Krasny et al v. Bagga et al

I N THE UNITED S TATES B ANKRUPTCY C OURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
IN RE 	: C HAPTER 7
:
J AMUNA R EAL ESTATE , LLC 	: B ANKRUPTCY NO. 04-37130
UNITED MANAGEMENT SERVICES, INC . 	: B ANKRUPTCY NO. 04-37132
B AGGA ENTERPRISES, INC . 	: B ANKRUPTCY NO. 04-37136
D EBTOR(S) 	:
:
MARVIN KRASNY, IN H IS C APACITY AS C HAPTER 7 	:
T RUSTEE OF UNITED MANAGEMENT SERVICES, INC .; 	:
MARVIN KRASNY, IN H IS C APACITY AS C HAPTER 7 	:
T RUSTEE OF J AMUNA R EAL ESTATE LLC; 	:
GARY SEITZ , IN H IS C APACITY AS C HAPTER 7 	:
T RUSTEE OF B AGGA ENTERPRISES, INC ., 	:
WILMINGTON T RUST C OMPANY IN ITS C APACITY AS 	:
OWNER T RUSTEE OF F L R ECEIVABLES T RUST 	:
2002-A AND F L R ECEIVABLES T RUST 2002-A :
PLAINTIFFS 	:
VS. 	:
PRATPAL B AGGA ; KHUSHVINDER B AGGA ; 	:
R AVINDER C HAWLA ; H ARDEEP C HAWLA ; 	:
WELCOME GROUP, INC .; K&P R EAL ESTATE LLC; 	:
WORLD A PPAREL PRODUCTS,INC . D/ B/ A / SJM 	:
T RADING C OMPANY, D / B/ A T EN T IGERS; A MERICAN 	:
MERCHANDISE C O., INC ., A / K / A A MERICAN 	:
MERCHANDISING C O., INC .; 21ST C ENTURY 	:
R ESTAURANT SOLUTIONS, INC .; B RAND T RADE , INC .; 	:
H.B. PROPERTIES, INC .; H.B. PROPERTIES LLP; 	:
SANT PROPERTIES; J OHN AND J ANE D OES AND 	:
ABC C OMPANIES 	:
D EFENDANTS 	: A DVS NOS. 06-128, 06-129, 06-130
OPINION
BY: S TEPHEN RASLAVICH, CHIEF U NITED S TATES BANKRUPTCY JUDGE.
I NTRODUCTION .
Before the Court is the Motion of Defendants Ravinder Chawla, Hardeep Chawla,
World Apparel Products, Inc., Sant Properties, HB Properties, Inc., and HB Properties,
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LLP (the “Chawla Defendants”) to dismiss the Plaintiffs’ Amended Complaint.1 The
Motion is opposed by the Plaintiffs. After a hearing held on December 4, 2009, the
Court took the matter under advisement. For the reasons which follow, the Motion will
be granted.
Summary of Holding
While the Amended Complaint pleads a total of twelve counts, only four are
directed at one (or more) of the Chawla Defendants: Count I (RICO2 ); Count II
(conspiracy to commit RICO); Count IX (fraud and conspiracy to defraud); and Count
XIV (Aiding and Abetting a Breach of Fiduciary Duty). As to these counts the Court
rules as follows:
Count I - RICO (Plaintiffs against Pratpal Bagga and Ravinder Chawla)
• 	Basis for Contention: Ravinder Chawla maintains that this count fails to
state a claim under RICO against him.
• 	Holding: The Motion will be granted and Count I will be dismissed as to
Ravinder Chawla.
Count II - Conspiracy to Violate RICO (Plaintiffs against All Defendants)
• 	Basis for Contention: The Chawla Defendants argue that the Complaint is
1For the prior procedural history of this proceeding,
see 365 B.R. 540 (Bankr.E.D.Pa.
2007) (ruling on Defendant’s Motion to Dismiss the original complaint ); 382 B.R. 263
(Bankr.E.D.Pa. 2008) (granting Chawla Defendants’ Motion for Partial Summary Judgment on
RICO claims); 385 B.R. 127 (Bankr.E.D.Pa.2008) (denying Chawla Defendants’ Motion for
Summary Judgment as to remaining claims); and 392 B.R. 149 (Bankr.E.D.Pa.2008) (denying
Plaintiff’s motion for reconsideration of summary judgment as to RICO claims and granting
limited leave to amend complaint)
2The standard acronym for the Racketeer Influenced and Corrupt Organizations Act of
1984, 18 U.S.C. § 1961 et seq.
2
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deficient in two respects: first, that it is contingent on the sufficiency of
Count I; second, that it fails either to allege either an agreement among
the alleged conspirators or the participation of Hardeep Chawla, HB
Properties Inc, and/or HB Properties LLP.
• 	Holding: The Motion will be granted and Count II will be dismissed as to
the Chawla Defendants.
Count IX - Fraud and Conspiracy to Commit Fraud (Plaintiffs against Pratpal
Bagga and Ravinder Chawla)
• 	Basis for Contention: The Chawla Defendants argue that the claim is time-
barred, that the Plaintiffs lack standing, and that a prima facie case is not
pleaded.
• 	Holding: The Motion will be granted and Count IX will be dismissed as to
Ravinder Chawla
Count XIV - Aiding and Abetting A Breach of Fiduciary Duty (Plaintiffs vs. All
Defendants)
• 	Basis for Contention: Chawla Defendants maintain that the Plaintiffs have
failed to state the proper standard; that there exists no underlying duty;
that the complaint does not plead substantial assistance or
encouragement; and that the claim is otherwise time-barred.
• 	Holding: The Motion will be granted and Count XIV will be dismissed as to
the Chawla Defendants.
Standing to
Raise RICO
Although the legal sufficiency of a complaint is judged facially, this case has a
prior procedural history which affects what may be alleged. For the third time, the
issue of standing is joined. In its Opinion of February 6, 2008, this Court held that the
Plaintiff
FL Trust lacked standing to sue because of a lack of privity. In the Opinion of
April 7, 2008, it was the Plaintiff
Bankruptcy Trustees who were found to lack standing
because they were not directly harmed by the alleged racketeering conduct. The
3
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upshot of all of this is that the right of either plaintiff to raise RICO is, at this juncture,
severely circumscribed. It is foreclosed to the extent that it is derivative of the “Captec
assignment.” That background and this Court’s ruling on its effect is set out at length
in the Court’s prior opinion and will not be repeated here.
	See generally 382 B.R. 263.
Most importantly, that ruling is now the law of the case.
	In re Continental Airlines, Inc.,
279 F.3d 226, 232 (3d Cir.2002) citing 18
Moore's Federal Practice ¶ 134.20 (3d
ed.1999) (As a rule of preclusion, this doctrine is concerned with the extent to which
the law applied in decisions at various stages of the same litigation becomes the
governing legal precept in later stages). 	As explained in the Court’s Opinion, if the
Trust was to press a RICO claim, it would have to be based on damages the Trust
independently suffered. The same applies to the Bankruptcy Trustee Plaintiffs.
The Plaintiff Trust has raised RICO claims again in the Amended Complaint. And
once again, the Chawla Defendants challenge its right to do so.
Standing has been described as the “irreducible constitutional minimum.”3
Accordingly, it is appropriate that it be taken up first by the Court. Its essence is
injury; Article III standing requires that “the plaintiff must have suffered an injury in
fact-an invasion of a legally protected interest which is (a) concrete and particularized
and (b) actual or imminent, not conjectural or hypothetical.”
Township of Piscataway v.
Duke Energy, 488 F.3d 203, 208 (3d Cir.2007) (citing
Trump Hotels & Casino Resorts v.
Mirage Resorts, 140 F.3d 478, 484-85 (3d Cir.1998)). RICO likewise requires injury and
3
Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S.Ct. 2130, 2136, 119 L.Ed.2d
351 (1992)
4
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that the harm have resulted from a violation of the statute: “Any person injured in his
business or property
by reason of a violation of section 1962 of this chapter may sue
therefor …” 18 U.S.C. § 1964(c). At bottom, where RICO is implicated this becomes a
question of causation. The Court must determine first if the count pleads a RICO
violation and, if it does, whether damages are pleaded which are the proximate result
of the illegal conduct. The Court will address the standing question in this way.
	See
Maio v. Aetna, Inc., 221 F.3d 472, 482 n.7 (3d Cir. 2000) (discussing similarity between
standing analysis and RICO violation and resulting injury analysis).
Standard for Dismissal
The Motion to Dismiss is premised mostly on Rule 12(b)(6)4 ; i.e., that the
amended complaint fails to state a claim upon which relief may be granted.5 In light of
the Supreme Court's decision in
Bell Atlantic Corp. v. Twombly, 540 U.S. 544, 127 S.Ct.
1955, 167 L.Ed.2d 929 (2007), the legal sufficiency of the Amended Complaint is to be
judged differently from the original Complaint.6 While the Supreme Court’s decision in
Twombly reaffirmed the basic premises of F.R.C.P. 8 and 12(b)(6) (requiring the
pleading of a “short and plain statement” and accepting as true the alleged facts), the
Court made clear that the complaint may not rely on just “labels and conclusions, and a
formulaic recitation of the elements of a cause of action will not do.”
	Id. 127 S.Ct. at
4Incorporated herein by B.R. 7012.
5The statute of limitations is also raised as to certain counts.
6
Twombly was decided less than two months (May 21, 2007) after this Court’s April 2007
Opinion on the Defendant’s Motion to Dismiss the Plaintiffs’ original complaint.
5
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1965. Also, the “‘plain statement’” requirement of Rule 8(a)(2) must contain enough
“heft” to show that the pleader is entitled to relief.
	Id. at 1966. This heightened
pleading burden must be enough to raise a right to relief above the speculative level.”
Id. at 1965;
see also Umland v. PLANCO Financial Services, Inc., 542 F.3d 59, 64 (3d
Cir.2008) (cautioning “that the factual allegations in the complaint must not be so
undeveloped that it does not provide a defendant the type of notice of claim which is
contemplated by Rule 8.”)
quoting Phillips v. County of Allegheny, 515 F.3d 224, 233
(3d Cir.2008) The Third Circuit has added that “it is no longer sufficient to allege mere
elements of a cause of action; instead ‘a complaint must allege facts suggestive of [the
proscribed] conduct.’”
