CWT Canada II Ltd. v. Danzik
| Decision Date | 02 January 2019 |
| Docket Number | No. CV16-0607 PHX DGC,No. CV16-2577 PHX DGC,CV16-0607 PHX DGC,CV16-2577 PHX DGC |
| Parties | CWT Canada II Limited Partnership, an Ontario, Canada Limited Partnership, et al., Plaintiff, v. Elizabeth J. Danzik, an Individual, et al., Defendants. |
| Court | U.S. District Court — District of Arizona |
Plaintiffs CWT Canada II Limited Partnership and Resource Recovery Corporation (collectively "CWT") sued Defendants Elizabeth J. Danzik ("Elizabeth"), Danzik Applied Sciences, LLC ("DAS"), Tony Ker ("Ker"), and Richard Carrigan ("Carrigan") for various claims related to approximately $5 million in unpaid tax credits. Doc. 1; Bridges Doc. 56.1 CWT, Ker, Carrigan, and Elizabeth move for summary judgment. Docs. 156; 165. Ker and Carrigan also move to strike a CWT sur-reply. Doc. 175. The motions are fully briefed, and oral arguments will not aide the Court's decision. LR Civ. 7.2(f); Fed. R. Civ. P. 78(b). For the following reasons, the Court will deny CWT's motion in part and grantit in part, deny Ker and Carrigan's Motion, grant Elizabeth's motion in part and deny it in part, and grant Ker and Carrigan's motion to strike.
Dennis Danzik ("Danzik") was the chief executive officer of RDX Technologies, Corp. ("RDX"), a now-defunct corporation. Doc. 1 ¶1. Danzik also owns DAS. Bridges Doc. 1 ¶ 2. Dennis and his spouse, Elizabeth, own Deja II, LLC ("Deja"). Doc. 1 ¶ 1. CWT entered into a transaction to sell their company, Changing World Technologies, L.P. ("Changing World"), to RDX. Bridges Doc. 1 ¶ 2. CWT also entered into a transaction to purchase RDX stock. Id. ¶ 32. Ker was the chairman of the RDX board, and Carrigan was a board member. Id. ¶ 5.
In 2013, CWT and RDX entered into a Uniform Purchase Agreement (the "UPA"), for Changing World. Id. ¶ 22. Under the UPA, RDX signed two promissory notes totaling $20 million and provided stock to CWT. Id. ¶ 32. Changing World was the holding company and sole member of Renewable Environmental Solutions, LLC ("RES"), which manufactured and sold renewable diesel fuel. Id. Under a federal subsidy program, RES was eligible for tax credits for every gallon of diesel fuel produced. Id. RES owed no taxes because it had no profit, and therefore it received a tax credit payment every year. Id. In 2011, the subsidy program expired and then was renewed retroactively in 2013. Id. ¶ 24. Accordingly, in 2013 or 2014 RES could request millions of tax credits earned in 2012. Id. Under the UPA, "one hundred percent of all amounts received by [RDX] as a result of the reinstatement of any Federal or state tax credit relating to the period prior to and including December 21, 2012 [would] be allocated and distributed to [CWT]." Doc. 158-1 (0607) § 2.3.
Prior to selling Changing World to RDX, CWT invited Gem Holdco, LLC ("GEM") to be a limited partner with the CWT parties. Id. GEM wanted to invest enough to own sixty percent of CWT, but it planned to resell the ownership to RDX. Id. By March 2013, CWT realized that GEM was not complying with its contractual obligations to fund thecompany and obtain its sixty percent interest. As a result, CWT contracted with RDX separately to sell Changing World. Id. ¶ 31.
GEM filed an action in New York against CWT for failing to sell it sixty percent of Changing World, and CWT joined Danzik and RDX as defendants. Id. ¶ 39. By August 2014, relations between CWT, Danzik, and RDX began to sour because RDX refused to pay the purchase price for Changing World, to remit the tax credits to CWT, and to provide $1 million in stock. Id. ¶ 40.
Danzik argued that CWT defrauded RDX because the RES refining process was not the expected quality. Id. ¶¶ 41-42. Danzik further argued that he was holding the tax credit funds for the U.S. government because RES did not produce renewable diesel to be eligible for the tax credit. Id. ¶ 44. In 2015, CWT filed crossclaims in the New York action against Danzik and RDX for the misappropriation of the tax credits and other breaches of the UPA. Id. ¶ 48; Dennis Doc. 60-12 at 30.
In December 2015, CWT moved for a preliminary injunction to prohibit Danzik and RDX from using or transferring the RES tax credit funds and to require them to deposit the funds into a separate trust account. Dennis Doc. 60-15. The New York Court granted CWT's motion. Dennis Doc. 60-16. Justice Kornreich explained that there was Id. at 6.
