United States Regional Economic Authority, LLC v. Matthews et al

Filing 75

RULING (see attached) granting Plaintiff's 72 Motion to File Second Amended Complaint. As set forth in the attached Ruling, Plaintiff must serve and file the Second Amended Complaint as a separate entry on the case docket on or before March 28, 2018. Defendants are directed to file their response to that pleading in the time provided by the Federal Rules of Civil Procedure. Signed by Judge Charles S. Haight, Jr. on 3/21/2018. (Kaczmarek, S.)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF CONNECTICUT

UNITED STATES REGIONAL ECONOMIC
DEVELOPMENT AUTHORITY, LLC,
Plaintiff,

3:16-cv-01093 (CSH)

v.
GERRY D. MATTHEWS and MATTHEWS
COMMERCIAL PROPERTIES, LLC,

MARCH 21, 2018

Defendants.

RULING ON PLAINTIFF'S MOTION TO FILE SECOND AMENDED COMPLAINT
HAIGHT, Senior District Judge:
Plaintiff United States Regional Economic Development Authority, LLC ("Plaintiff") makes
a motion for leave to amend its complaint. [Doc. 72]. Given the timing of the litigation, Plaintiff was
required to obtain leave of the court to file a proposed first amended complaint ("FAC"). I denied
leave to file that proposed pleading in an opinion reported at United States Regional Economic
Development Authority, LLC v. Matthews, No. 3:16-CV-01093(CSH), 2017 WL 5992384, at *1 (D.
Conn. Dec. 4, 2017) ("the December Opinion"). Familiarity with that opinion is assumed.
Plaintiff now seeks leave to file the proposed second amended complaint ("SAC").
Defendants Gerry D. Matthews and Matthews Commercial Properties, LLC (collectively
"Defendants") oppose the motion. Notwithstanding Defendants' argument to the contrary, the
Plaintiff's proposed second amended complaint remedies the shortcomings of the proposed first
amended complaint. The Court will grant Plaintiff leave to file the proposed second amended
complaint.
1

I.

BACKGROUND

It is sufficient for present purposes to say that Plaintiff sought in the FAC to assert two claims
sounding in fraud against Gerry Matthews, the individual Defendant, and the corporate Defendant,
Matthews Commercial Properties, LLC ("MCP"), which Gerry Matthews owns and controls. Gerry
Matthews entered into the underlying transaction with Plaintiff ostensibly for the benefit of Gerry's
brother, Robert Matthews.
The Court denied Plaintiff leave to file the FAC because it failed to plead fraud with the
specificity required by Rule 9(b) of the Federal Rules of Civil Procedure. Rule 9(b) provides that
a party alleging fraud "must state with particularity the circumstances constituting fraud or mistake."
Plaintiff's theory of the case is that its officer, Walsh, was fraudulently induced by Gerry Matthews
and his brother Robert (a non-party) to cause Plaintiff to wire a loan of $529,843 to MCP which
Defendants have never repaid.
Plaintiff alleges that this fraud was accomplished by a series of five knowing and deliberate
oral misrepresentations during two meetings occurring on June 23, 2013, attended by Walsh, Gerry
Matthews, and Robert Matthews. With respect to the identity of the offending speakers, the FAC
alleged only that they were spoken by "Gerry, and Robert in the presence of Gerry," or by "Gerry and
Robert." December Opinion, 2017 WL 5992384, at *6. The Court did not grant Plaintiff leave to
file the FAC because "Rule 9(b) is not satisfied where the Complaint attributes fraudulent statements
to multiple defendants—or in this case, a defendant and a non-party to the lawsuit—without
attributing specific statements to each individual."Id. at *6 (collecting cases).
II.

DISCUSSION

Plaintiff's proposed SAC describes with materially increased detail the statements made to
2

