United States District Court, S.D. Florida
In re GCC REALTY COMPANY, LLC, Debtor.
PHILIP KASSOVER, individually and as executor of the Estates of Nathan Kassover and Ruth Kassover, and MARGARET SMITH, Trustee, Appellees. RICHARD J. SABELLA and ALLERAND 675 COMPANY, LLC, Appellants, In re GCC REALTY COMPANY, LLC, Debtor. RICHARD J. SABELLA and ALLERAND 675 COMPANY, LLC, Appellants,
PHILIP KASSOVER, individually and as executor of the Estates of Nathan Kassover and Ruth Kassover, and MARGARET SMITH, Trustee, Appellees. In re GCC REALTY COMPANY, LLC, Debtor. MARGARET SMITH, as Chapter 7 Trustee of the Estate of GCC Realty Company, LLC, Plaintiff,
PRISM VENTURE PARTNERS, LLC, RICHARD SABELLA, and RJS REALTY CORP., Defendants. RICHARD SABELLA, Appellant,
MARGARET SMITH, Trustee, Appellee.
CONSOLIDATED OPINION AND ORDER
L. ROSENBERG UNITED STATES DISTRICT JUDGE
Consolidated Opinion and Order addresses three bankruptcy
appeals filed by Appellants, Richard J. Sabella and Allerand
675 Company, LLC. Through these appeals, Appellants
challenge the bankruptcy court's orders (1) dismissing
the underlying Chapter 7 bankruptcy case and denying as moot
a motion to approve the settlement of a related adversary
proceeding,  (2) denying a motion to approve the sale
by auction of the adversary proceeding,  and (3)
dismissing the adversary proceeding. The Court has carefully
considered the briefs of the parties and the entire record on
appeal. In addition, the Court heard oral argument on March
3, 2017, and is otherwise fully advised in the premises. For
the reasons set forth below, the bankruptcy court's
orders are AFFIRMED and Appellants' appeals are DENIED.
Philip Kassover and his family owned The Garden City Company,
Inc. until 2002, when Appellant Richard Sabella acquired the
company through merger following a bankruptcy auction. The
Garden City Company, Inc. subsequently merged into what is
now GCC Realty Company, LLC. Several years after Sabella
acquired GCC, Kassover obtained a judgment in New York state
court against GCC and Peyton Gibson, the shareholder trustee
of the GCC merger proceeds, for amounts owed in connection
with Sabella's acquisition of GCC.
date, Kassover has not collected on that judgment. Kassover
asserts that he has been unable to do so because Sabella has
manipulated GCC's assets to ensure that the company never
has cash on hand. For that reason, on August 14, 2008,
Kassover initiated a fraudulent conveyance action in New York
state court against GCC, Sabella, and others by filing a
summons with notice.
month later, on September 15, 2008, GCC filed a voluntary
Chapter 11 bankruptcy case in the Southern District of
Florida, staying Kassover's fraudulent conveyance action.
After three years, on September 22, 2011, the Chapter 11
bankruptcy case was dismissed on GCC's own motion as a
two-party dispute between Sabella and Kassover.
shortly thereafter, on October 4, 2011, petitioning creditor
Warren Malone initiated an involuntary Chapter 7 bankruptcy
(the “Chapter 7 Case”) against GCC in the
Southern District of Florida, which again stayed
Kassover's fraudulent conveyance action. Kassover,
Sabella, and Allerand 675 Company, LLC
(“Allerand”), a company owned and controlled by
Sabella, were among the creditors in the Chapter 7 Case. On
November 10, 2011, Michael Bakst was appointed and
immediately resigned as trustee in the Chapter 7 Case. Later
that same day, Robert Furr replaced Bakst as trustee. After a
couple of years, Sabella and Allerand filed a motion to
remove Furr as trustee, asserting that he had failed to
properly administer the bankruptcy estate. Before that motion
was heard, on January 17, 2014, Furr resigned as trustee and
was replaced by Margaret Smith (the “Trustee”).
