531 B.R. 363
Bankr. S.D.N.Y.2015Background
- Debtors MBM Entertainment LLC, MBM Development LLC and Altria Development LLC own properties originally held by Janina Y. Davis (the Clinton, Gates and Harlem properties). Davis sued (state court) claiming transfers were wrongful (fraud, constructive trust, rescission) and sought damages; defendants counterclaimed for contract breaches and wrongful occupancy. The claims were removed/related to Chapter 11 cases and tried in bankruptcy court.
- Parties executed a series of intertwined written agreements in April–Sept 2005 and amendments (April 19 and April 20 Agreements, May 6 documents, Sept. 30 accounting, Feb. 2006 buyout, Jan. 2007 amendment) addressing transfers, payments and development; disputes about meaning, performance, forgery, duress and who actually owns what followed.
- Court found many handwritten modifications valid, found Davis received partial payments and later sold her contractual interests in a February 2006 Buyout (amended Jan. 2007), and that Davis accepted payments under those agreements.
- Court rejected Davis’s belated forgery, duress and unconscionability claims (most were barred by pleadings, untimely, or unsupported), found the signatures credible, and found no fraud sufficient to impose constructive trust, rescission or equitable lien.
- Court held the corporate form could be pierced for purposes of Davis’s claim: Debtors and M & M were effectively alter egos for obligations to Davis. Court awarded Davis a remaining contractual claim of $435,000; awarded Altria and Morad/Farzaneh damages for Davis’s wrongful occupancy and rent diversion (specific monthly amounts and lump sums described); denied other claims.
Issues
| Issue | Plaintiff's Argument (Davis) | Defendant's Argument (Yeroushalmis/Debtors) | Held |
|---|---|---|---|
| Validity/enforceability of written deals and signatures | Deeds and key documents were forged or unsigned by Davis; contracts procured by fraud/duress | Documents are genuine; Davis read/accepted terms; payments and conduct confirm transfers | Court credited handwriting expert and documentary record; forgery/duress claims largely rejected; documents enforceable |
| Constructive trust / rescission of property transfers | Transfers procured by fraud/voidable so property should be returned or held in trust | Transfers were consensual, documented, accounted for, and Davis accepted consideration; rescission inappropriate | Denied: remedy barred by valid written agreements, lack of clear fraud/duress, and inadequate equitable grounds |
| Breach of contract / money damages | Alternative claim: contracts unenforced so recover damages; also separate damages against non-debtors | Defendants say parties settled via later agreements (Sept. 30, Feb. 2006 buyout) and most claims were superseded | Court found remaining contractual obligation: $435,000 owed to Davis under the buyout amendments; other contract claims dismissed |
| Wrongful occupancy and rents (Clinton Property) | Davis claimed right to occupy/collect rents | Defendants say Davis unlawfully re-entered/leased units and diverted rents | Court held Davis wrongfully occupied unit since July 2012; awarded damages to Morad/Farzaneh for 2012–2014 period and to Altria thereafter (specific monthly/lump sums ordered) |
Key Cases Cited
- Stern v. Marshall, 564 U.S. 462 (2011) (Article III limits on bankruptcy courts’ authority and effect of consent)
- Roell v. Withrow, 538 U.S. 580 (2003) (parties may consent to adjudication by non-Article III adjudicators; consent may be inferred)
- Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989) (distinguishing core bankruptcy matters and jury-trial implications of claims integral to claims allowance)
- In re Manville Forest Prods. Corp., 896 F.2d 1384 (2d Cir. 1990) (bankruptcy courts’ core jurisdiction over allowance/disallowance of claims)
- C-TC 9th Ave. P’ship v. Norton Co., 113 F.3d 1304 (2d Cir. 1997) (factors and standard for dismissal of bankruptcy petition as filed in bad faith)
- In re Cuyahoga Equip. Corp., 980 F.2d 110 (2d Cir. 1992) (scope of "related to" jurisdiction in bankruptcy matters)
- Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1984) (test for "related to" jurisdiction: conceivable effect on estate)