First Capital Asset Management v. Brickellbush
| Decision Date | 29 July 2002 |
| Docket Number | No. 00 CIV. 5597(LAK).,00 CIV. 5597(LAK). |
| Citation | 218 F.Supp.2d 369 |
| Parties | FIRST CAPITAL ASSET MANAGEMENT, INC., et ano., Plaintiffs, v. BRICKELLBUSH, INC., et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
Eric W. Berry, Eric W. Berry Law Office PC, New York City, for Plaintiffs.
Russell P. McRory, McRory and McRory, P.L.L.C., Garden City, NY, for Defendants Satinwood, Inc., Sphinx Rock, N.V., Ahmed Vahabzadeh, Afsar Vahabzadeh, Savco, S.A., and The Estate of Soleyman Vahabzadeh.
Plaintiffs are judgment creditors of certain of the defendants and allege that they have been hindered by violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO")1 and various state law torts in their efforts to collect their judgments. Their initial complaint was dismissed substantially on the ground that it failed sufficiently to allege a pattern of racketeering activity.2 The moving defendants Ahmed Vahabzadeh ("Ahmed"), Afsar Vahabzadeh ("Afsar"), the Estate of Soleyman Vahabzadeh ("Soleyman's Estate"), Satinwood, Inc. ("Satinwood"), Sphinx Rock, N.V. ("Sphinx Rock"), and Savco, S.A. ("Savco")3 now seek an order dismissing (1) the amended complaint against the moving defendants for failure to state a claim pursuant to Rule 12(b)(6) or, in the alternative, pursuant to Rule 12(b)(1) for lack of standing and subject matter jurisdiction, and (2) all claims against Afsar, Ahmed, and Afiwa, S.A. ("Afiwa") pursuant to Rule 12(b)(2) for lack of personal jurisdiction.
The amended complaint asserts eight claims for relief. Counts One through Four are New York law fraudulent conveyance claims against Sohrab, Ahmed, Afsar, Soleyman's Estate, Sphinx Rock, Satinwood, Peninsula, and "John Does 1-20." Count Five is substantive RICO claim under 18 U.S.C. § 1962(c) against Sohrab and Afsar. Count Six is a RICO conspiracy claim under 18 U.S.C. § 1962(d) against Sohrab, Ahmed, and Afsar. Count Seven is a reverse corporate veil piercing and alter ego liability claim against Afiwa. Count Eight is a successor liability, common corporate enterprise, and alter ego liability claim against Savco.
As the moving defendants' standing arguments implicate the Court's subject matter jurisdiction,4 the Court will address these arguments first.
It is unclear whether dismissal for lack of standing properly is sought under Rule 12(b)(6) or Rule 12(b)(1).5 The question is academic, however, because even when a standing motion is considered under Rule 12(b)(6), the district court is authorized to consider matters outside the pleadings and to make findings of fact when necessary.6 Because the more recent Second Circuit authority suggests that dismissals for lack of standing more properly are sought under Rule 12(b)(1),7 the applicable standards under Rule 12(b)(1) and 12(b)(6) are not materially different in the standing context,8 and the moving defendants' ask for dismissal pursuant to Rule 12(b)(1), the Court will consider the standing arguments under Rule 12(b)(1).
In resolving a motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1), a district court may refer to evidence outside the pleadings, such as affidavits and other documents.9 While the plaintiff has the ultimate burden of establishing subject matter jurisdiction and generally must establish jurisdiction by a preponderance of the evidence when the defendant makes a "factual challenge" on a Rule 12(b)(1) motion,10 "where `[subject matter] jurisdiction is so intertwined with the merits that its resolution depends on the resolution of the merits, the trial court should employ the standard applicable to a motion for summary judgment.'"11 Here, the proximate cause and injury questions central to the standing determination would be bound up also in any jury award of damages.12 Thus, standing and the merits are intertwined, and the Court will employ the summary judgment standard on this Rule 12(b)(1) motion.
To invoke RICO's civil remedies, a plaintiff must have been "injured in his business or property by reason of a violation of section 1962."13 This language "has been construed to require that in order to merit standing, a civil RICO plaintiff must establish that the RICO violation at issue was a proximate cause of the injury to the plaintiff's business or property for which redress is sought."14 "Because a plaintiff must show injury `by the conduct constituting the violation' of RICO, the injury must be caused by a pattern of racketeering activity violating section 1962 or by individual RICO predicate acts."15
Plaintiffs make only bare bones allegations of injury to their business and property. They assert, on both the substantive and conspiracy claims, the following:
"Plaintiffs have suffered injuries proximately caused by the bankruptcy crimes and mail frauds set forth above, including, but not limited, to the following:
(a) The loss of any ability to satisfy their claims and judgments out of assets Sohrab was entitled to inherit from Soleyman and receive from Soleyman's Estate.
