Western Alliance Bank v. Jefferson

Filing 235

ORDER: Kritza's motion at docket 127 is DENIED. Jefferson's motion at docket 129 is DENIED. Alliance's motion at docket 131 is GRANTED. Kritza's motion at docket 132 is GRANTED IN PART AND DENIED IN PART as follows: Kri tza is GRANTED summary judgment on counts one, three, five, nine, and ten; Kritza is GRANTED summary judgment on counts two, four, and eight to the extent those claims seek damages based on the approval, extension, or amendment of the Alliance LOC; and in all other respects the motion at docket 132 is DENIED. Jefferson's request for Rule 56(d) relief at docket 162 is DENIED. Signed by Judge John W Sedwick on 11/13/15.(SJF)

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1 2 3 UNITED STATES DISTRICT COURT 4 DISTRICT OF ARIZONA 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Western Alliance Bank, ) ) Plaintiff, ) ) vs. ) ) Richard Jefferson, ) ) Defendant. ) ) ) Richard Jefferson, ) ) Counter-claimant, ) ) vs. ) ) Western Alliance Bank, ) ) Counter-defendant. ) ) ) Richard Jefferson, ) ) Third-party plaintiff, ) ) vs. ) ) Theodore Kritza & Michelle Lee ) Kritza, ) ) Third-party defendants. ) ) 2:14-cv-00761 JWS ORDER AND OPINION [Re: Motions at docket 127, 129, 131 and 132] 23 I. MOTIONS PRESENTED 24 Before the court are four summary judgment motions. At docket 127 third-party 25 defendants Theodore Kritza and Michelle Lee Kritza (collectively, “Kritza”) filed a motion 26 for partial summary judgment supported by a statement of facts at docket 128. 27 Defendant, counter-claimant, and third-party plaintiff Richard Jefferson (“Jefferson”) filed 28 an opposition to Kritza’s motion at docket 160 supported by a separate statement of 1 facts and controverting statement of facts at docket 161. Kritza filed a reply in support 2 of his motion at docket 212 and a supplemental statement of facts at docket 226. 3 Jefferson filed a sur-response at docket 228 and a controverting statement of facts 4 regarding Kritza’s supplemental statement of facts at docket 229. 5 At docket 131 plaintiff and counter-defendant Western Alliance Bank (“Alliance”) 6 filed a motion for summary judgment supported by a statement of facts at docket 134. 7 Alliance argues that it is entitled to summary judgment pursuant to the ratification 8 doctrine and A.R.S. § 47-4406. At docket 163 Jefferson filed an opposition to Alliance’s 9 motion supported by his controverting statement of facts, objections, and additional 10 statement of facts at dockets 166 and 167. At docket 174 Alliance filed a reply in 11 support of its motion, and at docket 177 it filed a separate response to Jefferson’s 12 controverting statement of facts and additional statement of facts. At docket 227 the 13 court granted Jefferson’s motion to strike Alliance’s filing at docket 177. 14 At docket 132 Kritza filed a joinder to Alliance’s motion as it relates to the issue of 15 ratification and a motion for summary judgment on that issue. At docket 164 Jefferson 16 filed an opposition to Kritza’s motion supported by his objections and controverting 17 statement of facts at docket 165. At docket 188 Kritza filed a reply in support of his 18 motion. 19 At docket 129 Jefferson filed a motion for partial summary judgment against 20 Kritza or, in the alternative, an order treating certain facts as established. Jefferson’s 21 separate statement of facts in support of his motion is at docket 130. Kritza’s opposition 22 to Jefferson’s motion is at docket 158, which is supported by his controverting statement 23 of facts at docket 159. Jefferson filed his reply at docket 175 and unredacted copies of 24 Exhibits 4 and 7 to Kritza’s controverting statement of facts at docket 176, both under 25 seal. 26 27 Finally, at docket 162 Jefferson’s counsel submitted an affidavit in which he states that Jefferson cannot present facts essential to his oppositions to Kritza’s and 28 -2- 1 Alliance’s motions and therefore asks the court to deny those motions pursuant to Rule 2 56(d). 3 Oral argument was held on November 9, 2015. 4 II. BACKGROUND 5 Jefferson is a professional basketball player in the National Basketball 6 Association (“NBA”)1 who employed Kritza from 2001 to 2013 as his personal business 7 manager in charge of his day-to-day affairs, investments, and business ventures.2 8 A. 9 The Alliance Line of Credit Alliance alleges that on October 5, 2004 it issued Jefferson a revolving line of 10 credit in an original principal amount not to exceed $500,000 (“LOC”) that Jefferson 11 failed to pay by its maturity date.3 Alliance attached to its complaint the following 12 documents as evidence of the parties’ contractual relationship: 13 1. An October 5, 2004 Consumer Revolving Line of Credit agreement (loan number 0129104825, “Loan 4825”) with an October 5, 2005 maturity date;4 2. A September 13, 2005 Change in Terms Agreement to loan 4825 that extended the LOC’s maturity date to October 5, 2006;5 3. A September 25, 2006 Change in Terms Agreement to loan 4825 that extended the LOC’s maturity date to October 5, 2007;6 14 15 16 17 18 19 20 21 22 1 23 Doc. 134 at 2-3 ¶¶ 1, 7; Doc. 134-1 at 3:23-24; Doc. 166 at 37 ¶ 1. 2 24 25 Doc. 33 at 4 ¶ 13; Doc. 134-1 at 16:13-15, 17:1-14, 53:2-11, 101-02. 3 Doc. 1-3 at 3 ¶ 6, 4 ¶ 12. 26 4 27 5 28 6 Doc. 1-4 at 5-13 (Exhibit A). Id. at 15-21 (Exhibit B). Id. at 23-27 (Exhibit C). -3- 1 4. An August 13, 2007 Change in Terms Agreement to loan 4825 that extended the LOC’s maturity date to October 5, 2008;7 5. An August 5, 2008 Change in Terms Agreement to loan 4825 that extended the LOC’s maturity date to August 15, 2009;8 6. An August 15, 2009 Change in Terms Agreement to loan 4825 that extended the LOC’s maturity date to August 15, 2010;9 7. An August 16, 2010 Consumer Revolving Line of Credit agreement (loan number 129125289, “Loan 5289”) with an August 15, 2011 maturity date;10 8. A December 23, 2011 Promissory Note11 and Business Loan Agreement12 (loan number 0602129169, “Loan 9169”) with a November 15, 2012 maturity date; 9. A November 15, 2012 Change in Terms Agreement to loan 9169 that extended the loan’s maturity date to January 15, 2013;13 10. A January 15, 2013 Change in Terms Agreement to loan 9169 that extended the loan’s maturity date to November 15, 2013.14 2 3 4 5 6 7 8 9 10 11 12 13 14 15 At his deposition Jefferson testified that he was advised by Kritza, his former 16 agent Todd Eley (“Eley”), and former financial advisor Mark Love (“Love”) to obtain a 17 LOC to cover his expenses during the gap between his first and second NBA 18 19 20 7 Id. at 29-35 (Exhibit D). 21 8 22 Id. at 37-43 (Exhibit E). 9 23 Id. at 45-51 (Exhibit F). 10 24 25 Id. at 53-59 (Exhibit G). 11 Id. at 61-62 (Exhibit H). 26 12 27 13 28 14 Id. at 64-70 (Exhibit I). Id. at 72-75 (Exhibit J). Id. at 77-80 (Exhibit K). -4- 1 contracts.15 He maintains, however, that his signature on the original Loan 4825 credit 2 agreement was forged.16 Jefferson also testified that he did not know that the LOC was 3 extended17 or about any of the subsequent loan commitments that were taken out in his 4 name.18 The five extensions of Loan 4825,19 the original Loan 5289 document,20 the 5 Loan 9169 promissory note,21 the Loan 9169 “business loan agreement,”22 and the two 6 7 8 9 10 11 12 15 13 16 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Doc. 134-1 at 12:10-13, 94; Doc. 166-2 at 27:2-6. Doc. 166 at 62; Doc. 166-2 at 93 (“Q. Are you taking the position that all of those documents that we have gone through from Alliance Bank that looks like it has your signature on it, are they all forgeries? A. The documents that I have seen today do not look like my signature. Q. Are you taking the position that they were forged? A. I’m taking the position that they are not my signature.”). 17 Doc. 134-1 at 18:10-12. Jefferson testified that Kritza told him that the line of credit was paid off sometime around 2004 or 2005. Doc. 166-2 at 27:10-21. He also testified that he thought the line of credit was kept open after that, but did not know about any disbursements. Doc. 134-1 at 25-26. 