Free Response to Motion - District Court of Colorado - Colorado

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 1 of 31

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Judge John L. Kane

Civil Action No. 01-K-0275 DOMINICK PAOLONI, et al., Plaintiffs, vs. DONALD I. GOLDSTEIN, et al, Defendants, and NBSA, LLC, et al., Relief Defendants. PARTIAL RESPONSE TO MOTION FOR SUMMARY JUDGMENT AND REQUEST FOR CONTINUANCE PURSUANT TO RULE 56(f) Defendant Jamie Goldstein submits this Partial Response to Motion for Summary Judgment and Request for Continuance Pursuant to Rule 56(f). This filing responds to the Motion for Summary Judgment (the "Motion"), Memorandum in Support of Motion for Summary Judgment (the "Memorandum"), and Statement of Undisputed Facts ("Plaintiffs' Statement of Facts") submitted by Plaintiffs, other than John P. Barbee, Trustee. INTRODUCTION Far from meeting Plaintiffs' substantial burdens to prove their claims as a matter of law, the Motion exposes gaping holes in Plaintiffs' case against Mr. Goldstein. The Motion fails at every level of analysis. Procedurally, the Motion fails because the claims against Mr. Goldstein are stayed by prior court order, which stay has never been lifted; virtually no discovery has proceeded by or against Mr. Goldstein, and no answer has been filed. Substantially, the Motion fails to provide or cite to evidence supporting the basic elements of Plaintiffs' claims, much less explain why judgment as a matter of law is appropriate in the face of the Plaintiffs' own agreements and conduct. Instead Plaintiffs improperly ask the Court to assume as a matter of

9886\1\956705.7

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 2 of 31

law Mr. Goldstein's alleged "active participation" in a "fraudulent scheme" and then ignore Mr. Goldstein's rights under federal bankruptcy law or Plaintiffs' actions and their legal consequences. For instance, to the extent that there ever was a "scheme," Plaintiffs were "active participants" in it, rendering Plaintiffs subject to the doctrine of in pari delicto. Moreover, Plaintiffs knowingly and voluntarily settled their claims, more than once, for substantial consideration in this matter. The Motion should be denied. Alternatively, Mr. Goldstein requests that the Court hold a status conference in order to set a reasonable discovery schedule, taking into account proceedings ongoing in Mr. Goldstein's bankruptcy case. Then, and only then, should the claims against Mr. Goldstein and his defenses thereto be determined in an orderly and just manner, consistent with the rules of evidence and civil procedure. PROCEDURAL BACKGROUND The proceedings in this matter with respect to Mr. Goldstein have not been extensive, contrary to Plaintiffs' assertion. (Plaintiffs' Statement of Facts at 1). With respect to Mr. Goldstein, no discovery has occurred, nor evidence obtained, since his October 2002 bankruptcy filing. The Amended Preliminary Injunction entered by this Court on December 14, 2004 (the "2004 Injunction," Docket #704), which is the only substantive activity against Mr. Goldstein since October 2002, was entered without a contested hearing or evidentiary presentation. The only other proceedings or discovery with respect to claims against Mr. Goldstein occurred in conjunction with Plaintiffs' original Motion for Preliminary Injunction, filed in 2001 at the outset of this case, and an amendment to that injunction sought by Plaintiffs in 2002. This case has been stayed entirely against Mr. Goldstein due to his bankruptcy, except for the aforementioned

9886\1\956705.7

2

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 3 of 31

injunction. Indeed, Mr. Goldstein has not filed an answer in this case, due to the pending stay and a court-approved settlement agreement in 2001. 1. Mr. Goldstein's Bankruptcy Case and Discharge The Memorandum and Plaintiffs' Statement of Facts completely ignore Mr. Goldstein's Chapter 7 bankruptcy case. On November 22, 2002, Mr. Goldstein filed a voluntary bankruptcy petition pursuant to Chapter 7 of the Bankruptcy Code, 11 U.S.C. §§ 101, et seq. (the "Bankruptcy Code") in the United States Bankruptcy Court for the Southern District of Florida (the "Bankruptcy Court"). He received his discharge on June 28, 2004. Contrary to Plaintiffs' predictions, the discharge has not been revoked. (See Exhibit A-1). 2. Plaintiffs Settled or Waived All Claims Against Mr. Goldstein Any claims that Plaintiffs might have had against Mr. Goldstein were settled or waived in a series of three settlements in this case and Mr. Goldstein's bankruptcy case. First, Plaintiffs, Mr. Goldstein, and the other Reliance Defendants (as defined in the Colorado Settlement) settled all of Plaintiffs' claims pursuant to a Settlement Agreement (the "Colorado Settlement," Docket #151), which was made an order of this Court on November 2, 2001. (Docket #155). Mr. Goldstein did not admit liability, and the agreement settled all claims among the parties. Among other things, the Colorado Settlement provides: The agreements and obligations of the Plaintiffs and the Reliance Defendants contained herein are in full and complete satisfaction of any and all claims asserted, or which could have been asserted by either the Plaintiffs or the Reliance Defendants, in the Denver Litigation Colorado Settlement at Art. II. Mr. Goldstein specifically did not admit liability. Id. of Art. XV. Second, on April 10, 2003, Plaintiffs entered into a Settlement Agreement (the "PlaintiffTrustee Settlement," a copy of which is attached as Exhibit B-1) with the bankruptcy trustee in

9886\1\956705.7

3

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 4 of 31

Mr. Goldstein's bankruptcy case, John P. Barbee (the "Trustee"). In exchange for substantial consideration, Plaintiffs, inter alia, waived all claims in Mr. Goldstein's bankruptcy case, waived or assigned all rights to the Trustee to object to any exemptions pursuant to Bankruptcy Code § 522, and assigned to the Trustee any and all rights to object to Mr. Goldstein's discharge under Bankruptcy Code § 523: Upon the Effective Date of this Agreement, [Plaintiffs] and Viatical Liquidity agree to assign to the Trustee any and all objections they may have concerning Goldstein, Patricia Goldstein or Jamie Goldstein's (the "Individual Debtors") discharges pursuant to Sections 727 and 523 of the Code and any objections to the Individual Debtors' claimed exemptions and agree to entry of a discharge in favor of the Individual Debtors, subject to eh Trustee's consent to same. Upon the Effective Date of this Agreement, except as otherwise specifically provided herein, [Plaintiffs] waive any and all claims in the Bankruptcy Cases. Except as provided herein, Viatical Liquidity does not waive any of its claims. The Trustee and Viatical Liquidity agree to work in good faith to resolve the amount of Viatical Liquidity's allowed general unsecured claim. (Plaintiff-Trustee Settlement at ¶¶ 49-50). Third, on January 15, 2004, the Trustee and Mr. Goldstein, along with Defendants Donald Goldstein and Patricia Goldstein, entered into a Settlement and Controversy Among the Trustee and Individual Debtors (the "Trustee-Goldstein Settlement," a copy of which is attached as Exhibit 28 to the Motion), which was approved by and made an order of the Bankruptcy Court on March 1, 2004, after notice to all parties in interest, including Plaintiffs. (A copy of the Settlement Order is attached as Exhibit C-1). The Trustee-Goldstein Settlement specifically disposes of the tax refund, the proceeds of which are of issue here. The Trustee had claimed that any tax refunds that Mr. Goldstein could receive (e.g., the tax refund that is the subject of the Motion) was property of Mr. Goldstein's bankruptcy estate and required Mr. Goldstein to pay certain sums to the Trustee, including some of the proceeds from any tax refund:

