In re Barkany

• Citation: 542 B.R. 699
• Decision Date: 29 December 2015
• Docket Number: Case No. 8–14–72941–las
• Parties: In re Gershon Barkany, Debtor.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Eastern District of New York

542 B.R. 699

In re Gershon Barkany, Debtor.

Case No. 8–14–72941–las

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

Signed December 29, 2015

542 B.R. 700

Michael Jude Jannuzzi, Michael Jude Jannuzzi, Huntington, NY, for Debtor.

MEMORANDUM DECISION AND ORDER

Louis A. Scarcella, United States Bankruptcy Judge

The matter before the Court raises the question of whether a permanent trustee elected under 11 U.S.C. § 702 must be a disinterested person and, if so, whether the election candidate in this case, Mark A. Frankel, Esq., is disinterested. Having considered the submissions of the parties, the relevant law, and the record in this case, and for the reasons explained below, the Court concludes that (i) a permanent trustee elected under 11 U.S.C. § 702 must be a disinterested person and (ii) at least insofar as the parties and issues appear in this case at the present time, Mr. Frankel is disinterested and is free of any disabling conflict of interest. This Memorandum Decision and Order constitutes the Court's findings of fact and conclusions of law in accordance with Rule 7052 of the Federal Rules of Bankruptcy Procedure,¹ and memorializes and is consistent with

542 B.R. 701

the Court's findings and ruling at the evidentiary hearing held on July 13, 2015.

I. INTRODUCTION

Barkany Asset Recovery & Management LLC ("BARM"), Cortland Realty Investments, LLC, Jordan Most, Marshal Eisenberg, Debra Eisenberg Wilder, Seth Farbman, Janet Pinsky, Shalom Maidenbaum, Rachell Gober, The Bosses' Daughter, LLC, Chaim Silberberg and Mr. San, LLC (collectively with BARM, the "BARM Group ") and 169 16th Street, LLC, WL Metro Equity Holdings, LLC, L'Chayim Foundation, Inc., Ludvik and Eva Hilman Family Partnership and Law Offices of Allan Lebovits, P.C., as Nominee (collectively, the "Canadian Northern Creditors") each filed a motion seeking confirmation of the election of Mr. Frankel as permanent trustee in this case [ECF Nos. 199 and 200]. Objections to the eligibility of the BARM Group and the Canadian Northern Creditors to vote at the election were filed by (i) Marc A. Pergament, Esq., Interim Chapter 7 Trustee of the estate of Gershon Barkany, debtor ("Barkany ") [ECF No. 206], (ii) Saul Kessler [ECF No. 205], and (iii) Jonathan Zelinger, Ethical Products Inc., Petex International, and Joseph Rosenberg [ECF Nos. 202, 204 and 208], which objection was joined by Jonathon Leifer, Murray Leifer, Sara Leifer and Whitefish Group, LLC [ECF No. 203] and by Alfred Schonberger and Mordechai Shulman [ECF No. 207]. Additionally, Mr. Pergament, as interim trustee, challenged the eligibility of Mr. Frankel to serve as trustee in this case on the ground that Mr. Frankel is not disinterested. The BARM Group and the Canadian Northern Creditors disagree, insisting that Mr. Frankel is disinterested and free of any disabling conflict of interest.

Because the disinterestedness of a professional is an important requirement under the Bankruptcy Code and the applicable rules of professional responsibility, before considering whether those who called for the election and subsequently voted for Mr. Frankel were eligible to vote, the Court determined that it must first consider whether an elected permanent trustee must be disinterested and, if so, whether Mr. Frankel is disinterested. Accordingly, the evidentiary hearing held on July 13, 2015 did not, and this Memorandum Decision and Order does not, address the election controversy. That issue was addressed at an evidentiary hearing held on August 11, 2015 and is the subject of a separate Memorandum Decision and Order issued concurrently with this opinion.

II. JURISDICTION

Subject matter jurisdiction lies under 28 U.S.C. § 1334. The district court may refer proceedings to a bankruptcy judge under 28 U.S.C. § 157, and this matter is referred here by the Standing Order of Reference entered by the United States District Court for the Eastern District of New York pursuant to 28 U.S.C. § 157(a), dated August 28, 1986, as amended by Order dated December 5, 2012, effective nunc pro tunc as of June 23, 2011. Venue lies under 28 U.S.C. § 1409. This matter is a contested election of a permanent trustee, and is therefore a core proceeding. 28 U.S.C. § 157(b)(2)(A). A bankruptcy judge may hear and finally decide any core proceeding. 28 U.S.C. § 157(b)(1). A contested election under 11 U.S.C. § 702"stems from the bankruptcy itself," and may constitutionally be decided by a bankruptcy judge. Stern v. Marshall, ––– U.S. ––––, 131 S.Ct. 2594, 2618, 180 L.Ed.2d 475 (2011). Accordingly final judgment is within the scope of the Court's jurisdictional and constitutional authority.

