Talisman Capital Alternative Investments Fund, Ltd. et al
Filing
56
Order affirming in part and reversing in part Bankruptcy Appeal. Any pending motions are denied. Case is closed. Signed by Judge Kenneth A. Marra on 10/9/2020. See attached document for full details. (lh1)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
CASE NO. 13-22222-CIV-MARRA
In re:
Paul G. Mouttet, a/k/a Gerry Mouttet,
Debtor.
____________________________________________/
TALISMAN CAPITAL ALTERNATIVE
INVESTMENTS FUND, LTD., a British Virgin
Islands international business company and
workout lender; and EGE LTD., a British
Virgin Islands international business company and
special purpose vehicle to own shares of stock,
Plaintiffs/Objectors/Appellants,
vs.
PAUL GERARD (“GERRY”) MOUTTET, a U.S. citizen
and a citizen of Trinidad, and a Debtor pursuant to
Chapter 7 of the U.S. Bankruptcy Code, et al.,
Defendants/(Appellee),
and
INTRALOT ST. LUCIA LIMITED, a St. Lucia business
entity; et al.,
Relief Defendants.
____________________________________________/
ORDER ON BANKRUPTCY APPEAL
Appellants Talisman Capital Alternative Investments Fund, Ltd. (“Talisman”)
and EGE Ltd. (“EGE”) (together, “Appellants”) filed this bankruptcy appeal
challenging an order issued by Judge Laurel M. Isicoff, in Bankruptcy Case No. 1201842-BKC-LMI and 12-14490-BKC-LMI (“the Order”), which dismisses six core, non-
dischargeability claims (Counts XIX through XXIV) of Appellants’ Complaint (some with
leave to amend, others with prejudice). The Bankruptcy Court also recommends
that the District Court dismiss the 18 non-core, dischargeable claims, also some with
leave to amend, others with prejudice (Counts I to VI alleging violations of federal
and Florida RICO statutes, Counts VII to XVIII alleging other Florida statutory and
common law tort claims). See DE 1 at 43 of 81, n.4. Lastly, the Order recommends
that the Relief Defendants be dismissed from the case with prejudice. The Court has
carefully considered the briefs, the entire Court file, and the argument of the
parties. For the reasons that follow, the Court affirms in part, and reverses in part,
the decision of the Bankruptcy Court.1
Jurisdiction
Before addressing the parties’ arguments, the Court must consider its
jurisdiction. Under 28 U.S.C. § 1334(b) and the district court’s order of reference,
this Court has jurisdiction over all civil proceedings arising under Title 11, or arising
in or related to cases under Title 11. Plaintiffs’ claims in this adversary proceeding
arise under or allegedly relate to their bankruptcy cases and thus fall within the
Court’s broad jurisdiction. Whether the Bankruptcy Court can finally resolve the
parties’ disputes requires further analysis.
Subject to constitutional limitations, a bankruptcy court can enter final orders
1
The Court apologizes to the parties, the attorneys and the Bankruptcy Court
for the unjustified delay in deciding this appeal.
Page 2 of 52
only on “core” bankruptcy claims. See 28 U.S.C. § 157. For “non-core” proceedings,
the bankruptcy court is not authorized to enter final orders unless all parties consent.
Id. As the Supreme Court has explained,
If a matter is core, the statute empowers the bankruptcy judge to enter
final judgment on the claim, subject to appellate review by the district
court. If a matter is non-core, and the parties have not consented to
final adjudication by the bankruptcy court, the bankruptcy judge must
propose findings of fact and conclusions of law. Then, the district court
must review the proceeding de novo and enter final judgment.
Executive Benefits Ins. Agency v. Arkison, 573 U.S. 25, 34 (2014).
“It is the bankruptcy court’s responsibility to determine whether each claim
before it is core or non-core.” Id. at 33. “A proceeding is core under section 157 if it
invokes a substantive right provided by title 11 or is a proceeding that, by its nature,
could arise only in the context of a bankruptcy case.” Barnett v. Stern, 909 F.2d 973,
981 (7th Cir. 1990) (quoting In re Wood, 825 F.2d 90, 97 (5th Cir. 1987)).
“Core proceedings are actions ... that arise under the Bankruptcy Code in the
strong sense that the Code itself is the source of the claimant's right or remedy,
rather than just the procedural vehicle for the assertion of a right conferred by some
other body of law.” In re United States Brass Corp., 110 F.3d 1261, 1268 (7th Cir.
1997) (debtor's claimed right to insurance coverage was non-core because, in part,
such right is “a creation of state contract law” and “vindicated in an ordinary breach
of contract suit”). A “non-core” proceeding, on the other hand, is one in which the
plaintiff does “not invoke a substantive right created by the federal bankruptcy law
Page 3 of 52
and is one that could exist outside of bankruptcy ... it may be related to the
bankruptcy because of its potential effect, but under section 157(c)(1) it is an
‘otherwise related’ or non-core proceeding.” Barnett v. Stern, 909 F.2d at 981
(quoting In re Wood, 825 F.2d at 97) (emphasis in original).
Standard of Review
The United States District Court functions as an appellate court in reviewing
decisions of the United States Bankruptcy Court. In re Colortex Indus., Inc., 19 F.3d
1371, 1374 (11th Cir.1994). Upon entry of a final order by the bankruptcy court, a
party may appeal to the district court pursuant to 28 U.S.C. § 158(a). This Court
reviews de novo the legal conclusions of the bankruptcy court. In re JLJ, Inc., 988
F.2d 1112, 1116 (11th Cir.1993); In re Bilzerian, 100 F.3d 886, 889 (11th Cir. 1996).
In order to state a claim, Federal Rule of Civil Procedure 8(a)(2) requires “a
short and plain statement of the claim showing that the pleader is entitled to relief.”
Fed. R. Civ. P. 8(a)(2). Also, Rule 10(b) requires that a party “state its claims or
defenses in numbered paragraphs, each limited as far as practicable to a single set of
circumstances.” Fed. R. Civ. P. 10(b); Kennedy v. Bell S. Telecommunications, Inc.
(AT & T), 546 F. App'x 817, 819-20 (11th Cir. 2013). A proper complaint “will present
each claim for relief in a separate count, as required by Rule 10(b), and with such
clarity and precision that the defendant will be able to discern what the plaintiff is
claiming.” Anderson v. Dist. Bd. of Tr. of Cent. Fla. Cmty. Coll., 77 F.3d 364, 366-67
(11th Cir. 1996); Cesnick v. Edgewood Baptist Church, 88 F.3d 902, 905-07 (11th Cir.
Page 4 of 52
1996) (dismissing a “shotgun” pleading framed in complete disregard of the principle
that separate causes of action should be plead in separate counts.”). The complaint
must “give the defendant fair notice of what the ... claim is and the grounds upon
which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 545 (2007) (citations
omitted). “While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not
need detailed factual allegations, a plaintiff's obligation to provide the ‘grounds’ of
his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a
formulaic recitation of the elements of a cause of action will not do.” Id. “To survive
a motion to dismiss, a complaint must contain sufficient factual matter, accepted as
true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556
U.S. 662 (2009) (quoting Twombly, 550 U.S. at 570).
Introduction to the Complaint
Appellants (Plaintiffs below) are “Talisman, the Assignee of Lender,” and
“EGE, a special purpose vehicle (“SPV”), created by Lender and its Florida Decision
Maker, to hold a 17% . . . ownership interest in SVL, a Jamaican public company,
which holds the license to operate the only lottery in Jamaica.” DE 11 at 10 of 49
(citations omitted). Plaintiffs state they have “sued 31 defendants, individually, and
as co-conspirators, seeking recovery of approximately $100 million in compensatory
damages, which resulted from Defendants’ . . . schemes to defraud and otherwise
steal cash, collateral, stock, and dividends and other property rights.” DE 11 at 11 of
49.
Page 5 of 52
Appellants disagree with the Bankruptcy Court’s characterization of the
dispute presented by the Complaint. Accordingly, in an attempt to give a sense of
the dispute presented by this case, the Court quotes the Complaint’s first two
paragraphs:
1.
This Complaint alleges a vast intentional scheme and conspiracy
to defraud and otherwise steal tens of millions of dollars, collateral,
and/or other valuable personal property separately from each of the
Plaintiffs, which illegal scheme was devised and masterminded by
Defendant Paul Gerard (“Gerry”) Mouttet (“Mouttet”), and members of
his immediate and extended family (hereinafter, collectively, “The
Mouttet Family Criminal Enterprise” and/or “The Mouttet Family Florida
Criminal Enterprise”). This Florida-based conspiracy involved numerous
and continuous acts perpetrated in this District by, and/or at the behest
of Mouttet, who elicited his father, brother, uncle, and other relatives,
friends, and business associates in this District to assist him in
perpetrating this massive fraud. In addition, this illicit scheme also
involved other persons and entities in other countries, which all acted at
the express direction and bidding of Mouttet, who controlled their, and
the other members of The Mouttet Family Criminal Enterprise’s and The
Mouttet Family Florida Criminal Enterprise’s actions (as well as the SVL
Enterprise and/or the SVL Florida Enterprise, as defined and alleged,
below), from Florida, in this District.
2.
To accomplish his separate thefts of tens of millions of dollars of
personal property from each Plaintiff, Mouttet used his ownership and
control of a gaming and lottery company in Jamaica, Defendant
Supreme Ventures Limited, a/k/a Supreme Ventures Ltd. (“SVL”), and
other related entities, to separately lure each of the Plaintiffs to enter
into a series of separate commercial transactions. Ultimately, as
Plaintiffs now know, beginning in or about 2004 or 2005, Mouttet plotted
and conspired with his fellow Directors at SVL, Defendants Paul Hoo
(“Hoo”), Ian Levy (“Levy”), Janette Stewart (“Stewart,” the widow of
SVL’s former Chairman, Peter Stewart), and John G. Graham
(“Graham”), and other key executives, including Defendant Brian
George (“George”), SVL’s President and CEO, among others, to, first,
withhold, and otherwise misrepresent, crucial information and
documents, and, then, ultimately to lie under oath, and withhold other
Page 6 of 52
key documents to falsely defend a lawsuit tried in Jamaica on claims
other than those alleged in this Complaint, all with the stated purpose
to either frustrate, hinder, and/or delay each of the Plaintiffs from
exercising their respective, separate and distinct legal rights, or to steal
each of the Plaintiff’s separate property rights. These lies and
intentional withholding of information and documents only came to be
discovered recently, when Mouttet filed Affidavits executed by him and
George in other litigation previously pending before this District Court in
early October, 2011, and, again, in early January, 2012, and produced
certain documents - - disclosed for the first time to any of the Plaintiffs
- - in mid-September, 2011. These revelations showed Mouttet and his
coconspirators for what they really were, namely, a dishonest group of
individuals, who had for many years tried to hide the truth from each of
the Plaintiffs, but, who, now, were caught in their web of intentional
deceit.
