Opinion
20-CV-01945 (PAE)(SN)
12-16-2022
RAFIC SAADEH, Plaintiff, v. MICHAEL KAGAN, et al., Defendants.
REPORT AND RECOMMENDATION
SARAH NETBURN, UNITED STATES MAGISTRATE JUDGE.
TO THE HONORABLE PAUL A. ENGELMAYER:
Plaintiff Rafic Saadeh loaned his friend Irving Kagan $130,000, in what appears to be an attempt to help Irving's son Michael Kagan. Irving never repaid the loan and died in debt to his friend. Saadeh sued the Estate of Irving Kagan, and the Court has already entered a default judgment against the Estate. Saadeh also sued Michael for breach of contract and promissory estoppel and sued Irving's other son Joshua Kagan (along with Michael) under New York's fraudulent conveyance statutes. Saadeh moves for partial summary judgment against Michael on the breach of contract and promissory estoppel claims, and Michael cross moves for summary judgment on all claims. Joshua also moves for summary judgment on all claims against him. I recommend the Court GRANT Saadeh judgment in his favor on the promissory estoppel claim against Michael, and otherwise DENY the balance of the motions.
BACKGROUND
I. Factual Background
A. The Initial Loan Agreement
It is undisputed that on June 29, 2017, Irving entered into a loan agreement with Rafic Saadeh. See ECF No. 184, Plaintiff's Rule 56.1 Statement (“Pl. 56.1 Stmt.”), ¶ 2-3. The Loan
The Court respectfully uses the Kagan family members' first names to avoid confusion.
Agreement stated:
In consideration of the payment to and receipt by the undersigned, IRVING KAGAN, a U.S. citizen . . . (the “Borrower”), of the sum of ONE HUNDRED THIRTY THOUSAND U.S. Dollars (U.S.$130,000.00) (the “Loan”), from RAFIC SAADEH . . . (the “Lender”), the Borrower hereby agrees and promises to repay the Loan to Lender no later than the end of the sixth (6th) month from and after the date of the receipt of the Loan, together with interest at the rate of six percent (6%) per annum as of such repayment date.
ECF No. 183, Declaration of Rafic Saadeh (“Saadeh Decl.”), Ex. A (the “Loan Agreement”). Irving Kagan signed the agreement.
Pursuant to the Loan Agreement, Saadeh wired $130,000 to Irving on July 3, 2017, and repayment of the loan was due on January 31, 2018. Saadeh Decl., ¶ 4-6. None of the parties disputes that Irving failed to repay the loan-on that date, or ever. Pl. 56.1 Stmt., ¶ 5.
B. Agreement to Extend the Loan
On December 20, 2017, Michael emailed Saadeh, requesting an extra 90 days for repayment of the loan, so that the due date would be April 30, 2018. Saadeh Decl., Ex. D (December 2017 emails). In part, Michael wrote:
While I have been able to resolve some of the issues related to the fraud perpetrated by my former business associate (with ongoing assistance from my father), I have, unfortunately, not yet been able to generate sufficient cashflow to satisfy the repayment of your loan-which is truly my obligation, not my father's (although knowing my father as well as you do, he feels responsible, in the end, for repayment).
Would you be willing to extend repayment another 90 days or so to April 30, 2018? The additional time should allow me to generate the funds necessary to repay you.Id. Irving reiterated Michael's request for an extension, stating in a subsequent e-mail, “I'm in agreement and grateful if the loan can be extended to April 2018 to enable Michael to handle it.” Saadeh Decl., Ex. B (Am. Compl. with Exhibits). Saadeh agreed to extend the loan and indicated that he would make certain modifications while the loan was outstanding. Id. (“I will tell [the CFO of my company] to delay the closure of RSS Limited until end April to enable me keep [sic] its capital for the loan.”)
When payment was not made several weeks after April 30, 2018, Saadeh emailed Michael. Michael did not immediately respond, and so Saadeh emailed Irving. Saadeh Decl., Ex. B (May 2018 emails) (“I thought I should let you know” that Michael has not repaid the loan). Irving responded that Michael would be in touch and that “the matter will be taken care of in any event.” Id. On May 31, 2018, Michael wrote to Saadeh stating, “I think it will be another 45 days before I will have the cashflow to return your generous loan.” Saadeh reiterated that the loan repayment “is necessary for us to close down a company we have in Lebanon: RSS Limited,” but agreed to a final extension to “latest end June, 2018.” Id.
