Hardisty v. Moore et al

Filing 236

AMENDED FINDINGS OF FACT AND CONCLUSIONS OF LAW. Judgment is entered in favor of Plaintiff in the amount of $675,101.66 and against Melanie Moore and State Insulation LLC, an Arizona limited liability company on 10 Pla's second cause of act ion for aiding and abetting intentional torts; and 2) against Dfts Harold M. Moore and Elaine K. Moore aka Melanie K. Moore on Pla's third cause of action for fraud. Harold M. Moore, Elaine K. Moore aka Melanie L. Moore, and State Insulation LLC are jointly liable for this amount. Judgment is entered against Pla and in favor of Dfts State Insulation LLC, a Arizona limited liability company and State Insulation LLC, a Nevada limited liability company, on Pla's third cause of action for fraud. Judgment is entered against Pla and in favor of Dfts Harold M. Moore and Elaine K. Moore on Pla's fourth cause of action for constructive fraud. Judgment is entered against Pla and in favor of Harold M. Moore on Pla's sixth cause of action for securities fraud. Judgment is entered against Plaintiff and in favor of Harold M. Moore, Elaine K. Moore, and State Insulation LLC, a Nevada limited liability company, and The 1998 Harold M. Moore Revocable Trust, on Pla's seventh cau se of action for conversion and Pla's ninth cause of action for conspiracy. Judgment is entered against Pla and in favor of of Dft The 1998 Harold M. Moore Revocable Trust on Pla's second cause of action for aiding and abetting intentional torts, Pla's third casue of action for fraud. Judgment is entered against Pla and in favor of State Insulation LLC, a Nevada linited liability company, on Pla's second cause of action for aiding and abetting intentional torts. Pursuant to R ule 68, judgment is entered in favor of Counter-claimant Harold M. Moore and against Counter-defendant John Hardisty in the sum of $750,000.00. This shall be the total amount to be paid on account of any liability claimed by the Counter-Claimant in this action. Clerk instructed to issue an Second Amended Judgment, which vacates and supersedes the Clerk's Amended Judgment 209 issued on 2/23/2015. Signed by Judge Cynthia Bashant on 10/22/2015. (jah)

1
2
3
4
5
6
7
8

UNITED STATES DISTRICT COURT

9

SOUTHERN DISTRICT OF CALIFORNIA

10

Case No. 11-cv-01591-BAS(BLM)

JOHN T. HARDISTY,

11

AMENDED FINDINGS OF FACT
AND CONCLUSIONS OF LAW

Plaintiff,

12
13

v.

14

MELANIE MOORE, ET AL.,

15

Defendants.

16

AND RELATED COUNTERCLAIM

17
18
19
20

BASHANT, Judge:

21

I.

INTRODUCTION

22

Plaintiff John Hardisty (“Hardisty” or “Plaintiff”) filed the operative Third

23

Amended Complaint against Harold Maxine Moore (“Hal Moore”), his wife Elaine

24

K. Moore (“Melanie Moore”), The 1998 Harold M. Moore Revocable Trust (the

25

“Moore Trust”), Mark Peluso, and State Insulation LLC, an Arizona limited liability

26

company (“State Insulation-Arizona”), and State Insulation LLC, a Nevada limited

27

liability company (“State Insulation-Nevada”) (collectively “State Insulation”),

28

(collectively “Defendants”) on June 1, 2012. (ECF No. 34.) On October 9, 2012, the
–1–

11-cv-1591

1

Court granted Hal Moore’s motion to dismiss the first and tenth causes of action, and

2

also granted a motion by Defendants to strike any RICO allegations. (ECF No. 39.)

3

On November 14, 2012, Hal Moore filed a Counterclaim against Hardisty for fraud

4

and negligent misrepresentation. (ECF No. 40.)

5

On March 18, 2014, the Court granted Defendants’ Motion for Summary

6

Judgment with respect to the fifth cause of action alleging quiet title, the eighth cause

7

of action alleging abuse of process, as well as partial summary judgment on the

8

remaining causes of action. (ECF No. 80.) On September 9, 2014, Hal Moore filed a

9

Notice of Acceptance of Offer of Judgment. (ECF No. 130.) Pursuant to Federal Rule

10

of Civil Procedure 68, Counter-Plaintiff Hal Moore accepted Counter-Defendant

11

Hardisty’s offer to allow entry of judgment on the Counterclaim. (Id.)

12

The following remained for trial: (1) the second cause of action for aiding and

13

abetting intentional torts against Melanie Moore, State Insulation, the Moore Trust,

14

and Mark Peluso; (2) the third cause of action for fraud against all defendants except

15

Mark Peluso; (3) the fourth cause of action for constructive fraud against Hal Moore

16

and Melanie Moore; (4) the sixth cause of action for securities fraud under California

17

Business and Professions Code §§ 25401 et seq. against Hal Moore; (5) the seventh

18

cause of action for conversion against all defendants except Mark Peluso; and (6) the

19

ninth cause of action for conspiracy against all defendants except Mark Peluso. Each

20

of the remaining causes of action was limited to allegations arising from Hardisty’s

21

transfer of his 27% ownership interest in Legacy Pointe Apartments, LLC to Hal

22

Moore. In a supplemental ruling on Defendants’ Motion for Summary Judgment, the

23

Court agreed to also consider allegations arising from Hardisty’s additional transfer

24

of his 5% ownership interest as a 50% owner of Munson-Hardisty, LLC, as well as an

25

amount of $380,000 allegedly owed by Hal Moore to Hardisty upon completion of the

26

Legacy Pointe Apartments project.

27

This matter was set for a bench trial. Trial took place on September 16-19,

28

2014, December 9, 2014, and January 27-29, 2015. The Court heard and weighed the
–2–

11-cv-1591

1

testimony and evidence presented at trial. The Court observed the demeanor of the

2

witnesses, evaluated their candor and credibility, reviewed transcripts and exhibits

3

from the trial, and the Court’s trial notes. Having done so, the Court makes the

4

following findings of fact and separate conclusions of law pursuant to Federal Rule of

5

Civil Procedure 52(a).

6

II.

FINDINGS OF FACT1

7

A.

Liability

8

Hardisty and Hal Moore were long-time close business associates. Melanie

9

Moore is, and was at all relevant times, Hal Moore’s wife, and in late 2008 and early

10

2009, she was the Chief Executive Officer of State Insulation, which was owned by

11

Hal Moore.2 From 2007 through 2009, Mark Peluso was the Controller of Great

12

Western Drywall, another one of Hal Moore’s companies.

13

In August 2007, Hardisty, Munson-Hardisty, LLC (a general contractor of

14

which Hardisty was a 50% owner), Craig Mason, and Legacy Pointe Apartments, LLC

15

(“Legacy Pointe”) entered into an Amended and Restated Operating Agreement with

16

respect to the construction of an apartment complex in Knoxville, Tennessee

17

(hereinafter referred to as the “Project”). This was to be a construction project

18

financed by the United States Department of Housing and Urban Development

19

(“HUD”).

20

In August 2007, Hal Moore agreed to contribute $1.5 million from the Moore

21

Trust to the Project. In exchange, Hardisty agreed to seek approval from HUD for the

22

transfer of a 50% membership interest in Legacy Pointe to Hal Moore and signed a

23

Promissory Note Secured by Deeds of Trust dated August 20, 2007 in the amount of

24

$1.5 million. In the Promissory Note, Hardisty agreed to pay 13% interest per year

25
26
27
28

1

To the extent these Findings of Fact are also deemed to be Conclusions
of Law, they are hereby incorporated into the Conclusions of Law that follow.
2
State Insulation is wholly owned by Hal Moore. Hal Moore admits he
and State Insulation are one and the same.
–3–

11-cv-1591

1

on the unpaid balance of the $1.5 million investment.

