In re First Conn. Consulting Grp., Inc.

579 B.R. 673

IN RE: FIRST CONNECTICUT CONSULTING GROUP, INC., Debtor.

In re: James J. Licata, Debtor.

CASE No. 02–50852 (JJT)

CASE No. 02–51167 (JJT)

United States Bankruptcy Court, D. Connecticut, Hartford Division.

Signed January 10, 2018

Alan J. Brody, Buchanan Ingersoll, PC, Princeton, NJ, John F. Carberry, Cummings & Lockwood, Stamford, CT, Roy W. Moss, Norwalk, CT, Scott S. Markowitz, Todtman, Young, Tunick, and Nachamie, Deborah J. Piazza, Tarter Krinsky & Drogin LLP, Schuyler G. Carroll, Beth Green Kibel, Arent Fox PLLC, New York, NY, for Debtors.

MEMORANDUM OF DECISION ON MOTIONS FOR AN ORDER CONVERTING CHAPTER 7 CASES TO CASES UNDER CHAPTER 11 OF THE BANKRUPTCY CODE

James J. Tancredi, United States Bankruptcy Judge District of Connecticut

Introduction

Before the Court are James Licata's ("Licata") motions seeking entry of an order reconverting his individual Chapter 7 case and the Chapter 7 case of First Connecticut Consulting Group, Inc. ("FCCG") to cases under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code"), pursuant to Section 706(b) of the Bankruptcy Code (ECF Nos. 2704 and 1006, in the cases of FCCG and Licata, respectively, the "Motions"). Licata is the president and fifty percent shareholder of FCCG. These bankruptcy cases are more than fifteen (15) years old, outlasting many of the practitioners and jurists who came to learn their innumerable and often interwoven strands. As one court faced with a series of related First Connecticut bankruptcy cases observed some thirteen (13) years ago, Licata and his former business partner, Peter Mocco ("Mocco"), had woven so many "loops and knots" through complex transactions, legal skirmishes and elaborate deceits that they had created a web of strands "so entangled that even the parties have a hard time separating and making sense of them." In re First Connecticut Consulting Grp., Inc. , 2004 WL 1676211, at *1 (Bankr. D. Vt. July 27, 2004), aff'd , 340 B.R. 210 (D. Vt. 2006), aff'd , 254 Fed.Appx. 64 (2d Cir. 2007). More than ten (10) years later, this Court (Shiff, J.) noted, "the web has expanded with more strands and additional loops and knots." In re First Connecticut Consulting Grp., Inc. , 2014 WL 5092269, at *1 (Bankr. D. Conn. Oct. 9, 2014), dismissed sub nom. Licata v. Coan , 2015 WL 9699304 (D. Conn. Sept. 22, 2015), aff'd sub nom. In re Licata , 659 Fed.Appx. 704 (2d Cir. 2016). Now, with the end of these bankruptcy cases finally within sight, Licata asks this Court to turn back into the abyss.

For the reasons set forth herein, the Court declines to do so.

Relevant Background and Procedural History¹

Prior to commencing his Chapter 11 case, Mr. Licata was engaged in protracted litigation against his former business partner, Peter Mocco, in the State of New Jersey (the "New Jersey Litigation"). The central dispute in the New Jersey Litigation was the identity of the owner(s) of certain real estate assets located in New Jersey (the "Disputed Claims").

On June 27, 2002, Mr. Licata filed a voluntary petition for bankruptcy relief under Chapter 11 of the Bankruptcy Code with the United States Bankruptcy Court for the Middle District of Florida. FCCG filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on July 12, 2002 with this Court. Upon the motion of the United States Trustee for the Middle District of Florida to transfer venue, Licata's bankruptcy case was transferred to this Court on September 20, 2002. On December 30, 2002, the Chapter 11 cases of Licata and FCCG were administratively consolidated.

Also in September of 2002, Licata filed voluntary petitions for bankruptcy relief under Chapter 11 of the Bankruptcy Code with this Court for several LLCs bearing the name First Connecticut Holding Group (the "LLCs"). In re First Connecticut Consulting Grp., Inc. , 2004 WL 1676211, at *10 (Bankr. D. Vt. July 27, 2004), aff'd , 340 B.R. 210 (D. Vt. 2006), aff'd , 254 Fed.Appx. 64 (2d Cir. 2007). Mocco filed a motion to dismiss the cases, claiming that Licata lacked authority to file the petitions, given his lack of ownership interest in the LLCs and the real estate they controlled. In January of 2004, these cases and the motion to dismiss were transferred to the Bankruptcy Court for District of Vermont (Brown, J.). Following an eight-day trial on the motion to dismiss, Judge Brown held "that Licata had no ownership interest in the LLCs as of the date he filed the LLC bankruptcy petitions."² Judge Brown further determined that Licata had filed the petitions in bad faith to impede pending litigation in another court, which litigation might have conclusively defeated his claim to ownership of the LLCs.³ Judge Brown also noted that Litica's testimony concerning the nature of his agreement with Mocco was "both disturbing and disingenuous."⁴ Licata appealed the bankruptcy court's ruling to both the District Court and the Court of Appeals without success.

