Lee et al v. Ahne et al

NOT FOR PUBLICATION
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------------------------------------------------x
In re: 	: 	Chapter 11
Basic Food Group, LLC, 	:
Debtor. 	: 	Case No. 15-10892 (JLG)
------------------------------------------------------------------------x
Jae Ho Lee, Soyoun Park and 	:
Basic Food Groups, LLC, 	:
Plaintiffs, 	:
:
-against- 	: 	Adv. Pro. No. 15-01119 (JLG)
:
Ahne Law, P.C., Samuel Ahne, Noah Bank, 	:
Edwin Shin, Cheol Min Kim, and 	:
Aspen Market Place Corp., 	:
Defendants. 	:
------------------------------------------------------------------------x
MEMORANDUM DECISION AND ORDER ON MOTION OF CHEOL MIN KIM
AND ASPEN MARKET PLACE, CORP., FOR SUMMARY JUDGMENT
DISMISSING ALL CLAIMS AGAINST THEM, PURSUANT TO FEDERAL
RULE OF BANKRUPTCY PROCEDURE 7056
APPEARANCES:
LAW OFFICES OF CHEOL I. KIM
8 Grand Cove Way
Edgewater, NJ 07020
By: 	Cheol I. Kim, Esq.
Attorney for Defendants Cheol M. Kim and Aspen Market Place Corp.
KIMM LAW FIRM
333 Sylvan Avenue
Suite #106
Englewood Cliffs, New Jersey 07632
By: 	Michael Kimm, Esq.
Attorney for the Plaintiffs
15-01119-jpm Doc 115 Filed 10/31/18 Entered 10/31/18 19:44:59 Main Document
Pg 1 of 29

1
JAMES L. GARRITY, JR.
UNITED STATES BANKRUPTCY JUDGE
INTRODUCTION
Basic Food Group LLC, the debtor herein (“Basic Food” or the “Debtor”), and its sole
members, Jae Ho Lee (“Lee”) and his wife, Soyoun Park (“Park”), are the plaintiffs (the
“Plaintiffs”) in this adversary proceeding.1 As relevant herein, they seek to recover damages
from Aspen Market Place Corp. (“Aspen”), and Mr. Cheol Min Kim (“Kim,” and together with
Aspen, the “Seller Defendants”), occasioned by their alleged wrongdoing in connection with a
transaction in 2012 in which Lee purchased the Basic Food deli/café business from Kim. Lee
financed the transaction in part with a $1.3 million loan to the Debtor from Noah Bank, N.A.
(“Noah Bank”), another defendant herein.
In their Second Amended Complaint (the “Complaint” or “SAC”), the Plaintiffs assert
seven causes of action against various parties involved in the transaction.2 The matter before the
Court is the Seller Defendants’ joint motion for summary judgment dismissing Counts 4, 5 and 6
of the Complaint (the “Motion”).3 The Plaintiffs oppose the Motion.4 The Complaint identifies
1 	On or about April 30, 2018, Lee passed away and his surviving wife, and plaintiff herein, Park, was substituted
as the executrix for Lee’s estate. See Notice of Appearance in Adversary Proceeding and Substitution of Plaintiff
Jae Ho Lee by Soyoun Park as Administrator of Estate of Jae Ho Lee [ECF No. 113]. Unless indicated otherwise,
citations to “ECF No. __” refer to filings on the Court’s electronic docket in this Adversary Proceeding (No. 15-
01119-JLG).
2 	See ECF No. 1, Doc. 39.
3 	In support of the Motion, the Seller Defendants submitted: (i) a Local Rule 7056.1 Statement of Uncontested
Facts [ECF No. 98]; (ii) the Brief of Cheol Min Kim and Aspen Market Place In Support of Motion for Summary
Judgment Dismissing All Claims Lodged Against Them By Plaintiffs, Pursuant to Federal Rule of Bankruptcy
Procedure 7056 [ECF No. 98-2] (the “Seller Defendants’ MOL”); (iii) the Declaration of Cheol I. Kim in Support of
the Motion [ECF No. 98] (the “Kim Declaration”); and (iv) a Reply Memorandum of Law In Further Support of
Kim’s Motion for Summary Judgment [ECF No. 103] (the “Reply”).
4 	In opposition to the Motion, the Plaintiffs filed the (i) Plaintiffs’ Memorandum of Law in Opposition to Cheol
Min Kim’s Motion for Summary Judgment (the “Plaintiffs’ MOL”) [ECF No. 101], and the (ii) Plaintiffs’ Counter
Statement of Material Facts In Opposition to Cheol Min Kim’s Defective Motion for Summary Judgment [ECF No.
15-01119-jpm Doc 115 Filed 10/31/18 Entered 10/31/18 19:44:59 Main Document
Pg 2 of 29

2
Aspen as a party, but is otherwise silent as to its involvement in the transaction. At the hearing
on the Motion, the Plaintiffs stipulated to dismiss Aspen from the Complaint. They also
stipulated to dismiss Count 4 as moot. This memorandum decision addresses whether Kim is
entitled to summary judgment dismissing Counts 5 and 6 of the Complaint. For the reasons and
as set forth below, the Motion is GRANTED in part, and DENIED in part.
JURISDICTION
This Court has subject matter jurisdiction over the Motion pursuant to 28 U.S.C. §§
1334(a) and 157(a) and the Amended Standing Order of Referral of Cases to Bankruptcy Judges
of the United States District Court for the Southern District of New York (M-431), dated January
31, 2102 (Preska, C.J.). In Counts 5 and 6 of the Complaint, the Plaintiffs seek damages under
state law from Kim based upon his alleged pre-petition (i) breach of contract and the covenant of
good faith and fair dealing implied in all contracts, and (ii) fraud in the inducement, respectively.
Those Counts do not fall within the Court’s core jurisdiction because they are state law causes of
action that neither “arise under title 11,” nor “arise-in” a case under title 11. See 28 U.S.C. §§
1334(b), 157(b)(1); see also Stern v. Marshall, 564 U.S. 462, 476 (2011) (“Under our reading of
the statute, core proceedings are those that arise in a bankruptcy case or title 11.”); J.T. Moran
Fin. Corp. v. Am. Consol. Fin. Corp. (In re J.T. Moran Fin. Corp.), 124 B.R. 931, 937 (S.D.N.Y.
1991) (stating that core jurisdiction encompasses proceedings which “invoke a substantive right
101-1] that “adopts by incorporation the Plaintiffs’ Statement of Material Facts presented in opposition to Noah
Bank and Edward Shin’s motion for summary judgment” (the “Plaintiffs’ Incorporated Statement”) [ECF No. 94-3].
The Plaintiffs also cite to the exhibits annexed to their opposition to the Bank Defendants’ Joint Motion for
Summary Judgment [ECF No. 94], as follows: (i) deposition transcript of Cheol Min Kim; (ii) deposition transcript
of Irvin Chai (Vice-President at Noah Bank); (iii) deposition transcript of Jae Ho Lee; (iv) deposition transcript of
Samuel Ahne, Esq.; (v) Expert Report of Jordan Yuelys, Esq.; (vi) Declaration of Non-Party Byung Hoon Kim (the
“B.H. Kim Declaration”); and (vii) Declaration of Jae Ho Lee in Opposition to Defendants Noah Bank and Edward
Shin’s Purported Motion for Summary Judgment (the “Lee Declaration”).
15-01119-jpm Doc 115 Filed 10/31/18 Entered 10/31/18 19:44:59 Main Document
Pg 3 of 29

