Landau et al v. 720 Livonia Operations LLC

Filing 8

MEMORANDUM AND ORDER: The Bankruptcy Courts order granting Appellees motion for summary judgment to expunge and disallow Appellants claims in bankruptcy is AFFIRMED. See attached Memorandum and Order for details. Ordered by Judge Frederic Block on 4/23/2024. (MI)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
------------------------------------------------x
In re:
720 LIVONIA DEVELOPMENT LLC,
et al.,
Debtors (jointly
administered).
------------------------------------------------x
CHAIM LANDAU & MELUCHIM
HOLDINGS LLC,

MEMORANDUM AND ORDER
Case No. 1:23-CV-06752 (FB)

Appellants,
-against720 LIVONIA OPERATIONS LLC,
Appellee.
------------------------------------------------x
Appearances:
For the Appellants:
KEVIN J. NASH
AMANDA B. ZIFCHAK
Goldberg Weprin Finkel Goldstein, LLP
125 Park Avenue, 12th Floor
New York, NY 10017

For the Appellee:
MELISSA A. PEÑA
Norris McLaughlin, P.A.
7 Times Square, 21st Floor
New York, NY 10036

BLOCK, Senior District Judge:
Chaim Landau (“Landau”) and Meluchim Holdings, LLC (“Meluchim”)
(together “Appellants”) appeal an August 22, 2023, order of the United States
Bankruptcy Court for the Eastern District of New York (the “Bankruptcy Court”)
disallowing and expunging their claims in bankruptcy upon 720 Livonia Operations

LLC’s (“Operations”) motion for summary judgment. In re 720 Livonia Dev. LLC,
No. 19-47797-JMM, 2023 WL 5421832, at *14 (Bankr. E.D.N.Y. Aug. 22, 2023).
For the following reasons, the Bankruptcy Court’s order is AFFIRMED.
I.

BACKGROUND

This bankruptcy proceeding concerns Appellants’ stake in a real property
located at 720 Livonia Avenue, Brooklyn, New York (the “Real Property”). The
Real Property was purchased by 720 Livonia Development LLC (the “Livonia
Debtor”) and MG Livonia (the “MG Debtor”) (together, the “Debtors”) in 2015 for
$4,650,000.
Around the time when the property was purchased, Appellant Landau had
his limited liability company, Appellant Meluchim Holdings LLC — of which
Landau was the sole member — give $500,000 to the managing member of the
Livonia Debtors, Yechezkel Sturlovich, as part of a joint venture to purchase the
Real Property. The transaction was memorialized by a partnership agreement
between Landau and Strulovitch, which specified that all “proceeds of leasing,
selling or refinancing, will be received and shared by the two parties proportionate
to their investment in the deal.” In re 720 Livonia Dev. LLC, No. 19-47797-JMM,
ECF No. 123, Ex. C at 4 (Bankr. E.D.N.Y. Mar. 27, 2023) (hereinafter “Bankr.”).

2

In 2016, Landau commenced an action in the supreme court of New York
against Strulovitch and the Debtors, alleging that Strulovitch had placed title to the
Real Property in the Debtors without recognizing Landau’s own interest. He
brought claims for breach of contract for violating the partnership agreement and
unjust enrichment, among other things.
After a bench trial, the supreme court dismissed all of Landau’s claims,
specifically ruling on Landau’s unjust enrichment claim that any enrichment was at
the expense of Meluchim, not Landau:
Plaintiff maintains that Defendants were unjustly enriched by the
transaction in question . . . Assuming that the Defendants in the
instant case were enriched, Plaintiff has failed to show that such
enrichment was at his expense. The payment of the alleged $500,000
was from the bank account of Meluchim Holdings LLC. No evidence
was provided about the nature of Meluchim Holdings LLC, but it is
clearly not Chaim Landau the only Plaintiff in this action.
Bankr., ECF No. 126-6 at 8-9 (the “State Court Judgment”). Landau did not
appeal from the State Court Judgment, and instead had Meluchim file involuntary
petitions against the Debtors on December 31, 2019, thereby commencing the
bankruptcy proceeding.
The Debtors did not respond to the involuntary petitions, so the Bankruptcy
Court entered Orders for Relief under Chapter 7 in both cases. After the entry of
the Orders for Relief, the Bankruptcy Court ordered that the cases be jointly

