Bernheim v. Elia et al

Filing 107

ORDER granting 41 Motion to Dismiss; denying 73 Report and Recommendation. Clerk of Court to close case and and terminate all outstanding motions. Signed by Hon. Richard J. Arcara on 2/25/2010. (JMB)

UNITED STATES DISTRICT COURT W ESTERN DISTRICT OF NEW YORK L. ANDREW BERNHEIM, Plaintiff,

v. DECISION AND ORDER 05-CV-118A DAVID ELIA, DANIEL ELIA, ESTATE OF ALFRED ELIA, THE ALFRED ELIA TRUST, ESTATE OF JOSEPHINE ELIA, BERNADETTE ELIA, TINA ELIA, JOHN DOES 1 through 50, and JOHN DOES 51 through 100, Defendants.

INTRODUCTION Plaintiff L. Andrew Bernheim filed this action on February 23, 2005 against defendants David Elia, Daniel Elia, the Estate of Alfred Elia, the Alfred Elia Trust, the Estate of Josephine Elia, Bernadette Elia, Tina Elia, and John Does 1 through 100 (collectively, the defendants or "Elia defendants"). In his complaint, Bernheim asserts that he is either part or sole owner of D.A. Elia Construction Corp. ("Elia Construction") and that the defendants have wrongfully deprived him of ownership profits and benefits. David Elia is an officer of Elia Construction and he purports to be the owner of Elia Construction. It is not clear whether any

of the other defendants claim to have an ownership interest in Elia Construction. Currently before the Court are objections to a report and recommendation of Hon. H. Kenneth Schroeder, Jr., wherein Magistrate Judge Schroeder recommended that defendants' motion to dismiss the complaint as untimely be denied, and that partial summary judgment be granted in favor of plaintiff on his claim that he is sole owner of Elia Construction. For the reasons stated, this Court declines to adopt Magistrate Judge Schroeder's report and recommendation, finds that plaintiff's claim of sole ownership must be dismissed as a matter of law, and finds that plaintiff's remaining claims are all time-barred.

BACKGROUND

T h e events giving rise to this dispute date back to 1987. To fully a p p re c ia te the nature of the dispute and the relationship of the parties, a thorough re c ita tio n of the facts and related proceedings is necessary.

A.

N e w Jersey Bankruptcy Proceedings In 1982, Bernheim filed a Chapter 11 bankruptcy petition in United States

B a n k ru p tc y Court for the District of New Jersey. Plaintiff's Chapter 11 plan was c o n firm e d in 1985 and modified in October 1986.

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After plaintiff's bankruptcy was confirmed, plaintiff purportedly engaged in a b u s in e s s transaction with the Elia defendants wherein he agreed to purchase a o n e -th ird interest in all of the outstanding stock of Elia Construction. That tra n s a c tio n occurred sometime around May 1987. Plaintiff asserts that the re m a in in g two-thirds ownership interest was held by defendants Daniel Elia and D a vid Elia, with each having a one-third interest. In 1987 or 1988, Daniel Elia s o ld his one-third share back to the corporation, which according to Bernheim th e n made him a one-half owner of the company, along with David Elia. Sometime around 1990, a dispute arose between Bernheim and the Elia d e fe n d a n ts regarding Bernheim's ownership interest in Elia Construction. Bernheim brought an adversary proceeding in the New Jersey bankruptcy court to resolve the dispute. See Bernheim v. D.A. Elia Constr. Corp., Dkt. No. 900 3 3 5 6 (Bankr. D.N.J. 1990). ("New Jersey Adversary Proceeding"). In that a c tio n , Bernheim alleged ownership of Elia Construction, wrongful deprivation of o w n e rs h ip profits and benefits, diversion of corporate assets, false arrest and m a lic io u s prosecution. (See Compl., Dkt. No. 1, at ¶ 15). In 1994, the New Jersey Adversary Proceeding was administratively c lo s e d . It is not clear from the record why the matter was administratively closed. The Elia defendants assert that it was closed because Bernheim failed to p ro s e c u te . Bernheim asserts that it was closed because of a clerical error. In a n y event, Bernheim moved to reinstate the proceeding in December 1997, and 3

in February 1998, the case was reopened. Litigation in that case proceeded w ith o u t resolution until sometime in 1999, when the parties attempted to settle th a t dispute. As part of the settlement, the parties entered into a Stipulation and O rd e r and a Confidential Settlement Agreement. The Stipulation and Order, e n te re d on June 5, 2000, stipulated that, subject to the terms of the Confidential S e ttle m e n t Agreement, plaintiff was the "sole owner" of Elia Construction from 1 9 8 7 through 1999. The relevant language of that stipulation provides as follows: Bernheim filed a complaint against Elias, as well as against [Elia] C o n s tru c tio n Corp. on or about September 1990. In that suit, B e rn h e im alleged that he was the true owner of Construction Corp. S u b je c t to the Confidential Settlement Agreement entered into by B e rn h e im , the Elias and Construction Corp., Bernheim was the sole o w n e r of Construction Corp. for the years 1987 through 1999, in c lu s iv e .

