1 2 3 4 5 6 7 10 HENLEY FINANCE, LTD., No. 2:20-cv-01834-DJC-KJN 11 Plaintiff, ORDER DENYING MOTION FOR v. 13 GOYETTE & ASSOCIATES, INC., a 14 California corporation; BIOSCIENCE ENTERPRISES, INC., a California 15 corporation; and DOES 1 THROUGH 20, inclusive, 16 Defendants. 17 18 19 This case arises from a disputed loan transaction involving CBD products in 20 2019 between two companies: Plaintiff Henley Finances, Ltd. (“Henley”), which was 21 founded by Richard Butler; and Defendant Bioscience Enterprises, Inc. (“Bioscience”), 22 whose President and authorized agent is Richard Parker. This suit concerns a 23 transaction involving money that was transferred from Henley to Bioscience, in which 24 Bioscience’s lawyer, Paul Q. Goyette and his law firm (“Goyette”) was the intermediary. 25 Regarding the claims against Goyette, Henley alleges that Goyette held the money in 26 escrow, and that he breached several duties owed to Henley, including by disbursing 27 the funds to his client, Bioscience, without authorization and by failing to disclose the 28 status of the funds. Goyette now moves for summary judgment, arguing that an 1 escrow was never created, and that he is thus entitled to judgment as a matter of law. 2 For the reasons set forth below, the Court DENIES Goyette’s Motion for Summary 3 Judgment (ECF No. 35), concluding that a reasonable jury could find that an escrow 4 was created and that Plaintiff is therefore entitled to relief. 6 I. Factual Background 7 A. Henley Explores the CBD Industry 8 In January 2019, Henley was looking to invest in the CBD industry. ( Compl. 9 (ECF No. 1) ¶ 8 .) Around the same time, Goyette entered into a Fee Agreement with 10 Bioscience to provide transaction services, litigation services, and escrow services. 11 ( Decl. of Thomas Rivera in [ ] Supp. of Goyette’s Mot. for Summ. J. (“Rivera Decl.”) 12 Ex. 10 (ECF No. 35-4 at 166–212), at 37–44 (providing a copy of the 1/14/2019 Fee 13 Agreement).) 14 In March 2019, Robert Kay, Henley’s agent at the time, entered into an 15 agreement with another company called Commodity Clearinghouse Corporation or 16 “C3.” ( Rivera Decl. Ex. 9 (ECF No. 35-4 at 135–42), at 3–10 (providing a copy of 17 the 3/12/2019 hemp trade agreement between C3 and Kay).) This agreement 18 between C3 and Robert Kay contemplated escrow services that involved Goyette’s 19 firm and used Goyette’s IOLTA (interest on lawyer trust account) to hold money for 20 future CBD transactions. ( Decl. of Michael J. Aguirre in Supp. of Henley’s Opp’n 21 to Goyette’s Mot. for Summ. J. (“Aguirre Decl.”) Ex. 14 (ECF No. 40-6 at 30–33), at 1–2 22 (providing a copy of an email from Goyette explaining the process).) 23 B. Henley Enters into the Henley-Bioscience Loan Agreement 24 Subsequently, on July 2, 2019, Henley (through Butler) and Bioscience (through 25 Parker) agreed that Henley would give $1.25 million “in the form of a Direct Loan for 26 the Use of Bioscience business operations, and to conduct the trade of Hemp derived 27 CBD isolate.” (Aguirre Decl. Ex. 1 (ECF No. 40-5 at 1–3) [hereinafter Henley-Bioscience 28 Loan Agreement or 7/2/2019 Henley-Bioscience Loan Agmt.].) In return, the Henley- 1 Bioscience Loan Agreement states that “Bioscience agrees to return the Loan Principal 2 ($1,250,000) and Fifty Percent (50%) of the Gross Margin from any Hemp CBD 3 Buy/Sell Transaction that involves funds from the Loan Principal by Lender.” (7/2/2019 4 Henley-Bioscience Loan Agmt. at 1.) “In any case the principal and any related fees 5 will be returned to Lender No Later Than September 3, 2019.” ( ) 6 Rather than directly sending the money to Bioscience, Henley wired the funds 7 into Goyette’s lawyer trust account. Although Goyette denies knowledge of any 8 agreement between Henley and Bioscience, the use of Goyette’s trust account 9 appears to have been based on the earlier C3 transaction. ( Henley’s Opp’n to 10 Goyette’s Mot. for Summ. J. (ECF No. 40) 13 [hereinafter Opposition or Opp’n] 11 (citations omitted); Dep. of Robert Kay 21:2–25 [hereinafter Kay Dep. Tr.] (explaining 12 that Goyette previously offered escrow services for the C3 transaction); Dep. of 13 Richard Parker 34:1–35:9 [hereinafter Parker Dep. Tr.] (explaining that it was his 14 understanding that Henley’s loan money would “be placed in a trust account with 15 Goyette” because Bioscience, through Parker, “told them that we had used - - that we 16 used Goyette[ ]”).) Important for resolving the Motion for Summary Judgment are 17 seven communications involving the principal actors that provide context to Henley’s 18 $1 million wire to Goyette for the “Direct Loan” to Bioscience. 