Little Rest Twelve Inc. v. Visan

• Decision Date: 20 July 2011
• Docket Number: 11 Civ. 2769 (JGK).,Nos. 11 Civ. 2306 (JGK),11 Civ. 2307 (JGK),s. 11 Civ. 2306 (JGK)
• Citation: 458 B.R. 44
• Parties: LITTLE REST TWELVE, INC., et al., Plaintiffs,v.Raymond VISAN, et al., Defendants,Little Rest Twelve, Inc., et al., Plaintiffs,v.Nina Zajic, et al., Defendants,Mutual Benefits Offshore Fund, Plaintiff,v.Emanuel Zeltser, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

458 B.R. 44

LITTLE REST TWELVE, INC., et al., Plaintiffs,

v.Raymond VISAN, et al., Defendants,Little Rest Twelve, Inc., et al., Plaintiffs,

v.Nina Zajic, et al., Defendants,Mutual Benefits Offshore Fund, Plaintiff,

v.Emanuel Zeltser, et al., Defendants.

Nos. 11 Civ. 2306 (JGK)

11 Civ. 2307 (JGK)

11 Civ. 2769 (JGK).

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

July 20, 2011.

Marlen Kruzhkov, Law Offices of Marlen Kruzhkov, P.L.L.C., Martin Paul Russo, Sarah Yeang Khurana, Butzel Long, P.C., Bruce D. Katz, New York, NY, for Plaintiffs.Emanuel E. Zeltser, Sternik & Zeltser, New York, NY, Kenneth Bruce Robinson, Rice Pugatch Robinson & Schiller, P.A., Ft. Lauderdale, NY, for Defendants.

OPINION AND ORDER

JOHN G. KOELTL, District Judge.

This Opinion and Order concerns three cases featuring common counsel, related parties, and a convoluted procedural history.In each case, there is a dispute over the proper management of a plaintiff—Little Rest Twelve, Inc.(“LRT”) in Little Rest Twelve, Inc. v. Raymond Visan,No. 11 Civ. 2306( “Visan” ), andLittle Rest Twelve, Inc. v. Nina Zajic,11 Civ. 2307( “Zajic” );Mutual Offshore Benefit Fund (“MBOF”) in Mutual Benefit Offshore Fund v. Emanuel Zeltser( “MBOF” ), No. 11 Civ. 2769.The cases are fraught with allegations of fraud and misconduct.For ease of reference, this Opinion and Order will refer to the entities and persons represented by Mr. Katz and Mr. Zeltser as “old management,” and those represented by Gusrae Kaplan Bruno & Nusbaum, PLLC (“GKBN”) as “new management.”¹

All three cases come to this Court after being removed from the New York State Supreme Court, New York County, by counsel for the old management.The old management claims that each case is related to proceedings in the United States Bankruptcy Court for the Southern District of Florida(the “Bankruptcy Court”) and that removal was proper pursuant to 28 U.S.C. §§ 1334and1452.The old management also claims that Visan contains a trademark issue and is removable pursuant to 28 U.S.C. §§ 1441and1446.The new management moves in Visan and MBOF for abstention under 28 U.S.C. §§ 1334and1452.After the new management filed its motions to remand, three motions to intervene were filed.A group of creditor intervenors(the “Creditor Intervenors”) moved to intervene and opposed remand in Visan and MBOF, and a former employee of LRT, Hicham Azkour, moved to intervene and opposed remand in Visan.The new management opposes intervention.

I.Facts and Procedural History

The facts of this case are undisputed unless otherwise noted.

A.State Court Proceedings Prior to the Bankruptcy Petitions

1.Little Rest Twelve

LRT owns a New York City restaurant formerly known as “Buddha Bar” and now known as “Ajna Bar.”( Zajic Compl.¶ 9;ZajicDecl. ¶ 3.)LRT is the subject of a management dispute, the merits of which are not at issue on these motions.On March 5, 2007, LRT and ImedInvest Partners(“ImedInvest”) filed suit by Sternik & Zeltser (“S & Z”), counsel retained by the old management, against Raymond Visan and his wife, along with several business entities allegedly owned or controlled by the Visans (collectively, the “Visan Defendants”) and Jean–Yves Haouzi.( Visan Compl.¶¶ 5–25.)²The complaint alleges that Raymond Visan defrauded ImedInvest into investing in his enterprises in 2002.( Visan Compl.¶¶ 26–33.)Then, once those investments failed, the Complaint alleges, Visan convinced ImedInvest to open the Buddha Bar, which Visan fraudulently represented to be a “unique concept.”( Visan Compl.¶¶ 34–35, 41.)Visan allegedly “inserted” Haouzi as an officer of LRT, the corporation formed to operate the restaurant venture in New York City, and Visan and Haouzi began misusing Haouzi's authority to the detriment of ImedInvest and LRT.( Visan Compl.¶¶ 36–39, 43, 47–49.)The Visan complaint pleads causes of action including fraud, breach of contract, conversion, tortious interference with contractual relationship, and unjust enrichment.( Visan Compl.¶¶ 50–79.)

