Labaty v. UWT, Inc.

• Decision Date: 07 August 2015
• Docket Number: Civil Action No. SA–13–CV–389–XR.
• Citation: 121 F.Supp.3d 721
• Parties: Deborah (Fiore) LABATY, Plaintiff, v. UWT, INC., et. al, Defendants.
• Court: U.S. District Court — Western District of Texas

121 F.Supp.3d 721

Deborah (Fiore) LABATY, Plaintiff,

v.UWT, INC., et. al, Defendants.

Civil Action No. SA–13–CV–389–XR.

United States District Court, W.D. Texas, San Antonio Division.

Signed Aug. 7, 2015.

Carl Pipoly, Pipoly & Co., San Antonio, TX, Jonathan E. Rawlins, Hodges Rawlins, LLC, Richardson, TX, for Plaintiff.

Robert L. Soza, Jr., Matthew Eric Vandenberg, Jackson Walker, LLP, Lawrence Morales, II, Charles W. Shipman, The Morales Law Firm, San Antonio, TX, Frances Floriano Goins, Ulmer & Berne LLP, Cleveland, OH, Patrick D. Vellone, Allen & Vellone, P.C., Denver, CO, for Defendants.

ORDER

XAVIER RODRIGUEZ, District Judge.

On this day the Court considered Defendants Jeffrey Kelley and Paul Maxwell's Motion for Partial Summary Judgment Based on Lack of Causation (docket no. 137), Motion for Partial Summary Judgment Based on Limitations (docket no. 138), No Evidence Motion for Summary Judgment (docket no. 139), and motion to strike certain evidence (docket no. 171). The Court also considered Defendants Michael Dea, Jeffrey Desich, Richard Desich, Equity Trust Company ("Equity Trust"), and Sterling Administrative Services, LLC's Motion for Summary Judgment (docket no. 143). For the following reasons, the Court GRANTS Michael Dea, Jeffrey Desich, Richard Desich, Equity Trust, and Sterling Administrative Services's motion; GRANTS Kelley and Maxwell's motion for summary judgment based on limitations; and GRANTS in part and DENIES in part each of Kelley and Maxwell's motions. As a result, all of Plaintiff Deborah Labaty's claims against Jeffrey Kelley, Paul Maxwell, Michael Dea, Jeffrey Desich, and Richard Desich¹ are dismissed. The claims against Equity Trust and Sterling Administrative Services are dismissed except in their potential capacity as successor in interest to Sterling Trust Company's liabilities.

I. BACKGROUND

Plaintiff Deborah Labaty brought this action on February 22, 2013, against several defendants after she lost much of her life savings when she attempted to invest in earth metals and the earth metals were never delivered. She claims violations of civil Racketeer Influenced and Corrupt Organizations Act ("RICO") 18 U.S.C. §§ 1962(c) and (d) based upon predicate acts of mail and wire fraud, 18 U.S.C. §§ 1341 and 1343, as well as a Texas causes of action for fraud, conversion, negligence, negligent misrepresentation, violations of the Texas Deceptive Trade Practices Act, and violations of Texas Penal Code § 32.46. The Defendants moving for summary judgment are companies that act as individual retirement account (IRA) custodians and their officers.

A. Factual Background

i. Facts

a. Failed Investment

In 2007, Defendant Superior Gold Group ("Superior"), a Nevada LLC with its principal place of business in California, began running radio advertisements around the country encouraging individuals to reinvest their retirement accounts in gold and other precious metals. In April 2009, Deborah Labaty heard one of many radio advertisements by Superior and discussion of it on a talk radio show. Labaty was employed, had multiple college degrees, and was nearing retirement age with a 401(k) and an IRA suffering losses during the country's most recent financial crisis. See Labaty's Deposition Transcript from March 6, 2014² , at 11, 31–35, 144–45. She is one of hundreds of individuals who suffered losses caused by Superior and its President, Defendant Bruce Sands. Sands was indicted in California for fraud and is awaiting trial. See docket no. 137–7.

Labaty contacted Superior about investing in precious metals and signed an investment contract with the company on April 15, 2009. See docket nos. 137–1 and 2. At that time, she had never heard of Sterling Trust Company ("Sterling" or "Sterling Trust"), Equity Trust, or any individual defendant associated with Sterling or Equity. Also, Sterling's assets had not yet been purchased by Equity from Defendant United Western Trust Company ("UWT")³ . Labaty Dep. Tr. at 42. The contract between Superior and Labaty provided, in part:

Upon receipt and confirmation of good funds ... Superior Gold Group, LLC shall cause Customers [sic] order to be shipped within thirty one [sic] (31) business days after receipt of funds.

Customer acknowledges that the decision to purchase coins, and which coins to purchase is ultimately the Customer's alone.

It may take several months for delivery of [a coin] purchase to reach the depository.

