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Kabile, Ltd. v. Levavy

United States District Court, D. New Jersey

January 6, 2015

KABILE, LTD., et al., Plaintiff,
BARDIN LEVAVY, et al., Defendants.


KEVIN McNULTY, District Judge.


Kabile, Ltd., invested in a company called Elegant USA, and lost its entire investment. Defendant Bardin Levavy was connected with the ill-fated investment in two capacities. First, Levavy was an attorney for RPG Investment, LLC, the entity through which Kabile invested in Elegant USA. Second, he was a manager of RPG. Kabile asserts claims against Levavy in both of those capacities.

As an attorney, Levavy allegedly should have advised Kabile about the dangers of its investment. Levavy's failure to do so, Kabile claims, constitutes malpractice, misrepresentation, and a breach of fiduciary duty (Counts One, Two, and Three). As a manager of RPG, Levavy allegedly breached his fiduciary duties by signing a loan modification agreement (Count Four). That agreement released three guarantors of a loan that Elegant USA owed to RPG. Two of those three guarantors were Levavy's legal clients. Kabile argues that Levavy acted improperly to benefit his clients, rather than to benefit RPG.

Levavy has moved for summary judgment as to all counts. With respect to Counts One, Two, and Three, Levavy's motion will be granted. Levavy and Kabile did not have a formal attorney/client relationship, and nothing about their interaction caused Levavy to owe an attorney's duty of care to Kabile, a non-client. With respect to the Count Four claim of breach of fiduciary duty, summary judgment will be denied. A genuine issue of material fact exists as to whether Levavy acted in accordance with the duty he owed as a manager of RPG Investment, LLC.


The complaint essentially alleges that Levavy's liability arises from two relevant acts: 1) he prepared the paperwork to assign an interest in RPG to Kabile, and 2) he signed, on behalf of RPG, an agreement to modify the terms of a loan that Elegant USA owed to RPG.

A. Assignment of RPG ownership interest to Kabile

Elegant USA was a company that manufactured and sold automotive accessories in the United States. Compl. ¶ 15.[1] Elegant was controlled by two brothers, Ori Raam and Boaz Raam. Id. ¶¶ 16, 22. In late 2004 and early 2005, the Raam brothers began encouraging a friend named Danny Kordova to invest in Elegant USA. Id. ¶¶ 2, 21-22. The three held "numerous meetings." Id. ¶ 23. In January of 2005, at Ori Raam's apartment, the three agreed orally on the terms of Kordova's investment. Id. ¶ 24-25. Kordova's company, Kabile, Ltd., would invest $1 million in Elegant USA in exchange for an ownership interest and other benefits. Id. ¶ 26-27. Ori Raam emailed these terms to Kordova on January 26, 2005. Id. ¶ 25.

The mechanics of Kordova's investment were indirect. Kordova owned Kabile; Kabile was to be granted an ownership interest in RPG Investment, LLC; and RPG, in turn, would own a portion of Elegant USA. Kordova made his $1 million investment via three wire transfers between January and March 2005. (Levavy Stmt. ¶ 9).

Kordova, Ori Raam, and Boaz Raam continued discussing Kordova's investment in the company. (Compl. ¶ 30). Eventually, the Raam brothers convinced Kordova make a second $1 million investment in Elegant USA. (Compl. ¶ 31). The record is unclear as to the date of this agreement. Kordova was clear in his deposition, however, that agreement was reached before he ever met with Levavy. (Levavy Stmt. ¶ 17). Indeed, there is no evidence that Levavy had had any involvement with the investment up to this point.

Levavy's first recorded involvement occurred in October 2006, when Ori Raam and Kordova went to Levavy's office. Levavy provided them an "Assignment of Membership Interest in RPG Investment." That Assignment transferred an interest in RPG from a company called Fagunda Investments to Kabile.

Levavy contends that his role in the transaction was limited to the preparation of the Assignment that effectuated Kabile's acquisition of an interest in RPG. He testified that he did not render any advice to Kordova about the substance or mechanics of the transaction. His conversation with Kordova was limited to "social pleasantries." (Levavy Stmt. ¶ 20).[2]

Finally, in December 2006, Ori Raam again memorialized the terms of Kabile's investment and emailed them to Kordova. (Levavy Stmt ¶ 32).

