ONEMATA CORPORATION, Plaintiff, v. ASHFAQ RAHMAN and SABIRA AREFIN, Defendants, v. WILLIAM SMITH and ENSCICON ACQUISITIONS II, LLC, Third-Party Defendants.
CASE NO. 20-CV-62002-DIMITROULEAS/VALLE
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA
August 28, 2024
ALICIA O. VALLE, UNITED STATES MAGISTRATE JUDGE
THIS CAUSE comes before the Court upon: (i) Moving Parties’ Motions to Dismiss Notices to Appear and Proceedings Supplementary (ECF Nos. 621, 649); and (ii) The Rahman Arefin Living Trust‘s Amended and Restated Motion to Dismiss Proceedings Supplementary and Notice to Appear (ECF No. 624) (together, the “Motions to Dismiss the Notices to Appear“); and (iii) Moving Parties’ Motion to Dismiss Supplemental Complaint or, in the Alternative, for a More Definite Statement (ECF No. 673) (the “Motion to Dismiss Supplemental Complaint“) (collectively, the “Motions“).1 United States District Judge William P. Dimitrouleas has referred
Having reviewed the record, the Motions, Plaintiff/Judgment Creditor Onemata Corporation‘s (“Onemata‘s“) Responses (ECF Nos. 625, 654, 627, 691), the Third Parties’ Replies (ECF Nos. 628, 632, 657, 694), and Onemata‘s Sur-Reply (ECF No. 698), and being otherwise duly advised in the matter, the undersigned respectfully recommends that: (i) the Motions to Dismiss the Notices to Appear be DENIED AS MOOT; and (ii) the Motion to Dismiss Supplemental Complaint be GRANTED, with leave to amend, for the reasons set forth below.
I. BACKGROUND AND PROCEDURAL HISTORY
Onemata commenced post-judgment proceedings to collect on an unsatisfied judgment for more than $7 million in favor of Onemata and against Defendants/Judgment Debtors Ashfaq Rahman and Sabira Arefin (together, “Judgment Debtors“). See (ECF No. 368) ($7 million Final Judgment); (ECF No. 496 at 22) (Onemata‘s motion alleging that the Judgment Debtors are jointly and severally liable for $4,330,645.56, with Judgment Debtor Rahman individually liable for an additional $6,330,645.56); (ECF No. 558 at 3) (asserting that judgment is now more than $8 million). The Eleventh Circuit recently upheld the Final Judgment. Onemata Corp. v. Arefin, No. 23-10070 (11th Cir. Aug. 6, 2024) (Docket No. 104-1).2
Relevant here, on December 1, 2023, the Court granted Onemata‘s Verified Motion to Commence Proceedings Supplementary and to Set Aside Fraudulent Transfers. See generally (ECF No. 585) (the “Order Commencing Proceedings Supplementary“). The Order Commencing Proceedings Supplementary impleaded the Third Parties as alleged alter egos of the Judgment Debtors. Id. The undersigned also issued Notices to Appear to the Third Parties. See (ECF Nos. 586, 588-96). Lastly, the Court also ordered that “[w]ithin two business days from the date of th[e] Order,” Onemata “(i) serve a copy of [the] Order and all Notices to Appear on the Third Parties and the Judgment Debtors; and (ii) file a Notice of Compliance with the same.” (ECF No. 585 at 8).
On December 5, 2023, Onemata filed its Notice of Compliance, advising that copies of the Order Commencing Proceedings Supplementary and the Notices to Appear were “provided to a process server to be personally served pursuant to [Florida law] as well as sent by registered mail to the respective third-parties on each Notice,” the Judgment Debtors, and all counsel of record. (ECF No. 600 at 1-2). The instant Motions followed. On January 18, 2024, Onemata filed its Supplemental Complaint seeking to avoid allegedly fraudulent transfers (Count 1) and requesting declaratory relief (Count 2). See (ECF No. 626) (“Suppl. Complaint“).
