LAUREL M. ISICOFF, Bankruptcy Judge.
This matter came before the Court on October 3, 2012 and February 27, 2013
This case, at least as the story has been told to date, is about a soured business relationship between a private funding source (albeit using various financing vehicles) and a group of business people and companies this group created, either separately or together, to create a casino and lottery enterprise in Jamaica. The basis of this dispute is three of the deals that have left the funding source unsatisfied. Two of the disputes relate to loans, one not repaid, and one not repaid in full. The third dispute involves the equity piece of a loan, which equity the funding source did not ultimately obtain. Litigation about these three disputes has already taken place in Jamaica, New York, and Miami.
The Plaintiffs now seek to turn this soured business relationship into conspiracies, criminal enterprises allegedly masterminded by the Debtor — Gerard Mouttet. However, in 801 paragraphs and 290 pages, the Plaintiffs have failed to successfully plead their case, and this Complaint, at least, must be dismissed.
In 2002 a group of individuals decided to bring the lottery to Jamaica. Ian Levy ("Levy"), Paul Hoo ("Hoo"), Peter Stewart, Gerry Mouttet ("Mouttet"), and members of the Mouttet family negotiated with Epsilon Global Master Fund L.P. ("Epsilon Global") and Epsilon Global Master Fund II, L.P. ("Epsilon Global II"), two of the assignors of Talisman Capital Alternative Investments Fund, Ltd. ("Talisman"), for a $30 million loan in order for Supreme Ventures Limited ("SVL") to obtain a lottery and gaming license in Jamaica. The loan was structured through a related entity, Atlantic Marketing Services Limited ("Atlantic") — $29.5 million was paid to Atlantic and $500,000 was paid directly to SVL. The Atlantic $29.5 million loan (the "29.5 Million Loan") was secured by a lien on the marketing service fees paid by SVL to Atlantic and was to mature in 2005. Atlantic was owned by the Debtor and various other persons. SVL was owned by Levy, Hoo, and Peter Stewart.
At the same time, Epsilon Global Equities Limited n/k/a EGE Ltd. ("EGE") entered into a Forward Share Sale Agreement (the "FSSA") with SVL, Hoo, Peter Stewart, and Levy. Pursuant to the FSSA, EGE had a future right to purchase up to 17% of the shares in SVL. EGE never received the SVL stock. In 2007, EGE sued Hoo, Levy, SVL, Janette Stewart (as the administratix of the estate of Peter Stewart) ("Stewart"), and Martyn Veira in a Jamaican court alleging that EGE was the owner of SVL stock and the dividends associated with that stock. The Jamaican court ruled against EGE, holding that EGE "failed to surrender the Transfer of Shares documents for registration of its shares or tender the $1 per share on the Acquisition Date as required by the Agreements" and that by its failure to comply with the FSSA, the agreement was discharged. A final judgment was entered
Between 2003 and 2005, Epsilon Global, Epsilon Global II, and Westford Special Situations Master Fund L.P. ("Westford," together with Epsilon Global and Epsilon Global II, the "Original Lenders") made three additional loans: a $8,415 million dollar loan to SVL in 2003 for SVL to buy out a competitor, a $2.27 million loan to Atlantic in 2004 for SVL to expand into Central America, and a $3.25 million loan to SVL in 2005 for SVL to buy a video gaming lounge operator (the "Repaid Loans").
The Complaint alleges that in 2005 certain of the defendants named in the Complaint as the "Federal RICO Defendants"
Additionally, in 2007, Westford lent Supreme Gaming Corporation Worldwide ("SGCW") $13.6 million to pursue the expansion of a lottery business in Central America (the "$13.6 Million Loan"); this loan was also guaranteed by the Debtor (the "Second Guarantee"). The $13.6 Million Loan was never repaid. The Complaint alleges that, unbeknownst to the Plaintiffs, between 2006 and 2007, SVL and Mouttet sought and obtained $16.5 million in additional financing from Thomas J. Petters, pledging SVL stock as collateral for the loan (the "Petters Loan"). The Complaint alleges the SVL Stock pledged to secure the Petters Loan was supposed to have been used to obtain the traditional bank loan to pay off the balance of the $29.5 Million Loan.
