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Richard Shelton v. Burgis D. Sethna

March 26, 2012



This action arises from an attempt by plaintiff Richard Shelton to secure a $500,000 letter of credit from defendants Burgis Sethna, Bison Commercial Leasing Corporation, and Bank Card New York. Plaintiff never received the letter of credit, so he has sued for fraud, breach of contract, quantum meruit, unjust enrichment, violation of the implicit covenant of good faith and fair dealing, and deceptive business practices in contravention of N.Y. Gen. Bus. Law § 349. Plaintiff now moves for summary judgment on all counts, and defendants cross-move for summary judgment. Defendants also move to dismiss all counts for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6) and for lack of subject matter jurisdiction pursuant to Rule 12(b)(1).

Defendants' motion to dismiss for lack of subject matter jurisdiction is denied, defendants' motion to dismiss for failure to state a claim is granted in part, and the cross-motions for summary judgment are denied.

The Complaint

The following facts are drawn from the complaint and assumed to be true for purposes of this motion.*fn1

In 2007, plaintiff, a real estate developer, was set to embark on a new venture. Having identified a property in Galesburg, Illinois as a promising site for the development of a retirement community, he entered into a contract to purchase the site and its structures for $875,000. Plaintiff envisaged the renovation of an existing building into residential units, followed by the construction of cottages for duplex units and the possibility of further construction if warranted by demand. Plaintiff projected, based upon his experience in the field of retirement housing, that the development would generate $1,500,000 in monthly revenues, yielding an eventual profit of $20,000,000 after 60 months.

To finance the first phase of the project, plaintiff sought a construction loan of $15,000,000. After making inquiries, plaintiff learned that he could secure a construction loan by demonstrating $2,000,000 of current liquidity. Lacking that liquidity, plaintiff sought a third party to supply the $2,000,000 that would enable him to secure the construction loan that would, in turn, enable him to break ground on the retirement development.

On October 1, 2007, plaintiff was introduced to Burgis Sethna ("Sethna").

Sethna is a New York resident and officer and director of two New York corporations-Bison Commercial Corporation ("Bison") and Bank Card New York ("Bank Card")-which are alleged to be his alter egos.

During his interaction with plaintiff, Sethna claimed that he could obtain a $500,000 letter of credit for plaintiff in exchange for $35,500. He stated that the proceeds of the letter of credit could then be parlayed into a letter of credit for $2,000,000. Several days later, before the arrangement had been agreed upon, Sethna requested that plaintiff send $17,000 payable to Bank Card so that Sethna could purchase a shell corporation for plaintiff to facilitate the acquisition of the $500,000 letter of credit. Shortly thereafter, plaintiff sent $17,000 to Bison. It evidently did not matter what entity received the money, as, on December 5, 2007, the parties agreed that Sethna, through Bison or Bank Card, would secure a letter of credit for plaintiff within 90 days in exchange for $35,500. That same day, Sethna memorialized the agreement in a written assurance (issued on Bison letterhead) stating that in exchange for $35,550,*fn2 Sethna would secure the aforementioned letter of credit within 90 days from Latin Tiger Funding LLC ("Latin Tiger"). In reliance on the written assurance, plaintiff purchased a $5,000 option to extend the time to finalize his purchase of the Galesburg property.

On December 18, 2007, plaintiff sent $35,500 to Bison. However, the promised letter of credit never arrived. Plaintiff's closest brush with financing came on May 12, 2008, when he received a fax from Latin Tiger containing a contract offering a $500,000 letter of credit in exchange for $87,500. Plaintiff, puzzled by the increased fee, sought an explanation from Sethna, who initially said that the fee had grown because plaintiff paid the $35,500 late and later said that the fee had grown because it included the first year of interest on the letter of credit. On another occasion, plaintiff asked why the Latin Tiger contract did not mention interest, and Sethna responded that interest had been waived. Lastly, Sethna at one point claimed that the $35,500 fee paid by Sethna did not concern the $500,000 letter of credit at all but was instead consideration for a lesser $250,000 letter of credit.

In the wake of these contradictory explanations for the $87,500 fee, plaintiff refused to sign the Latin Tiger contract. Thereafter, in the fall of 2008, Sethna approached plaintiff with a credit application from an entity called Creditline America. Plaintiff's prior payments, however, were not credited towards any fees payable to Creditline. Furthermore, Sethna had pre-filled the credit application with information plaintiff considered false. As a result, plaintiff refused to submit the Creditline application. Plaintiff later resisted an effort to secure a letter of credit through a private placement arranged by Sethna, on the ground that the transaction would have involved making false statements. The final proposed transaction surfaced in 2009, when Sethna claimed that plaintiff could receive his financing by crediting his payments toward an ownership interest in biodiesel plant. It appears, however, that plaintiff never invested in said plant, as Sethna did not demonstrated that it actually existed.

In short, plaintiff alleges a series of obfuscations intended to deprive him of the $52,500 he paid to Sethna. As a result of Sethna's actions, plaintiff claims to have lost $52,500 out of pocket, $5,000 for the option payment on the Galesburg property, interest of $18,000 on the money paid to Sethna, and lost profits in the sum of $20,000,000. Plaintiff also claims that the unwinding of his various plans damaged his credit score.

Based on these allegations, plaintiff brings six claims. First, he alleges that defendants committed fraud by failing to deliver the letter of credit. Second, he alleges that defendants breached a contract between the parties by failing to deliver the letter of credit. Third, he seeks to recover the money he paid Sethna in quantum meruit. Fourth, he seeks to recover the amount by which defendants were unjustly enriched. Fifth, he alleges that defendants breached the covenant of good faith and fair dealing implied in the contract between the parties. Sixth, he alleges that defendants engaged in deceptive acts or practices in the conduct of business in violation of N.Y. Gen. Bus. Law § 349.

Plaintiff seeks to recover the aforementioned sums, attorneys' fees, punitive damages, and all other relief available to him in law or equity.

Case History and the Present Motions

Plaintiff filed his complaint on May 25, 2010, and defendants answered on August 13, 2010. On November 9, 2010, the court held a preliminary conference in the case. At this conference, defendants' former counsel claimed that documents existed to substantiate defenses asserted in the answer. The court urged defendants to turn over the documents to plaintiff, and a conference was tentatively set for early 2011 to discuss the matter further.

However, defendants never produced the documents, and on January 26, 2011, defense counsel moved to withdraw due to his client's lack of cooperation. The court granted the motion to withdraw at a hearing on February 16, 2011. Upon learning of defendants' intransigence at the hearing, the court suggested that plaintiff move for summary judgment. Plaintiff did so on March 18, 2011.

On May 13, 2011, defendants secured new counsel, who has since represented them. Defendants now cross-move for summary judgment and move to dismiss the complaint for failure to state a claim and lack of subject matter jurisdiction. Confronted with an unexpected cross-motion, plaintiff contacted defendants in an attempt to secure the voluntary withdrawal of the summary judgment motions. Defendants, however, refused to withdraw their cross-motion. Plaintiff now asserts that the summary ...

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