NANCY HERSHEY LORD, UNITED STATES BANKRUPTCY JUDGE.
Plaintiff Gregory Messer ("Trustee"), Chapter 7 trustee of the estate of Xiang Yong Gao ("Gao" or "Debtor"), brought this adversary proceeding against Wei Chu ("Chu" or "Defendant") to recover two transfers purportedly made by the Debtor to Chu, for no consideration, at a time when the Debtor was a defendant in a state court action in Texas.
On or around May 31, 2012, the Debtor sold a 5% interest he held ("5% Interest") in 136-33 37th Avenue Realty LLC ("37th Avenue Realty LLC") to AE & LY Holdings LLC ("AE & LY") for $870,000 ("Equity Transfer"). The first transfer complained of by the Trustee occurred when $180,000 of the consideration for the Equity Transfer was paid by the purchaser directly to Chu, instead of to the Debtor ("$180,000 Transfer").
The second transfer complained of by the Trustee occurred on September 11, 2012, when the Debtor transferred his interest as a joint tenant with a right of survivorship in a house located at 145-41 Willets Point Boulevard, in Whitestone, New York ("House"), to Chu, making her the sole owner ("Real Estate Transfer") (Collectively, with the $180,000 Transfer, "Transfers").
Before the Court is the Trustee's motion for summary judgment on the following four claims for relief in the second amended complaint.
First, by the fifth claim for relief, the Trustee seeks to recover the Transfers, pursuant to N.Y. Debt. & Cred. Law ("DCL") § 273-a, on the basis that they were made for no consideration while the Debtor was a defendant in an action which resulted in an unpaid judgment.
Next, by the ninth claim for relief, the Trustee seeks to recover the Transfers, pursuant to DCL § 276, on the basis that the Transfers were undertaken with actual fraudulent intent, as opposed to intent presumed in law.
Third, by the tenth claim for relief, on the presumption that the Trustee prevails on his DCL § 276 claim, the Trustee seeks to recover legal fees for bringing this action, pursuant to DCL § 276-a, on the basis that there was the requisite fraudulent intent on the part of the Debtor and the Defendant.
Last, by the nineteenth claim for relief, on the presumption that the Trustee is able to recover the Real Estate Transfer pursuant to DCL § 273-a or § 276, the Trustee seeks the authority, pursuant to Code § 363(h), to sell the House free and
In addition to seeking the above relief on the merits, the Trustee, citing the failure of the Defendant to answer the second amended complaint, seeks to have the same relief granted by default judgment. Mot. for Summ. J. Attach. 1, Mem. of Law ("Mem. of Law"), at 1 n.1, ECF No. 24-1.
For reasons fully explained in this opinion, the relief that the Trustee seeks is granted on the merits, with the exception of the award of legal fees sought pursuant to DCL § 276-a, which is denied.
This Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(b) and 157(b)(1), and the Eastern District of New York Standing Order of Reference dated August 28, 1986, as amended by Order dated December 5, 2012. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2). This decision constitutes the Court's findings of fact and conclusions of law to the extent required by Rule 7052 of the Federal Rules of Bankruptcy Procedure.
In December 2010, the Debtor was named as one of several defendants in an action in the Texas Judicial Court for Harris County ("Texas State Court Action"), which subsequently resulted in a judgment against the Debtor in the amount of $1,917,766.76.
The Equity Transfer occurred on or around May 31, 2012, pursuant to an agreement providing for consideration of $870,000 in exchange for the 5% Interest. Compl. Ex. E., at 2-3, ECF No. 1, Case No. 15-01059-NHL.
The Trustee asserts that prior to the Equity Transfer the Debtor was both the legal and equitable owner of the 5% Interest. Tr. of January 13, 2016 ("1/13 Tr.") 11:6-17, ECF No. 40. This assertion is consistent with the following documentary evidence:
(1) The recitals in the agreement governing the Equity Transfer. Adv. Compl. Ex. E, Membership Interest Transfer Agreement ("Transfer Agreement"), at §§ 1.1, 1.3, 3.3, 3.4, ECF No. 71-5, Case No. 14-42722-NHL.
