Case Name:   Robert Pritikin, et al. vs. Comerica Bank, et al.

Case No.:       1-10-CV-161225

 

Plaintiffs are sixty-four individuals and entities that were victims of a Ponzi scheme allegedly perpetrated by defendant Four Star Financial Services, LLC (“Four Star”) and enabled by defendant Comerica Bank (“Comerica”).  Plaintiffs allege that they were investors in Four Star from December 1999 through October 2002, and during this period, they invested approximately $50 million in Four Star in reliance on representations by Four Star and its managers that Four Star was a highly profitable enterprise that offered safe investments and lucrative returns.[1]  Plaintiffs allege that Four Star was actually insolvent, but maintained a practice of regularly paying monthly distributions to investors, even though investment documents provided that distributions would be paid only from available cash flow generated by Four Star’s investments.[2]  Plaintiffs allege that in truth, Four Star was only maintaining its operations by virtue of receiving large sums of new investment capital, that none of this capital was actually invested in any legitimate investments, but instead that Four Star simply banked the funds and used the same monies to pay monthly distributions to investors under the guise of “returns” on investment.[3]  Plaintiffs allege that Four Star finally ran out of cash in or about October 2002, and in October 2003, Four Star was placed into involuntary bankruptcy by its creditors.[4]  On November 21, 2008, the U.S. Bankruptcy Court for the Central District of California found that Four Star was a Ponzi scheme from January 1, 2000 to December 31, 2002.[5]

 

Plaintiffs allege that Four Star was assisted in the Ponzi scheme by Comerica, where Four Star maintained a checking account.  Plaintiffs allege that between December 1999 and April 2000, several creditors of Four Star obtained judgments and prejudgment writs of attachment totaling several million dollars, but Comerica enabled Four Star to avoid paying its creditors by allowing Four Star to maintain a negative balance in its checking account on most banking days.[6]  Comerica arranged for Four Star’s cash to be held in non-Four Star accounts where creditors could not reach it, and the main account used for this purpose was a personal line of credit (“LOC”) that Comerica had issued to Ronald Anson (“Anson”) and Jack Garrett (“Garrett”), two of Four Star’s principals.[7]  Comerica would allow Four Star to move just enough funds from the non-Four Star accounts into the Four Star checking accounts to cover that day’s checks, leaving the account balance at or near zero at the end of the day, and allowing Four Star to write checks to Plaintiffs for regular distribution payments on their investments, thus maintaining an illusion of profitability even though Four Star was actually insolvent.[8]  Plaintiffs allege that at all relevant times, Four Star was managed by Mark Cohn (“Cohn”), Anson and Garrett.[9]

 

The original Complaint was filed on January 11, 2010.  On or about April 27, 2010, Comerica’s demurrer to the Complaint was sustained with leave to amend on the grounds that all of the claims against Comerica were time-barred because the statute of limitations began to run no later than May 2004 when an amended complaint was filed in a class action by several of the Plaintiffs in Los Angeles County entitled Colin Gilbert, et al. v. Mark F. Cohn, et al. (the “Gilbert Action”) that gave Plaintiffs constructive knowledge of bank involvement in the alleged Ponzi scheme.

 

On May 18, 2010, Plaintiffs filed the First Amended Complaint (“FAC”), which asserts six causes of action against Comerica for: (1) aiding and abetting fraud; (2) aiding and abetting conversion; (3) conspiracy to commit fraud and conversion; (4) aiding and abetting breach of fiduciary duty; (5) violation of the Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code Sec. 17200 et. seq.; and (6) aiding and abetting violation of Cal. Bus. & Prof. Code Sec. 17200 et. seq.  Regarding the statute of limitations, Plaintiffs allege that the amended complaint in Gilbert did not give them constructive knowledge of facts to support a claim against Comerica because the only facts that would support the Gilbert Action’s claims against a bank were based on a bank officer’s breaches of fiduciary duty and false representations to the investors, not on the bank’s capacity as a depository bank for the fraudster’s accounts.[10]  Plaintiffs further allege that at the same time they were investigating their lost investments in Four Star, “the FBI as well as forensic accounts working for the Four Star bankruptcy trustee were also actively investigating the Four Star Ponzi Scheme, including reviewing bank records of Four Star’s accounts at COMERICA and interviewing COMERICA personnel.  Yet, prior to Mark Cohn’s disclosure of the Banking Scheme, COMERICA successfully concealed its wrongful conduct from the forensic accountants and from the FBI.  Neither the FBI, with its subpoena powers, nor the bankruptcy trustee’s forensic accountant, with its fraud detection training, discovered the Banking Scheme or suspected that COMERICA had assisted Four Star’s fraud.  Since neither the FBI nor the forensic accounts could figure it out, no reasonable investigation by Plaintiffs could have uncovered the factual basis for their claims against COMERICA prior to Mark Cohn’s disclosure of the Banking Scheme.”[11]

 

