In Re: Wythe Berry Fee Owner LLC

Background

Yoel Goldman appealed an August 1, 2024 order of the United States Bankruptcy Court for the Southern District of New York. That order authorized Wythe Berry Fee Owner LLC, the debtor, to comply with a restraining notice issued by Meyer Chetrit.

Goldman and a business partner formed Wythe Berry to finance construction of a luxury hotel. An involuntary Chapter 11 bankruptcy case began on October 6, 2022. Under Wythe Berry’s Fourth Amended Plan of Reorganization and the Amended and Restated Settlement Agreement, which the bankruptcy court approved on May 29, 2024, Wythe Berry was required to distribute $650,000 each to Goldman and his business partner.

Chetrit served Wythe Berry with a restraining notice on June 4, 2024. The notice sought to prevent Wythe Berry from paying Goldman because Chetrit held a final, unsatisfied state-court judgment against Goldman. The judgment was entered on January 29, 2021, in the amount of $8,500,950.

Bankruptcy Court Ruling and Appeal

After a hearing and briefing, the bankruptcy court found that the restraining notice did not violate the automatic stay under 11 U.S.C. § 362. An automatic stay generally pauses certain collection and other actions against a bankruptcy debtor or bankruptcy estate while the case is pending. Goldman appealed that ruling. The district court stated that it reviewed the bankruptcy court’s legal conclusions independently and that there were no factual issues.

District Court’s Decision

The district court affirmed the bankruptcy court’s decision authorizing Wythe Berry to comply with the restraining notice. It relied on 28 U.S.C. § 959(b), which requires a debtor to operate according to valid state laws, and New York Civil Practice Law and Rules § 5222, which permits a judgment creditor to issue a restraining notice preventing a third party from satisfying a debt owed to a judgment debtor.

The court noted that Chetrit’s judgment against Goldman was final and predated the bankruptcy case. It also noted that Wythe Berry did not object to the restraining notice and that carrying it out would not interfere with Wythe Berry’s reorganization efforts or the fairness and efficiency of distribution. Judge Alvin K. Hellerstein affirmed the bankruptcy court’s order and directed the Clerk to close the case.