First Capital Asset Management v. Brickelbush, 00 Civ.5597 (LAK).
| Decision Date | 19 July 2001 |
| Docket Number | No. 00 Civ.5597 (LAK).,00 Civ.5597 (LAK). |
| Parties | FIRST CAPITAL ASSET MANAGEMENT, INC., et ano., Plaintiffs, v. BRICKELBUSH, INC., et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
Eric W. Berry, New York City, for Plaintiffs.
Russell P. McRory, Garden City, NY, for Defendants Satinwood, Inc., Sphinx Rock, N.V., Ahmed Vahabzadeh, Afsar Vahabzadeh, Savco, S.A., and the Estate of Soleyman Vahabzadeh.
Robert A. Johnson, Akin, Gump, Strauss, Hauer & Feld, LLP, New York City, for Defendants Manou Failly, Manco, Inc., Youssef Vahabzadeh and Brickelbush, Inc.
Sohrab Vahabzadeh, Defendant, pro se.
This is a civil action under the Racketeer Influenced and Corrupt Organizations Act ("RICO") based on alleged bankruptcy and mail fraud. Plaintiffs are judgment creditors who allege that RICO violations and state law fraudulent conveyances prevented them from satisfying outstanding judgments against defendant Sohrab Vahabzadeh and related companies. Defendants charged with RICO violations are members of the Vahabzadeh family and the family's Swiss attorney, Jens Schlegelmilch ("Schlegelmilch"). The matter is before the Court on defendants' motions to dismiss for failure to state a claim, lack of personal jurisdiction, lack of standing, and failure to plead fraud with particularity and on plaintiffs' conditional cross-motion for leave to amend the complaint and their cross-motion to strike.1
At the root of this dispute is a stock purchase agreement entered into by plaintiff First Capital Asset Management ("FCAM") and defendant Sohrab Vahabzadeh ("Sohrab") and his companies, NACI and NAP, in October 1993. Sohrab was to pay FCAM $4.5 million in return for an interest in a new Delaware corporation called First Capital Corp. The agreement provided that Oost-Lievense, the other plaintiff in this case, would become First Capital Corp.'s chief executive officer. Based on this agreement, Oost-Lievense resigned as president of ABN AMRO Securities, Inc.
Later in October, Sohrab, NACI and NAP breached the agreement, leaving FCAM without its $4.5 million and Oost-Lievense without a job. For reasons not crucial here, plaintiffs allege that Sohrab, NACI and NAP owed FCAM and Oost-Lievense fiduciary duties and that the failure to disclose material adverse events concerning the financing of the deal breached these duties.
FCAM and Oost-Lievense did not stand idly by. In December 1993, FCAM sued Sohrab, NACI and NAP in Texas for breach of contract. The action was dismissed on the ground of forum non conveniens but recommenced in New York where the State Supreme Court granted summary judgment for FCAM against NACI and NAP on February 27, 1997, awarding damages of $4.5 million plus interest.2 The state court held, however, that Sohrab was not himself liable.
Upon realizing that the companies had no locatable assets available to satisfy this judgment, FCAM filed a second lawsuit in New York County in which it sought to hold Sohrab responsible for the judgment against NACI as its alter ego.3 The state court initially dismissed the petition against Sohrab, but the Appellate Division reversed.4 On June 27, 2001, the New York Supreme Court entered judgment in favor of FCAM against Sohrab for more than $5 million.5
Meanwhile, Oost-Lievense sued Sohrab, NACI and NAP in this Court for breach of an employment agreement.6 Eventually, without a trial, all defendants stipulated to amounts of damages and judgment was entered in Oost-Lievense's favor.
On July 17, 1997, a few weeks before the Oost-Lievense trial was scheduled to begin, Sohrab filed a bankruptcy petition. This was followed closely by FCAM and Oost-Lievense filing an adversary proceeding in which they objected to Sohrab's discharge under Section 727 of the Bankruptcy Code7 on the basis of bankruptcy fraud and fraudulent conveyance. Eventually, Sohrab's Chapter 7 petition for discharge was denied on grounds of bankruptcy fraud.8
According to plaintiff, the RICO predicate acts revolved around Sohrab's bankruptcy proceeding. Specifically, plaintiffs identify the following RICO predicate acts, primarily bankruptcy frauds and mail frauds:9
• In August 1995, Sohrab and Peninsula, allegedly Sohrab's alter ego, fraudulently conveyed their interests in a partnership to Brickelbush in contemplation of bankruptcy.
• In early 1997 Sohrab transferred property inherited from Soleyman to other family members, including Afsar. Schlegelmilch prepared the documents that effected the transfer.
• On July 17, 1997, Sohrab filed a materially false bankruptcy petition.
