Opinion
Civil Action Nos. 1:20-cv-4792-RWS 1:20-cv-4800-RWS Related Bankruptcy Cases 15-58440-WLH, 15-58443-WLH
2022-01-12
Chittranjan THAKKAR, Appellant, v. GOOD GATEWAY, LLC, and SEG Gateway, LLC, & Clay Townsend, Appellees.
M. Denise Dotson, M. Denise Dotson, LLC, Avondale Estates, GA, Jonathan Akins, John Anthony Christy, Julia Carole Hord, Kelly L. Walsh, Schreeder Wheeler & Flint, LLP, Atlanta, GA, for Debtor. Walter Eugene Jones, Balch & Bingham LLP, Atlanta, GA, for Appellees Good Gateway, LLC, SEG Gateway, LLC.
M. Denise Dotson, M. Denise Dotson, LLC, Avondale Estates, GA, Jonathan Akins, John Anthony Christy, Julia Carole Hord, Kelly L. Walsh, Schreeder Wheeler & Flint, LLP, Atlanta, GA, for Debtor.
Walter Eugene Jones, Balch & Bingham LLP, Atlanta, GA, for Appellees Good Gateway, LLC, SEG Gateway, LLC.
ORDER
RICHARD W. STORY, United States District Judge
This case comes before the Court on appeal from the United States Bankruptcy Court for the Northern District of Georgia pursuant to 28 U.S.C. § 158(a)(1). Appellant Chittranjan Thakkar ("Appellant" or "Thakkar"), who is proceeding pro se , asks this Court to reverse the decision of the bankruptcy judge denying Thakkar's motion for sanctions against Appellees Good Gateway, LLC, SEG Gateway, LLC, and Clay Townsend (collectively, "Appellees" or "Gateway"). [Dkts. 8, 15]. Appellees contend that Thakkar lacks standing to bring this appeal and jointly move for dismissal based on the absence of subject matter jurisdiction. [Dkt. 13].
BACKGROUND
Appellant Chittranjan (or "Chuck") Thakkar either is (or was at the relevant time) the manager of Nilhan Developers, LLC, and Bay Circle Properties, LLC. Thakkar, who is familiar to this Court, appeals the Bankruptcy Court's Order denying Thakkar's motion for sanctions against Appellees in two separate core proceedings stemming from the following bankruptcy cases: In Re: Bay Circle Properties, LLC – Bankruptcy Case No. 15-58440-WLH (Civil Action / Appeal No. 1:20-cv-4792-RWS); and In Re: Nilhan Developers, LLC – Bankruptcy Case No. 15-58443-WLH (Civil Action / Appeal No. 1:20-cv-4800-RWS).
The relationship between Thakkar and Appellees Gateway precedes the instant bankruptcy actions in the Northern District of Georgia and is the backdrop for these two appeals. To summarize, two civil actions were initiated by Gateway against Thakkar and various Thakkar-affiliated entities ("Thakkar Defendants") in the state courts of Florida well in advance of the May 4, 2015 petition date. Gateway sought and obtained final judgments against the Thakkar Defendants in the amounts of $2,500,000, $12,000,000, and $15,376,435.58 in the Ninth Judicial Circuit of Orange County, Florida. With final judgments in hand, one of the actions taken by Gateway was to record writs of fieri facias in Gwinnett County, Georgia, where Thakkar and his wife owned real property, including the "Bay Circle Property."
The Florida State Proceedings are captioned: Good Capital Group, Inc. v. Orlando Gateway Partners, LLC, et al., 2009-CA-039746-O (Fla. 9th Cir.); and Good Gateway LLC v. Orlando Gateway Partners LLC, et al., 2010-CA-015315-O (Fla. 9th Cir.).
