Dave v. 2012 Bobby Shah Irrevocable Trust

• Court: District Court, D. Arizona
• Decided: January 3, 2025
• Docket: 3:24-cv-08053
• Status: Unknown

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 Reshma Dave, No. CV-24-08053-PCT-DLR

10 Plaintiff, ORDER

11 v.

12 2012 Bobby Shah Irrevocable Trust,

13 Defendant. 14 15 16 Before the Court are two motions: Defendant 2012 Bobby Shah Irrevocable Trust’s 17 (“Trust”)1 motion to dismiss (Doc. 8) the Complaint (Doc. 1) and Plaintiff Reshma Dave’s 18 motion for partial summary judgment (Doc. 14). Both motions are fully briefed. (Docs. 9, 19 11, 12, 16, 19.) The Court heard arguments from the parties on the motion to dismiss on 20 December 16, 2024. For the reasons set forth below, the Court denies both motions. 21 I. The Trust’s Motion to Dismiss 22 A. Background2 23 This case arises from an alleged scheme by Bobby Shah (“Shah”), co-trustee of the 24 1 The parties disagree about the proper name of the Trust. (See Docs. 8 at 1 n.1; 11 25 at 1 n.1.) Whatever the correct name, the Court understands the parties to be referring to the same trust. Because the disagreement is immaterial to the Court’s analysis, the Court 26 uses the name supplied in the caption and used by Dave, but use of Dave’s name for the Trust should not be construed as a resolution of that dispute. 27 2 Because the Trust levies a factual attack to subject matter jurisdiction, the Court has considered and drawn the facts in this section from the Complaint and exhibits 28 submitted by both parties. The Court has not attached presumptive truthfulness to the Complaint’s allegations. See infra Section II. 1 Trust, to move the Trust and shield assets from Dave. Dave and Shah were married but are 2 now in divorce proceedings. (Doc. 1 ¶ 1.) In 2012, while they were still together, Shah 3 formed the Trust with its situs in Arizona for the benefit of his spouse3 and their children. 4 (Id. ¶ 5; id. at 18.) Shah initially named Dave4 the trustee of the Trust. (Id. at 18.) Shah 5 named Arjav Shah (“Arjav”) the Trust Protector. (Id. at 23.) 6 A decade after its formation, Arjav and Shah allegedly took steps to move the Trust 7 situs and ensure a South Dakota court would assume supervision of the Trust. First, Shah 8 removed Dave as a trustee and appointed Arjav in her stead. (Id. at 8.) Pursuant to his 9 authority as Trust Protector, Arjav appointed Shah as the sole successor trustee of the Trust. 10 (Doc. 10-1 at 34.) Arjav later appointed Michael Wright, a South Dakota resident, as co- 11 trustee of the Trust. (Doc. 1 ¶ 2; Doc 10-1 at 36.) 12 In November 2022, Shah created a South Dakota company called Overwatch LLC 13 (“Overwatch”) and made the Trust the owner. (Doc. 1 ¶ 6.) Shah named himself manager 14 of Overwatch. (Id.) Overwatch is the Trust’s primary asset. (Id.; id. at 9.) In the same 15 month, he transferred membership interests of two Arizona companies—which Dave 16 alleges were marital property—to the Trust without Dave’s consent. (Id. ¶ 13.) Since at 17 least 2022, the Trust’s records have been kept in South Dakota; tax returns on its behalf 18 are prepared, reviewed, and signed in South Dakota; and annual reports for Overwatch 19 LLC have been prepared and filed in South Dakota. (Id. at 10.) By making these changes, 20 Arjav and Shah were able to move the situs of the Trust to South Dakota. (Id. ¶ 2; Doc. 10- 21 1 at 35.) 22 Shah and Wright filed a petition “for court supervision and sealing of court file” 23 (“Petition”) in a South Dakota state court on February 6, 2024. (Doc. 1 at 8, 11.) The 24 Petition included an inventory of the Trust assets, a copy of the governing Trust instrument, 25 and a statement of interested parties. (Id. at 11; Docs. 10-2; 10-3.) A copy of the Petition 26 and its attachments were served on Dave. (Doc. 10-4.) Dave received notice of the hearing

