Lyman-Cutler, LLC v. Kagan (In re Lyman-Cutler, LLC)

• Decision Date: 03 August 2021
• Docket Number: Adversary Proceeding No. 16–1120,Case No. 15–13881–FJB
• Citation: 632 B.R. 355
• Parties: IN RE LYMAN–CUTLER, LLC, Debtor. Lyman–Cutler, LLC, Alex Filippov, and Nickolay Lipetsker, Plaintiffs/Defendants–in–Counterclaim v. Vadim Kagan, Tatiana Kagan, Kagan Development KDC, Corp., and ProExcavation Corp., Defendants/Plaintiffs–in–Counterclaim
• Court: U.S. Bankruptcy Court — District of Massachusetts

632 B.R. 355

IN RE LYMAN–CUTLER, LLC, Debtor.

Lyman–Cutler, LLC, Alex Filippov, and Nickolay Lipetsker, Plaintiffs/Defendants–in–Counterclaim

v.Vadim Kagan, Tatiana Kagan, Kagan Development KDC, Corp., and ProExcavation Corp., Defendants/Plaintiffs–in–Counterclaim

Case No. 15–13881–FJB

Adversary Proceeding No. 16–1120

United States Bankruptcy Court, D. Massachusetts.

Signed August 3, 2021

Joseph P. Calandrelli, O'Connor Carnathan and Mack LLC, Burlington, MA, Peter N. Tamposi, The Tamposi Law Group, Nashua, NH, for Debtor.

David B. Madoff, Madoff & Khoury LLP, Foxborough, MA, Trustee, Pro Se.

Steffani M. Pelton, Madoff & Khoury LLP, Foxborough, MA, for Trustee David B. Madoff.

MEMORANDUM OF DECISION

Frank J. Bailey, United States Bankruptcy Judge

[632 B.R. 364]

This is the bankruptcy case of a limited liability company whose bankruptcy filing was necessitated by an attempt by one of its three members to block sale of the LLC's assets—two single–family homes the LLC had been formed to develop—unless the other two acceded to his demands to improve his position at their expense. In the above–entitled adversary proceeding and in related proceedings in the bankruptcy case, (i) the debtor, Lyman–Cutler LLC ("the Debtor") and two of its three members, Alex Filippov ("Filippov") and Nickolay Lipetsker ("Lipetsker") (collectively, "the Plaintiffs"), object to claims filed in the case by the third member Vadim Kagan ("Kagan"), his wife, Tatiana Kagan ("Tatiana"), and their two wholly–owned corporations, Kagan Development KDC, Corp. ("KDC") and ProExcavation Corp. ("ProEx") (collectively, "the Kagan Parties"); (ii) the Debtor asserts counterclaims against the Kagan Parties; (iii) Filippov and Lipetsker assert cross–claims against the Kagan Parties; (iv) the Kagan Parties assert counterclaims against Filippov, Lipetsker, and the Debtor; (v) the Kagan Parties object to a secured claim asserted by Filippov; (vi) the Kagan Parties object to an unsecured claim asserted by the law firm of O'Connor, Carnathan, & Mack LLC for services rendered prepetition to the Debtor; (vii) Filippov and Lipetsker object to the proof of interest filed by Kagan; and (viii) Kagan objects to the proofs of interest filed by Filippov and Lipetsker. After a trial on the merits on all of the above, the Court now enters the following memorandum of decision, which includes the Court's findings of fact and conclusions of law.

PROCEDURAL HISTORY

1. In the Bankruptcy Case

On October 7, 2015, the Debtor, a Massachusetts limited liability company, filed a petition for relief under chapter 11 of the Bankruptcy Code. On October 25, 2015, the Court ordered the appointment of a chapter 11 trustee, who soon moved to convert the case to one under chapter 7. On December 7, 2015, the Court granted that motion and converted the case to one under chapter 7. David Madoff, who had been the chapter 11 trustee, was appointed chapter 7 trustee in the case (as chapter 7 trustee, "the Trustee"), and he has continued in that position to date. On January 27 and March 11, 2016, the Trustee sold the Debtor's two principal assets, each a parcel of real estate on which the Debtor had constructed a single–family home; the gross sale prices totaled $8.8 million. He continues to hold the net sale proceeds. Depending on the disposition of the objections to claims presently being adjudicated, the net proceeds may well be sufficient to pay all allowed claims in full and return a substantial surplus to the Debtor for distribution to its members. The Trustee has abandoned the Debtor's interests in the counterclaims that the Debtor (through Filippov and Lipetsker) now assert against the Kagan Parties in Adversary Proceeding No. 16–1120.

A. Kagan Party Claims

In the Debtor's bankruptcy case, the Kagan Parties filed the following five proofs of claim:

• KDC filed proof of claim ("POC") #1–2 for a secured claim in the amount of $2,396,914.66, stating that the claim was secured by mechanics liens on the two homes that the Debtor had brought into bankruptcy. The claim, based in contract, purports to be based on a construction

[632 B.R. 365]

contract between the Debtor and KDC.

