RBx Capital, LP v. Xorax Family Tr.

1

RBX CAPITAL, LP, Plaintiff, v. XORAX FAMILY TRUST, Defendant.

Civil Action No. 21-3774

United States District Court, E.D. Pennsylvania

May 8, 2023

MEMORANDUM

GERALD J. PAPPERT, J.

RBx Capital, LP sued the Xorax Family Trust and brothers Zeeshan and Rehan Saeed for breach of contract, conversion and unjust enrichment. After the Court's ruling on Defendants' Motion to Dismiss, (ECF 12), the only remaining claim is that for unjust enrichment against the Trust. Xorax now moves for summary judgment on the ground that it is a traditional trust, which, unlike a business trust, cannot be sued in its own name. The proper party to a lawsuit against a traditional trust is its trustee, here, Rehan Saeed. After carefully reviewing the record, considering the parties' submissions and holding oral argument, the Court grants the motion.

Analyzing the record's undisputed facts under the framework articulated by the Third Circuit Court of Appeals in GBForefront v. Forefront Management Group, 888 F.3d 29, 39 (3d Cir. 2018), and guided by the factors suggested in North Hills Village LLC v. LNR Partners, LLC, 479 F.Supp.3d 189 (W.D. Pa. 2020), no reasonable jury could find that Xorax is a business trust.

I

The Xorax Family Trust was created in September of 2013. (Deed of Tr. p. 1.) Zeeshan Saeed arranged for the Trust's formation. (Z. Saeed Dep. 17:10-11.) His father, Saeed Zafar Khan, acted as the settlor, funding the res with a single gold coin. (Deed of Tr. p. 1.) The Trust has four beneficiaries: Zeeshan Saeed; Saeed Zafar Khan; Zeeshan's mother, Perwin Saeed; and Zeeshan's minor daughter. (Id. at § 1(b).)

Zeeshan Saeed and Dr. Razha Bokhari, the managing partner of RBx Capital, knew each other as executives and board members of a company otherwise unrelated to this case. (Compl. ¶ 10 ECF 1-1.) In August of 2020, Zeeshan allegedly convinced Dr Bokhari to wire $275,000 to the Trust for investment in a company called “Sniper.” (Id. ¶¶ 12-17.) RBx, alleging that it never received any updates on the transaction nor a return of the funds transferred, sued Xorax, Zeeshan and Rehan Saeed for breach of contract, conversion and unjust enrichment. (Id. ¶¶ 19, 22.)

Xorax moved to dismiss the Complaint under Federal Rules of Civil Procedure 12(b)(2) and 12(b)(6) for lack of personal jurisdiction over Rehan Saeed, failure to state a claim against Rehan or Zeeshan Saeed, and failure to state a conversion claim against Xorax. The Court granted the motion leaving only the unjust enrichment claim against Xorax.

The record includes Xorax's Deed of Trust, (ECF 30-3) excerpts from the depositions of Zeeshan and Rehan Saeed and Dr. Bokhari, (ECF 30-5, 30-6, 30-7, 31-1, 31-2, 33-3); and Zeeshan Saeed's Declaration (ECF 30-4). Following oral argument, (ECF 37), the parties submitted supplemental letter briefing and deposition excerpts, (ECF 39, 40).

II

Summary judgment is warranted if there is “no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The movant bears the initial responsibility of informing the Court of the basis for its motion and identifying those portions of the record which it believes demonstrate the absence of a genuine issue of material fact. Conoshenti v. Pub. Serv. Elec. & Gas Co., 364 F.3d 135, 145 (3d Cir. 2004), holding modified by Erdman v. Nationwide Ins. Co., 582 F.3d 500 (3d Cir. 2009) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)). A dispute is genuine “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

A fact is “material” if it may affect the outcome of the suit under the governing law. Id. A mere scintilla of evidence supporting the nonmoving party will not suffice for a court to deny summary judgment. Id. at 252. Rather, the nonmovant must “set forth specific facts showing there is a genuine issue for trial.” Id. at 256. A court “must view the facts in the light most favorable to the nonmoving party and draw all inferences in that party's favor.” Prowel v. Wise Bus. Forms, 579 F.3d 285, 286 (3d Cir. 2009). But it need not credit “[u]nsupported assertions, conclusory allegations, or mere suspicions.” Betts v. New Castle Youth Dev. Ctr., 621 F.3d 249, 252 (3d Cir. 2010). Nor may a court make credibility determinations or weigh the evidence. See Parkell v. Danberg, 833 F.3d 313, 323 (3d Cir. 2016).