Phillips, id. (
quoting Twombly, 127 S.Ct. at 1969 n. 8).
As a result of the foregoing,
more is now required in the way of pleading, but
the High Court left the question of
how much more to the trial court.
See In re
Intelligroup Sec. Litig., 527 F.Supp.2d 262, 278 (D.N.J. 2007) (interpreting
Twombly’s
specificity requirement to be determined on a case-by-case basis) If there is any
guidance to be gained from the Supreme Court it may be in one of its rationales. The
Court noted that in complex cases discovery costs tend to escalate. 127 S.Ct. at 1966-
67 That might be avoided by requiring more in the way of pleading at the outset.
	Id.
Twombly itself was an antitrust claim and such causes of action tend to involve complex
and technical questions. RICO presents the same problem. Discovery in this case has
become protracted and contentious. The parties have lamented that discovery has thus
far involved “tens of thousands” of pages of documents. Defendants’ Brief, 24.
Requiring more detail in the pleading stage would clearly help to cut through some of
6
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that. The Court’s analysis, then, will endeavor to hew to the line set forth in
Twombly.
Count I - RICO
Against this background, the Court turns to the RICO claim. Count I alleges that
Pratpal Bagga, Khushvinder Bagga and Ravinder Chawla violated § 1962 of RICO.7
That section provides, in pertinent part, that:
[i]t shall be unlawful for any person employed by or
associated with any enterprise engaged in, or the activities
of which affect interstate or foreign commerce to conduct or
participate, directly or indirectly, in the conduct of such
enterprise's affairs through a pattern of racketeering activity
or collection of unlawful debt.
18 U.S.C. § 1962(c). In order to plead a violation of RICO, a plaintiff must allege (1)
conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.
	Lum v.
Bank America, 361 F.3d 217, 223 (3d Cir. 2004); citing
Sedima, S.P.R.L. v. Imrex Co.,
Inc., 473 U.S. 479, 496, 105 S.Ct. 3275, 3285 (1985).
Conduct8
Liability under subsection (c) is predicated on a defendant having “
conduct[ed]
or participate[d], directly or indirectly, in the conduct of [the] affairs of the enterprise.”
18 U.S.C. § 1962(c)(emphasis added). In
Reves v. Ernst & Young, the Supreme Court
held that “‘to conduct or participate, directly or indirectly, in the conduct of such
7 RICO creates a private cause of action for a person injured in business or property
under 18 U.S.C. § 1962. 18 U.S.C. § 1964(c);
Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496
(1985).
8It is agreed that the Messrs Chawla are “persons” as defined by the statute. 18 U.S.C.
§ 1961(3).
7
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enterprise's affairs,’ one must participate in the operation or management of the
enterprise itself.” 507 U.S. 170, 185, 113 S.Ct. 1163, 122 L.Ed.2d 525 (1993) (citation
omitted). 9 The High Court understood the word “conduct” to indicate some degree of
direction over the affairs of the enterprise.
	Id. at 178, 113 S.Ct. at 1169. The Court
concluded also that the term “participate” meant “to take part in.”
	Id. at 179, 113 S.Ct.
at 1170
; see also University of Maryland v. Peat, Marwick, Main & Co., 996 F.2d 1534,
1539 (3d Cir. 1993) (adopting “operation or management” test enunciated in
Reves);
see also United Nat. Ins. Co. v. Equipment Ins. Managers, 1995 WL 631709 *4
(E.D.Pa.). The Court thus considers the conduct or participation on the part of
Ravinder Chawla10 alleged here.
Along with Pratpal Bagga and Khushvinder Bagga, Ravinder Chawla is alleged to
have “directly or indirectly
conducted or participated in conducting the affairs” of the
enterprise. Amended Complaint ¶ 246. Generally, the conduct is alleged to consist of
mail and wire fraud, conversion of proceeds from fraud, asset stripping, and evasion of
payment.
Id. ¶ 37 His conduct begins with his company World Apparel. It is alleged to
have helped the Baggas conceal assets from creditors.
	Id. ¶249(a), (h) Next, it is
alleged that he received proceeds from the Captec loan which were supposed to pay for
restaurant equipment.
	Id. ¶ 249(m) He is also charged with transmitting false
9 Although
Reves involved a motion for summary judgment, the Third Circuit has held
that its holding is applicable to a motion to dismiss.
See University of Maryland v. Peat,
Marwick, Main & Co., 996 F.2d 1534, 1539 (3d Cir. 1993) (rejecting argument that
Reves test
applies only in a summary judgment context)
10Again, this Count is
not directed at Hardeep Chawla.
8
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documentation to the lender.
	Id. ¶ 249(u). Also imputed to him is the restatement of
World Apparel’s financials.
	Id. ¶ 249(v) This established a loss for one of the Bagga
Entities which should have resulted in a tax refund to it; instead, the allegation is that
the refund was diverted by them.
	Id. He is also alleged to have received a loan from
K&P— another Bagga entity—which he was never required to pay back.
	Id. ¶ 249 (w)
He is alleged to have engaged in a scheme to sell counterfeit clothing (¶ 251), to
launder money (¶ 252), and to have filed a fraudulent bankruptcy claim (¶ 255). For
present purposes, all of this certainly constitutes a sufficient allegation of conduct on
Ravinder Chawla’s part. It also implicates the company which he owns and controls,
World Apparel.
Pleading an
Enterprise
The “conduct” or “participation” alleged must have been part of the affairs of an
“enterprise.” The statute specifically defines an enterprise as “any individual,
partnership, corporation, association, or other legal entity, and any union or group of
individuals associated in fact although not a legal entity.” 18 U.S.C. § 1961(4). As to
exactly what must be pleaded to state the existence of an enterprise, the parties are in
disagreement. The Defendants insist that the Supreme Court has raised the bar for
sufficiently pleading a RICO “enterprise” as a result of
Twombly, supra. Defendant’s
Brief, 26. For their part, Plaintiffs maintain that
Twombly does no more than state a
rule already honored in practice: i.e., that general notice pleading must be mindful of
context for the pleading to survive.
	See Plaintiffs’ Brief, 9-10 citing
Phillips, 515 F.3d at
9
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233 (explaining that Rule 8(a)(2) general notice pleadings standard remains intact after
Twombly) Because this question goes to the very heart of the matter, it must be
addressed first.
To recapitulate, this Court’s April 2007 Opinion weighed the sufficiency of the
“enterprise” allegations in accordance with the Third Circuit’s ruling in
Seville Indus.
Mach. Corp. v. Southmost Mach. Corp, 742 F.2d 786 (3d Cir.1984).
	See 365 B.R. at
548.
	Seville stated that nothing more than general notice pleading was required for
pleading a RICO enterprise.
	Seville relied, implicitly, on the long-standing rule
regarding notice pleading first enunciated in
Gibson v. Connelly, 355 U.S. 41, 45-46, 78
S.Ct. 99, 101 (1957) (holding that a complaint will not be dismissed “unless it appear
beyond doubt that the plaintiff can prove no set of facts in support of his claim”) But
two months after this Court’s April 2007 ruling which relied on
Seville—and which was
consistent with
Gibson—the Supreme Court effectively overruled
Gibson. In
Twombly,
supra, the High Court held that a pleading must, at a minimum, plausibly suggest facts
which make a case which rises above the level of speculation. 127 S.Ct. at 1965. The
Amended Complaint’s enterprise allegations, Defendants maintain, fail to do that.
	See
Defendants’ Brief, 23-33
The Third Circuit has not had occasion to address how
Seville is affected by
Twombly, 11 but one would be hard-pressed to argue that it is not.
	Seville’s holding as
11The Seventh Circuit has addressed the effect of
Twombly on RICO. In
Limestone
Devel. Corp. v. Village of Lemont, 520 F.3d 797 (7th Cir.2008), the Seventh Circuit noted that
the concerns regarding specificity in a complaint in an antitrust case (the statute at issue in
(continued...)
10
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to pleading a RICO enterprise is premised on a liberal application of Rule 8. But the
controlling interpretation of that rule for the
Seville court was
Gibson, supra.
	Twombly
is now the final word on what Rule 8 requires and
what is required is plausibility; that is
a step up from speculation.
	See Vulcan Golf, LLC v. Google, Inc., 2008 WL 2959951 *1
(N.D.Ill.)(identifying
Twombly’s two easy to clear hurdles as (1) sufficient description of
the claim in order to give fair notice of what the claim is and the grounds upon which it
rests and (2) allegations which plausibly suggest that the plaintiff has a right to relief)
This problem takes on an added complexity given that a RICO “enterprise” may
take various forms. For example, it be may be comprised of an organization per se,
such as a corporation and the persons who run it. Or, it may also be comprised of a
disparate collection of individuals and other entities who work in concert, i.e., an
association-in-fact. The distinction matters for pleading purposes. One pre-
Twombly
decision from this District distinguished the RICO enterprise in
Seville from RICO
enterprises based on associations in fact. That Court explained that
[c]ourts can reasonably assume that individuals and
corporations have an organizational structure, are
continuous, and have an existence separate and apart from
any alleged pattern of racketeering activity. When it comes
to associations in fact, however, there is a greater risk that
the RICO statute “might be improperly employed to string
together predicate acts by unconnected defendants.”
See
Zito, 2004 U.S. Dist. LEXIS 19778 at *23. In a footnote, the
11 (...continued)
Twombly) also exist in a RICO case.
Id. at 801. This Court finds that reasoning persuasive and
reaches the same conclusion.
See also In re Insurance Brokerage Antitrust Litigation, 2007 WL
2892700 *6 (D.N.J.); and
Vulcan Golf, LLC v. Google, Inc., 2008 WL 2959951 *1 (N.D.Ill.).
11
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Court of Appeals in
Seville itself held that the plaintiff could
not plead association in fact enterprises consisting of various
combinations of the defendants simply by alleging that the
defendants conspired with each other to commit the
underlying offenses. 742 F.2d at 790 n. 5.
The United States Court of Appeals for the Third Circuit
accepted a minimal association in fact enterprise pleading in
Shearin, 12 but that case is also distinguishable from the
instant ones. There, the court held that it was sufficient for
the plaintiff to plead that “the association of Hutton Group,
Hutton Inc., and Hutton Trust ... was an enterprise....” 885
F.2d at 1165. Hutton Inc. and Hutton Trust were wholly
owned subsidiaries of Hutton Group.
