The opinion
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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In re: ) Chapter 11
)
Alrose Allegria LLC, ) Case No. 15-11760 (PB)
)
Debtor. ) (Jointly Administered)
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Dagny Enterprises, LLC, et al., )
)
Plaintiffs. ) Adv. Proc. No. 25-01124 (PB)
)
v. )
)
Kenneth P. Silverman, et al., ) FOR PUBLICATION
)
Defendants. )
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DECISION ON HART’S ADMINISTRATIVE EXPENSE MOTION AND
MOTIONS TO DISMISS ADVERSARY COMPLAINT
APPEARANCES:
LAW OFFICES OF JACOB FRYDMAN
Counsel for Hart and Dagny Enterprises
845 United Nations Plaza
New York, NY 10017
By: Jacob Frydman
LEECH TISHMAN ROBINSON BROG, PLLC
Counsel for Hart and Dagny Enterprises
885 Second Avenue, Fl. 3
One Dag Hammarskjold Plaza
New York, NY 10017
By: Steven B. Eichel
William Rome
RIMON P.C.
Counsel for the Trustee and the Creditor Trust
100 Jericho Quadrangle, St. 300
Jericho, NY 11753
By: Anthony C. Acampora
Ronald J. Friedman
Haley Trust
ZEICHNER ELLMAN & KRAUSE LLP
Counsel for Flagstar
730 Ellman & Krause LLP
730 Third Avenue
New York, NY 10017
By: Bryan D. Leinbach
CULLEN AND DYKMAN LLP
Counsel for Rosenberg
333 Earle Ovington Blvd., St. 2nd Floor
Uniondale, NY 11553
By: Andrew M. Thaler
Matthew G. Roseman
U.S. DEPARTMENT OF JUSTICE
Counsel for the Office of the United States Attorney
86 Chambers Street, Fl. 3
New York, NY 10007
By: Samuel Dolinger
U.S. DEPARTMENT OF JUSTICE
Counsel for the United States Trustee
1 Bowling Green
New York, NY 10004
By: Shara C. Cornell
STATE OF NEW YORK
Counsel for the Office of the Attorney General
28 Liberty Street
New York, NY 10005
By: Leo V. Gagion
Hon. Philip Bentley
U.S. Bankruptcy Judge
TABLE OF CONTENTS
INTRODUCTION ....................................................................................................................................... 4
FACTUAL AND PROCEDURAL BACKGROUND ............................................................................... 7
I. ROSENBERG, THE DEBTORS AND THESE CHAPTER 11 CASES ................................................... 7
II. HART’S ADMINISTRATIVE EXPENSE MOTION AND ADVERSARY PROCEEDING COMPLAINT .. 9
LEGAL STANDARDS GOVERNING MOTIONS TO DISMISS AND ADMINISTRATIVE
EXPENSE MOTION ................................................................................................................................ 13
DISCUSSION ............................................................................................................................................ 14
I. THRESHOLD DEFENSES ASSERTED BY THE TRUSTEE .............................................................. 14
A. THE BARTON DOCTRINE ....................................................................................................... 14
B. QUALIFIED IMMUNITY AND BUSINESS JUDGMENT .............................................................. 17
II. PLAINTIFFS’ CLAIM FOR DECLARATORY AND INJUNCTIVE RELIEF CONCERNING DAGNY
ENTERPRISES (FIRST CLAIM) .................................................................................................... 19
III. PLAINTIFFS’ CLAIMS AGAINST THE TRUSTEE FOR DEFICIENT ENFORCEMENT OF
ROSENBERG’S SETTLEMENT OBLIGATIONS (SECOND & THIRD CLAIMS) ............................. 23
IV. HART’S CLAIM TO RECOVER THE JANUARY 2020 TRANSFER (TWELFTH CLAIM &
ADMINISTRATIVE EXPENSE MOTION) ...................................................................................... 25
A. CONVERSION ........................................................................................................................ 28
B. UNJUST ENRICHMENT .......................................................................................................... 38
C. CONSTRUCTIVE TRUST ........................................................................................................ 40
D. HART HAS STANDING TO ASSERT HER CONVERSION CLAIM .............................................. 40
E. HART’S CONVERSION CLAIM IS ENTITLED TO ADMINISTRATIVE EXPENSE PRIORITY ........ 42
V. PLAINTIFFS’ SLANDER OF TITLE CLAIM (THIRTEENTH CLAIM) ............................................ 43
VI. PLAINTIFFS’ CLAIM FOR LEAVE TO PURSUE THE TRUSTEE’S BOND (NINETEENTH CLAIM)46
VII. PLAINTIFFS’ CLAIMS AGAINST FLAGSTAR (SIXTEENTH, SEVENTEENTH & EIGHTEENTH
CLAIMS) ...................................................................................................................................... 47
VIII. THE TRUSTEE’S REQUEST FOR SANCTIONS ............................................................................. 50
CONCLUSION ......................................................................................................................................... 51
INTRODUCTION
The motions before the Court continue a long-running saga, which began 11 years ago with
the chapter 11 filings of Alrose Allegria, LLC and Alrose King David, LLC (together,
the “Debtors”), two affiliated debtors that owned and operated the Allegria Hotel in Long Beach,
New York. The Debtors, in turn, were owned and controlled by Allen Rosenberg, a real estate
investor who owned a portfolio of more than 40 properties in the New York City area through a
network of limited liability companies and other entities.
Questions about Rosenberg’s management of the Debtors arose shortly after these cases
was filed, and in 2017, the Court ordered the appointment of a chapter 11 trustee. The trustee sued
Rosenberg and 42 of his affiliates, alleging that he had fraudulently diverted more than $16 million
from the Debtors in the years preceding their bankruptcy filings. In 2019, the trustee and
Rosenberg agreed to a settlement, which as updated and amended the following year, provided for
Rosenberg to pay the estate approximately $9.2 million, plus fees and costs, and authorized the
trustee to sell his properties to the extent needed to fund the settlement. The Court then confirmed
a liquidating plan, pursuant to which a creditor trust (the “Creditor Trust” or “Trust”) was tasked
with effectuating the settlement and otherwise winding up the case. Kenneth Silverman, the
chapter 11 trustee, was appointed trustee (the “Trustee”) of the Creditor Trust.
Four and a half years have now passed since the creation of the Creditor Trust, and the
Trustee has collected the great majority of the sums Rosenberg agreed to pay. Almost all claims
against the Debtors have been resolved, the sole exception being the claims asserted in the
adversary proceeding and administrative expense motion now before the Court. Those two
proceedings were filed last year by Penny Hart, a former friend and business associate of
Rosenberg, who invested in a number of his real estate deals and now claims to have been cheated
by him. She is joined as plaintiff by Dagny Enterprises, LLC (“Dagny Enterprises”; together with
Hart, “plaintiffs”), a company she formed to hold certain real estate properties. Their 100-plus
page complaint asserts six claims against the Creditor Trust and the Trustee, and 13 claims against
other defendants—Rosenberg, three of his companies, and several other parties alleged to have
facilitated his wrongdoing to her detriment.
Plaintiffs’ principal claim against the Creditor Trust and the Trustee seeks to recover a
$1.65 million payment that Rosenberg made to the Debtors in January 2020 through an
intermediary, in partial satisfaction of his settlement obligation. Hart claims that the transferred
monies belonged to her, not Rosenberg, and that the Creditor Trust is therefore required to return
these funds to her under the law of unjust enrichment, or alternatively conversion or constructive
trust. She asserts this claim both in the complaint (as the twelfth claim) and in her separate motion
seeking allowance of the claim as an administrative expense. The Trustee opposes her motion and
has moved to dismiss all of the complaint’s claims against him and the Trust.
For the reasons discussed below, the Court concludes that Hart has properly pleaded a
conversion claim against the Trust for a portion of the January 2020 transfer—namely, the
$538,725 that Hart was entitled to receive by virtue of her minority equity stake in Alrose Dagny,
LLC (“Alrose Dagny”), the Rosenberg company that was the source of the transferred monies.
Contrary to the Trustee’s contentions, this claim is not barred by the Barton doctrine, qualified
immunity, the business judgment rule or the statute of limitations; Hart has standing to assert the
claim; the portion of the claim just described is legally sufficient; and to the extent the claim is
ultimately allowed, it will be entitled to administrative expense priority. The Court will therefore
deny the Trustee’s motion to dismiss this portion of the claim, and will schedule further
consolidated proceedings on this claim and Hart’s administrative expense motion. The complaint
does not state a claim for the balance of the January 2020 transfer, and the Court will therefore
dismiss the balance of this claim and will deny that portion of Hart’s administrative expense
motion.
The complaint also asserts two claims against the Creditor Trust and the Trustee relating to
Dagny Enterprises, seeking a judgment declaring that Rosenberg has no ownership interest in
Dagny Enterprises (first claim) and damages for slander of title (thirteenth claim). These claims
are legally sufficient, and the Court will sustain them. Plaintiffs’ claim for leave to pursue the
chapter 11 trustee’s bond (nineteenth claim) is legally insufficient, and the Court will dismiss it.
This leaves plaintiffs’ two other claims against the Creditor Trust and the Trustee, which
seek (i) specific performance of certain asset sales authorized by the Rosenberg settlement (second
claim), and (ii) damages for the Trustee’s alleged breaches of fiduciary duty, gross negligence and
willful misconduct in failing to take proper steps to collect the full settlement sum owed by
Rosenberg (third claim). The Court finds that these claims are premature. The Trust has already
recovered the great bulk of the amounts owed by Rosenberg, and it appears likely to recover the
full remaining balance, which would moot these two claims. The Court will therefore stay those
claims, without prejudice to plaintiffs’ right to move to vacate the stay if circumstances warrant.
The Court will also grant the motion to dismiss filed by Flagstar Bank, N.A. and two of its
affiliates (collectively, “Flagstar”). The complaint asserts multiple claims against Flagstar for
failing to remove Rosenberg as an authorized signatory of two companies after Hart removed him
as manager—a failure that allegedly led to a cascade of harms. Whatever the merits of these claims,
they neither arise under the Bankruptcy Code nor arise in or relate to these bankruptcy cases.
Consequently, the Court lacks original jurisdiction over these claims. The Court also lacks
supplemental jurisdiction over these claims, since they do not arise from the same nucleus of
operative facts as the claims over which the Court does have original jurisdiction—namely,
plaintiffs’ claims against the Creditor Trust and the Trustee. Lacking jurisdiction over the claims
against Flagstar, the Court will dismiss those claims.
FACTUAL AND PROCEDURAL BACKGROUND1
I. Rosenberg, the Debtors and These Chapter 11 Cases
Rosenberg is a real estate investor who, at the time the Debtors commenced their chapter
11 cases, owned and controlled a network of at least 54 affiliated entities, each formed to own and
manage particular real estate assets. (Many of these entities were named “Alrose,” which
incorporates the initial letters of Rosenberg’s first and last names.) Through these entities, he
owned more than 40 properties in New York City and on Long Island. Both the Trustee and
plaintiffs have alleged that Rosenberg repeatedly misappropriated investor funds and used his
network of companies to facilitate and conceal his diversion of assets.
Two of Rosenberg’s companies were the Debtors, Alrose Allegria, LLC (“Alrose Allegria”)
and Alrose King David, LLC (“Alrose King David”), which owned and operated the Allegria Hotel
in Long Beach, New York. In July 2015, Alrose Allegria filed for relief under chapter 11 of the
Bankruptcy Code. The Internal Revenue Service moved to convert the case to a chapter 7. In
February 2016, the Court declined to convert the case and instead ordered the appointment of a
chapter 11 trustee. Alrose King David subsequently filed a chapter 11 petition in March 2016. The
following month, the Court approved the joint administration of the two cases, as well as the
appointment of Kenneth Silverman, who had previously been appointed chapter 11 trustee of
Alrose Allegria, to serve in that capacity in the Alrose King David case as well. Silverman served
1 These background facts, which are undisputed, were taken from the parties’ motion papers and other filings in this
case.
as chapter 11 trustee of both Debtors from that time until the Debtors’ plan of liquidation went
effective in February 2022, at which time he was discharged from that role and became the Trustee
of the newly formed Creditor Trust.2
A central focus of the chapter 11 trustee’s efforts in these two cases was the prosecution of
claims against Rosenberg and his affiliates and associates. In 2017, the trustee filed adversary
proceedings in this Court against Rosenberg; his wife, Mia Rosenberg; his girlfriend, Faye
Klausner; and 42 business entities that Rosenberg claimed to own or control. The complaints
alleged that Rosenberg, assisted by the other defendants, fraudulently diverted more than $16
million from the Debtors in the years preceding their bankruptcy filings.
