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Cadle v. Jefferson

United States District Court, W.D. Kentucky, Louisville

July 14, 2017

DANIEL C. CADLE, Individually and Derivatively on Behalf of the Corporation and the Shareholders of iGate, Inc. PLAINTIFF
v.
WILLIAM J. JEFFERSON, ANDREA G. JEFFERSON, THE ANJ GROUP, LLC, VERNON L. JACKSON and JOHN DOES 1-100 DEFENDANTS

          MEMORANDUM OPINION

          Charles R. Simpson III, Senior Judge.

         I. Introduction

         This matter is before the Court on the motion of Plaintiff Daniel C. Cadle, individually[1]and derivatively on behalf of the corporation and the shareholders of iGate, Inc. (“iGate”) for partial summary judgment, ECF No. 113. Defendant Vernon L. Jackson responded, ECF No. 119. Cadle replied, ECF No. 127. Defendant William J. Jefferson also responded, ECF No. 122. Cadle replied, ECF No. 128.

         Jefferson filed a cross-motion for partial summary judgment, ECF No. 121. Cadle responded, ECF No. 126. Jefferson replied, ECF No. 131. Because these motions involve the same facts and legal issues, the Court will address them in a single memorandum opinion and order.

         For the reasons stated below, the Court will grant in part and deny in part Cadle's motion for partial summary judgment. The Court will grant in party and deny in part Jefferson's motion for partial summary judgment.

         II. Summary Judgment Standard

         A party moving for summary judgment must show that “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The Court must determine whether there is a genuine issue for trial. Anderson v. Liberty Lobby, 477 U.S. 242, 249 (1986). A genuine issue for trial exists when “there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party.” Id. The Court must draw all factual inferences in favor of the nonmoving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

         III. Background

         A. Facts

         Jackson founded iGate, a telecommunications broadband business, in 1998. Trial Tr. 128, ECF No. 113-2. iGate's technology allowed for high speed information-audio, data, and video-to be simultaneously transmitted over copper telephone lines. Id. In mid to late 2000, Jackson met Jefferson, who was a Congressman at the time.[2] Trial Tr. 128, ECF No. 113-2; Jefferson Dep. 11, ECF No. 113-4. They met at a trade show in Chicago where Jackson was displaying iGate's technology. Id. Soon after, Congressman Jefferson introduced Jackson to United States Army General James Hylton to promote iGate's product for use in the United States Army. Trial Tr. 136-37, ECF No. 113-2; Jefferson Dep. 12, ECF No. 113-4. At that meeting, Congressman Jefferson told General Hylton that iGate's product would save the government money and that its product needed to be tested by the Army. Trial Tr. 137, ECF No. 113-2. Based on Congressman Jefferson's suggestion, General Hylton agreed and decided that the Army should test iGate's product. Id. at 137-38. Testing began within two weeks. Id. at 141. This testing enabled the government to purchase and use iGate's product. Id. at 139. It was installed on a trial basis at Fort Stewart in Georgia. Trial Tr. 240, ECF No. 113-5.

         After the testing began, Congressman Jefferson approached Jackson and told him that the Congressman “could no longer spend the time with [Jackson] or work with [Jackson] on this product and services.” Trial Tr. 141-42, ECF No. 113-2. Congressman Jefferson told Jackson that iGate “needed a company now to get with [Jackson] and market these products to high-end decision makers in the corporate sector as well as government people.” Id. at 142. Congressman Jefferson suggested that Jackson work with Defendant The ANJ Group, LLC (“ANJ”). Id. Congressman Jefferson informed Jackson that ANJ was owned by the Congressman's wife, Andrea Jefferson, and daughters. Id. This information “sent up a red flag” for Jackson, but Congressman Jefferson assured Jackson that it would be permissible to do business with ANJ because the Congressman had no interest in the company. Id.

