Appellate Case: 22-3071 Document: 010110961087 Date Filed: 11/30/2023 Page: 1 FILED United States Court of Appeals PUBLISH Tenth Circuit
UNITED STATES COURT OF APPEALS November 30, 2023 Christopher M. Wolpert FOR THE TENTH CIRCUIT Clerk of Court _________________________________
WATCHOUS ENTERPRISES, LLC,
Plaintiff - Appellee,
v. No. 22-3071
WILLIAM J. MOURNES; KENDRA DUVAL, as personal representative for the Estate of Gordon W. Duval; CHARLES A. ELFSTEN; MARK M. HASEGAWA; MARK S. ZOUVAS,
Defendants - Appellants,
and
PACIFIC NATIONAL CAPITAL; WATERFALL MOUNTAIN USA LLC; WATERFALL MOUNTAIN LLC; WATERFALL INTERNATIONAL HOLDINGS LIMITED,
Defendants. _________________________________
Appeal from the United States District Court for the District of Kansas (D.C. No. 6:16-CV-01432-DDC) _________________________________
Jeffrey R. King, Crossroads Legal Solutions, Westwood Hills, Kansas, for Defendants - Appellants.
Shane A. Rosson (James A. Walker with him on the brief), Triplett Woolf Garretson, LLC, Wichita, Kansas, for Plaintiff - Appellee. _________________________________ Appellate Case: 22-3071 Document: 010110961087 Date Filed: 11/30/2023 Page: 2
Before HOLMES, Chief Judge, HARTZ, and CARSON, Circuit Judges. _________________________________
HARTZ, Circuit Judge. _________________________________
Five individual defendants (Appellants) appeal the judgments against them on
a variety of claims brought by Watchous Enterprises, LLC. Appellants were
associated with companies that Watchous hoped would fund or help find funding for
its oil and gas operations. 1
In 2016 Watchous contracted with one of the companies, Pacific National
Capital, paying it a $7,600 nonrefundable deposit to secure help finding a lender or a
joint-venture partner. Pacific introduced Watchous to companies affiliated with
Waterfall Mountain LLC. We will refer to all those affiliated companies, individually
and collectively, as Waterfall. Watchous and Waterfall eventually executed a letter of
intent to enter into a joint venture to which Waterfall would contribute more than $80
million. As part of the arrangement, Watchous paid Waterfall a $175,000 refundable
deposit. Waterfall said that it would fund the venture through proceeds of loans
backed by billions of dollars in Venezuelan sovereign bonds in the name of Waterfall
or its lender (RPB Company). But Waterfall never funded Watchous, and Watchous
was never refunded the $175,000.
1 Original defendant Gordon Duval died after this litigation commenced and the personal representative of his estate, Kendra Duval, has been substituted as a defendant-appellant. For simplicity, we do not distinguish between the personal representative and the original defendant in this opinion. 2 Appellate Case: 22-3071 Document: 010110961087 Date Filed: 11/30/2023 Page: 3
Watchous filed suit in the United States District Court for the District of
Kansas, bringing claims under the federal Racketeer Influenced and Corrupt
Organizations Act (RICO) and common-law claims under Kansas law against Pacific
and Waterfall as well as against the five Appellants sued individually. We consider
only the claims against Appellants.
The district court granted partial summary judgment in favor of Watchous on
its fraud claims (leaving damages for the jury to decide), essentially on the ground
that Appellants misrepresented and failed to disclose “the historic and contemporary
facts about Waterfall’s dubious finances, loan defaults, and consistent lack of success
in funding similar projects.” 2 Watchous Enters., LLC v. Pac. Nat’l Cap. (Watchous
I), No. 16-1432-JTM, 2020 WL, 1233753 at *36 (D. Kan. Mar. 13, 2020).
Watchous’s remaining claims proceeded to trial, where a jury found that Appellants
2 Applying Kansas law, the parties and the district court distinguished between claims of fraud and claims of fraud by silence. The elements of fraud by silence in Kansas are: “(1) The defendant had knowledge of material facts that the plaintiff did not have and could not have discovered by the exercise of reasonable diligence; (2) the defendant was under an obligation to communicate the material facts to the plaintiff; (3) the defendant intentionally failed to communicate to the plaintiff the material facts; (4) the plaintiff justifiably relied upon the defendant to communicate the material facts to the plaintiff; and (5) the plaintiff sustained damages as a result of the defendant’s failure to communicate the material facts to the plaintiff.” Stechschulte v. Jennings, 298 P.3d 1083, 1097 (Kan. 2013). For purposes of this appeal, we need not distinguish between the two types of fraud. Indeed, other jurisdictions use the rubric fraud to describe causes of action like fraud by silence. See Restatement (Third) of Torts: Liab. for Econ. Harm § 9 cmt. c, § 13 (Am. L. Inst. 2020). Appellants argue that the fraud-by-silence cause of action was not raised in district court but they ignore that it is clearly raised in the pretrial order that governed the case. 3 Appellate Case: 22-3071 Document: 010110961087 Date Filed: 11/30/2023 Page: 4
had engaged in a civil conspiracy to defraud Watchous and had violated RICO, 18
U.S.C. § 1962(c) and (d). The jury awarded compensatory and punitive damages.
