United States District Court, D. Connecticut
RULING AND ORDER ON MOTION FOR SUMMARY
A. BOLDEN UNITED STATES DISTRICT JUDGE
Investors Liquidated Trust (“NCA Investors Trust”
or “Plaintiff”) has sued John J. DiMenna, Jr.,
Thomas L. Kelly, Jr., and William A. Merritt, Jr., for breach
of contract, or alternatively, unjust enrichment, to recover
$18, 800, 000 allegedly owed from defaulted loans and related
enforcement obligations. Third Am. Compl., ECF No. 133 (Oct.
12, 2017) (“Compl.”).
Kelly and Mr. Merritt (“Defendants”) have moved for
summary judgment, and NCA Investors Trust has objected.
following reasons, Defendants' motion for summary
judgment is GRANTED in part and DENIED in
Investors Trust's breach of contract claims are
dismissed, but its unjust enrichment claim will proceed to
trial, although this claim will be limited as discussed
FACTUAL AND PROCEDURAL BACKGROUND
Investors Trust is a liquidated trust established during the
In re: Newbury Common Assocs., LLC, No. 15-12507
(LSS) (Bankr. D. Del.), Chapter 11 bankruptcy action.
Pl.'s Local Rule 56(a)(2) Statement, ECF No. 203-1 ¶
52 (Nov. 4, 2019) (“Pl.'s SMF”). NCA
Investors Trust is the successor-in-interest to the claims of
UCF 1 Trust 1 (“UFC”). Id. ¶ 52.
1996, DiMenna, Kelly, and Merritt were the three managing
members and owners of Seaboard Realty, LLC (“Seaboard
Realty”), a “Stamford-based real estate company
that maintained a portfolio of high-quality, distinctive
commercial, residential, and hospitality properties.”
Id. ¶ 1; id. at Add'l Facts ¶
1. During the relevant time period here, Mr. DiMenna owned
fifty percent of Seaboard Realty, while Mr. Kelly and Mr.
Merritt each owned twenty-five percent. Id. at
¶ 2. Seaboard Realty's Operating Agreement required
“unanimous” consent by all three managing members
for “business” decisions. Id. at
Add'l Facts ¶ 11 (citing Ex. 5: Seaboard Realty
Operating Agreement § 7.3).
DiMenna “managed the day-to-day operations of Seaboard
Realty, ” and NCA Investors Trust alleges that as
co-managing members, Defendants were also responsible for
daily operations and “for locating investment
properties and obtaining debt financing for the properties to
be purchased, ” as well as raising capital from
investors. Id. ¶¶ 3, 4; cf. Id.
at Add'l Facts ¶ 1 (“DiMenna had no background
or experience in investment banking, venture capital, real
estate finance or financial matters, generally.”). But
because the Seaboard Realty Operating Agreement allegedly
vested sole management authority in Defendants, NCA Investors
Trust alleges that the Gregory Stanton, the Chief Operating
Officer of SPMI, would have provided Mr. Kelly or Mr. Merritt
with any information requested by them. See Ex. 3:
Prejudgment Remedy Hearing Tr., ECF No. 203-4 at 175: 9-16
(Mar. 28, 2016) (“Q. If Mr. Merritt or Mr. Kelly came
up to you and said, I need a statement, you wouldn't have
told them, no way, I'm not giving you that document,
correct? A. Correct. Q. You would have given them what they
asked for? A. Yes.”); see also Pl's SMF at
Add'l Facts ¶ 37 (alleging that Defendants
“never obtained information from anyone other than
DiMenna, nor did they ever independently verify the accuracy
of what he told them.”).
regular meetings of Seaboard Realty managing members, Mr.
DiMenna provided Defendants “with documentation and
information demonstrating that the enterprise was on sound
financial footing.” Pl.'s SMF ¶ 8. But NCA
Investors Trust alleges that these documents
“demonstrated pervasive accounting problems,
construction problems, and operations deficits.”
Id. It turns out that Mr. DiMenna provided false
information to Defendants. Compare Ex. 44, ECF No.
195-52, with Ex. 45, ECF No. 195-53 (two different
cash balance statements - Ex. 44 allegedly located by Mr.
Merritt after November 2015 and Ex. 45 being the one
presented by Mr. DiMenna, which showed the entreprise in good
Investors Trust alleges that Defendants, through their
interests in Seaboard Realty, personally guaranteed $18.8
million in loans for two separate projects: a $15, 300, 000
mezzanine loan to Park Square West Member Associates, LLC
(“PSW Guarantee”) and a $3, 500, 000 mezzanine
loan to Seaboard Hotel Member Associates, LLC
(“Courtyard Guarantee”). Id.
