In re Barkany

542 B.R. 662

In re Gershon Barkany, Debtor.

Case No.: 14–72941–las

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

Signed December 29, 2015

Marc Pergament, Esq., Interim Chapter 7 Trustee, Weinberg Gross & Pergament, 400 Garden City Plaza, Garden City, N.Y. 11530

Weinberg Gross & Pergament, Attorneys for the Interim Chapter 7 Trustee By: Marc Weingard, Esq., 400 Garden City Plaza, Garden, City, N.Y. 11530

Kaye Scholer LLP, Attorneys for Joseph Rosenberg By: Lester M. Kirschenbaum, Esq., Jonathan M. Agudelo, Esq., 250 West 55th Street, New York, N.Y. 10019

Spence Law Office, P.C., Attorneys for Saul Kessler By: Robert J. Spence, Esq., 500 North Broadway, Suite 149, Jericho, N.Y. 11753

Ruskin Moscou Faltischek, P.C., Attorneys for Whitefish Group LLC, Edward Lowy, Jonathan Liefer, Murray Leifer, and Sara Leifer By: Michael S. Amato, Esq., 1425 RXR Plaza, East Tower, 15th Floor, Uniondale, N.Y. 11556

Schachter Portnoy, L.L.C., Attorneys for 169 16th Street, LLC, WL Metro Equity Holdings, LLC, L'Chayim Foundation, Inc., Ludvik and Eva Family Partnership

and Law Offices of Allan Lebovits, P.C. By: Joel S. Schneck, Esq., 3490 U.S. Route 1, Princeton, NJ 08540

Locke Lord LLP, Attorneys for Barkany Asset Recovery & Management LLC By: Allen C. Wasserman, Esq., Shalom Jacob, Esq., Alan H. Katz, Esq., 1155 Avenue of the Americas, New York, N.Y. 10036

Vorte Lohrfink Magro & McAndrew LLP, Attorneys for Zucker & Kwestel, LLP and Steven Kwestel By: Edward G. Warren, Esq., 170 Hamilton Avenue, White Plains, N.Y. 10601

MEMORANDUM DECISION AND ORDER

Louis A. Scarcella, United States Bankruptcy Judge

Before the Court is a motion to resolve the disputed election of the permanent chapter 7 trustee for the bankruptcy estate of Gershon Barkany ("Barkany" or the "Debtor") brought by 169 16^th Street, LLC, WL Metro Equity Holdings, LLC, L'Chayim Foundation, Inc., Law Offices of Allan Lebovits, P.C., and Ludvik & Eva Hilman Family Partnership, L.P. (collectively, the "Canadian Northern Creditors"). [ECF No. 200]. The interim trustee and certain creditors opposed the motion. [ECF Nos. 202, 203, 205, 206 and 207]. At issue is whether the Canadian Northern Creditors hold an interest materially adverse to other creditors of this bankruptcy estate, and therefore, are ineligible under 11 U.S.C. § 702(a)(2) to request for and vote at the election of the permanent chapter 7 trustee. Having considered the submissions of the parties, the relevant law, and the record in this case, and for the reasons explained below, the Court hereby finds that the Canadian Northern Creditors do not have an interest materially adverse to the interests of other creditors, and are eligible to request that a trustee election be held and to vote for the permanent trustee. The following constitutes the Court's findings of fact and conclusions of law¹ pursuant to Fed. R. Civ. P. 52(a)(1), as incorporated into Rule 7052 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules") and applied to contested matters in bankruptcy cases.

JURISDICTION AND VENUE

Subject matter jurisdiction lies under 28 U.S.C. § 1334. The district court may refer proceedings to a bankruptcy judge under 28 U.S.C. § 157, and this matter is referred here by the Standing Order of Reference entered by the United States District Court for the Eastern District of New York pursuant to 28 U.S.C. § 157(a), dated August 28, 1986, as amended by Order dated December 5, 2012, effective nunc pro tunc as of June 23, 2011. Venue lies under 28 U.S.C. § 1409. This matter is a contested election of a permanent trustee, and is therefore a core proceeding. 28 U.S.C. § 157(b)(2)(A). A bankruptcy judge may hear and finally decide any core proceeding. 28 U.S.C. § 157(b)(1). A contested election under 11 U.S.C. § 702"stems from the bankruptcy itself," and may constitutionally be decided by a bankruptcy judge. Stern v. Marshall, ––– U.S. ––––, 131 S.Ct. 2594, 2618, 180 L.Ed.2d 475 (2011). Accordingly final judgment is within the scope of the Court's jurisdictional and constitutional authority.

BACKGROUND AND PROCEDURAL HISTORY²

I. Events Leading Up to the Bankruptcy.

This bankruptcy case arises from two fraudulent business schemes conducted by Barkany between 2008 and 2013, by which he induced investors to believe that they were investing in bona fide real estate ventures.

