United States District Court, D. Connecticut
UNITED STATES REGIONAL ECONOMIC DEVELOPMENT AUTHORITY, LLC, Plaintiff,
GERRY D. MATTHEWS and MATTHEWS COMMERCIAL PROPERTIES, LLC, Defendants.
RULING ON PLAINTIFF'S MOTION FOR LEAVE TO
Charles S. Haight, Jr. Senior United States District Judge.
matter is before the Court on a motion of Plaintiff United
States Regional Economic Development Authority, LLC
("Plaintiff" or "USREDA") for an order
granting leave to file an Amended Complaint. [Doc. 55].
Plaintiff's proposed Amended Complaint would add state
common law claims of fraud and aiding and abetting fraud
against Defendants Gerry D. Matthews ("Gerry") and
Matthews Commercial Properties, LLC ("MCP"), and
would also incorporate several nonsubstantive changes to the
Complaint to reflect the current law firm of counsel; to
change the heading of Count I; and to correct the
abbreviation by which Plaintiff is referred to throughout the
Complaint. Defendants have not filed an objection to
Plaintiff's motion. This Ruling evaluates the proposed
amendments and resolves the instant Motion.
brought this action on June 30, 2016, alleging breach of
contract and unjust enrichment. [Doc. 1]. According to
Plaintiff's operative Complaint, from April 15, 2013,
through July 26, 2013, Joseph Walsh, the managing member of
USREDA, caused $529, 843 to be wired to MCP through four
separate wire transfers. Doc. 1 ¶ 5. The funds were
solicited by Gerry and by Robert Matthews
("Robert"), Gerry's brother, "ostensibly
for the purpose of repairing property" owned by Robert
in Nantucket, Massachusetts, and to satisfy the outstanding
property taxes owed on the Nantucket property so that it
could be sold. Id. ¶ 6. Walsh met with Gerry at
Gerry's home and at MCP's offices in Connecticut,
where Gerry represented that he and MCP were assisting Robert
in the sale of this Nantucket property, the sale was
imminent, and the funds would be repaid shortly. Id.
¶ 7. MCP, Plaintiff alleges, is owned and operated by
Gerry. Id. ¶ 3. Gerry also represented that any
shortfall in the proceeds from the sale of the house would be
repaid by Gerry. Id. ¶ 7. Based on these
representations, USREDA caused the funds to be sent to MCP.
Id. ¶ 8. Defendants allegedly did not use the
funds for the stated purposes, and have not repaid Plaintiff.
Id. ¶¶ 9-10.
29, 2016, following a determination by the Court that
jurisdiction exists in this matter, Defendants moved pursuant
to Rule 12(b)(6) of the Federal Rules of Civil Procedure to
dismiss Plaintiff's Complaint for failure to state a
claim upon which relief could be granted. This Court denied
the motion to dismiss, in part, determining that Plaintiff
had alleged plausible claims for breach of contract and, in
the alternative, unjust enrichment. See Doc.
Amended Scheduling Order followed, which set the deadline for
discovery at October 30, 2017, and the deadline for the
filing of dispositive motions, if any, at December 4, 2017.
See Doc. 49. Just prior to the expiration of the
discovery deadline, there was a flurry of motion activity:
Defendants moved to quash two non-party subpoenas; Plaintiff
moved to compel discovery; and Plaintiff filed the instant
motion to amend the Complaint. The discovery motions will be
the subject of a separate Ruling; here, the Court will
consider only whether to grant Plaintiff leave to file an
Amended Complaint, which proposes to add a cause of action
for fraud, and a cause of action for aiding and abetting
STANDARD OF REVIEW
amendment of pleadings is governed by Rule 15(a) of the
Federal Rules of Civil Procedure. Except under circumstances
inapplicable here, "a party may amend its pleading only
with the opposing party's written consent or the
court's leave." Fed.R.Civ.P. 15(a)(2). Defendants
have not provided written consent to the proposed amendment;
therefore, Plaintiff requires the Court's leave to amend
15(a) directs the court to "freely give leave when
justice so requires." Fed.R.Civ.P. 15(a)(2). In
Foman v. Davis, 371 U.S. 178 (1962), the Supreme
Court reaffirmed this liberal mandate of Rule 15(a):
In the absence of any apparent or declared reason - such as
undue delay, bad faith or dilatory motive on the part of the
movant, repeated failure to cure deficiencies by amendments
previously allowed, undue prejudice to the opposing party by
virtue of allowance of the amendment, futility of amendment,
etc. - the leave sought [to amend] should, as the rules
require, be "freely given."
