In re Rubin Family Irrevocable Stock Trust
| Decision Date | 21 November 2013 |
| Docket Number | Case No. 13-72193-dte |
| Parties | In re: Rubin Family Irrevocable Stock Trust, et. al., Debtors. |
| Court | U.S. Bankruptcy Court — Eastern District of New York |
Chapter 11 (Jointly Administered)
Appearances:
Rosen & Associates, P.C.
By: Nancy L. Kourland, Esq.; Sanford P. Rosen, Esq.
Paul A. Rachmuth, Esq.
Parsons Behle & Latimer
Attorneys for creditor ACE Investors, LLC
By: J. Thomas Beckett, Esq.; Gary E. Doctorman, Esq.
Anderson, Kill, & Olick
Attorneys for creditor ACE Investors, LLC
By: David Graff, Esq.; Shveta Kakar, Esq.
Before the Court are the several motions by judgment creditor Ace Investors, LLC ("ACE") to dismiss the procedurally-consolidated bankruptcy cases of the following debtors (collectively the "Debtors") or, alternatively, for relief from the automatic stay in those cases:
(1). Margery Rubin ("Margery"), Case No. 13-72195-dte;
(2). Robert Michael Rubin, husband of Margery ("Robert," and collectively with Margery, the "Rubins"), case no. 13-73193-dte;
(3). The Rubin Family Irrevocable Stock Trust (the "Stock Trust"), case no. 13-72193-dte;
(4). The Robert M. Rubin Family Realty Trust, case no. 13-72194-dte ().
For the reasons that follow, ACE's motions are denied in their entirety.
This Court has subject-matter jurisdiction over these proceedings under 28 U.S.C. § 1334. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (O). Venue is proper in this district under 28 U.S.C. §§ 1408 and 1409.
On April 30, 1997, Robert (as donor) settled the Stock Trust, the Realty Trust, and the Robert M. Rubin Marital Trust (the "Marital Trust"). The Marital Trust is not a Debtor in this Court.
Robert, Margery, the Stock Trust, and the Realty Trust are the Debtors in this Court. Margery and Errol Rubin (Robert's brother) are the trustees for each of the Trusts.1 The beneficiaries of the Trusts are the Rubins and their three (3) children.
Robert himself is the "advisor" for the Trusts. Robert does not "officially" have any authority over the Trusts. Even so, he seems to have done all the "heavy lifting" with respect to finding, negotiating, proposing, and consummating the Trusts' various business dealings over the years, while the actual trustees seem to adopt his recommendations largely without reservation.
Robert originally funded the Stock Trust and the Realty Trust with $100 apiece. He funded the Marital Trust with approximately $8 million, which he obtained from the liquidation of his equity position in Lifetime Corporation ("Lifetime"). Lifetime is a home healthcare company that Robert founded, grew, and took public. The purpose of the Marital Trust was to lend money to the Trust Debtors, which funds the Trust Debtors would turn around and invest. In times of active liquidity, the Trust Debtors were supposed to repay the Marital Trust. To that end, each respective Trust Debtor lists substantial unsecured debt owing to the Marital Trust. Specifically, the Stock Trust's amended schedule F indicates that it owes the Marital Trust approximately $402,423.47 for "loans," and the Realty Trust owes the Marital Trust approximately $4.8 million for "loans."
The indentures for each of the Trusts give the trustees broad discretion to hold, sell, lease, invest, reinvest, and otherwise deal with trust property without regard to many of the restrictions that encumber trustees of traditional common-law trusts. The trustees are also largely protected from liability for losses the Trusts may incur. The Trusts have no offices of their own, nor do they have any employees in the traditional sense.
Robert states that he "created the Stock Trust for the specific purpose of identifying and investing in start-up companies and the Realty Trust for the specific purpose of identifying and investing in, directly and through limited liability companies, commercial and residential real estate throughout the United States." The indentures for the Trusts also indicate that one of their purposes is to enable Robert to avoid probate in the posthumous administration of his assets. They also contain elaborate provisions concerning distribution of the res upon the death of either or both of the Rubins.
