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Van Buskirk v. The United Group of Companies, Inc.

United States District Court, N.D. New York

January 2, 2020

BRUCE A. VAN BUSKIRK et al., Plaintiffs,

          FOR THE PLAINTIFFS: Keller, Rohrback Law Firm, Devine, Snyder LLP, DAVID J. KO, ESQ., GARY GOTTO, ESQ., RON KILGARD, ESQ., TERENCE J. DEVINE, ESQ.



          Gary L. Sharpe Senior District Judge.

         I. Introduction

         Plaintiffs Bruce A. Van Buskirk and Lori A. Van Buskirk commenced this action against The United Group of Companies, Inc. (UGOC); DCG/UGOC Funds Management II, LLC; Michael J. Uccellini and Jessica F. Steffensen as Executor and Execturix, of the Estate of Walter F. Uccellini; Michael J. Uccellini (collectively, “United Defendants”); MCM Securities, LLC; and Millennium Credit Markets, LLC (collectively, “MCM Defendants”), [1] asserting New York State law claims of common law fraud, breach of fiduciary duty, aiding and abetting a breach of fiduciary duty, negligent misrepresentation, and unjust enrichment against United Defendants, as well as aiding and abetting against MCM Defendants. (See generally 2d Am. Compl., Dkt. No. 11.)

         Pending is plaintiffs' motion for leave to file a third amended complaint. (Dkt. No. 67.) In response, defendants assert that plaintiffs' motion should be denied because the proposed amendment would be futile, and, in the alternative, request that should plaintiffs' motion be granted, it be conditioned on the payment of reasonable attorneys' fees. (Dkt. No. 72.) In arguing futility, defendants' incorporate the arguments made in their motion to dismiss, (Dkt. No. 16), “in their entirety, ” (Dkt. No. 72 at 14). Thus, the court construes Dkt. No. 72 as a renewal of the motion to dismiss, (Dkt. No. 16), which has been fully briefed by the parties, (Dkt. Nos. 16, 28, 34). For the reasons that follow, plaintiffs' motion is granted, conditioned upon the payment to defendants of reasonable attorneys' fees in the amount of $7, 500.00, and plaintiffs' claim of unjust enrichment is dismissed.

         II. Background

         A. Facts[2]

         For a full recitation of the underlying facts, the parties are referred to the court's April 9, 2018 order in Grasso v. United Group of Companies, Inc., No. 1:16-cv-965, 2018 WL 1737619 (N.D.N.Y. Apr. 9, 2018), which is a related action that involves a nearly identical complaint and nearly identical motion to dismiss briefing.

         Summarily, plaintiffs were investors in an income fund created, managed, and/or operated by defendants (hereinafter “the Income Fund”). (2d Am. Compl. ¶¶ 1-8.) In connection with soliciting plaintiffs' investments in the Income Fund, plaintiffs allege that United Defendants made several factual misrepresentations, including that the Income Fund would invest in secure debt instruments backed by real estate assets that could quickly be converted to cash and would generate a high annual rate of return for investors when, in reality, United Defendants knew the student housing projects faced problems-including low occupancy-which made these returns highly unlikely and risked non-payment of the fund's notes receivable. (Id. ¶ 63.) Plaintiffs further allege that United Defendants and Edgar Page-an investment advisor who had a substantial stake in the success of the Income Fund and who advised plaintiffs to invest in it even though he knew the projects were struggling-failed to disclose several facts that were material to plaintiffs' investments. (Id. ¶¶ 26-31, 39-40, 47-52, 63.)

         Ultimately, “[t]he Income Fund's assets were not invested in securities, real estate assets and/or debt instruments secured by assets, and/or credible guarantors, but rather were used to make unsecured loans to UGOC [and other related parties].” (Id. ¶ 40.) Additionally, United Defendants continued to invest fund assets into the struggling student housing projects, while funneling money to Page. (Id. ¶¶ 43, 45-52.) Plaintiffs allege that they would not have chosen to invest in the Income Fund had they known such facts beforehand. (Id. ¶¶ 96, 98.) Now, “[u]nder the terms of the [O]perating [A]greement governing the [Income] Fund, [p]laintiffs are unable to liquidate their investment without the approval of the United Defendants.” (Id. ¶ 98.) Plaintiffs have since requested a return of their investments, which United Defendants denied. (Id. ¶ 100.) Plaintiffs assert that their investment in the fund is subject to rescission and/or monetary damages, because it was “procured through unlawful conduct.” (Id. ¶ 101.)