In addition, to prevent asset transfers that might impede his ability to collect an eventual
judgment from Rosenberg, the trustee sought and obtained a series of injunction orders—19
preliminary injunction orders, the last of which matured into a permanent injunction upon
confirmation of the plan—restraining Rosenberg and a number of entities believed to be owned or
controlled by him (collectively, the “Rosenberg Defendants”) from transferring or encumbering
any of their assets without the trustee’s consent. See Nineteenth Consent Preliminary Injunction
Order, Silverman v. Rosenberg (In re Alrose Allegria, LLC), Adv. Proc. No. 17-01084 (Bankr.
S.D.N.Y. 2020), ECF No. 61. Rosenberg consented to the entry of each of these orders.
In 2019, the chapter 11 trustee reached an initial settlement with the Rosenberg Defendants.
The parties subsequently entered into an updated and amended settlement agreement in October
2020, which the Court approved in February 2021. As amended, the settlement required Rosenberg
to pay the trustee $9.2 million, plus attorneys’ fees and costs, and it authorized the trustee to sell
2 Judge (now Chief Judge) Sean Lane presided over both Debtors’ bankruptcies until September 2022, when he
transferred the two cases to this Court.
or refinance properties owned by the Rosenberg Defendants to the extent needed to fund the
settlement payment. Rosenberg also agreed to entry of the permanent injunction, which bars him
and the other Rosenberg Defendants from transferring or encumbering any of their assets until the
settlement sum is paid in full.
The chapter 11 trustee filed a plan of liquidation, which was confirmed in November 2021
and went effective in February 2022. In addition to providing for a plan injunction substantially
similar to the agreed permanent injunction, the plan created the Creditor Trust, with Silverman as
its Trustee. The Trust is charged with resolving creditor claims, liquidating the Debtors’ assets—
principally, their claims against Rosenberg under the 2020 settlement—and distributing the net
proceeds to creditors. The plan provides for the Court’s retention of jurisdiction over, among other
things, all proceedings concerning claims allowance, claims brought by the Trust, and the
interpretation or enforcement of orders entered by the Court.3
The post-confirmation winding-up process has by now been mostly, but not entirely,
completed. At a May 2026 hearing in this case, the Trustee’s counsel represented that the entire
$9.2 million principal amount of the settlement sum had been paid, and that the only amounts still
unpaid were interest, attorneys’ fees and costs, which he estimated totaled at least several hundred
thousand dollars.
II. Hart’s Administrative Expense Motion and Adversary Proceeding Complaint
According to her filings in this case, Penny Hart first met Rosenberg more than 20 years
ago, and the two became friends. Over time, they also developed a business relationship, and Hart
3 In September 2022, the Debtors’ bankruptcy cases were closed. In January 2024, on the Trustee’s motion, the two
bankruptcies were reopened to permit the Trustee to commence an adversary proceeding against Rosenberg for breach
of the permanent injunction and the plan injunction. Given the existence and role of the Creditor Trust, there was no
need to reappoint a chapter 11 trustee, and no such reappointment was ordered.
invested in a number of Rosenberg’s real estate ventures. Between 2015 and 2020, she provided
more than $10 million in loans and equity investments to Rosenberg’s companies. The investments
most relevant to this decision involve four entities: Alrose Dagny, the subject of claim twelve;
Dagny Enterprises, the subject of claims one and thirteen; and Alrose Patchogue, LLC (“Alrose
Patchogue”) and Alrose 32, LLC (“Alrose 32”), the subject of the three claims against Flagstar
(claims sixteen, seventeen and eighteen).
Over time, Hart’s relationship with Rosenberg soured, and she proceeded to bring three
successive suits against him in New York State Supreme Court, New York County:
• In August 2022, Hart, together with Alrose Dagny and Dagny Enterprises,
commenced suit against Rosenberg and a number of his companies, alleging that
Rosenberg had fraudulently diverted money from several projects in which he had
induced Hart to invest, including Alrose Dagny. The suit seeks Alrose Dagny’s
dissolution, an accounting and a damages award. In addition, Hart seeks to establish
her entitlement to approximately $4.4 million (the proceeds of the 2022 sale of
Alrose Dagny’s remaining property), which is being held in escrow pursuant to
court order.4
• In 2023, Hart again sued Rosenberg and a number of other defendants in the same
court, this time for his alleged diversion of Alrose Dagny’s November 2019
refinancing proceeds. (The suit does not address Schreiber’s subsequent transfer of
a portion of those funds to the Debtors.) Unlike her 2022 suit, which she brought in
her individual capacity, Hart brought this suit derivatively on behalf of Alrose
Dagny.
• In 2024, Hart commenced a third suit against Rosenberg in the same court, this time
naming Flagstar as an additional defendant. This suit asserts the same claims against
Flagstar that Hart asserts in this adversary proceeding—namely, that Flagstar
wrongfully refused to honor corporate resolutions directing it to remove Rosenberg
as an authorized signatory of Alrose Patchogue and Alrose 32.
Neither the Trust nor the Trustee is a party in any of these suits. To the Court’s knowledge, all three
of these suits are still pending.
4 In 2025, the Trustee brought suit in the same state court against Rosenberg, Hart and a number of affiliated defendants
for a judgment declaring that this $4.4 million in escrowed funds belongs to the Trust. The Trustee’s suit is being held
in abeyance pending the outcome of Hart’s 2022 lawsuit.
In July 2025, Hart moved in this Court for allowance of her $1.65 million administrative
expense claim.5 In August 2025, Hart and Dagny Enterprises filed the complaint now before the
Court, commencing this adversary proceeding. The complaint asserts six claims against the
Creditor Trust and the Trustee, each of which is discussed at length below. In short:
• The first claim seeks a declaratory judgment that Dagny Enterprises is neither
owned nor controlled by Rosenberg and therefore should not be included among
the “Rosenberg Defendants” that are enjoined from transferring or encumbering
their assets until Rosenberg has fully paid his settlement obligations.
• The second claim seeks specific performance of certain asset sales authorized
by the Rosenberg settlement.
• The third claim seeks damages for the Trustee’s alleged breaches of fiduciary
duty, gross negligence and willful misconduct in failing to take proper steps to
collect the full settlement sum owed by Rosenberg.
• The twelfth claim, like Hart’s administrative expense motion, seeks to recover
the $1.65 million wired to the Debtors in January 2020 on Rosenberg’s behalf,
based on allegations that these monies belonged to Hart.
• The thirteenth claim seeks damages for slander of title, on the ground that the
Trustee wrongfully filed a UCC-1 financing statement against a property owned
by Dagny Enterprises, despite the fact that Rosenberg had no ownership interest
that company.
• The nineteenth claim seeks authorization to commence suit against Hartford
Fire Insurance Company on the bond that was issued in connection with the
chapter 11 trustee’s appointment.
The complaint asserts the third claim against the Trustee alone; the twelfth claim against the Trust,
and against the Trustee to the extent he or his professionals were paid with these monies; and the
thirteenth claim against the Trustee and Rosenberg. For each of the claims against the Trustee, the
complaint names the Trustee as a defendant in both his official and his individual capacities.
The complaint also asserts 11 claims against Rosenberg, three of his companies (Alrose
Steinway, Alrose Group Management, Inc. and Horsey, Hippo & Ball, LLC), and Michael
Schreiber, the friend who allegedly helped him divert funds from Alrose Dagny in 2019 and 2020.
5 In the alternative, her motion requested leave to file a late proof of claim asserting the same claim as a general
unsecured claim. That request is moot, given the Court’s ruling that any claim Hart may have relating to the January
2020 transfer is entitled to administrative expense status.
To a significant extent, these claims duplicate claims asserted by Hart in her various New York
state court suits against these parties. In addition, these claims rest on allegations largely unrelated
to those on which the claims against the Trust and the Trustee rest.
Finally, the complaint asserts three claims against Flagstar arising from transactions
involving two other Rosenberg-affiliated entities, Alrose Patchogue, LLC (“Alrose Patchogue”)
and Alrose 32, LLC (“Alrose 32”). Plaintiffs allege that, in August 2023, Hart removed Rosenberg
as manager of both entities and caused these companies to enact resolutions directing Flagstar, the
companies’ bank, to remove him as an authorized signatory on their accounts. Flagstar refused to
honor those resolutions, thereby enabling Rosenberg to make more than $300,000 in unauthorized
withdrawals, which resulted in a cascading series of harms.
The Trustee and Flagstar filed motions to dismiss the adversary proceeding complaint in
September and October 2025, respectively. Rosenberg and his companies did not respond to the
complaint, and the Clerk entered their default in November 2025. (To date, plaintiffs have not
moved for a default judgment.) In February 2026, Schreiber filed his own motion to dismiss.
The Court heard oral argument on Hart’s administrative expense motion in September 2025
and then advised the parties that it would defer ruling on that motion until after hearing argument
on the motions to dismiss. In November 2025, the Court heard argument on the motions to dismiss
filed by the Trustee and by Flagstar, and in May 2026, the Court heard argument on Schreiber’s
motion to dismiss. The day after the May hearing, the Court issued a bench ruling granting
Schreiber’s motion to dismiss the claims against him on abstention grounds, finding abstention to
be warranted in light of the parallel claims that Hart is prosecuting against Schreiber in her state
court suit. The Court reserved decision on the remaining motions, on which the Court now rules.
At the May 2026 hearing, the Court invited plaintiffs and the Trust to file supplemental
letter briefs addressing whether it would be appropriate for the Court to rule on Hart’s
administrative expense motion and the various motions to dismiss in a single combined decision
that addresses all arguments made by each side in connection with any of these motions. In their
supplemental briefs, the Trustee expressed support for this approach, but plaintiffs objected on
several grounds. Having considered plaintiffs’ objections, the Court concludes that it is appropriate
to issue this one combined ruling, which considers all of the parties’ arguments. Each side has had
a full opportunity to respond to all of the other side’s arguments, and thus neither side will be
prejudiced by the Court’s adoption of this approach.
LEGAL STANDARDS GOVERNING MOTIONS TO DISMISS AND
ADMINISTRATIVE EXPENSE MOTION
The Trustee’s motion seeks to dismiss plaintiffs’ complaint under Rule 12(b)(6), which is
applicable to bankruptcy adversary proceedings pursuant to Bankruptcy Rule 7012(b). A complaint
is subject to dismissal under Rule 12(b)(6) if it fails to state a claim upon which relief can be
granted. See Fed. R. Civ. P. 12(b)(6); Fed. R. Bankr. P. 7012(b). To overcome a Rule 12(b)(6)
motion, the plaintiff must demonstrate that the complaint “contain[s] sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Consequently,
when considering a motion to dismiss, a court must “accept[] all factual allegations in the
complaint as true, and draw[] all reasonable inferences in the plaintiff’s favor.” Goldstein v. Pataki,
516 F.3d 50, 56 (2d Cir. 2008) (internal quotation marks and citations omitted), cert. denied, 554
U.S. 930 (2008). However, “a legal conclusion couched as a factual allegation” does not demand
the same favorable treatment. Papasan v. Allain, 478 U.S. 265, 286 (1986).
Hart’s administrative expense motion seeks allowance of her claim under section 503(b) of
the Bankruptcy Code. As the claimant, Hart bears the burden of demonstrating her right to
administrative priority by a preponderance of the evidence. See Supplee v. Bethlehem Steel Corp.
(In re Bethlehem Steel Corp.), 479 F.3d 167, 172 (2d Cir. 2007); see also In re Ditech Holding
Corp., 2023 WL 7381500, at *14 (Bankr. S.D.N.Y. 2023) (“The burden of proving entitlement to
an administrative expense is on the claimant and the measure of proof is a preponderance of the
evidence.” (citation omitted)), aff’d, 2024 WL 4707911 (S.D.N.Y. 2024).
For purposes of this decision, the Court will address the legal sufficiency of Hart’s
administrative expense claim, assuming as true the factual allegations and other assertions she has
made in both the complaint and her motion, and considering all the legal arguments advanced by
the parties in connection with either her motion or the Trustee’s motion to dismiss. Further
proceedings on her administrative expense claim and the complaint, including an evidentiary
hearing if and when needed, will be scheduled on a consolidated basis.
DISCUSSION
I. Threshold Defenses Asserted by the Trustee
The Trustee contends that the Barton doctrine bars all of plaintiffs’ claims against him and
the Trust, and that the qualified immunity and business judgment defenses bar all claims that seek
to impose personal liability on him. The Court considers these threshold defenses in turn.
A. The Barton Doctrine
The Trustee contends that all claims against him and the Trust are barred by the Barton
doctrine, which requires parties to obtain leave from the appointing court before initiating a lawsuit
against a court-appointed officer for actions taken in his official capacity. See Barton v. Barbour,
104 U.S. 126, 136–37 (1881) (suit against receiver); Vass v. Conron Bros. Co., 59 F.2d 969, 970
(2d Cir. 1932) (extending Barton to suits against bankruptcy trustees). The Court does not agree.
