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White v. Parker

United States District Court, E.D. Tennessee, Chattanooga

February 20, 2018

DEXTER W. WHITE, WAYNE BRANTLEY and DAVID HILL, Plaintiffs,
v.
GRANT PARKER, individually and d/b/a COLORSCAPES, INC., and LYNN DILLARD DOSS, individually and d/b/a DOSS & ASSOCIATES, FORSHAY LAND TITLE AND APPRAISAL SERVICES, INC., THOMAS THORSON, CUAUTHOMEE BURRIS, CHARLES MATLOCK, LACOULTON WALLS, ABLE TITLE INSURANCE AGENCY, INC., JO ANN LUNA, TIMOTHY GROSSI and GENE NOWACK a/k/a EUGENE Z. NOWAK, Defendants. GRANT PARKER, PARKER WHITE, LLC, and COLORSCAPES, INC. Third-Party Plaintiffs,
v.
FORSHAY LAND TITLE AND APPRAISAL SERVICES, INC., THOMAS THORSON, CUAUTHOMEE BURRIS, CHARLES MATLOCK, LACOULTON WALLS, ABLE TITLE INSURANCE AGENCY, INC., JO ANN LUNA, TIMOTHY GROSSI, and GENE NOWACK, Third-Party Defendants.

          REPORT AND RECOMMENDATION

          CHRISTOPHER H. STEGER, UNITED STATES MAGISTRATE JUDGE

         I. Introduction

         Plaintiffs Dexter W. White, Wayne Brantley, and David Hill and Defendants/Third-Party Plaintiffs Grant Parker, Parker White, LLC (“Parker White”), and Colorscapes, Inc. (“CSL”) (collectively, “Plaintiffs”), [1] have filed a Motion for Default Judgment Pursuant to Federal Rule of Civil Procedure 55(b) against the following defendants: Cuauthomee Burris, Able Title Insurance Company, Inc. (“Able”), Jo Ann Luna, Timothy Grossi, Gene Nowack a/k/a Eugene Z. Nowak, and LaCoulton J. Walls (collectively, “Defendants”) (Doc. 194).[2] Plaintiffs White, Brantley and Hill and Third Party Plaintiff Mr. Parker have brought claims against Defendants for breach of contract, conversion, civil conspiracy, fraud and intentional misrepresentation and unjust enrichment. This motion is before the undersigned Magistrate Judge for a report and recommendation having been referred by the District Court pursuant to 28 U.S.C. § 636(b)(1)(B) and (C). The Court has subject matter jurisdiction under 28 U.S.C. § 1332 as there is complete diversity of citizenship between Plaintiff and Defendants and the amount in controversy is greater than $75, 000.

         II. Facts

         The allegations set forth in the Amended Complaint (Doc. 75) and the Third-Party Complaint of Parker (Doc. 57) broadly describe a complex real-estate investment scheme (the “Scheme”) that operated from approximately December 2009 through September 2010 by which Defendants defrauded Plaintiffs of approximately three million dollars. (See generally Am. Compl.; Third-Party Compl.).

         Between late 2009 and early 2010, Parker made a series of short-term “proof of funds” (“POF”) or “back to back” (“BTB”) transactions with Mr. Nowak, who acted as broker. (See Am. Compl. ¶ 12.; Third-Party Compl. ¶ 19.) Funds placed by Mr. Parker into escrow accounts were held to allow certain real estate transactions to close, and, upon their successful closing, the escrow deposits were refunded to Mr. Parker, along with interest. (See Am. Compl. ¶ 12; Third-Party Compl. ¶ 19.)

         Soon after those successful transactions had occurred, Mr. Nowak contacted Mr. Parker to participate in a new series of POF/BTB real estate transactions, purportedly for a real estate investment group in Chicago, Illinois. (See Am. Compl. ¶ 13; Third-Party Compl. ¶ 20.) Those monies were to be held in various trust and escrow accounts of either attorneys or title companies and were to be used solely as POF for third parties to close real estate transactions and would not be transferred without written authorization. (See Am. Compl. ¶ 14; Third-Party Compl. ¶¶ 2 3.) In addition, Mr. Nowak requested that Mr. Parker locate others who would provide/invest money to serve as POF in the new series of transactions, and Messrs. White, Brantley, and Hill provided/invested monies for same. (See Am. Compl. ¶ 22(b); Third-Party Compl. ¶ 28(b)); see supra n.2.

