Final Judgment and Order (Order), without adjudication of any issue of fact or law, to settle and resolve all matters in dispute arising from the conduct alleged in the Complaint. Findings 1.
This Court has jurisdiction over the parties and the subject matter of this action. 2.
Defendants neither admit nor deny the allegations in the Complaint, except as specified in this Order. For purposes of this Order, Defendants admit the facts necessary to establish the Court’s jurisdiction over them and the subject matter of this action. 3.
Defendants waive all rights to seek judicial review or otherwise challenge or contest the validity of this Order and any claim they may have under the Equal Access to Justice Act, 28 U.S.C. § 2412, concerning the prosecution of this action to the date of this Order. Each Party agrees to bear its own costs and expenses, including, without limitation, attorney’s fees. 4.
Entry of this Order is in the public interest.
Definitions 5.
The following definitions apply to this Order:
a.
“Assets” means any legal or equitable interest in, right to, or claim to any real, personal, or intellectual property owned or controlled by, or held, in whole or in part for the benefit of, or subject to access by any Defendant, wherever located, whether in the United States or abroad. This includes, but is not limited to, chattel, goods, instruments, equipment, fixtures, general intangibles, effects, leaseholds, contracts, mail or other deliverables, shares of stock, commodities, futures, inventory, checks, notes, accounts, credits, receivables (as those terms are defined in the Uniform Commercial Code), funds, cash, and trusts.
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Case 2:23-cv-02151-DDC-TJJ Document 166 Filed 06/25/24 Page 3 of 12 b. “Bureau” means the Consumer Financial Protection Bureau. c.
“Bureau Final Order” means the Bureau Director’s Final Order issued on January 11, 2021 against Defendants. See Final Order, Integrity Advance, LLC and James R. Carnes, CFPB No. 2015-CFPB-0029 (Jan. 11, 2021) [Dkt. 309]. d. “Defendants” means James R. Carnes, in his individual capacity and as co-trustee of the JRC Trust and as former co-trustee of the MCC Trust, and Melissa C. Carnes, in her individual capacity and as co-trustee of the MCC Trust and as former co-trustee of the JRC Trust, and each of them by any other names by which they might be known.
e.
“Effective Date” means the date on which the Order is entered by the Court. f.
“Enforcement Director” means the Assistant Director of the Office of Enforcement for the Consumer Financial Protection Bureau, or their delegate. g. “JRC Trust” means the James R. Carnes Revocable Trust, Dated February 10, 2010. h. “MCC Trust” means the Melissa C. Carnes Revocable Trust, Dated February 10, 2010.
I.
Order to Pay Judgment IT IS ORDERED that:
6.
A judgment for monetary relief is entered in favor of the Bureau and against Defendants, jointly and severally, in the amount of $12,269,072.89; however, full payment of this judgment will be suspended upon satisfaction of the obligations in Paragraphs 7 through 9 of this Section and subject to Section II [Effect of Misrepresentation or Omission of Financial Condition] and Section III [Additional Monetary Provisions].
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Case 2:23-cv-02151-DDC-TJJ Document 166 Filed 06/25/24 Page 4 of 12 7.
Defendants grant to the Bureau all rights and claims and forfeit any rights to the frozen Assets (to the extent such Assets are not subject to non-transferability provisions, as detailed below) in accounts held in the following financial institution accounts, except as noted below:
a.
Stephens, Inc., Account Number xxx1688, in the name of the Melissa C. Carnes Revocable Trust, Dated February 10, 2010;
i. The forfeiture provision stated in Paragraph 7 shall not apply to an Asset within Stephens, Inc., Account Number xxx1688, that is subject to a nontransferability provision. Specifically, MCC Trust owns an interest through Stephens, Inc. in the SCP Aaron, LLC (“Retained Stephens Asset”). The MCC Trust shall retain ownership of its interest in the SCP Aaron, LLC, as well as $500 in maintenance funds to keep the account open, which shall not be liquidated and paid to the Bureau;
b. Morgan Stanley, Account Number xxx3717, in the name of the Melissa C. Carnes Revocable Trust, Dated February 10, 2010;
c.
