Lamonica v. Harrah's Atl. City Operating Co. (In re JVJ Pharmacy Inc.)

• Decision Date: 24 July 2020
• Docket Number: Case No. 16-10508 (SMB),Adv. Pro. No. 18-01853 (SMB)
• Citation: 618 B.R. 408
• Parties: IN RE: JVJ PHARMACY INC. d/b/a University Chemists, Debtor. Salvatore LaMonica, as Chapter 7 Trustee of the Estate of JVJ Pharmacy Inc. d/b/a University Chemists, Plaintiff, v. Harrah's Atlantic City Operating Company, LLC d/b/a Harrah's Resort Atlantic City, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of New York

618 B.R. 408

IN RE: JVJ PHARMACY INC. d/b/a University Chemists, Debtor.Salvatore LaMonica, as Chapter 7 Trustee of the Estate of JVJ Pharmacy Inc. d/b/a University Chemists, Plaintiff,

v.Harrah's Atlantic City Operating Company, LLC d/b/a Harrah's Resort Atlantic City, Defendant.

Case No. 16-10508 (SMB)

Adv. Pro. No. 18-01853 (SMB)

United States Bankruptcy Court, S.D. New York.

Signed July 24, 2020

LaMONICA HERBST & MANISCALCO, LLP, 3305 Jerusalem Avenue, Suite 201, Wantagh, New York 11793, David A. Blansky, Esq., Of Counsel, Attorneys for Plaintiff

GRIFFIN HAMERSKY LLP, 420 Lexington Avenue, Suite 400, New York, New York 10170, Scott A. Griffin, Esq., Michael D. Hamersky, Esq. Of Counsel - and - BROWNSTEIN HYATT FARBER SCHRECK, LLP, 100 North City Parkway, Suite 1600, Las Vegas, Nevada 89106, Frank M. Flansburg III, Esq., Maximilien D. Fetaz, Esq., Of Counsel, Attorneys for Defendant

MEMORANDUM DECISION AND ORDER REGARDING CROSS-MOTIONS FOR SUMMARY JUDGMENT

STUART M. BERNSTEIN, United States Bankruptcy Judge:

Plaintiff Salvatore LaMonica, the chapter 7 trustee ("Trustee") for the estate of JVJ Pharmacy Inc. d/b/a University Chemists ("Debtor"), filed an adversary proceeding against the defendant, Harrah's Atlantic City Operating Company, LLC, d/b/a/ Harrah's Resort Atlantic City ("Harrah's"). The Trustee seeks to recover $859,040 in transfers (the "Transfers") that the Debtor allegedly made to or for the benefit of Harrah's when the Debtor's principal, James F. Zambri, used the Debtor's debit card to initiate cash advances at ATM's on Harrah's property. The Trustee makes his claims under fraudulent transfer and unjust enrichment theories. The Trustee and Harrah's filed cross-motions for summary judgment. (Memorandum of Law in Support of Plaintiff's Motion for Partial Summary Judgment on His Amended Complaint , dated April 10, 2020 ("Trustee's Motion ") (ECF Doc. # 57-1); Harrah's Atlantic City Operating Company LLC d/b/a Harrah's Resort Atlantic City's Memorandum of Law in Support of its Motion for Summary Judgment , dated April 10, 2020 ("Harrah's Motion ") (ECF Doc. # 58).)¹ The parties also filed a Joint Statement of Undisputed Fact in support of their cross-motions. (Joint Statement of Undisputed Facts in Support of Cross-Motions for Summary Judgment , dated February 28, 2020 ("Joint Statement ") (ECF Doc. # 48).)

For the reasons that follow, the Trustee's Motion is granted with respect to Count 2 of the of his Amended Complaint , dated June 7, 2019 (ECF Doc. # 25), he is awarded the sum of $850,449.60, and the Trustee's Motion is otherwise denied. Harrah's Motion is granted as to Counts 1 and 3 through 7 and is otherwise denied.

BACKGROUND

At all relevant times, the Debtor operated a specialty pharmacy located at 74 University Place, New York, NY 10003. (¶ 1.)² Zambri was the Debtor's president, (¶¶ 2-3), and sole shareholder. (Voluntary Petition, List of Equity Security Holders (ECF Main Case Doc. # 1), at ECF p. 39 of 46.)³ The Debtor maintained an operating account at a branch of JPMorgan Chase Bank, N.A. located in the State of New York (the "Chase Account"). (¶ 5.) A debit card issued to the Debtor could be used to withdraw cash from Debtor's Chase Account. (¶ 71.) Harrah's operates the Harrah's Resort located in Atlantic City, New Jersey, (¶ 8), and Zambri used the Debtor's debit card to initiate cash advances at ATMs located on Harrah's property. (¶ 70.) In the main, the Trustee seeks through this adversary proceeding to recover the transfers from the Chase Account that covered the cash advances received by Zambri as fraudulent transfers.

A. Harrah's Cash Advances

To understand the disposition of the cross-motions, it is necessary to review how the cash advances and the corresponding repayments from the Chase Account worked. Caesars, Harrah's affiliate⁴ , contracted with Ultron Processing Services, Inc. ("Ultron") pursuant to a Master Services Agreement ("Ultron MSA")⁵ for services related to the ATMs on Harrah's premises.⁶ (¶¶ 17-19.) A patron could obtain cash at Harrah's in one of two ways. He could withdraw cash directly from the Ultron ATM which Harrah's stocked with cash. (Ultron MSA, Ex. B, § 5.b.v. at JVJ000364.) Ultron would charge the patron's debit or credit card and collect the payment from the patron's bank as agent for Caesars. (Ultron MSA, Ex. A, § 1.gg at JVJ000486.)⁷ Alternatively, a patron could obtain cash advances directly from Harrah's utilizing the ATM pursuant to a separate Master Services Agreement ("Global MSA")⁸ between Harrah's and Global Cash Access, Inc. ("Global"), in the manner described below. (¶¶ 30-31.)

