Hunter Hospitality LLC v. SLF Series G, LLC
| Decision Date | 21 September 2015 |
| Docket Number | CASE NO. 15-CIV-61235-BLOOM/Valle |
| Court | U.S. District Court — Southern District of Florida |
| Parties | In the Receivership of: HUNTER HOSPITALITY LLC, a Wyoming Limited Liability Company. RALPH AND MARY LYNN DORSTEN, et al., Plaintiffs, v. SLF SERIES G, LLC, et al., Defendants. |
THIS CAUSE is before the Court upon the following motions: (1) Defendant Bo Brower's motion to dismiss the Amended Complaint, ECF No. [1-1] filed by Plaintiffs Ralph and Mary Lynn Dorsten, et al. ("Plaintiffs"), for lack of personal jurisdiction and failure to state a claim, ECF No. [12] (Bo Brower's "Motion to Dismiss"); (2) Defendant Westcor Land Title Insurance Company's ("Westcor") motion to strike Plaintiffs' claim for attorney fees, ECF No. [16] (Westcor's "Motion to Strike"); (3) Defendant Columbia Pacific Income Fund I, P.L.'s ("Columbia") motion to dismiss for failure to state a claim or for a more definitive statement, ECF No. [23] (Columbia's "Motion to Dismiss"); (4) Columbia's motion to strike Plaintiffs' allegations regarding insurance coverage and demand for award of attorney's fees, ECF No. [24] (Columbia's "Motion to Strike"); (5) Defendants Lee Brower; SLF Series G, LLC ("SLF SeriesG"); Pompano Waterway Development, LLC ("PWD"); Secured Lending Fund, LLC ("SLF"); NA-SLF, LLC ("NA-SLF"); K-Bro Enterprises LLC ("K-Bro"), and Zama, LLC's ("Zama") (together, the "Utah Defendants") motion to transfer venue, dismiss for failure to state a claim, or for a more definitive statement, ECF No. [25] (the "Motion to Transfer"); and (6) Plaintiffs' motion to remand this action to state court, ECF No. [38] (the "Motion to Remand"). The motions were fully briefed. See ECF Nos. [40], [41], [42], [43], [44], [45], [46], [47], [48], [49], [51], [52], [53], [55], [56], [57], [58], [64]. The Court had the benefit of oral argument from the parties on the motions at a hearing held on August 19, 2015, see ECF No. [60] (the "Hearing"), as well as Plaintiffs' Proposed Second Amended Complaint, ECF No. [65] ("PSAC"), and supplemental briefing, ECF Nos. [66], [67], [68], submitted at the Court's direction. The Court has carefully considered the motions, all supporting and opposing submissions on each of the motions, the arguments presented at the Hearing, the record in this case, and applicable law. For the reasons set forth below, the Court denies the request to remand, dismisses all counts against Columbia, and transfers this action to the District of Utah for further proceedings.
Plaintiffs initiated this action in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida (the "Circuit Court") on October 7, 2014. That case was consolidated into a pending receivership action also before the Circuit Court, which was itself initiated on August 13, 2013. Plaintiffs filed their Amended Complaint in February, 2015. Process was served on Defendant Bo Brower on May 11, 2015. Bo Brower removed the action to this Court on June 10, 2015. ECF No. [1]. On June 11, 2015, the Court entered its order of procedure in removed actions, setting certain deadlines, ECF No. [6], and on July 10, 2015, entered a preliminary scheduling order to streamline and harmonize consideration of filed or impending motions to dismiss and remand, ECF No. [37]. Per the Court's instruction at theAugust 19, 2015 Hearing, Plaintiffs submitted their Proposed Second Amended Complaint on August 28, 2015, and Plaintiffs, Columbia and the Utah Defendants filed supplemental briefing with respect to the Motion to Transfer on September 10, 2015. The six substantive motions under review are now ripe for adjudication.
Plaintiffs' claims center on a failed land development investment involving real property located in in Pompano Beach, Florida. This background (except where indicated) is derived from the allegations in Plaintiffs' Amended Complaint.
Plaintiffs invested in a real estate development project (the "Pompano Project") through SLF Series G, a subsidiary SLF, and its affiliated managers and members. The project failed during the real estate downturn and recession in the late 2000s. Plaintiffs allege that SLF Series G and the entities and persons which operated that entity - what the Amended Complaint defines as the "Issuer Defendants" (which include SLF Series G, PWD, SLF, NA-SLF, K-Bro, Zama, T-Capital Partners, LLC, Lee Brower, Bo Brower, David Sheffield, Rick Bigelow and Private Consulting Group, Inc. ("PCG")) - along with what the Amended Complaint defines as the "Fraudulent Conveyance Defendants" (which include Workmen's Development Group, LLC ("Workmen's"), Hillsborough Development, LLC ("Hillsborough"), and Hunter Hospitality, LLC ("Hunter")), defrauded them in a variety of ways related to the initial and subsequent investments in SLF Series G and the eventual sale of the Pompano Property in which SLF Series G invested.
