Lerner v. Colman
| Citation | 485 F.Supp.3d 319 |
| Decision Date | 04 September 2020 |
| Docket Number | CIVIL ACTION NO. 19-11738-WGY |
| Parties | Sandra Colman LERNER, Plaintiff, v. Stephen J. COLMAN, Daniel J. Flynn III, James Canavan, Lisa LaBrique, Elizabeth Colman, Karen Reidy, Kirsten Hunt, and William Christopher Colman, Defendants. |
| Court | United States District Courts. 1st Circuit. United States District Courts. 1st Circuit. District of Massachusetts |
Evan Georgopoulos, Michael F. Connolly, William D. Black, Rubin & Rudman LLP, Boston, MA, for Plaintiff.
Richard M. Gelb, Janet E. Taylor, Gelb & Gelb, LLP, Beverly, MA, for Defendant Stephen J. Colman.
Andrew C. Oatway, Morisi & Oatway PC, Quincy, MA, for Defendant James F. Canavan.
Jill K. Hauff, Looney Cohen & Aisenberg LLP, Boston, MA, for Defendants Lisa LaBrique, Elizabeth Colman, Karen Reidy, Kirsten Hunt, William Christopher Colman.
This estate dispute has morphed into a civil action under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1964. Susan Colman Lerner ("Lerner") alleges that her cousin Stephen Colman ("Colman"), while participating in a criminal enterprise, used his position as personal representative of their uncle's estate to enrich his associates and siblings at the expense of the estate. Lerner also brings Massachusetts law claims for breach of fiduciary duty, fraud, and, with respect to Colman's siblings, money had and received.
Colman and the other defendants seek to dismiss her claims, arguing that she fails properly to allege a RICO violation, that her RICO claims are barred, and that her state law claims are unavailing.
Lerner alleges Colman and his associates were involved in five different schemes. Four of these schemes may not be used to develop a RICO claim, in accordance with section 107 of the Private Securities Litigation Reform Act, because they are actionable as securities fraud. The last scheme, the Solar Resources scheme from which Lerner alleges injury, is not alone sufficient to sustain her RICO claims. The defendants’ motions to dismiss must therefore be granted as to Lerner's RICO claims. Since the RICO claims are the sole federal questions involved and there is no diversity jurisdiction, the Court declines to exercise supplemental jurisdiction over the remaining claims and therefore dismisses them for want of jurisdiction.
In October 2003, William Colman ("Bill Colman") formed Solar Resources, Inc. ("Solar Resources"), a Utah company, to develop land there for salt extraction. Compl. ¶ 97, ECF No. 3. At the time, he was Solar Resources’ sole owner and stockholder. Id. Bill Colman's nephew Stephen became treasurer and secretary of Solar Resources in 2005. Id. ¶ 98.
On December 11, 2011, Bill Colman died intestate on Martha's Vineyard, leaving behind no children and no spouse. Id. ¶ 13. His heirs-at-law were his twelve nieces and nephews. Id. ¶¶ 14-18. Upon his uncle's death, Colman volunteered to serve as personal representative and took sole control of Bill Colman's estate. The estate included Solar Resources, as well as Water Right 13-3457 in Utah (the "water right"), which Bill Colman acquired in 1984 and held in his personal capacity. Id. ¶¶ 27-28, 96.
Two weeks before his death, Bill Colman's personal water right was transferred to Solar Resources. Id. ¶ 99. Stephen Colman then filed an Assignment of Water Right with the Utah Division of Water Rights on December 14, 2011, three days after Bill Colman's death, which was rejected. Id. ¶ 101. On January 4, 2012, Colman resubmitted the Assignment, which was then approved, completing the transfer of the water right to Solar Resources. Id. ¶¶ 100-103. The complaint alleges that Colman forged Bill Colman's signature to orchestrate this transfer without his knowledge. Id. As a result, the water right was not included in Bill Colman's estate when Stephen meted out its assets in probate. Id. ¶ 104.
Shortly after his uncle's death, Colman became president of Solar Resources, and transferred a total of 53.5 percent of the company's shares to himself and two of his associates -- Daniel J. Flynn ("Flynn") and James Canavan ("Canavan") -- as well as Bill Colman's ex-wife Phyllis and Colman's siblings (the "Siblings"): Lisa LaBrique, Elizabeth Colman, Karen Reidy, Kirsten Hunt, and William Christopher Colman. Id. ¶¶ 105-129. Around the time of the transfers, Colman met with cousins Robert Colman, Roberta Colman, and Thomas Collins (but not Lerner), and informed them that he and his siblings had invested in Solar Resources. Id. ¶¶ 123-125, 147. Lerner learned of the stock transfers in 2018, when Collins told her about his meeting with Colman. Id. ¶¶ 146-147.
In December 2012, Colman executed the stock sale of Solar Resources to Great Salt Lake Minerals Corporation ("GSLMC") for $11,000,000. Id. ¶¶ 130, 132. Bill Colman's estate received roughly $5,115,000 for its 46.5-percent stake in Solar Resources. Id. ¶ 133. Colman, his siblings, Phyllis Colman, Flynn, and Canavan split the proceeds from the remaining 53.5 percent of stock, albeit in unequal portions. Id. ¶¶ 134-145.
