11-09074-cgm Doc 188 Filed 03/01/13 Entered 03/01/13 19 ...here on January 8th we had a motion to...

Hayward, Parker, O’Leary & Pinsky Attorneys for John F. Magee and Commercial Construction, Inc. 225 Dolson Ave., P.O. Box 929 Middletown, NY 10940 Tel: 845-343-6227 Fax 845-343-1927 Email [email protected] Mike Pinsky, Esq. UNITED STATES BANKRUPTCY COURT: SOUTHERN DISTRICT OF NEW YORK --------------------------------------------------------x In re: Chapter 11 FKF 3, LLC, Case No. 10-37170 (cgm) Debtor. ---------------------------------------------------------------x GREGORY MESSER, as Trustee of the FKF Trust, Plaintiff, -against- Adv. Pro. No. 11-09074 (cgm) JOHN F. MAGEE, et al.,1 Defendants. --------------------------------------------------------x

MOTION OF JOHN F. MAGEE TO SET ASIDE DEFAULT IN ANSWERING PLAINTIFF’S FIRST AMENDED COMPLAINT

John F. Magee (“Magee”), one of the defendants in this adversary proceeding, now moves

pursuant to Bankruptcy Rule 7055 and Fed. R. Civ. P. 55(c) to set aside his default in answering the

plaintiff’s First Amended Complaint, and respectfully shows as follows.

1. Plaintiff’s Motion for Order Granting Leave to File a First Amended Complaint in this

adversary proceeding was filed on December 19, 2012 (ECF Doc. 129), and scheduled for a hearing on

January 8, 2013.

1 The defendants include John F. Magee, Mitchell L. Klein, Burton R. Dorfman, Melissa A. Magee, Patrice L. Magee, Jonathan Magee, Lizbeth Magee Keefe, Lawrence J. Keefe, Jr., Valerie Magee, FKF Holding Company, LP, FKF V Holding Co., S.F. Properties, LLC, Commercial Construction, Inc., Bradley Industrial Park, Inc., FKF Edgewater, LLC, Aventine Edgewater LLC, FKF Retail LLC, Aventine Retail, LLC, Jerry’s Self-Storage, LLC, Rose Glasses, LLC, Bashert Developers, LLC, TA Group, LLC, JDJ Holding Co., LLC, Fasman, Klein & Feldstein, LLP, and Dorfman, Knoebel & Conway, LLP.

11-09074-cgm Doc 188 Filed 03/01/13 Entered 03/01/13 19:51:26 Main Document Pg 1 of 13

2. Following a hearing held on January 8, 2013, on January 11, 2013, the Court entered an

Order Granting Leave to Plaintiff Gregory Messer, as Trustee of the FKF Trust, to File a First Amended

Complaint (the “Rule 15 Order”). The First Amended Complaint was filed on January 11, 2013 and,

pursuant to the Rule 15 Order, answers were required 14 days after filing. (The Rule 15 Order did not by

its terms accord Magee additional time for answering following mail service, as is ordinarily the case

under Bankruptcy Rule 9006(f).)

3. The First Amended Complaint, along with the Rule 15 Order and electronic filing receipt,

was served on January 11, 2013. Defendants represented by counsel of record were served via the Court’s

CM/ECF system electronically. See Certificate of Service dated and filed January 11, 2013 (ECF Doc.

145). Magee, not then having counsel of record in the adversary proceeding, was served on January 11,

2013 by first class mail. See Certificate of Service dated and filed January 11, 2013 (ECF Doc. 146).

4. The First Amended Complaint adds two (2) causes of action: an alter ego claim, and a

claim based on spoliation of evidence in connection with records formerly in the possession of co-

defendant Burton Dorfman, Esq.

5. The “Wherefore” clause in the original complaint seeks actual and punitive damages

against all parties (before any interest or allowed attorneys’ fees) in amounts substantially exceeding

$100,000,000.00.

6. Magee was formerly represented in this proceeding by attorney Marc Stuart Goldberg,

Esq.

7. Mr. Goldberg sought permission to withdraw as counsel to Magee by motion filed on

October 18, 2012 (ECF Doc. 111).

8. In his motion for leave to withdraw, Mr. Goldberg asserted that he was then owed

attorney’s fees and disbursements exceeding $45,000.00

9. Following a hearing held on November 2, 2012, Mr. Goldberg’s motion to withdraw was

granted by Order dated and filed November 5, 2012 (ECF Doc. 121)


10. Magee filed a letter with the Court pro se, responding to Mr. Goldberg’s motion shortly

after the November 2, 2012 hearing, stating inter alia that Magee had “been searching for a replacement

attorney, I have not found one yet, and ask the Court to stay this case for 30-45 days to permit me the time

to find a new attorney.” Letter dated November 5, 2012, filed November 7, 2012 (ECF Doc. 122). (Mr.

