Court Opinion

ID: 3187348
Source: CourtListenerOpinion
Date Created: 2016-03-21 20:03:35.081724+00
Date Added: 2024-06-11T11:17:19.278066
License: Public Domain

NOT FOR PUBLICATION

                    UNITED STATES COURT OF APPEALS
                                                                           FILED
                            FOR THE NINTH CIRCUIT
                                                                           MAR 21 2016
                                                                        MOLLY C. DWYER, CLERK
                                                                         U.S. COURT OF APPEALS
THOMAS E. ALEXANDER,                             No. 14-55171

              Plaintiff - Appellee,              D.C. No. 2:11-cv-08851-DSF-
                                                 VBK
 v.

INCWAY CORPORATION, a Wyoming                    MEMORANDUM*
corporation,

              Defendant,

  and

KEVIN W. WESSELL, an individual;
CASEY LAWRENCE, an individual;
MATT MITCHELL, an individual,

              Defendants - Appellants.

                    Appeal from the United States District Court
                       for the Central District of California
                     Dale S. Fischer, District Judge, Presiding

                     Argued and Submitted February 11, 2016
                              Pasadena, California

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Before: McKEOWN and IKUTA, Circuit Judges and PRATT,** Senior District
Judge.

      Kevin Wessell (“Wessell”) and Matt Mitchell (“Mitchell”) appeal the district

court’s entry of judgment against them following a bench trial.1 We have

jurisdiction under 28 U.S.C. § 1291. We review the district court’s factual findings

for clear error and its legal conclusions de novo. OneBeacon Ins. Co. v. Haas

Indus., Inc., 634 F.3d 1092, 1096 (9th Cir. 2011). We affirm in part and reverse

and remand with respect to the punitive damages calculation.

      The district court determined that Wessell and Mitchell intentionally

misrepresented and concealed important facts as part of a fraudulent asset

protection scheme in violation of California law. Cal. Civ. Code §§ 1572, 1709,

1710. The district court also found Mitchell liable for negligently misrepresenting

important facts under California law. Cal. Civ. Code § 1710. Neither Wessell nor

Mitchell argues that the district court committed legal error. Because the district

court’s findings were not clearly erroneous, we affirm the district court’s findings

          **
             The Honorable Robert W. Pratt, Senior District Judge for the U.S.
District Court for the Southern District of Iowa, sitting by designation.
      1
        The district court also entered judgment against Casey Lawrence.
Lawrence appealed pro se, but failed to file any briefs in support of her appeal. We
affirm the judgment as to Lawrence.

                                          2
with respect to intentional misrepresentation, concealment, and negligent

misrepresentation. See OneBeacon Ins. Co., 634 F.3d at 1096.

      The district court also found that Wessell was the alter ego of five corporate

entities. “[O]wnership in a corporation is a necessary element for the application

of the alter ego doctrine under California law.” S.E.C. v. Hickey, 322 F.3d 1123,

1129 (2003). There is no evidence in the record that Wessell formally owned the

related corporate entities. Thus, the district court erred in finding alter ego

liability. This error is harmless, however, because it does not affect Wessell’s

substantial rights: he is liable for the same amount of damages with or without an

alter ego finding. See 28 U.S.C. § 2111.

      The district court determined that Wessell and Mitchell violated the

Racketeer Influenced and Corrupt Organizations Act (RICO). 18 U.S.C. § 1961 et

seq. A civil RICO violation occurs when a person “employed by or associated

with” a qualifying enterprise “conduct[s] or participate[s], directly or indirectly, in

the conduct of such enterprise’s affairs through a pattern of racketeering activity.”

18 U.S.C. § 1962(c). Each RICO defendant must be distinct from the alleged

enterprise. See Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 162

(2001). The enterprise here is the inter-related group of corporate entities. In light

of our alter ego holding, both Wessell and Mitchell were distinct from the

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enterprise. See id. at 163 (“The corporate owner/employee, a natural person, is

distinct from the corporation itself[.]”). The district court did not clearly err in its

RICO findings, including that Wessell and Mitchell enriched themselves by

charging clients a fee for setting up offshore accounts and encouraging them to

deposit funds in The Alps, that they knowingly and willfully committed mail and

wire fraud on multiple occasions over ten years, that they were employed by the

companies that constituted the enterprise, and that Alexander lost funds as a direct

result of Wessell and Mitchell’s RICO violations.

      Finally, the district court found Wessell liable for $2,000,000 in punitive

damages. Under California law, punitive damages may not “exceed[] the level

necessary to properly punish and deter.” Neal v. Farmers Ins. Exch., 21 Cal.3d

910, 928 n.13 (1978). To determine whether a damage award is appropriate, the

court must consider “evidence of a defendant’s financial condition.” Adams v.

Murakami, 54 Cal.3d 105, 112 (in bank). The record here lacks evidence about

Wessell’s net worth. The amounts deposited in The Alps consisted of gross

deposits and therefore shed no light on Wessell’s net worth. The district court

erred by calculating punitive damages without taking Wessell’s net worth into

account. See Boyle v. Lorimar Prods., Inc., 13 F.3d 1357, 1361 (9th Cir. 1994)

(“The rule established by lower California courts is that only net, not gross, figures

                                            4
are relevant.”). We reverse the punitive damages award and remand for

recalculation.

      Each party shall bear its own costs on appeal.

    AFFIRMED IN PART AND REVERSED AND REMANDED IN
PART.

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