Erus Builders LLC v. Volt Solar Systems Incorporated et al

Filing 114

ORDER that Erus' Ex Parte Application to Amend Case Management Order, or Alternatively, to Vacate Dates and Schedule New Case Management Conference (Doc. 64 ) is granted as provided in this Order. The deadline for completing fact discovery is October 28, 2016. Dispositive motions shall be filed no later than December 16, 2016. ORDERED that Erus' Motion to Compel Deposition of MAdler (Doc. 69 ) is granted. ORDERED that Erus' Motion to amend to add parties (Doc. 66 ) is grant ed in part and denied in part. ORDERED that within 14 days of the date of this Order, Erus shall file a clean (non-redlined) First Amended Complaint that is consistent with this Order. ORDERED that Erus is responsible for serving the newly added De fendants pursuant to Rule 4 of the Federal Rules of Civil Procedure. ORDERED that all new Defendants are bound by the Court's Rule 16 Scheduling Order (Doc. 36 ), as amended by the Court's Order at (Doc. 49 ) and this Order. ORDERED tha t Erus shall serve a copy of the Court's Rule 16 Scheduling Order (Doc. 36 ), the Court's October 6, 2015 Order amending the Rule 16 Order (Doc. 49 ), and this Order on each newly added Defendant with the summons and amended complaint. ORDERED that the Motions for Summary Judgment pending at (Docs. 102 and 104 } are denied without prejudice. The Court grants Defendants MAdler, SAltman, and JWenger leave to each file one additional motion for summary judgment on Erus' clai ms in its to-be-filed First Amended Complaint. ORDERED that Erus' Motion Pursuant to Rule 56(d) (Doc. 112 ) is denied as moot. FURTHER ORDERED that within 14 days of the date of this Order, the parties shall show cause in writing why sanctio ns should not be imposed for the parties' failure to comply with the Court's Orders to engage in good faith settlement talks no later than January 18, 2016, and to file a Joint Report on Settlement. See document for details. Signed by Magistrate Judge John Z Boyle on 6/7/16.(EJA)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Erus Builders LLC,

No. CV-14-02686-PHX-JZB
Plaintiff,

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v.

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ORDER

Volt Solar Systems Incorporated, et al.,

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Defendants.

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Pending before the Court are Plaintiff Erus Builders, LLC’s Ex Parte Application

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to Amend Case Management Order, or Alternatively, to Vacate Dates and Schedule New

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Case Management Conference (Doc. 64), Erus’ Notice of Joinder of Parties Pursuant to

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Rules 15 and 20 of the Federal Rules of Civil Procedure (Doc. 66),1 Erus’ Motion to

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Compel Deposition of Defendant Malcolm Adler (MAdler) (Doc. 69), and MAdler’s

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Motion for a Referral to a Magistrate Judge for a Settlement Conference (Doc. 94).

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Below, the Court addresses these Motions.

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I.

Motion to Amend Case Management Order

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Erus requests the Court extend the discovery deadlines in this matter because: (1)

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the Court previously stayed the proceedings for two months; (2) MAdler’s discovery

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responses are incomplete; (3) Wells Fargo did not produce full documents in response to

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a subpoena; (4) Erus seeks to add additional parties to this action “which will not only

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On April 12, 2016, the Court denied Erus’ request to join parties pursuant to
Rule 19 of the Federal Rules of Civil Procedure. (Doc. 95.)

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require additional discovery, but will affect the scope and breadth of the issues and

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claims in this case”; and (5) MAdler cancelled his deposition with one day’s notice

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because he was advised by counsel not to answer any questions besides his name or

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biographical information pursuant to his Fifth Amendment rights. (Doc. 64 at 3-5.)

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Defendants Jerome Wenger (JWenger) and Sharon Altman (SAltman) oppose

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Erus’ Motion. (Doc. 74.) Specifically, they contend that they believe there is no basis

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for liability against them in this action, the Court should deny Erus’ request to add

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additional parties, and Erus has had sufficient time to complete discovery. MAdler has

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not responded to Erus’ Motion, and the time to do so has passed. LRCiv 7.2(c).

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As detailed below, the Court will grant Erus additional time to depose MAdler,

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and will grant in part and deny in part Erus’ request to add new parties. Accordingly, the

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Court will extend the case management deadlines in this matter as follows:

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 The deadline for completing MAdler’s deposition is September 16, 2016.

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 The deadline for completing fact discovery is October 28, 2016.

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 The parties shall provide full and complete expert disclosures by August 26, 2016.

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 Rebuttal expert disclosures shall be completed by September 23, 2016.

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 Expert depositions shall be completed by October 28, 2016.

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 Dispositive motions shall be filed no later than December 16, 2016.

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II.

Motion to Compel MAdler’s Deposition2

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a. Background

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On November 2, 2015, Erus noticed the deposition of MAdler for November 13,

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2015, in Philadelphia. (Doc. 69-4 at 2-3.) The parties also scheduled the depositions of

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JWenger and SAltman for the previous day, November 12, 2015, in Philadelphia. (Doc.

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69 at 3.) MAdler’s counsel, Robert Mann, asserts that on November 10, 2015, he learned

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that MAdler had received an SEC subpoena. (Doc. 78 at 2.) After a preliminary

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investigation, Mr. Mann asserts, MAdler decided to invoke his Fifth Amendment

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The Court finds that the Motion is suitable for resolution based on the briefs.
Accordingly, the Court denies the parties’ requests for oral argument. See Fed. R. Civ. P.
78(b); Partridge v. Reich, 141 F.3d 920, 926 (9th Cir. 1998).
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privilege to questions asked during his deposition. (Id.) Mr. Mann informed counsel of

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MAdler’s decision the day before MAdler was to be deposed. (Id.) It appears that the

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parties, after the other depositions were completed on November 12, 2015, put their

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positions on the record:

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BY MR. FRAME:

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Q. Mr. Adler, my name is Paul Frame. I represent Erus
Builders in this matter, and I understand there’s something
you want to put on the record about this deposition.

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A. Yes.

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Q. Okay. Go ahead, sir.

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A. On the advice of counsel, I invoke my right under the Fifth
Amendment of the United States Constitution and all
applicable state constitutions not to answer on the grounds I
may incriminate myself.
MR. FRUTKIN: So I’ll put on the record that with respect to
any substantive question, other than his name or basic
biographical information, that would be his response, and that
applies to any question based on a pending government
investigation.
MR. FRAME: Okay.
MR. HARVEY: This is Mr. Harvey. I would ask a series of
questions at this deposition if it wasn’t asked by the plaintiff
about my client’s noninvolvement in this deposition -- Ms.
Altman’s noninvolvement and the fact that there’s no basis
for liability against either of my clients. And do I understand
that he would answer -- he would refuse to answer all those
question on the same basis?
MR. FRUTKIN: Correct. And so, to the extent that you have
any questions that he’s -- that he would otherwise respond to,
we’ll preserve the record for you just as much as Erus, that he
refused to respond to those questions as well on Fifth
Amendment grounds.
MR. HARVEY: Okay. Well, we -- you know, I understand
your position. We don’t agree with it. We think that there’s
probably a lot of questions he could answer. We reserve the
right to move to compel as necessary, but I understand your
position, and there’s no sense bringing him down.
....
MR HARVEY: Just to clarify, this was the deposition that
was going to take place tomorrow. Counsel just called me at
my office upstairs and asked me to come down. They
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advised that this was going to happen. And so we’re doing
this in lieu of having Mr. Adler appear at his deposition
tomorrow. And make this -- and I understand what you’re
saying is, he would invoke his Fifth Amendment rights to
anything related to this beyond his name.

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MR. FRUTKIN: Correct. And with that being said,
obviously, there may come a time where there is more
information known specifically about what the scope of the
inquiry is that would allow him the ability to respond to
various questions; however, right now, he’s invoking that
with respect to any question whatsoever, so that we’re clear.