DE 2-8 ¶¶ 1-2.
Procedural Background
The operative Complaint consists of 801 paragraphs covering 290 pages and
includes 24 counts. Paul Gerard Mouttet (the “Debtor”) and five Relief Defendants
are among the 31 defendants.2 Six of the 24 counts ask the Court to determine as
non-dischargeable all the debts and claims asserted by Talisman and EGE against the
Debtor in the Complaint (the “Core Counts”). The balance of the counts seek
recovery from a variety of defendants based primarily on alleged violations of federal
and Florida RICO laws.
On the same day the Complaint was filed, Appellants also filed a Motion for
Withdrawal of Reference and to Transfer Adversary Proceeding to the U.S. District
2
The named Relief Defendants are Intralot St. Lucia Limited, Intralot
Caribbean Ventures Limited., Intralot S.A., SGLBVI Ltd., and VLT (BVI), Ltd.
Page 7 of 52
Court. In the Motion for Withdrawal of Reference, Plaintiffs (Appellants) argued that
the Bankruptcy Court lacked subject-matter jurisdiction to adjudicate to final
judgment the Florida and federal RICO claims brought against the non-debtor
defendants in this action. The District Judge to whom this case originally had been
assigned agreed, severed Counts I-XVIII of the Complaint (the “Severed Claims”) and
withdrew the reference as to the Severed Claims only. See Case 12-cv-23319-UU, DE
20; Compl. ¶ 21, n.1. The District Court denied the Motion to Withdraw Reference
with respect to the six non-dischargeability claims brought solely against Debtor
Mouttet (Counts XIX - XXIV). Then, the District Court referred the Severed Claims
back to the Bankruptcy 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….” Id.
Discussion
The Bankruptcy Court explained in its decision [DE 1]3 that the Complaint fails
to meet even the basic pleading requirements of Fed. R. Civ. P. 8(a)(2) as made
applicable by Fed. R. Bankr. P. 7008. For instance, she wrote, “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.” Amended
3
DE 318 in the bankruptcy docket; DE 1 in the district court docket.
Page 8 of 52
Order on Motions to Dismiss [DE 1 at 61 of 81]. The Court agrees. Indeed, at the
hearing before the Bankruptcy Judge, and here at the District Court, Plaintiffs’
counsel attempted to present a 92 page PowerPoint, including pie charts, in an effort
to explain what the Complaint alleges.
Core Counts
There are six core counts in the complaint - three asserted by Talisman and
three asserted by EGE (Counts XIX - XXIV). The Bankruptcy ruled as follows on the
core counts:
As to Count XIX, seeking relief under 11 U.S.C. §523(a)(2), the Bankruptcy
Court granted in part and denied in part the Debtor’s motion to dismiss Count XIX;
As to Count XX, seeking relief under 11 U.S.C. § 523(a)(4), the Bankruptcy
Court dismissed with prejudice any claims arising from the alleged theft of loan
proceeds or embezzlement with respect to the $13.6 Million Loan and dismissed
without prejudice any claims arising from the alleged embezzlement relating to the
$29.5 Million Loan, and any claims relating to theft of collateral.
As to Count XXI, seeking relief under 11 U.S.C. §523(a)(6), the Bankruptcy
Court dismissed with prejudice any claims arising from the alleged theft of loan
proceeds or embezzlement with respect to the $13.6 Million Loan for failure to state
a cause of action for willful and malicious injury.
As to Count XXII, seeking relief under 11 U.S.C. §523(a)(4), the Bankruptcy
Court dismissed with prejudice that portion of Count XXII that seeks relief based on
Page 9 of 52
the original Forward Share Sale Agreement (the “FSSA”) and dismissed with leave to
amend 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.4
The Bankruptcy Court dismissed Count XXIII with prejudice, which sought relief
under 11 U.S.C. §523(a)(4), finding Mouttet cannot be held responsible for converting
something that EGE did not own. And, finally, in the last core claim, the Bankruptcy
Court dismissed Count XXIV with prejudice finding 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. DE 1 at
75 of 81.
Non-Core Claims
In testing the sufficiency of the Complaint with respect to the claims for fraud
and RICO, the Bankruptcy Court concluded that:
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.
DE 1 at 63 of 81.
4
“Which amendment must also articulate more precisely what debt EGE seeks
to have determined is not discharged.” DE 1 at 71 of 81.
Page 10 of 52
As to the 18 non-core claims (the “Non-Core Claims”)5 raised by Appellants
against Defendants, the Bankruptcy Court recommended that they be dismissed
without prejudice for lack of bankruptcy court subject-matter jurisdiction because
they “are neither related-to the bankruptcy case, nor [is] supplemental jurisdiction .
. . appropriately invoked.” DE 1 at 51-52 of 81, see also Compl. ¶ 21, n.1; n.22.
The Bankruptcy Court explained, “it is not possible to determine either aspect of
related-to jurisdiction in the absence of an amended complaint, at which time the
reviewing court will be able to determine what causes of action survive and whether
such actions are sufficient, whether by impact or common nucleus of facts, to trigger
related-to jurisdiction.” DE 1 at 51, 61 of 81. The Bankruptcy Court further
recommends that the Relief Defendants be dismissed from the case with prejudice.
DE 1 at 58 of 81.
Subsequently, Plaintiffs filed “revised” objections to the Bankruptcy Court’s
recommendations pursuant to Fed. R. Bankr. P. 9033. DE 15 (the “Objections”).
Appellants argue that the Bankruptcy Court got virtually everything wrong and that
this Court should reject the Order and recommendations “in toto.” Objections at 5,
23, 50. Appellees request that this Court reject Plaintiffs’ Objections, adopt the
proposed findings of fact and conclusions of law set forth in the Order, and dismiss
this case. DE 28 at 5.
5
Counts I-XVIII.
Page 11 of 52
Issues Presented on Appeal
1.
Whether the Bankruptcy Court erred in dismissing Talisman’s and EGE’s
core non-dischargeability claims asserted against Debtor Mouttet pursuant to 11
U.S.C. § 523(a)(2)(A)?
2.
Whether the Bankruptcy Court erred in dismissing Talisman’s and EGE’s
core non-dischargeability claims asserted against Debtor Mouttet pursuant to 11
U.S.C. § 523(a)(4)?
3.
Whether the Bankruptcy Court erred in dismissing Talisman’s and EGE’s
core non-dischargeability claims asserted against Debtor Mouttet pursuant to 11
U.S.C. § 523(a)(6)?
4.
Whether the Bankruptcy Court erred in applying principles of
international comity, res judicata, and collateral estoppel in dismissing EGE’s core
non-dischargeability claims against Debtor Mouttet?
5.
Whether the Bankruptcy Court improperly prevented Plaintiffs from
obtaining discovery concerning their core non-dischargeability claims against Debtor
Mouttet?
DE 11 at 14-15 of 49; DE 27 at 7-8.
Appellants’ Appeal and Objections
Appellants present their “Principal Brief on Appeal” in Docket Entry 11 where
they argue the Bankruptcy Court erred in dismissing Talisman’s and EGE’s Core, NonDischargeability Claims (Counts XIX through XXIV). Later, in Docket Entry 15,
Page 12 of 52
Appellants present their “Joint, Bankruptcy Court Ordered, ‘Revised’ [9033]
Objections” which addresses the “18 non-core but clearly ‘related to’ claims’ alleged
against all 31 defendants.” DE 15 at 21 of 71.
The Court begins with the first core claim based on 11 U.S.C. § 523(a)(2)(A).
Court XIX
The parties agree the Bankruptcy Court correctly recited the elements to be
pled to properly state a claim under § 523(a)(2)(A).6
In order to prevail in an action under section 523(a)(2) the Plaintiffs
must prove by a preponderance of the evidence that ‘(1) the debtor
made a false representation to deceive the creditor, (2) the creditor
relied on the misrepresentation, (3) the reliance was justified, and (4)
the creditor sustained a loss as a result of the misrepresentation.’ In re
Bilzerian, 153 F.3d 1281 (11th Cir. 1998).
DE 1 at 69 of 81. As to Talisman’s 11 U.S.C. § 523(a)(2)(A) claims against Debtor
Mouttet in Count XIX, the Bankruptcy Court succinctly stated:
The Debtor argues that Talisman is not entitled to relief under
6
11 U.S.C.A. § 523: Exceptions to Discharge.
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of
this title does not discharge an individual debtor from any debt (2) for money,
property, services, or an extension, renewal, or refinancing of credit, to the extent
obtained by (A) false pretenses, a false representation, or actual fraud, other than a
statement respecting the debtor's or an insider's financial condition.
Section (B) (which Appellants point out is not at issue here) deals with the use
of a statement in writing (I) that is materially false; (ii) respecting the debtor's or an
insider's financial condition; (iii) on which the creditor to whom the debtor is liable
for such money, property, services, or credit reasonably relied; and (iv) that the
debtor caused to be made or published with intent to deceive.
Page 13 of 52
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.
DE 1 at 70 of 81. This Court notes there is no authority cited for the proposition that
oral misrepresentations are inadequate when pleading a claim pursuant to 11 U.S.C.
§ 523(a)(2) and the elements cited above do not mention such a requirement.
On appeal Talisman argues it has properly pled each of the elements required
by In re Bilzerian by alleging that Mouttet, individually and through others, made oral
misrepresentations and omissions of material fact, which resulted in, and
fraudulently induced, Lender7 to agree to the creation of numerous new written
agreements (including a release of the service fees as collateral for the loan), as a
result of those oral misrepresentations. Compl. ¶ 98-106, 108-09, 113-14, 121-24,
136-39, 150-53, 719-738, 757-58.
It appears Appellant Talisman caused unnecessary confusion by only listing
§ 523(a)(2) for this count, without specifying whether it was proceeding under
§ 523(a)(2)(A) or § 523(a)(2)(B). The Bankruptcy Court focused on § 523(a)(2)(B),
which relates to the use of a materially false written statement. But Appellant now
7
Collectively, Westford Special Situations Master Fund L.P. (“Westford”),
Epsilon Global Master Fund L.P. (“Epsilon Global”), and Epsilon Global Master Fund II,
L.P. (Epsilon Global II).