18 Doc. 166-2 at 131:8-10. Id. at 21-23 (“I believe there was a line of credit that was taken out in 2004, which I was informed was paid off, and that was the only one.”). 19 See the September 13, 2005 extension, doc. 134-2 at 84-86 (Richard Jefferson is the listed borrower and purported signatory); the September 26, 2005 extension, id. at 92-94 (same); the August 13, 2007 extension, id. at 98-100 (same); the August 5, 2008 extension, id. at 106-08 (“Richard Jefferson c/o Stratosphere Sports” is the listed borrower and Richard Jefferson is the purported signatory); and the August 15, 2009 extension, id. at 114-16 (same). 20 Id. at 122-24 (“Richard Jefferson c/o Stratosphere Sports” is the listed borrower and Richard Jefferson is the purported signatory). 21 Id. at 130-31 (“Richard Jefferson c/o Stratosphere Management LLC” is the listed borrower and Richard Jefferson is the purported signatory). 22 Id. at 133-38 (“Richard Jefferson c/o Stratosphere Management LLC” is the listed borrower and Richard Jefferson is the purported signatory). -5- 1 extensions of Loan 916923 all bear Jefferson’s purported signature. Jefferson testified 2 that Kritza has admitted to forging his signature.24 3 Kritza testified that he helped get Jefferson’s signature on the original Loan 4825 4 paperwork in 200425 and on the 2006 Change in Terms Agreement.26 Kritza also 5 testified that Jefferson authorized him to extend the LOC and make disbursements from 6 it.27 7 B. 8 9 Stratosphere Management Kritza testified that in 2006 Jefferson agreed to help him fund a business he was starting called Stratosphere Management, LLC (“Stratosphere Management”). Kritza 10 described his business plan for Stratosphere Management as a “24-hour concierge-type 11 VIP service that was available to players.”28 Kritza contends that Stratosphere 12 Management executed a $500,000 promissory note in Jefferson’s favor.29 Jefferson did 13 not give these funds to Stratosphere Management directly, Kritza said. Instead, 14 15 16 17 23 See the November 15, 2012 extension, id. at 141-43 (“Richard Jefferson c/o Stratosphere Management LLC” is the listed borrower and Richard Jefferson is the purported signatory); the January 15, 2013 extension, id. at 146-48 (same). 24 18 19 20 Doc. 166-2 at 93:5-8; id. at 109:15-18 (“Ted Kritza told me that he had signed documents in my name and had forged signatures, on a recorded call with the FBI, so that he could take out money in my name.”). 25 Doc. 134 at 7 ¶ 20; Doc. 134-1 at 65:4-7. 21 26 22 27 23 28 24 29 25 26 27 28 Doc. 134 at 7 ¶ 20; Doc. 134-1 at 66:16-18. Doc. 134 at 4 ¶ 8; Doc. 134-1 at 70:12-15, 71:7-10. Doc. 166-3 at 22:15-18. Doc. 159-1 at 10:10-12 (“We had originally started with the $500,000 note to create the concierge service and move forward.”). See also id. at 47 § 14 (“Borrower acknowledges that $525,500.00 in loan proceeds are outstanding which represent principal and accrued interest owing by Borrower to Lender pursuant to Promissory Note issued to Lender by Borrower effectively dated July 29, 2006 in the original principal amount of $500,000.00, and cancelled concurrently with the issuance of the Note.”). The court was unable to find a copy of this promissory note in the record. Jefferson apparently concedes that this note exists, but disputes its authenticity. Doc. 161 at 9 ¶ 50. -6- 1 Jefferson allowed Kritza to access the $500,000 Alliance LOC “so that line continued to 2 carry . . . a balance that was owed by [Kritza].”30 3 According to Kritza, Stratosphere Management executed a second promissory 4 note in 2008 that increased Jefferson’s loan to $2 million and extended the loan’s 5 maturity date to August 31, 2016.31 Kritza testified as follows: 6 I put together a plan and went back and . . . discussed it with [Jefferson] on, I think it was two or three different occasions I remember one of them was during the All Star break—of expanding what Stratosphere Management was and to go out and form companies that were specifically related and tied into what the concierge service would need. So there were entities that were created that helped in the transportation of cars, in the customization of vehicles. So a guy would buy a Lamborghini, for example, but he would want different things done to it, so they would go to this—it would stay in-house, basically. And that’s where . . . the whole requirement of an extra million and a half dollars kind of fell on that plate as to creating all these other possibilities.32 7 8 9 10 11 12 Kritza has submitted an email exchange purportedly between Jefferson and Kritza in 13 2008 in which Kritza thanks Jefferson for “agreeing to increase and extend the term of 14 the LOC, so that [Kritza] can look at other opportunities,” and Jefferson acknowledges 15 Kritza’s email.33 The alleged 2008 promissory note does not reference the Alliance 16 LOC. 17 At his deposition Jefferson denied having any involvement with Stratosphere 18 Management.34 He denied loaning Stratosphere Management either $500,000 or $2 19 million, denied that Krtiza gave him either the $500,000 or the $2 million promissary 20 note, and denied authorizing Kritza to use the Alliance LOC to fund Kritza’s business 21 22 23 30 24 31 25 Doc. 166-3 at 21:21-23:10. See also id. at 24:17-22; Doc. 159-1 at 25:1-3. Doc. 159-1 at 8:7-12:18, 25:1-3. See also id. at 44-48 (the alleged $2 million promissory note). 26 32 27 33 28 34 Doc. 159-1 at 11:10-12:2. Id. at 50. Doc. 166-2 at 176:13-15. -7- 1 investments.35 Jefferson testified that the first time he saw the $2 million note was when 2 Eley emailed it to him, and that his signature on the note was forged.36 3 C. The 2011 NBA Lockout 4 Between July 1 and December 8, 2011 there was an NBA lockout,37 during which 5 time teams could not trade or enter into contracts with players.38 Jefferson testified that 6 during the lockout Kritza told him he “was stressed” about the “financial strain” Jefferson 7 would suffer if the lockout lasted all season.39 Jefferson testified that he was 8 disappointed with the state of his personal finances after playing in the NBA for ten 9 years and “confused as to some of the numbers,” so he had Richard Murnick 10 (“Murnick”), his current financial manager, review his finances.40 11 According to Murnick, Jefferson called him in late 2011 because Jefferson was 12 concerned about not having as much money as he thought he should.41 Murnick said 13 that after speaking with Jefferson, seeing his brokerage statement, and “thumb[ing] 14 through” his tax return, he agreed with Jefferson “that there were some concerns.”42 15 “[T]he amount that was in the brokerage account—that it wasn’t more—I was expecting 16 17 35 18 19 20 21 22 Doc. 161-1 at 81:15-23, 106:5-12. 36 Doc. 161-1 at 97:22-99:12. Jefferson states that Eley sent this email “recently,” but the court could not locate a copy of the email, which was apparently marked as exhibit 128. Doc. 161 at 10 ¶ 51. Jefferson cites pages 83 and 84 of the transcript from his February 13, 2015 deposition but does not provide the court with these pages either. 37 Doc. 128 at 3 ¶ 11; Doc. 161 at 19 ¶ 11. 38 23 Doc. 128 at 3 ¶ 12; Doc. 161 at 19 ¶ 12. 39 24 25 Doc. 128-2 at 160:19-23, 163:6-8. Jefferson later backtracked, testifying that Kritza “was not worried . . . he was not stressed, but he was preparing for the worst.” Doc. 128-2 at 193:2-4. 26 40 27 41 28 42 Doc. 128-2 at 160:24-25, 161:1-5, 163:14-24, 167:11-13. Doc. 128-3 at 28-32. Doc. 128-3 at 40:22-25, 41:1-6. -8- 1 to see more in the brokerage account,” testified Murnick.43 Murnick also testified that 2 Jefferson was concerned that Kritza “may have taken money from him.”44 In November 3 2011 Jefferson hired Murnick to replace Love as his financial advisor.45 4 D. 5 Jefferson Communicates Concerns to Kritza On February 8, 2012 Jefferson emailed Kritza stating that Murnick was going 6 through his tax returns and that he did not understand why his savings were so low.46 7 “Even if we included property we are so far off of the number we needed to be at,” 8 Jefferson stated. “As my primary handler, that wasn’t a red flag for you?”47 Kritza’s 9 response, sent the same day, addresses Jefferson’s concerns: “there was the 10 opportunity for you to save more, but you paid down your debt . . . and yes there were 11 other situations and circumstances that took away for [sic] the ability to save.”48 12 E. Jefferson Hires an Accountant to Review His Finances 13 Jefferson testified that Kritza’s response to his February 8 email led him to 14 believe he “was not going to get very many answers” from Kritza, and so he hired 15 accountant Jim Tucciarone (“Tucciarone”) to review his finances.49 Tucciarone 16 conducted an initial review of Jefferson’s tax returns and investment documents50 and 17 concluded that these documents “raised questions as to the financial controls and 18 19 20 43 Doc. 128-3 at 41:16-19. 