In re: JJ ARCH LLC, Debtor.
24-CV-08649 (JAV)
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
June 5, 2026
JEANNETTE A. VARGAS, United States District Judge
OPINION AND ORDER
JEANNETTE A. VARGAS, United States District Judge:
Before the Court is the appeal of Debtor-Appellant JJ Arch LLC (“Debtor,” “Appellant,” or “JJ Arch”) from an October 11, 2024 Opinion and Order entered by Judge John P. Mastando III of the United States Bankruptcy Court for the Southern District of New York, Bankr. Dkt. No. 7 (“Bankruptcy Dismissal Opinion” or “Bankr. Op.”), in the Chapter 11 bankruptcy proceeding captioned In re JJ Arch LLC, No. 24-BK-10381 (Bankr. S.D.N.Y.),1 ECF No. 1. The Bankruptcy Dismissal Opinion, issued on the motion of Jared Chassen and Arch Real Estate Holdings LLC (“AREH”), dismissed Debtor’s Chapter 11 case for cause pursuant to
BACKGROUND
The Court’s consideration of this motion is limited to facts presented in the
The Court assumes familiarity with the history of this case, much of which is thoroughly outlined in the Bankruptcy Dismissal Opinion. The Court thus provides a summary only of the facts necessary to resolve the instant appeal.
A. Factual Background
JJ Arch is a real estate holding company formed by Jared Chassen and Jeffrey Simpson under the laws of New York in December of 2017. Bankr. Dkt. No. 16 at 4, 54. JJ Arch’s assets include membership rights in Arch Real Estate Holdings (“AREH”) and membership interests in other entities. Id. at 5, 8-10. 608941 NJ, Inc., also known as “Oak,” is AREH’s sole other member. See id. at 5 n.7.
JJ Arch holds an 80% interest in AREH, id. at 5, and was designated under AREH’s Operating Agreement as its “Managing Member” in 2017. Id. at 75, 80. Oak holds a 20% interest in AREH, id. at 5 n.7, and acts as AREH’s “Investor Member,” a role that gives Oak the right to “remove [JJ Arch] as ‘managing member’ [of AREH] upon a Cause Event,” id. at 75, 93. Notwithstanding JJ Arch’s operational control over AREH, AREH’s Operating Agreement provides that Oak’s
Mr. Chassen and Mr. Simpson’s relationship became strained in mid-2023 such that each attempted to “resign” the other from JJ Arch via email over the weekend of August 5, 2023, ostensibly on the basis of several “Cause Events” in accordance with the terms of the Debtor’s Operating Agreement. See State Dkt. No. Nos. 67-68.2
In relevant part, JJ Arch’s original Operating Agreement gives Mr. Simpson the “unilateral power and authority . . . to make and implement all decisions with respect to” the Debtor’s day-to-day operations, including the power to “conduct, manage and control the affairs and business of the [Debtor and its subsidiaries].” Bankr. Dkt. No. 16 at 55-56. Like the AREH Operating Agreement, however, the Debtor’s Operating Agreement provides that JJ Arch could not engage in “Major Decisions,” including the “tak[ing] of a Bankruptcy Action,” without Mr. Chassen’s consent. Id. at 56. Further, either member of the Debtor was deemed to “Resign” when that member either “fail[ed] to provide substantially all of his business time for the benefit of the [Debtor],” or that member engaged in a “Cause Event” such as “willful misconduct,” “breach of fiduciary duty,” or “gross negligence in relation to the business or affairs of [AREH] or a Subsidiary.” Id. at 51, 53, 77.
On August 15, 2023, Mr. Simpson filed a derivative action on behalf of JJ Arch and AREH in New York State Supreme Court before the Honorable Joel M. Cohen (the “State Court Proceeding”). See Adv. Pro. Dkt. No. 1 at 10-45.3 What followed was a complex, contentious series of pleadings and motions involving no fewer than five parties and 39 causes of action. See Adv. Pro. Dkt. No. 2-1 at 1-5. That suit has had a troubled litigation history. See, e.g., Simpson v. Chassen, No. 25-CV-4004 (JMF), 2025 WL 1784931, at *2 (S.D.N.Y. June 27, 2025) (U.S. District Judge Jesse Furman granting sanctions against Mr. Simpson where Mr. Simpson’s “record of frivolous removal efforts—coupled with his vexatious conduct in state court—have caused needless expense to the other parties, burdened the federal and state courts involved, and leads the Court to believe that Simpson used the removal as a vehicle to defy the state court’s orders.” (cleaned up)).
