1 

UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF TEXAS 

DALLAS DIVISION 

SUPER FUTURE EQUITIES, INC., '

'

Plaintiff, '

'

V. ' 

'

WELLS FARGO BANK MINNESOTA, ' CIVIL ACTION NO. 3: 06-CV-0271-B 

N.A.; ORIX CAPITAL MARKETS, '

LLC; ORIX CAPITAL MARKETS '

PARTNERSHIP; JOHN DINAN; '

MICHAEL F. WURST; CLIFFORD '

WEINER; JAMES R. THOMPSON; '

and ORIX USA CORPORATION, '

'

Defendants. '

MEMORANDUM ORDER

Super Future Equities, Inc. (ASFE@) filed this action against Wells Fargo Bank Minnesota, 

N.A. (AWells Fargo@); ORIX Capital Markets, LLC (AOrix@ or AOrix Capital@); ORIX USA 

Corporation (AOrix USA@); John Dinan; Michael F. Wurst; Clifford Weiner; James R. Thompson; 

and ORIX Capital Markets Partnership (AOrix Partnership@)

1

, claiming breach of fiduciary duty, 

negligence, gross negligence, breach of contract, and civil violations of Racketeer Influenced and 

Corrupt Organizations Act (ARICO@).2 Presently before the Court is Defendant Wells Fargo Bank, 

N.A.=s Motion for Summary Judgment (doc. 314); Orix Defendants= Motion for Summary Judgment 

 1

On August 2, 2007, the Court dismissed Orix Capital Markets Partnership from the case 

pursuant to Federal Rule of Civil Procedure 4(m) (doc. 309). 

2 The Court will use the following designations for the Defendants: (1) “Orix Defendants” includes 

Orix, Orix USA, Dinan, Wurst, Weiner, and Thompson; (2) “Defendants” includes the Orix Defendants and 

Wells Fargo; (3) “Individual Defendants” includes Dinan, Wurst, Weiner, and Thompson. 

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(doc. 318); Defendant Wells Fargo=s Motion to Strike Certain of Plaintiff=s Summary Judgment 

Evidence (doc. 438); and Orix Defendants= Objections and Motions to Strike Plaintiff=s Evidence in 

Support of Its Response to the Orix Defendants= Motion for Summary Judgment (doc. 448). For the 

reasons that follow, the Court GRANTS the Defendants= motions to strike Plaintiff=s evidence to 

the extent that they request the exclusion of the portion of Thomas Arjmandi=s declaration 

attempting to value the certificates; the motions to strike other evidence are DENIED as Moot.

The Court also GRANTS the Defendants= motions for summary judgment on all of SFE=s claims. 

I. Background 

This case involves the world of Commercial Mortgage Backed Securities (ACMBS@) 

transactions. In a traditional mortgage loan situation, the loans are serviced by the mortgage banker 

loan correspondents that originated the loans. Deborah O. McKinnon et al., Standard Roles and 

Responsibilities of the Master and Sub-Servicers in CMBS Transactions (Mortgage Bankers Association 

May, 2000). However, CMBS transactions differ in that servicing is provided by servicers who were 

not the originators of the loans. Id. Disputes about these servicing activities have spawned the 

controversy in this case. 

 In a CMBS transaction, a loan is funded and then sold to a special purpose, bankruptcyremote entity, which the Court will refer to as a “trust.” (Orix Defs.= Br. in Supp. of their Mot. for 

Summ. J. (AOrix=s Br.@) 4). These trusts purchase a number of loans to form a large, diversified pool 

of loans. (Id.). The purchase of these loans is funded by the proceeds from the issuance of 

certificates that are purchased by investors (known as Athe certificate holders@). (Id.). A Pooling 

and Servicing Agreement (APSA@) sets out the procedures for administering the loans, establishes the 

priority for allocating the cash flow generated by the loans among the certificate holders, and divides 

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the responsibility for trust matters among: (1) the Master Servicer, (2) the Special Servicer, and (3) 

the Trustee. (Id.; Wells Fargo=s Br. in Supp. of its Mot. For Summ. J. (AWells Fargo=s Br.@) 6). 

The Master Servicer’s duties include collecting the loan payments and passing the funds to the 

Trustee, enforcing loan documents for untroubled loans, advancing late payments to the Trustee, 

and providing performance reports to the certificate holders. BAXTER DUNAWAY, 4L LAW OF 

DISTRESSED REAL ESTATE § 56.14 (2007); Wells Fargo=s Br. 6; Pl.=s Br. in Resp. to Orix=s Mot. for 

Summ. J. (APl.=s Resp. to Orix=s MSJ@) 1. The Master Servicer may transfer loans that are not being 

paid or do not comply with the loan documents to the Special Servicer who will work out the 

problems or foreclose on the loan. (Wells Fargo=s Br. 6). This Special Servicer is selected by the 

holder of the lowest class of certificates, also known as the AControlling Class.@ (Id.). The Trustee’s

duties include holding the mortgage collateral, distributing funds collected by the Master Servicer to 

the certificate holders, supervising the Master Servicer and Special Servicer, ensuring that the 

servicers comply with the PSA, and appointing new servicers if the PSA is violated. BAXTER 

DUNAWAY, 4L LAW OF DISTRESSED REAL ESTATE § 56.14 (2007). 

The trust issues different classes or Atranches@ of certificates with each class having a different 

level of risk. Under the PSA=s, senior grade or Class A certificate holders take on the lowest amount 

of risk because they receive payments of principal and interest before the other classes, but they are 

sold at a higher price and receive less interest on their investment. (Orix=s Br. 4; Wells Fargo=s Br. 8; 

Pl.=s Second Am. Compl. (ASAC@) & 18). Lower classes of certificate holders or B-Piece or first loss 

certificate holders bear more risk because they receive payments from borrowers only after all other 

certificate holders are paid but also have a higher expected yield. (Orix=s Br. 4; Wells Fargo=s Br. 8, 

SAC & 18). Under this system, the Servicers collect monthly principal and interest payments from 

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the borrowers on the loans in the trust. (Wells Fargo=s Br. 8). From these payments, the Servicers 

withhold expenses for servicer fees, litigation expenses, and advance reimbursements and then 

transfer the rest to the Trustee. (Id.). The Trustee will first distribute interest to Class A certificate 

holders and, if there is money remaining, will then distribute interest to Class A-2 certificate holders. 

 (Id.). If funds still remain, the Trustee will distribute to Class B certificate holders and so on. (Id.). 

If the money runs out, lower classes of certificate holders do not receive interest payments that 

month. (Id.). The Trustee distributes principal in a similar manner, but the more senior grade 

certificate holder must be paid all of its principal before the certificate holder at the lower level 

receives any principal. (Id.). 

This lawsuit arises out of the relationship between a certificate holder and the Servicer, 

Special Servicer, and Trustee of two CMBS trusts: (1) the Trust for the Certificate holders of the 

Merrill Lynch Mortgage Investors, Inc. Mortgage Pass-Through Certificates, Series 1999-C1 (AMLMI 

Trust@) and (2) the Trust for the Certificate holders of the First Union-Lehman Brothers-Bank of 

America Commercial Mortgage Pass-Through Certificate Series 1998-C2 (AFULBBA Trust@) 

(collectively “the Trusts”). SFE purchased Class B Certificates in the MLMI Trust on April 7, 2005 

and Class A-2 Certificates in the FULBBA Trust on July 28, 2005 (SAC && 77, 139).3

 After 

purchasing the master servicing rights (in October 1998) and special servicing rights (in June 2000) 

in the FULBBA Trust, Orix Capital became the Master and Special Servicer of the Trust as well as a 

 3

Both Wells Fargo and Orix point out that Orix foreclosed on a Louisiana apartment building which 

served as collateral for a loan that was sold into the MLMI Trust. (Wells Fargo=s Br. 5). This apartment 

building was owned by Cyrus II Partnership. (Id.). Bahar Development, of which Mondona Rafizadeh was 

President, was the general partner of Cyrus II. (Id.).This foreclosure resulted in a $10 million judgment against 

Mondona Rafizadeh, among others. (Id.). Approximately three months later, SFE, which was incorporated by 

Mondona Rafizadeh=s husband and is managed by her son and nephews, purchased certificates in the MLMI 

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holder of first loss certificates. (Orix=s Br. 6). When the MLMI Trust was established in November 

1999, Orix Capital was named the Master and Special Servicer and also held first loss certificates in 

the Trust. (Id.). The individual Defendants are all officers, directors, or employees of Orix Capital. 

(SAC & 31). Orix USA is allegedly interrelated with Orix Capital and the individual Defendants. 

(SAC && 31, 38). Wells Fargo is the Trustee for both of the Trusts. (Pl.=s Response to Orix=s MSJ 

1). 

SFE accuses the Orix Defendants of numerous misdeeds stemming from these servicing 

relationships, including: 

 

Trust. (Id.). Three months after that, SFE purchased certificates in the FULBBA Trust. (Id.). 