On July 2, 2018, Michael sent another email to Saadeh, with the subject line, “Settling our debt,” in which he wrote: “I am in negotiations to finalize the sums needed to repay the debt to you. I expect it to take a few more days between finalizing the terms and getting the money in hand.” Saadeh Decl., Ex. B (July 2018-February 2020 emails). Irving replied to this email thanking Saadeh for “the help” he had “given Michael.” Id. But when payment was not received by early August, Saadeh sheepishly wrote his friend Irving to report that, “I have not heard from Michael yet although in his last communication the payment was eminent.” Id. Thereafter,
Michael wrote to Saadeh stating, “I expect to repay the debt shortly. I truly appreciate your patience and the most generous support you have provided.” Id.
Communications between and among Saadeh, Irving, and Michael continued sporadically through the fall of 2018. On October 7, 2018, Michael emailed that he was working on projects “which will allow me to repay you.” Id. Saadeh responded that he hoped to receive the repayment funds “before end of this year as we truly need them.” Id. Michael “understood” the situation and believed he would soon “have a better sense of the amount and timing of the cash flows that I will be using to repay the debt.” Id. Separately, Saadeh wrote Irving on November 8, 2018, to reiterate his concern regarding the delay in repayment noting that he had “used the capital of a company we have in Lebanon that we need to close down as otherwise we will be incurring additional taxes and closure fees.” Id.
Nine months later, in August 2019, Saadeh wrote again to Irving pleading with him to “kindly ensure that Michael settles before end this year. I don't want to carry it forward any longer and incur more expenses for the closing down of the company RSS Limited. I need it latest by early December of this year.” Id. Michael then emailed, stating that his father had forwarded Saadeh's email, and wrote that “[w]ith respect to the outstanding loan, I am still working on that large project with the Dominican Republic. I am making arrangements to begin repayment and expect to have it all repaid before the end of the year.” Id.
Finally, in January 2020, Saadeh emailed Michael reiterating:
the dire need to get the loan settled the soonest considering it is two years over due....My need of getting the loan paid back yesterday rather than tomorrow is to help me in my living expenses. As I extended a helping hand when you needed the money the most I am now in a worse situation. Michael, please act fast.Id. On January 13, 2020, Michael responded that his father had just died. Id. He said his father made him promise to “make you whole” and that he would. Id. Saadeh extended his condolences, but also raised the issue of the outstanding loan: “trust me the situation is dire and we have ran [sic] out of available cash due to the strict capital control imposed on us in Lebanon. I kindly ask you Michael to please act in haste.” Id.
C. Cash Transfers Between the Kagans
It is undisputed that days after Saadeh wired Irving $130,000, Irving paid Joshua $35,000. ECF No. 210, Joshua's Rule 56.1 Statement (“Joshua 56.1 Stmt.”), ¶ 12. It is also undisputed that, after receiving the loan, Irving transferred at least $33,650 to Michael in approximately 38 individual payments. ECF No. 214, Michael's Rule 56.1 Statement (“Michael 56.1 Stmt.”), ¶ 47.
Otherwise, the parties dispute the amounts and intentions of additional payments from Irving to his sons. Joshua argues that by 2016, Joshua had loaned Irving $155,000. Joshua 56.1 Stmt., ¶ 9. In support of this position, Joshua offers a December 14, 2019 email he sent to a lawyer, who was helping resolve Irving's debts after he became ill, that identified certain debts of Irving's including a debt of $150,000 to Joshua and his wife. See ECF No. 208, Declaration of John Maggio (“Maggio Decl.”), Ex. 9 at 3. Joshua contends that he loaned his father $120,000 to settle a lawsuit in which Irving was a named defendant and $35,000 so his father could pay personal expenses and a grandchild's tuition payments. Joshua 56.1 Stmt., ¶ 9. Joshua contends that as of July 2017, when Saadeh's loan was made, Irving still owed Joshua $130,000. Joshua 56.1 Stmt., ¶ 10. Michael, for his part, contends that he received only $33,650 from Irving. Michael 56.1 Stmt. ¶ 47.
Saadeh disputes these allegations. He argues that there is no non-self-serving evidence of Joshua's loans, including no documents purporting to show any transfer of funds, and that Irving made substantial payments to or in the interest of Joshua and Michael, without consideration, following Saadeh's loan. ECF No. 221, Saadeh Resp. to Joshua 56.1 Stmt., ¶ 10. These payments included, among other things, tuition bills, credit card payments, and utility bills. Saadeh Resp. to Joshua 56.1 Stmt., ¶ 14.
