United States District Court, D. Arizona
CWT Canada II Limited Partnership, an Ontario, Canada Limited Partnership, et al., Plaintiff,
Elizabeth J. Danzik, an Individual, et al., Defendants.
G, Campbell, Senior United States District Judge
CWT Canada II Limited Partnership and Resource Recovery
Corporation (collectively “CWT”) sued Defendants
Elizabeth J. Danzik (“Elizabeth”), Danzik Applied
Sciences, LLC (“DAS”), Tony Ker
(“Ker”), and Richard Carrigan
(“Carrigan”) for various claims related to
approximately $5 million in unpaid tax credits. Doc. 1;
Bridges Doc. 56.CWT, Ker, Carrigan, and Elizabeth move for
summary judgment. Docs. 156; 165. Ker and Carrigan also move
to strike a CWT sur-reply. Doc. 175. The motions are fully
briefed, and oral arguments will not aide the Court's
decision. LR Civ. 7.2(f); Fed.R.Civ.P. 78(b). For the
following reasons, the Court will deny CWT's motion in
part and grant it in part, deny Ker and Carrigan's
Motion, grant Elizabeth's motion in part and deny it in
part, and grant Ker and Carrigan's motion to strike.
The Parties and the Agreement.
Danzik (“Danzik”) was the chief executive officer
of RDX Technologies, Corp. (“RDX”), a now-defunct
corporation. Doc. 1 ¶1. Danzik also owns DAS. Bridges
Doc. 1 ¶ 2. Dennis and his spouse, Elizabeth, own Deja
II, LLC (“Deja”). Doc. 1 ¶ 1. CWT entered
into a transaction to sell their company, Changing World
Technologies, L.P. (“Changing World”), to RDX.
Bridges Doc. 1 ¶ 2. CWT also entered into a transaction
to purchase RDX stock. Id. ¶ 32. Ker was the
chairman of the RDX board, and Carrigan was a board member.
Id. ¶ 5.
2013, CWT and RDX entered into a Uniform Purchase Agreement
(the “UPA”), for Changing World. Id.
¶ 22. Under the UPA, RDX signed two promissory notes
totaling $20 million and provided stock to CWT. Id.
¶ 32. Changing World was the holding company and sole
member of Renewable Environmental Solutions, LLC
(“RES”), which manufactured and sold renewable
diesel fuel. Id. Under a federal subsidy program,
RES was eligible for tax credits for every gallon of diesel
fuel produced. Id. RES owed no taxes because it had
no profit, and therefore it received a tax credit payment
every year. Id. In 2011, the subsidy program expired
and then was renewed retroactively in 2013. Id.
¶ 24. Accordingly, in 2013 or 2014 RES could request
millions of tax credits earned in 2012. Id. Under
the UPA, “one hundred percent of all amounts received
by [RDX] as a result of the reinstatement of any Federal or
state tax credit relating to the period prior to and
including December 21, 2012 [would] be allocated and
distributed to [CWT].” Doc. 158-1 (0607) § 2.3.
to selling Changing World to RDX, CWT invited Gem Holdco, LLC
(“GEM”) to be a limited partner with the CWT
parties. Id. GEM wanted to invest enough to own
sixty percent of CWT, but it planned to resell the ownership
to RDX. Id. By March 2013, CWT realized that GEM was
not complying with its contractual obligations to fund the
company and obtain its sixty percent interest. As a result,
CWT contracted with RDX separately to sell Changing World.
Id. ¶ 31.
The New York Action.
filed an action in New York against CWT for failing to sell
it sixty percent of Changing World, and CWT joined Danzik and
RDX as defendants. Id. ¶ 39. By August 2014,
relations between CWT, Danzik, and RDX began to sour because
RDX refused to pay the purchase price for Changing World, to
remit the tax credits to CWT, and to provide $1 million in
stock. Id. ¶ 40.
argued that CWT defrauded RDX because the RES refining
process was not the expected quality. Id.