3
provided by title 11” or that “would have no existence outside of the bankruptcy case.”). Non-
core proceedings are those that are not core “but that [are] otherwise related to a case under title
11.” See 28 U.S.C. § 157(c)(1); see also Stern v. Marshall, 564 U.S. at 477 (“The terms ‘non-
core’ and ‘related’ are synonymous” (quoting Collier on Bankruptcy ¶ 3.02[2], p.3-26, n.5 (16th
ed. 2010))). The Debtor’s claims against Kim in Counts 5 and 6 fall within the scope of the
Court’s non-core related-to jurisdiction because any recovery by the Debtor from this litigation
will impact the value of the estate. See Robinson v. Daley (In re Daley), 224 B.R. 207, 313
(Bankr. S.D.N.Y. 1998) (“Causes of action owned by the debtor prior to its bankruptcy and
which become property of the debtor’s estate, as well as suits between third parties which have
an effect on the bankruptcy estate are bases for related-to jurisdiction.” (citing Celotex v.
Edwards, 514 U.S. 300, 308 n.5 (1995))); see also Parmalat Capital Fin., Ltd. v. Bank of Am.
Corp., 639 F.3d 572, 579 (2d Cir. 2011) (“[A] civil proceeding is ‘related to’ a title 11 case if the
action’s outcome might have any conceivable effect on the bankruptcy estate.”).
However, that jurisdiction does not extend to Lee and Park’s claims against Kim. The
resolution of those claims will have no impact on the Debtor’s estate or assets. See, e.g., In re
Johns–Manville Corp., 517 F.3d 52, 65 (2d Cir. 2008) (noting that “a third-party action does not
create ‘related to’ jurisdiction when the asset in question is not property of the estate and the
dispute has no effect on the estate. Shared facts between the third-party action and a debtor-
creditor conflict do not in and of themselves suffice to make the third-party action ‘related to’ the
bankruptcy. . . .”); cf. Victory Markets, Inc. v. NYS Unemployment Ins., Unemployment Ins. Div.,
Dep’t of Labor, State of New York (In re Victory Markets Inc., 263 B.R. 9, 15 (Bankr. N.D.N.Y.
2000) (noting that “the scope of a bankruptcy court’s ‘related to’ jurisdiction is further limited
where non-debtor third parties are involved. Because an endless array of cases would ‘relate to’
15-01119-jpm Doc 115 Filed 10/31/18 Entered 10/31/18 19:44:59 Main Document
Pg 4 of 29

4
any single bankruptcy administration, the Second Circuit has limited ‘related to’ jurisdiction to
‘significant’ relation and not simply a remote connection.”) (citations omitted). Although not
raised by the parties, the Court considers whether it has jurisdiction over those claims based on
principles of supplemental jurisdiction pursuant to 28 U.S.C. § 1367. Under that section, “in any
civil action of which the district courts have original jurisdiction, the district courts shall have
supplemental jurisdiction over all other claims that are so related to claims in the action within
such original jurisdiction that they form part of the same case or controversy under Article III of
the United States Constitution.” 28 U.S.C. § 1367(a). “Claims are ‘part of the same case or
controversy’ when they ‘derive from a common nucleus of operative facts,’ and ‘are such that
[the claimant] would ordinarily be expected to try them all in one judicial proceeding[.]’” Picard
v. HSBC Bank PLC (In re Bernard L. Madoff Inv. Sec. LLC), 561 B.R. 334, 348 (Bankr.
S.D.N.Y. 2016) (internal quotations and citations omitted). There is authority in the Second
Circuit that a bankruptcy court may exercise supplemental jurisdiction under 28 U.S.C. § 1367.
See Lionel Corp. v. Civale & Trovato, Inc. (In re Lionel Corp.), 29 F.3d 88, 92 (2d Cir. 1994);
see also Shafferman v. The Queens Borough Public Library (In re JMK Constr. Grp., Ltd.), 502
B.R. 396, 403 n.4 (Bankr. S.D.N.Y. 2013); Gowan v. HSBC Mortg. Corp. (In re Dreier LLP),
No. 10-5456 (SMB), 2012 WL 4867376, at *5 (Bankr. S.D.N.Y. 2012). Here, as described
below, it is clear that the claims of the Debtor and Lee and Park against Kim derive from a
common nucleus of operative facts—namely, the underlying Acquisition and Loan transactions
with the Seller Defendants—and it would not be judicially economical to try these overlapping
matters in different proceedings. Accordingly, the Court concludes that it has supplemental
jurisdiction to adjudicate Lee and Park’s claims against the Seller Defendants in this action.
15-01119-jpm Doc 115 Filed 10/31/18 Entered 10/31/18 19:44:59 Main Document
Pg 5 of 29

5
In non-core “related to” matters, a bankruptcy judge cannot enter a final, appealable order
unless the parties consent. See 28 U.S.C. § 157(c)(2) (“[T]he district court, with the consent of
all the parties to the proceeding, may refer a proceeding related to a case under title 11 to a
bankruptcy judge to hear and determine and to enter appropriate orders and judgments . . . .”).
On the record of the hearing on the Motion, the Plaintiffs and Seller Defendants consented to this
Court’s entry of a final judgment on this Motion. As such, the Court is satisfied that it has the
authority to enter final orders and judgments with respect to the Plaintiffs’ claims against Kim.
FACTS 5
The Debtor is a limited liability company whose sole members are Lee and Park. It is
also a chapter 7 debtor herein.6 Its sole asset is a deli/café (the “NY Deli”) located in New York
City. Lee and Park acquired their membership interests in the Debtor from Kim in December
2012 for $1.8 million (the “Acquisition”) that was partially financed by a $1.3 million small
business loan from Noah Bank to the Debtor (the “Loan”). See Purchase Agreement; Loan
Agreement.7 The Loan is backed by the Small Business Association (the “SBA”), and is secured
by a lien on the Debtor’s assets. It is guaranteed by Lee and Park. See Security Agreement,
5 	To put the matters at issue herein in context, the Court includes a discussion of the events leading up to the
commencement of this action, including allegations in the Complaint. Facts that are material to the resolution of the
Motion, including those subject to dispute, are discussed below in further detail, as appropriate.
6 	Lee and Park filed the complaint initiating this adversary proceeding on September 30, 2014, in the United
States District Court for the Southern District of New York. Basic Food was added as a plaintiff to that action on
December 16, 2014. On April 15, 2015, Basic Food filed a voluntary petition under chapter 11 of the Bankruptcy
Code. See Voluntary Petition, Case No. 15-10892, ECF No. 1. It remained in possession and control of its business
and assets as a debtor in possession under § 1107 of the Bankruptcy Code until February 14, 2017, when the Court
granted Noah Bank’s motion to convert the case to one under chapter 7 of the Bankruptcy Code. See Order
Granting Motion to Convert Chapter 11 Case to Chapter 7 [Case No. 15-10892, ECF No. 121]. Alan Nisselson is
the Court-appointed chapter 7 Trustee of the Debtor’s estate. See Notice of Appointment of Trustee Alan Nisselson
[Case No. 15-10892, ECF No. 122].
7 	See Agreement dated December 13, 2012 between Cheol M. Ki[m] and Si Won Kim (as Sellers) and Jae Ho
Lee (as Purchaser) for 100 units of Bas[i]c Food Groups, LLC (the “Purchase Agreement”) (Ex. 33.16, Ahne Depo.
Tr.) [ECF No. 94-8]. See Loan Agreement dated December 13, 2012 by and between Basic Food (as Borrower) and
Noah Bank (as Lender) (the “Loan Agreement”) (Ex. A, Certification of John Kim) [ECF No. 96-6].
15-01119-jpm Doc 115 Filed 10/31/18 Entered 10/31/18 19:44:59 Main Document
Pg 6 of 29

6
UCC Financing Statement [ECF No. 47-2]; Unconditional Guarantees [ECF No. 24-2]. Losses
from the operation of its business forced the Debtor into bankruptcy on April 15, 2015. By that
time, the Plaintiffs had already commenced this action.
The Plaintiffs contend that in 2012, Kim was indebted to Noah Bank on account of
financing from the bank in connection with his acquisition of Basic Food (the “Noah-Kim
Loan”), and his acquisition of Aspen, a deli/café operation in Hoboken, New Jersey.8 See SAC ¶
57. The Plaintiffs maintain that in the fall of 2012, Basic Food’s business was failing and both
Kim and Noah Bank understood that without an infusion of capital into the Basic Food
operations, Kim would default under the Noah-Kim Loan. See SAC ¶ 56. The Plaintiffs say that
because Aspen was then a “startup” business, it was not generating profits that Kim could use to
pay down that loan. Id. ¶ 57. Kim and Lee were friends, and at that time, Kim was aware that
Lee was operating a deli/café in New York City. The Plaintiffs contend that Kim “targeted” Lee
and schemed to sell the Basic Food business to him. Id. ¶ 58. They say that Kim sought to
unload the NY Deli on Lee as a “turnkey” transaction in which Lee would step into Kim’s shoes
as the owner of the business, inject additional capital into the business, and, in doing so, provide
the means for Kim to pay off the Noah-Kim Loan, and to fund Aspen’s operations. See id. ¶¶ 54,
56, 92, 98-99. The Plaintiffs contend that Kim, with the assistance of Noah Bank and Edward
Shin – its President and CEO (“Shin,” and together with Noah Bank, the “Bank Defendants”) -
and Samuel Ahne (“Ahne”) of Ahne Law P.C. (“Ahne Law”), the attorney who represented Lee
and Park in the Acquisition and Loan transactions, duped and defrauded Lee into paying $1.8
million for the stock of Basic Food and into causing Basic Food to incur $1.3 million of
8 	In 2009, Kim acquired Basic Food for $2.3 million. He financed the acquisition, in part, by an SBA-guaranteed
loan from Woori America Bank (“Woori”). In December 2011, he refinanced the Woori loan with a loan from Noah
Bank in the approximate amount of $1 million. See SAC ¶ 54.
15-01119-jpm Doc 115 Filed 10/31/18 Entered 10/31/18 19:44:59 Main Document
Pg 7 of 29

