Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_20-cv-00807/USCOURTS-azd-2_20-cv-00807-1/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 15:77 Securities Fraud

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

William Margaritis,

Plaintiff,

v. 

Vast Mountain Development Incorporated, 

et al.,

Defendants.

No. CV-20-00807-PHX-DLR

ORDER 

Before the Court is Defendant’s motion for summary judgment.

1

(Doc. 69.) 

Summary judgment is appropriate when, viewing the facts in a light most favorable to the 

nonmoving party, 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). Summary judgment may also 

be entered “against a party who fails to make a showing sufficient to establish the existence 

of an element essential to that party’s case, and on which that party will bear the burden of 

proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Defendants seek 

summary judgment on Plaintiff’s remaining claims: Count One - securities fraud in 

violation of 15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5, Count Two – securities fraud 

in violation of A.R.S. § 44-1991, et seq., Count Three - common law fraud, Count Four -

breach of fiduciary duty, and Count Six - Negligent Misrepresentation. With the exception 

of Plaintiff’s breach of fiduciary duty claim, the Court finds genuine issues of material fact 

preclude entry of summary judgment.

1 Oral argument is denied because the issues are adequately briefed and oral 

argument will not help the Court resolve the motion. 

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I. Background

When ruling on a summary judgment motion, the Court must view the facts in the 

light most favorable to the nonmoving party. In doing so, the Court finds that in

approximatelyMay 2016, Defendant Michael Galvis, a “money raiser” for DefendantsJohn 

Owen and his company, Vast Mountain Development, Inc. (“VMD”), pitched an investment 

which involved extracting gold from the mine tailings of the old Congress Mine in Yavapai 

Arizona. They called their project the “Vast Mountain Development Congress Mine Gold 

& Silica Recycling Project” (the “Project”). In July 2016, Owen and Kevin Jones of Cardinal 

Resources (“Cardinal”) met with the Arizona Department of Environmental Quality 

(“ADEQ”) to discuss what permits would be required at different areas of the site. During that 

meeting and in a subsequent email to Owen, ADEQ made clear that VMD must assume 

responsibility for Republic Goldfields’ Individual Aquifer Protection permit (“APP”), 

develop a closure strategy for that permit, obtain approval for that closure strategy and then 

complete the closure before VMD could begin processing and extracting gold from the 

Republic Goldfields tailings. Though Jones believed the sand plant should be exempt from 

the APP, from July 2016 through at least September 4, 2018, Jones’ recommendation was

that VMD not begin construction of a gold leaching plant until the APP issue was resolved. 

VMD did not make any applications or proposals to ADEQ relating to the Republic 

Goldfields tailings between July 2016 and November 2017. 

In Fall 2016, Galvis arranged for Plaintiff to tour the Congress Mine, where he met 

Owen. During this visit, Owen showed Plaintiff a bar of gold, purportedly extracted from 

the Congress Mine tailings. Together, Owen and Galvis pitched Plaintiff on the Project, to 

extract and sell gold from the Congress Mine tailings. Defendants told Plaintiff that, if he 

invested in the Project, he would receive a “working interest” entitling him to a pro rata 

share of the Project’s production or revenues. Owen and Galvis told Plaintiff that he could 

take his pro rata share of the gold produced by the Project in the form of gold doré bars 

like the one Owen displayed to him. Owen and Galvis acknowledged that the Project would 

also produce silica sand, but as a byproduct of processing the tailings for gold. No one told 

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Plaintiff about the need for an APP or that Cardinal had recommended that VMD not begin 

construction of a gold leaching plant until the APP permit issue was resolved. 

After the mine tour, Owen sent Plaintiff a follow-up 30-page project memorandum 

(the “Sales Memo”) which contained the Plan of Operations for the Project. The Sales 

Memo provided information about the mine’s tailings, and a description of the then-current 

status of the Project. The Sales Memo’s cover prominently depicted a stack of 4 gold bars 

(and nothing else), the third page depicted the pouring of a gold doré bar (and nothing else), 

the fifth page depicted 3 gold bars (and nothing else), and the Project timeline on page 24 

depicted stacks of gold bars to represent the projected production during each of the 

Project’s 4 years. The Sales Memo’s text focused on the gold that the Project would 

produce, including by representing that investors will also have the option to take their 

share of the gold/silver in doré bars in lieu of cash. 