Comerica demurred to the FAC and on or about August 31, 2010, the Court sustained the demurrer without leave to amend.  Plaintiffs appealed, and the Court of Appeal reversed, finding that it did not clearly and affirmatively appear from the face of the FAC that the action was necessarily time-barred.  (Pritkin v. Comerica Bank (Aug. 27, 2012) 2012 Cal. App. Unpub. LEXIS 6256, *3-4.)  The Court of Appeal found that “plaintiffs in the present case have pleaded specific facts to support their allegations that they could not have discovered the facts supporting their claims against Comerica Bank until October 2008.  We assume the truth of these allegations [citation] and do not find them to be contradicted by the matters subject to judicial notice, including the complaint in the Gilbert action.  Even assuming that the Gilbert action placed plaintiffs on inquiry notice with respect to Four Star’s depository banks in May 2004, plaintiffs specifically allege that investigation of Comerica Bank by the FBI and the Four Star bankruptcy trustee’s forensic accountants did not reveal any wrongdoing by Comerica Bank during the following four years.  In other words, plaintiffs have alleged specific facts showing that their investigation would have not have ‘brought such information to light’ prior to October 2008.  [Citation.]”  (Id. at *32-33.)  “For these reasons, we conclude from our independent review that it does not ‘clearly and affirmatively appear’ from the face of the first amended complaint that the action is ‘necessarily’ time-barred.  [Citation.]”  (Id. at *34-35.)  “[W]e express no opinion regarding plaintiffs’ ability to prove that the delayed discovery rule applies and accrual of their causes of action against Comerica Bank was therefore delayed until October 2008.”  (Id. at *35.)

 

The remittitur was filed on October 30, 2012.

 

Trial is currently set for May 27, 2014.

 

Comerica now moves for summary judgment, or alternatively summary adjudication of issues.  Comerica also moves to continue the trial date and trial-related dates.

 

Plaintiffs move to seal exhibits filed in opposition to Comerica’s motion for summary judgment or summary adjudication.

 

1. Motion to Seal

 

Plaintiffs move to seal exhibits 14-15, 19, 20-24, 26-27, 36-38, 40-43, 46-47 to the declaration of Jeffrey B. Cereghino submitted with Plaintiffs’ opposition papers to Comerica’s motion for summary judgment.  Plaintiffs argue the exhibits are documents produced during discovery and designated “Confidential” by Comerica pursuant to the Confidentiality Agreement and Protective Order in this action.

 

The Sealed Records Rules (Cal. Rules of Court, rule 2.550-2.551) govern the filing of documents under seal.  The rules “do not apply to discovery motions and records filed or lodged in connection with discovery motions or proceedings.  However, the rules do apply to discovery materials that are used at trial or submitted as a basis for adjudication of matters other than discovery motions or proceedings.”  (See Cal. Rules of Court, rule 2.550(a)(2), (3).)  Here, the exhibits sought to be permanently filed under seal are submitted as a basis for adjudication of matters other than discovery, so the Sealed Records Rules apply.

 

“A record must not be filed under seal without a court order.  The court must not permit a record to be filed under seal based solely on the agreement or stipulation of the parties.”  (Cal. Rules of Court, rule 2.551(a).)  “The court may order that a record be filed under seal only if it expressly finds facts that establish: [¶] (1) There exists an overriding interest that overcomes the right of public access to the record; [¶] (2) The overriding interest supports sealing the record; [¶] (3) A substantial probability exists that the overriding interest will be prejudiced if the record is not sealed; [¶] (4) The proposed sealing is narrowly tailored; and [¶] (5) No less restrictive means exist to achieve the overriding interest.”  (Cal. Rules of Court, rule 2.550(d).)

 

Here, Plaintiffs’ motion does not address the requirements of the Sealed Records Rules.  Plaintiffs argue that the exhibits were designated “Confidential” by Comerica pursuant to the protective order in this action, but the Confidentiality Agreement and Protective Order in this action specifically incorporates the procedures set forth in sections 2.550 and 2.551 of the California Rules of Court with regard to the use of Confidential Information submitted as a basis for adjudication of matters other than discovery motions.[12]  It is not sufficient for Plaintiffs to simply point to Comerica’s Confidentiality designation as the sole basis for sealing the records.

 

Comerica has 10 days to file a motion to seal that supports sealing Cereghino exhibits 14-15, 19, 20-24, 26-27, 36-38, 40-43, 46-47 under the requirements of the Sealed Records Rules.  If no motion is filed within 10 days of the final entry of the Court’s order, the records will be placed in the public file.

 

1. Motion for Summary Judgment, or Alternatively Summary Adjudication

 

1. Judicial Notice

 

In opposition to Comerica’s motion for summary judgment/adjudication, Plaintiffs request judicial notice of: (1) Criminal Sentencing Minutes in United States v. Mark Cohn. (Pltfs’ RJN Exh. A); (2) Writ of Execution, Notice of Levy, Process Receipt and Return, Proof of Service, and Return on Execution for the writ of execution served on Comerica by Sentinel Trust Company, GMS Group Inc. on May 15, 2000 (Pltfs’ RJN Exh. B); (3) Writ of Execution, Proof of Service, and Return on Execution for the writ of execution Sprint Communications Company LP served on Comerica Bank on February 9, 2001 (Pltfs’ RJN Exh. C); (4) Writ of Execution, Request and Order for Service of Process, Process Receipt and Return, and Proof of Service for the writ of execution Sentinel Trust Company served on Comerica on August 24, 2001 (Pltfs’ RJN Exh. D); (5) Writ of Execution and Notice of Levy Reservoir Capital Corporation served on Comerica on December 4, 2002 (Pltfs’ RJN Exh. E); (6) Writ of Execution and Proof of Service for the writ of execution Douglas M. Wright, Sr. served on Comerica on December 23, 2002 (Pltfs’ RJN Exh. F); (7) Writ of Attachment and Notice of Attachment Patricia C. Silver served on Comerica on March 6, 2003 (Pltfs’ RJN Exh. G); (8) Kevin Barry’s Declaration in Support of Lead Counsel’s Renewed Application for Attorney Fees and Costs in Gilbert v Cohn et al. (Pltfs’ RJN Exh. H); and (9) Writ of Execution, Return on Execution, Process Receipt and Return, and Proof of Service for the writ of execution Reservoir Capital served on Comerica on May 31, 2002 (Pltfs’ RJN Exh. I).