On May 1, 2015, Thakkar and his wife transferred their interest in the Bay Circle Property to "Bay Circle Properties, LLC," which interest was subject to the liens of Gateway and Wells Fargo Bank, National Association ("Wells Fargo"). Gateway's collection efforts since that time appear to have fueled the fire and precipitated some of Thakkar's litigiousness as well as the filing of bankruptcy for numerous Thakkar-affiliated entities. On May 4, 2015, Nilhan Developers filed a voluntary petition under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court for the Northern District of Georgia, commencing Bankruptcy Case No. 15-58443. At the same time, four other corporate entities affiliated with the Debtor also filed Chapter 11 petitions. See 11 U.S.C. § 101(2) (defining "affiliate"); and see Redmond v. Ellis Cty. Abstract & Title Co. (In re Livestock Co.), 198 B.R. 365, 371 (Bankr. D. Kan. 1996). The Honorable U.S. Bankruptcy Judge Wendy L. Hagenau ("Judge Hagenau") was assigned as presiding judge for all five cases, which were initially jointly administered under Bankruptcy Case No. 15-58440-WLH until the Bay Circle Properties, LLC case was converted to a Chapter 7 proceeding.
According to the Bankruptcy Court, Thakkar is or was the manager of all of the debtor entities and he and/or other family members are owners (in one form or another) of the debtor entities. [Dkt. 1-2, 11/24/20 Judge Hagenau's Order ("11/24/20 BR Order") ("Ownership in each debtor differs somewhat but in general in each debtor, ownership is held by some combination of Mr. Thakkar, his children Rohan and Niloy, his wife, or a company which some combination of Thakkars owns.")]. Judge Hagenau's Order is also found on the bankruptcy court dockets at: BR No. 15-58440-WLH, Dkt. 1222; BR No. 15-58443-WLH, Dkt. 1465.
The related bankruptcy cases were brought by Debtors Bay Circle Properties, LLC, DCT Systems Group, LLC, Sugarloaf Centre, LLC, and NRCT, LLC.
Also occurring throughout 2019, Gateway continued collection efforts based on the final judgments discussed, supra. To that end, Gateway filed motions seeking charging orders in the state courts of Florida and Georgia against Thakkar's interest in various entities, including Thakkar's interest in the two Debtors involved here, Nilhan Developers and Bay Circle Properties.
In April of 2019, Gateway obtained another judgment in the State of New York against Rohan Thakkar, Appellant's son, in the amount of $3,653,199.16, which was based on claims of fraudulent transfer. Afterwards, Gateway took similar steps in the state courts of both Florida and Georgia to domesticate the final judgment from New York.
The dates and relevant entities are detailed within the Appellees’ brief as well as Judge Hagenau's 11/24/20 BR Order.
On August 30, 2019, the Chapter 11 Trustee ("Trustee") filed a Motion for an Order Directing Mediation. Gateway's desire to pursue charging orders in Florida was among the topics identified by the Trustee as subject to mediation. The Bankruptcy Court ordered the Thakkar-affiliated entities and Gateway to participate in mediation as requested by the Trustee.
Charging Orders were issued by the state courts in Florida and Georgia, some after Judge Hagenau's Mediation Order (and affecting individual members’ interests in debtors and non-debtors). Gateway later consented to vacatur of certain of the charging orders prior to mediation.
A charging order is a remedy that entitles a judgment creditor of an LLC to pursue the interest of the LLC's member (i.e., the member's share of profits and losses) and to receive distributions of an LLC which the member "would otherwise have been entitled to receive, up to the unsatisfied amount of the judgment debt." Gaslowitz v. Stabilis Fund I, LP, 331 Ga.App. 152, 770 S.E.2d 245, 248 (2015) (citation and internal quotation marks omitted). A charging order does not provide the judgment creditor a direct remedy against the assets of the LLC. Id. (citation omitted). According to Appellees, this is true under both Georgia and Florida state law.
The parties participated in a two-day mediation beginning on October 24, 2020, which resulted in an impasse.
