Dwyer v. Zuccari

JOHN W. DWYER, et al. Plaintiffs, v. ALAN ZUCCARI, Defendant.

Civil Action No. RDB-19-1272

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

March 19, 2020

MEMORANDUM OPINION

This case arises from an alleged oral partnership agreement to conduct nursing home businesses exclusively through the use of a series of holding companies and subsidiaries. Plaintiffs John W. Dwyer ("Dwyer") and Capital Funding Group, Inc. ("CFG") (collectively, "Plaintiffs") allege that Defendant Alan Zuccari ("Zuccari" or "Defendant") has failed to repay expenses related to the settlement of professional liability claims arising from the nursing home business. In their nine-count Amended Complaint, Plaintiffs bring several common law claims, including breach of contract, breach of the partnership agreement, detrimental reliance/promissory estoppel, and unjust enrichment. Jurisdiction is predicated on diversity of citizenship. See 28 U.S.C. § 1332.

Presently pending is Zuccari's Rule 12(b)(6) and 12(b)(7) Motion to Dismiss Plaintiffs' Complaint, Motion to Transfer Venue, and Motion to Dismiss or Stay this Action (ECF No. 13).¹ Defendant's Motion (ECF No. 13) is GRANTED IN PART and DENIED IN PART. Specifically, Dwyer's claims set forth in Counts I, II, III, IV, V, VI, VII are DISMISSED WITH PREJUDICE as is CFG's claim in Count VIII. Only CFG's unjust enrichment claim (Count IX) may proceed. This Court DENIES Defendant's Motion to Transfer Venue and his Motion to Dismiss or Stay this Action.

BACKGROUND

In ruling on a motion to dismiss, the factual allegations in the plaintiff's complaint must be accepted as true and those facts must be construed in the light most favorable to the plaintiff. Wikimedia Found. v. Nat'l Sec. Agency, 857 F.3d 193, 208 (4th Cir. 2017) (citing SD3, LLC v. Black & Decker (U.S.) Inc., 801 F.3d 412, 422 (4th Cir. 2015)). This Court may also consider documents attached to a motion to dismiss so long as they are "integral to the complaint and authentic." Thompson v. United States, RDB-15-2181, 2016 WL 2649931, at *2 n.4 (D. Md. May 10, 2016), aff'd 670 F. App'x 781 (4th Cir. 2016) (citation omitted). Finally, this Court makes reference to public court filings in related matters. See Brown v. Ocwen Loan Servicing, LLC, PJM-14-3454, 2015 WL 5008763, at *1 n.3 (D. Md. Aug. 20, 2015) (noting that courts "may take judicial notice of docket entries, pleadings and papers in other cases without converting a motion to dismiss into a motion for summary judgment"), aff'd, 639 F. App'x 200 (4th Cir. May 6, 2016).

This case arises from an alleged partnership between Dwyer and Zuccari to conduct nursing home businesses using a series of limited liability companies and other entities. (Am. Compl. ¶ 1, ECF No. 11.) Despite the enormous scale of their venture and the expenditure of millions of dollars, Dwyer and Zuccari never reduced the terms of their alleged partnership agreement to writing. (Id. ¶ 2.) As their business collapsed, Zuccari allegedly failed to remunerate Dwyer for the capital he expended settling a cascade of malpractice claims brought by nursing home residents. (Id. ¶¶ 44-67.) In this lawsuit, Dwyer and his company, Capital Funding Group, Inc. ("CFG"), attempt to collect from Zuccari a portion of the settlement payments made to those residents.

I. The Nature of the Alleged Partnership.

This lawsuit is premised on an oral partnership agreement "to carry out a business regarding nursing homes." (Id. ¶ 2.) The partnership allegedly originated in 2008, when Dwyer and Zuccari entered into an oral agreement to buy real properties which had been leased to nursing home operators. (Id. ¶ 13.) In furtherance of this plan, the two formed a holding company, CSCV Arkansas Realty, LLC ("CSCV Arkansas Realty" or "the holding company"), which was managed by Dwyer, Brian Reynolds, and Dwight Kouri. (Id. ¶¶ 13, 15.) Dwyer and Zuccari did not directly own CSCV Arkansas Realty. To create the holding company, Capital Funding Group, Inc. ("CFG"), a Maryland corporation for which Dwyer served as the chairman and sole owner,² reformed Capital Seniorcare Ventures, LLC (Id. ¶¶ 7, 14.) When CSCV Arkansas Realty was formed, Capital Seniorcare Ventures, LLC became a 51% member.(Id. ¶ 15.) For his part, Zuccari used his company, AJZ Capital, LLC ("AJZ Capital"), as an investment vehicle to become a 49% member in the holding company. (Id.) After its formation, CSCV Arkansas Realty purchased 12 real properties where nursing homes operated, and leased the properties to licensed operators. (Id.) The 12 real properties were separately titled to several single-purpose LLCs,³ all of which were subsidiaries of CSCV Arkansas Realty. (Id.)

