In Re Shore To Shore Realty Inc.

• Decision Date: 01 February 2011
• Docket Number: Case No. 8-08-72760-reg,Adv. Pro. No.: 8-09-08296-reg
• Parties: In re SHORE TO SHORE REALTY INC., Debtor. RICHARD L. STERN, as Trustee of the Estate of SHORE TO SHORE REALTY INC., Plaintiff, v. SINGH FACTORS, LLC, QUIK COMMISSION, INC., and ABHIJIT RIKHY, Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of New York

In re SHORE TO SHORE REALTY INC., Debtor.RICHARD L. STERN, as Trustee of the Estate of SHORE TO SHORE REALTY INC., Plaintiff,

v.SINGH FACTORS, LLC, QUIK COMMISSION, INC., and ABHIJIT RIKHY, Defendants.

Case No. 8-08-72760-reg

Adv. Pro. No.: 8-09-08296-reg

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF NEW YORK

Dated: February 1, 2011

MEMORANDUM DECISION

This matter is before the Court pursuant to an adversary proceeding commenced by Richard L. Stern, the Chapter 7 trustee (the "Trustee" or "Plaintiff) in the bankruptcy case of Shore to Shore Realty Inc. (the "Debtor"). The Trustee seeks to recover approximately $228,000.00 from Singh Factors, LLC d/b/a Quik Commission ("Singh Factors" or "Quik"), Quik Commission, Inc. ("Quik Commission") and/or Abhijit Rikhy ("Rikhy") (collectively, with Quik and Quik Commission, the "Defendants"), which funds represent commissions from real estate closings held by the Debtor ("Transfers"). According to the Trustee's complaint, the Transfers are recoverable as fraudulent conveyances under 11 U.S.C. § 548(a) and New York Debtor and Creditor Law ("DCL") §§ 273-276. In the alternative, the Trustee seeks to recover the Transfers under the theories of conversion, conspiracy to defraud and/or aiding and abetting fraudulent transfers, which the Trustee alleges were orchestrated by the Debtor's principal.

Judgment by default has been entered in this adversary proceeding against Singh Factors and Quik Commission and a trial was held with respect to the claims against Rikhy. Because Quik received the Transfers and not Rikhy, Rikhy cannot be held liable for the Transfers under the theories of fraudulent conveyance or conversion absent a finding that Rikhy is the alter ego of Quik. The complaint contains no allegations that Rikhy is the alter ego of Quik, and the Trustee may not now assert in his post-trial submission that Rikhy is the alter ego of Quik. Even applying the liberal standards set forth in Fed.R.Civ.P. 15(b), there are insufficient grounds to amend the complaint to include this as a claim or a remedy. Rikhy cannot be found to have given his express consent to have this issue tried, nor does the Court find that this issue was tried with Rikhy's implied consent. Permitting the Trustee to add this as a claim or form of remedy against Rikhy post trial would severely prejudice Rikhy and put him at an unfair disadvantage. For these reasons, the fraudulent conveyance and conversion claims are dismissed. The claim for conspiracy to defraud is dismissed because the Trustee failed to prove a prima facie case, and the claim for aiding and abetting a fraudulent conveyance shall be dismissed as this "claim" is not a recognized cause of action under New York law. Therefore, the complaint against Rikhy is dismissed in its entirety.

Facts

Singh Factors is a New York limited liability company or a corporation, with an address located in Bellerose, New York.¹ Quik Commission is a New York corporation, with an address located in Bellerose, New York. Rikhy is an individual who resides at the same address as theaddress for Singh Factors. Singh Factors shall be referred to as Quik, which was its d/b/a. The Debtor operated two real estate sales offices on Long Island, one of which was affiliated with a national real estate firm, Weichert Realty. On May 27, 2008 (the "Filing Date"), the Debtor filed a voluntary petition for relief under Chapter 7 of Title 11 of the Bankruptcy Code (the "Code"). The Trustee was appointed trustee of the Debtor's estate on May 27, 2008. The Trustee commenced this adversary proceeding on July 24, 2009. According to the complaint, between 2005 and 2007, the Defendants and Turk engaged in a scheme to divert approximately $228,000.00 of the Debtor's funds to Turk. The Trustee alleged that in furtherance of this scheme Turk entered into an arrangement whereby Quik advanced to Turk on a discounted basis future commissions that rightfully belonged to the Debtor. When the commissions were paid at the closing they would be directed to Quik, not the Debtor, therefore depriving the Debtor of the commission income.. As is typical in a factoring arrangement, Quik profited from the transactions by retaining the difference between the amount of the actual commissions and the advances made by Quik to Turk. The complaint identifies Rikhy as the principal of Quik and Quik Commission, and contains the allegation that Rikhy knew or should have known that Turk was diverting the Debtor's funds. The Trustee alleges that he is entitled to recover the Transfers to the Defendants pursuant to § 548 of the Bankruptcy Code and §§ 273-276 of the DCL. The complaint contains additional causes of action against the Defendants for aiding and abetting fraudulent conveyances, conspiracy to defraud creditors of the Debtor, and conversion. Quik and Quik Commission failed to file answers to the complaint and the Clerk of the Court noted the default of Quik and Quik Commission on November 10, 2009.

