Belen v. Herman

Background

Plaintiffs Ariel E. Belen, as a temporary or co-trustee, and Rosemarie Herman, as a co-trustee, were judgment creditors of Julian M. Herman. The opinion states that a New York Supreme Court judgment awarded them $103,637,208.44. They alleged that, before and after that judgment, Julian Herman and others moved assets through limited liability companies, Vanguard accounts, Oakworth Capital Bank, and transfers routed through New York to Liechtenstein and other overseas locations.

After defendants removed the case from New York Supreme Court, plaintiffs filed a First Amended Complaint asserting eight claims: violation of a restraining notice against Vanguard; fraud against Julian Herman and Vanguard; negligence against Vanguard; conspiracy to commit fraud; aiding and abetting fraud; civil claims under the Racketeer Influenced and Corrupt Organizations Act; a declaratory judgment seeking to pierce the corporate veil of Julian Herman, Rocla, and Roclab; and repatriation of funds by Julian Herman.

Legal standard

The court evaluated motions to dismiss for failure to state a legally sufficient claim. At this stage, it accepted the complaint’s factual allegations as true and drew reasonable inferences for plaintiffs. It did not convert the motions into motions for summary judgment based on defendants’ affidavits. Fraud claims, including civil racketeering claims based on alleged mail or wire fraud, also had to be pleaded with particularity.

Oakworth’s personal-jurisdiction and venue motions

Oakworth argued that it was not subject to personal jurisdiction in New York and alternatively sought transfer to the United States District Court for the Northern District of Alabama. Judge Hellerstein denied both requests.

The court held that the complaint plausibly alleged that Oakworth purposefully conducted business in New York by initiating, tracking, and confirming fifteen $10 million transfers destined for Citibank in New York and then Liechtenstein. The alleged transfers were sufficiently connected to plaintiffs’ claims because they allegedly helped move Julian Herman’s assets away from collection on the New York judgment. The court also held that venue was proper in the Southern District of New York and that the factors did not justify transferring the case to Alabama.

Civil racketeering claims

The court granted defendants’ motions to dismiss the civil RICO claims. It held that the complaint did not adequately allege an enterprise separate from the alleged fraudulent acts. The alleged enterprise was essentially the defendants’ joint effort to conceal and transfer Julian Herman’s assets. The court also found that the complaint alleged, at most, one scheme occurring between March 2017 and January 2018, without adequately alleging the continuity required for a RICO pattern.

The court declined to dismiss the RICO claims as untimely at this stage. It treated whether plaintiffs were on notice of their alleged injury before the relevant limitations period as a factual question that could not be resolved on the motions to dismiss. The claims were dismissed instead for failure to plead the enterprise and pattern elements.

Dentons U.S. LLP

The court dismissed Dentons U.S. LLP from the suit. Its citizenship otherwise defeated complete diversity between the parties, but defendants argued that it had been improperly included to prevent federal jurisdiction. The court agreed that the operative complaint did not plausibly allege direct wrongdoing, vicarious liability, or a basis to hold Dentons U.S. LLP responsible for Dentons Sirote’s alleged conduct. The court therefore retained diversity jurisdiction over the remaining state-law claims after dismissing Dentons U.S. LLP.

Restraining-notice and negligence claims

The court granted Vanguard’s motion to dismiss the claims for violation of a restraining notice and negligence. Both claims were based on Vanguard’s October 3, 2017 response to the restraining notice. The court held that both claims were subject to three-year limitations periods and became time-barred on October 3, 2020, more than twenty months before plaintiffs filed the lawsuit. It also rejected equitable tolling for these claims.

Fraud-related claims

The court denied the motions to dismiss the common-law fraud claim against Julian Herman and Vanguard. The complaint plausibly alleged that Julian Herman misrepresented his identity and ownership of the assets and that Vanguard gave false responses about whether it held assets connected to him. The court also found that plaintiffs plausibly alleged reliance and injury because they said they did not pursue Vanguard further based on its 2017 response and therefore did not restrain the funds before they were moved overseas.

The court denied the motions to dismiss the conspiracy-to-commit-fraud claim against the moving defendants. It held that the complaint plausibly alleged that Neiswender, Sirote, and Oakworth knowingly joined a plan to hide and transfer Julian Herman’s assets, while Vanguard allegedly assisted the scheme.

The court also held that the same alleged facts plausibly supported aiding-and-abetting-fraud claims against Neiswender, Sirote, Vanguard, and Oakworth. The opinion states that the motions to dismiss those claims were denied.

Veil-piercing and repatriation claims

The court denied the motion to dismiss the claim seeking a declaratory judgment to pierce the corporate veil of Julian Herman, Rocla, and Roclab. Applying South Dakota law, the court found that the complaint made a preliminary showing that the companies and their alleged controllers had such a unity of interest that the companies’ separate identities could be disregarded, and that respecting the corporate form could facilitate fraud or evasion of legal obligations.

The court also denied the motion to dismiss the claim seeking repatriation of funds. It held that plaintiffs plausibly alleged an enforceable judgment against Julian Herman and a basis under New York law, applied through Federal Rule of Civil Procedure 69, for an order requiring delivery of documents or other steps needed to effect payment.

Disposition

The court stated that defendants’ motions to dismiss were granted in part and denied in part. The claims for violation of a restraining notice, negligence, and civil RICO were dismissed. Dentons U.S. LLP was dismissed from the suit. All other counts and parties remained. Plaintiffs were ordered to file a second amended complaint by January 30, 2024, and defendants were ordered to answer by February 13, 2024.