45 John Lofts, LLC v. Meridian Capital Grp. LLC (In re 45 John Lofts, LLC)

• Decision Date: 30 January 2023
• Docket Number: Case No. 16-12043 (SHL),Adv. No. 17-01179 (SHL)
• Citation: 648 B.R. 16
• Parties: IN RE: 45 JOHN LOFTS, LLC, Debtor. 45 John Lofts, LLC, Plaintiff, v. Meridian Capital Group LLC, Crown Mansion LLC, Bo Jin Zhu, Mega International Commercial Bank, Congregation Kahal Minchas Chinuch, Chaim Schiya Babad, Reliable Abstract Co., LLC, Abraham Mandel, Toby Mandel, Silver Gold Group LLC, Joseph Brunner, Joseph Segel, David Janklowicz, Morris Lowy, Mitchell Kirschner, Jerry Lowy, Isaac Greenfeld, and Renatus Portfolio Company, LLC, Defendants.
• Court: U.S. Bankruptcy Court — Southern District of New York

648 B.R. 16

IN RE: 45 JOHN LOFTS, LLC, Debtor.

45 John Lofts, LLC, Plaintiff,

v.Meridian Capital Group LLC, Crown Mansion LLC, Bo Jin Zhu, Mega International Commercial Bank, Congregation Kahal Minchas Chinuch, Chaim Schiya Babad, Reliable Abstract Co., LLC, Abraham Mandel, Toby Mandel, Silver Gold Group LLC, Joseph Brunner, Joseph Segel, David Janklowicz, Morris Lowy, Mitchell Kirschner, Jerry Lowy, Isaac Greenfeld, and Renatus Portfolio Company, LLC, Defendants.

Case No. 16-12043 (SHL)

Adv. No. 17-01179 (SHL)

United States Bankruptcy Court, S.D. New York.

Signed January 30, 2023

WILK AUSLANDER LLP, Counsel for Plaintiff/Debtor, 1515 Broadway, 43^rd Floor, New York, NY 10036, By: Eric J. Snyder, Esq.

SILVERMAN SHIN & BYRNE PLLC, Special Counsel for Plaintiff/Debtor, Wall Street Plaza, 88 Pine Street, 22nd Floor, New York, New York 10005, By: Peter R. Silverman, Esq., Donald F. Schneider, Esq.

MORITT HOCK & HAMROFF LLP, Counsel for Defendant Crown Mansion LLC, 400 Garden City Plaza, Garden City, New York 11530, By: Alexander D. Widell, Esq. [Notice of Appearance at ECF 128], Theresa A. Driscoll, Esq.

THE LAW OFFICE OF JEREMY ROSENBERG, Counsel for Defendant Crown Mansion LLC and Bo Jin Zhu, 777 Chestnut Ridge Road, Suite 202, Chestnut Ridge, New York 10977-6221, By: Jeremy Rosenberg, Esq. [Notice of Appearance at ECF 59]

MEMORANDUM OF DECISION

SEAN H. LANE, UNITED STATES BANKRUPTCY JUDGE

Before the Court is the motion of Elizabeth Chen (the "Movant") on behalf of Crown Mansion LLC ("Crown Mansion") to vacate the default judgment issued by this Court (the "Motion") [ECF 129].¹ The Court granted the default against defendants Crown Mansion and Bo Jin Zhu ("Mr. Zhu") based on their failure to comply with Court orders in anticipation of trial that required pretrial disclosures, the submission of witness lists, and written declarations of direct testimony. Based on that default, the Court entered a judgment against Crown Mansion on May 27, 2022 [ECF 114] and an amended judgment on August 24, 2022 [ECF 136]. Plaintiff 45 John Lofts LLC ("Plaintiff" or the "Debtor") filed an opposition to the Motion (the "Opposition") and Movant filed a reply in further support of the Motion (the "Reply") [ECF 137 and 138]. For the following reasons, the Motion is denied.