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(Doc. 69-8 at 4-7.)

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Erus now moves to compel the Deposition of MAdler. (Doc. 69.) Erus contends

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that MAdler improperly cancelled his deposition the day before it was scheduled to take

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place, after Erus’ counsel had traveled to the East Coast, based on an assertion that his

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Fifth Amendment rights protect him from testifying in this matter.3 Erus also requests

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the Court order MAdler to pay Erus’ attorneys’ fees caused by his failure to appear at his

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deposition. (Id. at 8.)

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MAdler opposes Erus’ Motion, arguing that Erus failed to comply with the Court’s

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Scheduling Order, Erus failed to meet and confer regarding rescheduling MAdler’s

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deposition, Erus chose to cancel the deposition, MAdler did not fail to appear, MAdler’s

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current counsel was not aware of the SEC Subpoena until November 10, 2015, and

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MAdler has a right to invoke his Fifth Amendment rights. (Doc. 78 at 3-15.) MAdler

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further seeks his attorney’s fees incurred in having to respond to Erus’ Motion to

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Compel. (Id. at 16.)
b. Discussion

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As an initial matter, the Court’s Case Management Order provides the following:

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6. Discovery Disputes

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Erus further asserts that MAdler has provided “incorrectly redacted or otherwise
illegible or wrongly redacted or edited bank materials.” (Id. at 4.) It is unclear whether
Erus is seeking an order to compel MAdler to produce further information. To the extent
Erus seeks such relief, the Court denies that request pursuant to Rule 37 of the Federal
Rules of Civil Procedure, Rule 37.1 of the Local Rules of Civil Procedure, and the
Court’s Scheduling Order.
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a. The parties may not file written discovery motions without leave of
Court.[] If a discovery dispute arises, the parties must promptly contact the
Court to request a telephonic conference concerning the dispute. The Court
will seek to resolve the dispute during the telephonic conference, and may
enter appropriate orders based on the conference. The Court may order
briefing, if necessary.

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b. Parties shall not contact the Court concerning a discovery dispute
without first seeking to resolve the matter through personal or telephonic
consultation and sincere effort as required by LRCiv 7.2(j). Any briefing
ordered by the Court must also comply with LRCiv 7.2(j).

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(Doc. 36 at 4.)4 Here, Erus did not seek leave before filing its Motion to Compel in

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violation of the Court’s Case Management Order, which has caused delay and the parties

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to incur additional and unnecessary fees in resolving this dispute. Erus acknowledges in

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its Reply that it failed to comply with the Court’s Case Management Order, but asserts it

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did so “in hopes of expediting [the] process.” (Doc. 85 at 8.)

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The parties must fully comply with the Court’s Orders. Such compliance is

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NOT optional. Although the Court could deny or strike Erus’ Motion for its failure to

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comply with the Court’s Case Management Order, in the interest of judicial economy, the

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Court will address Erus’ Motion based on the parties’ briefing.

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As the parties appear to agree, the Fifth Amendment privilege must be invoked on

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a question-by-question basis. (Doc 69 at 7-8; Doc. 78 at 13.) Specifically, “[t]he only

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way the privilege can be asserted is on a question-by-question basis, and thus as to each

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question asked, [MAdler] has to decide whether or not to raise his Fifth Amendment

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right.” Doe v. Glanzer, 232 F.3d 1258, 1263 (9th Cir. 2000); see also United States v.

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Seifert, 648 F.2d 557, 560 (9th Cir. 1980) (“[A] non-party witness cannot refuse to take

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the stand. His privilege arises only when he asserts it as to a question put to him, and it is

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for the court to say whether he is entitled to the privilege.”); United States v. Tsui, 646

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F.2d 365, 367 (9th Cir. 1981) (“Even when the District Court is satisfied that the witness

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has a valid Fifth Amendment claim with regard to some issues, the court must permit the

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questioning to establish the scope of the witness’ claim and to determine whether there

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The Court’s May 21, 2015 Case Management Order was modified by the Court’s
October 6, 2015 Order at Doc. 49 as to dates only.
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are other issue as to which the witness would not be able to assert the privilege.”).

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Therefore, a “blanket claim of privilege is simply not sufficient.” Davis v. Fendler, 650

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F.2d 1154, 1160 (9th Cir. 1981).

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Here, it appears from the record that MAdler conveyed his intent to assert his Fifth

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Amendment rights to almost all of Erus’ questions. However, those questions were never

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asked.

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Amendment rights in response to Erus’ questions is proper.

Therefore, the Court cannot determine whether invocation of his Fifth

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Erus is entitled to depose MAdler because he is a named party. See Fed. R. Civ. P.

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30(a)(1). And, as stated above, a blanket assertion of Fifth Amendment protections is not

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a sufficient basis on which to not answer questions during a properly noticed deposition.

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Accordingly, the Court will order MAdler to appear for a properly noticed deposition.

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The parties shall have until September 16, 2016 to complete the deposition. This

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deadline will allow the Court time to address any discovery disputes regarding MAdler’s

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deposition prior to the fact discovery cut off.5 MAdler may not assert a blanket claim of

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privilege to all potential questions posed by Erus. MAdler may, instead, refuse on Fifth

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Amendment grounds to answer any “questions which present a ‘real and appreciable

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danger of self-incrimination.’” McCoy v. Comm’r, 696 F.2d 1234, 1236 (9th Cir. 1983)

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(quoting United States v. Neff, 615 F.2d 1235, 1238 (9th Cir. 1980)).

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The Court will deny the parties’ requests for fees. Erus’ counsel was already in

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Philadelphia for other depositions, did not contact the Court when the issue arose, and

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filed a Motion to Compel not authorized by the Court’s Case Management Order. The

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Court will also deny MAdler’s request for attorneys’ fees because, as detailed above, his

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As stated in the Court’s Scheduling Order at Doc. 36, “[a]bsent extraordinary
circumstances, the Court will not entertain fact discovery disputes after the deadline for
completing fact discovery, and will not entertain expert discovery disputes after the
deadline for completing expert discovery.”
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blanket invocation of his Fifth Amendment rights was not appropriate.6

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III.

Motion to Add Parties

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Erus seeks to add eight new defendants: (1) Aztec Solar Power LLC (ASP); (2)

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Aztec Solar Renewables, Inc. (ASR); (3) Skreem Studios, LLC (Skreem); (4) Martin

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Consultants, Inc. (Martin Consultants); (5) Allstar Consulting and Entertainment, Inc.

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(Allstar); (6) Jeffrey Martin (JMartin); (7) Thomas Moore (TMoore); and (8) Bruce

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Wenger (BWenger). (Doc. 66 at 2-7.) In its “Notice,” Erus asserts various claims

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against these new parties. (Id. at 1-2.)

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JWenger and SAtlman oppose Erus’ Motion, arguing that Erus failed to comply

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with the Local Rules of Civil Procedure, and adding the parties Erus identifies would be

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futile. (Doc. 75.) In reply, Erus attached a proposed First Amended Complaint that

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includes new allegations and claims against the individuals and entities Erus seeks to add.

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(Doc. 84.)