¶¶ 19-23, 27, 31-33.
Seaboard Property Management, Inc. (“SPM”), a
company solely owned and controlled by Mr. DiMenna, managed
the Seaboard Realty properties. Id. ¶ 5. In
exchange for four percent of the total monthly gross receipts
and five percent of the net commercial rentals,
“SPM's responsibilities included collecting rent,
marketing and leasing space, paying operating expenses,
filing tax returns, procuring insurance, providing for
maintenance, repairs, and alterations, contracting with
service providers, and purchasing all goods and materials
utilized in the operation of the business.”
Id. ¶ 6.
Realty created Park Square West Member Associates, LLC
(“PSWMA”) and Park Square West Associates, LLC
(“PSWA”) to effectuate the purchase of the Park
Square West Apartments, located at Summer Street in Stamford,
Connecticut (“PSW Property”). Id. ¶
13. PSWA took title to the PSW Property. Id. PSWMA
was the sole member, and thus owned 100%, of PSWA.
Id. Seaboard Realty was the managing member and
owned a twenty-five percent interest in PSWMA, while fifty
individual investors owned the remaining seventy-five percent
Realty created Seaboard Hotel Member Associates, LLC
(“SHMA”) and Seaboard Hotel Associates, LLC
(“SHA”) to effectuate the purchase of the
Courtyard by Marriott Hotel, located on Summer Street in
Stamford, Connecticut (“Courtyard Hotel”).
Id. ¶¶ 19, 20. SHA took title to the
Courtyard Hotel. Id. ¶ 20. SHMA was the sole
member, and thus owned 100%, of SHA. Id. Seaboard
Realty was the managing member and owned a twenty-five
percent interest in SHMA, while over fifty individual
investors owned the remaining seventy-five percent interest.
Park Square West Loan
early 2011, Seaboard Realty contracted to purchase the PSW
Property. Id. ¶ 11. Mr. DiMenna advised
Defendants “that the purchase would be accomplished by
assuming a $22 million mortgage held by the Connecticut
Housing Finance Authority (‘CHFA') and raising the
remaining amount from individual investors.”
Id. ¶ 12.
December 28, 2011, Mr. DiMenna executed a promissory note on
behalf of PSWMA for $8 million in favor of Titan Capital ID,
LLC (“Titan”) (“Titan Loan”). Ex. 10:
Promissory Note to Titan Capital ID, LLC, ECF No. 195-18
(Dec. 28, 2011). Defendants allege Mr. DiMenna did so without
their knowledge, consent, or authority. Local Rule 56(a)(1)
Statement of Undisputed Facts in Support of Mot. for Summ.
Judgment, ECF No. 195-2 ¶ 15 (Sept. 6, 2019)
(“Defs.' SMF”). As a condition of the Titan
Loan, “Titan required that Seaboard Realty provide it
with a written consent certifying that it was the sole member
and manager of PSWMA (which was false); that so long as the
Titan Loan was outstanding, DiMenna was to be the sole
managing member of Seaboard Realty (which was false); and
that Kelly and Merritt were to resign as managing members of
Seaboard Realty (which was false).” Pl.'s SMF
DiMenna not only forged the signatures of Mr. Kelly and Mr.
Merritt for the written consent, but neither of them
“were aware of the written consent, and did not sign,
authorize, or consent it.” Id. ¶ 17.
Although attached to the written consent were forms in which
Defendants purportedly resigned as managing members of
Seaboard Realty, neither “intended to resign, nor did
they sign, authorize, consent to, or even know about the
resignation.” Id. ¶ 18. Nevertheless, NCA
Investors Trust alleges that because Defendants knew of the
PSW Property purchase, “they are charged with
constructive knowledge of the facts underlying that
purchase.” Id. ¶¶ 17, 18; see
also Id. at Add'l Facts ¶ 25 (alleging that
“[e]ven though the [PSW Property purchase] was the
largest acquisition undertaken by Seaboard Realty, neither
Kelly nor Merritt had any meaningful involvement in the
about November 1, 2012, PSWMA executed a Mezzanine Promissory
Note for $12 million (“the PSW Loan”) in favor of
UCF. Id. ¶ 21. The PSW Loan was executed by Mr.
DiMenna on behalf of PSWMA, and guaranteed by both Mr.
DiMenna and an unauthorized entity established by Mr. DiMenna
called PSWMA I, LLC (“PSWMA I”). Id.
¶ 22. Although PSWMA I was purported to be the sole
member of PSWMA, it actually held no interest in that entity.
November 2, 2012, UCF funded the PSW Loan. Id.
¶ 23. Defendants allege they “did not know about,
consent to, or authorize the PSW Loan or any of the documents
concerning it and were completely unaware of it.”