2

In September 2007, Hal Moore lent $750,000 to Munson-Hardisty, LLC to help

3

the company obtain payment and performance bonds for the Project. The $750,000

4

was deposited into a certificate of deposit (“CD”) at 1st Pacific Bank of California on

5

or around September 11, 2007. In exchange for the $750,000 loan, Hardisty and his

6

wife signed a Promissory Note dated September 11, 2007 promising 13% interest per

7

year on the unpaid balance. The Promissory Note was secured by various deeds of

8

trust on their personal and business properties, including their personal residence.

9

In the same time frame, as part of the requirement for obtaining a contractor’s

10

license in the name of Munson-Hardisty, LLC in Tennessee, Hardisty was required to

11

obtain a personal line of credit in the amount of $380,000. Hardisty drew upon this

12

personal line of credit and contributed the funds to Legacy Pointe.

13

On September 13, 2007, Munson-Hardisty, LLC (as the general contractor) and

14

Legacy Pointe (as the owner) entered into a construction contract for the construction

15

of the Project. In the construction contract, Legacy Pointe agreed to pay Munson-

16

Hardisty, LLC a cash payment in the amount of: (1) the actual cost of construction;

17

and (2) a fee of the Builder’s and Sponsor’s Profit and Risk Allowance (“BSPRA”),

18

not to exceed $18,047,049. The construction contract required Munson-Hardisty,

19

LLC to furnish Legacy Pointe with payment and performance bonds in the amount of

20

$18,047,049 issued by Great American Insurance Company (“GAIC”) to assure

21

completion of the Project. The construction contract provided for completion of

22

construction by January 13, 2009.

23
24

On September 13, 2007, Munson-Hardisty, LLC obtained payment and
performance bonds with GAIC as the Surety in the amount of $18,047,049.

25

On November 7, 2007, when HUD approved the transfer of a 50% membership

26

interest in Legacy Pointe to Hal Moore, ownership in Legacy Pointe was as follows:

27

Hal Moore (50%), Munson-Hardisty, LLC (10%), Craig Mason (9.9%), and Hardisty

28

(30.1%). Hardisty’s interest was later decreased from 30.1% to 27%.
–4–

11-cv-1591

1

When Hal Moore received 50% equity in Legacy Pointe, the $1.5 million loan

2

was extinguished. Nonetheless, Hardisty continued to pay Hal Moore 13% interest

3

on the $1.5 million investment.

4

By December 2008, it was clear to all the parties that the Project was, as

5

described by Hal Moore at trial, “going to hell in a hand basket.” The Project was not

6

going to be completed on time and was facing numerous cost overruns.

7

Hardisty explored selling his interest in the Project to a third party. Hardisty

8

was particularly concerned because he faced personal indemnity on the payment and

9

performance bonds Munson-Hardisty, LLC had obtained as general contractor on the

10

Project, so he wanted to ensure that all subcontractors, vendors, and suppliers got

11

paid.3 He negotiated to sell his interest to a third party for $1,750,000. However,

12

when Hal Moore and Melanie Moore got wind of this negotiation, they were very

13

angry, and told Hardisty if he was going to sell his interest, he should sell it to them.

14

Thus, in January 2009, Hardisty and Hal Moore entered into several

15

agreements. First, Hardisty and Hal Moore entered into a “Letter of Intent,” which

16

they termed the “Incentive Agreement,” dated January 15, 2009 (Exhibit 68). The

17

Incentive Agreement detailed that Hardisty potentially faced personal liability due to

18

his personal indemnity on the payment and performance bonds. Thus, to avoid this

19

liability, Hardisty agreed to immediately transfer his remaining 27% ownership

20

interest in Legacy Pointe to Hal Moore. In exchange, Hal Moore agreed to fund a

21

bridge loan up to $1.5 million to enable Hardisty to make scheduled completion dates.

22
23
24
25
26
27
28

3

On September 4, 2007, GAIC and Munson-Hardisty, LLC, Legacy
Pointe, John Hardisty, Teresa Hardisty, Craig Mason, and Hardisty and his companies
entered into an Indemnity Agreement related to the payment and performance bonds
(“Indemnity Agreement”). The Court takes judicial notice of the court filings
submitted by Plaintiff at Docket No. 155 (Exhibits 1-9) and Defendants at Docket No.
204 (Exhibits 1-9) pursuant to Federal Rule of Evidence 201. See Lee v. City of Los
Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001); Mullis v. U.S. Bank Ct., 828 F.2d
1385, 1388 n. 9 (9th Cir. 1987) (a court may properly take judicial notice of the
contents of public records or court files).
–5–

11-cv-1591

1

Hal Moore, through State Insulation-Arizona, further agreed to purchase and

2

retain all potential claims against the payment and performance bonds by the

3

subcontractors, suppliers, and vendors. Munson-Hardisty, LLC agreed to receive a

4

written collateral assignment from these subcontractors, suppliers, and vendors so that

5

State Insulation-Arizona could be reimbursed for these payments through the HUD

6

draw process. State Insulation-Arizona would thus be reimbursed through Legacy

7

Pointe for all money spent. In addition, all unpaid expenses and loans incurred by Hal

8

Moore would be reimbursed by Legacy Pointe through escrow upon the sale of the

9

property or rent proceeds. Finally, Hal Moore agreed to pay Hardisty $380,000, and

10

both Hardisty and Munson-Hardisty, LLC agreed to forego any salary ($3500/week

11

for Hardisty and $2500/week for Munson-Hardisty, LLC).

12

Melanie Moore emailed the final draft of the Incentive Agreement to Hardisty

13

on January 15, 2009, asking him to “please review and sign and send back to me; you

14

can fax with an original to follow in the mail.” (Exhibit 66.) Hardisty signed the

15

Incentive Agreement on January 16, 2009 and faxed it back to Hal Moore on the same

16

day (Exhibit 68), and sent the original by mail. Although this Incentive Agreement

17

does not have Hal Moore’s signature on it, Hardisty understood Hal Moore signed the

18

Incentive Agreement based on representations from Hal Moore and Melanie Moore,

19

and all parties immediately began performing thereunder.

20

After the Incentive Agreement was entered into, the Moores informed Hardisty

21

that the Incentive Agreement could not be submitted to HUD for approval of the

22

transfer of Hardisty’s 27% membership interest. A separate agreement needed to be

23

signed specifically for HUD to effectuate the transfer. Hardisty did not understand

24

this to be a “new agreement” on new terms.

25

On January 22, 2009, Melanie Moore emailed Hardisty a first draft of a

26

Purchase and Sale Agreement to be presented to HUD. Several versions of the

27

Purchase and Sale Agreement were exchanged between the parties. All versions were

28

drafted by the Moores and/or their counsel. At the last minute, without the knowledge
–6–

11-cv-1591

1

of Hardisty, the Moores added language to the Purchase and Sale Agreement (which

2

was not in the Incentive Agreement or even the first draft of the Purchase and Sale

3

Agreement) saying Hal Moore agreed not to pursue any claims against the payment

4

and performance bonds until May 1, 2009, which was shortly before the new predicted

5

completion date of the Project.

6

Hardisty was unaware this additional language had been added at the last

7

minute to the Purchase and Sale Agreement. Melanie Moore had represented that the

8

final version of the Purchase and Sale Agreement (Exhibit 21) was substantially the

9

same as earlier drafts Hardisty had read, and he understood it was simply

10

memorializing part of the agreement they had reached through the Incentive

11

Agreement for the purpose of submitting the transfer to HUD.

12

Even if Hardisty had seen the additional language the Moores added at the last

13

minute to the Purchase and Sale Agreement, he would not have been concerned since,

14

as outlined in the Incentive Agreement, the understanding was that State Insulation-

15

Arizona would be reimbursed for payments to subcontractors, vendors, and suppliers

16

through the HUD draw process, and anything not paid through the draw process would

17

be reimbursed by Legacy Pointe (of which Hal Moore was now a majority equity

18

owner).

19

reimbursed for its payments, and Hardisty would no longer be personally liable on the

20

payment and performance bonds.

