-RML Gutman et al v. Klein et al

Filing 528

MEMORANDUM DECISION AND ORDER denying GMI's 525 Motion to Intervene. ( Ordered by Judge Brian M. Cogan on 8/24/2015 ) (Guzzi, Roseann)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
----------------------------------------------------------ARYEH GUTMAN, individually and on behalf
of A TO Z HOLDING CORP., A TO Z
CAPITAL CORP., PAZ FRANKLIN
COMPANY and WASHINGTON GREENE
ASSOCIATES,
Plaintiffs,
- against ZALMAN KLEIN, DINA KLEIN, RODNEY
CAPITAL COMPANY, TOYV
CORPORATION, ATLAS FURNITURE
MANUFACTURING CORP., A TO Z
HOLDING CORP., A TO Z CAPITAL CORP.,
PAZ FRANKLIN COMPANY and
WASHINGTON GREENE ASSOCIATES,
Defendants.
-----------------------------------------------------------

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MEMORANDUM
DECISION AND ORDER
03 Civ. 1570 (BMC)

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COGAN, District Judge.
This is an epic case of “business divorce” that has gone on for more than a dozen years
and shows no sign of abating, despite the fact that final judgment was entered in favor of some of
the plaintiffs more than five years ago. See Gutman v. Klein, No. 03 Civ. 1570, 2008 WL
4682208 (E.D.N.Y. Oct. 15, 2008) (recommending entry of default judgment), Report and
Recommendation adopted, 2008 WL. 5084182 (E.D.N.Y. Dec. 2, 2008); 2010 WL 4975593
(E.D.N.Y. Aug. 19, 2010) (recommending amount of damages), Report and Recommendation
adopted, 2010 WL 4916722 (E.D.N.Y. Nov. 24, 2010), aff’d, 515 F. App’x 8 (2d Cir. Mar. 20,
2013). It is presently before me on the motion of a non-party, Goldwasser Management, Inc.
(“GMI”), to intervene under Federal Rule of Civil Procedure 24. I do not have subject matter
jurisdiction to consider this motion, and if I did, I would deny it as a matter of discretion.

BACKGROUND
Like any overlong conflict, the origins of this lawsuit have become largely immaterial
over time. It suffices to note that the dispute arose between two former business partners,
Gutman and Klein, in which the former brought RICO and derivative state law claims against the
latter for using their jointly held enterprises to funnel money to Klein’s wholly owned
enterprises. Klein, in turn, made the same allegations against Gutman and his entities.
For present purposes, the relevant portion of the judgment entered February 16, 2011
awarded $1,357,500 to plaintiff Washington Greene Associates, a partnership of which Gutman
and Klein had both been members. That judgment also removed Klein as a partner of
Washington Greene. The judgment was entered after Magistrate Judge Levy found, and I
adopted his Report and Recommendation, that Klein had deliberately spoliated crucial evidence
in the case, and thus the Klein entities’ answers were stricken.
Since entry of judgment, there have been sporadic flare ups between the parties as the
Gutman entities have attempted, apparently without much success, to collect the judgment. In
addition, there appears to be a continuation of the struggle in the New York state courts, this time
with Klein as plaintiff and Gutman as defendant. I presently have two pending motions in which
each side seeks, among other relief, to enjoin the other from proceeding in state court on res
judicata grounds. (One might think those would cancel out, but strangely, they do not). In his
motion, Gutman also seeks turnover of certain shares of stock in a company called 185 Marcy
Corp., which is controlled by Klein, and which Gutman contends was used as a vessel to receive
assets fraudulently moved from their previously joint entities. I will therefore refer to this
motion as the “Turnover Proceeding.” But the turnover and injunction motions are not the
subject of this decision.