¶¶ 41-42. Danzik further argued that he was holding
the tax credit funds for the U.S. government because RES did
not produce renewable diesel to be eligible for the tax
credit. Id. ¶ 44. In 2015, CWT filed
crossclaims in the New York action against Danzik and RDX for
the misappropriation of the tax credits and other breaches of
the UPA. Id. ¶ 48; Dennis Doc. 60-12 at 30.
December 2015, CWT moved for a preliminary injunction to
prohibit Danzik and RDX from using or transferring the RES
tax credit funds and to require them to deposit the funds
into a separate trust account. Dennis Doc. 60-15. The New
York Court granted CWT's motion. Dennis Doc. 60-16.
Justice Kornreich explained that there was “no question
of fact that the  tax credits d[id] not belong to [Danzik
and RDX]. The money either belong[ed] to the CWT parties or
the federal government. . . . [R]egardless of the outcome of
this litigation, [Danzik and RDX] w[ould] not keep the
money.” Id. at 6.
hearing on November 4, 2015, Justice Kornreich granted a
motion to strike Danzik and RDX's defenses. See
Dennis Doc. 60-19 at 3-4 (“I am striking Mr. Danzik and
RDX's, any kind of response they have to [the
crossclaim]. There is no answer to that, no opposition to
that. There is going to be a default on that if there is a
motion for a default judgment.”). This ruling was based
on Danzik and RDX's repeated refusals to comply with
court orders to produce certain bank records and ESI during
discovery. Id. at 3-5.
3, 2016, after holding a contempt hearing, Justice Kornreich
found Danzik and RDX in civil and criminal contempt for
violating the attachment order and a later-granted temporary
restraining order requiring Danzik and RDX to set aside the
tax credit funds. Dennis Doc. 60-22. Justice Kornreich
proceeded to the merits and found that there was “no
question that [Danzik and RDX] willfully violated the
Attachment Order and the TRO.” Id. at 9.
August 2016, Justice Kornreich granted CWT's unopposed
motion for default judgment against Danzik and RDX on their
crossclaims. Dennis Doc. 60-2. In assessing whether CWT had a
viable cause of action against Danzik and RDX for purposes of
entering default judgment, Justice Kornreich explained that
the breach of trust crossclaim “concerns [Danzik and
RDX's] breach of their obligation to hold the tax credits
in constructive trust for [CWTs], as required by the
UPA.” Id. at 5-6. She concluded that
Defendants' “right to the tax credits under the UPA
is clear, and any defense RDX may have had has been
stricken.” Id. at 6. A final judgment was
entered the following month against Danzik and RDX in the
amount of $7, 033, 491.13. Dennis Doc. 60-3.
The Current Litigation.
March 4, 2016, CWT sued Elizabeth and Deja, alleging that
Elizabeth received $730, 000 that Danzik stole from CWT, and
that she defrauded CWT in a separate RDX stock transaction.
See Doc. 1 ¶ 1. Next, CWT sued DAS, Carrigan,
and Ker, alleging that they knew of and aided in Danzik's
fraudulent theft scheme. Bridges Doc. 1. Ker filed a
counterclaim to that suit. See Bridges Doc. 81.
Finally, Danzik and RDX sued CWT and various parties related
to CWT, alleging that they defrauded Danzik into purchasing
Changing World. Dennis Doc. 1. On September 27, 2017, the
Court granted the parties' motion to consolidate these
actions and directed the parties to make subsequent filings
in the Elizabeth Action. See Doc. 96. The Court
granted motions to dismiss Ker's abuse of process
counterclaim and the Dennis Action. See Doc. 119.
remaining claims include fraud against Carrigan and Ker
(Bridges Doc. 56 ¶¶ 95-100); conversion against DAS
(id. ¶¶ 101-11); tortious interference
with contractual relations against Carrigan and Ker
(id. ¶¶ 112-19); breach of trust against
Carrigan and Ker (id. ¶¶ 120-30); breach
of fiduciary duty against Carrigan and Ker (id.