Page 14 of 52
emphasizes it is relying upon § 523(a)(2)(A), which as noted, does not state that the
misrepresentation must be in writing. In support of the Bankruptcy Court’s decision,
all Appellees have to say is that “Appellants’ arguments are not compelling . . .” DE
27 at 17 of 42.
The Court has carefully reviewed the cited paragraphs and finds they
competently allege the Debtor made many false representations to deceive the
creditor, the creditor justifiably relied on the misrepresentations, and the creditor
sustained a loss as a result of the misrepresentations. The Bankruptcy Court cannot
be faulted due to Talisman’s failure to be more specific in alleging the proper
subsections of Section 523 on which it was relying. Accordingly, and due to no fault
of the Bankruptcy Court, the Court finds that Talisman has adequately stated a claim
in Count XIX for a violation of § 523(a)(2)(A). In re Parra, 483 B.R. 752, 769 (Bankr.
D. N.M. 2012) (holding non-dischargeable under § 523(a)(2)(A) portions of debt
obtained by oral agreement through fraudulent “invalid substitution” of vehicle
titles). Thus, the Bankruptcy Court’s dismissal of Talisman’s § 523(a)(2) claim (Count
XIX) for the reasons stated was erroneous. Count XIX is still dismissed without
prejudice, however, so that Appellant can state with specificity under what
subsection of the statute it is moving.
Count XXII
The Bankruptcy Court also dismissed EGE’s § 523(a)(2)(A) claims in Count XXII
finding:
Page 15 of 52
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.8
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.
DE 1 at 70-71 of 81 (emphasis provided).
Appellants argue that the Bankruptcy Court erroneously limited EGE’s nondischargeability claims against Debtor Mouttet to the schemes to defraud and steal
the SVL stock of EGE, and the dividends paid thereon to Debtor Mouttet (and other
defendants), to only one event, namely, the 2005 Supplemental Agreement, and
totally ignored eight other well-pled specific events.
The first well-pled specific event the Bankruptcy Court allegedly ignored is
8
The Court notes that Appellants do not argue error in the Bankruptcy Court’s
decision to dismiss with prejudice that part of the Complaint that seeks relief based
on the original FSSA. Accordingly, that part of the Bankruptcy Court’s decision is
affirmed.
Page 16 of 52
EGE’s claim that Debtor Mouttet stole “EGE’s 17% equity participation interest in
both Atlantic and Peninsula, and the profit participations thereon . . .” Appellants
state this is alleged in all three of its non-dischargeability counts (XXII - XXIV) and
cites ¶¶ 381-83, 394-99. The Court disagrees. Paragraph 381 alleges:
On or about August 28, 2002, EGE was sold an equity participation in the
success of SVL, whereby EGE was conveyed ownership of 17% of SVL’s
share capital, as well as an equity participation and ownership in the
same 17% percentage in both Atlantic and Peninsula. Thus, it was the
intent of all of the parties to these transactions, that EGE would own
17% in each of SVL, Atlantic and Peninsula. . .
DE 2-8, ¶ 381. Neither this, nor any other paragraph the Court could find, made the
necessary allegations regarding false representations to deceive, justified reliance,
and loss of EGE’s 17% ownership in Atlantic or Peninsula.
Count XXII is five paragraphs in length (¶¶ 774-778) and it incorporates
paragraphs 299, and 381-471. Appellees respond stating
Appellants do not allege theft in the Complaint under § 523(a)(2)(A).
That Count seeks claims for fraud and misrepresentations. In addition,
Appellee is not even referenced as a theft participant in any of the
paragraphs cited in support of this first reason.
DE 27 at 17 of 42. Appellants reply by pointing to paragraph 740 of the Complaint
where it is alleged:
in order to accomplish the theft of the over 391,500,000 shares of SVL
stock sold to, and owned by EGE, and the resulting dividends paid
thereon, Mouttet fraudulently induced EGE to execute, first, the June
28, 2005 Supplemental Agreement and the July 7, 2005 St. Georges
Option Agreement, and, then, the two amendments to said Option
Agreement, to lull and otherwise prevent EGE from immediately
exercising its rights to demand registration of the over 391,500,000
Page 17 of 52
shares of SVL stock sold to, and owned by EGE, to allow Mouttet to
secretly pledge the very shares owned by EGE to obtain the $16.5
million loan from Petters. . .
DE 32 at 9 of 17 (emphasis in original).
While Appellants did not incorporate paragraph 740, and many other
paragraphs to which Appellants now cite in support Count XXII, paragraph 740 above
clearly alleges theft and appears in a section that begins with paragraph 719 and is
entitled, “Factual Background of the Sections 523(a) Non-Dischargeability Claims.”
However, this allegation refers to theft of SVL shares purportedly owned by EGE,
which, as will be addressed below, has been determined were never owned by EGE.
This Court affirms the Bankruptcy Court’s conclusion that “[a]ll 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.” DE 1 at 54 of 81. See, e.g.,
Parklane Hosiery Co., Inc. v. Shore, 439 U.S. 322 (1979).
The second specific allegation purportedly ignored by the Bankruptcy Court is
that “Debtor Mouttet (and others) received disguised dividends from SVL in the form
of secret payments of service fees of at least $300,000 a month, and no dividends
were ever paid to EGE on its substantial stock holdings in SVL. [¶ 401-02, 458-61, 464,
466-67].” This second allegation fails for the same reason as the first, namely
Page 18 of 52
because, as elaborated upon below, the Bankruptcy Court and this Court reject EGE’s
claim to be a stock holder of SVL.
The third allegation purportedly ignored by the Bankruptcy Court is that Debtor
Mouttet received secret payments in the form of disguised dividends from Atlantic
and Peninsula [id. ¶ 403]; yet no dividends were ever paid to EGE, even though it was
entitled to a 17% profit participation and ownership [¶¶ 401-03, 458-61, 464, 466-67].
Upon a review of the cited paragraphs of the Complaint upon which EGE relies, the
Court finds they all relate to EGE’s purported ownership of SVL stock. So, once again,
these allegations do not state a cause of action in favor of EGE.
The fourth allegation purportedly ignored by the Bankruptcy Court is that
Debtor Mouttet fraudulently induced EGE to execute an Option Agreement with St.
Georges, an entity controlled by Debtor Mouttet and the “Mouttet Crime Family,” as
part of a fraudulent scheme to try to prevent EGE from exercising its rights to have
its 13.5% (fully diluted) ownership interest in SVL duly registered in the books and
records of SVL [¶¶ 422-26]. As discussed below, the Jamaican Court already
determined that EGE did not timely exercise its option to acquire the Founding
Shareholders’ stock, so this allegation is also properly dismissed.
The fifth allegation purportedly ignored by the Bankruptcy Court is that in
2007, Debtor Mouttet represented to a third party that EGE was “‘a major
shareholder of SVL’ [¶¶ 433-434].” The sixth purportedly ignored allegation is that
Debtor Mouttet stated to a third party that “EGE would receive approximately 13.5%
Page 19 of 52
of the net sales proceeds, if SVL was sold, due to EGE’s ownership interest in SVL [¶
434].” The seventh purportedly ignored allegation is that Debtor Mouttet made false
statements to lull EGE into not effectuating the option to register its ownership in
SVL on SVL’s books and records [¶¶ 435, 439]. The eighth and last purportedly
ignored allegation states that as part of a scheme to defraud and steal, Debtor
Mouttet secretly and illegally “double-pledged” and sold EGE’s SVL stock [¶ 438], and
once that loan was repaid, via a settlement with Petters’ Trustee, it then further
conveyed that SVL stock to the Intralot entities in derogation of EGE’s ownership
rights. DE 11 at 31 of 49.
The fifth through eighth allegations, again, all rely on the sustainability of the
allegation that EGE owned SVL stock. A predecessor court, however, has already
determined that EGE never owned any SVL stock. See DE 1 at 45 of 81.9 Since EGE
never owned the SVL stock, all claims alleging wrongdoing based on EGE’s ownership
of SVL stock fail to state a claim. EGE cannot recover on a claim that has been
rejected by the Jamaican Court, and which judgment is being given comity by this
Court. Accordingly, the decision of the Bankruptcy Court as to Count XXII is affirmed.
The second issue on appeal relates to the Bankruptcy Court’s application of 11
9
“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 (the “Jamaican Judgment”).”
Page 20 of 52
U.S.C. § 523(a)(4).
Count XX
(¶¶ 761-767 (incorporating ¶¶ 756-760)). Paragraph 756 (the first paragraph of Count
XIX) incorporates ¶¶ 719-738. Paragraph 719 incorporates ¶¶ 1-298 and 300-380, for a
total of 409 paragraphs.
11 U.S.C. § 523(a)(4) excepts from discharge debts are based, among other
things, on larceny. “Larceny is the fraudulent taking and carrying away the property
of another with intent to convert such property to his use without the consent of
another.” In re Pupello, 281 B.R. 763, 768 (Bankr. M.D. Fla. 2002). Also, “[a] key
element of both larceny and embezzlement is that the plaintiff must establish
ownership of the property taken.” In re Cuenant, 339 B.R. 262, 277 (Bankr. M.D. Fla.
2006). It seems necessary to quote the Bankruptcy Court’s rulings on this issue, as
the parties represent divergent holdings by that court. As to this issue, the
Bankruptcy Court held as follows:
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 2912483, *6 (Bankr.
S.D. Fla. 2009). The failure to pay back a loan does not generally
support a claim for larceny. See Walter v. Figarola, 59 So. 3d 188, 190
(Fla. 3d DCA 2011). The allegations of this Complaint do not suggest an
exception.
Page 21 of 52
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.
DE 1 at 71-72 of 81 (footnotes omitted). The Bankruptcy Court dismissed without
prejudice any claims arising from the alleged embezzlement of loan proceeds with
respect to the $29.5 million Atlantic loan and any relating to theft of collateral, and
dismissed with prejudice any and all claims arising from the alleged theft of loan
proceeds or embezzlement with respect to the $13.6 SGCW million loan. DE 1 at 74
of 81.
