Messer v. Bentley Manhattan Inc. (In re Madison Bentley Assocs., LLC)
| Decision Date | 16 October 2015 |
| Docket Number | Adv. No. 10-03487 (SHL),Case No. 09-15479 (SHL) |
| Parties | In re: MADISON BENTLEY ASSOCIATES, LLC, Debtor. GREGORY MESSER, as Chapter 7 Trustee, Plaintiff, v. BENTLEY MANHATTAN INC., MANHATTAN MOTORCARS INC., and BRIAN MILLER, Defendants. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York |
APPEARANCES:
KUCKER & BRUH, LLP
Attorneys for the Plaintiff
New York, New York 10017
By: Abner T. Zelman, Esq.
REISMAN PEIREZ REISMAN & CAPOBIANCO, LLP
1305 Franklin Avenue
P.O. Box 119
Garden City, New York 11530
By: Jerome Reisman, Esq.
Before the Court are cross-motions for summary judgment filed by plaintiff Gregory Messer as Chapter 7 trustee (the "Plaintiff" or the "Trustee") for the debtor Madison Bentley Associates, LLC (the "Debtor") and by defendants Bentley Manhattan Inc. ("Bentley Manhattan"), Manhattan Motorcars Inc. ("Manhattan Motorcars"), and Brian Miller ("Miller") (collectively, the "Defendants"). ECF Nos. 35, 26.
The Trustee's complaint alleges that the Debtor entered into a ten year lease for premises at 437 Madison Avenue, New York, New York (the "Premises") and then allowed the leased Premises to be used by the Defendants for no consideration. See Complaint ("Compl.") ¶¶ 11-12, 20-22 (ECF No. 1). The Trustee further alleges that Defendant Miller owns and controls both of the corporate Defendants, Bentley Manhattan and Manhattan Motorcars. See id. ¶ 22. In its complaint, the Trustee's first count alleges that Miller exercised his domination and control of the Debtor, Bentley Manhattan, and Manhattan Motorcars to utilize the Debtor's corporate assets for the benefit of Bentley Manhattan and Manhattan Motorcars and therefore, the two corporate Defendants are alter egos of the Debtor and their property is vested with the Debtor's estate under Sections 541 and 542(a) of the Bankruptcy Code. Compl. ¶¶ 24-25. The Trustee's second count alleges that the Debtor transferred its lease to the Defendants without fair consideration when the Debtor was insolvent and the Debtor is entitled to that value under Section 544(b)(1). Compl. ¶¶ 27-28.
For the reasons set forth below, the Court denies summary judgment to all parties on Count One because of disputed issues of fact. As to Count Two, the Court concludes that the Trustee has established liability but there are open issues regarding the amount of damages.
Defendant Miller formed the Debtor on March 21, 2000. Plaintiff's Statement of Undisputed Facts ("Tr. Stmnt.") ¶ 20 (ECF No. 35-2); Defendants' Response to Plaintiff's Statement of Undisputed Facts ("Def. Resp.") ¶ 20 (ECF No. 44).1 Miller owns ninety percent of the equity of the Debtor, with his father owning the remaining ten percent. Tr. Stmnt. ¶ 26; Def. Resp. ¶ 26. Defendant Bentley Manhattan was incorporated on April 20, 2000, with Miller as the sole owner. Tr. Stmnt. ¶¶ 29-30; Def. Resp. ¶¶ 29-30. Miller is also the sole owner of Defendant Manhattan Motorcars, which commenced business in 1995. Tr. Stmnt. ¶¶ 48, 50; Def. Resp. ¶¶ 48, 50. Miller made all business decisions and conducted all business transactions for the Debtor, Bentley Manhattan, and Manhattan Motorcars. Tr. Stmnt. ¶ 60; Def. Resp. ¶ 60.
Many aspects of these entities were intertwined. On federal income tax returns, Bentley Manhattan listed its address as 270 Eleventh Avenue, New York, New York, which is also the address of Manhattan Motorcars' car dealership. Tr. Stmnt. ¶ 70; Def. Resp. ¶ 70. Bentley Manhattan designated its address as Bentley Manhattan, Inc. care of Manhattan Motorcars, Inc. 270 Eleventh Avenue, for mailing of process to it by the New York State Department of State. Tr. Stmnt. ¶ 47; Def. Resp. ¶ 47. Book keeping functions for Bentley Manhattan were performedby a Manhattan Motorcars employee. Tr. Stmnt. ¶ 57; Def. Resp. ¶ 57. Manhattan Motorcars' federal income tax returns from 2000 to 2003 listed its address as Miller's office in Mount Vernon, New York. Tr. Stmnt. ¶ 72; Def. Resp. ¶ 72. Although the Debtor, Bentley Manhattan, and Manhattan Motorcars each maintained separate bank accounts at the same Chase bank branch, they all employed the same accountant. Tr. Stmnt. ¶¶ 61, 64; Def. Resp. ¶¶ 61, 64. The Debtor's bank statements were sent to Miller's office in Mount Vernon, New York. Tr. Stmnt. ¶ 63; Def. Resp. ¶ 63. All three entities were insured through the same agency. Tr. Stmnt. ¶ 62; Def. Resp. ¶ 62.