(b) The attorneys fees and expenses incurred in prosecuting their objections to Sohrab's fraudulent Chapter 7 petition in the First Capital v. Vahabzadeh adversary proceeding.
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(c) The loss of any ability to execute directly against the assets Sohrab had gratuitously transferred to Afsar and Sohrab's siblings."16
Plaintiffs' allegations of injury thus can be divided into two categories for purposes of the standing analysis: the inability to collect their judgments (the "Lost Debt" injury) (sections (a) and (c) above), and the cost of pursuing their objections to Sohrab's bankruptcy discharge (the "Legal Fees" injury) (section (b) above).
Whether plaintiffs have standing based on their alleged Lost Debt injury is controlled by Stochastic Decisions, Inc. v. DiDomenico.17 The plaintiff in that case was a judgment creditor of various defendants and their companies. As in this case, one of the defendant companies filed a bankruptcy petition that was dismissed when the company failed to file financial reports.18 The plaintiff brought a civil RICO action charging the defendants with conspiracy to commit bankruptcy, wire, and mail fraud for the purpose of preventing the plaintiff from collecting the outstanding judgments.19 The complaint alleged that the property transfers effected in the course of the conspiracy were fraudulent conveyances under state law and that the overall scheme constituted common law fraud.20 Thus, while not identical, the facts of Stochastic and the facts of this case are substantially similar.
After a bench trial, the Stochastic court awarded judgment to the plaintiff against most of the defendants.21 It awarded the plaintiff $467,477.24 on the civil RICO claim, which consisted of $50,000 in legal fees expended by plaintiff in attempting to collect its state court judgments22 and $317,477.24 in RICO attorneys fees and expenses incurred in pursuing the RICO action.23 The district court determined that the plaintiff was not entitled to the amounts owed on the state court judgments or the attorneys fees spent litigating those actions.24
The plaintiff appealed, arguing that it was entitled to recover the amounts of its state court judgments. The Second Circuit however, flatly rejected this argument.25
The Stochastic panel reaffirmed the principle laid down in Bankers Trust Co. v. Rhoades,26 that "a debt is `lost[,]' and thereby becomes a basis for RICO trebling[,] only if the debt (1) cannot be collected (2) `by reason' of a RICO violation."27 It reasoned that "a RICO claim does not accrue until it is established that collection of the claim or judgment has been successfully frustrated."28 The court held that, to the extent the plaintiff successfully collected on the state court judgments by reason of their state law fraudulent conveyance claims, those amounts would reduce the RICO injury pro tanto, before any trebling occurred. Because the plaintiff's collection efforts were ongoing (by reason of the federal court action itself), and the actual amount of its injury was indefinite and unprovable, plaintiff did not yet have standing under RICO.29
Here, plaintiffs do not allege that collection of the amounts owed on the state court judgments has been "successfully frustrated," much less how any such ultimate frustration was a proximate consequence of any of defendants' predicate acts. Indeed, an affidavit submitted by plaintiff's counsel, Eric Berry, suggests that plaintiffs have commenced and prosecuted to judgment or settlement five lawsuits against transferees of Sohrab's allegedly fraudulently conveyed assets.30 Their efforts, as evidenced by the state law claims in this case, are continuing and have met with varying degrees of success, grossing $370,000 as of the date of Mr. Berry's affidavit.31 In short, plaintiffs neither have alleged nor offered any proof that the collection of the debt has been frustrated as a proximate consequence of any of the defendants' alleged predicate acts.32 Accordingly, plaintiffs lack RICO standing based on their alleged Lost Debt injury.
Plaintiffs seek also to recover under RICO the "attorneys fees and expenses incurred in prosecuting their objections to Sohrab's fraudulent Chapter 7 petition in the First Capital v. Vahabzadeh adversary proceeding."33 This allegation and its supporting proof are sufficient to confer standing for the substantive RICO claim against Sohrab and the RICO conspiracy claim against Sohrab, Ahmed, Afsar, and Schlegelmilch, but not the substantive RICO claim against Afsar.
Bankers Trust and Stochastic offer substantial guidance on this...
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