In re Jamuna Real Estate, LLC., Bankruptcy No. 04-37130 (Bankr. E.D. Pa. 12/17/2009), Bankruptcy No. 04-37130.

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IN RE: JAMUNA REAL ESTATE, LLC UNITED MANAGEMENT SERVICES, INC. BAGGA ENTERPRISES, INC. Chapter 7, Debtors MARVIN KRASNY, IN HIS CAPACITY AS Chapter 7 TRUSTEE OF UNITED MANAGEMENT SERVICES, INC. MARVIN KRASNY, IN HIS CAPACITY AS ESTATE LLC; GARY SEITZ, IN HIS CAPACITY Chapter 7 TRUSTEE OF JAMUNA REAL AS Chapter 7 TRUSTEE OF BAGGA ENTERPRISES, INC., WILMINGTON TRUST TRUSTEE OF FL RECEIVABLES TRUST 2002-A AND FL RECEIVABLES TRUST 2002-A COMPANY IN ITS CAPACITY AS OWNER Plaintiffs, v. PRATPAL BAGGA; KHUSHVINDER BAGGA; RAVINDER CHAWLA; HARDEEP CHAWLA; WELCOME GROUP, INC.; K&P REAL INC. D/B/A/ SJM TRADING COMPANY, ESTATE LLC; WORLD APPAREL PRODUCTS, D/B/A TEN TIGERS; AMERICAN MERCHANDISE CO., INC., A/K/A AMERICAN MERCHANDISING CO.,INC.; 21ST CENTURY RESTAURANT SOLUTIONS, 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.

Adv. No. 06-128.

Adv. No. 06-129.

Adv. No. 06-130.

United States Bankruptcy Court, E.D. Pennsylvania.

December 17, 2009.

William Pelosi, Esquire, Richard P. Limburg, Esquire, OBERMAYER REBMANN MAXWELL & HIPPEL LLP, Philadelphia, PA, Jonathan Forstot, Esquire, Patrick E. Fitzmaurice, Esquire, SONNENSCHEIN NATH & ROSENTHAL, LLP, Two World Financial Center New York, NY, Counsel for Plaintiffs.

Richard M. Simins, Esquire BUCHANAN INGERSOLL & ROONEY Philadelphia, PA. Counsel for Chawla Defendants.

George Conway, Esquire Office of the United States Trustee Philadelphia PA. Office of the United States Trustee.

OPINION

STEPHEN RASLAVICH, Chief Bankruptcy Judge

Introduction

Before the Court is the Plaintiffs' Motion for Leave to Amend, or in the Alternative, for the Entry of Judgment Pursuant to F.R.C.P. 54(b) and B.R. 7054. The Motion is opposed by Defendants Ravinder and Hardeep Chawla. After hearing, the Court took the matter under advisement.

Summary of Holding as to Leave to Amend

While the proposed Second Amended Complaint pleads a total of ten counts, only five are directed at one (or more) of the Chawla Defendants: Count I (RICO¹); Count II (conspiracy to violate RICO); Count IV (fraud and conspiracy to defraud); Count VIII (aiding and abetting a breach of fiduciary duty); and Count IX (fraudulent transfer). As to these counts the Court rules as follows:

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

• Basis for Contention: Ravinder Chawla maintains that the proposed amendment to this count fails to state a claim under RICO against him and is, therefore, futile.

• Holding: Plaintiffs' request for leave to amend Count I will be denied as to Ravinder Chawla.

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

• Basis for Contention: The Chawla Defendants argue that the Complaint fails to allege the requisite injury element and is, therefore, futile.

• Holding: The request for leave to amend will be granted as the count sufficiently states a conspiracy to violate RICO as to both Ravinder Chawla and Hardeep Chawla.

Count IV — Fraud and Conspiracy to Commit Fraud (Plaintiffs against Pratpal Bagga and Ravinder Chawla) • Basis for Contention: Ravinder Chawla argues that the Plaintiffs lack standing thereby rendering the proposed amendment futile.

• Holding: The request for leave to amend will be denied and Count IV will be dismissed as to Ravinder Chawla.

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

• Basis for Contention: Chawla Defendants maintain that this proposed amendment fails to state a claim for two reasons: first, the operative allegations predate insolvency; and, second, the count fails to explain how either of the Chawla Defendants aided or abetted fiduciary breaches. It is, therefore futile.

• Holding: The request for leave to amend will be granted as this amendment alleges a claim for aiding/abetting a fiduciary breach against both Ravinder Chawla and Hardeep Chawla.