Id. at 1164. This fact is
significant because courts can also reasonably assume that a
relationship between a corporation and its subsidiaries will
have an organizational structure and existence independent
of any alleged racketeering activity. Courts cannot make that
inference when a complaint alleges an association in fact
between widely disparate entities and individuals, as do the
complaints here.
In re American Investors Life Ins. Co. Annuity Marketing and Sales Practices Litigation,
2006 WL 1531152 *9 (E.D.Pa.);
see also Rakoff and Goldstein,
RICO: Civil and Criminal
Law and Strategy, § 1.05, Law Journal Press (“Most of the remaining controversy over
the enterprise element of RICO claim concerns the concept of a “group of individuals”
associated in fact included in the definition.”) The Court finds that concern to be
present here because the enterprise in this case is also one “in fact” as the Amended
Complaint sets forth at the outset. The Plaintiffs’ problem is that merely alleging the
enterprise’s existence is nothing more than a tautology. The Defendants are entitled to
know the type of enterprise they are accused of operating.
12
Shearin v. E.F. Hutton Group, Inc., 885 F.2d 1162 (3d Cir.1989)
12
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According to the Defendants,
Twombly requires the plaintiff to plead every
element of a RICO enterprise which must be proven at trial. In their brief, they cite a
number of cases13 which require the complaint to plead the three elements set forth in
the Supreme Court’s opinion in
Turkette 14 and the Third Circuit’s opinion
in Riccobene15
(i.e., organizational structure, continuity, and enterprise/racketeering separation). The
parties will recall, however, that the Third Circuit in
Seville specifically rejected that
requirement. 742 F.2d at 790. And that is the response that Plaintiffs make: they
insist that, as a functional matter,
Twombly has changed nothing in the way of
pleading. Thus, the
Seville standard of general, notice pleadings obtains. Plaintiffs
point to a recent District Court Opinion which supports that proposition.16
The Court believes that neither party has it exactly right. It is fair to say that the
High Court would most likely not accept as sufficient the conclusory allegation that an
enterprise exists. At the same time, however, notifying the Defendants that they are
accused of continuous and concerted criminal behavior does not require the Plaintiffs to
plead their proof. Instead, what is required lies somewhere in the middle: the plaintiff
must plead more than the existence of an enterprise, but less than the proofs which
establish that enterprise. The Court accordingly turns now to the allegations in the
13
In re Ins. Brokerage Antirust Litig., 2007 WL 2892700 *8 (D.N.J.);
Freedom Medical
Inc. v. Gillespie, 2007 WL 2480056 *9 (E.D.Pa.2000); and
In re Am. Investor Life Ins. Co.
Annuity Marketing Sales Litig., 2006 WL 1531152 *7 (E.D.Pa.2007).
14
United States v. Turkette, 452 U.S. 576, 101 S.Ct. 2524 (1981)
15
United States v. Riccobene, 709 F.2d 214 (1983)
16
Loften v. Diolosa, 2008 WL 2994823 *5 (M.D.Pa.)
13
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Amended Complaint to determine if they adequately inform the Defendants of the
alleged enterprise.
The Plaintiffs allege the existence of the “Bagga/Chawla Enterprise” at the
outset. Amended Complaint, ¶ 36. The enterprise is alleged to be comprised of
persons and affiliated entities under the joint direction, control and leadership of the
Baggas and Chawlas.
	Id. Its objective, as alleged, is to obtain corporate loans by
means of fraud, to convert the loans proceeds to their own personal use, to strip the
Debtor corporations of their assets, and then to avoid paying the loans back.
	Id. ¶ 37.
Each Defendant is alleged to have agreed with one or more of the defendants to have
participated in or furthered the enterprise’s improper conduct.
	Id.
Those allegations serve as the framework around which facts are pleaded to
establish the enterprise. This is not a case of unconnected defendants who have
committed independent acts sought to be strung together by an overzealous plaintiff.
On the contrary, the individual defendants are related by family, and operate
businesses which deal with each other. They allegedly operated as co-equals in the
commission of the enterprise’s acts so there is no hierarchy to speak of. As to
regularity, while the amended complaint does not point to a period of time from which
the racketeering began and had continued, much may be reasonably inferred in that
regard. The sheer weight of all the alleged efforts to thwart collection suggests that
the Defendants’ intentions became deliberately concerted at some point along the way
and that such coordination continues to this day. Finally, it is self-evident that there is
a demarcation between any legitimate Bagga and Chawla businesses (fast-food
14
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franchises, apparel, and real estate holdings) and their collaboration in defrauding the
Plaintiffs out of $4 million. In sum, the Court finds a RICO enterprise to be sufficiently
pleaded.
Pattern and
Racketeering
The modus operandi of a RICO defendant is through a “pattern of racketeering
activity.” In its April 2007 Opinion, this Court observed that it made sense to determine
first if acts of racketeering were alleged before determining if those acts were part of a
pattern.
	See, e.g., H.J.,Inc., v. Northwestern Bell Tel. Co., 492 U.S. 229, 250, 109 S.Ct.
2893, 2906, 106 L.Ed.2d 195 (1989) (finding first that petitioner alleged multiple
predicate acts of bribery before analyzing whether such acts related to a common
purpose);
see also Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1411-12 (3d
cir. 1991) (finding that complaint alleged predicate act of mail fraud before determining
if pattern pleaded). And there is an added wrinkle here to the analysis: the moving
defendants are both Chawlas and the companies they control.17 The Plaintiffs’
substantive RICO claims, however, are not directed at both of Chawlas. Count I
(violation of RICO) is not alleged against Hardeep Chawla—it only names Ravinder
Chawla. As a result, the pivotal question becomes: Whether the Amended Complaint
pleads the requisite “racketeering activity” as to Ravinder Chawla.
As before, the Court begins with the definition found in the statute. It defines,
in pertinent part, a “racketeering activity” as
17Previously,
all of the Defendants moved for dismissal.
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(B) any act which is indictable under any of the following
provisions of title 18 United States Code: … section 1341
(relating to mail fraud), section 1343 (relating to wire fraud)
… section 1956 (relating to the laundering of monetary
instruments) … section 2320 (relating to trafficking in goods
and services bearing counterfeit marks) … section 2314 and
2315 (relating to interstate transportation of stolen property)
… (D) any offense involving fraud connected with a case
under title 11 …
18 U.S.C. § 1961(1). The Amended Complaint alleges two or more related instances of
mail fraud, wire fraud, trafficking in counterfeit goods, money laundering, interstate
transportation of converted goods, tax fraud18 and bankruptcy fraud. Amended
Complaint, ¶¶ 249-256. Before determining if the Amended Complaint implicates
Ravinder Chawla, the Court will first review the pleading standard applicable to each
predicate act.
Pleading Standards
for Predicate Acts
Where, as here, Plaintiffs rely,
inter alia, on a series of fraud-based predicate
acts (mail, wire, and bankruptcy) as a basis for a RICO violation, those allegations must
meet a heightened standard. Consistent with Federal Rule of Civil Procedure 9(b),
allegations of fraud must be pleaded with specificity.
	See Saporito v. Combusition
Engineering, 843 F.2d 666, 673 (3d Cir. 1988). In order to satisfy Rule 9(b), plaintiffs
must plead with particularity “the ‘circumstances' of the alleged fraud in order to place
the defendants on notice of the precise misconduct with which they are charged, and to
18As the Court pointed out in the April 2007 Opinion, tax fraud is not a racketeering
activity recognized under RICO.
See 365 B.R. at 550 n.6. The law today remains the same.
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safeguard defendants against spurious charges of immoral and fraudulent behavior.”
Seville Indus. Mach. Corp. v. Southmost Mach. Corp., 742 F.2d 786, 791 (3d Cir.1984).
Plaintiffs may satisfy this requirement by pleading the “date, place or time” of the
fraud, or through “alternative means of injecting precision and some measure of
substantiation into their allegations of fraud.”
Id. (holding that a plaintiff satisfied Rule
9(b) by pleading which machines were the subject of alleged fraudulent transactions
and the nature and subject of the alleged misrepresentations). Plaintiffs also must
allege who made a misrepresentation to whom and the general content of the
misrepresentation.
See Saporito, 843 F.2d at 675;
Rolo v. City Investing Co. Liquidating
Trust, 155 F.3d 644, 658-59 (3d Cir.1998);
Klein v. General Nutrition Co., Inc., 186 F.3d
338, 345 (3d Cir.1999);
see also First Capital Asset Mgmt, Inc. v. Satinwood, Inc., 385
F.3d 159, 178 (E.D.Pa. 2004) (requiring RICO violation based on bankruptcy fraud to be
pleaded with heightened particularity);
see also Lum, supra, (requiring mail and wire
fraud-based RICO claim to be subject to Rule 9(b) pleading standard).
In addition to mail and wire fraud, the Amended Complaint also pleads the
predicate acts of money laundering (18 U.S.C. § 1956), dealing in counterfeit goods
and services (18 U.S.C. § 2320), and interstate transportation of misappropriated
property (18 U.S.C. § 2314). While all three of these crimes connote some element of
dishonesty, they do not necessarily involve fraud per se. So, as a general matter, they
would be subject to the general notice pleading standard.
	Rose v. Bartle, 871 F.2d
331, 356 (3d Cir. 1989) (“Thus, the suggestion that ‘[a] charge of racketeering, with its
implications of links to organized crime, should not be easier to make than accusations
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of fraud” appears unwarranted.’”) For that reason, each would not be subjected to the
higher pleading standard required of fraud.
	See Republic of Colombia v. Diageo North
America, Inc., 531 F.Supp.2d 365, 382 (E.D.N.Y. 2007) (holding that charge of money
laundering need not satisfy rule 9(b));
see Muscle Tech Research and Dev., Inc., v.
East Coast Ingredients, Inc., 2004 WL 941815 *19 (W.D.N.Y.) (holding that claim of
trading in counterfeit goods need only meet rule 8(a)(2) notice pleading standard); and
see Perlman v. Zell, 938 F.Supp. 1327, 1349 (N.D.Ill.1996) (holding that crime of
interstate transportation of another’s property subject to notice pleading standard).