19 1. The July 9th Communications: The Day Before the Wire 20 [1] On July 9, 2019, around 8:00 PM Pacific Standard Time (“PST”), Parker, 21 Bioscience’s President; Butler, Henley’s Founder; and Kay, Henley’s agent, exchanged 22 emails regarding an “Update” to how the loan would be funded. ( Rivera Decl. Ex. 23 9 (ECF No. 35-4 at 148–49), at 16–17 (providing a copy of the 7/9/2019 email from 24 Parker to Kay, copying Butler).) Henley and Bioscience agreed that Henley would 25 immediately send one payment of $625,000, “with the balance to be confirmed in the 26 next few days . . . to show proof of funds.” ( ) They also agreed to “review the 27 account status in the morning and take it from there.” ( ) 28 //// 1 [2] Then, at 10:07 PM PST, Bioscience (through Parker) emailed Goyette. ( 2 Aguirre Decl. Ex. 7 (ECF No. 40-6 at 1–2) (providing a copy of the 7/9/2019 emails 3 between Parker and Goyette).) Parker informed Goyette that two wires of $625,000 4 from outside accounts would be coming from a loan the next day. ( ) Parker 5 also provided instructions for Goyette to: (a) immediately wire $600,000 to 6 Bioscience’s account; (b) pay outstanding fees related to another litigation; and (c) pay 7 himself (Goyette) a fee. ( ) Goyette confirmed receipt of the email 18 minutes 8 later, stating that he would look for the transaction in the morning. ( ) 9 2. The July 10th Communications: The Day of the Wire 10 [3] The next morning, Kay followed up on his prior email to “review the account 11 status in the morning and take it from there.” ( Rivera Decl. Ex. 11 (ECF No. 35-4 at 12 213–14) (providing a copy of the 7/10/2019 email from Kay to Bioscience).) Kay 13 emailed Bioscience and Parker at 2:44 PM when he was in London (6:44 AM PST) 14 about some “Housekeeping” issues. ( ) Kay mentioned creating a “clear plan to 15 execute and address” a “Letter to order from Goyette for RB funds” and a “Cash flow 16 for RB $1m[.]”1 ( ) 17 [4] Later, Goyette noticed the nearly $1 million in his lawyer trust account, which 18 he stated “surprised” him and prompted him to begin calling his clients until he 19 reached Parker, Bioscience’s President. ( Mem. of P. and A. in Supp. of Def.’s Mot. 20 for Summ. J. (ECF No. 35-1) 6 [hereinafter Motion or MSJ] (quoting Decl. of Paul Q. 21 Goyette in [ ] Supp. of Goyette’s MSJ (ECF No. 35-5) ¶ 8 [hereinafter Goyette Decl.]).) 22 During this phone call, Parker told Goyette that the $1 million belonged to him, and 23 again gave Goyette instructions to disburse the money. ( Dep. of Paul Q. Goyette 24 29:15–30:13, 108:10–25 [hereinafter Goyette Dep. Tr.].) According to Goyette, “[a]t no 25 time did Mr. Parker tell [Goyette] that [he] needed the approval of anyone else to 26 disburse the funds.” (Goyette Decl. ¶ 9.) 27 1 For purposes of this Motion, the Court assumes that “RB” was an abbreviation for Richard Butler, 28 Henley’s Founder. 1 [5] Sometime after this call, Goyette emailed Bioscience’s Parker to confirm that 2 he tried transferring $600,000 at 11:15 AM PST to Bioscience’s account, and that he 3 otherwise disbursed the funds and assessed a fee. ( Aguirre Decl. Ex. 13 (ECF No. 4 40-6 at 26–29), at 1–2.) Goyette assessed an “Escrow fee of $5000 (50 basis points of 5 the $1 million)[,]” consistent with the fee stipulated in the Goyette-Bioscience Fee 6 Agreement. (Aguirre Decl. Ex. 13, at 2; Rivera Decl. Ex. 10, at 38 (“Fees for 7 Escrow Services described above shall be described in the Escrow Engagement 8 documents and, unless otherwise agreed by the Parties, shall be .05% of total monies 9 deposited into Escrow.”).) 10 3. The July 11th Communications: The Day After the Wire 11 [6] The next day, on July 11th, at 9:47 AM PST (5:47 PM in London), Kay 12 emailed Henley’s Founder, Butler, an “Update” that the funds were “visible at Wells 13 Fargo . . . [,]”and that “Paul Goyette will do the ‘Letter to Henley Finance Order[.]’” 14 (Aguirre Decl. Ex. 12 (ECF No. 40-6 at 24–25) (providing a copy of the 7/11/2019 email 15 from Kay to Henley).) Kay testified that this letter was supposed to be “from Mr. 16 Goyette specifically stating that nothing will leave his client’s account, which we are to 17 believe was Richard Butler’s account, without his order, without his instruction.” (Kay 18 Dep. Tr. 67:11–14.) Kay also testified that “at his time, [they] still didn’t have the – the 19 letter from Mr. Goyette, which had been requested, stating that everything would be 20 to Richard Butler’s order.” ( 66:24–67:2.) 21 [7] Finally, at 11:09 AM PST (7:09 PM in London), Kay had about a six-minute 22 phone call with Goyette. ( Compl. ¶ 24; Kay Dep. Tr. 22:2–25.) The parties hotly 23 contest what transpired on the call, but according to Kay, Goyette confirmed to Kay 24 that the funds were received and acknowledged the instruction “stipulated” to 25 Bioscience that no funds be disbursed without the permission of Henley through 26 Butler [hereinafter the preauthorization instruction]. ( Kay Dep. Tr. 22:2–25 ) 27 Goyette, however, declared that he does “not recall having this discussion [with Kay 28 on July 11, 2019], nor do[es] [he] recall receiving any instructions from Mr. Kay 1 regarding any Henley funds.” (Goyette Decl. ¶ 10.) Kay also testified that he does not 2 recall what Goyette said on the conversation, but he did “recall that [the 3 preauthorization instruction and escrow] was received with acknowledgment[,]” and 4 that he believed that Goyette fully understood the request and “acknowledged the 5 undertaking . . . .” (Kay Dept. Tr. 23:1–9.) 6 4. The July 16th Transfer: Most of the Funds Are Gone 7 Several days later, on July 16th, Bioscience’s President, Parker, instructed 8 Goyette to send $378,000 to a supplier called CETC under a contract that Bioscience 9 had negotiated and for which Bioscience had requested Goyette’s assistance. ( 10 MSJ 6–7 (citations omitted); Aguirre Decl. Ex. 10 (ECF No. 35-4 at 180–91), at 14–25 11 (providing a copy of the CETC-Bioscience Supply Agreement).) By this time, most of 12 Henley’s nearly $1 million (at least $978,000 out of the $999,950) was gone and 13 disbursed from Goyette’s IOLTA. 