Busch et al v. Welling et al

Filing 146

ORDER denying 121 Motion for Summary Judgment; granting in part and denying in part 129 Motion for Summary Judgment. YBR is not entitled to summary judgment on its RICO claims, Counts I-II or damages and those will proceed to trial. YBR did n ot seek summary judgment on its Declaratory Judgment claim, Count VI. YBR is entitled to summary judgment on the remainder of its counterclaims, Counts III-V, as well as all of the Busch Parties' claims as set forth in this Order. Signed by Judge John J Tuchi on 3/9/17.(DXD)

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NOT FOR PUBLICATION

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Larry J. Busch, et al.,
Plaintiffs,

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v.

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Owen David Welling, et al.,

No. CV-13-02517-PHX-JJT
Consolidated with
No. CV-15-00045-PHX-JJT

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ORDER

Defendants.

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At issue are Plaintiffs and Counterdefendants Larry J. Busch and Busch Law

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Center, LLC’s (collectively, the “Busch Parties”) Motion for Summary Judgment

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(Doc. 121, Busch MSJ), to which Defendant and Counterclaimant Yellow Brick Road,

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LLC (“YBR”) filed a Response (Doc. 132, YBR Resp.) and the Busch Parties filed a

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Reply (Doc. 136, Busch Reply); and YBR’s Cross-Motion for Summary Judgment

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(Doc. 129, YBR MSJ), to which the Busch Parties filed a Response (Doc. 134, Busch

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Resp.) and YBR filed a Reply (Doc. 139, YBR Reply). YBR also filed a Response to the

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Busch Parties’ Controverting Statement of Facts (“CSOF”) in support of YBR’s Motion

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(YBR CSOF Resp., Doc. 140). Although requested, the Court finds these matters

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appropriate for decision without oral argument. See LRCiv 7.2(f).

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I.

BACKGROUND

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In early March 2010, YBR’s Chief Executive Officer, Owen Welling, became

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aware of a purported investment opportunity with Alicorn Capital Management

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(“Alicorn”), presented by its purported principals—John Childs and Scott Koster—in

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conjunction with Berea, Inc. (“Berea”). Numerous discussions took place between March

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and May 2010 before the parties negotiated an agreement in which YBR would pay

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$300,000 to lease a $10,000,000 standby letter of credit (“SBLC”) provided by Success

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Bullion USA, LLC (“Success Bullion”). The SBLC was purportedly to be used to

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establish proof of funds so that Berea could initiate trades or purchases of commodities.

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In exchange for its payment, YBR was to receive 15% of the SBLC’s value. Alicorn was

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to receive a $250,000 “finder’s fee” and Success Bullion the remaining $50,000.

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In April 2010, YBR and Alicorn memorialized the proposed agreement in an

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Engagement Letter, which required YBR to wire its payment to Busch Law Center,

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acting as an escrow agent. The Busch Parties’ involvement was governed by the Escrow

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Instructions, which were jointly drafted by YBR and Alicorn and appended to the

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Engagement Letter. The Busch Parties were to transfer $50,000 to Success Bullion and

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then disperse the remaining funds after certain conditions were met. First, a “Notice of

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Approval” would be issued by Berea after confirming the SBLC format. After YBR,

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Alicorn, and Berea executed the Notice of Approval, it would be delivered to the Busch

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Parties. Upon receipt of the Notice of Approval and a stamped copy of the SBLC issued

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by Success Bullion, the Busch Parties were authorized to wire the remaining $250,000 to

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Alicorn.

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In executing the Escrow Instructions, YBR agreed to “indemnify and hold the

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[Busch Parties] harmless against any loss, liability, damage, cost or expense, including

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attorney fees, (a) related in any way to the Busch Parties acting upon any notice, request,

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waiver, consent, receipt, or other paper or document believed” by the Busch Parties to be

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signed by YBR or other proper parties, “or (b) incurred in connection with any act or

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thing done pursuant to the Escrow Instructions,” and to “hold [the Busch Parties]

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harmless as to any liability incurred by [the Busch Parties] to any person, firm, or

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corporation by reason of its having accepted or in carrying out any of the terms hereof.”

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The Escrow Instructions also required YBR to “reimburse [the Busch Parties] all its

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expenses, including . . . counsel fees and court costs incurred by reason of its position or

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actions taken pursuant to the Escrow Instructions” and provided that the Busch Parties

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“shall not be liable for any error of judgment or for any act done or step taken or

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omission by it in good faith or for any mistake of fact or law for anything which [the

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Busch Parties] may do or refrain from doing in connection herewith, except its own gross

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negligence or willful misconduct” or liable to any parties to the agreement.

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In May 2010, Berea and YBR executed an Asset Management Agreement stating

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stated that Berea would identify and manage the entry of the SBLC into an investment

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opportunity and make minimum payments to YBR of 15% of the SBLC value on a

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monthly basis for 12 months. On May 26, 2010, the final transaction documents were

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executed by the parties. After execution, YBR wired $300,000 to Busch Law Center’s

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escrow account. On June 8, 2010, Mr. Childs stated that the SBLC would be delivered

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the following day. On June 10, 2010, YBR executed the Notice of Approval, which was

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transmitted to the Busch Parties. On June 11, 2010, Mr. Childs sent the purported SBLC

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to Mr. Busch. However, the SBLC was not a stamped copy, as required by the Escrow

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Instructions. Despite this, the Busch Parties distributed the remaining escrowed funds,

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less Mr. Busch’s fees, directly to Mr. Childs and Mr. Koster. The Busch Parties never

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received the SBLC issued by Success Bullion or a stamped copy from any party.

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On February 3, 2011, Richard Hall, of Berea, informed YBR that Berea had not

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been able to secure the SBLC, allegedly due to an error in the transmission between

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Success Bullion and the financial institution. On February 14, 2011, Mr. Welling sent an

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email to Berea, Alicorn, Mr. Childs, Mr. Koster, and Mr. Hall alleging that they had

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failed to execute the deal in accordance with the transaction documents. On October 16,

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2012, YBR sent a demand letter to all involved parties alleging fraud. The Busch Parties

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failed to respond to the demand letter and, despite previous assurances to the contrary, no

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SBLC ever materialized.