Defs.' SMF ¶ 24. NCA Investors Trust alleges
Defendants had constructive knowledge of the PSW Loan because
they “had access to all of the documents and
information related to the PSW Loan, but chose to abdicate
their management responsibilities.” Pl.'s SMF
¶ 24 (citing Ex. 16: 12/30/2011 PSW Closing Statement,
ECF No. 203-4; Ex. 35: 2012 O'Connor Davies Audit, ECF
No. 203-4; Ex. 36: 2013 O'Connor Davies Audit, ECF No.
203-4; Ex. 38: 2012-2015 PSW Borrower Form 1065).
of the PSW Loan, UCF required that Mr. DiMenna be the sole
managing member of Seaboard Realty, and that Defendants
“were to have no role managing Seaboard Realty and its
various properties.” Id. ¶ 25. Mr.
DiMenna provided UCF with both the forged written consent
from the Titan Loan and the forged resignations of Defendants
he prepared in connection thereof. Id. ¶ 26.
Additionally, UCF's consent was required with “any
action or attempted action to remove, replace, or substitute
DiMenna as the managing member of Seaboard Realty.”
made monthly interest-only payments on the PSW Loan through
June 2015. Id. ¶¶ 30, 73.
April 2011, Seaboard Realty contracted to purchase a ground
lease to operate the Courtyard Hotel for approximately $30
million. Id. ¶ 19; id. at Add'l
Facts ¶ 32.
November 30, 2012, SHMA executed a Mezzanine Promissory Note
for $3.5 million in favor of UCF (“Courtyard
Loan”). Id. ¶ 27. The Courtyard Loan was
executed by Mr. DiMenna on behalf of SHMA, and personally
guaranteed by Mr. DiMenna and allegedly also guaranteed by
Seaboard Hotel LTS Member Associates, LLC
(“LTSMA”). Id. ¶ 28. LTSMA was an
entity created to own 100% of the interest in Seaboard Hotel
LTS Associates, LLC (“LTSA”), which was
purchasing a property in Stamford to construct a Residence
Inn by Marriott hotel. Id.
allege they “did not know about, consent to, or
authorize the Courtyard Loan or any of the documents
concerning it.” Defs.' SMF ¶ 29. NCA Investors
Trust alleges Defendants had constructive knowledge of the
Courtyard Loan, because they “had access to all of the
documents and information related to the Courtyard Loan, but
chose to abdicate their management responsibilities.”
Pl.'s SMF ¶ 29 (citing various documents, Exs.
made monthly interest-only payments on the Courtyard Loan
through July 2015. Id. ¶¶ 30, 74.
2012, Mr. DiMenna formed Stamford Residential Associates, LLC
(“SRA”) to purchase a mixed-use real estate
property known as the St. John's Towers, located in
Stamford, Connecticut. Id. ¶ 42. Stamford
Residential Member Associates, LLC (“SRMA”) owned
SRA. Id. Neither Defendants nor Seaboard Realty had
any involvement in the St. John's Tower project.
Id. ¶ 43.
February 2013, a few months after the initial PSW and
Courtyard Loans were made by UCF, Daniel Palmier invested
$300, 000 in SRMA. Id. ¶ 44. Daniel Palmier is
the CEO of UCF. Id. ¶ 41.
ultimately did not purchase the St. John's Towers and had
no income. Id. ¶ 46.
Upsize Loan and Further Conditions
March 25, 2014, PSWMA executed an Amended and Restated
Mezzanine Promissory Note in favor of UCF and increased the
PSW Loan from $12 million to $15.3 million (“Upsize
Loan”). Id. ¶ 31. UCF required several
conditions for the Upsize Loan.
UCF required Mr. DiMenna and Defendants to enter into a
brokerage agreement whereby a UCF affiliate, CPR Capital
Funding, LLC (“CPRCF”), “received the
exclusive right to place permanent debt and mezzanine or
preferred equity financing” on several Seaboard Realty
properties, including the PSW Property and the Courtyard
Hotel, as well as on the St. John's Towers, which was not
a Seaboard Realty property, nor did Defendants have any
interest in the St. John's Towers. Id. ¶
32; see also Id. ¶¶ 43, 44.
UCF required Defendants' personal guarantees on the
principals of the PSW Loan, the Courtyard Loan, and the
Upsize Loan, for a total of $18.8 million (the “Upsize
Guarantees”). Id. ¶ 33.
UCF required that PSWMA obtain a “Legal Opinion
Regarding (a) authority of all entities to enter into
amendment/additional documents; (b) enforceability of all
amendment/additional documents, ” which included the
Upsize Guarantees. Id. ¶¶ 34, 35 (with