584 B.R. 609
Bankr. S.D.N.Y.2018Background
- Debtor Hans Futterman is a real estate developer who controls multiple LLCs tied to projects at 300 W. 122nd St (Ladera), 2280 Frederick Douglass Blvd ("2280"/SoHa), and 311 W. 121st St (Jenco); several matters were removed from NY state court to bankruptcy court.
- RWN (lender to Ladera entities) credit‑bid at a 2017 auction; RWN asserts deficiency/guaranty claims against Futterman and filed a proof of claim in his Chapter 11; related state actions were removed and consolidated for pretrial purposes.
- An arbitration between SoHa members produced an award finding Futterman/RGS (his vehicle) breached fiduciary duties, engaged in intentional misconduct, and ordered removal from management of SoHa Terrace and 2280; award remedies (who picks replacement managers) are disputed.
- RWN moved for appointment of a Chapter 11 trustee for Futterman; evidentiary submissions and the arbitration award were central to the motion; the court held an evidentiary hearing on the trustee question.
- Court concluded the arbitrator's unchallenged findings (self‑dealing, misuse of assets, deliberate conduct to depress value) and evidence of asset distributions (e.g., Jenco payments) demonstrate lack of trustworthiness and justify appointing a Chapter 11 trustee under 11 U.S.C. § 1104.
- Court declined to finally appoint state‑law liquidator/receiver for 2280 but found SoHa Terrace dissolution was invoked under its operating agreement, left the question of a liquidating trustee to the new bankruptcy trustee, and sought clarification from the arbitrator on the scope of his remedial rulings.
Issues
| Issue | RWN / Movant Argument | Futterman / Opposing Argument | Held |
|---|---|---|---|
| Standing/timing to seek Chapter 11 trustee | RWN is a party in interest and may move now; trustee needed promptly | Futterman: wait until RWN claim resolved; disputed claimant lacks standing | Court: RWN is a party in interest despite disputed claim; need not defer trustee motion |
| Appointment of Chapter 11 trustee (cause under §1104) | Arbitrator's findings + conduct (asset misuse, self‑dealing, distributions) show dishonesty/gross mismanagement; trustee needed to protect creditors | Futterman disputes some findings and argues other incidents do not alone justify trustee | Court: Arbitrator's binding findings constitute clear and convincing evidence of cause; trustee must be appointed under §1104(a)(1) or is warranted under §1104(a)(2) |
| Confirmation / scope of arbitration remedy (paras.1–2) | USHA: confirm award in full, including right for USHA to elect replacement managers | Futterman: arbitral remedy exceeds authority and conflicts with NY LLC Law §402(a); selection must follow LLC agreement/statute | Court: Confirms arbitrator's factual findings; will not uncritically endorse remedial language — seeks clarification from arbitrator on whether he intended to (a) give USHA permanent unilateral manager‑selection power, (b) disenfranchise RGS (including if controlled by judicial trustee), or (c) let USHA directly name 2280 manager |
| State‑law receiver/liquidating trustee under NY LLC Law §703 (SoHa/2280) | USHA seeks appointment under §703; argues judicial aid appropriate given dissolution and deadlock | Futterman/others: procedural/notice defects; arbitration/operating agreement issues; bankruptcy court lacks authority to impose managers on non‑debtors under §105 | Court: §703 can support appointment where dissolution invoked; SoHa was dissolved per operating agreement (RGS >2/3 consent) so §703 is available; but court declines to appoint receiver now for SoHa or 2280 pending the newly appointed bankruptcy trustee's assessment and possible actions; no authority to use §105 to directly control non‑debtors |
Key Cases Cited
- In re Altman, 230 B.R. 6 (Bankr. D. Conn.) (factors constituting cause for trustee appointment include misuse of assets, inadequate records, and parent/subsidiary abuse)
- In re 1031 Tax Group, LLC, 374 B.R. 78 (Bankr. S.D.N.Y.) (factors for appointment under §1104(a)(2): trustworthiness, performance, creditor confidence, costs/benefits)
- Hardy v. Walsh Manning Securities, L.L.C., 341 F.3d 126 (2d Cir.) (bankruptcy court may seek clarification from arbitrator regarding remedial award)
- Norwest Bank Worthington v. Ahlers, 485 U.S. 197 (U.S. Supreme Court) (§105 equitable powers are limited to those conferred by the Bankruptcy Code)