Harrison v. Konfino (In re A.N. Frieda Diamonds, Inc.)

616 B.R. 295

IN RE A.N. FRIEDA DIAMONDS, INC., Debtor.

Matthew C. Harrison, Jr., Trustee-Plaintiff,

v.Ronen Konfino, Frieda Konfino, Roni Rubinov, New Liberty Pawn Shop, Inc., New York Estate Buyers and Abner Rubinov a/k/a Avner Rubinov, Defendants.

VNB New York, LLC, Defendant-Intervenor and Cross-Claimant

Case No. 15-11862 (MEW)

Adv. Pro. No. 17-01103 (MEW)

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

Dated: New York, New York April 29, 2020

LEO FOX, ESQ. New York, New York Attorney for the Trustee-Plaintiff

ZEICHNER ELLMAN & KRAUSE LLP New York, New York By: Peter Janovsky, Esq. Stephen F. Ellman, Esq. Attorneys for VNB New York, LLC

PAUL J. SOLDA, ESQ. New York, New York Attorney for Roni Rubinov and New Liberty Pawn Shop, Inc.

SHAFFERMAN & FELDMAN LLP New York, New York By: Joel M. Shafferman, Esq. Attorneys for Avner Rubinov

DECISION AFTER TRIAL

HONORABLE MICHAEL E. WILES, UNITED STATE BANKRUPTCY JUDGE

Plaintiff A.N. Frieda Diamonds, Inc. ("AN Frieda ") is the chapter 7 debtor in a case that has been pending since 2015. The chapter 7 trustee, Matthew C. Harrison, Jr., contends that the former principal of AN Frieda, Mr. Ronan Konfino, pawned diamonds and other items that were owned by AN Frieda in transactions with defendant New Liberty Pawn Shop, Inc. ("New Liberty "). The trustee further contends that New Liberty and its owner, Mr. Roni Rubinov, improperly disposed of those items in violation of section 549 of the Bankruptcy Code and in violation of various orders that I entered. The Trustee seeks damages in an amount to be assessed by the Court but that have been described in the parties' Joint Pretrial Order as ranging between $1,256,291 and $2,010,066.

In his complaint, the Trustee also asserted a claim under section 547 of the Bankruptcy Code to recover alleged preferences in the amount of $27,844. The complaint described the preference payments as having been made to an entity named Roni Rubinov, Inc. A question arose at trial as to whether that entity had ever properly been named as a defendant. I will discuss that issue below.

In addition to New Liberty and Mr. Rubinov, the Trustee has also sued an entity named New York Estate Buyers, which is the entity to which New Liberty purportedly sold the items that are the subject of this proceeding. Avner Rubinov, who is the owner of New York Estate Buyers and who is the father of Roni Rubinov, has also been named as a defendant. The Trustee contends, pursuant to section 550 of the Bankruptcy Code, that New York Estate Buyers and Avner Rubinov are subsequent transferees of property of the estate that was wrongfully transferred, and that as subsequent transferees they are obligated to compensate the Trustee for the values of the items that were transferred to them.

The Trustee also sued the former owners of AN Frieda, who are two individuals named Ronen Konfino and Frieda Konfino.

This Court has entered default judgments against Mr. and Mrs. Konfino and they did not participate in the trial.

VNB New York, LLC ("VNB ") has intervened in the proceeding and has asserted cross-claims against all of the named defendants. VNB contends that it is a secured creditor and that VNB had a valid and perfected security interest in the items that belonged to AN Frieda and that Mr. Konfino delivered to New Liberty. VNB has asserted claims to recover damages for the improper disposition of its collateral, including claims of negligence, conversion, aiding and abetting of conversion and constructive trust. VNB has also asked for a ruling that its recovery rights are superior to the rights of the Trustee or of other parties.

New Liberty and Roni Rubinov admit that Mr. Konfino delivered diamonds and some other jewelry and watches to New Liberty and that some of the items probably belonged to AN Frieda. However, they argue that it is likely that many of the pawned items were the personal property of Mr. Konfino and his wife, and they suggest that the Trustee has not offered sufficient proof of ownership of each item. New Liberty and Roni Rubinov further argue that New Liberty sold the pawned items to New York Estate Buyers after giving notices of default and after the relevant redemption periods had expired, in each case in accordance with New Liberty's rights under New York State law and under the Bankruptcy Code. Roni Rubinov has testified that he did so without knowledge of AN Frieda's bankruptcy case, or of VNB's security interests, or of court orders in which I had barred parties from transferring property that belonged to AN Frieda.