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briefing regarding whether any of Erus’ proposed amendments are futile. (Doc. 95.) On

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April 26, 2016, Erus submitted a Supplemental Brief. (Doc. 98.) On May 10, 2016,

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Defendants MAdler, JWenger, and SAltman filed Responses to Erus’ Supplemental

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Brief. (Docs. 110, 111.)7

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On April 12, 2016, the Court ordered the parties to submit supplemental

a. Amendment Standard Pursuant to Rules 15 and 20

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Erus seeks to amend its Complaint to add eight new defendants under Rule 20 of

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the Federal Rules of Civil Procedure. (Doc. 66.) When a party seeks to amend a

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Erus and MAdler each claim the other is responsible for “cancelling” the
deposition. However, the record does not provide the Court with a sufficient basis on
which to find any party acted in bad faith or to issue discovery sanctions. It appears from
the record that the parties agreed to cancel the November 13, 2015 deposition in light
MAdler’s position that he would invoke his Fifth Amendment rights as to any substantive
questions asked at the deposition scheduled for the following day.
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The Court notes that MAdler’s Response to Plaintiff’s Supplemental Briefing
does not specifically address Erus’ proposed amendments. (Doc. 110.) Rather, MAdler
requests the Court first rule on his pending Motion for Summary Judgment, which seeks
judgment in MAdler’s favor based on the allegations in Erus’ initial, and not proposed
First Amended, Complaint. As detailed in this Order, the Court will grant Erus’ Motion
to depose MAdler and grant in part and deny in part Erus’ Motion to add parties.
Therefore, the Court will deny MAdler’s request to first rule on his pending Motion for
Summary Judgment.
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pleading, Rule 15 of the Federal Rules of Civil Procedure is generally applicable, even

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where a party seeks to amend to add new parties. Because Rule 20 also regulates

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whether parties may be joined, however, the court must consider whether the proposed

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amended pleading to add parties meets the requirements of both Rules 15 and 20. See

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Desert Empire Bank v. Ins. Co. of N. Am., 623 F.2d 1371, 1374 (9th Cir. 1980); Hinson v.

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Norwest Fin. S. Carolina, Inc., 239 F.3d 611, 618 (4th Cir. 2001) (stating that a “court

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determining whether to grant a motion to amend to join additional plaintiffs must

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consider both the general principles of amendment provided by Rule 15(a) and also the

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more specific joinder provisions of Rule 20(a).”) (citing Desert Empire Bank, 623 F.2d at

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1374).

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“In exercising the discretion provided by Rules 15 and 20, courts have shown a

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strong liberality in allowing parties to amend their pleadings when such amendments

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have satisfied the explicit requirements of the rules.” Desert Empire Bank, 623 F.2d at

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1375-76. However, the Court should consider the following factors in determining

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whether a motion to amend should be granted: (1) whether the pleading at issue has been

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previously amended, (2) futility of the amendment, (3) bad faith, (4) undue delay, and (5)

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prejudice to the opposing party. Forman v. Davis, 371 U.S. 178, 182 (1962); see also

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Texaco, Inc. v. Ponsoldt, 939 F.2d 794, 798 (9th Cir. 1991); W. Shoshone Nat’l Council

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v. Molini, 951 F.2d 200, 204 (9th Cir. 1991). “Generally, this determination should be

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performed with all inferences in favor of granting the motion.” Griggs v. Pace Am.

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Group, Inc., 170 F.3d 877, 880 (9th Cir. 1999) (citing DCD Programs, Ltd. v. Leighton,

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833 F.2d 183, 186 (9th Cir. 1987)).

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Here, Defendants JWenger and SAltman oppose Erus’ Motion to add new parties

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as futile because the amendments would be subject to dismissal for failure to state a

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claim. (Docs. 75, 111.) Below, the Court addresses whether Erus’ proposed amendments

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are futile.

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b. Futility of Amendments – Failure to State a Claim
Rule 8(a) of the Federal Rules of Civil Procedure provides that to state a claim for

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relief, a complaint must contain (1) “a short and plain statement of the grounds for the

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court’s jurisdiction,” (2) “a short and plain statement of the claim showing that the

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pleader is entitled to relief,” and (3) “a demand for the relief sought.” The complaint also

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must contain “sufficient factual matter, accepted as true, to ‘state a claim to relief that is

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plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl.

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Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim has facial plausibility when “the

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plaintiff pleads factual content that allows the court to draw the reasonable inference that

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the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at

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556). “Where a complaint pleads facts that are ‘merely consistent with’ a defendant’s

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liability, it stops short of the line between possibility and plausibility of entitlement to

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relief.” Id. (quoting Twombly, 550 U.S. at 557) (internal quotation marks omitted).

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“Threadbare recitals of the elements of a cause of action, supported by mere conclusory

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statements, do not suffice.” Id. In reviewing a complaint for failure to state a claim, the

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Court must “accept as true all well-pleaded allegations of material fact, and construe

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them in the light most favorable to the non-moving party.” Daniels-Hall v. Nat’l Educ.

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Ass’n, 629 F.3d 992, 998 (9th Cir. 2010). However, the Court does not have to accept as

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true “allegations that are merely conclusory, unwarranted deductions of fact, or

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unreasonable inferences.” Id.

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c. Erus’ Theories of Liability

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In addition to asserting direct claims of liability against the new parties Erus seeks

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to add, Erus seeks to assert contract and/or tort claims against the parties under various

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theories of derivative liability, including alter ego and joint venture theories. (Doc. 84 ¶¶

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58-60, 65-66.) Arizona law recognizes a presumption of corporate separateness under

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which one corporation is not liable for the actions of another. See Deutsche Credit Corp.

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v. Case Power & Equip. Co., 876 P.2d 1190, 1196 (Ariz. Ct. App. 1994). Similarly, in

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Arizona, a corporation is treated as a separate entity, and the personal assets of a

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corporate officer or shareholder generally may not be reached to satisfy corporate

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liabilities. Loiselle v. Cosas Mgmt. Group, LLC, 228 P.3d 943, 950 (Ariz. Ct. App.

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2010); Honeywell, Inc. v. Arnold Const. Co., Inc., 654 P.2d 301, 307 (Ariz. Ct. App.

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1982). However, there are exceptions to these rules, some of which are relevant here and

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are discussed below.

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i. Alter Ego

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Erus asserts that the new parties are alter egos of each other and the other

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Defendants. As an initial matter, the Court will deny Erus’ Motion as to all of the

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proposed new defendants to the extent Erus seeks to assert an independent claim for alter

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ego against any them because Arizona does not recognize such an independent claim.8

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See Airbus Ds v. Nivisys LLC, No. CV-14-02399-PHX-JAT, 2016 U.S. Dist. LEXIS

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58684, at *7-8 (D. Ariz. May 2, 2016) (“Defendants are correct in noting that Arizona

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does not recognize piercing the corporate veil[] or alter ego as an independent cause of

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action.”); Five Points Hotel P’ship v. Pinsonneault, 11-CV-00548-PHX-JAT, 2014 U.S.

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Dist. LEXIS 60627, at *8-13 (D. Ariz. May 1, 2014) (finding that although the Arizona

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Supreme Court has not directly addressed the issue, overwhelming persuasive

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jurisprudence leads to the prediction that it would not recognize piercing the corporate

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veil or alter ego as a standalone cause of action under Arizona law).

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However, a plaintiff may plead derivative liability under an alter ego theory. The

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alter ego doctrine is generally applied between private parent and subsidiary corporations

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or between a private corporation and one of its shareholders. See, e.g., Gatecliff v. Great

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Republic Life Ins. Co., 821 P.2d 725, 728 (Ariz. 1991); Dietel v. Day, 492 P.2d 455, 457

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(Ariz. Ct. App. 1972). To prevail on an alter ego theory, Erus must “prove both (1) unity

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of control and (2) that observance of the corporate form would sanction a fraud or

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promote injustice.” Gatecliff, 821 P.2d at 728 (citing Dietel, 492 P.2d at 457).

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Between corporations, the alter ego theory “allows a parent corporation to be held

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liable for the acts of its subsidiary when the individuality or separateness of the

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subsidiary corporation has ceased.” U-Haul Int’l v. Nat’l Fire Ins. Co., 10-CV-1047-

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Erus’ Proposed First Amended Complaint includes a separate “Alter Ego” Count
(Count IV) against all Defendants. (Doc. 84 at 13.)
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PHX-SMM, 2011 U.S. Dist. LEXIS 219, at *10 (D. Ariz. Jan. 3, 2011) (quoting

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Gatecliff, 821 P.2d at 728). To establish unity of control, Erus must show that the parent

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corporation “exerts ‘substantially total control over the management and activities’ of its

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subsidiary.” Id. at *10. “Substantially total control may be proved” by a number of

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factors, including “stock ownership by the parent; common officers or directors;

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financing of subsidiary by the parent; payment of salaries and other expenses of

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subsidiary by the parent; failure of subsidiary to maintain formalities of separate

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corporate existence; similarity of logo; and plaintiff’s lack of knowledge of subsidiary’s

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separate corporate existence.” Gatecliff, 821 P.2d at 728.

