United States Securities and Exchange Commission v. Ahmed et al

Filing 2435

ORDER denying 2115 Motion for Relief Related to Essell Farms. Receiver's report on investigation will be filed in 30 days. Signed by Judge Janet Bond Arterton on 1/31/2023. (Meyer, W.)

Case 3:15-cv-00675-JBA Document 2435 Filed 01/31/23 Page 1 of 6

UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT

UNITED STATES SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
v.
IFTIKAR AHMED,

Defendant, and

IFTIKAR ALI AHMED SOLE PROP; I-CUBED
DOMAINS, LLC; SHALINI AHMED; SHALINI
AHMED 2014 GRANTOR RETAINED ANNUITY
TRUST; DIYA HOLDINGS LLC; DIYA REAL
HOLDINGS, LLC; I.I. 1, a minor child, by and
through his next friends IFTIKAR and SHALINI
AHMED, his parents; I.I. 2, a minor child, by and
through his next friends IFTIKAR and SHALINI
AHMED, his parents; and I.I. 3, a minor child, by
and through his next friends IFTIKAR and
SHALINI AHMED, his parents,

Civil No. 3:15cv675 (JBA)
January 31, 2023

Relief Defendants.

ORDER DENYING DEFENDANT’S EMERGENCY MOTION FOR RELIEF RELATED TO
ESSELL FARMS
Defendant moves [Doc. # 2115] for several forms of relief related to property owned

by The Essell Farms, LLC (“Essell Farms”), an asset of his that is currently under the control

of a Court-appointed Receiver. Defendant requests that the Court void or enjoin a quiet title

judgment that was entered against Essell Farms in relation to the property, order the
Receiver to begin proceedings to recover some or all of the purchase price that Essell Farms
paid for the property, and order the Receiver to use Receivership assets to satisfy the
property’s outstanding taxes.

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I.

For the reasons given below, the Court denies Defendant’s motion.
Background

The Court assumes familiarity with the underlying facts of the litigation. Relevant

here, in May 2015, the SEC filed its complaint [Doc. # 1] against Defendant. At the SEC’s
request, the Court issued a temporary restraining order on May 7, 2015 [Doc. # 9] freezing

assets allegedly derived from Defendant’s fraud scheme. The SEC then filed an amended
complaint and motion for a preliminary injunction to freeze additional assets [Doc. ## 27,

29], naming the Relief Defendants in addition to Defendant. The Court granted the

preliminary injunction [Doc. # 113], freezing Defendant and Relief Defendants’ assets
believed to consist of or have been purchased with using illegally-obtained funds. In 2018,

the Court appointed a Receiver to manage and liquidate Defendant and Relief Defendants’
frozen assets for the purpose of effectuating the judgment against Defendants. (Appointment
Order [Doc. # 1070] at 5.) The Receiver was given control over the Receivership Estate,
which was defined to include all of the assets subject to the asset freeze. (Id. at 6.) In

appointing the Receiver, the Court also stayed all civil litigation to obtain possession of
Receivership Estate property and against any of the Defendants, including their whollyowned subsidiaries and partnerships. (Id. at 13.)

Among the frozen assets, and thus part of the Receivership Estate, is Defendant’s

interest in Essell Farms. (Receiver’s Opp’n [Doc. # 2139] at 2.) Defendant owns half of Essell
Farms and Young Bae Ku owns the other half. (Id.)
II.

Discussion

A. The 1804 Property Judgment
In 2012, Essell Farms purchased the property located at 1820 County Route 7 in

Ancram, New York (“1820 property”) from Donald and Betty Duksa. (Id.) The property was

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acquired through a bargain and sale deed 1 dated June 22, 2012 (“Essell deed”) for $3 million.

(Id.) In addition to the 1820 property, the Essell deed includes a description of the property

located at 1804 County Route 7 (“1804 property”). (Id.) The Duksas had previously owned

this property but sold it in 1999. In 2014, after the execution of the Essell deed, the Duksas

repurchased the 1804 property. (Id.) In 2021, the Duksas obtained a quiet title judgment
stating that they hold the title to the 1804 property free and clear of any claims by Essell
Farms. (Receiver’s Notice Regarding The Essell Farms, LLC (“Essell Notice”) [Doc. # 2093] at
3-4.)

Defendant argues that the Duksas’ quiet title action regarding the 1804 property

violates the Court’s litigation stay and requests that the Court void or enjoin the judgment.
(Mot. [Doc. # 2115] at 3-4.) Defendant asserts that the Essell deed conveyed the 1804

property to Essell Farms, meaning that the property is part of the Receivership Estate and

subject to the litigation stay. (Reply [Doc. # 2149] at 3-5.) The Receiver argues that the Essell
deed did not convey the 1804 property because the Duksas did not own the property at the

time the deed was executed. (Opp’n at 6; Receiver’s Notice Regarding Essell Farms [Doc. #
2093] at 3.)