14 C. Henley’s Attempts to Retrieve the Funds 15 By the terms of the Henley-Bioscience Loan Agreement, the principal and any 16 related fees were due no later than September 3, 2019. ( 7/2/2019 Henley- 17 Bioscience Loan Agmt. at 1.) Throughout July and August, there were several 18 communications between Henley and Bioscience, including an “estimated timeline” of 19 “anticipated returns” on August 20, 2019. (MSJ 7 (citation omitted).) The proposed 20 timeline stated that Henley would receive a payment by the end of August. ( 8.) 21 On August 28th, Henley’s Founder, Butler, emailed Goyette about the “Return 22 of Funds.” ( Aguirre Decl. Ex. 16 (ECF No. 40-6 at 43–45), at 1 (providing a copy of 23 the 8/28–8/29/2019 emails between Butler, Goyette, and Parker).) In the email, Butler 24 told Goyette that “Richard Parker has informed me he has instructed you to make a 25 wire transfer to my Henley Finance business account for $1,100,000. Please can you 26 confirm when this will be executed and supply a proof of payment for my records.” 27 ( ) Goyette responded on August 29th, where he stated that he had “not heard from 28 1 my client Mr. Parker on this transaction yet,” but assured Butler that he would “be in 2 touch” once he spoke to Parker. ( ) 3 On September 6th, Henley’s Founder, Butler, emailed Goyette. ( Aguirre 4 Decl. Ex. 17 (ECF No. 40-6 at 46–47) (providing a copy of the 9/6/2019 email from 5 Henley’s Butler to Goyette.) Butler asked Goyette to “confirm how much you are 6 holding on account for me, and do not release any funds, as discussed on the 7 telephone without my consent please.” ( ) That same day, Bioscience’s President, 8 Parker, sent an email to Goyette and copied Butler about the “Usage of Funds.” ( 9 Aguirre Decl. Ex. 18 (ECF No. 40-6 at 48–49) (providing a copy of the 9/6–9/7/2019 10 emails between Goyette, Butler, and Parker).) Parker instructed Goyette “that no 11 funds of Richard Butler or Henley Finance are to be used without the express written 12 authorization of Richard Butler himself. No party from BioScience shall be authorized 13 to access that capital in any matter.” ( ) Goyette responded on September 7th, 14 indicating his understanding. ( ) Goyette also discussed opening a separate 15 lawyer trust account for Henley. ( ) Goyette does not appear to have informed 16 Mr. Butler or any agent of Henley that, in fact, the funds had already been spent. ( 17 Opp’n 23 (citing Goyette Dep. Tr. 120:7–13).) 18 Also on September 7th, Kay emailed Bioscience and Henley about “a $1m 19 problem that we all have a responsibility to preserve.” (Rivera Decl. Ex. 9 (ECF No. 35- 20 4 at 156–57), at 25 (providing a copy of the 9/7–9/8/2019 emails between Goyette, 21 Kay, Henley, and Bioscience).) Parker responded the next day, revealing that some 22 CBD products and materials purchased for the July 16th CETC transaction were “not 23 going to pass future tests, [and] the man we purchased it from is more than likely a 24 fraud and is not going to have the funds for immediate return as a result. This means 25 regardless of the outcome BioScience is still responsible for all funds.” ( ) 26 Soon after, on September 10th, Henley, through Butler, asked Goyette about 27 securing the funds because he had not “had any correspondence regarding these 28 deals as promised in the agreement[,]” and because Bioscience had “problems with 1 the last deal . . . .” (Rivera Decl. Ex. 9 (ECF No. 35-4 at 165), at 33 (providing a copy of 2 the 9/6–9/10/2019 emails between Butler, Goyette, and Parker).) Following this, the 3 record indicates that the relationship between the parties soured as Henley sought 4 repayment. ( MSJ 8 (citing an email Butler sent Goyette on 2/13/2020 where 5 Butler asked about finding a “productive way” for Bioscience to repay the money).) 6 II. Procedural Background 7 Henley filed the Complaint on September 11, 2020. (See Compl. 12.) Goyette 8 filed the instant Motion on May 30, 2023 seeking to dismiss the two causes of action 9 against him; Bioscience is not a party to this Motion. ( MSJ (ECF No. 35).) The 10 Court heard arguments on the Motion on August 18, 2023, where Attorney Andrew 11 Stroud appeared for Goyette and Attorneys Michael Aguirre and Maria Severson 12 appeared for Henley. ( ECF No. 42.) At the conclusion of the hearing, the Court 13 offered the parties the opportunity to file supplemental briefing on whether an 14 attorney may, consistent with any ethical and legal obligations, charge a fee for 15 disbursing proceeds from a loan that was deposited into the attorney’s trust account. 16 ( ) Henley and Goyette filed supplemental briefing on August 24, 2023. ( 17 ECF Nos. 44–45.) The Motion is now fully briefed. 19 I. Legal Standard 20 The Federal Rules of Civil Procedure provide for summary judgment when “the 21 pleadings, depositions, answers to interrogatories, and admissions on file, together 22 with affidavits, if any, show that there is no genuine issue as to any material fact and 23 that the moving party is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c); 24 , 477 U.S. 317, 322 (1986). One of the principal purposes of 25 Rule 56 is to dispose of factually unsupported claims or defenses. , 477 U.S. at 26 325. Therefore, the “threshold inquiry” is whether “there are any genuine factual 27 issues that properly can be resolved only by a finder of fact because they may 28 reasonably be resolved in favor of either party[,]” or, conversely, “whether it is so one- 1 sided that one party must prevail as a matter of law.” , 2 477 U.S. 242, 250–52 (1986). But “the mere existence of alleged factual dispute 3 between the parties will not defeat an otherwise properly supported motion for 4 summary judgment[.]” at 247–48. “Only disputes over facts that might affect the 5 outcome of the suit under the governing law will properly preclude the entry of 6 summary judgment.” at 248. 