BACKGROUND

The Debtor filed a petition for relief under chapter 11 of the Bankruptcy Code in July 2016. [Case 16-12043, ECF 1]. The Debtor's sole asset was a vacant eighty-four unit condominium building located at 45-49 John Street (the "Property"), which had been purchased in or around March 2014. Complaint ¶¶ 30-31 [ECF 1]. The Debtor commenced an adversary proceeding that, broadly speaking, sought the return of a $14,330,000 deposit paid in contemplation of the Debtor's sale of the Property under a Purchase and Sale Agreement ("PSA") of September 2014. The Debtor did not receive those funds, which were used for purposes unrelated to the Debtor. See In re 45 John Lofts, LLC , 599 B.R. 730 (Bank. S.D.N.Y. 2019). The Debtor alleges that the deposited funds were fraudulently conveyed away from the Debtor by some of the Debtor's principals and given to other parties as part of a series of complicated transactions for the personal benefit of those principals. The Debtor has sued to recover those fund from various number of parties who received the funds or who received the benefit of those transfers.

The claims against Crown Mansion arise out of a transfer of a portion of the deposit (some $2 million) disbursed to Mega International Commercial Bank ("Mega"). Complaint ¶¶ 70-74. The complaint explains that Crown Mansion had previously borrowed $2,7000,000 from Mega, with that loan being guaranteed by Mr. Zhu and secured by a mortgage. See id. ¶¶ 71, 74; see also Exhibit K to the Declaration of Alexander Widdell [ECF 131-11]. The complaint further alleges that the transfer of the $2,827,312.77 to Mega benefited Crown Mansion and Mr. Zhu because it reduced or eliminated their liability to Mega. Complaint ¶ 74. The Debtor alleged that Mr. Zhu controlled Crown Mansion and was in a position of control at the time of the events described in the complaint. Id. at ¶ 11. In this adversary proceeding, the Debtor seeks to recover the funds as a fraudulent conveyance under both federal and New York law. Id. at ¶¶ 129-67.

A. Procedural and Factual History

1. Crown Mansion's Participation in the Lawsuit

This action was commenced on or about October 10, 2017. Id. The Plaintiff served Crown Mansion by delivering a copy of the summons and notice of pretrial conference, as well as the complaint, to 41-68 Main Street, Flushing, NY, 11355 (the "Flushing Address") and to 11 East Broadway, Suite 7B, New York, New York, 10038 (the "East Broadway Address") on October 13, 2017. See Affidavit of Service [ECF 4]. The East Broadway Address was designated as the address for service in Crown Mansion's filing with the New York Secretary of State, while the Flushing Address was the address listed for Crown Mansion in the Yellow Pages directory. Opposition ¶ 22, Exh. C, D. Through attorneys Becker, Glynn, Muffly, Chassin & Hosinski LLP, Mr. Zhu and Crown Mansion filed a joint motion to dismiss the complaint in December 2017 [ECF 16-18]. Plaintiff opposed the motion; Mr. Zhu and Crown Mansion filed a reply in further support of the motion. See ECF 41-42, 44 -45. The Court denied Mr. Zhu and Crown Mansion's motion. See In re 45 John Lofts, LLC , 599 B.R. 730 (Bankr. S.D.N.Y. 2019). After that decision, the Law Office of Jeremy Rosenberg was substituted as counsel for Crown Mansion and Mr. Zhu. See ECF 59. Through their new counsel, Crown Mansion and Mr. Zhu answered Plaintiff's complaint in late July 2019. Answer to Complaint [ECF 61]. In late October 2020, the Court entered an order directing various parties, including Mr. Zhu and Crown Mansion, to engage in mediation. See Mediation Order [ECF 76]. It is undisputed that both Mr. Zhu and Crown Mansion participated in the mediation process with the continued representation of the Law Office of Jeremy Rosenberg. See Hr'g Tr., 28:4-10 (March 23, 2022) [ECF 126]. After mediation failed, the case moved forward. See Hr'g Tr., 4:24-25 (March 16, 2022) [ECF 119].