Zambri utilized these cash advance services provided by Global rather than the cash withdrawal services provided by Ultron. To initiate a cash advance at an Ultron ATM located on Harrah's property, the Cardholder inserts a debit card and enters the amount of the request; Global verifies the Cardholder's available credit limit and/or account balance, obtains proper authorization from the Card issuer, and confirms that Harrah's has complied with various security protocols. (See ¶ 33; Global MSA, Ex. B, § 1 at JVJ000616.) Assuming the Cardholder qualifies for the cash advance, he receives a receipt from the Ultron ATM directing him to proceed to Harrah's cashier's cage where he presents the receipt to the cashier. (¶¶ 48-49, 52.) Per the Global MSA, (Global MSA, Ex. B-1 at JVJ000620-JVJ000621), the Harrah's cashier accesses Global's processing system, pulls up the pending transaction, verifies the identification of the person receiving the cash advance, and distributes Harrah's cash to the person seeking the advance. (¶¶ 48, 50-51, 53-54, 64.) Global collects the cash from the Cardholder's bank and reimburses Harrah's in the amount of the cash advance through a batch settlement the next federal wire day. (¶¶ 65-66.)

Global and Caesars split a processing fee the Cardholder must be paid for a cash advance. For cash advances initiated with a debit card, Global earns 25% of a 4% fee on the amount of cash advanced, and Harrah's receives the balance. (¶¶ 39, 42-44; Global MSA, Ex. B at § 11.B.2 at JVJ000618.) Global, which has collected the entire processing fee, settles up with Harrah's on a monthly basis. (Global MSA, Ex. B, § 11.C at JVJ000618.)

The outcome of this adversary proceeding turns on the relationship between Harrah's and Global. Although the Global MSA indicates that neither party intended for the other party to be viewed as its agent, (Global MSA, Ex. A, § 21.b, at JVJ000614) ("At no time will either Party represent itself as an agent ... of the other Party"), Section 1 to Exhibit B of the Global MSA states one notable exception; Global serves as Harrah's agent in connection with "quasi-cash advance services":

[Caesars] engages [Global] to act as its agent for the sole purpose of providing a quasi-cash advance services, whereby the authorized holders (individually, a "Cardholder") of a valid credit or ATM/debit card (individually, a "Card" and collectively, the "Cards") ... may obtain quasi-cash advances (individually, a "Cash Advance") in exchange for a service charge, subject in each case to (i) the Cardholder's available credit limit and/or account balance, (ii) receipt of proper authorization for the Cash Advance transaction from the Card issuer, and (iii) compliance by [Caesars] with security policies and procedures established by the Card Associations, Network Organizations and [Global] from time to time; and [Global] and [Caesars] desire to enter into this Agreement, whereby [Global] will supply Cash Advances at the Locations listed on Schedule A for Cardholders who will ultimately purchase gaming chips or other products and services from the Company (referred to herein as the "Service").

(Global MSA, Ex. B, § 1 at JVJ000616.)

The Global MSA allocates the responsibility for an improper or unauthorized cash advance. If Global incorrectly verifies that an account had sufficient funds and cannot collect the cash advance from the Cardholder's bank account, Global guarantees the transaction and must reimburse Harrah's for any cash Harrah's advanced. (¶ 37; Petrosh Transcript⁹ at 19:23-20:6.) In addition, Global is required to indemnify Harrah's for "any claim arising from the negligence of [Global], it's employees, and third-party contractors used in performance of [Global's] obligations pursuant to this Agreement and any related SOW."¹⁰ (Global MSA, Ex. A, § 11.a.i.4 at JVJ000611.) On the other hand, Harrah's must reimburse Global for the full amount of the cash advance where, according to applicable rules, the Cardholder validly disputes the cash advance, the Card issuer charges back the cash advance for any valid reason, or Global has any reason to believe that a Cash Advance is questionable, fraudulent, not genuine, or is otherwise unacceptable. (Global MSA, Ex. B, § 4.3 at JVJ000617.)

Although the Global MSA reads as if Global is making the cash advance, this is not how it worked. Global facilitates the transaction between the Cardholder and Harrah's but does not advance any funds; the funds are advanced by Harrah's cashier and repaid by the Cardholder's bank to Global, Harrah's agent. As Ryan Carlson, Harrah's Federal Civil Rule 30(b)(6) witness, (see Joint Statement , Ex. 1, at ECF p. 3 of 30), explained, the Cardholder's bank reimburses Global for the cash advanced and remits any associated fees, Global then reimburses Harrah's for the cash advance in a batch settlement on the next federal wire day through ACH, and the portion of the fees on the cash advances shared with Global are paid monthly after an accounting process. (¶¶ 65-67.) The only cash that Global retains upon collection from the Cardholder's bank is its 25% of the 4% processing fee, i.e. , 1% of the cash advance.

B. Zambri's Cash Advances

From January 2, 2015 to August 3, 2015 (the "Relevant Period), Zambri regularly initiated cash advances that resulted in withdrawals aggregating $859,040,...