(2) A 37th Avenue Realty LLC membership certificate which lists the Debtor as the owner of the 5% Interest just prior to
(3) The First Amended and Restated Operating Agreement of 37th Avenue Realty LLC, signed by the Debtor as a 5% owner. R. 7056-1 Stat. Ex. H to Ex. 5, at 47, ECF No. 9-5, Case. No 15-01059-NHL.
(4) Form K-1 from 37th Avenue Realty LLC's tax returns for the years 2006-2012, listing the Debtor as a 5% owner. R. 7056-1 Statement Ex. B to Ex. 5, Form K-1, at 10, ECF No. 9-5, Case. No 15-01059-NHL.
(5) Redacted portions of the Debtor's tax returns for the years 2010-2012, wherein the Debtor lists both interest income and non-passive losses on account of his interest in 37th Avenue Realty LLC. Repl. Mem. in Supp. of Pl.'s Mot. Summ. J. Ex. 6, Debtor's Tax Returns, ECF No. 13-2, Case No. 15-01059-NHL.
(6) The customer copy of a $180,000 check from AE & LY to Chu, which contains a hand-written note describing the $180,000 check as part payment of the $870,000 due the Debtor on account of the transfer of the 5% Interest. R. 7056-1 Stat. Ex. F to Ex. 5, at 31, ECF No. 9-5, Case. No 15-01059-NHL. (Collectively, the "Documentary Evidence.")
Notwithstanding the Documentary Evidence, the Debtor has asserted in related proceedings that he held only legal title to the 5% Interest, and that the beneficial interest belonged to the Debtor's friend, Zhengzhou Chen ("Mr. Chen"). See Aff. in Opp. Ex. A, Aff. of Xiang Yong Gao ("Debtor's Aff."), at 1-2, ECF No. 81-1, Case No. 14-42722-NHL. The Debtor asserts that Mr. Chen asked him to hold legal title to the 5% Interest on Mr. Chen's behalf because Mr. Chen did not have "legal status." Id. The Debtor states "upon information and belief" that Mr. Chen has gone to China and cannot be found. Id. at 2.
Chu does not dispute that she received a $180,000 check from AE & LY's managing member, Alan Yao. She also makes no mention, via affidavit or testimony, of Mr. Chen.
Aff. in Opp. 4 ¶ 11, ECF No. 31. There is no affidavit or testimony from Chu in the record explaining the significance of these checks.
The Trustee believes that Mr. Chen is an invention of the Debtor. Rep. Aff. of Nicholas C. Rigano, Esq. in Supp. of Trustee's Mot. to Compel Turnover 2 ¶ 3, ECF No. 83, Case No. 14-42722-NHL.
On September 11, 2012, the Debtor transferred to Chu his interest in a joint tenancy with right of survivorship in the House, making her the owner in fee simple. Aff. in Opp. Ex. A, at 6-19, ECF No. 31; Chu Depo. 8:3-10, ECF No. 25-5.
The Debtor and Chu purchased the House in 1999, and lived there together from that point until at least May 28, 2014, the date the Debtor filed his chapter 7 petition ("Petition Date"). Chu Depo. 6:6-25, 7:4-24, ECF Doc. No. 25-5; Trustee's R. 7056-1 Stat. 8 ¶¶ 50-53, ECF No. 25; see Petition 1, ECF No. 1, Case No. 14-42722-NHL.
