Willis et al v. Smith et al
MEMORANDUM OPINION AND ORDER by Senior District Judge James A. Parker granting and denying in part 35 Second MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM regarding Gemstones, Jewelry, and Organs. (bap)
UNITED STATES DISTRICT COURT
DISTRICT OF NEW MEXICO
BOBBY L. WILLIS, individually and as trustee for the
BOBBY L. WILLIS AND CARRIE S. WILLIS TRUST,
WILLIS ASSET MANAGEMENT, LLC,
JTB DEVELOPMENT PROPERTIES 3, LLC, and
JTB DEVELOPMENT PROPERTIES 4, LLC,
No. 16 CV 167 JAP/LF
QUENTIN SMITH and
STOREY & CLYDE, INC.
QUENTIN SMITH and
STOREY & CLYDE, INC.,
MEMORANDUM OPINION AND ORDER
In the COMPLAINT FOR FRAUD AND OTHER CLAIMS (Doc. No. 1-1),
Plaintiffs Bobby L. Willis (Willis), individually and as trustee of the Bobby L. Willis and
Carrie S. Willis Trust; Willis Asset Management, LLC; JTB Development Properties 3,
LLC (JTB 3); and JTB Development Properties 4, LLC (together Plaintiffs) assert claims
against Defendants Quentin Smith (Smith) and Storey & Clyde, Inc. (together
Defendants) arising out of a failed real estate development in Kirtland, New Mexico. The
case was removed from the Eleventh Judicial District Court, San Juan County, New
Mexico under this Court’s diversity jurisdiction. 28 U.S.C. § 1332(a). In the SECOND
MOTION TO DISMISS: CLAIMS CONCERNING ALLEGED INVESTMENT AND
CONSTRUCTIVE TRUST OF GEMSTONES, JEWELRY, AND ORGANS (Doc. No.
35) (Motion), Defendants seek dismissal of all claims related to Smith’s alleged promise
to invest gemstones, jewelry, and antique concert organs in exchange for an ownership
interest in Americas Medical Clinic, LLC (AMC) and JTB 3. The Motion has been fully
briefed. See RESPONSE TO DEFENDANTS’ MOTION TO DISMISS CLAIM
REGARDING GEMSTONES, JEWELRY, AND ORGANS (Doc. No. 50); and
DEFENDANTS’ REPLY ON MOTION TO DISMISS CLAIMS CONCERNING
ALLEGED INVESTMENT AND CONSTRUCTIVE TRUST OF GEMSTONES,
JEWELRY, AND ORGANS (Doc. No. 60) (Reply). The Court will grant the Motion in
part and deny the Motion in part.
STANDARD OF REVIEW
Defendants move to dismiss under Rule 12(b)(6). After the close of the pleadings,
however, a motion to dismiss is evaluated as a Rule 12(c) motion for judgment on the
pleadings. Jacobsen v. Deseret Book Co., 287 F.3d 936, 941 n.2 (10th Cir. 2002).
Motions under Rule 12(c) are decided under the same standard as motions under Rule
12(b)(6). In ruling on the Motion, the Court must “assess whether the plaintiff’s
complaint alone is legally sufficient to state a claim for which relief may be granted.”
Miller v. Glanz, 948 F.2d 1562, 1565 (10th Cir. 1991). The court must “accept as true all
well-pleaded facts [in the complaint], as distinguished from conclusory allegations, and
view the facts in the light most favorable to the nonmoving party. . . .” Archuleta v.
Wagner, 523 F.3d 1278, 1283 (10th Cir. 2008) (quotation and alteration omitted).
However, the Court is under no obligation to accept bare conclusory allegations. Hall v.
Belmon, 935 F.2d 1106, 1110 (10th Cir. 1991). Nor is the Court required to accept legal
conclusions without factual support. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557
(2007); Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). To summarize, a complaint must
contain sufficient factual allegations “to raise a right to relief above the speculative level,
. . . on the assumption that all the allegations in the complaint are true.” Twombly, 550
U.S. at 555.
In deciding Rule 12(b)(6) and Rule 12(c) motions, courts typically consider only
the facts alleged in the complaint. County of Santa Fe v. Pub. Serv. Co. of N.M., 311 F.3d
1031, 1035 (10th Cir. 2002). Nevertheless, courts may review documents referred to in a
complaint, if the documents are central to the plaintiff’s claim and the parties do not
dispute their authenticity. Id. And, courts may also take judicial notice of documents that
are in the public record. S.E.C. v. Goldstone, 952 F. Supp. 2d 1060, 1190 (D.N.M. 2013).