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Rather, presently before me is a motion of a non-party, GMI, not previously known to
me, or if I knew of it I have forgotten it in the sands of time, through its controlling person, Nat
Greenfield. GMI seeks to intervene in this action even though the action is post-judgment. It
has submitted a proposed complaint, although it does not identify itself as either an intervenorplaintiff or intervenor-defendant, probably because, as will be seen, it is not readily apparent on
which side it belongs.
According to GMI’s motion, its predecessor, Greenfield, was a partner in the judgment
creditor Washington Greene Associates, along with Klein and one Herman Frederick.
Greenfield and Klein bought out Frederick. This Court’s judgment removed Klein as a partner,
which, according to Klein, left only Greenfield as partner. Two years later, Greenfield assigned
his interest to GMI, which – again, according to the motion – left GMI as Washington Greene’s
only partner.
There is no explanation of how Gutman got involved, or even purported to get involved
with Washington Greene, even though he maintained a derivative action here on its behalf for
more than ten years. Instead, GMI contends that “Gutman did not apprise GMI of the Turnover
Proceeding that is purportedly being brought on behalf of W[ashington Greene], nor did he seek
GMI’s authority for such a proceeding.” GMI contends that execution on Klein’s shares in 185
Marcy Corp. at the present time would prejudice it.
The argument to support this claim of prejudice (and its interest in these proceedings),
consistent with most arguments in this case, is convoluted. GMI appears to contend that the real
reason that Gutman is causing Washington Greene to execute on Klein’s 185 Marcy Corp. shares
is because 185 Marcy Corp., still controlled by Klein, currently has an action pending against
Gutman in state court. That action alleges that Gutman caused 185 Marcy Corp. to transfer its

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real property to another entity called 185 Marcy LLC, which apparently Gutman controls. If
Gutman is successful in executing on Klein’s shares in 185 Marcy Corp., GMI contends, then
Gutman will have obtained complete control of 185 Marcy Corp., and will thereby squelch its
ability to recover this real property from 185 Marcy LLC.
And why does that matter to GMI? Its theory is that if Washington Greene, through
Gutman, executes on the 185 Marcy Corp. shares now, Washington Greene will receive less
value, and maybe even no value, as compared to what it would receive if Washington Greene
waited until 185 Marcy Corp. recovers its real estate from 185 Marcy LLC. In other words,
whatever the source of Gutman’s authority, which GMI has not told me and which its description
of Washington Greene’s lineage seems to belie, GMI does not mind Gutman using it, as he has
been for nearly thirteen years. Rather, GMI only wants to temporarily limit Gutman’s authority
to seek turnover of the shares until the claims of 185 Marcy Corp. against 185 Marcy LLC and
Gutman are resolved in the state courts.
DISCUSSION
For three closely related reasons, GMI’s motion to intervene is denied.
First and most fundamentally, I have no subject matter jurisdiction that would encompass
GMI’s claims. Its proposed intervenor complaint recites that I have “supplemental jurisdiction,”
but the question that this immediately raises is, “supplemental to what?” When the underlying
lawsuit was originally started, I had federal question jurisdiction because of plaintiffs’ RICO
claims. However, once judgment was entered, that jurisdiction merged in the judgment. Any
proceedings after the judgment are themselves based on supplemental jurisdiction. And because
GMI’s claims are supplemental to Gutman’s effort to enforce the judgment, what GMI is asking

