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Benjamin SHABTAI, Plaintiff, v. HFZ CAPITAL GROUP, LLC, HFZ Shore Club LLC, Shore Club Managing Member LLC, Shore Club JV LLC, HFZ Shore Club Manager LLC, Shore Club Property Owner LLC, Shore Club Mezzanine I LLC, Shore Club Mezzanine II LLC, Ziel Feldman, Nir Meir, Defendants.
The following e-filed documents, listed by NYSCEF document number (Motion 001) 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 23, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 50, 54, 55, 56, 57 were read on this motion to/for JUDGMENT - DEFAULT.
The following e-filed documents, listed by NYSCEF document number (Motion 002) 40, 41, 42, 43, 44, 45, 46, 47, 48, 49, 51, 52, 53, 58 were read on this motion to/for DISMISSAL.
Upon the foregoing documents, (i) Benjamin Shabtai's motion for default judgment (Mtn. Seq. No. 001) must be granted and the cross-motion must be denied and (ii) the Shore Club Entities’ (hereinafter defined) motion to dismiss (Mtn. Seq. No. 002) is denied as moot. Simply put, the defendants lack a reasonable excuse and a meritorious defense (CPLR 3215[a]).
In short, MC Asset Management (Corporate), LLC (Monroe), the owner of the HFZ Shore Club LLC (HFZ Shore Club), HFZ Shore Club Manager LLC (HFZ Manager), Shore Club Managing Member LLC, Shore Club JV LLC, Shore Club Mezzanine II LLC, Shore Club Mezzanine I LLC (the Mezzanine Borrower) and Shore Club Property Owner LLC (the Property Owner; HFZ Shore Club, Shore Club Managing Member LLC, Shore Club JV LLC, Shore Club Mezzanine II LLC, the Mezzanine Borrower, and together with the Property Owner, hereinafter, collectively the Shore Club Entities), failed to update HFZ Shore Club and the other Shore Club Entities’ addresses with their registered agent for approximately one year following their acquisition of the equity interests in the Shore Club Entities because they were “too busy” operating the Property (hereinafter defined) owned by these entities (NYSCEF Doc. No. 28, ¶ 24) and otherwise intentionally and in bad faith divested Mr. Shabtai of his interest in the Property so as to avoid paying him the money due to him. They did however have time to file a Certificate of Cancellation for HFZ Shore Club, LLC on October 28, 2021 — one month before this default judgment motion was filed and five months after this lawsuit was filed. This presents neither a reasonable excuse, nor a meritorious defense.
More specifically, in December 2020, Monroe acquired 96.66% of the equity in HFZ Shore Club and all of HFZ's right, title and interest in the equity in the other Shore Club Entities, including HFZ Manager, the manager of HFZ Shore Club. Mr. Shabtai owned the balance of the equity in HFZ Shore Club. As the 96.66% owner of HFZ Shore Club, it is axiomatic that Monroe owed fiduciary duties to its minority member/partner, Mr. Shabtai, and became subject to the obligations that its predecessor-in-interest owed to Mr. Shabtai.
Instead of updating the address of HFZ Shore Club for service of process, notifying Mr. Shabtai as to how to contact them or otherwise honoring the obligation to pay Mr. Shabtai the money due him under the agreement, Monroe and the Shore Club Entities had plenty of time to devise and execute an elaborate scheme to cause Mr. Shabtai to be divested of his indirect interest in the Property. Under the circumstances this is patently unreasonable.
To be clear, the fundamental flaw in the defendants’ analysis is that they incorrectly argue that they could rely on a general disclaimer of fiduciary duties in the Operating Agreement and did not otherwise owe fiduciary duties to Mr. Shabtai. To the contrary, they succeeded to these fiduciary duties in December 2020 when they became the 96.66% owner of the equity in HFZ Shore Club and the 100% owner of HFZ Manager. After acquiring these interests, they intentionally, in bad faith, and without notice to its minority member, divested Mr. Shabtai of his beneficial ownership in the Property and ultimately dissolved HFZ Shore Club so that they could avoid their obligation to pay him the money owed to him. Thus, the motion must be granted and the cross-motion denied.
