MARTIN GLENN UNITED STATES BANKRUPTCY JUDGE.
The Chapter 7 Trustee, Robert L. Geltzer (the "Trustee"), seeks to recover as constructive fraudulent transfers amounts paid by the Chapter 7 co-debtors, Luba Pincus and Bruce Sterman (the "Debtors"), to or for the benefit of their two daughters, defendants Alexandra Sterman and Samantha Sterman (the "Defendants"), allegedly for college tuition, books and supplies, and room and board while they were students at Oberlin College. The Trustee and the Defendants filed cross-motions
The parties also entered a stipulation of undisputed facts (the "Stipulated Facts," ECF Doc. # 21). The Stipulated Facts indicate that some of the transfers to or for the benefit of Samantha were made while she was a college student before she was 21 years old and some were made while she was a college student after she was 21 years old. The Stipulated Facts indicate that the transfers to or for the benefit of Alexandra were made after she was 21 years old and had already graduated from college. According to the Stipulated Facts, since Alexandra graduated college in 2009, she has been "financially independent." (Stipulated Facts ¶ 15.)
The parties limit their cross motions to a request that the Court rule whether the Debtors received "reasonably equivalent value" for the transfers for college tuition and expenses; if the Debtors received reasonably equivalent value, the transfers would not be avoidable as constructive fraudulent transfers even if the Debtors were insolvent at the time of the transfers. There are two questions presented: first, did the Debtors receive reasonably equivalent value for their daughters' college educations and related expenses because their daughters' education will enhance their self-sufficiency; and second, does it matter whether the daughters were younger or older than 21 when the transfers were made?
For the reasons explained below, the Court grants the Trustee's Motion in part and denies it in part with respect to the transfers to or for the benefit of Samantha. The Trustee's Motion is granted with respect to the transfers to or for the benefit of Alexandra, as she was older than 21 and no longer a student when the transfers were made.
The Debtors, Luba Pincus and Bruce Sterman, filed a joint chapter 7 petition on February 19, 2016 (the "Petition Date"). (The Stipulated Facts ¶ 2.) The Trustee filed an adversary proceeding to recover allegedly constructively fraudulent transfers made by the Debtors to or for the benefit of their daughters. (Id. ¶ 11-12.)
Alexandra attended Oberlin College from 2005-2009; Samantha attended Oberlin College from 2009-2013. (Id. ¶ 15-19.) In the six years prior to the Petition Date, the Debtors made several transfers to or for the benefit of their daughters. The parties stipulate that the transfers were made in connection with the Defendants' "college educations at Oberlin College and related expenses, including school books and supplies, meals, campus housing/rent/utilities, transportation and birthday presents." (Id. ¶ 12.)
The Stipulated Facts state that Alexandra Sterman reached age 21 on January 12, 2008 and graduated from Oberlin College in 2009. (Stipulated Facts ¶¶ 13 & 14.) Exhibit A to the Complaint (ECF Doc.
Alexandra, totaling $15,675.00, were made between August 13, 2010 and October 13, 2015. Paragraph 12 of the Stipulated Facts states that "[t]he schedules of transfers that are attached to the Complaint as Exhibits A and B accurately describe the transfers to and/or for the benefit of the Defendants that are the subject of the Complaint." Those two exhibits list transfers between 2010-2015. Both the Stipulated Facts and the Pincus Affidavit state that Alexandra attended college between 2005 and 2009, and graduated in 2009, so it is clear under the Stipulated Facts that the transfers to or for the benefit of Alexandra all were made after she was 21 years old and after she graduated from Oberlin. The Pincus Affidavit also makes clear that "[s]ince graduation [Alexandra] has been fully employed, self sufficient and tax paying adult." (Pincus Affidavit ¶ 9.)
The Trustee claims that the transfers are constructively fraudulent. The Trustee seeks to recover $15,675.00 from Alexandra for transfers "while she was of majority age." (Stipulated Facts ¶ 16.) The Trustee seeks to recover $9,952.00 from Samantha; $2,276.00 of those transfers were made "in respect of college tuition and living expenses ... while she was a minor, and $7,676.00 were made while she was of majority age."
For purposes of the summary judgment motions, "the parties have agreed not to put solvency at issue." (Trustee's Motion ¶ 12, ECF Doc. # 11.) Therefore, the sole question is whether the Debtors received reasonably equivalent value for the transfers to or for the benefit of their daughters.