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On August 19, 2013, YBR filed suit against the counterparties to the transaction,

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alleging that numerous parties in various capacities conspired to defraud YBR, including

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the Busch Parties, in the U.S. District Court for the District of Minnesota. The allegations

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were not identical but similar to those brought here, including seeking damages arising

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out of the Busch Parties’ services as an escrow agent in the transaction. The Minnesota

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action was dismissed on August 7, 2014 based on a lack of personal jurisdiction. See

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Yellow Brick Road, LLC v. Childs, 36 F. Supp. 3d 855 (D. Minn. 2014).

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The Busch Parties then filed this action against YBR on December 11, 2013,

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alleging Breach of Contract (Count 1) and seeking a Declaratory Judgment (Count 2) and

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Attorney’s Fees and Costs (Count 3), based on their claims that YBR breached their

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agreement to indemnify and hold the Busch Parties harmless by bringing the Minnesota

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action. (Doc. 1.) On August 15, 2014, YBR filed its Answer and Counterclaim, alleging

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violation of the Racketeering Influenced and Corrupt Organizations Act (“RICO”),

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18 U.S.C. § 1961 (Count 1), Conspiracy to Violate RICO (Count 2), Civil Conspiracy to

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Commit Fraud (Count 3), Aiding and Abetting Fraud (Count 4), Conversion (Count 5),

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and seeking a Declaratory Judgment that it not be required to abide by its agreement to

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indemnify and hold the Busch Parties harmless (Count 6). (Doc. 42.)

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II.

LEGAL STANDARD

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Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is

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appropriate when: (1) the movant shows that there is no genuine dispute as to any

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material fact; and (2) after viewing the evidence most favorably to the non-moving party,

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the movant is entitled to prevail as a matter of law. Fed. R. Civ. P. 56; Celotex Corp. v.

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Catrett, 477 U.S. 317, 322–23 (1986); Eisenberg v. Ins. Co. of N. Am., 815 F.2d 1285,

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1288–89 (9th Cir. 1987). Under this standard, “[o]nly disputes over facts that might affect

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the outcome of the suit under governing [substantive] law will properly preclude the

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entry of summary judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

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A “genuine issue” of material fact arises only “if the evidence is such that a reasonable

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jury could return a verdict for the non-moving party.” Id.

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In considering a motion for summary judgment, the court must regard as true the

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non-moving party’s evidence if it is supported by affidavits or other evidentiary material.

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Celotex, 477 U.S. at 324; Eisenberg, 815 F.2d at 1289. The non-moving party may not

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merely rest on its pleadings; it must produce some significant probative evidence tending

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to contradict the moving party’s allegations, thereby creating a question of material fact.

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Anderson, 477 U.S. at 256–57 (holding that the plaintiff must present affirmative

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evidence in order to defeat a properly supported motion for summary judgment); First

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Nat’l Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 289 (1968).

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“A summary judgment motion cannot be defeated by relying solely on conclusory

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allegations unsupported by factual data.” Taylor v. List, 880 F.2d 1040, 1045 (9th Cir.

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1989). “Summary judgment must be entered ‘against a party who fails to make a showing

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sufficient to establish the existence of an element essential to that party’s case, and on

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which that party will bear the burden of proof at trial.’” United States v. Carter, 906 F.2d

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1375, 1376 (9th Cir. 1990) (quoting Celotex, 477 U.S. at 322).

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III.

ANALYSIS

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Before assessing the parties’ cross-motions for summary judgment on the merits,

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the Court must address two preliminary matters underlying the motions and the evidence

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supportive of each.

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A.

Mr. Busch’s Invocation of his Fifth Amendment Privilege

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YBR asserts, in both response to the Busch Parties’ Motion for Summary

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Judgment and in support of YBR’s Motion for Summary Judgment, that Mr. Busch’s

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declarations should be stricken because he repeatedly invoked the Fifth Amendment and

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refused to answer deposition questions regarding the claims and defenses of the Busch

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Parties in this matter. (YBR Resp. at 2-3; YBR MSJ at 9-10.) In spite of his invocation,

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the Busch Parties’ Motion and Response heavily rely on Mr. Busch’s declarations,

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including his avowals regarding the same topics he declined to testify on, in order to

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establish or controvert facts. (See, e.g., Doc. 122, Busch Statement of Facts (“SOF”) ¶¶

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11-15.)

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In civil cases, the Fifth Amendment privilege against self-incrimination cannot be

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used as both a shield and a sword, discarded “for the limited purpose of making

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statements to support a summary judgment motion” but invoked to shield those

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statements from further scrutiny. U.S. v. $133,420.00 in U.S. Currency, No. CV-09-8096-

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PCT-NVW, 2010 WL 2594304, *6 (D. Ariz. June 23, 2010), aff’d, 672 F.3d 629 (9th Cir.

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2012) (citing In re Edmond, 934 F.2d 1304, 1308 (4th Cir. 1991)). If a party seeks to use

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the Fifth Amendment in such a manner, both asserting factual claims and refusing to be

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questioned about those claims, the party’s testimony may be stricken. See In re Edmond,

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934 at 1308 (striking party’s affidavit after he refused to answer deposition questions

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about the subject of the affidavit on Fifth Amendment grounds); United States v. Parcels

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of Land, 903 F.2d 36, 43 (1st Cir. 1990) (holding that the court had “ample authority” to

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strike a party’s affidavit after he invoked the Fifth Amendment and refused to answer

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deposition questions about the subject of the affidavit).