Page 22 of 52
On appeal, Talisman asserts it
also alleges that Debtor Mouttet orchestrated and directed a conspiracy
to steal the specific, clearly identifiable: (1) Service Fees10 that should
have been paid to SVL to the Atlantic bank account at Terrabank in
Miami – which account was controlled by Lender – after June 2005 [¶
720-25, 763]; (2) the SVL stock which was promised to be the
replacement collateral for those Service Fees (by “double-pledging” that
stock to secure the secret $16.5 million loan Debtor Mouttet received
from Petters) [¶ 729, 763] and (3) the entirety of the $13.6 million SGCW
loan proceeds, and all of the collateral security for that loan [¶ 729,
763], which necessarily deprived Lender (and, thus, Talisman) of its
rights to, and the benefits of the collateral [¶ 764]. Therefore,
Talisman’s claims clearly do not, ipse dixit, arise from “the failure to
payback a loan,” as incorrectly stated by the Bankruptcy Court [ECF
#298 p.30].
DE 11 at 32 of 49 (emphasis in original). Notably, this Count incorporates paragraphs
that incorporates paragraphs, that incorporates even more paragraphs (for a total of
approximately 409 paragraphs). In light of this Complaint’s length and complexity,
key factual allegations must be plainly stated in each count. It is wholly
unreasonable to expect or require a court to comb through a 290-page complaint to
try and locate the allegations that support a specific count.
Concerning the $29.5 million Atlantic loan, Appellants argue that the
Bankruptcy Court erred when it summarily held as a matter of law that the Complaint
fails to state a cause of action for larceny. Relying on Walker v. Figarola, 59 So.3d
188, 190 (Fla. Dist. Ct. App. 2011), Appellants argue they have stated a claim for
10
Appellants clarify in their reply that it is alleged that the service fees were
assigned to Lender for upwards of ten years (¶¶ 72-74).
Page 23 of 52
conversion because the facts demonstrate that the alleged conversion or civil theft
goes beyond, and is independent from, a simple breach of contract to repay a debt.
The Bankruptcy Court summarily dismissed this theory stating, “allegations of
conversion and theft of collateral . . . are tied up in the RICO and conspiracy counts
that this Court has already directed must be dismissed.” DE 1 at 73 of 81.
Appellees respond that as merely collateral, the Service Fees remained the
property of Atlantic and that since the Service Fees were never owned by Talisman or
its predecessors, Talisman cannot meet the most basic element of larceny. As stated
above, a key element of larceny “is that the plaintiff must establish ownership of the
property taken.” In re Cuenant, 339 B.R. at 277. Appellees further assert that the
SVL stock that Appellants claim was promised to replace the Service Fees as collateral
could not be subject to embezzlement or larceny because it was at best collateral
and never owned by Talisman.
Appellants reply by mischaracterizing Appellees response: “Debtor Mouttet
claims that the Service Fees were not owned by Lender; however, Plaintiffs alleged
that the Service Fees were assigned to Lender . . .” DE 32 at 10 of 17. Appellees’
argument that Talisman never owned the Service Fees and may not therefore sue for
its conversion is persuasive. The Order of the Bankruptcy Court will be affirmed on
its conclusion regarding the $29.5 million Atlantic loan.
Concerning the $13.6 million SGCW loan, Appellants vehemently disagree with
Page 24 of 52
the Bankruptcy Court’s statement that
The Complaint also fails to state a cause of action for larceny with
respect to the $13.6 Million Loan . . . [because] 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)11.
DE 1 at 72 of 81. Appellants assert that
Talisman absolutely did not plead that the $13.6 million SGCW loan
proceeds were used for their agreed use! The agreed use of the SGCW
loan proceeds was to obtain licenses for future gaming and lottery
operations in Central America, and for the purchase of a revenue sharing
agreement from GTECH [¶ 136]. One of Debtor Mouttet’s coconspirators, Sevilla, falsely represented in an e-mail to the Lender
that the SGCW loan proceeds were being used for these purposes [¶
139]. In fact, Debtor Mouttet, and his co-conspirators had already,
secretly obtained the needed financing for the purported expansion into
Central America from Petters [¶ 130], in violation of the January 2007
MOU provided to the Lender before the $13.6 million loan was ever
funded. The Bankruptcy Court’s erroneous finding, concerning the
11
Paragraph 139 of the Complaint alleges as follows:
“139. Without any knowledge of the foregoing violation of the MOU, in or about
March, 2007, the Lender agreed to make a series of specifically defined short-term
loans in the total aggregate amount of $13.6 million to SGCW, the purposes of which
were to pursue expansion of a lottery business into Central America, and to purchase
the necessary lottery equipment from GTECH to do so - - which Sevilla represented to
the Lender was done in an email he sent, on or about May 11, 2007, from Miami - - as
follows, among other purposes: (a) $3 million for the partial buyout of GTECH revenue
sharing for Guatemala - - which Sevilla again represented to the Lender, in his May
11, 2007, email was done; (b) up to $2 million to repurchase as much as 17% of the
shares of Supreme Gaming-Florida issued to a third party; (c) up to $4 million to
Flying Fish, the largest shareholder of SGCW, and which was another company
controlled by Mouttet and C. Mouttet; and (d) up to $750,000 as working capital for
the business operations of SGCW. The $4 million that the Lender funded to SGCW,
which SGCW in turn paid over to Flying Fish, was used by Flying Fish to repay, in full,
the $4 million personal loan previously made to Mouttet and his brother, C. Mouttet.”
DE 2-8 at 71 of 460.
Page 25 of 52
“proper use” of the SGCW proceeds, ignores these well-pled facts, and
Walker indicates that, where the use of loan proceeds is part of a
parties’ agreement, and the defendant fails to use the proceeds as
agreed, a claim for conversion or civil theft is proper. Walker, 59 So.3d
at 190. Here, Talisman has alleged that Debtor Mouttet and his brother
C. Mouttet, among others, misappropriated the SGCW loan proceeds in
violation of the January 2007 MOU.
DE 11 at 33-34 of 49 (emphasis in original). Regardless of what Appellants claim is
alleged in paragraph 139, the word falsely is not there. Appellees claim that there is
not a single allegation in the Complaint disputing the representations made by
Sevilla. In their reply, Appellants are mute as to this issue. However, upon a quick
search for the word “misappropriated,” paragraph 238 (incorporated into this count)
alleges
Mouttet has admitted, in other litigation before the District Court, that
he directed, through Flying Fish, the largest shareholder of SGCW, or
that he had the ability to direct the disbursement of the $13.6 million in
loan proceeds made by the Lender to SGCW. Using that authority,
Mouttet, and his brother, C. Mouttet, each misappropriated those funds
for unauthorized, illegal, and individual and collective personal uses, as
members of The Mouttet Family Criminal Enterprise.12
DE 2-8 at 105 of 460 (emphasis added). This paragraph is under the wire fraud RICO
allegations, one of the 409 paragraphs scattered throughout the Complaint that are
cited to support this count. As noted earlier, the Complaint is insufferably long and
nearly impossible to understand and analyze. The Complaint is replete with
12
See, also, for example, paragraph 228: “Mouttet and C. Mouttet knowingly
and purposefully misrepresented the reasons for, and the ultimate use of, the $13.6
million in loan proceeds.”
Page 26 of 52
allegations of theft, misrepresentation and misappropriation. It may well be that
Appellants accidently omitted the word “falsely” in paragraph 139. Dismissing this
entire count with prejudice when the defect could be cured with more specific and
streamlined allegations is an abuse of discretion, especially in light of the apparent
attempt to allege fraudulent conduct. Since the allegations relative to the $29.5
Million Loan have been dismissed without prejudice, the allegations relative to the
$13.6 million SGCW loan will also be dismissed without prejudice. Accordingly, the
decision to dismiss with prejudice that part of Count XX that relates to the $13.6
million SGCW loan is reversed. Taking into account all the arguments made by
Appellees and the rulings of the Court, Appellants are given permission to make one
more attempt to replead Count XX in such a way that it is clearly alleged that the
property was taken for the Debtor’s benefit with fraudulent intent or deceit.
Count XXIII
¶¶ 779-784 (incorporating ¶¶ 774-778, with ¶ 774 incorporating ¶¶ 299 and 381-471).
Moving on to the application of 11 U.S.C. § 523(a)(4) to EGE, the Bankruptcy
Court devoted one paragraph to this issue, namely:
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.
Page 27 of 52
DE 1 at 74 of 81 (emphasis provided). Appellants again complain that the Bankruptcy
Court completely ignored the same eight “well-pled” allegations specifically
discussed above. Appellants then argue,
[b]ased solely on that mischaracterization (that EGE rests its § 523(a)(4)
claim in Count XXIII on the SVL stock), the Bankruptcy Court then
summarily refused to address, solely based upon the prior Jamaican
judgment, the merits of EGE’s properly alleged § 523(a)(4) claims. . .
[T]he Jamaican judgment was the product of a fraud perpetrated by
Defendants upon the Jamaican court, and therefore, does not preclude
well-pled claims on the basis of international comity, res judicata,
and/or collateral estoppel.
DE 11 at 34 of 49 (emphasis in original).
As to the allegation of fraud perpetrated upon the Jamaican Court, the
Bankruptcy Court stated:
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 excluded13 from the
Jamaican litigation, based on arguments by the defendants challenging
its authenticity. Nonetheless, EGE argues, in 2011, Mouttet or George
13
Paragraph 417 alleges both that the 2005 Supplemental Agreement was not
produced at the Jamaican trial by SVL, George, Hoo, Levy, or Stewart, and that they
challenged its authenticity and admissibility in order to prevent its introduction into
evidence and thereby obstruct justice and mislead the Jamaican trier of fact to
render a decision contrary to the true facts. DE 2-8 ¶ 417. During oral argument,
Appellees read from a declaration made by Mr. Hylton, who was lead counsel for Ian
Levy at the trial in Jamaica. The declaration directly contradicts these allegations.
Counsel stated the Bankruptcy Court took judicial notice of the declaration, and that
it is part of the record on appeal. However, it is not mentioned in the Order on
appeal. Accordingly, this declaration is not properly before the Court and it may not
be considered in this appeal. Transcript (DE 46) at 89-94; Hylton Declaration [DE 182
in Bankruptcy Case No. 12-01842].
Page 28 of 52
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.
Finally, EGE can provide no explanation for how the Jamaican court is
not a court of competent jurisdiction to resolve this dispute when EGE is
the party who initially sought recourse in the Jamaican courts, under
Jamaican law, and, indeed, continues to pursue that action in Jamaica,
even during the pendency of this case. . .
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, XVI, and XVIII, XIII and XXIV are
dismissed with prejudice.
DE 1 at 55-56 of 81; see also DE 1 at 21 of 81.