On appeal Appellants raise three challenges to the judgment below. First, they
argue that the district court improperly granted summary judgment on the fraud
claims. Among other arguments, they contend that summary judgment was improper
because the evidence against them did not meet the exacting standard for granting
summary judgment to a plaintiff in a fraud case, where the intent of the defendants is
an element of the claim. Second, they argue that the court abused its discretion by
improperly using Fed. R. Civ. P. 56(g) to deem facts established for purposes of trial.
Third, they argue that the court improperly granted Watchous’s motions in limine to
exclude evidence contrary to those established facts, evidence that Watchous had
unsuccessfully tried to obtain loans from more than 120 banks, and evidence of the
poor financial condition of several Appellants. Because we reject the second and
third arguments, we must affirm the jury verdict. We therefore need not address the
propriety of summary judgment, because reversal of the summary judgment would
not affect the damages awards to Watchous. Exercising jurisdiction under 28 U.S.C.
§ 1291, 3 we affirm.
3 On review of this case in preparation for oral argument, we noted that the district court had not entered judgment on several claims, so there was no appealable final judgment before us. See Banner Bank v. Smith, 30 F.4th 1232, 1237–38 (10th Cir. 2022) (“To be final, a district court’s decision must reflect the termination of all matters as to all parties and causes of action.” (internal quotation marks omitted)). We therefore abated the appeal and remanded the matter to the district court to address the unresolved claims. That court having done so, we acquired appellate jurisdiction. 4 Appellate Case: 22-3071 Document: 010110961087 Date Filed: 11/30/2023 Page: 5
I. BACKGROUND
A. Factual Background
The following facts are uncontroverted. Watchous engages in oil and gas
exploration and production. Klee Watchous is its managing member. 4 On May 30,
2016, Watchous contacted Pacific, a company that looks for financing for oil and gas
ventures, to seek a loan or a joint-venture partner to finance its operations.
Appellants Charles Elfsten and Mark Hasegawa, both Pacific officers, emailed and
spoke with Watchous, stating that they would be interested in representing it and had
in mind a fund, which they called “our fund,” that could finance a joint venture.
Aplee. App. 140, 145. The fund referred to was Waterfall.
On June 4, 2016, Watchous entered into two agreements with Pacific, one
hiring Pacific to find it a lender and the other hiring it to find a joint-venture partner.
In accordance with the terms of the joint-venture placement agreement, two days
later Watchous wired Pacific a “non-refundable processing/underwriting fee” of
$7,600. Aplee. App. at 116. Under that agreement Pacific would receive a success
fee—3% of the gross proceeds provided by the joint-venture partner—should
Watchous enter into a joint venture with Waterfall.
Waterfall was a group of companies that provided “funding and partner
syndication” for energy, natural-resource, technology, and real-estate projects. Aplts.
4 We use Watchous to describe the company and its employees. (For example, we say that correspondence sent to a Watchous employee or officer was sent to Watchous.) When relevant, we use Klee Watchous in describing acts taken by Klee Watchous himself. 5 Appellate Case: 22-3071 Document: 010110961087 Date Filed: 11/30/2023 Page: 6
App., Vol. II at 216. Its officers and agents included Appellant William Mournes,
Waterfall’s managing director; Appellant Gordon Duval, Waterfall’s in-house
counsel and assistant managing director; and Appellant Mark Zouvas, a Waterfall
consultant and potential business partner. Waterfall said it intended to fund
Watchous’s project using $2.4 billion in Venezuelan sovereign bonds purchased
beginning in 2014. The bonds were said to be “blocked in favor of” Waterfall or its
lender, RPB Company, for one year and one month, Aplee. App. at 241, 258; and
Waterfall was said to have a beneficial interest in the bonds. But, as Watchous later
learned after the transaction fell through, the bonds could only be used as collateral
for a loan and the Venezuelan Central Bank had to approve any transaction.
Although Pacific negotiated on Watchous’s behalf with companies other than
Waterfall, Waterfall appeared to be the favorite. Elfsten stated in an email sent after
this litigation commenced that he had “[v]erbally told [Watchous] [he had] known
Bill Mournes for 30 years and ha[d] been involved in prior transactions” with him.
