In re First Farmers Fin. Litig.
| Decision Date | 10 January 2017 |
| Docket Number | No. 14-cv-7581,14-cv-7581 |
| Parties | In Re: FIRST FARMERS FINANCIAL LITIGATION |
| Court | U.S. District Court — Northern District of Illinois |
Hon. Amy J. St. Eve
AMY J. ST. EVE, District Court Judge:
The matter before the Court concerns the claims of Patrick Cavanaugh, not individually, but in his capacity as receiver of the Overall Receivership Estate (the "Overall Receiver"), against Defendant Shamir Patel ("Shamir").1 Shamir has moved to dismiss the Overall Receiver's complaint for lack of personal jurisdiction, improper venue, forum non conveniens, and failure to state a claim. (R. 1289, Def.'s Mot. Dismiss, at 1); see Fed. R. Civ. P. 12(b)(2), (3), (6). For the following reasons, the Court denies Shamir's motion.
This case arises from a fraud Nikesh Patel ("Nikesh") and Timothy Fisher ("Fisher") committed through First Farmers Financial, LLC ("First Farmers"), an entity they owned and controlled. (Compl., at ¶¶ 1, 9-10.) Nikesh and Fisher used First Farmers "to fraudulently obtain millions of dollars from the sale of fictional loans that were purportedly guaranteed by the U.S. Small Business Administration or the U.S. Department of Agriculture Rural Development Program." (Id.) The Overall Receiver alleges that, among other things, Nikesh used First Farmers "to improperly transfer millions of dollars to insiders, relatives and employees of entities that he owned and/or controlled, such as Alena Hospitality, LLC ('Alena')," which "directly or indirectly owned several hotel properties and often served as the manager of those hotel properties." (Id. at ¶ 1.)
Nikesh and Fisher operated First Farmers solely to perpetuate their fraudulent scheme. (Id. at ¶ 16.) Consequently, First Farmers "was never legally solvent or otherwise able to pay its debts and liabilities as they became due." (Id.) Any money that First Farmers held derived from the fraudulent scheme "rather than actual profits resulting from a legitimate business enterprise." (Id.) According to the Overall Receiver, "[b]ecause of the fraudulent activity, substantial assets were quickly diverted from [First Farmers]." (Id. at ¶ 17.)
Alena hired Shamir in December 2013 as its Chief Operating Officer/Managing Partner. (Id. at ¶ 18.) He was responsible for, among other things, "operational management, development and asset management." (Id. at ¶¶ 2, 18.) Alena was based in Florida, Shamir lived and continues to live in Florida, and, according to Shamir, he has no connection to Illinois (e.g., he has no property in Illinois, has never lived here, and has never conducted business here). (R. 1289-1, Shamir Decl.; see Compl. at ¶¶ 5, )
A copy of the employment agreement between Alena and Shamir, which the Overall Receiver attached to his complaint, indicates that Shamir would receive a salary of $150,000 per year and start in his position "no later than January 6, 2014."3 (Id., Ex. A at 1-2.) The employment agreement also says that Shamir would receive a 34% membership interest in Alena. .) Per the agreement, "[m]ember distributions would be calculated on a semi-annual basis (July and January) and upon distribution, [Shamir] will receive [his] proportionate share of the net proceeds." (Id., Ex. A at 2.) The employment agreement provided a projected, but not guaranteed, calculation of Shamir's distribution over an 18-month period of $1,327,065.
On June 20, 2014, the two managing members of Alena—Nikesh and William Huseman—signed a Certificate of Resolution that added Shamir as a member of Alena. (Id., Ex. B.) On June 30, 2014, "at [Shamir's] request and with Nikesh's authority, [First Farmers] wire transferred $850,000 from its account at BMO Harris Bank to an account held by Shamir at Suntrust Bank." (Id. at ¶ 21, Ex. C.) The Overall Receiver alleges that this transaction was the "fraudulent transfer." (Id. at ¶ 21.) The "payment details" in the wire transfer form, which the Overall Receiver attached to the complaint, say, "S Patel - Portfolio Fee." (Id. at ¶ 21, Ex. C.) According to the Overall Receiver, Shamir "asked for the advance of $850,000 on a yet to be earned 'Portfolio Fee' because he needed the money to fund a down payment on a new home that he wanted to purchase for himself." (Id. at ¶ 22.) The Overall Receiver alleges, however, that "as of June 30, 2014, Alena had not yet earned any Portfolio Fees, asset management fees, development fees or hotel management fees that would be sufficient to generate any type of distribution to Patel or to any of Alena's other Members." (Id. at ¶ 21.) Indeed, the Overall Receiver alleges that "Alena never legitimately generated any asset management, development, portfolio or hotel management fees to warrant any type of distribution to any of its members." (Id. at ¶ 24.) The Overall Receiver also claims, on information and belief, that no other members of Alena received any distribution in 2014. (Id.)