The Court concludes, instead, that the Barton doctrine has no application to a suit, like this one,
that was filed in the bankruptcy court that appointed the trustee.
The case law on this issue is relatively sparse, and no court in this District has ruled on the
issue, because bankruptcy trustees have seldom invoked Barton as a defense to claims brought
against them in bankruptcy court. Nevertheless, the proper resolution of this issue is clear when
one considers the Barton rule’s rationale, which the Second Circuit has described as follows:
A trustee in bankruptcy is an officer of the court that appoints him. . . . We have
held that there is no question that a trustee in bankruptcy may be held personally
liable for breach of his fiduciary duties. . . . At the same time, the court that
appointed the trustee has a strong interest in protecting him from unjustified
personal liability for acts taken within the scope of his official duties. A well-
recognized line of cases starting with Barton v. Barbour, 104 U.S. 126, 26 L.Ed.
672 (1881), extends such protection by requiring leave of the appointing court
before a suit may go forward in another court against the trustee.
Lebovits v. Scheffel (In re Lehal Realty Assocs.), 101 F.3d 272, 276 (2d Cir. 1996) (internal citations
and quotation marks omitted); see also id. at 277 (“‘We have an institutional interest in holding
our trustees fully responsible for breaches of their fiduciary duty, including the duty to exercise
due care. . . . We have an equally vital institutional interest in protecting our trustee from being
mulcted into another court on frivolous or trumped up charges.’ . . . The[se] institutional concerns
. . . are weighty.” (quoting the District Court decision below)).
When a trustee is sued in the court that appointed him, these concerns are not implicated.
To the contrary, “[w]hen a party sues the trustee in the same bankruptcy court that appointed her
trustee, it reinforces rather than undermines Barton’s goals.” In re World Mktg. Chi., LLC, 584
B.R. 737, 745 (Bankr. N.D. Ill. 2018). For this reason, “[t]he majority rule is that a plaintiff need
not seek approval before suing a bankruptcy trustee in his appointing bankruptcy court.” In re
Horton, 612 B.R. 400, 405 (Bankr. D.N.M. 2020) (collecting authorities).6
The First Circuit squarely addressed this issue in LeBlanc v. Salem (In re Mailman Steam
Carpet Cleaning Corp.), 196 F.3d 1 (1st Cir. 1999), cert. denied, 530 U.S. 1230 (2000). There, a
“disgruntled creditor” sued a bankruptcy trustee in the court that had appointed him, alleging
negligence and breach of fiduciary duty. The First Circuit affirmed the bankruptcy court’s
dismissal of the suit, but rejected the trustee’s argument that the suit was barred by the Barton
doctrine:
[Following Barton,] a long line of cases has required leave from the bankruptcy
court before allowing an action against the trustee to proceed in another tribunal. .
. . Neither these precedents nor the rationale that undergirds them have any
application to proceedings in the court that is overseeing administration of the
bankruptcy estate.
Id. at 4-5 (emphasis in original) (citations omitted).
For similar reasons, the Fifth Circuit in Carroll v. Abide, 788 F.3d 502 (5th Cir. 2015), held
that Barton approval was not a prerequisite for suit against a bankruptcy trustee in the district court
that had withdrawn the reference from the appointing court. The court of appeals held that, because
the trustee “served as an officer of both the bankruptcy court and the district court,” the justification
for Barton, including the institutional concerns identified by the Second Circuit, did not apply:
6 The cases cited by the Trustee are not to the contrary. In In re Liberty Bridge Cap. Mgmt. GP, LLC, 2025 WL 1091259
(Bankr. S.D.N.Y. 2025), a pro se plaintiff moved in bankruptcy court for leave to sue the trustee in that court for
alleged breaches of his fiduciary duties. In ruling on that motion, the court considered the merits of plaintiff’s claims,
found them to be deficient, and denied the motion on that ground. Id. at *5. Because the plaintiff had chosen to seek
leave to sue, the court had no occasion to, and did not, consider whether Barton approval would have been required
had plaintiff not requested it.
Wilson v. Nandlal Corp. (In re Cumberbatch), 657 B.R. 683 (Bankr. E.D.N.Y. 2024), is also inapposite. Plaintiffs there
brought a state court suit against a real estate broker retained by a bankruptcy trustee, and defendants removed the suit
to bankruptcy court. The bankruptcy court dismissed the suit on the ground that plaintiffs had violated Barton by suing
in state court without first obtaining bankruptcy court approval. Id. at 696–97.
“The district court shared the [bankruptcy court’s] strong interest in protecting [the trustee] from
personal liability for acts taken within the scope of [his] official duties.” Id. at 506 (emphasis in
original).
The Court agrees with the reasoning of these cases. Because plaintiffs brought this suit in
the bankruptcy court that appointed the Trustee—this Court—the Barton doctrine does not apply.
B. Qualified Immunity and Business Judgment
The Second Circuit has long held that “a trustee in bankruptcy may be held personally
liable for breach of his fiduciary duties,” and indeed, that “[s]uch liability may attach as the result
of negligent, as well as knowing or intentional, breaches.” In re Gorski, 766 F.2d 723, 727 (2d Cir.
1985). At the same time, without repudiating Gorski, the Second Circuit has also adopted a second,
more protective standard: “A bankruptcy trustee is immune from suit for personal liability for acts
taken as a matter of business judgment in acting in accordance with statutory or other duty or
pursuant to court order.” Smith v. Silverman (In re Smith), 645 F.3d 186, 190 (2d Cir. 2011). The
case law in this circuit provides little clarity as to how to reconcile the latter standard—often
referred to as the qualified immunity or business judgment standard—with the former. In
particular, in what circumstances does the latter standard insulate a trustee from a claim that he
was negligent in carrying out his duties?7 Fortunately, the Court need not resolve this issue in order
to rule on the Trustee’s motion to dismiss.
7 A recent Ninth Circuit Court of Appeals decision addresses these issues comprehensively. See Phillips v. Goldman
(In re Gilman), 176 F.4th 1152 (9th Cir. 2026). As that decision explains, the Ninth Circuit—unlike this Circuit—has
a well developed body of case law on this topic, which recognizes two distinct types of immunity for bankruptcy
trustees: “derived judicial immunity,” which protects actions taken by trustees with court approval, and “quasi-judicial
immunity,” which protects certain exercises of discretionary judgment. Id. at 1163-67. For actions protected by neither
type of immunity, trustees can be held personally liable for actions that are merely negligent. See id. at 1165, 1167
(“[The Supreme Court has suggested that negligent conduct is enough to impose liability on a trustee.” (citing Mosser
v. Darrow, 341 U.S. 267, 272 (1951))). However, “[e]ven when a trustee does not have immunity for a particular
action or inaction, she can invoke the ‘business judgment rule’ as a defense to liability.” Gilman, 176 F.4th at 1167.
While the Trustee contends that the qualified immunity and business judgment doctrines
immunize him from personal liability on all of plaintiffs’ claims, this defense applies, at most, to
the three claims that seek to impose personal liability on him: (i) the third claim, which seeks
damages for the Trustee’s alleged breaches of fiduciary duty, gross negligence and willful
misconduct in failing to take proper steps to collect the full settlement sum owed by Rosenberg;
(ii) the twelfth claim, which seeks to recover from both the Trust and the Trustee the $1.65 million
wired to the Debtors in January 2020; and (iii) the thirteenth claim, which seeks damages for
slander of title on the ground that the Trustee wrongfully filed a UCC-1 financing statement against
a property owned by Dagny Enterprises.8
The Court concludes that the qualified immunity and business judgment doctrines do not
protect the Trustee from personal liability for either the twelfth or the thirteenth claim. The twelfth
claim does not contend that the Trustee breached his fiduciary duties, nor does it challenge his
exercise of business judgment. Instead, the crux of this claim is that the Trust and the Trustee
converted to their own use and benefit property that belonged to Hart. The Trustee has cited no
authority for the proposition that the qualified immunity and business judgment defenses shield a
“If a trustee has ‘sound reasons’ for a business decision, ‘[l]iability will not be imposed for the exercise of such
judgment, absent negligence.’” Id. at 1168 (citations omitted).
To the Court’s knowledge, neither the Second Circuit nor any court within this Circuit has conducted a similar analysis
of the contours of trustee immunity. Such an analysis would have significant value, given the relatively undeveloped
state of the law on this subject in this Circuit.
8 The three claims just noted (the third, twelfth and thirteenth) appear to be the only claims that the complaint asserts
against the Trustee. Although the complaint is not completely clear on this, the three other claims asserted against the
Trust—the first claim (declaratory judgment concerning Dagny Enterprises), the second claim (specific performance
of certain asset sales) and the nineteenth claim (authorization to sue Hartford on the Trustee’s bond)—do not appear
to be asserted against the Trustee. Moreover, the three latter claims seek only declaratory relief or specific
performance, not an award of damages. The qualified immunity defense therefore has no application to those claims.
“[B]ecause there is no risk [the trustee] would be held personally liable, quasi-judicial immunity is not a consideration
and therefore not an impediment to . . . bringing the[se] . . . claim[s].” In re Horton, 612 B.R. 400, 406 (Bankr. D.N.M.
2020).
trustee from personal liability for conversion, nor does the Court see any reason to extend these
defenses to claims of that sort. To the contrary, if the Trustee is wrongfully in possession of Hart’s
property, he should be required to return it.
The qualified immunity and business judgment defenses are inapplicable to the complaint’s
thirteenth claim for a different reason. As discussed in section V below, this claim rests on plausible
allegations that the Trustee acted with reckless disregard for Hart’s rights by refusing to terminate
his UCC-1 filing against a property owned by a company in which Rosenberg had no interest. The
complaint alleges that Hart twice sent the Trustee a letter explaining the facts and citing a state
court ruling to this effect, and the Trustee’s motion papers make no plausible attempt to explain or
defend his disregard of that ruling. Reckless conduct of this sort is not protected by the qualified
immunity and business judgment defenses.
This leaves the Trustee’s assertion of these defenses with respect to the complaint’s third
claim. As discussed in section III below, the Court believes it would be premature to consider the
merits of the third claim (or the second claim) at the present time. The Court will therefore stay
those claims and will defer consideration of whether the qualified immunity and business judgment
doctrines shield the Trustee from personal liability for the third claim.
For these reasons, the Court will deny the Trustee’s motion to dismiss to the extent it seeks
dismissal of the twelfth and thirteenth claims on qualified immunity and business judgment
grounds, and will defer consideration of the application of these defenses to the third claim.
II. Plaintiffs’ Claim For Declaratory and Injunctive Relief Concerning Dagny
Enterprises (First Claim)
As noted, the chapter 11 trustee sought and obtained a series of preliminary injunction
orders, followed in February 2021 by entry of a permanent injunction—all with Rosenberg’s
consent—restraining each of the Rosenberg Defendants from transferring or encumbering any of
their assets without the trustee’s consent. The Debtors’ liquidating plan contains a substantially
similar injunction. Both the permanent injunction and the plan injunction include Dagny
Enterprises as one of the “Rosenberg Defendants” covered by the injunction’s terms.
The first claim of the complaint asserts that Dagny Enterprises should never have been
included in these injunctions, because Rosenberg has had no interest in or control over Dagny
Enterprises at any time since January 1, 2017. Specifically, the complaint alleges that Hart formed
Dagny Enterprises in 2012 to hold certain of her real estate properties and initially was the
company’s sole owner; that Rosenberg acquired certain Class A membership interests in Dagny
Enterprises in 2015, in exchange for a $1 million equity contribution; but that, by letter effective
as of January 1, 2017 (attached to the complaint as Exhibit B), Rosenberg transferred all of his
membership interests in the company to Hart and confirmed that he had never held any position at
the company.9 Plaintiffs request a judgment declaring that Rosenberg has no interest in or control
over Dagny Enterprises, and an order modifying the permanent injunction and the plan injunction
to remove all references to Dagny Enterprises.
The Trustee does not dispute that the issues raised by this claim make it an appropriate
subject for relief under the Declaratory Judgment Act. See 28 U.S.C. § 2201(a); see also
MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007) (“[T]he question in each case is
whether the facts alleged, under all the circumstances, show that there is a substantial controversy,
between parties having adverse legal interests, of sufficient immediacy and reality to warrant the
issuance of a declaratory judgment.” (quoting Maryland Cas. Co. v. Pac. Coal & Oil Co., 312 U.S.
