Orlowski v. Bates

• Decision Date: 18 November 2015
• Docket Number: Case No. 2:11-cv-01396
• Citation: 146 F.Supp.3d 908
• Parties: Damian Orlowski, et al., Plaintiffs on behalf of themselves and others similarly situated, v. Larry Bates, et al., Defendants.
• Court: U.S. District Court — Western District of Tennessee

146 F.Supp.3d 908

Damian Orlowski, et al., Plaintiffs on behalf of themselves and others similarly situated,

v.Larry Bates, et al., Defendants.

Case No. 2:11-cv-01396

United States District Court, W.D. Tennessee, Western Division.

Signed November 18, 2015

Brendan Henry Frey, Gerard V. Mantese, Josh Paul Lushnat, David Honigman, Mantese, Hanigman, Rossman & Williamson, PC, Troy, MI, for Damian Orlowski.

J. Houston Gordon, Amber Griffin Shaw, Charles A. Brasfield, Law Offices of J. Houston Gordon, Covington, TN, Randall J. Fishman, Richard S. Townley, Ballin Ballin & Fishman, Memphis, TN, for Defendants.

Larry C. Bates, Middleton, TN, pro se.

Barbara B. Bates, Middleton, TN, pro se.

Kinsey Brown Bates, Collierville, TN, pro se.

ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT AND DENYING DEFENDANTS BARBARA BATES AND LARRY BATES' MOTION FOR DISMISSAL AND SANCTIONS

JON P. McCALLA, UNITED STATES DISTRICT COURT JUDGE

Before the Court is Plaintiffs' Motion for Summary Judgment as to Defendants First American Monetary Consultants, Inc. (“FAMC”), Information Radio Network, Inc. (“IRN”), Charles Larry Bates (“Larry Bates”), Barbara Bates, Robert Bates, Charles E. Bates (“Charles Bates”), and Kinsey Brown Bates, filed July 29, 2015. (ECF No. 438.)

Also before the Court is Defendants Barbara Bates and Larry Bates' Motion for Dismissal and Sanctions Against Plaintiffs Attorney and Receiver and Attorneys for Receivership (“Motion for Dismissal and Sanctions”), filed September 28, 2015. (ECF No. 491.)

For the reasons stated below, the Court GRANTS IN PART and DENIES IN PART Plaintiffs' Motion for Summary Judgment. The Court DENIES Defendants Barbara Bates and Larry Bates' Motion for Dismissal and Sanctions.

I. BACKGROUND

A. Factual Background

This case involves allegations of a complex, large-scale scheme to defraud hundreds of people over the course of many years. (See 3d Am. Compl., ECF No. 375.) Plaintiffs allege that Defendants advertised to and solicited money from individuals “for the alleged and believed purpose of purchasing gold, silver and precious metals through Defendants.” (Id. ¶ 25.) “These purchases of precious metals [were] advertised by Defendants as a ‘safe’ purchase to protect and harness wealth during, what Defendants characterize[d] as, a period of world chaos and uncertainty, based on Christian beliefs and current political upheavals.” (Id. ¶ 26.) Defendants received orders for precious metals from more than 500 customers. (Id. ¶ 148.) Plaintiffs allege that these sales were made as part of a scheme devised by Larry Bates, Robert Bates, Charles Bates, Barbara Bates, Kinsey Brown Bates, and other Defendants, and designed to defraud customers. (See id. ¶ 46.)

1. First American Monetary Consultants, Inc.

FAMC was established by Larry Bates in 1983 and was in the business of selling precious metals. (C. Larry Bates (“Larry Bates”) Dep. 19:4-15, ECF No. 183; Barbara Bates Dep. 14:15-21, ECF No. 87-1; Statement of Undisputed Facts (“SUF”) ¶ 1, ECF No. 438-2.)¹ Larry Bates owns 50% of FAMC and Barbara Bates owns the other 50%. (Barbara Bates Dep. 15:3-7, ECF No. 87-1.) FAMC acquired customers through media advertisements, publications, conferences across the nation, and through referrals from other customers. (Charles Bates Dep. 52:13-24, ECF No. 323; Larry Bates Dep. 135, ECF No. 183; SUF ¶ 14, ECF No. 438-2.)

