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Genger v. Sharon

United States District Court, S.D. New York

December 20, 2012

Sagi GENGER and TPR Investment Associates, Inc., on behalf of AG Properties Co., Third-Party Plaintiffs,
v.
Gilad SHARON, Third-Party Defendant.

John Dellaportas, Esq., Evangelos Michailidis, Esq., Duane Morris, LLP, New York, NY, for Third-Party Plaintiffs.

William B. Wachtel, Esq., Julian D. Schreibman, Esq., Elliot Silverman, Esq.,

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Wachtel Masyr & Missry LLP, New York, NY, for Third-Party Defendant.

OPINION AND ORDER

SHIRA A. SCHEINDLIN, District Judge.

I. INTRODUCTION

Sagi Genger (" Genger" ) and TPR Investment Associates, Inc. (" TPR," and together with Genger, " plaintiffs" ) bring this action to enforce a promissory note in the amount of $1.25 million against Gilad Sharon. The lawsuit arises out of a Canadian real estate venture (the " Canadian Venture" ) between Sharon and Genger's father, Arie Genger (" Arie" ).[1] Genger alleges that Sharon participated as a fifty percent equity owner in the Canadian Venture for consideration of $ 1.25 million in the form of a promissory note issued by Omniway, Limited (" Omniway" ), which was never paid.[2] Sharon claims he invested only $25,000 through Lerner Manor Trusteeships, Ltd. (" Lerner Manor" ).

I held a bench trial from December 3, 2012 to December 5, 2012. The parties made post-trial submissions on December 11, 2012. Pursuant to Rule 52(a) of the Federal Rules of Civil Procedure, I make the following findings of fact and conclusions of law. In reaching these findings and conclusions, I heard the evidence, observed the demeanor of the witnesses, and considered the arguments and submissions of counsel.

II. FINDINGS OF FACT

A. The Parties

1. Sagi Genger

Sagi Genger is a joint United States and Israeli citizen residing at 1211 Park Avenue, New York, New York, 10128.[3]

2. TPR Investment Associates, Inc.

TPR is a Delaware corporation beneficially owned by the Genger family. TPR brings this action on behalf of AG Properties, which assigned all rights regarding claims against former AG Properties officers and affiliates to TPR in 2007, as consideration for TPR assuming obligations on the part of AG Holdings to repay the Gusinski loan.[4]

3. Gilad Sharon

Third-party defendant Gilad Sharon is a citizen and resident of Israel. [5]

B. The Canadian Real Estate Venture

Amidst a maze of backdated, incomplete and contradictory documents, and even more dubious testimony, a number of facts are undisputed. In 2001, Sharon presented Arie with an idea for a joint venture involving residential real estate investment prospects in Canada.[6] Sharon and Arie

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agreed that they would participate as fifty-fifty partners.[7] In 2001, AG Properties was incorporated in Nova Scotia, with Arie as its sole director. [8] On December 31, 2001, AG Holdings, another corporation under the sole directorship of Arie, acquired one-hundred percent of the shares of stock in AG Properties.[9] AG Holdings was wholly owned by AG Real Estate LP (the " Genger Family Partnership" ), which was controlled at the time by Arie for the benefit of his children Sagi and Orly Genger.[10] During 2001 and 2002, the venture acquired two residential apartment complexes in Montreal known as the " Durocher" property and the " Lincoln" property (together the " Canadian Properties" ).[11]

The two buildings were acquired for approximately twenty million Canadian dollars.[12] Approximately twelve million dollars of the financing came from first and second lien mortgage debt.[13] The balance, approximately eight million dollars, which was not secured by any real property, came from various loans directly or indirectly from Genger entities including a loan of $2.5 million from AG Holdings, also a Genger entity, which borrowed the money from Gusinski.[14] Arie testified that he did not personally guarantee any of the loans and that the Gusinski loan was not secured against the real property, but he was not certain about the other loans.[15]

From the outset the goal in structuring the Canadian Venture was to enable a flow-through effect for the benefit of the shareholders without there being any duplicate

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taxation.[16] In 2002, there were discussions about restructuring the Canadian Venture because " the tax structure that was in place ... was flawed in that it did not consider a particular aspect of Canadian ...


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