(S e e Dkt. No. 46-3, Exh. A (June 5, 2000 Stipulation and Order)(emphasis a d d e d )). The stipulation further provided that "the Elias will not settle their litig a tio n with Bernheim concerning ownership of [Elia] Construction Corp. unless [th e New Jersey Bankruptcy Court first] determines the tax liability of the Elias for th e years 1987 through and including 1999," and that, since Bernheim was the s o le owner of Elia Construction during that period, the Elia defendants owed no ta xe s for profits to Elia Construction during that time. The Stipulation and Order w a s signed by Hon. W illia m H. Gindin, the bankruptcy judge presiding over the N e w Jersey Adversary Proceeding.

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As part of the settlement, the parties also entered into a Confidential S e ttle m e n t Agreement. Under the terms of that Confidential Settlement A g re e m e n t (which is no longer confidential because it was filed with this Court as p a rt of these proceedings), the Elias agreed to pay Bernheim a sum of $48,500, a lo n g with an additional sum to be determined in binding arbitration. In e xc h a n g e , Bernheim agreed to resell all of his ownership interest in Elia C o n s tru c tio n back to the Elias. Like the June 5, 2000 Stipulation and Order, the C o n fid e n tia l Settlement Agreement recited the anticipated tax treatment as to B e rn h e im and the Elias flowing from this resolution. More specifically, the a g re e m e n t provided that the Elias would personally keep any tax refunds from th e IRS and New York State, but that the Elias would pay Bernheim any tax s a vin g s received from the IRS and New York State by reason of his sole o w n e rs h ip for the time period in question. Finally, the agreement provided that it w o u ld be binding upon the wiring of $48,500 to Bernheim by 5 p.m. on October 2 4 , 2000, and that time was of the essence. (See Confidential Settlement A g re e m e n t, Dkt. No. 46-3, Exh. B). Based upon the June 5, 2000 Stipulation and Order and the Confidential S e ttle m e n t Agreement, Bankruptcy Judge Gindin entered orders dated June 15, 2 0 0 0 , and June 21, 2000, directing the New York State Department of Finance a n d Taxation and the Internal Revenue Service (IRS) to return tax payments m a d e by the Elia defendants on behalf of Elia Construction from 1987 through 5

1999. (See June 15, 2000 and June 21, 2000 Orders of Hon. W illia m H. Gindin, D k t. No. 46-3, Exh. C (filed as Dkt. Nos. 203 and 204 in Bernheim v. Elia Constr. C o rp ., No. 90-03356)). Not surprisingly, the IRS appealed Judge Gindin's June 15 th and June 21 s t o rd e rs . On December 14, 2000, Hon. Anne E. Thompson, United States District C o u rt Judge for the District of New Jersey, issued an order vacating those orders a n d remanded the matter for further proceedings. (See December 14, 2000 O rd e r of Hon. Anne E. Thompson, Dkt. No. 46-3, Exh. D (filed in I.R.S. v. D.A. E lia Constr. Corp., et al., 00-3394 (D.N.J.)). Judge Thompson stated that she w a s unable to understand the support for and effect of the June 15 th and June 2 1 s t bankruptcy court orders. U p o n remand, the matter was reassigned to United States Bankruptcy J u d g e Raymond T. Lyons, Jr. The parties then attempted to persuade Judge L yo n s to approve of their settlement agreement and related tax determinations. Judge Lyons refused and ultimately dismissed the entire adversary proceeding fo r lack of subject matter jurisdiction.1 Judge Lyons' oral ruling provides insight in to the dealings of the parties in bankruptcy court and therefore, his ruling is q u o te d extensively as follows:

Defendants erroneously state that the New Jersey Adversary Proceeding was dismissed for lack of personal jurisdiction. (See,e.g. Dkt. No. 41-8, at 6). This is incorrect. Judge Lyons made clear that he was dismissing the New Jersey Adversary Proceeding for lack of subject matter jurisdiction.

