Grace Int'l Assembly of God v. Festa
| Decision Date | 26 March 2019 |
| Docket Number | 17-CV-7090 (SJF) (AKT) |
| Parties | GRACE INTERNATIONAL ASSEMBLY OF GOD, Plaintiff, v. GENNARO FESTA and FALCON GENERAL CONSTRUCTION SERVICES, INC., Defendants. |
| Court | U.S. District Court — Eastern District of New York |
Plaintiff Grace International Assembly of God ("Plaintiff" or "Grace") commenced this case against defendants Gennaro Festa ("Festa") and Falcon General Construction Services, Inc. ("Falcon") (collectively, "Defendants") asserting claims against Festa pursuant to the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., against Falcon for breach of contract and negligence under state law, and against both Defendants for fraud and breach of trust under state law. Defendants have moved to dismiss the complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. See Motion, Docket Entry ("DE") [25]. Plaintiff opposes the motion. For the reasons set forth below, the motion is granted, and the case dismissed.
The following facts are taken from the amended complaint ("Am. Compl."), DE [22], and are assumed to be true for purposes of this motion. In addition, various documents have been incorporated by reference in, and attached to, the amended complaint including: a contract dated May 19, 2014, (the "Contract"), DE [22-1], and; eleven (11) documents entitled "Application and Certification for Payment" ("A&C"), numbered one (1) through eleven (11) and dated periodically from August 1, 2015 to August 19, 2016. DE [22-2 & 22-3].
Grace is a New York religious corporation that maintains a place of worship at 172 Willis Avenue, Mineola, New York (the "Premises"). Am. Compl. ¶ 1. Falcon, a general construction contractor, is a New York corporation, and Festa is the President and sole shareholder of Falcon. Id. ¶¶3-5. Prior to 2014, the church located on the Premises consisted of two attached buildings: the sanctuary and a fellowship hall. Id. ¶8. In or about February 2014, Falcon agreed to act as general contractor on a project (the "Project") to: (1) refurbish the existing sanctuary, which was to become the fellowship hall; and (2) demolish the existing fellowship hall and build a new sanctuary in its place. Id. ¶9.
On or about February 4, 2014, Festa met with Grace's governing Council and its minister, Pastor Wilson. Am. Compl. ¶18. During that meeting Festa represented that steel shop drawings ("Steel Shop Drawings") would be prepared by American Buildings Company ("ABC"), a Georgia company that would also provide prefabricated steel. Id. ¶18. The Steel Shop Drawings would be ordered from ABC by American Building Services of New York, Inc. ("ABS"), an entity that the Amended Complaint refers to alternatively as either "an agent of Falcon's," id. ¶18(b), or "Festa's agent." Id. ¶¶20(a); 212(a). There are no factual allegations to support this legal conclusion. Plaintiff further alleges that ABC and ABS entered into an agreement, id. ¶20(a), but provides no specifics regarding the timing or scope of that agreement.
On or about May 14, 2014, Grace and Falcon entered into a written Contract for the Project. Id. ¶10 & Ex. A. The Contract provides for the scope of work including, labor and materials, for a contract amount of $900,000. Contract, Ex. A. Plaintiff alleges that over the course of the Project, Festa, on behalf of Falcon, made numerous fraudulent misrepresentations which Grace organizes into eleven (11) categories. The alleged misrepresentations pertain to: (1) the Steel Shop Drawings, Am. Compl. ¶¶18-27; (2) Steel Building Frame, id. ¶¶ 28-46; (3) Steel for First Floor Framing, id. ¶¶47-55; (4) Steel for Mezzanine Framing, id. ¶¶56-60; (5) Sewer Pump, id. ¶¶61-68; (6) Plumbing Fixtures, id. ¶¶69-80; (7) Electric Utility Room, id. ¶¶81-92; (8) Drywall Trim and Hardware, id. ¶¶93-98; (9) Finishes, Paint, and Ceramic Tile, id. ¶¶99-104; (10) Electric Fan Outlets, id. ¶¶105-10; and (11) "General Conditions: Insurance, Labor." Id. ¶¶111-54.
Regarding the Steel Shop Drawings, Festa, having told the Council that ABC required payment in advance, invoiced Grace for $24,500, which Grace paid on February 27, 2014. Am. Compl. ¶¶18(d)(e), 23. In 2017, Grace learned that no advance payment was required, that Festa knew no advance payment was required, and that ABC had received only $6,000.00. Id. ¶20. Grace alleges that the balance of the amount ostensibly paid for the Steel Shop Drawings was not used on the Project. Id. ¶24.