A. The First Investment Scheme.

Between 2008 and 2010, Barkany carried out the first fraudulent investment scheme against Cortland Realty Investments, LLC, Jordan Most, Seth Farbman, Gerald Pinsky, Mordechai Hellman, Moshe Schreiber, Shalom Maidenbaum, Charles Silberberg, and Dekel LLC (the "Cortland Creditors"). Soon after discovering Barkany's fraud, the Cortland Creditors retained Locke Lord LLP as legal counsel, which in turn retained S. David Belsky, a Certified Public Accountant and Certified Financial Examiner, to further investigate Barkany's fraudulent activities. On August 1, 2011, Barkany signed an affidavit of confession of judgment (the "Affidavit of Confession") whereby he stated, inter alia, that:

(A) [he] repeatedly engaged in fraudulent and unauthorized practices and conveyances which victimized the [Cortland] Creditors. [He] employed a variety of means in this fraud, including the solicitation of funds for real estate and loan transactions which, unbeknownst to [the Cortland Victims], were not as represented or altogether non-existent.

(B) In each case, the [Cortland] Creditors provided funds for specific purposes and required repayment within a fixed and agreed period of time....

(C) The loans and real estate transactions were generally shams, fabricated by [him] to serve as a vehicle to separate [Cortland] Creditors from their money....

(D) While some of the earlier transactions did produce returns, when the transactions did not do so, [he] would resort to reporting fictitious or falsely inflated returns, making some payments and, on certain occasions, trying to get the creditors to roll over payments into new transactions. In reality, their money had been used to pay off other creditors or was otherwise misappropriated by [him]....

Affidavit of Confession, at 2–3.

Based upon the Affidavit of Confession, the Cortland Creditors obtained a prepetition judgment against Barkany on March 25, 2013 in the amount of $66,609,420.74 (the "Judgment"). [ECF No. 19–1]. On August 13, 2013, the Cortland Creditors entered into a partial satisfaction of the Judgment after recovering $10,066,000.00 and assigned the remaining $56,543,424.74 owed under the Judgment to Barkany Asset Recovery & Management LLC ("BARM", together with Cortland Realty Investments, LLC, Jordan Most, Marshal Eisenberg and Debra Eisenberg Wilder, Seth Farbman, Janet Pinsky, Shalom Maidenbaum, Rachell Gober, The Bosses' Daughter, LLC, Chaim Silberberg and Mr. San, LLC, the "BARM Group"). BARM was formed to collect and administer assets of Barkany by enforcing the Judgment and bringing claims against third parties. [ECF No. 19–2]. Mr. Belsky is the sole member and manager of BARM and Locke Lord LLP represents BARM as its legal counsel.

B. The Second Investment Scheme.

In 2013, Barkany perpetrated a second investment scheme against, inter alia, the Canadian Northern Creditors by presenting himself as Gary Barr and causing the Canadian Northern Creditors to invest in excess of $8 million in purported real estate ventures. The Canadian Northern Creditors are represented by Joel S. Schneck, Esq., of Schachter Portnoy, L.L.C. in this bankruptcy case.

Having learned of Barkany's fraudulent activities, the Canadian Northern Creditors, with the exception of the Ludvik & Eva Hilman Family Partnership, L.P. (the "Family Partnership"), commenced an action in the Supreme Court of the State of New York ("New York State Supreme Court") against Barkany and other captioned Canadian Northern Realty LLC, Canadian Northern Realty LLC on behalf of its members, Metro Equity Holdings, LLC, 169 16th Street LLC, Abraham Loffler, WLCF Metro Equity Holders, LLC, Law Offices of Allan Lebovits, as nominee, L'Chayim Foundation, Inc., David Weinberger and Refoel LeBracht v. Gershon Barkany a/k/a Gary Barr, Alan Gerson, Jason Rosenthal, Alfred Shonberger, Marina Development Company, LLC, Old World Investments, Sam Sprei, Jonathan Zelinger, Joseph Rosenberg, First American Title Insurance Corp., Bruce Montague & Partners and Morrison & Foerster, Index No. 501806/2013 (the "Canadian Northern Lawsuit"). [Claims Register ECF No. 5–1, Ex. A].

According to the complaint filed in the Canadian Northern Lawsuit, Barkany and others allegedly working in conjunction with Barkany convinced 169 16th Street LLC to invest $500,000 with Barkany toward the purchase of property located at 105–107–111 West 28th Street, New York, New York, and $1,700,000 toward the purchase of 1 West 37th Street, New York, New York (the "37th Street Investment"). Barkany allegedly then approached the principal of 169 16th Street LLC, Abraham Loffler, about a third investment opportunity—the purchase of a building known as The Metro located at 301 West 53rd Street, New York, New York (the "Metro Deal") —for which he needed $7,500,000 as a soft deposit. After Loffler told his friend David Weinberger about the Metro Deal and of his previous investments with Barr, Weinberger agreed to put together several investors for the Metro Deal. Loffler and Weinberger thereafter formed Metro Equity Holdings, whose members are WLCF Metro Equity Holdings LLC and WL Metro Holdings LLC.

To facilitate the Metro Deal, Barkany formed Canadian Northern Realty LLC whose members consist of Metro Equity Holdings, with a 64% ownership interest, Gary Barr (i.e., Barkany), with a 17.5% ownership interest, and Yehudah (Jacob) Stolzberg, with a 17.5% interest. Barkany allegedly told Loffler to pay $2,000,000 to Alfred and Judith Schonberger and represented that the Schonbergers had advanced $2,000,000 that was used as the initial deposit on the Metro Deal.

The plaintiffs further allege that...