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[F]ollowing his exit from bankruptcy in 1985 Mr. Bernheim engaged in some transactions with the Elia Construction Company and m e m b e rs of the Elia family who were principals in that construction c o m p a n y . And apparently Mr. Bernheim was asked to invest in the E lia Construction Company and he did in fact put up substantial s u m s of money. I think that one of his advances was in the n e ig h b o rh o o d of $150,000 and there may have been another a d va n c e so that he put into the Elia Company over $200,000. But these transactions occurred at the earliest in 1987. And there is a discrepancy in the understanding of the parties which apparently w a s never reduced to writing as to exactly what Mr. Bernheim was to g e t for his investment in this company and whether it was a loan or a n equity investment, and if an equity investment, what ownership in te re s t he would have. . . . [A n d then] there was a later transaction where Mr. Bernheim needed s o m e cash. Apparently he was incarcerated somewhere and in order to get out, to post bail, I think he had to come up with some cash and h e prevailed upon the Elias to provide that cash to him. Again the e xa c t details are disputed, but generally a transaction similar to that happened. A n d thereafter, say the Elias, there was an agreement that if B e rn h e im did not repay the money that had been advanced for his c rim in a l law problems, that he would transfer his stock interest back to the company for a relatively modest additional payment, s o m e w h e re in the area of $50,000. So the Elias take the position th a t Bernheim no longer has the right to any stock interest in the c o rp o ra tio n and Bernheim says, I'm still a stockholder and I'm e n title d to my share of the corporation. A s I said, those transactions started in 1987 and when the dispute a ro s e , Mr. Bernheim came to this court and filed a complaint against th e Elias in 1990. ... The case seemed to make no further progress towards trial until D e c e m b e r of 1999 when Bernheim and the Elias announced that th e y had reached a resolution and they filed a settlement document, w h ic h I haven't seen. Apparently it's supposedly filed under seal s o m e w h e re so the exact terms of the settlement are not known to 7

me at this time. H o w e v e r, part of the settlement was conditioned upon the B a n k ru p tc y Court making certain tax determinations. I would note th a t the United States of America and the State of New Jersey were n o t parties to the adversary proceeding. That settlement appears to b e the product of someone's genius idea that Bernheim could get m o n e y without Elia having to come out of pocket. And Elia could get rid of Bernheim's claim to an ownership interest in their company w ith o u t having to pay anything at the end of the day. A n d the ingenious idea was, well, the Elia Construction Company its e lf was in bankruptcy in New York State and had essentially c e a s e d operations, was collecting its receivables and distributing that m o n e y to its creditors and apparently there would be money left over fo r the shareholders to resume operations as a construction c o m p a n y . And that money was achieved through the settlement of a fa irly large construction dispute. A few million dollars came in. There were no expenses to be paid b e c a u s e the company had ceased operations. So apparently this s u b c h a p te r S company had taxable income to report and pass th ro u g h to its shareholders, who at the time were thought to be m e m b e rs of the Elia family. But the genius idea was let's make Andy Bernheim a shareholder in th o s e years where we had this pass through income. Andy Bernheim h a s paid millions of dollars in professional fees and his bankruptcy c a s e . He's got losses that will offset that income. So if we shift the in c o m e to him on paper there will be no tax due and we, the Elia's, [s ic ] can seek a refund of the taxes that were paid, although I'm not e ve n sure I know that the Elias's [sic] paid taxes. I'm assuming that th e y did. ... By structuring the transaction in this way and deeming Mr. Bernheim to be a shareholder in past years, the hope is that Elia could re c a p tu re from the government the money that they've promised to p a y to Bernheim. . . . The net result, it seems to me, of this scheme is that the Elias are 8

using the government's money to buy a release from Bernheim and th a t the loser here is the government if the transaction is approved a s structured with the tax consequences being determined.

(S e e Tr. of Oral Decision of Bankruptcy Judge Lyons, at 48-52, filed as Dkt. No. 2 8 2 in Bernheim v. Elia, No. 90-3356 (Bankr. D.N.J.)). Judge Lyons then found th a t the arrangement was procedurally defective because the parties were s e e k in g to determine tax consequences without input from the taxing authorities w h o were not parties to the lawsuit. Id. at 53. Judge Lyons denied the motion to a p p ro ve the settlement, and then found that the bankruptcy court lacked ju ris d ic tio n over the entire adversary proceeding because, at the time the a d ve rs a ry proceeding was filed in 1990, Bernheim's bankruptcy was over. Judge L yo n s stated: I'm going to grant the Elia's [sic] motion to dismiss the adversary p ro c e e d in g for lack of jurisdiction. I think that jurisdiction can be ra is e d anytime. Subject matter jurisdiction can be raised anytime. S u b je c t matter jurisdiction can even be raised by the court sua s p o n te if the parties have not raised it. The parties cannot confer ju ris d ic tio n on the court where it does not exist.

A n d I determine . . . that the cause of action by Andrew Bernheim a g a in s t Elia is not related to his bankruptcy case. ... The cause of action here does not belong to the bankruptcy estate or to the liquidating trustee. It belongs solely to the debtor and is based s o le ly on post confirmation transactions. It was not an asset of the d e b to r at the time he filed for bankruptcy. It was not an asset of the d e b to r at the time of his plan was confirmed. And it never became an a s s e t of the estate in administration. Therefore I hold that this Court 9

does not have jurisdiction over the complaint under 28 USC 1334. Id. at 62-63. Judge Lyons issued his order denying the motion to approve the settlement a n d dismissing the case on April 9, 2001. Bernheim moved to reconsider that o rd e r, but his motion to reconsider was denied May 25, 2001. It does not appear th a t any party appealed Judge Lyons' ruling to the New Jersey District Court.

