594 B.R. 229
Bankr. S.D.N.Y.2018Background
- Debtors Luba Pincus and Bruce Sterman filed joint Chapter 7 on February 19, 2016. Trustee sought to avoid transfers the Debtors made for college-related expenses for their daughters, Alexandra and Samantha Sterman, as constructively fraudulent.
- Alexandra attended Oberlin 2005–2009, reached age 21 in 2008, graduated in 2009, and was financially independent during the period of challenged transfers (all transfers to her occurred 2010–2015 totaling $15,675).
- Samantha attended Oberlin 2009–2013; challenged transfers to/for her total $9,952, of which $2,276 occurred while she was a minor and $7,676 after she reached age 21.
- Parties stipulated not to litigate insolvency for summary judgment; the sole question presented was whether Debtors received "reasonably equivalent value" (or "fair consideration") for the transfers under 11 U.S.C. § 548 and NYDCL § 272.
- The Trustee moved for summary judgment to recover transfers; defendants cross-moved for summary judgment. The court divided transfers into three categories: (A) education-related transfers after daughters reached majority, (B) Samantha's transfers while a minor, (C) transfers to Alexandra after graduation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether tuition/education payments for adult children (post-21) constitute "reasonably equivalent value" | Trustee: Parents received no exchange of property or satisfaction of antecedent debt; payments are avoidable if debtor was insolvent | Defendants: Payments conferred indirect economic benefit (greater likelihood of childrens self-sufficiency) and "psychic"/intangible benefits to parents | Held: Payments for adult children after age 21 are avoidable; such indirect/psychic benefits do not meet statutory "value" requirements |
| Whether payments for Samantha made while she was a minor constitute "reasonably equivalent value" | Trustee: Payments should be avoidable regardless of minor status | Defendants: Payments satisfied parents' legal obligation to support a minor (housing, education, etc.), so they are fair consideration | Held: $2,276 of transfers to Samantha while she was a minor are not avoidable; they satisfied parental obligation and constitute reasonably equivalent value |
| Whether transfers to Alexandra after graduation are protected because they began while she was a minor or while she attended college earlier | Trustee: All post-majority/post-graduation transfers are avoidable | Defendants: No viable argument that prior minor-status or past schooling immunizes later transfers once adult and financially independent | Held: All transfers to Alexandra (post-21 and post-graduation) are avoidable as constructively fraudulent if debtors were insolvent |
| Burden of proof on fair consideration when facts are within transferee control | Trustee: Shifts to transferee to prove fairness where consideration facts are within transferee control | Defendants: Relied on affidavits and factual assertions to show benefits | Held: Court applied burden-shifting principle; but found no legally cognizable "value" for adult-child transfers and accepted parental-obligation rationale for minor-child transfers |
Key Cases Cited
- Ackerman v. Ventimiglia, 362 B.R. 71 (Bankr. E.D.N.Y. 2007) (burden shifts to transferee when consideration facts are within transferee's control)
- In re Gonzalez, 342 B.R. 165 (Bankr. S.D.N.Y. 2006) (intangible/psychic benefits considered together with demonstrable benefits to debtor)
- In re Akanmu, 502 B.R. 124 (Bankr. E.D.N.Y. 2013) (payments satisfying parental obligation to minor child can constitute reasonably equivalent value)
- DeGiacomo v. Sacred Heart Univ. (In re Palladino), 556 B.R. 10 (Bankr. D. Mass. 2016) (found reasonably equivalent value where tuition increased likelihood of childs self-sufficiency)
- In re Leonard, 454 B.R. 444 (Bankr. E.D. Mich. 2011) (tuition payments for adult children held avoidable)
- Picard v. Madoff (In re Bernard L. Madoff Inv. Sec. LLC), 458 B.R. 87 (Bankr. S.D.N.Y. 2011) (discussing equivalence of NYDCL "fair consideration" and Bankruptcy Code "reasonably equivalent value")