In 2009, the $29.5 Million Loan and the $13.6 Million Loan were assigned to Talisman.
The Plaintiffs filed this 24 count Complaint on August 19, 2012. The Complaint names 31 defendants,
On January 2, 2013 the District Court entered its Order on Motion to Withdraw Reference (ECF #199) in which the District Court agreed that this Court does not have subject matter jurisdiction over the Federal RICO claims. The District Court severed Counts I-XVIII of the Complaint (the "Severed Claims") and withdrew the reference as to the Severed Claims only. The District Court denied the Motion to Withdraw Reference with respect to the Core Claims. Nonetheless, the District Court referred the Severed Counts back to this Court "for proposed findings of fact and conclusions of law as to all case-dispositive motions, as well as for final disposition of all non-dispositive motions...."
Although, with respect to the Severed Counts, this Court proposes the District Court affirm its prior order that this Court does not have subject matter jurisdiction, and that, therefore, Counts I-XVIII must be dismissed without prejudice in order for the Plaintiffs to refile a complaint in the District Court, this Court will nonetheless address the other issues raised by the defendants because (a) the District Court may not accept this Court's proposal regarding subject matter jurisdiction and (b) many of the issues relate to the Core Counts, either directly or indirectly.
Bankruptcy jurisdiction is set forth in 28 U.S.C. § 1334.
This Court has previously held that a proceeding is also related to the bankruptcy case when it is appropriate for the Bankruptcy Court to exercise supplemental jurisdiction pursuant to 28 U.S.C. § 1367.
In the Southern District of Florida, like every other federal district in the country, all bankruptcy cases have been referred to the Bankruptcy Court and thus, in general, bankruptcy jurisdiction is exercised by the Bankruptcy Court. Nonetheless, parties may ask that all or part of a bankruptcy case, or an adversary proceeding filed in the bankruptcy case, be adjudicated by the District Court, which request is effectuated by a motion to withdraw the reference.
Because the District Court held that this Court does not have subject matter jurisdiction over the Federal RICO claims, the defendants argue, this Court has no choice but to dismiss the Severed Counts. The Plaintiffs argue that their statement in the Motion to Withdraw Reference that this Court does not have subject matter jurisdiction was "inartful," and what they really meant was this Court does not have jurisdiction to enter a final judgment on the Severed Counts. Moreover, Plaintiffs argue, this must be what the District Court meant as well, since the District Court referred the entire Complaint, not just the Core Counts, back to this Court.
The inability to render a final judgment on a matter is not the same as lacking subject matter jurisdiction.
However, if, in fact, the District Court "meant" that the only issue it decided was this Court's inability to enter a final judgment on all counts of the Complaint, and intended for this Court to determine whether and to what extent the
The Plaintiffs concede that related-to jurisdiction rises and falls on the conspiracy and RICO claims. Based on those counts, the Plaintiffs argue that the resolution of this Complaint will have an impact on the bankruptcy estate such that the Severed Counts are related to the Core Counts, because whatever the Plaintiffs can collect from other defendants, the Plaintiffs will not need to claim from the Debtor or his bankruptcy estate.
Accordingly, the Severed Counts should be dismissed for lack of subject matter jurisdiction.
SVL, Brian George, Atlantic, Haven, Atlantic Consultants, AmeriServices, Peninsula, St. Georges, Flying Fish, SGL, SGCW, Ian Levy, John G. Graham, Stewart (collectively the "Foreign Defendants"), and each of the Relief Defendants argue that the Plaintiffs have failed to adequately allege personal jurisdiction such that any relief can be sought against them in a Florida court. The Plaintiffs assert personal jurisdiction over the Foreign Defendants on the basis that they are each co-conspirators and part of one or more of the alleged criminal enterprises described in the Complaint. Because the Complaint fails in its description and allegations of either conspiracy or enterprise, the Plaintiff's reliance on either for purposes of asserting personal jurisdiction fails as well. This Court has already urged the Plaintiffs, when repleading these claims, to clearly and concisely describe that which is required to meet threshold allegations of personal jurisdiction, such that the reviewing court may better understand the basis upon which personal jurisdiction is asserted and so that each of these defendants may respond appropriately.