9886\1\956705.7

4

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 5 of 31

Whereas, the Individual Debtors [including Mr. Goldstein] believe that they are entitled to a tax refund relating to the Individual Debtors' pre-petition taxing periods stemming from the Return of Earned Income From Individual Debtors To Reliance Debtors more fully described above which tax refund, if any, the Trustee claims constitutes property of one or more of the Individual Debtors' bankruptcy estates. ... In the event that any of the Individual Debtors receive as a result of the filing of the Amended Tax Return a refund or refunds (the "Refund") in a total sum in excess of any amounts due to the Internal Revenue Service from Donald Goldstein, Jamie Goldstein or Patricia Goldstein for pre-petition taxing periods, then to the extent that such Refund exceeds the sum of $550,000 after deducting the costs of preparation and filing of the Amended Tax Returns and any reasonable accountant's or attorney's fees incurred in obtaining said Refund, the Trustee shall be entitled to fifty percent (50%) of such Refund and the remaining fifty percent (50%) shall be shared, pro rata, among the Individual Debtors. The Trustee's share of any Refund shall be due and payable within ten days from the date of receipt of said Refund by one or more of the Individual Debtors. The Trustee's share of any Refund shall be deemed property of the estate of Individual Debtors or such other related bankruptcy estate as the Trustee may designate. The Individual Debtors hereby irrevocably and unconditionally assign the Trustee his share of the Refund. (Trustee-Goldstein Settlement at 9, 14-15). Mr. Goldstein then received his discharge. 3. Post-Settlement Disputes and Proceedings Disputes arose in respect of the Colorado Settlement, and on May 29, 2002, Plaintiffs filed a Motion to Enforce Settlement Agreement Between Plaintiffs and the Reliance Defendants (the "Settlement Enforcement Motion," Docket #267). Plaintiffs sought an order from the Court requiring Mr. Goldstein and the other Reliance Defendants to perform certain obligations pursuant to the Colorado Settlement. Plaintiffs did not request that the Court reinstate claims against Mr. Goldstein; in fact, Plaintiffs specifically elected not to declare the Colorado Settlement void. (Settlement Enforcement Motion at ¶ 19). In ruling on the Settlement Enforcement Motion, on June 21, 2002, the Court entered a preliminary injunction, (the "2002 Preliminary Injunction," Docket #296), in which, inter alia, Mr. Goldstein was enjoined from disposing of any assets, other than spending $5,000 per month

9886\1\956705.7

5

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 6 of 31

for living expenses. (2002 Preliminary Injunction at 4-5). Mr. Goldstein was also required to transfer certain funds to the Clerk of the Court. (Id. at 5). In enforcement of this Settlement, the Court ordered Mr. Goldstein's incarceration. Mr. Goldstein then deposited $586,739.06 with the Clerk of the Court. (See Docket ##414 and 415). Notably, the Court did not reinstate any claims against Mr. Goldstein or any other Defendant, nor did it hold that the Colorado Settlement was void. Plaintiffs then terminated action against Mr. Goldstein in this case and admitted that they could no longer pursue claims against him. On April 29, 2004, Plaintiffs acknowledged: "As the bankruptcy proceedings automatically stay further proceedings against . . . Jamie Goldstein . . . Plaintiffs may no longer pursue claims in this action against such Defendant[]." (Consolidated Stipulated Scheduling and Discovery Order (Docket #650) at 5). Plaintiffs also listed those defendants against whom Plaintiffs had pending claims; Mr. Goldstein was not on the list. (Id. at 6). Discovery has since ended as to all non-bankrupt parties. Plaintiffs have never sought to amend any scheduling order to reopen discovery as to Mr. Goldstein. 4. The Tax Refund In November 2004, Mr. Goldstein received a federal tax refund (the "Tax Refund") of $827,422.34, which he deposited into a bank account on November 8, 2004. Mr. Goldstein then transferred $175,000 from the account and spent the funds, there having been no prohibition on such activity. As required by the Trustee-Goldstein Settlement, Mr. Goldstein notified creditors of the refund. In December 2004, the Trustee sought a temporary restraining order in the Bankruptcy Court seeking to require Mr. Goldstein to pay $125,332.43 from the Tax Refund claimed

9886\1\956705.7

6

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 7 of 31

pursuant to the Trustee-Goldstein Settlement. The Bankruptcy Court entered a temporary restraining order on December 8, 2004. Also on December 8, 2004, this Court entered the 2004 Injunction enjoining Mr. Goldstein from disposing of, and requiring him to deposit with the Clerk of the Court the portion of the Tax Refund not spent. Mr. Goldstein complied. On June 27, 2005, this Court entered an agreed order for payment of the claimed $125,332.43 to the Trustee. (Docket #758). As a result, the Clerk of the Court now holds $550,000 belonging to Mr. Goldstein (the "Net Tax Refund"). It is this amount upon which Plaintiffs claim a constructive trust. 5. The Stay Relief Order On July 11, 2005, the Bankruptcy Court entered an Order Granting Creditors' Viatical Administrators, Inc. et al., Motion for Relief from Automatic Stay Pursuant to 11 U.S.C. § 362(d) (the "Stay Relief Order," a copy of which is attached as Exhibit D-1). The Stay Relief Order gave Plaintiffs relief from the automatic stay of Bankruptcy Code § 362 and the postdischarge injunction found in Bankruptcy Code § 524 to seek an order from this Court to determine whether Plaintiffs are entitled to a constructive trust or equitable lien on the Net Tax Refund. The Stay Relief Order proceeded from very abbreviated proceedings (without an evidentiary hearing), and it is unclear in certain respects. For instance, a fair reading of the Stay Relief Order is that the Bankruptcy Court did not purport to conclusively determine whether a) the Net Tax Refund was property of Mr. Goldstein's estate prior to the settlements; b) the Net Tax Refund was subject to the Trustee-Goldstein Settlement and the Plaintiff-Trustee Settlement and thus was Mr. Goldstein's property, and for which Plaintiffs had waived any claim; c) Mr. Goldstein's discharge prevented Plaintiffs from prosecuting their constructive trust/equitable lien claim against Mr. Goldstein; or d) the Plaintiff-Trustee Settlement precluded

9886\1\956705.7

7

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 8 of 31

Plaintiffs' constructive trust/equitable lien claim. (See Transcript of June 17, 2005, hearing at 15:20-22, attached as Exhibit E-1). In any event, had such findings been made, there would be little or no support in the record for them. Mr. Goldstein and the other respondents are appealing the Stay Relief Order. (See Exhibit F-1). III. ARGUMENT A. The Motion is Improper and Premature The claims against Mr. Goldstein have been stayed since October 2002. (Docket # 424). Since then, no discovery has been propounded by or against Mr. Goldstein. Mr. Goldstein has never filed an answer as no due date has been established, the claims against him being the subject of a stay. With the exception of two preliminary injunctions, ostensibly intended to preserve the status quo and enforce the Colorado Settlement, Mr. Goldstein has not been a party to this case. The Motion is premature and improper. Instead of having sought summary judgment on the stated claim, Plaintiffs should first have sought to lift the stay and modify the Court's Scheduling Order. Now, however, discovery is closed under the existing Scheduling Order, and Mr. Goldstein has had no opportunity or right to propound any in this case. To grant summary judgment at this phase of the claims against Mr. Goldstein would be serious error and deny Mr. Goldstein due process. Attached is the Affidavit of Michael J. Pankow in support of Request for Rule 56(f) Continuance (the "Pankow Affidavit," attached as Exhibit G-1. Mr. Goldstein suggests a status conference, a reasonable scheduling order presented, an order on the scope and limits of discovery, and other matters that a defendant in substantial civil litigation would normally be afforded under the Rules of Civil Procedure.

