United States District Court, D. Colorado
MCWHINNEY HOLDING COMPANY, LLLP, a Colorado Limited Liability Partnership, MCWHINNEY CENTERRA LIFESTYLE CENTER, LLC, a Colorado Limited Liability Company, and CENTERRA LIFESTYLE CENTER, LLC, a Delaware Limited Liability Company, Plaintiffs,
G. DAN POAG, an individual; JOSHUA D. POAG, an individual; an individual acting as co-trustee of the Josh and Chloee Poag 2004-GST Exempt Trust; an individual acting as co-trustee of the Jeremy and Chloee Poag 2004-GST Exempt Trust; an individual acting as co-trustee of the Mark and Chloee Poag 2004-GST Exempt Trust; an individual acting as co-trustee of the Josh and Dan Poag 2004-GST Exempt Trust; an individual acting as co-trustee of the Jeremy and Dan Poag 2004-GST Exempt Trust; an individual acting as co-trustee of the Mark and Dan Poag 2004-GST Exempt Trust; TERRY W. McEWEN, an individual; POAG & McEWEN LIFESTYLE CENTERS - CENTERRA, LLC, a Delaware Limited Liability Company; POAG & McEWEN LIFESTYLE CENTERS, LLC, a Delaware Limited Liability Company; POAG LIFESTYLE CENTERS, LLC, a Delaware Limited Liability Company; POAG SHOPPING CENTERS, LLC, a Delaware Limited Liability Company; PM LIFESTYLE SHOPPING CENTERS, LLC, a Delaware Limited Liability Company; POAG BROTHERS, LLC, a Tennessee Limited Liability Company; JEREMY M. POAG, an individual acting as co-trustee of the Josh and Chloee Poag 2004-GST Exempt Trust; an individual acting as co-trustee of the Jeremy and Chloee Poag 2004-GST Exempt Trust; an individual acting as co-trustee of the Mark and Chloee Poag 2004-GST Exempt Trust; an individual acting as co-trustee of the Josh and Dan Poag 2004-GST Exempt Trust; an individual acting as co-trustee of the Jeremy and Dan Poag 2004-GST Exempt Trust; an individual acting as co-trustee of the Mark and Dan Poag 2004-GST Exempt Trust; D. MARK POAG, an individual acting as co-trustee of the Josh and Chloee Poag 2004-GST Exempt Trust; an individual acting as co-trustee of the Jeremy and Chloee Poag 2004-GST Exempt Trust; an individual acting as co-trustee of the Mark and Chloee Poag 2004-GST Exempt Trust; an individual acting as co-trustee of the Josh and Dan Poag 2004-GST Exempt Trust; an individual acting as co-trustee of the Jeremy and Dan Poag 2004-GST Exempt Trust; an individual acting as co-trustee of the Mark and Dan Poag 2004-GST Exempt Trust; DOE INDIVIDUALS 1-10; DOE TRUSTS 11-30; and ROE CORPORATIONS 31-60; Defendants.
ORDER ON MOTIONS TO DISMISS
BROOKE JACKSON UNITED STATES DISTRICT JUDGE
motions to dismiss are before the Court. ECF Nos. 53, 55, 56,
57, 90. For the reasons stated below, my ruling on each
motion is as follows: the first motion to dismiss is GRANTED;
the second and third motions to dismiss are DENIED; and the
fourth and fifth motions to dismiss are DENIED in part and
GRANTED in part.
The Lifestyle Center Project.
lawsuit is the latest chapter in litigation that began in
2011. It all dates back, however, to the mid-1990s when two
brothers, Chad and Troy McWhinney, decided to develop a mixed
use community on approximately 3, 000 acres of undeveloped
land they owned in Larimer County. A centerpiece of the
contemplated development would be an upscale fashion shopping
center. However, they lacked experience with such a
development. Their search for someone who had such expertise
eventually led them to Dan Poag, who purportedly invented the
concept of a “lifestyle center.” In December
2002, the McWhinneys decided to enter into a joint venture
with Poag and his partner, Terry McEwen, to develop a
lifestyle center on the McWhinneys' property.
end, in 2004 the parties created a new entity called Centerra
Lifestyle Center, LLC (“CLC”). CLC's mission
was to build, own, and operate the “Promenade Shops at
Centerra.” The facts are somewhat complicated by the
penchant of both sides to do their business through holding
companies under which sprouted a veritable garden of
subsidiaries and affiliates. For present purposes, however,
the key McWhinney entity is McWhinney Centerra Lifestyle
Center, LLC (“MCLC”), and the key Poag and McEwen
entity is Poag & McEwen Lifestyle Center-Centerra, LLC
(“P&M”). On September 29, 2004 MCLC and
P&M signed a contract entitled “Limited Liability
Company Agreement of Centerra Lifestyle Center, LLC, ”
sometimes referred to simply as the “Operating
Agreement.” Under the Operating Agreement MCLC and
P&M each were 50% members and owners of CLC. MCLC
contributed land and capital. P&M contributed expertise
in building and leasing lifestyle centers and was designated
the manager of CLC.
