In re 720 Livonia Dev.
| Docket Number | 19-47797-jmm |
| Decision Date | 22 August 2023 |
| Parties | In re: 720 Livonia Development LLC, et al., Debtor. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Eastern District of New York |
J. Ted Donovan, Esq. Goldberg Weprin Finkel Goldstein LLP Counsel for Meluchim Holdings LLC
Melissa A. Pena, Esq. Norris Mclaughlin, P.A. Counsel for 720 Livonia Operations LLC
Chaim Landau ("Landau") and Meluchim Holdings LLC ("Meluchim" and together with Landau, the "Claimants") assert a $500,000 general unsecured claim against 720 Livonia Development LLC (the "Livonia Debtor"). 720 Livonia Operations LLC ("Operations"), which holds membership interests in the Livonia Debtor, has moved for summary judgment seeking disallowance of the claim arguing that an adverse state court judgment entered against Landau precludes Claimants from asserting a claim in this case, and, if not barred by res judicata, the claim should be disallowed because the Claimants failed to prove the claim.
Meluchim the sole petitioning creditor in this involuntary bankruptcy case, contends it is law of the case that its $500,000 claim is an allowed claim because the Order for Relief was a determination that Meluchim's claim was a bona fide claim as to liability and amount. Additionally, Claimants contend Operations does not have standing to object to the claim because Operations' managers did not authorize the claim objection. Moreover, Claimants argue the adverse judgment does not bar Meluchim from asserting the claim because Meluchim was not a party to the state court action. Lastly Claimants assert they have met their burden of proof regarding the validity of the claim. Claimants have moved for summary judgment allowing the claim.
For the reasons set forth below, the Court finds that Claimants' claim is barred by the doctrine of res judicata. Meluchim, as well as Landau, is bound by the adverse judgment because Meluchim is in privity with Landau. If the claim were not barred by res judicata, the claim would be disallowed based on Claimants' failure to prove the claim by a preponderance of the evidence. Further, the law of the case doctrine does not preclude Operations from objecting to the claim and Operations has standing to bring the claim objection. Therefore, Operations' motion for summary judgment is granted and Claimants' motion for summary judgment is denied.
The Court has jurisdiction to hear and determine these contested matters under 28 U.S.C. §§ 157(a), 157(b)(1) and 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. These matters are core proceedings under 28 U.S.C. §§ 157(b)(2)(A), (B) and (O). This decision constitutes the Court's findings of fact and conclusions of law to the extent required by Rule 7052 of the Federal Rules of Bankruptcy Procedure. Venue of this case and these matters are proper pursuant to 28 U.S.C. §§ 1408 and 1409.
On December 3 1, 2019 (the "Petition Date"), Meluchim filed involuntary petitions for relief under chapter 7 against the Livonia Debtor and MG Livonia LLC (the "MG Debtor" and together with the Livonia Debtor, the "Debtors"). In re Livonia Development LLC, Case No. 19-47797, ECF No. 1; In re MG Livonia LLC, Case No. 19-47798, ECF No. 1. Meluchim was the sole petitioning creditor. Id. The Debtors did not respond to the involuntary petitions and on January 31, 2020 the Court entered orders for relief under chapter 7 in both bankruptcy cases. Order for Relief under Chapter 7, Case No. 19-47797, ECF No. 5; Order for Relief under Chapter 7, Case No. 19-47798, ECF No. 5.
On February 5, 2020, Gregory Messer was appointed the interim chapter 7 trustee for each Debtor's estate. Notice of Appointment of Trustee Gregory Messer, Case No. 19-47797, ECF No. 6; Notice of Appointment of Trustee Gregory Messer, Case No. 19-47798, ECF No. 6.
He has since qualified as the permanent chapter 7 trustee in each case. On September 8, 2020, the Court ordered the Debtors' cases be jointly administered. Order Granting Mot. for Joint Administration on Lead Case: 19-47797-cec 720 Livonia Development LLC with Member Case: 19-47798-cec MG Livonia LLC., Case No. 19-47797, ECF No. 26; Order Granting Mot. for Joint Administration on Lead Case: 19-47797-cec 720 Livonia Development LLC with Member Case: 19-47798-cec MG Livonia LLC., Case No. 19-47798, ECF No. 22.
