Compass Bank, an Ala. Banking Corp. v. Morris Cerullo World Evangelism, Corp.
| Decision Date | 25 August 2015 |
| Docket Number | Case No. 13-cv-654 BAS (WVG) |
| Court | U.S. District Court — Southern District of California |
| Parties | COMPASS BANK, an Alabama banking corporation, d/b/a "BBVA COMPASS", Plaintiff, v. MORRIS CERULLO WORLD EVANGELISM, a California corporation, Defendant. AND RELATED COUNTERCLAIMS |
On March 19, 2013, Plaintiff Compass Bank ("BBVA") brought a declaratory relief action against Defendant Morris Cerullo World Evangelism ("MCWE") to declare that a $5.2 million standby letter of credit purportedly issued by BBVA and held by MCWE was not enforceable. ECF 1.
On May 17, 2013, MCWE answered and countersued BBVA and third-party defendants Larry Sorenson, Christopher Hammatt, and Jack Wilkinson. ECF 6. On June 28, 2013, MCWE amended its counterclaim.1 ECF 12. On November 12, 2013,Sorenson answered and countersued. ECF 35.
Jack Wilkinson, Christopher Hammatt, and Arrowmark defaulted (ECFs 44-47, 69, 70), and MCWE filed motions to default against Arrowmark, LLC and Jack Wilkinson (ECFs 82, 83).
MCWE's Second Amended Counter-Claim ("SACC"), filed on October 18, 2013, is its operative pleading. ECF 31. MCWE asserts breach of contract and promissory estoppel claims against BBVA. MCWE asserts breach of contract, promissory estoppel, conversion, and two counts of fraud against Arrowmark and Hammatt. MCWE asserts promissory estoppel, conversion, and two counts of fraud against Sorenson. Lastly, MCWE asserts conversion and one count of fraud against Wilkinson.
On March 20, 2015, BBVA and MCWE filed cross-motions for summary judgment. ECFs 117, 120. The Court orally denied the motions on May 28, 2015 and set the action for a bench trial beginning August 11, 2015.
The Court held a bench trial from August 11, 2015 to August 14, 2015. The parties filed their closing arguments by brief on August 21, 2015. After reviewing the facts of the case as presented at trial, the admitted exhibits, equity, and applicable law, the Court GRANTS BBVA's requested declaratory relief.
BBVA brought this action in diversity under 28 U.S.C. § 1332 and the federal Declaratory Judgment Act (28 U.S.C. § 2201(a)). MCWE invokes the Court's supplemental jurisdiction under 28 U.S.C. § 1367(a) over its counterclaims.
Under 28 U.S.C. § 1367(b), if federal subject matter jurisdiction arises solely from diversity, a court cannot exercise supplemental jurisdiction if doing so would destroy diversity. In some cases, the entire action must be dismissed if the non-diverse joined party is necessary to the litigation under Federal Rule of Civil Procedure 19.
In the case of counterclaims, courts ask whether a non-diverse third-party defendant should be treated as a plaintiff for purposes of the diversity determination, and then apply Rule 19(b) to determine whether the case may proceed without joining that party. After this analysis, the court may realign a third-party defendant as an indispensable plaintiff and dismiss the action if it lacks diversity. B. L. Schrader, Inc. v. Anderson Lumber Co., 257 F. Supp. 794 (D. Md. 1966) (); Butcher v. Hildreth, 992 F. Supp. 1420 (D. Utah 1998) ().
MCWE is for diversity purposes a citizen of California. So too are Hammatt and Wilkinson, third-party defendants. This Court determined that although Hammatt and Wilkinson are third-party defendants, their position is adverse to both MCWE and BBVA. As such, the Court will not realign them as plaintiffs.
MCWE waived its right to a jury trial because it failed to timely exercise it. Kam-Ko Bio-Pharm Trading Co. Ltd-Australasia v. Mayne Pharma (USA) Inc., 560 F.3d 935, 942 (9th Cir. 2009); May 28, 2015 Hr'ng, ECFs 179-80. As a result, this Court held a bench trial from August 11, 2015 until August 14, 2015.
The Court TERMINATES BBVA's motions for sanctions and contempt against Roger Artz as moot. ECF 279. Artz testified at trial in response to the subpoena this motion was intended to enforce. The Court also TERMINATES as moot BBVA's motion to file documents under seal. ECF 274.
Morris Cerullo World Evangelism, Inc. ("MCWE") is a 501(c)3 non-profit corporation, headed by Morris Cerullo and incorporated in 1959. Lynn Hodge is MCWE's CEO. He has an accounting degree and has worked as an accountant,systems analyst, and computer programmer for various entities including the Federal Reserve, Commerce Bank, and Bear Stearns brokerage. He has worked at MCWE since the early 1990s.