$ “Manufactur[ing] defaults of performing loans in order to charge unnecessary servicing fees 

and advances to the Trusts; 

$ Pursu[ing] unnecessary litigation against borrowers and guarantors of loans in a manner 

that depletes the Trusts= assets and benefits only ORIX at the expense of the certificateholders; 

$ Bring[ing] disingenuous, unnecessary, and non-beneficial litigation B funded out of the 

Trusts B against the entities that deposited the loans into the Trusts in order to generate 

fees paid by litigation advances and reimbursements from the Trusts and wrongfully 

retain[ing] the proceeds of settlement of such litigation; 

$ Mak[ing] inaccurate reports to the Trustee and certificate-holders, including false 

reporting and allocation of its fees and litigation expenses, in an effort to hide its wrongful 

activities from SFE and other certificate-holders; and 

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$ Operat[ing] the Trusts to inflate the value of the inferior >lower tranch= certificates held by 

it and extend[ing] their life, in order to sell the certificates at a huge profit, while leaving 

the Trusts in such poor condition that other certificate-holders will certainly suffer huge 

losses in their investments.@

(Pl.=s Resp. to Orix=s MSJ 2). 

With respect to Wells Fargo, SFE alleges the following conduct: 

$ AExecut[ing] ill-advised powers of attorney authorizing Orix to act as Wells Fargo=s agent 

and attorney-in-fact in connection with the Trusts; 

$ Look[ing] the other way B in violation of fiduciary duties owed to SFE B as ORIX violated 

duties owed to the Trusts and the certificate-holders; 

$ Obtain[ing] financial benefits at the expense of the certificate-holders of both Trusts while 

failing to fulfill its duties; and 

$ Knowingly distribut[ing] false and fraudulent data to the certificate-holders regarding the 

Trusts.@

(Pl.=s Br. in Resp. to Wells Fargo=s Mot. for Summ. J. (APl.=s Resp. to Wells Fargo=s MSJ@) 1-2). 

Based on these allegations, on February 13, 2006, SFE filed its Original Complaint B Class 

Action (doc. 1) claiming breach of fiduciary duty, breach of contract, and RICO violations against 

Wells Fargo, Orix Capital, Orix Partnership, Orix USA, and the individual Defendants. On April 

10, 2006, SFE filed its First Amended Complaint B Class Action (doc. 5), adding claims of 

negligence and gross negligence. After Defendants filed two separate motions to dismiss, SFE was 

granted leave to file an amended complaint and filed its Second Amended Complaint B Class Action 

on June 26, 2006. The Court struck SFE=s class allegations on August 28, 2006 for failure to timely 

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file a motion for class certification and ordered SFE to file an amended complaint removing its class 

allegations. SFE thereafter filed its fourth complaint, styled Plaintiff=s Second Amended Complaint, 

which is the live complaint, on September 11, 2006. 

On August 3, 2007, Wells Fargo filed the instant motion for summary judgment (doc. 314) 

arguing that: (1) SFE lacks Article III standing to bring this suit because it has no damages; (2) SFE 

has no evidence of racketeering activity by Wells Fargo; (3) SFE cannot establish a breach of 

fiduciary duty by Wells Fargo; (4) SFE has no evidence to support a negligence or gross negligence 

claim against Wells Fargo; and (5) the PSA=s relieve Wells Fargo of liability for SFE=s claims. (Wells 

Fargo=s Br. In Supp. of its Mot. for Summ. J. (AWells Fargo=s Br.@)). The Orix Defendants also moved 

for summary judgment (doc. 318) based on the following: (1) SFE cannot show demonstrable 

damage; (2) SFE lacks standing to assert claims on behalf of the trusts making summary judgment 

appropriate on all of its inherently derivative claims; (3) the individual Defendants cannot be liable 

for alleged breaches of the PSA=s; (4) there is no evidence that the individual Defendants committed 

any tortious acts; (5) there is no evidence that Orix USA is liable for any of SFE=s claims including 

breach of the PSA=s or the alleged torts; (6) SFE=s claims against the Orix Defendants are barred by 

the Ano-action clause@ in the PSA=s; (7) SFE is bound by the waivers and disclaimers of liability in 

the PSA=s; (8) summary judgment is appropriate on SFE=s RICO claims under both the ANoEvidence@ motion for summary judgment and traditional motion for summary judgment standards; 

(9) any claim for negligence or gross negligence is impermissibly duplicative of the alleged contract 

claim; and (10) any claim for breach of fiduciary duty is impermissibly duplicative of the alleged 

contract claim. (Orix >s Br.). SFE responded to these motions for summary judgment on August 23, 

2007 (docs. 388, 390). On September 7, 2007, Wells Fargo filed its Motion to Strike Certain of 

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Plaintiff=s Summary Judgment Evidence (doc. 438), and Orix filed Objections and Motion to Strike 

Plaintiff=s Evidence in Support of Its Response to the Orix Defendants= Motion for Summary 

Judgment (doc. 448). Wells Fargo and Orix filed their summary judgment replies on September 7, 

2007 (docs. 450, 454). Both motions for summary judgment, being fully briefed, are now ripe for 

adjudication. Despite all of these allegations and arguments, these motions for summary judgment 

boil down to: (1) the admissibility of the evidence SFE submitted in response to the motions for 

summary judgment, (2) the choice of law for SFE’s causes of actions; (3) whether SFE has presented 

sufficient evidence of injury and causation to establish Article III standing; and (4) whether SFE has 

presented sufficient evidence of damages to support each of its causes of action. 

II. Orix and Wells Fargo=s Motions to Strike Thomas Arjmandi=s Declaration

As a prelude to reviewing the motions for summary judgment, the Court will address the 

Defendants= arguments that SFE=s summary judgment evidence is inadmissible. When determining 

the admissibility of evidence on a motion for summary judgment, courts generally apply the same 

standards and rules that govern the admissibility of evidence at trial. Donaghey v. Ocean Drilling & 

Exploration Co., 974 F.2d 646, 650 n.3 (5th Cir. 1992) (citing Lavespere v. Niagara Machine & Tool 

Works, Inc., 910 F.2d 167, 175-76 (5th Cir. 1990), abrogated on other grounds by Little v. Liquid Air 

Corp., 37 F.3d 1069, 1076 n.14 (5th Cir. 1994)). Orix contends that the declaration of Thomas 

Arjmandi (AArjmandi@), SFE=s corporate representative and president, is inadmissible because it 

contradicts his former deposition testimony that he could not quantify SFE=s damages.4

 (Orix Reply 

 4

While the Court has not relied on these arguments, Wells Fargo contends that Arjmandi is 

incompetent to testify because he is neither an expert nor an owner of the certificates. (Wells Fargo=s Reply 

7). He also never represented that he was familiar with the market value of the certificates, which Wells Fargo 

claims is a prerequisite to testimony by an owner. (Id.). 

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Br. 4). Orix also claims that Arjmandi=s Declaration is an Aeleventh hour ambush@ and that he is not 

qualified to testify as an expert (Orix=s Mot. to Strike 25-26 (citing KW Plastics v. U.S. Can Co., 131 

F. Supp. 2d 1289, 1295 (M.D. Ala. 2001)). Similarly, Wells Fargo claims, in its motion to strike 

SFE=s summary judgment evidence, that Arjmandi=s declaration contains inadmissible hearsay and 

improper lay opinions and contradicts SFE=s designated 30(b)(6) deposition testimony. (Wells 

Fargo=s Mot. to Strike 4). 

A. SFE=s Evidence 

 The Court will first examine SFE’s evidence and then analyze whether the evidence SFE 

submitted in response to the motions for summary judgment is admissible. In its initial disclosures, 

SFE stated that it Ahas not yet made an exact calculation of any damages owing to it by the 

Defendants.@ (Wells Fargo App. 115, Orix App. 472). SFE listed nine categories of damages, 

placing monetary amounts on three of them. 5

 In its First Supplemental Rule 26 Disclosures, SFE 

claimed its damages were the purchase price of the certificates of $165,000 or their diminishment in 

 5

SFE listed the following categories of damages: A(a) Amounts overbilled to the MLMI and FULBBA 

Trusts, an amount in excess of $10 million, for improper litigation expenses. (b) Amounts of improper fees, 

advancement reimbursements, and interest paid to Defendants in an amount to be discovered. (c) The 

purchase price of the MLMI and FULBBA Certificates purchased by Plaintiff in an amount of approximately 

$164,700. (d) All payments made to the ORIX Conspirator Defendants with respect to their >B Pieces= after 

the date on which such certificates should have been >junked= and to the extent the losses sustained by the 

FULBBA and MLMI Trusts exceeded the par value of the B Pieces investment, an amount to be discovered. 