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me to do is assert jurisdiction that is supplemental to jurisdiction that is itself supplemental. The
Constitution does not reach that far.
Many cases make the point that jurisdiction to enforce judgments is itself ancillary (one
of the terms, along with “pendent jurisdiction” and “pendent party jurisdiction” that became part
of the codification into “supplemental jurisdiction” under 28 U.S.C. § 1367 in 1990), not
original. As one Court recently noted:
As a general rule, once a federal court has entered judgment, it has ancillary
jurisdiction over subsequent proceedings necessary to vindicate its authority, and
effectuate its decrees. This includes proceedings to enforce the judgment.
Without ancillary jurisdiction to enforce judgments, the judicial power would be
incomplete and entirely inadequate to the purposes for which it was conferred by
the Constitution. As a result of its entry of judgment for the plaintiff, the district
court possessed ancillary jurisdiction to enforce the judgment through
supplementary proceedings.
VFS Fin., Inc. v. Elias-Savion-Fox LLC, 73 F. Supp. 3d 329, 335 (S.D.N.Y. 2014) (internal
quotations and citations omitted).
The Supreme Court’s decision in Peacock v. Thomas, 516 U.S. 349, 116 S. Ct. 862
(1996), illustrates that a federal court’s supplemental jurisdiction only extends so far in the postjudgment context. There, the plaintiff-employee recovered a judgment under ERISA against his
employer. He commenced a separate action in federal court against the controlling shareholder
of his employer to pierce the corporate veil, purportedly based on supplemental jurisdiction. The
Supreme Court did not allow this bootstrapping of supplemental jurisdiction upon supplemental
jurisdiction:
The claims in these cases have little or no factual or logical interdependence, and,
under these circumstances, no greater efficiencies would be created by the
exercise of federal jurisdiction over them.
…

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In determining the reach of the federal courts’ ancillary jurisdiction, we have
cautioned against the exercise of jurisdiction over proceedings that are entirely
new and original . . . or where the relief [sought is] of a different kind or on a
different principle than that of the prior decree. . . . These principles suggest that
ancillary jurisdiction could not properly be exercised in this case. This action is
founded not only upon different facts than the ERISA suit, but also upon entirely
new theories of liability.
Id. at 356, 358, 116 S. Ct. at 867, 869 (internal quotations and citations omitted).
Well prior to Peackock, the Second Circuit had reached a similar conclusion on different
facts in Manway Construction Company, Inc. v. Housing Authority of the City of Hartford, 711
F.2d 501 (2d Cir. 1983). In Manway, two contractors on a city housing project sued the public
housing authority for its breach. The housing authority asserted counterclaims for inadequate
performance. The plaintiffs had posted a performance bond, and when judgment was entered for
the housing authority on its counterclaims, the bonding company was prepared to pay the
principal amount of the bond. That was not good enough for the housing authority, however,
which additionally sought a substantial amount of interest that it argued would have accrued had
the bonding company reasonably invested the bond during the long period in which the litigation
had been pending. The Second Circuit, reversing the district court, held that there was no
ancillary jurisdiction to determinate the dispute between the housing authority and the bonding
company:
[T]he Authority’s claims against the Bank presented a congeries of issues
completely unrelated to the breach of contract issues that were the subject matter
of the original action and which were before the court on grounds of diversity.
…
Where a party asserts what really are two sets of distinct claims, there must be
grounds for federal jurisdiction with respect to each.
…

