Krasny et al v. Bagga et al

I N THE UNITED S TATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
I N RE 	: CHAPTER 7
:
J AMUNA REAL ESTATE , LLC 	: CASE NO . 04-37130
BAGGA ENTERPRISES, I NC . 	: CASE NO . 04-37132
UNITED M ANAGEMENT SERVICES , I NC . 	: CASE NO . 04-37136
DEBTORS 	:
M ARVIN KRASNY , CHAPTER 7 	:
TRUSTEE OF J AMUNA REAL ESTATE LLC; 	:
M ARVIN KRASNY , CHAPTER 7 	:
TRUSTEE OF UNITED M ANAGEMENT 	:
SERVICES ,I NC .; GARY SEITZ , 	:
CHAPTER 7 TRUSTEE OF 	:
BAGGA ENTERPRISES, I NC .; 	:
AND FL RECEIVABLES TRUST 2002-A 	:
PLAINTIFFS 	:
V . 	:
PRATPAL BAGGA ; KHUSHVINDER BAGGA ; 	:
RAVINDER CHAWLA ; HARDEEP CHAWLA 	:
WELCOME GROUP , I NC .; K&P REAL 	:
ESTATE LLC; WORLD APPAREL PRODUCTS , :
I NC . D / B / A SJM TRADING CO ., D / B / A 	:
TEN TIGERS ; AMERICAN M ERCHANDISE 	:
CO ., I NC ., A / K / A AMERICAN 	:
M ERCHANDISING CO ., I NC .; 	:
21ST CENTURY RESTAURANT SOLUTIONS, 	:
I NC .; BRAND TRADE , I NC .; 	:
HB PROPERTIES , I NC .; 	: ADV . NO . 06-0128
HB PROPERTIES LLP; SANT PROPERTIES ; 	: ADV . NO . 06-0129
J OHN AND J ANE DOES AND ABC 	: ADV . NO . 06-0130
COMPANIES 	:
DEFENDANTS :
:
OPINION
BY : STEPHEN RASLAVICH , UNITED STATES BANKRUPTCY J UDGE .
I. Introduction.
Before the Court is a Motion for partial summary judgement filed by a subset of the
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multiple defendants in the above adversary proceeding. The Movants seek judgement in their
favor on Count I (Violation of RICO, 18 U.S.C. § 1962(c) and Count II (Conspiracy to Violate
RICO, 18 U.S.C. § 1962(d) of the Plaintiffs’ Complaint. The Motion is vigorously opposed, but
by only one of the three Plaintiffs. The Motion is premised on alleged lack of standing. A
hearing on the Motion was held on January 17, 2008. For the reasons which follow, the Motion
will be granted.
II. Legal Standard.
Standard for Summary Judgment
Motions for summary judgment are governed by Rule 56 of the Federal Rules of Civil
Procedure ("Fed.R.Civ.P."). Pursuant to Rule 56, summary judgment should be granted when
the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any material fact and that the moving
party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). For purposes of Rule 56, a
fact is material if it might affect the outcome of the case. See Anderson vs. Liberty Lobby, Inc.,
477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). The moving party has the
burden of demonstrating that no genuine issue of fact exists. Celotex Corp. vs. Catrett, 477 U.S.
317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986).
The court's role in deciding a motion for summary judgment is not to weigh evidence, but
rather to determine whether the evidence presented points to a disagreement that must be decided
at trial, or whether the undisputed facts are so one sided that one party must prevail as a matter of
law. See Anderson vs. Liberty Lobby, Inc., 477 U.S. at 251-252, 106 S.Ct. at 2512. In making
this determination, the court must consider all of the evidence presented, drawing all reasonable
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inferences therefrom in the light most favorable to the nonmoving party, and against the movant.
See United States vs. Premises Known as 717 South Woodward Street, 2 F.3d 529, 533 (3rd
Cir.1993); J.F. Feeser, Inc. vs. Serv-A-Portion, Inc., 909 F.2d 1524, 1531 (3d Cir.1990), cert.
denied, 499 U.S. 921, 111 S.Ct. 1313, 113 L.Ed.2d 246 (1991); Gould, Inc. vs. A & M Battery
and Tire Service, 950 F.Supp. 653, 656 (M.D.Pa.1997).
To successfully oppose entry of summary judgment, the nonmoving party may not
simply rest on its pleadings, but must designate specific factual averments through the use of
affidavits or other permissible evidentiary material that demonstrate a triable factual dispute.
Celotex Corp. vs. Catrett, 477 U.S. at 324, 106 S.Ct. at 2553; Anderson vs. Liberty Lobby, Inc.,
477 U.S. at 256, 106 S.Ct. at 2514. Such evidence must be sufficient to support a jury's factual
determination in favor of the nonmoving party. Id. Evidence that merely raises some
metaphysical doubt regarding the validity of a material fact is insufficient to satisfy the
nonmoving party's burden. Matsushita Electric Industrial Co., Ltd. vs. Zenith Radio Corp., 475
U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). If the nonmoving party fails to
adduce sufficient evidence in connection with an essential element of the case for which it bears
the burden of proof at trial, the moving party is entitled to entry of summary judgment in its
favor as a matter of law. Celotex Corp. vs. Catrett, 477 U.S. at 322-23, 106 S.Ct. at 2552.
III. Background.
A. The Parties
1. 	Plaintiffs
The principal plaintiff in this litigation is FL Receivables Trust 2002-A, a special purpose
business trust organized under the laws of the State of Delaware. (Hereinafter “FL
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1 This Court endorsed this point of view in its Opinion of April 25, 2007, In re Jamuna
Real Estate LLC 365 B.R. at 540, 558-559. (Bankr. E.D. Pa. 2007)
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Receivables”). The other two plaintiffs are the Chapter 7 Bankruptcy Trustees of the borrower
entities discussed infra. The Trustees have played a nominal role in this litigation. The instant
Motion challenges only the standing of FL Receivables, apparently because Movants proceed on
the assumption that the Trustees themselves do not even assert the RICO claims. 1 In this regard,
they emphasize that the Complaint itself fails to allege that the Trustees were “injured” by the
misconduct alleged, only that FL Receivables was, and, moreover, that even were it otherwise
the Trustees would lack standing, inasmuch as they stand in the shoes of the debtor entities and
can only assert those causes of action possessed by the Debtors. See: McNamara vs. PFS (In re
the Personal & Business Insurance Agency), 334 F.3d 239, 245 (3rd Cir. 2000).