542 B.R. 702

III. BACKGROUND AND PROCEDURAL HISTORY²

A. Events Leading Up to the Bankruptcy

This bankruptcy case arises from two fraudulent business schemes conducted by Barkany between 2008 and 2013, by which he induced investors to believe that they were investing in bona fide real estate ventures.

Between 2008 and 2010, Barkany carried out the first fraudulent investment scheme against Cortland Realty Investments, LLC, Jordan Most, Seth Farbman, Gerald Pinsky, Mordechai Hellman, Moshe Schreiber, Shalom Maidenbaum, Charles Silberberg, and Dekel LLC (the "Cortland Creditors "). On August 1, 2011, Barkany signed an affidavit of confession of judgment (the "Affidavit of Confession ") with respect to the investment scheme involving the Cortland Creditors. Based upon his Affidavit of Confession, a prepetition judgment was entered against Barkany on March 25, 2013 in the amount of $66,609,420.74 (the "Judgment "). [ECF No. 19–1]. After the Cortland Creditors recovered $10,066,000.00, a partial satisfaction of the Judgment was entered and the remaining $56,543,424.74 owed under the Judgment was assigned to BARM. BARM was formed to collect and administer assets of Barkany by enforcing the Judgment and bringing claims against third parties. [ECF No. 19–2]. Mr. Belsky is the sole member and manager of BARM and Locke Lord LLP represents BARM as its legal counsel.

In 2013, Barkany perpetrated a second investment scheme against, inter alia, the Canadian Northern Creditors by presenting himself as Gary Barr and causing the Canadian Northern Creditors to invest in excess of $8 million in purported real estate ventures.

According to BARM, Mr. Belsky's investigation revealed that, inter alia, Joseph Rosenberg (Barkany's father-in-law), Saul Kessler and the Marina District Development Company, LLC a/k/a the Borgata Hotel Casino and Spa (the "Borgata "), received over $10,000,000 from Barkany's fraudulent investment schemes. In an effort to collect on its Judgement, BARM commenced separate prepetition fraudulent conveyance actions against Mr. Rosenberg on March, 4, 2014,³ the Borgata on

542 B.R. 703

April 23, 2014,⁴ and Mr. Kessler on April 29, 2014⁵ (collectively referred to as the "BARM Prepetition Fraudulent Conveyance Actions "). Mr. Rosenberg, as well as other recipients of alleged fraudulent conveyances, i.e., Jonathan Zelinger, Ethical Products, Inc., and Petex International Limited ("Petex International "), are represented by Lester Kirschenbaum, Esq. of Kaye Scholer LLP ("Kaye Scholer ") in this bankruptcy case. Mr. Zelinger is the president of Ethical Products, Inc. and the chairman of Petex International. He is also the brother of Barkany's mother-in-law (i.e., the brother of Mr. Rosenberg's wife).⁶ Mr. Rosenberg, Mr. Zelinger, Ethical Products, Inc. and Petex are referenced collectively as the "Rosenberg Group".

B. The Bankruptcy Filing and Events Leading Up to the Election Controversy

On June 25, 2014, Mr. Rosenberg, Mr. Kessler and the Borgata filed an involuntary chapter 7 bankruptcy petition against Barkany. [ECF No. 1]. Barkany and BARM each filed a motion to dismiss and vigorously contested the involuntary petition for more than six months before Barkany ultimately consented to the chapter 7 filing. An order for relief was entered on January 14, 2015. [ECF No. 118]. Thereafter, on January 22, 2015, Mr. Pergament, one of the attorneys on the panel of chapter 7 trustees in this district, was appointed as the interim trustee. [ECF No. 120]. The initial meeting of creditors pursuant to section 341 of the Bankruptcy Code (the "341 Meeting ") was scheduled for March 11, 2015. [ECF No. 136].

On March 10, 2015, Locke Lord LLP contacted the Office of the United States Trustee ("U.S.Trustee ") and Mr. Pergament to notify them that the BARM Group and the Canadian Northern Creditors will request an election for the permanent trustee at the initial 341 Meeting to be held the next day. [ECF No. 151]. At the commencement of the 341 Meeting on March 11, 2015, Christine H. Black, Esq., Assistant U.S. Trustee, appeared on behalf of the U.S. Trustee and notified those present that the 341 Meeting would not go forward because the BARM Group and the Canadian Northern Creditors planned to call for an election of a permanent trustee, and because the U.S. Trustee needed additional time to perform administrative functions in preparation for such an election. As a result, the 341 Meeting was rescheduled for April 22, 2015.

On April 22, 2015, the U.S. Trustee held the rescheduled 341 Meeting and the BARM Group and the...