Orlowski et al v. Bates et al

Filing 543

ORDER granting in part and denying in part 438 Motion for Summary Judgment and denying 491 Defendants Barbara Bates and Larry Bates' Motion for Dismissal and Sanctions. Signed by Judge Jon Phipps McCalla on 11/18/2015. (McCalla, Jon)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TENNESSEE
WESTERN DIVISION

DAMIAN ORLOWSKI, et al.,

)
)
)
)
)
)
)
)
)
)
)
)

Plaintiffs on behalf of
themselves and others
similarly situated,

v.
LARRY BATES, et al.,
Defendants.

Case No. 2:11-cv-01396

________________________________________________________________
ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFFS’ MOTION
FOR SUMMARY JUDGMENT AND DENYING DEFENDANTS BARBARA BATES AND
LARRY BATES’ MOTION FOR DISMISSAL AND SANCTIONS
________________________________________________________________
Before the Court is Plaintiffs’ Motion for Summary Judgment
as

to

Defendants

First

American

Monetary

Consultants,

Inc.

(“FAMC”), Information Radio Network, Inc. (“IRN”), Charles Larry
Bates (“Larry Bates”), Barbara Bates, Robert Bates, Charles E.
Bates (“Charles Bates”), and Kinsey Brown Bates, filed July 29,
2015.

(ECF No. 438.)

Also before the Court is Defendants Barbara Bates and Larry
Bates’

Motion

for

Dismissal

and

Sanctions

Against

Plaintiffs

Attorney and Receiver and Attorneys for Receivership (“Motion
for Dismissal and Sanctions”), filed September 28, 2015.
No. 491.)
1

(ECF

For the reasons stated below, the Court GRANTS IN PART and
DENIES IN PART Plaintiffs’ Motion for Summary Judgment.

The

Court DENIES Defendants Barbara Bates and Larry Bates’ Motion
for Dismissal and Sanctions.
I.

BACKGROUND
A.

Factual Background

This case involves allegations of a complex, large-scale
scheme to defraud hundreds of people over the course of many
years.
that

(See 3d Am. Compl., ECF No. 375.)
Defendants

advertised

to

and

Plaintiffs allege

solicited

money

from

individuals “for the alleged and believed purpose of purchasing
gold,
¶ 25.)

silver

and

precious

metals

through

Defendants.”

(Id.

“These purchases of precious metals [were] advertised by

Defendants as a ‘safe’ purchase to protect and harness wealth
during, what Defendants characterize[d] as, a period of world
chaos and uncertainty, based on Christian beliefs and current
political upheavals.”

(Id. ¶ 26.)

Defendants received orders

for precious metals from more than 500 customers.

(Id. ¶ 148.)

Plaintiffs allege that these sales were made as part of a scheme
devised by Larry Bates, Robert Bates, Charles Bates, Barbara
Bates, Kinsey Brown Bates, and other Defendants, and designed to
defraud customers.

(See id. ¶ 46.)

2

1.

First American Monetary Consultants, Inc.

FAMC was established by Larry Bates in 1983 and was in the
business of selling precious metals.

(C. Larry Bates (“Larry

Bates”) Dep. 19:4-15, ECF No. 183; Barbara Bates Dep. 14:15-21,
ECF No. 87-1; Statement of Undisputed Facts (“SUF”) ¶ 1, ECF No.
438-2.) 1

Larry Bates owns 50% of FAMC and Barbara Bates owns the

other 50%.

(Barbara Bates Dep. 15:3-7, ECF No. 87-1.)

FAMC

acquired customers through media advertisements, publications,
conferences across the nation, and through referrals from other
customers.

(Charles Bates Dep. 52:13-24, ECF No. 323; Larry

Bates Dep. 135, ECF No. 183; SUF ¶ 14, ECF No. 438-2.)
When a customer called FAMC, he or she would speak to an
FAMC economist or consultant about placing an order for precious
metals.

(Larry Bates Dep. 60:24-61:7, ECF No. 183; SUF ¶ 30,

ECF No. 438-2.) The economist or consultant would then advise
the

customer

customer

whether

should

and

purchase.

32:9-25, ECF No. 323.)

what

types

(Charles

of

precious

Bates

Dep.

metals

the

30:20-31:22,

The economist or consultant would refer

to the market price for gold bullion and a formula developed by
Larry Bates to quote a price for the customer.

1

(Larry Bates

Along with their Motion for Summary Judgment, Plaintiffs submit a Statement
of Undisputed Facts. (ECF No. 438-2.) A review of the record, however,
reveals that many of the facts at issue in this case are, in fact, disputed.
See Fed. R. Civ. P. 56(c)(3) (“The court need consider only the cited
materials, but it may consider other materials in the record.” (emphasis
added)). The Court addresses below any factual disputes pertinent to the
claims at issue in this Order.

3

Dep. 61:13-62:10, ECF No. 183; Charles Bates Dep. 33:1-14, ECF
No. 323; SUF ¶ 36, ECF No. 438-2.)
quoted

price,

the

economist

or

If the customer accepted the

consultant

would

fill

out

an

internal transaction form, which was slipped under the door of
FAMC’s executive offices to notify Larry Bates that an order had
been placed.
Dep.

21-22,

(Larry Bates Dep. 62:23-63:5, ECF No. 183; Barnett
ECF

No.

93-1;

SUF

¶

ordering was done by Larry Bates.

37,

ECF

No.

438-2.)

All

(Denison Dep. 53:10-54:22,

118:25-119:7, 155:23-25, ECF No. 322-1; Charles Bates Dep. 32:35, 38:11-14, ECF No. 323; Larry Bates Dep. 226:6-14, 246:22-24,
ECF No. 183; SUF ¶ 48, ECF No. 438-2.)

An invoice would then be

created by Cindy Standley and mailed to the customer.

(Kinsey

Bates Dep. 30:15-20, 31:5-7, ECF No. 88-1; SUF ¶ 52, ECF No.
438-2.)

The customer would mail a check back to the Tennessee

or Colorado office of FAMC.

(Barbara Bates Dep. 35:17-20, ECF

No. 87-1; SUF ¶ 53, ECF No. 438-2.)
The

money

received

operating accounts.

precious

metals

FAMC

was

deposited

into

FAMC

(Larry Bates Dep. 88:17-21, ECF No. 183;

SUF ¶ 49, ECF No. 438-2.)
the

by

and

FAMC was then supposed to purchase
deliver

them

to

customers.

Some

customers received partial orders and some customers received
nothing at all.

(Carmack Aff. ¶ 5, ECF No. 116-2; Cook Aff.

¶¶ 4, 6, ECF No. 116-3; Conklin Aff. ¶ 3, ECF No. 117-1; Dean
Aff. ¶¶ 5, 9, 10, ECF No. 118-1; Matthews Aff. ¶¶ 3-4, ECF No.
4

119-1; Butler Rep. 4-6, ECF No. 426-5; SUF ¶ 45, ECF No. 438-2.)
When shipping products to customers, FAMC used the United States
Postal Service (“USPS”).

(Charles Bates Dep. 132:7-11, ECF No.

323; SUF ¶ 55, ECF No. 438-2.)
2.

Information Radio Network

IRN was a radio network established by Larry Bates in 2008.
(Butler Rep. 1, ECF No. 426-5; Larry Bates Dep. 41:10-13, ECF
No.

183.)

IRN

has

approximately

thirty-five

different

talk

shows and also produces news at the “top and bottom of the
hour.” (Charles Bates Dep. 59:14-22, ECF No. 323.)
Larry Bates and Barbara Bates owned a two-thirds interest
in

IRN

and

interest.

the

Maddoux

family

owned

an

encumbered

(Larry Bates Dep. 41:10-24, ECF No. 183.)

one-third
The IRN

Board of Directors was made up of Larry Bates, Barbara Bates,
and Mark Maddoux.

(Larry Bates Dep. 43:16-44:1, ECF No. 183.)

Larry Bates was the CEO of IRN, Charles Bates was the Executive
Vice

President

and

News

Director,

and

Robert

Bates

was

the

Senior Vice President in charge of advertising and affiliate
sales.

(Larry Bates Dep. 52:9-19, ECF No. 183; Charles Bates

Dep. 60:13-18, 61:7-12, ECF No. 323.)

Charles Bates handled

news gathering and oversaw technical operations and also hosted
a radio show on IRN, during which he, on occasion, mentioned
FAMC.

(Charles Bates Dep. 53:3-7, 54:7-9, 61:21-23, ECF No.

5

323.)

Robert Bates handled advertising and human resources.

(Charles Bates Dep. 61:25-62:2.)
3.

Larry Bates

Dr. Larry Bates established both FAMC and IRN and was the
“head honcho.”

(Denison Dep. 99:23-100:3, ECF No. 322-1; Larry

Bates 19:3-7, 41:10-13, ECF No. 183; SUF ¶ 12, ECF No. 438-2.)
He was the CEO and Chief Economist of FAMC.

(See Larry Bates

Dep. 20:20-22, 82:24-83:5, ECF No. 183; SUF ¶ 11, ECF No. 4382.)

Larry Bates processed every transaction for FAMC: he bought

the metals, checked the metals, directed the shipment of the
metals, and resolved any customer complaints.

(Denison Dep.

156:5-157:1, ECF No. 322-1; Charles Bates Dep. 36:7-17, 38:1114, ECF No. 323; Larry Bates Dep. 246:4-247:7, ECF No. 183; SUF
¶¶ 9, 10, 38, 44, 48, 50, ECF No. 438-2.)
developed

the

formula

precious metals.

for

quoting

the

Larry Bates also

customers

a

price

for

(Larry Bates Dep. 61:13-62:10, ECF No. 183;

SUF ¶ 36, ECF No. 438-2.)

According to Larry Bates, he has no

idea what happened to the money belonging to customers or what
happened to the coins that were supposed to fill the orders of
customers.

(Larry Bates Dep. 90:7-20, 213:25-214:14, 221:11-24,

ECF No. 183; SUF ¶ 66, ECF No. 438-2.)
Additionally, Larry Bates had access to all accounts and
monies.

