Citadel Management, Inc. v. Telesis Trust, Inc.
| Decision Date | 20 November 2000 |
| Docket Number | No. 00 Civ. 2342(RWS).,00 Civ. 2342(RWS). |
| Citation | 123 F.Supp.2d 133 |
| Parties | CITADEL MANAGEMENT INC., a Bahamian Corporation, Plaintiff, v. TELESIS TRUST, INC., a Delaware corporation, Brite Business S.A., a British Virgin Island corporation, Mensana Corporation, a Bahamian corporation, Charles W. Sullivan, Marjorie Hertzog, a/k/a Marjorie S. Tyson, a/k/a Marjorie Suzan Tyson, and Johan Hertzog, a/k/a Johan Christiaan Hertzog, a/k/a Johan Tysonhertzog, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Mintmire & Associates, Palm Beach, FL, Mercedes Travis, of counsel, for plaintiff.
Herrick, Feinstein, New York City, James A. Moss, Darlene Fairman, Richard Y. Im, of counsel, for Defendants Charles W. Sullivan and Mensana Corporation.
Morris K. Mitrani, New York City, for Remaining Defendants.
Defendants Charles W. Sullivan ("Sullivan") and Mensana Corporation ("Mensana") have moved to dismiss the Amended Complaint in its entirety pursuant to Rules 9(b), 12(b)(2), (4) and (6), Fed.R.Civ.P., for failure to state a claim upon which relief may be granted, failing to plead fraud with particularity, lack of jurisdiction and insufficiency of service of process. Plaintiff Citadel Management, Inc. ("Citadel") has cross-moved for leave to refile. Also before the Court are Citadel's motions pursuant to Rule 55, Fed.R.Civ.P., for default against defendants Marjorie Hertzog, a/k/a Marjorie S. Tyson, a/k/a Marjorie Susan Tyson ("Tyson") and Telesis Trust, Inc. ("Telesis"). For the reasons discussed below, the default motion is denied in part and granted in part, the motion to dismiss is granted, and plaintiff is granted leave to refile in accordance with this opinion.
Citadel is incorporated under the laws of the Bahamas.
Defendant Telesis is a Delaware corporation. At all times relevant to the complaint, defendant Johan Hertzog, a/k/a Johan Christiaan Hertzog, a/k/a Johan Tyson Hertzog ("Hertzog") was the President and CEO of Telesis.
Defendant Brite Business, S.A. ("Brite") is a business incorporated under the laws of the British Virgin Islands of which Hertzog is an officer.
Defendant Mensana is a business incorporated under the laws of Delaware.
Defendant Sullivan is a New York resident.
Defendant Marjorie Hertzog, a/k/a Marjorie S. Tyson, a/k/a Marjorie Susan Tyson ("Tyson") is a resident of California.
Defendant Hertzog is a resident of California.
This action essentially seeks the return of funds that were the subject of judgments entered against defendants Hertzog and Telesis, among others not named here (the "English defendants"), by the High Court of Justice for England and Wales in 1998. The judgments arose out of the English defendants' failure to honor an $11 million investment contract between Citadel and Equal Limited ("Equal"), a British corporation of which Hertzog was a director. Rather than investing Citadel's funds as per the contract, Equal and others disbursed the funds almost immediately after the contract was signed on April 14, 1998. The disbursals included a $5 million transfer by Hertzog to defendant Mensana, who then transferred the funds through a bank in Lebanon to a third party; an approximately $5,250,000 transfer to accounts at Chase Manhattan Bank in New York held by Telesis and Hertzog and additional miscellaneous payments for the benefit of the defendants in this action.
The English Court issued two "Mareva Injunctions," requiring the English defendants, which included Hertzog, to disclose the whereabouts of the funds and restraining them from disposing of any assets they held worldwide until trial. No disclosures were made, but, based upon discovery provided regarding the transfer to Chase Manhattan Bank, the court allowed Citadel to add Telesis as a defendant. When no defense was timely served, the English court awarded Citadel a judgment against Hertzog for $40,100,000.00 plus 8% interest from August 5, 1998, and on October 14, 1998 issued a judgment against Telesis in the amount of $5 million plus damages and interest.
On May 24, 1999, Citadel sought to enforce the English judgments against Hertzog and Telesis in the Supreme Court of New York, Queens County. At the same time, Citadel sought orders of attachment and was granted a temporary order restraining both defendants and Chase Manhattan Bank from disposing of any assets held in New York. The New York Supreme Court granted Citadel's motion for summary judgment against Hertzog and issued an order of attachment to enforce the English judgment for $40,100,000 plus 8% interest. In the same decision, summary judgment was granted against Citadel and for Telesis, on the grounds that the English court had never obtained personal jurisdiction over Telesis under any grounds recognized in the relevant New York statute, C.P.L.R. § 5305(a).