So Hardisty was comfortable that State Insulation-Arizona would be

21

In fact, State Insulation-Arizona ultimately paid the subcontractors, vendors,

22

and suppliers $2,156,308 as a result of the collateral assignments, and when the Project

23

closed in August 2009, Hal Moore, on behalf of Legacy Pointe, represented to HUD

24

that all claims had been paid, or would shortly be paid through escrow within forty-

25

five days, and that no debts were outstanding to subcontractors, vendors, and

26

suppliers.

27

However, on October 23, 2009, at the direction of Melanie Moore, State

28

Insulation-Arizona filed a complaint against GAIC in the Chancery Court for Knox
–7–

11-cv-1591

1

County, Tennessee making a claim in the amount of $2,120,537.85 plus costs,

2

prejudgment interest, and attorneys’ fees against the payment bond (Exhibit 124).4

3

Since Hardisty was an indemnitor on the payment bond, GAIC requested that

4

Hardisty defend and indemnify the claim. Hardisty was suddenly faced with personal

5

liability in the amount of $2,120,537.85 plus costs, prejudgment interest, and

6

attorneys’ fees. The only reason he transferred his 27% interest in Legacy Pointe in

7

the first place was to avoid this liability.

8

The Project was complete in August 2009. Hal Moore signed the Mortgagor’s

9

Certificate of Actual Cost on August 10, 2009 and final permission to occupy the

10

living units was granted on August 6, 2009. However, upon completion of the Project,

11

Hal Moore refused to pay Hardisty $380,000 as agreed to in the Incentive Agreement.

12

In February 2009, the “Amendment to Operating Agreement” of Legacy Pointe

13

provided that following HUD approval the membership interests in Legacy Pointe

14

would be as follows: Munson-Hardisty, LLC (10%), Craig Mason (13%), and Hal

15

Moore (77%). Hal Moore also replaced John Hardisty as Chief Manager of Legacy

16

Pointe.
In April 2009, Munson-Hardisty, LLC transferred its 10% interest in Legacy

17
18

Pointe to Hal Moore.

19

B.

Damages

20

At the time State Insulation-Arizona and the Moores made a bond claim, GAIC

21

held the $750,000 deposited in a CD on behalf of Munson-Hardisty, LLC and the

22

balance of the fund control account (seeded in part by Hardisty’s $380,000 line of

23

credit).

24

///

25
26
27
28

4

The complaint was removed to U.S. District Court for the Eastern
District of Tennessee (Knoxville) on December 2, 2009 and thereafter styled as State
Insulation, LLC v. Great Am. Ins. Co., Case No. 09-cv-00526-RLJ(CCS) (E.D. Tenn.)
(“Bond Action”).
–8–

11-cv-1591

1

On September 30, 2011, GAIC filed a complaint for interpleader in the

2

Chancery Court for Knox County, Tennessee pursuant to a settlement agreement

3

reached by Legacy Pointe, State Insulation-Arizona, and GAIC and sought to deposit

4

the held funds with the Court.5 State Insulation-Arizona and Legacy Pointe filed a

5

counterclaim against GAIC and a cross-claim against Munson-Hardisty, LLC and

6

Hardisty, among others, in the Interpleader Action arguing State Insulation-Arizona,

7

as a claimant under the terms of the payment bond for approximately $2.1 million, is

8

entitled to the entire amount of the deposited funds plus interest. State Insulation-

9

Arizona alleges that Hardisty, Munson-Hardisty, LLC, and the other co-defendants

10

have no interest in or right to the funds deposited by GAIC. State Insulation-Arizona

11

also argues, in the alternative, that Munson-Hardisty, LLC owes State Insulation-

12

Arizona the sum of approximately $2.1 million based on breach of contract and money

13

had and received theories. Hal and Melanie Moore later intervened in the Interpleader

14

Action seeking $750,000 of the deposited funds plus interest on the basis of the

15

September 2007 loan to Munson-Hardisty, LLC.

16

On September 9, 2014, before trial in this action, Hal Moore accepted

17

Hardisty’s offer of judgment pursuant to Federal Rule of Civil Procedure 68.

18

Judgment was thereafter entered in this action in favor of Hal Moore in the sum of

19

$750,000 to be paid from the payment bond issued by GAIC and currently on deposit

20

in the Interpleader Action. As a condition of acceptance of Hardisty’s offer, the

21

Interpleader Action, including cross-claims and counterclaims brought by any party,

22

must be dismissed in its entirety with prejudice. Therefore, all liability with respect

23

to the subcontractors, vendors, and suppliers on the Project and all collateral

24

assignments has now been resolved.

25

Hardisty was required to indemnify and defend the Bond Action in Tennessee.

26

The Bond Action was voluntarily dismissed by the parties on June 6, 2012. Hardisty

27
28

5

Great Am. Ins. Co. v. State Insulation, LLC, et al., No. 1814023 (Ch.
Knox Cnty., Tenn. filed Sept. 30, 2011) (“Interpleader Action”).
–9–

11-cv-1591

1

was forced to incur attorneys’ fees in the amount of $148,036.45 in defending both

2

the Bond Action and the Interpleader Action.

3

In January 2009, the value of Legacy Pointe was $28,244,787.6 Since Legacy

4

Pointe had an outstanding mortgage of $21,434,100, this put the equity in Legacy

5

Pointe at $6,810,687, and John Hardisty’s 27% interest at $1,838,885.

6

III.

7

CONCLUSIONS OF LAW7
A.

Fraud Against All Defendants Except Mark Peluso (Third Cause of
Action)

8
9

To prove fraud, a plaintiff must prove by a preponderance of evidence: (1) that

10

a defendant made a misrepresentation (false representation, concealment, or

11

nondisclosure); (2) knowing that the misrepresentation was false; (3) with the intent

12

to defraud; (4) the plaintiff justifiably relied on the misrepresentation; and (5) as a

13

result of the misrepresentation, suffered damages. Small v. Fritz Cos., Inc., 30 Cal.

14

4th 167, 173 (2003); Liodas v. Sahadi, 19 Cal. 3d 278, 286-93 (1977). Reliance is

15

justifiable where “circumstances were such to make it reasonable for the plaintiff to

16
17
18
19
20
21
22
23
24
25
26
27
28

6

The Court determines that Hardisty’s expert witness Stephen Jones’
initial valuation of Legacy Pointe at $28,244,787 is the most persuasive. Hardisty
urges the Court to adopt Mr. Jones’ higher calculation of $30,262,271. This amount
was re-calculated by Mr. Jones by using a lower capitalization rate after he saw Craig
Mason’s calculations. However, these calculations by Mr. Mason were made in an
attempt to sell Mr. Mason’s share and thus could easily reflect an inflated value. In
addition, Hardisty’s resulting 27% of this higher calculation would be $2,383,606,
which seems high in light of the fact that before Hardisty agreed to transfer his 27%
ownership interest to Hal Moore in January 2009, he had been negotiating to sell his
share to a third party for $1,750,000. Similarly, Defendants urge the Court to use a
lower calculation, claiming that Mr. Jones improperly increased the prospective rents
and thus the net operating income used by Mr. Jones was too high. However,
Defendants’ calculations of Hardisty’s 27% interest at $137,984 (based allegedly on
the HUD firm commitment) to $960,737 (based on the HUD firm commitment with
a limitation on rent increases of 4.5% per year) appear to be too low in light of all the
facts in this case.
7
To the extent any Findings of Fact are contained in the Conclusions of
Law, they are hereby incorporated into the preceding Findings of Fact.
– 10 –

11-cv-1591

1

accept the defendant’s statements without an independent inquiry or investigation.”

2

OCM Principal Opportunities Fund v. CIBC World Markets Corp., 157 Cal. App. 4th

3

835, 864 (2007) (citation omitted). “The reasonableness of the plaintiff’s reliance is

4

judged by reference to the plaintiff’s knowledge and experience.” Id. (citing 5 Witkin,

5

Summary of Cal. Law (10th ed. 2005) Torts § 808, at p. 1164).