Consideration for the Real Estate Transfer is listed as $520,000 in the Real Property Transfer Report. Aff. in Opp. Ex. A, Real Prop. Transf. Rep., at 15, ECF No. 31. The Debtor lists half this amount, $260,000, as the consideration he received for the Real Estate Transfer in his statement of financial affairs ("SOFA"). SOFA 43, ECF No. 1, Case. No. 14-42722-NHL. However, Chu concedes that this money was not actually paid. Chu Depo. 8:3-10:19, ECF No. 25-5. Instead, Chu asserts that the Real Estate Transfer was made as repayment of a $270,000 loan she made to
The Trustee disputes that the $270,000 Transfer was consideration for the Real Estate, and points out that there is no documentary evidence showing that the $270,000 Transfer was a loan from Chu to the Debtor. Transfer, Mem. of Law 9-10, ECF No. 24-1. Furthermore, the Trustee asserts that the source of the funds for the $270,000 Transfer was the Home Mortgage Line of Credit for which the Debtor and Chu were jointly and severally liable. Id. Thus, the Trustee argues that Chu is, in effect, trying to establish that the Debtor paid "consideration to himself." 1/13 Tr. 9:18-24, ECF No. 40.
The Trustee asserts that because the Defendant has not answered the second amended complaint, the Trustee is entitled to a default judgment. Mem. of Law 1 n.1, ECF No. 24-1. In addition, the Trustee asserts that because the Defendant has not responded to the Trustee's Rule 7056-1 Statement, all the material facts therein are deemed admitted. 1/13 Tr. 14:11-16, ECF No. 40; see Trustee's R. 7056-1 Stat., ECF No. 25. See generally Local Bankruptcy Rule 7056-1. Likewise, because the Defendant never responded to the Trustee's requests for admission, the Trustee asserts that all the requests for admission are deemed admitted as well. Mem. of Law 23-24, ECF No. 24-1; see Trustee's R. 7056-1 Stat. Ex. Q, Plaintiff's First Req. for Adm. on Def. Wei Chu, ECF No. 25-17.
The facts that the Trustee seeks to have deemed admitted are non-controversial and are supported by ample documentary evidence. To the limited extent that the Court relies on the Defendant's lack of response in order to deem a fact admitted it is so indicated.
The Trustee also argues that the Court should not consider any evidence submitted by the Defendant in opposition to this Motion because of her refusal to meet discovery obligations. Mem. of Law 22-23, ECF No. 24-1. However, because consideration of the limited evidence that has been presented in response to the Motion does not alter the Court's determination and allows for a more robust holding on the merits, that evidence is considered in the analysis that follows.
Under Federal Rule of Civil Procedure 56, made applicable to this proceeding by Rule 7056, "[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A court must determine "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Kulak v. City of New York, 88 F.3d 63, 70-71 (2d Cir. 1996) (quoting Anderson v. Liberty Lobby Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505,
While the initial burden is on the movant to demonstrate the absence of a genuine dispute of material fact with particular cites to the record, Celotex, 477 U.S. at 323, 106 S.Ct. 2548; Marvel, 310 F.3d at 286, the non-moving party cannot defeat summary judgment by merely casting doubt on some of these facts. Kulak, 88 F.3d at 71. The non-moving party must point to disputed facts whose determination would affect the outcome of the case, and show sufficient evidence with respect to these facts, such that a reasonable trier of fact could find in favor of the non-moving party. Anderson, 477 U.S. at 247-48, 106 S.Ct. 2505; Matsushita, 475 U.S. at 586-87, 106 S.Ct. 1348.
Thus, "[a] party may not rely on mere speculation or conjecture as to the true nature of the facts to overcome a motion for summary judgment." Hicks v. Baines, 593 F.3d 159, 166 (2d Cir. 2010). The disputed issues of fact "must be backed by evidence." Denker v. Uhry, 820 F.Supp. 722, 729 (S.D.N.Y. 1992), aff'd, 996 F.2d 301 (2nd Cir. 1993).
The law is clear that self-serving affidavits and statements, standing alone, are insufficient to defeat summary judgment. BellSouth Telecomms., Inc. v. W.R. Grace & Co., 77 F.3d 603, 615 (2d Cir. 1996); Carey v. Crescenzi, 923 F.2d 18, 21 (2d Cir. 1991) (finding insufficient a "bald assertion, completely unsupported by evidence," that a father who was the record owner of property was not also the beneficial owner at the time he transferred it to his sons); Wojcik v. Brandiss, 973 F.Supp.2d 195, 213 (E.D.N.Y. 2013).
