Capital Funding Grp., Inc. v. Zuccari
| Decision Date | 01 October 2020 |
| Docket Number | Civil Action No. RDB-20-1353 |
| Parties | CAPITAL FUNDING GROUP, INC., Plaintiff, v. ALAN J. ZUCCARI, et al., Defendants. |
| Court | U.S. District Court — District of Maryland |
This is the latest in a series of lawsuits arising from a collapsed nursing home business enterprise conducted by John Dwyer ("Dwyer") and Defendant Alan J. Zuccari ("Zuccari"). See Dwyer v. Zuccari, CL-2017-1827 (Va. Cir. Ct.); Dwyer, et al. v. Zuccari, RDB-19-1272 (D. Md.); Arkansas Nursing Home Acquisition, LLC, et al. v. CFG Community Bank, et al., RDB-19-3632 (D. Md.). The lawsuits began in 2017, when Dwyer sued Zuccari in the Circuit Court of Fairfax County, Virginia, seeking to recoup expenses associated with the settlement of professional liability claims. Dwyer v. Zuccari, CL-2017-1827. Dwyer voluntarily dismissed the action after presenting his evidence in a jury trial, but before the jury issued a verdict or judgment was entered. Subsequently, Dwyer, Zuccari, and their entities elected to file suit against one another in this Court.
In April 2019, Dwyer and Plaintiff Capital Funding Group, Inc., ("Plaintiff" or "CFG"), a Dwyer entity which is also the Plaintiff in this action, brought suit against Zuccari in this Court, alleging that Zuccari had not satisfied his obligations under a purported oral partnership agreement. Dwyer, et al. v. Zuccari, RDB-19-1272 (D. Md.) Ultimately, this Court rejected the theory that Dwyer and Zuccari's alleged business dealings constituted a partnership, dismissed Dwyer's claims, and permitted CFG to pursue only a single unjust enrichment claim against Zuccari. See Dwyer v. Zuccari, RDB-19-1272, 2020 WL 1308282 (D. Md. Mar. 19, 2020). Next, on December 24, 2019, two Zuccari entities sued Dwyer and others for engaging in three alleged "schemes" related to the failed nursing home venture. Arkansas Nursing Home Acquisition, LLC, et al. v. CFG Community Bank, et al., RDB-19-3632 (D. Md.). In that case, this Court reduced the seventeen-count Complaint to just three counts. Arkansas Nursing Home Acquisition, LLC v. CFG Cmty. Bank, --- F. Supp. 3d ---, RDB-19-3632, 2020 WL 2542165 (D. Md. May 19, 2020).
In this action, filed on June 1, 2020, CFG seeks to enforce a purported oral indemnification1 agreement against Zuccari and his investment vehicle, AJZ Capital (the "Defendants"). The six-count Complaint alleges breach of contract, various other state law claims, and seeks a Declaratory Judgment. Jurisdiction is premised on diversity of citizenship pursuant to 28 U.S.C. § 1332(a). Presently pending is Defendants Zuccari and AJZ Capital's Rule 12(b)(6) Motion to Dismiss Plaintiff's Complaint. (ECF No. 10.) CFG opposes the motion. (ECF No. 17.) The parties' submissions have been reviewed and no hearing is necessary. See Local Rule 105.6 (D. Md. 2018). For the reasons that follow, the Motion to Dismiss (ECF No. 10) is GRANTED and this case is DISMISSED WITH PREJUDICE.
In ruling on a motion to dismiss, this Court accepts as true the facts alleged in the plaintiff's complaint. See Aziz v. Alcolac, Inc., 658 F.3d 388, 390 (4th Cir. 2011). Documents which are "integral to the complaint and authentic" may also be considered. Goines v. Valley Cmty. Servs. Bd., 822 F.3d 159, 164 (4th Cir. 2016) (quoting Sec'y of State for Defense v. Trimble Nav. Ltd., 484 F.3d 700, 705 (4th Cir. 2007)). In this case, Plaintiff CFG seeks to enforce an alleged oral indemnification agreement against Defendants Zuccari and AJZ Capital following the sale of nursing home assets to Joseph Schwartz ("Schwartz") and Skyline Healthcare ("Skyline"). (ECF No. 1 ¶¶ 1-2.)
Plaintiff CFG, a Maryland corporation, is wholly owned by Dwyer, who is the chairman of the corporation. (ECF No. 1 ¶ 6.) Defendant Zuccari, a resident of Virginia, is the President, CEO, and founder of Hamilton Insurance Agency. (Id. ¶ 7.) Defendant AJZ Capital is a Virginia limited liability company with its principal place of business in Virginia. (Id. ¶ 8.) Zuccari is the managing member of AJZ Capital and owns a 99% interest in the company, with the remainder owned by his wife. (Id.)
In 2012, Dwyer and Zuccari "through respective entities," purchased nursing homes in Florida, Arkansas, Ohio, Oklahoma, and Texas. (Id. ¶¶ 13, 14.) A Zuccari entity named Sevarus provided risk management services to the entities, and Zuccari's insurance agency, Alan J. Zuccari, Inc. (trading as Hamilton Insurance Agency), brokered insurance for them. (Id. ¶ 16.)
