Opinion
10-31-2014
112 WEST 34th STREET COMPANY, L.L.C., Petitioner, v. Ezra A. SHAMAH and Rachel Shamah,, Respondents.
Sternbach, Lawlor & Rella LLP, By Robert A. Sternbach, Esq, for petitioner. Jeffrey H. Roth, Esq., New York, for respondents.
Sternbach, Lawlor & Rella LLP, By Robert A. Sternbach, Esq, for petitioner.
Jeffrey H. Roth, Esq., New York, for respondents.
Opinion
MICHAEL D. STALLMAN, J.
Pursuant to CPLR 5225 and Debtor and Creditor Law § 273–a, petitioner seeks to set aside a transfer made by non-party judgment debtor Franshaw Inc. to respondents. Respondents oppose the petition.
BACKGROUND
By a decision and judgment dated October 3, 2012, and entered on October 3, 2012, petitioner was awarded a money judgment against Franshaw Inc. in the amount of $142,300.32. (Sternbach Affirm., Ex B .) In February 2013, the judgment was partially satisfied and reduced to $50,415.82, plus interest thereon from October 3, 2012, pursuant to a stipulation between petitioner and Franshaw Inc. (Sternbach Affirm., Ex C.) In April 2014, the judgment was again partially satisfied in the amount of $1,179.30 by an execution upon a checking account of Franshaw Inc.
Meanwhile, in October 2013 (one year after judgment was entered against Franshaw Inc.), Franshaw Inc. transferred $95,087 from its bank account to a bank account owned by respondents Ezra Shamah and Rachel Shamah. (Sternbach Affirm., Ex L.) According to petitioner, Ezra Shamah was Franshaw's Vice–President and owned 40% of Franshaw's outstanding capital stock.
DISCUSSION
CPLR 5225(b) states,
“Upon a special proceeding commenced by the judgment creditor, against a person in possession or custody of money or other personal property in which the judgment debtor has an interest, or against a person who is a transferee of money or other personal property from the judgment debtor, where it is shown that the judgment debtor is entitled to the possession of such property or that the judgment creditor's rights to the property are superior to those of the transferee, the court shall require such person to pay the money, or so much of it as is sufficient to satisfy the judgment, to the judgment creditor ...” (emphasis supplied).
“The burden of proof in a turnover proceeding rests with the judgment creditor to establish that contested transfers were without adequate consideration or otherwise fraudulent.” (Petrocelli v. Petrocelli Elec. Co., Inc., ––– AD3d ––––, 2014 N.Y. Slip Op 07303, 2014 WL 5431569 [1st Dept 2014] ; Gelbard v. Esse s, 96 A.D.2d 573, 576 [2d Dept 1983].) Here, petitioner is apparently asserting that respondents were transferees of Franshaw Inc., the judgment debtor, and that the transfer was a fraudulent conveyance under Debtor & Credit Law § 273–a.
“[A] claim to set aside an allegedly fraudulent conveyance of money, assets, or property may be asserted in a special proceeding pursuant to CPLR 5225(b), without first commencing a plenary action pursuant to article 10 of the Debtor and Creditor Law.” (Matter of WBP Cent. Assoc., LLC v. DeCola, 50 AD3d 693, 694 [2d Dept 2008].)
Debtor & Creditor Law § 273–a provides:
“Every conveyance made without fair consideration when the person making it is a defendant in an action for money damages or a judgment in such an action has been docketed against him, is fraudulent as to the plaintiff in that action without regard to the actual intent of the defendant if, after final judgment for the plaintiff, the defendant fails to satisfy the judgment.”
To set aside a transfer under Debtor and Creditor Law § 273–a, petitioner must therefore demonstrate that petitioner has a judgment docketed against Franshaw Inc.; that Franshaw Inc. failed to satisfy the judgment; and that the transfer to Ezra Shamah and Rachel Shamah was made without fair consideration. (Palestine Monetary Auth. v. Strachman, 62 AD3d 213, 225 [1st Dept 2009] ; Matter of Bernasconi v. Aeon, LLC, 105 AD3d 1167, 1168 [3d Dept 2013].)
Here, petitioner has demonstrated that it has a docketed Civil Court judgment against Franshaw Inc. (Sternbach Affirm., Ex B), which remains unsatisfied. Petitioner submits an affidavit from an accountant employed by petitioner's agent, who avers that petitioner has received no other payments toward the satisfaction of the judgment. (De La Rosa Aff. ¶ 2.)
As to the element of fair consideration, Debtor & Creditor Law § 272 states,
“Fair consideration is given for property, or obligation,
a. When in exchange for such property, or obligation, as a fair equivalent therefor, and in good faith, property is conveyed or an antecedent debt is satisfied, or
b. When such property, or obligation is received in good faith to secure a present advance or antecedent debt in amount not disproportionately small as compared with the value of the property, or obligation obtained.”
“Fair consideration' under Debtor and Creditor Law § 272 is not only a matter of whether the amount given for the transferred property was a fair equivalent' or not disproportionately small,' ... but whether the transaction is made in good faith,' an obligation that is imposed on both the transferor and the transferee .” (Sardis v. Frankel, 113 AD3d 135 [1st Dept 2014].)
