Citibank, N.A. v. Bombshell Taxi LLC et al
MEMORANDUM DECISION AND ORDER, Friedman's objections are overruled, the F&C is adopted as the decision of this Court, and Citibank's motion for partial summary judgment is granted. The adversary proceeding shall continue on the remaining claims before the Bankruptcy Court until a final judgment is entered, which shall include this ruling. Bankruptcy Court AP case number 11501185cec. So Ordered by Judge Brian M. Cogan on 7/19/2017. (Lee, Tiffeny)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
-againstBOMBSHELL TAXI LLC, et al.,
DECISION AND ORDER
15 Civ. 5067 (BMC)
COGAN, District Judge.
Plaintiff Citibank brought this action in State Court seeking to recover on loans and the
guarantees of those loans taken out by a group of affiliated taxi and taxi management companies,
now in Chapter 7 proceedings, and their owner or principal, defendant Evegny Friedman.
Friedman gave the guarantees for the taxi companies’ debt. When the taxi companies filed for
relief under Chapter 11 (they are now in Chapter 7), they removed the action to federal district
court based on federal bankruptcy jurisdiction, and Judge Chen, to whom this case was
previously assigned, referred it to the Bankruptcy Court on the same jurisdictional basis. After
discovery, Citibank moved for partial summary judgment on the Friedman guarantees only; its
claims against the taxi debtors are not before me and are still pending in the Bankruptcy Court as
part of the adversary proceeding. In addition, as part of the motion, Citibank moved for
summary judgment seeking to dismiss Friedman’s “lender liability” counterclaims. Those
counterclaims are based on alleged breaches of the covenant of good faith and fair dealing
arising out of the loan documents.
Because the Bankruptcy Court (Craig, C.B.J.) found that it had only “related-to”
jurisdiction over the claims between Citibank and Friedman, it rendered Proposed Findings of
Fact and Conclusions of Law as to Citibank’s motion for summary judgment rather than deciding
the motion, In re Hypnotic Taxi LLC, Adv. Pro. No. 15-1185, 2017 WL 1207471 (E.D.N.Y.
March 31, 2017) (the “F&C”), as required by 28 U.S.C. § 157(c)(1). 1 The standard of review in
this Court of the F&C is de novo. See 28 U.S.C. § 157(c)(1). Familiarity with the F&C is
presumed, and the background of this case will therefore not be repeated.
Friedman objects to the F&C on three grounds: (1) the Bankruptcy Court lacked even
“related-to” subject matter jurisdiction; (2) the Bankruptcy Court unreasonably denied Friedman
discovery before ruling on the motion, thus depriving him of the ability to demonstrate material
issues of disputed fact; and (3) the Bankruptcy Court’s conclusion that Friedman had waived his
right to bring counterclaims under the language of his guarantees was invalid. Because none of
these points have merit, Friedman’s objections are overruled.
The Court would be justified in striking Friedman’s objection based solely on his failure
to adequately comply with Federal Rule of Bankruptcy Procedure 9033(b). The Rule states: “A
party objecting to the bankruptcy judge’s proposed findings or conclusions shall arrange
promptly for the transcription of the record, or such portions of it as all parties may agree upon
or the bankruptcy judge deems sufficient, unless the district judge otherwise directs.” Fed. R.
Bankr. P. 9033(b). Although there are scattered citations to the Bankruptcy Court docket sheet
in Friedman’s objection, the only documents which Friedman has caused to be transmitted to this
Court are the F&C, his objection, and Citibank’s response. 2 He failed to designate a record even
Although the statute references “Proposed Findings of Fact and Conclusions of Law,” that title usually applies to
factual determinations made after trial. This label does not fit comfortably on a bankruptcy court’s proposed
disposition of a motion for summary judgment, as the court is prohibited from resolving disputed facts on such a
motion. I think it is understood in this context that a bankruptcy court’s proposed findings of fact means proposed
findings of undisputed fact.
The district court docket sheet reflects only that portion of the bankruptcy court docket sheet designating the F&C,
the objections, and the responses, not the papers underlying the motion for summary judgment.
though his objections assert that “Mr. Freidman respectfully refers the Court to the voluminous
record . . . .” 3
It seemed more than passing strange to be asked to rule de novo on a summary judgment
motion with none of the motion papers that were before the Bankruptcy Court. I therefore
entered an Order advising the parties that I had nothing before me but the three papers that
Friedman had transmitted, and that if the record was not supplemented, I would rule based on
what I had. Friedman did not respond to that Order.
