In re Nilhan Fin., LLC

627 B.R. 529

IN RE: NILHAN FINANCIAL, LLC Debtor.

Case No. 8:17-bk-03597-MGW

United States Bankruptcy Court, M.D. Florida, Tampa Division.

Signed March 31, 2021

R. Scott Shuker, Esq., Shuker & Dorris, P.A., Counsel for Good Gateway, LLC

Michael S. Hoffman, Hoffman, Larin & Agnetti, P.A., Counsel for Chittranjan K. Thakkar

ORDER ON OBJECTION TO CLAIM NO. 3 AND MOTION TO DETERMINE CLAIM NO. 3 IS NOT ENTITLED TO PRIMA FACIE VALIDITY UNDER BANKRUPTCY RULE 3001

Michael G. Williamson, United States Bankruptcy Judge

THIS CASE came on for consideration without a hearing on Chittranjan Thakkar's Objection to Claim No. 3¹ and his Motion to Determine that Good Gateway, LLC's Proof of Claim is not Entitled to Prima Facie Validity Pursuant to Bankruptcy Rule 3001(f).² SEG Gateway filed a $13.9 million proof of claim (Claim No. 3) based on a judgment it obtained against Thakkar.³ Good Gateway, which took assignment of Claim No. 3 from SEG Gateway, seeks to hold the Debtor liable for the judgment against Thakkar on a reverse veil-piercing theory.⁴

As a threshold matter, Thakkar asks the Court to disallow Claim No. 3 as a matter of law for three reasons: First, according to Thakkar, reverse veil-piercing is available only against a controlling member of a limited liability company.⁵ And there appears to be no dispute that Thakkar is not (and never was) a controlling member of the Debtor. Second, to prevail on its reverse veil-piercing theory, Good Gateway must show the Debtor is Thakkar's alter ego. Thakkar contends that Good Gateway previously litigated whether Thakkar was the alter ego of the Debtor in state court and that a state court jury found he was not. So Thakkar says Good Gateway is collaterally estopped from relitigating that issue. Third, Thakkar says Good Gateway lacks standing because it has failed to provide evidence that it took assignment of Claim No. 3 from SEG Gateway.⁶ Assuming Claim No. 3 is not disallowed as a matter of law, Thakkar asks the Court to determine that the claim is not entitled to prima facie validity under Federal Rule of Bankruptcy Procedure 3001(f).⁷

Let's start with Thakkar's first argument: Good Gateway cannot prevail on its reverse veil-piercing theory because Thakkar was not a controlling member of the Debtor. Good Gateway concedes that as a general rule, reverse veil-piercing is available only against a company's controlling members.⁸ But Good Gateway argues that in Molinos Valle Del Cibao, C. por A. v. Lama , the Eleventh Circuit recognized a "familial" exception to the general rule.⁹

In Molinos , the plaintiff sought to hold individual defendants liable for a worthless check issued by two companies—Chipstek and Expertek—by piercing the corporate veil.¹⁰ None of the individual defendants, however, were shareholders of Chipstek or Expertek.¹¹ Rather, Chipstek and Expertek were owned by Globaltek, which was owned by ORLS International Holdings, which, in turn, was owned by L&S Corporation.¹² The defendants had an ownership interest in L&S Corporation—Chipstek and Expertek's indirect parent. The district court dismissed the worthless check claim.¹³

On appeal, the Eleventh Circuit rejected the plaintiff's argument that Florida law permitted veil-piercing against non-shareholders. In support of that argument, the plaintiff had cited Walton v. Tomax Corp.¹⁴ There, Florida's Fifth District Court of Appeal permitted veil-piercing against a corporate officer even though the corporate officer was not a shareholder. In distinguishing Walton , the Eleventh Circuit noted that the corporate officer's wife in Walton was a shareholder.

The Eleventh Circuit predicted that the Florida Supreme Court would have likely found that fact dispositive because the wife's interest likely benefitted the entire family:

[T]he sole shareholder in that case was the defendant-officer's wife. The Florida Supreme Court would likely find that ... fact dispositive; a wife's ownership interest is a very close analogue to the husband's ownership because the economic proceeds likely benefit the entire family unit.

Thus, Good Gateway's reads Molinos as implicitly creating an exception to the general rule—i.e., that veil-piercing is only available against a controlling shareholder—where there is a familial relationship.