Shops were built, but leasing was less successful than had
been anticipated. For various reasons a permanent loan was
never obtained to pay off the construction loan. Eventually
the center was foreclosed by the lenders and sold in
foreclosure to a third party. Neither the McWhinneys nor Poag
and McEwen retain any ownership interest in the Shops today,
although the new owner hired a Poag entity called Poag
Lifestyle Centers, LLC (“PLC”) to be the manager
of the Shops.
State Court Litigation.
not, at least for present purposes, describe in detail what
happened to the project because those facts have been
extensively discussed in a state court lawsuit that was filed
on May 27, 2011. The plaintiffs originally named in that case
were McWhinney Holding Company, LLLP and MCLC,
“derivatively on behalf of [CLC], a nominal defendant,
” and three other entities related to the McWhinneys
(Centerra Properties West, LLC, SMP4 Investments, Inc. and
Centerra Retail Sales Fee Corporation). Complaint, Larimer
County District Court, ECF No. 74- 1. The defendants named
were P&M, Poag & McEwen Lifestyle Centers, LLC, PLC
and several “Does.” Following a 13-day bench
trial, the district court, Hon. Thomas R. French, issued a
79-page order and judgment on August 15, 2017. ECF No. 22-1.
The order discusses the history of the project and the
parties' falling out in great detail. The court discusses
and resolves each of the plaintiffs' claims and the
defendants' counterclaims in turn as follows:
Plaintiffs' First Claim: Breach of Contract.
court found that P&M had breached contractual duties of
good faith, loyalty, care, fair dealing and candor owed to
MCLC and to CLC under the express terms of the Operating
Agreement (which essentially imposed the same duties as would
in any event be owed as fiduciary duties under governing
Delaware law). Specifically, P&M breached the Operating
Agreement in seven different ways:
Purchase of a $155 Million Forward Swap.
connection with its obligation to obtain a permanent loan to
pay off the construction loan for the Shops, P&M
purchased an uncovered or “naked” swap with CLC
funds without MCLC's informed knowledge or approval. This
was a risky gamble on future interest rates. The state court
held that it constituted an exercise of bad judgment; a
breach of the duties of good faith and loyalty by favoring
the interest of P&M, Dan Poag, his son Josh Poag, and
PMLC over the interests of CLC and the Shops; and a breach of
the duty of candor. The swap caused CLC to lose $7.5 million.
Although the court found that the breach was not sufficiently
material to excuse MCLC from performing its duties under the
Operating Agreement, it was sufficient to render P&M
liable to MCLC for damages under § 6.6(a) of the
Operating Agreement because it was accompanied by gross
negligence and willful misconduct. ECF No. 22-1 at 39-42 (pp.
38-41 of the court's order).
A $40 Million Loan to Pay Off Terry McEwen.
contributor to the project's financial demise arose after
Mr. McEwen informed Dan Poag that he wanted to retire and
wished to be paid $40 million for his interest in Poag and
McEwen and related entities. Instead of using the Poags'
money for this purpose, the decision was made to obtain a $40
million loan and, without MCLC's knowledge or approval,
ultimately to repay the loan with CLC's anticipated
permanent loan proceeds. P&M surreptitiously increased
the size of CLC's permanent loan application by $40
million to provide for funds to repay this loan. A permanent
loan in that increased amount was never obtained, resulting
in the foreclosure proceedings. The court found that
P&M's entry into and concealment of the $40 million
loan was, for several reasons, a material breach of fiduciary
duties owed to MCLC and CLC as embedded in the Operating
Agreement. Id. at 44-51 (pp. 43-50 of the court
breach concerns P&M's intentional withholding of
material financial information during a time when P&M was
attempting to sell its interest in CLC to MCLC. See
Id. at 51-53 (pp. 50-52 of court order).
breached § 6.2(m) of the Operating Agreement by
contesting a valuation of the lifestyle center below $190 per
square foot without MCLC's consent. Id. at 53-
55 (pp. 52-54 of court order).
Distributions from CLC.
breached its duty of loyalty under the Operating Agreement by
taking cash distributions from CLC to make interest payments
on the $40 million loan when CLC could not afford to do.
Id. at 55-56 (pp. 54-55 of court order).
Permanent Loan Notice.
did not provide a permanent loan notice before the maturing
date of the construction loan as required by § 7.3(a) of
the Operating Agreement. Id. at 56-61 (pp. 55-60 of
Permanent Loan Impasse Notice.
failed to send MCLC a permanent loan impasse notice as
required by § 7.3(a) of the Operating Agreement.
Id. at 61-62 (pp. 60-61 of court order).
Damages for Breach of Contract.
court held that MCLC had sustained damages caused by
P&M's breach of the Operating Agreement in three
categories: (1) the tax appeals had cost CLC $12, 065; as a
50% owner of CLC, MCLC was awarded 50% of that cost, i.e. $6,
032.50; (2) the $155 million swap cost CLC $7.5 million; MCLC
was awarded 50% of that loss, i.e. $3.75 million; and (3)
MCLC lost its equity in the Shops, which the court valued at
$38.25 million. Accordingly, the court found P&M to be
liable to MCLC for a total of $42, 006, 032.50. Id.
at 62-71 (pp. 61-70 of court order).
