In Re: FKF 3, LLC, No. 1:2013cv03310 - Document 28 (S.D.N.Y. 2013)

Court Description: OPINION AND ORDER terminating 16 MOTION to Stay filed by Ariston Properties, L.L.C., Charles J. Roncati. The Bankruptcy Court's Default Judgment Order is vacated. Bankr. Doc. 47. Additionally, the administrative defaults and the default judgme nts entered against Roncati and Ariston are also vacated. Bankr. Docs. 10, 15, 48, 49. The matter is remanded to the Bankruptcy Court for further proceedings consistent with this Opinion and Order. The Clerk of the Court is respectfully directed to d ocket this decision and close the case. Moreover, as the Court's opinion renders Appellant's Motion to Stay moot, the Clerk of the Court is respectfully directed to terminate the motion. Doc. 16. (Signed by Judge Edgardo Ramos on 11/6/2013) (ft)

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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ------------------------------------------------------------------------x In re : : FKF 3, LLC, : : Debtor. : ------------------------------------------------------------------------x ARISTON PROPERTIES, LLC and CONRAD : RONCATI, : OPINION AND ORDER : Appellants, : 13 CIV. 3310 (ER) : - against : : GREGORY MESSER, as Trustee of the FKF Trust, : : Appellee. : ------------------------------------------------------------------------x Ramos, D.J.: Ariston Properties, LLC ( Ariston ) and Conrad Roncati ( Roncati ) (collectively, Appellants ) appeal from the Order dated March 21, 2013 granting default judgments against Appellants, entered by Chief United States Bankruptcy Judge Cecelia G. Morris (Bankr. Doc. 47). 1 For the reasons set forth below, the Order of the Bankruptcy Court is VACATED, and the case is REMANDED to Judge Morris for further proceedings consistent with this Opinion and Order. I. Factual Background On July 19, 2010, three creditors filed an involuntary Chapter 11 petition against FKF 3, LLC ( Debtor or FKF 3 ) in the United States Bankruptcy Court for the Southern District of New York. Declaration of Romain D. Walker, Esq. ( Walker Decl. ) (Doc. 19), Ex. B (March 13, 2013 Memorandum Decision Granting Default 1 References to Bankr. Doc. refer to documents filed in the underlying adversary proceeding, Messer v. GMR, LLC, et al., Adv. Pro. No. 12-09072 (Bankr. S.D.N.Y. 2012). References to Doc. refer to documents filed in the instant appeal. Judgments) ( Memorandum Decision ) at 2. The Debtor consented to the order for relief and the Bankruptcy Court entered it on August 9, 2010. Id. On April 18, 2011, the Bankruptcy Court confirmed the Joint Plan of Liquidation of FKF 3, pursuant to which the FKF Trust ( Trust ) was created and Gregory Messer was appointed trustee ( Trustee or Appellee ). Id. On July 18, 2012, the Trustee commenced the underlying adversary proceeding against the Appellants, among others, by filing a complaint with the Bankruptcy Court (the Complaint ). Bankr. Doc. 1 ( Compl. ). The Complaint alleges that on April 21, 2006, defendant GMR, LLC ( GMR ) issued an Amended and Restated Promissory Note to the Debtor in the amount of $1,500,000 (the Note ), evidencing a loan made by the Debtor to GMR and its principal, defendant Gary M. Ricci ( Ricci ). 2 Compl. ¶ 27. The loan was to be used by GMR in the development of a real property project in Edgewater, New Jersey, in which Ricci and Roncati were partners (the Project ). 3 Id. ¶ 30. Contemporaneously with the execution of the Note, both Ricci and Roncati executed Guarantees of GMR s obligation under the Note. Id. ¶ 33. Pursuant to the Guarantees, Ricci and Roncati jointly and severally, absolutely, irrevocably and unconditionally guarantee[d] to [Debtor] the full, prompt and unconditional payment of the [Loan]. Id. ¶ 34; see also Declaration of Conrad J. Roncati ( Roncati Decl. ) (Doc. 18), Ex. B (Guaranty) ¶ 2. Additionally, Roncati and Ricci each pledged their 2 The Complaint does not indicate whether there was a prior Note and, if so, what its terms and conditions were. 3 Although the loan was to be used by Ricci and Roncati in the development of the Project, neither Ricci nor Roncati are parties to the Note. Rather, GMR is the sole Borrower under the Note. 2 membership interests in Ariston 4 and GMR, respectively, to the Debtor as additional security for GMR s obligations under the Note. Compl. ¶ 35; see also Roncati Decl., Ex. C (Ariston Pledge and Security Agreement). In or around August 2006, Ricci informed the Debtor in writing that he was transferring his interest in the Project and that Roncati would be taking over responsibility for the Loan. Compl. ¶ 36. Ricci simultaneously requested a return of his $350,000 Cash Collateral, less the interest due on the Note through December 31, 2006 and the Debtor s legal fees in connection with the change. Id. On August 8, 2006, the Debtor returned $150,000 of the Cash Collateral to Ricci, and on September 2, 2006, the Debtor returned the remaining $76,583.34 of the Cash Collateral after $123,416.66 in interest and fees due on the Note through December 31, 2006 were deducted. Id. ¶ 37. The Trustee alleges that other than the deductions to the Cash Collateral, no interest, fees or principal payments were ever made on the Note. Id. ¶ 38. On November 10, 2010, the Debtor sent a demand to Roncati and GMR demanding the repayment of the Note. Id. ¶ 40. On December 3, 2010, Roncati responded to the Debtor s correspondence through his counsel, claiming that the Debtor released Roncati pursuant to an August 11, 2006 agreement (the Release ). Id. ¶ 41. The Release provided, among other things, as follows: (i) the release of GMR from its obligations under the Note; (ii) the release of Ricci and Roncati from their obligations under the Guarantees; and (iii) the assumption of GMR s obligations under the Note by Ariston. Id. ¶ 42. The Trustee alleged in the Complaint that the Release was never 4 Roncati is the sole member and owner of 100% of the equity interest in Ariston. Roncati Decl., Ex. C at Recitals C, D. 3 signed by the Debtor and is unenforceable for at least that reason. 5 Id. ¶ 83. The Complaint states claims against Appellants for breach of contract based upon Appellants alleged breach of the Note and the Guarantees, id. ¶¶ 43-53, and for turnover of property of the estate pursuant to 11 U.S.C. § 542(b) for the amounts due under the Note. Id. ¶¶ 54-64. Moreover, in the event that the Bankruptcy Court finds that the Release constitutes a valid release of GMR s, Ricci s and/or Roncati s obligations under the Note, Guarantees and related agreements, id. ¶ 83, the Complaint states a claim for fraudulent conveyance as an alternative to the breach of contract and turnover of property claims. Id. ¶¶ 66-90. Specifically, the Trustee alleges that the Release was an avoidable transfer because, among other things, the Debtor received less than fair consideration in exchange for the release of Appellants. Id. ¶ 87. II. The Underlying Adversary Proceeding On July 23, 2012, a summons was issued by the Bankruptcy Court with respect to the Complaint. Bankr. Doc. 2. On July 24, 2012, the Trustee served the summons upon all defendants. Bankr. Doc. 3. The deadline to answer or otherwise respond to the Complaint was August 22, 2012, however, no answer or response was filed on that date. Memorandum Decision at 3. Accordingly, the Trustee filed a request for entry of default against all defendants, which the Clerk of Court entered on September 6, 2012. Id. On September 5, 2012, the Trustee requested that another summons be issued. Id. The new summons (the Second Summons ) was issued by the Clerk s Office, and on September 10, 2012, GMR, Ricci, Ariston and Roncati were re-served at different addresses. Id. at 3-4. Again, none of the defendants timely responded to the Second 5 In his objection to the motion for default judgment, discussed infra, Ricci attached a copy of the Release signed by Mitchell Klein on behalf of FKF. See Reply Mem. L. Mot for Default (Bankr. Doc. 35) ¶ 27. 4 Summons and Complaint by the October 9, 2012 deadline. Id. at 4. Thereafter, the Trustee requested that a second default be entered against GMR, Ricci, Ariston and Roncati. Id. In response, the Clerk s office advised the Trustee that the defaults previously entered against defendants were valid and that the entry of additional defaults was unnecessary. Id. On November 15, 2012, the Trustee filed a Motion for Default Judgment, which was served upon all defendants at all addresses previously utilized by the Trustee for service. Id. None of the defendants filed a response to the motion by the December 10, 2012 deadline. Id. On December 21, 2012, Ricci filed an objection, and on December 26, 2012, Roncati filed an objection on behalf of himself and Ariston. Id. As the clerk entered defaults against Appellants pursuant to Fed. R. Civ. P. 55(a), 6 the Bankruptcy Court treated Appellants objection as a motion to vacate entry of default pursuant to Fed. R. Civ. P. 55(c), which states that [t]he court may set aside an entry of default for good cause. Id. at 4-5. After a hearing on January 8, 2013, the Bankruptcy Court issued the Memorandum Decision on March 13, 2013, Bankr. Doc. 46, and an Order Directing the Entry of Default Judgments Against Defendants on March 21, 2013 ( Default Judgment Order ), Bankr. Doc. 47. Thereafter, on April 8, 2013, the Bankruptcy Court issued an Order denying Appellants motion for reargument, Bankr. Doc. 54, and on April 19, 2013, the Bankruptcy Court issued an Order denying Appellants motion for a stay pending appeal pursuant to Fed. R. Bankr. P. 8005, Bankr. Doc. 61. 6 Federal Rule of Civil Procedure 55 is made applicable to adversary proceedings through Federal Rule of Bankruptcy Procedure 7055. 5 III. Appellants did Not Impliedly Consent to the Entry of a Final Order by the Bankruptcy Court The Bankruptcy Amendments and Federal Judgeship Act of 1984 (the 1984 Bankruptcy Act ) divided proceedings related to a bankruptcy into core and noncore, giving final adjudicative power to the bankruptcy court in the former, but not the latter case. See 28 U.S.C. § 157; see also In re Coudert Bros. LLP, No. 11-2785 (CM), 2011 WL 5593147, at *10 (S.D.N.Y. Sept. 23, 2011). Section 157 also provides, however, that a bankruptcy court may finally adjudicate a non-core matter if the parties consent to such adjudication. In re Coudert Bros. LLP, 2011 WL 5593147, at *10. The core/non-core division in the 1984 Bankruptcy Act was intended to move final adjudicative authority over proceedings involving public rights to the Article I bankruptcy courts, while retaining matters not at the core of the Congressionallycreated right to a bankruptcy discharge (i.e., claims involving private rights ) to the Article III courts for final determination. Id at *5. Congress tried to delineate the core of the public right to a bankruptcy discharge by listing examples of claims that it believed the bankruptcy courts could finally adjudicate in the statute. Id. In Stern v. Marshall, 131 S. Ct. 2594 (2011), however, the Supreme Court held that Congress did not altogether succeed in its goal: some claims, though denominated core under the statute, nevertheless involve only private rights, which preclude the Bankruptcy Court from finally adjudicating them. In re Coudert Bros. LLP, 2011 WL 5593147, at *6. The Stern decision thus demonstrates that the constitutional question is not congruent with the text of the bankruptcy statute, and that in determining whether the bankruptcy court has authority to make final adjudications, courts must consider whether the claims to be adjudicated involve public or private rights, and not simply whether the claims were 6 delineated by Congress as core in the statute. Id. at *7. If the claims involve private rights, the bankruptcy court does not have final adjudicative power over the claims. Id. Here, Appellee appears to concede that the claims in the adversary Complaint involve private rights. Indeed, Appellee s entire argument with respect to the adjudicative authority of the Bankruptcy Court centers on whether Appellants impliedly consented to entry of the default judgment by the Bankruptcy Court. See Appellee s Mem. L. Opp. (Doc. 25) 19-21. Accordingly, as the parties agree that the claims at issue are not within the adjudicative authority of the Bankruptcy Court, 7 the preliminary issue before this Court is whether Appellants consented to the Bankruptcy Court s final adjudication of the claims. If Appellants did consent, the appeal should proceed under 28 U.S.C. § 158(a)(1), which gives the Court power to hear appeals from final orders. See In re Coudert Bros. LLP, 2011 WL 5593147, at *10. If Appellants did not consent to final adjudication by the Bankruptcy Court, however, then the Default Judgment Order should be vacated, and Judge Morris s final determinations in the Memorandum Decision treated as recommendations under § 157(c)(1) and reviewed de novo by this Court. 8 Id. Appellee concedes and a review of the record confirms that Appellants did not 7 Although it need not reach the issue in light of Appellee s failure to raise it, the Court nevertheless finds that the breach of contract and fraudulent conveyance claims do, in fact, involve private rights which the bankruptcy judge may not finally adjudicate absent consent of the parties. See Adelphia Recovery Trust v. FLP Grp., Inc., No. 11 Civ. 6847 (PAC), 2012 WL 264180, at *3-*4 (S.D.N.Y. Jan. 30, 2012) (holding that Supreme Court precedents demonstrate that a fraudulent conveyance claim involves a private right and citing cases holding same); In re Charter Commc ns, 409 B.R. 649, 655-56 (Bankr. S.D.N.Y. 2009) (noting that where an adversary proceeding relates to asserted breaches of a prepetition agreement, that factor weighs against a finding of core status). 8 28 U.S.C. § 157(c)(1) states: A bankruptcy judge may hear a proceeding that is not a core proceeding but that is otherwise related to a case under title 11. In such proceeding, the bankruptcy judge shall submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy judge s proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected. 7 expressly consent to the Bankruptcy Court s entry of a final order on Appellee s claims. Rather, Appellee argues that Appellants impliedly consented to entry of a final order by a bankruptcy judge by failing to respond to the properly served summons and complaint. Appellee s Mem. L. Opp. Mot. to Stay (Doc. 23) 19. In support of its argument, Appellee cites to In re Oldco M. Corp., 484 B.R. 598 (Bankr. S.D.N.Y. 2012). In that case, the bankruptcy court held that Where a summons and complaint have been properly served and the defendant has failed to respond . . . the defendant s actions, or lack thereof . . . constitute implied consent to the entry of a default judgment by a bankruptcy judge. The answer is the same whether the claims asserted in the adversary complaint are core, non-core, or core but for which only an Article III judge may enter a final order or judgment consistent with the U.S. Constitution absent consent. Id. at 614. Here, Appellants failed to respond to the Complaint. However, they filed an opposition to the Trustee s motion for default judgment and appeared at the hearing on the motion. Moreover, although Appellants did not raise the issue of the Bankruptcy Court s adjudicative authority in their opposition to the motion for default judgment, they did raise the argument to the Bankruptcy Court in their motion for reargument. 