Feltman v. Tri-State Emp't Serv., Inc. (In re TS Emp't, Inc.)

• Decision Date: 08 July 2022
• Docket Number: Case No. 15-10243 (MG),Adv. Proc. No. 17-1013 (MG)
• Citation: 641 B.R. 753
• Parties: IN RE TS EMPLOYMENT, INC. , Debtor. James S. Feltman, not individually but solely as chapter 11 trustee for TS Employment, Inc., Plaintiff, v. Tri-State Employment Service, Inc., Tri-State Employment Services, Inc., Broadway Peo, Inc., Carusso Staffing Corp., STS Group, Inc., Tristate Sc, Inc., Odyssey Associates, Inc., Tri-State North Carolina, Inc., Tse-Peo, Inc., Robert Cassera, John Messina, James Foley and Joseph Cassera, Defendants, and Jofaz Transportation, Inc.; Y&M Transit Corp.; School Bus By Superior; and Third Avenue Transit, Inc., Third-Party Respondents.
• Court: U.S. Bankruptcy Court — Southern District of New York

641 B.R. 753

IN RE TS EMPLOYMENT, INC. , Debtor.James S. Feltman, not individually but solely as chapter 11 trustee for TS Employment, Inc., Plaintiff,

v. Tri-State Employment Service, Inc., Tri-State Employment Services, Inc., Broadway Peo, Inc., Carusso Staffing Corp., STS Group, Inc., Tristate Sc, Inc., Odyssey Associates, Inc., Tri-State North Carolina, Inc., Tse-Peo, Inc., Robert Cassera, John Messina, James Foley and Joseph Cassera, Defendants,andJofaz Transportation, Inc.; Y&M Transit Corp.; School Bus By Superior; and Third Avenue Transit, Inc., Third-Party Respondents.

Case No. 15-10243 (MG)

Adv. Proc. No. 17-1013 (MG)

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

Dated: July 8, 2022 New York, New York

JENNER & BLOCK LLP, Attorneys for James Feltman, Chapter 11 Trustee, 1155 Avenue of the Americas, New York, NY 10036, By: Vincent Lazar, Esq., Carl N. Wedoff, Esq., New York

LAWRENCE A. GARVEY & ASSOCIATES, PC, Attorneys for Third-Party Respondents Jofaz Transportation, Inc., et al., 235 Main Street, Suite 630, White Plains, NY 10601, By: Lawrence A. Garvey, Esq., Joseph Reiter, Esq., Bardonia

MEMORANDUM OPINION, INCLUDING PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW, RECOMMENDING GRANT OF TRUSTEE'S PARTIAL SUMMARY JUDGMENT MOTION

MARTIN GLENN, CHIEF UNITED STATES BANKRUPTCY JUDGE

On June 18, 2019, this Court entered a Default Judgment in Adversary Proceeding ("Default Judgment," ECF Doc. # 60) in favor of James S. Feltman, solely as the Chapter 11 trustee ("Trustee") for the bankruptcy estate of TS Employment, Inc. ("TSE" or "Judgment Creditor") and against Tri-State Employment Service, Inc. ("Tri-State" or "Judgment Debtor") in the amount of $98,176,412 (the "Judgment"). To partially satisfy the Judgment, the Trustee filed a motion under Rule 69 of the Federal Rules of Civil Procedure (" Rule 69")¹ and section 5227 of the New York Civil Practice Law and Rules ("NY CPLR") seeking to collect all amounts owing from Jofaz Transportation, Inc. ("Jofaz"), Y&M Transit Corp. ("Y&M"), and Third Avenue Transit, Inc. ("Third Avenue," and collectively with Jofaz, and Y&M, the "Respondents") to the Judgment Debtor. (Motion for an Order Directing Payment of Funds to Judgment Creditor ("Turnover Motion"), ECF Doc. # 66.) The Trustee now moves for partial summary judgment on the Turnover Motion ("Partial Summary Judgment Motion," ECF Doc. # 95) seeking to collect $1,391,569.75, plus pre-judgment interest, from the Respondents. (Memorandum of Law in Support of Trustee's Motion for Summary Judgment on Trustee's Motion for Order Directing Payment of Funds to Judgment Creditor ("Summary Judgment Memo"), ECF Doc. # 96 ¶ 5.)² The Respondents filed an opposition to the Partial Summary Judgment Motion ("Opposition," ECF Doc. # 104),³ and the Trustee filed a reply in support of the Partial Summary Judgment Motion ("Reply," ECF Doc. # 106).⁴ A hearing on the Partial Summary Judgment Motion was held on May 24, 2022 (the "May 24 Hearing").

