Official Committee of Unsecured Creditors et ano v. Haltman, et al.

Filing 260

MEMORANDUM AND ORDER ADOPTING REPORT AND RECOMMENDATION; For the foregoing reasons, Plaintiff's objection is OVERRULED (Docket Entry 257), and the R&Rs (Docket Entries 252, 253) are ADOPTED. Plaintiff's motion to substitute (Docket Entr y 227) is GRANTED IN PART and DENIED IN PART. The motion is denied without prejudice and with leave to renew after Ms. Frank's deposition, provided that a personal representative is appointed or the estate has been fully distributed. Plaintiff i s directed to conduct the deposition within forty-five (45) days of the date of this Memorandum and Order. Further, Plaintiff is directed to file the renewed motion to substitute within sixty (60) days of the date of this Memorandum and Order. Furth er, Plaintiff's motion for a default judgment (Docket Entry 233) is GRANTED IN PART and DEFERRED IN PART. The Clerk of the Court is directed to enter a default judgment against Maplewood Associates, Inc. on Counts Five and Thirteen of the Compla int. The calculation of damages against Maplewood is deferred until the claims against the non-defaulting Defendants are resolved. Plaintiff is directed to serve a copy of this Order on the pro se defendants and file proof of service on ECF promptly. So Ordered by Judge Joanna Seybert on 9/11/2017. C/ECF (Valle, Christine)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
-------------------------------------X
OFFICIAL COMMITTEE OF UNSECURED
CREDITORS OF EXETER HOLDING, LTD.,
Plaintiff,

MEMORANDUM & ORDER
13-CV-5475 (JS)(AKT)

-against–
LINDA HALTMAN, et al.,
Defendants.
-------------------------------------X
SEYBERT, District Judge:
The Official Committee of Unsecured Creditors of Exeter
Holding, Ltd. (“Plaintiff”) commenced this adversary proceeding
against officers, directors, and insiders of Exeter Holdings, Ltd.
(“Exeter”

or

“the

Company”)

following

the

commencement

of

bankruptcy proceedings by Exeter. (Compl., Docket Entry 3-9, ¶¶ 12.)

The Defendants include Arnold Frank and Sondra Frank; their

three children Linda Haltman, Bruce Frank, and Larry Frank; and
their

grandchildren,

“Defendants”).

trusts

(Compl.

¶¶

and

other

16-70.)

entities

(collectively

Plaintiff

alleges

that

Defendants defrauded Exeter’s creditors by transferring funds to
themselves, trusts, and other entities they control and seeks to
recover approximately $29 million.

(Compl. ¶¶ 3-7.)

Plaintiff alleges that as part of Defendants’ fraudulent
scheme, they transferred assets to Defendant Maplewood Associates,
Inc. (“Maplewood”), which is owned by Larry Frank.

(Compl. ¶¶ 46,

299.) On December 14, 2016, Plaintiff filed a motion for a default
judgment against Maplewood.

(Default Mot., Docket Entry 233.)

Additionally, on October 5, 2016, Plaintiff filed a
motion to substitute Arnold Frank’s wife, Defendant Sondra Frank,
for the late Arnold Frank. (Mot. to Substitute, Docket Entry 227.)
Currently

pending

before

the

Court

are:

(1)

Magistrate A. Kathleen Tomlinson’s Report and Recommendation dated
August 3, 2017 with respect to Plaintiff’s motion to substitute
(Substitution R&R, Docket Entry 252), and (2) Judge Tomlinson’s
Report and Recommendation dated August 3, 2017 with respect to
Plaintiff’s

motion

for

a

default

(Default R&R, Docket Entry 253).

judgment

against

Maplewood

Judge Tomlinson recommends that

this Court grant the motion to substitute in part and grant in
part and defer in part the motion for a default judgment. (Default
R&R at 3; Substitution R&R at 3.)
Judge

Tomlinson’s

default judgment.

recommendation

Plaintiff filed an objection to
regarding

the

motion

for

a

(Pl.’s Obj., Docket Entry 257.)

For the following reasons, Plaintiff’s objection is
OVERRULED, and the R&Rs are ADOPTED.

Plaintiff’s motion to

substitute is GRANTED IN PART and DENIED IN PART, and Plaintiff’s
motion for a default judgment is GRANTED IN PART and DEFERRED IN
PART.

2

I.

Motion for a Default Judgment
Judge Tomlinson recommends that the Court grant in part

and defer in part Plaintiff’s motion for a default judgment against
Maplewood.

(Default

R&R

at

3.)

As

an

initial

matter,

she

determined that Maplewood was in default based on its failure to
secure counsel.

(Default R&R at 10.)

She also found that the

relevant factors weighed in favor of granting a default judgment
against Maplewood.

(Default R&R at 11-18.)

However, she noted

that because Plaintiff had only demonstrated that it was entitled
to a default judgment against Maplewood on two claims--namely,
constructive

fraudulent

conveyance

under

New

York

Debtor

and

Creditor Law and unjust enrichment--a default judgment should be
entered as to those claims only.