Magee’s letter also recites that he had paid Mr. Goldberg approximately $243,000.00 prior to his

withdrawal.)

11. Pursuant to the Rule 15 Order, Magee’s answer to plaintiff’s First Amended Complaint

was due on January 25, 2013.

12. On February 1, 2013, the Court held a status conference on certain matters pending

before the Court in connection with the main case of FKF3, LLC, including the above-captioned

adversary proceeding and NCP Realty, LLC v. Mitchell L. Klein, et al., Adv. Pro. 12-09104 (cgm). See

Notice of Agenda and Status Report for Hearings and Pre-Trial Conferences Scheduled for Friday,

February 1, 2013, filed January 31, 2013 (ECF Doc. 532) in In re FKF 3, LLC, Chapter 11 Case No. 10-

37170 (cgm).

13. The undersigned appeared at the February 1st hearing for Mr. Magee, although indicating

that a signed retainer agreement and retainer deposit had not yet been received but were expected in the

immediate future. February 1, 2013 Transcript of Pretrial Conference before the Honorable Cecelia G.

Morris, United States Bankruptcy Judge, filed February 25, 2013, (ECF Doc. 186) (“Transcript”), p. 3, l.

24 – p. 4, l. 3..

14. At the February 1, 2013 hearing, Fred Stevens, Esq., counsel for plaintiff in Gregory

Messer, as Trustee of the FKF Trust v. John F. Magee, et al., Adv. Pro. No. 11-09074 (cgm), stated in

part as follows:

“Just to review what we have – what we’ve accomplished, first last time we were here on January 8th we had a motion to amend the Trustee’s complaint to add two claims. One was a claim against the three principals of the debtor seeking an alter ego finding. The second was a spoliation claim against Mr. Magee. The Court granted that motion and we filed the amended complaint and served it.


Pursuant to Your Honor’s order the deadline to answer the amended complaint was January 25th and we’ve not received answers. Mr. Magee’s counsel – new counsel just asked me this morning if I’d agree to an extension. I have no issue with the two-week extension, that deadline.”

Transcript, p. 15, ll. 8 – 19.

15. The Court did not allow the extension, and declined the request by incoming counsel for

Mr. Magee to file an answer to the First Amended Complaint “as soon as the Court likes . . .” Id., p. 15,

l.20 - p. 16, l. 14.

16. The Court permitted Magee until March 1, 2013 to file a motion to set aside his default in

answering the First Amended Complaint. Transcript, p. 20, ll. 8-9.

17. Magee seeks to set aside his default in answering the plaintiff’s First Amended

Complaint pursuant to Bankruptcy Rule 7055 and Fed. R. Civ. P. 55.

18. Rule 55(a), Entering a Default, provides that “[w]hen a party against whom a judgment

for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by

affidavit or otherwise, the clerk must enter the party’s default.”

19. The plaintiff, not having opposed allowing Magee the opportunity to answer and defend

on the merits, had not asked the clerk to enter Magee’s default. This motion treats the Court’s declaration

of Magee’s default at the February 1, 2013 hearing as the equivalent of the clerk’s entry of default

required by Rule 55(a). See Traguth v. Zuck, 710 F.2d 90, 94 (2d Cir. 1983) (order finding party in default

treated as functional equivalent of clerk’s entry of default for purposes of applying Rule 55(c)).

20. Rule 55(c) provides in pertinent part that “[t]he court may set aside an entry of default for

good cause . . .”

21. “Good cause” is not defined in Rule 55. Courts in the Second Circuit have identified

three elements needed to make out “good cause” to set aside a default.

“Because Rule 55(c) does not define the term "good cause," we have established three criteria that must be assessed in order to decide whether to relieve a party from default or from a default judgment. These widely accepted factors are: (1) whether the default was willful; (2) whether setting aside the default would prejudice the adversary; and (3) whether a meritorious defense is presented. See, e.g., Action S.A., 951 F.2d at 507; In re Men's Sportswear, Inc., 834 F.2d 1134, 1138 (2d Cir. 1987); Meehan, 652 F.2d


at 277. Other relevant equitable factors may also be considered, for instance, whether the failure to follow a rule of procedure was a mistake made in good faith and whether the entry of default would bring about a harsh or unfair result. See Sony Corp. v. Elm State Elecs., Inc., 800 F.2d 317, 320 (2d Cir. 1986). Although the factors examined in deciding whether to set aside a default or a default judgment are the same, courts apply the factors more rigorously in the case of a default judgment, see, e.g., Meehan, 652 F.2d at 276, because the concepts of finality and litigation repose are more deeply implicated in the latter action.”

Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 96 (2d Cir. 1993). The court also counseled caution when the party against whom the default is sought appears pro se.

“Further, concerns regarding the protection of a litigant's rights are heightened when the party held in default appears pro se. A party appearing without counsel is afforded extra leeway in meeting the procedural rules governing litigation, and trial judges must make some effort to protect a party so appearing from waiving a right to be heard because of his or her lack of legal knowledge. See Traguth, 710 F.2d at 95; see also Haines v. Kerner, 404 U.S. 519, 520, 30 L. Ed. 2d 652, 92 S. Ct. 594 (1972) (per curiam) (allegations of pro se complaint are held to less stringent standard than formal pleading drafted by lawyers, when court considers a motion to dismiss). Hence, as a general rule a district court should grant a default judgment sparingly and grant leave to set aside the entry of default freely when the defaulting party is appearing pro se.”

Id.

22. Though Magee had non-bankruptcy counsel in Adam Kurland, Esq. and Patrick Burke,

Esq., Mr. Kurland does not have expertise in bankruptcy and furthermore has been listed by the plaintiff

as a witness in this adversary, and Mr. Burke serves as Mr. Magee’s counsel solely in connection with the

federal criminal investigation of FKF 3, LLC.

23. There exists a longstanding and strong judicial policy favoring the resolution of disputes

on their merits, rather than through forfeiture. Meehan v, Snow, 652 F.2d 274, 277 (2d Cir. 1981)

(“Defaults are not favored, particularly when the case presents issues of fact, and doubts are to be

resolved in favor of a trial on the merits.”); Gill v. Stolow, 240 F.2d 669, 670 (2d Cir. 1957) (“general

principles cannot justify denial of a party’s fair day in court except upon a serious showing of willful

default”).

“The decision is committed to the discretion of the district court, Keegel v. Key West & Caribbean Trading Co., 200 U.S. App. D.C. 319, 627 F.2d 372, 373 (D.C. Cir. 1980), but "an abuse of discretion need not be glaring to justify reversal," id. at 373-74. The narrow scope of the district court's discretion stems from "strong policies favoring the resolution of genuine disputes on their merits," Jackson v. Beech, 205 U.S. App. D.C. 84, 636 F.2d


831, 835 (D.C. Cir. 1980), and for the same reasons, "doubts are to be resolved in favor of a trial on the merits," Meehan v. Snow, 652 F.2d at 277.”

Traguth v. Zuck, supra, 710 F.2d at 94. “While courts are entitled to enforce compliance with the time

limits of the Rules by various means, the extreme sanction of a default judgment must remain a weapon

of last, rather than first, resort.” Meehan v. Snow, supra, 652 F.2d at 277. “[G]ood cause . . .should be

construed generously.” Enron Oil Corp. v. Diakuhara, supra, 10 F.3d at 96.

24. The strong judicial policy favoring the resolution of disputes on their merits is further

heightened when, as here, the amounts in controversy are very great. Sony Corp. v. Elm State Elecs., Inc.,

800 F.2d 317, 320 (2d Cir. 1986).

Magee’s default in answering the First Amended Complaint was not willful.

25. John Magee has actively participated in this adversary proceeding from its inception,

timely answering the original complaint and thereafter defending against the Trustee’s claims. His failure

to timely answer the Trustee’s First Amended Complaint is the result of the withdrawal of former counsel

Mr. Goldberg, and Magee’s inability until recently to pay the costs required by substitute counsel. See

Affidavit of John F. Magee, annexed.

26. Magee continued to participate in discovery in this case even after his attorney was

granted permission to withdraw.

27. Before Mr. Goldberg sought to be relieved as counsel of record to Mr. Magee, Magee’s

deposition was scheduled on consent for November 6th and November 7th , 2012. (Magee was to testify

both in his individual capacity and as the designated representative pursuant to Fed. R. Civ. P. 30(b) for

certain corporations in which he has or had an interest.) Mr. Goldberg was granted leave to withdraw on

November 5th.

28. The deposition was rescheduled on consent (and then by notice) to November 19th, at

which time Magee appeared for the first of four (4) days of deposition. The deposition proceeded from the

19th to the 20th, the 29th and then concluded on December 3rd.


