Robert L. Citroen, Law Corporation v. Micron Optics, Inc.

Filing 90

ORDER that the Motion for Summary Judgment (ECF No. 73 ) is GRANTED IN PART and DENIED IN PART; the Motion for Summary Judgment (ECF No. 76 ) is DENIED; and Clerk shall correct the docket to reflect that ECF No. 77 is not a motion. Signed by Judge Robert C. Jones on 5/17/2018. (Copies have been distributed pursuant to the NEF - LH)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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______________________________________
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ROBERT L. CITROEN, LAW CORP.,
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Plaintiff,
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vs.
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MICRON OPTICS, INC.,
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Defendant.
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3:16-cv-00570-RCJ-WGC
ORDER

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This case arises out of the alleged breach of an assigned settlement agreement. Pending

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before the Court are two motions for summary judgment.

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I.

FACTS AND PROCEDURAL HISTORY

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A.

Facts Alleged in the Verified Complaint

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As of April 1, 2014, Plaintiff Robert L. Citroen, Law Corp. (“RLC”) and Defendant

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Micron Optics, Inc. (“Micron”) were parties to a Stock Purchase Agreement (“the Agreement”).

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(Compl. ¶ 10, ECF No. 1-1, at 4). Under the Agreement, Micron was to pay RLC $12,500 per

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quarter for ten years. (Id. ¶ 12). Micron made seven payments from July 1, 2014 to January 1,

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2016 but failed to make the April 1, 2016 payment or any payment thereafter. (Id. ¶ 13).

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B.

Facts Alleged in the Counterclaim

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Citroen’s Business Interests

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Counterdefendant Robert L. Citroen was a member of Micron’s board of directors since

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sometime prior to 2000 until November 4, 2011. (See Answer & Countercl. ¶ 12, ECF No. 5). In

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or around 2004, Micron Optics International A.G. (“MOIAG”) was formed as a Liberian entity

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to resell Micron’s products in Asia. (Id. ¶ 14). MOIAG’s stock was held equally by Karlsson &

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Bergkvist (Schweiz) A.B. (“K&B”) and Metallikon A.G. (“Metallikon”) until 2014. (Id.). K&B

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is a Swiss entity controlled by Andrei Csipkes and owned by Csipkes’s mother, and Metallikon

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is a Liberian entity owned or controlled by Citroen. (Id. ¶¶ 15–16). Csipkes was Micron’s Chief

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Operating Officer from 2000 to 2015. (Id. ¶ 19). Citroen failed to disclose his interest in

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Metallikon or Csipkes’s interest in K&B to Micron’s officers, directors, or shareholders. (Id.

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¶ 17). MOIAG profited from its relation with Micron and distributed those profits to its

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shareholders Metallikon and K&B. (Id. ¶ 18). As owner or controller of Metallikon, a

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shareholder of MOIAG, Citroen profited when MOIAG did while also serving as a director of

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and legal counsel to Micron. (Id.). In 2007, Citroen and Csipkes formed Technica, S.A.

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(“Technica”) to manufacture optical products and components for Micron in China, and

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Technica’s stock was held equally by Metallikon and K&B until 2014. (Id. ¶ 20). Citroen failed

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to disclose his or Csipkes’s interests in Technica to Micron’s officers, directors, or shareholders.

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(Id. ¶ 21). Technica profited from its relation with Micron and distributed those profits to its

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shareholders Metallikon and K&B. (Id. ¶ 21). As owner or controller of Metallikon, a

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shareholder of Technica, Citroen profited when Technica did while also serving as a director of

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Micron as well as its legal counsel. (Id.). Metallikon and K&B transferred their interests in

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Technica to other entities in July 2014. (Id. ¶ 20).

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2.

Citroen’s Federal Convictions

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Citroen was a member of the State Bar of California from 1978 until he voluntarily

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resigned in 2008 two months before pleading guilty to federal crimes related to passport fraud.

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(Id. ¶¶ 9, 22–26). Citroen failed to disclose his convictions to Micron’s officers, directors, or

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shareholders, and he continued to provide legal advice to Micron and to charge it for those

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services, totaling $132,233.70. (Id. ¶¶ 25–29).

