In re Jamuna Real Estate, LLC, Bankruptcy No. 04-37130.

416 B.R. 412

In re JAMUNA REAL ESTATE, LLC, United Management Services, Inc., Bagga Enterprises, Inc., Debtor(s) Marvin Krasny, in his capacity as Chapter 7 Trustee of United Management Services, Inc.; Marvin Krasny, in his capacity as Chapter 7 Trustee of Jamuna Real Estate LLC; Gary Seitz, in his capacity as Chapter 7 Trustee of Bagga Enterprises, Inc., Wilmington Trust Company in its capacity as Owner Trustee of FL Receivables Trust 2002-A and FL Receivables Trust 2002-A:, Plaintiffs v. Pratpal Bagga; Khushvinder Bagga; Ravinder Chawla; Hardeep Chawla; Welcome Group, Inc.; K & P Real Estate LLC; World Apparel Products, Inc. d/b/a/ SJM Trading Company, d/b/a Ten Tigers; American Merchandise Co., Inc., a/k/a American Merchandising Co., Inc.; 21st Century Restaurant Solutions, Inc.; Brand Trade, Inc.; H.B. Properties, Inc.; H.B. Properties LLP; Sant Properties; John and Jane Does and ABC Companies, Defendants.

Bankruptcy No. 04-37130.

Bankruptcy No. 04-37132.

Bankruptcy No. 04-37136.

Adversary No. 06-128.

Adversary No. 06-129.

Adversary No. 06-130.

United States Bankruptcy Court, E.D. Pennsylvania.

March 5, 2009.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Lawrence J. Tabas, Esquire, Richard P. Limburg, Esquire, Obermayer Rebmann Maxwell & Hippel LLP, Nicholas M. Centrella, Esquire, Conrad O'Brien Gellman & Rohn, PC, Philadelphia, PA, Patrick E. Fitzmaurice, Esquire, Thatcher Proffitt & Wood LLP, New York, NY, for Plaintiffs.

Paul C. Madden, Esquire, Richard M. Simins, Esquire, Jeffrey Carbino, Esqurie, Buchanan Ingersoll & Rooney, Philadelphia, PA, for Chawla Defendants.

Mark B. Frost, Esquire, Frost & Zeff, Philadelphia, PA, Andrew Teitelman, Esquire, Law Office of Andrew Teitelman, Huntingdon Valley, PA, for Pratpal Bagga.

OPINION

STEPHEN RASLAVICH, Chief Judge.

INTRODUCTION.

Before the Court is the Motion of Defendants Ravinder Chawla, Hardeep Chawla, World Apparel Products, Inc., Sant Properties, HB Properties, Inc., and HB Properties, LLP (the "Chawla Defendants") to dismiss the Plaintiffs' Amended Complaint.¹ The Motion is opposed by the Plaintiffs. After a hearing held on December 4, 2009, the Court took the matter under advisement. For the reasons which follow, the Motion will be granted.

Summary of Holding

While the Amended Complaint pleads a total of twelve counts, only four are directed at one (or more) of the Chawla Defendants: Count I (RICO²); Count II (conspiracy to commit RICO); Count IX (fraud and conspiracy to defraud); and Count XIV (Aiding and Abetting a Breach of Fiduciary Duty). As to these counts the Court rules as follows:

Count I—RICO (Plaintiffs against Pratpal Bagga and Ravinder Chawla)

• Basis for Contention: Ravinder Chawla maintains that this count fails to state a claim under RICO against him.

• Holding: The Motion will be granted and Count I will be dismissed as to Ravinder Chawla.

Count II—Conspiracy to Violate RICO (Plaintiffs against All Defendants)

• Basis for Contention: The Chawla Defendants argue that the Complaint is deficient in two respects: first, that it is contingent on the sufficiency of Count I; second, that it fails either to allege either an agreement among the alleged conspirators or the participation of Hardeep Chawla, HB Properties Inc, and/or HB Properties LLP.

• Holding: The Motion will be granted and Count II will be dismissed as to the Chawla Defendants.

Count IX—Fraud and Conspiracy to Commit Fraud (Plaintiffs against Pratpal Bagga and Ravinder Chawla)

• Basis for Contention: The Chawla Defendants argue that the claim is time-barred, that the Plaintiffs lack standing, and that a prima facie case is not pleaded.

• Holding: The Motion will be granted and Count IX will be dismissed as to Ravinder Chawla

Count XIV—Aiding and Abetting A Breach of Fiduciary Duty (Plaintiffs vs. All Defendants)

• Basis for Contention: Chawla Defendants maintain that the Plaintiffs have failed to state the proper standard; that there exists no underlying duty; that the complaint does not plead substantial assistance or encouragement; and that the claim is otherwise time-barred.

• Holding: The Motion will be granted and Count XIV will be dismissed as to the Chawla Defendants.

