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Proud Veterans, LLC v. Ben-Menashe

United States District Court, D. Kansas

February 27, 2014

ARI BEN-MENASHE, et al., Defendants.


JULIE A. ROBINSON, District Judge.

Plaintiff Proud Veterans, LLC's Complaint in this diversity case alleges conspiracy to defraud, breach of contract, breach of fiduciary duty, and seeks to pierce the corporate veil.[1] Defendants filed motions to dismiss, alleging a lack of personal jurisdiction, improper venue and failure to state a claim. Plaintiff filed a Motion for an Order Providing for Jurisdictional Discovery.[2] The Court granted Plaintiff's motion, and ordered jurisdictional discovery on the limited issue of personal jurisdiction and venue.[3] Limited jurisdictional discovery has been completed. Before the Court is Defendants' renewed Motion to Dismiss (Doc. 30). The matter has been fully briefed and the Court is prepared to rule. For the reasons set forth in detail below, the Court finds that Defendants' Motion to Dismiss should be granted for lack of personal jurisdiction, but the Court allows the parties additional time to brief the issue of transfer.

I. Factual Background

Drawing all reasonable inferences in favor of Plaintiff, the following facts are taken from the Complaint and attached exhibits, and the declarations and exhibits attached to the parties' briefs. The Court does not consider any general or conclusory allegations unsupported by affidavit or other evidence.

This case arises out of a failed transaction between Defendant Traeger Resources and Logistics, Inc. ("Traeger"), the seller of soybeans and Global Energy Markets ("GEM"), the buyer, who is not a party to this action. Plaintiff Proud Veterans characterizes the transaction as an "advance fee scheme." Defendants claim, however, that the transaction failed because GEM's letter of credit ultimately proved to be insufficient to fund its purchase of the soybeans.

In January 2011, Plaintiff Proud Veterans, LLC ("Plaintiff") entered into a contract with GEM to promote GEM's grain sales to Iran. To that end, in Montreal, Canada in February 2011, Plaintiff introduced GEM to Traeger, a grain supplier. Negotiations between GEM and Traeger commenced, with Plaintiff acting as facilitator, in exchange for Plaintiff earning a commission of six dollars per metric ton. Defendant Ari Ben-Menashe ("Ben-Menashe"), a principal of Traeger, negotiated the contract on behalf of Traeger; while Fred Boldaji and Sina Soumekhian negotiated for GEM. Nick Gnemi, owner and CEO of Plaintiff, negotiated on behalf of Plaintiff.

The negotiations were successful and in April 2011, in a meeting in Amman, Jordan, Traeger and GEM entered into a contract for Traeger to sell 35, 000 metric tons of soybeans to GEM. The contract required that GEM have a bank letter of credit in an amount equal to the sale price plus the shipping costs. Shortly thereafter, GEM and Traeger agreed to amend the contract to provide that Traeger would provide all shipping arrangements at a price of $30 per metric ton, from which $10 per metric ton would be paid by Defendant Dickens & Madson ("Dickens"). Traeger urged and recommended to GEM that Dickens be a participant in this transaction, because Dickens would contribute $10 per metric ton from its source. Ben-Menashe further stated that Dickens' "source" was the United States government, because Leon Panetta, then Director of the CIA and a personal friend of Ben-Menashe had convinced the United States to assist this transaction with money in the from of a contribution to the purchase price. The amended contract also required an advance deposit of $700, 000 for shipping from GEM or GEM's sources.

When GEM and some potential investors from Dubai were unwilling or unable to deposit any advance money, Traeger pressed Plaintiff to make the deposit or find investors who would. Ben-Menashe, on behalf of Traeger, assured GEM that Traeger would send documentation reflecting that the advance money would be held in escrow and returned if not used to transport the soybeans. Thereafter, from April 4 to May 5, 2011, Plaintiff made a series of four payments towards the $700, 000 advance deposit, wiring a total of $450, 000 to Defendant William Schaap's attorney trust fund account at HSBC Bank New York City. Schaap is an attorney who represented Defendants Traeger, Dickens and Ben-Menashe.