21 44 22 Id. at 54:9-12. See also id. at 58:11-22. 45 23 Doc. 134 at 10 ¶ 40; Doc. 166 at 108 ¶ 40. 46 24 25 Doc. 128-2 at 199:11-200:2; Doc. 128-3 at 100. 47 Doc. 128-3 at 101. 26 48 27 49 28 50 Id. at 100. Doc. 128-2 at 205:3-11. See also Doc. 128-3 at 41:2-6, 44:9-14, 45:11-18; 53:19-24. Doc. 128-3 at 187-201. -9- 1 benefits of many of [Jefferson’s] investments.”51 In his June 12, 2012 engagement letter 2 Tucciarone offered to provide Jefferson with a comprehensive review of his tax returns 3 and other documents to demonstrate how his financial affairs were being managed.52 In 4 the email that accompanied that letter Tucciarone stated, “Once signed I will send 5 authorization that will allow me to contact Stratosphere and request documents. We 6 should get the management contract and see where we stand on relieving them of their 7 duties ASAP.”53 Jefferson engaged Tucciarone’s services the following day.54 8 Jefferson testified that the more he learned from Tucciarone the more he 9 believed “there was wrongdoing.”55 But instead of filing a “lengthy” court case, Jefferson 10 testified that he decided to “kind of just move on.”56 “I really didn’t believe that there was 11 money to be found or money to be turned over,” Jefferson testified. “So I just decided to 12 try and move on with my life and I pretty much let go of my entire team and just tried to 13 focus on the rest of my career and my future earnings.”57 On October 9, 2012 Jefferson 14 executed a document stating that he was revoking the durable general power of 15 attorney that he executed in favor of Eley and Kritza in 2011 any other powers of 16 attorney he granted in favor of Eley and Kritza.58 17 18 19 20 51 Doc. 128-3 at 176, 184; Doc. 161 at 8 ¶ 35. 21 52 22 Doc. 128-3 at 184. 53 23 Id. at 182. 54 24 25 Doc. 161 at 8 ¶ 39. 55 Doc. 128-3 at 11:3-8. 26 56 27 57 28 58 Id. Doc. 161-5 at 26:17-21. Doc. 134 at 11 ¶ 42; Doc. 134-14 at 50; Doc. 161-1 at 74-75; Doc. 166 at 111 ¶ 42. -10- 1 F. 2 Jefferson Allegedly Confronts Kritza, Contacts Alliance Jefferson testified that he did not know that Kritza “was the individual that had 3 taken out this money and taken out loans and used my money to pay back certain 4 loans” until he got a permanent mailing address and started receiving documents from 5 Alliance Bank.59 Jefferson testified: 6 9 when Ted Kritza was no longer receiving my mail . . . I started receiving . . . all of my statements from Alliance Bank, I found some discrepancies. I first contacted Ted Kritza about them. Apparently he had a loan that was taken out in my name, so I addressed that. He told me that he was paying off this loan that I was not aware of. And so I want to say a month later I received a document saying that I owed an amount of money, and I was confused and so I called the bank myself.60 10 Former-Alliance employee Gina McRostie (“McRostie”) testified that Jefferson called her 11 to request information about his accounts in the fall of 2013.61 On October 11, 2013 12 McRostie emailed Jefferson bank statements related to the Alliance LOC.62 Her email 13 notes that “the line was continuous but had three different account numbers due to bank 14 changes in documentation.”63 By no later than October 15, 2013, Jefferson, through his 15 attorney Bryan Saalfeld (“Saalfeld”), had contacted the FBI about his Alliance account.64 16 G. 7 8 17 The Forbearance Agreement In a November 11, 2013 letter Saalfeld asked Alliance for “an immediate 18 forbearance on any payments owing and/or due on Alliance Bank of Arizona Loan 19 Account Number #602129169, unlawfully registered in [Jefferson’s] name c/o 20 21 22 59 23 Doc. 161-5 at 27:12-16; Doc. 166-2 at 123:22-25. 60 24 25 Doc. 166-2 at 24:4-14. See also id. at 123:22-125:14. 61 Doc. 134 at 11 ¶ 45; Doc. 134-2 at 48 p.134:21-135:7. 26 62 27 63 28 64 Doc. 134-3 at 2-104. Id. at 2. Doc. 134-16 at 37. -11- 1 Stratosphere Mgt, LLC.”65 Saalfeld explained that such a forbearance was justified by 2 the Department of Justice’s criminal investigation into fraud perpetrated against 3 Jefferson “and the fact that Mr. Jefferson did not knowingly consent to the account, or 4 any of the amounts apparently owing and due on the account.”66 Alliance responded by 5 proposing terms for a potential forbearance agreement67 and providing Saalfeld with 6 loan documents related to the LOC.68 Jefferson and Alliance executed the forbearance 7 agreement on December 20, 2013.69 Under the terms of this agreement, Jefferson 8 acknowledged that he entered into the LOC, which matured on November 15, 2013, 9 and agreed to make a $50,000 principal reduction payment. Alliance agreed to “forbear 10 from the exercise of any of its rights and remedies . . . in connection with” the LOC’s 11 maturity until January 15, 2014.70 Jefferson’s failure to repay the LOC’s balance by this 12 January 2014 deadline is the operative default alleged in the one-count breach of 13 contract action that Alliance brought against Jefferson in state court.71 14 H. 15 Procedural History Jefferson removed the case to this court,72 filed his answer, and brought two 16 negligence counterclaims against Alliance. In his answer Jefferson admits that he is the 17 borrower listed on the paperwork for above-referenced loans but he claims that his 18 19 20 65 Doc. 134-15 at 2 21 66 22 Id. 67 23 Doc. 162-1 at 4-6. 68 24 25 Doc. 134-15 at 5-79. 69 Doc. 134-14 at 52-55. 26 70 27 71 28 72 Id. at 52-55. Doc. 1-3 at 4 ¶¶ 10-13. Doc. 1. -12- 1 signature was forged.73 Jefferson’s first counterclaim alleges that Alliance was 2 negligent in failing “to implement and/or follow appropriate procedures to verify the 3 authenticity of the signatures on documents purporting to name Jefferson” as a 4 borrower.74 His second counterclaim alleges that Alliance was negligent in supervising 5 and training its agents.75 6 Jefferson then filed a ten-claim third-party complaint against Kritza alleging: (1) 7 fraud/concealment; (2) breach of fiduciary duty; (3) negligence; (4) breach of contract; 8 (5) negligent misrepresentation; (6) unjust enrichment; (7) accounting; (8) conversion; 9 (9) contribution/indemnification; and (10) a declaratory judgment regarding 10 contribution/indemnification.76 Jefferson later amended his third-party complaint to 11 name Kritza’s wife as an additional third-party defendant.77 12 13 14 III. DISCUSSION A. Jefferson’s Rule 56(c)(2) Objections Before discussing the merits of the parties’ motions, it is necessary to address 15 Jefferson’s Rule 56(c)(2) objections. Rule 56(c)(2) states that at summary judgment “[a] 16 party may object that the material cited to support or dispute a fact cannot be presented 17 in a form that would be admissible in evidence.” The advisory committee note states 18 that a Rule 56(c)(2) objection “functions much as an objection at trial, adjusted for the 19 pretrial setting. The burden is on the proponent to show that the material is admissible 20 as presented or to explain the admissible form that is anticipated.”78 “If the case goes to 21 22 73 23 Doc. 14. 74 24 25 26 Id. at 16-17 ¶ 13. 75 Id. at 18 ¶ 20. 76 Doc. 16. 