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Goel v. American Digital University, Inc.

United States District Court, S.D. New York

March 21, 2017


          OPINION & ORDER

          KATHERINE B. FORREST United States District Judge

         On January 2, 2014, plaintiffs Vikas Goel and Rain`forest Trading Ltd. commenced this action against American Digital University, Inc. (“ADU”), International Maritime University, LLC (“IMU”), Teledata Marine Systems, LLC (“Teledata Marine”), Teledata Systems and Services, LLC (“Teledata Services”), Bunge Limited (“Bunge Ltd.”), Bunge S.A., Grains and Industrial Products PTE Ltd. (“GRIPT”), Anush Ramachandran, and the State Bank of India (“SBI”) in the Supreme Court of the State of New York, Westchester County. (Notice of Removal, ECF No. 1.)[1] Plaintiffs allege that defendants carried out a racketeering scheme, in violation of 18 U.S.C. §§ 1962(a), 1962(c), and 1962(d) of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), designed to mislead and defraud plaintiffs. The complaint also includes state law claims for aiding and abetting fraud, money had and received, and establishing liability to parent company Bunge Ltd. on the basis of piercing the corporate veil liability.

         Pending before the Court are two motions for summary judgment-one from Bunge Ltd., Bunge S.A., and GRIPT (collectively, the “Bunge Defendants”), and one from SBI. (ECF Nos. 21, 25.)[2] For the reasons set forth below, both motions are GRANTED. The undisputed facts demonstrate that plaintiffs' RICO claim is untimely-thus eliminating the sole basis for federal jurisdiction. In addition, as to SBI, the Court separately finds that it is immune from suit pursuant to the Foreign Sovereign Immunities Act.

         Also before the Court is a motion by the Bunge Defendants for sanctions against plaintiffs under Rule 11 of the Federal Rules of Civil Procedure. For the reasons described below, this motion is DENIED.

         I. BACKGROUND

         The facts of this case are somewhat complex. In sum, and as described in more detail below, plaintiffs assert that Goel was fraudulently induced by a non-party (Teledata Informatics, Ltd. (“Teledata India”)) to transfer a majority stake in his company-eSys Technologies Pte Ltd (“eSys”)-to Rainforest Trading Ltd. (“Rainforest”). Funds transferred to Rainforest in connection with that transfer were then allegedly improperly transferred in furtherance of a fraudulent mail and wire fraud scheme perpetrated by Teledata India and the other defendants. Ultimately, these transfers drained available financial resources from eSys and the company failed. Plaintiffs, in particular Goel, have commenced various actions in various places for injuries arising from that failure.

         The procedural history of this action and related actions is also somewhat complex. However, the important facts are: (1) in a foreign proceeding that plaintiffs discuss in their instant complaint, Goel submitted an affidavit in which he acknowledged knowing of various fraudulent conduct that put plaintiffs on actual (or inquiry) notice as of 2007; (2) Goel and Rainforest commenced an action in New York State Court in 2010 against some but not all of the defendants herein, on materially the same facts and overlapping claims; and (3) the RICO claims here asserted, along with joinder of additional defendants, appears to be an attempt to get plaintiffs claims into federal court and improve their chances of recovery. As described below, while it may be that plaintiffs had a real RICO claim, the time to bring such claim in federal court has run.

         A. The Parties

         Plaintiff Vikas Goel was the founder, Chairman, Managing Director, and 99.9% shareholder of eSys Technologies Pte Ltd. (“eSys”), a computer equipment distribution company. (Compl. ¶ 50.) Plaintiff Rainforest Trading, Ltd. (“Rainforest”) was a corporation established as a holding company to facilitate payment by non-party Teledata Informatics, Ltd. (“Teledata India”) for 51% of Goel's eSys shares. (Id. ¶¶ 51, 141.)

         Defendants in this action can be separated into the following three groups: (1) Anush Ramachandran and his related entities; (2) the “Bunge Defendants”; and (3) the State Bank of India (“SBI”).

         Ramachandran was the Chief Executive Officer of Teledata India, a non-party to this suit, who is presently in arbitration with plaintiffs in Singapore. (Id. ¶¶ 52, 59-61.) Ramachandran also allegedly owned and controlled American Digital University, Inc. (“ADU”), International Maritime University, LLC (“IMU”), Teledata Marine Systems, LLC (“Teledata Marine”), and Teledata Systems and Services, LLC (“Teledata Services”). (Id. ¶ 52.) ADU purported to be an online university, and IMU was a division of ADU. (Id. ¶ 53.) However, both entities allegedly had a total of just three employees, their address was Ramachandran's home in Scarsdale, and there were no professors or students. (Id. ¶¶ 12, 53-54.) Plaintiff alleges that they were sham companies used to illegally transfer funds as a part of the racketeering scheme. (Id. ¶¶ 12-13, 54.) Teledata Marine and Teledata Services were also allegedly sham companies, purporting to sell software, used in the scheme to fraudulently inflate Teledata India's sales and revenue. (Id. ¶¶ 17-21, 55-58.)