The Court notes, nevertheless, that the preamble to Courts I and II of the complaint does,
recite that it is brought by the Plaintiffs (plural), and the prayer for relief in both counts likewise
seems to include all Plaintiffs. FL Receivables did not address the standing of the Trustees, nor
did the Trustees seek to be heard on the issue. For the sake of economy, the Court also operates
on the assumption that the Trustees do not, for their part, seek to assert the RICO claims, which
will be dismissed in accordance with this Opinion. The foregoing is subject, of course, to the
caveat that, if the Court’s assumption is incorrect, invitation is freely given to seek
reconsideration of the dismissal as to the Trustees, inasmuch as the issue, arguably, was never
properly joined as to them.
2. Defendants.
The named Defendants may be characterized as belonging to one of two categories.
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Bratpal Bagga, Khushvider Bagga, Welcome Group, inc., K&P Real Estate, LLC, American
Merchandising Co., Inc., 21 st Century Restaurant Solutions, Inc., and Brand Trade, Inc..
Generally speaking these Defendants had, more or less, a direct involvement with the loan
transactions which are more fully described infra, and which form the genesis of the RICO
claims at issue. They are hereinafter referred to as the “Bagga Defendants,” with the subject
loans being referred to as the “Bagga Loans.”
Defendants Ravinder Chawla, Hardeep Chawla, World Apparel Products, Inc. d/b/a SJM
Trading Company, d/b/a Ten Tigers, HB Properties, Inc., HP Property, LLP, and Sant Properties
comprise the remaining Defendant category. The Chawlas, who are brothers, are cousins of the
Baggas. Generally speaking, the Complaint alleges that the Baggas and the Chawlas, together
with the business enterprises each family controlled, engaged in the alleged conspiracy and
racketeering activity which underpins the RICO claims. The Chawlas and their Companies are
hereinafter referred to as the “Chawla Defendants.” The present Motion is brought by the
Chawla Defendants only.
B. Procedural History
By any measure that might be used to gauge it, this is a complex litigation. It involves,
as noted above, three Plaintiffs, and twelve named Defendants (in addition to an unspecified
number of John and Jane Doe and ABC Company Defendants). As filed, the Plaintiffs’
Complaint runs to 274 paragraphs and consists of 15 separate counts alleging federal
racketeering and state common law claims. (Many of these have since been dismissed in an
Opinion and Order dated April 25, 2007. See In re Jamuna Real Estate, LLC, 365 B.R. 540
Bankr. E.D.Pa. 2007). The parties’ disputes relate to loan transactions (the Bagga Loans) which
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began in the year 2000 and ultimately totaled approximately $4,000,000. The damages alleged
at this juncture, have grown to exceed $11,000,000, fully $6,000,000 of which represents alleged
attorneys fees and expenses. 	Litigation relative to the loan transactions was initially
commenced in state court in Florida. As time passed, the disputes found their way into federal
court in Pennsylvania. This Court is, in fact, the third federal tribunal in Philadelphia to address
the controversy.
The Court makes the foregoing observations for the purpose of drawing attention to the
anomalous fact that the Motion presently before it implicates a fundamental issue of such
threshold significance that it is puzzling, at the very least, that it has only recently come to the
forefront. The Movants perhaps recognize this, as in their supporting legal brief they state that
their Motion is grounded on the simple notion that Plaintiff FL Receivables does not own the
RICO claims that it asserts in the Complaint, and that it therefore lacks standing to sue. The
Court agrees that the standing requirement is simple enough. Its determination in the present
case, however, is not necessarily so.
A great many of the factual allegations incident to the parties’ disputes are recounted in
the Court’s April 2007 Opinion and all will not be repeated here. A brief recitation of operative
facts, particularly those of a chronological and procedural nature should help, however, to place
the present Motion in context and add clarity.
The saga seems to have begun innocently enough, with a series of loans being made for
the ostensible purpose of enabling would-be entrepreneurs to establish Arby’s Roast Beef
Franchise Restaurants. The lender in the first instance was an entity known as Captec Financial
Corporation, together with its affiliate companies (collectively “CAPTEC”). CAPTEC was
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2 PSCC apparently also made direct loans to franchisees for the purchase of restaurant
equipment, but except as discussed infra at page 26 this does not appear to have relevance for
present purposes.
3 The relationship between PSCC and FL Receivables is memorialized in 1) an Owner
Trust Agreement dated Augusgt 22, 2002 among Wilmington Trust Company as Owner/Trustee
and PSCC as Initial Certificate Holder, and 2) an Administration Services Agreement dated
(continued...)
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funded, in turn, by an entity known as Prudential Securities Credit Corporation (“PSCC”)
The terms of the relationship between CAPTEC and PSCC are memorialized in a lengthy
document dated August 3, 1998 and denominated as an Interim Warehouse and Security
Agreement (FL Receivables Appendix - Exhibit “A”). Under this agreement, as CAPTEC made
franchise loans it would contemporaneously pledge the same to PSCC as collateral for its own
funding.2
Althought the point is not conceded, it would appear uncontested that the Bagga Loans
went into default almost immediately. Eventually (in 2002) litigation arose between PSCC and
CAPTEC in Florida state court. That litigation was settled by the parties pursuant to a document
dated August 12, 2002 entitled Settlement Agreement and Mutual Release. (Hereinafter the
“Settlement Agreement”) (FL Receivables Appendix - Exhibit “F”) Under the Settlement
Agreement, CAPTEC was released from liability to PSCC and in exchange transferred to PSCC
all of its right, title and interest in, inter alia, the Bagga Loans.