(Ryder Dep. 103-104, ECF No. 433-1; SUF ¶ 110.)

Larry

Bates took $2,652,000 out of FAMC when it was insolvent, placed
6

the

money

into

$2,620,000.

a

brokerage

(Butler

Rep.

8;

account,
see

and

also

reimbursed

Ryder

Dep.

Ryder Status Rep. 4, ECF No. 426; SUF ¶¶ 108, 135.)
an

accountant

and

certified

fraud

examiner

FAMC

47:6-49:7;
Mr. Butler,

retained

by

the

Receiver, reported that Larry Bates made $160,306.00 in nonbusiness-related purchases which were included in the operating
expenses of the Company.

(Ex. H, Butler Rep. at 19, ECF No.

426-5; see SUF ¶¶ 131, 134, ECF No. 438-2.)
4.

Barbara Bates

Barbara Bates held a 50% ownership in FAMC and was involved
with IRN as an owner and director.
103:19-21,
183.)

She

ECF

No.

also

87-1;

worked

Larry
for

(Barbara Bates Dep. 15:3-7,

Bates

FAMC

as

Dep.

41:10-13,

the

vice

ECF

No.

president

of

administration and received a salary of approximately $75,000.
(Barbara Bates Dep. 19:5-7, 65:2-3, 97:1-9, ECF No. 87-1.)
duties

at

FAMC

consisted

of

paying

bills

and

(Barbara Bates Dep. 19:14-20:16, ECF No. 87-1.)

Her

bookkeeping.

When customers

sent checks to the Memphis office of FAMC, Barbara Bates would
deposit those checks into FAMC accounts.

(Barbara Bates Dep.

22:2-7, ECF No. 87-1; SUF ¶ 53, ECF No. 438-2.)

These accounts

were accessible to Barbara Bates, as well as Larry Bates and
Cindy Standley.

(Barbara Bates Dep. 53:18-20, ECF No. 87-2; SUF

¶ 54,

438-2.)

ECF

No.

transfers or sign checks.

Barbara

Bates

could

initiate

wire

(Barbara Bates Dep. 51:24-52:9, 53:57

10, ECF No. 87-1; SUF ¶ 49, ECF No. 438-2.)

Barbara Bates

further testified that she had no authority to make decisions
for writing checks or initiating wire transfers in FAMC; she
just followed her husband’s directions in that regard.

(Barbara

Bates Dep. 27:3-14, 52:23-53:2, ECF No. 87-1.)
5.
Charles

Charles Bates
Bates

was

Executive

Vice

President

and

News

Director for IRN (Larry Bates Dep. 52:14-17, ECF No. 183) and
was Special Assistant Economist and Political Affairs for FAMC
(Charles Bates Dep. 74:24-75:2, ECF No. 323). (SUF ¶¶ 96, 100,
ECF No. 438-2.)
two-hour

weekday

With respect to IRN, Charles Bates hosted a
radio

program

called

“News

and

Views.”

(Charles Bates Dep. 53:3-7, 55:20-22, ECF No. 323; see SUF ¶ 96,
ECF

No.

advised

438-2.)

As

customers

and

an

economist

accepted

with

orders

FAMC,

over

the

Charles
phone.

Bates
(See

Charles Bates Dep. 109:23-113:13, ECF No. 323; SUF ¶ 17, ECF No.
438-2.)

Charles

Bates

testified

that

when

speaking

with

a

client, he would try “to get some ideas of where they’re at
financially and then try to make recommendations from that.”
(Charles

Bates

recommendations

Dep.
ranged

109:5-11,
from

ECF

No.

specific

323.)

These

precious

metal

recommendations to general allocation or sector recommendations.
(Charles Bates Dep. 109:23-113-13, ECF No. 323.)

8

After Larry Bates began experiencing health issues, Charles
Bates

took

over

management

of

FAMC

and

IRN;

participated in management to a lesser extent.

Robert

Bates

(Larry Bates

Dep. 95:2-3, ECF No. 183; Ryder Dep. 89:21-90:19, ECF No. 433-1;
see SUF ¶ 86, ECF No. 438-2.)

The control of the “receipt and

delivery of precious metals . . . rested with Dr. Larry Bates.”
(Ryder Dep. 92:5-23, ECF No. 433-1; see also Larry Bates Dep.
226:6-8, ECF No. 183.)

If Larry Bates was absent, Charles Bates

had authority to sign for delivery of coins and had access to
the shipping room and combinations for the safes kept in that
room.

(Ryder Dep. 93:4-94:2, ECF No. 433-1; SUF ¶¶ 50, 92, ECF

No. 438-2; see also Barbara Bates Dep. 96:5-21, ECF No. 87-1;
Barnett Dep. 91:16-92:3, ECF No. 93-1; Larry Bates Dep. 225:1223, ECF No. 183.)
Charles Bates testified that he knew that customers were
still waiting on their orders.
ECF No. 323.)

(Charles Bates Dep. 94:20-95:7,

If a customer informed him that they wanted part

or all of their money back or the product, he did not have
authority

to

make

a

decision

message to Larry Bates.
No.

323;

see

Larry

on

that

and

would

forward

the

(Charles Bates Dep. 176:4-177:19, ECF

Bates

Dep.

226:12-14,

ECF

No.

183.)

According to Mr. Ryder, the Receiver appointed to manage the
corporate entities, Charles Bates would make representations to
clients about when orders would be filled.
9

(Ryder Dep. 101:4-

18, ECF No. 433-1; SUF ¶¶ 47, 91, ECF No. 438-2; see also Rikard
Dep. 131:17-132:13, ECF No. 92-1; Mathews Decl. ¶ 4, ECF No.
119-1.)

Charles Bates also advised other consultants with FAMC

that the coins were delayed because they were hard to find.
(Williams Dep. 40:10-16, ECF No. 94-1; see SUF ¶ 70, ECF No.
438-2.)

Charles Bates “continued to accept orders at a time

when he knew or should have known that orders were routinely not
being filled.”

(Ryder Dep. 104:8-21, ECF No. 433-1; Rikard Dep.

131:6-10, ECF No. 92-1; SUF ¶¶ 87, 90, ECF No. 438-2.)
Butler’s

report

further

indicates

that

$47,561.00

of

Mr.

Charles

Bates’ personal expenses were included in the operating expenses
of FAMC.

(Butler Rep. at PageID 5860, ECF No. 426-5; SUF ¶

116(j), ECF No. 438-2; see also Ryder Dep. 105:20-23, ECF No.
433-1.)
6.

Robert Bates

Robert Bates was Senior Vice President for IRN and “Senior
Monetary Consultant” for FAMC.
5, ECF No. 89-1.)
give

customers

(Robert Bates Dep. 58:3-5, 85:4-

As a consultant for FAMC, Robert Bates would

general

financial

advice

and

“specific

advice

about precious metals” based on what Larry Bates recommended.
(Robert Bates Dep. 37:16-38:8, 39:21-40:11, ECF No. 89-1; see
SUF ¶ 33, ECF No. 438-2.)
plus commissions.

His base salary at FAMC was $12,000

(Robert Bates Dep. 183:2-8, ECF No. 89-1.)

In his role as Senior Vice President for IRN, he “overs[aw] the
10

advertising

and

overs[aw]

the

affiliate

Bates Dep. 58:3-8, ECF No. 89-1.)
$36,000.

relations.”

(Robert

His base salary at IRN was

(Robert Bates Dep. 183:4-5, ECF No. 89-1.)

After Larry Bates began experiencing health issues, Robert
Bates took over management of FAMC and IRN, though to a lesser
extent than Charles Bates.
433-1;

see

SUF

¶ 86,

ECF

(Ryder Dep. 89:21-90:19, ECF No.
No.

438-2.)

The

control

of

the

“receipt and delivery of precious metals . . . rested with Dr.
Larry Bates.”

(Ryder Dep. 92:5-23, ECF No. 433-1; see also

Larry Bates Dep. 226:6-8, ECF No. 183.)

If Larry Bates was

absent, Robert Bates had authority to sign for delivery of coins
and had access to the shipping room and combinations for the
safes kept in that room.

(Ryder Dep. 93:4-94:2, ECF No. 433-1;

SUF ¶ 92, ECF No. 438-2; see also Barnett Dep. 91:16-92:3, ECF
No. 93-1; Robert Bates Dep. 227:22-228:12, ECF No. 89-1; ECF No.
89-7 at PageID 991, 993-95; SUF ¶ 111, ECF No. 438-2.)

Robert

Bates testified that while Larry Bates was on medical leave,
they informed customers that their orders would be taken care of
when Larry Bates returned from medical leave and “deferred all
complaints to [Larry Bates].”

(Robert Bates Dep. 172:4-25, ECF

No. 89-1.)
According

to

Mr.

Ryder,

Robert

Bates

would

make

representations to clients about when orders would be filled.
(Ryder Dep. 101:4-18, ECF No. 433-1; see also Robert Bates Dep.
11

270:5-7, ECF No. 89-1; Mathews Decl. ¶ 4, ECF No. 119-1; SUF
¶¶ 46,

91,

ECF

No.

438-2.)

Robert

Bates

represented

to

customers that their orders were delayed because the U.S. Mint
was behind or that their gold was held up in customs.

(Robert

Bates Dep. 192:3-12, ECF No. 89-1; see SUF ¶ 70, ECF No. 438-2.)
According to Robert Bates, when providing this information to
clients, he relied on what his dad told him.
192:12-24, 270:17-23, ECF No. 89-1.)

(Robert Bates Dep.

Additionally, Robert Bates

“continued to accept orders at a time when he knew or should
have known that orders were routinely not being filled.”

(Ryder

Dep. 104:17-105:1, ECF No. 433-1; SUF ¶¶ 87, 90, ECF No. 438-2;
see also Robert Bates Dep. 191:2-8, ECF No. 89-1.)
report

further

indicates

that

$96,012.00

of

Mr. Butler’s
Robert

Bates’

personal expenses were included in the operating expenses of
FAMC.

