IN THE MATTER OF THE APPLICATION OF NORTHWEST 5th& 45th REALTY CORP., Petitioner,
MITCHELL, MAXWELL & JACKSON, INC., STEVEN KNOBEL, JEFFREY JACKSON a/k/a JEFFREY SATKIEWICZ a/k/a JEREMY SATKIEWICZ, COOPERATIVE DATA CORP., MITCHELL, MAXWELL & JACKSON (NY), INC., BOLD DATA SERVICES, INC., TRI-STATE REALTY PARTNERS, LLC, MMJ APPRAISAL MANAGEMENT, INC., MMJ COMMERCIAL, INC., NATIONAL APPRAISAL MANAGEMENT, LTD., and PETER KNOBEL, Respondents. For a judgment pursuant to Section 5225 (b) of the Civil Practice Law and Rules, Index No. 150344/13
ANIL C. SINGH, JUDGE
Northwest 5th & 45th Realty Corp. (Petitioner) is the judgment creditor of its former tenant, judgment debtor Mitchell, Maxwell & Johnson, Inc. (Debtor). This special proceeding, under CPLR 5225 (b), seeks: 1) a declaratory judgment, pursuant to Debtor and Creditor Law (DCL) § 273, that the transfers made by Debtor to shareholders and to related entities owned by the shareholders were fraudulent; 2) an order directing the turn-over of monies equal to the outstanding judgments; and 3) a declaratory judgment piercing the corporate veil and holding the shareholders and their related entities jointly and severally liable for the judgments.
Respondents, who are represented by the same attorneys, cross-move to dismiss the petition and, in the alternative, for leave for Debtor to intervene. Respondents are Debtor, Steven Knobel (Knobel) and Jeffrey Jackson (Jackson), shareholders in Debtor, Peter Knobel, the brother of Steven Knobel, and entities affiliated with Debtor. They are Cooperative Data Corp. (CDC), Mitchell, Maxwell & Jackson (NY), Inc. (MMJNY), Bold Data Services, Inc. (BDS), Tri-State Realty Partners, LLC (Tri-State), MMJ Appraisal Management, Inc. (MMJAM), MMJ Commercial, Inc. (MMJC), and National Appraisal Management, Ltd. (NAM).
Debtor leased the ninth floor in premises belonging to Petitioner. In December 2009, Petitioner brought a nonpayment proceeding against Debtor in Housing Court and, on April 5, 2010, obtained a judgment for an award of rent through March 2010. Debtor paid this judgment. Debtor moved to another building before the lease term ended. In June 2011, Petitioner brought a plenary action seeking outstanding rent under the lease, alleging that Debtor owed monthly rent of $30, 213 from June 2010 through April 2011, and monthly rent of $31, 846.75 from May 2011 through November 2011. Petitioner was awarded summary judgment for rent in the amount of $450, 823.74 ($405, 292.89 in rent and $45, 530.86 in statutory interest), entered April 6, 2012 and filed in the County Clerk's office on April 26, 2012, and a judgment for attorney fees in the amount of $38, 500, entered October 26, 2012 and filed in the County Clerk's office on December 12, 2012. Petitioner seeks payment on the judgments, by setting aside allegedly fraudulent conveyances in excess of $2.14 million from Debtor to respondents, which rendered Debtor insolvent.
Petitioner alleges that Debtor has been insolvent since June 2010, as it has never had a combined balance in its bank accounts at the close of any month which equaled one month's rent. Petitioner alleges that Debtor's bank statements show the following fraudulent conveyances. From June 2010 through April 2012, Debtor transferred: 1) $691, 960 to Knobel; 2) $150, 116.82 to Jackson; 3) $629, 664.80 to CDC; 4) $547, 825 to MMJNY; 5) $72, 776.91 to Peter Knobel; 6) $44, 150 to BDS; 7) $39, 700 to Tri-State; 8) $27, 850 to MMJAM; and 9) $13, 600 to MMJC.