The Relevant Facts and Circumstances
Reference is made herein to a certain (i) Limited Liability Company Agreement of HFZ Shore Club (the Operating Agreement; NYSCEF Doc. No. 18) dated November 8, 2013, by and between Mr. Shabtai, HFZ Capitol Group, LLC (HFZ), and HFZ Manager, (ii) Letter Agreement (the First Letter Agreement; NYSCEF Doc. No. 16), dated November 8, 2013, by and between Mr. Shabtai and HFZ, (iii) Letter Agreement (the Second Letter Agreement; NYSCEF Doc. No. 17), dated as of January 2014, by and between Mr. Shabtai and HFZ, (iv) Notice of Acceptance of Proposal for Surrender of Collateral and Strict Foreclosure (the Notice of Acceptance; NYSCEF Doc. No. 29), dated May 6, 2021, by and between Monroe and the Mezzanine Borrower pursuant to which the Mezzanine Borrower transferred 100% of its equity interest in the Property Owner to Monroe.
In 2013, HFZ created HFZ Shore Club, Shore Club Managing Member LLC, Shore Club JV LLC, Shore Club Mezzanine II LLC, the Mezzanine Borrower and the Property Owner in connection with its plan to convert the hotel located at 1901 Collins Avenue, Miami Beach, Florida into a residential condominium (the Property; NYSCEF Doc. No. 16; NYSCEF Doc. No. 1, ¶ 53).
Pursuant to the First Letter Agreement, the parties agreed that Mr. Shabtai would invest $3.5 million in HFZ Shore Club and would receive a 3.34% Class B membership interest in HFZ Shore Club (NYSCEF Doc. No. 16). The parties also agreed that Mr. Shabtai would have a “Put” such that he could compel HFZ, on or before April 30, 2015 (the Maturity Date), to purchase his Class B interest in HFZ Shore Club for $4,550,000 within 45 days. If Mr. Shabtai declined to exercise the Put, Mr. Shabtai could redeem his Class B interest in HFZ for an approximately 2,622 net square foot residential unit on the eighteenth floor of the converted Property (id.). HFZ acknowledged and agreed that Mr. Shabtai's investment was to be used by HFZ Shore Club solely to acquire a direct or indirect interest in the Property:
HFZ acknowledges, represents and agrees that all of [Mr. Shabtai's] investment in Shore Club shall be used by Shore Club to acquire a direct or indirect interest in the Shore Club Condominium and that the direct and indirect ownership of the Shore Club Condominium is as set forth in Annex A hereof.
(NYSCEF Doc. No. 16).
For the avoidance of doubt, the parties agreed that the “agreement shall inure to the benefit of and be binding upon the parties and their respective, heirs, personal representatives, successors and assigns”1 (id.).
In HFZ Shore Club, HFZ was the Class A majority member and HFZ Manager was the manager (NYSCEF Doc. No. 18). HFZ and HFZ Shore Club were each 50% members of Shore Club Managing Member LLC (id., Ex. 4). Shore Club Managing Member LLC was the 100% member of Shore Club JV LLC (NYSCEF Doc. No. 1, ¶ 53). Shore Club JV LLC was the 100% member of Shore Club Mezzanine II LLC (id.). Shore Club Mezzanine II LLC was the 100% member of the Mezzanine Borrower (id.). The Mezzanine Borrower was the 100% member of the Property Owner, which was the fee owner of the Property (id.). HFZ was also the 100% member of Shore Club Mezzanine Lender LLC (the Mezzanine Lender; NYSCEF Doc. No. 28, ¶ 11).
In January 2014, pursuant to the Second Letter Agreement, the parties agreed Mr. Shabtai would redeem his interest to purchase the unit and that he had the right to purchase all of the remaining residential units on the eighteenth floor for $1800 per net square foot (NYSCEF Doc. No. 17).
As relevant, in Section 6.4.1 of the Operating Agreement, the parties agreed to a general waiver of fiduciary duties and that HFZ Manager would not be liable for monetary damages for breaches of the same “except for liability for acts or omissions not in good faith or which involve fraud, intentional misconduct or a knowing violation of law” (NYSCEF Doc. No. 18 § 6.4.1 [emphasis added]).
In the well-pled complaint, Mr. Shabtai alleges that the defendants intentionally and in bad faith took his $3.5 million investment which the parties had agreed was to be used solely in connection with the renovation and repositioning of the Property and converted it by using it for other purposes. Mr. Shabtai further alleges that HFZ abandoned the plan to redevelop and reposition the Property into a condominium without consulting or informing him of the change (NYSCEF Doc. No. 11, ¶¶ 15, 17).