 

With its reply papers, Comerica requests judicial notice of: (1) Information filed May 14, 2008 in the criminal action entitled United States of America v. Ronald Irving Anson, U.S. District Court for the Central District of California, Case No. CR 08-00575 (Comerica RJN Exh. P); and (2) Judgment and Probation/Commitment Order filed on November 23, 2009 in U.S. v. Anson (Comerica RJN Exh. Q).

 

All of these materials are records of either the U.S. District Court for the Central District of California (Pltfs’ RJN Exh. A, Comerica RJN Exhs. P and Q), the U.S. Bankruptcy Court for the Northern District of California (Pltfs’ RJN Exh. B), the U.S. District Court for the Northern District of California (Pltfs’ RJN Exhs. C, E, I), the U.S. Bankruptcy Court for the Central District of California (Pltfs’ RJN Exh. D), or the Superior Court of California, Counties of San Mateo (Pltfs’ RJN Exhs. F, G) and Los Angeles (Pltfs’ RJN Exh. H).  Court records are permissible subjects of judicial notice.  (Cal. Evid. Code, § 452, subd. (d).)   “Evidence Code sections 452 and 453 permit the trial court to take judicial notice of the existence of judicial opinions and court documents, along with the truth of the results reached – in the documents such as orders, statements of decision, and judgments – but [the court] cannot take judicial notice of the truth of hearsay statements in decisions or court files, including pleadings, affidavits, testimony, or statements of fact.”  (People v. Woodell (1998) 17 Cal.4th 448, 455.)

 

The requests for judicial notice of these court records are GRANTED.

 

1. Legal Standards

 

Summary judgment involves a three step process: (1) identify the issues as framed by the pleadings; (2) determine whether the moving party has established facts negating the opposing party’s claims and justifying judgment in the movant’s favor; and (3) determine whether the opposition demonstrates the existence of a triable issue of material fact.  (Lease & Rental Management Corp. v. Arrowhead Central Credit Union (2005) 126 Cal.App.4th 1052, 1057-1058.)  “[T]he party moving for summary judgment bears an initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact.”  (Aguilar v. Atl. Richfield Co. (2001) 25 Cal.4th 826, 850.)  “A defendant seeking summary judgment must show that at least one element of the plaintiff’s cause of action cannot be established, or that there is a complete defense to the cause of action.”  (Alex R. Thomas & Co. v. Mutual Service Casualty Ins. Co. (2002) 98 Cal.App.4th 66, 72.)  The Court must liberally construe evidence in support of the party opposing summary judgment and resolve all doubts concerning the evidence in favor of that party.  (Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 389.)

 

1. Statute of Limitations

 

Comerica argues it is entitled to summary judgment because all of Plaintiffs’ claims against Comerica are time-barred, and the discovery rule does not delay the accrual of Plaintiffs’ causes of action because Plaintiffs were on inquiry notice as to the key elements of the alleged banking scheme as early as 2002.

 

In support, Comerica submits the following material facts:  Plaintiffs filed this action on January 11, 2010.  (Comerica’s Sep. St. of Undisp. Material Facts [“MF”] 1.)  Plaintiffs allege that Comerica enabled Four Star to avoid creditor levies by maintaining negative balances in its checking accounts, and allowing Four Star’s cash to be held in the Anson/Garrett line of credit and in the FSF account at Comerica where Four Star’s creditors could not reach it.  (MF 6.)  During late 2002 and 2003, Four Star, through Anson and/or Garrett, made available to one or more Four Star investors the financial records of Four Star, including its general ledgers, cash receipts journal, cash disbursements journal and financial statements.  (MF 7.)  No later than the end of 2003, Stan Rich, one of the investors given access to Four Star’s financial records, determined that investor money was being used to pay down the Anson and Garrett LOC; he believed this was improper and shared the information with investors including Robert Pritikin (“Pritkin”), Rodney Minott (“Minott”), Jon Ferrara (“Ferrara”) and Martin Zohn (“Zohn”), an attorney for the members of a Four Star Investors Committee.  (MF 8-9.)

 

During 2003, Four Star allowed Ferrara to copy its electronic files, including certain financial records and email accounts, which reflected:  deposits and withdrawals for Four Star’s accounts at Comerica for transactions occurring during the Loss Period; advances to Four Star from the Anson and Garrett LOC at Imperial bank and later at Comerica Bank; repayment of those advances to Four Star; overdrafts in the Four Star accounts at Comerica; advances made from the Anson and Garrett LOC at Comerica to cover overdrafts in the Four Star accounts that occurred during the Loss Period; levies made against Four Star accounts at Comerica during the Loss Period (including the date of the levy, the identity of the levying creditor, the amounts paid and the accounts from which payment was made); and the movement of funds between Four Star and FSF accounts during the Loss Period.  (MF 10-16.)

 

In August 2003, in publicly available pleadings, Reservoir Capital, a Four Star creditor, filed a pleading stating that Four Star moved funds into personal lines of credit and between FSF and Four Star as a means of making Four Star assets unavailable to creditors.  (MF 24.)

 

On October 14, 2003, a number of plaintiffs filed suit in Los Angeles Superior Court, entitled Ferrara, et al. v. Georgina Asset Management, Inc., et al. (the “Ferrara Action”) alleging losses due to investments in Four Star.  (MF 17.)  Ferrara and Minott were represented by Liner Grode Stein Yankelevitz Sunshine Regenstreif & Taylor (“Liner Grode”).  (MF 17.)

