Kingsley Capital Management LLC et al v. Sly et al

Filing 114

ORDER: 90 Plaintiffs' Motion for Reconsideration of the Court's Order Granting Thomas J. Beans Motion to Stay Litigation and Compel Arbitration in Kentucky is DENIED. See order for complete details. Signed by Judge Neil V Wake on 2/23/12. (NKS)

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1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Kingsley Capital Management, LLC, and Bruce Paine Kingsley MD IRA Rollover, 10 Plaintiffs, 11 ORDER vs. 12 No. CV 10-02243-PHX-NVW Brian Nelson Sly, a married man; Brian Sly and Company, Inc., a California corporation and successor to Brian Sly and Company, a sole proprietorship; Wilbur Anthony Huff, an individual; Charles J. Antonucci, Sr., an individual; Thomas J. Bean, an individual; Thomas Cunningham and Jane Doe Cunningham, husband and wife, 13 14 15 16 Defendants. 17 18 19 Before the Court is “Plaintiffs’ Motion for Reconsideration of the Court’s Order 20 Granting Thomas J. Bean’s Motion to Stay Litigation and Compel Arbitration in 21 Kentucky” (Doc. 90). For the reasons stated below, Plaintiffs’ motion will be denied. 22 I. BACKGROUND 23 Plaintiff Kingsley Capital Management is an Arizona limited liability company 24 controlled by Dr. Bruce Kingsley, an Arizona resident. Plaintiff Bruce Paine Kingsley 25 MD IRA Rollover is a trust for which Kingsley is the trustee. Kingsley himself is not a 26 plaintiff, but at all times relevant to this action, Plaintiffs acted at Kingsley’s direction. 27 For purposes of this order, there is no need to distinguish between Plaintiffs’ actions and 28 1 Kingsley’s actions. The Court’s use of “Kingsley” below therefore refers to actions taken 2 by Bruce Kingsley himself, as well as the actions he caused Plaintiffs to take. 3 Kingsley’s complaint generally alleges that the various defendants scammed him 4 into investing in the “Oxygen” entities, a collection of investment vehicles ostensibly 5 related to workers compensation insurance. When Kingsley joined the Oxygen entities, 6 he signed an agreement requiring him to arbitrate his disputes with Oxygen, its manager, 7 and its members. Based on this agreement, Bean moved to compel arbitration, arguing 8 that although he was not a signatory to the agreement, Kingsley’s accusations against him 9 described conduct that he took as an agent for Oxygen. More specifically, Bean was the 10 manager of River Falls Financial Services, LLC, which was in turn the managing 11 member of the Oxygen entity at issue here, and all of Bean’s alleged actions were in his 12 role as Oxygen’s manager. Kingsley countered that Bean had never really acted as 13 Oxygen’s agent, and Bean’s representations to the contrary comprised part of the fraud 14 alleged in the lawsuit. However, the Court could locate no authority establishing that one 15 bound to arbitrate with a principal could avoid arbitration with that principal’s agent 16 simply by alleging that the agent had falsely represented his status as such. The Court 17 therefore compelled Kingsley to arbitrate with Bean, but added in a footnote: 18 19 20 21 22 23 The Court makes this determination based on its understanding of the undisputed portions of the record before it, including Kingsley’s surreply (Doc. 39). If Kingsley believes that the record nonetheless contains gaps that would affect this analysis, he may file a focused motion for reconsideration. If such a motion has merit, a hearing may be necessary under 9 U.S.C. § 4. (Doc. 49 at 22 n.7.) 24 Apparently inspired by this footnote, Kingsley now brings a motion for 25 reconsideration based on evidence he gathered in the meantime. Kingsley’s motion, 26 however, is far from “focused.” As best the Court can discern, Kingsley now asserts that 27 Bean cannot claim agency status because of participation in criminal activity, judicial 28 -2  1 estoppel, and general disavowal of his role as agent. These arguments will be addressed 2 in turn. 3 II. CRIMINAL ACCUSATIONS 4 Among Bean’s alleged co-conspirators is Defendant Anthony Huff, who sought to 5 compel Kingsley to arbitrate with him through an agency argument similar to Bean’s. 6 The Court’s prior order rejected Huff’s argument because Huff had been convicted of 7 mail fraud — a crime involving dishonesty — and under federal law, it is also a crime if 8 “[a]ny individual who has been convicted of any criminal felony involving dishonesty . . . 