Patel et al v. Callies et al

Filing 184

MEMORANDUM DECISION AND ORDER denying 136 Motion for Summary Judgment; granting 138 Motion for Summary Judgment. The Clerk of Court shall set a scheduling conference where a trial date can be set. Signed by Judge B. Lynn Winmill. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by cjm)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO

RAJESH PATEL, CHARULATA
PATEL, ROBERT MURPHY, and
GEORGIA MURPHY,

Case No. 1:CV-07-474-BLW
MEMORANDUM DECISION AND
ORDER

Plaintiffs,
v.
TRICIA A. CALLIES, RANDALL A.
CALLIES, AURORESKY
INVESTMENTS LLC, and BOISE
REALTY, INC.
Defendants.

INTRODUCTION
The Court has before it two summary judgment motions. Defendants move for
summary judgment on all of plaintiffs’ claims, and plaintiffs move for summary judgment
on all of defendant Auroresky Investment, LLC’s counter-claims. The motions were fully
briefed and argued before Judge William F. Downes on January 26, 2010. Before
rendering a decision, Judge Downes stayed the case on February 12, 2010. When Judge
Downes retired, the case was transferred back to this Court on September 3, 2011. This
Court lifted the stay, and the motions are now at issue. For the reasons explained below,
the Court will deny defendants’ motion and grant plaintiffs’ motion.
Memorandum Decision & Order - 1

FACTUAL BACKGROUND
Preliminarily, the Court notes that defendants have failed to comply with the Local
Rule requiring submission of a separate statement of undisputed facts. See D. Idaho L.
Civ. R. 7.1(b)(1); 7.1(c)(2). The Court might be inclined to overlook this failure if
defendants’ supporting memorandum contained a recitation of facts (with evidentiary
citations), but they have not supplied that either. Instead, their three-paragraph
Introduction simply refers the Court to its earlier decision granting in part and denying in
part defendants’ motions for judgment on the pleading. See Dkt. 103. Defendants assert
that the “background of this case has been substantially set forth” in that order. See
Defendants’ Opening Brief (Dkt. No. 136-1) at p. 1.
The careless treatment of the evidence continues at times in the argument section,
where defendants often fail to cite any evidence to support factual assertions. Defendants
also have a habit of referring the Court to an entire affidavit along with hundreds of pages
of exhibits to support a particular fact.1 Plaintiffs do a better job, although they are not
always careful with the evidence either; for example, they cite hundreds of pages of
multiple deposition transcripts to support a particular fact.
The upshot is that the Court is left to scour the record on its own to determine
precisely which facts the parties rely upon and whether there is evidentiary support for

1

To be clear, the Court does not fault the parties for the mere act of filing
voluminous exhibits; such filings are often necessary in complex litigations. The problem
is defendants’ failures to direct the Court to specific documents or provisions. Relatedly,
defendants often fail to fully explain or synthesize voluminous exhibits.
Memorandum Decision & Order - 2

those facts. Plus, the file in this case is a thick one – and the record voluminous. The
parties have submitted multiple affidavits, hundreds of pages of deposition transcripts,
and thousands of pages of exhibits. (Most exhibits are scanned into the Court’s electronic
system, but the Court’s records also contain two large expandable files stuffed with
exhibits that were too voluminous to scan. See Dkt. Nos. 137, 140, 141.)
Under these circumstances, the Court is tempted to simply deny the motion
because defendants failed to properly support the factual assertions made in their motion,
thus failing to demonstrate that the underlying material facts are undisputed. Cf. Carmen
v. San Francisco Unified School Dist., 237 F.3d 1026 (9th Cir. 2001) (discussing
obligations of a party opposing summary judgment, and noting that “[i]t is absurdly
difficult for a judge to perform a search, unassisted by counsel, through the entire record,
to look for such evidence”). However, in the interests of deciding motions on their merits
and moving this case along, the Court will do its best with the submissions before it.2
This controversy arises out of plaintiffs’ investment in a commercial real estate
development in Boise, Idaho.3 The project – a six-building complex on Five Mile Road –
2

