WATCHOUS ENTERPRISES, LLC, Plaintiff - Appellee, v. WILLIAM J. MOURNES; KENDRA DUVAL, as personal representative for the Estate of Gordon W. Duval; CHARLES A. ELFSTEN; MARK M. HASEGAWA; MARK S. ZOUVAS, Defendants - Appellants, and PACIFIC NATIONAL CAPITAL; WATERFALL MOUNTAIN USA LLC; WATERFALL MOUNTAIN LLC; WATERFALL INTERNATIONAL HOLDINGS LIMITED, Defendants.
No. 22-3071
UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT
November 30, 2023
PUBLISH
Jeffrey R. King, Crossroads Legal Solutions, Westwood Hills, Kansas, for Defendants - Appellants.
Shane A. Rosson (James A. Walker with him on the brief), Triplett Woolf Garretson, LLC, Wichita, Kansas, for Plaintiff - Appellee.
Before HOLMES, Chief Judge, HARTZ, and CARSON, Circuit Judges.
HARTZ, Circuit Judge.
Five individual defendants (Appellants) appeal the judgments against them on a variety of claims brought by Watchous Enterprises, LLC. Appellants were associated with companies that Watchous hoped would fund or help find funding for its oil and gas operations.1
Watchous filed suit in the United States District Court for the District of Kansas, bringing claims under the federal Racketeer Influenced and Corrupt Organizations Act (RICO) and common-law claims under Kansas law against Pacific and Waterfall as well as against the five Appellants sued individually. We consider only the claims against Appellants.
The district court granted partial summary judgment in favor of Watchous on its fraud claims (leaving damages for the jury to decide), essentially on the ground that Appellants misrepresented and failed to disclose “the historic and contemporary facts about Waterfall‘s dubious finances, loan defaults, and consistent lack of success in funding similar projects.”2 Watchous Enters., LLC v. Pac. Nat‘l Cap. (Watchous I), No. 16-1432-JTM, 2020 WL 1233753 at *36 (D. Kan. Mar. 13, 2020).
Watchous‘s remaining claims proceeded to trial, where a jury found that Appellants had engaged in a civil conspiracy to defraud Watchous and had violated RICO,
On appeal Appellants raise three challenges to the judgment below. First, they argue that the district court improperly granted summary judgment on the fraud claims. Among other arguments, they contend that summary judgment was improper because the evidence against them did not meet the exacting standard for granting summary judgment to a plaintiff in a fraud case, where the intent of the defendants is an element of the claim. Second, they argue that the court abused its discretion by improperly using
I. BACKGROUND
A. Factual Background
The following facts are uncontroverted. Watchous engages in oil and gas exploration and production. Klee Watchous is its managing member.4 On May 30, 2016, Watchous contacted Pacific, a company that looks for financing for oil and gas ventures, to seek a loan or a joint-venture partner to finance its operations. Appellants Charles Elfsten and Mark Hasegawa, both Pacific officers, emailed and spoke with Watchous, stating that they would be interested in representing it and had in mind a fund, which they called “our fund,” that could finance a joint venture. Aplee. App. 140, 145. The fund referred to was Waterfall.
On June 4, 2016, Watchous entered into two agreements with Pacific, one hiring Pacific to find it a lender and the other hiring it to find a joint-venture partner. In accordance with the terms of the joint-venture placement agreement, two days later Watchous wired Pacific a “non-refundable processing/underwriting fee” of $7,600. Aplee. App. at 116. Under that agreement Pacific would receive a success fee—3% of the gross proceeds provided by the joint-venture partner—should Watchous enter into a joint venture with Waterfall.
Waterfall was a group of companies that provided “funding and partner syndication” for energy, natural-resource, technology, and real-estate projects. Aplts. App., Vol. II at 216. Its officers and agents included Appellant William Mournes, Waterfall‘s managing director; Appellant Gordon Duval, Waterfall‘s in-house counsel and assistant managing director; and Appellant Mark Zouvas, a Waterfall consultant and potential business partner. Waterfall said it intended to fund Watchous‘s project using $2.4 billion in Venezuelan sovereign bonds purchased beginning in 2014. The bonds were said to be “blocked in favor of” Waterfall or its lender, RPB Company, for one year and one month, Aplee. App. at 241, 258; and Waterfall was said to have a beneficial interest in the bonds. But, as Watchous later learned after the transaction fell through, the bonds could only be used as collateral for a loan and the Venezuelan Central Bank had to approve any transaction.
