Kumar et al v. Entezar et al
Filing
128
ORDER denying pltfs' 106 Motion for Summary Judgment by Judge Robert S. Lasnik.(RS) Modified on 1/24/2014/cc pro se parties (RS).
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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE
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_______________________________________
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DAVID KUMAR, et al.,
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Plaintiffs,
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v.
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WADE M. ENTEZAR, et al.,
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Defendants.
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_______________________________________)
No. C11-1082RSL
ORDER DENYING PLAINTIFFS’
MOTION FOR SUMMARY
JUDGMENT
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This matter comes before the Court on plaintiffs’ “Motion for Summary Judgment.”
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Dkt. # 106. Although the scope of the motion is not entirely clear, it appears plaintiffs seek a
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determination that Wade Entezar and Carl Van der Merwe are liable for breach of contract and
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breach of fiduciary duties, reserving the amount of damages for trial.1 Defendant Van der Merwe
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filed an opposition, but the Court was subsequently notified that plaintiffs have settled their claims
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against Carl and Karin Van der Merwe. The Court has considered all of the papers submitted by the
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parties in order to determine whether there are genuine issues of material fact that preclude summary
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Because plaintiffs offer very few facts and no analysis regarding the potential liabilities of
Geneva Entezar, Karin Van der Merwe, Vladimir Baydovskiy, Donata Baydovskiy, Entezar
Development Group, Inc., Quincy 132 LLC, or WC Quincy LLC, the Court has not attempted to
evaluate their exposure in this litigation.
ORDER DENYING PLAINTIFFS’
MOTION FOR SUMMARY JUDGMENT
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disposition as to defendant Entezar.2
Summary judgment is appropriate when, viewing the facts in the light most
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favorable to the nonmoving party, there is no genuine dispute as to any material fact that would
preclude the entry of judgment as a matter of law. L.A. Printex Indus., Inc. v. Aeropostale, Inc.,
676 F.3d 841, 846 (9th Cir. 2012). The party seeking summary dismissal of the case “bears the
initial responsibility of informing the district court of the basis for its motion” (Celotex Corp. v.
Catrett, 477 U.S. 317, 323 (1986)) and identifying those portions of the materials in the record
that show the absence of a genuine issue of material fact (Fed. R. Civ. P. 56(c)(1)). Once the
moving party has satisfied its burden, it is entitled to summary judgment if the non-moving party
fails to identify specific factual disputes that must be resolved at trial. Hexcel Corp. v. Ineos
Polymers, Inc., 681 F.3d 1055, 1059 (9th Cir. 2012). The mere existence of a scintilla of
evidence in support of the non-moving party’s position will not preclude summary judgment,
however, unless a reasonable jury viewing the evidence in the light most favorable to the nonmoving party could return a verdict in its favor. U.S. v. Arango, 670 F.3d 988, 992 (9th Cir.
2012).
A. Breach of Contract
On August 15, 2006, Quincy WC, LLC (a limited liability company owned by
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defendant Entezar), and Quincy Development, LLC (a limited liability company owned by plaintiff
Kumar), entered into a Limited Liability Company Agreement to form Quincy 132, LLC. The
purpose of the venture was to acquire a piece of property in Grant County, construct the
improvements necessary to obtain final plat approval, and build and sell 134 single-family homes.
Plaintiffs identify four breaches of the LLC Agreement, each of which is considered below:
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Van der Merwe’s request to strike all evidence obtained from the Department of Justice is
DENIED.
ORDER DENYING PLAINTIFFS’
MOTION FOR SUMMARY JUDGMENT
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1. Appointment of Van der Merwe as Manager
The LLC Agreement identifies defendant Wade Entezar as the “Manager” of the
company and provides that “[i]f the Manager becomes unable to fulfill his duties hereunder as a
result of either death or disability, then the Manager may retain a third party to perform all duties of
the Manager hereunder subject to the approval of Member David Kumar (“Member KUMAR”),
which approval will not be unreasonably withheld.” Dkt. # 106-2 at ¶ 1.14 and ¶ 5.4. Plaintiffs
assert that Entezar breached this provision when he failed to obtain Kumar’s approval before making
defendant Van der Merwe a Manager. It is undisputed that Entezar did not seek Kumar’s permission
to make Van der Merwe a Manager of the LLC. There is, however, very little evidence from which
one could conclude that Entezar actually attempted to elevate Van der Merwe to that position.