As SLF Series G promised to Plaintiffs as part of the original solicitation of funds, the investment was secured by a first priority mortgage (the "Development Mortgage") on the development property held by SLF Series G - which was in fact given when SLF Series G lent money to the developer, United South Florida Enterprises, Inc., sometime prior to February,2007 (the "Developer Loan"). Due to non-payment, SLF Series G initiated a foreclosure action on the Developer Mortgage on February 7, 2007 (the "Foreclosure Action"), and recorded a lis pendens on February 8, 2007. Plaintiffs were allegedly defrauded into making subsequent investments from 2008 to 2010, which were secured by subsequent mortgages on the Pompano Property ("Subsequent Mortgages"). The fraud involved SLF Series G withholding information about the pending foreclosure on the first priority Developer Mortgage and about the consequent worthlessness of the Subsequent Mortgages (which would be extinguished through that Foreclosure Action). The fraud also involved SLF Series G accepting a deed in lieu of foreclosure, the temporary conveyance of title in the Pompano Property to a newly created straw affiliate, Defendant PWD, and issuance of the Subsequent Mortgages by PWD, during the foreclosure proceedings. While PWD was added to the Foreclosure Action as a defendant, SLF Series G never filed an amended lis pendens to add PWD. Plaintiffs further allege that the Issuer Defendants misrepresented to Plaintiffs that that mechanism - having a deed issued to PWD in lieu of foreclosure from the developer - would help "scrub" the property of (ostensibly other) junior liens and thereby permit development of the property, ultimately to the benefit of Plaintiffs' investments. Finally, Plaintiffs allege that this fraud was perpetuated on them and on the Circuit Court in the Foreclosure Action.
A judgment of foreclosure foreclosing the Developer Mortgage was entered by the Circuit Court in the Foreclosure Action on January 6, 2011, and a certificate of title in the Pompano Property was issued to SLF Series G on March 5, 2011. The property was transferred free and clear of any encumbrances. SLF Series G then sold the Pompano Property to Workmen's, who sold it to Hillsborough, who finally sold it to Hunter. Plaintiffs allege that those conveyances were fraudulent (despite, or perhaps in part because of, communications toPlaintiffs seeking approval for sale of the Pompano Property). Hunter purchased the property in 2011. Subsequently, on February 17, 2012, Columbia loaned money to Hunter, secured by a lien on the Pompano Property. Westcor acted as Columbia's title insurance carrier with respect to that transaction. Hunter itself later failed and went into receivership in Washington State. Jack Rader was appointed as the Florida receiver (the "Receiver"). The Receiver initiated an ancillary receivership action before the Circuit Court - the same umbrella action into which this action was consolidated prior to removal. Hunter was liquidated and the Pompano Property sold in January, 2015. As part of a stipulation and agreement entered into between the Receiver, Columbia and certain Plaintiffs, and confirmed by order of the Circuit Court in the ancillary receivership action, the Pompano Property was sold free and clear, and any liens Plaintiffs may have in the property were transferred to the sale proceeds. See ECF No. [65-12], Exh. 12 to PSAC (stipulation and approved orders). Columbia's secured claim was recognized and its loan fully repaid by that liquidation sale. The remainder of the sale proceeds are being held in escrow by the Receiver.
On March 10, 2015, Plaintiffs commenced an action in the United States District Court for the District of Utah, Dorsten, et al. v. Secured Lending Fund LLC, et al., Case No. 15-CV-00153 (PMW) (the "Utah Action"). See ECF No, [25-1] (amended complaint in Utah Action).1 Most, but not all, of the Defendants named here are named in the Utah Action. Plaintiffs' claims there involve an overarching fraud allegedly perpetuated by SLF and the Utah Defendants, along with other parties not named here (including certain investment advisors), encompassing aconsiderably larger lending operation and a broader set of investments and investment properties. Specifically, Plaintiffs allege there that SLF, through sub-entities (including SLF Series G), sold promissory notes to investors in order to finance a hard money lending operation which would make bridge loans to various developers of various investment properties, located in Washington, Oregon and Florida, secured by those properties. Id. ¶ 4. Plaintiffs allege that SLF and its owners and sub-entities defrauded their investors in issuing the notes, diligencing the property investments, managing the bridge loans, and manipulating sales of the investment properties through foreclosure or otherwise once the development loans failed. See generally id. ¶¶ 89-108. Those...
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