Although Pacific negotiated on Watchous‘s behalf with companies other than Waterfall, Waterfall appeared to be the favorite. Elfsten stated in an email sent after this litigation commenced that he had “[v]erbally told [Watchous] [he had] known
The Pacific officers represented that Waterfall was a successful enterprise. In early June 2016 Hasegawa, with Elfsten copied on the message, informed Watchous that Waterfall “bring[s] in about $10 billion a year.” Id. at 113. Later that month he added that Waterfall “generally want[ed] [projects] $10 million and up.” Id. at 135.
On July 18 he sent Watchous a message, with Elfsten copied, claiming that “our fund [Waterfall] is closing on two more bonds this month worth $2.4 billion.” Id. at 147. On July 19 Hasegawa reported to Watchous that he and Elfsten had spoken with “our fund manager Bill [Mournes]” and reported that Waterfall would “probably” be able to fund “a big part of” Watchous‘s proposed joint venture—which contemplated an $80 million buy-in for half of Watchous—“from funds he has coming the end of this month.” Id. at 145.
On July 25 and 26, 2016, Hasegawa emailed Watchous the terms of Waterfall‘s offer. Elfsten, Zouvas, Duval, and Mournes were copied on the correspondence. Waterfall, Hasegawa said, was “in agreement to do a 50/50 total joint venture” with Waterfall providing $80 million by November 17. Id. at 151. For its part, Watchous was to make a refundable deposit of $175,000 to Waterfall.
With a deal on the table, several Appellants gave Watchous further information regarding Waterfall‘s financial health. On July 26 Hasegawa assured Watchous that Waterfall was “in good standing” in the United States and internationally, and that it had checking accounts at four major U.S. financial institutions. Id. at 235-36. On July 27 Mournes discussed the deal over lunch with Watchous representatives. On July 28 Elfsten forwarded Watchous a statement from a Venezuelan bank that portrayed Waterfall as having $599,970 in an account there. On July 29 Klee Watchous asked Elfsten to vouch for Waterfall before he sent the $175,000 deposit. Elfsten vouched for Waterfall and its ability to repay the deposit.
Zouvas also provided information after the July 27 meeting between Mournes and Watchous. Copying Duval and Mournes, he sent Klee Watchous an unsigned promissory note for the $175,000; documents from a supposed prior deal that were “representative of the type of deal we would structure“; and “copies of our bonds [held in Venezuelan banks].” Id. at 152, 238. In addition, Duval responded to Klee Watchous‘s request that Waterfall “send references of those with whom you have done similar joint ventures,” id. at 458, by providing a list of six references. (Waterfall conceded at summary judgment that four of the references were owed money by Waterfall, and a fifth was a Waterfall agent who also served on its executive committee.)
Shortly after Duval sent the list of references, Mournes circulated the final Letter of Intent to enter into a joint venture, signed by him and Klee Watchous. It provided that Waterfall would “contribute cash” to the joint venture amounting to $81.2 million, beginning on or before August 17, 2016, and culminating by November 17, 2016. Id. at 464. Waterfall and Watchous would each pay half of a $2.4 million finder‘s fee to Pacific. And Watchous would make “an advance refundable deposit to Waterfall” of $175,000, id. at 448, which Waterfall would return “upon
Though they had not conveyed this information to Watchous, Elfsten and Hasegawa knew that Waterfall was far from financially strong. Watchous‘s motion for summary judgment named, without dispute from Waterfall, eight prospects brought to Waterfall by Pacific that Waterfall was unable to fund. Further, in response to Watchous‘s discovery requests, Elfsten produced a list of projects that Pacific brought to Waterfall between May 2013 and July 28, 2016, the day Watchous and Waterfall finalized the Letter of Intent. Elfsten admitted that “[n]one of the potential projects on the list,” one of which was a project with Zouvas‘s company, “closed a transaction with Waterfall.” Id. at 1045. And in a July 20 email, Elfsten, after pitching the Watchous project to Mournes, with Hasegawa copied, added, “Hope things are going better for you today, wish we had the money to help you.” Id. at 425.
Mournes, Zouvas, and Duval also knew that Waterfall was struggling. On the evening of July 29, Duval wrote a message with the subject line “Great News -- the Wire [from Watchous] Was Sent.” Id. at 470. He explained that upon receiving Watchous‘s deposit he had immediately forwarded $160,000 of the sum to a business partner, who would use the money to ensure that funds from the bonds were transferred to Waterfall. Duval added that “most of our crew are pretty well tapped out because this has been such a long and difficult process that none of us could have anticipated.” Id. at 471. He wrote that the arrival of Watchous‘s money was “literally a miracle” but that Waterfall would still have to “pass the hat” for funds for travel and operational costs. Id. Mournes responded, “THANK YOU GENTLEMEN. . . GAME ON.” Id. at 470. Elfsten replied to Mournes, copying Hasegawa and Zouvas, to note his expectation that Watchous‘s deposit was to have gone to the bank.
