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DiTucci v. Ashby

United States District Court, D. Utah, Central Division

June 24, 2019

ROSA DiTUCCI, an individual, et al., Plaintiffs,
v.
CHRISTOPHER J. ASHBY, an individual, et al., Defendants.

          ORDER AND MEMORANDUM DECISION GRANTING PREJUDGMENT WRIT OF ATTACHMENT

          TENA CAMPBELL, U.S. District Court Judge.

         The Plaintiffs are individual investors who collectively invested $4.9 million to purchase what they thought was a safe and secure property with guaranteed lease payments. They allege they were victims of Defendants' fraudulent scheme which caused them to lose the value of their investments and left them with tax penalties and other financial problems. The Defendants (a group of interrelated individuals and companies) must now defend against Plaintiffs' causes of action for fraud, securities fraud, sale of unregistered securities, conversion, breach of contract, elder abuse, and unjust enrichment.

         Plaintiffs have filed an Expedited Emergency Motion for Ex Parte Prejudgment Writ of Attachment (ECF No. 26) targeting a $2.4 million house built and owned by Defendant William “Bil” Bowser. The Plaintiffs asked for expedited consideration because the house-located in Park City, Utah, and referred to as the Glenwild house-was under contract for sale with an imminent closing date. They asserted that Mr. Bowser, who allegedly misappropriated Plaintiffs' funds, is apparently insolvent or about to become insolvent. They further alleged that if the house (Mr. Bowser's only substantial asset) were sold and converted to cash, they were at risk of losing their remedy for their claim of unjust enrichment (the only claim at issue in this particular proceeding). For these reasons they requested that the court issue a writ ex parte.

         The court denied the ex parte request and held an expedited hearing on the motion, during which both sides addressed the issues. Because key issues were not fully developed, the court imposed temporary restrictions on Mr. Bowser's disposition of the proceeds, ordered supplemental briefing, and held an evidentiary hearing.

         Now, having reviewed the evidence and argument from the parties, the court finds, for the reasons set forth below, that the Plaintiffs are entitled to a prejudgment writ of attachment.

         PROCEDURAL BACKGROUND

         The court, upon receiving the emergency motion, held an expedited hearing on the Plaintiffs' request for a writ. At that point, the court scheduled an evidentiary hearing. In the interim, the court, with the parties' agreement, issued a temporary order that accomplished the following: Mr. Bowser, who said he was not planning on absconding with the sale proceeds, was allowed to sell the Glenwild house and use a portion of the proceeds to pay two secured liens on the house and costs related to the sale. The remainder of the proceeds were divided into a down payment on a townhome that Mr. Bowser was in the process of purchasing (the “Townhome”) (the court allowed that sale to go through as well) and cash that was to be held in a bank account and not spent in any way pending the court's ruling. Mr. Bowser was not allowed to use the sale proceeds to pay two unsecured financial obligations: $170, 000 to J&J Construction and $57, 000 for three credit card balances.

         Now, having received further briefing and evidence during the court's June 17, 2019 hearing, the court issues its findings of fact and conclusions of law in support of its ruling granting the request for a writ.

         FINDINGS OF FACT[1]

         Mr. Bowser is President of Defendant Noah's Corporation (Noah), which holds itself out as a developer and operator of events-center properties (e.g., venues that rent space for weddings and receptions). He receives a salary of $180, 000. Noah has approximately 500 shareholders and a board of directors consisting of Mr. Bowser and two other individuals. Mr. Bowser is a three-percent shareholder, but only one other person holds more shares than Mr. Bowser. The difference in the amount of shares each holds is slight.

         Mr. Bowser also controls Defendant Gabriel Management Corporation (Gabriel), a property management company that was in charge of venue construction. Gabriel is wholly owned by Noah. Mr. Bowser is the only officer of Gabriel and serves as its president.

         The Defendants worked together in various roles to sell and manage investments in the events-center properties. The investments consist of Tenant-in-Common (TIC) interests in real property bundled with the lease of an events center (in this case a structure yet to be built) to Noah that in turn is supposed to operate the venue and, from that revenue, pay guaranteed lease payments to the investors.

         Defendants Rockwell TIC, Inc. and Rockwell Debt Free Properties (collectively, Rockwell) were the first stop in the investment transaction. According to Mr. Bowser, the transaction occurred (or was supposed to occur) as follows:

Relative to Noah, generally, Rockwell (or an entity owned and controlled by Rockwell) would acquire real property. It would then enter into a lease agreement regarding that real property with Noah or a subsidiary of Noah. Rockwell would then sell TIC interests in the real property to purchasers. Rockwell would assign its rights in the lease agreement to the TIC purchasers, who would become the landlord of the Noah subsidiary. Rockwell would then distribute remaining funds for construction of event venues to Noah or a construction entity related to Noah. Noah pays rent to a property manager, which distributes those rent payments per each TIC owner's respective interest.

(First Decl. of William Bowser ¶ 8, attached as Ex. A to Bowser's Opp'n to Mot., ECF No. 35-1.)

         According to the Plaintiffs, they received Rockwell's sales package (the “Executive Summary, a Property Description, and a Lease Profile”) which described the series of transactions and parties involved with the investment. (See First Am. Compl. ¶ 99, ECF No. 4.) When Plaintiffs invested, they expected that their money would be put toward the land purchase and costs to construct the venue. In other words, the money given initially to Rockwell was earmarked for costs incurred by other parties-namely Gabriel and Noah-after being deposited with Rockwell.

         Multiple steps in the transaction (essentially, a chain of transactions) were necessary to satisfy the terms of the investment (i.e., the lease payments). Multiple entities, by necessity, worked together to make the investment come to fruition.

