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Jes Solar Company Ltd. v. Matinee Energy Inc.

United States District Court, D. Arizona

July 1, 2019

Jes Solar Company Limited, et al., Plaintiffs,
v.
Matinee Energy Incorporated, et al., Defendants.

          ORDER

          HONORABLE DAVID C. BURY, UNITED STATES DISTRICT JUDGE

         On February 12, 2018, this Court's entry of default judgment and an award of damages was reversed, and the case was remanded for disposition on the merits. The Court grants summary judgment for Defendants Kim and Chung.

         Case History

         This case was summarized by the Ninth Circuit Court of Appeals, as follows:

Plaintiffs, a group of contractors, contracted with Defendant Corporations Matinee Energy, Inc. and Samsun, LLC to-they believed-construct a multi-billion-dollar solar power project. In reality, no project existed. They filed this action for breach of contract, unjust enrichment, conspiracy, fraudulent inducement, and conversion to recover the money they paid into the project.

         On remand, default remains against Defendants Matinee Energy, a corporation, Paul Jeoung, President of Matinee Energy, and John S. Lee, owner of Defendant Samsun, a corporation. Defendant Chun Rae Kim[1] has been dismissed from the action. On appeal, the defaults were reversed for Tong Soo Chung, DEO of Matinee East-Asia region, and S. Chin Kim, Vice President of Matinee. Both Defendants seek summary judgment on the merits of all the claims against them.

         According to the Defendants, the Plaintiffs proceed against them on only two claims: civil conspiracy and for declaratory judgment to pierce the corporate veil under the alter ego doctrine. Plaintiffs have not, however, agreed to voluntarily dismiss the other claims. The six claims alleged in the Second Amended Complaint are: 1) breach of contract (Count One), unjust enrichment (Count Two), conspiracy (Count Three), fraudulent inducement (Count Four), conversion (Count Five), and alter ego/declaratory judgment (Count Six). Plaintiffs agree and decline briefing the other claims as being an unnecessary and irrelevant consumption of substantial portions of the Plaintiffs' dispositive motions. (Response to Chung (Doc. 477) at 5[2]n.1.)

         Both Defendants paint themselves as being just like the Plaintiffs: victims of con-artist Defendant Jeoung's fraudulent scheme.

         Defendant Chung asserts that after nearly six years of litigation, the Plaintiffs lack any evidence of any agreement for an unlawful purpose to support a conspiracy claim, which is barred by the intra-corporate conspiracy doctrine. He asserts that civil conspiracy is not an independently recognized cause of action under Arizona law, and there is no evidence of an underlying tort to support a derivative civil conspiracy claim. Defendant Chung argues that Plaintiffs lack any evidence to warrant piercing the corporate veil of Matinee by declaratory judgment to impose alter ego liability on him for the fraudulent acts of Defendants Matinee and/or Samsun.

         Defendant Kim seeks summary judgment on the alter ego claim because he was not a shareholder in Matinee Energy and did not control or dominate Matinee Energy, therefore, it would be unjust to hold him liable under the alter ego doctrine for Matinee Energy's debts. Kim argues that he cannot be liable for conspiracy to commit fraud because he did not have any intent and did not agree to commit fraud, and none of the Plaintiffs detrimentally relied on any alleged representation by him. Kim asserts that the economic loss rule bars recovery in tort for purely economic loss, unless a construction contract otherwise provides, and there is no such provision in any contract, here. Kim disputes Plaintiffs' allegations that Matinee acted to defraud Plaintiffs.

         Based on the defaults entered against corporate Defendant Matinee Energy and Jeoung for fraudulent misrepresentation, the Plaintiffs argue that Chung and Kim were members of the Matinee Project/Jeoung conspiracy because they acted in concert with these other admitted coconspirators. Plaintiffs assert that Defendants Chung and Kim knowingly and recklessly supported the Matinee Project by making fraudulent representations to potential construction contractors like the Plaintiffs, even after learning in 2010 that Matinee had no, or insubstantial assets, could not secure construction financing on its own to pay contractors, and could not implement the mega-billion-dollar construction project. Alternatively, Plaintiffs ask the Court to impose alter ego liability on Chung and Kim for the fraudulent acts of Matinee.