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Mr. Busch has attested to facts regarding his representations to YBR, his role in

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the transaction, his knowledge and intent in acting as an escrow agent, and his

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relationship to and communication with the other parties to the transaction, but only

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where advantageous to his cause. He has blankly claimed he had no involvement in,

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knowledge of, or reason to suspect any fraud in the at-issue transaction in his declarations

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but declined to answer questions on those same subjects in his deposition. (Compare

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Busch Parties SOF, Ex. B with YBR SOF, Ex. 21.) Moreover, Mr. Busch summarily

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declined to testify about any of the claims the Busch Parties brought against YBR. (YBR

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Resp. YBR SOF, Ex. 21 at 48:24-49:4.) In sum, Mr. Busch refused to testify about the

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subject-matter underlying either his causes of action against YBR or YBR’s causes of

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action against the Busch Parties but made sweeping claims about each in his declarations.

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This invocation of the Fifth Amendment is indistinguishable from the cited precedent and

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is a clear example of the impermissible use of the privilege as both a shield and a sword.

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Mr. Busch cannot be permitted to assert facts where it benefits his positions yet shield

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those same subjects from adverse inquisition. To allow such use would be to permit the

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Fifth Amendment privilege to “mutilate the truth.” Parcels of Land, 903 F.2d at 43.

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Accordingly, the Court will exercise its discretion and strike any statement in

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either of Mr. Busch’s declarations that was also the subject of a deposition question that

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Mr. Busch refused to answer, including all statements in his declaration filed in support

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of the Busch Parties’ Motion for Summary Judgment.1 See $133,420.00, 672 F.3d at 641.

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Proceeding in this manner allows the Court to respect Mr. Busch’s Fifth Amendment

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rights while preserving the fundamental truth-finding function of the judicial process. Id.

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at 641. In doing so, the Court must also disregard any statement of fact or controverting

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statement of fact that relies solely on Mr. Busch’s declarations. See Fed. R. Civ. P.

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56(c)(1)(A) (“a party asserting that a fact . . . is genuinely disputed must support the

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assertion by . . . citing to particular parts of materials in the record . . . .”). Consequently,

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the Court will deem admitted any YBR statement of fact which is now uncontroverted by

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virtue of striking Mr. Busch’s declaration. See LRCiv 56.1(b) (“Each numbered

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paragraph of the statement of facts set forth in the moving party’s separate statement of

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facts shall, unless otherwise ordered, be deemed admitted for purposes of the motion for

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summary judgment if not specifically controverted by a correspondingly numbered

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paragraph in the opposing party’s separate statement of facts.”).

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In addition to striking Mr. Busch’s declaration, YBR also repeatedly suggests that,

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in light of the lack of testimony or evidence, the Court should draw adverse inferences

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against the Busch Parties on those subjects. (YBR MSJ at 9-10; YBR Resp. 6-9, 12; YBR

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Reply at 2, 7, 9.) YBR is correct in pointing out that a court is permitted to draw an

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adverse inference in a civil proceeding from a party’s invocation of the Fifth Amendment

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privilege. Baxter v. Palmigiano, 425 U.S. 308, 318–19 (1976). Further, “a ‘party who

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asserts the privilege must bear the consequences of lack of evidence,’ United States v.

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Taylor, 975 F.2d 402, 404 (7th Cir. 1992), and the claim of privilege will not prevent an

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adverse finding or even summary judgment if the litigant does not present sufficient

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evidence to satisfy the usual evidentiary burdens in the litigation.” United States v.

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The Busch Parties argue that, because Mr. Busch was not asked and therefore did
not refuse to testify as to the existence and cost of defending against YBR’s Minnesota
litigation his declarations should remain in the record, or are otherwise adequate to
support summary judgment. (Busch Reply at 7-8.) However, that testimony would pertain
only to the Busch Parties’ claimed damages and not the merits or factual background of
his claims and does not ameliorate the need for testimony on the substance of the Busch
Parties’ claims.
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Certain Real Prop. and Premises Known as: 4003–4005 5th Ave., Brooklyn, NY, 55 F.3d

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78, 83 (2d Cir. 1995) (citing 8 Charles A. Wright, Arthur R. Miller & Richard L. Marcus,

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Federal Practice and Procedure § 2018 (2d ed. 1994)). However, the evidence produced

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by a nonmoving party’s silence alone is not sufficiently weighty to carry a moving

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party’s burden in a motion for summary judgment and must stand or fall on the merits of

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the evidence adduced. As the Supreme Court has noted, “while the assertion of the Fifth

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Amendment privilege against compulsory self-incrimination may be a valid ground upon

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which a witness . . . declines to answer questions, it has never been thought to be in itself

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a substitute for evidence that would assist in meeting a burden of production.” United

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States v. Rylander, 460 U.S. 752, 758 (1983); see also Doe ex rel. Rudy-Glanzer, 232

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F.3d 1258, 1264 (9th Cir. 2000) (an adverse inference can only be drawn when

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independent evidence exists as to the facts about which the party refuses to answer). Still,

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where “the only other available evidence is adverse to the party invoking the Fifth

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Amendment, the only reasonable inference that may be drawn from the invocation of the

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Fifth Amendment is one adverse to the party invoking the Fifth Amendment.” City of

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Chicago, Illinois v. Wolf, No. 91 C 8161, 1993 WL 524383, at *2 (N.D. Ill. Dec. 13,

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1993). As such, the Court will draw an adverse inference where appropriate and

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necessary—i.e., where YBR’s independent evidence avers a conclusion that is or has

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been met with silence or invocation of the Fifth Amendment by the Busch Parties.

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B.

YBR’s Exhibits to its Statement of Facts

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Due to the preceding issues, the Busch Parties are foreclosed from asserting a

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number of facts that contradict YBR’s. Rather than asserting their own facts, the Busch

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Parties lodge objections to the evidence YBR puts forth to support its facts—several of

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which have merit. (See generally Busch CSOF.)

