Gibbons et al v. National Real Estate Investors et al

Filing 185

MEMORANDUM DECISION and Order-granting 164 Motion for Summary Judgment. Signed by Judge Clark Waddoups on 12/6/11. (jmr)

IN THE UNITED STATES DISTRICT COURT
DISTRICT OF UTAH, CENTRAL DIVISION

PETER GIBBONS, et al.,

MEMORANDUM DECISION
AND ORDER

Plaintiffs,
v.

Case No. 2:07-cv-0990-CW

NATIONAL REAL ESTATE INVESTORS,
LC, et al.

Judge Clark Waddoups

Defendants.

INTRODUCTION
Defendants Hidden Meadow LLC and Warren Brandow (collectively “Hidden Meadow”
or “Defendants”) move for summary judgment on Plaintiffs’ Eighteenth, Nineteenth, Twentieth,
and Twenty-First Causes of Action. The court finds that although Plaintiffs have standing to
bring their derivative claims under the Eighteenth and Nineteenth causes of action, those claims
fail because a contract exists that otherwise defines the rights of the parties. The court also finds
that Plaintiffs have failed to present evidence from which a jury could find that there was a
meeting of the mind between the alleged conspirators. As such, their Twentieth cause of action
for civil conspiracy fails. Lastly, Plaintiffs’ Twenty-First cause of action for receipt of stolen
property fails where Plaintiffs failed to raise a challenge to Defendants’ motion on this claim.
Defendants’ motion for summary judgment is therefore granted.

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FACTUAL BACKGROUND
The relevant facts material to this motion are few and generally undisputed. Although
Plaintiffs allege a rather complicated set of facts claiming that they were fraudulently induced to
invest in the real estate project that is at issue, those facts relate primarily to their claim against
defendants other than the moving parties. Simply stated, the claims at issue on this motion stem
from an investment opportunity now gone awry. Plaintiffs were induced to invest in Fruitland
Development Group, LLC. In exchange for $150,000, Plaintiffs Gibbons and Donnell were to be
given a 5% ownership on November 3, 2006 pursuant to a “Consent of LLC Managers” signed
by Derrick Betts and Greg Howell. Similarly, on November 15, 2006, Daniel Matthews paid
$200,000 by wire transfer for a 4% membership in Fruitland. And on November 17, 2006,
another $300,000 payment was made by wire transfer from Mr. Matthews’ IRA for an additional
6% percent ownership. The records at the Utah Department of Commerce, however, did not
reflect that the Plaintiffs were recognized as members until February 2, 2010, after the LLC’s
corporate standing had become delinquent, expired and then was reinstated and Else Donnell,
Peter Gibbons and Daniel Matthews were added as new members and managers. Gladys
Matthews was apparently not listed as a member.
In January, 2007 Fruitland entered into a Real Estate Purchase Contract (“REPC”) with
Hidden Meadow for 424 acres of land referred to as the Hidden Property. Taken in the light
most favorable to the nonmoving party, Fruitland made a nonrefundable earnest money deposit
of $150,000. $100,000 was credited to Hidden Meadow in December, 2006 from a prior wouldbe purchaser who forfeited its earnest money deposit. The remaining $50,000 was paid by
Fruitland in January 2007 at the time the Derrick Betts signed the REPC on behalf of Fruitland
and Warren Brandow signed on behalf of Hidden Meadow. Fruitland was unable to close on the

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transaction and the $150,000 earnest money was forfeited. It is undisputed that none of the
$150,000 came from the Plaintiffs’ $650,000 investment. Judgment against Mr. Betts has been
entered in favor of Plaintiffs and he has admitted that he had stolen Plaintiffs’ money to invest in
another opportunity. Plaintiffs allege that Fruitland was unable to obtain financing to close on
the Hidden Property purchase because of misrepresentations made about the ability of Fruitland
to assume a note for $1.3 million secured by a trust deed against the Hidden Property and to have
that trust deed subordinated by Fruitland’s own financing. Plaintiffs seek to pursue on
Fruitland’s behalf the claims arising from these alleged misrepresentations.
STANDARD OF REVIEW
Defendants’ motion for summary judgment will be granted “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.” Fed. R. Civ. P. 56(a). “A ‘material fact’ is one which could have an impact on
the outcome of the lawsuit, while a ‘genuine issue’ of such a material fact exists if a rational jury
could find in favor of the non-moving party based on the evidence presented.” Chasteen v.
UNISIA JECS Corp., 216 F.3d 1212, 1216 (10th Cir. 2000). Although “[t]he movant has the
burden of showing that there is no genuine issue of fact” in moving for summary judgment, “the
plaintiff is not thereby relieved of his own burden of producing . . . evidence that would support
a jury verdict.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986). Likewise, the role of
the Court is not to weigh the evidence, but to “determine whether there is a genuine issue for
trial.” Id. at 249.