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“The corporate fiction will [also] be disregarded when the corporation is the alter

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ego or business conduit of a person.” Dietel, 492 P.2d at 457. In assessing unity of

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control between a corporation and its shareholders, the Court considers: “payment of

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salaries and expenses of the corporation by shareholders; failure to maintain corporate

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formalities; undercapitalization; commingling of corporate and personal finances;

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plaintiff’s lack of knowledge about a separate corporate existence; owners’ making of

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interest-free loans to the corporation; and diversion of corporate property for personal

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use.” Great Am. Duck Races, Inc. v. Intellectual Solutions, Inc., 2:12-cv-00436 JWS,

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2013 U.S. Dist. LEXIS 36190, at *7 (D. Ariz. Mar. 15, 2013) (citing Deutsche Credit

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Corp., 876 P.2d at 1195).

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A plaintiff alleging alter ego liability “must do more that make conclusory

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statements regarding an alter ego relationship between individual and corporate

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defendants; the plaintiff must allege specific facts supporting application of the alter ego

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doctrine.” Barba v. Lee, No. CV 09-1115-PHX-SRB, 2009 U.S. Dist. LEXIS 132415,

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*31 (D. Ariz. Nov. 4, 2009). Isolated occurrences of some of the relevant factors are not

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enough to establish alter ego liability. Cornelis v. B&J Smith Associates LLC, No. CV-

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13-00645-PHX-BSB, 2014 U.S. Dist. LEXIS 63776, at *26 (May 8, 2014).

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ii. Joint Venture
Erus also asserts claims against the entities based on a joint venture theory of

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liability.

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combination of two or more persons where in some special venture a profit is jointly

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sought.” Ariz. Pub. Serv. Co. v. Lamb, 327 P.2d 998, 1000 (Ariz. 1958); U-Haul Inter.

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Inc., 2011 U.S. Dist. LEXIS 219, at *8-10.

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elements: (1) an agreement, (2) a common purpose, (3) a community of interest, (4) an

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equal right of control, and (5) participation in profits and losses. Estate of Hernandez v.

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Flavio, 930 P.2d 1309, 1312 (Ariz. 1997).

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The Arizona Supreme Court has described a joint venture as a “special

A joint venture requires five specific

Either expressly or impliedly, the agreement must indicate that “each
of the parties to such joint adventure has authority to act for all in respect to
the control of the means or agencies employed to execute such common
purpose.” West, 85 Ariz. at 262, 336 P.2d at 157. Each party to the joint
venture must have an “equal right to direct and govern the movements and
conduct of each other with respect thereto. Each must have some voice and
right to be heard in its control or management.” Maloy v. Taylor, 86 Ariz.
356, 359, 346 P.2d 1086, 1088 (1959) (citations omitted).
While the “equal right to control” element of a joint venture could
imply that each venturer must have an equivalent amount of control over
the venture’s operation, we believe it is more accurate to say that each joint
venturer must share, to some extent, in the control of the venture. In other
words, it is sufficient that a venturer has some voice or right to be heard in
the control and management of the venture.
Flavio, 930 P.2d at 1312.

17

iii. Instrumentality Theory

18

Erus does not explicitly reference an instrumentality theory of liability in its First

19

Amended Complaint. However, it repeatedly asserts that certain entities were “conduits”

20

for Volt’s9 and/or the individual Defendants’ alleged unlawful conduct. (Doc. 84 ¶¶ 59,

21

62, 74, 79, 85, 116.) Therefore, the Court will analyze whether Erus’ proposed First

22

Amended Complaint has asserted sufficient facts to state a claim against any of the

23

entities under this theory. As another Court in this District has explained:

24
25
26
27
28

Distinct from but similar to the alter ego theory is the fourth way in which a
parent company can be liable to a subsidiary: the instrumentality theory.
Id. at 729. “When one corporation so dominates and controls another as to
make that other a simple instrumentality or adjunct to it, the courts will
9

Erus uses the term “Volt” to refer to both Volt Solar Systems, LLC and Volt
Solar Systems, Inc. (Doc. 84 ¶ 21; Doc. 98 n.2.) Defendants JWenger and SAltman
oppose that characterization. (Doc. 102 at 4-5.) However, for purposes of evaluating
Erus’ proposed amendments only, the Court will use “Volt” to refer to both entities.
- 12 -

1
2
3
4
5
6
7
8

look beyond the legal fiction of distinct corporate existence, as the interests
of justice require.[”] Walker v. Sw. Mines Dev. Co., 52 Ariz. 403, 81 P.2d
90, 95 (Ariz. 1938); See also Savage v. Royal Props., Inc., 4 Ariz. App.
116, 417 P.2d 925, 927 (Ariz. Ct. App. 1966) (“[T]he fiction of corporate
entity must be disregarded where one corporation is so organized and
controlled, and its affairs are so conducted that it is, in fact, a mere
instrumentality or adjunct of another corporation.”). As with the alter ego
theory of liability, “[p]laintiffs must [] demonstrate some form of injustice
under an instrumentality theory.” Gatecliff, 821 P.2d at 730.
U-Haul, 2011 U.S. Dist. LEXIS 219, at *11.
Below, the Court analyzes Erus’ specific requests to add parties to the claims in its
First Amended Complaint.10
d. Erus’ Amendments

9

11

i. Counts I and II – Breach of Contract and Breach of the
Covenant of Good Faith and Fair Dealing (Against ASP, ASR,
Skreem, Martin Consultants, and Allstar)

12

Erus seeks to assert claims against ASP, ASR, Skreem, Martin Consultants, and

13

Allstar for breach of contract and breach of the covenant of good faith and fair dealing.

14

(Doc. 84 ¶¶ 67-79.)

10

15

To state a claim for breach of contract, Erus must allege the existence of the

16

contract, its breach, and resulting damages. See Thomas v. Montelucia Villas, 302 P.3d

17

617, 621 (Ariz. 2013). Further, Arizona law implies a duty of good faith and fair dealing

18

in every contract. Rawlings v. Apodaca, 726 P.2d 565, 569 (Ariz. 1986). The covenant

19

prohibits the parties to a contract from “any action which would impair the benefits

20

which the other had the right to expect from the contract or the contractual relationship.”

21

Id. at 570. Parties may “breach [the] duty of good faith without actually breaching an

22

express covenant in the contract.” Wells Fargo Bank v. Ariz. Laborer, Teamster &

23

Cement Masons Local No. 395 Pension Trust Fund, 38 P.3d 12, 29 (Ariz. 2002).

24

Here, Erus asserts that it entered into a contract with Volt. (Id. ¶ 27.) Erus does

25

not assert that any of the entities it seeks to add were a party to the contract. Rather, Erus

26

asserts that those entities are liable under theories of derivative liability because “they

27
10

28

In this Order, the Court only analyzes whether Erus’ proposed amendments are
futile. It does not address the sufficiency of Erus’ First Amended Complaint with regard
to claims against the Defendants named in Erus’ initial Complaint.
- 13 -

1

served as a conduit for Volt’s breach [of contract], and share a unity of interest between

2

and among them.” (Id. ¶¶ 59-60, 74, 79.)