Rule 56(a) of the Federal Rules of Civil Procedure, made applicable by Bankruptcy Rule 7056, states that "[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). To successfully assert that a fact is not in dispute or cannot be disputed, a movant must:
FED. R. CIV. P. § 56(c)(1).
"The party seeking summary judgment bears the burden of establishing that no genuine issue of material fact exists and that the undisputed facts establish [the movant's] right to judgment as a matter of law." In re Soliman, 515 B.R. 179, 185 (Bankr. S.D.N.Y. 2014), (citing Rodriguez v. City of New York, 72 F.3d 1051, 1060-61 (2d Cir. 1995)).
The Trustee claims that the transfers were constructively fraudulent pursuant to Bankruptcy Code § 544. Section 544 provides that the trustee may avoid a transfer of a debtor's property interest that is voidable under state law by a creditor holding an allowed unsecured claim. See 11 U.S.C. § 544(b)(1); see also Banner v. Lindsay (In re Lindsay), Adv. 2010 WL 1780065, at *5 (Bankr. S.D.N.Y. 2010). The Trustee alleges that the transfers in question were fraudulent under the New York Debtor and Creditor Law ("NYDCL"). Under the NYDCL, a conveyance is fraudulent if it is incurred without "fair consideration." NYDCL §§ 273 and 275. "Fair consideration" is defined by the NYDCL as follows:
NYDCL § 272.
Ordinarily, the plaintiff bears the burden of proving a lack of fair consideration but where, as here, "the facts regarding the nature of the consideration are within the transferee's control, the burden of proving the fairness of consideration shifts to the transferee." Ackerman v. Ventimiglia (In re Ventimiglia), 362 B.R. 71 (Bankr. E.D.N.Y. 2007).
The Trustee also argues that the conveyances were constructively fraudulent under Bankruptcy Code § 548. Under that provision, a trustee may avoid a transfer made by the debtor within two years of the filing of the petition if the debtor did not receive "reasonably equivalent value" in the exchange. 11 U.S.C. § 548(a)(1)(b). The Bankruptcy Code defines the term "value" as "property, or satisfaction or securing of a present or antecedent debt of the debtor, but does not include an unperformed promise to furnish support to the debtor or to a relative of the debtor." 11 U.S.C.A. § 548(d)(2)(A). The Bankruptcy Code does not define the term "reasonably equivalent value." In re Gonzalez, 342 B.R. 165, 169 (Bankr. S.D.N.Y. 2006). Courts have found that the term does not require the exchange to be "mathematically equal" but "[p]urely emotional benefits, such as love and affection" will not suffice. Id. at 169, 173. Both direct and indirect benefits flowing to the debtor may be considered. In re Akanmu, 502 B.R. 124, 130-31 (Bankr. E.D.N.Y. 2013) (quoting Liquidation Trust v. Daimler AG (In re Old CarCo LLC), No. 11 Civ. 5039(DLC), 2011 WL 5865193, at *7 (S.D.N.Y. Nov. 22, 2011)). "Fair consideration" under the NYDCL and "reasonably equivalent value" under section 548(a)(1)(B)(i) have substantially the same meaning. Id. (citing Picard v. Madoff (In re Bernard L. Madoff Inv.
The conveyances in this case must be broken down into three categories: (A) transfers made for education-related expenses to or for the benefit of both daughters after they reached the age of majority so that they could attend Oberlin College,
There is a developing body of law regarding whether college tuition payments made by parents for the education of their children after they reach the age of majority are constructively fraudulent. The Trustee points to several decisions where courts held that pre-petition college tuition payments are avoidable because the debtor parents did not receive reasonably equivalent value in exchange for the tuition payments. See Boscarino v. Bd. of Trs. of Conn. State Univ. Sys. (In re Knight), 2017 WL 4410455 (Bankr. D. Conn. 2017); Roach v. Skidmore Coll. (Matter of Dunston), 566 B.R. 624, 636-37 (Bankr. S.D. Ga. 2017); Gold v. Marquette Univ. (In re Leonard), 454 B.R. 444 (Bankr. E.D. Mich. 2011); Lindsay, 2010 WL 1780065. The Defendants counter by pointing to case law holding that parents did receive reasonably equivalent value in exchange for college tuition payments. See Lewis v. Penn. St. Univ. (In re Lewis), 574 B.R. 536, 541 (Bankr. E.D. Pa. 2017); DeGiacomo v. Sacred Heart Univ., Inc. (In re Palladino), 556 B.R. 10, 16 (Bankr. D. Mass. 2016); Trizechahn Gateway, LLC v. Oberdick (In re Oberdick), 490 B.R. 687, 712 (Bankr. W. D. Pa. 2013); Sikirica v. Cohen (In re Cohen), 2012 WL 5360956, at *10 (Bankr. W. D. Pa. 2012).