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DISCUSSION
I.

Plaintiffs’ Eighteenth Cause of Action – Derivative Action for Unjust
Enrichment
A. Plaintiffs’ Status as Members Under Utah Law
Defendants move the court for summary judgment on Plaintiffs’ Eighteenth Cause of

Action – Derivative Action for Unjust Enrichment. Pursuant to the court’s order, both parties
have provided supplemental briefing regarding whether Plaintiffs meet the statutory
requirements for a derivative action, as outlined in Utah Code Ann. § 48-2c-1701.

Specifically,

a member bringing a derivative action “must be a member at the time of bringing the action” and
“must have been a member at the time of the transaction of which the member complains.” Utah
Code Ann. § 48-2c-1702.
Plaintiffs Gibbons and Donnell argue that they became members of Fruitland on
November 3, 2006 pursuant to a “Consent of LLC Managers” signed by Mr. Betts and Mr.
Howell. Indeed, the evidence submitted states that they were given “five (5%) percent
ownership.” (Pls. Supp. Mem. Opp’n, Ex. E)(Dkt. No. 180-5.) Similarly, on November 15,
2006, Daniel Matthews contributed $200,000 by wire transfer for a “four (4%) percent of
[Fruitland Development Group, LLC (“FDG” or “Fruitland”)] membership.” (Pls. Supp. Mem.
Opp’n, Ex. F)(Dkt. No. 180-6, 2, 6.) And on November 17, 2006, another $300,000 contribution
was submitted by wire transfer from Mr. Matthews’ IRA for a “six (6%) percent ownership of
FDG membership interest.” Id. at 3, 9. This evidence supports a finding that as of the dates of
those agreements Peter Gibbons, Else Donnell and Daniel Matthews had invested in and been
accepted as members of the Fruitland LLC. The fact, as Hidden Meadows points out, that the
filings with the Utah Department of Commerce did not reflect these membership rights is not
determinative. Once the Plaintiffs had made the agreed upon payments and had been accepted as
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members of the LLC they then had the required interests to have standing and to assert derivative
claims under the Utah law. The Defendants have failed to proffer any dispute of this evidence or
legal argument as to why these membership interests should be barred for purposes of derivative
claims. Nevertheless, no evidence has been presented to the court to show that Gladys Matthews
became a member of Fruitland. Indeed, nothing presented supports even a joint contribution
because those documents submitted refer only to Daniel Matthews. As such, she is barred from
pursuing a derivative claim.
B. The Derivative Claim
Under the Utah Revised Limited Liability Company Act, a member may bring an action
in the right of a company to recover a judgment in its favor, if those “with authority to do so
have refused to bring the action and the decision of the managers or members not to sue
constitutes an abuse of discretion or involves a conflict of interest that prevents an unbiased
exercise of judgment; or . . . if an effort to cause those managers or members to bring the action
is not likely to succeed.” Utah Code Ann. § 48-2c-1701. In order to bring a derivate claim under
Utah law, “the complaint shall set forth with particularity the effort of the plaintiff to secure the
initiation of the action by the managers or members or the reasons for not making the effort.”
Utah Code Ann. § 48-2c-1703.
Plaintiffs contend that emails attached as Exhibits C and D to their Opposition
Memorandum evidence that “the Plaintiffs, in fact, requested that Betts and Howell bring action
against Schofield, Coldwell Banker and others for the failure to close on the Fruitland REPC, but
such action was never taken.” (Pls. Mem. Opp’n Mot. Summ. J., 14-15) (Dkt. No. 168.) The
cited e-mail is from Peter and Else Gibbons to Derrick Betts. The author wrote, “As members of
[Fruitland], I believe that you as managing member have an obligation to bring an action against
[Schofield and Coldwell Banker].” (Pls. Mem. Opp’n Mot. Summ. J., Ex. C, 1)(Dkt. No. 1685

