United Statesha Soha Terrace, LLC. v. RGS Holding, LLC (In re Futterman)

584 B.R. 609

IN RE: Hans FUTTERMAN, Debtor.

USHA SoHa Terrace, LLC., Petitioner,

v.RGS Holding, LLC, Hans Futterman, SoHa Terrace, LLC, 2280 FDB, LLC, Respondents.

USHA SoHa Terrace, LLC., Plaintiff,

v.RGS Holding, LLC, Hans Futterman, SoHa Terrace, LLC, 2280 FDB, LLC, Defendants.

2280 FDB, LLC and SoHa Terrace, LLC., Plaintiffs,

v.RGS Holding, LLC, SoHa Manager Owner, LLC, Hans Futterman, SoHa Terrace Manager Corp., ABC Corp., and XYZ, L.L.L, Defendants.

RWNIH–DL 122

Street 1 LLC, Plaintiff,

v.Hans Futterman, Defendant.

Case No. 17–12899 (MEW)

Adv. Pro. No. 17–01220 (MEW)

Adv. Pro. No. 17–01221 (MEW)

Adv. Pro. No. 17–01222 (MEW)

Adv. Pro. No. 17–01223 (MEW)

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

Signed May 9, 2018

For Debtor: TARTER KRINSKY & DROGIN LLP 1350 Broadway New York, NY 10018 BY: SCOTT S. MARKOWITZ, ESQ. ROBERT A. WOLF, ESQ.

For RWNIH–DL 122nd Street 1 LLC: KRAMER LEVIN NAFTALIS & FRANKEL LLP 1177 Avenue of the Americas New York, NY 10036 BY: P. BRADLEY ONEILL, ESQ. ADAM C. ROGOFF, ESQ.

For USHA SoHa Terrace, LLC: RICHARD L. YELLEN & ASSOCIATES, LLP 111 Broadway 11th Floor New York, NY 10006 BY: BRENDAN C. KOMBOL, ESQ.

For Ventures SoHa LLC: OLSHAN FROME WOLOSKY 1325 Avenue of the Americas New York, NY 10019 BY: ADAM H. FRIEDMAN, ESQ.

For Office of the United States Trustee: OFFICE OF THE UNITED STATES TRUSTEE 201 Varick Street0020 Room 1006 New York, NY 10014 BY: BRIAN S. MASUMOTO, ESQ.

BENCH DECISION REGARDING MOTION TO APPOINT CHAPTER 11 TRUSTEE, MOTIONS REGARDING CONFIRMATION OF ARBITRATION AWARD AND MOTION FOR APPOINTMENT OF AN INDEPENDENT MANAGER OR RECEIVER FOR CERTAIN ENTITIES

MICHAEL E. WILES, UNITED STATES BANKRUPTCY JUDGE:

Before the Court are a number of motions made in connection with the Chapter 11 case of debtor Hans Futterman, and also in connection with a number of adversary proceedings that were originally filed in the New York State court but that have been removed to this court.

As background: the debtor, Mr. Futterman, is a real estate developer. He has owned or controlled a number of other entities that have engaged in development projects or that own land that is subject to future development. The main projects in which Mr. Futterman has been involved, and the entities that are relevant to them, are the following.

First, Mr. Futterman was involved in a project that I will refer to here as the Ladera project. More particularly, Mr. Futterman was the owner of one hundred percent of the interests in an entity known as Ladera Parent LLC, a New York limited liability company. Ladera Parent LLC, in turn, was the owner of one hundred percent of the limited liability company membership interests in Ladera, LLC, which is also a New York limited liability company. Ladera, LLC owned real property at 300 West 122nd Street in New York that it hoped to develop. It borrowed money from a lender named RWNIH–DL 122nd Street 1 LLC, which for obvious reasons I will shorten and will refer to here as RWN.

Things did not go as hoped, and the Ladera entities filed Chapter 11 bankruptcy cases in this court that were assigned to me. After much back and forth, the debtors and RWN submitted competing plans of reorganization. By agreement of the parties, I confirmed a plan that would have permitted the Ladera entities to refinance their debts, but that included a deadline for doing so, with the understanding that, if the relevant financing was not accomplished by the drop-dead date, the lender's plan would then be confirmed. The Ladera entities did not complete their proposed transaction by the relevant deadline, and their plan therefore did not become effective. At that point, the prior confirmation order was negated and the RWN plan was confirmed.

Pursuant to the RWN plan, an auction sale was held in September 2017, at which time RWN made a credit bid in the amount of $48,600,000 plus the assumption of certain other obligations. This Court approved the sale of the property to RWN or its designee by order dated September 22, 2017.

Mr. Futterman was a guarantor of the obligations that the Ladera entities owed to RWN. RWN filed suit in the New York state court to collect on that guarantee, and that lawsuit has been removed to this court. RWN has also filed a proof of claim in Mr. Futterman's chapter 11 case, to which Mr. Futterman has objected. I have consolidated, or will consolidate, those matters for purposes of pre-trial proceedings and trial.