When a customer called FAMC, he or she would speak to an FAMC economist or consultant about placing an order for precious metals. (Larry Bates Dep. 60:24-61:7, ECF No. 183; SUF ¶ 30, ECF No. 438-2.) The economist or consultant would then advise the customer whether and what types of precious metals the customer should purchase. (Charles Bates Dep. 30:20-31:22, 32:9-25, ECF No. 323.) The economist or consultant would refer to the market price for gold bullion and a formula developed by Larry Bates to quote a price for the customer. (Larry Bates Dep. 61:13-62:10, ECF No. 183; Charles Bates Dep. 33:1-14, ECF No. 323; SUF ¶ 36, ECF No. 438-2.) If the customer accepted the quoted price, the economist or consultant would fill out an internal transaction form, which was slipped under the door of FAMC's executive offices to notify Larry Bates that an order had been placed. (Larry Bates Dep. 62:23-63:5, ECF No. 183; Barnett Dep. 21-22, ECF No. 93-1; SUF ¶ 37, ECF No. 438-2.) All ordering was done by Larry Bates. (Denison Dep. 53:10-54:22, 118:25-119:7, 155:23-25, ECF No. 322-1; Charles Bates Dep. 32:3-5, 38:11-14, ECF No. 323; Larry Bates Dep. 226:6-14, 246:22-24, ECF No. 183; SUF ¶ 48, ECF No. 438-2.) An invoice would then be created by Cindy Standley and mailed to the customer. (Kinsey Bates Dep. 30:15-20, 31:5-7, ECF No. 88-1; SUF ¶ 52, ECF No. 438-2.) The customer would mail a check back to the Tennessee or Colorado office of FAMC. (Barbara Bates Dep. 35:17-20, ECF No. 87-1; SUF ¶ 53, ECF No. 438-2.)

The money received by FAMC was deposited into FAMC operating accounts. (Larry Bates Dep. 88:17-21, ECF No. 183; SUF ¶ 49, ECF No. 438-2.) FAMC was then supposed to purchase the precious metals and deliver them to customers. Some customers received partial orders and some customers received nothing at all. (Carmack Aff. ¶ 5, ECF No. 116-2; Cook Aff. ¶¶ 4, 6, ECF No. 116-3; Conklin Aff. ¶ 3, ECF No. 117-1; Dean Aff. ¶¶ 5, 9, 10, ECF No. 118-1; Matthews Aff. ¶¶ 3-4, ECF No. 119-1; Butler Rep. 4-6, ECF No. 426-5; SUF ¶ 45, ECF No. 438-2.) When shipping products to customers, FAMC used the United States Postal Service (“USPS”). (Charles Bates Dep. 132:7-11, ECF No. 323; SUF ¶ 55, ECF No. 438-2.)

2. Information Radio Network

IRN was a radio network established by Larry Bates in 2008. (Butler Rep. 1, ECF No. 426-5; Larry Bates Dep. 41:10-13, ECF No. 183.) IRN has approximately thirty-five different talk shows and also produces news at the “top and bottom of the hour.” (Charles Bates Dep. 59:14-22, ECF No. 323.)

Larry Bates and Barbara Bates owned a two-thirds interest in IRN and the Maddoux family owned an encumbered one-third interest. (Larry Bates Dep. 41:10-24, ECF No. 183.) The IRN Board of Directors was made up of Larry Bates, Barbara Bates, and Mark Maddoux. (Larry Bates Dep. 43:16-44:1, ECF No. 183.) Larry Bates was the CEO of IRN, Charles Bates was the Executive Vice President and News Director, and Robert Bates was the Senior Vice President in charge of advertising and affiliate sales. (Larry Bates Dep. 52:9-19, ECF No. 183; Charles Bates Dep. 60:13-18, 61:7-12, ECF No. 323.) Charles Bates handled news gathering and oversaw technical operations and also hosted a radio show on IRN, during which he, on occasion, mentioned FAMC. (Charles Bates Dep. 53:3-7, 54:7-9, 61:21-23, ECF No. 323.) Robert Bates handled advertising and human resources. (Charles Bates Dep. 61:25-62:2.)

