In re Maidan
| Decision Date | 23 February 2023 |
| Docket Number | 8-19-77027-las |
| Parties | In re: Michael Maidan, dba Grand Avenue Building II, LLC, dba East End Ventures LLC, dba 1907 Harrison Realty LLC,dba 550 Metropolitan LLC, dba 62 Grand Ave LLC, Debtor. |
| Court | U.S. Bankruptcy Court — Eastern District of New York |
Before the Court is the Motion to Authorize Trustee to Liquidate Assets of Debtor's Estate and for Related Relief (the "Motion") of Eric Huebscher in his capacity as Trustee under the Litigation Trust Agreement (the "Litigation Trustee"). [dkt. no. 246]. Specifically, the Motion seeks the entry of an order authorizing the Litigation Trustee to liquidate the interest of Michael Maidan (the "Debtor") in East End Ventures LLC, East End Ventures II LLC, and East End Ventures III LLC (collectively, "East End Ventures") by appointing the Litigation Trustee and Bernard Jaffe, Esq. the Executor of the estate of Emil Talel (the "Executor"), as co-liquidators of East End Ventures. Jay Bialsky ("Bialsky") opposed the Motion [dkt. no. 254], and the Litigation Trustee replied [dkt. no. 255].
The Court has subject matter jurisdiction over this proceeding pursuant to 28 U.S.C. § 1334(b) and 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.
The Court has carefully considered the parties' submissions and the arguments of counsel in connection with the Motion. For the reasons stated below, the Court grants the Motion.
Background[1]
On October 11, 2019 (the "Petition Date"), the Debtor filed a petition for relief under chapter 11 of the Bankruptcy Code, 11 U.S.C. §§ 101 et seq. (the "Bankruptcy Code").[2]Motion ¶ 11. The Debtor was a real estate developer and did business as either the sole member/owner of, and/or held financial interests in several limited liability companies. Id. ¶ 12. In or around late March of 2020 the Debtor passed away and shortly thereafter his son, Joshua Maidan, took over the administration of the Debtor's chapter 11 case. Id.
On March 17, 2021, the Court entered an Order Confirming Debtor's First Amended Chapter 11 Liquidating Plan Pursuant to 11 U.S.C. § 1129 (the "Confirmation Order") [dkt. no. 149]. Id. ¶ 13. The First Amended Chapter 11 Liquidating Plan (the "Plan") [dkt. no. 136], among other things, (1) establishes a litigation trust (the "Litigation Trust") for the benefit of the holders of Class 4 Unsecured Claims[3] under the Plan, (2) provides for the vesting of all of the Debtor's causes of action in the Litigation Trust as of the Plan effective date, (3) provides that the trustee of the Litigation Trust has absolute discretion to determine whether to bring, settle, release compromise or enforce such causes of action, and (4) provides that the trustee of the Litigation Trust has the authority to pursue such litigation claims in accordance with the best interests of the Litigation Trust. Id. (citing Plan, Art. XI 11.1). The Plan also provides that the Distribution Fund includes recoveries, if any, from East End Ventures. Id. ¶ 14 (Plan § 1.23). The Confirmation Order approved the appointment of Mr. Huebscher as the Litigation Trustee of the Litigation Trust. Id. ¶ 15 (citing Confirmation Order ¶ 4). The Plan became effective on or about March 18, 2021. Id. ¶ 16.
On May 19, 2021, the Court entered an Order Modifying Debtor's Plan of Reorganization Pursuant to 11 U.S.C. § 1127(b) (the "Plan Modification Order") [dkt. no. 166]. The Plan Modification Order, among other things, appointed the Litigation Trustee as (1) the Distribution Agent and the Disbursing Agent for Class 4 claims and (2) the Debtor's sole administrator and representative of the Debtor's estate pursuant to Section 1.6 of the Litigation Trust Agreement with respect to all assets to be sold or liquidated pursuant to the Plan. Id. ¶ 17 (citing Plan Modification Order at 1-2). The Litigation Trust Agreement, as approved by the Confirmation Order and the Plan Modification Order provides that, among other things, the Litigation Trustee has the power to (1) perform the duties and exercise the powers of a trustee under sections 704 and 1106, including, without limitation, commencing, prosecuting or settling causes of action and (2) protect and enforce the rights to the Litigation Trust assets by any method deemed appropriate. Id. ¶ 18 (citing Litigation Trust Agreement § 2.8).