(e) The amount of profits the ORIX Conspirators gained through sale of the improperly inflated and continued 

>B pieces,= an amount believed to be in excess of $20 million dollars. (f) Any other gains realized from the 

breach of fiduciary obligations by Defendants, an amount to be discovered. (g) Amounts lost to the Trust as a 

result of the performing loans which were foreclosed by ORIX with Wells Fargo=s blessing, an amount to be 

discovered. (h) Amounts gained by Defendants from improper foreclosure on performing loans or by reselling 

foreclosed properties to itself or entities with which Defendants had an affiliation, an amount to be discovered. 

 (i) The value of Wells Fargo=s >Master Servicing Right= assets attributable to its involvement with the MLMI 

and FULBBA Trusts, an amount to be discovered.@ (Orix App. 473; similar list at Wells Fargo Sealed App. 

11). 

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value of no less than $24,700. (Orix App. 478; Wells Fargo App. 1432). It also listed quantities for 

gains and fees earned by the Defendants.6 In its interrogatory responses, SFE claimed that the 

certificates were worthless and that SFE lost at least $164,700. (Orix App. 485). SFE objected to 

subsequent interrogatories requesting injuries for its causes of actions stating that the interrogatories 

were vague, ambiguous, overbroad, duplicative, requested a legal conclusion, and attempted to limit 

damages. (Orix App. 489-92 ). SFE referred to its responses to disclosures and expert testimony 

and stated that the Defendants have not provided information on this subject. (Orix App. 489-92 ). 

 SFE stated that it is entitled to recover the purchase price of the certificates or their diminishment 

in value and the gains made by the Defendants. (Orix App. 489-92 ). When requested to detail the 

amount and method of calculating damages, SFE made similar objections and stated that it was 

entitled to the purchase price of the certificates of $165,000 or the lost market value of no less than 

$24,700. (Orix App. 492-93). 

In his July 12, 2007 deposition, less than a month before the Defendants filed their motions 

 6

SFE listed the following categories of damages: A(a) Amounts of master servicing, special servicing, 

trustee, and other fees (such as modification fees, late charges, default interest, and defeasance fees), paid to 

Defendants in connection with their activities for the MLMI and FULBBA Trusts, an amount exceeding 

$29,355,497. (b) Amounts of interest paid to Defendants on advances and expenses (including principal and 

interest advances, litigation advances, and custodial balances), an amount exceeding $1,865,814. (c) The 

purchase price of the MLMI and FULBBA Certificates purchased by SFE, an amount of $165,000, or their 

diminishment in value, an amount no less than $24,700. (d) Distribution payments made to the ORIX 

Defendants with respect to their >B Pieces,= an amount no less than $20,000,000. (e) The amount of profits 

the ORIX Defendants gained through sale of their >B pieces= in the MLMI and FULBBA Trust, an amount no 

less than $40,000,000. (f) Amounts gained by Defendants from sale of collateral properties for liquidated 

loans not credited to the Trusts, an amount no less than $4,500,000. (g) Any other gains or profits or benefits 

Defendants received in connection with their activities for the MLMI and FULBBA Trusts, such as diverting 

settlement amounts through non-Trust accounts or improper purchases of Trust assets. (h) Any tax penalties 

suffered by SFE as a result of improper actions of the Defendants in connection with administering the Trusts. 

 (i) The value of Wells Fargo=s >Mortgage Servicing Right= assets attributable to its involvement with the 

MLMI and FULBBA Trusts.@ (Orix App. 478; Wells Fargo App. 1432). 

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for summary judgment, Arjmandi stated that he was not aware of any lapse in payment of interest 

on the certificates and had not calculated any damages resulting from lack of interest payments. 

(Orix App. 502-503). The following exchange also occurred: 

 Q. Has SFE been damaged because of its holdings in the MLMI and FULBBA 

certificates? A. I believe so, yes. Q. Can you quantify that damage? A. 

Numerically? Q. Yes. A. No, not as I sit here right now. . . . Q. No. Do you plan on 

testifying at the trial of this case as to the value of the certificates. A. I don=t know 

what the particular plans are at trial. Q. Do you have any reason to believe that you 

are qualified to opine as to the value of the certificates SFE holds in the MLMI and 

FULBBA trusts? A. Well, I do know that an expert has been retained, I believe, 

whose testimony will be on the damages to the certificates by the underlying 

activities of the servicer and the trustee. Q. That is Victor Moore? A. Correct. Q. 

So you believe Victor Moore will testify or attempt to value SFE=s certificates, is that 

your understanding? A. And the damages therein, I believe so. 

(Orix. App. 502-04). On July 30, 2007, Victor Moore testified that he had no opinion on damages 

and whether the Defendants= actions caused damages to SFE, that he was not asked to look at 

damages, and that he could not quantify the value of the certificates. (Orix App. 512-514, 517). 

SFE=s expert Eli Clark stated that he believed SFE suffered financial harm stating that: 

to the degree that they have received interest payments on time but those interest 

payments have come at a cost, I think that would harm their interest in the longterm. And then you have . . . a separate question as to whether or notBthe 

underlying bonds and earned certificates have also been diminished in value. 

(Orix App. 526). Clark stated that he would not testify regarding the value of SFE=s certificates and 

that this was outside of his legal expertise. (Orix App 526-27). 

On August 23, 2007, in its response to Wells Fargo=s motion for summary judgment, SFE 

submitted a declaration of Thomas Arjmandi, also dated August 23, 2007, reciting the purchase 

price of the certificates and stating that the Charles Schwab account statements he obtained from 

the online account reflect a decline of $25,464. (SFE App. 1570-75). In his declaration, Arjmandi 

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also stated, 

Further, based on my familiarity with these investments and my review of their 

performance, coupled with the knowledge that I have gained regarding the manner in 

which the MLMI and FULBBA Trusts have been managed by the ORIX Defendants 

and Wells Fargo, it is my assessment that these certificates have been significantly 

diminished below the stated market price B if not rendered valueless Bbecause I 

cannot now in good faith sell the certificates to a new buyer in light of the knowledge 

I have regarding past and present actions of Defendants. Specifically, I would have to 

fully disclose the Defendants= violations of duties owed to SFE and other certificateholders which threaten the investments and will likely result in losses to future 

holders. 

(SFE App. 1572). In addition, SFE cites authority for the proposition that an owner of property or 

a business may testify regarding damages to the property. (Pl.=s Resp. to Wells Fargo=s MSJ 9-11). 

B. Analysis 

Federal Rule of Civil Procedure 26(a)(1)(C) requires disclosure of Aa computation of any 

category of damages claimed by the disclosing party. . .@ Rule 37(c)(1) provides that a party who 

Awithout substantial justification@ fails to disclose information required by Rule 26(a) Ais not, unless 

such failure is harmless, permitted to use as evidence at a trial, at a hearing, or on a motion any 

witness or information not so disclosed . . .@ Interpreting these rules, Design Strategies, held that the 

plaintiff had Anot provided sufficient discovery regarding the amount of or basis for calculating 

damages based on alleged lost profits@ and could not provide evidence of lost profits at trial. Design 

Strategies, Inc. v. Davis, 367 F. Supp. 2d 630, 633, 636 (S.D.N.Y. 2005). The plaintiff=s disclosed 

financial statements did not provide a method for calculating the profits that it would have earned if 

it had been awarded the contract. Id. at 635. The court reasoned: 

While the financial statements may indicate Design=s standard profit margin, they do 

not provide any basis on which to calculate the specific sum of money that the 

Contentville Project would have generated had it been awarded to Design, nor the 

percent of that sum that Design would retain. 

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Id. In Szusterman, the Court excluded evidence of damages because the plaintiff had not furnished 

the methodology for calculating damages and had stated in his deposition that he did not know how 

he calculated the figure. Szusterman v. Amoco Oil Co., 112 Fed. Appx. 130, 131-32 (3rd Cir. 2004). 

Similarly, in KW Plastics, the Court excluded the expert=s unjust enrichment calculations as 

violations of Rule 26(a)(2)(B) because he did not seek to quantify this type of damages in his earlier 

reports or pleadings: 

To allow McGowan to testify as to unjust enrichment, when he has never shown any 

prior inclination for doing so, would reward U.S. Can for its misdeeds and 

countenance an end-run around the Federal Rules of Civil Procedure and the orders 

of the court. Such litigation tactics, which are neither justified nor harmless, cannot 

stand. 

131 F. Supp. 2d at 1295-96. 

While KW Plastics, Design Strategies, and Szusterman involved exclusion of evidence at 

trial, Rule 37(c)(1) has been applied to exclude an expert affidavit filed in response to a 

motion for summary judgment because it was untimely. Trost v. Trek Bicycle Corp.,162 F.3d 

1004, 1006 (8th Cir. 1998); see also Brainard v. Am. Skandia Life Assurance Corp., 432 F.3d 

655, 664 (6th Cir. 2005) (excluding an expert affidavit submitted in response to a motion for 

summary judgment because it was substantially different from the expert report). In Trost, the 

Court reasoned that the defendant had prepared its motion for summary judgment, in part, 

based on the lack of expert evidence to support the plaintiff=s claims and that the defendant 

would be prejudiced because of lack of time to refute the evidence at trial. Id. at 1008-09. 