The Sales Memo also describes a plan to produce silica sand from the tailings, but 

not as a separate project or process. It represented that VMD would process tailings 

material just once – producing gold and silica simultaneously. It stated that VMD’s plant 

would “allow 90% recovery of gold and silver along with a silica washing system that can 

output over 91% pure silica, all in one single circuit. The idea is to handle the material once 

to output both high quality gold/silver and silica.” The Sales Memo projected that the 

Project would produce as much as $182 million in sales and $150 million in operating 

profit, a return on investment of 600%.

Defendants followed up their sales pitch to Plaintiff by sending him “Project 

Updates” indicating that the Project was well on its way to full commercial gold production. 

In a July 31, 2016 Update, Defendants claimed that the Project was on schedule to reach full

commercial operation in just over 5 months. The update stated that they would run the 100

ton per day plant for 30 days, accumulate data, and adjust the system as needed. From there

it would take VMD approximately 4 monthsto expand to 2000 tons per day production. The 

Update also included a diagram of the production process reflecting processing of gold

bearing solution.

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In a September 15, 2016 Update, Defendants stated that the VMD team was thrilled

to announce that the Congress Mine Gold and Silica Recycling Project officially kicked off

its first month of production and that because plant construction began in July 2016 they 

were ready to start processing and monetizing the high-value asset that isthe Congress Mine

tailings. The update represented that construction of the full-scale production plant would

begin in about 30 days and would be completed about 4 months after that, at which point

VMD would process 2,000 tons of tailings per day. The September 15 update depicted the

production process, including processed tailings ready to be transported to the leach vats to

leach out gold and silver and wash the silica.

Defendants sent updates on October 31 and December 13, 2016. Both updates

described modifications to the plant design but assured that leaching had begun and that 

modifications to the leaching system would continue, “as we are making gold” and further

modifications were being made “to achieve maximum gold recovery.”

The updates(1) presented gold production as a core part of the Project, (2)stated that

gold and silica production would occur simultaneously, not as alternatives to one another,

and (3) claimed that the Project wasso far along that it wasjust a few months away from fullscale production. In reliance on Owen’s and Galvis’ representations, including those in the 

Sales Memo and the Updates, on September 14, 2017, Plaintiff entered into a Working

Interest Purchase and Sale Agreement (the “Agreement”) wherein, he agreed to pay a total 

of $850,000 for a 3.4% working interest in the Project.

II. Breach of Fiduciary Duty

Defendants seek summary judgment on Plaintiff’s breach of fiduciary duty claim,

arguing there was no fiduciary arrangement. The Court agrees. Plaintiff’s purchase of the 

working interest in VMD was a commercial transaction. Commercial transactions do not 

create fiduciary relationships unless one party agrees to serve in a fiduciary capacity. 

Rindlisbacher v. Steinway & Sons Inc., 497 F.Supp.3d 479, 506 (D. Ariz. 2020). There is 

no such arrangement set forth in the Agreement. In fact, the Agreement expressly provided 

that VMD would not be in an agency relationship with the Plaintiff. Nothing suggests a

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different arrangement was intended to exist with regard to the principals of VMD. There is 

no question of fact. Neither Owen nor Galvis owed Plaintiff any fiduciary duties.

III. Securities Fraud

Proving a Rule 10(b)(5) securities fraud claim requires Plaintiff to establish (1) that 

Defendants made a material misrepresentation or omission of material fact; (2) that 

Defendants acted with scienter; (3) that there is a connection between the material 

misrepresentation and Plaintiff’s purchase or sale of securities; (4) that Plaintiff purchased 

the securities in reliance on Defendants’ material misrepresentation; (5) that Plaintiff 

suffered economic loss; and (6) Plaintiff’s economic loss was caused by Defendants’

material misrepresentation. KuiZhu v. Taronis Technologies Inc., No. CV-19-04529-PHXGMS, 2020 WL 1703680, at *3 (D. Ariz. Apr. 8, 2020). As for securities fraud under 

A.R.S. § 44-1991, Plaintiff must prove that, in connection with the sale or purchase of 

securities, Defendants “employed a device, scheme or artifice to defraud” or made an

untrue statement of material fact or omitted to state a material fact necessary in order to 

make the statements made not misleading.