“[G]ood faith on the part of the transferor under Debtor and Creditor Law §§ 272 and 273–a is immaterial only if it is established that the transferee received the property as a good-faith purchaser for value without knowledge of the fraud at the time of conveyance pursuant to Debtor and Creditor Law § 278. Under case law, the knowledge of the transferee may be immaterial where, as in Sharp [In re Sharp Intl. Corp., 403 F3d 43 (2d Cir2005) ], a transfer of property is made to satisfy a true antecedent debt.”
(Id. )
Here, petitioner submitted a copy of a corporation resolution dated February 16, 2011 from Franshaw Inc., which certified that Ezra A. Shamah is a Vice President of the corporation (Sternbach Affirm., Ex F), and a copy of Form 1120S from Franshaw Inc.'s 2012 tax return, which shows that Ezra A. Shama holds 40% of Franshaw Inc .'s stock. (Sternbach Affirm., Ex G.) Petitioner also submitted a printout of a chain of emails sent to, among others, Barry Solomon at IDB Bank, authorizing a disbursement of $95,087.00 payable to Ezra Shamah, via wire transfer. (Sternbach Affirm., Ex J.)
“[W]here, as here, a corporate insider participates in both sides of the transfer and the insider controls the transferee, the transfer will be deemed to have been made in bad faith if made to a creditor's detriment.” (Matter of Bernasconi, 105 AD3d at 1169 ; Matter of Mega Personal Lines, Inc. v. Halton, 9 AD3d 553 [3d Dept 2004] ; Berner Trucking, Inc. v. Brown, 281 A.D.2d 924 [4th Dept 2001].) Moreover,
“where the creditor asserts that the transferees paid insufficient consideration and the evidentiary facts as to the nature and value of the consideration are within the transferees' control, the burden of coming forward with evidence disclosing the nature and value of [the consideration] furnished by the corporation ... and the fairness of the consideration therefor, should be cast upon the transferees.”
(Gelbard, 96 A.D.2d at 576 ; National Communications Corp. v. Bloch, 259 A.D.2d 427 [1st Dept 1999].)
Given that the nature and value of the consideration, if any, for the $95,087 transfer from Franshaw Inc. to respondents are within the respondents' control, respondents had the burden of demonstrating that the fairness of the consideration, which they failed to do. Respondents do not submit an affidavit or documentary evidence as to the nature of the consideration; respondents submitted only an answer that asserted boilerplate affirmative defenses without any supporting allegations.
Therefore, petitioner has demonstrated that Franshaw Inc.'s transfer to respondents is fraudulent as to petitioner under Debtor & Creditor Law § 273–a.
“[W]here a fraudulent conveyance has been established, each transferee who was not a bona fide purchaser for fair consideration (see Debtor and Creditor Law, § 278, subd 1 ) is liable to the creditor to the extent of the value of the money or property he or she wrongfully received.” (Farm Stores, Inc. v. School Feeding Corp., 102 A.D.2d 249, 255 [2nd Dept 1984] [citations omitted].)
Thus, pursuant to CPLR 5225(b), both respondents Ezra A. Shamah and Rachel Shamah are required to pay petitioner so much of Franshaw Inc.'s transfer as is necessary to satisfy Franshaw Inc.'s outstanding judgment, up to the amount of the transfer that they received from Franshaw Inc., i.e., $95,087.
The Court notes that there appears to be a minor miscalculation in the amount of the unsatisfied judgment. In February 2013, the amount of Franshaw Inc.'s unsatisfied judgment was $50,415.82, and, pursuant to the stipulation between petitioner and Franshaw Inc., interest at the statutory rate accrued on that amount as of October 3, 2012. (Sternbach Affirm., Ex C.) In April 2014, the judgment was partially satisfied by execution on a bank account of Franshaw Inc. in the amount of $1,179.30.
Petitioner asserts that, as of April 15, 2014, the total amount of the unsatisfied judgment, plus accrued interest from October 3, 2012 to April 15, 2014, was $57,364.80. (See Sternbach Affirm., Ex E.) Petitioner applied the $1,179.30 recovered to the total amount of $57,364.80, leaving an unsatisfied judgment in the amount of $56,185.50.
On this petition, petitioner calculated post-judgment interest through June 6, 2014 on the entire balance of $56.185.50. (See Sternbach Affirm., Ex E.) This was error. “[I]nterest is to be calculated using a simple annual interest rate.” (Till v. Paul Frederick Fox & Affiliates, 261 A.D.2d 853, 854 [4th Dept 1999].) By applying the interest rate on the entire balance, which included accrued interest, petitioner applied interest upon interest, i.e., calculated interest at a compound rate. The correct amount of the outstanding, unsatisfied judgment is $50,415.82, plus interest at 9% from the date of October 3, 2012, less $1,179.30 in partial satisfaction of the judgment. That is the amount that respondents must pay to petitioner.
Petitioner is awarded costs of the proceeding against respondents, because they denied that Franshaw Inc.'s transfer to respondents was fraudulent, and therefore disputed petitioner's interest in the transfer. (CPLR 5225[b].)
CONCLUSION
The turnover petitioner is granted, and petitioner is awarded costs of the proceeding. Respondents Ezra A. Shamah and Rachel Shamah are both required to pay petitioner the amount required to satisfy Franshaw Inc.'s outstanding judgment, which is not to exceed $95,087.
Settle turnover order and judgment.