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ZEK Wins Decisive Verdict and Judgment for Bank Client in Bankruptcy Court Trial

ZEK partner Peter Janovsky recently obtained a decisive verdict and judgment from Judge Michael E. Wiles of the United States Bankruptcy Court for the Southern District of New York. On April 29, 2020, after a four-day bench trial Judge Wiles awarded a $1.242 million judgment to ZEK’s bank client against a pawnbroking company and its principal. Click here for the case link (PDF).

The Bankruptcy Trial

ZEK’s client VNB New York, LLC, an affiliate of Valley National Bank (“VNB”), lent money to AN Frieda Diamonds, Inc. (Frieda), with the company’s diamond inventory as VNB’s collateral for the loan. In 2015, certain other creditors put Frieda into an involuntary bankruptcy, and soon discovered Frieda’s principal had pawned millions of dollars in diamonds at New Liberty Pawnshop on West 47th St. in New York in violation of VNB’s security interest in the diamond collateral. These facts led to a trial in October 2019, in which VNB and Frieda’s bankruptcy trustee brought claims against the pawnbroker and other parties, including the father of the pawnbroker’s principal. Father and son directly contradicted each other on the stand as to whether the father purchased the pawned diamonds from the pawnbroker. Peter Janovsky tried the case on VNB’s behalf.

VNB asserted claims for conversion (misappropriation) of the diamonds in violation of the Bank’s security interest, while the Trustee’s claims were for improper transfers under certain Bankruptcy Code provisions. In the April 27, 2020 46-page decision, Judge Wiles awarded $1,242,722.07 to VNB against the pawnbroker and its principal, and found in the Bank’s favor on nearly all its claims, including:

  • VNB had a perfected security interest in all diamonds owned by AN Frieda Corp.
  • VNB’s security interest was senior to the pawnbroker’s lien on the diamonds.
  • Although the diamonds were pawned by the pawnbroker’s principal, most of the diamonds were property of AN Frieda Corp. and not the individual.
  • The pawnbroker and its principal converted diamonds in violation of VNB’s security interest.
  • VNB’s security interest was prior to any claims by the Trustee under Bankruptcy statutes avoiding certain property transfers.
  • VNB’s damages were 30% higher than the amount of the pawnbroker loans on the diamonds.
  • The pawnbroker’s disposition of the diamonds was done in a commercially unreasonable manner.

For questions regarding this case, please contact Peter Janovsky at pjanovsky@zeklaw.com.

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Peter Janovsky is a partner at ZEK and a member of both its Litigation and Bankruptcy groups. His 32 years of experience includes successfully litigating trials, motions and appeals in complex real estate, secured lending, title, partnership agreements, license agreements and many other issues in Courts on all levels.