Lerner claims the Solar Resource transfers were the work of a criminal enterprise composed of Colman, Flynn, and Canavan. Id. ¶¶ 35-50. In her complaint, Lerner notes the various ties that bind the three men, who have known each other since high school and did business in the same building in Quincy, Massachusetts for several years. Id. ¶¶ 35, 38-41. From 1995 until 2014, Colman worked as general counsel for Flynn's company, Daniel J. Flynn & Co. ("DJFCO"). Id. ¶ 38. Lerner claims the Solar Resources stock and water right transfers were the latest in the group's "series of fraudulent schemes to divert monies and assets from third parties in order to enrich themselves and others working with them." Id. ¶ 42.
To establish the existence of a criminal enterprise under RICO, Lerner alleges four predicate acts in addition to the Solar Resources scheme, two of which relate to a fraud conviction for which Flynn is currently serving a federal sentence.
First, Lerner alleges that Colman joined Flynn in soliciting investments in Flynn's DJF Real Estate Opportunity Fund ("DJF Fund") in 2008, and subsequently drafted false promissory notes to misrepresent the fund's holdings in its communications to other limited partners between 2010 and 2012.1 Id. ¶¶ 51-57. Second, Lerner claims Colman, Canavan, and Flynn engaged in a Ponzi scheme involving a building on Greenleaf Street in Quincy (the "Greenleaf Property"), which Flynn purchased in 2005. Id. ¶¶ 58-69. She alleges Flynn obtained loans and other investments ostensibly related to the purchase and development of the Greenleaf Property, which were instead "used ... to repay earlier investors and fraud victims from their other schemes." Id. ¶ 67. Lerner claims Colman drafted loan documents, promissory notes, and false purchase and sale agreements for Flynn, while Canavan "conducted ... residential real estate work and closings." Id. ¶ 58.
On February 1, 2017, Flynn pleaded guilty to nine counts of federal mail and wire fraud arising from a series of schemes that occurred between 2007 and 2015, including the DJF Fund and Greenleaf Property schemes. Id. ¶ 44; see also Indictment ¶¶ 6-13, 17-23, United States v. Flynn, Crim. A. No. 15-10283 (D. Mass. 2017) (Zobel, J.), ECF No. 12 ("Flynn Indictment"); Electronic Clerk's Notes, id., ECF No. 39. As part of his criminal sentence Flynn agreed to pay more than $20,000,000 in restitution to seventy-three victims. Assented Motion Joint Restitution Order, Flynn, Crim. A. No. 15-10283, ECF No. 58.
Third, Lerner claims Colman, Canavan, and Flynn fraudulently took control of a property on East Howard Street in Quincy (the "East Howard Street Property"). Compl. ¶¶ 70-86. In 2002, Flynn, acting on behalf of DJFCO, entered into a listing agreement with LINC Property I, LLC ("LINC"), a Delaware company doing business in Massachusetts, to act as its agent in selling the East Howard Street Property. Id. ¶ 70, 72. The following year, LINC struck a purchase and sale agreement with the Des Moines Street Realty Trust for $825,000. Id. ¶ 74. Unbeknownst to LINC, Flynn had an interest in this trust, and Canavan was a trustee. Id. ¶¶ 74-75. Around the same time, Flynn negotiated the sale of the East Howard Street Property to George Brewster ("Brewster") for $1,325,000 and pocketed the $500,000 windfall. Id. ¶¶ 77-78, 80-81.
Fourth and finally, Lerner claims Flynn obtained from Brewster financing for investment properties in Massachusetts and Rhode Island through a nonexistent entity. Id. ¶¶ 87-94. Brewster invested $1,600,000 in "Patriot Acquisition," which Lerner claims Flynn then shuffled to an entity named Patriot Investments, LLC, without providing any benefit to Brewster. Id. ¶¶ 91, 93-94.2 Colman himself was the listed manager of Patriot Investments, LLC. Id. ¶¶ 93-94.
Lerner alleges three RICO violations (counts I-III). Id. ¶¶ 153-185. Under Massachusetts law, she alleges breach of Colman's fiduciary duty as personal representative of Bill Colman's estate (count IV), id. ¶¶ 186-189; fraud arising from the Solar Resources stock transfers and sale (count V), id. ¶¶ 190-198; and a claim for money had and received against the Siblings (count VI). Id. ¶¶ 199-206. She seeks damages -- including treble damages and reasonable attorney's fees and costs as provided under section 1964(c) -- as well as injunctive relief.
This Court has federal question jurisdiction over Lerner's claims because her cause of action arises under section 1964(c) of the RICO statute. 28 U.S.C. § 1331.
Lerner filed suit in this Court on August 12, 2019. See Compl. On September 13, 2019, Colman moved to dismiss Lerner's complaint for failure to state a claim. Def. Colman's Mot. Dismiss, ECF No. 25; Def. Colman's Mem. Supp Mot. Dismiss ("Colman Mem."), ECF no. 26. The Siblings moved to dismiss Lerner's claims on September 23, 2019, and joined Colman's motion. Defs.’ Mot. Dismiss, ...
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