7 In a summary judgment motion, the moving party always bears the initial 8 responsibility of informing the court of the basis for the motion and identifying the 9 portion of the record “which it believes demonstrates the absence of a genuine issue 10 of material fact.” , 477 U.S. at 323. If the moving party meets its initial 11 responsibility, the burden then shifts to the opposing party, which “must establish that 12 there is a genuine issue of material fact . . . .” 13 , 475 U.S. 574. 585 (1986). To meet its burden, either party must “(A) cit[e] 14 to particular parts of materials in the record, . . . or (B) show[ ] that the materials cited 15 do not establish the absence or presence of a genuine dispute, or that an adverse 16 party cannot produce admissible evidence to support the fact.” Fed. R. Civ. P. 17 56(c)(1). 18 For the opposing party to succeed and avoid summary judgment, the party 19 “must do more than simply show that there is some metaphysical doubt as to the 20 material facts , 475 U.S. at 586. The opposing party must put forth more 21 than “a scintilla of evidence in support of the [party’s] position . . . .” , 477 22 U.S. at 252. Rather, the opposing party must produce enough evidence such that “the 23 ‘specific facts’ set forth by the nonmoving party, coupled with undisputed background 24 or contextual facts, are such that a rational or reasonable jury might return a verdict in 25 its favor based on the evidence.” 26 , 809 F.2d 626, 631 (9th Cir. 1987). In other words, for the moving party to 27 succeed, the Court must conclude that no rational trier of fact could find for the 28 opposing party. , 475 U.S. at 587. However, so as not to “denigrate the 1 role of the jury[,]” “[c]redibility determinations, the weighing of the evidence, and the 2 drawing of legitimate inferences from the facts are jury functions,” and so the Court 3 draws all reasonable inferences and views all evidence in the light most favorable to 4 the opposing party. , 477 U.S. at 255; , 475 U.S. at 587–88. 5 II. Analysis 6 Because Henley wired money to Goyette’s lawyer trust account, Henley argues 7 that an escrow arose that included the specific oral instruction that no money be 8 disbursed from Goyette’s lawyer trust account without Henley’s permission (the 9 preauthorization instruction). ( Opp’n 5–8, 14.) In contravention of this alleged 10 instruction, however, Bioscience executed several transactions that used the money 11 Henley sent Goyette without preauthorization. ( Goyette’s Resp. to Henley’s 12 Additional Statement of Undisputed Material Facts Re: Goyette’s MSJ (ECF No. 41-1), 13 at 20, 22–27 (providing Henley’s 38th and 43rd through 50th statements of facts that 14 are all disputed).) These subsequent transactions using Henley’s money give rise to 15 the first and third causes of action against Goyette for conversion of the funds and 16 breach of fiduciary duties, respectively. ( Compl. ¶¶ 32–34 (first cause of action for 17 conversion against Goyette); ¶¶ 41–46 (third cause of action for breach of fiduciary 18 duty against Goyette).) Goyette counters, however, arguing that he never agreed to 19 be the deposit-holder of the escrow and that he was unaware of any instruction that 20 the funds not be disbursed without Henley’s authorization. He points to the 21 transactions complained of by Henley and the communications related to them as 22 evidence that there was never a preauthorization instruction and that Henley and 23 Butler consented to the use of any of these funds. ( Reply Mem. of P. and A. in 24 Supp. of Goyette’s MSJ (ECF No. 40) 1–2 [hereinafter Reply].) 25 For purposes of summary judgment, this case comes down to three basic 26 questions: (1) whether a jury can find that — before Henley wired the funds— 27 Bioscience and Henley had the mutual understanding that any escrow transaction with 28 Henley’s money would include the preauthorization instruction; (2) and if so, whether 1 Goyette knew of and consented to the terms of the escrow and being the escrow 2 holder, and (3) whether Goyette violated any duties arising from the contemplated 3 escrow transaction. As explained below, there is sufficient evidence to show that a 4 mutual understanding between Bioscience and Henley was established regarding the 5 preauthorization instruction before the funds were wired to Goyette. Part 6 II.A.1. In addition, there is direct and indirect evidence in the record from which a jury 7 could find that Goyette accepted the role of deposit-holder and escrow agent and 8 that Goyette knew that Henley deposited the money and intended to create the 9 escrow pending further instructions. Part II.A.2. A reasonable jury could 10 further find that Goyette breached fiduciary duties owed to Henley by failing to 11 disclose the status of the funds held inside the escrow. Part II.B. Finally, in 12 light of the above and additional circumstantial evidence in the record, a jury could 13 find that Henley did not consent to or ratify the funds being disbursed outside of an 14 escrow account pending further instruction. Part II.C. 15 A. Henley Provides Sufficient Evidence Regarding the Escrow 16 Although Goyette disputes whether an escrow arose ( , Reply 1), each 17 of the other parties involved, Bioscience’s Parker, Henley’s Butler, and Robert Kay, all 18 agreed and testified that an escrow in Goyette’s lawyer trust account would be used to 19 hold the $1 million from Henley. ( Opp’n 12–13.2) Therefore, the fundamental 20 issue in this case is whether an escrow with the preauthorization instruction was 21 contemplated between Henley and Bioscience. 