Belen v. Herman

1

ARIEL E. BELEN, as Temporary Co-Trustee of the Trust created by Harold Herman dated March 1, 1990 and as Temporary Trustee of the Trust created by Rosemarie Herman dated November 27, 1991, and ROSEMARIE HERMAN, as Co-Trustee of the Trust created by Harold Herman dated March 1, 1990, Plaintiffs, v. JULIAN M. HERMAN, ROCLA, LLC, ROCLAB, LLC, THE VANGUARD GROUP, INC., OAKWORTH CAPITAL BANK, DENTONS SIROTE, PC, DENTONS U.S. LLP, and HOWARD NEISWENDER, Defendants.

No. 22 Civ. 6455 (AKH)

United States District Court, S.D. New York

January 17, 2024

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTIONS TO DISMISS

ALVIN K. HELLERSTEIN, UNITED STATES DISTRICT JUDGE

Plaintiffs as trustees, are judgment creditors of Defendant Julian M Herman, in the amount of $103,637,208.44, pursuant to a judgment of the New York Supreme Court entered September 17 2017. Efforts to obtain payment have failed. Plaintiffs allege that defendants, individually and as part of an elaborate and fraudulent scheme carried out in 2016 and 2017 caused Julian Herman to be judgment proof by moving his assets overseas, to accounts in Liechtenstein and other sheltering havens. Plaintiffs, in eight counts of a First Amended Complaint against eight defendants, seek recovery from each defendant.

Defendants removed this case from the Supreme Court and, in four motions, seek to dismiss the lawsuit for failure to state a legally sufficient claim for relief. A fifth motion seeks, alternatively, to dismiss Defendant Oakworth for lack of personal jurisdiction, or to transfer the case to the United States District Court for the Northern District of Alabama. The several motions are granted in some respects and denied in others, as described below.

THE AMENDED COMPLAINT

The following facts are alleged in a First Amended Complaint (FAC), which I must “accept[] as true” for the purpose of these motions. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). I have disregarded defendants' affidavits stating additional facts, since I am asked to rule on motions to dismiss, and I have not converted them to motions for summary judgment. Fed.R.Civ.P. 12(d).

In 2011, Plaintiffs sued Julian M. Herman (“Julian”) in New York Supreme Court for defrauding Rosemary Herman (“Rosemary”), Julian's sister, of her fifty percent interest in six Manhattan apartment buildings.^[1] On September 19, 2017, the Supreme Court entered judgment in favor of Rosemary and her co-trustee, Ariel Belen, in the amount of $103,637,208.44. In anticipation of the judgment, Julian initiated steps to insulate his assets. He retained Howard Neiswender, a partner and shareholder of Defendant Dentons Sirote (“Sirote”),^[2] a law film located in Birmingham, Alabama, because of his expertise in asset protection. In December 2015, Neiswender formed multiple limited liability companies and busts, including Defendants Rocla LLC, and Roclab LLC, limited liability companies organized under the laws of South Dakota. Their stated address was that of Sirote, in Alabama, and they were managed, indirectly, by Neiswender.

Julian held his cash in a number of accounts to be opened in UBS Bank in New York City, in the names of limited liability companies he had created for that purpose. Among them were Defendants Rocla and Roclab, both limited liability companies created in South Dakota.

In April 2016, Julian, with Neiswender's guidance and participation, opened brokerage accounts with The Vanguard Group, Inc. in the names of two of these companies, Rocla and Roclab, and gave his name and social security number as the controller of the accounts. The next day, Julian instructed Vanguard to close the two accounts and open two new accounts for Rocla and Roclab, this time making the controller of the accounts “Maurice J. Herman,” Maurice being Julian's real middle name, and providing a false social security number. FAC ¶10. Neiswender instructed Vanguard to conceal that Julian signed for the new accounts, and Vanguard complied. In May 2016, Julian funded the Vanguard accounts with over $150 million in securities, transferring the assets from his companies' accounts at UBS.

In September 2017, Plaintiffs learned from a UBS interpleader complaint (“UBS complaint”) that Julian held his assets in shell companies with accounts at UBS, and that those assets were transferred to accounts at Vanguard. The UBS Complaint also alleged that Defendants Neiswender and Sirote were involved with these accounts.^[3] After Plaintiffs' judgment against Herman became final, they then served a restraining notice on Vanguardl requiring it to “restrain all accounts in which [Herman] had an ownership interest or for which he was a signatory,”^[4] and an information subpoena requesting information about accounts for which Herman “may have an interest, whether under the name of the debtor, under a trade or corporate name, or in association with others, as of the date of the subpoena or within three (3) years prior thereto, including but not limited to any account for which the judgment debtor has or had signatory power.” FAC ¶¶14, 15. Vanguard responded that it had no open accounts, and one closed account with an amount on deposit of zero dollars.

