Evanston Ins. Co. v. Desert State Life Mgmt.

• Decision Date: 06 September 2020
• Docket Number: No. CIV 18-0654 JB\KK,CIV 18-0654 JB\KK
• Citation: 484 F.Supp.3d 987
• Parties: EVANSTON INSURANCE COMPANY, Plaintiff, v. DESERT STATE LIFE MANAGEMENT; Christopher Moya, in his capacity as Receiver for the receivership estate of Desert State Life Management; Paul A. Donisthorpe; L. Helen Bennett; Liane Kerr ; Ayudando Guardians, Inc., a New Mexico Nonprofit Corporation, on behalf of seven protected persons; Joseph Perez; Christine Gallegos, individually and as Guardian of Victor Baldizan, an incapacitated adult; Scott K. Atkinson, as Guardian Ad Litem for Vincent Esquibel, Jr., an Incapacitated Person; and Charles Reynolds, as Conservator for J.W., an Incapacitated Person, and Cameron Graham, as trustee for Andrew Graham, Christopher Moya; Ascending Hope, LLC ; CNRAG, Inc.; and Decades, LLC, Defendants.
• Court: U.S. District Court — District of New Mexico

484 F.Supp.3d 987

EVANSTON INSURANCE COMPANY, Plaintiff,

v.DESERT STATE LIFE MANAGEMENT; Christopher Moya, in his capacity as Receiver for the receivership estate of Desert State Life Management; Paul A. Donisthorpe; L. Helen Bennett; Liane Kerr ; Ayudando Guardians, Inc., a New Mexico Nonprofit Corporation, on behalf of seven protected persons; Joseph Perez; Christine Gallegos, individually and as Guardian of Victor Baldizan, an incapacitated adult; Scott K. Atkinson, as Guardian Ad Litem for Vincent Esquibel, Jr., an Incapacitated Person; and Charles Reynolds, as Conservator for J.W., an Incapacitated Person, and Cameron Graham, as trustee for Andrew Graham, Christopher Moya; Ascending Hope, LLC ; CNRAG, Inc.; and Decades, LLC, Defendants.

No. CIV 18-0654 JB\KK

United States District Court, D. New Mexico.

Filed September 6, 2020

Ann Maloney Conway, Elisabeth Anne Millich, Sheehan & Sheehan, P.A., Albuquerque, New Mexico --and-- Joseph Borders, McJessy, Ching & Thompson, LLC, Chicago, Illinois, Attorneys for the Plaintiff.

Maureen Sanders, Sanders & Westbrook, P.C., Albuquerque, New Mexico, Attorney for Defendant Helen Bennett.

Paul J. Kennedy, Kennedy, Hernandez & Associates, P.C., Albuquerque, New Mexico, Attorney for Defendant Liane Kerr.

Kevin Arthur Graham, Daniel Ross Rubin, New Mexico Regulation and Licensing Department, Santa Fe, New Mexico, Attorneys for Defendant Christopher Moya.

Ray M. Vargas, Vargas Law Firm, LLC, Albuquerque, New Mexico, Attorney for Defendant Paul Donisthorpe.

Joseph Goldberg, H. Jesse Jacobus, III, Frank T. Davis, Jr., Freedman Boyd Hollander Goldberg Urias & Ward P.A., Albuquerque, New Mexico, Attorneys for Defendants Cameron Graham, Joseph Perez, Christine Gallegos, Scott Atkinson, and Charles Reynolds.

John C. Anderson, United States Attorney, Brandon Fyffe, Assistant United States Attorney, United States Attorney's Office, Albuquerque, New Mexico, Attorneys for the United States of America.