On June 2, 2022, the Court directed the Trustee's counsel and the Respondents’ counsel to submit proposed findings of fact and conclusions of law by June 16, 2022 (ECF Doc. # 111), and this deadline was later extended upon request to June 30, 2022 (ECF Doc. # 114). On June 30, 2022, the Respondents filed their proposed findings of fact and conclusions of law ("Respondents’ PFFCL," ECF Doc. # 115), and the Trustee filed his proposed findings of fact and conclusions of law ("Trustee's PFFCL," ECF Doc. # 116).⁵

For the reasons provided below, the Court recommends that the Trustee's Partial Summary Judgment Motion be GRANTED , and that judgment should be entered against the Respondents as follows: against Jofaz in the amount of $1,104,465.64;⁶ against Y&M in the amount of $197,192.04; and against Third Avenue in the amount of $89,912.07. Pre-judgment interest at the rate of 9% calculated from January 25, 2016 until the entry of judgment must be added to each judgment.

I. BACKGROUND

A. The Adversary Proceeding

TSE filed a voluntary Chapter 11 bankruptcy petition in this Court on February 2, 2015. (Case No. 15-10243 ("Main Case"), ECF Doc. #1.) On February 27, 2015, the United States Trustee appointed the Trustee as TSE's Chapter 11 trustee under section 1104(a) of the Bankruptcy Code. (Main Case ECF Doc. # 33.)

On January 31, 2017, the Trustee filed this adversary proceeding against, inter alia , Tri-State, Tri-State Employment Services, Inc. ("Tri-State Services"), Broadway PEO, Inc. ("Broadway"), Robert Cassera ("Mr. Cassera"), John Messina, James Foley, and Joseph Cassera (collectively, the "Defendants") to recover hundreds of millions of dollars allegedly transferred by TSE to or for the benefit of the Defendants. (Summary Judgment Memo ¶ 6.)

On June 18, 2019, the Court entered the Default Judgment in favor of the Trustee and against Tri-State in the amount of $98,176,412, against Tri-State Services in the amount of $137,030,343, and against Broadway in the amount of $31,930,387, plus post-judgment interest compounded at the rate prescribed by 28 U.S.C. § 1961. (ECF Doc. # 60; Feltman v. Tri-State Emp. Serv., Inc. (In re TS Emp., Inc.) , 602 B.R. 840 (Bankr. S.D.N.Y. 2019).) On the same day, the Court entered an order closing this adversary proceeding. (ECF Doc. # 59.)

In September 2019, the Trustee filed a motion to reopen this adversary proceeding (ECF Doc. # 61), and on October 2, 2019, the Court granted the motion (ECF Doc. # 65).

B. The Turnover Motion

On October 10, 2019, the Trustee filed the Turnover Motion seeking entry of an order under Rule 69 and NY CPLR 5227 directing the Respondents (which are related entities) to pay the Trustee all amounts that are due and owing from the Respondents to the Judgment Debtor.⁷ (Turnover Motion at 1.) The Trustee asserted that the Respondents owe Tri-State $1,964,961.22 on account of unpaid invoices for services provided by Tri-State to the Respondents (Jofaz owes $1,187,734.87, Y&M owes $686,248.76, and Third Avenue owes $90,977.59). (Id. ¶ 8.) That demand was based on a summary of unpaid outstanding receivables ("Tri-State Receivables Summary," ECF Doc. # 97-1) that Tri-State, acting through its principal Mr. Cassera, provided to the Trustee. (Summary Judgment Memo ¶ 9.)

