Busch et al v. Welling et al

MOTION for Summary Judgment

D. Ariz.December 12, 2016

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8131550_3 THE CAVANAGH LAW FIRM A Professional Association 1850 NORTH CENTRAL AVENUE SUITE 2400 PHOENIX, ARIZONA 85004-4527 602-322-4009 www.cavanaghlaw.com David A. Selden (007499) dselden@cavanaghlaw.com Justin V. Niedzialek (025654) jniedzialek@cavanaghlaw.com Telephone: (602) 322-4009 Facsimile: (602) 322-4101 Attorneys for Yellow Brick Road, LLC IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA LARRY J. BUSCH, JR.; and BUSCH LAW CENTER, LLC, Plaintiffs, v. YELLOW BRICK ROAD, LLC, Defendant. No. 2:13-cv-02517-JJT Consolidated with No. 2:15-cv-00045-JJT COUNTERCLAIMANT/DEFENDANT YELLOW BRICK ROAD, LLC’S MOTION FOR SUMMARY JUDGMENT (Oral Argument Requested) YELLOW BRICK ROAD, LLC, Counterclaimant, v. LARRY J. BUSCH, JR. and NANCY L. BUSCH, husband and wife; and BUSCH LAW CENTER, LLC, Counter-Defendants. Counterclaimant Yellow Brick Road, LLC (“Yellow Brick Road”) hereby submits this Motion for Summary Judgment (the “Motion”) against Counter-Defendants Larry J. Busch, Jr. (“Mr. Busch”), Nancy L. Busch (“Mrs. Busch”),1 and Busch Law Center, LLC (“Busch Law Center” and collectively with Mr. Busch referred to as the “Busch Parties”). 1 Mrs. Busch is a defendant in this matter for the purpose of establishing liability of Mr. Busch and Mrs. Busch’s community estate. Case 2:13-cv-02517-JJT Document 129 Filed 12/12/16 Page 1 of 19 L A W O FF IC E S T H E C A V A N A G H L A W F IR M , P .A . 18 50 N O R T H C E N T R A L A V E N U E , S U IT E 2 40 0 PH O E N IX , A R IZ O N A 8 50 04 -4 52 7 (6 02 ) 32 2- 40 00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8131550_3 2 There are is no genuine issue of material fact regarding Yellow Brick Road’s causes of action against the Busch Parties and, accordingly, summary judgment is appropriate. This Motion is supported by Yellow Brick Road’s Statement of Facts in Support of Yellow Brick Road’s Motion for Summary Judgment (“SOF”) and the Court’s record in this matter, all of which are incorporated herein by reference. I. UNDISPUTED FACTS. A. The Busch Parties Participated in a Fraudulent Enterprise. In approximately March 2010, Yellow Brick Road, through its principal, Owen Welling (“Mr. Welling”), was introduced to Richard Hall (“Mr. Hall”), a principal of Berea, Inc. (“Berea”). [SOF ¶ 1.] Mr. Hall discussed with Mr. Welling a purported opportunity for Yellow Brick Road to pay to lease a financial instrument to be used to provide liquidity for the purchase and/or trade of gold. [SOF ¶ 2.] Mr. Hall introduced Yellow Brick Road to Scott Koster (“Mr. Koster”) and John Childs (“Mr. Childs”), who were the principals of Alicorn Capital Management, LLC (“Alicorn”). [SOF ¶ 3.] Ultimately, Yellow Brick Road agreed to participate in the purported transaction; it would pay $300,000 to lease a $10,000,000 standby letter of credit (the “SBLC”). [SOF ¶ 4.] The SBLC would be used by Berea to establish proof of funds so Berea could initiate trades and/or purchases of gold. [SOF ¶ 5.] In exchange for providing the liquidity, Yellow Brick Road would receive 15% of the SBLC’s value. [SOF ¶ 6.] The SBLC would be provided by Success Bullion USA, LLC (“Success Bullion”). [SOF ¶ 7.] Alicorn would be entitled to a “finder’s fee” of $250,000, and the rest of the $300,000 fee would go to Success Bullion. [SOF ¶ 8.] As an essential part of the structure of the transaction, Yellow Brick Road’s payments would not be made directly to the other parties, but would be paid to an escrow agent, Phoenix attorney Larry Busch and Busch Law Center. [SOF ¶ 9.] Mr. Busch would disperse the money upon the satisfaction of certain conditions, as explained in Section B below. [SOF ¶ 10.] In order to consummate the transaction, Yellow Brick Road, Alicorn, and Berea executed an Engagement Letter, Escrow Instructions, Parties of Case 2:13-cv-02517-JJT Document 129 Filed 12/12/16 Page 2 of 19 L A W O FF IC E S T H E C A V A N A G H L A W F IR M , P .A . 18 50 N O R T H C E N T R A L A V E N U E , S U IT E 2 40 0 PH O E N IX , A R IZ O N A 8 50 04 -4 52 7 (6 02 ) 32 2- 40 00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8131550_3 3 Interest, Notice of Approval, Fee Protection Agreement, Finder Fee Agreement, and Wiring Instructions (collectively the “Transaction Documents”). [SOF ¶ 11.] Yellow Brick Road, Alicorn, and Berea negotiated and revised various terms of the Transaction Documents. [SOF ¶ 12.] On April 7, 2010, Mr. Childs and Mr. Welling discussed by phone the process of obtaining, transmitting, and utilizing the SBLC. [SOF ¶ 13.] Mr. Childs followed-up the phone call with an email to Mr. Welling enclosing a template of the SBLC. [SOF ¶ 14.] Between April 7, 2010 and April 13, 2010, the parties negotiated the terms of the Engagement Letter and other Transaction Documents. [SOF ¶ 15.] These communications occurred via telephone and email while the parties were in different States. [SOF ¶ 16.] The discussions included the terms of the alleged investment, the roles of the various parties, and how the payment from Yellow Brick Road would be handled. [SOF ¶ 17.] B. The Busch Parties Were Involved in the Operation of the Fraudulent Enterprises. The terms of the investment opportunity included the use of Mr. Busch of Busch Law Center as the escrow agent. [SOF ¶ 18.] The use of an escrow agent was critical to Yellow Brick Road’s decision to enter into the transaction; Yellow Brick Road would not have entered into the transaction without the use of an escrow agent. [SOF ¶ 19.] Alicorn insisted that Mr. Busch act as the escrow agent and stated to Mr. Welling that if Yellow Brick Road wanted to proceed, Mr. Busch would have to be the escrow agent. [SOF ¶ 20.] The fact that the escrow agent selected by Alicorn was an attorney enhanced the level of confidence that Yellow Brick Road had in the legitimacy of the transaction. [SOF ¶ 21.] Pursuant to the Escrow Instructions: 1. Yellow Brick Road would wire $300,000 into Busch Law Center’s account. 