3.)1 As Defendants note, the difficulty with this contention is that the Eighteenth and Nineteenth
Causes of Action are against Hidden Meadow Defendants. (Second Am. Compl., 45, 47.)
Schofield and Coldwell Banker are not listed as Hidden Meadow Defendants in the complaint.
(Second Am. Compl., 4.) From the allegations of the complaint, however, the inference must be
drawn that the conduct for which Plaintiffs seek to hold Hidden Meadows liable is based, in part
at least, upon the actions of Schofield and Coldwell Banker. The language of the statute is not
defendant specific. No such case law has been presented to suggest otherwise. Moreover, the
purpose of the statute is to assure that the corporate entity was placed on notice of the claims at
issue and declined to pursue those claims because of a conflict of interest or abuse of discretion.
The record in this case is sufficient to support that conclusion. Indeed, had Fruitland brought the
action as requested for recovery of funds, the proper defendant would have been discovered and
impleaded. Moreover, the record is sufficient to support an inference that the managers of
Fruitland were conflicted in bringing actions for fear of the discovery of their own wrongdoings.
Plaintiffs Peter Gibbons and Else Donnell therefore have standing to bring derivative claims.
The court further finds that Plaintiff Daniel Matthews also has standing. The fact that Fruitland
failed to act upon receipt of the emails from the Gibbons is sufficient to allow a conclusion that
any additional demand by Mr. Matthews would have been futile.
C. Unjust Enrichment
Having found that three of the Plaintiffs have standing to bring derivative claims, the
court now analyzes whether the claim of unjust enrichment can withstand a summary judgment
challenge. The Utah Court of Appeals has stated that “[a] claim for unjust enrichment is an
action brought in restitution, and a prerequisite for recovery on an unjust enrichment theory is the

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Although the email messages do not have dates on them, the court accepts them as evidence of the alleged
demands. Defendants have failed to dispute their authenticity or relevance, but have simply acknowledged them as
being “interesting.” (Dkt. No. 169, 21.) 

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absence of an enforceable contract governing the rights and obligations of the parties relating to
the conduct at issue.” Espinoza v. Gold Cross Services, Inc., 2010 UT App 151, ¶ 10, 234 P.3d
156, 158-159 (citing Ashby v. Ashby, 2010 UT 7, ¶ 14, 227 P.3d 246). See also Concrete Prods.
Co. v. Salt Lake County, 734 P.2d 910, 911 (Utah 1987) (stating “Unjust enrichment is a doctrine
under which the law will imply a promise to pay for goods or services when there is neither an
actual nor an implied contract between the parties. The promise is purely fictitious and is
implied in order to fit the actual cause of action to the remedy.”). Stated simply, Defendants
argue that Plaintiffs’ claim for unjust enrichment is barred because any duty owed by Hidden
Meadow to Fruitland arises under that REPC and that Plaintiffs allege no facts from which the
court could conclude that there was any duty independent of the REPC owed to Fruitland.
Because the REPC was an enforceable contract, Utah law precludes any claim for unjust
enrichment for duties governed by that contract. (Defs.’ Mot. Summ. J., 17)(Dkt. No. 165.)
Plaintiffs present no facts to support a claim that Hidden Meadow owed duties independent of
the REPC.
Plaintiffs respond that no contract existed because the rights of Somersby, which
forfeited the $100,000 credited to Fruitland as earnest money, were passed to Fruitland, and
because the Fruitland REPC did not exist at the time of the $100,000 credit. (Pls. Mem. Opp’n
Mot. Summ. J., 20)(Dkt. No. 168.) Plaintiffs’ arguments fail.
First, if it were true that the “right of Somersby was passed to Fruitland,” then those
rights would be determined by the contract governing the Somersby funds. (Pls.’ Mem. Opp’n
Mot. Summ. J., 20.) In such a case, the rights of the parties would still be governed by a contract
and the law of unjust enrichment would not come into play. There is, however, no evidence of
such an assignment. In any event, Fruitland and Hidden Meadow entered into the Fruitland