At a hearing on November 4, 2015, Justice Kornreich granted a motion to strike Danzik and RDX's defenses. See Dennis Doc. 60-19 at 3-4 ( ). This ruling was based on Danzik and RDX's repeated refusals to comply with court orders to produce certain bank records and ESI during discovery. Id. at 3-5.
On June 3, 2016, after holding a contempt hearing, Justice Kornreich found Danzik and RDX in civil and criminal contempt for violating the attachment order and a later-granted temporary restraining order requiring Danzik and RDX to set aside the tax credit funds. Dennis Doc. 60-22. Justice Kornreich proceeded to the merits and found that there was "no question that [Danzik and RDX] willfully violated the Attachment Order and the TRO." Id. at 9.
In August 2016, Justice Kornreich granted CWT's unopposed motion for default judgment against Danzik and RDX on their crossclaims. Dennis Doc. 60-2.2 In assessing whether CWT had a viable cause of action against Danzik and RDX for purposes of entering default judgment, Justice Kornreich explained that the breach of trust crossclaim "concerns [Danzik and RDX's] breach of their obligation to hold the tax credits in constructive trust for [CWTs], as required by the UPA." Id. at 5-6. She concluded that Defendants' "right to the tax credits under the UPA is clear, and any defense RDX may have had has been stricken." Id. at 6. A final judgment was entered the following month against Danzik and RDX in the amount of $7,033,491.13. Dennis Doc. 60-3.
On March 4, 2016, CWT sued Elizabeth and Deja, alleging that Elizabeth received $730,000 that Danzik stole from CWT, and that she defrauded CWT in a separate RDX stock transaction. See Doc. 1 ¶ 1. Next, CWT sued DAS, Carrigan, and Ker, alleging that they knew of and aided in Danzik's fraudulent theft scheme. Bridges Doc. 1. Ker filed a counterclaim to that suit. See Bridges Doc. 81. Finally, Danzik and RDX sued CWT and various parties related to CWT, alleging that they defrauded Danzik into purchasing Changing World. Dennis Doc. 1. On September 27, 2017, the Court granted the parties' motion to consolidate these actions and directed the parties to make subsequent filings inthe Elizabeth Action. See Doc. 96. The Court granted motions to dismiss Ker's abuse of process counterclaim and the Dennis Action. See Doc. 119.
The remaining claims include fraud against Carrigan and Ker (Bridges Doc. 56 ¶¶ 95-100); conversion against DAS (id. ¶¶ 101-11); tortious interference with contractual relations against Carrigan and Ker (id. ¶¶ 112-19); breach of trust against Carrigan and Ker (id. ¶¶ 120-30); breach of fiduciary duty against Carrigan and Ker (id. ¶¶ 131-39); aiding and abetting fraud, conversion, breach of trust/misappropriation of trust assets and breach of fiduciary duty against DAS, Bridges, Carrigan, and Ker (id. ¶¶ 140-51); unjust enrichment and restitution against DAS (id. ¶¶ 152-57); constructive trust against DAS (id. ¶¶ 158-62); fraudulent transfers under A.R.S. § 44-1004(A)(1) against DAS (id. ¶¶ 163-68); fraudulent transfers under A.R.S. § 44-1004(A)(2) against DAS (id. ¶¶ 169-75); fraudulent transfers under A.R.S. § 44-1005 against DAS (id. ¶¶ 176-82); and common law conspiracy to commit fraudulent transfers against DAS, Carrigan, and Ker (id. ¶¶ 183-87).3 Claims for defamation under Arizona and Canadian law remain in Ker's second amended counterclaim against CWT. See Doc. 99 ¶¶ 63-76.
In the Elizabeth Action, the remaining claims include fraud against Elizabeth and Deja (Doc. 1 ¶¶ 95-109); conversion against Elizabeth and Deja (id. ¶¶ 110-15); money had and received against Elizabeth and Deja (id. ¶¶ 116-22); breach of contract against Deja (id. ¶¶ 123-28); conversion of the tax credits against Elizabeth (id. ¶¶ 129-38); money had and received related to the tax credits against Elizabeth (id. ¶¶ 139-45); unjust enrichment and restitution against Elizabeth and Deja (id. ¶¶ 146-51); unjust enrichment and restitution against Elisabeth (id. ¶¶ 152-57); constructive trust against Elizabeth and Deja (id. ¶¶ 158-62); and accounting against Elizabeth and Deja (id. ¶¶ 163-67).
A party seeking summary judgment "bears the initial responsibility of informing the district court of the basis for its motion and identifying those portions of [the record] whichit believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Summary judgment is appropriate if the evidence, viewed in the light most favorable to the nonmoving party, shows "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). Summary judgment is also appropriate 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 322. Only disputes over facts that might affect the outcome of the suit will preclude summary judgment, and the disputed evidence...
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