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Top Sure Investments, Inc. v. Clearview Settlement Solutions, LLC

United States District Court, District of Columbia

July 17, 2015

TOP SURE INVESTMENTS, INC., Plaintiff,
v.
CLEARVIEW SETTLEMENT SOLUTIONS, LLC, and HOLLY EDELSTEIN, ., Defendants.

MEMORANDUM OPINION

ALAN KAY UNITED STATES MAGISTRATE JUDGE

On June 15, 2015, Holly Edelestein and Clearview Settlement Solutions, LLC (“Clearview LLC”) (collectively, the “Clearview Defendants”) filed a Motion to Delay Entry of Default Judgment Damages (“Motion”) [29] against defaulting defendants Marck Properties, LLP (“Marck Properties”), Robert A. Moore, LLC (“Moore LLC”), and William L. Jones, LLC (“Jones LLC”).[1] Plaintiff Top Sure Investments, Inc. (“Plaintiff” or “Top Sure”) has filed a Memorandum in Opposition to the Motion (“Opposition”) [31]. This matter was referred to the undersigned June 25, 2015 for a Memorandum Opinion pursuant to LCvR 72.2(a), and a hearing on the Motion was held on July 7, 2015.[2] For the reasons set forth herein, the Motion will be denied.

I. Background

This case arises out of a real estate transaction gone awry. Plaintiff and several of the defendants attempted to purchase, remodel, and then resell a distressed house (the “Property”) located at 4922 7th Street, N.W., Washington, D.C., 20011. (Amended Complaint (“Am. Compl.”) [6] ¶ 1.) On February 11, 2015, after engaging in unsuccessful attempts to recover its investment in the Property, Plaintiff filed suit against seven Defendants: Marck Properties, Jones LLC, Moore LLC, Clearview LLC, Holly Edelestein, Defendant Jones and Robert A. Moore (“Defendant Moore”). See Amended Complaint. To date, only the Clearview Defendants have filed an Answer (“Answer”) [21] with the Court.

Plaintiff is a real estate investment corporation formed under Nevada law, with a principal place of business in Virginia. (Am. Compl. ¶ 1.) Marck Properties, Jones LLC, and Moore LLC are entities that flip houses in the District of Columbia metropolitan area. (Am. Compl. ¶¶ 3-4, 6.) Defendants Moore and Jones are the authorized managing members of their respective LLCs and “member partner[s]” of Marck Properties. (Am. Compl. ¶¶ 5, 7.) Defendant Moore personally solicited and received a gap-funding loan from Plaintiff in the amount of $93, 592.15, which Defendant Jones used to purchase the Property. (Am. Compl. ¶ 5, 7.) Clearview LLC is a settlement company in the District of Columbia metropolitan area that conducted a settlement for the purchase of the Property and allegedly received “gap-funding monies from Plaintiff, per its instructions to complete the purchase of the Property by Marck Properties.”[3] (Am. Compl. ¶ 8.) Defendant Holly Edelestein was the managing member of Clearview LLC who personally conducted the settlement for the purchase of the Property. (Am. Compl. ¶ 9.) She also provided direction and instruction to Plaintiff regarding wiring the gap-funding monies to complete the purchase of the Property by Marck Properties.[4] (Am. Compl. ¶ 9.)

As collateral for the funds it contributed to complete the purchase of the Property, Plaintiff required a Joint Venture Agreement, a promissory note, [5] and a second Deed of Trust to be completed and given to the Plaintiff.[6] (Am. Compl. ¶¶ 15-19.) Plaintiff was aware of a previous loan commitment by Hard Money Lenders, LLC (“Hard Money”).[7] (Am. Compl. ¶ 16.) Plaintiff claims that before wiring the $93, 592.15 necessary to complete the sale of the Property, it “asked the Clearview Defendants to assure that the Joint Venture Agreement, requiring a Deed of Trust, was signed with the correct numbers, and to provide a record of the wire once completed.”[8] (Am. Compl. ¶ 21.) Plaintiff wired the money but the Clearview Defendants failed to supply Plaintiff with the documents. (Id.) On August 6, 2013, Marck Properties executed a promissory note for $93, 592.15 “that required that it be secured by a Deed of Trust.” (Am. Compl. ¶ 22.)

On August 7, 2013, Plaintiff gave Defendant Jones an advance construction draw of $15, 000 for the purpose of rehabilitating the Property. (Am. Compl. ¶ 26.) Plaintiff’s Amended Complaint states that the rehabilitation continued throughout the fall and winter of 2013. (Am. Compl. ¶ 27.) Without providing any additional context, the Amended Complaint adds that “after nothing happen[ed] regarding resale of the Property at the beginning of the new 2014-year, [Plaintiff] grew concerned that the Property was not reasonably priced.” (Id.) In January 2014, Plaintiff consulted with a realtor familiar with the area and discovered that the “offered price for the Property was at least 7%-10% more than asking prices for comparable properties in the neighborhood where the Property was located.” (Am. Compl. ¶¶ 28-29.)