Part of the Court’s reluctance to simply deny both motions, is that there has been an
unconscionable delay in the resolution of these motions. The Court is not aware of precisely why the
action was stayed or whether the stay was really necessary. However, as soon as it became apparent to
the undersigned that the stay either should not have been issued or was no longer needed, the stay was
lifted and efforts were taken to issue a decision as quickly as possible. To the extent that this delay has
adversely impacted the parties, the Court offers its apology.
3

These factual findings are less detailed than those the Court typically prepares for the reasons
discussed. Further, portions of this factual statement are taken directly from the Court’s January 29, 2009
Order Granting in Part and Denying in Part Defendants’ Motions for Judgment on the Pleading. Dkt.
103. As noted, Defendants relied on this factual statement in their moving papers, and Plaintiffs did not
object.
Memorandum Decision & Order - 3

was to be administered and developed by defendant Tricia Callies, a real estate agent,
through a limited liability company, defendant Auroresky Investments. Auroresky was to
hire Ms. Callies’ husband, defendant Randall Callies, to construct the six buildings.
The plaintiffs are two couples – Rajesh and Charulata Patel and Robert and
Georgia Murphy. Each couple contributed $125,000 to Auroresky to become members of
the LLC. More specifically, each couple was to own 12.5% of the company, for a total of
a 25% interest between the two couples. In exchange, each couple was “guaranteed” the
return of their initial investment, as well as the distribution of an additional flat $125,000
from the profits of the project. Plaintiffs assert that each couple was to receive its
guaranteed $250,000 payment before any profits were distributed to any other recipient.
Plaintiffs were also to receive a security interest in the land to back their investment in
Auroresky. Ultimately, plaintiffs did not receive a valid security interest in the property
and they lost their entire investment.
In any event, before plaintiffs invested in Auroresky in March and April 2006, the
Callies say they spent roughly $178,000 of their own money developing the project. See
First T. Callies Aff. ¶ 2, Dkt. 137.4 Plaintiffs contend they were unaware that Auroresky
owed any money to the Callies at the time they made their investment.
4

To support her assertion that the Callies spent this money on the project, Ms. Callies
refers to over 150 pages of financial documents, asserting, “Bates Nos. 285-437 document the
costs incurred on this project by Randy Callies and affiant.” The referenced documents are a
stack of bank statements, check register reports, canceled checks, and invoices. Callies does not
summarize these records or otherwise explain how they document the asserted $178,000
expenditure. And the documents are not self-explanatory; among other things, many of the
canceled checks are miniature copies that are essentially unreadable.
Memorandum Decision & Order - 4

Defendants indicate that emails Ms. Callies sent to the Murphys beforehand
“show[] that on March 31, 2006, plaintiffs were advised of encumbrances . . . .”
Defendant’s Opening Brief (Dkt. No. 136-1) at p. 10. In particular, defendants point to a
spreadsheet, dated March 10, 2006, entitled “AuroreSky Land Purchase Projected Cash
Requirements Entitlement Process.” First T. Callies Affidavit (Dkt. No. 137), Ex. 1
thereto, at 183. The spreadsheet sets forth land costs, closing costs, loan fees, and fees for
“arch/eng/planning/re-zone.” Id. There is no specific mention in that document,
however, of the $178,000 the Callies say they had already spent on the project. See id. In
her deposition, Ms. Callies indicated she did not expressly inform Plaintiffs of money she
had already spent because Plaintiffs did not ask for the information and the “tax returns
would have reflected” it. See Plaintiffs’ Brief (Dkt No. 159) at p. 18 (quoting T. Callies
Deposition).
LEGAL STANDARD
One of the principal purposes of summary judgment “is to isolate and dispose of
factually unsupported claims . . . .” Celotex Corp. v. Catrett, 477 U.S. 317, 323-24
(1986). It is “not a disfavored procedural shortcut,” but is instead the “principal tool[ ] by
which factually insufficient claims or defenses [can] be isolated and prevented from going
to trial with the attendant unwarranted consumption of public and private resources.” Id.
at 327. “[T]he mere existence of some alleged factual dispute between the parties will not
defeat an otherwise properly supported motion for summary judgment; the requirement is
that there be no genuine issue of material fact.” Anderson v. Liberty Lobby, Inc., 477
Memorandum Decision & Order - 5

