Taylor et al v. Zampella et al
Filing
9
MEMORANDUM AND ORDER granting 8 Motion to Remand. For the foregoing reasons, Plaintiff's motion to remand, Dkt. No. 8, is GRANTED. The Clerk of Court is respectfully directed to take all steps necessary to remand this action to the New York State Supreme Court, New York County, without delay and to close this case. SO ORDERED. (Signed by Judge Lewis J. Liman on 2/5/2024) (tg) Transmission to Docket Assistant Clerk for processing.
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
ROBERT TAYLOR, individually and derivatively on
:
behalf of BLUE TREE MANAGEMENT LLC,
:
:
Plaintiff,
:
:
-v:
:
ANIELLO ZAMPELLA, CHAD RUSSO, PIERRE
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BASMAJI, and COTTONWOOD VENDING LLC,
:
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Defendants.
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:
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2/5/2024
23-cv-8409 (LJL)
MEMORANDUM AND
ORDER
LEWIS J. LIMAN, United States District Judge:
Plaintiff Robert Taylor (“Plaintiff” or “Taylor”), suing individually and derivatively on
behalf of Blue Tree Management LLC (“Blue Tree”) moves, pursuant to 28 U.S.C. § 1452(b), to
remand this case to New York State Supreme Court, New York County. Dkt. No. 8.
BACKGROUND
Plaintiff is an entrepreneur in the cryptocurrency industry, starting a business that sets up
digital kiosks called “BTMs” that serve as automated teller machines for Bitcoin, where
customers can buy or sell the virtual currency Bitcoin for cash at physical locations in New York
City, including grocery stores and bodegas. Dkt. No. 1-2 ¶ 31. Defendants Aniello Zampella
(“Zampella”) and Chad Russo (“Russo”) are experienced virtual currency traders. Id. ¶ 36. In
early 2015, after he received notice from the New York Department of Financial Services
(“DFS”) that a license (“BitLicense”) was required to operate a business of receiving or
transmitting virtual currency (including BTMs), Taylor was introduced to Zampella who had
already started the process of obtaining a BitLicense through his wholly-owned company
Defendant Cottonwood Vending LLC (“Cottonwood”). Id. ¶¶ 33, 35, 37. Plaintiff, Zampella,
and Russo agreed for form a joint venture called CoinBTM to set up licensed BTMs in New
York and elsewhere. Id. ¶ 38. Although the three agreed to be equal 1/3 partners in CoinBTM,
Zampella and Russo, along with co-defendant Pierre Basmaji (CoinBTM’s attorney), persuaded
Plaintiff to agree to a two-tier structure in which Zampella would remain the sole owner of
Cottonwood, the applicant for the BitLicense; Plaintiff and Russo would each have 37% interests
in a new company named Blue Tree that would be set up as CoinBTM’s exclusive management
company; and the profit share of CoinBTM would be achieved by funneling 10% of the joint
venture’s profits to Cottonwood and the remaining 90% to Blue Tree. Id. ¶¶ 39–44. Thereafter,
in reliance on Defendants’ representations that the arrangement would be formalized through
written documents, Plaintiff invested $88,000 in CoinBTM, assigned valuable placement
agreements and leases to the joint venture, removed his active BTMs and replaced them with
new jointly-purchased BTMs, scouted new locations, secured new placement agreements and
leases, and personally installed new BTMs for the joint venture. Id. ¶¶ 48–51. He also
developed new strategies to grow the business and acted as the joint venture’s sole customerfacing technical representative, lead on-site technician for BTM malfunctions, and lead
marketing officer. Id. ¶ 52.
But the documents never came and the partnership began to fracture in late 2015 and
early 2016. Plaintiff learned that Russo was a convicted felon. Id. ¶ 55. In March 2016,
Zampella and Plaintiff agreed to eject Russo as manager of Blue Tree, leaving Plaintiff as its sole
manager. Id. ¶ 58. In April 2016, Defendants made their move to push Plaintiff out of
CoinBTM. Id. ¶ 59. Zampella and Basmaji told Plaintiff that (i) he was not entitled to any of
CoinBTM’s profits as these would all go to Cottonwood, and (ii) Blue Tree had no value. Id.
