YH Lex Estates, LLC v. HFZ Capital Group LLC

2024 NY Slip Op 33141(U)

• Court: New York Supreme Court, New York County
• Decided: September 9, 2024
• Docket: Index No. 155851/2023
• Status: Unpublished

Opinion

YH Lex Estates, LLC v HFZ Capital Group LLC 2024 NY Slip Op 33141(U) September 9, 2024 Supreme Court, New York County Docket Number: Index No. 155851/2023 Judge: Joel M. Cohen Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication. INDEX NO. 155851/2023 NYSCEF DOC. NO. 101 RECEIVED NYSCEF: 09/09/2024

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: COMMERCIAL DIVISION PART 03M -----------------------------------------------------------------------------------X YH LEX ESTATES, LLC, INDEX NO. 155851/2023

Petitioner, 06/18/2024, MOTION DATE 07/11/2024 -v- HFZ CAPITAL GROUP LLC,ZIEL FELDMAN, HELENE MOTION SEQ. NO. 003 004 FELDMAN, HFZ SHORE CLUB MANAGER LLC,SHORE CLUB MEZZ HOLDER INVESTOR LLC,SC EQUITY DECISION + ORDER ON HOLDER LLC,EAST 68 PH SOLE MEMBER LLC,HFZ BRYANT PARK MANAGER LLC,MC ASSET MOTION MANAGEMENT (CORPORATE) LLC,MONROE CAPITAL LLC,MONROE CAPITAL MANAGEMENT ADVISORS LLC,76 ELEVENTH AVENUE PROPERTY OWNER LLC,76 ELEVENTH AVENUE MEZZ A LLC,HFZ 76 11 MANAGER LLC,HFZ REAL ESTATE DEVELOPMENT ASSOCIATES LLC,76 11TH LENDER LLC,XI MEZZANINE LENDER LLC,WAM 76 11TH HOLDINGS LLC,WM 11AVE INVESTOR LLC,XI SPECIAL PROJECT MANAGEMENT LLC,HFZ CREDITORS TRUST, HFZ CLAIMANT TRUST, EDWARD T. GAVIN

Respondents. -----------------------------------------------------------------------------------X

HON. JOEL M. COHEN:

The following e-filed documents, listed by NYSCEF document number (Motion 003) 70, 71, 72, 73, 74, 75, 76, 79, 80, 81, 82, 83, 84, 85, 86, 87, 97 were read on this motion to COMPEL DISCOVERY .

The following e-filed documents, listed by NYSCEF document number (Motion 004) 88, 89, 90, 91, 92, 93, 94, 95, 96, 98, 99 were read on this motion to COMPEL DISCOVERY .

In this CPLR § 5225(a) and (b) proceeding, Petitioner/Judgment Creditor YH Lex Estates

LLC (“YH Lex”) seeks the turnover of property held by Monroe Capital and certain HFZ Capital

Group affiliates, as well as amounts contractually owed by Monroe Capital to HFZ, or,

alternatively, to unwind the transfer or assignment by HFZ of virtually all their assets to Monroe

Capital for less than fair consideration.

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In Mot. Seq. 003, YH Lex moves for an order, pursuant to CPLR § 3124, compelling the

HFZ Respondents1 and the Lender Respondents2 to comply with YH Lex’s First Request for

Production (“RFP”) (NYSCEF 72).

In Mot. Seq. 004, the Lender Respondents move for an order compelling Petitioner to

produce documents concerning YH Lex’s interests in the One High Line (“OHL”) project that

the Lender Defendants claim are relevant to YH Lex’s claims and Lender Respondents’

defenses.

For the following reasons, Petitioner’s motion is granted in part, and the Lender

Respondents’ motion is granted in part.

DISCUSSION

CPLR § 3101 requires “full disclosure of all matter material and necessary in the

prosecution or defense of an action.” “[T]he words ‘material and necessary’, are … to be

interpreted liberally to require disclosure, upon request, of any facts bearing on the controversy

which will assist preparation for trial by sharpening the issues and reducing delay and prolixity.

The test is one of usefulness and reason” (Allen v Crowell–Collier Pub. Co., 21 NY2d 403, 406

[1968]).

1 Respondents HFZ Capital Group LLC, Ziel Feldman, Helene Feldman, individually and as Trustee, 76 Eleventh, Avenue Mezz A LLC, HFZ Shore Club Manager LLC, HFZ Bryant Park Manager LLC, HFZ 76 11 Manager LLC, HFZ Real Estate Development Associates LLC, and XI Special Project Management LLC (the “HFZ Respondents”). 2 Respondents MC Asset Management (Corporate) LLC, Monroe Capital LLC, Monroe Capital Management Advisors LLC, 76 Eleventh Avenue Property Owner, 76 11th Lender LLC, XI Mezzanine Lender LLC, WAM 76 11th Holdings LLC, WM 11Ave Investor LLC, HFZ Shore Club Manager LLC, Shore Club Mezz Holder Investor LLC, SC Equity Holder LLC, and East 68 PH Sole Member LLC (the “Lender Respondents”).