9 See Mot. for Reargument (Bankr. Doc. 53) 14-15. The defendant in Oldco M. Corp., on the other hand, did not file a response to the complaint or the Trustee s motion for default judgment or appear at the hearing on the motion. Oldco M. Corp., 484 B.R. at 600-01. Accordingly, based on the narrow facts of the case, the bankruptcy court in Oldco M. 9 The Bankruptcy Court denied Appellants motion for reargument on the basis that they failed to meet their burden under Rule 59 and Local Rule 9023-1 of demonstrating an intervening change of controlling law, the availability of new evidence, or the need to correct a clear error or prevent manifest injustice. Order Denying Motion for Reargument (Bankr. Doc. 54) 2. 8 Corp. made clear that it was not deciding whether or when a bankruptcy judge may order entry of a final default judgment other than as a result of a defendant s failure to respond to the adversary complaint. Id. at 601 n.3 (emphasis added). Indeed, in deciding the issue, the bankruptcy court reviewed recent post-Stern decisions of district courts within this Circuit which recognize that implied consent continues to be a proper basis for upholding the exercise of authority of a bankruptcy judge to enter a final order or judgment, but that implied consent should not be easily found. Id. at 606, 609 (emphasis added). Accordingly, as Appellants appeared in the adversary proceeding and ultimately raised the issue of the Bankruptcy Court s authority to issue the default judgments during the course of that proceeding, the Court finds that the Oldco M. Corp. decision is distinguishable from the facts at issue here. Prior to Stern, courts in this Circuit routinely found that parties could and did consent implicitly to the exercise of final jurisdiction by the Bankruptcy Court even with respect to non-core matters. See In re Coudert Bros. LLP, 2011 WL 5593147, at *10 (citing cases). Although the Supreme Court in Stern confirmed that consent can be a sufficient basis for final adjudication by a bankruptcy court, id. (citing Stern, 131 S. Ct. at 2608), this Court has held that [f]ollowing Stern, it is doubtful whether mere participation in litigation is enough to imply consent. Id. at *12. Accordingly, in light of the directive from the Second Circuit that a court should not lightly infer from a litigant s conduct consent to have private state-created rights adjudicated by a non-Article III bankruptcy judge, In re Men s Sportswear, Inc., 834 F.2d 1134, 1138 (2d Cir. 1987), the court in In re Lyondell Chem. Co., 467 B.R. 712 (S.D.N.Y. 2012), a post-Stern decision, held that the defendants did not impliedly consent to final adjudication by the 9 bankruptcy court by participating in proceedings before the bankruptcy court without objection for over a year. Id. at 722. Similarly, in In re Madison Bentley Assocs., LLC, 474 B.R. 430 (S.D.N.Y. 2012), the court noted that [t]he test for consent is strict and, accordingly, held that defendants did not consent to final adjudication by the bankruptcy court by litigating the adversary proceeding for over a year and a half. Id. at 436-37, 43940 (noting that a waiver of important rights should only be found where it is fully knowing ) (internal quotations marks and citation omitted); see also In re Arbco Capital Mgmt., LLP, 479 B.R. 254, 266-67 (S.D.N.Y. 2012) (holding that defendant did not consent to the bankruptcy court s jurisdiction to enter a final order where defendant participated in two hearings before the Bankruptcy Court without raising any objection to its jurisdiction ). In determining implied consent, courts typically consider whether the objection to the bankruptcy court s authority is raised before or after any trial activities have occurred or a judgment has been entered, with the latter weighing in favor of a finding of implied consent. See, e.g. In re Lyondell Chem. Co., 467 B.R. at 722; In re Madison Bentley Assocs., LLC, 474 B.R. at 439. Although in this case, Appellants first raised the issue of the Bankruptcy Court s adjudicative authority after the default judgments had been entered against them, the Court nevertheless finds that Appellants did not impliedly consent to the Bankruptcy Court s final adjudication of the Trustee s claims. Most litigants who have been found by courts within this Circuit to have impliedly consented to final adjudication by the bankruptcy judge failed to object during any of the extensive proceedings before the bankruptcy court or in their appeal of the bankruptcy court s final order or judgment to the district court. See, e.g., In re Men s Sportswear, Inc., 834 10 F.2d at 1137-38 (holding that defendant impliedly consented to the bankruptcy court s final adjudication of the matter where defendant failed to object to the bankruptcy judge s assumption of core jurisdiction at any point during the extensive proceedings before the bankruptcy court and also fail[ed] to object to any part of the appeal process in the district court ); Dev. Specialists, Inc. v. Akin Gump Strauss Hauer & Feld LLP, 462 B.R. 457, 472 (S.D.N.Y. 2011) ( Where a party participates in extensive litigation without raising an argument of which it was aware, it would be unfair and inefficient to allow that party to escape the consequences of its knowing silence. ) (emphasis added); In re Tyson, 433 B.R. 68, 76-77 (S.D.N.Y. 2010) (holding that defendants impliedly consented to bankruptcy court s final adjudication of claims where defendants did not object before or during trial or during post-trial motion practice in the bankruptcy court). Here, Appellants did not participate in extensive proceedings before raising the issue of the Bankruptcy Court s authority to issue a final judgment. Rather, Appellants raised the issue in their motion for reconsideration after their first and only appearance before the Bankruptcy Court, as well as before this Court on their appeal. In light of the strict test for a finding of consent, the Court finds that Appellants did not impliedly consent to the Bankruptcy Court s entry of the default judgments at issue. Accordingly, the Default Judgment Order is vacated, and Judge Morris s findings in the Memorandum Decision are treated as recommendations under § 157(c)(1) and reviewed de novo by this Court. IV. Applicable Law In determining whether there is good cause to vacate an entry of default under Fed. R. Civ. P. 55(c), courts in this Circuit apply a three-factor test: (1) whether the default was willful; (2) whether the defendant demonstrates the existence of a meritorious 11 defense to the defaulted claims; and (3) whether, and to what extent, vacating the default will cause the nondefaulting party prejudice. W.B. David & Co., Inc. v. De Beers Centenary AG, 507 F. App x 67, 69 (2d Cir. 2013) (citation omitted). These criteria must be applied in light of the Second Circuit's oft-stated preference for resolving disputes on the merits. Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 95 (2d Cir. 1993); accord Meehan v. Snow, 652 F.2d 274, 277 (2d Cir. 1981) (per curiam) ( [T]he extreme sanction of a default judgment [is] a weapon of last, rather than first, resort. ) (citations omitted). Moreover, although the same factors are analyzed to determine whether an administrative default and a default judgment should be vacated, there is a more forgiving standard for setting aside an administrative default, like the one at issue here. 10 State Farm Mut. Auto. Ins. Co. v. Cohan, 409 F. App x 453, 456 (2d Cir. 2011). a. Willfulness of the Default 1. Appellants Were Properly Served When service of process is mailed pursuant to Bankruptcy Rule 7004(b), 11 [c]ourts uniformly presume that an addressee receives a properly mailed item when the sender presents proof that it properly addressed, stamped, and deposited the item in the mail. In re Dana Corp., No. 06 10354 (BRL), 2007 WL 1577763, at *4 (Bankr. 10 An administrative default refers to a default entered by the clerk of the court under Fed. R. Civ. P. 55(a) [w]hen a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise. Fed. R. Civ. P. 55(a). An administrative default may be set aside for good cause shown under Rule 55(c). A default judgment, on the other hand, refers to a final judgment for a certain amount of damages entered against a defendant who has been defaulted for not appearing. Fed. R. Civ. P. 55(b). A court may set aside a default judgment under Rule 60(b) ( Grounds for Relief from a Final Judgment, Order, or Proceeding ). Fed. R. Civ. P. 55(c) ( The court may set aside an entry of default for good cause, and it may set aside a default judgment under Rule 60(b). ). Because this Court has determined to treat the Bankruptcy Court s final judgment as a recommendation, the Court addresses the propriety of vacating the administrative defaults entered against Appellants. 11 Rule 7004(b) permits service upon an individual or corporation within the United States by first class mail. 12 S.D.N.Y. May 30, 2007). Although the presumption is a rebuttable one, it is very strong and can only be rebutted by specific facts and not by a mere affidavit to the contrary. Id.; accord In re Ms. Interpret, 222 B.R. 409, 413 (Bankr. S.D.N.Y. 1998) ( [A] party must do more than merely assert that it did not receive the mailing; its testimony or affidavit of non-receipt is insufficient, standing alone, to rebut the presumption. ). Here, the Second Summons was mailed to Roncati s business and home address. Memorandum Decision at 10. Although Roncati admits that the addresses used were correct, with respect to the business address, he argued to the Bankruptcy Court that the property houses several other businesses and it is not uncommon for an article of mail to be accidentally delivered to or picked up by another tenant in the building. Id. With respect to the home address, Roncati asserted that [i]f these pleadings were indeed sent to this address, assuming they arrived, the documents may have been misplaced by the person whom I have hired to perform household duties, which includes collecting the mail. Id. The Bankruptcy Court found that in light of Roncati s failure to set forth specific, objective facts to substantiate his allegations that another tenant received his mail and never returned it, or that his household staff improperly handled his mail, he failed to rebut the very strong presumption that proper service was effectuated. Id. Appellants do not appear to contest Judge Morris s determination that proper service was effectuated or otherwise attempt to rebut the presumption of receipt. Rather, Appellants submissions on appeal focus on the willfulness of their default, rather than on the propriety of service. Accordingly, in light of Appellants failure to specifically contest the Bankruptcy Court s finding of proper service, as well as Appellants reliance on rank 13 speculation and a mere affidavit to the contrary, the Court finds that Appellants have failed to rebut the very strong presumption of proper service. 2. Appellants Default was Not Willful As Appellants were properly served with the Second Summons, the question for the Court becomes whether Appellants default was willful. As a default judgment is an extreme sanction, Meehan, 652 F.2d at 277, it should only be imposed upon a serious showing of willful default. Tripmasters, Inc. v. Hyatt Int l Corp., No. 82 Civ. 6792 (JFK), 1984 WL 1057, at *2 (S.D.N.Y. Oct. 23, 1984) (quoting Davis v. Musler, 713 F.2d 907, 916 (2d Cir. 1983)). Accordingly, the Second Circuit has interpreted the willfulness factor to refer to conduct that is deliberate, rather than merely negligent or careless. S.E.C. v. McNulty, 137 F.3d 732, 738 (2d Cir. 1998) (citations omitted). On the other hand, willfulness may be found where the defaulting party made a conscious decision to allow a hearing to go forward without a response, In re FairPoint Commc ns, 462 B.R. 75, 80 (Bankr. S.D.N.Y. 2012) (citation omitted), or where the conduct of counsel or the litigant was egregious and was not satisfactorily explained. McNulty, 137 F.3d at 738. Courts in this District have noted that the relevant inquiry for determining willfulness is the defaulting party s actions after it became aware of the existence of the litigation or entry of default. See, e.g. In re Fairpoint Comm cns, Inc., 462 B.R. at 81; In re JWP Info. Servs., Inc., 231 B.R. 209, 212 (Bankr. S.D.N.Y. 1999) ( It is [the party s] actions after he became aware of the existence of the Trustee's motion . . . that reaches the level of wilfulness. ). Thus, even where notice was adequate and the defaulting party failed to rebut the presumption of receipt, if the party responded promptly after learning 14 of the action, courts have found that the party s default was not willful. See, e.g. In re Fairpoint Comm cns, Inc., 462 B.R. at 81 (holding that defendant s default was not willful where he filed a motion for reconsideration eleven days after discovering that an order had been issued against him); In re Journal Register Co., No. 09 10769 (ALG), 2010 WL 5376278, at *1, *3 (Bankr. S.D.N.Y. Dec. 23, 2010) (finding that even where claimant s delay in responding was due to her attorney tardily discovering a previously unreviewed Claim Objection that was in his possession, the claimant did not act willfully because she did not have actual knowledge [of the] proceeding and promptly sought relief ); Tripmasters, Inc., 1984 WL 1057, at *3 (noting that the defaulting party moved promptly to vacate the default judgment once it discovered that the judgment had been entered ); see also Swarna v. Al-Awadi, 622 F.3d 123, 142-43 (2d Cir. 2010) (finding that default was not willful where defendants retained counsel one day after receiving the motion for default judgment and where counsel moved for an extension of time to respond one week later). Here, the Bankruptcy Court based its finding of willful default on the fact that although Roncati admitted becoming aware of the action in November 2012, Appellants nevertheless failed to promptly file a motion to vacate the default or otherwise attempt[] to rectify their defaults once they became aware of the action. Memorandum Decision at 11-12. Moreover, the Bankruptcy Court noted that despite being properly served with the motion for default judgment, Appellants failed to file a timely response to the motion by the December 10, 2012 deadline. Id. at 12. Rather, Appellants did not respond to the motion or otherwise appear in the case until December 26, 2012, after the objection deadline and the presentment date for the default judgment motion had run. Id. 15 In their papers on appeal, Appellants argue that the Bankruptcy Court erred in finding that their default was willful [g]iven Appellants prompt action in response to the Trustee s motion for default judgment. Appellants Mem. L. (Doc. 22) 10. Roncati asserts that upon becoming aware of the adversary proceeding sometime in November 2012, he immediately contacted [his] attorneys who contacted the Trustee to seek an extension of time to file a response. Certification of Conrad J. Roncati ( Roncati Cert. ) (Bankr. Doc. 26-1) ¶ 8; see also Appellants Mem. L. (Doc. 22) 11. Indeed, Appellee admits that on November 28, 2012, Charles Shaw, Esq. contacted counsel for the Trustee seeking an extension of time for Appellants to respond to the motion for default judgment, and that [t]he Trustee agreed to a reasonable extension. 12 Affidavit of Maeghan J. McLoughlin ( McLoughlin Aff. ) (Bankr. Doc. 35-1) ¶ 30. Moreover, Appellants appeared at the January 8, 2013 hearing on the Trustee s motion for default judgment and therefore did not allow a hearing to go forward without a response. In re FairPoint Commc ns, 462 B.R. at 80. The Court finds that Appellants actions, while negligent, do not rise to the level of willfulness. Upon learning of the adversary proceeding sometime in November, Appellants should have acted more expeditiously, perhaps appearing in the Bankruptcy Court sooner than December 26 a month after learning of the matter in light of the fact that defaults had been entered against them and the Trustee s motion for default judgment was pending. That Appellants actions were negligent, however, does not 12 Although Appellee admits that it agreed to a reasonable extension, neither party provides the Court with any further detail or explanation of the agreement between the parties, including how long of an extension Appellee agreed to. Moreover, the Court s review of the record indicates that notwithstanding any agreement between the parties, Appellants failed to seek the Bankruptcy Court s approval of an extension of time to respond to the motion to default judgment or otherwise appear in the adversary proceeding until December 26, 2012. 