United States District Court, District of Columbia
COLLEEN KOLLAR-KOTELLY United States District Judge.
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.
before the Court is the Loomar Defendants'  Amended
Joint Motion to Dismiss Plaintiff's Complaint (the
"Motion to Dismiss"). Upon consideration of the
pleadings, the relevant legal authorities, and the
record as a whole, the Court DENIES the Loomar
Defendants' Amended Joint Motion to Dismiss.
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.
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.
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).
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]).
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:
â¢ 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. Addendum § 14.1.C (Ex. 1 to Loomar
Defs.' Motion to Dismiss, ECF No. [19-2], at 3).
â¢ 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).
â¢ 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
Addendum § 14.7 (Ex. 1 to Loomar Defs.' Motion to
Dismiss, ECF No. [19-2], at 6-7).
â¢ 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
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).
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. 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]).
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).
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.
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.
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
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, ...