3

administered and appointed a trustee to manage both estates. The trustee
subsequently sold the Real Property at auction for $10,970,000.
On November 3, 2020, Appellants filed a proof of claim (the “Proof of
Claim”) with the Bankruptcy Court to recover the $500,000 investment. On
November 15, 2021, Appellee Operations, who owns a 46% interest in the Livonia
Debtors, objected to Appellants’ Proof of Claim. After cross motions from the
parties, the Bankruptcy Court granted Operations summary judgment on the
alternative grounds that Appellants’ claims were precluded by the State Court
Judgment and failed for lack of proof. The Bankruptcy Court consequently entered
an order expunging Appellants’ claims. This appeal followed.
II.

DISCUSSION

a. Standard of Review
This Court has appellate jurisdiction over the Bankruptcy Court’s decision
pursuant to 28 U.S.C. § 158(a). On appeal, the Bankruptcy Court’s findings of fact
are reviewed for clear error, its discretionary decisions are reviewed for abuse of
discretion, and any conclusions of law are reviewed de novo. See In re Bayshore
Wire Prods. Corp., 209 F.3d 100, 103 (2d Cir. 2000).
The decision to grant summary judgment is a mixed question of fact and law
that is reviewed de novo. See In re Treco, 240 F.3d 148, 155 (2d Cir. 2001).
Summary judgment will be granted where a movant shows both that there is no
4

genuine dispute between the parties as to any material fact, and that the movant is
entitled to judgment as a matter of law. Id.
b. Operations Was Authorized to Object
Appellants first argue that the Bankruptcy Court erred by ruling that
Operations had standing to object to their Proof of Claim.1 They initially objected
to Operations’ standing in the proceedings below by relying on the 2015 operating
agreement for the Livonia Debtors, which appointed Strulovitch and Mici
Oberlander as the managing members of Operations. Bankr., ECF No. 124, Ex. D
at 13. Accordingly, Appellants argued, Operations was not properly authorized to
object to Appellants’ Proof of Claim because the objection was not brought by
Strulovitch and Oberlander as the managing members of Operations. In response,
Operations submitted a resolution — pre-dating the bankruptcy proceeding and
signed by a majority of Operations’ members — that had replaced Strulovitch and

1

The Bankruptcy Court, in dicta, queried whether Appellants themselves had
standing to challenge Operations’ internal authorization procedures as third-parties.
See Rothman & Schneider, Inc. v. Beckerman, 2 N.Y.2d 493, 499 (1957)
(“[C]omplete strangers to the corporation . . . should not be permitted to question
[its] authority and thereby frustrate the action.”); see also Royal Indem. Co. v. Am.
Bond & Mortg. Co., 289 U.S. 165, 171 (1933) (“Creditors have no standing to
plead statutory requirements not intended for their protection.”). This Court need
not address this issue to affirm the Bankruptcy Court’s ruling and so assumes
without deciding that Appellants did have standing to raise the issue below.
5

Oberlander as the managing members of Operations with the individuals who
brought the objection to Appellants’ Proof of Claim.2 Bankr., ECF No. 133, Ex. A.
The Bankruptcy Court found the resolution sufficient to show that
Operations was authorized to object to the Proof of the Claim. To get there, the
Bankruptcy Court reasoned that in the absence of an operating agreement New
York LLCs are governed by the New York Limited Liability Company Law. See
In re 720 Livonia Dev. LLC, 2023 WL 5421832, at *10 (citing In re Eight of
Swords, LLC, 946 N.Y.S.2d 248, 249 (2d Dep’t 2012)).
Under that law, managers of a limited liability company may be removed or
replaced, with or without cause, by a vote of a majority in interest of the members
entitled to vote. See N.Y. Ltd. Liab. Co. Law §§ 407, 414. Therefore, because the
Livonia Debtor Operating Agreement was silent on the rights of Operations’
members to replace managers, and because no party produced an operating
agreement for Operations, the default New York procedure governed, and

