Joseph Klaynberg

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UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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In re:
JOSEPH KLAYNBERG,
Debtor.
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NOT FOR PUBLICATION
Chapter 11
Case No. 22-10165 (MG)
MEMORANDUM OPINION AND ORDER GRANTING MOTION FOR LEAVE TO
FILE COMPLAINT OBJECTING TO DISCHARGABILITY OF CLAIM NO. 15-1
A P P E A R A N C E S:
VENABLE LLP
Attorneys for Wilmington Trust
750 E. Pratt Street, Suite 900
Baltimore, Maryland
By: 	Brent W. Procida
CULLEN AND DYKMAN LLP
Attorneys for Joseph Klaynberg
100 Quentin Roosevelt Boulevard
Garden City, New York 11530
By: 	Bonnie L. Pollack, Esq.
Matthew G. Roseman, Esq.
MARTIN GLENN
CHIEF UNITED STATES BANKRUPTCY JUDGE
Pending before the Court is the motion of Wilmington Trust, National Association, as
Trustee for the Benefit of the Registered Holders of BANK 2020-BNK29, Commercial
Mortgage Pass-Through Certificates, Series 2020-BNK29, by and through Rialto Capital
Advisors LLC, solely in its capacity as Special Servicer (“Wilmington”), pursuant to 11 U.S.C.
§ 523 and Fed. R. Bankr. P. 4007(c) and 9006(b)(1), for leave to file a complaint objecting to
dischargeability of Claim No. 15-1 (the “Motion,” ECF Doc. # 192). Attached to the Motion
are relevant excerpts of the Loan Agreement (Exhibit A); Guaranty of Recourse Obligations of
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Borrower (Exhibit B); a copy of the assigned Loan to Morgan Stanley Mortgage Capital
Holdings, LLC (Exhibit C); the assigned Loan to Wilmington (Exhibit D); copies of the
December 9, 2020 notice and subsequent correspondence from Wells Fargo to the Borrower
(Exhibit E); and a copy of the October 2, 2020 notice of default (Exhibit F).
On September 7, 2022, the Debtor filed a response to the Motion. (“Debtor’s Response,”
ECF Doc. # 213.) On September 9, 2022, Wilmington filed a reply. (“Wilmington Reply,” ECF
Doc. # 218.) Attached to the Debtor’s Response, as Exhibit A, is a record of communications
between Mr. Klaynberg and Wells Fargo concerning the Loan.1 (“Debtor’s Response, Exhibit
A,” ECF Doc. # 218-1.)
For the reasons explained below, the Court GRANTS the Motion.
I. 	BACKGROUND
On February 10, 2022 (the “Petition Date”), Joseph Klaynberg (the “Debtor”) filed a
voluntary petition for relief under Chapter 11 of the Bankruptcy Code. (Motion ¶ 2.) Since the
Petition Date, the Debtor has managed his affairs and remained in possession of his assets as a
debtor in possession pursuant to 11 U.S.C. §§ 1107 and 1108. (Id.)
On November 2, 2020, one of the Debtor’s companies, 114 MS Owner, LLC
(“Borrower”), became obligor on a mortgage loan in the original principal amount of
$17,300,000 (the “Loan”). (Id. ¶ 3.) The Loan is secured by an office building at 114 Mulberry
Street, New York, New York in which another of the Debtor’s companies, Wonder Works
Construction, is the primary tenant. (Id. ¶ 4.)
Terms and conditions of the Loan are set forth in a Loan Agreement, dated as of
1 	On November 2, 2020, one of the Debtor’s companies, 114 MS Owner, LLC (“Borrower”), became obligor
on a mortgage loan in the original principal amount of $17,300,000 (the “Loan”). (Motion ¶ 3.)
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November 2, 2020. (Id. ¶ 5.) The Debtor executed the Loan on behalf of the Borrower. (Id. ¶
6.) As further assurance for repayment of the Loan, the Debtor executed a Guaranty of Recourse
Obligations of Borrower (“Guarantor”), whereby the Debtor assumed personal liability for
certain losses and the entire Loan upon the occurrence of certain trigger events. (Id. ¶ 7.)
In the Loan Agreement, the Debtor represented and warranted that:
3.1.4 	Litigation. 	There 	is 	no 	action, 	suit, 	arbitration 	or
governmental investigation or proceeding pending, filed or, to
Borrower’s knowledge, threatened against Borrower, Borrower
Parties, or the Property in any court or by or before any other
Governmental Authority which, if determined adversely against
Borrower, Borrower Parties, or the Property, would materially
and adversely affect (a) the use, operation or value of the Property
or Borrower’s title to the Property, (b) the enforceability, validity,
perfection or priority of the lien of the Security Instrument or the
other Loan Documents, (c) the ability of Borrower to perform its
obligations under the Security Instrument or the other Loan
Documents, 	(d) 	the 	ability 	of 	Guarantor 	to 	perform 	its
obligations under the Loan Documents to which it is a party, (e)
the principal benefit of the security intended to be provided by the
Loan Documents or (f) the ability of the Property to generate net
cash flow sufficient to service such Loan.
