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Covey Run, LLC v. Washington Capital, LLC

United States District Court, District of Columbia

July 11, 2016

COVEY RUN, LLC, Plaintiff,
v.
WASHINGTON CAPITAL, LLC, et al., Defendants.

          MEMORANDUM OPINION

          COLLEEN KOLLAR-KOTELLY United States District Judge.

         Plaintiff Covey Run, LLC ("Covey Run" or "Plaintiff") brings this action alleging that Defendants Washington Capital, LLC ("Washington Capital"), Jemel Lyles, Melvin Sanders, and Steve Evans (collectively, the "Washington Defendants") perpetrated a fraudulent scheme that culminated in the alleged theft of $1.2 million from Covey Run. Covey Run alleges that Defendant Washington Capital breached its contract with Covey Run by accessing $1.2 million held in escrow without the prior written knowledge and consent of Covey Run. Covey Run further alleges that Defendants L. Gregory Loomar ("Loomar") and the Law Offices of L. Gregory Loomar P.A. ("Loomar, P.A."), (collectively, the "Loomar Defendants"), failed to meet their fiduciary duties as the escrow agent for the funds in question, and that Defendant Michael Blackwell ("Blackwell") negligently misrepresented to Covey Run that Defendant Washington Capital was a reputable private equity firm. In addition, Covey Run alleges a claim of fraud and a claim of conversion against the Washington Defendants.

         Presently before the Court is the Loomar Defendants' [19] Amended Joint Motion to Dismiss Plaintiff's Complaint (the "Motion to Dismiss"). Upon consideration of the pleadings, [1]the relevant legal authorities, and the record as a whole, the Court DENIES the Loomar Defendants' Amended Joint Motion to Dismiss.

         I. BACKGROUND

         For the purposes of the motion before the Court, the Court accepts as true the well-pleaded allegations in Plaintiff's Complaint. The Court does "not accept as true, however, the plaintiff's legal conclusions or inferences that are unsupported by the facts alleged." Ralls Corp. v. Comm. on Foreign Inv. in U.S., 758 F.3d 296, 315 (D.C. Cir. 2014). The Court reserves further additional presentation of the background, as necessary, for the discussion of the legal issues below.

         As Plaintiff recounts in its Complaint, Covey Run is a Minnesota limited liability company established in 2010 to develop assisted living housing for seniors in Sheridan, Wyoming. Compl. ¶ 1. Seeking funding to purchase property for this purpose, a Covey Run representative met with Defendant Blackwell and another individual named Karen Baas. Id. ¶ 14. Representing that they were licensed brokers working on behalf of a reputable private equity firm known as Washington Capital, Blackwell and Baas introduced Covey Run to Washington Capital's main representative, Defendant Sanders. Id. ¶ 14. Washington Capital thereafter represented to Covey Run that it was a private equity firm created to assist companies in their lending needs and was associated with Lloyd Bancaire of Luxembourg, Standard Charter Bank of the United Kingdom, and Deutsche Bank of Germany. Id. ¶ 15. Washington Capital further represented that it could secure a $10 million loan from these banks to fund Covey Run's development project, which was anticipated to cost $12 million. Id. ¶ 16.

         On or about May 8, 2014, Washington Capital drafted and presented a Letter of Commitment to Covey Run outlining the terms of the proposed Wyoming development project. Id. ¶ 20; see also LOC (Ex. 2 to Pl.'s Complaint, ECF No. [1-4]). Executed by the parties shortly thereafter, the Letter of Commitment stated that Covey Run would invest $1.2 million in the project, and Washington Capital would invest $660, 000. See LOC § 1 (Ex. 2 to Pl.'s Complaint, ECF No. [1-4], at 3). Under Section 2.2 of the Letter of Commitment, the parties agreed that the $1.2 million held in escrow would be "used first for the payments of the project['s] costs." See LOC § 2.2 (Ex. 2 to Pl.'s Complaint, ECF No. [1-4], at 6). Under Section 2.4, the parties appointed the Law Offices of L. Gregory Loomar, P.A. to serve as the escrow agent. See LOC § 2.4 (Ex. 2 to Pl.'s Complaint, ECF No. [1-4], at 7).