Waterfall never funded Watchous. On August 23, 2016, Klee Watchous asked Elfsten and Hasegawa to reengage with Beal Bank. On September 8, 2016, Watchous terminated the Letter of Intent and demanded—with no result—return of the $175,000 deposit. In December 2016, Watchous filed suit.
B. Procedural History
In April 2017 the parties agreed to settle the case on the understanding that Waterfall would pay Watchous $175,000 in scheduled installments. But no payment was made, and in July 2018 Watchous filed a Second Amended Complaint against Appellants, Pacific, and Waterfall, bringing claims of fraud, breach of contract (a later-abandoned claim based on the settlement discussions), breach of fiduciary duty, civil conspiracy to commit fraud, and RICO violations. In August 2019 the court issued a pretrial order summarizing and refining claims made in the complaint. The pretrial order also authorized a crossclaim for indemnification brought against Waterfall by Pacific and the Pacific officers.
All parties moved for partial or complete summary judgment. Watchous‘s motion for partial summary judgment appended a statement of 369 facts it contended were uncontroverted. Pacific, Elfsten, and Hasegawa jointly responded to each fact, denying some outright and disclaiming knowledge of, contesting in part, or acceding to others. Waterfall, Mournes, Duval, and Zouvas jointly responded to only 17 facts,
Watchous submitted a pretrial motion asking that the district court use
The jury found each of the Appellants liable on Watchous‘s RICO and civil conspiracy-to-defraud claims. It assessed compensatory damages on these claims as well as on Watchous‘s fraud claims against Appellants. The jury awarded against each Appellant the maximum amount of compensatory damages permitted by the instructions, which said: “Plaintiff claims actual damages in the amount of $182,600 against all defendants. This figure comes from the $7,600 placement fee plaintiff paid to Pacific National Capital and the $175,000 refundable deposit plaintiff paid to Waterfall.” Aplts. Supp. App. at 990. On the RICO claim, the RICO conspiracy claim, and the civil conspiracy claim, $182,600 was awarded against each Appellant. On the fraud claims, $182,600 was awarded against Elfsten and Hasegawa and $175,000 against Mournes, Zouvas, and Duval (who were not directly involved in the $7,600 deposit to Pacific). The jury further found, with respect to the fraud claim and the civil conspiracy-to-commit-fraud claim, that punitive damages should be assessed against each Appellant. The amount to be awarded in punitive damages was then tried to the jury, which awarded $1 million against Mournes and Elfsten, $500,000 against Hasegawa and Zouvas, and $250,000 against Duval. Also, in accordance with RICO,
II. DISCUSSION
The damages awarded against Appellants on the fraud claims resolved by partial summary judgment were identical to or less than the damages awarded on the civil-conspiracy claims resolved at trial. The compensatory damages were based on the amounts of the placement fee and the
Appellants raise three challenges to how the case was tried to the jury: (1) even if facts had not been contested at summary judgment, there were general reasons why it was improper for the district court to instruct the jury under Rule 56(g) that those facts were established; (2) the court incorrectly found that certain disputed facts were undisputed; and (3) the court incorrectly ruled on several motions in limine. We reject all three challenges.
A. General Objections to Use of Rule 56(g)
Watchous moved for partial summary judgment on the issue of liability on its fraud, civil conspiracy, and RICO claims against Appellants. The district court granted partial summary judgment on the fraud claims but determined that there were genuine issues of material fact precluding partial summary judgment on the civil-conspiracy and RICO claims. Watchous then moved under
Appellants’ first general challenge to the facts-established instruction is that the facts they did not controvert during summary-judgment proceedings were conceded only for the purpose of summary judgment—not for any later stage of the litigation. This, they say, is the default presumption under District of Kansas Local Rule 56.1(a), which provides, in relevant part, “All material facts set forth in the statement of the movant will be deemed admitted for the purpose of summary judgment unless specifically controverted by the statement of the opposing party.” (emphasis added).5 Appellants construe this language to mean that the uncontroverted
To be sure, the nonmovant is entitled to admit a fact solely for the purpose of resolving the summary-judgment motion. It may think there is no point in wasting time and energy on a factual issue because it can prevail even if that particular fact is not disputed. See Steven S. Gensler & Lumen N. Mulligan, 2 Federal Rules of Civil Procedure, Rules and Commentary, Rule 56. Summary Judgment (2023 ed.) (“Parties often elect not to contest certain facts for purposes of summary judgment only. In that event, an order establishing those facts would be inappropriate.“). As stated in the
The court must take care that this determination does not interfere with a party‘s ability to accept a fact for purposes of the [summary-judgment] motion only. A nonmovant, for example, may feel confident that a genuine dispute as to one or a few facts will defeat the motion, and prefer to avoid the cost of detailed response to all facts stated by the movant. This position should be available without running the risk that the fact will be taken as established under subdivision (g) or otherwise found to have been accepted for other purposes.
