In re Nilhan Fin.
| Docket Number | 8:17-bk-03597-BAJ |
| Decision Date | 30 June 2023 |
| Parties | In re: NILHAN FINANCIAL, LLC, Debtor. |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Middle District of Florida |
FINDINGS OF FACT AND CONCLUSIONS OF LAW SUSTAINING AMENDED OBJECTION TO CLAIM THREE (3)
This Case came before the Court for a two-day trial that began on February 8, 2023, on the Second Amended Objection to Claim 3 of SEG Gateway, LLC (the "Claimant")[1] (Doc. 721), filed by Niloy Thakkar ("N. Thakkar") and the joinder to the Claim Objection (Doc. 733), filed by interested party Chittranjan Thakkar ("C. Thakkar") (collectively the "Thakkar Parties"). Claim 3 asserts liability based on the theory of reverse veil-piercing, in connection with a debt owed by C. Thakkar.[2] If the Claimant prevails, it will receive 50% of the sole remaining asset in the Debtor's estate, a $2,344,392.88 distribution paid to the Debtor from a Chapter 11 bankruptcy case in Georgia. At the conclusion of the trial, the Court took the matter under advisement and directed the parties to submit post-trial briefs. (Docs. 936 937, 939).
For over six years, this Case has been pending before the Court.[3] From the inception of the Case, a substantial amount of litigation has occurred, and the present issue will hopefully bring closure to this portion of the saga that has unfolded. While a myriad of issues have been raised, the first key issue is whether Georgia or Florida law applies to the reverse veil-piercing claim. The Court finds that Florida law applies. For the reasons set forth below, although the Court finds that the Debtor is a Florida limited liability company, to which Florida law and the "Familial Exception" could apply, the weight of evidence is not sufficient to meet the extremely stringent standard applicable to reverse veil-piercing.
On March 21, 2017, an involuntary petition for relief under Chapter 7 of the United States Bankruptcy Code was filed against the Debtor.[4] The Case was filed in the United States Bankruptcy Court for the Southern District of Florida and subsequently transferred to the United States Bankruptcy Court for the Middle District of Florida. (Docs. 19, 20).[5]
The Debtor is a limited liability company, which was controlled and managed by C. Thakkar. As of the petition date, the Debtor's sole members were N. Thakkar and Rohan Thakkar ("R. Thakkar").[6] The Florida Department of State, Division of Corporations, listed the Debtor as a "Florida Limited Liability Company" as of December 17, 2009. (Cl.'s Ex. 49). The Debtor and the Thakkar Parties have repeatedly referred to the Debtor as a Florida limited liability company. Further, the Debtor states in its Answer to the Involuntary Petition that its "only significant asset is a promissory note secured by a mortgage on real property owned by Orlando Gateway Partners, LLC," that is located in Florida. (Cl.'s Exs. 50-56).
On September 26, 2017, the Claimant filed Proof of Claim 3 in the amount of $13,972,435.58. A few weeks later, the Claimant filed an Amended Proof of Claim 3, which included a complaint against the Debtor for allegedly receiving fraudulent transfers from C. Thakkar (collectively, the "Claim"). On December 10, 2018, the Claimant again amended the Claim to reduce the amount of the Claim to $9,500,000[7] and reflect the assignment of the Claim from SEG Gateway to Good Gateway. (Cl.'s Ex. 1). The Claim was further amended on June 17, 2019, to include supporting documents for the assignment of the Claim. (Cl.'s Ex. 2).
On May 18, 2018, a Joint Motion to Approve Settlement Agreement Pursuant to Bankruptcy Rule 9019 was filed by the Chapter 7 Trustee, SEG Gateway, and Good Gateway (the "Settlement Agreement").[8] On September 6, 2018, the Court approved the Settlement Agreement.[9] (Docs. 210, 292). Under the Settlement Agreement, the Claim would be allowed as an unsecured claim in the amount of $9,500,000, and upon the Georgia Trustee's liquidation of certain real property located in Georgia (the "Georgia Property"), "the Trustee and SEG agreed that fifty percent (50%) of the sale proceeds will be used to pay down Claim 3 and the other fifty (50%) will be distributed to Nilhan Financial or its equity holders." (Doc. 210, pp. 6-7).