Relying upon Hilton v. Guyot, 159 U.S. 113 (1895)14 (“Hilton”) and Chevron
14
“But it is now established in England, by well-considered and stronglyreasoned decisions of the court of appeal, that foreign judgments may be impeached,
if procured by false and fraudulent representations and testimony of the plaintiff,
even if the same question of fraud was presented to and decided by the foreign
court. . . In the case at bar the defendants offered to prove, in much detail, that the
plaintiffs presented to the French court of first instance and to the arbitrator
appointed by that court, and upon whose report its judgment was largely based, false
and fraudulent statements and accounts against the defendants, by which the
arbitrator and the French courts were deceived and misled, and their judgments were
based upon such false and fraudulent statements and accounts. This offer, if
Page 29 of 52
Corp. v. Donziger, 886 F. Supp. 2d 235 (S.D. N.Y. 2012)15 (Chevron), Appellants argue
that
[t]he Bankruptcy Court’s ‘analysis’ of the Supreme Court’s decision in
Hilton is just simply wrong, and it committed fundamental error and
otherwise abused its discretion, by determining that “international
comity” and deference to the Jamaican judgment somehow barred all of
EGE’s claims respecting the stolen 13.5% stock ownership interest in
SVL. The Bankruptcy Court completely ignored . . . controlling U.S.
Supreme Court authority for the proposition that American courts can,
and should, entertain independent actions for fraud on a foreign court,
and thereby reject a foreign court’s judgment based upon (for example)
the more recent decision in Chevron, 886 F. Supp. 2d 235 (citing
Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238, 245-47
(1944)).
DE 11 at 38 of 49 (emphasis in original and provided).
Certainly courts “can” consider the issue of fraud on a foreign court, but
“should,” as a directive, is a self-serving misrepresentation of what Chevron says
about Hazel-Atlas.16 The following quote from Chevron suggests a more balanced
satisfactorily proved, would, according to the decisions of the English court of appeal
in Abouloff v. Oppenheimer, Vadala v. Lawes, and Crozat v. Brogden, above cited, be
a sufficient ground for impeaching the foreign judgment, and examining into the
merits of the original claim.” Id. at 209-210.
15
(Granting partial summary judgment for Chevron on its complaint based on
RICO and other fraud causes of action against the Ecuadoran lead plaintiffs and their
attorneys and dismissing affirmative defenses based on res judicata and collateral
estoppel of the Ecuadoran judgment.)
16
(“This is not simply a case of a judgment obtained with the aid of a witness
who, on the basis of after-discovered evidence, is believed possibly to have been
guilty of perjury. Here, even if we consider nothing but Hartford's sworn admissions,
we find a deliberately planned and carefully executed scheme to defraud not only the
Patent Office but the Circuit Court of Appeals”).
Page 30 of 52
approach taking into consideration the circumstances of each case “without the help
of any controlling general postulate:”
In Dictograph Products Co. v. Sonotone Corp.,17 a case involving the
alleged submission of false evidence before the Patent Office, Judge
Learned Hand wrote for a unanimous court as follows:
It is plain that the [Supreme] Court [in Hazel-Atlas] did not mean to
annul the ‘salutary general rule * * * that in most instances society is
best served by putting an end to litigation after a case has been tried
and judgment entered.’ 322 U.S. at 244. It did not decide that the
unsuccessful party to an action may always reopen a judgment upon
producing evidence of fraud in procuring it, even though the evidence
was inaccessible at the trial; especially it did not so decide when the
trial had turned upon the issue of fraud and the new evidence was
another version of what had originally appeared. . . The fact that he
does not at first succeed in unmasking the machinations of his adversary
is no reason for denying him relief after he has finally succeeded in
penetrating the complete disguise. And yet it is obvious that there must
be a limit, else the mere assertion of relevant evidence, though it was
inaccessible at the trial, will be enough to upset any judgment. From
this dilemma there is no escape unless in each case we balance the
conflicting interests and make a decision ad hoc; and that is as we
understand the decisions of the Supreme Court that we have cited.
Hence we must consider the occasion at bar in its concrete details and
without the help of any controlling general postulate.
Chevron, 886 F. Supp. 2d at 283-84. Appellants state that to determine whether to
recognize or enforce a foreign judgment on the merits where fraud on a foreign court
is alleged, courts consider whether:
(1)
17
the fraud prevented a full and fair presentation of the litigant’s claim or
defense in the prior action or otherwise would render it unconscionable
to give effect to the prior judgment,
230 F.2d 131 (2d Cir. 1956).
Page 31 of 52
(2)
the party seeking relief was diligent in discovering the fraud and
attacking the judgment, and
(3)
evidence of the fraud is clear and convincing.
DE 11 at 39-40 of 49 citing Chevron at 285.
This matter has been fully briefed and was also discussed during oral
argument. The Court is not convinced that any of the above cited considerations
have been met in this case. Appellants assert in their brief:
Stewart, SVL, George, Hoo and Levy, under the orchestration of Debtor
Mouttet and Graham, challenged the authenticity and admissibility of a
June 28, 2005 Supplemental Agreement, by lying under oath, at trial, in
Jamaica, that it didn’t exist (when it clearly did), in order to prevent
its introduction into evidence and thereby mislead the Jamaican court
to render a decision contrary to the true facts. Plaintiffs very clearly
alleged in their Complaint that, if the June 28, 2005 Supplemental
Agreement had been produced, and if George had testified at the
Jamaican trial truthfully, as he did in his October 4, 2011 Affidavit filed
by Debtor Mouttet before District Judge Graham (thereby admitting the
existence of the June 28, 2005 Supplement Agreement, a year following
the earlier lies to the Jamaican court), the Jamaican court’s opinion
would not have been factually possible.
DE 11 at 40 of 49 (emphasis in original).
What is particularly striking about this issue is the fact that the Jamaican
judgment is on appeal, but this particular issue is not. See DE 1 at 21 of 81. EGE
cannot possibly be considered diligent in attacking the judgment if it has not raised
this issue in its appeal in Jamaica. Appellants’ claim of fraud on the Jamaican Court,
even if true, does not approach the severity of the Chevron claims and will not defeat
a claim of international comity. The Court sees no reason why Debtor Mouttet’s
Page 32 of 52
much later, October 4, 2011, Affidavit admitting the existence of the June 28, 2005
Supplement Agreement would make a difference in terms of an appeal of what
happened in Jamaica. If a fraud occurred during the Jamaican trial, EGE would have
been aware of it at the time. Accordingly, this Court affirms the Bankruptcy Court’s
decision to recognize the Jamaican judgment on the merits.
As far as EGE’s argument that its 11 U.S.C. § 523(a)(4) claim is well stated
based on the eight well-pled specific events cited earlier in their brief, the Court’s
conclusion regarding the viability of those arguments remains the same as when the
Court addressed them earlier. See supra at pages 16-20.
The third issue on appeal relates to the Bankruptcy Court’s application of 11
U.S.C. § 523(a)(6).
Count XXI
With respect to Count XXI asserting a claim under Section 523(a)(6), the
Bankruptcy Court stated:
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 (1998).
In Count XXI Talisman alleges that the Debtor’s liability under the
Second Guarantee is not dischargeable because the Debtor stole the
proceeds of the $13.6 Million Loan.18 The Debtor argues that Talisman is
judicially estopped from claiming that Mouttet is liable to it for the
18
The Complaint also alleges that the Debtor stole the service fees but
nowhere in the Complaint is it alleged that the service fees secured repayment of the
$13.6 Million Loan. DE 1, n.24.
Page 33 of 52
$13.6 million because it sued Mouttet on the Second Guarantee and did
not seek recovery under any other theory of law. For the reasons this
Court has already addressed, the Court cannot rule on this motion to
dismiss that Talisman is judicially estopped from raising this claim by
virtue of the Guarantee Judgment. Nonetheless Count XXI is dismissed
with prejudice because, as noted already, the Complaint alleges the
$13.6 Million Loan proceeds were used for the purposes for which the
money was lent,19 and accordingly, Talisman’s claim fails to state a
cause of action for willful and malicious injury.
DE 1 at 74-75 of 81 (emphasis added). Unfortunately, due to the length of the
Complaint and the way it is laid out, including the conflation of facts, defendants and
claims, the Bankruptcy Court’s finding that the Complaint alleges the $13.6 Million
Loan proceeds were used for the purposes for which the money was lent is completely
understandable. However, as found earlier in this Opinion, this Court has concluded,
contrary to the Bankruptcy Court’s ruling, that Appellants should be given another
opportunity to attempt to allege that there was a conversion of the $13.6 million loan
proceeds. See, supra, page 26. Hence, this Count must be clarified and restated.
Therefore, this Count is dismissed without prejudice.
Count XXIV
As to the Bankruptcy Court’s conclusion regarding the sufficiency of the
Complaint’s section 523(a)(6) allegation against EGE, it held:
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
19
Referring to Complaint, DE 2-8, ¶ 139.
Page 34 of 52
of stealing was not EGE’s property. This Court agrees. Accordingly,
Count XXIV is dismissed with prejudice.
DE 1 at 74-75 of 81. Consistent with this Court’s opinion that the Bankruptcy Court
was correct regarding comity for the Jamaican Court’s rulings and res judicata, the
Court affirms the Bankruptcy Court’s dismissal of Count XXIV with prejudice.
The last20 issue is phrased: Whether the Bankruptcy Court improperly
prevented Plaintiffs from obtaining discovery concerning their core nondischargeability claims against Debtor Mouttet?
Appellants state that
the Bankruptcy Court effectively blocked each of Plaintiffs’ attempts to
pursue important, initial discovery [ECF #73], despite the fact that no
stay of discovery was sought until January 28, 2013 [ECF #235], resulting
in an “oral stay of discovery” being announced by the Bankruptcy Court
in open court on February 25, 2013:
I’m going to excuse compliance with the scheduling order
until I rule on the motion to dismiss – motions to dismiss.
[Feb. 25, 2013 Tr. 27:3-5, ECF #290].
In doing so, the Bankruptcy Court abused it discretion by providing
Defendants with the stay of discovery they sought, and by preventing
Plaintiffs from discovering additional documents/evidence not
previously available to them.
DE 11 at 45 of 49 (emphasis in original). Appellees respond,
20
The fourth stated issue, whether the Bankruptcy Court erred in applying
principles of international comity, res judicata, and/or collateral estoppel in
dismissing EGE’s core non-dischargeability claims against Debtor Mouttet, has been
addressed within the body of this opinion. It does not merit further analysis.