2. Crown Mansion's Default

On February 21, 2022, this Court issued a scheduling and pretrial order that set the matter down for trial as to various defendants on March 29, 2022. See Scheduling and Pretrial Order dated February 21, 2022 [ECF 87].² The February 2022 scheduling order also scheduled a final pretrial conference on March 17, 2022 at 10:00 A.M., and set deadlines for the trial parties to exchange information in preparation for trial. Id . More specifically, the scheduling order provided that:

• the trial parties were to use their best efforts to agree on a joint exhibit book;

• Plaintiff was directed to send to the trial defendants a Statement of Undisputed Facts ("SOUF") on or before February 7, 2022, to which the trial defendants were to submit responses by February 21, 2022, with efforts to agree upon a SOUF by February 28, 2022;

• the trial parties were required to exchange witness lists on or before March 15, 2022;

• the trial parties were required to submit declarations or affidavits of direct witnesses to chambers on or before March 22, 2022.

See id.

On March 9, 2022, some twenty days before the scheduled trial, counsel for Plaintiff informed the Court that the Plaintiff had not received a response from any of the trial Defendants to Plaintiff's SOUF and exhibits, including Mr. Zhu and Crown Mansion. See Letter Regarding Pretrial Conference Schedule for March 17, 2022, dated March 9, 2022 [ECF 88]. At a pretrial conference held on March 16, 2022, Mr. Rosenberg appeared as counsel for Mr. Zhu and Crown Mansion; he agreed that both Mr. Zhu and Crown Mansion had failed to comply with their pretrial obligations. See Hr'g Tr., 7:6-15 (March 16, 2022). Mr. Rosenberg further explained that he had lost the ability to communicate with his clients, asserting "my clients are not getting back to me." Id. at 7:14. The Court set a final pretrial conference for March 18, 2022 at 10:00 AM and directed Mr. Zhu to appear via phone. See id. at 11: 1-8. At the March 18^th hearing, Mr. Zhu again failed to appear. See Hr'g Tr., 4:3-13 (March 18, 2022) [ECF 120]. As a result, the Court issued an Order to Show Cause on March 18, 2022 (the "OSC") setting a hearing for March 23, 2022 to determine the sanctions to be leveled against Crown Mansion and Mr. Zhu for their failure to comply with the Court's prior orders and their pretrial obligations [ECF 90].

The OSC hearing was held March 23, 2022, less than a week before trial. See Hr'g Tr. (March 23, 2022) [ECF 126]. The Court was careful to schedule the OSC hearing before the trial so as to give parties an opportunity to cure their non-compliance. In addition to Mr. Rosenberg, Alexander Widdell appeared from the firm Moritt Hock & Hamroff LLP on behalf of Elizabeth Chen. See generally Hr'g Tr. (March 23, 2022). At the hearing, Mr. Widdell asserted that Ms. Chen was the 99% owner of Crown Mansion and that Ms. Chen first learned of this case when she received a copy of the OSC. Id. at 3:15-19. Mr. Widdell stated that Mr. Zhu had effectively defrauded Crown Mansion by directing its defense of the lawsuit despite having no authority to do so. Id. at 31:9-11. Despite questioning by the Court at the hearing regarding Mr. Widdell's statements, however, Mr. Widdell was unable to produce documents to substantiate his claims regarding Ms. Chen's authority to act on behalf of Crown Mansion or Mr. Zhu's lack of authority to do the same, nor were any definitive representations made to that effect. Id. at 12:18-13:9; 31:9-19; 32:1-33:11. For example, in response to Mr. Widdell's general assertion that fraud occurred, the Court inquired about counsel's claim that tax returns supported Ms. Chen's claim of ownership.

MR. WIDELL: I was told it was Crown Mansion's. I didn't see [the tax returns].

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