Pangea Capital Mgmt., LLC v. Lakian

906 F.3d 1
CourtCourt of Appeals for the Second Circuit
DecidedSeptember 26, 2018
DocketDocket No. 17-3209; August Term, 2018
StatusPublished
Cited by33 cases

This text of 906 F.3d 1 (Pangea Capital Mgmt., LLC v. Lakian) is published on Counsel Stack Legal Research, covering Court of Appeals for the Second Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Pangea Capital Mgmt., LLC v. Lakian, 906 F.3d 1 (2d Cir. 2018).

Opinion

Katzmann, Chief Judge:

This appeal requires us to decide whether a spouse's interest in real property, which was allocated to her first in a trust agreement (giving her a 50% interest) and *3then in a divorce judgment (giving her a 62.5% plus $75,000 interest), takes priority over a judgment creditor's interest in the same property, when the judgment creditor has docketed its judgment in the county where the real property is located and the spouse has not. This determination hinges on an issue of state law for which there is no controlling decision of the New York Court of Appeals, and on which guidance from the Court of Appeals would be decisive.

The property in question in this case was previously owned by intervenor-appellee Andrea Lakian ("Andrea") and respondent-appellee John Lakian ("John"). Upon divorcing, Andrea and John stipulated that the property would be sold and that Andrea would receive 62.5% plus $75,000 of the net proceeds; their stipulation was incorporated into a divorce judgment entered by the New York Supreme Court, New York County. Soon thereafter, petitioner-appellant Pangea Capital Management, LLC ("Pangea") won an arbitration award against John, which was confirmed and reduced to a judgment. After docketing its judgment in the county where the property was located, Pangea moved for a writ of execution, seeking to execute upon all of the proceeds from the sale. The district court (Lewis A. Kaplan, Judge ), in a thorough opinion, granted in part and denied in part the motion, holding that Pangea could execute only upon the share of the proceeds awarded to John in the divorce judgment, i.e. , 37.5% less $75,000.

On appeal, Pangea argues that it was entitled to execute upon all of the proceeds and that the district court's conclusion to the contrary was error. In evaluating Pangea's challenge, we must first determine whether, as Pangea asserts, Pangea's interest in the property took priority over the interest granted to Andrea in the divorce judgment because Andrea failed to docket the divorce judgment in the county where the property was located. If it did, we must then determine whether, as Pangea also asserts, the nature of the trust that held title to the property entailed that John remained the absolute owner of the property relative to his creditors during the Lakians' marriage. Because both of these issues turn on questions of state law for which no controlling decisions of the New York Court of Appeals exist, we certify, pursuant to 22 N.Y.C.R.R. § 500.27(a) and 2d Cir. R. 27.2(a), two questions to the Court of Appeals.

BACKGROUND

I. The Property and the Trust

Andrea and John married in 1977. During their marriage they purchased, improved, and resold several properties. On December 4, 2002, they purchased a property on Shelter Island in Suffolk County, New York (the "Property"). The purchase price was $4,500,000, which Andrea and John funded using the proceeds from the sale of another property that they had owned. They later spent more than $4,000,000 of their joint assets making improvements to the Property.

When they purchased the Property, title to it was placed in John's name alone, but shortly thereafter he transferred the Property to the GEMS II Realty Trust (the "Trust"). The Declaration of Trust (the "Declaration") provided that John was the trustee of the Trust, and the attached Schedule of Beneficiaries provided that Andrea and John were beneficiaries, each with a 50% interest. The Declaration further provided that the Trustees, namely John and his successors, "will hold any and all of the property that may be transferred to or acquired by them in their capacity as Trustees (hereinafter referred to as 'the Trust Premises') in trust for the purposes *4hereinafter contained." App. 226. Those purposes were expressly limited:

The purposes for which the Trust is formed and the functions to be carried on by the Trustees are limited to holding the record legal title of the Trust Premises for the benefit of the Beneficiaries. The Trust shall not engage in any functions other than the holding of record legal title to the Trust Premises, and such functions as are necessarily incidental thereto and is intended to be merely a nominee trust, so-called, for Federal and State income tax purposes.
Except as herein provided in the case of the termination of this Trust, the Trustees shall have no power to deal in or with the Trust Premises, except as directed in writing by all of the Beneficiaries.

App. 227-28. Rather, the beneficiaries of the trust were given "control of the management, operation and handling of the Trust Premises, and all matters related thereto." App. 228. Finally, the Declaration provided that the Trust "may be terminated at any time by the then Beneficiaries" and "may also be revoked and terminated at any time by all of the then Trustees." App. 229. In the event the Trust was terminated, the Declaration specified that "the Trust Premises shall automatically vest in the Beneficiaries hereof as tenants in common ... in proportion to their respective interest[s]." App. 227.

II. Procedural history

John joined Pangea, a small investment management firm started in 2008, as a co-managing member, and he led Pangea's primary investment vehicle. Pangea later accused John of defrauding the company and improperly diverting millions of dollars to himself. In June 2012, Pangea sued John in New York Supreme Court. That proceeding was discontinued in favor of binding arbitration.

Around the same time, the Lakians' marriage was ending. After discovering that John was having an affair, Andrea filed for divorce in New York Supreme Court in December 2013. On May 4, 2015, Andrea and John executed a Stipulation of Settlement and Agreement (the "Stipulation") in order to settle their pending divorce proceedings. The Stipulation provided that the Property would be listed for sale; that John, as trustee of the Trust, would effectuate the transfer of title to the purchaser; and that the net proceeds from the sale "shall be divided so that the Wife receives 62.5% thereof plus $75,000 ... and the Husband receives 37.5% thereof less $75,000 ...." App. 293 (emphases in original). On June 9, 2015, the New York Supreme Court issued a Judgment of Divorce (the "Divorce Judgment"), which incorporated the Stipulation by reference. The Divorce Judgment was entered on June 11, 2015. Andrea never docketed the Divorce Judgment in Suffolk County.

On January 5, 2016, the arbitration between John and Pangea resulted in an Amended Partial Final Arbitration Award in favor of Pangea (the "Award"). On February 3, 2016, Pangea filed a petition in the district court seeking to confirm the Award and reduce it to a judgment. At the same time, it moved for an order of attachment against the Property, which the district court granted. The district court confirmed the Award in a decision on November 9, 2016, and it entered a confirmation judgment in Pangea's favor in the amount of $14,452,193.22 (the "Confirmation Judgment") on November 22, 2016. Pangea docketed the Confirmation Judgment with the clerk of Suffolk County on November 28, 2016. Thus, while the Divorce Judgment was entered before Pangea received the Confirmation Judgment, Pangea docketed its judgment first (since *5

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Bluebook (online)
906 F.3d 1, Counsel Stack Legal Research, https://law.counselstack.com/opinion/pangea-capital-mgmt-llc-v-lakian-ca2-2018.