         Count IV: Fraudulent Inducement

         Plaintiffs do not press the fraudulent inducement claim directly against Defendants Chung and Kim but assert instead that Chung and Kim were coconspirators as alleged in the Second Amended Complaint (SAC).[3]

         Plaintiff Hankook was introduced to the Matinee Project by a South Korean corporation, I1Yang, in February 2010, as being a three-state (California, Nevada, and Arizona), 5 billion-dollar, solar power project. To participate in the Matinee Project, Hankook acquired a 50% interest in I1Yang. Matinee, Jeoung, and the Samson Defendants, John Lee and Chun Rae Kim, demanded an advance payment of $500, 000. When Hankook refused, a Hankook-Samsun partnership agreement was entered into whereby Hankook paid Samsun $500, 000 for various Matinee Project related services. On July 30, 2010, Hankook entered into the Pre-Master Agreement with Matinee to be the turn-key contractor on the Benson, Matinee Project. (SAC ¶¶ 25-30.)

         Hankook, previously K & Company, formed a consortium with a prominent South Korean company, LS Industrial Systems (LSIS) to proceed with the Matinee Project as the K&LSIS consortium. Hankook was repeatedly assured by Jeoung, the Samsun Defendants, and Matinee that J.P.Morgan financing was arranged and ready, but Matinee repeatedly refused to arrange a meeting for Hankook with J.P.Morgan. By the end of 2010, on December 15, 2010, Hankook met with Defendant Chung because of the repeated inability to secure a meeting through Matinee with J.P.Morgan. Chung allegedly told them that the project was proceeding as planned. Still without having arranged for Hankook to meet with J.P.Morgan, Matinee demanded that Hankook deposit capital into a joint venture company in the United States. Hankook refused. Matinee demanded Hankook lend it $2 million on the condition that Matinee would repay the loan from a future government solar subsidy. Hankook refused. Hankook did make a $9, 000 personal loan to Jeound, which he promised to repay within two or three days and did not repay. Eventually, Hankook demanded that Matinee sign the final EPC (engineering/procurement/construction) agreement and proceed with the project. On June 23, 2011, Matinee terminated the Hankook agreement. (SAC ¶¶ 31-43.)

         LSIS, then withdrew from the K&LSIS consortium and introduced Defendant Samsun to Plaintiff Jes Solar for Jes Solar to participate in the Matinee Project as the turn key contractor. (SAC ¶ 42.)

         Jes Solar alleges it met the Samson Defendants and were told that Matinee had been established since 2006; Michael Pannos, Chairman of Matinee, was a prominent business figure in the United States; Defendant Kim was Vice Chairman of Matinee in charge of the green-power management division; Matinee had already developed 15 initial solar plants in California and Arizona, and Matinee was developing $5 billion worth of solar projects in the United States, with financing from J.P. Morgan. Jes Solar alleges that Matinee Defendants, including Defendant Kim, represented that Matinee had invested in excess of $600 million in its solar projects and would benefit from $1.3 billion in government subsidy funding. Jes Solar alleges that based on these representations, it decided to enter into a partnership agreement with Samsun, whereby Samsun would assist Jes Solar with the Matinee Project for 1% of the total cost of construction. Jes Solar met with the Samsun Defendants and Jeoung on July 16, 2011 and wanted to delay signing the partnership agreement and paying the 1%, but the Samson Defendants, acting as agent for Matinee, refused and threatened to look elsewhere for a contractor and cut Jes Solar out of the deal. (SAC ¶¶ 43-50.)

         Allegedly, Jeoung and the Samsun Defendants told Jes Solar that Matinee had already structured the construction financing, and the bank was ready to issue the LC. On July 16, 2011, allegedly, at the invitation of Defendant Kim, Jes Solar attended a meeting at his private residence and was informed that any advance payments made by Jes Solar would be secured by Kim personally. (SAC ¶ 54.) Kim confirmed the financing availability and that the LC was ready. Id. Jes Solar signed the partnership agreement at the July 16, 2011 meeting. (SAC ¶ 49.)