Walsh by Gerry Matthews and by Robert Matthews during the two meetings the three men
conducted on June 23, 2013, the first at the MCP offices and the second at Gerry's home in
Middlebury, Connecticut. According to the SAC's additional allegations, the Matthews brothers
treated Walsh to laudatory descriptions of each other's experience and success in the real estate
business, with the transparent and ultimately successful objective of persuading Walsh that MCP was
a trustworthy recipient of half a million dollars of Plaintiff's money. When the SAC comes to
alleging the specific misrepresentations on which the Plaintiff's fraud claim depends, both Gerry and
Robert, and each of them, are identified as having uttered those declarations, which in consequence
are attributable to each brother individually. See, e.g., SAC ¶ 16 ("During the June 23 Meetings,
Robert and Gerry both, separately and falsely, represented to Walsh that the July Funds were needed
to" pay certain specified expenses); Id. ¶ 18 ("During the June 23 Meetings, Gerry and Robert both,
separately and falsely, represented to Walsh" that the sale of certain properties in Nantucket and
Waterbury were "imminent" and that accordingly, the funds loaned by Plaintiff to MCP would be
repaid "in the short-term"); Id. ¶ 19 ("Indeed, Gerry and Robert both separately represented to
Walsh" that the imminent sale of the Nantucket property would include a yacht as part of the buyer's
consideration, which "was easily saleable and would result in quick repayment to Walsh").
Paragraphs 14, 17, 22, and 23 of the SAC allege statements made to Walsh during these meetings
which are ascribed solely to Gerry Matthews. The SAC also contains allegations of circumstances
sufficient to support an inference that the statements attributed to Gerry Matthews were fraudulent
when made.
With respect to Plaintiff's claims for fraud against Defendant Gerry Matthews, the SAC
remedies the lack of particularity that marred the prior pleading. The gravamen of Plaintiff's fraud
3

claims are that during one or both meetings on June 23, 2013, between Walsh, Gerry Matthews and
Robert Matthews, oral false representations and fraudulent promises were made to Walsh upon
which Walsh relied in arranging to wire the funds in question to MCP. The first meeting occurred
in Gerry's office and the second in his home. The FAC was deficient in describing who made the
allegedly fraudulent utterances. That earlier pleading could be read to suggest that Robert did the
talking, with Gerry limited to the supporting role of genial and silent host, keeping his guests' wine
glasses full. That impression does not survive a reading of the SAC's heightened and particularized
allegations, which ascribe the utterances in question either to Gerry alone or to "Robert and Gerry
both, separately and falsely."
Those allegations satisfy Rule 9(b). It is not necessary, as Defendants seem to suggest, that
Plaintiff reproduce exactly the words uttered by one brother or the other, each utterance set out
between quotation marks. Of course, it is not unusual in the conduct of human affairs for a
fraudulent utterance to emerge from a company of several possible tortfeasors. The requirement of
Rule 9(b) in such circumstances is described by the leading treatise: "If a claim involves multiple
defending parties, a claimant usually may not group all claimed wrongdoers together in a single set
of allegations. Rather, the claimant must make specific and separate allegations against each
defendant." 2 James Wm. Moore, Moore's Federal Practice § 9.03[1][f] (3d ed. 2010). In DiVittorio
v. Equidyne Extractive Industries, Inc., 822 F.2d 1242, 1247 (2d Cir. 1987), construing Rule 9(b),
the Second Circuit said that "fraud allegations ought to specify the time, place, speaker, and content
of the alleged misrepresentations. Where multiple defendants are asked to respond to allegations of
fraud, the complaint should inform each defendant of the nature of his alleged participation in the
fraud." (citation omitted). That requirement of specificity is intended to accomplish the first of the
4

three Rule 9(b) goals identified in DiVittorio: "providing a defendant fair notice of plaintiff's claim,
to enable preparation of defense." Id.
While the Moore text and a case like DiVittorio contemplate a fraud claim being asserted
against a group of individual defendants, the pleading principle is equally applicable to the case at
bar, where Gerry Matthews is a party defendant and his brother Robert is not. Plaintiff is required
to give and Gerry is entitled to receive specific allegations of what Gerry said to further the fraud
alleged in the complaint. If Walsh's account of his meetings with the Matthews brothers ascribed
misrepresentations to Robert alone, Rule 9(b) requires the complaint to make that clear. Cf. McCrae
Associates, LLC v. Universal Capital Management, Inc., 554 F.Supp.2d 249, 255 (D. Conn. 2008)
(complaint alleging fraud claim and naming all company officers as defendants "does not provide
enough detail about the identity of the speaker," but the pleading passed muster nonetheless:
"However, the allegedly fraudulent promises and representations referred to . . . are clearly
attributable to Funk and no one else. Therefore, the defendants have sufficiently identified Funk as
the individual who made the allegedly fraudulent statements.").
In contrast, the SAC in the case at bar resolves any prior uncertainty about the participation
of Gerry Matthews in the alleged fraudulent scheme.

