Busch v. Welling
| Decision Date | 09 March 2017 |
| Docket Number | C/w No. CV-15-00045-PHX-JJT,No. CV-13-02517-PHX-JJT,CV-13-02517-PHX-JJT |
| Parties | Larry J. Busch, et al., Plaintiffs, v. Owen David Welling, et al., Defendants. |
| Court | U.S. District Court — District of Arizona |
NOT FOR PUBLICATION
At issue are Plaintiffs and Counterdefendants Larry J. Busch and Busch Law Center, LLC's (collectively, the "Busch Parties") Motion for Summary Judgment (Doc. 121, Busch MSJ), to which Defendant and Counterclaimant Yellow Brick Road, LLC ("YBR") filed a Response (Doc. 132, YBR Resp.) and the Busch Parties filed a Reply (Doc. 136, Busch Reply); and YBR's Cross-Motion for Summary Judgment (Doc. 129, YBR MSJ), to which the Busch Parties filed a Response (Doc. 134, Busch Resp.) and YBR filed a Reply (Doc. 139, YBR Reply). YBR also filed a Response to the Busch Parties' Controverting Statement of Facts ("CSOF") in support of YBR's Motion (YBR CSOF Resp., Doc. 140). Although requested, the Court finds these matters appropriate for decision without oral argument. See LRCiv 7.2(f).
In early March 2010, YBR's Chief Executive Officer, Owen Welling, became aware of a purported investment opportunity with Alicorn Capital Management ("Alicorn"), presented by its purported principals—John Childs and Scott Koster—in conjunction with Berea, Inc. ("Berea"). Numerous discussions took place between March and May 2010 before the parties negotiated an agreement in which YBR would pay $300,000 to lease a $10,000,000 standby letter of credit ("SBLC") provided by Success Bullion USA, LLC ("Success Bullion"). The SBLC was purportedly to be used to establish proof of funds so that Berea could initiate trades or purchases of commodities. In exchange for its payment, YBR was to receive 15% of the SBLC's value. Alicorn was to receive a $250,000 "finder's fee" and Success Bullion the remaining $50,000.
In April 2010, YBR and Alicorn memorialized the proposed agreement in an Engagement Letter, which required YBR to wire its payment to Busch Law Center, acting as an escrow agent. The Busch Parties' involvement was governed by the Escrow Instructions, which were jointly drafted by YBR and Alicorn and appended to the Engagement Letter. The Busch Parties were to transfer $50,000 to Success Bullion and then disperse the remaining funds after certain conditions were met. First, a "Notice of Approval" would be issued by Berea after confirming the SBLC format. After YBR, Alicorn, and Berea executed the Notice of Approval, it would be delivered to the Busch Parties. Upon receipt of the Notice of Approval and a stamped copy of the SBLC issued by Success Bullion, the Busch Parties were authorized to wire the remaining $250,000 to Alicorn.
In executing the Escrow Instructions, YBR agreed to "indemnify and hold the [Busch Parties] harmless against any loss, liability, damage, cost or expense, including attorney fees, (a) related in any way to the Busch Parties acting upon any notice, request, waiver, consent, receipt, or other paper or document believed" by the Busch Parties to be signed by YBR or other proper parties, "or (b) incurred in connection with any act or thing done pursuant to the Escrow Instructions," and to "hold [the Busch Parties] harmless as to any liability incurred by [the Busch Parties] to any person, firm, or corporation by reason of its having accepted or in carrying out any of the terms hereof." The Escrow Instructions also required YBR to "reimburse [the Busch Parties] all its expenses, including . . . counsel fees and court costs incurred by reason of its position oractions taken pursuant to the Escrow Instructions" and provided that the Busch Parties "shall not be liable for any error of judgment or for any act done or step taken or omission by it in good faith or for any mistake of fact or law for anything which [the Busch Parties] may do or refrain from doing in connection herewith, except its own gross negligence or willful misconduct" or liable to any parties to the agreement.
In May 2010, Berea and YBR executed an Asset Management Agreement stating stated that Berea would identify and manage the entry of the SBLC into an investment opportunity and make minimum payments to YBR of 15% of the SBLC value on a monthly basis for 12 months. On May 26, 2010, the final transaction documents were executed by the parties. After execution, YBR wired $300,000 to Busch Law Center's escrow account. On June 8, 2010, Mr. Childs stated that the SBLC would be delivered the following day. On June 10, 2010, YBR executed the Notice of Approval, which was transmitted to the Busch Parties. On June 11, 2010, Mr. Childs sent the purported SBLC to Mr. Busch. However, the SBLC was not a stamped copy, as required by the Escrow Instructions. Despite this, the Busch Parties distributed the remaining escrowed funds, less Mr. Busch's fees, directly to Mr. Childs and Mr. Koster. The Busch Parties never received the SBLC issued by Success Bullion or a stamped copy from any party.