In November 2023, Judge Cohen issued several interim orders addressing the provisional governance of both the Debtor and AREH. State Dkt. Nos. 412-419. One such order appointed Oak as AREH’s “sole managing member” and enjoined Mr. Simpson and the Debtor from:
[a]cting as (or holding themselves out to third parties to be) managing members of [AREH] and . . . [d]enying prompt consent to any Major Decision proposed by Oak as Managing Member . . . unless both JJ Arch members (Jeffrey Simpson and Jared Chassen) jointly agree to deny such consent . . . [and o]therwise interfering with Oak’s ability to exercise its responsibilities as Managing Member of AREH.
Nonetheless, Mr. Simpson unilaterally filed a petition for Chapter 11 relief on behalf of the Debtor on March 7, 2024. Bankr. Dkt. No. 1 at 4. The Debtor’s petition—which lists Mr. Simpson as its sole equity holder—includes the following footnote: “Jared Chassen . . . was deemed to have resigned as a member of JJ Arch . . . . Accordingly, Mr. Simpson currently owns 100% of the equity interests in the Debtor.” Id. at 12 n.1; accord id. at 13 n.2.
Mr. Simpson’s affidavit, submitted pursuant to Local Rule 1007-2, provides the following narrative in a separate footnote:
I have been involved in litigation in New York State court with Jared Chassen [], the former minority member of the Debtor regarding, inter alia, the management of the Debtor. Mr. Chassen voluntarily decided to cease providing substantially all of his business time for the benefit of the Debtor no later than January 2024 and, as a result, was deemed to have resigned from the Debtor under the under [sic] the terms of the [Debtor’s] Operating Agreement. As a result of such resignation, Mr. Chassen’s interest in the Debtor was ‘deemed automatically redeemed by the [Debtor],’ Mr. Chassen
was ‘no longer . . . deemed a “Member” of the [Debtor]’ and Mr. Chassen was no longer ‘entitled to any rights as a Member of the [Debtor] for any period from and after such Resignation[.]’ . . . [A]lthough certain of the New York state court orders did enjoin the Debtor’s members from unilaterally seeking to terminate or force the resignation of the other without permission of the court, such orders did not prohibit Mr. Chassen from voluntarily resigning from the Debtor in the manner in which he chose to do so.
Bankr. Dkt. No. 16 at 11 n.14.
One week later, on March 14, 2024, Mr. Chassen filed a Motion for an Order Dismissing the Debtor’s Bankruptcy Case (Mr. Chassen’s “First Motion to Dismiss”). Bankr. Dkt. No. 4. That motion argued that the Debtor’s petition should be dismissed because “[t]he [Debtor’s] Operating Agreement, together with the orders in the [State Court] Proceeding, leave no doubt that Mr. Simpson not only lacked authority to bring the Petition, but that this filing is in bad faith and in contempt of court.” Id. at 4. AREH—making a functionally identical argument—joined that motion. Bankr. Dkt. No. 13 at 1-2. Mr. Chassen and AREH also filed motions to lift the automatic bankruptcy stay on March 25, 2024, on the grounds that “[t]he automatic stay generally only applies to the debtor and its property and does not extend to third parties, such as . . . third party guarantors, co-debtors, officers and members of a debtor.” Bankr. Dkt. No. 38, ¶ 29; accord Bankr. Dkt. No. 40, ¶ 40; see also Bankr. Dkt. No. 38, ¶ 8 (describing this bankruptcy as “an improper attempt to use the automatic stay as [both] a sword and a shield”). The Bankruptcy Court granted the lift-stay motions on June 10, 2024, Bankr. Dkt. No. 132 at 3, and dismissed JJ Arch’s Chapter 11 petition for cause on October 11, 2024,
LEGAL STANDARD
Pursuant to
“The dismissal of a Chapter 11 petition for cause, however, is reviewed for abuse of discretion.” Fuschi v. Bank of New York Mellon Tr. Co., N.A., No. 22-CV-332 (JSR), 2024 WL 4326942, at *3 (S.D.N.Y. Sept. 27, 2024); see, e.g., In re C-TC 9th Ave. P’ship, 113 F.3d 1304, 1312 (2d Cir. 1997). “A bankruptcy court abuses its discretion if it bases its decision on an erroneous view of the law or clearly erroneous factual findings.” In re Carrington, 710 F. Supp. 3d 248, 255 (S.D.N.Y. 2024) (citation omitted), appeal dismissed, No. 23-7433, 2024 WL 3491202 (2d Cir. May 3, 2024). “A finding of fact is clearly erroneous when, although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.” Lynch v. Barnard, 590 B.R. 30, 35 (E.D.N.Y. 2018) (citation omitted), aff’d sub nom., In re Lynch, 795 F. App’x 57 (2d Cir. 2020) (summary order). Accordingly, “[f]actual findings must be upheld if plausible in light of the record viewed in its entirety.” Id. (citation omitted).