3

The Court finds that Erus has stated a claim for relief against ASR and ASP in

4

Counts I and II of the First Amended Complaint. Specifically, Erus asserts that Volt had

5

an agreement with ASR and ASP to procure clients on Volt’s behalf, ASP made false

6

statements or misrepresentations, through JWenger and BWenger, regarding the product

7

Erus contracted to purchase, and ASP and ASR were used as shells in a conspiracy to

8

defraud Erus of the funds it gave to Volt under the contract. (Id. ¶¶ 42-43, 106-07.) Such

9

allegations, together, are sufficient to establish that ASP and ASR were directly involved

10

in the breach and/or acted as joint ventures with Volt. Gatecliff, 821 P.2d at 728; Farr v.

11

Transamerica Occidental Life Ins. Co., 699 P.2d 376, 386 (Ariz. Ct. App. 1984).

12

Accordingly, the Court will grant Erus’ Motion to add ASP and ASR to Counts I and II

13

of the First Amended Complaint.

14

The Court finds that Erus has failed to state a claim for relief against Skreem,

15

Martin Consultants, and Allstar in Counts I and II of the First Amended Complaint.

16

Although Erus asserts that Volt transferred funds to Skreem after Erus made its payment

17

to Volt, and the transfers “contributed to Volt’s insolvency,” Erus does not specifically

18

allege any direct involvement by Skreem in the contract, or Volt’s breach of the contract.

19

(Doc. 84 ¶¶ 45-48.)11 Importantly, Erus does not assert any factual allegations regarding

20

who directed the transfers to be made from Volt to Skreem or for what purpose the

21

transfers were made. Although in its Supplemental Brief Erus asserts that Skreem was

22

“involved in the dealings between the parties and benefited from [Erus’] payments to

23

Volt,” and in its First Amended Complaint asserts that all of “the ALTER EGO

24

COMPANIES,” combined, served as a “conduit for Volt’s breach,” Erus fails to include

25

any factual allegations regarding the transfer of funds between Volt and Skreem other

26
27
28

11

Erus asserts that it paid Volt a total of $625,000 between May 8, 2014 and May
26, 2014, and $105,598 on some date after August 4, 2014. (Id. ¶¶ 27-34.) Erus asserts
that Volt paid Skreem a total of $116,600, out of two different accounts, in 11 payments,
between July 14, 2014 and October 22, 2014. (Id. ¶¶ 46-47.)
- 14 -

1

than the dates and amounts. (Doc. 98 at 5-6; Doc. 84 ¶¶ 43-46.) Erus’ conclusory

2

allegations that all of the entities were created by all the individuals Erus identifies, as

3

part of a fraudulent scheme, are insufficient. Iqbal, 556 U.S. at 678. Erus likewise fails to

4

assert any specific allegations of direct involvement in the contract and/or breach by

5

Martin Consultants or Allstar.

6

Erus also fails to assert claims against these three entities under any derivative

7

liability theory. Lumping the entities together, Erus asserts that (1) they “were involved”

8

with Volt in exchange for the forgiveness of debt owed by JMartin and related

9

(unidentified) entities controlled by him; (2) they “served as a conduit for Volt’s breach,

10

and share a unity of interest between and among them”; (3) they are “now a mere shell

11

and naked framework,” which the individual Defendants use “as a conduit for the

12

conduct of their personal business, property and affairs”; (4) they were created “pursuant

13

to a fraudulent plan, scheme and device conceived and operated by the individual

14

Defendants, whereby the income revenue and profits of [each of the companies] were

15

diverted by the individual Defendants to themselves and to other [unspecified]

16

corporations controlled by the individual Defendants”; (5) the entities have the same

17

business location, telephone number, and e-mail system; and (6) all of the entities

18

“pooled assets, revenues, or use of one corporation’s financial resources to pay or

19

guaranty the other’s obligations.” (Doc. 84 ¶¶ 59, 109.) Erus also asserts that JMartin is

20

an Officer of Skreem and an owner of Volt. (Id. ¶¶ 23, 51.)

21

Erus’ allegations are too conclusory and vague to state claims for breach of

22

contract or breach of the covenant of good faith and fair dealing against Skreem, Martin

23

Consultants, or Allstar under alter ego, joint venture, or instrumentality theories of

24

liability.

25

entities, and used them to perpetuate a fraudulent scheme, Erus fails to set forth sufficient

26

specific factual allegations to show that any of these three entities were the alter ego of

27

Volt. Erus asserts that all of the entities have the same e-mail, business location and

28

telephone, and asserts there is a common Officer/owner between Volt and Skreem in

Although Erus asserts that the individual Defendants all controlled these

- 15 -

1

JMartin. (Id. ¶¶ 23, 59, 51.) However, beyond those allegations, Erus fails to set forth

2

any specific allegations demonstrating that Skreem, Martin Consultants, or Allstar

3

exerted “substantially total control over the management and activities of” Volt,

4

sufficient to allow any of the three entities to be liable for Volt’s breach of the contract

5

with Erus.12

6

Erus also fails to sufficiently plead liability against the three entities under a joint

7

venture theory. Erus asserts that Martin Consultants, Allstar, and Skreem “were involved

8

with Volt in exchange for the forgiveness” of JMartin’s debt and the debt of other,

9

unidentified entities. (Id. ¶ 109.) However, Erus fails to allege that any of the three

10

entities had an equal right of control or participated in both profits and losses with Volt or

11

that there was any agreement between them. Therefore, Erus has failed to sufficiently

12

plead liability in Counts I and II against these three entities under a joint venture theory.

13

Finally, Erus fails to sufficiently plead liability against these entities under an

14

instrumentality theory. Although Erus alleges that the entities were each a “conduit for

15

Volt’s breach,” Erus has failed to assert any factual allegations to show that Volt “so

16

dominat[ed] and control[ed]” Martin Consultants, Allstar, and/or Skreem as to make any

17

of them the instrumentality of Volt (or vice versa). Notably, although Erus alleges that

18

JMartin is an Officer Skreem and an owner of Volt, Erus asserts that Volt has other

19

owners and officers who are not affiliated with Skreem, Martin Consultants, or Allstar.

20

(Id. ¶ 23.) And, Erus’ conclusory allegation that all of the individual Defendants used all

21

of the entities as conduits for fraudulent conduct is insufficient. Therefore, the Court will

22
12

23
24
25
26
27
28

The Court also finds that Erus has failed to sufficiently plead Skreem, Martin
Consultants, or Allstar were, or are, the alter ego of JMartin. As stated above, Erus
asserts conclusory allegations with regard to all of the Defendants as one group. Erus
does not assert specific factual allegations with regard to JMartin’s relationship with
Skreem, Martin Consultants, or Allstar, other than he is an Officer of Skreem, in
exchange for these three entities being “involved” in some unidentified way with Volt,
Volt forgave debt owed by him, and the Board tendered shares of Volt to him. (Id. ¶¶ 51,
109.) These allegations are insufficient. Cornelis, 2014 U.S. Dist. LEXIS 63776, at *28
(“Although [p]laintiffs apparently include B&J Smith Associates and B&J Smith
Investments under the collective term ‘corporate defendants,’ they failed to set forth facts
regarding each separate entity’s relationship with Eatza Pizza and how each separate
entity exercised substantially total control over the management and activities of Eatza
Pizza.”).
- 16 -

1

deny Erus’ Motion to add Skreem, Martin Consultants, and Allstar to Counts I and II of

2

the Complaint.

3
4

ii. Count III – Negligent Misrepresentation (Against ASP, ASR,
Skreem, Martin Consultants, Allstar, JMartin, TMoore, and
BWenger)

5

To state a claim for negligent misrepresentation, (1) there must be incorrect

6

information given for the guidance of others in business dealings; (2) the party giving the

7

false information intended, or could reasonably foresee, that the other parties would rely

8

on that information; (3) the party giving the false information failed to exercise

9

reasonable care in obtaining or communicating that information; (4) the other parties

10

actually relied on the incorrect information to their determent and were justified in doing

11

so; and (5) such reliance caused their damages. See Taeger v. Catholic Family & Cmty.

12

Serv., 995 P.2d 721, 730 (Ariz. Ct. App. 1999).

