Carruthers v. Flaum
| Decision Date | 06 September 2006 |
| Docket Number | No. 03 Civ. 7768.,03 Civ. 7768. |
| Citation | 450 F.Supp.2d 288 |
| Parties | D Scott CARRUTHERS, Springhawk LLC, Summerhawk LLC, Plaintiffs, v. David FLAUM, Flaum Management Company, Inc., 3D Associates LLC, A.P. Equity, Inc., Ancestral Reclamation LLC, Alan H. Young, Individually and d/b/a Lindenbaum & Young, Lindenbaum & Young, Charles Petri, Gene Barbanti, Individually and d/b/a the Barbanti Group Real Estate and James Simermeyer, Defendants. |
| Court | U.S. District Court — Southern District of New York |
John Gilbert Horn, Karen R. Kaczmarski, Harter, Secrest & Emery, LLP, Buffalo, NY, for Plaintiffs.
Joshua E. Kimmerling, Cuddy & Feder LLP, White Plains, NY, Karl Essler, Fix Spindelman, Brovitz & Goldman, P.C., Fairport, NY, Gerald Orseck, Orseck Law Offices, Liberty, NY, Marvin Newberg, Attorney-At-Law, Monticello, NY, Robert Jay Semaya, Moses & Singer LLP, Robert David Werth, Robert D. Werth, P.A., New York, NY, for Defendants.
DECISION AND ORDER GRANTING DEFENDANTS' MOTIONS FOR SUMMARY JUDGMENT AND DNYING DEFENDANTS' MOTIONS FOR SANCTIONS
The parties to this case were co-venturers in an ill-starred attempt to open a number of casinos, resorts, and highstakes bingo parlors on the "tribal land" of the Unkechaug Indian Nation in Sullivan and Suffolk Counties. Their endeavor fell through in large part because the Unkechaug lack federal recognition as a tribe and thus cannot legally operate a casino in New York State.
Nonetheless, the parties set up limitedliability companies for their venture, entered into operating agreements, and sought to acquire land in Sullivan County on which to build their future gambling empire. At least one parcel of land owned by defendant Charles Petri—a small plot off Exit 106 of Route 17—was transferred to the Unkechaug, in exchange for $550,000, which was supplied by plaintiff Carruthers. However, the land was subject to a multi-million dollar mortgage, which was ultimately foreclosed on, causing the loss of the entire investment. A second Parcel, located off Exit 107, was supposed to be transferred to the Unkechaug but never was.
Plaintiffs now assert that Petri and his associates breached several provisions of the contract for the 106 and 107 Parcels, and made various fraudulent misrepresentations during negotiations in order to induce plaintiffs to agree to the deal in the first place. Plaintiffs also bring claims against Alan Young, attorney to the Petri defendants, for breach of fiduciary duty as an escrow agent, and against David Flaum, a real estate developer who allegedly was the secret backer of the Petri defendants' activities. Finally, plaintiffs claim that James Simermeyer, their own attorney and business partner, committed malpractice in failing to secure the parcels.
Before this Court are four motions for summary judgment: one each from defendants Flaum, Young, Petri, and Simermeyer. Flaum and Simermeyer also move for sanctions pursuant to Fed.R.Civ.P. 11. For the reasons set out below, defendants' motions for summary judgment are granted. Flaum's and Simermeyer's motions for sanctions, however, are denied.
The instant case arises out of the efforts of the Unkechaug Indian Nation ("the Nation") and its chief, Harry Wallace (formerly a named defendant in this case), to establish casino gaming and high stakes bingo on their "ancestral lands" in Sullivan and Suffolk counties. In the course of those efforts, the Nation and its business partners allegedly entered into a series of deals for the acquisition of land as the site of the Nation's future casino. These deals went bad, and the parties now blame one another for the collapse.
Of course, gaming is illegal in New York state, and has been since 1771 and the colonial governorship of William Tryon. See Saratoga County Chamber of Commerce Inc. v. Pataki, 100 N.Y.2d 801, 825-28, 766 N.Y.S.2d 654, 798 N.E.2d 1047 (2003) (Smith, J., concurring in part) (). However, New York's longstanding anti-gaming policy was upended by the 1997 Supreme Court decision in California v. Cabazon Band of Mission Indians, which held that state regulatory powers over gambling did not extend to the regulation of gaming on Indian land contained within a state's territory. 480 U.S. 202, 107 S.Ct. 1083, 94 L.Ed.2d 244 (1987). In the wake of that opinion, Congress passed the Indian Gaming Regulatory Act of 1988, Pub.L. 100-497, 102 Stat. 2467 (1988) (codified at 25 U.S.C. §§ 2701-2721) (hereinafter, the "IGRA"). The IGRA formally permitted gaming operations on Indian land, while giving state authorities some limited power to approve and regulate such activities.