270, 273 (1941))). As in MedImmune, the injunction here “put[s] the [plaintiffs] to the choice
9 It is undisputed that Rosenberg continued to represent to the Trustee that he owned or controlled Dagny Enterprises,
which caused the Trustee to include that company as one of the Rosenberg Defendants covered by the permanent
injunction order and the plan injunction.
between abandoning [their] rights or risking prosecution,” “a dilemma that it was the very purpose
of the Declaratory Judgment Act to ameliorate.” 549 U.S. at 129 (internal quotation marks and
citation omitted).
Moreover, the January 1, 2017 letter on which this claim rests supports plaintiffs’
contention that Rosenberg gave up all of his ownership interests in, and any control over, Dagny
Enterprises at that time. That letter provides unequivocally for Rosenberg’s return to Hart of all of
his membership interests in Dagny Enterprises, in full satisfaction of a $1 million loan that Hart
had made to him. Complaint, Exh. B, at ¶ 1 (“I hereby return all of the [membership interests] to
you, free and clear of all liens and other encumbrances, and withdraw as a Member” of Dagny
Enterprises); see also id. ¶ 3 (“I am not [sic], and have never held, any position with the Company,
including as an officer, manager and employee of Company.”). By the plain language of the letter,
Hart became the sole member of Dagny Enterprises as of January 1, 2017.
The Trustee has offered no reason to discredit this letter. Nor does the Trustee dispute that
the court in Hart’s 2022 New York State Supreme Court suit found that this letter was enforceable
and that it extinguished Rosenberg’s ownership interest in Dagny Enterprises.10 Instead, the
Trustee’s motion seeks dismissal on two grounds. First, the Trustee argues that plaintiffs allowed
Rosenberg to continue acting as Dagny Enterprises’ owner and managing member until 2022,
when Hart commenced her state court suit against him, thereby giving him “apparent authority.”
10 Rosenberg had asserted a counterclaim in that suit, seeking a declaration that he owned Dagny Enterprises. After an
evidentiary hearing, the state court dismissed Rosenberg’s counterclaim, finding it to be barred by the January 1, 2017
letter. See Decision & Order on Motion, Hart et al. v. Rosenberg et al., Index No. 652740/2022 (N.Y. Sup. Ct. July
24, 2023), NYSCEF No. 90; see also Transcript of July 21, 2023 Proceedings, Hart et al. v. Rosenberg et al., Index
No. 652740/2022 (N.Y. Sup. Ct. Oct. 16, 2023), NYSCEF No. 140 at 5-6. However, the Trustee was not a party to
that action, and plaintiffs do not contend that he is bound by the state court’s ruling.
Second, the Trustee contends that this claim is an improper collateral attack on final and non-
appealable injunctions entered by this Court.
Neither of these arguments has merit. First, as to Rosenberg’s alleged apparent authority,
“[e]ssential to the creation of apparent authority are words or conduct of the principal,
communicated to a third party, that give rise to the appearance and belief that the agent possesses
authority to enter into a transaction.” Standard Funding Corp. v. Lewitt, 89 N.Y.2d 546, 551 (N.Y.
1997) (emphasis in original) (internal quotation marks and citation omitted). The Trustee has not
identified any words or conduct that cloaked Rosenberg with apparent authority to act as the owner
of Dagny Enterprises. The Trustee argues that plaintiffs’ allegations show that Rosenberg
exercised control “by direct[ing] the refinance of a Dagny mortgage and direct[ing his lawyer] to
hold almost $2.8 million of Dagny Mortgage Proceeds in escrow.” Trustee Br. at 30. However, as
discussed in section IV below, those allegations concern a different entity, Alrose Dagny. The
allegations provide no basis to find that Rosenberg possessed apparent authority to act for Dagny
Enterprises.11
The Trustee’s contention that this claim constitutes an improper collateral attack on this
Court’s prior orders is equally lacking in merit. Rule 60 expressly preserves a court’s authority to
set aside its prior orders. See Fed. R. Civ. P. 60(b), made applicable to these proceedings by Fed.
11 Even if that were not the case, the Trustee’s argument would be defeated by the adverse agent doctrine, which
provides that a principal is relieved of liability for an agent’s acts “when the agent has totally abandoned the principal’s
interests.” Mediators, Inc. v. Manney (In re Mediators, Inc.), 105 F.3d 822, 827 (2d Cir. 1997) (internal quotation
marks and citation omitted); see also Wight v. BankAmerica Corp., 219 F.3d 79, 87 (2d Cir. 2000) (“[W]here an
agent . . . is really committing a fraud for his own benefit, he is acting outside of the scope of his agency, and it would
therefore be most unjust to charge the principal with knowledge of it.” (internal quotation marks and citation omitted)).
When Rosenberg consented to the inclusion of Dagny Enterprises in the various injunction orders, he not only acted
without actual or apparent authority; he also acted in a manner clearly contrary to Dagny Enterprises’ interests. The
Trustee has not suggested any possible way in which Dagny Enterprises might have benefited from being included in
those injunctions, nor can the Court conceive of any. Under black letter agency law principles, Rosenberg’s adverse
actions cannot bind Dagny Enterprises.
R. Bankr. P. 9024. Rule 60(b) enumerates a number of grounds for relief, including “any other
reason that justifies relief.” Fed. R. Civ. P. 60(b)(6). A motion brought under Rule 60(b)(6) should
be granted if “appropriate to accomplish justice.” Klapprott v. United States, 335 U.S. 601, 614–
15 (1949). Not only are “[m]otions under Rule 60(b) . . . addressed to the sound discretion of
the . . . court,” Mendell In Behalf of Viacom, Inc. v. Gollust, 909 F.2d 724, 731 (2d Cir. 1990),
cert. granted, 498 U.S. 1023 (1991), aff’d, 501 U.S. 115 (1991), but that discretion is “especially
broad” under subsection (6), In re Emergency Beacon Corp., 666 F.2d 754, 760 (2d Cir. 1981).
Here, accepting the complaint’s allegations as true, it is clear that modifying the permanent
injunction and the plan injunction to exclude Dagny Enterprises from the injunction’s reach is
“appropriate to accomplish justice,” Klapprott, 335 U.S. at 614–15. Rosenberg has had no
ownership or control interest in Dagny Enterprises at any time since January 1, 2017. As a result,
there was no basis for the injunction orders to extend to that company, nor has the Trustee
presented any reason why the Court should not correct that error now.
For these reasons, the first claim of the complaint properly pleads a claim for a declaratory
judgment and an order modifying the injunctions to remove Dagny Enterprises. The Court will
therefore deny the Trustee’s motion to dismiss that claim. Moreover, the Court urges the Trustee
to consider consenting to the requested modification of the injunctions, absent some proper basis
of which the Court is unaware to decline to do so. If the Trustee is unwilling to stipulate to the
requested modification, the Court will entertain a motion by plaintiffs to modify the injunctions.
III. Plaintiffs’ Claims Against the Trustee For Deficient Enforcement of Rosenberg’s
Settlement Obligations (Second & Third Claims)
Plaintiffs also assert claims against the Trustee for (i) specific performance of certain asset
sales authorized by the Rosenberg settlement—sales that plaintiffs allege are needed to recover the
full amount owed by Rosenberg (second claim), and (ii) damages caused by the Trustee’s alleged
breaches of fiduciary duty, gross negligence and willful misconduct in failing to take proper steps
to collect the full settlement sum owed by Rosenberg (third claim). The Trustee seeks dismissal of
these claims on two grounds: first, that plaintiffs lack standing because they are not creditors of
the Creditor Trust and therefore could not have been harmed by his conduct; and second, that his
actions are protected by the qualified immunity and business judgment doctrines.
The Court concludes that plaintiffs have standing to assert these claims. Plaintiffs have
asserted two legally sufficient claims against the Creditor Trust that, if ultimately allowed, would
entitle them to a monetary distribution: the twelfth claim, for recovery of the January 2020 transfer,
and the thirteenth claim, for slander of title. If either claim were allowed but, as a result of the
Trustee’s alleged failings, were paid less than in full, plaintiffs would suffer direct harm. Plaintiffs
therefore have standing to seek redress—specific performance to the extent needed to maximize
Trust recoveries, and a damages recovery from the Trustee to the extent needed to make them
whole.
Turning to the merits of the second and third claims, including the qualified immunity and
business judgment defenses asserted by the Trustee, the Court concludes that further consideration
of these claims would be premature at the present time. The Trust has already collected the great
bulk of the amounts Rosenberg owes, and it appears likely to collect the remaining balance in
coming months, thereby eliminating any possible basis for these claims. Further litigation over
claims that are likely to be rendered moot in the near future would be wasteful. The Court therefore
will stay those claims, without prejudice to plaintiffs’ right to move to vacate the stay if
circumstances warrant.
IV. Hart’s Claim to Recover the January 2020 Transfer (Twelfth Claim & Administrative
Expense Motion)12
As noted, Hart’s main claim against the Trust and the Trustee—and the one she asserts in
her administrative expense motion as well as in the complaint—is her claim to recover the $1.65
million that Schreiber wired to the Debtors in January 2020. Hart claims that the transferred monies
belonged to her, not Rosenberg, and that under the law of conversion, unjust enrichment or
constructive trust, the Creditor Trust is required to remit these funds to her.13
This claim arises out of a series of transactions involving Alrose Dagny, a limited liability
company that Rosenberg formed in 2016 to acquire two commercial properties in Astoria, Queens.
In September 2019, Alrose Dagny refinanced its mortgage, a transaction that yielded almost $2.8
million in net proceeds. At the time of the refinancing, Alrose Dagny was managed by Rosenberg,
who owned 67.35% of the company’s membership interests through a company that he wholly
owned, Alrose Steinway, LLC (“Alrose Steinway”). Hart owned the remaining 32.65% of Alrose
Dagny’s membership interests. In addition, as security for several loans that Hart had made to him,
Rosenberg had pledged and assigned all of his ownership interests in Alrose Steinway to Hart.
In both the complaint and her administrative expense motion, Hart claims that Rosenberg
was required to distribute 100% of the refinancing proceeds to her, by virtue of her minority equity
stake in Alrose Dagny and his pledge to her of Alrose Steinway’s majority equity stake, but that
he instead wrongfully diverted the refinancing proceeds for his personal benefit. He allegedly did
12 The facts discussed in this section IV are taken from the allegations of the complaint, as well as Hart’s substantially
identical factual assertions in her administrative expense motion, which the Court assumes to be true for purposes of
the Trustee’s motion to dismiss.
13 In the adversary proceeding, this claim is purported to be brought by “plaintiffs,” i.e., both Hart and Dagny
Enterprises. However, the complaint does not allege that Dagny Enterprises had any involvement in the events giving
rise to this claim or any entitlement to the transferred monies. The Court will therefore dismiss the twelfth claim to
the extent it is brought on behalf of Dagny Enterprises. That leaves Hart as the sole plaintiff for this claim.
so in several steps. First, in November 2019, he instructed one of his lawyers to wire $275,000 of
the refinancing proceeds to his girlfriend, children and associates, and to wire the almost $2.5
million balance to his close friend, Michael Schreiber. He then directed Schreiber to wire $750,000
to Rosenberg’s law firm, White & Williams, in satisfaction of his personal legal fees. Subsequently,
in January 2020, Schreiber wired the bulk of the remaining funds, amounting to $1.65 million, to
the Debtors’ bank account, in partial satisfaction of the Trustee’s settlement payment obligation.14
Hart alleges that she did not learn of Rosenberg’s misappropriation of the Alrose Dagny
refinancing proceeds until July 2025, when she was preparing the complaint. At that time, she
demanded that the Trustee turn over the $1.65 million to her, and he refused.
The crux of Hart’s claim against the Trust, in both the complaint and her administrative
expense motion, is that the $1.65 million transferred to the Debtors belonged to her, not Rosenberg,
and that the Trust should therefore be required to turn over these monies to her. She claims that
she is entitled to almost one-third of these funds by virtue of her 32.65% membership interest in
Alrose Dagny, and that she is entitled to the balance of the funds by virtue of Rosenberg’s pledge
and assignment to her of his 67.35% membership interests in Alrose Steinway.
While Hart has been consistent about the factual allegations on which she bases this claim,
her identification of the legal basis for this claim has been less so. Her administrative expense
motion describes her claim as an administrative expense claim arising from the Trustee’s
conversion of her funds. See Hart’s Motion for Administrative Expense Claim, In re Alrose
Allegria, LLC, Case No. 15-11760 (Bankr. S.D.N.Y. 2015), ECF No. 583 at ¶¶ 60, 64-66; see also
14 Hart alleges that Schreiber wired these funds to the Debtors not at Rosenberg’s direction, but instead because he
had become concerned that Rosenberg’s and his conversion of the financing proceeds might be discovered. This
allegation is of little moment. As discussed below, the Trust’s liability for conversion of these funds does not turn on
whether Rosenberg directed the transfer, but rather on whether the funds received by the Debtors belonged to Hart.
