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Skeans v. Key Commercial Finance LLC

United States District Court, D. Delaware

August 13, 2019

DEBOARAH S. SKEANS, Executrix of the ESTATE OF FRANK E. PAVLIS, Plaintiff,
v.
KEY COMMERCIAL FINANCE LLC, KEY COMMERCIAL FINANCE PROPERTIES, LLC, EQUITY PROS, LLC, and MOBILE AGENCY, LLC, Defendants.

          REPORT AND RECOMMENDATION

          Sherry R. Fallon, United States Magistrate Judge.

         I. INTRODUCTION

         Presently before the court in this investment fraud action is a motion to dismiss for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6) filed by defendants Key Commercial Finance LLC ("KCF"), Key Commercial Finance Properties, LLC ("Key Properties"), Equity Pros, LLC ("Equity Pros"), and Mobile Agency, LLC ("Mobile Agency") (collectively, "defendants"). (D.I. 22) For the following reasons, the court recommends GRANTING-IN-PART and DENYING-IN-PART defendants' motion to dismiss.[1]

         II. BACKGROUND

         a. The Parties

         Deborah S. Skeans ("Ms. Skeans" or "plaintiff) is the executrix of the Estate of Frank E. Pavlis and is a citizen and resident of Pennsylvania. (D.I. 1 at ¶ 14) Plaintiffs decedent, Frank E. Pavlis ("Mr. Pavlis") passed away on August 24, 2018, at the age of 101. (Id. at ¶¶ 11, 21) KCF is a limited liability company formed under the laws of Delaware, with its principal place of business in Brewster, New York. (Id. at ¶ 15) Key Properties is a limited liability company formed under the laws of Delaware, with its principal place of business in Brewster, New York. (Id. at ¶ 16) Equity Pros is a limited liability company formed under the laws of Connecticut, with its principal place of business in Brewster, New York. (Id. at ¶ 17) Mobile Agency is a limited liability company formed under the laws of Delaware, with its principal place of business in Brewster, New York. (Id. at ¶ 18) Key Properties, Equity Pros, and Mobile Agency, are subsidiaries of KCF. (Id. at ¶¶ 16-18)

         b. Procedural History

         On October 1, 2018, plaintiff originally filed this action. (D.I. 1) On the same date, plaintiff filed motions for a temporary restraining order, a preliminary injunction, and expedited discovery. (D.I. 3; D.I. 4; D.I. 6) On October 2, 2018, Judge Connolly denied plaintiffs motion for a temporary restraining order, concluding there was an insufficient showing of irreparable harm. (D.I. 12) On October 10, 2018, plaintiff withdrew the motion for a preliminary injunction and the motion for expedited discovery. (D.I. 17) On November 20, 2018, defendants filed the present motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). (D.I. 22)

         c. Facts[2]

         This action arises from the issuance of certain promissory notes to Mr. Pavlis in 2014. Plaintiff alleges that the notes, purportedly issued by KCF, should be declared void ab initio because: (1) KCF was not a legal entity at the time of their issuance; and (2) the notes were fraudulently executed. (D.I. 1 at ¶¶ 94-107) Plaintiff has asserted five claims against the defendants: declaratory judgment in Count I, common law fraud in Count II, fraudulent concealment in Count III, conversion in Count IV, and unjust enrichment in Count V. The relief demanded by plaintiff includes an injunction, declaratory judgment, restitution, general and punitive damages.

