STAR DEVELOPMENT GROUP V. ZVI GUTTMAN
- Summarized by Caleb Chaplain , U.S. Bankruptcy Court, Western District of Virginia
- 10 months 5 days ago
- Case Type:
- Business
- Case Status:
- Affirmed
- Citation:
- 24-1722 (4th Circuit, Apr 17,2025) Not Published
- Tag(s):
-
- Ruling:
- The Fourth Circuit affirmed both the bankruptcy court’s and district court’s grant of summary judgment in favor of the chapter 7 trustee. The Fourth Circuit found that the $1 million deposited into a bank account owned by Star Development Group, LLC (debtor) was property of the estate. The Fourth Circuit rejected all three theories of appellants as to why the property was not property of the estate, finding no evidence of any agreement requiring the debtor to use the funds only for a specific purpose, no evidence of a trust, and no statutory basis for exclusion from the estate.
- Procedural context:
- Hopkins Hospitality Investors, LLC (HHI) and Mukesh Majmudar filed an adversary proceeding against Zvi Guttman, the bankruptcy trustee for Star Development Group, LLC (debtor), seeking a declaratory judgment that the $1 million in the debtor’s bank account was not property of the bankruptcy estate. The plaintiffs advanced three theories for why the account funds should not be part of the bankruptcy estate: (i) earmarking, (ii) trust, and (iii) the statutory exception under section 541(b)(1). The bankruptcy court granted summary judgment to the trustee, rejecting the three theories. The district court affirmed. HHI and Majmudar appealed to the Fourth Circuit.
- Facts:
- Majmudar is an owner and managing member of both HHI and the debtor, Star Development Group, LLC. In 2013, HHI and a related entity began developing a hotel on property owned by HHI, with HHI retaining debtor as the development manager. In late 2015, payment disputes arose with the general contractor, who filed a mechanic’s lien against property of HHI and a related entity. To release the property from the lien and proceed with refinancing of a Small Business Administration loan, HHI needed to provide a $1 million bond, which required an irrevocable letter of credit backed by cash collateral.
Majmudar arranged to open a bank account in the debtor’s name at PeoplesBank with $1 million provided by himself ($353,315.41) and HHI ($646,684.59). The account was pledged to secure a letter of credit for a bond to release the mechanic’s lien. When the debtor filed for chapter 7 bankruptcy in 2019, Majmudar initially certified under penalty of perjury that the debtor held no property for others. Only after the adversary proceeding began did Majmudar amend the debtor’s bankruptcy filings to claim the funds belonged to him and HHI.
- Judge(s):
- Wilkinson, Niemeyer, Wynn
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