9886\1\956705.7

8

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 9 of 31

B. Standard of Review on Summary Judgment Summary judgment should be granted only "if the pleadings, depositions, answers to interrogatories, and admissions, together with the affidavits on file, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. Pro. 56(c). Plaintiffs have multiple burdens with respect to the Motion, as the parties seeking both summary judgment and bearing the burden of proof on the substantive claims. Plaintiffs have both "the initial burden of production on a motion for summary judgment and the burden of establishing that summary judgment is appropriate as a matter law." Trainor v. Apollo Metal Specialties, Inc., 318 F.3d 976, 979 (10th Cir. 2003) (emphasis added). They "bear [] the initial responsibility of informing the court of the basis of [their] motion and must identify those portions of [the record] which [they believe] demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). In applying these standards, the Court must examine the factual record and reasonable inferences therefrom in the light most favorable to Mr. Goldstein, the party opposing summary judgment. Schwartz v. Brotherhood of Maint. of Way Employees, 264 F.3d 1181, 1183 (10th Cir. 2001). The movant must demonstrate entitlement to summary judgment "beyond a reasonable doubt." Trainor, 318 F.3d at 979. Although a party defending a claim need not present evidence within a summary judgment motion, e.g., Stat-Tech Int'l Corp. v. Delutes (In re Stat-Tech Int'l Corp.), 47 F.3d 1054, 1058 (10th Cir. 1995), Plaintiffs have no such luxury. Plaintiffs must produce and identify in the record specific evidence sufficient to sustain their burden of proof as a matter of law. Celotex, 477 U.S. at 323. In this, Plaintiffs fail their burden entirely. Plaintiffs base their

9886\1\956705.7

9

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 10 of 31

arguments wholly on improper factual inferences and have provided no independent evidence of any wrongdoing by Mr. Goldstein. Plaintiffs try to obscure this failure by citing to "the record" or to an entire hearing transcript. (See, e.g., Memorandum at 2). But Plaintiffs have failed to cite to one piece of evidence in the record that Mr. Goldstein committed or benefited from fraud, much less evidence sufficient to supporting judgment as a matter of law. The Motion, therefore, fails. Plaintiffs allege actual fraud, and summary judgment in no way relieves Plaintiffs of their burden to prove intent to defraud. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255-56 (1985). Summary judgment should be used sparingly where motive and intent are at issue. See, e.g., Poller v. Columbia Broad. Sys., Inc., 368 U.S. 464, 473 (1962). Where different ultimate inferences may properly be drawn, the case is not one for summary judgment. Questions of intent, such as fraud, are matters for consideration of the fact finder after a full trial. Prochaska v. Marcoux, 632 F.2d 848, 851 (10th Cir. 1980); see Wilbourn v. Mostek Corp., 537 F. Supp. 302, 306 (D. Colo. 1982). C. Plaintiffs Have Failed To Prove Fraud As a Matter of Law The Motion is based solely on preliminary findings by this Court supporting preliminary injunctions and on improper inferences due to Mr. Goldstein's invocation of his Fifth Amendment right not to incriminate himself. None of these, solely or together, provides independent evidence of fraud or wrongdoing by Mr. Goldstein. 1. Plaintiffs Fail to Prove the Elements of Fraud The Motion moves for judgment on the tenth claim, constructive trust. Constructive trust is merely a remedy, but the Motion fails to identify the underlying substantive cause of action found in the Complaint upon which the remedy would be granted. Plaintiffs do not identify the

9886\1\956705.7

10

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 11 of 31

elements of the claim, much less cite to the evidentiary record where these (unidentified) elements are supposedly established. These failures alone should defeat the Motion. Celotex, 477 U.S. at 323; see, e.g., Paoloni v. Goldstein, 331 F.Supp. 2d 1310, 1312-13 (D. Colo. 2004) (court found fraud before imposing constructive trust). Plaintiffs claim fraud by Mr. Goldstein, and to prove that Mr. Goldstein committed fraud, Plaintiffs must show: a. b. Mr. Goldstein made a false representation; The representation was material;

c. Mr. Goldstein made the representation knowing it to be false or was aware that he did not know whether it was true or false; d. Mr. Goldstein made the representation with the intent that Plaintiffs would rely on the representation; e. f. g. Each Plaintiff relied on Mr. Goldstein's representation; As to each Plaintiff, that reliance was justified; and As a result, each Plaintiff suffered damages.

See Restatement (2d) of Torts §§ 525-526 (1977); see also CJI-Civ. 4th 19:1 (2003).1 Nowhere have Plaintiffs identified in the record a single specific fact to prove any of the elements of fraud. See Celotex, 477 U.S. at 323. They have not identified any fraudulent statement by Mr. Goldstein, much less any evidence supporting a finding of intent by Mr. Goldstein with respect to any statements. They have also failed to identify any statement that was material. Plaintiffs provide no evidence of any kind that they (or their assignors) justifiably relied on those statements. Plaintiffs fail to prove that Mr. Goldstein was the legal cause of that loss. See Restatement (Second) of Torts § 548A. Moreover, Plaintiffs' "proof" of
1

Not only have Plaintiffs failed to cite factual support for fraud, they have failed to provide the legal standard or appropriate jurisdiction for their allegations of fraud. See Hill v. Kinzler (In re Foster), 275 F.3d 924, 926 (1012 Cir. 2001) (state law determines whether constructive trust should be imposed). All but one of the Plaintiffs reside outside of Colorado and most likely have no connection to Colorado. (See Complaint at ¶¶ 11-38).

9886\1\956705.7

11

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 12 of 31

damages is entirely conclusory as it is based solely on the allegation that purchasers of viatical contracts are owed money. (See Memorandum at 9; Affidavit of Rocky K. Smith in Support of Motion for Summary Judgment against James Goldstein (attached to the Motion) at ¶ 6). The fact that purchasers have not been paid might be a basis for a breach of contract action, but it is no basis for a claim of fraud or the remedy of constructive trust. See Tekinsight.com, Inc. v Stylesight Mktg., Inc. (In re Stylesight Mktg., Inc.), 253 B.R. 503, 507-08 (Bankr. S.D.N.Y. 2000). Plaintiffs' argument with respect to tracing suffers from similar problems. Whatever the facts are with respect to disposition of Mr. Goldstein's assets, Plaintiffs' tracing of these proceeds is based entirely on impermissible inferences based on unproven fraud and other alleged wrongdoing. This wholesale reliance on inference cannot be the basis for summary judgment. See Celotex, 477 U.S. at 323. Summary judgment is typically unsuitable to a fraud claim. See Poller, 368 U.S. at 473. That is particularly the case here, where Plaintiffs bear the underlying burden to affirmatively prove the elements. 2. Mr. Goldstein's Invocation of His Fifth Amendment Rights Cannot Establish Fraud

Plaintiffs represent, inter alia, the "facts" listed below to be "undisputed." Characterization of these allegations as "undisputed" is essential to Plaintiffs' request for judgment as a matter of law: a. contracts; Mr. Goldstein was an "active participant" in "the scheme" to sell viatical

b. Mr. Goldstein was an officer, director, or shareholder of DLG Corporation; c. Mr. Goldstein received money from the sale of viatical settlements by DLG Corporation; 12