As of the Petition Date, the Debtors owned real property commonly known as 720 Livonia Avenue, Brooklyn, New York (the "Real Property"). Schedule A/B Assets Real and Personal Property, Attach. 1, Case No. 19-47797, ECF No. 57. The Debtors purchased the Real Property in June 2015 for $4,650,000. Mot. Summ. J. Allowing Claim No. 3 on behalf of Chaim Landau, Meluchim Holdings LLC, Ex. H, Case No. 19-47797, ECF No. 128. The Debtors held the Real Property as tenants in common with the Livonia Debtor owning a 95% interest and the MG Debtor owning a 5% interest. Id. The Real Property was encumbered by a mortgage held by Track Data Corporation. Claims Register, Case No. 19-47797, Claim No. 4. On December 19, 2019, the Supreme Court for the State of New York, Kings County entered a judgment of foreclosure and sale in favor of Track Data Corporation respecting the Real Property. Id.
The chapter 7 trustee sold the Real Property at auction for $10,970,000. Statement /Report of Sale of the Real Property at a Virtual Public Auction Held on December 22, 2020, Case No. 19-47797, ECF No. 56. As of May 9, 2023, the chapter 7 trustee was holding approximately $4,635,413 for the benefit of the Livonia Debtor's estate. May 9, 2023 Hr'g 126:40, In re Livonia Development LLC, Case No. 19-47797. The chapter 7 trustee believes after payment of administrative expenses and allowed proofs of claims in full (excluding the Meluchim/Landau POC), the chapter 7 trustee will have between $3 million to $3.5 million remaining for distribution to holders of membership interests in the Livonia Debtor. Id.
On February 15, 2021, Schedules of Assets and Liabilities and a Statement of Financial Affairs were filed on behalf of the Livonia Debtor. Schedules, Statements and Affidavit Pursuant to E.D.N.Y. LBR 1007-l(b), Case No. 19-47797, ECF No. 57. The Schedules and Statement of Financial Affairs were signed under penalty of peijury by Yechezkel Strulovitch ("Strulovitch") as the Livonia Debtor's managing member. Id.
Landau is Meluchim's sole member. Statement Undisputed Facts (Stipulated Between Parties) ¶ 6, Case No. 19-47797, ECF No. 123. On November 3, 2020, Claimants filed a proof of claim, identified on the claims register of the Livonia Debtor, as amended, as Proof of Claim Number 3-2 (the "Meluchim/Landau POC"). Claims Register, Case No. 19-47797, Claim No. 3-2 at 1. The Claimants assert they are owed $728,452.02 as of the Petition Date. Id. Claimants characterized their claim as one for repayment of a loan. Id. However, as set forth more fully below, the genesis of the claim is Landau's agreement with Strulovitch for Landau to invest $500,000 to purchase the Real Property. The difference between the $728,452.02 claim amount and the $500,000 investment is interest, calculated at 9% per annum. Claims Register, Case No. 19-47797, Claim No. 3-2 at 1.
Pre-Petition Date Litigation Concerning Claimants'
On December 2, 2014 (approximately seven months prior to the Debtors' purchase of the Real Property), Landau caused Meluchim to fund a $500,000 cashier's check payable to CS Construction Group, LLC ("CS Construction"). Statement Undisputed Facts (Stipulated Between Parties) at ¶¶ 1-3, Case No. 19-47797, ECF No. 123. Strulovitch was a managing member of CS Construction. Mem. Law Opp'n Mot. Summ. J. by Meluchim Holdings LLC and Chaim Landau for Allowance of Claim No. 3, Ex. 3 at¶ 1, Case No. 19-47797, ECF No. 129. See Mot. Summ. J. Expunding [sic] Claim No. 3 filed by Meluchim Holdings Inc. [sic] and Chaim Landau on behalf of 720 Livonia Operations, Ex. A at ¶ 11, Ex. D at 11, Case No. 19-47797, ECF No. 124.
On August 11, 2015 (approximately two months after the Debtors purchased the Real Property), Landau and Strulovitch entered into a partnership agreement (the "Partnership Agreement"). Statement Undisputed Facts (Stipulated Between Parties) at ¶ 6, Case No. 19-47797, ECF No. 123. The Partnership Agreement acknowledges that Landau "provided five hundred thousand dollars prior to the purchase of the [Real Property] for the purpose of purchasing the [Real Property][] - [Strulovitch] invested approximately $950,000." Statement Undisputed Facts (Stipulated Between Parties), Ex. C at 4, Case No. 19-47797, ECF No. 123. Under the Partnership Agreement, Strulovitch and Landau agreed that:
Landau claims he did not receive any proceeds from the Real Property. Mot. Summ. J. Allowing Claim No. 3 on behalf of Chaim Landau, Meluchim Holdings LLC, Attach. 1 at ¶ 18 Case No. 19-47797, ECF No. 128. Landau also claims Strulovitch breached the Partnership Agreement by...
To continue reading
Request your trial