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Metcalf v. Lynch

United States District Court, M.D. Pennsylvania

October 10, 2017



          Matthew W. Brann United States District Judge

         Defendants Merrill Lynch, Pierce, Fenner & Smith, Inc. (“Merrill Lynch”) and Robin Brubacher filed a Motion for Summary Judgment[1] against Plaintiffs Linda Metcalf, Michelle Hartly, FilmWest Productions, LLC (“FilmWest”), Sunwest Capital Management, Inc. d/b/a Spirit Halloween (“Sunwest”), and Do You Know Where your Parents Are, LLC (“Parents”). For the reasons that follow, Defendants' motion is granted in part and denied in part.

         I. BACKGROUND

         A. Ms. Metcalf's Screenplay and Collaboration with Ms. Hartly

         In 2003, Ms. Metcalf began working on a screenplay titled “Do You Know Where Your Parents Are?”[2] Hoping to turn her script into a motion picture, she engaged the film production services of FilmWest and its producer-manager, Ms. Hartly. The parties signed a Term Sheet memorializing their relationship in 2008.[3]

         B. Plaintiffs' Initial Contact with the Jacobses

         That same year, while looking for a way to finance the film's production, Ms. Hartly became acquainted with Michael Jacobs and his wife, Ruby Handler-Jacobs (“the Jacobses”), owners of Solar Wind Productions, LLC (“Solar Wind”), a film production company based in Albuquerque, New Mexico.[4] The parties apparently discussed Plaintiffs' financing needs, and on January 8, 2009, Mr. Jacobs sent an email to Ms. Hartly containing a “Welcome Packet” that, in his words, “explains the process” by which Plaintiffs could obtain the desired financing.[5]

         The Welcome Packet explained the financing process in some detail, and contained several documents.[6] According to a “Film Funding Process Step by Step Chart, ” a producer interested in the Jacobses' program first needed to submit her proposed film's script, cast list, and production budget to Solar Wind for approval.[7] Solar Wind would then calculate an “Adjusted Production Budget” - i.e., the producer's submitted production budget increased by Solar Wind's fees (which ranged from 10.6% to 12.5% of that budget).[8] The producer then needed to complete and return a “Brokerage House Package” in order to create an account at an unidentified “Brokerage House.”[9] After the producer provided “Proof of Funds” and the parties signed a “Financing Agreement, ” Solar Wind would “provide[] wiring instructions” and the producer would wire a 10% “Development Deposit” into the Brokerage House account.[10]

         The Welcome Packet contained two other documents: a “Funding Flow Chart” which essentially reproduced the Step by Step Chart in visual form, and a “Non-Disclosure, Confidential, and Non-Circumvention Agreement, ” which protected the Financing Agreement and discussions about that agreement.[11]

         C. Plaintiffs' Further Contact with the Jacobses

         Later in January 2009 - apparently after Ms. Hartly signed and returned the Non-Disclosure, Confidential, and Non-Circumvention Agreement - Mr. Jacobs emailed several more documents to her.[12] One of these documents was a “Financing Program Summary” that reiterated the process outlined in the Welcome Packet documents and added other details about the “proprietary Solar Wind Production's Film Fund Mechanism.”[13] It indicated, for example, that the prospective producer would be “listed as a co-signatory on the holding account” containing the Development Deposit, that the Development Deposit, “[u]pon . . . receipt, ” would be “converted to a Certificate of Deposit (“CD”) or similar instrument . . . for no less than a 3 month term, ” and that the producer would be “listed as a co-signatory on the CD.”[14] Next, a “Secured Working Capital Line of Credit” would be “obtained against the CD as collateral” and “applied to obtain total film financing.”[15] And finally, “[d]raw down” of funds from the line of credit would “follow the schedule” approved by Solar Wind and the producer, but “[i]n the unlikely event that funding is not delivered within the estimated or reasonable time frame, ” the Development Deposit would be returned.[16] The summary also noted that after the film was produced and earning money, Solar Wind would receive 90% of the “net income” until “full recoupment, ” at which point it would continue to receive 55% of “net revenues.”[17]