Finally in Omaha Public, the Court excluded an affidavit in response to a motion for summary 

judgment because the opinion had not been previously disclosed, the plaintiff did not present 

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14 

an explanation for the lateness, the defendant would be prejudiced because trial was less than 

three months away, and the defendant had moved for summary judgment because there was 

no expert testimony. Omaha Pub. Power Dist. v. Siemens Aktiengesellschaft, 2002 WL 826830, 

at *3-*5 (D. Neb. 2002). 

In this case, Rule 37(c)(1) should preclude this Court from considering Arjmandi=s 

affidavit. Like the plaintiffs in Szusterman and KW Plastics, Arjmandi did not purport to 

quantify SFE=s damages in his deposition and indicated that he could not do so. Furthermore, 

as in Design Strategies, SFE has not provided a method for calculating the value of the 

certificates. This failure to comply with the Rule 26(a)(1)(C) requirement of the disclosure of 

computations of damages should result in exclusion of the evidence unless the party has 

substantial justification or the failure was harmless. FED. R. CIV. P. 37(c)(1). SFE has not 

offered any justification,7

 and the Court finds that the Defendants would be harmed by the 

evidence because, like the defendants in Trost and Omaha Public, they relied on the lack of 

damages evidence in preparing their motions for summary judgment. Accordingly, the Court 

excludes Arjmandi=s affidavit and will not consider it for purposes of this motion for summary 

judgment. 

In addition to Rules 26(a)(1)(C) and 37(c)(1), Federal Rule of Civil Procedure 

30(b)(6) also supports exclusion of Arjmandi=s affidavit. Rule 30(b)(6) provides: 

A party may in the party=s notice and in a subpoena name as the deponent a public or 

private corporation or a partnership or association or governmental agency and 

describe with reasonable particularity the matters on which examination is requested. 

In that event, the organization so named shall designate one or more officers, 

 7

SFE did not file a response to Orix or Wells Fargo=s motion to strike evidence. 

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directors, or managing agents, or other persons who consent to testify on its behalf, 

and may set forth, for each person designated, the matters on which the person will 

testify. . . The persons so designated shall testify as to matters known or reasonably 

available to the organization . . . 

FED. R. CIV. P. 30(b)(6). Federal courts have interpreted this rule as prohibiting a 30(b)(6) 

representative from disclaiming the corporation=s knowledge of a subject at the deposition and 

later introducing evidence on that subject. See Ierardi v. Lorillard, Inc., 1991 WL 158911, at 

*3 (E.D. Pa. 1991). 

For example, in Rainey, the defendant=s 30(b)(6) corporate representative stated that 

he did not know whether he knew what percentage of the plaintiff=s time was spent on exempt 

functions. Rainey v. Am. Forest & Paper Ass=n, Inc., 26 F. Supp. 2d 82, 92 (D.D.C. 1998). In 

response to the plaintiff=s motion for summary judgment, the defendant filed an affidavit of a 

former employee quantifying the plaintiff=s work. Id. at 93-94. The Court excluded this 

affidavit reasoning that Rule 30(b)(6) required the defendant to prepare its designee to give 

binding answers. Id. at 94. Unless it can prove that the information was not known or was 

inaccessible, a corporation cannot later proffer new or different allegations that could have 

been made at the time of the 30(b)(6) deposition. Id. (citing Ierardi, 1991 WL 158911, at *3). 

 Rule 30(b)(6) Aaims to prevent a corporate defendant from thwarting inquiries during 

discovery, then staging an ambush during a later phase of the case.@ Id. at 95; see also United 

States v. J.M. Taylor, 166 F.R.D. 356, 362 (M.D.N.C. 1996) (A[I]f a party states it has no 

knowledge or position as to a set of alleged facts or area of inquiry at a Rule 30(b)(6) 

deposition, it cannot argue for a contrary position at trial without introducing evidence 

explaining the reasons for the change@); Ierardi, 1991 WL 158911, at *3 (AUnder Rule 

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16 

30(b)(6), defendant has an obligation to prepare its designee to be able to give binding 

answers on behalf of H & V. If the designee testifies that H & V does not know the answer to 

plaintiffs= questions, H & V will not be allowed effectively to change its answer by introducing 

evidence during trial. The very purpose of discovery is >to avoid >trial by ambush.==@) (quoting 

Fed. Deposit Ins. Corp. v. Butcher, 116 F.R.D. 196, 201 (E.D. Tenn. 1986)).

In his July 12, 2007 deposition, Arjmandi stated that as he sat there he could not 

quantify the plaintiff=s damages. When asked if he was qualified as an expert to testify, he 

responded that he believed SFE would have an expert to testify. In response to the 

Defendants= motions for summary judgment, Arjmandi filed a declaration purporting to 

quantify the damages. Because Arjmandi previously testified that he could not quantify the 

damages and has not offered an explanation for his change in position, his affidavit should be 

excluded under Rule 30(b)(6). Accordingly, Orix and Wells Fargo=s motions to strike the 

portion of Arjmandi=s declaration placing a value on the certificates are GRANTED. 

Having determined that Arjmandi=s declaration should be excluded, the Court now turns to 

the motions for summary judgment.8

III. Wells Fargo and Orix=s Motions for Summary Judgment 

A. Summary Judgment Legal Standard

 8

The Court need not consider the Defendants= other motions to exclude SFE=s evidence 

because it finds in favor of the Defendants on all of SFE=s claims. 

Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is appropriate 

when the pleadings and record evidence show that no genuine issue of material fact exists and that 

the movant is entitled to judgment as a matter of law. Little v. Liquid Air Corp., 37 F.3d 1069, 1075 

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17 

(5th Cir. 1994). A[T]he substantive law will identify which facts are material.@ Anderson v. Liberty 

Lobby, Inc., 477 U.S. 242, 248 (1986). Only disputes about material facts will preclude the granting 

of summary judgment. Id. 

The burden is on the summary judgment movant to prove that no genuine issue of material 

fact exists. Latimer v. SmithKline & French Lab., 919 F.2d 301, 303 (5th Cir. 1990). If the nonmovant bears the burden of proof at trial, the summary judgment movant need not support its 

motion with evidence negating the non-movant=s case. Rather, the movant may satisfy its burden by 

pointing to the absence of evidence to support the non-movant=s case. Id.; Little, 37 F.3d at 1075. 

Once the movant has met its burden, the non-movant must show that summary judgment is 

not appropriate. Little, 37 F.3d at 1075 (citing Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986)). 

AThis burden is not satisfied with >some metaphysical doubt as to material facts,= . . . by >conclusory 

allegations,= . . . by >unsubstantiated assertions,= or by only a >scintilla= of evidence.@ Id. (quoting 

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)). The non-moving party 

must Acome forward with >specific facts showing that there is a genuine issue for trial.=@ Matsushita, 

475 U.S. at 587 (emphasis in original) (quoting FED. R. CIV. P. 56(e)). To determine whether a 

genuine issue exists for trial, the court must view all of the evidence in the light most favorable to 

the non-movant, and the evidence must be sufficient such that a reasonable jury could return a 

verdict for the non-movant. Anderson, 477 U.S. at 248; Munoz v. Orr, 200 F.3d 291, 302 (5th Cir. 

2000). 

B. Choice of Law

Before turning to the merits of the motions for summary judgment, the Court must decide 

whether Texas or New York law governs SFE’s state law causes of action. In deciding the 

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18 

appropriate law to apply to the party=s state-based claims, the Court applies the choice-of-law rules of 

the forum state, here being Texas. Mayo v. Hartford Life Ins. Co., 354 F.3d 400, 403 (5th Cir. 2004). 

 Absent a valid choice-of-law agreement, Texas courts apply the Amost significant relationship@ test 

of the Restatement (Second) of Conflict of Laws. Id. The parties agree that federal law governs 

SFE=s RICO claims and New York law governs the breach of contract claims and defenses in this 

case. The contract claims are based on the PSA=s which contain a choice-of-law provision providing: 

This Agreement and the Certificates shall be construed in accordance with the 

internal laws of the State of New York applicable to agreements made and to be 

performed in said State, and the obligations, rights and remedies of the parties 

hereunder shall be determined in accordance with such laws without regard to 

conflicts of law principles. 

(Orix=s Supplemental Br. In Supp. of Their Mot. to Dismiss 5). Under Texas law, if the parties 

have agreed to an enforceable choice of law clause, the court will apply the law of that state to 

contract claims. Resolution Trust Corp. v. Northpark Joint Venture, 958 F.2d 1313, 1318 (5th Cir. 

1992). Accordingly, the Court agrees with the parties that New York law governs the breach of 

contract claims and federal law governs the RICO claims. 

The parties, however, disagree about whether Texas or New York law governs the tort 

claims. Wells Fargo argues that the PSA=s= choice of law provision demonstrates that New York law 

Ahas a significant relationship to the Trusts and the obligations created as a result of them.@ (Wells 

Fargo=s Br. 26 n.16). SFE=s claims involve the trusts, and the trusts are centered in New York. (Id.). 