Page 35 of 52
On or about January 8, 9 and 18, 2013, Appellants propounded
interrogatories, requests for admissions and requests for documents on
eight (8) of the Defendants. Each of these Defendants, either filed or
joined in on motions for protective orders and a motion to stay
discovery. These matters were set to be heard on February 25, 2013. On
February 14, Appellants filed a Notice of Withdrawal of Previously
Served and Currently Pending Discovery Requests Directed at Certain
Defendants [D.E. #274] (“Appellants’ Notice of Withdrawal”).
Appellants’ Notice of Withdrawal was filed, in part, in response to the
directions given by the Bankruptcy Court at the January 28, 2013
hearing and the orders entered therefrom. Appellants specifically stated
the following in their Notice of Withdrawal:
*
*
*
*
*
3. Plaintiffs will re-serve various discovery requests upon
these defendants, and the other parties named herein, at a
later date, taking into account the Court’s prior
pronouncements and instructions, after the Court’s ruling
on the various motions to dismiss now pending and set for
hearing on February 27, 2013.
4. Accordingly, there is no need for the Court, or the
parties, to address any issues pertaining to the foregoing
discovery requests at the scheduled, upcoming February
25, 2013 hearing, thus, eliminating the need for any
hearing, at this time, on the pending motion for protection
order [ECF # 244] and joinders [ECF #241, 242, 243, 247,
250, 257, 266].
5. Further, Plaintiffs do not object to a limited suspension
of the required Rule 26(a)(1) disclosures until a date
following the Court’s ruling on the various pending motions
to dismiss.
Appellants’ Notice of Withdrawal [D.E. #274, pp. 2-3]. Accordingly, the
issue Appellants make over their inability to obtain discovery was
entirely their own doing. The Court did not “prohibit” Appellants from
propounding discovery, it only advised Appellants that they could not
engage in a fishing expedition and had to better articulate which
requests refer to the Core Claims or the Non-Core Claims. [Jan. 28, 2013
Page 36 of 52
Tr., p. 79-80, D.E. #267]. In addition, the Bankruptcy Court commented
that: “with respect to the dischargeability portion, even if I am inclined
to stay discovery . . . it’s not going to apply to discovery relating to the
dischargeability action, assuming it’s relevant discovery . . ..” [Jan. 28,
2013 Tr., p. 80:1-7, D.E. #267].
DE 27 at 38 of 42. In their reply, Appellants are mute in response to this argument.
Therefore, the Court is unpersuaded the Bankruptcy Court abused its discretion in its
management of discovery.
Non-Core Claim Recommendations
The Bankruptcy Court “proposes that the District Court dismiss the Severed
Counts with prejudice21 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.” DE 1 at 75
of 81. In a footnote, the Bankruptcy Court added, “[a]s requested by the parties and
in order to assist the District Court in its review, this Court has articulated several
grounds for its rulings, recognizing there are several alternative grounds pursuant to
which many of the Counts are dismissed.” Id. at n.56. Appellants have filed
21
The Bankruptcy Court must have meant “without prejudice,” since it is
recommending granting Plaintiffs leave to amend. Furthermore, the Bankruptcy
Court stated it “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 . . .” DE 1 at 48 of 81.
Page 37 of 52
extensive objections to the Bankruptcy Court’s conclusions regarding the non-core
claims. See DE 15. In light of the conclusion reached below that “related-to” subject
matter jurisdiction is lacking, it is unnecessary to address those objections because
the non-core severed counts must be dismissed. Arbaugh v. Y&H Corp., 546 U.S. 500,
502 (2006) (“when a federal court concludes that it lacks subject-matter jurisdiction,
the complaint must be dismissed in its entirety); FCCI Commercial Ins. Co. v. Armour,
No. 8:12–cv–1240, 2012 WL 4208056, at *3 (M.D. Fla. Sept. 19, 2012) (since proceeding
was not related to bankruptcy action, subject matter jurisdiction over the action
under section 1334(b) was lacking and the case had to be dismissed).22
Subject Matter Jurisdiction
Appellants stated in their Complaint that “while this Bankruptcy Court arguably
22
As an alternative basis for this ruling, the Court notes that Talisman’s RICO
claims fail because the underlying allegations, which consist primarily of foreign acts
committed by foreign actors to the detriment of a foreign plaintiff, exceed the
territorial reach of the RICO statute. Specifically, Talisman, a foreign company (a
British Virgin Islands company with its principal place of business in Switzerland)
(Compl. ¶ 26) alleges a so-called “vast international scheme. (id. ¶ 11) that centers
on the alleged failure of SVL, Atlantic, and SGCW, all foreign companies (see id.
¶¶•28, 37, 44), to repay loans made to them by Epsilon Global Master Fund, Epsilon
Global Master Fund II, and Westford Special Situations Master Fund, L.P., also foreign
companies (Cayman Island entities with their principal place of business in
Switzerland) (see id ¶ 26) to invest in a gaming and lottery business in Jamaica,
Central America, and South America (see id. ¶¶ 77, 81, 129). This extraterritorial fact
pattern fails every applicable test utilized to determine whether a RICO claim
exceeds the statute’s territorial reach. EGE’s Florida RICO claims are similarly
extraterritorial. See, e.g., Morrison v. National Australia Bank Ltd., 561 U.S. 247,
255 (2010) (“When a statute gives no clear indication of an extraterritorial
application, it has none.”); Sorota v. Sosa, 842 F. Supp. 2d 1345, 1348-49 (S.D. Fla.
2012) (“RICO does not apply extraterritorially.”)
Page 38 of 52
may have subject matter jurisdiction over the Federal RICO claims asserted against
various entities which are alter egos of Mouttet, the Bankruptcy Court does not have
subject matter jurisdiction over the other non-debtor defendants.” DE 2-8, n.1
(emphasis in original). At the same time they filed their Complaint, Appellants’
moved to Withdraw the Reference, stating:
1. In briefest summary fashion, this Adversary Proceeding involves a
vast, international scheme to separately deceive, defraud, and steal
from each of the Plaintiffs, which conspiracy was masterminded by the
Debtor herein, Paul Gerard Mouttet (the “Debtor”), with the active and
continuous assistance of various members of his family, entities owned
and/or controlled by the Debtor and his family, and the other named
Defendants. The illicit schemes and illegal conspiracies resulted in tens
of millions of dollars of compensatory damages to Talisman, due to
fraud, the thefts of loan proceeds and collateral security for various
loans, as well as the “double-pledging” of collateral; and, separately,
tens of millions of dollars of compensatory damages to EGE, due to
fraud, and the theft of stock it owned, and the dividends paid on those
shares. In addition, each Plaintiff seeks punitive and/or treble
damages, among other relief, and, thus, each Plaintiff separately seeks
an award of hundreds of millions of dollars.
2. This Adversary Proceeding alleges, among other causes of action, two
(2) Federal claims by Talisman, only, arising under the Federal
Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C.
§ 1961 et seq., against twenty-five (25) separate individuals and entities
(in addition to two (2) other Relief Defendants), only one of whom is a
Debtor before this Bankruptcy Court. But for the need to file these
claims against the Debtor, the Complaint would have been originally
filed in the District Court.
3. This Adversary Proceeding also alleges a total of sixteen (16)
additional causes of action - - eight (8) by each Plaintiff - - arising under
Florida state law, naming all of the foregoing Defendants, plus one (1)
additional Defendant, and three (3) more Relief Defendants.
4. Finally, there are six (6) causes of action - - three (3) for each
Page 39 of 52
Plaintiff - - that seek to liquidate the debts the Debtor separately owes
to each of the Plaintiffs, and to have a determination made that those
debts are all non-dischargeable, pursuant to Sections 523(a)(2), (a)(4),
and (a)(6) of the Bankruptcy Code. The factual basis of the Federal RICO
and Florida state law claims form the factual basis for these nondischargeability claims, and, thus, the reason all such claims have been
filed initially in this Bankruptcy Court.
5. While some of the other twenty-four (24) Defendants might be
considered affiliates and/or alter egos of the Debtor, and, therefore,
claims against the same might be within this Bankruptcy Court’s subject
matter jurisdiction, over half of them (some fourteen (14) Defendants)
are not affiliates (as defined by the Bankruptcy Code) or alter egos of
the Debtor, and, therefore, this Bankruptcy Court does not have subject
matter jurisdiction for the Federal RICO claims, as well as the Florida
law claims, asserted against those Defendants. Each of those fourteen
(14) Defendants are indispensable parties to the Federal RICO and
Florida law claims, separately alleged by each of the Plaintiffs in this
Adversary Proceeding.
6. In addition, pursuant to 28 U.S.C. §1332, the District Court has
subject matter jurisdiction over each of the Florida state law claims,
based upon the complete diversity23 of the parties.
7. Accordingly, in order for each of the Plaintiffs to obtain the
necessary and appropriate relief to which they are each entitled for the
23
Plaintiffs allege that EGE’s claims (all of which sound in state law) are based
on federal diversity jurisdiction (Compl. ¶¶ 7, 317), but the parties are not diverse.
Plaintiffs are foreign entities (id. ¶¶ 26, 322), and Defendants are a mix of foreign
and domestic individuals or entities (see id. ¶ 323). For diversity jurisdiction to exist,
there must be at least one domestic party on each side of the litigation. See Molinos
Valle Del Cibao, C. por A. v. Lama, 633 F.3d 1330, 1340 (11th Cir. 2011); Iraola & CIA,
S.A. v. Kimberly-Clark Corp., 232 F.3d 854, 860 (11th Cir. 2000) (“It is a standard rule
that federal cousrts do not have diversity jurisdiction over cases where there are
foreign entities on both sides of the action, without the presence of citizens of a
state on both sides.”) (emphasis added). Because there is no domestic plaintiff and
there are numerous foreign defendants, there is no diversity. Appellees raised this
argument below (see DE Bankr. 105 at 18), and Appellants did not contest it. (See DE
Bankr. 134 at 47, n.24).
Page 40 of 52
vast damages and injuries they each separately incurred, and to avoid
duplicative lawsuits in both this Bankruptcy Court, and the District
Court, the Plaintiffs have filed this Adversary Proceeding in this
Bankruptcy Court, and, now, seek to have the District Court withdraw
the reference for the Bankruptcy Court to adjudicate this Adversary
Proceeding and to have the same transferred to the District Court,
where all of the claims against all of the Defendants and Relief
Defendants can be prosecuted and fully litigated, at one time, in one
proceeding, to a final judgment.