The only defendant who responded to the complaint was Haouzi.Haouzi answered and filed counterclaims and third-party claims against LRT; ImedInvest; Grosvenor Trading House Ltd.(“Grosvenor”), a shareholder in LRT; and several individuals affiliated with the old management, including LRT officers Nina Zajic and Joseph Kay(collectively, the “Haouzi Counterclaim Defendants”).³(Haouzi Ans. & Countercls.¶¶ 4–8;Haouzi Third–Party Compl.¶¶ 2–8.)Haouzi alleged that the Haouzi Counterclaim Defendants had “demanded that he execute fake documents implicating [Visan]” in wrongdoing and both fired him from his positions with LRT and sued him after he refused.(Haouzi Ans. & Countercls.¶¶ 5–8.)Haouzi brought state law causes of action for conversion, unjust enrichment, breach of contract, breach of fiduciary duty, prima facie tort, and an accounting.(Haouzi Ans. & Countercls.¶¶ 9–13;Haouzi Third–Party Compl.¶¶ 19–37.)⁴The Haouzi Counterclaim Defendants, in turn, brought third-party counterclaims against Haouzi for conversion and for various breaches of the New York Business Corporation Law (“NYBCL”).(Haouzi Counterclaim Defs.' Ans. & Counterclaim¶¶ 30–58.)

As far as the parties have disclosed, no further action took place in this case until June 22, 2009, two years later, when the old management moved for a default judgment against the Visan Defendants.(WicklineDecl. ¶ 6.)The Visan Defendants cross-moved to dismiss the complaint for failure to effect proper service or for failure to take proceedings for entry of judgment within one year after the alleged default.(WicklineDecl. ¶ 7.)New York State Supreme Court JusticeBernard Fried referred the service question to a special referee.As of early 2010, the case remained at this stage.

On or about March 31, 2010, a hotly contested management dispute boiled up at LRT.The new management claims that the shareholders legally removed the existing board of directors and officers, terminated LRT's relationship with S & Z, the attorneys retained by the old management, and appointed Haouzi as COO.(New Mgmt. Mem. of Law in Supp. of its Mot. for Remand in Visan(“New Mgmt. Visan Mem.”)at 3.)

The old management, on the other hand, claims that Haouzi and three GKBN attorneys led an armed raid of LRT's premises “accompanied by approximately twenty to thirty men armed with handguns and batons.”(ZajicDecl. ¶ 7.)The old management claims that Haouzi and the attorneys “threatened LRT's employees, drilled through a lock in [LRT's] safe and took possession of some $50,000 in cash contained therein,” falsely represented that they had court orders and that the armed intruders were city marshals, and displayed their weapons threateningly.(ZajicDecl. ¶ 7–8.)The new management asserts that these claims are untrue.(KruzhkovDecl. of Apr. 11, 2011(“Kruzhkov Visan Decl.”)¶ 17.)

Whatever the truth of the matter, LRT filed the Zajic complaint in New York State Supreme Court around the same time, through GKBN, the attorneys retained by the new management.This complaint alleged that Zajic and other members of the old management engaged in “a course of misconduct whereby they have committed[,] among other things, corporate waste, embezzlement, self-dealing and corporate negligence.”( Zajic Compl.¶ 1.)The complaint alleged causes of action for corporate waste, breach of fiduciary duty, negligence, conversion, unjust enrichment, prima facie tort, and various violations of the NYBCL.( Zajic Compl.¶¶ 25–31, 35–56.)

The old management filed “cross claims” against the GKBN attorneys on or about April 12, 2010, alleging that the GKBN attorneys' conduct during the “wild-west style raid” and pending litigation had violated New York Judiciary Law § 487, and involved the commission or aiding and abetting of fraud, assault, and battery.( Zajic Cross-cls.¶¶ 4, 52–71.)

Shortly after the events of March 31, the old management applied for injunctive relief before Justice Fried in Visan.After Justice Fried declined to issue a temporary restraining order, GKBN appeared on behalf of the new management and sought to withdraw the application for injunctive relief.(Kruzhkov VisanDecl. ¶¶ 15, 17.)Justice Fried determined that an evidentiary hearing was necessary to identify LRT's proper representative and he ordered expedited discovery and scheduled an evidentiary hearing for May 11, 2010.(Kruzhkov VisanDecl. ¶ 18.)After the first day of taking evidence, Justice Fried requested evidence on the ownership of LRT and set the continuation of the hearing for June 1, 2010.(Kruzhkov VisanDecl. ¶ 19.)

On May 28, 2010, four days before the hearing was to continue, the old management moved to disqualify GKBN and to reargue the Court's decision to conduct a hearing on ownership.(Kruzhkov VisanDecl. ¶ 20.)A month later, Justice Fried denied this motion and scheduled the evidentiary hearing to continue on September 13, 2010.(Kruzhkov VisanDecl. ¶ 21.)After three more days of hearing, Justice Fried set a scheduling conference for October 14, 2010.(Kruzhkov VisanDecl. ¶ 22.)The day before that conference was to occur, the old management filed an emergency application with the Appellate Division seeking relief from Justice Fried's denial of the temporary restraining order and his decision to conduct a hearing on the issue of counsel, as well as a stay of the evidentiary hearing.(Kruzhkov VisanDecl. ¶ 23.)The Appellate Division denied the motion for a stay and eventually denied the remainder of the motion.(Kruzhkov VisanDecl. ¶ 23, Ex. R.)After additional delays due to a missing expert report and the unavailability of a member of the old management for testimony, the hearing concluded on December 16, 2010.(Kruzhkov VisanDecl. ¶¶ 24–26.)The hearing had included eleven days of testimony from ten witnesses and the introduction of 140 exhibits.(Kruzhkov VisanDecl. ¶ 26.)Both parties then submitted...