Deerbrook Ins. Co. v. Mirvis
20-1385
| 2d Cir. | Sep 20, 2021Background
- In May 2015 Mark and Lyubov Mirvis (tenants by the entirety) transferred their New York real property to their daughter Tatyana shortly after a $45 million default judgment issued against Mark in a fraud action.
- Lyubov was not a defendant in the fraud action; as a tenant by the entirety she retained a right of survivorship in the Property.
- In 2017 the District Court voided the 2015 conveyance as fraudulent under New York law, restoring the status quo ante (Allstate retained a lien on Mark’s interest; Lyubov retained survivorship rights).
- In 2020 the District Court went further and extinguished Lyubov’s right of survivorship, finding she acted in bad faith in the conveyance scheme; Allstate (creditors/insurers) sought that remedy.
- Lyubov and Tatyana appealed, arguing the pre-2020 New York Debtor and Creditor Law (DCL § 278(1)) did not authorize termination of a non-debtor spouse’s survivorship right; the Second Circuit vacated and remanded, predicting New York’s highest court would agree.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether pre-2020 DCL § 278(1) authorized extinguishing a non-debtor spouse’s right of survivorship as a remedy for fraudulent conveyance | Allstate: district court equity power permits extinguishing survivorship when spouse acted in bad faith; federal cases support broad equitable relief | Mirvis: § 278(1) provides only two remedies (set aside conveyance or attach property) limited to restoring status quo ante; does not permit extinguishing survivorship | Held: Remedy not authorized under § 278(1); vacated judgment and remanded (Second Circuit predicts NY Court of Appeals would reject extinguishment) |
| Whether the 2020 amendment to the DCL (replacing § 278 with § 276) supports that broader equitable remedies were not available pre-2020 | Allstate: legislative history says basic principles maintained | Mirvis: the statutory change (expressly authorizing equitable relief) signals the Legislature intended a material change, implying prior § 278 did not allow broad equitable relief | Held: The 2020 statutory revision bolsters the conclusion that pre-2020 § 278 did not authorize the equitable remedy awarded by the District Court |
Key Cases Cited
- Marine Midland Bank v. Murkoff, 120 A.D.2d 122 (App. Div. 1986) (holds DCL remedies limited to restoring status quo ante and rejects terminating spouse’s survivorship as punitive)
- Travelers Ins. Co. v. 633 Third Assocs., 973 F.2d 82 (2d Cir. 1992) (fraudulent conveyance remedy limited to what creditor could have reached absent conveyance)
- Orbach v. Pappa, 482 F. Supp. 117 (S.D.N.Y. 1979) (fraudulent conveyance did not convert tenancy by entirety into tenancy in common)
- Finnegan v. Humes, 252 A.D. 385 (App. Div. 1937) (transfer by tenants by entirety could not alter creditor’s rights in husband’s interest), aff’d, 277 N.Y. 682 (1938)
- Blakeslee v. Rabinor, 182 A.D.2d 390 (App. Div. 1992) (recognizes limits on remedies under DCL)
- Clarkson Co. v. Shaheen, 533 F. Supp. 905 (S.D.N.Y. 1982) (federal district case invoked to support broader equitable relief; criticized by Murkoff and this opinion)
- Fed. Deposit Ins. Corp. v. Porco, 75 N.Y.2d 840 (1990) (cites Murkoff approvingly on DCL remedy limits)
- Zaretsky v. William Goldberg Diamond Corp., 820 F.3d 513 (2d Cir. 2016) (principle that federal courts follow intermediate state appellate precedent unless convinced highest court would rule otherwise)