Complaint, DE 2-8 at 306-309 of 460 (emphasis in original). Appellants continue this
request in their Revised Objections:
Since all parties (except Debtor Mouttet) want this case adjudicated in
this District Court [ECF# 86; 97 p.12 n.4; 138; 141; 201 (penultimate
para. p.3); 202 p.2; 203 ¶4; 204 p.1; 205 p.1; DE10-12, 16-17 (Ungaro)],
and because all of Plaintiffs’ 24 Claims are intertwined and interrelated,
Plaintiffs request that this entire, complex case remain in this District
Court, so that all further matters are properly handled by an
experienced District Judge, with a dedicated Magistrate Judge’s help.
DE 15 at 22 of 71.
As mentioned in the procedural background section of this Opinion, Judge
Ungaro granted in part and denied in part the Motion to Withdraw Reference. She
specifically agreed that the Bankruptcy Court does not have subject matter
jurisdiction over the federal RICO claims brought against the non-debtor defendants.
See Case No. 12-23319-CV-UU, DE 20 at 2. The District Court then severed Counts
I-XVIII of the Complaint 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. Then, the District Court referred the Severed Counts back to the Bankruptcy
Page 41 of 52
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….” Id. This
ruling caused some confusion24 for the Bankruptcy Court, as it stated:
The inability to render a final judgment on a matter is not the same as
lacking subject matter jurisdiction. Nonetheless, it is not this Court’s
place to interpret the District Court’s order to mean something other
than what it says. While this Court recognizes that the District Court’s
decision to “refer” the Severed Counts back to this Court creates some
confusion, it will be for the District Court to decide what was the
District Court’s intention. If this Court lacks subject matter jurisdiction,
this Court has no choice but to dismiss the Severed Counts with leave to
refile in the District Court at which time the Plaintiffs will need to
invoke jurisdiction other than that provided by section 1334.25
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 Severed Counts nonetheless are appropriately filed
under section 1334’s “related to” jurisdiction, this Court finds that the
Severed Counts are neither related-to the bankruptcy case, nor that
supplemental jurisdiction is appropriately invoked.26
24
The Bankruptcy Court also explained that it was unclear why the district
court referred the severed counts back to the Bankruptcy Court because “[t]he bulk
of the Complaint involves complex RICO allegations against foreign defendants
requiring a ‘significant interpretation’ of federal statutes.” DE 1 at n.20.
25
“Because a court always may determine whether it has subject matter
jurisdiction, this Court may dismiss the Severed Counts. However, to the extent that
this Court may only make a proposed finding that dismissal of the Severed Counts is
warranted based on lack of subject matter jurisdiction, then, that is this Court’s
proposed finding on this issue. Moreover, the Order of Referral only stated that this
Court lacks subject matter jurisdiction over the Federal RICO counts; the District
Court did not specifically address the Florida RICO counts or the state law claims.”
DE 1 at n.22.
26
After recommending dismissal for lack of subject matter jurisdiction (and
that supplemental jurisdiction was not appropriately invoked), the Bankruptcy Court
Page 42 of 52
DE 1 at 50-51 of 81, see also n.22.
Appellants argue that their jurisdictional concession in their Complaint, which
was adopted by the District and Bankruptcy Courts, was merely “inartful” pleading
(D.E. Bankr. 134 at 33) that may be amended pursuant to 28 U.S.C. § 1653. DE 15 at
33 of 71. Appellants argue that: (1) the District Court should not have accepted their
argument as to jurisdiction and (2) the Bankruptcy Court should not have accepted
the District Court’s Withdrawal Order. If anything is “inartful,” it is Appellants’
argument that the District Court erred in adopting their argument and the Bankruptcy
Court erred in following a District Court’s order.
Even if this Court were to accept Appellants’ position that they did not “mean”
what they said when they stated that their claims over the non-debtor defendants
were not sufficiently related to the bankruptcy case to confer bankruptcy court
subject matter jurisdiction under 28 U.S.C. § 1334(b), Appellees make the following
went on to address the issues raised in the motions to dismiss. The Bankruptcy Court
recommended that the Severed (Non-Core) Counts should be dismissed, the claims
against the Relief Defendants should be dismissed with prejudice, that Talisman
lacked standing to bring any action arising under Florida or federal RICO, or the
conspiracy claims associated with those actions, and that the court lacked personal
jurisdiction over SVL, Brian George, Atlantic, Haven, Atlantic Consultants,
AmeriServices, Peninsula, St. Georges, Flying Fish, SGL, SGCW, Ian Levy, John G.
Graham, and Stewart (collectively, the “Foreign Defendants”). However, as this
Court agrees that the Bankruptcy Court does not have subject matter (or
supplemental) jurisdiction over the Non-Core Claims, it is inappropriate to address
those recommendations at this time and the Non-Core Claims must be brought in a
separate action at which time the Plaintiffs will need to invoke jurisdiction other
than that provided by § 1334.
Page 43 of 52
well reasoned and supported argument showing that the Bankruptcy Court was
correct in recommending that “related to” subject matter jurisdiction is not present
in this case. Appellees argue:
A case is “related to cases under Title 11" if “the outcome could alter
the debtor’s rights, liabilities, options, or freedom of action (either
positively or negatively) and which in any way impacts upon the
handling and administration of the bankrupt estate.” Matter of Lemco
Gypsum, Inc., 910 F.2d 784, 788 (11th Cir. 1990) (internal quotation
omitted). While the scope of related-to jurisdiction is broad, “a
bankruptcy court’s ‘related to’ jurisdiction cannot be limitless.”
Celotex Corp. v. Edwards, 514 U.S. 300, 308 (1995); In re Moran Lake
Convalescent Ctr., LLC, 10-43405-MGD, 2012 WL 4511339, at *3 (Bankr.
N.D. Ga. Aug. 28, 2012).
Talisman’s claims are not “related to” the Bankruptcy Case
because their focus is on the repayment of loans and recovering certain
shares and dividends of (non-debtor defendant) Supreme Ventures
Limited (“SVL”) stock (the “SVL Shares”), none of which is property of
the bankruptcy estate. (See Compl. ¶ 10) (seeking divestiture of certain
non-debtor defendant’s assets to Talisman); see also In re Schwarzwalder, 242 B.R. 734, 739 (Bankr. M.D. Fla. 1999) (“Proceedings to
resolve disputes between two non-debtors regarding property which is
not property of the estate generally are not ‘related to’ a bankruptcy
case within the meaning of § 1334 of title 28".). In fact, the only relief
sought against Defendants is for the benefit of Plaintiffs, not the Estate.
In such circumstances, courts have declined to exercise “related to”
jurisdiction. See In re Macnichol, 240 B.R. 731, 732 (Bankr. S.D. Ohio
1999).
As for EGE’s claims, those claims fail to create “related to”
jurisdiction because they arise out [a] of contract between non-debtors
and seek the recovery of property that is not part [of] the Estate.
Specifically, EGE alleges entitlement to the SVL Shares pursuant to a
Forward Share Sale Agreement (the “FSSA”) to which the Debtor was not
Page 44 of 52
a party.27 EGE seeks, through its claims, to recover the SVL Shares that
it believes it should have received pursuant to the FSSA. (See, e.g.,
Compl. ¶ 299(a).) But claims to recover non-estate property do not
satisfy the “related to” requirement. See AEL Fin., LLC v. Tessier,
CIV.A. H-07-1133, 2007 WL 2427867, at *1 (S.D. Tex. Aug. 22, 2007) (“A
third party action does not create “related to” jurisdiction when the
asset in question is not a property of the estate.”) (citation omitted).
The reasoning for this jurisdictional limitation is that, even if EGE
succeeds with its claims, the property will be returned to EGE, not the
Estate. Accordingly, the Estate will not be affected. See Joyner v.
S.F.L. & S.I.L., LLC, 485 B.R. 538, 560 (W.D. La. 2013) (remanding to
state court because “[i]f [plaintiff] succeeds on the merits of his claims,
and any of the transactions are rescinded, that property would then
potentially be returned to its alleged rightful owner; it would never
become part of [the debtor’s] bankrupt estate”).
Plaintiffs’ primary argument for “related to” jurisdiction is that,
to the extent it can recover jointly and severally against a non-debtor
defendant, its claims against the Debtor will decrease, affecting the
Estate. (D.E. Bankr. 134 at 34.) As Talisman conceded in its Motion to
Withdraw the Reference (D.E. Bankr. 2 at 8), however, “joint conduct,
alone, is not sufficient to confer subject matter jurisdiction in a
bankruptcy court over non-debtors.”28 See, e.g., First Ind. Bank v.
Wilson, 271 B.R. 511, 514 (Bankr. E.D. Mich. 2001). Moreover, while
some courts have found joint and several liability can provide a basis for
related-to jurisdiction, the better reasoned position is that such an
attenuated position stretches the limits of the Eleventh Circuit’s
related-to jurisdiction “beyond the breaking point of conceivability.” In
re Soderstrom, 6:12-CV-1205-ORL-37, 2013 WL 24205, at *4 (M.D. Fla.
27
The FSSA was allegedly between EGE and Defendants SVL, Hoo, Peter
Stewart, and Levy. Compl. ¶ 384.
28
Plaintiffs’ argument ignores the fact that courts in this Circuit have
consistently held there is no right to contribution in civil RICO actions. See, e.g.,
Seminole Elec. Co-op., Inc. v. Tanner, 635 F. Supp. 582, 584 (M.D. Fla. 1986).
Moreover, under Florida law, “there is no right of contribution for intentional torts.”
Bel-Bel Int'l Corp. v. Barnett Bank of S. Florida, N.A., 158 B.R. 252, 256 (S.D. Fla.
1993).
Page 45 of 52
Jan. 2, 2013).29 As the Soderstrom Court explained: “To find that these
purely state law claims convey ‘related to’ jurisdiction would be to
declare that all bankruptcy courts have jurisdiction over all claims
against any non-debtors sued alongside debtors. Such a finding would
be utterly illogical.” Id. Like the claims in Soderstrom, it would be
“utterly illogical” to extend “related to” bankruptcy jurisdiction to
Plaintiffs’ claims against 20-plus non-debtor defendants.
Further, given the de minimus assets of the Debtor as compared
with his liabilities as they existed on the date of his bankruptcy petition
(see D.E. Bankr. Debtor 1), Plaintiffs fail to establish any real effect that
their claims could have on the administration of the Debtor’s estate.