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The Busch Parties object to several of YBR’s exhibits attached to its Statement of

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Facts—chiefly the Chronology of Events (YBR SOF, Ex. 20) from another court’s docket

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and other documentary evidence—on the grounds that they are hearsay, are submitted

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without foundation or authentication, are not part of the record, or are otherwise

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inadmissible and unsupported by deposition testimony, affidavit, declaration, discovery

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response, or other materials. (See, e.g., Doc. 135, Busch CSOF at 7 ¶ 46.) “It is well

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settled that only admissible evidence may be considered by the trial court in ruling on a

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motion for summary judgment.” Beyene v. Coleman Sec. Servs., Inc., 854 F.2d 1179,

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1181–82 (9th Cir. 1988). Federal Rule of Civil Procedure 56(c) provides that a reviewing

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court may consider “depositions, answers to interrogatories, and admissions on file,

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together with the affidavits, if any,” to determine whether there is a genuine issue as to a

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material fact. Neither Celotex, 477 U.S. at 317, nor Curnow v. Ridgecrest Police, 952

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F.2d 321 (9th Cir. 1991), eliminated the requirement that a foundation must be presented

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to demonstrate the authenticity of proffered documents. Authenticating a document

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requires “evidence sufficient to support a finding that the matter in question is what its

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proponent claims.” Fed. R. Evid. 901(a).

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YBR provides no foundation for many of its documents, even through attorney

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declaration. While they are conclusorily described in its statement of facts, YBR does not

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even provide fundamental facts regarding the documents, such as their author(s), purpose,

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or creation date. The Ninth Circuit “has consistently held that documents which have not

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had a proper foundation laid to authenticate them cannot support a motion for summary

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judgment.” Canada v. Blain’s Helicopters, Inc., 831 F.2d 920, 925 (9th Cir. 1987). Here,

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the documentary evidence attached as exhibits—including the chronology, email

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correspondence, letters, and memoranda within that correspondence, as well as emails

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without any foundation—are not properly authenticated. Accordingly, the documents are

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inadmissible and the Court cannot rely on them in determining the existence of material

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issues of fact. Just as the Court struck Mr. Busch’s declarations and facts that rely on

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them, it will disregard any improper evidence put forth by YBR and any statement of fact

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or controverting statement of fact that relies solely on inadmissible exhibits. The Court

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will not disregard, however, any self-authenticating documents, proper deposition

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testimony, discovery responses, or facts that are alleged by YBR and uncontested by the

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Busch Parties.

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In regards to the hearsay objection to those documents, it is without question that a

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party asserting that it is entitled to summary judgment may only rely on non-hearsay

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evidence and other admissible documents. See, e.g., Gleklen v. Democratic Cong.

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Campaign Comm., Inc., 199 F.3d 1365, 1369 (D.C. Cir. 2000) (“[v]erdicts cannot rest on

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inadmissible evidence” and because a grant of summary judgment is a determination on

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the merits of the case, it follows that the moving party’s affidavits must be free of

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hearsay); City of Tenakee Springs v. Clough, 750 F. Supp. 1406, 1416 (D. Alaska 1990),

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rev’d on other grounds, 915 F.2d 1308 (9th Cir. 1990) (“Since summary judgment is a

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substitute for a trial on the merits, it is vital that the party opposing the motion be

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accorded the same evidentiary safeguards that would be applicable at trial . . . .”). While

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YBR often argues that the statements in its exhibits are made by the Busch Parties or

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their alleged co-conspirators, thereby eliminating any hearsay issues, those documents

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remain without foundation and are not considered by the Court.

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With regard to the Chronology of Events, YBR specifically argues that the Court

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can take judicial notice of the document. (E.g., YBR CSOF Resp. at 5-7.) While the

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Court can take judicial notice of documents from an unrelated matter’s docket, it can only

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do so for the purposes of noticing the existence of the suit, the claims made therein, and

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the fact that various documents were filed—not for the truth of the matters asserted. See

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Fed. R. Evid. 201; In re Bare Escentuals, Inc. Sec. Litig., No. C09-3268-PJH, 2010 WL

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3893622, *11 (N.D. Cal., Sept. 30, 2010) (“[T]he Court may take judicial notice of the

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existence of unrelated court documents, although it will not take judicial notice of such

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documents for the truth of the matter asserted within.”).

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C.

The Busch Parties’ Claims

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Both parties seek summary judgment on each count of the Busch Parties’

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Complaint. The Busch Parties’ legal argument is brief, spanning less than three pages,

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and largely relies on the language in the transaction agreements.2 (Busch MSJ at 7-9.)

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The Court notes that both parties repeatedly violated Federal Rule of Civil
Procedure 56(c) and Local Rule 56.1(e) in their Motions. “Memoranda of law filed . . . in
opposition to [or in support of] a motion for summary judgment . . . must include
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Their argument is simple: Mr. Busch complied with the Escrow Instructions and duties as

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an escrow agent; YBR was required to hold harmless and indemnify the Busch Parties for

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their conduct under that agreement; and YBR nonetheless filed suit against the Busch

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Parties in Minnesota.3 (Busch MSJ at 7-9.)

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The Busch Parties provide little legal citation for their argument but the case law

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provided is accurate. The parties and intended beneficiaries to a contract are entitled to

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enforce its terms and obtain relief in the event of its breach. (Busch MSJ at 8 (citing

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Samsel v. Allstate Ins. Co., 19 P.3d 621, 625 (Ariz. Ct. App. 2001).) However, the

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counterparties are equally entitled to relief in the event of breach, and in response and in

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its offensive Motion, YBR alleges the Busch Parties failed to comply with the explicit

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terms of the Escrow Instructions, Mr. Busch failed as an escrow agent, and, by doing so,

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the Busch Parties materially breached their agreement with YBR. (YBR Resp. at 9-11.)

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Specifically, YBR alleges that the Busch Parties were not authorized to transfer the

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remaining $250,000 in escrow until they received a stamped “copy” of the SBLC from

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Success Bullion—an event that never occurred. (YBR Resp. at 9.) Regardless of the

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source of the purported SBLC or whether it was properly stamped, an authentic SBLC

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was never provided or received, as Mr. Hall admitted. (YBR MSJ at 5; YBR Resp. at 10.)