         At the time of his death, Mr. Pavlis was 101 years old. (Id. at ¶ 21) In or around January 2014, Justin Billingsley ("Mr. Billingsley") solicited Mr. Pavlis to invest in Allwest.[3] (Id. at ¶ 76) Mr. Pavlis allegedly invested the sum of seven million dollars in Allwest. (Id. at ¶¶ 77, 79) Mr. Billingsley forwarded Mr. Pavlis' investment funds to Allwest and orchestrated the wholesale transfer of this investment from Allwest to KCF, an entity that Mr. Billingsley controlled. (Id. at ¶¶ 2, 75, 82, 85) KCF used Mr. Pavlis' investment to provide funding to Allwest for various projects between 2014 and 2018. (Id. at ¶ 83) Mr. Pavlis was not made aware of the transfer to KCF and never received documentation reflecting his investment in Allwest. (Id. at ¶¶ 85-86)

         In exchange for his seven million dollar investment, Mr. Pavlis received two convertible promissory notes issued in September and November 2014 in the amounts of three million dollars and four million dollars respectively. (Id. at ¶¶ 87-93) These promissory notes were accompanied by Note Purchase Agreements[4] purporting to memorialize Mr. Pavlis' investments in KCF. (Id. at ¶¶ 87, 89, 93) Plaintiff alleges that despite representations in the notes and accompanying Note Purchase Agreements that KCF was a valid corporate entity in good standing, KCF had not been formed and did not have a corporate existence prior to December of 2014. (Id. at ¶ 94) Moreover, Mr. Pavlis' signature on each of the Note Purchase Agreements appears on its own pre-printed signature page without any identifying language relating it to a specific document. (Id. at ¶¶ 98-99) Plaintiff generally suggests that due to Mr. Pavlis' advanced age at the time the notes issued, Mr. Pavlis was readily manipulated and defrauded of his investment.

         In 2016, plaintiff, acting in her capacity as Mr. Pavlis' Power of Attorney, requested that Mr. Billingsley provide her with information relating to Mr. Pavlis' real estate investments. (Id. at ¶ 109) On November 11, 2016, Mr. Billingsley provided plaintiff with a copy of the September note. (Id. at ¶ 110) In late 2017, plaintiff requested additional information about KCF from Mr. Billingsley. (Id. at ¶ 111) In or around February 2018, Mr. Billingsley produced a copy of the November note. (Id. at ¶ 112) On June 29, 2018, Mr. Billingsley produced additional documents, including a KCF Confidential Private Placement Memorandum ("PPM") dated August 1, 2014, and a subscription agreement (the "Subscription Agreement") dated August 18, 2014. (Id. at ¶¶ 114-115) The PPM did not mention convertible promissory notes and instead related to class A shares totaling one million dollars. (Id. at ¶¶ 116-117) The Subscription Agreement similarly related to class A shares totaling one million dollars. (Id. at ¶¶ 117-118) Plaintiff alleges that the PPM and Subscription Agreement are fabrications intended to falsely depict Mr. Pavlis' investment in KCF. (Id. at ¶ 122) On June 29, 2018, Mr. Billingsley also provided plaintiffs counsel with three joint venture agreements (the "Joint Venture Agreements") between KCF and each of its three subsidiaries. (Id. at ¶ 123) Plaintiff alleges that the Joint Venture Agreements are fraudulent. (Id.) The Joint Venture Agreements provide that KCF:

may, at its sole discretion, contribute funds to SUBSIDIARY for the purpose of ensuring that SUBSIDIARY is able to meet its operating expense obligations; provided, however, that under no circumstances shall such fund transfers be construed as a loan from PARENT to SUBSIDIARY.

(Id. at ¶ 127; see also D.I. 1, Ex. I) On July 13, 2018, Mr. Billingsley produced a funding agreement (the "Funding Agreement") between KCF and Allwest, which was dated September 20, 2016. (D.I. 1 at ¶¶ 130-131) Plaintiff alleges that the Funding Agreement is "a post-hoc attempt by KCF, through Billingsley, to create a veneer of legitimacy" to the transfer of Mr. Pavlis' funds from Allwest to KCF. (Id. at ¶ 136)

         III. LEGAL STANDARD

         Rule 12(b)(6) permits a party to move to dismiss a complaint for failure to state a claim upon which relief can be granted. See Fed. R. Civ. P. 12(b)(6). When considering a Rule 12(b)(6) motion to dismiss, the court must accept as true all factual allegations in the complaint and view them in the light most ...


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