The Debtor's affidavit aside, the affirmation of Chu's attorney is the only evidence indicating that Mr. Chen was the equitable owner of the 5% Interest. Aff. in Opp. 4 ¶ 11, ECF No. 31. However, when opposing summary judgment "an affidavit of the opposing party's attorney which does not contain specific facts or is not based on first-hand knowledge is not entitled to any weight." Wyler v. United States, 725 F.2d 156, 160 (2d Cir. 1983); Fed. R. Civ. P. 56(c)(4) ("An affidavit or declaration used to support or oppose a motion must be made on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant or declarant is competent to testify on the matters stated."). There is therefore no basis on which the Court could accept as true that Mr. Chen was the equitable owner of the 5% Interest.
Consequently, the following analysis presumes that the Debtor was both the legal and equitable owner of the 5% Interest at the time of the Equity Transfer.
The Trustee seeks to use the power conferred by Code § 544(b)(1)
DCL § 273-a, provides that:
DCL § 273-a.
The Second Circuit Court of Appeals has explained that, in order to prevail on a claim under DCL § 273-a, a plaintiff must establish that: (1) the conveyance was made without fair consideration; (2) that the conveyor is a defendant in an action for money damages or that a judgment in such action has been docketed against him; and (3) that the defendant has failed to satisfy the judgment. Grace v. Bank Leumi Tr. Co. of N.Y., 443 F.3d 180, 188 (2d Cir. 2006).
It is undisputed that prongs (2) and (3) from Grace are satisfied. Therefore, the sole question with regard to the Trustee's DCL § 273-a claim is whether the Transfers were undertaken for "fair consideration."
Fair consideration is defined in DCL § 272, which provides:
DCL § 272. Accordingly, fair consideration is given when three criteria are met: (1) in exchange for the debtor's property, the recipient either conveys property or discharges an antecedent debt; (2) the debtor receives the "fair equivalent" of the property conveyed; and (3) the exchange is undertaken in good faith. In re Sharp Int'l Corp., 403 F.3d 43, 53-54 (2d Cir. 2005) (quoting HBE Leasing Corp. v. Frank, 61 F.3d 1054, 1058-59 (2d Cir. 1995)). Generally, a creditor asserting a fraudulent conveyance claim is responsible for establishing a lack of fair consideration so defined. See United States v. McCombs, 30 F.3d 310, 324 (2d Cir. 1994); Neshewat v. Salem, 365 F.Supp.2d 508, 520 (S.D.N.Y. 2005), aff'd, 194 Fed.Appx. 24 (2d Cir 2006). Each of the transfers will be considered independently with respect to the first two requirements of § 727, followed by a combined analysis of the "good faith" requirement.
The Trustee has sufficiently demonstrated that the first two criteria are necessarily absent with respect to the Real Estate Transfer, as there is no basis from which the Court might infer that the transfer
This conclusion is further supported by the fact that the funds used to make the $270,000 Transfer were obtained by drawing down on the Home Mortgage Line of Credit, for which the Debtor and Chu were jointly and severally liable. To the extent that this is true, the Debtor has obtained nothing from Chu, making it difficult to see how the $270,000 Transfer could reasonably be construed as consideration flowing between them. Mem. of Law 23-24, ECF No. 24-1; Trustee's R. 7056-1 Stat. Ex. G, Credit Line Mortgage, at 6 ¶ 11, 13, ECF No. 25-7.
Accordingly, there is nothing to test against the equivalent value prong, as, regardless of whether the $270,000 approximates the value of the Debtor's interest, the $270,000 Transfer was not consideration in the first instance.