Two weeks later, Neiswender, on behalf of Julian, instructed Vanguard to liquidate the accounts and to transfer the funds (approximately $150 million) to Defendant Oakworth Capital Bank, a small Alabama bank that held only $500 million in customer assets in 2017. Neiswender then instructed the bank to make fifteen wire transfers of $10 million each to an account in Liechtenstein, by way of Citibank in New York. Oakworth sent a confirmation of each transaction to Herman. On January 19, 2018, the Oakworth accounts were closed. On July 1, 2021, Rocla and Roclab were dissolved.

Plaintiffs continued to pursue their recovery efforts. On February 9, 2021, Plaintiffs again served an informational subpoena on Vanguard, asking “does Vanguard have, or did it ever have, any account held by or in the name of any of the following entities: . .. Rocla, LLC, Roclab, LLC . . . FAC ¶208. Vanguard responded in May and July 2021 that its records “listed [Herman] as ‘ Signatories]' to the Rocla and Roclab Accounts,” and stated that those accounts were in existence when Plaintiffs had served Vanguard with a restraining notice and informational subpoena in 2017. FAC ¶ 210. Plaintiffs allege that this was the first time they became aware that Julian hid his money in Rocla and Roclab accounts in Vanguard.

On June 24, 2022, Plaintiffs filed this lawsuit in New York Supreme Court against all the parties involved in sheltering Julian's assets: Julian Herman, Rocla LCC, Roclab LLC, The Vanguard Group, Inc., Oakworth Capital Bank, Dentons Sirote, Dentons U.S. LLP^[5], and Howard Neiswender. Following Defendants' removal of the action, Plaintiffs filed a First Amended Complaint alleging eight claims for relief: 1) violation of a restraining order pursuant to CPLR § 5222 against Vanguard, 2) fraud/fraudulent misrepresentation against Julian and Vanguard, 3) negligence/negligent misrepresentation against Vanguard, 4) conspiracy to commit fraud against all defendants, 5) aiding and abetting fraud against Vanguard, Oakworth, Neiswender, Sirote, Dentons U.S. LLP, Rocla, and Roclab, 6) violation of RICO under 18 U.S.C. § 1962(d) and conspiracy to violate RICO under 18 U.S.C. § 1962(c) against Julian, Neiswender, Vanguard, and Oakworth, 7) veil-piercing declaratory judgment against Julian, Rocla, and Roclab, and 8) repatriation of funds by Julian under Fed.R.Civ.P. 69(a) and “New York Law.”

The motions before me challenge the legal sufficiency of Plaintiffs' allegations, LEGAL STANDARD

In ruling on a motion to dismiss, the court must accept the factual allegations in the complaint as true and draw all reasonable inferences in favor of the nonmoving party. Gregory v. Daly, 243 F.3d 687, 691 (2d Cir. 2001), as amended (Apr. 20, 2001). To survive a motion to dismiss, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Iqbal, 556 U.S. at 678 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.

Fraud claims, and RICO claims predicated on fraudulent acts, must be pled with particularity pursuant to Fed.R.Civ.P. 9(b). Premium Mortg. Corp, v, Equifax, Inc., 583 F.3d 103, 108 (2d Cir. 2009). The complaint must “1) specify the statements that the plaintiff contends were fraudulent, 2) identify the speaker, 3) state where and when the statements were made, and 4) explain why the statements were fraudulent.” Rombach v. Chang, 355 F.3d 164, 170 (2d Cir. 2004) (quoting Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993)).

DISCUSSION

I. Oakworth's motion challenging personal jurisdiction and venue

A. Fed.R.Civ.P. 12(b)(2)

The issue is whether Oakworth Capital, a citizen of Alabama, is subject to long-arm jurisdiction in New York.

Under the New York long-arm statute, “a court may exercise personal jurisdiction over any non-domiciliary . . . who in person or through an agent. . . transacts any business within the state or contracts anywhere to supply goods or services in the state.” N.Y. C.P.L.R. § 302(a)(1). Two prongs must be met: “(1) The defendant must have transacted business within the state; and (2) the claim asserted must arise from that business activity.” Sole Resort, S.A. de C. V. v. Allure Resorts Mgmt LLC, 450 F.3d 100,103 (2d Ch. 2006). The first prong requires a showing that the entity “purposefully avails itself of the privilege of...