Momot v. Mastro et al
Filing
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ORDER granting Mastros' 140 Motion for Partial Summary Judgment re John Momot's tenth cause of action. Signed by Chief Judge Roger L. Hunt on 4/11/11. (Copies have been distributed pursuant to the NEF - ECS)
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UNITED STATES DISTRICT COURT
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DISTRICT OF NEVADA
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JOHN MOMOT,
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Plaintiff/Counterdefendant,
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vs.
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DENNIS MASTRO, individually; MICHAEL )
MASTRO, individually; JEFF MASTRO,
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individually; does I through X, inclusive,
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Defendants/Counterclaimants. )
_______________________________________)
Case No.: 2:09-cv-00975-RLH-LRL
ORDER
(Motion for Summary Judgment–#148)
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Before the Court is Defendants Dennis Mastro, Michael Mastro, and Jeff Mastro’s
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Motion for Summary Judgment (#148, filed Nov. 3, 2010) on Plaintiff John Momot’s tenth
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cause of action. The Court has also considered Momot’s Opposition (#145, filed Dec. 10, 2010),
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and the Mastros’ Reply (#148, filed Jan. 7, 2011).
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BACKGROUND
This action arises out of a business relationship between John Momot and the
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Mastros. During the course of their relationship, which began in 1974, Momot contributed
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investment capital for the Mastros to develop various restaurant businesses in California and
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Arizona. Momot alleges that over the years the Mastros misappropriated his investment capital
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and wrongfully increased their own profits at the expense of his investment capital. Specifically,
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Momot alleges that the Mastros (1) wrongfully took sole ownership of the “Mastro” name as an
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asset separate from its restaurants without obtaining prior authorization from their investors
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(including Momot); (2) forged Momot’s name and pledged his investments in order to obtain
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financing for its restaurant operations; and (3) wrongfully withheld information regarding their
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plans to build a restaurant on Rampart Boulevard in Las Vegas.
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In 2006, the Mastros began to consider selling their restaurants to an outside
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investment group. On January 22, 2007, the Mastros agreed to sell all of their restaurants to
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Premiere Restaurant Groups LLC for $180 million. In addition to selling these restaurants, the
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Mastros sold the assets of three Arizona-based LLCs. Momot alleges he held a membership
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interest in all three of these companies. The Mastros and Premiere Restaurant Groups
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memorialized their sale agreement in writing (“the Purchase Agreement”).
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Momot alleges that when the sale was ultimately concluded, he recovered
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significantly less on his investments than the Mastros promised he would. According to Momot, it
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was only after the agreement allocating the sale proceeds was finalized that he realized the Mastros
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had wrongfully used his investment funds and wrongfully pledged his interest in their businesses
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by forging his name on loan documents. On April 16, 2009, Momot filed suit in Nevada state
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court alleging claims for breach of fiduciary duty, accounting, conversion, unjust enrichment, theft
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and embezzlement, alter ego, monies owed, civil conspiracy, civil RICO, failure to register
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securities, fraud, usurped corporate opportunity, and punitive damages. The Mastros subsequently
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removed the case to this Court.
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Shortly after removal, the parties began disputing whether this case should be heard
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in this Court or whether arbitration was mandatory in Maricopa County, Arizona. Following
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removal, the Mastros filed an action in the United States District Court for the District of Arizona
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in which they sought, under the Federal Arbitration Act, 9 U.S.C. § 4, to compel Momot to
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arbitrate his claims in Arizona. Momot then asked this Court to intervene and stop the arbitration
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from proceeding. After reviewing the terms of the Allocation Agreement and considering
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additional briefing submitted by both parties, this Court ordered that the arbitration proceedings in
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Arizona be terminated. On March 26, 2010, the Mastros filed an answer to Momot’s Complaint
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and brought counterclaims for breach of contract, abuse of process, fraud, and negligent
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misrepresentation. The Court dismissed all of the Mastros’ claims save the fraud claim. Now
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before the Court is the Mastros’ motion for summary judgment on Momot’s tenth cause of action,
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failure to register securities. For the reasons discussed below, the Court grants the motion.
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DISCUSSION
I.
Legal Standard
The purpose of summary judgment is to avoid unnecessary trials when there is no
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dispute as to the facts before the court. Nw. Motorcycle Ass'n v. U.S. Dep't of Agric., 18 F.3d
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1468, 1471 (9th Cir.1994). Summary judgment is appropriate when the pleadings, the discovery
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and disclosure materials on file, and any affidavits “show there is no genuine issue as to any
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material fact and that the movant is entitled to judgment as a matter of law.” Celotex Corp. v.
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Catrett, 477 U.S. 317, 330 (1986). An issue is “genuine” if there is a sufficient evidentiary basis
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on which a reasonable fact-finder could find for the nonmoving party and a dispute is “material” if
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it could affect the outcome of the suit under the governing law. Anderson v. Liberty Lobby, Inc.,
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477 U.S. 242, 248–49 (1986). Where reasonable minds could differ on the material facts at issue,
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however, summary judgment is not appropriate. Warren v. City of Carlsbad, 58 F.3d 439, 441
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(9th Cir. 1995), cert. denied, 516 U.S. 1171 (1996). “The amount of evidence necessary to raise a
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genuine issue of material fact is enough ‘to require a jury or judge to resolve the parties' differing
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versions of the truth at trial.’” Aydin Corp. v. Loral Corp., 718 F.2d 897, 902 (9th Cir. 1983)
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(quoting First Nat'l Bank v. Cities Service Co., 391 U.S. 253, 288–89 (1968)). In evaluating a
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summary judgment motion, a court views all facts and draws all inferences in the light most
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favorable to the nonmoving party. Kaiser Cement Corp. v. Fishbach & Moore, Inc., 793 F.2d
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1100, 1103 (9th Cir. 1986).