U.S. 242, 247-48 (1986).
The evidence must be viewed in the light most favorable to the non-moving party,
id. at 255, and the Court must not make credibility findings. Id. Direct testimony of the
non-movant must be believed, however implausible. Leslie v. Grupo ICA, 198 F.3d 1152,
1159 (9th Cir. 1999). On the other hand, the Court is not required to adopt unreasonable
inferences from circumstantial evidence. McLaughlin v. Liu, 849 F.2d 1205, 1208 (9th
Cir. 1988). And a court is not obligated to take the non-movant’s version of events as
true when the account is blatantly contradicted by video evidence. Scott v. Harris, 550
U.S. 372, 378-81 (2007).
The moving party bears the initial burden of demonstrating the absence of a
genuine issue of material fact. Devereaux v. Abbey, 263 F.3d 1070, 1076 (9th Cir.
2001)(en banc). To carry this burden, the moving party need not introduce any
affirmative evidence (such as affidavits or deposition excerpts) but may simply point out
the absence of evidence to support the nonmoving party’s case. Fairbank v. Wunderman
Cato Johnson, 212 F.3d 528, 532 (9th Cir.2000).
This shifts the burden to the non-moving party to produce evidence sufficient to
support a jury verdict in her favor. Id. at 256-57. The non-moving party must go beyond
the pleadings and show “by her affidavits, or by the depositions, answers to
interrogatories, or admissions on file” that a genuine issue of material fact exists.
Celotex, 477 U.S. at 324.
However, the Court is “not required to comb through the record to find some
Memorandum Decision & Order - 6

reason to deny a motion for summary judgment.” Carmen, 237 F.3d at 1029. Instead, the
“party opposing summary judgment must direct [the Court’s] attention to specific triable
facts.” Southern California Gas Co. v. City of Santa Ana, 336 F.3d 885, 889 (9th Cir.
2003).
ANALYSIS
Fraud
The Court turns first to defendants’ motion for summary judgment. Defendants
assert that Plaintiffs’ ten claims can be narrowed to just two: “(1) fraud; and (2) theft.”
Defendants’ Opening Brief (Dkt. No. 136-1) at p. 2; see also Defendants’ Reply Brief
(Dkt. No. 174) at pp. 1-2. Defendants then focus almost totally on fraud. They first set
out the familiar elements of that tort, which are: (1) a representation; (2) its falsity; (3) its
materiality; (4) the speaker’s knowledge of its falsity or ignorance of its truth; (5) the
speaker’s intent that it should be acted on by the person and in the manner reasonably
contemplated; (6) the plaintiff’s ignorance of its falsity; (7) plaintiff’s reliance on the
truth; (8) plaintiff’s right to rely thereon; and (9) consequent and proximate injury. See,
e.g., Fed. Land Bank of Spokane v. Parsons, 777 P.2d 1218, 1222 (Idaho 1989).
Defendants argue that there is no fraud here because they spent all of Plaintiffs’
investment monies on the project. Id. at 2-3. In other words, Defendants see this motion
largely as an accounting exercise – if they prove that they spent all Plaintiffs’ monies for
legitimate project expenses (and did not simply take the money for themselves), then
Plaintiffs’ fraud claim necessarily fails.
Memorandum Decision & Order - 7

But plaintiffs’ central allegation is that defendants misrepresented Auroresky’s
financial condition in the first place. That is, plaintiffs contend the Callies told them
Auroresky did not have any pre-existing debts, and that they relied on this fact when they
decided to inject $250,000 into the project. Plaintiffs assert that if they had known
Auroresky’s true financial condition – which the Callies concealed from them – they
would not have invested. And plaintiffs correctly point out that silence, as well as
affirmative misrepresentations, may form the basis of a fraud claim. See, e.g., Sowards v.
Rathbun, 8 P.3d 1245, 1250 (Idaho 2000) (holding that “[s]ilence may constitute a fraud
when a duty to disclose exists”). The focus, therefore, is not whether the money was
spent on legitimate project expenses, but on what defendants told the plaintiffs (or
concealed from them) before plaintiffs invested.
Defendants have put forth evidence showing that at least one plaintiff, Robert
Murphy, was aware of mortgage debt on the property and was further aware that
Auroresky would repay the Callies for land costs. See Defendants’ Reply Brief (Dkt. No.
174) at p. 5 (asserting that Murphy understood “there were first and second deeds of trust
on the property”) (citing R. Murphy Dep. at 66-67). But they have not shown that all
plaintiffs were aware of this debt. Further, there is no evidence that the Callies told
plaintiffs that in addition to “land costs,” the Callies believed Auroresky owed them
additional monies. Defendants concede that not all of the money they put into the project
before plaintiffs invested was spent on purchasing the land. See First T. Callies Affidavit
(Dkt. No. 137) at ¶ 1 (Callies generally testified that roughly $178,000 was spent on
Memorandum Decision & Order - 8