22 The preauthorization instruction is key to resolving the issues before the Court. 23 If the preauthorization instruction was part of the mutual understanding between 24 2 ( Parker Dep. Tr. 198:10–200:24 (“Q: No. But you understood in your discussions at least with 25 Mr. Butler that there was an understanding that Goyette would provide the escrow services for the Henley money.” A: Yes.”); Butler Dep. Tr. 49:7–16 (“Rob Kay had been through this similar business 26 with Bioscience, and we were just following the same process that he went through when he did his business with Bioscience.”); 75:21–76:2 (same); Kay Dep. Tr. 54:20–56:24 (“The – the one point that 27 we constantly referenced was the escrow account, that it had to be under a protected - - protected status, legally protected status. We weren’t going to just send him the money to do what he wanted to 28 do. That was absolutely sacrosanct at the time of that conversation.”).) 1 Henley and Bioscience for the Loan Agreement, and Goyette was aware of this 2 instruction, then the preauthorization instruction changes the nature of the transaction 3 from a loan to an escrow. Regarding the third cause of action for breach of fiduciary 4 duty, it is the existence of an escrow that gives rise to fiduciary duties in the first 5 instance, including the duty to disclose information. Second, regarding the first cause 6 of action for conversion, the claim is based on Goyette and Bioscience using the 7 money without proper authorization; if it was a mere loan, Henley would not have had 8 a right to immediate possession of the funds. 9 “An escrow involves the deposit of documents and/or money with a third party 10 to be delivered on the occurrence of some condition.” 11 , 27 Cal. 4th 705, 711 (2002) (citing 2 Miller and Starr, 12 Ch. 6 Escrows § 6:1 (4th ed. June 2023 Update) 13 [hereinafter Miller and Starr, Escrows]; Cal. Fin. Code § 17003(a)). “An escrow holder 14 is an agent and fiduciary of the parties to the escrow.” (citing 15 , 58 Cal. 2d 528, 534 (1962); , 35 16 Cal. 2d 170, 173 (1950)). “The agency created by the escrow is limited . . . to the 17 obligation of the escrow holder to carry out instructions of each of the parties to the 18 escrow.” , 27 Cal. 4th at 711 (citations omitted). The escrow holder is liable for 19 the failure to follow instructions. (citing , 58 Cal. 2d at 532). “Absent 20 clear evidence of fraud, an escrow holder’s obligations are limited to compliance with 21 the parties’ instructions.” (citing , 264 Cal. App. 2d 22 160, 162 (1968); Miller and Star, Escrows § 6:26). 23 The limited agency theory of an escrow is what gives rise to Goyette’s potential 24 liabilities, which requires differentiating what those duties are and when they arise. 25 There are three key moments in an escrow, each creating different obligations 26 between the parties (the promisor and promisee) and the agent (the escrow holder). 27 First, there is the moment when a binding contract arises between the promisor 28 and the promisee. If there is no binding contract between the promisor and the 1 promisee before the promisor transferred the documents and/or money into the 2 deposit-holder’s account, the deposit-holder is an “intermediary [and] an agent” of the 3 party that transferred the item “whose power can be revoked or changed at the will of 4 the one who has appointed [the agent].” § 14D 5 Reporter’s Notes (1958) (May 2023 update); , 173 Cal. 597 (1917) 6 (citing , 72 Cal. 133, 144 (1887)). 7 Second, there is the delivery of the documents and/or money into the deposit- 8 holder’s account, at which point the items held in the escrow become irrevocable. At 9 this point, the deposit-holder is, “prior to the performance of the conditions of the 10 escrow, the agent of both parties thereto[.]” , 194 Cal. 699, 707 11 (1924) (citing ; , 77 Cal. 279 (1888)); The Rutter Group, 12 ¶ 4581:5 (Sept. 2022 Update) [hereinafter 13 Rutter Group, Use of an Escrow] (citations omitted) (same); 14 § 14D Comment a (same); Miller and Starr, Escrows § 6:11 (same). That is, 15 prior to the completion of the escrow instructions (commonly called the close of 16 escrow), the escrow holder owes independent obligations to parties to the escrow. 17 The duties an escrow holder owes to both principals, though more limited than similar 18 duties for general agents, includes the duty to disclose information that is: 19 (1) acquired by the escrow holder in the escrow in which both principals are parties, 20 and (2) is “specific material information pertinent to matters within the same escrow 21 that could have a substantial adverse effect on the principal . . . .” 22 , 91 Cal. App. 4th 429, 440 (2001) (citing, among other sources, Miller and 23 Starr, Escrows §§ 6:23, 6:26); Miller and Starr, Escrows § 6:13 (same); Rutter 24 Group, Use of an Escrow ¶ 4:582.5. Rutter Group, Use of an Escrow ¶ 4:645.1 25 (limiting the duty to disclose to when the escrow holder knows that a party to the 26 escrow is relying on it for protection as to facts learned by the escrow holder). 