Big Apple Volkswagen, LLC v. Nisselson

571 B.R. 43

IN RE: BIG APPLE VOLKSWAGEN, LLC

Julian Salim, Appellant,

v.Alan Nisselson, Appellee.

Case No. 11–11388 (JLG)

No. 16–CV–5824 (RA)

United States District Court, S.D. New York.

Signed July 27, 2017

Karamvir Dahiya, Dahiya Law Group LLC, New York, NY, for Appellant.

Howard L. Simon, Windels, Marx, Lane and Mittendorf LLP, New York, NY, for Appellee.

OPINION & ORDER

RONNIE ABRAMS, United States District Judge:

Appellant Julian Salim appeals the bankruptcy court's dismissal of his adversary proceeding against Appellee Alan Nisselson, Chapter 7 Trustee of Debtor Big Apple Volkswagen, LLC. For the reasons set forth below, the bankruptcy court's decision is affirmed.

BACKGROUND¹

Salim is the former owner and operator of Big Apple Volkswagen, LLC ("Big Apple"), a Volkswagen dealership in the Bronx. On March 21, 2011, one of Big Apple's secured creditors, VW Credit, Inc., filed an action to recover Big Apple's inventory as collateral, claiming that Big Apple had defaulted on its loan. See Complaint, VW Credit, Inc. v. Big Apple Volkswagen, LLC, No. 11–CV–1950 (LGS), 2011 WL 12524297 (S.D.N.Y. Mar. 21, 2011).

On March 30, 2011, Big Apple filed a voluntary Chapter 11 bankruptcy petition. See Bankr. Dkt. 1. On May 11, 2011, the bankruptcy court appointed Appellee Alan Nisselson (the "Trustee") as trustee of the Chapter 11 case. See Bankr. Dkt. 61.² Salim alleges that, at a meeting one or two days after the Trustee was appointed, he informed the Trustee of various transactions he had made, including payments "to Syria to purchase used vehicles" and to his "mother for her mortgage loan." Compl. ¶ 5. In response, Salim claims, the Trustee told him, "I know nothing about the dealership business, so get me a buyer and you have my word on not suing anyone." Id. Salim alleges that he and the Trustee "shook hands" on this deal. Id. ¶ 6. Salim claims that he confirmed a buyer for the dealership two days later. Id. ¶ 7.

On June 14, 2011, the Trustee filed an adversary action against Salim's parents, Ratiba Salim and Wahid Saleem, to recover assets Big Apple allegedly transferred to them prior to bankruptcy. See App. 34–47. The Trustee alleged that on March 14, 2011—approximately two weeks before the Chapter 11 petition was filed—Salim withdrew $718,000 from Big Apple's checking account and transferred these funds to his mother. See App. 36–37. According to the Trustee's complaint, Salim's mother used these funds to satisfy a $300,000 mortgage on her residence, then transferred title of the residence to Salim's father. See App. 37. The Trustee further alleged that on March 15, 2011—the day after the alleged transfer to Salim's mother—Salim withdrew another $504,271.14 from Big Apple's checking account and transferred it to his brother-in-law in Syria. See App. 37. The Trustee asserted claims for avoidance and recovery of preferential and fraudulent transfers and attachment of property. See App. 38–44. The Trustee's action against Salim's parents remains pending.³

On November 24, 2015, Salim initiated this adversary proceeding against the Trustee. See Compl. Salim claims that it was a "shock" when the Trustee "went back on his word after promising [Salim] that he wouldn't sue" his parents. Compl. ¶ 10. Salim further alleges that he continues to "suffer from nightmares from all [the Trustee's] wrong doings," and that the Trustee cost him his marriage and "ruined [his] life just for greed." Id. ¶ 15. The complaint asserts claims for breach of fiduciary duty and breach of contract and seeks to enjoin the Trustee from suing Salim's parents. Id. ¶¶ 22–29. On December 22, 2015, the Trustee moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6) and Bankruptcy Rule 7012. See App. 48. According to the bankruptcy court, Salim withdrew his claim for breach of fiduciary duty and waived all claims for money damages at a hearing on April 21, 2016. See App. 4, 8–9.⁴

On May 19, 2016, the bankruptcy court granted the Trustee's motion to dismiss. See App. 2–23. The bankruptcy court determined that Salim lacked standing because he had not sufficiently alleged that he suffered an injury in fact, explaining that "[t]o the extent the Complaint pleads an injury to [Salim] at all, it does in the most conclusory manner." App. 18. The bankruptcy court also concluded that Salim lacked standing to sue on behalf of his parents because "the Complaint is devoid of allegations establishing [Salim's] right to act on behalf of his parents." App. 19.