No fewer than seven motions were filed seeking conversion of these bankruptcy cases to Chapter 7. On April 3, 2006, the United States Trustee filed a statement in support of the conversion of the FCCG and Licata cases "[i]n light of the March 22, 2006 indictment of James J. Licata, the debtor-in-possession herein, by the Grand Jury currently impaneled in the District of Connecticut which alleges that James J. Licata has committed two counts of federal felony ‘Wire Fraud Affecting a Financial Institution,’ and three counts of ‘Money Laundering ....’ "⁵

On June 28, 2006, the Chapter 11 cases were converted to Chapter 7 on motion of the United States of America. Trustees Richard Coan and Ronald Chorches were appointed to administer the estates of FCCG and Licata, respectively ("Trustee Coan" and "Trustee Chorches", collectively, the "Trustees").

On December 21, 2007, the United States District Court for the District of Connecticut entered a judgment in the criminal case against Licata.⁶ The judgment notes that Licata pleaded guilty to one count of Wire Fraud under 18 U.S.C. § 1343, and that he was sentenced to serve a term of one day in jail and four years' supervised release. Licata was also ordered to participate in a mental health treatment program and to pay a $3,000 fine.

Prior to the appointment of the Trustees, during the pendency of the related Chapter 11 cases at issue here, the Official Committee of Unsecured Creditors filed a verified complaint against, inter alia , Licata and FCCG, alleging that Licata fraudulently transferred two parcels of real estate to his wife, Cynthia Licata, prior to the bankruptcy filings. On or about April 5, 2013, the Trustees stipulated to judgment with Cynthia Licata, pursuant to which, Cynthia Licata owes the bankruptcy estates the sum of $1,625,000.⁷ The judgment owed to the bankruptcy estates by Mrs. Licata remains wholly unsatisfied.

On March 13, 2009, the Trustees commenced an Adversary Proceeding against Cynthia Licata, James Licata, East Coast Investments, LLC and First Connecticut Holding Group LLC, IV. The Trustees allege that, during the pendency of the Chapter 11 cases, Licata and Cynthia Licata orchestrated an asset sale transferring estate property to Cynthia Licata, pursuant to a certain "Transfer Settlement and Release Agreement," and that this shifting of assets from the Estate to Licata's wife was not disclosed to this Court.⁸ The causes of action include breach of fiduciary duty and fraud upon this Court. That proceeding was stayed by order of this Court on February 7, 2017 and remains in administrative suspense pending the outcome of two appeals.

On March 30, 2016, Trustee Chorches commenced an adversary proceeding against Licata, seeking to deny him a discharge pursuant to Section 727 of the Bankruptcy Code as a result of Licata's failure to assist the Trustees with their prosecution of the New Jersey Litigation. The complaint alleges that, in 2013, the presiding judge in the New Jersey Litigation, the Hon. James Rothschild, requested that the Trustees provide a forensic analysis evidencing the amount of money Mr. Licata had invested in the Real Estate Assets (the "Forensic Analysis").⁹ Judge Rothschild informed the Trustees that this information would be important to his determination on the merits as to the legal owner of the Real Estate Assets.¹⁰ Mr. Licata then informed counsel for the Trustees that he had recently completed an analysis for the IRS (the "Tax Analysis") that would assist in the drafting of the Forensic Analysis.¹¹ Though Mr. Licata voluntarily disclosed the existence of the Tax Analysis, he concedes that he never provided the document to the Trustees.¹² The Trustees contend that Licata also failed to provide the underlying information necessary to complete the Forensic Analysis without reference to the Tax Analysis, and that this withholding greatly prejudiced the Trustees' ability to prosecute the New Jersey Litigation on behalf of the estates. By order dated June 14, 2017, the Court denied Licata's motion to dismiss Trustee Chorches' claims objecting to discharge.

During the pendency of the Chapter 7 cases, Mr. Licata repeatedly attempted to sell estate assets without approval from the Trustees. Some of these attempts resulted in Licata receiving money and judgments entering against the estates. For example, several years after the conversion to Chapter 7, on September 21, 2010, Blackwells Asset Management, LLC, sued Licata in the United States District Court for the District of Connecticut after one of its affiliates advanced Mr. Licata $25,000 in connection with an anticipated Section 363 sale of estate assets.¹³ The sale was never consummated and Blackwells ultimately obtained a judgment against Licata for $175,000.¹⁴

A similar pattern emerged a few years later, nearly seven (7) years after the conversion of these cases to Chapter 7. On February 7, 2013, Licata and FCCG purported to sell Richard Annunziata an interest in a variety of estate assets, including those related to the...