The defendants allege that after encountering significant financial difficulties in October 2017, HFZ took out a $100 million loan from Monroe and other lenders (NYSCEF Doc. No. 28, ¶ 9). As part of the financing, the Mezzanine Lender made a $55,000,000 mezzanine loan (the Mezzanine Loan) to the Mezzanine Borrower pursuant to which, among other things, the Mezzanine Borrower pledged 100% of its equity interests in the Property Owner as collateral (id.). This loan was a sandwich loan, as it was backstopped by a loan from CFSC Holdings LLC (CFSC) that was in turn secured by the Mezzanine Lender's interest in the Mezzanine Loan (id.). Mr. Shabtai never pledged any of his equity in connection with any of these loans.
After HFZ defaulted, by December 2020, Monroe acquired HFZ's equity interest in each of the Shore Club Entities and the Mezzanine Lender, including its interest in HFZ and HFZ Manager and as such Monroe became the 96.66% member of HFZ Shore Club pursuant to a handful of assignment agreements (id., ¶ 11).2 Following these assignments, Monroe engaged an affiliate of The Witkoff Group LLC (Witkoff), a New York based real estate developer, to manage the Property (id., ¶ 18).
Monroe, in succeeding to HFZ and HFZ Manager's equity interest in HFZ Shore Club by virtue of these assignments in December 2020, owed fiduciary duties to its minority interest partner, Mr. Shabtai, and indisputably became aware of Mr. Shabtai's indirect interest in the Property and the obligation to re-purchase his interest (at the absolute latest)3 approximately six months prior to the filing of this lawsuit. Monroe, in acquiring HFZ's equity position, was subject to this obligation. Monroe not only failed to honor this obligation, but actively sought to avoid it by engaging in a series of transfers designed to divest Mr. Shabtai of his indirect interest in HFZ Shore Club. Put another way, as Mr. Shabtai's partner in HFZ Shore Club, and by virtue of owning HFZ Manager, by their own admission, Monroe breached their fiduciary duties to Mr. Shabtai.
After the Shore Club Entities were transferred to Monroe in December 2020, both the Mezzanine Borrower and the Mezzanine Lender were owned and controlled by Monroe (id., ¶ 13). However, the Mezzanine Lender could not immediately foreclose on the then-defaulted Mezzanine Loan because of the sandwich loan from CFSC (id.).
In order to divest Mr. Shabtai of his beneficial interest in the Property and to bankrupt HFZ Shore Club so that it would have no assets to repay Mr. Shabtai, Monroe caused the Mezzanine Lender to repay the loan from CFSC on April 26, 2021 (id.). On May 6, 2021, more than six months after Monroe became Mr. Shabtai's partner in HFZ Shore Club, which was formed to redevelop the Property, Monroe caused the Mezzanine Lender to conduct a strict foreclosure pursuant to New York's UCC § 9-620. In the foreclosure, the Mezzanine Borrower (then owned by Monroe) transferred its equity interest in the Property Owner to the Mezzanine Lender (then owned by Monroe) and the Mezzanine Lender then transferred its interest in the Property Owner to Shore Club Owners JV LLC on June 23, 2021 (id., ¶ 17).4
Following its acquisition, Monroe caused the dissolution of the Shore Club Managing Member LLC, Shore Club JV LLC, Shore Club Mezzanine II LLC, and the Mezzanine Borrower between September 29 and October 8, 2021 by choosing not to appoint a registered agent as required by Delaware law (id.). This was not mere neglect. This was intentional. In fact, when Monroe learned that HFZ Shore Club had not yet been dissolved in late October 2021, at least 10 months after they initially acquired it (id., ¶ 23), they subsequently filed the Certificate of Cancellation for HFZ Shore Club (HFZ Shore Club along with Shore Club Managing Member LLC, Shore Club JV LLC, Shore Club Mezzanine II LLC and the Mezzanine Borrower collectively hereinafter the Dissolved Entities) on November 1, 2021, all without notifying Mr. Shabtai, who remained a 3.34% member of HFZ Shore Club (id.).
