602 B.R. 840
Bankr. S.D.N.Y.2019Background
- Trustee filed an adversary complaint seeking avoidance and recovery of prepetition transfers from TS Employment, Inc. (Debtor) to multiple corporate transferees under Bankruptcy Code §§544, 547, 548, 550 and NY Debtor & Creditor Law (NYDCL). Default entered against the corporate defendants after they failed to appear or answer.
- Trustee initially sought default judgments against eight corporate defendants; the Renewed Motion seeks judgment against three: Tri-State Employment Service, Inc. (Tri‑State), Tri‑State Employment Services, Inc. (Tri‑State S), and Broadway PEO, Inc. (Broadway PEO).
- At an earlier hearing the Court denied default judgment as to damages because the Trustee’s original submissions lacked sufficient evidentiary foundation and a clear damages rule; the Trustee then filed a Second Supplemental Declaration, General Ledger Reports, and a Supplemental Brief.
- The Trustee asserted damages measured by net cash outflows to each transferee as shown in the Debtor’s general ledger; total recoverable transfers to the three defendants were $267,137,142, allocated as $137,030,343 to Tri‑State S, $98,176,412 to Tri‑State, and $31,930,387 to Broadway PEO.
- The Court found the Second Supplemental Declaration authenticated the general ledger reports as admissible business records and concluded the proper damages rule is recovery of the monies wrongfully received by transferees under NYDCL §§273, 276.
- Court entered default judgment for the listed amounts against Tri‑State, Tri‑State S, and Broadway PEO and directed Trustee’s counsel to submit a proposed judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Entitlement to default judgment on fraudulent transfer claims | Trustee: defendants admitted well‑pleaded allegations by default; liability under NYDCL §§273 (constructive) and 276 (actual) is established | Defendants: no response / failed to defend | Court: default admits liability; judgment appropriate on both actual and constructive fraudulent transfer theories |
| Proper rule to calculate damages for fraudulent transfers | Trustee: measure is the amount of monies wrongfully received by each transferee (net cash outflows shown in general ledger) | Defendants: no response | Court: adopts Trustee’s rule—recover monies wrongfully received (set aside transfers; return funds) |
| Sufficiency/authentication of financial evidence | Trustee: Second Supplemental Declaration authenticates general ledger reports as Debtor business records under Fed. R. Evid. 901 and 803(6) | Defendants: no response | Court: ledger reports admissible as business records; Trustee may testify to custody and reliability |
| Burden‑shifting under NYDCL constructive transfer claim | Trustee: established lack of fair consideration via net cash transfers and alleged insolvency; insolvency presumed and burden shifts to defendants | Defendants: no response to rebut insolvency presumption | Court: Trustee met burden; insolvency presumed; defendants did not rebut; constructive fraudulent transfer established |
Key Cases Cited
- City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114 (2d Cir.) (two‑step default judgment framework)
- New York v. Green, 420 F.3d 99 (2d Cir.) (default effects and admissions)
- D.H. Blair & Co. v. Gottdiener, 462 F.3d 95 (2d Cir.) (defaults admit well‑pleaded allegations)
- Credit Lyonnais Sec. (USA), Inc. v. Alcantara, 183 F.3d 151 (2d Cir.) (court must determine damages with reasonable certainty after default)
- Transatlantic Marine Claims Agency, Inc. v. Ace Shipping Corp., 109 F.3d 105 (2d Cir.) (damages inquiry post‑default)
- In re Sharp Int’l Corp., 403 F.3d 43 (2d Cir.) (elements of fraudulent transfer under NYDCL)
- Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61 (2d Cir.) (drawing inferences in favor of plaintiff after default)
- Grace v. Bank Leumi Trust Co. of N.Y., 443 F.3d 180 (2d Cir.) (remedy for fraudulent transfer is rescission/return of transferred property)