Thomas Alexander v. Kevin Wessell , 633 F. App'x 472 ( 2016 )

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FILED
FOR THE NINTH CIRCUIT
MAR 21 2016
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
THOMAS E. ALEXANDER, No. 14-55171
Plaintiff - Appellee, D.C. No. 2:11-cv-08851-DSF-
VBK
v.
INCWAY CORPORATION, a Wyoming MEMORANDUM*
corporation,
Defendant,
and
KEVIN W. WESSELL, an individual;
CASEY LAWRENCE, an individual;
MATT MITCHELL, an individual,
Defendants - Appellants.
Appeal from the United States District Court
for the Central District of California
Dale S. Fischer, District Judge, Presiding
Argued and Submitted February 11, 2016
Pasadena, California
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Before: McKEOWN and IKUTA, Circuit Judges and PRATT,** Senior District
Judge.
Kevin Wessell (“Wessell”) and Matt Mitchell (“Mitchell”) appeal the district
court’s entry of judgment against them following a bench trial.1 We have
jurisdiction under 28 U.S.C. § 1291. We review the district court’s factual findings
for clear error and its legal conclusions de novo. OneBeacon Ins. Co. v. Haas
Indus., Inc., 634 F.3d 1092, 1096 (9th Cir. 2011). We affirm in part and reverse
and remand with respect to the punitive damages calculation.
The district court determined that Wessell and Mitchell intentionally
misrepresented and concealed important facts as part of a fraudulent asset
protection scheme in violation of California law. Cal. Civ. Code §§ 1572, 1709,
1710. The district court also found Mitchell liable for negligently misrepresenting
important facts under California law. Cal. Civ. Code § 1710. Neither Wessell nor
Mitchell argues that the district court committed legal error. Because the district
court’s findings were not clearly erroneous, we affirm the district court’s findings
**
The Honorable Robert W. Pratt, Senior District Judge for the U.S.
District Court for the Southern District of Iowa, sitting by designation.
1
The district court also entered judgment against Casey Lawrence.
Lawrence appealed pro se, but failed to file any briefs in support of her appeal. We
affirm the judgment as to Lawrence.
2
with respect to intentional misrepresentation, concealment, and negligent
misrepresentation. See OneBeacon Ins. Co., 634 F.3d at 1096.
The district court also found that Wessell was the alter ego of five corporate
entities. “[O]wnership in a corporation is a necessary element for the application
of the alter ego doctrine under California law.” S.E.C. v. Hickey, 322 F.3d 1123,
1129 (2003). There is no evidence in the record that Wessell formally owned the
related corporate entities. Thus, the district court erred in finding alter ego
liability. This error is harmless, however, because it does not affect Wessell’s
substantial rights: he is liable for the same amount of damages with or without an
alter ego finding. See 28 U.S.C. § 2111.
The district court determined that Wessell and Mitchell violated the
Racketeer Influenced and Corrupt Organizations Act (RICO). 18 U.S.C. § 1961 et
seq. A civil RICO violation occurs when a person “employed by or associated
with” a qualifying enterprise “conduct[s] or participate[s], directly or indirectly, in
the conduct of such enterprise’s affairs through a pattern of racketeering activity.”
18 U.S.C. § 1962(c). Each RICO defendant must be distinct from the alleged
enterprise. See Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 162
(2001). The enterprise here is the inter-related group of corporate entities. In light
of our alter ego holding, both Wessell and Mitchell were distinct from the
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enterprise. See id. at 163 (“The corporate owner/employee, a natural person, is
distinct from the corporation itself[.]”). The district court did not clearly err in its
RICO findings, including that Wessell and Mitchell enriched themselves by
charging clients a fee for setting up offshore accounts and encouraging them to
deposit funds in The Alps, that they knowingly and willfully committed mail and
wire fraud on multiple occasions over ten years, that they were employed by the
companies that constituted the enterprise, and that Alexander lost funds as a direct
result of Wessell and Mitchell’s RICO violations.
Finally, the district court found Wessell liable for $2,000,000 in punitive
damages. Under California law, punitive damages may not “exceed[] the level
necessary to properly punish and deter.” Neal v. Farmers Ins. Exch., 21 Cal.3d
910, 928 n.13 (1978). To determine whether a damage award is appropriate, the
court must consider “evidence of a defendant’s financial condition.” Adams v.
Murakami, 54 Cal.3d 105, 112 (in bank). The record here lacks evidence about
Wessell’s net worth. The amounts deposited in The Alps consisted of gross
deposits and therefore shed no light on Wessell’s net worth. The district court
erred by calculating punitive damages without taking Wessell’s net worth into
account. See Boyle v. Lorimar Prods., Inc., 13 F.3d 1357, 1361 (9th Cir. 1994)
(“The rule established by lower California courts is that only net, not gross, figures
4
are relevant.”). We reverse the punitive damages award and remand for
recalculation.
Each party shall bear its own costs on appeal.
AFFIRMED IN PART AND REVERSED AND REMANDED IN
PART.
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