Count IX — Fraudulent Transfer (Plaintiffs against Pratpal and Khushvinder Bagga, World Apparel, Ravinder Chawla and Sant Properties)

• Basis for Contention: the Chawla Defendants argue that in seeking leave to amend when they did, the Plaintiffs are guilty of undue delay and are otherwise barred by the applicable statute of repose.

• Holding: The request for leave will be denied for the reasons stated herein.

Summary of Holding as to to Request Under Rule 54(b)

With regard to the Plaintiffs' alternative request for entry of any adverse ruling as a final judgment, the Court rules as follows: given that the Court's ruling denies them leave as to only some, and not all, of the claims against Messrs Chawla, entry of a final judgment for purposes of immediate appeal is not warranted.

Background

This is the Plaintiffs' second request for leave to amend its complaint. This Court's Opinion of July 22, 2008 granted the Plaintiffs' first such request. After Plaintiffs filed an amended complaint (the First Amended Complaint or FAC), the Chawla Defendants moved to dismiss for failure to state a claim. This Court's opinion of March 5, 2009, granted that motion. The purpose of this motion is to correct the defects which the Court found in that pleading or to have that ruling certified as ripe for appeal.²

Applicable Legal Standard Rule 15³ of the Federal Rules of Civil Procedure provides, in pertinent part:

(a) Amendments Before Trial.

(1) Amending as a Matter of Course. A party may amend its pleading once as a matter of course:

(A) before being served with a responsive pleading; or

(b) within 20 days after serving the pleading if a responsive pleading is not allowed and the action is not yet on the trial calendar.

(2) Other Amendments. In all other cases, a party may amend its pleading only with the opposing party's written consent or the court's leave. The court should freely give leave when justice so requires.

Fed.R.Civ.P. 15(a)(1),(2) (2007) (emphasis added). The Supreme Court has made it clear that the application of this presumption is "a mandate to be heeded." Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962). It furthers the policy of trying cases on their merits. Id. It also avoids that possibility of the opposing party suffering prejudice or surprise. Wright Miller & Kane, Federal Practice and Procedure, Civil 2d § 1484. The precise delineation of when leave should be granted or denied is impossible; therefore, the determination is left to the sound discretion of the trial judge. NAACP v. Harrison, 907 F.2d 1408, 1417 (3d Cir.1990). This requires the Court to consider the positions of both parties and the effect that the request will have on them. Wright Miller, supra at § 1487 (emphasis added). For that reason, the Court may deny a request to amend when the moving party has demonstrated undue delay, bad faith or dilatory motive, or where the amendment would prejudice the opposing party. See Foman, supra, id.; Grayson v. Mayview State Hosp., 293 F.3d 103, 108 (3d Cir.2002) Equally, an amendment will be denied where it is futile. Id.

The Chawla Defendants' Arguments in Opposition

In one way or another, the Chawla Defendants raise all five of the grounds upon which a Court might refuse leave to amend. They see undue delay or a dilatory motive in Plaintiffs' raising of what they consider to be seriatim theories of relief. Likewise, they see bad faith in Plaintiffs' attempt to resurrect dismissed claims. In their charge of futility and prejudice, their arguments become more specific. For example, they see the RICO count as failing on a number of fronts. There is as yet no continuity pleaded; neither does that claim plead causation. Similarly, they say, the RICO conspiracy claim fails to allege injury. The common law fraud and conspiracy to commit fraud claims, they argue, are barred under the law of the case doctrine. The aiding and abetting fiduciary breach claim, they contend, remains based on acts committed before the entities became insolvent. Finally, the Chawla Defendants argue that they would be prejudiced if the fraudulent transfer claim were restated so as to include them, particularly because the limitations period on such a claim has long since passed. See Chawla Defendants' Brief, pp. 7-11.

Count I-RICO

The Court begins with the RICO claim. Count I alleges that Pratpal Bagga, Khushvinder Bagga and Ravinder Chawla violated § 1962 of RICO. That section provides, in pertinent part, that:

[i]t 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, a plaintiff⁴ 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, 3285, 87 L.Ed.2d 346 (1985). Conduct⁵

Liability under subsection (c) is predicated on a defendant having "conduct[ed] or participate[d], directly or indirectly, in the conduct of [the] affairs of the enterprise." 18 U.S.C. § 1962(c)(emphasis added). In Reves v. Ernst & Young, the Supreme Court held that "`to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs,' one must participate in the operation or management of the enterprise itself." 507 U.S. 170, 185, 113 S.Ct. 1163, 122 L.Ed.2d 525 (1993) (citation omitted).⁶ The High Court understood the word "conduct" to indicate some degree of direction over the affairs of the enterprise. Id.at 178, 113 S.Ct. at 1169. The Court concluded also that the term "participate" meant "to take part in ." Id. at 179, 113 S.Ct. at 1170; see...