Entezar was not dead or disabled as specified in ¶ 5.4 of the Agreement, and plaintiffs can point to
only a single instance in the record where Van der Merwe was identified as a “Manager.” Pursuant
to the LLC Agreement, Entezar had the power to delegate to employees or agents of the LLC tasks
necessary for the conduct of the LLC’s business. Dkt. # 106-2 at ¶ 5.1. Whether Entezar simply
authorized Van der Merwe to act on behalf of the LLC or whether he unilaterally appointed him as a
“Manager” cannot be determined as a matter of law. Plaintiffs have not, therefore, shown that they
are entitled to judgment on this part of their breach of contract claim.
2. Approval of Construction Contract
Although the LLC Agreement gave Entezar extensive powers and authority, it
specifically reserved to Kumar the right to review and approve certain key decisions. Pursuant to
¶ 5.2.2, Entezar was required to obtain Kumar’s prior approval of “[t]he final terms of the
construction contract with ENTEZAR DEVELOPMENT GROUP (if applicable) or the general
contractor for the Project.” Plaintiffs argue that Entezar breached the LLC Agreement when Quincy
132, LLC, entered into a construction contract with Entezar Development Group EW, LLC
(“EDEW”), without obtaining Kumar’s approval.
The supporting evidence is equivocal and fails to show the absence of a genuine issue
ORDER DENYING PLAINTIFFS’
MOTION FOR SUMMARY JUDGMENT
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of material fact. Plaintiffs rely on a draft contract dated August 1, 2006, between the LLC and
EDEW (Dkt. # 106-4, Ex. 7) and Van der Merwe’s statement that a construction contract existed
(Dkt. # 106-4, Ex. 3, Interrogatory 4). Quincy 132, LLC, did not come into existence until August
15, 2006, however, and could not have executed the draft contract on which plaintiffs rely. No final
contract has been located or produced. To the extent defendants acted as if a final contract had been
executed, Van der Merwe stated that each member of the LLC, presumably including Kumar,
approved the contract with EDEW. If that were the case, there would be no breach of ¶ 5.2.2 of the
Agreement. The Court cannot resolve the ambiguities in the record in the context of this motion for
summary judgment.
3. Contractual Fiduciary Duty: The Design-Builder Fee
Plaintiffs argue that Entezar breached the LLC Agreement by having his construction
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company, EDEW, charge $102.42 per square foot for the design and construction services it
provided. Plaintiffs do not object to the fact that Entezar was engaged in a separate and potentially
competing business venture: the LLC Agreement expressly permits such activities. Dkt. # 106-2 at
¶ 5.1. Rather, plaintiffs argue that Entezar failed to use his “reasonable best judgment consistent
with [his] fiduciary responsibility to the Company” to resolve any conflict of interest that might arise
between the competing companies. Plaintiffs argue that the LLC Agreement obligated Entezar to
provide design and construction services to Quincy 132, LLC, and that he breached his fiduciary
duties under the contract by causing EDEW to charge for those same services.
Plaintiffs’ argument is based on a strained interpretation of the initial contributions
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section of the LLC Agreement. Dkt. # 106-2 at ¶ 8.1.1. It is undisputed that both parties agreed to
contribute $3,000,000 to the project. Plaintiffs maintain that Entezar’s $3,000,000 contribution
consisted of a $500,000 piece of property3 and a promise to provide expertise and development
services worth $2,500,000 in the future. Under this interpretation, EDEW was obligated to provide
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The LLC Agreement states that the purchase price of the property is $550,000, not $500,000.
ORDER DENYING PLAINTIFFS’
MOTION FOR SUMMARY JUDGMENT
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at least $2,500,000 in design and construction services on the project before it could begin charging
the LLC. Plaintiffs therefore argue that, by charging a design-build fee at the outset, Entezar was
double-dipping: he was getting a capital contribution credit for services that he was also being paid
$102.42 per square foot to provide.4
Plaintiffs’ interpretation is not the most natural reading of the initial capital
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contributions section of the Agreement, however. Entezar’s contribution to the project involved the
assignment of his right to purchase the Grant County property for $550,000. Despite the stated
purchase price, the parties expressly agreed that the property’s fair market value with the
preliminary plat approval was $3,000,000. Entezar and his companies had obtained the preliminary
plat approval prior to the effective date of the LLC Agreement. Dkt. # 106-2 at ¶ 3.1.1. Thus, a
reasonable interpretation of the contract is that, at the time the LLC was founded, Entezar
contributed $3,000,000 worth of real estate and past development services, thereby satisfying his
initial capitalization obligations. While Entezar’s company, Quincy WC, LLC, promised “to
continue to contribute services to the Company relative to the development and construction of the
Project” (Dkt. # 106-2 at ¶ 8.1.1), there is no indication that Quincy WC, LLC, failed to provide the
promised services or that other Entezar entities were obligated to provide their services for free. Nor
is there a contractual requirement that Quincy 132, LLC, hire an Entezar entity to provide the design
and construction services. Had the LLC hired an unrelated general contractor, it would undoubtedly
have had to pay for the services rendered out of the members’ cash contributions. It is hard to
imagine that the parties intended a situation where the LLC would receive a windfall (free design
and construction services) if an Entezar-related entity were hired as general contractor, but would
have to spend down its cash reserves if it contracted with a separate entity.