         Another document sent by Mr. Jacobs in January 2009 was a “Production Finance Flow Chart for ‘Production' Milestones, ” which again summarized Solar Wind's financing program, repeating that the Development Deposit would be placed into an account “with the names of both the Depositor [i.e., the producer] and the [Solar Wind] CFO or designee.”[18] Additionally, it revealed that Solar Wind would obtain the necessary financing by “pledg[ing] additional collateral required to obtain private finance.”[19]

         Also emailed by Mr. Jacobs to Ms. Hartly at this time - the most pertinent, perhaps, for purposes of this motion - was Solar Wind's “Brokerage Package, ” which provided instructions to prospective producers for transferring their Development Deposit to the earlier-referenced “Brokerage House” - i.e., to Merrill Lynch.[20] The Brokerage Package began with a “Document Request List, ” which noted the paperwork needed for opening a “Merrill Lynch Sub-Account” and indicated that such paperwork - which included corporate filings, a copy of a photographic identification, and an IRS tax ID number - was to be delivered to Lawrence Bellmore, a financial advisor at that firm.[21] The List provided Mr. Bellmore's phone number, fax number, email address, and physical mailing address at his Merrill Lynch office in Williamsport, Pennsylvania.[22]

         The Package then contained two sets of “Instructions” - one for prospective producers who were already Merrill Lynch clients, and one for those who were not - which indicated that Development Deposits should be placed into a “designated Sub-Account of Solar Wind Productions Account Number 888-07D12; project designated Sub-Account Number to be determined.”[23] The Instructions also noted that “[a]ny questions regarding . . . the Merrill Accounts and the Development Deposit Process should be directed to [Mr.] Bellmore” at one of two listed telephone numbers.[24]

         Finally, the Package included various documents on Merrill Lynch letterhead or bearing Merrill Lynch insignia, including a professional profile of Mr. Bellmore, information about Merrill Lynch's “Insured Savings Account, ” and various account applications.[25]

         D. Financing Agreement Between Solar Wind and FilmWest

         Throughout February and March of 2009, Solar Wind and the plaintiffs negotiated the terms of - and finally signed - a “Financing Agreement.”[26] In its final form, the Financing Agreement noted that Solar Wind would “deploy [its] proprietary structured finance investment strategies for the purpose of obtaining the total final production funding as provided for in this Agreement, ”[27] and that Solar Wind “shall direct and manage the execution of all processes related to the provision of film production financing.”[28] It indicated that “[u]pon termination of this Agreement for any reason, including [Solar Wind's] failure to secure the requisite financing during the Initial Financing Period . . . [the Development] Deposit . . . shall be returned . . . no later than 30 days from effective date of termination.”[29] Although the agreement noted that plaintiffs were obligated “to provide the [Development] Deposit to [Solar Wind's] Selected Brokerage Firm, or Merrill Lynch, per the instructions as provided by the Brokerage Firm Financial Advisor, ”[30] neither Merrill Lynch nor any of its employees or agents were a party to the agreement.[31]

         E. Solar Wind's Accounts at Merrill Lynch

         Solar Wind first opened a deposit account at Merrill Lynch - numbered 888-07D12 (the “D12 Account”)- in December 2008, several weeks before the Plaintiffs made contact with the Jacobses.[32] A few weeks after opening the D12 Account, on January 28, 2009, Solar Wind also opened a line of credit (called a “Loan Management Account, ” or “LMA”) at Merrill Lynch, pledging the funds in the D12 Account as collateral.[33]

         F. Merrill Lynch's Knowledge of Solar Wind's Financing Program

         Plaintiffs claim that various individuals at Merrill Lynch acquired knowledge of - and internally expressed concerns about - Solar Wind and its financing program in early 2009. On January 7, 2009, for example, Mr. Bellmore may have stated in an email that he had received a copy of the “Solar Wind Productions Business Model, ” which he had apparently “already sent to Robin [Brubacher, ] our account manager for compliance review.”[34] On January 9, 2009, Mr. Bellmore may have stated in an email to Mr. Jacobs that “[t]he manner in which business is being transacted appears to be the pattern of money launderers[, and] you are putting your entire careers at risk and I am risking mine.”[35]