7
indebtedness from Noah Bank to do so. See id. ¶¶ 12, 59-60. The Plaintiffs assert that at all
relevant times, Kim, Noah Bank and Shin knew that the NY Deli was operating at a loss and that
the business was worth far less than $1.8 million, but that, with Ahne’s help, they concealed
those and other facts material to the Acquisition and Loan transactions from Lee. See id. ¶¶ 93,
99-102. Further, they contend that during their negotiations relating to Lee’s acquisition of Basic
Food, Kim misrepresented to Lee that Basic Food was “profitable,” and that it yielded between
$200,000 to $400,000 per year” for the owner. See id. ¶¶ 12, 59, 62, 100. Kim also allegedly
provided Lee with false tax returns for Basic Food for the years 2009 through 2011, which
inflated Basic Food’s profitability by underreporting Basic Food’s actual wage expenses. See
Plaintiffs’ MOL at 8.
The closing of the Loan and Acquisition transactions took place at Noah Bank’s offices
in Palisades Park, New Jersey, on December 13, 2012. At that time, Lee and Kim executed the
Purchase Agreement and Buy-Back Agreement.9 The latter gave Kim the option to purchase
100% of the Basic Food units from Lee on the same terms and conditions as set forth in the
Purchase Agreement. In satisfaction of the $1.8 million “purchase price” for the Basic Food
shares, Lee delivered his $300,000 promissory note in favor of Kim, $200,000 in cash, 10 and the
proceeds of the $1.3 million Loan, of which approximately $900,000 went towards paying off
the Noah-Kim Loan. See Closing Statement (Ex 33.13, Ahne Depo. Tr.) [ECF No. 94-8].
9 	See Buy-Back Agreement between Lee and Kim, dated December 13, 2012 (Ex. D, Kim Declaration) [ECF No.
98-6] (the “Buy-Back Agreement”).
10 	The parties present varying and contradictory versions of the source and use of this $200,000. Kim testified at
his deposition that he “lent” the $200,000 to Lee, for Lee to be able to acquire Basic Food, by bringing cash to Lee’s
house. See Kim Depo. Tr. at 103:19-105:10. Kim also testified that there was no documentation or other record of
this cash loan. See id. Lee, however, testified that he obtained the $200,000 cash from his other, profitable, deli-
business—Hudson. See Lee Depo. Tr. at 18:20-19:15; 21:17-22:1.
15-01119-jpm Doc 115 Filed 10/31/18 Entered 10/31/18 19:44:59 Main Document
Pg 8 of 29

8
The Plaintiffs allege that after the transactions closed, Lee and Park learned that the NY
Deli was not profitable. See SAC ¶ 93. In addition, they say that in or around the summer of
2014, Lee and Park received notice that Basic Food “may be in violation” of certain provisions
of the New York State Labor Law and was facing potential fines, allegedly stemming from
Kim’s operation of the NY Deli. See id. ¶¶ 93-95. According to the Plaintiffs, Kim and the
Bank Defendants actively concealed the fact of those violations from Lee. See id.
In their Complaint, the Plaintiffs assert seven claims for relief against some or all of the
following defendants: Noah Bank, Shin, Ahne, Ahne Law, Kim, and Aspen. Those claims
consist of: (i) claims under the Racketeer Influenced and Corrupt Organizations Act (the “RICO
Claims”) against all defendants (Counts 1 and 2), (ii) a claim of breach of fiduciary duty against
Ahne and Ahne Law (Count 3), (iii) a request for a declaratory judgment against all defendants
(Count 4), (iv) a claim of breach of contract and implied covenant of good faith and fair dealing
against all defendants (Count 5), and (v) separate claims for fraud in the inducement against Kim
and Aspen (Count 6), and Shin and Noah Bank (Count 7).
In July 2016, the Court granted the defendants’ joint motion to dismiss the RICO Claims
pursuant to Fed. R. Civ. P. 12(b)(6). See Memorandum Decision on Defendants’ Motions to
Dismiss dated July 1, 2016 [ECF No. 20]; see also Order Dismissing RICO Claims in Adversary
Proceeding dated July 13, 2017 [ECF No. 23]. Thereafter, the Seller Defendants filed a joint
answer to the Complaint. See Answer, Counterclaims, and Crossclaims of Cheol Min Kim and
Aspen Market Place, Corp. to Second Amended Complaint After Dismissal of RICO Claims,
Counts One and Two [ECF No. 36]. On the record of the hearing on the Motion, the Plaintiffs
confirmed that the declaratory relief they seek in Count 4 is moot, and that they are not asserting
any claims against Aspen. Accordingly, Aspen is dismissed from the Complaint and Count 4 is
15-01119-jpm Doc 115 Filed 10/31/18 Entered 10/31/18 19:44:59 Main Document
Pg 9 of 29

9
dismissed as moot. Defendant Kim now seeks summary judgment dismissing the remaining
claims in the Complaint asserted against him – i.e., Count 5 (Breach of Agreement and Implied
Covenant of Good Faith and Fair Dealing) and Count 6 (Fraud in the Inducement).11
DISCUSSION
Rule 56 Standards
Federal Rule of Civil Procedure 56, made applicable to this case under Federal Rule of
Bankruptcy Procedure 7056, provides that “[t]he court shall grant summary judgment if the
movant shows that there is no genuine dispute as to any material fact and the movant is entitled
to judgment as a matter of law.” Fed. R. Civ. P. 56. Summary judgment is appropriate “if the
pleadings, depositions, answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any material fact and that the [movant]
is entitled to a judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
The movant bears the initial burden of proof that the undisputed facts entitle it to summary
judgment as a matter of law. See Rodriguez v. City of New York, 72 F.3d 1051, 1060-61 (2d Cir.
1995); see also Hellstrom v. U.S. Dep’t of Veterans Affairs, 46 F. App’x 651, 654 (2d Cir. 2002)
(“The moving party bears the initial burden of informing the . . . court of the basis for its motion,
and identifying those portions of the pleadings, depositions, answers to interrogatories, and
admissions on file, together with affidavits, if any, which it believes demonstrate the absence of a
genuine issue of material fact.”) (internal quotation marks omitted). Where the nonmoving party
bears the burden of persuasion at trial on an issue, the moving party can satisfy its initial burden
on the motion by demonstrating the absence of factual support for an essential element of the
11 	The Bank Defendants have filed a motion for summary judgment to dismiss Counts 4, 5, and 7 of the
Complaint. See Joint Motion for Summary Judgment [ECF No. 47].
15-01119-jpm Doc 115 Filed 10/31/18 Entered 10/31/18 19:44:59 Main Document
Pg 10 of 29

