463 B.R. 257
Bankr. E.D.N.Y.2011Background
- Trustee filed adversary actions against four insiders to recover transfers (2001–2003) including Salary Increases, Saunders Loan Dividends, and Tax Dividends.
- TMC and related entities reorganized into Tiffen LLC; insiders held management/shareholder roles and funded the Saunders loan through personal guarantees.
- Saunders Loan financed the Saunders Acquisition; loan payments were funneled back to insiders via Saunders Loan Dividends.
- Tax Dividends were paid to insiders to cover personal tax obligations arising from the Debtors’ S-corporation status; the Debtors did not receive fair value.
- The Debtors became insolvent by early 2002, ultimately filing Chapter 11 in February 2003 and later converting to Chapter 7; the court supervised core proceedings.
- The court analyzes fair consideration, solvency, and badges of fraud to determine avoidance under DCL, Bankruptcy Code, and state unjust enrichment law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Fair consideration and solvency for Salary Increases and Saunders Dividends | Trustee contends no fair consideration; transfers rendered insolvent | Defendants claim increased duties justified higher pay; Saunders dividends funded prior obligations | Salary Increases and Saunders Dividends had fair consideration; Tax Dividends lacked fair consideration and supported insolvency finding |
| Fairness and solvency regarding Tax Dividends | Tax Dividends were without fair consideration and rendered insolvent periods | Tax Dividends were standard S‑corp tax allocations | Tax Dividends lacked fair consideration; Debtors insolvent Feb 2002–Feb 2003; Tax Dividends avoided as fraudulent conveyances |
| Badges of fraud supporting actual fraudulent transfer claim under 548(a)(1)(A) | Tax Dividends show intentional transfer to hinder creditors | No improper intent; not all transfers lack consideration; Saunders Dividends misleadingly described | Badges of fraud established for Tax Dividends; transfers avoided; Salary Increases and Saunders Dividends not proven fraudulent |
| Unjust enrichment analysis under New York law | Defendants were unjustly enriched by Tax Dividends; Debtors deserve recovery | There was consideration through increased salaries and Saunders Dividends; Tax Dividends lacked value to Debtors | Tax Dividends unjustly enriched Defendants; amounts recoverable to Debtors’ estate; Salary Increases and Saunders Dividends not recoverable here |
| Seventh Cause of Action under 547(b) | Trustee seeks to avoid transfers to insiders within 1 year as preferences | Insiders were not creditors of the Debtors; Nordberg relied on bank-principal relation | Seventh Cause of Action denied; insiders not creditors; no recoverable transfers under 547(b) |
Key Cases Cited
- Rubin v. Manufacturers Hanover Trust Co., 661 F.2d 979 (2d Cir.1981) (fair value standard for determining lack of fair consideration)
- United States v. McCombs, 30 F.3d 310 (2d Cir.1994) (actual intent to defraud under 548(a)(1)(A))
- In re Kaiser, 722 F.2d 1574 (2d Cir.1983) (badges of fraud guide actual intent findings)
- In re Sharp Int’l Corp., 403 F.3d 43 (2d Cir.2005) (badges of fraud; for intent findings under 548(a)(1)(A))
- In re Roblin Indus., 78 F.3d 30 (2d Cir.1996) (solvency/fair value standard in asset transfers)