2. After receipt of the $300,000 and the executed Engagement Letter, Mr. Busch was to transfer $50,000 to Success Bullion. 3. The remaining $250,000 would stay in Busch Law Center’s account until the Notice of Approval was received, together with the SBLC stamped “copy” from Success Bullion. Case 2:13-cv-02517-JJT Document 129 Filed 12/12/16 Page 3 of 19 L A W O FF IC E S T H E C A V A N A G H L A W F IR M , P .A . 18 50 N O R T H C E N T R A L A V E N U E , S U IT E 2 40 0 PH O E N IX , A R IZ O N A 8 50 04 -4 52 7 (6 02 ) 32 2- 40 00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8131550_3 4 4. After receipt of the Notice of Approval and the stamped “copy” of the SBLC from Success Bullion, Mr. Busch would wire the remaining $250,000 to Alicorn. [SOF ¶ 22.] Mr. Busch could not transfer the remaining $250,000 until he received a stamped “copy” of the SBLC from Success Bullion. [SOF ¶ 23.] Inherent in the escrow duties was ensuring the authenticity of the documents necessary to release funds held in escrow (in this case, the SBLC). [SOF ¶ 24.] Mr. Busch could not satisfy the terms of the Escrow Instructions without receiving a stamped “copy” of a valid SBLC. [SOF ¶ 25.] C. Yellow Brick Road Paid $300,000 to Lease the SBLC, But the SBLC Was Never Provided. On May 19, 2010, Mr. Hall and Christine Wong-Sang, CEO of Berea (“Ms. Wong- Sang”), presented Mr. Welling, via email, an Asset Management Agreement, which purported to set forth the terms by which Berea would manage the SBLC. [SOF ¶ 26.] Mr. Hall and Ms. Wong-Sang informed Mr. Welling that if he had any questions about the Agreement he could contact Mr. Hall or Vladamire Pierre-Louis (“Mr. Pierre-Louis”), who was identified as the third business partner and principal of Berea. [SOF ¶ 27.] The Transaction Documents were executed by the parties and, on or about May 26, 2010, Yellow Brick wired $300,000 to Busch Law Center’s escrow account. [SOF ¶ 28.] The wire transfer originated from outside the State of Arizona and was delivered to the Busch Law Center’s account in Arizona. [SOF ¶ 29.] On June 8, 2010, Mr. Childs falsely stated that the SBLC would be delivered the following day. [SOF ¶ 30.] Mr. Hall subsequently executed the Notice of Approval. [SOF ¶ 31.] In reliance on the representations from Mr. Childs and Mr. Hall and the expectation that Mr. Busch would receive a stamped “copy” of a legitimate SBLC, on June 10, 2010, Yellow Brick Road executed the Notice of Approval. [SOF ¶ 32.] Mr. Busch never actually received a stamped “copy” of the SBLC from Success Bullion, nor did he actually confirm the authenticity of the purported SBLC. [SOF ¶ 33.] Instead, he evidently received the purported SBLC, which was not stamped “copy,” from Mr. Childs. [SOF ¶¶ 34-35.] Nevertheless, he distributed the escrowed funds from Busch Law Center’s account to Mr. Childs and Mr. Koster – not to an account held by Alicorn. Case 2:13-cv-02517-JJT Document 129 Filed 12/12/16 Page 4 of 19 L A W O FF IC E S T H E C A V A N A G H L A W F IR M , P .A . 18 50 N O R T H C E N T R A L A V E N U E , S U IT E 2 40 0 PH O E N IX , A R IZ O N A 8 50 04 -4 52 7 (6 02 ) 32 2- 40 00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8131550_3 5 [SOF ¶ 36.] Despite the representations made by Alicorn and the distribution of funds by Mr. Busch, an authentic SBLC was never provided or received. [SOF ¶ 37.] In fact, Mr. Hall confirmed that a legitimate SBLC was never delivered. [SOF ¶ 38.] On February 14, 2011, Mr. Welling responded via email stating that Berea, Alicorn, Mr. Childs, Mr. Koster, and Mr. Hall were not operating in accordance with the parties’ agreement. [SOF ¶ 39.] Subsequently, Yellow Brick Road sent a demand letter dated October 16, 2012 notifying the parties involved, including the Busch Parties, of the fraudulent nature of the transaction and demanding payment. [SOF ¶ 40.] Mr. Busch did not respond to the demand letter. [SOF ¶ 41.] D. The Busch Parties Participated in the Operation of the Fraudulent Enterprise in Relation to Multiple Other Transactions. The transaction involving Yellow Brick Road was not the first transaction in which Mr. Busch acted as the escrow agent for Mr. Childs, Mr. Koster, and Alicorn. [SOF ¶ 42.] Nor was the purported transaction involving Yellow Brick Road the first time Mr. Busch conducted business with Success Bullion. [SOF ¶ 43.] Indeed, on December 14, 2009, Busch Law Center, through Mr. Busch, and Mr. Koster executed a Paymaster Service Agreement pursuant to which Mr. Busch agreed to act as “paymaster” for transactions involving Mr. Koster, who is one of the principals of Alicorn. [SOF ¶ 44.] In March 2010, three months before Yellow Brick Road transferred $300,000 to Mr. Busch, Alicorn admitted that Mr. Busch was utilized to make its transactions “appear clean.” [SOF ¶ 45.] Alicorn also admitted to another party who was purportedly leasing a SBLC, Bob Gerwin (“Mr. Gerwin”), that Mr. Busch was “truly a pass through to [Alicorn].” [SOF ¶ 46.] Alicorn stated that Mr. Busch was used because he had “a great deal of experience with this type of transaction”2 and to “ensure that everything happens in a timely fashion.” [SOF ¶ 47.] 