9886\1\956705.7

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 13 of 31

d. Enterprises;

Mr. Goldstein was an officer, director, or shareholder of JDT Group

e. JDT Group Enterprises was established to hide and conceal monies from the sale of viatical settlements; f. Mr. Goldstein received money from the sale of viatical settlements by JDT Group Enterprises; g. Mr. Goldstein participated in the purchase of an office building;

h. Mr. Goldstein used monies from the sale of viatical contracts to purchase the office building; i. Mr. Goldstein received money from the sale of the office building; and

j. Mr. Goldstein, along with his father and Lee Twyford, purchased an office building with proceeds from the fraudulent sale of viatical settlements. (Plaintiffs' Statement of Facts at ¶¶ 1, 5-7, 9-11, 13-15, 31). Plaintiffs' characterization of those allegations as "undisputed" is without support. Although one would never know it from Plaintiffs' description of the evidence, Mr. Goldstein has never admitted, nor does he admit now, these allegedly "undisputed" facts. Nor have Plaintiffs provided evidence sufficient to support a finding of these facts, much less to support judgment as a matter of law. Instead, Plaintiffs rely entirely on Mr. Goldstein's prior invocation of his Fifth Amendment rights. Such reliance is improper. It is well established that a trier of fact may not render judgment merely on the basis of a party's invocation of the Fifth Amendment right not to self-incriminate. See, e.g., Baxter v. Palmigiano, 425 U.S. 308, 317 (1976). Invocation of the Fifth Amendment right gives rise to a permissible inference, nothing more. See id. The rule applies with force to an attempt to establish the existence of an undisputed material fact in summary judgment where the moving party's burden is even higher: At the summary judgment level, again the rules are clear. The movant first must establish all the elements of his case based on his pleading, depositions, affidavits, interrogatories and other admissible exhibits, without regard to the quantity or quality of the adverse
9886\1\956705.7

13

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 14 of 31

party's response. A court may not draw inferences to fill in the gaps of the movant's case. To do so in the instant case specifically because the adverse party has chosen to rely on the Fifth Amendment would abrogate a fundamental constitutional right. ... Consequently, we must first review the government's case only on the basis of those exhibits which have accompanied this motion and the alleged debtors' motion in opposition, without reference to the alleged debtors' invocation of the Fifth Amendment. Only if the United States is able to establish that there is no genuine issue as to any material fact from the basis of the evidence submitted in compliance with Rule 56, can we then consider whether adverse inferences indeed are appropriate. In re Caucus Distribs., Inc., 83 B.R. 921, 926 (Bankr. D. Va. 1988) (citations omitted); accord Rockwood Computer Corp. v. Morris, 94 F.R.D. 64, 67 (E.D.N.Y. 1982). Because Plaintiffs cannot establish these facts, including Mr. Goldstein's alleged "active participation" in a fraudulent "scheme," (Plaintiffs' Statement of Facts at ¶ 1), without relying on an inference impermissible in summary judgment, the Motion must fail on that basis alone. See Prochaska, 632 F.2d at 851. Plaintiffs have failed to show absence of material undisputed facts as to the most basic elements of their claim of fraud. 3. Reliance on Evidence That Formed the Basis of the Preliminary Injunction Is Not a Proper Basis to Grant Summary Judgment Plaintiffs also rely on evidence they obtained and produced to the Court with respect to their various requests for preliminary injunction and the Court's findings ­ which Plaintiffs never specifically identify ­ with respect to those injunctions. Of course, Plaintiffs may not rely upon this Court's findings with respect to the Preliminary Injunctions as they are effective only "to the extent they support the granting or denial of interlocutory relief there in issue" because of the distinction between preliminary and permanent relief. National Labor Relations Bd. v. Acker Indus., Inc., 460 F.2d 649, 652 (10th Cir. 1972); see Mayo v. Lakeland Highlands Canning Co., 309 U.S. 310, 316 (1940) (question before court in considering preliminary injunction to enjoin

9886\1\956705.7

14

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 15 of 31

enforcement of statute was not whether statute was unconstitutional, but whether plaintiff raised serious questions and whether enforcement would inflict irreparable harm). A hearing on a preliminary injunction is limited in scope and purpose, and "is not intended to determine which litigant should ultimately prevail." Mayo, 309 U.S. at 316; see 11A Wright, Miller, Kane, Federal Practice and Procedure 2d § 2950 at 247 and 249. Final judgment "can only be granted after a full hearing and specific findings by the trier of fact whether this be by the jury or by the court." Boise Cascade Int'l, Inc. v. Northern Minn. Pulpwood Producers Ass'n, 294 F.Supp. 1015, 1017 (D. Minn. 1968). Thus, to grant summary judgment based only on evidence put forth to establish preliminary relief is prohibited: No plaintiff is required to prove his case on the merits at a preliminary hearing. The argument, after such a hearing on an equity issue, that no genuine issue of fact is disclosed is fallacious. If summary judgment is appropriate on this ground after a preliminary hearing only, then the preliminary hearing becomes in fact a trial on the merits and its whole purpose is lost. In granting summary judgment at this stage of the proceeding, the trial court denied plaintiffs their right to a trial by jury on Count III. . . . [Summary judgment] cannot be invoked to deprive litigants of their right to trial by jury if there remain genuine issues of material fact to be tried. While the district court heard considerable evidence, a final hearing on the merits did not take place. It was in the main limited to the issues of equitable relief. In its holdings the trial court should have confined itself to those issues. Progress Dev. Corp. v. Mitchell, 286 F.2d 222, 233-234 (7th Cir. 1961) (citations omitted). Plaintiffs' claim that the Court's preliminary findings are "law of the case" is meritless and contrary to settled law. (See Plaintiffs' Statement of Facts at 2). As against Mr. Goldstein, this case has never advanced beyond the preliminary stage. Mr. Goldstein has not filed an answer to the Second Amended Complaint, and all of Plaintiffs' actions with respect to Mr. Goldstein have been to obtain or enforce preliminary injunctive relief or the Colorado Settlement. Mr. Goldstein is not a party to various stipulated scheduling and discovery orders. (See, e.g., Consolidated Stipulated and Scheduling Order (Docket #650)). Indeed, the 2004

9886\1\956705.7

15

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 16 of 31

Injunction was entered on virtually no notice and without Mr. Goldstein's participation. Now, despite a settlement of claims against him, and without the benefit of discovery, Mr. Goldstein is forced to defend himself against evidence obtained for different purposes and without the right to have disputed factual issues tried to a jury. In granting summary judgment on an equitable remedy which is based on the legal remedy of fraud or other wrongdoing, Mr. Goldstein's right to a jury trial of legal issues would be lost through the prior determination of an equitable claim. See Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 510-511 (1959). "The crucial point is that the court's findings of fact on a preliminary-injunction hearing will not infringe the right to a jury trial on those issues." 11A Wright, Miller, Kane, Federal Practice and Procedure 2d § 2950 at 251-52. If summary judgment is granted on the, at best, thin evidence (most of which was produced for purposes of a preliminary injunction) promulgated by Plaintiffs, Mr. Goldstein will be deprived of his right to a jury trial. D. Plaintiffs Are Bound By the Colorado Settlement Lost among the plenitude of motions, hearings, and preliminary injunctions is the fact that the Colorado Settlement remains an order of this Court. An agreement addressing and resolving prior claims acts as an accord and satisfaction and discharges all prior obligations. See Singer Housing Co. v. Seven Lakes Venture, 466 F.Supp. 369, 377 (D. Colo. 1979). By seeking enforcement of the Colorado Settlement in 2002, Plaintiffs elected the remedy of enforcement, rather than rescission, of that agreement. See Kennedy v. Gilliam Dev. Corp., 80 P.3d 927, 930 (Colo. App. 2003) (rescission of contract and enforcement of a provision of the same contract are inconsistent remedies that cannot both be enforced). Plaintiffs' only remedy available, therefore, was an action for breach of the Colorado Settlement. Caldwell v. Armstrong, 642 P.2d 47, 49