New York Real Property Law § 245 states that a “greater estate or interest does not

pass by any grant or conveyance, than the grantor possessed or could lawfully convey, at the

time of the delivery of the deed.” As the Duksas did not own the 1804 property at the time of
its inclusion in the Essell deed, that portion of the deed was void and conveyed nothing.

Therefore, the 1804 property was never owned by Essell Farms and was never subject to the
litigation stay.

Unlike a warranty deed, a bargain and sale deed does not contain covenants of title,
although it may contain a covenant that the grantor has not encumbered. See 43A N.Y. Jur.
2d Deeds §§ 4-5, 89 (describing warranty deeds, bargain and sale deeds, and the covenants
of title); N.Y. Real Prop. Law § 258 (setting forth the statutory form of various deeds).
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The fact that the Duksas subsequently repurchased the 1804 property does not alter

this conclusion. While “[i]t is the general rule that if a grantor who has no title, a defective

title, or an estate less than that which he assumes to grant, conveys by deed with a covenant
of warranty, and subsequently acquires the title or estate which he purports to convey, or

perfects his title, such after-acquired title or after-perfected title will inure to the benefit of
the grantee,” 43A N.Y. Jur. 2d Deeds § 245, this rule does not apply to bargain and sale deeds
like the Essell deed. House v. McCormick, 57 N.Y. 310, 320-21 (N.Y. 1874).
B. The 1820 Property Purchase Price

Defendant asks that the Court order the Receiver to initiate an action to recover some

of the purchase price Essell Farms paid for the 1820 property. (Mot. at 4.) The basis for this

request is a discussion that the Receiver had with Mr. Duksa and his attorney where Mr.

Duksa admitted that Essell Farms paid significantly more for the 1820 property than it was

worth. (Id. at 4-5.) The Receiver opposes this request, asserting that such an action would be

legally complex, require significant legal fees, and have limited upside for the Receivership
Estate because Mr. Ahmed only owns half of Essell Farms. (Opp’n at 7-8.)

The Court is mindful of the Receiver’s concerns that the financial benefit to the

Receivership Estate of any litigation on this issue could be swallowed by the cost of the
associated legal fees. However, in light of the projected significant shortfall between the

judgment amount and the proceeds of the Receivership Estate liquidation process, it is
prudent to explore additional sources of assets. (Order Approving Phase 1 Liquidation

Report [Doc. # 2395] at 4.) The Court accordingly directs the Receiver to do an initial

investigation of possible claims related to the conveyance of the 1820 property and inform

the Court of its findings in the Phase 2 Report.

C. Essell Farms’ Outstanding Obligations

Essell Farms currently has more than $40,000 in outstanding obligations, including

tax preparation fees, taxes, and late fees for unpaid taxes and continues to incur
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approximately $400 per month in late fees for unpaid expenses. (Essell Notice at 4-5.) The

Receiver initially paid Essell Farms’ expenses from an account holding lease payments from
the Duksas, who leased the property until December 2018. (Essell Notice at 2.) As the

property is currently vacant, this account is nearly empty. (Id.)

Defendant requests that the Court order the Receiver to use Receivership Assets to

pay the entirety Essell Farms’ outstanding taxes. (Def.’s Mot. at 5.) The Receiver has indicated

that he is willing to use Receivership Assets to satisfy 50 percent of the outstanding
obligations, with Mr. Ku paying the other 50 percent, in keeping with the ownership
structure of the corporation. (Essell Notice at 4-5.) However, Mr. Ku has not agreed to this

plan, and instead urged the Receiver to have Essell Farms borrow the money from The Essell

Group, LLC, another entity that he and Defendant jointly own, but that is separate from Essell
Farms. (Id. at 5.) The Receiver is reluctant to pursue this path because of the possibility that

the expense to the Receivership of either structuring such a loan or compelling Mr. Ku to pay
50 percent of the taxes would exceed Essell Farms’ outstanding obligations. (Id. at 5-6.)

The Court appreciates the Receiver’s concern and the fact that payment of Essell

Farms’ obligations is complicated by the fact that it is a jointly-owned entity. However, the

Court notes that the outstanding tax liabilities might impair the Receiver’s ability to liquidate

the Essell Farms holding during Phase 2 of the liquidation process by limiting the pool of
interested purchasers. (See Phase 1 Order at 31-21 (directing the Receiver to begin the Phase
2 liquidation of unique assets).) Accordingly, the Court requests that the Receiver inform the

Court of the current outstanding obligations and accruing monthly late fees, whether an

additional progress has been made in working with Mr. Ku to satisfy the outstanding

obligations, and the Receiver’s current understanding of possible avenues for liquidating the
Essell Farms holding.
III.

Conclusion

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In accordance with the reasons given above, Defendant’s motion [Doc. # 2115] for

emergency relief related to Essell Farms is DENIED, but the Receiver’s report on the
investigation requested above will be filed in 30 days.

IT IS SO ORDERED.

____________/s/_______________________________
Janet Bond Arterton, U.S.D.J.

Dated at New Haven, Connecticut this 31st day of January, 2023

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