Megatel Homes LLC v. Moayedi

• Decision Date: 16 November 2021
• Docket Number: Civil Action 3:20-CV-00688-L
• Parties: MEGATEL HOMES, LLC; MEGATEL HOMES II, LLC; and MEGATEL HOMES III, LLC, Plaintiffs, v. MEHRDAD MOAYEDI; UNITED DEVELOPMENT FUNDING, L.P.; UNITED DEVELOPMENT FUNDING II, L.P.; UNITED DEVELOPMENT FUNDING III, L.P.; UNITED DEVELOPMENT FUNDING IV; UNITED DEVELOPMENT FUNDING INCOME FUND V; UMT SERVICES INC.; UMT HOLDINGS, L.P.; HOLLIS GREENLAW; THEODORE F. ETTER; BENJAMIN WISSINK; and BRANDON JESTER, Defendants.
• Court: U.S. District Court — Northern District of Texas

MEGATEL HOMES, LLC; MEGATEL HOMES II, LLC; and MEGATEL HOMES III, LLC, Plaintiffs,
v.
MEHRDAD MOAYEDI; UNITED DEVELOPMENT FUNDING, L.P.; UNITED DEVELOPMENT FUNDING II, L.P.; UNITED DEVELOPMENT FUNDING III, L.P.; UNITED DEVELOPMENT FUNDING IV; UNITED DEVELOPMENT FUNDING INCOME FUND V; UMT SERVICES INC.; UMT HOLDINGS, L.P.; HOLLIS GREENLAW; THEODORE F. ETTER; BENJAMIN WISSINK; and BRANDON JESTER, Defendants.

Civil Action No. 3:20-CV-00688-L

United States District Court, N.D. Texas, Dallas Division

November 16, 2021

MEMORANDUM OPINION AND ORDER

Sam A. Lindsay, United States District Judge.

Before the court is Defendants United Development Funding, L.P., United Development Funding II, L.P., United Development Funding III, L.P., United Development Funding IV, United Development Funding Income Fund V, UMT Services Inc., UMT Holdings, L.P., and Theodore F. Etter's Motion to Dismiss (Doc. 18), filed May 18, 2020. After careful consideration of the motion, briefs, pleadings, and applicable law, the court, for the reasons stated herein, grants in part Defendants' Motion to Dismiss (Doc. 18), and grants Plaintiffs leave to amend their Original Complaint (“Complaint”) (Doc. 1). The amended pleading must be filed by November 29, 2021.

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I. Factual and Procedural Background

On March 20, 2020, Plaintiffs Megatel Homes, LLC, Megatel Homes II, LLC, and Megatel Homes III, LLC (collectively, “Plaintiffs” or “Megatel”), filed their Complaint (Doc. 1) against Defendants Mehrdad Moayedi (“Mr. Moayedi”), United Development Funding, L.P., United Development Funding II, L.P., United Development Funding III, L.P., United Development Funding IV, United Development Funding Income Fund V, UMT Services, Inc., UMT Holdings, L.P. (collectively, “UDF”), Hollis Greenlaw (“Mr. Greenlaw”), Theodore F. Etter (“Mr. Etter”), Benjamin Wissink (“Wissink”), and Brandon Jester (“Mr. Jester”). This case arises out of an alleged scheme by Mr. Moayedi and UDF to defraud Megatel. Accordingly, Plaintiffs assert the following seven claims against UDF and Messrs. Moayedi, Greenlaw, Etter, Wissink, and Jester:

1. Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1962(a)

2. RICO, 18 U.S.C. § 1962(b)

3. RICO, 18 U.S.C. § 1962(c)

4. RICO, 18 U.S.C. § 1962(d);

5. Common Law Fraud/Fraudulent Inducement;

6. Statutory Fraud; and

7. Aiding and Abetting Fraud.

See Pls.' Compl. 22-26.

The facts as alleged by Megatel are as follows: United Development Funding, L.P. was founded by Messrs. Greenlaw and Etter in 2003 as an investment fund to finance residential development projects. Id. at 2, ¶ 2. Between 2003 and 2014, Messrs. Greenlaw and Etter created the other UDF entities for the same purpose. Id. From UDF's inception, Centurion American Custom Homes (“Centurion”) and its affiliates, all land development companies, were some of

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UDF's largest borrowers-at one point constituting over one-half of the portfolios of the latter UDF iterations. Id. ¶ 3. Centurion and each of its affiliate entities are “companies founded, operated, and controlled by Defendant Moayedi.” Id. During this time, “Centurion frequently contracted with Megatel to serve as a primary builder on land development projects predominately financed by UDF.” Id. ¶ 4. By 2011, however, Centurion and UDF had experienced financial trouble because of the Great Recession, so Mr. Moayedi and UDF “surreptitiously and behind closed-doors schemed to keep themselves afloat.” Id. ¶ 5. In short, Mr. Moayedi “fraudulently induced” Megatel to enter into various real estate contracts and amendments to obtain “earnest money and other benefits from Megatel” to repay his UDF loans. Id. at 3, ¶ 6. Additionally, UDF operated a “Ponzi-like scheme, ” under which it used “freshly-raised capital in newer funds to pay investors in older funds.” Id. ¶ 7. As part of this scheme, a newer UDF fund would loan Centurion money “ostensibly” for a particular development project, and Centurion would use those funds to repay a loan from an older UDF fund. Id. “The older UDF fund, in turn, used this money to pay distribution to its investors, thereby concealing the failure of the loans made by the older fund.” Id. Ultimately, Mr. Moayedi and UDF “syphoned hundreds of millions of dollars off loans intended for the development of projects for which Megatel had contracted for their own personal enrichment.” Id. at 4, ¶ 9.