2 Mr. Busch’s experience was that he was first licensed to practice law in Missouri in 1999, and in Arizona in 2005. [SOF ¶ 48.] From 2005 to 2009, Mr. Busch’s legal practice consisted of 40% business law, 50% estate planning, and 10% real estate law. [SOF ¶ 49.] In 2008, Mr. Busch earned approximately $20,000 practicing law, and his Case 2:13-cv-02517-JJT Document 129 Filed 12/12/16 Page 5 of 19 L A W O FF IC E S T H E C A V A N A G H L A W F IR M , P .A . 18 50 N O R T H C E N T R A L A V E N U E , S U IT E 2 40 0 PH O E N IX , A R IZ O N A 8 50 04 -4 52 7 (6 02 ) 32 2- 40 00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8131550_3 6 1. The Enterprise in Which the Busch Parties Participated Defrauded Newind Energy, LLC of $600,000. Before Yellow Brick Road was defrauded of $300,000, Mr. Busch acted as escrow agent in a transaction where the party leasing a SBLC, Newind Energy, LLC (“Newind”), did not receive a valid SBLC. [SOF ¶¶ 54, 56.] On May 5, 2010, Newind, like Yellow Brick Road, entered into a transaction with Alicorn wherein to lease a $5,000,000 standby letter of credit issued by Success Bullion. [SOF ¶ 55.] Newind wired $600,000 to Busch Law Center, as escrow agent, and, at the direction of Mr. Childs, Mr. Busch released the funds to Success Bullion, Mr. Koster, and Mr. Childs, among others, before sending proof of the purported SBLC to Newind. [SOF ¶¶ 57-58.] Newind notified Alicorn that his bank rejected the SBLC and that Bank of America further questioned the validity of the SBLC. [SOF ¶ 59.] It demanded return of its $600,000, but did not receive repayment. [SOF ¶ 60.]3 2. The Enterprise in Which the Busch Parties Participated Defrauded Bob Gerwin of $100,000. As referenced above, Mr. Gerwin was another party who did not receive the benefit of the payment he made to the Busch Parties. [SOF ¶ 63.] Similar to Yellow Brick Road, Mr. Gerwin entered into a transaction with Alicorn pursuant to lease a $5,000,000 SBLC in exchange for payment of $100,000. [SOF ¶ 64.] The SBLC was to be provided by Success Bullion, with Mr. Busch acting as the escrow agent. [SOF ¶ 65.] Mr. Gerwin wired the funds to Busch Law Center’s account, Mr. Busch released the funds to Success Bullion, Mr. Childs, and Mr. Koster, but Mr. Gerwin did not receive the SBLC. [SOF ¶ earnings increased slightly in 2009. [SOF ¶ 50.] Mr. Busch did not start providing escrow services until sometime between December 2009 and March 2010. [SOF ¶ 51.] Mr. Busch’s license to practice law in Arizona was suspended in late 2014. [SOF ¶ 52.] From 2010 to the date his license was suspended, Mr. Busch’s legal practice consisted of 20% business law, 30% estate planning, 10% real estate law, and 40% escrow services. [SOF ¶ 53.] 3 Apparently in light of the transaction involving Newind, in an effort to further the fraudulent scheme, Mr. Busch suggested to Alicorn that he create a “due diligence” report related to Success Bullion in order to further enhance the apparent “legitimacy” of Success Bullion’s participation in the fraudulent scheme. [SOF ¶ 61.] Mr. Busch ultimately created this report for Alicorn. [SOF ¶ 62.] Case 2:13-cv-02517-JJT Document 129 Filed 12/12/16 Page 6 of 19 L A W O FF IC E S T H E C A V A N A G H L A W F IR M , P .A . 18 50 N O R T H C E N T R A L A V E N U E , S U IT E 2 40 0 PH O E N IX , A R IZ O N A 8 50 04 -4 52 7 (6 02 ) 32 2- 40 00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8131550_3 7 66.] Mr. Busch released the funds paid by Mr. Gerwin to Success Bullion, Mr. Childs, and Mr. Koster. [SOF ¶ 67.] 3. The Busch Parties Settled a Dispute Arising Out of the Enterprise in Which the Busch Parties Participated. In October 2012, the Busch Parties entered into a Settlement and Release Agreement arising out of Mr. Busch’s participation as an escrow agent in a March 26, 2012 transaction to lease at a SBLC through Alicorn. [SOF ¶ 68.] The purported SBLC provided by Alicorn in that transaction was fraudulent. [SOF ¶ 69.] 4. The Busch Parties Assisted Mr. Childs in Setting Up an Entity Through Which the Enterprise Continued Its Fraudulent Conduct. Despite the fraudulent nature of the enterprise, in May 2012, Mr. Busch assisted Mr. Childs in setting up a foreign entity, Intermediary Network, LLC (“Intermediary Network”), which was used to defraud additional parties. [SOF ¶ 70.] In November 2013, Mr. Busch assisted Intermediary Network in establishing a foreign bank account [SOF ¶ 71.] 5. The Enterprise in Which the Busch Parties Participated Defrauded Oil Korea Co., Ltd. of $300,000. Oil Korea Co., Ltd. (“Oil Korea”) is another victim of the fraudulent scheme perpetuated by the Busch Parties, Mr. Koster, and Mr. Childs, this time through Intermediary Network. [SOF ¶ 72.] In order to lease a $20,000,000 SBLC, Oil Korea transferred $300,000 into Busch Law Center’s bank account. [SOF ¶ 73.] The SBLC was purportedly provided by Scotiabank Dominican Republic (“Scotiabank”). [SOF ¶ 74.] Intermediary Network provided Oil Korea with an alleged copy of the SBLC issued by Scotiabank. [SOF ¶ 75.] Scotiabank, however, informed Oil Korea and Mr. Busch that it did not issue the SBLC and that it and other documents were fraudulent. [SOF ¶¶ 76-77.] Oil Korea submitted a complaint to the State Bar of Arizona (the “State Bar”), and the State Bar issued an Order of Probable Cause against Mr. Busch. [SOF ¶ 78.] Case 2:13-cv-02517-JJT Document 129 Filed 12/12/16 Page 7 of 19 L A W O FF IC E S T H E C A V A N A G H L A W F IR M , P .A . 