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Weinfeld v. Minor

United States District Court, D. Nevada

March 27, 2018

JOSEPH WEINFELD et al., Plaintiffs,
v.
BILL L. MINOR etal., Defendants.

          ORDER

          ROBERT C. JONES United States District Judge

         This is a shareholder derivative action. Pending before the Court are counter motions for summary judgment.

         I. FACTS AND PROCEDURAL HISTORY

          Sixteen individuals and Congregation Beth Joseph brought this shareholder derivative action in the Eastern District of New York on behalf of Precious Minerals Mining & Refining Corp. ("PMMR") against Bill Minor, John Reynolds, and Walter Marling for breach of fiduciary duties, unjust enrichment, abuse of control, usurpation of corporate opportunities, and ultra vires actions. PMMR is a Nevada corporation holding certain mining rights in Lyon County, which it exercises under permission of the U.S. Forest Service ("USFS") (which owns the relevant land) to mine a substance sold commercially as Orykta and used as fertilizer and animal feed. (Third Am. Compl. ¶ 1, ECF No. 54). From 1999 to 2001, Minor sold shares of PMMR to investors throughout the United States and Canada, including Plaintiffs, who are New York residents. (Id. ¶¶3, 31).

         Minor used PMMR "as his own personal piggybank, " selling Orykta to only one customer in Costa Rica over a 14-year period. (Id. ¶ 5). Minor repeatedly misrepresented PMMR's prospects to shareholders, including lying about a nonexistent imminent contract with China, in order to deflect scrutiny, and he refused to entertain sales leads from them, even threatening bodily harm when they made suggestions. (Id. ¶¶ 6-7, 49-64). Minor has used a fraudulent stock transfer document purporting to transfer non-existent shares to himself in order to falsely portray himself as a majority shareholder. (Id. ¶¶ 69-73). Minor made false promises of dividend distributions in order to deflect questions about the viability of PMMR. (Id. ¶¶ 74-76).

         All Defendants consistently failed to provide basic information about PMMR to shareholders, with Minor even threatening bodily harm when they made requests. (Id. ¶ 9). Defendants have not produced an audited financial statement since 1995 and have produced only one unaudited financial statement from the fourth quarter of 2009. (Id. ¶ 10). Defendants failed to properly file for various business permits and to file correct tax returns, jeopardizing die corporation's legal status. (Id. ¶¶ 11-13). The failure of Defendants to maintain compliance with die USFS's terms of permissible activities has resulted in a criminal and civil investigation of PMMR. (Id. ¶¶ 53-57).

         Aldiough PMMR obtained approximately $15-20 million from the sale of its stock to shareholders, it has never made a profit and has failed to account for these funds. (Id. ¶¶ 78, 80). Rather, Defendants have simply awarded themselves large compensation packages and paid themselves large consultancy fees. (Id. ¶ 78). Minor also paid for his son's flying lessons using PMMR's assets. (Id. ¶ 79).

         Minor abused his control of PMMR by treating PMMR's assets as his own and transferring PMMR's assets into his own name, i.e., the title of at least one of PMMR's mining claims was transferred into Minor's name from 2007-2010. (Id. ¶¶ 81-83). At various times, Minor transferred mining claims between himself and PMMR to suit his personal needs. (Id. ¶ 84). Defendants have usurped corporate opportunities by selling Orykta through a company named Wrightsville Fertilizer Co. ("WFC"); Plaintiffs deduce this from the fact that there is no evidence WFC ever paid PMMR to purchase Orykta. (Id. ¶ 85). Defendants have engaged in ultra vires actions by issuing stock, stock options, and rights without shareholder approval, thereby diluting the value and control of existing shareholders. (Id. ¶ 86).

         The U.S. District Court for the Eastern District of New York transferred the case to this District under 28 U.S.C. § 1404(a) as an alternative to a request to dismiss for lack of personal jurisdiction and improper venue. The transferor court did not rule on contemporaneous requests to dismiss the First Amended Complaint ("FAC") for failure to comply with Rules 8(a), 9(b), and 23.1(b). This Court dismissed the FAC under the latter rule and Rule 11(a) because it was not verified or even signed by any attorney. Plaintiffs filed the Second Amended Complaint ("SAC"), and Defendants moved to dismiss it. The Court ruled that the SAC was not precluded by either of two previous actions litigated in the New York and Nevada state courts but dismissed it with leave to amend because it failed to comply with Rule 23.1's requirement to plead demand or futility with particularity.

