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Sands Harbor Marina Corp. v. Wells Fargo Insurance Services of Oregon, Inc.

United States District Court, E.D. New York

August 29, 2014

THE SANDS HARBOR MARINA CORP., SANDS HARBOR MARINA LLC, THE SANDS HARBOR MARINA OPERATING CORP., SANDS HARBOR MARINA OPERATING LLC, GREG W. EAGLE, PINE CREEK RANCH, LLC, and UNIVERSITY 1248, LLC, Plaintiffs,
v.
WELLS FARGO INSURANCE SERVICES OF OREGON, INC.; WELLS FARGO BANK, N.A.; EVMC REAL ESTATE CONSULTING, INC.; LARRY ESACOVE; THE ESTATE OF AIDA ESACOVE; DAVID P. GUILOT; ANTHONY B. CHOPRA; TISDALE NICHOLSON, LLP; JEFFREY A. TISDALE; GUY C. NICHOLSON; and MICHAEL D. REIS, Defendants.

Roy A. Klein, Esq., Law Offices of Roy A. Klein, Melville, NY, for Plaintiffs.

Jason Ederer, Esq., Jennifer H. Feldscher, Esq., Goldberg Segalla LLP, New York. NY, Sanem Ozdural, Esq., Lewis, Brisbois, Bisgaard & Smith, LLP, New York, NY, for Defendants for Wells Fargo Defendants.

Gregory John Radomisli, Esq., Martin, Clearwater & Bell, New York, NY, for T&N Defendants.

Michael F. Bachner, Esq., Scott James Splittgerber, Esq., Bachner & Herskovits, P.C., New York, NY, Howard S. Weiner, Esq., Bachner & Associates, P.C., New York, NY, for Reis.

No appearances, for the EVMC Defendants, David P. Guilot, Anthony B. Chopra.

MEMORANDUM & ORDER

JOANNA SEYBERT, District Judge.

Currently pending before the Court are: (1) plaintiffs The Sands Harbor Marina Corp., Sands Harbor Marina LLC, The Sands Harbor Marina Operating Corp., the Sands Harbor Operating LLC, Greg W. Eagle, Pine Creek Ranch, LLC, and University 1248, LLC's ("Plaintiffs") motion for default judgment against the EVMC Defendants[1] (Docket Entry 135) and Magistrate Judge William D. Wall's Report and Recommendation (R&R) on that motion (Docket Entry 144); (2) the T&N Defendants'[2] motions for reconsideration (Docket Entries 140 and 146); and (3) Plaintiffs' motion for reconsideration (Docket Entry 148). For the following reasons: (1) Judge Wall's R&R is ADOPTED in its entirety and Plaintiffs' motion for default against the EVMC Defendants is DENIED; and (2) Plaintiffs' and the T&N Defendants' motions for renewed reconsideration are GRANTED, but with certain caveats.

BACKGROUND[3]

I. Factual Background

The Court presumes general familiarity with the background of this case, which is detailed in the Court's previous orders. Briefly, Plaintiffs allege that Defendants engaged in a fraudulent scheme in which Defendants led Plaintiffs to believe that Plaintiffs would receive financing for real estate projects. (Second Amended Complaint ("SAC") ¶ 1[4].) Defendants allegedly perpetuated this scheme through forged documents from EVMC, a purported shell corporation, and false representations and promises. (SAC ¶ 1.)

Specifically,

[u]nder the scheme, defendant Wells Fargo Bank N.A., through a Vice President of one of its wholly owned subsidiaries Wells Fargo Insurance Services of Oregon, Inc., Michael D. Reis, fraudulently induced [Plaintiffs] Sands Harbor and Eagle to make payments to the law firm of Tisdale & Nicholson, LLP, which payments the plaintiffs believed to be fees and expenses that EVMC was incurring to obtain the requested financing. But EVMC did nothing to obtain any financing for plaintiffs. Instead, Tisdale & Nicholson merely disbursed plaintiffs' payments to itself, to EVMC, to EVMC's principals (defendants Aida Esacove and Larry Esacove), to EVMC's officers (defendants Guilot and Chopra), to Wells Fargo and to Michael Reis.

(SAC ¶ 2.)

