Levin v. Javeri (In re Firestar Diamond, Inc.)

654 B.R. 836

IN RE: FIRESTAR DIAMOND, INC., et al., Debtors.

Richard Levin, Chapter 11 Trustee of Firestar Diamond, Inc., et al., Plaintiff, v. Ami Javeri (a/k/a Ami Modi); Purvi Mehta (a/k/a Purvi Modi); Nehal Modi; Neeshal Modi; Central Park Real Estate, LLC; Central Park South 50 Properties, LLC; Trident Trust Company (South Dakota) Inc., solely as Trustee of the Ithaca Trust; et al., Defendants.

Case No. 18-10509 (SHL)

(Jointly Administered)

Adv. No. 20-01054 (SHL)

United States Bankruptcy Court, S.D. New York

Signed October 13, 2023

JENNER & BLOCK LLP, Attorneys for the Chapter 11 Trustee, Richard Levin, Esq., 919 Third Avenue, New York, New York 10022, By: Richard B. Levin, Esq., Carl N. Wedoff, Esq., -and- 353 North Clark Street, Chicago, Illinois 60654, By: Vincent E. Lazar, Esq., Angela M. Allen, Esq., William A. Williams, Esq., Adam T. Swingle, Esq.

DUANE MORRIS LLP, Attorneys for Purvi Mehta, 1540 Broadway New York, New York 10036, By: Frederick D. Hyman, Esq., Mauro M. Wolfe, Esq., Evangelos Michailidis, Esq., Sarah Fehm Stewart, Esq.

ROGER J. BERNSTEIN, ESQ., Attorney for Ami Javeri and Nehal Modi, 535 Fifth Avenue, 23rd Floor, New York, New York 10017, By: Roger J. Bernstein, Esq.

SCHOEMAN UPDIKE KAUFMAN & GERBER LLP, Attorneys for Central Park Real Estate LLC and Central Park 50 Real Estate LLC, 551 Fifth Avenue New York, New York 10176, By: Beth L. Kaufman, Esq., Patricia C. O'Prey, Esq.

DUFFY AMADEO, Counsel for Central Park Real Estate LLC and Central Park 50 Real Estate LLC, 275 Seventh Avenue, 7th Floor, New York, New York 10001.

MEMORANDUM OF DECISION

SEAN H. LANE, UNITED STATES BANKRUPTCY JUDGE

Before the Court are motions to dismiss filed by Defendants Ami Javeri a/k/a Ami Modi, [ECF No. 44],¹ Purvi Mehta a/k/a Purvi Modi [ECF No. 39], Nehal Modi [ECF No. 47] (collectively, the "Family Defendants") as well as motions to dismiss filed by Central Park Real Estate, LLC, and Central Park South 50 Properties, LLC [ECF No. 42], (collectively, the "LLC Defendants," and together with the Family Defendants, the "Moving Defendants"). Richard Levin, Chapter 11 Trustee of Firestar Diamond, Inc., et al. ("Trustee") filed an omnibus opposition to all the motions [ECF No. 60] and each of the Moving Defendants filed a reply. [ECF Nos. 84, 83, 85, 89].²

The Moving Defendants seek dismissal for a variety of reasons. Most notably, the Moving Defendants argue that the Trustee has failed to adequately plead that the Moving Defendants participated in, consented to, or had knowledge of the conspiracy to violate the Racketeering Influence and Corrupt Organizations Act ("RICO") as alleged in the Trustee's Complaint [ECF No. 1] (the "Complaint"). Defendants Purvi Mehta and Central Park Real Estate, LLC also dispute the allegations that they received fraudulently conveyed assets. For the reasons set forth below, the Court largely agrees with the Trustee that these claims have been adequately plead and, therefore, the Moving Defendants' motions to dismiss are denied, with the exception of the LLC Defendants' motion to dismiss the Trustee's state law claim to avoid constructively fraudulent conveyances, Compl. ¶¶ 517-23 (Count IX), which is granted without prejudice.

BACKGROUND

As is required by the case law, the allegations of the Complaint are taken as true when assessing motions to dismiss. Tanvir v. Tanzin, 894 F.3d 449, 458 (2d Cir. 2018), aff'd, 592 U.S. 43, 141 S. Ct. 486, 208 L.Ed.2d 295 (2020) ("When reviewing the dismissal of a complaint for failure to state a claim, we accept as true the factual allegations in the complaint and draw all reasonable inferences in plaintiff's favor"). Additional background is drawn from the history of the underlying Chapter 11 cases here, of which the Court can take judicial notice. Teamsters Nat'l Freight Indus. Negotiating Comm. v. Howard's Express, Inc. (In re Howard's Exp., Inc.), 151 F. App'x 46, 48 (2d Cir. 2005).