(Default R&R at 13, n.6.)

As

such, she concluded that Plaintiff was entitled to a default
judgment against Maplewood as to Counts Five and Thirteen of the
Complaint.

(Default R&R at 18.)
Regarding damages, Judge Tomlinson recommends that the

Court defer awarding damages until the claims against the remaining
Defendants are resolved.
that

because

Plaintiff

(Default R&R at 18-20.)
is

seeking

damages

She determined

against

Defendants

jointly and severally, it would be prudent to defer calculating
damages until the claims against the non-defaulting Defendants
have been adjudicated or settled.

3

(Default R&R at 19-20.)

Plaintiff
recommendation
Maplewood.

has

that

the

objected
Court

(Pl.’s Obj. at 1.)

defer

to

Judge

awarding

Tomlinson’s

damages

against

Plaintiff maintains that “damages

against Maplewood can and should be assessed concurrently with the
entry

of

default

judgment.”

(Pl.’s

Obj.

at

2.)

Plaintiff

acknowledges that there is a risk of inconsistent awards when
damages are calculated as to a defaulting defendant and the
defaulting

defendant

and

the

non-defaulting

defendants

in

a

particular action are subject to joint and several liability.
(Pl.’s Obj. at 3-4.)

However, it argues that this risk is not

dispositive and points out that at least some courts have proceeded
with

the

calculation

(Pl.’s Obj. at 4-5.)

of

damages

under

similar

circumstances.

Plaintiff further argues that the risk of

prejudice is high, because here, “Plaintiff . . . has been deprived
of any recovery for the better part of a decade” and “there is no
end to this dispute currently in sight.”

(Pl.’s Obj. at 5.)

Moreover, it argues that deferring the damages determination is
akin to rewarding Maplewood for its conduct.

(Pl.’s Obj. at 5.)

Finally, Plaintiff contends that if inconsistent judgments are
rendered in this action, the Court could take steps to remedy the
inconsistency.

(Pl.’s Obj. at 5.)

“When evaluating the report and recommendation of a
magistrate judge, the district court may adopt those portions of
the report to which no objections have been made and which are not
4

facially erroneous.”

Walker v. Vaughan, 216 F. Supp. 2d 290, 291

(S.D.N.Y. 2002) (citation omitted).

A party may serve and file

specific, written objections to a magistrate judge’s report and
recommendation within fourteen days of being served with the
recommended disposition.
receiving

any

timely

See FED. R. CIV. P. 72(b)(2).

objections

to

the

magistrate

Upon
judge’s

recommendation, the district court “may accept, reject, or modify,
in whole or in part, the findings or recommendations made by the
magistrate judge.”
P. 72(b)(3).
must

point

28 U.S.C. § 636(b)(1)(C); see also FED. R. CIV.

A party that objects to a report and recommendation
out

the

specific

portions

of

recommendation to which they are objecting.

the

report

and

See Barratt v. Joie,

No. 96-CV-0324, 2002 WL 335014, at *1 (S.D.N.Y. Mar. 4, 2002).
When a party raises an objection to a magistrate judge’s
report, the Court must conduct a de novo review of any contested
sections of the report.

See Pizarro v. Bartlett, 776 F. Supp.

815, 817 (S.D.N.Y. 1991).
conclusory
original

or

general

arguments,

However, where a party “makes only

objections,
the

Court

Recommendation only for clear error.”

or

simply

reviews

reiterates

the

Report

his
and

Walker, 216 F. Supp. 2d at

291 (internal quotation marks and citation omitted).
The majority of courts in this district have abided by
the general rule that “where . . . an action against several
defendants charges them with joint and several liability and where
5

fewer than all defendants are in default, the preferred practice
is to defer the damages inquest until after the disposition of the
claims against the non-defaulting defendants.”

Clement v. United

Homes, LLC, No. 10-CV-2122, 2010 WL 4941489, at *2 (E.D.N.Y.
Nov. 30, 2010); see also Elsevier Inc. v. Memon, 97 F. Supp. 3d
21, 39 (E.D.N.Y. 2015); Harvey v. Home Savers Consulting Corp.,
No. 07-CV-2645, 2008 WL 724152, at *1-2 (E.D.N.Y. Mar. 17, 2008);
Long Island Housing Servs. v. Greenview Props., Inc., No. 07-CV0352, 2008 WL 150222, at *1 (E.D.N.Y. Jan. 11, 2008).
is

not

convinced

appropriate

that

here.

a

departure

Plaintiff

has

from

the

The Court

general

alleged

that

rule

is

Defendants,

including Maplewood, are jointly and severally liable for “at least
$29 million, plus interest and costs, that they willfully and
inappropriately siphoned out of the Debtor.”
Therefore,

deferring

inconsistent

a

judgments

damages
and

inquest

[best

will

serve]

(Compl. ¶ 7.)
“‘avoid

judicial

possible

economy.’”

