In re Jamuna Real Estate LLC

365 B.R. 540

In re JAMUNA REAL ESTATE, LLC, Bagga Enterprises, Inc., United Management Services, Inc., Debtors Marvin Krasny, Chapter 7 Trustee of Jatnuna Real Estate LLC; Marvin Krasny, Chapter 7 Trustee of United Management Services, Inc.; Gary Seitz, Chapter 7 Trustee of Bagga Enterprises, Inc.; 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 Co., d/b/a Ten Tigers; American Merchandise Co., Inc., a/k/a American Merchandising Co., Inc.; 21^st Century Restaurant Solutions, Inc.; Brand Trade, Inc.; HB Properties, Inc.; HB Properties LLP; Sant Properties; John and Jane Does and ABC Companies, Debtors.

Bankruptcy No. 04-37130.

Bankruptcy No. 04-37132.

Bankruptcy No. 04-37136.

Adversary No. 06-0128

Adversary No. 06-0129

Adversary No. 06-0130

United States Bankruptcy Court, E.D. Pennsylvania.

April 25, 2007.

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George Conway, Esquire, Office of the U.S. Trustee, Philadelphia PA, for Interested Parties.

Richard M. Simins, Esquire, Buchanan Ingersoll, P.C., Philadelphia, PA, Andrew Teitelman, Esquire, Huntingdon Valley, PA, for Defendants.

Lawrence J. Tabas, Esquire, Obermayer Rebmann Maxwell & Hippel LLP, Philadelphia, PA, Patrick E. Fitzmaurice, Esquire, Christopher F. Graham, Esquire, Thatcher Proffitt & Wood LLP, White Plains, NY, for Plaintiff.

Opinion

STEPHEN RASLAVICH, Bankruptcy Judge.

Introduction.

In three related bankruptcies, two trustees and a secured lender have filed an identical fifteen count complaint against four individuals and various entities controlled by them. The Complaint alleges federal racketeering and state common law claims. All Defendants move for dismissal of all counts with the exception of Count V. The motion is opposed by the Plaintiffs. A hearing on the motion was held on July 25, 2006. For the reasons set forth below, the Motion will be granted in part and denied in part.

Procedural Developments Since the Filing of this Motion

Following the hearing, the Defendants filed a motion in the District Court to withdraw the reference of this case from the Bankruptcy Court. That request was opposed. Before ruling on that motion, the District Court remanded the matter to this Court to determine which claims in the Complaint raise core versus non-core claims. See Order dated October 6, 2006, 06 cv 0050. This Court made that determination on December 20, 2006. On January 22, 2007, the District Court denied the Defendants' motion to withdraw reference. That placed the Defendants' Motion to Dismiss squarely before this Court.

Summary of Holding

Count I — RICO (Plaintiffs against Pratpal and Khushvinder Bagga and R. Chawla)

• Basis for Contention: Defendants maintain that this count fails to state a claim under RICO against either Pratpal Bagga, Khushvinder Bagga or Ravinder Chawla

• Holding: The Court holds that this Count does state a RICO claim against all three Defendants

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

• Basis for Contention: The Defendants argue that the Complaint is deficient as it fails to allege agreement among the alleged conspirators, that it fails to allege the requisite mental state, and that the Plaintiffs lack standing to raise this, as well, as the first count.

• Holding: Count II states a claim of conspiracy to violate RICO as to all Defendants

Count III — Alter Ego (Plaintiffs against the Baggas, Bagga Enterprises, Inc., Jamuna Real Estate LLC and United Management Services, Inc.)

• Basis for Contention: Defendants argue that no alter ego claim is made out as to Mrs. Bagga.

• Holding: The Court finds that Count III states an alter ego claim as to both Pratpal Bagga and his wife Khushvinder Bagga.

Count IV — Fraudulent Transfer (Plaintiffs vs. Pratpal and Khushvinder Bagga)

• Basis for Contention: Defendants maintain that this Court lacks jurisdiction to hear this claim; that the count fails to state a claim; and that the claim is untimely

• Holding: Count IV will be dismissed without prejudice

Count V — Conversion (Plaintiffs against Pratpal Bagga)

This count is not challenged by the Defendants.

Counts VI through VIII — Turnover (Plaintiff Trustees v. Defendants)

• Basis for Contention: Defendants maintain that these three counts do not plead turnover claims.

• Holding: The Court concurs with the Defendants. Counts VI through VIII will be dismissed with prejudice for failure to state claims for turnover

Count IX — Fraud (Plaintiff FL Receivables vs. Individual Defendants)

• Basis for Contention: Defendants maintain that this Count is not made out as to Khushvinder Bagga, Ravinder Chawla or Hardeep Chawla.