2

Those individuals are Raphael Barouch Elkaim, Binyomin Schonbverg and
Binyomin Halpern, who filed the objection on behalf of Operations through their
counsel. Bankr., ECF No. 33, Ex. D at 12 (notice of appearance for counsel
representing “Raphael Barouch Elkaim, Binyomin Schonbverg and Binyomin
Halpern individually and as the managing members/authorized agents of
[Operations].”).
6

Operations’ resolution was sufficient to show that it was authorized to object to
Appellants’ Proof of Claim.
Appellants now cry foul, claiming that the Bankruptcy Court should not
have assumed that an operating agreement for Operations did not exist, nor should
it have relied on the default New York law in the absence of such an agreement.
Instead, the Bankruptcy Court should have held the lack of evidence of an
operating agreement against Operations and concluded that Operations had failed
to affirmatively prove that it was authorized to object to Appellants’ Proof of
Claim.
But Appellants’ argument does not stand up straight. At bottom, they ask
Operations to disprove a negative: that the resolution signed by the majority of
Operations’ members did not do exactly what it said it did. But as the Bankruptcy
Court noted:
[Appellants] have not produced evidence supporting their contention
that Operations’ members were not permitted to replace Strulovitch
and Oberlander as managers or that the vote of Operations’ members
did not comport with New York law.
In re 720 Livonia Dev. LLC, 2023 WL 5421832, at *10.
The trend repeats itself on appeal where Appellants’ point to no legal
authority or contractual provision that might explain why the resolution by

7

Operations to change its managers would not be effective.3 Nor do they attempt to
rebut the rule that the default procedure under New York law permits LLC
members to change their managers by a majority vote, absent a contrary provision
in an operating agreement. Indeed, to follow that thread though to its logical
conclusion, just because an operating agreement existed does not mean that the
resolution was invalid. In the absence of any such authority to the contrary, the
Bankruptcy Court was entirely correct to find the resolution to be a sufficient basis
to determine that Operations had replaced its managers and thereby authorized the
objection.
c. Law of the Case
Appellants claim that the Bankruptcy Court incorrectly applied an exception
to the Law of the Case Doctrine by considering Operations’ objection to
Appellants’ Proof of Claim. They argue that the Bankruptcy Court’s entry of the
Order for Relief rendered Meluchim a bona fide creditor and waived all defenses
and disputes as to the validity of its claim. This implicit ruling, Appellants argue,
3

Appellants exclusively rely on N.Y. Ltd. Liab. Co. Law § 417, which obligates
New York LLCs to adopt an operating agreement. However, as Appellee points
out, the statute does not prohibit those companies from operating or adopting
resolutions in the absence of an operating agreement. See also Spires v.
Casterline, 778 N.Y.S.2d 259, 265-66 (Sup. Ct. 2004) (“[W]hen there is no
Operating Agreement, or such agreement does not address certain subjects, then
the entity is bound by the minimum requirements set forth in the Limited Liability
Company Law.”).
8

thus became the law of the case and was incorrectly reconsidered by the
Bankruptcy Court when it entertained Operations’ objection.
The Law of the Case doctrine commands that “when a court has ruled on an
issue, that decision should generally be adhered to by that court in subsequent
stages in the same case unless cogent and compelling reasons militate otherwise.”
Johnson v. Holder, 564 F.3d 95, 99 (2d Cir. 2009). The doctrine operates to
“create efficiency, finality, and obedience within the judicial system.” In re AMR
Corp., 567 B.R. 247, 254 (Bankr. S.D.N.Y. 2017).
As an initial matter, the Court must clarify the standard of review, which
Appellants argue is de novo because application of a Law of the Case exception is
a conclusion of law. This is incorrect.4 The Law of the Case is a discretionary
doctrine, see Westerbeke Corp. v. Daihatsu Motor Co., 304 F.3d 200, 219 (2d Cir.
2002), and therefore the Bankruptcy Court’s discretionary decision to apply the
exception is subject to the deferential abuse of discretion standard of review. Dana

