Citibank, N.A. v. Bombshell Taxi LLC (In re Hypnotic Taxi LLC)
| Decision Date | 04 October 2017 |
| Docket Number | Adv. Pro. No.: 15-01185 (CEC),Case No. 15-43300 (CEC) |
| Parties | In re HYPNOTIC TAXI LLC, et al., Debtors. CITIBANK, N.A., Plaintiff, v. BOMBSHELL TAXI LLC, et al., Defendants. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Eastern District of New York |
Jantra Van Roy, Esq.
Nathan Schwed, Esq.
Zeichner Ellman & Krause LLP
1211 Avenue of the Americas
New York, NY 10036
Attorneys for the Plaintiff
Paul S. Hollander, Esq.
Margreta M. Morgulas, Esq.
The Evelyn Funding Trust, The Kelly
Funding Trust, and The Birkin Funding Trust
Brett A. Berman, Esq.
Fox Rothschild LLP
2000 Market St.
20th Floor
Philadelphia PA 19103-3222Attorneys for
CARLA E. CRAIG Chief United States Bankruptcy Judge The following matters are before the Court: (1) the amended petition of The Birkin Funding Trust, The Evelyn Funding Trust, The Kelly Funding Trust, and The Lindy Funding Trust (collectively, the "Trusts") pursuant to New York Civil Practice Law and Rules ("CPLR") § 6221 and Rule 64 of the Federal Rules of Civil Procedure, seeking to vacate a restraining order and an order of attachment against assets purportedly owned by the Trusts; (2) the motions of Citibank, N.A. ("Citibank") for determinations that (a) the Trusts are alter egos of Evgeny Freidman ("Freidman"); (b) certain real estate entities owned by the Trusts are Freidman's alter egos; (iv) the United States Marshal properly levied upon the ownership interests in those real estate entities; (v) the United States Marshal properly levied on real property located in New York owned by some of the real estate entities; and (vi) adverse inferences should be drawn due to the failure of Freidman and the Trusts to produce certain records; and (3) Freidman's objection to certain of Citibank's exhibits on the basis that those exhibits constitute attorney work product. A three day trial on these matters was held on May 2, 2017 through May 4, 2017, followed by post-trial briefing.
For the following reasons, it is recommended that the District Court: (1) deny the Trusts' petition; (2) determine that the United States Marshal properly levied on Freidman's ownership interests in the real estate entities; (3) deny Citibank's motion for a determination that the real estate entities are Freidman's alter egos; (4) deny Citibank's motion for a determination that the United States Marshal properly levied upon the real estate entities' real property in New York; (5) deny Citibank's motion for adverse inferences; and (6) overrule Freidman's objection to Citibank's exhibits as moot.
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. A bankruptcy judge may hear a non-core proceeding that is related to a bankruptcy case. 28 U.S.C. § 157(c)(1).
The Trusts argue that these proceedings are not related to the bankruptcy cases because Citibank must first commence a fraudulent conveyance action against the Trusts to avoid the transfer of Freidman's interests in the real estate entities. (Trusts' Reply Brief in Opp'n at 5-6, ECF No. 490.) The Trusts argue that, because this Court cannot "ultimately enter a valid and binding judgment with respect to the disputed transfers in question[,] this Court should not be involved in the determination of any pre-judgment remedies pertaining thereto." (Trusts' Reply Brief in Opp'n at 5-6, ECF No. 490.)
The Trusts' argument must be rejected. Citibank's action to recover on Freidman's guaranties is related to these bankruptcy cases because Citibank's claim against the bankruptcy estate will be reduced, or possibly satisfied, through its efforts to recover from Freidman and his assets. The reachable assets include any interests in the real estate entities that were fraudulently transferred by Freidman to the Trusts pursuant to New York Debtor and Creditor Law ("DCL") § 278. As the District Court noted in adopting this Court's proposed findings of fact and conclusions of law on Citibank's motion for summary judgment against Freidman to recover on his guaranties, "the vast majority of district-court and bankruptcy-court decisions in this Circuit consider actions on an insider's guarantee to fall within the 'related-to' jurisdiction of the bankruptcy court, either because they alter the composition of the creditor body or because the trustee is likely to have subordination or other claims against the guarantor that it did nothave against the lender." Citibank, N.A. v. Bombshell Taxi LLC, 15 Civ. 5067 (BMC), 2017 WL 3054832, at *2 (E.D.N.Y. July 19, 2017)
To the extent the Trusts' objection to this Court's subject matter jurisdiction is based on the argument that Citibank cannot attach property fraudulently transferred by Freidman to the Trusts without commencing a fraudulent conveyance action against the Trusts, the argument is rejected for the reasons set forth herein.
