Jay L. Lubetkin, Chapter 7 Tr. for 40 Lakeview Drive, LLC v. Sheikh (In re 40 Lakeview Drive), Case No.: 15-14692 VFP

• Decision Date: 06 September 2018
• Docket Number: Adv. Pro. No.: 16-1165 VFP,Case No.: 15-14692 VFP
• Parties: In re: 40 LAKEVIEW DRIVE, Debtor. JAY L. LUBETKIN, Chapter 7 Trustee for 40 LAKEVIEW DRIVE, LLC, Plaintiff, v. IRFAN SHEIKH and QUINCY WONG, Defendants.
• Court: U.S. Bankruptcy Court — District of New Jersey

In re: 40 LAKEVIEW DRIVE, Debtor.

JAY L. LUBETKIN, Chapter 7 Trustee for 40 LAKEVIEW DRIVE, LLC, Plaintiff,
v.
IRFAN SHEIKH and QUINCY WONG, Defendants.

Case No.: 15-14692 VFP
Adv. Pro. No.: 16-1165 VFP

UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW JERSEY

September 6, 2018

Chapter 7

TRIAL OPINION

APPEARANCES

RABINOWITZ, LUBETKIN & TULLY, LLC
Jay L. Lubetkin, Esq.
Larry K. Lesnik, Esq.
293 Eisenhower Parkway, Ste. 100
Livingston, NJ 07039
Attorneys for Chapter 7 Trustee

HAROLD C. PETZOLD, Jr., ESQ.
315 Burnt Meadow Road
Ringwood, NJ 07456
Attorney for Quincy Wong

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HONORABLE VINCENT F. PAPALIA

I. INTRODUCTION

This matter is before the Court following the trial on November 8, 2017 and November 15, 2017 on the remaining four counts of the seven-count Adversary Complaint (the "Complaint") filed by Chapter 7 Trustee Jay L. Lubetkin, Esq. (the "Trustee") to avoid a $200,000 mortgage (the "Mortgage") granted to defendant Quincy Wong ("Quincy") by the Debtor, 40 Lakeview Drive, LLC (the "Debtor"), with respect to the real property known as 16 Avenue A, Mahwah, New Jersey. Quincy is the father of Debtor's former principal, Steven Wong and father-in-law of Debtor's current principal, Grace Wong. The Trustee seeks to avoid the Mortgage as a fraudulent transfer under the New Jersey Uniform Fraudulent Transfer Act, N.J.S.A. § 25:2-20 et seq., as incorporated into bankruptcy proceedings through 11 U.S.C. § 544(b)(1).¹ For the reasons set forth below, the Court avoids the Mortgage and finds the Property free and clear of that lien.

II. JURISDICTIONAL STATEMENT

The Court has jurisdiction over this matter under 28 U.S.C. § 1334(b) and the Standing Orders of Reference entered by the United States District Court on July 10, 1984 and amended on September 18, 2012. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (H), (K) and (O). Venue is proper in this Court under 28 U.S.C. § 1408. The Court issues the following findings of fact and conclusions of law pursuant to FED. R. BANKR. P. 7052. To the extent that any of the findings of fact might constitute conclusions of law, they are adopted as such. Conversely, to the extent that any conclusions of law constitute findings of fact, they are adopted as such.

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III. STATEMENT OF FACTS

A. Facts Related to Subject Mortgage

The Debtor was established on October 29, 2005 as a "Real Estate" business.² By Deed dated April 14, 2009, an entity called Tribeca Lending Corporation transferred the real property at 16 Avenue A, Mahwah, New Jersey (the "Avenue A Property") into the Debtor for a stated consideration of $85,000.³ The Deed was recorded on May 22, 2009.⁴ There is no evidence that the Debtor ever conveyed or agreed to convey the Avenue A Property to any other entity or individual. At the time of its filing, the Debtor also owned certain other real property located at 40 Lakeview Drive in Hamburg, New Jersey.

The transactions that are the subject of this Adversary Proceeding occurred on September 5, 2012. Pursuant to a Mortgage Note (the "Note") dated September 5, 2012, Grace Wong borrowed $200,000 from Quincy Wong, as Note Holder (the "Quincy Loan").⁵ As referenced in the Note, it was secured by a Commercial Guarantee (ultimately titled "Corporate Guarantee") and a Mortgage from the Debtor on the Avenue A Property.⁶ Under the Corporate Guarantee entered on September 5, 2012, the Debtor guaranteed the entire "Debt" from Grace, as Borrower, to Quincy, as Lender.⁷

The Corporate Guarantee was secured by a Mortgage, dated September 5, 2012, for $200,000 from Debtor, as Mortgagor, to Quincy Wong as Mortgagee (the "September 5, 2012

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Mortgage").⁸ The Mortgage was recorded on September 7, 2012 and is the subject of this Adversary Proceeding.⁹

The Note required Grace to: (i) pay interest in a lump-sum amount of $20,000; and (ii) repay the Loan (including interest) to Quincy Wong in a lump sum on or before the September 5, 2013 maturity date (a one-year term).¹⁰ There was no evidence produced at trial that Grace made the $20,000 payment or any other payments to Quincy on account of the Note. Accordingly, the Court finds that no such payments were made.

The Mortgage reiterated the payment terms of the Note and warranted title under "Promises":

Promises. Mortgagor makes the following promises to the Mortgagee: . . .