¶ 61. On April 21, 2016, Zampella, Russo, and Basmaji purported to remove Plaintiff as
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manager of Blue Tree and to install Basmaji as manager. Id. ¶ 62. Cottonwood then severed its
relationship with Blue Tree. Id. ¶ 63. Although Cottonwood (doing business as CoinBTM)
obtained its BitLicense in January 2019 and has grown into the largest BTM network in New
York, generating profits in excess of $100 million, it has paid nothing to Plaintiff. Id. ¶¶ 65–68.
On February 22, 2022, Plaintiff filed this action in New York State Supreme Court, New
York County, on behalf of both himself individually and Blue Tree derivatively. The complaint
alleges claims individually on behalf of Taylor and derivatively on behalf of Blue Tree for
breach of contract for failure to honor the oral joint venture agreement. Id. ¶¶ 72–82. Plaintiff
also asserts claims for: unjust enrichment against Zampella, Russo, and Cottonwood, id. ¶¶ 83–
88; fraud against Zampella, Russo, and Basmaji, id. ¶¶ 89–94; breach of fiduciary duty against
Zampella and Russo, id. ¶¶ 95–98; and an accounting against all Defendants, id. ¶¶ 99–101.
On August 24, 2023, Cottonwood, as debtor and debtor in possession, filed a voluntary
petition for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy
Court for the Eastern District of New York. Dkt. No. 1 ¶ 4.
On September 22, 2023, Cottonwood removed the instant case to this Court on the
grounds that it was related to Cottonwood’s bankruptcy proceeding in the United States
Bankruptcy Court for the Eastern District of New York. Dkt. No. 1. Cottonwood asserted that
the Court had jurisdiction over the state court action under 28 U.S.C. §§ 1334(b) and 1452(a) and
Federal Rule of Bankruptcy Procedure 9027 because the state court action was a civil proceeding
concerning estate assets (including but not limited to the ownership of the debtor) and was
therefore core under 28 U.S.C. § 157(b) and, to the extent the state causes of action were not
deemed core, they were within the Court’s “related to” jurisdiction under 28 U.S.C. § 1334(b).
Id. ¶ 7.
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On November 16, 2023, the Honorable Nancy Lord, United States Bankruptcy Judge in
the Eastern District of New York, converted Cottonwood’s Chapter 11 case to a Chapter 7
bankruptcy pursuant to 11 U.S.C. § 1112(b). Dkt. No. 8-4 at 52–57. Judge Lord concluded that
it was appropriate to appoint a trustee to bring avoidance or fraudulent conveyance actions
against Zampella and to liquidate whatever assets were in the possession of the estate. Id. at
57:6–14. 1
On December 15, 2023, Plaintiff filed this motion to remand. Dkt. No. 8. The motion is
unopposed.
DISCUSSION
Plaintiff moves to remand this action to the New York State Supreme Court, New York
County, on equitable grounds. Section 1452(b) of Title 28 permits a court to which a claim or
cause of action has been removed on grounds that it is related to a bankruptcy case to “remand
such claim or cause of action on any equitable ground.” 28 U.S.C. § 1452(b). An “equitable”
ground is one that is “fair and reasonable.” In re Cathedral of the Incarnation in the Diocese of
Long Island, 99 F.3d 66, 69 (2d Cir. 1996). Courts consider a number of factors in deciding
whether to remand under this section, including:
[i] the effect on the efficient administration of the bankruptcy estate; [ii] the extent
to which issues of state law predominate; [iii] the difficulty or unsettled nature of
the applicable state law; [iv] comity; [v] the degree of relatedness or remoteness of
the proceeding to the main bankruptcy case; [vi] the existence of the right to a jury
trial; and [vii] prejudice to the involuntarily removed defendants.
