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In re Perry H. Koplik & Sons, Inc.

United States District Court, S.D. New York

July 31, 2015

In re: PERRY H. KOPLIK & SONS, INC., Debtor.
v.
MICHAEL R. KOPLIK and JOYCE S. KOPLIK, Defendants. MICHAEL S. FOX as Litigation Trustee of PERRY H. KOPLIK & SONS, INC., Plaintiff,

OPINION & ORDER

KATHERINE B. FORREST, District Judge.

On May 26, 2015, plaintiff Michael S. Fox, as Litigation Trustee of Perry H. Koplik & Sons, Inc., and defendants Michael R. Koplik and Joyce S. Koplik jointly moved this Court, pursuant to 28 U.S.C. ยง 157(d) and Rule 5011 of the Federal Rules of Bankruptcy Procedure, for an order withdrawing for all purposes the reference to the United States Bankruptcy Court of a proceeding under New York Debtor & Creditor Law to set aside an alleged fraudulent conveyance of a Manhattan townhouse by Michael Koplik, individually, to himself and his wife Joyce Koplik, as tenants by the entirety. (ECF No. 1.)

The parties dispute the Bankruptcy Court's jurisdiction to hear this matter. Defendants assert that the Bankruptcy Court lacks jurisdiction over this New York State law claim of fraudulent conveyance due to a lack of a "close nexus" to the bankruptcy plan.[1] Plaintiff disagrees with defendants' conclusions as to the Bankruptcy Court's jurisdiction but agrees that litigating this suit in district court eliminates the jurisdictional dispute and provides an efficient path to litigate the claim.

The parties jointly argue that this Court has jurisdiction to hear the action against Mr. and Mrs. Koplik. This Court requested oral argument to deal with two primary questions: (1) whether it has ancillary jurisdiction to hear a federal judgment creditor's state-based fraudulent conveyance action against both the alleged transferor and transferee when it was commenced before the judgment in the primary action became final; and (2) whether it has pendent-party jurisdiction over the alleged transferee who, unlike the transferor, was not a party in the primary action. The Court is persuaded that it has both ancillary and pendentparty jurisdiction. The parties' joint motion to withdraw the reference is therefore GRANTED.

I. BACKGROUND

On March 11, 2002, bankruptcy proceedings involving Perry H. Koplik & Sons, Inc. ("Perry") commenced in the United States Bankruptcy Court for the Southern District of New York. On April 16, 2003, the Bankruptcy Court approved Perry's Fifth Amended Chapter 11 Plan of Reorganization, pursuant to which Michael S. Fox was appointed the Litigation Trustee.

On March 3, 2004, Fox commenced an action against Michael R. Koplik and co-defendants in Fox v. Koplik, Adv. Pro. No. 04-02490 (REG) (Bankr. S.D.N.Y) ("Fox I"), seeking monetary damages for, inter alia, breach of fiduciary duties. Two years later, on May 1, 2006, Fox, as a prospective judgment creditor in Fox I, commenced another adversary proceeding in Fox v. Koplik, Adv. Pro. No. 06-1451 (REG) (Bankr. S.D.N.Y) ("Enforcement Action") against Michael Koplik and Joyce Koplik seeking avoidance of an alleged fraudulent conveyance of a Manhattan townhouse from Michael Koplik to himself and his wife, Joyce Koplik, as tenants by entirety. On August 14, 2006, the Bankruptcy Court stayed the Enforcement Action until a final order or judgment was entered into in Fox I.

On August 28, 2013, the United States District Court for the Southern District of New York entered a judgment in Fox I against Mr. Koplik and one of his co-defendants in the principal amount of $9, 582, 900. Fox v. Koplik, Adv. Pro. 12 Civ. 6784 (PKC) (S.D.N.Y. 2013). The judgment became final on December 1, 2014 when the Supreme Court denied the Fox I judgment debtors' petition for writ of certiorari.

The Bankruptcy Court lifted the stay in the Enforcement Action once the Fox I judgment became final. On March 12, 2015, the Kopliks filed a joint motion to dismiss, arguing that the Bankruptcy Court lacked subject matter jurisdiction to hear the action. Notwithstanding plaintiff's opposition to that motion to dismiss, both parties filed the instant motion to withdraw the reference from the Bankruptcy Court so that this Court, whose jurisdiction is not disputed, can resolve the matter.

II. LEGAL STANDARDS

A. Ancillary Jurisdiction

The first question before the Court is whether it has ancillary jurisdiction over a state-based fraudulent conveyance claim. In this instance, the judgment creditor's fraudulent conveyance claim was commenced prior to the time the judgment in the primary action became final. That procedural posture does not, however, alter the applicability of governing principles on this issues. The Supreme Court has instructed that ancillary jurisdiction may be exercised "to enable a court to function successfully, that is, to manage its proceedings, vindicate its authority, and effectuate its decrees." Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 379-80 (1994). While "[t]he boundaries of ancillary jurisdiction are not easily defined and the cases addressing it are hardly a model of clarity... At its heart, ancillary jurisdiction is aimed at enabling a court to administer justice within the scope of its jurisdiction.'" Garcia v. Teitler, 443 F.3d 202, 208 (2d Cir. 2006) (quoting Morrow v. District of Columbia, 417 F.2d 728, 740 (D.C. Cir. 1969)).

When considering whether federal courts have jurisdiction to enforce their judgments in actions rooted in state law claims, the Supreme Court has "never authorized the exercise of ancillary jurisdiction in a subsequent lawsuit to impose an obligation to pay an existing federal judgment on a person not already liable for that judgment." Peacock v. Thomas, 516 U.S. 349, 357 (1996). In Peacock, the Supreme Court declined to extend ancillary jurisdiction to hear a subsequent state law action because all the claims in that suit "involved new theories of liability not asserted in the [first] suit." Id. at 358-59.

The Supreme Court noted, however, that it has authorized ancillary jurisdiction "over a broad range of supplementary proceedings involving third parties to assist in the protection and enforcement of federal judgments- including... the prejudgment avoidance of fraudulent conveyances"-"because of a federal court's inherent power to enforce its judgments." Id. at 356 (citing to Dewey v. W. Fairmont Gas Coal Co., 123 U.S. 329, 332-33 (1887)). The Court went on to clarify that jurisdiction over "supplementary proceedings has not, ...


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