March 5, 2015, Kassover's fraudulent conveyance action
was removed from New York state court and transferred to
bankruptcy court in the Southern District of Florida. The
Trustee identified this action (the “Adversary
Proceeding”) as an asset of the bankruptcy estate and
sought to substitute herself as plaintiff. On December 1,
2015, the bankruptcy court entered an order approving the
substitution of the Trustee as plaintiff in the Adversary
December 8, 2015, the Trustee filed a Motion to Approve
Settlement Agreement Between (I) Margaret Smith, Trustee; and
(II) Richard J. Sabella; and for Entry of Bar Order (the
“Second Settlement Motion”). Pursuant to the
parties' settlement agreement, the Trustee would
voluntarily dismiss the Adversary Proceeding in exchange for
a $200, 000 payment from Sabella and the waiver,
subordination, and release of certain claims by Sabella and
Allerand. Kassover objected to the Second Settlement Motion
and sought dismissal of the Chapter 7 Case.
December 10, 2015, Kassover filed his Third Renewed Motion to
Dismiss the Chapter 7 Case. In that Motion, Kassover argued
that the Chapter 7 Case had become a two-party dispute
between Sabella and Kassover since Allerand had acquired six
other creditors' claims on November 24, 2015. Kassover
also argued that dismissal was appropriate because there was
nothing left to administer-the Adversary Proceeding was the
bankruptcy estate's only asset and the value of that
asset was insufficient to allow a meaningful distribution to
January 13, 2016, the bankruptcy court held a hearing on the
Trustee's Second Settlement Motion and Kassover's
Third Renewed Motion to Dismiss. During that hearing, the
court explained that it would either approve the settlement
of the Adversary Proceeding or dismiss the Chapter 7 Case:
I think it boils down to whether your proposed settlement is
reasonable settlement. That's what I really think it
boils down to. Because if it is a reasonable settlement, the
case shouldn't be dismissed. If it is not a reasonable
settlement, the case should be dismissed. I really think
that's what it boils down to.
Mr. Mrachek's client [Kassover] thinks it's worth a
lot of money. The trustee's proposed settlement, I think
says it's not with a lot of money, it's worth a
couple hundred grand. I think I have to hear testimony on
that issue, and either approve or not approve the settlement.
And if I approve it, I'm not going to dismiss the case.
If I don't approve it, I'll dismiss the case.
See Hrg. Tr. 16:19-17:8. The court later reiterated:
“And I've told you all what's going to happen.
If I approve the compromise, the case is not going to get
dismissed. If I don't, it's going to get
dismissed.” See Hrg. Tr. 20:23-21:1. Following
this hearing, it became clear that pursuing the Second
Settlement Motion would require extensive discovery and
recognition of that fact, on April 11, 2016, the Trustee
filed a Motion for Entry of Order Approving Sale by Auction
of Cause of Action, Free and Clear of Liens, Claims and
Encumbrances (the “Auction Motion”), seeking to
sell the Adversary Proceeding at auction as an alternative to
settlement. The Second Settlement Motion was not, however,
withdrawn; it remained pending as a backup in the event the
bankruptcy court denied the Auction Motion. The Trustee
disclosed in the Auction Motion that Sabella had made an
initial bid of $25, 000 for the Adversary Proceeding.
Kassover objected to the Auction Motion and, on April 14,
2016, filed an Amended Third Renewed Motion to Dismiss the
Chapter 7 Case.
3, 2016, the bankruptcy court held a hearing on the
Trustee's Auction Motion. During that hearing, counsel
for the Trustee represented that Sabella's $25, 000 bid
was intended only as a starting point and that she expected
there to be “vigorous bidding” at the auction.
For example, counsel for the Trustee stated: “We had
hoped for a higher offer to start the bidding. And this is
just a starting offer of $25, 000.” See Hrg.
Tr. 5:22-24. Counsel for the Trustee also said: “So far
we have gotten four serious inquiries. We've sent out a
bunch of documents, and hopefully we can get some more
interest. Mr. Kassover has indicated he is going to bid at
the auction. We expect there to be vigorous bidding at the
auction.” See Hrg. Tr. 6:14-19. Finally,
counsel for the Trustee stated: “[W]e think that this
will be a good way to determine what the parties think this
cause of action is worth, and have Your Honor decide if
it's a fair price. If not we can always go back to the
settlement.” See Hrg. Tr. 9:18-22. Also during
that hearing, the bankruptcy court noted that it was inclined
to dismiss the Chapter 7 Case as a two-party dispute rather
than approve the Auction Motion:
I'm going to continue this until next week and just see
what I do on the motion to dismiss. I will tell you, I'm
inclined to dismiss the case, because it really is a two
party dispute now. That's my inclination. . . . I
frankly, don't see the benefit to the estate any
See Hrg. Tr. 19:14-24.