27 77 28 78 Doc. 33. Fed. R. Civ. P. 56(c)(2) advisory committee’s note to 2010 amendment. -13- 1 trial, failure to challenge admissibility at the summary-judgment stage does not forfeit 2 the right to challenge admissibility at trial.”79 3 Jefferson has raised hundreds of Rule 56(c)(2) objections to the materials cited 4 in Alliance’s and Kritza’s statements of facts. For example, Alliance’s statement of facts 5 is 60 paragraphs long and Jefferson raises a bevy of mostly boilerplate objections to 6 each paragraph except the first. A majority of these objections are inappropriate in the 7 context of summary judgment. 8 Jefferson’s objections that cited materials are irrelevant, vague, ambiguous, or 9 inadmissible under Evidence Rule 403 are all inappropriate because they duplicate the 10 summary judgment standard itself. Because the court “can award summary judgment 11 only when there is no genuine dispute of material fact,”80 it cannot rely on irrelevant, 12 vague, ambiguous, or otherwise insufficiently-probative evidence. “Similarly, 13 statements in declarations based on speculation or improper legal conclusions, or 14 argumentative statements, are not facts and likewise will not be considered on a motion 15 for summary judgment. Objections on any of these grounds are simply superfluous in 16 this context.”81 17 A number of Jefferson’s objections argue that cited materials are 18 inadmissible—for example, because they contain testimony not made under oath—but 19 not that such materials cannot be presented in an admissible form at trial. These 20 objections are insufficient under Rule 56(c)(2) and are overruled. Further, the court 21 notes that Jefferson regularly objects to deposition testimony as not being made under 22 oath.82 These objections have no basis in fact, and are overruled. 23 24 79 25 80 26 Id. Burch v. Regents of Univ. of California, 433 F. Supp. 2d 1110, 1119 (E.D. Cal. 2006) (emphasis in original). 27 81 28 82 Id. (emphasis in original). See, e.g., doc. 161 at 12 ¶ 5; doc. 166 at 54-55 ¶ 8. -14- 1 The court has considered the remainder of Jefferson’s objections. Those that 2 merit discussion are mentioned below. 3 B. Ratification 4 Ratification is a doctrine that arises in various contexts, and is generally defined 5 as “[c]onfirmation and acceptance of a previous act, thereby making the act valid from 6 the moment it was done.” 83 In the context of agency law, a person ratifies a prior act in 7 two ways: (1) by “manifesting assent that the act shall affect the person’s legal 8 relations;” or (2) by “conduct that justifies a reasonable assumption that the person so 9 consents.”84 One example of such conduct is knowingly accepting the benefit of a 10 transaction.85 “This is so even though the person also manifests dissent to becoming 11 bound by the act’s legal consequences.”86 12 Alliance argues that even if Kritza forged the LOC documents, Jefferson explicitly 13 ratified them in the forbearance agreement, and implicitly through his conduct in 14 transferring the LOC’s proceeds into his personal bank account on multiple occasions87 15 and deducting the LOC’s interest on his tax return.88 Because Jefferson explicitly 16 17 18 83 19 20 21 22 23 Ratification, Black’s Law Dictionary (10th ed. 2014). See also Restatement (Third) Of Agency § 4.01 cmt. c (2006). 84 Restatement (Third) Of Agency § 4.01(2). 85 Miller v. Boeger, 405 P.2d 573, 576 (Ariz. Ct. App. 1965). See also Restatement (Third) Of Agency § 4.01 cmt. g (“A person may ratify an act under subsection (2)(b) by receiving or retaining benefits it generates if the person has knowledge of material facts and no independent claim to the benefit.”) (citation omitted). 24 86 25 87 26 27 28 Restatement (Third) Of Agency § 4.01 cmt. d. Alliance cites its own interrogatory response that identifies the destination of funds transferred from the Alliance LOC between 2004 and 2013. Doc. 134-14 at 22-24. 88 Doc. 131 at 14. Alliance cites what it describes as Jefferson’s 2012 tax return, which shows a $26,304 deduction for the Alliance LOC, doc. 134-14 at 16-17, and Jefferson’s accountant’s deposition testimony regarding that return. Doc. 134-14 at 13:17-22. -15- 1 consented to be bound by the Alliance LOC under the forbearance agreement, there is 2 no need to consider implicit ratification.89 3 Jefferson raises four arguments in opposition. First, he argues that Alliance is 4 judicially estopped from raising ratification. Second, he argues that Kritza “went rogue” 5 and therefore lacked apparent authority to bind Jefferson to the LOC documents. Third, 6 he argues that forgeries cannot be ratified. And fourth, he argues that the alleged 7 ratification is ineffective because he lacked knowledge of all material facts regarding the 8 “true status” of the Alliance LOC. 9 10 1. Judicial estoppel does not apply The purpose of judicial estoppel is to protect the integrity of the judicial system by 11 preventing a party from changing its litigation positions.90 “[S]everal factors typically 12 inform the decision whether to apply the doctrine in a particular case.”91 The most 13 relevant factor here is that courts have “restricted the application of judicial estoppel to 14 cases where the court relied on, or ‘accepted,’ the party’s previous inconsistent 15 position.”92 16 17 Jefferson argues that Alliance is judicially estopped from asserting the ratification doctrine because that theory is at odds with the arguments Alliance “prevailed upon” in 18 89 19 20 21 22 23 24 25 26 27 28 Jefferson objects to the forbearance agreement on the ground that it has not been authenticated and is not self-authenticating. Doc. 166 at 113. Because Jefferson does not argue that Alliance cannot authenticate this document at trial, this objection is overruled. Fed. R. Civ. P. 56(c)(2). 90 Bank of Am. Nat. Trust & Sav. Ass’n v. Maricopa Cnty., 993 P.2d 1137, 1139 (Ariz. Ct. App. 1999) (quoting State v. Towery, 920 P.2d 290, 304 (Ariz. 1996)). See also New Hampshire v. Maine, 532 U.S. 742, 749 (2001). Neither party addresses whether state or federal law applies to Jefferson’s judicial estoppel argument. Because his argument fails under both, there is no need for the court to reach this question. 91 New Hampshire, 532 U.S. at 750. 92 Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 783 (9th Cir. 2001). See also Bank of Am. Nat. Trust & Sav. Ass’n, 993 P.2d at 1140 (holding that judicial estoppel does not apply “unless (a) the court in that proceeding granted the party relief or accepted the party’s earlier inconsistent position either as a preliminary matter or as part of a final disposition, and (b) the party’s inconsistent position was a significant factor in the relief granted.”). -16- 1 defeating Jefferson’s motion for a more definite statement at docket 5.93 Specifically, 2 Alliance argued in opposition to that motion that there was “nothing ambiguous or 3 confusing about Alliance’s less than five page Complaint which makes a very simple, 4 concise, and direct breach of contract claim against Jefferson.”94 5 The main issue before the court was whether Alliance’s complaint “is so vague or 6 ambiguous” that Jefferson could not reasonably prepare a response.95 The court 7 denied Jefferson’s motion, ruling that Alliance’s complaint asserts a straightforward 8 claim that is not vague or ambiguous.96 Whether Alliance loaned money to Jefferson 9 directly, or indirectly through Krtiza, was immaterial to the court’s decision. Judicial 10 estoppel does not apply. 11 2. Kritza’s apparent authority is irrelevant 12 Jefferson argues that Alliance cannot establish ratification because it has not 13 shown that Kritza acted with apparent authority. But Alliance need not show that Kritza 14 acted with apparent authority to establish ratification. In contrast to apparent authority, 15 which depends on the principal’s manifestations to the third party, ratification requires 16 only “an objectively or externally observable indication that a person consents that 17 another’s prior act shall affect the person’s legal relations.”97 “[T]he consent need not 18 be communicated to the third party or the agent. This is so because the focal point of 19 ratification is an observable indication that the principal has exercised choice and has 20 consented.”98 21 22 93 23 Doc. 163 at 14. 94 24 25 Doc. 11 at 2. 95 Fed. R. Civ. P. 12(e). 