Opinion
22-CV-07308 (GHW)(SN)
06-07-2023
ASTRA VEDA CORP., Plaintiff, v. APOLLO CAPITAL CORP., et al., Defendants.
HONORABLE GREGORY H. WOODS JUDGE
REPORT AND RECCOMENDATION
SARAH NETBURN UNITED STATES MAGISTRATE JUDGE
Plaintiff Astra Veda Corp. sues Apollo Capital Corp. (“Apollo Capital”), Apollo Management Group, Inc. (“Apollo Management”), and Yohan Naraine (collectively, the “Defendants”) for violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1962(c).
Defendants have moved to dismiss the Amended Complaint for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure. They also argue that the Court lacks personal jurisdiction over Apollo Management and Naraine, that Plaintiff's claims are barred by the applicable statute of limitations, and that venue is not proper in the Southern District of New York. I recommend that the Court grant Defendants' motion to dismiss.
PLAINTIFF'S ALLEGATIONS
“We [] provide a brief recitation of the most pertinent factual allegations, which are presumed to be true for purposes of considering a motion to dismiss for failure to state a claim.” Fin. Guar. Ins. Co. v. Putnam Advisory Co., LLC, 783 F.3d 395, 398 (2d Cir. 2015).
Plaintiff is a Wyoming corporation with its principal place of business in Colorado. Apollo Capital is a New York corporation with its principal place of business in Florida, Apollo Management is a Florida corporation with its principal place of business in Florida, and Naraine is a Florida citizen and the “sole decision maker” of both Apollo Capital and Apollo Management.
On April 11, 2016, Plaintiff issued a $110,000 convertible promissory note (the “Note”) to Apollo Capital. Under the Note's terms, Plaintiff received the Note's face value, minus a $10,000 original issue discount, and in return Apollo Capital was entitled to repayment of the Note's face value, plus interest at 12% A.P.R., with a maturation date of October 12, 2016. The Note also allowed Apollo Capital to demand repayment of some or all of the outstanding balance through conversion to shares of Plaintiff's stock at a price equal to 60% of the stock's lowest trading price during the 30-day period before a given conversion. The Note was repaid in full through a series of conversions that occurred in 2018. The aggregate market value of the shares received by Apollo Capital was $781,468.07.
On January 1, 2019, Plaintiff entered into a “Security Agreement” with Apollo Capital and Apollo Management.The Security Agreement aggregated the balance of several of Plaintiff's outstanding loans, including the Note, and imposed supplemental terms, including additional interest and a broad release of liability. Both the Note and the Security Agreement contain New York choice-of-law and forum selection clauses.
The Amended Complaint makes reference to the Security Agreement but does not include it as an exhibit. See Amended Complaint, ECF No. 32, at 4 n.3; see also Kramer v. Time Warner Inc., 937 F.2d 767, 773 (2d Cir. 1991) (“In considering a motion to dismiss . . . a district court must limit itself to facts stated in the complaint or in documents attached to the complaint as exhibits or incorporated in the complaint by reference.”). The Security Agreement was eventually filed as an exhibit to Defendants' pending motion to disqualify. See ECF No. 40 at 7-17.
Plaintiff alleges that the Note-either by its terms alone or in combination with the effect of the conversion discount-resulted in criminally usurious interest in excess of either 33.2% or 312% A.P.R., respectively. Plaintiff further alleges that Apollo Capital is a RICO enterprise under 18 U.S.C. § 1961(4) in the business of collecting unlawful debts, and that Naraine is the RICO person under 18 U.S.C. § 1961(3) conducting the enterprise's unlawful activities in violation of 18 U.S.C. § 1962(c).
DISCUSSION
I. Dismissal under Rule 12(b)(6)
A. Legal Standard
To survive a Rule 12(b)(6) motion to dismiss, a complaint “must allege sufficient facts . . . to state a plausible claim for relief.” Johnson v. Priceline.com, Inc., 711 F.3d 271, 275 (2d Cir. 2013) (citing Bell Atl. Corp v. Twombly, 550 U.S. 544, 555-56 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The Court “accept[s] as true all factual statements alleged in the complaint and draw[s] all reasonable inferences in favor of the non-moving party.” McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007). But the Court is “not bound to accept as true a legal conclusion couched as a factual allegation.” Iqbal, 556 U.S. at 678. The complaint must raise factual allegations “enough to raise a right to relief above the speculative level.” Goldstein v. Pataki, 516 F.3d 50, 56 (2d Cir. 2008) (quoting Twombly, 550 U.S. at 555).
