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Click here for the full text of this decision FACTS:A man named Johnson met David Edwards and James Edwards in the mid-1990s, when they had been investors in public pay-phone companies. Johnson was contacted in 1998 by the two men about investing in Pacific International Limited Partnership (PILP). Johnson knew that PILP operated in conjunction with Dennel Finance Ltd., and Ben Cook. It was these latter two who would put Johnson’s initial $10,000 investment into play. In March 1999, the Securities and Exchange Commission got an injunction against Dennel for conducting a Ponzi scheme, appointing Lawrence Warfield as receiver for Dennel and more than 30 other related entities. Soon after, the Edwardses began offering Research Development International (RDI) and PILP as new, independent investments. Johnson may have believed that RDI was separate from Dennel, but he did know that Dennel was in receivership, that RDI was being offered by the same people who offered PILP through Dennel, that RDI’s contracts were nearly identical to Dennel’s and that RDI was under investigation by the SEC. Nonetheless, Johnson continued his investment with RDI, receiving substantial returns. In 1999, a man named Littlewood was contacted to invest in RDI. Littlewood received a healthy return on his first $10,000 investment, so increased the amount he invested, and he gave RDI contact information for various other parties who might join in the investment. In a suit brought by the SEC, the Edwardses were found to have operated RDI as a fraudulent Ponzi scheme. The district court appointed Warfield as the receiver for RDI. In June 2002, the district court authorized Warfield to sue other people to recoup receivership assets. Two such suits were brought against individuals named Littlewood and Johnson for receiving fraudulent transfers. Littlewood was served on Aug. 11, 2002. He filed a motion to dismiss, but filed no answer. He briefly participated in discovery, but then withdrew his attorney because he didn’t have enough money to pay him. Warfield moved for partial summary judgment against Littlewood on Jan. 30, 2004, the same day he served a copy of the motion, the brief and the supporting appendix to Littlewood’s former counsel and to Littlewood’s last known address. The district court granted Warfield’s motion, based on Warfield’s notice of Littlewood’s default. Five days later, Littlewood hired a new attorney and sought relief under Federal Rule of Civil Procedure 60(b). His motion said he had a meritorious defense to Warfield’s suit, though the only fact he contested was the amount he invested in the RDI scheme. The district court denied the motion. The suit against Johnson made four points: 1. RDI and the other entities operated as fraudulent Ponzi schemes, insolvent at their inception; 2. Johnson received fraudulent transfers in bad faith; 3. John received more than $1.57 million from the scheme; and 4. “facilitating” investments in RDI programs did not provide any reasonably equivalent value in exchange for the money Johnson received. The district court granted Warfield’s partial motion for summary judgment against Johnson. HOLDING:Affirmed. The court vacates an order declaring nondischargeability of the judgments in bankruptcy without discussion. The court first addresses the default judgment against Littlewood, noting the four factors for relief under Rule 60(b)(1): 1. the extent of prejudice to the plaintiff; 2. the culpability of the defendant’s conduct; and 3. the merits of the defendant’s asserted defense. The first factor clearly weighs in Littlewood’s favor. As to the second factor, Littlewood claims he never received the summary judgment and other documents. The court points out, however, that the all of the critical documents were served by regular mail to the addresses provided by Littlewood’s first attorney in his motion to withdraw. This factor, thus, weighs in Warfield’s favor. The third factor also weighs in Warfield’s favor. Littlewood’s claim that he was an unwitting investor is unavailing. The court further rejects Littlewood’s challenges, taking note of such fact that he and Warfield tried to negotiate a settlement offer where it was said that a judgment for the full amount was in the offing. Littlewood did nothing to monitor the status of the claims against him after this negotiation, the court observes. The court then examines the summary judgments against both Littlewood and Johnson. The court notes that all parties agree, as it does, that Washington law on fraudulent transfers applies. The court notes a split in intermediate appellate authority in Washington case law over whether the receiver of a fraudulent transfer acted knowingly or not. In light of this split, the court says it has to make an “Erie guess” as to how the Washington Supreme Court would rule. Under Washington Rev. Code �19.40.041, to recover the transfers from RDI to Littlewood and Johnson, Warfield was required to demonstrate that they received transfers from RDI that were made with actual intent to defraud. Warfield satisfied this burden with evidence of receipts from RDI and evidence that RDI was a Ponzi scheme, which is insolvent from its inception, as a matter of law. Littleton’s and Johnson’s knowing participation is irrelevant under the statute. The court further adds that Littlewood offered no competent evidence that he received the transfers in exchange for reasonably equivalent value. Johnson’s tax return acts as a significant, though not definitive, admission that RDI was operated fraudulently. Also, Johnson’s failure to inquire into RDI more closely � after knowing about the connections it had with Dennel, the Edwardses and PILP � raises “serious questions” about his good-faith defense. Ultimately, though, his defense would still fail because he could not prove he received the transfers in exchange for reasonably equivalent value. OPINION:Jones, CJ; Jones, CJ, DeMoss and Owen, JJ.

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