9886\1\956705.7

16

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 17 of 31

(Colo. App. 1981). Plaintiffs have not made such a claim; the claim is subject to Mr. Goldstein's discharge in bankruptcy; and constructive trust would not be an available remedy if Plaintiffs properly did seek enforcement of the Colorado Settlement. See In re Stylesight Mktg., Inc., 253 B.R. at 507-08. It is well settled that a party may not reinstitute a lawsuit after settling a claim. See, e.g., Chicago, Milwaukee & St. Paul Ry. Co., 178 U.S. 353, 369 (1900). "[O]ne who agrees to settle his claim cannot subsequently seek both the benefit of the settlement and the opportunity to continue to press the claim he agreed to settle." Kirby v. Dole, 736 F.2d 661, 664 (11th Cir. 1984). Kirby is instructive. In Kirby, the parties entered into a settlement agreement after the plaintiff had filed a complaint with the Equal Employment Opportunity Commission. The agreement required that the defendant take certain actions and that the plaintiff withdraw his complaint, which he did. If the defendant breached the settlement agreement, it was to reinstate the complaint upon written request from the plaintiff. The defendant breached the settlement agreement, but rather than merely request that the defendant reinstitute the complaint, the plaintiff also filed a complaint to enforce the settlement agreement. Id. at 663-64. The court granted summary judgment for the defendant, stating that the plaintiff's "decision to invoke the term of the settlement agreement that permitted him to reinstate his original claim necessarily involved a decision to forego whatever other remedies might have been available to him had he sued on the settlement agreement without reinstating his complaint." Id. at 664. So it is here. Plaintiffs continue to seek the benefit of the Colorado Settlement, in which Mr. Goldstein agreed to make certain payments and perform other obligations in full satisfaction of any potential liability (which he explicitly denied); but they also seek inconsistent claims for

9886\1\956705.7

17

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 18 of 31

constructive trust and equitable lien. No provision of the Colorado Settlement or an order of this Court or the Bankruptcy Court permits Plaintiffs to prosecute their claims against Mr. Goldstein in this manner. The Colorado Settlement waived fraud claims, which necessarily precludes imposition of remedies like constructive trust based upon an allegation of fraud. E. Material Issues of Fact Exist or Must Be Investigated With Respect to the Propriety of the Investors' Assignment of Claims to Plaintiffs 1. Mr. Goldstein Should Be Permitted to Investigate the Assignments and the Circumstances Concerning Their Execution Plaintiffs do not directly hold claims against Mr. Goldstein or other Defendants, but pursuant to hundreds of Assignments of Claims and Tolling Agreements (the "Assignments," a sample form of which is attached as Exhibit H-1), are assignees of claims held by purchasers (the "Investors") of viatical settlement agreements sold by Plaintiffs in programs operated by certain Defendants.2 (Complaint at ¶¶ 11-38 and Exhibits A-BB). Because of the stay ordered by this Court, Mr. Goldstein has not yet been provided the opportunity to investigate the circumstances surrounding the Assignments. See Fed. R. Civ. Pro. 56(f). Plaintiffs only recently provided copies of the Assignments, and Mr. Goldstein has not yet been permitted to investigate their authenticity, whether all of the Assignments have, in fact, been executed, and the circumstances surrounding their execution, including any representations or statements each Plaintiff made to an Investor who executed an Assignment. See National Adver. Co. v. Sayers, 356 P.2d 483, 483 (Colo. 1960). The Assignments raise material issues Plaintiffs would have the Court erroneously ignore. For instance, in Georgia, where at least one Plaintiff is incorporated, (see Complaint at ¶ 20), fraud claims may not be assigned. Ga. Code Ann. § 44-12-24. Moreover, while it appears that consideration for the Assignments might have been adequate under Colorado law if it
2

Three Plaintiffs are not assignees, but bring claims in their own name. (See Complaint at ¶¶ 21, 30, and 32).

9886\1\956705.7

18

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 19 of 31

applies,3 see Bankers Trust Co. v. International Trust Co., 113 P.2d 656, 662 (Colo. 1941), that might not be the case in other jurisdictions. See Heoppner Constr. Co. v. United States, 287 F.2d 108, 111 (10th Cir. 1960) (validity of assignment determined by state law). Each Assignment, by its terms, can vary in its applicable law depending on the jurisdiction in which each Investor resides. (See Exhibit I-1, which includes three Assignments with different applicable law). Mr. Goldstein should be permitted to investigate whether the choice of law is appropriate and whether each Assignment is enforceable in its selected jurisdiction. (Pankow Affidavit at ¶¶ 4 and 6). Summary judgment before discovery has commenced should not foreclose Mr. Goldstein from investigating these substantial factual issues. Mr. Goldstein notes that the Court previously considered the effectiveness of the Assignments in this case. (See Memorandum Opinion and Order dated May 22, 2001 (Docket #66)). The Court's ruling in that regard should not be misconstrued. The Court's analysis of the assignability of fraud claims was in response to a Rule 12 motion, and its denial of the motion to dismiss challenging the Assignments was expressly predicated upon the high standards for a motion to dismiss. The Court acknowledged that the issue may be raised again at trial or summary judgment. (Id. at 5-7). Nothing in the Court's previous order resolves the issues or excuses Plaintiffs' burden of proof in this regard. 2. Plaintiffs Are Subject to the Defense of In Pari Delicto Plaintiffs, as brokers, are the individuals who actually sold viatical settlements to the Investors. Mr. Goldstein did not have privity with Investors; certainly nothing in the record supports a finding that Mr. Goldstein did.. If fraudulent statements were made in these sales, they came out of the mouths of Plaintiffs. Plaintiffs' admitted participation in the alleged fraud renders them subject to the equitable defense of in pari delicto. At the very least, Mr. Goldstein
3

Mr. Goldstein reserves his rights in this regard.