The parties also dispute whether Irving was rendered unable to satisfy his debt to Saadeh because of the payments to or in the interest of Joshua and Michael. For example, Joshua asserts that from the time of the loan until his death, Irving earned approximately $325,000, not including Social Security benefits. Joshua 56.1 Stmt., ¶ 15. Saadeh disputes these facts and points to Joshua's deposition testimony that he was helping his father cover day-to-day expenses by borrowing money from family and friends. Saadeh Resp. to Joshua 56.1 Stmt., ¶ 15.
II. Procedural Background
Three motions for summary judgment are pending before the Court. See ECF Nos. 182, 207, & 211. Saadeh moves for partial summary judgment against Michael for liability of his breach of contract and promissory estoppel claims. ECF No. 182. Michael cross moves for summary judgment as to these claims and on the fraudulent conveyance claims. ECF No. 211. Joshua moves for summary judgment against Saadeh as to those fraudulent conveyance claims that survived the prior motion to dismiss. ECF No. 207.
DISCUSSION
I. Summary Judgment Standard
Under Federal Rule of Civil Procedure 56, the 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). A dispute is genuine “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The moving party bears the initial burden of establishing that no genuine issue of material fact exists. Id. at 256-57; see Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). “In moving for summary judgment against a party who will bear the ultimate burden of proof at trial, the movant's burden will be satisfied if he can point to an absence of evidence to support an essential element of the nonmoving party's claim.” Goenaga v. March of Dimes Birth Defects Found., 51 F.3d 14, 18 (2d Cir. 1995) (citing Celotex, 477 U.S. at 322-23).
Then, “the nonmoving party must come forward with admissible evidence sufficient to raise a genuine issue of fact for trial in order to avoid summary judgment.” Simsbury-Avon Pres. Club, Inc. v. Metacon Gun Club, Inc., 575 F.3d 199, 204 (2d Cir. 2009). The non-moving party must cite to “particular parts of materials in the record” or demonstrate “that the materials cited [by the movant] do not establish the absence . . . of a genuine dispute” as to a material fact. Fed.R.Civ.P. 56(c)(1); see also Wright v. Goord, 554 F.3d 255, 266 (2d Cir. 2009) (“When a motion for summary judgment is properly supported by documents or other evidentiary materials, the party opposing summary judgment may not merely rest on the allegations or denials of his pleading . . . .”). The non-moving party must produce more than a “scintilla of evidence,” Anderson, 477 U.S. at 252, and “may not rely simply on conclusory statements or on contentions that the affidavits supporting the motion are not credible . . . .” Ying Jing Gan v. City of New York, 996 F.2d 522, 532 (2d Cir. 1993); Flores v. United States, 885 F.3d 119, 122 (2d Cir. 2018) (“[C]onclusory statements, conjecture, or speculation by the party resisting the motion will not defeat summary judgment.” (quoting Kulak v. City of New York, 88 F.3d 63, 71 (2d Cir. 1996))).
In ruling on a motion for summary judgment, the Court must “resolve all ambiguities and draw all permissible factual inferences in favor of the party against whom summary judgment is sought.” Sec. Ins. Co. of Hartford v. Old Dominion Freight Line, Inc., 391 F.3d 77, 83 (2d Cir. 2004). When both sides have moved for summary judgment, the district court is “required to assess each motion on its own merits and to view the evidence in the light most favorable to the party opposing the motion, drawing all reasonable inferences in favor of that party.” Wachovia Bank, Nat'l Ass'n v. VCG Special Opportunities Master Fund, Ltd., 661 F.3d 164, 171 (2d Cir. 2011).
II. Breach of Contract
Saadeh and Michael both move for summary judgment on Saadeh's breach of contract claim. The writing at issue is Michael's December 20, 2017 email to Saadeh, in which Michael writes:
I have, unfortunately, not yet been able to generate sufficient cashflow to satisfy the repayment of your loan-which is truly my obligation, not my father's (although knowing my father as well as you do, he feels responsible, in the end, for repayment). Would you be willing to extend repayment another 90 days or so to April 30, 2018? The additional time should allow me to generate the necessary funds to repay you.
Saadeh Decl., Ex. D. The parties dispute whether this writing constitutes an enforceable contract.