         Jes Solar, however, refused to pay the 1% or an advance fee until Matinee provided a Letter of Credit (LC)[4] from J.P.Morgan to verify and provide assurance of financial stability for the joint business venture. (SAC ¶¶ 51-52 .)

         The Master Agreement between Matinee and Jes Solar provided for a more detailed agreement to follow, the EPC. (SAC ¶55.) Jes Solar began preparation for the project by forming a consortium with Plaintiff Airpark the Jes Solar/Airpark consortium (the Consortium). (SAC ¶ 56.)

         August 22, 2011, Defendant Chun of Samsun formed an Arizona solar consulting company, J&A Solar, on behalf of the Consortium and opened a Wells Fargo bank account for the deposit of project funds in the United States. (SAC ¶ 58.)

         On October 28, 2011, a groundbreaking ceremony was held at the Benson, Arizona, project site, even though Matinee had not yet obtained the grading permits. Defendants Kim was present at the ceremony and made a great show of introducing Defendant Chung, who was well known and respected in S. Korea, and a former high-ranking officer of the International Trade Administration of the United States Department of Commerce. At the groundbreaking ceremony, Defendant Kim demanded an additional $1 million advance payment from the Consortium and agreed that when the $1 million was paid, the LC would be issued. (SAC ¶ 62-68.)

         On October 27, 2011, the Consortium entered into the EPC Agreement. (SAC ¶ 69.)

         On November 1, 2011, the Consortium transferred $1 million to the J&A Solar Wells Fargo trust account, to be paid as follows: $200, 000 to Samsun; $130, 000 to NewTech, and $670, 000 to remain in the account for the construction project. The $670, 000 was, however, transferred to Matinee. (SAC ¶ 70.)

         Allegedly, pursuant to demands from Jeoung and Kim, the Consortium made a $250, 000 payment to Defendant Samsun on August 17, 2011; on September 19, 2011, Jes Solar paid Samsun $350, 000, and on September 19, 2011, Jes Solar paid $60, 000 to New EnerTech Co, a South Korean Corporation, designated by Samsun for payment as its subcontractor. (SAC ¶ 57.)

         On November 4, 2011, Kim forwarded the Consortium “Memorandum One, ” the agreement which would open the LC in the amount of $16 million during the week of November 6-12, 2011. When the LC was not issued, the Consortium to begin looking into matters and discovered newspaper articles and other damning information regarding Matinee's Chairman Michael Pannos. (SAC ¶¶ 70-77.) As part of its investigation, the Consortium contacted Defendant Chung, and he advised “the delay by J.P.Morgan Chase might be caused by the Patriot Act.” (SAC ¶ 78.)

         On December 9, 2011, the Consortium contacted J.P.Morgan directly regarding the issuance of the LC and were told that Matinee had failed to provide its assets as collateral, which was required by J.P. Morgan to issue the LC. (SAC ¶ 76.)

         On December 20, 2011, the Consortium asked for the return of the $1.6 million, which was not forthcoming. (SAC ¶ 81.)

         Standard of Review for Summary Judgment

         On summary judgment, the moving party is entitled to judgment as a matter of law if the Court determines that in the record before it there exists “no genuine issue as to material fact.” Fed.R.Civ.P. 56(a). The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact but is not required to support its motion with affidavits or other similar materials negating the opponent's claim. Celotex Corp. v. Catrett, 477 U.S. 317, 323-325 (1986). In determining whether to grant summary judgment, the Court views the facts and inferences from these facts in the light most favorable to the non-moving party. Matsushita Elec. Co. v. Zenith Radio Corp., 475 U.S. 574, 577 (1986).

         The mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). A material fact is any factual dispute that might affect the outcome of the case under the governing substantive law. Id. at 248. A factual dispute is genuine if the evidence is such that a reasonable jury could resolve the dispute in favor of the non-moving party. Id.

