Feltman v. Prudential Bache Securities, 89-2505-CIV-NESBITT.
| Decision Date | 06 December 1990 |
| Docket Number | No. 89-2505-CIV-NESBITT.,89-2505-CIV-NESBITT. |
| Parties | James S. FELTMAN, not individually but as Trustee for First Financial Planning Corporation of South Florida, Inc., and Financial & Investment Planning, Inc., and The Official Unsecured Creditors Committee of First Financial Planning Corporation of South Florida, Inc., and Financial & Investment Planning, Inc., Plaintiffs, v. PRUDENTIAL BACHE SECURITIES, a Delaware corporation, Commercebank, N.A., a National Banking Institution, Thaw, Gopman & Associates, P.A., a Florida Professional Association, Donald Lockshin, an individual, Augusto Sigaretta, an individual, Ronald Thaw, an individual, Henry Gherman, an individual, and John Doe Nos. 1-10, Defendants. |
| Court | U.S. District Court — Southern District of Florida |
COPYRIGHT MATERIAL OMITTED
Ross B. Bricker, Miami, Fla., Robert A. Schatzman, Miami, Fla., for Official Unsecured Creditors Committee.
Stephen B. Gillman, Miami, Fla., for Commercebank and Augusto Sigaretta.
Jeffrey A. Blaker, Miami, Fla., for Thaw, Gopman & Associates.
Henry Gherman, pro se.
John D. Boykin, West Palm Beach, Fla., for Prudential Bache Securities and Donald Lockshin.
ORDER OF DISMISSAL
In this action, the Chapter 11 trustee ("Trustee") and the unsecured creditors committee ("Committee") of two bankrupt, sham corporations, First Financial Planning Corporation of South Florida, Inc. ("FFP") and Financial & Investment Planning Inc. ("FIP"), sue Henry Gherman, the principal officer of the corporations and an incarcerated embezzler,1 who defrauded investors out of at least $9.7 million. The bankruptcy court has rendered a judgment against Henry Gherman and his family in this amount. Gherman, however, is now penniless. He proceeds in this lawsuit in forma pauperis, and the Trustee believes that Gherman and his family will be unable to satisfy the judgment against them. Therefore, the Trustee and Committee also have brought this action against the solvent brokers, bankers, and accountants that allegedly furthered the fraud.
The complaint contains 13 counts. The first five state claims against all defendants for violating § 1962(c) of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), aiding and abetting a violation of § 1962(c) of RICO, participating in a RICO conspiracy in violation of § 1962(d), aiding and abetting civil theft, and unjust enrichment. Counts VI, VII, and VIII state claims against Defendant Prudential-Bache Securities (and against Defendant Lockshin, one of its officers), Gherman's broker, for negligence, breach of fiduciary duty, and participation in breach of fiduciary duty. Counts IX and X state claims against Defendant CommerceBank, N.A., (and against Defendant Sigaretta, a bank officer), Gherman's banker, for negligence and participation in breach of fiduciary duty. Counts XI, XII, and XIII state claims against Thaw, Gopman & Associates, P.A., (and against Defendant Thaw, a member of the firm), Gherman's accountant, for professional negligence, breach of contract, and participation in breach of fiduciary duty.
In each of these counts, Plaintiffs assert claims on behalf of the creditors of the estate. The complaint, however, is vague regarding which claims belong to the defrauded investors and which, if any, belong to the bankrupt corporations.
The complaint alleges that in 1970, Gherman incorporated FIP, a sham corporation, and served as its president and principal officer. All of the other officers and directors, except one, were members of Gherman's family. Although ostensibly designed to provide financial services to its clients, FIP was in fact "formed in 1970 to hinder, delay and defraud creditors." Complaint at paragraph 24. Gherman later incorporated FFP, another sham corporation, "to transfer and conceal stolen money." Complaint at paragraph 25. These corporations were individually or collectively insolvent from 1981 to 1988.
As part of his embezzlement scheme, Gherman established bank accounts at Defendant CommerceBank for FIP and its clients. Parallel brokerage accounts were set up at Defendant Prudential-Bache. Gherman periodically instructed Defendant Lockshin, an officer of Prudential-Bache, to withdraw funds from the brokerage accounts in the form of checks payable to the account holder. Gherman would pick up the checks, endorse them, and deposit them in the client's checking account at CommerceBank. The money was then immediately transferred from the client accounts to FIP's corporate account. Defendants CommerceBank and Sigaretta facilitated these transfers by adopting a "no-hold" policy on funds deposited in client accounts.