16 suggest that they were sufficiently willful to justify the entry of default judgment in excess of $3 million against them. Indeed, Roncati contends that he immediately contacted counsel upon learning of the proceeding and that counsel thereafter requested an extension of time to respond to the motion for default judgment, which the Trustee granted. Moreover, there is nothing to indicate that Appellants response some 16 days after the deadline was unreasonable in light of the admitted consent of Appellee for an extension. Additionally, Appellants appeared at the hearing on the Trustee s motion for default judgment and were heard on the matter. Thus, although Appellants would have been advised to notify the Bankruptcy Court of its intention to appear in the matter immediately upon learning of the proceeding, the Court finds that Appellants actions were not willful. 13 b. Meritorious Defense The Second Circuit has held that [t]o satisfy the criterion of a meritorious defense, the defense need not be ultimately persuasive at this stage. A defense is meritorious if it is good law so as to give the fact finder some determination to make. In re JWP Info. Servs., Inc., 231 B.R. at 213 (quoting Am. Alliance Ins. Co., Ltd. v. Eagle Ins. Co., 92 F.3d 57, 61 (2d Cir. 1996)). However, the defaulting party must present evidence beyond conclusory denials, and such evidence, if proven at trial, would constitute a complete defense. Id. (citations omitted). Appellants argue that the Bankruptcy Court erred in finding that the Release does 13 Appellee s willfulness argument centers mostly on Roncati s actions with respect to another adversary proceeding initiated by the Trustee, Messer v. John F. Magee, et al (In re FKF 3, LLC), Adv. Pro. No. 1109074 (Bankr. S.D.N.Y. Sept. 12, 2011), in which Roncati was served with third-party discovery requests. See Appellee s Mem. L. Opp. (Doc. 25) 14-17. The Court finds that Roncati s actions with respect to a separate adversary proceeding in which he is not a party is not relevant to the consideration of the willfulness of his default in the present action. 17 not provide a meritorious defense to the Trustee s claims. Specifically, the Bankruptcy Court found that Paragraph 9 of the Release, which applies specifically to Roncati . . . counters any assertion that he is free of liability. Memorandum Decision at 16. Paragraph 9 states: Ratification and Reaffirmation. Roncati hereby ratifies and reaffirms his absolute and unconditional obligations under the Loan, the Security Instrument and the other documents executed by Roncati in connection with the Loan, and represents and warrants to FKF that the Security Instrument and other loan documents are in full force . . . . Id. at 16-17. Moreover, the Bankruptcy Court found that further evidence of Roncati s obligation to repay the loan is found in Paragraph 6, which states in part that Roncati agrees that his obligations under the Note shall in no way be affected by the release by lender of Ricci from his obligations under the Loan . . . . Id. at 17. Indeed, the Bankruptcy Court found that there has been no evidence presented which indicates that Roncati was released of his obligations under the loan or security agreement, id., despite the fact that Paragraph 5 includes language specifically releasing Roncati from [his] obligations under the Guaranty. Roncati Decl. (Doc. 18), Ex. D (Release) ¶ 5. Roncati argues that he was neither a party nor a signatory to the Note and would therefore have no individual liability under the terms of the Note but for the Guaranty, which he was expressly released from under the terms of the Release. Appellants Mem. L. (Doc. 22) 4. Specifically, Paragraph 5 provides: Release of Transferor Ricci and Roncati: . . . In reliance on Ricci s representations and warranties in this Agreement, Lender releases Ricci and Roncati from their obligations under the Guaranty . . . . Roncati Decl. (Doc. 18), Ex. D (Release) ¶ 5. 18 With respect to the language in Paragraph 9 whereby Roncati ratified and reaffirmed his obligations under the Loan, Roncati argues that the Loan is not a single document which can be interpreted to confer benefits or liability on any party, but is rather a series of related transactions governed by four primary documents, viz., the Note, the Guaranty, the Security Instrument, and the Release. Id. at 7-8. Accordingly, it is erroneous to read language referencing the Loan as sufficient to impose liability on Roncati under the Note. 14 Id. Moreover, Roncati argues that the Security Agreement does not impose individual liability on him for the Loan; rather, it grants Debtor the right to an interest in Ariston as collateral security in the event of default on the Loan. Id. at 5. However, to the extent that the Release is read to contain inconsistent language, Roncati argues that under New Jersey law, to which the parties to the Release agreed to be bound, see Roncati Decl. (Doc. 18), Ex. D (Release) ¶ 17(a), the intent of the parties should be considered in determining the rights and obligations of the respective parties. Appellants Mem. L. (Doc. 22) 8. In that regard, Appellants have submitted a prior draft of the Release in which additional references to Roncati s obligations under the Guaranty were stricken, thereby evidencing the parties clear intent to release Roncati from any obligation under the Guaranty. Appellant s Mem. L. Mot. for Stay (Doc. 17) 6; see also Roncati Decl. (Doc 18), Ex. E. Appellee makes two arguments in response. On the one hand, he argues that the Release should be set aside, as an examination of the Release reveals a number of issues about its validity and application. Appellee s Mem. L. Opp. (Doc. 25) 8. In support of 14 Indeed, Note and Loan are defined differently by the Agreement. Loan is defined as the loan made by FKF 3 to GMR in the original principal amount of $1,500,000. Note, on the other hand, refers to the Amended and Restated Promissory Note dated April 21, 2006, which evidences the Loan. Roncati Decl. (Doc. 18), Ex. D (Release) at Recital A. 19 that argument, Appellee notes the inconsistency between Paragraph 5 of the agreement, which purports to include Roncati in the release, and Paragraph 6, which contains a clear preservation of claims against Roncati under the Note. Id. Appellee argues that the Release was apparently negotiated in the context that Ricci and GMR were leaving the Project, and Roncati and Ariston were taking over and assuming liability. Id. According to Appellee, it would therefore make theoretical sense for Ricci and GMR to receive a release, but it would be completely illogical for Roncati or Ariston to be released from their obligations, as they assumed control of the Project. Id. Appellee also argues, on the other hand, that the Court should uphold the unambiguous language of the Release stating that Roncati is obligated to pay for the existing liabilities. Id. at 13-14. Appellee appears to ignore the language of the agreement releasing Roncati from liability under the Guaranty, and instead focuses on the unambiguous language of Paragraph 9 obligating Roncati under the Loan, the Security Instrument and any other documents executed by Roncati in connection with the Loan. Id. Finally, Appellee argues that to the extent that there is an arguably meritorious defense that requires the submission of evidence, it is irrelevant because of Roncati s failure to submit any defense that the Release is not avoidable as a fraudulent conveyance. Id. at 14. In light of its review of the Release, as well as the other Loan documents, the Court finds that Appellants have put forth a meritorious defense. Although the Court need not provide its interpretation of the Release as a matter of law at this stage, in light of the language in the Release expressly releasing Roncati from his obligations under the 20 Guaranty, it is satisfied that Appellants have met their burden of demonstrating a meritorious defense based on good law so as to give the fact finder some determination to make. In re JWP Info. Servs., Inc., 231 B.R. at 213. Indeed, Appellee himself has admitted that the agreement purports to include Roncati in the release. Appellee s Mem. L. Opp. (Doc. 25) 8. Appellee essentially asks this Court to ignore the contractual language releasing Roncati from liability under the Guaranty because, according to Appellee, it would be completely illogical for FKF 3 to release Roncati from liability. However, it is a fundamental canon of contract interpretation that when faced with allegedly conflicting provisions in contracts, courts are cautioned to be slow in reaching a result which invalidates contractual provisions, but to instead strive where possible to interpret contracts in a manner which harmonizes and gives effect to all of their provisions. In re Kara Homes, Inc., No. 06 19626 (MBK), 2009 WL 4250035, at *4 (Bankr. D.N.J. Nov. 20, 2009) (citation omitted). An interpretation which gives a reasonable, lawful, and effective meaning to all the terms is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect. Id. (citing Capitol Bus Co. v. Blue Bird Coach Lines, Inc., 478 F.2d 556, 560 (3d Cir. 1973) ( A contract is to be considered as a whole, and, if possible, all its provisions should be given effect . . . . ))). The interpretation offered by the Appellee renders the provisions of the agreement releasing Roncati from his obligations under the Guaranty ineffective. Where there is inconsistency within a contract, it may be resolved by giving effect to the specific provision rather than to the general language. Bechtel Corp. v. Local 215, Laborers Int l Union of N. Am., AFL-CIO, 544 F.2d 1207, 1212 (3d Cir. 1976); accord Aramony v. United Way of Am., 254 F.3d 403, 413-14 (2d Cir. 2001) ( [S]pecific words will limit the 21 meaning of general words if it appears from the whole agreement that the parties purpose was directed solely toward the matter to which the specific words or clause relate. ) (quoting 11 Richard A. Lord, Williston on Contracts § 32:10, at 449 (4th ed. 1999)). Accordingly, although the Court declines to decide the issue at this stage, it notes that the apparent inconsistency between the terms of the Release, as acknowledged by both parties, may be resolved by comparing the inconsistent provisions and considering them in the context of the entire agreement to determine which of the inconsistent provisions contains more specific language or wording, or whether the provisions may in some sense be harmonized. Finally, although recitals in a contract cannot grant rights extending beyond those particularly described in the agreement, they may be useful in construing the rights and obligations created by the agreement. Abraham Zion Corp. v. Lebow, 761 F.2d 93, 10304 (2d Cir. 1985) (citing Genovese Drug Stores, Inc. v. Ct. Packing Co., Inc., 732 F.2d 286, 291 (2d Cir. 1984) ( [A]n expression of intent in a whereas clause of an agreement . . . may be useful as an aid in construing the rights and obligations created by the agreement, but it cannot create any right beyond those arising from the operative terms of the document. )). Here, the recitals state that Lender has been asked to consent to . . . the release of Roncati from his obligations under the Guaranty, Recital D, and that Lender has agreed to consent . . . to release Ricci and Roncati from their obligations under the Guaranty, Recital E. Despite the clear wording of the recitals, neither the parties nor the Bankruptcy Court analyzed the effect of the recitals on the rights and obligations of the parties in light of the inconsistencies in the contract as a whole. The Court s finding that Appellants have offered a meritorious defense is 22 bolstered by its review of the transcript of the January 8, 2013 hearing before the Bankruptcy Court. 15 At that hearing, both parties arguments centered, not on the Trustee s breach of contract claim, but rather, on the Trustee s fraudulent conveyance claim. The Trustee reiterated his argument that the Release should be deemed ineffective because there are a number of issues with it, Tr. at 28, but that even if the Release actually has some meaning and is a real document, Appellants still do not have a meritorious defense because the Release is a fraudulent conveyance, as FKF 3 received no consideration in exchange for its release of Roncati. Tr. at 30. In response, Appellants argued that the issue of what consideration was given to FKF 3 for Roncati s release is a factual question that must be decided by the ultimate finder of fact and cannot be determined by the face of the document. Tr. at 39. Appellants then suggested that a possible explanation for Roncati s release is that FKF requested that Roncati take over Mr. Ricci s duties and the management of the project, and that FKF may have felt that it was worth the release of Mr. Roncati to have him as an architect to take over the project. Tr. at 39. The Court finds that Appellants have offered a meritorious defense with respect to the fraudulent conveyance claim. Appellants defense need not be ultimately persuasive at this stage, and the issue of what consideration, if any, FKF 3 received in exchange for the release of Roncati s obligations under the Guaranty is a factual question on which Appellants should be permitted to offer testimony. 16 Moreover, to the extent that the 15 A copy of the transcript is attached hereto as Exhibit A. 16 Although the Release appears to impose liability on Ariston for GMR s obligations under the Note, see Roncati Decl. (Doc. 18), Ex. D (Release) ¶¶ 1, 4, in light of Appellee s arguments as to the validity and application of the Release, as well as the Court s finding that Appellants have offered a meritorious defense to the fraudulent conveyance claim, the Court finds that the default judgment against Ariston should likewise be vacated. 23 Trustee suggests that the Release is somehow invalid or fraudulent, that determination cannot be made by the Court at this stage of the litigation. c. Prejudice to Appellees With respect to the prejudice prong of the good cause test, Appellants argued below that the Trustee had only suffered a short delay as a result of their default and that the Trustee would suffer no prejudice if the defaults were vacated. Appellants Opp. to Mot. for Default (Bankr. Doc. 26) 6. Appellee argued, on the other hand, that although delay alone is not sufficient to establish prejudice, a showing that the delay may thwart plaintiff s recovery or remedy is sufficient. Appellee s Reply Mem. L. Mot. for Default (Bankr. Doc. 35) 18 (citing New York v. Green, 420 F.3d 99, 110 (2d Cir. 2005)). The Bankruptcy Court found that in light of the Trustee s allegation that Appellants owe $1.5 million, plus interest, accruing at 20% per annum, the delay due to the Defendants failure to respond increases the risk that [the Trustee] will not be able to recover, and that this increased risk of recovery is sufficient prejudice to the Trustee. Memorandum Decision at 14. In Appellants submissions to this Court in support of their motion to stay, Roncati emphasizes his inability to satisfy the default judgment in light of his current financial situation. See Roncati Decl. (Doc. 18) ¶¶ 8-25. In short, the Trustee alleged below that he is entitled to recover more every day from Appellants, who may be unable to satisfy the full damages already sought. Accordingly, the Court finds that delay, by increasing the recovery by an alleged $821.92 a day, increases the risk of its being thwarted. 