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United States Regional Economic Development Authority, LLC v. Matthews

United States District Court, D. Connecticut

December 4, 2017



          Charles S. Haight, Jr. Senior United States District Judge.

         This 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.


         Plaintiff 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.

         On July 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. 41.[1]

         An 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 fraud.


         Pre-trial 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 its Complaint.[2]

         Rule 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.


         The following new allegations are derived from Plaintiff's proposed Amended Complaint, and are accepted as true for the purposes of this motion.

         On or 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. Id.

         However, 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.

         Thus, 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.

         Further, 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.

         Gerry 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.

         IV. ...

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