13

Rule 9(b) requires that a plaintiff alleging fraud or mistake “state with particularity

14

circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). Rule 9(b) has been

15

interpreted by the Ninth Circuit Court to require the plaintiff to “state the time, place, and

16

specific content of the false representations as well as the identities of parties to the

17

misrepresentation.” Schreiber Distrib. Co. v. Serv-Well Furn. Co., 806 F.2d 1393, 1401

18

(9th Cir. 1986); see also Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1103 (9th Cir.

19

2003) (“Averments of fraud must be accompanied by the who, what, when, where, and

20

how of the misconduct charged.”). The plaintiff must also “set forth an explanation as to

21

why the disputed statement was untrue or misleading when made.” Yourish v. Cal.

22

Amplifier, 191 F.3d 983, 993 (9th Cir. 1999).

23

Here, Erus asserts in its First Amended Complaint that Volt, ASP, JWenger, and

24

BWenger made misrepresentations regarding the use of the money Erus paid Volt, the

25

need to tender additional funds, the date of delivery, and where the funds would be held,

26

Erus relied on those misrepresentations, and such reliance caused Erus damage. (Doc. 84

27

¶¶ 28-34, 36.) Further, with regard to at least some of the alleged misrepresentations,

28

Erus provides a timeframe of when the statements were made and who made them. (Id.

- 17 -

1

¶¶ 31, 33-34, 36.) Therefore, the Court finds that Erus has sufficiently pled claims for

2

negligent misrepresentation against ASR, ASP, BWenger, and JWenger, and will grant

3

Erus’ Motion to add those parties to Count III of the First Amended Complaint.

4

The Court likewise finds that Erus has sufficiently pled claims for negligent

5

misrepresentation against JMartin and TMoore based on an alter ego theory.

6

Specifically, Erus asserts that JMartin is an owner of Volt (id. ¶ 23), the Volt Board of

7

Directors authorized the issuance of common stock in exchange for the forgiveness of the

8

total principal and interest balances owed to JMartin and related entities (id. ¶¶ 52-54),

9

the debt forgiven was $190,822 but the transaction was valued at $1,927,211 (id. ¶ 53),

10

and JMartin contributed to undercapitalizing Volt and diverted corporate funds for his

11

own personal use (id. ¶¶ 52-55, 59, 62). Further, Erus asserts that TMoore was an Officer

12

of Volt and had control over Volt’s finances and accounts, and, along with the other

13

individual Defendants, comingled corporate funds from the escrow account to pay

14

personal debt. (Id. ¶¶ 56, 57, 62, 86, 133-34.) Erus further asserts that both individuals

15

were part of an agreement to defraud Erus of the funds it paid to Volt. (Id. ¶ 133.)

16

Finally, Erus asserts that all of the Defendants participated in a fraudulent plan and

17

scheme to divert Erus’ funds to other corporations. (Id. ¶ 59.) The Court finds these

18

allegations, taken together, are sufficient to assert claims that JMartin and TMoore, as

19

owners and/or Officers of Volt, are liable for the alleged negligent misrepresentations

20

made by Volt.

21

The Court finds, however, that Erus has failed to sufficiently plead claims for

22

negligent misrepresentation against Skreem, Martin Consultants, and Allstar. Erus does

23

not allege any direct involvement by any of these three entities in the transactions

24

between Erus and Volt. As detailed above, Erus asserts that Volt transferred $116,600 to

25

Skreem over the course of several months and that the transfers contributed to Volt’s

26

insolvency. (Id. ¶¶ 45-48.) Erus also alleges that all of the entities, including Skreem,

27

were used as a “conduit for Volt’s breach, and share a unity of interest between and

28

among them.” (Id. ¶¶ 74, 79.) Erus further claims that JMartin is an Officer of Skreem

- 18 -

1

and an owner of Volt, and Skreem, Martin Consultants, and Allstar “were involved” with

2

Volt in some unidentified way “in exchange for the forgiveness of the total principal and

3

interest balances owed to Jeffrey Martin and related entities controlled by him.” (Id. ¶¶

4

23, 51, 109.) However, these allegations, alone, do not establish that Skreem was directly

5

involved in the transactions between Erus and Volt.

6

Furthermore, Erus fails to sufficiently plead any theories of derivative liability

7

against these three entities.

8

regarding any substantial control between these three entities, on one hand, and Volt,

9

ASP, ASR, BWenger, or JWenger—the entities and individuals who made the

10

representations—on the other. Erus does not allege that BWenger or JWenger are owners

11

of any of the three entities, and Erus does not allege that JMartin, an Officer of Skreem,

12

made any misrepresentations.

13

Consultants, or Allstar shared in the profits and losses of Volt, ASP, or ASR. Therefore,

14

the Court will deny Erus Motion to Add Skreem, Martin Consultants, and Allstar to

15

Count III of the First Amended Complaint.

Notably, Erus does not allege any specific allegations

Erus further does not allege that Skreem, Martin

iii. Count V13 – Fraud (Against BWenger, ASR, and ASP)

16
17

“A showing of fraud requires (1) a representation; (2) its falsity; (3) its materiality;

18

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

19

that it be acted upon by the recipient in the manner reasonably contemplated; (6) the

20

hearer’s ignorance of its falsity; (7) the hearer’s reliance on its truth; (8) the right to rely

21

on it; [and] (9) his consequent and proximate injury.” See Echols v. Beauty Built Homes,

22

Inc., 647 P.2d 629, 631 (Ariz. 1982); Carrel v. Lux, 420 P.2d 564, 568 (Ariz. 1966). Erus

23

must plead this claim with particularity. See Fed. R. Civ. P. 9(b); Vess, 317 F.3d at 1102

24

(“Averments of fraud must be accompanied by the ‘who, what, when, where, and how’ of

25

the misconduct charged.”); Neilson v. Union Bank of Cal., N.A., 290 F. Supp. 2d 1101,

26
27
28

13

Count IV of Erus’ First Amended Complaint asserts an independent claim for
alter ego. As detailed in section III.c.i. above, Arizona does not recognize such an
independent claim. Therefore, the Court will deny Erus’ Motion to add parties to Count
IV.
- 19 -

1

1141 (C.D. Cal. 2003) (“It is well-established in the Ninth Circuit that both claims for

2

fraud and negligent misrepresentation must meet Rule 9(b)’s particularity requirements”).

3

Here, Erus seeks to add BWenger, ASR, and ASP to Count V of its First Amended

4

Complaint. For the reasons stated above with regard to Erus’ claims for negligent

5

misrepresentation, the Court finds that Erus has stated claims for relief for fraud against

6

these individuals and entities, and will grant Erus’ Motion to add them to Count V.

7
8

iv. Count VI – Money Had and Received (Against ASP, ASR,
Skreem, Martin Consultants, Allstar, JMartin, TMoore, and
BWenger)

9

Erus asserts claims for “Money Had and Received” against each of the eight new

10

defendants it seeks to add. A claim for money had and received may be maintained by

11

evidence “showing that the defendant has received or obtained possession of money of

12

the plaintiff which in equity and good conscience he ought to pay over to the plaintiff.”

13

Copper Belle Mining Co. v. Gleeson, 134 P. 285, 287 (Ariz. 1913). Erus claims that

14

“Defendants improperly removed the funds from an escrow account.

15

informed and believes that the funds were improperly used by Defendants for personal

16

use and not for the benefit of Erus.” (Doc. 84 ¶ 99.)

17

specifically asserts that MAdler, SAltman, JWenger, JMartin, TMoore, and BWenger

18

“removed funds or induced Volt to remove funds from the escrow account designated for

19

the Agreement for among other things, corporate debt and personal use.” (Id. ¶ 134.)

20

Erus also asserts generally that Volt transferred $116,600 to Skreem over the period of

21

several weeks, and all of the entities, including Skreem “served as a conduit for Volt’s

22

breach.” (Id. ¶¶ 45-48, 74, 79, 116.)