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3.

The Agreement

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On or about April 1, 2014 Micron entered into the Agreement with Metallikon and K&B

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under which the latter entities would sell their MOIAG stock to Micron for $100,000. (Id. ¶ 32).

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The Agreement also represented the settlement of a purported debt owed by MOIAG to S.A. des

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Establissements Karoly (“SADEK”) for various services. (Id. ¶ 33). Under the Agreement,

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Micron would assume a settled amount of $500,000 in debt to SADEK, payable in quarterly

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installments of $12,500. (Id.). The same day, SADEK assigned its interest in the Agreement to

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RLC (“the Assignment”), acknowledging that RLC, as SADEK’s subcontractor, had provided

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the most vital services to MOIAG. (Id. ¶ 34). “In other words, the purported obligation and debt

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owed by MOIAG (operated by Csipkes and Citroen) to SADEK, which supposedly resulted from

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services performed by [RLC], was passed along as a debt and obligation to Micron.” (Id. ¶ 35).

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Citroen failed to disclose his and RLC’s interests in the Agreement to Micron’s directors or

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shareholders. (Id. ¶¶ 36–37). Micron made seven quarterly payments under the Agreement but

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stopped making payments after March 2016 when it discovered Citroen’s 2008 resignation from

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the State Bar of California, his federal convictions, and his control, ownership, and/or financial

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interests in Metallikon, MOIAG, and Technica, none of which he had previously disclosed. (Id.

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¶¶ 39–41).

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C.

Procedural History

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RLC sued Micron in state court for breach of contract, unjust enrichment, conversion,

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anticipatory breach, and misrepresentation. Micron removed, answered, and filed counterclaims

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against RLC for breach of contract, contractual and tortious breach of the implied covenant of

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good faith and fair dealing, unjust enrichment, breach of fiduciary duty, fraud in the inducement,

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and constructive fraud. Micron also listed counterclaims against Citroen in his personal capacity

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for tortious breach of the implied covenant of good faith and fair dealing, unjust enrichment,

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breach of fiduciary duty, fraud in the inducement, constructive fraud, and aiding and abetting

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fraud. RLC answered the Counterclaim and asked the Court to dismiss the counterclaims

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brought against Citroen in his personal capacity. The Court denied the motion, ruling that

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although Citroen was not a necessary party under Rule 19, he could be permissively joined as a

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Counterdefendant under Rule 20. RLC moved for partial offensive summary judgment on the

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issue of liability for breach of contract, or, in the alternative, for a ruling that it is subject only to

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contractual defenses that would have been valid if asserted by Micron against MOIAG but not

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those defenses that can only be asserted against RLC. The Court granted the motion in part,

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ruling that Micron breached the Agreement, but denying the motion without prejudice as to

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affirmative defenses. Micron has now moved for offensive summary judgment on its

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counterclaims and its affirmative defense of rescission, and RLC has moved for summary

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judgment against the Counterclaim.

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II.

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SUMMARY JUDGMENT STANDARDS
A court must grant summary judgment when “the movant shows that there is no genuine

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dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R.

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Civ. P. 56(a). Material facts are those which may affect the outcome of the case. See Anderson

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v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute as to a material fact is genuine if

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there is sufficient evidence for a reasonable jury to return a verdict for the nonmoving party. See

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id. A principal purpose of summary judgment is “to isolate and dispose of factually unsupported

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claims.” Celotex Corp. v. Catrett, 477 U.S. 317, 323–24 (1986).

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In determining summary judgment, a court uses a burden-shifting scheme. The moving

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party must first satisfy its initial burden. “When the party moving for summary judgment would

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bear the burden of proof at trial, it must come forward with evidence which would entitle it to a

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directed verdict if the evidence went uncontroverted at trial.” C.A.R. Transp. Brokerage Co. v.