Hart’s Reply Brief, In re Alrose Allegria, LLC, Case No. 15-11760 (Bankr. S.D.N.Y. 2015), ECF
No. 592 at 8-18 (stating that her claim is an administrative expense claim, not a conversion claim,
but then extensively briefing the law of conversion). The adversary proceeding complaint labels
her twelfth claim as one for unjust enrichment and constructive trust, but again bases this claim on
the Trustee’s alleged conversion of her funds. See Complaint, Dagny Enterprises v. Silverman (In
re Alrose Allegria, LLC), Adv. Proc. No. 25-01124 (Bankr. S.D.N.Y. 2025), ECF No. 1 at ¶ 426
(Trustee and Creditor Trust have been “unjustly enriched at the expense of Penny [Hart] by
retaining the money that belongs to Penn[y], which money was wrongfully obtained and kept by
them”); see also Plaintiffs’ Memorandum of Law in Opposition to Motion to Dismiss Counts 1, 2,
3, 12, 13, and 19 of the Complaint, Dagny Enterprises v. Silverman (In re Alrose Allegria, LLC),
Adv. Proc. No. 25-01124 (Bankr. S.D.N.Y. 2025), ECF No. 20 at 6 (“[T]he Trustee and the
Creditor Trust have been unjustly enriched by the conversion of Penny [Hart]’s funds.”); id. at 29
(same).
Ultimately, Hart’s inconsistent labeling of her claim does not matter. “A court assessing the
sufficiency of a complaint must disregard legal labels or conclusions. . . . Instead, the court must
examine only the well-pleaded factual allegations.” Ricardo Moncada v. Nuna Baby Essentials,
Inc., 831 F. Supp. 3d 268, 276 (S.D.N.Y. 2026) (internal quotation marks and citations omitted).
As discussed below, the Court concludes that Hart has alleged facts sufficient to state a claim of
conversion with respect to a portion of the $1.65 million January 2020 transfer—specifically,
32.65% of that sum, or $538,725—but not with respect to the balance of that transfer. To the extent
Hart ultimately proves all elements of this claim, including by tracing the transferred funds from
Alrose Dagny to the Trustee, the claim will be entitled to administrative expense priority. The
Court will therefore deny the Trust’s motion to dismiss Hart’s conversion claim to the extent it
seeks to recover the former portion of the January 2020 transfer, but will dismiss the remainder of
this claim with prejudice. In addition, because Hart has failed to state a claim for unjust enrichment
or constructive trust, the Court will dismiss those claims with prejudice.
A. Conversion
1. Hart has properly pleaded conversion
The elements of a conversion claim under New York law are well established. Conversion
is the “unauthorized assumption and exercise of the right of ownership over goods belonging to
another to the exclusion of the owner’s rights.” V&A Collection, LLC v. Guzzini Props. Ltd., 46
F.4th 127, 133 (2d Cir. 2022) (internal quotation marks and citation omitted); see also State of N.Y.
v. Seventh Regiment Fund, 98 N.Y.2d 249, 259 (N.Y. 2002). “Two key elements of conversion are
(1) plaintiff’s possessory right or interest in the property . . . and (2) defendant’s dominion over
the property or interference with it, in derogation of plaintiff’s rights.” Colavito v. N.Y. Organ
Donor Network, Inc., 8 N.Y.3d 43, 50 (N.Y. 2006) (internal citations omitted). Money may be the
subject of a conversion claim where there is “a specific, identifiable fund and an obligation to
return or otherwise treat in a particular manner the specific fund in question.” Fam. Health Mgmt.,
LLC v. Rohan Devs., LLC, 207 A.D.3d 136, 139 (1st Dep’t 2022) (citing Mfrs. Hanover Tr. Co. v.
Chem. Bank, 160 A.D.2d 113, 124 (1st Dep’t 1990)). Further, wrongful intent on the part of the
defendant “is not an element of an otherwise valid conversion claim.” LoPresti v. Terwilliger, 126
F.3d 34, 42 (2d Cir. 1997). To the contrary, “a party may be liable for conversion even if it acted
in good faith, and without knowledge of the plaintiff’s claim on the property.” V&A Collection, 46
F.4th at 133–34.
As noted, Hart claims that 32.65% of the $1.65 million refinancing proceeds paid to the
Trustee, or $538,725, belonged to her on account of her minority ownership stake in Alrose Dagny,
and that the balance of the transferred funds belonged to her by virtue of Rosenberg’s pledge and
assignment to her of his Alrose Steinway membership interests. The Court will address these two
portions of Hart’s conversion claim in turn.
a. Hart’s claim to 32.65% of the transferred monies on account of her
minority ownership stake in Alrose Dagny
Hart claims, and the Trustee does not dispute, that under New York’s Limited Liability
Law, any distributions of the Alrose Dagny refinancing proceeds were required to be made to
Alrose Steinway and Hart in accordance with their respective membership shares. See N.Y. LTD.
LIAB. CO. LAW § 504 (McKinney 2026) (“Distributions of cash or other assets of a limited liability
company shall be allocated among the members.”). She alleges that, at all relevant times, she had
a 32.65% membership interest in Alrose Dagny, entitling her to a distribution of 32.65% of the
refinancing proceeds, but that, instead of distributing those monies to her, Rosenberg wrongfully
diverted them for his personal benefit, including by causing $1.65 million of the proceeds to be
transferred to the Trustee in partial satisfaction of Rosenberg’s settlement obligation. As a result,
she claims, she is entitled to 32.65% of those transferred monies.
These allegations satisfy the black letter elements of a conversion claim under New York
law: that Hart had a legally enforceable interest in a portion of the transferred funds—namely, the
portion that she was entitled to be paid by virtue of her 32.65% ownership of Alrose Dagny—and
that the Trustee acquired those funds in derogation of her rights. See Colavito, 8 N.Y.3d at 49-50.
To prevail on summary judgment or at trial, Hart will need to satisfy applicable tracing
requirements, but for Rule 12(b)(6) purposes, her allegations identify the transferred funds with
sufficient specificity and plausibility to defeat the motion to dismiss.
The district court’s decision in Newbro v. Freed, 409 F. Supp. 2d 386 (S.D.N.Y. 2006),
aff’d, 2007 WL 642941 (2d Cir. 2007), is instructive. There, a crooked financial advisor transferred
funds from the plaintiff’s brokerage account into the defendants’ brokerage accounts without either
party’s knowledge or participation. Id. at 391. The court granted summary judgment to the plaintiff
on its conversion claim, holding that the innocent recipients were required to return the
misappropriated funds. Id. at 397. In doing so, the court reaffirmed that “[m]oney may be the
subject of conversion if it is specifically identifiable and there is an obligation to return it or treat
it in a particular manner.” Id. at 394 (quoting Hoffman v. Unterberg, 9 A.D.3d 386, 388 (2d Dep’t
2004)). The court also rejected defendants’ argument that their receipt of the funds in satisfaction
of a pre-existing obligation insulated them from liability: Although the financial advisor “may have
owed defendants $1 million before the transfer, . . . ‘one who receives money from a thief in
satisfaction of a pre-existing debt does not have a defense against the person from whom the money
was stolen.’” Newbro, 409 F. Supp. 2d at 397 (quoting Eisenberg v. Grant Bank for Savings, FSB,
207 F. Supp. 2d 553, 559 (S.D. Miss. 2002)).
The facts alleged by Hart parallel Newbro’s facts in key respects. Here, as in Newbro, a
wrongdoer (Rosenberg) misappropriated funds that belonged to the plaintiff (Hart) and transferred
them to an innocent third party (the Trustee) to satisfy a debt which the wrongdoer owed to that
third party. Newbro thus squarely supports the proposition that neither the recipient’s innocence
nor the fact that the transfer satisfied a pre-existing obligation defeats the conversion claim.
The Trustee contends that, to sufficiently plead conversion, Hart must have had ownership,
possession or control of the money before the conversion. New York law does not support this
contention. See Weizmann Inst. of Sci. v. Neschis, 229 F. Supp. 2d 234, 253 (S.D.N.Y. 2002)
(finding that the plaintiffs had adequately pleaded conversion premised upon a future interest in
funds); see also Lama v. Malik, 58 F. Supp. 3d 226, 236-37 (E.D.N.Y. 2014) (rejecting defense that
plaintiffs “never had ‘possession, ownership or control’ over the property” on ground that the “right
of possession may include a future right to possession”); Guiffrida v. Storico Dev., LLC, 60 A.D.3d
1286, 1287 (4th Dep’t 2009) (plaintiff was entitled to damages for conversion “despite the
allegation that plaintiff did not actually own the property” because plaintiff had “an immediate
superior right of possession to the property”).
By accepting and retaining monies that belonged to Hart, and then refusing to remit the
funds to her upon demand, the Trustee exercised unauthorized dominion and control over her
property. Hart has therefore properly pleaded a claim for conversion of the portion of the January
2020 transfer that belonged to her on account of her minority ownership stake in Alrose Dagny—
that is, 32.65% of the $1.65 million, or $538,725.
b. Hart’s claim to the balance of the transferred monies on account of
Rosenberg’s pledge of his Alrose Steinway membership interests
Hart alleges that the balance of the January 2020 transfer also belonged to her, and the
Trustee’s refusal to return those monies therefore constituted conversion, by virtue of Rosenberg’s
pledge and assignment to her of his Alrose Steinway membership interests. This claim fails as a
matter of law.
In the first place, the terms of the pledge and assignment agreements, which are attached
to the complaint, do not support this claim. See Bruce v. Citigroup, Inc. (In re Bruce), 676 B.R.
683, 694 (Bankr. S.D.N.Y. 2026) (“On a motion to dismiss pursuant to Rule 12(b)(6), . . . the Court
may consider ‘any written instrument attached to [the complaint] as an exhibit or any statements
or documents incorporated in it by reference.’”) (quoting Chambers v. Time Warner, Inc., 282 F.3d
147, 152-53 (2d Cir. 2002)). The pledge and assignment agreements granted Hart a security interest
only in Rosenberg’s membership interests in Alrose Steinway and the proceeds thereof, not in
Alrose Dagny’s assets or distributions. Because the proceeds of the Alrose Dagny refinancing were
never distributed to Alrose Steinway, much less by Alrose Steinway, Hart’s security interest did
not attach to those proceeds.
This conclusion follows from the clear language of these two agreements. The September
20, 2016 pledge agreement provided that Rosenberg granted Hart a “valid and binding first security
interest in (i) the Alrose Steinway Equity Interest and the proceeds therefrom; and (ii) any and all
distributions, other than Tax Distributions, to which [Rosenberg] may be entitled to receive from
Alrose Steinway.” Pledge Agreement, Silverman v. Rosenberg (In re Alrose Allegria, LLC), Adv.
Proc. No. 25-01124 (Bankr. S.D.N.Y. 2025), ECF No. 1-9 at § 1.15 In addition, the pledge
agreement required Rosenberg to exercise his voting rights at Alrose Dagny and Alrose Steinway
(i) to cause Alrose Dagny to distribute its “distributable dollars” to Alrose Steinway in proportion
to that company’s ownership interest in Alrose Dagny, and (ii) to cause Alrose Steinway to
distribute to Hart any Alrose Dagny distributions it received, in satisfaction of Rosenberg’s
outstanding indebtedness to her. See Pledge Agreement at § 2(c)(ii). The separate assignment
agreement provided: “For value received, Allen Rosenberg, hereby sells, assigns, transfers and
conveys unto Penny Hart one hundred percent (100%) of the Membership Interests in Alrose
Steinway, LLC.” Assignment of Membership Interests, Silverman v. Rosenberg (In re Alrose
Allegria, LLC), Adv. Proc. No. 25-01124 (Bankr. S.D.N.Y. 2025), ECF No. 1-10 at § 1.
By its plain terms, the pledge agreement granted Hart a security interest only in
Rosenberg’s membership interests in Alrose Steinway and the proceeds thereof (e.g., distributions
Rosenberg was entitled to receive from Alrose Steinway); it did not grant a security interest in the
assets of Alrose Steinway’s subsidiary, Alrose Dagny, or in any distributions made by Alrose
15 The pledge agreement defines the “Alrose Steinway Equity Interest” as Rosenberg’s 100% membership interests in
Alrose Steinway. Id. at 1 (Preamble).
Dagny. The assignment agreement, similarly, was limited to Rosenberg’s membership interest in
Alrose Steinway and the proceeds thereof. Consequently, Hart’s security interest did not attach to
the Alrose Dagny refinancing proceeds. It would only have attached to those proceeds if Rosenberg
had caused Alrose Dagny to distribute the proceeds to Alrose Steinway, thereby bringing these
monies within the scope of the pledge agreement.