MEMORANDUM OPINION, FINDINGS OF FACT, CONCLUSIONS OF LAW

James O. Browning, UNITED STATES DISTRICT JUDGE THIS MATTER comes before the Court on: (i) the bench trial held on October 7-9, 2019; (ii) the Motion to Strike Affidavits, Expert Report and to Exclude Expert Testimony of Christopher Moya at 1, filed September 30, 2019 (Doc. 133)("Expert Motion"); (iii) Plaintiff's Motion to Admit Certain Evidence Pursuant to Federal Rule of Evidence 402, filed October 6, 2019 (Doc. 144)("402 MIL"); (iv) Evanston's Motion in Limine to Allow Defendant Donisthorpe to Testify From Prison By Audio Teleconference at 1, filed October 6, 2019 (Doc. 141)("Telephone MIL"); (v) Plaintiff's Motion to Take Judicial Notice of and Admit Certain Evidence Pursuant to Federal Rules of Evidence 201(c)(2) and 902(1), filed October 6, 2019 (Doc. 142)("Exhibit MIL"); and Paul Donisthorpe's Motion to Set Aside Clerk's Entry of Default and Memorandum in Support Thereof, filed December 2, 2019 (Doc. 164)("Set Aside Motion"). The primary issues are: (i) whether, and to what extent, Defendants Christopher Moya, Paul Donisthorpe, Helen Bennett and Liane Kerr have coverage under the Declarations, Policy Form and Endorsements to Specified Professions Professional Liability Insurance Policy No. EO865165 issued by Evanston Insurance Company to Desert State Life Management (undated), admitted October 7, 2020, at trial as Evanston Insurance's Ex. 1 ("Insurance Policy"); (ii) whether the Court should permit Donisthorpe to testify via telephone at trial from prison; (iii) whether the Court should permit Moya to testify as an expert at trial; (iv) whether the Court should admit the Insurance Policy and the June 4 Rescission Letter at trial; (v) whether the Court may take judicial notice of certain exhibits related to Donisthorpe's criminal proceedings; and (vi) whether the Court should set aside Donisthorpe's entry of default. The Court concludes that: (i) Evanston Insurance's case against Ms. Kerr is stayed, Moya and Ms. Bennett have insurance under the Insurance Policy for claims alleging negligence, and Donisthorpe does not have coverage, because he does not satisfy the Insurance Policy's condition precedent; (ii) Donisthorpe may testify by telephone at trial; (iii) Moya's proposed expert testimony concerns legal issues, and the Court will not permit this testimony; (iv) the Court will admit the Insurance Policy and the June 4 Rescission Letter; (v) while Court will admit many of the documents related to Donisthorpe's criminal proceedings, it will not admit will Donisthorpe's criminal information, his sentencing hearing transcript, or his plea agreements for their truth. for their truth; and (vi) the Court will set aside Donisthorpe's entry of default.

FINDINGS OF FACT

All parties have submitted proposed findings of fact. See Christopher Moya's Proposed Findings of Fact and Conclusions of Law, filed December 2, 2019 (Doc. 162)("Moya Brief"); Paul A. Donisthorpe's Proposed Findings of Fact and Conclusions of Law, filed December 2, 2019 (Doc. 165)("Donisthorpe Brief"); Former Clients of DSLM's Proposed Findings of Fact and Conclusions of Law, filed December 2, 2019 (Doc. 166)("Client Brief"); Defendant L. Helen Bennett's Proposed Findings of Fact and Conclusions of Law, filed December 2, 2019 (Doc. 167)("Bennett Brief"); Plaintiff's Proposed Findings of Fact and Conclusions of Law, filed December 2, 2019 (Doc. 168)("Evanston Insurance Brief"). The Court has carefully considered all five sets of proposed findings and accepts some of the findings, rejects some, and finds some facts that no party brought to its attention. The Court sets forth its findings below.

1. General Background.

1. Desert State Life Management is a non-profit trust corporation that acts as a trustee for disabled individuals. See Trial Transcript at 522:12 (taken Oct. 8, 2019), filed October 22, 2019 (Doc. 159)("Oct. 8 Tr.")(Donisthorpe); id. at 521:22-24 (Conway).¹

2. For all relevant times, Paul A. Donisthorpe served as Desert State's Chief Executive Officer, including the time period from 2008 to the end of March, 2017. See Oct. 8 tr. at 519:5-24 (Conway, Donisthorpe); id. at 378:9-20 (Moya); id. at 378:23-379:1 (Moya).²

3. In his capacity as CEO, Donisthorpe was entrusted to provide trustee services and representative payee services to more than seventy-five Desert State clients. See Oct. 8 Tr. at 521:24-522:1 (Conway); id. at 522:12 (Donisthorpe).

