United States District Court, D. Arizona
DAVID G. CAMPBELL, District Judge.
Following a pretrial conference on December 3, 2014, the Court directed the parties to brief four issues: (1) choice of law; (2) fraud "expectancy damages" available in this case, if any; (3) whether Wells Fargo can fairly claim surprise about an alternative causation theory asserted in the proposed final pretrial order; and (4) whether Gazian's testimony on the alternative causation theory (that he could have done the deal through other financing) is sufficient to survive summary judgment. Doc. 191. The parties have completed the briefing. Docs. 197, 199, 203, 204. For reasons set forth below, the Court chooses Texas law and grants summary judgment in favor of Wells Fargo on Plaintiffs' claim for lost profits arising from the Park Plaza Tower Transaction. The Court also addresses two remaining motions and sets a second final pretrial conference.
Plaintiffs in this case are Ken Gazian, Pierre Investments, Inc., and Aragadz Foods, Inc., d/b/a Devanche Jewelers. Gazian is a Texas resident and both Pierre and Devanche are Texas corporations wholly owned by Gazian. Plaintiffs originally brought this action against both Wells Fargo and the Kelly Defendants based on an allegedly fraudulent scheme perpetrated by the Kelly Defendants. Plaintiffs allege that they transferred $80, 000 to the Kelly Defendants' Wells Fargo account for the "purchase of securities allegedly posted on the London Stock Exchange." Doc. 101, ¶ 10. The securities transaction was represented "as having a total value in excess of $45, 000, 000, " and Plaintiffs were to receive "a return of $280, 000." Id.
Plaintiffs allege that they "sought assurance from Wells Fargo" that the Kelly Defendants were legitimate business people and were in the process of putting together a large securities transaction. Id. Wells Fargo employees from a branch in Mesa, Arizona allegedly represented to Plaintiffs "on multiple occasions that there was a transaction being put together for the purchase of the securities, that funds were present for the purchase of securities, and that Wells Fargo had undertaken numerous successful transactions" with the Kelly Defendants. Id., ¶ 11. Plaintiffs entered into an "Irrevocable Commitment" with the Kelly Defendants and Wells Fargo that set forth the terms discussed above. Id., ¶ 12.
Plaintiffs assert that they were convinced by the Kelly Defendants in October 2011 to reinvest $250, 000 of the $280, 000 promised by the Irrevocable Commitment to "fund a $5, 000, 000 loan to purchase and renovate the Park Plaza Tower, " an office building in Dallas. Id., ¶ 16. Plaintiffs also agreed to pay an additional $50, 000 to fund the transaction. Id. Plaintiffs assert that on November 29, 2011, when they attempted to withdraw $30, 000 and transfer $250, 000 to the Kelly Defendants, they "were informed by Wells Fargo that the accounts had been emptied and that Wells Fargo would not transfer any amount to Plaintiffs pursuant to the Irrevocable Commitment." Id., ¶ 21.
Plaintiffs reached a settlement with the Kelly Defendants in late 2013. The Court dismissed the Kelly Defendants on November 26, 2013. Doc. 58. Thus, the only claims that remain in this case are those brought against Wells Fargo.
II. Choice of Law.
Plaintiffs contend that Texas law governs this case. Wells Fargo claims that Arizona law controls. Both parties agree that there are relevant conflicts between Texas and Arizona law, and that the Court must apply Texas choice-of-law principles because this case was transferred from Texas. Docs. 197 at 1-2; 199 at 2 n.1; see also Hooper v. Lockheed Martin Corp., 688 F.3d 1037, 1045 (9th Cir. 2012).
A. Fraud and Misrepresentation.
Texas has adopted the Restatement approach to choice-of-law questions, asking which state has the most significant relationship to the issue to be resolved. Tracker Marine, L.P. v. Ogle, 108 S.W.3d 349, 355 (Tex. Ct. App. 2003). For claims of fraud and misrepresentation that involve more than one state, Texas courts look to § 148(2) of the Restatement (Second) of Conflict of Laws. Id. For claims asserting negligence, Texas courts look to § 145. Shein v. Stromboe, 102 S.W.3d 675, 696 (Tex. 2002).
Section 148(2) identifies the following factors for identifying the state with the most significant relationship to a multi-state fraud or misrepresentation: (a) the place or places where the plaintiff acted in reliance on the defendant's representations; (b) the place where the plaintiff received the representations; (c) the place where the defendant made the representations; (d) the domicile, residence, nationality, place of incorporation and place of business of the parties; (e) the place where a tangible thing, which is the subject of the transaction between the parties, was situated at the time; and (f) the place where the plaintiff is to render performance under a contract which he has been induced to enter by the false representations of the defendant. Restatement § 148(2).
After review, it is clear that factors (b), (d), and (e) weigh in favor of Texas. Plaintiffs were located in Texas when they received the alleged misrepresentations made by Wells Fargo. Plaintiffs' domicile and place of business are in Texas, while Wells Fargo is domiciled in South Dakota. See Doc. 1 at 3-4. And the "tangible thing" that was part of the subject of Plaintiffs' effort to obtain loan financing - the Park Plaza Tower - is located in Dallas, Texas.
Factor (a), the place or places where Plaintiff acted in reliance on Defendant's misrepresentations, involves both states but leans most heavily towards Texas. Plaintiffs were located in Texas when they decided to rely on the alleged misrepresentations of Wells Fargo. They withdrew funds from their Texas bank accounts and took steps in Texas to wire the funds to Wells Fargo's office in Arizona. Although a portion of their actions in reliance on the misrepresentation occurred in Arizona (deposit of the funds), most of the actions occurred in Texas.
The same is true of factor (f), the place where Plaintiffs were to render performance under the Irrevocable Commitment. Plaintiffs were to withdraw funds from their Texas accounts and transfer the funds to Arizona, where they would be deposited at Wells Fargo. As with factor (a), more of these contacts occurred in Texas than Arizona.
Only factor (c), the place where the defendant made the representations, favors Arizona. The representations are alleged to have been made by Wells Fargo employees located in Arizona.
Many of Wells Fargo's arguments in favor of Arizona law focus on the conduct of the Kelly Defendants. But as Wells Fargo itself acknowledges, "the focus must be on Wells Fargo's relationship with plaintiffs only, regardless of what other tortfeasors or former defendants may or may not have done." Doc. 199 at 3 (emphasis in original).
Wells Fargo also focuses its attention on the Irrevocable Commitment, but this is not a breach of contract case and, as noted above, Plaintiffs' performance under that agreement was to occur primarily from Texas for the purpose of financing the acquisition of securities in Europe.
The fact that Plaintiffs are domiciled in Texas also carries significant weight. As comment i to § 148(2) explains:
The plaintiff's domicile or residence, if he is a natural person... are contacts of substantial significance when the loss is pecuniary in its nature, as is true of the situations covered by the rule of this Section. This is so because a financial loss will usually be a greatest concern to the state with which the person suffering the loss has the closest relationship.... The domicile, residence, and place of business of the plaintiff are more important than are similar contacts on part of the defendant.
§ 148(2), cmt. i. This factor particularly carries weight when the domicile of the defendant, as here, is not in the state whose law the defendant urges the court to choose.
Considering all the factors, the Court concludes that Texas has the most significant relationship with the fraud and misrepresentations at issue in this case. This is particularly true in light of the fact that only two contacts point ...