         On March 9, 2009, a vice president from a Merrill Lynch office in Pasadena, California, may have been shown Solar Wind solicitation materials by a client and may have expressed concern to Merrill Lynch's Office of General Counsel (“OGC”) that these materials were part of “some sort of fraud.”[36] In response, OGC may have forwarded that information to, and discussed those concerns with, Merrill Lynch's office in Allentown, Pennsylvania.[37] On March 13, 2009, someone at the Allentown office may have told Mr. Bellmore that Solar Wind could not use Merrill Lynch documents in its solicitation materials.[38] And Merrill Lynch's corporate designee may have testified in deposition that such solicitation was “improper.”[39]

         The Court is careful to note that the occurrence of the events described in the preceding two paragraphs is speculative - i.e., all that can be said is that most of it “may have” happened. Throughout the papers filed in response to Defendants' Motion for Summary Judgment, [40] Plaintiffs' counsel makes repeated references to various emails and depositions, sometimes quoting those documents extensively. Plaintiffs' counsel, however, has failed to enter those documents into the record. The only exhibit attached to any of Plaintiffs' instant filings is an “Expert Report” prepared by a Mr. Peter W. Leibundgut - whom Plaintiffs characterize as a “banking expert” - whose report similarly quotes (again, sometimes extensively) from various emails and depositions that do not appear in the record.

         The only record evidence on this matter shows that on March 18, 2009, Mr. Bellmore emailed Solar Wind's “Brokerage Package” to Ms. Brubacher and another Merrill Lynch employee, indicating that it was “the package sent by Michael Jacobs to his clients.”[41]

         As Plaintiffs' counsel is surely aware, when opposing a motion for summary judgment, the Federal Rules of Civil Procedure require a party to support its factual positions by “citing to particular parts of materials in the record.”[42] As examples of such record evidence, the Rules point to “depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials.”[43] It goes without saying that ipse dixit statements in a party's filings - such as descriptions of deposition testimony and purported quotations from various documents - are not “materials in the record.” Plaintiffs' counsel's deficit in this regard is particularly curious and vexing after the plethora of discovery disputes that occurred in this case - some of which were borderline puerile - which presumably allowed Plaintiffs' counsel to obtain the evidence necessary at this stage of the litigation to properly address a motion for summary judgment.

         When replying to Plaintiffs' opposition to Defendants' motion for summary judgment, Defendants did not object to Plaintiffs' counsel's failure to compile the required record, though (again, as Plaintiff's counsel is surely aware) at the summary judgment stage, Defendants could have objected to such a practice, or “object[ed] that the material cited to support or dispute a fact cannot be presented in a form that would be admissible in evidence”[44] - e.g., because it is hearsay.[45]

         For purposes of this motion, however, the Court will assume that the above-described events were properly supported by record evidence. Even though this undoubtedly helps bolster Plaintiffs' arguments, this accommodation will not, as discussed infra, affect the disposition of the instant motion.

         G. Plaintiffs' Interactions with Merrill Lynch

         On March 16, 2009, Mr. Bellmore emailed Ms. Metcalf the “documents to open your account with Merrill Lynch, ”[46] which Ms. Metcalf completed and faxed back later the same day.[47] These completed forms indicate that Plaintiffs were attempting to open a sub account to the D12 Account, with Ms. Metcalf listed as the “primary contact” and the “authorized representative.” Ms. Jacobs-Handler was listed as a “business partner” and the application indicated that she was to receive copies of certain mailings “for account of Solar Wind Productions.”[48]

         The next day, March 17, 2009, Mr. Bellmore emailed Ms. Brubacher, noting that:

I have a new client for Solar Wind which I assisted in completing [account] docs last evening. They faxed over the completed application late last evening. I will be calling them today to get the profile form completed. They have faxed over some of the supporting documents as well. The wire will be $200K . . . I am still waiting on the final deposit required. The account will be in the name of the film and the producer/writer is going to be the managing member on the account. They will wire in the funds and complete all their documentation with Solar Winds and then modify the . . . account to pledge against the LMA.[49]

         Despite apparently receiving and discussing the completed application forms, no account - or subaccount, for that matter - was ever opened for Plaintiffs at Merrill Lynch.[50]

         H. Plaintiffs' Deposit to Merrill Lynch

         On April 1, 2009, Plaintiffs purchased a cashier's check made out to Solar Wind and deposited it into Solar Wind's D12 account at Merrill Lynch.[51]Although Ms. Metcalf testified in deposition that “the $200, 000 was supposed to be in my sole control, ”[52] it was never used to purchase a CD nor was it transferred to any subaccount.