 

In October of 2003, Four Star was placed into an involuntary bankruptcy, and by December 2003, Four Star had provided its financial records, including its general ledgers, cash receipts journals, cash disbursement journals, and bank statements for Four Star and FSF to Richard Marshack, the Bankruptcy Trustee.  (MF 18, 23.)  On December 23, 2003, Four Star filed its Statement of Financial Affairs in the bankruptcy court which disclosed for the period of October 1, 2002 to December 2003 deposits in and to bank accounts maintained at Comerica, payments made to Anson and Garrett and advances by Anson and Garrett to Four Star, as well as a list of bank accounts held by Four Star at Comerica and a description of the Anson and Garrett personal LOC in the amount of $4.5 million.  (MF 19-20.)  Publicly available court pleadings filed in September of 2001 in the In re Ray and Ross Transport, Inc. bankruptcy case revealed that Four Star was allegedly shifting assets between accounts to avoid levies (MF 21), and Liner Grode produced a “Fraud Timeline” which quoted in part the September 2001 pleadings in the In re Ray and Ross Transport, Inc. case.  (MF 22.)

 

In late summer/early Fall of 2003, Rich advised Zohn: “It appears that [Four Star’s] books always have a negative bank balance and the company pays it’s [sic] bills and obligations to investors by new investor money, loans from hotel and other properties. . .and from the principals (Ron [Anson] and Jack [Garrett who] have a personal line of credit of approximately $4.5 million).”  (MF 25.)

 

Prior to January 1, 2004, Pritikin took notes of a conversation that he had with Zonh, which stated in part: “Was there a Ponzi element – funded w/hotel $, personal $, line of credit – (makes it look like it was not Ponzi).”  (MF 26.)

 

On or about February 13, 2004, several plaintiffs filed a class action against Cohn, Garrett, Anson and others alleging that Four Star was a Ponzi scheme, with the law firm of Boies, Schiller & Flexner, LLP (“Boies”) acting as attorneys.  (MF 27.)  The class action was certified, and all current Plaintiffs were members in the Gilbert class action.  (MF 27.)  The Gilbert class action and the Second Amended Complaint (“SAC”) filed in that action revealed that Four Star maintained deposit accounts at Comerica and that Comerica had provided a personal line of credit to Anson and Garrett.  (MF 29.)  A draft of the SAC in Gilbert included allegations that Richard Smith, who was a Comerica Bank officer, had also been a bank officer of First Charter Bank, which was sued in Gilbert for the use of personal lines of credit by Anson and Garrett and the movement of funds amongst accounts to aid and abet the Four Star Ponzi scheme.  (MF 30.)  The May 21, 2004 Amended Complaint in Gilbert alleged claims against other banks alleging that they had aided and abetted Four Star in maintaining the Ponzi scheme by financing its operations through lines of credit to Anson and Garrett, alleging “Defendants used a maze of transactions. . .to shuffle money in and out of Four Star. . . .”  (MF 31.)

On October 14, 2004, Brendan Glackin, an attorney with the Boies firm, wrote to his clients: “we are considering whether to file suit on behalf of the class against Comerica bank.  We’ve been informed that Anson and Garrett’s primary contact at Comerica was an individual by the name of Richard Smith.  If any of you have any information about the nature of their relationship with Smith, I’d ask you to call or write to myself or Kevin Barry.”  (MF 32.)

 

By December 2005, one or more plaintiffs were inquiring of their counsel why Comerica had not yet been sued, and were considering hiring separate counsel to sue Comerica.  (MF 33.)

 

By late 2004, Minott and Ferrara had noticed that their investments had been used to pay down the Anson and Garrett LOC, and that Four Star maintained negative balances in its accounts.  (MF 34.)

 

Prior to January 1, 2006, at least two plaintiffs in this action discussed the possibility of suing Comerica in connection with their Four Star losses.  (MF 35.)

 

Neither Anson nor Garrett ever asserted the Fifth Amendment in response to any inquiries by investors or by the Four Star bankruptcy trustee, and they voluntarily answered questions posed by investors and the trustee under oath during a creditor hearing in the Four Star bankruptcy proceeding.  (MF 36-37.)

 

None of the Plaintiffs deposed any Comerica employee regarding Four Star prior to the filing of this action.  (MF 38.)

 

From and after the date Four Star ceased monthly distributions, Robert and Ken Pritikin admitted that Anson answered each of the questions posed by them regarding Four Star.  (MF 39.)

 

As of December 2005, Ferrara and Minott discussed in an email the fact that Anson and Garrett were Richard Smith’s accountants and that Smith had invested in a hotel deal with them.  (MF 40.)

 

By December 2005, one or more Plaintiffs suspected that Comerica was potentially responsible for their losses.  (MF 41.)