The $180,000 Transfer was a diversion to Chu of part of the consideration due the Debtor on account of the Equity Transfer. As was noted above, no explanation for the $180,000 Transfer has been articulated by Chu herself, and no weight will be given to her lawyer's affirmation — which is not based on personal knowledge — in opposition to the Trustee's motion on this issue. See Crescenzi, 923 F.2d at 21
Therefore, with regard to the $180,000 Transfer, the Defendant's defense to the Trustee's DCL § 273-a claim is based exclusively on three checks payable from the Defendant to 37th Avenue Realty LLC, from 2010 and 2011, totaling $145,000 ("$145,000 Checks").
An inference that the $145,000 Checks represent a capital contribution by the Debtor to 37th Avenue Realty LLC (and are therefore consideration flowing from Chu to the Debtor) may appear plausible, but it is directly contradicted by Chu's testimony and the documentary record. Chu stated in her deposition that she is not aware of any reason that the Debtor would have transferred her $180,000, Chu Depo. 19:16-19, ECF No. 25-5, which is to say that even she was not aware of any consideration furnished. Furthermore, the first two checks were written in 2010 for a total of $45,000, but Schedule K-1 from 37th Avenue LLC's 2010 tax return shows a capital contribution from the Debtor during 2010 of only $1,663. Adv. Case. No. 15-01059 R. 7056-1 Stat. Ex. B to Ex 5, ECF No. 9-5, Case No. 15-01059-NHL.
Accordingly, there is no evidence that the $180,000 Transfer was made on account of antecedent debt, and no permissible
Because neither of the first two elements of § 272 have been satisfied on the facts presented, the issue of good faith has no impact on the outcome of the instant fair consideration analysis. Yet, it cannot be ignored that a lack of good faith may serve as an independent ground to set aside a conveyance. See In re Palermo, No. 08-CV-7421 (RPP), 2011 WL 3874866, at *13 (S.D.N.Y. Sept. 2, 2011) ("[W]here there is a fair exchange of value to satisfy an antecedent debt, [a] conveyance may be set aside if good faith is lacking." (quoting In re Dr. J. Herbert Fill, 82 B.R. 200, 216 (Bankr. S.D.N.Y. 1987))), aff'd, 549 Fed. Appx. 38 (2d Cir. 2014). It is therefore worth briefly considering good faith, even though the Court otherwise finds no genuine issue with respect to whether the two transfers constituted a fair exchange.
It is true that "[g]ood faith is an elusive concept in New York's constructive fraud statute," because it "is hard to locate that concept in a statute in which `the issue of intent is irrelevant.'" Sharp Int'l, 403 F.3d at 54 (citing McCombs, 30 F.3d 310, 326 n.1). However, when seeking to set aside a conveyance for an absence of good faith, a plaintiff in New York is often required to prove that a transferee lacked at least one of the following: "(1) an honest belief in the propriety of the activities in question; (2) no intent to take unconscionable advantage of others; and (3) no intent to, or knowledge of the fact that the activities in question will hinder, delay, or defraud others." S. Indus. v. Jeremias, 66 A.D.2d 178, 411 N.Y.S.2d 945, 949 (Dep't 1978); see also Ostashko v. Ostashko, 00-CV-7162 (ARR), 2002 WL 32068357, at *23 (E.D.N.Y. Dec. 12, 2002); In re Rego Crescent Corp., 23 B.R. 958, 969 (Bankr. E.D.N.Y. 1982). Under this standard, an intent to defraud is sufficient to establish bad faith, but it is by no means necessary. See Jeremias, 411 N.Y.S.2d at 949. Indeed, a showing that a conveyance was made in bad faith may be predicated on a "transferee's knowledge of a transferor's unfavorable financial condition at the time of the transfer," such that the transferee would be placed on notice of any issues inherent in the transaction. Ostashko, 2002 WL 32068357, at *23 (quoting In re Checkmate Stereo & Elecs., Ltd., 9 B.R. 585, 671 (Bankr. E.D.N.Y. 1981)).
