Peter Sabilia & Earth Powered Energy, LLC v. Richmond

• Decision Date: 26 October 2011
• Docket Number: 11 Civ. 739 (JPO)(MHD)
• Parties: PETER SABILIA and EARTH POWERED ENERGY, LLC, Plaintiffs, v. THOMAS E. RICHMOND, TOM C. PLUMMER, RONALD J. BROOKS, and PATRICK CHARLES, Defendants.
• Court: U.S. District Court — Southern District of New York

PETER SABILIA and EARTH POWERED ENERGY, LLC, Plaintiffs, v. THOMAS E. RICHMOND, TOM C. PLUMMER,RONALD J. BROOKS, and PATRICK CHARLES, Defendants.

11 Civ. 739 (JPO)(MHD)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

October 26, 2011

REPORT & RECOMMENDATION

TO THE HONORABLE J. PAUL OETKEN, U.S.D.J.:

Plaintiffs, Peter Sabilia ("Sabilia") and Earth Powered Energy, LLC ("EPE"), filed this lawsuit on February 2, 2011, asserting principally that the four individual defendants, Thomas E. Richmond ("Richmond"), Ronald J. Brooks ("Brooks"), Patrick Charles ("Charles"), and Tom C. Plummer ("Plummer"), fraudulently induced Sabilia to give them his life savings and the equity from his home, totaling $500,000.00. (Compl. ¶ 9).

According to the complaint, Sabilia entrusted this sum to defendants with the understanding that it would be used to obtain a €35 million loan for plaintiffs, who intended to use it to purchase an interest in an energy company, GTherm, Inc. ("GTI"), and finance its development. (Id. ¶¶ 9-13, 16, 20-22). Rather than take steps to secure the loan, defendants allegedly misappropriated the funds from Sabilia despite repeatedly and fraudulently asserting that the loan was forthcoming. (See generally id. ¶¶ 13-71).

Plaintiffs assert claims for fraud, conversion, equitable and promissory estoppel, negligent misrepresentation, conspiracy, aiding and abetting fraud and conversion, breach of contract, and unjust enrichment. (Id. ¶¶ 72-124). Plaintiffs' complaint asserts that two of the defendants, Richmond and Plummer, purported to be, or to represent, foreign entities capable of loaning plaintiffs money in exchange for a $500,000.00 deposit. (Id. ¶¶ 12-15). Richmond claimed to represent a Costa Rican entity called Credito Accesible, SA ("CASA" or "Costa Rican Shell") while Plummer purported to represent The Commercial Depository Trust of Switzerland, AG ("CDT" or "Swiss Shell"), a Swiss corporation. (Id.).¹ Plaintiffs allege that CASA and CDT were mere shell corporations without the ability or the intention to provide plaintiffs the promised loan funding. (See, e.g., id. ¶¶ 14-15). Instead of using plaintiffs' funds to obtain a loan, defendants began dissipating the $500,000.00 shortly after receiving it. (Id. ¶¶ 24-27, 30, 37, 42-43, 45, 53, 62). In addition, according to the complaint, defendants repeatedly told plaintiffs that they had to take additional steps in order to obtain the loan funds, and fabricated funding and other issues with third parties, in order to stall plaintiffs from taking legal action. (Id. ¶¶ 28-71). Defendants ultimately repaid Sabilia only $28,000, a fraction of the money that plaintiffs had provided. (Id. ¶ 71).

Plaintiffs initially notified the Court of a settlement with defendants Richmond, Brooks, and Charles in March of 2011. (See Pls.' Mem. in Opp'n 6; Decl. of Andrez S. Carberry, Esq., in Opp'n to Def. Plummer's Mot. Dismiss ("Carberry Decl.") ¶ 2 & Ex. A). During the pendency of the current motion, the Court received an answer from defendant Richmond, filed August 15, 2011, and entered a Stipulation and Order of Discontinuance Without Prejudice as to defendant Ronald J. Brooks on August 17, 2011. The Court has yet to receive any filing from defendant Charles.

Defendant Plummer, appearing pro se, filed an answer and an amended answer, and subsequently moved to dismiss the complaint. Plummer's rambling and convoluted motion asserts several overlapping grounds for dismissal: first, that plaintiffs failed to allege facts sufficient to pierce the veil of CDT and sue Plummer in his individual capacity (Def.'s Mot. Dismiss 9-15, 25-29); second, that plaintiffs failed to allege facts sufficient to establish that Richmond acted as Plummer's agent (id.); third, that New York is an improper venue (id. at 15-23); fourth, that plaintiff failed to plead fraud with the requisite specificity (id. at 24-29); fifth, that plaintiffs failed to state a claim for relief or adequately allege their various causes of action (id. at 29-32, 36-60); sixth, that an arbitration clause in an alleged contract between EPE and non-party CASA requires the parties to arbitrate the case in Switzerland (id. at 32-36); and, finally, that plaintiffs failed to join CDT as an indispensable party. (Id. at 60-63).

For the following reasons, we recommend that Plummer's motion to dismiss for failure to state a claim be granted as to plaintiffs' claims of negligent misrepresentation, civil conspiracy, aiding and abetting fraud and conversion, and equitable estoppel, and denied in all other respects.