The Realty Trust owns 100% of the equity in the following entities: Rubin I, LLC ("Rubin I"); Rubin II, LLC ("Rubin II"); Rubin III, LLC ("Rubin III"); and Rubin V, LLC ("Rubin V"). The Realty Trust owns 50% of the equity in McLain Rubin Realty Company, LLC ("MRR I"); McLain Rubin Realty Company II, LLC ("MRR II"); and Rubin IV, LLC ("Rubin IV"). MRR I owns 100% of the equity in McLain-Rubin Texas I, LLC ("Texas I") and McLain-Rubin Texas II, LLC ("Texas II"). In total, the Realty Trust (according to its schedules) is owed approximately $4.7 million by Texas I, Texas II, MRR II, Rubin I, Rubin II, Rubin III, and JSC (defined below), collectively. The Stock Trust owns or has owned equity positions in various entities, as discussed more fully below.
The "McLain" in the "McLain-Rubin" companies comes from two individuals, husband and wife, named Dean McLain ("Dean") and Cindy McLain ("Cindy")(the "McLains"). The Debtors have had extensive dealings with the McLains.
In 1998, shortly after the Trusts were created, Robert donated to the Stock Trust his 30% equity position in a company called American United Global, Inc., which in turn owned 100% of the equity in 2 distinct businesses. One of these businesses manufactured "O-rings and seals" forthe automotive industry, and the other was a subsidiary of American United Global, called Western Power and Equipment ("Western Power").
It was in connection with Western Power that Robert met Dean. At the time, Dean worked for a company called Case Construction, which owned certain distribution sites located in California, Nevada, and the State of Washington, together with the underlying real estate (the ). Pursuant to a business plan that Dean presented to Robert and others, Western Power was created to (and did) purchase the distribution centers on the Case Sites, but not the underlying real estate. Robert and Dean formed MRR I and MRR II to purchase the underlying real estate, which in turn was leased to Western Power, which operated Case equipment dealerships on the Case Sites. Robert owned 50% of the equity in both MRR I and MRR II, which he donated to the Realty Trust.
Western Power was eventually spun off into a publicly-traded company, whereupon the Stock Trust received a minority equity position in Western Power, which was worth about $3-5 million according to Robert. However, the Stock Trust's shares in Western Power lost all value when Western Power's secured creditors liquidated it. Even so, in 2007 MRR I and MRR II sold their interests in the California and Nevada Case Sites for a profit, upon which the Realty Trust realized a distribution of $2.3 million. (Later on, in 2012, MRR II sold its interest in the Washington Case Site for $900,000, out of which the Realty Trust realized $462,000.)
With the money that the Realty Trust realized from the sale of the real estate underlying the California and Nevada Case Sites, it lent a total of about $546,000 to Rubin I, Rubin II, and Rubin III, which in turn used the money (on Dean's advice) to buy residential real property in Texas that Dean's son in law had developed (the "Texas Residential Properties"). The TexasResidential Properties have been leased out to tenants over the years, and they have proven to be a lucrative investment. In addition to this, the Realty Trust lent $1 million to Western Power.
Meanwhile, in or around 1999, on Robert's advice the Marital Trust lent the Stock Trust approximately $500,000 to invest in a new company called National Fiber Networks. This investment ultimately produced $5-6 million in gross returns for the Stock Trust.
In 2005, the Marital Trust lent the Realty Trust $500,000 to invest in a company called 767 Encuentro Holdings Corp. ("767"), which was formed to develop resort properties in the Dominican Republic. 767 ceased operating due to its inability to obtain financing for its project. A similar scenario played out with respect to a later investment, in which Realty Trust borrowed approximately $600,000-650,000 from the Marital Trust in order to invest in a real-estate development project in Costa Rica.
That same year, the Marital Trust lent the Realty Trust $1.923 million, which the Realty Trust used to purchase a certain condominium in Manhattan (the "Manhattan Condo"). Robert states that the Manhattan Condo was initially intended to be rented out as an investment property, but it eventually became a part-time residence for the Rubins due to various family circumstances. This transaction was fairly unique among the Trusts' various dealings in that (according to Robert's testimony), Margery was the one who instigated it, rather than Robert.
In 2006, the Marital Trust lent the Stock Trust about $1 million, which the Stock Trust used to buy an equity position in a British company called Veritas Medical Diagnostics, Inc. ("Veritas"), together with the distribution and marketing rights for a diagnostic medical device that Veritas was to manufacture. Veritas halted operations after failing to obtain necessary government approvals for the device. A similar scenario played out regarding the Stock Trust's separate $750,000 investment (all of it lost) in another medical device company called Scantech.
Later, the Realty Trust lent $937,685 to Texas I and $1.386 million to Texas II. These loans were used to purchase two pieces of commercial real estate in Texas (the "Texas Commercial Properties"). The Texas Commercial Properties are...
To continue reading
Request your trial