The East End Ventures are owned 50% by Emil Talel ("Talel") and 50% by the Debtor (collectively, the "East End Members"), both of whom are now deceased. Id. ¶ 19. The East End Ventures' operating agreements provide, in relevant part, that "[t]he Company shall be terminated and dissolved upon . . . the dissolution, death, disability, or incompetency, or resignation of the Managing Members." Id. ¶ 20. Further, upon the dissolution of the company, "[t]he Members shall wind up and liquidate the Company by selling the Company's assets and distributing the net proceeds therefrom." Id. ¶ 20.
In 2018, the East End Members contacted Bialsky, a builder and developer, concerning a real estate project in Sag Harbor, New York. See Objection of Jay Bialsky to Litigation Trustee's Motion (the "Objection") ¶¶ 7-8 [dkt. no. 254]. Bialsky and the East End Members negotiated an agreement pursuant to which a limited liability company known as Sag Harbor Development Holdings LLC ("Sag Harbor Development") was formed. Id. ¶ 9. The members of Sag Harbor Development are JAB SH Holdings LLC ("JAB Holdings")-controlled by Bialsky-and East End Ventures-owned and operated by the East End Members. Id. ¶ 10. The East End Ventures, in which the Debtor's estate holds a 50% interest, holds a 40% interest in Sag Harbor Development. See Litigation Trustee's Reply to the Objection ("Reply") at 2. [dkt. no. 255]. According to the Litigation Trustee, the estate's interest in the East End Ventures' rights and claims in connection with the real estate project in Sag Harbor, New York is potentially the largest asset of the estate. Id. It is this equity interest of the estate that the Litigation Trustee seeks to monetize by having himself and the Executor appointed as co-liquidators of the East End Ventures. Id. at 3.
The Motion seeks entry of an order appointing the Litigation Trustee and the Executor as co-liquidators of East End Ventures and authorizing the Litigation Trustee to liquidate the Debtor's interest in East End Ventures. Motion ¶ 7. Bialsky opposed the Motion and requested that the Court deny the Motion in its entirety. See generally Objection. [dkt. no. 254]. In response, the Litigation Trustee filed the Reply. [dkt. no. 255]. Talel's children, Nadia Talal and Alexander Talel (the "Talel Family"), filed an affirmation in support of the Motion (the "Affirmation"). [dkt. no. 257]. The Executor filed an affidavit in support of the Motion ("Executor's Affidavit"). [dkt. no. 262]. The Court heard oral argument and thereafter took the matter under advisement.
The Litigation Trustee first argues that Bialsky lacks standing to object to the Motion. Reply 3-4. For the following reasons, the Court agrees and concludes that Bialsky does not have standing to object to the Motion. The Objection does not include facts that are sufficient to show that Bialsky is a party in interest under § 1109(b) or that he meets constitutional and prudential standing requirements. Nowhere in his Objection does Bialsky expressly allege that he has or will suffer an actual injury if the co-liquidators are appointed or that he is asserting his own legal rights in voicing objection to the Motion. As he has failed to make the requisite showing, he has not alleged that he has standing to bring any claims or object to the Motion.
"[T]he question of standing is whether the litigant is entitled to have the court decide the merits of the dispute or of particular issues." Warth v. Seldin, 422 U.S. 490, 498 (1975). In chapter 11 cases, "[a] party in interest . . . may raise and may appear and be heard on any issue." 11 U.S.C. § 1109(b). But "section 1109(b) does not abrogate constitutional standing requirements-a party in interest must still demonstrate that it meets the general requirements of the standing doctrine, including whether it has alleged a personal stake in the outcome of the proceedings and whether it is asserting its own legal rights and remedies." In re Heating Oil Partners, LP, 422 Fed.Appx. 15, 17 (2d Cir. 2011) (citing Etuk v. Slattery, 936 F.2d 1433, 1440 (2d Cir. 1991); see also Warth, 422 U.S. at 498-99 ("This inquiry involves both constitutional limitations on federal-court jurisdiction and prudential limitations on its exercise."); see also In re Quigley Co., 391 B.R. 695, 702-03 (Bankr. S.D.N.Y. 2008).
Section 1109(b) confers standing on a non-exhaustive list of "parties in interest"- including "the debtor the trustee, a creditors' committee, an equity security holders' committee, a creditor, an equity security holder, or any indenture trustee." 11 U.S.C. § 1109; see Savage & Assocs., P.C. v. K & L Gates LLP (In re Teligent, Inc.), 640 F.3d 53, 60 (2d Cir. 2011). The term "party in interest" is not defined by the Bankruptcy Code. Krys v. Official Comm. of Unsecured Creditors of Refco Inc. (In re Refco Inc.), 505 F.3d 109, 117 (2d Cir. 2007). As a result, "[w]hether a party qualifies as a 'party in interest' is determined on a case-by-case basis, taking into consideration...
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