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Campanile Investments LLC v. Westmoreland Equity Fund LLC

United States District Court, W.D. Texas, San Antonio Division

September 20, 2019




         To the Honorable United States District Judge Fred Biery:

         This Report and Recommendation concerns three motions for summary judgment: Plaintiffs’ Motion for Summary Judgment as to Defendant Bernard Feldman [#131]; Defendant Ed Ryan’s Motion for Summary Judgment Pursuant to RFCP 12(b) for Want of Subject Matter Jurisdiction [#145]; and Defendant Bernard Feldman’s Motion for Summary Judgment Pursuant to FRCP 12(b) for Want of Subject Matter Jurisdiction [#146].

         Also before the Court are the following responses to the motions: Defendant Bernard Feldman’s Response to Plaintiffs’ Motion for Summary Judgment [#137]; Plaintiff’s Reply in Support of their Motion for Summary Judgment as to Defendant Bernard Feldman [#140]; Plaintiffs’ Response to Defendant Sandy Hutchens’s Motion for Summary Judgment [#147]; Plaintiffs’ Response to Defendant Bernard Feldman’s Motion for Summary Judgment [#148]; and Defendant Ed Ryan’s Rebuttal to Plaintiff’s Response to Motion to Dismiss Pursuant to FRCP 12(b) for Want of Subject Matter Jurisdiction [#150].

         This case was referred to the undersigned for disposition of all pretrial proceedings pursuant to Rules CV-72 and 1(c) of Appendix C of the Local Rules of the United States District Court for the Western District of Texas on June 6, 2017 [#7]. The undersigned has authority to enter this recommendation pursuant to 28 U.S.C. § 636(b)(1)(B). For the reasons set forth below, it is recommended that Plaintiff’s motion [#131] be granted in part and Defendants’ motions [#145, #146] be denied.

         I. Background

         Plaintiffs Campanile Investments LLC (“Campanile) and Joaquin Juan Bosco Garza Muguerza (“Muguerza”) originally filed this action on April 17, 2017 against Defendants Westmoreland Equity Fund (“Westmoreland”), Ed Ryan (“Hutchens”), American Escrow and Settlement Services (“AESS”), and Feldman regarding an “advance-fee loan scam” allegedly perpetrated by Defendants in connection with Plaintiffs’ efforts to obtain financing for the purchase of a condominium in San Antonio, referred to as Four Oaks Tower. (Orig. Compl. [#1] at ¶ 1.) Plaintiffs allege that Westmoreland-a company solely owned and managed by Hutchens-agreed to loan Plaintiffs $7.5 million for the purchase of Four Oaks Tower, and Plaintiffs remitted $480, 935.00 in advance fees to Westmoreland and AESS (a now defunct Florida-based LLC owned by Feldman), but Westmoreland refused to disburse the loan funds, terminated the agreement, and has failed to return the advance fees. (Compl. [#1] at ¶ 2.) As a result, Plaintiffs allege that the seller terminated Plaintiffs’ exclusive option to purchase Four Oaks Tower. (Id.)

         Plaintiffs filed an Amended Complaint on October 6, 2017, which added Elias Correa Menendez, Alan Feldman, and the law firm of Lydecker, Lee, Berga & De Zayas, LLC (“Lydecker”) as additional Defendants. (Am. Compl. [#15].) Plaintiffs alleged that Hutchens and Feldman engaged Lydecker and two of its attorneys Defendants Alan Feldman (Bernard Feldman’s son) and Menendez to assist with the scam. (Id. at ¶ 48.) Plaintiffs filed a Second Amended Complaint on January 11, 2018, alleging claims of fraud, negligent misrepresentation, civil conspiracy, violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), and conversion against all Defendants, as well as a claim of breach of contract against Westmoreland. (Id. at ¶¶ 57–94.) Lydecker, Alan Feldman, and Mendendez subsequently filed a motion to compel arbitration, which was dismissed as moot after Plaintiffs reached a settlement agreement with these Defendants [#50]. These Defendants were dismissed with prejudice from this lawsuit on May 4, 2018 [#62].

         Plaintiffs also reached a settlement in principle with Feldman and advised the Court of the same on March 29, 2018 [#51]. The parties both signed the written settlement agreement shortly thereafter [#131-1, at 10]. Issues arose between Plaintiffs and Feldman regarding Feldman’s failure to make timely payments in accordance with the terms of the settlement agreement, which resulted in the Court repeatedly extending the deadline for the filing of a stipulation of dismissal as to this Defendant [#63, #70]. The parties were unable to resolve their dispute over the missed payments, and Plaintiffs resumed litigation against Feldman [#74]. On April 24, 2019, Plaintiffs filed their Third Amended Complaint, which is the live pleading in this case, to add causes of action for breach of contract against Westmoreland and for breach of the settlement agreement with Feldman and AESS.[1] (Third Am. Compl. [#115] at ¶¶ 89–92.)