18 50 N O R T H C E N T R A L A V E N U E , S U IT E 2 40 0 PH O E N IX , A R IZ O N A 8 50 04 -4 52 7 (6 02 ) 32 2- 40 00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8131550_3 8 6. The Enterprise in Which the Busch Parties Participated Defrauded Kapacke Mining LLC of $200,000. Similarly, Kapacke Mining LLC (“Kapacke Mining”) entered into a transaction with Intermediary Network and paid $200,000 to Busch Law Center in escrow to lease a $10,000,000 SBLC, but the SBLC was never provided. [SOF ¶¶ 79-81.] Again, the State Bar found probable cause to file a formal complaint against Mr. Busch. [Id.] 7. The Enterprise in Which the Busch Parties Participated Defrauded Core Education and Consulting of $80,000, and Ultimately Repaid $65,000, through the Busch Parties’ Bank Account. Core Education and Consulting (“Core”) also entered into a transaction to lease a SBLC through Intermediary Network, with the Busch Parties acting as the escrow agent. [SOF ¶ 82.] The SBLC was to be provided by Scotiabank, but the purported SBLC provided was not authentic. [SOF ¶ 83.] Core notified the Busch Parties and a Release of Liability was signed in exchange for repayment of $65,000 from Busch Law Center’s bank account. [SOF ¶¶ 84-85.] 8. The Enterprise in Which the Busch Parties Participated Defrauded Multiple Other Parties. In other similar transactions, Jane Rodak, David Wishinsky, Yvonne Brown, and Citywide Capital Investment were victimized by the Busch Parties and the other tortfeasors. [SOF ¶ 86.] In addition, a June 20, 2013 letter to Mr. Busch asserted that a SBLC that was leased for $125,000 was “falsified.” [SOF ¶ 87.] E. Mr. Busch Invoked the Fifth Amendment to Refuse to Respond to Questions Regarding the Facts Related to Yellow Brick Road’s Causes of Action and His Knowledge and Participation in Fraudulent Transactions with the Same Parties. During his deposition, Mr. Busch invoked the Fifth Amendment to refuse to respond to any questions regarding the causes of action brought by Yellow Brick Road against the Busch Parties, regarding the documents and other discovery in this case, and regarding the transactions at issue. [SOF ¶ 88.] For instance, Mr. Busch refused to state to whom he released the $300,000 deposited into the Busch Law Center’s account by Yellow Brick Road, the duties he had as the escrow agent before those funds could be Case 2:13-cv-02517-JJT Document 129 Filed 12/12/16 Page 8 of 19 L A W O FF IC E S T H E C A V A N A G H L A W F IR M , P .A . 18 50 N O R T H C E N T R A L A V E N U E , S U IT E 2 40 0 PH O E N IX , A R IZ O N A 8 50 04 -4 52 7 (6 02 ) 32 2- 40 00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8131550_3 9 released, and whether he fulfilled those duties. [SOF ¶ 89.] He also refused to respond to any questions regarding (1) when he first became acquainted with Mr. Childs; (2) when he began providing escrow services for transactions involving Mr. Childs; (3) the services he provided for Mr. Childs; (4) when he last communicated with Mr. Childs; and (5) Mr. Childs’ entities. [SOF ¶ 90.] Mr. Busch also refused to respond to the same questions in relation to (1) Mr. Koster; (2) Mr. Hall; (3) Christine Wong-Sang; (4) Vladmir Pierre- Louis; (5) Gregory Botolino; (6) Ken Taylor; and (7) Hendrix Toussiant. [SOF ¶ 91.] Mr. Busch refused to answer questions about any communications he had with the parties involved in the Yellow Brick Road transaction. [SOF ¶ 92.] Mr. Busch further invoked Fifth Amendment to refuse to respond to any questions regarding (1) his escrow services in general, [SOF ¶ 93]; (2) his responsibilities as an escrow agent, [SOF ¶ 94]; (3) State Bar complaints arising out of Mr. Busch’s services as an escrow agent in other transactions involving Mr. Childs, Mr. Koster, and their entities, [SOF ¶ 95]; (4) any other transactions for which he acted as escrow agent, [SOF ¶ 96]; and (5) the documents he provided in this case related to those transactions, [id.]. F. Mr. Busch Has Been Indicted in Arizona and Alabama for His Role in Similar Fraudulent Schemes Involving the Same Parties. Mr. Busch has been indicted in Arizona and Alabama due to his involvement in the fraudulent enterprise at issue in this case. [SOF ¶ 97.] Mr. Busch refused to respond to any questions related to the criminal charges pending against him. [SOF ¶ 98.] II. YELLOW BRICK ROAD IS ENTITLED TO SUMMARY JUDGMENT ON ITS COUNTERCLAIMS AGAINST THE BUSCH PARTIES. A. Adverse Inferences from Mr. Busch’s Invocation of the Fifth Amendment Together with Evidence Related to the Causes of Action Against the Busch Parties Entitle Yellow Brick Road to Summary Judgment. “‘Parties are free to invoke the Fifth Amendment in civil cases, but the [C]ourt is equally free to draw adverse inferences from their failure of proof.’” Southern Union Co. v. Southwest Gas Corp., 180 F.Supp.2d 1021, 1053 (D. Ariz. 2002), quoting S.E.C. v. Colello, 139 F.3d 674, 676 (9th Cir.1998). An adverse inference can be drawn by the Case 2:13-cv-02517-JJT Document 129 Filed 12/12/16 Page 9 of 19 L A W O FF IC E S T H E C A V A N A G H L A W F IR M , P .A . 