559 B.R. 41
Bankr. E.D.N.Y.2016Background
- USA United Fleet and affiliates (school-bus operators) filed Chapter 11 on July 6, 2011; cases converted to Chapter 7 on July 29, 2011 and Richard McCord appointed trustee.
- Trustee sued Ally Financial on June 17, 2013 to avoid and recover prepetition transfers totaling $1,340,423.73: twenty-two "Car Payment Transfers" (~$29,423.73) (2008–2010) and one wire of $1,311,000 on May 31, 2011 (the "May 2011 Transfer").
- Trustee asserted avoidance claims under Bankruptcy Code §§ 544, 547, 548, 550, 551 and NY Debtor & Creditor Law §§ 273–276, plus unjust enrichment and § 502(d) relief; seeks fees if NY DCL § 276 proven.
- Ally argued (1) the May 2011 Transfer funds never belonged to the debtors because Shoreline Merge was a "mere conduit"/earmarked for a third party (Dana Pristavec/Gemini) and (2) genuine issues exist about consideration and insolvency for the Car Payment Transfers.
- Extensive record included wire traces, deposit/withdrawal timing, deposition testimony (William Lia), and competing solvency analyses (EisnerAmper for Trustee; Tittle Advisory Group for Ally).
- Court heard cross-motions for summary judgment and denied Trustee's summary judgment as to the May 2011 Transfer (genuine issues on mere-conduit/earmarking), granted Trustee in part for Car Payment Transfers as constructively fraudulent under § 548(a)(1)(B) and NY DCL § 273, and denied other requested relief.
Issues
| Issue | Trustee's Argument | Ally's Argument | Held |
|---|---|---|---|
| Whether the May 2011 Transfer was property of the debtors (threshold for all avoidance claims) | Transfer came from Shoreline Merge account to Ally; therefore it belonged to debtor and is recoverable | Shoreline Merge was a mere conduit; funds were earmarked/loaned by William Lia for Dana Pristavec/Gemini and never belonged to debtor | Genuine dispute exists; Trustee’s summary judgment denied and Ally’s cross-motion denied (fact issues on conduit/earmarking) |
| Whether Car Payment Transfers (payments on an Ally auto note) are actually fraudulent under 11 U.S.C. § 548(a)(1)(A) | Payments were transfers of debtor property within two years and badges of fraud show intent to hinder/defraud creditors | Record lacks clear-and-convincing evidence of actual fraudulent intent; alternative innocent explanations exist | Trustee failed to show absence of material dispute on intent; summary judgment denied on § 548(a)(1)(A) claim |
| Whether Car Payment Transfers are constructively fraudulent under 11 U.S.C. § 548(a)(1)(B) (lack of reasonably equivalent value + insolvency or other statutory alternative) | Debtors received less than reasonably equivalent value (payments benefited insiders/relatives); solvency analyses show debtors were insolvent | Ally’s solvency expert disputes Trustee’s valuations and raises factual questions | Trustee established lack of value and insolvency (presumption rebutted insufficiently by Ally); summary judgment granted in part for § 548(a)(1)(B) (recover Car Payment Transfers) |
| Whether Trustee may recover attorneys’ fees under NY DCL § 276‑a | If § 276 actual fraud proven, fees follow | Ally: no actual intent by both transferor and transferee; elements not met | Denied — Trustee did not establish actual intent by transferor and transferee required for fees |
Key Cases Cited
- Begier v. Internal Revenue Service, 496 U.S. 53 (U.S. 1990) (avoiding preferential/fraudulent transfers recovers property that would have been available to creditors)
- Anderson v. Liberty Lobby, 477 U.S. 242 (U.S. 1986) (summary judgment: genuine dispute requires evidence that a reasonable jury could return a verdict for the nonmoving party)
- Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (U.S. 1986) (nonmovant must show more than metaphysical doubt; speculative assertions insufficient to defeat summary judgment)
- Sharp Int’l Corp. v. State St. Bank & Trust Co., 403 F.3d 43 (2d Cir. 2005) (identifies "badges of fraud" for inferring actual fraudulent intent)
- In re Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson & Casey, 130 F.3d 52 (2d Cir. 1997) (adopts "mere conduit" approach; receipt alone does not impose avoidability liability—courts weigh entire transaction circumstances)
- In re Chase & Sanborn Corp., 813 F.2d 1177 (11th Cir. 1987) (earmarking/mere-conduit doctrine: look beyond individual transfers to entire transaction to determine if funds diminished debtor estate)
- HBE Leasing Corp. v. Frank, 48 F.3d 623 (2d Cir. 1995) (good‑faith transferee standard: acting without actual or constructive knowledge of fraud can satisfy good faith when equivalent value was given)
- Carey v. Crescenzi, 923 F.2d 18 (2d Cir. 1991) (NY DCL § 276‑a requires actual intent by both transferor and transferee for attorney’s fees award)