Plaintiffs have not shown that their interpretation of the initial capital contributions
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section reflects the intent of the parties at the time of contracting and are not entitled to summary
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Plaintiffs have not argued that the $102.42 per square foot charge was greater than the costs
and expenses EDEW reasonably expected to incur in providing the design-build services for the project.
ORDER DENYING PLAINTIFFS’
MOTION FOR SUMMARY JUDGMENT
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judgment on this part of their breach of contract claim.
4. Contractual Fiduciary Duty: Charging for Building Materials
Plaintiffs argue that Entezar breached his contractual fiduciary duties when he had
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Quincy 132, LLC, purchase building materials from another Entezar-related entity, Executive
Building Products. Under Washington law, however, contracting parties may make “practically any
agreement they wish” regarding the scope and nature of activities in which a fiduciary may
participate. Bassan v. Investment Exchange Corp., 83 Wn.2d 922, 925 (1974). As noted above, the
parties expressly agreed that Entezar could engage in competing business ventures: the mere fact
that Quincy 132, LLC, purchased building materials from Executive Building Products would not,
therefore, exceed the authorized scope of the fiduciary’s conduct. If, however, Executive Building
Products made an unconsented profit from the sales, such self-dealing may run afoul of Entezar’s
fiduciary obligations.
Defendants have not identified any provision of the LLC Agreement authorizing
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Entezar to make a profit from the sale of materials or services to Quincy 132, LLC, or setting forth a
formula, either express or implied, for establishing the amount of a permissible profit. While
Washington law permits profit-generating transactions to be retroactively authorized by consent of
the members after the fact (see Bassan, 83 Wn.2d at 927), there is no evidence of any such posttransaction consent in the record before the Court. Thus, the only remaining question is whether
Entezar made a profit on the sales from Executive Building Products to Quincy 132, LLC. Once
again, the evidence on this key issue is equivocal. Plaintiffs do not provide any evidence related to
Executive Building Products’ costs or profit margin. The only evidence plaintiffs provide in support
of this self-dealing claim are copies of a check from Quincy 132, LLC, to Executive Building
Products, numerous checks from Quincy 132, LLC, to EDEW, and two checks from Executive
Building Products to Entezar. Dkt. # 106-5, Ex. 9.5 The fact that Quincy 132, LLC, wrote checks to
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There are also copies of two checks made out to Entezar with no discernable payor.
ORDER DENYING PLAINTIFFS’
MOTION FOR SUMMARY JUDGMENT
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service and material providers does not give rise to an inference of wrongful profit-taking or
disloyalty. The distribution of cash from Executive Building Products to Entezar, however, suggests
that Executive Building Products was generating a profit from its dealings with Quincy 132, LLC,
and that Entezar was either siphoning those profits or benefitting from very favorable loan terms.
Profit-taking is not the only inference that could be drawn from the evidence: Executive Building
Products could have other sources of income and/or Entezar’s loans could have been approved
and/or at market rates. Plaintiffs have failed to show the absence of genuine issues of material fact
regarding this aspect of their breach of contract claim.
B. Breach of Fiduciary Duty
In addition to his contractual obligation to resolve any conflicts of interest using his
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best judgment in light of his fiduciary responsibilities to the LLC, Entezar had a statutory obligation
to refrain from “gross negligence, intentional misconduct, or a knowing violation of law.” RCW
25.15.155. It is entirely possible that Entezar intentionally engaged in unconsented profit-taking,
siphoned money from the LLC, approved the misuse of company funds for personal loans to himself
and Van der Merwe, authorized fraudulent recordkeeping, and/or failed to keep reasonable and
accurate records of expenditures charged to the development project. The evidence of wrongdoing
is equivocal, however, and very limited. Plaintiffs have failed to show the absence of a genuine
issue of material fact regarding their breach of fiduciary duty claim and are not entitled to
summary judgment.
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For all of the foregoing reasons, plaintiffs’ motion for summary judgment is
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DENIED.
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Dated this 24th day of January, 2014.
A
Robert S. Lasnik
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United States District Judge
ORDER DENYING PLAINTIFFS’
MOTION FOR SUMMARY JUDGMENT
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