Mushkudiani v Racanelli Constr. Group Inc.

Supreme Court, Kings County

Decided on April 23, 2026

Index No. 502931/2017

Aaron D. Maslow, J.

The following papers efiled on NYSCEF were used on this motion: Document Nos. 318-406.

Upon the foregoing papers, having elected to determine the within motion on submission in accordance with IAS Part 2 Rules, and due deliberation having been had, the Court determines the within motion as follows.

Background

The within motion, brought on by order to show cause, is made as part of Plaintiff Mushkudiani's efforts to enforce a previously-awarded judgement in this action in the amount of $36 million as damages for personal injuries. To enforce that judgment, Mushkudiani seeks to compel the sale of a partially built mixed-use building located in Flushing, New York, known as "Eastern Mirage." Defendant X & Y Development Group, LLC (X & Y Development) allegedly owns Eastern Mirage. Richard Xia, the managing member, is a defendant in an ongoing U.S. Securities and Exchange Commission (SEC) enforcement action pending in the U.S. District Court for the Eastern District of New York, SEC v. Xia, et al., 21-cv-5350 (PKC) (EDNY) ("Xia Case"), which is in the post-judgment collections phase. The SEC action is unrelated to the merits of the underlying personal injury lawsuit which concerned Plaintiff's claim of having been [*2]injured while employed at a construction site.

In the Xia Case, the SEC alleges that Xia violated federal securities laws by defrauding approximately 450 investors out of more than $228 million and that he allegedly used those proceeds, in part, to acquire Eastern Mirage and other real property. The SEC states that it intends to liquidate Eastern Mirage to return funds to allegedly defrauded investors. The SEC contends that granting Plaintiff's motion would impair its asserted property interests and its ability to provide relief to the defrauded investors.

On October 1, 2025, the SEC removed the motion to the U.S. District Court for the Eastern District of New York, under Docket No. 25-cv-05474.

Movant's Contentions

On or about November 7, 2024, Xia executed a mortgage on behalf of X & Y Development, which was recorded on November 15, 2024, as security for the amounts Xia had to pay. Xia is now in default. The SEC claims priority through its lis pendens, lien, and the mortgage received from Xia, and is moving to sell the property. Plaintiff argues that the SEC mortgage from Xia is invalid. Plaintiff contends Xia lacked authority and concealed court orders barring any transfer or encumbrance, orders that the SEC could have discovered with some due diligence. Plaintiff argues that under Limited Liability Company Law § 607, the SEC, as Xia's creditor, cannot assert rights against the LLC's property. Plaintiff argues that the SEC's lien, mortgage, and judgment are therefore ineffective. Plaintiff claims the SEC is attempting to sell the property based on an invalid mortgage.

Plaintiff Mushkudiani further argues that this Court has jurisdiction because the relief sought concerns New York judgment enforcement, restraining orders, and property interests in this action, not the federal securities case. The matters are not parallel, as they involve different parties and different relief, and X & Y Development is not a party to the federal action. The mortgage is invalid and must be voided because it violated court orders and New York law. Two courts had already issued restraining orders prohibiting X & Y Development from selling, transferring, or encumbering the property. Despite this, Xia still executed the mortgage, directly violating those orders. Under CPLR 5018 and 5203, once a judgment is properly docketed, it automatically becomes a lien on the debtor's real property in that county. This applies to federal judgments as well.

Plaintiff claims that it properly docketed the judgment in Queens County, so it became a lien on all of Defendants' property there, including the Eastern Mirage Project. This lien remains valid for 10 years and takes priority over later claims. Priority goes to the first creditor to docket a judgment in the county where the property is located. Plaintiff asserts that the SEC did not docket its judgment. The SEC's judgment is also against Xia personally, not X & Y Development, which owns the property. The SEC's lis pendens must be canceled. Under CPLR 5201 (b), a judgment creditor can enforce against any transferable property interest. Plaintiff argues that because Xia's assets are frozen and he cannot pay the $36 million judgment, Plaintiff must collect from Defendants' assets, including the property. Plaintiff seeks an appointed receiver under CPLR 5228 to take control of Defendants' assets, sell the property, and satisfy the judgment. Additionally, Plaintiff requests that restraining orders should be partially lifted to allow a court-appointed receiver to sell the property, while still preventing Defendants from transferring or encumbering it on their own.

Opposition

The SEC contends that this Court lacks jurisdiction to adjudicate Plaintiff's motion [*3]because the SEC, as a federal agency, properly removed the proceeding to the United States District Court for the Eastern District of New York pursuant to 28 U.S.C. § 1442 (a) (1) and, once removed, this Court was divested of authority to take any further action unless and until the federal court remands the matter. The SEC further asserts that the relief sought by Plaintiff directly interferes with an ongoing federal enforcement action, in which the federal court has already imposed an asset freeze over Xia's assets, including the Eastern Mirage Project, and retains exclusive control over those assets through a court-appointed monitor. According to the SEC, Plaintiff's request to appoint a receiver, compel a sale of the property, invalidate the SEC's enforcement actions, and cancel the SEC's lis pendens would improperly undermine the federal court's orders and disrupt the SEC's efforts to liquidate the property to compensate defrauded investors. The SEC also maintains that it holds superior rights to the property through its federally authorized mortgage, lis pendens, and final judgment, and therefore requests that this Court refrain from taking any action on the motion pending determination by the federal court.

The SEC requests, under the assumption that this Court lacks jurisdiction over the removed motion, that the Court dismiss the proceeding for lack of jurisdiction and direct the Clerk to mark the matter as "Removed to United States District Court for the Eastern District of New York, No. 25-cv-05474 (PKC)." Alternatively, if the Court is not currently inclined to dismiss, the SEC respectfully requests that it continue its adjournment indefinitely, or administratively close this matter, pending further order of the federal court. In either event, the SEC requests that the Court cancel the hearing on the motion.

Discussion

The SEC removed this motion to the United States District Court for the Eastern District of New York pursuant to 28 U.S.C. § 1442 (a) (1). Once a notice of removal is properly filed, the state court no longer has jurisdiction over the removed matter and may take no further action unless and until the federal court remands the case (see Financial Freedom Acquisition, LLC v Braunsberg, 201 AD3d 788 [2d Dept 2022]; C.W. Home Solutions, LLC v LCF Group, 79 Misc 3d 1225[A], 2023 NY Slip Op 50723 [Sup Ct, Kings County 2023]). This Court lacks subject matter jurisdiction to adjudicate Plaintiff's motion.

The relief sought by Plaintiff concerns property that is already the subject of an ongoing federal enforcement action, the Xia case. In that action, the federal court has imposed an asset freeze and appointed a monitor over Xia's assets, including Eastern Mirage. Plaintiff's request to appoint a receiver, compel the sale of the property, and invalidate the SEC's asserted interests would directly implicate assets currently under the supervision of the federal court. Accordingly, disputes concerning the validity and priority of the parties' competing claims to the Eastern Mirage property are more appropriately resolved by the federal court presiding over the enforcement action.

Conclusion

It is hereby ORDERED that the within motion brought on by order to show cause is denied for lack of subject matter jurisdiction. The Clerk is directed to mark the motion as "Removed to United States District Court for the Eastern District of New York, No. 25-cv-05474 (PKC)."