6

Although extrinsic evidence may not be relied upon to alter or add to the terms

7

of an integrated written agreement, extrinsic evidence is admissible to show fraud and

8

may be admitted where the validity of the agreement is the fact in dispute. See

9

Riverisland Cold Storage, Inc. v. Fresno-Madera Prod. Credit Ass’n, 55 Cal. 4th

10

1169, 1174-75 (2013) (“Evidence to prove that the instrument is void or voidable for

11

mistake, fraud, duress, undue influence, illegality, alteration, lack of consideration, or

12

another invalidating cause is admissible”) (citation omitted); Cal. Civ. Proc. Code §

13

1856(f) & (g). This rule applies “even though the contract recites that all conditions

14

and representations are embodied therein.” Morris v. Harbor Boat Bldg. Co., 112 Cal.

15

App. 2d 887, 888 (1952) (citation omitted).

16
17

The Moores made the following misrepresentations to Hardisty in connection
with the entering into the Purchase and Sale Agreement:8
1)

18

Melanie Moore represented that the Purchase and Sale Agreement

19

was substantially the same agreement as the Incentive Agreement and

20

failed to point out that she and Hal Moore had added language

21

agreeing not to pursue any claims against the payment and

22

performance bond until May 1, 2009 (the new predicted completion

23

date of the Project);
2)

24

Both of the Moores represented that they would pursue

25
26
27
28

8

Hardisty failed to present any evidence of fraud in connection with the
transfer of his share of Munson-Hardisty, LLC’s interest in Legacy Pointe to Hal
Moore. Hardisty also failed to present any evidence of misrepresentations by the
Moore Trust and State Insulation.
– 11 –

11-cv-1591

1

reimbursement of State Insulation-Arizona for payments to

2

subcontractors, vendors, and suppliers through the HUD draw

3

process, and anything not paid through the draw process would be

4

reimbursed by Legacy Pointe;
3)

5

Both of the Moores represented that in exchange for the transfer of

6

Hardisty’s 27% interest, Hardisty’s liability to subcontractors,

7

vendors, and suppliers would be extinguished; and
4)

8

Both of the Moores represented they would pay Hardisty $380,000
when construction of the Project was finished.

9
10

At the time they made these representations, the Moores knew the

11

representations were false. They made the representations to deceive Hardisty as to

12

the true nature of the Purchase and Sale Agreement and to induce Hardisty to execute

13

the Purchase and Sale Agreement.

14

executing the Purchase and Sale Agreement, by submitting documents to HUD

15

seeking approval of the transfer of his 27% membership interest in Legacy Pointe to

16

Hal Moore, and by continuing to work to complete the Project. Given all the

17

circumstances, his reliance was justifiable.

Hardisty relied on these representations by

18

As a result, Hardisty was damaged when the Moores caused State Insulation-

19

Arizona to file the Bond Action, which Hardisty was required to indemnify and

20

defend. While the Bond Action was ultimately dismissed, and the Interpleader Action

21

will soon be dismissed, Hardisty incurred attorneys’ fees in defending the Bond

22

Action and Interpleader Action. Furthermore, Hal Moore used the Purchase and Sale

23

Agreement to justify his refusal to pay Hardisty the $380,000 he had promised to pay

24

him, which led to Hardisty being unable to pay the interest on his personal line of

25

credit and the bank defaulting him.
Accordingly, the Court finds for Plaintiff on his third cause of action for fraud

26
27

and against defendants Hal Moore and Melanie Moore.

28

///
– 12 –

11-cv-1591

1
2

B.

Constructive Fraud Against Hal Moore and Melanie Moore (Fourth
Cause of Action)

3

“Constructive fraud arises on a breach of duty by one in a confidential or

4

fiduciary relationship to another which induces justifiable reliance by the latter to his

5

prejudice.” Odorizzi v. Bloomfield Sch. Dist., 246 Cal. App. 2d 123, 129 (1966). To

6

prove constructive fraud, a plaintiff must prove by a preponderance of evidence the

7

following elements: “(1) a fiduciary or confidential relationship; (2) an act, omission

8

or concealment involving a breach of that duty; (3) reliance; and (4) resulting

9

damage.” Neilson v. Union Bank of Cal., N.A., 290 F. Supp. 2d 1101, 1142 (C.D. Cal.

10

2003) (citing Assilzadeh v. Cal. Fed. Bank, 82 Cal. App. 4th 399, 414 (2000)); Younan

11

v. Equifax Inc., 111 Cal. App. 3d 498, 516-17 (1980); Tyler v. Children’s Home Soc’y,

12

29 Cal. App. 4th 511, 548-49 (1994); Cal. Civ. Code § 1573.

13

The essence of a “constructive fraud” claim is the existence of a confidential or

14

fiduciary relationship which induces justifiable reliance by one in the relationship to

15

his prejudice. Odorizzi, 246 Cal.App.2d at 129. “Such a confidential relationship

16

may exist whenever a person with justification places trust and confidence in the

17

integrity and fidelity of another.” Id.

18

Hardisty and Hal Moore were long-time close business associates. Whether or

19

not this relationship could be characterized as a “friendship,” it was never a fiduciary

20

relationship. Although he might have had a confidential relationship with Hal Moore

21

at some point in time, by the time Hardisty was negotiating the transfer of his 27%

22

membership interest in Legacy Pointe to Hal Moore, whatever existed of that

23

confidential relationship had completely eroded. Id. (“The absence of a confidential

24

relationship . . . is especially apparent where, as here, the parties were negotiating to

25

bring about a termination of their relationship. In such a situation, each party is

26

expected to look after his own interests.”)

27

confidential relationship with Melanie Moore.

28

Hardisty never had a fiduciary or

Since Hardisty has failed to prove either a confidential or a fiduciary
– 13 –

11-cv-1591

1

relationship with the Moores, he has failed to meet his burden on this cause of action.

2

The Court therefore finds for defendants Hal Moore and Melanie Moore on Plaintiff’s

3

fourth cause of action for constructive fraud.

4

C.

Securities Fraud Against Hal Moore (Sixth Cause of Action)

5

To prove securities fraud under California Corporations Code section 25401, a

6

plaintiff must prove by a preponderance of evidence that there was a purchase or sale

7

of a security in California, and that defendant engaged in “fraud or deceit” or made

8

“an untrue statement of material fact” or “omit[ted] to state a material fact necessary

9

to make the statements made, in light of the circumstances under which they were

10

made, not misleading.” MTC Elec. Tech. Co., Ltd. v. Leung, 876 F. Supp. 1143, 1147

11

(C.D. Cal. 1995); Cal. Corp. Code § 25401.

12

A membership interest in a limited liability company is a security under the

13

California Corporations Code unless Defendants “can prove that all of the members

14

are actively engaged in the management” of the company.” Cal. Corp. Code § 25019.

15

Evidence that members vote or have a right to vote, have the right to information

16

concerning the business and affairs of the limited liability company, or the right to

17

participate in management, without more, is insufficient to establish the exception. Id.

18

In general, where profits come substantially from the efforts of others, a security will

19

be present, but where profits come from the joint efforts of partners, a security will

20

not be present. Consol. Mgmt. Grp., LLC v. Dep’t of Corps., 162 Cal. App. 4th 598,

21

610 (2008); People v. Syde, 37 Cal. 2d 765, 768 (1951).

22

Under California Corporations Code section 25506(b), an action under section

23

25401 must be brought within two years after discovery of the false statement of fact.

24

Cal. Corp. Code §§ 25506(b), 25501. In this case, Hardisty did not know the Moores

25

had made the false misrepresentations until October 2009 when State Insulation-

26

Arizona initiated the Bond Action. The Complaint in this case was filed on July 19,

27

2011, within two years after discovery of the false statements. Therefore, this cause

28

of action is not barred by the statute of limitations.
– 14 –

11-cv-1591

1

However, Hardisty’s “security” sale was that of a membership interest in

2

Legacy Pointe. Legacy Pointe was a limited liability company in which all of the

3

members were actively involved in managing the company. Hardisty as the Chief

4

Manager of Legacy Pointe, Munson-Hardisty, LLC as the general contractor, and Hal

5

Moore as an active investor who initially visited, monitored, and, at times, controlled

6

the Project and later became the Chief Manager, were active members. Mr. Mason

7

was also an active member. The evidence reflects that Mr. Mason made labor

8

contributions to the Project, including tying up the land for the Project, paying for the

9

plans, engineering, and the HUD package. Mr. Mason was further involved in and

10

assigned tasks in meetings and conference calls relating to the Project. Therefore, the

11

purchase or sale at issue was not one of a security, and Plaintiff’s claim on this cause

12

of action must fail.9

13
14
15

Accordingly, the Court therefore finds for defendant Hal Moore on Plaintiff’s
sixth cause of action for securities fraud.
D.