         B. Procedural History

         Plaintiffs filed their initial complaint on July 15, 2016, (Compl., Dkt. No. 1), an amended complaint on August 5, 2016, (Am. Compl., Dkt. No. 4), and a second amended complaint on August 29, 2016, (2d Am. Compl.) In all three iterations of their complaint, plaintiffs alleged that they were residents of Cobleskill, New York, and that all defendants were citizens of either New York or North Carolina. (Compl. ¶¶ 1-9; Am. Compl. ¶¶ 1-9; 2d Am. Compl. ¶¶ 1-9.) Defendants moved to dismiss the case on the merits. (Dkt. No. 16.)

         Because plaintiffs' complaints allege only violations of state law, and they did not establish complete diversity of citizenship amongst the parties, the court ordered plaintiffs to show cause as to why the action should not be dismissed sua sponte pursuant to Federal Rule of Civil Procedure 12(h)(3) for lack of subject matter jurisdiction. (Dkt. No. 52.) Plaintiffs submitted a brief response, arguing that the court had diversity jurisdiction over this case because plaintiffs sold their residence in New York and now reside in Florida. (Dkt. No. 53.) In support of this argument, plaintiffs attached as exhibits their Florida drivers licenses, which were dated December 2016, as well as then-recent mail that was sent by defendants to plaintiffs at plaintiffs' Florida residence. (Id.) But that evidence did not establish that plaintiffs were domiciled in Florida at the time of the filing of their complaint. Accordingly, the court dismissed the case for lack of subject matter jurisdiction and entered judgment in favor of defendants. (Dkt. Nos. 55, 56.)

         Plaintiffs moved for reconsideration, attaching to their motion declarations swearing that they were domiciled in Florida at the time of the filing of their complaint. (Dkt. No. 57.) This motion was denied because it was not the appropriate time or manner for the introduction of this evidence, and because it failed to invoke any of the three grounds upon which a reconsideration motion may be properly based. (Dkt. No. 60.)

         Plaintiffs appealed to the Second Circuit, (Dkt. No. 61), which reversed the court's decision, holding:

[W]e vacate the judgment of the district court and remand so that [p]laintiffs may amend their complaint and so that the district court may determine whether the evidence provided by [p]laintiffs-as a whole-is sufficient to invoke federal diversity jurisdiction. On remand, the district court may also consider whether an award of costs to [d]efendants-including attorney's fees-would mitigate the prejudice incurred by [d]efendants through this late amendment.

Van Buskirk v. United Group of Companies, 935 F.3d 49, 56 (2d Cir. 2019) (citation omitted). The Second Circuit noted that “the parties shall bear their own costs on appeal.” Id.

         Plaintiffs then filed the pending motion, seeking leave to amend their complaint for a third time. (Dkt. No. 67.) In compliance with the Local Rules of Practice in this District, plaintiffs attached as an exhibit to their motion a redlined version of their proposed pleading, showing the changes between their proposed amended complaint and the operative complaint. (Dkt. No. 67, Attach. 1.) The changes plaintiffs seek to make to their second amended complaint relate to the domiciles of the parties, in an apparent effort to cure the previously noted jurisdictional defect. (Id.) In response, defendants argue that leave to amend should not be granted because any amendment would be futile, but that, if it is to be granted, they should be awarded $38, 371.91 in attorneys' fees and costs. (Dkt. No. 72.)

         III. Standards of Review

         A. Motion for Leave to Amend

         As relevant here, Fed.R.Civ.P. 15 allows a party not otherwise permitted to amend its pleading to do so with leave of the court. See Fed. R. Civ. P. 15(a)(2). The Rule mandates that “[t]he court should freely give leave when justice so requires.” Id. Barring “futility, undue delay, bad faith or dilatory motive, repeated failure to cure deficiencies by amendments previously allowed, or undue prejudice to the non-moving party, ” leave should generally be granted. Burch v. Pioneer Credit Recovery, Inc., 551 F.3d 122, 126 (2d Cir. 2008). “The non-moving party bears the burden of establishing why leave to amend should not be granted.” Linares v. Richards, No. 08-CV-3243, 2009 WL 2386083, at *9 (E.D.N.Y. Aug. 3, 2009) (citations omitted).

         B. Moti ...

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