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Darden Rests., Inc., 213 F.3d 474, 480 (9th Cir. 2000) (citation and internal quotation marks

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omitted). In contrast, when the nonmoving party bears the burden of proving the claim or

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defense, the moving party can meet its burden in two ways: (1) by presenting evidence to negate

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an essential element of the nonmoving party’s case; or (2) by demonstrating that the nonmoving

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party failed to make a showing sufficient to establish an element essential to that party’s case on

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which that party will bear the burden of proof at trial. See Celotex Corp., 477 U.S. at 323–24.

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If the moving party fails to meet its initial burden, summary judgment must be denied and

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the court need not consider the nonmoving party’s evidence. See Adickes v. S.H. Kress & Co.,

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398 U.S. 144 (1970). If the moving party meets its initial burden, the burden then shifts to the

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opposing party to establish a genuine issue of material fact. See Matsushita Elec. Indus. Co. v.

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Zenith Radio Corp., 475 U.S. 574, 586 (1986). To establish the existence of a factual dispute,

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the opposing party need not establish a material issue of fact conclusively in its favor. It is

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sufficient that “the claimed factual dispute be shown to require a jury or judge to resolve the

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parties’ differing versions of the truth at trial.” T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors

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Ass’n, 809 F.2d 626, 631 (9th Cir. 1987). In other words, the nonmoving party cannot avoid

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summary judgment by relying solely on conclusory allegations unsupported by facts. See Taylor

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v. List, 880 F.2d 1040, 1045 (9th Cir. 1989). Instead, the opposition must go beyond the

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assertions and allegations of the pleadings and set forth specific facts by producing competent

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evidence that shows a genuine issue for trial. See Fed. R. Civ. P. 56(e); Celotex Corp., 477 U.S.

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at 324.

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At the summary judgment stage, a court’s function is not to weigh the evidence and

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determine the truth, but to determine whether there is a genuine issue for trial. See Anderson, 477

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U.S. at 249. The evidence of the nonmovant is “to be believed, and all justifiable inferences are

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to be drawn in his favor.” Id. at 255. But if the evidence of the nonmoving party is merely

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colorable or is not significantly probative, summary judgment may be granted. See id. at 249–50.

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Notably, facts are only viewed in the light most favorable to the nonmoving party where there is

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a genuine dispute about those facts. Scott v. Harris, 550 U.S. 372, 380 (2007). That is, even if

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the underlying claim contains a reasonableness test, where a party’s evidence is so clearly

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contradicted by the record as a whole that no reasonable jury could believe it, “a court should not

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adopt that version of the facts for purposes of ruling on a motion for summary judgment.” Id.

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III.

ANALYSIS

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A.

Micron’s Affirmative Defense of Rescission and Counterclaims

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1.

Rescission

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Under Nevada contract law, a trial court has discretion to rescind a contract, Awada v.

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Shuffle Master, Inc., 173 P.3d 707, 713 & n.28 (Nev. 2007) (citing Havas v. Alger, 461 P.2d 857,

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860 (Nev. 1969)), and one basis for rescission is fraud in the inducement, id. at 713 n.29 (citing

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Havas, 461 P.3d at 859). To establish fraud in the inducement, one must prove by clear and

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convincing evidence: (1) a false representation; (2) knowledge or belief that the representation

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was false (or knowledge that it had an insufficient basis for making the representation); (3) intent

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to induce consent to the agreement; (4) justifiable reliance upon the misrepresentation; and (5)

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resulting damage. J.A. Jones Constr. v. Lehrer McGovern Bovis, 89 P.3d 1009, 1018 (Nev.

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2004).

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Most of Micron’s motion consists of twenty-five pages of extraordinarily confusing

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allegations concerning Citroen’s, former Micron CEO Jeff Miller’s, and former Micron COO

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Andrei Csipkes’s activities related to various entities. Only some of the allegations are relevant

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to the claims at issue in the case, and it is difficult to sort through them. The allegations and

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supporting evidence are so confusing that the Court is tempted to deny summary judgment on

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that basis alone, but the Court will do its best to parse the motion and evidence submitted.
As relevant to the fraud defense, Micron argues that RLC (through Citroen) fraudulently

