ARC lawsuit not impacted by alleged fraudsters’ motion to dismiss

Airlines Reporting Corporation v. Begator Hila, Elvira Ejupi and Albania Travel & Tour, Inc. et al. (E.D.N.Y. May 31, 2017).  In its Amended Complaint, ARC alleged that Hila and Ejupi, through Albania Travel, defrauded ARC of over $249,000 through a ticket exchange scheme.  Hila was the president and sole owner of Albania Travel; Ejupi ran the agency’s day-to-day operations.

According to ARC:

Over the course of a year, the defendants issued over 500 tickets for their customers at low-season fares, exchanged them for more expensive high-season tickets and then manually voided the exchanges so ARC and the airlines could not promptly detect the defendants’ activities.  The defendants’ customers then used the high-season tickets, but Albania Travel did not remit to ARC the balance owed for the more expensive tickets.  To further cover their tracks, the defendants falsified the agency’s weekly sales reports to ARC to indicate that the airlines had authorized the voided exchange transactions, when in fact they had not done so.

When ARC became aware of the defendants’ misconduct, it began the process of recovering its traffic documents and terminating the Agent Reporting Agreement as to Albania Travel, which filed an appeal with the Travel Agent Arbiter.  The TAA issued a decision dismissing the appeal, concluding that “it would be more than reasonable to believe that the possibility of fraud existed,” ARC had presented “evidence of a potentially substantial loss to the carriers and/or ARC” and the agency’s defense was “unconvincing and rather confused.”  The very next day, Hila formed two limited liability companies and, several days later, he and Ejupi transferred real property they owned to the newly-formed LLCs for no consideration.  The defendants used these LLCs, as well as two other LLCs Hila later formed, “to remove assets from the reach of their creditors, including ARC.”

ARC’s Amended Complaint advanced causes of action for breach of contract, breach of fiduciary duty, conversion, fraud and, against Hila and the transferee LLCs, alter ego/corporate veil and fraudulent transfer.  The defendants moved to dismiss the fraud, alter ego/corporate veil and fraudulent transfer claims.

As to the fraud claim, the defendants argued that the Amended Complaint did not allege fraud with sufficient particularity and that the claim was duplicative of the breach of contract claim.  The court rejected the particularity argument, ruling that ARC had sufficiently identified the specific deceptive acts that the defendants had allegedly carried out, the persons who had carried out the acts and the timing and places of such acts, and noting that the Travel Agent Arbiter had concluded that “the possibility of fraud existed.”

The court also rejected the defendants’ duplicative claim argument, ruling that ARC’s fraud claim was distinct because it was premised on the defendants’ breach of a fiduciary duty to ARC that was independent of Albania Travel’s duty to perform under the ARA.  That fiduciary duty arose from the ARA, which had created a trust relationship “giving rise to personal causes of action against officers and directors, including causes of action for breach of fiduciary duty, conversion and fraud.”

The defendants argued that ARC’s alter ego and fraudulent transfer claims should be dismissed because they were premised on the viability of ARC’s fraud claim.  The court ruled that, because it had found that ARC had sufficiently alleged a fraud claim, the defendants’ arguments as to these other claims also failed.

Note:  On November 30, 2015, the New York State Supreme Court, New York County, entered judgment in favor of Aspen American Insurance Company and against Albania Travel and Hila, jointly and severally, for $70,000 plus attorneys’ fees.  Aspen had sought indemnification from the defendants for the $70,000 it had paid ARC pursuant to the bond that Aspen had issued guaranteeing Albania Travel’s performance of its ARA obligations.

Update:  On July 10, 2017, the parties notified the court that they had reached a settlement, and the case was subsequently dismissed pursuant to the parties’ stipulation of dismissal.

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