The lease at issue was executed on March 29, 2000, by non-party MMC Madison LLC ("MMC") for commercial space located at the Premises for a term of ten years (the "Lease"). Defendants' Statement of Undisputed Facts ("Def. Stmnt.") ¶ 1 (ECF No. 30); Tr. Resp. ¶ 1 (ECF No. 47); see Lease attached as Exh. G to Plaintiff's Motion for Summary Judgment ("Tr. Mot.") (ECF No. 35-10). Miller signed the Lease as MMC's "Managing Member." Tr. Stmnt. ¶ 17; Def. Resp. ¶ 17; Lease at 5. The Premises was leased from Madison Avenue Leasehold, LLC (the "Owner"), through the Owner's agent Sage Realty Corporation ("Sage"). Simultaneously with the execution of the Lease, Miller and his father Arthur Miller (together, the "Millers"), executed a guaranty for the first three years of the Lease term. Def. Stmnt. ¶ 16; Tr. Resp. ¶ 16. The Lease term began on June 15, 2000, when the Owner completed construction and MMC took possession of the Premises. Def. Stmnt. ¶¶ 4, 19; Tr. Resp. ¶¶ 4, 19.
The Lease states, "Tenant shall use and occupy demised premises for automobile showroom for Rolls-Royce and Bentley motor cars and executive offices in connectiontherewith." Lease at 1. The Lease contains restrictions regarding who may use the Premises. It provides in relevant part:
Tenant . . . expressly covenants that it shall not assign, mortgage or encumber this agreement, nor underlet, or suffer or permit the demised premises or any part thereof to be used by others, without the prior written consent of Owner in each instance. If this lease be assigned, or if the demised premises or any part thereof be underlet or occupied by anybody other than Tenant, Owner may, after default by Tenant, collect rent from the assignee, under-tenant or occupant, and apply the net amount collected to the rent herein reserved . . . .
Lease at 2. In the margin next to this section of the Lease, there is a typewritten note "[s]ee Article 46." Id. Article 46 of the Lease provides that the Tenant may, upon ten days' written notice to the Owner, permit a "Related Entity" to use the Premises under certain circumstances. Such Related Entity may:
occupy the Demised Premises solely for the purposes permitted to Tenant, subject however to compliance with Tenant's obligations under this Lease and subject further to the condition that such Related Entity shall continue to operate its business in the same manner as operated by Tenant. Such subletting or occupancy shall not be deemed to vest in any such Related Entity any right or interest in this Lease nor shall such subletting or occupancy relieve, release, impair or discharge any of Tenant's obligations hereunder. Tenant shall deliver to Owner a copy of any such sublease or occupancy agreement if any for all or any portion of the Demised Premises.
Lease at 21-22, Article 46(b). The Lease defines a Related Entity as "any corporation or other business entities which control, are controlled by, or are under common control with Tenant." Id.
On July 18, 2000, MMC assigned the Lease to the Debtor, then a newly-formed entity. Def. Stmnt. ¶ 20; see also MMC Assignment attached as Exh. H to Tr. Mot. (ECF No. 35-11). Miller signed the assignment instrument on behalf of both MMC and the Debtor. Tr. Stmnt. ¶19; Def. Resp. ¶ 19. As required by the Lease, the Owner consented to the assignment to the Debtor. Def. Stmnt. ¶ 20; Tr. Resp. ¶ 20. At the time of the assignment, Miller and his father reaffirmed their three-year guaranty. Def. Stmnt. ¶ 24; Tr. Resp. ¶ 24. The Debtor's sole asset was the Lease. Tr. Stmnt. ¶ 15; Def. Resp. ¶ 15. Miller characterized the Debtor as a "dummy corporation." Tr. Stmnt. ¶ 25; Def. Resp. ¶ 25; see also Def. Stmnt. ¶ 22. Robert Kaufman, a principal officer of both Sage and the Owner, testified that Miller never concealed the nature of his business relationship with the Debtor from the Owner or Sage. See Deposition of Robert Kaufman, dated June 21, 2011 ("Kaufman Dep."), attached as Exh. A to Declaration of Marc Sackin ("Sackin Decl."), at 123:7-12 (ECF No. 28-1). The Owner was aware that MMC and the Debtor were newly formed entities. Kaufman Dep. at 57:5-21; see also Deposition of Michael Lenchner, dated March 16, 2011 ("Lenchner Dep."), attached as Exh. B to Sackin Decl., at 56:22-23 (ECF No. 28-2). The Owner also knew that both MMC and the Debtor were limited liability companies. See Plaintiff's Interrogatory Responses, Response No. 5, attached as Exh. C to Sackin Decl. (ECF No. 28-3). The Owner further knew that the Debtor and MMC did not have any assets aside from the Lease. Kaufman Dep. at 57:5-6. In light of the Millers' guaranty, the Owner did not perform any financial check on MMC or the Debtor. Lenchner Dep. at 64:5-18; 97:6-18.
During the Debtor's occupancy, Bentley Manhattan and Manhattan Motorcars both operated in some capacity at the Premises. The parties agree on some of the basic facts regarding the activities of these two Defendant entities on the Premises. Bentley Manhattan maintained an office at the Premises, from which it sold boutique accessories including Bentley T-shirts, hats, and key chains. Tr. Stmnt. ¶¶ 32, 42, 58; Def. Resp. ¶¶ 32, 42, 58. Three BentleyManhattan employees worked out of the office at the Premises. Tr. Stmnt. ¶ 36; Def. Resp. ¶ 36. Bentley Manhattan paid most of the monthly rent checks to the Owner during the Debtor's occupancy. Def. Stmnt. ¶ 40; Tr. Resp. ¶ 40; see Rent Checks attached as Exh. K to Brian Miller's Affidavit ("Miller Aff.") (ECF No. 26-11)...
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