First Capital Asset Management v. Satinwood, Inc.

• Decision Date: 27 September 2004
• Docket Number: Docket No. 03-7956(XAP).,Docket No. 03-7897(L).
• Citation: 385 F.3d 159
• Parties: FIRST CAPITAL ASSET MANAGEMENT, INC. and Willem Oost-Lievense, Plaintiffs-Appellants-Cross-Appellees, v. SATINWOOD, INC., Sphinx Rock, N.V., Ahmed Vahabzadeh, Sohrab Vahabzadeh, Afiwa, S.A., Afsar Vahabzadeh, Savco, S.A., and the Estate of Soleyman Vahabzadeh, Defendants-Appellees-Cross-Appellants, Brickellbush, Inc., Manco, Inc., Manou Failly, Cimbalo Investments, B.V., Sotar Investments, B.V., Jens Schlegelmilch, Youssef Vahabzadeh, Peninsula Appreciation, Inc., North American Consortium, Inc., Iradj Vahabzadeh, and John Does 1 Through 20, who are the beneficial owners of Brickellbush, Inc., Satinwood, Inc. and Sphinx Rock, N.V. and other persons who may be interested in this action and who are presently unknown to plaintiffs, Defendants.
• Court: U.S. Court of Appeals — Second Circuit

Page 159

385 F.3d 159

FIRST CAPITAL ASSET MANAGEMENT, INC. and Willem Oost-Lievense, Plaintiffs-Appellants-Cross-Appellees, v. SATINWOOD, INC., Sphinx Rock, N.V., Ahmed Vahabzadeh, Sohrab Vahabzadeh, Afiwa, S.A., Afsar Vahabzadeh, Savco, S.A., and the Estate of Soleyman Vahabzadeh, Defendants-Appellees-Cross-Appellants, Brickellbush, Inc., Manco, Inc., Manou Failly, Cimbalo Investments, B.V., Sotar Investments, B.V., Jens Schlegelmilch, Youssef Vahabzadeh, Peninsula Appreciation, Inc., North American Consortium, Inc., Iradj Vahabzadeh, and John Does 1 Through 20, who are the beneficial owners of Brickellbush, Inc., Satinwood, Inc. and Sphinx Rock, N.V. and other persons who may be interested in this action and who are presently unknown to plaintiffs, Defendants.

Docket No. 03-7897(L).

Docket No. 03-7956(XAP).

United States Court of Appeals, Second Circuit.

Argued: May 18, 2004.

Decided: September 27, 2004.

Appeal from the United States District Court for the Southern District of New York, Lewis A. Kaplan, J.

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Eric W. Berry, New York, N.Y., for Plaintiffs-Appellants-Cross-Appellees.

Russell P. McRory, McRory and McRory, P.L.L.C., Garden City, N.Y., for Defendants-Appellees-Cross-Appellants.

Before: MINER and KATZMANN, Circuit Judges, and TSOUCALAS, Senior Judge.^*

MINER, Circuit Judge.

Plaintiffs-appellants-cross-appellees, First Capital Asset Management, Inc. ("FCAM") and Willem Oost-Lievense ("Oost-Lievense") (collectively, "Plaintiffs"), appeal from a final judgment entered in the United States District Court for the Southern District of New York (Kaplan, J.) dismissing Plaintiffs' RICO conspiracy and substantive RICO claims and declining to exercise supplemental jurisdiction over Plaintiffs' remaining, state-law claims. On appeal, Plaintiffs contend that the District Court erred in concluding that Plaintiffs failed to plead a pattern of racketeering activity and in various other respects. In their "protective" cross-appeal, defendants-appellees-cross-appellants, Satinwood, Inc. ("Satinwood"), Sphinx Rock, N.V. ("Sphinx Rock"), Ahmed Vahabzadeh ("Ahmed"), Sohrab Vahabzadeh ("Sohrab"), AFIWA, S.A. ("AFIWA"), Afsar Vahabzadeh ("Afsar"), Savco, S.A. ("Savco"), and the Estate of Soleyman Vahabzadeh ("Soleyman's Estate") (collectively, "Defendants"), assert that the District Court erred in making certain determinations relating to Plaintiffs' substantive RICO claims and in holding that pendent party jurisdiction existed over certain defendants.

We agree with the District Court that Plaintiffs failed to plead a racketeering pattern, and thus we conclude that their substantive RICO claims were properly dismissed. And because Plaintiffs' RICO conspiracy claims are entirely dependent on their substantive RICO claims, we also concur in the District Court's dismissal of the RICO conspiracy claims. Further, we find that the District Court did not abuse its discretion in declining to exercise supplemental jurisdiction over the remaining claims. Accordingly, we affirm the judgment of the District Court in all respects.¹

BACKGROUND

Familiarity with the facts giving rise to this appeal is assumed, as those facts are set forth in the District Court's comprehensive published opinions. See First Capital Asset Mgmt., Inc., v. Brickelbush, Inc., 150 F.Supp.2d 624 (S.D.N.Y.2001) [hereinafter "FCAM I"]; First Capital Asset Mgmt., Inc. v. Brickellbush, Inc., 218 F.Supp.2d 369 (S.D.N.Y.2002) [hereinafter "FCAM II"]; First Capital Asset Mgmt., Inc. v. Brickellbush, Inc., 219 F.Supp.2d 576 (S.D.N.Y.2002) [hereinafter "FCAM III"]. We relate below only those facts and proceedings that are relevant to the present appeals.

I. State Court Proceedings

In October 1993, FCAM entered into a stock-purchase agreement (the "SPA") with Sohrab and his companies, North American Consortium, Inc. ("NACI") and N.A. Partners, L.P. ("NAP"). Sohrab was to pay FCAM $4.5 million in return for an interest in a new Delaware corporation called First Capital Corp. The SPA also provided that Oost-Lievense would become First Capital Corp.'s first CEO. Based on that agreement, Oost-Lievense resigned from his position as president of ABN AMRO Securities, Inc.