See First Ind. Bank, 271 B.R. at 514 (“[B]ecause this is a no asset case,
any claim by First Indiana against the estate or by the non-debtor
defendants for contribution would not have any effect on the
administration of the bankruptcy estate.”). In fact, at the February 27,
2013 hearing on defendants’ motions to dismiss (the “Hearing”), the
Bankruptcy Court correctly noted, and Plaintiffs’ counsel agreed that,
because there will not be a distribution to unsecured creditors in this
case, recovering damages from other parties would not have an effect
on the Estate. (Transcript of February 27, 2013 Hearing at 179:21-25,
180:1-3.) Accordingly, Plaintiffs’ claims should be dismissed for lack of
subject matter jurisdiction.
DE 28 at 10-12 of 55.
Appellants’ response to the above arguments is sorely lacking. First they argue
that the District Court recognized, as a matter of law, that both this District Court
and the Bankruptcy Court had bankruptcy subject matter under § 1334 when this case
was originally filed because § 1334 provides that a district court must first have
29
See, e.g., In re First NLC Fin. Servs., LLC, 410 B.R. 726, 732 (Bankr. S.D. Fla.
2008) (finding related-to jurisdiction based on allegation of joint conduct, finding
that if non-defendant was found jointly liable, estate might only bear a portion of
judgment); but see In re First Magnus Fin. Corp., 403 B.R. 659, 667 (D. Ariz. 2009)
(rejecting reasoning of First NLC, in part, because such rationale could endlessly
stretch bankruptcy court’s jurisdiction).
Page 46 of 52
bankruptcy subject matter jurisdiction to be able to refer a case to the bankruptcy
court pursuant to § 157(a). However, it was plead and argued by Appellants that
their claims over the non-debtor defendants were not sufficiently related to the
bankruptcy case to confer bankruptcy court subject matter jurisdiction under 28
U.S.C. § 1334(b) and the District Court agreed. Nonetheless, these Non-Core matters
were referred, and the Bankruptcy Court recommended that “related to” jurisdiction
did not lie. The Court does not find Appellants’ change in position persuasive and the
and their arguments in this regard are rejected.
The next and only other argument asserted by Appellants is the same argument
made before the Bankruptcy Court, namely that the outcome could conceivably have
an effect on the bankruptcy estate “because Debtor Mouttet’s actions permeated
each and every one of the illegal acts alleged in Plaintiffs’ Complaint, which in turn
support each of the 18 Counts . . .” The Bankruptcy Court felt it could not address
this argument because “it is not possible to determine either aspect of related-to
jurisdiction in the absence of an amended complaint, at which time the reviewing
court will be able to determine what causes of action survive and whether such
actions are sufficient, whether by impact or common nucleus of facts, to trigger
related-to jurisdiction.” DE 1 at 51 of 81. This Court finds, relying on Appellants’
first and original argument that “related-to” jurisdiction did not exist, the Appellees’
well supported analysis leading to the same conclusion, and the Bankruptcy Court’s
recommendation that “related-to” jurisdiction is lacking, to be the most compelling
Page 47 of 52
arguments and the Court affirms the Bankruptcy Court’s ruling that “related-to”
subject matter jurisdiction is lacking here.
Supplemental jurisdiction30
30
There is a conflict among the district courts in the Eleventh Circuit as to
whether a bankruptcy court may or may not exercise supplemental jurisdiction under
28 U.S.C. § 1367. The courts in the following cases held or explicitly or impliedly
recognized that the grant of supplemental jurisdiction found in 28 U.S.C.A. § 1367
does not extend to the bankruptcy courts (the majority view): In re Alpha Steel Co.,
Inc., 142 B.R. 465 (M.D. Ala. 1992); Matter of Romar Intern. Georgia, Inc., 198 B.R.
401 (Bankr. M.D. Ga. 1996); and In re Davis, 216 B.R. 898 (Bankr. N.D. Ga. 1997). On
the other hand, the courts in the following cases either held or explicitly or impliedly
recognized that bankruptcy courts have supplemental jurisdiction under 28 U.S.C. §
1367, or applied the rule that bankruptcy courts have supplemental jurisdiction (the
minority view): In re EZ Pay Services, Inc., 390 B.R. 421 (Bankr. M.D. Fla. 2007)
(recognizing conflict); In re Anchor Glass Container Corp., 325 B.R. 898 (Bankr. M.D.
Fla. 2005); In re Hospitality Ventures/LaVista, 358 B.R. 462 (Bankr. N.D. Ga. 2007); In
re Feifer Industries, 141 B.R. 450 (Bankr. N.D. Ga. 1991). Marshall & Ilsley Trust Co.
v. Lapides (In re Transcolor Corp.), 2007 WL 2916408 (Bankr. D. Md. 2007) contains an
excellent summary of the cases in which courts found that the bankruptcy courts may
exercise supplement jurisdiction and the cases in which courts found to the contrary.
In In re Transcolor Corp., the bankruptcy court declined to exercise supplemental
jurisdiction. See also Allen v. Kuhlman Corp., 322 B.R. 280, 284 (S.D. Miss. 2005);
Liberty Mut. Ins. Co. v. Lone Star Inds., Inc., 313 B.R. 9, 21 (D. Conn. 2004).
Page 48 of 52
Section 1367 of Title 28 provides that in a civil action in which the district
court has original jurisdiction, the district court also has “supplemental jurisdiction
over all other claims that are so related to claims in the action with such original
jurisdiction that they form part of the same case or controversy under Article III” of
the Constitution and further provides that such supplemental jurisdiction includes
claims that involve the joinder or intervention of additional parties. 28 U.S.C.A. §
1367(a). District courts thus have supplemental jurisdiction of related third-party
claims that arise out of the same nucleus of operative facts when the district court
would not have jurisdiction of that dispute under federal question or diversity
jurisdiction.31 28 U.S.C. § 1367 further provides, in pertinent part, as follows:
(c) The district courts may decline to exercise supplemental jurisdiction over a claim
under subsection (a) if—
(1) the claim raises a novel or complex issue of State law,
(2) the claim substantially predominates over the claim or claims over which
the district court has original jurisdiction,
(3) the district court has dismissed all claims over which it has original
jurisdiction, or
(4) in exceptional circumstances, there are other compelling reasons for
declining jurisdiction.
However, there is nothing specific in Title 28 that provides that a district court
has supplemental jurisdiction over claims with respect to 28 U.S.C.A. § 1334 and
31
28 U.S.C.A. §§ 1331, 1332.
Page 49 of 52
there is also no provision in Title 28 that authorizes a district court to refer its
supplemental jurisdiction over such matters, if it has such, to a bankruptcy court.
This has created a split in the circuits on the question of whether district courts have
supplemental jurisdiction in bankruptcy-related matters and whether, if they do,
upon referral bankruptcy courts have such supplemental jurisdiction.
In In re Prestige Realty Group of Ohio & Florida, LLC, 420 B.R. 894 (Bankr. S.D.
Fla. 2009) the Bankruptcy Court concluded that its "related to" jurisdiction is not
limited to those cases that satisfy the conceivable effect test32 but also arises when
the court's supplemental jurisdiction is triggered. Id. at 898-899. The court noted
that by virtue of a reference, a bankruptcy court could exercise the district court's
supplemental jurisdictional authority under 28 U.S.C.A. § 1367, and thus, a
bankruptcy court may have "related to" jurisdiction of a third-party complaint of
which it would not otherwise have had jurisdiction under the conceivable effect test,
based on the principle that, if the required jurisdictional nexus between the primary
claim and the core-related supplemental claim exists, they form one constitutional
"case or controversy." Id. at 898 (quoting Hospitality Ventures/Lavista v. Heartwood
11, L.L.C. (In re Hospitality Ventures/Lavista), 358 B.R. 462 (N.D. Ga. 2007).
32
A dispute is “related to” a case under Title 11 when its result “‘could
conceivably’” have an “‘effect on the estate being administered in bankruptcy.’” In
re Ryan, 276 F.App’x 963, 966 (11th Cir. 2008) citing Miller v. Kemira, Inc. (In re
Lemco Gypsum, Inc.), 910 F.2d 784, 788 (11th Cir. 1990) (quoting Pacor, Inc. v.
Higgins, 743 F.2d 984, 994 (3rd Cir. 1984), overruled on other grounds by Things
Remembered, Inc. v. Petrarca, 516 U.S. 124, 129 (1995)).
Page 50 of 52
Assuming, for purposes of this discussion only, that the Bankruptcy Court has
the authority to exercise supplemental jurisdiction, the Court affirms the Bankruptcy
Court’s recommendation that it is appropriate to decline to exercise such jurisdiction
over the Non-Core Claims in this case. As set forth above, pursuant to 28 U.S.C. §
1367(c), a court with supplemental jurisdiction over a claim may decline to exercise
such jurisdiction if, among other things, the Non-Core claims substantially
predominate over the claims over which the district court has original jurisdiction, as
we have here. There are additional compelling reasons to decline to exercise
supplemental jurisdiction here as well. From a review of the Non-Core Claims, the
Bankruptcy Court found many significant infirmities, including, but not limited to,
lack of personal jurisdiction, lack of standing to bring federal Rico claims, and failure
to comply with the pleading requirements of Rules 8, 9(b) and 12.33 In addition, the
instant Complaint is a colossal incomprehensible jumble, and the separation of the
Core and Non-Core Counts is mandatory for fairness to the parties and the Court.
Accordingly, it is hereby
ORDERED AND ADJUDGED that all appealed Orders of the Bankruptcy Court
33
See, e.g., DE 1 at 61-65 of 81. Plaintiffs’ Complaint is the quintessential
shotgun pleading of the kind the Eleventh Circuit has repeatedly condemned.
Magluta v. Samples, 256 F.3d 1282, 1284-85 (11th Cir. 2001) (per curiam); Strategic
Income Fund, L.L.C. v. Spear, Leeds & Kellogg Corp., 305 F.3d 1293, 1295 (11th Cir.
2002); Byrne v. Nezhat, 261 F.3d 1075, 1128-34 (11th Cir. 2001) (shotgun pleadings . .
. impede[ ] the due administration of justice and, in a very real sense, amount[ ] to
obstruction of justice) (internal citation omitted).
Page 51 of 52
are affirmed in part and reversed in part as detailed herein. In refiling their Core
Counts, and a potential new case for the Non-Core Claims, Appellants are advised to
review Rule 11 and consider the Bankruptcy Court’s recommendations as to their NonCore Claims carefully so that the courts of the Southern District of Florida can
properly rule. This case is CLOSED. All pending motions are DENIED as moot.
DONE AND ORDERED in Chambers at West Palm Beach, Palm Beach County,
Florida, this 9th day of October, 2020.
KENNETH A. MARRA
UNITED STATES DISTRICT JUDGE
Page 52 of 52
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