Pringle v. Garcia

Decision Date13 February 2013
Docket NumberCase No. 2:09-cv-022-PPS
PartiesARTHUR PRINGLE III, Plaintiff, v. MARISA GARCIA, et al., Defendants.
CourtU.S. District Court — Northern District of Indiana
OPINION AND ORDER

Arthur Pringle claims to be the victim of an elaborate fraud scheme perpetrated by Sergio Garcia and various members of his family. The parties tell such different stories that it's hard to believe that they both reflect the same series of events. Pringle claims that the Garcia family members are a bunch of four-flushers who engaged in outright fraud - first, by luring Pringle to invest in their real estate program, then by misrepresenting where his dollars were going to be diverted, and finally by cheating their bankruptcy creditors (including Pringle) in multiple ways. His allegations are so inflammatory that they easily could support criminal charges if true. The Garcias' version of events is entirely different. They paint a picture of a real estate investment that turned sour in the face of a collapsing real estate market. According to them, there was no wrongdoing; Pringle just made a bad bet.

Two separate groups of defendants have asked me to dismiss four counts of Pringle's complaint - an Indiana fraudulent transfer claim, an Indiana criminal conversion claim, and federal and state RICO claims. They argue that Pringle hasn't pled sufficient facts to suggest that he has a plausible claim for relief. I disagree. Pringle gives a detailed account of how he was told that his investment funds were going to be used, why that was a misrepresentation, andwhat he thinks that the Garcias actually did with his money after he invested. That story is specific enough to plausibly suggest that he was the victim of a massive fraud scheme. So for the reasons that I'll discuss more fully below, two pending and ripe Motions to Dismiss (DE 105; DE 113) are DENIED.

Finally, I note that Pringle recently filed a Motion for Leave to Refile Motion for Partial Summary Judgment asking to renew a summary judgment motion that was filed on April 2, 2012 and fully briefed on May 14, 2012. (DE 160.) Additionally, various other Garcias filed a Motion to Dismiss on January 17, 2013. (DE 175.) That Motion only became ripe on February 11, 2013 (i.e., two days before this opinion was filed), so I was unable to address it in this decision.1 Because briefing for both of these motions is either ongoing or has concluded in the past day or two, they will REMAIN UNDER ADVISEMENT.

PROCEDURAL BACKGROUND

As I mentioned above, two groups of defendants have filed dismissal motions. The first consists of Sergio and Marisa Garcia and various corporate entities that they have created (all but one of them are some version of a "Kerusso" company). For ease of reference, I'll call them the "Garcia I" defendants. I'll also borrow Pringle's terminology and call the Garcia I corporate entities the "Garcia Entities." The second group of defendants consists of Elva Garcia and her company, Alpha & Omega Real Estate, LLC. I'll call them the "Garcia II" defendants.

The operative complaint presently before me is the Third Amended Complaint, and it is that complaint that the two groups of defendants seek to dismiss in part pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted. The first dismissal motion is brought by the Garcia I defendants, which consist of Sergio and Marisa Garcia; Kerusso Konstruction Kompany, LLC; Kerusso Real Estate, LLC; Kerusso Asset Management, LLC; and Rehab Lending Tree, LLC. (DE 105.) It asks me to dismiss the fraudulent transfer (Count IV), criminal conversion (Count V) and federal and state RICO (Counts VI and VII) claims against these defendants. (Id.) The second motion to dismiss is brought by the Garcia II defendants, Elva Garcia (Sergio's and Marisa's daughter) and Alpha & Omega Real Estate, LLC, a company that she owns. (DE 113.) It also asks me to dismiss the fraudulent transfer and federal and state RICO claims.2 (Id.) There are a few minor differences between the two motions, but they both argue the same basic point - that Pringle has failed to plead the challenged fraud-based counts with sufficient specificity and particularity.

RELEVANT ALLEGED FACTS

According to the factual allegations in the complaint, which I must accept as true for present purposes, Pringle made a series of loans to two entities allegedly controlled by the Garcias. (DE 98 at 3-5.) One of the entities, Kerusso Konstruction, borrowed $2.47 million from Pringle. (Id. at 5.) The other entity, Rehab Lending Tree, borrowed $2.375 million. (Id.) As of January 31, 2009, the total principal and interest owed by the companies is alleged to be around $5.3 million (Id. at 5-6; DE 149 at 2.)