9 willfully engages in the business of insurance . . . or participates in such business.” 10 18 U.S.C. § 1033(e)(1)(A). Oxygen was in the business of insurance, so Huff was not 11 legally permitted to act as Oxygen’s agent. “One who cannot legally be an agent, and 12 knows it,” this Court concluded, “cannot act in good faith. As a matter of law, such a 13 person cannot claim any benefit of agent status.” (Doc. 49 at 21.) 14 15 16 17 18 19 Kingsley now attempts to show that Bean likewise “cannot legally be an agent, and knows it,” thus negating his agency status. Kingsley apparently reasons as follows:  It is a crime under 18 U.S.C. § 1033 for an individual convicted of mail fraud to participate in the “business of insurance.”  Huff’s criminal defense attorney would have known about 18 U.S.C. § 1033 because he had formerly been a United States Attorney. 20  A 2005 decision in an entirely unrelated civil case from the Southern 21 District of Ohio interpreted “business of insurance” broadly, such that it 22 would apply to Oxygen’s business efforts. See Beamer v. NETCO Inc., 411 23 F. Supp. 2d 882, 889–90 (S.D. Ohio 2005). 24  Huff’s criminal defense attorney also would have known about and the 25 Beamer decision because he had also formerly been lieutenant governor of 26 Kentucky and Ohio is next to Kentucky. 27  Because Huff’s criminal defense attorney knew about 18 U.S.C. § 1033 and 28 the Beamer decision, it is reasonable to conclude that Huff knew about -3  1 them as well and recognized that he could not overtly participate in 2 Oxygen.  Huff brought Bean into Oxygen as a figurehead manager, to obscure Huff’s 3 own involvement. 4 5  “[W]illfully permit[ing]” a mail fraud convict to participate in the “business 6 of insurance” is as much a crime as the mail fraud convict’s own 7 participation. 18 U.S.C. § 1033(e)(1)(B). 8  Bean somehow knew that Huff could not participate in the insurance 9 business, perhaps because Bean has been represented in Kentucky legal proceedings by the law partner of Huff’s criminal defense attorney. 10  Bean therefore violated 18 U.S.C. § 1033(e)(1)(B) by allowing Huff to use 11 him as Oxygen’s figurehead manager. 12  Bean knew that he could not legally act as Oxygen’s agent, thus stripping 13 him of the protections of agency status. 14 15 This argument is almost entirely conjecture. It does not support reconsidering the Court’s 16 previous ruling. 17 III. JUDICIAL ESTOPPEL 18 Kingsley argues that Bean, in a separate lawsuit in Kentucky, is taking a position 19 inconsistent with his assertion of agency in this action. Although Kingsley does not say 20 as much, he appears to be arguing for judicial estoppel. The Ninth Circuit recently 21 described judicial estoppel, and the standards for applying it, as follows: 22 23 24 25 26 Judicial estoppel generally prevents a party from prevailing in one phase of a case on an argument and then relying on a contradictory argument to prevail in another phase. Federal law governs the application of judicial estoppel in federal court. The doctrine applies to positions taken in the same action or in different actions. It also applies to a party’s stated position whether it is an expression of intention, a statement of fact, or a legal assertion. 