With the passage of the IGRA, numerous Indian nations across the country, including the Unkechaugs, saw an opportunity to cash in. However, unlike many of their sister nations, the Unkechaugs lacked federal recognition as a tribe—a requirement for a nation to obtain the benefit of the IGRA's preemption of local anti-gaming ordinances.
The Nation's quest for casino gaming apparently began with a conference on economic opportunities for the Unkechaug Nation held in upstate New York in 2001. Defendant James Simermeyer, himself an Indian but not an Unkechaug (his tribal affiliation is unclear) as well as a friend, colleague and one-time law partner of Wallace, attended the conference. Affidavit of James Simermeyer in Support of Motion for Summary Judgment ("Simermeyer Aff.") ¶¶ 32-35. As a result, Simermeyer became involved in the Nation's economic development effort, and through various contacts met Mitchell Stanley, a representative of the Delaware Nation, and Ivy Ong, a Nevada businessman who had previously set up Indian nation gaming in Oklahoma. Id. ¶ 37, 39. Ong apparently was apparently interested in setting up casino operations on Unkechaug land. Simermeyer allegedly agreed to assist Ong in the venture, and provided his New York office as a base of operations for his wheeling and dealing. Id. ¶¶ 41-45.
Ong wasted no time in making contact with the Unkechaug and lining up support for his vision of a series of gaming operations on their land. Simermeyer Aff. ¶ 48. An agreement between the Nation and Stanley (allegedly backed by Ong) establishing a partnership to operate casino gaming was apparently signed on November 3, 2001. Id., Ex. E.
Shortly thereafter, the Unkechaug apparently became aware of extensive malfeasance in Ong's past, including the collapse of a joint gaming operation with the Seminole Nation in Oklahoma. Id. ¶ 59. According to Simermeyer, the Nation became afraid that Ong's reputation would taint the public face of the venture. As a result, D. Scott Carruthers, lead plaintiff in this case, stepped into Ong's shoes to keep the project moving. Id. ¶ 61. Before 2002, Carruthers had been Ong's attorney and a principal of Carlo World Wide, Ong's Nevada organization. Defendants Rule 56.1 Statement, ¶¶ 8-9. He had extensive experience in the gaming industry himself, as well as a longtime connection to Ong. Id. ¶ 61, Declaration of D. Scott Carruthers in Opposition to Petri Motion for Summary Judgment ("Carruthers Decl. I") ¶ 4, cf. Simermeyer Aff. ¶ 46-47.
With the Unkechaug Nation on board, the next step was the establishment of operating entities for the Nation's future casino empire. By January 2002, Carruthers, along with Simermeyer and Stanley, set up the Springhawk and Summerhawk LLCs as vehicles for the operation of casino gambling and high-stakes bingo operations on Unkechaug land. Simermeyer Aff. ¶ 52. Stanley, Carruthers and Simermeyer were the principals of the new entities, with Carruthers holding a majority interest in each. Id.
The three allegedly entered into oral "operating agreements" which set out their respective responsibilities within the Springhawk and Summerhawk operations. Carruthers maintains that Simermeyer was appointed to serve as attorney for the Springhawk and Summerhawk operations. Declaration of D. Scott Carruthers in Opposition to Simermeyer Motion for Summary Judgment ("Carruthers Decl. II") ¶ 18. He also contends Simermeyer agreed to act as his personal attorney in these dealings. Id. ¶ 20. Simermeyer concedes that he performed some legal work for Springhawk and Summerhawk, but he contends that any such work was incidental to his business function as an officer of the LLCs. Simermeyer Aff. ¶ 49.
The next step in the operation was to locate some "ancestral land" of the Unkechaugs that could serve as the site of the gaming operation, and, of course, investors to provide the necessary funding.
Towards that end, Simermeyer (perhaps through Wallace) introduced Carruthers to defendants Charles Petri, Alan Young and Gene Barbanti, who, in various permutations, controlled defendant entities The Barbanti Group, A.P. Equity Inc., Ancestral Reclamation LLC, and 3D Associates, LLC (collectively, "the Petri defendants"). Petri and Barbanti own and manage commercial real estate in upstate New York; Young is a partner in the Brooklyn law firm Lindenbaum & Young, who apparently performed legal work for Barbanti and Petri. He was also a principal of 3D Associates, one of the various operating entities controlled by Petri and Barbanti. Petri, Young and Barbanti represented to Carruthers that they were in possession of various parcels of land which could serve as sites for the Nation's gaming operations. Particularly, Petri offered two parcels of land in the town of Thompson in Sullivan County: first, a 35-acre property off Exit 106 of Route 17 ("the 106 Parcel"); second, an undeveloped 85-acre property off Exit 107 ("the 107 Parcel").2
Located on the 106 Parcel was a failed (or failing) shopping center known as the Apollo Mall. The parties imagined that the existing buildings on the property could quickly be converted into a casino until a more upscale project could be...
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