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concealed Citroen’s, Csipkes’s, and Miller’s personal financial interests in MOIAG and related

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entities, and that Micron justifiably relied when it approved the Agreement, under which Micron

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purchased Metallikon’s and K&B’s MOIAG stock for $100,000 and assumed $500,000 in debt

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to SADEK. Most importantly, Micron argues that had it known Citroen, it’s former attorney and

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director, in fact owned or controlled Metallikon and was to be the immediate assignee of

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SADEK’s right to receive $500,000 under the Agreement, it would not have entered into the

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Agreement. The Court rejects this theory. Micron does not appear to dispute that Citroen had

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not been its attorney or director for over two years when Micron entered into the Agreement in

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2014. Citroen therefore had no affirmative duty in April 2014, either as an attorney or director,

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to reveal his interest in the Agreement to Micron lest the failure to do so constitute fraud by

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omission. Micron also appears to argue that Citroen directed Miller and/or Csipkes to conceal

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Citroen’s interest in the Agreement. But Micron must sue Miller and/or Csipkes for their alleged

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fraud, not Citroen, who owed no duty to Micron at the time of these alleged activities. The Court

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denies summary judgment on the affirmative defense of fraud in the inducement. This issue is

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much too uncertain for summary judgment based on the facts adduced and must be tried to a

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jury.

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Breach of Contract

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Micron alleges RLC violated a contract to provide legal services because between 2008

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(when Citroen voluntarily resigned his bar membership) and 2011 (when Citroen resigned as a

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director of Micron and stopped providing those services), Micron paid him for legal services

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when he had no license. Micron has adduced evidence showing that in 2008, Citroen was

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convicted of possessing false identification documents in violation of 18 U.S.C. § 1028(a)(3) and

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making false statements in violation of 18 U.S.C. § 1001(a)(2), (Judgment of Conviction, ECF

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No. 73-6), had his voluntarily resignation of bar membership accepted that year, (Order,

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Supreme Court of Cal. Case No. 07-W-14821, ECF No. 73-7), and did not reveal his convictions

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to anyone at Micron until 2016, (Citroen Dep. 78:14–17, ECF No. 73-3). Micron paid RLC

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$132,223.70 for legal services while Citroen was not a licensed attorney. (Dillard Decl. ¶ 13,

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ECF No. 47; RLC Invoices and Micron Payment Records, ECF No. 52).

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Counterdefendants argue in response that there was never any contract to provide legal

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services after January 11, 2008, but only “marketing and business advice.” But the invoices

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from RLC adduced clearly use the letterhead “ROBERT L. CITROËN LAW CORPORATION”

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during the entire relevant period. (RLC Invoices, ECF No. 52). A reasonable jury could not find

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that Micron did not think or should not have thought it was paying for the services of a licensed

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attorney based on this evidence. Regardless of the existence of any separate written agreement,

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and absent any evidence that the client knew otherwise, routine periodic billings for business

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advice from a “LAW CORPORATION” implies a term of agreement that the services are being

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provided by a licensed attorney. Micron is entitled to offensive summary judgment on its

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counterclaim for breach of contract.

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3.

Breach of the Implied Covenant of Good Faith and Fair Dealing and Breach
of Fiduciary Duty

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Micron alleges RLC breached its implied duty of good faith under its contract to provide

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legal services to Micron by failing to notify Micron that Citroen had lost his law license and for

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other reasons. Micron brings the claim in contract and in tort. The contractual bad faith claim is

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moot given the victory on the breach of contract claim. The tortious bad faith claim is not moot,

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although it is redundant with the breach of fiduciary duty claim. The Court must simply sort out

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precisely which standard applies in the present situation: the duty of loyalty owed by corporate

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directors, see Shoen v. SAC Holding Corp., 137 P.3d 1171, 1184 & n.60 (Nev. 2006) (citing Nev.

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Rev. Stat. § 78.138(7)) (“[D]irectors and officers may only be found personally liable for

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breaching their fiduciary duty of loyalty if that breach involves intentional misconduct, fraud, or

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a knowing violation of the law.”), the duty owed by parties to contracts in special relationships,

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see, e.g., Allstate Ins. Co. v. Miller, 212 P.3d 318 (Nev. 2009), or some other standard.