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REPC on January 19, which also governed the disposition of the full $150,000. (Pls.’ Mem.
Opp’n Mot. Summ. J., 20); (Dkt. No. 168-5, 1). As such, there can be no doubt that a contract
existed. The fact that Fruitland agreed to credit the $100,000 that had been forfeited was simply
part of the agreement.
Second, whether the Fruitland REPC existed at the time of the deposit is of no moment.
(Pls.’ Mem. Opp’n Mot. Summ. J., 20.)2 It is clear that the money was deposited for the purpose
of being an earnest money deposit for the Hidden Property and transferred in anticipation of the
formal contract which Plaintiff has stated that “Fruit Group entered into . . . to purchase the
Hidden Property from Hidden Meadow.” (Second Am. Compl., ¶ 295.) Plaintiffs have neither
alleged nor demonstrated that these funds were given for some other purpose, separate and apart
from the Fruitland REPC. Furthermore, Plaintiffs have also failed to present an argument that
suggests that a transfer of consideration prior to a memorialization of the offer and acceptance
somehow voids the existence of the contract.
Lastly, Plaintiffs’ attempt to separate the $50,000 from the remaining $100,000 fails.
(Pls.’ Mem. Opp’n Mot. Summ. J., 20.) Regardless of who actually gave the money and on
whose behalf it was given, the earnest money deposit requirement under the REPC was
$150,000. (Dkt. No. 168-5.) Put simply, the monies were governed by a contract. And because
a contract does exist, Plaintiffs’ claim is barred.

2

The court makes a number of notes regarding Plaintiffs’ argument that “at the time such money was
transferred to Meridian on December 22, 2009, the Fruitland REPC did not exist. Ex. A, Disbursement to Hidden
Meadow. The Fruitland REPC was entered into on January 19, 2007, well after Hidden Meadow received the wire
transfer from Meridian on December 22, 2009.” (Pls.’ Mem. Opp’n Mot. Summ. J., 20.) First, there has been at
least one, and probably multiple typos regarding the years involved. Second, with the dates incorrect it is difficult
for the court to determine whether Fruitland REPC actually did not exist at the time of the transfer. Third, (Dkt. No.
168-1, 1) – which document the court presumes to be the $100,000 disbursement to Hidden Meadow on December
31, 2007 – is illegible. Fourth, the date on this document conflicts with Plaintiffs’ proffer that the money was
received by Hidden Meadow on “December 22, 2009.” In the end, Plaintiffs have made it extremely difficult for the
court to construe the evidence in favor of the Plaintiffs for purposes of Defendants’ motion, when the evidence
before the court as presented by Plaintiffs is at best, unclear. 

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II.

Plaintiffs’ Nineteenth Cause of Action – Derivative Action for Negligent
Misrepresentation
Having found that three of the Plaintiffs have standing to bring a derivative action on

behalf of Fruitland, the court now considers the motion for summary judgment on Plaintiffs
claim of negligent misrepresentation against the Hidden Meadow Defendants. As a threshold
matter, the court analyzes this claim in view of the economic loss rule. The Utah Supreme Court
has explained:
The economic loss rule is a judicially created doctrine that marks the fundamental
boundary between contract law, which protects expectancy interests created
through agreement between the parties, and tort law, which protects individuals
and their property from physical harm by imposing a duty of reasonable care . . . .
The proper focus in an analysis under the economic loss rule is on the source of
the duties alleged to have been breached. Thus, our formulation of the economic
loss rule is that a party suffering only economic loss from the breach of an express
or implied contractual duty may not assert a tort claim for such a breach absent an
independent duty of care under tort law . . . . The initial inquiry in cases where
the line between contract and tort blurs is whether a duty exists independent of
any contractual obligations between the parties. When an independent duty exists,
the economic loss rule does not bar a tort claim because the claim is based on a
recognized independent duty of care and thus does not fall within the scope of the
rule.
Hermansen v. Tasulis, 2002 UT 52, ¶¶ 13, 16-17(internal citations omitted).
Hermansen involved a real estate broker who was alleged to have a duty to disclose
known material defects in the soil condition of a subdivision. Id. at ¶19. The court reasoned that
because a real estate broker is “a licensed person or entity who holds himself out to the public as
having particular skills and knowledge in the real estate field [he] is under a duty to disclose
facts materially affecting the value or desirability of the property that are known to him.” Id. at
20. In contrast to Hermansen, however, Plaintiffs fail to claim that the loss at hand is anything
but economic. Secondly, Plaintiffs also fail to articulate Defendants’ duties that arise exclusive
of the REPC. As such, Defendants motion for summary judgment on this claim is granted.

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III.

