In re Jamuna Real Estate Llc

445 B.R. 490

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; et al., Defendants.

Bankruptcy Nos. 04–37130

04–37132

04–37136.Adversary Nos. 06–128

06–129

06–130.

United States Bankruptcy Court, E.D. Pennsylvania.

Dec. 7, 2010.

Jonathan Forstot, Sonnenschein Nath & Rosenthal LLP, Patrick E. Fitzmaurice, SNR Denton U.S. LLP, New York, NY, Lawrence J. Tabas, William K. Pelosi, Obermayer, Rebmann, Maxwell & Hippel LLP, Philadelphia, PA, for Plaintiffs.Andrew Teitelman, Law Office of Andrew Teitelman, Brian P. Perini, Law Office of Brian P. Perini, Huntington Valley, PA, Joseph M. Fioravanti, Attorney at Law, Eugene J. Malady, Media, PA, for Defendants.

OPINION

STEPHEN RASLAVICH, Chief Judge.Introduction

Before the Court is the Motion of the Defendants for Partial Judgment on the Pleadings. Specifically, the relief requested breaks down into three groups: first, that the substantive RICO claim against Mr. Bagga be dismissed; second, that as a result of dismissal of the RICO claim against Mr. Bagga, all RICO conspiracy claims (must necessarily) be dismissed; and third, that the state law claim in counts V through VIII and X must be dismissed as to Mrs. Bagga for failure to state a claim.¹ The Motion is opposed by the Plaintiffs. After a hearing held on October 19, 2010, the Court took the matter under advisement. For the reasons which follow, the Motion will be granted in part and denied in part.

Ruling

As to Count I (RICO), the Motion is denied and the Court's prior ruling on this count is upheld as to Mr. Bagga.

As to Count II (Conspiracy to Violate RICO), the Motion is denied and the Court's prior ruling as to the RICO conspiracy claim is upheld.

As to Count V (Breach of Fiduciary Duty—Self Dealing), the Motion is denied. Count V states a claim of self-dealing against Mrs. Bagga.

As to Count VI (Breach of Fiduciary Duty—Preservation of Entity Property), the Motion is granted in favor of Mrs. Bagga.

As to Count VII (Breach of Fiduciary Duty—Deepening Insolvency), the Motion is granted in favor of Mrs. Bagga.

As to Count VIII (Aiding/Abetting a Fiduciary Breach), the Motion is denied. Count VIII states a claim for aiding or abetting a fiduciary breach against Mrs. Bagga.

As to Count X (Alter Ego), the Motion is granted in favor of Mrs. Bagga.

Standard for Motion for Judgment on the Pleadings

The Court analyzes a motion for judgment on the pleadings via the same standard applicable to a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Leone v. Twp. of Deptford, 616 F.Supp.2d 527, 530–31 (D.N.J.2009) (citing Turbe v. Gov't of V.I., 938 F.2d 427, 428 (3d Cir.1991)). In order to survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a complaint must allege facts that raise a right to relief above the speculative level. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 1965, 167 L.Ed.2d 929 (2007); see also Fed.R.Civ.P. 8(a)(2). Courts should disregard the complaint's legal conclusions and determine whether the remaining factual allegations suggest that the plaintiff has a plausible-as opposed to merely conceivable-claim for relief. Ashcroft v. Iqbal, ––– U.S. ––––, 129 S.Ct. 1937, 1949–50, 173 L.Ed.2d 868 (2009); Fowler v. UPMC Shadyside, 578 F.3d 203, 210–11 (3d Cir.2009).² While a court must accept as true all allegations in the plaintiff's complaint, and view them in the light most favorable to the plaintiff, Phillips v. County of Allegheny, 515 F.3d 224, 231 (3d Cir.2008), a court is not required to accept sweeping legal conclusions cast in the form of factual allegations, unwarranted inferences, or unsupported conclusions. Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir.1997).

Count I—RICO against Mr. Bagga

The first challenge made by the Defendants returns the Court yet again to the substantive RICO claim. The Defendants now maintain that upholding the legal sufficiency of the substantive RICO claim against Mr. Bagga rests on a partially flawed premise. The error which they identify in the Court's RICO ruling pertains to that statute's “pattern” requirement. That requirement, they say, should be construed much more narrowly for pleading purposes. To that end, they suggest that the Court ought to have followed a line of reasoning offered in a concurring opinion to controlling Supreme Court authority.