“among other things, . . . purchasing the land and in designing the infrastructure and
buildings that would ultimately comprise the project.”) (emphasis added); see also
Plaintiffs’ Response Brief (Dkt. No. 159) at p. 18 (quoting Callies’ deposition testimony
that she did not disclose $141,000 in expenditures because plaintiffs did not ask).
The Callies assert that they later put more of their own money into Auroresky, but
this does not preclude plaintiffs’ fraud claim. Plaintiffs allege that at the time they
invested in the project, they had been misled as to the actual financial condition of the
LLC. The fact that defendants later may have injected more of their own money into the
project does not prevent plaintiffs from demonstrating that they would not have invested
in the first place.
In short, defendants have not shown they are entitled to summary judgment of
plaintiffs’ fraud claim. The only case they cite to support their theory – Federal Land
Bank of Spokane v. Parson, 777 P.2d 1218 (Idaho Ct. App. 1989) – is distinguishable. In
Parson, a bank judicially foreclosed a mortgage on farmland after the plaintiffs
repeatedly failed to make loan payments and pay taxes. Id. at 1220. Plaintiffs
counterclaimed for fraud, asserting, among other things, that the bank did not properly
disburse loan proceeds. Id. at 1222. The bank, however, provided proof of the
underlying obligations and the fraud claim failed. Id.
Parson is not controlling. Although plaintiffs claim defendants misused funds,
their central claim is that the Callies failed to disclose Auroresky’s true financial
condition to them at the outset. As a result, there are triable issues of fact that prevent
Memorandum Decision & Order - 9

summary judgment on the fraud claim.
Having determined that the fraud claim is not subject to summary adjudication, the
Court will not address defendants’ assertions that they did not make other
misrepresentations to the plaintiffs – including, for example, defendants’ assertion that
they did not misrepresent the true owner of the property to plaintiffs.
Finally, the Court rejects defendants’ assertion that plaintiffs have improperly
relied on newly invented allegations of fraud to withstand this summary judgment motion.
See Defendants’ Reply Brief (Dkt. No. 174) at p. 4. The Court has found a disputed issue
of fact regarding a misrepresentation directly alleged in the complaint. Specifically,
plaintiffs alleged that “AuroreSky Investments, LLC was a new startup entity with no preexisting debts or liabilities. . . . In fact, . . . the Callies had encumbered the Property with
development expenses and the Washington Federal Savings debt in the amount of
$184,000.” First Amended Compl. ¶ 73.1. Although all plaintiffs may not be able to
prove they were unaware of mortgage debt on the land, there remain disputed issues of
fact as to the other alleged expenses. The Court therefore denies the motion for summary
adjudication of the fraud claim.
Other Claims
Defendants did not meaningfully brief any claims other than fraud. Their motion
hinged on the assertion that if the fraud claim failed, the entire complaint failed. The