Of course, the pledge agreement required Rosenberg to do just that—to cause Alrose
Dagny to make any and all distributions to Alrose Steinway, rather than to himself or others—so
that Hart’s security interest in his Alrose Steinway membership interests would attach to the funds.
See id. at § 2(c)(ii). But Rosenberg did not honor his obligations under the pledge agreement, and
as a result, Hart does not have a security interest in the proceeds.
It could be argued that Rosenberg unperformed pledge agreement obligations give Hart an
equitable entitlement to the proceeds—an “interest in [that] property,” Colavito, 8 N.Y.3d at 50—
sufficient to support her conversion claim for the entire January 2020 transfer. However, the Court
need not decide this novel issue, because of a second hurdle faced by Hart’ claim: Any security
interest that Hart could potentially have acquired in the Alrose Dagny refinancing proceeds would
have terminated upon the transfer of those monies to the Debtors. Rosenberg’s breach of his pledge
agreement obligations did not deprive her of a lien on the monies held by the Debtors, because she
could not under any circumstances have acquired such a lien.
This conclusion is mandated by section 9-332(c) of the Uniform Commercial Code, which
New York has adopted without modification. See N.Y. U.C.C. LAW § 9-332(c) (McKinney 2026).
That section provides that “[a] transferee of electronic money takes the money free of a security
interest if the transferee obtains control of the money without acting in collusion with the debtor
in violating the rights of the secured party.” Id.16
As Official Comment 3 to UCC § 9-332 explains, the UCC’s drafters adopted this provision
“to ensure that security interests in deposit accounts do not impair the free flow of funds”:
Rules concerning recovery of payments traditionally have placed a high value on
finality. The opportunity to upset a completed transaction, or even to place a
completed transaction in jeopardy by bringing suit against the transferee of funds,
should be severely limited.
N.Y. U.C.C. LAW § 9-332 cmt. 3 (McKinney 2026). To this end, the UCC’s drafters adopted the
“most protective (i.e., least stringent) of the various standards now found in the UCC”—namely,
the mere absence of “collusion” between the transferee and the debtor to violate the secured party’s
rights, a standard borrowed from UCC Article 8. See id. § 9-332 cmt. 4. As the official comments
to Article 8 in turn make clear, the “collusion” standard requires that the person “affirmatively
engaged in wrongful conduct, rather than casting . . . any burden of showing that [they] had no
awareness of wrongful conduct.” N.Y. U.C.C. LAW § 8-503 cmt. 3.17 Courts have faithfully applied
this “most protective” standard to shield recipients of money transfers from liability. See, e.g.,
Armstrong Bank v. Shraiberg, Landau & Page, P.A. (In re Tuscany Energy, LLC), 581 B.R. 681,
16 Article 9 applies to “a transaction, regardless of its form, that creates a security interest in personal property or
fixtures by contract.” N.Y. U.C.C. LAW § 9-109(a)(1) (McKinney 2026). Rosenberg’s pledge of his membership
interest in Alrose Steinway to Hart falls squarely within the scope of Article 9. See, e.g., Angell v. Faison (In re Faison),
518 B.R. 849, 858 (Bankr. E.D.N.C. 2014) (“An interest in a limited liability company is typically held to be a ‘general
intangible’ subject to the rules of perfection contained in Article 9 of the Uniform Commercial Code.”); Davis v. Brown
(In re Brown), 479 B.R. 112, 116–17 (Bankr. D. Kan. 2012) (same).
17 Comment 5 to UCC § 8-115 elaborates further on the collusion standard:
The collusion test is intended to adopt a standard akin to the tort rules that determine whether a
person is liable as an aider or abettor for the tortious conduct of a third party. See Restatement
(Second) of Torts § 876. Knowledge that the action of the customer is wrongful is a necessary but
not sufficient condition of the collusion test.
N.Y. U.C.C. LAW § 8-115 cmt. 5.
690 (Bankr. S.D. Fla. 2018) (holding that “[m]ere knowledge . . . that the transferor’s act is
wrongful is not sufficient to support a claim of collusion” under UCC § 9-332); Walters v. Lynch
(In re 3PL4PL, LLC), 619 B.R. 441, 473-74 (Bankr. D. Colo. 2020) (following In re Tuscany
Energy).
Here, plaintiffs have not alleged any collusion on the part of the Trustee. To the contrary,
at the May 14, 2026 hearing, plaintiffs’ counsel acknowledged that any culpability the Trustee may
have in connection with the January 2020 transfer amounts, at most, to negligence. See Transcript,
Dagny Enterprises v. Silverman (In re Alrose Allegria, LLC), Adv. Proc. No. 25-01124 (Bankr.
S.D.N.Y. 2025), ECF No. 62 at 50. Consequently, under the plain terms of UCC § 9-332, any
security interest Hart might have acquired in the Alrose Dagny refinancing proceeds had
Rosenberg complied with his pledge agreement obligations—and any resulting equitable
entitlement she might claim to those proceeds—would have terminated once those funds were
transferred to the Debtors. The Court will therefore dismiss Hart’s conversion claim with prejudice,
and deny her administrative expense motion, to the extent Hart seeks to recover any portion of the
January 2020 transfer beyond the 32.65% share of that transfer to which she was entitled by virtue
of her ownership stake in Alrose Dagny.
2. Hart’s conversion claim is not time-barred
It is undisputed that, under New York law, a conversion claim is subject to a three-year
statute of limitations. See CPLR 214(3). The Trustee contends that the statute of limitations on
Hart’s conversion claim began to run in January 2020, when the allegedly wrongful transfer
occurred, rendering her claim time-barred because she did not file her administrative expense
motion or the complaint until five years later, in 2025.18
The Court disagrees. Accepting Hart’s allegations as true, as the Court must for purposes
of the motion to dismiss, Hart’s conversion claim did not accrue, and the statute of limitations
therefore did not begin to run, until July 2025, when Hart learned of the January 2020 transfer and
demanded that the Trustee remit the transferred funds to her.
Under New York law, when a conversion claim accrues depends on the nature of the
defendant’s possession. If the defendant is a wrongful possessor—that is, if “the defendant knows
it has no right to the goods,” Seventh Regiment, 98 N.Y.2d at 260—the claim accrues at the time
of the conversion. By contrast, where the defendant comes into possession lawfully, the claim does
not accrue, and the statute of limitations does not begin to run, until the plaintiff demands the return
of the property and the defendant refuses. This is the well-established “demand-and-refusal” rule.
See, e.g., Hoelzer v. City of Stamford, Conn., 933 F.2d 1131, 1136 (2d Cir. 1991) (“[W]here an
owner proceeds against a rightful possessor of property, ‘the limitations period begins to run only
when the owner demands return of the property and the purchaser refuses.’” (citing DeWeerth v.
Baldinger, 836 F.2d 103, 106 (2d Cir. 1987))); see also Seventh Regiment, 98 N.Y. 2d at 260-61.
Although the demand-and-refusal rule appears to have originated in cases involving bona
fide purchasers of goods, courts have not confined it to that context. Rather, courts have applied
18 As noted, the complaint characterizes Hart’s claim to recover the January 2020 transfer as an unjust enrichment or
constructive trust claim, albeit one resting on conversion principles. Hart has argued that this claim is therefore subject
not to the three-year statute of limitations for conversion but instead to the CPLR’s six-year “catch-all” statute of
limitations, which courts have applied to unjust enrichment claims. See N.Y. C.P.L.R. 213(1) (six-year statute of
limitations for “an action for which no limitation is specifically prescribed by law”). However, as discussed in section
IV.B below, when an unjust enrichment rests on the same factual allegations as another claim, such as conversion,
courts have consistently dismissed the unjust enrichment claim. See also Shak v. JPMorgan Chase & Co., 156 F. Supp.
3d 462, 479 (S.D.N.Y. 2016) (“[W]hen an unjust enrichment claim ‘is merely incidental to or duplicative of another
claim with a shorter limitations period,’ the shorter period will apply.” (citation omitted)).
this rule whenever the defendant’s initial possession was lawful, including in cases involving
intangibles, see, e.g., SongByrd, Inc. v. Est. of Grossman, 206 F.3d 172, 183 (2d Cir. 2000)
(disputed ownership of intellectual property), or transfers of money, see Regions Bank v. Wieder
& Mastroianni, P.C., 526 F. Supp. 2d 411, 414–15 (S.D.N.Y. 2007), aff’d, 268 F. App’x 17 (2d
Cir. 2008); see also Newbro, 409 F. Supp. 2d at 394–97, 402 (applying demand-and-refusal rule to
determine when conversion claim accrued for purposes of calculating prejudgment interest).
The Court is aware of no reason why the demand-and-refusal rule should not be applied
here. In its 2002 Seventh Regiment decision, the New York Court of Appeals explained that the
principal rationale for the demand-and-refusal rule is to protect innocent possessors, by providing
“an opportunity to deliver the property to the true owner, before [the defendant] shall be made
liable as a tort feasor for a wrongful conversion.” Seventh Regiment, 98 N.Y. 2d at 260 (emphasis
in original) (internal quotation marks and citations omitted). The Court of Appeals added that, in
some cases, deferral of a cause of action’s accrual can avoid the unfair results that strict accrual
principles would otherwise produce. See id. at 261 (courts sometimes apply “equitable principles
to prevent a party that steals or breaches trust, or the successor to such a party, from benefitting
from its wrong.”). Both of these rationales apply here. It is appropriate for the Trustee to have had
an opportunity to return the transferred funds before he and the Trust were sued for conversion. In
addition, if as Hart alleges, she had no knowledge of the conversion of her funds until more than
five years after the wrongful transfers, it would be inequitable to bar her conversion claim on
statute of limitations grounds.19
19 As the Court of Appeals acknowledged, the demand-and-refusal rule can have “anomalous” consequences. In
particular, an owner who belatedly discovers a theft may prefer to sue a lawful possessor, against whom the claim
does not accrue until demand and refusal, than to sue the thief or a wrongful possessor, against whom the claim accrued
immediately. Id. But while the wisdom of this rule could perhaps be debated, the job of a federal court applying state
law is not to make its own policy judgments but instead to predict how the state’s highest court would rule. See
It is undisputed that the Trustee did not have actual knowledge of Hart’s alleged entitlement
to the $1.65 million wired to the Debtors in January 2020.20 He therefore was a lawful possessor,
not a wrongful possessor, for purposes of the demand-and-refusal rule. See Seventh Regiment, 98
N.Y. 2d at 260 (a wrongful possessor “knows it has no right to the goods”); see also Rep. of Turkey
v. Christie’s Inc., 425 F. Supp. 3d 204, 213 (S.D.N.Y. 2019) (“Where the possessor has no
knowledge that the property is not his, there can be no conversion in the absence of a demand and
refusal. . . .” (emphasis omitted)). As a result, Hart’s conversion claim did not accrue, and the three-
year statute of limitations did not begin to run, until July 2025, when she demanded return of the
funds and the Trustee refused.21 The Court therefore will deny the Trustee’s motion to dismiss
Hart’s conversion claim on statute of limitations grounds.
B. Unjust Enrichment
Under New York law, unjust enrichment is a “quasi-contract claim and contemplates an
obligation imposed by equity to prevent injustice, in the absence of an actual agreement between
the parties.” Columbia Mem’l Hosp. v. Hinds, 38 N.Y.3d 253, 275 (N.Y. 2022) (internal quotation
Travelers Ins. Co. v. 633 Third Assocs., 14 F.3d 114, 119 (2d Cir. 1994) (“[T]he job of the federal courts is carefully
to predict how the highest court of the forum state would resolve the uncertainty or ambiguity.”). The Court has
attempted to do that here.
20 The Trustee has consistently denied having had any actual, or even constructive, knowledge that the monies
belonged to Hart. Moreover, as already noted, plaintiffs’ counsel has acknowledged that the Trustee was at most
negligent in this regard. See Transcript, Dagny, Adv. Proc. No. 25-01124, ECF No. 62 at 50.