Morgan Stanley, Account Number xxx9204, in the name of the Melissa C. Carnes Revocable Trust, Dated February 10, 2010;
i. The forfeiture provision stated in Paragraph 7 shall not apply to an Asset within Morgan Stanley, Account Number xxx9204, that is subject to a nontransferability provision. Specifically, MCC Trust owns an interest through Morgan Stanley in the Riverview SOF IV LP (“Riverview Asset”). The MCC Trust shall retain ownership of the Riverview Asset, which shall not be liquidated and paid to the Bureau;
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Case 2:23-cv-02151-DDC-TJJ Document 166 Filed 06/25/24 Page 5 of 12 d. Morgan Stanley, Account Number xxx3581, in the name of the Melissa C. Carnes Revocable Trust, Dated February 10, 2010;
i. The forfeiture provision stated in Paragraph 7 shall not apply to an Asset within Morgan Stanley, Account Number xxx3581, that is subject to a nontransferability provision. Specifically, MCC Trust owns an interest through Morgan Stanley in the Carlyle Energy CR Opportunity II Fund (“Carlyle Asset,” together with the Riverview Asset, the “Retained Morgan Stanley Assets”). The MCC Trust shall retain ownership of the Carlyle Asset, which shall not be liquidated and paid to the Bureau;
e.
Country Club Bank, Account Number xxx5420, in the name of the Melissa C. Carnes Revocable Trust, Dated February 10, 2010.
Within 10 business days from receipt of a copy of this Order by any means, including but not limited to via facsimile or email, each of the financial institutions identified in subparagraphs (a) through (e) above shall liquidate and transfer to the Bureau or its designated agent all Assets held in the frozen accounts listed in subparagraphs (a) through (e) (other than the Retained Stephens Asset and Retained Morgan Stanley Assets) above by wire transfer according to the Bureau’s wiring instructions.
Defendants shall cooperate fully with the Bureau and each of the financial institutions and shall execute any instrument or document presented by the Bureau and take any other actions the Bureau deems necessary or appropriate to effect the transfers required by this Order. 8.
Within 10 days of the Effective Date, Defendants must pay to the Bureau, by wire transfer to the Bureau or to the Bureau’s agent, and according to the Bureau’s wiring instructions, $298,282.55, in partial satisfaction of the judgment referenced in Paragraph 6 of this
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Case 2:23-cv-02151-DDC-TJJ Document 166 Filed 06/25/24 Page 6 of 12 Section, which as Defendants stipulate, their counsel holds in escrow for no purpose other than payment to the Bureau.
9.
Within 210 days of the Effective Date, Defendants must pay to the Bureau, by wire transfer to the Bureau or to the Bureau’s agent, and according to the Bureau’s wiring instructions, $7,000,000.00 less the amounts paid to the Bureau according to Paragraphs 7 and 8 of this Section, in partial satisfaction of the judgment referenced in Paragraph 6 of this Section. 10.
Defendants’ payments made under this Order shall be credited toward and reduce the total amount owed on the Bureau’s judgment against James R. Carnes in the Judgment Enforcement Action. Except as stated in this Paragraph, nothing in this Order shall be interpreted to relieve Integrity Advance, LLC or James R. Carnes of their payment obligations with respect to the judgment entered in the Judgment Enforcement Action. 11.
Any funds received by the Bureau towards satisfaction of this judgment will be deposited in accordance with the Bureau Final Order that this Court enforced in the Judgment Enforcement Action.
12.
Within 10 days of Defendants’ satisfaction of the obligations in Paragraphs 7 through 9 of this Section and subject to compliance with Section II [Effect of Misrepresentation or Omission of Financial Condition] and Section III [Additional Monetary Provisions] of this Order, the Bureau will release and discharge the holds on frozen Assets in the following accounts held in the following financial institutions:
a.