Joseph & Kirschenbaum LLP v. Tenenbaum, 2020 WL 242374, at *5 (S.D.N.Y. 2020) (alteration
in original) (quoting CMM Pathfinder Pompano Bay, LLC v. Compass Fin. Partners, LLC, 396
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On December 4, 2023, Cottonwood moved to reconsider Judge Lord’s decision converting the
Chapter 11 case to a Chapter 7 case. Dkt. No. 52, 23-43027 (Bankr. E.D.N.Y.). That motion
remains pending.
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B.R. 602, 607 (S.D.N.Y. 2008)); see also Drexel Burnham Lambert Grp., Inc. v. Vigilant Ins.
Co., 130 B.R. 405, 407 (S.D.N.Y. 1991).
Each of those factors favors remand here. As for the first, remand would not undermine
the efficient administration of the estate. Because Cottonwood’s bankruptcy case is now
proceeding under Chapter 7, the trustee will liquidate whatever assets remain in the estate. See
In re Adelphia Commc’ns Corp., 368 B.R. 140, 252 (Bankr. S.D.N.Y. 2007). The prosecution of
this case would not impede that function. Plaintiff does not seek to bring claims on behalf of the
estate. And Plaintiff represents, without contradiction, that the “primary relief” he seeks “is a
money judgment against non-debtor Zampella.” Dkt. No. 8-6 at 8. Thus, “[w]hether or not
Defendants are liable to Plaintiff[] . . . will not affect the distribution of property of the estate.”
Keybank Nat’l Ass’n v. Franklin Advisers, Inc., 600 B.R. 214, 233-34 (S.D.N.Y. 2019); see also
Skinner v. Janus, 2000 WL 432806, at *3 (W.D.N.Y. Apr. 14, 2000). At most, “the outcome of
this case could only reduce the estate’s liabilities.” Joseph & Kirschenbaum LLP, 2020 WL
242374, at *6.
The second, third, and fourth factors also favor remand. The complaint “turns entirely on
questions of New York law,” Digital Satellite Lenders, LLC v. Ferchill, 2004 WL 1794502, at *6
(S.D.N.Y. Aug. 10, 2004), and “[n]one of [Plaintiff’s] claims implicate any federal or bankruptcy
law issues,” In re Am. Equities Grp., Inc., 460 B.R. 123, 129 (Bankr. S.D.N.Y. 2011).
Accordingly, “[t]his ‘is a state law action and a state court is better able to respond to a suit
involving state law.’” Drexel, 130 B.R. at 408 (quoting Midatl. Nat’l Bank/Citizens v. Comtek
Elecs., Inc., 23 B.R. 449, 451 (Bankr. S.D.N.Y. 1982)); see Renaissance Cosms., Inc. v. Oleg
Cassini, Inc., 2000 WL 890191 at *3 (S.D.N.Y. July 5, 2000). “The state courts have the
greatest interest in resolving issues of state law.” Sokola v. Weinstein, 2020 WL 3605578, at *17
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(S.D.N.Y. July 2, 2020). Although the state law claims do not appear to be complex, the factual
setting is novel and, in any event, the state court is already familiar with the case. See
Renaissance Cosms., 2000 WL 890191 at *3. In addition, “comity considerations dictate that
federal courts should be hesitant to exercise jurisdiction when state issues substantially
predominate.” Sealink Funding Ltd. v. Bear Stearns & Co. Inc., 2012 WL 4794450, at *4
(S.D.N.Y. Oct. 9, 2012); see also Stahl v. Stahl, 2003 WL 22595288, at *3 (S.D.N.Y. Nov. 7,
2003) (“New York State has a strong interest in having its own courts enforce its laws.”).
As to the fifth factor, Cottonwood premised its removal petition on the notion that the
State Court action was a core proceeding which concerned estate assets, including but not limited
to the ownership of the Debtor. Dkt. No. 1 ¶ 7. But that premise is false. “Core proceedings are
those that are found to be ‘arising under’ the Bankruptcy Code or ‘arising in’ a bankruptcy case.”
In re Robert Plan Corp., 777 F.3d 594, 596 (2d Cir. 2015) (quoting MBNA Am. Bank, N.A. v.
