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Hosea v. Green

United States District Court, E.D. Kentucky, Northern Division, Covington

May 3, 2018

DAVID HOSEA, Plaintiff,
v.
GARY GREEN, et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          DANNY C. REEVES UNITED STATES DISTRICT JUDGE.

         This matter is pending for review of Defendants Strategic Franchising Systems, Inc.9;s (“SFSI”) and Gary Green9;s motions to dismiss due to the plaintiff9;s alleged misconduct, for judgment on the pleadings, and to consolidate with another civil action. [Record Nos. 8, 9, 15] For the reasons outlined below, the motions to dismiss and for judgment on the pleadings will be denied. The motion to consolidate will be granted.

         I.

         This matter involves the sale of the Carnegie Event Center (the “Center”) located in Newport, Kentucky. Mardav LLC (“Mardav”) was the seller of the Center. SFSI was the buyer. [Record No. 5, ¶¶ 7, 11] David Hosea is a member of Mardav, and Gary Green is the Chief Executive Officer of SFSI. [Id. ¶¶ 3, 6]

         In Covington Civil Action No. 2: 17-146, styled Strategic Financing Systems, Inc. v. Ryan, SFSI alleges that it expressed concerns about the integrity of the plumbing at the Center. After some negotiation, the parties agreed to an addendum to the real estate contract requiring Mardav to make certain plumbing repairs. [See 2: 17-cv-146, Record No. 1. ¶¶ 10, 13-15.] James Ryan, the real estate agent involved in the transaction, assumed the duty to coordinate and oversee the repairs. [Id. ¶ 11] He assured SFSI that he had personally observed the repair work, and that it had addressed all of SFSI9;s concerns. [Id. ¶¶ 11-12] SFSI states that it relied on Ryan9;s representations and those contained in the contract addendum when it closed on the sale of the property. [Id. ¶ 16] However, it now asserts that Ryan9;s representations were not true and the plumbing work was not adequately performed. [Id. ¶¶ 17-18] As a result, SFSI alleges that Mardav breached the parties9; contract, and that Ryan is liable for fraud. [Id. ¶¶ 19-29]

         Mardav filed a counter-claim against SFSI alleging that, through its principal Gary Green, SFSI promised that it would return certain collectible items to Mardav within a reasonable period of time following the closing. [2: 17-cv-146, Record No. 10, ¶ 2] The counter-claim alleged that the collectibles-including approximately 40 original pieces of artwork and 20 rare and valuable artifacts-belonged to Mardav and were loaned to SFSI for a few weeks to be used in photographs for new promotional materials. [Id. ¶¶ 3-4] But rather than returning the items as Mardav anticipated, SFSI retained and then sold or donated them to the City of Newport. [Id. ¶¶ 5-6] As a result, Mardav9;s counter-claim alleged that SFSI is liable for conversion and fraud. [Id. ¶¶ 7-20]

         SFSI moved to dismiss the counter-claim, arguing that Mardav9;s claim was contrary to the express language in the contract and that its reliance on an oral promise that the collectibles would be returned was barred by the parol evidence rule. [2: 17-cv-146, Record No. 14, pp. 3-5] Additionally, SFSI argued that Mardav9;s fraud claim failed as a matter of law because it was predicated on a future promise to return the collectibles. [Id. at 5-6] After briefing on the counter-claim, Mardav filed a notice of voluntary dismissal under Rule 41(a)(1)(A)(i) of the Federal Rules of Civil Procedure. SFSI9;s motion to dismiss the counter-claim was then denied as moot. [2: 17-cv-146, Record Nos. 18, 19]

         Shortly thereafter, Hosea filed the Complaint in this civil action, which makes allegations similar to those previously contained in Mardav9;s counter-claim. [Record No. 5] He contends that he allowed Mardav to use certain collectibles belonging to him to furnish the Carnegie Event Center-including approximately 40 original pieces of artwork and rare and valuable artifacts-and that Gary Green and SFSI understood that the collectibles were personal and important to him and would not be included in Mardav9;s sale of the property. [Id. ¶¶ 8-12] Hosea states that he allowed Green and SFSI to retain the collectibles for a few weeks after the sale so that they could be used in photographs for new promotional materials, but expected that they would be returned soon thereafter. [Id. ¶¶ 13-14] However, rather than returning the collectibles to Hosea, Green and SFSI disposed of the collectibles to the City of Newport, without his permission. [Id. ¶ 15] As a result, Hosea alleges that Green and SFSI are liable for conversion and fraud. [Id. ¶¶ 16-29]

         Green and SFSI have filed three motions in response to Hosea9;s Complaint. First, they contend that the Complaint should be dismissed as a sanction for a fraud on the Court committed by Hosea and his attorney, Jeffrey McSherry. [Record No. 9] They state that, in its counter-claim, Mardav (represented by McSherry), stated that Mardav owned the collectibles. [See 2: 17-cv-146, Record No. 10, ¶ 2.] Now, however, Hosea (also represented by McSherry) asserts that the collectibles in fact belong to him. [See Record No. 5, ¶ 8.] Green and SFSI observe that “both statements cannot be true, ” and conclude that either Mardav9;s counter-claim or Hosea9;s Complaint-both filed by McSherry-made a false representation of fact, constituting a fraud upon the Court, and warranting dismissal of Hosea9;s Complaint. [Record No. 9, p. 5]

         Green and SFSI have moved for judgment on the pleadings on similar grounds to those raised in SFSI9;s earlier motion to dismiss Mardav9;s counter-claim. [Record No. 9] They argue that Hosea9;s claims are contrary to the express language in the parties9; contract, that his reliance on an oral promise to return the collectibles is barred by the parol evidence rule, and that his fraud claim fails as a matter of law because it is predicated on an alleged promise to return the collectibles in the future. [Id. at 3-8] Finally, Green and SFSI have moved to consolidate this action with Covington Civil Action No. 2: 17-146, Strategic Franchising Systems, Inc. v. James P. Ryan, et al. [Record No. 8]

         II.

         A. Motion to Dismiss for Alleged Fraud on the Court

         Green and SFSI's motion to dismiss the Complaint as a sanction for committing a fraud on the Court is based on the different allegations of ownership regarding the collectibles, which have been made in this case and in Strategic Franchising Systems, Inc. v. James P. Ryan, et al. The term “fraud upon the court” embraces “only that species of fraud which does or attempts to, defile the court itself, or is a fraud perpetrated by officers of the court so the judicial machinery cannot perform in the usual manner its impartial task of adjudging cases.” Okros v. Angelo Iafrate Construction Co., 298 F. App'x. 419, 429 (6th Cir. 2008) (quoting Buell v. Anderson, 48 F. ...


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