 New York is where the depositor for the MLMI Trust is located, where two-thirds of the mortgage 

loan sellers are located, and where the financing occurred. (Id.). As for the FULBBA Trust, the 

depositor is based in New York, and the mortgage loan sellers are either registered in New York or a 

state other than Texas. (Id.). Also, the financing for that trust occurred in New York. (Id.). Wells 

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19 

Fargo is not a Texas formed entity and its principal place of business is not Texas. (Id.). Wells Fargo 

also argues that SFE=s location in Texas is not controlling. (Id. (citing Jackson v. W. Telemarketing 

Corp. Outbound, 245 F.3d 518, 523 (5th Cir. 2001)). Orix has argued that the negligence and gross 

negligence claims Awill be governed by the choice-of-law provision because they depend upon an 

>interpretation and enforcement= of the PSAs.@

9

 (Orix Supplemental Br. In Supp. of Their Mot. to 

Dismiss 6). Orix points out that the underlying duty in SFE=s negligence and gross negligence claims 

is that Orix failed to meet the servicing standard in the Trusts and the servicing standard is defined 

in the PSA=s. (Id. at 6-7). Orix also claims that the breach of fiduciary duty claim relies on 

interpretation of the PSA=s. (Id. at 7). 

On the other hand, SFE argues that it and Orix have their primary places of business in 

Texas. (Pl.=s Resp. to Wells Fargo=s MSJ 6 n.2). Wells Fargo is neither a Texas nor New York 

resident but Adoes significant business in Texas and knew or should have known that the servicing 

activities it had a fiduciary duty to monitor would be performed in Texas.@ (Id.). All of the servicing 

activities Awere performed (or at least controlled) in Texas.@ (Id.). Finally, SFE contends that it 

purchased its certificates and suffered its injuries in Texas. (Id.). 

 9 Orix cited Red Roof Inns, Inc. v. Murat Holdings, LLC, 2006 WL 2458563, at *5 (Tex. App.—Dallas 

2006) for the proposition that the tort claims should be governed by Texas law because they depend upon an 

“‘interpretation and enforcement’ of the PSA’s.” However, this opinion was subsequently withdrawn and 

substituted with an opinion stating, “A choice of law provision in a contract that applies only to the 

interpretation and enforcement of the contract does not govern tort claims.” Red Roof Inns, Inc. v. Murat 

Holding, LL, 223 S.W.3d 676, 684 (Tex. App.—Dallas 2007, no pet. h.) (citing Stier v. Reading & Bates Corp., 

992 S.W.2d 423, 433 (Tex. 1999)). In Red Roof Inns, the Court held that even though the franchise 

agreement contained a choice of law provision in favor of Ohio law, the claims for tortious interference, 

Louisiana Unfair Trade Practices Act violation, fraud/negligent misrepresentation, and breach of fiduciary 

duty would be governed by Louisiana law. Id. at 685. The breach of fiduciary duty claim was based on the 

actions and statements of the officers in inspecting the hotel and the fraud/negligent misrepresentation claim 

was based on failure to disclose certain information. Id.

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The Court will consider the following factors when applying choice of law principles to tort 

cases: A(a) the place where the injury occurred, (b) the place where the conduct causing the injury 

occurred, (c) the domicil[e], residence, nationality, place of incorporation and place of business of 

the parties, and (d) the place where the relationship, if any, between the parties is centered.@ Hughes 

Wood Prods., Inc. v. Wagner, 18 S.W.3d 202, 205 (Tex. 2000) (citing RESTATEMENT (SECOND) OF 

CONFLICT OF LAWS ' 145(2) (1971); Gutierrez v. Collins, 583 S.W.2d 312, 318-19 (Tex. 1979)). 

AAlthough the number of contacts is relevant, the qualitative nature of the contacts controls.@ 

Jackson, 245 F.3d at 523. 

Considering these factors, the first factor weighs in favor of the application of Texas law 

because SFE=s alleged injury occurred in Texas. SFE=s breach of fiduciary duty, negligence, and gross 

negligence claims are based on Orix=s servicing activities and Wells Fargo=s Alooking the other way@

from those activities. (SAC && 199-205, 220-26). Therefore, as for the second factor, the conduct 

causing the injury occurred at or was controlled from Orix=s place of business in Texas. The third 

factor also favors Texas law because SFE and Orix have their primary places of business in Texas and 

are incorporated outside of Texas and New York while Wells Fargo has its principle place of business 

in South Dakota, not New York. (Id. at & 5). Finally, the fourth factor, where the relationship is 

centered, may weigh in favor of New York law because the parties are related based on the New York 

Trusts. However, in light of the other factors, the Court concludes that the tort claims have a more 

significant relationship to Texas than New York. Accordingly, the Court will apply Texas law to the 

negligence, gross negligence, and breach of fiduciary duty claims. 

C. Wells Fargo=s Motion for Summary Judgment - Standing 

Both Wells Fargo and Orix base their motions for summary judgment on SFE=s lack of 

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21 

evidence of injury or damages. Wells Fargo argues that SFE lacks Article III standing because it 

failed to establish injury-in-fact. Orix argues that SFE has failed to provide evidence of damages, 

which is an essential element of each of its causes of action. These arguments are related in that 

they are based on the same lack of evidence; however, they each require a different legal analysis. 

The Court will first address Wells Fargo=s standing argument and then turn to Orix=s lack of damages 

argument as an alternative basis for granting summary judgment. Either of these arguments alone 

would provide adequate grounds for granting summary judgment on all of SFE=s claims. 

1. Article III Standing Requirements

Wells Fargo contends that SFE has no evidence that is has suffered an injury-in fact or that 

any of its alleged injuries were a result of the conduct of Wells Fargo; therefore, this Court does not 

have jurisdiction over SFE=s claims. (Wells Fargo=s Br. 14). The Court will consider SFE=s standing 

as it relates to its claims against both Wells Fargo and the Orix Defendants. It is of no moment that 

Orix did not raise a standing argument because the court may raise the issue of Article III standing 

sua sponte. Ford v. NYLCare Health Plans of Gulf Coast, Inc., 301 F.3d 329, 331-32 (5th Cir. 2002) 

(raising Article III standing on appeal when the parties never raised it and the district court did not 

consider it). In this case, SFE had the opportunity to address the issue of standing in its response to 

Wells Fargo=s motion for summary judgment. 

In order to have standing in federal court under Article III, a plaintiff must establish the 

following elements: (1)injury-in fact which is Aconcrete and particularized@ and Aactual or imminent 

not conjectural or hypothetical;@ (2)Aa causal connection between the injury and the conduct 

complained of;@ and (3)likelihood, as opposed to mere speculation, Athat the injury will be redressed 

by a favorable decision.@ Id. at 332. A>The party invoking federal jurisdiction= bears the burden@ of 

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22 

proving these elements, and failure to establish one of them will deprive the federal court of 

jurisdiction. Id. (citations omitted). AAt the summary judgment stage, >the plaintiff can no longer 

rest on . . . mere allegations, but must set forth by affidavit or other evidence specific facts= validating 

his right to standing.@ Id. at 332-33 (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992). 

The Fifth Circuit has held that a plaintiff does not establish standing when it cannot establish 

injury or causation. In Riviera, the plaintiff claimed that she bought and used a drug, that the drug 

manufacturer did not provide enough warnings, that the drug was defective, that other people were 

injured by the drug, and that she had a claim for the money she used to purchase the drug. Riviera v. 

Wyeth-Ayerst Labs., 283 F.3d 315, 319 (5th Cir. 2002). The plaintiff claimed that the loss of cash 

was an economic injury and offered suggestions for how the court could calculate damages. Id. at 

319. The Court stated that A[M]erely asking for money does not establish an injury in fact@ and held 

that the plaintiff did not demonstrate injury or causation. Id. at 319, 321. 

In another Fifth Circuit case, the Court held that a plaintiff who failed to provide 

evidence of causation lacked standing. Ford, 301 F.3d at 333. In Ford, an orthopedic 

surgeon claimed that the defendant HMO=s had falsely advertised that Atheir management 

techniques improve health care quality and that they allow patients and doctors to make 

their own treatment decisions.@ Id. at 331. The surgeon claimed that the HMO=s= activities 

undercut quality and rationed medical care against the will of doctors, that the cost control 

policies reduced his income, and that the HMO=s= advertising further reduced doctors=

income because it attracted new customers which increased the HMO=s= market power over 

the price of medical services. Id. The plaintiff claimed that his injury was the reduction of 

his income Acaused by the defendants= restrictive cost-containment policies, which allegedly 

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23 

have the effect of reducing payments to contract specialists.@ Id. at 333. The Court held 

that the plaintiff failed to meet the causation requirement because he was required to present 

evidence affirmatively proving that his reduced income resulted from the defendants=

conduct. Id. There was Ano evidence in the record to show that Ford=s income has in fact 

declined any more than would be expected as a result of events completely unrelated to the 

HMO=s= activities.@ Id. The plaintiff could not identify a patient he had lost as a result of the 

conduct and presented no evidence that he received lower payments for his services than he 

would have in the absence of the advertisements. Id. The Court explained: 

[S]ome or all of the decrease in Ford=s income might have been a result of the fact 

that “he is not employed full time as a physician . . . and spends a significant amount 

of time filming a fishing show for a sports network.” Ford bears the burden of 

proving otherwise, and he has not met it. 