Federal Courts of Appeal regularly dismiss appeals where the appellant fails to submit an
adequate record. See e.g. Tapley v. Chambers, 840 F.3d 370 (7th Cir. 2016); King v. Unocal
Corp., 58 F.3d 586 (10th Cir. 1995); United States v. Vasquez, 985 F.2d 491 (10th Cir. 1993);
Rodriguez v. American Airlines, Inc., 166 F.3d 1201 (2d Cir. 1988); Brattrud v. Town of Exline,
628 F.2d 1098 (8th Cir. 1980); Grimard v. Carlston, 567 F.2d 1171 (1st Cir. 1978). The instant
proceeding is not technically an appeal, but Friedman has created the same practical difficulty by
failing to submit the motion papers on which the Bankruptcy Court’s decision was based.
I am not going to reject the objections on this ground, as there are ample grounds to
overrule them on the merits. But to the extent Friedman expects me to find material disputed
factual issues based solely on his objections, he has seriously limited my ability to do so.
If Friedman had designated this “voluminous” record, then one of the arguments that Citibank makes would be
important – that Bankruptcy Rule 9033 requires objections to specific findings of the Bankruptcy Court rather than
the broadside that comprises Friedman’s objections. Friedman’s objections point to no particular piece of evidence,
and his statement – “Mr. Freidman respectfully refers the Court to the voluminous record, which is replete with
additional examples of bias against Mr. Freidman” – is an invitation that I decline. “Judges are not like pigs,
hunting for truffles buried in the record.” Albrechtsen v. Bd. of Regents of the Univ. of Wis. Sys., 309 F.3d 433,
436 (7th Cir. 2002) (internal quotation marks omitted).
More than half of Friedman’s objection is devoted to his contention that the Bankruptcy
Court lacked subject matter jurisdiction to issue its F&C. The present attack on jurisdiction
constitutes a 180-degree turnaround for Friedman. It was Friedman’s wholly-owned taxi
companies that removed this adversary proceeding from New York County Supreme Court,
where Citibank had commenced it, to the Southern District of New York, the district in which
the state court sits. The basis of removal was that it was related to the (then) Chapter 11 cases.
Judge Rakoff transferred the case to the Eastern District of New York on the ground that it was
related to the taxi companies’ bankruptcy proceedings here. On that same jurisdictional basis,
Judge Chen referred the case to the Bankruptcy Court in this district. In the letter requesting
referral to the Bankruptcy Court, the taxi companies represented that all parties consented to the
referral, as long as they could reserve their right to challenge the Bankruptcy Court’s jurisdiction
to enter dispositive orders. Like his companies, Friedman never objected to subject matter
jurisdiction in the Southern District, in the Eastern District before Judge Chen, or before the
Bankruptcy Court in the Eastern District. Instead, he litigated extensively with Citibank on the
merits, and only now that he has lost has he decided to challenge jurisdiction, raising it for the
first time in this Court.
Friedman points to the basic principle that subject matter jurisdiction cannot be waived,
and thus he has the right to raise it now despite his earlier position. That is hardly the point. The
reason that the Bankruptcy Court exercised jurisdiction is because the vast majority of districtcourt and bankruptcy-court decisions in this Circuit consider actions on an insider’s guarantee to
fall within the “related-to” jurisdiction of the bankruptcy court, either because they alter the
composition of the creditor body or because the trustee is likely to have subordination or other
claims against the guarantor that it did not have against the lender. See, e.g., Lifetime Brands,
Inc. v. ARC International, SA, No. 09-cv-9792, 2010 WL 454680, at *1 (S.D.N.Y. Jan. 29,
2010) (“It appears, moreover, to be well settled that an action to recover on a guaranty of a
bankruptcy debtor’s obligation is ‘related to’ the debtor’s bankruptcy.”); Merrill Lynch Mortgage
Capital Inc. v. Esmerian, No. 08 Civ. 5058, 2008 WL 2596369, at *1 (S.D.N.Y. June 30, 2008);
In re Ames Dep’t Stores, Inc., 190 B.R. 157, 163 (S.D.N.Y. 1995); In re New 118th LLC, 396
B.R. 885, 890-91 (Bankr. S.D.N.Y. 2008); In re River Ctr. Holdings, LLC, 288 B.R. 59 (Bankr.