29. Mr. Magee’s conduct following Mr. Goldberg’s departure is not at all consistent with a

willful default in answering plaintiff’s First Amended Complaint.

30. Mr. Magee did not then (by voluntarily appearing for 4 days of deposition, without

formal representation) nor does he now wish to frustrate the prosecution of this case. To the contrary, Mr.

Magee is anxious for his proverbial ‘day in court’.

Plaintiff has not been prejudiced by Magee’s brief default in answering the First Amended Complaint. 31. Magee’s answer to the First Amended Complaint was due on January 25, 2013. Magee

offered at the February 1, 2013 pretrial conference to file his answer the First Amended Complaint at

whatever time the Court directed.

32. Mr. Stevens had consented on the record of the February 1, 2013 adjourned pretrial

conference to a two-week extension from February 1, 2013 to permit Magee to file an answer to the First

Amended Complaint.

33. Even if the delay in filing the answer was significant, and it is not, delay alone does not

constitute prejudice. Enron Oil Corp. v. Diakuhara, supra, 10 F.3d at 98.

34. There is no prejudice attributable to Magee’s brief delay in answering.

Magee has a meritorious defense to the First Amended Complaint.

35. The first of two counts added by plaintiff’s First Amended Complaint is to declare FKF

3, LLC the alter ego of all of its members.

36. New York Limited Liability Company Law § 609(a) provides that:

“Neither a member of a limited liability company, a manager of a limited liability company managed by a manager or managers nor an agent of a limited liability company (including a person having more than one such capacity) is liable for any debts, obligations or liabilities of the limited liability company or each other, whether arising in tort, contract or otherwise, solely by reason of being such member, manager or agent or acting (or omitting to act) in such capacities or participating (as an employee, consultant, contractor or otherwise) in the conduct of the business of the limited liability company.”

37. While the New York cases make the alter ego doctrine applicable to limited liability

companies, Retropolis, Inc. v. 14th Street Development, LLC, 17 A.D.3d 209, 210, 797 N.Y.S.2d 1 (1st


Dept. 2005), the plaintiff bears a heavy burden of showing that Magee so dominated the LLC as to the

transactions that the Trustee questions that, as a result, the debtor became an instrument of fraud or

otherwise resulted in wrongful or inequitable consequences. Id.; Matias v. Mondo Properties, LLC, 43

A.D.3d 367, 368, 841 N.Y.S.2d 279 (1st Dept. 2007); see also Matter of Morris v. New York State Dept. of

Taxation and Finance, 82 N.Y.2d 135, 141, 603 N.Y.S.2d 807, 623 N.E.2d 1157 (1993).

38. Alternatively, the separate identity of the limited liability company can be disregarded

when such domination by a member exists that the company primarily transacts the dominator’s business

instead of its own, and can be called the other’s alter ego. Last Time Beverage Corp. v. F & V

Distribution Co., LLC, 98 A.D.3d 947, 950-51, 951 N.Y.S.2d 77 (2d Dept. 2012); see also Island Seafood

Co., Inc. v. Golub Corp., 303 A.D.2d 892, 893-94 (3d Dept. 2003).

39. Proof that one member of a limited liability company has completely dominated the

company and disregarded its separate form, treating it as an extension of himself, is not vicariously

attributable to other members of the company, i.e., alter ego proof as to one is not alter ego proof as to all.

AZTE, Inc. v. The Auto Collection, Inc., 2012 WL 3887671 (Sup. Ct. Kings Co., No 19999/08, Sept. 6,

2012) (copy annexed).

40. FKF 3, LLC was formed by the filing of articles of organization with the New York State

Department of State on May 26, 2004. New York Limited Liability Company Law (“LLC Law”) § 203.

An undated document entitled Operating Agreement and signed only by Mitchell Klein was produced and

made Exhibit “A” to the plaintiff’s deposition of Burton Dorfman, copy annexed.

41. Magee first saw the purported FKF 3, LLC Operating Agreement in 2010. Magee

Deposition, p. 179, l. 20 – p. 180, l. 8.

42. In the absence of the consent of the members of FKF 3, LLC to the terms of a purported

operating agreement, the limited liability company is to be operated according to the provisions of the

LLC Law. Matter of Eight of Swords, LLC, 96 A.D.3d 839, 946 N.Y.S.2d 248 (2d Dept. 2012); Spires v.

Casterline, 4 Misc.3d 428, 778 N.Y.S.2d 259 (Sup. Ct. Monroe Co. 2004).