26 96 27 97 28 98 Doc. 13. Restatement (Third) Of Agency § 4.01 cmt. d. Id. -17- 1 3. Forgeries can be ratified 2 “At common law it was held by some, but not all, courts that a forgery . . . could 3 not be ratified.”99 One rationale behind this doctrine was that a forger is not an agent 4 because she “purports to act, not for someone else, but as someone else.”100 Other 5 courts, such as the Pennsylvania courts that Jefferson cites, held that a forgery cannot 6 be ratified as a matter of public policy because forgery is a crime.101 The rule against 7 ratification of forgeries “was not uniformly supported by the cases,” however, “with some 8 cases holding ratification by a principal to be effective although it did not relieve the 9 forger of criminal liability.”102 10 “Most contemporary courts recognize that a forgery may be ratified because 11 pretending to be the principal is not so different from pretending to have authority to act 12 on behalf of the principal.”103 Consistent with this modern trend, the UCC provides that 13 “[a]n unauthorized signature may be ratified for all purposes of” Article 3.104 Arizona 14 codified this rule at A.R.S. § 47-3403(A). “Although a forger is not an agent, ratification 15 16 99 17 100 18 101 19 20 21 22 23 24 25 26 27 28 Restatement (Second) of Agency § 85 cmt. b (1958). Restatement (Third) Of Agency § 4.03 cmt. c. Doc. 163 at 16-17. See, e.g., Universal Premium Acceptance Corp. v. York Bank & Trust Co., 69 F.3d 695, 702 (3d Cir. 1995) (“Pennsylvania does not permit ratification of a forgery on a non-negotiable item.”); Funds for Bus. Growth, Inc. v. Woodland Marble & Tile Co., 278 A.2d 922, 925 (Pa. 1971) (“It has long been an established principle in this Commonwealth that a forgery may not be ratified since it is a crime the adjustment of which is forbidden by public policy.”). 102 Restatement (Third) Of Agency § 4.03 cmt. c. See, e.g., Rakestraw v. Rodrigues, 500 P.2d 1401, 1405 (Cal. 1972) (“[T]he ratification of an act of forgery by one held out to be a principal creates an agency relationship between such person and the purported agent and relieves the agent of civil liability to the principal which otherwise would result from the fact that he acted independently and without authority.”); President, etc., of Greenfield Bank v. Crafts, 86 Mass. 447, 455 (Mass. 1862). 103 Restatement (Third) Of Agency § 4.03 reporter’s note c. See also Scott D. Erler, D.D.S. Profit Sharing Plan v. Creative Fin. & Investments, L.L.C., 203 P.3d 744, 752 (Mont. 2009) (compiling cases). 104 U.C.C. § 3-403(a) (2002). -18- 1 is governed by the rules and principles applicable to ratification of unauthorized acts of 2 an agent”105 because a person’s retroactive adoption of a forger’s signature, like 3 ratification under agency law, “is a unilateral expression of a person’s consent.”106 4 A.R.S. § 47-3403(A) does not control here because Alliance does not contend 5 that the forbearance agreement is a negotiable instrument. And no party cites on-point 6 authority from Arizona regarding the ratification of a forged nonnegotiable instrument. 7 The only Arizona case that Jefferson cites is a case from 1898, Barry v. Kirkland, 8 involving an oral promise to pay a forged note that was made under the 9 misapprehension that their signatures on the note were authentic.107 The Supreme 10 Court of the Territory of Arizona considered numerous authorities from other 11 jurisdictions, including Pennsylvania, which hold that a forgery cannot be ratified.108 But 12 Barry is unavailing to Jefferson because the court declined to adopt such a per se 13 rule109 and in any event was analyzing a negotiable instrument.110 Kritza cites Cook v. 14 Great Western Bank & Trust, but that case is similarly inapposite because it was 15 decided under Article 3 of the UCC.111 16 17 “When interpreting state law, federal courts are bound by decisions of the state’s highest court.”112 If that court has not addressed the relevant issue, the district court 18 19 20 21 22 105 U.C.C. § 3-403 cmt. 3. 106 Restatement (Third) Of Agency § 4.03 cmt. c. 107 52 P. 771, 771 (Ariz. 1898). 108 23 Id. at 772. 109 24 25 26 27 28 Id. at 773. 110 Id. at 772-73 (citing 1 John W. Daniel, Daniel on Negotiable Instruments § 859 (1879); 2 Daniel on Negotiable Instruments § 1352). 111 685 P.2d 145, 148-50 (Ariz. Ct. App. 1984) (interpreting A.R.S. § 44–2541 (repealed)). 112 Strother v. S. Cal. Permanente Med. Group, 79 F.3d 859, 865 (9th Cir.1996) (quotation omitted). -19- 1 must use its best judgment to predict how the highest state court would resolve it “using 2 intermediate appellate court decisions, decisions from other jurisdictions, statutes, 3 treatises, and restatements as guidance.”113 Because the Arizona Supreme Court has 4 not decided whether a forged nonnegotiable instrument can be ratified, the court must 5 use its best judgment to predict how it would rule. Given the weight of modern 6 authority, the fact that the Arizona legislature has provided that forged negotiable 7 instruments can be ratified, and the absence of compelling reasons why Arizona law 8 should “treat contracts and negotiable instruments differently”114 in this context, the court 9 concludes that the Arizona Supreme Court would likely hold that forged nonnegotiable 10 instruments can be ratified, governed by the “rules and principles applicable to 11 ratification of unauthorized acts of an agent.”115 12 4. Jefferson’s knowledge of material facts 13 “Ratification requires that a principal have full and actual knowledge of all 14 material facts at the time he, by subsequent act or conduct, binds himself to a 15 previously unauthorized act of an agent.”116 Jefferson argues that Alliance 16 misrepresented that the LOC was one line of credit when it was actually three separate 17 lines, and concealed the fact that the first two loans had already been paid off.117 As a 18 result, Jefferson argues that he did not know all of the material facts when he signed the 19 agreement. 20 21 113 Id. (quotation omitted). See also Med. Lab. Mgmt. Consultants v. Am. Broad. Cos., Inc., 306 F.3d 806, 812 (9th Cir. 2002). 22 114 23 Life Investors Ins. Co. of Am. v. Estate of Corrado, 838 N.W.2d 640, 647 (Iowa 2013). 115 24 25 26 27 28 U.C.C. § 3-403 cmt. 3. See also Restatement (Third) Of Agency § 4.03 cmt. c; Estate of Corrado, 838 N.W.2d at 647. 116 Murdock-Bryant Constr., Inc. v. Pearson, 703 P.2d 1206, 1213 (Ariz. Ct. App. 1984). See also Restatement (Third) Of Agency § 4.06 (“A person is not bound by a ratification made without knowledge of material facts involved in the original act when the person was unaware of such lack of knowledge.”). 117 Doc. 163 at 16-17. -20- 1 A fact is material if “a reasonable person ‘would attach importance to its 2 existence or nonexistence in determining [his or her] choice of action in the transaction 3 in question.’”118 In the context of ratification, materiality is concerned with “the relevance 4 of the fact to the principal’s consent to have legal relations affected by the agent’s 5 act.”119 Thus, a fact is material here if a reasonable person in Jefferson’s position would 6 have attached importance to its existence or nonexistence when determining whether to 7 sign the forbearance agreement. “Materiality is generally a question of fact, but may be 8 resolved as a matter of law where the information is so obviously important or 9 unimportant . . . that reasonable minds could not differ on the question of 10 11 immateriality.”120 The court agrees with Kritza121 that no reasonable juror could find that the facts of 12 which Jefferson was allegedly unaware would have influenced a reasonable person’s 13 decision to consent to be bound by the LOC. Jefferson testified that he believed that 14 the LOC he authorized in 2004 was paid off in 2004 or 2005 and that he did not 15 authorize any subsequent disbursements from that LOC.122 Before he signed the 16 forbearance agreement, Jefferson was provided with documents that show that the 17 original LOC was extended and that two other loan commitments with different loan 18 numbers were taken out in his name. Jefferson possessed full and actual knowledge of 19 all material facts at the time he bound himself to the debt that Kritza allegedly incurred. 