Cont'l 332 Fund, LLC v. Kozlowski

CONTINENTAL 332 FUND, LLC, CONTINENTAL 298 FUND LLC,CONTINENTAL 306 FUND LLC, CONTINENTAL 326 FUND LLC,CONTINENTAL 347 FUND LLC, CONTINENTAL 355 FUND LLC,CONTINENTAL 342 FUND LLC, and CONTINENTAL 245 FUND LLC, Plaintiffs, v. BROOK KOZLOWSKI, JOHN SALAT, KEVIN BURKE,and GREGORY HILZ, Defendants.

Case No.: 2:17-cv-41-FtM-38MRM

UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF FLORIDA FORT MYERS DIVISION

March 13, 2020

OPINION AND ORDER¹

Before the Court are the following motions (and all related responses, replies, and surreplies):

• Defendant Gregory Hilz's Daubert Motion to Exclude Report and Testimony of Plaintiffs' Proffered Experts Richard Sieracki and Kimberly Reome of the Kenrich Group, LLC (Doc. 451)

• Hilz's Daubert Motion to Exclude Report and Testimony of Plaintiffs' Proffered Expert, Jason Linder (Doc. 454)

• Hilz's Motion for Summary Judgment (Doc. 456)• Defendant John Salat's Motion for Summary Judgment (Doc. 460)

• Defendants Brook Kozlowski and Kevin Burke's Motion for Partial Judgment on the Pleadings (Doc. 470)

• Hilz's Motion to Strike Certain Evidence Submitted in Support of Plaintiffs' Response to Defendant's Motion for Summary Judgment (Doc. 532)

Continental Properties Group, Inc. (Continental) is a real estate developer that created Plaintiffs as holding companies for individual apartment complex projects. Continental hired Angelo Eguizabal as Vice President of Construction in 2007. In that role, Eguizabal found contractors for Continental projects and could sign construction contracts and change orders. Continental began hiring contractor Albertelli Construction, Inc. (ACI) around 2011. About two years later, Eguizabal agreed with George and David Albertelli that ACI would pay Eguizabal a portion of its proceeds from Continental contracts. In exchange, Eguizabal would direct Continental projects to ACI (and later Westcore) and help the Albertellis increase profits by easing the approval of change orders. Eguizabal and David Albertelli memorialized the arrangement in a Commission Services Agreement on March 5, 2013. (Doc. 456-7).

Continental grew dissatisfied with ACI's work and decided to stop awarding ACI contracts. The Albertellis and their associates found more underhanded ways to make money from Continental projects. For example, they formed Westcore Construction with Defendant Gregory Hilz to bid on Continental projects, while hiding their ownership stake in Westcore from Continental personnel. Continental eventually uncovered the schemes, fired Eguizabal, and filed this case. Most of the parties have settled their claims. The remaining defendants are Brook Kozlowski, Kevin Burke, Gregory Hilz, and John Salat. Only Burke and Hilz challenge the evidence presented specifically against them. Hilz'srole in the dispute is discussed below. Burke's motion is not yet ripe, and the Court will address it in a separate order.

A. Defendants' Summary Judgment Motions

Summary judgment is appropriate only when the Court is satisfied that "there is no genuine issue as to any material fact" and the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c). The initial burden falls on the movant, who must identify the portions of the record "which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). A genuine issue of material fact exists if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). To defeat summary judgment, the non-movant must "go beyond the pleadings, and present affirmative evidence to show that a genuine issue of material facts exists." Porter v. Ray, 461 F.3d 1315, 1320 (11th Cir. 2006).

In reviewing a motion for summary judgment, the Court views the evidence and all reasonable inferences drawn from it in the light most favorable to the non-movant. See Battle v. Bd. of Regents, 468 F.3d 755, 759 (11th Cir. 2006). But a "court need not permit a case to go to a jury...when the inferences that are drawn from the evidence, and upon which the non-movant relies, are 'implausible.'" Mize v. Jefferson City Bd. of Educ., 93 F.3d 739, 743 (11th Cir. 1996) (citations omitted).

1. Standing

On September 29, 2017, a Continental executive formed Continental Recovery Fund, LLC ("ConRec") as a subsidiary of Continental. About a week later, Eguizabal agreed to disclose and disgorge all the payments he received under the Albertelli-Eguizabal arrangement. Eguizabal partly fulfilled this obligation by assigning all his interests in Continental funds and projects to ConRec and agreed to pay the remainder to ConRec in cash.

