2:13-cv-05870
D.N.J.Sep 22, 2017Background:
- Plaintiff Leonard Edelson moved to amend and supplement his complaint to add fraudulent-transfer claims against defendant Stephen Cheung and to add five proposed defendants: Rosanna Cheung (wife), Herman Cheung (son), Marcus Cheung (son), Eastchester Lace Corp. (ECL), and Frontier Development NY Ltd.
- Relevant events disclosed in discovery: Cheung sold a Queens house on December 17, 2014 for $995,000; approximately $450,000 of proceeds were sent to a sister‑in‑law in Hong Kong; Cheung transferred his 50% interest in a Bayside property to his wife in a separation/property agreement with no consideration; Cheung gave Marcus about $50,000 in mid‑2014.
- Plaintiff had an earlier Court award (sanctions) against Cheung (~$8,844.55) that remained unpaid; plaintiff seeks to reach assets transferred after suit to satisfy potential judgments.
- Court applied Rule 15(a)/(d) standards and Rule 9(b) heightened pleading for fraud, analyzed futility, ancillary jurisdiction, badges of fraud under the Uniform Fraudulent Transfer Act, and whether amendment would cause undue delay, prejudice or bad faith.
- Court concluded the proposed fraudulent‑transfer claim against Stephen Cheung is adequately pleaded and granted leave to amend as to Cheung, Rosanna, and Marcus (limited to enforcing potential judgment), but denied joinder of Herman and denial to add ECL and Frontier for failure to plead with the required particularity.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Add fraudulent‑transfer claim against Stephen Cheung | Cheung transferred assets after suit (house sale proceeds, transfers to family) with intent to hinder creditors; badges of fraud exist | Transfers were repayments of debts and legitimate loans; no intent to defraud | Granted: Court found sufficient factual allegations and badges of fraud to permit amendment against Cheung |
| Add Rosanna Cheung as transferee | Rosanna received Cheung's 50% interest in Bayside property for no consideration; she received transferred proceeds | Rosanna/defendant deny fraud; assert legitimate uses/loans | Granted (limited): Joinder permitted to reach assets for enforcing judgment, based on Rosanna’s deposition testimony indicating no consideration and receipt of funds |
| Add Marcus Cheung as transferee | Marcus received a $50,000 gift and a 10% stake in Eastchester; funds were placed out of reach post‑suit | Defendant maintains transfers were legitimate gifts/loans | Granted (limited): Allegations sufficient to add Marcus for judgment‑enforcement purposes |
| Add Herman, ECL Corp., Frontier | Plaintiff alleges transfers to family/business entities to hide assets and use corporate vehicles to divert funds | Defendant denies fraudulent intent; asserts business roles and repayments; discovery gaps | Denied as to Herman (no transfer shown) and denied as to ECL/Frontier (fail to plead when/what amounts were transferred; Rule 9(b) deficiency) |
Key Cases Cited
- Arab African Int'l Bank v. Epstein, 10 F.3d 168 (3d Cir. 1993) (district court discretion in granting leave to amend)
- Dole v. Arco Chem. Co., 921 F.2d 484 (3d Cir. 1990) (amendments should be decided on merits, not technicalities)
- Grayson v. Mayview State Hosp., 292 F.3d 103 (3d Cir. 2002) (grounds to deny amendment: undue delay, prejudice, futility, bad faith)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading must state a plausible claim)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for pleadings)
- Frederico v. Home Depot, 507 F.3d 188 (3d Cir. 2007) (Rule 9(b) particularity for fraud: who, what, when, where, how)
- Peacock v. Thomas, 516 U.S. 349 (1996) (limits on ancillary jurisdiction; courts may exercise ancillary jurisdiction to enforce their judgments)