(Butler Rep. at PageID 5860, ECF No. 426-5; SUF ¶ 116(j),

ECF No. 438-2; see also Ryder Dep. 105:16-19, ECF No. 433-1.)
7.

Kinsey Bates

Kinsey Bates was Dr. Larry Bates’ Executive Assistant at
FAMC beginning in the fall 2009.
13:3-5,

ECF

No.

88-1;

see

SUF

(Kinsey Bates Dep. 12:9-13,
¶

78,

ECF

No.

438-2.)

She

testified that she earned an annual salary of about $32,000.
(Kinsey

Bates

Dep.

27:5-20,

ECF

No.

88-1.)

Kinsey

Bates

estimated that 90% of her time was spent working on FAMC-related
matters,

and

10%

was

spent

on
12

IRN-related

matters.

(Kinsey

Bates

Dep.

Kinsey

20:1-10,

Bates

was

ECF

No.

88-1.)

responsible

As

for

Executive

giving

Larry

Assistant,
Bates

his

messages, taking and sorting the FAMC/IRN mail, delivering items
to the post office, delivering mail to Larry Bates when he was
on medical leave, fielding customer calls regarding the status
of their orders, and delivering checks to Barbara Bates. (Kinsey
Bates Dep. 12:18-24, 16:18-22, 19:2-25, 20:14-22:7, 48:25-49:9,
ECF No. 88-1; SUF ¶ 82, ECF No. 438-2.)

Kinsey Bates testified

that she has not been in the area of FAMC where the coins are
kept and that she was not involved with any shipping.

(Kinsey

Bates Dep. 44:23-25, 56:20-57:1, ECF No. 88-1.)
Kinsey

Bates

testified

that

when

customers

requested

a

status update on their order, she would inform them that she did
not know the status of their order.

(Kinsey Bates Dep. 21:3-

22:4, ECF No. 88-1; see SUF ¶¶ 78, 81, ECF No. 438-2.)
customer

complaints

were

forwarded

Bates Dep. 23:10-14, ECF No 88-1.)
some

customers

reported

a

delay

to

Larry

Bates.

Any

(Kinsey

Kinsey Bates was aware that
in

receiving

their

orders.

(Kinsey Bates Dep. 46:13-47:5, ECF No. 88-1.)
On October 14, 2013, the same day that this Court issued
its Order for Temporary Restraining Order Freezing All Assets of
Defendants (ECF No. 120), Kinsey Bates endorsed her name on the
back of a check for $1,200.00 made out to Robert Bates from
Larry Bates.

(SUF ¶ 83, ECF No. 438-2.)
13

On October 28, 2013,

after the Receiver had been appointed and Defendants had notice
of the TRO, Kinsey Bates deposited this check into her account.
(See ECF No. 124; SUF ¶¶ 78, 83, ECF No. 438-2.)
report

indicates

unearned

that

commissions,

Kinsey

Bates

was

paid

although

she

was

not

Mr. Butler’s
$6,474.00
an

in

economist.

(Butler Rep. at PageID 5859 & n.1, ECF No. 426-5; see SUF ¶ 113,
ECF

No.

438-2.)

Mr.

Butler’s

report

further

shows

that

$9,758.00 of Kinsey Bates’ personal expenses were included in
the operating expenses of FAMC.

(Butler Rep. at PageID 5860,

ECF No. 426-5; see SUF ¶¶ 113, 116(j), ECF No. 438-2.)
B.

Procedural Background

Plaintiffs filed the Complaint in this action on December
28, 2011.

(Compl., ECF No. 1.)

Plaintiffs filed their First

Amended Complaint on August 13, 2012 (ECF No. 53), their Second
Amended Complaint on March 14, 2014 (ECF No. 224), and their
Third Amended Complaint on October 20, 2014 (ECF No. 375).
On

December

certification.

17,

2013,

(ECF No. 182.)

Plaintiffs

moved

The

Court

granted

class

The Court held a hearing on the

motion for class certification on April 29, 2014.
285.)

for

Plaintiffs’

motion

(ECF No.
for

class

certification on April 30, 2014 (ECF No. 289), and issued an
amended order certifying the class later that same day (ECF No.
290).

14

On July 29, 2015, Plaintiffs filed a Motion for Summary
Judgment as to Defendants FAMC, IRN, Larry Bates, Barbara Bates,
Robert Bates, Chuck Bates, and Kinsey Bates.
September

4,

2015,

the

Court

granted

(ECF No. 438.)

Defendants

Larry

On
and

Barbara Bates a thirty-day extension to respond to Plaintiff’s
Motion.

(ECF Nos. 481, 482.)

Defendants Larry and Barbara

Bates filed a joint Response to Plaintiffs’ Motion for Summary
Judgment and Motion for Dismissal and Sanctions on September 28,
2015.

(ECF No. 491.)

Defendants Charles Bates and Robert Bates

untimely filed a Response on October 20, 2015, eighty-three (83)
days after Plaintiffs’ Motion for Summary Judgment was filed.
(ECF No. 504.)

Defendants FAMC, IRN, and Kinsey Bates did not

file a response.
to

Defendants

The Receiver filed a reply brief and responded

Larry

and

Barbara

Bates’

Motion

on

October

1,

2015.

(ECF No. 496.)

Plaintiffs filed a reply on October 7,

2015.

(ECF No. 498.)

Plaintiffs responded to Defendants Larry

and Barbara Bates’ Motion on October 9, 2015.
The

Court

held

a

hearing

on

Judgment on October 27, 2015.
II.

Plaintiffs’

(ECF No. 499.)

Motion

for

Summary

(ECF No. 515.)

LEGAL STANDARD
A.
A

Summary Judgment
party

is

entitled

to

summary

judgment

“if

the

movant

shows that there is no genuine dispute as to any material fact
and the movant is entitled to judgment as a matter of law.”
15

Fed. R. Civ. P. 56(a).

“A fact is ‘material’ for purposes of

summary judgment if proof of that fact would establish or refute
an

essential

element

of

the

cause

of

action

or

defense.”

Bruederle v. Louisville Metro Gov’t, 687 F.3d 771, 776 (6th Cir.
2012).
“In considering a motion for summary judgment, [the] court
construes all reasonable inferences in favor of the nonmoving
party.”

Robertson v. Lucas, 753 F.3d 606, 614 (6th Cir. 2014)

(citing

Matsushita

Elec.

Indus.

475 U.S. 574, 587 (1986)).
burden

of

demonstrating

material fact.”

Co.

v.

Zenith

Radio

Corp.,

“The moving party bears the initial

the

absence

of

any

genuine

issue

of

Mosholder v. Barnhardt, 679 F.3d 443, 448 (6th

Cir. 2012) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323
(1986)).
“Once the moving party satisfies its initial burden, the
burden shifts to the nonmoving party to set forth specific facts
showing a triable issue of material fact.”

Mosholder, 679 F.3d

at 448-49; see also Fed. R. Civ. P. 56(e); Matsushita, 475 U.S.
at 587.

“When the non-moving party fails to make a sufficient

showing of an essential element of his case on which he bears
the burden of proof, the moving parties are entitled to judgment
as a matter of law and summary judgment is proper.”
Cracker

Barrel

Old

Country

Store,

Inc.,

Martinez v.

703 F.3d

911,

914

(6th Cir. 2013) (quoting Chapman v. UAW Local 1005, 670 F.3d
16

677, 680 (6th Cir. 2012) (en banc)); see also Kalich v. AT & T
Mobility, LLC, 679 F.3d 464, 469 (6th Cir. 2012).
“To show that a fact is, or is not, genuinely disputed,
both parties are required to either ‘cite[] to particular parts
of materials in the record’ or ‘show[] that the materials cited
do not establish the absence or presence of a genuine dispute,
or that an adverse party cannot produce admissible evidence to
support the fact.’”

Bruederle, 687 F.3d at 776 (alterations in

original)

Fed.

(quoting

R.

Civ.

P.

56(c)(1));

see

also

Mosholder, 679 F.3d at 448 (“To support its motion, the moving
party may show ‘that there is an absence of evidence to support
the nonmoving party’s case.’”) (quoting Celotex Corp., 477 U.S.
at

325).

evidence,

“Credibility
and

the

determinations,

drawing

of

legitimate

the

weighing

facts are jury functions, not those of a judge[.]”

the

from

inferences

of

the

Martinez,

703 F.3d at 914 (alteration in original) (quoting Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 255 (1986)).
“The court need consider only the cited materials, but it
may

consider

P. 56(c)(3).

other

materials

in

the

record.”

Fed.

R.

Civ.

“[T]he district court has no ‘duty to search the

entire record to establish that it is bereft of a genuine issue
of material fact.’”
Touche,
(quoting

535 F. App’x
Tucker

v.

Pharos Capital Partners, L.P. v. Deloitte &
522,

523

(6th Cir.

Tennessee,

539 F.3d

17

2013)
526,

(per
531

curiam)
(6th Cir.

2008)).

“‘[J]udges are not like pigs, hunting for truffles’

that might be buried in the record.”
Corp.,

446 F.

App’x

733,

736

(6th

Emerson v. Novartis Pharm.
Cir.

2011)

(alteration

in

original) (quoting United States v. Dunkel, 927 F.2d 955, 956
(7th Cir. 1991)).
The decisive “question is whether ‘the evidence presents a
sufficient

disagreement

to

require

submission

to

a

jury

or

whether it is so one-sided that one party must prevail as a
matter of law.’”

Johnson v. Memphis Light Gas & Water Div., 777

F.3d 838, 843 (6th Cir. 2015) (quoting Anderson, 477 U.S. at
251–52).

“[A] mere ‘scintilla’ of evidence in support of the

non-moving party’s position is insufficient to defeat summary
judgment;

rather,

the

non-moving

party

must

present

evidence

upon which a reasonable jury could find in her favor.”
v.

Arbors

at

Hilliard,

692

F.3d

523,

529

(6th

Cir.

Tingle
2012)

(quoting Anderson, 477 U.S. at 251).
B.