B.

E lia Chapter 11 Proceeding in Western District of New York In the meantime, after the New Jersey Adversary Proceeding was filed,

E lia Construction initiated its own Chapter 11 bankruptcy proceeding on March 3 0 , 1994 in the W e s te rn District of New York ("Elia Chapter 11"). The Elia C h a p te r 11 was a massive bankruptcy that took almost 10 years to resolve. In th e midst of those proceedings, the New Jersey Adversary Proceeding between B e rn h e im and the Elias came to the attention of Hon. Michael J. Kaplan, the U n ite d States Bankruptcy Judge overseeing the Elia Chapter 11. On June 4, 1 9 9 8 , Judge Kaplan lifted the bankruptcy stay so as to permit the New Jersey A d ve rs a ry Proceeding to continue in that forum. (See Dkt. No. 333 in In re Elia C o n s tr. Corp., No. 94-10866-MK (Bankr. W .D .N .Y .)).2

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The docket reflects the following order by Judge Kaplan:

It is further ORDERED that this Court will abstain from hearing the Debtor's objection to claim #1 of Bernheim, in favor of a resolution of related matters in the Bankruptcy Court for the District of New Jersey; and it is ORDERED that to

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C.

Ad ve rs a r y Proceeding in the Western District of New York In February 23, 2005, Bernheim filed the instant proceeding in the W e s te rn

D is tric t of New York seeking a declaratory judgment that he is the sole owner of E lia Construction Corp. (Count 1), or alternatively, that he is fifty percent owner (C o u n t 2). The complaint asserts additional causes of action including c o n ve rs io n of profits due him as owner (Count 3); imposition of a constructive tru s t (Count 4); breach of fiduciary duty (Count 5); fraud (Count 6); conspiracy (C o u n t 7); aiding and abetting (Count 8); injunctive relief (Count 9); and a c c o u n tin g of all monies distributed by Elia Construction (Count 10). Bernheim n a m e d all of the Elia defendants, individually, but did not name Elia Construction a s a defendant. The Elia defendants moved to dismiss the action asserting, inter alia, that B e rn h e im 's claims were time-barred. Bernheim opposed the motion to dismiss a n d asserted that defendants were estopped from denying his ownership in Elia C o n s tru c tio n Corp. by virtue of their June 5, 2000 stipulation. On June 10, 2006, Hon. John T. Elfvin, to whom the matter had been a s s ig n e d , issued a Decision and Order dismissing Bernheim's claims without p re ju d ic e . Judge Elfvin found:

the extent that lift of the automatic stay is necessary in order to have a full adjudication with respect to claims of ownership in the Debtor-corporation, the stay is lifted; and it is ORDERED that the automatic stay is not lifted as to any matters that would impact assets of the Debtor that would be available for distribution to non-insider creditors or administrative claimants.

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The facts, in the light most favorable to plaintiff, are found as fo llo w s and are undisputed. Plaintiff filed a Chapter Eleven B a n k ru p tc y Petition on October 6, 1982. In 1990, plaintiff c o m m e n c e d litigation in New Jersey Bankruptcy Court against Elia (th e "New Jersey Litigation"). The claims in the New Jersey Litigation a re essentially the same as those in this matter -- viz., issues c o n c e rn in g ownership of Elia and benefits thereof. The New Jersey L itig a tio n was dismissed on March 21, 2001 for lack of jurisdiction. In 1994, Elia filed a Chapter Eleven Bankruptcy Petition in the W e s te rn District of New York Bankruptcy Court (hereafter the "B a n k ru p tc y Proceeding" or the "Bankruptcy Court"). The Bankruptcy P ro c e e d in g was a Surplus 11 Bankruptcy, in which all the creditors w e re paid in full and the debtor corporation, Elia, has funds re m a in in g in surplus (hereafter "Elia's Surplus"). Currently, the B a n k ru p tc y Proceeding is still open pending the resolution of an a p p e a l before Chief Judge Richard J. Arcara, 04-CV-0975A, of the B a n k ru p tc y Court's October 19, 2004 Order approving Damon & M o re y, LLP's Fee Applications (hereafter "Damon & Morey Matter"). P la in tiff has moved to intervene in the Damon & Morey Matter, on w h ic h motion a decision has not as yet been issued. T h e size of Elia's Surplus is entirely contingent upon the re s o lu tio n of the Damon & Morey Matter. Once the Damon & Morey M a tte r is resolved, Elia will have to file a Debtor-in-Possession Final R e p o rt and Account in Bankruptcy Court ("Final Report") and the B a n k ru p tc y Proceeding will be closed. Only then will any of Elia's s h a re h o ld e rs and/or owners -- one of whom plaintiff claims to be -- h a ve a claim to Elia's Surplus. P la in tiff makes various factual allegations in his Complaint, the re le va n t ones of which depend on the Final Report filed with the B a n k ru p tc y Court. As such, all of plaintiff's claims except for that of d e c la ra to ry judgment will not be ripe for adjudication until the Final R e p o rt is filed with the Bankruptcy Court. See Battenfeld Soccer, Inc. v . Am. Indoor Soccer Ass'n, 2002 U.S. Dist. LEXIS 13897, at *7 n.5 (W .D .N .Y . 2002) (Elfvin, J.) ("W h e re , as here, the claim of damages is contingent on the outcome of a separate, pending lawsuit, the c la im is not ripe and the complaint must be dismissed.") (citation and in te rn a l quotations Case 1:05-cv-00118-RJA-HKS Document 26 12

