White Plains developer Louis R. Cappelli does not have to pay a competing landlord $1 million that was assessed against his management company in 2013.
The Second Appellate Court on Nov. 12 upheld a ruling by Westchester Supreme Court, finding that Cappelli Enterprises Inc. was not trying to make itself judgment proof when it wrote off more than $8 million in assets in 2011.
White Plains Plaza Realty Inc. “failed to prove by clear and convincing evidence that Mr. Cappelli or Cappelli Enterprises actually intended to hinder, delay or defraud any creditors,” the lower court judge, William J. Giacomo, had ruled in 2017.
The dispute goes back to 2004 when New York Sports Club decided to move from One North Broadway, then owned by White Plains Plaza, across the street to Cappelli”™s new City Center White Plains.
The gym defaulted on its One North Broadway lease, and in 2011 a court awarded White Plains Plaza Realty $900,562. But the New York Sports Club entity that signed the lease did not have the assets to pay the judgment. It was judgment proof.
Cappelli Enterprises had agreed to back New York Sports Club for liabilities from the One North Broadway lease. So White Plains Plaza sued the management company and, in 2013, won a $1,044,745 judgment.
Cappelli Enterprises also was judgment proof, according to court records.
So White Plains Plaza Realty sued Cappelli personally, and Cappelli Enterprises, arguing that his sole ownership and control of the management company and 100-some affiliates made them his alter egos.
He had stripped assets from the management company, funneled millions of dollars to affiliates and manipulated financial records, White Plains Plaza alleged, to make Cappelli Enterprises insolvent and judgment proof.
Cappelli testified in the 2016 trial that the economy was in crisis in 2010 and he was renegotiating loans with his lenders. He had sold $50 million in personal assets, to pay back banks and keep the company alive and he had guaranteed hundreds of millions of dollars in debts.
He instructed Richard Dannenbaum, his chief financial officer, to clean up the books to give lenders a clear, more accurate picture of their worth.
“All these ”¦ hundreds millions of dollars of problems that we had was not driven by a $900,000 lawsuit against Cappelli Enterprises,” he said. “I was personally on the hook on the personal guarantees for over $800 million.”
The evidence, Giacomo found, established that Cappelli Enterprises had not actually conveyed anything to other Cappelli entities. The management company merely made journal entries writing off receivables as uncollectible or bad debt.
Nothing was paid, assigned, released, transferred, leased, mortgaged or pledged.
“The evidence supports a finding that the journal entries were made in good faith,” Giacomo ruled. “Cappelli Enterprises was attempting to clean its books and accurately reflect its financial condition to its lenders. ”¦ The court finds Mr. Cappelli”™s testimony credible in this respect.”
Appellate Justices Betsy Barros, Mark C. Dillon, Colleen D. Duffy and Sheri S. Roman agreed. The journal entries did not convey anything and White Plains Plaza failed to establish that Cappelli or Cappelli Enterprises had committed a fraud.