Id. 

The Seventh Circuit has addressed a situation analogous to the case at hand. In Slowiak, a 

meat distributor sued corporations claiming that they coerced him into joining a Amaximum resale 

price maintenance conspiracy in violation of Wisconsin antitrust law.@ Slowiak v. Land O’Lakes, Inc., 

987 F.2d 1293, 1294-95 (7th Cir. 1993). He claimed that the defendants would have taken action 

against him if he had charged prices higher than those on the circulated list and that he lost profits 

that he would have earned if he had been able to set his own prices. Id. at 1295. The Court held 

that the plaintiff did not have Article III standing because he presented no evidence of injury as a 

result of the conspiracy. Id. at 1296. The plaintiff conceded that his business had been profitable 

and at his deposition stated that he was not sure whether he had lost profits because of the 

conspiracy. Id. After the defendants moved for summary judgment for lack of evidence of injury, 

the plaintiff filed a supplemental affidavit stating that if the prices had not been fixed A>there would 

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24 

have been many occasions on which I would have charged more for many of the Schweigert products 

I sold.=@ Id. The Court found that the affidavit conflicted with his former deposition testimony 

stating that he did not know if he would have been able to sell the same amount of products at a 

higher price, that he could not remember a specific instance of when he wanted to charge more, and 

that he did not know how much he could have raised prices. Id. at 1296-97. The Court held that 

the deposition testimony did not establish a distinct and palpable injury and that he could not cure 

this defect with a supplemental self-serving affidavit conflicting with his earlier deposition testimony. 

Id. at 1297. The Court also held that even if the plaintiff lost money, there was no evidence that 

the loss was fairly traceable to the defendants= conduct; therefore, he lacked standing. Id. Having 

examined the standard and relevant case law, the Court moves to the question of whether SFE has 

established that it has been injured by the actions of the Defendants. 

2. Standing Based on the Value of the Certificates

SFE responded to Wells Fargo=s motion for summary judgment with two claims of damages: 

(1) the purchase price of its certificates or their diminution in value and (2) the disgorgement of the 

gains made by the Defendants.10 (Pl.=s. Resp. to Wells Fargo=s MSJ 4). SFE explained its claim that 

the purchase price of its certificates had diminished or become worthless by stating that when the 

certificates were first placed in SFE=s account they were worth $163,875, that the March 2007 

account statement said they had a market value of $141,214, and that the latest account statement 

showed that the loss had increased to $25,464. (Pl.=s Resp. to Wells Fargo=s MSJ 8-9). To support 

 10SFE appears to abandon its argument that its damages include potential tax consequences to the 

certificate holders because it does not mention this alleged injury in its responses. SFE=s expert has conceded 

that he is unaware that Wells Fargo failed to comply with tax regulations to the detriment of the Trusts. 

(Wells Fargo App. 42). 

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25 

this proposition, SFE cited Charles Schwab account statements and the declaration of Thomas 

Arjmandi. (SFE App. 576-97; 1571-72). In its response to Orix=s motion for summary judgment, 

SFE also cited Orix=s Motion to Compel Rule 26 Disclosures (doc. 268) and Joint Status Report on 

Orix=s Motion to Compel Rule 26 Disclosures (doc. 356) to show that Orix must concede that the 

market value of the certificates has declined. (Pl.=s Resp. to Orix=s MSJ 9). In these documents, 

Orix stated: 

[B]ased on information provided to the ORIX Defendants and its own investigation 

of SFE=s alleged claims, the ORIX Defendants seriously question whether SFE=s 

damage claim complies with Rule 11 of the Federal Rules of Civil Procedure as SFE 

has actually made money on its purchase. The certificates that SFE acquired for 

approximately $165,000 are currently worth approximately $155,500 with SFE 

already receiving approximately $31,500 in principal and interest payments for a net 

profit of approximately $22,000. 

(doc. 268 at 2 n.1). Orix also stated, A[B]ased on the trading records, the certificates are currently 

worth approximately $155,500 on the open market, with SFE already receiving approximately 

$31,500 in principal and interest payments.@ (doc. 356 at 3). 

With the exception of Thomas Arjmandi=s declaration,11 which the Court excluded in part II 

 11 In its response, SFE points to Arjmandi=s declaration discussing the Charles Schwab account records 

and the Charles Schwab account records themselves. (SFE App. 576-97). To the extent that SFE contends 

that the account records alone are sufficient evidence of injury, the Court rejects this argument because these 

records should be excluded under Federal Rule of Evidence 702. In Van Der AA Investments, Inc. v. Comm’r 

of Internal Revenue, 125 T.C. 1, at *4 (T.C. 2005), the Court refused to consider as evidence on a motion for 

summary judgment an Arthur Anderson report describing the fair market value of the company. The report 

was supported by an affidavit of an officer of the company stating that the company had engaged Arthur 

Anderson to determine this value. Id. The Court reasoned that since the author had relied on specialized 

knowledge to prepare the report, it would not be admissible unless the author was testifying as an expert. Id. at 

*6 (citing FED. R. EVID. 702). Allowing the introduction of the report Awould allow the introduction of 

opinion testimony by lay witnesses in the form of a report as to scientific, technical, or other specialized 

matters and would allow an expert to express his opinions in a report without being subject to crossexamination on the facts and data underlying that opinion.@ Id. In this case, admitting the Charles Schwab 

account records would allow SFE to present evidence of the value of the certificates without giving the 

Defendants the opportunity to cross-examine the author of the report. Wells Fargo made a similar argument 

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26 

above, SFE has not provided evidence that the value of its certificates has decreased. SFE does not 

meet its burden of coming forward with “specific facts showing there is a genuine issue for trial” by 

citing excerpts from Orix’s Motion to Compel Rule 26 Disclosures. Matsushita, 475 U.S. at 587. As 

in Riviera, asking for money or reciting the purchase price does not establish injury. 283 F.3d at 319. 

 Similar to the plaintiff in Slowiak who conceded that his business had been profitable, SFE has 

received all interest and principal payments on the certificates that it is due. Slowiak, 987 F.2d at 

1296; Wells Fargo App. 404. After saying that he did not know what SFE’s damages are, Thomas 

Arjmandi may now not defeat summary judgment with a self-serving affidavit. Id. at 1297. SFE has 

not provided evidence and may not rest on Amere allegations@ at the summary judgment stage. Ford, 

301 F.3d at 332-33. Therefore, SFE does not satisfy the first element of Article III standing C injuryin-fact. 

Furthermore, even if SFE can establish that the value of the certificates has decreased, it has 

provided no evidence that this decrease was caused by the Defendant=s conduct as opposed to 

fluctuations in interest rates and the declining principal balance of the certificates. (Wells Fargo=s 

Br. 17). Wells Fargo explained that certificates trade for less over time as a result of the repayment 

of principal and the reduction of the principal balance. (Wells Fargo=s Br. 16 (citing Decl. of 

Thomas Biafore at App. 7)). The dominant factor in valuing certificates is the fluctuation of interest 

 

with respect to Arjmandi=s declaration. (Wells Fargo=s Reply 7-8 (citing FED. R. EVID. 702; Wilson v. Woods, 

163 F.3d 935, 937 (5th Cir. 1999)) (ARather, he [Arjmandi] admits he simply downloaded and presented as 

expert evidence account statements from Charles Schwab. In other words, rather than presenting an expert 

whose opinions and methodology could be scrutinized, Mr. Arjmandi simply reads the opinion of a third party 

[the Charles Schwab report] who proffers a >market value= from time to time, without any explanation of how 

that term is defined, how the opinion is developed or the qualification of the individual developing it. This is 

no evidence and should be disregarded.@). Wells Fargo did not specifically raise this objection with respect to 

the Charles Schwab account statements themselves; however, this Court may raise the issue of the 

admissibility of evidence sua sponte. See United States v. Wallace, 972 F.2d 344, at *3. (4th Cir. 1992). 

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27 

rates which during the time that SFE held the certificates made risk-free debt valuable and would 

have caused the value of SFE=s certificates to decrease. (Wells Fargo=s Br. 17 (citing Decl. of 

Thomas Biafore at App. 7)). Finally, Wells Fargo claims that the rating of the certificates and the 

security of the certificates has improved since the conduct that SFE complained of was reported in 

industry publications. (Wells Fargo=s Br. 17(citing Decl. of Barry S. Schwartz at App. 404)). SFE 

has the burden of proving that its Ainjury@ was not caused by factors unrelated to the Defendants=

activities. Wells Fargo pointed out the lack of evidence of causation, and SFE did not provide 

evidence. See Ford, 301 F.3d at 333. Accordingly, SFE has not met its burden of proving causation. 