43. Whereas no formal annual meetings were held for FKF 3, LLC, the members did meet

and discuss the status of loans already made by the company. Magee deposition p. 202; Magee Affidavit

p. 11. At the request of Klein and or Dorman, Magee Affidavit p. 4, Magee performed due diligence for

FKF 3 with respect to certain large loans being considered by the company, Magee Deposition pp. 181,

and 113-14 (referring to the roles the members had with respect to FKF Holding). Further, when asked by

Klein or Dorfman in the case of certain non-performing loans, Magee would seek to take over the ailing

projects for FKF 3 in order to secure repayment of the loans owed to the company, or to mitigate the

company’s losses by completing construction. Magee Deposition p. 181.

44. Plaintiff alleges that “Klein would perform all the accounting work and control the books,

records and bank accounts, Dorfman would perform all legal work, and Magee would provide his real

estate development and construction expertise.” First Amended Complaint filed January 11, 2013 at ¶

1310 (ECF Doc. 144).

45. The LLC Law, unlike New York corporations law, is designed to permit and does permit

members of a limited liability company to be actively involved in the business of the company to

whatever extent, without thereby exposing themselves to personal liability. LLC Law § 609(a).

46. The mere absence of an operating agreement, the involvement of the members of FKF 3

in (certain of) its business activities, and the absence of formal annual meetings does not either establish

Magee’s domination of the company, or make out such a complete disregard of the separate existence of

FKF 3 from Magee’s personal financial affairs such that FKF 3 is Magee’s alter ego. Kleinman v. Blue

Ridge Foods, LLC, 32 Misc.3d 1219(A), 2011 WL 2899428 (Sup.Ct. Kings Co. No. 9603/2010, July 7,

2011) (copy annexed).

47. The Trustee’s ‘no capitalization’ argument in the Complaint and the First Amended

Complaint is another red herring.

48. Prior to the formation of FKF 3, LLC and after its formation, Magee was a limited

partner in FKF Holding Company, LP (“FKF Holding”).


49. According to the plaintiff, “FKF Holding was capitalized primarily from equity

contributions from its partners, and lent almost exclusively to its partners or to businesses owned or

controlled by its partners. FKF Holding generally held assets on its books of between $6 and $10

million.” Complaint at ¶ 55.

50. According to Magee’s deposition testimony, FKF Holding was capitalized with closer to

$11.5 million in partner equity infusions. Magee Deposition at pp. 49-50 and pp. 59-60, most of which

was contributed by Magee and his brother, Patrick Magee. Magee Deposition pp. 49-52.

51. The ‘no capitalization’ allegations of the Complaint and the First Amended Complaint as

to FKF 3, LLC completely ignores large transfers of funds from predecessor entity FKF Holding

Company, LP (“FKF Holding”) after the creation of FKF 3, LLC.

52. FKF Holding infused millions of dollars into FKF 3. Mr. Magee testified in deposition

that “ . . . FKF Holding gave to FKF 3 and FKF II, approximately $9 million, 9.7, I think, to be exact.”

Magee Deposition at pp. 60-61.

53. Magee went on to testify that:

“And that doesn’t include wire transfers or checks to abstract companies and checks to different attorneys where, in my opinion, if they were buying a piece of property or something they would - - if they used up an abstract company one or two times, and they didn’t want to do the abstract company anymore, then they would go to the attorney and send the check to the attorney, and it would be difficult to follow. And then the last of the biggest one is the IOLA account. Any money that ever came out of any of those accounts, go into the IOLA account. . . .

Q. For FKF Holding or FKF 3? A. FKF Holding gave to FKF 3 and FKF II, I think it’s 9.7.”

Magee Deposition, p.60, ll. 7–20.

54. Then again:

Q. “So backing up, FKF Holding may or may not have an interest in securities at Prudential

Securities, and you believe the rest of anything that FKF Holding has, went to FKF 3?


A. FKF II and FKF 3, yes.”

Magee Deposition, p. 63, ll. 12-16.

55. The assets of FKF 3, including the above-described transfers from FKF Holding and the

performing loans on its books, exceeded its liabilities until the company’s loans to the One Madison Park

project became non-performing. The large One Madison Park (“OMP”) project failed (and brought FKF 3

down with it) in 2009.

56. In connection with the OMP project, the Trustee complains that Magee obtained the right

to a $1 million consulting fee in exchange for permitting a restructuring of the OMP borrowers’ loans.

