508 B.R. 533
E.D.N.Y2014Background
- Laurie Schneider operated several related companies (janitorial supply, entertainment, real estate). From Jan. 1, 2007–2009 she solicited nearly 200 investor agreements promising high returns and, per CPA analysis, used new investor funds to pay earlier obligations — the Bankruptcy Court found a Ponzi scheme beginning Jan. 1, 2007.
- Debtors made 27 payments totaling $192,091.58 (the “Rent Transfers”) from Mar. 2005–Jan. 2009 to Linda Schneider, who owned an Oceanside house in which Laurie and her husband lived rent-free; parties agreed the Rent Transfers approximated fair market rent.
- In early 2009 debtors transferred $77,000 to Linda Schneider’s personal account; she returned $50,000 and kept $27,000 (she claimed to have paid debtors’ expenses with the remainder, testimony the Bankruptcy Court found not credible).
- Trustee (Chapter 7) sued Linda Schneider to avoid transfers; Bankruptcy Court avoided $185,612 (Rent Transfers on/after Jan. 1, 2007 totaling $158,612, plus $27,000 net from 2009 transfers) as actually and alternatively constructively fraudulent, and rejected Schneider’s good-faith defense.
- District Court reviewed de novo legal issues and for clear error on facts and affirmed the Bankruptcy Court in all respects.
Issues
| Issue | Plaintiff's Argument (Trustee) | Defendant's Argument (Schneider) | Held |
|---|---|---|---|
| Whether a Ponzi presumption of actual intent applies to transfers on/after Jan. 1, 2007 | Laurie ran a Ponzi scheme starting Jan. 1, 2007; transfers after that date are presumed actually fraudulent | Date is arbitrary; record incomplete so presumption should not apply to all transfers alleged | Affirmed: factual finding of Ponzi from Jan. 1, 2007 not clearly erroneous; presumption applies to transfers that further the scheme |
| Whether Rent Transfers were made in furtherance of the Ponzi scheme | Rent payments conferred free housing to operator and enabled projection of success to investors — thus in furtherance | No evidence that investors were lured by the house; transfers unrelated to scheme | Affirmed: transfers that allowed operator to extract value and perpetuate scheme are in furtherance |
| Whether DCL § 276 requires proof of transferee’s fraudulent intent | Trustee: only transferor’s intent required; transferee’s intent is relevant only to affirmative defenses | Schneider: DCL § 276 requires proof of transferee’s intent too | Affirmed: DCL § 276 requires proving transferor’s intent; transferee intent addressed in defense (e.g., § 278 or § 548(c)) |
| WhetherTransfers were constructively fraudulent and whether Schneider had good-faith defense | Trustee: debtors received less than reasonably equivalent value; debtors insolvent; good-faith defense fails because no value given to debtors | Schneider: Rent Transfers were compensation to Laurie and recorded as rent; her testimony that $27,000 paid operations is credible; thus fair consideration and good faith exist | Affirmed: Bankruptcy Court’s credibility findings sustained; debtors received no benefit (housing benefited Laurie), $27,000 lacked evidentiary support — constructive fraud proven and good-faith defense unavailable |
Key Cases Cited
- In re Dreier LLP, 452 B.R. 391 (Bankr. S.D.N.Y. 2011) (treats transferee intent as defense issue and analyzes DCL § 276/§ 276-a distinction)
- In re Manhattan Inv. Fund Ltd., 310 B.R. 500 (Bankr. S.D.N.Y. 2002) (discusses Ponzi presumption that transfers by Ponzi entity are actually fraudulent)
- HBE Leasing Corp. v. Frank, 48 F.3d 623 (2d Cir. 1995) (third-party consideration doctrine; debtor may be found to have received indirect benefit)
- Rubin v. Manufacturers Hanover Trust Co., 661 F.2d 979 (2d Cir. 1981) (doctrine allowing disregard of third‑party flow of consideration when debtor indirectly benefits)
- In re Agape World, Inc., 467 B.R. 556 (Bankr. E.D.N.Y. 2012) (applies Ponzi presumption under Bankruptcy Code and New York law)
- In re Bernard L. Madoff Inv. Sec. LLC, 445 B.R. 206 (Bankr. S.D.N.Y. 2011) (discusses New York statute of limitations interplay with bankruptcy avoidance powers)