560 B.R. 50
Bankr. E.D.N.Y.2016Background
- Debtor Gao, defendant in a Texas action that produced a $1,917,766.76 judgment, sold a 5% membership interest in 37th Avenue Realty LLC for $870,000; $180,000 of the purchase price was paid directly to Wei Chu instead of Gao.
- On September 11, 2012 Gao transferred his joint‑tenancy interest in a Whitestone, NY house to Chu, making her sole owner; recorded consideration was $520,000 but Chu concedes no cash payment was made.
- Trustee (Chapter 7) sued under 11 U.S.C. § 544(b)(1) to avoid and recover the $180,000 diversion and the real‑estate transfer as fraudulent conveyances under N.Y. Debt. & Cred. Law (DCL) §§ 273‑a (constructive fraud) and 276 (actual fraud), and sought attorneys’ fees under DCL § 276‑a and authority to sell the house under 11 U.S.C. § 363(h).
- Documentary evidence (transfer agreement, membership certificate, K‑1s, checks) supports that Gao was the owner of the 5% interest and that $180,000 was diverted to Chu; Chu offered minimal admissible evidence of consideration (checks and an asserted $270,000 earlier payment to a supermarket).
- Court found the $270,000 check paid to L & L was not evidence of consideration for the house transfer and that the $180,000 diversion lacked antecedent debt or other fair consideration.
- Trustee moved for summary judgment; Defendant did not answer and largely failed to oppose discovery, but the Court considered the limited opposing evidence and ruled on the merits.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the $180,000 diversion and the real‑estate transfer are avoidable as constructive fraud under DCL § 273‑a (via § 544) | Transfers were made without fair consideration while Debtor faced a money‑judgment and therefore are fraudulent as to creditors | Chu asserted (through counsel and sparse testimony) that funds represented loans or capital contributions (including an asserted equitable owner Chen and prior payments) | Granted: both transfers lack fair consideration; § 273‑a elements met and property recoverable under § 550(a)(1) |
| Whether transfers are avoidable as actual fraud under DCL § 276 (via § 544) | Badges of fraud (inadequate consideration, close relationship, retention/use, timing, financial condition, pattern) show Debtor acted with actual intent to hinder creditors | Chu denies fraudulent intent and asserts considerations/loans; minimal competent evidence of transferee intent | Granted: clear and convincing circumstantial evidence (badges of fraud) establishes Debtor’s actual intent under § 276 |
| Whether attorneys’ fees may be awarded against Chu under DCL § 276‑a | Trustee seeks fees because conveyances were made with actual intent to defraud | Chu lacked proven knowledge/participation in actual fraud; accepting transfers ≠ transferee fraudulent intent without specific proof | Denied: Trustee proved transferor’s intent but failed to establish that Chu received transfers with actual fraudulent intent as required by § 276‑a |
| Whether Trustee may sell the house free and clear of Chu’s interest under 11 U.S.C. § 363(h) after avoiding the real‑estate transfer | A § 363(h) sale will yield substantial benefit to the estate and partition is impracticable; detriment to Chu is outweighed | Chu argued she is sole owner and sale cannot be forced; no counter showing of disproportionate detriment | Granted: § 363(h)(1)–(4) satisfied; benefit to estate outweighs detriment to Chu (economic and non‑economic considered) |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment burden and standards)
- Anderson v. Liberty Lobby, 477 U.S. 242 (summary judgment and genuine issue standard)
- Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (inferences and non‑movant evidence standard)
- Grace v. Bank Leumi Trust Co. of N.Y., 443 F.3d 180 (elements of DCL § 273‑a claim)
- In re Sharp Int’l Corp., 403 F.3d 43 (fair consideration analysis and good faith)
- Carey v. Crescenzi, 923 F.2d 18 (requirement to show transferee’s intent for DCL § 276‑a fee awards)
- In re Kaiser, 722 F.2d 1574 (use of badges of fraud to infer actual intent)
- BellSouth Telecomms., Inc. v. W.R. Grace & Co., 77 F.3d 603 (self‑serving affidavits insufficient to defeat summary judgment)