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Mot. Seq. 003

“In a special proceeding, where disclosure is available only by leave of the court (see

CPLR 408), the Supreme Court has broad discretion in granting or denying disclosure (see

Matter of City of Glen Cove Indus. Dev. Agency v Doxey, 79 AD3d 1038 [2010]). Here,

Petitioner previously filed a motion for leave to take discovery pursuant to CPLR §§ 408, 3120,

and 3124 and to compel production of certain documents (Mot. Seq. 002). On April 3, 2024, this

Court entered an Order granting leave to take discovery, but denied the motion to compel as

premature (NYSCEF 65) and directed YH Lex to tailor its requests to be more targeted to what is

at issue in this action (NYSCEF 67 [Tr.] at 62). Since that time, the parties have met and

conferred on Petitioner’s requests, but have been unable to reach agreement with respect to 11 of

the remaining 24 requests set forth in the disputed RFPs (specifically, RFPs 1-2, 7, 10, 14-15,

17-19, and 21-22). The Court will address those RFPs below:

First, as to Request No. 1 and 7 (nonprivileged documents and communications relating

to the December 2020 Settlement Agreement from January 1, 2020 to present and the November

2021 Settlement Agreement from September 2021 to present), the Court agrees with the HFZ

Respondents’ proposal to limit production to documents and communications from August 1,

2020 through December 31, 2022. As the parties note, the Court previously observed that

“overly rigid time restrictions” could be problematic (Tr. at 45:20-22), but “[a]t the same time,

seeking every document that might just be transactional in nature which could be said to relate

back is too much . . . .The question and the art of all this is finding a way through search terms or

other ways to not make it ridiculous…” (Tr. at 45:24-46:5). HFZ Respondents’ proposed time

period predates the negotiation of the Settlement Agreements, but still captures responsive

documents over two years after the Settlement Agreement’s execution. This is, in the Court’s

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view, a reasonable time limitation. If information gleaned from that discovery reasonably

suggests that a broader search is necessary, YH Lex may seek a revision to this order.

As to Request No. 2 (documents from September 1, 2020 to September 1, 2023 that show

the value of the properties assigned to Monroe Capital per the December 2020 Settlement

Agreement, including, for example, asset underwriting documents), YH Lex has agreed to

narrow the time frame from September 1, 2020 (several months prior to the Settlement

Agreement) to December 31, 2022. The Court finds this time frame appropriate.

As to Request No. 10 (documents and communications concerning or relating to

Brownfield tax credits and their value concerning or relating to 76 Eleventh), the Respondents

are directed to produce “documents sufficient to show” the value of such credits as well as

communications concerning the credits.

As to Request No. 14 (documents and communications concerning XISPM, including

formation, ownership, work performed, fees generated and tax information), the HFZ

Respondents informed YH Lex that they had produced documents concerning the payments that

XISP received under the November 2021 Settlement Agreement, and requested that YH Lex

narrow any additional information it needed (NYSCEF 75). In response, YH Lex informed HFZ

Respondents that subject to the identification of such documents, it would consider this Request

to not be the subject of disagreement (id.). Despite this agreement, YH Lex still seeks to compel

the entirety of Request No. 14.

However, YH Lex has failed to demonstrate why it needs such broad discovery on XISP.

HFZ Respondents’ counsel did not, as YH Lex suggests, represent during oral argument on Mot.

Seq. 002 that “payments to XISPM were intended to compensate the Feldmans, and their

professionals, for services performed or to be performed in connection with the XI” (see

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NYSCEF 76 at 16). Instead, HFZ Respondents’ counsel said that “[t]he sole purpose of [XISP]

was for authorizing payments to staff providing transition services and professionals and other

costs involved in the transition services with respect to the XI and preserving value for creditors,

and the Creditor Trust. Nothing went to the Feldmans (NYSCEF 67 at 50:5-10 [emphasis

added]).

YH Lex further argues that XISP is a sham entity meant to divert assets of HFZ and

Feldman through Monroe Capital and back to HFZ and Feldman. But YH Lex does not simply

request discovery sufficient to show XISP’s ownership structure to demonstrate that it is not

owned or controlled by the judgment debtors, but rather discovery into XISP’s existence,

including all its work performed, services provided, and monies received or paid. Accordingly,

this request is limited to what YH Lex agreed to accept from HFZ Respondents (NYSCEF 75).

As to Request No. 15 (documents and communications concerning the Trust, including

formation, beneficiaries, participants, etc.), any non-privileged documents and communications

concerning the formation and beneficiaries of the Trust should be produced. However,

discussions between counsel for HFZ and Feldman, and the Trustee, and creditors who have

joined (or may potentially join) the Trust appear to be confidential settlement discussions and the

Court does not see the relevance of this information at this time.