10
nonmoving party's claim. See Jaramillo v. Weyerhaeuser Co., 536 F.3d 140, 145 (2d Cir. 2008).
If the movant meets that standard, the burden shifts to the non-moving party to produce
“sufficient specific facts to establish that there is a genuine issue of material fact for trial.”
Lipton v. Nature Co., 71 F.3d 464, 469 (2d Cir. 1995) (citation omitted). The court must view
the facts in the light most favorable to the non-moving party, and must resolve all ambiguities
and draw all inferences against the moving party. See NetJets Aviation, Inc. v. LHC Commc’ns,
LLC, 537 F.3d 168, 178 (2d Cir. 2008) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
255 (1986)). However, “the mere existence of some alleged factual dispute between the parties
will not defeat an otherwise properly supported motion for summary judgment[.]” Liberty
Lobby, Inc., 477 U.S. at 247-48. “An issue of fact is ‘genuine’ if the evidence is such that a [trier
of fact] could return a verdict for the non-moving party,” Senno v. Elmsford Union Free School
Dist., 812 F. Supp. 2d 454, 467 (S.D.N.Y. 2011) (citing SCR Joint Venture L.P. v. Warshawsky,
559 F.3d 133, 137 (2d Cir. 2009)), and a fact is only “material” if it might affect the outcome of
the litigation under the relevant law. Id. (citation omitted); see also Scotto v. Almenas, 143 F.3d
105, 114 (2d Cir. 1998) (noting that opposition to a summary judgment motion cannot be based
on “conclusory allegations or unsubstantiated speculation.”); Senno, 812 F. Supp. 2d at 467
(stating “mere denials or unsupported alternative explanations of its conduct” will not suffice in
opposing summary judgment) (citing SEC v. Grotto, 05 Civ. 5880, 2006 WL 3025878, at *7
(S.D.N.Y. Oct. 24, 2006)). Rather, the non-moving party must still come forward with “specific
facts showing that there is a genuine issue for trial” in order to defeat a properly supported
summary judgment motion. Liberty Lobby, 477 U.S. at 256.
Rule 7056-1 of the Local Bankruptcy Rules for the Southern District of New York is
applicable herein. Like Local Civil Rule 56.1, its counterpart in the district court, the rule is
15-01119-jpm Doc 115 Filed 10/31/18 Entered 10/31/18 19:44:59 Main Document
Pg 11 of 29

11
“intended to streamline the consideration of summary judgment motions by freeing the
[bankruptcy] courts from the need to hunt through voluminous records without guidance from
the parties.” Holtz v. Rockefeller & Co., Inc., 258 F.3d 62, 74 (2d Cir. 2001). To that end, the
rule mandates that all summary judgment motions include “a separate, short, and concise
statement, in numbered paragraphs, of the material facts as to which the moving party contends
there is no genuine issue to be tried.” LBR 7056-1(b). In turn, the party opposing summary
judgment must include in its papers “a correspondingly numbered paragraph responding to each
numbered paragraph in the statement of the moving party.” LBR 7056-1(c). If necessary and
appropriate, that party can include “additional paragraphs containing a separate, short, and
concise statement of additional material facts as to which it is contended that there is a genuine
issue to be tried.” Id. The statements in support of, or in opposition to, a summary judgment
motion “shall be followed by citation to evidence which would be admissible.” LBR 7056-
1(e).12
12 	As relevant, the rule states, as follows:
(b) 	Upon any motion for summary judgment pursuant to Bankruptcy Rule 7056, there shall be
annexed to the motion a separate, short, and concise statement, in numbered paragraphs, of the
material facts as to which the moving party contends there is no genuine issue to be tried. Failure to
submit the statement shall constitute grounds for denial of the motion.
(c) 	Papers opposing a motion for summary judgment shall include a correspondingly
numbered paragraph responding to each numbered paragraph in the statement of the moving party,
and if necessary, additional paragraphs containing a separate, short, and concise statement of
additional material facts as to which it is contended that there is a genuine issue to be tried.
(d) 	Each numbered paragraph in the statement of material facts required to be served by the
moving party shall be deemed admitted for purposes of the motion unless specifically controverted
by a correspondingly numbered paragraph in the statement required to be served by the opposing
party.
(e) 	Each statement by the movant or opponent pursuant to subdivisions (b) or (c) of this rule,
including each statement controverting any statement of material fact by a movant or opponent, shall
be followed by citation to evidence which would be admissible.
LBR 7056-1(b)-(e).
15-01119-jpm Doc 115 Filed 10/31/18 Entered 10/31/18 19:44:59 Main Document
Pg 12 of 29

12
In support of the Motion, the Seller Defendants submitted a statement of uncontested
facts supported by admissible evidence (the “Seller Defendants’ 7056 Statement”). See supra
n.3. Although the Plaintiffs oppose the Motion, they failed to respond to that statement.
Evidently, they overlooked the statement, as they mistakenly contend that the Seller Defendants
“totally failed to submit any Statement of Material Fact in compliance with Local Rule 56.1
[sic].” See Plaintiffs’ MOL at 2. Nonetheless, in an apparent effort to comply with LBR 7056-1
(even as they erroneously assert that the Seller Defendants are in breach of that rule), the
Plaintiffs purport to “adopt by incorporation” the Statement of Material Facts that they filed in
opposition to the Bank Defendants’ motion for summary judgment. See supra nn. 4, 11. The
Seller Defendants contend that the Court would be “justified” in deeming the Plaintiffs to admit
the truth of the facts asserted in the Seller Defendants’ 7056 Statement, and to find that those
facts establish grounds for granting summary judgment in their favor. To be sure, by application
of the local rule, the Plaintiffs are deemed to admit the material facts asserted in the Seller
Defendants’ 7056 Statement. See LBR Rule 7056-1(d) (stating that “[e]ach numbered paragraph
in the statement of material facts required to be served by the moving party shall be deemed
admitted for purposes of the motion unless specifically controverted by a correspondingly
numbered paragraph in the statement required to be served by the opposing party.”). However, it
does not follow that the Plaintiffs’ breach of the local rule, in and of itself, is grounds for
granting Kim summary judgment dismissing Counts 5 and 6 of the Complaint. Application of
the local rule “does not absolve the party seeking summary judgement of the burden of showing
that it is entitled to judgment as a matter of law[.]” In re Haimil Realty Corp., No. 14-11779,
2015 WL 1396610 at *4 (Bankr. S.D.N.Y. March 24, 2015); see also Zanghi v. Incorporated
Village of Old Brookville, 752 F.2d 42, 47 (2d Cir. 1985) (“The proponent of a summary
15-01119-jpm Doc 115 Filed 10/31/18 Entered 10/31/18 19:44:59 Main Document
Pg 13 of 29

13
judgment motion has the initial burden under Rule 56 to show the absence of a genuine issue
concerning any material fact. . . . If the movant fails to meet that burden, the opponent will
prevail even if the opponent submits no evidentiary matter to establish that there is indeed a
genuine issue for trial.”). The Seller Defendants do not object to the Court’s consideration of the
Plaintiffs’ Incorporated Statement, except that they contend that the statement fails to comply
with LBR 7056-1 because it is “far from short and concise and [the facts cited therein] are not
supported by citation or admissible evidence.” Reply at 2. The Court will assess the adequacy
of the facts alleged in that statement as necessary. In this light, the Plaintiffs’ failure to comply
with LBR-7056-1 is a “matter of form rather than substance,” as their papers (including the
Plaintiffs’ Incorporated Statement) clearly address evidentiary matters relevant to Counts 5 and 6
of the Complaint. See, e.g., In re Haimil Realty Corp., 2015 WL 1396610 at *4 (finding that
plaintiff’s failure to submit statement in response to defendant’s LBR 7056-1 statement in
support of summary judgment motion was not fatal to the defense of the motion, as the plaintiff
clearly identified the facts in dispute).
Analysis
Count 5: Breach of Contract, and Breach of the Duty of Good Faith and Fair Dealing
As relevant to this Motion, in Count 5 of the Complaint, the Plaintiffs seek to recover
damages from Kim for his alleged breach of contract and breach of the covenant of good faith
and fair dealing that is implied in every contract. They allege that the “covenant of good faith
and fair dealing” is implied in the contracts between the Plaintiffs and Kim. See SAC ¶ 147.
They contend that by his “acts, omissions and breaches[,]” Kim breached his agreements with
the Plaintiffs, as well as the implied covenant of good faith and fair dealing. Id. ¶ 148. The
15-01119-jpm Doc 115 Filed 10/31/18 Entered 10/31/18 19:44:59 Main Document
Pg 14 of 29