II. MOTIONS TO DISMISS THE NOTICES TO APPEAR
The Court first addresses the Third Parties’ Motions to Dismiss the Notices to Appear, which all raise similar challenges. See generally (ECF Nos. 621, 624, 649). For the reasons set forth below, the undersigned recommends that the Motions to Dismiss the Notices to Appear be denied as moot.
First, the undersigned is unpersuaded by the Third Parties’ argument that Onemata failed to timely serve the Notices to Appear within two days of the Order Commencing Proceedings Supplementary. See, e.g., (ECF Nos. 621 at 3, 624 at 3, 649 at 3). By way of background, the Court ordered that within two business days of the Court‘s Order, Onemata “serve a copy of [the] Order and all Notices to Appear on the Third Parties and the Judgment Debtors; and (ii) file a Notice of Compliance with the same.” (ECF No. 585 at 8). These proceedings involve numerous parties, including the Judgment Debtors, almost a dozen Third Parties, across several states (e.g., Washington and Nevada), and several countries (e.g., the United States and West Indies). See (ECF No. 654 at 3). As evidenced by Onemata‘s Notice of Compliance, Onemata commenced the process of serving the Third Parties within two business days of the undersigned‘s Order. See (ECF No. 600) (Onemata‘s Notice of Compliance regarding service of process); see also (ECF Nos. 644, 644-1 to 644-7) (Affidavits of Service declaring that several of the Third Parties were served through their registered agent in Las Vegas, Nevada on December 6, 2023).3 Accordingly, the undersigned rejects the Third Parties’ argument that dismissal is warranted because service of the Notices to Appear is untimely.
Second, Onemata has filed a Supplemental Complaint. See (ECF No. 626). Accordingly,
Third, all factual and legal challenges to the claims asserted in the Notices to Appear are preserved as challenges to the Supplemental Complaint.4 See (ECF No. 621 at 10) (Third Parties’ concession that “[a]fter Onemata files and serves a supplemental complaint . . . the [Third] Parties reserve their right to further plead all factual and legal defenses in response to the Notices to Appear.“); see also (ECF No. 673) (the Motion to Dismiss Supplemental Complaint or, in the Alternative, for a More Definite Statement filed by the Nevada LLCs and Chae (as defined below)). Accordingly, the Third Parties’ Motion to Dismiss the Notices to Appear should be denied as moot based on the filing of the Supplemental Complaint.
III. MOTION TO DISMISS SUPPLEMENTAL COMPLAINT
The Nevada LLCs5 and Ran Chae, as Distribution Trustee of the Sunshine Irrevocable Trust, the Paradise Valley Irrevocable Trust, and the Bright Stars Irrevocable Trust (“Chae,“) seek
A. Legal Standard for Motion to Dismiss
To withstand a
While a plaintiff need not provide “detailed factual allegations,” the allegations must consist of more than “a formulaic recitation of the elements of a cause of action.” Alcon Lab‘ys, Inc., 2019 WL 2245584, at *2 (citing Bell v. Twombly, 550 U.S. 544, 555 (2007)). Factual allegations must be enough to raise a right to relief above the speculative level. Id. Conclusory
Moreover, courts conduct a “two-pronged approach” when considering a motion to dismiss under
B. FUFTA and the Claims Alleged in the Supplemental Complaint
In relevant part, the claims in the Supplemental Complaint are premised on
FUFTA was promulgated to prevent an insolvent debtor from transferring assets out of the reach of its creditors when the debtor‘s intent is to hinder, delay, or defraud any of its creditors. Gulf Coast Produce, Inc. v. Am. Growers, Inc., No. 07-CV-80633, 2008 WL 660100, at *5 (S.D. Fla. Mar. 7, 2008). FUFTA provides that any transfer made or obligation incurred by a debtor is fraudulent as to a creditor if the debtor made the transfer or incurred the obligation to hinder or defraud the creditor or without receiving “reasonably equivalent value in exchange for the transfer or obligation.” Id. (citing
Further, a creditor victimized by a fraudulent transfer has remedies against both the debtor and third-party transferees. Capitol Recs., LLC v. Mellerski, No. 22-CV-80380, 2022 WL 9510984, at *4 (S.D. Fla. Aug. 30, 2022), report and recommendation adopted, 2022 WL 9435976 (S.D. Fla. Oct. 14, 2022). For example, the creditor can: (i) avoid the transfer,
Although the Supplemental Complaint does not specify which subsection of
transfers of nine (9) properties, all of which . . . (except for the Haydn Drive Property)6 occurred after the underlying litigation was filed [i.e., October 2020]. These transfers were done with the actual intent to hinder and defraud Onemata. The Judgment Debtors transferred the properties to the Nevada limited liabilities companies and placed liens on them through HomeLien Investment, another entity [the Judgment Debtors] formed in the West Indies, nineteen (19) days after the Final Judgment was entered.