In 2011, Ronnie Garner (Garner) presented a plan for construction of a project
called the Americas Medical Clinic. (Compl. ¶ 11.) Smith and Garner formed a limited
liability company named Americas Medical Clinic, LLC (AMC). (Id. ¶¶ 9, 17.)1 In
August 2011, Garner hired Smith as project manager for the “various AMC companies.”
(Id. ¶ 12.) Willis invested his own property in the AMC project based on representations
According to the Colorado Secretary of State’s records, Willis was the registered agent for AMC, LLC in
made by Smith. (Id. ¶ 19.)2 Due to Smith’s mismanagement, the AMC project “collapsed
resulting in significant financial losses to the Bobby Willis Plaintiffs.” (Id. ¶ 24.)
“Smith delivered gemstones and jewelry to Willis as his investment in AMC and
companies related to AMC (Exhibit 11)[,]” and Smith “exchanged his gemstones and
jewelry as an investment in AMC or JTB 3 LLC.” (Compl. ¶¶ 26-27.) Smith, Garner,
Michael Atchison (Atchison) and Willis “all met in or around December 29, 2011 and
negotiated an agreement confirmed by the attached Exhibit 14 whereby [Smith]
transferred his jewelry, gemstones and antique organs for an alleged interest in JTB 3,
LLC and AMC.” (Compl. ¶ 29.) “This handwritten agreement was then confirmed by
Addendums attached hereto as Exhibit 15 dated December 29, 2011 whereby [Smith]
was to acquire the 5% interest in AMC and JTB 3, LLC.” (Compl. ¶ 30.)
Exhibit 11 is an unauthenticated email from Garner to Willis proposing “that the
jewels held by Bobby Willis as asset for the ownership portion of JTB #3, LLC of
Quentin Smith be returned to Quentin Smith.” Exhibit 14 is incomplete, does not name
what entity it is related to, and has illegible handwritten notes on it. Exhibit 15 consists of
two pages entitled “Addendums” dated December 29, 2011 that outline the “new”
percentage ownership interests of several individuals in AMC and JTB 3. Smith is listed
as having a 5% interest in each entity, and Smith’s alleged signature appears on the
bottom of each Addendum. Even though these exhibits are attached to the Complaint and
appear to be central to the claims, the Court will not consider these exhibits because they
are unauthenticated and either illegible or inexplicable. The Court will consider this
Willis allegedly invested five types of property into the AMC project: (1) real estate that was deeded to
JTB 3, (2) 3395 ounces of gold coins; (3) 1117 ounces of silver coins; (4) gemstones; and (5) money paid
to Gary Risley, Kyle Finch, and Jennifer Olson for professional services. (Compl. ¶ 19.)
Motion under the Rule 12 standards and not under the Rule 56 summary judgment
In the Complaint, Plaintiffs allege that Smith breached the agreement to invest in
AMC and/or JTB 3 because “he never delivered the antique organs; because he later filed
false police reports claiming the jewelry and gemstones were embezzled by Bobby Willis
and due to his breach of promises and duties relative to AMC and thus any alleged
interest in AMC and JTB 3 should be forfeited.” (Id. ¶ 31.)
“In or around June 24, 2012, Garner arranged for the delivery of [Smith’s]
gemstones and jewelry to Branson, Missouri because Garner wanted to keep the
gemstones and jewelry in a secured location[.]” (Compl. ¶ 33.) At the direction and
control of Garner, and with the consent of Smith, all of the gemstones and jewelry were
inventoried and stored in an underground storage facility in Branson, Missouri. (Id. ¶ 34.)
Soon thereafter, Smith claimed that Willis embezzled the gemstones and jewelry, and the
State of New Mexico seized the property from the storage facility and held it as evidence
in the criminal case against Willis. (Id. ¶¶ 36-39.) See State v. Bobby Willis, Case No. M47-FR-201200600. Smith told New Mexico authorities that the gemstones and jewelry
were valued at over $5 million, but the property was actually worth far less. (Id. ¶¶ 4244.) An appraiser for the State of New Mexico estimated that the value of many of the
gemstones and jewelry was far lower than the value claimed by Smith. (Id. ¶ 43.)
Claims Related to the Gemstones and Jewelry
In Claim II, Plaintiffs allege that Smith negligently or intentionally provided false
appraisals of “watches, jewelry and gemstones to which Bobby Willis and his related
companies relied upon to their financial detriment.” (Id. 57A.) Plaintiffs also allege that
Smith made false statements to law enforcement officials. (Id. ¶ 57B.)