9886\1\956705.7

19

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 20 of 31

should be afforded an opportunity to develop this defense through discovery. See Fed. R. Civ. Pro. 56(f). The doctrine of in pari delicto is rooted in the common-law notion that a plaintiff may not recover from his own wrongful conduct. Modern courts apply the defense to any instance in which the "plaintiff has participated in some of the same sort of wrongdoing as the defendant." Pinter v. Dahl, 486 U.S. 622, 632 (1988). This same principle is found in the common law rule that contribution or indemnity may not be had between joint tortfeasors. See, e.g., Kansas City Oper. Corp. v. Durwood, 278 F.2d 354, 358-59 (8th Cir. 1960). The facts of Sherwood & Roberts--Yakima, Inc. v. Leach, 409 P.2d 160, 161-64 (Wash. 1965), where the court applied the doctrine of in pari delicto, are similar to the facts alleged by Plaintiffs. In Leach, consumers purchased an alarm system from a company known as Lifetone. As part of the transaction, the parties would execute a commission agreement, by which the consumer would furnish Lifetone a list of prospective purchasers and in return the consumer would receive a commission. The consumer defendants purchased such a system and provided referrals, but never received a commission. The defendants and Lifetone sold the sale contract for the alarm system to the plaintiff for financing. The plaintiff was fully aware of Lifetone's general operation and had agreed in the past to finance such contracts. The plaintiff sued the defendants for failure to pay the sale contract. The defendants claimed, inter alia, that the plaintiff was in pari delicto with Lifetone and so could not enforce the sale contract. Id. at 161. The court found that, even though the plaintiff was not a party to the original sale transaction and did not have knowledge of the transaction until after the agreements were made, the plaintiff was in pari delicto with the defendants and could not enforce the sale contract, even if the plaintiff was innocent of any wrongdoing:

9886\1\956705.7

20

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 21 of 31

[B]efore Lifetone made any sales, it contacted [the plaintiff] and explained the selling scheme. [The plaintiff] agreed to finance the contracts. In fact, Lifetone and [the defendants] agreed at the time of contracting that the conditional sale contract would be assigned to [the plaintiff]. It is hard to see that [the plaintiff] is not in pari delicto with [the defendants]; it was knowingly an integral part of the referral-selling scheme. This fact substantially outweighs any innocence that may be otherwise evidenced by the facts that [the plaintiff] was not a formal party to the sale contract and that [the plaintiff] did not have knowledge of this particular transaction at the time of contracting. Id. at 638; cf. Jacobs v. Universal Dev. Corp., 62 Cal.Rptr.2d. 446, 450 (Cal. App. 1997) (in pari delicto may preclude employee from enforcing illegal contract with employer). The Complaint, on its face, implicates in pari delicto with Mr. Goldstein and the other Defendants, regardless of Plaintiffs' actual knowledge of the alleged fraud. For example, each Plaintiff admits to participating in the "scheme": From approximately July, 1997 through January, 1998, . . . J. Goldstein . . . distributed multiple copies of the Edited Video to Plaintiffs and others to use to sell viatical settlement contract. . . . ... The Plaintiffs relied upon the accuracy of the information contained in the ABG glossy brochure the UFC-ABG booklet, and verbal misrepresentations of . . . J. Goldstein . . . in selling viatical settlement contracts. . . . (Complaint at ¶¶ 98 and 100). Thus, the Complaint itself raises the defense of in pari delicto, and Mr. Goldstein should be permitted to investigate Plaintiffs' actions and representations in selling viatical contracts. See Official Committee of the Unsecured Creditors of Color Tile, Inc. v. Coopers & Lybrand, LLP, 322 F.3d 147, 163-64 (2d Cir. 2003) (complaint implicated defense of in pari delicto). Applicability of the doctrine becomes even stronger based upon the sparse record established to date. As brokers, Plaintiffs received substantial commissions on sales to the Investors. A reasonable inference from the fact is that Plaintiffs had ample motive to bend the truth. Plaintiffs orchestrated the message to the Investors. Plaintiffs, indeed, sold competing viatical products, based upon brochures from various providers. Plaintiffs shared with Investors 21

9886\1\956705.7

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 22 of 31

what they, alone chose to share. Mr. Goldstein should be permitted to investigate these statements as part of the evidentiary record. (Pankow Affidavit at ¶ 7). The record supports a finding of not only active conduct by Plaintiffs in the sale of viatical settlements, but also a finding of misconduct by Plaintiffs. In September 2003, the Department of Financial Institutions for the State of Washington found that Plaintiffs Great Northern Financial Services, Inc., Anthony Horpel, and Larry Johnson violated various Washington securities laws in selling viatical settlements provided by, inter alia, certain Reliance Defendants. (See In re Combined Agency, Inc. et al., S-02-271-03-SC01, Statement of Charges and Notice of Intention to Enter Order to Cease and Desist (the Washington Securities Order," a copy of which is attached as Exhibit J-1) at 9-11, 18-19). The Washington Securities Order found that these three Plaintiffs made misrepresentations and omissions in selling such viatical settlements to investors. (Id. at 14-16). The Washington Securities Order fined these Plaintiffs and ordered Great Financial Services, Inc.'s broker-dealer license to be revoked, suspended or conditioned. (Id. at 19-22). Mr. Goldstein has recently discovered that the Kansas Commissioner of Insurance revoked the insurance agent license of Plaintiff Patsy Schmidt and that the Kansas Securities Commissioner fined her $10,000 for dishonest and unethical conduct. (See Final Order entered in In the Matter of Kansas Resident Insurance Agent's Licenses of John M. Schmidt and Patsy L. Schmidt, Docket Nos. 3138-JO and 3139-JO, a copy of which is attached as Exhibit K-1). Mr. Goldstein should be permitted to investigate the relationship of these findings to Plaintiffs' allegations in this case. (Pankow Affidavit at ¶ 7). The first-captioned Plaintiff, Dominick Paoloni, testified that he showed investors a videotape provided by certain Defendants of a 60 Minutes segment on viatical contracts that

9886\1\956705.7

22

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 23 of 31

allegedly deleted unfavorable material. (See Hearing on Motions, Transcript of Proceedings, May 24, 2001, relevant pages of which are attached as Exhibit L-1 (Docket #80) at 10:24-13:3). Recognition of this inconvenient (for Plaintiffs) fact is found in the Assignments themselves. For instance, the form provided to Mr. Goldstein's counsel states: The Investor and Representative [i.e., Plaintiffs] acknowledge that Investor may have claims against the Representative for losses or potential losses resulting from Investor's purchase of viatical settlement contracts presented to Investor by Representative. (See Exhibit H-1 at ¶ 9). Thus, there are, even on the record so far with no opportunity for discovery, disputed material facts with regard to Mr. Goldstein's defense of in pari delicto. At the least, Mr. Goldstein should be permitted additional discovery on this issue. (See Pankow Affidavit at ¶ 7). F. The Bankruptcy Settlement Agreement and Discharge Preclude Plaintiffs' Assertion of Constructive Trust 1. Plaintiffs Seek Relief on an Alleged "Personal Liability" of Mr. Goldstein in Violation of His Bankruptcy Discharge Mr. Goldstein has received his discharge in the bankruptcy case, which has not been revoked. (Exhibit A-1.) The effect of the discharge is governed by Bankruptcy Code § 524. Bankruptcy Code § 524(a)(2) provides that a discharge: operates as an injunction against the commencement or continuance of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived. On its face, the attempt by Plaintiffs to force Mr. Goldstein to pay them money violates the bankruptcy discharge. In an attempt to circumvent the discharge, Plaintiffs compare the relief they seek to enforcement of a lien, invoking the rule that a creditor's lien in collateral survives a debtor's