On August 23, 2018, N. Thakkar filed an Amended Objection to Claim 3, and C. Thakkar filed a Notice of Joinder. (Docs. 262, 334). On January 27, 2022, N. Thakkar filed a Second Amended Objection to Proof of Claim Number 3 (the "Amended Claim Objection"), and C. Thakkar again filed a Notice of Joinder. (Docs. 721, 733). Additionally, C. Thakkar filed a Motion to Determine that Good Gateway, LLC's Proof of Claim is Not Entitled to Prima Facie Validity Pursuant to Bankruptcy Rule 3001(f) (the "Motion to Determine"). (Doc. 435). The core argument of the Amended Claim Objection is that the facts do not support a claim based upon reverse veil-piercing, particularly when the Debtor is a limited liability company. (Doc. 721, pp. 2-3).
On March 31, 2021, Judge Williamson entered an Order on the Amended Objection to Claim and the Motion to Determine. (the "Claim Objection Order") (Doc. 627). In the Claim Objection Order, Judge Williamson found that the Florida Supreme Court would permit a veil-piercing claim when there is a familial relationship. Id. at p. 6. Judge Williamson also declined to restrict a familial relationship to a husband and wife and stated that "there is evidence that [C.] Thakkar and his sons treat the Debtor as a family corporation." Id. at p. 7. Additionally, Judge Williamson found that the Claimant was not collaterally estopped from reverse veil-piercing. Id. at pp. 7-9.
Prior to the trial commencing on January 31, 2022, Judge Williamson ruled that the only witnesses permitted to testify at the trial were C. Thakkar and Clay Townsend ("Mr. Townsend"). (Docs. 715, 868, 880). Specifically, Mr. Townsend was "authorized to testify as SEG Gateway and Good Gateway's corporate representative." (Doc. 828). Although Mr. Townsend testified solely as a fact witness for purposes of the trial, he and his law firm have served as counsel to Good Gateway and SEG Gateway since 2010 on a matter brought against C. Thakkar individually, as well as his affiliates and entities, for breaching their fiduciary duties and committing conversion and fraud. (Doc. 929, Tr. pp. 15-18). The litigation related to a real estate development project adjacent to the Orlando International Airport and resulted in judgments in excess of fourteen million dollars against C. Thakkar and his various affiliates, not including the Debtor. The Claim relates to these judgments. Notably, Mr. Townsend testified that his law firm was retained on a base contingency fee of 40%[10] and that he will personally receive 15% to 20% of the fee paid to his firm. (Doc. 929, Tr. pp. 92-94).
During the trial, C. Thakkar testified extensively, and his testimony demonstrated that he is the brains of the Thakkar entities, including the Debtor. Notably, Mr. Thakkar previously testified in a deposition that he "was the one who was primarily handling" the monetary transactions of the Debtor and that, in the year prior to filing bankruptcy, his children were the only people besides him who were authorized to handle such transactions. (Cl.'s Ex. 38, p. 48). Additionally, C. Thakkar testified in the underlying State Court Action that (Cl.'s Ex. 6, p. 39). Despite Mr. Thakkar's breadth of knowledge and experience as to the Debtor and other Thakkar affiliates and entities, when he was questioned about certain financial transactions his recollection was almost nonexistent.
This is a difficult case, which presents many layers of complexity. The Debtor is a limited liability company, and the sole members as of the petition date were N. Thakkar and his brother R. Thakkar. The Claimant seeks to hold the Debtor liable for a judgment against C. Thakkar under the theory of reverse veil-piercing.[11] Ultimately, the Claimant seeks payment of 50% of a $2,344,392.88 distribution that the Debtor was previously awarded from a Chapter 11 bankruptcy case in Georgia. As a threshold matter, the Court must first determine whether Florida law or Georgia law applies to the analysis of Claim 3.
The choice of law issue is of significant importance in this Case. Although the standard for reverse veil-piercing in Florida is extremely stringent, the theory is nevertheless allowed under Florida law. Conversely, neither reverse veil-piercing nor any exception to the bar against it is recognized under Georgia law. Corrugated Replacements, Inc. v. Johnson, 340 Ga.App. 364, 369 - 70, 797 S.E.2d 238 (2017) (disapproved on other grounds by Reid v. Morris, 309 Ga. 230, 845 S.E.2d 590 (Ga. 2020)); see also In re Webster, 629 B.R. 654, 668 (Bankr. N.D.Ga. 2021) ). The Thakkar Parties seek a finding that Georgia law applies because if Georgia law controls, the Claim must be disallowed. The Court, however, finds that Florida law clearly applies.
Although the Thakkar Parties make some creative arguments as to why Georgia law should apply, the inescapable conclusion based on the evidence is that Florida law applies. The Court reaches this conclusion for the following reasons: (i) the Florida Department of State, Division of Corporations, lists the Debtor as a "Florida Limited Liability Company" as of December 17,...
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