In Claim III, Plaintiffs allege that Smith “agreed to exchange his gemstones,
jewelry and organs to AMC” for a 5% interest in AMC, and “Smith breached his
agreement by failing to deliver all the promised goods, [and] by demanding return of the
gemstones and jewelry[.]” (Id. ¶ 64.) Plaintiffs also allege that Smith may have
“unilaterally taken action to grant himself larger percentages of AMC and/or JTB 3 than
he deserved.” (Id. ¶ 68.)
In Claim VI, Plaintiffs assert that Smith engaged in racketeering in connection
with the failed business of AMC and JTB 3. (Id. ¶ 78.) In Claim VII, Plaintiffs allege that
Smith is liable for malicious abuse of process for making false reports to law enforcement
authorities that Willis embezzled Smith’s gemstones and jewelry. (Id. ¶ 82.) In Claim
VIII, Plaintiffs assert that Smith is liable for defamation for reporting that Willis
“engaged in criminal activities” by embezzling Smith’s gemstones and jewelry. (Id. ¶¶
In Claim X, Plaintiffs ask the Court to impose a constructive trust “on the
gemstones and jewelry for the benefit of the Bobby Willis Plaintiffs or other potential
parties damaged as a result of the fraudulent or negligent acts of Quentin Smith.” (Id. ¶
94.) Plaintiffs also contend that the “gemstones and jewelry should be sold and the
proceeds escrowed in the Court Registry pending the outcome of this case and potential
recovery by the Bobby Willis Plaintiffs.” (Id. ¶ 95.) In Claim XI, Plaintiffs assert a claim
for prima facie tort alleging that Smith intentionally caused harm to the Plaintiffs without
justification. (Id. 97.)
Defendants ask the Court to dismiss all claims related to Smith’s gemstones and
jewelry. Defendants assert that Smith is “one of many victims of Plaintiff Bobby Willis’
schemes to defraud Smith and others through a series of business relationships among
Willis, Smith, and many other third parties.” (Mot. at 2.) Smith contends that he did not
deliver gemstones and jewelry to Willis in exchange for a 5% interest in AMC and JTB 3
but merely gave the gemstones and jewelry to Willis to store in a safe while Smith was
visiting New Mexico.3 In the Reply, however, Smith admits that he “brought the
gemstones and jewelry to New Mexico at Bobby Willis’s request as a possible
investment.” (Reply at 7.)4
Choice of Law
1. Contract Claims
In the Motion, Smith asserts that the claim for breach of an agreement to invest in
an LLC is governed by the law of the state where the LLC was formed. The Complaint
does not indicate the state in which each LLC was formed. Exhibit A to the Motion is a
record from the Colorado Secretary of State’s website indicating that JTB 3 is a Colorado
limited liability company. (See Mot. Ex A.) The Court will take judicial notice of this
record from the Colorado Secretary of State’s website. See JP Morgan Trust Co., Nat’l
Ass’n v. Mid–Am. Pipeline Co., 413 F.Supp.2d 1244, 1258 (D. Kan. 2006) (noting that
Notably, Defendants assert in a counterclaim that Smith agreed to perform business and administrative
services in exchange for a 5% ownership interest in each entity for which he performed services. ANSWER
TO COMPLAINT AND COUNTERCLAIM FOR FRAUD AND OTHER CLAIMS (Doc. No. 6) at p. 12
¶¶ 14-18. Defendants allege that Smith performed the services, but “Willis failed to provide Smith with the
ownership interests as promised, and/or provided interests that Willis knew to be worthless.” (Id. ¶ 18.)
Smith attached a copy of his answer to Plaintiffs’ Interrogatory No. 17 to support this contention. As with
the other exhibits, however, the Court will not consider this exhibit in ruling on the Motion.
courts routinely take judicial notice of public documents filed with a secretary of state).
No record related to AMC is attached to the Motion, but a search of the Colorado
Secretary of State’s website reveals that AMC also is a Colorado LLC. See generally,
www.sos.state.co.us/biz/BusinessEntityHistory (last visited on November 28, 2016).
Since 2012, AMC and JTB 3 have been delinquent for failure to maintain a registered
agent and for failure to file periodic reports. Id.
