In re Empire State Conglomerates, Inc.

546 B.R. 306, 2016 Bankr. LEXIS 564, 62 Bankr. Ct. Dec. (CRR) 68, 2016 WL 745478
CourtUnited States Bankruptcy Court, S.D. New York
DecidedFebruary 24, 2016
DocketCase No. 15-10061 (SMB)
StatusPublished
Cited by4 cases

This text of 546 B.R. 306 (In re Empire State Conglomerates, Inc.) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, S.D. New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Empire State Conglomerates, Inc., 546 B.R. 306, 2016 Bankr. LEXIS 564, 62 Bankr. Ct. Dec. (CRR) 68, 2016 WL 745478 (N.Y. 2016).

Opinion

[308]*308MEMORANDUM DECISION DENYING MOTION TO DISQUALIFY THE TRUSTEE AND HER COUNSEL

STUART M. BERNSTEIN, United States Bankruptcy Judge:

Paul A. Peterson (“Peterson”), a former officer and shareholder of the debtor Empire State Conglomerates, Inc. (“Empire”), has moved to disqualify the chapter 7 trustee, Deborah J. Piazza, Esq. (the “Trustee”) and her counsel, Tarter Krinsky & Drogin LLP (“Tarter”), and invalidate certain settlement agreements entered into by the Trustee. (Motion to Disqualify Chapter 7 Trustee and Her Counsel, dated Sept. 22, 2015 (the “Motion”) (ECF Doc. # 49).) The catalyst for the Motion was Tarter’s hiring of five attorneys who had previously worked at another law 'firm, Todtman, Nachamie, Spizz & Johns, P.C. (“Todtman”). Todtman represented the Official Committee of Unsecured Creditors (the “Committee”) in an earlier bankruptcy case, In re 87-10 51st Avenue Owners Corp., No. 09-45657(ESS), 2011 WL 6370920 (Bankr.E.D.N.Y.). That case involved contentious proceedings between the Committee on the one hand and Empire and Peterson on the other.

For the reasons that follow, the Motion is denied.

BACKGROUND

A. The 87-10 51st Avenue Owners Corp. Bankruptcy Case and Related Litigation

At the beginning of this story, 87-10 51st Avenue Owners Corp. (the “Co-op”) was a residential co-op in which Empire owned the shares and held the proprietary leases relating to eighty-one apartments or units. On July 5, 2009, the Co-op filed a chapter 11 case in the United States Bankruptcy Court for the Eastern District of New York (the “Co-op Bankruptcy Case”). Peterson was a member of the Co-op’s board of directors as well as a shareholder and officer. Following its appointment, the Committee filed an application to employ Todtman. (Application for an Order Authorizing the Official Committee of Unsecured Creditors to Retain Todtman, Nachamie, Spizz & Johns, P.C. as Counsel, dated Sept. 22, 2009 (E.D.N.Y. ECF Doc. # 84).)1 Alex Spizz (“Spizz”) was a member of Todtman at the time and signed an affidavit in support of the application. Bankruptcy Judge Stong approved the application on October 23, 2009. (Order Authorizing the Official Committee of Unsecured Creditors to Retain Todtman, Nachamie, Spizz & Johns, P.C., dated Oct. 23, 2009 (E.D.N.Y. ECF Doc. # 99).)

On May 25, 2011, Todtman filed a motion on behalf of the Committee seeking leave to prosecute, and if appropriate, settle certain causes of action against “Empire and others” due to the Co-op’s apparent unwillingness to do so. (Motion of the Official Committee of Unsecured Creditors Pursuant to 11 U.S.C. §§ 105(a), 1108(c) and 1109(b) for Entry of an Order Granting Leave, Standing and Authority to Prosecute and, If Appropriate, Settle Causes of Action On Behalf of the Debtor’s Estate, dated May 25, 2011 (“Standing Motion”), at ¶¶ 25-26, 36 (E.D.N.Y. ECF [309]*309Doc. #276-1).) The Standing Motion charged that Robert Clausell and Nicholas Dovas, officers of the Co-op, had caused the Co-op to borrow nearly $8 million and lend the funds to Empire to enable it to buy eighty-one units in the Co-op. (Standing Motion at ¶¶ 8-10.) In exchange, the Co-op received unsecured fixed interest rate promissory notes. (Standing Motion at ¶ 13.) The Committee contended that the transaction was a constructive fraudulent transfer, and sought leave to pursue the claim and impose a constructive trust on the co-op unit shares. (Standing Motion at ¶ 25-26.)