Despite involving numerous properties and various alleged transfers/mortgages, the Supplemental Complaint contains only two counts: Count 1 (incorporating fraudulent transfer allegations for numerous properties/loans/mortgages) and Count 2 (seeking declaratory relief). The Nevada LLCs and Chae challenge both counts of the Supplemental Complaint on several grounds. The undersigned finds that dismissal (with leave to amend) is warranted because: (i) Count 1 of the Supplemental Complaint does not sufficiently plead the elements of
C. Onemata Has Failed to Sufficiently State a Claim for Fraudulent Transfers
Although the Supplemental Complaint does not specify which subsection of
1. Actual Fraudulent Intent under § 726.105(1)(a)
Florida law avoids transfers made with actual intent to hinder, delay or defraud creditors. In relevant part,
A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor‘s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation with actual intent to hinder, delay, or defraud any creditor of debtor.
Here, Count 1 alleges that on various dates after Onemata filed the underlying litigation, the Judgment Debtors transferred nine different properties to different trusts and/or obtained lines of credit/loans against those properties. See generally Suppl. Complaint. Although Onemata alleges facts regarding each property, the allegations are grouped into a single count, making it difficult for the Nevada LLCs, Chae, and the Court to determine the specific claims and conduct upon which each claim rests. See, e.g., Wells Fargo Bank, N.A. v. Barber, 85 F. Supp. 3d 1308, 1312 (M.D. Fla. 2015) (alleging actual fraud and constructive fraud in separate counts). For example, in some instances, Onemata alleges actual intent to hinder, delay, and defraud. See, e.g., Suppl. Complaint ¶ 42 (allegations regarding the Buckskin Property conveyance to MaskGene and subsequent transfer to Bright Stars); ¶ 56 (allegations regarding the San Mateo Property transfer to Peacenheaven and subsequent transfer to the Paradise Valley Irrevocable Trust); ¶ 80 (allegations regarding the Unit 201 Property allegedly conveyed to Bashari and subsequent transfer to Sunshine Irrevocable Trust); ¶ 93 (allegations regarding the 173rd Avenue Property allegedly conveyed to Lakemont and subsequent transfer to Sunshine Irrevocable Trust); ¶ 120 (allegations regarding transfer of the Highline Loop Property to the Sunshine Irrevocable Trust); ¶ 129 (alleging mortgages made by HomeLien). In the same Count 1, however, Onemata also alleges “concealment” of the lines of credit/loans, without mention of actual intent, an element of fraud under
Moreover, Count 1 includes allegations regarding the Haydn Property, which was allegedly transferred pre-litigation (i.e., 2019) to The Rahman/Arefin Living Trust “without consideration for the transfer of the property.” Suppl. Complaint ¶¶ 63-67; see also (ECF No. 691 at 9) (recognizing that, unlike other alleged transfers, the transfer related to the Haydn Property predated the litigation). On its face, the Supplemental Complaint includes allegations regarding a specific, pre-litigation transfer of property: (i) without alleging actual intent to hinder, delay or defraud; and (ii) without distinguishing whether pre-litigation events differ from post-litigation allegations. Accordingly, the Motion to Dismiss Count 1 should be granted for failure to state a claim under
2. Constructive Fraud under § 726.105(1)(b) and § 726.106(1)9
Onemata also argues that Count 1 the Supplemental Complaint alleges “facts supporting the other elements necessary to state a claim under