After the first wire from Plaintiff, GEM emailed Schaap clarifying GEM's request for documentation of the agreement that the funds would be held in escrow. That same day, Schaap sent a letter in response to GEM, which falsely stated that the $700, 000 would be used for shipping costs or would be refunded. The Complaint alleges that Ben-Manashe and Schaap knew that the Plaintiff believed that under the uniform custom and practice of the trade, the advance money for shipping costs would be refunded after a reasonable time if the funds were not in fact used for shipping costs. On the same day as Schaap's letter to GEM, in a telephone conversation, Ben-Menashe falsely told Gnemi of Proud Veterans that Traeger owned sufficient soybeans to complete the contract and that the soybeans would be delivered in less than thirty days. Four days later, Ben-Menashe called Gnemi seeking additional funds for shipping and Plaintiff introduced investor Allen Nasserisafar as an additional depositor of advance funds.

After Plaintiff transmitted two of the four wire payments to Schaap's attorney trust fund account, Defendant Ovsjannikovs, a principal of Andre Maritime Services Company ("Andre Maritime"), falsely told Gnemi and Nasserisafar that the soybeans were located in the free port of Alexandria, Egypt. Two days later, on April 29, 2011, Ben-Menashe falsely stated that the soybeans were in storage in Alexandria and ready for delivery.

Plaintiff engaged an Iranian bank representative to investigate whether the soybeans were in fact in storage and ready for delivery, and Plaintiff emailed Traeger on May 1, 2011 to inform Traeger of Plaintiff's investigation. When Plaintiff's representative could not find the soybeans in any of the storage facilities in Alexandria that could accommodate that quantity of soybeans, Gnemi and Boldaji of GEM called Ovsjannikovs and confronted him with this discovery. Ovsjannikovs did not dispute the report and stated he would report it to Ben-Menashe.

On May 10, 2011 Ben-Menashe sent another addendum to the Traeger-GEM contract that confirmed the $700, 000 deposit had been made and further stated that Traeger would make the first shipment of the soybeans effective May 10, 2011. The addendum further provided that GEM would provide Traeger with a copy of a revised letter of credit "Paid at Site, " within 72 hours after receipt of the validated request for shipping company, shipping agreement, name of ship and proposed date and location for loading the ship. On May 10, Ovsjannikovs, on behalf of Andre Maritime, sent a letter to GEM stating that Andre was ready to charter the ships to deliver the soybeans. GEM and the other depositors waited, but never received any information about the shipping agreement or other shipping arrangements and thus GEM never obtained a revised letter of credit.

Thereafter, Traeger never produced any documentation showing the existence of soybeans to fulfill the contract, and on May 18, Ben-Menashe stated that the soybeans had been sold to a different buyer because of GEM's non-performance of the contract. But, on May 20, Ben-Menashe stated that the Traeger-GEM contract was still in effect and that GEM's letter of credit was sufficient. Ben-Menashe also falsely stated that Traeger would proceed to fulfill the contract by obtaining soybeans from another supplier. Thereafter, Plaintiff requested documentation about shipping and documentation confirming the location where the advance money was on deposit. Ben-Menashe responded that he was going to cancel "this deal, " because GEM was not in compliance; but on May 31, 2011 Ben-Menashe falsely stated that he had a new Iranian buyer for the soybeans and that the Traeger-GEM contract was still in effect and would be performed as originally agreed.

