26 Bowery LLC v. Steven NG (In re 26 Bowery LLC)

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In re: 26 BOWERY LLC and 2 BOWERY HOLDING LLC, Debtors.

26 BOWERY LLC and 2 BOWERY HOLDING LLC, Plaintiffs, v. STEVEN NG Defendant.

Nos. 22-10412 MG, 22-10413 MG

Adv. Pro. No. 23-01145 (MG)

United States Bankruptcy Court, S.D. New York

March 6, 2024

NOT FOR PUBLICATION

RAVERT PLLC Special Litigation Counsel for Plaintiffs By: Gary O Ravert, Esq.

LAW OFFICES OF ROBERT S. LEWIS, P.C. Attorney for Defendant Steven By: Robert S. Lewis, Esq

MEMORANDUM OPINION AND ORDER GRANTING JUDGMENT OF POSSESSION AND PAYMENT OF UNJUST ENRICHMENT AND CONVERTED FUNDS IN FAVOR OF PLAINTIFFS

MARTIN GLENN CHIEF UNITED STATES BANKRUPTCY JUDGE

This Opinion follows the trial held on February 5, 2024 on the adversary complaint (the "Complaint," ECF Doc. #1) of 26 Bowery LLC ("26 Bowery") and 2 Bowery Holding LLC ("2 Bowery" and, together with 26 Bowery, the "Debtors" or "Plaintiffs") that asserts 11 causes of action against defendant Steven Ng (the "Defendant"). The Defendant is a party to a three-year lease (the "Lease," PX1-19) for Apartment 4 (the "Apartment") at 2 Bowery, New York, NY 10013 (the "Property"). The Opinion constitutes the Court's findings of fact and conclusions of law.

Since the initial filing of the Complaint, the Debtors have narrowed the relief sought to the following: (i) a declaratory judgment that the Lease is void ab initio (Count I) or, to the extent it exists and is valid, is rescinded (Count II); (ii) an order and judgment avoiding the Lease and deeming all transfers of cash of the Debtors (the "Cash Transfers") to the Defendant as actual or constructive fraudulent conveyances (Count III) (iii) an order and judgment for conversion of the Debtors' cash in the amount of $103,035.00 on account of the Cash Transfers (Count VII); (iv) an order and judgment for unjust enrichment in the amount of $34,515.36 with respect to the Lease and unjust enrichment with respect to the Cash Transfers in an unspecified amount (Count VIII); and (v) an order and judgment for civil conspiracy in the amount of $444,572.99 to $1,808,979.09 (Count IX). (See Joint Pretrial Order (the "Pretrial Order), ECF Doc. # 22 at 49-50; Plaintiffs' Memorandum of Law in Support of Complaint (the "Supporting Memo"), ECF Doc # 21 ¶ 23; Plaintiffs' Statement of Withdrawal of Count VI of Complaint ("Statement of Withdrawal"), ECF Doc. # 23; Plaintiffs' Statement of Calculations of Amount of Converted Funds (Count VII - Steven Ng Only), Unjust Enrichment Amount (Count VIII - Steven Ng and Barbara Mak), and Damages for Civil Conspiracy (Count IX - Steven Ng Only) ("Statement of Calculations"), ECF Doc. # 24 at 2-5.) With respect to Counts I, II, and III, the Debtors are also seeking an immediate judgment possession of the Apartment with a warrant of eviction or writ of assistance and immediate execution of the same. (Supporting Memo ¶ 5.)

In support of the Complaint and the relief sought, the Debtors filed (i) the Supporting Memo and (ii) the declaration of Brian Ryniker, member of financial advisory firm RK Consultants LLC and independent manager (the "Independent Manager") to the Debtors (the "Ryniker Decl.," ECF Doc. # 21-1). Numerous exhibits and the Ryniker Decl. were offered in evidence by Plaintiffs' counsel and admitted in evidence at the trial. Defendant's counsel cross-examined Mr. Ryniker. Other than the cross-examination of Mr. Ryniker, Defendant's counsel did not offer any other evidence at trial.

For the reasons discussed below, the Court GRANTS (i) with respect to Count I, a judgment of possession in favor of the Debtors and against the Defendant, to take immediate possession of the Apartment; (ii) with respect to Count VII, a judgment in favor of the Debtors and against the Defendant in the amount of $103,035.00; (iii) with respect to Count VIII, a judgment in favor of the Debtors and against the Defendant in the amount of $19,250.00 for unjust enrichment; and (iv) with respect to Count IX, a judgment in favor of the Defendant and against the Debtors. Finally, with respect to the affirmative defenses, the Court GRANTS a judgment DISMISSING the Defendant's affirmative defenses. For avoidance of doubt, ALL OCCUPANTS of the Apartment must immediately vacate the Apartment.

I. BACKGROUND

A. The Debtors and the Commencement of the Chapter 11 Case

The Debtors are fee owners of the Property. (Ryniker Decl. ¶ 4.) The Property is a multi-family, mixed-use residential and commercial, 5-story building in Chinatown, Manhattan.