In 2015, Dwyer and Zuccari decided to sell entities in Arkansas and Florida. (Id. ¶ 18.)Zuccari allegedly proposed to Dwyer the sale of four Florida nursing homes to Joseph Schwartz, whom he described as a friend and business colleague. (Id. ¶ 19.) Zuccari allegedly chose Schwartz because Schwartz and his business, Skyline Healthcare ("Skyline"), would continue to use Hamilton's insurance brokerage services and Sevarus for risk management. (Id. ¶ 20.) On November 1, 2015, the closing occurred on the four nursing homes in Florida in an all-cash transaction. (Id. ¶ 21.)
"In the same time frame," Dwyer, Zuccari, and Schwartz arranged the financed purchase of nursing home assets in Arkansas owned by Arkansas SNF Operations Acquisition I, LLC ("Arkansas I"), Arkansas SNF Operations Acquisition II, LLC ("Arkansas II"), Arkansas SNF Operations Acquisition III, LLC ("Arkansas III"), and Arkansas Real Estate Investors, LLC ("AREI"). (Id. ¶ 22.) It is alleged that each of these entities was "indirectly" owned 51% by Dwyer and 49% by Zuccari, and that AJZ Capital was Zuccari's investment vehicle for AREI. (Id.) Ultimately, Schwarz and Skyline purchased assets owned by Arkansas II, Arkansas III, and AREI. (Id. ¶¶ 1, 22.) On December 1, 2015, Schwartz paid part of the purchase price for the operating companies in cash, and gave a promissory note to Arkansas III for the balance. (Id. ¶ 24.)
To complete the purchase, Dwyer arranged third-party financing for Schwartz's purchase, to be provided by Fortress Investment Group, LLC. (Id. ¶¶ 24-25.) In November 2015, Fortress Investment Group, LLC provided a term sheet for a loan to Skyline Arkansas Holdings, LLC ("Skyline Arkansas") to be funded by Fortress Credit Co. LLC as agent ("Fortress"). (Id. ¶ 28.) The term sheet provided for a $14 million term loan to fund Skyline Arkansas' acquisition of Skyline CHP Holdings, LLC and Creekside Holdings, LLC (the"Skyline Borrowers"). (Id. ¶ 28.) The credit facility was required to be guaranteed by CFG, Dwyer, and his wife, as well as Schwartz, his wife, and Skyline Holdings, LLC. (Id.)
On December 16, 2015, Zuccari allegedly confirmed with Dwyer and CFG's Chief Financial Officer, Kevin Kirby, that Zuccari would personally indemnify and contribute to Dwyer and CFG 49% of any losses incurred or payments made by CFG, Dwyer, or their affiliated entities or personnel for payment on the Fortress loan should Schwartz or Skyline default. (Id. ¶ 34.) The parties proceeded to exchange written communications concerning the agreement. Consistent with the business dealings between Dwyer and Zuccari, this alleged agreement was never reduced to a signed writing, and the parties eventually modified its terms.
On December 17, 2015, Zuccari allegedly emailed Dwyer "to confirm his promise . . . to provide for a 'claw back' of funds from Zuccari in the event of a default by Schwartz." (Id. ¶ 35.) On February 2, 2016 Zuccari was provided a draft Guaranty Contribution Agreement between and among CFG, Dwyer, and Zuccari to memorialize their agreement. (Id. ¶ 36.) The draft agreement provided that Zuccari would defend CFG and Dwyer, as well as their affiliates, and "pay, reimburse, and . . . advance to each of them for, any and all Losses incurred or sustained by, or imposed upon" them. (Id.) The Guaranty Contribution Agreement further indicated that Zuccari would be responsible for 49% of the losses. (Id. ¶ 37.)
Upon receipt of the draft Guaranty Contribution Agreement, Zuccari "did not deny" that he had agreed to indemnity Dwyer and CFG. (Id. ¶ 38.) The February 2, 2016 draft was sent by the Chief Financial Officer ("CFO") of CFG to David Art, the CFO of Hamilton Insurance. (Id. ¶ 39.) The two agents engaged in correspondence about a proposedmodification to the oral agreement. (Id. ¶ 40.) The parties' proposals "morphed into an arrangement where AJZ Capital would be added as an indemnitor so long as Zuccari agreed with CFG and Dwyer that he would remain personally liable for the amount of the losses if AJZ Capital did not have equity value and liquidity of at least $5 million." (Id.) On February 22, 2016, CFG's CEO emailed Art, asking "if you trip the covenant, what is the cure?" (Id. ¶ 41.) Art responded that "if we trip the minimum liquidity requirement, then Alan should be obligated to infuse capital to meet the minimum liquidity." (Id.) As a result of these negotiations, "[o]n February 22, 2016, an agreement was reached between CFG, Dwyer, Zuccari, and AJZ Capital, whereby AJZ Capital would indemnify CFG and Dwyer for losses sustained as a result of a default by Schwartz and Skyline, and Zuccari personally agreed to fund those losses if AJZ Capital had less than $5 million of equity and liquidity." (Id. ¶ 43.)
The Fortress loan closed on the following day, February 23, 2016. (Id. ¶ 42.) The loan funds were obtained by a special purpose entity, CLMG Skyline SPE I, LLC ("CLMG Skyline"), from Fortress Credit Co. LLC. (Id. ¶ 45.) The final loan terms provided that CLMG Skyline was entitled to $14 million and that CFG, Dwyer, his wife would guaranty CLMG Skyline's repayment obligations. (Id.) CLMG Skyline in turn "made a loan of the Fortress loan proceeds of $14 million to Schwartz's Skyline Arkansas entities (the "Skyline Note")." (Id. ¶ 46.) Schwartz, his wife, and two Skyline-related entities guaranteed the repayment of the note. (Id....
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