The Plaintiffs argue in their response that they are not required to plead jurisdiction over the Relief Defendants. While this Court does not agree with that assertion, certainly not in the absolutist manner suggested by the Plaintiffs, this Court finds, as more fully addressed below, the claims against the Relief Defendants should be dismissed with prejudice, and therefore it is not necessary to address the jurisdictional arguments the Plaintiffs have advocated with respect to the Relief Defendants.
Thus, the motions to dismiss that raise lack of personal jurisdiction are granted.
Talisman lacks standing to bring any action arising under Florida RICO, Federal RICO, or the conspiracy claims associated with those actions. Although the defendants concede that RICO claims can be assigned, the Plaintiffs and the defendants all agree that the assignment of such claims must be specific. The Complaint does not include any allegations that the RICO claims were assigned by the Original Lenders to Talisman. Talisman tried to fix this omission in a subsequent affidavit (ECF #134 Ex. A) filed with its Response, however, pleading infirmities in a complaint cannot be "filled in" by a subsequent affidavit.
All of the claims relating to EGE's assertion of an ownership right to, or interest in, the SVL stock and the dividends derived therefrom are barred by res judicata with respect to Levy, Stewart, Hoo, and SVL and barred by collateral estoppel with respect to the other parties to the Complaint against whom EGE seeks such relief. This Court finds that the Jamaican Judgment shall be given full comity and recognition and, accordingly, the EGE claims that are part of the Severed Counts are barred and should be dismissed with prejudice.
In Hilton v. Guyot, 159 U.S. 113, 16 S.Ct. 139, 40 L.Ed. 95 (1895) ("Hilton") the Supreme Court issued what has been described as the seminal decision on comity. The Supreme Court described comity "neither as a matter of absolute obligation, on the one hand, nor of mere courtesy and good will upon the other but it is the recognition which one nation allows within
Thus, to determine whether comity is appropriate, this Court must evaluate:
Ungaro-Benages v. Dresdner Bank AG, 379 F.3d 1227, 1238 (11th Cir.2004). Other courts have recognized that Jamaican courts use "proceedings consistent with civilized jurisprudence." See, e.g., In re Blackwell, 270 B.R. 814, 823 (Bankr. W.D.Tex.2001) ("Jamaica and the Cayman Islands are part of the Commonwealth Caribbean, whose legal systems derive from those of Great Britain," and, "[j]ust as U.S. courts traditionally extend comity to the decisions of Great Britain, the courts traditionally extend the same courtesy to the courts of [the Commonwealth Caribbean]."). Moreover, EGE never argues that the Jamaican Court was incompetent or that its proceedings were not civilized. EGE also has not argued that the Jamaican Judgment "violates American public policy notions of what is decent and just." EGE argues that it could not fully and fairly litigate its rights in the Jamaican courts because an agreement, that the Complaint defines as the "2005 Supplemental Agreement," was excluded from the Jamaican litigation, based on arguments by the defendants challenging its authenticity. Nonetheless, EGE argues, in 2011, Mouttet or George or both signed affidavits that contradict the position taken by the defendants in the Jamaican case. Thus, EGE argues, the Debtor and various co-conspirators committed fraud on the Jamaican court and the Jamaican Judgment should not be given comity.
However, EGE concedes that the issue of the 2011 affidavits and the alleged fraud on the Jamaican court was not brought before the Jamaican trial court or before the Jamaican appellate court before which the EGE case is currently pending. Moreover, EGE has not claimed that it could not bring this issue up before the Jamaican court.
Because the Jamaican Judgment should be given comity, then res judicata and collateral estoppel resolve all those claims addressed in or directly dependent on, the allegations resolved by the Jamaican trial court. All of EGE's claims in the Complaint derive from the interests to which it claimed it was entitled, all of which were litigated before the Jamaican court.
Accordingly Counts V, VI, IX, X, XII, XIV, XVI, XVIII, XXII, XXIII, and XXIV are dismissed with prejudice.