         Thereafter, Washington Capital presented loan and financial information to Covey Run for it to sign. Pl.'s Compl. ¶ 24. In particular, Washington Capital presented a Loan Agreement and other documents concerning the $10 million loan. Id. Defendant Evans signed the Loan Agreement and other related documents on behalf of Washington Capital, and Defendant Sanders signed certain documents as managing member of Washington Capital. Id.; see also Loan Agreement (Ex. 4 to Pl.'s Complaint, ECF No. [1-6]).

         On or about July 8, 2014, Covey Run and Washington Capital entered into "Addendum A, " which was expressly incorporated into the Letter of Commitment. See Addendum at 2 (Ex. 1 to Loomar Defs.' Motion to Dismiss, ECF No. [19-2]). Addendum A contained a number of sections further delineating the scope of the Escrow Agent's duties and responsibilities. Specifically:

• Section 14.1.C required the Escrow Agent to "receive and distribute" the $1.2 million in funds deposited by Covey Run "in accordance with Section 2.2" of the Letter of Commitment.[2] Addendum § 14.1.C (Ex. 1 to Loomar Defs.' Motion to Dismiss, ECF No. [19-2], at 3).
• Section 14.3.A required that the Escrow Agent "shall receive funds and distribute funds strictly in accordance with the terms and conditions of the Letter of Commitment" and "shall disburse the funds deposited with the Escrow Agent in accordance with the Terms and Conditions of the Letter of Commitment." Addendum §§ 14.3.A.b, 14.3.A.c (Ex. 1 to Loomar Defs.' Motion to Dismiss, ECF No. [19-2], at 4-5).
• Section 14.7 expressly limited the Escrow Agent's duties under the contract, stating, notwithstanding any provision to the contrary, that:
A. The Escrow Agent is obligated only to perform the duties specifically set forth in this Addendum ‘A' and the Letter of Commitment, which shall be deemed purely ministerial in nature;
B. The Escrow Agent will not be responsible or liable for the failure of Washington Capital or the Borrower or any other Party to perform in accordance with the Letter of Commitment;
C. The Escrow Agent shall have no duty to know or inquire as to the performance or nonperformance of any provision of the Letter of Commitment or any other document between Washington Capital and the Borrower other than the Letter of Instruction defined in this Agreement;
D. In regards to the references in this Addendum "A" and the Letter of Commitment to any other agreement, instrument, or document between Washington Capital and the Borrower, the Escrow Agent has no duties or obligations with respect thereto; and
E. This Agreement sets forth all matters pertinent to the escrow contemplated hereunder vis-a-vis the Escrow Agent's responsibilities, and no additional obligations of the Escrow Agent shall be inferred or implied from the terms of this Addendum "A" and the Letter of Commitment.

Addendum § 14.7 (Ex. 1 to Loomar Defs.' Motion to Dismiss, ECF No. [19-2], at 6-7).

• Finally, Section 14.9 of Addendum A provided that:
A. The Escrow Agent shall not be liable for any action taken or not taken by it in accordance with the direction or consent of Washington Capital or the Borrower or their respective authorized agents, representatives, successors, or assigns; and
B. The Escrow Agent shall not be liable for acting or refraining from acting upon any notice, request, consent, direction, requisition, certificate, order, affidavit, letter, or other paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, without further inquiry into the person's or persons' authority.
Addendum §§ 14.9 (Ex. 1 to Loomar Defs.' Motion to Dismiss, ECF No. [19-2], at 7).

         Consistent with the terms of the Letter of Commitment and Addendum A, Covey Run subsequently sent its $1.2 million in equity funds by wire transfer to a Wells Fargo Bank account named "L. Gregory Loomar, PA Escrow Account" via two installments, one payment on July 18, 2014 in the amount of $850, 000, and another on August 11, 2014 in the amount of $350, 000. Pl.'s Compl. ¶¶ 21, 23.[3] Loomar confirmed in a signed receipt that he had received the wire transfers for the equity money, and represented that he sent a copy of the receipt to Covey Run, located at 340 S. Hwy 10, St. Cloud, Minnesota, and to Washington Capital, located at 1050 Connecticut Ave., NW, 10th Floor, Washington, D.C. Id. ¶ 23; see also Equity Money Receipt (Ex. 3 to Pl.'s Complaint, ECF No. [1-5]).

