Panjwani v. Khan (In re Khan)

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In re: AAMIR KHAN and HUMA AAMIR, Debtors.

ALI PANJWANI, Plaintiff, v. AAMIR KHAN and HUMA AAMIR,Defendants.

No. 18-23908-SMG

Adv. No. 19-01040-SMG

United States Bankruptcy Court, S.D. Florida, Fort Lauderdale Division

March 6, 2023

Chapter 7

ORDER DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND GRANTING DEFENDANTS' MOTION TO DISMISS

Scott M. Grossman, Judge United States Bankruptcy Court Judge

After a jury trial in state court, Plaintiff Ali Panjwani obtained a $1,704,987.39 final judgment against Defendant Aamir Khan and a $1,655,353.10 final judgment against Defendant Huma Aamir. Based entirely on collateral estoppel - and without any additional material facts - the Plaintiff seeks summary judgment determining that these debts are excepted from the Defendants' discharges under Bankruptcy Code sections 523(a)(2), (a)(4), and (a)(6). Defendants Aamir Khan and Huma Aamir oppose summary judgment and further argue that the Plaintiff's complaint should be dismissed for failure to state a claim upon which relief may be granted.

After carefully considering the Plaintiff's Second Amended Complaint to Determine Dischargeability of Debt Pursuant to 11 U.S.C. § 523^[1] (the "Second Amended Complaint"), the Defendants' Motion to Dismiss Second Amended Complaint to Determine Dischargeability of Debt^[2] (the "Motion to Dismiss") the Plaintiff's Response to Motion to Dismiss Second Amended Complaint,^[3] the Defendants' Reply thereto,^[4] the Plaintiff's Renewed Motion for Final Summary Judgment^[5] (the "Motion for Summary Judgment"), the Plaintiff's Statement of Material Facts in Support of Motion for Final Summary Judgment,^[6] the Defendants' Response to the Motion for Summary Judgment,^[7] the Defendants' Statement of Material Facts,^[8] and the Plaintiff's Reply,^[9] for the reasons discussed below, the Court will deny the Motion for Summary Judgment and grant the Motion to Dismiss.

I. BACKGROUND AND MATERIAL FACTS

A. Procedural Background

Defendants Aamir Khan and Huma Aamir filed a joint chapter 13 bankruptcy petition on November 7, 2018.^[10] On June 12, 2019, they filed a notice of voluntary conversion to chapter 7,^[11] and their case was converted to chapter 7 the next day.^[12]

Less than two weeks after they had filed for bankruptcy, the Plaintiff (then in violation of the automatic stay) commenced an action in state court against the Defendants, along with co-defendants Faisal Khan, Asif Khan, Lucia Khan, and Sabeen Khan, in connection with a dispute over an entity called Alliance International Distributors, Inc. ("Alliance").^[13] The Plaintiff alleged in the state court action that both Aamir Khan and Huma Aamir:

• breached a guaranty agreement;

• fraudulently induced the Plaintiff to finance $1,000,000.00 into Alliance;

• breached a contractual obligation to wind down Alliance;

• converted funds invested by the Plaintiff in Alliance;

• were unjustly enriched by the Plaintiff's investment in Alliance; and

• conspired with the other state court co-defendants to deprive the Plaintiff of funds that he invested.^[14]

On February 25, 2019, the Plaintiff then commenced this adversary proceeding, seeking a determination that the Defendants' debts to him were excepted from discharge under Bankruptcy Code sections 523(a)(2) and (a)(4).^[15] Because the Plaintiff's underlying claims had not yet been liquidated, and because liquidation of those claims necessarily involved litigation with other non-debtor parties, this Court later granted stay relief, retroactive to the petition date, to allow the state court litigation to proceed through judgment (but not execution).^[16] This Court then abated this adversary proceeding pending the conclusion of the state court litigation.^[17]

B. The State Court Trial

The state court litigation ultimately proceeded to a jury trial, and on July 22, 2022, the jury returned a verdict in the total amount of $2,582,618.00 in favor of the Plaintiff, Ali Panjwani.^[18] As to Defendant Huma Aamir, the jury found as follows:^[19]

• Breach of Guaranty: Huma Aamir failed to pay all amounts owed to Ali Panjwani pursuant to the terms of a personal guaranty and is liable for $375,000 in damages for that breach of contract.

• Fraud in the Inducement: Huma Aamir did not knowingly make false representations of material facts to Ali Panjwani in order to induce his investment into Alliance; Huma Aamir did not make these representations with the intent to induce Ali Panjwani to agree to invest in Alliance; and Ali Panjwani did not rely on these false representations to invest in Alliance.

• Breach of Agreement to Wind Down Alliance: Huma Aamir did not materially breach a "wind down" agreement with Ali Panjwani.

