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Citibank N.A. v. Bombshell Taxi LLC

United States District Court, E.D. New York

July 19, 2017

CITIBANK N.A., Plaintiff,
BOMBSHELL TAXI LLC, et al., Defendants.


          Brian M. Cogan U.S.D.J.

         Plaintiff Citibank brought this action in State Court seeking to recover on loans and the guarantees of those loans taken out by a group of affiliated taxi and taxi management companies, now in Chapter 7 proceedings, and their owner or principal, defendant Evegny Friedman. Friedman gave the guarantees for the taxi companies' debt. When the taxi companies filed for relief under Chapter 11 (they are now in Chapter 7), they removed the action to federal district court based on federal bankruptcy jurisdiction, and Judge Chen, to whom this case was previously assigned, referred it to the Bankruptcy Court on the same jurisdictional basis. After discovery, Citibank moved for partial summary judgment on the Friedman guarantees only; its claims against the taxi debtors are not before me and are still pending in the Bankruptcy Court as part of the adversary proceeding. In addition, as part of the motion, Citibank moved for summary judgment seeking to dismiss Friedman's “lender liability” counterclaims. Those counterclaims are based on alleged breaches of the covenant of good faith and fair dealing arising out of the loan documents.

         Because the Bankruptcy Court (Craig, C.B.J.) found that it had only “related-to” jurisdiction over the claims between Citibank and Friedman, it rendered Proposed Findings of Fact and Conclusions of Law as to Citibank's motion for summary judgment rather than deciding the motion, In re Hypnotic Taxi LLC, Adv. Pro. No. 15-1185, 2017 WL 1207471 (E.D.N.Y. March 31, 2017) (the “F&C”), as required by 28 U.S.C. § 157(c)(1).[1] The standard of review in this Court of the F&C is de novo. See 28 U.S.C. § 157(c)(1). Familiarity with the F&C is presumed, and the background of this case will therefore not be repeated.

         Friedman objects to the F&C on three grounds: (1) the Bankruptcy Court lacked even “related-to” subject matter jurisdiction; (2) the Bankruptcy Court unreasonably denied Friedman discovery before ruling on the motion, thus depriving him of the ability to demonstrate material issues of disputed fact; and (3) the Bankruptcy Court's conclusion that Friedman had waived his right to bring counterclaims under the language of his guarantees was invalid. Because none of these points have merit, Friedman's objections are overruled.


         The Court would be justified in striking Friedman's objection based solely on his failure to adequately comply with Federal Rule of Bankruptcy Procedure 9033(b). The Rule states: “A party objecting to the bankruptcy judge's proposed findings or conclusions shall arrange promptly for the transcription of the record, or such portions of it as all parties may agree upon or the bankruptcy judge deems sufficient, unless the district judge otherwise directs.” Fed.R.Bankr.P. 9033(b). Although there are scattered citations to the Bankruptcy Court docket sheet in Friedman's objection, the only documents which Friedman has caused to be transmitted to this Court are the F&C, his objection, and Citibank's response.[2] He failed to designate a record even though his objections assert that “Mr. Freidman respectfully refers the Court to the voluminous record . . . .”[3]

         It seemed more than passing strange to be asked to rule de novo on a summary judgment motion with none of the motion papers that were before the Bankruptcy Court. I therefore entered an Order advising the parties that I had nothing before me but the three papers that Friedman had transmitted, and that if the record was not supplemented, I would rule based on what I had. Friedman did not respond to that Order.

         Federal Courts of Appeal regularly dismiss appeals where the appellant fails to submit an adequate record. See e.g. Tapley v. Chambers, 840 F.3d 370 (7th Cir. 2016); King v. Unocal Corp., 58 F.3d 586 (10th Cir. 1995); United States v. Vasquez, 985 F.2d 491 (10th Cir. 1993); Rodriguez v. American Airlines, Inc., 166 F.3d 1201 (2d Cir. 1988); Brattrud v. Town of Exline, 628 F.2d 1098 (8th Cir. 1980); Grimard v. Carlston, 567 F.2d 1171 (1st Cir. 1978). The instant proceeding is not technically an appeal, but Friedman has created the same practical difficulty by failing to submit the motion papers on which the Bankruptcy Court's decision was based.

         I am not going to reject the objections on this ground, as there are ample grounds to overrule them on the merits. But to the extent Friedman expects me to find material disputed factual issues based solely on his objections, he has seriously limited my ability to do so.


         More than half of Friedman's objection is devoted to his contention that the Bankruptcy Court lacked subject matter jurisdiction to issue its F&C. The present attack on jurisdiction constitutes a 180-degree turnaround for Friedman. It was Friedman's wholly-owned taxi companies that removed this adversary proceeding from New York County Supreme Court, where Citibank had commenced it, to the Southern District of New York, the district in which the state court sits. The basis of removal was that it was related to the (then) Chapter 11 cases. Judge Rakoff transferred the case to the Eastern District of New York on the ground that it was related to the taxi companies' bankruptcy proceedings here. On that same jurisdictional basis, Judge Chen referred the case to the Bankruptcy Court in this district. In the letter requesting referral to the Bankruptcy Court, the taxi companies represented that all parties consented to the referral, as long as they could reserve their right to challenge the Bankruptcy Court's jurisdiction to enter dispositive orders. Like his companies, Friedman never objected to subject matter jurisdiction in the Southern District, in the Eastern District before Judge Chen, or before the Bankruptcy Court in the Eastern District. Instead, he litigated extensively with Citibank on the merits, and only now that he has lost has he decided to challenge jurisdiction, raising it for the first time in this Court.

         Friedman points to the basic principle that subject matter jurisdiction cannot be waived, and thus he has the right to raise it now despite his earlier position. That is hardly the point. The reason that the Bankruptcy Court exercised jurisdiction is because the vast majority of district-court and bankruptcy-court decisions in this Circuit consider actions on an insider's guarantee to fall within the “related-to” jurisdiction of the bankruptcy court, either because they alter the composition of the creditor body or because the trustee is likely to have subordination or other claims against the guarantor that it did not have against the lender. See, e.g., Lifetime Brands, Inc. v. ARC International, SA, No. 09-cv-9792, 2010 WL 454680, at *1 (S.D.N.Y. Jan. 29, 2010) (“It appears, moreover, to be well settled that an action to recover on a guaranty of a bankruptcy debtor's obligation is ‘related to' the debtor's bankruptcy.”); Merrill Lynch Mortgage Capital Inc. v. Esmerian, No. 08 Civ. 5058, 2008 WL 2596369, at *1 (S.D.N.Y. June 30, 2008); In re Ames Dep't Stores, Inc., 190 B.R. 157, 163 (S.D.N.Y. 1995); In re New 118th LLC, 396 B.R. 885, 890-91 (Bankr. S.D.N.Y. 2008); In re River Ctr. Holdings, LLC, 288 B.R. 59 (Bankr. S.D.N.Y. 2003).

         Friedman recognizes that the test is whether the outcome of the action could have a “conceivable effect” on the Chapter 11 case, see In re Cuyahoga Equip. Corp., 980 F.2d 110, 114 (2d Cir. 1992), but claims that it is “speculative” that the trustee will have claims against him if he pays the guarantee liability and steps into the debtors' shoes. I see nothing speculative about it, especially considering Friedman's intra-family transfers prior to his putting the taxi companies into Chapter 11, which has already led to an order of attachment over those assets. Even without that, it is very rare in a large bankruptcy case that the insider's status is not the subject of litigation or negotiation that confers benefits on other creditors. This is why virtually all cases in this Circuit find that attempts to ...

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