27 3 The Trust defines “My Spouse” as “the individual who, as determined from time to time, is married to and living with me, or was married to and living with me at the time 28 of my death.” (Doc. 1 at 37.) 4 The name “Reshma Shah” in the Trust refers to Dave. (Doc. 1 at 8.) 1 scheduled for the Petition. (Doc. 10-5.) The South Dakota court held the hearing and 2 entered an order confirming the court’s supervision. (Doc. 10-6.) Neither Dave nor any 3 attorney on behalf of Dave appeared at the hearing or filed any objection to the Petition. 4 (Docs. 10-4; 10-5; 10-8; 13.) A notice of entry of the order was mailed to Dave, and Shah 5 filed the judgment with the Mohave County Superior Court. (Docs. 10-7; 10-8.) 6 Two days after the South Dakota state court issued its order, Dave filed the present 7 suit. (Compare Doc. 1, with Doc. 10-8 at 9.) Dave brings three counts against the Trust: 8 (1) aiding and abetting Shah’s breach of fiduciary duty; (2) intentional fraudulent transfer; 9 and (3) constructive fraudulent transfer. (Doc. 1 at 4–5.) The second and third claims are 10 brought under the Uniform Fraudulent Transfer Act (“UFTA”). A.R.S. § 44-1001 et seq. 11 (Id. ¶¶ 26, 30.) The Trust moves to dismiss5 for lack of subject matter jurisdiction.6 (Doc. 12 8.) 13 While the Trust’s motion to dismiss was pending, Shah filed a petition in the South 14 Dakota court to determine beneficiaries and interested persons of the Trust and to obtain 15 approval of the Trust’s inventory and accounting (“Second Petition”). (Doc. 10-9.) A copy 16 of the Second Petition was mailed to Dave. (Doc. 18-5.) Dave received several notices of 17 the hearing scheduled for the Second Petition. (Docs. 18-4; 18-6; 18-7.) The court held the 18 hearing in June. (Doc. 13.) Neither Dave nor any attorney on behalf of Dave appeared at 19 the hearing or filed any objection to the Second Petition. (Docs. 10-4; 10-5; 10-8; 13.) The 20 court entered an order after the hearing, concluding that Dave was neither a beneficiary nor 21 an interested party to the Trust and that no transfer to the Trust was fraudulent. (Id. at 3, 22 12–13.) The Trust notified the Court of the South Dakota court’s decision. (Doc. 13.) 23 Shortly thereafter, Dave filed a “Motion for Partial Summary Judgment re: Non-Preclusive 24 Effect of South Dakota State Court Orders,” asking this Court to rule that Dave is not bound 25 by the South Dakota court order and that the decision has no preclusive effect on this case.