18 50 N O R T H C E N T R A L A V E N U E , S U IT E 2 40 0 PH O E N IX , A R IZ O N A 8 50 04 -4 52 7 (6 02 ) 32 2- 40 00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8131550_3 10 Court in relation to a motion for summary judgment, and summary judgment is appropriate where further evidence is provided in support of the motion for summary judgment. U.S. Commodity Futures Trading Com’n v. Driver, 877 F.Supp.2d 968, 977 (C.D. Cal. 2012). When additional evidence is provided by the moving party related to issues that the defendant refused to respond to through invocation of the Fifth Amendment, the Court may draw an adverse inference and grant summary judgment. Id. As discussed above, during his deposition, Mr. Busch refused to answer all questions about (1) the transaction involving Yellow Brick Road; (2) his relationship with the other tortfeasors; and (3) his role as the purported escrow agent in the enterprise’s scheme. In addition, Yellow Brick Road has submitted additional evidence supporting its claims against the Busch Parties. Accordingly, this Court should draw adverse inferences arising out of Mr. Busch’s refusal to answer questions and grant Yellow Brick Road summary judgment. B. There Is No Genuine Issue of Material Fact Related to Yellow Brick Road’s RICO Claim Against the Busch Parties. It is unlawful for any person “associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity.” 18 U.S.C. § 1962(c). A private right of action exists for individuals who have been damaged through such a violation, which includes recovery of treble damages. 18 U.S.C. § 1964(c). The elements of a civil RICO claim are that a defendant participated in (1) the conduct of (2) an enterprise that affects interstate commerce (3) through a pattern (4) of racketeering activity. Electric Properties East, LLC. V. Marcus & Millichap Co., 751 F.3d 990, 997 (9th Cir. 2014), citing 18 U.S.C. § 1962(c). In addition, the defendant’s conduct must be a proximate cause of plaintiff’s damages. Id., citing Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496 – 97, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985). Case 2:13-cv-02517-JJT Document 129 Filed 12/12/16 Page 10 of 19 L A W O FF IC E S T H E C A V A N A G H L A W F IR M , P .A . 18 50 N O R T H C E N T R A L A V E N U E , S U IT E 2 40 0 PH O E N IX , A R IZ O N A 8 50 04 -4 52 7 (6 02 ) 32 2- 40 00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8131550_3 11 1. The Busch Parties Participated in the Conduct of an Enterprise. An “‘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.” 18 U.S.C. § 1961(4). Alicorn required that Mr. Busch act as the escrow agent in the transaction involving Yellow Brick Road and refused to proceed with the transaction unless Yellow Brick Road agreed to this condition. Moreover, between 2010 and 2014, Mr. Busch acted as the purported escrow agent in numerous other transactions involving Mr. Childs, Mr. Koster, their associated entities (e.g. Intermediary Network), and Success Bullion in which no valid SBLC was provided, despite the parties providing money to lease the SBLC. The evidence establishing an association between the Busch Parties and the other participants in the fraudulent scheme, coupled with Mr. Busch’s refusal to respond to any questions about the enterprise establishes that there is no issue of material fact that the Busch Parties participated in an enterprise with the other tortfeasors. The Busch Parties’ participation in the enterprise is buttressed by the fact, as referenced above, that the involvement of Mr. Busch and the Busch Law Center as escrow agent was essential to the transaction. The Busch Parties’ role was limited or sporadic. The Busch Parties participated in the “transactions” involving Mr. Childs, Mr. Koster, and their associated entities repeatedly over a period of at least four years. Mr. Busch participated in the operation of this enterprise by being the escrow agent in multiple fraudulent transactions, assisting Mr. Childs in setting up another entity to carry out the fraudulent enterprise, and continuing to participate in the enterprise despite knowledge that the parties paying money for the transactions repeatedly did not receive the promised SBLC. Furthermore, Mr. Busch refused to respond to any questions regarding his participation in the enterprise, and as a result of this refusal and the evidence submitted by Yellow Brick Road, there is no genuine issue of material fact related to Mr. Busch’s participation in the enterprise. Case 2:13-cv-02517-JJT Document 129 Filed 12/12/16 Page 11 of 19 L A W O FF IC E S T H E C A V A N A G H L A W F IR M , P .A . 18 50 N O R T H C E N T R A L A V E N U E , S U IT E 2 40 0 PH O E N IX , A R IZ O N A 8 50 04 -4 52 7 (6 02 ) 32 2- 40 00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8131550_3 12 2. There Is No Genuine Issue of Material Fact Related to a Pattern of Racketeering Activity. A “’pattern of racketeering activity’ requires at least two acts of racketeering activity,” 18 U.S.C. § 1961(5), which must be “related” and “amount to or pose a threat of continued criminal activity.” H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 239, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989). The conduct of the enterprise out of which this matter arises was not an isolated incident, but instead is one of many instances wherein the Busch Parties engaged together with Mr. Childs, Mr. Koster, and others in a scheme to defraud parties. As referenced above, this scheme has resulted in defrauding not only Yellow Brick Road of $300,000, but also in defrauding other entities in transactions to lease a SBLC. This is evidenced by Mr. Busch’s frequent role as the escrow agent in these fraudulent transactions, and the indictments arising therefrom of Mr. Busch, Mr. Childs, Mr. Koster, Mr. Hall, Mr. Botolino, and Mr. Toussaint in Alabama and Mr. Busch and Mr. Childs in Arizona. This evidence, together with Mr. Busch’s refusal on Fifth Amendment grounds to testify about the pattern of racketeering activity necessitates that this Court summarily find that a “pattern,” as required by 18 U.S.C. §§ 1962(c) and 1961(5), exists. Racketeering activity includes wire