Having reviewed the Supplemental Complaint, the undersigned recommends that the Motion to Dismiss be granted for several reasons. First, although Onemata argues that the facts alleged in Count 1 of the Supplemental Complaint “establish that the Judgment Debtors were insolvent at the time of the transfers or became insolvent as a result of the transfers,” (ECF No. 691 at 7), the Supplemental Complaint contains no such allegations. Accordingly, Count 1 should be dismissed for failure to state a claim under
Second, a review of Count 1 reveals that the Supplemental Complaint is a shotgun pleading that “commits the sin of not separating into a different count each cause of action or claim for relief.” Weiland v. Palm Beach Cnty. Sheriff‘s Off., 792 F.3d 1313, 1323 (11th Cir. 2015). More specifically, as discussed above, although Onemata argues that it alleges claims for both actual and constructive fraud, see (ECF No. 691 at 7), it has nonetheless failed to allege the specific elements of each claim in separate counts. Even if the alleged facts in the Supplemental Complaint are taken as true, Count 1 as drafted fails to give the Nevada LLCs and Chae adequate notice of the claims against them and the grounds upon which each claim rests. Weiland, 792 F.3d at 1323 n.13 (noting that a complaint that combines multiple causes of action into one count is a shotgun pleading that likely runs afoul of
D. Onemata Has Sufficiently Alleged Alter Ego Jurisdiction
Because the undersigned recommends dismissal of Count 1 with leave to amend, the Court addresses the Nevada LLCs and Chae‘s challenges regarding alter ego jurisdiction and whether a
A court must determine whether it has personal jurisdiction over a defendant even in proceedings supplementary, which are considered “a continuation of the initial underlying proceeding and venue in the case does not shift from jurisdiction to jurisdiction . . . but remains with the court which entered the judgment.” Floridians for Solar Choice, 2020 WL 5757083, at *3; State, Dep‘t of Ins. v. Accelerated Benefits Corp., 817 So. 2d 1086, 1088 (Fla. 4th DCA 2002). Indeed,
Also relevant here is the alter ego theory of long-arm jurisdiction, which exists as a limited exception to the general two-step process of establishing long-arm jurisdiction. Broward Marine, 2010 WL 427496, at *6 (citation omitted). To pierce the corporate veil under Florida law, “a plaintiff is required to prove both that the corporation is a mere instrumentality or alter ego of the defendant and that the defendant engaged in improper conduct in the formation or use of the corporation.” Id.; see also Floridians for Solar Choice, 2020 WL 5757083, at *3. In Florida, the corporate veil will be pierced only in “exceptional circumstances, such as for fraud or where the corporation is formed for some illegal purpose.” Broward Marine, 2010 WL 427496, at *10. Improper conduct is present only in cases in which the corporation was a mere device or sham to accomplish some ulterior purpose or where the purpose is to evade some statute or to accomplish some fraud or illegal purpose. SEB S.A. v. Sunbeam Corp., 148 F. App‘x 774, 800 (11th Cir. 2005)
Here, the Supplemental Complaint contains sufficient allegations (which must be taken as true at this pleading stage of the litigation) to support alter ego jurisdiction over the Nevada LLCs and Chae. For example, Onemata alleges:
This Court has personal jurisdiction over the third-party interpleader defendants as they are alter egos of, and under the control of, Rahman and Arefin, as more particularly alleged above. The alter ego theory of long-arm jurisdiction is a limited exception to the usual two-step process of establishing long-arm jurisdiction. See, e.g., Floridians for Solar Choice, Inc. v. PCI Consultants, Inc., 2020 WL 5757083 *3 (S.D. Fla. Sept. 28, 2020) (quoting Broward Marine, Inc. v. S/V Zeus, 2010 WL 427496 *6 (S.D. Fla. Feb. 1, 2010).