Having determined what the Amended Complaint must state to survive dismissal,
the Court now turns its attention to its contents.
Predicate Acts and
Ravinder Chawla
Certainly, the amendment is replete with allegations that Pratpal Bagga engaged
in predicate acts; it was to his companies that the original loans were made. But it is
the conduct of Ravinder Chawla and his companies which is at issue. Plaintiffs insist
that he is implicated in mail fraud, money laundering, trading in counterfeit goods and
bankruptcy fraud both before Plaintiff FL Trust became a party in interest as well as
after.
The Court begins with mail fraud which, again, must be pleaded with some
precision. 	The sole artifice that Mr. Chawla is alleged to have engaged in involves a
letter which he wrote in April 2001. The letter was addressed to Mr. Bagga and
explained why Mr. Chawla’s company, World Apparel, could not pay Mr. Bagga’s
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company, AMCI. Mr. Bagga’s company had placed an order with World Apparel which,
according to this letter, could not be filled due to circumstances beyond Mr. Chawla’s
control. 	That, in turn, adversely affected AMCI’s revenue which was how Mr. Bagga
was apparently intending to repay the FL Trust loan. ¶¶ 96, 102-104
Standing alone, however, the letter by every outward appearance is benign. The
letter explained that World Apparel was in default with its secured lenders and that
those lenders “were looking to its inventory and other assets for recovery.” 	Plaintiffs
argue that the letter does not disclose that both World Apparel and AMCI had been
sued by Nike and Adidas for selling counterfeit clothing and that World Apparel had
gone out of business. ¶ 103. Neither, Plaintiffs go on, does the letter disclose the
source of the money which World Apparel lost. ¶ 104. But that does not make the
writing itself misleading, let alone inaccurate. Being in default and having creditors
seize collateral is not necessarily inconsistent with being sued or having gone out of
business. Likewise, the identity of World Apparel’s lender has nothing necessarily
sinister to do with World Apparel’s inability to fill an order placed by AMCI. In short,
the Court finds nothing which it can reasonably infer to be false or misleading about the
contents of the letter in question. As a result, Court is constrained to conclude that the
amendment fails to plead mail fraud with the specificity required for alleging it as a
RICO predicate act. 19
19That is not to say, however, that Mr. Bagga may not have gone on to use that letter to
deceive his lenders. Indeed, the amendment is replete with allegations that
he presented the
letter to his lenders. That alone, however, does not plausibly suggest that what Mr. Chawla
(continued...)
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The amendment, of course, charges Ravinder Chawla with other predicate
acts—money laundering, trafficking counterfeit goods, and bankruptcy fraud. Of the
three, the first two are subject to a lower pleading threshold; the third, fraud on the
bankruptcy court, requires heightened specificity like the other fraud-based predicates.
For that reason, the Court can easily dispose of any claim that bankruptcy fraud is
sufficiently alleged as to Ravinder Chawla. The allegations of impropriety in the
bankruptcy cases in question never even mention Ravinder Chawla. They exclusively
give Hardeep Chawla the active role. It is
Hardeep Chawla’s involvement in Sant
Properties and the alleged filing of fraudulent claims that makes up that alleged
predicate act.
	See Amended Complaint, ¶¶ 160-169, 194-202. Hardeep Chawla,
however, is not a defendant as to Count I. Plaintiffs’ attempt to broadly implicate
Ravinder Chawla in bankruptcy fraud fails. As Defendants accurately point out, it is
here where the Amended Complaint is especially vague, collectively joining Ravinder
Chawla with the other individual defendants. The allegations never mention his name
or distinguish his conduct. There is, then, no sufficient allegation of bankruptcy fraud
as to Ravinder Chawla.
The same analysis cannot be employed for either of the money laundering or
counterfeit trafficking charges. For, again, these two predicates require no more than
notice pleading. Plaintiffs need only inform Mr. Chawla generally of how he is supposed
to have committed those acts. As to money laundering, a person is guilty of the
19 (...continued)
wrote was fraudulent.
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offense if he or she:
[ ] knowing that the property involved in a financial
transaction represents the proceeds of some form of
unlawful activity, conducts or attempts to conduct such a
financial transaction which in fact involves the proceeds of
specified unlawful activity-
…
(B) knowing that the transaction is designed in whole or in part
(i) to conceal or disguise the nature, the location, the
source, the ownership or the control of proceeds of specified
unlawful activity ...
18 U.S.C. § 1956(a)(1)(B)(i). The Baggas and the Chawlas are alleged to have
knowingly transferred proceeds from their trafficking in counterfeit goods to each other
as well as to other enterprise members. ¶ 252. As to Ravinder Chawla, it is specifically
alleged that he received $150,000 from the original loan from Captec. That money was
supposed to pay for restaurant equipment and for construction loans. Instead, at least
$1.3 million is alleged to have ended up with a different Bagga company (Brand Trade)
where it was disbursed to Mr. Chawla and others. ¶¶ 50, 54-56. All of this sufficiently
states a claim that Ravinder Chawla engaged in money laundering.
The last racketeering act directed toward Ravinder Chawla is trafficking in
counterfeit goods. 18 U.S.C. § 2320(a) The elements of such a claim include (1)
trafficking or attempting to traffic in goods or services; (2) doing so intentionally; (3)
using a counterfeit mark on or in connection with such goods and services; and (4) with
knowledge that the mark was counterfeit.
	Dolgosheev v. U.S. Cit & Immig. Svs, 2008
WL 2950766 *9 (W.D.Pa.). It is alleged that Mr. Chawla’s company World Apparel and
Mr. Bagga’s company AMCI knowingly sold counterfeit clothing via a mail fraud scheme.
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¶ 251. This is alleged to have occurred in 1999 - 2001. The two companies were sued
for it by Nike and Adidas in October 2000. ¶¶ 82,92. That is the extent of the
allegations in support of the counterfeiting claim. As minimal as these allegations are,
they do inform the Defendant of what he was supposed to have done and that he
knowingly did it. Under a general notice pleading standard, this is enough.
Having found that the Amended Complaint pleads at least two racketeering
activities, the Court turns to the question of whether it was part of a pattern.
What Constitutes a Pattern
for Purposes of RICO?
There is no specific definition of the term “pattern” in the statute. The closest it
comes is in its definition of “pattern of racketeering activity.” That is defined as
at least two acts of racketeering activity, one of which
occurred after the effective date of this chapter and the last
of which occurred within ten years (excluding any period of
imprisonment) after the commission of a prior act of
racketeering activity;
18 U.S.C. § 1961(5). This definition has been held to “state a minimum necessary
condition for the existence” of a “pattern.”
H.J. Inc. v. Northwestern Bell Tel. Co., 492
U.S. 229, 237, 109 S.Ct. 2893, 2899 (1989) The Supreme Court emphasized that
allegations cannot constitute a RICO “pattern” unless they show that the racketeering
predicates are
related, and that they amount to or pose a threat of
continued criminal
activity.”
H.J. Inc., 492 U.S. at 239 );
see also Kehr Packages, Inc. v. Fidelcor, Inc., 926
F.2d 1406, 1417 (3d Cir.1991) (emphasis added) (
citing H.J., Inc., supra to require
RICO plaintiff to plead that predicate acts were related and that they amount to or pose
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the threat of continuing criminal activity to sufficiently allege pattern requirement);
see
also Tabas v. Tabas, 47 F.3d 1280, 1303 (3d Cir.1995) (“Thus, a plaintiff seeking to
bring a RICO claim must allege, among other things, relatedness and continuity”) Both
tests are fact-specific.
	Kehr, supra, id.
Relatedness
The Supreme Court has adopted a broad multi-factor test for relatedness. It
focuses on whether the alleged predicate acts “have the same or similar purposes,
results, participants, victims, or methods of commission, or are interrelated by
distinguishing characteristics and are not isolated events.”
H.J., Inc. at 240, 109 S.Ct. at
2901 (quoting Dangerous Special Offender Sentencing Act, 18 U.S.C. § 3575(e) (1982),
repealed by Sentencing Reform Act of 1984, Pub.L. No. 98-473, tit. II, § 212(a)(2), 98
Stat.1987). 	Does the Amended Complaint allege a nexus among Ravinder Chawla’s
predicate acts?
The Court finds that it does. Mr Chawla and his company World Apparel are
charged with having laundered proceeds from the original Captec loan. ¶¶ 54-56
Similarly, World Apparel is accused of having laundered money made from the sale of
counterfeit clothing. ¶¶ 251-252 While the victims and methods are different
(Captec/FL Trust versus Nike/Adidas; money laundering versus counterfeiting) the
purposes and results are the same: to wrongfully obtain or convert the property of
another.
Continuity
But relatedness of the predicates is only half of what is required. It must also be
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shown that the predicates themselves amount to, or that they otherwise constitute a
threat of,
continuing racketeering activity.
	H.J. Inc., supra, 492 U.S. at 240, 109 S.Ct.
at 2901. In the April 2007 Opinion, this Court discussed the Third Circuit’s
interpretation of the RICO continuity requirement. The Third Circuit explained that the
continuous nature of the pattern could be either open or closed-ended.
	See Kehr
Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1412-13 (3d Cir.1991). In its April 2007
Opinion the Court found only closed-end continuity to have been sufficiently pleaded.
But that ruling applied to a motion filed by
all of the Defendants. Here the Court’s
scope is narrower: the amendment must plead continuity as to the acts of Ravinder
Chawla.
The Amended Complaint alleges generally that the predicate acts are continuous
in that they have extended over more than a three-year period. ¶ 261. Plaintiffs also
see a threat of future racketeering activity — again, stated as to no particular
defendant— given Defendants’ failure to have abated their fraud, repeated diversion
and concealing of assets and general hindrance of recovery efforts.