The Court subsequently confirmed the Co-op’s plan of reorganization (the “Co-op Plan”). (Findings of Fact and Conclusions of Law Relating to, and Order (this “Order”) Confirming, Joint Plan of Reorganization for 87-10 51st Avenue Owners Corp. (the “Debtor”) Filed by 8710 51st Avenue Owners Corp., NCB, FSB (“NCB”) and the Official Committee of Unsecured Creditors (the “Committee”) Under Chapter 11 of the Bankruptcy Code, dated Sept. 22, 2011 (E.D.N.Y. ECF Doc. #343).) Among other things, the Co-op Plan provided for the continuation of the Committee post-confirmation, and, thereafter, the court entered a consent order granting the relief sought in the Standing Motion. (Consent Order Granting the Official Committee of Unsecured Creditors Leave, Standing and Authority to Prosecute Claims Against Empire State Conglomerates, Inc. and Others, and If Appropriate to Settle Causes of Action on Behalf of the Debtor’s Estate, dated Mar. 22, 2012 (“Standing Order”), at 2 (E.D.N.Y. ECF Doc. # 485).) Thus, the Committee had the authority to “pursue claims against [Empire] and others in connection with the transfer of 81 apartment units ... to Empire described ... in the [Standing Motion](Standing Order at 1.)

In the meantime, on December 15, 2011, the Committee filed a motion signed by Spizz seeking to expunge Empire’s administrative claim. (Objection to Claim of Empire State Conglomerates, Inc. Pursuant to Rule 8007 of the Federal Rules of Bankruptcy Procedure, dated Dec. 13, 2011 (“Administrative Claim Objection”) (E.D.N.Y. ECF Doc. #392).) The Administrative Claim Objection argued that Empire’s claim was based on pre-petition payments made in anticipation of the Coop’s chapter 11 case, rather than post-petition transactions. (Id. at 3.) A February 26, 2013 docket entry indicates that the Administrative Claim Objection was ultimately settled. (Text Order, entered Feb. 26, 2013 (E.D.N.Y.ECF)' (indicating that the Administrative Claim Objection was “Settled—MARKED OFF, IT IS SO ORDERED BY s/Elizabeth S. Stong.”).) The Co-op Bankruptcy Case docket does not reflect any further dispute regarding Empire’s claim in that case.

In addition, on December 27, 2011 and January 6, 2012, the Committee filed two motions that implicated Empire.2 The [310]*310first (the Motion to Compel) alleged that the Co-op had interfered with or failed to comply with a number of provisions of the Co-op Plan, including the failure to collect required payments from Empire, interference with the outside property manager authorized by the Co-op Plan, and failure to execute a mortgage in favor of unsecured creditors. (Affidavit of Alex Spizz in Support of the Motion to Compel, dated Dec. 23, 2011, at ¶¶ 11, 13-15 (E.D.N.Y. ECF Doc. # 397-1).) The Motion to Compel sought (i) authority to execute and file a mortgage on behalf of the Co-op, (ii) an injunction prohibiting the Co-op from interfering with the outside property manager, and (iii) an injunction prohibiting the Co-op from making disbursements unless authorized by the outside property manager. (Id. at 5.)

The second motion (the Emergency Motion) alleged that Empire had failed to make payments owed to the Co-op (over $300,000 was allegedly past due at the time of the motion), and the Co-op had failed to take action to collect the amounts owed. The Emergency Motion

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Bluebook (online)
546 B.R. 306, 2016 Bankr. LEXIS 564, 62 Bankr. Ct. Dec. (CRR) 68, 2016 WL 745478, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-empire-state-conglomerates-inc-nysb-2016.