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As such, YBR argues that the Busch Parties materially breached the Escrow Instructions,

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thereby excusing YBR from further performance under that agreement, including its

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obligation to indemnify and hold the Busch Parties harmless. (YBR Resp. at 11.) Mr.

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Busch has declined to testify on these topics. He has not elaborated on whether or not he

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citations to the specific paragraph in the statement of facts that supports assertions made
in the memoranda regarding any material fact on which the party relies . . . .” LRCiv
56.1(e). While citations to the parties’ statements are made in the background sections,
their legal arguments are completely devoid of such citation, despite numerous references
to asserted facts.
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The Court notes that the Busch Parties’ assertion that YBR “lost in that litigation
when YBR’s action was dismissed” is, at best, disingenuous. (Busch Reply at 8.) YBR’s
Minnesota action was dismissed for lack of personal jurisdiction—the court explicitly did
not reach the merits of the case. Any attempt to imply that those claims are without merit
due to its dismissal, or that they have any bearing on YBR’s duty to indemnify and hold
harmless here, is misleading.
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received a stamped copy of the SBLC and, if so, from who, nor has he disclosed what

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steps, if any, he took to ensure the authenticity of the SBLC or otherwise fulfill his

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escrow duties.

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In their Motion and Response, the Busch Parties go to great lengths to downplay

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their role in the transaction and their duties therein. (See Busch MSJ at 3-4.) This

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argument belies the Busch Parties’ contention that they did not materially breach the

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agreement. As they admit, the escrow duties were limited, requiring the Busch Parties

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only to (1) accept $300,000 from YBR, (2) wire $50,000 to Success Bullion after

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receiving a copy of the signed Engagement Letter, and (3) wire the remaining $250,000,

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less escrow fees, to Alicorn after receiving various documents, primarily “a copy of the

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‘Stand By Letter of Credit’, issued by the SBLC provider which will be stamped ‘copy’.”

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(YBR SOF, Ex. 3.4) The undisputed facts are that the Busch Parties only received an

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SBLC from Mr. Childs, with no verification that it was issued by Success Bullion and not

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stamped “copy,” and that no authentic SBLC ever existed. The Busch Parties contend

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that YBR’s facts only show that an electronic, non-stamped copy of the SBLC exists and

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was transmitted to Mr. Busch, not that the Busch Parties did not receive a stamped copy

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issued by Success Bullion as well. (Busch CSOF at 5 ¶ 35.) The Busch Parties’ argument

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28

The Court notes both the Busch Parties’ objection to YBR’s introduction of the
transaction documents (Busch CSOF at 6-7) and that YBR has made virtually no effort to
properly authenticate the exhibits. However, at the summary judgment stage, “courts
focus on admissibility of evidence’s content, not its form,” including hearsay evidence.
United States v. HVI Cat Canyon, Inc., No. CV 11-5097 FMO (SSX), 2016 WL 7011348,
at *7 (C.D. Cal. Sept. 30, 2016). The Court is reticent to allow lenience and take this
principle further than intended, particularly in regards to a moving party’s evidence
where the Court is required to view evidence in the light most favorable to the nonmovant. However, the transaction documents are central to the matter and no charge
against their authenticity or their trial admissibility has been lodged. They can be
authenticated by several methods under the Federal Rules of Evidence, including
901(b)(4). Moreover, despite the Busch Parties’ objections, they do not dispute the
language encompassed in the transaction documents, often quote or paraphrase the same,
and declined to testify as to any of the documents they produced in discovery. See, e.g.,
Las Vegas Sands, LLC v. Nehme, 632 F.3d 526, 533 (9th Cir. 2011) (“Where documents
are otherwise submitted to the court, and where personal knowledge is not relied upon to
authenticate the document, the district court must consider alternative means of
authentication under Federal Rules of Evidence 901(b)(4) . . . . Under Rule 901(b)(4),
‘documents . . . could be authenticated by review of their contents if they appear to be
sufficiently genuine.’” (quoting Orr v. Bank of Am., NT & SA, 285 F.3d 764, 778 n.24)
(9th Cir. 2002)).
- 12 -

1

is true, as far as it goes—the production of a different version does not intuit the

2

nonexistence of another. However, YBR’s facts show that no other document was

3

produced in discovery. (YBR SOF ¶¶ 25, 35, 37-38.) Further, Mr. Hall confirmed that no

4

legitimate SBLC was ever delivered—a fact that the Busch Parties fail to respond to, by

5

objection, controverting fact, or otherwise. (YBR SOF ¶ 38.) Were the proper document

6

received, it is incumbent on the Busch Parties to produce that document, or at least

7

provide testimony on the subject. Instead, because the only existing evidence avers that

8

the proper document did not exist and was not received, and Mr. Busch has not given any

9

testimony or facts to the contrary or provided evidence supportive of his claim that he

10

properly performed his escrow duties, YBR is entitled to an adverse inference in response

11

to Mr. Busch’s silence. The same conclusions are available in deeming YBR’s statements

12

of fact admitted under Local Rule 56.1(b).

13

Accordingly, the facts show that the Busch Parties materially breached the

14

agreement. Although their charge was modest, the Busch Parties failed to ensure that the

15

proper documents were received before wiring any funds as directed. The likelihood that

16

the Busch Parties’ breach was material is exponentially increased by the simplicity and

17

brevity of the limited instructions. Moreover, the Escrow Instructions specifically exclude

18

gross negligence and willful misconduct—the existence of either of which the Busch

19

Parties have not adequately refuted. Instead, YBR’s facts support that the Busch Parties’

20

conduct was, at best, gross negligence, and, at worst, willful misconduct. Similarly,

21

YBR’s agreement specifically covered acts or omissions in good faith, errors in

22

judgment, or mistakes. The facts alleged by YBR, lack of testimony, and adverse

23

inferences drawn, all offer only one conclusion: that the Busch Parties’ conduct falls

24

outside of the ambit of good faith, simple error, or mistake.