14
Complaint identifies two documents executed by Kim: (i) the Purchase Agreement; and (ii) the
Buy-Back Agreement.
Under New York law,13 the elements of a claim for breach of contract are the (i)
formation of an agreement; (ii) performance by one party; (iii) breach of the agreement by the
other party; and (iv) damages. See Furia v. Furia, 498 N.Y.S.2d 12 (2d Dept 1986); see also
Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522, 525 (2d Cir. 1994) (noting that under New
York law, “an action for breach of contract requires proof of (1) a contract; (2) performance of
the contract by one party; (3) breach by the other party; and (4) damages.”) (citation omitted).
There is a covenant of good faith and fair dealing implied in all contracts governed by New York
law. See 511 W 232nd Owners Corp. v. Jennifer Realty Co., 98 N.Y.2d 144, 153 (2002); Carvel
Corp. v. Diversified Mgmt. Grp., Inc., 930 F.2d 228, 230 (2d Cir. 1991) (“Under New York law,
every contract contains an implied covenant of good faith and fair dealing.”). The covenant is
“an implied undertaking on the part of each party that he will not intentionally and purposely do
anything to prevent the other party from carrying out the agreement on his part.” Grad v.
Roberts, 14 N.Y.2d 70, 75 (1964). Thus, “the covenant is breached when a party to a contract
acts in a manner that, although not expressly forbidden by any contractual provision, would
deprive the other party of the right to receive the benefits under their agreement[.]” P.T. & L.
Contr. Corp. v. Trataros Constr., Inc., 816 N.Y.S.2d 508 (2d Dept 2016) (quoting Aventine Inc.
Mgmt. v. Canadian Imperial Bank of Commerce, 265 A.D.2d 513, 514 (2d Dept 1999)); see also
1357 Tarrytown Rd. Auto., LLC v. Granite Props., LLC, 142 A.D.3d 976, 977 (2d Dept 2016)
(“The implied covenant of good faith and fair dealing is breached when a party acts in a manner
that would deprive the other party of the right to receive the benefits of their agreement.”)
13 	The parties agree that New York law governs the claims in the Complaint.
15-01119-jpm Doc 115 Filed 10/31/18 Entered 10/31/18 19:44:59 Main Document
Pg 15 of 29

15
(quoting Franklin v. Landmark Constr. of Yonder, Inc., 91 A.D.3d 593, 595 (2d Dept 2012)). 	A
breach of the covenant of good faith and fair dealing is considered to be a breach of the
underlying contract and, as such, does not give rise to a cause of action separate from a breach of
contract claim. See Cruz v. FXDirectDealer, LLC, 720 F.3d 115, 125 (2d Cir. 2013) (“Under
New York law, parties to an express contract are bound by an implied duty of good faith, but
breach of that duty is merely a breach of the underlying contract.” (quoting Harris v. Provident
Life & Accident Ins. Co., 310 F.3d 73, 80 (2d Cir. 2002)); see also ICD Holdings S.A. v. Frankel,
976 F. Supp. 234, 243–44 (S.D.N.Y. 1997) (“A claim for breach of the implied covenant ‘will be
dismissed as redundant where the conduct allegedly violating the implied covenant is also the
predicate for breach of covenant of an express provision of the underlying contract.’”) (citation
omitted).
An indispensable element of the Plaintiffs’ claims against Kim in Count 5 is that they are
parties to a contract with him. The record indisputably shows that no such agreement exists
between Park or Basic Food on the one hand, and Kim on the other. As such, as a matter of law,
they cannot demonstrate grounds for relief under Count 5 against Kim. See, e.g., Johnson v.
Chesebrough-Ponds, Inc., 104 F.3d 355, at *2 (2d Cir. 1996) (“As the contracts do not exist,
Chesebrough could not have violated implied covenants in them.”); Village on Canon v. Bankers
Trust Co., 920 F. Supp. 520, 534 (S.D.N.Y. 1996) (“[T]here was no contract between [the
defendant] and [the plaintiff] so there was no implied covenant for [the defendant] to have
breached.”); Frutico S.A. de C.V. v. Bankers Trust Co., 833 F. Supp. 288, 301 (S.D.N.Y. 1993)
(“No agreement was reached, and the parties did not owe each other this alleged duty [of good
faith and fair dealing.]”); Snipes v. City of New York, 990 N.Y.S.2d 440, at *4 (N.Y. Sup. Ct.
2014) (dismissing plaintiff’s claim for breach of implied covenant of good faith and fair dealing
15-01119-jpm Doc 115 Filed 10/31/18 Entered 10/31/18 19:44:59 Main Document
Pg 16 of 29

16
because “it is well settled that a cause of action based upon a breach of a covenant of good faith
and fair dealing requires a contractual obligation between the parties,” and there was no such
relationship) (internal quotation marks and citations omitted).
In support of Count 5, Lee asserts that Kim breached the Buy-Back Agreement when he
refused to take back the Basic Food units after Lee discovered that the business was failing and
that he had purchased it in reliance upon financial statements that Lee says are fraudulent. See
Plaintiffs’ MOL at 12; see also Lee Depo. Tr. at 75:13-76:3 (stating that he had a conversation
with Kim around April 2013 about buying back Basic Food, but that in the end, Kim only
wanted to manage the NY Deli, not to buy it back). Nonetheless, Kim says that, as a matter of
law, he is entitled to summary judgment dismissing Lee’s breach of contract claim because the
Buy-Back Agreement gave him the option of buying back Basic Food’s interests from Lee. It
did not give Lee the right to put those interests to him. 14 Kim’s interpretation of his obligations
under the agreement is supported by the plain language of the agreement. Thus, as a matter of
law, the Plaintiffs cannot sustain a claim that, in refusing to buy back the Basic Food business,
14 	The agreement states:
Whereas parties have entered into an agreement whereby Cheol M' Kim and Si Won Kim are
transferring all their interest in Basic Food Groups, LLC. to Jae Ho Lee;
Whereas Cheol M. Kim (hereinafter “seller”) desire to retain the option of buying back all the
shares of Basic Food Groups, LLC. for any reason;
WHEREFORE;
Parties Cheol M. Kim and Jae Ho Lee hereby agrees as follows:
1. 	That Jae Ho Lee hereby grants Cheol M. Kim the option of buying back all
the units of Basic Food Groups, LLC at the same terms and conditions sold
to Jae Ho Lee;
2. 	Cheol M. Kim must provide 30 days written notice to exercise such option.
3. 	Said option shall remain personal to Cheol M. Kim and is not transferable;
4. 	This Agreement shall be construed within the Laws of the state of New
York and further may not be modified unless in writing.
15-01119-jpm Doc 115 Filed 10/31/18 Entered 10/31/18 19:44:59 Main Document
Pg 17 of 29

17
Kim breached an express term of the Buy-Back Agreement. See, e.g., Keiler v. Harlequin Enter.
Ltd., 751 F.3d 64, 69 (2d Cir. 2014) (noting that under New York contract law, “a written
agreement that is complete, clear, and unambiguous must be enforced according to its terms.”
(citing Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 569 (2002))).
Lee next contends that the Buy-Back Agreement should have been drafted to vest Lee
with the option to put the Basic Food interests back to Kim. In that regard, Lee maintains that
Kim was aware of the purported drafting error in the document and breached his covenant of
good faith and fair dealing under that agreement by not alerting Lee of the error. See Plaintiffs’
MOL at 12, 14, 17. However, there is no evidence in the record to support that claim. Neither
Kim nor Lee testified that either of them had intended for the Buy-Back Agreement to be drafted
to vest Lee with a put option. To that end, neither of them testified that they had ever discussed
the idea of a buy-back or negotiated the terms of the Buy-Back Agreement, let alone agreed that
it should inure to Lee’s benefit.15 To the contrary, the testimony from Ahne, Lee’s attorney on
the Loan and Acquisition transactions, was that the parties (i.e., Lee and Kim) had told him that
it should be drafted on those terms—i.e., with the option going to Kim, not Lee.16 Moreover, the
15 	Lee asserts that Kim had “admitted in his deposition [] that the Buyback Agreement was intended for [the]
benefit of Mr. Lee.” Plaintiffs’ MOL at 12, citing Kim Depo. Tr. at 123-124. Kim’s testimony admitted no such
thing. Relevant portions of Kim’s testimony at those pages are as follows:
Q. Number three of this buyback agreement say “Said option as to cause the buyback shall remain
personal to Cheol Min Kim and is not transferrable.” This is obviously incorrect, right?
A. I don’t even know what that means.
Q. This is the result if the buyback concept was that the bank wanted you to be responsible for buying
the business back, if there was any problem, that was the whole arrangement, right?
A. Right.
Q. So whoever created this, if it was Mr. Ahne or whoever it is with the bank, they created an
incorrect form?
Ms. Kim: Objection to the form.
A. I don’t know.
16 	See Ahne Depo. Tr. at 141:191-144:1.
To the extent that Lee relies on the testimony of Irvin Chai (of Noah Bank) as support for the contention that the
Buy-Back Agreement should have given Lee a put option to force Kim to buy back the business, such reliance is
15-01119-jpm Doc 115 Filed 10/31/18 Entered 10/31/18 19:44:59 Main Document
Pg 18 of 29

