Coan v. Licata (In re First Conn. Consulting Grp.)
| Decision Date | 31 March 2023 |
| Docket Number | 02-50852 (JJT),02-51167 (JJT),Adv. Pro. Case 09-05010 (JJT) |
| Parties | IN RE: FIRST CONNECTICUT CONSULTING GROUP, INC., et al., Debtors. v. JAMES J. LICATA, et al., Defendants. RICHARD M. COAN, TRUSTEE, and RONALD I. CHORCHES, TRUSTEE, Plaintiffs, Re: ECF Nos. 335, 376 |
| Court | U.S. Bankruptcy Court — District of Connecticut |
There comes a time when the twists and turns of a case are so numerous that it can be best described as a modern-day Odyssey -- the present matter is one such case. This Adversary Proceeding has its origins in the June 2005 sale of substantially all the Debtors' assets in the jointly administered bankruptcy cases of James J. Licata and First Connecticut Consulting Group, Inc. Nearly four years after that sale, Chapter 7 Trustees Ronald I. Chorches and Richard M. Coan (together, the "Trustees") commenced this Adversary Proceeding against James J. Licata ("James Licata"), his wife Cynthia Licata, their children Jessica Licata and Tucker Licata, and a tangled web of related business entities. The Trustees allege that the Defendants fraudulently used the sale as a vehicle for transferring valuable real estate-related rights from one Defendant to another in service of a complex and long-running scheme to shield those assets from creditors.[1]
Now before the Court is Jessica Licata's Motion to Dismiss Counts Nine, Ten, and Eleven (ECF No. 335, the "Motion") of the Trustees' Amended and Supplemental Complaint (ECF No. 261, the "Amended Complaint"). She moves to dismiss these Counts under Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons that follow, the Motion to Dismiss is denied.
The Court has jurisdiction over this Adversary Proceeding pursuant to 28 U.S.C. §§ 157(b) and 1334(b) and the United States District Court for the District of Connecticut's General Order of Reference dated September 21, 1984. This is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A) (case administration) and (H) (proceedings to determine, avoid, or recover fraudulent conveyances). The Court has the power to enter a final judgment in this Adversary Proceeding, subject to traditional rights of appeal. This Adversary Proceeding arises under the Bankruptcy Case (as defined in Part III(A)), and venue is proper pursuant to 28 U.S.C. § 1409.
On June 27, 2002, James Licata filed a petition for relief under Chapter 11 of the Bankruptcy Code. BR-ECF No. 1, Case No. 02-51167 (the "Licata Bankruptcy"). On July 12, 2002, First Connecticut Consulting Group, Inc. ("FCCG", and together with James Licata, the "Debtors") also filed a petition for relief under Chapter 11 of the Bankruptcy Code. BR-ECF No. 1, Case No. 02-50852 ().[2]
On March 11, 2005, the Debtors sought approval from the Court to sell substantially all their assets under 11 U.S.C. § 363. Am. Compl. ¶ 12. Pursuant to that certain First Amended Asset Purchase Agreement, filed with the Court on May 19, 2005 (ECF No. 671, the "FAAPA"), the Debtors agreed to transfer their claims to ownership interests in certain limited liability companies, mortgages, joint venture agreements, causes of action against third parties, and other enumerated assets (the "Assets") to SWJ Holdings, LLC ("SWJ"). Am. Compl. ¶ 15. On June 21, 2005, the Court approved the proposed sale for $5.5 million (the "Sale" or "Sale Order"). BR-ECF No. 716, Case No. 02-50852. The Trustees allege that the sole Asset of any substantial value was the Debtors' purported interests and rights in Defendant First Connecticut Holding Group LLC, IV ("FCHG IV"). Am Compl. ¶ 41.
FCHG IV itself had been mired in litigation both before and throughout the Bankruptcy Case -- in some ways, FCHG IV's own history could well be considered the Iliad to the Odyssey that is this Adversary Proceeding. In April 1999, Peter Mocco ("Mocco"), a spurned former business partner of James Licata, filed an action against James Licata to compel the conveyance of FCHG IV's real estate properties. See Mocco v. Licata, No. A-5041-14T2, 2018 WL 2923483, at *2 (N.J. Super Ct. App. Div. June 5, 2018) (per curiam). Mocco claimed that pursuant to an undisclosed agreement between himself and James Licata, the latter was to re-convey certain of Mocco's properties, including those held by FCHG IV, after taking title to those properties to facilitate Mocco's own bankruptcy reorganization. Id. at *1. After a lengthy trial between 2014-2015, a New Jersey trial court found that Mocco, not James Licata, was the true owner of FCHG IV and its properties -- that finding was later affirmed by the New Jersey Superior Court's Appellate Division. Id. at *2. As a consequence, the Trustees contend that James Licata's conduct throughout the Bankruptcy Case was designed to insulate certain assets not only from his creditors, but also from their rightful owner, Peter Mocco. See Pls.' Mem. in Opp'n to Mot. to Dismiss 3, ECF No. 376 (the "Reply").