On August 19, 2009, Rikhy filed an answer containing general denials and asserting eleven affirmative defenses.² According to the remaining affirmative defenses, Rikhy asserts he is not a proper party to the action because he was only acting as an agent of Quik, and not in his personal capacity. Rikhy's answer also included a jury demand, which was denied by Order of the Court entered on November 16, 2009.

On November 10, 2009, the Trustee filed a Motion for Default Judgment against Quik Commission and Quik, and on January 29, 2010, the Trustee filed a Motion for Summary Judgment against Rikhy. Both motions were heard on March 8, 2010. The Court granted the Motion for Default Judgment against Quik and Quik Commission, which was unopposed, and an order and judgment was entered in favor of the Trustee and against Quik and Quik Commission in the amount of $228,789.38 with interest. In the Motion for Summary Judgment, the Trustee sought entry of judgment against Rikhy on the basis that the Transfers were fraudulent conveyances pursuant to DCL §§ 273. The Trustee also alleged that Rikhy should have known that the monies transferred from the Debtor to Quik represented commissions earned by the Debtor, and that by paying Turk instead of the Debtor, Rikhy was assisting Turk in the diversion of the Debtor's assets. Rikhy filed opposition to the Motion for Summary Judgment, alleging that summary judgment was not warranted because there were material issues of fact in dispute over whether Rikhy had knowledge of Turk's scheme and whether Quik received fair consideration for the transfers. Rikhy also alleged that there was a genuine issue of material fact in dispute over whether Rikhy knew or should have known that the advances Quik paid to Turk were property of the Debtor's estate. At a hearing held on March 8, 2010, the Court denied the Trustee's motion. The Court ruled that there was a genuine issue of material fact in dispute over whether Rikhy was the transferee of the funds from the Debtor. A trial was scheduled for June 8, 2010, and on June 2, 2010, the Trustee and Rikhy filed a joint pre-trial memorandum. In the Plaintiff's Statement of Facts, the Trustee alleged that Rikhy was the authorized agent of Quik, and that Quik and/or Rikhy made advances to Turk based on sales contracts arranged by the Debtor for its benefit. The Trustee also alleged that Rikhy entered into a conspiracy with Turk to divert funds from the Debtor, or at the very least, Rikhy should have known that Turk had engaged in a scheme to divert funds from the Debtor.

During trial, the Trustee established that Quik did not issue shares, Quik had no corporate resolutions and Rikhy was the sole owner of Quik. (Trial Tr., pg. 7) The Trustee did not raise the issue of whether Quik is a corporation or an LLC, and it appears that he assumed Quik is a corporation. According to the evidence admitted at trial, between May 3, 2005 and November 30, 2007, Quik issued 45 checks to Turk in amounts ranging from $254.00 to $14,080.00. Each of the transactions were documented using the same form documents. First, Turk submitted an application to Quik (the "Application"). (Trial Ex. E) On each Application Turk listed himself as the agent, the Debtor as the real estate company, and listed the property to be sold for which the commission of such sale would be factored. In addition, a Notice of Assignment of Real Estate Brokerage Commission (the "Notice of Assignment") was sent to the seller's attorney from Turk. In the Notice of Assignment Turk was defined as "Broker" and the Debtor was defined as "Real Estate Company." (Trial Ex. E) For each transaction, a Notice of Assignment was prepared, which includes the following: "Please take notice that Weichert Shore to Shore (Broker) has assigned his/her right, in whole or in part, to receipt of net commission in connection with the sale of real property located at...." (Trial Ex. E)

When Rikhy was questioned at trial about the contracts of sale, which stated that the seller would pay the Debtor and not Turk any commissions earned, Rikhy testified that he had reviewed the relevant language but he had determined that based on the Application, the Notice of Assignment and through speaking with the seller's attorney Turk was entitled to receive the commissions. (Trial Tr. pg. 31) Moreover, Rikhy testified that Turk, as the principal of the Debtor, verified to Rikhy that Turk was entitled to the full commission generated from each sale in question. (Trial Tr. pg. 34) As a result, Turk was the proper recipient of the advances from Quik.

Towards the close of trial, Rikhy, who appeared pro se, testified that he received no funds from the Debtor or Turk, and that all checks representing commissions on the real estate sales were issued to Quik and were deposited into Quik's bank account. (Trial Tr. pg. 120-22) Rikhy reiterated that the Debtor's funds were never transferred to him personally and although judgment by default had...