         Plaintiffs filed the Third Amended Complaint ("TAC"), and Defendants moved to dismiss it. The Court refused to dismiss the TAC under Rule 23.1 but dismissed certain claims on the merits, with leave to amend some of them. Specifically, the Court permitted the claim for breach of fiduciary duty to proceed against all Defendants as to the allegations concerning usurpation of corporate opportunities and compensation packages and permitted the claim to proceed against Minor as to the allegations concerning false statements and improper withholding of financial records. The Court otherwise dismissed the breach of fiduciary duty claim, as well as the claims for unjust enrichment and abuse of control, without leave to amend, and dismissed the claim for ultra vires acts, with leave to amend. Plaintiffs did not further amend. Defendants answered and filed counterclaims for intentional interference with contractual relations ("IICR") and intentional interference with prospective business relationship ("IIPBR") based on: (1) Plaintiffs' alleged communications to WFC and China National Seed Group Corporation Limited, a division of Sinochem ("China National"); (2) their interference with potential distribution contracts between PMMR and companies in China, Vietnam, the Philippines, and Costa Rica; and (3) having filed various lawsuits against Defendants. The parties have now filed cross motions for summary judgment.

         II. SUMMARY JUDGMENT STANDARDS

          A court must grant summary judgment when "the movant 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). Material facts are those which may affect the outcome of the case. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute as to a material fact is genuine if there is sufficient evidence for a reasonable jury to return a verdict for the nonmoving party. See Id. A principal purpose of summary judgment is "to isolate and dispose of factually unsupported claims." Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986).

         In determining summary judgment, a court uses a burden-shifting scheme. The moving party must first satisfy its initial burden. "When the party moving for summary judgment would bear the burden of proof at trial, it must come forward with evidence which would entitle it to a directed verdict if the evidence went uncontroverted at trial." C.A.R. Transp. Brokerage Co. v. Darden Rests., Inc., 213 F.3d 474, 480 (9th Cir. 2000) (citation and internal quotation marks omitted). In contrast, when the nonmoving party bears the burden of proving the claim or defense, the moving party can meet its burden in two ways: (1) by presenting evidence to negate an essential element of the nonmoving party's case; or (2) by demonstrating that the nonmoving party failed to make a showing sufficient to establish an element essential to that party's case on which that party will bear the burden of proof at trial. See Celotex Corp., 477 U.S. at 323-24.

         If the moving party fails to meet its initial burden, summary judgment must be denied and the court need not consider the nonmoving party's evidence. See Adickes v. S.H. Kress & Co., 398 U.S. 144 (1970). If the moving party meets its initial burden, the burden then shifts to the opposing party to establish a genuine issue of material fact. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). To establish the existence of a factual dispute, the opposing party need not establish a material issue of fact conclusively in its favor. It is sufficient that "the claimed factual dispute be shown to require a jury or judge to resolve the parties' differing versions of the truth at trial." T. W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass 'n, 809 F.2d 626, 631 (9th Cir. 1987). In other words, the nonmoving party cannot avoid summary judgment by relying solely on conclusory allegations unsupported by facts. See Taylor v. List, 880 F.2d 1040, 1045 (9th Cir. 1989). Instead, the opposition must go beyond the assertions and allegations of the pleadings and set forth specific facts by producing competent evidence that shows a genuine issue for trial. See Fed. R. Civ. P. 56(e); Celotex Corp., 477 U.S. at 324.

         At the summary judgment stage, a court's function is not to weigh the evidence and determine the truth, but to determine whether there is a genuine issue for trial. See Anderson, 477 U.S. at 249. The evidence of the nonmovant is "to be believed, and all justifiable inferences are to be drawn in his favor." Id. at 255. But if the evidence of the nonmoving party is merely colorable or is not significantly probative, summary judgment may be granted. See Id. at 249-50. Notably, facts are only viewed in the light most favorable to the nonmoving party where there is a genuine dispute about those facts. Scott v. Harris, 550 U.S. 372, 380 (2007). That is, even if the underlying claim contains a reasonableness test, where a party's evidence is so clearly contradicted by the record as a whole that no reasonable jury could believe it, "a court should not adopt that version of the facts for purposes of ruling on a motion for summary judgment." Id.

         III. ANALYSIS

         A.Plaintiffs' ...


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