Country Club Bank i. Account Number xxx5618 in the name of the Carnes Family Irrevocable Trust, Dated February 10, 2010;
ii. Account Number xxx3482, in the name of Henry Carnes; and
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Case 2:23-cv-02151-DDC-TJJ Document 166 Filed 06/25/24 Page 7 of 12 iii. Account Number xxx5429, in the name of Oliver Carnes; b. Venmo i. Account Number xxx0943, in the name of James R. Carnes; c.
Morgan Stanley i. Account Number xxx9204, in the name of the Melissa C. Carnes Revocable Trust, Dated February 10, 2010;
ii. Account Number xxx3581, in the name of the Melissa C. Carnes Revocable Trust, Dated February 10, 2010;
d. Stephens, Inc.
i. Account Number xxx1688, in the name of the Melissa C. Carnes Revocable Trust, Dated February 10, 2010.
13.
Within 10 days of Defendants’ satisfaction of the obligations in Paragraphs 7 through 9 of this Section and subject to compliance with Section II [Effect of Misrepresentation or Omission of Financial Condition] and Section III [Additional Monetary Provisions] of this Order, the Bureau will release and discharge the Writ of Attachment [Doc. 36-2] on the real property located at 14 Double Eagle Way, Unit 7005, Big Sky, Montana 59716, by Order of this Court, dated July 14, 2023 [Doc. 35] and timely execute any other further documentation as is reasonably necessary to accomplish the borrowing and/or sale of the property. 14.
For each year, beginning in 2023 through and until the judgment in the Judgment Enforcement action is paid in full, Defendant James R. Carnes must submit to the Bureau his signed and filed annual federal and state income tax returns and all supporting schedules, whether individually or jointly filed, within 14 days of filing.
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Case 2:23-cv-02151-DDC-TJJ Document 166 Filed 06/25/24 Page 8 of 12 15.
The Bureau releases and discharges Defendants from all potential liability for law violations that the Bureau has or might have asserted based on the fraudulent transfers identified in the Complaint, to the extent such violations occurred before the Effective Date and the Bureau knows about them as of the Effective Date.
16.
To the extent third parties require Defendants to submit a notice regarding the status of this Order so that Defendants can liquidate or borrow against their Assets to comply with Paragraph 9 of this Section, Defendants may make a request to the Bureau for a status update, and the Bureau will promptly cooperate with any such request, including as necessary providing notice of whether, based on the facts known to the Bureau at that time, it intends to bring an action against Defendants for violation of the terms of this Order. II.
Effect of Misrepresentation or Omission Regarding Financial Condition IT IS FURTHER ORDERED that:
17.
The partial suspension of the judgment entered in Section I of this Order is expressly premised on the truthfulness, accuracy, and completeness of Defendants’ sworn financial statements and supporting documents submitted to the Bureau, which Defendants assert are truthful, accurate, and complete, and which include: a.
Financial Statement of Defendants, including the attachments, signed on January 18, 2024 and submitted to the Bureau on or about January 19, 2024; b. Defendants’ oral testimony provided on April 3, 4, and 5, 2024 including the changes reflected in Defendants’ errata sheets;
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Case 2:23-cv-02151-DDC-TJJ Document 166 Filed 06/25/24 Page 9 of 12 c.
Updated Financial Statement of Defendants, including the attachments, signed on June 13, 2024 and submitted to the Bureau on or about June 13, 2024, and including supplemental information submitted on June 14, 2024 and June 17, 2024; and d. James R. Carnes’s federal and state income tax returns and all supporting schedules, submitted pursuant to Paragraph 14 of this Order.
18.
If, upon motion by the Bureau, the Court determines that any Defendant has failed to disclose any material Asset or that any of their financial statements, tax returns, or oral testimony contain any material misrepresentation or omission, including materially misstating the value of any Asset, the Court shall terminate the suspension of the monetary judgment entered in Section I and without further adjudication, shall reinstate the full judgment in the amount of $12,269,072.89, which shall be immediately due and payable, less any amounts already paid to the Bureau under Section I of this Order. Provided, however, that in all other respects this Order shall remain in full force and effect unless otherwise ordered by the Court; and, provided further, that proceedings instituted under this provision would be in addition to, and not in lieu of, any other civil or criminal remedies as may be provided by law, including any other proceedings that the Bureau may initiate to enforce this Order.