3.1.40 Guarantor Representations. Borrower hereby represents
and warrants that, as of the date hereof and continuing thereafter
for the term of the Loan, the representations and warranties set
forth in Subsections 3.1.1 through 3.1.6, 3.1.8, 3.1.10, 3.1.15,
3.1.25, 3.1.26, 3.1.28, 3.1.31 through 3.1.34, 3.1.39(b), 3.1.41 and
3.1.42 herein are true and correct with respect to Guarantor, as the
same are applicable to such party. Wherever the term “Borrower”
is used in each of the foregoing Subsections it shall be deemed to
be “Guarantor” with respect to each such party.
Exhibit A at 30, 43. (Id. ¶ 8.)
In section 23 of the Guaranty, the Debtor further represented and covenanted to Lender
that:
(d) 	There 	are 	no 	pending 	or, 	to 	Guarantor’s 	knowledge,
threatened actions, claims, investigations, suits or proceedings
before any governmental authority, court or administrative agency
which affect the financial condition or operations of Guarantor,
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Borrower and/or the Property…
(h) Guarantor shall promptly notify Lender in writing of any
litigation pending or threatened against Guarantor claiming
damages in excess of 	Fifty Thousand and No/100 Dollars
($50,000.00) and of all pending or threatened litigation against
Guarantor if the aggregate damage claims against Guarantor
exceed 	One 	Hundred 	Thousand 	and 	No/100 	Dollars
($100,000.00).
Exhibit B at 7, 8. (Id. ¶ 9.)
On November 30, 2020, the original lender, Morgan Stanley, assigned the Loan to
Morgan Stanley Mortgage Capital Holdings, LLC which, in turn, immediately assigned the
Loan to Wilmington. 	(Id. ¶ 10.)
Article IX and section 11.24 of the Loan Agreement are dedicated to informing the
borrower that the Loan may be sold, securitized, and administered by a servicer to be appointed
by the Lender. (Id. ¶ 11.)
The Loan Agreement specifically addresses notice requirements if the Loan is being
administered by a servicer:
Provided Borrower shall have been given notice of Servicer’s
address by Lender, Borrower shall deliver to Servicer duplicate
originals of all notices and other instruments which Borrower may
or shall be required to deliver to Lender pursuant to this
Agreement, the Note and the other Loan Documents (and no
delivery of such notices or other instruments by Borrower shall
be of any force or effect unless delivered to Lender and Servicer
as provided above).
Exhibit A at § 11.24(c). (Id. ¶ 12.)
At all times since November 30, 2020, Wells Fargo Bank, N.A. (“Wells Fargo”) has been
the servicer for this Loan. 	(Id. ¶ 13.) On December 9, 2020, the Borrower received a notice
informing it that the Loan had been securitized and Wells Fargo would be the servicer from that
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point forward. (Id.) Since that time, Wells Fargo has regularly corresponded with the
Borrower and collected the monthly payments. (Id.)
On October 2, 2020, less than one month before origination of this Loan, the Debtor
received a notice of default from 2020A of Nahla Capital LLC (“Nahla”) concerning a loan
which the Debtor had “absolutely, irrevocably and unconditionally” guaranteed payment of
various sums and which demanded payment by October 9, 2020. 	(Id. ¶ 14.) The October 2,
2020 notice references five prior notices of default issued since January 2020 and itemizes
millions of dollars in defaulted liability under the Debtor’s guaranty. (Id. ¶ 15.) The October 2,
2020 notice ultimately resulted in a $13 million judgment against the Debtor, which, in turn, led
directly to this bankruptcy filing. (Id. ¶ 16.)
The Debtor’s Chapter 11 Petition schedules Morgan Stanley as a creditor, but not
Wilmington or Wells Fargo. The Creditors’ Matrix lists the service address for the Loan as:
Morgan Stanley
1585 Broadway
New York, NY 10036
(Id. ¶ 17.)
The first meeting of creditors pursuant to 11 U.S.C. 341 was scheduled for March 10,
2022, making May 9, 2022, the last day for filing a complaint seeking a declaration of non-
dischargeability under Federal Rule of Bankruptcy Procedure 4007(c)(3). (Id. ¶ 18.) Wells
Fargo did not receive any notice of this bankruptcy case until June 9, 2022, when Morgan
Stanley first informed it of the matter. (Id. ¶ 19.) Upon learning of the Debtor’s bankruptcy,
Wells Fargo transferred servicing of the Loan to Rialto as special servicer. 	(Id. ¶ 20.)