fraud. Sanford v. MemberWorks, Inc., 625 F.3d 550, 557 (9th Cir. 2010), quoting Turner v. Cook, 362 F.3d 1219, 1229 (9th Cir. 2004). The elements of a claim for wire fraud are (1) formation of a scheme or artifice to defraud; (2) use of the U.S. wires, or causing such a use, in furtherance of the scheme; and (3) intent to deceive or defraud. Id., citing Schreiber Distrib. Co. v. Serv–Well Furniture Co., 806 F.2d 1393, 1400 (9th Cir. 1986). “‘The intent to defraud may be inferred from a defendant’s statements and conduct.’” Electric Properties East, 751 F.3d at 997, quoting United States v. Peters, 962 F.2d 1410, 1414 (9th Cir. 1992). In the absence of direct evidence of intent, the Court may infer a defendant’s intent based upon “the existence of a scheme which was reasonably calculated to deceive persons of ordinary prudence and comprehension,” and then “by examining the scheme itself.” Id., citing United States v. Green, 745 F.2d 1205, 1207 (9th Cir. 1984). Case 2:13-cv-02517-JJT Document 129 Filed 12/12/16 Page 12 of 19 L A W O FF IC E S T H E C A V A N A G H L A W F IR M , P .A . 18 50 N O R T H C E N T R A L A V E N U E , S U IT E 2 40 0 PH O E N IX , A R IZ O N A 8 50 04 -4 52 7 (6 02 ) 32 2- 40 00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8131550_3 13 The acts of the enterprise constitute wire fraud because, as discussed above, the Busch Parties and other tortfeasors engaged in a scheme designed to defraud Yellow Brick Road because U.S. wires were used in furtherance of the scheme through: 1. The many communications between Yellow Brick Road and the Busch Parties’ joint tortfeasors, including Mr. Childs, Mr. Koster, and Mr. Hall. 2. Yellow Brick Road’s wire transfer of funds to the Busch Parties. 3. The release of funds by Mr. Busch in relation to the various fraudulent transactions being sent to the recipients (e.g. Mr. Childs, Mr. Koster, Success Bullion, etc.) via wire transfer. The use of U.S. wires, together with Mr. Busch’s refusal to respond to any questions about it, establishes that there is no genuine issue of material fact related to the wire fraud perpetuated by the enterprise in which the Busch Parties participated. The specific intent to defraud is established by the evidence in the SOF, there were multiple instances between 2010 and 2014 wherein parties wired money into the Busch Parties’ bank account to lease a SBLC but did not receive said SBLC. In addition, Yellow Brick Road notified the tortfeasors, including the Busch Parties, of the fraudulent nature of the transaction, and the Busch Parties did not respond, explain, or attempt to refute the allegations against them. Moreover, between 2010 and 2014, Mr. Busch received notice on multiple occasions that valid SBLCs were not provided, yet the Busch Parties continued to participate in the enterprise. These facts and Mr. Busch’s refusal to testify regarding the facts establish the Busch Parties’ intent to defraud. C. There Is No Genuine Issue of Material Fact Regarding the Busch Parties’ Conspiracy to Violate 18 U.S.C. § 1962(c). Pursuant to 18 U.S.C. § 1962(d), it is unlawful for a person to conspire to violate any other provision of 18 U.S.C. § 1962. A RICO conspiracy requires only that the defendant was “aware of the essential nature and scope of the enterprise and intended to participate in it.” United States v. Christensen, 828 F.3d 763, 780 (9th Cir. 2015), quoting United States v. Eufrasio, 935 F.2d 553, 577 n. 29 (3d Cir. 1991). RICO liability is designed to “trap even the smallest fish, those peripherally involved with the enterprise.” Id. at 781, quoting United States v. Marino, 277 F.3d 11, 33 (1st Cir. 2002). For instance, Case 2:13-cv-02517-JJT Document 129 Filed 12/12/16 Page 13 of 19 L A W O FF IC E S T H E C A V A N A G H L A W F IR M , P .A . 18 50 N O R T H C E N T R A L A V E N U E , S U IT E 2 40 0 PH O E N IX , A R IZ O N A 8 50 04 -4 52 7 (6 02 ) 32 2- 40 00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8131550_3 14 the wife of a Mexican Mafia member was liable for a RICO conspiracy when she collected money and passed messages for the enterprise’s members. Id., citing United States v. Fernandez, 388 F.3d 1199, 1230 (9th Cir. 2004). Even if the Court does not grant summary judgment against the Busch Parties for their direct participation in the enterprise, Yellow Brick Road is nevertheless entitled to summary judgment related to the Busch Parties’ conspiracy to violate RICO. The common purpose of the enterprise – to defraud parties through purported opportunities to lease a SBLC – has been established. The Busch Parties’ knowledge and participation in the enterprise is evident because Mr. Busch was repeatedly the escrow agent to these transactions, funds were repeatedly transferred into Busch Law Center’s bank account, and Mr. Busch repeatedly released the funds to Mr. Childs, Mr. Koster, and/or other tortfeasors. This evidence, together with Mr. Busch’s refusal to answer questions related to his involvement in the enterprise, establishes that the Busch Parties were aware of the nature and scope of the enterprise and intended to participate in the enterprise. See Christensen, 828 F.3d at 781. D. There Is No Genuine Issue of Material Fact Related to the Busch Parties’ Civil Conspiracy to Commit Fraud. Liability for civil conspiracy occurs when two or more persons agreed to accomplish the underlying tort and cause damages to the claimant. Dawson v. Withycombe, 216 Ariz. 84, 103, ¶ 53, 163 P.3d 1034, 1053 (App. 2007), citing Wells Fargo Bank v. Arizona Laborers, Teamsters & Cement Masons Local No. 395 Pension Trust Fund, 201 Ariz. 474, 498-99, ¶¶ 99-100, 38 P.3d 12, 36-37 (2002), as corrected (Apr. 9, 2002). “The conspiratorial agreement need not be express; it may be implied by the tortious conduct itself.” Id., citing Restatement (Second) of Torts § 876 cmt. a (1979). The elements of fraud are a knowingly false and material representation made with intent that the hearer act upon the misrepresentation in a reasonably contemplated manner, and that the hearer, ignorant of the falsity, rightfully relied upon the representation and was damaged as a result. Dawson, 216 Ariz. at 96, ¶ 26, 163 P.3d at 1046, citing Enyart v. Transamerica Insurance Co., 195 Ariz. 71, 77, ¶ 18, 985 P.2d 556, 562 (App. 1998). Case 2:13-cv-02517-JJT Document 129 Filed 12/12/16 Page 14 of 19 L A W O FF IC E S T H E C A V A N A G H L A W F IR M , P .A . 