Shortly thereafter, Sohrab, NACI, and NAP breached the SPA, leaving FCAM without the promised $4.5 million and Oost-Lievense without a job. FCAM sued Sohrab, NACI, and NAP in Texas for breach of contract. The action was commenced in December 1993, dismissed on the ground of forum non conveniens, and subsequently recommenced in New York. In February 1997, the New York State Supreme Court granted summary judgment for FCAM against NACI and NAP and awarded damages of $4.5 million plus interest, but found that Sohrab himself was not personally liable.¹ NACI and NAP were shell companies, however, with no discernible assets to satisfy the judgment. FCAM therefore commenced a proceeding in New York State Supreme Court, petitioning the court, pursuant to N.Y. C.P.L.R. article 52, to enforce against Soleyman's Estate and Sohrab (under alter ego theories) the prior judgment against NACI and NAP.² The state court dismissed the petition, but that dismissal was reversed as against Sohrab by the Appellate Division.³ In June 2001, the New York Supreme Court entered judgment in favor of FCAM and against Sohrab for more than $5 million.⁴

Oost-Lievense, too, sued Sohrab, NACI, and NAP in federal court — for breach of the employment agreement incorporated in the SPA (the "Oost-Lievense Action").⁵ Eventually, without a trial, the defendants in that action stipulated to damages, and judgment was entered in Oost-Lievense's favor.

II. Federal Proceedings

A. Sohrab's Bankruptcy

In July 1997, a few weeks before trial in the Oost-Lievense Action was scheduled to begin, Sohrab filed a Chapter 7 bankruptcy petition. FCAM and Oost-Lievense filed an adversary proceeding objecting to Sohrab's discharge under § 727 of the Bankruptcy Code (11 U.S.C. § 727) on the grounds of bankruptcy fraud and fraudulent conveyance (the "Adversary Proceeding"). In December 1999, after a trial, the bankruptcy court denied Sohrab's Chapter 7 petition for discharge on grounds of bankruptcy fraud.⁶

B. FCAM I

In July 2000, Plaintiffs filed a complaint (the "Complaint") in the District Court alleging ten causes of action, two under RICO and the others under state law. The RICO counts — one substantive and one for conspiracy — were brought against Sohrab, his mother, his uncle Ahmed, and the Vahabzadeh family's Swiss lawyer, Jens Schlegelmilch ("Schlegelmilch"). The RICO claims arose from the allegedly unlawful actions of those four individuals and of numerous other Vahabzadeh family members and related entities — including Satinwood, Sphinx Rock, and Savco — allegedly controlled by the family and/or certain members of it. The civil RICO claims were the sole bases for federal jurisdiction.

Plaintiffs specifically alleged that Defendants' RICO violations and state-law fraudulent-conveyance violations prevented Plaintiffs from satisfying the outstanding judgments against Sohrab and his related companies. In particular, Plaintiffs alleged the following RICO predicate acts, which were primarily bankruptcy and mail frauds:

[x] In August 1995, Sohrab and Peninsula Appreciation, Inc. ("Peninsula"), allegedly Sohrab's alter ego, fraudulently conveyed their interests in a partnership to defendant Brickellbush, Inc. in contemplation of bankruptcy.

[x] In early 1997, Sohrab transferred property inherited from Soleyman to other family members, including Afsar. Schlegelmilch prepared the documents that effected the transfer.

[x] On July 17, 1997, Sohrab filed a materially false bankruptcy petition.

[x] On September 16, 1997, Sohrab made false statements under oath at the Bankruptcy Rule 2004 examination by his creditors.

[x] Ahmed and Schlegelmilch directed Soleyman's 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.

[x] In March 1998, Afsar and Schlegelmilch submitted affidavits to the bankruptcy court making false claims about Soleyman's citizenship.

[x] On June 25, 1998, Sohrab submitted an affidavit to the bankruptcy court in which he falsely stated that he had searched for a complete copy of a trust agreement.

[x] In September 1998, Ahmed, AFIWA (at the direction of Ahmed), Afsar, and Schlegelmilch committed mail fraud by sending Sohrab correspondence claiming that they had no documents relevant to Soleyman's Estate.

[x] Sohrab gave false testimony about his inheritance at his bankruptcy trial in October 1999.

[x] From September 1997 to December 1999, Afsar "accessed" Sohrab's overseas accounts, transferring approximately $5000 per month from those accounts first into her accounts and then into Sohrab's domestic accounts. Ahmed also transferred money to Sohrab at least once, on October 3, 1998. Schlegelmilch, too, transferred money to Sohrab on at least two occasions — August 4 and November 3, 1998. And finally, Schlegelmilch and Ahmed paid Sohrab's legal fees — "including one payment in the amount of either $15,000 or $25,000" — in September 1999.

Satinwood, Sphinx Rock, Ahmed, Savco, and Soleyman's Estate (collectively, the "Moving Defendants") moved to dismiss the Complaint pursuant to: Fed.R.Civ.P. 12(b)(6), for failure to state a claim; Fed.R.Civ.P. 9(b), on the ground that the predicate acts were not pleaded with sufficient particularity; and Fed.R.Civ.P. 12(b)(1), for lack of standing and subject matter jurisdiction. The Moving Defendants also moved to dismiss all claims against Afsar, Ahmed, and AFIWA under Fed.R.Civ.P. 12(b)(2), for lack of personal jurisdiction. Defendants Brickellbush, Inc. ("Brickellbush"), Manou Failly, and Youssef...