Gelow v. Central Pacific Mortg. Corp.
| Decision Date | 28 August 2009 |
| Docket Number | No. CIV. S-07-1988 LKK/KJM.,CIV. S-07-1988 LKK/KJM. |
| Citation | 656 F.Supp.2d 1217 |
| Parties | Mark GELOW, et al., Plaintiffs, v. CENTRAL PACIFIC MORTGAGE CORPORATION, et al., Defendants. |
| Court | U.S. District Court — Eastern District of California |
Jeff Reich, Shane Reich, Reich Law Firm, Fresno, CA, for Plaintiffs.
Kristina Marie Launey, Mark Henry Van Brussel, Seyfarth Shaw LLP, Sacramento, CA, for Defendants.
Plaintiff Mark Gelow and ten other individuals have brought suit against their former employer, Central Pacific Mortgage Company1("CPM"); its subsidiary, Ivanhoe Financial, Inc. ("Ivanhoe"); and former executive officers of the two companies, John Courson, John Cassell, and Ed Fuchs. Plaintiffs allege that defendants breached their fiduciary duty under ERISA, 29 U.S.C. § 1132, violated the Racketeering Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962, and are liable for fraud, conversion, and breach of fiduciary duties under state law. In the instant motion, defendants Courson, Cassell, and Fuchs move for summary judgment on all causes of action. For the reasons stated below, the court now grants in part and denies in part the motion.
CPM was a California corporation that performed residential mortgage lending through its branch offices in California and elsewhere. Defendant Courson was CPM's President and Chief Executive Officer from 1990 to 2007, when CPM closed. Beginning in 2000, he was also its sole owner and shareholder. Defendant Cassell was Senior Vice President and Chief Financial Officer from 1994 to 2001, at which time he became Executive Vice President of Operations and Administration. Defendant Fuchs was Vice President of Accounting of CPM beginning in 1995 and became Senior Vice President of Finance in 2002 and then Executive Vice President of Finance in 2005.
CPM had branches that originated mortgage loans with borrowers, which it bundled and sold to investors, and other branches that purchased mortgage loans from third-party brokers. Revenues from the bundled and resold loans were used to repay the amount CPM had borrowed to fund the loans, with the surplus used to pay CPM's expenses, including salaries. This surplus was credited to the branch originating the loan that was funded and tracked in CPM's general ledger accounting system.
Each of the plaintiffs are former CPM branch managers. The branch managers were employees of CPM and, accordingly, all of the plaintiffs signed a Branch Manager Employment Agreement upon attaining that position. Defendants have tendered the employment agreements for some of the plaintiffs, which provide that the agreement as written constitutes the entire employment agreement between the plaintiff and CPM. See Decl. of Kristina Launey In Support of Defs.' Mot. to Compel Arbitration, Ex. A-G. They also provided that the agreement could only be modified by a signed writing. The agreements set forth the branch manager's compensation. According to the agreements, the branch manager could draw a salary based on the net profit of his or her branch.3 It is undisputed that the branch managers had unfettered access to the branch's net profits and could receive his or her compensation at intervals and in amounts that he or she wished, although they were required to draw a salary of at least $1,100 per pay period.4 Each manager received a monthly statement setting forth the branch's account balance.
The central dispute between the parties concerns the proper characterization of these funds. There is no dispute that the amount of these funds would naturally fluctuate based on the branch's revenues and expenses at any given time. Defendants contend that the funds were never kept in segregated accounts, but simply represented the maximum amount that the branch managers could draw down. Decl. of John Courson In Support of Defs.' Mot. for Summ. J. ("Courson Decl.") ¶ 8; Decl. of Ed Fuchs In Support of Defs.' Mot. for Summ. J. ("Fuchs Decl.") ¶ 6. Plaintiffs do not dispute that this was the defendants' policy, see Pls.' Response to Defs.' Undisputed Material Facts ¶¶ 50, 52, but contend that the branch net profits were represented to be the branch managers' property and could only be used by the branch manager.5 Decl. of Mark Gelow In Support of Pls.' Opp'n to Defs.' Mot. for Summ. J. ("Gelow Decl.") ¶¶ 4, 6; Decl. of Bruce Trout In Support of Pls.' Opp'n to Defs.' Mot. for Summ. J. ("Trout Decl.") ¶ 4; Decl. of Erik Fridley In Support of Pls.' Opp'n to Defs.' Mot. for Summ. J. ("Fridley Decl.") ¶ 4; Decl. of Vici Gordon In Support of Pls.' Opp'n to Defs.' Mot. for Summ. J. ("Gordon Decl.") ¶ 4; Decl. of Stephen Herndon In Support of Pls.' Opp'n to Defs.' Mot. for Summ. J. ("Herndon Decl.") ¶ 4; Decl. of Jeff Just In Support of Pls.' Opp'n to Defs.' Mot. for Summ. J. ("Just Decl.") ¶ 4; Decl. of Jenny Mann In Support of Pls.' Opp'n to Defs.' Mot. for Summ. J. ("Mann Decl.") ¶ 4; Decl. of Stephen Meier In Support of Pls.' Opp' n to Defs.' Mot. for Summ. J. ("Meier Decl.") ¶ 4; Decl. of Art Sierra In Support of Pls.' Opp'n to Defs.' Mot. for Summ. J. ("Sierra Decl.") ¶ 4; Decl. of Jase Stefanski In Support of Pls.' Opp'n to Defs.' Mot. for Summ. J. ("Stefanski Decl.") ¶ 4; Decl. of Gayle Pederson In Support of Pls.' Opp'n to Defs.' Mot. for Summ. J. ("Pederson Decl.") ¶ 4; Decl. of Mark Van Brussel In Support of Defs.' Mot. for Summ. J. ("Van Brussel Decl.") Ex. J (Herndon Depo. at 39:18-40:11). Plaintiffs also contend that CPM's written policies suggested that each branch's net profits were held in a separate account. Gelow Decl. ¶ 17, Ex. 3.
