Opinion
Index No. 652969/2014
05-02-2020
SANDS BROTHERS VENTURE CAPITAL II, LLC, Sands Brothers Venture Capital III, LLC, Sands Brothers Venture Capital IV, LLC, Genesis Merchant Partners, LP, Plaintiff, v. PARK AVENUE BANK, Matthew Morris, Charles Antonucci, General Employment Enterprises Inc., Oppenheimer & Co., Inc., Providence Property and Casualty Insurance Company, WTS Corp., WTS Acquisition Corp., DMCC Staffing, LLC, RFFG, LLC, RFFG of Cleveland, LLC, Thomas Bean, Big Red Investments Partnership, Ltd., On-Site Services, Inc., Ameritemps, Inc., Allen Reichman, Wilbur Huff, O2HR, LLC, Oxygen Unlimited, LLC, River Falls Investments, LLC, River Falls Financial Services, LLC, River Falls Holdings, LLC, W.A. Huff, LLC, SDH Realty, LLC, Defendant.
For Plaintiffs, Law Office of Wallace Neel, P.C., 43 West 43rd Street, Suite 65 New York, NY 10036, 646-524-6502 For Defendants, Eversheds Sutherland LLP, The Grace Building, 40th Floor, 1114 Avenue of the Americas, New York, New York 10036-7703, 212-389-5000
For Plaintiffs, Law Office of Wallace Neel, P.C., 43 West 43rd Street, Suite 65 New York, NY 10036, 646-524-6502
For Defendants, Eversheds Sutherland LLP, The Grace Building, 40th Floor, 1114 Avenue of the Americas, New York, New York 10036-7703, 212-389-5000
Andrew Borrok, J.
The following e-filed documents, listed by NYSCEF document number (Motion 015) 432, 433, 434, 435, 436, 437, 438, 439, 440, 441, 442, 443, 444, 445, 446, 447, 448, 449, 450, 451, 453, 482, 483, 484, 485, 486, 487, 488, 489, 490, 491, 498, 499, 500, 501, 502, 503 were read on this motion to/for SUMMARY JUDGMENT (AFTER JOINDER)
Upon the foregoing documents, and for the reasons set forth below, Oppenheimer & Co. Inc.'s (Oppenheimer ) motion pursuant to CPLR § 3212 for summary judgment and dismissal is denied in its entirety.
I. The Relevant Facts and Circumstances
This lawsuit arises from a $58 million fraud masterminded by Wilbur Anthony Huff in which he allegedly directed other co-conspirators to divert money from O2HR, LLC (O2HR ), a company that provided outsourced management of payroll, tax, and insurance obligations for client companies (NYSCEF Doc. No. 51, ¶¶ 1-4, 29). Mr. Huff was indicted by the United States Attorney for the Southern District of New York, pled guilty in December 2014, and was sentenced to 12 years in prison (id., ¶ 2).
The gravamen of the Amended Complaint (hereinafter defined) is that O2HR was rendered insolvent as a result of Mr. Huff and the defendants' fraud and, as a result, O2HR has now defaulted on certain promissory notes (id. , ¶¶ 17-38). To wit, the Amended Complaint alleges that in 2008 and 2009, O2HR issued five promissory notes (collectively, the Notes ) in favor of Sands Brothers Venture Capital II, LLC, Sands Brothers Venture Capital III, LLC, Sands Brothers Venture Capital IV, LLC, and Genesis Merchant Partners LP (collectively, the Plaintiffs ) (id. ). And, the value in O2HR was allegedly fraudulently transferred to entities controlled by Mr. Huff, including River Falls Investments, LLC, River Falls Financial Services, LLC, River Falls Holdings, LLC, SDH Realty LLC, among others (collectively, the Huff-Controlled Entities ) (id. , ¶ 9).
A. Oppenheimer's Involvement
The Plaintiffs allege that Oppenheimer conspired with Mr. Huff, among others, to facilitate the sale and purchase of Providence Property and Casualty Insurance Co. (PPAC ) with an illegal $30 million loan from Oppenheimer and $7,500,000 in fraudulently conveyed O2HR funds. PPAC was owned by Providence Holdings, Inc. (PHI ), which was beneficially owned by Jerry Lancaster and members of his family (the Lancaster Group ) (NYSCEF Doc. No. 193, ¶ 3).
In 2008, Charles Antonucci, the President of Park Avenue Bank, sought to bring cash into the bank by purchasing PPAC through Park Avenue Insurance LLC (PAI ), a holding company (id. , ¶ 2). Pursuant to a Stock Purchase Agreement (NYSCEF Doc. No. 195), dated October 22, 2008, by and between PHI as seller, PPAC, and PAI as purchaser, PHI sold all capital stock in PPAC to PAI for the purchase price of $37,500,000 (the Sale ).
Mr. Antonucci financed the purchase of PPAC by margining its restricted bond portfolio as collateral, which was illegal under Oklahoma law (NYSCEF Doc. Nos. 439, 440). The improper loan was facilitated by Oppenheimer's employee, Allen Reichman, and Mr. Antonucci, among others, who misled Oppenheimer and Oklahoma insurance regulators about the true nature of the financing for the purchase (id. ). As a result, Oppenheimer issued an illegal $30,000,000 loan to PAI (the Loan ).
