647 B.R. 23
Bankr. S.D.N.Y.2022Background
- Debtor Wansdown Properties Corp. N.V. owned a Manhattan townhouse (29 Beekman Place), its principal asset; it managed assets for Princess Pahlavi.
- In Feb. 2016 director Gholam Reza Golsorkhi signed a Confession of Judgment in Wansdown’s name in favor of employee Azadeh Azari (either $2.7M lump sum or $9,000/month), and Azari docketed it in New York, creating a lien on the Townhouse.
- Wansdown’s state-court efforts to void the Confession failed; a sheriff’s sale was scheduled for Oct. 9, 2019, but Wansdown filed chapter 11 on Oct. 8, 2019, and later (Dec. 18, 2019) commenced this adversary proceeding seeking avoidance under 11 U.S.C. § 544(b) based on NY DCL §§ 274 and 275.
- Azari moved for summary judgment arguing no triggering (allowable unsecured) creditor existed and DCL claims lack triable proof; Wansdown moved to strike Azari’s affirmative defenses of unclean hands and fraud.
- The Court denied Azari’s summary judgment motion (finding genuine disputes on DCL claims and that at least one triggering creditor exists) and granted Wansdown partial summary judgment that unclean hands and related equitable defenses do not bar a § 544(b) avoidance action pursued by a debtor in possession for creditors.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1) Triggering creditor under § 544(b) | Wansdown identified unsecured creditors on the claims register; avoidance would benefit impaired creditors and the estate | Azari: Debtor repeatedly represented creditors would be paid in full from sale proceeds; some claims disputed or shareholder claims | Court: At least one allowable unsecured creditor exists (IRS/NY Dept. of Tax and Finance identified); §544(b) claim may proceed because avoidance would benefit the estate; denial of SJ on this ground |
| 2) DCL § 274 ("unreasonably small capital") | Wansdown: Confession left debtor with unreasonably small capital given mortgages, unpaid obligations, and limited liquidity | Azari: Townhouse valuations (as high as $34M or $18M), support from Pelmadulla, and a $2M mortgage show sufficient capital | Court: Genuine disputes of material fact (conflicting valuations, reliance on Pelmadulla, working-capital needs) preclude summary judgment for Azari |
| 3) DCL § 275 (intent to incur debts beyond ability to pay) | Wansdown: Evidence supports inference Golsorkhi believed debtor would incur debts beyond ability to pay (inability to secure financing, reliance on limited advances) | Azari: Golsorkhi believed Pelmadulla or mortgage proceeds would cover obligations; subjective intent lacks proof | Court: Intent is disputed; summary judgment inappropriate because state of mind is a triable issue |
| 4) Applicability of unclean hands/in pari delicto to § 544(b) avoidance claims | Wansdown: Unclean hands is an equitable defense inapplicable where debtor in possession sues as trustee for creditors; Wagoner/in pari delicto do not bar §544 avoidance actions | Azari: Debtor’s (post‑petition) misconduct and counsel conflicts should bar relief | Court: Grants partial SJ for Wansdown — unclean hands and related equitable defenses cannot be asserted to defeat a §544(b) avoidance action brought by a trustee/debtor in possession for creditors |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (U.S. 1986) (summary judgment standards)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (U.S. 1986) (genuine dispute and reasonable-finder standard)
- Christy v. Alexander & Alexander of NY, Inc., 130 F.3d 52 (2d Cir. 1997) (avoidance restores property to estate for creditors)
- In re Mirant Corp., 675 F.3d 530 (5th Cir. 2012) (triggering-creditor test evaluated at petition date)
- In re Vintero Corp., 735 F.2d 740 (2d Cir. 1984) (avoidance must benefit estate under § 550)
- Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114 (2d Cir. 1991) (Wagoner rule / in pari delicto principles)
- In re Bernard L. Madoff Inv. Secs. LLC, 740 F.3d 81 (2d Cir. 2014) (limitations on in pari delicto and trustee powers)
- In re Wingspread Corp., 178 B.R. 938 (Bankr. S.D.N.Y. 1995) (discussion of "golden/triggering" creditor requirement)