Gustavia Home LLC v. VVS1 Corp. et al

Filing 68

ORDER granting in part 60 Motion for Reconsideration *** Gustavia's motion for reconsideration is granted in part. I vacate my prior order to the extent it purported to rule on Gustavia's motion for summary judgment. Nevertheless, abstention is proper in favor of the two pending state court actions. Ordered by Judge Edward R. Korman on 9/13/2019. (Caros, Nicholas)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK

NOT FOR PUBLICATION

Gustavia Home LLC,
Plaintiff,
MEMORANDUM & ORDER

– against –

17-CV-4330 (ERK) (JO)

VVS1 Corp., et al.,
Defendants.

KORMAN, J.:
I assume familiarity with the underlying facts, as set forth in my prior order. See Gustavia
Home LLC v. VVS1 Corp., 2019 WL 2527291 (E.D.N.Y. June 19, 2019). Gustavia now moves for
reconsideration on three grounds: (1) that I erred in sua sponte dismissing the case without giving
Gustavia notice and opportunity to respond; (2) that I improperly dismissed Gustavia’s merger
claim on the merits; and (3) that I did not abstain, but rather reached a determination on the merits.
Gustavia does not challenge my substantive ruling that abstention was appropriate. Instead,
Gustavia complains that it received insufficient notice that the case might be dismissed. As a
preliminary matter, Gustavia misconceives the grounds upon which the suit was dismissed. “[T]his
action [was] dismissed to avoid ‘[g]ratuitous interference with the orderly and comprehensive
disposition of a state court litigation.’” Gustavia Home, 2019 WL 2527291, at *6 (quoting Brillhart
v. Excess Ins. Co. of Am., 316 U.S. 491, 495 (1942)). This is not dismissal for failure to state a
claim, but abstention. Moreover, Gustavia received notice that abstention was under consideration:
VVS1 requested that I dismiss the action “pursuant to the United States Supreme Court’s
mandatory abstention rulings.” ECF No. 49-33, at 12. And VVS1 specifically argued that the
pending state court foreclosure action justified abstention. Id. at 15.

That I ultimately dismissed pursuant to a discretionary abstention doctrine, as opposed to
a mandatory one, does not mean Gustavia did not have an opportunity to be heard. Gustavia argued
that Colorado River abstention was improper and discussed several factors in taking that position.
See ECF 49-34, at 4-11. Those factors overlap with the relevant considerations under
Brillhart/Wilton. Compare id., with DDR Constr. Servs., Inc. v. Siemens Indus., Inc., 770 F. Supp.
2d 627, 655 (S.D.N.Y. 2011) (identifying factors to consider when declining jurisdiction under
Wilton). Thus, Gustavia’s arguments against abstention were heard. Indeed, in its motion for
reconsideration, Gustavia does not meaningfully argue that abstention was improper given the
pending state court action.
As to the merger claim, my prior decision incorrectly stated that there is “no evidence that
the two entities at issue held the Property and the First Mortgage at the same time . . . [and] that
the acquisition of the Property and the First Mortgage through distinct but affiliated entities was
done to perpetrate fraud.” Gustavia Home, 2019 WL 2527291, at *5 (emphasis added). Gustavia
provided some evidence, see ECF No. 49-30, at 10, and has provided additional evidence with its
new motion, see ECF No. 60-5, at 9-10 (citing ECF No. 60-4, at 11-12). Specifically, Gustavia has
introduced a transcript from a separate proceeding where VVS1’s attorney represented that he is
also representing 56 Somers in the foreclosure action—not just in the instant proceeding. In other
words, the same attorney is representing the holder of the First Mortgage and the Property owner
in an action by the First Mortgage holder to foreclose on the Property. This conduct strongly
suggests that Itah—a principal of both VVS1 and 56 Somers—is engaged in some mischief.
Nevertheless, the proper forum for resolving this issue is the state proceeding, in which
Gustavia would likely be able to intervene. Moreover, Cassandra Hickson is currently separately
litigating against 56 Somers, VVS1, and Itah, alleging that they perpetrated a fraud upon her in
order to effect a transfer of the Property from Hickson to Itah. See Hickson v. 56 Somers St., LLC,
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Index No. 515904/2016 (Kings Cty. Sup. Ct.), Dkt. No. 1 (Complaint). Declaring that a merger
occurred may negatively impact Hickson’s rights to pursue her fraud claim against Itah. That
proceeding appears to be in discovery, and the court even ordered Itah to appear for a deposition
in April. Id., Dkt. No. 147.
Accordingly, Gustavia’s motion for reconsideration is granted in part. I vacate my prior
order to the extent it purported to rule on Gustavia’s motion for summary judgment. Nevertheless,
abstention is proper in favor of the two pending state court actions.
SO ORDERED.

Edward R. Korman

Brooklyn, New York
September 13, 2019

Edward R. Korman
United States District Judge

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