	Id. ¶ 262. There is
however, nothing specific alleged involving Ravinder Chawla as to ongoing
racketeering. Although the amendment adds a new section entitled “Transfers after
September 2002,” these allegations almost entirely involve the Baggas and
their
companies. ¶¶ 203-220. After that comes another new section entitled “Transfer of
the $6.685 million Judgment in 2006.” It discusses World Apparel’s name change to
World Acquisitions Partners Corp. It goes on to discuss Mr. Bagga’s sale of the $6.685
million judgment to Sant Properties for $1.2 million which would in turn be paid over to
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the Export Import Bank. ¶¶ 221-229. But not only is there no involvement of Ravinder
Chawla in these allegations, the operative facts themselves fail to allege a racketeering
act. Ravinder Chawla’s alleged racketeering, in other words, does not appear (that is to
say, is not sufficiently pled) to extend beyond the money laundering and counterfeiting
discussed above. For this reason, the Court does not find “open-ended” continuity on
Mr. Chawla’s part.
That leaves the Court to determine whether there are alleged predicates to
support a claim of “closed-end” continuity. While there is no indication of
ongoing
fraud, continuity may be demonstrated where what is alleged to have occurred
transpired over a considerable time period. This matters because the Supreme Court
has interpreted continuity in this context as fundamentally a temporal concept.
	H.J.,
Inc., 492 U.S. at 242, 109 S.Ct. at 2902. Continuity, of course, does not necessarily
connote perpetuity and the two dimensions are not to be confused.
Id.; see also Hindes
v. Castle, 937 F.2d 868, 873 (3d Cir. 1991) (“Duration is the sine qua non of
continuity.”) In the instant case, what is alleged are two instances of racketeering
activity. The first in time is the alleged sale of counterfeit clothing over a two year
period. ¶¶ 82, 251. The second involves laundering of some of the proceeds from the
Captec loan to the Bagga Companies. ¶¶ 56, 252. These do not strike the Court as
continuous so much as
episodic. Unlike what is alleged as to the Baggas, what is
alleged as to Ravinder Chawla are particularized, one might say
isolated, occurrences.
There is a “stringing together” of disparate acts here which does not hold up under
scrutiny. In sum, the Court does not find that the amendment alleges the necessary
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“closed-end” continuity.
Causation and
Ravinder Chawla
Even assuming that continuity was sufficiently pled, the Plaintiffs would have to
show that it sustained damages as a result of
Ravinder Chawla’s racketeering. And it is
here that the Court turns specifically to the standing issue upon which the Chawla
Defendants so steadfastly rely. The statute provides that “[a]ny 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 …” 18 U.S.C. § 1964(c)
(emphasis added). To be a “person injured ... by reason of a ... [RICO] violation,” a
plaintiff must allege that his harm was proximately caused by that violation; “but for”
causation is insufficient.
	See Holmes v. SIPC, 503 U.S. 258, 268, 112 S.Ct. 1311, 1317
(1992). What is required, then, is “some direct relationship between the injury asserted
and the injurious conduct alleged.”
Id
As to Ravinder Chawla, the racketeering acts which the amendment implicates
him in are money laundering and selling counterfeit clothing. But the alleged money
laundering occurred at the expense of Captec, while the alleged counterfeiting harmed
Nike and Adidas. Neither of those offenses are the genesis for any resulting damages
which Plaintiffs claim to have suffered. The Trust attempts to set forth a claim of
“hindering and delaying” collection efforts on Ravinder Chawla’s part. This is based in
bankruptcy fraud, but the Court has already found that such a claim fails to implicate
Ravinder Chawla with the degree of specificity required of fraud-based causes of
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action. 20 Thus, even assuming that the amendment sufficiently alleged racketeering on
Ravinder Chawla’s part, there is, nevertheless, no nexus between that alleged conduct
and the harm alleged to be suffered by the Plaintiffs. In sum, the RICO claim against
Ravinder Chawla is legally insufficient.
Count II - Conspiracy
to Violate RICO
The second count of the Amended Complaint alleges a conspiracy to violate the
RICO statute. Unlike Count I, however, it is brought against
all of the Chawla
Defendants. Both Ravinder and Hardeep Chawla, as well as the defendant companies
they control, have moved to dismiss this count. They assert three reasons as to why
this count is insufficient: first, that it fails to allege an underlying RICO violation;
second, that it fails to allege agreement among would-be conspirators; and third, that
it does not allege that Hardeep Chawla, H.B. Properties, Inc. or H.B. Properties, LLP
took part in the conspiracy.
	See Defendants’ Brief, 43-51; Reply Brief, 21-22.
In order to properly address the viability of the count, the Court must first
ascertain that which must be pleaded and with what degree of specificity. Section
1962(d) of RICO makes it unlawful to conspire to violate [section 1962(a), (b), or (c)].
As this Court’s April 2007 Opinion observed, liability under § 1962(d) is governed by the
general principles of conspiracy law.
	See 365 B.R. at 553
citing Smith v. Berg, 247 F.3d
20It also makes moot the Chawla Defendants’ emphasis on the amendment’s new date
from which the Debtor corporations can be considered insolvent. Defendants’ Brief, 6-7; Reply
Brief, 3. That condition simply has nothing to do with whether the Chawlas harmed the Plaintiff
FL Trust.
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532 (3d Cir. 2001) The elements which must
pleaded to allege a RICO conspiracy claim
are (1) an agreement to commit the predicate acts of fraud, and (2) knowledge that
those acts were part of a pattern of racketeering activity conducted in such a way as to
violate § 1962(a), (b), or (c).
	Rose v. Bartle, 871 F.2d 331, 366 (3d Cir.1989)
citing
Odesser v. Continental Bank, 676 F.Supp. 1305, 1312 (E.D.Pa.1987). “[A]llegations of
conspiracy are not measured under the ... [Fed.R.Civ.P.] 9(b) standard, which requires
greater particularity of allegation of fraud, but are measured under the more liberal ...
[Fed.R.Civ.P. 8(a) ] pleading standard.” 676 F.Supp. at 1313. A conspiracy claim must
also contain supportive factual allegations.
	See Black & Yates, Inc. v. Mahogany Ass'n,
Inc., 129 F.2d 227, 231-32 (3d Cir.),
cert. denied, 317 U.S. 672, 63 S.Ct. 76, 87 L.Ed.
539 (1942). The allegations must be sufficient to “describe the general composition of
the conspiracy, some or all of its broad objectives, and the defendant's general role in
that conspiracy.”
	Alfaro v. E.F. Hutton & Co., Inc., 606 F.Supp. 1100, 1117-18. A
conspiracy complaint “must contain sufficient information for the court to determine
whether or not a valid claim for relief has been stated and to enable the opposing side
to prepare an adequate responsive pleading.” Wright & Miller,
Fed. Prac. & Proc. Civ.
3d § 1233. “‘Although mere inferences from the complaint are inadequate to establish
the necessary factual basis’, a court may look to any ‘factual allegations of particular
acts’ within the complaint as a whole incorporated by the conspiracy claim to provide
this basis.”
Rose, supra, 817 F.2d at 366 (citations omitted);
see also Swiggett v. Upper
Merion Twp., 2008 WL 4916039 *3 (E.D.Pa.)
quoting Rose, supra, (“Only allegations of
conspiracy which are particularized, such as those addressing the period of the
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conspiracy, the object of the conspiracy, and certain actions of the alleged conspirators
taken to achieve that purpose, will be deemed sufficient.”)21
Agreement on the Part
of the Chawla Defendants
The Court begins its analysis with a determination of whether it is alleged that
one or more of the Chawla defendants agreed to participate in a conspiracy to commit
predicate acts. Within Count II it is alleged that Mr. and Mrs. Bagga and
Ravinder
Chawla22
agreed to conduct the affairs of the Bagga Chawla Enterprise through a
pattern of racketeering activity. ¶ 265. It is next alleged that
Hardeep Chawla and
each of the entity (“corporate”) Defendants also
agreed with one or more of the Baggas
and Chawlas to violate section 1962(c) …” ¶ 266. That is as specific as the allegations
within Count II get. The preceding allegations (of Count I)—all of which are
incorporated by reference—do not specifically identify an agreement on the part of any
the Chawla Defendants, but that comes as no surprise. “Smoking gun” type of
evidence in this context is rarely present. Hence, the rules of civil procedure do not
require it at the pleading stage. Instead, what is sufficient are allegations of conduct
that allow an inference that acts were done pursuant to an agreement.
As to Ravinder Chawla, the amendment implicates him in money laundering: he
21Although neither party mentions it, nothing about the
Twombly decision changes this
standard. Indeed, the Court sees the rationale of the Third Circuit in
Bartle as consonant with
Twombly. While the conspiracy claim is not required to meet the Rule 9 fraud standard, the
need to provide supporting facts constitutes the “plausibility” and “heft” which the High Court
spoke of in
Twombly.
22Curiously, Hardeep Chawla is not mentioned in this paragraph notwithstanding that the
count is direct at
all defendants.
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is accused of having taken for his own benefit some of the Captec loan proceeds. ¶ 56.
That money was supposed to pay for equipment and to finance construction loans. It
is reasonable to infer that this allegation, taken as true, would not occur without
design. In other words, consent to Mr. Bagga’s defrauding of Captec was implicit. The
same can be said of World Apparel, the company Mr. Chawla owns. It is charged with
trafficking in counterfeit clothing with AMCI, Mr. Bagga’s company. ¶ 82. Again, that is
something that is not undertaken without some planning.
As to Hardeep Chawla, the amendment offers examples of agreement with the
other individual defendants to violate RICO. On behalf of Sant Properties, he tendered
an offer to Captec that would have satisfied what the Bagga companies owed it. The
tender price, however, offered no more than one half of the book value of those
companies. That offer, the amendment explains, was collusive: In particular, it was
never disclosed to the lender that Mr. Bagga and Hardeep Chawla were cousins. By its
very nature, collusion requires some prior understanding. This would apply equally to
the alleged filing of a fraudulent proof of claim in the Welcome Group bankruptcy. Like
Ravinder Chawla’s money laundering and counterfeit goods trafficking, Hardeep
Chawla’s collusion and bankruptcy fraud are sufficiently alleged to have been the result
of a prior understanding.
The same cannot be said, however, with regard to the Defendants HB
Properties, Inc. and HB Properties, LLP. These two corporate defendants are controlled
by Hardeep Chawla. The Chawla Defendants maintain that the Amended Complaint
expressly refers to them but three times. They are identified as defendants; their
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business is described as real estate; and they are said to have been owed money from
the Bagga Companies, which should have been disclosed (but was not) to Captec in the
original loan application. Defendants’ Brief, 49 citing Amended Complaint, ¶¶ 32, 33,
and 43.23 Two other paragraphs mention the HB Defendants along with two non-party
entities referred as HBK Properties and HBF Properties.