Despite concluding that Salim lacked standing, the bankruptcy court also addressed the merits of the Trustee's motion. See App. 10–17. The bankruptcy court determined that Salim had not stated a claim for breach of contract because his alleged agreement with the Trustee was unenforceable, as would be any agreement not approved by the bankruptcy court under Federal Rule of Bankruptcy Procedure 9019(a). See App. 12–17. The bankruptcy court also dismissed Salim's claim for an injunction because there is no independent cause of action for injunctive relief under New York law. See App. 21–22. Finally, the bankruptcy court denied Salim leave to amend, reasoning that any amendment would be futile. See App. 22–23. On May 31, 2016, the bankruptcy court entered an order dismissing the complaint with prejudice. See Bankr. No. 15–AP–1408 (JLG), Dkt. 21.

On July 21, 2016, Salim filed a notice of appeal. See Notice of Appeal (Dkt. 1). On March 16, 2017, Salim filed an opening brief. See Appellant's Opening Br. (Dkt. 9). On May 9, 2017, the Trustee filed an answering brief. See Appellee's Br. (Dkt. 14). On May 23, 2017, Salim filed a reply. See Appellant's Reply Br. (Dkt. 16).⁵

LEGAL STANDARDS

A. Standard of Review

District courts have appellate jurisdiction over "final judgments, orders and decrees" of bankruptcy courts under 28 U.S.C. § 158(a)(1). "A district court reviews a bankruptcy court's findings of fact for clear error and reviews its legal conclusions de novo. " Davidson v. AMR Corp. (In re AMR Corp. ), 566 B.R. 657, 663 (S.D.N.Y. 2017) (citation omitted). "A finding of fact is clearly erroneous when ‘the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.’ " Adler v. Lehman Bros. Holdings Inc. (In re Lehman Bros. Holdings Inc. ), 855 F.3d 459, 469 (2d Cir. 2017) (quoting Anderson v. City of Bessemer , 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985) ). By contrast, "[h]armless error, meaning an error not inconsistent with substantial justice or that does not affect the parties' substantial rights, is not grounds for reversal." McNerney v. ResCap Borrower Claims Tr. (In re Residential Capital, LLC ), 563 B.R. 477, 485 (S.D.N.Y. 2016). "A district court may affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or remand with instructions for further proceedings." Margulies v. Hough (In re Margulies ), 566 B.R. 318, 328 (S.D.N.Y. 2017) (internal quotation marks omitted).

B. Motion to Dismiss

" Rule 12(b)(6) of the Federal Rules of Civil Procedure is incorporated into bankruptcy procedural rules by Rule 7012(b) of the Federal Rules of Bankruptcy Procedure." Pereira v. Grecogas Ltd. (In re Saba Enters., Inc. ), 421 B.R. 626, 638 (Bankr. S.D.N.Y. 2009) ; see Fed. R. Bankr. P. 7012(b) ; see also Maxwell Commc'n Corp. plc v. Societe Generale (In re Maxwell Commc'n Corp. plc ), 93 F.3d 1036, 1043 (2d Cir. 1996). To survive a motion to dismiss under Rule 12(b)(6), a complaint must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). "Where a complaint pleads facts that are ‘merely consistent with’ a defendant's liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief.’ " Id. (quoting Twombly , 550 U.S. at 557, 127 S.Ct. 1955 ). When considering a Rule 12(b)(6) motion, courts "accept[ ] plaintiffs' plausible allegations as true and draw[ ] all reasonable inferences in their favor." Fernandez v. Zoni Language Ctrs., Inc. , 858 F.3d 45, 48 (2d Cir. 2017).

DISCUSSION

A. Standing

The bankruptcy court determined that Salim lacks standing to pursue his claims against the Trustee. See App. 18–20. The Court disagrees.

"To satisfy the Constitution's restriction of [a federal court's] jurisdiction to ‘Cases' and ‘Controversies,’ Art. III, § 2, a plaintiff must demonstrate constitutional standing." Bank of Am. Corp. v. City of Miami , ––– U.S. ––––, 137 S.Ct. 1296, 1302, 197 L.Ed.2d 678 (2017). "To establish Article III standing, the plaintiff seeking compensatory relief must have ‘(1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.’ " Town of Chester v. Laroe Estates, Inc. , ––– U.S. ––––, 137 S.Ct. 1645, 1650, 198 L.Ed.2d 64 (2017) (quoting Spokeo, Inc. v. Robins , ––– U.S. ––––, 136 S.Ct. 1540, 1547, 194 L.Ed.2d 635 (2016) ). "These limitations apply to bankruptcy courts." Elliott v. Gen. Motors LLC (In re Motors Liquidation Co. ), 829 F.3d 135, 168 (2d Cir. 2016), cert. denied sub nom. Gen. Motors LLC v. Elliott , ––– U.S. ––––, 137 S.Ct. 1813, 197 L.Ed.2d 758 (2017). "The plaintiff, as the party invoking federal jurisdiction, bears the burden of establishing these elements." Spokeo , 136 S.Ct. at 1547 ; accord Montesa v. Schwartz , 836 F.3d 176, 194 (2d Cir. 2016). "Each element of standing ‘must be supported ... with the manner and degree of evidence required at the successive stages of the litigation,’ and at the pleading stage, ‘general factual allegations of injury resulting from the...