As to Request No. 17, 18, and 19 (communications between HFZ, Monroe, and Witkoff,

including internal communications, concerning YH, the lawsuit, and the judgments, and

communications between HFZ and Witkoff concerning YH, the lawsuit, and judgments, and

including internal communications, and Communications between Monroe and Witkoff

concerning YH, the lawsuit, and judgments, and including internal communications), this request

is limited to November 1, 2020 to June 3, 2022, when this proceeding was filed. The HFZ

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Respondents are directed to produce a privilege log if any documents will be withheld on that

basis. As to Request No. 21 (executed agreements and drafts thereof between HFZ and

Monroe), these documents should be produced unless they reflect privileged communications.

Drafts exchanged between contracting parties generally are not privileged.

As to Request No. 22 (most recent financial statements showing the value of assets and

properties assigned to Monroe pursuant to the Dec 2020 Settlement Agreement and 76

Eleventh), as a judgment creditor, YH has a right to seek such information from any third-parties

who may be holding property (whether for current or future payment) on behalf of the judgment

debtor. These documents should be produced.

Mot. Seq. 004

In Mot. Seq. 004, Lender Respondents seek documents regarding (1) YH Lex’s affiliate’s

$10 million interest in one of the UCC foreclosures that YH Lex has disputed here—the One

High Line Project (when it was referred to as the XI) —and; (2) YH Lex’s 2019/2020

communications with HFZ concerning YH Lex and HFZ’s attempted workout of its distressed

debt. The Lender Respondents argue that the documents are relevant to (1) YH Lex’s allegations

regarding the value of the One High Line Project and its disposition at a public UCC sale, and to

(2) YH Lex’s allegations that Monroe’s efforts to work out its own distressed debt position was

an “actual fraud.” The present motion concerns Requests Nos. 1, 4, 5, 8, 12, and 13 (NYSCEF

90). The Court will address these RFPs below:

As to Requests No. 1 and 8 (all communications concerning Yoav Harlap’s direct or

indirect interests in the OHL Project from January 1, 2020 to the present and Document

sufficient to show YH’s interests in the XI Project prior to foreclosure and the value of YH’s

interest in the XI Project at the time of foreclosure), these requests are overbroad and of minimal

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relevance, given that they do not involve Petitioner YH Lex, but rather an affiliate, YH Estates.3

While the Lender Respondents argue that YH Lex has opened the door to its OHL diligence

materials by challenging the disposition of the OHL collateral, YH Lex is not disputing the

disposition of the OHL collateral based on YH Estates’ equity interest in such collateral. The

Court fails to see why Harlap’s actions or lack of action with respect to the OHL UCC sale are

relevant to Lender Respondents’ claims and/or laches, estoppel, and ratification defenses. Even

if YH Estates failed to object to the foreclosure, that does not mean that YH Lex cannot bring

claims based on an entirely different theory and action. Thus, the motion to compel with request

to Requests No. 1 and 8 is denied.

As to Requests No. 4,5, 12, and 13 (all Documents and Communications concerning due

diligence YH Lex conducted in relation to their loans to HFZ that served as the basis for the YH

Lex Loans and all Documents and Communications concerning HFZ’s default of the YH Lex

Loans and all Communications or documents concerning any payments made in satisfaction of

the Judgment and all Communications or Documents concerning payments that YH Lex received

from HFZ, other HFZ creditors and/or HFZ investors, including but not limited to, any payments

YH Lex received from HFZ, George Economou and/or Benny Steinmetz), the Lender

Respondents argue that these documents are relevant to rebut YH Lex’s allegation of actual fraud

as YH Lex’s documents concerning HFZ’s workout payments to YH Lex would tend to show

that YH Lex and HFZ discussed Monroe’s loans in the payment workout discussions (including

whether the payments to YH Lex violated the Monroe loans). Such communications could be

relevant to any actual-intent fraudulent transfer claims and are also relevant to whether YH Lex

3 YH Lex Estates and YH Estates share a common (indirect) beneficial owner, Yoav Harlap.

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knew about Lender Respondents’ loan positions. Accordingly, YH Lex is directed to produce

documents responsive to requests 4, 5, and 13. As to Request 12, YH Lex submits that YH

already agreed to search for documents responsive to RFP 12 as narrowed by the Lender

Respondents during the meet and confer process. The Court directs to YH Lex to produce

documents responsive to Request No. 12, as narrowed.

Accordingly, it is

ORDERED that Petitioner’s Motion to Compel Discovery (Mot. Seq. 003) is

GRANTED IN PART; it is further

ORDERED that the Lender Respondents’ Motion to Compel Discovery (Mot. Seq. 004)

is GRANTED IN PART.

9/9/2024 DATE JOEL M. COHEN, J.S.C. CHECK ONE: CASE DISPOSED X NON-FINAL DISPOSITION

GRANTED DENIED X GRANTED IN PART OTHER

APPLICATION: SETTLE ORDER SUBMIT ORDER

CHECK IF APPROPRIATE: INCLUDES TRANSFER/REASSIGN FIDUCIARY APPOINTMENT REFERENCE

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