Robert Moiser v. Stonefield Josephson, Inc.
2016 U.S. App. LEXIS 3118
9th Cir.2016Background
- Robert Mosier, court-appointed receiver for PEMGroup and affiliates, sued Stonefield Josephson (auditors) after PEMGroup was revealed as a roughly $950 million Ponzi scheme run by management.
- Stonefield audited six GVEC offerings (2003–2007) and issued a series of qualified audit opinions expressing substantial reservations about GVEC/PEMGroup’s valuation methods and related-party transactions.
- Mosier alleged Stonefield’s deficient audits and related conduct (comfort letters, valuations, attendance at investor meetings) materially misrepresented PEMGroup’s condition, enabling management to attract new investor funds and dissipate assets.
- Mosier’s FAC asserted three claims on behalf of PEMGroup: professional negligence, aiding and abetting wrongful conversion, and unjust enrichment; he sought ~$51 million.
- The district court granted summary judgment for Stonefield, concluding Mosier failed to raise a genuine issue of causation because he offered no admissible evidence that PEMGroup or its investors reasonably relied on Stonefield’s audit work; the court also dismissed unjust enrichment (Mosier did not defend it).
Issues
| Issue | Plaintiff's Argument (Mosier) | Defendant's Argument (Stonefield) | Held |
|---|---|---|---|
| Standing — on whose behalf may receiver sue? | Mosier claimed he could sue to redress injuries to PEMGroup and indirectly investors. | Stonefield argued receiver could not assert investor-only claims. | Mosier has standing to sue on behalf of PEMGroup (not on behalf of investors). |
| Causation / Need for reliance to prove proximate cause | Mosier contended Stonefield’s deficient audits prolonged the fraud; reliance proof not strictly required. | Stonefield argued that to show their audits were a substantial factor in causing PEMGroup’s losses, Mosier must prove reasonable reliance by investors or the corporation. | Court: reasonable reliance (direct or strong circumstantial evidence) is necessary to establish causation for both negligence and aiding-and-abetting claims. |
| Whether PEMGroup (or its management) could rely on the audits | Mosier argued PEMGroup was harmed by auditors’ failures. | Stonefield pointed out management participated in the fraud and thus could not justifiably rely on audits. | Court held PEMGroup/management, as participants in the fraud, could not reasonably rely on Stonefield; in pari delicto knowledge defeats reliance for the corporation. |
| Unjust enrichment claim | Mosier sought disgorgement of Stonefield’s fees to compensate victims. | Stonefield argued unjust enrichment fails where an express contract governs and Mosier did not defend the claim. | Court affirmed dismissal—claim forfeited at summary judgment and, on the merits, contract bars quasi-contract recovery and Mosier’s pass-through theory failed. |
Key Cases Cited
- Grant v. A.B. Leach & Co., 280 U.S. 351 (standing of receiver to sue for injuries to entity)
- Smith v. Arthur Andersen LLP, 421 F.3d 989 (9th Cir. 2005) (standing of trustee/receiver—deepening insolvency discussion; limited to standing)
- Smolen v. Deloitte, Haskins & Sells, 921 F.2d 959 (9th Cir. 1990) (reliance necessary to show auditors’ reports caused harm)
- Cenco Inc. v. Seidman & Seidman, 686 F.2d 449 (7th Cir. 1982) (corporation that participates in fraud cannot justifiably rely on auditor)
- Anderson v. Liberty Lobby, 477 U.S. 242 (summary judgment standard; circumstantial evidence must permit reasonable jury inference)
- Cal. Med. Ass’n, Inc. v. Aetna U.S. Healthcare of Cal., Inc., 94 Cal. App. 4th 151 (2001) (unjust enrichment / quasi-contract barred where express contract governs)