219 Forest Street LLC et al v. LBM Financial, LLC et al

UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS
CENTRAL DIVISION
IN RE 	)
) 	CHAPTER 11
201 FOREST STREET LLC & 	)
219 FOREST STREET LLC 	) 	CASE NOS. 07-42296-JBR
) 	07-41768-JBR
DEBTORS 	) 	(Jointly Administered)
)
______________________________ 	)
201 FOREST STREET LLC, 	)
201 FOREST STREET REALTY TRUST, 	)
219 FOREST STREET LLC, & 	)
219 FOREST STREET REALTY TRUST 	)
)
Plaintiffs, 	)
)
v. 	) 	AP. NO. 07-4097
)
LBM FINANCIAL LLC & 	)
MARCELLO MALLEGNI, 	)
)
Defendants 	)
_____________________________________ )
ORDER ON THE DEFENDANTS’ MOTION FOR A NEW TRIAL PURSUANT TO
FED. R. BANKR. P. 9023
This matter came before the Court on the Defendants’ Motion for a New Trial Pursuant
to B.R. 9023 [#228] and the Plaintiffs’ Opposition to Defendants’ Motion for New trial [# 247].
The Defendants seeks a new trial solely on the basis that exhibits offered by the Plaintiffs at trial,
and agreed to by the Defendants pursuant to this Court’s Pre-trial Order, were not complete as
they lacked the date stamp showing that they were recorded with the appropriate registry of
deeds and that such recording demonstrates notice to the world that the Plaintiffs knew or should
Case 07-04097 Doc 250 Filed 09/08/09 Entered 09/08/09 11:38:02 Desc Main
Document Page 1 of 5

2
have known that one of the note and mortgage at issue in this case, the “Commerce Note,” had
been assigned to Defendant Marcello Mallegni.
BACKGROUND
After a lengthy trial, the Court issued its Memorandum of Decision on June 30, 2009
[#185] in which it found, among other things, that Mallegni failed to disclose that he had
purchased the Commerce Note prior to the Plaintiffs’ execution of the December Note and
guaranty. The Court stated:
Mallegni’s non-disclosure of his ownership of the Commerce Note rendered his
statement that Commerce wanted to be paid incomplete and misleading. Winter
Panel Corp. v. Reichhold Chems., Inc., 823 F. Supp. 963, 975 (D. Mass. 1993).
Although Robert knew that Mallegni had executed the repurchase agreement, he
had no knowledge that Mallegni had performed under the agreement. See Tr.
Nov. 5, 2008, p. 151. Robert’s belief that Commerce held the Commerce Note
was reasonable as Mallegni did not exercise his right under the March Agreement
to receive the remaining 60% of 219 Forest. See Tr. Nov. 5, 2008, p. 148.
Finally, there was apparently no notice to the world of Mallegni’s repurchase of
the Commerce Note as there was no evidence presented that any of the
instruments associated with the repurchase were recorded. See Pls.’ Agreed Exs.
23-25. Therefore, Robert had no reason to disbelieve Mallegni’s representation
that Commerce needed to be repaid.
The Court finds that this misrepresentation caused the plaintiffs to “act differently
from the way [they] otherwise would have acted,” Lowell Gas Co., 377 Mass. at
51, because the evidence demonstrated that 219 Forest had no plans to refinance
the Commerce Note with LBM prior to Mallegni’s misrepresentation. In fact,
219 Forest had sought to refinance its loans with lenders other than LBM on at
least two other occasions. See supra Sections I. G., I. K. 	Although the Court
does not need to find that Mallegni intended to deceive 219 Forest into
refinancing with LBM, see, e.g., Aspinall v. Phillip Morris Cos., Inc., 442 Mass.
381, 394 (2004), the Court infers that Mallegni acted with such intent given the
lender-friendly terms of the December Note, as contrasted with the much more
borrower-friendly Commerce Note held by Mallegni. See supra Section II. D. 1.
Simply put, Mallegni lied to 219 Forest, an entity in which he had an ownership
interest, and 201 Forest in order to vastly benefit his lending entity, LBM, and
himself personally.
The Court realizes that this misrepresentation was made outside the four-year
Case 07-04097 Doc 250 Filed 09/08/09 Entered 09/08/09 11:38:02 Desc Main
Document Page 2 of 5