ANALYSIS

We begin by addressing Plummer's contentions regarding venue, mandatory arbitration, and compulsory joinder. We then turn to Plummer's argument that plaintiffs failed to state a valid claim for relief under either Rule 12(b)(6) or Rule 9(b). For each of Plummer's arguments, we briefly state the applicable substantive standards and then apply them to the case at hand.

A. Venue

Defendant asserts that venue is improper in this district and requests dismissal under Rule 12(b)(3). (Def.'s Mot. Dismiss 15-32). "On a motion to dismiss a complaint under Rule 12(b)(3) for improper venue, 'the plaintiff bears the burden of establishing that venue is proper.'" Cold Spring Harbor Lab. v. Ropes & Gray LLP, 762 F. Supp.2d 543, 551 (E.D.N.Y. 2011) (quoting French Transit v. Modern Coupon Sys., 858 F. Supp. 22, 25 (S.D.N.Y. 1994)). "If the court chooses to rely on pleadings and affidavits, the plaintiff need only make a prima facie showing of [venue]." Gulf Ins. Co. v. Glasbrenner, 417 F.3d 353, 355 (2d Cir. 2005) (alteration in original) (quoting CutCo Indus. v. Nauchton, 806 F.2d 361, 364-65 (2d Cir. 1986)). In analyzing whether plaintiffs made such a prima facie showing, we must view all facts in the light most favorable to the plaintiff. Phillips v. Audio Active, Ltd., 494 F.3d 378, 384 (2d Cir. 2007) (citing New Moon Shipping Co. v. MAN B & W Diesel AG, 121 F.3d 24, 29 (2d Cir. 1997)). We must also take allegations in the complaint as true, unless contradicted by the defendants' affidavits. U.S. Envtl. Prot. Agency ex rel. McKeown v. Port Auth., 162 F. Supp.2d 173, 183 (S.D.N.Y. 2001) (citing 5A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure: Civil 2d § 1352 (2d ed. 1990 & Supp. 1999)). If plaintiffs' allegations are so challenged, we "may examine facts outside the complaint to determine whether venue is proper . . . [but] must draw all reasonable inferences and resolve all factual conflicts in favor of the plaintiff." Id.

Because our jurisdiction over this action is founded solely on diversity of citizenship,² proper venue is defined pursuant to 28 U.S.C. § 1391(a). Under that provision, venue is proper in

(1) a judicial district where any defendant resides, if all defendants reside in the same State, (2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated, or (3) a judicial district in which any defendant is subject to personal jurisdiction at the time the action is commenced, if there is no district in which the action may otherwise be brought.

28 U.S.C. § 1391(a).

According to the complaint, defendants reside in three different states. (Compl. ¶¶ 3-6). Thus section 1391(a)(1) plainly does not apply because all of the defendants do not reside in the same state.

Plaintiffs do not assert that this action could not be brought outside this district; they appear to concede in their opposition that venue "may be appropriate" in the Eastern District of Pennsylvania, the District of New Jersey, or the District of Delaware. (Pls.' Mem. in Opp'n 9). Therefore, we assume that section 1391(a)(3) also does not apply in this case, as there exist a number of potentially proper venues.

Hence we turn our attention to section 1391(a)(2). The relevant inquiry under this section is whether plaintiffs demonstrated that "a substantial part of the events or omissions giving rise to [plaintiffs'] claim occurred" in this district. 28 U.S.C. § 1391(a)(2); cf. Prospect Capital Corp. v. Bender, 2009 WL 4907121, at *2 (S.D.N.Y. Dec. 21, 2009).

The Second Circuit has noted that "when a plaintiff relies on § 1391(b)(2) to defeat a venue challenge, a two-part inquiry is appropriate. First, a court should identify the nature of the claims and the acts or omissions that the plaintiff alleges give rise to those claims. Second, the court should determine whether a substantial part of those acts or omissions occurred in the district where suit was filed, that is, whether 'significant events or omissions material to [those] claims . . . have occurred in the district in question.'" Daniel v. Am. Board of Emergency Med., 428 F.3d 408, 432 (2d Cir. 2005) (alteration in original) (internal citations omitted) (quoting Gulf Ins. Co., 417 F.3d at 357). Since the text of section 1391(a)(2) is identical to that of section 1391(b)(2), we presume that the same two-part inquiry applies to this action. See id. (citing First of Mich. Corp. v. Bramlet, 141 F.3d 260, 264 (6th Cir. 1998)) (noting that pertinent language in section 1391(a)(2) is "analogous" to that in section 1391(b)(2)).

In this case, all of plaintiffs' claims center around defendants' receipt of $500,000.00 in escrow funds from plaintiffs in exchange for an allegedly forthcoming €35 million loan, after which defendants refused to either provide the loan or return the escrowed funds. (See generally Compl. ¶¶ 28-71). The acts and omissions giving rise to these claims include: (1) plaintiffs' communications with defendants before, during, and after the funds' transmission; (2) the transmission of the $500,000.00 to defendants (including, in particular, the transmission of the $500,000.00 from Brooks in Manhattan to Plummer in Tennessee); and (3) defendants' alleged failure to either provide the promised loan funds to plaintiffs or return...