         The Bunge Defendants include Bunge Ltd., Bunge S.A., and Grains and Industrial Products PTE Ltd. (“GRIPT”). (Id. ¶¶ 62-67.) Bunge Ltd. is a publicly traded agribusiness company with headquarters in White Plains, NY. (Id. ¶ 62.)

         Bunge S.A., headquartered in Geneva, Switzerland, and GRIPT, headquartered in Singapore, are subsidiaries of Bunge Ltd. that purport to be agricultural products trading enterprises. (Id. ¶¶ 66-67.) Plaintiffs allege that Bunge Ltd. used those two subsidiaries to further the racketeering scheme. (Id. ¶ 64.)

         SBI is the State Bank of India. (Id. at ¶ 68.) It has a branch in New York (“SBI-NY”), which it allegedly used to transfer substantial sums of money in support of the racketeering scheme. (Id.)

         B. Bunge's “Sham Contracts”

         Plaintiffs allege that the Bunge Defendants illegally loaned money to Teledata India for the purpose of profiting from India's high interest rates. (Compl. ¶¶ 1-2.) Plaintiffs claim that it was illegal for the Bunge Defendants to lend money to Indian companies because they were not authorized lenders under India's Foreign Exchange Management Act of 1999. (Id. ¶ 3.) In order to sidestep Indian law, Bunge Ltd. allegedly disguised its loans by using subsidiaries Bunge S.A. and GRIPT to enter into contracts for the purchase and sale of fictional goods with Teledata India. (Id. ¶ 4.) Bunge S.A. and GRIPT entered into more than twenty “sham contracts” with Teledata India over a two-year period, valued at an excess of $150 million. (Id.) On their face, the purchase and sale contracts appeared to be genuine, detailing the purchase price, product to be sold, and delivery terms. (Id. ¶ 5.) In these contracts, the Bunge Defendants agreed to buy a product from Teledata India, for which delivery would be due in one year. (Id.) Despite over $150 million in such contracts, the Bunge Defendants allegedly never bought, took delivery of, or asked Teledata India to deliver a single product. (Id.) Instead, Teledata India would repay the money with interest to the Bunge Defendants at the one-year delivery date. (Id.)

         The Bunge Defendants forwarded these “sham sales and purchase contracts” to banks (including SBI), which would in turn issue “advance payment” guarantees. (Id. ¶¶ 6-7.) These guarantees were, in effect, loans-the banks would compensate the Bunge Defendants for the money advanced if Teledata India failed to deliver the contracted-for goods. In the event that Teledata India failed to pay the Bunge Defendants back, the Bunge Defendants could fraudulently represent to the banks that Teledata India had failed to deliver the products and demand the guarantee of the advance payments. The bank guarantees made the loans essentially risk-free to the Bunge Defendants, allowing them to profit from the difference between the interest rates on the loans they borrowed from investors outside India and the repayments by Teledata India at the Indian interest rate, which was significantly higher. (Id. ¶ 9.)

         Teledata India had to appear to be a profitable business to obtain the guarantees. (Id. ¶ 7.) Thus, the false purchase and sale contracts allegedly served the additional purpose of allowing Teledata India to inflate its revenue to $238 million in their March 2007 annual report, $130 million of which reportedly came from the fictitious sales to Bunge S.A. (Id. ¶ 16.)

         C. ADU and IMU Aid Teledata India's Illicit Repayment of Loans

         Indian currency regulations mandate that an authorized bank, which reports to the Reserve Bank of India (“RBI”), must approve the transfer of money out of India to repay loans. (Compl. ¶ 10.) While money could not legally be transferred out of India to repay loans, money could be transferred out of India to pay for services rendered. Thus, in order to repay the loans, Ramachandran-controlled Teledata India allegedly evaded Indian currency restrictions by using false invoices to transfer in excess of $127 million during 2006 and 2007 to the New York bank accounts of Ramachandran-controlled AMU and IMU as supposed payment for imports and consulting charges. (Id. ¶¶ 11-13.)

         Ramachandran then allegedly transferred a portion of the funds out of ADU and IMU's New York bank accounts to GRIPT and Bunge S.A. in payment of the Bunge Defendants' loans to Teledata India. (Id. ¶ 14.) ADU and IMU transferred more than $54 million from their accounts to the Bunge Defendants, either directly or indirectly through other Ramachandran companies, in around 55 transfers between 2006 and 2007. (Id.) ADU and IDU transferred these funds, despite not buying any products or having a contractual relationship with GRIPT or Bunge S.A. Rather, ADU and IMU allegedly issued false invoices through international wires and/or mails in order to pay off the loans. (Id. ¶¶ 15, 117.)