Thakkar sought sanctions against Gateway for allegedly violating the automatic stay, 11 U.S.C. § 362(k), and/or Judge Hagenau's Mediation Order. After conducting a hearing on October 27, 2020, Judge Hagenau denied Thakkar's Motion for Sanctions on November 9, 2020. Judge Hageneau's Orders are incorporated herein by reference. [11/24/20 BR Order]. Thakkar contends that the denial of sanctions constitutes an abuse of discretion.
The core proceeding parties, legal issues, and briefing [Dkts. 8, 13, 15] relevant to these appeals, in Bankruptcy Case Nos. 15-58440 and 15-58443, are identical. This Order resolves both appeals.
STANDARD OF REVIEW
Judicial review of a final order in bankruptcy is generally limited to review of factual findings for clear error and de novo review of legal conclusions. See In re Sublett, 895 F.2d 1381, 1383 (11th Cir. 1990) (citing In re Thomas, 883 F.2d 991, 994 (11th Cir. 1989) ).
Determining whether a litigant has standing to appeal a Bankruptcy Court ruling, and whether an appellant is a "person aggrieved," is a question of fact to be resolved by the District Court. In re Fisher Island Invs., Inc., 2012 WL 930288, at *2 (Bankr. S.D. Fla. Mar. 19, 2012) (9E Am. Jur. 2d Bankruptcy § 3811 (who may appeal); accord Big Shanty Land Corp. v. Comer Properties, Inc., 61 B.R. 272, 277 (N.D. Ga. 1985) (citation omitted). A factual finding is clearly erroneous only if, after reviewing the record evidence, the reviewing court is "left with the definite and firm conviction that a mistake has been committed." Lykes Bros. v. U.S. Army Corps of Engineers, 64 F.3d 630, 634 (11th Cir. 1995) (quoting United States v. United States Gypsum Co., 333 U.S. 364, 68 S. Ct. 525, 542, 92 L.Ed. 746 (1948) ).
"The decision to impose sanctions is reviewed for abuse of discretion." L. Sols. of Chicago LLC v. Corbett, 971 F.3d 1299, 1304 (11th Cir. 2020) (citation omitted). The abuse of discretion standard is "extremely limited and highly deferential." United Kingdom v. United States, 238 F.3d 1312, 1319 (11th Cir. 2001). "The application of an abuse-of-discretion review recognizes the range of possible conclusions the [bankruptcy] judge may reach." United States v. Frazier, 387 F.3d 1244, 1259 (11th Cir. 2004) (en banc). The reviewing court "must affirm unless [it] find[s] that the ... court has made a clear error of judgment, or has applied the wrong legal standard." Amlong & Amlong, P.A. v. Denny's, Inc., 500 F.3d 1230, 1238 (11th Cir. 2007).
ISSUES ON APPEAL
1) Whether Appellant Thakker has standing; and
2) Whether the Bankruptcy Court abused its discretion in finding that Appellees did not violate the automatic stay or mediation order.
STANDING
As an initial matter, the Court must first determine whether Thakkar's appeal is properly before the Court. The "person aggrieved doctrine limits the right to appeal a bankruptcy court order to those parties having a direct and substantial interest in the question being appealed." In re Ernie Haire Ford, Inc., 764 F.3d 1321, 1325 (11th Cir. 2014).
"Bankruptcy's person aggrieved doctrine restricts standing more than Article III standing, as it allows a person to appeal only when they are ‘directly and adversely affected pecuniarily by the order.’ " In re Westwood Cmty. Two Ass'n, Inc., 293 F.3d 1332, 1335 (11th Cir. 2002) (citation omitted). "In other words, the person must have a financial stake in the appealed order such that the order ‘diminishes their property, increases their burdens or impairs their rights.’ " In re Fisher Island Invs., Inc., 778 F.3d 1172, 1196 (11th Cir. 2015) (quoting In re Westwood Cmty. Two Ass'n, Inc., 293 F.3d at 1334 ); and see Big Shanty Land Corp., 61 B.R. at 277 (citation omitted) ("person aggrieved" test was designed to limit appeals arising out of bankruptcy cases). A litigant is not "aggrieved" when the bankruptcy ruling causes only indirect harm to the appellant's asserted interest. See In re Nihan Fin., LLC, 831 Fed. Appx. 479, 480 (11th Cir. 2020) (citation omitted).