On June 21, 2021, the plaintiff personally served the defendants pursuant to CPLR 311 by serving the summons and complaint via service on their registered agents and by U.S. Mail (id., ¶¶ 24, 27). Monroe and Witkoff claim that they did not know of this lawsuit because they simply forgot to update the address for the entities they acquired almost one year prior to the time this lawsuit was filed. They argue that because they were too busy managing the Property and otherwise expected HFZ and its principals — the very people they had divested of their interests — to forward any important notices, Monroe has a reasonable excuse for default:
24. Plaintiff claims that the Shore Club Entities were served with the summons and complaint on June 21, 2021 via service on CSC and VCorp. Paioff Aff. ¶ 7, Ex. 2. But, due to the demands of managing the Property, prior to October 2021, neither Monroe nor Witkoff remembered to update the address for the Shore Club Entities with each entity's registered agent. At the time that Monroe took control of Property Owner in the winter of 2020-2021, due to the COVID-19 pandemic, most employees of Monroe and Witkoff continued to work from home. Thus, supplying CSC and VCorp with updated physical addresses for receipt of notices was not a high priority and CSC, the registered agent for Property Owner, was not provided with an updated address for Property Owner until October 21, 2021. Instead, Monroe and Witkoff expected that Defendant HFZ would forward any important notices as HFZ knew that Monroe had taken over Property Owner and the Dissolved Entities.
(id., ¶ 24 [emphasis added]).
As discussed above, the defendants knew of Mr. Shabtai's interest in the Property and the obligation to pay him. Putting that aside, because they failed to update the address for HFZ Shore Club until October 2021, Monroe claims they were never made aware of the service on the Defendants until they learned in late November 2021 that Mr. Shabtai had filed a motion seeking a default judgment (id., ¶ 29). The Defendants filed papers in opposition to Mr. Shabtai's motion and cross-moved for leave to file a late motion to dismiss on December 22, 2021 (NYSCEF Doc. No. 27) and filed the motion to dismiss on January 11, 2022 (NYSCEF Doc. No. 40). Significantly, the record is bereft of any communications with Mr. Shabtai in December 2020 when Monroe succeeded to HFZ's interest in HFZ Shore Club and became Mr. Shabtai's partner and owed him fiduciary duties. The defendants had all the time in the world to file a certificate of cancellation for HFZ Shore Club on October 28, 2021 (NYSCEF Doc. No. 48) approximately five months after this lawsuit was filed.
To successfully oppose a CPLR 3215(a) motion for default judgment, a defendant must show a reasonable excuse for the default and a meritorious defense (Zhang v Jong, 195 AD3d 435, 435 [1st Dept 2021]). CPLR 3012(d) also allows for an extension of time to appear or plead upon just terms and a showing of reasonable excuse for delay (Velasquez v New York City Transit Auth./MTA, 198 AD3d 555, 556 [1st Dept 2021]). New York has a “strong public policy in favor of disposing of cases on their merits,” and the motion court has discretion in determining what constitutes a reasonable excuse (Zhang, 195 AD3d at 435).
I. The defendants do not have a reasonable excuse
The failure to receive service of process predicated on the failure to maintain a proper address is, under the facts of this case, simply not a reasonable excuse (Majada Inc. v E & A RE Capital Corp., 205 AD3d 648, 649 [1st Dept 2022]). Nor is it reasonable under the circumstances to have expected HFZ, Monroe's predecessor-in-interest by virtue of Monroe's foreclosure on their equity position, to forward anything to them. HFZ had no obligation to do so. Finally, it does not matter that the defendants were working remotely during the pandemic. Updating an address with the registered agent does not require physical presence in the office and by the defendants’ own admission, their office attendance hiatus neither inhibited their ability to operate the Property, nor did it prevent them from filing the Certificate of Cancellation and otherwise intentionally trying to cause the dissolution of the Shore Club Entities.
Shanker v 119 E. 30th, Ltd., 63 AD3d 553, 554 (1st Dept 2009), Berardi Stone Setting, Inc. v Stonewall Contracting Corp., 170 AD3d 934, 936 (1st Dept 2019), Raiola v 1944 Holding Ltd., 1 AD3d 296, 296 (1st Dept 2003) and Cantarelli S.P.A. v L. Della Cella Co., 40 AD3d 445, 446 (1st Dept 2007) do not compel a different result. The Shanker, Berardi, and Raiola courts held that a default can be vacated pursuant to CPLR 317 where a defendant was not personally served, did not receive actual notice, and otherwise has a meritorious defense. CPLR 317 however does not apply to the case at nisi prius. In this case, as discussed above, the defendants were personally served. Nor are the defendants entitled to relief based on Cantarelli. In Cantarelli, when the defendants received the summons and complaint after the time to answer had expired, the defendant's attorney promptly reached out and negotiated a standstill agreement. When the negotiations broke down, the plaintiff immediately moved for a default judgment (Cantarelli, 40 AD3d at 446). The Court held that the defendant had a reasonable excuse based on law office failure to negotiate the right to file a late answer and a meritorious defense based on the fact that it received less than the goods that the plaintiff billed it for and having provided documentation to the court in support of its position (id.). This is simply not this case here. The defendants in this case were well aware of Mr. Shabtai's position and actively sought to frustrate his interest and avoid their obligation to pay him. Thus, the motion must be granted and the cross-motion must be denied.