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In order for the district court to have considered the Authority’s claims on the
basis of ancillary jurisdiction, there must have been at least a common nexus of
fact – a transactional relationship – between the claims predicated on federal
jurisdiction and the claims to be piggy-backed into the federal court. . . . Even at
the farthest reaches of ancillary jurisdiction, we have not allowed district courts to
consider claims so distinct as here from the underlying basis for federal
jurisdiction.
Id. at 504-05.
The issues raised by GMI’s motion are entirely separate from any of the RICO claims
that were the subject of this Court’s judgment. GMI wants to litigate corporate ownership and
control over one of the judgment creditors, Washington Greene, in a way that has nothing to do
with Klein’s liability for RICO violations. It is effectively alleging that Gutman, one of
Washington Greene’s partners (or managers, or someone with another agency role that GMI has
not told me), is breaching his fiduciary duty to Washington Greene and/or GMI by timing his
execution of the judgment to protect himself at the expense of the Washington Greene and/or
GMI.
I have no familiarity with the background facts and issues raised in GMI’s motion
because, given Gutman’s previously undisputed ownership interest in Washington Greene, none
of these issues has been raised before. What GMI is asking me to do is entertain a whole new
lawsuit between it and Gutman to adjudicate their rights inter se. That is not “supplemental” or
“ancillary” to my federal jurisdiction to adjudicate the RICO claims. At most, it is
“supplemental” or “ancillary” to my supplemental jurisdiction to enforce the judgment. Yet the
Second Circuit’s use of the term “piggy-backed” in Manway means that jurisdiction cannot be
stacked upon jurisdiction that is already ancillary. Supplemental jurisdiction extends only one
level.
The form of GMI’s motion says a lot about its disconnectedness to this action. Typically,
a party seeking intervention will submit a proposed pleading that shows itself on the same side of
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the caption as the party or parties to which it is not adverse, i.e., as either “plaintiff-intervenor”
or as “defendant-intervenor.” See e.g. Lehman Bros. Holdings, Inc. v. United States, No. 10 Civ.
6200, 2015 WL 2359256 (S.D.N.Y. May 8, 2015) (caption lists “Lehman Brothers Holdings,
Inc., Plaintiff, and Official Committee of Unsecured Creditors of Lehman Brothers Holdings,
Inc., et al., Plaintiff-Intervenor, v. United States of America, Defendant); Continental Cas. Co. v.
Marshall Granger & Co., LLP, 6 F. Supp. 3d 380 (S.D.N.Y. March 20, 2014) (caption lists
“Continental Casualty Company, Plaintiff, v. Marshall Granger & Company, LLP, and Laurence
Brown, Defendants, and Joseph J. Broughton, Jr. and Northstar Investment Group, Ltd.,
Defendants-Intervenors”). In the instant case, neither GMI’s motion nor, more significantly, its
proposed complaint give any clue as to which side of the caption it wishes to be on. I suppose
the fact it refers to its proposed pleading as a “complaint” indicates a desire to be aligned as a
plaintiff-intervenor against Klein. But the substance of its pleading makes it clear that it is
seeking relief against Gutman, not Klein, so perhaps, whatever its proposed pleading should be
(answer in intervention?; counterclaim in intervention?; opposition to motion?), it should not be
a complaint. This is not merely a technical observation (although it is that); it also reflects the
fact that GMI’s new claims just do not fit comfortably anywhere in this case.
The Second Circuit’s decision in Manway is also notable in that it did not reverse the
district court for abuse of discretion in exercising ancillary jurisdiction, even though it had been
established since before United Mineworkers v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130, 1139
(1966), that “pendent jurisdiction is a doctrine of discretion, not of plaintiff's right,” which “need
not be exercised in every case in which it is found to exist.” Rather, it reversed for lack of
subject matter jurisdiction. This suggests that whatever the line is between the non-existence of
supplemental jurisdiction and the abuse of discretion for invoking it in the pre-judgment context,

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the grant of supplemental jurisdiction post-judgment may be narrower. That would be consistent
with the more limited focus of ancillary federal jurisdiction in the post-judgment context, which
is simply to see that the judgments of the court are effectuated, not that all related claims
between the parties are finally determined in one proceeding.
This, in turn, leads me to an alternative ground for denying GMI’s motion. Even if I had
supplemental jurisdiction, I would decline to exercise it as a matter of discretion. Section 1367
of Title 28 essentially codifies the Gibbs standard of discretion. It requires the Court to find that
the new claims “are so related to claims in the action within such original jurisdiction that they
form part of the same case or controversy under Article III of the United States Constitution.” 28
U.S.C. § 1367(a). As noted above, I think it is plain that GMI’s claim does not fall within that
designation, but even if it did, the statute then requires me to consider several factors to
determine whether to exercise my discretion, including whether there are “exceptional
circumstances” that warrant denying jurisdiction. Here, the fact that we are in post-judgment
proceedings suggests the need to reduce the scope of these proceedings, not expand them by
introducing wholly new cases and controversies.
Moreover, Section 1367(c) provides that a district court may decline to exercise
supplemental jurisdiction under certain circumstances. Notably, GMI does not even discuss
these factors in its memorandum of law in arguing that I should exercise my discretion to
exercise supplemental jurisdiction over its claims, even if there were jurisdiction. This is likely
because those factors are not easily applied in the post-judgment context, and I am aware of no
cases doing so. This difficulty provides an additional reason against exercising jurisdiction here.
To illustrate, Section 1367(c)(3) allows a court to decline to exercise supplemental jurisdiction if
it “has dismissed all claims over which it has original jurisdiction.” As explained above, once