In a breach-of-contract action, summary judgment is appropriate where the language of the contract is “wholly unambiguous.” Mellon Bank, N.A. v. United Bank Corp. of N.Y., 31 F.3d 113, 115 (2d Cir. 1994) (internal quotation marks omitted); accord Photopaint Techs., LLC v. Smartlens Corp., 335 F.3d 152, 160 (2d Cir. 2003) (“Under New York law . . . judgment as a matter of law is appropriate if the contract language is unambiguous.”). Contract language is unambiguous when it has “‘a definite and precise meaning, unattended by danger of misconception in the purport of the [contract] itself, and concerning which there is no reasonable basis for a difference of opinion.'” Hunt Ltd. v. Lifschultz Fast Freight, Inc., 889 F.2d 1274, 1277 (2d Cir. 1989) (quoting Breed v. Insurance Co. of North America, 46 N.Y.2d 351, 355 (1978)). Ambiguous language is language that is “capable of more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business.” Seiden Associates v. ANC Holdings, Inc., 959 F.2d 425, 428 (2d Cir. 1992) (internal quotation marks omitted).
“Summary judgment normally is inappropriate when a contractual term is ambiguous because ‘a triable issue of fact exists as to its interpretation.'” Burger King Corp. v. Horn & Hardart Co., 893 F.2d 525, 528 (2d Cir. 1990) (quoting Leberman v. John Blair & Co., 880 F.2d 1555, 1559 (2d Cir. 1989)). The Court may, however, “examine extrinsic evidence of the parties' intent in order to determine whether there is a genuine issue of material fact as to their understandings of the [contract's] meaning.” Indep. Energy Corp. v. Trigen Energy Corp., 944 F.Supp. 1184, 1193 (S.D.N.Y. 1996). If, after examining the evidence, “a rational fact-finder could only find for the movant,” summary judgment may still be appropriate. Id. (emphasis supplied). But when there is ambiguity and resolving “the ambiguity hinges on such extrinsic matters as the credibility of witnesses or documents or upon choosing one among several reasonable inferences that may be drawn from such extrinsic evidence, a jury, and not a court, should decide what meaning is to be ascribed to the contract.” Brass v. Am. Film Techs., Inc., 987 F.2d 142, 148 (2d Cir. 1993)). See also Sarinsky's Garage Inc. v. Erie Ins. Co., 691 F.Supp.2d 483, 485-86 (S.D.N.Y. 2010) (the “interpretation of an ambiguous contract is generally a question of fact,” and summary judgment is appropriate only “where the court is able to resolve the ambiguity through a legal, rather than factual, construction of the contract terms”).
Saadeh contends that the December 2017 email constitutes a promise to take on the debt of another under New York General Obligation Law § 5-701(a)(2) and satisfies the statute of frauds for such promise to be enforceable. See N.Y. Gen. Oblig. Law § 5-701(b)(3). Michael argues that summary judgment should be granted in his favor because the email does not create a contract between himself and Saadeh.
Under New York law, “a promise to answer for the debt of another is enforceable against the promisor as long as it is sufficiently definite, supported by consideration, and, if applicable, is in writing that satisfies the statute of frauds.” CUnet, LLC v. Quad Partners, LLC, No. 16-cv-6327 (CM), 2017 WL 945937, at *3 (S.D.N.Y. Mar. 7, 2017) (citing Gruberg v. McCarthy, 289 A.D.2d 915, 916-17 (3rd Dep't 2001), Littman v. Brittain, 165 N.Y.S. 433, 435 (1st Dep't 1917), and 4-15 Corbin on Contracts § 15.6 (2016)).
First, the December 2017 email satisfies the statute of frauds. See Naldi v. Grunberg, 80 A.D.3d 1, 6-13 (1st Dep't. 2010) (extensive discussion establishing that an email constitutes a writing for purposes of the statute of frauds). Michael has not disclaimed his authorship of the email or raised any question of fact about its authenticity.
But satisfaction of the statute of frauds only gets Saadeh partially there. To be enforceable, Michael's promise to take on the debt must be clear and unambiguous. Saadeh argues that Michael unambiguously promised to pay the loan debt in this email: Michael was gathering money “to satisfy the repayment of your loan-which is truly my obligation” and requesting additional time to “allow me to generate the necessary funds to repay you.” Saadeh Decl., Ex. D. Michael, by contrast, argues that he did not “offer” to assume Irving's debt, and, in any event, there was no consideration for this new agreement. ECF No. 212, Michael's Memorandum in Support of Summary Judgment (“Michael's Mem. Supp. Summ. J.”), at 9.