         A few days later, on April 6, 2009, the administrative manager of Merrill Lynch's Allentown office emailed Plaintiffs' attorney, stating that

It has come to our attention that you have received a set of documents entitled “Brokerage Package” from Solar Wind Productions, LLC, Michael Jacobs, and/or Ruby Jacobs . . . It is our understanding that those documents include certain forms published by Merrill Lynch . . . or otherwise refer to Merrill Lynch.
This is to notify you that Merrill Lynch [is] not a sponsor of, or in any other way connected to any offering by [Solar Wind]. Furthermore, [Solar Wind] is not authorized to distribute Merrill Lynch materials. Please note that you may only open an account with Merrill Lynch through a Merrill Lynch financial advisor.[53]

         Slightly more than two weeks later, on April 22, 2009, Ms. Metcalf contacted Merrill Lynch and asked for a return of her funds.[54] That same day, Merrill Lynch removed $166, 060.74 from the D12 account - where Ms. Metcalf's $200, 000 had been deposited - to satisfy the outstanding debt of Solar Wind's LMA account.[55]

         I. Trojan Productions

         Plaintiffs were not the only individuals who sent money to Solar Wind's D12 account. On January 6, 2009, before most of the events discussed supra took place, Mr. Bellmore emailed Ms. Brubacher about a “$275K wire” sent to the D12 Account by an organization named “Trojan Productions, Inc.”[56] Three months later, on April 1, 2009 - the same day, coincidentally, that Plaintiffs made their own deposit to Solar Wind's D12 Account - Trojan requested that its funds be transferred to a subaccount.[57]

         J. Fallout Between Plaintiffs and Solar Wind

         On May 19, 2009, Film West sent a letter to Solar Wind, terminating the parties' relationship.[58] The letter noted that Solar Wind failed to deposit Plaintiffs' $200, 000 into a subaccount and failed to purchase a CD in Plaintiffs' name.[59] It also alleged that, although the Financing Agreement required return of Plaintiffs' Deposit within 90 days, “Ruby Jacobs recently admitted that such would not be possible, and that a ‘few weeks' beyond such deadline would be necessary.”[60]Additionally, it noted that, because Solar Wind “so mismanaged [its] relationship with Merrill Lynch . . . that Merrill Lynch . . . has in fact frozen the funds.”[61]Finally, it requested “immediate cooperation in effecting termination of all prior agreements, relationships, and transactions between us, including your notification and instruction to Merrill Lynch to immediately release and return our $200, 000 deposit.”[62]

         K. New Mexico Action

         This letter did not, apparently, effect the return of Plaintiffs' $200, 000. Correspondingly, in June 2009, Plaintiffs filed a complaint in a New Mexico state trial court against Solar Wind and Merrill Lynch, seeking return of their Development Deposit.[63] In its July 1, 2009 answer to this complaint, Merrill Lynch noted that three parties - Plaintiffs, Trojan Productions, and the Jacobses - were asserting competing claims to the funds in the D12 Account.[64] Merrill Lynch therefore asserted an interpleader claim against those parties, and sought to deposit the balance of the D12 Account with that court.[65]

         The New Mexico court approved that request, [66] and on June 2, 2011, the court signed a “Stipulated Order on Distribution of Interpleader Funds, ” which allocated the D12 Account balance - $235, 478.68 - between the three parties. Plaintiffs' share was $115, 239.34.[67]

         L. Procedural History

         Plaintiffs instituted the instant action by filing a complaint on August 17, 2009.[68] The procedural history between that filing and the instant motion is extensive, tortured, and complex, and includes the previously-referenced discovery disputes, [69] several motions to dismiss[70] and previous motions for summary judgment, [71] and a trip to the United States Court of Appeals for the Third Circuit.[72]

         Plaintiffs filed their Second (and current) Amended Complaint on March 1, 2012.[73] In it, Plaintiffs alleged multiple counts against the current Defendants as well as against Mr. Bellmore, the Jacobses, Solar Wind, and Rio Grande Studios, LLC (“Rio Grande, ” another entity owned by the Jacobses). At this juncture, it suffices to note that Mr. Bellmore, the Jacobses, Solar Wind, and Rio Grande are no longer parties to this action, and the claims asserted solely against those defendants have been extinguished.