• On September 16, 1997, Sohrab made false statements under oath at the Bankruptcy Rule 2004 examination by his creditors.
• Ahmed and Schlegelmilch directed the estate's attorney to submit declarations to the Bankruptcy Court in February and March 1998 containing false statements about the contents of Soleyman's estate and, in June 1998, Afsar and Soleyman's estate directed the same attorney to submit a similar declaration.
• In March 1998, Afsar and Schlegelmilch submitted affidavits to the Bankruptcy Court making false claims about Soleyman's citizenship.
• On June 25, 1998, Sohrab submitted an affidavit to the Bankruptcy Court in which he falsely stated that he searched for a complete copy of a trust agreement.
• In September 1998, Ahmed, AFIWA (at the direction of Ahmed), Afsar, and Schlegelmilch committed mail fraud by sending Sohrab letters claiming they had no documents relevant to Soleyman's estate.
• Sohrab gave false testimony about his inheritance at his bankruptcy trial in October 1999.
• From September 1997 to December 1999, Afsar sent Sohrab approximately $5000 per month, purportedly from Sohrab's bank accounts overseas. Ahmed made such payment through his account on October 3, 1998, and Schlegelmilch made such payment on August 4, 1998, and November 3, 1998. Similarly Schlegelmilch and Ahmed paid legal fees in September 1999, purportedly drawing on money deposited by Sohrab in their accounts.
Plaintiffs filed the present complaint in July 2000. It contains ten causes of action, two under RICO and the others under state law. The RICO counts—one substantive and one for conspiracy—are brought against defendants Sohrab, Ahmed, and Afsar Vahabzadeh, and Schlegelmilch. Sohrab was the debtor in the bankruptcy proceeding, Ahmed is his uncle, Afsar is his mother, and Schlegelmilch is the Swiss family lawyer. The civil RICO claims are the only bases for federal jurisdiction.
The matter is before the Court on the defendants' motions to dismiss. Satinwood, Inc., Sphinx Rock, N.V., Ahmed Vahabzadeh, Savco, S.A., and the Estate of Soleyman Vahabzadeh ("Vahabzadeh defendants") moved to dismiss under FED. R. CIV. P. 12(b)(6) for failure to state a claim, under FED.R.CIV.P. 9(b) on the ground that the predicate acts are not pleaded with sufficient particularity, and under FED. R.CIV.P. 12(b)(1) for lack of standing and subject matter jurisdiction. They moved also to dismiss all claims against Afsar, Ahmed, and AFIWA under FED. R. CIV. P. 12(b)(2) for lack of personal jurisdiction. Defendants Brickelbush, Manou Failly, and Youssef Vahabzadeh ("Failly defendants") moved to dismiss for lack of jurisdiction, failure to plead fraud with specificity, and failure to state a claim.
Plaintiffs have made two cross-motions, seeking to strike several unsworn statements and, if the RICO counts are dismissed for failure sufficiently to allege an enterprise or the alter ego allegations are dismissed, to amend the complaint to cure any such defects. Part of the first motion and the entirety of the second are applicable only in the event that the Court converts defendants' motions to summary judgment motions.10 Because there is no conversion, they need not be addressed.
Defendants have challenged the Court's personal jurisdiction over Ahmed Afsar, and Schlegelmilch. Ordinarily, the Court would address jurisdictional issues before a motion to dismiss for failure to state a claim.11 Here, however, personal jurisdiction is based in part on the defendants' role as RICO co-conspirators with Sohrab, a defendant over whom this Court's personal jurisdiction is undisputed. State and federal courts in New York have found that personal jurisdiction may be based on acts of a co-conspirator.12 To evaluate personal jurisdiction, then, would require examining the RICO counts. If the RICO conspiracy counts are sufficient, the plaintiff has made out a prima facie showing of personal jurisdiction, enough to survive a motion to dismiss decided on pleadings and affidavits alone.13 Accordingly, initial consideration of the adequacy of the RICO claims is appropriate.
To state a RICO claim, a plaintiff must ultimately show "(1) a violation of the RICO statute, 18 U.S.C. § 1962; (2) an injury to business or property; and (3) that the injury was caused by the violation of Section 1962."14 Section 1962(c) provides in relevant part that it is unlawful "for any person employed by or associated with any enterprise ... to conduct or participate in the conduct of such enterprise's affairs through a pattern of racketeering activity." Section 1962(d) makes it unlawful to conspire to violate any of Sections 1962(a)-(c).
Defendants challenge the RICO claims on the grounds that the complaint does not state fraud claims with the particularity required by FED. R. CIV. P. 9(b), that plaintiffs fail adequately to allege an enterprise, a pattern of racketeering activity, or a conspiracy, and that plaintiffs lack standing.
As the predicate acts upon which plaintiffs rely are alleged frauds, the allegations of ...
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