Am. Federated Title Corp. v. GFI Mgmt. Servs., Inc.
16-3148-cv
| 2d Cir. | Nov 16, 2017Background
- In 2007 AFTC sold Florida real property under a Purchase and Sale Agreement (PSA) to GFIA, an entity controlled by Allen and Edith Gross; related litigation and the bankruptcies of three A&M companies followed.
- AFTC sought to recover on approximately $7.5 million in bankruptcy- court judgments entered against GFIA and the A&M companies by suing GFIM (a management company) and the Grosses.
- A three-day bench trial in the Southern District of New York produced a mixed verdict: the district court found for AFTC on some claims and for defendants on others, including rejecting constructive fraudulent-transfer and veil-piercing theories.
- AFTC moved for reconsideration; the district court denied relief. AFTC appealed only the rulings on (1) constructive fraudulent conveyances (management-fee payments to GFIM) and (2) piercing the corporate veil to reach defendants’ assets.
- The Second Circuit reviewed factual findings for clear error and legal conclusions de novo and affirmed the district court’s judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether A&M companies’ management-fee payments to GFIM were constructively fraudulent under New York law | Payments should be presumed lacking good faith (irrebuttable presumption); fees reduced assets available to creditors | Fees were contemporaneous consideration for services rendered and thus fair consideration in good faith | Payments were not constructively fraudulent; no irrebuttable presumption and no showing of bad faith |
| Whether the district court properly analyzed the good-faith element of fair consideration | District court failed adequately to evaluate good faith | District court later addressed good faith on reconsideration and found no evidence of bad faith | District court sufficiently evaluated and concluded transfers were made in good faith |
| Whether the corporate veil should be pierced to hold Grosses and GFIM liable for bankruptcy judgments | Defendants completely dominated entities and used domination to commit wrongs (asset stripping, sham litigation) | No evidence of intent to defraud; legitimate reasons for litigation and corporate acts; not a dummy/undercapitalized sham | Veil piercing denied: plaintiff failed to show both complete domination and wrongful intent/act causing its injury |
| Whether district court applied correct legal standard for veil piercing (intent requirement) | District court erred by requiring intentionally unjust acts | District court’s focus on intent aligns with Morris and avoids treating ordinary breaches as basis for piercing | No error: district court’s approach consistent with New York law and Morris; factual findings not clearly erroneous |
Key Cases Cited
- Merck Eprova AG v. Gnosis S.p.A., 760 F.3d 247 (2d Cir. 2014) (standard of review for bench-trial appeals)
- Tiffany (NJ) Inc. v. eBay Inc., 600 F.3d 93 (2d Cir. 2010) (standards for appellate review of mixed questions)
- In re Sharp Int’l Corp., 403 F.3d 43 (2d Cir. 2005) (method for determining New York law)
- McCarthy v. Olin Corp., 119 F.3d 148 (2d Cir. 1997) (same)
- HBE Leasing Corp. v. Frank, 48 F.3d 623 (2d Cir. 1995) (contemporaneous value vs. preferential repayment; good-faith limitation)
- Atlanta Shipping Corp. v. Chemical Bank, 818 F.2d 240 (2d Cir. 1987) (insider repayments treated differently for fraudulent-transfer analysis)
- Matter of Morris v. New York State Dept. of Taxation & Finance, 82 N.Y.2d 135 (N.Y. 1993) (New York standard for piercing corporate veil)
- Cilco Cement Corp. v. White, 55 A.D.2d 668 (N.Y. App. Div. 1976) (salary/payments for contemporaneous services not fraudulent conveyances)
- Bank of Communications v. Ocean Development America, Inc., 904 F. Supp. 2d 356 (S.D.N.Y. 2012) (post-HBE decisions distinguishing contemporaneous value transfers)