In this case, Appellees contend that Thakkar lacks standing because he is not a "person aggrieved" by the Bankruptcy Court's Order. Thakkar argues that, as the manager and member of each entity, and as a judgment debtor, he has a direct pecuniary interest and, therefore, is a "person aggrieved" by the denial of sanctions. Thakkar's arguments are not supported by law.
Appellees further state that Thakkar abandoned any argument to the contrary by failing to address standing in his opening brief, which could also provide a basis for summary dismissal of the appeals. See, e.g., Herring v. Secretary, Dept. of Corrections, 397 F.3d 1338, 1342 (11th Cir. 2005).
Thakkar goes so far as to argue that the purported violation of the automatic stay "was against him personally." [Reply at 8]. Thakkar is mistaken. Thakkar, although permitted to participate in the bankruptcy proceedings, is not a party in the bankruptcy case. See Big Shanty Land Corp., 61 B.R. at 277 (citation omitted) (discussing that stricter "person aggrieved" standing test "springs from the nature of bankruptcy litigation which almost always involves the interests of persons who are not formally parties to the litigation").
The only difference between Thakkar's interests in Nilhan Developers and Bay Circle Properties is that it is undisputed that Thakkar remains a member of Bay Circle Properties while Gateway contends that Thakkar is no longer a member of Nilhan Developers – a fact contested by Thakkar. This fact is not determinative of standing. Judge Hagenau outlines the relevant law in this area within her November 24, 2020 Order and analysis of standing. [11/24/20 BR Order at 8-9]. As explained below, notwithstanding membership of either LLC, the analysis of Appellant's standing in both cases is the same.
Judge Hagenau's Order states: "There is no dispute that this particular Debtor [Nilhan Developers] is owned by Rohan and Niloy Thakkar."
While discussing Thakkar's inability to assert a claim for violation of the automatic stay in the first instance, Judge Hagenau explained in part:
Mr. Thakkar is not the Debtor. He is not a creditor. He is not even an equity owner of the Debtor. At the time he filed the Motions, Mr. Thakkar was no longer the manager of the Debtor as that responsibility had passed to the Trustee. His alleged grievance, that he incurred fees as a result of the Charging Order, does not fall within the zone of interests the automatic stay is designed to protect, namely the preservation of estate assets. Additionally, to the extent the estate would have a claim for a violation of the automatic stay, it would belong to the Trustee as the fiduciary tasked with administering and collecting the assets of the bankruptcy estate, not with Mr. Thakkar.
Assuming Thakkar is a member of both Debtors, Bay Circle Properties and Nilhan Developers, his interest in either LLC does not equate to an ownership interest in the property of the LLC under state law. See FLA. STAT. § 605.0110(4) ; O.C.G.A. § 14-11-501(a). The limited interest of an LLC member has also been acknowledged in bankruptcy. See, e.g., In re Whittle, 449 B.R. 427, 430 (Bankr. M.D. Fla. 2011) (stating that Florida's statutory scheme makes clear that an LLC "holds property separate and apart from the property of its members").
Here, Thakkar argues that an equity interest in the Debtor LLCs becomes a direct pecuniary interest in surplus funds upon dissolution of the LLC. The Eleventh Circuit has addressed the potential for distribution of surplus funds in other Thakkar cases and explained that the interest of a member of an LLC was, at best, indirect. In re Nihan Fin., LLC, 835 Fed. Appx. 1013, 1014 (11th Cir. 2021). The Eleventh Circuit panel stated there was "[n]o guarantee" Thakkar would receive any surplus remaining even if the debtor (Nilhan Financial) satisfied its obligations to its creditors, and the appeal was dismissed for lack of standing. The appellate court explained that "[i]n Florida, ‘[a] member of a limited liability company has no interest in any specific limited liability company property.’ " In re Nihan Fin., LLC, 835 Fed. Appx. at 1014 (quoting FLA. STAT. § 605.0110(4) ).
