Kittay v. Korff (In re Palermo)
739 F.3d 99
2d Cir.2014Background
- Debtor Douglas Palermo filed Chapter 7 on Oct. 14, 2005; trustee David Kittay sued multiple transferees (including Joseph Korff) for fraudulent conveyances under NY DCL §§ 273–276 and 11 U.S.C. §§ 544(b)(1), 550.
- Kittay filed an initial adversary complaint on Oct. 12, 2007 (within the limitations period) naming many defendants; the bankruptcy court concluded claims were misjoined and directed the parties to split the proceedings and file separate complaints by Jan. 7, 2008.
- Kittay amended the original complaint to retain only Palermo and refiled separate complaints against other defendants (including Korff) on Jan. 7, 2008—after the statutory cutoff date.
- The action against Korff proceeded to jury trial in district court (after withdrawal of the reference); jury found for Kittay on all counts; Korff challenged timeliness and other rulings on appeal.
- The district court denied Korff’s statute-of-limitations dismissal (invoking equitable tolling and Rule 15(c) relation back), and awarded prejudgment interest at NY C.P.L.R. § 5004’s 9% rate from July 29, 2004 without an explanatory rationale.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Timeliness of complaint refiling | Kittay argued original timely filing preserved claims; refiling related back / was permitted by bankruptcy-court direction | Korff argued the Jan. 7, 2008 complaint was untimely (statute expired Oct. 14, 2007) and dismissal required | Affirmed: Bankruptcy court’s directions effected a de facto Rule 7021 (Rule 21) severance, so the refiling related back and was timely |
| Equitable tolling as basis for timeliness | Kittay urged equitable tolling because he timely commenced initial proceeding and relied on bankruptcy-court guidance | Korff contended tolling was improper and unsupported | Court did not decide on this basis; alternative grounds available but Rule 7021 severance dispositive |
| Relation back under Fed. R. Civ. P. 15(c) | Kittay alternatively invoked Rule 15(c) to preserve filing date | Korff disputed applicability | District court upheld relation back as alternative; appellate opinion did not need to resolve Rule 15(c) question because Rule 21 severance sufficed |
| Prejudgment interest award and choice of law | Kittay sought prejudgment interest from date of transfer at NY statutory rate (9%) | Korff argued interest is discretionary and, if awarded, federal rate and starting date should apply | Partially vacated/remanded: Applying state law to prejudgment interest was permissible, but district court failed to show it exercised discretion; remand required for explanation or fresh exercise of discretion |
Key Cases Cited
- Sharp Int’l Corp. v. State St. Bank & Trust Co., 403 F.3d 43 (2d Cir. 2005) (defining NY DCL constructive and actual fraud provisions)
- Adelphia Recovery Trust v. [Trustees], 634 F.3d 678 (2d Cir. 2011) (state fraudulent conveyance statutes may be invoked under 11 U.S.C. § 544(b))
- NextWave Personal Commc’ns, Inc. v. FCC, 200 F.3d 43 (2d Cir. 1999) (applicable law under § 544(b) includes state fraudulent conveyance statutes)
- DirecTV, Inc. v. Leto, 467 F.3d 842 (3d Cir. 2006) (severance under Rule 21 preserves statute-of-limitations effect of original filing)
- Elmore v. Henderson, 227 F.3d 1009 (7th Cir. 2000) (dismissal without prejudice treated as if suit never filed for statute-of-limitations purposes)
- White v. ABCO Eng’g Corp., 199 F.3d 140 (3d Cir. 1999) (Rule 21 severance need not be explicitly invoked if intent to sever is clear)
- Allied Elevator, Inc. v. E. Tex. State Bank of Buna, 965 F.2d 34 (5th Cir. 1992) (court may infer Rule 21 severance from record and context)
- Endico Potatoes, Inc. v. CIT Group/Factoring, Inc., 67 F.3d 1063 (2d Cir. 1995) (prejudgment interest and rate are matters within district court’s discretion)