 

Analysis:  “The statute of limitations to be applied in a particular case is determined by the nature of the right sued upon or the principal purpose of the action, not by the form of the action or the relief requested.  [Citations.]  What is significant for statute of limitations purposes is the primary interest invaded by defendant’s wrongful conduct.  [Citation.]”  (Barton v. New United Motor Manufacturing, Inc. (1996) 43 Cal.App.4th 1200, 1207.)  Here, Plaintiffs’ claims against Comerica are for aiding and abetting fraud, conversion, breach of fiduciary duty and violations of the UCL, conspiracy to commit fraud and conversion, and for Comerica’s own violation of the UCL.  The applicable statutes of limitations would be based on the underlying substantive theories of liability (e.g., fraud, conversion, breach of fiduciary duty, UCL violation) because the primary interest invaded is the same whether Comerica was acting a primary violator or aid/co-conspirator.  (See Fuller v. First Franklin Financial Corp. (2013) 216 Cal.App.4th 955, 963 [allegation of conspiracy does not affect limitations period for substantive theory of liability involved].)  The statute of limitations for fraud is three years.  (Cal. Code Civ. Proc., § 338, subd. (d).)  The statute of limitations for a cause of action under the UCL is four years. (Cal. Bus. & Prof. Code, §§ 17200, 17208.)  The statute of limitations for breach of fiduciary duty is four years.  (Stalberg v. W. Title Ins. Co. (1991) 230 Cal.App.3d 1223, 1230.)  The statute of limitations for conversion is three years.  (Cal. Code Civ. Proc., § 338, subd. (c) [actions for taking, detaining, or injuring any goods or chattels].)

 

Here, the lawsuit was filed on January 11, 2010.  Without the discovery rule, the action would be time-barred if the causes of action for fraud and conversion began to accrue before January 11, 2007 and the causes of action for breach of fiduciary duty and violation of the UCL began to accrue before January 11, 2006.  Under the discovery rule, “[a] cause of action…accrues when plaintiff either (1) actually discovered his injury and its negligent cause or (2) could have discovered injury and cause through the exercise of reasonable diligence.”  (Mangini v. Aerojet-General Corp. (1991) 230 Cal.App.3d 1125, 1150 [internal citations and quotation marks omitted].)  “[I]n order to employ the discovery rule to delay accrual of a cause of action, a potential plaintiff who suspects that an injury has been wrongfully caused must conduct a reasonable investigation of all potential causes of action injury.  If such an investigation would have disclosed a factual basis for a cause of action, the statute of limitations begins to run on that cause of action when the investigation would have brought such information to light.”  (Pritkin, supra, 2012 Cal.App.Unpub. LEXIS 6256, at *26, citing Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 808-809.)

 

Much of Comerica’s evidence pertains to the availability in 2003-2004 of Four Star’s financial records that disclosed levies and transfers of money between Four Star’s accounts at Comerica, including the Anson and Garrett LOC (MF 6-16).  Comerica also points to records filed in the bankruptcy proceedings in December of 2003 that showed similar transfers among the Comerica accounts, as well as court filings by Sentinel Trust (creditor of FSF and Four Star’s predecessor) and Reservoir Capital (judgment creditor of Four Star) regarding their fruitless efforts to recover Four Star’s assets.  However, Plaintiffs’ mere knowledge that Four Star used Comerica accounts in connection with the Ponzi scheme does not constitute a factual basis for a cause of action against Comerica, particularly for claims that Comerica was actively aiding and abetting or conspiring with Four Star and its principals to further the scheme.  As Comerica points out, even a claim for failure to investigate suspicious account activities would not lie against Comerica based simply on the use of Comerica’s accounts to further the Ponzi scheme.  (See Comerica’s MPA ISO MSJ at p. 16, citing Casey v. U.S. Bank Nat. Ass’n (2005) 127 Cal.App.4th 1138, 1149.)

 

Comerica further submits that in October of 2004, attorneys for the Boies firm in the Gilbert action expressly stated they were “considering whether to file suit on behalf of the class against Comerica bank.”  (MF 32.)  Comerica also submits that in December of 2005 and January 2006, some of the Plaintiffs were urging the Boies firm to sue Comerica in connection with their Four Star losses.  (MF 33, 35.)  The inference Comerica would have the Court draw is that these statements by the Boies firm and some of the Plaintiffs were based on knowledge of a factual basis to sue Comerica.  However, with regard to the October 2004 communication from the Boies firm, the attorney went on to solicit information about Richard Smith (suggesting a factual basis was not yet clear), and as for the Plaintiffs’ desire to sue Comerica, there is other evidence suggesting this desire was driven more by the prospect of having a solvent defendant with “real money”[13] as opposed to knowledge of a factual basis to sue Comerica.

 

Granted, there is further evidence that in December of 2005, Minott and Ferrara were pointing to specific facts regarding Comerica such as Smith’s role as a Comerica banker and his ties to Anson and Garrett as a partner in hotel deals with them.[14]  Of course, guilt-by-association is not a factual basis to support causes of action for conspiracy and aiding and abetting against Comerica.  At most, Comerica’s evidence suggests that by late 2005, Plaintiffs were on sufficient notice to conduct a reasonable investigation based on their suspicions about Smith and his ties to Anson and Garrett.  However, Fox and Pritkin make clear that such an investigation must have “disclosed a factual basis for a cause of action” in which case the statute of limitations would begin to run “when the investigation would have brought such information to light.”  (Pritkin, supra, at *26.)

 