27 Finally, but not relevant here, there is the close of escrow, when the instructions 28 have been completed or have failed to be completed within the time specified. At 1 this point, the agent’s role is limited to the rights that each party has to the items in the 2 escrow. , 194 Cal. at 707; Rutter Group, Use of an Escrow ¶ 4:581.6 3 (same); § 14D Comment b (same); Miller and Starr, 4 Escrows § 6:26 (same); Miller and Starr, Escrows § 6:25 (discussing the rights of 5 the parties to the items held in the escrow upon no performance by either party and 6 full performance by either or both parties). 7 1. Henley Can Establish a Mutual Understanding Regarding the Preauthorization Instruction Before the Funds Were Wired 8 9 Goyette first argues that the preauthorization instruction was not part of the 10 Henley-Bioscience Loan Agreement and therefore is not part of the contract between 11 Henley and Bioscience. ( MSJ 1, 12–15; Reply 10 and n.5; Goyette Decl. ¶ 9.) 12 However, Henley, mostly through Henley’s agent, Robert Kay, provides evidence from 13 which a reasonable jury could find that Henley established a mutual understanding 14 with Bioscience regarding the preauthorization instruction on the morning of July 10, 15 2019, before the $1 million were wired to Goyette and before Goyette disbursed the 16 funds. Kay emailed Parker and other members of Bioscience on July 10th about 17 “Housekeeping,” where he mentioned a “Letter to order from Goyette for RB funds” 18 and a “Cash flow for RB $1m[.]” (Rivera Decl. Ex. 11.) Henley then points to a July 19 11th email from Kay to Butler about an “Update” that mentions that “Paul Goyette will 20 do the Letter to Henley Finance Order[,]” which was a letter meant to memorialize the 21 preauthorization instruction. (Aguirre Decl. Ex. 12.) The July 10th and July 11th 22 emails seem similar enough in content (both discussing the $1 million and a letter 23 from Goyette regarding those funds) to permit an inference that the two letters involve 24 the same matter, and Kay testified that the July 11th email was about an outstanding 25 letter to memorialize the preauthorization instruction. ( Kay Dep. Tr. 66:24–67:2.) 26 Kay also testified that he received the information contained in the July 11th email 27 from Parker. ( 64:7–69:15 (explaining that “this information was given to me by 28 Parker” but stating that only the information regarding the funds being visible and in 1 the account was given).) Finally, while the Loan Agreement does not contain the 2 preauthorization instruction, it does reference a requirement that Bioscience will 3 provide “Escrow balance summaries for each transaction” (7/2/2019 Henley- 4 Bioscience Loan Agmt. at 2), consistent with this evidence. Therefore, a jury can 5 reasonably find that there was a mutual understanding regarding the preauthorization 6 instruction between Henley, through Butler, and Bioscience, through Parker, based on 7 these emails with Kay, as well as Kay’s deposition testimony. 8 2. A Jury Can Find That Goyette Assented to An Agency 9 Goyette’s principal contention is that no escrow existed because he never 10 accepted the role as the depositor-holder of the escrow. ( , Reply 3–6.) 11 Escrows are contractual in nature. Rutter Group, Use of an Escrow ¶ 4:573 12 (“Escrow transactions are in nature and, so, cannot be created without the 13 agreement of seller, buyer and escrow holder.”). Like any other contract, escrows 14 require mutual assent or understanding between the contracting parties. , 15 , 771 F.3d 559, 565 (9th Cir. 2014) (collecting cases 16 from California to apply California state law). 17 Under California law, mutual consent or assent “is determined by objective 18 rather than subjective criteria, the test being what the outward manifestations of 19 consent would lead a reasonable person to believe.” 20 , 7 Cal. 5th 781, 789 (2019) (citation omitted). California courts have held 21 that mutual assent may be manifested by written or unspoken words, or by conduct, 22 and acceptance of contract terms may be implied through action or inaction. 23 , 771 F.3d at 565 (citations omitted). Therefore, “an offeree, knowing that an 24 offer has been made to him but not knowing all of its terms may be held to have 25 accepted by his conduct, whatever the terms the offer contains.” , 771 F.3d at 26 565 (citations omitted). 27 Here, Goyette does not dispute that he accepted the $1 million deposit from 28 Henley, instead arguing that Henley provides no evidence to prove Goyette accepted 1 the role. ( Reply 4–6.) However, Henley provides both circumstantial and direct 2 evidence from which a reasonable jury could find that Goyette objectively assented to 3 being an agent for the contemplated escrow transaction. For direct evidence, Henley 4 points to the July 10th email from Goyette to Parker where, after disclosing that the 5 earlier $1 million incoming wire was still pending, Goyette stated: “In addition, from 6 those monies I will assess three fees or invoices as follows: 1. Escrow fee of $5000 (50 7 basis points of the $1 million). . . .” (Aguirre Decl. Ex. 13.) Goyette did in fact take an 8 escrow fee of $5,000, which used the calculation stipulated in Goyette’s Fee 9 Agreement with Bioscience. ( Opp’n 15; Rivera Decl. Ex. 3 (ECF No. 40-5 at 20– 10 34), at 2, 10 (providing copies of the Fee Agreements between Goyette and 11 Bioscience that state that “Fees for Escrow Services described above shall be . . . .05% 12 of total monies deposited into Escrow[ ]”).) 