• KDC also filed POC #4–1 for an additional claim, a nonpriority unsecured claim whose amount was specified as "undetermined." The basis of the claim was identified therein as indemnification rights that KDC has as an agent of a member of the Debtor under the Debtor's organizational and operating documents and agreements.

• Tatiana filed POC #5–1, a nonpriority unsecured claim whose amount was specified as "undetermined." The basis of the claim was identified therein as indemnification rights that Tatiana has as an agent of a member of the Debtor under the Debtor's organizational and operating documents and agreements.

• Kagan filed POC #6–1, a nonpriority unsecured claim whose amount was specified as "undetermined." The basis of the claim was identified therein as indemnification rights that Kagan has under the Debtor's organizational and operating documents and agreements.

• ProEx filed POC #7–1, a nonpriority unsecured claim whose amount was specified as "undetermined." The basis of the claim was identified therein as indemnification rights that ProEx has as an agent of a member of the Debtor under the Debtor's organizational and operating documents and agreements.

On July 21, 2016, the Debtor, Filippov, and Lipetsker jointly objected to these five claims. After a preliminary hearing on these Objections, the Court issued a pretrial and scheduling order, doc. #222.

B. Filippov Claim

Filippov filed POC #9–1, asserting a secured claim in the amount of $200,000 plus interest for a prepetition loan to the debtor, secured by a mortgage on its real property, and the Kagan Parties have jointly objected to the claim. After a preliminary hearing on this objection, the Court ordered that it be subject to and governed by the same pretrial and scheduling order as was issued for the objections to the Kagan Party claims, doc. #222.

C. O'Connor, Carnathan & Mack Claim

The law firm of O'Connor, Carnathan & Mack LLC ("OC&M") filed POC #2–2, asserting a nonpriority unsecured claim in the amount of $35,329.95 for prepetition services it rendered to the Debtor, and the Kagan Parties have jointly objected to the claim. After a preliminary hearing on this objection, by inadvertence, the Court neglected to schedule this objection for evidentiary hearing with the other matters that are the subject of this memorandum, and consequently it was not tried during the omnibus 13–day evidentiary hearing/trial (the "Trial") held as to those matters. After the trial, the Court convened a status conference to address this oversight. All parties indicated that they believed that the Trial had concerned (among many other things) this objection. Accordingly, except as discussed below, the parties agreed that no further proceedings would be necessary to decide this objection and that it could be decided on the evidentiary record they created at the Trial.

The sole exception was that the Claimant, the firm of O'Connor, Carnathan & Mack, LLC, sought to introduce into evidence its proof of claim [POC No. 2] and its response to the objection to its proof of claim [doc. #223], including all exhibits to both. The Kagan Parties objected on the sole basis that the evidence was closed. The Court determined that the evidence

[632 B.R. 366]

had not been closed; in fact no evidentiary hearing on the objection had even been commenced (notwithstanding that both parties had believed otherwise). The Court therefore overruled the objection, admitted the documents in question into evidence, and took the objection under advisement on the record thus completed.

D. Interests in the LLC

The Court established July 22, 2016 as the deadline for filing proofs of interest ("POI"). The members of the debtor LLC filed the following proofs of interest: Lipetsker filed POI #10–1, asserting a 10 percent interest; Filippov filed POI #11–1, asserting an 87.11 percent interest; and Kagan filed POI 12–1, asserting an interest of "at least 10 percent," adding: "In the event that any payments made on behalf of the Debtor (e.g., carrying costs or other payments) are considered to be capital contributions by Mr. Kagan then his equity interest would increase. Additionally, the Operating Agreement provides that Mr. Kagan will receive 50% of the profits upon liquidation of the Debtor (Section 8.1)." Kagan objected to Filippov's and Lipetsker's proofs of interest. Filippov and Lipetsker jointly objected to Kagan's proof of interest. After considering its subject matter jurisdiction to adjudicate these objections to proofs of interest, the Court determined that it did have jurisdiction¹ and that it would not abstain as to the objections to proofs of interest, and the Court ordered that the objections to interests, too, would be governed by the pretrial and scheduling order that the Court had issued with respect to the objections to claims, doc. #222.

ii. In the Adversary Proceeding

On July 5, 2016, the Debtor filed the complaint commencing Adversary Proceeding No. 16–1120, asserting counterclaims against the Kagan Parties. At that time, the claims that the Debtor sought to assert remained assets of the estate in this bankruptcy case, such that only the Trustee had standing to prosecute them. On April 7, 2017, the Trustee filed in the bankruptcy case a notice of abandonment as to "all of the Debtor's interest in any and all claims or potential claims that the Debtor may have against" (among others) the Kagan Parties. No objection having been filed to the notice of abandonment, per 11 U.S.C. § 554(a) and Fed. R. Bankr. P. 6007(a), the proposed abandonment became final and effective on April 21, 2017, revesting the abandoned claims in the Debtor and obviating the Debtor's standing problem. Around the same time, the Court granted a joint motion by Filippov and Lipetsker for leave to intervene as parties plaintiff, whereupon they...