Pro Se Standards

Documents filed by pro se litigants are “‘to be liberally
construed’” and “‘however inartfully pleaded, must be held to
less

stringent

lawyers.’”

standards

than

formal

pleadings

drafted

by

Erickson v. Pardus, 551 U.S. 89, 94 (2007) (quoting

Estelle v. Gamble, 429 U.S. 97, 106 (1976)).

Pro se litigants,

however, are not exempt from the basic pleading requirements of

18

the Federal Rules of Civil Procedure.

Wells v. Brown, 891 F.2d

591, 594 (6th Cir. 1989).
III. ANALYSIS
In their Motion for Summary Judgment, Plaintiffs argue that
they are entitled to summary judgment on six causes of action
against

Defendants

FAMC,

IRN,

Larry

Bates,

Barbara

Charles Bates, Robert Bates, and Kinsey Bates 2:
contract/unjust
fraud/tortious

enrichment

(ECF

misrepresentation

No.
(id.

438-1
at

Bates,

(1) breach of

at

19-27);

12-19);
(3)

(2)

wrongful

trover/conversion (id. at 27-28); (4) breach of trust/breach of
fiduciary duty (id. at 28-31); (5) civil RICO (id. at 31-37);
and (6) tortious conspiracy (id. at 38-41).
A.

Choice of Law

Because

five

of

the

six

causes

of

action

alleged

by

Plaintiffs are based on state law, the Court must first address
the threshold question of which state’s law applies. Plaintiffs
argue that Tennessee law applies because Tennessee has the most
significant relationship to the claims in this case.
438-1 at 10-12.)

(ECF No.

Defendants have not challenged the application

of Tennessee law.

2

In addition to the six apparent causes of action, Plaintiffs also include
“constructive trust” in their causes of action section. (ECF No. 438 at 3738.) This “cause of action,” however, appears to be relief requested as a
result of the other causes of action as opposed to an independent ground for
relief.

19

“[A] federal court sitting in diversity applies the choiceof-law rules of the state in which the court sits.”

Performance

Contracting Inc. v. DynaSteel Corp., 750 F.3d 608, 611 (6th Cir.
2014) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S.
487, 497 (1941)).

“Tennessee has adopted the ‘most significant

relationship’ test of the Restatement (Second) Conflict of Laws
to choice-of-law questions for tort claims.”

Carbon Processing

& Reclamation, LLC v. Valero Mktg. & Supply Co., 823 F. Supp. 2d
786, 809 (W.D. Tenn. 2011).

Under this test, courts

should weigh the parties’ contacts to determine which
state has the most significant relationship to the
action, including (1) the place where the injury
occurred; (2) the place where the conduct causing the
injury
occurred;
(3)
the
domicile,
residence,
nationality, place of incorporation and place of
business of the parties; and (4) the place where the
relationship, if any, between the parties is centered.
Id. at 810; see also Gov’t Emps. Ins. Co. v. Bloodworth, No.
M2003-02986-COA-R10-CV, 2007 WL 1966022, at *28 (Tenn. Ct. App.
June 29, 2007).
As Plaintiffs correctly point out, Tennessee has the most
significant relationship to the tort claims in this case for
several reasons: (1) the majority of the defendants are citizens
of Tennessee; (2) FAMC’s business was centered in Tennessee and
three-quarters of its employees worked in the Tennessee office;
(3) all of the purchasing of precious metals by FAMC was done in
Tennessee; (4) all metals were shipped to the Memphis office of

20

FAMC; (5) all FAMC employees, in both Tennessee and Colorado,
reported to Larry Bates and their commissions were paid out of
the Tennessee office; and (6) Larry Bates, the “head honcho of
FAMC” resides in and worked in Tennessee.
12.)

(ECF No. 438-1 at 11-

Although FAMC was a Colorado corporation and the injuries

occurred in multiple states, the fraudulent scheme emanated from
and was controlled from Tennessee.

(Id.)

The Court finds that

factors (2), (3), and (4) weigh heavily in favor of applying
Tennessee law.

Consequently, Tennessee law applies to the tort

claims in this action.
For contract claims, “Tennessee adheres to the rule of lex
loci contractus—‘a contract is presumed to be governed by the
law

of

the

jurisdiction

contrary intent.’”

in

which

it

was

executed

absent

a

Se. Texas Inns, Inc. v. Prime Hosp. Corp.,

462 F.3d 666, 672 n.8 (6th Cir. 2006) (quoting Vantage Tech.,
LLC v. Cross, 17 S.W.3d 637, 650 (Tenn. Ct. App. 1999)).
contract
Tennessee

for
Code

the

sale

provides

of

goods,

that

“when

section
a

47–1–301

transaction

In a

of
bears

the
a

reasonable relation to this state and also to another state or
nation the parties may agree that the law either of this state
or of such other state or nation shall govern their rights and
duties.”

Tenn. Code Ann. § 47–1–301.

“In the absence of such

an agreement, Tennessee’s UCC applies ‘to transactions bearing

21

an appropriate relation to’ the state of Tennessee.”

Carbon

Processing, 823 F. Supp. 2d at 801.
In the instant matter, the parties have not disputed that
Tennessee law governs the contract claim.

In the absence of a

contractual choice of law agreement to the contrary, Tennessee
law applies to this claim.

See id.

Plaintiffs primarily placed

their orders via telephone to economists and consultants located
in Tennessee.
Tennessee.

Many of the customers mailed back the invoices to
Additionally, the orders of precious metals were

shipped from Tennessee.

These transactions bear an appropriate

relation to the State of Tennessee, and accordingly, Tennessee
law applies to the contract claim. 3
B.

Breach of Contract

Plaintiffs argue that “Defendants breached their contracts
with the Plaintiffs for the sale of precious metals when they
failed to substantially perform within a reasonable amount of
time.”

(ECF No. 438-1 at 12.)

Plaintiffs contend that

[t]he Defendants’ breaches include, but are not
limited to, failing to deliver all or part of the
ordered and paid for precious metals; failing to
deliver the ordered and paid for precious metals
within the represented delivery time frame; failing to
deliver the products ordered, and instead substituting
inferior products; and failing to deliver monies for
metals purchased from customers by FAMC.
(Id. at 13.)
3

Applying Colorado law to the breach of contract claim would result in the
same determination. See Colo. Rev. Stat. § 4-2-101 et seq. (codifying the
Uniform Commercial Code).

22

To

establish

breach

of

contract

under

Tennessee

law,

Plaintiffs must prove: “(1) the existence of a contract, (2)
breach of the contract, and (3) damages which flow from the
breach.”

Life Care Ctrs. of Am., Inc. v. Charles Town Assocs.

Ltd. P’ship, LPIMC, Inc., 79 F.3d 496, 514 (6th Cir. 1996).
“Tennessee

has

adopted

UCC

2-207(3)

.

.

.

which

provides,

‘Conduct by both parties which recognizes the existence of a
contract is sufficient to establish a contract for sale although
the

writings

contract.’”

of

the

parties

do

not

otherwise

establish

a

Carbon Processing, 823 F. Supp. 2d at 804 (quoting

Tenn. Code Ann. § 47-2-207(3)).

Tennessee law further provides

that “[a] contract for sale of goods may be made in any manner
sufficient to show agreement, including conduct by both parties
which recognizes the existence of such a contract.”
Ann. § 47-2-204(1).

Tenn. Code

The Statute of Frauds provides that, in

general,
a contract for sale of goods for the price of five
hundred dollars ($500) or more is not enforceable by
way of action or defense unless there is some writing
or record sufficient to indicate that a contract for
sale has been made between the parties and signed by
the party against whom enforcement is sought or by his
authorized agent or broker.
Tenn. Code Ann. § 47-2-201(1).

Alternatively, the Statute of

Frauds is satisfied and an enforceable contract results “with
respect to goods for which payment has been made and accepted or

23

which have been received and accepted.”

Tenn. Code Ann. § 47-2-

201(3)(c).
Whether a contract has been breached “is a pure and simple
question of contract interpretation which should not vary from
state to state.”

Indianer v. Franklin Life Ins. Co., 113 F.R.D.

595, 607 (S.D. Fla. 1986), overruled in part on other grounds by
Ericsson GE Mobile Commc’ns, Inc. v. Motorola Commc’ns & Elecs.,
Inc., 120 F.3d 216, 219 n.12 (11th Cir. 1997).

“The obligation

of the seller is to transfer and deliver and that of the buyer
is to accept and pay in accordance with the contract.”
Code Ann. § 47-2-301.

Tenn.

The failure of either party to satisfy

this obligation constitutes a breach.
As an initial matter, the sale of precious metals is a sale
of goods and is subject to Tennessee’s enactment of the UCC.
Under section 47-2-105(1) of the Tennessee Code, goods are “all
things . . . which are movable at the time of identification to
the contract for sale other than the money in which the price is
to be paid, investment securities . . . and things in action.”
Tenn. Code Ann. § 47-2-105(1).

The precious metals were not

“money” or “investment securities” as defined in the Tennessee
Code. 4

Accordingly, the precious metals are goods, and their

4

“Money” is “a medium of exchange currently authorized or adopted by a
domestic or foreign government. The term includes a monetary unit of account
established by an intergovernmental organization or by an agreement between
two (2) or more countries[.]”
Tenn. Code Ann. § 47-1-201(b)(24).
A
“security” is

24

sale

is

subject

to

Chapter

2

of

Tennessee’s

Instruments and Transactions statutes.

Commercial

See also Sales Tax on

Gold & Silver Coins, Op. Tenn. Att’y Gen. No. 12-110 (Dec. 28,
2012) (holding that gold and silver coins are tangible personal
property for sales tax purposes).
The record reflects that Defendant FAMC took orders with
customers

over

the

phone

and

then

memorialized

the

material

terms in a written invoice, which was mailed to customers.
Charles

Bates

Dep.

customers

mailed

checks.

The

deposit

of

217:6-11,

checks

mailing
customer

No.

323.)

FAMC,

and

FAMC

to

ECF

of

a

written

checks

invoice

created

contracts for the sale of goods.

