Jae Ho Lee, Soyoun Park & Basic Food Groups, LLC v. Ahne Law, P.C. (In re Basic Food Grp., LLC)

In re: Basic Food Group, LLC, Debtor.

Jae Ho Lee, Soyoun Park and Basic Food Groups, LLC, Plaintiffs, v. Ahne Law, P.C., Samuel Ahne, Noah Bank, Edwin Shin,Cheol Min Kim, and Aspen Market Place Corp., Defendants.

Case No. 15-10892 (JLG)

Adv. Pro. No. 15-01119 (JLG)

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

October 31, 2018

NOT FOR PUBLICATION

Chapter 11

MEMORANDUM DECISION AND ORDER GRANTING JOINT MOTION OF NOAH BANK AND EDWARD SHIN, FOR SUMMARY JUDGMENT DISMISSING ALL CLAIMS AGAINST THEM, PURSUANT TO FEDERAL RULE OF BANKRUPTCY PROCEDURE 7056

APPEARANCES:

THE BASIL LAW GROUP P.C.

1270 Broadway

Suite #305

New York, New York 10001

By: Robert J. Basil, Esq.

Counsel for Defendant Noah Bank

ROBERT YU LLC

39 Park Place, Suite 204

Englewood, NJ 07631

By: Robert Ho Yu, Esq.

Counsel for Defendant Edward Shin

KIMM LAW FIRM

333 Sylvan Avenue

Suite #106

Englewood Cliffs, New Jersey 07632

By: Michael Kimm, Esq.

Counsel for the Plaintiffs

JAMES L. GARRITY, JR. UNITED STATES BANKRUPTCY JUDGE

INTRODUCTION

In 2013, Jae Ho Lee ("Lee") purchased 100% of the membership units in Basic Food Group LLC, the debtor herein (the "Debtor" or "Basic Food"), from Cheol Min Kim ("Kim"). At that time, Basic Food's principal asset was a deli/café in New York City that Kim had been operating since he acquired it in or about 2009. Noah Bank, N.A. ("Noah Bank") financed a portion of Lee's acquisition costs with a $1.3 million loan to the Debtor. Lee and his wife Soyoun Park ("Park") are guarantors under that loan. Eventually, the Debtor defaulted under the loan and filed for bankruptcy herein.

In this adversary proceeding, Lee, Park and the Debtor (collectively, the "Plaintiffs")¹ are suing Noah Bank and its president and Chief Executive Officer, Edward Shin ("Shin," together with Noah Bank, the "Bank Defendants"),² among others - including Kim and Aspen Market Place Corp. ("Aspen"), an entity he controls - for damages occasioned by their alleged wrongdoing in connection with Lee's acquisition of Basic Food. The Plaintiffs assert five of the seven causes of action in their Second Amended Complaint (the "Complaint" or "SAC") [ECF No. 1, Doc. 39]³ against the Bank Defendants. In July 2016, the Court dismissed two of those claims -- Counts 1 and 2 -- against all defendants. The matter before the Court is the Bank Defendants' joint motion for summary judgment (the "Motion") dismissing Counts 4, 5 and 7 ofthe Complaint.⁴ The Plaintiffs oppose the Motion.⁵ On the record of the hearing on the Motion, the Plaintiffs stipulated to dismiss Count 4. For the reasons explained below, the Court grants the Bank Defendants summary judgment dismissing Counts 5 and 7. Accordingly, the Motion is GRANTED.

JURISDICTION

This Court has jurisdiction over the Motion pursuant to 28 U.S.C. §§ 1334(a) and 157(a) and the Amended Standing Order of Referral of Cases to Bankruptcy Judges of the United States District Court for the Southern District of New York (M-431), dated January 31, 2012 (Preska, C.J.). The relief sought in the Motion is not within the core jurisdiction of the Court because the claims at issue do not invoke substantive rights provided by title 11 of the United States Code. See 28 U.S.C. §§ 1334(b), 157(b)(1); see also Stern v. Marshall, 564 U.S. 462, 472 (2011) ("Under our reading of the statute, core proceedings are those that arise in a bankruptcy case or title 11."); J.T. Moran Fin. Corp. v. Am. Consol. Fin. Corp. (In re J.T. Moran Fin. Corp.), 124 B.R. 931, 937 (S.D.N.Y. 1991) (stating that core jurisdiction encompasses proceedings which "invoke a substantive right provided by title 11" or that "would have no existence outside of the bankruptcy case."). See also 28 U.S.C. § 157(c)(1) (stating that non-core proceedings are those that are not core, "but [are] otherwise related to a case under title 11."). Rather, all parties agree and the Court finds that the claims asserted by the Debtor against the Bank Defendants fallwithin the scope of the Court's non-core related-to jurisdiction because the outcome of this litigation certainly will impact the value of the Debtor's estate. See Parmalat Capital Fin., Ltd. v. Bank of Am. Corp., 639 F.3d 572, 579 (2d Cir. 2011) ("[A] civil proceeding is 'related to' a title 11 case if the action's outcome might have any conceivable effect on the bankruptcy estate."); see also Robinson v. Daley (In re Daley), 224 B.R. 207, 313 (Bankr. S.D.N.Y. 1998) ("Causes of action owned by the debtor prior to its bankruptcy and which become property of the debtor's estate, as well as suits between third parties which have an effect on the bankruptcy estate are bases for related-to jurisdiction." (citing Celotex v. Edwards, 514 U.S. 300, 308 n.5 (1995))).

