In re Inc.

Decision Date18 March 2011
Docket NumberBankruptcy No. 03–82321–ess.,Adversary No. 03–08482–ess.
Citation446 B.R. 32
PartiesIn re ALLOU DISTRIBUTORS, INC., et al., Debtors.Kenneth P. Silverman, as Chapter 7 Trustee of Allou Distributors, Inc., et al., and Congress Financial Corporation, Plaintiffs,v.United Talmudical Academy Torah Vyirah, Inc. a/k/a United Talmudical Academy a/k/a United T.A., Talmud Torah D'Rabeinu Yoel S'Fardim, Inc., African Market Trading, Inc. and Arthur Meisels a/k/a Usher Meisels, Defendants.
CourtU.S. Bankruptcy Court — Eastern District of New York

OPINION TEXT STARTS HERE

Otterbourg, Steindler, Houston & Rosen, P.C., New York, NY, for Congress Financial Corporation k/n/a Wells Fargo Bank, N.A.SilvermanAcampora LLP, Jericho, NY, for Kenneth P. Silverman, Esq., as Chapter 7 Trustee of Allou Distributors, Inc., et al.Schlam Stone & Dolan LLP, New York, Ny, for United Talmudical Academy Torah Vyirah, Inc.

MEMORANDUM DECISION ON MOTION FOR PARTIAL SUMMARY JUDGMENT OF DEFENDANT UNITED TALMUDICAL ACADEMY TORAH VYIRAH, INC.

ELIZABETH S. STONG, Bankruptcy Judge.

Before the Court is the motion of defendant United Talmudical Academy Torah Vyirah, Inc. (UTA) for partial summary judgment under Bankruptcy Rule 7056 and Federal Rule of Civil Procedure 56 on the claims asserted against it in the complaint dated January 20, 2006, filed by Congress Financial Corporation, now known as Wells Fargo Bank, N.A. (Congress), and Kenneth P. Silverman, as Chapter 7 trustee (the Trustee) of Allou Distributors, Inc. and other entities (“Allou”). This motion arises in one of many adversary proceedings brought in connection with the fraud committed by Allou's principals, and the involuntary and voluntary bankruptcy filings that followed.

Summary judgment is a useful tool to facilitate the progress of a dispute toward a determination on the merits. As recently-amended Federal Rule of Civil Procedure 56 recognizes, it requires a court to enter judgment, in whole or in part, where there is no genuine dispute as to any material fact and a party is entitled to prevail as a matter of law. In complex matters, it promotes the just, speedy, and inexpensive resolution of litigation by eliminating the need for a trial on all or part of a claim.

Some issues are especially well suited for determination on summary judgment, including those where a necessary element of a claim such as the receipt of a payment can be determined from the record at the close of discovery. But other issues, including knowledge and intent, and issues that turn on credibility determinations, are less well suited for summary judgment because they require the trier of fact to probe into the minds of the actors and may need to be decided after a trial.

This complex action presents both kinds of issues. It arises from a massive fraud perpetrated by Allou's senior officers, and the Plaintiffs' claims arise from almost $30 million in scores of transactions over a six-year period among Allou, UTA, and other entities. Where UTA shows that there is no genuine dispute as to whether it received a transfer, and the Plaintiffs do not come forward with evidence sufficient to create a genuine dispute, then partial summary judgment should issue. But where a genuine issue is raised by questions of knowledge and intent, and those matters are material to the determination of the claim, then the claim should proceed to trial.

The Plaintiffs bring Claims One, Two, and Three under theories of aiding and abetting breach of fiduciary duty, aiding and abetting fraud, and civil conspiracy,1 based on UTA's alleged participation in the breach of fiduciary duty and fraud perpetrated by Allou's former management. The Trustee brings Claims Four through Nine under New York's Debtor and Creditor Law (“DCL”) Sections 276, 273, 274, and 275 and Bankruptcy Code Sections 548(a)(1)(A) and (B) to recover funds transferred to UTA by Allou, its principals, and affiliates. Claim Four also seeks attorneys' fees under DCL Section 276–a, based on UTA's actual intent to defraud Allou's creditors. Congress brings Claims Eighteen, Nineteen, and Twenty under theories of unjust enrichment, money had and received, and conversion to recover funds transferred to UTA that constitute Congress' collateral.

UTA argues that summary judgment should be granted on the aiding and abetting claims because the Plaintiffs lack evidence sufficient to show actual knowledge and substantial assistance, which are essential elements of those claims. Similarly, UTA contends that it is entitled to judgment on the Trustee's demand for attorneys' fees under DCL § 276–a because that statute requires a showing of actual intent that the Trustee cannot make. UTA seeks judgment on the civil conspiracy claim on grounds that it is duplicative of the aiding and abetting claims. And UTA argues that partial summary judgment should be granted on the remaining claims under various theories. The Plaintiffs respond that genuine disputes as to material facts preclude the entry of summary judgment.