The Overall Receiver asserts three counts in his complaint: (1) a violation of the Florida Uniform Fraudulent Transfer Act ("FUFTA"), Fla. Stat. § 726.105(1)(a), based on "actual fraudulent transfer"; (2) a violation of FUFTA, Fla. Stat. § 726.105(1)(b), based on "constructive fraudulent transfer"; and (3) unjust enrichment. (Id. at ¶¶ 25-45.) The Overall Receiver seeks judgment against Shamir for $850,000; an equitable accounting setting forth how Shamir used the funds from the fraudulent transfer and the funds' current location; a constructive trust over all of Shamir's assets and an order enjoining Shamir from "dissipating, assigning or transferring any of his assets without authorization from th[e] Court or from the Overall Receiver"; and attorneys' fees and costs.4 (Id. at ¶¶ 32, 40, 45.)
A motion to dismiss pursuant to Rule 12(b)(2) tests whether a federal court has personal jurisdiction over a defendant. See Fed. R. Civ. P. 12(b)(2). In analyzing a Rule 12(b)(2) motion, courts may consider matters outside of the pleadings. See Purdue Research Found. v. Sanofi-Synthelabo, S.A., 338 F.3d 773, 782 (7th Cir. 2003). Without the benefit of an evidentiary hearing, the plaintiff "bears only the burden of making a prima facie case for personal jurisdiction." uBID, Inc. v. GoDaddy Grp., Inc., 623 F.3d 421, 423-24 (7th Cir. 2010). Under such circumstances, courts take "the plaintiff's asserted facts as true and resolve any factual disputes in its favor." Id. Where the plaintiff fails to refute facts contained in the defendant's affidavit, however, courts accept those facts in the affidavit as true. GCIU-Emp'r Ret. Fund v. Goldfarb Corp., 565 F.3d 1018, 1020 n.1 (7th Cir. 2009).
The Overall Receiver argues that the Court has personal jurisdiction over Shamir in this action based on the "Federal Receivership Statutes," 28 U.S.C. §§ 754 and 1692, which he says combine with Federal Rule of Civil Procedure 4(k) to provide the district court where the receivership is pending "with personal jurisdiction over any individual defendant who holds receivership assets, regardless of where that individual defendant resides." (R. 1308, Overall Receiver's Response, at 4-5.) As the Overall Receiver points out, the Court has previously expressed its agreement with his analysis in a March 8, 2016 order. (R. 958.) Although the defendants in the action at issue, Ward Harris Properties and Ward Harris Properties II, did not dispute personal jurisdiction (instead, they sought to transfer venue to the Southern District of Florida), the Court explained that the Federal Receivership Statutes "provide nationwide jurisdiction and service of process, respectively to receivers." (Id. at 3). This ruling contradicts Shamir's argument that the Federal Receivership Statutes do not confer the Court with personal jurisdiction and that Shamir's contacts with Illinois are relevant to the personal-jurisdiction analysis. (See R. 1289 at 5-6.)
The Court stands on its March 8, 2016 ruling as to personal jurisdiction in the receivership context. Federal Rule of Civil Procedure 4(k)(1)(C) provides that "[s]erving a summons or filing a waiver of service establishes personal jurisdiction over a defendant . . . when authorized by a federal statute." Section 1692 is such a federal statute.5 See, e.g., S.E.C. v. Bilzerian, 378 F.3d 1100, 1103 (D.C. Cir. 2004) (Garland, J.); Haile v. Henderson Nat'l Bank, 657 F.2d 816, 824 (6th Cir. 1981); Quilling v. Cristell, No. 03-5237, 2006 WL 316981, at *1-4 (W.D.N.C. Feb. 9, 2006); U.S. Small Bus. Admin. v. Chimicles, No. 03-5987, 2004 WL 2223304, at *3-4 (E.D. Pa. Sept. 22, 2004). To invoke § 1692, a receiver must comply with § 754—compliance that is undisputed in this case. See e.g., Bilzerian, 378 F.3d at 1103; Haile, 657 F.2d at 823-24; Chimicles, 2004 WL 2223304, at *4; see also (R. 174). Thus, as a number of courts have held, Rule 4 and the Federal Receivership Statutes vest a district court with in personam jurisdiction over "one who holds receivership assets in a remote district," and "the minimum contacts analysis of International Shoe as a limitation on extraterritorial power, does not apply, since service of process under § 1692 [is nationwide]." Bilzerian, 378 F.3d at 1103-04 (); see also, e.g., Carney v. Horion Invs., Ltd., 107 F. Supp. 3d 216, 227 (D. Conn. 2015); Chimicles, 2004 WL 2223304, at *2; Quilling, 2006 WL 316981, at *1-4; Chimicles, 2004 WL 2223304, at *3-4.6
Shamir barely acknowledges the authority cited in the preceding paragraph, providing only a "but see" citation to Chimicles. (R. 1289 at 5.) Instead, he relies on Stenger v. World Harvest Church, Inc., No. 02 C 8036, 2003...
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