This Court, sitting in diversity jurisdiction, must apply the choice of law rules of
the forum state, New Mexico. Lyon Develop. Co. v. Bus. Men’s Assurance Co. of Amer.,
76 F.3d 1118, 1122 (10th Cir. 1996). New Mexico generally follows the doctrine of lex
loci contractus, i.e., the law of the place of contracting controls. Carl Kelley Const. LLC
v. Danco Techs., 656 F.Supp.2d 1323 (D. N.M. 2009). Under this standard, it would
appear that New Mexico law governs the contract claim related to Smith’s alleged
promise to invest gemstones and jewelry in exchange for an ownership interest in AMC
and JTB 3. However, the New Mexico statute governing LLCs provides, “the laws of the
state or other jurisdiction under which a foreign limited liability company is organized
shall govern its organization and internal affairs and the liability of its managers and
members.” NMSA 1978 § 53-19-47. Therefore, Colorado law governs the claim that
Smith breached a contractual promise to invest the gemstones and jewelry in AMC and
JTB 3. See Weinstein v. Colborne Foodbotics, LLC, 302 P.3d 263, 266 (Colo. 2013)
(stating that Colorado’s LLC Act controls the formation and operation of Colorado
2. Tort Claims
New Mexico tort law applies the choice of law principle, lex loci delicti commissi,
the place where the wrong occurred. The actions alleged in the Complaint occurred in
New Mexico; therefore, Plaintiffs’ tort claims are governed by New Mexico law. Skyline
Potato Co., Inc. v. Tan-O-On Mktg., Inc., 879 F.Supp.2d 1228, 1253 n. 5 (D.N.M. 2012).
Plaintiffs’ Claim II for Fraud and/or Negligent Misrepresentation
To state a claim of fraud under New Mexico law, a claimant must allege that the
defendant made (i) a misrepresentation of fact, (ii) with knowledge of the falsity of the
representation, (iii) with intent to deceive and to induce reliance on the misrepresentation;
and (iv) the claimant relied on the misrepresentation to his detriment. Skyline Potato Co.,
Inc., 879 F. Supp. 2d at 1248–49. In New Mexico, to recover under a claim of negligent
misrepresentation, the claimant must allege that the defendant breached a duty of
disclosure; the claimant had a right to rely on the misinformation, and the claimant
sustained damages. Ruiz v. Garcia, 1993-NMSC-009, ¶ 26, 115 N.M. 269, 850 P.2d 972.
While negligent misrepresentation may be proven by a preponderance of the evidence,
common law intentional fraud must be proven by clear and convincing evidence.
Bhandari v. VHA Southwest Community Health Corp., No. 09 CV 932 JB/GBW, 2011
WL 1336512, *17 (D. N.M. Mar. 30, 2011) (citing NMRA, UJI 13-1633) (unpublished).
Plaintiffs allege that Smith misrepresented the value of the gemstones and
jewelry. Presumably, Willis, AMC and JTB 3 relied on Smith’s representations by
transferring a 5% interest in AMC and JTB 3 in exchange for the gemstones and jewelry.
These allegations sufficiently state a claim of either intentional fraud or negligent
misrepresentation. Smith allegedly misrepresented the value of the gemstones and
jewelry, gave them to Willis with intent to deceive or in breach of a duty to disclose their
actual value, and Willis relied on the misrepresentation in granting a 5% ownership
interest in AMC and JTB 3 in exchange for the gemstones and jewelry.
As for the allegations in Complaint ¶ 57B, however, Smith cannot be liable to
Plaintiffs for fraud based on misrepresentations made to third-party government officials.
Pedroza v. Lomas Auto Mall, Inc., 600 F.Supp.2d 1162, 1169 (D. N.M. 2009) (discussing
liability for misrepresentation made to a third person). Thus, Plaintiffs may not assert a
claim for fraud based on Smith’s alleged false statements to government officials.
Plaintiffs’ Claim III for Breach of Contract.
Defendants contend that Claim III can only be brought by AMC and JTB 3 and
not by Willis or any of the other Plaintiffs. AMC is not a plaintiff. Thus, the Court will
dismiss Claim III without prejudice as to any of the allegations related to Smith’s promise
to invest in AMC. Defendants further assert that since both AMC and JTB 3 are
delinquent, neither entity is entitled to sue in this Court.
