Kolar v. Preferred Real Estate Investments, Inc.

361 F. App'x 354
CourtCourt of Appeals for the Third Circuit
DecidedJanuary 12, 2010
DocketNo. 08-3119
StatusPublished

This text of 361 F. App'x 354 (Kolar v. Preferred Real Estate Investments, Inc.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Third Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Kolar v. Preferred Real Estate Investments, Inc., 361 F. App'x 354 (3d Cir. 2010).

Opinion

[357]*357OPINION OF THE COURT

CHAGARES, Circuit Judge.

Plaintiff Erik E. Kolar appeals an order of the United States District Court for the Eastern District of Pennsylvania dismissing his claims under the Racketeer Influenced and Corrupt Organizations Act (“RICO” or “Act”), Pub.L. No. 91-452, Title IX, 84 Stat. 941 (1970), as amended, 18 U.S.C. §§ 1961-1968, and declining to exercise supplemental jurisdiction over his remaining state-law claims. We will affirm.

I.

We write for the parties’ benefit and set forth only those facts crucial to our analysis. In this procedural posture, we assume as true all well-pleaded facts appearing in the complaint. Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir.2009).

Kolar, a Pennsylvania citizen, is in the business of real estate investment. In 1998, he joined defendant Preferred Real Estate Investments, Inc. (“PREI”) as a shareholder and the company’s president.1 Defendant Michael G. O’Neil founded PREI in the early 1990’s, and at all times relevant here was the corporation’s chairman. PREI’s business involves the acquisition of real property by single-purpose limited partnerships (the “Affiliates”) that are owned by PREI’s principals. The Affiliates are governed by separate (albeit substantially identical) partnership agreements, and they generally derive them working capital from PREI’s principals, on a pro rata basis, in accordance with each principal’s ownership interest.2 PREI generates revenue through the development and management of the Affiliates’ purchased properties.

Kolar alleges that he owns shares in the following six Affiliates named as defendants in this action (the “Defendant Affiliates”); Island View Crossing, L.P. (“Island View”); Lee Park Investors, L.P. (“LPI”); Hamilton-NJ Holdings, L.P. (“Hamilton”); 240 Princeton Avenue Associates, L.P. (“Princeton”); Hunting Fox Associates V, L.P. (“Hunting Fox”); and Rivertown Holdings, L.P. (“Rivertown”). Kolar also owns a limited partnership interest in PRED and a shareholder interest in Preferred Real Estate Developers, Inc., a 1% general partner of PRED. Finally, Kolar owns minority shareholder interests in the various general partners of the Defendant Affiliates.

In 2005, Kolar resigned his position as an officer, director, and employee of PREI and entered into a Separation and Stock Repurchase Agreement and Mutual General Release (“Separation Agreement”) with the company. Under the agreement — which O’Neil executed on PREI’s behalf — Kolar retained his equity interests in the various PREI entities (including the Defendant Affiliates), and continued to be entitled to all rights and benefits thereunder. These entitlements included all rights to profit distributions, return of capital contributions, and future equity interests concerning properties that were subject (or in the process of being made subject) to agreements at the time the Separation Agreement was executed.

In September 2007, Kolar filed a 15-count complaint in the District Court [358]*358against O’Neil, PREI, PRED, and the Defendant Affiliates. He asserted several state-law causes of action against various defendants, and three RICO claims against all defendants. Essentially, the complaint alleges that PREI, PRED, and the Defendant Affiliates — under the control and express direction of O’Neil, and in violation of the Separation Agreement and governing partnership agreements — diverted partnership distributions to which Kolar was entitled into other Affiliates in which he had no or smaller interests. Kolar avers that the defendants fraudulently diverted these funds under pretextual claims that he was obligated to fund “capital calls” in connection with his interests in other Affiliates, and that they charged excessive management fees for several of the Affiliates’ real-estate ventures. Although he identified several suspect transactions in his complaint, one is of central concern here and warrants further explication.

