United States District Court, D. Arizona
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 ...