Leslie v. Ace Gallery N.Y. Corp. (In re Art & Architecture Books of the 21st Century)

• Decision Date: 31 March 2022
• Docket Number: 2:13-bk-14135-RK,2:14-ap-01771-RK,Adv. 2:15-ap-01679-RK,2:15-ap-01680-RK
• Court: U.S. Bankruptcy Court — Central District of California
• Parties: In re: ART & ARCHITECTURE BOOKS OF THE 21st CENTURY, Debtor. v. ACE GALLERY NEW YORK CORPORATION, et al., Defendants. SAM LESLIE, PLAN AGENT FOR ART & ARCHITECTURE BOOKS OF THE 21st CENTURY, Plaintiff, 400 S. LA BREA, LLC, Cross-Complainant, v. ACE GALLERY NEW YORK CORPORATION, et al., Cross-Defendants.

In re: ART & ARCHITECTURE BOOKS OF THE 21st CENTURY, Debtor.

SAM LESLIE, PLAN AGENT FOR ART & ARCHITECTURE BOOKS OF THE 21st CENTURY, Plaintiff,
v.
ACE GALLERY NEW YORK CORPORATION, et al., Defendants.

400 S. LA BREA, LLC, Cross-Complainant,
v.
ACE GALLERY NEW YORK CORPORATION, et al., Cross-Defendants.

No. 2:13-bk-14135-RK

Adv. Nos. 2:15-ap-01679-RK, 2:14-ap-01771-RK, 2:15-ap-01680-RK

United States Bankruptcy Court, C.D. California, Los Angeles Division

March 31, 2022

Hearings Date: October 20, 2021 and October 29, 2021

MEMORANDUM DECISION ON MOTION FOR PARTIAL SUMMARY JUDGMENT REGARDING: (1) ALLEGED PRE-PETITION DIRECT RENT PAYMENTS FOM DEBTOR TO 400 S. LA BREA, LLC BASED ON STATUTE OF LIMITATIONS; (2) ALL PRE-PETITION AVOIDANCE CAUSES OF ACTION ASSERTED DIRECTLY AGAINST 400 S. LA BREA, LLC; (3) ALLEGED PRE-PETITION PREFERENTIAL TRANSFERS TO 400 S. LA BREA, LLC; AND (4) CONVERSION CLAIM ASSERTED AGAINST 400 S. LA BREA, LLC; ORDER THEREON

Robert Kwan, United States Bankruptcy Judge.

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BACKGROUND

Pending before this court in this adversary proceeding is the Motion of Defendants/Cross-Complainants 400 S. La Brea, LLC, Daryoush Dayan, Kamran Gharibian and Michael Smith ("Defendants" or collectively referred to as the "400 S. La Brea Parties") for Partial Summary Judgment Regarding: (1) Alleged Pre-petition Direct Rent Payments from the Debtor to 400 S. La Brea, LLC Based on Statute of Limitations; (2) All Pre-petition Avoidance Causes of Action Asserted Directly Against 400 S. La Brea, LLC; (3) Alleged Pre-petition Preferential Transfers to 400 S. La Brea, LLC; and (4) Conversion Claims Asserted Against 400 S. La Brea, LLC, Electronic Case Filing Number ("ECF") 1032 ("motion"), filed on July 12, 2021, which it had taken under submission after conducting hearings on the motion on October 20, 2021 and October 29, 2021 and the filing of supplemental briefs on the "relation back" doctrine under Federal Rule of Civil Procedure 15(c)(1)(B) last filed on November 21, 2021, ECF 1170 and 1173.

Based on the record, it appears to the court that unless equitable tolling applies, the two-year statute of limitations under 11 U.S.C. § 546(a)(1) expired on February 19, 2015 for bringing transfer avoidance claims against the 400 S. La Brea Parties, though the statute of limitations was extended as to other parties to June 19, 2016. The first

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transfer avoidance claims against any of the 400 S. La Brea Parties were filed on January 23, 2017 in the Plan Agent's Third Amended Consolidated Complaint, which was after the expiration of the statute of limitations as to them. Accordingly, the 400 S. La Brea Parties seek partial summary judgment as to the so-called Direct Prepetition Rent Transfers, i.e., the direct payments of rent from the Debtor to 400 S. La Brea, LLC, on behalf of Ace Museum to pay Ace Museum's rent obligations under the lease it had with 400 S. La Brea, LLC.

On December 13, 2016, the Plan Agent filed his motion for leave to file a Third Amended Consolidated Complaint in these consolidated adversary proceedings, Adv. No. 2:15-ap-01679-RK, ECF 60, which formally named the 400 S. La Brea, LLC as a defendant in these adversary proceedings for the first time. The claims against the 400 S. La Brea, LLC included claims for avoidance of preferential and fraudulent transfers by Debtor to them and recovery and preservation of fraudulently transferred property under 11 U.S.C, §§ 544, 547, 548, 550 and 551. The motion stated the purpose of adding 400 S. La Brea, LLC, as a new defendant as follows:

By this Motion, the Plan Agent also requests leave to amend the Second Amended Complaint, in substantially the form of the redlined Third Amended Complaint attached hereto as Exhibit A, to: (i) consolidate the causes of action in each of the pending Related Adversary Proceedings; (ii) to add further defendants who were the transferees of funds belonging to the Debtor's estate; (iii) to add further factual allegations derived from the Plan Agent's ongoing forensic analysis; and (iv) to simplify the complaint by consolidating related and overlapping claims for relief brought under 11 U.S.C. §§ 549, 550 and 551. The additional defendants to be added in the Third Amended Complaint are the following transferees: (i) 400 S. La Brea LLC; (ii) the Nunley Family Trust; and (iii) Trizec 5670 Wilshire, LLC, a Delaware limited liability company (collectively, the "Landlord Defendants"). The Plan Agent's investigation has revealed that each of the Landlord Defendants received funds belonging to the Debtor - both prepetition and postpetition - for the payment of rent in relation to facilities that were not occupied by the Debtor, from which the Debtor received no value, and without postpetition authorization of this Court. The total amount of funds transferred to the Landlord Defendants in violation of 11 U.S.C. § 549, or as a prepetition fraudulent transfer, remains to be finalized, but is in the millions of dollars

Motion for Leave to File Third Amended Consolidated Complaint, ECF 60, at 14-15

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(internal page citation 8-9). On January 13, 2017, the court entered its order granting the Plan Agent's motion for leave to file the Third Amended Consolidated Complaint, and on January 23, 2017, the Plan Agent formally filed the Third Amended Consolidated Complaint. ECF 65 and 69.

Paragraph 30 of the Third Amended Consolidated Complaint, ECF 69, alleges avoidable prepetition transfers of Debtor's funds to 400 S. La Brea directly and indirectly, specifically over $2 million in direct payment transfers:

30. Additionally, there were significant prepetition transfers from the Debtor to defendant Ace Museum, from the Debtor to defendant Douglas Chrismas, from the Debtor to 400 S. La Brea, and from Debtor to other defendants and third parties which transfers were without consideration in favor of the Debtor and came at a time when the Debtor was insolvent or was rendered insolvent by such transfers. Within two years of the Petition Date, the Debtor made at least the following direct transfers (the "Direct La Brea Rent Transfers") to 400 S. La Brea for which the Debtor received no consideration:

Date	Check/Wire	Amount
4/13/11	Check 3979	$125, 000.00
4/22/11	Check 3980	$15, 867.00
9/28/11	Wire (c/o Fortuna Management)	$137, 500.00
10/04/11	Wire (c/o Fortuna Management)	$137, 500.00
10/21/11	Wire	$125, 000.00
10/24/11	Wire	$110, 000.00
11/17/11	Wire (c/o Fortuna Management)	$247, 500.00
12/23/11	Wire (c/o Fortuna Management)	$137, 525.00
12/27/11	Wire (c/o Fortuna Management)	$139, 961.45
01/25/12	Wire	$75, 000.00
01/31/12	Wire	$28, 904.57
02/03/12	Wire	$50, 000.00
03/02/12	Wire	$12, 500.00
03/26/12	Wire	$72, 000.00
04/05/12	Wire	$36, 031.28
04/12/12	Wire	$36, 000.00
05/08/12	Wire	$280, 186.00
06/05/12	Wire	$142, 279.21
08/03/12	Wire	$125, 000.00
10/23/12	Check 6913	$137, 000.00
02/07/13	Wire	$25, 000.00
TOTAL:	$2, 195, 754.51

Without limitation, the payments received directly from the Debtor from

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May 2012 forward came at a time when the Debtor was simultaneously defaulting on its rental obligations to AERC.

Paragraphs 41 through 45 of the Third Amended Consolidated Complaint, ECF 69, allege that Debtor made avoidable prepetition transfers to Ace Museum, which included direct and indirect rent payments on Ace Museum's behalf to 400 S. La Brea, LLC:

41. Plaintiff alleges that, consistent with the Museum Board Resolution, Ace Museum borrowed, or otherwise obtained, from the Debtor, and the Debtor lent, or otherwise transferred, to Ace Museum, funds in the aggregate of no less than $4, 482, 586.00 (the "Museum Loan"), which amounts included some or all of the AERC Payment, and that Ace Museum became indebted to the Debtor on account of the Museum Loan in at least that amount (the "Museum Loan Obligation"). Plaintiff further alleges that that the Museum Loan, and other pre-petition transfers that were not part of the Museum Loan, were provided or made pursuant to one or more transfers of the Debtor's funds from the Debtor to Ace Museum since July 9, 2009 or such other later date or dates before the Petition Date (defined below) (each, an "Ace Museum Pre-Petition Transfer" and, collectively, the "Ace Museum Pre-Petition Transfers"), and that the Debtor used the AERC Payment to fund a portion of the Ace Pre-Petition Museum Transfers.

42. Plaintiff alleges that Chrismas alone determined on behalf of the Debtor that the Debtor would make the Museum Loan to Ace Museum and alone decided on behalf of the Debtor when and whether the Debtor would transfer any funds to Ace Museum, including, but not limited to, the decision to use the AERC Payment to make the Ace Museum Pre-Petition Transfers. Plaintiff further alleges that that, given the Museum Board Resolution and Chrismas's controlling position within Ace Museum, Ace Museum and the Ace Museum Board conspired with Chrismas, and otherwise was complicit with Chrismas's decision, to make the Ace Museum Pre-Petition Transfers, including, but not limited to, the transfer of a portion of the AERC Payment to Ace Museum.

43. Plaintiff alleges that at the time or as a result of each of the Ace Museum PrePetition Transfers, the Debtor was or became insolvent, was left with an unreasonably small capital to engage

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