Under New York law, forbearance of any length can constitute valid consideration. See Sun Forest Corp. v. Shvili, 152 F.Supp.2d 367, 392 (S.D.N.Y. 2001); Rogowsky v. McGarry, 55 A.D.3d 815, 816 (2nd Dep't 2008) (“forbearance from the assertion of a legal right has long been held to constitute valid consideration”). Moreover, it is a “settled principle of New York contract law that courts will rarely if ever investigate the adequacy of the consideration exchanged.” MM Ariz. Holdings LLC v. Bonanno, 658 F.Supp.2d 589, 593 (S.D.N.Y. 2009); see Ferguson v. Lion Holdings, Inc., 312 F.Supp.2d 484, 495 (S.D.N.Y. 2004) (“The adequacy of the consideration, or the value of the forbearance, is not a proper subject for the court's review.” (citation omitted)). Finally, forbearance “can constitute consideration, even where the forbearing party is not contractually obligated to refrain from exercising its rights.” Granite Partners, L.P. v. Bear, Stearns & Co. Inc., 58 F.Supp.2d 228, 254 (S.D.N.Y. 1999) (collecting cases)). Because there is no dispute that Saadeh agreed to extend the loan in response to Michael's December 2017 email, adequate consideration is established as a matter of law.
But neither Saadeh nor Michael are entitled to summary judgment on the breach of contract claim because there is an open question of fact whether Michael unambiguously agreed to take on his father's debt in this email, and that ambiguity cannot be resolved through a purely legal construction. Although Michael describes the loan as “truly my obligation, not my father's,” he quickly states that his father “feels responsible, in the end, for repayment.” Under these facts, a reasonable jury could conclude that Michael was promising to take on his father's debt; but it could also conclude that Michael was merely assisting his father, who would pay the debt “in the end.” As discussed further below, the parties' course of conduct establishes a promise by Michael to repay the debt that Saadeh reasonably relied upon. But promissory estoppel is an equitable claim. As a matter of law, the Court should not conclude that no reasonable fact-finder could interpret the December 2017 email in either parties' favor.
Accordingly, I recommend that the Court deny both Saadeh's and Michael's motions for summary judgment on the breach of contract claim.
III. Promissory Estoppel
Promissory estoppel is “[t]he principle that a promise made without consideration may nonetheless be enforced to prevent injustice if the promisor should have reasonably expected the promisee to rely on the promise and if the promisee did actually rely on the promise to his or her detriment.” Estoppel, Black's Law Dictionary (11th ed. 2019). “Under New York law, promissory estoppel requires (1) a clear and unambiguous promise; (2) a reasonable and foreseeable reliance by the party to whom the promise is made; and (3) an injury sustained by the party asserting the estoppel by reason of his reliance.” ED Cap., LLC v. Bloomfield Inv. Res. Corp., 757 Fed.Appx. 26, 30 (2d Cir. 2018) (internal quotation marks omitted); NRP Holdings LLC v. City of Buffalo, 916 F.3d 177, 202 (2d Cir. 2019) (“To establish a claim of promissory estoppel, a plaintiff ‘must demonstrate that the [defendant] made a clear and unambiguous promise, upon which the [plaintiff] reasonably relied, to its detriment.'” (quoting Wilson v. Dantas, 58 N.Y.S.3d 286 (2017))); Kaye v. Grossman, 202 F.3d 611, 615 (2d Cir. 2000) (same). “Where the existence of a contract remains in dispute, a plaintiff may maintain quasi-contractual causes of action in the alternative to his or her contractual claim(s).” Jordan Miller & Assoc., Inc. v. E.S.I. Cases & Accessories, Inc., No. 20-cv-5165 (LTS), 2022 WL 4619147, at *5 (S.D.N.Y. Sept. 30, 2022).
Accepting that the December 2017 email alone does not constitute an unambiguous promise as a matter of law, Michael's subsequent emails to Saadeh constitute clear and unequivocal promises to repay the loan. See generally Saadeh Decl., Exs. B & D. Michael repeatedly promises that he will “repay” the loan or “[s]ettl[e] our debt,” writing things like, in “45 days I will . . . return your generous loan,” I “expect to repay the debt shortly,” and I am “making arrangements to begin repayment and expect to have it all repaid before the end of the year.” Id. Following Irving's death, Michael affirms “I will” make “you whole.” The Court should find that these undisputed promises to “repay” the debt induced Saadeh's forbearance and, therefore, are binding to avoid an injustice. See Restatement (Second) of Contracts § 90 (1981) (“A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise.”).
Saadeh reasonably relied on Michael's promises. The debt was originally due April 30, 2018. Based on Michael's repeated requests for forbearance, Saadeh did not foreclose on defendants' properties (which have now either dissipated or lost value) and waited until 2020 to sue. Saadeh's reliance on Michael's statements was reasonable, especially in light of Irving's assurances that Michael would repay the loan. In May 2018, Irving emailed Saadeh that Michael would be in touch and that “the matter will be taken care of.” Saadeh Decl., Ex. B. In July 2018, Irving thanked Saadeh for extending the loan repayment date and for helping Michael. Id. Considering Saadeh's long friendship with Irving, it was reasonable for him to rely on Michael's promises that he would be repaying the loan, which Michael had previously acknowledged was “truly my obligation.” Saadeh Decl., Ex. D.