Roger Artz is MCWE's Senior Vice President of Development and has been employed by MCWE for over forty years. While MCWE's primary business is a ministry, the stewardship and development divisions of MCWE engage in business deals, including life insurance trusts, real estate, and occasionally loans. Artz's efforts are currently focused on developing an MCWE compound in Mission Valley entitled "Legacy Center." Additionally, he is a trustee of Plaza del Sol, a real estate trust subsidiary of MCWE.
In 2012, Christopher Hammatt was a practicing California attorney living in Murrieta. Andy Castro, who facilitated some of MCWE's life insurance trusts and used Hammatt as an attorney in some of those dealings, introduced him to Artz sometime around 2010. Lisa Mora was employed in Hammatt's office as his paralegal.
Larry Sorenson owns gold-mining property in Utah. He is the sole owner of Arrowmark, LLC and Laramark Investments, LLC. His mining operations are primarily undertaken through Arrowmark, a subsidiary of Laramark. Hammatt represented Arrowmark and Sorenson during this transaction.
Jack Wilkinson was a branch retail manager and vice president at BBVA's Temecula branch. BBVA is a Spanish bank that, after purchasing Compass Bank, has generally done business in the United States as "BBVA Compass Bank." In 2012, BBVA's outstanding standby letters of credit totaled over $1 billion. Geraldine Gurley headed BBVA's International Trade Services ("ITS") department, and her department has sole authority to issue standby letters of credit. ITS's office is in Houston, Texas.
Brenton Gee is a U.S. Secret Service Agent who began investigating Hammatt for malfeasance related to U.S. Treasury Bonds, beginning in 2010.
In July 2012, attorney Christopher Hammatt approached Artz with a "confidential offering" dated July 15, 2012. The offering, purportedly on behalf of Larry Sorenson, Arrowmark, LLC, and Laramark Investments, LLC, amounted to a request for a $3.5 million loan to purchase gold-mining property in Utah. Hammatt and the offering represented that Sorenson had discovered a "rich stream of gold" on property adjacent to his Utah operation. Hammatt, as Sorenson's attorney, was helping Sorenson raise $3.5 million to purchase the property. The offering stated that the deal must be kept confidential and funded quickly, because
In exchange for the $3.5 million loan, Arrowmark would pay a lump sum of $4.55 million after 145 days. This represented an APR of 110%. This "incredibly generous" return was "based upon the need and timing of the investment." The offering went on to state that Arrowmark was "very familiar with the 'status' and organizational make-up of MCWE, thus the repayment would be structured in such a way as to not represent an actual 'loan' to Arrowmark from MCWE which could cause serious issues to MCWE and its current tax status."
As collateral, the offer promised a 2% stake in the mining operation, which according to the offering was valued at $122.90 million, and a jade statue purportedly worth $34 million. The offering stated that Arrowmark's yearly gross revenue from its current operations was $8.33 million and netted 52% of the gross.
In addition to the confidential offering, Hammatt provided a brochure detailing Arrowmark's operations. Hammatt also provided an appraisal for a jade statue from the "Jade Gallery," which was for a nine-piece puzzle plaque of Emperor Qin Shi Huangdi from the Chi Dynasty (475-221 B.C.). The appraisal included a "certificate of authenticity/chain of title—ownership/identity of royalty that can verify origin" which stated the statue had been transferred in March 2003 from theBaroness Monika Elizabeth Freifrau von Quernheim to British citizen Paul Haworth Cater, and from Paul Haworth Cater to Larry Sorenson in 2005. The appraisal "updated" an insurance appraisal performed in 2002 in Colorado. The appraisal also included the "photograph of the Prince who can verify [the statue] was in the Museum of Malaysia." It did not include any contact information for "the Prince." Hammatt stated that he had buyers willing to purchase the jade within sixty days, including Scottish royalty and a Chinese government representative.
The offering closes with Hammatt's attestation:
As of July 2012, Artz had only known Hammatt a short time. Artz and Hodge testified that MCWE had used him exclusively as an attorney for some of the life insurance policies MCWE purchased for its trust. Even so, after reviewing the offering, Artz presented it to Cerullo.
Cerullo initially expressed hesitation about the deal. In response, Hammatt agreed to personally guarantee the loan through a standby letter of credit. On August 1, 2012, Hammatt emailed Artz "deal points" and a scanned copy of a purported Century Bancorp letter of credit for €10 million, with Hammatt as the beneficiary and addressed to BBVA. The letter stated that...
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