17 See Saleh v. Francesco, No. 11 Civ. 438 (PKC), 2011 WL 5513375, at 17 The Court notes, however, that Appellee s argument that the Trust suffers prejudice every day the recovery is delayed is substantially weakened by the fact that the adversary proceeding was not instituted for almost 2 years after demand was first made on Roncati and 15 months after the Trustee was first appointed. 24 *5 (S.D.N.Y. Nov. 10, 2011); see also Appellee s Reply Mem. L. Mot. for Default (Bankr. Doc. 35) 18. V. Balancing of Factors In addition to the three factors that must be weighed on a Rule 55(c) motion, a court considering whether to relieve a party from an entry of default may also consider [o]ther relevant equitable factors, including whether the default would produce a harsh result. Enron Oil Corp., 10 F.3d at 96. The default judgments entered against Appellants are for a total of over $3 million. The Court is mindful that default judgments are disfavored and are particularly disfavored . . . when substantial sums of money are demanded. Id. at 97 (citations omitted). Accordingly, the size of the default judgments here weigh in favor of vacatur. Although the delay caused by vacating the default judgments against Appellants prejudices Appellee, the Court is mindful that in light of the oft-stated preference for resolving disputes on the merits, Enron Oil Corp., 10 F.3d at 95, doubts should be resolved in favor of the defaulting party. Id. at 96 (internal quotation marks and citation omitted). Accordingly, weighing the relevant factors and equitable considerations, the Court finds that the weight of the factors tips in favor of vacatur, particularly in light of a delay of only 16 days, which arguably were within the period of the reasonable extension that Appellee agreed to extend to Appellants. VI. Conclusion For the reasons set forth above, the Bankruptcy Court s Default Judgment Order is vacated. Bankr. Doc. 47. Additionally, the administrative defaults and the default judgments entered against Roncati and Ariston are also vacated. Bankr. Docs. 10, 15, 48, 25 Exhibit A 10-37170-cgm 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 1 of 57 Main Document UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK -----------------------------------X : IN RE: : : FKF 3, LLC, and 89 BROADWAY : PARK RIDGE, LLC, : : Debtors. : -----------------------------------X : GREGORY MESSER, as Trustee of the : FKF Trust, : : Plaintiff, : : -against: : : JOHN F. MAGEE, et al., : : Defendants. : -----------------------------------X GREGORY MESSER, as Trustee of the : FKF Trust, : : Plaintiff, : : -against: : 99 ROLAND STREET, PARK RIDGE, LLC, : et al., : : Defendants. : -----------------------------------X NCP REALTY, LLC, et al., : : Plaintiffs, : : -against: : KLEIN, et al., : : Defendants. : -----------------------------------X 10-37170 (CGM) 355 Main Street Poughkeepsie, New York January 8, 2013 Adv. Pro. 11-09074 Adv. Pro. 12-09063 Adv. Pro. 12-09104 (Continued on next page.) Proceedings recorded by electronic sound recording, transcript produced by transcription service 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 2 of 57 Main Document 1 2 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 -----------------------------------X MESSER, as Trustee of the FKF : Trust, : : Plaintiff, : : -against: : MULLIGAN, : : Defendant. : -----------------------------------X MESSER, as Trustee of the FKF : Trust, : : Plaintiff, : : -against: : HIRSCH, : : Defendant. : -----------------------------------X MESSER, as Trustee of the FKF : Trust, : : Plaintiff, : : -against: : ORITANI SAVINGS BANK, : : Defendant. : -----------------------------------X MESSER, as Trustee of the FKF : Trust, : : Plaintiff, : : -against: : CALLAGHAN, : : Defendant. : -----------------------------------X Adv. Pro. 12-09076 Adv. Pro. 12-09081 Adv. Pro. 12-09077 Adv. Pro. 12-09067 (Continued on next page.) 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 3 of 57 Main Document 1 3 2 TRANSCRIPT OF STATUS CONFERENCE BEFORE THE HONORABLE CECILIA G. MORRIS UNITED STATES CHIEF BANKRUPTCY JUDGE 3 4 5 APPEARANCES: 6 For Gregory Messer, Trustee of FKF Trust: FRED STEVENS, ESQ. MAEGHAN J. MCLAUGHLIN, ESQ. Klestadt & Winters, LLP 570 Seventh Avenue 17th Floor New York, New York 10018 For Aventine Edgewater: JOHN F.X. BURKE, ESQ. 210 Main Street P.O. Box 943 Goshen, New York 10924 For the Magee Children: PATRICK T. BURKE, ESQ. Burke, Miele & Golden, LLP 40 Matthews Street, Suite 309 PO Box 216 Goshen, New York 10024 For Provident Bank: ELIZABETH ABOULAFIA, ESQ. Cullen and Dykman, LLP 100 Quentin Roosevelt Boulevard Garden City, New York 11530 The FKF Trustee: GREGORY MESSER, ESQ. 26 Court Street Suite 2400 Brooklyn, NY 11242 For Christiana Glass Co.: LEWIS WROBEL, ESQ. 201 South Avenue Suite 506 Poughkeepsie, New York 12601 For Argenio Bros., Inc.: MICHAEL J. MATSLER, ESQ. Rider, Weiner & Frankel P.C. 655 Little Britain Road New Windsor, New York 12553 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (Appearances continue on next page.) 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 4 of 57 Main Document 1 4 2 3 4 APPEARANCES: For Ariston Properties/ Conrad J. Roncati: ROMAIN D. WALKER, ESQ. Law Office of Charles Shaw, P.C. 170 Washington Avenue Dumont, New Jersey 07018 For Barbara Callaghan: SCOTT STEINBERG, ESQ. Law Offices of Scott A. Steinberg 626 RKR Plaza, West Tower Uniondale, New York 11556 RICHARD DuVALL, ESQ. McCabe & Mack LLP 63 Washington Street Poughkeepsie, New York 12602 15 For D Bend Security Systems, Inc.; Dick s Concrete, JM Excavating, Paul Nebrasky Plumbing, Heating & Cooling, Pine Brush Equipment, Steel Belt Construction, Straw Ridge Rock & Tape, Sullivan Fire Protection: 16 For Mayer Hirsch: BRIAN K. CONDON, ESQ. Condon & Associates 55 Old Turnpike Road Suite 502 Nanuet, New York 10954 For Oritani Bank: Systems, Inc.; Dick s Concrete, JM Excavating, Paul Nebrasky Plumbing, Heating & Cooling, Pine RICHARD DuVALL, ESQ. McCabe & Mack LLP 63 Washington Street Poughkeepsie, New York 12602 Court Transcriber: SHARI RIEMER TypeWrite Word Processing Service 211 N. Milton Road Saratoga Springs, NY 12866 5 6 7 8 9 10 11 12 13 14 17 18 19 20 21 22 23 24 25 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 5 of 57 Main Document 5 1 THE COURT: 10-37170, FKF 3, LLC and 89 Broadway Park 2 Ridge LLC, Adversary Proceeding Number 11-09074, Messer v. 3 Magee, and that s all. 4 State your name and affiliation. 5 MR. STEVENS: Fred Stevens, Klestadt & Winters, 6 counsel to Gregory Messer as Trustee of the FKF Trust. 7 THE COURT: I do understand -- now no one wants the 8 front seat. 9 that everybody is opposing you. 10 So you can have the front seat. I do understand So state your name and affiliation. 11 MR. WALKER: 12 THE COURT: Go ahead. 13 MR. WALKER: 14 17 18 19 20 Romain Walker, Law Office of Charles Shaw on behalf of [inaudible] and Ariston Properties. 15 16 I think that s right. MR. HASPEL: Joseph Haspel on behalf of Burton Dorfman. MR. J. BURKE: John Burke on behalf of Aventine Edgewater, et al., five various defendants. MR. P. BURKE: Patrick Burke, Your Honor, on behalf of the Magee children. 21 MR. CONDON: 22 THE COURT: Go ahead. 23 MR. CONDON: Brian Condon for defendant Mayer Hirsch. 24 Good afternoon, Your Honor. 25 defendant Oritani Bank. Brian -- I m sorry. We can go back. David Catuogno for 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 6 of 57 Main Document 6 1 2 MS. ABOULAFIA: Provident Bank. 3 4 Elizabeth Aboulafia for defendant THE COURT: We got you another client somewhere. Mr. Startman [sic], go ahead. 5 MR. DuVALL: Richard DuVall from McCabe & Mack -- 6 THE COURT: I mean DuVall. 7 MR. DuVALL: -- for a series fraudulent conveyance 8 defendants, D Bend Security Systems, Dick s Concrete, JM 9 Excavating Security, Paul Nebrasky Plumbing, Pine Brush 10 Equipment, Steel Belt Construction, Straw Ridge Rock & Tape and 11 Sullivan Fire Protection. 12 THE COURT: Congratulations. 13 MR. DuVALL: [Inaudible - laughter] numbers on my 14 side. 15 THE COURT: Mr. Wrobel. 16 MR. WROBEL: Good afternoon, Your Honor. Lewis 17 Wrobel for fraudulent transfer defendants, Christiana Glass. 18 MR. MATSLER: Good afternoon, Your Honor. 19 Matsler, Rider, Weiner & Frankel for defendant Argenio Bros. 20 THE COURT: Yes, ma am. 21 MS. McLOUGHLIN: Mike 22 23 24 25 Good morning, Your Honor. Maeghan McLoughlin for the Trustee. THE COURT: I would like to tell you that it s morning but it isn t. We re already in afternoon. MS. McLOUGHLIN: Sorry. 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 7 of 57 Main Document 7 1 2 THE COURT: What do we got? Everybody can be seated. Mr. Stevens, what do we got? 3 MR. STEVENS: Your Honor -- 4 THE COURT: And we have an adversary for -- we have 5 some adversary proceedings. 6 MR. STEVENS: We do, Your Honor. The agenda starts 7 out with a matter that was actually adjourned to January 29th. 8 That is the NCP Realty matter which we ll be going forward at 9 noon on that day. I thought the best place to start -- 10 THE COURT: Page 3? 11 MR. STEVENS: Page 3 and if it s okay with Your 12 Honor -- 13 THE COURT: That s my Page 2 I believe. 14 MR. STEVENS: I think you re working with an old 15 Okay. agenda. 16 THE COURT: Then I don t have a new one. 17 MR. STEVENS: Let me give you a new one. 18 [Ph.] has actually asked us to amend it to include the NCP 19 page. Ms. Gregger I have copies for everybody here. 20 THE COURT: Okay. 21 MR. STEVENS: May I approach? 22 THE COURT: Certainly. 23 24 25 [Pause in proceedings.] MR. STEVENS: I thought if we started with the pretrial conferences if it was okay with the Court some of the 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 8 of 57 Main Document 8 1 parties here could be excused. 2 THE COURT: Okay. Sounds good. 3 MR. STEVENS: It may be a little bit easier. 4 started with were the pretrial conferences in the 23 adversary 5 proceedings that were commenced by the Trustee in July 23rd 6 which I believe is what a majority of the attorneys present 7 here are here on. 8 follows the agenda where I ve categorized those 23 actions and 9 I think I can sum up exactly where they are very, very quickly. 10 The first category are the two cases that are already What I In flipping to Exhibit A, Page A1 that 11 settled and resolved and will be -- American Express has 12 already had a notice of dismissal filed following an approved 13 settlement and the Otis Elevator case is just awaiting payment 14 but will be dismissed and removed from Your Honor s docket 15 very, very quickly. 16 THE COURT: Okay. 17 MR. STEVENS: The next are the four adversary 18 proceedings where there have been defaults and default 19 judgments have already been entered by the Court and those 20 matters are -- have also been resolved. 21 The third category which contains 11 separate 22 adversary proceedings is what I classified as the Jerry Self 23 Storage cases. 24 estate development project of the debtor s and as the 25 allegation goes the debtor s principals had over funded a loan Those were -- Jerry Self Storage was a real 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 9 of 57 Main Document 9 1 to Jerry Self Storage in connection with a number of other 2 questionable transactions which are the subject of our primary 3 adversary proceeding against Mr. Magee, et al. 4 debtor directly funded payments to various recipients. 5 Also, the THE COURT: Do we have representation of every one of 6 these? 7 most. I can look down and skim it and see that we have on Is someone here for every one of these? 8 MR. STEVENS: Yes, Your Honor. 9 THE COURT: Very good. 10 Yes, sir. There s one person that didn t put his -- 11 MR. STEINBERG: I didn t get to note my appearance, 12 Your Honor. Scott Steinberg from the Law Offices of Scott 13 Steinberg of counsel to Alter & Brescia. 14 defendant Barbara Callaghan. We represent 15 THE COURT: Thank you. 16 MR. STEVENS: Mr. Steinberg is in category number 17 18 four. THE COURT: I was going to say I don t see that one in 19 this category. 20 here for Janice International and Janice Mini Storage? 21 The one I saw was Jan International. Who s MR. STEVENS: Your Honor, as we ve been doing with all 22 these Janice cases, and I think the attorneys for the various 23 defendants will perhaps reluctantly but back me up on this, 24 have tried very hard to limit the amount of work that s been 25 done so that we can focus, have a settlement focused, a 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 10 of 57 Main Document 10 1 discussion as opposed to a litigation focus point. 2 3 THE COURT: All right. one unnoted. 4 5 Thank you. That s the only I saw the note but I wanted to see. MR. STEVENS: Because they were out of town, significantly out of town and I didn t want to make -- 6 THE COURT: It s just Atlanta. 7 MR. STEVENS: I don t know anyone from there, Judge. 8 So I mean -- 9 THE COURT: I know a lot. 10 MR. STEVENS: So we have -- I actually -- I said we ve 11 worked out an arrangement and I had agreed they wouldn t have 12 to attend provided they put whatever costs there would be and 13 gave it to me of course. Tongue and cheek, Your Honor. 14 THE COURT: I understand. 15 MR. STEVENS: I m pleased to inform the Court, and 16 again it s going to be subject to getting written terms, but it 17 looks like we re very close to settlement on at least 10 of 18 these 11. 19 for the last four months and we ve had some decent progress in 20 the hallway. 21 position -- 22 We ve continued discussions that have been ongoing My hope is that we re going to be in a THE COURT: So for me sitting on the bench this time 23 things happen. 24 answer is 25 Do I need to do that all the time? No. MR. STEVENS: There s no right answer, Judge. The 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 11 of 57 Main Document 11 1 THE COURT: Go ahead. 2 MR. STEVENS: So I think that unless somebody wants to 3 speak or address -- 4 THE COURT: Does anyone wish to be heard on any 5 matters that we -- that has been categorized as settled and 6 resolved, default judgments entered, Jerry Self Storage cases? 7 8 MR. STEVENS: resolved. 9 I can t mark them as settled or They will tell you -THE COURT: The first one, I meant the first one. 10 MR. STEVENS: You re starting on number one? 11 THE COURT: Yes. Number one, settled and resolved. 12 Number two, default judgments entered, and number three, 13 Jerry s Self Storage. 14 that they re in settlement discussions but does anyone wish to 15 be heard on these matters today? 16 I know those are not settled. I see Having heard none, we will reschedule those at some 17 point in a minute. 18 cases. 19 Okay. We re now at number four, active MR. STEVENS: We re at number four. First, I have one 20 correction to note and Mr. Steinberg pointed it out to me and I 21 failed to amend it on the amended agenda, but the first case, 22 Barbara Callaghan is actually represented by Mr. Alter s firm 23 to which Mr. Steinberg is of counsel. 24 Steinberg s name. 25 which is not correct. I have it noted as Mr. A firm is actually of counsel to record 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 12 of 57 Main Document 12 1 THE COURT: Thank you. 2 MR. STEVENS: With respect to the first adversary 3 4 5 proceeding, we have -THE COURT: Wait a minute. Mr. Steinberg, you have your own firm but then you re of counsel to another firm? 6 MR. STEINBERG: Yes. 7 MR. STEVENS: With respect to that first adversary 8 proceeding, Your Honor, last week we sent a proposed scheduling 9 order in our initial Rule 26 disclosures. We have not yet 10 conferred with Mr. Steinberg to see if the proposals and the 11 deadlines that we proposed were acceptable. 