         In addition to transferring money to GRIPT and Bunge S.A., ADU and IMU allegedly transferred other funds that it had received from Teledata India-at least $62.5 million in 2006 and 2007-to Teledata Marine and Teledata Services, also pursuant to invoices for fictitious consulting services. (Id. ¶ 19.) Teledata Marine and Teledata Services then transferred funds back to Teledata India, as payment for fictitious purchases. (Id. ¶ 20.) Thus, Ramachandran allegedly mislead the banks as well as plaintiffs into believing Teledata India was a profitable business by using “sham” sale and purchase invoices between Teledata India, ADU, IMU, Teledata Marine, and Teledata Services to transfer Teledata India's own funds back to it, in order to create the false appearance of revenue. (Id. ¶¶ 21-21.)

         D. SBI's Role in Effecting the Transfers

         Teledata India allegedly transferred funds to ADU and IMU, pursuant to the invoices for fictitious consulting services and imports, using SBI accounts. (Compl. ¶ 173.) Indian banking regulations required SBI to inspect each transaction to determine whether the transfer of funds was genuinely made in payment for imports of goods or services into India. (Id.) SBI approved all of Teledata India's transfers to ADU and IMU. (Id.)

         Plaintiffs allege that SBI intentionally sought to further the scheme of transferring funds to the Bunge Defendants, through approval of the transfers, because SBI had an interest in relieving itself of potential liability on its guarantees of the “sham” Bunge contracts that it had previously issued. (Id. ¶ 174.) As of November 2006, SBI had allegedly issued guarantees of Bunge “purchase and sale” contracts valued at around $116 million, and had open guarantees of at least $84 million that SBI would be obligated to honor if Teledata India failed to repay the Bunge Defendants. (Id. ¶ 175.)

         E. The Enterprise Begins to Unravel

         Plaintiffs allege that the scheme operated similarly to a Ponzi scheme. Because Teledata India allegedly had no legitimate revenue from sales to repay the Bunge Defendants, the scheme's profitability depended on being able to obtain new loans to pay the old loans. Due to the risk that Teledata India might default in repayment, there was also a risk that the Bunge defendants would not be able to get investors to fund new loans without obtaining bank guarantees of their fictitious purchase and sale contracts.

         In late 2006, the Reserve Bank of India (“RBI”) allegedly began investigating illegal transactions of the type described above. (Compl. ¶ 131.) RBI sent official written notice to all commercial banks in India, including SBI, that parties were using purchase and sale agreement transactions to profit from interest rate arbitrage, rather than for the purpose of genuine import and export. (Id.; Compl. Ex. B.) RBI directed banks to “carry out due diligence and verify the track record of such exporters to assess their ability to execute such orders.” (Compl. Ex. B.)

         As a consequence of the RBI notice, SBI stopped providing guarantees of the Bunge Defendants' purchase and sale agreements. (Compl. ¶ 131.) Teledata India allegedly had to find a new source of money from which to repay the Bunge Defendants. (Id.)

         F. Plaintiffs are Defrauded

         In 2006, eSys (plaintiff Goel's company) allegedly needed to raise $100 million in order to pay creditors and remain in business after the termination of a major distribution deal. (Compl. ¶ 135.) In late 2006, Credit Suisse made a proposal to invest tens of millions of dollars in eSys and conduct an IPO. (Id. ¶ 136.) However, around November 2006, a Teledata India representative contacted Goel and expressed interest in investing in and acquiring shares of eSys. (Id. ¶ 137.) Plaintiffs allege that Ramachandran and Teledata India misrepresented Teledata India's annual revenue as $238 million in order to fraudulently induce Goel to sell half of his shares in eSys. (Id. ¶¶ 137-38.) Relying on those misrepresentations, Goel forewent the Credit Suisse opportunity and entered into a Stock Purchase Agreement (“SPA” or “Agreement”) with Teledata India on November 29, 2006, selling 51% of his shares in eSys to Teledata India in exchange for a sum of $105 million. (Id. ¶ 140.) This exchange was to take place through use of Rainforest, a special purpose vehicle set up by eSys. (Id. ¶ 141.) Goel was to transfer all his shares in eSys to Rainforest, and Teledata India would then deposit $105 million into Rainforest's bank account in exchange for the 51% of the shares in Rainforest. (Id.) Consequently, eSys would become a wholly owned subsidiary of Rainforest, with Teledata India and Goel owning 51% and 49% of the shares, respectively.