Conversion Against All Defendants Except Mark Peluso (Seventh
Cause of Action)

16
17

The tort of conversion is an “act of dominion wrongfully exerted over another’s

18

personal property in denial of or inconsistent with his rights therein.” Oakes v.

19

Suelynn Corp., 24 Cal. App. 3d 271, 278 (1972). To prove conversion, a plaintiff

20

must prove by a preponderance of evidence: (1) that the plaintiff owned or had the

21

right to possess personal property; (2) the defendant disposed of the property in a

22

manner inconsistent with the plaintiff’s property rights and (3) as a result, the plaintiff

23

suffered damages. Fremont Indem. Co. v. Fremont Gen. Corp., 148 Cal. App. 4th 97,

24

119 (2007); Liodas, 19 Cal. 3d at 286-93.

A membership interest in an LLC

25
26
27
28

9

Alternatively, the Court finds that Hardisty’s 27% membership interest
in Legacy Pointe was not acquired by fraud or by means of a false statement of
material fact or an omission of a material fact. Hardisty transferred his 27%
membership interest in Legacy Pointe pursuant to the Incentive Agreement, which, as
discussed herein, is a valid contract.
– 15 –

11-cv-1591

1

constitutes personal property of the member. See Cal. Corp. Code, § 17705.01; In re

2

Kuiken, 484 B.R. 766, 769 (9th Cir. B.A.P. 2013).

3

Money can be the subject of a conversion action if a specific, identifiable sum

4

is involved. Farmers Ins. Exch. v. Zerin, 53 Cal. App. 4th 445, 452 (1997). “Neither

5

legal title nor absolute ownership of the property is necessary[,] . . . [h]owever, a mere

6

contractual right of payment, without more, will not suffice.” Id.; see also Kim v.

7

Westmoore Partners, Inc., 201 Cal. App. 4th 267, 284 (2011) (“California cases

8

permitting an action for conversion of money typically involve those who have

9

misappropriated, commingled, or misapplied specific funds held for the benefit of

10

others.”); Florey Inst. of Neuroscience & Mental Health v. Kleiner Perkins Caufield

11

& Byers, 31 F. Supp. 3d 1034, 1041 (N.D. Cal. 2014) (“[C]ourts have recognized a

12

sufficient ownership interest when the plaintiff has a lien on the funds in question.”);

13

Farmers Ins. Exch., 53 Cal. App. 4th at 455 (“[A] mere promise to pay from a specific

14

fund may suffice to create an equitable lien if considerations of detrimental reliance

15

or unjust enrichment are implicated.”).

16

In the Incentive Agreement, Hardisty agreed to immediately transfer his

17

remaining 27% membership interest in Legacy Pointe to Hal Moore. As discussed

18

herein, the Incentive Agreement is a valid contract. Therefore, Hardisty has failed to

19

prove that he has a right to possess the 27% membership interest and that defendants

20

Hal Moore, Melanie Moore, State Insulation, and the Moore Trust are wrongfully

21

exerting control over his 27% membership interest in Legacy Pointe.

22

In the Incentive Agreement, Hal Moore agreed to pay Hardisty $380,000 in

23

installments with the final installment due on completion of the Project. Hal Moore

24

has not paid this amount. However, the amount Hardisty was entitled to be paid on

25

completion of the Project, was not the money he withdrew from his personal line of

26

credit. In the Incentive Agreement, he “agree[d] that he [wa]s giving up his $380,000

27

seed money and transfer[red] any right thereto to Hal Moore.” The amount Hardisty

28

was entitled to be paid was therefore not designated to come from any particular fund
– 16 –

11-cv-1591

1

or source. Hardisty’s right to the $380,000 was a mere contractual right of payment.

2

This cannot be the basis for a conversion claim.

3

Accordingly, the Court finds in favor of defendants Hal Moore, Melanie Moore,

4

State Insulation, and the Moore Trust on Plaintiff’s seventh cause of action for

5

conversion.

6
7

E.

Conspiracy Against All Defendants Except Mark Peluso (Ninth
Cause of Action)

8

Although listed as the ninth cause of action, civil “[c]onspiracy is not a cause

9

of action, but a legal doctrine that imposes liability on persons who, although not

10

actually committing a tort themselves, share with the immediate tortfeasors a common

11

plan or design in its perpetration.” Applied Equip. Corp. v. Litton Saudi Arabia Ltd.,

12

7 Cal. 4th 503, 510-11 (1994) (citation omitted).

13

conspiracy, a coconspirator effectively adopts as his or her own the torts of other

14

coconspirators within the ambit of the conspiracy.” Id. at 511.

“By participation in a civil

15

“The elements of an action for civil conspiracy are the formation and operation

16

of the conspiracy and damage resulting to plaintiff from an act or acts done in

17

furtherance of the common design.” Id. “[I]t is the acts done and not the conspiracy

18

to do them which should be regarded as the essence of the civil action.” Id. While

19

conspiracy extends liability beyond the principals who actually committed the tort,

20

the coconspirator must be “legally capable of committing the tort, i.e., that he or she

21

owes a duty to plaintiff recognized by law and is potentially subject to liability for

22

breach of that duty.” Id.

23

Typically, agents and employees of a corporation cannot conspire with their

24

corporate principal or employer where they act in their official capacities on behalf of

25

the corporation and not as individuals for their individual advantage. Doctors’ Co. v.

26

Super. Ct., 49 Cal. 3d 39, 45 (1989); Black v. Bank of Am., 30 Cal. App. 4th 1, 4

27

(1994) (“When a corporate employee acts in the course of his or her employment, on

28

behalf of the corporation, there is no entity apart from the employee with whom the
– 17 –

11-cv-1591

1

employee can conspire.”); Neilson v. Union Bank of Cal., N.A., 290 F. Supp. 2d 1101,

2

1123 (C.D. Cal. 2003). The principles underlying the agent’s immunity rule apply to

3

limited liability companies. See People v. Pac. Landmark, 129 Cal App. 4th 1203,

4

1212-1213 (2005).

5

An exception to the agent’s immunity rule that allows corporate employees to

6

be held liable for conspiracy with their principal exists when they act for their own

7

individual advantage and not solely on behalf of the corporation, or act beyond the

8

scope of their authority. See Doctors’ Co., 49 Cal.3d at 47. Agents and employees

9

may also be liable where they owe a duty to the plaintiff independent of the

10

corporation’s duty. Black, 30 Cal. App. 4th at 4. “[E]veryone owes a duty not to

11

commit an intentional tort against anyone.” Fuller v. First Franklin Fin. Corp., 216

12

Cal. App. 4th 955, 967 (2013) (citing Qwest Commc’ns Corp. v. Weisz, 278 F. Supp.

13

2d 1188, 1193, n. 4 (S.D. Cal. 2003)). “Thus, there can be liability for conspiring to

14

commit an intentional tort even absent any duty.” Id.; see also Applied Equip. Corp.,

15

7 Cal. 4th at 512-13.

16

“Because civil conspiracy is so easy to allege, plaintiffs have a weighty burden

17

to prove it.” Choate v. Cnty. of Orange, 86 Cal. App. 4th 312, 333 (2000) (citation

18

omitted). There must be proof of “a mutual understanding to accomplish a common

19

and unlawful plan.” Id. “It is not enough that [the defendants] knew of an intended

20

wrongful act, they must agree—expressly or tacitly—to achieve it.” Id.