B. Modification of loan and release of Guarantors

Count Four (breach of fiduciary duty) arises from Levavy's status, not as an attorney, but as a manager of RPG. As manager, Levavy signed an agreement on behalf of RPG to modify the terms of a loan that Elegant USA owed to RPG. Kabile alleges that Levavy did so in the interest of two of his clients, in breach of Levavy's duty to act in the interest of RPG.

In 2003, Elegant USA obtained a $20, 000, 000 loan from the Bank of New York. (Mot., 5). General Electric Capital Corporation purchased that loan in 2004. (Kabile Stmt., p. 6 ¶ 1).

On March 2, 2005, the loan was restructured. That particular restructuring involved two important changes. First, RPG purchased a $12, 250, 000 portion of that loan for $1, 100, 000. (Last-Out Agrmt. ¶ 2.1; Mot., 6.) Second, three parties (Boaz Raam, Yohanan Hartog, and Elegant Marketing, Inc.) agreed to guarantee Elegant USA's debt. (Kabile Stmt., p. 6 ¶ 4). All three guarantors were members of Elegant USA. If Elegant USA defaulted on its debts to either GECC or RPG, those three individuals stood liable for the unpaid balance. (Kabile Stmt. at 6 ¶ 4. ¶ 5).[3]

On August 16, 2009, Levavy signed another modification to the loan, one that is crucially at issue here. (Kabile Stmt., p. 11 ¶ 44). Under the new modification, Elegant USA would make a cash payment to GECC in exchange for cancellation of a substantial portion of the debt. One of the sources of the cash was to be the sale of Elegant USA's "Continental inventory." The amount of the cash payment was not fixed, however; it was to depend on the proceeds of sale. See pp. 16-17, infra.

That August 2009 modification also affected the existing guaranties on the loan. In exchange for Elegant USA's cash payment to GECC, the guarantors would be released from their guaranties. And they would be released, not just on the portion of the debt owed to GECC, but also on the portion owed to RPG. (Modification ¶ 7). In short, RPG, although it would receive no direct benefit, agreed to release the guarantors from their obligations.

C. This Action

Kabile filed this action on his own behalf, and also derivatively on behalf of RPG Investment. Based on Levavy's preparation of the paperwork assigning an interest in RPG to Kabile, the complaint alleges negligent misrepresentation and professional malpractice (Counts One through Three). Based on Levavy's signing the loan modification on behalf of RPG, Kabile's complaint alleges that Levavy breached his fiduciary duty to RPG (Count Four).

Kabile claims that Levavy breached a duty by failing to notify Kabile that "the purpose of the transactions was to deprive Plaintiffs of their money and the transactions were structured to allow the Raams to freeze out Plaintiffs of their interest in Elegant USA and render it judgment-proof." (Compl. ¶ 71) (Count Three). "Transactions" appears to be a reference to Kabile's investment in RPG. By "freeze-out, " Kabile seems to mean that the majority members could make decisions and dispose of company assets without the consent of the minority shareholders. (Opp., 12). Kabile further alleges that Levavy signed the modification releasing the guarantees "to advance the economic interests of Boaz Raam and Elegant Marketing., Inc., " the released guarantors (Compl. ¶ 79). RPG, Kabile argues, had "no economic interest" in releasing those guaranties.

Mr. Kordova died on November 12, 2011. According to the complaint, his assets, including his interest in this litigation, were transferred "pursuant to Bulgarian law" to his two minor daughters, Lilian Kordova and Susan Kordova. (Compl. ¶ 3).[4] Their interests are asserted in this action by their guardians, Mariana Lukova Kordova (for Lilian) and Vanya Zhelyazkova (for Susan). (Compl. ¶¶ 4-5).


Levavy has filed a motion for summary judgment as to all four counts. Kabile opposes summary judgment on Counts One through Three (attorney-related claims), and cross-moves for summary judgment on Count Four (breach of fiduciary duty as manager). With respect to Counts One through Three, summary judgment is granted, because Levavy did not owe an attorney's duty of care to Kabile. With respect to Count Four, both sides' motions for summary judgment are denied. There is evidence that the loan modification was favorable to the guarantors and had dubious value to ...

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