The Trustee does not disclose that, by its terms, that fee was only payable when the OMP loans to FKF 3

were paid off. Magee Affidavit p. 12, annexing agreement.

57. The Trustee has mischaracterized compensation that Magee received for his work on

behalf of FKF 3 as perks, inappropriate grants of equity interests in certain projects, or, e.g., the

appropriation or transfer of a condominium unit. Magee was absolutely entitled to be paid for his work

during the time that FKF 3 was solvent, and is confident that, at the trial of this action, the trier of fact

will determine that FKF 3, LLC was solvent until the unexpected and catastrophic failure of the FKF 3’s

largest debtor: One Madison Park. In any event, the issue of solvency is not now before the Court. The

issue of the appropriateness of Magee’s compensation is for another day; it does not now support the

Trustee’s alter ego argument.

58. The Trustee’s complaints about loans to entities in which Magee had an interest are

similarly wrong-headed. Magee is one of the most successful commercial builders and real estate

developers in Rockland County. Magee’s involvement as an equity holder in certain borrowers from FKF

3 was beneficial and not harmful. The Trustee downplays the significance of the country’s general and

drastic real estate-drive economic downturn starting in 2008. That downturn nevertheless affected every

one of FKF 3’s loans. Magee worked to mitigate those effects, and infused millions of his own money in

an effort to stabilize the projects that owed FKF 3 money. Magee’s efforts in that regard continue today,

at great cost to him personally and to businesses in which he has an interest. Of the members of FKF 3,


only Magee has put his own net worth on the line to protect his investments and those of the creditors of

FKF 3.

59. The Trustee claims generally in the First Amended Complaint that Magee treated FKF 3

as if FKF 3’s assets were his own personal assets. That is entirely inaccurate.

60. Forensic accountant Robert Alan Modansky performed analyses of the intercompany

balances as between FKF 3, LLC on the one hand, and John Magee, Bradley Corporate Park (owned 50%

by John Magee and 50% by Patrick Magee) and Commercial Construction, Inc. (owned 100% by John

Magee) on the other hand. Mr. Modansky concluded after a review of the actual bank records (cancelled

checks, etc.) that no money was owed to FKF 3 by Magee, BCP or CCI. Magee Affidavit pp. 11-12,

annexing Modansky summary reports.

61. The evidence taken as a whole simply does not support the Trustee’s alter ego claim

against John Magee.

The Trustee’s Spoliation Claim.

62. In the second cause of action set forth in the First Amended Complaint, the Trustee asks

the Court to give effect to a vastly overbroad and poorly tailored state court remedy for Magee’s control

and reorganization of a number of files pertaining generally to the business of FKF Holding, FKF II¸ and

FKF 3.

63. The First Amended Complaint asserts incorrectly that the decision and order in question

by Judge Jamieson of the Supreme Court, Rockland County, New York, is subject to enforcement here,

based on collateral estoppel principles. The decision by Judge Jamieson has been appealed, it is subject to

a pending motion to reargue, and therefore the rules of collateral estoppel do not apply.

64. The state court ruling was that Magee was not to be permitted to introduce any evidence

in his defense of the state court action. That remedy, sought here by the Trustee via collateral estoppel,

has little or nothing to do with the scope or usefulness of the documents in the disputed FKF-related files.

Similarly, Magee’s defense need not rely on those files or information gleaned from those files, and the


Court should not be deprived of hard evidence in the form of checks, deposit slips and bank statements

evidencing the movement of money into and out of the FKF entities on account of that matter.

65. Magee testified at length about following the money in his four days of deposition, and

that testimony and Magee’s knowledge of who got how much, when and for what will help to inform the

decision of the trier of fact in this adversary proceeding.

66. Magee seeks the opportunity to present the facts surrounding the claim of spoliation, to

address the essential unrelatedness of the files he was accused of despoiling to the disputes before the

Court, and should a remedy for Magee’s access to and period of control of those files be fashioned, seeks

a remedy that is in proper relation to the alleged harm.

Conclusion. 67. Magee respectfully submits that he has shown “good cause” for vacating his default in

answering the plaintiff’s First Amended Complaint, and that he be permitted to file his answer forthwith.

68. A proposed, unsigned answer to the First Amended Complaint is annexed to this motion

as Exhibit “A”. Magee seeks leave to file a substantially similar answer with the Court.

WHEREFORE, John F. Magee seeks the entry of an order setting aside his default in answering

the plaintiff’s First Amended Complaint, and for such other and further relief as is just, proper and

equitable.