In opposition to Comerica’s motion, Plaintiffs submit sufficient evidence to raise a triable issue of fact as to whether a reasonable investigation would have disclosed a factual basis to sue Comerica.  Plaintiffs submit that in 2004, they retained the Boies firm to investigate any claim that they might possess concerning their Four Star losses (Pltfs’ Additional Material Fact [“AMF”] 77) and reasonably relied on the Boies firm to investigate and advise on whether the evidence gave rise to a claim against Comerica (AMF 78).  The Boies firm investigated potential claims against Comerica in the Gilbert Action in late 2005, including issuance of a subpoena to Comerica and review of voluminous documents produced by Comerica (AMF 79-84).  The Boies firm also retained the forensic accounting firm of Hemming Morse to review Four Star’s QuickBooks accounting and financial records (AMF 85-90) and interviewed Cohn, who did not disclose the writ avoidance scheme while he was facing criminal prosecution (AMF 97).  Plaintiffs submit that even though the Boies firm knew that Four Star funds were used to pay down the LOC, that Four Star’s accounts routinely had negative balances, that there were multimillion dollar judgments against Four Star and levies against Four Star’s Comerica accounts, and that Smith had a personal relationship with Anson and Garrett and was a partner in Anson and Garrett’s Phoenix Hotel investment (AMF 88-96), the Boies firm concluded that no sustainable claim could be brought based on the available evidence.  (AMF 100-105.)  Plaintiffs further submit that the Boies firm’s conclusions were consistent with those reached by the bankruptcy trustee and his forensic accountant, Katherine Gough, who conducted forensic analysis of Four Star and Comerica’s records and found nothing to suggest that Comerica assisted Four Star in avoiding levies (AMF 106-109).  Plaintiffs further submit that no creditor attorney was aware of any Comerica impropriety in processing the levies (AMF 111, 121).

 

Plaintiffs further submit that discovery of the writ avoidance scheme was not possible without disclosure by an insider, and here, it was Cohn who waited until after he was criminally sentenced in September 2008 to disclose the existence of the writ scheme.  (AMF 112-113).  Plaintiffs submit that after Cohn was sentenced in October of 2008, he told Pritikin about the essential elements of the writ scheme (AMF 114).  At his deposition, Cohn testified, “the writ avoidance scheme could not have been found without somebody laying it out.  Other than the people involved in it, and there were three of them [himself, Anson, and Smith], it couldn’t have been found.”  (AMF 115.)  This testimony is supported by the declaration of Plaintiffs’ banking expert James Krieg, who opines that based on his review of the Four Star bank statements and the evidence of levies by Four Star’s judgment creditors, “it is highly unlikely that anyone lacking sophisticated knowledge of the process by which banks handle writs of execution, process checks, and transfer funds between deposit accounts and loans and/or other deposit accounts, could have detected that Comerica had failed to properly debit Four Star’s accounts for any of these levies or that the failure to properly debit the accounts for the levies on May 15, 2000, August 24, 2001, May 31, 2002, December 4, 2002, December 23, 2002 and March 6, 2003 could be due to intentional misconduct.”[15]  “It is extremely unlikely that anyone, even a forensic accountant, would have noticed these improprieties with respect to levy processing unless an insider told them of the Writ Scheme and they had been specifically looking for corroborating evidence in the form of improper transfers.”[16]

 

Comerica points out that Plaintiffs never deposed a Comerica employee regarding Four Star prior to the filing of this action (MF 38), and Anson and Garrett never asserted the Fifth Amendment in response to any inquiries by investors or by the Four Star bankruptcy trustee (MF 36-37).  In other words, Comerica suggests that in order to conduct a reasonable investigation, Plaintiffs had to question Comerica employees, as well as Anson and Garrett, who would not likely have asserted the Fifth Amendment given their past cooperation with the bankruptcy court and the Investors’ Committee.  However, if the Cohn and Krieg evidence is credited, then depositions of Comerica employees would not have disclosed a factual basis to sue Comerica since the writ avoidance scheme could not have been found without an insider disclosing it.  As for questioning Anson and Garrett, the Court cannot broadly assume on summary judgment that they would not have asserted the Fifth Amendment and would have disclosed a factual basis to sue Comerica for aiding and abetting and conspiracy.  Not even Cohn was willing to disclose the writ avoidance scheme until October of 2008 once all charges were behind him, and Plaintiffs submit that the Boies firm was advised Anson would assert the Fifth Amendment if deposed.[17]

 

Comerica cites Miller v. Bechtel Corp. (1983) 33 Cal.3d 868 for the position that since Plaintiffs chose not to question Anson and Garrett, Plaintiffs are charged with knowledge of facts which would have been revealed had they pursued the investigation.  In Miller, the plaintiff, former wife of the defendant, brought an action to set aside a portion of a property settlement agreement, but failed to inquire as to the value of certain stock owned by the community.  She attempted to justify her failure to inquire by arguing that the company was a closed corporation which “jealously guarded” its financial records, but the court found that “[t]here was nothing in the record to substantiate her claim that upon appropriate inquiry [the company] would have refused to reveal the method of valuation.”  (Miller, supra, 33 Cal.3d at p. 873.)  The Court is unwilling to analogize Anson or Garrett with the company in Miller, which was not facing self-incrimination from an inquiry regarding the value of its stock.  Moreover, as opposed to Miller where there was a dearth of evidence that the company would refuse to reveal the method of stock valuation, there is evidence here that the Boies firm was told that Anson intended to invoke the Fifth Amendment, and Cohn had been previously unwilling to disclose the scheme earlier.  Based on these facts, as well as the evidence of the investigations conducted by the Boies firm, there is a triable issue of fact as to whether Plaintiffs conducted a reasonable investigation that would not have disclosed a factual basis for a cause of action against Comerica before October 2008.

 

For these reasons, the motion for summary judgment on statute of limitations grounds is DENIED.

 

1. Aiding and Abetting

 

Comerica argues it is entitled to summary adjudication on Plaintiffs’ aiding and abetting claims because it did not have actual knowledge of any scheme to defraud Four Star investors.  Comerica submits that prior to the end of the Loss Period, Four Star never advised Comerica that Four Star was a Ponzi scheme, that Four Star was defrauding its investors, that Four Star wanted to avoid paying levies so that it could defraud its investors, that Four Star was involved in a scheme to harm its investors, and that Four Star lacked sufficient assets to pay its investors in full.  (Comerica’s MF 42-46.)