Although Cynthia Licata claimed at the time of the Sale that she was the sole owner of FCHG IV, the Trustees allege that this was in fact a knowing and fraudulent misrepresentation made to conceal James Licata's rights in and equitable ownership of FCHG IV. Am. Compl. ¶¶ 45-47. Based on the Debtors' representations, the Sale Order stated that SWJ was not an insider of the Debtors and was completely unrelated to the Debtors. Am. Compl. ¶ 22. The Sale Order also references a Transfer, Settlement and Release Agreement (the "TSRA") (found in Exhibit H of the FAAPA) between Cynthia Licata and SWJ. Am. Compl. ¶ 22. The Trustees allege that no party to the Bankruptcy Case ever advised the Court that James Licata had previously claimed an interest in SWJ. Am. Compl. ¶ 22. The Trustees further allege that neither the Debtors nor any related parties ever advised the Court that the combined operative effect of the FAAPA and the TSRA would enable SWJ to serve as a pass-through entity and allow James Licata to transfer a substantial portion of the Assets to Cynthia Licata, including FCHG IV and its holdings. Am Compl. ¶ 23 (those assets, the "Pass-Through Assets"). As a result of this sleight of hand, SWJ did not pay any value for the Pass-Through Assets. Am Compl. ¶ 23. SWJ transferred FCHG IV to Cynthia Licata contemporaneously with the closing of the FAAPA. Am Compl. ¶ 23.
On May 26, 2006, just over two months after the Sale, FCHG IV allegedly sold the real estate it held to SWJ for a purchase price of $31.3 million by way of deed, which was recorded on June 2, 2006 (the "SWJ Transfer"). Am Compl. ¶ 48. The SWJ Transfer was later nullified by the New Jersey trial court. Mocco, 2018 WL 2923483, at *2. At the closing of the SWJ Transfer, FCHG IV received a mortgage (the "Second Mortgage") on the subject real estate in the original principal amount of $22,950,833.50 and approximately $1,678,566.50 in cash. Am. Compl. ¶ 49. Certain loan proceeds related to the SWJ Transfer were also placed in an escrow account. Am. Compl. ¶ 50. The Trustees allege that the Second Mortgage was a product or a proceed of the Pass-Through Assets, and further allege that Cynthia Licata received $380,000.00 from the associated escrow account. Am. Compl. ¶¶ 49-50. FCHG IV is then alleged to have transferred the Second Mortgage to Defendant East Coast Investments, LLC ("East Coast"), whose principals are purported to have been former attorneys of James Licata during a prior criminal prosecution. Am Compl. ¶¶ 51-52.
After FCHG IV transferred the Second Mortgage to East Coast, a dispute arose over its validity and/or enforceability, which in turn triggered a claim against a title insurance company (the "Title Claim"). Am. Compl. ¶ 88. James Licata allegedly marketed and monetized the Title Claim to obtain significant funds for his and Cynthia Licata's benefit by way of an Assignment and Buyback Agreement between himself and Larry D. Kelley of Portland, Oregon (those funds, the "Portland Funds"). Am. Compl. ¶ 89. Cynthia Licata (and to some extent James Licata) is alleged to have thereafter maintained control over the Portland Funds by placing them in certain bank accounts held by Jessica Licata at JPMorgan Chase Bank, N.A. (the "Jessica Licata Accounts"), thus shielding the Portland Funds from creditors. Am. Compl. ¶¶ 90-92. Jessica Licata allegedly understood that the funds held in these accounts did not belong to her and were held for the benefit of James Licata and Cynthia Licata. Am. Compl. ¶¶ 90-92. Cynthia Licata allegedly held a debit card and checks for one or more of the Jessica Licata Accounts, and controlled the movement of funds into, out of, and between the Jessica Licata Accounts by instructing Jessica Licata to execute desired transactions. Am. Compl. ¶¶ 90-92. Cynthia Licata then used the Jessica Licata Accounts to conduct business, fund a lavish lifestyle, and support her adult children for several years. Am. Compl. ¶¶ 91-92.
The Trustees allege that Cynthia Licata later decided to stop using the Jessica Licata Accounts in favor of a substitute scheme. Am. Compl. ¶ 93. Cynthia Licata created a new entity called Santa Fe Development, LLC ("Santa Fe Development"), a New Jersey limited liability company to serve the same function as the Jessica Licata Accounts. Am. Compl. ¶ 93. After transferring the remaining funds in the Jessica Licata Accounts to Santa Fe Development's newly created accounts (the "Santa Fe Accounts", and together with the Jessica Licata...
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