21

The Moores committed fraud, an intentional tort, against Hardisty. The Moores

22

and State Insulation-Arizona all shared a common plan or design to take Hardisty’s

23

27% membership interest in Legacy Pointe and his $380,000 by misrepresentations

24

that the claims by the subcontractors, vendors, and suppliers against the payment and

25

performance bond would be extinguished, and each engaged in acts in furtherance of

26

this common plan. While Hal Moore owned State Insulation-Arizona and Melanie

27

Moore was an employee, the Court finds that they acted for their own financial gain

28

and not on behalf of the company.

The 27% membership interest was being
– 18 –

11-cv-1591

1

transferred to Hal Moore, and the Purchase and Sale Agreement was drafted by the

2

Moores and signed by Hal Moore as an individual. State Insulation-Arizona was

3

simply a conduit and willing participant.

4

Hardisty has not demonstrated that the Moore Trust or State Insulation-Nevada

5

were involved in the common plan. Accordingly, the Court finds Hal Moore, Melanie

6

Moore, and State Insulation-Arizona engaged in a conspiracy to commit fraud.

7

F.

Aiding and Abetting Against Melanie Moore, State Insulation, the
Moore Trust and Mark Peluso (Second Cause of Action)

8
9

To prove aiding and abetting, a plaintiff must prove by a preponderance of

10

evidence: (1) that the defendants knew that another person’s conduct was a breach of

11

a duty owed to another and (2) that the defendants gave substantial assistance and

12

encouragement of that breach. See Schultz v. Neovi Data Corp., 152 Cal. App. 4th

13

86, 93 (2007). “Mere knowledge that a tort is being committed and the failure to

14

prevent it does not constitute aiding and abetting.” Austin B. v. Escondido Union Sch.

15

Dist., 149 Cal. App. 4th 860, 879 (2007) (citation omitted).

16

There is no evidence that Mark Peluso knew the Moores were breaching any

17

duty to Hardisty or that the Moores were committing any fraud against him.

18

Therefore, with respect to Mark Peluso, Hardisty has failed to meet his burden of proof

19

on this cause of action. In addition, there is no evidence the Moore Trust or State

20

Insulation-Nevada gave substantial assistance in encouragement of the breach.

21

With respect to the remaining defendants, Hardisty has proved that they each

22

knew the Moores were making fraudulent misrepresentations to him, and they each

23

substantially assisted and encouraged that fraud. The Court therefore finds in favor

24

of Plaintiff on his second cause of action for aiding and abetting against defendants

25

Melanie Moore and State Insulation-Arizona.

26

G.

Fraud Damages

27

Once a plaintiff has proven he was actually damaged by a defendant’s conduct,

28

the trial court must attempt to ascertain the amount of damages even if the task is a
– 19 –

11-cv-1591

1

difficult one. See Meister v. Mensinger, 230 Cal. App. 4th 381, 396 (2014) (“While

2

the damages suffered by the [plaintiffs] as a consequence of respondents’ wrongdoing

3

may not have been readily ascertained, it does not follow that the [plaintiffs] failed to

4

establish the fact they were harmed by respondents’ actions.”). “Where the fact of

5

damages is certain, the amount of damages need not be calculated with absolute

6

certainty.” GHK Assocs. v. Mayer Grp., Inc., 224 Cal. App. 3d 856, 873 (1990). “The

7

law requires only that some reasonable basis of computation of damages be used, and

8

the damages may be computed even if the result reached is an approximation.” Id.

9

Trial courts must do the best they can and use all available facts to approximate the

10

fair and reasonable damages under all of the circumstances. Meister, 230 Cal. App.

11

4th at 397.

12

1.

Incentive Agreement

13

The Court finds that the parties entered into the Incentive Agreement. The

14

Moores made an offer, which was accepted by Hardisty. Cal. Civ. Code §§ 1582,

15

1583. While Hal Moore may or may not have signed the Incentive Agreement, the

16

parties, including Hal Moore, began to immediately perform thereunder. See Cal. Civ.

17

Code § 1584.

18

California law “distinguishes between fraud in the execution or inception of a

19

contract, and fraud in the inducement of a contract.” Village Northridge Homeowners

20

Ass’n v. State Farm Fire & Cas. Co., 50 Cal. 4th 913, 921 (2010). Fraud in the

21

inducement “occurs when the promisor knows what he is signing but his consent is

22

induced by fraud.” Rosenthal v. Great W. Fin. Sec. Corp., 14 Cal. 4th 394, 415 (1996)

23

(internal quotations omitted). Fraud in the execution or inception, on the other hand,

24

occurs when “the promisor is deceived as to the nature of his act, and actually does

25

not know what he is signing, or does not intend to enter into a contract at all.” Id.

26

To succeed on a claim of fraud in the inception, a plaintiff must show that his

27

apparent assent to the contract—his signature on the agreement—is “negated by fraud

28

so fundamental” that he was “deceived as to the basic character of the document” he
– 20 –

11-cv-1591

1

signed and “had no reasonable opportunity to learn the truth.” Id. at 425. A

2

misrepresentation of the contract’s contents alone does not render a contract’s contents

3

void “where the defrauded party had a reasonable opportunity to discover the real

4

terms of the contract.” Id. at 419-20.

5

Hardisty has failed to prove any fraud in the execution or inducement of the

6

Incentive Agreement. While Hardisty was under economic duress at the time, the

7

Moores did not engage in any sufficiently wrongful coercive acts at the time the parties

8

entered into the Incentive Agreement to invalidate the agreement. See Rich &

9

Whillock, Inc. v. Ashton Dev., Inc., 157 Cal. App. 3d 1154, 1158-59 (1984) (“[T]he

10

[economic duress] doctrine . . . [which can serve as a basis for invalidating a contract]

11

come[s] into play upon the doing of a wrongful act which is sufficiently coercive to

12

cause a reasonably prudent person faced with no reasonable alternative to succumb to

13

the perpetrator’s pressure.”)

14

Plaintiff argues that Hal Moore’s representation in the Incentive Agreement that

15

he would provide a “bridge loan” was promissory fraud because of the subsequently

16

filed Bond Action. To establish promissory fraud, a plaintiff must prove “(1) the

17

defendant made a representation of intent to perform some future action, i.e., the

18

defendant made a promise, and (2) the defendant did not really have that intent at the

19

time that the promise was made, i.e., the promise was false.” Beckwith v. Dahl, 205

20

Cal. App. 4th 1039, 1060 (2012) (citing Lazar v. Super. Ct., 12 Cal. 4th 631, 639

21

(1996)). However, Plaintiff has failed to prove that the Moores or State Insulation-

22

Arizona intended to pursue a claim on the bonds at the time the Incentive Agreement

23

was entered into, or to seek reimbursement by any method other than “through the

24

draw process,” thereby misrepresenting the nature of the “bridge loan.” Plaintiff

25

testified that when he signed the Incentive Agreement he understood Hal Moore,

26

through State Insulation-Arizona and Legacy Pointe, was going to reimburse himself

27

for the “bridge loan.” Hal Moore similarly testified that the purpose of the collateral

28

assignments was to ensure he was reimbursed. He further testified that he was not
– 21 –

11-cv-1591

1

planning on filing a bond claim at the time he entered the Incentive Agreement, and

2

was not setting one up. Plaintiff has presented no evidence to the contrary.
2.

3

Purchase and Sale Agreement

4

Hardisty was deceived as to the basic character of the Purchase and Sale

5

Agreement and had no reasonable opportunity to learn the truth. Thus, the Court finds

6

there was fraud in the inception of the Purchase and Sale Agreement.

7

A party’s “rescission obligations depend on the type of fraud alleged.” Village

8

Northridge Homeowners Ass’n, 50 Cal. 4th at 921. “If the fraud goes to the execution

9

or inception of a contract, so that the promisors do not know what they are signing,

10

the contract lacks mutual assent and is void.” Id. Therefore, the contract “may be

11

disregarded without the necessity of rescission.” Id. (citation omitted).