According to FL Receivables, PSCC did not want to hold the Bagga Loans in its own
name, because PSCC hoped in the future to package a portfolio of such franchise loans for sale
to investors. Acting on this hope, PSCC created FL Receivables to be the repository of certain
of the assets it was to receive from CAPTEC.3 In furtherance of this, PSCC had CAPTEC
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3(...continued)
August 22, 2002 between FL Receivables and PSCC (the former agreement is attached to FL
Receivables’ Appendix as Exhibit I and the latter is attached to the Appendix as Exhibit “J”)
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execute 1) a document dated September 26, 2002, entitled Assignment Agreement (Hereinafter
the “Assignment”) (FL Receivables Appendix - Exhibit “G”) and 2) a document dated August
20, 2002 entitled Limited Power of Attorney. FL Receivables Appendix - Exhibit “H”)
It appears that while PSCC and CAPTEC were in litigation, CAPTEC commenced
separate litigations in the United States District Court for the Eastern District of Pennsylvania
against the borrowers and guarantors of the Bagga Loans. (Hereinafter referred to as the
“Collection Actions”) Judgment by default was eventually entered in favor of CAPTEC in the
Collection Actions. The judgements in the Collection Actions were subsequently assigned to FL
Receivables. It is FL Receivables’ contention that, in the course of discovery taken in aid of
execution in the Collection Actions, it uncovered the facts supporting the numerous causes of
action, including the RICO claims, which are asserted in its Complaint and described in detail in
this Court’s April 2007 Opinion.
The present Complaint, it should be noted, is not the first occasion on which FL
Receivables has asserted its claims. On the contrary, in 2003, FL Receivables initiated a
substantially similar civil action in the United States District Court for the Eastern District of
Pennsylvania. Ironically, the Defendants moved to dismiss the RICO claims in that action
through arguments which included, inter alia, a challenge to the Plaintiffs’ standing predicated
on grounds of ripeness. In that instance the Movants argued that FL Receivables could not
demonstrate legally cognizable injury (a predicate element of a RICO claim), because the
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4 See FL Receivables Trust v. Bagga, et al 2005 WL 563535*6 (E.D. Pa.)
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Collection Actions remained unresolved and the Plaintiffs’ injury thus remained “speculative
and contingent on future events.” This argument prevailed and the RICO claims were
dismissed. 4
FL Receivables thereafter returned its attention to the Collection Actions. This tactic was
thwarted, however, in December 2004 when the borrower entities filed Chapter 7 Bankruptcy
cases in this Court. Ironically, these filings, at a minimum, enabled FL Receivables to avert
further challenges to its RICO standing based on ripeness. FL Receivables, together with the
Chapter 7 Trustees of the Bankrupt borrowers, thereafter filed the present adversary proceeding.
Prior to filing their Dismissal Motion both Defendant groups had filed a Motion in the
District Court seeking withdrawal of the automatic reference of the adversary proceeding to this
Court. This request was denied in January 2007. Following this Court’s partial denial of the
Motion to Dismiss the Adversary Proceeding in April 2007, the case unfolded here with
protracted, acrimonious discovery. Regrettably, delays associated with discovery have caused
concomitant delay in advancing the present Motion (filed in October, 2007) to resolution. As
noted above, however, the matter is now ripe for disposition.
IV. Discussion.
A. Standing Requirement
The gravamen of the Movants’ argument is straightforward. Standing, say the Movants,
is a necessary constitutional prerequisite to the invocation of federal jurisdiction. They argue
that the standing requirement is not met here. In at least one respect their argument is indeed
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unassailable: standing is essential. It is beyond cavil that federal courts must determine that they
have jurisdiction before proceeding to the merits of a case. Lance vs. Coffman, __ U.S. __, 127
S.Ct 1194, 1196 (2007). 	Article III of the Constitution limits the jurisdiction of federal courts to
“cases” and “controversies.” One component of the case-or-controversy requirement is standing,
which requires a plaintiff to demonstrate the now familiar elements of injury-in-fact, causation
and redressability. See Lujan vs. Defenders of Wildlife, 504 U.S. 555, 560-561, 112 S.Ct. 2130,
2136, 119 L.Ed.2d 351 (1992) The requirement of standing is not subject to waiver. United
States vs. Hays, 515 U.S. 737, 742, 1155 S.Ct. 2431, 2435, 132 L.Ed.2d 635 (1995).
FL Receivables takes no issue with the proposition that standing must be demonstrated
and that it bears the burden of proof with respect to such demonstration. It maintains however
that, through the supporting papers filed in response to the instant Motion, it has met its burden.
Having carefully reviewed the record against principles of controlling law, the Court must
disagree.
B. FL Receivables’ Standing
As discussed above, the Motion seeks judgment on the RICO counts of the Complaint.
A party has standing to assert claims under 18 U.S.C. § 1962, the civil RICO statute, where it
was directly harmed by the defendants’ conduct, see 18 U.S.C. § 1964(c) (“any person injured
in his business or property by reason of a violation of section 1962 of this chapter may sue
therefor in any appropriate United States district court and shall recover threefold the damages
he sustains and the cost of the suit, including a reasonable attorney's fee”) or where it receives a
valid assignment from someone who has been so harmed. Lerman vs. Joyce International, Inc.,
10 F.3d 106, 113 (3d Cir. 1993)
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The Movants concede that RICO claims may be assigned, and that validly assigned
RICO claims are actionable. Where the parties part company is over the deceptively simple
question of whether there has been a valid assignment of RICO claims in this case.
The Movants argue that there has not been a valid assignment of such claims. In support
they direct the Court’s attention to Lerman, supra, and its forerunner Gulfstream III Assoc., Inc.
vs. Gulfstream Aerospace Corp., 995 F.2d 425 (3d Cir. 1993). Under the holdings of these
decisions, say the Movants, FL Receivables cannot satisfy the standing requirement. FL
Receivables agrees that the foregoing cases represent controlling authority, but it interprets them
differently than the Movants and insists that the decisions compel a ruling in its favor. Careful
analysis of these precedents is thus central to resolution of the issue sub judice.
1. Gulfstream
In Gulfstream, an aircraft buyer instituted an antitrust action against seven manufacturers
of business jet aircraft. Six of the Defendants settled. The seventh resisted and urged, among
other things, that the Plaintiff lacked standing with respect to one of its claims because it had
unconditionally assigned its antitrust rights when it transferred its interest in a particular plane
and the related purchase agreement to a third party. 995 F.2d at 429-430. Noting that under
controlling federal law antitrust claims are assignable, and that the validity of such assignments
is determined by federal common law, the Court of Appeals identified the question as being
whether the general assignment before it encompassed the Plaintiffs’ antitrust claim, despite the
fact that it was not specifically identified in the assignment that transferred all of the Plaintiffs’
interest in the plane and purchase agreement. Id. at 431.