25

While the Busch Parties’ obligations as an escrow agent may fall below what YBR

26

has argued (YBR Resp. at 10), they nonetheless include strict compliance with the

27

instructions and “scrupulous honesty, skill, and diligence.” Union Title Co. v. Burr, 432

28

P.3d 476, 479 (Ariz. 1967); Maxfield v. Martin, 173 P.3d 476, 479 (Ariz. App. Ct. 2007).

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1

Even the Busch Parties admit that they were required to “strictly” comply with the terms

2

of the escrow agreements. (Busch MSJ at 8.) Perhaps a more accurate fraudulent

3

document would have absolved the Busch Parties of their duties, but failure to comply

4

with one of only three basic terms—confirmation of a copy in accordance with the

5

Escrow Instructions—is not strict compliance. Because Mr. Busch declined to testify as

6

to any issues pertaining to his own claims against YBR, including the existence of the

7

requisite documents or his conduct in assuring their existence, the Court is unable to

8

conclude that the Busch Parties complied with those duties. Again, the facts presented

9

aver that they did not, including deemed admitted by virtue of Local Rule 56.1(d), and

10

the failure to testify gives way to an adverse inference. There is no genuine dispute of

11

material fact as to the Busch Parties’ breach. Accordingly, YBR is excused from its

12

further obligations under that agreement, including its duty to indemnify and hold the

13

Busch Parties harmless. Dialog4 Sys. Engineering GmbH v. Circuit Research Labs, Inc.,

14

622 F. Supp. 2d 814, 820 (D. Ariz. 2009) (“[a] material breach excuses the non-breaching

15

party from performing under the contract”). The Court will therefore grant YBR’s

16

Motion for Summary Judgment as to the Busch Parties’ claims against it.

17

C.

YBR’s Claims

18

Both parties also seek summary judgment on Counts 1-5 of YBR’s Counterclaim.5

19

Because this Court has stricken much of Mr. Busch’s declaration, his ability to contest

20

YBR’s facts is hindered and left only to other evidence. As such, the Busch Parties fail to

21

provide countervailing facts regarding: (1) the entirety of the relationship between

22

Alicorn, Berea, the Busch Parties, and any other party involved in the negotiation or

23

execution of the transaction; (2) the Busch Parties’ role in the YBR transaction; (3)

24

whether or not the Busch Parties knowingly agreed to participate in a fraudulent

25

transaction, intended to defraud YBR, or were otherwise aware of the existence, nature,

26
27
28

5

The Parties do not address YBR’s claim seeking a declaratory judgment as to its
obligations under the Engagement Letter and Escrow Instructions (Count 6). This is
resolved by the Court’s granting YBR’s Motion for Summary Judgment as to the Busch
Parties’ claims.
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1

or scope of any plan designed to defraud YBR and others; (4) the Busch Parties’ input,

2

direction, or control over the transaction documents, their function, or the performance

3

thereunder; or (5) the majority of the Busch Parties’ conduct and performance in

4

executing the transaction. (See Busch CSOF ¶¶ 1-3, 11-15, 20-21, 24 (each relying solely

5

on Busch’s declaration).) Without the preceding ability, the Court will summarily deny

6

the Busch Parties’ Motion and move to analyzing YBR’s Motion. Even in instances

7

where the Court will not grant summary judgment to YBR, its facts, contentions,

8

inferences, and evidence (admissible or otherwise) create a genuine issue of material fact

9

that precludes granting summary judgment to the Busch Parties.

10

At the outset, the Court addresses the Busch Parties’ underlying contention to all

11

of YBR’s claims: that “YBR must establish that Busch, while acting as an escrow agent

12

in the YBR Transaction, was at a minimum aware that a fraud was being perpetuated

13

upon YBR.” (Busch MSJ at 10.) The Busch Parties argue YBR has failed to do so. As

14

stated, without Mr. Busch’s declarations, the Busch Parties are unable to establish their

15

knowledge and intent. Even then, the Busch Parties only assert that they were unaware of

16

the fraud at the time of the transaction. (E.g., Busch MSJ at 10.) As such, where YBR

17

puts forth facts that aver knowledge or intent, the omission of controverting facts and

18

proper adverse inference allow it to meet its burden.

19

1.

Violation of 18 U.S.C. § 1962, et seq. (RICO) (Count 1)

20

The elements of a civil RICO claim are that a defendant participated in (1) the

21

conduct of (2) an enterprise that affects interstate commerce (3) through a pattern (4) of

22

racketeering activity. Elec. Prop. E., LLC v. Marcus & Millichap Co., 751 F.3d 990, 997

23

(9th Cir. 2014) (citing 18 U.S.C. § 1962(c)). Under 18 U.S.C. § 1961(4), an enterprise

24

includes “any individual, partnership, corporation, association, or other legal entity, and

25

any union or group of individuals associated in fact although not a legal entity.” The

26

Busch Parties fail to meet the argument that an enterprise affecting interstate commerce

27

does not exist and the Court will consider that RICO element as met.

28

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1

However, pursuant to 18 U.S.C. § 1961(5), a civil RICO claim requires at least

2

two acts of racketeering to constitute a pattern. The requisite acts must be “related” and

3

amount to or pose a threat of continue criminal activity. H.J. Inc. v. Nw. Bell Tel. Co.,

4

492 U.S. 229, 239 (1989). Here, YBR has alleged a pattern of wire fraud conducted by

5

Mr. Childs, Mr. Koster, and the Busch Parties. The elements of a claim for wire fraud

6

are: (1) the existence of a scheme to defraud; (2) the use of wire, radio, or television to

7

further the scheme; and (3) specific intent to defraud. United States v. Pelisamen, 641

8

F.3d 399, 409 (9th Cir. 2011) (citation omitted).

9

YBR has presented uncontested facts that it was defrauded and U.S. wires were

10

used in furtherance of the scheme to defraud. Specifically, YBR transferred the funds to

11

the Busch Parties and Mr. Busch released the funds to various recipients via wire transfer.

