Carruthers v. Flaum, 03 CIV.7768(CM).

• Citation: 365 F.Supp.2d 448
• Decision Date: 31 March 2005
• Docket Number: No. 03 CIV.7768(CM).,03 CIV.7768(CM).
• Parties: D. Scott CARRUTHERS, Springhawk, LLC, and Summerhawk, LLC, Plaintiffs, v. David FLAUM, Flaum Management Company, Inc., Russell Galbut, 3D Associates, LLC, Stanley Gallant, Individually and as Assignee of ACB Pacific Reality, LLC, LJM Enterprises, LLC, as Assignee of ABC Pacific Realty, LLC, A.P. Equity, Inc., Ancestral Reclamation, LLC, Alan H. Young, individually, d/b/a Lindenbaum and Young, and as partner in Lindenbaum and Young, Lindenbaum and Young, Charles Petri, County of Sullivan Industrial Development Agency, and Gene Barbanti, individually and d/b/a The Barbanti Group Real Estate, Defendants.
• Court: United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York

365 F.Supp.2d 448

D. Scott CARRUTHERS, Springhawk, LLC, and Summerhawk, LLC, Plaintiffs, v. David FLAUM, Flaum Management Company, Inc., Russell Galbut, 3D Associates, LLC, Stanley Gallant, Individually and as Assignee of ACB Pacific Reality, LLC, LJM Enterprises, LLC, as Assignee of ABC Pacific Realty, LLC, A.P. Equity, Inc., Ancestral Reclamation, LLC, Alan H. Young, individually, d/b/a Lindenbaum and Young, and as partner in Lindenbaum and Young, Lindenbaum and Young, Charles Petri, County of Sullivan Industrial Development Agency, and Gene Barbanti, individually and d/b/a The Barbanti Group Real Estate, Defendants.

No. 03 CIV.7768(CM).

United States District Court, S.D. New York.

March 31, 2005.

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Peter D. Grubea, Buffalo, NY, for Plaintiffs.

Joshua E. Kimmerling, Cuddy & Feder & Worby LLP, White Plains, NY, Gerald Orseck, Orseck Law Offices, Liberty, NY, Benjamin Ostrer, Attorney at Law, Chester, NY, Tara C. Fappiano, Ohrenstein & Brown, L.L.P., New York, NY, for Defendants.

DECISION AND ORDER

McMAHON, District Judge.

This is a case about a misguided effort to cash in on the as-yet unrealized boomlet in casino gambling in Sullivan County.

The Unkechaug Indian Nation want to open gaming facilities at one or more sites in Sullivan County and have sought land of suitable geographic location and ancestral connection. (Cplt.¶ 25.) The tribe (about which the complaint says almost nothing) has been recognized by the State of New York, pursuant to Indian Law, Art. 10, §§ 150-53. However, the Tribe has not been federally recognized and, as far as this court knows, has never even applied for federal recognition.

Because the Unkechaugs are not a federally-recognized Indian tribe, it cannot take advantage of the provisions of the Indian Gaming Regulatory Act, 25 U.S.C. §§ 2701, et seq. ("IGRA"), to overcome New York State's longstanding prohibition against gambling. Nonetheless, plaintiff D. Scott Carruthers, together with two other individuals named James Simermeyer and Mitchell Stanley, established two limited liability corporations — Springhawk LLC and Summerhawk LLC — for the express purpose of developing and operating high-stakes bingo and other gaming facilities on the ancestral land of the Unkechaugs in Sullivan County (Springhawk's domain) and on Long Island (Summerhawk's domain). Carruthers, Simermeyer and Stanley allegedly entered into oral contracts (known as "operating agreements") with each other relating to their interest in Springhawk and Summerhawk. Thereafter, the two corporations entered into contracts with the Unkechaugs relating to the development of such a high-stakes bingo operation and other gaming facilities on land purporting to be ancestral Unkechaug land (the "gaming agreements").

Carruthers here sues multiple defendants — attorneys Alan H. Young and Charles Petri and their law firm, Lindenbaum and Young; real estate agent Gene Barbanti and a firm controlled by him, AP Equity, Inc.; and a firm known as Ancestral Reclamation LLC — for tortiously interfering with his relationship with his partners Simermeyer and Stanley (who appear to have parted ways with him) pursuant to the Springhawk and Summerhawk operating agreements. (First Cause of Action). Carruthers also alleges that the other defendants — including David Flaum and Flaum Management, a Rochester developer with an interest in gaming operations; and Stanley Gallant and Russell Galbut, real estate developers from New York City — tortiously interfered with the gaming contracts between Springhawk and Summerhawk, on the one hand, and the Unkechaugs on the other.

All defendants except Gallant and his related entities have moved for judgment on the pleadings dismissing the first sixteen claims, on the ground that the underlying contracts are invalid and unenforceable. The Gallant defendants move separately for summary judgment dismissing the entire complaint as against them, on the ground that they had absolutely nothing to do with this whole situation.