21 One wrinkle is worth noting. For purposes of the present motion to dismiss, the Court assumes the truth of Hart’s
allegations, including that she did not learn until July 2025 that Rosenberg had wrongfully diverted the Alrose Dagny
refinancing proceeds. If these allegations ultimately prove to be false—in particular, if the Trustee proves that Hart
had actual knowledge of Rosenberg’s and Schreiber’s transfers prior to 2025 and unreasonably delayed in demanding
that the Trustee return the transferred funds—this might cause her conversion claim to have accrued at that earlier
time. See SongByrd, 206 F.3d at 183 (once a true owner discovers the location of its property, it is required to make
demand the property’s return “without unreasonable delay”); accord Lubell, 77 N.Y.2d at 319. It bears note that this
is an actual, not a constructive, knowledge standard; a showing that Hart should have discovered the diversion of the
proceeds at an earlier time would not be sufficient. See SongByrd, 206 F.3d at 183 (New York law does not require a
plaintiff to “exercise due diligence in locating its chattel”); accord Lubell, 77 N.Y. 2d at 310.
marks and citation omitted). To state a claim for unjust enrichment under New York law, a plaintiff
must allege that “(1) defendant was enriched (2) at plaintiff’s expense, and (3) that it is against
equity and good conscience to permit defendant to retain what is sought to be recovered.” Kaplan
v. Reed Smith LLP, 919 F.3d 154, 160 (2d Cir. 2019) (internal quotation marks and citation
omitted); accord Myun-Uk Choi v. Tower Rsch. Cap. LLC, 890 F.3d 60, 69 (2d Cir. 2018);
Columbia Mem’l Hosp. v. Hinds, 38 N.Y.3d 253, 275 (N.Y. 2022).
On its face, this standard would seem to be satisfied by Hart’s allegations. To the extent the
monies transferred to the Debtors belonged to Hart, it would seem to follow that the Debtors were
unjustly enriched at Hart’s expense. However, the New York Court of Appeals has held that “unjust
enrichment is not a catchall cause of action”:
An unjust enrichment claim is not available where it simply duplicates, or replaces,
a conventional contract or tort claim. . . .
. . . To the extent [plaintiffs’ other] claims succeed, the unjust enrichment claim is
duplicative; if plaintiffs’ other claims are defective, an unjust enrichment claim
cannot remedy the defects.
Corsello v. Verizon N.Y., Inc., 18 N.Y.3d 777, 790-91 (N.Y. 2012) (internal citations omitted);
accord FDIC v. Concordia, 2024 WL 4362783, at *5 (S.D.N.Y. 2024) (“Both New York state
courts and courts in this Circuit have, consistent with Corsello, dismissed unjust enrichment claims
where the allegations supporting the claim are identical to those underpinning a conventional tort
or contract claim asserted in the same pleading, including claims of conversion.”).
This rule bars Hart’s unjust enrichment claim, which duplicates her conversion claim. Each
of these claims rests on the same factual allegations: at bottom, that the Debtors received and
refused to return monies that belonged to her. The Court will therefore dismiss Hart’s unjust
enrichment claim with prejudice.
C. Constructive Trust
As noted, the complaint also asserts a constructive trust claim on the basis of the same
allegations advanced in support of Hart’s conversion and unjust enrichment claims. This claim is
legally insufficient.
Under New York law, “a party seeking to impose a constructive trust must ordinarily
establish four elements: (i) a confidential or fiduciary relationship; (ii) a promise, express or
implied; (iii) a transfer made in reliance on that promise; and (iv) unjust enrichment.” In re Ames
Dep’t Stores, Inc., 274 B.R. 600, 625 (Bankr. S.D.N.Y. 2002) (citing In re Koreag, Controle et
Revision S.A., 961 F.2d 341, 352 (2d Cir. 1992)), aff’d, 2004 WL 1948754 (S.D.N.Y. 2004), aff’d,
144 F. App’x 900 (2d Cir. 2005).
It is clear that Hart has failed to adequately plead the first three of these elements. At the
time Schreiber wired the $1.65 million to the Debtors, in January 2020, Hart was not a creditor of
the Debtors, and thus no fiduciary relationship existed between the chapter 11 trustee and Hart
(element # 1). Nor does the complaint allege that the trustee made any express or implied promise
to her (element # 2), much less that the January 2020 transfer was made in reliance on such a
promise (element # 3). Consequently, Hart has failed to state a claim for the imposition of a
constructive trust, and the Court will dismiss that claim with prejudice.
D. Hart Has Standing to Assert Her Conversion Claim
The Trustee contends that Hart’s conversion claim belongs to Alrose Dagny, not Hart,
because the claim rests, at bottom, on the allegation that Rosenberg misappropriated Alrose
Dagny’s funds. He argues that Hart therefore lacks standing to bring the claim as a direct claim,
but could only bring the claim as a derivative claim on Alrose Dagny’s behalf. The Court disagrees.
Hart’s conversion claim is not derivative of Alrose Dagny’s rights; it is a direct claim, which Hart
has standing to bring on her own behalf.
“Whether a claim is derivative or direct is a question of state law.” Seibel v. Frederick, 2020
WL 1847792, at *3 (S.D.N.Y. 2020) (quoting Bartfield v. Murphy, 578 F. Supp. 2d 638, 645
(S.D.N.Y. 2008)). Under New York law, “a court must ‘look to the nature of the wrong and to
whom the relief should go’ to determine whether a corporate stockholder’s claim for breach of
fiduciary duty is derivative or direct.” In re 305 E. 61st St. Grp. LLC, 130 F.4th 272, 279 (2d Cir.
2025) (quoting Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1039 (Del. 2004));
see also In re Celsius Network LLC, 2026 WL 1948372, at *9 (Bankr. S.D.N.Y. 2026) (“New York
lacks a clear approach to determine whether a claim is direct or derivative; however, the First,
Second, and Third Departments, as well as the Second Circuit have applied the test adopted by the
Delaware Supreme Court in Tooley.”); see also 305 E. 61st St. Grp., 130 F.4th at 279 (for a claim
to be direct, “the stockholder’s alleged injury must be independent of any alleged injury to the
corporation”).
Applying the Tooley standard—that is, looking “to the nature of the wrong and to whom
the relief should go,” In re 305 E. 61st St. Grp., 130 F.4th at 279 (quoting Tooley, 845 A.2d at
1039)—the Court finds that Hart’s claim is direct, not derivative. The wrong alleged by Hart is not
that Rosenberg caused Alrose Dagny to distribute its refinancing proceeds; to the contrary, she
contends that Alrose Dagny’s operating agreement required these proceeds to be distributed to the
LLC’s members. Rather, the wrong she alleges is that Rosenberg misappropriated her 32.65%
share of the distribution—a harm to her, not to Alrose Dagny. Moreover, the remedy she seeks is
not that the distribution be returned to Alrose Dagny, but rather, that her share of the distribution
be remitted to her by its recipients (Rosenberg, Schreiber and/or the Trust). In both of these
respects, her claim is direct, not derivative.
New York courts have recognized injuries of the sort Hart alleges to be direct injuries
giving rise to direct claims. See, e.g., Gjuraj v. Uplift Elevator Corp., 110 A.D.3d 540, 540 (1st
Dep’t 2013) (holding that minority shareholder had standing to assert direct claim that majority
owner failed to pay him his share of corporate profits); see also Pokoik v. Pokoik, 115 A.D.3d 428,
429 (1st Dep’t 2014) (recognizing similar direct claim in LLC context). The Court therefore will
deny the Trustee’s motion to dismiss this claim on standing grounds.
E. Hart’s Conversion Claim is Entitled to Administrative Expense Priority
Hart contends that her conversion claim is entitled to administrative expense status under
section 503(b) of the Bankruptcy Code, which permits the allowance of administrative expenses,
including the “actual, necessary costs and expenses of preserving the estate.” 11 U.S.C. §
503(b)(1)(A). Such administrative expenses have priority in the distribution of the assets of the
bankruptcy estate. See 11 U.S.C. § 507(a)(2).
It has long been settled that postpetition tortious conduct by a debtor or trustee may give
rise to an administrative expense claim against the estate. See Reading Co. v. Brown, 391 U.S. 471,
482 (1968) (holding that postpetition tort claims are “actual and necessary costs” of administering
bankruptcy estate); see also Palley v. Refco Inc. (In re Refco Inc.), 331 F. App’x 12, 13 (2d Cir.
2009) (“post-petition tort claims are given administrative priority”); Buena Vista Television v.
Adelphia Commc’ns Corp. (In re Adelphia Commc’ns Corp.), 307 B.R. 404, 422 (Bankr. S.D.N.Y.
2004) (“The actual, necessary costs and expenses of preserving the estate have been held, since
the days of the old Bankruptcy Act, to also include post-petition torts committed by a trustee or
debtor-in-possession . . .” (internal quotation marks and citation omitted)). As a tort, conversion
qualifies for administrative priority when committed by a debtor-in-possession or a bankruptcy
trustee. See In re Enron Corp., 2003 WL 1562201, at *4 (Bankr. S.D.N.Y. 2003) (“As conversion
is a tort, a claim based on a post-petition conversion by the debtor-in-possession would be accorded
administrative priority as an actual and necessary expense for the privilege of continuing to operate
the business.”).
Here, the conversion alleged by Hart occurred during the Debtors’ bankruptcy cases and
enriched the Debtor’s estates. Consequently, to the extent the claim is allowed, it will be entitled
to administrative expense priority under section 503(b).
V. Plaintiffs’ Slander of Title Claim (Thirteenth Claim)
Plaintiffs assert a slander of title claim against the Trustee for wrongfully publishing a false
statement concerning a property owned by Dagny Enterprises. Specifically, the complaint alleges
that, based on Rosenberg’s statement that he owned Dagny Enterprises, the Trustee in March 2023
filed a UCC-1 financing statement against one of that company’s properties (751 Concourse
Village West, in the Bronx). Plaintiffs allege that Rosenberg had no ownership interest in Dagny
Enterprises at this time; rather, Hart has been that company’s sole owner at all times since January
1, 2017. In December 2023, and again in July 2024, plaintiffs sent the Trustee a letter advising him
of these facts, citing the 2023 decision of the New York court (discussed in section II above) that
dismissed Rosenberg’s claim to have an interest in Dagny Enterprises, and demanding that he
terminate the UCC filing. See Exhs. U & V to Complaint, Dagny, Adv. Proc. No. 25-01124, ECF
Nos. 1-22, 1-23. Despite these two letters, the Trustee did not terminate the filing until July 2025.
As a result, plaintiffs allege, Dagny Enterprises was unable to refinance the property’s mortgage
when it matured in December 2024, causing it to suffer more than $4 million in damages.
The Trustee seeks dismissal of this claim on the ground that plaintiffs have failed to state a
claim for slander of title. As the Trustee notes, under New York law, a slander of title claim has
three required elements: (i) a communication falsely casting doubt on the validity of plaintiffs’
title, which (ii) was reasonably calculated to cause harm and was made maliciously or with reckless
disregard for the truth, and (iii) resulted in special damages, causally related to the alleged tortious
act and alleged with sufficient particularity to identify actual losses. Memorandum of Law in
Support of Trustee’s Motion to Dismiss (“Trustee Br.”), Dagny, Adv. Proc. No. 25-01124, ECF
No. 9 at 42 (citing Mongiello v. HSBC Bank USA NA, 2025 WL 674345, at *8 (S.D.N.Y. 2025)).
The Trustee contends that the complaint satisfies none of these requirements.
This contention is borderline frivolous. The Trustee argues that the first of the three
required elements is not satisfied because the UCC-1 was “an undeniably true statement—the
Debtors’ bankruptcy estates did, in fact, have claims to the Dagny real property as authorized by
Rosenberg who was acting with either actual or apparent authority to do so.” Trustee Br. at 42-43.
This simply ignores plaintiffs’ allegation, which is dispositive for purposes of this motion to
dismiss, that Rosenberg had no interest in, and held no position at, Dagny Enterprises at any time
since January 2017. Moreover, that allegation is supported by the state court ruling discussed in
section II above.
The Trustee’s contention that the second element is not satisfied—in particular, that
plaintiffs have not adequately pleaded that the Trustee acted with reckless disregard for the truth—
is equally meritless. This contention ignores the two letters that plaintiffs sent the Trustee, in
December 2023 and July 2024, informing him that Rosenberg had no interest in Dagny Enterprises
and citing the state court’s ruling to that effect. Each of these letters put the Trustee on notice not
only that his understanding of the facts was unfounded, but that a recent court decision had so held,
making it reckless for the Trustee to leave his UCC filing in place without investigating whether it
rested on a proper legal foundation. Neither of the Trustee’s two briefs in support of his motion to
dismiss makes any genuine attempt to respond to this point.
The Trustee’s contention that the complaint fails to satisfy the third element, special
damages, fares little better. The complaint alleges that, as a direct result of the false UCC-1 filing,
Dagny Enterprises was unable to refinance the property’s mortgage when it matured in December
2024. While this sort of damage differs from the sort most commonly alleged in connection with
a slander of title claim—that the false filing prevented a sale to a particular purchaser—it is an
equally concrete type of harm, and the Court sees no reason why it is not equally sufficient to
sustain the claim.22
Finally, the Trustee contends, in a footnote, that plaintiffs’ slander of title claim is barred
by the one-year statute of limitations for slander claims under New York law, see N.Y. C.P.L.R.