Salat contends Plaintiffs lack prudential standing because they assigned their claims to ConRec and are thus not the real parties in interest. But the parties dispute whether Plaintiffs assigned the claims, and Salat's evidence is far from conclusive. He cites about 30 pages of mostly irrelevant testimony. Plaintiffs, on the other hand, submitted the declarations of four Continental executives, each stating directly that Plaintiffs did not assign their claims. (Doc. 511-2). Salat's attack on Plaintiffs' standing lacks merit.

2. Claims against Hilz

In February 2015, Hilz formed Westcore at the direction of David Albertelli to bid on Continental projects in Texas and Colorado. Initially, Hilz owned 30% of Westcore and David Albertelli 70%. In November 2015, someone sent a fraudulent Pre-Qualification Statement for Westcore to Continental, but the parties do not agree on who to blame. Hilz claims David Albertelli prepared the fraudulent document, and the apparent signatory of the document, Michael Breaton, sent it. But Plaintiffs challenge Michael Breaton's existence. They claim that Hilz provided the false information in the statement and sent it to Continental.

After Continental approved the Qualification Statement, Westcore submitted winning bids for three projects. Eguizabal collected fees—characterized as commissions by Defendants and bribes by Plaintiffs—from the Westcore jobs under his agreement with the Albertellis. The parties dispute when Hilz learned about the payments to Eguizabal,but they agree that Eguizabal sent his invoices and other communications about the fees to the Albertellis. Meanwhile, unbeknownst to Hilz, David Albertelli formed a second Westcore entity to replace the original Westcore and receive the proceeds from the Westcore contracts. Around April 4, 2017, David Albertelli ended his relationship with Hilz. On April 13, 2017, Hilz left Continental employee Brian Strandt a voicemail message about the Albertelli-Eguizabal arrangement. Strandt did not believe Hilz's accusations, but he reported it to Continental's Director of Human Resources. In early June 2017, Hilz emailed Continental officers about Eguizabal. Later that month, Continental fired Eguizabal and terminated its contracts with Westcore. Plaintiffs then amended their complaint to add three counts against Hilz: fraud, conspiracy to commit fraud, and a RICO violation.²

i. RICO

Hilz challenges three elements of the RICO count: a pattern of racketeering activity, predicate acts, and causation. To show a pattern of racketeering activity, Plaintiffs must show: "(1) the defendants committed two or more predicate acts within a ten-year time span; (2) the predicate acts were related to one another; and (3) the predicate acts demonstrated a criminal conduct of a continuing nature." Jackson, 372 F.3d at 1264. Hilz first attacks the continuity requirement. Under RICO, continuity can be open- or close-ended. Since Plaintiffs have cut business ties with Defendants, they rely on close-ended continuity.

Hilz argues that Plaintiffs cannot show close-ended continuity because "there is a single alleged victim...and one purported scheme with a discrete goal," and "the alleged scheme as to Hilz lasted less than two years." (Doc. 456 at 17). As Plaintiffs' point out, Hilz's arguments are based in part on the faulty premise that the Court should look only to Hilz's role in the enterprise. The Court must instead decide whether the enterprise as a whole satisfies the continuity requirement. So the parties' disagreement over how long Hilz's participated in the enterprise—Plaintiffs say over two years, Hilz says under two years—is irrelevant because Plaintiffs accuse Hilz of joining an ongoing enterprise.

Hilz's other attack on continuity relies on an oversimplification of the enterprise. Despite their shared connection with Continental, Plaintiffs are distinct entities, not a single victim. Hilz's claim that Plaintiffs are wholly owned by Continental is not true. Continental owns 25% of each plaintiff and outside investors own the remaining 75%. (Doc. 456-2 at 17). And Hilz's characterization of the RICO claim as a single scheme with a discrete goal—to obtain construction projects—ignores the complexity of the enterprise. Winning the bid for each construction project was a discrete step in service of a larger objective—to get Plaintiffs' money. The enterprise also involved other schemes, like inflating costs and using sham entities to intercept payments. Plaintiffs have shown a pattern of racketeering activity.

Hilz next claims that Plaintiffs cannot show he committed any predicate acts. To begin, the parties disagree whether Plaintiffs must show that Hilz himself committed predicate acts. According to Plaintiffs, they need only show that Hilz "conspired to help the overall objective of the conspiracy or agreed that other defendants would commit two predicate acts[.]" (Doc. 513 at 18). But as Hilz points out, Plaintiffs charged him with asubstantive RICO violation under 18 U.S.C. § 1962(c), not a RICO conspiracy under § 1962(d)—nowhere in Count 24 do Plaintiffs allege that Hilz conspired with anyone else.³ And § 1962(c) requires a RICO claimant to prove that each Defendant committed predicate acts. United States v. Persico, 832 F.2d 705,...