146 F. Supp. 3d 908
W.D. Tenn.2015Background
- Plaintiffs allege FAMC (a Tennessee-centered precious‑metals seller), IRN (a radio network), and several Bates family members ran a long‑running scheme that took customer payments for gold/silver but failed to deliver orders to hundreds of customers.
- FAMC took orders by phone, issued invoices by mail, received and deposited customer checks in FAMC accounts, and shipped (when shipped) via USPS. Larry Bates was the CEO/Chief Economist who controlled pricing, purchases, receipts and most transactions; other Bates family members held management or consultant roles.
- Receiver appointed after TRO and prejudgment attachment; Plaintiffs moved for summary judgment on six causes of action (breach of contract/unjust enrichment; fraud; conversion; breach of trust/fiduciary duty; civil RICO; tortious conspiracy).
- Material facts about use of customer funds, whether a Ponzi scheme existed, and which individuals knowingly made false statements were disputed. For some alleged personal expenses, accounting reports identified potentially nonbusiness charges but evidence did not conclusively show conversion or personal use.
- Court granted summary judgment only on Plaintiffs’ breach‑of‑contract claim against FAMC (buyers entitled to recover amounts paid when goods not delivered) and denied summary judgment on all other claims and on damages amount; denial of defendants’ motion for dismissal/sanctions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Tennessee law governs tort and contract claims | Tennessee has the most significant relationship; FAMC operated from Tennessee | Some entities (FAMC) incorporated elsewhere (Colorado) but no contrary choice | Tennessee law governs tort claims; Tennessee UCC governs contract claim |
| Breach of contract against FAMC and other defendants | FAMC took payment and failed to deliver metals; therefore breach and damages | Other defendants were not parties to customer contracts | Summary judgment granted vs. FAMC on breach; denied as to other defendants |
| Fraud / Ponzi scheme / scienter | Defendants knowingly misrepresented availability and used new funds to satisfy prior orders | Defendants dispute intent/facts; factual disputes over use of funds and who made statements | Material fact disputes exist; summary judgment denied on fraud and RICO claims |
| Conversion / misuse of customer funds | Plaintiffs contend money and metals were misappropriated and personal expenses paid from corporate accounts | Defendants contend advances/loans may have been legitimate and some funds were business profits; record unclear which funds were customer‑designated | Disputed facts prevent summary judgment for Plaintiffs on conversion claim |
| Breach of fiduciary duty / breach of trust | Plaintiffs say defendants acted as agents/advisors and breached duties by diverting funds and misleading customers | Defendants say duties depend on relationship (arm’s length vs. discretionary); which defendants owed fiduciary duties is fact‑specific | Plaintiffs failed to show specific fiduciary duties and breaches for summary judgment |
| Civil RICO and tortious conspiracy | Plaintiffs assert an enterprise engaged in mail/wire fraud and money laundering with a pattern of racketeering | Defendants argue lack of requisite scienter/predicate acts and intracorporate immunity where employees acted within scope | Insufficient evidence that two or more defendants agreed with requisite scienter; summary judgment denied |
| Damages / equitable remedies | Plaintiffs seek aggregate damages (~$18.5M) and constructive trust/equitable lien | Defendants contest amount and traceability; individualized damages required | Breach judgment entitles buyers to recover amounts paid but damages amount not resolved; no summary judgment on equitable remedies |
| Defendants’ motion for dismissal/sanctions and recusal | Defendants allege denial of access to records, constitutional violations, discovery misconduct, and judge bias | Plaintiffs/Receiver show procedures followed, post‑deprivation hearings, and no evidence of bad faith or judicial bias | Motion for dismissal/sanctions and recusal denied |
Key Cases Cited
- Bruederle v. Louisville Metro Gov’t, 687 F.3d 771 (6th Cir.) (summary judgment materiality standard and citation requirements)
- Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (U.S.) (court construes facts in favor of nonmovant at summary judgment)
- Celotex Corp. v. Catrett, 477 U.S. 317 (U.S.) (moving party may show absence of evidence to support nonmovant’s case)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (U.S.) (standard for whether evidence requires jury trial)
- Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (U.S.) (federal court applies forum state’s choice‑of‑law rules)
- Life Care Ctrs. of Am., Inc. v. Charles Town Assocs., 79 F.3d 496 (4th Cir.) (elements of breach of contract)
- McLaughlin v. Weathers, 170 F.3d 577 (6th Cir.) (upholding Tennessee prejudgment attachment procedure and due process considerations)
- Chambers v. NASCO, Inc., 501 U.S. 32 (U.S.) (court’s inherent power to sanction must be exercised with restraint)