The opinion of the court was delivered by: James M. Munley United States District Judge
Before the court are defendants' motion to dismiss for failure to state a claim and defendants' motion for sanctions pursuant to Federal Rule of Civil Procedure 11. Having been fully briefed and argued, the matter is ripe for disposition.
This case arises from the July 1985 killing of Louis DeBellis, husband of plaintiff Joy DeBellis in the Bronx, New York. Defendant Kenneth Maula shot and killed DeBellis in July 1985. (Amended Complaint (hereinafter "Complt") at ¶¶ 4, 12). In October 1985, Joy DeBellis filed a civil action against Kenneth Maula in New York Supreme Court for Bronx County. (Id. at ¶ 13). After an indictment for second degree murder, a Bronx County jury found Kenneth Maula guilty of first-degree manslaughter in 1987. (Id. at ¶¶ 14-15). That conviction was overturned on appeal. (Id. at ¶ 15). A second jury then acquitted him of manslaughter but found him guilty of criminal possession of a weapon in the fourth degree. (Id.). He was sentenced to a year in prison. (Id.). Maula was in prison from 1990 to 1991. (Id. ¶ 16). A jury in 1991 found Kenneth Maula liable in a wrongful death action and awarded Joy DeBellis $208,744 in damages. (Id. at ¶ 17). Joy DeBellis appealed, and the judgment increased to $1,058,744. (Id. at ¶ 17).
Kenneth Maula has never satisfied this judgment. (Id.). Plaintiff estimates the present value of the judgment at $3.2 million. (Id.). On or about March 11, 1993, Kenneth Maula filed a Chapter 7 Bankruptcy Petition in the United States District Court for Middle District of Pennsylvania. (Id. at ¶ 18). That action stayed execution of the wrongful death judgment. (Id.). In November 1996, the bankruptcy court found that the wrongful death judgment meant that Maula's actions in killing DeBellis were willful and malicious, and that the bankruptcy debt was not dischargeable. (Id.). On November 25, 1998, Judge Thomas I. Vanaskie of the United States District Court for the Middle District of Pennsylvania affirmed this opinion. (Id.).
Plaintiff alleges that defendants have transferred legal title to more than $1 million worth of property from Kenneth Maula to his wife, Defendant Marlene Maula. Plaintiff contends that equitable title to this property remains in Kenneth Maula's hands. Before the incident in question, Kenneth Maula owned and operated a printing business in the Bronx, New York, commuting weekly to the business from his home in Monroe County, Pennsylvania. (Id. at ¶ 19a). Besides this printing business, Maula also operated a real estate development business in Monroe County with Donald Griffin. (Id. at ¶ 19b). This business went by a variety of names, such as Griffin and Maula, Griffin Maula, Inc., Colossal Enterprises, Royal Oaks Development Ltd and Eastway Company. (Id.). These businesses took various forms, from a general partnership to corporations. (Id.). At the time of plaintiff's husband's death, Kenneth Maula and Donald Griffith each owned fifty percent of the business. (Id.). The real estate development company was involved in projects such as renovating factory buildings into apartments, making an old ice house into a disco and storage space and developing vacant lots for modular housing. (Id. at ¶ 20).
Plaintiff alleges that as part of a scheme to avoid satisfying any judgment against him, Kenneth Maula transferred much of the property controlled by this company to his wife for no consideration. (Id. at ¶ 21). He retained equitable title to the property, as evidenced by the fact that he continued to manage the transferred assets and to use them for his benefits. (Id. at ¶ 21(1)). Kenneth Maula also directed the dissolution of the partnership and the sale of assets when the partnership dissolved. (Id. at ¶ 21(2)). He directed the bidding for assets to which the legal title had been assigned to Marlene Maula. (Id.). Kenneth Maula also benefitted from the proceeds of this business, which were either transferred to his wife in cash or deposited into a joint bank account shared by Kenneth and Marlene Maula. (Id. at ¶ 21(1)). Kenneth Maula funded his lifestyle through this accumulated income. (Id.). Funds generated by this business also ended up in the accounts of Defendant Empire Construction, forming the basis of that company's capital assets. (Id.). Plaintiff alleges that Kenneth Maula controlled the operations of Empire Construction at all times material to the complaint. (Id.). Most of this activity related to the Griffin-Maula partnership occurred in 1986 and 1987. (Id. at ¶ 23).*fn1
Plaintiff alleges that the property transferred during this period had a value of $2.1 million. (Id.). After the Griffin-Maula partnership sold off its assets, Marlene Maula received property worth at least $1.08 million. (Id.). The complaint contends that Marlene Maula continued to control much of the property she obtained during this period for a number of years, eventually transferring many of those assets and using them for her and her husband's benefit. In 1988, for instance, Marlene Maula allegedly received a piece of property in East Stroudsburg, Pennsylvania, even though she did not pay the $50,500 recorded as consideration for the deed. (Id. at ¶ 23(b)). Marlene Maula continued to control this property until 2006, using Defendant Empire Construction to build townhomes on the property, receiving rental income from those structures, and eventually selling them for $425,000. (Id. at ¶ 23( c)). Marlene Maula likewise sold another piece of property for which she had provided no consideration in East Stroudsburg, Pennsylvania for $225,000 in 1988. (Id. at ¶¶ 23(e-f)).