II. The defendants lack a meritorious defense
A. The conversion claim is timely, adequately alleged and not duplicative
The defendants advance a series of ill-fated arguments to suggest that they have a meritorious defense to the claim sounding in conversion. They do not. First, they argue that the conversion claim is barred by the three-year statute of limitations (CPLR 214). Second, the defendants argue that the well-pled complaint fails to state a cause of action sounding in conversion. Third, the defendants argue that the conversion claim is duplicative of the breach of contract claim. The arguments all fail.
The defendants lawfully obtained Mr. Shabtai's initial investment and Mr. Shabtai concedes that he did not make a demand for its return prior to filing this lawsuit (Malanga v Chamberlain, 71 AD3d 644, 645-46 [2d Dept 2010]). Monroe (i) succeeded to HFZ's interests and its obligation to pay Mr. Shabtai and (ii) owed Mr. Shabtai fiduciary duties as of December 2020. The alleged conversion accrued when Monroe effectuated the strict foreclosure on May 6, 2021 and transferred the interest in the Property Owner to divest Mr. Shabtai of his indirect interest in the Property so as to leave HFZ Shore Club with no value and no beneficial ownership in the Property. This was only a few weeks before this lawsuit was filed.5 Thus, the claim is timely.
An action for conversion requires a specific, identifiable fund and an obligation to treat it in a particular manner or otherwise return it (Thys v Fortis Securities, LLC, 74 AD3d 546, 547 [1st Dept 2010]). As discussed above, the parties expressly agreed that Mr. Shabtai's $3.5 million investment was to be used only for direct and indirect interests in the Property. As such the elements are more than satisfied (Family Health Management, LLC v Rohan Developments, LLC, 2022 WL 2068827 at *3 [1st Dept 2022]; Lemle v Lemle, 92 AD3d 494, 497 [1st Dept 2012]).
The conversion claim is not duplicative of the breach of contract claim for two reasons. First, the conversion claim was brought against different parties than the breach of contract claims (Schron v Grunstein, 39 Misc 3d 1213(A), at *6 [Sup Ct NY County 2013]). Second, the conversion claim is based on a separate allegation of misconduct. Whereas the breach of contract claim alleges that HFZ failed to satisfy its obligations set forth in the First Letter Agreement, the conversion claim alleges that the Defendants did not use the funds for the particular purpose for which they were provided — i.e., they effectuated the strict foreclosure, transferred the interest in Property Owner to divest Mr. Shabtai of his interest in the Property, and dissolved HFZ Shore Club — all without honoring the obligation to pay their partner, Mr. Shabtai. Therefore, the defendants do not have a meritorious defense to the conversion claim.
B. The defendants lack a meritorious defense as to the constructive trust and accounting causes of action
A constructive trust requires: (1) a confidential or fiduciary relationship, (2) a promise, (3) transfer in reliance thereof, and (4) unjust enrichment (Sharp v Kosmalski, 40 NY2d 119, 121 ). An accounting also requires a fiduciary relationship and a showing of some wrongdoing by the defendant concerning property in which the plaintiff has an interest (LMEG Wireless, LLC v Farro, 190 AD3d 716, 720 [2d Dept 2021]).
The defendants primarily argue that these equitable remedies are not available to Mr. Shabtai because no fiduciary duties were owed to him. For the reasons set forth above, the argument is unavailing. Mr. Shabtai was owed fiduciary duties because the defendants’ conduct falls squarely within the exception to the general disclaimer set forth in the Operating Agreement. The purpose of the transfer to the new entity was solely to divest Mr. Shabtai of his interest in the Property and to avoid the express obligation to pay him. It was obviously intentional and done in bad faith. Thus, the defendants lack a meritorious defense to these equitable remedies as well.
C. Dismissal based on the Dissolution of the Dissolved Entities also does not present a meritorious defense
Finally, the defendants argue that once a certificate of cancellation has been filed, a dissolved Delaware limited liability company lacks the capacity to sue or be sued (Schiff v ZM Equity Partners, LLC, 2020 WL 5077712, at *3 [SDNY Aug 27, 2020]). Therefore, the defendants argue that dismissal of the claims against the Dissolved Entities is required.
Under the facts and circumstances of this case, this argument twists logic beyond all recognition.