In

response,

deposited
and

(See

these

receipt

enforceable,

and

written

The Statute of Frauds was

alternatively satisfied when payment for the goods was received
and accepted by FAMC.

See Tenn. Code Ann. § 47-2-201.

an obligation of an issuer or a share, participation, or other
interest in an issuer or in property or an enterprise of an
issuer:
(i)
Which is represented by a security certificate in bearer or
registered form, or the transfer of which may be registered
upon books maintained for that purpose by or on behalf of
the issuer;
(ii) Which is one of a class or series or by its terms is
divisible into a class or series of shares, participations,
interests, or obligations; and
(iii) Which:
(A)
is, or is a type, dealt in or traded on securities
exchanges or securities markets; or
(B)
is a medium for investment and by its terms expressly
provides that it is a security governed by this
chapter.
Tenn. Code Ann. § 47-8-102(a)(15).

25

The

fact

that

Defendant

FAMC

failed

customer orders in full is undisputed.

to

satisfy

these

Accordingly, Defendant

FAMC breached its contracts with Plaintiffs by failing to fully
perform.

Plaintiffs are entitled to summary judgment on their

breach of contract claim against Defendant FAMC.

There is no

evidence that any other Defendant is a party to the customer
contracts.

Plaintiffs are therefore not entitled to summary

judgment on their breach of contract claims against the other
Defendants.
C.

Fraud/Tortious Misrepresentation

Plaintiffs argue that Defendants’ actions constitute fraud
either (1) by way of inference because their actions constitute
a Ponzi scheme or (2) pursuant to common law in Tennessee.

(ECF

No. 438-1 at 19-27.)
“Fraud occurs when a person intentionally misrepresents a
material fact or intentionally produces a false impression in
order

to

mislead

another

Lopez

v.

Taylor,

195

or

S.W.3d

to

obtain

627,

634

an

unfair

(Tenn.

Ct.

advantage.”
App.

2005)

(citing Brown v. Birman Managed Care, Inc., 42 S.W.3d 62, 66
(Tenn. 2001)).
“A Ponzi scheme is any sort of fraudulent arrangement that
uses

later

investments.”
586,

598

acquired

funds

or

products

to

pay

preexisting

Bartson v. Marroquin (In re Marroquin), 441 B.R.

(Bankr.

N.D.

Ohio

2010).
26

Ponzi

schemes

are

by

definition fraudulent.

Id.

“One can infer intent to defraud

future undertakers from the mere fact that a debtor was running
a

Ponzi

scheme.

possible.”

Indeed,

no

other

reasonable

inference

is

Merrill v. Abbott (In re Indep. Clearing House Co.),

77 B.R. 843, 860 (D. Utah 1987).

The court in Independent

Clearing House further explained,
A Ponzi scheme cannot work forever. The investor pool
is a limited resource and will eventually run dry.
The perpetrator must know that the scheme will
eventually collapse as a result of the inability to
attract new investors.
The perpetrator nevertheless
makes
payments
to
present
investors,
which,
by
definition, are meant to attract new investors.
He
must know all along, from the very nature of his
activities, that investors at the end of the line will
lose their money.
Knowledge to a substantial
certainty constitutes intent in the eyes of the law.
Id. at 656 (citations omitted).
To establish a claim of common law fraud, Plaintiffs must
prove:
(1) an intentional misrepresentation with regard to a
material fact, (2) knowledge of the representation[’s]
falsity—that the representation was made “knowingly”
or “without belief in its truth,” or “recklessly”
without regard to its truth or falsity, (3) that the
plaintiff reasonably relied on the misrepresentation
and
suffered
damage,
and
(4)
that
the
misrepresentation relates to an existing or past fact,
or, if the claim is based on promissory fraud, then
the misrepresentation must “embody a promise of future
action without the present intention to carry out the
promise.”
Shahrdar v. Glob. Hous., Inc., 983 S.W.2d 230, 237 (Tenn. Ct.
App. 1998) (alteration in original) (quoting Stacks v. Saunders,

27

812

S.W.2d

587,

592

misrepresentation

(Tenn.

is

a

Ct.

false

App.

1990)).

statement,

but

Generally,
a

a

defendant’s

silence may constitute a misrepresentation when there is “some
trick or contrivance intended to exclude suspicion and prevent
inquiry” or there is “a duty resting on the party knowing such
facts to disclose them.”
735-36

(Tenn.

1998)

Shadrick v. Coker, 963 S.W.2d 726,

(emphasis

omitted)

(quoting

Benton

v.

Snyder, 825 S.W.2d 409, 414 (Tenn. 1992)).
Despite Plaintiffs’ contentions to the contrary, a review
of the record in this matter reflects material factual disputes
as to these claims.

Construing the evidence in the light most

favorable to the non-moving party, the record demonstrates that
Defendants held customer funds in a corporate FAMC account to
purchase coins in bulk.

The record is not clear, however, as to

whether Defendants used later-acquired funds to pay for preexisting

orders.

Because

the

Court

may

not

weigh

the

credibility of evidence or make inferences at this stage, the
Court cannot determine from the evidence that Defendants engaged
in a Ponzi scheme.
Similarly, there is a factual dispute as to whether any of
the Defendants knowingly made misrepresentations to customers.
Additionally, in their Statement of Undisputed Facts, Plaintiffs
generally
Bates,

attribute

and

Robert

false
Bates.

statements
(SUF
28

¶¶

to
18,

Larry
70,

Bates,

ECF

No.

Charles
438-2.)

Without additional evidence, however, the Court cannot determine
which Defendant or Defendants made the statements at issue and
whether that particular Defendant had knowledge of its falsity
at the time he made the statement.
allegations

that

Defendants

With respect to Plaintiffs’

Barbara

and

Kinsey

Bates

made

misrepresentations to customers, Plaintiffs fail to identify the
particular statement or statements that were allegedly made with
knowledge of their falsity.
sufficiently

demonstrated

Accordingly, Plaintiffs have not

that

they

are

entitled

to

summary

judgment on their fraud claims.
D.

Tortious Conversion

Plaintiffs
Plaintiffs’
for

the

argue

precious

purchase

of

that

metals

Defendants’
and

precious

money
metals

misappropriation

specifically
constitutes

of

designated
conversion.

(ECF No. 438-1 at 27-28.)
“A conversion, in the sense of the law of trover, is the
appropriation of the thing to the party’s own use and benefit,
by the exercise of dominion over it, in defiance of plaintiff’s
right.”

Mammoth Cave Prod. Credit Ass’n v. Oldham, 569 S.W.2d

833, 836 (Tenn. Ct. App. 1977) (quoting Barger v. Webb, 391
S.W.2d 664, 665 (1965)).

“To be liable for conversion, the

defendant ‘need only have an intent to exercise dominion and
control over the property that is in fact inconsistent with the
plaintiff’s rights, and do so.’”
29

Hanna v. Sheflin, 275 S.W.3d

423, 427 (Tenn. Ct. App. 2008) (quoting Mammoth, 569 S.W.2d at
836).
“Property may be converted in three ways.

First, a person

may dispossess another of tangible personalty.

Second, a person

may dispossess another of tangible property through the active
use of an agent.

Third, under certain circumstances, a person

who played no direct part in dispossessing another of property,
may

nevertheless

be

liable

for

conversion

for

‘receiving

a

chattel.’” PNC Multifamily Capital Institutional Fund XXVI Ltd.
P’ship

v.

(Tenn.

Bluff

Ct.

conversion

City

App.

Cmty.

2012)

involves

Dev.

Corp.,

(citations

tangible

387

S.W.3d

omitted).

property,

but

525,

In

553

general,

“[m]isappropriated

funds placed in the custody of another for a definite purpose
may

be

subject

(quoting

90

to

a

C.J.S.

suit

for

Trover

conversion.”

and

Conversion

Id.
§

at

16

553-54

(2012)).

Specifically, “where the defendant is under an obligation to
deliver specific money to the plaintiff and fails or refuses to
do so, or when wrongful possession of it has been obtained by
the defendant, there is a conversion for which trover lies.”
Id. (quoting C.J.S. Trover and Conversion § 16 (2012)).
Plaintiffs
FAMC

corporate

have

credit

related” expenses.
at

PageID

5860,

presented
cards

evidence
for

that

Defendants

“potentially

used

non-business

(See Butler Rep. 6-7, ECF No. 426-5; Ex. H

Butler

Rep.,

ECF
30

No.

426-5.)

The

expenses

identified by Mr. Butler include purchases at local restaurants,
gas expenses, and other various expenses.

Mr. Butler’s analysis

was based solely on the bank and credit card statements, cash
journals, and ledgers, and his determination of whether these
expenses were for business or personal use.
13:8-18:10,

ECF

No.

435-1.)

additional

documentation

conclusive

determination.

ECF No. 435-1.)

He

from

was

which

(Butler

(See Butler Dep.

not
he

Dep.

provided
could

make

19:24-20:6,

with
a

any
more

44:15-19,

Accordingly, a reasonable juror could find that

these items were, in fact, business expenses.

Thus, Plaintiffs

have not shown that Defendants converted these funds for their
personal benefit.
Similarly, the record is not clear as to the extent that
the

advances

taken

by

Defendants

constitute

conversion.

In

certain situations, employees are permitted to accept loans or
advances
Careyville

from
Coal

their
Co.,

employer.
31

S.W.2d

See,
693,

e.g.,

694

Gregg

(Tenn.

v.

1930)

New
(“The

Compensation Act does not forbid the employer and employee from
contracting in good faith, pending a settlement for the claim
for

compensation,

for

advancement

by

the

employer

to

the

employee . . . .”); Solomon v. FloWarr Mgmt., Inc., 777 S.W.2d
701 (Tenn. Ct. App. 1989) (referring to a loan agreement between
an employer and employee).

Additionally, the record reflects

that at least some of the advances to the individual Defendants
31

were paid back to FAMC; see also Unker v. Joseph Markovits,
Inc., 643 F. Supp. 1043, 1050 (S.D.N.Y. 1986) (construing the
terms of a promissory note under which an employer loaned money
to its employee).
Moreover, Plaintiffs have not demonstrated that the funds
allegedly converted by the individual Defendants were, in fact,
customer funds.