         Plaintiffs struggled to locate and serve Hutchens with process for the first year of this lawsuit, eventually moving for an order allowing alternative service via international mail at a new address for Hutchens in Ontario, Canada. The Court granted the motion on July 11, 2018 and ordered Plaintiffs to direct their service request to the Canadian Central Authority for Ontario in compliance with the Hague Convention [#70]. Hutchens was finally served on September 23, 2018 [#77], and Hutchens appeared in this action for the first time on October 15, 2018 [#80].[2] Hutchens and Feldman both moved to compel arbitration, arguing that a binding agreement required Plaintiffs to arbitrate their claims against them before an arbitrator in Miami, Florida. The Court denied the motions to compel arbitration, concluding that the arbitration agreement at issue was procured by fraud [#135]. Hutchens and Feldman filed objections to the order denying their motions to compel arbitration [#138, #139], and the District Court affirmed the undersigned’s Order on September 13, 2019 [#152].

         Plaintiffs and Defendants Hutchens and Feldman have now filed motions for summary judgment. Plaintiffs seek summary judgment against Defendant Bernard Feldman on their claim for breach of the parties’ settlement agreement. Defendants Ed Ryan (a/k/a Sandy Hutchens) and Bernard Feldman ask the Court to dismiss all claims asserted against them for lack of subject matter jurisdiction. Although styled as a motion for summary judgment, Defendants’ motions in fact re-urge their position that the parties should be compelled to arbitrate their dispute. Defendants contend that the Court lacked authority to adjudicate whether the parties’ arbitration agreement was procured by fraud because the contract delegates all questions of arbitrability to the arbitrator, not this Court. The Court first addresses Defendants’ motions.

         II. Analysis

         A. Defendants’ Motions [#145, #146]

         Defendants Hutchens and Feldman are each representing themselves pro se in this matter. By their motions, Hutchens and Feldman contend that the Court erred in denying their motions to compel arbitration. Defendants style their motion as a motion for summary judgment but argue for dismissal of Plaintiffs’ claims based on the lack of subject matter jurisdiction under Rule 12(b)(1). The Court should construe these motions as motions for reconsideration and deny the motions.

         As previously noted, the Court denied Defendants’ motions to compel arbitration on May 22, 2019, holding that the parties’ arbitration agreement was unenforceable because it was procured by fraud [#135]. Defendants had the opportunity to appeal this order to the District Court and did so by filing objections [#138, #139]. The District Court considered the objections, construed them as an appeal, and affirmed the undersigned’s ruling [#152]. Defendants now again argue that this Court erred in denying their motions to compel arbitration. In doing so, Defendants advance an argument not fully developed in their previous filings-that this Court lacked authority to consider Plaintiffs’ arguments as to fraudulent inducement because the parties’ contract contains a delegation provision delegating issues of arbitrability to the arbitrator.

         According to Defendants’ motions, the arbitrator, not this Court, is the only decisionmaker with jurisdiction to interpret and determine the validity of the parties’ contract. The Fifth Circuit recently clarified that agreements to arbitrate do not implicate questions regarding a federal court’s subject matter jurisdiction but are instead a special kind of contractual agreement implicating forum selection and claims-processing rules. Ruiz v. Donahoe, 784 F.3d 247, 250 & n.14 (5th Cir. 2015). “Subject-matter jurisdiction properly comprehended . . . refers to a tribunal’s ‘power to hear a case, ’ a matter that ‘can never be forfeited or waived.’” Union Pac. R.R. Co. v. Bhd. of Locomotive Eng’rs and Trainmen Gen. Comm. of Adjustment, Cent. Region, 558 U.S. 67, 81–82 (2009) (citations and quotations omitted). Because “mandatory grievance and arbitration procedures in contracts . . . are waivable [they] do not affect this court’s subject-matter jurisdiction.” Ruiz, 784 F.3d at 249. This Court has subject matter jurisdiction over Plaintiffs’ claims pursuant to 28 U.S.C. § 1332, as there is complete diversity of citizenship between the parties, and the amount in controversy exceeds $75, 000.00. (Orig. Compl. [#1] at ¶ 12.)

         Defendants’ motions therefore essentially represent an attack on the Court’s prior order denying their motions to compel arbitration, as opposed to a challenge to the Court’s subject-matter jurisdiction. Accordingly, the Court should construe Defendants’ motion as motions for reconsideration of a prior Court Order. The Federal Rules of Civil Procedure do not specifically provide for motions for reconsideration. Such motions are therefore generally analyzed under the standards for a motion to alter or amend a judgment under Rule 59(e) or a motion for relief from a judgment or order under Rule 60(b). See Hamilton Plaintiffs v. Williams Plaintiffs, 147 F.3d 367, 371 n.10 (5th Cir. 1998). A motion for reconsideration under Rule 59(e) “must be filed no later than 28 days after the entry of the judgment.” Fed.R.Civ.P. 59(b). Otherwise, the motion falls under Rule 60. Fed.R.Civ.P. 60(c) (“A motion under Rule 60(b) must be made within a reasonable time-and . . . no more than a year after the entry of the judgment or order or the date of the proceeding.”). Because Defendants filed their motion more than 28 days after Court issued the challenged order, their motion is governed by Rule 60(b).

         Rule 60(b) provides:

On motion and just terms, the court may relieve a party or its legal representative from a final judgment, order, or ...

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