Memorandum Decision & Order - 10

Court will not, therefore, undertake an independent analysis of plaintiffs’ other claims.5
The defendants’ motion for summary judgment of all claims will be denied.
Plaintiff’s Motion for Summary Judgment
The Court now turns to plaintiffs’ motion for summary judgment on Auroresky’s
counterclaim. Auroresky alleges seven claims: (1) breach of contract; (2) breach of the
implied covenant of good faith and fair dealing; (3) tortious interference with contract; (4)
“breach of fiduciary and statutory duties and self-dealing”; (5) interference with
prospective economic advantage; (6) common law conspiracy; and (7) “reckless and
willful misconduct.” Answer and Counterclaim (Dkt. No. 60) at pp. 27-33. Plaintiffs
seek summary judgment of all these claims.
The background for these claims is related to the facts set forth above, but involves
plaintiffs’ separate decision to purchase buildings that were to be constructed on the sixbuilding commercial development on Five Mile Road. Shortly after plaintiffs purchased
their interest in Auroresky – and separate and apart from that investment – plaintiffs
signed two separate contracts wherein each couple agreed to purchase one of the six
buildings. Plaintiffs’ friends and relatives – Scott and Corrina Condon, Louis Pace, Sr.,
and Minesh Patel – also signed contracts to purchase buildings.

5

Defendants’ briefing mentioned “theft,” but did not articulate the factual or legal
authorities that would support summary adjudication of such a claim. Although the reply brief
elaborates on theft somewhat, see Reply Brief (Dkt. No. 174) at pp. 13-16, the defendants failed
to point to undisputed facts showing they are entitled to summary adjudication of any theft
claim.
Memorandum Decision & Order - 11

Auroresky alleges that all five parties breached their purchase contracts. It further
alleges that the Murphys tortiously interfered with Auroresky’s dealings with Pace,
Minesh Patel, and the Condons by convincing those parties to breach their purchase
contracts. Answer & Counterclaim (Dkt. No. 60) at ¶¶ 26, 41-43.
In their pending motion, plaintiffs argue that Auroresky’s counterclaim fails
because all the purchase contracts were unenforceable. Auroresky does not oppose
plaintiffs’ motion on five of the seven claims, stating: “While [Auroresky] do[es] not
accept plaintiffs’ arguments . . . [it] do[es] agree that Counts One through Three, Five and
Seven . . . should be dismissed.” Auroresky’s Response Brief (Dkt. No. 148) at p. 1. This
leaves just two claims – breach of fiduciary duty and conspiracy.
Auroresky’s Reliance on New Facts
These claims are easily resolved because in its summary judgment opposition,
Auroresky relies on a new factual theory to support these claims. Although the Court
could theoretically treat Auroresky’s opposition as a motion to amend the counterclaim, it
would deny the motion at this late stage. Cf. Wasco Prods., Inc. v. Southwall Techs., Inc.,
435 F.3d 989, 991 (9th Cir. 2006) (where defendant moved for summary judgment on
statute of limitations ground, plaintiff could not oppose it by raising grounds for tolling
that had not been pled in complaint). The deadline for filing amended pleadings has
passed long ago, and Auroresky has made no attempt to show good cause for such a late
amendment. See Johnson v. Mammoth Recreations, Inc., 975 F.2d 604 (9th Cir. 1992)
(good cause required for late-filed motion to amend).
Memorandum Decision & Order - 12

A comparison of the counterclaim with Auroresky’s opposition demonstrates the
shift in factual theories. In the counterclaim, Auroresky’s central factual allegations
were: (1) that plaintiffs breached their purchase contracts; and (2) plaintiffs convinced
their friends and relatives to breach their purchase contracts with Auroresky. See Answer
& Counterclaim (Dkt. No. 60) at pp. 24-27. But Auroresky drops these allegations and
asserts new ones in opposing plaintiffs' motion.
For example, Auroresky cites evidence that plaintiffs recruited buyers (Pace, the
Condons, and M. Patel) who were unsuitable in the first place. Here, Auroresky contends
that “timing” was critically important to some buyers and that plaintiffs “either knew or
should have known that the contracts with their relatives and associates would fail long
before they actually did and provided no warning to Auoresky or the Callies of that fact.”
Auroresky's Response Brief (Dkt. No. 148) at p. 3.
Auroresky also argues that the lenders who pre-qualified Pace, the Condons, and
the Patels did not conduct sufficient due diligence before agreeing to lend money.
Auroresky asserts that the Murphy plaintiffs must have known this, although Auroresky
does not assert that the purchase contracts failed due to any actual financial problems with
these individuals. See id. at pp. 4-9. As a final example, Auroresky alleges that plaintiffs
interfered with Auroresky’s settlement of an unrelated claim with Scott Brown – an
allegation not contained in the most liberal reading of Auroresky's counterclaim.