9886\1\956705.7

23

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 24 of 31

discharge in bankruptcy. For instance, in Chandler Bank of Lyons v. Ray, 804 F.2d. 577, 578 (10th Cir. 1986), the 10th Circuit reviewed statutory language and legislative history and concluded, like other courts, that, an in rem action on a secured claim survives the bankruptcy. For example, a mortgagee may foreclose its lien after the mortgagor receives a bankruptcy discharge. "[T]he injunction on discharge under § 524 of the Code does not preclude in rem action by secured creditors." Id. In such an instance, the foreclosing creditor would still be precluded from seeking a deficiency judgment or similar relief establishing personal liability. The Supreme Court made clear the in rem exception to discharge recognized in Chandler Bank: "[A] bankruptcy discharge extinguishes only one mode of enforcing a claim ­ namely an action against the debtor in personam ­ while leaving intact another ­ namely an action against the debtor in rem." Johnson v. Home State Bank, 501 U.S. 78, 85 (1991). The Plaintiffs' constructive trust claim may proceed despite Mr. Goldstein's discharge only if a constructive trust claim is in rem. A constructive trust, however, is not in rem: A constructive trust need not apply to a specific res. Rather, a successful constructive trust plaintiff wins an in personam order requiring the defendant to transfer a like value of property in some form to the plaintiff. Lyons v. Jefferson Bank and Trust, 781 F.Supp. 1525, 1530 (D. Colo. 1992) (citing In re Marriage of Allen, 724 P.2d 651, 657 (Colo. 1986)), aff'd in part, rev'd on other grounds, 994 F.2d 716 (10th Cir. 1993). Indeed, "the purpose of [constructive trust] is to prevent the defendant from being unjustly enriched at the plaintiff's expense." Allen, 724 P.2d at 657. Plaintiffs' own arguments cut against characterization of a constructive trust as an in rem right. (See Memorandum at 13 ("Plaintiffs are not required to strictly trace funds or property to whom the trust property was transferred.")).

9886\1\956705.7

24

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 25 of 31

Plaintiffs' assertions against Mr. Goldstein fall squarely into the Bankruptcy Code definition of a claim dischargeable in bankruptcy. See 11 U.S.C. § 101(5) (claim includes any "right to payment" or "right to an equitable remedy for breach . . . if such breach give rise to a right to payment."). And while a constructive trust is an equitable remedy, an equitable right is a "claim" in bankruptcy, and thus dischargable, if payment of a monetary remedy is an alternative, as is the case here. See In re Stylesight Mktg., Inc., 253 B.R. at 511. Plaintiffs, unquestionably, have asserted a right to payment against Mr. Goldstein, and the equitable remedy of a constructive trust is as much a claim as the asserted right of payment itself. 11 U.S.C. § 101(5)(B). The right was discharged in Mr. Goldstein's bankruptcy. 11 U.S.C. §§ 101(12) and 524(a)(2). Recognition of the nature of the constructive trust remedy, when compared with Bankruptcy Code § 524's plain language, as interpreted by both the 10th Circuit and the United States Supreme Court, makes clear that a right to a constructive trust, whatever its other limitations or attributes, does not survive a bankruptcy discharge. For these reasons, the Court need not address other fundamental problems with Plaintiff's assertion of a constructive trust. For instance, it is an open question in the 10th Circuit whether a constructive trust may even be recognized in bankruptcy at all. See In re Foster, 275 F.3d at 927 n.2. Recognition of the effect of the bankruptcy discharge here in no way leads to an inequitable result. In fact, Plaintiffs bargained for the result. Most circumstances that give rise to a constructive trust would also give rise to an exception to discharge. See, e.g., 11 U.S.C. § 523(a)(2) (debt arising from "actual fraud") and (a)(4) ("for fraud or defalcation while acting in a fiduciary capacity, embezzlement or larceny"); XL/Datacomp, Inc. v Wilson (In re Omegas Group, Inc.), 16 F.3d 1443, 1451 (6th Cir. 1994) (proper remedy for fraud in bankruptcy is to

9886\1\956705.7

25

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 26 of 31

except debt from discharge). Here, however, Plaintiffs expressly and for substantial consideration bargained away the right to seek relief under 11 U.S.C. § 523. (Plaintiff-Trustee Settlement at ¶ 49). Having received the benefits, Plaintiffs cannot ignore the consequence of the bargain they struck. 2. Prior Bankruptcy Settlements Further Preclude the Relief Sought in the Motion A tax refund for pre-petition activities ­ which is at issue in the Motion ­ would plainly be property of Mr. Goldstein's bankruptcy estate unless it were exempt or otherwise challenged under Bankruptcy Code § 522. 11 U.S.C. § 541(a). Mr. Goldstein did not claim an exemption under Bankruptcy Code § 522, and in any case Plaintiffs bargained away their rights to object to those exemptions. (Plaintiff-Trustee Settlement at ¶ 49). Thus, the tax refund in question was clearly property of the estate, subject to the bankruptcy trustee's right to dispose of it. See 11 U.S.C. § 363(b). The trustee exercised such power in this instance through the Trustee-Goldstein Settlement, which contains detailed, negotiated provisions for disposition of the precise tax refund at issue here. The Trustee-Goldstein Settlement was approved by the Bankruptcy Court. Plaintiffs never challenged the Trustee's authority to dispose of the Tax Refund in the TrusteeGoldstein Settlement or the fairness of the settlement. Now, however, they seek to turn those detailed provisions on their head. This they cannot do. "Generally, court approved settlements receive the same res judicata effect as litigated judgments." Hoxworth v. Blinder, 74 F.3d 205, 208 (10th Cir. 1996). Moreover, "under res judicata, a final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action." Id. If Plaintiffs intended to challenge the Trustee's authority to dispose of the Tax Refund pursuant to the Trustee-Goldstein Settlement, they could have and should have challenged that agreement. They did not. The Bankruptcy Court explicitly ordered disposition of those funds. Thus, Plaintiffs' attempt to
9886\1\956705.7

26

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 27 of 31

circumvent the effect of the Trustee-Goldstein Settlement with a constructive trust theory must fail. Plaintiffs ignore entirely issues they raised in previous filings in respect of the Tax Refund. Plaintiffs conceded, as they must, that the Trustee conveyed all right, title and interest of the estate in the Tax Refund to Mr. Goldstein in exchange for other valuable consideration. (See Emergency Motion for Issuance of Amended Preliminary Injunction to Jamie Goldstein ("2004 Injunction Motion") (Docket # 700) at ¶ 16). Plaintiffs did not deny that the Trustee was entirely within his authority, subject to Bankruptcy Court approval, in conveying his interest in the Tax Refund as part of the Trustee-Goldstein Settlement. Nor did Plaintiffs contest that the Bankruptcy Court exercised proper jurisdiction over the matter and approved the TrusteeGoldstein Settlement after due notice to all creditors, including Plaintiffs. On its face, Plaintiffs' argument would render the Trustee's core conveyance to Mr. Goldstein empty because if Plaintiffs are correct, the Trustee had no equitable interest in the Tax Refund. See 11 U.S.C. § 541(d). Every conveyance has some basic warranty of title, even if not entirely free and clear of liens or encumbrances. Moreover, Plaintiffs' argument begs the question why "free and clear" language was not included in the settlement. The answer is found in the Plaintiff-Trustee Settlement. There, Plaintiffs waived all claims against the estate. (Plaintiff-Trustee Settlement at ¶ 50). The Tax Refund having been property of the estate, there can be no doubt that Plaintiffs had previously waived their claims to the Tax Refund in the Plaintiff-Trustee Settlement. Accordingly, the lien or claim had already been extinguished by the time the Trustee-Goldstein Settlement was executed and approved. Plaintiffs' own conduct in respect of the Tax Refund confirms this interpretation of the agreements. In December 2004, Plaintiffs fully acknowledged that their claim to the Tax Refund