	Id. ¶¶ 127(c), 140. Each is
alleged to be one of the HB Entities and each is supposed to have received payments
from other Defendants in the case. There is no explanation, however, of how the
briefly described “conduct” of either of the HB Defendants was culpable. Neither does
the Amended Complaint allege a state of mind suggesting a conspiracy. As a result,
the Court finds that this count fails to state a RICO conspiracy claim against either HB
Properties, Inc. or HB Properties, LLP.
The Required
Mental State
While a RICO violator must have agreed with his co-conspirator, he must also
have known at the time of the conspiracy that he would be engaging in racketeering.
See Rose, supra, 871 F.2d at 367 (noting that conspirator must have knowingly
furthered the enterprise’s affairs). This second element—
mens rea— is what the
amendment must establish as to the individual Chawla Defendants.24 Here, again, the
23For their part, Plaintiffs never respond to this particular argument.
24Although the corporate Defendants are fictitious entities and therefore, possess no
independent knowledge, they are charged with what their fiduciaries know.
See 15 P.S. § 512
(stating that the individual officers are fiduciaries of the corporations they control);
See Romy
v. Burke, 2005 WL 280861 *3 (Pa.Com.Pl) (fiduciaries are agents of their corporation);
Kinney
v. Sun Oil Co., 437 Pa. 80, 90, 262 A.2d 128, 132 (Pa.1970) (explaining that knowledge of a
(continued...)
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specific allegations within the count are conclusory: the “defendants knowingly took
steps in furtherance of the conspiracy” and “knowingly undertook the commission of
acts that did or would … constitute a pattern of racketeering activity.” ¶¶ 267-268. It
is the incorporated allegations which precede this count which shed the only light on
what the Chawla Defendants allegedly knew. These sufficiently allege that deliberate
acts of both Hardeep and Ravinder Chawla were not done without a purpose. By
taking money intended for the Bagga Companies for himself and by selling counterfeit
clothing, Ravinder would perforce know that he was furthering the alleged enterprise.
Likewise, by colluding with a cousin to buy out the lender at a steep discount, and by
filing a fraudulent bankruptcy claim, Hardeep Chawla would likewise know that this
would frustrate FL Trust’s recovery efforts. The required mental state of both individual
Defendants is thus sufficiently alleged.
Injury and the RICO
Conspiracy Claim
Notwithstanding, to survive the same fate that befell the substantive RICO claim,
the Plaintiffs must demonstrate that it was harmed as a result of the conspiracies.
RICO injury must be the proximate result of the racketeering; any harm that is
attenuated or indirect will not suffice. Once again, FL Trust cannot claim that it was
harmed by the money laundering and counterfeit trading of Ravinder Chawla: others
were the victims of those acts. The case is less clear as to Hardeep Chawla’s conduct.
24 (...continued)
corporate agent must be imputed to the corporation).
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Certainly, FL Trust was not harmed by the collusive offer from Sant Properties because
the offer was never accepted. On the other hand, there is arguably damage resulting
from Sant Properties’ alleged fraudulent proof of claim in the Welcome Group
Bankruptcy. The amendment explains that this resulted in no distribution to FL Trust
on its claim in that case. But that premise cannot be taken at face value: no facts are
pleaded which address the possibility that FL Trust would have received nothing in the
case (as the Chawla Defendants maintain) regardless of what Hardeep Chawla might
have done. It must be remembered that the racketeering predicate is based in fraud
(specifically, bankruptcy fraud) so more is required to demonstrate that FL Trust was
harmed by the allegedly groundless proof of claim. Because there is nothing more
offered in that regard,25 the Court finds the amendment fails to sufficiently allege injury.
As a result, the RICO conspiracy claim must be dismissed.
Common Law Fraud
Count IX of the Complaint alleges that Mr. Bagga and Ravinder Chawla are liable
for common law fraud and civil conspiracy to commit fraud.26 The Chawla Defendants
challenge this count on three bases: first that the
conspiracy to defraud claim is stale;
second, that FL Trust lacks standing; and third that the allegations are legally
insufficient.
	See Defendants’ Brief, 51-59. 	The Plaintiffs respond first by relying on
25The docket reflects that the Welcome Group bankruptcy is closed.
See Case # 03-
16369. As to recovery, the Trustee in that case concluded that there would be no distribution
to creditors.
See Docket # 158.
26Previously, the count was limited to fraud.
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the relation back provision of the applicable procedural rule of amendment. Second,
they rely on proof that the underlying fraud claim was assigned to the Plaintiff Trust by
Captec. Third, they specifically refute the Defendants’ premise that the Plaintiffs’
allegation implicating Ravinder Chawla in the fraud is made upon information and
belief. Plaintiffs’ Brief, 45-50.
Is the Conspiracy
Claim Time-Barred?
Defendants’ limitations argument is based on 42 P.S. § 5524(7). That statute
provides for a two-year statute of limitations for tort claims such as fraud. Case law
has expanded that universe of claims to include conspiracy to commit those torts.
Parker v. Learn the Skills Corp., 2006 WL 2228867 (E.D.Pa.);
Cavalier Clothes, Inc. v.
Major Coat Co., 1991 WL 125179 *3 (E.D.Pa. 1991) If there were nothing more to it
than that, disposition of the matter would be simple: The conspiracy to defraud claim
was filed in 2008, which is more than two years after the cause of action is said to have
accrued. As a result the claim would be out of time.
But Plaintiffs rely on the rule of procedure which allows an otherwise untimely
amendment to relate back to one which was filed within the limitations period: “An
amendment to a pleading relates back to the date of the original pleading when: … (B)
the amendment asserts a claim or defense that arose out of the conduct, transaction,
or occurrence set out--or attempted to be set out--in the original pleading.” F.R.C.P.
15(c)(1)(B). The Third Circuit has held that an amended complaint relates back when
the “amendments ... restate the original claim with greater particularity or amplify the
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factual circumstances surrounding the pertinent conduct, transaction or occurrence in
the preceding pleading .... In essence, application of Rule 15(c) involves a search for a
common core of operative facts in the two pleadings.”
General Motors Corp v.
Schneider Logistics, Inc., 2008 WL 2785861 *5 (E.D.Pa.)
quoting Bensel v. Allied Pilots
Ass’n., 387 F.3d 298, 310 (3d Cir.2004). When determining whether a common core of
operative facts exists, the court looks at “whether the opposing party has had fair
notice of the general fact situation and legal theory upon which the amending party
proceeds.”
Id. (citing
Michelsen v. Penney, 135 F.2d 409, 416-17 (2d Cir.1943)).
Here, it would be disingenuous of Ravinder Chawla to maintain that the original
fraud claim did not already inform him of what might be involved in a conspiracy to
commit fraud count. The latter is derivative of the former. All that is added is the
agreement to defraud. Given that this count was previously brought against both Mr.
Chawla and Mr. Bagga some cooperation between the two bordering on agreement
must be assumed. In other words, Ravinder Chawla is hard put to argue that he is the
victim of unfair surprise in being subjected to the conspiracy amendment. The Court
thus rejects this argument.
Plaintiffs’ Standing
and the Fraud Claim
Defendant’s next challenge to the fraud claim is that the Plaintiffs lack standing.
Defendants rely here on the Court’s February 2008 ruling which granted partial
summary judgment in the Chawla Defendants’ favor as to Counts I and II of the
original complaint. As explained,
supra, that ruling held that the Plaintiff FL Trust
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lacked standing to raise RICO causes of action. The corollary to this ruling, Defendants
say, is that the Plaintiffs lack standing to raise
any legal claim—other than
contract—against them. Chawla Defendants’ Brief, 54-55. They point to New York
case law—controlling in this instance—which requires fraud-based claims to have been
expressly assigned before an assignee may sue on them.
	Id., 55. Plaintiffs respond
that this Court has already found that evidence in the record supports the fraud and
conspiracy to defraud claims against Ravinder Chawla. Plaintiffs’ Brief, 48, citing ruling
denying reconsideration on partial summary judgment and granting leave to amend,
392 B.R. 169-170.
While the Court’s February 2008 finding that Captec did not assign any legal
claims disposed of the pending RICO claims, that determination did not automatically
eliminate the fraud count. This was something which the Court acknowledged (and the
only thing it intended to acknowledge) when it granted leave to amend in April 2008.
As a result, it was incumbent upon FL Trust to amend its pleading to state that legal
claims
had, in fact, been assigned; otherwise, the fraud claim would perforce share the
fate of the RICO counts (i.e., dismissal). This Court has closely reviewed the Amended
Complaint to confirm how the pleading has been altered in this respect. Nowhere does
the amended pleading state that Captec intended to assign its legal claims, along with
the loans, to FL Trust in September 2002. There is reference made to the assignment
as well as the operative documents (
see, e.g., ¶¶ 8-10), but it is not alleged that legal
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claims were part of the bargain.27 Given the Court’s previous ruling regarding the
limited extent of what was assigned in September 2002, the matter is settled and will
not be revisited here. The implication of this for FL Trust is that, just like the RICO
claims, there is no discernible standing on its part to make out a claim of common law
fraud based on conduct which preceded the assignment. Conversely, where allegations
of the Amended Complaint sufficiently make out a fraud claim for conduct which post-
date the assignment, then such claims (but only such claims) will survive.
Substance of the Fraud
and Conspiracy Claims
as to Ravinder Chawla
Turning to the legal sufficiency of such claims, the Court observes that the fraud
and conspiracy to defraud claims are leveled against both Mr. Bagga and Ravinder
Chawla. While the count consists of eleven paragraphs, Mr. Chawla’s name does not
appear until the tenth. There, it is alleged that he “agreed” with Mr. Bagga to
fraudulently induce Captec to extend loans; that he provided the false invoices from
SJM Trading 28 upon which the loans were based; that he caused SJM to endorse the
checks from Captec; and that he accepted the proceeds of those loans. 	¶ 313. All of
this, however, involves conduct which predates the September 2002 assignment. In
27This is curious given that FL Trust made an offer of proof in its Motion for Leave to
Amend that Captec, indeed, intended all along to assign its legal claims to the Plaintiff Trust.