Filed 01/10/2006 Page 3 of 4 omitted); In re Fugazy Express, Inc., 9 8 2 F.2d 769, 776 (2d Cir. 1992) (finding that a bankruptcy order is c o n s id e re d to be final when "all of the issues pertaining to a discrete c la im , including issues as to the proper relief," have been resolved). A s plaintiff has moved to intervene in the Damon & Morey Matter and a s the Bankruptcy Proceeding is still pending, the undersigned does n o t see how the interests of judicial economy or administrative e ffic ie n c y will be served by determining the rights of the parties w ith o u t being able to determine the benefits that may flow from those rig h ts until matters pending before other courts are resolved. T h e re fo re , the Court will dismiss plaintiff's claims without prejudice a n d allow plaintiff to refile his claims subsequent to a determination o f the Damon & Morey Matter and the close of the Bankruptcy P ro c e e d in g .

(S e e Order of Hon. John T. Elfvin, Dkt. No. 26).

In the meantime, on June 19, 2006, this Court, in presiding over the Damon & Morey fee dispute matter, denied Bernheim's motion to intervene upon finding th a t the motion (which was filed on August 12, 2005, several months after that a p p e a l had been argued, briefed and fully submitted to the undersigned) was u n tim e ly. See In re D. A. Elia Constr. Corp. v. Damon and Morey, LLP, 04-cv9 7 5 A , Dkt. No. 21 (June 19, 2006 Order Denying Motion to Intervene).3

C.

R e m a n d from Second Circuit Bernheim appealed Judge Elfvin's dismissal order to the United States

That order was appealed to the United States Court of Appeals for the Second Circuit. The Second Circuit affirmed this Court's decision to deny intervention as untimely. See In re D. A. Elia Constr. Corp. v. Damon and Morey, LLP, 04-cv-0975A, Dkt. No. 33 (Summary Order of Second Circuit).

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Court of Appeals for the Second Circuit. On June 28, 2007, the Second Circuit is s u e d a summary order finding that, in the interest of judicial economy and in o rd e r to avoid duplicative litigation, "Judge Elfvin acted well within his discretion w h e n he dismissed Bernheim's claims without prejudice and allowed Bernheim's s ta tu s as a shareholder to be resolved by the Court which first had occasion to c o n s id e r it." (See Second Circuit Summary Order, Dkt. No. 35, at 2). However, a s it was the clear that Bernheim's status as a shareholder would not be resolved in the context of the Elia Chapter 11 or in the context of the motion to intervene, th e Circuit found that remand was proper. The Court determined that "because th e threat of duplicative litigation no longer exists, and because the W e s te rn D is tric t of New York is the proper forum for adjudication of Bernheim's claims, we n o w vacate the District Court's dismissal of those claims and remand with the in s tru c tio n that the District Court reinstate Bernheim's complaint." Id. at 3.

D.

Proceedings after Remand F o llo w in g remand from the Second Circuit, the case was reassigned to the

u n d e rs ig n e d , and subsequently referred to Magistrate Judge H. Kenneth S c h ro e d e r, Jr., for further proceedings. T h e Elia defendants renewed their motion to dismiss, again asserting that B e rn h e im 's claims were time-barred. Bernheim opposed that motion and filed a c ro s s motion for partial summary judgment on his first count for declaratory

