Watchous Enters. v. Pac. Nat'l Capital
| Decision Date | 13 March 2020 |
| Docket Number | No. 16-1432-JTM,16-1432-JTM |
| Parties | WATCHOUS ENTERPRISES, LLC, Plaintiff, v. PACIFIC NATIONAL CAPITAL, et al., Defendants. |
| Court | U.S. District Court — District of Kansas |
In 2016, plaintiff Watchous Enterprises was searching for a joint venture partner to help in developing oil and gas production opportunities. Watchous hired Pacific National Capital as its agent to help locate potential partners, and Pacific singled out Waterfall Mountain as the best candidate. Watchous paid $7,600 to Pacific for its services, and later $175,000 to Waterfall as a supposedly refundable deposit. The money was transferred to Venezuela, and is gone. Watchous alleges Pacific and Waterfall concealed Waterfall's dubious finances, and brings the present action for fraud, breach of fiduciary duty, racketeering, and civil conspiracy.
The matter is before the court on cross motions for summary judgment. The court concludes that the plaintiff is entitled to summary judgment on its claims of fraud and breach of fiduciary duty. The court finds that the claims of racketeering and civil conspiracy must be resolved at trial.
Summary judgment is proper where the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show there is no genuine issue as to any material fact, and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). In considering a motion for summary judgment, the court must examine all evidence in a light most favorable to the opposing party. McKenzie v. Mercy Hospital, 854 F.2d 365, 367 (10th Cir. 1988). The party moving for summary judgment must demonstrate its entitlement to summary judgment beyond a reasonable doubt. Ellis v. El Paso Natural Gas Co., 754 F.2d 884, 885 (10th Cir. 1985). The moving party need not disprove nonmovant's claim; it need only establish that the factual allegations have no legal significance. Dayton Hudson Corp. v. Macerich Real Estate Co., 812 F.2d 1319, 1323 (10th Cir. 1987).
In resisting a motion for summary judgment, the opposing party may not rely upon mere allegations or denials contained in its pleadings or briefs. Rather, the nonmoving party must come forward with specific facts showing the presence of a genuine issue of material fact for trial and significant probative evidence supporting the allegation. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986). Once the moving party has carried its burden under Rule 56(c), the party opposing summary judgment must do more than simply show there is some metaphysical doubt as to the material facts. "In the language of the Rule, the nonmoving party must come forward with 'specific facts showing that there is a genuine issue for trial.'" Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quoting Fed.R.Civ.P. 56(e)) (emphasis in Matsushita).One of the principal purposes of the summary judgment rule is to isolate and dispose of factually unsupported claims or defenses, and the rule should be interpreted in a way that allows it to accomplish this purpose. Celotex Corp. v. Catrett, 477 U.S. 317 (1986).
General background
Watchous is a limited liability company organized and existing under the laws of Kansas, and its members are all citizens of Kansas.
The Waterfall defendants include Waterfall Mountain and Waterfall Mountain USA (Utah limited liability companies) and Waterfall Mountain International Holdings Limited (an Irish limited liability company). The Pacific defendants characterize the Waterfall Mountain entities as companies "providing funding and partner syndication of select energy, natural resource, technology and real estate projects." (Dkt. 204, ¶ 1). As the plaintiff notes, however, while this is the ostensible business of Waterfall, there is no evidence that these entities have actually funded any energy project.
William J. Mournes, a resident of New Jersey, is a director and officer of Waterfall Mountain International Holdings, and a member of Waterfall Mountain USA and Waterfall Mountain. Mournes developed a plan whereby he would cause the Banco Central de Venezuela to register billions of dollars in sovereign bonds in the name of Waterfall or its lender, and Waterfall would obtain a loan against those bonds to investin energy projects in the United States and elsewhere. Mournes has acknowledged that no one had ever completed a similar transaction.
Certain bonds were blocked in favor of Waterfall and its lender, RPB Company, to allow them to structure a potential transaction. However, while Waterfall was given a "beneficial" ownership, neither Waterfall nor RPB owned the bonds absolutely. The Banco Central de Venezuela owned the bonds and had to approve the transaction. At all times relevant to Watchous, the bonds could only be used for collateral for a loan.
Waterfall represented it was on the verge of closing the transaction since at least 2013.
Watchous cites evidence indicating that Charles Elfsten (President of Pacific) is a long-time friend of Mournes, that Mournes asked him to form a company to act as Waterfall's agent to find oil and gas ventures into which Waterfall could invest, and that Elfsten created Pacific in 2012 for that purpose. Pacific argues that Bryan Harveston, whose testimony supports Watchous's allegation, lacks personal knowledge of the relationship between Elfsten and Mournes. Elfsten acknowledges that he may have met Mournes when both men were at Camp Pendleton in the 1980s, but denies meeting him. According to Elfsten, he created Pacific before he knew of Waterfall's existence.
It is uncontroverted that Pacific is a for-profit corporation organized and existing under the laws of California and its principal place of business is located in Irvine, California. Elfsten is the President of Pacific and Mark Hasegawa is the Senior VicePresident. It is also uncontroverted that Elfsten told Watchous that he had "known Bill Mournes for 30 years and have been involved in prior transactions."
Pacific has served as a finder for dozens of oil and gas-related ventures, including financing for gas-distribution hubs, gas stations and a headquarters for Petroleum Wholesale out of Woodlands, Texas, and for oil and gas leases, a gravel pit and gas stations for the Pelican Group out of Uintah Basin. In its capacity as a finder, Pacific has approached numerous lenders and potential investors as funding sources for its clients, some of which have provided funding for Pacific's clients.
Pacific and Waterfall are separate entities, and Waterfall has no express contracts with Pacific. However, the two entities have worked closely together, with Pacific bringing some 50 projects to Waterfall. Pacific hosted and was paid to fix Waterfall's website. As the facts set forth below establish, Pacific effectively negotiated on Waterfall's behalf. Further, although there may have been no express contract, many facts strongly suggest the two entities had a close coordination of efforts.
The Pacific defendants contend that the company has no inside relationships to potential financiers. However, as set forth below, there is evidence that Pacific and Waterfall had a close and highly profitable relationship, and that Pacific charged the prospects upfront fees on behalf of Waterfall. One email indicates that Pacific and Waterfall were acting as a "team." Accordingly, the rejects the defendants' allegation of a lack of any inside relationship.
At a minimum, as it relates to potential funding by Waterfall, Pacific entered into 56 non-exclusive placement agreements (shown in Table 1), earning a total $324,850 in underwriting fees, even though none of these potential projects actually resulted in funding from Waterfall.
The non-exclusive placement agreements generally...
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