¶¶ 131-39); aiding and abetting fraud, conversion,
breach of trust/misappropriation of trust assets and breach
of fiduciary duty against DAS, Bridges, Carrigan, and Ker
(id. ¶¶ 140-51); unjust enrichment and
restitution against DAS (id. ¶¶ 152-57);
constructive trust against DAS (id. ¶¶
158-62); fraudulent transfers under A.R.S. §
44-1004(A)(1) against DAS (id. ¶¶ 163-68);
fraudulent transfers under A.R.S. § 44-1004(A)(2)
against DAS (id. ¶¶ 169-75); fraudulent
transfers under A.R.S. § 44-1005 against DAS
(id. ¶¶ 176-82); and common law conspiracy
to commit fraudulent transfers against DAS, Carrigan, and Ker
(id. ¶¶ 183-87).Claims for defamation under
Arizona and Canadian law remain in Ker's second amended
counterclaim against CWT. See Doc. 99 ¶¶
Elizabeth Action, the remaining claims include fraud against
Elizabeth and Deja (Doc. 1 ¶¶ 95-109); conversion
against Elizabeth and Deja (id. ¶¶
110-15); money had and received against Elizabeth and Deja
(id. ¶¶ 116-22); breach of contract
against Deja (id. ¶¶ 123-28); conversion
of the tax credits against Elizabeth (id.
¶¶ 129-38); money had and received related to the
tax credits against Elizabeth (id. ¶¶
139-45); unjust enrichment and restitution against Elizabeth
and Deja (id. ¶¶ 146-51); unjust
enrichment and restitution against Elisabeth (id.
¶¶ 152-57); constructive trust against Elizabeth
and Deja (id. ¶¶ 158-62); and accounting
against Elizabeth and Deja (id. ¶¶
seeking summary judgment “bears the initial
responsibility of informing the district court of the basis
for its motion and identifying those portions of [the record]
which it believes demonstrate the absence of a genuine issue
of material fact.” Celotex Corp. v. Catrett,
477 U.S. 317, 323 (1986). Summary judgment is appropriate if
the evidence, viewed in the light most favorable to the
nonmoving party, shows “that there is no genuine
dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” Fed.R.Civ.P. 56(a).
Summary judgment is also appropriate against a party who
“fails to make a showing sufficient to establish the
existence of an element essential to that party's case,
and on which that party will bear the burden of proof at
trial.” Celotex, 477 U.S. at 322. Only
disputes over facts that might affect the outcome of the suit
will preclude summary judgment, and the disputed evidence
must be “such that a reasonable jury could return a
verdict for the nonmoving party.” Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
moved for summary judgment on the conversion claim against
Ker and Carrigan, on the issue of whether Ker and Carrigan
could relitigate issues decided in the New York action, and
on Ker's defamation counterclaims. See Doc. 156.
Notice of Conversion Claim Against Ker and Carrigan.
argues that summary judgment should be granted against Ker
and Carrigan for conversion, but Ker and Carrigan argue that
CWT never pled a conversion claim against them. Docs. 156 at
11; 165 at 9. Ker and Carrigan argue that the only count
related to their conversion of the tax credits is a claim for
aiding and abetting conversion. Doc. 165; see also
Bridges Doc. 56 ¶¶ 140-51.
the liberal rules of pleading, a plaintiff need only provide
a “short and plain statement of the claim showing that
the pleader is entitled to relief.” Fed.R.Civ.P. 8(a).
A pleading must give fair notice of the claims against each
Defendant. See Rynn v. McKay, No.
CV-18-00414-PHX-JJT, 2018 WL 3926666, at *2 (D. Ariz. Aug.
16, 2018) (group pleading fails to comply with Rule 8(a)(2)
because it does not give fair notice of the claims against
each defendant with the requisite specificity).