Finally, Saadeh has established that his reliance caused him economic injuries. It is undisputed that no portion of the $130,000 loan has been repaid and that interest continues to accrue. Pl. 56.1 Stmt., ¶ 5. Additionally, as Saadeh explained to Michael, the failure to repay his loan caused him significant financial distress in connection with an unrelated business in Lebanon (for which Saadeh does not seek recovery). Saadeh Decl., Ex. B. Michael, however, argues that Saadeh must establish a heightened “unconscionable injury,” that is, an injury beyond that which naturally flows from non-performance. See Merex A.G. v. Fairchild Weston Sys., Inc., 29 F.3d 821, 826 (2d Cir. 1994). Establishing an “unconscionable injury,” however, is required only in the context of an oral agreement, where one party seeks to circumvent the Statute of Frauds. Id. Because all of Michael's promises and Saadeh's acceptances were in email communications, the writing requirement is satisfied, and Saadeh does not need to establish an unconscionable injury.
The undisputed facts establish that Michael repeatedly promised to “repay” the loan, which was “truly [his] obligation.” See Saadeh Decl., Exs. B & D. Saadeh reasonably relied on this promise to his detriment. Justice demands that the Court grant judgment in Saadeh's favor on his promissory estoppel claim against Michael.
IV. Constructive Fraud Under DCL §§ 273 and 274
Saadeh asserts constructive fraudulent conveyance claims against Michael and Joshua under New York's Debtor and Creditor Law (DCL) §§ 273 and 274. Joshua and Michael move for summary judgment on these claims, which I recommend the Court deny.
The Court has previously set forth the elements of a claim for fraudulent conveyance under the DCL. To establish a constructively fraudulent conveyance, a creditor must show (1) “that the debtor made the transfer in question without fair consideration,” and (2) “the transferor is insolvent or will be rendered insolvent by the transfer in question,” DCL § 273, or “the transferor is engaged in or is about to engage in a business transaction for which its remaining property constitutes unreasonably small capital,” DCL § 274. In re Sharp Int'l Corp., 403 F.3d 43, 53 (2d Cir. 2005); Ray v. Ray, No. 20-cv-6720 (PAE), 2021 WL 1164655, at *5.
Claims brought under DCL §§ 273 and 274 do not require proof “of an intent to deceive or any of the traditional elements of fraud.” Intuition Consol. Grp., Inc. v. Dick Davis Publ'g Co., No. 03-cv-05063 (PKC), 2004 WL 594651, at *3 (S.D.N.Y. Mar. 25, 2004).
Joshua seeks summary judgment in his favor arguing that it is undisputed that (1) Irving's transfer of $35,000 was fair consideration and (2) the transfer did not render Irving insolvent. Michael seeks summary judgment by adopting the arguments of his brother.
A. Fair Consideration
“The fair consideration test is profitably analyzed as follows: (1) . . . the recipient of the debtor's property[ ] must either (a) convey property in exchange or (b) discharge an antecedent debt in exchange; and (2) such exchange must be a ‘fair equivalent' of the property received; and (3) such exchange must be ‘in good faith.'” In re Sharp Intern. Corp., 403 F.3d 43 (2d Cir. 2005) (cleaned up). Joshua contends that the $35,000 transfer to him from Irving was to partially discharge an antecedent debt and was made in good faith.
Because the $35,000 loan is an intra-family transfer, the law places the burden on Joshua to establish the adequacy of consideration. United States v. McCombs, 30 F.3d 310, 324 (2d Cir. 1994). Although this transfer is undisputed, the antecedent debt that Joshua alleges is contested. First, Joshua offered no pre-2017 documents to establish that Irving was in his debt at the time he transferred $35,000. Joshua relies primarily on his testimony that he loaned his father money for various reasons but has produced no documents to corroborate his statements other than a December 2019 email he sent to a trusts and estates lawyer.