18 50 N O R T H C E N T R A L A V E N U E , S U IT E 2 40 0 PH O E N IX , A R IZ O N A 8 50 04 -4 52 7 (6 02 ) 32 2- 40 00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8131550_3 15 Again, even if the Court does not grant summary judgment to Yellow Brick Road on the grounds stated above, Yellow Brick Road is entitled to summary judgment on the Busch Parties’ conspiracy to commit fraud. The SOF establishes that the tortfeasors with whom the Busch Parties conspired made knowingly false statements to Yellow Brick Road regarding the purported lease of the SBLC. It is clear from the misrepresentations that that the intent was for Yellow Brick Road to rely on the misrepresentations by wiring $300,000 to the Busch Parties. Yellow Brick Road, without knowledge that the misrepresentations were false, relied upon the misrepresentations by wiring the $300,000, thus resulting in damage to Yellow Brick Road. The conspiratorial agreement between the Busch Parties and the other parties involved in the Yellow Brick Road transaction is evidenced through the Busch Parties’ involvement in this and other similar fraudulent transactions and the Busch Parties’ silence in response to Yellow Brick Road’s demand. The evidence set forth in the SOF, together with Mr. Busch’s refusal to respond to questions regarding the fraud perpetrated upon Yellow Brick Road, establish Yellow Brick Road’s right to summary judgment. E. There Is No Genuine Issue of Material Fact Related to the Busch Parties’ Aiding and Abetting Fraud. An individual is liable for aiding and abetting a tort if the primary tortfeasor’s conduct constituted a tort and the defendant substantially assisted the primary tortfeasor in accomplishing the tort. Dawson, 216 Ariz. at 102, ¶ 49, 163 P.3d at 1052, citing Wells Fargo, 201 Ariz. at 485, ¶ 34, 38 P.3d at 23. Even if the Court does not enter summary judgment in favor of Yellow Brick Road as requested above, it is entitled to summary judgment on its aiding and abetting claim. For the reasons stated in Subsection D above, the conduct of the other parties involved in the Yellow Brick Road transaction constitute fraud. The Busch Parties substantially assisted in accomplishing the tort by acting as the purported escrow agent in the transaction. As set forth above and in the SOF, Yellow Brick Road would not have participated in the transaction but for the involvement of an escrow agent, and Mr. Busch being a licensed attorney increased the apparent legitimacy of the transaction. This Case 2:13-cv-02517-JJT Document 129 Filed 12/12/16 Page 15 of 19 L A W O FF IC E S T H E C A V A N A G H L A W F IR M , P .A . 18 50 N O R T H C E N T R A L A V E N U E , S U IT E 2 40 0 PH O E N IX , A R IZ O N A 8 50 04 -4 52 7 (6 02 ) 32 2- 40 00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8131550_3 16 evidence and Mr. Busch’s refusal to answer questions about the transaction, entitle Yellow Brick Road to summary judgment on this claim. F. There Is No Genuine Issue of Material Fact Related to the Busch Parties’ Conversion of Yellow Brick Road’s Funds. Conversion is the wrongful dominion or control over another’s property in denial of the right to that property. Case Corp. v. Gehrke, 208 Ariz. 140, 143, ¶ 11, 91 P.3d 362, 365 (App. 2004), citing Sears Consumer Fin. Corp. v. Thunderbird Prods., 166 Ariz. 333, 335, 802 P.2d 1032, 1034 (App. 1990). Money can be the subject of a conversion claim if it can be identified and there is an obligation to treat it in a specific manner. Id., citing Autoville, Inc. v. Friedman, 20 Ariz. App. 89, 91, 510 P.2d 400, 402 (1973). Even if the Court does not grant Yellow Brick Road’s summary judgment under the above causes of action, Yellow Brick Road is entitled to summary judgment on its conversion claim against the Busch Parties. Yellow Brick Road transferred $300,000 to the Busch Parties for the purpose of leasing the SBLC. The Busch Parties were obligated to fulfill the requirements as the escrow agent for the transaction. Those obligations included releasing the funds only after receiving a stamped “copy” of an authentic SBLC. An authentic SBLC was never obtained nor did Mr. Busch ever confirm that he received a stamped “copy” of an actual, authentic SBLC. The Busch Parties necessarily committed conversion by exercising control over the $300,000 in a manner that was inconsistent with Yellow Brick Road’s right to the money and in a manner that was inconsistent with the Busch Parties’ obligations as the escrow agent. Mr. Busch refused to answer questions regarding the Busch Parties’ obligations under the Escrow Agreement and whether those obligations were satisfied. Therefore, the evidence submitted by Yellow Brick Road establishes that Yellow Brick Road is entitled to summary judgment in relation to this cause of action. G. Yellow Brick Road’s Damages. Yellow Brick Road seeks recovery of the principal sum of $1,500,000 in damages, treble damages pursuant to 18 U.S.C. § 1964(c), and punitive damages, together with interest, attorneys’ fees, and costs. The principal amount that Yellow Brick Road seeks to Case 2:13-cv-02517-JJT Document 129 Filed 12/12/16 Page 16 of 19 L A W O FF IC E S T H E C A V A N A G H L A W F IR M , P .A . 