(Id. ¶ 12.) The Debtors entered into two loan agreements, dated April 26, 2019, borrowing a total of $8.6 million from two lenders, which were secured and cross-collateralized by certain notes, mortgages, security agreements, membership pledge agreements, and guaranties. (Id. ¶ 4.)

On March 31, 2023, the Debtors executed amended and restated operating agreements and appointed RK Consultants LLC, by its member Brian Ryniker, as Independent Manager. (Id. ¶ 5.) The Independent Manager commenced the Debtors' voluntary Chapter 11 cases on March 31, 2022 (the "Petition Date"), which are being jointly administered. (Id. ¶ 6.)

B. The Lease Agreement

The Defendant, along with his brother Wilson Ng, are co-members and managers of the Debtors. (See Supporting Memo at 1.) The Defendant concedes that the Lease, which provides for a monthly rent of $550.00, established rent that is substantially less than market rate and the amount recited on the certified rent roll for the Property (the "2 Bowery Certified Rent Roll"). (PX1A ¶¶ 140, 142, 145-46.)

The Defendant indicates that he and Wilson Ng signed the Lease, but the terms of the Lease were never enforced. (PX1A ¶¶ 144, 151.) The Defendant admitted that he did not pay rent, the security deposit, or register utilities in his name as required under the Lease. (Id. ¶¶ 153-55.) In fact, he conceded that "there is no documentary evidence that [he] ever paid rent under the [Lease]" or the security deposit. (Id. ¶¶ 156-57.) Notwithstanding the foregoing, neither he nor Wilson Ng ever enforced the Lease. (Id. ¶ 151 (admitting that "neither Wilson Ng nor Steven Ng enforced the terms of the Steven Ng Lease").)

C. The Cash Transfers

The Debtors indicate that the Defendant was in receipt of "numerous Cash Transfers" that the Defendant failed to turn over to the Debtors. (Supporting Memo ¶ 40.) The Debtors' papers are nonetheless unclear as to what transactions constitute the Cash Transfers or its total amount. (See, e.g., id. ("Without an accounting, the Debtors cannot be sure they have identified all of such Cash Transfers . . . ."); id. (asserting that the Defendant admitted to receiving and depositing personal account checks for "thousands of dollars"); id. (alleging that there were "numerous Cash Transfers from Debtor bank accounts . . . to the personal bank accounts of [the Defendant] and Wilson Ng"); id. ¶ 51 ("The Debtors' evidence demonstrates that [the Defendant] is liable to the Debtors for conversion of unknown sums of cash belonging to the Debtors.").)

At the close of trial, however, the Debtors filed the Statement of Calculations, which indicates that with respect to their claim for conversion on account of the Cash Transfers, the Defendant was in receipt of $103,035.00 of the Debtors' funds. (Statement of Calculations at 2.) Specifically, Exhibit A to the Statement of Calculations identifies the individual transactions comprising the Cash Transfers, including where each transaction is reflected in the evidence admitted in this case. The Cash Transfers, which span May 3, 2019 through April 5, 2022, consist of transactions to the Defendant from (i) a Debtor bank account or (ii) the Chouk King Co. Chase bank account-the account of the former owner of 2 Bowery that the Defendant and Wilson Ng admittedly still use. (Id. at 3; PX1A ¶¶ 301-303 (Defendant admitting the continued use of the Chouk King Co. bank account).) Funds transferred from the Chouk King Co. Chase bank account allegedly relate to T-Mobile rents. (Id. at 3.) Accordingly, for purposes of this Opinion, the transactions identified on Exhibit A to the Statement of Calculations in the total amount of $103,035.00 shall constitute the Cash Transfers that are subject to this Court's ruling.

The Defendant has conceded that he received certain of the Cash Transfers: (i) Wilson Ng's transfer of $38,000.00 to the Defendant from 2 Bowery's bank account (see PX1A ¶ 284 (admitting that "on May 3, 2019, Wilson Ng wrote a check to [the Defendant] in the amount of $38,000 from [2 Bowery's] Bank of America^[1] account . . . which was deposited into [the Defendant's] personal account"); (ii) the Defendant's receipt and deposit of "personal account checks for 'thousands of dollars' from the [2 Bowery] bank account" (Supporting Memo ¶ 40; see PX1A ¶ 287 (admitting that Wilson Ng wrote "additional checks for thousands of dollars from [2 Bowery's] Bank of America account . . . to [the Defendant] which [the Defendant deposited in his personal bank"); and (iii) the Defendant's possession of at least $25,000 in cash rent from T-Mobile (see PX7 at 108:5-21 (conceding that he was holding "over $25,000" in cash rent from T-Mobile)).

D. The Adversary Proceeding

On July 21, 2023, the Debtors filed the Complaint, commencing this adversary proceeding. As discussed, the Plaintiffs are seeking (i) an immediate judgment possession of the Apartment with a warrant of eviction or writ of assistance and immediate execution of the same with respect to Counts I, II and III; (ii) an order and judgment avoiding the Lease as an actual or constructive fraudulent conveyance and deeming the Cash Transfers to be the same (Count III); (iii) an order and judgment for conversion of the Debtors' cash in the amount of $103,035.00 on account of the Cash...