Levin v. Javeri (In re Firestar Diamond, Inc.)

• Docket Number: Case No. 18-10509 (SHL) (Jointly Administered),Adv. No. 20-01054 (SHL),Adv. No. 19-01102 (SHL)
• Decision Date: 08 February 2024
• Citation: Levin v. Javeri (In re Firestar Diamond, Inc.), 657 B.R. 730 (Bankr. S.D.N.Y. 2024)
• Parties: IN RE: FIRESTAR DIAMOND, INC., et al., Debtors. Richard Levin, Chapter 11 Trustee of Firestar Diamond, Inc., et al., Plaintiff, v. Ami Javeri (a/k/a Ami Modi); Purvi Mehta (a/k/a Purvi Modi); Nehal Modi; Neeshal Modi; Central Park Real Estate, LLC; Central Park South 50 Properties, LLC; Trident Trust Company (South Dakota) Inc., solely as Trustee of the Ithaca Trust; et al., Defendants. Richard Levin, Chapter 11 Trustee of Firestar Diamond, Inc., et al., Plaintiff, v. Nirav Deepak Modi, Mihir Bhansali, and Ajay Gandhi, Defendants.
• Court: U.S. Bankruptcy Court — Southern District of New York

657 B.R. 730

IN RE: FIRESTAR DIAMOND, INC., et al., Debtors.

Richard Levin, Chapter 11 Trustee of Firestar Diamond, Inc., et al., Plaintiff, v.Ami Javeri (a/k/a Ami Modi); Purvi Mehta (a/k/a Purvi Modi); Nehal Modi; Neeshal Modi; Central Park Real Estate, LLC; Central Park South 50 Properties, LLC; Trident Trust Company (South Dakota) Inc., solely as Trustee of the Ithaca Trust; et al., Defendants.

Richard Levin, Chapter 11 Trustee of Firestar Diamond, Inc., et al., Plaintiff, v.Nirav Deepak Modi, Mihir Bhansali, and Ajay Gandhi, Defendants.

Case No. 18-10509 (SHL) (Jointly Administered)

Adv. No. 20-01054 (SHL)

Adv. No. 19-01102 (SHL)

United States Bankruptcy Court, S.D. New York

Signed February 8, 2024

JENNER & BLOCK LLP, Attorneys for the Chapter 11 Trustee, Richard Levin, Esq., 919 Third Avenue, New York, New York 10022, By: Carl N. Wedoff, Esq., 353 North Clark Street, Chicago, Illinois 60654, By: Angela M. Allen, Esq., William A. Williams, Esq., Vincent E. Lazar, Esq.

ROGER J. BERNSTEIN, Attorney for Ami Javeri, 535 Fifth Avenue, 23rd Floor, New York, New York 10017, By: Roger J. Bernstein, Esq.

AMINI LLC, Attorneys for Ami Javeri, 131 West 35^th Street, 12^th Floor, New York, New York 10001, By: Bijan Amini, Esq., Avery Samet, Esq., Reece Dameron, Esq.¹

WHITE & WILLIAMS LLP, Attorneys for Mihir Bhansali, 7 Times Square, Suite

2900, New York, NY 10036, By: Thomas Butler, Esq., Nicole A. Sullivan, Esq.

LYNCH ROWIN LLP, Attorneys for Trident Trust Company(South Dakota) Inc., Solely as Trustee of the Ithaca Trust, 50 Main Street, Suite 1000, White Plains, New York 10606, By: Marc Rowin, Esq.