12 have a moment to do that today but -- They re hoping to 13 THE COURT: Mr. Steinberg has risen. 14 MR. STEINBERG: The scheduling order is acceptable. 15 THE COURT: Very good. 16 MR. STEVENS: That being the case, Your Honor, I could Thank you. 17 go through the dates or I could just give and say that we ll 18 submit a consent order. 19 THE COURT: Please do. 20 MR. STEVENS: Excellent. 21 22 23 24 25 Thank you, Your Honor. I believe the second case -THE COURT: We might have to add some dates or do something at some point but okay. MR. STEVENS: The second adversary proceeding I would suggest that we skip over because there s a contested matter 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 13 of 57 Main Document 13 1 with respect to the motion for default judgment and a contest 2 have been filed in the JMR adversary proceeding. 3 THE COURT: When is that returnable? 4 MR. STEVENS: It s returnable today. Your Honor 5 scheduled a hearing on Wednesday of last week scheduling it for 6 today. 7 THE COURT: Okay. 8 MR. STEVENS: So it has been fully briefed. 9 THE COURT: And I do have my memos. 10 11 I m a little slow right now. MR. STEVENS: The third adversary proceeding against 12 Oritani Bank we ve had discussions with counsel to Oritani 13 who s sitting over here to my right, Mr. Catuogno. 14 Catuogno -- Oritani intends to file an amended answer to add 15 John Magee as a necessary defendant and party to that action. 16 We re going to have no objection to that and would be happy to 17 stipulate to it but it also makes the discussion of a 18 scheduling and -- a scheduling order premature because we re 19 going to be adding another party. 20 that we allow them to do that and reconvene once issue has been 21 joined or there s been a default by the -- Mr. So the suggestion would be 22 THE COURT: We ll work that out. All right. 23 MR. STEVENS: The final category I just classed as 24 other because I did not have -- it didn t fit in the other four 25 I didn t think. So the first, 99 Roland Street, I didn t hear 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 14 of 57 Main Document 14 1 if anyone is actually here today. 2 3 THE COURT: Is anyone here representing 99 Roland Street, Park Ridge, LLC? 4 No, okay. 5 MR. STEVENS: Interestingly, Your Honor, issue hasn t 6 been joined but they ve been through three lawyers. These 7 defendants, including my prior law firm, which is still 8 actually counsel of record although they informed me in 9 November that they were being replaced by Mr. Gareno s [Ph.] 10 firm who I have second. 11 of the time to answer that was January 3rd. 12 unless -- until we get them on the phone when we leave here and 13 there is an agreement it would be acceptable to Your Honor that 14 they answer and join issue that we need to move for a default 15 judgment. 16 The last voluntary extension in terms Our intent is THE COURT: Well, not only move for a default 17 judgment. I don t want -- I won t excuse anyone from not 18 appearing in this matter. 19 MR. STEVENS: Understood. 20 THE COURT: So the next time we have a hearing I will 21 expect a lawyer for this 99 Roland Street to appear in this 22 Court. 23 MR. STEVENS: I will inform them. 24 THE COURT: And if you will let them know because I 25 will definitely issue an order to show cause if they do not. 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 15 of 57 Main Document 15 1 2 MR. STEVENS: I will inform them of exactly that, Your Honor. 3 THE COURT: Okay. 4 MR. STEVENS: The second, Priscilla Mulligan, Ms. 5 Mulligan has defaulted. 6 counsel who is trying to assist in the resolution of this 7 adversary proceeding which we were happy to have those 8 discussions. 9 our motion for default judgment to January 25, 2013. 10 We have been approached by Mr. Magee s We ve extended their time to file an objection to If -- THE COURT: I think that s fine but there s a little 11 bit of the same thing. 12 not. 13 to help with any kind of settlement but at some point somebody 14 has got to stand up and say they represent her. 15 16 She either needs representation or I don t -- I think it s wonderful that anybody is trying MR. STEVENS: Understood, Your Honor, and I ll relay that as well. 17 THE COURT: Thank you. 18 MR. STEVENS: And the third adversary proceeding is 19 the complaint against Provident Bank and Mayer Hirsch. We had 20 added Mr. Hirsch late in he game under an amended complaint and 21 issue was just joined yesterday. 22 Mr. Condon who s here in Court today. 23 represented -- Mr. Hirsch is represented by Provident Bank is 24 THE COURT: Bring it up right fast. 25 MR. STEVENS: I ve made counsel tell me her name no 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 16 of 57 Main Document 16 1 less than 14 times today and I ve rudely messed it up each and 2 every time. 3 represented by Cullen and Dykman. 4 5 So I ll say Cullen -- excuse me, Provident Bank is THE COURT: Put it on the record again so he ll hear it. 6 MS. ABOULAFIA: Elizabeth Aboulafia. 7 THE COURT: Aboulafia? 8 MS. ABOULAFIA: Yes. 9 MR. STEVENS: I m practicing in my head. 10 THE COURT: Okay. 11 MR. STEVENS: Okay. 12 THE COURT: But there s counsel -- have you -- you 13 14 Good. I ve got it. filed an amended complaint and given time for an answer? MR. STEVENS: Yes. Both Mr. Hirsch and Provident Bank 15 have joined issue. Provident Bank it appears, and I m saying 16 this subject to our review of the actual count formation 17 documents but it appears that Provident was merely the bank 18 where Mr. Hirsch held the account and received a transfer. 19 had read and interpreted it based on how it was written in the 20 books and records and the bank statements as being a transfer 21 directly to Provident for its benefit and named them as a 22 defendant because of that. 23 documentation necessary to verify it Provident Bank will likely 24 be stipulated out by agreement between us and Mr. Hirsch. 25 I m sure Ms. Aboulafia is hoping that this is the last time We Once we get -- if we get the And 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 17 of 57 Main Document 17 1 that she has to come here. 2 THE COURT: Very good. 3 MS. ABOULAFIA: Thank you, Your Honor. We ll provide 4 subject to receiving a document request from the Trustee since 5 the bank has privacy concerns that they need a formal request 6 before they can provide the documentation. 7 documentation to demonstrate that are mere conduit financial 8 intermediary. 9 Provident as a defendant. They will provide We hope to stipulate to the dismissal of 10 THE COURT: Very good. 11 MR. STEVENS: Ms. Aboulafia is being -- I m sorry, 12 Your Honor. 13 out because they requested that over a month ago. 14 McLoughlin drafted it and sent it to me and we just realized 15 today that it stopped here and I didn t actually forward it. 16 THE COURT: Cup and lip -- slip between the cup and 17 She s actually being very kind and not calling me Ms. lip. 18 MR. STEVENS: And that was my fault. So it is 19 drafted. 20 get that resolved very quickly. 21 THE COURT: Thank you. 22 MR. STEVENS: With that, Your Honor, that concludes 23 24 25 We ll get that written request so we can hopefully the pretrial conference with respect to -THE COURT: Let s talk about adjournments to any one of those matters that we might need to. When do you want to 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 18 of 57 Main Document 18 1 come back on those? 2 MR. STEVENS: Since we re going to be stipulating and 3 there s a -- either hopefully settling and resolving or 4 stipulating to the addition of defendants. 5 people out. 6 appropriate time to get all the things that we discussed here 7 today done or not done and come back and move forward. 8 9 10 It seems like there s -- 60 days would be an THE COURT: Understand. Understand. March the 5th for March 2nd is Texas Independence everybody in the courtroom? Day. We re stipulating I d have a margarita or so but how about March the 5th? 11 MR. STEVENS: I m sure that s fine, Your Honor. 12 MALE VOICE: 13 THE COURT: Please. Is that at noon time, Your Honor? This is abnormal to be so late. 14 Were you all here the week before Christmas? 15 matters and they were all on time but we ve had had a lot of 16 rulings today. 17 We heard 924 Very good. If anyone wishes to be adjourned on any matter that 18 we have now adjourned to that date, they may be excused. 19 you. Thank You have a good day and thank you for coming. 20 Now then -- 21 MR. STEVENS: That brings us, Your Honor, to number 22 two on the calendar. The second thing on the calendar is 23 adversary proceeding number 12-9072, Messer v. GMR LLC, et al. 24 THE COURT: Okay. GR -- GMR LLC, 12-09072? 25 MR. STEVENS: Yes, Your Honor. Did Mr. Ricci come 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 19 of 57 Main Document 19 1 2 here today? I m asking. Mr. Ricci interposed a pro se papers. THE COURT: I saw that. 3 Ricci in the courtroom? 4 Mr. Gary Ricci. contact with Mr. Ricci? 5 Mr. Gary Ricci. Is Mr. Gary Have you been in MR. STEVENS: We have, Your Honor. I did send to him 6 the amended agenda along with everyone else. 7 would say that he wouldn t benefit from is to the extent that 8 the ECF provides an additional notice he s certainly not 9 registered with ECF but -- 10 11 12 13 The one thing I THE COURT: Why don t you stand and tell the Court since you re the one that spoke to him? MR. STEVENS: She ll be the one testifying on most of the matters anyway. 14 THE COURT: Testifying? 15 MS. McLOUGHLIN: Yes. 16 THE COURT: State your name and affiliation. 17 MS. McLOUGHLIN: Maeghan McLoughlin with Klestadt & 18 19 20 21 You re a lawyer; correct? Winters for the Trustee. THE COURT: Ms. McLoughlin, you had something to say about contact with Mr. Ricci? MS. McLOUGHLIN: Yes. I ve been in contact with him. 22 I spoke with him on Thursday and told him about the hearing 23 today at noon in this courtroom. 24 THE COURT: And you -- 25 MS. McLOUGHLIN: But I did not hear back from him. 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 20 of 57 Main Document 20 1 THE COURT: Okay. Thank you. At any point -- let me 2 just ask you a question. At any point did anyone bring it to 3 his attention that he cannot represent a corporation because 4 he s pro se? Do you know? 5 MS. McLOUGHLIN: I have not spoken with him directly. 6 THE COURT: You don t have to. 7 MS. McLOUGHLIN: I have not told him. I was just curious. It was in our 8 response to the Roncati objection which I emailed Mr. Ricci a 9 copy of so that he would have it but I personally did not 10 advise him. 11 THE COURT: That s fine. 12 MR. STEVENS: If it please the Court I ll continue 13 Thank you. with the motion for default. 14 THE COURT: Certainly. 15 MR. STEVENS: Your Honor, we filed a motion for entry 16 of default judgments and there have been responses and 17 objections to those. 18 this typically is a significant issue for the Court and I 19 acknowledge all the case law and the Court s general 20 disposition that everything be resolved on the merits when and 21 if it can be. 22 saying that in preface to why I m here and the fact that this 23 is -- I think it was in 2008 I stood before Judge Drain and 24 said it was the first time in my career I ever held someone to 25 a default when there was a contest. To preface the matter because I know that All of that stipulated and admitted and I m This is the second time in 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 21 of 57 Main Document 21 1 my career I ve ever held someone to a default. It s not 2 something we do lightly. 3 defaults already in this case. 4 one, we absolutely believe that we re being gigged. 5 that the party on the other side is just not taking it 6 seriously or has intentionally decided that they don t need to 7 respond or don t need to pay attention to papers that come from 8 our office or from this Court and it s very much an intentional 9 decision. I think we ve waived numerous It s something we do only when We believe We also only do it when we believe that there s 10 nothing to be gained by going through the cost and expense of 11 litigation. 12 In other words, there s no meritorious defense. To walk through briefly -- I know Your Honor is -- 13 has received the papers and I don t want to rehash the things 14 that you find in there but to go through briefly. 15 doesn t appear to be any contest that these groups of 16 defendants were properly served. 17 in fact his address, the one that we did serve and serve by 18 mail. 19 summons and complaint in October of last year. 20 also admits that at least two of the addresses that we served 21 summons and complaint -- 22 23 One, there Mr. Ricci admits that it is He also admits that he had received a copy of the THE COURT: Is Mr. Roncati here? Mr. Roncati? 24 MR. WALKER: I am, Your Honor. 25 THE COURT: Thank you. Mr. Roncati Are you representing 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 22 of 57 Main Document 22 1 MR. STEVENS: At least two of the addresses, both his 2 professional address and his home address, were correct 3 addresses but says that with respect to the business address 4 that that address houses many businesses and often mail gets 5 mixed up and also states that with respect to the home address 6 it may have -- it may be the case that his housekeeper who is 7 also in charge of collecting mail may have inadvertently thrown 8 it out or misplaced it or something else. 9 addresses are correct. 10 11 So we know that the There is just a general statement that they didn t see it and know about it. Now, with respect to Mr. Ricci, and Mr. Ricci as Your 12 Honor noted earlier, put in an answer pro se on behalf of two 13 entities which doesn t appear to be in contest that that s not 14 something that s permissible but Mr. Ricci says I got the 15 papers in October. 16 improperly he admits that he has them in October of 2012 yet he 17 did not file an answer. 18 reach out in any way until December 3, 2012. 19 admittedly over 31 day lapse, at least. 20 it the last day in October in the month that he says he 21 received it and doesn t call until December 3rd there s at least 22 a 31 day lapse -- excuse me, it would be a 33 day lapse between 23 his receipt, acknowledged receipt of this document and reaching 24 out to our office to ask for an extension. 25 Whether he says he got them properly or He did not call our office, email us, So there s If he were to receive THE COURT: Over a month in other words. 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 23 of 57 Main Document 23 1 MR. STEVENS: Exactly, Your Honor. 2 says that he actually didn t know about the adversary 3 proceeding until -- I believe he said he was told about it by a 4 colleague. 5 didn t know about it. 6 only do we serve it two addresses and make good service but we 7 have a history with Mr. Roncati that makes that statement very, 8 very difficult to believe. 9 Now, Mr. Roncati I would assume he s referring to Mr. Ricci but he But the issue we have with that is not First, documents that have been sent to Mr. Roncati s 10 address, including service of our summons and complaint in the 11 Messer v. Magee adversary proceeding back in September of 2011 12 were simply returned with our firm name circled and refused 13 written on it. 14 to accept service for these people. 15 an identifying the name on these envelopes and somebody writing 16 refused on it very intentionally and sending it back. 17 one example. 