Jae Ho Lee, Soyoun Park & Basic Food Groups, LLC v. Ahne Law, P.C. (In re Basic Food Grp., LLC), Case No. 15-10892 (JLG)
| Decision Date | 01 July 2016 |
| Docket Number | Case No. 15-10892 (JLG),Adv. Pro. No. 15-01119 (JLG) |
| Parties | In re: Basic Food Group, LLC, Debtor. Jae Ho Lee, Soyoun Park and Basic Food Groups, LLC, Plaintiffs, v. Ahne Law, P.C., Samuel Ahne, Noah Bank, Edwin Shin, Cheol Min Kim, and Aspen Market Place Corp., Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
NOT FOR PUBLICATION
APPEARANCES:
THE BASIL LAW GROUP
1270 Broadway
Suite #305
New York, New York 10001
By: Robert J. Basil, Esq.
KURTZMAN MATERA, PC
664 Chestnut Ridge Road
Spring Valley, New York 10977
By: Rosemarie E. Matera, Esq.
KIMM LAW FIRM
Attorneys for the Plaintiffs
333 Sylvan Avenue
Suite #106
Englewood Cliffs, New Jersey 07632
By: Adam Garcia, Esq.
Jae Ho Lee ("Lee"), his wife, Soyoun Park ("Park"), and Basic Food Groups LLC ("Basic Food," and collectively with Lee and Park, the "Plaintiffs") have brought this action against Noah Bank ("Noah"), Edward Shin ("Shin"), Ahne Law, P.C ("Ahne P.C."), Samuel Ahne, Cheol Min Kim ("Kim"), and Aspen Market Place Corporation ("Aspen," and collectively with Ahne P.C., Samuel Ahne, Noah, Shin and Kim, the "Defendants"). Their Second Amended Complaint ("Complaint" or "SAC," DC ECF Doc. #37) alleges seven causes of action, consisting of (a) two claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"): (i) violation of 18 U.S.C. § 1962(c) (against all Defendants) and (ii) conspiracy to violate 18 U.S.C. § 1962(c) (against all Defendants) (collectively, the "RICO Claims"); and (b) five state law claims: (i) breach of fiduciary duty (against Samuel Ahne and Ahne P.C.); (ii) declaratory judgment (against all Defendants); (iii) breach of agreement and implied covenant of good faith and fair dealing (against all Defendants); (iv) fraud in the inducement (against Kim and Aspen); and (v) fraud in the inducement (against Shin and Noah).
The Defendants have jointly moved (the "Motion") to dismiss the RICO Claims for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6) and 9(b). See DC ECF Doc. #54. The Plaintiffs oppose the Motion.1 For the reasons stated below, the Motion is GRANTED.
Lee and Park filed a complaint initiating this adversary proceeding on September 30, 2014, in the United States District Court for the Southern District of New York. [DC ECF Doc. #1].2 On October 16, 2014, they filed their First Amended Complaint. [DC ECF Doc. #4]. Neither the initial complaint, nor the First Amended Complaint, contained any claims for relief predicated on alleged RICO violations. Rather, the sole basis for subject matter jurisdiction alleged in those complaints was diversity jurisdiction under 28 U.S.C. § 1332(a)(1). The Defendants maintained that the District Court lacked subject matter jurisdiction over the First Amended Complaint because there was not complete diversity jurisdiction between the plaintiffs, Lee and Park, and the Defendants. Accordingly, after Lee and Park filed their First Amended Complaint, the Defendants promptly sought leave of the Court to file a motion under Rule 12(b)(1) of the Federal Rules of Civil Procedure to dismiss the complaint for lack of subject matter jurisdiction. [DC ECF Doc. #7]. The District Court (Berman, J.) conducted a pre-motion conference among the parties, at which time, counsel for Lee and Park advised the court that the Plaintiffs wished to file a further amended complaint to address the subject matter jurisdiction issues raised by the Defendants. Judge Berman authorized Lee and Park to file a further amended complaint, but in doing so, he advised the parties that if the Defendants prevailed on a motion to dismiss that complaint, the dismissal would be with prejudice to the Plaintiffs' right to replead. On December 16, 2014, Lee and Park added Basic Food as a plaintiff in this action, and filed the Second Amended Complaint. Subsequent to that filing, Judge Berman conducted another pre-motion conference on December 23, 2014, during which he reiterated to the partiesthat Defendant's dismissal motion, when fully briefed, would "be decided on submission with prejudice." [DC ECF Doc. 12/23/2014 Minute Entry]. See also Transcript of Proceedings Held on December 23, 2014 at 4:13-24 [DC ECF Doc. #48] (the "December 23 Transcript").3 Thereafter, the Motion was filed with the matter being fully briefed and submitted to the District Court on February 27, 2015.
On April 10, 2015, Basic Food filed a voluntary petition under chapter 11 of the Bankruptcy Code in this Court. By order dated June 29, 2015, and pursuant to 28 U.S.C. § 157(a) and the Standing Order of Reference Re: Title 11, 12 Misc. 32 (S.D.N.Y. Feb. 1, 2012) (Preska, C.J.), the District Court referred the adversary proceeding to this Court.
