The opinion of the court was delivered by: Matthew F. Kennelly, District Judge:
MEMORANDUM OPINION AND ORDER
Plaintiffs MJK Partners, LLC, F. Paul Ohadi, individually and as trustee of the F. Paul Ohadi Family Trust (Ohadi Trust), and James Mann, as trustee of the Mann 1994 Family Trust (Mann Trust), have sued David Husman. Plaintiffs assert a claim for violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), as well as state law claims for breach of fiduciary duty, breach of contract, and unjust enrichment. Husman has moved for summary judgment on all claims. For the reasons stated below, the Court grants defendant's motion in part and denies it in part.
Plaintiffs invested money in various projects through Husman, the founder of Equibase Capital Corporation. They claim that Husman misappropriated from each of the investments funds that should have gone to them.
In 1995, Dan K. Shaw obtained various oil and gas leases in the Flat Rock Field in Utah, which he operated through a company called Shaw Resources Limited LLC, d/b/a Orion (Orion). Shaw sought the help of Husman to raise money to exploit the oil field.
As vehicles for investment, Shaw and Husman created Pegasus Resources, LLC; Scorpio Energy Resources, LLC; Aquarius Energy Resources, LLC; and Sagittarius Energy Resources, LLC. Plaintiffs invested in these companies. Ohadi, the Ohadi Trust, MJK, and Mann Investment Partners, LP (whose assets were later distributed in part to the Mann Trust) all purchased membership interests in at least one of Scorpio, Aquarius, or Sagittarius in 1999 or 2001. Plaintiffs' investment in Pegasus operated differently. A number of investors, including the Ohadi Trust and non-plaintiff Clarence Mann, contributed a total of $5 million to Husman to be loaned to Shaw. Shaw pledged a number of his assets as collateral for the loan. The loan was later turned into equity as membership interests in Pegasus. Shaw was the manager of all of these entities, in addition to Orion.
To develop the oil fields, a pipeline was needed to transport natural gas away from the fields. Comet Resources LLC, an entity controlled by Shaw, built the pipeline. Husman loaned Shaw more than $5 million to build the pipeline and eventually received equity in Comet for the loan. The parties dispute the origins of the money loaned to Shaw. In the promissory note Shaw gave Husman in return for the loan, Husman is described as an "agent," but the note does not say for whom Husman was an agent. Pl. Ex. 8 at 4298. Plaintiffs claim that the money came in part from them, while Husman claimed in his deposition that all of the money came from his personal bank account. Pl. Ex. 1 at 212--13.
In addition to the six oil and gas entities, Shaw also ran a Nevada casino through a company called VSS Enterprises, LLC. It is undisputed that Husman loaned Shaw personally at least $1.75 million for his casino, and Shaw stated in his deposition that Husman provided between $10 and $13 million. Pl. Ex. 4 at 70. Shaw claimed that Husman's money indirectly funded VSS, although Husman did not directly invest in VSS because he did not want to be subject to the disclosure requirements imposed on casinos in Nevada. Id. at 70--72. In return for his loans, Shaw paid Husman a twelve percent return. Id. at 73. Husman did not want to take an equity stake in VSS, so Shaw instead provided him additional equity in the oil and gas business in exchange for the casino loans. Id. at 72--73.
In 2003, Shaw's casino business was failing. Plaintiffs claim that, in particular, Shaw was having trouble paying the twelve percent return Husman's loans required. Shaw began to take money out of the oil businesses to support VSS. VSS filed for bankruptcy in June 2003. In July, Husman forced Shaw to resign as manager of the oil businesses and appointed Emergency Management Services (EMS), of which Husman was president, as manager of the oil businesses. After Husman removed Shaw from management, Shaw reached an agreement with EMS, which was acting as a collections agent for the six oil and gas entities. Shaw agreed that his liability to the companies was $22 million, subject to later adjustment, and he agreed to pledge much of his property as security for the debt to the companies. Pl. Ex. 3 at 2366; Pl. Ex. 27 at 29704--05. Among other property, Shaw pledged his equity interests in several of the oil and gas entities, some of the assets he had previously pledged as collateral for the Pegasus loan, and a promissory note made by VSS to Shaw for more than twenty-two million. Id. at 29770. One asset that Shaw did not turn over to the oil and gas entities was his thirty percent interest in Comet, which he instead assigned directly to Husman.
In September 2003, Husman sent a letter to Ohadi and MJK, whose managing member was Mann. The letter discussed Sagittarius, in which the Ohadi Trust and MJK were members. Husman stated that Shaw was no longer manager of any of the oil and gas entities because he had been using company funds personally and had commingled assets from Sagittarius with assets of the other entities. The letter informed Sagittarius members that EMS had retained outside counsel and forensic accountants to investigate the companies and pursue any funds that had been diverted outside the oil and gas entities. The letter did not mention Shaw's casino business directly or that Husman had contributed funds to it and was a major creditor of Shaw.
