Barbella et al v. Pergament

Filing 3

ORDER denying 1 Motion for Leave to Appeal. For the reasons set forth herein, the Court denies appellants' motion for leave to appeal. Ordered by Judge Joseph F. Bianco on 1/8/2018. (Karamigios, Anna)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
_____________________
No 16-MC-1221 (JFB)
_____________________

ERNEST BARBELLA & GOURMET SELECT FOODS, CORP.,
Appellants,
VERSUS

MARC A. PERGAMENT,
Appellee.
___________________

MEMORANDUM AND ORDER
January 8, 2018
__________________

Appellee Marc A. Pergament (“the trustee”)
opposes the motion on the following
grounds: (1) defendants have failed to show
the exceptional circumstances required for
an interlocutory appeal; (2) the Bankruptcy
Order concerns issues of fact, not simply
“pure” legal questions; and (3) defendants
have failed to show that a “substantial
ground for difference of opinion” exists with
respect to the issue they seek to appeal.
(Appellee’s Mem. Supp. Opp’n Mot. Leave
Appeal (“Opp’n Br.”), ECF No. 2.)

JOSEPH F. BIANCO, District Judge:
Pending before the Court is a motion for
leave to appeal filed by Ernest Barbella
(“Barbella”) and Gourmet Select Foods,
Corp. (“Gourmet Select,” and, collectively,
“appellants”) in connection with the April
14, 2016 Order (the “Bankruptcy Order”) of
the Honorable Robert E. Grossman, United
States Bankruptcy Judge (the “Bankruptcy
Court”). (ECF No. 1-10.) By that Order,
the Bankruptcy Court denied appellants’
motion to dismiss the complaint pursuant to
Federal Rule of Civil Procedure 12(b)(6).
Appellants raise two issues in their motion:
whether the Bankruptcy Court committed
legal error in its application of the legal
standards concerning (1) equitable tolling,
and (2) the propriety of pleading causes of
action entirely upon information and belief.
(Appellants’ Mem. Supp. Mot. Leave
Appeal (“Appeal Br.”), ECF No. 1.)

For the reasons set forth below, the
Court denies the motion for leave to appeal.
I. BACKGROUND
The following factual allegations and
procedural history are relevant to the instant
appeal.

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Barbella informed the trustee that he would
willingly cooperate with the trustee’s efforts,
he presented materials that explained his
work with PHS and QFB, and he disclosed
his ownership interest in Gourmet Select.
(Id.; Decl. Schuyler G. Carroll (“Carroll
Decl.”), ECF No. 1-1, Ex. 1.) Afterwards,
the trustee did not further inquire about
Barbella’s interests in Gourmet Select or
about Gourmet Select. (Appeal Br. 4.)

A. Factual Background
Quality Food Brands, Inc. (“QFB”), a
wholly owned subsidiary of PHS Group,
Inc. (“PHS”), was engaged in the
manufacture and distribution of baking
mixes, spices, and other food products
throughout the United States. (Opp’n Br. 3.)
Mair Faibish (“Faibish”) was PHS’s Chief
Executive Officer and controlled QFB’s
operations and finances. (Id.) Faibish,
along with several others, allegedly
orchestrated a check-kiting scheme that
utilized the bank accounts of several United
States and Canadian companies, including
PHS, QFB, and Gourmet Select. (Id.) In
furtherance of the scheme, Faibish and his
co-conspirators allegedly circulated checks
that were not backed by sufficient funds
between PHS, QFB, and many other
companies that were controlled by either
Faibish or Barbella. (Id. at 4.) In March
2014, Faibish was convicted of bank and
securities fraud. (Id.)

At some point prior to January 12, 2016,
counsel for one of QFB’s largest creditors
provided the trustee with statements from
two of Gourmet Select’s banking accounts.
(Opp’n Br. 4.) The statements allegedly
show that the accounts were utilized in
furtherance of the check-kiting scheme, and
that Barbella signed the majority of the
checks issued by Gourmet Select to PHS in
the course of the scheme. (Id.)
In January 2016, the trustee filed a
complaint in the Bankruptcy Court against
Barbella and Gourmet Select, alleging that
Barbella participated in, and failed to report,
a check-kiting scheme that victimized QFB,
and that Gourmet Select received
fraudulently conveyed funds from QFB.
(Carroll Decl., Ex. 2 ¶¶ 1-2.) Appellants
note that the portions of that complaint
dealing with Barbella and Gourmet Select
“are, with very few exceptions[,] pled
entirely on information and belief.” (Appeal
Br. 4.)

On April 5, 2011, QFB filed a petition
for bankruptcy. (Appeal Br. 2.) Shortly
thereafter, the trustee made discovery
requests, as did several of QFB’s creditors.
(Id.)
In response to those discovery
requests,
Barbella
provided
certain
documents. (Id. at 2-3.) At the request of
several of QFB’s creditors, Barbella was
deposed in July 2012. At the deposition,
Barbella asserted the Fifth Amendment and
refused to answer any questions. (Id.)
Neither the trustee nor his counsel requested
the deposition, nor did either appear on the
record of the deposition. (Id.) After the
deposition, the trustee did not seek to depose
Barbella or to compel him to comply with
the creditors’ request for a deposition. (Id.)