Hertzog moved the English Court to set aside the judgment on December 16, 1999. Four days later, Citadel moved the English Court to hold Hertzog in contempt and send him to prison for violating that court's previously issued injunctions.
The New York Supreme Court notified the parties on January 4, 2000 that it would settle the order of attachment as set forth in its summary judgment decision but would stay enforcement pending the resolution of the set-aside and contempt motions in the English Court.
Proceedings in the English Court were adjourned to April 3, 2000, and Citadel agreed not to pursue enforcement of any claims against Hertzog until the English Court resolved the pending case.
Citadel filed the instant complaint on March 28, 2000, and later amended it (the "Amended Complaint") to claim the following: fraud against Telesis and Hertzog (1) arising out of allegedly false statements made by Hertzog regarding why the Telesis Chase Bank accounts were frozen; and (2) arising out of the written statement Hertzog provided on June 26, 1998 and later forwarded by his attorney to the English Court, to the effect that "I have not traded any of the Plaintiff's investment or funds ..."; (3) conversion against Telesis and Hertzog for transferring the funds without Citadel's authority; (4) against Tyson as a later beneficiary of the converted funds; (5) against Mensana and Sullivan as the beneficiaries of $4 million Hertzog improperly appropriated from Citadel and later wired to a bank in Lebanon; (6) against Brite "in the event that any of Citadel's funds were transferred to Brite;" (7) civil theft under Florida law against Hertzog for $250,000; (8) against Tyson for over $260,000; (9) against Telesis for over $5 million; (10) against Brite for $400,000; and treble damages for state and federal RICO violations against Telesis, Hertzog, Mensana, Sullivan, Brite and Tyson in Counts 11-18.
Meanwhile, the English Court held Hertzog in contempt of court on April 5, 2000 for disposing of his assets in violation of the Mareva Injunctions and denied his motion to set aside the default judgment. On June 7, 2000, the English Court granted Citadel leave to commence new proceedings against Hertzog based upon information received in the English proceedings. Citadel amended the complaint in this action to add Hertzog as a defendant on June 13, 2000.
Citadel initially filed default motions pursuant to Rule 55(c), Fed.R.Civ.P., on July 12, 2000. Due to technical errors in filing, Citadel filed an amended default motion against both Telesis and Tyson on July 17, 2000. On August 24, 2000, Citadel filed yet another motion for a default judgment against Tyson, seeking expenses related to filing and service. Tyson filed an affidavit in opposition to the default motion on September 1, 2000. Citadel filed a reply declaration on September 6, 2000, the date oral argument was heard. Tyson filed a second affidavit on September 15, 2000, whereupon the motion was deemed fully submitted. Telesis filed no opposition.
On July 13, 2000, defendants Sullivan and Mensana moved to dismiss the claims against them for failure to state a claim upon which relief may be granted, failing to plead fraud with particularity, lack of jurisdiction and insufficiency of service of process, pursuant to Rules 9(b), 12(b)(2), (4) and (6), Fed.R.Civ.P. Citadel responded and filed a cross-motion for leave to amend the complaint on August 7, 2000. Reply memoranda from each side were received through August 29, 2000, and the motion was deemed fully submitted after oral argument on September 6, 2000.
Citadel moves for default judgments against Tyson and Telesis pursuant to Rule 55 on the grounds that these defendants failed to plead or otherwise defend within the time allotted by the Federal Rules of Procedure.
Where entry of a default judgment is opposed, the standard for granting such a judgment under Rule 55 is governed by the same principles that apply to a motion to set aside entry of a default. See Commercial Bank of Kuwait v. Rafidain Bank, 15 F.3d 238, 243 (2d Cir.1994); Meehan v. Snow, 652 F.2d 274, 276 (2d Cir.1981). The standard for setting aside entry of a default is whether there is "good cause," see Rule 55(c), which requires consideration of "whether [defendant's] default was willful, whether setting the default aside would prejudice [plaintiff] and whether [defendant] presented a meritorious defense." Sony Corp. v. Elm State Elecs., Inc., 800 F.2d 317, 320 (2d Cir. 1986). In assessing whether good cause exists, the Court must consider "whether the default was willful, whether setting it aside [or declining to enter it] would prejudice the adversary, and whether a meritorious defense is presented." Rafidain, 15 F.3d at 243 (quoting Meehan, 652 F.2d at 276). This test should be applied in the context of the general...
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