Plaintiffs’ Twentieth Cause of Action – Civil Conspiracy
Defendants also move for summary judgment on Plaintiffs’ Twentieth Cause of Action –

Civil Conspiracy. Under Utah law, civil conspiracy requires proof of five elements: “(1) a
combination of two or more persons, (2) an object to be accomplished, (3) a meeting of the
minds on the object or course of action, (4) one or more unlawful, overt acts, and (5) damages as
a proximate result thereof.” Pohl, Inc. of Am. v. Webelhuth, 2008 UT 89, ¶ 29. Defendants
argue that there is no dispute of material facts regarding this claim, and that Plaintiffs fail to
provide evidence sufficient to support their claim. Specifically, Defendants argue that Plaintiffs
offer no evidence from which a jury could find that Defendants had ever had conversations, let
alone conspired, with the Fruitland Defendants to steal or fraudulently obtain the Plaintiffs’
investment money. (Defs.’ Reply)(Dkt. No. 169, 17). Defendants further argue that Plaintiffs
have failed to provide evidence from which a jury could find that there was any meeting of the
minds to engage in such conduct. Id.
Plaintiffs attempt to rebut Defendants’ motion with various arguments. Those arguments
fail. Plaintiffs argue that they have “set forth genuine issues of fact concerning Betts relationship
with Schofield and Brandow,” and that “Schofield was a partner in attempting to acquire the
Fruitland Property, and Schofield and Betts were partners in a company called Springwater
Partners, LLC.” (Pls.’ Mem. Opp’n Mot. Summ. J., 21.) These assertions, even if evidence
could be offered to support them, substantiate nothing more than that the Defendants were in a
position where they could have conspired. The assertions, even if accepted as true, fail to
support a jury finding that there was “a meeting of the minds on the object or course of action.”
Indeed, Plaintiffs have failed to present any such evidence in opposition to this motion. The
failure to provide such supporting evidence by itself is sufficient grounds for the court to grant
Defendants’ motion.
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Plaintiffs also argue that Mr. Brandow denied that he was aware that Mr. Betts and Mr.
Schofield were partners, but that he allowed the Somersby REPC earnest money to be credited
toward the Fruitland REPC earnest money when no Fruitland REPC existed. (Pls.’ Mem. Opp’n
Mot. Summ. J., 21). While it appears that Plaintiffs are arguing nefarious activity, the evidence
cited fails to support this contention.3
Similarly, Plaintiffs fail to explain how Mr. Brandow’s supposedly inconsistent testimony
would be sufficient for a jury to find that he had engaged in a conspiracy to steal of defraud
Plaintiffs of their investment in Fruitland. (Pls.’ Mem. Opp’n Mot. Summ. J., 21-22.) Plaintiffs
argue that the foregoing “when combined, create a genuine issue as to whether the Defendants
conspired with Betts and Howell to defraud Plaintiffs of their money, whether Schofield had
apparent or real authority to act on behalf of Hidden Meadow and Brandow, whether in fact he
was acting on their behalf, and the relationship between Schofield, Betts, Howell and Brandow.”
(Dkt. No. 168, 22). Accepting Plaintiffs’ summary of the factual evidence, Mr. Schofield’s
authority, his actions on behalf of Defendants, and his relationship with Defendants, are not
elements of the civil conspiracy claim. Plaintiffs have constructed a narrative that side-steps the
civil conspiracy analysis and fails to provide evidence that there was any sort of meeting of the
minds between the parties. Indeed, no such evidence has been presented. As such, Plaintiffs’
Twentieth Cause of Action – Civil Conspiracy fails. Summary judgment is granted in favor of
Defendants Hidden Meadow, LLC and Warren Brandow.

3

Plaintiffs’ citation “Ex. B, Brandow Dep. T. 30:17-31:18.; Ex. J,” appears to refer to Exhibit 5, (Dkt. No.
168-10, 1-2.). If indeed this document stands to suggest that Brandow and Betts were in breach of the Somersby
REPC, as Plaintiffs suggest in their brief (Pls.’ Mem. Opp’n Mot. Summ. J., 21), Plaintiffs’ have still failed to
explain how this damaged Plaintiffs. In any event, the court is not going to simply accept Mr. Schofield’s legal
conclusion of collusion. 

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IV.

Plaintiffs’ Twenty-First Cause of Action – Receipt of Stolen Property
Defendants also move the court for summary judgment on Plaintiffs’ Twenty First Cause

of Action – Receipt of Stolen Property. Plaintiffs, however, fail to offer any challenge. Not a
single heading in their opposition refers to this cause of action. In fact, the word “receipt” is
nowhere to be found. Therefore, because Plaintiffs do not dispute Defendants’ motion on this
cause of action, the motion is granted.
CONCLUSION
For the reasons stated herein, Defendants Motion for Summary Judgment against
Plaintiffs’ Eighteenth, Nineteenth, Twentieth, and Twenty-First causes of action is GRANTED.

DATED this 6th day of December, 2011.
BY THE COURT:

____________________________________
Clark Waddoups
United States District Judge

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