 

“California courts have long held that liability for aiding and abetting depends on proof the defendant had actual knowledge of the specific primary wrong the defendant substantially assisted.”  (Casey, supra, 127 Cal.App.4th at p. 1145.)  “[A]iding and abetting requires participation in a specific primary wrong ‘with knowledge of the object to be attained.’  [Citation.]”  (Id. at p. 1152.)

 

In opposition, Plaintiffs submit that from 2000 through 2003, Alan Twedt, vice president and commercial loan officer, was Comerica’s relationship manager for Anson, Garrett, and Four Star and worked with Smith in the commercial loan office at Comerica’s Beverly Hills, CA branch.  (AMF 23, 26.)  Plaintiffs submit that Smith and Twedt were aware of the levies against Four Star’s accounts and that Four Star was concealing the existence of these judgments from investors (AMF 32-34).

 

Regarding the May 15, 2000 Sentinel Trust levy, Plaintiffs submit that Anson and Cohn told Smith that Four Star could not pay the judgments without disrupting Four Star’s business and that they had to continue paying Four Star’s investors their regular distributions or else Four Star would collapse.  (AMF 35-39.)  Plaintiffs submit that Smith counseled Anson and Cohn how to evade levies while still maintaining sufficient funds in Four Star’s accounts to continue paying distributions to investors (AMF 40-41).  Plaintiffs submit that Comerica deliberately processed the May 15, 2000 writ improperly by disregarding funds transferred between two Four Star accounts (AMF 42), and Smith proposed a strategy of removing money from Four Star’s accounts after writs were served and before the accounts were levied (AMF 43).  Smith also arranged with Anson and Cohn to protect Four Star from levies by keeping Four Star’s account balances low or negative by transferring money from the accounts to the LOC (AMF 44).  In order to ensure investor distributions and other obligations continued to be paid despite the negative balances, Smith and Twedt regularly allowed checks written on Four Star’s accounts to clear even when there were not sufficient funds in the account to pay them.  (AMF 45.)

 

Plaintiffs further submit evidence regarding levies by Reservoir Capital (AMF 51-59), Douglas Wright (AMF 60-62), and Patricia Silver (AMF 63-65) and the use of undocumented “loan payment instructions” that Twedt claimed to have received immediately prior to any of the levies.  (AMF 66.)  Plaintiffs submit that the use of such loan payment instructions to adjust account balances was “uncommon” (AMF 67-72).  Plaintiffs submit that Smith expressed frustration to Anson and Cohn at having to assist in efforts to avoid levies, but continued to take action to evade writs in order to keep Four Star afloat (AMF 69).

 

Based on the evidence, a trier of fact could conclude that Comerica, through its employees, had actual knowledge of the specific primary wrong with knowledge of the object to be attained.  Comerica’s supporting evidence is deposition testimony in which Garrett, Anson and Cohn stated that they did not expressly characterize Four Star as engaging in “fraud” or as a “Ponzi scheme,”[18] but this does not mean that Comerica’s employees did not understand their actions to constitute an improper writ avoidance scheme that kept investors in the dark about Four Star’s financial condition.  Plaintiffs’ evidence, if credited, would support the inference that Comerica’s employees helped devise an “uncommon” banking scheme that allowed Four Star to evade writs for substantial sums while continuing to pay distributions to investors, even when there were insufficient funds in the accounts.  A trier of fact could certainly conclude that this was not a legitimately sustainable investment operation, and that Comerica’s employees understood and substantially assisted Anson and Garrett in misrepresenting Four Star’s financial condition while Four Star continued to collect funds from investors.

 

The motion for summary adjudication of the aiding and abetting claims is DENIED.

 

1. Conspiracy

 

Comerica argues it is entitled to summary adjudication of Plaintiffs’ conspiracy claim because Comerica owed no duty as a matter of law to the Four Star investors.  Comerica cites Casey for the position that a bank owes no duty to nondepositors to investigate or disclose suspicious activities on the part of an account holder.

 

As discussed above, Plaintiffs submit sufficient evidence to raise a triable issue on Comerica’s knowledge of and substantial assistance in the writ avoidance scheme.  Thus, the conspiracy claim is not based simply on Comerica’s failure to monitor accounts for the benefit of nondepositors, but on evidence of affirmative conduct by Comerica employees in furtherance of a writ avoidance scheme that misrepresented Four Star’s financial condition.  As Plaintiffs argue, a natural consequence of the scheme and its misrepresentation of Four Star’s financial condition was to allow Four Star to continue to raise funds from investors.[19]  Casey’s holding that banks have no duty to monitor the activities of other account holders simply does not control under these circumstances.

 

The motion for summary adjudication of the conspiracy claims is DENIED.

 

1. Unfair Competition Law (“UCL”)

 

Comerica argues it is entitled to summary adjudication of Plaintiffs’ UCL claims because the monetary remedies under the UCL are limited to restitution, but Plaintiffs seek more than restitution; they seek damages for the money they invested in Four Star.  Comerica submits that in response to Comerica’s First Set of Form Interrogatories 8.7 and/or 9.1, Plaintiffs admitted that their claimed loss includes income and damages for the investments they made in Four Star during the Loss Period, and each of the Plaintiffs seek damages for recovery of monies they paid to Four Star, not restitution from Comerica.  (Comerica’s MF 47-48.)

 

Comerica’s points are not disputed.  In their opposition papers, Plaintiffs state that they “have consented to discontinue their Cal. Bus. & Prof. Code § 17200 et Seq. claims.”[20]

 

Because the issues raised in the motion are not disputed, the motion for summary adjudication of fifth cause of action for violation of the UCL is GRANTED.