Id. at 364. Asked for advice regarding a potential deal with Beal Bank, Elfsten told
Watchous that the bank might be Watchous’s cheapest joint-venture option, though
“our [joint venture fund, Waterfall] would be great.” Id. at 143. Hasegawa continued
to refer to Waterfall as “our fund.” Id. at 121, 136, 137, 140, 145, 147, 150.
The Pacific officers represented that Waterfall was a successful enterprise. In
early June 2016 Hasegawa, with Elfsten copied on the message, informed Watchous
that Waterfall “bring[s] in about $10 billion a year.” Id. at 113. Later that month he
added that Waterfall “generally want[ed] [projects] $10 million and up.” Id. at 135.
6 Appellate Case: 22-3071 Document: 010110961087 Date Filed: 11/30/2023 Page: 7
On July 18 he sent Watchous a message, with Elfsten copied, claiming that “our fund
[Waterfall] is closing on two more bonds this month worth $2.4 billion.” Id. at 147.
On July 19 Hasegawa reported to Watchous that he and Elfsten had spoken with “our
fund manager Bill [Mournes]” and reported that Waterfall would “probably” be able
to fund “a big part of” Watchous’s proposed joint venture—which contemplated an
$80 million buy-in for half of Watchous—“from funds he has coming the end of this
month.” Id. at 145.
On July 25 and 26, 2016, Hasegawa emailed Watchous the terms of
Waterfall’s offer. Elfsten, Zouvas, Duval, and Mournes were copied on the
correspondence. Waterfall, Hasegawa said, was “in agreement to do a 50/50 total
joint venture” with Waterfall providing $80 million by November 17. Id. at 151. For
its part, Watchous was to make a refundable deposit of $175,000 to Waterfall.
With a deal on the table, several Appellants gave Watchous further
information regarding Waterfall’s financial health. On July 26 Hasegawa assured
Watchous that Waterfall was “in good standing” in the United States and
internationally, and that it had checking accounts at four major U.S. financial
institutions. Id. at 235–36. On July 27 Mournes discussed the deal over lunch with
Watchous representatives. On July 28 Elfsten forwarded Watchous a statement from
a Venezuelan bank that portrayed Waterfall as having $599,970 in an account there.
On July 29 Klee Watchous asked Elfsten to vouch for Waterfall before he sent the
$175,000 deposit. Elfsten vouched for Waterfall and its ability to repay the deposit.
7 Appellate Case: 22-3071 Document: 010110961087 Date Filed: 11/30/2023 Page: 8
Zouvas also provided information after the July 27 meeting between Mournes
and Watchous. Copying Duval and Mournes, he sent Klee Watchous an unsigned
promissory note for the $175,000; documents from a supposed prior deal that were
“representative of the type of deal we would structure”; and “copies of our bonds
[held in Venezuelan banks].” Id. at 152, 238. In addition, Duval responded to Klee
Watchous’s request that Waterfall “send references of those with whom you have
done similar joint ventures,” id. at 458, by providing a list of six references.
(Waterfall conceded at summary judgment that four of the references were owed
money by Waterfall, and a fifth was a Waterfall agent who also served on its
executive committee.)
Shortly after Duval sent the list of references, Mournes circulated the final
Letter of Intent to enter into a joint venture, signed by him and Klee Watchous. It
provided that Waterfall would “contribute cash” to the joint venture amounting to
$81.2 million, beginning on or before August 17, 2016, and culminating by
November 17, 2016. Id. at 464. Waterfall and Watchous would each pay half of a
$2.4 million finder’s fee to Pacific. And Watchous would make “an advance
refundable deposit to Waterfall” of $175,000, id. at 448, which Waterfall would
return “upon the earlier of the Closing [on August 17]” or termination of the Letter of
Intent. Id. at 467. Early the next day, July 29, Waterfall sent Watchous a message
noting that “[Mournes] and [Duval] expect[ed] the funding to occur in early August.”
Id. at 913. Watchous deposited the $175,000 with Waterfall that day.
8 Appellate Case: 22-3071 Document: 010110961087 Date Filed: 11/30/2023 Page: 9
Though they had not conveyed this information to Watchous, Elfsten and
Hasegawa knew that Waterfall was far from financially strong. Watchous’s motion
for summary judgment named, without dispute from Waterfall, eight prospects
brought to Waterfall by Pacific that Waterfall was unable to fund. Further, in
response to Watchous’s discovery requests, Elfsten produced a list of projects that
Pacific brought to Waterfall between May 2013 and July 28, 2016, the day Watchous
and Waterfall finalized the Letter of Intent. Elfsten admitted that “[n]one of the
potential projects on the list,” one of which was a project with Zouvas’s company,
“closed a transaction with Waterfall.” Id. at 1045. And in a July 20 email, Elfsten,
after pitching the Watchous project to Mournes, with Hasegawa copied, added,
“Hope things are going better for you today, wish we had the money to help you.” Id.
at 425.