The contracts with which defendants allegedly interfered fall into three categories: the "operating agreements" that govern the relations among the principals in plaintiffs Springhawk and Summerhawk; the "gaming agreements" (as plaintiffs call them) that Springhawk and Summerhawk entered into with the Unkechaug; and an "employment agreement" between Springhawk and someone named Robert Kingsley.

The gaming agreements are not valid agreements and cannot be enforced under New York law because they have as their purpose an illegal activity — gambling — and they fall within no exception to New York State's longstanding prohibition against all forms of gaming. For that reason, defendants are entitled to dismissal of plaintiff's claim for a declaration that the gaming agreements are valid (Sixteenth Cause of Action).

Moreover, one cannot tortiously interfere with an illegal and unenforceable agreement. Nor can one interfere with the so-called "employment agreement" with Kingsley, which was nothing more than an open-ended consulting agreement designed to lead to employment in the future. The Eighth through Fifteenth Causes of Action must thus be dismissed as well.

In the First Cause of Action Carruthers personally seeks relief against Ancestral, AP Equity, Petri, Young and Barbanti (the "AP Equity Defendants") for allegedly interfering with his relations with his limited liability partners. Insofar as this claim relates to the operating agreement that established Springhawk, it must be dismissed with prejudice, because the complaint specifically alleges that Springhawk was established for the patently illegal purpose of developing and operating high-stakes bingo and other gaming facilities in Sullivan County, New York, on ancestral land of the Unkechaug Indian Nation. Nothing whatever is alleged in the complaint concerning the Summerhawk operating agreement (except that it exists), and so any claim relating thereto must be dismissed for that reason alone — and with prejudice, for reasons that will become clear below.

Finally, the Second through Seventh Causes of Action must be dismissed because the complaint does not identify what agreement or agreements to which Carruthers (the only plaintiff on those claims) was a party were the subject of any allegedly tortious interference.

Defendants David Flaum and Flaum Management Company (the "Flaum Defendants") move to dismiss the remaining claims asserted against them: the Eighteenth (for breach of contract), Twenty-First (for fraud and misrepresentation), and Twenty-Fifth (to pierce the corporate veil) causes of action. For the reasons stated below, the Flaum Defendants' motion to dismiss the non-tortious interference claims is GRANTED as to the Twenty-Fifth Causes of Action, but DENIED as to the others.

Finally, Defendants Stanley Gallant, Jack Sternklar, and LJM Enterprises LLC (the "Gallant Defendants") separately move for summary judgment to dismiss the remaining claims asserted against them. Four of these pertain to Gallant himself: the Eighteenth (for breach of contract), Twenty-First (Fraud and misrepresentation), Twenty-Fifth (to pierce the corporate veil), and Twenty-Sixth (constructive trust) causes of action. The Twenty-Seventh (unjust enrichment; resulting trust) pertains to all three Gallant Defendants. For the reasons stated below, the Gallant Defendants' motion for summary judgment to dismiss the non-tortious interference claims is GRANTED as to the Twenty-Fifth Causes of Action, and adjourned until the completion of Rule 56(f) discovery as to all other claims.

Standards of Review

Motion for Judgment on the Pleadings

The standard of review on a motion for judgment on the pleadings under Rule 12(c) is whether "the moving party is entitled to judgment as a matter of law." Burns Int'l Sec. Serv., Inc. v. Int'l Union, United Plant Guard Workers of Am., 47 F.3d 14, 16 (2d Cir.1995). This standard is the same as that applicable to a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6). Nat'l Ass'n of Pharm. Mfrs. v. Ayerst Lab., 850 F.2d 904, 909 n. 2 (2d Cir.1988). A court may grant a Rule 12(b)(6) motion to dismiss for failure to state a claim only "when it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Phillip v. University of Rochester, 316 F.3d 291, 293 (2d Cir.2003) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)); Kaltman-Glasel v. Dooley, 156 F.Supp.2d 225, 226 (D.Conn.2001).

The function of the Court is not to weigh the evidence that may be presented at trial. Instead, the Court must determine if the claims are legally sufficient. Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir.1985); see also King v. Simpson, 189 F.3d 284, 287 (2d Cir.1999). The Court must construe all reasonable inferences in favor of the plaintiff and accept the allegations contained in the claims as true. See Desiderio v. National Ass'n of Sec. Dealers, Inc., 191 F.3d 198, 202 (2d Cir.1999). Therefore, a court must evaluate whether the allegations in the complaint can sustain a cause of action under applicable law, and should grant the motion to dismiss only if the plaintiffs can prove no set of facts in support of their claims that would entitle them to relief. See Swierkiewicz v. Sorema, N.A., 534 U.S. 506, 122 S.Ct. 992, 998, 152 L.Ed.2d 1 (2002); King v. Simpson, 189 F.3d 284, 286 (2d Cir.1999). The issue is not whether the plaintiff will ultimately prevail but whether the plaintiff is entitled to offer evidence to support the claims. Villager Pond, Inc. v. Town of Darien, 56 F.3d 375, 378 (2d Cir.1995).

However, it is well settled that on a motion to dismiss, where the validity of contracts is challenged, the court may review and properly consider the terms of the contracts that were referenced in the pleadings. See Cortec Industries, Inc. v. Sum Holding...