18
language of the Buy-Back Agreement, as drafted, is consistent with the buy-back provision in the
Purchase Agreement, which was executed by both Lee and Kim. 17 Notably, Lee has not
challenged that provision as being incorrect or not reflective of the parties’ agreement.
However, even assuming that Lee could show that a disputed issue of fact exists as to
whether the Buy-Back Agreement should have been drafted to enable Lee to force Kim to buy
back the Basic Food business, and could point to evidence that Kim had knowledge of the
drafting error but deliberately did not advise Lee of that error, the claim nonetheless fails as a
matter of law. The implied covenant of good faith and fair dealing cannot be used to impose on
Kim obligations that are inconsistent with, or contrary to, those in the Buy-Back Agreement. See
1357 Tarrytown Road Auto, LLC v. Granite Props., LLC, 37 N.Y.S.2d 341, 343 (2d Dept 2016)
(“[N]o obligation may be implied that would be inconsistent with other terms of the contractual
relationship.”). Here, a finding that Kim breached the covenant would contradict the explicit and
unambiguous terms of the Buy-Back Agreement, and create obligations on Kim not contained
therein. If true, Kim’s alleged failure to ensure that the agreement was drafted for Lee’s benefit
might be relevant in considering whether Kim fraudulently induced Lee to enter into the
Acquisition transaction. It does not support a claim for breach of the covenant of good faith and
unavailing. It is true that Chai testified that he understood that a buy-back agreement would “protect the buyer.”
See, e.g., Chai Depo. Tr. at 146:12-16. However, Chai also repeatedly testified that the purpose of a buy-back
agreement was also to protect the lender—i.e., Noah Bank—by keeping the seller obligated on the business loan.
Thus, even under Chai’s understanding, a buy-back is not a put option exercisable at the buyer’s discretion, but
triggered only upon a default of the business loan. See, e.g., id. at 143:14-18; 144:4 (“If the buyer defaults, we
would think that the seller would be obligated to repay the loan.”); 145:20-25. In any event, Chai’s “understanding”
of the purpose of the buy-back agreement has no evidentiary bearing on whether Kim agreed that the Buy-Back
should have been drafted in Lee’s favor, whether Kim knew it was drafted incorrectly, or whether Kim had breached
a covenant of good faith in his dealings with Lee. Indeed, Chai did not (and could not) testify as to how Kim had
understood the Buy-Back Agreement or what negotiations Kim had with Lee on the terms of the Buy-Back
Agreement.
17 	That clause of the Purchase Agreement states: “At any time while buyer is in business Seller shall have the
option of buying back all the units of the Company by providing 60 days written notice at the following price:”
The remainder of that clause is incomplete. See Purchase Agreement.
15-01119-jpm Doc 115 Filed 10/31/18 Entered 10/31/18 19:44:59 Main Document
Pg 19 of 29

19
fair dealing. See East Point Sys., Inc. v. Maxim, 13-CV-00215, 2014 WL 523632 at *5 (D.
Conn. Feb. 7, 2014) (finding that allegations of misrepresentations not tied to specific terms of
contract may support a claim for fraudulent inducement to enter agreement, but does not support
a claim of breach of the covenant of good faith and fair dealing under that agreement).
Lee also argues that Kim is not entitled to summary judgment dismissing Count 5
because he violated the covenant of good faith and fair dealing in the Buy-Back Agreement by
engaging in a so-called “kickback” scheme with Shin. He bases that claim on the facts alleged in
the declaration of Byung Hoon Kim (“B.H. Kim”).18 Between 2006 and 2015, B.H. Kim was a
loan broker for Noah Bank, as well as the principal at a company known as “Bada Realty.” See
B.H. Kim Declaration ¶¶ 2, 3. In substance, he contends that, in 2012, at the behest of Shin, he
paid Cheol Kim $30,000. See id. ¶ 4, Ex. 1. B.H. Kim says that Shin advised him at that time
that the payment was a “rebate” to Cheol Kim on account of a loan that Noah Bank had made to
Basic Food. See id. ¶ 6. Shin allegedly explained to B.H. Kim that because Cheol Kim arranged
the loan without the services of a loan broker, Shin was “arranging for Noah Bank to pay a
$30,000 broker fee to Cheol Min Kim for having his business take a loan from Noah Bank.” Id.
The Court finds no merit to this argument. The implied covenant of good faith and fair dealing
“embraces a pledge that ‘neither party shall do anything which will have the effect of destroying
or injuring the right of the other party to receive the fruits of the contract.’” 511 W. 232nd
Owners Corp. v. Jennifer Realty Co., 98 N.Y.2d 144, 153 (2002) (quoting Dalton Educ. Testing
Serv., 87 N.Y.2d 384, 389, 639 N.Y.S. 2d 977, 663 N.E.2d 289 (1995)); see also Duration Mun.
Fund, L.P. v. J.P. Morgan Sec. Inc., No. 603486-2008, 2009 WL 2999201 at *6 (N.Y. Sup. Ct.
2009) (stating that a party that “exercises a contractual right as part of a scheme to . . . deprive
18 	See B.H. Kim Declaration (Ex. 6, Kimm Declaration) [ECF No. 94-9].
15-01119-jpm Doc 115 Filed 10/31/18 Entered 10/31/18 19:44:59 Main Document
Pg 20 of 29

20
the other party of the fruit of its bargain[,]” may be in breach of that covenant . . . .”). Even
assuming, arguendo, that B.H. Kim’s allegations are true, the so-called kickback payment has no
bearing on the enforceability of, or the parties’ rights under, the Buy-Back Agreement, and the
Plaintiffs neither alleged nor demonstrated otherwise.
Count 6: Fraud in the Inducement
In Count 6, Lee seeks damages from Kim based on his alleged fraud in inducing Lee to
purchase Basic Food. Fraud in the inducement consists of material misrepresentations by one
party to induce the other party to enter into a transaction or agreement. See Revak v. SEC Realty
Corp., 18 F.3d 81, 91 (2d Cir. 1994); see also Gen’l Media, Inc. v. Shooker, No. 97 Civ. 510,
1998 WL 401530, at *6 n.6 (S.D.N.Y. July 16, 1998) (“Fraud in the ‘inducement’ indicates a
misrepresentation that goes to the subject matter underlying the transaction but does not
challenge the fact that an agreement of some kind was reached.”). To prevail on this claim, Lee
must prove (1) that Kim made a representation, (2) as to a material fact, (3) which was false, (4)
and known by him to be false, (5) that the representation was made for the purpose of inducing
Lee to rely upon it, (6) and that Lee rightfully did so rely, (7) in ignorance of its falsity (8) to his
injury. See Computerized Radiological Servs. v. Syntex Corp., 786 F.2d 72, 76 (2d Cir. 1986)
(citation omitted). In addition, “[u]nder New York law, fraud must be proved by clear and
convincing evidence.” Id. (citing Accusystems, Inc. v. Honeywell Info. Sys., Inc., 580 F. Supp.
474, 482 (S.D.N.Y. 1984)). See also Urstadt Biddle Prop., Inc. v. Excelsior Realty Corp., 885
N.Y.S.2d 510, 512 (2d Dept 2009) (stating that the elements of a cause of action for fraud in the
inducement are “representation of a material existing fact, falsity, scienter, reliance, and
injury.”). Kim contends that he is entitled to summary judgment dismissing Count 6 because
Lee has not demonstrated that he misrepresented any material facts to Lee with respect to the
15-01119-jpm Doc 115 Filed 10/31/18 Entered 10/31/18 19:44:59 Main Document
Pg 21 of 29