Gherman successfully camouflaged his illegal activities, and used the money in the FIP checking account to buy homes, automobiles, and other expensive items, as well as to funnel cash directly to his family. When it became apparent that his scheme would soon collapse, Gherman began to prepare to leave the country. Thus, in the summer of 1988, Gherman directed Defendant Lockshin to liquidate all assets held for FIP's clients and to change the mailing address for Gherman's personal accounts from FIP's corporate address to his residential address. Gherman then deposited the money into accounts at CommerceBank, and notified the bank that he personally would be withdrawing large sums from the bank. Gherman specifically requested that the withdrawals remain secret. Again Gherman had his mailing address changed from FIP to his home. Neither Lockshin nor Sigaretta questioned any of Gherman's activities.
Gherman set up a dummy corporation in Antigua to receive the money. He also retired certain personal and familial debts, and took other steps to ensure his family's financial well-being. In August 1988, Gherman fled the country. He wrote an apologetic letter to his clients explaining his disappearance. Less than three months later, however, Gherman was arrested by Japanese authorities, and was extradited to the United States.
Plaintiffs now allege that CommerceBank and Sigaretta were aware of the suspicious withdrawals and deposits, that they accepted forged endorsements, that they permitted Gherman and his employees access to accounts for which they had no signature authority, and that they sent account statements to FIP rather than to the clients themselves, all of which furthered Gherman's embezzlement scheme. Plaintiffs allege that Prudential-Bache and Lockshin knew of the suspicious circumstances surrounding the withdrawal of funds from the brokerage accounts and that they also mailed the account statements to FIP. Finally, Plaintiffs allege that Thaw, Gopman & Associates ("Thaw, Gopman") and Thaw learned both that FIP was insolvent as early as 1982 and that FIP was not investing funds in certificates of deposits as claimed. In addition, Plaintiffs allege that Thaw, Gopman prepared fraudulent and misleading tax returns for FIP for fiscal years 1983-1987.
All of the Defendants, except Henry Gherman, have moved to dismiss the complaint. Defendants move to dismiss on the grounds that 1) the Trustee lacks standing to bring this action; and 2) the Committee lacks standing to bring an action that the Trustee is unable to bring. Defendants raise additional grounds for dismissal with respect to the individual causes of action; the Court finds, however, that it need not address these arguments and discusses below only the standing arguments.
The Court has subject matter jurisdiction over this action 1) pursuant to 28 U.S.C. § 1331 because the complaint raises a federal question in counts I-III, and 2) pursuant to 28 U.S.C. § 1334(b), which gives the district courts original, although not exclusive, jurisdiction over all civil proceedings related to cases arising under the bankruptcy code. This action clearly is related to a suit arising under the bankruptcy code: the Trustee seeks to recover funds for the bankrupts' estate and distribution to all the creditors. See In re Lemco Gypsum, Inc., 910 F.2d 784, 788 (11th Cir.1990) ().
Defendants argue that both the Trustee and the Committee lack standing to bring this action. Standing is jurisdictional in nature, and thus whether plaintiffs have standing is always a threshold inquiry. E.F. Hutton & Co. v. Hadley, 901 F.2d 979, 983 (11th Cir.1990); Federal Deposit Ins. Corp. v. Morley, 867 F.2d 1381, 1387 (11th Cir.1989), cert. denied, ___ U.S. ___, 110 S.Ct. 75, 107 L.Ed.2d 41 (1989). The Court must consider both constitutional standing requirements and prudential concerns in determining whether Plaintiffs have standing. Hadley, 901 F.2d at 984.2 Furthermore, the Court must accept as true all of the allegations in the complaint and disregard the litigant's likelihood of success on the merits. Id. The Court views the allegations of the complaint in the light most favorable to the plaintiff. Pennell v. San Jose, 485 U.S. 1, 108 S.Ct. 849, 99 L.Ed.2d 1 (1988).
A bankruptcy trustee's dual role as representative of the debtor and of the creditors of the estate clearly gives rise to two possible grounds for asserting that he or she has standing to raise claims against third parties. The trustee's role with respect to the creditors' claims must be analyzed more precisely, however; the trustee may be asserting the right to bring claims either on behalf of all of the creditors or for specific creditors. The grounds upon which Plaintiffs base their standing argument are somewhat opaque, and therefore, the Court addresses each of the three possibilities below.
Defendants contest the Trustee's standing to bring this suit because the bulk of the complaint concerns Henry Gherman's theft from investor clients, now creditors of the estate, and the role the brokers, bankers, and accountants played in that fraud. Defendants contend that the Trustee cannot bring these claims against Defendant...
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