Memorandum Decision & Order - 13

The Court will not permit Auroresky to rely on new factual allegations this late
into the litigation. Under the facts pled in the counterclaim, there are no triable issues of
fact as to any claims – including the breach of fiduciary duty and conspiracy claim.
Idaho Law Regarding LLC Members’ Fiduciary Duties
Auroresky’s breach of fiduciary duty claim fails in any event because plaintiffs are
non-managing, minority members of Auroresky. Under Idaho’s prior LLC Act, plaintiffs
do not owe fiduciary duties to the LLC because Auroresky is a “manager-managed” LLC,
with defendant Tricia Callies serving as its manager.6 See Idaho Code §§ 53-621, 53-622
(2006); Second Amended LLC Agreement (Dkt. No. 137-1).7
The pertinent provision of the prior LLC Act states:
One who is a member of a limited liability company in which management
is vested in managers pursuant to section 53-621, Idaho Code, and who is
not a manager shall have no duties to the limited liability company or to the
other members solely by reason of acting in the capacity of a member.

6

In March 2008, Idaho revised its LLC Act, but the prior act applies here because the
conduct at issue occurred before July 2010. See Idaho Code § 30-6-1104(2) (new act applies to
previously existing LLCs beginning July 1, 2010). Regardless, the result under the new act is
the same as under the prior act. See Idaho Code § 30-6-409(7) (non-members in managermanaged LLCs do not owe fiduciary duties to the LLC or other members).
7

The relevant provision states:

3.01 Management. The Members have elected to manage the LLC as follows: [¶]
The Members shall elect Tricia Ann Callies as Manager and can remove the
Manager only by unanimous vote. The Manager shall have the authority to take
all necessary and proper actions in order to conduct the business of the LLC, as
set out in Article 1.02. The Manager can take any appropriate action on behalf of
the LLC, such as signing checks, executing leases, and signing loan documents.

Memorandum Decision & Order - 14

Idaho Code § 53-622(3) (2006).
Auroresky argues that plaintiffs owe it the duty of a fiduciary, citing Bushi v. Sage
Health Care, PLLC, 203 P.3d 694 (Idaho 2009). Bushi, however, dealt with a membermanaged LLC, and held that members of such LLCs do indeed owe fiduciary duties to
one another. See id. at 696, 699 (holding that “[w]e conclude that under Idaho’s original
LLC act, members of an LLC owe one another fiduciary duties”). Bushi is inapplicable
here because Auroresky is not a member-managed LLC.
This dispenses with the fiduciary duty claim. The obligations Auroresky
complained of in its counterclaim were contractual in nature. The contract claims are
gone and Auroresky cannot recover on a fiduciary theory. As one court put it: “Had
defendants wanted everyone to enjoy a red rose of fiduciary duty, they should not have
planted white roses of contractual obligations and now ask me to paint them over.”
Kuroda v. SPJS Holdings, L.L.C., 2010 WL 925853, at *8 (Del. Ch. Mar. 16, 2010)
(unpublished disposition) (citing Lewis Carroll, Alice’s Adventures in Wonderland and
Through the Looking Glass 69 (Hugh Haughton ed., Penguin Books 2010) (1865).
The Court will grant plaintiffs’ motion for summary judgment of the breach of
fiduciary duty claim. The Court will also summarily adjudicate the conspiracy claim, as
it depends totally on the existence of the fiduciary duty claim. See Auroresky's Response
Brief (Dkt. No. 148) at p. 15 (arguing that plaintiffs conspired to breach their fiduciary
duties).

Memorandum Decision & Order - 15

ORDER
In accordance with the Memorandum Decision set forth above,
NOW THEREFORE IT IS HEREBY ORDERED, that defendants’ motion for
summary judgment (docket no. 136) is DENIED.
IT IS FURTHER ORDERED, that plaintiffs and counter-defendants’ motion for
summary judgment (docket no. 138) is GRANTED.
IT IS FURTHER ORDERED, that the Court's clerk (Sherri O'Larey at 208-3341473) set a scheduling conference where a trial date can be set.

DATED: September 27, 2011

Honorable B. Lynn Winmill
Chief U. S. District Judge

Memorandum Decision & Order - 16