The Court held that a general assignment did not operate to transfer antitrust claims. Id.
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at 437. Rather, it said, only an express assignment of an antitrust claim can be valid. Id. Put
differently, “general assignments without specific reference to antitrust claims cannot validly
transfer the right to pursue those claims.” 995 F.2d at 440.
In Gulfstream, the Court of Appeals clearly articulated the prudential concerns which
informed its decision. The inclusion of antitrust claims in a general assignment, it said, would
run afoul of the direct purchaser rule enunciated by the Supreme Court in Illinois Brick Co. vs.
Illinois, 431 U.S. 720, 736, 77 S.Ct. 2061, 2070, 52 L.Ed.2d 707 (1977), and Kansas vs.
Utilcorp. United, Inc., 497 U.S. 199, 208, 110 S.Ct. 2807, 2812, 111 L.Ed.2d 169 (1990). The
direct purchaser rule had its genesis in an earlier Supreme Court decision in Hanover Shoe, Inc.,
vs. United Shoe Mach. Corp., 392 US. 481, 488, 88 S.Ct. 2224, 2228, 20 L.Ed.2d 1231 (1968),
which held that a Clayton Act defendant could not assert a defense that the plaintiff had suffered
no injury because it had passed on any illegal overcharges to consumers. Illinois Brick took
matters a step further (making the rule bilateral) in holding that the State of Illinois, as the
indirect purchaser of concrete block, could not pursue price fixing claims against manufacturers.
431 U.S. at 735, 77 S.Ct. at 2069. 	Those could only be pursued, held the Court, by the masonry
contractors who directly purchased the product. Id.
In Gulfstream, the Circuit Court stated that the direct purchaser rule was founded, inter
alia, on the difficulty of analyzing pricing decisions, the risk of multiple liability for defendants
and the weakness of private antitrust enforcement that might result from splitting damages for
overcharges among direct and indirect purchasers. 995 F.3d at 439.
Of significance, the Circuit Court noted that in Kansas vs. Utilcorp., the Supreme Court
had issued a clear admonition that it “would be an unwarranted and counterproductive exercise
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to litigate a series of exceptions to the direct purchaser rule.” 995 F.2d at 440 quoting Utilcorp
497 U.S. at 217, 110 S.Ct. at 2817.
2. 	Lerman
The Lerman decision was issued six months after the Circuit Court’s decision in
Gulfstream. The Lerman case involved an action brought by a former employee against the
buyer of a business for breach of a severance agreement. 10 F.3d at 108. The Buyer
counterclaimed, asserting, inter alia, federal RICO claims. Id. The RICO defendants belatedly
raised the assignment issue implicated in Gulfstream, maintaining that the counterclaimant could
not assert RICO claims because his assignment of such claims from the business seller had not
been express. Id. The Circuit Court disagreed. Id. at 112.
Gulfstream, of course, had not involved RICO claims, and the Circuit Court
acknowledged at the outset of its discussion that as a general rule “terms of art are not required
for a valid assignment.” Id. at 112. The Court further acknowledged that in Gulfstream it had
promulgated a new rule of law insofar as the assignment of antitrust claims was concerned. Id.
In Lerman, the Court extended the Gulfstream express assignment requirement to RICO claims,
stating as follows:
[ ] . . . in Gulfstream III Associates, Inc. v. Gulfstream Aerospace
Corp., 995 F.2d 425, 438-40 (3d Cir.1993), we held that an
assignment of a claim under Section 4 of the Clayton Act, 15
U.S.C. § 15, must be “express.” Since this provision served as the
model for the provision of the RICO statute authorizing private
civil actions, 18 U.S.C. § 1964, we assume that an assignment of a
RICO claim must also be “express.” (Footnote omitted.)
Id.
In Lerman, the Court reiterated its Gulfstream concern that interpreting a general
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5 The Movants note that the Lerman opinion does not address the question of whether
the express assignment rule applies to RICO conspiracy claims under 18 U.S.C. § 1962(d). FL
Receivables has not discussed this issue and the Movants acknowledge that there are no
decisions on point. The Movants argue, however, that because the cause of action created under
18 U.S.C. § 1964 includes “any violation of Section 1962, the express assignment rule must
perforce apply to both RICO and RICO conspiracy claims. The Court finds this logic sound.
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assignment to include antitrust claims would entail several highly speculative inquires, which, it
stated, would be obviated by an express assignment rule which entirely eliminated any problems
of split recoveries or duplicative liability. Id.
Having said as much, and of importance for present purposes, the Court went on to
conclude that the assignment in Lerman did not violate the rule set out in Gulfstream. Id. In
Lerman the assignment expressly assigned “ all . . . causes of actions, . . . claims, and demands of
whatsoever nature.” Id. In Gulfstream, on the other hand, the purchase agreement made no
reference to legal causes of action or claims. Rather, it referred only to Gulfstream’s “right, title
and interest” in the aircraft and the contract with the manufacturer. Id. The Lerman Court thus
distinguished Gulfstream. It elaborated on its rationale for doing so, as follows:
[ ] The Gulfstream court appears to have been troubled by the
difficulty of determining on a case-by-case basis whether an
assignment such as the one in that case had been intended by the
parties to transfer antitrust claims. The wording of the assignment
in this case, however, could not reasonably lead to such difficulty.
The assignment refers to “all of” LOPC's “causes of action” and
“claims ... of whatsoever nature.” This language is unambiguous
and all-inclusive. Consequently, we hold that this assignment is
“express” within the meaning of Gulfstream.
Id.5
3. FL Receivables’ Assignment
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The Lerman Court made clear that “terms of art” are not required to validly assign RICO
claims, so certainly there is no need to specifically recite the term RICO to validate an
assignment of RICO claims. Nevertheless, the Court’s discussion in Gulfstream and Lerman
also makes clear its disfavor for the creation of exceptions to the express assignment rule.
Against this backdrop, the inquiry shifts to an examination of the documentation upon which FL
Receivables lays claim to standing for it RICO claims.