Mournes, Zouvas, and Duval also knew that Waterfall was struggling. On the
evening of July 29, Duval wrote a message with the subject line “Great News -- the
Wire [from Watchous] Was Sent.” Id. at 470. He explained that upon receiving
Watchous’s deposit he had immediately forwarded $160,000 of the sum to a business
partner, who would use the money to ensure that funds from the bonds were
transferred to Waterfall. Duval added that “most of our crew are pretty well tapped
out because this has been such a long and difficult process that none of us could have
anticipated.” Id. at 471. He wrote that the arrival of Watchous’s money was “literally
a miracle” but that Waterfall would still have to “pass the hat” for funds for travel
and operational costs. Id. Mournes responded, “THANK YOU GENTLEMEN. . .
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GAME ON.” Id. at 470. Elfsten replied to Mournes, copying Hasegawa and Zouvas,
to note his expectation that Watchous’s deposit was to have gone to the bank.
Waterfall never funded Watchous. On August 23, 2016, Klee Watchous asked
Elfsten and Hasegawa to reengage with Beal Bank. On September 8, 2016, Watchous
terminated the Letter of Intent and demanded—with no result—return of the
$175,000 deposit. In December 2016, Watchous filed suit.
B. Procedural History
In April 2017 the parties agreed to settle the case on the understanding that
Waterfall would pay Watchous $175,000 in scheduled installments. But no payment
was made, and in July 2018 Watchous filed a Second Amended Complaint against
Appellants, Pacific, and Waterfall, bringing claims of fraud, breach of contract (a
later-abandoned claim based on the settlement discussions), breach of fiduciary duty,
civil conspiracy to commit fraud, and RICO violations. In August 2019 the court
issued a pretrial order summarizing and refining claims made in the complaint. The
pretrial order also authorized a crossclaim for indemnification brought against
Waterfall by Pacific and the Pacific officers.
All parties moved for partial or complete summary judgment. Watchous’s
motion for partial summary judgment appended a statement of 369 facts it contended
were uncontroverted. Pacific, Elfsten, and Hasegawa jointly responded to each fact,
denying some outright and disclaiming knowledge of, contesting in part, or acceding
to others. Waterfall, Mournes, Duval, and Zouvas jointly responded to only 17 facts,
contesting each. The district court granted Watchous summary judgment on its fraud
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claims against Appellants and its breach-of-fiduciary-duty claim against Pacific. See
Watchous I, 2020 WL 1233753, at *36–39, 41. The court set the issue of damages on
these claims for trial. The civil conspiracy-to-defraud and RICO claims were also to
be resolved at trial.
Watchous submitted a pretrial motion asking that the district court use Fed. R.
Civ. P. 56(g) to deem established for purposes of trial all facts listed in its motion for
partial summary judgment that were not genuinely in dispute. The court granted the
motion, determining to “issu[e] an instruction to the jury that it should deem certain
facts established,” and providing that “the instruction shall be taken from the court’s
factual findings in the [Summary Judgment] Order—modified in certain limited
instances and to remove the court’s evaluation of competing factual and legal
arguments.” Watchous Enters., LLC v. Pac. Nat’l Cap. (Watchous II), No. 16-1432-
JTM, 2020 WL 6078170, at *4 (D. Kan. Oct. 15, 2020). After the close of evidence
the court issued a supplement to the jury instructions that required the jury to accept
295 facts as undisputed, consistent with the rulings in the summary-judgment order
and adopting language from the facts appended to Watchous’s motion for partial
summary judgment. About two-thirds of the facts summarized (193) were grouped
into sections about 12 projects of different companies for which Pacific and Waterfall
had indicated they could provide funding but failed to perform. One finding listed 56
funding agreements executed by Pacific for which it had received a fee but obtained
no funding from Waterfall. Another finding listed dozens of unpaid notes owed by
Waterfall. Eighty-three findings related to Watchous’s dealings with Pacific and
11 Appellate Case: 22-3071 Document: 010110961087 Date Filed: 11/30/2023 Page: 12
Waterfall; the great bulk of these findings quote, summarize, or describe documents
such as emails, financial transactions, and agreements.