21
Acquisition and Loan transactions. Kim also asserts that Lee could not have reasonably relied on
any representation that he made with respect to the transactions because Lee conducted no due
diligence in connection with his acquisition of Basic Food, notwithstanding that he had access to
all of Basic Food’s books and records. See id. at 12; see also Reply at 3 of 5.
Lee asserts that Kim induced him to acquire Basic Food by intentionally and fraudulently
overstating the profitability of its business both verbally and through the Basic Food tax returns,
which Lee says intentionally overstated the level of Basic Food’s income. See, e.g., Plaintiffs’
MOL at 8, 10; SAC ¶¶ 59-60. As to the former, Lee alleges that on several occasions in the
course of the discussions leading up to the sale, Kim falsely told him that Basic Food was
“profitable” and “doing great,” and that its owners could expect to realize annual
compensation/distributions in the “low six figures”—i.e., between $200,000 and $400,000. See,
e.g., Lee Depo. Tr. at 10:4-7 (stating that in October or November of 2012, Kim represented to
Lee that the store was profitable); id. at 94:21-23 (stating that Kim represented that the store
“produces about 300 to 400, 350 to 400 in profit per year[.]”). As to the latter, Lee contends that
Kim knew that he was going to finance his acquisition of Basic Food with an SBA guaranteed
loan from Noah Bank, and that as part of the loan request he would be required to submit Basic
Food’s tax returns for the years 2009, 2010 and 2011. See Plaintiffs’ MOL at 6. Lee says that
those tax returns, and the 2012 tax return, overstated Basic Food’s income because in each of
those returns, Kim intentionally under-reported the amount of “wages and salaries” that Basic
Food paid its employees during those years by approximately $800,000 a year. See id. at 8. Lee
contends that Kim did so in order to mislead him into believing that Basic Food’s business was
profitable, when it was actually losing money.
15-01119-jpm Doc 115 Filed 10/31/18 Entered 10/31/18 19:44:59 Main Document
Pg 22 of 29

22
Lee’s reliance on the tax returns in opposing the Motion and in support of Count 6 is
misplaced because he has not demonstrated that there is evidence in the record supporting his
contentions. First, the 2009 and 2010 tax returns are not part of the record of this Motion, and
the Plaintiffs have not elicited testimony from any witness with respect to those returns. The
2012 tax return is in the record of this Motion. See Ex. 1, Kimm Declaration (Kim Depo. Tr.,
Ex. CMK-5) [ECF No. 94-1]. However, it was not filed until March 23, 2013 – well after the
December 2012 closing. It is irrelevant to the matters at issue herein. Finally, the Plaintiffs have
cited no evidence to support their assertion that Basic Food under-reported its “wages and
salaries” on its 2011 and 2012 tax returns, let alone in the sum of $800,000 per year. At his
deposition, Kim testified that he recalled that Basic Food’s monthly payroll in 2009 was
$80,000. See Kim Depo. Tr. at 46:3-20. He did not testify that Basic Food’s payroll was $1
million in 2010 and 2011 – or any other amount – and there is no evidence in the record to
support such a contention. Instead, Plaintiffs’ counsel used the $80,000/month rate to arrive at
the approximately $1 million figure for each year.19 At his deposition, Kim also testified on
matters relating to the 2011 and 2012 tax returns. He did not state that Basic Food under-
reported its “salaries and wages” on those returns. Rather, the Plaintiffs’ counsel came to that
conclusion merely by comparing the “wages and salaries” reported on line 9 of Basic Food’s
2011 and 2012 returns (i.e., $141,000 and $132,616, respectively) with the approximately $1
million wage expense that he contends Basic Food paid to its employees in each of those years.
See Kim Depo. Tr. at 63:22-64:1. But even assuming, arguendo, that the Plaintiffs could
establish that Kim intentionally under-reported the “wages and salaries” on Basic Food’s 2009-
19 	Lee acknowledged that all of the Basic Food’s books and records, including payroll records and employee time
cards were maintained, and left to him, at the Basic Food store. See Lee Depo. Tr. at 16:13-17:15. Thus, the Debtor
had access to its 2010 and 2011 payroll records, but apparently did not include them in the Opposition.
15-01119-jpm Doc 115 Filed 10/31/18 Entered 10/31/18 19:44:59 Main Document
Pg 23 of 29

23
2012 tax returns, those misrepresentations could not support the Plaintiffs’ claim for fraud in the
inducement because Lee did not rely on those documents in agreeing to purchase the NY Deli
business. Lee testified that he neither reviewed nor relied on the tax returns in deciding to
purchase Basic Food’s interests. See Lee Depo. Tr. 10:12-15. Thus, as a matter of law, Kim’s
alleged manipulation of the tax returns, even if true, lends no support to Plaintiffs’ claims for
relief in Count 6.
In considering whether to acquire the Basic Food stock, Lee did not merely turn a blind
eye to the tax returns. He concedes that he “did not do any diligence at all” in connection with
the transaction. Id. at 93:17-94:5. Although Lee testified that he visited the store four or five
times before purchasing it (see id. at 13:11), he explained that in each instance, he merely
“stopped by” and did not spend a meaningful amount of time at the store. Id. at 93:23. 20 In
addition, he acknowledged that prior to entering into the Purchase Agreement, he did not review
records of Basic Food’s: (i) accounts receivables; (ii) accounts payables; (iii) payroll (including
employee time cards); or (v) sales receipts. See id. at 94:3-18 (testifying that he “did not review
[] one single piece of document regarding [the] store.”). Lee says that he did not review the
documents because he relied on Kim’s assurances that the business generated $300,000 to
$400,000 in profits annually.21 Further, he says that when he arrived at the closing, he did not
20 	Lee testified as follows:
Q: You did say you visited the store. How many hours in total did you visit that store?
A: No, just I stopped by.
Q: How many minutes, hours, days in total would you say you spent at Basic Food Group prior to
the date of the closing?
A: I did not do any due diligence at all.
Lee Depo. Tr. at 93:21–94:2.
21 	Lee testified as follows:
Q: Did you ask Mr. Kim to show you any of [the Basic Food] documents?
15-01119-jpm Doc 115 Filed 10/31/18 Entered 10/31/18 19:44:59 Main Document
Pg 24 of 29

24
know the purchase price for the business but “trusted Cheol Min Kim to give [him] a cheap
price, so roughly about 1.4, 1.5[.]” Id. at 95:10-16; see also id. at 20:11- 22 (“About the price
until the day of that closing, I did not even ask, Cheol Min Kim did not even tell me . On the day
of the closing, I learned that the price was set at $1.8 million, that's when I learned it. I never
even asked anyone such as real estate agents or anybody like that in purchasing Basic Food
Group because Cheol Min Kim told me that he was going to give me the store at a cheaper price
than the market price, so I expected him to give me the store at the lower price than the expected
price. So I did not even know that the price of $1.8 million was cheap or expensive.”).
In New York, the well-established rule is “if the facts represented are not matters
peculiarly with the party’s knowledge, and the other party has the means available to him of
knowing, by the exercise of ordinary due diligence, the truth or the real quality of the subject of
the representation, he must make use of those means, or he will not be heard to complain that he
was induced to enter into the transaction by misrepresentations.” Schumaker v. Mather, 133
N.Y. 590, 596 (1892). See also Gray v. Wackenhut Servs., Inc., 721 F. Supp. 2d 282, 292
(S.D.N.Y. 2010), aff'd, 446 F. App’x 352 (2d Cir. 2011) (“The law has long required plaintiffs to
make full use of the facts known to them, and their ordinary intelligence, before asserting a cause
of action for misrepresentation.”). That rule “rejects the claims of plaintiffs who have been so
lax in protecting themselves that they cannot fairly ask for the law’s protection.” DDJ Mgmt.
A: Yes, but Cheol Min Kim said oh you know about that too. In one year, this store produces
about 300 to 400, 350 to $400,000 in profit per year, so you know that, so we don't have to waste
time, because he said that I just did not look at anything.
Q: How many times did you request for documents regarding Basic Food -- Basic Food Group?
A: One time.
Q: And were you satisfied with his response?
A: It's not that I was satisfied or not, I just laughed it off because I trusted him.
Lee Depo. Tr. at 94:19-95:8.
15-01119-jpm Doc 115 Filed 10/31/18 Entered 10/31/18 19:44:59 Main Document
Pg 25 of 29

