Awad v. Omar

Background

Sharif Omar moved to dismiss the amended complaint brought by Hesham Awad, Sherin Awad, Ahmed Awad, Jehan Awad, Nabil El Shaikh, Asha El Shaikh, Yusuf ElShaikh, Omar ElShaikh, and Mohamed Omar. The complaint also named Sami Omar as a defendant, but Sami appeared without a lawyer and had not answered or moved to dismiss. The opinion states that Sami had apparently agreed to assist the plaintiffs in exchange for their agreement not to enforce monetary claims against him. Only Sharif’s motion was before the court.

The plaintiffs alleged that the defendants used deception and coercion to obtain the sisters’ interests in Liptis Pharmaceuticals USA, Inc. and Liptis Holding Corp. They also alleged that the defendants submitted false information to lenders and obtained about $21.5 million in mortgages on properties owned by Liptis, New Life Holding Corp., and Omar Holding Corp., allegedly misappropriating the proceeds.

The amended complaint asserted a federal claim under the Racketeer Influenced and Corrupt Organizations Act, or RICO, and state-law claims for breach of fiduciary duty, conversion, and unjust enrichment. Federal jurisdiction was based only on the RICO claim.

RICO claim

The court applied the standard for a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). It accepted the complaint’s factual allegations as true for purposes of the motion but required enough factual content to make the claim plausible.

The plaintiffs alleged that the defendants engaged in one scheme from 2009 through 2017. One part of that alleged scheme involved misleading Sherin Awad and Asha El Shaikh into selling their Liptis USA stock for $80,000 and $30,000. The court held that this alleged fraud was actionable as securities fraud because it involved the sale of stock.

The federal RICO Amendment bars a civil RICO plaintiff from relying on conduct that would have been actionable as fraud in connection with the purchase or sale of securities. The court held that the bar applied to the plaintiffs’ alleged single scheme, even though the plaintiffs also alleged mail, wire, and bank fraud. Because the securities-fraud allegations were part of the same scheme, the court dismissed the entire RICO claim without addressing Sharif’s other arguments for dismissal.

The plaintiffs requested permission to amend the complaint to add allegations concerning fraudulent concealment, the defendants’ business association, and whether some claims were derivative rather than personal. The court denied leave to amend as futile because those proposed allegations would not avoid the RICO Amendment.

State-law claims and disposition

After dismissing the only federal claim, the court declined to exercise supplemental jurisdiction over the remaining state-law claims. Supplemental jurisdiction is a federal court’s authority to hear related state-law claims. The court cited judicial economy, convenience, fairness, and respect for state courts, noting that the RICO claim was eliminated at the pleading stage and that New York courts could address claims arising under New York law.

The court granted Sharif Omar’s motion to dismiss the amended complaint, dismissed the plaintiffs’ RICO claim with prejudice, dismissed the state-law claims without prejudice, directed the clerk to terminate the motion, and closed the case.