The Plaintiffs acknowledge that none of Federal RICO, Florida RICO, or Florida state law claims are extraterritorial, but that all apply to the wrongs alleged in this Complaint, notwithstanding that the three disputes that form the core of this Complaint are between foreign lenders, borrowers, guarantors, and principals, involving foreign loans to or interests in, foreign businesses. The Plaintiffs claim that the Complaint is filled with descriptions of a variety of acts that occurred in Florida (emails, faxes, and letters, to and from parties in Florida, loan payments to a bank account in Florida, a phone call to the lender's representative in Florida, and at least one board meeting in Florida attended by some of the Defendants).
The Plaintiffs cannot rely only on money, faxes, and copies of loan documents passing through Florida to overcome the problems of extraterritoriality. In Sorota v. Sosa, 842 F.Supp.2d 1345, 1350-51 (S.D.Fla.2012) ("Sorota") the plaintiff was approached by a family member about
The Plaintiff fares no better with the Florida RICO claims or other Florida causes of action. Las Vegas Casino Lines, LLC v. Abbot (In re Las Vegas Casino Lines, LLC), 454 B.R. 223, 228-29 (Bankr. M.D.Fla.2011) (holding that Florida's civil theft statute had no application to acts committed beyond the territory of Florida). The cases relied upon by Plaintiff each include facts that demonstrate a significant relationship between Florida and the harm caused; the Complaint, with all its paragraphs, does not allege a significant relationship between Florida or the United States and any of the harm allegedly suffered by either Plaintiff.
Accordingly, there is no basis upon which any of the Severed Counts, as described, would trigger applicability of any of Federal RICO, Florida RICO or any Florida state law claim and, therefore, the Severed Counts should be dismissed.
The claims against all the Relief Defendants should be dismissed with prejudice. First, there is no court in the country that has recognized that a private party litigant has the right to include relief defendants in a lawsuit. Second, even if there was such a recognized concept, any cognizable claim against a relief defendant arises only from the claim that such defendant is holding something over which the relief defendant has no legitimate claim.
A relief defendant is a concept that has arisen in case law involving government agencies seeking an extension of claims against wrongdoers to in rem relief against wrongfully taken or ill-gotten assets. See, e.g. Janvey v. Adams, 588 F.3d 831,
There is one instance in which the Plaintiffs describe an actual claim against the Relief Defendants — Counts XVII and XVIII seek imposition of constructive trusts on all of the assets of the Relief Defendants. A constructive trust is a remedy provided by common law for the purpose of recognizing that something held by a party is actually the property of the party seeking the relief. Provence v. Palm Beach Taverns, Inc., 676 So.2d 1022, 1025 (Fla. 4th DCA 1996); Finkelstein v. Southeast Bank, N.A., 490 So.2d 976, 984 (Fla. 4th DCA 1986). In order to establish a constructive trust a plaintiff must show "(1) a promise, express or implied; (2) a transfer of the property and reliance thereon; (3) a confidential relationship; and (4) unjust enrichment." Bernardele v. Bonorino, 608 F.Supp.2d 1313, 1328 (S.D.Fla.2009) (citations omitted).
The Complaint does not state any basis for which either Plaintiff has the right to assert a constructive trust on all of the assets of the Relief Defendants. Constructive trusts are not a vehicle for protecting a source for payment of a judgment; a constructive trust is not a substitute for demonstrating a plaintiff's entitlement to a prejudgment writ of attachment. Bender v. CenTrust Mortgage Corp., 51 F.3d 1027, 1030 (11th Cir.1995).