“[T]o establish liability under § 1962(c) one must allege and prove the existence of two distinct entities: (1) a ‘person'; and (2) an ‘enterprise' that is not simply the same ‘person' referred to by a different name.” Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 158 (2001). “A corporate entity can be sued as a RICO ‘person' or named as a RICO ‘enterprise,' but the same entity cannot be both the RICO person and the enterprise. U1it4less, Inc. v. Fedex Corp., 871 F.3d 199, 205 (2d Cir. 2017).
B. Analysis
Plaintiff asserts two causes of action for violations of 18 U.S.C. § 1962(c), which makes it “unlawful for any person employed by or associated with any enterprise . . . to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through . . . collection of unlawful debt.” (emphasis added).
Plaintiff explicitly contends in both its Amended Complaint and opposition brief that Apollo Capital is a RICO enterprise and that Naraine is a RICO person. Section 1962(c) does not impose liability on the enterprise itself. See 4 K & D Corp. v. Concierge Auctions, LLC, 2 F.Supp.3d 525, 537 n.4 (S.D.N.Y. 2014) (“The statute does not impose liability on the enterprise itself.”); Jaguar Cars, Inc. v. Royal Oaks Motor Car Co., 46 F.3d 258, 268 (3d Cir. 1995) (“[A] corporation would be liable under § 1962(c), only if it engages in racketeering activity as a ‘person' in another distinct ‘enterprise,' since only ‘persons' are liable for violating § 1962(c).”). Thus, Plaintiff has failed to state a claim for relief against Apollo Capital.
RICO may permit courts to order the dissolution of “any enterprise.” 18 U.S.C. § 1964(a); see Chevron Corp. v. Donziger, 833 F.3d 74, 137 (2d Cir. 2016) (“[A] federal court is authorized to grant equitable relief to a private plaintiff who has proven injury to its business or property by reason of a defendant's violation of § 1962 . . . .”); Gingras v. Think Fin., Inc., 922 F.3d 112, 124 (2d Cir. 2019). But see RJR Nabisco, Inc. v. Eur. Cmty., 579 U.S. 325, 354 n.13 (2016) (“This Court has never decided whether equitable relief is available to private RICO plaintiffs . . . and we express no opinion on the issue today.”). However, the Amended Complaint seeks only monetary damages.
It is also unclear what claim Plaintiff seeks to assert against Apollo Management. The Amended Complaint names Apollo Management as a party and states that “[u]pon information and belief, Apollo [Capital] is wholly owned by Apollo Management and, thus, Apollo Management exercises all decision-making authority over Apollo [Capital].” A footnote also asserts that Apollo Management was a party to the Security Agreement. Beyond these statements, the Amended Complaint contains no allegations relating to Apollo Management, and Plaintiff has not articulated how it may be held liable under RICO. Thus, Plaintiff has failed to state a claim for relief against Apollo Management.
Assuming, in arguendo, that Plaintiff had stated a claim against Apollo Management (e.g. by alleging that it, like Naraine, is a RICO person), dismissal would still be appropriate because, as discussed infra, this Court lacks personal jurisdiction over Apollo Management.
II. Dismissal under Rule 12(b)(2)
A. Legal Standard
On a Rule 12(b)(2) motion to dismiss, the plaintiff bears the burden of establishing personal jurisdiction over the defendant. See Penguin Grp. (USA) Inc. v. Am. Buddha, 609 F.3d 30, 34-35 (2d Cir. 2010). “In order to survive a motion to dismiss for lack of personal jurisdiction, a plaintiff must make a prima facie showing that jurisdiction exists.” Id. Such a showing requires “an averment of facts that, if credited[,] would suffice” to establish that jurisdiction exists. In re Magnetic Audiotape Antitrust Litig., 334 F.3d 204, 206 (2d Cir. 2003) (internal quotation marks omitted).
The Court “construe[s] the pleadings and affidavits in the light most favorable to plaintiff[], resolving all doubts in their favor.” Porina v. Marward Shipping Co., Ltd., 521 F.3d 122, 126 (2d Cir. 2008). “[W]hen a motion to dismiss for lack of jurisdiction is decided on the basis of affidavits and other written materials .... [t]he allegations in the complaint must be taken as true to the extent they are uncontroverted by the defendant's affidavits.” MacDermid, Inc. v. Deiter, 702 F.3d 725, 727 (2d Cir. 2012) (quoting Seetransport Wiking Trader Schiffarhtsgesellschaft MBH & Co., Kommanditgesellschaft v. Navimpex Centrala Navala, 989 F.2d 572, 580 (2d Cir. 1993)).