Suppl. Complaint ¶ 17. Onemata further alleges that the Judgment Debtors are the “grantors and trustees” who: (i) control several of the entities and the trusts, see (Suppl. Complaint ¶¶ 4, 6, 7, 11, 12, 13, 35, 36, 53, 54, 64, 78, 79, 108, 109, 118, 119); (ii) transferred membership interests to the LLCs/trusts (id. ¶¶ 34, 49, 52, 77, 107), and (iii) formed HomeLien for the purpose of creating fraudulent mortgages to protect their real property (id. ¶ 127).
At this stage, the allegations in the Supplemental Complaint are sufficient to permit Onemata to conduct discovery to attempt to prove its claim of alter ego jurisdiction. See, e.g., Floridians for Solar Choice, 2020 WL 6808669, at *10 (finding sufficient allegations for personal jurisdiction under alter ego theory). Accordingly, the Supplemental Complaint sufficiently alleges alter ego personal jurisdiction and denial on that basis is not warranted.
E. Rule 9(b)‘s Heightened Pleading Standard is Inapplicable to FUFTA Claim
The Nevada LLCs and Chae also argue that dismissal of the Supplemental Complaint is proper because it fails to allege fraudulent activity under the heightened pleading requirements of
Case law makes clear that the heightened pleading standard of
F. The Declaratory Relief Alleged in Count 2 is Duplicative and Without a Useful Purpose
Count 2 of the Supplemental Complaint seeks declaratory relief to: (i) nullify and void the alleged fraudulent transfers and find that the properties identified in the Supplemental Complaint
Relevant to the instant Motion is the Declaratory Judgment Act,
Here, a review of the allegations in Counts and 1 and 2 of the Supplemental Complaint reveals that Count 2, as alleged, is duplicative of Count 1 and does not serve a useful purpose. For example, the available remedies under Count 1 (for alleged fraudulent transfers) include: (i) avoidance of the transfer or obligations to the extent necessary to satisfy the creditor‘s claim; (ii) attachment or other provisional remedy against the asset transferred; and (iii) an injunction against further disposition of the asset by the debtor, transferee, or both, subject to principles of equity and in accordance with the applicable rules of civil procedure.
IV. RECOMMENDATION
For the reasons stated above, the undersigned respectfully RECOMMENDS that:
- The Moving Parties’ Motions to Dismiss Notices to Appear and Proceedings Supplementary (ECF Nos. 621, 649) be DENIED AS MOOT;
- The Rahman Arefin Living Trust‘s Amended and Restated Motion to Dismiss Proceedings Supplementary and Notice to Appear (ECF No. 624) be DENIED AS MOOT; and
- The Moving Parties’ Motion to Dismiss Supplemental Complaint or, in the Alternative, for a More Definite Statement (ECF No. 673) be GRANTED with leave to amend to cure the pleading deficiencies described above.10
DONE AND ORDERED in Chambers at Fort Lauderdale, Florida on August 28, 2024.
ALICIA O. VALLE
UNITED STATES MAGISTRATE JUDGE
cc: U.S. District Judge William P. Dimitrouleas
All Counsel of Record
Notes
A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor‘s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation:
(a) With actual intent to hinder, delay, or defraud any creditor of the debtor; or
(b) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor:
- Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or
- Intended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they became due.
A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, if the claim arose before the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation without receiving reasonably equivalent value in exchange for the transfer or obligation, and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.