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judgment in this case was entered, original jurisdiction merged with the judgment. The only
remaining jurisdiction I have is supplemental jurisdiction to enforce the judgment. Therefore,
without original jurisdiction, it does not make sense to entertain GMI’s proposed complaint,
which, by definition, would now also “predominate[] over the claim or claims over which [I]
ha[d] original jurisdiction.” 28 U.S.C. 1367(c)(2).
There is yet a third reason why I am compelled to deny GMI’s motion. Even if I had
supplemental jurisdiction to hear GMI’s new claims, and even if I exercised discretion to retain
that jurisdiction, the motion fails under Federal Rule of Civil Procedure 24. Although GMI
maintains that it should be allowed to intervene as of right under Rule 24(a), it recognizes that
any such right must be “timely” exercised. The determination of timeliness is itself a matter of
discretion, see United States v. Yonkers Bd. of Educ., 801 F.2d 593, 594-95 (2d Cir. 1986), and
should the district court reasonably determine that a motion to intervene is untimely, it may deny
it on that basis alone. See “R” Best Produce, Inc. v. Shulman–Rabin Mktg. Corp., 467 F.3d 238,
241 (2d Cir. 2006). GMI’s attempt at intervention is anything but timely.
GMI attempts to meet the timeliness requirement by alleging that within days of
Washington Greene’s motion for a turnover of Klein’s 185 Marcy Corp. shares, it sought to
intervene to challenge Gutman’s authority to so direct the affairs of Washington Greene. That of
course begs the question, which is, what were GMI, and its predecessor in interest, Greenfield,
doing for a dozen years while Gutman, acting on behalf of Washington Greene, litigated this
case, obtained a judgment, and proceeded, not just by the turnover motion but by other, earlier
enforcement efforts, to realize upon that judgment? Under GMI’s argument, it was free to sit on
the sidelines as long as it felt that Gutman, who it now contends was effectively a stranger-in-

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interest, was doing what it wanted him to do, but at any time, it could swoop in and object if
Gutman acted contrary to GMI’s view of its best interests.
The Second Circuit recently rejected this “stay silent until things start going badly”
strategy in Floyd v. City of New York, 770 F.3d 1051(2d Cir. 2014), the case challenging the
“stop and frisk” policy of the New York Police Department. The Court held that police unions
could not sit by in the hope that the municipal administration would protect their interest, and
then intervene on the eve of judgment when the administration changed its position. This case is
more egregious, as we are not on the eve of judgment, but almost five years past it. If GMI had a
problem with Gutman running Washington Greene for thirteen years, it should have addressed
that problem long before now. See S.E.C. v. Reed, 97 F.R.D. 746, 748 (S.D.N.Y. 1983)
(recognizing that although post-judgment intervention is not “absolutely barred,” it is “unusual
and not often granted”) (internal quotations omitted).
Finally, to the extent GMI claims prejudice, it has many other avenues to seek relief
against Gutman if it has not already waived them. It claims to have an arbitration agreement
against Gutman, so it is free to arbitrate and obtain an injunction pending arbitration if it is
entitled to that (indeed, compelling arbitration is the alternative request in GMI’s proposed
declaratory judgment complaint). It can also pursue relief against Gutman in a court of
appropriate jurisdiction, and, again, obtain injunctive relief there if appropriate.
Whatever procedure might remain open to GMI, its jurisdictionally defective and
untimely effort here is not it. GMI’s claims are simply not related to this case.

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CONCLUSION
GMI’s motion [525] to intervene is denied.

SO ORDERED.

Digitally signed by Brian M.
Cogan
U.S.D.J.

Dated: Brooklyn, New York
August 24, 2015

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