EGE also seeks a constructive trust to be imposed at least on the stock of SVL owned by the Intralot defendants. First, because the Jamaican Judgment is given comity, collateral estoppel bars this claim as a matter of law. Moreover, as noted by the Intralot defendants
Fed.R.Civ.P. 8(a)(2), applicable to this proceeding by virtue of Fed. R. Bankr.P. 7008, "requires that any pleading set forth `a short and plain statement of the claim showing that the pleader is entitled to relief in order to `give the defendant fair notice of what the ... claim is and the grounds upon which it rests.'" American Dental Ass'n v. Cigna Corp., 605 F.3d 1283 (11th Cir.2010) (citations omitted). The Complaint is 290 pages long and has 801 numbered paragraphs. In Wagner v. First Horizon Pharm. Corp., 464 F.3d 1273, 1278 (11th Cir.2006) the Eleventh Circuit described shotgun pleadings as "those that incorporate every antecedent allegation by reference into each subsequent claim for relief or affirmative defense" and admonished litigants because "`[s]hotgun pleadings wreak havoc on the judicial system.'" (citations omitted). While there are instances in the Complaint when the Plaintiffs incorporate the relevant paragraphs (see, e.g., Count XXII), there are other counts that clearly violate Rule 8 (see, e.g., Count XIV). Moreover, the way in which the Complaint is laid out, its use of similar defined terms, and its conflation of facts, defendants, and claims in its various factual recitals, makes it virtually impossible to figure out whom is alleged to have done what to whom, when, and where. Indeed, at the February hearing, Plaintiffs' counsel had to present the Court with a 92 page PowerPoint, including pie charts, in an effort to explain what the Complaint alleges. This is not what Rule 8 requires. Accordingly those portions of the Complaint that survive must be properly pleaded, in an orderly manner such that one can understand the facts upon which the Plaintiffs rely.
Plaintiff Talisman seeks relief under sections 18 U.S.C. § 1962(c) and 18 U.S.C. § 1962(d) of the Federal Rico statutes and Fla. Stat. § 772.103(3) and Fla. Stat. § 772.103(4) of the Florida RICO statutes. Plaintiff EGE seeks relief under Fla. Stat. §§ 772.103(3) and 772.103(4) of the Florida RICO statutes. Count I, II, III, IV, V and VI Complaint must be dismissed because each fails to comply with Fed.R.Civ.P. 8, 9, and 12.
In a pair of cases, Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167
American Dental, 605 F.3d at 1290 (citations omitted).
In order to state a claim for relief under Federal RICO section 1962(c) and Fla. Stat. § 772.103(3) the plaintiff must allege (1) conduct, (2) of an enterprise, (3) through a pattern, (4) of racketeering activity. Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985).
Because the Plaintiffs are basing their RICO claims on mail and wire fraud, the Plaintiffs must also meet the pleading requirements of Rule 9(b).
Id. at 1291 (quoting Brooks v. Blue Cross & Blue Shield of Fla., Inc., 116 F.3d 1364, 1380-81 (11th Cir.1997)). Moreover, "[i]n a case involving multiple defendants ... the complaint should inform each defendant of the nature of his alleged participation of the fraud." Ambrosia Coal & Const. Co. v. Pages Morales, 482 F.3d 1309, 1317 (11th Cir.2007) (explaining that the complaint alleging a RICO claim did
This Complaint fails when held to these benchmarks. The Complaint is replete with conclusory language. When those conclusory paragraphs are eliminated, the paucity of explicit, rather than general, detail and the confusing conflation of defendants and actions and the scattered nature of the time and element sequences is not cured or easier to decipher. Notwithstanding the difficulty in deciphering, and using the PowerPoint supplied by the Plaintiffs at the February hearing, this Court finds that as drafted, the Complaint also does not set forth plausible claims for relief under Federal RICO or Florida RICO. The Complaint does not adequately plead pattern, enterprise, or qualifying predicate acts.
First, as preliminarily addressed above, when stripped down to the core, this Complaint is about three transactions — two loans and one potential equity participation associated with a loan — in which the obligations to the lender have not been fulfilled. The RICO statutes are not designed as a vehicle to resolve general commercial disputes. Indeed, this is the reason one of the requirements of a RICO claim is to demonstrate a pattern of racketeering activity.
Menasco, Inc. v. Wasserman, 886 F.2d 681, 683 (4th Cir.1989). See also Western Assocs. Ltd P'ship v. Market Square Assocs., 235 F.3d 629, 637 (D.C.Cir.2001) ("The pattern requirement thus helps to prevent ordinary business disputes from becoming viable RICO claims ... simply because the parties used the United States mails or a fax machine to transmit contested financial documents.") Moreover, even if a commercial dispute arises from a scheme to defraud a plaintiff or plaintiffs, breaking up one scheme into several parts does not create a pattern. Western Assocs., 235 F.3d at 634-635.