As to both counts, Defendants argue that there are no facts supporting Plaintiff’s 

claim that Defendants made material misrepresentations about the Project. However, when 

Defendants represented in the Sales Memo and the Updates that the Project was on track to

move into commercial production, there is evidence that they knew there were regulatory 

requirements (such as the APP issue) that stood in the way. Though Plaintiff agreed that he 

was making a risky investment and that it is possible VMD might not extract gold in 

commercial quantities, there is a question of fact as to whether Defendants’ failure to 

disclose the APP requirement was a material misrepresentation. There also are questions of 

fact as to whether Defendants misrepresented that gold was the core component of the project,

and that gold and silica sand would be extracted simultaneously in a single process, not

separately or as alternatives to one another.

As to Defendants’ argument that Plaintiff suffered no economic loss, the Court is 

persuaded by Plaintiff’s argument that the ordinary measure of damages is not applicable. 

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There is no public market for the working interests Plaintiff purchased. As Plaintiff argues,

his investment cannot be sold, therefore his loss is his entire investment.

There is a question of fact as to whether Plaintiff’s interest in VMD has any value. 

Defendants argue that VMD has the right to recover the gold contained in the tailings, and

once VMD pivots from silica to gold production, Plaintiff will benefit. But Defendants 

elsewhere argue that the silica operation is a more profitable use of the tailings than 

attempting to recover gold. If Plaintiff is not benefitting from the more profitable use of 

the tailings, it is not clear how pivoting to a less profitable use will benefit him later. 

Plaintiff also argues that VMD cannot process the tailings to extract gold, silica, or 

anything else for the Project because it sold or leased the Congress Mine tailings and the 

minerals contained therein to Harvest Gold Silica as part of a 2019 bond transaction. 

Plaintiff argues that his interests are therefore worthless. If Plaintiff is correct and VMD

no longer holds the mineral rights to Congress Mine tailings, the Project Plaintiff bought 

into does not exist. 

In sum, there are numerous questions of fact about the alleged misrepresentations 

that prevent the Court from granting summary judgment on Plaintiff’s securities fraud 

claims. The Court has identified some, but not all. Viewing the facts in a light most 

favorable to Plaintiff, the Court finds summary judgment unwarranted. 

IV. Common Law Fraud

Defendants ask for summary judgment on Plaintiff’s common law fraud claim, 

making the same arguments as were made regarding the securities fraud counts—that there 

were no misrepresentations. For the same reasons set forth above, the Court finds that there 

are questions of fact precluding summary judgment. 

Defendants make the additional argument that there is no evidence that they knew

the subject representations were not true at the time they were made. The Court finds 

sufficient evidence creating a genuine issue of material fact on this issue, as well. Among 

other things, Owen was present at the meeting with ADEQ when it was explained that 

VMD must assume responsibility for Republic Goldfields’ APP; he was present when it 

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was explained that VMD must develop a closure strategy for that permit, obtain approval 

for that closure strategy and then complete the closure before VMD could even begin 

processing and extracting gold from the Republic Goldfields tailings; and he was advised 

by Cardinal not to begin construction of gold leaching plant until the APP permitting issue 

was resolved. Summary judgment on this claim is denied.

V. Negligent Misrepresentation

Defendants seek summary judgment on Plaintiff’s negligent misrepresentation 

claim, arguing that there is no evidence of misrepresentations. However, for reasons 

already explained, the Court finds there is sufficient evidence to create a question of fact

as to whether Defendants made material misrepresentations to Plaintiff prior to his decision 

to enter into the Agreement, including representations about the status of the Project, its 

“making gold,” and the status of permits necessary to construct a gold leaching plant. 

Summary judgment on this claim is denied.

IT IS ORDERED that Defendant’s motion for summary judgment (Doc. 69) is 

GRANTED as to Plaintiff’s breach of fiduciary duty claim only. As to the other claims, 

the motion is DENIED. 

IT IS FURTHER ORDERED that the parties participate in a telephonic trial 

scheduling conference on December 14, 2023, at 9:00 a.m. Call-in instructions will be 

provided via separate email.

Dated this 29th day of September, 2023.

Douglas L. Rayes

United States District Judge

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