There is no dispute that FAMC charged consumers

a marked-up price for the precious metals.
that

the

customer

funds

had

been

sent

Defendants allege

out

to

fill

orders.

Construing the evidence in the light most favorable to the nonmoving party, the funds allegedly removed by Defendants could
have related to FAMC’s profits from the precious metal sales,
rather than to the customer funds allocated to the purchase of
precious metals.
For these reasons, Plaintiffs are not entitled to summary
judgment on their conversion claims.
E.

Breach of Trust 5 and Breach of Fiduciary Duty

Plaintiffs
customers
customers.

and,

argue

that

therefore,

Defendants
owed

a

(ECF No. 438-1 at 28-31.)

5

were

fiduciary

agents
duty

of
to

the
their

Plaintiffs argue that, as

The Court notes that Plaintiffs’ claim as to “breaches of trust” appears to
be an alternative way to describe breaches of fiduciary duty. Although a
“breach of trust” is actionable in the State of Tennessee, it is an action
that relates to trust instruments, which are not at issue in this case. See
Tenn. Code Ann. § 35-15-1001 et seq.; Kennard v. AmSouth Bank, No. M200700075-COA-R3-CV, 2008 WL 427260, at *2 (Tenn. Ct. App. Feb. 12, 2008).
Consequently, the Court addresses the allegations in paragraphs 194-202 of
the Third Amended Complaint (ECF No. 375) under Tennessee law regarding
breaches of fiduciary duty.

32

fiduciaries, Defendants owed Plaintiffs a duty to act in the
best interests of Plaintiffs and a duty to disclose known facts.
(Id. at 30-31.)
duties

by

Plaintiffs argue that Defendants breached these

failing

to

procure

precious

metals,

diverting

the

money and metals to their own benefit and providing false and
misleading information to Plaintiffs.
“In

order

plaintiff

must

to

recover

establish:

for
(1)

(Id. at 29.)

breach
a

of

fiduciary

fiduciary

duty,

relationship,

a

(2)

breach of the resulting fiduciary duty, and (3) injury to the
plaintiff

or

benefit

breach.”

Ann Taylor Realtors, Inc. v. Sporup, No. W2010-00188-

the

2010

“Fiduciary

relationships

may

reposed

one

another

influence.”

4939967

defendant

COA-R3-CV,

by

WL

to

party

in

(Tenn.

Ct.

arise

as

a

App.

result

Dec.

whenever

who

of

3,

that

2012).

confidence

exercises

is

dominion

and

Thompson v. Am. Gen. Life & Accident Ins. Co., 404

F. Supp. 2d 1023, 1028 (citing Oak Ridge Precision Indus., Inc.
v. First Tenn. Bank Nat’l Ann’n, 835 S.W.2d 25, 30 (Tenn. Ct.
App. 1992)).
“The

scope

of

the

broker’s

or

investment

advisor’s

fiduciary obligations depend on the degree of discretion the
client has entrusted to the broker or advisor.”

Johnson v. John

Hancock Funds, 217 S.W.3d 414, 428 (Tenn. Ct. App. 2006).
If the transaction is non-discretionary and at arm’s
length, i.e., a simple order to buy or sell a
particular stock, the relationship does not give rise
33

to general fiduciary duties.
However, if the client
has requested the broker or advisor to provide
investment advice or has given the broker discretion
to select his or her investments, the broker or
advisor assumes broad fiduciary obligations that
extend beyond the individual transactions.
Id.

In the latter case, the broker “is required to exercise the

utmost good faith, loyalty, and honesty toward the client. . . .
He or she is also required to disclose facts that are material
to

the

client’s

decision-making.”

Id.

at

428-29

(citations

omitted).
In

order

to

establish

breaches

of

fiduciary

duties

for

summary judgment, Plaintiffs would need to show the particular
fiduciary duty that arose between a defendant and a client, how
there

was

a

breach

of

injured as a result.

said

duty,

and

how

the

customer

was

There is no question that customers with

partially unfulfilled or unfulfilled orders were injured in this
matter.

Plaintiffs have failed to demonstrate with sufficient

specificity,

however,

which

Defendant

or

Defendants

owed

a

fiduciary duty to which customers or how that duty was breached.
The record reflects that some customers merely placed orders for
precious metals, some customers received additional advice, and
some customers were approached to modify their orders.

Without

more specific evidence, the Court cannot determine whether any
Defendants

breached

a

fiduciary

duty

to

any

customers.

Construing the evidence in the light most favorable to the non-

34

moving party, Plaintiffs are not entitled to summary judgment on
these claims.
F.

Civil RICO

Plaintiffs argue that they are entitled to summary judgment
on their civil Racketeer Influenced and Corrupt Organizations
Act (“RICO”) claim because “Defendants associated together for
the purpose of soliciting fraudulent purchases of coins.”
No. 438-1 at 34.)

(ECF

Plaintiffs allege that all of the Defendants

“engaged in a pattern of Racketeering Activity, which included
mail fraud, wire fraud, and money laundering.”
The

Racketeer

Influenced

and

Corrupt

(Id. at 35.)
Organizations

Act

(“RICO”), 18 U.S.C. §§ 1961-68, provides that “[i]t shall be
unlawful

for

any

enterprise

engaged

interstate

or

directly

or

person
in,

foreign

employed
or

the

in

or

associated

activities

commerce,

indirectly,

by

to

the

of

conduct

conduct

of

with

which

any

affect,

or

participate,

such

enterprise’s

affairs through a pattern of racketeering activity or collection
of unlawful debt.”
under

this

elements:

18 U.S.C. § 1962(c).

section,

‘(1)

a

conduct

plaintiff
(2)

of

an

must

ClassicStar

Farms,

Inc.

(In

plead

enterprise

pattern (4) of racketeering activity.’”
v.

“To state a claim

re

the
(3)

following
through

a

West Hills Farms, LLC
ClassicStar

Mare

Lease

Litig.), 727 F.3d 473, 483 (6th Cir. 2013) (quoting Moon v.
Harrison Piping Supply, 465 F.3d 719, 723 (6th Cir. 2006)).
35

“A

RICO

‘“enterprise”

includes

any

individual,

partnership,

corporation, association, or other legal entity, and any union
or group of individuals associated in fact although not a legal
entity.’”

Id. at 490 (quoting 18 U.S.C. § 1961(4)).

“The

enterprise itself is not liable for RICO violations; rather the
‘persons’ who conduct the affairs of the enterprise through a
pattern

of

racketeering

activity

are

liable.”

Id.

(citing

United States v. Philip Morris USA, Inc., 566 F.3d 1095, 1111
(D.C. Cir. 2009)).
“Racketeering

activity,”

as

defined

in

the

statute,

includes predicate acts, such as “any act which is indictable
under any of the following provisions of title 18, United States
Code: . . . section 1341 (relating to mail fraud), section 1343
(relating to wire fraud) . . . .”

18 U.S.C. § 1961(1).

The

elements of wire fraud are (1) “that the defendant devised or
willfully participated in a scheme to defraud”; (2) “he used or
caused

to

be

used

an

interstate

wire

communication

‘in

furtherance of the scheme,’”; and (3) “he intended ‘to deprive a
victim of money or property.’”

United States v. Faulkenberry,

614 F.3d 573, 581 (6th Cir. 2010) (quoting United States v.
Prince,

214

F.3d

740,

748

(6th

Cir.

2000)).

“[M]ail

fraud

requires proof of the following three elements: (1) devising or
intending to devise a scheme to defraud (or to perform specified
fraudulent acts); (2) involving a use of the mails; and (3) for
36

the purpose of executing the scheme or attempting to do so.”
United

States

v.

Frost,

125

F.3d

346,

354

(6th

Cir.

1997)

(quoting United States v. Oldfield, 859 F.2d 392, 400 (6th Cir.
1988)).

“[T]he mailing need only be closely related to the

scheme and reasonably foreseeable as a result of the defendant’s
actions.”

Id. (quoting Oldfield, 859 F.2d at 400).

“A scheme to defraud is ‘any plan or course of action by
which someone intends to deprive another . . . of money or
property

by

means

of

false

representations, or promises.’”

or

fraudulent

pretenses,

Faulkenberry, 614 F.3d at 581

(quoting United States v. Daniel, 329 F.3d 480, 485 (6th Cir.
2003)).

In

order

plaintiff

must

also

to

establish

demonstrate

a

scheme

scienter

to

.

.

defraud,
.

,

“[a]

which

is

satisfied by showing the defendant acted either with a specific
intent

to

defraud

or

with

recklessness

potentially misleading information.”

with

respect

Heinrich v. Waiting Angels

Adoption Servs., Inc., 668 F.3d 393, 404 (6th Cir. 2012).
“claims

involving

themselves

to

proof

summary

of

a

to

defendant’s

disposition,

intent

summary

While

seldom
judgment

lend
is

appropriate when the evidence is so one-sided that no reasonable
person could decide the contrary.”

ClassicStar, 727 F.3d at 484

(citations and internal quotation marks omitted).
It is undisputed that Defendants used the mail and wires in
their business.

The record reflects that FAMC used the United
37

States Postal Service to mail invoices and coins to customers;
customers mailed back checks; Charles Bates and Robert Bates had
authority to sign for coins received through the mail; Barbara
and Larry Bates had authority to wire transfer money between
FAMC accounts and personal accounts; Larry Bates, Charles Bates
and Robert Bates took customer orders over the phone; and they,
along

with

Kinsey

Bates,

status of their orders.

spoke

with

customers

regarding

the

Plaintiffs have presented additional

evidence that suggests that each of these Defendants acted with
at

least

recklessness

information.

with

respect

to

potentially

misleading

This evidence is not, however, “so one-sided that

no reasonable person could decide the contrary.”

In light of

this high standard, Plaintiffs have not established that two or
more Defendants possessed the requisite scienter and associated
together

for

the

purpose

of

executing

a

fraudulent

scheme.

