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Lender wins suit for fraud, breach of contract

A federal judge in Greenbelt awarded a District of Columbia man nearly $480,000 after his business partner incorrectly used money the plaintiff lent to him for another venture.

Prakash Gavri lent Anu Pahuja $350,000 for one year at 10 percent interest in May 2007 with the expectation that the money would be invested in Pahuja’s business, Seakey Holding LLC, a satellite-linked communication and location service for the boating community.

Gavri was a successful businessman who co-owned a restaurant in Lorton, Va., with his brother and Pahuja. Gavri trusted Pahuja and looked up to him because of the disparities in their education, said Patricia Payne, Gavri’s lawyer: While Gavri had finished the ninth grade, Pahuja had an M.B.A. from Georgetown University, she said.

However, Pahuja failed to disclose a side agreement he set up in April 2007, when he used a corporate entity called AnuCo LLC to purchase Seakey from his employer, Maryland-based MobiApps Inc.

“The corporate entities were all blurred together,” said Payne, who is based in Washington, D.C.

“At the end of the day they ended up taking $350,000 that belonged to Mr. Gavri and funneled it to MobiApps,” she said. “At the end of the day, my job is to get that money back for him.”

When MobiApps sold Seakey to AnuCo, it retained a 32 percent interest in Seakey’s assets. Under the side agreement, MobiApps told Pahuja he would need to find external investors to contribute $1.8 million within 120 days; otherwise MobiApps would increase its ownership interest in Seakey and squeeze out Pahuja.

By September 2007, Seakey had come up with just $655,000, leading to discussions to restructure the side agreement.

Only then did MobiApps begin pressing Pahuja about the source of the money, according to court documents. MobiApps was concerned that if Seakey had gotten its funding through loans, it would have to repay the loans, and the company did not have the money to do that.

Pahuja told MobiApps in October 2007 that all of the money had been loans, not equity investments.

“It’s a cautionary tale on many different fronts,” Payne said. “As with many start-ups there wasn’t any supervision.

“He was raising money without any oversight,” she said. “They didn’t know what statements he was making. They didn’t know who he was raising money from.”

In March 2008, Gavri became concerned about repayment of his one-year loan and had Payne contact Seakey about the process. Seakey did not respond to her calls.

That April, she sent a demand communication to Pahuja outlining the issues that would later form the basis of Gavri’s lawsuit. Pahuja forwarded that notice to MobiApps and added his own thoughts.

“…this is not going the way any of us would like it to, especially since we have made contradictory statements to him regarding the ownership of the company,” he wrote. “He now mistrusts all of us and I am afraid will do something foolish that will not benefit anyone.”

MobiApps sent a draft response to Pahuja, which he sent along to Gavri, saying that the company did not have the money to pay him. Instead, the company suggested that it turn Gavri’s loan into equity, but he declined and filed suit.

In a Dec. 23 ruling in U.S. District Court, Senior Judge Peter J. Messitte found Seakey had breached its contract with Gavri and owed him $477,054.79. Seakey was found not liable for fraud.

The judge found Pahuja liable for fraud, negligent misrepresentation and unjust enrichment. The judge found MobiApps liable on theories of negligent misrepresentation and unjust enrichment.

Messitte went through the maximum amount each defendant could be liable for, but specified that under no circumstance should the payment be more than the $477,054.79.

The amounts follow:

-No more than $477,054.79 from Seakey (for breach of contract);

-No more than $426,232.88 from Pahuja (for fraud, negligent misrepresentation and unjust enrichment);

-No more than $365,342.47 from MobiApps (for negligent misrepresentation and unjust enrichment).

Messitte said any money Gavri receives from any defendant would create a dollar-for-dollar credit against the judgments against the other defendants.

The defendants’ attorneys, Jeffrey Goldstein of Smith, Lease and Goldstein LLC and Matthew John Pavlides of Miles & Stockbridge P.C., did not return calls for comment on Friday and Monday.

GAVRI V. SEAKEY HOLDING LLC, ET AL

Court:

U.S. District Court, Greenbelt

Case No.:

PJM 08-CV-1338

Proceeding:

Bench trial

Judge:

Peter J. Messitte

Outcome:

Plaintiff

Award:

$477,054.79

Dates:

Incident: May 2007 to April 2008

Suit filed: May 23, 2008

Disposition: Dec. 23, 2010

Plaintiff’s Attorney:

Patricia Payne of Payne and Associates LTD in Washington, D.C.

Defense Attorneys:

Jeffrey Goldstein of Smith, Lease and Goldstein LLC in Rockville; Matthew John Pavlides of Miles & Stockbridge P.C. in Rockville

Counts:

Breach of contract, Fraud, Negligent Misrepresentation, Unjust Enrichment