The Complaint also seeks relief under claims for Federal RICO conspiracy and Florida RICO conspiracy. The Eleventh Circuit has held that "where a plaintiff fails to state a RICO claim and the conspiracy count does not contain additional allegations, the conspiracy claim necessarily fails." Rogers v. Nacchio, 241 Fed. Appx. 602, 609 (11th Cir.2007) ("Rogers").
This Complaint also fails to meet the requirements of Rule 9. While the Plaintiffs argue that they cannot more specifically plead fraud without discovery, it is precisely this kind of argument that Twombly and Iqbal sought to avoid — a plaintiff cannot file a complaint and then seek discovery to try to make plausible something that is implausible. This version of the Complaint, with the problems described herein and without the required detail of the fraud, does not meet the minimum pleading standards to survive a motion to dismiss.
Accordingly, the motions to dismiss the Federal RICO and Florida RICO claims and the RICO conspiracy claims are granted.
In addition to the claims for constructive trust, Florida RICO and Florida RICO conspiracy, each of EGE and Talisman have asserted claims for conversion, civil theft, common law conspiracy, common law fraud, and fraud in the inducement. To the extent that the Complaint, as amended, contains adequately pleaded allegations to overcome the extraterritoriality issues this Court has already addressed, and, setting aside for purposes of this portion of the Order that the Jamaican Judgment is entitled to comity, nonetheless most of these claims must be dismissed with prejudice, and certain dismissed with an opportunity to amend.
The basis of Talisman's claim for civil theft is that Atlantic has not repaid the balance of the $29.5 Million Loan and SGCW has not repaid the $13.6 Million Loan.
Star Fruit Co. v. Eagle Lake Growers, Inc., 160 Fla. 130, 33 So.2d 858, 860 (Fla. 1948). Money cannot be converted unless the money is a specifically identifiable fund such as an escrow account, a bag of gold coins, or the like. Belford Trucking Co. v. Zagar, 243 So.2d 646 (Fla. 4th DCA 1970). Fungible money cannot be converted. Id. at 648.
The counts for civil theft also fail to show the Plaintiffs are entitled to the relief they seek. In Count VIII Talisman alleges that the "Florida Law Defendants" unlawfully took the $29.5 Million Loan monies and the $13.6 Million Loan monies along with the collateral for both. In Count X EGE alleges that its SVL stock and associated dividends were stolen.
Trend Setter Villas of Deer Creek v. Villas on Green, 569 So.2d 766, 767 (Fla. 4th DCA 1990). Also see Florida Desk, Inc. v. Mitchell Int'l, Inc., 817 So.2d 1059 (Fla. 5th DCA 2002). The Plaintiffs argue that the intricate conspiracies they have detailed in the Complaint sufficiently allege "an intricate sophisticated scheme of deceit and theft." However, as this Court has already addressed, the Complaint does not properly or coherently allege the sophisticated scheme. Perhaps the amended complaint will better satisfy the pleading requirements to sufficiently state a cause of action for civil theft on behalf of Talisman. Accordingly, the motions to dismiss Counts VIII and X are granted. Count X is dismissed with prejudice.
The Complaint fails to adequately plead a cause of action for fraud. As this Court has already discussed, the allegations of fraud and fraud in the inducement lack the specificity required by Rule 9 and for that reason alone the causes of action will not stand.
The Defendants also argue that fraud in the inducement with respect to the $29.5 Million Loan should be dismissed because the fraud in the inducement alleged in the Complaint addresses only the 2005 Modification Agreement, not the initial loan and therefore there was no inducement.
There are six Core Counts in the Complaint — three by Talisman and three by EGE. Talisman seeks a determination that any of the debts owed by the Debtor to Talisman (including the Guarantee Judgment) are nondischargeable based on 11 U.S.C. § 523(a)(2),
EGE seeks determination of the nondischargeability of liability to be determined based on 11 U.S.C. §§ 523(a)(2), (a)(4) and (a)(6) relying on those allegations of the Complaint relating to the SVL stock and dividends and the 2005 Supplemental Agreement.