 

1. Motion to Continue Trial and Trial-Related Dates

 

Comerica moves to continue the trial date and trial-related dates.  Trial is currently May 27, 2014, and Comerica seeks a 60-90 day continuance of trial.

 

Comerica submits that after the case was filed in January of 2010, it was up on appeal between August of 2010 and October 30, 2012.  In mid-April 2013, Comerica served written discovery on Plaintiffs but gave them multiple extensions to respond, eventually agreeing to extend deadlines for pre-trial expert and non-expert discovery and dispositive motions.  However, Plaintiffs did not provide substantive responses until August 23, 2013.  Comerica submits that at a June 7, 2013 case management conference, the Court set the case on a very aggressive trial schedule based on the assumption that all fact discovery could be completed by December 20, 2013 and expert discovery by February 10, 2014, but Plaintiffs withheld key documents from production until mid-December and January, and they have yet to provide complete responses to written discovery.

 

Comerica argues there are a number of fact depositions which need to be taken, including the completion of Cohn’s deposition.  Comerica further argues that given the Court’s ruling on the Referee’s Discovery Order No. 4 regarding tax benefits received by Smith, Comerica should be entitled to reopen a number of Plaintiffs’ depositions and/or to take other depositions regarding the exact types of tax write-offs under the same program as Smith, which Plaintiffs claim to have been fraudulent.  Comerica further argues that seven experts have been identified, and it is unknown how many rebuttal experts will be identified and need to be deposed before May 12, 2014.

 

On April 22, 2014, Comerica filed supplemental papers indicating that on April 21, 2014, the Discovery Referee issued his Recommended Order No. 6 on Comerica’s Motion to Compel Further Responses to Written Discovery in which he ordered Plaintiffs to provide supplemental responses to Interrogatories Nos. 71, 101 and 103, Requests for Production of Documents Nos. 47 and 48, and Requests for Admission Nos. 115, 116, 117 and 118.[21]  Comerica argues that still outstanding are ongoing disputes with Plaintiffs regarding their responses to Comerica’s Third Requests for Admission and the corresponding Form Interrogatory No. 17.1, and Comerica anticipates filing another motion to compel with the Discovery Referee.[22]

 

In opposition, Plaintiffs submit that Comerica has deposed all 20 of the Plaintiffs it has requested, seven lawyers who were involved in investigating and litigation claims regarding Four Star, several non-plaintiff Four Star investors, the Four Star bankruptcy trustee’s forensic accountant, and three Four Star principals (Anson, Garrett, and Cohn).  According to Plaintiffs, the vast majority of these depositions have been complete since February 20, 2014, and the only outstanding depositions are the continued depositions of Cohn, Pritikin and Smith.  Plaintiffs submit that documentary evidence is substantially complete, and Comerica has received responses to 685 written discovery requests for all 64 Plaintiffs, over 270,300 pages of documents from Plaintiffs, and over 10,000 pages of documents from Plaintiffs’ former counsel, despite the attorney-client privilege.  Plaintiffs argue that Comerica attempts to avoid a trial on the merits by filing motions based on a fabricated “quote” with respect to a party’s right to access an opposing attorney’s work product.

 

“To ensure the prompt disposition of civil cases, the dates assigned for a trial are firm.  All parties and their counsel must regard the date set for trial as certain.”  (Cal. Rules of Court, rule 3.1332(a).)  “A party seeking a continuance of the date set for trial…must make the request for a continuance by a noticed motion or an ex parte application…as soon as reasonably practical once the necessity for the continuance is discovered.”  (Id. at subd. (b).)  “Although continuances of trials are disfavored, each request for a continuance must be considered on its own merits.  The court may grant a continuance only on an affirmative showing of good cause requiring the continuance.  Circumstances that may indicate good cause include: . . . (6) A party’s excused inability to obtain essential testimony, documents, or other material evidence despite diligent efforts[.]”

 

“In ruling on a motion or application for continuance, the court must consider all the facts and circumstances that are relevant to the determination.  These may include: (1) The proximity of the trial date; (2) Whether there was any previous continuance, extension of time, or delay of trial due to any party; (3) The length of the continuance requested; (4) The availability of alternative means to address the problem that gave rise to the motion or application for a continuance; (5) The prejudice that parties or witnesses will suffer as a result of the continuance; (6) If the case is entitled to a preferential trial setting, the reasons for that status and whether the need for a continuance outweighs the need to avoid delay; (7) The court’s calendar and the impact of granting a continuance on other pending trials; (8) Whether trial counsel is engaged in another trial; (9) Whether all parties have stipulated to a continuance; (10) Whether the interests of justice are best served by a continuance, by the trial of the matter, or by imposing conditions on the continuance; and (11) Any other fact or circumstance relevant to the fair determination of the motion or application.”  (Id. at subd. (d).)

 

The Court finds that Comerica fails to make a convincing case of good cause for a 60-90 day continuance of trial.  Comerica does not sufficiently demonstrate its inability to obtain “essential” evidence to justify continuance of trial.  The only rule 3.1332(d) factor that weighs in favor of the requested continuance is that there have been no prior trial continuances.  Otherwise, the motion comes almost on the eve of trial, the length of the continuance (up to 90 days) is not short, and it is not clear that any of the outstanding discovery referenced in Comerica’s motion is essential to protect Comerica from prejudice absent a continuance, particularly given the amount of discovery already completed.

 

For these reasons, the motion to continue trial is DENIED.