26 5 Though it moves to dismiss the entire case, the Trust makes no argument in its briefs in favor of dismissal of the first count, so the Court only considers dismissal of the 27 second and third counts. 6 In its motion, the Trust states that it also moves for dismissal on Rule 12(b)(6) 28 grounds, but it does not develop any argument in support of dismissal on that basis in the briefs. The Court therefore limits its analysis to the jurisdictional arguments. 1 (Doc. 14.) 2 B. Legal Standard 3 “Federal courts are courts of limited jurisdiction. . . . It is to be presumed that a cause 4 lies outside this limited jurisdiction, and the burden of establishing the contrary rests upon 5 the party asserting jurisdiction.” Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 377 6 (1994) (quotations and citations omitted). Under Federal Rule of Civil Procedure 12(b)(1), 7 a party may move to dismiss a case for lack of subject matter jurisdiction. Tosco Corp. v. 8 Cmtys. for a Better Env’t, 236 F.3d 495, 499 (9th Cir. 2001), overruled on other grounds 9 by Hertz Corp. v. Friend, 559 U.S. 77 (2010); see also Carijano v. Occidental Petroleum 10 Corp., 643 F.3d 1216, 1227 (9th Cir. 2011). “Motions to dismiss under this Rule ‘may 11 attack either the allegations of the complaint as insufficient to confer upon the court subject 12 matter jurisdiction, or the existence of subject matter jurisdiction in fact.’” Sabra v. 13 Maricopa Cnty. Comty. Coll. Dist., 479 F. Supp. 3d 808, 813 (D. Ariz. 2020) (quoting 14 Renteria v. United States, 452 F. Supp. 2d 910, 919 (D. Ariz. 2006)). 15 The Trust levies a factual attack on subject matter jurisdiction. In support of a factual 16 subject matter attack pursuant to Rule 12(b)(1), the moving party may submit “affidavits 17 or any other evidence properly before the court.” Ass’n of Am. Med. Colls. v. United States, 18 217 F.3d 770, 778 (9th Cir. 2000) (quoting St. Clair v. City of Chico, 880 F.2d 199, 201 19 (9th Cir. 1989)). And the Court may properly consider that evidence without converting 20 the motion to dismiss into a motion for summary judgment. Dreier v. United States, 106 21 F.3d 844, 847 (9th Cir. 1996). If the moving party submits evidence showing a lack of a 22 subject matter jurisdiction, the plaintiff must respond with any evidence necessary to 23 satisfy her burden of establishing that the court has subject matter jurisdiction. Ass’n of 24 Am. Med. Colls., 217 F.3d at 778. In resolving a factual attack, the Court does not attach 25 presumptive truthfulness to the allegations in the pleadings. McCarthy v. United States, 26 850 F.2d 558, 560 (9th Cir. 1988). 27 C. Analysis 28 The Trust asserts that the Court lacks subject matter jurisdiction because Shah 1 petitioned a South Dakota state court to exercise supervision over the Trust before Dave 2 filed suit here, giving the state court prior exclusive jurisdiction over in rem suits against 3 the Trust.7 Though federal courts are courts of limited jurisdiction, where jurisdiction 4 exists, federal courts have a “virtually unflagging obligation” to exercise it. Colo. River 5 Water Conservation Dist. v. United States, 424 U.S. 800, 817 (1976). Generally, state and 6 federal courts should not interfere with or restrain each other’s proceedings. Koken v. Viad 7 Corp., 307 F. Supp. 2d 650, 655 (E.D. Pa. 2004). In fact, “it is settled that where the 8 judgment sought is strictly in personam, both the state court and the federal court, having 9 concurrent jurisdiction, may proceed with the litigation at least until judgment is obtained 10 in one of them which may be set up as res judicata in the other.” Princess Lida of Thurn & 11 Taxis v. Thompson, 305 U.S. 456, 466 (1939). 12 But where a court has custody of specific property, that court has prior exclusive 13 jurisdiction over all in rem or quasi in rem proceedings against that property. Id. 14 The question whether the prior exclusive jurisdiction doctrine applies turns on what, precisely, is at issue in the state and 15 federal court proceedings. If both courts exercise either in rem or quasi in rem jurisdiction, then the courts may be 16 simultaneously exercising jurisdiction over the same property, in which case the prior exclusive jurisdiction doctrine applies 17 and the district court is precluded from exercising jurisdiction over the res. 18 19 Goncalves By & Through Goncalves v. Rady Child.’s Hosp. San Diego, 865 F.3d 1237, 20 1253 (9th Cir. 2017). The prior exclusive jurisdiction doctrine is a mandatory jurisdictional 21 limitation. Chapman v. Deutsche Bank Nat. Tr. Co., 651 F.3d 1039, 1043 (9th Cir. 2011). 22 Thus, in cases where it applies, federal courts must dismiss or stay the proceedings. 23 An action is in rem where it “determine[s] interests in specific property as against 24 the whole world.” State Eng’r of Nev. v. S. Fork Bank of Te-Moak Tribe of W. Shoshone 25 Indians of Nev., 339 F.3d 804, 811 (9th Cir. 2003) (quoting In Rem, Black’s Law Dictionary 26 (6th ed. 1990)). An action is quasi in rem where “the parties’ interests in the property serve 27 7 Dave mistakenly asserts that “prior exclusive jurisdiction” is not a matter of subject 28 matter jurisdiction. It is. See Applied Underwriters, Inc. v. Lara, 37 F.4th 579, 587 (9th Cir. 2022). 1 as the basis of the jurisdiction for the parallel proceedings.”8 Town of Colo. City v. United 2 Effort Plan Tr., No. CV11-08037-PHX-DGC, 2012 WL 12542, at *4 (D. Ariz. Jan. 4, 3 2012). On the other hand, “[w]here the relief sought is a money judgment only, the action 4 is in personam.” Koken, 307 F. Supp. 2d at 655 (citing Kline v. Burke Constr. Co., 260 5 U.S. 226, 228 (1922)). In personam actions “enforce a personal liability” or “establish a 6 debt or a right to share in property, and thus obtain an adjudication which might be had 7 without disturbing control of the state court.” United States v. Bank of N.Y. & Tr. Co., 296 8 U.S. 463, 478 (1936). 9 Actions to “administer trusts” are in rem. Goncalves, 865 F.3d at 1253; Princess 10 Lida, 305 U.S. at 280 (holding that prior exclusive jurisdiction principles extend to suits 11 brought to “marshal assets, administer trusts, or liquidate estates, and in suits . . . where, to 12 give effect to its jurisdiction, the court must control the property”). As Dave concedes, the 13 nature of the suit in South Dakota, which deals with all aspects of administration of the 14 Trust, is in rem. The parties disagree, however, about whether this suit is in rem or in 15 personam. The Trust argues that “this action concerns the creation, funding, and proper 16 situs of the Trust,” which are quintessential issues of trust administration, and thus, this is 17 an in rem suit. (Doc. 9 at 12.) Dave responds that fraudulent transfer claims are strictly in 18 personam. (Doc. 11 at 4.) 19 When assessing whether an action is properly described as in rem or in personam, 20 the Court must “look behind the form of the action to the gravamen of a complaint and the 21 nature of the right sued on.” State Eng’r of Nev., 339 F.3d at 810 (quotation and citation 22 omitted). That is to say, characterization of an action as in rem or in personam requires the 23 Court to examine all aspects of the cause of action: the form of the action, as well as the 24 parties involved and the remedies sought. 25 Here, Dave seeks both compensatory damages and equitable relief from the Trust. 26 Though the transferee is an appropriate defendant in a fraudulent transfer action, it is 27 apparent from the Complaint that it is Shah, not the Trust, who performed the fraudulent