A business entity’s capacity to sue in federal district court is governed by the law
of the state under which it was organized. Fed. R. Civ. P. 17(b). Under Colorado law, an
LLC must itself bring an action to enforce an agreement to invest. “A member is
obligated to the limited liability company to perform any enforceable promise to
contribute cash or property or to perform services.” Colo. Rev. Stat. § 7-80-502(1)
(emphasis added). According to the Colorado Secretary of State’s website, both AMC
and JTB 3 have been delinquent since December 2013 for failure to maintain a registered
agent and for failure to file periodic reports. Under Colorado statutory law, a delinquent
limited liability company may not bring an action in Colorado courts for the collection of
debts. Colo. Rev. Stat. § 7-90-903(1). Hence, the Court will dismiss Claim III without
prejudice because at this time, neither AMC nor JTB 3 has the capacity to sue in this
Court. Cf. Associated Communications & Research Services, Inc. v. Kansas Personal
Communications Services, 31 F.Supp.2d 949, 951 (D. Kan. 1998) (noting that dismissal
of claim brought by corporation because it was delinquent in paying state taxes should be
without prejudice). In the interest of completeness, the Court will address the other
arguments in the Motion.
As quoted above, under Colorado law, a member of an LLC “is obligated to the
limited liability company to perform any enforceable promise to contribute cash or
property or to perform services, even if the member is unable to perform because of
death, disability, or any other reason.” Colo. Rev. Stat. § 7-80-502(1). However, “[n]o
promise by a member to contribute to the limited liability company is enforceable unless
set out in a writing signed by the member.” Colo. Rev. Stat. § 7-80-502(3) (emphasis
added). Defendants maintain that Plaintiffs have failed to allege that there is a valid
written agreement obligating Smith to invest in AMC and JTB 3.
Plaintiffs respond that the Complaint alleges the existence of written agreements.
Plaintiffs claim that Exhibits 14 and 15 to the Complaint are evidence of a meeting held
on December 29, 2011 at which Smith agreed to exchange gemstones, jewelry, and
organs for an interest in AMC and JTB 3. (Compl. ¶¶ 29-30.) The Court agrees that the
Complaint alleges the existence of a written agreement, but the Court cannot rule on the
sufficiency of that agreement. The Court does note that there is no clear statement in
either exhibit that Smith invested gemstones and jewelry in exchange for the 5% interest
in AMC and JTB 3.
Defendants further argue that Plaintiffs have failed to allege that the contract was
sufficiently specific to be enforceable. In Colorado, “to form the basis for an enforceable
contract, a promise must be ‘reasonably certain’; that is, the promise must be sufficiently
specific to ‘provide a basis for determining the existence of a breach and for giving an
appropriate remedy.’” Soderlun v. Pub. Serv. Co. of Colorado, 944 P.2d 616, 620 (Colo.
App. 1997). According to Smith, Exhibits 14 and 15 are not sufficiently specific to show
that Smith agreed to invest gemstones, jewelry, and organs in exchange for the 5%
interest in AMC and JTB 3. As mentioned, the Court will not consider those documents
at this time, but will address the sufficiency of any documentary evidence of a written
agreement, if necessary, in regard to a motion for summary judgment.
To summarize, Claim III for breach of contract against Smith properly belongs to
AMC and JTB 3 because it was these entities that suffered the harm from the breach of a
contract to invest. Since those Colorado entities are delinquent, they have no capacity to
sue in this Court. For this reason, the Court will dismiss Claim III without prejudice.
Plaintiffs’ Claim VI for Racketeering.
In the Motion, Defendants assert that Plaintiffs’ Claim VI purports to incorporate
earlier paragraphs into a claim of racketeering, and Defendants seek dismissal of this
claim to the extent it is based on Smith’s alleged promise to invest the gemstones and
jewelry. In the Response, Plaintiffs only state that Defendants “fail to elucidate how the
gemstones and jewelry might be related to the claim for racketeering.” (Resp. at 6.) The
Court agrees with Defendants that Plaintiffs’ statement essentially admits that the
racketeering claim is unrelated to the gemstones and jewelry. Accordingly, the Court will
dismiss Claim VI as it relates to the gemstones and jewelry.
Plaintiffs’ Claim VII for Malicious Abuse of Process.
In Claim VII, Plaintiffs allege that Smith “made false reports to governmental
agencies, has used the legal system for improper purposes with an illegitimate motive
thus committing a malicious abuse of process entitling the Bobby Willis Plaintiffs to
compensatory and punitive damages.” (Compl. ¶ 82.). The Complaint contains
allegations that Smith made false sworn statements to the State of New Mexico, which
led the State to pursue criminal charges of embezzlement against Willis. (Id. ¶ 45.) In the
Complaint, Plaintiffs admit that Willis was arrested and charged with embezzlement, but
they allege that the charges were based on Smith’s false statement. (Id. ¶ 46.) Plaintiffs
allege that Willis was falsely imprisoned at the San Juan County Jail until his release on
May 28, 2015. (Id. ¶ 47.)