19.
If the Court terminates the suspension of the monetary judgment under this Section, the Bureau will be entitled to interest, computed from the date of entry of this Order, at the rate prescribed by 28 U.S.C. § 1961, as amended, on any outstanding amounts not paid on the judgment.
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Case 2:23-cv-02151-DDC-TJJ Document 166 Filed 06/25/24 Page 10 of 12 III.
Additional Monetary Provisions IT IS FURTHER ORDERED that:
20.
In the event of any default on Defendants’ obligations to make payments under this Order, interest, computed under 28 U.S.C. § 1961, as amended, will accrue on any outstanding amounts not paid from the date of judgment to the date of payment, and will immediately become due and payable.
21.
Defendants relinquish all dominion, control, and title to the funds and all other Assets transferred or paid under this Order to the fullest extent permitted by law, and no part of the funds or other Assets may be returned to Defendants. 22.
The facts alleged in the Complaint will be taken as true and be given collateral estoppel effect, without further proof, in any proceeding based on the entry of the Order, or in any subsequent civil litigation by or on behalf of the Bureau, including in a proceeding to enforce its rights to any payment or monetary judgment under this Order, such as a nondischargeability complaint in any bankruptcy case. 23.
The facts alleged in the Complaint establish all elements necessary to sustain an action by the Bureau under section 523(a)(2)(A) of the Bankruptcy Code, 11 U.S.C. § 523(a)(2)(A), and for such purposes this Order will have collateral estoppel effect against each Defendant, even in such Defendant’s capacity as debtor-in-possession. 24.
Defendants acknowledge that their Taxpayer Identification Numbers, which Defendants previously submitted to the Bureau, may be used for purposes of collecting and reporting on any delinquent amount arising out of this Order, in accordance with 31 U.S.C. § 7701.
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Case 2:23-cv-02151-DDC-TJJ Document 166 Filed 06/25/24 Page 11 of 12 25.
Upon written request of a representative of the Bureau, any consumer reporting agency must furnish consumer reports to the Bureau concerning any Defendant under section 604(a)(1) of the Fair Credit Reporting Act, 15 U.S.C. § 168l (b)(a)(1), which may be used for purposes of collecting and reporting on any delinquent amount arising out of this Order. IV.
Notices IT IS FURTHER ORDERED that:
26.
Unless otherwise directed in writing by the Bureau, Defendants must provide all submissions, requests, communications, or other documents relating to this Order in writing, with the subject line, “CFPB v. James R. Carnes and Melissa C. Carnes, 23-cv-2151 (D. Kan.)” and send them by email to [email protected]: ATTN: Enforcement Director Consumer Financial Protection Bureau Office of Enforcement V.
Cooperation with the Bureau IT IS FURTHER ORDERED that:
27.
Defendant James R. Carnes must cooperate fully to help the Bureau determine the identity and location of, and the amount of injury sustained by, each consumer who borrowed money from Integrity Advance, LLC, on or after July 21, 2011, as described in the Bureau Final Order. Defendant James R. Carnes must provide such information in his or his agents’ possession or control within 14 days of receiving a written request from the Bureau.
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Case 2:23-cv-02151-DDC-TJJ Document 166 Filed 06/25/24 Page 12 of 12 VII.
Retention of Jurisdiction IT IS FURTHER ORDERED that:
28.
All pending motions are hereby denied as moot. 29.
The Court will retain jurisdiction of this matter for the purpose of enforcing this Order.
IT IS SO ORDERED.
Dated this 25th day of June, 2024, at Kansas City, Kansas. s/ Daniel D. Crabtree Daniel D. Crabtree United States District Judge