Wilmington and Rialto only became aware of a possible non-dischargeability claim in late July
when, in the course of researching the litigation between Nahla and the Debtor, it discovered the
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October 2, 2020 notice attached to a state court pleading. (Id. ¶ 20.) Wilmington has now
filed claim no. 15-1 in the amount of 420,050,522.82. (Id. ¶ 21.) The Motion seeks leave to
file a complaint objecting to the dischargeability of Wilmington’s claim pursuant to Bankruptcy
Rules 4007(c) and 9006(b)(1).
A. 	Debtor’s Response
First, the Debtor disputes that the representations were materially false. 	(Debtor’s
Response ¶ 10.) The Debtor states there is no evidence that either the Debtor or WWML 96
DE Mezz, LLC (the borrower on the Nahla loan) would not have been able to pay the
$2,784,195 demanded by Nahla on October 2, 2020 or whether these amounts were validly
due at that time. (Id.)
Second, the Debtor argues Wilmington cannot establish intent to deceive. 	(Id. ¶ 11.)
The Loan Documents were drafted and sent to counsel for the Borrower by Lender’s
counsel on September 18, 2020, well before the Nahla demand was sent. (Id.) The
Borrower/Guarantor had very few comments to Loan Documents at that time, and therefore
had no reason to review the Loan Documents again prior to execution, which occurred in
November 2020. (Id.)
Third, the Debtor notes that it is unlikely that the representations were reasonably
relied upon by Morgan Stanley in extending the Loan to the Borrower. (Id. ¶ 12.)
Finally, the Debtor notes it is unclear as to what Wilmington stands to gain by a
prolonged and expensive action because all the Debtor’s non-exempt assets are being sold
through the Plan. (Id. ¶ 13.)
Ultimately, the Debtor notes that it has no objection to Wilmington filing a complaint, but
still the Debtor still reserves his right to object to it. (Id. ¶¶ 7, 14.). Additionally, the Debtor
notes that Wilmington should file the Complaint with caution since the Debtor intends to
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pursue recovery of his costs in defending an untenable action (even if a late filed claim is
allowed). (Id. ¶ 14.)
B. 	Wilmington’s Reply
Wilmington argues that the Debtor’s Response (i) consents to the Motion; (ii) undermines
this consent by arguing the Lender should be charged with notice of the bankruptcy; and (iii)
attempts to cast doubt on the merits of an action under section 523(a)(2). (Wilmington Reply ¶
1.)
II. 	LEGAL STANDARD
The Bankruptcy Rules provide that a complaint to determine the dischargeability of a
debt or a complaint objecting to a debtor’s discharge must be filed within sixty days after the first
date set for the meeting of creditors under section 341 of the Code. See FED. R. B ANKR . P. 4007(c)
(complaints objecting to dischargeability); id. 4004(a) (complaints objecting to discharge).
(Motion ¶ 23.)
Bankruptcy Rule 4004(b)(2) allows a party to request permission from the court to file a
complaint objecting to a debtor’s discharge, even after the original deadline to object, which is
60 days after the date first set for the creditor’s 341 meeting, has passed. F ED. R. B ANKR . P.
4004(b)(2). A motion to extend the time to object to discharge may be filed after the time for
objection has expired and before discharge is granted if (A) the objection is based on facts that, if
learned after the discharge, would provide a basis for revocation under section 727(d) of the
Code, and (B) the movant did not have knowledge of those facts in time to permit an objection.
(Id.) The motion shall be filed promptly after the movant discovers the facts on which the
objection is based. Id.
On a motion by a party in interest, the bankruptcy court may extend that time “for cause”;
such a motion “shall be filed before the time has expired.” FED. R. B ANKR . P. 4004(b)(1),
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4007(c). “The court may enlarge the time for taking action under Rules . . . 4004(a) [and]
4007(c) . . . only to the extent and under the conditions stated in those rules.” F ED. R. B ANKR . P.
9006(b)(3).
Notwithstanding the language of Rule 9006(b)(3), the Second Circuit has held that the
60-day deadline is “not jurisdictional and thus is subject to waiver, estoppel, and equitable
tolling.” In re Benedict, 90 F.3d 50, 54 (2d Cir.1996); see also Kontrick v. Ryan, 540 U.S. 443,
456–60 (2004) (finding the Rule 4004(a) time limit concerning objections to discharge was
nonjurisdictional and therefore subject to waiver).
The doctrine of equitable tolling “permits courts to extend a statute of limitations on a
case-by-case basis to prevent inequity.” Warren v. Garvin, 219 F.3d 111, 113 (2d Cir. 2000).