18 So we have a -- I m not saying he was supposed What we have a history of That s The second example that s more recent and I think 19 more profound is Mr. Roncati was served with a third party 20 subpoena recently in the Messer v. Magee adversary proceeding 21 compelling his -- the production of documents by October 31st 22 and his deposition in our office on November 14th. 23 did not respond and did not produce documents by October 31st. 24 So we Fed Ex d Mr. Roncati a letter noting the default. 25 letter was received by his business address and was signed for Mr. Roncati The 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 24 of 57 Main Document 24 1 by someone we ve identified via his website as an associate and 2 a member of his architectural firm and again we received no 3 response. 4 Roncati s offices and the person she speaks to when she asked 5 to speak with Mr. Roncati and says who she is says hold on, he 6 just came in and let me go -- let me go tell him you re on the 7 phone. On November 12th Ms. McLoughlin places a call to Mr. 8 After being left on hold for a period of time Ms. 9 McLoughlin is taken off of hold and is told that he s never 10 heard of you, he s never heard of your firm, he s never heard 11 of the FKF case and he s not going to speak to you. 12 McLoughlin replies well, he should know, we ve served him with 13 a subpoena, have him call me. 14 take place in two days. 15 So Ms. His deposition is scheduled to Then -- we admit it s the case that we received a 16 message from Mr. Shaw s law firm the following evening, 17 November 13th. 18 THE COURT: So right after that? 19 MR. STEVENS: Right. Within -- the following evening. 20 So that was November 12th and November 13th a message is left on 21 Ms. McLoughlin s voice mail saying that Mr. Roncati won t be 22 showing up to his deposition and that -- and announcing 23 themselves as potential counsel for Mr. Roncati. 24 25 THE COURT: So at that point it s still potential counsel? Okay. 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 25 of 57 Main Document 25 1 MR. STEVENS: We unfortunately didn t collect that 2 message until I sat in the conference room with the court 3 reporter for about 30 minutes. 4 failure to appear. 5 McLoughlin s phone was on and there was a message from 6 yesterday evening. 7 that he would not be attending that day or to make sure that 8 there s human contact with our office or some other form of 9 communicating. 10 11 show up. Noted Mr. Roncati s default and Then we noticed that the red light on Ms. Of course no attempt to give written notice His just stated intention he s not going to Not a request. Just I m not going to be there. So following that we had conversations with Mr. 12 Roncati s potential counsel where it was requested that we 13 extend the time to respond to our motion for default judgment 14 which we agreed to. 15 We still are not willing to waive the default but we agreed to 16 an extension of time so that they can answer and state -- tell 17 us why you didn t reply and also tell us what your defense is 18 going to be. 19 We were not willing to waive the default. By December 18th and in between this point in time and 20 December 18th Ms. McLoughlin reaches out several times to 21 schedule a deposition and to get that back on -- the matter 22 back on track in the Messer v. Magee adversary proceeding 23 because as Your Honor knows and we ll hear in a moment we re 24 facing a February 1 discovery cutoff and we need to get these 25 things done and doesn t actually hear from them until December 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 26 of 57 Main Document 26 1 18th when she s told by counsel that their client is not -- has 2 been I think -- I don t what the words he used were but has not 3 been returning calls and they have just gotten in contact, are 4 now able to confirm this date for deposition. 5 At this time I ll state we still do not have a single 6 document production from Mr. Roncati but we do have an 7 agreement and confirmation that he will be appearing in our 8 offices on Thursday, two days from now at ten a.m. 9 THE COURT: Two days from today? 10 MR. STEVENS: Two days from today for his deposition, 11 third party deposition in the Messer v. Magee adversary 12 proceeding. 13 So based on the history with Mr. Roncati and his 14 refusal of service and what appears to be a clear admission 15 that service was proper and also with Mr. Ricci who on his own 16 admission had these papers for over month, we don t think 17 there s any question that the defaults were willful. 18 no question certainly in our minds that we are being gamed. 19 the very least they see mailings and papers from our office and 20 don t think it s worth reading them, opening them or looking at 21 them and I don t know what the logic is or the reason behind 22 that but it seems to be a common theme. 23 many adversaries both here today and throughout this case, none 24 of which have claimed to not received things from our office or 25 received what is usually many, many attempts to get in contact There s At I will say we ve had 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 27 of 57 Main Document 27 1 with people before we come here. 2 That s point number one. The second point, Your Honor, is that we do not see a 3 meritorious defense. To summarize what this claim is about it 4 very simple resolves one transaction. 5 transaction are not contested. 6 pursuant to a promissory note and related agreements. 7 obligation is guaranteed by Mr. Ricci and Mr. Roncati. 8 takes place in April 2006. $1.1 million of that $1.5 million 9 principle is given to GMR or its designated recipients. 10 Another $400,000.00 of the $1.5 million is set aside as 11 collateral for the repayment of the $1.1 in this cash 12 collateral account. Most of the parts of the FKF 3 loans $1.5 million to GMR That This 13 By August of 2006, so just four months later, there s 14 a decision that Mr. Ricci is going to be removed from the deal, 15 that Mr. Roncati is going to take over Mr. Ricci s interest in 16 what is the Aventine Edgewater project and in exchange for the 17 transfer of his ownership interest to Mr. Roncati, Mr. Roncati 18 is going to, among other things, take over this loan. 19 happens in this document we call the purported release -- 20 because until one month ago we still had not seen a signed copy 21 of it. 22 Klein s signature on it on behalf of FKF 3 but pursuant to this 23 purported release the obligations of GMR are transferred and 24 assigned to Ariston Properties which is a company owned by Mr. 25 Roncati whereas GNR was owned by Mr. Ricci and Mr. Ricci and What Now we ve seen a copy that appears to have Mitchell 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 28 of 57 Main Document 28 1 Mr. Roncati are released from their obligations under the 2 guarantee. 3 To start with, we have a number of issues with the 4 written document. 5 this document is what it says it is and it was signed by 6 Mitchell Klein, he document in the context of this series of 7 transactions it makes sense that Mr. Ricci would be receiving a 8 release because he s walking away from this deal. 9 absolutely no sense that Mr. Roncati would receive a release 10 and the terms and the language of the document reflect what 11 appears to be almost a carroting in of Mr. Roncati s name. 12 Paragraph 5 of this purported release is what gives the release 13 to the guarantors, to Mr. Ricci and Mr. Roncati. 14 15 16 Even if we assume, even if we assume that It makes But if you read further, Paragraph 6 states a clear reaffirmation of any obligations Mr. Roncati has -THE COURT: Let me interrupt you, Mr. Stevens, and I m 17 sorry to do this. Mr. Sapir, I said don t take adjournments. 18 This is going to go on. Go take adjournments. 19 THE COURT: Go ahead. 20 MR. STEVENS: I ll try to be -- so Mr. -- 21 THE COURT: You don t have -- they re taking 22 23 adjournments now. MR. STEVENS: So Paragraph 6 of this purported 24 release, Your Honor, reflects a whole different context. It 25 states that even though -- dispute Mr. Ricci s release Mr. 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 29 of 57 Main Document 29 1 Roncati reaffirms all obligations that he has under the loan 2 documents and is not -- a notwithstanding type paragraph 3 reaffirming Mr. Roncati s obligations. 4 Paragraph 9 does exactly the same thing making 5 Paragraph 6 and Paragraph 9 completely conflicting with 6 Paragraph 5. 7 makes contextual sense that he would be a part of this release, 8 is equally confusing because if you read the release paragraph 9 it says Mr. Ricci is not released from any obligations that Mr. Ricci s release, although we think that it 10 accrued before the date of this document which would be all the 11 obligations due under the loan documents. 12 I m pointing that out to say that we have with -- 13 even if we assume and even if a fact finder at some point in 14 time were to say -- or excuse me. 15 a number of issues with the document. 16 moment. 17 ultimately finds or the fact finder ultimately finds that this 18 release is a valid and binding document against FKF 3 and Mr. 19 Ricci and Mr. Roncati were indeed released by it and at that 20 point in time we hadn t seen a signed copy but we re assuming 21 maybe a signed copy surfaces at some point and it ultimately 22 did, that even if it doesn t matter because the release itself 23 is a fraudulent conveyance to FKF 3. 24 this transaction is the silliest thing from FKF 3's perspective 25 that you could possibly imagine. That, first of all, there s We pled in the alternative. Set that aside for a We said even if the Court It makes absolutely no -- 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 30 of 57 Main Document 30 1 According to this transaction FKF 3 in the assignment 2 of the obligations from GMR to Ariston and the release of 3 Roncati and Ricci as personal guarantors, FKF 3 receives zero, 4 nada, nothing in this transaction and they lose two individual 5 guarantors on a loan. 6 loan and they in fact give another $226,583.34 out of their own 7 collateral and give it to Mr. Ricci which apparently we have 8 yet to understand. 9 we re assuming for Mr. Ricci s transfer of his equity interest They lose a corporate guarantor on the It apparently is some flow of consideration 10 in Mr. Roncati and the project. 11 looked very clearly. 12 two gentlemen was an absolute fraudulent conveyance. 13 consider did FKF 3 receive? 14 Mr. Ricci or Mr. Roncati have said what they gave. 15 no -- they haven t stated a defense to that. 16 weird questionable bizarre release actually has some meaning 17 and is a real document and the Court says I m dismissing your 18 arguments with respect to these ambiguous provisions that make 19 no sense why is it not a fraudulent conveyance. 20 fraudulent conveyance. 21 said FKF 3 got nothing. 22 allegation. 23 But it makes no sense. We FKF 3 -- giving these releases to these What That allegation has not -- neither There is Even if this It is a clear FKF 3 got nothing and they haven t even They haven t even addressed that So we cannot see where certainly Mr. Ricci and Mr. 24 Roncati where they have a meritorious defense. This issue gets 25 highlighted even more when you look at the Ariston obligation. 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 31 of 57 Main Document 31 1 Interestingly, we -- 2 THE COURT: Refresh me on Ariston. That s Roncati? 3 MR. STEVENS: Mr. Roncati s company. 4 purported release was assuming the obligations of GMR. Under the 5 THE COURT: Right. 6 MR. STEVENS: This is interesting, Your Honor, because 7 Ariston we sued for $1.1 million. We did not sue them for the 8 full $3.2 and change that we believed to be due under the loan 9 documents because it s our allegation the purported release is 10 a non existent document, assignment never happened. 11 sued Ariston only as a beneficiary of the identified transfers 12 that were made by FKF 3 to the GMR borrowers. 13 So we ve Now, Mr. Roncati says that the purported release was 14 a real live signed agreement and it s effective. Well, if it 15 happens to be effective then we re wrong and Ariston actually 16 owns -- owes in excess of $3.2 million, not the $1.1 that we ve 17 sued on. 18 doesn t actually owe FKF 3 the money except to the extent of 19 the value of the pledged collateral of one development s 20 membership interest in the Aventine project. 21 makes no sense and they don t even try to correlate it to any 22 written documents. 23 ones that were annexed to the complaint. 24 absolutely no sense. 25 point and admitted $1.5 million in actual value in 2006. But interestingly, what he said is that Ariston The argument The ones that they re submitting are the The argument makes If that argument is true FKF 3 gave one 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 32 of 57 Main Document 32 1 Nobody ever tried to service this note. 2 interest payment ever made, not a single principle repayment 3 and FKF 3's only recourse to get this money back is to 4 foreclose on membership interest that -- and one development 5 Edgewater has in the project. 6 There s not a single THE COURT: Mr. Stevens, let me just hear you 7 carefully for a moment because I m listening and you have said 8 no meritorious defense and I m listening but you ve outlined 9 some very complicated issues in your papers and what you said 10 today. 11 you re saying to me is fairly complicated? 12 So how is it that I can rule on the default when what MR. STEVENS: I think that the -- the way that I m 13 explaining the issues and there would be a number of 14 complicated issues. 15 past is that the -- the release was a fraudulent conveyance. 16 We alleged it very clearly. 17 didn t think it did at the time -- I think the one place that nobody can get If that release exists which we 18 THE COURT: You haven t seen it. 19 MR. STEVENS: We ve now seen it because it was annexed 20 to Mr. Ricci s response and then adopted by Mr. Roncati. 21 will say that Mr. Roncati in 2010 when requested by our 22 predecessor Dave Seckler was asked to pay this obligation. 23 Roncati said no, there s a release and Mr. Roncati produced a 24 release at that time. 25 signed release we re now being given but was signed by That was a black lined copy of the I Mr. 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 33 of 57 Main Document 33 1 everybody except for FKF 3. 2 only was a black lined copy of a release that was not signed by 3 the one person who was to be charged by it. 4 So what we had until a month ago But here s the reason why you can cut through all 5 those things. I ve perhaps been over broad in sharing all the 6 bizarre issues and the problems and I ve done it for a specific 7 reason which I ll tell you. 8 by is it s okay, this release exists. 9 conveyance. But the one thing they can t get It s a fraudulent Why is it not a fraudulent conveyance? Tell us 10 what consideration Mr. Roncati gave. 11 that he s given consideration. 12 allegation and what was outlined in actually three separate 13 causes of action as the fact that okay, if this release exists 14 why is it not a fraudulent conveyance. 15 nonsense. 16 defense we certainly haven t heard it. 17 They haven t even alleged There s been no address to that This transaction is FKF 3 received absolutely nothing. If there s a So I agree that if -- with respect to the document 18 itself we ve highlighted those issues only to show that there s 19 tons of issues there. 20 21 22 THE COURT: But the real thing for you is the consideration. MR. STEVENS: For us today right here and now, right. 23 They haven t even tried to answer the fraudulent conveyance 24 claim, the claim that the purported release even if there s a 25 good document and the Court does not care about any of the 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 34 of 57 Main Document 34 1 ambiguities or all of the complex problems we point out with it 2 why that release is I can t avoid it fraudulent conveyance, why 3 I can t shred it up, throw it out and say pay me the money that 4 you borrowed. 