The Debtor argues that any claims by Talisman are barred by res judicata because Talisman did not raise any of the claims included in the Severed Counts in the District Court Action. The Debtor argues that any claims raised by EGE are barred by collateral estoppel due to the Jamaican Judgment. The Debtor also argues that the Plaintiffs have also failed to satisfy pleading requirements for each of the Counts.
In order to prevail in an action under section 523(a)(2) the Plaintiffs must prove by a preponderance of the evidence
The Debtor argues that Talisman is not entitled to relief under section 523(a)(2) as claimed in Count XIX because its claims are based on misrepresentation of the financial condition of the Debtor or an insider that is not in writing. While the Debtor is correct that the primary focus of Talisman's claim arises from oral misrepresentations, and, thus, is subject to dismissal, Talisman also alleges the diversion of certain assets and the double pledging of collateral. These latter claims are properly pleaded. Accordingly, the Debtor's motion to dismiss Count XIX is granted in part and denied in part.
The Debtor argues that nothing in the Complaint supports the claims asserted by EGE under section 523(a)(2) as claimed in Count XXII because the Debtor was not involved in the contract between EGE and Hoo, Peter Stewart, and Levy, and that allegations of what did or did not occur with respect to the 2005 Settlement Agreement do not support a claim that Mouttet fraudulently induced EGE to give up any property. The Debtor is correct that the allegations of the Complaint regarding the initial FSSA do not support a claim by EGE under section 523(a)(2). The Debtor was not a party to the original FSSA and the Complaint's allegations that the original FSSA was part of the massive scheme engineered by Mouttet in 2002 to defraud EGE is not plausible.
However, EGE also alleges that Mouttet fraudulently induced EGE to enter into the 2005 Supplemental Agreement, which caused EGE to fail to exercise its options timely under the FSSA. While, as currently pleaded, the Complaint does not adequately state a cause of action, that claim, if better facts were provided, might support a cause of action under section 523(a)(2). Accordingly, that portion of Count XXII that seeks relief based on the original FSSA is dismissed with prejudice. That portion of Count XXII that alleges that the Debtor fraudulently induced EGE to enter into the 2005 Supplemental Agreement for the purpose of depriving EGE of its opportunity to timely exercise its option under the FSSA is dismissed with leave to amend, which amendment must also articulate more precisely what debt EGE seeks to have determined is not discharged.
Talisman claims in Count XX that the Debtor caused two entities over which he had control to withhold repayment of money that these two entities had borrowed, that these acts constitute embezzlement or larceny, and, consequently the debt is not dischargeable pursuant to section 523(a)(4). In order to sustain a claim under section 523(a)(4) arising from larceny the creditor must prove by a preponderance of the evidence that the debtor fraudulently took the property of another "with the intent to convert such property" without the consent of the owner. Tobin v. Labidou (In re Labidou), 2009 WL 2913483, *6 (Bankr.S.D.Fla.2009). The failure to pay back a loan does not generally support a claim for larceny. See Walker v. Figarola, 59 So.3d 188, 190 (Fla. 3d
The Complaint does not allege, and Talisman has acknowledged, that there was no fraud when the $29.5 Million Loan was initially made, that the loan was paid down in part, and that any fraud was in the execution of the 2005 Modification Agreement. Thus, as a matter of law, the Complaint fails to state a cause of action for larceny with respect to that portion of the debt associated with the balance owed on the $29.5 Million Loan.
The Complaint also fails to state a cause of action for larceny with respect to the $13.6 Million Loan. The Complaint alleges that the loan to SCGW was made in 2007 but the Complaint relies on bad acts that occurred in 2004 as of the basis for relief. Moreover, while the Complaint alleges that Westford was fraudulently induced to make the loan to SCGW, the claim that Mouttet converted the funds from that loan is inconsistent with the allegations in the Complaint that the proceeds of the loan were used for the purpose for which the loan was made (Complaint, paragraph 139).