In January 2018, Punjab National Bank ("PNB") filed a complaint in India against Nirav Modi and several associated entities, alleging "the largest bank fraud in Indian history" against PNB and other banks (the "Bank Fraud"). See In re Firestar Diamond, Inc., 615 B.R. 161, 162-64 (Bankr. S.D.N.Y. 2020); Report of John J. Carney, Examiner [ECF No. 394, Case No. 18-10509] at 4. Approximately one month later, three U.S. corporations indirectly owned by Nirav Modi filed for Chapter 11 protection in the Southern District of New York: Firestar Diamond, Inc. ("FDI"), Fantasy, Inc. ("FI") and A. Jaffe, Inc. ("A. Jaffe," and together with FDI and FI, the "Debtors"). See ECF No. 1, Case No. 18-10509. The Court subsequently appointed an examiner to investigate whether the Debtors—or their senior officers and directors—were involved in the alleged Bank Fraud, and the examiner found substantial evidence to support their knowledge and involvement. See Report of John J. Carney, Examiner at 4. Indeed, a pending sale of the Debtors' assets was cancelled when it was learned that Nirav Modi, the alleged mastermind of the Bank Fraud, had been in contact with the Debtors' Chief Executive Officer Mihir Bhansali while Nirav Modi was a fugitive from authorities and living under a false name in England. See Notice of Withdrawal, Without Prejudice, of Debtors' Motion for Entry of Orders Pursuant to 11 U.S.C. §§ 105, 363, and 365 and Bankruptcy Rules 2002, 6004, and 6006 [ECF No. 177, Case No. 18-10509]; see also Hr'g Tr. (March 18, 2018) [ECF No. 187, Case No. 18-10509], Compl. ¶¶ 185-86, 191, 368. The Court subsequently appointed Richard Levin as Chapter 11 Trustee of the Debtors in June 2018, and he has administered the Debtors' estates since that time. See ECF No. 227, Case No. 18-10509. After confirmation of a Chapter 11 liquidation plan in 2020, Mr. Levin was appointed as the Liquidating Trustee with all of the Chapter 11 Trustee's rights and defenses, including the right to prosecute any causes of action belonging to the Debtors. See Trustee's Modified First Amended Plan § 5.5 (the "Plan") [ECF No. 1539, Case No. 18-10509].

I. The Allegations of Bank Fraud and the Fraud against the Debtors

The Trustee filed this action on behalf of the Debtors and as the assignee of all claims held by Synergies Corporation ("Synergies"), Firestar Group, Inc. ("FGI"), Firestar Diamond International, Inc. ("FDII"), Nirav Modi, Inc. ("NMI"), and AVD Trading Inc. ("AVD") (collectively, the "U.S. Affiliates").³See Compl., introductory paragraph & ¶¶ 18-23. Broadly speaking, the Trustee alleges that from at least 2010 to mid-2018 (the "Relevant Period"), members of Nirav Modi's family engaged in a racketeering conspiracy that "morphed from bank fraud and money laundering to obstruction of justice and looting," injuring the Debtors and the U.S. Affiliates. Id. ¶ 1. These family members include: Nirav Modi's sister, Purvi Mehta; Nirav Modi's wife, Ami Javeri; and Nirav Modi's brother, Nehal Modi. Id. ¶¶ 2-5, 24-27. The Trustee also sued Trident, in its capacity as Trustee for the Ithaca Trust, Central Park South 50 Properties, LLC ("CPS50"), and Central Park Real Estate LLC ("CPRE"), which together hold the Modi family's two Manhattan apartments;⁴ the Trustee alleges these entities "are nothing more than contrivances used by the Modi family to shield more than $30 million of their ill-gotten wealth from creditors." Id. ¶ 6.

The details of the alleged misconduct are extensive. The Complaint alleges that, between 2004 and 2006, Nirav Modi founded the parent company of the Debtors, Firestar International Limited (f/k/a Firestone International Private Ltd.) ("FIPL"), which operated as a diamond trading business in India; during the same period he also formed its India-based subsidiary Firestar Diamond International Pvt. Ltd ("FDIPL"), which manufactured a substantial portion of the diamond and jewelry inventory for the broader group of the so called "Firestar Entities." Id. ¶¶ 52-53. As alleged by the Trustee, the Firestar Entities are comprised of the Debtors, the U.S. Affiliates identified above, and various foreign affiliates.⁵ Between 2006 and 2012, Nirav Modi expanded the Firestar Entities' operations to the U.S., Hong Kong, Dubai, and Europe, and formed or acquired controlling interests in the Debtors. Id. ¶ 54. The Debtors' Chief Executive Officer (and Nirav Modi's cousin) Mihir Bhansali and Chief Financial Officer Ajay Gandhi "managed the fraudulent aspects of Nirav Modi's U.S. operations" during the Relevant Period, with Mr. Bhansali managing and controlling the Debtors and U.S. Affiliates in his capacities as CEO, sole director, and/or president, and Mr. Gandhi serving as CFO of the Debtors and U.S. Affiliates. Id. ¶ 55-56.

From approximately 2010 to early 2018, Nirav Modi "orchestrated and directed a scheme to obtain loans, credits, or other funds under false pretenses and without collateral from numerous banks, including [PNB]," which is majority owned by the Indian government. Id. ¶ 62. The Bank Fraud involved the use of letters of undertaking ("LOUs"),⁶ a financial instrument unique to India designed to facilitate efficient import transactions. Id. ¶ 63. Nirav Modi and other co-conspirators sought to artificially inflate the import volumes of three of Nirav Modi's India-based companies with sham transactions so as to obtain more and more LOU funding in order to obtain even more LOU bank financing.⁷Id. ¶¶ 64-66. Nirav Modi and his co-conspirators worked with employees of PNB, including Gokulnath Shetty—who authorized and issued these LOUs to the three India-based companies—to prevent detection. Id. ¶¶ 66, 88. Nirav Modi, Ms. Javeri, Neeshal Modi (Nirav Modi's brother), and Mehul Choksi (Nirav Modi's uncle and business partner) each served as partner of each of these three Indian based LOU entities during the Relevant Period. Id. ¶¶ 51, 67. PNB and the other defrauded banks are reported to have lost in excess of $1 billion as a result of the Bank Fraud. Id. ¶ 70.

To carry out this scheme, ...