Dated: Middletown, NY March 1, 2013

s/ Mike Pinsky Mike Pinsky, Esq. Hayward, Parker, O’Leary & Pinsky Attorneys for John F. Magee and Commercial Construction, Inc. 225 Dolson Avenue, Suite 303 PO Box 929 Middletown, NY 10940 Tel. (845) 343-6227 Fax (845) 343-1927 Email [email protected]


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EXHIBIT “A”

11-09074-cgm Doc 188-1 Filed 03/01/13 Entered 03/01/13 19:51:26 Exhibit A Pg 1 of 6

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Hayward, Parker, O’Leary & Pinsky Attorneys for John F. Magee and Commercial Construction, Inc. 225 Dolson Ave., P.O. Box 929 Middletown, NY 10940 Tel: 845-343-6227 Fax 845-343-1927 Email [email protected] Mike Pinsky, Esq. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK --------------------------------------------------------x In re: Chapter 11 FKF 3, LLC, Case No. 10-37170 (cgm) Debtor. ---------------------------------------------------------------x GREGORY MESSER, as Trustee of the FKF Trust, Plaintiff, -against- Adv. Pro. No. 11-09074 (cgm) JOHN F. MAGEE, et al.,1 Defendants. --------------------------------------------------------x

ANSWER OF JOHN MAGEE AND COMMERCIAL CONSTRUCTION, INC. TO FIRST AMENDED COMPLAINT

Defendants John F, Magee (“Magee”) and Commercial Construction, Inc. (“CCI”) now answer the

plaintiff’s First Amended Complaint in the above-captioned adversary proceeding, and aver as follows:

RESPONSE TO PRELIMINARY STATEMENT AND SUMMARY OF AMENDMENTS

Magee and CCI incorporate by this reference their entire Amended Answer, Affirmative Defenses

and Cross-Claims of John F. Magee and Commercial Construction, Inc., etc., filed on December 20, 2011

1 The defendants include John F. Magee, Mitchell L. Klein, Burton R. Dorfman, Melissa A. Magee, Patrice L. Magee, Jonathan Magee, Lizbeth Magee Keefe, Lawrence J. Keefe, Jr., Valerie Magee, FKF Holding Company, LP, FKF V Holding Co., S.F. Properties, LLC, Commercial Construction, Inc., Bradley Industrial Park, Inc., FKF Edgewater, LLC, Aventine Edgewater LLC, FKF Retail LLC, Aventine Retail, LLC, Jerry’s Self-Storage, LLC, Rose Glasses, LLC, Bashert Developers, LLC, TA Group, LLC, JDJ Holding Co., LLC, Fasman, Klein & Feldstein, LLP, and Dorfman, Knoebel & Conway, LLP.


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(ECF Doc. 41) inclusive of each and every one of its 1466 paragraphs and the jury demand therein made, the

same as if fully set forth herein.

COUNT NINETEEN

1305. Deny the allegations of paragraph 1305.

1306. Admit the allegations of paragraph 1306 as to the formation of FKF Holding and its

capitalization. Deny the remaining allegations of paragraph 1306 as to John Magee (“Magee”).

1307. Deny the allegation of paragraph 1307 that the Debtor was formed to take in and invest

borrowed funds from third parties. Otherwise admit the allegations of paragraph 1307.


1309. Admit the Operating Agreement is not dated, is signed only by Klein, and that it was not

seen by Magee until 2010. Further state that Magee never agreed to the terms of the purported Operating

Agreement. Deny the remaining allegations of paragraph 1309.

1310. Admit the allegations of paragraph 1310 as to the members’ general functions within the

Debtor. Admit the absence of formal meetings.

1311. Deny the allegations of paragraph 1311 due to their vagueness or ambiguity.

1312. Admit that Magee received compensation for his work on behalf of the Debtor. Otherwise

deny the allegations of paragraph 1312.

1313. Deny the allegations of paragraph 1313 due to their vagueness and ambiguity. Admit that

FKF 3 loaned money to projects in which Magee had an interest. Deny any impropriety in connection with

those loans. Otherwise deny the allegations of paragraph 1313.

1314. Deny the allegations of paragraph 1314 as to Magee.


1316. Admit that Magee received compensation for the work he performed for FKF 3. State that

the consulting fee from the OMP borrowers was only payable once the FKF 3 loans were paid. Otherwise

deny the allegations of paragraph 1316.


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1317. Admit that most or all net revenue as represented to exist by Klein was distributed monthly.

Admit that Magee received total distributions (not interest payments) of $1,251.437. Deny that Magee’s

distributions were not on account of his capital contributions. Deny knowledge or information sufficient to

form a belief as to the remaining allegations of paragraph 1317.


