618 B.R. 408
Bankr. S.D.N.Y.2020Background
- JVJ Pharmacy (Debtor) was a New York specialty pharmacy; its sole shareholder/president James F. Zambri used the Debtor’s debit card to obtain cash advances at Harrah’s Atlantic City ATMs during Jan–Aug 2015, totaling $859,040 (including a 4% processing fee).
- Harrah’s contracted with Global Cash Access (Global) to process cash-advance transactions; Global collected payments from the Debtor’s Chase account and reimbursed Harrah’s via batch settlement the next federal wire day, retaining 1% of each advance as its fee.
- Trustee (chapter 7) sued Harrah’s to avoid and recover the transfers as fraudulent transfers (11 U.S.C. § 548 and NYDCL via § 544) and for unjust enrichment; parties filed cross-motions for summary judgment.
- Trustee’s expert established the Debtor was insolvent during the relevant period; the receipts and Harrah’s logs identified Zambri as the Cardholder and Harrah’s as merchant.
- Court held New Jersey fraudulent-transfer law governs; concluded Harrah’s was the initial transferee (except for Global’s retained 1% fee), granted summary judgment for Trustee on constructive fraudulent transfer (Count 2), and awarded $850,449.60; other counts (including intentional fraud and unjust enrichment) were dismissed or abandoned.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Choice of law for fraudulent-transfer claim | NY law (NYDCL) applies | NJ law governs because wrongful acts occurred in NJ | NJ law governs (contacts and interest analysis) |
| Identity of initial transferee | Harrah’s was the initial transferee (Chase withdrawals paid Harrah’s via Global) | Global was the initial transferee; Harrah’s at most a subsequent transferee | Harrah’s is the initial transferee except for 1% retained by Global |
| Constructive fraudulent transfer (reasonable equivalence/insolvency) | Debtor received less than reasonably equivalent value; Debtor insolvent | Harrah’s received fair consideration; alternatively, was a subsequent good-faith transferee for value | Trustee proved insolvency and no value to debtor; summary judgment for Trustee on §548(a)(1)(B) |
| Intentional fraudulent transfer (actual intent) | Alleged but not litigated on summary judgment | Harrah’s argued lack of intent evidence | Trustee abandoned Count 1; summary judgment for Harrah’s on intentional fraud |
| Unjust enrichment | Harrah’s was unjustly enriched at Debtor's expense | Claim duplicates fraudulent-transfer remedy | Dismissed as duplicative of constructive fraudulent-transfer claim |
Key Cases Cited
- Wellness Int’l Network, Ltd. v. Sharif, 575 U.S. 665 (Sup. Ct. 2015) (standards for implied consent to non-Article III adjudication)
- GlobalNet Fin. com, Inc. v. Frank Crystal & Co., 449 F.3d 377 (2d Cir. 2006) (choice-of-law interest analysis in torts)
- Christy v. Alexander & Alexander (In re Finley, Kumble), 130 F.3d 52 (2d Cir. 1997) (recipient acting as conduit is not the initial transferee)
- Bonded Fin. Servs., Inc. v. European Am. Bank, 838 F.2d 890 (7th Cir. 1988) (distinguishing one-step and two-step transfers for transferee liability)
- Motorworld, Inc. v. Benkedorf, 156 A.3d 1061 (N.J. 2017) (reasonably equivalent value test under New Jersey law)
- HBE Leasing Corp. v. Frank, 48 F.3d 623 (2d Cir. 1995) (purpose of New York fraudulent conveyance law and creditor-focused remedy)