12

The Court thus finds that the Purchase and Sale Agreement is void and shall be

13

disregarded without the necessity for rescission. As the Purchase and Sale Agreement

14

is void, it is not a novation, and the Incentive Agreement remains in effect. See Airs

15

Intern., Inc. v. Perfect Scents Distributions, Ltd., 902 F. Supp. 1141, 1148-49 (N.D.

16

Cal. 1995) (“[A]n essential element of a novation is the validity of [a] new contract[;

17

therefore] … [i]f the new contract is invalid, there is no novation and the parties’

18

previous obligations are not extinguished.”) (citations omitted); Cal. Civ. Code §

19

1531.10

20
21
22
23
24
25
26
27
28

10

To the extent Defendants argue the Purchase and Sale Agreement was
subsequently ratified by Hardisty when he signed documents addressed or submitted
to HUD in February 2009, the Court disagrees. “[O]ne who, after discovery of an
alleged fraud, ratifies the original contract by entering into a new agreement granting
him substantial benefits with respect to the same subject matter, is deemed to have
waived his right to claim damages for fraudulent inducement.” See Oakland Raiders
v. Oakland-Alameda Cnty. Coliseum, Inc., 144 Cal. App. 4th 1175, 1186 (2006). As
discussed herein, Hardisty did not learn of the fraud until the filing of the Bond Claim
in October 2009. Therefore, the Court finds Defendants have failed to establish that
Hardisty ratified the Purchase and Sale Agreement and waived his rights to claim
damages for fraud. See DRG/Beverly Hills, Ltd. v. Chopstix Dim Sum Cafe & Takeout
III, Ltd., 30 Cal. App. 4th 54, 60 (1994) (“Waiver is the intentional relinquishment of
– 22 –

11-cv-1591

1

“Restitution of the benefits conferred under a contract may be awarded if the

2

contract is rescinded or determined to be unenforceable.” Chapman v. Skype Inc., 220

3

Cal. App. 4th 217, 233-34 (2013) (citing Durell v. Sharp Healthcare, 183 Cal. App.

4

4th 1350, 1370 (2010)).

5

defendant obtained a benefit from the plaintiff by fraud, duress, conversion, or similar

6

conduct.” Durell, 183 Cal. App. 4th at 1370 (citation omitted). However, “[t]he

7

person receiving the benefit is required to make restitution only if the circumstances

8

are such that, as between the two individuals, it is unjust for the person to retain it.”

9

Id. (citation omitted).

“Alternatively, restitution may be awarded where the

10

The Court finds that no restitution of any benefits conferred by the Purchase

11

and Sale Agreement is required to prevent unjust enrichment. The Bond Action has

12

been settled and dismissed. The Interpleader Action, including all cross-claims and

13

counterclaims in their entirety brought by any party, must be dismissed with prejudice.

14

(See ECF No. 130.) In addition, by virtue of the terms of the Incentive Agreement,

15

which, as discussed herein, is valid, Hardisty and Munson-Hardisty, LLC have no

16

obligation to State Insulation-Arizona or the Moores for any unpaid subcontractor,

17

supplier, or vendor invoices. The collateral assignments were to be reimbursed “by

18

HUD through the draw process;” and to the extent that did not occur, the Incentive

19

Agreement provides that “all unpaid expenses and loans incurred by Moore are to be

20

paid back through escrow upon sale of the property or rent proceeds.”

21

California Civil Code section 3343 provides the measure of damages when one

22

is “defrauded in the purchase, sale or exchange of property.” Cal. Civ. Code §

23

3343(a). California Civil Code section 3333, alternatively, provides the measure of

24

damages for “[f]or the breach of an obligation not arising from contract.” Cal. Civ.

25
26
27
28

a known right after knowledge of the facts. … The burden, moreover, is on the party
claiming a waiver of a right to prove it by clear and convincing evidence that does not
leave the matter to speculation, and doubtful cases will be decided against a waiver.”)
(emphasis added) (citations and internal quotations omitted).
– 23 –

11-cv-1591

1

Code § 3333. California Civil Code section 1709 further provides the measure of

2

damages when a person “willfully deceives another with intent to induce him to alter

3

his position to his injury or risk.” Cal. Civ. Code § 1709. Given that the fraud at issue

4

occurred during the execution of the Purchase and Sale Agreement, which is void, and

5

not during the transfer of Hardisty’s 27% membership interest in Legacy Pointe,

6

which was transferred by means of the Incentive Agreement, the Court finds that

7

Sections 1709 and 3333 provide the more appropriate measure of damages in this case.

8

Under Section 3333, the measure of tort damages “is the amount which will

9

compensate for all detriment proximately caused thereby, whether it could have been

10

anticipated or not.” Cal. Civ. Code § 3333. “There is no fixed rule for the measure

11

of tort damages under Civil Code section 3333.” Santa Barbara Pistachio Ranch v.

12

Chowchilla Water Dist., 88 Cal. App. 4th 439, 446 (2001). The damages awarded

13

should place the plaintiff in the position he would have occupied had the

14

misrepresentations not occurred. Eckert Cold Storage, Inc. v. Behl, 943 F. Supp. 1230,

15

1234 (E.D. Cal. 1996) (citing Gray v. Don Miller & Assocs., Inc., 35 Cal. 3d 498, 504

16

(1984); Kenly v. Ukegawa, 16 Cal. App. 4th 49, 54-55 (1993)).

17

Section 1709 similarly provides that a defendant engaging in deceit “is liable

18

for any damage which [the plaintiff] thereby suffers.” Cal. Civ. Code § 1709. A

19

plaintiff is required to prove the amount of damages he suffered with “reasonable

20

certainty.” City Solutions, Inc. v. Clear Channel Commc’ns, 365 F.3d 835, 839 (9th

21

Cir. 2004) (citing Stott v. Johnston, 36 Cal. 2d 864, 875 (1951)).

22

Hardisty has demonstrated with reasonable certainty that as a result of the fraud

23

committed by defendants Hal Moore and Melanie Moore, he was unable to repay his

24

personal line of credit at the bank in the amount of $380,000 plus interest which led

25

to a default, and he was forced to incur $148,036.45 in attorneys’ fees associated with

26

defending the Bond Action and Interpleader Action in Tennessee.11

27
28

11

Hardisty failed to demonstrate that he was deprived of additional
“salary” by virtue of the fraud committed by defendants Hal Moore, Melanie Moore,
– 24 –

11-cv-1591

1

At the beginning of the Project, Hardisty drew upon a $380,000 personal line

2

of credit and contributed the funds to the Project. These funds were held by GAIC for

3

the duration of the Project, and were later deposited with the court in the Interpleader

4

Action. When Hardisty entered into the Incentive Agreement, receiving funds to be

5

able to maintain and pay off his $380,000 line of credit was a key component of the

6

agreement. Hardisty therefore agreed to waive his right to the funds held by GAIC on

7

the promise that he would receive the $380,000 sooner from Hal Moore through

8

installment payments, with the final installment to be paid on completion of the

9

Project.

Therefore, through this agreement, Hardisty anticipated being able to

10

maintain and pay off his line of credit. Hal Moore further continuously promised to

11

pay Hardisty the $380,000 while the Project was being completed, stringing him along

12

for months.

13

In reliance on these promises, Hardisty continued to work on the Project. At

14

the end of the Project, Hal Moore informed Hardisty that he would not pay him

15

$380,000, relying on the fraudulently executed Purchase and Sale Agreement which

16

states that “[i]n entering this Agreement, [Hardisty] does not rely on any

17

representations by [Hal Moore] or his agents concerning any subject matter

18

whatsoever.” As the harm to Hardisty, namely his inability to make payments and the

19

subsequent defaulting on his personal line of credit, arose from and was perpetuated

20

and exacerbated by the fraud of defendants Hal Moore and Melanie Moore, the Court

21

finds tort damages in the amount of $380,000 to be the appropriate and equitable

22

remedy.

