Citibank, N.A. v. Bombshell Taxi LLC (In re Hypnotic Taxi LLC)

• Decision Date: 12 January 2016
• Docket Number: Adv. Pro. No. 15-01185 (CEC),Case No. 15-43300 (CEC)
• Citation: 543 B.R. 365
• Parties: In re Hypnotic Taxi LLC, et al., Debtors. Citibank, N.A., Plaintiff, v. Bombshell Taxi LLC, et al., Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of New York

543 B.R. 365

In re Hypnotic Taxi LLC, et al., Debtors.Citibank, N.A., Plaintiff,

v.Bombshell Taxi LLC, et al., Defendants.

Case No. 15-43300 (CEC)

Adv. Pro. No. 15-01185 (CEC)

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

Signed January 12, 2016

Jantra Van Roy, Esq., Robert Guttmann,Esq. & Nathan Schwed, Esq., Zeichner Elleman & Krause LLP, 1211 Avenue of the Americas, 40th Floor, New York, NY 10036, Attorneys for Plaintiff

Brett A. Berman, Esq., Matthew S. Adams, Esq. & Hal L. Baume, Esq., Fox Rothschild LLP, 2000 Market Street, 20th Floor, Philadelphia, PA 19103, Attorneys for Defendants

DECISION AFTER TRIAL

CARLA E. CRAIG, Chief United States Bankruptcy Judge

In this proceeding, which was removed by the debtors to this Court from Supreme Court, New York County, Citibank, N.A. ("Citibank" or Plaintiff"), the principal creditor of the debtors, seeks to collect amounts owed to it from Evgeny Freidman ("Freidman" or "Defendant"), guarantor of the debtors' obligations. This motion presents two questions: (1) whether Citibank is entitled to an order of attachment against Freidman's property, and (2) whether an order of attachment to secure a judgment against Freidman can attach property which Freidman transferred to four trusts in June, 2015.

The answer to both of these questions depends upon the purpose and intent of Freidman's transfer, in June, 2015, of his interests in various limited liability companies ("LLCs") and corporations owning real estate estimated to be worth more than $60 million, to four offshore trusts for the benefit of himself and members of his family, without consideration. Freidman maintains that these transfers were for estate planning purposes, while Citibank contends that the circumstances show that the transfers were made to defraud creditors or to frustrate the enforcement of a judgment that might be entered in Citibank's favor. The timing of the transfers, the chronology of events surrounding them, the testimony heard at the trial held on November 30, 2015, and the documentary evidence in the record, demonstrate that these transfers were made with intent to defraud Freidman's creditors or to frustrate a judgment that might be entered in Citibank's favor. For this reason, and because the requirements of CPLR 6212(a) are met, the first question is answered in the affirmative, and the stay, entered on November 19, 2015 (ECF 34), of the order of attachment entered on November 17, 2015 (ECF 28), is lifted¹ . This evidence also establishes that it is proper for the order of attachment to reach the assets transferred to the Trusts, for reasons explained in this decision.

Jurisdiction

This Court has jurisdiction of this proceeding pursuant to 28 U.S.C. § 1334(b), and the Eastern District of New York standing order of reference dated August 28, 1986, as amended by order dated December 5, 2012.

This non-core proceeding is related to these bankruptcy cases. See In re Cuyahoga Equip. Corp., 980 F.2d 110, 114 (2d Cir.1992). Although bankruptcy courts may not enter final orders in non-core proceedings absent consent of the parties, the order of attachment at issue in this motion is not a final order, but is interlocutory. See Lopez v. Casal, 998 F.2d 28, 31 (1st Cir.1993) ; Merrimac Corp. v. Sved, 128 B.R. 874, 875 (S.D.N.Y.1991). It is well established that bankruptcy courts may enter interlocutory orders in non-core proceedings. In re Trinsum Grp., Inc., 467 B.R. 734, 739–40 (Bankr.S.D.N.Y.2012).

Background

The facts set forth below are established by the record of this case and the evidence received at trial.

A. The Loan Defaults and Lawsuits

On March 5, 2015, Citibank began this action by filing a summons and complaint in Supreme Court, New York County (Index No. 650691/15) (the "State Court Action"), asserting twelve causes of action against Freidman and the other defendants. (Declaration of Robert Guttmann ("Guttmann Decl."), Ex. 1, ECF 56–1.) Plaintiff seeks (among other things) a judgment against Freidman as guarantor of loans totaling $31.5 million extended by Citibank to entities closely held by Freidman. Three loans are at issue: a $10 million loan to eight LLCs owned by Freidman (the "$10 Million Loan Borrowers"), evidenced by notes dated February 1, 2013; a $21 million loan to fourteen corporations and LLCs owned by Freidman (the "$21 Million Loan Borrowers"), evidenced by notes dated December 20, 2012; and a $1.5 million loan evidenced by a note dated July 1, 2013 to Taxi Club Management Inc., a corporation owned by Freidman (respectively, the "$10 Million Loan," the "$21 Million Loan" and the "$1.5 Million Loan," and collectively the "Loans"). (Affidavit of Charles Nigro, attached to the December 3, 2015 Declaration of Brett Berman, ECF 62 (the "Nigro Aff."), ¶¶ 7–31, ECF 62–1; Nigro Aff., Ex. C, ECF 62–4–ECF 62–5; Nigro Aff., Ex. I, ECF 62–17–ECF 62–18; Nigro Aff., Ex. M, N, ECF 62–25–62–26.)²