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judgment that he is the sole owner of Elia Construction Corp. by virtue of the J u n e 5, 2000 stipulation. On March 26, 2009, Magistrate Judge Schroeder issued a report and re c o m m e n d a tio n recommending that the motion to dismiss plaintiff's claims as tim e -b a rre d be denied and that plaintiff's cross motion for partial summary ju d g m e n t be granted. Specifically, Magistrate Judge Schroeder found that B e rn h e im 's declaratory judgment was not time barred because it arose from the J u n e 5, 2000 Stipulation and Order, was in the nature of a contract action to w h ic h a six-year statute of limitations period applies, and was timely brought w ith in that six-year period. The Magistrate Judge also found that, although many o f Bernheim's other claims are untimely, the doctrine of equitable tolling should b e applied. Finally, as to Bernheim's motion for partial summary judgment, the M a g is tra te Judge found that Bernheim was the sole owner of Elia Construction C o rp . by virtue of the June 5, 2000 stipulation. The Elia defendants filed objections to the report and recommendation a rg u in g that the Magistrate Judge erred in finding that Bernheim's claims were n o t untimely, that the doctrine of equitable tolling should not apply, and that even if Bernheim's claims are timely, material issues of fact exist to preclude summary ju d g m e n t on Bernheim's declaratory judgment claim. Bernheim filed a limited objection to the report and recommendation stating th a t he disagreed with the Magistrate Judge's determination that some of his

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claims are time-barred and that, even though the Magistrate Judge found those c la im s to be equitably tolled, the Magistrate Judge should have addressed w h e th e r equitable tolling applied to the period of time that Judge Gindin had d e e m e d him to be incompetent.4 O n September 10, 2009, this Court heard oral argument on the objections. During oral argument, the Court requested further briefing as to: (1) why the p e rio d between 2001 and 2005 should be equitably tolled; and (2) whether the p a rtie s are required to submit to binding arbitration in accordance with the terms o f the October 24, 2000 Confidential Settlement Agreement. The parties timely file d their supplemental briefs, and the Court has considered the arguments ra is e d therein.

DISCUSSION 1. C la im of Ownership based upon June 5, 2000 Stipulation and Order P u ttin g aside the issue of timeliness for a moment, the Court finds that p la in tiff's first cause of action must be dismissed as a matter of law. Count 1 of the complaint seeks declaratory judgment that Bernheim is the s o le owner of Elia Construction since 1987 by virtue of the June 5, 2000 S tip u la tio n and Order and by virtue of the doctrine of judicial estoppel. In other

Bernheim claims that Judge Gindin deemed him to be incompetent from September 1985 until November 1999. See Compl. at ¶ 12.

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words, plaintiff claims that he is the sole owner of Elia Construction because the E lia defendants admitted that to be the case in the June 5, 2000 Stipulation and O rd e r that was signed by Bankruptcy Judge Gindin. Any admissions made in the June 5, 2000 Stipulation and Order do not c re a te a right of ownership, nor can they. It is beyond dispute that the a d m is s io n s made in the June 5, 2000 stipulation were made only in the context of a tte m p tin g to settle the New Jersey Adversary Proceeding. By its very terms, the s tip u la tio n provides that the admission was being made "[s]ubject to the C o n fid e n tia l Settlement Agreement entered into by Bernheim, the Elias and [Elia] C o n s tru c tio n Corp." See June 5, 2000 Stipulation and Order at ¶ 1; see also B u rg e s s Constr. Co. v. M. Morrin & Sons, 526 F.2d 109, 113 (10 th Cir. 1975)("The w o rd s `subject to' usually indicate a condition to one party's duty of performance a n d not a promise by the other."). W h e n the settlement was breached,5 B e rn h e im could have brought a motion to enforce its terms. For whatever re a s o n , he chose not to do that. Instead, brought this proceeding seeking to h a ve the statements made by the Elias in the context of negotiating that s e ttle m e n t declared dispositive of his claim of ownership. That he cannot do. Under Fed. R. Evid. 408, those statements would not even be admissible at trial

Bernheim asserts that the settlement fell apart because the Elia defendants failed to perform under the Confidential Settlement Agreement. The Elia defendants dispute that claim and have provided evidence indicating that they did perform by paying Bernheim $48,5000 on October 24, 2000, as required. For the purposes of this Court's ruling, the Court will assume the facts are as plaintiff contends.

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to prove Bernheim's ownership, let alone dispositive of his claim. Because the a d m is s io n of sole ownership was conditioned upon (i.e. "subject to") Bernheim's a g re e m e n t to release all claims in accordance with the terms of the Confidential S e ttle m e n t Agreement, it cannot be divorced from that Settlement Agreement and d e e m e d an admission of liability. In other words, the Stipulation and Order has n o meaning independent of the Settlement Agreement. If (as Bernheim claims) th e settlement failed, then the admission of ownership became a nullity. Therefore, Bernheim's claim of ownership based upon June 5, 2000 stipulation is m e ritle s s as a matter of law, and Count 1 of the complaint is dismissed.6

2.

R e m a in in g Claims are Time-Barred Bernheim's remaining claims are time-barred. All of Bernheim's remaining

c la im s stem from his original allegations (made in the New Jersey Adversary P ro c e e d in g ) that he has owned some or all of Elia Construction since 1987, and th e Elias have committed various torts (including conversion and fraud) in failing to pay him profits and benefits due him by virtue of that ownership. According to th e complaint, all of these causes of action arose before or during the pendency o f the New Jersey Adversary Proceeding. Indeed, most (if not all) of Count 2

That the June 5, 2000 Stipulation and Order was signed by Bankruptcy Judge William Gindin is of no consequence given later rulings that Judge Gindin lacked subject matter jurisdiction over the entire proceeding. If Judge Gindin didn't have jurisdiction to enter that Stipulation and Order in the first place, the fact that he did so is irrelevant.