5 THE COURT: Okay. 6 MR. STEVENS: That s where it all goes back to. It s 7 the same thing -- the reason I was getting into the Ariston 8 stuff which is where I think I started to lose myself a little 9 bit if not the Court, with the complexities on the Ariston side 10 but the Ariston stuff I was pointing that out to say the 11 complexities there aren t by us. 12 manufactured by Mr. Roncati because the complexities are -- if 13 Mr. Roncati s allegation is right there's a clear document 14 where Ariston assumes obligation to pay this note it's a no 15 brainer. 16 an incredibly bizarre defense that has no support, or at least 17 none that's shown and none that I've seen in the 50 times I've 18 read these documents that would say that FKF 3's limited to 19 collecting against an admitted obligor on an obligation to the 20 extent of a collateral basis -- it just makes no sense. 21 actually highlighting more to show that the -- if anything a 22 disingenuiness or lack of intellectual honesty in making -- 23 taking positions and making claims and claiming defenses. 24 25 The complexities there are I mean that's an easy one. Still we're manufacturing I was We just can't possibly see a meritorious defense to -- even if you see that there's one I admit we can argue 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 35 of 57 Main Document 35 1 about the document -- the contract all day and that's something 2 where we could at the very least have summary judgment motions 3 and all that stuff but it doesn't matter because there's been 4 absolutely no answer to the fact that the release if it exists 5 is a fraudulent conveyance. 6 given? 7 Nobody is saying that. What consideration was FKF 3 No allegation that no, they were solvent at the time. 8 THE COURT: Okay. 9 MR. STEVENS: So, one, we think we're being gamed. 10 We think the defaults were willful, that there was at the very 11 least an attempt not to open anything or bother reading 12 anything that came from our offices because we've been targeted 13 as being an enemy and that there's -- nobody wants to look at 14 those things. 15 long period of time and doing nothing. Mr. Ricci admits to having a document for a very 16 THE COURT: Your associate also made the phone call? 17 MS. McLOUGHLIN: 18 THE COURT: Yes. You heard what, your colleague said is 19 that what happened when you called? 20 MS. McLOUGHLIN: 21 THE COURT: Which phone call? The one where you called and they said I 22 don't know you, I don't know your firm, I'm not going to do 23 anything? 24 MS. McLOUGHLIN: 25 MR. STEVENS: Yes, that's exactly what happened. That was stated in Ms. McLoughlin's 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 36 of 57 Main Document 36 1 affidavit that we submitted which -- 2 THE COURT: I understand that she is here now. 3 MR. STEVENS: Which I would ask to submit as direct. 4 She is here to be cross-examined if anyone has an issue. I 5 don't know that we have issues with respect to those exchanges. 6 7 THE COURT: sure that who did it and where -- I know about the affidavit. 8 9 I don't either but I just wanted to make MR. STEVENS: The third element and I want to sum up very quickly of course is the prejudice that we think will come 10 to FKF 3. 11 account of admitted fraud victims. 12 folks that many of which gave their life savings over to FKF 3 13 under pretenses they would allege -- that's been an allegation 14 that's been played out in this Court in multiple settings and 15 of course is the subject of additional litigation but the point 16 is this is the prejudice that would be felt by the FKF Trust if 17 it has to spend money with a case and then prosecuting a case 18 to which there's no meritorious defense and you have defendants 19 and parties sitting on the other side who are simply not 20 respecting processes of this Court. 21 The FKF Trust is a trust that is seeking recover on They have -- these are We'd also state as a monetary prejudice that -- and 22 we have not compounded, Your Honor, and I read -- I like to 23 read papers clearly -- liberally as possible that favor my 24 client's position. 25 couldn't find a reason to compound interests or a contractual We were pretty conservative here. I 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 37 of 57 Main Document 37 1 basis to compound interests. So we've only, only accumulated 2 interest on the $1.5 million principle and we never compounded. 3 Again, could not find a contractual basis to do so. 4 are continuing to accrue interest at $821.92 every single day 5 on the $1.5 million principle and nobody is stating -- nobody 6 is coming to the Court and saying well, we got these 7 meritorious defenses and here's some protections we can offer. 8 If we're wrong, you know, we're going to be stuck with probably 9 by the time we got done with this a $4 million obligation We still 10 instead of a $3.3 and there's no -- there's -- we can't see any 11 way or certainly have not been offered any idea how we're not 12 going to be prejudiced by that and having an additional 13 obligation. 14 So, again, we believe that we have been prejudiced by 15 the default. 16 allowing these matters to go forward. 17 Honor, I think I can stop talking and let Mr. Roncati's counsel 18 make a presentation unless Your Honor has questions. 19 We'd be prejudiced by lifting the default and THE COURT: I have one. 20 seated. 21 matter, what have we got? 22 With that stated, Your Excuse me. they are. 23 No, I don't -- before you stand up. You may be The Briggs Everybody can stay exactly where [Pause in proceedings.] 24 MR. WALKER: Good afternoon, Your Honor. 25 THE COURT: Good afternoon. You re going to have to 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 38 of 57 Main Document 38 1 pull that microphone up so we can hear you. 2 MR. WALKER: 3 So I feel the need to 4 5 Hazard of being my height, Your Honor. THE COURT: State your name and affiliation for the record. 6 MR. WALKER: I m sorry, Your Honor. Romain Walker 7 from the Law Office of Charles Shaw on behalf of defendant 8 Conrad Roncati and I m sorry. 9 Ariston Properties. I feel that is somewhat incumbent upon me to 10 rehabilitate Mr. Roncati s reputation which has been somewhat 11 maligned for the last 15 minutes or so. 12 13 I ll begin with -- THE COURT: Let me be a little clear about that. Not the last 15 minutes. 14 MR. WALKER: Okay. 15 THE COURT: It s been ongoing since this case was 16 filed. 17 MR. WALKER: I see. 18 THE COURT: So don t -- you need to understand that 19 this Judge has already been aware of the fact that this has not 20 been answered. 21 meritorious defense and then you can fall back on the other but 22 I want to hear the meritorious defense. 23 So why don t you cut to the chase and go to the MR. WALKER: Certainly, Your Honor. Well, from what 24 I ve heard -- well, let me start with just a brief synopsis of 25 the standard. For a meritorious defense it s not incumbent 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 39 of 57 Main Document 39 1 upon the defendant to prove his case in totality, to prove the 2 facts are absolutely true. 3 where the fact finder may find that there is a dispute here or 4 there is an issue to be resolved. It s simply to present a situation 5 THE COURT: Right. 6 MR. WALKER: Now, having said that, the central issue 7 seems to be what consideration was given to FKF for Mr. 8 Roncati s release. 9 exactly sure of the consideration but I ve had a discussion That is the factual question. I am not 10 with Mr. Roncati and I can speculate. 11 is that FKF requested that Roncati take over Mr. Ricci s duties 12 and the management of the project. 13 terms of this was negotiated. 14 parties. 15 Mr. Roncati to have him as an architect to take over the 16 project. 17 of my head speculation but the greater point being that that is 18 a fact about which there s no record. 19 the Court. 20 One possible situation This was negotiated, the It was negotiated between the FKF may have felt that it was worth the release of Now, again, I say that as just a sort of off the top There s nothing before That is something to be determined. What the Trustee would like to say is that this 21 absence of this -- any such record necessarily means that there 22 is no -- there was no consideration and that simply can t be 23 the case. 24 absence of facts. 25 document here which taken at face value which I think is That is a factual determination being made in the It is simply to say that we re looking at a 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 40 of 57 Main Document 40 1 appropriate that we do at this juncture, taken at face value 2 removes liability from Mr. Roncati and potentially limits the 3 liability of Ariston Properties. 4 the meritorious defense standard. 5 That is sufficient to meet It is not incumbent among us to expand and answer 6 every single question that opposing counsel may have about the 7 nature of this document, underlying negotiations and so forth. 8 So I ll stand on that. 9 10 Now, with regard to -- I ll just briefly discuss prejudice. 11 THE COURT: Okay. 12 MR. WALKER: I think it s clear here that a weighing 13 of the prejudice certainly -- it certainly weighs in favor of 14 the defendants here. 15 being asserted against plaintiff being that interest is being 16 accumulated. 17 is a prejudice in that you re gaining more money over time. 18 fail to see how that is prejudice because theoretically you re 19 supposed to recover that. 20 defendants we re looking at a $4.2 million judgment, a $4.2 21 million judgment in the presence of a document which if taken 22 at face value would absolve him of liability. 23 you can weigh the prejudice and end up in any other way except 24 that -- the prejudice to defendant would certainly outweigh the 25 prejudice to the plaintiff. On the one hand we have the prejudice I personally fail to see how accumulated interest I Now, conversely, when you look at I don t see how 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 41 of 57 Main Document 41 1 Now, with regard to service, Mr. Roncati s 2 certification was a long winded way of saying I don t know what 3 happened to the documents. I never received them. 4 THE COURT: So what s the standard on service? 5 MR. WALKER: The standard on service is that it has to 6 be willful and willful is there has to be more than mere 7 negligence. 8 THE COURT: It s good mailing is what service is. 9 MR. WALKER: Oh, certainly, good mailing, but in terms 10 of -- I m sorry, I m determining the standard as for 11 willfulness, willful disregard or willful default, and that 12 standard is beyond mere negligence. 13 get beyond mere negligence here. 14 reference the affidavit of service with regard to the subpoena 15 which was discussed at length. 16 Now, I don t think we can I m briefly going to The subpoena, the subsequent conversation between Mr. 17 Roncati and Ms. McLoughlin. The subpoena states or the 18 affidavit of service for the subpoena states that it was 19 received by a Ms. Smith, approximately 34 year old Asian woman 20 of 5'6" height. 21 receiving this and he advises me that there is no one in his 22 employ who has that name and matches that description. 23 me it seems reasonable that someone calls about it, you say 24 I ve never heard of this, I don t want to talk to you about it, 25 I don t want to get pulled into this litigation. I ve spoken to Mr. Roncati yesterday after So to 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 42 of 57 Main Document 42 1 Now, we have this other litigation where Mr. Roncati 2 is scheduled to give a deposition which is the subject of this 3 subpoena and I personally can see being confused as to what is 4 what. 5 similar. 6 I think it s reasonable to say that it was negligence that 7 caused him to either disregard, ignore, overlook these 8 documents but we have here now is that he was -- when he s 9 finally made aware of the gravity of these proceedings he 10 contacted his attorney and we find ourselves here today. 11 think in totality when you consider everything I think default 12 judgment of $4.2 million would be uncalled for unwarranted. 13 Thank you, Your Honor. There s -- the parties or the plaintiff s names are very Some of them you have to respond to; some you don t. 14 THE COURT: Thank you. I Who would like to be heard 15 next? 16 I will just make a couple of brief -- 17 18 19 20 THE COURT: Is Mr. Ricci in the courtroom? Very good. Mr. Ricci. Mr. Stevens. MR. STEVENS: I just had two brief points for this respondent. 21 THE COURT: Sure. 22 MR. STEVENS: The first is a statement -- 23 THE COURT: Excuse me. Let the record reflect it is 24 now 2:35 on a matter that was to be called at noon and the 25 Court has been in session pretty much that entire time. Go 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 43 of 57 Main Document 43 1 ahead. 2 MR. STEVENS: The first point I wanted to respond to 3 is that -- I m 6'1" and I have to lower this back. Is that the 4 fact that there s an absence of a fully developed factual 5 record. 6 Honor has was a clear opportunity by the parties to say 7 whatever they want to say. 8 believable. 9 point with respect to the response to the allegation and That s an admission, Your Honor, but the record Your It doesn t even have to be It just has to be a story and I admit that. My 10 accounts and the claims in the complaint that the issuance of 11 the release lacked fair consideration, it was a fraudulent 12 conveyance, there is absolutely no response to that. 13 not even a general denial anywhere found in the papers 14 submitted by Mr. Roncati to that allegation. 15 to -- it doesn t have to be a fully developed factual record. 16 There just has to be -- someone has to give Your Honor 17 something. 18 that let s us know you know what, I don t agree with that and 19 that wasn t there. 20 There s Now is the chance There should be something in these written papers In fact, Mr. Walker is standing here today and saying 21 that he can speculate that maybe there s something but we ve 22 had an opportunity here. 23 developed factual record. 24 fact based on the allegations in the complaint but what the 25 Court has to look at says absolutely nothing. So of course there s not a fully Your Honor is not making findings of That s your 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 44 of 57 Main Document 44 1 opportunity. 2 and try them without doing -- we need to know what s in contest 3 and what s contested and that has not been contested. 4 the response to that one issue. 5 Why bother answering complaints if we can just go That s The second has to do with prejudice in the 6 accumulation of interest. I m just going to put to the cites. 7 I had them laid out in my papers but the accumulation of 8 interest that may -- where the delay may thwart the plaintiff s 9 ability of recovery or remedy is in fact a prejudice that fits 10 under that bill in the Second Circuit criteria that s set forth 11 in New York v. Green, 420 F.3d 110 (2d Cir. 2005). 12 also -- we found that in a decision by Judge Castel in Paul 13 Saleh v. Albert Francesco, 11 Civ. 438 (S.D.N.Y. Nov. 10, 2011) 14 and the bench memo is found at Docket Number 29 where Judge 15 Castel used the exact same criteria adopted in New York v. 16 Green Standard and it was the exact same thing there. 17 plaintiff was going to be prejudiced. 18 to recovery was going to be thwarted because there was no sign. 19 If Mr. Roncati came in and said I have $5 million in the bank 20 that you can go against then true, there would be no prejudice 21 because we re going to be able to collect whatever can we 22 foresee as the accumulation of interest. 