In the Motion and Reply, Defendants maintain that Smith truthfully accused
Willis of embezzlement because, as a matter of law, Smith owned and was entitled to
possession of the gemstones and jewelry, but Willis refused to return the property to
Smith. In the Response, Plaintiffs argue that by admitting in the Motion that Smith
voluntarily gave his jewels to Willis, Defendants essentially concede that Smith falsely
accused Willis of embezzlement. Moreover, Plaintiffs claim that Willis was not in
possession of the property when Smith accused him of embezzlement. Plaintiffs point to
the “documentary proof” that “Garner was in possession of the jewels and then delivered
them to someone else for safekeeping, and they were in that person’s possession – not
Bobby Willis’– when the police seized them.” (Resp. at 7) (emphasis in original).
Plaintiffs then ask the Court to conclude that “there is no basis for dismissal of this claim
since Smith did indeed falsely report to the police that Willis ‘embezzled’ his jewels.”
(Resp. at 7.)
Plaintiffs reveal a fundamental misunderstanding of the crime of embezzlement.
“Embezzlement consists of a person . . . converting to the person’s own use anything of
value, with which the person has been entrusted, with fraudulent intent to deprive the
owner thereof.” NMSA 1978 § 30-16-8. The fact that Willis originally had permission to
possess the property and that the property was later found in a third party’s possession, do
not negate the possibility that Willis committed the crime of embezzlement. In addition,
both sides address Smith’s truthfulness in accusing Willis of embezzlement, but neither
side adequately addresses the elements of a malicious prosecution claim. Weststar
Mortgage Corp. v. Jackson, 2003-NMSC-002, ¶ 17, 133 N.M. 114, 61 P.3d 823.
Under New Mexico law, the torts of malicious prosecution and abuse of process
have been combined into a single cause of action for malicious abuse of process. Durham
v. Guest, 2009-NMSC-007, ¶ 29, 204 P.3d 19, 26 (N.M. 2009). To prevail on a claim of
malicious abuse of process, a party must show: (1) the initiation of judicial proceedings
against the plaintiff by the defendant; (2) “an act by the defendant in the use of process
other than such as would be proper in the regular prosecution of the claim”; (3) “a
primary motive by the defendant in misusing the process to accomplish an illegitimate
end”; and (4) damages. Weststar Mortgage Corp., 2003-NMSC-002, ¶ 6 (citation
omitted). Defendants argue that Plaintiffs’ claim fails the first element because a report to
a law enforcement agency is, as a matter of law, not the initiation of judicial proceedings.
However, New Mexico courts have held that a person who communicates material
information falsely or inaccurately on which a prosecutor relies, can be regarded as an
“instigator of the proceeding” for purposes of a malicious abuse of process claim Id. ¶ 11.
The Weststar case illustrates why Defendants’ argument fails.
Weststar, an escrow company, bought a real estate contract from Jackson. Id. ¶ 2.
Norwest Bank, acting for Weststar, accidentally transferred into Jackson’s bank account
over $12,000 more than he was entitled to under the purchase agreement. Id. Jackson did
not inform Weststar about the mistake, but kept the money, and refused to return the
funds to Weststar upon request. Id. ¶ 3. Believing that Jackson had committed a crime,
Weststar Vice President Inman filed a police report. Id. The police detective investigated
the claim and gave his findings to an assistant district attorney (ADA) for review. Id. ¶ 4.
After determining that probable cause existed, the ADA issued a criminal complaint,
acquired an arrest warrant from a magistrate judge, appeared at a preliminary hearing,
and presented the evidence against Jackson. Id. The district court bound Jackson over for
trial, but the ADA later dismissed the criminal charges because Norwest Bank failed to
provide documents vital for the prosecution. Id.
In Weststar’s civil case for collection of the funds, Jackson asserted a
counterclaim for malicious abuse of process. Id. ¶ 5. The district court denied Weststar’s
motion to dismiss the claim, but the New Mexico Supreme Court reversed. Id. As to the
first element of the claim, Weststar argued that it had not initiated criminal proceedings,
as that term is used in malicious abuse of process claims, but merely reported Jackson to
the authorities. Id. ¶¶ 9-10. The Court ruled that Weststar’s report and cooperation with
the criminal investigation was “not sufficient as a matter of law to establish that Weststar
initiated the criminal proceedings against Jackson. The Court stressed that the criminal
complaint was based on the detective’s “independent investigation” and not on the
information supplied by Weststar. Id. ¶ 13 (“[T]he independent exercise of prosecutorial
discretion establishes as a matter of law that Weststar did not initiate the prosecution.”)