At the outset, the Court must address a collateral but hardly insignificant question; to wit:
must the express assignment of RICO claims be contained in the assignment document itself, or
can the “express” intent to assign RICO claims be discerned through consideration of more than
one document? This is important, because not even FL Receivables would contend that the
CAPTEC Assignment satisfies the Lerman, let alone the Gulfstream test. The CAPTEC
assignment describes the assets assigned by CAPTEC to FL Receivables, as follows:
[A]ll their right, title and interest in, to and under (i) the Contracts,
(ii) the Contract Files, (iii) all related escrow accounts and funds
on deposit therein, (iv) all funds, checks and other items on
deposit in the Collection Account and the related lockbox, (v) all
accounts, chattel paper, instruments and general intangibles (as
defined in the applicable Uniform Commercial Code) with respect
to the foregoing, and (vi) all proceeds of the foregoing
(collectively, the Transferred Assets”).
This is without question a general assignment. It contains no reference whatsoever to
legal claims, causes of action, etc. If the inquiry ends here, the result is clear; FL Receivables
lacks standing and its RICO claims must be dismissed. The Movants did not address themselves
in their legal memoranda to the question of whether in the course of its inquiry the Court may
consider documentation beyond the document actually entitled “Assignment,” however the issue
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was discussed during oral argument. Needless to say, FL Receivables maintains that such an
expanded inquiry is not precluded. Indeed, it referred the Court to Kroblin Refrigerated Xpress,
Inc. vs. Pitterich, 805 F.2d 96 (1986), for the proposition that, as a general rule of contract law,
“where two writings are executed at the same time and are intertwined by the same subject
matter, they should be construed together and interpreted as a whole, each one contributing to
the ascertainment of the true intent of the parties.” Id. at 107. In other words, argues FL
Receivables, the Court must consider the entirety of the transactional documentation in the
course of deciding whether the express assignment rule is met in this instance. This is hardly
surprising, because FL Receivables has pinned its hopes to language appearing elsewhere than in
the CAPTEC Assignment.
For their part, the Movants acknowledge that the Lerman decision, which considerably
relaxed the Gulfstream test, is silent on the question. The Movants urge, however, that the better
reading of Lerman is that, as a matter of law, it precludes the consideration of documents other
than the penultimate “assignment.” The Court disagrees.
Although both Gulfstream and Lerman involved a single “assignment” document, the
Court views the Lerman Court as having sufficiently evinced its position that, to a certain extent,
a somewhat holistic approach to the issue is permissible. In Lerman, the court could easily have
adhered to the stricter approach it had enunciated in Gulfsream, but it did not do so. It strikes
this Court as improbable that, having held that a general assignment of legal claims and causes
of action could satisfy the express assignment requirement for RICO claims, the same Court
would negate the expression of such intent were it to be satisfactorily manifested in more than a
single document. Accordingly, the Court has considered the additional evidence which FL
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17
Receivables, has furnished in support of its standing. Unfortunately for FL Receivables, the
Court finds its evidence wanting.
FL Receivables predicates its claim to standing on three documents: the PSCC/CAPTEC
Settlement Agreement; the CAPTEC/FL Receivables Assignment; and the CAPTEC/FL
Receivables Limited Power of Attorney. Taken together, it says, and read as a whole, these
documents satisfy the express assignment requirement. The Court will address them all; first
separately, then collectively.
(a) The Assignment Agreement
Little can be said of the Assignment beyond that already said. By any measure it is a
general assignment of the sort deemed completely unacceptable by both the Gulfstream and
Lerman Courts. In particular, it contains no reference whatsoever to legal claims, causes of
action, demands, etc. Standing alone, it is no help to FL Receivables.
(b) The Settlement Agreement
The Settlement Agreement is likewise of little help where express language is needed.
FL Receivables notes, accurately, that via the Settlement Agreement, CAPTEC agreed, inter alia,
to transfer to FL Receivables all the franchise loans that PSCC had funded through the Interim
Warehouse and Security Agreement in release for it repayment obligations. The Court likewise
concurs that in Section 11 of the Settlement Agreement, CAPTEC agreed to transfer to FL
Receivables “full legal and beneficial ownership in (i) the Contracts [and] (ii) the Contract
Files” (as defined in the Interim Warehouse and Security Agreement) and that following the
same CAPTEC would have “no further right, title or interest in any such contracts or contract
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6 PSCC contributed the Contracts and Contract Files to FL Receivables upon its creation.
18
files . . .” (FL Receivables Appendix Exhibit F at ¶ 11(a) & (b)).6
FL Receivables emphasizes that CAPTEC did not exclude or reserve to itself any rights
or interests related to the Bagga Loans from the foregoing transfer. This is entirely correct
insofar as it goes, but it is off the mark. It is an unpersuasive exercise in deductive reasoning,
which is to say that FL Receivables posits that, since nothing seems to be excluded from the
Settlement Agreement, everything (including RICO claims) must be included. This, however, is
precisely the reasoning rejected by the Circuit Court in both Gulfstream and Lerman. Indeed,
the exact notion was likewise recently rejected by the District Court in In re Linerboard Antitrust
Litigation, 443 F.Supp.2d 703, 712 (E.D.Pa. 2006). (rejecting claim that antitrust claims were
impliedly transferred because only assets specifically excluded from an agreement to purchase
corporate assets were not transferred under the agreement.)
In light of that fact, the Court surmises that the principal reason for which FL
Receivables relies on the Settlement Agreement is because it is probative of a different point
which FL Receivables stresses. The entirety of its documentation, argues FL Receivables,
effectively removes the specters of split recoveries and/or duplicative liability which were of
concern in Gulfstream and Lerman. Hence, it says, the reason for the rule is absent here. If the
reason for the rule no longer exists, argues FL Receivables, the rule should be disregarded. FL
Receivables’ factual premise has some appeal to it. The question is whether it carries legal
significance.
In this regard, it is not open to question that the statute of limitations within which
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19
CAPTEC might have asserted RICO claims in its own right has expired. PSCC, on the other
hand, is the sole beneficiary of the FL Receivables Trust. The Court has little hesitancy in
agreeing with FL Receivables, therefore that risks of duplicative litigation and split recoveries
would not appear to be implicated in this particular case.