Here, the Trustee has presented sufficient evidence to meet this standard. Though he has failed to demonstrate an intent to defraud on Chu's part,
Furthermore, the Trustee is entitled to recover the property subject to the Transfers from Chu, as the initial transferee of the property, pursuant to Code § 550(a)(1).
In addition to seeking to recover the Transfers on the basis that they were constructively fraudulent, the Trustee moves for summary judgment on his claim to recover the Transfers, pursuant to Code § 544(b)(1) and DCL § 276, on the basis that they were undertaken with actual intent to hinder, delay, or defraud creditors. DCL § 276 provides:
DCL § 276.
Thus, "[t]o prevail in an action under Section 276, the plaintiff must establish that (1) the thing disposed of must be of value, out of which the creditor could have realized a portion of his claim; (2) it must be transferred or disposed of by the debtor; and (3) it must be done with intent to defraud." In re Montclair Homes, 200 B.R. 84, 96 (Bankr. E.D.N.Y. 1996) (citing Hoyt v. Godfrey, 88 N.Y. 669 (1882)); In re Kovler, 249 B.R. 238, 243 (Bankr. S.D.N.Y. 2000), supplemented, 253 B.R. 592 (Bankr. S.D.N.Y. 2000), and corrected, 329 B.R. 17 (Bankr. S.D.N.Y. 2005).
"[T]o prove actual fraud under § 276, a creditor must show intent to defraud on the part of the transferor." Sharp Int'l, 403 F.3d at 56 (quoting Frank, 61 F.3d at 1059 n.5).
In this case, the first two prongs articulated by Montclair Homes are satisfied because the Transfers were transfers of the Debtor's valuable property. Therefore, the Court is left to determine whether the Debtor possessed fraudulent intent within the meaning of DCL § 276, despite the fact that "[o]rdinarily, the issue of fraudulent intent cannot be resolved on a motion for summary judgment," because it is "a factual question involving the parties' states of mind." Golden Budha Corp. v. Canadian Land Co. of America, N.V., 931 F.2d 196, 201-02 (2d Cir. 1991).
In light of this difficulty, and because fraudulent intent is rarely susceptible to direct proof, courts look to badges of fraud in order to determine if actual fraud has taken place. In re Kaiser, 722 F.2d 1574, 1582 (2d Cir. 1983). As has often been recited:
In re Hypnotic Taxi LLC, 543 B.R. 365, 374 (Bankr. E.D.N.Y. 2016) (internal citation omitted) (citing In re Kaiser, 722 F.2d 1574, 1582-83 (2d Cir.1983); In re Boyer, 328 Fed.Appx. 711, 715 n.2 (2d Cir. 2009)).
"The existence of a badge of fraud is merely circumstantial evidence and does not constitute conclusive proof of actual intent. However, the existence of several badges of fraud can constitute the requisite clear and convincing evidence of actual intent [to defraud]." In re Actrade Fin. Techs., Ltd., 337 B.R. 791, 809 (Bankr. S.D.N.Y. 2005) (citing 4 Collier on Bankruptcy, ¶ 548.03(2) (15th ed. 1983)); see also In re Singh, 434 B.R. 298, 311-12 (Bankr. E.D.N.Y. 2010) (quoting Actrade, 337 B.R. at 809).
In this case, virtually all of the badges of fraud are present:
In light of the above, all but one of the badges — whether the Debtor continued to benefit from the $180,000 — are present in this case. Though the Court takes all inferences against the Trustee, the foregoing analysis indicates, by clear and convincing evidence, that the Transfers were undertaken by the Debtor with actual fraudulent intent. See, e.g., Singh, 434 B.R. at 311-12.
Consequently, the Trustee is entitled to summary judgment on his DCL § 276 claim.