• Conversion: Huma Aamir did not, as president of Alliance, misappropriate or manipulate funds, income, revenue, and/or profit of Alliance, including Ali Panjwani's funds; Huma Aamir did not misuse her authority and control as president of Alliance to divert Ali Panjwani's funds to her own personal accounts, the accounts of her family and/or relatives, and/or to other entities owned by her family or relatives; and Huma Aamir's actions did not deprive Ali Panjwani of those funds permanently or for an indefinite time period.

• Unjust Enrichment: Huma Aamir had access to the funds, income, revenue, and profit of Alliance, including Ali Panjwani's funds; Huma Aamir did not, as president of Alliance, misappropriate or manipulate funds, income, revenue, and/or profit of Alliance, including Ali Panjwani's funds; Huma Aamir did misuse her authority and control as President of Alliance to divert Ali Panjwani's funds to her own personal accounts, the accounts of her family and/or relatives, and/or to other entities owned by her family or relatives; Huma Aamir did voluntarily accept and retain these benefits; it would be inequitable for Huma Aamir to retain these benefits; and Huma Aamir was unjustly enriched at the expense of and/or to the detriment of Ali Panjwani; but the jury awarded $0.00 in damages to Ali Panjwani because of Huma Aamir's unjust enrichment.

• Civil Conspiracy: Huma Aamir (along with Aamir Khan, and state court co-defendants Faisal Khan, Asif Khan, Lucia Khan, and Sabeen Khan) conspired to defraud Ali Panjwani and convert all or part of Ali Panjwani's investments into Alliance; Huma Aamir (along with Aamir Khan, and state court co-defendants Faisal Khan, Asif Khan, Lucia Khan, and Sabeen Khan) engaged in overt acts (including, but not limited to, manufacturing fraudulent invoices, initiating wire transfers, processing fraudulent invoices, and transferring funds to themselves or third-party entities owned by them or their families), in furtherance of the conspiracy; and that Huma Aamir (along with Aamir Khan, and state court co-defendants Faisal Khan, Asif Khan, Lucia Khan, and Sabeen Khan) was liable for $1,000,000 in damages for civil conspiracy.

As to Defendant, Aamir Khan, the jury found as follows:^[20]

• Fraud in the Inducement: Aamir Khan did not knowingly make false representations of material facts to Ali Panjwani in order to induce his investment into Alliance; Aamir Khan did not make these representations with the intent to induce Ali Panjwani to agree to invest in Alliance; and Ali Panjwani did not rely on these false representations to invest in Alliance.

• Breach of Agreement to Wind Down Alliance: Aamir Khan materially breached a "wind down" agreement with Ali Panjwani and owes him $218,809 in damages for that breach.

• Conversion: Aamir Khan had access to the funds, income, revenue, and profit of Alliance, including Ali Panjwani's funds; Aamir Khan misused his access to these funds to divert Ali Panjwani's funds to his own personal accounts, the accounts of his family and/or relatives, and/or to other entities owned by his family or relatives; Aamir Khan's actions deprived Ali Panjwani of those funds permanently or for an indefinite period; and Aamir Khan owes Ali Panjwani $25,000 in damages for conversion.

• Unjust Enrichment: Aamir Khan had access to the funds, income, revenue, and profit of Alliance, including Ali Panjwani's funds; Aamir Khan did misappropriate or manipulate funds, income, revenue, and/or profit of Alliance, including Ali Panjwani's funds; Aamir Khan did misuse his access to Alliance to divert Ali Panjwani's funds to his own personal accounts, the accounts of his family and/or relatives, and/or to other entities owned by his family or relatives; Aamir Khan did voluntarily accept and retain these benefits; it would be inequitable for Aamir Khan to retain these benefits; and Aamir Khan was unjustly enriched at the expense of and/or to the detriment of Ali Panjwani; and Aamir Khan owes Ali Panjwani $172,500 in damages for unjust enrichment.

• Civil Conspiracy: Aamir Khan (along with Huma Aamir, and state court co-defendants Faisal Khan, Asif Khan, Lucia Khan, and Sabeen Khan) conspired to defraud Ali Panjwani and convert all or part of Ali Panjwani's investments into Alliance; Aamir Khan (along with Huma Aamir, and state court co-defendants Faisal Khan, Asif Khan, Lucia Khan, and Sabeen Khan) engaged in overt acts (including, but not limited to, manufacturing fraudulent invoices, initiating wire transfers, processing fraudulent invoices, and transferring funds to themselves or third-party entities owned by them or their families), in furtherance of the conspiracy; and that Aamir Khan (along with Huma Aamir, and state court co-defendants Faisal Khan, Asif Khan, Lucia Khan, and Sabeen Khan) was liable for $1,000,000 in damages for civil conspiracy.

In summary, as to Defendant Aamir Khan, the jury found that he was liable to Ali Panjwani for breach of contract conversion, unjust enrichment, and civil conspiracy, and awarded damages to Ali...