But that does not mean a party can sit close-lipped when the court is considering the use of Rule 56(g) and assume that it is protected by an irrebuttable presumption that the use of admissions is always limited to the summary-judgment proceeding. The party opposing an order establishing facts under Rule 56(g) must either present evidence controverting the proposed facts or persuade the district court that it would be unfair or otherwise inappropriate to establish particular facts through that process. See id. (A court “may properly decide that the cost of determining whether some potential fact disputes may be eliminated by summary disposition is greater than the cost of resolving those disputes by other means, including trial . . .[; or it] may conclude that it is better to leave open for trial facts and issues that may be better illuminated by the trial of related facts that must be tried in any event.“).6
I will start with what makes this case a little bit unusual for a fraud case on appellate review. There are very few material facts that are in dispute in the fraud case. . . . There are only about a half-dozen issues or questions of fact on the fraud claims, and those are very carefully described in Appellants’ briefs. Those disputed facts, though—and probably more appropriately, the disputed inferences made by the district court on those facts—are dispositive in two points: on the issue of intent and the issue of justifiable reliance.
Oral Arg. at 00:38-01:19. In keeping with this remark, Appellants’ specific objections in their appellate briefs concern just a few of the facts.7 We now turn to their arguments on appeal regarding allegedly controverted facts.
B. Allegedly Disputed Facts
Appellants devote only a few pages of their opening brief to challenging the facts established by the district-court order. Their brief lists each of the facts they disputed in response to the motion for summary judgment. But “[w]e do not consider merely including an issue within a list to be adequate briefing,” and “[i]ssues will be deemed waived if they are not adequately briefed.” Garrett v. Selby Connor Maddux & Janer, 425 F.3d 836, 841 (10th Cir. 2005) (cleaned up). Thus, Appellants have waived their global objection to the establishment of any fact they disputed below.
Appellants’ specific arguments are limited to three issues they say are among the “most egregious examples” of the court‘s abuse of discretion. Aplts. Br. at 29. These are the court‘s establishment of Watchous‘s Facts 5, 280, and 291, insofar as they addressed “Appellants’ knowledge of the ownership of the Venezuelan bonds,” id. at 30; Facts 87, 146, 195, and 234, regarding Waterfall‘s failure to fund any previous Pacific clients; and Fact 231, regarding whether the references Duval sent Watchous were people with whom Waterfall had conducted prior successful joint ventures.
Fact 5, however, says nothing about Appellants’ knowledge; and in any event, was effectively conceded in district court. Fact 5 states:
Certain bonds were blocked in favor of Waterfall and its lender, RPB Company, to allow them to structure a potential transaction. However, neither owned the bonds absolute. The Banco Central de Venezuela owned the bonds and had to approve the transaction. At all times relevant to Watchous, the bonds could only be used as collateral for a loan.
Aplts. App., Vol. II at 18. In their responses to Watchous‘s motion for partial summary
Facts 280 and 291 also do not address Appellants’ knowledge. Insofar as they relate to the Venezuelan bonds, they assert only that no one told KRG, another Pacific client, that Waterfall did not own the bonds. On appeal, Appellants assert that Elfsten and Hasegawa “receiv[ed] assurances” that information regarding Waterfall‘s beneficial ownership of the bonds was “conveyed directly” to Watchous. Aplts. Br. at 30. But even if true, this assertion is irrelevant to Facts 280 and 291, which concern what KRG knew about the bonds. Appellants cite no evidence that KRG knew that Waterfall had a beneficial interest in the bonds. The only record evidence they cite as controverting Facts 280 and 291 is completely irrelevant or concerns what Watchous, not KRG, was told about Waterfall‘s interest in the bonds. Facts 280 and 291 were not in genuine dispute.