GEM's letter of credit expired on or about June 6, 2011, and Plaintiff requested reimbursement of the advance funds deposited in Schaap's trust fund account. Ben-Menashe and Ovsjannikovs continued to assure Plaintiff and GEM that the contract would be executed soon, and Schaap emailed them, falsely stating that the contract would be completed within two weeks. On August 19, 2011, Traeger failed to meet another deadline, and GEM and Traeger entered into a second contract called a "Reaffirmation Agreement" that reaffirmed their obligations under the original contact and agreed that Traeger owed Plaintiff $1, 050, 000 and owed GEM $3, 150, 000. On or about August 22, 2011, Schaap falsely told GEM's attorney that the funds were in a Traeger bank account in Hong Kong and would be wired to Schaap's attorney trust fund account for distribution to GEM and Plaintiff "in a day or two." On September 2 and again on September 4 and 5, 2011, Ben-Menashe falsely stated that the funds had been "held up" by the government of China, but would be released and received in New York and then transferred to GEM and Plaintiff "in a day or two." On September 6, 2011, pursuant to the Reaffirmation Agreement, Traeger wired $87, 000 from Schapp's HSBC bank account in New York to Plaintiff's Intrust Bank account in Kansas.

Thereafter, Plaintiff made repeated demands for payment of the remainder of the advance funds. Plaintiff and GEM entered into a new settlement agreement with Traeger.[4] The settlement agreement was intended to resolve all claims arising out of the prior contracts and/or obligations and is expressly governed by New York law. Ben-Menashe falsely stated to GEM that sufficient funds to pay the amounts due under the settlement agreement were on deposit in a Traeger bank account in Hong Kong, but that the Chinese government and Chinese banking authorities were preventing Traeger's withdrawal of the funds so it could pay the balance due under the settlement agreement. Plaintiff claims that Schaap transferred the trust funds to Traeger, which were then transferred to other persons or entities intended to be beyond the reach of Traeger's creditors.

Plaintiff is a Kansas limited liability company. Defendant Traeger is incorporated in New York and has offices in Montreal, Quebec, Canada. Defendant Ben-Menashe is a citizen of Canada and resides in Montreal. Defendant Schaap is a citizen of the state of New York. Defendant Dickens & Madson is incorporated in New York and has offices in Montreal. Defendant Ovsjannikovs is a citizen of Canada and lives in Montreal. Defendant Andre Maritime is a Latvian company doing business in Latvia and Montreal. GEM is not a party to this action, and is a company doing business in Virginia.

Plaintiff's Complaint alleges diversity jurisdiction under 28 U.S.C. § 1332, proper venue under 28 U.S.C. § 1391(a)(2), and sets forth the following causes of action: conspiracy to defraud as to all Defendants (Count I); breach of a settlement agreement as to Defendants Traeger and Ben-Menashe (Count II); breach of fiduciary duty as to Defendants Ben-Menashe and Schaap (Count III);[5] piercing the corporate veil and holding Defendant Ben-Menashe personally liable for Traeger's acts (Count IV); and attorney fees and costs as punitive damages against Defendants Traeger, Ben-Menashe and Schaap (Count V).

All Defendants[6] seek dismissal on the grounds that the Court lacks personal jurisdiction and that venue in Kansas is improper. In addition, Defendants Ben-Menashe and Schaap move for dismissal of the breach of fiduciary duty claim for failure to state a claim.[7]

II. Standards for Personal Jurisdiction under Rule 12(b)(2).

Plaintiff has the burden of establishing personal jurisdiction over Defendants.[8] In the absence of an evidentiary hearing, as in this case, the plaintiff must make only a prima facie showing of jurisdiction to defeat a motion to dismiss.[9] "The plaintiff may make this prima facie showing by demonstrating, via affidavit or other written materials, facts that if true would support jurisdiction over the defendant."[10] Allegations in a complaint are accepted as true if they are plausible, non-conclusory, and non-speculative, to the extent that they are not controverted by submitted affidavits.[11] At the same time, the Court does not have to accept as true conclusory allegations, nor incompetent evidence. When a defendant has produced evidence to support a challenge to personal jurisdiction, a plaintiff has a duty to come forward with competent proof in support of the jurisdictional allegations of the complaint.[12] The court resolves all factual disputes in favor of the plaintiff.[13] Conflicting affidavits are also resolved in the plaintiff's favor, and "the plaintiff's prima facie showing is sufficient ...

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