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Barbella v. Pergament

United States District Court, E.D. New York

January 8, 2018

Ernest Barbella & Gourmet Select Foods, Corp., Appellants,
v.
Marc A. Pergament, Appellee.

          Appellants are represented by Schuyler Glenn Carroll of Perkins Coie LLP.

          Appellee is represented by Nicholas Tuffarelli of Weinberg Gross & Pergament LLP

          MEMORANDUM AND ORDER

          JOSEPH F. BIANCO UNITED STATES DISTRICT JUDGE.

         Pending before the Court is a motion for leave to appeal filed by Ernest Barbella (“Barbella”) and Gourmet Select Foods, Corp. (“Gourmet Select, ” and, collectively, “appellants”) in connection with the April 14, 2016 Order (the “Bankruptcy Order”) of the Honorable Robert E. Grossman, United States Bankruptcy Judge (the “Bankruptcy Court”). (ECF No. 1-10.) By that Order, the Bankruptcy Court denied appellants' motion to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). Appellants raise two issues in their motion: whether the Bankruptcy Court committed legal error in its application of the legal standards concerning (1) equitable tolling, and (2) the propriety of pleading causes of action entirely upon information and belief. (Appellants' Mem. Supp. Mot. Leave Appeal (“Appeal Br.”), ECF No. 1.) Appellee Marc A. Pergament (“the trustee”) opposes the motion on the following grounds: (1) defendants have failed to show the exceptional circumstances required for an interlocutory appeal; (2) the Bankruptcy Order concerns issues of fact, not simply “pure” legal questions; and (3) defendants have failed to show that a “substantial ground for difference of opinion” exists with respect to the issue they seek to appeal. (Appellee's Mem. Supp. Opp'n Mot. Leave Appeal (“Opp'n Br.”), ECF No. 2.)

         For the reasons set forth below, the Court denies the motion for leave to appeal.

         I. Background

         The following factual allegations and procedural history are relevant to the instant appeal.

         A. Factual Background

         Quality Food Brands, Inc. (“QFB”), a wholly owned subsidiary of PHS Group, Inc. (“PHS”), was engaged in the manufacture and distribution of baking mixes, spices, and other food products throughout the United States. (Opp'n Br. 3.) Mair Faibish (“Faibish”) was PHS's Chief Executive Officer and controlled QFB's operations and finances. (Id.) Faibish, along with several others, allegedly orchestrated a check-kiting scheme that utilized the bank accounts of several United States and Canadian companies, including PHS, QFB, and Gourmet Select. (Id.) In furtherance of the scheme, Faibish and his co-conspirators allegedly circulated checks that were not backed by sufficient funds between PHS, QFB, and many other companies that were controlled by either Faibish or Barbella. (Id. at 4.) In March 2014, Faibish was convicted of bank and securities fraud. (Id.)

         On April 5, 2011, QFB filed a petition for bankruptcy. (Appeal Br. 2.) Shortly thereafter, the trustee made discovery requests, as did several of QFB's creditors. (Id.) In response to those discovery requests, Barbella provided certain documents. (Id. at 2-3.) At the request of several of QFB's creditors, Barbella was deposed in July 2012. At the deposition, Barbella asserted the Fifth Amendment and refused to answer any questions. (Id.) Neither the trustee nor his counsel requested the deposition, nor did either appear on the record of the deposition. (Id.) After the deposition, the trustee did not seek to depose Barbella or to compel him to comply with the creditors' request for a deposition. (Id.)

         According to the trustee, Barbella separately and voluntarily requested to meet with the trustee so that he could ensure the trustee had the “full story” concerning his investigation. (Id.) At that meeting, Barbella informed the trustee that he would willingly cooperate with the trustee's efforts, he presented materials that explained his work with PHS and QFB, and he disclosed his ownership interest in Gourmet Select. (Id.; Decl. Schuyler G. Carroll (“Carroll Decl.”), ECF No. 1-1, Ex. 1.) Afterwards, the trustee did not further inquire about Barbella's interests in Gourmet Select or about Gourmet Select. (Appeal Br. 4.)

         At some point prior to January 12, 2016, counsel for one of QFB's largest creditors provided the trustee with statements from two of Gourmet Select's banking accounts. (Opp'n Br. 4.) The statements allegedly show that the accounts were utilized in furtherance of the check-kiting scheme, and that Barbella signed the majority of the checks issued by Gourmet Select to PHS in the course of the scheme. (Id.)

         In January 2016, the trustee filed a complaint in the Bankruptcy Court against Barbella and Gourmet Select, alleging that Barbella participated in, and failed to report, a check-kiting scheme that victimized QFB, and that Gourmet Select received fraudulently conveyed funds from QFB. (Carroll Decl., Ex. 2 ¶¶ 1-2.) Appellants note that the portions of that complaint dealing with Barbella and Gourmet Select “are, with very few exceptions[, ] pled entirely on information and belief.” (Appeal Br. 4.)

         In March 2016, appellants moved to dismiss the complaint, arguing it was time-barred. (Carroll Decl., Ex. 4, ECF No. 1-6.) In the trustee's opposition to the motion to dismiss, he maintained that the applicable statutes of limitation should be equitably tolled due to the actions and conduct of Barbella and the extraordinary circumstances surrounding this case. (Opp'n Br. 5.) In particular, the trustee argued that he had been severely limited in obtaining information from QFB, Barbella, and Gourmet Select in the course of his investigation due to Barbella's and Faibish's conduct. (Id.) ...


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