Plaintiffs' Other Claims.
court held that plaintiffs' second claim for
indemnification was premature because, under Delaware law, it
cannot be pursued until its final judgment withstands
appellate review. The court resolved plaintiffs' third
claim (fraudulent concealment of intent to breach the
contract's requirement for tax appeals) and fourth claim
(civil conspiracy) in favor of the defendants. Id.
at 71-76 (pp. 70-75 of court order). The Court reserved
plaintiffs' claim that the Poag and McEwen entities are
alter egos of each other for a second part of the trial,
which had not yet been scheduled as of the Scheduling
Conference in the present case held on January 10, 2018.
counterclaims were all resolved in favor of the plaintiffs.
Id. at 76-79 (pp. 75-78 of court order).
court entered judgment in favor of MCLC and against P&M
in the amount of $42, 006, 032.50 plus interest to be
determined at a later date. Id. at 79 (p. 78 of
court order). The court did not enter judgment on
plaintiffs' second claim but entered judgment in favor of
defendants on plaintiffs' remaining claims and in favor
of MCLC on the counterclaims. Id. at 80 (p. 79 of
The Present Case.
Plaintiffs' Original Complaint.
Holding Company, LLLP, and MCLC filed the present case in the
Larimer County District Court on November 8, 2017. The long
list of defendants named in the original complaint can, for
simplicity, be divided into three groups: (1) Dan Poag, Josh
Poag and Terry McEwen individually; (2) six Poag or Poag and
McEwen entities (including P&M); and (3) the trustees of
three Poag family trusts. See Complaint, ECF No. 17.
Plaintiffs allege that the defendants in the state court
concealed material information and obstructed plaintiffs'
discovery efforts literally for years. After plaintiffs
eventually were able, with the assistance of a special master
and the court, to obtain necessary documents and depositions,
they sought leave to amend their complaint to add the Poags
and Mr. McEwen individually as defendants and to assert
additional claims. The state court denied their motion,
principally-according to plaintiffs- because it would further
complicate and extend an already complicated and old case.
Instead, the trial court suggested that the new claims could
be pled in a separate action. Id. at 17.
inability to pursue claims against the Poags and Mr. McEwen
individually and other affiliated entities in that case-and
their concern that they will not be able to satisfy their
judgment against P&M-are the reasons for the present
case. Id. at 18-19.
recitation of the facts in the present case largely repeats
the facts they asserted, and in large part the court
sustained, in the state case, albeit focused more
specifically at the individual defendants. See Id.
at 19-46. They assert claims of (1) fraudulent concealment
against the three individual defendants; (2) fraudulent
misrepresentation against the three individual defendants;
(3) breach of fiduciary duty against the three individual
defendants; (4) civil conspiracy against the three individual
defendants; (5) fraudulent transfer against all defendants;
and (6) a declaratory judgment that three individual
defendants and the numerous other entities named as
defendants are all alter egos of each other. Id. at
their prayer for relief they request $92, 200, 000 in
“general damages” (a number that is not explained
and that appears to violate Rule 8(a) of the Colorado Rules
of Civil Procedure which prohibits the inclusion of dollar
amounts in the prayer for relief) and various other
categories of compensatory, punitive and equitable relief.
Id. at 60-61. However, in their proposed Scheduling
Order, plaintiffs make clear that they seek “[g]eneral
economic damages in the amount of $42, 006, 032.50”
plus interest, i.e., the amount awarded by the state court.
Plaintiffs assert some alternative damages theories, but the
essence of this case appears to be plaintiffs' effort to
recover the $42 million from whomever within the Poag and
McEwen group of individuals and entities is solvent and
capable of satisfying a large judgment. ECF No. 47 at 29-32.
Removal of the Case to Federal Court.
Poag Shopping Centers, LLC, with the consent of the other
defendants, promptly removed the case to this Court on
grounds of diversity of citizenship under 28 U.S.C. §
1332. ECF No. 1. It is undisputed that the requirements for
diversity of citizenship jurisdiction were met, and that the
case was properly removed to this Court.
Plaintiff's Amended Complaint.
then filed their First Amended Complaint (“FAC”).
ECF No. 22 (red-lined version at ECF No. 24-1). The primary
difference is that CLC was added as a third named plaintiff
in the amended version. It is undisputed that if CLC was
properly added as other than a nominal plaintiff, then
diversity jurisdiction is destroyed. A limited liability
company such as CLC assumes the citizenship of its members.
CLC and defendants share citizenship in Tennessee, Texas,
Washington, Ohio and Utah.
Plaintiff's Motion to Remand.
then moved to remand the case to state court based on lack of
diversity jurisdiction. Defendants opposed the motion,
arguing that CLC is neither a necessary nor an indispensable
party, and that the addition of CLC in the amended complaint
was a sham done solely to defeat federal jurisdiction. On
March 13, ...