Carruthers v. Flaum
| Decision Date | 21 September 2005 |
| Docket Number | No. 03 Civ. 7768(CM).,03 Civ. 7768(CM). |
| Citation | 388 F.Supp.2d 360 |
| Parties | D. Scott CARRUTHERS, Springhawk, LLC, and Summerhawk, LLC, Plaintiffs, v. David FLAUM, Flaum Management Company, Inc., 3D Associates, LLC, ABC Pacific Realty, LLC, A.P. Equity, Inc., Ancestral Reclamation, LLC, Alan H. Young, individually, d/b/a Lindenbaum and Young, Lindenbaum and Young, Charles Petri, Gene Barbanti, individually and d/b/a the Barbanti Group Real Estate, James F. Simermeyer, Harry B. Wallace and Simermeyer & Wallace, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Karl Essler, Fix Spindelman, Brovitz & Goldman, P.C., Fairport, NY, Joshua E. Kimmerling, Cuddy & Feder LLP, White Plains, NY, for Flaum Management Co., Inc. and David Flaum.
Tara Christin, Fappiano, Havkins Rosenfeld Ritzert & Varriale, LLP, New York, NY, for County of Sullivan Indus. Development Agency.
Peter D. Grubea, Buffalo, NY, Karen Rae Kacmarski, Harter, Secrest & Emery LLP, Buffalo, NY, for Summerhawk, LLC, Springhawk, LLC.
Marvin Newberg, Monticello, NY, for ABC Pacific Realty LLC.
Gerald Orseck, Orseck Orseck Greenberg & Gaiman, Liberty, NY, for Gene Barbanti, 3D Associates, LLC, A.P. Equity, Inc., Ancestral Reclamation, Lindenbaum and Young, Alan H. Young, Charles Petri, Gene Barbanti.
Benjamin Ostrer, Chester, NY, for LJM Enterprises, LLC, Jack Sternklar, Stanley Gallant.
Robert Jay Semaya, Moses & Singer LLP, New York, NY, for Simermeyer & wallace, Harry B. Wallace, James F. Simermeyer.
In this action, plaintiffs D. Scott Carruthers ("Carruthers"), Springhawk, LLC ("Springhawk") and Summerhawk, LLC ("Summerhawk") seek to recover damages and for equitable relief against various attorneys, individuals, and entities for their roles in (I) allegedly fraudulently inducing Plaintiffs to provide $550,000 in funds for the purchase of real property, and to incur other out-of-pocket expenses, in connection with certain business ventures in Sullivan and Suffolk Counties, and (ii) allegedly misappropriating, diverting and/or converting those funds to other, undisclosed uses in breach of various contractual, common law and/or fiduciary obligations to plaintiffs. This action also seeks to recover from the current owners of the real property, whom plaintiffs allege have been unjustly enriched as a result of the above.
Two motions are before the court. The first is by defendant ABC Pacific Realty, LLC ("ABC Pacific"), the current owner of the property, to dismiss the Amended Complaint pursuant to Fed.R.Civ.P. 12(b)(6), or in the alternative, for summary judgment pursuant to Rule 56. The only claim asserted against ABC Pacific, Count XI, is for unjust enrichment. It is dismissed.
The second motion is by defendants James F. Simermeyer ("Simermeyer"), Harry B. Wallace ("Wallace"), and Simermeyer & Wallace (collectively, "the Simermeyer defendants") to dismiss the Amended Complaint pursuant to Fed.R.Civ.P. 12(b)(2), (4), (5), and (6) (Counts I-IV).1
Counts I & II allege legal malpractice and conflict of interest by Simermeyer, with Wallace and Simermeyer & Wallace jointly liable for Simermeyer's purported defalcation. In Counts III and IV, Simermeyer is charged with self-dealing and breach of the duties of loyalty and fiduciary duty. The motion is granted as to Count III, and granted in part and denied in part as to Counts I, II, and IV.
The Simermeyer defendants also ask that Rule 11 sanctions be imposed against plaintiffs' counsel. Because their motion is procedurally defective, their request is denied.
According to the Amended Complaint,2 in late 2001, Carruthers was approached by Simermeyer and solicited to participate in a business venture with the Unkechaug Indian Nation to develop real estate and casino gaming facilities on ancestral land of the Unkechaug in Sullivan and Suffolk Counties in the State of New York (the "joint venture"). Amended Complaint, filed May 11, 2005 ("Cplt.") ¶ 19. Simermeyer introduced Carruthers to members of the Unkechaug Indian Nation ("the Unkechaugs"), including its Chief, Harry Wallace, who also solicited Carruthers' involvement in the joint venture with the Unkechaugs. Cplt. ¶ 20.
The Unkechaugs desired to develop real property and open gaming facilities at one or more sites in Sullivan County and sought land of suitable geographic location and ancestral connection for that purpose. Cplt. ¶ 29. Based on representations by Simermeyer and Wallace, Carruthers decided to participate in the joint venture with the Unkechaugs. Cplt. ¶ 21.