The jury found each of the Appellants liable on Watchous’s RICO and civil
conspiracy-to-defraud claims. It assessed compensatory damages on these claims as
well as on Watchous’s fraud claims against Appellants. The jury awarded against
each Appellant the maximum amount of compensatory damages permitted by the
instructions, which said: “Plaintiff claims actual damages in the amount of $182,600
against all defendants. This figure comes from the $7,600 placement fee plaintiff paid
to Pacific National Capital and the $175,000 refundable deposit plaintiff paid to
Waterfall.” Aplts. Supp. App. at 990. On the RICO claim, the RICO conspiracy
claim, and the civil conspiracy claim, $182,600 was awarded against each Appellant.
On the fraud claims, $182,600 was awarded against Elfsten and Hasegawa and
$175,000 against Mournes, Zouvas, and Duval (who were not directly involved in the
$7,600 deposit to Pacific). The jury further found, with respect to the fraud claim and
the civil conspiracy-to-commit-fraud claim, that punitive damages should be assessed
against each Appellant. The amount to be awarded in punitive damages was then
tried to the jury, which awarded $1 million against Mournes and Elfsten, $500,000
against Hasegawa and Zouvas, and $250,000 against Duval. Also, in accordance with
RICO, 18 U.S.C. § 1964(c), the judgment awarded an additional amount equal to
twice the compensatory damages ($365,200) against each Appellant.
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II. DISCUSSION
The damages awarded against Appellants on the fraud claims resolved by
partial summary judgment were identical to or less than the damages awarded on the
civil-conspiracy claims resolved at trial. The compensatory damages were based on
the amounts of the placement fee and the refundable deposit paid by Watchous to
Pacific and Waterfall respectively. And the punitive-damages awards did not
distinguish between the fraud claims and the conspiracy claims. Because, as the
district court’s judgment recognized, the damages awards for fraud and for civil
conspiracy duplicate one another, Appellants would gain no monetary advantage if
we were to set aside the partial summary judgments of liability on the fraud claims.
They would be liable for the same damages regardless. Accordingly, if we reject all
of Appellants’ challenges on appeal to the conduct of the trial, there is no need for us
to address the challenges to the partial summary judgment. See Combs v. Shelter Mut.
Ins. Co., 551 F.3d 991, 1000 (10th Cir. 2008) (“While we believe Plaintiff’s fraud
allegations do not likely warrant submission to the jury, we need not decide the
matter because Plaintiff already received damages for Defendants’ breach of contract
and is not entitled to double recovery under a fraud theory.”). For this reason, we turn
first to Appellants’ challenges to the trial. Because we see no reversible error at trial,
we decline to examine the propriety of the partial summary judgments.
Appellants raise three challenges to how the case was tried to the jury: (1)
even if facts had not been contested at summary judgment, there were general reasons
why it was improper for the district court to instruct the jury under Rule 56(g) that
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those facts were established; (2) the court incorrectly found that certain disputed facts
were undisputed; and (3) the court incorrectly ruled on several motions in limine. We
reject all three challenges.
A. General Objections to Use of Rule 56(g)
Watchous moved for partial summary judgment on the issue of liability on its
fraud, civil conspiracy, and RICO claims against Appellants. The district court
granted partial summary judgment on the fraud claims but determined that there were
genuine issues of material fact precluding partial summary judgment on the civil-
conspiracy and RICO claims. Watchous then moved under Fed. R. Civ. P. 56(g) for
an order stating that a number of facts uncontested in the summary-judgment
proceedings should be treated as established for purposes of the trial on the
remaining claims. The court granted the motion, stating that it would issue an
instruction to the jury telling it to deem certain facts established. The instruction
listed 295 facts. The parties agree that our review of the instruction is for abuse of
discretion. Appellants have shown no abuse of discretion.
Appellants’ first general challenge to the facts-established instruction is that
the facts they did not controvert during summary-judgment proceedings were
conceded only for the purpose of summary judgment—not for any later stage of the
litigation. This, they say, is the default presumption under District of Kansas Local
Rule 56.1(a), which provides, in relevant part, “All material facts set forth in the
statement of the movant will be deemed admitted for the purpose of summary
judgment unless specifically controverted by the statement of the opposing party.”
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(emphasis added). 5 Appellants construe this language to mean that the uncontroverted
facts can be used only for ruling on the summary-judgment motion. But no language
in the Rule explicitly prohibits other use of the uncontroverted facts. And, more
importantly, if the Rule said that, that portion of the Rule would be invalid as
contrary to Fed. R. Civ. P. 56(g), which states: “If the court does not grant all the
relief requested by the motion [for summary judgment], it may enter an order stating
any material fact—including an item of damages or other relief—that is not
genuinely in dispute and treating the fact as established in the case.” See Reed v.
Bennett, 312 F.3d 1190, 1194 (10th Cir. 2002) (“[D]istrict courts must construe and
apply local rules in a manner consistent with Fed. R. Civ. P. 56”); Fed. R. Civ. P.