Put another way, the defendants argue that because they filed a Certificate of Dissolution as to HFZ Shore Club (albeit after this lawsuit was commenced) and otherwise let the Secretary of State dissolve the Dissolved Entities as part of their elaborate scheme to avoid paying Mr. Shabtai the money owed to him, they need not have properly wound up the Dissolved Entities affairs and can avoid suit. The argument fails. The defendants can not subvert Delaware's winding up requirements, their obligations and exposure to legitimate claims merely by causing the dissolution of the Dissolved Entities (Lyman Commerce Solutions, Inc. v Lung, 2013 WL 4734898, at *5 [SDNY Aug 30, 2013]).
The Court has considered the defendants remaining arguments and finds them unavailing.
Thus, the motion must be granted and the cross-motion must be denied. The Shore Club Entities’ motion to dismiss must be denied as moot.
Accordingly, it is
ORDERED that Benjamin Shabtai's motion for default judgment against HFZ Shore Club LLC, Shore Club Managing Member LLC, Shore Club JV LLC, Shore Club Property Owner LLC, Shore Club Mezzanine I LLC, and Shore Club Mezzanine II LLC is granted; and it is further
ORDERED that the Clerk is directed to enter judgment in favor of Benjamin Shabtai and jointly and severally against HFZ Shore Club LLC, Shore Club Managing Member LLC, Shore Club JV LLC, Shore Club Property Owner LLC, Shore Club Mezzanine I LLC, and Shore Club Mezzanine II LLC in the amount of $4,550,000, plus statutory interest of 9% from May 6, 2021 until the date of entry of judgment, plus costs and disbursements as allocated by the Clerk for a total amount of $_ and the plaintiff shall have execution thereof; and it is further
ORDERED that a constructive trust is imposed upon all of HFZ Shore Club LLC, Shore Club Managing Member LLC, Shore Club JV LLC, Shore Club Property Owner LLC, Shore Club Mezzanine I LLC, and Shore Club Mezzanine II LLC's assets; and it is further
ORDERED that the Shore Club Entities shall provide an accounting to Mr. Shabtai within 45 days of the date of this order; and it is further
ORDERED that the motion to dismiss is denied; and it is further
ORDERED that the remaining parties shall appear for a status conference on August 12, 2022 at 12:30 PM.
1. Monroe is a successor and assign of HFZ.
2. The assignment agreements are not in the record but undoubtedly indicated that HFZ was not the only owner of HFZ Shore Club, that Mr. Shabtai was a minority owner of HFZ Shore Club and either, at a minimum, described the governing documents of HFZ Shore Club (which would have included the agreements with Mr. Shabtai) or more probably otherwise specifically addressed HFZ and Monroe's obligations to pay Mr. Shabtai.
3. Presumably as part of their due diligence Monroe reviewed the structure chart, partnership agreements and other governing documents as part of their underwriting process. To the extent that they were provided with false documents and false representations from HFZ, nothing in this decision prevents them from pursuing a claim against HFZ or its principals, if appropriate.
4. Shore Club Owners JV LLC was a joint venture formed by Monroe as a 75% member and WG Shore LLC, an entity affiliated with Witkoff, as a 25% member (id., ¶ 6).
5. The defendants’ argument that they lacked notice is disingenuous at best. Under Delaware law, a limited liability company which has been dissolved is required to pay all claims and obligations known to the limited liability company (Del Code Ann TI 6 § 18-804). Mr. Shabtai has not been paid the $4.55 million that he is owed. On the record before this Court, he received no notice of the winding up of the company and Monroe breached their fiduciary duties to him by divesting him of his interest in the Property. Monroe's conduct under the circumstances is more than a little concerning. Monroe knew or should have known of the obligation to pay Mr. Shabtai and of their potential fiduciary duties to him when they underwrote the loan. In connection with their underwriting, they undoubtedly reviewed typical structure charts and the underlying agreements with Mr. Shabtai and received representations from the borrower regarding the ownership structure, and the obligation to Mr. Shabtai and to any creditors. At the absolute latest, they knew of Mr. Shabtai, their fiduciary duties to Mr. Shabtai and the obligation to pay Mr. Shabtai as of December 2020 when they succeeded to HFZ's interests. This is ten months prior to filing the Certificate of Cancellation and divesting Mr. Shabtai of his indirect interest in the Property.
Andrew Borrok, J.
Response sent, thank you
Docket No: Index No. 653453/2021
Decided: July 26, 2022
Court: Supreme Court, New York County, New York.
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