Thakkar appears to rely upon Florida law in asserting that his equity interest or member interest in the Debtors, combined with the operating agreement (or subordination agreement) - identifying the bankruptcy case as triggering dissolution of the LLC - qualifies dissolution as a sufficient circumstance for LLC members to claim a direct and pecuniary interest in surplus funds. Fla. Stat. § 605.0710. He suggests that the nature of a member's interest in an LLC converts from an indirect interest to a direct interest upon dissolution of the LLC.
In another Thakkar appeal, the Eleventh Circuit held that Thakkar lacked standing because he was not "aggrieved" by approval of a settlement agreement by the bankruptcy court. In re Nihan Fin., LLC, 831 Fed. Appx. 479, 480 (11th Cir. 2020). The court explained that Thakkar was not a party to the settlement agreement, and so the agreement did not compromise or affect his rights or liabilities. Significantly, "[t]he approval of the agreement only indirectly affected his pecuniary interest in the debtor, if at all." Id. (citing In re AFY, Inc., 733 F.3d 791, 793 (8th Cir. 2013) (holding that shareholders of debtor were not persons aggrieved entitled to appeal denials of objections to claims)).
As highlighted by Gateway, Thakkar has filed numerous appeals and repeatedly been found to lack standing notwithstanding having a pecuniary interest as a member or shareholder. See, e.g., In re Nilhan Fin., LLC (Thakkar v. Greenspoon Marder, P.A.), 832 Fed. Appx. 678, 679 (11th Cir. 2021) ; and see In re Nihan Fin., LLC (Thakkar v. Good Gateway, LLC), 831 Fed. Appx. 479, 480 (11th Cir. 2020) ; In re Nihan Fin., LLC (Thakkar v. Nejame Law, P.A.), 835 Fed. Appx. 1013, 1014 (11th Cir. 2021) ; In re: Nilhan Financial, LLC, Debtor (Thakkar v. King Blackwell Zehnder & Wermuth), PA, 840 Fed.Appx. 502, 503 (11th Cir. 2021) ; In re:Nilhan Financial, LLC, Debtor, (Thakkar v. Holland and Knight, LLP), 840 Fed.Appx. 504, 504-05 (11th Cir. 2021).
Appellees’ brief states that Thakkar has objected to and appealed orders approving of compromises reached between bankruptcy trustees and debtors in three Chapter 7 cases and five Chapter 11 cases and has also appealed orders awarding several of his own law firm's requests for attorney's fees. [Dkt. 13 at 3 n.2].
In short, any pecuniary interest Thakkar has as a member of the LLC Debtors is limited to an interest in personal property (i.e., distribution of profits) but does not entitle him to the LLC's assets and does not satisfy the "person aggrieved" test. Because Thakkar lacks standing, the Court does not reach the merits. CONCLUSION
If the Court were to reach the substantive question concerning Judge Hagenau's denial of Thakkar's Motion for Sanctions, which it does not, it is highly unlikely Thakkar could clear the steep hurdle of demonstrating abuse of discretion where the presiding judge is familiar with the interested parties and involved with these debtors for more than five years. Judge Hagenau's decision regarding the imposition of sanctions is entitled to much deference.
In conclusion, the Court finds that Appellant Thakkar is not a "person aggrieved" in this instance and he, therefore, lacks standing to appeal the ruling of the Bankruptcy Court denying his Motion for Sanctions against Appellees Gateway. Accordingly, his appeals are due to be dismissed.
For the foregoing reasons, it is ORDERED that the appeals are hereby DISMISSED for lack of standing.
The Clerk is DIRECTED to close Civil Action No. 1:20-cv-4792-RWS and Civil Action No. 1:20-cv-4800-RWS.
SO ORDERED this 12th day of January, 2022.