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Lucy Cheng and Mait Dubois claimed to work for OMEI, which represented investors in Ocean View, which lent money to another entity called Southgate Development Group (SDG), which was the owner of a real estate development called Southgate Crossing.
Are you following along? If you think the need for multiple layers of corporations is a red flag, the Third Circuit is right along with you in this tale of "highly dubious business activities" taking place in the U.S. Virgin Islands.
This Seems a Little Fishy
Cheng met a South Carolina realtor at a conference, and together, they devised a fairly straightforward subdivision plan for 68 acres in St. Croix. Cheng, however, never intended to develop the property; she intended to sell it as soon as possible.
The events unfold as a real estate scam might. Cheng, who boasted that her "'specialty' was manipulating companies to make it 'look like A and run it through so many different permutations that it would come out over here as Z,'" paid an architect to create schematics that looked nice, but wouldn't suffice for getting building permits. She got a building developer, Frank Pollara, to sign a contract for work on the entrance to the property, falsely claiming that she already had the building permits for it.
Eventually, the planning department shut the project down, as the project -- whoops! -- didn't have the right permits. Cheng told Pollara to go get them, agreeing to pay for the additional tasks. Cheng apparently agreed to pay Pollara a lot more than he bargained for: in addition to $37,000 to repair a road washed out by heavy rain, she promised a 25% ownership stake for obtaining permits to build the 200 or so townhouses SDG was allegedly going to sell.
Development proceeded, and in fact, Pollara did some things free of charge because he believed he was getting a 25% stake in the project. Incriminating emails between Dubois and Cheng revealed that they only wanted to get the entrance gate completed and the property permitted; once that was done, they were going to sell the whole thing.
Surprise! It's All a Sham!
Eventually, a year and a half after getting Pollara involved, they stopped paying his invoices and locked him out of his office at the site. Quite cleverly, they had Ocean View, the company at the top of that complex nesting doll of shell companies, foreclose on the project, which destroyed Pollara's claim and divested the South Carolina realtor of his interest.
A jury awarded Pollara almost $400,000 in compensatory damages and $90,000 in punitive damages. The defendants brought a motion for summary judgment, which the trial court denied, and it's actually this order that's being appealed. The Third Circuit said that the summary judgment phase is over once a trial happens -- with the sole exception being for purely legal questions.
The legal question was "gist-of-the-action," a doctrine holding that breach of contract plaintiffs can't bootstrap a tort claim into the breach of contract claim; they have to be separate causes of action based on independent events. The problem, though, is that a gist-of-the-action defense is heavily fact-sensitive, making it inappropriate here. There was quite a bit of disagreement on the existence of a contract, and if there was one, which entity or person the contract was with.
Cheng and Dubois created an intentionally complex scheme, and in part, that complexity did them in.