Plaintiffs' complaint need not contain a specific legal
theory so long as the complaint, fairly read, contains the
factual basis to provide notice of the absent claim. See
Pickern v. Pier 1 Imports (U.S.), Inc., 457 F.3d 963,
968 (9th Cir. 2006) (affirming summary judgment where the
complaint did not give fair notice of the factual basis for a
claim raised for first time in opposition to summary
judgment); Am. Timber & Trading Co. v. First
Nat'l Bank of Or., 690 F.2d 781, 786 (9th Cir. 1982)
(“A party need not plead specific legal theories in the
compliant, so long as the other side receives notice as to
what is at issue in the case.”).
second amended complaint alleges conversion as its second
cause of action against DAS. Bridges Doc. 56 ¶¶
101-11. CWT first alleges that Danzik and RDX received
specific sums of money in an aggregate amount of about $ 6
million in the form of tax credit payments from the United
States Treasury. Id. ¶ 102. CWT next alleges
that “Danzik, acting in concert with Bridges, Carrigan,
Ker and other RDX insiders, diverted the funds to accounts in
the name of DAS and/or to other accounts that Danzik
controlled.” Id. ¶ 103. The complaint
then states that DAS received identified funds that rightly
belong to the CWT parties, the CWT parties have a possessory
interest to these funds that is superior to that of DAS, DAS
failed to return the tax credit funds and has
“exercised dominion of them for its own purpose, and
DAS therefore converted the tax credits. Id. ¶
101-07. In its sixth cause of action, CWT alleges that
Carrigan and Ker are liable for aiding and abetting Danzik
and RDX's conversion of the credits. Id. ¶
complaint does not assert a conversion claim against Ker and
Carrigan. The eleven factual allegations associated with the
conversion claim mainly relate to DAS's actions and
liability in relation to the tax credits. Specifically, the
complaint alleges that “DAS has unlawfully converted
the Tax Credits funds to its own use” (Bridges doc. 56
¶ 107), and “DAS is liable for conversion in an
amount to be determined at trial” (id. ¶
111). The only reference to Ker and Carrigan states that
“Danzik, acting in concert with Carrigan and Ker . . .
diverted the funds to accounts in the name of DAS.”
Id. ¶ 103. These allegations do not support a
claim for conversion against Carrigan and Kerr. See
Bodley v. Macayo Rests., LLC, 546 F.Supp.2d 696, 698 n.2
(D. Ariz. 2008) (new factual theories in response to summary
judgment do not preclude summary judgment); Kreiger v.
Nationwide Mut. Ins., No. CV11-01059-PHX-DGC, 2012 WL
1029526, at *5 (D. Ariz. March 27, 2012) (where the complaint
does not mention the facts the legal theory rests on it fails
to give adequate notice to the parties); Stokes v.
Arpaio, No. CV 04-2845-PHX-DGC (MEA), 2008 WL 3286175,
at * 6 (D. Ariz. Aug.7, 2008) (“Plaintiff's new
allegations [challenging a different policy] cannot properly
be construed as falling within the First Amended
argues that the parties have been on notice of the conversion
claim since the beginning of the case because Ker and
Carrigan's possible conversion came up during discovery
and because CWT asserted a claim for breach of fiduciary
duty, which put them on notice that they could be held liable
regardless of their tortious intent. See Doc. 170 at
9-10. CWT cites to several documents outside of the complaint
that demonstrate Carrigan and Ker knew about the conversion
claim. See id. (citing Bridges Doc. 54 at 11
(stating that Carrigan, as a corporate director, was liable
for the theft of the tax credits); Bridges Doc. 70 at 5
(stating that Danzik gave testimony that Carrigan was an
accomplice to the theft); Doc. 136 at 7 (stating “Ker
and Carrigan are liable because they caused RDX to deposit
and use the CWT Parties' tax credits”). Further,
CWT points to Ker and Carrigan's deposition questioning
about an auditor's report that noted lack of oversight of
closely related transactions. Doc. 170 at 10.
arguments are unavailing. The test for notice is based
primarily on the complaint. CWT cites Sagana v.
Tenorio, 384 F.3d 731 (9th Cir. 2004), for the
proposition that a party can be put on notice of a claim if
the other party seeks discovery on that issue. See
Doc. 170 at 10. But Sagana addressed not only a
complaint but an accompanying settlement agreement. Indeed,
the Ninth Circuit looked to the text of the settlement
agreement to determine whether the plaintiff's right to
pursue a particular claim had been preserved. The court of
appeals found the factual basis for the claim clearly set out
in the settlement agreement and also found that the complaint