Friedman recognizes that the test is whether the outcome of the action could have a
“conceivable effect” on the Chapter 11 case, see In re Cuyahoga Equip. Corp., 980 F.2d 110, 114
(2d Cir. 1992), but claims that it is “speculative” that the trustee will have claims against him if
he pays the guarantee liability and steps into the debtors’ shoes. I see nothing speculative about
it, especially considering Friedman’s intra-family transfers prior to his putting the taxi companies
into Chapter 11, which has already led to an order of attachment over those assets. Even without
that, it is very rare in a large bankruptcy case that the insider’s status is not the subject of
litigation or negotiation that confers benefits on other creditors. This is why virtually all cases in
this Circuit find that attempts to collect against a debtor’s guarantor fall within the bankruptcy
court’s related-to jurisdiction. There are one or two cases going the other way, but Friedman has
not cited them, and, in any event, they are outliers.
Friedman offers the following argument as to the impact of the Bankruptcy Court having
denied some of the discovery he requested:
What Citibank and the Bankruptcy Court are attempting to do by advocating for a
proceeding where Mr. Freidman is denied basic access to relevant and probative
evidence resembles notions of so-called “justice” most commonly associated with
non-Democratic countries without significant constitutional protections –
certainly not the meaningful opportunity to be heard that is associated with
American due process and extended even further by the widely recognized, even
more progressive policies of the State of New York. Without that simple layer of
fairness, why would we even bother with the façade of a trial in this matter?
This combination of frivolous arguments is the type that I generally hear only from pro se
litigants, not lawyers at major firms. First, there is no due process or constitutional right to
discovery, see United States v. Nixon, 418 U.S. 683, 711-12 & n.19 (1974) (noting the right to
production of relevant evidence in civil proceedings does not have the same “constitutional
dimensions” as that in criminal proceedings); Ousse v. Lafayette Par. City Court, No. 13-cv-20,
2013 WL 430585, at *3 (W.D. La. Jan 9, 2013) (“There is no general constitutional right to
discovery in a criminal case, where life and liberty are at stake, much less in a civil case such as
this one, where only money is at stake.”), and for most of this nation’s history, there was
virtually no right to any discovery. See Stephen N. Subrin, Fishing Expeditions Allowed: The
Historical Background of the 1938 Federal Discovery Rules, 39 B.C. L. Rev. 691, 694 (1998)
(“Historically, discovery had been severely limited in both England and the United States”).
Discovery is a procedural mechanism authorized by Congress pursuant to federal procedural
rules, not constitutional obligation, the former of which obviously vests enormous discretion in
the trial court as to scope.
Second, unless Friedman considers France and Germany to be “non-Democratic
countries without significant constitutional protections,” his point is flat out wrong, as most
Western European countries do not provide for adversarial depositions; indeed, in many, it is
prohibited. See Jan W. Bolt & Joseph K. Wheatley, Private Rules for International Discovery in
U.S. District Court: The U.S.-German Example, 11 UCLA J. Int’l L. & Foreign Aff. 1, 37 n.87
(2006) (noting that, pursuant to Strafgesetzbuch [StGB] [Penal Code] Nov. 13, 1998, BGBl. I,
§ 3322, Germany prohibits the unauthorized performance of an act which may only be
performed by public officials, which includes taking depositions).
Finally, while I do not have much of an idea of what Friedman means by the “even more
progressive policies of the State of New York,” I cannot see how any policy of the State of New
York bears on whether a federal bankruptcy court has allowed an appropriate amount of
Friedman initiates this argument by an attack on the integrity of the Bankruptcy Judge,
referring to her as having “show[ed her] bias,” which he attempts to prove by setting forth a list
of interlocutory rulings in which the Bankruptcy Court ruled in favor of Citibank. He seems not
to realize that those rulings are not under review, and that, in any event, he has not even given
me a record to determine if they are valid, so that I have no reason to question the validity of any
of those rulings. More importantly, the fact that Citibank has consistently prevailed on various
positions in the Bankruptcy Court, see, e.g., In re Hypnotic Taxi, LLC, 543 B.R. 365 (Bankr.
E.D.N.Y. 2017), in no way suggests that the Bankruptcy Court’s rulings were incorrect, let alone
biased. The more plausible interpretation is that Friedman’s companies are in default, his
rationale for transferring assets to his family members for alleged “tax and estate planning”
purposes is a poor effort to cover fraudulent transfers, and Citibank is entitled to payment.