Yet, it cannot be overlooked that the Circuit Court clearly did not intend the federal rule
of common law which it promulgated to have application only where the risks portended were
present in the case before it. Certainly there is no support for that proposition in the language of
either decision. In fact, in Gulfstream the Court specifically acknowledged that because the case
before it dealt with but a single aircraft, with a readily identifiable purchase price, “risks” to the
direct purchaser rule were not necessarily present. It nonetheless held that any “exception” to
the direct purchaser rule would be inappropriate. 995 F.2d at 439. The Lerman Court did not
distance itself from this aspect of the Gulfstream holding, although “risks” of duplicative
litigation, etc., in the Lerman litigation do not appear to have been significant.
Irrespective of the foregoing, the Court does not view itself as having the liberty to mold
the Lerman rule as FL Receivables would apparently have it do. Under the allocation of
authority established by three-tier system of federal courts this court is obliged to follow Third
Circuit precedent unless the precedent has been overruled by the Court of Appeals sitting en
banc, or by an Opinion of the Supreme Court that overrules the precedent. See: Hammond vs.
Commonwealth Mortgage Company of AM., L.P. (In re Hammond), 156 B.R. 943, 947-48 (E.D.
Pa. 1993) (Reed, J) (citing cases).
Accordingly, the Court declines FL Receivables invitation to derogate from the
Lerman express assignment rule because the “prudential concerns,” or “risks” which appear to
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20
have prompted the rule do not themselves appear to loom in this case.
(c) The Limited Power of Attorney
The Limited Power of Attorney is the document on which FL Receivables places the
most reliance. It is found at Exhibit “H” in the FL Receivables Appendix. It is a poor copy of
the original which is quite difficult to read, however it can be made out. It is not lengthy and
reads in its entirety, as follows:
LIMITED POWER OF ATTORNEY
Captec Financial Corporation, a Delaware corporation, and Captec
Financial Group, Inc., a Michigan corporation, and Captec Financial Group
Funding Corporation, a Michigan corporation, each having an address at 24 Frank
Lloyd Wright Drive, Lobby L, 4th Floor, Ann Arbor, MI 48105, each hereby
make, constitute and appoint FL Receivables Trust 2002-A, a Delaware statutory
trust whose address is c/o Wilmington Trust Company, Rodney Square North,
1100 N. Market Street, Wilmington, DE 19890, Attn: Corporate Trust
Administration, and its successors and assigns, including without limitation any
vice president or more senior officer of any entity acting as trustee or
administrator of such trust, the true and lawful attorney to act for each entity, in
its name, place and stead, and for the use and benefit of each entity, to execute
and deliver assignments of deeds of trust and/or UCC financing statements, UCC
assignments or UCC amendments, assignments of mortgage, guaranties and title
insurance, assignments of insurance policies and benefits, assignments of legal
claims, settlements and judgments, endorsements of notes, and similar
instruments of transfer on behalf of Captec Financial Corporation, Captec
Financial Group, Inc. and/or Captec Financial Group Funding Corporation to
further assure the transfer to FL Receivables Trust 2002-A of the interests of
Captec Financial Corporation, Captec Financial Group, Inc. and/or Captec
Financial Group Funding Corporation in the Contract Documents relating to those
Contracts originated by Captec Financial Group Inc., and/or Captec Financial
Group Funding Corporation and specifically identified on the attached Schedule
1.
Giving and granting unto FL Receivables Trust 2002-A, full power and
authority to do and perform all and every act and thin whatsoever described
above, with full power of substitution or revocation, hereby ratifying and
confirming all that said attorney shall lawfully do or cause to be done by virtue
hereof.
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This power of attorney is coupled with an interest and is irrevocable. Any
reproduced copy of this signed original shall be deemed to be an original
counterpart of this Power of Attorney.
This Power of Attorney shall not be affected by any legal incapacity or
dissolution, except as provided by statute.
Witnesses as to all: 	Captec Financial Corporation
By:
Name:
Title:
Captec Financial Group, Inc.
By:
Name:
Title:
Captec Financial Group Funding
Corporation
By:
Name:
Title:
Understandably, FL Receivables emphasizes and directs the Court’s attention to the
language in the Power of Attorney imbuing the recipient with the authority to assign, inter alia,
legal claims, settlements and judgments. This, says FL Receivables, is the language which,
together with the Settlement Agreement and the Assignment, closes the circle and establishes
that any RICO claims belonging to CAPTEC were assigned to FL Receivables. Clearly, this
overstates the case.
The Movants argue that the Limited Power of Attorney does not operate to assign
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7 It is questionable, moreover, whether FL Receivables can rely to any extent on the
Interim Warehouse and Security Agreement, inasmuch as the Settlement Agreement appears to
have completely superceded it and, in fact, recites that consummation of the settlement would
operate to terminate the former agreement.
22
additional substantive rights beyond those set forth in the Assignment. Rather, say the Movants,
the Limited Power of Attorney, by its very language, exists for the limited purpose of facilitating
the transfer to FL Receivables of CAPTEC’S interests in the assets specified in the Assignment.
The Movants have the better part of this argument.
The Limited Power of Attorney plainly states that it is given to further assure the transfer
to FL Receivables of the interests of CAPEC in the “Contract Documents’ relating to the Bagga
Loans. The Court notes that the Assignment itself refers not to Contract Documents, but to the
transfer of Contracts and Contract Files. However, the Assignment also recites that capitalized
terms in the Assignment (such as Contracts and Contract Files) shall have the same meanings set
forth in the Interim Warehouse and Security Agreement. When one refers back to that
document, one sees that the phrase Contract File includes all Contract Documents, as that phrase
is defined in the Interim Warehouse and Security Agreement. The important point is that
conspicuously missing in the definition of the term Contract and the phrases Contract File and
Contract Documents is any reference to legal claims, demands, causes of action, etc. 7
It is regrettable (for FL Receivables), but nonetheless clear to the Court, that the Limited
Power of Attorney did not assign independent assets to FL Receivables. The Assignment is the
only document that operated to do so. The Assignment, however, makes no reference to causes
of action or legal claims. That being the case, FL Receivables simply cannot through the limited
Power of Attorney satisfy the Lerman express assignment requirement and establish its standing
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23
to assert the RICO claims in its Complaint.
