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July 19, 2001


The opinion of the court was delivered by: Lewis A. Kaplan, District Judge.


This is a civil action under the Racketeer Influenced and Corrupt Organizations Act ("RICO") based on alleged bankruptcy and mail fraud. Plaintiffs are judgment creditors who allege that RICO violations and state law fraudulent conveyances prevented them from satisfying outstanding judgments against defendant Sohrab Vahabzadeh and related companies. Defendants charged with RICO violations are members of the Vahabzadeh family and the family's Swiss attorney, Jens Schlegelmilch ("Schlegelmilch"). The matter is before the Court on defendants' motions to dismiss for failure to state a claim, lack of personal jurisdiction, lack of standing, and failure to plead fraud with particularity and on plaintiffs' conditional cross-motion for leave to amend the complaint and their cross-motion to strike.*fn1


Sohrab Vahabzadeh Enters into a Stock Purchase Agreement with Plaintiffs

At the root of this dispute is a stock purchase agreement entered into by plaintiff First Capital Asset Management ("FCAM") and defendant Sohrab Vahabzadeh ("Sohrab") and his companies, NACI and NAP, in October 1993. Sohrab was to pay FCAM $4.5 million in return for an interest in a new Delaware corporation called First Capital Corp. The agreement provided that Oost-Lievense, the other plaintiff in this case, would become First Capital Corp.'s chief executive officer. Based on this agreement, Oost-Lievense resigned as president of ABN AMRO Securities, Inc.

Later in October, Sohrab, NACI and NAP breached the agreement, leaving FCAM without its $4.5 million and Oost-Lievense without a job. For reasons not crucial here, plaintiffs allege that Sohrab. NACI and NAP owed FCAM and Oost-Lievense fiduciary duties and that the failure to disclose material adverse events concerning the financing of the deal breached these duties.

FCAM and Oost-Lievense Sue

FCAM and Oost-Lievense did not stand idly by. In December 1993, FCAM sued Sohrab, NACI and NAP in Texas for breach of contract. The action was dismissed on the ground of forum non conveniens but recommenced in New York, where the State Supreme Court granted summary judgment for FCAM against NACI and NAP on February 27, 1997, awarding damages of $4.5 million plus interest.*fn2 The state court held, however, that Sobrab was not himself liable.

Upon realizing that the companies had no locatable assets available to satisfy this judgment, FCAM filed a second lawsuit in New York County in which it sought to hold Sohrab responsible for the judgment against NACI as its alter ego.*fn3 The state court initially dismissed the petition against Sohrab, but the Appellate Division reversed.*fn4 On June 27, 2001, the New York Supreme Court entered judgment in favor of FCAM against Sohrab for more than $5 million.*fn5

Meanwhile, Oost-Lievense sued Sohrab, NACI and NAP in this Court for breach of an employment agreement.*fn6 Eventually, without a trial, all defendants stipulated to amounts of damages and judgment was entered in Oost-Lievense's favor.

The Sohrab Bankruptcy

On July 17, 1997, a few weeks before the Oost-Lievense trial was scheduled to begin, Sobrab filed a bankruptcy petition. This was followed closely by FCAM and Oost-Lievense filing an adversary proceeding in which they objected to Sohrab's discharge under Section 727 of the Bankruptcy Code*fn7 on the basis of bankruptcy fraud and fraudulent conveyance. Eventually, Sohrab's Chapter 7 petition for discharge was denied on grounds of bankruptcy fraud.*fn8

According to plaintiff, the RICO predicate acts revolved around Sohrab's bankruptcy proceeding. Specifically, plaintiffs identify the following RICO predicate acts, primarily bankruptcy frauds and mail frauds:*fn9

• In August 1995, Sohrab and Peninsula, allegedly Sohrab's alter ego, fraudulently conveyed their interests in a partnership to Brickelbush in contemplation of bankruptcy.

• In early 1997 Sohrab transferred property inherited from Soleyman to other family members, including Afsar. Schlegelmilch prepared the documents that effected the transfer.

• On July 17, 1997, Sohrab filed a materially false bankruptcy petition.

• On September 16, 1997, Sohrab made false statements under oath at the Bankruptcy Rule 2004 examination by his creditors.

• Ahmed and Schlegelmilch directed the estate's attorney to submit declarations to the Bankruptcy Court in February and March 1998 containing false statements about the contents of Soleyman's estate and, in June 1998, Afsar and Soleyman's estate directed the same attorney to submit a similar declaration.

• In March 1998, Afsar and Schlegelmilch submitted affidavits to the Bankruptcy Court making false claims ...

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