4 Appellants’

reliance on In re 477 W. 142nd St. Housing Development Fund
Corp., is misplaced. No. 20-CV-6771 (VEC), 2022 WL 2093418, at *8 (S.D.N.Y.
June 10, 2022), appeal dismissed (Dec. 19, 2022). Although the court there did
apply a de novo standard of review to a bankruptcy court’s application of the Law
of the Case doctrine, it did so in the context of a pro se appellant. Regardless, the
decision is not binding on this Court, nor does it undermine the Second Circuit’s
repeated edict that discretionary decisions of a bankruptcy court are reviewed for
abuse of discretion. See, e.g., In re Dana Corp., 574 F.3d 129, 145 (2d Cir. 2009).
9

Corp., 574 F.3d at 145; see also Devilla v. Schriver, 245 F.3d 192, 198 (2d Cir.
2001) (“[W]e review a district court’s application of the law of the case doctrine
for abuse of discretion only.”).
Applying that standard, this Court holds that the Bankruptcy Court did not
abuse its discretion by considering Operations’ objection to Appellants’ Proof of
Claim. In brief, the Bankruptcy Court determined that there was a “compelling
reason” to consider Operations’ objection because it had been unable to respond to
Meluchim’s initial involuntary petition. See In re 720 Livonia Dev. LLC, 2023 WL
5421832, at *8 (citing 11 U.S.C.A. § 303(d) (only debtor may respond to an
involuntary bankruptcy petition)). Additionally, Appellants would not be
prejudiced by the action because they had notice of Operations’ objection and a
full opportunity to respond.
Appellants argue that this decision was error because the “major grounds
justifying reconsideration [of the law of the case] are an intervening change of
controlling law, the availability of new evidence, or the need to correct a clear
error or prevent manifest injustice.” Doe v. New York City Dep’t of Soc. Servs.,
709 F.2d 782, 789 (2d Cir. 1983) (cleaned up). But this standard is certainly broad
enough to justify the Bankruptcy Court’s action. Although not spelled out, the
decision clearly casts Operations’ inability to present its legitimate objections — to

10

a creditor’s claim that was dismissed in state court, and then again on the merits by
the Bankruptcy Court itself — as a manifest injustice.
More importantly, as a “discretionary rule of practice” the Law of the Case
doctrine “generally does not limit a court’s power to reconsider an issue.” In re
PCH Assocs., 949 F.2d 585, 592 (2d Cir. 1991). Indeed, every court retains the
authority to “reconsider its prior non-final rulings,” In re HS 45 John LLC, 585
B.R. 64, 80 (Bankr. S.D.N.Y. 2018), and, moreover, may take care to “prevent the
[Law of the Case] from being used to prevent a properly raised argument from
being considered even once.” United Artists Theatre Circuit, Inc. v. Township of
Warrington, PA, 316 F.3d 392, 398 (3d Cir. 2003) (emphasis in original). This
warning is salient here, where Meluchim’s involuntary petition initiated a default,
and perfunctory, procedure to render the Order for Relief, “without any
proceedings to determine the validity of Meluchim’s claims.” In re 720 Livonia
Dev. LLC, 2023 WL 5421832, at *8. In this context, the Bankruptcy Court

11

sensibly exercised its discretion to consider meritorious arguments that could have
otherwise gone unaddressed.5
d. Claim Preclusion
Last, Appellants argue that the Bankruptcy Court erred by finding that
Appellants’ Proof of Claim was precluded by the State Court Judgment because
Meluchim was in privity with Landau.
Under New York law, claim preclusion bars successive litigation based upon
the same transaction where: (1) there is a judgment on the merits rendered by a
court of competent jurisdiction; and (2) the party against whom the doctrine is
invoked was a party to the previous action, or in privity with a party who was.
People ex rel. Spitzer v. Applied Card Sys., Inc., 11 N.Y.3d 105, 122 (N.Y. 2008).
This doctrine is to be applied flexibly, to avoid unjust results. Simmons v. Trans
Express Inc., 37 N.Y.3d 107, 111 (N.Y. 2021) (“[T]his Court has taken a
pragmatic and flexible attitude toward claim preclusion, recognizing that the