In March 2016, appellants moved to
dismiss the complaint, arguing it was timebarred. (Carroll Decl., Ex. 4, ECF No. 1-6.)
In the trustee’s opposition to the motion to
dismiss, he maintained that the applicable
statutes of limitation should be equitably
tolled due to the actions and conduct of
Barbella
and
the
extraordinary
circumstances surrounding this case.
(Opp’n Br. 5.) In particular, the trustee
argued that he had been severely limited in
obtaining information from QFB, Barbella,

According to the trustee, Barbella
separately and voluntarily requested to meet
with the trustee so that he could ensure the
trustee had the “full story” concerning his
investigation.
(Id.)
At that meeting,
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appealable under this section, shall
be of the opinion that such order
involves a controlling question of
law as to which there is substantial
ground for difference of opinion and
that an immediate appeal from the
order may materially advance the
ultimate termination of the litigation,
he shall so state in writing in such
order.

and Gourmet Select in the course of his
investigation due to Barbella’s and Faibish’s
conduct. (Id.) In response, appellants
argued that the trustee should have
discovered the fraudulent nature of the
relationship between Gourmet Select and
QFB. (Id. at 5-6.)
On April 11, 2016, the Bankruptcy Court
heard oral argument on the motion, and it
denied the motion that same day. (Appeal
Br. 4; Opp’n Br. 7.)

28 U.S.C. § 1292(b).
Accordingly,
appellants’ motion can only be granted if
they establish that “the order (1) involves a
controlling question of law (2) as to which
there is a substantial ground for difference
of opinion, and (3) an immediate appeal
from the order may materially advance the
ultimate termination of the litigation.”
McKenzie-Gilyard, 2008 WL 2622931, at *2
(citation omitted). In addition, because
“interlocutory
appeals
are
strongly
disfavored in federal practice,” appellants
bear the burden to show that “exceptional
circumstances” exist that warrant an
interlocutory appeal, to “justify a departure
from the basic policy of avoiding appellate
review until a final decision on the merits.”
In re Adelphia Commc’ns Corp., No. 07CV-9999 (NRB), 2008 WL 361082, at *1-2
(S.D.N.Y. Feb. 7, 2008).

B. The Appeal
Appellants filed a motion for leave to
appeal the Bankruptcy Order on April 28,
2016. (ECF No. 1.) Appellee filed his
opposition to the motion on May 11, 2016.
(ECF No. 2.) Appellants did not file a reply.
The Court has fully considered the parties’
submissions.
II. STANDARD OF REVIEW
The decision whether to grant leave to
appeal an interlocutory order of a
bankruptcy court is committed to the
discretion of the district court. See In re
Kassover, 343 F.3d 91, 94 (2d Cir. 2003). It
is well settled that the relevant standard set
forth in 28 U.S.C. § 1292(b), which governs
interlocutory appeals from United States
District Courts to the United States Courts
of Appeals, governs such appeals.
McKenzie-Gilyard v. HSBC Bank Nevada,
N.A., No. 08-CV-0160 (SLT), 2008 WL
2622931, at *1 (E.D.N.Y. July 1, 2008); In
re Quigley Co., 323 B.R. 70, 77 (S.D.N.Y.
2005) (“[C]ourts in this Circuit have
invariably held all appeals governed by
Section 158(a)(3) . . . should refer to the
standards articulated by Section 1292(b) to
determine whether leave to appeal shall be
granted.” (citation omitted)).
Section
1292(b) provides:

III. DISCUSSION
Appellants argue that they should be
granted leave to appeal the Bankruptcy
Order because the Bankruptcy Court did not
mention or analyze “established legal
standards” in its decision on the equitable
tolling and pleading issues raised by
appellants in their motion to dismiss.
(Appeal Br. 4-6.) For the following reasons,
after
applying
the
above-referenced
standard, the Court concludes that
interlocutory appeal is unwarranted under
the circumstances of this case.

When a district judge, in making in a
civil action an order not otherwise
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difference of opinion” as to the legal issues
presented. 28 U.S.C. § 1292(b). The
requirement that such a substantial ground
exists may be met when “(1) there is
conflicting authority on the issue, or (2) the
issue is particularly difficult and of first
impression for the Second Circuit.” In re
Citigroup Pension Plan ERISA Litig., No.
05 Civ. 5296(SAS), 2007 WL 1074912, at
*2 (S.D.N.Y. Apr. 4, 2007) (quoting In re
Lloyd’s Am. Tr. Funds Litig., No. 96 CIV.
1262(RWS), 1997 WL 458739, at *5
(S.D.N.Y. Aug. 12, 1997)). However, “the
mere presence of a disputed issue that is a
question of first impression, standing alone,
is insufficient to demonstrate a substantial
ground for difference of opinion. Rather,
[i]t is the duty of the district judge . . . to
analyze the strength of the arguments in
opposition to the challenged ruling when
deciding whether the issue for appeal is truly
one on which there is a substantial ground
for dispute.” In re Flor, 79 F.3d 281, 284
(2d Cir. 1996) (internal citation omitted).
Furthermore, “[a] mere claim that a court’s
decision was incorrect does not suffice to
establish substantial ground for a difference
of opinion.” In re Citigroup Pension Plan
ERISA Litig., 2007 WL 1074912, at *2
(quoting Aristocrat Leisure Ltd. v. Deutsche
Bank Tr. Co. Ams., 426 F. Supp. 2d 125,
129 (S.D.N.Y. 2005)). Here, the Court
concludes that there is nothing novel or
complex about the issues that appellant
wishes to raise in the interlocutory appeal;
rather, appellant merely asserts that the
Bankruptcy Court’s decision was incorrect.
Thus, the second requirement is not
satisfied.