3. Title to the premises is warranted. This means that Mortgagor [the Debtor] owns the Property and will defend said ownership against all claims.¹¹

The Mortgage also recited: "This Mortgage is a first mortgage on the property."¹² Grace signed the Mortgage on behalf of the Debtor.¹³

The parties dispute the relevance of this transaction to an earlier Note, dated August 2, 2012, between "Robert Schroeder and All Points International Distributors, Inc.," as Promisor (collectively, "Schroeder") and Debtor, as Note Holder, purportedly memorializing a loan of $200,000 from Debtor to Schroeder (the "Schroeder Loan," or the "Schroeder Note").¹⁴ The Schroeder Note required lump-sum repayment of principal and interest on or before August 1,

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2013 (a one-year term).¹⁵ The Schroeder Note defined interest as "$35,000.00," consisting of "$20,000.00 to Quincy Wong loan" and "$15,000.00 fee to 40 Lakeview Drive, LLC."¹⁶ Robert Schroeder signed this Note both individually and for All Points International Distributors, Inc.¹⁷ There was no evidence submitted at trial that: (i) the $20,000 was paid to "the Quincy Wong loan"; (ii) the $15,000 fee was paid to the Debtor; (iii) any payments at all were made on the Schroeder Note; or (iv) the Debtor (as opposed to Grace and/or Steven Wong) actually loaned any money to Schroeder. Accordingly, the Court finds that no such payments or loans were made.

B. The Bankruptcy Case

The Debtor filed a voluntary Chapter 11 petition on March 17, 2015 over the signature of Grace Wong as Member.¹⁸ A motion to dismiss filed on March 25, 2015 by PNC Bank, N.A. indicated that the Debtor filed the petition to stay the scheduled sheriff's sale of the only other real property owned by the Debtor on the petition date, 40 Lakeview Drive, Hamburg, New Jersey.¹⁹ On May 22, 2015, the Office of the United States Trustee filed a motion to convert or dismiss Debtor's case on numerous grounds (failure to retain counsel, failure to file schedules, and Grace Wong's announced intention not to appear at the 341 meeting of creditors).²⁰ The Court converted the case to one under Chapter 7 by Order entered on July 28, 2015, based on a finding that conversion rather than dismissal was in the best interest of creditors and the estate.²¹ Jay L. Lubetkin, Esq., was appointed Chapter 7 Trustee by Notices docketed on August 3, 2015.²²

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The Debtor did not file its schedules until August 11, 2015, nearly five months postpetition.²³ The schedules indicate that Grace Wong ("Grace") was 100% owner of the Debtor and that the interest of her husband, Steven Wong ("Steven") had been terminated on May 8, 2015.²⁴ The Debtor's Statement of Financial Affairs described Steven Wong as "non-member Economic Interest Hold[e]r."²⁵

The Debtor scheduled the two real properties it owned on Schedule A: (i) 16 Avenue A, Mahwah, New Jersey with a value of $120,000 secured by a $200,000 Mortgage held by Quincy Wong; and (ii) 40 Lakeview Drive, Hamburg, New Jersey (mislabeled "40 Lakeview LLC") with a value of $220,000 and no mortgage scheduled (the "40 Lakeview Property"),²⁶ even though PNC Bank ("PNC") had a mortgage on that property, had filed a foreclosure action and was about to foreclose when the Debtor filed.²⁷ The Schedules were signed by Grace Wong and filed under penalty of perjury.²⁸

In the Debtor's bankruptcy case, the Trustee filed a Notice of Assets on August 7, 2015 and identified the assets as "Bank Account proceeds and potential equity in real property."²⁹ The Bankruptcy Court Clerk's Office set the claims bar date at November 5, 2015 in compliance with FED. R. BANKR. P. 3002(c). Four creditors filed timely proofs of claim:

CLAIM NO.	CREDITOR	DATE FILED	AMOUNT	DESCRIPTION
1-1	IRS	5/13/15	$4,680	General unsecured
1-2	IRS	9/11/17	$0	Amending the above to $0
2-1	PNC	7/17/15	$907,745	Secured by 40 Lakeview; Property

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CLAIM NO.	CREDITOR	DATE FILED	AMOUNT	DESCRIPTION
2-2	PNC	10/29/15	$9,702	"Secured" balance due after; property sale and other; executions30
3-1	Quincy Wong	7/17/15	$200,000	Secured by the Avenue A; Property (valued in Claim at; $150,000; Mortgage attached)
4-1	UST	10/27/15	$650	Unpaid Chapter 11 fees31

C. The Adversary Proceeding

The Trustee timely filed the instant seven-count Complaint on March 2, 2016 against Defendants Quincy Wong and Irfan Sheikh.³² The Trustee sought to avoid both mortgages as fraudulent transfers (constructive or actual) on the grounds that the Debtor received inadequate or no consideration for the encumbrance of the Property and that the transfer was made with the intent to hinder, delay or defraud creditors. The seven counts of the Complaint are:

I Avoidance of Irfan Sheikh Mortgage under N.J.S.A. § 25:2-3
II Avoidance of Irfan Sheikh Mortgage under New Jersey common law
III Avoidance of Quincy Wong Mortgage under New Jersey Uniform Fraudulent Transfer Act
IV Avoidance of Quincy Wong Mortgage under N.J.S.A. § 25:2-3
V Avoidance of Quincy Wong Mortgage under New Jersey common law
VI Determination of "Nature, Extent and Validity" of Irfan Sheikh and Quincy Wong liens
VII Counsel fees³³

After Defendant Sheikh proved that his mortgage had been discharged, the Trustee voluntarily dismissed his claims against Sheikh by Stipulation docketed on December 12, 2016.³⁴

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As a result, Counts I and II have been dismissed in their entirety, and Count VI has been dismissed as it relates to Irfan Sheikh.

This Adversary Proceeding and the main bankruptcy case of 40 Lakeview have been marked by extensive and, in this Court's view, unnecessary and vexatious litigation by the...