(citing Restatement (Second) of Torts § 653 cmt. g.).
Defendants argue that Smith merely provided information to the police detective
about Willis’s embezzlement of Smith’s property. Thus, Smith, as a matter of law, did
not initiate criminal proceedings against Willis. Importantly, however, Plaintiffs stress
that Smith provided false information to the authorities and caused Willis to be falsely
accused of a crime. Thus, Plaintiffs have sufficiently alleged the first element of a
malicious abuse of process claim, i.e. that Smith initiated criminal proceedings by falsely
accusing Willis of embezzlement. Id. ¶ 11 (“[T]he defendant can be regarded as an
instigator of the proceeding only if (a) he [or she] communicates material information
falsely or inaccurately and the prosecutor relies upon his [or her] statement[.]”) (citing
Dan B. Dobbs, The Law of Torts § 431, at 1217 (2000)).
In the Weststar case, on the second element of the claim Jackson had to show that
Weststar, at the time it went to the police, knew there was no probable cause to believe
that Jackson had committed a crime. Id. ¶ 17. The New Mexico Supreme Court held that
“Weststar had a reasonable belief, founded on known facts,” that Jackson had committed
a crime, and the belief was confirmed by the investigating detective and the ADA. Id. ¶
18. The fact that the criminal case was dismissed on procedural grounds, and not on the
merits, did not alter that conclusion. Id. ¶ 19. In this case, Plaintiffs allege that Willis was
falsely accused, falsely arrested, and released from custody.
With regard to the third element, Jackson had to show that Weststar initiated the
legal proceedings primarily to accomplish an illegitimate end, which must be more than
“ill will or spite.” Id. ¶ 23. The New Mexico Supreme Court concluded that Jackson
failed to prove this element even though Weststar made the criminal report primarily to
get its money back. Id. ¶ 24. “[I]f the accuser’s belief in the criminal character of the
accused’s conduct is reasonable, the proceedings and the existence of an improper
purpose is not enough to make [the accuser] liable.” Id. ¶ 25 (quoting, Restatement
(Second) of Torts § 668 cmt. g.). But, if Smith accused Willis of embezzlement primarily
to get his property back in breach of his own agreement to invest that property, Smith
may be liable for malicious abuse of process. Thus, Plaintiffs’ malicious abuse of process
claim may go forward because they have alleged facts that at the time Smith reported
embezzlement, Smith knew there was no probable cause to believe Willis had committed
Plaintiff’s Claim VIII for Defamation.
In Claim VIII, Plaintiffs assert that Smith is liable for defamation for publically
reporting that Willis embezzled Smith’s gemstones and jewelry. (Id. ¶¶ 83-87.) Under
New Mexico law, a prima facie case of the tort of defamation includes: (i) a published
communication by the defendant; (ii) the communication includes an asserted statement
of fact; (iii) the communication was concerning the plaintiff; (iv) the statement of fact is
false; (v) the communication was defamatory; (vi) the persons receiving the
communication understood it to be defamatory; (vii) the defendant knew the
communication was false or negligently failed to recognize that it was false, or acted with
malice; (viii) the communication caused actual injury to the plaintiff’s reputation; and
(ix) the defendant abused its privilege to publish the communication. Heyward v. Credit
Union Times, 913 F. Supp. 2d 1165, 1190–91 (D.N.M. 2012). In the briefing on the
Motion, both sides focus on the fourth element, whether Smith’s report that Willis
embezzled Smith’s gemstones and jewelry was true or false. Defendants contend that
Willis undisputedly gained possession of the property, refused to return it to Smith, and
then put the property “into possession of Garner.” (Reply at 11.) Defendants then aver,
citing to Exhibit 17 of the Complaint, that when Willis gave the property to Garner he
told Garner that the property was an “asset” of AMC. (Id. citing Compl. Ex. 17.) Even if
the Court were to consider Exhibit 17, these facts, that Willis gained possession of the
property, transferred possession of the property, and told someone that the property was
an asset of AMC, do not establish the truth of Smith’s report of embezzlement. If Smith
reported Willis as an embezzler for keeping property Smith had agreed to invest in a
business venture, Smith could be liable for defamation. Consequently, the Court will not
dismiss Claim VIII.
Claim X for constructive trust.