20 Jefferson’s professed misunderstanding that the debt was based on the original 21 LOC instead of a new LOC does not change the court’s analysis. Regardless whether 22 23 24 25 118 Sitton v. Deutsche Bank Nat. Trust Co., 311 P.3d 237, 243 (Ariz. Ct. App. 2013) (quoting Restatement (Second) of Torts § 538(2)(a) (1977)). 119 Restatement (Third) Of Agency § 4.06 cmt. c. 26 120 27 121 28 122 Caruthers v. Underhill, 287 P.3d 807, 818 (Ariz. Ct. App. 2012). Doc. 188 at 6. Doc. 134-1 at 18, 25-26. -21- 1 the debt was based on unauthorized disbursements from the original LOC that was 2 extended without authorization, or a new LOC that was obtained without authorization, 3 the salient fact that Jefferson cannot avoid is that he knew he did not authorize Kritza to 4 incur the debt.123 Yet, he nevertheless affirmed his obligation to repay that debt, and 5 Alliance granted him an extension of time to do so.124 Whether the debt was based on 6 one continuous line of credit or a series of lines of credit was immaterial.125 7 C. The Effect of Ratification on Jefferson’s Third-Party Complaint 8 “Ratification recasts the legal relations between the principal and agent as they 9 would have been had the agent acted with actual authority.”126 “The principal thereby 10 consents to the agent’s acts, including acts that would otherwise constitute breaches of 11 fiduciary duty.”127 Kritza asserts that Jefferson ratified not only the LOC, but also “any 12 alleged misconduct by Kritza related to the line of credit.”128 Jefferson’s opposition does 13 not discuss how ratification would affect his third-party claims. At oral argument 14 Jefferson’s counsel cited Fid. & Deposit Co. of Maryland v. Bondwriter Sw., Inc.,129 and 15 16 17 123 See, e.g., Doc. 160 at 17 (Jefferson admits that in October 2013, before he signed the forbearance agreement, he learned that Kritza was unlawfully using the LOC funds). 124 18 Doc. 134-14 at 53. 125 19 20 21 This conclusion also disposes of Jefferson’s argument that the forbearance agreement is voidable because of Alliance’s failure to disclose the “true status” of the debt. Doc. 163 at 17. Although ratification is not effective if it is induced by conduct that would make a contract voidable, Restatement (Third) of Agency § 4.02 cmt. c, “a non-fraudulent misrepresentation does not make [a] contract voidable unless it is material.” Restatement (Second) of Contracts § 164 cmt. b (1981). 22 126 23 Fid. & Deposit Co. of Maryland v. Bondwriter Sw., Inc., 263 P.3d 633, 639 (Ariz. Ct. App. 2011) (citing Restatement (Third) of Agency § 4.02 cmt. b). 24 127 25 128 26 27 28 Restatement (Third) Of Agency § 4.02 cmt. c. Doc. 132 at 4. 129 263 P.3d 633, 639 (Ariz. Ct. App. 2011) (“Ratification is not effective in favor of an agent against a principal when ‘the principal is obliged to affirm in order to protect his own interests,’ or when the principal ratifies to avoid a loss.”) (quoting Restatement (Second) of Agency § 101(b); citing Restatement (Third) of Agency § 4.02(2)(b)). -22- 1 argued for the first time that ratification is ineffective in favor of Kritza because Jefferson 2 signed the forbearance agreement to protect his own interests. Jefferson waived this 3 argument by not raising it in his opposition.130 4 The court agrees with Kritza that Jefferson’s ratification of the LOC bound him to 5 the terms of the allegedly forged LOC documents as if he had signed them himself. 6 Accordingly, Jefferson’s claims for fraud/concealment (count one),131 negligence (count 7 three),132 negligent misrepresentation (count five),133 contribution/indemnification (count 8 nine),134 and declaratory judgment (count ten)135 all fail because each requires Jefferson 9 to show that Kritza is at fault for approving, extending, or amending the LOC. Judgment 10 will be entered in Kritza’s favor on these claims, and Jefferson’s motion for partial 11 summary judgment will be denied.136 12 13 14 15 16 130 Doc. 164; Doc. 165 at 10-17. See also Doc. 97; Doc. 99; Doc. 163 at 9-13, 16-17; Doc. 166 at 28-37; Johnson v. Gruma Corp., 614 F.3d 1062, 1069 (9th Cir. 2010) (arguments raised for first time at oral argument are waived). 131 Doc. 33 at 5 ¶ 18 (“Between 2004 and 2013, T. Kritza intentionally failed to disclose an important fact to Jefferson, that he was fraudulently amending and extending the purported LOC with Alliance.”) (emphasis added). 17 132 18 19 20 21 22 23 Id. at 6 ¶ 31 (“T. Kritza breached his duty by failing to implement and/or follow appropriate procedures to manage Jefferson’s business accounts and ventures, specifically as it relates to verifying Jefferson’s approval of the purported Alliance Line of Credit.”) (emphasis added). 133 Id. at 8 ¶ 40 (“In his role as Jefferson’s business manager between 2001 through 2013, T. Kritza negligently gathered, compiled, and communicated information regarding the purported Line of Credit agreements to Jefferson.); id. at ¶ 45 (“If T. Kritza disclosed his true activities to Jefferson, Jefferson would not have approved of the Line of Credit.”) (emphasis added). 134 24 25 26 27 28 Id. at 10 ¶ 60 (alleging that if Jefferson is found liable to Alliance for the LOC, he “would be obligated to pay sums representing a percentage of liability not Jefferson’s own, but rather that of T. Kritza and the community of T. Kritza and M. Kirtza.”). 135 Id. at 10-11 ¶ 63 (“Jefferson desires adjudication determination [sic] of the respective rights and duties of Jefferson and T. Kritza and the community of T. Kritza and M. Kritza with respect to the damages claimed in the Action against Jefferson.”) (emphasis added). 136 Doc. 129. -23- 1 But Kritza goes too far in arguing that Jefferson ratified all of Kritza’s unspecified 2 “misconduct” related to the LOC. Jefferson’s claims for breach of fiduciary duty (count 3 two),137 breach of contract (count four),138 unjust enrichment (count six),139 accounting 4 (count seven),140 and conversion (count eight)141 each allege acts of “misconduct” that 5 Jefferson did not ratify by affirming the LOC. Jefferson’s unjust enrichment and 6 accounting claims do not depend on the validity of the LOC, nor do Jefferson’s breach 7 of fiduciary duty, breach of contract, or conversion claims to the extent those claims are 8 based on Kritza use of or control over the LOC funds. Kritza’s motion for summary 9 judgment at docket 132 will be denied as to counts six and seven, and granted in part 10 and denied in part as to counts two, four, and eight. 11 D. Whether Jefferson’s Entire Third-Party Complaint Fails Because His Rule 14 Claims Fail 12 Kritza argues that if Jefferson’s two Rule 14 claims (counts nine and ten) are not 13 viable then “the entire third-party complaint cannot move forward.”142 He relies on cases 14 where courts have dismissed third-party complaints in their entireties because the third15 party plaintiffs failed to successfully implead the third-party defendants under Rule 16 17 18 19 20 21 22 23 24 25 26 137 Doc. 33 at 6 ¶ 26 (“T. Kritza violated and breached his fiduciary duties . . . through his unauthorized use unauthorized use, extension and amendment of the alleged Line of Credit without Jefferson’s knowledge.”) (emphasis added). 138 Id. at 7 ¶ 35 (“T. Kritza breached his obligations under the contract, including but not limited to the implied covenant of good faith and fair dealing, by, among other things, forging Jefferson’s signature on certain various documents and misappropriating monies through the purported Alliance LOC.”) (emphasis added). 139 Id. at 8 ¶ 47 (“. . . T. Kritza obtained possession and control of the LOC fund to the exclusion of Jefferson; T. Kritza defrauded and tortiously misrepresented Jefferson in order to unlawfully obtain dominion and control of Jefferson’s LOC funds.”) (emphasis added). 140 Id. at 9 ¶¶ 50-52 (requesting an accounting and return “of all funds taken by T. Kritza.”). 