(d) The Documents Collectively
As previously noted, FL Receivables urges the Court to read the Settlement Agreement,
the Assignment and the Limited Power of Attorney together, and thereby find in doing so that
the express assignment requirement is met. Indeed, FL Receivables argues that, under Kroblin,
supra, the Court is bound to do so.
Kroblin, of course, spoke of two writings which were executed at the same time and
intertwined and said that they should be construed together. 805 F.2d at 107. The Court notes
that none of the three documents in question here were actually executed on the same date,
however that may be putting too fine a point on things.
The Court will assume, for purposes of discussion, that the relevant documents, which
are certainly interwoven, were executed sufficiently close in time so as to be essentially
contemporaneous and thus deserving of integrated construction. This still does not alter the
outcome. That is to say that, whether you read them separately, or whether you read them
collectively, there is nothing in them which rises to the level of an express assignment of RICO
claims.
The Court turns lastly to certain arguments which FL Receivables makes in support of its
standing which are not predicated on its having already satisfied the express assignment rule.
At the outset, the Court observes that there it has considerable uncertainty over whether
one of the issues to which these arguments pertain is at all properly before it. The Movants, for
instance, describe the issue before the Court as being “narrow” and “discrete” (see Transcript,
January 17, 2008 (“T”) at 10). By this, it appears clear to the Court that they mean to imply that
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the sole issue before the Court is whether FL Receivables satisfies the Lerman express
assignment rule with respect to Counts I and II of the Complaint. FL Receivables appears to
concur with this assessment of the issue that is before the Court. (T at 47, 49).
Yet, perhaps because advocates can sometimes not restrain themselves, FL Receivables
in its responsive brief took matters further by raising the argument that, even in the event of an
adverse ruling on this issue, it could demonstrate standing to maintain Counts I and II of the
Complaint in other ways. Irrespective of the intent of their Motion, the Movants understandably
have responded to such argument, both in writing and at oral argument. As the parties have
addressed themselves to the “additional” issues, the Court will do likewise.
i) Reformation of the Documents
FL Receivables argues, first, that by virtue of the authority it possess under the Power of
Attorney it can execute a “Supplemental Assignment” on behalf of CAPTEC, in its own favor,
“expressly” assigning to itself the subject RICO claims. It has attached a copy of such a
proposed document as Exhibit “X” to its brief in opposition to the Summary Judgement Motion.
Alternatively, FL Receivables argues that PSCC could execute a “Supplemental Contribution” to
FL Receivables, once again expressly reciting that it includes any and all RICO claims which
PSCC has against CAPTEC. A copy of a proposed Supplemental Contribution document is
attached to FL Receivables’ brief as Exhibit “Y.” Neither of these arguments has merit.
Insofar as a Supplemental Assignment is concerned, the same would be futile because FL
Receivables simply cannot assign to itself assets (such as causes of action and RICO claims) that
were not transferred to it under the original assignment. As previously discussed, the Limited
Power of Attorney exists to aid in effectuating the transfer of assets covered by the Assignment.
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It does not carry with it the right to expand the scope of those assets.
The Supplemental Contribution argument is equally unavailing. The Owner Trust
Agreement and the Administration Services Agreements described infra at Footnote 2 make
reference (just as all the other documents discussed supra) to Contracts, Contract Assets,
Contract Files, and Contract Documents. The Court, however, can find no definition of any of
these documents, in any document in FL Receivables’ Appendix, which clearly and
unambiguously reflects that any of the aforesaid terms and phrases include causes of action,
demands, legal claims (RICO or otherwise), etc. The Court again underscores that PSCC and FL
Receivables own only the assets transferred to them by CAPTEC. They have failed to
demonstrate that the subject RICO claims were among such assets, and they cannot reform the
substantive transaction under the guise of reforming the documentation which memorialized it.
ii) Independent Standing
FL Receivables’ final argument, and the most troubling, is that it has standing to assert
RICO claims independent of the CAPTEC assignment, because “the Defendants,” including the
Chawla Defendants, continued to commit predicate acts giving rise to RICO liability well after
the finalization of the settlement between PSCC and CAPTEC. Theoretically, this could
certainly serve as a basis for standing, but simply asserting as much in the final paragraph of its
brief in opposition to the present Motion is clearly insufficient to resist it.
The Movants are correct that the allegations of post 2002 misconduct set forth in the
Complaint, while sufficient for pleading purposes (as this Court concluded in its April 2007
Opinion) require amplification in the context of a Motion for Summary Judgement. Yet FL
Receivables’ brief is exceedingly sparse on this point. Its argument with respect to post August
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8 The “lone” post 2002 issue directed at them, say the Chawla Defendants, relates to the
filing of a false proof of claim in the Bankruptcy case of an entity known as the Welcome Group.
With respect to this, they argue that, even if the allegation is true, FL Receivables cannot
demonstrate detrimental reliance and hence cannot establish harm. In support, they append to
their reply brief excerpts from a deposition transcript designed to show that FL Receivables did
nothing to change its position based on the subject proof of claim. (Chawla Reply Brief -
January 15, 2008 at 13, Exhibit “A.”)
26
2002 predicate acts consists, in its entirety, of a single sentence: “those predicate acts were
directed at FL Trust as the holder of the Bagga Loans and included several acts of bankruptcy
fraud committed by the Baggas and the Chawlas.” (FL Receivables’ brief at pages 22-23)
The “independent” standing issue was, nevertheless, discussed in greater detail at the
January 17, 2008 hearing. The Movants characterize it as FL Receivables’ “kitchen sink”
argument (T at 30). They argue, inter alia, that to the extent FL Receivables presses the
argument at this juncture there is only one paragraph in the Complaint which sets forth a post
2002 allegation of wrongdoing against the Chawla Defendants. Furthermore, with respect to this
lone allegation, say the Movants, nothing in FL Receivables supporting papers is sufficient to
demonstrate that the conduct in question is a legally sufficient “predicate act” for purposes of
asserting a RICO claim, (T at 32-33), even though that deficiency was specifically raised in the
Movants opening brief. (See Movant’s brief, October 10, 2007 at footnote 10) 8
At oral argument FL Receivables elaborated on its position, insisting that it was
“directly” harmed by conduct of the Chawla Defendants and making reference to fraud based
“harm” related to the PSCC equipment purchase loans, inter company transfers between Bagga
and Chawla entities, and the alleged false proof of claim in the Welcome Group Bankruptcy. (T
at 47, 48).