A RICO Pattern

This Court's finding that a pattern was sufficiently pleaded for RICO purposes was based on the Supreme Court's opinion in H.J., Inc., v. Northwestern Bell Tel. Co., 492 U.S. 229, 250, 109 S.Ct. 2893, 2906, 106 L.Ed.2d 195 (1989). There, the High Court explained that a RICO pattern is pleaded with acts both related to each other as well as continuous at least over a minimum period of time. This Court found that Plaintiff had sufficiently alleged that Mr. Bagga had committed at least three types of racketeering acts which were all part and parcel of an integrated scheme to defraud. That rendered his racketeering acts related. Mr. Bagga alleged to have piloted this enterprise via these frauds and other wrongdoings over a three year period. This is a considerable enough span of time to be called continuous. On that basis the Court found that Mr. Bagga engaged in a pattern of racketeering activity. See 2010 WL 2773395 at *8–9 (July 13, 2010 Bankr.E.D.Pa.)

Against this ruling, the Defendants would have the Court define pattern for purposes of RICO much more narrowly. They rely on Justice Scalia's concurrence in H.J., supra, wherein he questioned the constitutionality of the majority's pronouncement on what constituted a RICO pattern. Id. at 251–252, 109 S.Ct. 2893. Justice Scalia's objection to that part of the majority's opinion was premised on vagueness. The Defendants here ask this Court to adopt that concurring interpretation and dismiss the RICO claim against Pratpal Bagga.

H.J.'s RICO Pattern Enunciation and Precedent

Any request to rule in contravention of established law implicates fundamental decisional concerns. Both the federal and state court systems in the United States adhere to the policy of stare decisis. This principle states that it is the policy of courts to stand by precedent and not disturb settled points of law. Generally, the principle of stare decisis, and the interests that it serves, viz., “the evenhanded, predictable, and consistent development of legal principles, ... reliance on judicial decisions, and ... the actual and perceived integrity of the judicial process,” Payne v. Tennessee, 501 U.S. 808, 827, 111 S.Ct. 2597, 2609, 115 L.Ed.2d 720 (1991), counsel strongly against reconsideration of precedent. Nevertheless, the Supreme Court has always treated stare decisis as a “principle of policy,” Helvering v. Hallock, 309 U.S. 106, 119, 60 S.Ct. 444, 451, 84 L.Ed. 604 (1940), and not as an “inexorable command,” Payne, 501 U.S. at 828, 111 S.Ct. at 2609. “[W]hen governing decisions are unworkable or are badly reasoned, the High Court has never felt constrained to follow precedent.” Id., at 827, 111 S.Ct. at 2609 (quoting Smith v. Allwright, 321 U.S. 649, 665, 64 S.Ct. 757, 765, 88 L.Ed. 987 (1944)).

The Third Circuit has explained precedent as follows:

A judicial precedent attaches a specific legal consequence to a detailed set of facts in an adjudged case or judicial decision, which is then considered as furnishing the rule for the determination of a subsequent case involving identical or similar facts and arising in the same court or a lower court in the judicial hierarchy.

Allegheny Gen. Hosp. v. NLRB, 608 F.2d 965, 969–970 (3d Cir.1979) (overruled on other grounds, St. Margaret Mem. Hosp. v. NLRB, 991 F.2d 1146 (3d Cir.1993)). To become precedent, the point of law must be agreed upon by a majority ³ of the court ruling on the matter.⁴ Mere concurrence in the result, and not the legal issue, is insufficient to establish precedent. See, e.g., Maryland v. Wilson, 519 U.S. 408, 412–413, 117 S.Ct. 882, 885, 137 L.Ed.2d 41 (1997). A concurring opinion, while persuasive, is not binding. See United States v. Reynard, 473 F.3d 1008, 1021 (9th Cir.2007). Simply put, this Court is bound by H.J. as controlling authority.

Justice Scalia's concurring opinion, 492 U.S. at 251, 109 S.Ct. 2893, took issue with the High Court's standard for pleading a racketeering pattern. The concurrence saw that standard as lacking the requisite certainty for constitutional fairness. Id. Because that concurrence is at odds with the majority's holding on that point, it is without controlling force. Accordingly, the Defendants' request that we depart from the applicable rule of decisions must be rejected as a matter of law.

RICO Patterns, Vagueness and Recent Authority

Undeterred, the Defendants bring to the Court's attention what it considers to be a trend in related jurisprudence. They offer recent Supreme Court authority from a different context to support their position on pleading a RICO pattern. In Skilling v. United States, ––– U.S. ––––, 130 S.Ct. 2896, 177 L.Ed.2d 619 (2010), the High Court was confronted with a challenge to a different but related statute on vagueness grounds. In that case, the defendant appealed his conviction under the “honest services statute,” 18 U.S.C. § 1346. This statute declares illegal any “scheme or artifice to deprive another of the intangible right of honest services.” Id. It was applied to Jeffrey Skilling, an officer of Enron Corporation, who was charged with deceiving investors by manipulating publicly reported financial...