It is undisputed that the branch managers' salaries were subject to normal state and federal tax withholdings and deductions and that the branch managers only reported as salary those amounts that they actually drew down from the branch's net profits. When the funds were reported as salary, they would be subject to income tax and thus the managers preferred not to draw down more than they needed. At the end of the year, any net profits the branch retained that had not been drawn as the branch manager's salary would be rolled over to the next year. Defendants have tendered evidence that none of the CPM staff ever said anything to induce the branch managers to leave large balances in the branch accounts. Van Brussel Decl. Ex. E (Gelow Depo. at 51:21-24, 54:11-14, 59:25-60:3), Ex. I (Trout Depo. at 36:5-8). Plaintiffs do not materially dispute this. See Pls.' Response to Defs.' Undisputed Material Facts ¶ 91. It is further undisputed that more than once CPM staff encouraged Gelow to drawn from the account, taking the funds as bonuses. Van Brussel Decl. Ex. E (Gelow Depo. at 42:15-25, 54:4-8, 101:22-25), Ex. F (Courson Depo. at 20:19-25, 26:3-27:3), Ex. G (Cassell Depo. at 26:21-27:3); Pls.' Response to Defs.' Statement of Undisputed Facts ¶ 92.
Defendants have tendered evidence that Courson, Cassell, and Fuchs did not manage, maintain, or keep segregated branch manager accounts or made representations to this effect to the branch managers, except that Fuchs monitored the branch account balances to the extent that they showed as liabilities on CPM's general ledger. Courson Decl. ¶¶ 6, 8, 10; Fuchs Decl. ¶¶ 4-7; Cassell Decl. ¶¶ 4-7; Van Brussel Decl Ex. H (Fuchs Depo. at 40:17-24, 58:9-12); Gelow Depo. at 62:19-63:3-18. Although plaintiffs state that they dispute this, the only evidence they have tendered is Gelow's declaration that these defendants made representations to him about the financial health of CPM and instructed him that the branch manager accounts were to be used by the branch manager for any purpose. See Pls.' Response to Defs.' Statement of Undisputed Material Facts ¶¶ 111-113, 125 (citing Gelow Decl. ¶¶ 4-6, 14). There is no dispute that none of the individual defendants ever told the plaintiffs that their branch accounts were employee benefits plans or retirement plans. See Defs.' Statement of Undisputed Material Facts ¶ 117; Gelow Depo. 90:16-91:6; Herndon Depo. 80:25-81:12; see also Pls.' Response to Defs.' Statement of Undisputed Material Facts ¶ 193 (); Van Brussel Decl. Ex. I (testimony of plaintiff Trout that none of the individual defendants ever told him that the branch profits could be used for his retirement). Although Gelow testified that Courson's predecessor told him that the account could be used "for a rainy day," Courson never made a similar statement to him. See Pls.' Response to Defs.' Statement of Undisputed Material Facts ¶¶ 154-55. Moreover, it is undisputed that none of the individual defendants told the branch managers that they would have access to the funds after the termination of their employment.
It is undisputed that CPM staff never told plaintiffs Herndon or Trout that the money in the branch accounts was unreachable by CPM's creditors. See Pls.' Response to Defs.' Statement of Undisputed Material Facts ¶¶ 188, 249; see also Declaration of Stephen Herndon in Support of Pls.' Opp'n to Defs.' Mot. for Summ. J. ("Herndon Decl.") ¶ 5.
CPM began experiencing financial difficulties in mid-2006. Later that year, they began negotiations to sell CPM to another company, which was communicated to all CPM employees including through conference calls with and written communications to branch managers by defendant Courson. In January or February 2007,6 Courson sent a letter to all branch managers advising that CPM had reached its limit of credit for mortgage loans but that it was endeavoring "to return to business as usual." Defs.' Statement of Undisputed Material Fact ¶ 70. Plaintiffs have declared that Courson repeatedly represented during this time that CPM was in good financial health and did not need to be purchased by another company in order to remain open.7...
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