13 Henley also points to the fact that the Fee Agreements contain a clause 14 expressly excluding any legal services not provided for in the contract, and the 15 contract only provides for three types of services: (1) transactional services; 16 (2) litigation; and (3) escrow services. ( Opp’n 15; Rivera Decl. Ex. 3, at 1, 6, 8–9.) If 17 the contract excludes all other services such that the only services provided are 18 transactional, litigation, and escrow services, then the only plausible explanation 19 according to Goyette’s own contract is that he provided escrow services. This is 20 further supported by Goyette’s own declaration where he revealed that he “played no 21 role in negotiating the Henley-Bioscience loan or drafting the Henley-Bioscience Loan 22 Agreement[,]” therefore precluding the only plausible alternative explanation of 23 charges for transactional services. (Goyette Decl. ¶ 6; Reply 1, 3, 11.3) 24 25
26 3 At oral argument, counsel for Goyette observed that the Fee Agreement also required specific documents be executed for any escrow services, which did not happen. The suggestion is that if 27 Henley relies on one portion of the fee agreement (the exclusive list of services provision), then it must rely on the entirety of the agreement (which would also include the escrow documents). This is a fair 28 point, but one that would go to the weight a jury would give these respective facts. 1 Furthermore, Kay testified that when he called Goyette on July 11, 2019, he did 2 so to “corroborate” information Parker gave to Kay, which included discussing the 3 “Letter to Henley Finance Order” referred to in the July 10th and July 11th emails 4 mentioned earlier. ( Kay Dep. Tr. 64:7–68:6.) Kay further testified that, at the time 5 of his call with Goyette, he was aware of the $1 million being sent to Goyette’s “escrow 6 account[,]” and stated that “[i]t was stipulated to Richard Parker in unequivocal terms 7 that that money was to go nowhere and not be released without [Henley’s] 8 permission, and that was confirmed verbally.” ( 22:6–12.) That is, Kay testified to 9 having all of the knowledge required to know that Henley and Bioscience created an 10 escrow.4 11 Although Goyette declared that he does not recall having this discussion and 12 does not recall receiving any instructions from Kay ( Goyette Decl. ¶ 10), Kay’s 13 testimony indicated otherwise. Faced with conflicting evidence, the Court must take 14 the non-movant’s evidence because it will be for a jury to decide whether to find Kay’s 15 testimony more credible. , , 815 F.2d 1285, 16 1288–89 (9th Cir. 1987) (citation omitted). Therefore, a jury could find that Goyette 17 was aware of the escrow’s preauthorization instruction at least as of July 11, 2019. 18 Goyette further argues that he did not know that the funds belonged to or 19 came from Henley, so he cannot be an agent for Henley. ( MSJ 5–6, 12; Goyette 20 Dep. Tr. 30:18–25; 119:25–120:13.) But, as Henley points out, “Goyette noted 21 ‘Henley’ in its wire transfer of Henley’s funds to Bioscience that day[.]” (Opp’n 1; 22 Aguirre Decl. Ex. 10 (ECF No. 40-6 at 7–10), at 3 (providing a copy of the receipt for 23 the funds from Wells Fargo that lists “Henley Finan” as the third-party reference); 24 Aguirre Decl. Ex. 22 (ECF No. 40-7 at 1–3), at 1 (providing a copy of Goyette’s lawyer 25 trust account summary that shows “Henley Finance Limited” listed under the $1 million 26 4 Given the state of the evidence, it is possible that a jury could find that while Goyette was unaware of 27 the preauthorization instruction before the July 11th phone call with Kay, at which time he had already disbursed over $600,000 in funds, he was aware of the instruction following that call. This would go to 28 the question of damages, however, not liability. 1 wire on 7/10/2019).) In addition to this direct evidence, Henley points to the March 2 2019 C3 transaction with Kay that used Goyette’s IOLTA as an escrow and the April 3 2019 Spyker bonds conversation with Butler that contemplated using Goyette’s IOLTA 4 as an escrow as indirect evidence that Goyette knew or should have known that it was 5 Henley that deposited the funds into his IOLTA with the intent to create an escrow. 6 Goyette also tries to argue that any conflicts arising from the contemplated 7 escrow transaction would necessarily conflict with the duties he owes to his client, 8 Bioscience, thereby apparently absolving him of any liability. ( , Mot. 17–18; 9 Reply 7, 9–11.) While it may be true that Goyette’s actions gave rise to a potential 10 conflict, at most that shows that he have accepted the escrow, not that he 11 Attorneys, unfortunately, sometimes fall short of their ethical obligations, and 12 California courts have recognized that a cause of action for breach of fiduciary duties 13 as an escrow holder may arise against an attorney — despite the attorney representing 14 the client/adverse party, as here. , 202 Cal. App. 3d 752, 15 757 (1988); 1 Witkin, Ch. I Attorneys § 324 (6th ed. March 2023 16 Update). 17 To summarize: (1) a jury can find that Henley and Bioscience established a 18 mutual understanding regarding the preauthorization instruction as of the morning of 19 July 10, 2019, before the $1 million were wired to Goyette’s lawyer trust account, and 20 (2) a jury could further find that Goyette was aware that Henley deposited the money 21 and intended to create an escrow as of July 10, 2019 and that Goyette assented to 22 accepting any agency arising from the deposit and escrow. 