Second, Mr. Futterman and his entities have had roles in the development of real property located at 2280 Frederick Douglass Boulevard in Manhattan. There are a number of entities involved in that project, and I will first clarify who they are.

The main operating entity, which still owns some unsold condominium units in the 2280 property, is a limited liability company named 2280 FDB, LLC. I will refer to it as 2280 or 2280 FDB. 2280 FDB is a New York limited liability company. There are two entities that have ownership interests in 2280 FDB. One is a limited liability company named SoHa Terrace, LLC, which is a New York limited liability company. I will refer to it as SoHa Terrace. SoHa Terrace owns all of the Class A membership interests in 2280, which represent 99.5 percent of the membership interests in 2280.

The other member of 2280 FDB is SoHa Terrace Manager Corporation, which has a .5 percent ownership interest and which is the managing member of 2280 FDB. SoHa Terrace Manager Corporation owns all of the Class B membership interests. SoHa Terrace Manager Corporation is one hundred percent owned by an entity called SoHa Manager Owner LLC. I will refer to it as SMO. Mr. Futterman owns one hundred percent of the interests in SMO.

As I mentioned, SoHa Terrace, LLC owns 99.5 percent of the ownership interests in 2280 FDB. SoHa Terrace, in turn, has three owners: RGS Holdings, LLC is an eighty-percent owner; USHA SoHa Terrace, LLC, which I will refer to as USHA, is a fourteen-percent owner; and Ventures Soha LLC, which I will refer to as Ventures, is a six-percent owner.

Mr. Futterman is the one-hundred-percent owner of RGS Holdings, LLC, which I will refer to as RGS. RGS is a Delaware limited liability company. RGS is named as the managing member of SoHa Terrace in the SoHa Terrace operating agreement, but that is an issue that is subject to an arbitration decision that I will describe in a few minutes.

The various entities involved in the 2280 project, and some of their other owners, were engaged in a number of litigations over that project and over the operations of the relevant companies. Some of that litigation resulted in an arbitration proceeding and in a decision and award dated July 12, 2017 that has been submitted as an exhibit in these proceedings. I will describe the arbitrator's ruling more completely in a few minutes.

The relevant state court lawsuits that gave rise to the arbitration had been removed to this court, and some of the motions pending before me have to do with the extent to which I should or should not confirm the arbitrator's decision and award.

In addition, RWN claims that it is the beneficiary of pledges of any proceeds that RGS, Mr. Futterman, and/or SMO receive from their direct and indirect interests in 2280 FDB.

Third, Mr. Futterman also has a one-hundred-percent ownership interest in an entity known as Jenco 121 LLC. I will refer to this entity as Jenco. Jenco is a New York limited liability company. It owns a vacant lot at 311 West 121st Street in Manhattan. Jenco is a guarantor of the obligations owed to RWN and has pledged assets in support of that guarantee.

Mr. Futterman also owns other properties, many or all of which are owned jointly with his wife, but the details are not important to the decisions to be made today.

As a result of all of the foregoing, I now have a number of matters pending before me. First, RWN has moved for the appointment of a chapter 11 Trustee. The matter has been fully briefed and was the subject of an evidentiary hearing that began on April 20th, 2018. No testimony was offered, but twenty-seven exhibits were offered into evidence without objection. Additional exhibits were received today in the form of the various LLC agreements, as I have mentioned at the outset of the hearing on this matter today.

Second, as noted above, the parties to the 2280 arbitration proceeding have made motions either to confirm the arbitrator's decision and award in its entirety, or in the case of Mr. Futterman and his entities, to confirm it only in part. The differences between the parties relate to provisions in the arbitrator's award that found that Mr. Futterman and his entities had violated fiduciary duties owed to the other investors in the 2280 project and that barred Mr. Futterman from exercising management control.

In paragraph 1 of the award, the arbitrator stated that RGS, Mr. Futterman and their affiliates, including SoHa Terrace Manager Corp. and SMO, are "herein and hereby removed from all management or control over SOHA Terrace, LLC and 2280 FDB, LLC due to the intentional misconduct of Hans Futterman through RGS Holdings, LLC and/or SoHa Terrace Manager Corp." In paragraph 2 of the award, the arbitrator stated that "USHA SOHA Terrace LLC, shall elect new managing members for SOHA Terrace, LLC and 2280 FDB, LLC." Mr. Futterman contends that the arbitrator exceeded his authority by allowing the holder of a minority interest in SoHa Terrace to elect the new managers of both SoHa Terrace and 2280 FDB. He has also asked that I appoint an independent manager or trustee to take over the affairs of each of those entities.

At my request, on April 20th, the parties have submitted additional briefs concerning the extent to which I would have authority under section 703 of the New York Limited Liability Company Law to appoint a liquidating trustee or receiver for either 2280 FDB and/or for SoHa Terrace.

In addition, since the parties' arguments have relied heavily on the terms of the underlying limited liability company agreements, those...