         As had been done previously, Mr. Nowak represented to Mr. Parker that funds provided would be used only as POF for real estate transactions and could not leave the escrow account or accounts into which they were to be transferred without Parker's written authorization. (See Am. Compl. ¶ 14; Third-Party Compl. ¶¶ 21, 23.) Mr. Nowak provided Mr. Parker with the names of purported borrowers, Messrs. Grossi and Burris, and was purportedly their broker or agent. (See Am. Compl. ¶ 15; Third-Party Compl. ¶ 22.) Mr. Parker entered into separate escrow agreements and borrower agreements with, inter alia, Defendants Burris, Walls, Able, Luna, and Grossi, but not Mr. Nowak, who was acting as the broker. (See Am. Compl. ¶ 16; Third-Party Compl. ¶ 23.) Those agreements prohibited the release or transfer of funds except as authorized by Mr. Parker, and Defendants represented to him that such funds would not be transferred from the escrow accounts without his written authorization, and that they would be returned. (See Am. Compl. ¶ 16; Third-Party Compl. ¶¶ 4, 23.)

         The Scheme was perpetrated over six (6) separate transactions made pursuant to those agreements. (See Am. Compl. ¶ 17; Third-Party Compl. ¶ 24.) Defendants knowingly solicited and received funds from both Mr. Parker and others and had numerous communications with them and among themselves regarding same. (See Am. Compl. ¶¶ 16-18; Third-Party Compl. ¶¶ 23-24.) The funds provided by the Plaintiffs were to be used as POF and, once deposited in the escrow accounts, they were never to leave the escrow account. (Am. Compl. ¶ 14). If the deal did not close, then the funds were to be immediately returned to the investors. (Am. Compl. ¶ 14; Third-Party Compl. ¶ 21). Under this arrangement, Parker provided $1, 601, 200.00 for Defendants to use as POF (Doc. 195-4, Parker Decl. ¶ 18); White provided $608, 800 for Defendants to use as POF (Doc. 195-5, White Decl. ¶ 5); Hill provided $20, 000 for Defendants to use as POF (Doc. 197-7, Hill Decl. ¶ 7); and Brantley provided $255, 000 to Defendants to use as POF (Doc. 195-6, Brantley Decl. ¶ 7). In July 2010, Parker made a formal written demand to Defendants for return of the funds from the escrow account of Able, which represented that it held the entire amount of funds provided. (See Am. Compl. ¶ 21; Third-Party Compl. ¶ 27.) At some point after the funds were wired to the alleged trust accounts, the Defendants withdrew the funds from the accounts for their benefit, and none of the funds Plaintiffs provided to/invested with Defendants have been returned. (See Am. Compl. ¶ 20; Third-Party Compl. ¶¶ 5, 26.)

         The roles of Defendants in the unlawful scheme include, but are not limited to, the following: (a) Mr. Nowak had worked with Mr. Parker in past POF transactions; (b) Mr. Nowak contacted Mr. Parker regarding a search for other persons who would provide money to serve as POF in additional purported real estate transactions; (c) Mr. Nowak told Mr. Parker that Mr. Grossi (and others) were the purported “borrowers” in the real estate transactions and needed money to serve as POF only; (d) all Defendants with the exception of Messrs. Grossi, Burris, and Nowak (i.e., Able, Walls, and Luna) purportedly performed title searches and drafted closing documents on properties purportedly involved in the real estate transactions which required monies to serve as POF; and (e) Defendants Nowak, Burris, Walls, Able, Luna, and Grossi received money from the Scheme and withdrew and retained all funds referenced above. (See Am. Compl. ¶ 22; Third-Party Compl. ¶ 28.) Grossi and Burris “have failed and refused to pay to Plaintiffs any ‘premium' returns on the investment as promised to justify holding the funds.” (Third-Party Compl. ¶ 36.)