MEMORANDUM OF DECISION

SEAN H. LANE, UNITED STATES BANKRUPTCY JUDGE

Before the Court are two motions filed by Richard Levin("Trustee"), as Trustee for the Liquidating Trust of Firestar Diamond, Inc., Old AJ, Inc. f/k/a A. Jaffe, and Fantasy, Inc.(collectively, the "Debtors") seeking the attachment of the property of two Defendants in the above-captioned adversary proceedings.²In one, the Trustee seeks to attach the personal residence of DefendantMihir Bhansali located at 50 Riverside Boulevard, Apt. 24A, New York, New York 10069 (the "Bhansali Residence") and for authorization to conduct discovery as to Mr. Bhansali's assets under N.Y. C.P.L.R. §§ 6212and6220.SeePlaintiff's Motion for an Order of Attachment and Other Provisional Relief against Defendant Mihir Bhansali[ECF No. 97, Adv. Pro. 19-1102]("the Bhansali Attach.Motion").In the second, the Trustee invokes N.Y. C.P.L.R. § 6211(b) to confirm the attachment of a variety of properties and interests that DefendantAmi Javeri a/k/a Ami Modi(together with Mr. Bhansali, the "Defendants") owns, controls, or from which she benefits, including real property located at 50 Central Park South, Unit 33, New York, NY 10019 (the "Ritz Carlton Apartment") and 160 Central Park South, Unit 3601, New York, NY 10019 (the "Essex House Apartment," and together with the Ritz Carlton Apartment, the "Apartments"); the assets at issue also include financial assets held by other entities.SeePlaintiff's Motion to Confirm Order of Attachment[ECF No. 107, Adv. Pro. 20-1054](the "Javeri Motion to Confirm").The Trustee argues that attachment of both Defendants' property is necessary to prevent the dissipation of assets needed to pay any judgment obtained against these Defendants in these adversary proceedings, both of which contain expansive and related allegations of fraud.SeeMemorandum of Law in Support of Plaintiff's Motion to Confirm Order of Attachmentat 2[ECF No. 108, Adv. Pro. 20-1054]("Confirm Mem.");Memorandum of Law in Support of Plaintiff's Motion for an Order of Attachment Against Mihir Bhansaliat 1[ECF No. 98, Adv. Pro 19-1102]("Attach.Mem.").

For the reasons set forth below, the Bhansali Attachment Motion is granted.The Javeri Motion to Confirm is granted in large part but denied in part.

I.Background and Procedural History

Familiarity with the underlying facts of the Debtors' bankruptcy case and these adversary proceedings is presumed given the Court's prior extensive written decisions.SeeLevin v. Modi(In re Firestar Diamond Inc.),634 B.R. 265(Bankr. S.D.N.Y.2021)(decision denying the motion to dismiss RICO claims against executives who worked at the Debtors)("Executive RICO Decision");Levin v. Javeri(In re Firestar Diamond, Inc.),654 B.R. 836(Bankr. S.D.N.Y.2023)(decision denying in large part the motions to dismiss RICO conspiracy claims against family members of the Debtors' beneficial owner Nirav Modi)("Family RICO Decision").³But a brief overview is necessary to understand the pending motions.

The Debtor Firestar Diamond Inc. operated a wholesale jewelry business in New York.Claims Decision IIat 534.Firestar Diamond Inc. and the two other corporations constituting the Debtors—Old AJ, f/k/a A. Jaffe, Inc. and Fantasy, Inc.—were wholesalers of finished jewelry to major retailers including Macy's, Zales, and Kay's, among others.Claims Decision Iat 163.The Debtors were part of the international diamond and jewelry business of Nirav Modi, who owned and controlled the Debtors and numerous other affiliated diamond and jewelry businesses in the United States, India, Belgium, Hong Kong, the United Kingdom, and the United Arab Emirates.Claims Decision IIat 534.Mr. Modi is alleged to have utilized the Debtors and the other entities that he controlled to run a years long, international scheme to "obtain loans, credits, or other funds under false pretenses and without collateral" and siphon the proceeds for the benefit of himself and his co-conspirators (the "Bank Fraud").Executive RICO Decisionat 277-78.The alleged Bank Fraud involved Mr. Modi and his co-conspirators fraudulently obtaining Letters of Understanding ("LOUs") and siphoning those funds for their own benefit.⁴Id. at 277.According to Indian authorities, the perpetrators used a series of entities (the "Shadow Entities") that "posed as independent third parties in sham transactions to import gemstones and other jewelry related goods valued at billions of dollars in order to obtain bank financing in the form of LOUs."Claims Decision Iat 163 (citing the Report of John J. Carney, Examiner at 28-30 [ECF No. 394, Case No. 18-10509] (the "Examiner Rep.").⁵The Indian Central Bureau of Investigation contends that Mr. Modi and his co-conspirators obtained approximately $4 billion from Punjab National Bank through the fraudulently issued LOUs, with approximately $1 billion worth of LOUs remaining unpaid.Id.(citing the Examiner Rep.at 27, 36).