Petitioner states that the shareholders looted Debtor's assets and kept it perpetually under capitalized, commingled Debtor's and the related entities and shareholders' funds, and dominated Debtor and the related entities to the extent that the companies do not have separate identities. It is alleged that Knobel used Debtor's American Express cards for personal expenses, paid personal bills from Debtor's bank accounts, and used Debtor's funds to pay a personal debt to his brother. It is alleged that Knobel withdrew over $400, 000 from the Debtor's bank accounts in the form of cash ATM withdrawals since June 2010, and used the money to pay personal expenses, including travel, restaurant, auto, clothing, jewelry, and utilities.
Respondents' Opposition - Knobel's Affidavit
Knobel's affidavit alleges the following. He is the president of Debtor and president or member of the other entities. Knobel and Jackson have always been the sole shareholders or members in these companies, except for MMJC, of which one-third was owned by another party. Debtor, founded in 1991, conducts residential real estate appraisals on behalf of brokers. The respondent entities work with Debtor and each other to service clients in all aspects of the commercial and residential appraisal business. CDC is the employment arm and administration services provider to the other respondents and pays the salaries of their employees. NAM was created in 1997 to do appraisals on a national level. BDS was created in 1997 for the purposes of gathering data and selling it to companies, including the other respondents. MMJC was incorporated in 1998 to provide valuation services to attorneys and estates. Tri-State is a real estate investment firm founded in 1997 in which Knobel had a 22% interest. Tri-State invested primarily in Connecticut; of late it is closed and has no assets.
MMJAM conducts commercial appraisals for banks. MMJAM and MMJNY were created in 2010 in reaction to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Bill), enacted in 2010, 12 USC § 5301, et seq. The bill had serious consequences for the appraisal business; for example, there could no longer be in-house appraisers. MMJNY and MMJAM were created to meet the new requirements. It is alleged that each respondent services different customers in different aspects of the appraisal field, and each acts separately and independently of the others.
Knobel alleges that the appraisal fees earned by respondents have always been paid to Debtor, who then distributes the fees. For instance, MMJAM would perform appraisal services for banks, and Debtor would perform such services for brokers. "Upon receipt of the fees therefor, the proportionate share owed to each of the other entities would be determined and allocated by [Debtor] to said entities for the services they rendered" (Knobel affidavit at 7). The fees owed to the various respondents never belonged to Debtor, who had no right, title, or interest in those funds. Debtor "was merely a conduit for a pass-a-long of funds which rightfully belonged solely and wholly to the other entities" from the beginning (id. at 8). During his deposition, Knobel testified that, since the Dodd-Frank Bill passed, Debtor has not conducted any business, except to act as collector.
Knobel emphasizes that each respondent company maintained its own bank account, books, records, staff, and clients, separate from the others, and its own supplies. Respondents did not commingle funds. As an example of their separateness, respondents submit an assignment of lease from NAM to BDS, license agreements between BDS and various respondents, and agreements between CDC and other respondents.
Knobel says that Debtor's transfers to him were reimbursement for funds that he advanced to Debtor. Since short-term loans are hard to get from banks, Knobel has been lending money to Debtor and other respondents since the inception of the business. Debtor also paid Knobel and Jackson for performing appraisal services, just as payments were made to other employees.
Knobel states further that Peter Knobel, his brother, is not connected to any of the respondents or Debtor and has never been a director, shareholder or employee of any of them. On April 12, 2010, Peter Knobel loaned $99, 000 to Knobel via a promissory note. On the same day, Knobel took $70, 000 from his personal IRA to loan to Debtor. The money was used to pay Petitioner's judgment in the Housing Court action in the amount of $162, 447.08. Debtor repaid both loans.
Knobel states that Debtor was never insolvent. As of June 30, 2010, due and owing to Debtor was $733, 502 in accounts receivable as shown on its books. The cost basis of Debtor's fixed assets is $896, 325, and Petitioner ...