On February 3, 2011, Richard Hall, of Berea, informed YBR that Berea had not been able to secure the SBLC, allegedly due to an error in the transmission between Success Bullion and the financial institution. On February 14, 2011, Mr. Welling sent an email to Berea, Alicorn, Mr. Childs, Mr. Koster, and Mr. Hall alleging that they had failed to execute the deal in accordance with the transaction documents. On October 16, 2012, YBR sent a demand letter to all involved parties alleging fraud. The Busch Parties failed to respond to the demand letter and, despite previous assurances to the contrary, no SBLC ever materialized.
On August 19, 2013, YBR filed suit against the counterparties to the transaction, alleging that numerous parties in various capacities conspired to defraud YBR, including the Busch Parties, in the U.S. District Court for the District of Minnesota. The allegationswere not identical but similar to those brought here, including seeking damages arising out of the Busch Parties' services as an escrow agent in the transaction. The Minnesota action was dismissed on August 7, 2014 based on a lack of personal jurisdiction. See Yellow Brick Road, LLC v. Childs, 36 F. Supp. 3d 855 (D. Minn. 2014).
The Busch Parties then filed this action against YBR on December 11, 2013, alleging Breach of Contract (Count 1) and seeking a Declaratory Judgment (Count 2) and Attorney's Fees and Costs (Count 3), based on their claims that YBR breached their agreement to indemnify and hold the Busch Parties harmless by bringing the Minnesota action. (Doc. 1.) On August 15, 2014, YBR filed its Answer and Counterclaim, alleging violation of the Racketeering Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 (Count 1), Conspiracy to Violate RICO (Count 2), Civil Conspiracy to Commit Fraud (Count 3), Aiding and Abetting Fraud (Count 4), Conversion (Count 5), and seeking a Declaratory Judgment that it not be required to abide by its agreement to indemnify and hold the Busch Parties harmless (Count 6). (Doc. 42.)
Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is appropriate when: (1) the movant shows that there is no genuine dispute as to any material fact; and (2) after viewing the evidence most favorably to the non-moving party, the movant is entitled to prevail as a matter of law. Fed. R. Civ. P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Eisenberg v. Ins. Co. of N. Am., 815 F.2d 1285, 1288-89 (9th Cir. 1987). Under this standard, "[o]nly disputes over facts that might affect the outcome of the suit under governing [substantive] law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A "genuine issue" of material fact arises only "if the evidence is such that a reasonable jury could return a verdict for the non-moving party." Id.
In considering a motion for summary judgment, the court must regard as true the non-moving party's evidence if it is supported by affidavits or other evidentiary material. Celotex, 477 U.S. at 324; Eisenberg, 815 F.2d at 1289. The non-moving party may notmerely rest on its pleadings; it must produce some significant probative evidence tending to contradict the moving party's allegations, thereby creating a question of material fact. Anderson, 477 U.S. at 256-57 (); First Nat'l Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 289 (1968).
"A summary judgment motion cannot be defeated by relying solely on conclusory allegations unsupported by factual data." Taylor v. List, 880 F.2d 1040, 1045 (9th Cir. 1989). "Summary judgment must be entered '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.'" United States v. Carter, 906 F.2d 1375, 1376 (9th Cir. 1990) (quoting Celotex, 477 U.S. at 322).
Before assessing the parties' cross-motions for summary judgment on the merits, the Court must address two preliminary matters underlying the motions and the evidence supportive of each.
YBR asserts, in both response to the Busch Parties' Motion for Summary Judgment and in support of YBR's Motion for Summary Judgment, that Mr. Busch's declarations should be stricken because he repeatedly invoked the Fifth Amendment and refused to answer deposition questions regarding the claims and defenses of the Busch Parties in this matter. (YBR Resp. at 2-3; YBR MSJ at 9-10.) In spite of his invocation, the Busch Parties' Motion and Response heavily rely on Mr. Busch's declarations, including his avowals regarding the same topics he declined to testify on, in order to establish or controvert facts. (See, e.g., Doc. 122, Busch Statement of Facts ("SOF") 11-15.)
In civil cases, the Fifth...
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