23 like that and in fact I think we can fairly safely assume and 24 can absolutely assume from the record and what s before the 25 Court that we re not going to be able to collect that and that That was The Their ultimate ability Nobody said anything 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 45 of 57 Main Document 45 1 we re going to accumulate interest we re never ever going to 2 get paid on. 3 4 THE COURT: Very good. heard? Does anyone else wish to be I will give you a written opinion. 5 MR. STEVENS: Thank you, Your Honor. 6 THE COURT: Thank you. 7 coming back? 8 You ll get a written opinion. 9 Thank you. When are you Not -- we don t know if you re coming back. a regular day? When are you coming back on just 10 MR. STEVENS: We still have to get to the last -- 11 THE COURT: Excuse me. 12 MR. STEVENS: I ll breeze through this. 13 I apologize. I promise you. 14 THE COURT: No, you don t have to breeze. 15 MR. STEVENS: I m not promising them. 16 you. 17 18 I m promising THE COURT: I was going to say the hecklers over here on the sides, ignore them. 19 What have we got? MR. STEVENS: Third and final thing on the calendar 20 and there are -- two uncontested matters. 21 conference. 22 Messer v. Magee, Adversary Proceeding Number 11-9074. 23 The second is our motion. First the pretrial Adversary proceeding THE COURT: I thought you all were just interested in 24 me making an edict of some sort which I neglected to do for 25 you. What do we got? I m sorry. You got the last ones on the 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 46 of 57 Main Document 46 1 agenda. 2 MR. STEVENS: This is -- and I ll follow with a 3 motion, Your Honor. 4 Honor has been very closely monitoring discovery since this 5 case was commenced in September 2011 and discovery has been 6 heated up since the summer. 7 discovery cutoff of February 1st. 8 time clock here to get things done. 9 I ll go quickly through this because Your We re also facing our fact So we re on a pretty tight THE COURT: Right. 10 MR. STEVENS: The developments -- first I m going to 11 skip over subsection C in Exhibit B4 in going through our 12 status notes. 13 pleadings. 14 amended complaint today. 15 I ll address that in the motion. That s amended We do have a motion for leave to file our first I ll skip to the motion to withdraw the reference. 16 That motion has or is to be withdrawn without prejudice by Mr. 17 Magee. The idea being that -- 18 THE COURT: Who s representing Mr. Magee? 19 MR. P. BURKE: 20 THE COURT: Okay. 21 MR. P. BURKE: 22 THE COURT: Sate your name for the record. 23 MR. P. BURKE: Your Honor, I can speak for him today. We sent a letter -- I beg your pardon, Your Honor. 24 Patrick Burke. For the record, counsel to Magee children. 25 speaking today on behalf of John Magee. I m 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 47 of 57 Main Document 47 1 We sent a letter after former counsel was relieved by 2 the Court to Judge Karas indicating to him that we would 3 withdraw the motion for -- withdraw without prejudice with the 4 Court s permission and just waiting to submit to Judge Karas an 5 order to that effect. 6 THE COURT: Okay. 7 MR. STEVENS: So for the time being that motion is off 8 the table subject of course to any of the defendants rights to 9 refile. 10 Thank you. Discovery is moving along at a very rapid pace. We 11 have -- I m going to skip through the initial disclosures. 12 Deponents and tell you exactly where we are with depositions. 13 Party depositions, Mr. Magee has now been fully deposed by our 14 side. 15 December. 16 Elizabeth Keith and Jonathan Magee and deposed non party Ira 17 Shapiro. 18 Allen Feldstein on Friday. 19 Tuesday and may continue on. 20 rights to complain about that, and then Mr. Robert Caulfied on 21 January 22nd. 22 We deposed him over a four-day period in November and We have added two additional party depositions, Upcoming this week we have Mr. Roncati on Thursday, Mr. Dorfman will be next Monday and Of course Mr. Haspel reserves all We still have an number that we have noticed and are 23 trying to get scheduled. Therese Magee, a party defendant, has 24 some medical issues so we re trying to accommodate those and 25 get her deposed at a time that s appropriate and we may in fact 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 48 of 57 Main Document 48 1 be asking Your Honor for -- 2 THE COURT: For an extension? 3 MR. STEVENS: For one limited purpose fact discovery 4 5 so that we can accommodate -THE COURT: I understand that but I would like to know 6 a little bit more about the medical condition before I would 7 extend it if they -- yes, sir. Mr. Burke? 8 MR. P. BURKE: Do you want to know it now, Judge? 9 THE COURT: That s fine, yes. 10 MR. P. BURKE: She s got cancer. 11 THE COURT: Okay. 12 13 That will more than likely warrant an extension. MR. STEVENS: And Jason Klein and Lorette Klein, both 14 of which are now have retained Blank Rome who have been 15 representing Mitchell Klein, one of the primary named 16 defendants in this action. 17 have been unsuccessful in scheduling their deposition. 18 course they had each received proper service -- excuse me. 19 Jason Klein did not receive proper service subpoena. 20 issue serving him but there was an agreement to schedule his 21 deposition for him to come in voluntarily. 22 received service of a subpoena. 23 scheduling but we re having a few hiccups in terms of getting 24 that done and need to obviously get it done this month. 25 have any more hiccups I may be flying in here and bothering the They re now being represented. We Of We had Ms. Klein has It is supposed to be If we 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 49 of 57 Main Document 49 1 Court with that issue. 2 THE COURT: I would need those that represent these to 3 be with you to tell me why the schedule was not met but not 4 just you. Okay? 5 MR. STEVENS: Understood, Your Honor. 6 THE COURT: Thank you. 7 MR. STEVENS: Mitchell Klein, named defendant, is to 8 be scheduled. We re still conferring amongst the parties that 9 are actively litigating whether Mr. Klein will be deposed in 10 person or whether he would be deposed on written question. The 11 reason being is he had unequivocally stated that with respect 12 to any question other than what s his name and where does he 13 live he s going to plead the Fifth. 14 THE COURT: Plead the Fifth? 15 MR. STEVENS: Yes, Your Honor. 16 THE COURT: Do we think we have a criminal prosecution 17 going on here? 18 MR. STEVENS: We do not yet but -- 19 THE COURT: It might be a possibility? 20 MR. STEVENS: I think some would classify it as 21 22 inevitable but it s a distinct possibility. THE COURT: I think this is the first time I ve heard 23 that even though I don t disagree but I don t remember ever 24 hearing that there might be a criminal prosecution. 25 MR. STEVENS: We -- I recall talking about it quite a 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 50 of 57 Main Document 50 1 while ago. It s been a long time but -- 2 THE COURT: Now you say that I remember. 3 MR. STEVENS: The U.S. Attorney -- and it s known to 4 everybody in the room. The U.S. Attorney and the FBI have an 5 active and open investigation going. 6 have been no indictments. 7 is an active ongoing investigation in this matter. They have not -- there There have been no arrests but there 8 THE COURT: All right. 9 MR. STEVENS: So Mr. Mitchell Klein -- and he s taken 10 this position for quite some time with us which is why we never 11 deposed him under 2004 that he will be pleading the Fifth. 12 we re going to decide whether or not we re going to do that in 13 written question or spend time with him. So 14 THE COURT: Sure. 15 MR. STEVENS: The weekly conference call is that Your 16 Honor ordered back in the fall -- 17 THE COURT: Nice. 18 MR. STEVENS: 19 getting the parties -- -- have been extremely effective in 20 THE COURT: Are we continuing them? 21 MR. STEVENS: We have continued. 22 23 24 25 We ve had every single one. THE COURT: Congratulations. Did you all say Happy New Year to each other? MALE VOICE: No, he didn t. 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 51 of 57 Main Document 51 1 MR. STEVENS: Your Honor s order did exempt us from 2 both -- because they re Tuesday 8:30 a.m. So the order did 3 excuse us from the Christmas call and the New Year s call. 4 we haven t had one today. 5 was what we previously agreed to. So We had one in the hallway and that 6 THE COURT: Thank you very much. 7 MR. STEVENS: We ve also stated that we are going to 8 discuss stipulating subject to Your Honor s approval to moving 9 those to bi-weekly once fact discovery closes. 10 THE COURT: We will let you bring it up at that time. 11 MR. STEVENS: So those have gone forward. We have -- 12 I can t say thankfully that I ve actually successfully 13 produced, timely produced agendas and notes to those which I 14 was required to do under the order. It was -- 15 THE COURT: Ms. Fredericks, we re all looking at you. 16 MR. STEVENS: Pardon? 17 THE COURT: No, I m teasing her. 18 MR. STEVENS: That was what I called Mr. Goldberg s Good. 19 last stand was pushing that in the order and giving me some 20 extra work before he left us in his -- and no longer involved. 21 22 23 24 25 THE COURT: But it is nice to have the agenda. does make it simpler for everybody. MR. STEVENS: I agreed to it because it was appropriate, yes, Your Honor. THE COURT: Yes. Thank you. It 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 52 of 57 Main Document 52 1 THE COURT: But I will complain about it. 2 THE COURT: Okay. 3 MR. STEVENS: Upcoming dates and deadlines just to 4 keep the Court aware, we have a February -- 5 THE COURT: Yes, I saw that. 6 MR. STEVENS: -- 1st fact discovery cutoff, a March 1st 7 deadline to meet and confer regarding what experts we re going 8 to use and subject matter of the expert testimony. 9 3rd to complete expert reports and exchange them and then June 10 28th will be the time to complete expert discovery after which 11 we should be prepared to have that final pretrial conference 12 and ready to file our motions in limine and be trial ready. 13 Until May THE COURT: I need to do something -- you need to do 14 something for all of us and for you and for everyone else in 15 the audience. 16 to just specially set it. 17 can also hear you on Thursday or Friday. 18 help me with that because I do hate to keep people from their 19 employment or whatever. If we have something that is extensive we need Otherwise this time is good but we 20 MR. STEVENS: I apologize. 21 THE COURT: No, don t apologize. 22 fault. 23 I do the scheduling. So you all need to I will do that. It s just -- it s my I mean we do the scheduling. MR. STEVENS: It s not. Ms. Fredericks has to call me 24 and harass me for the agenda which I should be forthcoming 25 with. 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 53 of 57 Main Document 53 1 2 MR. STEVENS: That s why I was teasing her. to -- 3 4 You have MR. STEVENS: Please don t tease her because it is all on yours truly. Believe me. 5 THE COURT: Well, she protects me. 6 MR. STEVENS: I m not directing the Court not to tease 7 the courtroom deputy. 8 don t want her to hold it against me. 9 10 I mean you can do what you want -- I THE COURT: But she will. she ll get mad. 11 Okay. I m not doing it. Trust me, she will and So when do you want to see me again? MR. STEVENS: I believe -- well, we do have one more 12 matter. Let me fly through it. We have a motion for leave to 13 amend, file a first amended complaint. 14 uncontested. 15 streamlined it. 16 complaint at the paragraph where we left off in the initial 17 complaint so that we re not forcing people to reanswer another 18 240 pages of -- The motion is The two counts that we re seeking to add -- and I I streamlined. I started the amended 19 THE COURT: And my understanding is that s unopposed. 20 MR. STEVENS: It is unopposed, Your Honor. 21 THE COURT: Very good. 22 MR. STEVENS: Excellent. 23 THE COURT: Submit an order and I ll allow that. 24 MR. STEVENS: I will, Your Honor. 25 THE COURT: Now, when do you want to see me again? 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 54 of 57 Main Document 54 1 2 MR. STEVENS: The one matter was adjourned to January 29th. 3 That was the NCP matter. THE COURT: But I don t think that we have to bring 4 everybody back. 5 to do? 6 It s just what s according -- what do you want MR. STEVENS: The only thing I would want that date 7 for, and I would love to keep it with the caveat that we could 8 adjourn it if we re all on the same page and everything is 9 fine, is -- 10 11 THE COURT: As long as you all are talking to each other I will let you. 12 MR. STEVENS: If I have a discovery issue and need an 13 extension of the fact discovery cutoff -- it may not involve 14 everybody here. 15 witness perhaps. 16 It may involve just a recalcitrant third party THE COURT: Or an ill patient. 17 then. 18 That -- bring it by Bring it by January 29th so we can hear it then. sir. 19 MR. HASPEL: Yes, Your Honor, you re going to be receiving 20 a motion with a motion to shorten time with -- addressing the 21 depositions of Mr. Dorfman. 22 get to the Court today but I don t think I m going to be able 23 to do it at this point. 24 deposition that s on the schedule by the Trustee. 25 the state court proceedings that are related after some time It s prepared. I was hoping to We re not seeking to stop the However, in 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 55 of 57 Main Document 55 1 Judge Jamison entered an order which effectively indicated that 2 based upon Mr. Magee s wrongdoings in stealing Mr. Dorfman s 3 files he s going to be precluded from certain events which I 4 don t want to go into at this point in time. 5 THE COURT: Sure. 6 MR. HASPEL: What s going to be presented to Your 7 Honor is to effectively adopt Judge Jamison s ruling for Mr. 8 Magee s conduct because it s -- what discovery was going on in 9 that case is the same as the discovery that s going on in this 10 case. 11 THE COURT: File it. 12 MR. HASPEL: Like I said, I don t think it has 13 Mr. Stevens will respond. anything to do with Mr. Stevens. 14 THE COURT: Or Mr. Burke. 15 MALE VOICE: Whoever needs to -- It has more to do with the Magee, Your 16 Honor. We have been waiting for this shooted draft for months 17 and now when we re going to get the draft -- 18 THE COURT: In three weeks. 19 MALE VOICE: Tuesday we re supposed to be down in Mr. 20 Stevens office on Monday to conduct Burt Dorfman s deposition. 21 I don t think that s fair. 22 Haspel, to what you say. I don t mind responding, Mr. 23 THE COURT: Shortening time between now and Monday? 24 MALE VOICE: 25 THE COURT: You can do it. Yes. I ve got no time to -I won t tell you that 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 56 of 57 Main Document 56 1 you ll be favorably possessed for it but I ll always look at 2 it. 3 MALE VOICE: We re not seeing to stop Mr. Stevens -- 4 THE COURT: I hear you. 5 MALE VOICE: -- deposition from going forward. 6 That s -- 7 8 I hear you. THE COURT: I hear you. It is Wednesday. We ll deal with it if it comes our way. 9 MR. STEVENS: Thank you, Your Honor, and your notes 10 regarding scheduling are heard and let me apologize to the 11 folks -- 12 THE COURT: Yes, apologize to everybody. Thank you. 13 I don t -- we don t mind but it s really tough on people that 14 have to be out of work. 15 MR. STEVENS: I understand, Your Honor. 16 THE COURT: Back on January 29th. 17 MR. STEVENS: At noon. 18 THE COURT: Thank you. 19 20 21 22 23 24 25 * * * * * 10-37170-cgm Doc 562 Filed 04/17/13 Entered 04/18/13 14:47:38 Pg 57 of 57 Main Document 57 1 I certify that the foregoing is a court transcript from an 2 electronic sound recording of the proceedings in the above- 3 entitled matter. 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Shari Riemer Dated: April 15, 2013

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