556 B.R. 537
Bankr. E.D.N.Y.2016Background
- Debtor David Herz filed Chapter 7 on April 8, 2011; case closed as no-asset after discharge (July 20, 2011) and later reopened when the trustee discovered a ~ $223,000 bequest; bar date for claims was set at July 10, 2014.
- Lexington Insurance filed three proofs of claim (Claims 3, 4, 5) on Jan 7, 2015, based on judgments it holds against Esther Herz and alleging fraudulent transfers of the family home (1148 East 10th St., Brooklyn) among Esther, David (the debtor), and their daughter Libi.
- Relevant transfers: Esther bought the home in 1991; April 3, 2006 transferred to Esther and David; Aug 29, 2006 to Libi; Nov 2006 WaMu $750k mortgage; Mar 16, 2007 Libi added David; Sept 17, 2007 Chase $900k mortgage (replacing WaMu); Oct 2, 2007 title to David alone.
- Lexington contends these transfers (and encumbrances) were part of a scheme initiated by Esther to hinder, delay, or defraud her creditors under N.Y. Debtor & Creditor Law § 276; only some transfers fall within the limitations window.
- At trial the Herz family testified they were unaware of the relevant judgments at the time of transfers and that title searches produced no recorded judgments; the Court found Lexington produced no evidence Esther knew of the judgments when transfers occurred.
- Court ruled Lexington failed to prove by the required standard that the actionable transfer (the Chase mortgage) was part of an Esther-initiated fraudulent scheme; Claims 3 and 5 were expunged.
Issues
| Issue | Plaintiff's Argument (Lexington) | Defendant's Argument (Estate/Herz) | Held |
|---|---|---|---|
| Timeliness of claims (late filing after bar date) | Claims timely for distribution because Lexington lacked notice of reopening/bar date and filed promptly after notice | Bar date July 10, 2014; proofs filed Jan 7, 2015 (late) | Late filing excused because Lexington did not receive notice of reopening; allowed to participate if claim valid (due process/§ 726(a)(2)(C)) |
| Statute of limitations for fraudulent conveyance | Tolling (bankruptcy stay + debtor's death) makes Sept 17, 2007 Chase mortgage actionable | Transfers mostly outside 6-year CPLR § 213; many predate tolled cutoff | Tolled periods (automatic stay and 18 months post-death) rendered transfers after March 26, 2007 potentially timely; Chase mortgage (Sept 17, 2007) falls within limitations |
| Actual intent to defraud (fraudulent conveyance under NYDCL § 276) | Pattern of transfers, no consideration, family relationships, continued use of property, depletion of equity indicate intent (badges of fraud) | Transfers explained by legitimate motives (refinance benefits, tax/insurance/interest savings); lack of evidence Esther knew of judgments | Lexington failed to prove by clear and convincing evidence that the Chase mortgage or other timely acts were part of an Esther-initiated scheme; no sufficient badges/corroboration of actual intent |
| Burden and sufficiency of evidence | Filing of proof of claim creates prima facie validity; Lexington must prove claim after estate rebuts timeliness/limitations | Estate produced evidence rebutting presumptions (late filing, SOL) and argued lack of knowledge and legitimate explanations | Burden shifted to Lexington; it did not meet its burden to prove fraudulent intent by clear and convincing evidence, so claims 3 and 5 expunged |
Key Cases Cited
- In re Koloch, 416 B.R. 375 (Bankr. E.D.N.Y. 2009) (burden-shifting on claim objections)
- In re Allegheny Int’l, 954 F.2d 167 (3d Cir. 1992) (proof required after prima facie showing rebutted)
- Mellon Bank v. Metro Communications, 945 F.2d 635 (3d Cir. 1991) (preponderance standard for claim proof after rebuttal)
- In re Feldman, 261 B.R. 568 (Bankr. E.D.N.Y. 2001) (late-filed claims and bar-date notice principles)
- In re Elmont Electric Co., 206 B.R. 41 (Bankr. E.D.N.Y. 1997) (limitations on enlarging claim filing periods)
- Drexel Burnham Lambert Group, Inc. v. Aetna Bus. Credit, 151 B.R. 674 (Bankr. S.D.N.Y. 1993) (due process requirements for bar-date notice)
- Goscienski v. Larosa (In re Montclair Homes), 200 B.R. 84 (Bankr. E.D.N.Y. 1996) (elements of fraudulent conveyance claim)
- Salomon v. Kaiser (In re Kaiser), 722 F.2d 1574 (2d Cir. 1983) (badges of fraud and circumstantial proof of actual intent)
- United States v. McCombs, 30 F.3d 310 (2d Cir. 1994) (standard for proof of intent)