         Congressman Jefferson then sent Jackson a draft contract offer from ANJ. Id. at 143. Jackson, as chairman and CEO of iGate, entered into a personal services agreement (“the Agreement”) with Andrea Jefferson as president of ANJ. Id. at 151. Under the Agreement, iGate agreed to pay ANJ $7, 500 per month, in addition to providing 1, 000, 000 stock options at a price of $2.50 per share. Agreement ¶ 3, ECF No. 113-6.

         Jackson soon noticed that he was still working with Congressman Jefferson, even though he was purportedly working with ANJ. Trial Tr. 164, ECF No. 113-2. As far as Jackson could tell, Andrea Jefferson never performed under the contract. Id. at 164-65. Jackson continued to pay ANJ consulting fees, however, because he “realized the congressman had actually been very effective and resourceful in getting things done . . . . And [he] certainly did not want to cross [Congressman Jefferson] in any way, shape, or form.” Id. at 165. In other words, Jackson did not want to alienate Congressman Jefferson by not paying on the contract. Id. Jackson believed that he would not have gotten a meeting with the Army Corps of Engineers, for example, without Congressman Jefferson's help. Trial Tr. 28, ECF No. 113-7. And Jackson believed that Congressman Jefferson helped him because he was paying the Congressman to do so. Id. Jackson noticed that invoices from ANJ were delivered to him either in person from Congressman Jefferson or by facsimile. Id. at 25. At least one of these invoices contained Congressman Jefferson's handwriting. Id. at 38. In fact, wire transfers to ANJ were being routed to an account listed in Congressman Jefferson's name. Jefferson Dep. 47-50, ECF No. 113-4. Altogether, between February 2001 and September 2004, iGate paid ANJ $362, 500 in checks and wire transfers as follows:

Date

Amount

Method

February 15, 2001

$7, 500.00

Check

April 11, 2001

$7, 500.00

Wire Transfer

May 7, 2001

$7, 500.00

Check

June 18, 2001

$7, 500.00

Check

July 27, 2001

$7, 500.00

Check

June 2, 2003

$25, 000.00

Check

January 23, 2004

$200, 000.00

Wire Transfer

July 26, 2004

$50, 000.00

Wire Transfer

September 23, 2004

$50, 000.00

Wire Transfer

         iGate Payments, ECF No. 113-17. After only two or three months Jackson had accepted that, even though it was “inappropriate” and “wrong, ” he was paying Congressman Jefferson $7, 500 a month under the Agreement to promote “iGate's products and services from his congressional offices.” Trial Tr. 166-67, ECF No. 113-2.

         In addition to the cash payments, Jackson also issued hundreds of thousands of shares of iGate stock to ANJ. Stock Docs., ECF No. 113-8; Jefferson Dep. 22-30, ECF No. 113-4; Trial Tr. 178-80, 191-94, ECF No. 113-2. Although the Agreement set the price of these shares at $2.50 per share, Jackson issued the shares to ANJ for free. Jefferson Dep. 22-30, ECF No. 113-4; Trial Tr. 178, ECF No. 113-2. Jackson issued them for free because he felt that Congressman Jefferson was performing services for the shares and because he did not want to alienate the Congressman. Trial Tr. 178-79, 193-94, ECF No. 113-2.

         Meanwhile, in 2003, Congressman Jefferson contacted Jackson and told Jackson that he had met with a company in Africa called Netlink Digital Television (“NDTV”) that was interested in using iGate to get broadband services or internet access in Nigeria. Id. at 195-96. Congressman Jefferson invited Jackson to fly to London, where Jackson met with members of the NDTV team. Id. at 196. Members of the NDTV team then came to the United States to see a demonstration of iGate's products and services. Id. at 219. During this trip, NDTV, iGate, and Congressman Jefferson negotiated and reached an agreement for services between NDTV and iGate. Id. at 219-20.