As for Facts 87, 146, 195, and 234, which relate to Waterfall‘s failure to fund projects in the past, Appellants’ sole complaint is that the district court “ignore[d] Appellants’ controverting evidence that they told [Watchous] about the lack of successful funding, both in conversation and through a July 27, 2016, email.” Aplts. Br. at 31. But Facts 87 and 146 say nothing about what Watchous was told; they concern the failure to inform other Pacific clients about Waterfall‘s prior failures to fund. And even though Facts 195 and 235 do state that Watchous was not informed of Waterfall‘s funding failures, Appellants provide no contrary evidence. They do not cite to any portion of the record to support their argument except a July 27 email from Zouvas attaching copies of the bonds, and nothing in the email states or suggests that Waterfall had not been able to fund prior projects. Indeed, the email referred to “suites of documents we have created for other deals.” Aplts. App., Vol. III at 100. And in a follow-up message sent the same day, Zouvas attached documents purporting to show a transaction between his company and Waterfall.
Finally, the gist of Fact 231 was that “[o]n July 28, 2016, Duval sent Watchous alleged references for Mournes, Duval, and Zouvas. . . . The purported references all have a direct relationship with Waterfall and had a vested interest in Waterfall obtaining funds from Watchous to attempt to close Waterfall‘s intended bond transaction. . . . No evidence was produced in discovery to suggest that Waterfall completed a successful venture, let alone oil and gas joint venture, with any of the references.” Aplts. App., Vol. II at 68. The only attempt at challenging Fact 231 in Appellants’ opening brief is the assertion that “Appellants were truthful about their past ventures together, admitting that they had done so, without ever opining on the success of those ventures.” Aplts. Br. at 31. But, again, even if this assertion is true, it does not contradict Fact 231. Fact 231, too, was not in genuine dispute.
C. Motions in Limine
Appellants’ last argument objects to the district court‘s rulings on three of Watchous‘s motions in limine: (1) a motion, relying on
We can easily dispose of the challenge to the motion to exclude testimony contrary to established facts. The challenge is merely a corollary to the challenge to the Rule 56(g) order. The concluding sentence of this argument in Appellants’ brief states: “Thus, if the Court finds the Rule 56(g) order was an abuse of discretion, it should also reverse the order granting this motion in limine.” Aplts. Br. at 35-36. Because the order was not an abuse of discretion, the order granting the motion in limine was appropriate. (We note that the district court made clear that all in limine rulings were “subject to revision if circumstances convince [the court] it should be revised.” Aplts. Supp. App. at 395. Thus, if Appellants came upon evidence contradicting one of the established facts, they could have requested that the evidence be admitted. But they have not pointed to any such request during trial.)
As for the exclusion of evidence that many banks had rejected Watchous‘s loan applications, we do not understand Appellants’ contention that the evidence was relevant at trial. Perhaps the evidence would have been admissible if Watchous were claiming damages because the defendants had not obtained funding for its projects—Appellants could have properly argued that Watchous was not injured by any failure of Appellants to secure funds, because there was no way Watchous could have persuaded anyone to lend it money or enter into a joint venture with it. But the only claims for compensatory damages sought by Watchous were to get back the money it had paid for assistance in obtaining financing. Appellants’ other two assertions of relevance also miss the mark. They claim that the evidence of bank rejections would help rebut evidence that they engaged in a pattern of racketeering activity and participated in the conduct of an enterprise through that pattern. But we fail to see how the excluded evidence could disprove, or even soften, the evidence of those elements of the RICO claims.
Finally, Appellants’ challenge to the exclusion of evidence of their poor financial condition is based on a mischaracterization of the district court‘s ruling on the matter. The court agreed with Appellants that evidence of financial condition is admissible in determining the amount of punitive damages. But the court explained that the determination of the amount of punitive damages would be bifurcated from the first part of the trial, which would address liability and compensatory damages, and it
In sum, we reject Appellants’ challenges to the jury verdict.
III. CONCLUSION
Because Appellants have failed to show any error in the conduct of the jury trial, and because the jury verdict renders moot any error in the award of partial summary judgment to Watchous, we AFFIRM the judgment of the district court. We GRANT Defendants-Appellants’ Motion for Leave to Supplement Appendix.
HARTZ
Circuit Judge
Notes
Supporting Brief. The brief in support of a motion for summary judgement must begin with a section that contains a concise statement of material facts as to which the movant contends no genuine issue exists. The facts must be numbered and must refer with particularity to those portions of the record upon which movant relies. All material facts set forth in the statement of the movant will be deemed admitted for the purpose of summary judgment unless specifically controverted by the statement of the opposing party.