The $10 Million Loan is secured by taxi medallions owned by the $10 Million Loan Borrowers, and the $21 Million Loan is secured by taxi medallions owned by the $21 Million Loan Borrowers (collectively, the "Medallion Collateral"). (Nigro Aff., ¶¶ 12, 20, ECF 62–1; Nigro Aff., Ex. J, ECF 62–19–ECF 62–21; Nigro Aff., Ex.D, ECF 62–6–ECF 62–10.)³ In addition to pledging the Medallion Collateral as security for the $10 Million Loan and $21 Million Loan, the Medallion Loan Borrowers pledged the Medallion Collateral as security for the $1.5 Million Loan. (Nigro Aff., ¶¶ 27,30, ECF 62–1; Nigro Aff., Ex. R, ECF 62–30; Nigro Aff., Ex. O, ECF 62–27.) Each of the Loans is guaranteed by Freidman. (Nigro Aff., ¶¶ 14, 22, 29, ECF 62–1; Nigro Aff. Ex. F, ECF 62–12–ECF 62–14; Nigro Aff., Ex. L, ECF 62–23–ECF 62–24; Nigro Aff., Ex. Q, ECF 62–29.)

Each of the Loans had a payment due on December 1, 2014, which was not made, and on December 4, 2014 Citibank declared a default and accelerated the Loans. (Nigro Aff., ¶¶ 42–43, ¶¶ 50–52, ECF 62–1.) On December 31, 2014, the $1.5 Million Loan matured. (Nigro Aff., ¶¶ 44–45, ECF 62–1; Nigro Aff., Ex. M, N, ECF 62–25–62–26.) Failure to pay the $1.5 Million Loan triggered a further default with respect to the $10 Million Loan and the $21 Million Loan, and Citibank gave notice of this default to all of the Borrowers, as well as to Freidman in his capacity as guarantor. (Nigro Aff., ¶¶ 54–55, ECF 62–1; Nigro Aff., Ex. Z, ECF 62–45.) The $10 Million Loan matured on January 31, 2015, and the failure to pay at that time constituted an additional default with respect to the $10 Million Loan. (Nigro Aff., ¶¶ 57–58, ECF 62–1; Nigro Aff. Ex. I, ECF 62–17–62–18.)

On April 24, 2015, in relation to a separate indebtedness, Capital One Taxi Medallion Finance, a trade name for All Points Capital Corp., N/K/A Capital One Equipment Finance Corp. ("Capital One"), filed an affidavit of judgment by confession, signed August 14, 2014 by Freidman, which resulted in a judgment by confession entered on July 10, 2015, in favor of Capital One against Freidman in the amount of $8,484,949.30. (Citibank Stmt. Re. Trial Exs., Ex. 12, ECF 48–12.)

In the State Court Action, on May 19, 2015, Justice Jeffrey K. Oing ("Justice Oing") granted Citibank's motion for an order of seizure ("Seizure Order"), allowing Citibank to seize the Medallion Collateral. (Guttmann Decl., Ex. 4, ECF 56–4.) The Seizure Order was entered on June 12, 2015. The same day, a separate order was entered in the State Court Action denying Defendants' application for a stay of the Seizure Order. (December 2, 2015 Declaration of Brett Berman ("Berman Decl."), Ex. Q, ECF 54–18.)

On June 15, 2015, the Appellate Division, First Department entered an order granting a temporary stay of the Seizure Order pending a hearing by a full panel. (Berman Decl., Ex. U, ECF 54–32.) On July 14, 2015, the Appellate Division granted a stay of the Seizure Order on condition that Defendants post a $50 million bond. (Berman Decl., Ex. W, ECF 54–36.) No bond was posted, and on July 22, 2015, the twenty-two Medallion Loan Borrowers filed these chapter 11 bankruptcy cases in the Eastern District of New York. These cases have been consolidated for procedural purposes and are jointly administered as In re Hypnotic Taxi, Case No. 15–43300. (ECF 26, Case No. 15–43300.) The commencement of these bankruptcy cases automatically stayed enforcement of the Seizure Order. 11 U.S.C. § 362(a).

On July 29, 2015, the Debtors removed the State Court Action to the United States District Court for the Southern District of New York, and after transfer to the United States District Court for the Eastern District of New York, the action was referred to this Court by order dated October 28, 2015. (Notice of Removal, ECF 1; Eastern District of New York Docket, p.17, ECF 1–1.)

B. The Transfers

In April 2015, after Citibank commenced the State Court Action, and in the same month that Capital One entered the affidavit for judgment by confession, Freidman sought the advice of a trust and estates lawyer, Michael Zimmerman, to whom he had been referred by his long time lawyer in other matters, Ellen Walker. (Transcript of November 30, 2015 Hearing ("November 30 Tr."), ECF 66, p.33, ln.1–3, p.123, ln.12–16.) At trial, Freidman acknowledged that he was motivated to consult Zimmerman for trust and estate and tax purposes ... and for liability purposes." (November 30 Tr., ECF 66, p.95, ln. 15–25, p.96, ln. 1.) Zimmerman similarly testified that Freidman came to him for estate planning and asset protection. (November 30 Tr., ECF 66, p.34, ln. 6–10.) This consultation led to the creation of four separate trusts, the Kelly Funding Trust and the Birkin Funding Trust, both located in the Cook Islands, the Evelyn Funding Trust, located in Belize, and the Lindy Funding Trust, located in Nevis (the "Kelly Trust," the "Birkin Trust," the "Evelyn Trust," and the "Lindy Trust"; and collectively the "Trusts")⁴ . (November 30 Tr., ECF 66, p. 34, ln. 18–25, p.35 ln. 1; Affidavit of Evgeny Freidman ("Freidman Aff."), ¶...