Plaintiff communicated its concerns to Defendant Moore, and “after several months of inaction, [Plaintiff] began fearing the worst.” (Am. Compl. ¶¶ 29-30.) Plaintiff communicated with Marck Properties on May 9, 2014 regarding “the amount of money [Plaintiff] committed to the Property and its expected return.” (Am. Compl. ¶ 30.) In July 2014, Plaintiff spoke with Hard Money regarding the possibility of the foreclosure of the senior lien.[9] (Am. Compl. ¶ 31.) Plaintiff alleges that it then contacted the Clearview Defendants to confirm that they were in possession of Plaintiff’s original Top Sure Deed of Trust, as Plaintiff claims that it never received the “original document or any other properly executed Deed of Trust.” (Am. Compl. ¶ 31.) The Clearview Defendants told Plaintiff that the only original Deed of Trust was returned to Hard Money. (Am. Compl. ¶ 32.) On August 4, 2014, the Clearview Defendants allegedly sent a mobile notary to Defendant Moore to execute a proper original Deed of Trust by Marck Properties, but Moore refused. (Am. Compl. ¶¶ 33-34.) Jones and Moore also refused to repay Plaintiff for the gap-funding loan and advanced construction draw, despite repeated requests. (Id.)

Accordingly, Plaintiff filed its Amended Complaint on February 11, 2015, alleging six counts.[10] The first four counts, Breach of Contract, Unjust Enrichment, Conversion, and Negligence – Breach of Fiduciary Duty, were asserted against the Defaulting Defendants (Marck Properties, Moore LLC, and Jones LLC), as well as Defendant Jones and Defendant Moore. These counts arise out of an alleged failure to repay the gap-funding loan that Plaintiff issued to Marck Properties on August 6, 2013 in the amount of $93, 592.15 upon execution of a promissory note, as well as an alleged failure to repay the $15, 000 advanced construction draw Plaintiff paid to Jones LLC as part of their joint venture to buy and flip the Property. (Am. Compl. ¶¶ 1, 3-22.) See also Motion for Entry of Default Judgment (“Motion for Default”) [22] at 1-2.); Affidavit ¶ 9. Counts Five and Six, Negligence – Breach of Fiduciary Duty and Breach of Contract, were asserted against the Clearview Defendants for their alleged failure to properly document and record a second Deed of Trust for the Property before disbursing the gap-funding loan.[11] (Am. Compl. ¶ 23-25.)

Ultimately, Plaintiff asserts that the Defaulting Defendants’ refusal to cure the Deed of Trust issues was a deliberate attempt to “cut Plaintiff out of the deal, ” by preventing Plaintiff from “seeking payment for the gap-funding loan from a foreclosure sale of the Property.” (Am. Compl. ¶ 37.) Plaintiff contends that the Clearview Defendants alleged failure to obtain and record a properly executed Deed of Trust for the Property constitutes a breach of the standard of care in the real estate industry and a breach of the Clearview Defendants’ fiduciary duty to Plaintiff. Plaintiff further asserts that, as a result of the Clearview Defendants’ breach, Plaintiff was prevented from securing its second lien position and thereby protecting its investment. (Am. Compl. ¶ 38.)

The Clearview Defendants timely answered the Amended Complaint on May 20, 2015. Defendant Moore did not answer the Amended Complaint but instead filed a Suggestion of Bankruptcy [11] with the Court on April 27, 2015.[12] He failed to file an Answer on behalf of Moore LLC. Marck Properties and Jones LLC failed to answer the Amended Complaint, and Defendant Jones actively evaded service of process. (Motion to Substitute Service at 3-5.) On May 21, 2015, Plaintiff filed its Motion for Default as to the Defaulting Defendants (Marck Properties, Moore LLC, and Jones LLC).[13]

On June 8, 2015, Judge Jackson referred Plaintiff’s Motion for Default to the undersigned pursuant to LCvR 72.3(a). On June 15, 2015, however, the Clearview Defendants filed their Motion to Delay Entry of Default Judgment Damages against the Defaulting Defendants, in which they asked the Court to “defer the entry of a judgment as to damages against the defaulted parties.” (Motion at 2.) The undersigned held a hearing on the Motion on July 7, 2015, during which the Clearview Defendants reiterated their concern that entry of a default judgment as to damages against the three Defaulting Defendants would “would have the effect of setting the damages against the Clearview Defendants . . . with regard to the $93, 592.15 loan.” (Motion at 3.) The Clearview Defendants “object[ed] to any interpretation of the defaults as in any way creating binding admissions of Plaintiff’s allegations” and moved to delay entry of default damages until after the close of discovery. (Motion at 2-5.)

II. Legal Standard for Delay of Default Judgment

An entry of default is proper “[w]hen a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise.” Fed.R.Civ.P. 55(a). Where the plaintiff’s claim is not for a sum certain, the party must apply to the court for a default judgment. Fed.R.Civ.P. 55(b)(2). The determination of whether default judgment is appropriate is committed to the discretion of the trial court. Int’l Painters & Allied Trades Indus. ...


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