215(3). Citing several Southern District of New York decisions, the Trustee argues that this statute
began to run on the date of the false filing—March 2023, more than two years before the August
2025 filing of the complaint. See Aleem v. Experience Hendrix, L.L.C., 2017 WL 3105870, at *7
(S.D.N.Y. 2017); Reach Music Pub., Inc. v. Warner/Chappell Music, Inc., 2011 WL 3962515, at
*6 (S.D.N.Y. 2011), amended in other respects on denial of reconsideration by 2012 WL 695461
(S.D.N.Y. 2012).
The Court concludes that this argument, too, lacks merit, because the one-year statute of
limitations for slander of title does not begin to run until plaintiffs incur special damages. This is
22 It is true that the complaint does not specify the harms that resulted from Dagny Enterprises’ inability to refinance
its mortgage. However, plaintiffs provide a detailed list of such harms in their brief in opposition to the motion to
dismiss. Plaintiffs’ Memorandum of Law in Opposition to Trustee Motion to Dismiss, Dagny, Adv. Proc. No. 25-
01124, ECF No. 20 at 34-35. Even if details of this sort were required to be pleaded to satisfy the special damages
element of a slander of title claim, it would serve no useful purpose to dismiss this complaint for failure to allege these
details. Any such dismissal would be with leave to amend, and the amended complaint could readily cure any arguable
deficiencies by adding the details set forth in plaintiffs’brief.
the holding of a more recent Southern District of New York decision, which considered and
rejected the reasoning of the two cases just cited. See Wei Su v. Sotheby’s, Inc., 2019 WL 4917609,
at *3 (S.D.N.Y. 2019). As the Wei Su court noted, the Aleem decision on this issue rested on nothing
more than a citation to Reach Music, “which in turn [had] cite[d] state law about slander, not
slander of title,” and had followed state case law holding that the statute of limitations for slander
runs from the time of the allegedly slanderous statements. Wei Su, 2019 WL 4917609, at *3 n.2.
In so doing, Reach Music overlooked a key difference between slander and slander of title:
Likening slander-of-title claims to ordinary slander claims, for purposes of
determining the limitations period, is foreclosed by the New York Court of Appeals’
decision in Rosenbaum [v. City of New York, 8 N.Y.3d 1 (2006)]. See 8 N.Y.3d at
12 (“Special damages are an element of a cause of action for slander of title based
upon the recording of an unfounded claim, and the cause of action does not arise
until special damages actually result.”).
Id.
Following Wei Su, the Court holds that the statute of limitations for plaintiffs’ slander of
title claim did not begin to run until December 2024, when Dagny Enterprises was unable to
refinance its mortgage. Plaintiffs filed the complaint less than one year later, within the one-year
statute for slander of title claims.
For these reasons, the Court will deny the Trustee’s motion to dismiss plaintiffs’ thirteenth
claim.
VI. Plaintiffs’ Claim For Leave to Pursue the Trustee’s Bond (Nineteenth Claim)
Plaintiffs’ nineteenth claim seeks authorization to commence an action against Hartford
Fire Insurance Company (“Hartford”) on the bond issued in connection with the appointment of
the chapter 11 trustee for the Debtors’ jointly administered estates.
This claim is barred by the two-year statute of limitations created by section 322(d) of the
Bankruptcy Code. Section 322(d) provides that “[a] proceeding on a trustee’s bond may not be
commenced after two years after the date on which such trustee was discharged.” 11 U.S.C. §
322(d) Plaintiffs filed their complaint in August 2025, more than three years after the February
2022 discharge of the Debtors’ chapter 11 trustee.
Plaintiffs’ only response is to raise a new claim: that because the chapter 11 cases were
reopened in January 2024, the Trustee should be required to post a new bond. This suffers from
multiple defects. In the first place, this claim was not asserted in the complaint, nor do plaintiffs
request leave to amend the complaint to add this claim. And even if the Court were inclined to
overlook this procedural flaw and treat plaintiffs as having implicitly requested leave to amend,
amendment would be denied because the proposed claim clearly lacks merit. No chapter 11 trustee
was appointed following the reopening of the cases. Rather, the estates ceased to exist on the
effective date of the plan (February 23, 2022), and from that date on, the Trustee has been serving
only as Creditor Trustee, not as chapter 11 trustee. By its plain terms, section 322 requires a bond
only for “a person selected . . . to serve as trustee in a case.” 11 U.S.C. § 322(a). Because no chapter
11 trustee was appointed upon the reopening of these bankruptcy cases, section 322(a) did not
require the posting of a bond, and no new bond was posted.
The Court will therefore dismiss plaintiffs’ nineteenth claim with prejudice.
VII. Plaintiffs’ Claims Against Flagstar (Sixteenth, Seventeenth & Eighteenth Claims)
The complaint asserts three claims against Flagstar based on transactions involving two
Rosenberg-affiliated entities, Alrose Patchogue and Alrose 32. Plaintiffs allege that Hart removed
Rosenberg as manager of both entities for cause in August 2023 and then delivered resolutions to
Flagstar, the companies’ bank, directing it to remove Rosenberg as authorized signatory for their
bank accounts. Flagstar refused to honor those resolutions and continued to allow Rosenberg to
access the accounts for several more months. As a result, he was able to make more than $300,000
in unauthorized withdrawals. This allegedly caused both companies to have insufficient cash to
pay their mortgage obligations, leading to a cascade of further harms, including a bankruptcy filing
by Alrose Patchogue.
Flagstar has moved to dismiss these claims, contending that the Court is without
jurisdiction to hear them. The Court agrees.23 The starting point for the analysis is 28 U.S.C. §
1334, the statute that gives district courts—and by extension, bankruptcy courts, as units of those
courts—jurisdiction over bankruptcy cases and proceedings. Section 1334 provides as follows:
(a) Except as provided in subsection (b) of this section, the district
courts shall have original and exclusive jurisdiction of all cases
under title 11.
(b) . . . [T]he district courts shall have original but not exclusive
jurisdiction of all civil proceedings arising under title 11, or arising
in or related to cases under title 11.
As is well known, these provisions confer several distinct forms of bankruptcy jurisdiction.
Bankruptcy courts have exclusive jurisdiction over bankruptcy cases themselves. 28 U.S.C. §
1334(a). In addition, bankruptcy courts have nonexclusive jurisdiction over bankruptcy
proceedings that (i) “arise under” the Bankruptcy Code, (ii) “arise in” a bankruptcy case, or (iii)
are “related to” a bankruptcy case. 28 U.S.C. § 1334(b). See Paul v. Yakubova (In re Yakubova),
2026 WL 1246576, at *5 (Bankr. S.D.N.Y. 2026).
23 The Court therefore need not rule on the two other grounds for dismissal of these claims advanced by Flagstar: that
plaintiffs lack standing to assert the claims, and that the Court should abstain from hearing the claims because Hart is
prosecuting identical claims against Flagstar in her 2024 state court suit. The Court notes, however, that if it did have
jurisdiction over plaintiffs’ claims against Flagstar, it would be inclined to abstain from hearing those claims, given
Hart’s parallel state court suit against Flagstar.
The claims against Flagstar do not fall within any of these categories. The Court plainly
does not have either “arising under” jurisdiction24 or “arising in” jurisdiction over these claims.25
Nor do these claims fall within the Court’s “related to” jurisdiction. “‘Related to’ proceedings are
those where the ‘outcome [of the proceeding] might have any conceivable effect on the bankrupt
estate.’” Yakubova, 2026 WL 1246576, at *5 (quoting Parmalat Cap. Fin. Ltd. v. Bank of Am.
Corp., 639 F.3d 572, 579 (2d Cir. 2011)). Plaintiffs’ claims against Flagstar are claims by
nondebtors against other nondebtors. Plaintiffs have identified no conceivable effect, nor is the
Court aware of any, that those claims could have on the Creditor Trust—let alone any conceivable
effect on the Debtors’ estates, which ceased to exist when the Debtors’ plan became effective. The
Court therefore lacks “related to” jurisdiction over those claims.
That leaves one final possible category of jurisdiction: supplemental jurisdiction under 28
U.S.C. § 1367. As a threshold matter, the case law is divided over whether bankruptcy courts, as
distinct from district courts, can exercise supplemental jurisdiction. The Second Circuit has stated,
in passing and without further discussion, that bankruptcy courts can exercise jurisdiction “under
principles of supplemental jurisdiction” pursuant to 28 U.S.C. § 1367. Klein v. Civale & Trovato,
Inc. (In re Lionel Corp.), 29 F.3d 88, 92 (2d Cir. 1994). However, a subsequent decision by the
Fifth Circuit reached a contrary conclusion. See Walker v. Cadle Co. (In re Walker), 51 F.3d 562,
571 (5th Cir. 1995) (holding that “bankruptcy courts may not exercise supplemental jurisdiction”).
24 “It is widely recognized that a proceeding ‘arising under title 11’ is one that involves one or more causes of action
created by the Bankruptcy Code.” Yakubova, 2026 WL 1246576, at *5 (citing Worldview Ent. Holdings Inc. v.
Woodrow, 611 B.R. 10, 16 (S.D.N.Y. 2019) and H.R. Rep. No. 95-595, at 445 (1977)). The causes of action against
Flagstar arise under state law and do not involve causes of action created by the Bankruptcy Code.
25 “‘[A]rising in’ proceedings are those ‘that are not based on any right expressly created by title 11, but nevertheless,
would have no existence out of the bankruptcy.’” Yakubova, 2026 WL 1246576, at *5 (citing Baker v. Simpson, 613
F.3d 346, 351 (2d Cir. 2010)). The causes of action against Flagstar clearly do exist outside of bankruptcy; indeed, as
noted, Hart is currently asserting these same claims against Flagstar in her 2024 state court suit.
Reviewing these decisions, a district court in the Southern District of New York has concluded
that, although “there is an inter-circuit conflict on this issue, this Court is bound by Lionel’s holding
that bankruptcy courts may exercise supplemental jurisdiction under § 1367(a).” In re Cavalry
Constr., Inc., 496 B.R. 106, 115 (S.D.N.Y. 2013).
However, even assuming that bankruptcy courts can exercise supplemental jurisdiction, the
requirements for doing so are not satisfied here. Supplemental jurisdiction extends to claims that
“form part of the same case or controversy”—that is, that “derive from a common nucleus of
operative fact”—as claims over which the Court has original jurisdiction. Shahriar v. Smith &
Wollensky Rest. Grp., Inc., 659 F.3d 234, 245 (2d Cir. 2011) (internal quotation marks and citation
omitted); see also 28 U.S.C. § 1367(a). The only claims over which the Court has original
jurisdiction are the claims against the Creditor Trust and the Trustee—and plaintiffs’ claims against
Flagstar are entirely unrelated to those claims. The claims against Flagstar rest entirely on a limited
set of alleged facts: Flagstar’s refusal to remove Rosenberg as an authorized signatory for Alrose
Patchogue and Alrose 32’s bank accounts. None of the claims against the Creditor Trust and the
Trustee involve those facts, and therefore no basis exists for supplemental jurisdiction.
Accordingly, the Court lacks jurisdiction over the claims against Flagstar, and the Court
will dismiss those claims with prejudice.
VIII. The Trustee’s Request for Sanctions
The Trustee asks the Court to sanction plaintiffs, pursuant to 28 U.S.C. § 1927, for their
supposed filing of a frivolous complaint. Having found three of plaintiffs’ claims to be legally
sufficient, the Court sees no basis for an award of sanctions. Moreover, while the Court believes
that some of plaintiffs’ claims and arguments were ill-considered, the same can be said for a
number of the arguments advanced by the Trustee. The Court hopes that, in future filings, both
sides will take more care to vet the arguments they choose to advance.26
CONCLUSION
The Court will (i) grant the Trustee’s motion to dismiss in part, deny that motion in part,
and stay further proceedings on plaintiffs’ second and third claims, all as set forth above; (ii) grant
Flagstar’s motion to dismiss in its entirety; and (iii) continue Hart’s administrative expense motion
for further consolidated proceedings consistent with this decision.
The parties are directed, by two weeks from today, (i) to settle an order consistent with this
decision, and (ii) to file an agreed order setting a schedule for further consolidated proceedings in
this adversary proceeding and Hart’s administrative expense motion. The Court will hold an initial
pretrial conference in these consolidated proceedings, by Zoom, at 4:00 p.m. on September 29,
2026 or as soon thereafter as counsel are available.
Dated: New York, New York
September 10, 2026
/s/ Philip Bentley
Hon. Philip Bentley
United States Bankruptcy Judge
26 In this decision, the Court has addressed each of the principal arguments advanced by the parties with respect to the
various pending issues. The Court has considered and rejected each of the parties’ other arguments.