         But here the Plaintiffs' investment did not come to fruition. The $4.9 million they collectively invested was diverted by Bil Bowser for other purposes. The property they purchased-“Noah's Carmel”[2]-was never developed. It is a vacant piece of land.

         Although each entity supposedly had a distinct role in carrying out the investment, it appears that investor money flowed freely among the entities. To begin, Rockwell received the investors' money. The land was purchased. Plans were (supposedly) put into action to construct the events center on that land. To get construction going, Gabriel, the development arm of this group, requested money (“draws”) from Rockwell to pay construction costs.[3] In this case, Gabriel took draws from Plaintiffs' money for exterior finishes, roof, doors, windows, landscaping, flooring, sheetrock, insulation, interior finishes, and other construction totaling over $4.9 million. (See Rough Tr. of June 10, 2019 Dep. of Bil Bowser at 80:15-81:2, attached as Ex. 5 to Pls.' Supplemental Brief, ECF No. 41-5; Table of Construction Draws, Evid. Hr'g Ex. AD.) Clearly the draws did not go to Noah's Carmel, which remains a vacant piece of land.

         Instead, at Bil Bowser's direction, the money was diverted to pay Gabriel's costs to construct other Noah properties. He admitted as much to the Plaintiffs. During a May 11, 2019 conference call with over 100 owners of properties leased to Noah, including Plaintiffs, Mr. Bowser stated that he had used the money from one project to complete other projects. Between March 18, 2019, and March 22, 2019, Mr. Bowser told Ms. DiTucci and other Plaintiffs that he was “robbing Peter to pay Paul” and that he had used 85-90% of the Noah's Carmel funds to perform work on other buildings under his management with the remaining 10% used for operations and expenses.[4] He said he did so because Gabriel (and Noah, which is now in bankruptcy)[5] had significant financial problems at the time the Plaintiffs invested their money and the money was needed elsewhere.

         He made the decision unilaterally. When asked at the hearing why he did not use the Carmel investors' money to develop the Carmel project and keep that project on track, his only answer was that he put the money where it was most needed to keep those projects afloat. In essence, he said something to the effect of, “you do what you have to do.”

         Importantly, during the hearing it became clear that Mr. Bowser's family permeates the entities and transactions. Multiple members of Mr. Bowser's family have a financial interest in Noah and Gabriel.

         His family dominates roles in Gabriel. In addition to employing Mr. Bowser, Gabriel employs his son-in-law (Scott Jensen) and the brother of that son-in-law (Brandon Jensen), both of whom are project managers. Employee Cory Lowder (superintendent) is the exception. As for principals, Gabriel has three: Mr. Bowser is the President, Scott Jenson is an Officer, and Brandon Jensen is an Officer. (Registered Principal Filing with the State of Utah for Gabriel Management Corporation, Evid. Hr'g Ex. AC.) And on Gabriel's bank account, all of the signatories are related to Mr. Bowser. The signatories consist of Mr. Bowser, Kate Jensen (his daughter), Hailey Gardiner (daughter), Scott Jensen, and Brandon Jensen.

         The family connection blends into Noah as well. For instance, his daughters and son have shares in Noah. And his wife receives a salary ($6, 583.33 a month, for a total of $79, 000 annually) from Noah. (Uniform Residential Loan Application of Mr. and Mrs. Bowser, Evid. Hr'g Ex. AB.) Noah has one bank account which it uses to operate all of its forty-two event venues. (Bowser Dep. at 45:16-21; 47:20-48:1.) There are three signatories on Noah's bank account: Mr. Bowser, Kate Jensen (Mr. Bowser's daughter), and Hailey Gardiner (Mr. Bowser's daughter).

         When asked during his deposition how many other relatives are employed by Noah or its subsidiaries, he responded: “I have a niece [named] Samantha Kemp. I have a brother, Mike Bowser. I have a brother Mark Bowser. I have a nephew, Andrew Bowser and then my mom, Marilyn Bowser.” (Id. at 97:10-14.)

         Based on the evidence seen, it appears that financial controls are loose. Gabriel and Noah share access to a system called Divvy “that is credit card like” but is “not really a credit line. … It's almost more like a debit card if you will.” (Id. at 92:7-17.) They use the same Divvy account. “[W]e would be - they would submit a draw for the Divvy amount. So anything that construction used on the Divvy account, we would be treated just like a subcontractor and that amount would be reimbursed to Noah's.” (Id. at 93:4-8.) A credit card in the name of Mr. Bowser's wife was used to pay Noah's utilities and funds were transferred directly from the Noah operating account to that credit card. (Id. at 94:13-95:14.)

         Money was freely interchanged. For instance, in 2017, Rockwell put $6 million into Noah in an attempt to keep it afloat. And Rockwell, using the Plaintiffs' funds, paid the initial rent payments to the Plaintiffs. “Per Noah's construction agreement with Rockwell, Rockwell made the first nine rent payments out of Noah's budgeted construction draw [which came from the Plaintiffs' payment to Rockwell] to the TIC owners from the date of the Lease Agreement through February 2019, in the aggregate amount of approximately $328, 500.00.” (SOF ¶ 17 of Bowser Opp'n (citing Bowser First Decl. ¶ 21).) At one point, Mr. Bowser borrowed money from Noah, and he put some of his personal funds into Noah. Mr. Bowser divided his salary up into two parts: one part allocated to the percentage of work he spent on Gabriel business with the remaining part allocated to Noah.

         In sum, the record is filled with evidence of interchangeable roles and intermingled money connected to ...


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