1319. Admit that Magee relied on the tax advice of Klein as his tax advisor on what tax planning

was lawful and appropriate. Otherwise deny the allegations of paragraph 1319.

1320. Deny that FKF 3 net funds were used to pay the $2.1 million Bradley Corporate Park loan

from Oritani Bank. Admit that funds of Commercial Construction, Inc. recently invested in FKF 3 for

making loans were instead used to pay that Oritani Bank/Bradley Corporate Park loan. Deny that Magee’s

funds were freely moved in and out of FKF 3. Deny knowledge or information as to the allegations of

paragraph 1320 concerning the transfer of money as to Dorfman and Klein.

1321. Admit the allegation of paragraph 1321 that Klein and the FKF Firm failed to protect the

interests of FKF 3. Deny that they were unable to do so.

1322. Admit the allegation of paragraph 1322 that Dorfman and the Dorfman Firm failed to protect

the interests of FKF 3. Deny that they were unable to do so.


1324. Admit that Magee on two occasions collected funds owed to FKF 3 and paid them over to

FKF 3 creditors. Otherwise deny the allegations of paragraph 1324.

1325. Admit that Magee takes responsibility for any obligations that his family members may be

determined to have in connection with FKF 3. Further admit that Magee takes responsibility for FKF 3’s

obligations to a widow who loaned money to FKF 3 and who would otherwise lose her life savings: Priscilla

Mulligan. Otherwise deny the allegations of paragraph 1325.




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COUNT TWENTY


1331. Admit the allegations of paragraph 1331.











1342. Admit the allegations of paragraph 1342 that Magee identified those boxes that contained

FKF-related files, and later reviewed those files. Deny the remaining allegations of paragraph 1342.

1343. Deny knowledge or information sufficient to form a belief as to the allegations of paragraph

1343 regarding when Dorfman sent someone to the SF Properties location and for what purpose. Otherwise

admit the allegations of paragraph 1343.


1345. Admit the allegations of paragraph 1345 that Magee claimed a right of access for FKF-

related files. Deny any intention to contravene any orders of this Court.


1347. Admit that Magee reviewed and reorganized some of the FKF Dorfman files. Deny that such


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review and reorganization amounts to spoliation.

1348. Admit that the plaintiffs in the Forest Mall Action and Dorfman filed motions in the Forest

Mall Action seeking relief against Magee. Deny that any evidentiary hearing was held in connection with

those motions. Admit the decision by Judge Jamieson dated November 21, 2012.


1350. Deny the allegations of paragraph 1350, as an appeal and a motion to reargue have been

timely filed.


WHEREFORE, defendant John Magee seeks the entry of an order dismissing the First Amended Complaint, and for such other and further relief as is just, equitable and proper. Dated: Middletown, NY March __, 2013

HAYWARD, PARKER, O’LEARY & PINSKY __________________________ Mike Pinsky, Esq.

Attorneys for John F. Magee and Commercial Construction, Inc.

225 Dolson Ave., Suite 303 P.O. Box 929 Middletown, New York 10940

Tel. (845) 343-6227 Fax (845) 343-1927 Email [email protected]


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Page 1

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK

x

In re Chapter 11

FKF 3, LLC,

- against- Case No.

10-37170 (CGM)

GREGORY MESSER, as Trustee of the FKF Trust,

Debtor.

x

GREGORY MESSER, as Trustee of the FKF Trust,

Plaintiff,

-against- Adv. Pro. No.

11-09074

JOHN F. MAGEE, et al.,

Defendants.

X

November 19, 2012

10:02 a.m.

212-267-6868

VERITEXT REPORTING COMPANY

www.veritext.com 516-608-2400

11-09074-cgm Doc 188-2 Filed 03/01/13 Entered 03/01/13 19:51:26 Excerpts from John Magee Deposition Pg 1 of 17

11-09074-cgm Doc 188-3 Filed 03/01/13 Entered 03/01/13 19:51:26 Affidavit of John F. Magee Pg 1 of 13

11-09074-cgm Doc 188-4 Filed 03/01/13 Entered 03/01/13 19:51:26 Exhibit A - C to Affidavit of John F. Magee Pg 1 of 10

11-09074-cgm Doc 188 Filed 03/01/13 Entered 03/01/13 19 ...here on January 8th we had a motion to...

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Transcript of 11-09074-cgm Doc 188 Filed 03/01/13 Entered 03/01/13 19 ...here on January 8th we had a motion to...