Essentially, Defendants had a "protocol" whereby Wells Fargo provided "a false imprimatur of legitimacy" to EVMC. (SAC ¶ 18, see also SAC ¶ 15.) This would entice "victims" to wire money to Tisdale & Nicholson for loan funding the "victims" expected to receive. (SAC ¶ 18.) Defendants would then provide fraudulent loan documentation and "proof of funds" letters and make empty promises of performance. (SAC ¶ 18.) Ultimately, Defendants would either force the "victims" to forfeit their contract money, providing an excuse for non-performance of the contract, or create an eleventh-hour condition precedent for the "victim" to default upon. (SAC ¶ 18.)

II. Procedural Background

Plaintiffs initially commenced this action for violations of the Racketeer Influenced and Corrupt Act of 1970, as codified by 18 U.S.C. § 1961 et seq. ("RICO") and various other state laws. On February 19, 2013, this Court issued a Memorandum and Order addressing numerous pending motions to dismiss, ultimately dismissing all of Plaintiffs' RICO claims against the moving defendants and declining supplemental jurisdiction over the state law claims. (See Feb. 2013 Order, Docket Entry 108.)

Upon reconsideration, however, the Court noted that subject matter jurisdiction over the state law claims may be appropriate, either because there were still potential RICO claims pending against the EVMC Defendants, who did not appear in the action, or pursuant to diversity jurisdiction. (See Sept. 2013 Order, Docket Entry 132.) Accordingly, the Court allowed Plaintiffs to renew their motion for default against the EVMC Defendants and reserved judgment on reconsideration of the state law claims until such time as subject matter jurisdiction could be determined.

Plaintiffs' motion for default and Judge Wall's R&R on the matter are now pending before the Court. In addition, the Court has noted that it apparently has diversity jurisdiction over this action. Accordingly, the viability of the state law claims is also ripe for review.

DISCUSSION

The Court will first address Plaintiffs' motion for default judgment against the EVMC Defendants before turning to the renewed motions for reconsideration.

I. Plaintiffs' Motion for Default Judgment

A. Relevant Background

On August 24, 2012, after a prior unsuccessful attempt, Plaintiffs requested a certificate of default regarding the EVMC Defendants. (Docket Entry 92.) The Clerk of the Court certified the EVMC Defendants' default on October 1, 2012. (Docket Entry 93.) Plaintiffs filed a formal motion (Docket Entry 94), which the Court denied with leave to renew in its September 2013 Order.

Plaintiffs timely renewed their motion for default judgment against the EVMC Defendants on October 29, 2013. (Docket Entry 135.) As part of that motion, Plaintiffs argue that the SAC states valid claims against the EMVC Defendants for: (1) violations of 18 U.S.C. § 1962(c); (2) breach of contract; (3) fraud; (4) negligent misrepresentation; (5) negligence; (6) breach of fiduciary duty; and (7) unjust enrichment. (See Docket Entry 136.) Plaintiffs also reiterate their prior arguments that this Court has diversity jurisdiction and that therefore a decision on the merits of the state law claims is appropriate, even if the RICO claims fail. (See Docket Entry 136.)

Judge Wall issued his R&R on July 28, 2014, recommending that Plaintiffs' motion be denied. Specifically, Judge Wall found that Plaintiffs had abandoned their RICO claims against the EVMC Defendants pursuant to 18 U.S.C. § 1962(a) and (b). (R&R at 8.) As to Section 1962(c), Judge Wall found first that Plaintiffs had not alleged any control or management of an enterprise by Larry Esacove. (R&R at 10.) He then went on to hold that, given this Court's prior rulings, Plaintiff had not sufficiently alleged a pattern of racketeering. (R&R at 11-13.) The R&R did not address Plaintiff's state law claims against the EVMC Defendants because it was premature until the Court determined whether it has subject matter jurisdiction. (R&R at 13-14.) Judge Wall noted that "[i]f Judge Seybert ultimately decides that there is diversity jurisdiction, it is recommended that plaintiffs be permitted to renew their motion for a default judgment as to the state law claims [against the EVMC Defendants]." (R&R at 14.)

B. Plaintiffs' Motion for Default

In reviewing an R&R, a district court "may accept, reject, or modify, in whole or in part, the findings and recommendations made by the magistrate judge." 28 U.S.C. § 636(b)(1)(C). If no timely objections have been made, the "court need only satisfy itself that there is no clear error on the face of the record." Urena v. New York, 160 ...


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