         Additionally, on the same days that Covey Run transferred the money to the escrow account, Loomar transferred the money to Defendant Lyles. Pl.'s Compl. ¶ 37; see also Escrow Communication (Ex. 10 to Pl.'s Complaint, ECF No. [1-12], at 4). As to the wire transfer of $850, 000 made on July 18, 2014, Loomar immediately disbursed approximately $847, 000.00 to Washington Capital's bank account in Washington, D.C., while retaining approximately $2, 900, which was transferred to his law firm's bank account. Id.; see also Escrow Communication (Ex. 10 to Pl.'s Complaint, ECF No. [1-12], at 4). Similarly, as to the wire transfer Covey Run made on August 11, 2014, Loomar wire transferred the money to Washington Capital that same day, sending approximately $348, 000 after retaining approximately $875.00 for his law firm. Id. ¶ 38; see also Escrow Communication (Ex. 10 to Pl.'s Complaint, ECF No. [1-12], at 6).

         Loomar appeared to have issued the wire transfers pursuant to instructions received from Washington Capital, in an email from Defendant Lyles dated July 16, 2014 (which pre-dates the wire transfers). Id. ¶ 39; see also Escrow Communication (Ex. 10 to Pl.'s Complaint, ECF No. [1-12], at 10). The email sent by Lyles to Loomar stated simply, "Greg please send the $1, 200, 000.00, less your fee to [Washington Capital's bank account]." Escrow Communication (Ex. 10 to Pl.'s Complaint, ECF No. [1-12], at 10). Neither Loomar nor anyone from his law office contacted Covey Run prior to disbursing the funds, nor did they notify Covey Run after the distribution of the funds. Pl.'s Compl. ¶ 40.

         Covey Run, unaware that its $1.2 million equity payment had been transferred out of the escrow account, proceeded forward with its attempts to close on the loan. According to the Complaint, Washington Capital represented that closing would be accomplished 60 days after the escrow agent received the first equity funds, which would have provided for a closing date of mid-to-late September 2014. Id. ¶ 26. The parties scheduled the date for closing on the loan and the purchase of the Wyoming property for November 1, 2014. Id. ¶ 27. The closing, however, was repeatedly pushed back at the request of Washington Capital, and in fact, never occurred. See id.

         By December 15, 2014, Washington Capital had still not agreed to close on the transaction and purportedly took issue with its title company's requirements. Id. ¶ 28. On this date, it sent notice, through Defendant Sanders, to the title company that it was rescinding the parties' transaction. Id. Defendant Sanders, on behalf of Washington Capital, gave Covey Run three options: (a) that the parties' agreement be cancelled and the equity funds of $1.2 million be returned to Covey Run; (b) that the funds be left in the escrow account while Sanders searched for another title company to close the deal; or (c) that the equity funds be returned to Covey Run while Sanders located another title company. Id. ¶ 29. Covey Run chose option (c). Id. ¶ 30. Pursuant to this option, upon return of the equity funds, Covey Run would put the funds into a trust account at Bremer Bank in St. Cloud, Minnesota, and Washington Capital would put it contribution of $660, 000-which had still not been paid- into escrow, so that all of the equity funds would be available for closing. Id. Eventually, after the equity funds were not returned to Covey Run after numerous promises and delays, Covey Run demanded the return of the equity funds without any conditions. Id.

         In the subsequent weeks, Washington Capital corresponded with Covey Run on a number of occasions (primarily through Defendant Sanders) to assure Covey Run that it would receive the money. Id. ¶ 31. In mid-January 2015, Covey Run asked Washington Capital to produce evidence that its bank account contained the money owed. Id. ¶ 33. On January 16, 2015, Defendant Sanders forwarded a letter to Covey Run, purportedly from Citibank, allegedly confirming that Washington Capital's bank account contained $1.8 million in funds. Id. The letter was dated January 14, 2015 and signed by Steven Jackson, Vice President of Citigroup Private Wealth Banking. Id.; see also Jackson Letter (Ex. 8 to Pl.'s Complaint, ECF No. [1-10]). The letter, however, appears to have been a forgery, as the Citibank logo and letterhead were apparently cut and pasted to make it appear as though the letter was authentic. Pl.'s Compl. ¶ 34. Covey Run has also confirmed with Citibank that there are no Vice Presidents within the company named Steve Jackson, and that the letter did not appear to come from Citibank. Id. Thereafter, Covey Run demanded that Washington Capital return the funds to Covey Run by January 20, ...


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