In 2004, Husman sent a memorandum, through EMS, to all of the investors in the oil and gas entities except Comet, proposing to combine the five other oil and gas entities. Under Husman's plan, all investors would give their ownership interests in the oil and gas entities to Chicago Energy Associates, LLC (CEA) and would receive in return proportionate membership interests in CEA. Subsequently, the oil and gas entities would transfer all of their assets to CEA, and EMS would contribute any assets it had recovered while acting as a collection agent for the oil and gas entities. Husman stated that the restructuring was necessary to eliminate operating inefficiencies and risks associated with running so many separate entities. The memorandum mentioned that Comet had constructed a pipeline used by the other oil and gas entities, but it described Comet only as "a Nevada limited liability company which[ ] is owned by certain Members [of the oil and gas entities]." Def. Ex. 12-A at 29109.
The five oil and gas entities became part of CEA, and the plaintiffs became members of it. Comet remained a separate company. Subsequently, CEA and Comet negotiated a deal in which Comet, represented by Husman, agreed to carry CEA gas in its pipeline in exchange for a fee. Comet's assets were sold in 2008 for $35 million. None of the proceeds of that sale went to plaintiffs or other investors in CEA.
In addition to taking Comet's assets, plaintiffs also contend that Husman kept property of Shaw's that should have gone to CEA. One of the assets Shaw transferred to EMS in 2003, as collection agent for the oil and gas entities, was his interest in a real estate development called Grand Plaza Apartments. Pl. Ex. 27 at 29770. Husman signed the agreement transferring Grand Plaza as president of EMS. Husman now claims, however, that Shaw's interest in Grand Plaza had in fact been transferred to him personally two years earlier, as consideration for his assumption of a loan that Shaw had obtained from MB Financial Bank. Pl. Ex. 28 at 4037--39.Plaintiffs claim that Husman received a distribution of more than $10 million in 2004, when Grand Plaza was sold. Pl. Ex. 36. Plaintiffs also contend that Husman personally received $1.8 million after the sale of Red Bluffs Office Park in 2007, another property that Shaw transferred to EMS. Pl. Ex. 37 at 2938; Pl. Ex. 38 at 81--85.
B. Plaza Square investment
Plaza Square Apartments was a large housing development in St. Louis owned and operated by Plaza Square Partners, LLC.Husman, through Equibase, organized a group of investors who purchased fifty percent of Plaza Square for $4 million in February 1999. In return, they received a guarantee of their investment from Ed Carlson, the manager of Plaza Square. Carlson also pledged his personal property as collateral for the guarantee.
The original investors that Husman recruited had the right to request that Husman buy them out, and they did so later in 1999. To obtain funds to pay back the original investors, Husman sought funds from Ohadi. In August 1999, Ohadi provided Husman with $3 million. Ohadi wrote two checks: a $1 million check from himself and a $2 million check from his company, Paul D. Metals Products, Inc. The parties agree, for the purposes of resolving this summary judgment motion only, that Husman and Ohadi orally agreed that Ohadi's money was a three-year loan to Husman personally. Husman then used Ohadi's $3 million, along with $1 million of his own money, to replace the initial investors in Plaza Square. Pl. Ex. 1 at 308--10. Despite the fact that Ohadi was loaning money to Husman, Husman acted as Ohadi's lawyer on the transaction.
Although Husman concedes for the purposes of this motion that the money he received was a loan from Ohadi, at times in the past, including at his deposition, Husman has claimed that the money was not a loan but an equity investment that he and Ohadi made with Carlson. Id. at 304--06. Carlson himself testified that Plaza Square was structured as an investment by which Husman and his investors were guaranteed a twelve percent return and also a share of the project's equity. Pl. Ex. 16 at 39--40.
The parties agree for the purposes of this motion that soon after receiving the loan, Husman promised to get Ohadi twenty-five percent of the equity in Plaza Square, as a bonus for providing the loan. Husman, however, wrote a letter on September 1, 1999, stating that he had paid $1 million and Ohadi had paid $3 million and that in return each would receive a twenty-five percent interest in Plaza Square, without mentioning any loan or calling Ohadi's equity a bonus. Pl. Ex. 17. Either way, Ohadi never received any equity. Plaza Square had received funding from the Department of Housing and Urban Development (HUD), and HUD regulations included prerequisites that had to be met before any interest in Plaza Square could be transferred. These requirements were never met and thus there could be no valid transfer of interest to Ohadi.
In December 1999, Ohadi asked to divide his personal interest in Plaza Square. He asked to assign one-third of his interest to "Paul Ohadi, Trustee, under the F. Paul Ohadi Trust Dated December 15, 1999" and to keep the remaining two-thirds under the name "Paul Ohadi, Trustee," stating that the two-thirds was unrelated to the Ohadi December 15 trust. Def. Ex. 26. Further, in 2001, Husman wrote a letter stating that the $2 million he received from Paul D. Metals was owed seventy-five percent to Ohadi's December 15, 1999 trust and twenty-five percent to "Paul Ohadi, Trustee." Def. Ex. 4-C.
