United States District Court, D. Connecticut
RULING AND ORDER ON MOTION TO DISMISS OR FOR
A. BOLDEN, UNITED STATES DISTRICT JUDGE
Investors Liquidated Trust (“NCA Investors Trust”
or the “Plaintiff”) has sued John J. DiMenna,
Jr., Thomas L. Kelly, Jr., and William A. Merritt, Jr.
(“Defendants”), for breach of contract and unjust
enrichment to recover $18, 800, 000 allegedly owed from
defaulted loans and related enforcement obligations.
Complaint, ECF No. 1.
L. Kelly, Jr. and William A. Merritt, Jr.
(“Defendants”) now seek to dismiss the case or
levy sanctions against NCA Investors Trust for the
destruction of discovery documents by an NCA Trustee. Motion
for Sanctions, ECF No. 164.
following reasons, the Court GRANTS IN PART AND
DENIES IN PART the motion for sanctions.
extent Defendants seek dismissal, the Court denies the motion
is DENIES the motion without prejudice to
renewal after the close of discovery.
extent that Defendants seek an adverse jury instruction with
respect to their affirmative defenses on NCA Investors
Trust's unjust enrichment claim, the Court
DENIES the motion without prejudice to
renewal at the time of trial.
extent that Defendants seek attorney's fees and costs
related to any additional discovery required because of the
spoliation of evidence as well as associated with bringing
this motion, the Court GRANTS the motion.
shall file any motion for attorney's fees and costs
within twenty-one (21) days of the
resolution of this case in this Court.
FACTUAL AND PROCEDURAL BACKGROUND
Investors Trust is a liquidated trust established during the
In re: Newbury Common Assocs., LLC, No. 15-12507,
Chapter 11 bankruptcy action. Third Amended Complaint, ECF
No. 133 (“Third Am. Compl.”), at ¶¶ 4,
8. DiMenna, Kelly, and Merritt are owners of Seaboard Realty,
LLC (“Seaboard Realty”). Id. at ¶
12. Mr. DiMenna owned fifty percent and Mr. Kelly and Mr.
Merritt each owned twenty-five percent. Id. NCA
Investors Trust alleges that Defendants, through their
interests in Seaboard Realty, personally guaranteed
approximately $18.5 million in loans for two separate
projects: a $15, 300, 000 mezzanine loan to Park Square West
Member Associates, LLC (“Park Square Guarantee”)
and a $3, 500, 000 mezzanine loan to Seaboard Hotel Member
Associates, LLC (“Courtyard Guarantee”).
Id. at ¶ 9.
Realty owns 100% of PSWMA II, LLC (“PSWMA II”),
which owns 100% of PSWMA I, LLC (“PSWMA I”).
Id. at ¶¶ 12, 13. PSWMA I owns 100% of
Park Square West Member Associates, LLC (“Park Square
Borrower”). Id. at ¶ 13. Park Square
Borrower owns 100% of non-Debtor Park Square West Associates,
LLC (“Park Square Property Owner”). Id.
at ¶ 14. And the Park Square Property Owner owns the
Park Square West commercial property at 101 Summer Street,
Stamford, Connecticut (“Park Square Property”) in
fee simple. Id. at ¶ 15.
Realty owns twenty-five percent of Seaboard Hotel member
Associates, LLC (“Courtyard Borrower”), while the
remaining interest is split among fifty-five other owners.
Id. at ¶ 16. The Courtyard Borrower owns 100%
of Seaboard Hotel Associates, LLC (“Courtyard
Lessee”). Id. at ¶ 17. And the Courtyard
Lessee is the ground lessee for property at 275 Summer
Street, Stamford, Connecticut (“Courtyard
Property”). Id. at ¶ 18.
Park West Loan
November 1, 2012, NCA Investors Trust allegedly loaned $12
million to Park Square Borrower, a loan supported in three
ways: (1) a guarantee by PSWMA I of Park Square
Borrower's repayment of the loan; (2) an inter-creditor
and subordination agreement in the original principal amount
of $6.85 million entered into by Seaboard Realty, PSWMA II,
and the Park Square Borrower; and (3) an Indemnification and
Guarantee Agreement in favor of NCA Investors Trust entered
into by Mr. DiMenna. Id.at ¶ 19-20.
March 25, 2014, the Park Square Borrower, NCA Investors
Trust, DiMenna, and PSWMA I modified the Park Square loan and
increased it to $15.3 million. Id. at ¶ 25. The
modified variable interest loan is based on 13.5% (14% at the
date of the modification) for the initial $12 million advance
and 17.5% (18% at the date of the modification) for the $3.3
million additional advance, with interest payable beginning
on April 1, 2014, a balloon principle payment upon the
maturity date, and a modified loan has a 24% default rate.
Id. at ¶ 26.