Alexandra and Samantha argue that their parents received reasonably equivalent value because the transfers made after they were adults increased the likelihood that they would be self-sufficient. (Pincus Affidavit ¶ 23.) The Massachusetts bankruptcy court reached that conclusion in In re Palladino, 556 B.R. at 16. In that case, the debtors made pre-petition tuition payments so that their daughter could attend college. Id. at 12. The Trustee attempted to set aside the tuition payments on a theory of constructive fraud. Id. at 13. The court ruled against the trustee because it found that the parents received an economic benefit from the tuition payments. The court stated:
Id. at 16.
The court's conclusion is supported by studies on the value of a college education to a family. See Brief Amici Curiae of American Council on Education, and 19 Other Education Associations in Support of Sacred Heart University, Inc. and Affirmance, at 4-7, Degiacomo v. Sacred Heart University, No. 17-1334 (1st Cir. Jul. 27, 2017) (citing studies showing that a college degree improves an individual's chances of gaining employment, increases their average income, and decreases the chances that they will live with their parents).
The Court does not question whether the Debtors' decision to send money to or for the benefit of their adult daughters for their college education was economically prudent. But, unfortunately, the economic "benefit" identified by the Defendants does not constitute "value" under the NYDCL or the Bankruptcy Code.
The Defendants here also argue that the Debtors received "psychic and other intangible benefits" from the conveyances. (Defendants' Opposition Brief, at 12.) The Defendants explain:
(Id. at 11.) The Defendants support this argument by citing to In re Gonzalez, 342 B.R. 165. In that case, the debtor had a son out of wedlock with a woman named Karen. Id. at 167. Although he had no legal obligation to do so, the debtor made regular monthly payments on a mortgage for the home where his son and Karen lived. Id. The debtor claimed "that he made the payments to support his son ... and because Karen was unable to keep current on the note and could not otherwise provide a proper home for [their son]." Id. The debtor spent "all of his weekends" at the home with Karen and his son. Id. at 167. The trustee argued that the mortgage payments made by the debtor were avoidable because they were constructively fraudulent. Id. at 168. The court ruled against the trustee. The Defendants correctly point out that the Gonzalez court's ruling was based in part because the debtor
Accordingly, the Trustee's summary judgment motion with respect to the transfers made after Alexandra and Samantha reached the age of 21 is granted.
The Stipulated Facts indicate that $2,276.00 of the transfers to or for the benefit of Samantha were made while she was a minor. (Stipulated Facts ¶ 18.) The Stipulated Facts also state that the transfers were made for her "college education[] at Oberlin College and related expenses, including school books and supplies, meals, campus housing/rent/utilities, transportation and birthday presents." (Id. ¶ 12.) While the case law does not require that parents pay for college tuition for a minor child at a private college to satisfy the parents' obligation to provide a minor child with education, the issue rather is whether the parents receive reasonably equivalent value when they do pay for such an education. On this issue, the Court agrees with Chief Judge Craig, writing in In re Akkanmu:
In re Akanmu, 502 B.R. at 132-33; Graves v. Graves, 177 Misc.2d 358, 675 N.Y.S.2d 843, 846-47 (Sup. Ct. 1998) (requiring father to pay for child's college education).
Therefore, barring facts showing egregious conduct by debtors (which has not been shown here with respect to these Debtors),
The Court has already concluded in Section A above that the Debtors did not receive reasonably equivalent value in return for the transfers made to or for the benefit of Alexandra and Samantha after they were 21. The Stipulated Facts show that all the transfers to or for the benefit of Alexandra were after she graduated college, after she reached the age of 21, and after she was financially independent. Even if any argument could support paying college tuition and related expenses for an adult child while still in school, if the student started college while still a minor, no argument has been made that would immunize from avoidance transfers made after graduation once the adult child has become financially independent.
For the reasons explained above, the Court concludes that transfers to or for the benefit of Alexandra and Samantha after they reached the age of 21 for college tuition and related expenses are avoidable as constructive fraudulent transfers if the Debtors were insolvent at the times the transfers were made. On the other hand, on the record before the Court, transfers to or for the benefit of Samantha while she was a minor for college tuition and related expenses were supported by reasonably equivalent value and, therefore, are not avoidable.