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9 The Court views the afore-discussed document “reformation” issues to actually form
part of the assignee standing question and they are thus properly before it.
27
The Court, for its part, has considerable difficulty dealing with the “independent
standing” argument because of the awkward and belated fashion in which it has been injected
into this proceeding. As noted, the parties themselves have opined that the issue is not really
before the Court. To the extent FL Receivables has endeavored to get it before the Court, its
brief and oral advocacy are utterly unhelpful. Furthermore, other than the proof of claim aspect
of the “independent standing issue,” the entirety of the documentation in its voluminous
appendix deals with pre 2002 acts and/or omissions which would implicate assignee standing,
not independent standing. Finally, and as previously noted, Counts I and II of the Complaint are
directed at all defendants, whereas the present Motion seeks relief on behalf of the Chawla
Defendants only.
In view of these problems, the Court cannot possibly resolve with finality the various
questions implicated by FL Receivables“independent standing” assertion, hence it will not
attempt to do so. Rather, the Court will accept what both parties initially posit; to wit: that the
only issue directly joined before it is assignee standing.9 The Court, nevertheless, finds that to
simply leave matters in this posture will serve no good purpose. It would appear that the most
reasonable inference to draw under the circumstances is that Counts I and II of the Complaint
are intended to assert assignee liability only, and that FL Receivables’ highly abbreviated
reference to the possession of independent standing to assert RICO claims, as set forth in a single
sentence on the last page of its brief, may be little more than an afterthought. Recognizing,
however, that the issue is not entirely free from doubt, the dismissal of Counts I and II of the
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28
Complaint must be fashioned to suit.
Accordingly, Counts I and II of the Compalint, to the extent predicated on assignee
standing, will be dismissed with prejudice as to all Defendants. To the extent that FL
Receivables wishes to assert Counts I and II based on having independent standing to do so, FL
Receivables is directed to file an amended Complaint within two weeks from the date of this
Opinion to clarify the precise RICO allegations it asserts, as between the Defendant Groups, and
to specifically set forth the basis for its assertion of independent standing to bring such claims
against the respective Defendants..
An appropriate Order follows.
By the Court:
_________________________________
Stephen Raslavich
United States Bankruptcy Judge
Dated: 	February 6, 2008
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I N THE UNITED S TATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
I N RE 	: CHAPTER 7
:
J AMUNA REAL ESTATE , LLC 	: CASE NO . 04-37130
BAGGA ENTERPRISES, I NC . 	: CASE NO . 04-37132
UNITED M ANAGEMENT SERVICES , I NC . 	: CASE NO . 04-37136
DEBTORS 	:
M ARVIN KRASNY , CHAPTER 7 	:
TRUSTEE OF J AMUNA REAL ESTATE LLC; 	:
M ARVIN KRASNY , CHAPTER 7 	:
TRUSTEE OF UNITED M ANAGEMENT 	:
SERVICES ,I NC .; GARY SEITZ , 	:
CHAPTER 7 TRUSTEE OF 	:
BAGGA ENTERPRISES, I NC .; 	:
AND FL RECEIVABLES TRUST 2002-A 	:
PLAINTIFFS 	:
V . 	:
PRATPAL BAGGA ; KHUSHVINDER BAGGA ; 	:
RAVINDER CHAWLA ; HARDEEP CHAWLA 	:
WELCOME GROUP , I NC .; K&P REAL 	:
ESTATE LLC; WORLD APPAREL PRODUCTS , :
I NC . D / B / A SJM TRADING CO ., D / B / A 	:
TEN TIGERS ; AMERICAN M ERCHANDISE 	:
CO ., I NC ., A / K / A AMERICAN 	:
M ERCHANDISING CO ., I NC .; 	:
21ST CENTURY RESTAURANT SOLUTIONS, 	:
I NC .; BRAND TRADE , I NC .; 	:
HB PROPERTIES , I NC .; 	: ADV . NO . 06-0128
HB PROPERTIES LLP; SANT PROPERTIES ; 	: ADV . NO . 06-0129
J OHN AND J ANE DOES AND ABC 	: ADV . NO . 06-0130
COMPANIES 	:
DEFENDANTS :
:
ORDER
AND NOW, upon consideration of the Motion for Partial Summary Judgment filed by
Defendants Ravinder Chawla, Hardeep Chawla, World Apparel Products, In., HB Properties,
Inc., HB Properties LLP, and Sant Properties (collectively the “Chawla Defendants”) Plaintiffs’
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2
Answer to the Motion, all related briefs filed by the parties, and after hearing held January 17,
2008, it is hereby:
O RDERED , that the Chawla Defendants’ Motion for Partial Summary Judgment is
Granted in part; and it is further:
O RDERED , that Counts I and II of the Plaintiffs’ Complaint, to the extent predicated on
standing as an assignee, are dismissed with prejudice as to all Defendants; and it is further:
O RDERED , that Plaintiff, FL Receivables is to file an Amended Complaint with respect to
Counts I and II consistent with the within Opinion with two weeks of this date.
By the Court:
Stephen Raslavich
Dated: February 6, 2008 	United States Bankruptcy Judge
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3
Interested Parties:
George Conway, Esquire
Office Of The U.S. Trustee
833 Chestnut Street
Suite 500
Philadelphia PA 19106
Paul Madden, Esquire
Richard Simins, Esquire
Jeffrey Carbino, Esquire
Buchanan Ingersoll, PC
Eleven Penn Center 14 th Floor
1835 Market Street
Philadelphia PA 19103-2985
Patrick FitzMaurice, Esquire
Thacher Profitt & Wood LLP
50 Main Street 5 th Floor
White Plains, NY 10606
Patrick FitzMaurice, Esquire
Thacher Profitt & Wood LLP
2 World Financial Center
New York NY 10291
Lawrence Tabas, Esquire
Richad P. Limburg, Esquire
William Pelosi, Esquire
William Leonard, Esquire
Obermayer, Rebmann Maxwell & Hippel
1617 John F. Kennedy Blvd
19th Floor
Philadelphia PA 19103
Andrew Teitelman, Esquire
380 Red Lion Road
Suite 202
Huntingdon Valley, PA 19006
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