In her communications with Superior, Leticia Acosta, a Superior employee, sent Labaty an application for a self-directed individual retirement account (SDIRA) with Sterling Trust Company ("Sterling Trust"). See docket no. 137–1 (Labaty Dep. Ex. 1—Email from Acosta). At the time, Maxwell was Chief Executive Officer of Sterling and Kelley was Sterling's Chief Operating Officer. Labaty returned the Sterling application to Acosta, along with a Wire Transfer letter, on the same day she signed the contract with Superior, April 15. See id (Labaty Dep. Ex. 2—Superior Contract). After opening her account with Sterling, Labaty instructed Vanguard, the bank that held her other retirement accounts, to transfer $150,248.76 to Sterling Trust. See docket no. 137–1 (Labaty Dep. Ex. 7—Wire Transfer Letter); docket no. 160–22 (Labaty Dep. Ex. 3—Sterling IRA Transfer Request Form). Vanguard transferred $150,301.43 to Sterling. See docket no. 143–2 (Labaty Dep. Ex. 16—Sterling Trust Quarterly Statement). On April 23, 2009, Sterling transferred $150,082.00 from Labaty's account to Superior for the precious metals purchase. See id.; 138–1 (Labaty Dep. Ex. 10—Confirmation of Wire Transfer). Her account was opened, and Sterling Trust's representative, Andrew Thompson, signed the Custodial Agreement on April 29, 2009. Docket no. 143–2 at 34 (Labaty Dep. Ex. 4—Custodial Agreement Signature Page).

Labaty's signed application to Sterling Trust established an SDIRA with the company. Sterling was to act as a custodian, holding the money and permitting Labaty to access her retirement funds, without incurring tax liabilities, in exchange for minimal fees, like the $100 annual fee. Docket no. 143–2 (Labaty Dep. Ex. 24, at 5—Sterling IRA Application). Labaty's application to Sterling to open an account included the following provisions, which Labaty acknowledged by her signature on April 15, 2009:

I acknowledge that my Account is self-directed and I am solely responsible for the selection, management, and retention of all investments held within my Account. I understand and acknowledge that Sterling will exercise no discretion with respect to funds in my Account, will not under any circumstances provide investment advice or recommendations, and will in all events invest all of the funds in my Account solely and exclusively at my direction. I further understand that I am not entering into a "trust" agreement with Sterling, rather I am entering into a "custodial" agreement under which Sterling has no duties or responsibilities with respect to the Investment of the funds in my Account. Finally I understand and intend that Sterling shall not assume the responsibilities of a "trustee", a "fiduciary", or a person entitled to exercise any discretionary authority with respect to the funds in my Account ....

I understand that if a financial representative suggested that I retain Sterling's services as custodian for investments made through my Account, that such financial representative is not in any way an agent, employee, representative, or affiliate of Sterling. I acknowledge that Sterling is not responsible for and is not bound by any representations, warranties, statements or agreements made by any financial representative.

I understand that Sterling does not review the prudence, viability or merits of any investment or whether the investment is acceptable.... I understand that I should have all investments reviewed by my attorney and or tax advisor.

I understand that it is my sole responsibility to manage the investment(s) held within my Account, and that Sterling has no responsibility to question any investment directions given by me or my Representative (if I have appointed one), regardless of the nature of the investment.

Docket no. 143–2 (Labaty Dep. Ex. 24 at ¶¶ 2, 4, 5, and 10—Sterling IRA Application). Labaty read and agreed to "everything in the contract." Labaty Dep. Tr. at 125. Also, the section titled "Optional Representative Designation," where an accountholder could designate an investment "adviser, broker, financial planner, or other person" contains a provision that states, "I [the accountholder] understand Sterling has not made and will not make any recommendation or investigation with respect to my Representative." Id. at 9.

Before receiving the application for an SDIRA, Labaty had not heard of Sterling Trust or any of its employees. Labaty Dep. Tr. at 42 and 115–16. She did not hear of Equity until much later when Equity purchased Sterling Trust's assets from UWT and began sending Labaty her quarterly statements. See Labaty Dep. Tr. at 42. Labaty states that she never spoke with Kelley, Maxwell, Dea, Jeffrey Desich, Richard Desich, or anyone at Sterling or Equity prior to deciding to invest with Superior, or even immediately after. Labaty Dep. Tr. at 109–17.

Sterling Trust transferred the funds to Superior, but Superior never delivered the precious metals in return. In early May 2009, Labaty left several messages and emails for Acosta and her initial sales contact, Van Ausdall. Id. at 84.⁴ She did not contact anyone at Sterling Trust at this time. Id. at 88. Sterling Trust, for its part, sent Labaty a quarterly statement in July for April 1 to June 30, 2009 that indicated Labaty's transaction with Superior remained "pending." See docket no. 137–1 (Labaty Dep. Ex. 16—Sterling Quarterly Statement). All of Labaty's quarterly statements through June 30, 2012, reflected the same "pending" transaction. See id. (attaching all statements). The quarterly statements also noted "this statement may not...