In a non-core proceeding, absent consent of the parties to entry of a final order, the bankruptcy judge is directed to submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy judge's proposed findings of fact and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected. 28 U.S.C. § 157(c)(1). As all of the parties have not consented to the entry of a final order by the bankruptcy court, these matters are addressed by these proposed findings and conclusions.
The following facts are undisputed or are matters of which judicial notice may be taken, except as otherwise noted.
On August 1, 2003, Freidman purchased residential real property located at 136 East 65th Street, New York, New York (the "East 65th Street Property"). (Amended Joint Pre-Trial Order ("JPTO") ¶ 5(a), ECF No. 484.)1 On March 7, 2011, Freidman transferred the East 65th Street Property to the 136 East 65th Street Irrevocable Residence Trust U/A 10/28/2010 ("East 65th Street Residence Trust"), a trust settled by Freidman under the laws of the State of New York. (JPTO ¶ 5(a), ECF No. 484.)
On November 11, 2008, the 200 East 66th Street Residence Trust U/A 6/15/08 ("East 66th Street Residence Trust"), a trust settled by Freidman under the laws of the State of New York, purchased a condominium located at 200 East 66th Street, Apt. A1101, New York, New York (the "East 66th Street Property"). (JPTO ¶ 5(b), ECF No. 484.)
On January 25, 2013, Freidman purchased real property located at 108 Halsey Street, Bridgehampton, New York (the "Halsey Street Property," and together with the East 65th Street Property and the East 66th Street Property, the "Residential Properties"). (JPTO ¶ 5(c), ECF No. 484.) On July 10, 2013, Freidman transferred the Halsey Street Property to the 108 Halsey Street Irrevocable Residence Trust U/A February 2013 (the "Halsey Street Residence Trust," and, together with the East 65th Street Residence Trust and the East 66th Street Residence Trust, the "New York Residence Trusts"), a trust settled by Freidman under the laws of the State of New York. (JPTO ¶ 5(c), ECF No. 484.)
Freidman also owned shares or interests in twenty eight corporations and limited liability companies (the "Investment Entities"), which own investment properties in Brooklyn, Queens, Chicago, and Philadelphia (the "Investment Properties").2
On March 5, 2015, Citibank commenced an action (the "State Court Action") against Freidman and other defendants in New York State Supreme Court, New York County, asserting twelve causes of action, including a claim against Freidman to recover on his guaranties of three loans totaling $41 million (the "Loans") made by Citibank to entities owned and controlled by Freidman, specifically: Hypnotic Taxi LLC, Vodka Taxi LLC, Pudding Taxi LLC, Chopard Taxi Inc., Iceberg Taxi Inc., Milkyway Cab Corp., Vsop Taxi Inc., Cupcake Taxi LLC, Dorit Transit Inc., Hennessey Taxi Inc., Candy Apple Taxi LLC, Stoli Taxi Inc., Pointer Taxi Inc., Palermo Taxi Inc., Marseille Taxi LLC, Bombshell Taxi LLC, Merlot Taxi LLC, France Taxi LLC, Bourbon Taxi LLC, Chianti Taxi LLC, Pinot Noir Taxi LLC, and Butterfly Taxi LLC (collectively, the "Debtors"), and an affiliated management company, Taxi Club Management Inc. (JPTO ¶5(e), ECF No. 484.) Freidman filed an answer asserting twenty four affirmative defenses and twelve counterclaims.
On or about April 17, 2015, after Citibank commenced the State Court Action, the trustees of the East 65th Street Residence Trust transferred the East 65th Street Property to the East 65th Street Owners LLC ("East 65th Street LLC"), a limited liability company established on or about April 1, 2015, and organized under the New York law. (JPTO ¶ 7(a), ECF No. 484.) The ownership interests in the East 65th Street LLC were initially titled in Freidman "solely for the purpose of effectuating the transfer to an offshore asset protection trust." (JPTO ¶ 7(a), ECF No. 484.)
Also on that day, the trustees of the East 66th Street Residence Trust transferred the East 66th Street Property to 66th Street...
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