27 28 -4  1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Factors relevant in deciding whether to apply the doctrine include: (1) whether the party’s later position is “clearly inconsistent” with its earlier position; (2) whether the party has successfully advanced the earlier position, such that judicial acceptance of an inconsistent position in the later proceeding would create a perception that either the first or the second court had been misled; and (3) whether the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped. Samson v. NAMA Holdings, LLC, 637 F.3d 915, 935 (9th Cir. 2011) (citations and internal quotation marks omitted; alterations incorporated). Bean (along with many of the defendants in this lawsuit) has been sued in Kentucky by Roxann Pixler, who alleges that she held an interest in one of the Oxygenrelated entities and was swindled out of money to which she was entitled by virtue of that interest. Regarding Bean specifically, Pixler alleges that he worked in concert with Anthony Huff to steal from Pixler by setting up and pretending to be the manager of River Falls Investments, LLC and River Falls Equities, LLC, which Huff used to transfer and hide assets due to Pixler. (See Pixler v. Huff et al., No. 3:11-cv-00207, W.D. Ky., Doc. 1 ¶ 44 (filed Apr. 5, 2011).) Bean moved to dismiss, arguing lack of personal jurisdiction and failure to state a claim with sufficient specificity. In response, Pixler filed a declaration explaining her beliefs about the role Bean played. Bean’s reply then opens with the following statement: 20 21 22 23 24 25 26 27 Contrary to . . . Pixler’s . . . assertion, . . . Bean . . . did not create either River Falls Investments or River Falls Equities. . . . Bean did not create these entities nor did he control their day to day operations. Anthony Huff was responsible for controlling both entities and transferring assets to or from these entities. . . . In addition, Bean received no payments from River Falls Investment [sic] or Equities. . . . Bean was listed as the manager of River Falls Investment [sic] and River Falls Equities for organizational purposes only and did not engage in the operational activities of these firms. . . . He did not have any day to day duties or operations of these companies. 28 -5  1 (Id., Doc. 47 at 1–2 (filed Sept. 20, 2011).) The Kentucky court dismissed Pixler’s claim 2 against Bean without prejudice for failure to establish personal jurisdiction and failure to 3 state a claim against him with sufficient specificity. The court did not address Pixler’s or 4 Bean’s factual assertions. 5 Kingsley argues that Bean’s statement above shows he is attempting to avoid any 6 allegation that he manages Oxygen, contrary to his assertions in this Court. As a matter 7 of judicial estoppel, Kingsley’s argument fails. Bean’s argument in the Pixler lawsuit is 8 not “clearly inconsistent” with the argument he asserted here. 9 represented himself as manager of River Falls Financial Services, Oxygen’s managing In this Court, Bean 10 member. The Pixler action, by contrast, involves allegations regarding River Falls 11 Investments and River Falls Equities. Although these entities may have had something to 12 do with Oxygen, the record before the Court establishes only River Falls Financial 13 Services’ relationship to Oxygen, and it is through that relationship the Bean gains the 14 status of agent. Therefore, judicial estoppel is not appropriate. 15 IV. THE FIGUREHEAD ARGUMENT GENERALLY 16 The overall thrust of Kingsley’s foregoing two arguments is that there may be 17 reason to believe Bean had no real duties as Oxygen’s manager, and was simply a 18 figurehead used to obscure Huff’s participation in the insurance business. Kingsley 19 accuses Bean of “unclean hands” and bad faith and ascribes numerous questionable 20 actions to him. At this stage, Kingsley’s assertions are not evidence. Theoretically, a 21 hearing under 9 U.S.C. § 4 could overcome that hurdle. But given that Kingsley’s fraud 22 claim against Bean is based largely on the idea that Bean falsely represented his agency 23 status, a hearing on Kingsley’s current motion would be a hearing on Bean’s liability. 24 25 26 27 28 -6  1 IT IS THEREFORE ORDERED that “Plaintiffs’ Motion for Reconsideration of 2 the Court’s Order Granting Thomas J. Bean’s Motion to Stay Litigation and Compel 3 Arbitration in Kentucky” (Doc. 90) is DENIED. 4 Dated this 23rd day of February, 2012. 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -7 

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