In their Motion, UDF and Mr. Etter (“Defendants”) seek dismissal of Megatel's claims because, according to them, they are barred by the Private Securities Litigation Reform Act (“PSLRA”). Additionally, Defendants contend that Plaintiffs' claims should be dismissed because the Complaint fails to allege (1) a pattern of racketeering activity; (2) a RICO enterprise; (3) a RICO conspiracy; and (4) aiding and abetting. Defendants also contend that Megatel fails to comply with Federal Rule of Civil Procedure 9(b). Additionally, UDF and Mr. Etter assert that

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the court should require Megatel to file a RICO case statement if they are permitted to replead their claims.

Megatel responds that their claims are not barred by the PSLRA. Additionally, Plaintiffs contend that they have sufficiently pleaded each of the claims alleged in their Complaint, and that a RICO case statement is unnecessary. Alternatively, in the event that the court identifies deficiencies in their pleadings, Megatel requests leave to amend.

II. Standards

A. Rule 12(b)(6) - Failure to State a Claim and Statute of Limitations Defense

To defeat a motion to dismiss filed pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, a plaintiff must plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007); Reliable Consultants, Inc. v. Earle, 517 F.3d 738, 742 (5th Cir. 2008); Guidry v. American Pub. Life Ins. Co., 512 F.3d 177, 180 (5th Cir. 2007). A claim meets the plausibility test “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard is not akin to a ‘probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal citations omitted). While a complaint need not contain detailed factual allegations, it must set forth “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555 (citation omitted). The “[f]actual allegations of [a complaint] must be enough to raise a right to relief above the speculative level . . . on the assumption that all the allegations in the complaint are true (even if doubtful in fact).” Id. (quotation marks, citations, and footnote omitted). When the allegations of the pleading

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do not allow the court to reasonably infer more than the mere possibility of wrongdoing, they fall short of showing that the pleader is entitled to relief. Iqbal, 556 U.S. at 679.

In reviewing a Rule 12(b)(6) motion, the court must accept all well-pleaded facts in the complaint as true and view them in the light most favorable to the plaintiff. Sonnier v. State Farm Mut. Auto. Ins. Co., 509 F.3d 673, 675 (5th Cir. 2007); Martin K. Eby Constr. Co. v. Dallas Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004); Baker v. Putnal, 75 F.3d 190, 196 (5th Cir. 1996). In ruling on such a motion, the court cannot look beyond the pleadings. Id.; Spivey v. Robertson, 197 F.3d 772, 774 (5th Cir. 1999). The pleadings include the complaint and any documents attached to it. Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498-99 (5th Cir. 2000). Likewise, “‘[d]ocuments that a defendant attaches to a motion to dismiss are considered part of the pleadings if they are referred to in the plaintiff's complaint and are central to [the plaintiff's] claims.'” Id. (quoting Venture Assocs. Corp. v. Zenith Data Sys. Corp., 987 F.2d 429, 431 (7th Cir. 1993)). In this regard, a document that is part of the record but not referred to in a plaintiff's complaint and not attached to a motion to dismiss may not be considered by the court in ruling on a 12(b)(6) motion. Gines v. D.R. Horton, Inc., 699 F.3d 812, 820 & n.9 (5th Cir. 2012) (citation omitted). Further, it is well-established and ‘“clearly proper in deciding a 12(b)(6) motion [that a court may] take judicial notice of matters of public record.”' Funk v. Stryker Corp., 631 F.3d 777, 783 (5th Cir. 2011) (quoting Norris v. Hearst Trust, 500 F.3d 454, 461 n.9 (5th Cir. 2007) (citing Cinel v. Connick, 15 F.3d 1338, 1343 n.6 (5th Cir. 1994)).

The ultimate question in a Rule 12(b)(6) motion is whether the complaint states a valid claim when it is viewed in the light most favorable to the plaintiff. Great Plains Trust Co. v. Morgan Stanley Dean Witter, 313 F.3d 305, 312 (5th Cir. 2002). While well-pleaded facts of a complaint are to be accepted as true, legal conclusions are not “entitled to the assumption of truth.”

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Iqbal, 556 U.S. at 679 (citation omitted). Further, a court is not to strain to find inferences favorable to the plaintiff and is not to accept conclusory allegations, unwarranted deductions, or legal conclusions. R2 Invs. LDC v. Phillips, 401 F.3d 638, 642 (5th Cir. 2005) (citations omitted). The court does not evaluate the plaintiff's likelihood of success; instead, it only determines whether the plaintiff has pleaded a legally cognizable claim. United States ex rel. Riley v. St. Luke's Episcopal Hosp., 355 F.3d 370, 376 (5th Cir. 2004). Stated another way, when a court deals with a Rule 12(b)(6) motion, its task is to test the sufficiency of the allegations contained in the pleadings to determine whether they are adequate enough to state a claim upon which relief can be granted. Mann v. Adams Realty Co., 556 F.2d...