Embezzlement, unlike larceny, presupposes that the property stolen was voluntarily turned over by the victim. Embezzlement is defined as the "fraudulent appropriation of property by a person to whom such property has been entrusted, or unto whose hands it has lawfully come." In re Cuenant, 339 B.R. 262, 277 (Bankr.M.D.Fla.2006). The plaintiff must show that the property was taken for the debtor's benefit "with fraudulent intent or deceit." Id. The allegations relating to the $13.6 Million Loan fail to state a claim for embezzlement since, as already noted, the Complaint acknowledges that the proceeds of the loan were used as required.
The Debtor also argues that Talisman is judicially estopped from raising any claims relating to embezzlement or larceny arising from the $29.5 Million Loan and the $13.6 Million Loan because neither embezzlement nor larceny was raised in the District Court Action. Moreover, the Debtor argues the stipulation that led to the Guarantee Judgment precludes any effort to seek relief arising from the $29.5 Million Loan or the $13.6 Million Loan other than those arising in connection with the Mouttet Guarantees.
Burnes v. Pemco Aeroplex, Inc., 291 F.3d 1282, 1285 (11th Cir.2002). In the Eleventh Circuit "[f]irst, it must be shown that the allegedly inconsistent positions were made under oath in a prior proceeding. Second, such inconsistencies must be shown to have been calculated to make a mockery of the judicial system." Id. (quoting Salomon Smith Barney, Inc. v. Harvey, M.D., 260 F.3d 1302, 1308 (11th Cir.2001)).
In this case there is nothing on the face of the Complaint that indicates that Talisman took any position under oath, either in Bankruptcy Court or in the District Court that contradicts its claims for embezzlement and the dischargeability of that claim, thus, under the rules established by the Eleventh Circuit judicial estoppel does not preclude Talisman's 523(a)(4) embezzlement claim.
Talisman argues in its response that with respect to Count XX, it is also relying on allegations of conversion and theft of collateral. All of these claims are tied up in the RICO and conspiracy counts that this Court has already directed must be dismissed.
Accordingly, Count XX is dismissed with prejudice as to any claims arising from the alleged theft of loan proceeds or embezzlement with respect to the $13.6 Million Loan and dismissed without prejudice with respect to embezzlement relating to the $29.5 Million Loan, and any claims relating to theft of collateral.
EGE rests its section 523(a)(4) claim in Count XXIII on the SVL stock claim. The Complaint alleges that "Mouttet has illegally converted the stock, cash proceeds of the dividends, and other valuable personal property of EGE." A court of competent jurisdiction has already determined that EGE did not have an ownership interest in the stock or the cash proceeds of the dividends. There is nothing in the Complaint that identifies what constitutes "other valuable personal property." As Mouttet cannot be held responsible for converting something that EGE did not own, Count XXIII is dismissed with prejudice.
Finally, each of Talisman and EGE assert that their respective claims against the Debtor are not dischargeable by virtue of 11 U.S.C. § 523(a)(6). In order to sustain a claim under section 523(a)(6) the Plaintiffs must allege and prove that the Debtor acted "with the actual intent to cause injury." Kawaauhau v. Geiger, 523 U.S. 57, 61, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998).
In Count XXI Talisman alleges that the Debtor's liability under the Second Guarantee is not dischargeable because
EGE's claim in Count XXIV seeking a determination under 523(a)(6) is equally doomed. The Debtor argues that EGE may not bring an action under section 523(a)(6) because a court of competent jurisdiction has already held that the property that Mouttet is accused of stealing was not EGE's property. This Court agrees. Accordingly, Count XXIV is dismissed with prejudice.
In sum, this Court proposes that the District Court dismiss the Severed Counts with prejudice with leave for the Plaintiffs to file a complaint in the District Court invoking its jurisdiction on some basis other than 28 U.S.C. § 1334. The balance of the Complaint — the Core Counts, are dismissed, some with leave to amend, others with prejudice as detailed herein.
Should the District Court hold that the Severed Counts are properly brought pursuant to section 1334, then this Court proposes nonetheless that those Counts be dismissed either with or without prejudice, for the reasons outlined herein.
