United States District Court, N.D. Illinois, Eastern Division
FIRSTMERIT BANK, N.A., as the Assignee of the Federal Deposit Insurance Corporation, Receiver for Midwest Bank & Trust Company, Plaintiff,
SPENCER HOSSEINI, Individually, and as Trustee of the Debbie J. Hosseini Trust Dated July 31, 2008, NAJAF HOSSEINI, Individually, and as Trustee of the Najaf Hosseini Trust Dated July 31, 2008, MEHRI JAFARI-BOROUJERDI, ABE KASHANI, and GOLDEN PROPERTIES MANAGEMENT, LLC, Defendants.
MEMORANDUM OPINION AND ORDER
SHEILA FINNEGAN, Magistrate Judge.
Plaintiff FirstMerit Bank, N.A. ("FirstMerit") is the assignee of a loan that Defendant Najaf Hosseini ("Najaf") took out in 2006, secured by a mortgage on property located at 2244 N. Cicero Ave., Chicago, Illinois. When Najaf stopped making his mortgage payments, FirstMerit foreclosed on the property in 2011 and later obtained a $148, 313.98 in personam judgment against Najaf and his former used auto dealership in the Circuit Court of Cook County. In this diversity suit, FirstMerit charges Najaf, certain of his family members, and Golden Properties Management, LLC ("Golden"), with engaging in a fraudulent scheme to place Najaf's assets beyond the reach of FirstMerit and other unspecified creditors seeking to collect on his debts, in violation of the Illinois Uniform Fraudulent Transfer Act ("UFTA"), 740 ILCS 160/1 et seq., and Illinois common law. The accused family members include Najaf's son, Spencer Hosseini ("Spencer"); Najaf's sister-in-law, Mehri Jafari-Boroujerdi ("Mehri"); and Najaf's brother-in-law, Abe Kashani ("Abe").
The parties consented to the jurisdiction of the United States Magistrate Judge pursuant to 28 U.S.C. § 636(c), and Defendants now seek to dismiss the Complaint in its entirety for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1) and failure to state a claim under Rule 12(b)(6). Defendants argue that: (1) the claims set forth in the Complaint are barred by the doctrine of res judicata because they could have been raised during supplemental state court proceedings to discover Najaf's assets; (2) the Court should abstain from hearing the case under the Wilton-Brillhart doctrine given the state court proceedings; (3) the UFTA claims are barred because the allegedly fraudulent asset transfers occurred outside the statute of limitations period; (4) the common law fraud claims have not been pleaded with the requisite particularity under Rule 9(b); and (5) allegations relating to the transfer of certain properties that Najaf never actually owned should be stricken.
For the reasons set forth here, the Court does not find any of these arguments persuasive and denies the motion to dismiss.
In reviewing this motion, the Court accepts the Complaint's factual allegations as true and draws all reasonable inferences in FirstMerit's favor. Gessert v. United States, 703 F.3d 1028, 1033 (7th Cir. 2013).
A. Najaf's Properties, 1987 through 2007
FirstMerit's lawsuit seeks to avoid the transfer of certain properties that Najaf acquired, either individually or with his wife, Debbie J. Hosseini, so they can be used to satisfy the $148, 313.98 debt he owes to FirstMerit. Najaf acquired the first property at 2250 N. Cicero Ave., Chicago, Illinois (the "2250 Property"), in 1987, for $43, 000. (Cmplt. ¶¶ 23, 27, 42). Najaf and Debbie jointly acquired a second property at 2227 N. Rand Rd., Palatine, Illinois (the "2227 Property"), in 1997, as the beneficiaries of Trust No. 97-4184 held by Cole Taylor Bank. ( Id. ¶¶ 22, 26). In 2002, Najaf acquired the property at 1648 N. Cicero Ave., Chicago, Illinois (the "1648 Property"), and operated his used auto sales business, Magnum Motors, Inc. ("Magnum"), from that location "between 2002 and 2010." ( Id. ¶¶ 14, 19, 20, 28). A few years later in 2006, Najaf took out a loan (the "Loan") from Midwest Bank & Trust Company ("Midwest") secured with property located at 2244 N. Cicero Ave., Chicago, Illinois (the "2244 Property"). ( Id. ¶ 57). This is the secured loan eventually assigned to FirstMerit. At some unspecified point prior to 2008, Najaf and Debbie also acquired a home located at 700 Kelso Glen Ct., Inverness, Illinois (the "Marital Residence"), which they held as tenants by the entirety. ( Id. ¶ 38).
B. Creation of the Limited Liability Company Golden and the Najaf and Debbie Trusts
Sometime in 2007, Najaf's finances "began to falter" when his used auto sales business "collapsed with much of the economy." ( Id. ¶ 29). Najaf "attempted to fill the gaps in his budget by resorting to gambling, " resulting in "hundreds of thousands of dollars in losses over the next few years." ( Id. ). By no later than mid-2008, Najaf was generally unable to pay his debts as they became due, rendering him insolvent. ( Id. at 30). It was during this "very financially precarious time, " FirstMerit alleges, that Najaf, Debbie, Mehri and Abe engaged in their scheme to defraud, attempting to place Najaf's assets outside the reach of his creditors "while continuing to pay and transfer property stemming from those assets to [Najaf]'s family members." ( Id. ¶ 31).