Both Wallace and Simermeyer are attorneys licensed to practice law in New York State and practice as a partnership called Simermeyer & Wallace (which is also a defendant in this case). Cplt. ¶ 16-18. Carruthers retained Simermeyer to represent him personally and also to form and represent the two Plaintiff LLCs, Springhawk and Summerhawk. Cplt. ¶ 22.
Springhawk and Summerhawk were both established in January 2002, and, at inception, were both made up of Carruthers Simermeyer and Mitchell Stanley ("Stanley"). Cplt. ¶¶ 23, 25. Carruthers was to be the controlling member of both Springhawk and Summerhawk with a 56.25% ownership interest. Cplt. ¶¶ 24, 26. Simermeyer and Stanley were to be minority owners in both LLCs, with 25% and 19.25% membership interests, respectively. Cplt. ¶¶ 24, 26.3
Springhawk and Summerhawk are Delaware limited liability companies. See Complaint filed in the State Court Action, on August 12, 2003 ("State Action Cplt."), ¶ 13.4 They were established for the purpose of developing and operating high stakes Bingo, other gaming activities, gasoline sales, and tobacco sales in Sullivan County and Long Island, New York, on ancestral land of the Unkechaug Indian Nation. Id. Upon the formation of Springhawk and Summerhawk, the members entered into operating agreements and became contractually bound to each other pursuant to those agreements (the "operating agreements"). Id. at 16-17;Cplt. ¶ 112.5
Simermeyer allegedly served as attorney for Carruthers, Springhawk, and Summerhawk in connection with certain business matters relating to Springhawk and Summerhawk. Cplt. ¶ 27. Throughout the course of his representation of Carruthers, Springhawk, and Summerhawk, Simermeyer was paid some $75,000 in fees in connection with the joint venture, including but not limited to the failed real property estate deals that are the subject of this lawsuit. Cplt. ¶ 28.
Springhawk and Summerhawk entered into various agreements with the Unkechaug Indian Nation. Cplt. ¶ 22. The agreements granted Springhawk the exclusive right to operate and manage gaming facilities and other economic development projects opened by the Unkechaug Indian Nation in Sullivan County, and granted Summerhawk the same rights in Nassau and Suffolk Counties. State Action Cplt. ¶¶ 18, 19.6
In the spring of 2002, Simermeyer and/or Wallace introduced Carruthers to defendants Petri, Young, and Barbanti. Cplt. ¶ 30. Petri, Young, and Barbanti sought to convince Carruthers and the Unkechaug Indian Nation that they could identify the necessary land and assist in the financing for the joint venture. Cplt. ¶ 30. Simermeyer took no steps to verify any of the information or assurances given by Petri, Young, and Barbanti, but represented to Carruthers that these individuals were reliable and credible. Cplt. ¶ 31.
After the initial introduction of Petri, Young, and Barbanti to Carruthers, Simermeyer and Wallace exerted pressure upon Carruthers and Springhawk to enter into a variety of contracts and agreements with Young and Petri for the acquisition and development of real estate in Sullivan County. Cplt. ¶ 32.
The specific parcels of real estate that were discussed in various meetings between Simermeyer, Wallace, Petri, Young, Carruthers and others included the Apollo Mall Plaza, located in the Town of Thompson, New York, and the 3D Industrial Park, also situated in the Town of Thompson. Cplt. ¶ 34. The Unkechaug Indian Nation ultimately decided to acquire the Apollo Mall Plaza and 3D Industrial Park after determining that it held ancestral land claims to both properties. Cplt. ¶ 35.
Simermeyer led Carruthers to believe that the proposed real estate acquisitions would proceed smoothly and that clear title to the properties would be obtained. Cplt. ¶ 36. Carruthers had previously been given assurances by Petri, Young, and Barbanti that the two properties were owned and/or controlled by Ancestral, and/or its principals. Cplt. ¶ 37. Petri told Carruthers that he and his wife owned the 3D Industrial Park, as well as a number of other properties. Id. Carruthers allegedly relied on all of these representations. Id.
Carruthers allegedly assumed that Simermeyer, in his capacity as attorney for Carruthers and Springhawk, would verify all necessary legal aspects of the transaction, as well as the bona fides of Petri, Young and Barbanti. Cplt. ¶ 38. Carruthers alleges that Simermeyer repeatedly failed to do so. Id.
In negotiating the land deals on behalf of Ancestral, Petri, Young and Barbanti represented to all parties to the deal that the Apollo Mall Plaza was encumbered by approximately $500,000 in tax and other government liens, as well as a mortgage in favor of the Bank of Kuwait in the amount of approximately $3,500,000. Cplt. ¶ 39. Simermeyer, though acting as attorney for Springhawk and Carruthers, took no steps to verify the existence or amounts of these or other encumbrances on the Apollo Mall property. Cplt. ¶ 40. Petri, Young and Barbanti further falsely represented that the Bank of Kuwait mortgage would be settled for...
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