Avner Rubinov and New York Estate Buyers are also defendants, as noted above. I entered default judgments against Avner Rubinov and New York Estate Buyers, but Avner Rubinov later moved to vacate the defaults. The parties resolved that motion by stipulating that the default judgments would remain in place "pending a determination of the merits of this Action." See PX 35, at ¶ 1. Avner Rubinov contends that neither he nor New York Estate Buyers ever purchased or received the diamonds that are at issue in this proceeding, and he has flatly contradicted his son's testimony on those points.

I denied a motion for summary judgment that was filed by New Liberty in July 2019. See ECF No. 138. I explained my reasons for doing so on the record after oral argument of the summary judgment motion. See Transcript, July 30, 2019, ECF No. 139.

Jurisdiction

The parties agree I have subject matter jurisdiction over their claims and cross-claims, personal jurisdiction over the parties, and the statutory and constitutional power to render a final judgment. The parties reconfirmed those agreements at the outset of trial.

Uncontested Facts

The following matters are not in dispute.

1. Mr. Konfino delivered diamonds and other property to New Liberty pursuant to 135 separate pawn transactions during the period December 2013 through March 2015. New Liberty loaned $3,460,690 in those transactions. See Joint Pretrial Order ("JPO") (ECF No. 145), Stipulated Facts ¶¶ 11-12.

2. As of May 2015, 44 of the 135 pawn transactions were still outstanding. New Liberty's loans in those transactions were in the principal amount of $1,005,033. New Liberty sent default notices with respect to the 44 open transactions on July 9 and 10, 2015. Id. ¶ 13. The default notices stated that the pawned items would be sold unless they were redeemed within thirty days. See DX C.

3. This bankruptcy case began with the filing of an involuntary chapter 7 bankruptcy petition against AN Frieda on July 16, 2015. See PX 1.

4. On July 23, 2015, I issued an order that required the disclosure by AN Frieda of the location of all property belonging to AN Frieda. See Case No. 15-11862, ECF No. 10.

5. On August 6, 2015, an interim trustee was appointed with the consent of AN Frieda. See Case No. 15-11862, ECF No. 21; see also PX2 (Order, dated August 5, 2015). The Order appointing the interim trustee also directed AN Frieda "and any other person or persons" to "deliver forthwith to said Interim Trustee all of the property of the estate of whatsoever nature and description in the possession or control" of such person. See PX 2.

6. At some point the interim trustee learned that Roni Rubinov and/or New Liberty might be in possession of property belonging to AN Frieda. I issued an Order on August 14, 2015 that directed that "any third party, including, without limitation, Roni Rubinov, is directed to turn over to the Interim Trustee or his designee ... any Assets in such third party's possession, custody or control." The Order made clear that any liens or security interests would remain in place notwithstanding any such turnover. See PX 3.

7. On August 18, 2015, the attorney for the interim trustee, David Dinoso, requested in writing that Roni Rubinov and New Liberty permit the interim trustee to take inventory of items in their possession that belonged to AN Frieda. The writing was directed to an attorney named Daniel J. Gotlin. See JPO, Stipulated Facts, ¶ 4; see also PX 4.

8. On August 18, 2015 Mr. Gotlin sent an email to the interim trustee's counsel, stating that he had just spoken to "my client" and that "[h]e is going through his records to determine what if anything is still in his possession. I hope to have an answer for you by tomorrow." Id.

9. On September 2, 2015, the interim trustee filed a motion seeking a turnover by Roni Rubinov and New Liberty of property belonging to AN Frieda. See Case No. 15-11862, ECF No. 31.

10. On September 8, 2015 I entered an order for relief, granting the petition filed against AN Frieda and confirming the chapter 7 case.

11. On September 16, 2015, I entered an order that granted the trustee's pending turnover motion and that directed Roni Rubinov and New Liberty, within one day, to turn over any property of the estate in their possession, custody or control and to provide an accounting for any disposition they had made of property that had been in their possession. See PX 5.

12. Matthew Harrison was subsequently elected as the permanent trustee. He wrote a letter to Roni Rubinov and New Liberty dated December 2, 2015 to follow up on the prior court orders and to seek further information. See PX 6. Roni Rubinov contends that this was the first time that he became aware that a bankruptcy case had been filed or that this Court had issued the orders described above.

13. Neither Mr. Rubinov nor New Liberty entered an appearance in AN Frieda's bankruptcy case in 2015 or submitted papers in connection with the foregoing matters.

14. I received additional requests for relief by the Trustee in 2016. On March 8, 2016 I entered a further Order directing an accounting by Mr. Rubinov and New Liberty. See PX 7. By Stipulation of the parties the deadline for compliance was extended to April 19, 2016. See ECF No. 108.

Matters Decided at the Outset of Trial

I held a four-day trial on October 25, 28, 29 and 30, 2019. Transcripts have recently been prepared and filed and can be found at ECF numbers 154, 155, 156...