497 B.R. 678
Bankr. E.D.N.Y.2013Background
- Debtor William Vidro guaranteed a commercial loan to Motion Imaging; Imaging defaulted and Flushing Savings Bank (FSB) sued and obtained a judgment against Vidro in April 2010.
- Vidro received large payments from Schoenfeld (≈ $1.99M in Feb 2009) and moved substantial funds into accounts in his wife Ellen’s name (Signature accounts 6052, New Horse account), using a general power of attorney she signed.
- Vidro transferred his marital residence to Ellen and his step‑brother Mark Dorfman in March 2010 while continuing to live there, pay mortgage/taxes/insurance, and take tax deductions; title was reconveyed to Vidro and Ellen two days before he filed bankruptcy (Dec. 12, 2011).
- Plaintiffs (FSB and the Chapter 7 Trustee) sued to deny Vidro’s discharge under 11 U.S.C. §§ 727(a)(2)(A) (fraudulent transfer/concealment within one year of filing) and 727(a)(5) (failure to explain loss of assets); Plaintiffs invoke the doctrine of continuous concealment to reach pre‑one‑year transfers.
- After Plaintiffs’ case‑in‑chief, Vidro moved for a directed verdict arguing plaintiffs failed to show a transfer/concealment within one year and that continuous concealment should not extend the § 727(a)(2)(A) lookback; the court denied the motion, concluding plaintiffs made a prima facie showing and permitting Vidro to present rebuttal evidence.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether transfers/concealment fall within § 727(a)(2)(A)’s one‑year lookback | Continuous concealment doctrine applies so pre‑petition transfers remained concealed into the critical year | Transfers (e.g., residence reconveyance) occurred >1 year before filing or were undone prepetition, so § 727(a)(2)(A) not triggered | Court found prima facie evidence of continuous concealment; denied directed verdict and allowed trial to proceed |
| Whether reconveyance of the residence prepetition defeats § 727(a)(2)(A) liability | Reconveyance does not necessarily preclude denial where concealment and intent persist | Reconveyance and schedule disclosure show lack of concealment in the critical year | Court rejected the reconveyance defense here given sophistication, counsel involvement, and surrounding conduct; reconveyance did not bar continuing concealment theory |
| Whether badges of fraud support an inference of intent to hinder/delay/defraud creditors | Plaintiffs point to inadequate consideration, insider transfers, retention/use of property, series of transactions after default | Vidro contends transfers were legitimate (e.g., estate planning, spouse’s accounts) | Court found badges of fraud present sufficient to create prima facie case |
| Whether plaintiffs met burden at close of their case | Plaintiffs argue they met prima facie burden; shifting burden to debtor to explain | Vidro argued plaintiffs failed to meet prima facie showing and thus directed verdict was proper | Court held plaintiffs met prima facie showing on § 727(a)(2)(A) and § 727(a)(5) claims; directed verdict denied and trial to continue |
Key Cases Cited
- First Beverly Bank v. Adeeb, 787 F.2d 1339 (9th Cir. 1986) (interprets “transferred” to require that property remain transferred to bar reconveyance defense in certain circumstances)
- Davis v. Davis (In re Davis), 911 F.2d 560 (11th Cir. 1990) (rejects the "transferred and remained transferred" rule; reconveyance shortly before filing does not automatically defeat § 727(a)(2)(A))
- Rosen v. Bezner, 996 F.2d 1527 (3d Cir. 1993) (endorses continuous concealment doctrine allowing pre‑one‑year concealment to be treated as ongoing into the critical year)
- Salomon v. Kaiser (In re Kaiser), 722 F.2d 1574 (2d Cir. 1983) (lists badges of fraud used to infer fraudulent intent under transfer statutes)
- In re Keeney, 227 F.3d 679 (6th Cir. 2000) (supports finding concealment where debtor lives in and maintains property owned by another)