27 141 28 142 Id. at 9 ¶ 55 (“. . . T. Kritza’s control or possession of the LOC Fund is not lawful.”). Doc. 132 at 2. -24- 1 14(a).143 These cases are inapposite because the court has already ruled, at docket 2 183, that Jefferson successfully impleaded Kritza under Rule 14(a).144 Kritza cites no 3 authority for the proposition that a court must dismiss a third-party plaintiff’s additional 4 claims that were joined under Rule 18(a) once his Rule 14(a) claims are resolved. The 5 court sees no basis for so holding here. For example, Kritza does not contend that this 6 court no longer has subject matter jurisdiction over Jefferson’s remaining claims.145 7 E. Whether Jefferson’s Tort Claims Are Timely 8 Kritza’s motion at docket 127 seeks partial summary judgment on several of 9 Jefferson’s claims, including his remaining breach of fiduciary duty and conversion 10 claims. Kritza argues that these claims are time-barred under the applicable two-year 11 statute of limitations146 because they accrued before June 12, 2012.147 In response, 12 Jefferson argues that whether his tort claims are time barred is at most a disputed 13 question of material fact under Arizona’s “discovery rule.” The court agrees with 14 Jefferson. 15 16 17 18 19 20 21 143 Stewart v. Am. Int’l Oil & Gas Co., 845 F.2d 196, 200 (9th Cir. 1988); United States v. One 1977 Mercedes Benz, 450 SEL, VIN 11603302064538, 708 F.2d 444, 452 (9th Cir. 1983); TRC & Associates v. NuScience Corp., No. 2:13-CV-6903-ODW CWX, 2014 WL 211781, at *34 (C.D. Cal. Jan. 13, 2014); Smith v. Cardinal Logistics Mgmt. Corp., No. 07-2104 SC, 2008 WL 2345129, at *3 (N.D. Cal. June 5, 2008). 22 144 23 Doc. 183 at 20-21. 145 24 25 26 27 28 Jefferson’s remaining claims are independently supported by this court’s diversity jurisdiction. 146 A.R.S. § 12-542 (setting out two year statute of limitations for tort claims). See CDT, Inc. v. Addison, Roberts & Ludwig, C.P.A., P.C., 7 P.3d 979, 981 (Ariz. Ct. App. 2000) (applying A.R.S. § 12-542 to breach of fiduciary duty claim); Jackson v. Am. Credit Bureau, Inc., 531 P.2d 932, 934 (Ariz. Ct. App. 1975) (applying A.R.S. § 12-542 to conversion claim). 147 Doc. 16 (Jefferson filed his third-party complaint against Kritza on June 12, 2014). -25- 1 Arizona law’s discovery rule applies where “the plaintiff’s injury or the conduct 2 causing the injury is difficult for plaintiff to detect.”148 “The rationale offered for the 3 discovery rule ‘is that it is unjust to deprive a plaintiff of a cause of action before the 4 plaintiff has a reasonable basis for believing that a claim exists.’”149 The plaintiff bears 5 the burden of establishing that the discovery rule applies.150 “When discovery occurs 6 and a cause of action accrues are usually and necessarily questions of fact for the 7 jury.”151 8 9 Under the discovery rule, a cause of action “does not accrue until the plaintiff knows or, in the exercise of reasonable diligence, should know the facts underlying the 10 cause.”152 Thus, a cause of action accrues if the plaintiff knows (1) that a wrong 11 occurred and caused injury (the “what”) and (2) the person or entity at fault (the 12 “who”).153 Even where the plaintiff lacks actual knowledge of the “what” or “who,” 13 however, she is “charged with a duty to investigate with due diligence to discover the 14 necessary facts.”154 15 16 Under this duty to investigate, accrual occurs when the plaintiff has “reason to connect the ‘what’ to a particular ‘who’ in such a way that a reasonable person would be 17 18 19 20 148 Gust, Rosenfeld & Henderson v. Prudential Ins. Co. of Am., 898 P.2d 964, 968 (Ariz. 1995). 21 149 22 150 23 151 24 152 25 153 26 27 28 Doe v. Roe, 955 P.2d 951, 960 (Ariz. 1998) (quoting Gust, 898 P.2d at 967). Logerquist v. Danforth, 932 P.2d 281, 284 (Ariz. Ct. App. 1996). Doe, 955 P.2d at 961. Gust, 898 P.2d at 966. Doe, 955 P.2d at 961 (“[C]ause of action accrues when plaintiff discovers injury is attributable to particular person’s conduct; plaintiff must know both the what and who elements.”) (citing Lawhon v. L.B.J. Institutional Supply, Inc., 765 P.2d 1003, 1007 (Ariz. Ct. App. 1988)). 154 Id. at 962. -26- 1 on notice to investigate whether the injury might result from fault.”155 For example, even 2 if a patient knows that a medical procedure caused him pain, his malpractice cause of 3 action does not accrue until he receives sufficient information that would cause a 4 reasonable person to “commence investigating whether negligence was involved.”156 In 5 this context, “summary judgment is warranted only if the failure to go forward and 6 investigate is not reasonably justified.”157 7 “To determine when a cause of action accrues, an analysis of the elements of 8 [the cause of action] is necessary.”158 For present purposes the relevant element of 9 Jefferson’s breach of fiduciary duty claim is breach—whether Kritza breached his 10 fiduciary duties to Jefferson through his unauthorized use of the LOC funds. The 11 relevant element of Jefferson’s conversion claim is whether Kritza’s “control or 12 possession” of the LOC funds was unlawful.159 13 Kritza does not argue that Jefferson had actual knowledge of his use, control, or 14 possession of the LOC funds before June 12, 2012. Instead, he argues that Jefferson’s 15 claims accrued when he was put on “notice to investigate”160 by (1) the book of financial 16 information that Jefferson allegedly received in 2008 and (2) the series of events that 17 caused Jefferson to question his finances in 2011 and 2012. 18 19 20 21 155 22 156 23 157 24 158 25 159 26 27 28 Walk v. Ring, 44 P.3d 990, 996 (Ariz. 2002). Id. at 995. Id. at 996. Dube v. Likins, 167 P.3d 93, 98 (Ariz. Ct. App. 2007). See Case Corp. v. Gehrke, 91 P.3d 362, 365 (Ariz. Ct. App. 2004) (“Conversion is defined as ‘an act of wrongful dominion or control over personal property in denial of or inconsistent with the rights of another.’”) (quoting Sears Consumer Fin. Corp. v. Thunderbird Prods., 802 P.2d 1032, 1034 (Ariz. Ct. App. 1990)). 160 Doc. 127 at 14. -27- 1 1. The 2007 Fiscal Year in Review Book 2 Jefferson testified that Kritza provided him with financial documents every two to 3 three years that purportedly summarized all of his accounts.161 Kritza states in his 4 declaration that in the summer of 2008 he brought a “year-end financial book titled 5 ‘2007 Fiscal Year in Review’ to Richard Jefferson at Jefferson’s house in California” 6 (“2007 book”).162 Kritza states that exhibit 1 to his statement of facts is an accurate 7 copy of the 2007 book.163 Twelve pages of this 133 page book contain monthly loan 8 billing statements from Loan 4825.164 Among other things, these statements show that 9 on December 21, 2006 the loan had a principal balance of $451,300 and a maturity date 10 of October 5, 2007;165 interest only payments were made every month, totaling 11 $41,176.48; in April, June, and July there were three principal advances, totaling 12 $47,000, bringing the principal balance to $498,300;166 and by September 20 the loan’s 13 maturity date had been extended to August 5, 2008.167 14 The court cannot conclude as a matter of law that Jefferson’s receipt of the 2007 15 book triggered his duty to investigate Kritza’s use of the LOC. At least two issues of 16 material fact prevent such a conclusion. First, there is conflicting evidence regarding 17 whether Jefferson received this book. At his deposition Jefferson said that he thought 18 he had seen the 2007 book before, but he remembered only the picture on the front and 19 20 21 161 22 Doc. 128-2 at 157; Doc. 161 at 7 ¶ 27; Doc. 134-1 at 19:8-19. 162 23 Doc. 128 at 2 ¶ 4; Doc. 128-2 at 138 ¶ 3. 163 24 25 Doc. 128-2 at 138 ¶ 4. See also Kritza’s Exhibit 1, doc. 128-1 at 3-136. 164 Doc. 128-1 at 167; Doc. 128-2 at 1-11. 26 165 27 166 28 167 Doc. 128-1 at 167. Doc. 128-2 at 4-6. Id. at 11. -28- 1 nothing else.168 He testified that he did not recall exactly when he saw the book with 2 that picture, but he stated that it was probably around 2007.169 He also testified that he 3 could not recall whether the book he received from Kritza was the 2007 book or another 4 similar book.170 5 Second, even assuming that Jefferson had received this book, there is no 6 evidence that Jefferson actually saw the twelve pages that contain the Loan 4825 7 statements. And it cannot be said as a matter of law that a reasonable person in 8 Jefferson’s situation would have read and analyzed this relatively small segment of a 9 133-page book. 10 2. 