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In its motion, Micron argues only the fiduciary duty issue, and the Court agrees that is the

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proper standard. The Court finds there to be no genuine issue of material fact that the provision

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of (and billing for) legal services to a corporation by one of its directors while that director is not

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a licensed attorney is misconduct and a knowing violation of the law, as well as fraud where the

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fact of a lack of a license to practice law is concealed, as here. Micron is entitled to offensive

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summary judgment on the breach of fiduciary duty claim. This is not redundant with the breach

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of contract claim, because the present claim potentially permits punitive damages, whereas the

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breach of contract claim does not. See Nev. Rev. Stat. § 42.005(1).

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Unjust Enrichment

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Micron does not appear to bring this counterclaim as an alternative to its breach of

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contract counterclaim based on legal services provided by RLC. Rather, the counterclaim is

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brought as an alternative to the fraud-type counterclaims based on the Agreement and

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Assignment. Micron is not entitled to summary judgment on this claim. Indeed, the claim is

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subject to dismissal, although Counterdefendants have not asked the Court to dismiss it, so the

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Court will not do so at this time. Micron does not allege that it bestowed a benefit on RLC or

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Citroen that in equity should be returned. See Leasepartners Corp., Inc. v. Robert L. Brooks Tr.,

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942 P.2d 182, 187 (Nev. 1997) (citing Unionamerica v. McDonald, 626 P.2d 1272, 1273 (Nev.

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1981) (citing Dass v. Epplen, 424 P.2d 779, 780 (Colo. 1967))). Micron does not allege RLC or

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Citroen were parties to the Agreement or that Micron was a party to the Assignment. Nor does it

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allege it received nothing of fair value under the Agreement. This claim sounds in fraud, which

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is addressed elsewhere.

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Fraud in the Inducement, Constructive Fraud, and Aiding and Abetting

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As with the parallel affirmative defense, Micron is not entitled to summary judgment on

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these counterclaims with respect to Micron’s entry into the Agreement. Insofar as the

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counterclaims are based on payment for legal services to a non-lawyer, they are redundant with

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the breach of contract and breach of fiduciary duty counterclaims.

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B.

Counterdefendants’ Motion for Summary Judgment

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Counterdefendants argue that Citroen’s participation in the creation of MOIAG in 2004,

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the operation of MOIAG from 2004 to 2014, and Micron’s acquisition of MOIAG in 2014 were

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protected by the business judgment rule and therefore cannot be the basis of any claims against

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Citroen. The Court denies the motion. Those statements may or may not be true, but the Court

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simply has no occasion to rule on them. Micron’s counterclaims are not based on any alleged

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usurpation of corporate opportunities, as implied by Counterdefendants’ motion. They are based

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on alleged fraud, an alleged breach of a contract to provide legal services, and the alleged breach

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of fiduciary duty. And, as noted supra in the context of Micron’s counterclaim for breach of

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fiduciary duty, there is no genuine issue of material fact that Counterdefendants’ continued

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billing of Micron for legal services after Citroen no longer had a law license was not protected

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by the business judgment rule.
CONCLUSION

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IT IS HEREBY ORDERED that the Motion for Summary Judgment (ECF No. 73) is

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GRANTED IN PART and DENIED IN PART. Micron is entitled to offensive summary

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judgment on its counterclaims for breach of contract and breach of fiduciary duty. The

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counterclaim for contractual bad faith is moot. The fraud-based counterclaims and the

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affirmative defense of fraud in the inducement, as well as damages on the breach of contract and

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breach of fiduciary duty claims, remain for a jury.

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IT IS FURTHER ORDERED that the Motion for Summary Judgment (ECF No. 76) is
DENIED, and the Clerk shall correct the docket to reflect that ECF No. 77 is not a motion.

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IT IS SO ORDERED.

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17th day of May, 2018.
Dated this 22nd day of March, 2018.

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_____________________________________
ROBERT C. JONES
United States District Judge

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