Noah is a bank organized under the laws of the Commonwealth of Pennsylvania. (SAC ¶ 6). It is a "Preferred Lender" under the Small Business Administration's ("SBA") Section 7(a) Loan Guaranty Program. (SAC ¶ 18). Since 2010, it has aggressively marketed SBA loans to the Korean-American small business community in the tristate area and holds itself out as the Korean-American business community's largest SBA lender. (SAC ¶ 26). Shin is a shareholder of Noah and controls Noah's lending practices. (SAC ¶¶ 26, 31, 44). Basic Food is a limited liability company whose principal asset is a deli/café located at 24 W. 40th Street in New York City (the "New York Deli"). (SAC ¶¶ 3, 12). Lee owns 99% and Park owns the remaining 1% of the membership interests in Basic Food. (SAC ¶¶ 1, 3). They acquired those interests fromKim in December 2012 for the sum of $1.8 million (the "Acquisition"). (SAC ¶¶ 13, 88, 93, 100). They financed part of the purchase price with a $1.3 million SBA guaranteed loan from Noah to Basic Food (the "Financing"). (SAC ¶ 88). Lee and Park have guaranteed payment of that loan. (SAC ¶¶ 85, 86).
At its core, the Plaintiffs' complaint is that Kim, with the assistance of Shin and Samuel Ahne, the attorney who represented Lee and Park in the Acquisition and Financing transactions, duped and defrauded them into paying $1.8 million for Kim's interests in Basic Food and into having Basic Food incur $1.3 million of indebtedness from Noah to do so. They say that at that time, Shin and Kim knew that the New York Deli, which is Basic Food's sole asset, was operating at a loss and that its business was worth far less than $1.8 million, but that, with Samuel Ahne's help, the Defendants concealed those and other facts material to the transactions from Lee and Park. The Plaintiffs say that such concealment was because at that time, Basic Food was in danger of defaulting on a $1 million loan from Noah that Kim had obtained, and that Shin, desperate to avoid the default, needed to find someone who would "step into Kim's shoes," refinance the $1 million loan, and operate the business. The facts surrounding the transaction and the allegations of fraud are set forth below.
In 2009, Kim formed Basic Food and used it to acquire the New York Deli for the sum of $2.3 million. (SAC ¶¶ 52, 53). He financed a portion of the purchase price with a loan from Woori America Bank ("Woori"). (SAC ¶ 53). Thereafter, Kim operated the deli and in the spring of 2011, he approached Shin, who he knew socially, to explore business opportunities that, with Noah's financial support, would enable Kim to refinance the Woori loan and expand his business operations. (SAC ¶ 53). In December 2011, Kim, with Samuel Ahne as his counsel, arranged to pay off the Woori loan with a $1 million SBA guaranteed loan from Noah.In May 2012, Kim expanded his business operations by organizing and opening a deli/café in Hoboken, New Jersey (the "Hoboken Deli") using Aspen, an entity owned, operated and/or controlled by Kim, as the acquisition vehicle. (SAC ¶¶ 9, 56, 57). Kim financed a portion of Aspen's acquisition costs with an SBA guaranteed loan from Noah. (SAC ¶¶ 57, 65).
During the course of 2012, Shin, in furtherance of Noah's obligation to monitor its SBA loans, received periodic reports from Kim regarding the New York Deli's operations. (SAC ¶¶ 19, 56). By November 2012, those reports showed that the business was declining and that Basic Food required an influx of capital if it was to avoid defaulting on the Noah loan. (Id.) The Plaintiffs contend that by then, Kim had determined that he could not continue to operate both the New York Deli and the Hoboken Deli, because the former was losing money and the latter was a start-up without an established revenue stream. (SAC ¶ 57). The Plaintiffs allege that Kim and Shin agreed that Kim could best address those financial problems by selling the New York Deli business and transferring its operations to someone with the ability to assume control of the deli operations and acquire 100% of Kim's membership interest in Basic Food in a "turn-key" transaction. (SAC ¶ 59).
At that time Lee was operating a deli/café located at 300 Albany Street in New York City. (SAC ¶ 58). With Shin's assistance, in November 2012, Kim approached Lee and began discussions with him regarding Lee's possible acquisition of 100% of Kim's membership interests in Basic Food. (SAC ¶¶ 12, 58, 59). The Plaintiffs allege that, to that end, on multiple occasions beginning in November 2012 and through the closing of the sale on December 13, 2012, Shin and Kim represented to Lee during in-person meetings and over the telephone that Basic Food's business was "doing great" and generated an annual net revenue of $200,000 to $400,000 which could be distributed at year-end to its owners. (SAC ¶¶ 12, 59, 60, 100). ThePlaintiffs contend that not only were those representations false, but that Kim and Shin knew that the New York Deli business did not generate net revenue, and that it had lost money in each of the three years...
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