25
LLC v. Rhone Grp. L.L.C., 15 N.Y.3d 147, 154 (2010). That is because in those cases, “the
plaintiff ‘may truly be said to have willingly assumed the business risk that the facts may not be
as represented.’” Id. (quoting Rodas v. Manitaras, 59 A.D.2d 341, 343 (1st Dept 1990)). At
issue in this Motion is whether Lee’s admitted failure to do any diligence in advance of the Loan
and Acquisition transactions renders his reliance on Kim’s statements as to Basic Food’s
profitability unreasonable as a matter of law. See MBIA Ins. Corp. v. Countrywide Home Loans,
Inc., No. 602825/08, 2013 WL 1845588, at *5 (N.Y. Sup. Ct. 2013). In evaluating whether
Lee’s alleged reliance on Kim was reasonable, this Court will consider the “entire context” of the
Loan and Acquisition transaction, including its complexity and magnitude, the sophistication of
the parties, and the content of any agreement between them. See Emergent Capital Inv. Mgmt.,
LLC v. Stonepath Grp., Inc., 343 F.3d 189, 195 (2d Cir. 2003) (citations omitted). Lee was an
experienced deli/café owner who had been running a successful business for more than a year
when he elected to purchase Basic Food. In March of 2011, he purchased Hudson Produce, Inc.
(“Hudson”), a similar a deli/café business in New York City, for $1.5 million. See Lee Depo. Tr.
at 86:1-18. He operated the business as a 24-hour business and employed 15-16 people. See id.
at 84:23; 91:19-22. He was familiar with the risks associated with a “turnkey” transaction, and
issues relating to financing such a transaction, because Lee purchased the equity of Hudson and
financed the purchase with a loan from Noah Bank. See id. at 90:20-23. Prior to acquiring
Hudson, Lee conducted extensive diligence. See id. at 87:21-89:4. To that end, he observed
store operations for close to 7 days, both during the day and night, even when the seller was not
present. In addition, he met with Hudson’s accountant, twice, and reviewed Hudson’s books and
records including: sales receipts, tax returns, time cards, payroll records, and sales reports. See
id.
15-01119-jpm Doc 115 Filed 10/31/18 Entered 10/31/18 19:44:59 Main Document
Pg 26 of 29

26
In this light, the Loan and Acquisition transaction was neither large nor complex. It was
well within the scope of Lee’s business experience, as it virtually mirrored his acquisition of
Hudson. Lee does not contend otherwise. However, although Lee had relevant experience at the
time of the transaction, in assessing the reasonableness of his alleged reliance on Kim, the Court
must consider the extent of Lee and Kim’s personal relationship. See generally Aloi v. Nat’l
Staffing, Inc., 74 A.D.3d 436, 436 (1st Dept 2010) (declining to find reliance unreasonable as a
matter of law where transaction was not arms-length between strangers and plaintiff relied on
representations made by his niece); Braddock v. Braddock, 60 A.D.3d 84, 88 (1st Dept 2009)
(noting that where the plaintiff and defendant were cousins, plaintiff’s reliance on defendant’s
good faith “may be found to be reasonable even where it might not be reasonable in the context
of an arms’ length transaction with a stranger.”). Cf. Lance v. Tillman (In re Tillman), 197 B.R.
165, 171 (Bankr. D.C. 1996) (stating, in the context of evaluating “justifiable reliance” under the
standards for a non-dischargeability determination based on fraud pursuant to section
523(a)(2)(A), that “there are numerous cases finding that evidence of friendship or a close
personal relationship weighs heavily in favor of finding at least justifiable reliance if not the
higher level of reasonable reliance.”).
Lee testified that he and Kim had known one another since Lee immigrated to the United
States in 2002, and that over the course of their relationship they had become “the closest
people” who had friends in common and socialized frequently. See Lee Depo. Tr. at 12:4-12;
see also Kim Depo. Tr. at 72:19-74:10. He asserts that he relied on Kim for all aspects of the
Basic Food Acquisition – that Kim would help him secure financing with Noah Bank (see Lee
Depo. Tr. at 18:8-19), that Kim would sell Basic Food to him at “a cheap price” (see Lee Depo.
Tr. at 20:9-22; 95:20-96:1), and that Kim was telling him the truth as to Basic Food’s
15-01119-jpm Doc 115 Filed 10/31/18 Entered 10/31/18 19:44:59 Main Document
Pg 27 of 29

27
profitability. Beyond their friendship, Lee also says that he trusted Kim’s representations as to
Basic Food’s profitability because at that time, Kim was acquiring another deli business in New
Jersey (i.e., Aspen) for approximately $13 million (see Kim Depo. Tr. at 49:9-50:8), and thus,
Lee believed that Kim was making significant profits from Basic Food’s operations. See Lee
Depo. Tr. at 10:25-11:19; 13:3-6.
To establish “reasonable reliance,” Lee must demonstrate that he was justified both in
believing Kim’s representations about the profitability of the Basic Food business and in
foregoing all diligence in response to those representations. See Lanzi v. Brooks, 388 N.Y.S.2d
946 (3d Dept 1976) (“[I]n order to be actually deceived by a false representation, a party must
not only reasonably believe that the representation is true, but he must also be justified in taking
action in reliance thereon.”), aff’d 402 N.Y.S.2d 384 (1977). “The question of what constitutes
reasonable reliance is always nettlesome because it is so fact intensive.” Schlaifer Nance & Co.
v. Estate of Warhol, 119 F.3d 91, 98 (2d Cir. 1997). For that reason, “whether or not reliance is
reasonable under any particular set of circumstances is generally not resolved as a matter of law,
but is a question of fact.” Maltz v. Union Carbide Chemicals & Plastics Co., Inc., 992 F. Supp.
286, 306 (S.D.N.Y. 1998) (collecting cases). That is the case here. Contrary to Kim’s
assertions, there are genuine issues of material fact that must be resolved in determining whether
Lee reasonably relied on Kim’s alleged misrepresentations. Kim is not entitled to dismiss Count
6 as a matter of law.22
22 	Kim also argues that he is entitled to summary judgment dismissing Count 6 because Lee cannot establish that
he has been damaged by Kim’s alleged misrepresentations. See Seller Defendants’ MOL at 14-15. Under New
York law, the measure of damages for fraud in the inducement
is indemnity for the actual pecuniary loss sustained as the direct result of the wrong or what is known
as the out-of-pocket rule. Under this rule, the loss is computed by ascertaining the difference
between the value of the bargain which a plaintiff was induced by fraud to make and the amount or
value of the consideration exacted as the price of the bargain. Damages are to be calculated to
compensate plaintiffs for what they lost because of the fraud, not to compensate them for what they
15-01119-jpm Doc 115 Filed 10/31/18 Entered 10/31/18 19:44:59 Main Document
Pg 28 of 29

28
CONCLUSION
Based on the foregoing, and for the reasons stated, the Motion is GRANTED in part and
DENIED in part, as follows:
1. 	By stipulation, the Complaint is dismissed as against Defendant Aspen.
2. 	By stipulation, Count 4 is dismissed as against the Seller Defendants.
3. 	Summary judgment dismissing Count 5 of the Complaint (breach of contract and
the implied covenant of good faith and fair dealing) is granted as to Defendant
Kim.
4. 	Summary judgment dismissing Count 6 of the Complaint (fraud in the
inducement) is denied as to Defendant Kim.
Counsel are directed to appear at a pre-trial conference in this matter on November 27,
2018, at 2:00 p.m., in Room 601, United States Bankruptcy Court, One Bowling Green, New
York, New York 10004.
IT IS SO ORDERED.
Dated: New York, New York
October 31, 2018 	/s/ James L. Garrity, Jr.
United States Bankruptcy Judge
might have gained. Under the out-of-pocket rule, there can be no recovery of profits which would
have been realized in the absence of fraud.
Lama Holding Co. v. Smith Barney, 88 N.Y.2d 413, 421 (1996) (internal quotation marks and citations omitted).
Thus, here, Lee’s pecuniary loss will be calculated as the difference between the amount he paid for the stock, and
the value of that stock. See Rather v. CBS Corp., 68 A.D.3d 49, 58 (1st Dept 2009) (“Rather was required to plead
that he had something of value, was defrauded by CBS into relinquishing it for something of lesser value, and that
the difference between the two constituted Rather’s pecuniary loss.”). Accordingly, Kim is not entitled to summary
judgment on the basis that Lee cannot prove damages, because a material fact in dispute among the parties is
whether Lee paid $200,000 in cash at the closing.
15-01119-jpm Doc 115 Filed 10/31/18 Entered 10/31/18 19:44:59 Main Document
Pg 29 of 29