First, whether the Bankruptcy Court
appropriately set forth and applied the
respective legal standards is a mixed
question of fact and law. It does not “refer
to a ‘pure’ question of law that [this Court]
‘could decide quickly and cleanly without
having to study the record.’” Stone v.
Patchett, No. 08-CV-5171 (RPP), 2009 WL
1544650, at *2 (S.D.N.Y. June 3, 2009)
(quoting Century Pac., Inc. v. Hilton Hotels
Corp., 574 F. Supp. 2d 369, 371 (S.D.N.Y.
2008)); see also S.E.C. v. First Jersey Sec.,
Inc., 587 F. Supp. 535, 536 (S.D.N.Y. 1984)
(holding that where an appeal “would
necessarily present a mixed question of law
and fact, [and] not a controlling issue of
pure law,” the district court’s order was “not
appropriate for certification pursuant to 28
U.S.C. § 1292(b)”). As such, it does not
satisfy the first requirement for granting a
request to file an interlocutory appeal.
Further, the Court rejects appellants’
argument that these issues are “controlling”
because if a different result was reached,
some or all of the causes of action would be
terminated. (Appeal Br. 10-11.) Even if
this Court allowed appeal and ultimately
agreed with appellants that the Bankruptcy
Court erred, that finding would not resolve
the equitable tolling or pleading issues,
much less the litigation.
Instead, the
Bankruptcy Court would be required to reexamine the issues, and, after conducting
such an examination, could ultimately reach
the same result. As such, it is not the case
that “reversal of the [Bankruptcy C]ourt’s
order would terminate the action.”
Klinghoffer v. S.N.C. Achille Lauro Ed AltriGestione Motonave Achille Lauro in
Amministrazione Straordinaria, 921 F.2d
21, 24 (2d Cir. 1990). Thus, an immediate
appeal is not warranted because it would not
present a controlling question of law.

Third, immediate appeal may not
materially advance the ultimate termination
of the litigation. “Although technically the
question of whether there is a controlling
issue of law is distinct from the question of
whether certification would materially
advance the ultimate termination of the

The second factor in this analysis is
whether there is “substantial ground for
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· litigation, in practice the two questions are
closely
connected."
Primavera
Familienstifung v. Askin, 139 F. Supp. 2d
567, 570 (S.D.N.Y. 200 I).
Ultimately,
" [t]he critical requirement is that [an
interlocutory appeal] have the potential for
substantially accelerating the disposition of
the litigation." In re Duplan Corp., 591
F.2d 139, 148 n.11 (2d Cir. 1978) (quoting
9 JAMES WM. MOORE, ET AL., MOORE'S
FEDERAL PRACTICE i\ 110.22[2] (1975)). As
noted above, even assuming arguendo that
the Court found some error in the
application of the proper legal standard , the
matter would be remanded for further
consideration by the Bankruptcy Court. On
remand , the Bankruptcy Court could very
well reach the same conclusion. Thus, the
Court concludes that the third requirement is
not satisfied.

IV. CONCLUSION
For the foregoing reasons, the Court
denies appellants' motion for leave to
appeal.
L

SO ORDERED.

F. BIANCO

Dated: January 8, 2018
Central Islip, New York

***
Appellants are represented by Schuyler
Glenn Carroll of Perkins Coie LLP, 30
Rockefeller Plaza, 22nd Floor, New York,
NY I 0 I 12-0085. Appellee is represented by
Nicholas Tuffarelli of Weinberg Gross &
Pergament LLP, 400 Garden City Plaza,
Suite 403 , Garden_City, NY 11530.

Finally, in its discretion , the Court
agrees with the trustee that appellants have
failed to show the exceptional circumstances
required for an interlocutory appeal. (Opp ' n
Br. 2.) The Bankruptcy Court order that
appellants seek to challenge in the
interlocutory appeal is no different than
decisions that lower courts make on a
routine basis.
A II owing interlocutory
appeals in these ordinary situations would
result in potentially lengthy delays to
litigation and disruption of the trial process,
while also burdening the appellate court
with a multiplication of piecemeal appeals.
Thus, no exceptional circumstances exist for
an interlocutory appeal in this case.

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