Aside from the wholly unsupported accusations of bias, Friedman’s argument is
insufficient for several reasons. First, on the limited record I have, nothing suggests that
Friedman filed a Rule 56(d) affidavit. That alone is sufficient reason to reject his argument to
this Court that he needed more discovery. See Paddington Partners v. Bouchard, 34 F.3d 1132,
1137 (2d Cir. 1994) (“A reference to Rule 56[d] and to the need for additional discovery in a
memorandum of law in opposition to a motion for summary judgment is not an adequate
substitute for a Rule 56[d] affidavit, and the failure to file an affidavit under Rule 56[d] is itself
sufficient grounds to reject a claim that the opportunity for discovery was inadequate.” (citations
Second, while all I have to go on are the facts as described in the F&C, it seems clear that
Friedman actually received quite a lot of discovery. Friedman’s contention was that the checks
should not have been dishonored because there were sufficient funds. Based on that, the
Bankruptcy Court ordered Citibank to provide Friedman with all of the account statements and
copies of all deposit records made on days when checks were dishonored. It also ordered
Citibank to produce all emails between the parties and a list of all bounced checks. As the
Bankruptcy Court observed in the F&C:
If Freidman contends that these checks were wrongfully dishonored because
sufficient deposits were made to cover them, it would be possible to substantiate
this by examining the deposits produced by Citibank and identifying any which
should have been made immediately available to draw against. Review of copies
of all bounced checks would not assist in this analysis.
In re Hypnotic Taxi LLC, 2017 WL 1207471, at *11. That appears eminently correct, and
Friedman has not explained why the Bankruptcy Court was wrong.
Third, the discovery rulings of the Bankruptcy Court are not before me. If Friedman had
a problem with the Bankruptcy Court’s discovery rulings, he had to move for leave to take an
interlocutory appeal to this Court, because even in an adversary proceeding based on related-to
jurisdiction, the Bankruptcy Court has final authority to resolve discovery disputes, see In re
Trinsum Group, Inc., 467 B.R. 734, 739 (Bankr. S.D.N.Y. 2012), just as Magistrate Judges do in
district court. More importantly, even if I were to consider the Bankruptcy Court’s discovery
rulings in connection with Friedman’s objections to the F&C, my review would be for abuse of
discretion. See In re DG Acquisition Corp., 151 F.3d 75, 79 (2d Cir. 1998); Rockstone Capital
LLC v. Metal, 508 B.R. 552, 558 (E.D.N.Y. 2014).
Friedman does not come close to making that showing here. Given the need, under
recently-amended Federal Rules of Civil Procedure 1 and 26, for the Court to apply a
proportionality analysis in subjecting parties to discovery, the Bankruptcy Court was clearly
within its discretion to limit discovery.
Finally, and most importantly, Friedman has shown no need for the requested discovery.
The Bankruptcy Court’s thorough and well-reasoned opinion was based primarily on
documentary evidence, and to the extent that Friedman wanted to show modification of the terms
of the loan documents by course of dealing (which the documents expressly prohibited), there
was no evidence to support it. The Bankruptcy Court was not obliged to give Friedman
settlement leverage by subjecting Citibank to burdensome discovery.
Friedman’s final point is that the Bankruptcy Court erred by granting Citibank summary
judgment dismissing his counterclaims based on his waiver of counterclaims in his guaranty. He
cites inapposite state court cases holding that such waivers may not be enforced where the
guarantor shows that the lender’s conduct caused the default – a situation that the Bankruptcy
Court found did not exist here.
In addition, as an alternative to the waiver in the guarantee, the Bankruptcy Court found
that, as part of its determination of Citibank’s motion for summary judgment on its complaint,
contrary to Friedman’s claim, there was no evidence of bad faith conduct by Citibank. Based on
that finding, the counterclaims fail ipso facto because they are wholly based on allegations of bad
faith. Other than claiming that the Bankruptcy Court should have given him more discovery,
Friedman has not objected to that alternative ground for dismissing his counterclaims. The
failure to object under Bankruptcy Rule 9033 waives his ability to raise this claim, and having
reviewed the Bankruptcy Court’s F&C, I confirm that the conclusions are correct.
Friedman’s objections are overruled, the F&C is adopted as the decision of this Court,
and Citibank’s motion for partial summary judgment is granted. The adversary proceeding shall
continue on the remaining claims before the Bankruptcy Court until a final judgment is entered,
which shall include this ruling.
Digitally signed by Brian
Brooklyn, New York
July 19, 2017
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?