When considering a motion for summary judgment, a court must construe the evidence in the light most favorable to the nonmoving party, drawing all inferences in that party's favor. Niagara Mohawk Power Corp. v. Jones Chem., Inc., 315 F.3d 171, 175 (2d Cir. 2003). “[T]he judge must ask . . . not whether . . . the evidence unmistakably favors one side or the other but whether a fair-minded jury could return a verdict for the plaintiff on the evidence presented.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). “Assessments of credibility and choices between conflicting versions of the events are matters for the jury, not for the court on summary judgment.” Rule v. Brine, Inc., 85 F.3d 1002, 1011 (2d Cir. 1996); see also Hayes v. N.Y. City Dep't of Corr., 84 F.3d 614, 619 (2d Cir. 1996) (“In applying th[e] [summary judgment] standard, the court should not weigh evidence or assess the credibility of witnesses.”).
Drawing all inferences in Saadeh's favor, a fair-minded jury could conclude that Irving's transfer of $35,000 to Joshua in July 2017 was not to pay back a loan but was rather a fraudulent conveyance. During discovery, Joshua was specifically directed that if he “produces documents related to payments made to Irving Kagan prior to January 7, 2017, he must also produce documents related to payments he received from Irving Kagan in the same period.” ECF No. 153. Joshua produced nothing. Joshua testified that he gave his father money in part to settle a lawsuit that sought $120,000, but there is no documentary evidence of that transfer (including alleged Quick Pay transfers or checks) or any proof of the lawsuit's settlement. See Maggio Decl., Exs. 8-11. Joshua also contends that he loaned his father money to pay for Michael's son's education without proof of such purpose. Id.; see also Joshua's Rule 56.1 Stmt., ¶ 9. The absence of any corroborating records should be considered by the jury in evaluating the credibility of Joshua's testimony.
“[A]s a general rule, a district court may not discredit a witness's deposition testimony on a motion for summary judgment, because the assessment of a witness's credibility is a function reserved for the jury.” Fincher v. Dep. Trust and Clearing Corp., 604 F.3d 712, 725 (2d Cir. 2010). But there is an exception to this rule where a party relies almost exclusively on his own testimony and the record is otherwise incomplete. Id.
On this record, Joshua has not established through undisputed evidence that his father's transfer of $35,000 in July 2017 was to pay back a debt. Additionally, Joshua cannot establish, as a matter of law, that the transfer was in good faith. As discussed, there is no evidence that this money was intended to partially discharge an antecedent debt. And, given the timing of Irving's transfer immediately upon receipt of Saadeh's loan, a jury could find that the transfer was made in bad faith. See Citibank, N.A. v. Benedict, No. 97-cv-9541 (AGS), 2000 WL 322785, at *13 (S.D.N.Y. Mar. 28, 2000) (“The intra-familial nature of [the] transaction makes a claim of fair consideration based on antecedent debt difficult to establish.”); In re Buffalo Rest. Equip., Inc., 284 B.R. 770, 773 (Bankr. W.D.N.Y. 2002) (with respect to intra-family transfers, discharge of antecedent debt must be established by “clear and convincing evidence”).
Joshua also argues that, regardless of past debt, after the $35,000 transfer from Irving, Joshua still gave Irving more money than Irving gave him. The record on this question is disputed. Joshua relies generally on one of Irving's bank's records, but the evidentiary record establishes other payments during the period. See Maggio Decl., Ex. 10 at 43-45, 65-84. Joshua also offers his December 2019 email to a trusts and estates lawyer that listed “$150,000” as an alleged debt of his father to him. See Maggio Decl., Ex. 9. Joshua, however, has not produced any supporting documents to bolster his claim of any money owed. These factually disputes are reserved for the jury.
For this reason, the Court need not address Joshua's claim that Saadeh is not entitled to a remedy under DLC § 278.
Finally, the record fails to establish good faith as a matter of law. To the contrary, there is substantial evidence that Irving was struggling to cover his personal expenses during this period and that Joshua was helping him manage financially-either personally or by seeking loans from others on his behalf. See Maggio Decl., Ex. 10 at 22, 46-47. On this record, a jury could conclude that Irving's transfer of $35,000 and Joshua's acceptance was not made in good faith.
Michael adopts Joshua's legal arguments and contends that the record establishes that he received only $33,650 of the $130,000 loan from Saadeh. Michael 56.1 Stmt., ¶ 47. Michael does not argue that this was fair consideration for anything. Moreover, the record amply establishes that the loan went mostly to Michael to help him with his own financial predicament, thus undermining any claim that Michael received only $33,650 from his father. Because these cash transfers between Michael and Irving are not the full extent of the “property” that Irving is alleged to have transferred to or on behalf of Michael, the fairness of the exchanges between them cannot be fully known without considering all the payments Irving made to Michael for his benefit.