         Congressman Jefferson then presented Jackson with a proposed amendment to the Agreement between iGate and ANJ. Id. at 210. The amendment increased ANJ's share of iGate's profits from 5% to 35% for any business connected with Africa. Id. at 211; Amendment, ECF No. 113-11. After this amendment was agreed upon, Congressman Jefferson and Jackson, accompanied by iGate personnel, went to Africa again, where they promoted iGate in Cameroon. Jefferson Dep. 74, ECF No. 113-4; Trial Tr. 101, ECF No. 113-7. iGate paid for the expenses incurred on this trip to Africa. Jefferson Dep. 69-74, 77-79, ECF No. 113-4; Trial Tr. 157-59, 190-92, ECF No. 113-7. iGate paid Congressman Jefferson's American Express credit card bill on June 16, 2004 in the amount of $14, 888.95 to reimburse him for plane tickets to Cameroon. Trial Tr. 158, ECF No. 113-7; Jefferson Dep. 77, ECF No. 113-4; Fraker Email, ECF No. 113-13. On July 30, 2004, iGate again paid Congressman Jefferson's American Express credit card bill in the amount of $14, 604.76 for travel expense reimbursements. Fraker Email, ECF No. 113-13.

         In 2004, iGate's relationship with NDTV “began to fall apart.” Trial Tr. 75, ECF No. 113-7. Following this falling out, Congressman Jefferson invited Jackson to his congressional offices to meet Brett Pfeffer, a former legislative assistant to the Congressman who was, at that time, a consultant for various companies. Jefferson Dep. 95, ECF No. 113-4; Trial Tr. 172, ECF No. 113-7. Pfeffer had introduced Congressman Jefferson to Lori Mody, the CEO of W2, LLC (“W2”), an international broadband services company. Jefferson Dep. 95, ECF No. 113-4; Term Sheet 1, 3, ECF No. 113-16. Congressman Jefferson, in turn, introduced Jackson to Mody. Id. iGate, through Jackson, and W2, through Mody, subsequently entered into an agreement to provide broadband services in Nigeria. Term Sheet 1, ECF No. 113-16. These were the same products and services that iGate had previously agreed to provide to NDTV. Trial Tr. 175, ECF No. 113-7.

         On August 2, 2005, iGate rescinded 30 million shares of iGate stock from ANJ, citing ANJ's “failure . . . to provide the business opportunities it represented.” Aug. 2, 2005 Rescission, ECF No. 119-2. In his affidavit, Jackson stated that iGate would have rescinded all stock issued to ANJ, but it believed that it could not legally take that action because “the previously issued stock was issued pursuant to a valid marketing agreement” with ANJ and ANJ “successfully achieved certain performance levels” under that agreement. Jackson Aff. ¶ 2, ECF No. 119-1. Jackson's counsel later informed him that the agreements between iGate and ANJ may have been illegal and void. Id. ¶ 3. This would mean that “any and all compensation paid to [ANJ] should be returned to iGate.” Id. Thus, on January 25, 2010, Jackson made a notation to check with his counsel regarding the rescission of the remaining 775, 000 shares issued to ANJ. Id. ¶ 4. But through inadvertence, Jackson failed to issue the rescission. Id. ¶ 5. After reviewing Cadle's instant motion for partial summary judgment, Jackson realized the error and has executed a board resolution rescinding 775, 000 shares of iGate stock issued to ANJ, “effective as of January 25, 2010.” Id. ¶¶ 5-6; Dec. 28, 2016 Rescission, ECF No. 119-3. Prior to this effective date, however, in 2006, “iGate ceased its operations, closed its headquarters in Louisville, Kentucky and furloughed all of its employees.” Verified Compl. ¶ 41, ECF No. 1.

         B. Procedural History

         Congressman Jefferson and Jackson were both criminally prosecuted for the above actions. On May 2, 2006, Jackson waived indictment and pled guilty to (1) conspiracy to commit bribery of a public official under 18 U.S.C. § 371 and (2) bribery of a public official under 18 U.S.C. § 201. Plea Agreement 1, ECF No. 113-18. On June 4, 2007, Congressman Jefferson was indicted on sixteen criminal counts. Jefferson Indictment 1, ECF No. 113-19. He stood trial, and on August 5, 2009 the jury found him guilty on the following counts:

Count 1: 18 U.S.C. § 371 (Conspiracy to Solicit Bribes by a Public Official, Deprive Citizens of Honest Services by Wire Fraud, and Violate the Foreign Corrupt Practices Act)
Count 2: 18 U.S.C. § 371 (Conspiracy to Solicit Bribes by a Public Official and Deprive Citizens of Honest Services by Wire Fraud)
Counts 3 and 4: 18 U.S.C. § 201(b)(2)(A) (Solicitation of Bribes by a Public Official)
Counts 6, 7, and 10: 18 U.S.C. §§ 1343 and 1346 (Scheme to Deprive Citizens of Honest Services by Wire Fraud)
Counts 12, 13, and 14: 18 U.S.C. § 1957 (Money Laundering)
Count 16: 18 U.S.C. § 1962(c) (Racketeer Influenced Corrupt Organization, Pattern of Racketeering Activity (RICO))

Id.; Jefferson Jury Verdict, ECF No. 113-20.

         On February 12, 2007, Cadle, an iGate shareholder, filed suit individually and derivatively on behalf of the corporation and shareholders of iGate. Compl. 1, ECF No. 1. Cadle asserts ten claims against Defendants: (1) breach of fiduciary duty (Count I), (2) aiding and abetting breach of fiduciary duty (Count II), (3) negligent and/or fraudulent misrepresentation and/or omission (Count III), (4) unjust enrichment and/or disgorgement (Count IV), (5) violation of Kentucky Revised Statutes § 378.010 (Count V), (6) violation of Kentucky Revised Statutes § 378.020 (Count VI), (7) civil conspiracy and aiding/abetting civil conspiracy (Count VII), (8) violation of 18 U.S.C. § 1962(c) (Count VIII), (9) violation of 18 U.S.C. § 1962(b) (Count IX), and (10) violation of 18 U.S.C. § 1962(d). Id. at 14-24. This Court previously dismissed Counts V and VI of the complaint, Order, ECF No. 78, as well as all of the claims to the extent that they are pled by Cadle individually, Mem. Op. 4, ECF No. 77.

         IV. Discussion

         This matter is before the Court on two motions for partial summary judgment. Cadle moves for partial summary judgment. Cadle Mot. Partial Summ. J., ECF No. 113. Cadle argues that he is entitled to summary judgment against Congressman Jefferson on Count II for aiding and abetting a breach of fiduciary duty, Count IV for unjust enrichment, and Count VII for civil conspiracy. Cadle Mem. Supp. Mot. Partial Summ. J. 13-25, ECF No. 113-1. Cadle argues that he is entitled to summary judgment against Jackson on Count VII for civil conspiracy. Id. at 25- 27.

         Congressman Jefferson also moves for partial summary judgment. Jefferson Mot. Partial Summ. J., ECF No. 121. Congressman Jefferson asserts two arguments: (1) he cannot be liable for any damages to iGate, and (2) Cadle's unjust enrichment claim cannot coexist with the breach of contract claims asserted against him. Id. at 1-2. The Court will discuss Congressman Jefferson's motion as it becomes relevant.

         Cadle relies on offensive issue preclusion to establish many elements of his claims.[3] Id. at 11-13. Offensive use of issue preclusion, otherwise known as collateral estoppel, “occurs when the plaintiff seeks to foreclose the defendant from litigating an issue the defendant has previously litigated unsuccessfully in an action with another party.” Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 n.4 (1979). “The doctrine has been regularly employed by courts to preclude the litigation of an issue in a civil action already addressed in an associated criminal case.” Westport Ins. Corp. v. Mudd, No. 1:08-CV-00034-R, 2010 WL 4638760, at *3 (W.D. Ky. Nov. 5, 2010) (citations omitted). Such use of collateral estoppel may be applied against a defendant where four criteria are met:

(1) the precise issue must have been raised and actually litigated in the prior proceedings;
(2) the determination of the issue must have been necessary to the outcome of the prior proceedings;
(3) the prior proceedings must have resulted in a final judgment on the merits; and
(4) the party against whom estoppel is sought must have had a full and fair opportunity to litigate the issue in ...

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