• Holding: Count IX will be dismissed as to Khushvinder Bagga, Ravinder Chawla and Hardeep Chawla without prejudice

Count X — Alter Ego (Plaintiffs against all Defendants)

• Basis for Contention: The Defendants maintain that this count fails to state an alter ego claim against Khushvinder Bagga, Ravinder Chawla or Hardeep Chawla.

• Holding: The Court finds that Count X fails to state an alter ego claim against either Ravinder or Hardeep Chawla.

Count XI — Breach of Fiduciary Duty/ Self Dealing (Plaintiffs against all Individual Defendants)

Count XII — Breach of Fiduciary Duty/Preservation of Entity Property (Plaintiffs against the Bagga Defendants)

Count XIII — Breach of Fiduciary Duty/Deepening of Insolvency (Plaintiffs against all Defendants)

• Basis for Contention: As to all three counts, Defendants argue that each fails to state a claim against Khushvinder Bagga, Ravinder Chawla or Hardeep Chawla.

• Holding: Counts XI through XIII fail to state a claim against either Ravinder or Hardeep Chawla the three counts will be dismissed without prejudice as to them.

Count XIV — Aiding and Abetting a Breach of Fiduciary Duty (Plaintiffs against the Defendants)

• Basis for Contention: The Defendants argue that this count fails to state a cause of action as a legal matter and, alternatively, that it fails to state a claim as to either Khushvinder Bagga or Hardeep Chawla.

• Holding: The Court holds that this count states a claim against both Khushvinder Bagga and Hardeep Chawla for aiding and abetting a breach of fiduciary duty.

Count XV — Declaratory Relief (Plaintiffs against the Defendants)

• Plaintiffs have admitted that this count is identical to Count X. Therefore, this Court's ruling as to that earlier count disposes of this one.

The Arguments For Dismissal

The Motion to Dismiss is premised mostly on Rule 12(b)(6)¹; i.e., that the complaint fails to state a claim upon which relief may be granted. It is also party-specific as to certain defendants and certain claims. The statute of limitations is also raised as to certain counts.

Standard for Dismissal

In judging the legal sufficiency of a complaint, the claim may not be dismissed unless it appears beyond doubt that the plaintiff can prove no set of facts which would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957). All well-pleaded factual allegations in the claim must be taken as true. Cruz v. Beto, 405 U.S. 319, 322, 92 S.Ct. 1079, 1081, 31 L.Ed.2d 263 (1972); Rocks v. Philadelphia, 868 F.2d 644, 645 (3d Cir.1989). The court must draw all reasonable inferences from the allegations and view them in the light most favorable to the non-moving party. Rocks, 868 F.2d at 645. Although the statute of limitations is raised usually as an affirmative defense, it may be brought as grounds for dismissal. See. Robinson v. Johnson, 313 F.3d 128, 135 n. 13 (3d Cir.2002) (recognizing that the only time that the statute of limitations may serve as grounds for dismissal in a Rule 12(b)(6) motion is when it is clear from the face of the complaint the time has in fact run); Wright & Miller, Federal Practice and Procedure: Civil 3d § 1357 at 686 (2007) ("A complaint showing that the governing statute of limitations has run on the plaintiffs claim for relief is the most common situation in which the affirmative defense appears on the face of the pleading and provides a basis for a motion to dismiss under Rule 12(b)(6).")

Count I — RICO

The first count alleges that Pratpal Bagga, Khushvinder Bagga, and Ravinder Chawla violated § 1962 of the Racketeer Influenced and Corrupt Organizations Act of 1984 (RICO).² That section provides, in pertinent part, that:

It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect interstate or foreign commerce to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt.

18 U.S.C. § 1962(c). In order to plead a violation of RICO, plaintiffs must allege (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. Lum v. Bank America, 361 F.3d 217, 223 (3d Cir.2004) citing Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985). Where, as here, Plaintiffs rely on mail and wire fraud as a basis for a RICO violation, the allegations of fraud must comply with Federal Rule of Civil Procedure 9(b), which requires that allegations of fraud be pleaded with specificity. See Saporito v. Combustion Engineering, 843 F.2d 666, 673 (3d Cir.1988) reed on other grounds 489 U.S. 1049, 109 S.Ct. 1306, 103 L.Ed.2d 576 (1989). In order to satisfy Rule 9(b), plaintiffs must plead with particularity "the `circumstances' of the alleged fraud in order to place the defendants on notice of the precise misconduct with which they are charged, and to safeguard defendants against spurious charges of immoral and fraudulent behavior." Seville Indus. Mach. Corp. v. Southmost Mach. Corp., 742 F.2d 786, 791 (3d Cir.1984). Plaintiffs may...