“‘When a legal standard requires the balancing of multiple factors, . . . summary judgment may still be appropriate even if not all of the factors favor one party,' so long as the evidence ‘so favors' the movant that ‘no reasonable juror' could render a verdict against it.” Faush v. Tuesday Morning, Inc., 808 F.3d 208, 215 (3d Cir. 2015) (quoting In re Enterprise Rent-A-Car Wage & Hour Emp't Pracs. Litig., 683 F.3d 462, 471 (3d Cir. 2012)).

III

A

Xorax contends that it is a traditional trust, which cannot be sued in its own name. Federal Rule of Civil Procedure 17(b)(3) provides that for parties other than individuals and corporations, capacity to sue or be sued is determined by the law of the state in which the district court sits. Under Pennsylvania law, a trust is not a juridical person. See Lefta Assocs. v. Hurley, 902 F.Supp.2d 559, 575 (M.D Pa. 2012); Pa. R. Co. v. Duncan, 5 A. 742, 746 (Pa. 1886).

In Americold Realty Trust v. Conagra Foods, Inc., 577 U.S. 378 (2016), the Supreme Court distinguished “traditional trusts” from “business trusts,” which, although called “trusts,” are actually unincorporated entities. Unlike a traditional trust, a business trust can be sued in its own name. GBForefront, 888 F.3d at 39. Following Americold, the Court of Appeals for the Third Circuit identified two high-level differences between a traditional trust and a business trust: A traditional trust is a fiduciary relationship that “facilitates a donative transfer,” whereas a business trust is a distinct legal entity that “implements a bargained-for exchange.” Id. at 40. It also prescribed a two-step analysis for distinguishing the two. “First, the court ought to look to the law of the state where the trust was formed to determine whether the trust has the status of a juridical person.” Id. Second, the court must look to “the purpose of the trust” to determine if it facilitates a donative transfer or implements a bargained-for exchange. Id.

B

Xorax's Deed of Trust was executed in Ontario, but by its terms is governed by the law of British Columbia. (Z. Saeed Decl. ¶ 3; Deed of Tr. ¶ 29.) The Court need not decide which is the place of formation, because in both provinces, a trust is considered a fiduciary relationship incapable of suing or being sued. Compare Chambers v. HSBC Securities (Canada), Inc., 2003 CarswellOnt 3363 at para. 23 (Ont. S.C.J.) (Ontario law), with Williamson v. Williamson, 2020 BCSC 108 at paras. 25-26 (British Columbia law). The parties have not identified, and the Court has not found, law from either province distinguishing (or declining to recognize a distinction between) traditional and business trusts for the purpose of determining the proper party to a lawsuit.

C

In North Hills Village, the United States District Court for the Western District of Pennsylvania established a list of factors to consider in determining, under GBForefront's second step, a trust's purpose. The North Hills Village court found In re Dille Family Trust, 598 B.R. 179 (Bankr. W.D. Pa. 2019), particularly helpful in its analysis of the traditional trust/business trust dichotomy.

In re Dille identified “two overarching elements of a ‘business trust': (1) whether the trust was created for the purpose of transacting a business for profit and (2) whether the trust has ‘indicia of corporateness.'” N. Hills Vill., 479 F.3d at 197 (citing In re Dille, 598 B.R. at 193-94). “Those indicia include: ‘1. [t]he trust implements a bargained-for exchange.... 2. [t]he trust is formed by a group of investors who contribute capital to the enterprise with the expectation of receiving a return on their investment....3. [t]he trust creates a continuity of the business enterprise uninterrupted by death among the beneficial owners....4. [t]he trust permits the transfer of interests.'” Id. North Hills Village considered these indicia of corporateness, and derived nine additional factors from scholarship cited favorably by the Third Circuit in GBForefront:

1. Settlors in a traditional trust receive no compensation for the conveyance of the property into the trust, whereas the settlor in a business trust always receives payment for assets conveyed to the trust;

2. In traditional trusts, the settlor is seldom the sole or principal beneficiary;

3. In business trusts, the trust res consists of property originally contributed by the beneficiaries themselves;

4. Some business trusts vest title to the trust property in the trust as a legal entity, rather than in the trustees, as is the case with traditional trusts;

5. Business trusts typically refer to beneficiaries as “shareholders” or “members”;

6. Members of a business trust can freely transfer their beneficial interests in the trust;

7. Members of a business trust can have the ability to elect, remove, or control the various trustees and amend the terms of the trust, which is ordinarily difficult or impossible in traditional trusts without the settlor's consent;

8. Settlors of a business trust almost always retain a residual interest in the trust res that remain after a business transaction is concluded, whereas the settlor of a traditional trust may or may not retain an interest; and

9. Business trusts feature centralized management, perpetual existence, and state registration requirements.

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