Ohadi received interest payments on his loan or investment for several years but did not get his money back when the loan came due in August 2002. After that, Ohadi received intermittent payments of interest. He testified at his deposition that Husman encouraged him to not demand the return of his principal because he was receiving a twelve percent return. Pl. Ex. 18 at 320. Ohadi received a payment on his loan as late as June 6, 2005, and in a letter accompanying that payment Husman told Ohadi that Carlson would pay all interest due by August 1. Pl. Ex. 55.
Even before writing that letter, however, Husman was seizing property from Carlson and using it to pay unrelated debts. Husman took Carlson's interest in a property called the Grand Apartments in September 2003. In 2005, the Grand Apartments were sold, and Carlson received $2.05 million for his interest in them. At Husman's direction, Carlson paid $172,000 to Husman and Ohadi to pay some of the interest on the Plaza Square loan. Pl. Ex. 41. More than $1.5 million was used to pay off loans to Carlson from the Husman Foundation, and $342,000 was applied to a loan from a group referred to as "the Husman children." Id. Husman also took Carlson's interest in an apartment development called Prospect Heights, which was one of the developments specifically pledged by Carlson to the original Plaza Square investors to guarantee their investment. Pl. Ex. 16 at 84; Pl. Ex. 42; Def. Ex. 21 at 6629. Despite these seizures, in 2007 Husman wrote to Ohadi that Carlson's personal guarantee of the Plaza Square loans had no value and told Ohadi that another lawyer who informed him that the Plaza Square investors were being defrauded did not have the facts. Pl. Ex. 54.
Ohadi's $3 million has never been repaid, and he is still owed the majority of the interest due under the terms of the loan.
In 1999, Husman asked Ohadi to invest in a limited partnership called Treasures Holdco, LP. Treasures owned part of a Florida real estate development. Ohadi and Husman agreed to invest $3 million, with Ohadi providing $2.25 million and Husman $750,000. They agreed that the interest they received would be split, with seventy-five percent going to Ohadi and twenty-five percent to Husman. Any profits from the investment would be split, 56.25% to Ohadi and 43.75% to Husman. In December 1999, Ohadi asked Husman to transfer his interest in Treasures to his December 1999 trust.
Initially, Carlson had an option to purchase ten percent of Ohadi and Husman's investment. To do so, he had to pay $25,000 before September 12, 2001. Pl. Ex. 46. Carlson testified in his deposition that he did not do so, but he also stated that he and Husman might have had an agreement where Husman covered the $25,000 payment for him. Pl. Ex. 16 at 127--28; Def. Reply, Ex. E at 278--81.
Treasures sold its property in 2004 for almost $50 million. In December 2007, Ohadi and Husman had already received $13 million for their investment, and $1.47 million remained to be distributed between the two. Ohadi and Husman's accountant initially calculated that Husman was entitled to $287,000 and Ohadi was entitled to $1.184 million. At Husman's direction, the accountant prepared a new schedule showing that Husman was entitled to $1.98 million and that Ohadi was not entitled to any additional payments and actually owed Husman $510,000. Although the new schedule contained several changes, one major change made at Husman's request was to assign him an additional fifteen percent of the profits from the Treasures investment, amounting to more than $1.7 million.
Husman justified assigning an additional share of the profits to himself by stating that Carlson had owned fifteen percent of Husman and Ohadi's Treasures investment and had assigned that fifteen percent to Husman. There is a document signed by Carlson purporting to assign his fifteen percent interest in Treasures to Husman in October 2004. Def. Reply, Ex. H. In 2008, however, Carlson signed an affidavit indicating that he could find no records showing that his potential interest in Treasures had ever changed from ten percent to fifteen percent. Pl. Ex. 47. He testified that he would have remembered being given such a significant extra interest in Treasures. Pl. Ex. 16 at 132. According to Carlson, Husman requested that he sign an affidavit stating that he had a fifteen percent interest, but he refused. Id. at 132--33. After Carlson refused, Husman became upset and threatened him, saying that "it was a big mistake and that [Carlson] would pay for it." Id. at 133.
On a motion for summary judgment, the Court "view[s] the record in the light most favorable to the non-moving party and draw[s] all reasonable inferences in that party's favor." Trinity Homes LLC v. Ohio Cas. Ins. Co., 629 F.3d 653, 656 (7th Cir. 2010). Summary judgment is appropriate "if 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). In other words, a court may grant summary judgment "[w]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
The plaintiffs assert a RICO claim based on Husman's actions in connection with of the investments discussed above and a breach of fiduciary duty claim concerning his actions related to the Shaw investments. In addition, Ohadi asserts claims for breach of fiduciary duty, breach of contract, and unjust enrichment related to the Plaza Square investment and breach of contract related to the Treasures investment. ...