Pringle alleges that Sergio told him that the Garcias would use his funds to acquire and "rehab" properties in Northwest Indiana. (Id. at 30.) Sergio induced him to invest by telling him that two prior investors - Adolfo Bautista and Terry Baldin - had profited from similar investments in the Garcias' real estate activities. (Id.) Yet Pringle now says that these were all lies; the Garcias never used Bautista's and Baldin's funds to purchase and rehab properties. (Id. at 30-34.) Instead, he contends, they used the money both for personal uses (with respect to Baldin), and to pay interest to prior investors (with respect to Bautista) - in other words, the whole thing was something of Ponzi scheme. (Id.)

Pringle gives a reasonably detailed account of various encounters in which these alleged misrepresentations were made. He first describes a September 2006 meeting between himself, Sergio and Bautista, where (Pringle alleges) Sergio represented that Baldin's and Bautista's interest payments were being generated from his real estate activities, and not from an influx of new investors. (Id. at 34-35.) Pringle also asserts that at this initial meeting Sergio promised that his investment funds would be used to acquire additional properties to rehab and rent out or sale, and not to pay off prior investors like Baldin and Bautista. (Id. at 35.)

Pringle describes at least four more encounters with Sergio where he says he was told various (inaccurate) details about the proposed investment. (Id. at 36-37.) These alleged misrepresentations include the promises that the Garcias' investors could be refunded their full principal within ninety days, that the Garcias were compliant with all applicable tax requirements, that their real estate operations were generating tens of thousands of dollars in monthly income, and that no investor had ever requested a refund and been refused. (Id.) According to Pringle, all of these statements - which he says that he relied on when deciding toinvest - were false. (Id.)

Pringle also describes how Sergio invited him to invest in a second and related venture, Rehab Lending Tree, which he was told was created to loan money to the purchasers of the properties acquired and rehabbed by the Garcias. (Id. at 37-38.) As part of his sales pitch, Sergio allegedly provided Pringle with two documents - a tax return and a sample borrower file - that Pringle now says were forged or otherwise falsified. (Id. at 38-39.) Pringle continues by asserting that, in fact, Rehab never made any loans to anybody, and the sample borrower's loan was quickly repaid after Pringle agreed to invest. (Id. at 39.) In any event, as noted above, Pringle was convinced that the Garcias would be a good investment opportunity, and he ended up providing them with nearly five million dollars. (Id. at 39-40.)

I need to pause at this point before continuing with Pringle's chronological narrative of what the Garcias did with his money. So far, all of the allegations about specific conduct by a particular individual (i.e., who did what) focus on Sergio. Yet Pringle names a number of individuals and entities as defendants. So what's his theory with respect those parties? Well, according to Pringle, all of the Garcias - who generally are Sergio's relatives, companies, or companies owned by the relatives - constitute a single enterprise, which Pringle calls the "Garcia Family." (Id. at 41.) He alleges that when Sergio made the foregoing misrepresentations to Pringle, he was acting on behalf of the Garcia Family to further its goals. (Id. at 84-85.)

Pringle goes on throughout his complaint to identify various actions taken by each individual or entity in the enterprise. These specific instances are far too numerous for me to recount in full, but it probably makes sense to summarize the basic allegations concerning eachof the Garcia I and Garcia II defendants (other than Sergio):

Marisa Garcia: Pringle identifies her as Sergio's wife. (Id. at 41.) She appears throughout the complaint, primarily as a collaborator with Sergio in his various activities and as a member of various of the Kerusso entities. (Id. at 2, 41.) Perhaps most significantly, Pringle contends that she was closely involved as the grantor or transferor in many of the property transfers that form the basis for his fraudulent transfer claim. (Id. at 14-26.) He also says that Marisa signed many of the checks that allegedly were used to deplete Sergio's and Marisa's funds prior to their filing bankruptcy. (Id. at 74.)

Kerusso Konstruction: Pringle alleges that the Garcias used this entity as the chief conduit for Pringle's initial investment in the proposed rehabbing venture, and it was the entity that directly received the funds transferred by Pringle. (Id. at 3-5.)

Rehab Lending Tree: Pringle asserts that this company similarly served as the conduit for Pringle's second investment in the Garcias' loan operations (i.e., loaning money to the purchasers of rehabbed properties). (Id. at 4-5.)

Kerusso Asset Management: Pringle alleges that the Garcias used the entity to manage all of their other assets and holdings, including their rental properties. (Id. at 43, 64.)

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