“If the parties present conflicting affidavits, all factual disputes are resolved in the plaintiff's favor, and the plaintiff's prima facie showing is sufficient notwithstanding the contrary presentation by the moving party.” Seetransport, 989 F.2d at 580. The Court will not, however, “draw argumentative inferences in the plaintiff's favor” or “accept as true a legal conclusion couched as a factual allegation.” In re Terrorist Attacks on Sept. 11, 2001, 714 F.3d 659, 673 (2d Cir. 2013) (citations omitted). “Thus, the plaintiff in opposing a 12(b)(2) motion cannot rely merely on conclusory statements or allegations . . . .” NuMSP, LLC v. St. Etienne, 462 F.Supp.3d 330, 341 (S.D.N.Y. 2020) (internal quotation marks omitted).
Personal jurisdiction is analyzed using a two-step inquiry. First, the court determines whether the exercise of personal jurisdiction is proper under the laws of the forum state (here, New York). See Sonera Holding B.V. v. Cukurova Holding A.S., 750 F.3d 221, 224 (2d Cir. 2014). If so, the Court then determines “whether the exercise of personal jurisdiction over the defendant comports with the Due Process Clause of the United States Constitution.” Id.
N.Y. CPLR § 302(a)(1) permits a court to exercise personal jurisdiction over an out-ofstate party if that party “transacts any business within the state,” and if the claim arises from these business contacts. CutCo Indus., Inc. v. Naughton, 806 F.2d 361, 365 (2d Cir. 1986). “To meet the transacting business element under [section] 302(a)(1), it must be shown that a party purposely availed [itself] of the privilege of conducting activities within New York and thereby invoked the benefits and protections of its laws.” D.H. Blair & Co. v. Gottdiener, 462 F.3d 95, 104 (2d Cir. 2006) (internal quotation marks omitted). “To determine whether a party has transacted business in New York, courts must look at the totality of circumstances concerning the party's interactions with, and activities within, the state.” Id. at 105 (internal quotation marks omitted). “Although it is impossible to precisely fix those acts that constitute a transaction of business, [New York] precedents establish that it is the quality of the defendants' New York contacts that is the primary consideration.” Fischbarg v. Doucet, 9 N.Y.3d 375, 380 (2007).
In addition to New York law, the Court must also consider the venue and process provisions contained in RICO itself. “Any civil action or proceeding under this chapter against any person may be instituted in the district court of the United States for any district in which such person resides, is found, has an agent, or transacts his affairs.” 18 U.S.C. § 1965(a). In any civil RICO action “in which it is shown that the ends of justice require that other parties residing in any other district be brought before the court, the court may cause such parties to be summoned, and process for that purpose may be served in any judicial district . . . .” Id. at § 1965(b).
“[18 U.S.C.] § 1965 does not provide for nationwide personal jurisdiction over every defendant in every civil RICO case, no matter where the defendant is found.” PT United Can Co. v. Crown Cork & Seal Co., 138 F.3d 65, 71 (2d Cir. 1998). “[A] civil RICO action can only be brought in a district court where personal jurisdiction based on minimum contacts is established as to at least one defendant.” Id. “Congress has expressed a preference in § 1965 to avoid, where possible, haling defendants into far flung fora.” Id. at 72.
B. Analysis
Plaintiff has not alleged that any of the events giving rise to its RICO claims occurred in New York,or that either Apollo Management or Naraine “resides, is found, has an agent, or transacts [their] affairs” therein. In fact, the Amended Complaint does not set forth a basis for this Court's jurisdiction over any Defendant save for alleging that Apollo Capital is a New York corporation. Neither the Amended Complaint nor Plaintiff's opposition brief allege that Apollo Management or Naraine, both Florida citizens, have transacted any business in New York. Thus, under both New York's long-arm statute and RICO, the Court lacks personal jurisdiction over Apollo Management and Naraine.
The Amended Complaint states that “Venue is proper in this District . . . because a substantial part of the events giving rise to this action occurred in this District.” However, none of the factual allegations that follows involves New York in any way. Similarly, the Amended Complaint states that the Court “has supplemental jurisdiction over the state law claims” despite asserting only federal claims. The Court is left to conclude that these statements were included erroneously.
Plaintiff attempts to cure this deficiency by referencing the “ends of justice” catch-all in 18 U.S.C. § 1965(b). Plaintiff reasons that, per the Note's New York forum selection clause, any action against Apollo Capital must be brought here, and that the ends of justice require this Court to exercise jurisdiction over Apollo Management and Naraine so that Plaintiff may bring all of its RICO claims together in a single action. Plaintiff's argument is unpersuasive for several reasons.