Hill, 436 F.3d 104, 108–09 (2d Cir. 2006)). “Proceedings ‘arising under’ the Bankruptcy Code
are those ‘that clearly invoke substantive rights created by federal bankruptcy law.’” Id. (quoting
MBNA Am. Bank, 436 F.3d at 108–09). “Proceedings ‘arising in’ a bankruptcy case are those
‘claims that are not based on any right expressly created by [the Bankruptcy Code,] but
nevertheless, would have no existence outside of the bankruptcy.’” Id. at 596–97 (quoting Baker
v. Simpson, 613 F.3d 346, 350–51 (2d Cir. 2010)). Plaintiff’s claims arise under the state law of
New York, not the Bankruptcy Code, and concern events and agreements that preceded
Cottonwood’s bankruptcy filings by years. They therefore exist entirely independent of the Code
and the bankruptcy case. See Libertas Funding, LLC v. ACM Dev., LLC, 2022 WL 6036559, at
*4 (E.D.N.Y. Oct. 7, 2022). Although the case falls within the Court’s bankruptcy jurisdiction,
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its degree of relatedness is remote. See Universal Well Servs., Inc. v. Avoco Nat. Gas Storage,
222 B.R. 26, 31 (W.D.N.Y. 1998).
The sixth factor further favors remand. Plaintiff has asserted his right to a jury trial, a
right that—if the case were transferred to the Eastern District of New York and then referred by
that court to the Bankruptcy Court—the Bankruptcy Court might not be able to honor. “Because
a bankruptcy court cannot conduct a jury trial absent special designation by the district court and
the consent of all parties, the presence of a Seventh Amendment jury trial right in a removed
action weighs heavily in favor of remand.” Kerusa Co., LLC v. W10Z/515 Real Est. Ltd. P’ship,
2004 WL 1048239, at *6 (S.D.N.Y. May 7, 2004) (Lynch, J.) (citation omitted); see also
Schumacher v. White, 429 B.R. 400, 408 (E.D.N.Y. 2010); Scherer v. Carroll, 150 B.R. 549, 552
(D. Vt. 1993).
Finally, as to the seventh factor, while none of Cottonwood’s co-defendants complain
about removal, the Court would not expect them to. See Marah Wood Prods., LLC v. Jones, 534
B.R. 465, 478 (D. Conn. 2015). Indeed, Zampella is the owner of Cottonwood, he appears to be
its alter ego, and he ostensibly removed this case in order to get it away from the New York State
Supreme Court. But, notwithstanding Zampella’s apparent efforts to litigate this case in federal
court, he has “not point[ed] to any prejudice if this matter is remanded.” In re New 118th LLC,
396 B.R. 885, 894 (Bankr. S.D.N.Y. 2008). In any event, “actions have already been taken in
the state court proceeding . . . , [so] retention of jurisdiction by federal court would result in
significant, prejudicial delay in matter that could be resolved in an expeditious manner in the
state court forum.” Ventricelli v. Nicklin, 2020 WL 132334, at *8 (N.D.N.Y. Jan. 13, 2020).
Moreover, allowing this action to proceed in bankruptcy court would prejudice Plaintiff by
requiring him to retain bankruptcy lawyers, incurring expenses that should be entirely
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unnecessary in what is otherwise a purely state-law, state-court case. Thus, the Court concludes
that “the involuntarily removed parties are not likely to be prejudiced by being required to
litigate in state court.” In re Am. Made Tires Inc., 2016 WL 3448395, at *13 (Bankr. E.D.N.Y.
June 14, 2016).
CONCLUSION
For the foregoing reasons, Plaintiff’s motion to remand, Dkt. No. 8, is GRANTED. The
Clerk of Court is respectfully directed to take all steps necessary to remand this action to the
New York State Supreme Court, New York County, without delay and to close this case.
SO ORDERED.
Dated: February 5, 2024
New York, New York
__________________________________
LEWIS J. LIMAN
United States District Judge
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