The alleged misrepresentations regarding the Steel Building Frame include that Festa attended at least four meetings with members of the Council in April and May 2014 during which he made oral representations that Grace must make an initial payment of $116,760 to be used to purchase building frame steel from ABC. Am. Compl. ¶28. Festa submitted an invoice to Grace for $116,760, which Grace paid by check dated May 29, 2014. Id. ¶¶29, 31. Grace alleges that Festa had no intention of using these monies to purchase steel. Id. ¶30. During eight (8) meetings held between June 3, 2014 and August 2, 2016, Festa represented to Grace Council members and Pastor Wilson that the monies had been paid to ABC "and that the steel for which it was to be used had been ordered, secured, and stored somewhere." Id. ¶32. The same representation was made in multiple meetings from January 2017 through March 2017. Id. ¶33. The Building Frame Steel was never delivered, stored or installed at the Premises, and Plaintiff alleges, upon information and belief, that the steel was never purchased "from ABC or anyone else." Id. ¶35.
Detailed recitation of the allegations regarding the nine remaining categories of alleged misrepresentations is unnecessary to resolve the motion before the Court. Suffice it to say that for each category, Grace alleges that Festa, on behalf of Falcon, made misrepresentations, either verbally or through submission of the A&Cs, regarding the purchase of materials and/or the progress of the construction, and that Grace relied on those misrepresentations and continued to make payments. From August 1, 2015 to August 19, 2016, Falcon submitted eleven (11) separate A&Cs to Grace requesting payments totaling $359,950. Am. Compl. Ex. A. In addition, the Amended Complaint contains allegations regarding other invoices submitted by Falcon and paid by Grace. See, e.g., Am. Compl. ¶19 (invoice 211001 for $24,500); ¶29 (invoice 2 for $116,760); ¶61 (invoice 6 for $6,200); ¶62 (invoice 12 for $1,200).
Falcon also subcontracted out work on the Project to various subcontractors including Amano Contracting, Inc. ("Amano), which was to perform demolition of the existing fellowship hall, removal of fill and debris, and excavation of the foundation for the new sanctuary. Am. Compl. ¶155. Grace alleges that Amano fully performed under the subcontract, but Falcon did not pay it any of the $74,000 owed for that work. Id. ¶156. On June 16, 2016, Amano filed a notice of lien against the Premises. Id. ¶157. Falcon ceased performing work on the Premises in July 2016 and "effectively abandoned the Project." Id. ¶158. In late August 2016, Grace was advised about the notice of lien by Heritage Investment Services Fund ("Heritage"), a lender that had been providing funds to Grace to finance the Project. Id. ¶159.1 Heritage ceased lending money to Grace for the Project in late August 2016. Id. ¶160. Grace terminated Falcon as general contractor on the Project on or about April 26, 2017 "after investigating the facts so as to uncover Festa and Falcon's fraud." Id. ¶161. Plaintiff alleges that at the time of its termination, Falcon had completed only 38.5% of the Project. Id. ¶164.
Plaintiff alleges that Defendants perpetrated two interrelated fraudulent schemes, which it has named the "Project Invoicing Fraud Scheme" and the "Subcontractor Nonpayment Fraud Scheme." In the Project Invoicing Fraud Scheme, Defendants "defraud[ed] Grace into paying for aspects of the Project, including the purchase of materials, that either were not performed or purchased at all or had been performed or purchased only in part." Am. Compl. ¶11. According to Plaintiff, the alleged victims of this scheme include Grace, the institution lending Grace money for the Project, and the subcontractors and materialmen retained by Falcon. Id.
The Subcontractor Nonpayment Fraud Scheme relates to Falcon's alleged nonpayment or partial payment to subcontractors or materialmen for labor or materials while misrepresenting to Grace that those subcontractors and materialmen had been paid in full. Am. Compl. ¶12. Grace acknowledges that it "is not claiming injury from the Subcontractor Nonpayment Fraud Scheme" but is including these allegations "simply to demonstrate additional victims of Festa's misconduct, and additional facts concerning Festa's pattern of racketeering activity." Id. Grace contends that Falcon sought monies from Grace to pay certain subcontractors, Grace made those payments to Falcon, and Falcon failed to pay the subcontractors. In addition to failing to pay its subcontractor Amano, Plaintiff alleges that Falcon paid Ace-Tec Enterprises, Inc. ("Ace-Tec") only $30,000 of the $79,000 it is owed, see id. ¶¶180-88, did not pay Liberty Pipe, Inc. ("Liberty") $3,000 it is owed. Id. ¶¶190-99.
Grace alleges that Falcon is a RICO enterprise, and that it has engaged in activities affecting interstate commerce such as its purchase of: (a) the steel shop drawings from ABC, a Georgia corporation, through ABS; (b) steel from Ace-Tec, which was originally shipped from Pennsylvania and/or North Carolina; (c) materials and services from ABS, located in New Jersey; (d) materials from Home Depot and Staples, national chain stores. Am. Compl. ¶206.
Regarding the Project Invoicing Scheme, Grace identifies thirteen (13) predicate acts of wire fraud as defined by 18 U.S.C. §1343 including that Festa caused the Steel Shop...
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