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GGC Associates, LLC v. Hamner

United States District Court, E.D. Virginia, Richmond Division

September 27, 2017



          Roderick C. Young United States Magistrate Judge.

         GGC Associates, LLC ("GGC") brings this action against W. Clay Hamner ("Hamner") and Brian Fauver (Fauver) (collectively, "Defendants") alleging actual fraud and constructive fraud. This matter is before the Court on Defendants' Motion to Dismiss for Failure to State a Claim ("Motion to Dismiss") (ECF No. 10). The motion has been fully briefed and is ripe for review. The Court dispenses with oral argument because the materials before the Court adequately present the facts and legal contentions, and argument would not aid the decisional process at this stage. E.D. Va. Loc. Civ. R. 7(J). For the reasons set forth below, the Motion to Dismiss will be granted in part and denied in part.


         Hamner and Fauver are the managing members of Southern Season, Inc. ("SSI"), an investment company. (Amended Compl. ¶¶ 4, 5.) On January 28, 2013, SSI, through Hamner and Fauver's actions, entered into a Deed of Lease ("Lease") with Midtown Land Partners, LLC ("MLP") on commercial property in Henrico County, Virginia to be occupied by an SSI store and restaurant. (Id. ¶¶ 6, 12.) The individual members of MLP are identical with the individual members of GGC; MLP is a proxy for GGC in the instant matter. (Id. ¶ 8.) Thereafter, SSI and MLP amended the Deed of Lease and MLP assigned its interest to LM Retail, LLC ("LM"), a subsidiary wholly owned and managed by MLP. (Id. ¶ 7.)

         Under Paragraph 33 of the Lease, SSI was required to provide LM with a $550, 000 security deposit. (Id. ¶ 9.) The Lease permitted SSI to use an unconditional, irrevocable, standby Letter of Credit ("LOC") that provided LM with additional collateral to secure SSI's obligations under the Lease. (Id. ¶¶ 9-10.) The term of the Lease was for twenty years, and SSI's tenancy began on October 1, 2014. (Id.¶ 12).

         Initially, SSI struggled to meet its payment obligations under the Lease, failing to pay rent on time for the first three months. (Id. ¶ 13.) In March 2015, six months into SSI's tenancy, Hamner requested that LM reduce SSI's rent obligations or release part or all of SSI's LOC to use as a borrowing base. (Id. ¶ 14.) LM refused to release SSI'S LOC. (Id. ¶ 15.) In April 2015, SSI again failed to timely pay rent. (Id. ¶ 16.) Hamner made similar requests for release of SSI's LOC on April 22, 2015 and April 24, 2015, but LM declined both requests. (Id. ¶¶ 17-20.)

         On April 30, 2015, six days after Hamner's last request, Wayne Chase, on behalf of LM and MLP, contacted Hamner with the following proposal:

a. [GGC] would make an equity contribution to SSI, contingent on timely payment of rent by SSI to [LM];
b. The existing $550, 000 [LOC] would stay in place; and
c. SSI would acknowledge that [LM] was exceeding the development requirements established in the Lease.

(Id. ¶ 21 (emphasis added).) Hamner still insisted on a rental deferral or adjustment for SSI. (Id. ¶ 22.)

         In August 26, 2015, Fauver negotiated the terms of the proposal with LM and MLP representative, Jim Wilvert ("Wilvert"). (Id. ¶ 23.) Specifically, Fauver and Wilvert discussed GGC making a $300, 000 equity contribution to SSI, to be paid in monthly installments over a year and contingent on SSI's timely rent payments. (Id. ¶ 24.) On or about August 31, 2015, Hamner engaged in these negotiations, suggesting a $300, 000 lump sum contribution. (Id. ¶ 25.) Wilvert responded that LM and MLP preferred to make a monthly contribution of $25, 000. (Id.) In response to both Hamner and Fauver, LM reiterated that GGC's equity contribution to SSI remained contingent on leaving the entire LOC fully in place. (Id. ¶ 26.)

         In its Amended Complaint, GGC alleges that Hamner and Fauver committed fraud by omission on four separate occasions. Based on the terms of agreement struck by the parties, GGC made an investment of $25, 000 on August 31, 2015. (Id. ¶ 33.) Neither Hamner nor Fauver discussed the status of the LOC with GGC or its affiliates at that time. On January 8, 2016, Fauver inquired as to how GGC would make its January payment; Fauver did not mention the status of the LOC at this time. (Id. ¶ 34.) GGC made equity contributions of $25, 000 to SSI on three separate occasions in 2016: January 11, February 5, and April 11. (Id. ¶¶ 35, 36, 39.) According to the Amended Complaint, at no time on or about these dates did Hamner and Fauver discuss the status of the LOC with GGC or its affiliates.

         In April 2016, Wilvert asked Fauver for information about the LOC. (Id. ¶ 38.) Fauver stated only that "Summit out of Denver bought our loan - here's the contact info for our point of contact." (Id.) LM contacted "Summit out of Denver" and learned that it did not hold SSI's LOC. (Id. ¶ 40.) SSI filed a petition for bankruptcy on June 24, 2016 in the Middle District of North Carolina, Durham Division. (Id. ¶ 41.)

         GGC filed its Amended Complaint alleging actual and constructive fraud by Hamner and Fauver on June 22, 2017. (ECF No. 8.) Hamner and Fauver responded with the Motion to Dismiss on July 7, 2017 (ECF No. 10.) and attached three additional documents to their motion: (i) an Irrevocable Letter of Standby Credit (Ex. A, ECF No. 11-1); (ii) the International ...

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