The Court now turns its attention to SFE=s second claim of damagesBdisgorgement. 

3. Standing Based on Disgorgement Damages for Breach of Fiduciary Duty 

SFE claims that it need not show injury in order to recover disgorgement for breach of 

fiduciary duty. (Pl.=s Resp. to Wells Fargo=s MSJ 5). As discussed below in part III.D.3., the Court 

agrees that this proposition is correct under Texas law. However, a state law cause of action that 

does not require injury will not give a federal court jurisdiction when the court lacks Article III 

standing: 

Although standing requirements in state courts are often less stringent than those of 

Article III, the issue lacks relevance here, as standing in federal court is determined 

entirely by Article III and depends in no degree on whether standing exists under 

state law. 

Int’l Primate Prot. League v. Admins. of the Tulane Educ. Fund, 895 F.2d 1056, 1061 (5th Cir. 1990) 

(citing Phillips Petroleum v. Shotts, 472 U.S. 797, 804 (1985)), rev’d on other grounds, 500 U.S. 72 

(1991), superseded by statute on other grounds, 28 U.S.C ' 1442(a)(1) (as amended 1996), as recognized 

in Winters v. Diamond Shamrock, 149 F.3d 387, 397 (5th Cir. 1998) ; see also 13A CHARLES ALAN 

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WRIGHT,ARTHUR R.MILLER &EDWARD H.COOPER, FEDERAL PRACTICE AND PROCEDURE ' 3531.14 

(AOf course state rules that recognize standing need not be honored if Article III requirements are 

not met.@). 

The Second Circuit has held that the district court incorrectly dismissed the complaint based 

on lack of standing when the plaintiffs did not allege injury as a result of the defendant=s actions. 

Walton v. Morgan Stanley & Co., 623 F.2d 796, 798 (2d Cir. 1980). The Court reasoned that 

Delaware law did not require injury for a breach of fiduciary duty claim. Id. The Court also stated: 

We need not address the question whether standing in [a] diversity case is a matter 

of state or federal law, for the recognition of standing of a shareholder to bring a 

derivative suit for the profits made by one who allegedly breached a fiduciary duty 

owed to the corporation accords with both federal and Delaware notions of 

standing. 

Id. at 798 n.4. This Court need not decide whether to apply the rule of Walton to a non-derivative 

breach of fiduciary duty claim in the Fifth Circuit because, as discussed below in part III.D.3, the 

Court has determined that SFE=s breach of fiduciary duty claim would fail on other grounds. 

Accordingly, the Court GRANTS Wells Fargo=s motion for summary judgment on all of SFE=s 

claims against Wells Fargo and Orix. The Court turns next to Orix=s motion for summary judgment. 

D. Orix=s Motion for Summary Judgment - Lack of Damages as an Element of SFE=s Causes of 

Actions

1. SFE’s RICO, Negligence, and Gross Negligence Claims

In the alternative, even if SFE could establish standing, the results would be similar based on 

Orix=s motion for summary judgment. Orix argues that summary judgment is proper because SFE 

has failed to provide evidence of an essential element of each of its causes of action C damages.12 

 12The Court recognizes that there is a distinction between showing the existence of damages and 

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29 

(Orix=s Br. 13).

 

quantifying those damages and that a plaintiff need not present evidence quantifying its damages. Potomac 

Elec. Co. v. Electric Motor & Supply, Inc., 262 F.3d 260, 265 (4th Cir. 2001); see also Dyll v. Adams, 167 F.3d 

945, 947 (5th Cir. 1999) (applying Texas law) (quoting McKnight v. Hill & Hill Exterminators, 689 S.W.2d 206, 

207 (Tex. 1985) (AUncertainty as to the fact of legal damages is fatal to recovery, but uncertainty as to the 

amount will not defeat recovery.@) However, the Court finds that SFE has not provided sufficient evidence to 

show the existence of damages. 

To establish RICO standing, a plaintiff must satisfy two elements: (1) injury and (2) 

causation. Price v. Pinnacle Brands, Inc., 138 F.3d 602, 606 (5th Cir. 1998); see also Commercial 

Union Assurance Co. v. Milken, 17 F.3d 608, 612 (2d Cir. 1994) (A[W]ithout provable damages, no 

viable RICO cause of action may be maintained.@). In First, the plaintiffs= RICO claim was based 

on the insurance company=s mailing of an allegedly fraudulent damages assessment report that A(1) 

failed to consider the full extent of damage to their home and (2) made improper repair 

recommendations.@ First v. Allstate Ins. Co., 222 F. Supp. 2d 1165, 1170, 1175 (C.D. Cal. 2002). 

The insurance company had paid the plaintiffs $158,080.04 for the damage to their home, and the 

plaintiffs failed to present evidence that the damage to their home exceeded that amount. Id. at 

1171. The plaintiffs= expert opined that the damage to the home was extensive, that the assessment 

report was inaccurate and vague, and that A[b]ased on the vagueness and inaccuracies noted in the . 

. . report, any attempt at determination of estimates to repair would be impossible.@ Id. The Court 

held that the plaintiffs could not survive summary judgment on their RICO claim because there was 

no triable issue of fact of whether they were injured by the report. Id. at 1175; see also Waste 

Conversion, Inc. v. Rollins Envtl. Servs. (NJ), Inc., 1989 WL 79768, at * 7-8 (E.D. Pa. 1989) (holding 

that the plaintiff did not raise a genuine issue of material fact as to the injury element of its RICO 

claim when it alleged that it was injured in its business because it incurred costs including the loss of 

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30 

 its sales contract but did not submit evidence of any costs). 

As for SFE=s negligence claims, under Texas law, a cause of action for negligence or gross 

negligence requires (1) a legal duty owed by one person to another, (2) a breach of that duty, and 

(3) damages proximately caused by that breach. D. Houston, Inc. v. Love, 92 S.W.3d 450, 454 (Tex. 

2002) (for elements of negligence); Bykowicz v. Pulte Home Corp., 950 F.2d 1046, 1053 (5th Cir. 

1992) (for elements of gross negligence). Failure to show damages is an appropriate ground for 

granting summary judgment on a negligence or gross negligence claim. Johnson v. Brewer & 

Pritchard, 73 S.W.3d 193, 211 (Tex. 2002) (granting summary judgment on negligence claim when 

plaintiff failed to show damage); Gen. Star Indem. Co. v. Sherry Brooke RevocableTrust, 243 F. Supp. 

2d 605, 613 (W.D. Tex. 2001) (holding that lack of summary judgment evidence of causation and 

damages precludes a tort claim). In Weinberg, summary judgment was appropriate on a Washington 

negligence claim based on lack of damages when the plaintiff responded to interrogatories that the 

amount of damages would be the subject of an expert report and that he did not know what his 

damages were but later did not update his answers. Weinberg v. Whatcom County, 241 F.3d 746, 

750, 752 (9th Cir. 2001). The Court stated, A>Summary judgment is appropriate where appellants 

have no expert witnesses or designated documents providing competent evidence from which a jury 

could fairly estimate damages.=@ Id. at 751 (quoting McGlinchey v. Shell Chem. Co., 845 F.2d 802, 

808 (9th Cir. 1988)). 

Having established that RICO and negligence claims require evidence of damages, the 

Court concludes that SFE has not met this requirement. As discussed above with respect to SFE=s 

standing, without Arjmandi=s declaration, SFE has failed to produce any evidence that it has been 

damaged. Even if the Plaintiff=s evidence of damages was sufficient to survive summary judgment, 

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SFE has produced no evidence that its alleged damages were caused by the Defendants= actions, 

which is a requirement of both a RICO claim and a Texas negligence and gross negligence claim.13 

Accordingly, summary judgment is appropriate on SFE=s RICO, negligence, and gross negligence 

claims. The Court will now consider the requirement of damages as it relates to SFE=s breach of 

contract claims.

2. SFE’s Breach of Contract Claim 

 13Wells Fargo moved for summary judgment on the ground that there was no evidence that their 

conduct caused the alleged decline in the market value of the certificates, and Orix made this argument in its 

Reply Brief (Wells Fargo=s Br. 16, Orix=s Reply 5-6). 

Under New York law regarding a breach of contract claim, even if the plaintiff fails to raise 

an issue of material fact as to actual damages, he or she may proceed to trial to recover nominal 

damages. V.S. Int’l, S.A. v. Boyden World Corp., 1993 WL 59399, at * 8 (S.D.N.Y. 1993); Hirsch 

Elec. Co., Inc. v. Cmty. Servs., Inc., 536 N.Y.S.2d 141, 143 (N.Y. App. Div. 1988) (citing 

FARNSWORTH, CONTRACTS, ' 12.8, at 838-839) ( A[I]t is a well-settled tenet of contract law that 

even if the breach of contract caused no loss or if the amount of loss cannot be proven with 

sufficient certainty, the injured party is entitled to recover as nominal damages a small sum fixed 

without regard to the amount of the loss, if any.@). In Hirsch, the Court held that the plaintiff=s 

damages claim for lost profits based on breach of contract was too speculative and limited the 

plaintiff at trial to a claim for nominal damages. 536 N.Y.S.2d at 142. Because the Court has found 

that SFE has not established damages, SFE would be limited to nominal damages for breach of 

contract at trial. 