However, that jurisdiction does not extend to the claims asserted by Lee and Park against the Bank Defendants. The resolution of those claims will have no impact on the Debtor's estate or assets. See, e.g., In re Johns-Manville Corp., 517 F.3d 52, 65 (2d Cir. 2008) (noting that "a third-party action does not create 'related to' jurisdiction when the asset in question is not property of the estate and the dispute has no effect on the estate. Shared facts between the third-party action and a debtor-creditor conflict do not in and of themselves suffice to make the third-party action 'related to' the bankruptcy. . .."); cf. Victory Markets, Inc. v. NYS Unemployment Ins., Unemployment Ins. Div., Dep't of Labor, State of New York (In re Victory Markets Inc., 263 B.R. 9, 15 (Bankr. N.D.N.Y. 2000) (noting that "the scope of a bankruptcy court's 'related to' jurisdiction is further limited where non-debtor third parties are involved. Because an endless array of cases would 'relate to' any single bankruptcy administration, the Second Circuit has limited 'related to' jurisdiction to 'significant' relation and not simply a remote connection.") (citations omitted). Although not raised by the parties, the Court considers whether it has jurisdiction over those claims based on principles of supplemental jurisdiction pursuant to 28U.S.C. § 1367. Under that section, "in any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution." 28 U.S.C. § 1367(a). "Claims are 'part of the same case or controversy' when they 'derive from a common nucleus of operative facts,' and 'are such that [the claimant] would ordinarily be expected to try them all in one judicial proceeding[.]'" Picard v. HSBC Bank PLC (In re Bernard L. Madoff Inv. Sec. LLC), 561 B.R. 334, 348 (Bankr. S.D.N.Y. 2016) (internal quotations and citations omitted). The Second Circuit has held that a bankruptcy court may exercise supplemental jurisdiction under 28 U.S.C. § 1367. See Lionel Corp. v. Civale & Trovato, Inc. (In re Lionel Corp.), 29 F.3d 88, 92 (2d Cir. 1994); see also Shafferman v. The Queens Borough Public Library (In re JMK Constr. Grp., Ltd.), 502 B.R. 396, 403 n.4 (Bankr. S.D.N.Y. 2013); Gowan v. HSBC Mortg. Corp. (In re Dreier LLP), No. 10-5456, 2012 WL 4867376, at *5 (Bankr. S.D.N.Y. 2012). In the instant case, as discussed below, it is clear that Lee and Park's claims share a common nucleus of operative facts as the claims of the Debtor—i.e., the underlying Acquisition and Loan transactions with the Bank Defendants and seller Kim—and it would not be judicially economical to try these overlapping matters in different proceedings. As such, the Court concludes that it has supplemental jurisdiction to adjudicate Lee and Park's claims against the Bank Defendants in this action.

For all non-core matters, this Court cannot enter a final judgment without the Plaintiffs' and Bank Defendants' consent. See 28 U.S.C. § 157(c)(2) ("[T]he district court, with the consent of all the parties to the proceeding, may refer a proceeding related to a case under title 11 to a bankruptcy judge to hear and determine and to enter appropriate orders and judgments . . . .").On the record of the hearing on the Motion, the Plaintiffs and Bank Defendants consented to this Court's entry of a final judgment on these matters. Accordingly, the Court concludes that it has the authority to enter final orders in this action.

FACTS⁶

The Debtor is a limited liability company whose sole members are Lee and Park. It is also a chapter 7 debtor herein.⁷ Its sole asset is a deli/café (the "NY Deli") located in New York City. Lee and Park acquired their membership interests in the Debtor in December 2012, when Lee purchased 100% of the Debtor's membership units from Kim for the contract price of $1.8 million (the "Acquisition"). See Purchase Agreement;⁸ Closing Statement.⁹ Noah Bank financed $1.3 million of the purchase price with a loan (the "Loan") to the Debtor. See Bank Defendants' 7056 Statement ¶¶ 1-2. The Loan is secured by a lien on the Debtor's assets, and is guaranteed by Lee and Park. Losses from the operation of its business forced the Debtor into bankruptcy on April 15, 2015. By that time, the Debtor was in default under the Loan and this action was on-going.¹⁰

In 2012, Kim was indebted to Noah Bank on account of financing from the bank in connection with his acquisition of Basic Food (the "Noah-Kim Loan"), and his acquisition of Aspen, a deli/café operation in Hoboken, New Jersey.¹¹ See Noah Bank Answer ¶ 57;¹² Kim Depo. Tr. at 8:23-9:20. The Plaintiffs maintain that in the fall of 2012, Basic Food's business was failing and both Kim and Noah Bank understood that without an infusion of capital into the Basic Food operations, Kim would default under the Noah-Kim Loan. Id. ¶ 56. The Plaintiffs say that because Aspen was then a "startup" business, it was not generating profits that Kim could use to pay down that loan. Id. ¶ 57. Kim and Lee were friends, and at that time, Kim was aware that Lee...