Plaintiff is

In a later Count, Erus more

23

Several of Erus’ allegations lump the defendants together and are vague and

24

conclusory. However, in reviewing the First Amended Complaint in its entirety, the

25

Court finds that Erus has sufficiently set forth facts to state claims for relief in Count VI

26

against ASP, ASR, BWenger, JMartin, and TMoore. Erus sets forth sufficient allegations

27

that each of these entities or individuals directly took the funds from the escrow account

28

and/or was directly involved in the transaction between Erus and Volt. (Id. ¶¶ 39, 42-43,

- 20 -

1

45-48, 52-57, 134.)

2

entities and individuals in Count VI of Erus’ First Amended Complaint.

Therefore, the Court will grant Erus’ Motion as it relates to these

3

However, for the reasons already discussed, Erus fails to sufficiently plead claims

4

against Skreem, Martin Consultants, and Allstar. Therefore, the Court will deny Erus’

5

Motion to add those entities to Count VI.

6
7
8
9
10
11
12
13
14
15
16

v. Count VII – Conversion (Against ASP, ASR, Skreem, Martin
Consultants, Allstar, Martin, Moore, and BWenger)
In Arizona, “conversion is an intentional exercise of dominion or control over a
chattel which so seriously interferes with the right of another to control it that the actor
may justly be required to pay the other the full value of the chattel.” Miller v. Hehlen,
104 P.3d 193, 472 (Ariz. Ct. App. 2005) (quoting Restatement (Second) of Torts §
222A(1) (1965)). Erus points to the same allegations to support this claim against all of
the Defendants as those discussed above with regard to Erus’ claim for money had and
received. Therefore, for the reasons detailed in the previous section, the Court will grant
Erus’ Motion to add Defendants ASP, ASR, JMartin, BWenger, and TMoore to Count
VII. The Court will deny the Motion as to the other entities.

17

vi. Count VIII – Waste of Corporate Assets (Against JMartin,
TMoore, and BWenger)

18

Erus does not address this claim in its Supplemental Brief and, therefore, the Court

19

assumes that Erus abandons its request to add parties to this claim in its First Amended

20

Complaint. (Doc. 98 at 10.)

21
22

vii. Count IX – Aiding and Abetting Breach of Fiduciary Duty
(Against ASP, ASR, Skreem, Martin Consultants, Allstar,
Martin, Moore, and BWenger)

23

To establish a claim of aiding and abetting tortious conduct, proof of three

24

elements is necessary: “(1) the primary tortfeasor must commit a tort that causes injury to

25

the plaintiff; (2) the defendant must know that the primary tortfeasor’s conduct

26

constitutes a breach of duty; and (3) the defendant must substantially assist or encourage

27

the primary tortfeasor in the achievement of the breach.”

28

Holdings, L.L.C., 276 P.3d. 11, 97 (Ariz. Ct. App. 2012) (citing Restatement (Second) of

- 21 -

Cal X-Tra v. W.V.S.V.

1

Torts § 876(b)).

2

Here, Erus asserts that Volt breached its contract with Erus and engaged in tortious

3

conduct. (Doc. 84 ¶¶ 27-36, 80-83, 88-93.) For the reasons detailed above, the Court

4

finds that Erus has sufficiently pled that ASR, ASP, BWenger, JMartin, and TMoore

5

were directly involved/assisted Volt in converting the escrow funds.

6

reasons discussed above, the Court finds that Erus has failed to sufficiently plead liability

7

against Skreem, Martin Consultants, and Allstar.

8

Also for the

9

viii. Count X – Intentional Interference with Contractual Relations
(Against ASP, ASR, Skreem, Martin Consultants, Allstar,
JMartin, TMoore, and BWenger)

10

“To recover for tortious interference under Arizona law, [Erus] must prove: (1) the

11

existence of a valid contractual relationship; (2) [Defendants’] knowledge of the

12

relationship; (3) [Defendants’] intentional interference in inducing or causing the breach;

13

(4) the impropriety of [Defendants’] interference; and (5) resulting damages. MDY

14

Industries, LLC v. Blizzard Entertainment, Inc., 629 F.3d 928, 955 (9th Cir. 2011)

15

(citation omitted).

16

Here, the Court finds that Erus has pled a claim for intentional interference with

17

contractual relations against ASP, ASR, BWenger, JMartin, and TMoore. Erus asserts

18

that the individuals removed or assisted in removing the funds from the escrow account,

19

and used those funds for personal debt, which contributed to the failure of Volt to

20

perform its obligations under the contract. (Id. ¶¶ 121, 134.)

21

BWenger was acting on behalf of ASP and ASR. (Id. ¶¶ 38-43.) The Court finds these

22

allegations sufficient.

Erus also asserts that

23

The Court finds, however, that Erus has failed to assert any factual allegations

24

tying the funds transferred from Volt to Skreem to the transaction at issue, or allegations

25

showing intentional, interfering conduct by Skreem. The fact that the funds were paid

26

from Volt to Skreem on the time frame alleged, alone, is insufficient to plead liability

27

against Skreem.

28

Likewise, Erus fails to allege any interfering conduct by Martin Consultants and

- 22 -

1

Allstar.

2

generally diverted money from the escrow account are insufficient to state a claim.

3

Finally, as detailed above, Erus fails to sufficiently plead derivative liability against

4

Skreem, Martin Consultants, or Allstar. Therefore, the Court will deny Erus’ Motion to

5

add these entities to Count X of the First Amended Complaint.

6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

Again, Erus’ vague and conclusory allegations that all of the Defendants

ix. Count XI – RICO, 18 U.S.C. § 1961 (Against ASP, ASR, Skreem,
Martin Consultants, Allstar, JMartin, TMoore, and BWenger)
The Federal Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18
U.S.C. §§ 1961 et seq., provides a private cause of action for “[a]ny person injured in his
business or property by reason of a violation of section 1962 of this chapter.” 18 U.S.C.
§ 1964(c). Section 1962(c) of RICO makes it “unlawful for any person employed by or
associated with any enterprise engaged in, or the activities of which affect, interstate
commerce, to conduct or participate, directly or indirectly, in the conduct of such
enterprise’s affairs through a pattern of racketeering activity or collection of unlawful
debt.” Thus, to state a claim under section 1962(c), “a plaintiff must allege (1) conduct,
(2) of an enterprise, (3) through a pattern, and (4) of racketeering activity.” Jarvis v.
Regan, 833 F.2d 149, 151-52 (9th Cir. 1987) (internal citations omitted).
Here, Erus asserts that Volt and all of the other Defendants, in making multiple
fraudulent misrepresentations through the mail or wire transfers, “have conducted, and
have conspired to conduct, the affairs of Volt through a pattern of racketeering activity in
violation of 18 U.S.C. § 1962(c), (d).” (Doc. 84 ¶¶ 127-31.) The Court will grant Erus’
Motion to add ASP, ASR, and BWenger to this claim, as Erus asserts specific allegations
regarding their involvement in making alleged misrepresentations regarding use of the
funds Erus paid Volt, delivery of the product, and the need for additional payments from
Erus. (Id. ¶¶ 27-36, 39, 41-43.) The Court will further grant Erus’ Motion with regard to
JMartin and TMoore because Erus asserts that, as owners or Officers, JMartin and
TMoore specifically either removed Erus’ money out of the escrow account or induced
Volt to do so “for among other things, corporate debt and personal use.” (Id. ¶¶ 133-34.)
The Court will deny Erus’ Motion to add Skreem, Martin Consultants, and Allstar
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to this Count because Erus fails to allege any direct participation in the alleged

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racketeering activity by any of these entities. Erus asserts in its Supplemental Brief that

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these entities “made multiple false statements and fraudulent misstatements – or

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conspired with other Defendants to do so.” (Doc. 98 at 13.) However, Erus fails to

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identify any such fraudulent statements made by any of these entities, or any facts to

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establish that they “conspired” to make such statements.

