United States District Court, E.D. Virginia, Richmond Division
Roderick C. Young United States Magistrate Judge.
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.
FACTUAL AND PROCEDURAL BACKGROUND
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.
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).
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.)
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;
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.)
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.)
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.
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.)
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