3
statute of limitations, but 219 Forest was not aware of the fact that Mallegni had
purchased the Commerce Note until one week before trial. See Tr., Nov. 5, 2008,
p. 151; Tr., Nov. 7, 2008, pp. 30-31. Moreover, there was no evidence that 219
Forest should have known that Mallegni repurchased the Commerce Note
particularly since Mallegni did not exercise his bargained for right to receive the
remaining 60% of 219 Forest. As such, the statute of limitations was tolled by the
discovery rule. See Lambert v. Fleet Nat’l. Bank, 865 N.E.2d 1091, 1097 (Mass.
2007) (“A four-year statute of limitations applies to G.L. c. 93A claims. . . .
Under the ‘discovery rule,’ this limitations period is subject to tolling until the
plaintiff knew or should have known of the alleged injury.”); see also John
Beaudette, Inc. v. Sentry Ins. A Mut. Co., 94 F. Supp.2d 77, 109-10 (D. Mass.
1999). Although the Court believes that it was grossly underhanded for Mallegni
to have made this misrepresentation designed to lure 219 Forest into signing the
December Note as part of his overarching goal of usurping 219 Forest’s decision
making process, 219 Forest did not show how it was actually damaged by it. See,
e.g., McKernan v. Burek, 118 F. Supp.2d 119 (D. Mass. 2000) (“for false . . .
statements to be actionable under [93A], they must cause a loss to the plaintiff.”).
The Defendants now seek to introduce new, albeit not newly discovered, evidence
showing that Trial Exhibits 23, 24, and 25, which show the assignment of the mortgage securing
the Commerce Note to Mallegni, were actually recorded on December 31, 2002, which the Court
notes is after the making of the December Note.
The June 30, 2009 order [# 186] accompanying the Memorandum of Decision required
the Plaintiffs to file certain damages calculations, including attorneys’ fees and expenses.
Following the entry of the June 30, 2009 order, the Defendants filed a motion [#193] seeking
either confirmation From the Court that the June 30, 2009 orders were interlocutory or an
essentially open-ended period in which to file a notice of appeal. The Court allowed an
extension of time to July 30, 2009 to file an appeal in the event the Defendants determined that
such an appeal was necessary and on July 30, 2009, they filed a Notice of Appeal [#203] and
elected to proceed in the district court. Following the Plaintiffs’ submissions of the damage
calculations and the Defendants’ response thereto, the Court entered final orders on August 21,
Case 07-04097 Doc 250 Filed 09/08/09 Entered 09/08/09 11:38:02 Desc Main
Document Page 3 of 5

4
2009 [# 223]. On August 31, 2009 the Defendants filed the following pleadings: a notice of
appeal [# 225] filed at 3:39 P.M.; an election to appeal to the district court [# 226] filed at 4:22
P.M.; the Motion for New Trail [# 228] filed at 5:15 P. M.; the Affidavit of Philip E. Coppinger
[#229] filed at 5:41 P.M.; and a Declaration of Electronic Filing [#229] filed at 5:49 P.M.
DISCUSSION
As the Plaintiffs correctly note, this Court lacks jurisdiction to adjudicate the Motion
because the Defendants have filed a notice of appeal.
"The filing of a notice of appeal is an event of jurisdictional significance--it confers
jurisdiction on the court of appeals and divests the district court of its control over those aspects
of the case involved in the appeal." Griggs v. Provident Consumer Discount Co., 459 U.S. 56,
58, 103 S.Ct. 400, 402, 74 L.Ed.2d 225 (1982) (per curiam). “The rule is well established that
the taking of an appeal transfers jurisdiction from the Bankruptcy Court to the Appellate Court
with regard to matters involved in the appeal and divest the Bankruptcy Court of jurisdiction to
proceed further with such matters.” In re Kendrick Equipment Corporation, 60 B.R. 356, 358
(Bankr. W.D.Va. 1986) (citations omitted). “This is so because a bankruptcy judge does not
have concurrent jurisdiction with the district court [or BAP] over the subject matter of an
appeal....Once a notice of appeal is filed ‘no lower court should be able to vacate or even modify
an order under appeal, not even a bankruptcy court attempting to eliminate the need for a
particular appeal.’... The rationale for this rule is the avoidance of confusion and waste of time
that might result from putting the same issues before two courts at the same time.” In re
Emergency Beacon Corporation, 58 B.R. 399, 402 (S.D.N.Y. 1986). See also In re Markarian,
228 B.R. 34, 47 (1st Cir. B.A.P 1998) (quoting 9 Moore's Federal Practice, 2d ed., ¶ 203.11, pp.
Case 07-04097 Doc 250 Filed 09/08/09 Entered 09/08/09 11:38:02 Desc Main
Document Page 4 of 5

5
734-36: “The filing of a timely and sufficient notice of appeal has the effect of immediately
transferring jurisdiction from the district court to the court of appeals with respect to any matters
involved in the appeal.... Thus, after a notice of appeal is timely filed, the district court has no
power to vacate the judgment, or to grant the appellant's motion to dismiss the action without
prejudice, or to allow the filing of amended or supplemental pleadings. (Footnotes omitted.)”).
CONCLUSION
For the reasons set forth herein, the Motion is DENIED.
Dated: September 8, 2009 	_______________________________
Joel B. Rosenthal
United States Bankruptcy Judge
Case 07-04097 Doc 250 Filed 09/08/09 Entered 09/08/09 11:38:02 Desc Main
Document Page 5 of 5