83(a)(1) (“A local rule must be consistent with” the federal rules.).
To be sure, the nonmovant is entitled to admit a fact solely for the purpose of
resolving the summary-judgment motion. It may think there is no point in wasting
time and energy on a factual issue because it can prevail even if that particular fact is
5 Rule 56.1(a), titled “Motions for Summary Judgment,” reads in full:
Supporting Brief. The brief in support of a motion for summary judgement must begin with a section that contains a concise statement of material facts as to which the movant contends no genuine issue exists. The facts must be numbered and must refer with particularity to those portions of the record upon which movant relies. All material facts set forth in the statement of the movant will be deemed admitted for the purpose of summary judgment unless specifically controverted by the statement of the opposing party.
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not disputed. See Steven S. Gensler & Lumen N. Mulligan, 2 Federal Rules of Civil
Procedure, Rules and Commentary, Rule 56. Summary Judgment (2023 ed.)
(“Parties often elect not to contest certain facts for purposes of summary judgment
only. In that event, an order establishing those facts would be inappropriate.”). As
stated in the Fed. R. Civ. P. 56 advisory committee’s note to the 2010 amendment to
subdivision (g):
The court must take care that this determination does not interfere with a party’s ability to accept a fact for purposes of the [summary-judgment] motion only. A nonmovant, for example, may feel confident that a genuine dispute as to one or a few facts will defeat the motion, and prefer to avoid the cost of detailed response to all facts stated by the movant. This position should be available without running the risk that the fact will be taken as established under subdivision (g) or otherwise found to have been accepted for other purposes. But that does not mean a party can sit close-lipped when the court is considering the
use of Rule 56(g) and assume that it is protected by an irrebuttable presumption that
the use of admissions is always limited to the summary-judgment proceeding. The
party opposing an order establishing facts under Rule 56(g) must either present
evidence controverting the proposed facts or persuade the district court that it would
be unfair or otherwise inappropriate to establish particular facts through that process.
See id. (A court “may properly decide that the cost of determining whether some
potential fact disputes may be eliminated by summary disposition is greater than the
cost of resolving those disputes by other means, including trial . . .[; or it] may
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conclude that it is better to leave open for trial facts and issues that may be better
illuminated by the trial of related facts that must be tried in any event.”). 6
Appellants’ briefs on appeal briefly allude to these concerns about overusing
Rule 56(g), but the briefs speak only in generalities. They do not explain how these
general concerns apply in this case. Indeed, the opening comments at oral argument
by Appellants’ counsel may explain why the district court chose to vigorously apply
Rule 56(g). Counsel said:
I will start with what makes this case a little bit unusual for a fraud case on appellate review. There are very few material facts that are in dispute in the fraud case. . . . There are only about a half-dozen issues or questions of fact on the fraud claims, and those are very carefully described in Appellants’ briefs. Those disputed facts, though—and probably more appropriately, the disputed inferences made by the district court on those facts—are dispositive in two points: on the issue of intent and the issue of justifiable reliance.
6 We note that Appellants’ Reply Brief endorses this view of Rule 56(g), stating that it reads the Local Rule to say that “a Rule 56(g) motion could follow a summary judgment order, thereby providing a non-movant the opportunity to contradict allegations that it deemed irrelevant for its summary judgment position.” Reply Br. at 13. They go on to contend, however, that the district court did not permit them “to present evidence controverting these allegations to ensure preservation of controverted facts for trial.” Id. at 14. The record belies this contention. In response to Watchous’s request to have facts deemed undisputed under Rule 56(g), Appellants argued that certain proposed undisputed facts were in fact disputed, largely repeating arguments made in response to the summary-judgment motion. Their responses did not contend that they needed further time for discovery or otherwise to enable them to adequately respond to the request. Of course, they can still argue that various proposed undisputed facts were actually disputed, and they do so in their appellate briefing. 17 Appellate Case: 22-3071 Document: 010110961087 Date Filed: 11/30/2023 Page: 18
Oral Arg. at 00:38–01:19. In keeping with this remark, Appellants’ specific
objections in their appellate briefs concern just a few of the facts. 7 We now turn to
their arguments on appeal regarding allegedly controverted facts.
B. Allegedly Disputed Facts
Appellants devote only a few pages of their opening brief to challenging the
facts established by the district-court order. Their brief lists each of the facts they
disputed in response to the motion for summary judgment. But “[w]e do not consider
merely including an issue within a list to be adequate briefing,” and “[i]ssues will be
deemed waived if they are not adequately briefed.” Garrett v. Selby Connor Maddux
& Janer, 425 F.3d 836, 841 (10th Cir. 2005) (cleaned up). Thus, Appellants have
waived their global objection to the establishment of any fact they disputed below.