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through 10 of the complaint were raised in the New Jersey Adversary P ro c e e d in g . 7 T o be clear, the issue in this case is not whether defendants wrongfully to o k possession of the Elia Chapter 11 surplus funds. The issue is whether p la in tiff has a claim to those funds in the first place because he is an owner. The d is p u te over plaintiff's ownership accrued back in 1990, and he brought a timely c la im , but did so in the wrong forum. By the time that the New Jersey bankruptcy c o u rt realized that it lacked jurisdiction over plaintiff's claims of ownership, c o n ve rs io n , fraud and the like, the statute of limitations for all of those claims had lo n g since expired. At that juncture, the onus was upon Bernheim to timely refile h is adversary proceeding in the proper forum. Had he done so, there would be n o issue. See N.Y. C.P.L.R. § 205(a) (providing for a six-month period within w h ic h to commence any action that has been dismissed in any manner other than b y voluntary discontinuance). The problem is that Bernheim waited almost four ye a rs after dismissal before taking any action. He cannot argue that the Elia Chapter 11 precluded him for refiling b e c a u s e , as Bernheim well knew, Judge Kaplan had lifted the bankruptcy stay as

See Compl. at ¶ 15 (stating that the "crux of the litigation [in New Jersey] involved claims concerning the ownership of Elia [Construction]; claims that plaintiff wrongfully had been deprived of benefits regarding [ownership of] Elia; claims that defendants wrongfully benefitted personally by diverting corporate assets to themselves; and claims for false/malicious prosecution.").

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to those claims back in June 4, 1998.8 Because there was nothing to prevent B e rn h e im from timely refiling his claims of ownership in the proper forum, his failure to act for almost four years renders all of his claims untimely.

A.

E q u ita b le Tolling Inappropriate

Bernheim argues that the doctrine of equitable tolling should apply. Equitable tolling is a doctrine that permits courts to extend a statute of limitations o n a case-by-case basis to prevent inequity. See W a rre n v. Garvin, 219 F.3d 1 1 1 , 113 (2d Cir. 2000); Johnson v. Nyack Hosp., 86 F.3d 8, 12 (2d Cir.1996). The d o c trin e has been applied "as a matter of fairness" where a plaintiff has been "p re ve n te d in some extraordinary way from exercising his rights, or [has] asserted h is rights in the wrong forum." Johnson, 86 F.3d at 12 (quoting Miller v. Int'l Tel. & T e l. Corp., 755 F.2d 20, 24 (2d Cir.), cert. denied, 474 U.S. 851 (1985)). However, equitable tolling will not apply unless the party seeking to invoke the d o c trin e has acted with reasonable diligence throughout the period he seeks to h a ve tolled. Id. See also Singletary v. Cont'l Ill. Nat'l Bank & Trust Co., 9 F.3d 1 2 3 6 , 1241 (7th Cir. 1993) (equitable tolling "permits a plaintiff to sue after the
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Bernheim admits his awareness of that fact in the complaint. See Compl. at ¶ ¶ 22-23 (acknowledging that Jude Kaplan found that "any internecine squabble over surplus in the estate of this Debtor is a matter of little concern to [the Bankruptcy] Court" and that Judge Kaplan "lifted the automatic stay so as to have `full adjudication with respect to claims of ownership in the Debtor-corporation"" in another forum); id. at ¶ 26 (stating that on April 29, 1999, and again on May 19, 1999, Judge Kaplan "again made clear that he did not want to determine the dispute over ownership of Elia [Construction] and that he transferred [that claim] to New Jersey.").

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statute of limitations has expired if through no fault or lack of diligence on his part h e was unable to sue before"). A party seeking to invoke the doctrine of equitable to llin g bears the burden of establishing: (1) that he has been pursuing his rights d ilig e n tly, and (2) that some extraordinary circumstance stood in his way. Pace v. D iG u g lie lm o , 544 U.S. 408, 418 (2005); Irwin v. Dep't of Veterans Affairs, 498 U .S . 89, 96 (1990). The Court finds that plaintiff has failed to establish his entitlement to e q u ita b le tolling. W h ile it is unfortunate that it took the New Jersey bankruptcy c o u rt over 10 years to realize that it lacked subject matter jurisdiction, once that o c c u rre d , there was nothing to prevent plaintiff from refiling his claim in the a p p ro p ria te forum. For the reasons already discussed, the pendency of the Elia C h a p te r 11 does not excuse Bernheim's lack of diligence. Nor does Bernheim's p u rp o rte d incompetence from September 1985 to November 1999 (see Compl., D k t. No. 1, at ¶ 12) excuse his failure to refile timely as that period of in c o m p e te n c e ended well before the New Jersey Adversary Proceeding was d is m is s e d in 2001. Likewise, the pendency of Bernheim's motion to intervene in the Damon & M o re y fee dispute provides no excuse. Bernheim did not move to intervene in that a c tio n until August 2005, several months after this case was filed. The issue here is Bernheim's failure to take action from May 2001 (when the New Jersey A d ve rs a ry Proceeding was dismissed) until February 2005 (when this action was 21

filed). Any actions taken after February 2005 have no bearing on the issue of tim e lin e s s .