In Claim X, Plaintiffs aver that the gemstones and jewelry are being held as
evidence by the State of New Mexico and that a constructive trust should be imposed on
this property for the benefit of Willis or “other potential parties damaged as a result of the
fraudulent and negligent acts of Quentin Smith.” (Compl. ¶¶ 93-94.) Plaintiffs further
assert that the property should be sold and the proceeds escrowed in the Court Registry
pending the outcome of the case and potential recovery by Willis. (Id. ¶ 95.) Defendants
argue that since there was no promise to invest the property, Smith is entitled to
ownership of the property and no constructive trust claim can stand. Both sides miss the
First, a request for the imposition of a constructive trust is not a cause of action,
but is a remedy. Over and Out, Inc. v. Eclipse Aviation, Corp. (In re AE Liquidation,
Inc.), 426 B.R. 511, 514 (Bankr. D. Del. 2010) (applying New Mexico law regarding
constructive trust). Under New Mexico law,
[A] constructive trust . . . is imposed to prevent the unjust enrichment that
would result if the person having the property were permitted to retain it.
The circumstances where a court might impose such a trust are varied.
They may involve fraud, constructive fraud, duress, undue influence,
breach of a fiduciary duty, or similar wrongful conduct.
Id. (applying New Mexico law and finding that customers who made deposits to purchase
jet airplanes that were never manufactured had sufficiently alleged their right to a
constructive trust) (citation omitted) (emphasis added). Under this standard, Plaintiffs’
allegations are wholly insufficient to establish the right to a constructive trust. It was
Willis who received the property from Smith, not the other way around. Furthermore,
according to the Complaint, the property is now being held by New Mexico authorities as
evidence in a criminal case. Defendants further assert that the property is in “imminent
danger of seizure by the United States in connection with a criminal prosecution of
Bobby Willis.” (Reply at 12.) Regardless of whether the New Mexico or United States
authorities have possession of the property, Plaintiffs have failed to allege a right to a
constructive trust against Smith because Smith does not have possession of the property.
Romualdo P. Eclavea, John A. Gebauer, John Glenn, Glenda K. Harnad, Sonja Larsen,
Karl Oakes, and Eric C. Surette, 76 Am. Jur. 2d Trusts § 176 (2016) (“Two essential
elements of a constructive trust action have been said to be the existence of identifiable
property to serve as the res upon which a trust can be imposed and possession of that res
or its product by the person who is to be charged as the constructive trustee.”) (citations
and footnotes omitted). Thus, the Court will dismiss Claim X.
Claim XI Prima Facie Tort
After incorporating previous paragraphs, Plaintiffs state in Claim XI that
“Quentin Smith and Garner acted for the purpose of intentionally causing harm to the
Bobby Willis Plaintiffs without justification thus entitling the Bobby Willis Plaintiffs to
compensatory and punitive damages.” (Compl. ¶ 97.) Defendants argue that Plaintiffs’
Complaint fails to explain whether this claim is based on the circumstances surrounding
the gemstones and jewelry. However, Defendants maintain that to the extent this claim
relates to Smith’s alleged promise to invest the gemstones and jewelry, the claim must be
dismissed because “the investment did not occur.” (Reply at 12.) Plaintiffs merely argue
that “Defendants fail to articulate a basis for dismissal of this Claim.” (Resp. at 8.)
To state a claim for prima facie tort under New Mexico law, a plaintiff must
allege (1) an intentional and lawful act; (2) with intent to injure the plaintiff; (3) injury to
the plaintiff caused by the act; and (4) the absence of justification for the injurious act.
Healthsource, Inc. v. X-Ray Assocs. of N.M., 2005-NMCA-097, ¶ 34, 138 N.M. 70, 116
P.3d 861. Necessarily, this claim is an alternative claim. Hill v. Cray Research, 864 F.
Supp. 1070, 1080 (D.N.M. 1991) (dismissing a prima facie tort claim because factual
allegations stated a claim for another type of established tort). However, if a plaintiff
merely re-alleges the facts in support of the other causes of action, adding only a bare
recital of the elements of prima facie tort relating to intent and justification, a court
should dismiss it “as a means of avoiding the more stringent requirements of other torts.”
Id. In this case, Plaintiffs have not alleged this claim in the alternative. And, Plaintiffs
have merely re-alleged the facts in support of the other claims. Therefore, the Court will
dismiss Claim XI.
IT IS ORDERED that the SECOND MOTION TO DISMISS: CLAIMS
CONCERNING ALLEGED INVESTMENT AND CONSTRUCTIVE TRUST OF
GEMSTONES, JEWELRY, AND ORGANS (Doc. No. 35) is granted in part and denied
in part, and the Court will enter a separate order of dismissal of certain claims.
SENIOR UNITED STATES DISTRICT JUDGE
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