The Trustee further alleges that Mr. Modi and his co-conspirators' actions in connection with the Bank Fraud also defrauded the Debtors.Specifically, the Trustee alleges that Mr. Modi (the beneficial owner), Mr. Bhansali (the Debtors' Chief Executive Officer), and Ajay Gandhi(the Debtors' Chief Financial Officer) conducted several fraudulent schemes to defraud the Debtors.Family RICODecisionat 856;see also Executive RICODecisionat 277.For example, the Trustee alleges that Mr. Modi and his co-conspirators "depleted the Debtors' tangible assets through fraudulent transfers to overseas entities" through a scheme to "restructure" the entities controlled by Mr. Modi.Executive RICODecisionat 285; Family RICODecisionat 859.

Once the Bank Fraud was uncovered, Punjab National Bank—which had provided LOUs to entities controlled by Mr. Modi—filed a complaint against Mr. Modi and several of his associated entities; that complaint alleged "the largest bank fraud in Indian history" against Punjab National Bank and other banks.Claims Decision IIat 538(citing the Examiner Rep.at 4).Less than a month after that complaint was filed, the Debtors filed for Chapter 11 protection in February 2018.Id.;see alsoECF No. 1, Case No. 18-10509.The exposure of the Bank Fraud directly resulted in the Debtors' bankruptcy, as the Indian authorities seized assets and properties belonging to Mr. Modi, including the factories that produced the merchandise sold by the Debtors and the businesses that provided back office and support functions for the Debtors.Declaration of Mihir Bhansali, President of the Debtors, Containing Information Required Pursuant to Local Bankruptcy Rule 1007-2 and in Support of the Debtors' First Day Motion ¶¶ 33-42[ECF No. 2, Case No. 18-10509]("Bhansali1007-2 Decl.").This Court appointed Mr. Carney to investigate whether the Debtors and their senior officers and directors were involved in the alleged fraud.See Order Pursuant to 11 U.S.C. § 1104(c) Directing the Appointment of an Examiner, dated April 13, 2018[ECF No. 103, Case No. 18-10509].After a four month investigation, Mr. Carney issued his Examiner Report of over 170 pages.The Examiner Report was based on approximately 45 interviews with Debtors' employees and other parties in interest, site visits to the Debtors' facilities, and review of more than five million documents provided in response to document and deposition subpoenas.Examiner Rep.at 15, 17-18.It found substantial evidence that the Debtors and their officers were involved in the Bank Fraud.See generally, Examiner Rep.;see alsoClaims Decision IIat 538.The Examiner Report detailed the Bank Fraud scheme, the role that the Debtors and the Debtors' executives played in the scheme, and the ultimate impact of the fraud on the Debtors' businesses.Id.

When the Debtors' assets were scheduled for sale, it came to light that Mr. Bhansali had been in contact with Mr. Modi, who at the time was a fugitive from justice.Examiner Rep.at 10, 21-22.When Mr. Bhansali represented that he would assert his Fifth Amendment rights in response to questions about these communications, the Court appointed a Chapter 11Trustee to administer these cases.SeeECF No. 216, Case No. 18-10509.The Chapter 11Trustee then proceeded to administer the Debtors' cases.Claims Decision IIat 538-39.After confirmation of...