9886\1\956705.7

27

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 28 of 31

was dependent upon revocation of Mr. Goldstein's discharge. (See 2004 Injunction Motion at ¶ 16). This conduct after execution of the contract is highly relevant to its interpretation and precludes entry of summary judgment in Plaintiffs' favor. See Hibiscus Assocs. Ltd. v. Board of Trustees, 50 F.3d 908, 919 (11th Cir. 1995) (applying Florida law). G. Plaintiffs' Recent Settlement with the Trustee Highlights the Error and Unfairness of Granting Summary Judgment The funds at issue here are the subject of a competing claim by Mr. Goldstein's bankruptcy trustee. Plaintiffs recognized this in their original motion by noting that the Trustee may assert a claim to the Net Tax Refund in the Bankruptcy Court. (Memorandum at 15). On March 7, 2006, Plaintiffs and the trustee filed a settlement agreement with the bankruptcy court in Mr. Goldstein's case. (See Exhibit M-1). This agreement highlights the error and unfairness to the relief sought here. Interestingly, the settlement does not resolve the competing claims of Plaintiffs and the Trustee. To the contrary, it provides for a payment to Plaintiffs by the Trustee ­ but only if Plaintiffs win on this Motion. (Exhibit M-1). The agreement would have no effect even if, hypothetically, the claims at issue here were to proceed to trial and Plaintiffs won. The agreement "sets forth the entire understanding" of the parties (id. at ¶ 4), but nowhere does it purport to represent a full and final settlement of the Trustee's and Plaintiffs' competing claims. Indeed, paragraph 3 of the settlement agreement further reserves the Trustee's rights and says: This paragraph shall not, however, preclude the Trustee from asserting right or entitlement to any such monies and/or assets on the bases that such monies and/or assets identified as being subject to a constructive trust and/or recovered by VAI and/or the Paoloni Plaintiff are otherwise bankruptcy estate property. This is not a settlement as much as an attempt to circumvent a just determination of ownership. One effect of the settlement would be payment of money proceeds from an asset that

9886\1\956705.7

28

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 29 of 31

the Trustee clearly bargained away ­ while denying Mr. Goldstein his "day in court" on the effect of the agreement. Moreover, Mr. Goldstein should be an indispensable party to any determination as to property that he owns. See Fed. R. Civ. Pro. 19(a)(2). But by seeking a constructive trust upon the Net Tax Refund in this Court, while the Trustee seeks to enforce his rights to the Net Tax Refund in the Bankruptcy Court, Plaintiffs ensure that Mr. Goldstein will be "whipsawed" between two courts; indeed, Mr. Goldstein has already endured that experience to a large extent since late 2004. "When a particular fund or property right is involved in litigation, federal courts must be especially sensitive to the danger of contradictory judicial orders relating to that fund or right." 7 Wright, Miller, Kane, Federal Practice and Procedure 2d § 1618 at 274-75. All issues germane to the Net Tax Refund should be decided in toto and in one court. IV. CONCLUSION For the reasons set forth above, Mr. Goldstein requests that the Court deny the Motion or in the alternative, defer consideration of the Motion consistent with a reasonable discovery schedule to be determined after a scheduling conference. Mr. Goldstein further requests such other relief as may be just and equitable. Respectfully submitted this 10th day of March, 2006. BROWNSTEIN HYATT & FARBER, P.C.

By:

s/ Michael J. Pankow Michael J. Pankow, #21212 Daniel J. Garfield, #26054 410 Seventeenth Street, 22nd Floor Denver, CO 80202 Ph: 303.223.1100 Fax: 303.223.1111 Email: [email protected] [email protected]

9886\1\956705.7

29

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 30 of 31

CERTIFICATE OF SERVICE I hereby certify that on this 10th day of March, 2006, a true and correct copy of the foregoing PARTIAL RESPONSE TO MOTION FOR SUMMARY JUDGMENT AND REQUEST FOR CONTINUANCE PURSUANT TO RULE 56(f) was served via U.S. mail, upon the following: Robert A. Dill, Esq. (via facsimile 303-7773823 and mail) John A. Hutchings, Esq. Dill, Dill, Stonbraker & Hutchings, PC 455 Sherman Street #300 Denver, CO 80203 Dale R. Harris, Esq. Davis, Graham & Stubbs, LLP 1550 Seventeenth Street, Suite 500 Denver, CO 80202 Larry K. Griffis, Esq. Jaffe, Raitt, Heuer & Weiss, PC One Woodard Avenue #2400 Detroit, MI 48226 Edward H. Widmann, Esq. Mark W. Nelson, Esq. Hall & Evans, LLC 1125 17th Street, Suite 600 Denver, CO 80202 William Benson, Esq. Benson, Mucci & Associates, LLP 5561 University Drive, Suite 102 Coral Springs, FL 33067 Brent R. Cohen, Esq. Rothgerber, Johnson & Lyons One Tabor Center, Suite 3000 1200 Seventeenth Street Denver, Colorado 80202-5855 Richard G. Doggett 1500 North Ocean Blvd., #404 Pompano Beach, Florida 33062

Scott E. Simowitz, Esq. Moskowitz, Mandell, Salim & Simowitz, PA 800 Corporate Drive #610 Fort Lauderdale, FL 33334 Richard D. Greengard, Esq. Isaacson, Rosenbaum, Woods & Levy, PC 633 17th Street #2200 Denver, CO 80202 Bruce I. Kravitz, Esq. Bruce I. Kravitz, P.A. 1870 Forest Hill Blvd. #211 West Palm Beach, FL 33406-6061

John P. Barbee, Trustee 333 17th Street, Suite K Vero Beach, FL 32960

Robert S. Harrison, Esq. Matthew D. Klakulak, Esq. Robert Harrison & Associates, PLC 240 East Merrill Street Birmingham, MI 48009-6106

9886\1\956705.7

Case 1:01-cv-00275-JLK

Document 804

Filed 03/10/2006

Page 31 of 31

Jonathan C. Oster, Esq. Oster & Martin, LLC 717 Seventeenth Street #1475 Denver, CO 80202 Charles P. Randall, Esq. 150 East Palmetto Park Road, #500 Boca Raton, FL 33432

Gary Hoskie Professional Consultants & Managers, Inc. 1706 Surfside Drive Hutchinson Island, FL 34949 C. Michael Montgomery, Esq. David C. Fawley, Esq. Montgomery, Kolodny, Amatuzio, Dusbabek & Parker, LLP 475 17th Street ­ 16th Floor Denver, CO 80202 Paul F. Hultin, Esq. Adam Goldstein, Esq. Wheeler Trigg Kennedy LLP 1801 California Street, Suite 3600 Denver, CO 80202-2617 Barbara L. Green, Esq. Richard K. Rediger, Esq. Katherine Harvey, Esq. Overturf & McGath, P.C. 625 East 16th Avenue #100 Denver, CO 80203 Robert McAllister, Esq. 455 Sherman Street #310 Denver, CO 80203-4404

Keith H. Rutman, Esq. Xelan Law Firm, LLP 701 B Street #1000 San Diego, CA 92101-8109

Richard Stuckey, Esq. 2150 West 29th Avenue #500 Denver, CO 80211

Thomas B. Quinn, Esq. Suzanna Wasito, Esq. White & Steele, P.C. 950 17th Street ­21st Floor Denver, CO 80202 Michael T. Stehle, Esq. 737 W. 5th Avenue, Suite 206 Anchorage, Alaska 99501

s/ Kris Rees

9886\1\956705.7