Appellants’ specific arguments are limited to three issues they say are among
the “most egregious examples” of the court’s abuse of discretion. Aplts. Br. at 29.
These are the court’s establishment of Watchous’s Facts 5, 280, and 291, insofar as
they addressed “Appellants’ knowledge of the ownership of the Venezuelan bonds,”
id. at 30; Facts 87, 146, 195, and 234, regarding Waterfall’s failure to fund any
7 Although to resolve this appeal we need address only Appellants’ specific arguments, and although district courts have considerable discretion in their use of Rule 56(g), we should add that we do have reservations about what the district court did here. In large part we can see that what the court did was both fair and efficient in presenting documentary evidence of transactions without the need for a parade of witnesses. But some of the findings arguably go beyond objective characterizations of documents and include inferences that should be made by a jury, even though they were quite reasonable. This opinion should not be read as an endorsement of rulings by the district court that have not been adequately challenged on appeal. 18 Appellate Case: 22-3071 Document: 010110961087 Date Filed: 11/30/2023 Page: 19
previous Pacific clients; and Fact 231, regarding whether the references Duval sent
Watchous were people with whom Waterfall had conducted prior successful joint
ventures.
Fact 5, however, says nothing about Appellants’ knowledge; and in any event,
was effectively conceded in district court. Fact 5 states:
Certain bonds were blocked in favor of Waterfall and its lender, RPB Company, to allow them to structure a potential transaction. However, neither owned the bonds absolute. The Banco Central de Venezuela owned the bonds and had to approve the transaction. At all times relevant to Watchous, the bonds could only be used for collateral for a loan. Aplts. App., Vol. II at 18. In their responses to Watchous’s motion for partial
summary judgment, Appellants did not dispute that (1) the bonds were blocked in
favor of Waterfall and RPB, (2) the Venezuelan Central Bank had to approve all
transactions, or (3) the bonds could only be used as collateral. Elfsten and Hasegawa
contested Fact 5 only by stating that Waterfall had a beneficial interest in the bonds.
And in their responses to Watchous’s motion to establish facts for purposes of trial,
(1) Elfsten and Hasegawa conceded that Waterfall did not own the bonds absolute:
they stated that the parties agreed on the facts regarding bond ownership, and they
did not dispute that Waterfall’s relationship to the bonds was “ownership with
restrictions,” Aplts. Supp. App. at 274–75; and (2) the Waterfall individuals stated
that Waterfall “own[ed] an interest in the bonds,” rather than that Waterfall owned
the bonds absolute. Id. at 283.
Facts 280 and 291 also do not address Appellants’ knowledge. Insofar as they
relate to the Venezuelan bonds, they assert only that no one told KRG, another
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Pacific client, that Waterfall did not own the bonds. On appeal, Appellants assert that
Elfsten and Hasegawa “receiv[ed] assurances” that information regarding Waterfall’s
beneficial ownership of the bonds was “conveyed directly” to Watchous. Aplts. Br. at
30. But even if true, this assertion is irrelevant to Facts 280 and 291, which concern
what KRG knew about the bonds. Appellants cite no evidence that KRG knew that
Waterfall had a beneficial interest in the bonds. The only record evidence they cite as
controverting Facts 280 and 291 is completely irrelevant or concerns what Watchous,
not KRG, was told about Waterfall’s interest in the bonds. Facts 280 and 291 were
not in genuine dispute.
As for Facts 87, 146, 195, and 234, which relate to Waterfall’s failure to fund
projects in the past, Appellants’ sole complaint is that the district court “ignore[d]
Appellants’ controverting evidence that they told [Watchous] about the lack of
successful funding, both in conversation and through a July 27, 2016, email.” Aplts.
Br. at 31. But Facts 87 and 146 say nothing about what Watchous was told; they
concern the failure to inform other Pacific clients about Waterfall’s prior failures to
fund. And even though Facts 195 and 235 do state that Watchous was not informed
of Waterfall’s funding failures, Appellants provide no contrary evidence. They do not
cite to any portion of the record to support their argument except a July 27 email
from Zouvas attaching copies of the bonds, and nothing in the email states or
suggests that Waterfall had not been able to fund prior projects. Indeed, the email
referred to “suites of documents we have created for other deals.” Aplts. App., Vol.
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III at 100. And in a follow-up message sent the same day, Zouvas attached
documents purporting to show a transaction between his company and Waterfall.