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Techs., Inc., 435 F.3d 989, 990 (9th Cir. 2006) (Courts “have required the plaintiff to

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plead at least the basic elements of the conspiracy, especially the existence of an

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agreement.”) Therefore, the Court will grant Erus’ Motion to add ASR, ASP, BWenger,

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JMartin, and TMoore to Count XI of the First Amended Complaint, and will deny the

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Motion as to the remaining entities Erus seeks to add.

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x. Count XII – Conspiracy (Against JMartin, TMoore, and
BWenger)

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Wasco Prods. v. Southwall

“[L]iability for civil conspiracy requires that two or more individuals agree and
thereupon accomplish ‘an underlying tort which the alleged conspirators agreed to
commit.’” Zowine v. Prussin, No. CV-14-00892-PHX-GMS, 2016 U.S. Dist. LEXIS
17533 (D. Ariz. Feb. 12, 2016) (quoting Wells Fargo, 38 P.3d at 36). “A mere agreement
to do a wrong imposes no liability; an agreement plus a wrongful act may result in
liability.” Id.
Here, Erus asserts that on or about August 4, 2014, JMartin, TMoore and
BWenger “and each of them knowingly and willfully conspired and agreed among
themselves to damage the plaintiff by depriving it of the benefits of this contract by
inducing Volt to breach the Agreement,” and each individual “removed funds or induced
Volt to remove funds from the escrow account.” (Doc. 84 ¶¶ 133-34.) For the reasons
detailed above, the Court finds that Erus has sufficiently pled claims for conspiracy
against JMartin, BWenger, and TMoore. Therefore, the Court will grant Erus’ Motion to
add them to this Count.
IV.

Motion for Settlement Conference
On April 6, 2016, MAdler filed a Motion for Referral to a Magistrate Judge for a
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Settlement Conference. (Doc. 94.) In his Motion, MAdler asserts that “[n]o good faith

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settlement discussions have occurred. Emails on the subject been exchanged in the past

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few days regarding settlement, but nothing specific. No offers have been made by any

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party.”

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passed. LRCiv. 7.2(c).

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No other party has responded to MAdler’s Motion, and the time to do so has

The Court’s Scheduling Order in this matter (Doc. 36), amended by the Court’s
Order at Doc. 49, provides the following:

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8. Good Faith Settlement talks

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All parties and their counsel shall meet in person and engage in good faith
settlement talks no later than [January 18, 2016]. Upon completion of such
settlement talks, and no later than seven days after the deadline set forth in
the preceding sentence, the parties shall file a Joint Report on Settlement
Talks. The Report shall (a) inform the Court that the parties engaged in
good faith settlement talks; (b) state the outcome of such talks; and (c)
indicate whether the parties need assistance from the Court in seeking
settlement of the case. The parties shall promptly file a Notice of
Settlement with the Court at any time when settlement is reached during the
course of this litigation.

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However, MAdler’s Motion indicates that the parties have not yet engaged in good

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faith discussions. Further, the docket reflects that the parties have not filed the required

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Joint Report on Settlement Talks. Accordingly, the Court will Order the parties to show

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cause why sanctions should not be imposed for their failure to comply with the Court’s

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Order.14

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Accordingly,

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IT IS ORDERED that Erus’ Ex Parte Application to Amend Case Management

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Order, or Alternatively, to Vacate Dates and Schedule New Case Management

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Conference (Doc. 64) is granted as provided in this Order.

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Management deadlines are extended as follows:

The Court’s Case

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 The deadline for completing MAdler’s deposition is September 16, 2016.

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 The deadline for completing fact discovery is October 28, 2016.

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Notably, Erus’ Motion to modify the Court’s case management deadlines does
not include a request for an extension of the deadline to engage in good faith settlement
discussions. (Docs. 64, 65.)
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 The parties shall provide full and complete expert disclosures by August 26, 2016.

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 Rebuttal expert disclosures shall be completed by September 23, 2016.

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 Expert depositions shall be completed by October 28, 2016.

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 Dispositive motions shall be filed no later than December 16, 2016.

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IT IS FURTHER ORDERED that Erus’ Motion to Compel Deposition of
MAdler (Doc. 69) is granted as provided in this Order.
IT IS FURTHER ORDERED that Erus’ Motion to amend to add parties (Doc.
66) is granted in part and denied in part as follows:
 Erus’ Motion to add parties to Count IV (Alter Ego) is denied.

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 Erus’ Motion to add parties to Count VIII (Waste of Corporate Assets) is denied.

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 Erus’ Motion to add ASP and ASR to Counts I, II, III, V, VI, VII, IX, X, and XI is

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granted.
 Erus’ Motion to add BWenger to Counts III, V, VI, VII, IX, X, XI, and XII is
granted.
 Erus’ Motion to add JMartin and TMoore to Counts III, VI, VII, IX, X, XI, and
XII is granted.
 Erus’ Motion to add Martin Consultants, Skreem, and Allstar is denied.

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IT IS FURTHER ORDERED that within 14 days of the date of this Order, Erus

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shall file a clean (non-redlined) First Amended Complaint that is consistent with this

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Order (specifically, omitting any claims/Defendants the Court did not permit leave to

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amend to add).

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IT IS FURTHER ORDERED that Erus is responsible for serving the newly
added Defendants pursuant to Rule 4 of the Federal Rules of Civil Procedure.

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IT IS FURTHER ORDERED that service under Rule 4(m) of the Federal Rules

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of Civil Procedure runs from the date of THIS ORDER (not the filing of the First

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Amended Complaint as authorized herein).

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IT IS FURTHER ORDERED that if any Defendant believes Erus failed to

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comply with this Order in the to-be-filed First Amended Complaint, such Defendant may

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file a motion to dismiss.

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IT IS FURTHER ORDERED that all new Defendants are bound by the Court’s

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Rule 16 Scheduling Order (Doc. 36), as amended by the Court’s Order at Doc. 49 and

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this Order, unless such Defendant moves for a supplemental Rule 16 conference

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contemporaneous to responding to the First Amended Complaint.

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IT IS FURTHER ORDERED that Erus shall serve a copy of the Court’s Rule 16

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Scheduling Order (Doc. 36), the Court’s October 6, 2015 Order amending the Rule 16

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Order (Doc. 49), and this Order on each newly added Defendant with the summons and

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amended complaint.

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IT IS FURTHER ORDERED that in light of the Court’s Orders on Erus’ Motion

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to add parties, and extending the discovery and dispositive motion deadlines, the Motions

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for Summary Judgment pending at Docs. 102 and 104 are denied without prejudice. The

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Court grants Defendants MAdler, SAltman, and JWenger leave to each file one

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additional motion for summary judgment on Erus’ claims in its to-be-filed First Amended

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Complaint.15

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IT IS FURTHER ORDERED that Erus’ Motion Pursuant to Rule 56(d) (Doc.
112) is denied as moot.

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IT IS FURTHER ORDERED that within 14 days of the date of this Order, the

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parties shall show cause in writing why sanctions should not be imposed for the parties’

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failure to comply with the Court’s Orders to engage in good faith settlement talks no later

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than January 18, 2016, and to file a Joint Report on Settlement. In their responses, the

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///

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///

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///

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Defendants are reminded that they must fully comply with the Local Rules of
Civil Procedure in filing a motion for summary judgment, including that motions must
“be in a fixed-pitch type size no smaller than ten (10) pitch (10 letters per inch) or in a
proportional font size no smaller than 13 point, including any footnotes.” LRCiv.
7.1(b)(1). All motions for summary judgment must also fully comply with the
requirements of Rule 56.1 of the Local Rules of Civil Procedure.
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parties shall also provide their positions as to whether this case should be referred to

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another Magistrate Judge for the purposes of conducting a settlement conference.

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Dated this 7th day of June, 2016.

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Honorable John Z. Boyle
United States Magistrate Judge

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