         Five outstanding counts remain against Merrill Lynch and Ms. Brubacher: In Count I, Plaintiffs assert violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §1962.[74] Counts II, III, IV, and V allege fraud, conversion, civil conspiracy, and breach of fiduciary duty, respectively.[75]Plaintiffs seek direct and consequential damages, treble damages (under their RICO claim), costs of suit, attorneys' fees, and disgorgement of any earned compensation (under their breach of fiduciary duty claim).

         Defendants filed the instant Motion for Summary Judgment on October 3, 2016.[76] In their motion, Defendants argue (1) that Plaintiffs do not have sufficient evidence to prove the requisite elements of their RICO claims, [77] (2) that Plaintiffs do not have sufficient evidence to prove their breach of fiduciary claim, [78] and (3) that Plaintiffs cannot recover, as a matter of law, any preproduction expenditures incurred in connection with Plaintiffs' efforts to produce the film or any lost profits that Plaintiffs allege the film would have earned had it been produced.[79]

         Plaintiffs filed their Opposition to this motion on October 24, 2016.[80] Defendants replied to this Opposition on November 7, 2016.[81]


         A. Standard of Review

         Summary judgment is granted when “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”[82] A dispute is “genuine if a reasonable trier-of-fact could find in favor of the non-movant, ” and “material if it could affect the outcome of the case.”[83] To defeat a motion for summary judgment, then, the nonmoving party must point to evidence in the record that would allow jury to rule in that party's favor.[84] When deciding whether to grant summary judgment, a court should draw all reasonable inferences in favor of the non-moving party.[85]

         B. Whether Plaintiffs Can Establish a Claim Under 18 U.S.C. § 1962(c)

         Section 1962(c) of Title 18 of the United States Code states that

It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt.

         To prove a violation of this provision, then, a plaintiff must show

(1) The existence of an enterprise affecting interstate commerce; (2) that the defendant was employed by or associated with the enterprise; (3) that the defendant participated . . . either directly or indirectly, in the conduct or the affairs of the enterprise; and (4) that he or she participated through a pattern of racketeering activity.[86]

         RICO defines “racketeering activity” to include “any act or threat involving specified state-law crimes, any act indictable under various specified federal statutes, and certain federal offenses.”[87] There is no need, however, for a plaintiff to show that a defendant has “already been convicted of a predicate racketeering act.”[88]

         The statute also indicates that a “pattern of racketeering activity”

requires at least two acts of racketeering activity . . . the last of which occurred within ten years (excluding any period of imprisonment) after the commission of a prior act of racketeering activity.[89]

         The Supreme Court has noted, however, that “there is something to a RICO pattern beyond simply the number of predicate acts involved.”[90] This is true even if there are more than the required two acts, since “[i]t is not the number of predicates but the relationship that they bear to each other or to some external organizing principle” that matters.[91] To prove a “pattern of racketeering activity, ” then, a plaintiff “must show that the racketeering predicates are related, and that they amount to or pose a threat of continued criminal activity.”[92] Such “[c]ontinuity is both a closed- and open-ended concept, referring either to a closed period of repeated conduct, or to past conduct that by its nature projects into the future with a threat of repetition.”[93]

         1. Whether Plaintiffs Can Demonstrate “Close-Ended Continuity”

         When a case involves an allegation of a “closed period of repeated conduct” - also known as “closed-ended continuity” - the Third Circuit has noted that “duration is the sine qua non of [such] continuity, ” and that such schemes “deal[] with fraudulent conduct lasting years, sometimes over a decade.”[94] The Third Circuit has also noted that, although there is no “litmus test” for determining when a period of repeated conduct is sufficiently long to constitute a close-ended “pattern” under RICO, “twelve months is not a substantial period of time, ” and has held that a 1-year-long scheme does not suffice.[95] Plaintiffs and Defendants here agree that if Plaintiffs cannot demonstrate more than a one-year period of racketeering activity, they cannot show “closed-ended continuity.”[96]

         Plaintiffs have not met their burden here. If Defendants and the Jacobses were involved together in early 2009 in some sort of scheme meant to defraud the Plaintiffs and other hopeful movie producers - which question this Court need not, and does not, decide - Plaintiffs have not produced any evidence from which a jury could find that such scheme lasted even one year. Plaintiffs have also not produced any evidence showing what other possible “racketeering activity” ...

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