3. Larry Bates

Dr. Larry Bates established both FAMC and IRN and was the “head honcho.” (Denison Dep. 99:23-100:3, ECF No. 322-1; Larry Bates 19:3-7, 41:10-13, ECF No. 183; SUF ¶ 12, ECF No. 438-2.) He was the CEO and Chief Economist of FAMC. (See Larry Bates Dep. 20:20-22, 82:24-83:5, ECF No. 183; SUF ¶ 11, ECF No. 438-2.) Larry Bates processed every transaction for FAMC: he bought the metals, checked the metals, directed the shipment of the metals, and resolved any customer complaints. (Denison Dep. 156:5-157:1, ECF No. 322-1; Charles Bates Dep. 36:7-17, 38:11-14, ECF No. 323; Larry Bates Dep. 246:4-247:7, ECF No. 183; SUF ¶¶ 9, 10, 38, 44, 48, 50, ECF No. 438-2.) Larry Bates also developed the formula for quoting the customers a price for precious metals. (Larry Bates Dep. 61:13-62:10, ECF No. 183; SUF ¶ 36, ECF No. 438-2.) According to Larry Bates, he has no idea what happened to the money belonging to customers or what happened to the coins that were supposed to fill the orders of customers. (Larry Bates Dep. 90:7-20, 213:25-214:14, 221:11-24, ECF No. 183; SUF ¶ 66, ECF No. 438-2.)

Additionally, Larry Bates had access to all accounts and monies. (Ryder Dep. 103-104, ECF No. 433-1; SUF ¶ 110.) Larry Bates took $2,652,000 out of FAMC when it was insolvent, placed the money into a brokerage account, and reimbursed FAMC $2,620,000. (Butler Rep. 8; see also Ryder Dep. 47:6-49:7; Ryder Status Rep. 4, ECF No. 426; SUF ¶¶ 108, 135.) Mr. Butler, an accountant and certified fraud examiner retained by the Receiver, reported that Larry Bates made $160,306.00 in non-business-related purchases which were included in the operating expenses of the Company. (Ex. H, Butler Rep. at 19, ECF No. 426-5; see SUF ¶¶ 131, 134, ECF No. 438-2.)

4. Barbara Bates

Barbara Bates held a 50% ownership in FAMC and was involved with IRN as an owner and director. (Barbara Bates Dep. 15:3-7, 103:19-21, ECF No. 87-1; Larry Bates Dep. 41:10-13, ECF No. 183.) She also worked for FAMC as the vice president of administration and received a salary of approximately $75,000. (Barbara Bates Dep. 19:5-7, 65:2-3, 97:1-9, ECF No. 87-1.) Her duties at FAMC consisted of paying bills and bookkeeping. (Barbara Bates Dep. 19:14-20:16, ECF No. 87-1.) When customers sent checks to the Memphis office of FAMC, Barbara Bates would deposit those checks into FAMC accounts. (Barbara Bates Dep. 22:2-7, ECF No. 87-1; SUF ¶ 53, ECF No. 438-2.) These accounts were accessible to Barbara Bates, as well as Larry Bates and Cindy Standley. (Barbara Bates Dep. 53:18-20, ECF No. 87-2; SUF ¶ 54, ECF No. 438-2.) Barbara Bates could initiate wire transfers or sign checks. (Barbara Bates Dep. 51:24-52:9, 53:5-10, ECF No. 87-1; SUF ¶ 49, ECF No. 438-2.) Barbara Bates further testified that she had no authority to make decisions for writing checks or initiating wire transfers in FAMC; she just followed her husband's directions in that regard. (Barbara Bates Dep. 27:3-14, 52:23-53:2, ECF No. 87-1.)

5. Charles Bates

Charles Bates was Executive Vice President and News Director for IRN (Larry Bates Dep. 52:14-17, ECF No. 183) and was Special Assistant Economist and Political Affairs for FAMC (Charles Bates ...