Jurisdiction

This Court has jurisdiction over this proceeding pursuant to 28 U.S.C. §§ 1334(b) and 157(b)(1). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(H). The following are the Court's findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52, made applicable here by Bankruptcy Rule 7052.

Procedural History
The Complaint

This adversary proceeding was commenced on October 29, 2003, when the Plaintiffs filed a complaint against UTA. UTA made two motions to dismiss which were heard and determined by the Court, and on January 23, 2006, the Trustee and Congress filed a third amended complaint (the “Complaint”).

The Plaintiffs allege that UTA and certain of its leadership, including Arthur Meisels, knew of and actively participated in the massive fraud perpetrated by Allou's former management. The Plaintiffs also allege that UTA, Mr. Meisels, and entities under his control including African Market Trading, Inc. (AMT), facilitated the transfer of huge sums to further the fraud, and that:

The funds Congress ... advanced to Allou were transferred to entities either controlled by the Jacobs [ ] such as [Talmud Torah D'Rabeinu Yoel L'Sfardim, Inc. (“TTDY”) ] or to entities within their sphere of influence such as AMT and UTA who agreed to keep or launder these funds to perpetuate the fraudulent scheme and for purposes unrelated to Allou's business.

Compl. ¶ 1.

The Plaintiffs allege that these activities advanced not only the personal financial interests of the Jacobs, but also the common interests of the Jacobs and Mr. Meisels in the hotly-contested succession dispute within the Satmar Hasidic community. As the Complaint states:

[T]here is a succession dispute involving competing supporters of two sons of Grand Rebbe Moshe Teitelbaum. The Grand Rebbe is believed to be close to ninety-years old, and his successor has not yet been designated. The JacobsMeisels Faction supports Zalman Teitelbaum, while the competing faction supports Aaron Teitelbaum. In order to curry favor for its choice, the JacobsMeisels Faction looted Allou by transferring substantial sums to UTA, TTDY and others, with the active participation of Meisels (the President and CEO of UTA) and AMT (a Meisels-controlled entity).

Compl. ¶ 2.

The Plaintiffs allege that [e]ach Defendant, as a recipient and/or transferor of funds from Allou, aided and abetted and conspired with the Jacobs [ ] in perpetuating a fraudulent scheme at Allou....” Compl. ¶ 3. The Plaintiffs also allege that the defendants conspired to perpetrate the fraud at Allou by:

(a) allowing Allou to “park” money with UTA and AMT which was then transferred for the benefit of the conspirators; (b) deepening UTA's complicity in a scheme of check kiting; (c) facilitating UTA's receipt of millions of dollars from Allou with no legitimate business purpose; (d) [allowing] Meisels and AMT [to] act [ ] as “middlemen” in the laundering of money; and (e) transferring hundreds of thousands of dollars ... to TTDY, an entity controlled by Victor Jacobs that transfers hundreds of thousands of dollars to Israel[,] and at least $50,000 to T & J Associates (“TJ”), a “real estate holding company” owned by the Jacobs[ ].

Compl. ¶ 3. And the Plaintiffs allege that UTA and the other Defendants had a unique relationship with Victor Jacobs, such that they knew of Victor Jacobs' role and responsibilities as chairman of publicly-traded Allou and each conspired with Victor Jacobs to take advantage of that relationship to aid and abet” the fiduciary breach and fraud at Allou, and to support the Jacobs–Meisels faction. Compl. ¶ 4. The alleged relationships include that Mr. Meisels is President and CEO of UTA and a signatory on its bank accounts, that the Meisels family and the Jacobs are related through a recently arranged marriage, and that Victor Jacobs' wife is related to Mr. Meisels. The Plaintiffs allege that [a]s a result of the fraudulent scheme, Congress has incurred damages in excess of $150,000,000, and Allou has been damaged by more than $200,000,000.” Compl. ¶ 1.

On February 22, 2006, UTA answered the Complaint, and on March 14, 2006, UTA amended its answer. UTA denies that it is liable for any amounts and asserts certain affirmative defenses, including under DCL Section 278 and Bankruptcy Code Section 548(c) and the applicable statutes of limitations.

On June 1, 2009, the parties submitted a Joint Pre–Trial Statement (“JPTS”) setting forth the material facts that are not in dispute, including stipulations as to the terms of many of the transfers at issue, and their respective positions on many disputed facts.

On September 11, 2009, UTA filed this motion for partial summary judgment, together with a memorandum of law (“UTA Mem.”), and a statement of material facts not in dispute. UTA's motion is supported by the affirmation of UTA's counsel Thomas A. Kissane (the “Kissane Decl.”), and the declaration of UTA employee Helen Greenwald.

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