Accordingly, Plaintiffs are not entitled to summary judgment on
their civil RICO claims.
G.

Tortious Conspiracy

Plaintiffs

argue

that

“[b]y

common

purpose

and

design,

Defendants engineered a conspiracy to gain access to the monies
belonging

to

successful.”

FAMC

customers,

and

(ECF No. 438-1 at 41.)

this

conspiracy

was

Plaintiffs argue that the

evidence and inferences drawn from the evidence establish that
each

Defendant

“participated

in
38

a

conspiracy

to

fraudulently

deprive Plaintiffs
further

argue

of

that,

monies

as

and

coins.”

co-conspirators,

(Id.)
Defendants

Plaintiffs
should

be

held jointly and severally liable for all the damages caused by
the other conspirators.

(Id.)

“The elements of a cause of action for civil conspiracy
are: (1) a common design between two or more persons, (2) to
accomplish by concerted action an unlawful purpose, or a lawful
purpose by unlawful means, (3) an overt act in furtherance of
the

conspiracy,

and

(4)

resulting

injury.”

Kincaid

v.

SouthTrust Bank, 221 S.W.3d 32, 38 (Tenn. Ct. App. 2006) (citing
Morgan v. Brush Wellman, Inc., 165 F. Supp. 2d 704, 720 (E.D.
Tenn. 2001)).

“An essential element of a conspiracy claim is

that the conspiring parties intend to accomplish an unlawful
purpose, or a lawful purpose by unlawful means.”
(citing Morgan, 165 F. Supp. 2d at 720).
for

civil

allegedly
Multifamily

conspiracy

‘requires

committed

pursuant

Capital

an
to

Institutional

“In addition, a claim

underlying
the
Fund,

Id. at 39

predicate

conspiracy.’”
387

S.W.3d

tort
PNC

at

556

(quoting Watson’s Carpet & Floor Coverings, Inc. v. McCormick,
247 S.W.3d 169, 180 (Tenn. Ct. App. 2007)).
When a conspiracy is to defraud, there must be a “common
purpose, supported by a concerted action to defraud, that each
[conspirator] has the intent to do it, and that it is common to
each of them, and that each has the understanding that the other
39

has that purpose.”

Chenault v. Walker, 36 S.W.3d 45, 52 (Tenn.

2001) (alteration in original) (quoting Dale v. Thomas H. Temple
Co., 208 S.W.2d 344, 353-54 (Tenn. 1948)).

“[T]he ‘agreement

need not be formal, the understanding may be a tacit one, and it
is not essential that each conspirator have knowledge of the
details of the conspiracy.’”
353-54).

Id. (quoting Dale, 208 S.W.2d at

“Upon a finding of conspiracy, each conspirator is

liable for the damages resulting from the wrongful acts of all
co-conspirators in carrying out the common scheme.”

Trau-Med of

Am., Inc. v. Allstate Ins. Co., 71 S.W.3d 691, 703 (Tenn. 2002).
Under Tennessee law, however, “there can be no actionable
claim of conspiracy where the conspiratorial conduct alleged is
essentially a single act by a single corporation acting through
its

officers,

directors,

employees,

and

other

agents,

acting within the scope of his or her employment.”
04.

each

Id. at 703-

“As long as the agent is acting within the scope of his or

her authority, the agent and the corporation are not separate
entities”
conspiracy.

for

the

purpose

Id. at 704.

of

determining

parties

to

a

“Whether the employee’s act is within

the scope of his employment is ordinarily a question of fact for
the jury, except where the departure from the master’s business
is

of

marked

and

decided

character.”

Craig

v.

Gentry,

792

S.W.2d 77, 80 (Tenn. Ct. App. 1990) (citing Home Stores, Inc. v.
Parker, 166 S.W.2d 619, 622 (Tenn. 1942)).
40

Because

Plaintiffs

have

not

demonstrated

that

they

are

entitled to summary judgment on their fraud claim, they have
failed to establish the underlying predicate tort requisite to a
civil

conspiracy

claim.

Accordingly,

Plaintiffs

are

not

entitled to summary judgment on this claim.
Additionally, at this stage, there is insufficient evidence
to find that IRN conspired with FAMC or other Defendants simply
by virtue of airing FAMC advertisements, hosting Charles Bates’
radio show, and accepting additional funds from FAMC.

Moreover,

the individual Defendants are all employees of Defendant FAMC.
As a result, there is a factual dispute as to whether Defendants
Larry Bates, Barbara Bates, Charles Bates, Robert Bates, and
Kinsey Bates acted within the scope of their employment with
FAMC.

If they did act within the scope of their employment,

then Plaintiffs’ conspiracy claims would fail under the doctrine
of intracorporate conspiracy immunity.

These are questions of

fact best left for jury determination.
H.

Damages

Because the Court finds that Plaintiffs are entitled to
summary judgment on their breach of contract claim, they are
entitled to contract damages.

Where the seller fails to deliver

goods, the buyer is entitled to recover “so much of the purchase
price as has been paid[.]”

Tenn. Code Ann.

47-2-711(1); see

also

S.W.2d

(Tenn.

Patton

v.

McHone,

822

41

608,

619

Ct.

App.

1991).

Although Plaintiffs have argued an aggregate amount of

damages totaling approximately $18.5 million, a damages award on
their breach of contract claim requires an individual damages
finding as to each class member.

The Court finds that the

record is not clear as to the particular amount of damages each
class

member

has

suffered

breaches of contracts.

as

a

result

of

Defendant

FAMC’s

Accordingly, Plaintiffs are not entitled

to summary judgment on the amount of damages.
Because Plaintiffs are not entitled to summary judgment on
the amount of damages, the Court declines to consider whether
Plaintiffs are entitled to a constructive trust or an equitable
lien remedy for this claim.
IV. DEFENDANTS LARRY AND BARBARA BATES’ MOTION FOR DISMISSAL
AND SANCTIONS
Defendants Larry Bates and Barbara Bates argue that they
are entitled to “dismissal of the action or in the alternative
recusal of the Court.”

(ECF No. 491 at 7.)

Defendants further

request sanctions against all parties involved in the instant
matter.

(Id.)

Defendants Larry Bates and Barbara Bates set

forth eight specific allegations that they believe entitle them
to dismissal, recusal, or sanctions.
allegation in turn.

42

The Court addresses each

A.

Access to Records

First, Defendants Larry Bates and Barbara Bates argue that
the Plaintiffs’ attorneys and the Receiver filed an ex parte
motion seizing their residence.
since

this

seizure,

records

necessary

to

Summary

Judgment

they

or

proceeding.

(Id. at 2.)

have

been

properly

denied

answer

otherwise

They contend that
access

Plaintiffs’

defend

to

their

Motion

themselves

in

for
this

The Receiver and Plaintiffs contend that Defendants

Larry Bates and Barbara Bates have not identified the necessary
records, nor contacted the Receiver to request the opportunity
to

retrieve

(ECF

No.

or

496

Plaintiffs
prejudgment

review

the

records

at

2-3;

ECF

No.

argue

that

the

Court

attachment

in

at

499

order

at

held
to

the

Receiver’s

2-3.)
two

afford

office.

Additionally,

hearings
due

on

the

process

and

determine if the prejudgment attachment should remain in place.
(ECF No. 499 at 2.)
The

Court

finds

no

merit

to

Defendants

Larry

Bates

and

Barbara Bates’ argument that they are entitled to sanctions on
this basis.

Tennessee law provides for prejudgment attachment

when certain criteria are met.

See Tenn. Code Ann. § 29-6-101.

After multiple hearings, the Court found that the criteria for
prejudgment attachment had been met in the instant matter.
ECF No. 503.)
the

(See

The Receiver has explicitly offered all parties

opportunity

to

review

the
43

records

in

the

Receiver’s

possession.
further

(See, e.g., ECF Nos. 487, 515.)

represented

to

the

Court

that

he

The Receiver has
has

suspended

the

disposal of records and is considering alternative solutions for
storing these records.

Accordingly, Defendants Larry Bates and

Barbara Bates may still request the opportunity to review the
records in the Receiver’s possession.

Because they have not yet

done so, and thus, the Receiver has not refused, they cannot
establish that they are entitled to sanctions on this ground.
B.

Due Process

Second, Defendants Larry and Barbara Bates argue that the
Court’s ex parte orders of prejudgment attachment violated their
constitutional right to due process.

(ECF No. 491 at 2.)

McLaughlin

Circuit

Tennessee’s

v.

Weathers,

prejudgment

the

Sixth

statute

is

there is no pre-deprivation hearing.
Cir. 1999).

determined

constitutional,

even

In
that

where

170 F.3d 577, 580-83 (6th

The court in McLaughlin noted that due process was

met because plaintiff was afforded an adequate post-deprivation
remedy.

Id. at 583.

post-order

hearing

In the instant matter, the Court held a
on

August

12,

2015,

almost

immediately

following the entry of the orders of prejudgment attachment.
(See ECF No. 448.)

On September 2, 2015, the Court held another

hearing

the

regarding

prejudgment

attachment

to

ensure

due

process was afforded to Defendants and to determine whether the
prejudgment attachment should remain in place.
44

(ECF No. 478.)

Defendants Larry and Barbara Bates have been afforded notice and
an

opportunity

to

be

heard

throughout

these

proceedings.

Accordingly, the Court finds no merit to this argument.
C.

Search and Seizure

Third, Defendants Larry Bates and Barbara Bates argue that
the

prejudgment

Amendment

attachment

protection

against

orders

violated

unreasonable

their

search

and

Fourth
seizure.

(ECF No. 491 at 3.)

As the Receiver and Plaintiffs correctly

point

the

out,

however,

Fourth

Amendment

against the actions of private individuals.

does

not

protect

(See ECF No. 496 at

3 (citing United States v. Jacobsen, 466 U.S. 109, 113 (1984));
ECF No. 499 at 2-3.)
held

that

As discussed above, the Sixth Circuit has

Tennessee’s

constitutional.

prejudgment

attachment

statute

See McLaughlin, 170 F.3d at 580-83.

is

There is

no evidence that the Receiver or Plaintiffs acted at the request
or encouragement of the government in arguing for prejudgment
attachment.