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The moving party bears the burden of showing that there are no genuine issues of
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material fact. Zoslaw v. MCA Distrib. Corp., 693 F.2d 870, 883 (9th Cir. 1982). “In order to carry
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its burden of production, the moving party must either produce evidence negating an essential
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element of the nonmoving party’s claim or defense or show that the nonmoving party does not
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have enough evidence of an essential element to carry its ultimate burden of persuasion at trial.”
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Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1102 (9th Cir. 2000). Once the
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moving party satisfies Rule 56’s requirements, the burden shifts to the party resisting the motion to
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“set forth specific facts showing that there is a genuine issue for trial.” Anderson, 477 U.S. at 256.
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The nonmoving party “may not rely on denials in the pleadings but must produce specific
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evidence, through affidavits or admissible discovery material, to show that the dispute exists,”
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Bhan v. NME Hosps., Inc., 929 F.2d 1404, 1409 (9th Cir. 1991), and “must do more than simply
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show that there is some metaphysical doubt as to the material facts.” Bank of America v. Orr, 285
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F.3d 764, 783 (9th Cir. 2002) (internal citations omitted). “The mere existence of a scintilla of
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evidence in support of the plaintiff's position will be insufficient.” Anderson, 477 U.S. at 252.
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II.
Analysis
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The Mastros move for summary judgment based on two arguments. First, the
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Mastros argue that the statute of limitations bars Momot’s claim. Second, the Mastros argue that
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the securities they sold Momot were exempt from registration. The Court will address each
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argument in turn.
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A.
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Statute of Limitations
A plaintiff must bring any claim for failing to register securities “within the earliest
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of 2 years after the discovery of the violation, 2 years after discovery should have been made by
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the exercise of reasonable care, or 5 years after the act, omission or transaction constituting the
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violation.” NRS § 90.670. This dispute involves three separate transactions which could possibly
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constitute violations of registration requirements. The first transaction occurred in 1999.
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Therefore, it clearly falls outside of the statute of limitations period as Momot did not file suit until
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April 20, 2009. The second and third transactions were both consummated on January 5, 2006,
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when Momot signed subscription agreements to purchase membership interests in two separate
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LLCs. The question then is when the statute of limitations began to run. If the statute did not
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begin to run when the parties originally effectuated the transaction, Momot’s claim may fall within
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the statutory period. However, if the statute began to run when Momot signed the subscription
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agreements, then Momot filed suit outside of the two year statutory period.
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After review of the evidence, the Court finds that the statute of limitations began to
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run on January 5, 2006, when Momot signed the subscription agreements to purchase the
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membership interests. The subscription agreements Momot signed warranted that Momot
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understood that the membership interests had not been registered with the relevant state authorities
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in reliance on a state law exemption. This is the only fact that Momot needed in order to bring suit
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for failure to register. However, Momot contends that the statute of limitations did not begin to
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run at that time because he was led to believe that the securities did not need to be registered. This
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is true, the subscription agreements did state that the securities were not registered because of a
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statutory exemption, but it is also immaterial.
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Momot confuses knowledge of the facts giving rise to a cause of action with
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knowledge of the facts’ legal relevance. “Under federal law, ‘the limitations period accrues when
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a party knows or has reason to know of the injury’ which is the basis of the cause of action.”
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Kimes v. Stone, 84 F.3d 1121, 1128 (9th Cir. 1996). This means the “focus is on the [Plaintiff’s]
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knowledge of or access to facts rather than on [his] discovery of legal theories.” Massey v. Litton,
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669 P.2d 248, 252 (Nev. 1983). See also Jolly v. Eli Lilly & Co., 751 P.2d 923, 929 (Cal. 1988)
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(“it is the discovery of facts, not their legal significance, that starts the statute” of limitations
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period.) Here, Momot, an attorney, was put on notice that the Mastros had not registered the
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securities when he signed the subscription agreements. At that point he had all of the facts
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necessary so that he could have investigated and determined whether he agreed with the
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applicability of any exemption the Mastros claimed. Therefore, Momot knew the facts that formed
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the basis of his cause of action, he was merely ignorant of their alleged legal significance.
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Accordingly, Momot’s claim is barred by the statute of limitations as he discovered the facts of the
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alleged violation more than two years before bringing suit on April 16, 2009.
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B.
Registration Exemption
Additionally, the Court would grant summary judgment in the Mastros’ favor
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because the Mastros’ claimed registration exemption did apply to the transaction. Momot
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contends that the exemption the Mastros relied upon, NRS § 90.530(11), requires that the
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transaction be a wholly intrastate transaction. Momot provided no support for this assertion other
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than analogizing to a non-analogous federal exemption, 15 U.S.C. § 77c(a)(11). Further, the
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Nevada Uniform Securities Act is based on the Uniform Securities Act of 1985, Fullerton v. State,
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8 P.3d 848, 849 n.3 (Nev. 2000), and the comments to the Uniform Securities Act of 1985 show
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that there is no requirement that transactions be wholly intrastate to qualify for an exemption, Unif.
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Sec. Act § 801 cmt. 1 (amended 1988), 7c U.L.A. 315–16 (2006). Finally, the Mastros’ provided
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affidavit testimony showing that the actual requirements for the exemption were met and Momot
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failed to provided contrary evidence. Therefore, the Court would grant summary judgment for
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these reasons as well.
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CONCLUSION
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Accordingly, and for good cause appearing,
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IT IS HEREBY ORDERED that the Mastros’ Motion for Summary Judgment
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(#140) is GRANTED.
Dated: April 11, 2011.
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____________________________________
ROGER L. HUNT
Chief United States District Judge
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