See 392 B.R. at 169. For whatever reason, the Amended Complaint never alleges Captec’s
intention to have assigned legal claims, or that it did so. And the Plaintiff Trust, of course,
never commenced appropriate legal proceedings to “reform” its transaction documents
consistent with the contentions it has made concerning them.
28The loans were purportedly obtained to finance the purchase of equipment for Mr.
Bagga’s restaurants. The SJM invoices would have listed the equipment to be purchased.
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other words, it was still Captec who was the victim of that artifice. As a result, and for
all of the reasons this Court has by now repeatedly articulated, Plaintiffs lack standing
to press this claim.
For the same reasons, the conspiracy to commit fraud claim also fails. To
reiterate, civil conspiracy requires “(1) a combination of two or more persons acting
with a common purpose to do an unlawful act or to do a lawful act by unlawful means
or for an unlawful purpose; (2) an overt act done in pursuance of the common
purpose; and (3) actual legal damage.”
Chantilly Farms, Inc. v. W. Pikeland Twp., 2001
WL 290645 *13 (E.D.Pa.) (quoting
Smith v. Wagner, 403 Pa.Super. 316, 322-23, 588
A.2d 1308, 1311-12 (Pa.Super.1991));
see also Lum v. Bank of America, 361 F.3d 217,
228 (3d Cir.2004) (explaining that conspiracy to commit fraud is subject to Rule 9(b)”)
It is now alleged that Ravinder Chawla “agreed with Pratpal Bagga to fraudulently
induce the Loans, including the Equipment Loans to Bagga Enterprises.” ¶ 313. He is
also alleged to have “provided the falsified SJM invoices and caused SJM to endorse the
Equipment loan checks to Brand Trade.”
	Id. Finally, he is charged with having
“accepted proceeds of the Equipment Loans.”
	Id. Like the fraud claim, all of this
conduct precedes the assignment from Captec thereby precluding FL Trust’s right to
sue on it.
Aiding and Abetting a
Breach of Fiduciary Duty
Count XIV charges all of the defendants with aiding and abetting breaches of
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fiduciary duties.29 The Chawla Defendants argue that this count fails for three main
reasons: first, there is no underlying duty that was breached; second, it is not alleged
that either Ravinder Chawla or Hardeep Chawla assisted or encouraged a breach; and
third, the claim is otherwise time-barred. Defendants’ Brief, 59-65.
To establish the claim in question, a plaintiff must show: (1) a breach of
fiduciary duty owed to another; (2) knowledge of the breach by the aider or abettor;
and (3) substantial assistance or encouragement by the aider or abettor in effecting
that breach.
	Adena,
Inc. v. Cohn, 162 F.Supp.2d 351, 357-358 (E.D.Pa.2001). As a
breach of fiduciary claim is subject to a notice pleading standard,
see In re Total
Containment, 335 B.R. 589, 611 (Bankr.E.D.Pa.), that standard will similarly govern a
claim that one aided and abetted another breaching such duty.
Timeliness of the
Aiding/ Abetting Claim
The Chawla Defendants final challenge to Count XIV will be taken up first. It is
that the claim is stale. Like the conspiracy to defraud count, they posit, a two year
limitations period applies. Defendants’ Brief, 65. That period has long since expired
they conclude.
	Id. In the same way, Plaintiffs raise yet again Rule 15's relation back
provision in response. They point out that the acts which support aiding and abetting
were first set forth in the District Court complaint. Plaintiffs’ Brief, 52. Attached to
29The Court’s April 2007 Opinion held that as a matter of law this cause of action would
be recognized by the Third Circuit. 365 B.R. at 573. That explains the Chawla Defendants’
statement of their opposition to this count in the subjunctive: even if this states a cognizable
legal claim, the Plaintiffs have failed to plead the requisite elements.
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their Brief is a copy of that Complaint (Ex. 26). They cite from it four paragraphs which
they say appear essentially unchanged in this amendment. From that they conclude
that the Chawlas have been apprised of these allegations all along.
The Court is in agreement with the Plaintiffs. While only one of the four
paragraphs from the District Court complaint resembles what is now alleged to support
aiding and abetting (the “surreptitious movement of cash” around the Bagga/Chawla
Enterprise), that one example is the alleged Bagga/Chawla Enterprise in a nutshell: it
borrowed money for a stated purpose, used the money for other reasons with no
intention of paying it back, and frustrated every attempt at collection. 	This is the
factual basis of the RICO claims, as well as those which follow. Any claim of surprise
by the Chawla Defendants with regard to these allegations is totally disingenuous.
What Underlying
Duty Existed?
The Chawla Defendants’ first substantive argument is broken down into two sub-
parts: First, it is argued that because the Bagga companies were closely-held, there
existed no duty between Mr. Bagga30 and his corporations. Plaintiffs offer no response
to the first argument and the Court, having found it well supported by the Chawla’s
Defendants’ cited authority, considers it well made. Second—and it is on this point that
the parties contend— Mr. Bagga owed no fiduciary duty to creditors
before his
corporations became insolvent.
30The April 2007 Opinion found that only Mr. Bagga was a an officer or director of the
Debtor corporations. 365 B.R. 570-571. The amendment states the same.
See ¶¶ 13-15.
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Question of
Insolvency
The parties do agree on the legal premise of the second point: The duty
between a corporation’s owners and creditors arises upon insolvency of the corporation.
Defendants’ Brief, 63; Plaintiffs’ Brief, 50. Where they disagree is on the point in time
at which the Debtor corporations became insolvent. Plaintiffs see insolvency as early as
2000. ¶¶ 288-290. Within Count IV (Fraudulent Transfer) there are a number of
alleged instances of the Baggas diverting cash from the corporations thereby
compromising their financial state.
	Id. ¶ 293. For their part, Defendants identify a
number of allegations which demonstrate financial soundness until early 2003.
Profitability may be inferred for 2000 based on what is alleged in ¶ 59. Similarly, it is
alleged that in misrepresenting the ability to repay Captec, Mr. Bagga hid the fact that
his companies were profitable during the years 2000-2002.
	Id. ¶ 62. It is also alleged
that but for the diversion of funds in December 2002, the Bagga Companies could have
serviced the Captec loan. ¶ 76 Finally, it is alleged that while these entities “had
sufficient assets to pay their legitimate debts, Mr. Bagga refused to direct them to do
so.”
	Id. ¶ 78. These being the Plaintiffs’ own allegations, they circumscribe the time
period for which the Court may infer that the Bagga Companies were insolvent: to wit,
late 2002/early 2003 and thereafter. Mr. Bagga’s duty as a fiduciary
to the creditors of
his companies arose during that time-period.
Underlying Fiduciary Breaches
Before determining if the amendment pleads aiding and abetting on the part of
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the Chawlas, the Court must first ascertain whether it pleads
misconduct which was, in
fact,
aided and abetted. The three counts which precede Count XIV plead examples of
fiduciary mis- or malfeasance: Self-Dealing (Count XI), Failure to Preserve Entity
Property (Count XII), and Deepening Insolvency (Count XIII) Of those three counts, it
is only Count XII which alleges a fiduciary failing which implicates the Chawlas and it
does so only in general terms. There, the Baggas are supposed to have “transferred
funds to the Chawlas or the Chawla Companies” and to have “failed to collect funds
from the Chawlas or the Chawla Companies.” ¶ 331. That is as specific as the
allegations within the count get: there is no mention of when these transfers were
made or in what amount. Likewise, as to the uncollected debt owed the Baggas, there
are no circumstance setting forth when the debt was incurred, the nature of the debt,
or the amount of such debt. That information, to the extent it exists, is found in the
paragraphs which precede this count.
The second example of alleged aiding and abetting on the Chawlas part (failure
to collect funds) can be disposed of first. It is alleged that this was part of the Bagga’s
decision not to “collect funds from the Chawlas.” What exactly the Plaintiffs are
referring to here is hard to discern. The Court observes that the pleading contains a
heading titled “December 2000 Loans to the Chawlas.” ¶¶ 82-92. That conduct
predates the insolvency period and so it is seemingly irrelevant. Likewise, there is an
allegation that AMCI (Mr. Bagga’s company) never pressed World Apparel (Mr. Chawla’s
company) for payment, but AMCI is not one of the Debtor corporations so that, too,
would not appear relevant.
	See Amended Complaint, ¶ 39(i). The Plaintiffs are entitled
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to liberal notice pleading. On the other hand, a pleading as large as this one must be
sufficiently structured to adequately inform a defendant of what the actionable conduct
was.
	See Horn v. Lee, 2008 WL 345888 *1 (W.D.Va.) (explaining that Rule 8 does not
require “[t]he Court to pore through a scattershot complaint in search of a claim”)
Transfers to the Chawlas
While Debtors Insolvent
The Plaintiffs fare better in alleging that the Baggas were transferring funds to
the Chawlas while the Debtor corporations were insolvent.31 The first allegation that
Mr. Bagga or his companies made transfers to either of the Chawla or their companies
during that time period is found in the section titled Concealment and Diversion of
Assets. ¶¶ 142-144. It begins with Mr. Bagga’s skimming of cash receipts from his
restaurants and distributing them to the Chawlas and others.
	Id. This is alleged to
have been going on through mid-2003.
	Id. A second example of payments to the
Chawlas during this time period was added by the amendment. The heading is titled
“Transfers after September 2002.” It explains that following the assignment of the
Captec loan to FLTrust, the Baggas continued to transfer funds of the Debtors and
other Bagga Companies to themselves and the Chawlas at the expense of creditors,
including FL Trust.” ¶ 203. Specifically, it is alleged that on November 5, 2002, United
31Again, because it is a
creditor who claims to be harmed by a fiduciary’s breach, the
misconduct must either (i) have rendered the Debtor corporations insolvent or (ii) occurred
when the Debtor corporations were already insolvent. The Court has already identified the
approximate date of insolvency as being at the end of 2002 or the beginning of 2003, and
continuing thereafter. For any alleged transfers to the Chawlas to be actionable, then, they
must have occurred during that time.