11 Kritza next focuses on the series of events that occurred between 2011 and “mid- The series of events that began in 2011 12 2012” that, according to Kritza, combined to put Jefferson on notice to investigate his 13 use of the LOC funds.171 According to the evidence put forth by Kritza, during this time: 14 15 ∙ Jefferson learned that his finances were being affected by loans of which he was unaware.172 ∙ Jefferson learned that Kritza had ceased sending his discretionary income to his financial advisor for investment.173 ∙ Jefferson was confused about why Kritza was “stressed” about his finances during the 2011 NBA lockout, which led him to have Murnick review his Charles Schwab investment account.174 16 17 18 19 20 21 168 22 Doc. 128-3 at 2:1-15. 169 23 Id. at 2:16-19. 170 24 25 Id. at 2:17-25, 3:1-5. 171 Doc. 127 at 13. 26 172 27 173 28 174 Doc. 128-2 at 165:2-11. Id. at 168:25-169:7. Doc. 128-2 at 160:19-161:1. -29- 1 2 ∙ Jefferson told Murnick that he was worried that Kritza may have taken money from him.175 ∙ Murnick told Jefferson that he had some “concerns” with Jefferson’s investment account.176 ∙ Jefferson realized that his investment account contained between $5 and $10 million less than he expected.177 ∙ Jefferson told Kritza on February 8, 2012 that he was concerned about how little was in his investment account.178 ∙ Jefferson opened a Wells Fargo account that only he could access that he started depositing his paychecks into.179 ∙ Jefferson hired Tucciarone, who reviewed Jefferson’s tax returns and investment documents180 and concluded that they “raised questions as to the financial controls and benefits of many of [Jefferson’s] investments.”181 3 4 5 6 7 8 9 10 This evidence establishes that before June 12, 2012 Jefferson had reason to 11 believe that his money was being mismanaged or misappropriated by one of his 12 advisors, including Kritza. And if Jefferson had contacted Alliance to inquire into the 13 LOC, there is a reasonable chance he would have discovered Kritza’s use, control, or 14 possession of the LOC funds. The question here, however, is whether as a matter of 15 law Jefferson was on notice to commence such an investigation. According to 16 Jefferson, he was not even aware that he had an open LOC with Alliance. While it is 17 possible that the jury may interpret this lack of awareness as a lack of diligence, the 18 court cannot conclude as a matter of law that a reasonable person in Jefferson’s 19 position would have had reason to connect his financial problems to the Alliance LOC. 20 21 175 22 Doc. 128-3 at 54:9-12. See also id. at 58:11-22. 176 23 Id. at 41:13-19. 177 24 25 Doc. 128-2 at 170:5-19. 178 Doc. 128-3 at 100-01. 26 179 27 180 28 181 Doc. 128-2 at 179:25-180:7. Doc. 128-3 at 187-201. Id. at 176, 184; Doc. 161 at 8 ¶ 35. -30- 1 3. Jefferson’s supplemental disclosure statement 2 In reply Kritza asserts that Jefferson’s supplemental disclosure statement shows 3 that he is seeking $9.7 million in damages for Kritza’s alleged misuse of not only the 4 Alliance LOC funds, but also funds from Jefferson’s personal bank accounts.182 Kritza 5 argues that Jefferson’s claims are untimely because Jefferson knew or should have 6 known he was missing millions of dollars, and that Kritza might have been involved. 7 Kritza’s argument mises the mark. Whether Jefferson knew or should have 8 known that Kritza was misappropriating millions of dollars from his personal bank 9 accounts is not at issue in this case. Regardless of what Jefferson states in his 10 supplemental disclosure statement, his complaint is what controls. His complaint 11 alleges that Kritza breached his fiduciary duties “through his unauthorized use . . . of the 12 alleged Line of Credit without Jefferson’s knowledge.”183 And it alleges that Kritza is 13 liable for conversion because of his unlawful “control or possession of the LOC Fund.”184 14 Jefferson’s complaint does not allege that Kritza misappropriated any other funds.185 15 Jefferson cannot recover damages for claims not alleged in his complaint. 16 F. 17 Jefferson’s Rule 56(d) Request At docket 162 Jefferson filed a declaration from Saalfeld that requests dismissal 18 of Alliance’s summary judgment motion pending Kritza’s production of the documents 19 he was ordered to produce at docket 217. Specifically, Saalfeld states that he is 20 21 182 22 183 23 184 24 185 25 26 27 28 Doc. 212 at 2-3. Doc. 33 at 6 ¶ 26 (emphasis added). Id. at 9 ¶ 55 (emphasis added). See id. at 4 ¶ 11 (“T. Kritza admitted to Jefferson that he had used LOC funds without Jefferson’s consent or authorization in an amount exceeding $500,000.”); id. ¶ 12 (“Jefferson did not consent to T. Kritza’s personal use of these amounts owing on the LOC.”); id. ¶ 13 (“[A]t no point did Jefferson provide his consent as it relates to T. Kritza’s personal and unauthorized use of monies relating to the LOC as alleged by Alliance.”); id. at 4-5 ¶ 14 (“During the years 2004 to 2013, T. Kritza concealed from Jefferson that he had unlawfully used . . . the LOC funds. In doing so, T. Kritza misappropriated the LOC funds for his own personal use and unauthorized us [sic] use, to which Jefferson has no involvement or ownership interest.”). -31- 1 awaiting production of documents relating “to the amounts received by Kritza and his 2 entities, including bank account records detailing transfer [sic] of such amounts from 3 Jefferson’s accounts into Kritza Entities.”186 Saalfeld states that he believes these 4 documents will raise additional issues of material fact regarding “Kritza’s concealment of 5 unauthorized transfers from Jefferson’s accounts, including the Alliance lines of credit, 6 and [Alliance’s] potential knowledge thereof.”187 7 The party moving under Rule 56(d) bears the burden of showing “(1) it has set 8 forth in affidavit form the specific facts it hopes to elicit from further discovery; (2) the 9 facts sought exist; and (3) the sought-after facts are essential to oppose summary 10 judgment.”188 “Failure to comply with these requirements is a proper ground for denying 11 discovery and proceeding to summary judgment.”189 12 Although Saalfeld sets forth the facts he hopes to elicit from discovery and his 13 basis for believing that these facts exist, he fails to offer any explanation of how facts 14 regarding Kritza’s transfers from Jefferson’s accounts are essential, or even relevant, to 15 Jefferson’s opposition to Alliance’s summary judgment motion. Accordingly, Jefferson’s 16 request is denied. 17 18 V. CONCLUSION Based on the preceding discussion, Kritza’s motion at docket 127 is DENIED. 19 Jefferson’s motion at docket 129 is DENIED. Alliance’s motion at docket 131 is 20 GRANTED. Kritza’s motion at docket 132 is GRANTED IN PART AND DENIED IN 21 PART as follows: Kritza is GRANTED summary judgment on counts one, three, five, 22 23 186 24 187 25 188 26 27 28 Doc. 162 at 4-5. Id. at 5. Family Home and Finance Center, Inc. v. Federal Home Loan Mortgage, 525 F.3d 822, 827 (9th Cir. 2008) (discussing former subdivision (f), the substance of which was moved to subdivision (d) in 2010). See Fed. R. Civ. P. 56 advisory committee’s note to 2010 amendments. 189 Family Home and Finance Center, 525 F.3d at 827 (citation omitted). -32- 1 nine, and ten; Kritza is GRANTED summary judgment on counts two, four, and eight to 2 the extent those claims seek damages based on the approval, extension, or 3 amendment of the Alliance LOC; and in all other respects the motion at docket 132 is 4 DENIED. Jefferson’s request for Rule 56(d) relief at docket 162 is DENIED. 5 DATED this 13th day of November 2015. 6 7 /s/ JOHN W. SEDWICK SENIOR UNITED STATES DISTRICT JUDGE 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -33-

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