Plaintiffs allege that CSCV Arkansas Realty was merely one aspect of a continuing nursing home enterprise pursued by Dwyer and Zuccari. After CSCV Arkansas Realty was sold for a 137% return on investment, Dwyer and Zuccari orally agreed to invest in the same nursing home operations which had leased property from their now-defunct holding company. (Id. ¶¶ 16-17.) Plaintiffs allege that Zuccari was incentivized to continue his partnership with Dwyer because he owned nursing home service providers, including Alan J. Zuccari, Inc. and Servarus Corp. (Id. ¶ 18.) Dwyer allegedly felt comfortable investing with Zuccari because Zuccari had assured him that he had sufficient knowledge to manage risks associated with potential professional liability claims. (Id. ¶¶ 19-20.)

Dwyer and Zuccari proceeded to form a network of holding companies and member LLCs to carry out their nursing home operations. For example, in 2011, CFG (allegedly controlled by Dwyer) and Brian Reynolds formed CSCV Holdings, LLC. (Id. ¶ 21.) Zuccari formed Arkansas Nursing Home Acquisition, LLC ("ANHA"). (Id.) The two LLCs thenformed Arkansas SNF Operations Acquisition, LLC ("Ark I"). (Id.) Other holding companies followed, each formed in a similar fashion (the "Arkansas" holding companies). (Id. ¶ 23.) Further permutations developed when holding companies allegedly controlled by Dwyer and Zuccari's LLCs partnered with holding companies controlled by Tim Nicholson to create even more holding companies (the "Lyric" holding companies). (Id. ¶ 24.) These holding companies went on to form or acquire subsidiary companies. (Id. ¶ 26.) Dwyer and Zuccari ensured that they were never members, managers, or officers of any of the holding companies or their subsidiaries. (Id. ¶ 27.) Instead, Reynolds and others were named as managers of the Arkansas and Lyric holding companies. (Id. ¶¶ 23-24.)

II. The Collapse of the Nursing Home Businesses.

In mid-2014, Zuccari, Dwyer, and Nicholson decided to wind down their investments in the Arkansas and Lyric holding companies, in part because of a cascade of lawsuits brought by nursing home residents alleging malpractice related to the care they received. (Id. ¶ 44.) As the lawsuits progressed, Dwyer and Zuccari "made the decision to settle" claims asserted against the holding companies and their subsidiaries, and then instructed Reynolds, as a manager of the LLCs, to conduct the settlements. (Id.) To fund the settlements, which exceeded the entities' insurance coverage, Dwyer and Zuccari liquidated assets associated with various entities under their control. (Id. ¶ 47.) For example, proceeds from the sale of a subsidiary holding real property might be used to pay liabilities incurred by a nursing home subsidiary. (Id. ¶ 55.)

In 2016, Dwyer and Nicholson made a "conditional payment" to AJZ Capital which caused the present controversy. In February 2016, Dwyer, Zuccari, and Nicholson sold real property belonging to certain Lyric subsidiaries and used the bulk of the funds to cover operating expenses or to pay liabilities associated with the malpractice claims. (Id. ¶ 48.) Of these funds, $7,000,000.00 was allocated to a bank account associated with Chai Facilities Acquisition Company, LLC, one of the "Lyric" holding companies whose members were comprised of two LLCs: Lyric Real Estate Holdings, LLC, which was allegedly controlled by Dwyer and Zuccari; and Bay Front Property, LLC, which was allegedly controlled by Nicholson. (Id ¶¶ 24, 48, 52.) Zuccari's share of $2,856,000.00 was sent to his investment vehicle, AJZ Capital. (Id. ¶¶ 48, 52.) Immediately prior to this payment, Zuccari agreed that when additional funds were needed to satisfy liabilities "allocable to their respective partnership interests," he would pay his respective share of the February 2016 payment back to the partnership. (Id. ¶ 49.)

In January 2017, Reynolds presented Zuccari with a settlement of a group of malpractice claims and a capital call for funds to pay the settlements. (Id. ¶ 56.) Zuccari responded that he agreed that the cases should be settled, but that he did not have enough money to fund them. (Id. ¶ 57.) To pick up the slack, CFG began to fund the settlements by wiring funds to operating accounts associated with the Arkansas and Lyric companies. (Id. ¶ 60.) As of the filing of the Amended Complaint, CFG has allegedly paid $7,300,000.00 to fund settlements authorized by Zuccari, and another $320,000.00 was expected to be paid. (Id. ¶¶ 60, 67.) Despite incurring $3,600,000.00 in liabilities according to his ownership percentagein the partnership, Zuccari has allegedly not returned any portion of the conditional payment made to AJZ Capital in February 2016. (Id. ¶¶ 60, 80.)

III. The Virginia Lawsuit.

In 2017, Dwyer filed a lawsuit against Zuccari in the Circuit Court of Fairfax County, Virginia, captioned John W. Dwyer v. Alan Zuccari, CL 2017-18287. In that case, Dwyer made substantially the same claims as those now advanced in this Court. Unlike in this case, Dwyer was the only Plaintiff. The First Amended Complaint brought claims against Zuccari for breach of contract (Counts I and II); detrimental reliance/promissory estoppel (Counts III and IV); contribution (Count V); and unjust enrichment (Count VI). (First Amended Complaint, ECF No. 13-3....