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issued a check to Sant Properties for $16,000 and that on December 16, 2002, United
issued another check to Sant Properties for $119,000. ¶¶ 204-05. That is the extent of
the allegations going to the Chawla Defendants receiving transfers from the Bagga
entities during late 2002 and thereafter.32 While not overwhelming, these allegations
clearly suffice for purposes of alleging that the Bagga companies breached a fiduciary
duty to their creditors.
Elements of
Aiding or Abetting
But that finding takes the claim only part of the way: to survive dismissal, Count
XIV must describe how any one of the Chawla Defendants is supposed to have “aided
or abetted” these breaches. To reiterate, this requires the pleading of two elements:
first, that they knew of the fiduciary duty which the Baggas owed; and second, that
they substantially assisted or at least encouraged the Baggas in violating that
responsibility. The required mental state is straightforward enough. What constitutes
“substantial assistance and encouragement” is not. Those terms have not been
specifically defined by Pennsylvania courts in this context. However, in an analogous
context, they have been. Pennsylvania law recognizes the tort of “concert of action.”
Charan Trading Corp. v. Uni-Marts, LLC (In re Uni-Marts, LLC), 2009 WL 81873 *8
(Bankr.D.Del.) It derives from the Restatement of Torts and provides:
For harm resulting to a third person from the tortious
conduct of another, one is subject to liability if he
32That is not to say that the amendment does not allege other transfers to the Chawlas.
It does, but those other transfers predate the period of insolvency.
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(a) does a tortious act in concert with the other or pursuant
to a common design with him, or
(b)
knows that the other's conduct constitutes a breach of
duty and gives substantial assistance or encouragement to
the other so to conduct himself, or
(c) gives substantial assistance to the other in accomplishing
a tortious result and his own conduct, separately considered,
constitutes a breach of duty to the third person.
Restatement (Second) of Torts § 876 (emphasis added). This is useful for present
purposes because it has as its elements (knowledge, substantial assistance or
encouragement) the same two found in aiding and abetting a fiduciary breach. The
Comment to Clause (b) of § 876 provides that “[i]f the encouragement or assistance is
a substantial factor in causing the resulting tort, the one giving it is himself a tortfeasor
and is responsible for the consequences of the other’s act.” This has been interpreted
to mean that the aid must “proximately cause the violation.”
	Aetna Cas. and Sur. Co.
v. Leahey Constr., Co., 219 F.3d 519, 537 (6th Cir. 2000) The Court finds these
interpretations reasonable and will employ them to assess the sufficiency of what this
count alleges.
Allegations of
Aiding or Abetting
As to knowledge, it is alleged that “[t]hose Individual Defendants who did not
breach their own fiduciary duty had knowledge of the breaches of fiduciary duties by
other Individual Defendants.” Similarly, “the individual Defendants who did not breach
their own fiduciary duty provided substantial assistance or encouragement to the
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Individual Defendants” who did. ¶ 338, 339. For the Chawla Defendants, this is all
rather vague. They argue that the count fails to inform at even the most basic level.
Defendants’ Brief, 64-65. The Court is inclined to agree. From this “catch-all” style of
pleading, neither of the Chawlas can determine who is charged with the breaching of
fiduciary duties and who is guilty of aiding and abetting such breaches. This matters
because, by definition, a defendant cannot both “breach” and “aid/abet” a breach in the
same instance. Considering the volume of pleading preceding this count, it is not
unreasonable to require the Plaintiffs to inform each Defendant of his role in this count
and by now with some precision. Inferences can be made from what is pleaded before
the count, but they take the Defendants only so far. The Chawla Defendants are
entitled to know how each of them is alleged to have assisted in a breach of fiduciary
duties.
	Cf Sovereign Bank v. Valentino, 914 A.2d 415, 422 (Pa.Super.2006) (holding
that a claim of concerted action cannot be established if the plaintiff is unable to
identify the wrongdoer
or the person who acted in concert with the wrongdoer);
see
also Nelson v. DeVry, Inc., 2008 WL 2845300 *4 (E.D.Pa.) (dismissing concert of action
count where allegations lacked any description of how assistance was rendered) For
that reason, this Count will be dismissed.
John Doe Defendants
The Chawla Defendants’ last objection is to the continued inclusion of as yet
unnamed and undiscovered defendants to this litigation. Defendants’ Brief, 65-66.
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Plaintiff makes no response to this argument. 	Although F.R.C.P. 10(a)33 requires that a
complaint name each defendant, the use of fictitious parties is an acceptable practice
until reasonable discovery permits the naming of the actual parties.
	Scheetz v. Morning
Call, Inc., 130 F.R.D. 34, 36-37 (E.D.Pa.1990). Fictitious parties, however, must be
dismissed if discovery does not yield their identities.
	Brown v. New Hanover Township,
2008 WL 4306760 *6 (E.D.Pa.)
In this case, a great deal of discovery has already been undertaken. There
nevertheless exists the real possibility that more will be need. Before the Court is an
amended pleading which is being challenged for legal sufficiency. At the hearing on
the Chawla Defendants’ Motion to Dismiss the Amended Complaint, their counsel
explained that he would not be in a position to know if further discovery was needed
until he knew which claims survived his challenge.
	See Transcript of Hearing,
December 4, 2008, 24-32. The Court finds that point to be well-made and, for that
reason, concludes that any dismissal of unnamed defendants would be premature at
this juncture.
Summary
To reiterate, after careful review of all of the various challenges to the Amended
Complaint, the Court concludes that Count I fails to state a RICO claim against Ravinder
Chawla; that Count II fails to state a RICO conspiracy claim against either Ravinder
Chawla, Hardeep Chawla or the corporations they control; that Count IX fails to state a
33Made applicable to adversary proceedings by B.R. 7010.
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claim of either fraud or conspiracy to commit fraud as to Ravinder Chawla; and that
Count XIV fails to state a claim as to any of the Chawla Defendants. As a consequence,
the dismissal motion will be granted in its entirety.
An appropriate Order follows.
By the Court:
_________________________________
Stephen Raslavich
Chief, United States Bankruptcy Judge
Dated: 	March 5, 2009
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I N THE UNITED S TATES B ANKRUPTCY C OURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
IN RE 	: C HAPTER 7
:
J AMUNA R EAL ESTATE , LLC 	: B ANKRUPTCY NO. 04-37130
UNITED MANAGEMENT SERVICES, INC . 	: B ANKRUPTCY NO. 04-37132
B AGGA ENTERPRISES, INC . 	: B ANKRUPTCY NO. 04-37136
D EBTOR(S) 	:
:
MARVIN KRASNY, IN H IS C APACITY AS C HAPTER 7 	:
T RUSTEE OF UNITED MANAGEMENT SERVICES, INC .; 	:
MARVIN KRASNY, IN H IS C APACITY AS C HAPTER 7 	:
T RUSTEE OF J AMUNA R EAL ESTATE LLC; 	:
GARY SEITZ , IN H IS C APACITY AS C HAPTER 7 	:
T RUSTEE OF B AGGA ENTERPRISES, INC ., 	:
WILMINGTON T RUST C OMPANY IN ITS C APACITY AS 	:
OWNER T RUSTEE OF F L R ECEIVABLES T RUST 	:
2002-A AND F L R ECEIVABLES T RUST 2002-A :
PLAINTIFFS 	:
VS. 	:
PRATPAL B AGGA ; KHUSHVINDER B AGGA ; 	:
R AVINDER C HAWLA ; H ARDEEP C HAWLA ; 	:
WELCOME GROUP, INC .; K&P R EAL ESTATE LLC; 	:
WORLD A PPAREL PRODUCTS, INC . D / B/ A / SJM 	:
T RADING C OMPANY, D / B/ A T EN T IGERS; A MERICAN 	:
MERCHANDISE C O., INC ., A / K / A A MERICAN 	:
MERCHANDISING C O.,INC .; 21ST C ENTURY 	:
R ESTAURANT SOLUTIONS, INC .; B RAND T RADE , INC .; 	:
H.B. PROPERTIES, INC .; H.B. PROPERTIES LLP; 	:
SANT PROPERTIES; J OHN AND J ANE D OES AND 	:
ABC C OMPANIES 	:
D EFENDANTS 	: A DVS NOS. 06-128, 06-129, 06-130
ORDER
AND NOW, upon consideration of the Motion of Ravinder Chawla, Hardeep
Chawla, World Apparel Products, Inc., Sant Properties, HB Properties, Inc., and HB
Properties, LLP (the “Chawla Defendants”) to dismiss the Plaintiffs’ Amended Complaint,
the Plaintiffs’ Response thereto, the parties’ briefs, after a hearing held December 4,
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2008, and for the reasons set forth in the preceding Opinion, it is hereby:
ORDERED , that the Chawla Defendants’ Motion is granted in its entirety and all
counts of the Amended Complaint which are directed at them are dismissed.
By the Court:
Stephen Raslavich
Dated: March 5, 2009 	Chief, United States Bankruptcy Judge
2
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Interested Parties:
George Conway, Esquire
Office Of The U.S. Trustee
833 Chestnut Street
Suite 500
Philadelphia PA 19106
Counsel for Plaintiffs
Lawrence J. Tabas, Esquire
Richard P. Limburg, Esquire
OBERMAYER REBMANN MAXWELL
& HIPPEL LLP
One Penn Center, 19th Floor
1617 John F. Kennedy Blvd
Philadelphia, PA 19103
Patrick E. Fitzmaurice, Esquire
THATCHER PROFFITT & WOOD LLP
Two World Financial Center
New York, NY 10281
Nicholas M. Centrella, Esquire
CONRAD O’BRIEN GELLMAN & ROHN, PC
1515 Market Street, 16 th Floor
Philadelphia, PA 19102
Counsel for Chawla Defendants
Paul C. Madden, Esquire
Richard M. Simins, Esquire
Jeffrey Carbino, Esqurie
BUCHANAN INGERSOLL & ROONEY
1835 Market Street, 14 th Floor
Philadelphia, PA 19103-2985
Counsel for Pratpal Bagga
Mark B. Frost, Esquire
FROST & ZEFF
Pier 5 at Penn’s Landing
Philadelphia, PA 19106
Andrew Teitelman, Esquire
LAW OFFICE OF ANDREW TEITELMAN
3103 Philmont Avenue, Ste 301
Huntingdon Valley, PA 19006
3
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