         The moving party is under no obligation to negate or disprove matters on which the non-moving party bears the burden of proof at trial. Id. at 325. Rather, the moving party need only demonstrate that there is an absence of evidence to support the non-moving party's case. Id. If the moving party meets its burden, it then shifts to the non-moving party to ‘designate 'specific facts showing that there is a genuine issue for trial.” Id. at 324 (quoting Fed.R.Civ.P. 56(e)). To carry this burden, the party opposing a motion for summary judgment cannot rest upon mere allegations or denials in the pleadings or papers. Anderson, 477 U.S. at 252. The non-moving party must “do more than simply show that there is some metaphysical doubt as to the material facts.” Matsushita, 475 U.S. at 586. “The mere existence of a scintilla of evidence ... will be insufficient; there must be evidence on which the jury could reasonably find for the [non-moving party].” Anderson, 477 U.S. at 252.

         This trilogy of 1986 cases opened the door for district courts to rely on summary judgment to weed out frivolous lawsuits and avoid wasteful trials. Rand v. Rowland, 154 F.3d 952, 956-957 (9th Cir. 1998); 10A Charles A Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice & Procedure § 2727, at 468 (1998). As explained in Celotex: “the plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, 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.

         The Judge's role on a motion for summary judgment is not to determine the truth of the matter or to weigh the evidence, or determine credibility, but to determine whether there is a genuine issue for trial. Anderson, 477 U.S. at 252.

         Defendants' Motion for Summary Judgment: Conspiracy and Alter-Ego Claims

         Defendant Jeoung was considered the head of operations for the Defendant Matinee Energy's multi-billion-dollar solar power plant construction project, the Matinee Project. (Chung SOF[5] ¶ 69.) It is undisputed that Jeoung, alias Sung Ho Byun, has been apprehended by law enforcement and is in federal custody pending trial on criminal charges, including wire fraud. He is a con-artist from Korea, who was caught in Korea in 1997, escaped, and fled to the United States where he has been a fugitive for about 21 years. Allegedly, he committed similar acts to those alleged, here, in California from 2006 to 2008.

         In 2007, Defendant Kim was introduced to Jeoung by Mr. Kim's pastor. (Kim SOF[6]¶ 23.) Kim believed the Matinee Project was a legitimate venture and that Jeoung was a legitimate businessman. (Chung SOF ¶ 22-25.)

         In January 2010, Jeoung engaged J.P.Morgan Securities, Inc. (JPM Securities) to provide $4.9 billion in financing for the Matinee Project. (Kim SOF ¶¶ 26-28.) Kim was personally present at conferences in the J.P.Morgan Executive Board Room at JPM Securities headquarters where J.P.Morgan Securities was represented by Managing Directors, Executive Vice Presidents, Vice Presidents, and the Chief Risk Officer and where J.P.Morgan Securities representatives spoke of $450 million to $600 million of financing for specific proposed contractors, and Kim saw draft term sheets from J.P.Morgan Securities for $100 million to $300 million facility loans. (Kim SOF ¶¶ 29-39.) The J.P.Morgan Securities' financial participation was a highly valued mark of credibility, especially to Kim, who had worked a long time on Wall Street and knew J.P.Morgan Securities' reputation for being very exclusive in its dealings. (Kim SOF ¶ 40.) Shortly thereafter, at Jeoung's invitation, Kim agreed to be the Vice Chairman and Strategic Adviser of Matinee Energy, and in September 2010, Kim became the CEO. (Chung SOF ¶ 9.) Kim believed Jeoung's representation that he had a billionaire investor in Matinee that had invested $582.5 million. (Kim SOF ¶ 24.)

         In February 2010, Defendant Chung was in New York to give a speech to the Korea Society on behalf of Invest Korea. He had not seen Kim for a few years and invited him to attend the speech. (Chung SOF ¶ 10-11.) Kim told Chung about his new venture with Matinee Energy and that it had great potential. (Chung SOF ¶¶ 12-13.)

         In May 2010, after Defendant Chung began working full-time at Yulchon, an international corporate law firm headquartered in Seoul, South Korea, (SOF ¶ 14), he agreed to help Kim by introducing Matinee Energy to large Korean companies, such as Hyundai Heavy Industries Co., Ltd. and LG Electronics Inc., which ...


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