This alleged project of fraudulent property transfers which resulted in substantial earnings for Marlene Maula continued into the 1990s. (Id. at ¶ 24). On June 30, 1999, for instance, Kenneth and Marlene Maula sold their home in Monroe County, Pennsylvania to a third party for $250,000. (Id. at ¶ 24(a)). Marlene Maula received all of the proceeds from the sale, thus allegedly transferring Kenneth Maula's interest to her without receiving any consideration. (Id.). In December 1999, Kenneth Maula transferred to Marlene and Anothy Maula his interest in three lots in Monroe County, Pennsylvania for $1.00 in consideration. (Id. at ¶ 24(b)). Finally, in 2005 Kenneth Maula purchased and took title to a Subaru automobile. (Id. at ¶ 24 (c)). Marlene Maula immediately placed a lien on that property, protecting it from execution by Joy DeBellis on the wrongful death judgment. (Id.). Kenneth Maula has not made any payments to Marlene Maula to satisfy this lien. (Id.).
Defendant Empire Construction was also allegedly involved in this scheme. (Id. at ¶ 25). Plaintiff alleges that Empire Construction was the Maula family business, with Marlene Maula serving as president and Anthony Maula as vice president. (Id.). Kenneth Maula, Jr., son of Defendants Marlene and Kenneth Maula, serves as Empire's accountant. (Id.). Lori Porter, another of the Maula's children, and her husband have also worked for Empire. (Id.). Empire Construction appeared in 1987; Marlene and Anthony Maula each owned 50% of the business.
(Id. at 26). Anthony was twenty-two years old and recent college graduate. (Id.). Neither of the co-owners had any experience in construction or real estate development, though they had some experience in selling modular homes. (Id.). Kenneth Maula, Sr. routinely directed these sales. (Id.). Plaintiff alleges that Marlene and Anthony Maula agreed with Kenneth Maula that Kenneth Maula would control Empire, regardless of who was the owner of record. (Id. at ¶ 27). Kenneth Maula allegedly managed and controlled Empire during all times relevant to the complaint. (Id.). Empire developed a large number of residential and commercial products during this period. (Id.). The company reinvested profits from the earliest transactions in new projects, creating a growing concern that operated under Kenneth Maula's control. (Id. at ¶ 28). Despite his substantial role in the company, Kenneth Maula never earned more than $39,000 a year for his services. (Id. at ¶ 29). Nevertheless, Marlene Maula funded Kenneth Maula's comfortable lifestyle, which included a large home, vacation home, vacations both domestic and abroad, health and retirement plans and a time share apartment in Manhattan. (Id. at ¶ 30). Though Empire's economic activity has provided Marlene and Anthony Maula with net worths of around $7 million and Marlene Maula with a yearly income of around $1 million, Kenneth Maula has only $5,000 in his own assets. (Id. at ¶ 31).
Plaintiff alleges that Kenneth Maula used a series of fraudulent transfers and other false statements to evade the judgment entered against him in the Bronx. (Id. at ¶ 32). Kenneth Maula allegedly backdated an indenture recorded in the Office of the Monroe County Recorder of Deeds to make it appear that he had transferred his interest in Griffin-Maula before the incident that led to judgment against him, rather than after it. (Id. at ¶ 32(a)). The actual transfer in question occurred in September 1987, but was recorded as taking place in January 1985. (Id.). When deposed in June 1992 about his assets in connection with the wrongful death lawsuit, Kenneth Maula allegedly concealed many of the critical facts regarding his assets by testifying falsely that he had not transferred any property to anyone since 1985. (Id. at ¶ 35(b)). Plaintiff contends that Kenneth Maula did not correct the false testimony he provided in 1992 until deposed in 2007 in connection with this proceeding. (Id. at ¶ 35 (c)). Kenneth Maula also allegedly did not disclose assets to which he continued to hold equitable title in his Chapter 7 bankruptcy proceeding in the 1990s. (Id. at ¶ 35(d)). In this proceeding, plaintiff contends, defendant has continued to conceal the value of his present assets, continuing his pattern of fraudulent concealment. (Id. at ¶ 35(e)).
Plaintiff did not take any action on her New York judgment from 1998 until she filed the instant action on October 23, 2007. Plaintiff then filed an amended complaint on December 6, 2007, before the defendants answered. Count I seeks declaratory relief in the form of a judgment from the court declaring that up to $3.2 million of the stock of Empire titled to Anthony and Marlene Maula is Kenneth Maula's property and subject to execution to satisfy the full amount of the wrongful death judgment. This count is one of unjust enrichment, alleging that Defendants Kenneth and Marlene Maula were unjustly enriched by the proceeds of their fraudulent transfers. Plaintiff also seeks a declaration that all of Marlene Maula's other assets are likewise subject to execution to satisfy the judgment. Count II alleges common law fraud by Defendants Marlene and Kenneth Maula in an attempt to avoid payment of the wrongful death judgment. Count III alleges a civil conspiracy to create the fraudulent scheme by Marlene and Kenneth Maula. Count IV alleges fraudulent transfers from Kenneth Maula to Marlene Maula and Empire Construction. Plaintiff contends that Marlene Maula and Empire Construction were not good faith transferees and did not take the property for value. Plaintiff seeks up to $3.2 million dollars from this property.
Defendants filed motions to dismiss and all parties briefed those motions. Defendants Empire Construction and Anthony Maula also filed a motion for sanctions against the plaintiffs pursuant to Federal Rule of Civil Procedure 11. The court entertained ...