23
24
25
26
27
28

and State Insulation. The Incentive Agreement provides that Hardisty was to receive
$380,000 pursuant to a payment schedule but during the course of the payment
schedule both he and Munson-Hardisty, LLC would forego any salary. Furthermore,
Hardisty now abandons his claim that his companies, Hardisty Construction Inc.,
Hardisty Construction Management, Inc., and Melhorn Construction, Inc. were
damaged as a result of defendants’ actions. Therefore, Defendants’ motion in limine
(ECF No. 106) which is still pending has been rendered moot.
– 25 –

11-cv-1591

1

In addition, “[a]lthough as a general rule attorneys’ fees incurred by a plaintiff

2

in an action for damages for fraud are nonrecoverable, an exception is recognized

3

where a plaintiff, as a proximate result of defendant’s fraud, is required to prosecute

4

or defend an action against a third party for the protection of his interest.” Glendale

5

Fed. Sav. & Loan Assn. v. Marina View Heights Dev. Co., Inc., 66 Cal. App. 3d 101,

6

149 (1977) (internal citations omitted). “In such cases reasonable attorneys’ fees

7

incurred in connection with the third party lawsuit are recoverable as damages caused

8

by defendant’s tortious act.” Id. (citations omitted); Oasis West Realty, LLC v.

9

Goldman, 51 Cal. 4th 811, 826 (2011) (quoting Jordache Entrs., Inc. v. Brobeck,

10

Phleger and Harrison, 18 Cal. 4th 739, 751 (1998)) (“It is ‘the established rule that

11

attorney fees incurred as a direct result of another’s tort are recoverable damages.’”).

12

By virtue of Defendants’ fraud, Hardisty was forced to incur $148,036.45 in attorneys’

13

fees associated with defending the Bond Action and Interpleader Action in Tennessee,

14

and the Court finds he is entitled to recover this amount.12
3.

15

Prejudgment Interest

16

Prejudgment interest may be awarded in the discretion of the fact-finder “[i]n

17

an action for the breach of an obligation not arising from contract, and in every case

18

of . . . fraud.” Cal. Civ. Code § 3288; Michaelson v. Hamada, 29 Cal. App. 4th 1566,

19

1586 (1994). The award of pre-judgment interest should be based on all of the

20

circumstances of the case. West v. Stainback, 108 Cal.App.2d 806, 819 (1952).

21

Damages that are “ascertainable” are entitled to prejudgment interest. See Cal. Civ.

22

Code § 3287(a); Bullock v. Philip Morris USA, Inc., 198 Cal. App. 4th 543, 573-74

23

(2011). Damages are calculated from the date the amount was both due and owing

24
25
26
27
28

12

Although Defendants attempt to distinguish between the Bond Action
and Interpleader Action, in fact, Hardisty was forced to continue litigation in the
Interpleader Action because both his original investment of $380,000, as well as the
$750,000 he borrowed from the Moores at 13% interest had been interpleaded in that
court. Thus, the Interpleader Action was a continuation of the Bond Action, which
Hardisty would not have been forced to defend had there been no fraud.
– 26 –

11-cv-1591

1

and ascertainable.

2

calculated at a rate of 7% per year. Id. (citing Michaelson, 29 Cal.App.4th at 1585).

3

Generally, compound interest, as opposed to simple interest, is awarded only if the

4

defendants owed a fiduciary duty to the plaintiff. Michaelson, 29 Cal.App.4th at 1586.

5

Therefore, the Court finds that Hardisty is entitled to simple prejudgment interest at

6

the rate of 7% per year on the $380,000 from August 10, 2009 to the date of the

7

Amended Judgment.13 Interest is therefore $147,065.21.
4.

8

Bullock, 198 Cal.App.4th at 573.

Prejudgment interest is

Punitive Damages

9

Under California Civil Code section 3294, punitive damages may be awarded

10

in the court’s discretion in a tort action “where it is proven by clear and convincing

11

evidence that the defendant has been guilty of oppression, fraud, or malice.” Cal. Civ.

12

Code § 3294(a); Chavez v. Keat, 34 Cal. App. 4th 1406, 1415 (1995). The Court

13

declines to award punitive damages.

14

III.

CONCLUSION

15

For the above stated reasons, IT IS HEREBY ORDERED that:

16

1.

Judgment be entered in favor of Plaintiff in the amount of $675,101.66

17

and (1) against Melanie Moore and State Insulation LLC, an Arizona limited liability

18

company, on Plaintiff’s second cause of action for aiding and abetting intentional

19

torts; and (2) against defendants Harold M. Moore14 and Elaine K. Moore a/k/a

20

Melanie K. Moore on Plaintiff’s third cause of action for fraud. Harold M. Moore,

21

Elaine K. Moore a/k/a Melanie K. Moore, and State Insulation LLC, an Arizona

22

limited liability company, are jointly liable for this amount.

23
24
25
26
27
28

13

As noted above, the Project was complete in August 2009. Hal Moore
signed the Mortgagor’s Certificate of Actual Cost on August 10, 2009 and final
permission to occupy the living units was granted on August 6, 2009. For purposes
of calculating prejudgment interest, the Court will use August 10, 2009, the latest date
provided by the parties.
14
Melanie Moore, in her capacity as the executrix and the party
representative of the estate of Harold M. Moore, has been substituted as a defendant
and a counterclaimant in this action in place of Harold M. Moore. (See ECF No. 231.)
– 27 –

11-cv-1591

1

2.

Judgment be entered against Plaintiff and in favor of defendants State

2

Insulation LLC, an Arizona limited liability company, and State Insulation LLC, a

3

Nevada limited liability company, on Plaintiff’s third cause of action for fraud.

4

3.

Judgment be entered against Plaintiff and in favor of defendants Harold

5

M. Moore and Elaine K. Moore a/k/a Melanie K. Moore on Plaintiff’s fourth cause of

6

action for constructive fraud.

7
8
9

4.

Judgment be entered against Plaintiff and in favor of defendant Harold

M. Moore on Plaintiff’s sixth cause of action for securities fraud.
5.

Judgment be entered against Plaintiff and in favor of defendants Harold

10

M. Moore, Elaine K. Moore a/k/a Melanie K. Moore, State Insulation LLC, an

11

Arizona limited liability company, and State Insulation LLC, a Nevada limited

12

liability company, and The 1998 Harold M. Moore Revocable Trust, on Plaintiff’s

13

seventh cause of action for conversion and Plaintiff’s ninth cause of action for

14

conspiracy.

15

6.

Judgment be entered against Plaintiff and in favor of defendant The 1998

16

Harold M. Moore Revocable Trust on Plaintiff’s second cause of action for aiding and

17

abetting intentional torts, Plaintiff’s third cause of action for fraud.

18
19
20

7.

Judgment be entered against Plaintiff and in favor of Mark Peluso on

Plaintiff’s second cause of action for aiding and abetting intentional torts.
8.

Judgment be entered against Plaintiff and in favor of State Insulation

21

LLC, a Nevada limited liability company, on Plaintiff’s second cause of action for

22

aiding and abetting intentional torts.

23

9.

Pursuant to Rule 68, judgment is entered in favor Counter-Claimant

24

Harold M. Moore and against Counter-Defendant John Hardisty in the sum of

25

$750,000.00. This sum is to be paid from the payment bond issued by Great American

26

Insurance Company, which is currently being held in the registry of the Chancery

27

Court for Knox County, Tennessee, and the subject of a certain interpleader action

28

pending in that court (Great Am. Ins. Co. v. State Insulation, LLC, Case No. 181402– 28 –

11-cv-1591

1

3 (Interpleader Action)). This shall be the total amount to be paid on account of any

2

liability claimed by Counter-Claimant in this action, including without limitation any

3

and all claims for compensatory damages, statutory damages, attorneys’ fees,

4

litigation expenses and costs of suit otherwise recoverable in this action by Counter-

5

Claimant.

6

The Court instructs the Clerk to issue a Second Amended Judgment

7

accordingly, which vacates and supersedes the Clerk’s Amended Judgment previously

8

issued in this case on February 23, 2015 (ECF No. 209).

9

IT IS SO ORDERED.

10
11

DATED: October 22, 2015

12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
– 29 –

11-cv-1591