The Trustee seeks to recover attorneys' fees pursuant to DCL § 276-a. "Section 276-a states that attorneys' fees should be awarded when a conveyance `is found to have been made by the debtor and received by the transferee with actual intent, as distinguished from intent presumed in law, to hinder, delay or defraud either present or future creditors.'" Crescenzi, 923 F.2d at 21; see also Cadle Co. v. Newhouse, 20 Fed.Appx. 69, 74-75 (2d Cir. 2001); In re Janitorial Close-Out City Corp., No. 09-72982-AST, 2013 WL 492375, at *7-*8 (Bankr. E.D.N.Y. Feb. 8, 2013); Key Bank of N.Y. v. Diamond, 203 A.D.2d 896, 611 N.Y.S.2d 382, 384 (4th Dep't 1994) (emphasizing that a finding on the transferee's intent is required under § 276-a).
In Carey v. Crescenzi, the Second Circuit reversed the grant of summary judgment on a DCL § 276-a claim, finding that the facts therein did not conclusively establish the transferees' intent, despite being sufficient to establish the transferor's. There, a father's transfer of property to his sons for no consideration did not permit the court to determine whether the sons, in accepting the free property, possessed a fraudulent intent, or merely believed that they were receiving a gift. Crescenzi, 923 F.2d at 21. This open question prevented an award of attorney's fees. Id.
As was the case in Crescenzi, here the facts presented by the Trustee do not sufficiently establish the requisite party's intent for an award of attorney's fees. While the Debtor's fraudulent intent has been established by clear and convincing evidence on the basis of a badges of fraud analysis, the Trustee cannot prevail on his DCL § 276-a claim without showing that Chu "was aware of and participated in the actual fraud." Crescenzi, 923 F.2d at 20. Taking all inferences in Chu's favor, as the non-movant defending a summary judgment motion, the Trustee has not succeeded in making this showing.
In support of his DCL § 276-a claim, the Trustee points to a badges of fraud analysis which is substantially similar to the badges of fraud analysis undertaken above. Mem. of Law, 14-15, 17, ECF No. 24-1. The only specific assertion that the Trustee makes with regard to his DCL § 276-a claim, which he did not make when establishing the Debtor's fraudulent intent under DCL § 276, is that Chu had knowledge of the transfers because she: (1) signed the deed as part of effectuating the Real Estate Transfer; and (2) deposited the $180,000 she received pursuant to the $180,000 Transfer into her bank account. Mem. of Law, 17, ECF No. 24-1. However, the Defendant's knowledge of receipt of the Transfers does not establish that she received them with fraudulent intent.
Accordingly, summary judgment on the Trustee's DCL § 276-a claim is denied.
Once the Trustee recovers the Real Estate Transfer, the Trustee and the Defendant will own the House as joint tenants. By the nineteenth claim for relief the Trustee seeks the authority, pursuant to Code § 363(h), to sell the House free and clear of the Defendant's interest.
Code § 363(h) provides:
11 U.S.C. § 363(h).
In this case, Code § 363(h)(1) is satisfied because the House is residential real property, making partition in kind impracticable. See In re Beck, No. 8-10-09052-478, 2011 WL 3902820, at *8 (Bankr. E.D.N.Y. Sept. 6, 2011). Likewise, Code § 363(h)(2) is satisfied because the economic reality is that a sale of the estate's interest in a joint tenancy with Chu would realize significantly fewer proceeds for the bankruptcy estate than a sale free and clear of Chu's interest. See id. Code § 362(h)(4) is satisfied because this property is not used for any of the activities described therein. Consequently, the only part of Code § 363(h) which requires more than cursory analysis is subsection (3).
Code § 363(h)(3) requires a balancing of the benefit to the estate of a sale free and clear of the co-owners interest against the detriment such a sale would cause the co-owner to suffer. Id. at *8-*9. "It is axiomatic that the Trustee must at the outset establish that the proposed sale does in fact create a benefit to the estate." In re DeVanzo, No. 8-08-75665-REG, 2010 WL 1780038, at *2 (Bankr. E.D.N.Y. May 3, 2010). Such benefit may be established through proof that the estate's portion of the net proceeds of the sale will exceed existing liens on the Debtor's interest in the property. Id. at *4. Once it is established that a sale will benefit the bankruptcy estate, the burden would shift to the Defendant to demonstrate the detriment that would befall her upon the sale of her interest in the property. Id. Both economic and non-economic detriment must be considered. In re Persky, 893 F.2d 15, 21 (2d Cir. 1989).