         III. Standard of Review

         The granting of a motion for default judgment is “at all times left within the sound discretion of the court.” In re Irby, 337 B.R. 293, 294 (Bankr.N.D.Ohio 2005) (applying Federal Rule of Bankruptcy Procedure 7055, which incorporates Federal Rule of Civil Procedure 55). Courts have recognized, however, that “[i]t is fundamental that not all injuries are legally compensable; a tenet which may not be bypassed simply because a party fails to respond to a complaint. Thus, among the considerations a court is to employ when determining the propriety of entering a judgment by default is whether there exists a sufficient basis in the pleading for the judgment's entry; or similarly, whether a viable cause of action is alleged.” Id. (citations omitted). See also Certain Underwriters at Lloyd's, London v. Alkabsh, No. 09-2711, 2011 WL 938407, at * 8 (W.D. Tenn. March 15, 2011) (“The first step when faced with an entry of default and a motion for default judgment is to determine whether the complaint's factual allegations provide a sufficient legal basis for the entry of a default judgment.”) Where a complaint fails to state a claim, a motion for default judgment should be denied. See Bailey v. Harrison, No. 95-6263, 1997 WL 49955, at *1 (6th Cir. Feb. 6, 1997) (“Default judgments would not have been proper due to the failure to state a claim against these defendants”); see also Parks v. Conley, No. 98-5064, 1999 WL 195740, at *2 (6th Cir. Mar. 23, 1999) (denying motion for default judgment and granting summary judgment in favor of the opposing party); Starr v. Corley, 662 F.Supp. 219, 220 (N.D. Ohio 1987) (denying motion for default judgment where complaint failed to state a claim for which relied could be granted). When considering whether a complaint states a claim in relation to a default judgment, the court accepts the allegations in the complaint as true. General Conference Corp. of Seventh-Day Adventists v. McGill, 617 F.3d 402, 407 (6th Cir. 2010); Cook, 2006 WL 908600, at *3 (same).

         In addition to ensuring that the complaint states a claim for which relief can be granted, a court shall also consider whether the moving plaintiff has satisfied several procedural requirements before entering default judgment for the plaintiff and against the defendant. First, the plaintiff must properly serve the defendant with process. Broadcast Music v. Marler, No. 1:09-cv-193; 2009 WL3785878 *4 (E.D. Tenn. Nov. 12, 2009) (citing Virgin Records America, Inc. v. Bagan, No. 08-cv-4694; 2009 WL 2170153 (D.N.J. Jul.21, 2009)).

         Second, “the plaintiff must fulfill the procedural obligations of Fed.R.Civ.P. 55. Specifically, the plaintiff must first seek entry of default by demonstrating that the opposing party has failed to answer or otherwise respond to the complaint.” Broadcast Music, 2009 WL3785878 at *4, (citing Keesh Construction, Inc. v. United States, No. 1:02-CV-899, 2004 WL 2536840, *1 n. 1 (S.D. Ohio Sep.28, 2004)). “Once the clerk has entered a default, the moving party may then seek entry of a default judgment. . . . If the plaintiff's claim is for a sum certain, default judgment will be entered by the clerk, but if damages are uncertain or other relief is sought, the plaintiff must apply to the Court for default judgment.” Broadcast Music, 2009 WL3785878 at *4, (citing Fed.R.Civ.P. 55(b) and Keesh Construction, Inc., 2004 WL 2536840, at *1 n. 1.)

         Third, if the defendant has entered an appearance, then the defendant must be served with notice at least three days before the hearing. Broadcast Music, 2009 WL 3785878 at *4, Fed.R.Civ.P. 55(b)(2); Virgin Records, 2009 WL 2170153, at *1.

         Fourth, “the plaintiff must submit an affidavit stating that the defendant is not an infant or incompetent person.” Broadcast Music, 2009 WL3785878 at *4; Disney Enters. v. Farmer, 427 F.Supp.2d 807, 815 (E.D. Tenn. 2006).

         Fifth, and finally, the plaintiff must submit an affidavit stating whether the defendant is in military service, or if plaintiff is unable to determine whether the defendant is in military service, stating so. Servicemembers Civil Relief Act (“SCRA”) § 201(b), 50 U.S.C. app. § 521(b)(1). See also Broadcast Music, 2009 WL3785878 at *4.

         IV. ...


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