Rather,

private individuals.

the

Receiver

and

Plaintiffs

acted

as

Their actions, therefore, do not implicate

the Fourth Amendment.
D.

Free Exercise of Religion

Fourth, Defendants Larry Bates and Barbara Bates argue that
the

Receiver

and

Plaintiffs’

attorneys

violated

Amendment right to free exercise of religion.
3-4.)

their

First

(ECF No. 491 at

Defendants Larry Bates and Barbara Bates further argue
45

that Plaintiffs’ attorneys, Receiver, and Receiver’s attorneys
involved themselves in an extra-judicial matter.
The

Free

Exercise

Clause

of

the

First

(Id. at 4.)

Amendment

limits

Congress’s ability to enact any law that restricts religious
activity.

U.S.

Const.

amend.

I.

Again,

this

case

does

not

involve actions by Congress, but those of private individuals.
Accordingly, the Free Exercise Clause is inapplicable in this
instance.
the

Additionally, Defendants’ claims that the parties and

Court

involved

themselves

in

custody matter are unfounded.
2015,

the

Court

instructed

the

extra-judicial

child

At the hearing on August 12,

the

parties

to

turn

over

to

the

Juvenile Court of Hardeman County documentation relating to the
welfare

of

the

child.

The

Court

explicitly

declined

to

otherwise involve itself in the child custody matter and the
Receiver

and

Plaintiffs

assert

that

they

“involved” in any juvenile court proceedings.
at 3-4; ECF No. 499 at 4.)

have

not

become

(See ECF No. 496

The Court is unable to discern that

any of these actions interfered with Defendants’ free exercise
of religion, and accordingly, finds this ground unfounded.
E.

Conduct Relating to Issuance of Subpoena

Fifth, Defendants Larry Bates and Barbara Bates argue that
Plaintiffs’

attorneys,

the

Receiver,

attorneys engaged in egregious conduct.
Specifically,

Defendants

Larry

Bates
46

and

and

the

Receiver’s

(ECF No. 491 at 5.)
Barbara

Bates

argue

that when Defendant Larry Bates raised the issue of non-notice
of a subpoena issued to Bancorp South in a proceeding before
Magistrate
she

did

Judge

not

Claxton,

issue

the

Plaintiffs’

subpoena.

attorney

(Id.)

responded

The

that

Receiver

and

Plaintiffs both assert that Plaintiffs’ attorney misspoke and
contend that this issue has since been resolved.
at

4,

ECF

reflects

No.

that

499

at

4-5.)

Plaintiffs’

notice to all parties.

More

counsel

(ECF No. 496

importantly,

issued

the

the

record

subpoena

with

(See ECF Nos. 168, 168-4.)

Although Defendants Larry Bates and Barbara Bates do not
assert

which

rule

or

statute

they

believe

entitles

them

to

dismissal or sanctions, it appears that they rely on the Court’s
inherent power to sanction parties for bad faith conduct and
willful disobedience.
46 (1991).

See Chambers v. NASCO, Inc., 501 U.S. 32,

“Because of their very potency, inherent powers must

be exercised with restraint and discretion.”

Id. at 44.

The

record reflects that Plaintiffs’ counsel misspoke at the hearing
before

Magistrate

Judge

Claxton

and

explained her mistake to Defendants.
No. 499 at 4-5.)

that

she

has

repeatedly

(See ECF No. 496 at 4, ECF

There is no evidence that Plaintiffs’ attorney

insisted upon her untenable contention that she did not issue
the

subpoena

or

that

she

otherwise

acted

in

bad

Accordingly, sanctions are inappropriate on these facts.

47

faith.

F.

Allegedly False Testimony

Sixth, Defendants Larry Bates and Barbara Bates argue that
the Receiver’s attorney falsely testified under oath regarding
precious metals sold and a check signed by Robert Bates.
No. 491 at 5.)
counsel

have

transaction

(ECF

The Receiver argues that the Receiver and his
no

personal

between

Robert

appointment of the Receiver.

knowledge
Bates

of
and

the

details

of

any

FAMC

prior

to

the

(ECF No. 496 at 4.)

The Receiver

testified that, in November 2013, Defendant Larry Bates gave the
Receiver

some

silver

eagle

coins

coins belonged to Robert Bates.

and

represented

(Id.)

that

these

The Receiver contends

that he “does not know and cannot know if Robert Bates in fact
sold any silver eagles to FAMC and if the silver eagles at issue
ever

belonged

to

Robert

Bates.”

(Id.)

The

Defendants

mischaracterize the testimony of the Receiver and his attorney.
There is no evidence that the Receiver’s attorney acted in bad
faith or testified falsely based on her personal knowledge of
the events, and accordingly, the Court finds that this ground is
unfounded.
G.

Mr. Rosenberg’s and Mr. Butler’s Reports

Seventh, Defendants Larry Bates and Barbara Bates challenge
the filing of the report and deposition of Mr. Rosenberg, the
financial consultant retained by the Receiver, on the basis that
Mr. Rosenberg improperly relies on Mr. Butler’s report.
48

(ECF

No. 491 at 5-6.)
argue

that

Defendants Larry and Barbara Bates further

Mr.

Butler’s

report

was

based

on

insufficient

information, that he was not aware of prepaid corporate income
taxes, and that he was not provided the HSBC Bank and Brinks
records.

(Id.)

The Receiver argues that Defendants Larry and

Barbara Bates mischaracterize Mr. Butler’s testimony and that
Mr. Butler was provided full access to all the records secured
by the Receiver.

(ECF No. 496 at 5.)

that

unable

he

has

been

to

identify

The Receiver contends
a

payment

by

check

or

electronic transfer to the Internal Revenue Service for prepaid
corporate

income

taxes.

(Id.)

Additionally,

the

Receiver

asserts that he and Mr. Butler investigated Larry Bates’ claim
that not all metals held by HSBC were transferred to Brinks and
determined that the claim did not have merit.

(Id.)

Mr. Rosenberg’s report pertains only to his opinion as to
(1) the solvency of FAMC between 2007 and 2013 and (2) whether
certain

transactions

during

that

period

(Rosenberg Rep. at 1, ECF No. 426-6.)
Butler’s
different

report,

Mr.

questions

various documents.

Rosenberg’s

and

involved

(Id. at 1-2.)

were

appropriate.

Although he relied on Mr.
investigation
an

centered

on

review

of

independent

As Mr. Butler testified, he

prepared a report based on the information that was available to
him.
has

(See Butler Dep. 13:8-18:10, ECF No. 435-1.)
taken

this

information

into
49

account

in

The Court

evaluating

Mr.

Butler’s report.

See supra Part III.D.

Defendants Larry Bates

and Barbara Bates have not established that they are entitled to
sanctions on this ground.
H.

Improper Conduct During Deposition

Eighth,

Defendants

Larry

Bates

and

Barbara

Bates

assert

that Plaintiff’s counsel and the Receiver’s counsel attempted to
suppress

Defendant

deposition.
refute

this

Larry

Bates’

questioning

(ECF No. 491 at 6.)
contention

and

at

Mr.

Butler’s

The Receiver and Plaintiffs

assert

that

they

appropriately

objected to the form of Larry Bates’ questions and to questions
outside the scope of Mr. Butler’s report and personal knowledge.
(ECF No. 496 at 5; ECF No. 499 at 5-6.)
Butler’s

deposition

assertions.

supports

the

(See ECF No. 435-1.)

A review of Mr.

Receiver

and

Plaintiffs’

Plaintiffs’ counsel and the

Receiver’s counsel merely made a record of their objections at
the deposition; they did not instruct Mr. Butler not to answer
or in any other way “suppress” Larry Bates’ questioning of Mr.
Butler.

Rule

30

of

the

Federal

Rules

of

Civil

Procedure

requires “[a]n objection at the time of the examination” to “be
noted on the record.”

Fed. R. Civ. P. 30(c)(2).

The Court will

not sanction Plaintiffs’ counsel or the Receiver’s counsel for
acting in accordance with the Federal Rules.

50

I.

Request for Recusal

Defendants Larry Bates and Barbara Bates further request
that this Court recuse itself “due to a possible conflict of
interest,

or

Twenty-eight

lack
U.S.C.

of
§

impartiality.”

(ECF

No.

455(a)

that

a

requires

491

at

federal

7.)

judge

“disqualify himself in any proceeding in which his impartiality
might reasonably be questioned.”

Additionally, 28 U.S.C. § 144

provides for recusal “[w]henever a party to any proceeding in a
district court makes and files a timely and sufficient affidavit
that the judge before whom the matter is pending has a personal
bias or prejudice either against him or in favor of any adverse
party . . . .”

The affidavit must also be accompanied by a

certification that it is made in good faith.
Defendants

have

facts

reasons

and

not

attached
for

their

an

affidavit

belief

that

28 U.S.C. § 144.
setting
bias

or

forth

the

prejudice

exists.

Nevertheless, recusal is unwarranted in the instant

matter.

The

Court’s

familiarity

with

this

case

is

derived

solely from the proceedings in the case itself, not from extrajudicial sources.

The Court has no conflict of interest or

outside knowledge of the parties or matters at issue in this
case.

None of the allegations set forth in Defendants Larry

Bates and Barbara Bates’ Motion warrant disqualification of this
Court.

51

IV.

CONCLUSION
For these reasons, the Court GRANTS IN PART Plaintiffs’

Motion for Summary Judgment as to their breach of contract claim
against Defendant FAMC.

The Court DENIES IN PART Plaintiffs’

Motion for Summary Judgment as to all other claims.
DENIES

Defendants

Larry

Bates

and

Barbara

Bates’

The Court
Motion

Dismissal and Sanctions.
It is so ORDERED, this the 18th day of November, 2015.

/s/ Jon P. McCalla
JON P. McCALLA
U.S. DISTRICT COURT JUDGE

52

for