The SAC identifies five particular

misrepresentations communicated to Walsh, ascribes two of them to Gerry Matthews alone, and
alleges that the other three were uttered by "Robert and Gerry both, separately and falsely." If
proven, these allegations suffice under Rule 9(b) to visit upon each of the Matthews brothers
individual liability for fraud. Judge Meyer reached that conclusion in the closely similar case of
Roberts v. Bennaceur, No. 3:12-CV-01222(JAM), 2015 WL 1471889 (D. Conn. Mar. 31, 2015),
aff'd, 658 Fed. App'x 611 (2d Cir. 2016), where the plaintiff, a discharged company executive,
5

asserted breach of contract and fraud claims against two individuals – Sophien and Imed Bennaceur
– who were brothers and managing directors of the company. Judge Meyer entered default
judgments on the fraud claims against each brother, on the basis of allegations that included the
following:
Plaintiff further alleges that while he was working at TriPlanet, both
Sophien and Imed continued to falsely maintain the same promises
regarding plaintiff's ownership interest and anticipated equity
payments to induce plaintiff to continue working at TriPlanet,
although neither intended to pay him the promised equity payments
and both knew that plaintiff's ownership interest had not been
formalized. The complaint refers to several dinner meetings in 2011
where the brothers both assured plaintiff that he had met the requisite
performance goals and was entitled to the accompanying bonus
payments. It also states that, although Sophien and Imed stated that
the company had documents on file formalizing plaintiff's ownership
interest, they declined to give plaintiff a copy, and plaintiff's own
investigation revealed documents that "made clear that [plaintiff's]
equity ownership interest had never been formalized." Plaintiff
further alleges that, relying on the brothers' promises, he remained at
TriPlanet, although the company "never paid [him] the 2010 and 2011
Annual Equity Payouts, and . . . has failed to recognize or
acknowledge [plaintiff's] 25% equity ownership interest in the
Company."
Id. at *20 (citations omitted). Judge Meyer concluded, not surprisingly: "With these allegations,
plaintiff has adequately stated a claim for common law fraud." Id.
The sufficiency of the individual fraud allegations in Roberts is instructive in the case at bar
because the cases present essentially the same alleged situation: two brothers participating together
in a scheme to defraud; meeting together with the targeted victim; at those meetings, each brother
delivering utterances which directly furthered the fraud, or supported the utterances of the other
brother having that effect and purpose; all with the requisite knowledge and intent to deceive and
defraud. It is impossible to conclude in this case that the allegations in the SAC fail to achieve Rule
6

9(b)'s goal of informing Gerry Matthews of the nature of the fraud claim Plaintiff asserts against him,
so that he may prepare his defense. That is all Rule 9(b) requires.
In addition to Judge Meyer's opinion in Roberts, a useful comparison is also provided by
Judge Eginton's opinion in Harris v. Wells, 757 F.Supp. 171 (D. Conn. 1991), where two individual
directors of a failed company moved to dismiss a fraud claim against them on the ground that the
claim "lumps all the AroChem directors together and, in doing so fails to give each defendant fair
notice of the nature and factual basis of the charges against him as required by Fed.R.Civ.P. 9(b)."
757 F.Supp. at 173. Judge Eginton rejected that argument:
Generally, a complaint need only apprise a defendant of the "general
time period" of any alleged misstatements to meet the requirements
of Rule 9(b). Indeed, dates, times and places need not be pleaded with
absolute precision, so long as the allegations sufficiently put the
defendant on notice as to the circumstances of the charged
misrepresentations. The fraud allegations contained in the amended
complaint provide an abundance of particularized factual details
including dates, times, places and names. These allegations are
clearly specific enough to permit Peden and Meister a "reasonable
opportunity" to answer.
Id. at 173-74 (citations omitted). The SAC at bar, in addition to detailed allegations about "dates,
times, and places," id., includes for the first time a full sequence of particularized allegations about
what Gerry Matthews said. The SAC's additional allegations, that "Robert and Gerry both,
separately and falsely" uttered the misrepresentations complained of, conveys Plaintiff's assertion
that Robert and Gerry were saying the same things, at the same time, in the same place, to the same
audience (Walsh), but does nothing to denigrate or minimize Plaintiff's allegation that Gerry was
saying them. In consequence, Gerry Matthews is on full and complete notice of the claims of fraud
Plaintiff is making against him, and can array his available defenses accordingly.

7

It is worth noting that Judge Eginton's analysis in Harris echoes the requirement in Rule 9(b)
that "a party must state with particularity the circumstances constituting fraud or mistake." Fed. R.
Civ. P. 9(b) (emphasis added). Plaintiff's proposed Second Amended Complaint gives Defendant
Gerry Matthews adequate notice of the circumstances charged against him.
III.

CONCLUSION

For the foregoing reasons, Plaintiff's Motion to File Second Amended Complaint [Doc. 72]
is GRANTED. Plaintiff must serve and file the Second Amended Complaint as a separate entry on
the case docket on or before March 28, 2018. Defendants are directed to file their answer to that
pleading in the time provided by the Federal Rules of Civil Procedure.
It is SO ORDERED.
Dated:

New Haven, Connecticut
March 21, 2018

/s/ Charles S. Haight, Jr.
CHARLES S. HAIGHT, JR.
Senior United States District Judge

8