Carney v. Beracha, No. 12-cv-00180, 2014 U.S. Dist. LEXIS 16460 (D. Conn. Feb. 10, 2014) [click for opinion]

This case is ancillary to an SEC enforcement proceeding against Francisco Illarramendi for violation of federal securities laws in perpetrating a five-year-long Ponzi scheme.  The court previously created a receivership estate to recover property for distribution to Illarramendi's victims and creditors and appointed a receiver.

In this action, the receiver is attempting to recover $170 million in transfers that Moris Beracha and several affiliated entities (collectively "Defendants") allegedly received from Illarramendi. 

Defendants allegedly served as the Ponzi scheme's source of liquidity, and Beracha is alleged to have personally facilitated Illarramendi's scheme. Defendants moved to dismiss Plaintiff's complaint for lack of personal jurisdiction, insufficient service of process, and improper venue/forum non conveniens. The court denied Defendants' motions.

The court found the receiver had made a showing sufficient to support the exercise of personal jurisdiction over the Defendants.  Two defendants had moved to intervene in the SEC enforcement action and had filed claims with the receiver.  In doing so, they had submitted to the court's jurisdiction. 

Beracha argued that the court could not exercise personal jurisdiction under the Federal Receivership Statutes, 28 U.S.C. §§ 7541692, because the receiver failed to specifically identify in the complaint receivership property or assets believed to be located in the judicial districts where the court would exercise personal jurisdiction and the court cannot use in remjurisdiction provided under the statute to exercise in personam jurisdiction. The court rejected both arguments, noting that no case law in the circuit supported these contentions.

Beracha next argued that service of process was deficient because, as a citizen and resident of Venezuela, he could only be served under theHague Convention on the Service Abroad of Judicial and Extra-Judicial Documents in Civil and Commercial Matters.  The court held that Federal Rule of Civil Procedure 4(f) applied to service abroad but, because Beracha was served at his New York residence, Rule 4(e) applied and service was proper.

Another defendant also argued insufficient service of process.  At one time, that defendant was domiciled and did business in the British Virgin Islands, but at the relevant time was domiciled in Nevis.  The receiver served copies of the summons and complaint on the defendant's former registered agent in the British Virgin Islands.  Though service on a former agent is not effective service of process, instead of dismissing the complaint against the defendant, the court extended time for the receiver to effectuate service as Federal Rule of Civil Procedure Rule 4(m) sets no time limit for serving foreign defendants.

The court also addressed the receiver's contention that two of the defendants are alter egos of Beracha and thus personal jurisdiction over Beracha extends to those entities on a corporate veil piercing theory.  In this case, veil piercing was considered in connection with the identity rule—i.e., an absence of corporate identity such that the actors are alter egos of each other.  The receiver's allegations that the entities accepted moneys on behalf of or for the benefit of Beracha were, the court found, sufficient to make the prima facie showing of alter ego that would extend personal jurisdiction over Beracha to the entities.

Defendants also argued for dismissal based on forum selection clauses in some of the contracts related to transactions in the complaint and on the grounds of forum non conveniens.  The court noted that, although forum selection clauses are generally enforced, doing so in this case would be unreasonable because the clauses applied to only a fraction of the transactions at issue, sometimes only applying to part of such transactions, and would thus necessitate piecemeal litigation in multiple fora.  Regarding the forum non conveniens argument, the court determined that the receiver's choice of forum was entitled to substantial deference that was not outweighed by convenience and public interest factors that favored Venezuela.  The court also noted that, as part of a set of interconnected actions brought in Connecticut to recover moneys resulting from a scheme carried out in great part in Connecticut, there were substantial reasons to justify the receiver's choice to bring the action in the forum and that removal of an ancillary proceeding to a foreign jurisdiction while the primary proceeding remained before the court in Connecticut would cause unnecessary complication and costs.