If it is established that the sale of the Defendant's interest would result in some detriment to her, the burden shifts back to the Trustee to show that the benefit to the estate is greater than the detriment shown. DeVanzo, 2010 WL 1780038, at *10. "Ultimately, the Court's decision to allow a § 363(h) sale is an equitable judgment that is discretionary and fact driven." Id. at *5 (citing In re Sturman, 222 B.R. 694, 709 (Bankr. S.D.N.Y. 1998)).
In this case, the benefit to the Debtor's bankruptcy estate is clear as there is a large amount of equity in the House which will only be available to satisfy the Debtor's creditors if a Code § 363(h) sale takes place. Trustee's R. 7056-1 Stat. 10 ¶ 68, ECF No. 25; Trustee's R. 7056-1 Stat. Ex. Q, Requests for Admission, at 6 ¶ 12-15, ECF No. 25-17.
In opposition, Chu argues only that she is the rightful owner of 100% of the House and that therefore there is "no authority to force a sale." Aff. in Opp. 3, ECF No. 31. However, this argument is inapposite because it has already been determined the Trustee is entitled to recover the Real Estate Transfer. Consequently, the Trustee has established that a sale of the House free and clear of Chu's interest will benefit the Debtor's bankruptcy estate, while Chu has not made any countervailing showing.
Nevertheless, possible detriment to Chu will be considered. Assuming the House is currently worth $850,000, and is encumbered by a mortgage of no more than $80,000, Chu will receive approximately $385,000 from the sale of the house, less broker's fees. Trustee's R. 7056-1 Stat. Ex.
Under Persky, it is also necessary to consider non-economic detriment. 893 F.2d at 21. Chu has two school aged children who may be forced to move if the House is sold to a third party. However, the presence of minor children, standing alone, is not sufficient to outweigh the benefit to the bankruptcy estate. See DeVanzo, 2010 WL 1780038, at *8-*9. Furthermore, it has been admitted that the Defendant is the sole owner of a five bedroom house, located less than 10 miles from the House, at 4559 Zion Street in Little Neck, New York ("Zion Street House"). Trustee's R. 7056-1 Stat. 10 ¶¶ 74-75, ECF No. 25. It is admitted that the Defendant has equity of at least $300,000 in the Zion Street House. Id. at 10-11 ¶ 77. In addition, it is admitted that the Defendant's assets exceed her liabilities by at least $500,000. Id. at 10 ¶ 73. Taking all of these factors into consideration, the sale of Chu's interest would effect a greater benefit to the estate than it would a detriment to Chu.
Accordingly, pursuant to Code § 363(h), that portion of the Trustee's Motion which seeks the authority to sell the House free and clear of the Defendant's interest is granted.
For the foregoing reasons, with regard to the fifth claim for relief in the second amended complaint, to avoid the Transfers pursuant to Code § 544(b)(1), DCL § 273-a, and Code § 550, the Trustee's Motion is granted; with regard to the ninth claim for relief in the second amended complaint, seeking to avoid the Transfers pursuant to Code § 544(b)(1), DCL § 276, and Code § 550, the Trustee's Motion is granted; with regard to the tenth claim for relief in the second amended complaint, seeking to recover attorneys' fees pursuant to DCL § 276-a, the Trustee's Motion is denied; with regard to the nineteenth claim for relief in the second amended complaint, seeking the authority pursuant to Code § 363(h) to sell the House free and clear of the Defendant's interest, the Trustee's Motion is granted.
A separate order will issue.
§ 550(a)(1).
DCL § 276-a.