First, on March 14, 2008, Najaf and Debbie created Golden, an Illinois limited liability company, with each of them holding a 50% membership interest. ( Id. ¶¶ 12, 32). Then on July 31, 2008, Najaf and Debbie created (1) the Najaf Hosseini Trust dated July 31, 2008 (the "Najaf Trust"), a revocable trust with Najaf as the settlor, trustee, and beneficiary with authority to dispose of any and all property at any time, including principal and interest; and (2) the Debbie J. Hosseini Trust dated July 31, 2008 (the "Debbie Trust"), a revocable trust with Debbie as the settlor, trustee, and beneficiary with authority to dispose of any and all property at any time, including principal and interest. ( Id. ¶¶ 8-10, 33). Thereafter, Najaf and Debbie each transferred their 50% membership interests in Golden to their respective trusts; i.e., Najaf's 50% interest went to the Najaf Trust, and Debbie's 50% interest went to the Debbie Trust. ( Id. ¶ 34).
Sometime in 2008, Najaf transferred the 1648 Property and the 2250 Property to Golden. ( Id. ¶¶ 24, 27). In 2009, Golden additionally acquired property located at 1735-41 N. Cicero Ave., Chicago, Illinois (the "1735-41 Property"). ( Id. ¶¶ 21, 25, 28). The following year, in 2010, Najaf and Debbie transferred the 2227 Property from the Cole Taylor Bank Trust to Golden. ( Id. ¶ 26).
C. Property Transfers in 2011 and Foreclosure on the 2244 Property
As discussed in more detail below, FirstMerit claims that though the intent behind creating Golden and the Najaf Trust was to place Najaf's assets beyond the reach of creditors, it did not accomplish that intended result. Therefore, on October 3, 2011, Najaf, in his capacity as trustee of the Najaf Trust, transferred and assigned his 50% interest in Golden to the Debbie Trust for no consideration. ( Id. ¶¶ 36, 37). The same day, Najaf and Debbie quitclaimed their ownership interests in the Marital Residence to each other as trustees of their respective trusts in tenancy by the entirety. ( Id. ¶ 38). Two days later, on October 5, 2011, Najaf moved out of the Marital Residence, thereby severing the tenancy by the entirety and creating a joint tenancy. ( Id. ¶ 39). Since that time, Najaf has lived in the 2250 Property. ( Id. ¶ 43).
On November 9, 2011, FirstMerit initiated a lawsuit against Najaf in Illinois state court seeking foreclosure on the 2244 Property securing his Loan from Midwest (the "Foreclosure Case"). At that time, the principal owed on the Loan was not less than $458, 529.68. ( Id. ¶¶ 59, 60, 63-66).
On December 12, 2011, Debbie executed a quitclaim deed on behalf of Golden conveying all of Golden's interest in the 2250 Property (where Najaf had been living since October 2011) to Mehri, Najaf's sister-in-law, "in payment of antecedent debt of [Najaf] to Mehri in the amount of $28, 000." ( Id. ¶¶ 40, 41). At the time of the transfer, the 2250 Property had an assessed value of over $245, 000 and was totally unencumbered. ( Id. ¶ 42). Notwithstanding the transfer, Najaf still lives at that location to this date. ( Id. ¶ 43).
D. The Divorce and Foreclosure Judgment
On April 18, 2012, Debbie filed a petition for dissolution of her marriage to Najaf. The following month, on May 1, 2012, Debbie and Najaf executed an agreed Judgment for Dissolution of Marriage, which incorporated a Marital Settlement Agreement (the "Divorce Agreement"). ( Id. ¶¶ 44, 45). Though the Debbie Trust already had sole ownership of Golden at that time, the Divorce Agreement nonetheless purported to award Debbie "100% of the parties' interest in and to Golden Properties Management, LLC, including all real estate owned by said LLC, free and clear of any interest on the part of the Husband [Najaf]." ( Id. ¶ 46). The Divorce Agreement also transferred the Marital Residence to Debbie, with Debbie responsible for paying all attendant mortgages. ( Id. ¶ 47). In that regard, on May 15, 2012, Najaf conveyed the Najaf Trust's interest in the Marital Residence to Debbie as Trustee of the Debbie Trust. This left Najaf with "no substantial assets to satisfy any of his debts to creditors." ( Id. ¶¶ 48, 49).
On October 11, 2012, FirstMerit obtained an in personam judgment against Najaf in the Illinois state Foreclosure Case in the amount of $125, 386.75. It also obtained a judgment against Najaf and his auto sales business, Magnum, in the amount of $22, 927.23, bringing the total judgment to $148, 313.98. ( Id. ¶ 67). Twelve days later, on October 23, 2012, FirstMerit asked the Illinois state court to issue Najaf a citation to discover assets. (Doc. 24-1, at 13).
E. Golden's Current Income
As the owner of the 1648 Property, the 1735-41 Property, and the 2227 Property, Golden receives monthly revenues of between $8, 500 and $16, 000 "depending on when rent is paid by the tenants to Golden." ( Id. ¶ 51). Golden pays more than $4, 100 per month for the mortgage on the Marital Residence, and pays at least $2, 000 per month to Abe, Najaf's brother-in-law, "on account of a purported antecedent debt owed by [Najaf] to Abe." ( Id. ¶¶ 52, 53). As noted, Najaf continues to live at the 2250 Property now owned by Mehri. ( Id. ¶ 54).
After Debbie died in 2013, Debbie and Najaf's son Spencer took over as successor trustee and sole beneficiary of the Debbie Trust, which remains the sole member of Golden and the ...