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3. SFE’s Breach of Fiduciary Duty Claim 

SFE has correctly argued that a plaintiff need not prove actual damages in order to recover 

disgorgement of fees for the breach of a fiduciary duty. Burrow v. Arce, 997 S.W.2d 229, 239-40 

(Tex. 1999). Therefore, SFE=s lack of evidence of damages will not preclude its breach of fiduciary 

duty claim. However, the Defendants argue that SFE must provide evidence that the Defendants 

have derived a benefit resulting from or proximately caused by their breaches of fiduciary duty. 

(Orix Reply 2-3; Wells Fargo=s Reply 3). Disgorgement is a remedial measure rather than a punitive 

one and is limited to Aproperty causally related to the wrongdoing@ at issue. Allstate Ins. Co. v. 

Receivable Fin. Co., L.L.C., 501 F.3d 398, 413 (5th Cir. 2007) (applying Texas law) (citing SEC v. 

First City Fin. Corp., 890 F.2d 1215, 1231 (D.C. Cir. 1989)). AAccordingly, the party seeking 

disgorgement must distinguish between that which has been legally and illegally obtained.@ Id.; see 

also Swinnea v. ERI Consulting Engineers, Inc., 2007 WL 2447057, at *11-*12 (Tex. App - Tyler 

2007) (A[A] fiduciary must account for, and yield to the beneficiary, any profit he makes as a result 

of his breach of fiduciary duty. As explained above, Appellees did not prove any actual damages or 

reasonably certain lost profits. Neither did Appellees prove that Swinnea obtained any ill gotten 

gains at ERI=s expense. Therefore, there is no evidence to support an award of damages for breach 

of fiduciary duty, equitable or otherwise.@ (citations omitted)). The Fifth Circuit recently addressed 

this issue and held that because the plaintiffs did not produce evidence regarding what amount of 

money the defendant=s obtained through their wrongdoing as opposed to legitimate activities, the 

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evidence was insufficient to sustain a disgorgement damages award.14 Allstate, 501 F.3d at 414. 

The Court discussed the plaintiff=s burden of proving disgorgement damages: 

In actions brought by the SEC involving a securities violation, “disgorgement need 

only be by a reasonable approximation of profits causally connected to the violation.” 

 However, “in a private action, the party seeking monetary compensation may have a 

greater burden to prove its claim to the amount requested.” 

Id. at 413 (quoting First City, 890 F.2d at 1231, 1232 n.24). The Court declined to determine 

whether a private party was required to meet a more onerous burden because it held that the 

plaintiff had not provided a reasonable approximation of what was illegally obtained. Id. This 

Court need not make that determination today because it finds that SFE has not provided a 

reasonable approximation of what Wells Fargo or ORIX obtained as a result of the alleged breach of 

fiduciary duty. SFE cites Corporate Interiors v. Pappas, 784 N.Y.S.2d 919, at *6 (N.Y. Sup. Ct. 

2004) for the proposition that once SFE presents prima facie evidence of the Defendants= gains, the 

burden shifts to the Defendants to demonstrate any legitimate costs because they are in the 

exclusive possession of that information. (Pl.=s Resp. to Orix=s MSJ 8). Here, as explained below, 

the Court finds that SFE has not presented evidence Aof the amount [the Defendants] gained as a 

result of the breach@ to establish prima facie evidence of the Defendants= gains. Id. 

Turning to SFE=s evidence of disgorgement damages, SFE claims disgorgement of at least 

$8,032,907.01 from Orix Ain fees and interest on reimbursements for performing work as master and 

special servicer of the MLMI and FULBBA trusts since January 1, 2005.@ (Pl.=s Resp. to Orix=s MSJ 

5-6). SFE supports this amount with Orix=s response to an interrogatory requesting the fees earned 

 14 The standard for summary judgment mirrors the standard for a directed verdict and requires 

Asufficient evidence favoring the nonmoving party for a jury to return a verdict for that party.@ Anderson v. 

Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986). 

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for each year from the inception of the MLMI and FULBBA Trust to the present.15 SFE, in a 

footnote, claims that its disgorgement gains should not be limited to this amount because the 

summary judgment evidence reveals that Orix earned a higher amount of fees and that Orix 

received benefits from its own investments in the trusts as a result of its breach of fiduciary duty. 

(Pl.=s Resp. to Orix’s MSJ 6 n.2). For this proposition, SFE cites reports from its expert Victor 

Moore quantifying amounts of servicing fees, special servicing fees, trustee fees, reimbursement of 

interest on advances, and distributions on the B pieces Aas a result of the servicing relationship that 

was technically a conflict of interest between the master servicer (ORIX) and the special servicer 

(also ORIX).@ (SFE App. 574-75).16 As for Wells Fargo, SFE claims disgorgement fees of at least 

$360,460 Ain fees since it began serving as Trustee for the Trusts.@ (Pl.=s Resp. to Wells Fargo’s MSJ 

5). To support this claim, SFE cites the same expert report from Victor Moore mentioned above 

and a chart identifying fees, which Wells Fargo produced with its Responses to SFE=s First Set of 

Interrogatories. (SFE App. 573-75, 1543-45). 

Other than Victor Moore=s conclusory assertion that these fees were a result of a conflict of 

interest, SFE offers no evidence to connect all of the fees that Orix and Wells Fargo have earned 

since the inception of the trusts to their alleged breaches of fiduciary duty to SFE. As Wells Fargo 

 15The interrogatory stated: APlease state the amounts of monies paid by the MLMI Trust to ORIX 

Capital Markets, LLC as Servicer and/or Special Servicer for each year the inception of the MLMI Trust to the 

present for each of the following: (a) repayment of principal and interest (P&I) advances; (b) repayment of 

litigation expenses; (c) repayment of other advances; (d) interest paid on P & I advances, advances for 

litigation expenses, and other servicing advances; (e) fees for serving as master servicer; (f) fees for serving as 

special servicer and (g) any other fees or reimbursement of expenses.@ (SFE App. 1551-52). The interrogatory 

for the FULBBA trust was almost identical. (SFE App. 1558-59). 

16SFE also cites pages 237-76 of its appendix in support of disgorgement damages against Orix and 

Wells Fargo. This citation is to several pages of graphs with no label or any explanation of what these 

documents are. The Court will disregard this evidence. 

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points out, ASFE cannot simply claim that sometime after SFE became a certificate holder in 2005, 

Wells Fargo breached a fiduciary duty and then recover every cent Wells Fargo has earned for the 

indenture trustee services it has provided since 1999.@ (Wells Fargo=s Reply 3-4). Wells Fargo=s 

fees were fixed in the governing PSA=s as a percent of the principal balances of the loans in the 

trusts. (Id. at 4). In conclusion, because SFE has not offered a reasonable approximation of what 

the Defendants have earned as a result of their alleged breach of fiduciary duties, SFE is not entitled 

to disgorgement. See Allstate, 501 F.3d at 413. Accordingly, Wells Fargo and Orix=s motions for 

summary judgment on the breach of fiduciary duty claims are granted.17 

IV. Conclusion

 17Because the Court has granted the Defendants= motions for summary judgment on all of SFE=s 

claims, it is unnecessary for the Court to consider the other grounds for summary judgment. 

For the foregoing reasons, the Court GRANTS the Defendants= motions to exclude the 

portion of Arjmandi=s declaration identifying the value of the certificates and DENIES as Moot the 

motions to exclude other evidence. The Court also GRANTS the Defendants= motions for 

summary judgment on all of SFE=s claims because SFE has failed to meet its burden of establishing 

Article III standing. In the alternative, even if SFE has established standing, summary judgment 

would be appropriate on all of SFE=s claims based on lack of damages except for the breach of 

contract claims, which would be limited to nominal damages. 

In light of the significant impact that this Order will have on the case, the Court DIRECTS 

SFE and Orix and their lead counsel to hold a face-to-face meeting to discuss settlement of this 

case by January 15, 2008. By January 30, 2008, Orix is ORDERED to notify the Court in writing 

of (1) whether the parties have reached a settlement, and, if not, (2) whether it intends to pursue 

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36 

its counterclaims against SFE. The Court will defer disposition of SFE=s motion for summary 

judgment on Orix=s counterclaims until that time. The trial setting and the deadlines imposed by 

the scheduling order (doc. 469) are also stayed until that time. Because Wells Fargo has no 

counterclaims against SFE, Wells Fargo is DISMISSED from this case. 

SO ORDERED 

 SIGNED December 14, 2007 

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