In fact, Chief U.S. Bankruptcy Judge Laurel Isicoff read Molinos exactly that way in In re Trujillo .¹⁵ There, the Chapter 7 Trustee asserted an alter ego claim against corporate defendants. Even though the debtor was not a shareholder of the corporate defendants, Chief Judge Isicoff denied a Rule 52(c) motion for judgment on partial findings and allowed the Trustee to proceed with his alter ego claim, explaining that in Molinos , the Eleventh Circuit recognized a non-shareholder's interest in a corporation through a "familial relationship."¹⁶

What's more, Chief Judge Isicoff noted that Molinos ' "familial-relationship" exception was not limited to a husband and wife. For one thing, Molinos "talks about the benefit to ‘the entire family unit.’ "¹⁷ For another, Chief Judge Isicoff noted "[t]here is no reason to limit the family unit to husband and wife," particularly considering Molinos mentions "ownership" several times as the critical factor in deciding to permit veil-piercing.¹⁸ Indeed, Chief Judge Isicoff concluded that the need for a familial-relationship exception is more acute when the party seeking to pierce the corporate veil alleges that the wrongdoer is, in fact, the "true owner" of the corporation.¹⁹

[T]he implicit interest due to familial relationship that the Eleventh Circuit recognized in Molinos as an exception to the "shareholder" rule is even more telling when the allegation of the plaintiff is that the defendant is, in truth, the true owner of a corporation, such as is the allegation of the Plaintiffs with respect to the equitable ownership claim. There is no factual distinction between the presumed economic benefit and consequent availability of alter ego as a theory of recovery arising from the bonds of family, and the presumed economic benefit arising from actual equitable ownership if so proven.²⁰

Because the Florida Supreme Court has not addressed the "familial-relationship" exception, this Court must predict how the Florida Supreme Court would rule on that issue.²¹ "Decisions of the intermediate appellate courts—here, the Florida District Courts of Appeal—provide data for this prediction."²² This Court agrees with Chief Judge Isicoff's reading of Molinos: based on the Fifth District Court of Appeal's decision in Walton , the Eleventh Circuit predicted that the Florida Supreme Court would recognize a "familial-relationship" exception to the "shareholder" rule.

To be sure, the Eleventh Circuit's prediction is, as Thakkar contends, dicta. But the Eleventh Circuit's reasoned view, even if dicta , is persuasive authority in predicting whether the Florida Supreme Court would recognize a "familial-relationship" exception. Guided by Molinos , this Court concludes the Florida Supreme Court would permit a veil-piercing claim when there is a familial relationship.

And like Chief Judge Isicoff, this Court declines to limit a familial relationship to a husband and wife. Here, there is evidence that Thakkar and his sons treat the Debtor as a family company.²³ Plus, there are allegations that Thakkar is the Debtor's true owner. This Court therefore concludes that Good Gateway is not precluded from veil-piercing simply because Thakkar never had a controlling interest in the Debtor.

Nor is Good Gateway collaterally estopped from reverse veil-piercing. As Thakkar points out, two of the elements of collateral estoppel are that the issue (here, that the Debtor is Thakkar's alter ego) was actually litigated in the prior suit and that the determination of that issue was a critical and necessary part of the judgment.²⁴

Here, SEG Gateway previously filed a crossclaim against the Debtor in state court that contained allegations that the Debtor was Thakkar's alter ego.²⁵ Those allegations, Thakkar argues, "formed the entire basis for all of the claims against the Debtor" and that the "Debtor's alleged liability was entirely imputed from other defendants through the alter ego allegations."²⁶ Because the state court jury ruled in favor of the Debtor on SEG Gateway's claims against the company, Thakkar reasons that the jury necessarily determined the Debtor was not Thakkar's alter ego.

This argument is built on a faulty premise—i.e., that "the alter ego allegations formed the entire basis for all of the claims against the Debtor." A careful reading of the crossclaim reveals that SEG Gateway asserted direct claims against the Debtor for tortious interference, conspiracy, injunctive relief, declaratory judgment, breach of fiduciary duty, and constructive fraud based on its own alleged wrongful conduct.²⁷ Consistent with that reading of the crossclaim, the jury verdict reflects that the jury determined whether the Debtor owed SEG Gateway a fiduciary duty; whether it breached any such duty; whether the Debtor tortiously interfered with SEG Gateway's business; whether the Debtor engaged in a civil conspiracy; and whether the Debtor wrongfully converted SEG Gateway's property.²⁸ Nowhere in the jury verdict does it indicate that the jury considered whether the Debtor is Thakkar's alter ego.²⁹

Thus, there is no record evidence that the parties actually litigated whether the Debtor is Thakkar's alter ego—much less that the jury determined that issue and that its determination was a critical and necessary part of the judgment. Because two of the central elements for collateral estoppel have not been established, Good Gateway is not collaterally estopped from litigating whether the Debtor is Thakkar's alter ego.

At this point, the Court also declines to find that Good Gateway lacks standing to prosecute Claim No. 3. When a claim is transferred for security after a proof of claim has been filed, as is apparently the case her...