On March 6, 2020, the Trustee served requests for production on each Respondent. (Id. ¶ 10 (citing ECF Doc. # 97-2).) In August 2020, the Trustee conducted Rule 30(b)(6) depositions of Joseph Fazzia ("Mr. Fazzia"), the Respondents’ President, and Al Rizzo ("Mr. Rizzo"), the Respondents’ Office Manager and Comptroller. (Id. ¶ 12 (citing ECF Doc. ## 97-4, 97-5).) Between September 15, 2020 and December 7, 2020, the Respondents produced 6,634 pages of additional documents in four document productions. (Id. ¶ 14.)

On October 7, 2020, the Respondents filed an objection and opposition to the Turnover Motion ("Turnover Opposition," ECF Doc. # 83-1), making the following arguments: (i) the Turnover Motion was not properly brought under NY CPLR 5227 because the Respondents dispute the debt they owe to Tri-State; (ii) the Court could not consider the Turnover Motion because the Respondents asserted a right to a jury trial; (iii) the Court lacked jurisdiction over the Turnover Motion; (iv) Tri-State's involvement in a broader fraud precluded any recovery by the Trustee; and (v) the Turnover Motion should be denied for lack of evidentiary support. (See Turnover Opposition; Respondents’ PFFCL ¶ 14; see also Summary Judgment Memo ¶ 15.)

C. The Respondents’ Motion to Withdraw the Reference

Prior to the Court issuing a decision on the Turnover Motion, the Respondents filed a motion to withdraw the reference to this Court. ("Withdrawal Motion," ECF Doc. # 87.) The Withdrawal Motion was fully briefed, and on November 2, 2021, District Judge John P. Cronan denied the Withdrawal Motion without prejudice. ("Withdrawal Opinion and Order," ECF Doc. # 91.)

D. Pre-Motion Conference

On November 3, 2021, the Trustee filed a letter with the Court stating that he believed the Trustee's claims against the Respondents were ripe for partial summary judgment and seeking a pre-motion conference. (ECF Doc. # 92; Respondents’ PFFCL ¶ 23.) On December 16, 2021, the Court held a pre-motion conference and authorized the parties to submit cross-motions for summary judgment. (Trustee's PFFCL ¶ 21 (citing ECF Doc. # 107-1 at 17:19–22).)

II. THE PARTIAL SUMMARY JUDGMENT MOTION

A. The Summary Judgment Memo

The Trustee asserts that Tri-State's Business Records (defined below) show that the Respondents owe Tri-State $1,960,206.43 (the "Unpaid Invoice Amount")⁸ for professional employer organization ("PEO") services that Tri-State provided for the Respondents from November 30, 2015 through December 27, 2015.⁹ (Summary Judgment Memo ¶¶ 22, 23.) The Trustee states that the Respondents have identified $568,636.68 in potential offsets (the "Offsets") to the Unpaid Invoice Amount. Therefore, the Trustee asserts that the undisputed facts entitle the Trustee to collect from the Respondents $1,391,569.75, plus pre-judgment interest under NY CPLR 5001 and 5004,¹⁰ and partial summary judgment should be granted in that amount. (Id. ¶ 5.)

The Trustee states that, in response to his discovery requests, the Respondents produced ten sets of their business records (collectively, the "Business Records," ECF Doc. ## 97-8–97-17) consisting of Tri-State invoices ("Tri-State Invoices"), copies of check stubs, and handwritten notations. (Id. ¶ 22 (citing Business Records).) The Business Records related to PEO services rendered by Tri-State to the Respondents from November 30, 2015 through December 27, 2015, for which the relevant Tri-State Invoices aggregated $2,723,670.57. (Id. ) Of that amount, the Business Records show that the Respondents satisfied $763,464.14 through partial payment of certain December 2015 invoices on or about January 25, 2016, leaving the Unpaid Invoice Amount due and owing. (Id. )

The Trustee contends that the Respondents’ Unpaid...