“Generally, a litigant seeking equitable tolling bears the burden of establishing two elements:
(1) that he has been pursuing his rights diligently, and (2) that some extraordinary circumstance
stood in his way.” 	A.Q.C. ex rel. Castillo v. United States, 656 F.3d 135, 144 (2d Cir.2011)
(quoting Pace v. DiGuglielmo, 544 U.S. 408, 418 (2005)). (Id. ¶ 26.)
Extraordinary circumstances can include, inter alia, a defendant’s fraudulent
concealment of the facts that would have allowed the plaintiff to discover she had a claim.
See, e.g., Koch v. Christie’s Int’l PLC, 699 F.3d 141, 157 (2d Cir.2012). 	Whatever the
circumstances, “[r]easonable diligence is a prerequisite to the applicability of equitable
tolling.” Koch, 699 F.3d at 157. (Id. ¶ 27.)
Following Benedict, bankruptcy courts in the Second Circuit have found that failure to
provide timely notice of a bankruptcy to a creditor at the correct address equitably tolls the
deadline to file actions under section 523(a). 	In re Linzer, 264 B.R. 243, 250–51 (Bankr.
E.D.N.Y. 2001) (“[N]otice of a pending bankruptcy case nine days before the expiration of the
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deadline to file nondischargeability complaints is inadequate. . . . As a fundamental matter of
due process lists or schedules of creditors serve no useful purpose unless they include the
addresses last known to the debtor to which notices may be sent.”), citing 3 C OLLIER ON
B ANKRUPTCY ¶ 523.13, at 523–79 (15th Ed., rev.1999).”); see also In re Dewalt, 961 F.2d 848
(9th Cir.1992) (notice to unscheduled creditor seven days before bar date insufficient.). (Id. ¶
28.)
III. 	DISCUSSION
The Court finds cause exists to permit the late filing of a nondischargeability complaint
because of the failure to provide timely notice of the bankruptcy to the creditor in this case.
Wilmington had no knowledge of this bankruptcy case, actual, constructive, imputed or otherwise,
until June 9, 2022, more than a month after the filing deadline for nondischargeability actions. (Id.
¶ 30.) The Debtor does not refute the notice argument, instead, asserting that the December 9,
2020 notice advising him that the Loan had been securitized was ineffective and that he had no
knowledge Wells Fargo was the servicer for the Loan (even though he was copied on
correspondence implying otherwise.) (Id. ¶¶ 4–6.) The Court finds this unconvincing.
Notice is paramount in dischargeabilty cases. The Court previously addressed this issue
in In re Bressler, 600 B.R. 739 (Bankr. S.D.N.Y. 2019), where the creditor was given one
month’s notice of the 341 meeting and three months’ notice of the deadline to object to
discharge. Id. at 742. In Bressler, the creditor did not deny receiving this notice, but missed the
deadline to object to discharge due to a separate misunderstanding.2 Since the creditor had
2 	The initial date of the 341 Meeting was moved to a later date, but the deadline to object to discharge
remained the same. Id. Creditors missed the deadline to object to discharge and argued that the deadline ran 60
days from the date the meeting was actually held, rather than from the first date set for the initial meeting of the
creditors. Id. The Court disagreed and held that the deadline to object to discharge ran from the first date set for the
initial meeting of the creditors. Id. Therefore, the court found the creditors had notice and denied the creditor’s
motion to extend time to object to discharge. Id. at 741.
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notice of the filing of the case and of the deadline for filing a dischargeability complaint, the
extension to object was denied. (Id.)
Similarly, in In re Bressler, 601 B.R. 318 (Bankr. S.D.N.Y. 2019)(“Bressler II”), the
Court rejected an argument to extend the dischargeabilty deadline, in part, because of a personal
financial statement obtained by the creditor, which showed the creditor had notice of the alleged
fraud before the objection deadline. Id. at 339. In Bressler II, the creditor failed to meet Rule
4004(b)(2)(B)’s requirement that it did not have knowledge of facts in time to permit an
objection. Id.
Here, Bressler is clearly distinguishable. Wilmington had no knowledge, constructive or
otherwise, of this bankruptcy case until more than a month after the filing deadline for
nondischargeability actions. (Motion ¶¶ 19, 29.)
IV. 	CONCLUSION
In light of Wilmington’s diligence upon discovery, the Debtor’s prior interaction with
Wells Fargo, the lack of prejudice, the potential fraud, and most importantly, Wilmington’s lack
of notice, this case meets the standard for equitable tolling under In re Benedict, 90 F.3d 50, 54
(2d Cir.1996). (Id. ¶ 8.) Wilmington makes a sufficient case for equitable tolling. The Court
GRANTS the Motion.
IT IS SO ORDERED.
Dated: 	September 19, 2022
New York, New York
_____Martin Glenn____________
MARTIN GLENN
Chief United States Bankruptcy Judge
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