23 B. A Jury Could Find That Goyette Breached Duties to Disclose Material Information Regarding the Status of the Funds 24 25 Having found that a reasonable jury could find that an escrow was created by 26 the parties, the question remains of whether there is sufficient information to establish 27 that Goyette breached a duty arising from the escrow. The Court concludes there is. 28 Breach of any duty is a factual question left for the jury. , 215 Cal. 1 App. 2d 667, 683–84 (1963); , 71 Cal. App. 3d 161, 169–70 2 (1977). Having found that an escrow arose and that the escrow created duties owed 3 by Goyette to Henley, a reasonable jury could conclude that Goyette violated the duty 4 to strictly comply with the preauthorization instruction. , 214 Cal. App. 2d 5 at 682. Moreover, an escrow agent has a duty to disclose information regarding 6 documents and instructions held inside the escrow that arises from the right of each 7 party to the escrow to see all documents, instructions, and items within the escrow. 8 , 91 Cal. App. 4th at 440 and n.10 (citations omitted); Miller and Starr, 9 Escrows § 6:13 and n.12 (collecting cases); § 6:28 and n.14 (collecting cases). A 10 jury could find that Goyette failed to disclose the status of the funds (their non- 11 existence) to Henley in the August and September emails after the $1 million was 12 disbursed from the escrow, in violation of this obligation. ( Opp’n 13.) 13 For the reasons set forth above, the Court DENIES Goyette’s Motion for 14 Summary Judgment on Henley’s third cause of action for breach of fiduciary duties. 15 C. A Jury Could Find Goyette Converted Henley’s $1 Million 16 Conversion under California law requires a plaintiff to show: “(1) she possessed 17 property, (2) the defendant disposed of the property in a manner inconsistent with the 18 plaintiff’s property rights, and (3) damages.” , 828 19 F.3d 1023, 1038 (9th Cir. 2016) (citing , 61 Cal. 4th 1225, 1240 (2015)). 20 The Ninth Circuit has held that a conversion claim arises where: (1) an attorney 21 transfers funds without authorization, and (2) the owner identifies a specific sum of 22 money. (citing , 140 Cal. App. 4th 688, 707–08 (2006)). 23 Goyette first argues that there is no right to immediate possession if there is no 24 escrow. ( MSJ 19–23; Reply 12–13.) As stated above, however, there is enough 25 evidence to find that an escrow arose, which Goyette concedes is enough to provide 26 the right to immediate possession. ( MSJ 21; Opp’n 22.) 27 Goyette’s alternative argument opposing the conversion claim is that Henley 28 implicitly or explicitly consented to the use of the funds and knew about the funds 1 being used. Goyette points to the July 10th email where Kay (Henley’s agent) states 2 that he was sure Bioscience was busy trading the funds. ( Reply 12; MSJ 22.) 3 Goyette also seizes on the July 16, 2019 transaction involving a company called CETC, 4 and additional subsequent transactions using Henley’s funds, to argue that Henley 5 consented to the use of the funds. ( MSJ 7–8, 11, 21–23; Reply 12–13.) However, 6 Butler testified that neither Parker nor anyone at Bioscience told Henley that the funds 7 were disbursed from the escrow. ( , Butler Dep. Tr. 77:4–80:4 (explaining that 8 the deal “was that, when they were closing, they required money in escrow, and it 9 would never leave the escrow account, similar to the deal with Goyette[]”); 97:3–13 10 (explaining that he had assumed that none of the funds had been used because he 11 had not heard back from Goyette and this was because “the nature of the business 12 was that the funds were held in escrow[]”).) Additionally, Parker testified that he did 13 not ask for Henley’s permission regarding any of the July transactions. ( Parker 14 Dep. Tr. 120:6–17; 131:17–132:8.) Parker also agreed that his “best recollection now” 15 was that he did not need to tell Henley about the funds already being disbursed by 16 the time Butler emailed Bioscience on July 31st because Parker thought he could 17 recoup the money and because he thought it best to not tell Henley bad news so soon 18 into the relationship. ( 165:2–21.) Moreover, there is an email from Butler to 19 Parker, Kay, and Goyette, where Butler asked Parker to instruct Goyette to wire him 20 “$25,210 from the funds held by Paul Goyette to [his] order.” (Parker Dep. Tr. Ex. 6, at 21 1–2 (bates stamped PLTF 0009 through PLTF 0010).) This email suggests that Henley 22 thought that using the money required additional instructions, and that the funds were 23 still in Goyette’s escrow. A question of fact thus exists whether Henley consented to 24 the use of the funds, and summary judgment on this basis is inappropriate. 25 For these reasons, the Court DENIES Goyette’s Motion for Summary Judgment 26 on the first cause of action for conversion. 27 //// 28 //// 2 For the reasons set forth above, the Court DENIES Goyette’s Motion for 3 | Summary Judgment (ECF No. 35). 4 5 IT |S SO ORDERED. 7 | Dated: _ September 28, 2023 Bed | Cobabeatin. Hon. Daniel labretta 8 UNITED STATES DISTRICT JUDGE 9 10 11 12 13 14 15 16 17 | DJC3 -Henley20cv1834.msj 18 19 20 21 22 23 24 25 26 27 28
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