B.

T im e lin e s s Issue is not Law of the Case

B e rn h e im asserts that this Court cannot find his claim time-barred because b o th the Second Circuit and Judge Elfvin ruled that his filing in 2005 was p re m a tu re and those rulings are now the law of the case. The law of the case doctrine provides that when a court decides upon a rule o f law, that decision should continue to govern the same issues in subsequent s ta g e s in the same case. See United States v. Quintieri, 306 F.3d 1217 (2d Cir. 2 0 0 2 ). The law of the case doctrine has two branches. The first branch, the "m a n d a te rule," requires a trial court to follow an appellate court's ruling on an is s u e in the same case. Id. The second "more flexible" branch, indicates that w h e n a trial court has ruled on an issue, it should generally adhere to its own ru lin g s in subsequent stages of the same case absent "cogent" or "compelling" re a s o n s not to, including an intervening change in law, availability of new e vid e n c e , or "the need to correct a clear error or prevent manifest injustice." Id.; s e e also Johnson v. Holder, 564 F.3d 95 (2d Cir. 2009). This Court does not agree with Bernheim's readings of Judge Elfvin's and th e Second Circuit's rulings. W h e n Judge Elfvin dismissed this action in 2006, he d id so because he was under the impression that other courts would be 22

addressing the issue of ownership first, and in the interests of judicial economy, it m a d e no sense that he should also consider that very same issue. Judge Elfvin n e ve r addressed the issue of whether the action was untimely when filed, only w h e th e r it made sense for him to continue to preside over it in light of the p e n d e n c y of other actions wherein he believed Bernheim's ownership interest would be resolved. Indeed, he explicitly indicated that the issue of ownership over E lia Construction was ripe for adjudication, but found that it might be more prudent to delay ruling on that issue until it was clear whether there would be a surplus in th e Elia bankruptcy estate. (See Decision of Hon. John T. Elfvin dated January 1 0 , 2006, Dkt. No. 26, at 3 ("Plaintiff makes various factual allegations in his C o m p la in t, the relevant ones of which depend on the Final Report filed with the B a n k ru p tc y Court. As such, all of plaintiff's claims except for that of declaratory ju d g m e n t will not be ripe for adjudication until the Final Report is filed with the B a n k ru p tc y Court.")). It makes no sense to say that a claim over ownership that w a s ripe for adjudication in 1990 when the action was filed in New Jersey, became p re m a tu re in 2005. To the extent that Judge Elfvin did believe some of the claims to be unripe, this Court respectfully disagrees as it is clear that all of the pending c la im s accrued long before the New Jersey Adversary Proceeding was dismissed in 2001. Although the value of the surplus estate had yet to be determined, the c o n d u c t giving rise to Bernheim's ownership interest occurred over 20 years ago. Certainly, if the Second Circuit had determined the issue of timeliness, this 23

Court would be bound by that determination under the mandate rule. However, th e Second Circuit did not address the timeliness of Bernheim's claim for o w n e rs h ip and benefits. Instead, the Circuit merely affirmed that it was within J u d g e Elfvin's discretion to dismiss the matter without prejudice in the interests of ju d ic ia l economy, so as to allow "Bernheim's status as a shareholder to be re s o lve d by the Court which had first occasion to consider it." (See Mandate of S e c o n d Circuit, Dkt. No. 35, at 2). In sum, the law of the case doctrine does not preclude this Court's d e te rm in a tio n that Bernheim's claim of ownership (stemming from the 1987 tra n s a c tio n ) is untimely.

CONCLUSION F o r the reasons stated, this Court declines to adopt the report and re c o m m e n d a tio n of Magistrate Judge Schroeder, finds that Count 1 of the c o m p la in t must be dismissed as a matter of law, and finds that Counts 2 through 1 0 of the complaint are untimely. Accordingly, the motion to dismiss is granted a n d the complaint is dismissed in its entirety. The Clerk of the Court is directed to c lo s e this case and to terminate all outstanding motions.

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SO ORDERED.

s/ Richard J. Arcara
HONORABLE RICHARD J. ARCARA UNITED STATES DISTRICT JUDGE DATED: February 25, 2010

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