November 30, 2012, NCA Investors Trust allegedly entered into
a loan agreement with the Courtyard borrower for $3.5
million, with 12.5% interest payable beginning on January 1,
2013 and a 24% default rate, loan guaranteed by Seaboard
Hotel LTS Member Associates, LLC (“Courtyard
Guarantor”) and Mr. DiMenna, as a condition of NCA
Investors Trust making the Courtyard Loan. Id. at
¶ 21-22. The Courtyard Guarantor and the Courtyard
Borrower also pledged 100% of the membership interest in
Courtyard Guarantor and Courtyard Lessee and other security
interests. Id. at ¶ 23. Finally, the
obligations of the Park West Loan and the Courtyard Loan were
cross-defaulted and cross-collateralized among the Park West
Borrower, the Courtyard Borrower, Mr. DiMenna, PSWMA I, and
the Courtyard Guarantor. Id. at ¶ 24.
December 13, 2015, Seaboard Realty, PSWMA II, PSWMA I, Park
West Borrower, Courtyard Borrower, Courtyard Guarantor, and
other related entities filed Chapter 11 petitions in Delaware
Bankruptcy Court. Id. at ¶ 28. Other Seaboard
entities later filed Chapter 11 petitions. Id. at
Advisors, a trustee of NCA Investors Trust, entered a
contract for the storage of Seaboard records. Newbury
Common-Moving Seaboard Documents E-Mail, ECF No. 164-6
(“Seaboard Documents Email”).
27, 2017, there was an e-mail to “confirm our agreement
that You (Barran Janitorial) agree to work as an Independent
contractor for META Advisors; in its capacity as the trustee
of the NCA Investors' Liquidated Trust, to move all of
the Seaboard records, boxes and computers, from the basement
of One Atlantic Street in Stamford, CT, to 300 Wilson Avenue
in Norwalk, CT, for the total of $2, 000 (paid once the job
is complete).” Id. Bob Musumeci of RTA
International owned the Norwalk facility. Id.
29, 2017, Lou Pento sent an e-mail to Mr. Musumeci that
“[w]e received 10 truck loads of files today from 7:30
AM to 5:30 PM. We arranged the boxes by number sequence so
that all files are easily accessible. Please note the boxes
that are all the way on the left are marked with a red x and
we were told that these are no longer needed.”
30, 2017, Lou Pento advised Mr. Musumeci to keep the boxes
until further notice. Id. (“For now, please
don't get rid of any of the boxes. I'm not sure what
files are marked with a red X. but before we throw any of
them out, I want to clarify what they are.”).
December 4, 2017, a litigation hold was served upon NCA
Investors Trust, which stated that NCA Investors Trust was
“currently engaged in and/or may become engaged in
litigation. Thus, the You, and all of your employees, agents,
representative and businesses, are hereby given notice not to
destroy, conceal or alter any paper or electronic files, . .
. . Please forward a copy of this letter to all persons and
entities with custodial responsibility for the items referred
to in this letter.” Notice of Requirement to Retain
Documents for Purposes of Litigation and/or Pending
Litigation, ECF No. 164-7 (“Litigation Hold”).
2018, Mr. Musumeci disposed of the documents. Affidavit of
Charles Deluca, ECF No. 164-10 (“Deluca Aff.”),
at ¶ 7
3, 2018, NCA Investor Trust counsel notified counsel for the
Defendants of an index of all the boxes of Seaboard documents
provided to NCA Investors Trust. Id. at ¶ 4.
5, 2018, counsel for Defendants requested “to inspect
the boxes referenced in your recent disclosure.”
Id. at 5.
July 5 and August 17, 2018, counsel for Defendants made four
requests for the documents. Id. at 5-18.
August 22, 2018, NCA Investors Trust's counsel notified
Defendants' counsel that Mr. Musumeci discarded the
documents at his warehouse in May of 2018. Id. at
February 2, 2016, NCA Investors Trust sued Mr. DiMenna and
Defendants, alleging two counts of breach of contract and one
count of unjust enrichment. Complaint, ECF No. 1. On the same
day, NCA Investors Trust also moved for a prejudgment remedy.
Motion for Prejudgment Remedy, ECF No. 8.
February 23, 2016, the Court held a status conference in the
case and set a March 11, 2016 hearing for the motion for
prejudgment remedy. Minute Entry, ECF No. 22.
March 15, 2016, the Defendants filed an Answer to the
Complaint and asserted cross-claims against Mr. DiMenna.
Answer to Complaint with Affirmative Defenses and Jury
Demand, ECF No. 32.
March 23, 2016, NCA Investors Trust amended its Complaint and
its motion for prejudgment remedy. Amended Complaint, ECF No.
40; Amended Motion for Prejudgment Remedy, ECF No. 41.
March 28 and 31, 2016, the Court held a prejudgment remedy
hearing and NCA Investors Trust moved orally for an entry of
default as to Mr. DiMenna. Minute Entry, ECF No. 50; Minute
Entry, ECF No. 53.
April 29, 2016, the Court held another motion hearing on the
prejudgment remedy. Minute Entry, ECF No. 60.
31, 2016, NCA Investors Trust formally moved for an entry of
default as to Mr. DiMenna, which was granted on June 8, 2016.
Motion for Default Entry, ECF No. 64; ...