10, 2016, the bankruptcy court held a hearing on
Kassover's Amended Third Renewed Motion to Dismiss and
the Trustee's Auction Motion. During that hearing, the
bankruptcy court noted that the Chapter 7 Case had
essentially become a two-party dispute, but explained that it
may not technically be one in light of the fact that, in
addition to the claims of Sabella, Allerand, and Kassover,
there remained a relatively small claim by the IRS and the
Trustee's administrative fees and expenses. See
Hrg. Tr. 4:5-16. The court also noted Kassover's concerns
about the auction-in which Sabella (a creditor holding the
majority of claims) had placed an initial bid of $25, 000 for
the Adversary Proceeding that had begun as a fraudulent
conveyance action brought by Kassover against Sabella and
others-and about whether there would ever be enough in the
bankruptcy estate to allow a meaningful distribution to
GCC's creditors after payment of administrative expenses:
I'll make the other observations concerning the motion to
sell. And Mr. Mrachek [counsel for Kassover] has raised a
couple of issues. Most-the two large issues is, number one,
there's no benefit to the estate, because there will
never be enough money from the sale, in his opinion, and his
client's opinion, to pay off the administrative expenses.
And if even if there were, one of the potential purchasers of
the cause of action would potentially receive 90 percent of
the proceeds. And that's a valid concern.
The other is, if one of the potential purchasers is the
prevailing purchaser, there's an issue concerning good
faith, or lack thereof, in making the-in being the successful
bidder. I'm not sure I agree with that position, but is
it a valid concern.
Ms. Cloyd [counsel for the Trustee] has also indicated that
she, her firm, her firm is owed in excess of $200, 000, but
that she recognizes that, or concedes that her firm may not
get paid in full, and has not made any concrete offers, this
is not an offer, but in essence saying, her firm may have to
cut some of their fees.
See Hrg. Tr. 4:17-5:13. Next, the court explained
that it would allow the auction to proceed but would wait
until it had additional information before final approval of
So this is what I'm going to do. I'm going to
authorize the sale to go forward, but not approve the results
of the sale. I am going to wait to see who the successful
bidder is, the amount of the bid.
And in deciding whether to accept the bid or not, I'm
going to consider a number of criterions, including the
amount of the successful bidder, that the successful bidder
bid, who the successful bidder is, whether Ms. Cloyd's
firm has finalized an agreement to reduce their fees. And I
am in no way requiring Ms. Cloyd's firm to do so, but I
think it's important for the trustee to make a
guesstimate after the sale as far as what distributions there
will be to the various creditors, whether there will be money
payable to the various creditors above the administrative
expenses, and the IRS, including the proceeds of any
potential settlement with Mr. Furr.
At that point I think I can make an educated decision as to
whether I should approve the sale, and/or dismiss the case.
Without that information I really can't make an educated
decision, an informed decision. Everything else until then is
hypothesis theories. I don't know what the answer is.
See Hrg. Tr. 5:20-6:17. The court ultimately
“[T]his is my inclination, unless someone has got a
strong feeling otherwise. Set the sale for the 14th, and set
the motion to dismiss and the approval of the sale for the
21st. And the reason I say that is, have the bid, everyone
understands who the ultimate high bidder is. That gives Ms.
Smith time to, in essence, comply with what I've just
said, that is, give me a guesstimate of what the
distributions are for the creditors.”
See Hrg. Tr. 8:17-25. Also during that hearing, the
bankruptcy court granted the Trustee's motion for
extension of time to file a complaint in the Adversary
Proceeding through July 11, 2016. See Hrg. Tr.
13:13-14. Finally, the court noted that it would
either approve the auction or dismiss the Chapter 7 Case:
If the sale price is low, and is not even enough to pay a
portion of the administrative expenses, that is a double
edged sword. The double edged sword in that means that the
cause of action isn't worth very much, and therefore, I
should probably approve the sale.
At the same time, it accents, or emphasizes, that there is
really nothing here for the Court to do, and the case maybe
should be dismissed. It's a double edged sword. Just so
both sides know. I'm not sure how I will come out on that
sword, one way or the other.
See Hrg. Tr. 14:8-19.
with what it stated on the record during the that hearing, on
May 16, 2016, the bankruptcy court entered a written order
setting the auction of the Adversary Proceeding for June 14,
2016, and setting a hearing for final approval of the sale
for June 21, 2016. The minimum opening bid (made ...