371 U.S. at 182. Thus, a motion to amend a pleading should
only be denied upon the demonstration of one or more of the
above factors listed in Foman.
PROPOSED FACTUAL ALLEGATIONS
following new allegations are derived from Plaintiff's
proposed Amended Complaint, and are accepted as true for the
purposes of this motion.
about June 23, 2013, Gerry, and Robert in the presence of
Gerry, represented that the solicited funds were not only
needed from Plaintiff to ready the Nantucket property for
sale, but were also required to compensate Robert's
accountants "who were representing Robert on his tax
liability owed to the IRS" and to help Robert and Gerry
in purchasing property in Waterbury. Id. ¶ 12.
The Waterbury property was to then be combined with an
adjacent property owned by Robert, and sold together to the
City of Waterbury for use as a ball park. Id. Gerry,
and Robert in the presence of Gerry, represented that the
sale of this combined property in Waterbury was imminent, as
was the sale of the Nantucket property. Id. ¶
13. Accordingly, it was stated that Plaintiff would be repaid
from the proceeds of these sales in the short-term.
at the time that these representations were made, Gerry,
"upon information and belief, " knew that there was
no prospect of any sale of the Nantucket property that would
result in proceeds to Robert, due to encumbrances of
judgments and mortgages on the property that exceeded the
property's value. Id. ¶ 15. Gerry's
knowledge regarding Robert's finances, and the lack of
value of the Nantucket property "can be presumed"
based on articles from 2013 detailing Robert's financial
state. Id. ¶ 16. Gerry and MCP had no intention
for the funds to go toward paying Robert's accountants or
to purchase the property in Waterbury; instead, the funds
were diverted for a variety of purposes, including to Gerry
for unrelated purposes. Id. ¶ 17-18. "Upon
information and belief, " when these false
representations were made by Gerry and by Robert in
Gerry's presence, Gerry was also aware that there was no
prospect of a sale of the property in Nantucket, and that the
purchase and sale of the property in Waterbury was not
imminent. Id. ¶ 19-20.
at the time these statements were made, Gerry knew that the
funds would not be used for the represented purposes and that
there would be no sales proceeds available to repay
Plaintiff. Id. ¶ 21. These representations were
made with the intent to "induce reliance thereon by
Walsh" who, in turn, relied on these representations in
loaning the funds to MCP to Plaintiff's detriment.
Id. ¶ 24-5. Said funds have not been repaid,
nor has any explanation been provided to Plaintiff as to why
the funds were not used for their stated purpose.
Id. ¶ 26.
Gerry was aware that Robert "had creditors seeking
substantial funds from him" at the time that Defendants
obtained the funds from Plaintiff. Id. ¶ 28.
During this same time period, or on or before April 2013,
Gerry allowed Robert to deposit non-MCP business funds into
the MCP savings business account for the purpose of hiding
this money from said creditors. Id. ¶ 29. Gerry
also opened a "Chase Freedom" credit card in his
own name for the benefit and use of Robert and Robert's
wife, "in order to hide the funds from Robert's
creditors." Id. ¶ 32. This credit card was
never used for Gerry's personal purposes, nor was it used
by MCP. Id. ¶ 33.
also previously agreed to assist Robert by "acting in
Robert's place as the 99% owner of a real estate
development project in Palm Beach Florida, " despite
having no involvement in the project. Id. ¶ 34.
He did so because he knew that Robert could not "act for
himself" due to the claims of Robert's creditors,
and was therefore acting to assist Robert in avoiding his
creditors. Id. Again, "upon information and
belief, " when "Gerry or Robert" requested the
loan from Plaintiff, Gerry was aware that the funds would not
be used for the purposes stated to Plaintiff. Id.
¶ 36. Gerry also knew that the sales of the Nantucket
and Waterbury properties were not imminent, and knew that
neither he nor Robert would repay the loan. Id.
¶ 37-8. "Little, if any" of the funds were
used for the represented purposes. Id. ¶ 39.
Defendants instead caused the wired funds from Plaintiff to
be diverted to Gerry, his mother, an entity controlled by
Robert's wife, and to pay charges incurred on the Chase
Freedom credit card. Id. These loaned funds have not
been repaid to Plaintiff to date, and no explanation for
their use has been provided. Id. ¶ 40.