4. Beginning in 2009 or earlier, and continuing through 2016, Donisthorpe engaged in a scheme in which he knowingly and intentionally misappropriated, and converted, Desert State client funds for his own personal use. See Oct. 8 Tr. at 523:18-524:11 (Conway, Donisthorpe); Trial Transcript at 132:4-23 (taken Oct. 7, 2019), filed October 22, 2019 (Doc. 160)("Oct. 7 Tr.")(Moya).

5. Donisthorpe's scheme involved transferring client funds from individual client investment accounts at various financial institutions, including the Vanguard Group and the Charles Schwab Corporation, to pooled Desert State accounts in which the individual client's fund were commingled with other monies entrusted to Desert State. See Oct. 8 Tr. at 523:23-524:11 (Conway, Donisthorpe); Oct. 7 Tr. at 124:17-20 (Moya); id. at 132:8-23 (Moya).

6. Donisthorpe then transferred the commingled client funds into non-Desert State accounts that he controlled. See Oct. 8 Tr. at 523:23-524:11 (Conway, Donisthorpe); Oct. 7 Tr. at 124:17-20 (Moya); id. at 132:8-23 (Moya).

7. Donisthorpe then diverted the client funds from the non-Desert State accounts to other bank accounts, credit card accounts and mortgages, none of which were associated with Desert State. See Oct. 8 Tr. at 523:23-524:11 (Conway, Donisthorpe); Oct. 7 Tr. at 124:17-20 (Moya); id. at 132:8-23 (Moya).

8. Donisthorpe spent the money from his Desert State scheme to purchase cattle and a ranch in Texas, a vacation home, vehicles, and a custom horse trailer, a trip to the World Series, and to pay off personal debts. See Oct. 7 Tr. at 134:21-135:10 (Conway, Moya); Oct. 8 Tr. at 524:4-11 (Donisthorpe).

9. Donisthorpe also transferred funds between Desert State client accounts. See Oct. 7 Tr. at 137:10-17 (Moya)(testifying that Donisthorpe's transfers were occasionally done to "rob[ ] Peter to pay Paul, if you will, in DSLM").

10. Donisthorpe was the only one who had access to Desert State's investment accounts until March, 2107. See Oct. 7 Tr. at 225:25-226:11 (Moya).

11. Between March or April of 2017 and August, 2017, Scott Kominiak had access to Desert State's investment accounts. See Oct. 7 Tr. at 228:2-4 (Moya).

12. Through his scheme, Donisthorpe misappropriated and converted over $4.9 million in Desert State client funds for his own personal use. See Oct. 8 Tr. at 382:8-15 (Borders, Moya).

13. $4,933,626.58 in funds from Desert State client accounts was unlawfully taken. See Financial Institutions Division v. Desert State Life Mgmt., et al., Receiver's January, 2018, Monthly Report at 1-2, No. D-202-CV-2017-03838, (Bernalillo Cty., 2d Jud. Dist., N.M.), filed January 5, 2018, admitted October 7, 2019, at trial as Moya Ex. V ("Moya V"); Oct. 8 Tr. at 382:8-15 (Borders, Moya).

14. From at least 2009 through 2016, Donisthorpe knowingly transferred client funds from individual client investment accounts to Desert State accounts that he controlled and then converted those client funds to his own use. See Oct. 8 Tr. at 523:18-524:11 (Conway, Donisthorpe).

15. Donisthorpe made the fraudulent transfers knowing that he was not entitled to the funds, knowing that the clients were not informed of the transfers, and knowing that the clients would not have approved of the transfers if they had been informed. See Oct. 8 Tr. at 530:20-531:7 (Conway, Donisthorpe).

16. Donisthorpe presented false and fraudulent investment and disbursement reports to the Desert State board of directors, and presenting materially false and fraudulent documents to the Financial Institutions Division of the New Mexico Regulation and Licensing...