Clement, 2010 WL 4941489, at *2 (quoting Miele v. Greyling, No.
94-CV-3674,

1995

WL

217554,

at

*4

(S.D.N.Y.

Apr.

13,

1995)

(alteration in original)).
Plaintiff cites International Gemmological Institute,
Inc. v. Rafaeil, No. 05-CV-2395, 2005 WL 3880222 (S.D.N.Y. Aug. 17,
2005), in which the Court, based on the particular circumstances
in

that

case,

possibility

of

proceeded

with

inconsistent

a

damages

awards
6

due

inquest
to

despite

prejudice

to

the
the

plaintiff.

The Court recognizes that prejudice to the plaintiff

is a consideration, and that in this case, Plaintiff’s recovery
has been delayed.

Nonetheless, the Court finds that the interest

in avoiding inconsistent judgments outweighs that prejudice.
Therefore, Plaintiff’s objection is OVERRULED, and Judge
Tomlinson’s R&R with respect to Plaintiff’s motion for a default
judgment is ADOPTED.

The Clerk of the Court is directed to enter

a default judgment against Maplewood Associates, Inc. on Counts
Five and Thirteen of the Complaint.

The calculation of damages

against Maplewood is deferred until the claims against the nondefaulting Defendants are resolved.
II.

Motion to Substitute
Judge Tomlinson recommends that Plaintiff’s motion to

substitute be granted in part and denied in part.
R&R at 22.)

(Substitution

Specifically, she found that Plaintiff had failed to

present sufficient evidence to demonstrate that Sondra Frank is a
proper

party

under

Federal

(Substitution R&R at 20.)

Rule

of

Civil

Procedure

25.

As a result, she recommends that the

motion to substitute be denied without prejudice and with the right
to renew “on the condition that (1) a personal representative is
appointed to administer Arnold Frank’s estate and/or (2) the estate
has been fully distributed to any successors.”
at 20-21.)

(Substitution R&R

She also recommends that the Court permit Plaintiff to

depose Sondra Frank.

(Substitution R&R at 22.)
7

She recommends

that the Court direct Plaintiff to complete her deposition by
September

8,

2017

September 30, 2017.

and

renew

the

motion

to

substitute

by

(Substitution R&R at 22.)

In reviewing an R&R, a district court “may accept,
reject,

or

modify,

recommendations

in

made

whole

by

the

or

in

part,

magistrate

the

judge.”

findings
28

and

U.S.C.

§ 636(b)(1)(C). If no timely objections have been made, the “court
need only satisfy itself that there is no clear error on the face
of the record.”

Urena v. New York, 160 F. Supp. 2d 606, 609-10

(S.D.N.Y. 2001) (internal quotation marks and citation omitted).
Objections were due within fourteen (14) days of service
of the R&R.

The time for filing objections has expired, and no

party has objected.

Accordingly, all objections are hereby deemed

to have been waived.
Upon careful review and consideration, the Court finds
Judge Tomlinson’s R&R to be comprehensive, well-reasoned, and free
of clear error, and it ADOPTS the R&R.

To provide sufficient time

to complete Ms. Frank’s deposition, Plaintiff is directed to
conduct the deposition within forty-five (45) days of the date of
this Memorandum and Order.

Further, Plaintiff is directed to file

the renewed motion to substitute within sixty (60) days of the
date of this Memorandum and Order.

8

CONCLUSION
For the foregoing reasons, Plaintiff’s objection is
OVERRULED (Docket Entry 257), and the R&Rs (Docket Entries 252,
253) are ADOPTED.
Plaintiff’s motion to substitute (Docket Entry 227) is
GRANTED IN PART and DENIED IN PART.

The motion is denied without

prejudice and with leave to renew after Ms. Frank’s deposition,
provided that a personal representative is appointed or the estate
has been fully distributed.
deposition

within

Plaintiff is directed to conduct the

forty-five

Memorandum and Order.

(45)

days

of

the

date

of

this

Further, Plaintiff is directed to file the

renewed motion to substitute within sixty (60) days of the date of
this Memorandum and Order.

[BOTTOM OF PAGE INTENTIONALLY LEFT BLANK]

9

Further,

Plaintiff’s

motion

for

a

default

judgment

(Docket Entry 233) is GRANTED IN PART and DEFERRED IN PART.

The

Clerk of the Court is directed to enter a default judgment against
Maplewood Associates, Inc. on Counts Five and Thirteen of the
Complaint.

The

calculation

of

damages

against

Maplewood

is

deferred until the claims against the non-defaulting Defendants
are resolved.
Plaintiff is directed to serve a copy of this Order on
the pro se defendants and file proof of service on ECF promptly.

SO ORDERED.

/s/ JOANNA SEYBERT______
Joanna Seybert, U.S.D.J.

Dated:

September
11 , 2017
Central Islip, New York

10