Finally, the gist of Fact 231 was that “[o]n July 28, 2016, Duval sent Watchous
alleged references for Mournes, Duval, and Zouvas. . . . The purported references all
have a direct relationship with Waterfall and had a vested interest in Waterfall
obtaining funds from Watchous to attempt to close Waterfall’s intended bond
transaction. . . . No evidence was produced in discovery to suggest that Waterfall
completed a successful venture, let alone oil and gas joint venture, with any of the
references.” Aplts. App., Vol. II at 68. The only attempt at challenging Fact 231 in
Appellants’ opening brief is the assertion that “Appellants were truthful about their
past ventures together, admitting that they had done so, without ever opining on the
success of those ventures.” Aplts. Br. at 31. But, again, even if this assertion is true,
it does not contradict Fact 231. Fact 231, too, was not in genuine dispute.
The district court did not abuse its discretion in establishing the challenged
facts for the purpose of trial.
C. Motions in Limine
Appellants’ last argument objects to the district court’s rulings on three of
Watchous’s motions in limine: (1) a motion, relying on Fed. R. Evid. 403, to prohibit
the individual defendants from testifying on matters established in the supplementary
instruction incorporating the Rule 56(g) order; (2) a motion to exclude, under Fed. R.
Evid. 402 and 403, evidence that Watchous’s loan applications had been rejected by
more than 120 banks before Watchous contracted with Pacific; and (3) a motion to
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exclude, under Fed. R. Evid. 402 and 403, evidence of the financial conditions of
Elfsten, Hasegawa, Mournes, and Duval. “We review a court’s evidentiary rulings for
an abuse of discretion, according deference to a district court’s familiarity with the
details of the case and its greater experience in evidentiary matters. This is
particularly true with respect to Rule 403 since it requires an on-the-spot balancing of
probative value and prejudice, potentially to exclude as unduly prejudicial some
evidence that already has been found to be factually relevant.” Frederick v. Swift
Transp. Co., 616 F.3d 1074, 1083 (10th Cir. 2010) (cleaned up).
We can easily dispose of the challenge to the motion to exclude testimony
contrary to established facts. The challenge is merely a corollary to the challenge to
the Rule 56(g) order. The concluding sentence of this argument in Appellants’ brief
states: “Thus, if the Court finds the Rule 56(g) order was an abuse of discretion, it
should also reverse the order granting this motion in limine.” Aplts. Br. at 35–36.
Because the order was not an abuse of discretion, the order granting the motion in
limine was appropriate. (We note that the district court made clear that all in limine
rulings were “subject to revision if circumstances convince [the court] it should be
revised.” Aplts. Supp. App. at 395. Thus, if Appellants came upon evidence
contradicting one of the established facts, they could have requested that the evidence
be admitted. But they have not pointed to any such request during trial.)
As for the exclusion of evidence that many banks had rejected Watchous’s
loan applications, we do not understand Appellants’ contention that the evidence was
relevant at trial. Perhaps the evidence would have been admissible if Watchous were
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claiming damages because the defendants had not obtained funding for its projects—
Appellants could have properly argued that Watchous was not injured by any failure
of Appellants to secure funds, because there was no way Watchous could have
persuaded anyone to lend it money or enter into a joint venture with it. But the only
claims for compensatory damages sought by Watchous were to get back the money it
had paid for assistance in obtaining financing. Appellants’ other two assertions of
relevance also miss the mark. They claim that the evidence of bank rejections would
help rebut evidence that they engaged in a pattern of racketeering activity and
participated in the conduct of an enterprise through that pattern. But we fail to see
how the excluded evidence could disprove, or even soften, the evidence of those
elements of the RICO claims.
Finally, Appellants’ challenge to the exclusion of evidence of their poor
financial condition is based on a mischaracterization of the district court’s ruling on
the matter. The court agreed with Appellants that evidence of financial condition is
admissible in determining the amount of punitive damages. But the court explained
that the determination of the amount of punitive damages would be bifurcated from
the first part of the trial, which would address liability and compensatory damages,
and it properly ruled that evidence of financial condition would not be relevant
during that part of the proceeding. As it turned out, after the jury returned its verdict
finding that punitive damages should be assessed against all individual defendants,
the court explicitly gave Elfsten and Hasegawa a chance to introduce evidence
regarding the proper amount of punitive damages. But they did not take advantage of
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the opportunity. As for Mournes and Duval, neither they nor their counsel appeared
on this day of trial. Zouvas also was not present. We see no abuse of discretion.
In sum, we reject Appellants’ challenges to the jury verdict.
III. CONCLUSION
Because Appellants have failed to show any error in the conduct of the jury
trial, and because the jury verdict renders moot any error in the award of partial
summary judgment to Watchous, we AFFIRM the judgment of the district court. We
GRANT Defendants-Appellants’ Motion for Leave to Supplement Appendix.