28 8 For clarity and convenience, the Court will hereinafter use “in rem” to refer to both “in rem” and “quasi in rem.” || transfers. That Dave is pursuing an action against the Trust suggests that she wants to retrieve specific assets from it. And, as the Complaint’s request for relief reads, Dave seeks || an order “rescind[ing] the fraudulent transfer of marital community assets to the . . . Trust 4|| as alleged herein and . . . avoid[ing] such transactions.” (Doc. 1 at 6.) Ordering the Trust || to return specific assets to Dave would (1) require the Court to exercise control over 6|| property which is not within its territory and (2) disrupt the South Dakota court’s control 7\| of the Trust. 8 Money, “unlike an identifiable piece of property, 1s fungible.” Koken, 307 F. Supp. 9|| 2d at 656. The Complaint requests money damages as an alternative or in addition to return || of specific property. A final judgment finding that the Trust is liable to Dave for the value 11 || of the assets she lost establishes the Trust’s personal liability and 1s thus in personam. 12 || Because Dave could obtain complete relief with money damages, this is an in personam 13 |} action. 14 II. Dave’s Motion for Partial Summary Judgment 15 Dave’s motion for partial summary judgment asks the Court to declare that the South Dakota state court order has no preclusive effect. The motion is premature. || Preclusion is an affirmative defense that a defendant may raise “in respon[se] to a 18 || pleading.” Fed. R. Civ. P. 8(c)(1). The Trust merely notified the Court of the South Dakota decision; it has not raised the defense. (See Doc. 13 at 1.) The Court will not decide the || preclusive effect of the judgment until the issue is ripe for adjudication. 21 IT IS ORDERED that the Trust’s motion to dismiss (Doc. 8) is DENIED. 22 IT IS FURTHER ORDERED that Dave’s motion for partial summary judgment 23 || (Doc. 14) is DENIED as premature. 24 Dated this 3rd day of January, 2025. 25 - 26 J _—S □□ ee 27 Do . Rayes 38 Senior United States District Judge

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