5

As a final attempt to halt this action at the Law of the Case, Appellants
alternatively argue that expunging Appellants’ claim would have nullified the
entire bankruptcy proceeding because Meluchim was the initial (and only)
petitioner. But the Second Circuit has explained that § 303(b) of the Bankruptcy
Code is not jurisdictional, so the Bankruptcy Court would not be divested of
subject matter jurisdiction by the ultimate expungement of Appellants’ claims. See
Adams v. Zarnel (In re Zarnel), 619 F.3d 156, 167-170 (2d Cir. 2010).
12

doctrine, if applied too rigidly, could work considerable injustice”) (quotation
omitted).
The sole issue on appeal is whether Meluchim was in privity with Landau
such that Landau’s litigation in state court to recover the $500,000 he gave to
Strulovitch can preclude Meluchim’s attempt to recover the same in the bankruptcy
case. See Green v. Santa Fe Industries, Inc., 70 N.Y.2d 244, 253 (N.Y. 1987)
(“Generally, to establish privity the connection between the parties must be such
that the interests of the nonparty can be said to have been represented in the prior
proceeding”). Reviewing the issue de novo, the Court holds that it does.
The weight of authority unambiguously shows that closely held corporations
are typically in privity with their owners when litigating the same claims. See
Restatement (Second) of Judgments § 59 (1982) (“For the purpose of affording
opportunity for a day in court on issues contested in litigation . . . there is no good
reason why a closely held corporation and its owners should be ordinarily regarded
as legally distinct.”); In re Shea’s Will, 309 N.Y. 605, 617 (N.Y. 1956) (“A clearer
case for application of the doctrine [of privity] could hardly be imagined than one
involving successive attempts to litigate the same question by a corporation and by
its owner[.]”); In re Teltronics Services, Inc., 762 F.2d 185, 190-91 (2d Cir. 1985)
(accord). This rule aptly applies here because Meluchim was a front for Landau,

13

its sole member, with respect to the $500,000 investment. Therefore, Landau had
every incentive to represent Meluchim’s interests — i.e., his own interests — in
the state court litigation.
The hook of Appellants’ argument is the state court’s ruling, on Landau’s
unjust enrichment claim, that Meluchim was “clearly not [] Landau,” for the
purpose of providing the $500,000 to purchase the Real Property. This ruling,
Appellants argue, shows that Meluchim did not have its day in court on its claim to
recover the $500,000.
However, Appellants’ reasoning rests upon a faulty premise. Claim
preclusion concerns the opportunity to litigate a claim, not the outcome of that
opportunity. See EDP Med. Comput. Sys., Inc. v. United States, 480 F.3d 621, 626
(2d Cir. 2007) (explaining that “[r]es judicata does not require the precluded claim
to actually have been litigated; its concern, rather, is that the party against whom
the doctrine is asserted had a full and fair opportunity to litigate the claim.”). And
there is no dispute that Landau had every opportunity to litigate Meluchim’s claim
to recover the $500,000 in the state court litigation. The outcome of that
opportunity was the state court’s ruling that Meluchim and Landau were not the
same party with respect to the $500,000 payment. Whether this ruling resulted
from a dearth of evidence from Landau as to his relationship with Meluchim, or the

14

trial court’s misapprehension of the evidence submitted, it matters not. All that
matters is that Landau had the chance, and every incentive, to litigate Meluchim’s
claim. His failure to do so successfully does not merit a second bite of the apple in
a different lawsuit.
Accordingly, the Bankruptcy Court’s application of claim preclusion is
affirmed. Given this outcome, the Court need not reach the Bankruptcy Court’s
alternative holding that Operations would have succeeded on the merits of its
argument that Appellants’ Proof of Claim failed for lack of evidence.
III.

CONCLUSION

For the foregoing reasons, the Bankruptcy Court’s order granting Appellee’s
motion for summary judgment to expunge and disallow Appellant’s claims in
bankruptcy is AFFIRMED.
SO ORDERED.

_/S/ Frederic Block___________
FREDERIC BLOCK
Senior United States District Judge
Brooklyn, New York
April 23, 2024

15