Standing to Raise RICO

Although the legal sufficiency of a complaint is judged facially, this case has a prior procedural history which affects what may be alleged. For the third time, the issue of standing is joined. In its Opinion of February 6, 2008, this Court held that the Plaintiff FL Trust lacked standing to sue because of a lack of privity. In the Opinion of April 7, 2008, it was the Plaintiff Bankruptcy Trustees who were found to lack standing because they were not directly harmed by the alleged racketeering conduct. The upshot of all of this is that the right of either plaintiff to raise RICO is, at this juncture, severely circumscribed. It is foreclosed to the extent that it is derivative of the "Captec assignment." That background and this Court's ruling on its effect is set out at length in the Court's prior opinion and will not be repeated here. See generally 382 B.R. 263. Most importantly, that ruling is now the law of the case. In re Continental Airlines, Inc., 279 F.3d 226, 232 (3d Cir.2002) citing 18 Moore's Federal Practice ¶ 134.20 (3d ed.1999) (As a rule of preclusion, this doctrine is concerned with the extent to which the law applied in decisions at various stages of the same litigation becomes the governing legal precept in later stages). As explained in the Court's Opinion, if the Trust was to press a RICO claim, it would have to be based on damages the Trust independently suffered. The same applies to the Bankruptcy Trustee Plaintiffs.

The Plaintiff Trust has raised RICO claims again in the Amended Complaint. And once again, the Chawla Defendants challenge its right to do so.

Standing has been described as the "irreducible constitutional minimum."³ Accordingly, it is appropriate that it be taken up first by the Court. Its essence is injury; Article III standing requires that "the plaintiff must have suffered an injury in fact-an invasion of a legally protected interest which is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical." Township of Piscataway v. Duke Energy, 488 F.3d 203, 208 (3d Cir.2007) (citing Trump Hotels & Casino Resorts v. Mirage Resorts, 140 F.3d 478, 484-85 (3d Cir.1998)). RICO likewise requires injury and that the harm have resulted from a violation of the statute: "Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor ..." 18 U.S.C. § 1964(c). At bottom, where RICO is implicated this becomes a question of causation. The Court must determine first if the count pleads a RICO violation and, if it does, whether damages are pleaded which are the proximate result of the illegal conduct. The Court will address the standing question in this way. See Maio v. Aetna, Inc., 221 F.3d 472, 482 n. 7 (3d Cir.2000) (discussing similarity between standing analysis and RICO violation and resulting injury analysis).

Standard for Dismissal

The Motion to Dismiss is premised mostly on Rule 12(b)(6)⁴; i.e., that the amended complaint fails to state a claim upon which relief may be granted.⁵ In light of the Supreme Court's decision in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), the legal sufficiency of the Amended Complaint is to be judged differently from the original Complaint.⁶ While the Supreme Court's decision in Twombly reaffirmed the basic premises of F.R.C.P. 8 and 12(b)(6) (requiring the pleading of a "short and plain statement" and accepting as true the alleged facts), the Court made clear that the complaint may not rely on just "labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. 127 S.Ct. at 1965. Also, the "`plain statement'" requirement of Rule 8(a)(2) must contain enough "heft" to show that the pleader is entitled to relief. Id. at 1966. This heightened pleading burden must be enough to "raise a right to relief above the speculative level." Id. at 1965; see also Umland v. PLANCO Financial Services, Inc., 542 F.3d 59, 64 (3d Cir.2008) (cautioning "that the factual allegations in the complaint must not be so undeveloped that it does not provide a defendant the type of notice of claim which is contemplated by Rule 8.") quoting Phillips v. County of Allegheny, 515 F.3d 224, 233 (3d Cir.2008) The Third Circuit has added that "it is no longer sufficient to allege mere elements of a cause of action; instead `a complaint must allege facts suggestive of [the proscribed] conduct.'" Phillips, id. (quoting Twombly, 127 S.Ct. at 1969 n. 8).

As a result of the foregoing, more is now required in the way of pleading, but the High Court left the question of how much more to the trial court. See In re Intelligroup Sec. Litig., 527 F.Supp.2d 262, 278 (D.N.J.2007) (interpreting Twombly's specificity requirement to be determined on a case-by-case basis) If there is any guidance to be gained from the Supreme Court it may be in one of its rationales. The Court noted that in complex cases discovery costs tend to escalate. 127 S.Ct. at 1966-67 That might be avoided by requiring more in the way of pleading at the outset. Id. Twombly itself was an antitrust claim and such causes of action tend to involve complex and technical questions. RICO presents the same problem. Discovery in this case has become protracted and contentious. The parties have lamented that discovery has thus far involved "tens of thousands" of pages of documents. Defendants' Brief, 24. Requiring more detail in the pleading stage would clearly help to cut through some of that. The Court's analysis, then, will endeavor to hew to the line set forth in Twombly.

Count I—RICO

Against this background, the Court turns to the RICO claim. Count I alleges that Pratpal Bagga, Khushvinder Bagga and ...