In 2006, Island View — in which Kolar owned an approximate 30% share through his interest in PRED — entered into an agreement to lease office space to the Le-nox Corporation (“Lenox”). Kolar alleges that at the same time the lease agreement (the “Lenox Lease”) was executed, defendants — at O’Neil’s direction — created an entity for the purpose of acquiring another property owned by Lenox; Kolar was not given an ownership interest in this entity. The property, located at 900 Wheeler Way, Langhorne, Pennsylvania (the “Wheeler Way Property”), had an asking price of $10 million. Kolar alleges, however, that Lenox ultimately sold the Wheeler Way Property to the unknown entity for $5.5 million, and in return received from Island View an above-market $4.5 million lease allowance under the Lenox Lease. Consequently, Kolar complains, Island View— the entity in which he had a substantial interest — indirectly funded the discounted purchase of the Wheeler Way Property by an entity in which he had no interest.

Additionally, he asserts that the defendants caused the unknown entity to sell the Wheeler Way Property quickly for $8 million (a $2.5 million profit) and, despite his demand, did not reimburse Island View for the allowance it granted under the Lenox Lease. Kolar asserts that the structure of this transaction deprived him of at least $1.35 million (30% of $4.5 million), not including lost profits on the sale of the Wheeler Way Property.

The remainder of the complaint’s factual allegations regard other transactions undertaken by the Defendant Affiliates and for which Kolar claims he was not properly compensated. For instance, in 2006, LPI sold its primary asset — a property known as Lee Park — to a third party. Kolar alleges that instead of distributing approximately $1.6 million to which he was entitled, the defendants asserted the right to withhold the funds and loan them to other Affiliates. The defendants also allegedly withheld funds from this transaction on the basis that Kolar owed capital-call obligations to other Affiliates. Finally, the complaint alleges that the defendants caused LPI to repay only a fraction of a loan previously made by PRED, further withholding from Kolar distributions owed to him through his interest in that entity.3

These transactions form the basis of Kolar’s state-law claims, and also underpin his three RICO claims, which he asserts under 18 U.S.C. §§ 1962(a), (c) and (d). Briefly, he claims that together, the [359]*359defendants constituted an association-in-fact enterprise engaged in the real estate business, and whose activities included “acquiring and managing properties, disposing of such properties (usually at a profit,) and diverting proceeds resulting from such dispositions otherwise distributable to [Kolar] to his detriment.... ” Compl. ¶ 108. The complaint alleges that defendants repeatedly used the mails and wires to further a fraudulent scheme to divert and misappropriate funds rightly owed to him by virtue of his various partnership interests.

The defendants moved in the District Court to dismiss Kolar’s complaint under Fed.R.Civ.P. 12(b)(6). The District Court granted the motion, holding that Kolar’s RICO claims were legally deficient.

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Grin v. Shine
187 U.S. 181 (Supreme Court, 1902)
Hammerschmidt v. United States
265 U.S. 182 (Supreme Court, 1924)
Foman v. Davis
371 U.S. 178 (Supreme Court, 1962)
Sedima, S. P. R. L. v. Imrex Co.
473 U.S. 479 (Supreme Court, 1985)
McNally v. United States
483 U.S. 350 (Supreme Court, 1987)
Carpenter v. United States
484 U.S. 19 (Supreme Court, 1987)
H. J. Inc. v. Northwestern Bell Telephone Co.
492 U.S. 229 (Supreme Court, 1989)
Beck v. Prupis
529 U.S. 494 (Supreme Court, 2000)
Anza v. Ideal Steel Supply Corp.
547 U.S. 451 (Supreme Court, 2006)
Ashcroft v. Iqbal
556 U.S. 662 (Supreme Court, 2009)
Efron v. Embassy Suites (Puerto Rico), Inc.
223 F.3d 12 (First Circuit, 2000)
United States v. Boidi
568 F.3d 24 (First Circuit, 2009)
Kelly v. Delaware River Joint Commission
187 F.2d 93 (Third Circuit, 1951)
Blount Financial Services, Inc. v. Heller
819 F.2d 151 (Sixth Circuit, 1987)
Tabas v. Tabas
47 F.3d 1280 (Third Circuit, 1995)
Rehkop v. Berwick Healthcare Corporation
95 F.3d 285 (Third Circuit, 1996)
Dominick Annulli v. Ananda K. Panikkar
200 F.3d 189 (Third Circuit, 1999)

Cite This Page — Counsel Stack

Bluebook (online)
361 F. App'x 354, Counsel Stack Legal Research, https://law.counselstack.com/opinion/kolar-v-preferred-real-estate-investments-inc-ca3-2010.