12

However, each of these acts were in furtherance of a singular fraud against YBR and do

13

not, by themselves, pose a threat to continued criminal activity. The Ninth Circuit has

14

rejected several RICO claims where the objects of defendants’ alleged acts of fraud were

15

performed with respect to a single transaction. See, e.g., Medallion Enterps., Inc. v.

16

SelecTV of Cal., Inc., 833 F.2d 1360, 1365 (9th Cir. 1987). The isolated transaction

17

terminated on a date certain, the entirety of the transaction has concluded, and without

18

additional evidence, the threat of further fraudulent activity cannot be ascertained from

19

the record. Although YBR may be entitled to an adverse inference regarding Mr. Busch’s

20

silence with respect to his relationship with the other parties, particularly in other similar

21

transactions, to allow an inference to prove a pattern of criminal activity, without other

22

evidence, is too much. However, it does create a question for a factfinder to determine

23

and YBR has produced evidence which, if admissible, would create a genuine dispute of

24

material fact. Accordingly, although the Busch Parties are not entitled to summary

25

judgment on this count as YBR’s evidence defeats their Motion as the non-movant,

26

YBR’s Motion for Summary Judgment must also be denied as to Count 1.

27
28

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1

2.

Conspiracy to Violate 18 U.S.C. § 1962, et seq. (Count 2)

2

Under 18 U.S.C. § 1962(d), it is unlawful for a person to conspire to violate any

3

provision of § 1962. A claim under this section requires that a defendant be “aware of the

4

essential nature and scope of the enterprise and intended to participate in it.” United

5

States v. Christensen, 828 F.3d 763, 780 (9th Cir. 2015) (quotation omitted). For the

6

reasons that precede, YBR is not entitled to summary judgment on its conspiracy to

7

violate § 1962. Although Mr. Busch declined to testify as to his knowledge and

8

participation, allowing an adverse inference on each, the allegations regarding

9

Mr. Busch’s frequent acts as an escrow agent in similar schemes are not properly before

10

the Court. Accordingly, YBR can only prove knowledge and intent—via adverse

11

inference—as to this transaction, which is less than the essential scope required by

12

§ 1962(d). For the reasons stated in the preceding section, the parties are equally

13

unentitled to summary judgment as to Count 2.

14

3.

Civil Conspiracy to Commit Fraud (Count 3)

15

“For a civil conspiracy to occur two or more people must agree to accomplish an

16

unlawful purpose or to accomplish a lawful object by unlawful means, causing damages.”

17

Baker v. Stewart Title & Trust of Phoenix, 5 P.3d 249, 256 (Ariz. App. Ct. 2000)

18

(quotation omitted). “In short, liability for civil conspiracy requires that two or more

19

individuals agree and thereupon accomplish ‘an underlying tort which the alleged

20

conspirators agreed to commit.’” Wells Fargo Bank v. Ariz. Laborers, Teamsters &

21

Cement Masons Local No. 395 Pension Trust Fund, 38 P.3d 12, 36 (Ariz. 2002) (quoting

22

Id.). “The conspiratorial agreement need not be express; it may be implied by the tortious

23

conduct itself.” Id. (citing Restatement (Second) of Torts § 876 cmt. a (1979)).

24

To prove fraud, a plaintiff must establish: (1) a representation; (2) its falsity; (3) its

25

materiality; (4) the speaker’s knowledge of its falsity or ignorance of its truth; (5) the

26

speaker’s intent that it should be acted upon by the person and in the manner reasonably

27

contemplated; (6) the hearer’s ignorance of its falsity; (7) the hearer’s reliance on its

28

truth; (8) the hearer’s right to rely thereon; and (9) the hearer’s consequent and proximate

- 17 -

1

injury. KB Home Tucson, Inc. v. Charter Oak Fire Ins. Co., 340 P.3d 405, 412 (Ariz. Ct.

2

App. 2014).

3

Here, YBR has presented facts that the counterparties to the transaction made false

4

representations regarding the SBLC—including its very existence—YBR’s lease of that

5

document, and the gains YBR would receive. YBR has also presented facts that it relied

6

on those representations, without knowledge of their falsity, and made payment in

7

accordance with those representations. Despite its compliance, the SBLC was never

8

delivered nor is there any contention that it ever existed. YBR’s payment was, in essence,

9

for nothing—and certainly not what the representations promised. Moreover, despite the

10

fact that it is undisputed that a valid SBLC never existed, an electronic, non-stamped

11

copy exists. The existence of this document illustrates fraud perpetuated by at least one

12

party. While the Court again disregards YBR’s evidence of a conspiratorial agreement

13

based on previous or subsequent transactions involving the Busch Parties, the undisputed

14

facts nevertheless demonstrate a conspiracy to commit the fraud. Although it is unclear

15

what, if any, statements the Busch Parties made to YBR itself, because the conspiratorial

16

conduct can be inferred from the tortious conduct itself and YBR has produced

17

uncontested facts that the tortious conduct occurred, YBR is again entitled to an adverse

18

inference regarding the Busch Parties’ agreement to commit the fraud, Mr. Busch

19

declined to testify as to his knowledge of the fraud, the Busch Parties’ relationship with

20

the other parties, or the Busch Parties’ involvement in this or any other transactions.

21

Accordingly, there is no genuine dispute of material fact as to the fraud perpetrated and

22

the Busch Parties’ involvement and awareness of the fraud. The Court will grant

23

summary judgment to YBR on its civil conspiracy claim (Count 3).

24

4.