First, as stated supra, Apollo Capital, as the alleged RICO enterprise, is not a proper defendant in this action and cannot serve as the “initial defendant” under § 1965(a). See PT United Can Co. Ltd., 138 F.3d at 71. This alone defeats Plaintiff's “ends of justice” argument- i.e., that Apollo Capital may only be sued in New York is of no moment, because Plaintiff need not (and cannot) sue Apollo Capital in order to recover against Naraine in a civil RICO action.
Second, as discussed supra, Plaintiff has not stated a cause of action against Apollo Management and exercising jurisdiction over it would therefore not serve the ends of justice.
Third, all three Defendants are presumably subject to personal jurisdiction in Florida, and it is unknown whether a federal court there would enforce the Note's forum selection clause against Apollo Capital or the other Defendants (who are not parties to the Note).
Finally, Plaintiff argues that the Note is a usurious contract and is therefore void ab initio. Pl. Br. at 8, 19. Under New York law, “loans proven to violate the criminal usury statute are subject to the same consequence as any other usurious loans: complete invalidity of the loan instrument.” Adar Bays, LLC v. GeneSYS ID, Inc., 37 N.Y.3d 320, 333 (2021). “[W]hen a loan is void as usurious, the entire ‘loan transaction and the associated note, loan agreement, and collateral agreement are all void and unenforceable.'” Moss v. First Premier Bank, No. 13-cv-05438 (ERK)(AYS), 2020 WL 5231320, at *5 (E.D.N.Y. Sept. 2, 2020) (quoting Blue Wolf Capital Fund II, L.P. v. Am. Stevedoring Inc., 105 A.D.3d 178, 184 (1st Dep't 2013)). “[W]hen a contract is void ab initio, that invalidity extends even to procedural matters in the contract like a forum selection clause.” Id. at 4 (citing DeSola Grp., Inc. v. Coors Brewing Co., 199 A.D.2d 141, 141-42 (1st Dep't 1993)).
Plaintiff later argues that the Security Agreement's release clause-which would presumably preclude this action-cannot be enforced against Plaintiff because the Security Agreement is a “continuance of a usurious contract” and is also void ab initio. Id. at 18-19. Thus, Plaintiff asks that this Court predicate jurisdiction on the Note's forum selection clause while simultaneously arguing that the Note is void ab initio-Plaintiff cannot have it both ways. See Chen v. Cenntro Elec. Grp. Ltd., No. 22-cv-7760 (VEC), 2023 WL 2752200, at *4 (S.D.N.Y. Mar. 31, 2023) (“Plaintiff seeks to enforce a forum-selection clause in an agreement that he alleges was void from its inception. Plaintiff cannot have it both ways.”). If the Note and Security Agreement are both usurious and therefore void, the forum selection clause is as well, and if they are not, Plaintiff must contend with the Security Agreement's release clause.
III. Defendants' Remaining Arguments for Dismissal
Because I find that Plaintiff has failed to state a claim as to Apollo Capital and Apollo Management, and that the Court lacks personal jurisdiction over Naraine, I decline to address Defendants' other arguments in favor of dismissal. Should this report and recommendation not be adopted in its entirety, I respectfully request that Judge Woods again refer Defendants' motion to me so that those arguments may be fully addressed.
LEAVE TO AMEND
Rule 15(a)(2) requires that leave to amend be freely given when justice so requires. Fed.R.Civ.P. 15(a)(2). “However, in determining whether leave to amend should be granted, the district court has discretion to consider, inter alia, the apparent futility of amendment.” Grace v. Rosenstock, 228 F.3d 40, 53 (2d Cir. 2000) (internal citations and quotation marks omitted).
Plaintiff has amended its complaint once already and it is unclear what further facts Plaintiff could plead that would save its RICO claims or establish personal jurisdiction over Apollo Management and Naraine. Accordingly, leave to amend should be denied.
CONCLUSION
Plaintiff has failed to state a claim against Apollo Capital and Apollo Management, and the Court lacks personal jurisdiction over Naraine. I recommend that the Court grant Defendants' motions to dismiss in its entirety.
NOTICE OF PROCEDURE FOR FILING OBJECTIONS TO THIS REPORT AND RECOMMENDATION
The parties shall have fourteen days from the service of this Report and Recommendation to file written objections pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure. A party may respond to another party's objections within fourteen days after being served with a copy. Fed.R.Civ.P. 72(b)(2). Such objections shall be filed with the Clerk of the Court, with courtesy copies delivered to the chambers of the Honorable Gregory H. Woods at the United States Courthouse, 500 Pearl Street, New York, New York 10007, and to any opposing parties. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(d), 72(b). Any requests for an extension of time for filing objections must be addressed to Judge Woods. The failure to file these timely objections will result in a waiver of those objections for purposes of appeal. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(d), 72(b); Thomas v. Arn, 474 U.S. 140 (1985).