18 50 N O R T H C E N T R A L A V E N U E , S U IT E 2 40 0 PH O E N IX , A R IZ O N A 8 50 04 -4 52 7 (6 02 ) 32 2- 40 00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8131550_3 17 recover is based directly on the 15% return on the value of the SBLC promised to Yellow Brick Road. The value of the SBLC was to be $10,000,000, thus equaling a return of $1,500,000. In addition, 18 U.S.C. § 1964(c) provides for recovery of triple the amount of damages incurred by Yellow Brick Road. This brings Yellow Brick Road’s total principal damages to $4,500,000. The Ninth Circuit recognizes that punitive damages authorized by state law may be obtained by a plaintiff in addition to treble damages provided by 18 U.S.C. 1964(c). Neibel v. Trans World Assur. Co., 108 F.3d 1123, 1130 (9th Cir. 1997), implicitly overruled on other grounds by United States v. Fernandez, 388 F.3d 1199 (9th Cir. 2004). Punitive damages are awardable in Arizona in fraud-based claims when the fraudulent activity is gross or where malice and ill will are evident. Hunter Contracting Co. v. Sanner Contracting Co., 16 Ariz. App. 239, 245, 492 P.2d 735, 741 (1972). The Busch Parties did not merely commit simple fraud upon Yellow Brick Road. The fraudulent scheme included multiple layers of involvement by multiple parties, with the Busch Parties’ involvement designed to give credibility to the transaction. In addition, the Busch Parties have perpetuated the fraud against others, thereby resulting in criminal indictments in Alabama and Arizona and State Bar complaints. An award of punitive damages against the Busch Parties is necessary to deter similar conduct. As such, Yellow Brick Road respectfully requests punitive damages in the sum of $1,000,000. Yellow Brick Road is further entitled to an award of its attorneys’ fees and costs pursuant to 18 U.S.C. § 1964(c), the terms of the Escrow Instructions, and/or A.R.S. §§ 12-341.01 and 12-341. III. YELLOW BRICK ROAD IS ENTITLED TO SUMMARY JUDGMENT ON THE BUSCH PARTIES’ CLAIMS. The Complaint filed by the Busch Parties against Yellow Brick Road alleges causes of action for (1) breach of contract; (2) declaratory judgment; and (3) attorneys’ fees and costs. Mr. Busch and Busch Law Center allege that, by initiating suit against Mr. Busch and Busch Law Center in Minnesota, Yellow Brick Road breached the Engagement Letter and Escrow Instructions (collectively referred to as the “Agreement”). The Busch Case 2:13-cv-02517-JJT Document 129 Filed 12/12/16 Page 17 of 19 L A W O FF IC E S T H E C A V A N A G H L A W F IR M , P .A . 18 50 N O R T H C E N T R A L A V E N U E , S U IT E 2 40 0 PH O E N IX , A R IZ O N A 8 50 04 -4 52 7 (6 02 ) 32 2- 40 00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8131550_3 18 Parties allege that (1) the Agreement prohibited Yellow Brick Road from bringing any claims against the Busch Parties; and (2) if the Busch Parties were named as a party in a litigation, that Yellow Brick Road would indemnify the Busch Parties. Under Arizona law, a material breach of a contract excuses the non-breaching party from performing under the contract. Dialog4 System Engineering GmbH v. Circuit Research Labs, Inc., 622 F.Supp.2d 814, 820 (D. Ariz. 2009), citing Biltmore Bank of Arizona v. First Nat’l Mortgage Sources, LLC, 2008 WL 564833, *6 (D. Ariz. 2008). As discussed above, the Escrow Instructions required that the Busch Parties receive a copy of the SBLC stamped “copy” prior to releasing the funds deposited into Busch Law Center’s bank account. However, there was never an actual SBLC. Mr. Busch, therefore, never could have received a stamped “copy” of a legitimate SBLC from Success Bullion – and, indeed, the evidence shows that he did not. By releasing the funds before obtaining a stamped “copy” of the SBLC, Mr. Busch committed a material breach of the Escrow Agreement that thwarted the very purpose of the Agreement (i.e. the lease of a valid SBLC). Accordingly, Yellow Brick Road is excused from any further performance of the Escrow Instructions and is entitled to summary judgment on the Busch Parties claims. IV. CONCLUSION. For the foregoing reasons, Yellow Brick Road respectfully requests entry of summary judgment in its favor as requested herein. RESPECTFULLY SUBMITTED this 30th day of November, 2016. THE CAVANAGH LAW FIRM, P.A. By: s/ David A. Selden David A. Selden Justin V. Niedzialek Attorneys for Yellow Brick Road, LLC Case 2:13-cv-02517-JJT Document 129 Filed 12/12/16 Page 18 of 19 L A W O FF IC E S T H E C A V A N A G H L A W F IR M , P .A . 18 50 N O R T H C E N T R A L A V E N U E , S U IT E 2 40 0 PH O E N IX , A R IZ O N A 8 50 04 -4 52 7 (6 02 ) 32 2- 40 00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8131550_3 19 CERTIFICATE OF SERVICE I hereby certify that on November 30, 2016, I electronically transmitted the attached document to the Clerk’s Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrant: James O. Bell Spiess & Bell, PC 5050 N. 40th Street, Suite 220 Phoenix, Arizona 85018 jim@spiessbell.com Attorneys for Larry J. Busch, Jr., Nancy L. Busch, and Busch Law Center, LLC s/Sharon Damon Case 2:13-cv-02517-JJT Document 129 Filed 12/12/16 Page 19 of 19