B. Insolvency
The parties also dispute whether Irving's transfers to his sons left him legally insolvent. “[A]n individual is deemed to be ‘insolvent' when the ‘present fair salable value of his assets is less than the amount that will be required to pay his probable liability on his existing debts as they become absolute and matured.'” Gasser v. Infanti Int'l, Inc., 353 F.Supp.2d 342, 354 (E.D.N.Y. 2005) (quoting DCL § 271). “A party is not insolvent just because he cannot pay his debts as they become due.” Kim v. Ji Sung Yoo, 311 F.Supp.3d 598, 612 (S.D.N.Y. 2018) (internal citations omitted). Courts determine insolvency by referring to the time at which the transfer took place and insolvency cannot be presumed from subsequent insolvency at a later time. In re Trinsum Group, Inc., 460 B.R. 379, 392 (Bankr. S.D.N.Y. 2011).
“Claims that are inchoate, uncertain and contested have no present value and cannot be considered an asset of the transferor.” Kim, 311 F.Supp.3d at 612 (internal quotations omitted).
In cases of intra-family transfers, “[i]f the conveyance is found lacking in consideration, the burden also shifts to the transferee to prove continued solvency after the transaction. Capital Distributions Services, Ltd. v. Ducor Exp. Airlines, Inc., 440 F.Supp.2d 195, 203 (E.D.N.Y. 2006).
Certain facts are undisputed. It is undisputed that Irving had $6,500 in his bank account when he received the loan and transferred $35,000 to Joshua. Joshua 56.1 Stmt., ¶ 13. The Defendants also produced a December 12, 2018 email from Irving to a friend (that Irving subsequently shared with Joshua) in which Irving wrote “I'm left with financial burdens and personal and other family obligations which I cannot meet right now. I've been searching everywhere for other sources of funds, but with no success.” ECF No. 220, Decl. of Richard J.J. Scarola in Opp. to Joshua Mot., (“Scarola Decl.”), Ex. E. Joshua also produced text strings with his father, where Joshua wrote: “If you can't get that one week extension from Amex I will try to think of someone that can loan me $ while you wait on Goldman and we wait on life insurance.” Scarola Decl., Ex. F. Conversely, it is undisputed that Irving was paid more than $300,000 for board service with Goldman Sachs, litigation fees, and benefits during the relevant period. Joshua 56.1 Stmt., ¶ 15.
On this record, the question of Irving's lack of insolvency cannot be established as a matter of law in favor of Joshua and Michael. Accordingly, the Court should deny summary judgment on the alternative ground that lack of insolvency is disputed.
V. Actual Fraud Under DCL § 276
Michael moves for summary judgment on Saadeh's claim for fraudulent conveyance under DLC § 276. Michael incorporates the arguments raised in Joshua's motion for summary judgment, but the Court previously dismissed this claim against Joshua. See ECF No. 189 (adopting Report & Recommendation at ECF No. 124). Michael, however, cites to the “badge of fraud” identified in In re Kaiser, 722 F.2d 1574, 1582-83 (2d Cir. 1983), which courts rely upon when considering actual intent to defraud under DCL § 276.
Among the badges of fraud are “the lack or inadequacy of consideration” and family relationships. Id. Here, the undisputed evidence establishes both, and the email correspondence could reasonably be interpreted to establish that Michael (and Irving) had no intention of ever paying back the loan. Specifically, on numerous occasions, Michael told Saadeh that repayme was eminent, but no payment was ever made. Each time Saadeh reached out, Michael would provide new assurances, with his father's tacit or explicit approval, but never followed through On this record, a reasonable jury could find that Michael acted with fraudulent intent, and summary judgment on this claim should be denied.
CONCLUSION
I recommend the Court GRANT summary judgment in favor of Saadeh and against Michael on Saadeh's promissory estoppel claim. I further recommend the Court DENY all oth motions for summary judgment.
NOTICE OF PROCEDURE FOR FILING OBJECTIONS TO THIS REPORT AND RECOMMENDATION
The parties shall have fourteen days from the service of this Report and Recommendation to file written objections pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure. A party may respond to another party's objections within fourteen days after being served with a copy. Fed.R.Civ.P. 72(b)(2). Such objections shall be filed with the Clerk of the Court, with courtesy copies delivered to the chambers of the Honorable Paul A. Engelmayer at the United States Courthouse, 40 Foley Square, New York, New York 10007, and to any opposing parties. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(d), 72(b). Any requests for an extension of time for filing objections must be addressed to Judge Engelmayer. The failure to file these timely objections will result in a waiver of those objections for purposes of appeal. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), 6(d), 72(b); Thomas v. Arn, 474 U.S. 140 (1985).