Here, the Bankruptcy Court dismissed the Chapter 11 petition on several enumerated grounds for “cause”: (i) “[s]ubstantial or continuing loss to or diminution of the estate” and an “absence of a reasonable likelihood of rehabilitation,” per
The Bankruptcy Court did not abuse its discretion in concluding that there was cause to dismiss the case pursuant to
Despite the fundamental purpose of Chapter 11 proceedings to rehabilitate economically distressed businesses, this goal must be compromised where the operations of the debtor in possession continually erode the interests of creditors without a bright picture for reversing these losses in the future.
Section 1112(b)(1) accom[m]odates these competing interests where there is a sufficient showing that the debtor would continue to sustain losses or diminish the estate if the reorganization effort is permitted to proceed and that there exists no reasonable likelihood of rehabilitation.
In re Photo Promotion Assocs., Inc., 47 B.R. 454, 458 (S.D.N.Y. 1985) (cleaned up).
The Bankruptcy Court’s conclusion that there was “[s]ubstantial or continuing loss to or diminution of the estate” under
Coupled with the lack of income was “the exceptional rate at which the Debtor has incurred expenses administrative following the August Exchange.” See, e.g., Bankr. Dkt. No. 31 at 16 (Debtor Schedules listing the Debtor’s largest creditor as being a single attorney hired by Simpson while the state court proceeding was still pending before Judge Cohen); Bankr. Dkt. No. 184 at 27 (Debtor’s counsel anticipates generating $300,000 in attorneys’ fees on or before the Plan’s effective date); Bankr. Dkt. No. 195 at 13-15, 21 (interpleader action initiated by Great American Insurance Company alleging almost $900,000 in legal expenses incurred by Simpson in Costs of Defense in connection with the Debtor’s Chapter 11 proceeding and the state court proceeding); id. at 15 (“indemnity payments made to resolve the [state l]awsuit, as well as claims made by [former counsel to the Debtor and Mr. Simpson] will exceed the remaining Policy proceeds.”); Bankr. Op. at 24, n. 30 (“Neither the Debtor nor Mr. Simpson have provided evidence disputing the
The Bankruptcy Court’s finding that there is “absence of a reasonable likelihood of rehabilitation” within the meaning of
Finally, having already concluded when granting a prior remand motion that the circumstances surrounding this bankruptcy filing were questionable, the Bankruptcy Court found both subjective bad faith and objective futility in the Debtor’s petition because “the record overwhelmingly suggests that this bankruptcy was a means of removing the State Court Proceeding from the purview of Justice Cohen.” Id. at 33. The record supporting this conclusion is detailed at length by the Bankruptcy Court. See id. at 33-42.
The Debtor’s brief largely argues that the Bankruptcy Court’s finding of bad faith “rested on a false narrative presented by adverse parties.” ECF No. 48 (“Appellant Brief” or “App. Br.”) at 16. The Debtor argues that, rather than engage in gamesmanship, its actions were taken at the advice of multiple legal counsel. Id. at 17-18. The Court need not reach this issue, as dismissal of the Chapter 11 petition is mandated under both Sections
Accordingly, the Court does not find any abuse of discretion in the decision to dismiss the Debtor’s petition.
CONCLUSION
For the reasons set forth above, the decision and order appealed from is AFFIRMED and Debtor’s appeal is DISMISSED. The Clerk of Court is directed to terminate all pending motions and mark this case as closed on the Court’s docket.
SO ORDERED.
Dated: June 5, 2026
New York, New York
JEANNETTE A. VARGAS
United States District Judge