Aiding and Abetting Fraud (Count 4)

25

“Arizona recognizes aiding and abetting as embodied in Restatement § 876(b),

26

that a person who aids and abets a tortfeasor is himself liable for the resulting harm to a

27

third person.” Wells Fargo Bank, 38 P.3d 12, 23 (citation omitted). As stated, YBR has

28

put forth uncontested facts illustrating fraud and the Busch Parties’ involvement in that

- 18 -

1

fraud. The Busch Parties contend that they did not substantially assist or “make it easier

2

for the violation to occur.” (Busch MSJ at 15-16.) However, YBR has proffered facts that

3

they would not have agreed to the transaction without the presence of a lawyer and

4

escrow agent to give the deal the appearance of propriety, and the transaction documents

5

and functioning of the matter show that the deal could not have been completed without

6

the Busch Parties. (YBR SOF ¶¶ 18-21.) Because Mr. Busch declined to testify regarding

7

his involvement in the transaction and relationship to the other tortfeasors, as well as the

8

adverse inference that is properly drawn from his silence and the lack of contrary

9

evidence, YBR is equally entitled to summary judgment on its aiding and abetting fraud

10

claim (Count 4).

11

5.

Conversion (Count 5)

12

“Conversion is an intentional exercise of dominion or control over a chattel which

13

so seriously interferes with the right of another to control it that the actor may justly be

14

required to pay the other the full value of the chattel.” Miller v. Hehlen, 104 P.3d 193

15

(Ariz. Ct. App. 2005) (citing Restatement (Second) of Torts § 222A(1) (1965)).

16

YBR’s uncontroverted facts show that it transferred $300,000 to the Busch Parties

17

for the sole purpose of leasing the SBLC. An authentic SBLC was never provided or

18

received. Although not incumbent upon the Busch Parties to secure the SBLC, it was

19

incumbent on them to properly verify its authenticity upon receipt, at least as described in

20

its Escrow Duties and in accordance with the obligations of any escrow agent. The Busch

21

Parties have not produced a proper copy of the SBLC that would have permitted it to

22

transfer the funds, nor have they produced testimony regarding the performance of its

23

escrow duties. Accordingly, there is no genuine dispute of material fact regarding the

24

Busch Parties’ improper exercise of control over $300,000 in violation of the Escrow

25

Instructions and their duties as escrow agent. The Court will accordingly grant YBR’s

26

Motion for Summary Judgment as to its Conversion claim (Count 5).

27
28

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1

D.

YBR’s Damages

2

YBR seeks recovery of the principal sum of $1,500,000 in damages, treble

3

damages pursuant to 18 U.S.C. § 1964(c), and punitive damages, together with interest,

4

attorneys’ fees, and costs. (YBR MSJ at 16.) YBR has calculated the principal sum based

5

on the 15% return it was promised in the transaction. (YBR MSJ at 16-17.) Trebling

6

damages pursuant to 18 U.S.C. § 1964(c) would allegedly bring the principal sum to

7

$4,500,000. (YBR MSJ at 17.) However, the Court will not grant summary judgment as

8

to YBR’s RICO claims and treble damages under that statute are thus unwarranted at this

9

stage. Further, as the Court has elsewhere stated in this matter (Docs. 144, 145), YBR’s

10

principal damages are not to be calculated as loss of expected profit, but as loss of

11

investment. As such, YBR’s principal damages for which it is to be compensated is their

12

investment amount: $300,000. See, e.g., Standard Chartered PLC v. Price Waterhouse,

13

945 P.2d 317, 345 (Ariz. Ct. App. 1996) (“Compensatory damages are intended to

14

compensate a tort plaintiff for losses suffered.” (citing Restatement (Second) of Torts

15

§ 903 (1979))).

16

YBR also seeks punitive damages under Arizona law, which are awardable in

17

fraud-based claims upon a finding of gross fraudulent activity or malice and ill will. YBR

18

argues that punitive damages are warranted as the fraudulent scheme was complex,

19

perpetuated on others—resulting in indictments in Alabama and Arizona, as well as state

20

bar complaints—and that the Busch Parties’ involvement was specifically designed to

21

give credibility to the scheme by implying a lawyer’s imprimatur. As stated, much of the

22

evidence that supports YBR’s argument has not been marshalled in an admissible form.

23

Moreover, because YBR’s RICO claims will proceed to trial—which include the

24

possibility of treble damages—it is inappropriate to grant summary judgment as to a

25

specified amount of damages and those issues will proceed with the remaining claims or

26

be resolved at the conclusion of the matter.

27
28

- 20 -

1

IV.

CONCLUSION

2

As YBR states, the evidence shows that failure to strictly comply with the Escrow

3

Instructions thwarted the very purpose of the escrow—to confirm receipt of proper

4

documentation before releasing the funds. In violating the Escrow Instructions, the Busch

5

Parties materially breached the operative agreements and undermined the very purpose of

6

those agreements—for YBR to obtain and lease a SBLC for its capital contribution. As

7

such, YBR is absolved of its further obligations under that agreement, including any

8

continuing obligation to the Busch Parties, and is entitled to summary judgment on the

9

Busch Parties’ claims.

10

In addition to summary judgment as to the Busch Parties’ claims, YBR is entitled

11

to summary judgment on the majority of its claims. Although YBR has not presented

12

uncontested facts regarding a fraudulent scheme predating or continuing after its

13

transaction, it has put forth evidence that a fraud occurred and that the Busch Parties

14

played a role in that fraud. These facts are met with silence and no genuine issue of

15

material fact exists as to the Busch Parties’ remaining liability.

16
17

IT IS THEREFORE ORDERED denying Plaintiff and Counterdefendants Larry
J. Busch and Busch Law Center, LLC’s Motion for Summary Judgment (Doc. 121).

18

IT IS FURTHER ORDERED granting in part and denying in part Defendant and

19

Counterclaimant Yellow Brick Road, LLC’s Cross-Motion for Summary Judgment

20

(Doc. 129). YBR is not entitled to summary judgment on its RICO claims, Counts I-II or

21

damages and those will proceed to trial. YBR did not seek summary judgment on its

22

Declaratory Judgment claim, Count VI. YBR is entitled to summary judgment on the

23

remainder of its counterclaims, Counts III-V, as well as all of the Busch Parties’ claims

24

as set forth in this Order.

25

Dated this 9th day of March, 2017.

26
27
28

Honorable John J. Tuchi
United States District Judge

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