         Teledata India secured an $80 million loan from SBI to finance the bulk of the acquisition. (Id. ¶ 142.) However, a significant portion of these funds were allegedly routed out of the Rainforest account through ADU and IMU and transferred to Bunge S.A. and GRIPT as payment for their loans to Teledata India. (Id. ¶ 143.)[3]

         Teledata India's first payment on the $80 million loan from SBI was due in August 2007 but Teledata India did not have the funds to pay it. (Id. ¶ 180.) To avoid default, Teledata India and SBI allegedly “arranged” for SBI to issue a “working capital loan” of $12.5 million to eSys on August 14, 2007. (Id. ¶ 181.) In contravention of SBI's own sanction letter, which stated that the loan was to be used only to fund eSys India's supplier and inventory requirements, SBI allegedly made accounting entries that had the effect of routing $5 million from the eSys account to a Teledata account. (Id. ¶¶ 182-83.) The funds were then allegedly used to pay SBI for the first installment of the $80 million loan. (Id. ¶¶ 183-84.)

         As part of its payment obligation to plaintiffs, Teledata India also caused $55 million to be transferred into the Rainforest account in February 2007. (Id. ¶ 144.) Plaintiffs allege that Teledata India then lied to plaintiffs that those sums needed to be transferred out of Rainforest for legitimate business reasons and would be returned shortly. (Id.) According to plaintiffs, the sums were then transferred from the Rainforest account to affiliates of Ramachandran and Teledata India (and Bunge S.A. directly) as a loan. (Id. ¶ 145.)

         By 2008, Teledata India had depleted the funds allegedly stolen from plaintiffs, and had no money to repay GRIPT and Bunge S.A. for outstanding loans (i.e. the sham contracts). (Id. ¶ 33.) Consequently, the Bunge Defendants, or the investors to which they had sold the loans, made claims on the guarantees, fraudulently representing to banks that the purchased goods had not been delivered pursuant to the contract terms. (Id. ¶¶ 33, 157-59.) Banks, including HSBC and Canara Bank, honored the demands and paid “tens of millions of dollars.”[4] (Id. ¶¶ 157, 162, 164.)

         Throughout this time period, plaintiffs allege that Teledata India continued to make promises that they would repay money transferred out of Rainforest for purported business reasons. (Id. ¶ 191.) Plaintiffs allege that it was not until late-2009, after plaintiffs' relationship with Teledata India had encountered difficulties, that plaintiffs wrote to Bunge Ltd. and Bunge S.A. asking for an explanation of why funds had been transferred out of the Rainforest accounts to the Bunge Defendants. (Id.) In a letter dated January 13, 2010, Bunge representatives allegedly misrepresented to plaintiffs that the payments were “in respect of certain contracts for the sale and purchase of goods between Teledata and Bunge S.A.” (Id.) Bunge allegedly did not disclose that the contracts were between Teledata India and GRIPT until January 2012, when the court in the New York State action directed Bunge to produce the contracts. (Id. ¶ 193.) Plaintiffs also allege that the Bunge Defendants misrepresented the true nature of the contracts, which were for the purposes of repaying the illegal loans. (Id. ¶¶ 193-94.) As a consequence of these “cover-up” efforts, plaintiffs allege that they did not become aware of the racketeering enterprise until June 2012 when Ramachandran produced documents in response to discovery requests made in the New York State action.

         In 2010, SBI initiated foreclosure proceedings on the Rainforest shares that Teledata India had pledged to SBI in connection with the $80 million loan taken out to finance Teledata India's acquisition of eSys. (Id. 37.) Deprived of needed cash as a result of Teledata India and SBI's alleged diversion of funds in connection with the $80 million loan and Teledata India's subsequent insolvency, eSys's revenue plummeted from $1.9 billion to below $75 million by 2010. (Id.) Plaintiffs lost their ownership interest in eSys, which had been valued by Credit Suisse at between $411 and $588 million in 2006.


         A. Proceedings in Singapore[6]

         In 2009, Goel and Rainforest brought a proceeding in Singapore against Teledata India and its affiliates, based on allegations of fraud and breach of the Stock Purchase Agreement. (See Declaration of Jennifer L. Achilles in Support of the Bunge Defendants' Motion to Dismiss (“Achilles Decl.”) Ex. I, ECF No. 27-36; see also Achilles Decl. Ex. C-5, ECF No. 27-29, at 62-64.)

         SBI also initiated foreclosure proceedings against the Rainforest shares in Singapore. By letter dated March 25, 2010, SBI declared that “an event of default had occurred under the Facility Agreement” made in connection with its $80 million loan to Teledata India to finance the acquisition of the Rainforest shares. (Affidavit of Pradeep Pillai (“Pillai Aff.”) Ex. 2[7] ¶¶ 31, 38, ECF No. 24-2.) SBI stated that a sum of $41, 989, 189.91 USD plus interest that had accrued from the date of default was due by April 2, 2010. (Id. ΒΆ 23.) As Teledata India failed to make the payment within the deadline, SBI sought to enforce its security in the pledged eSys shares towards repayment ...

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