Prior to the closing, the parties to the Sale discovered that the Loan left a shortfall of $7,500,000 for the purchase price (NYSCEF Doc. No. 193, ¶ 4). On or around January 30, 2009, the day of the closing, PPAC received a cash injection of over $12,000,000, which cash supplied the $7,500,000 that was used to make up the remaining purchase price for the Sale (id. ).
Mr. Reichman, the Oppenheimer employee, Mr. Antonucci and Mr. Huff, among others were subsequently indicted by the U.S. Department of Justice for their role in the issuance of the Loan, which ultimately rendered PPAC insolvent (NYSCEF Doc. No. 440 at 1-2). Mr. Reichman eventually pled guilty to one count of conspiracy to commit wire fraud and agreed to forfeit the $200,000 commission he received from the Loan as well as to provide restitution of $10 million to Oppenheimer (id. at 2).
B. The Instant Action
The Plaintiffs commenced this action on January 29, 2015 and filed an Amended Complaint on May 1, 2015 (NYSCEF Doc. No. 51, the Amended Complaint ), which alleges that Oppenheimer conspired with Mr. Antonucci and others to use O2HR funds and the Loan to facilitate the purchase of PPAC (NYSCEF Doc. No. 51, ¶ 73).
In sum and substance, the Plaintiffs allege that: (i) Oppenheimer knew that Mr. Huff was fraudulently conveying O2HR derived-funds to pay some or all of the remaining $7,500,000 purchase price, (ii) Oppenheimer, through Mr. Reichman, nevertheless solicited Mr. Antonucci to provide false information about the collateral used for the Loan, (iii) that if Oppenheimer had not extended the illegal Loan, O2HR derived-funds that were fraudulently conveyed to pay some or all of the remaining $7,500,000 purchase price of the Sale would not have been transferred to PPAC, and (iv) that Mr. Reichman had an agreement with Mr. Huff to achieve a common objective of diverting O2HR derived-funds (id. , ¶ 78-81).
On May 21, 2015, Oppenheimer filed a motion to dismiss the Amended Complaint (Mtn. Seq. No. 003), which motion was denied on the record following oral argument on August 11, 2015 (8/11/2015 Tr., NYSCEF Doc. No. 102). During the hearing, the parties recognized that only two claims remained against Oppenheimer, the second cause of action for aiding and abetting a fraudulent conveyance and the third cause of action for conspiracy to fraudulently convey (id. at 30:21-31:6). Plaintiffs' counsel explained the injury to the Plaintiffs if Oppenheimer used O2HR derived-funds to facilitate the sale and purchase of PPAC as alleged:
Those O2HR derived funds, which Huff took, he ran through River Falls, SDH Realty, other slush funds of Huff's, and trickled downstream to essentially be his slush fund, all of which was done for no consideration, ended up going into this transaction, in which all the money was lost. So my client, as a lender to the borrower, O2HR, had a claim on those funds and cannot trace them down the chain because they're now gone, they're gone.
(id. at 33-34).
The court (Ramos J.) determined that if the Plaintiffs could sustain the allegations, "it would be enough to keep Oppenheimer in, at least to the extent of that O2HR funds were used," and denied Oppenheimer's motion to dismiss (id. at 35).
On October 12, 2015, Oppenheimer filed a motion for summary judgment (Mtn. Seq. No. 006), which motion was withdrawn without prejudice on November 16, 2015 because the Plaintiffs sought further discovery from Oppenheimer in order to fully respond to the motion and Oppenheimer advised that it would re-file its motion after document production was complete (NYSCEF Doc. Nos. 134, 137).
On June 13, 2016, Oppenheimer filed a cross-motion for summary judgment in response to the Plaintiffs' motion to consolidate related cases with this action (Mtn. Seq. No. 008). During oral argument on August 16, 2016, the court (Ramos J.) denied Oppenheimer's cross-motion for summary judgment despite Oppenheimer's document production because third-party discovery was not yet complete (8/16/2016 Tr., NYSCEF Doc. No. 435 at 8-9). After further discovery and the filing of note of issue on October 1, 2019, Oppenheimer filed the instant motion.
C. The Relevant Evidence
The relevant evidence adduced by the parties is summarized below:
1. Douglas Bisio, David Claroni and John Lanser, Oppenheimer Employees
Douglas Bisio, David Claroni, and John Lanser are Oppenheimer employees who were deposed on October 24, 2017.
Mr. Bisio testified that he did not know whether O2HR funds were transferred to Oppenheimer and had not seen any documents to that effect (NYSCEF Doc. No. 441 at 44:13-19).
Mr. Claroni testified that he did not know whether any portion of the $7,500,000 purchase price of PPAC came from O2HR, whether O2HR funds were transferred, or whether there were any documents related to O2HR transfers in relation to the purported transaction (NYSCEF Doc. No. 442 at 6:3-23).
Mr. Lanswer testified that he also did not know whether any portion of the $7,500,000 came from O2HR or whether O2HR assets were used in the sale of PPAC (NYSCEF Doc. No. 446 at 22:5-19).
2. Mark Tharp, Assistant Receiver for PPAC
Mark Tharp was appointed by the District Court of Oklahoma County as Assistant Receiver for PPAC on November 18, 2009 (NYSCEF Doc. No. 502, ¶ 3). In this role, he forensically reconstructed those transactions related to the sale and purchase of PPAC to PAI (id. , ¶ 5). Mr. Tharp attested that Mr. Huff brokered or otherwise facilitated a scheme whereby members of the Lancaster Group and Mr. Antonucci conducted the purchase and sale of PPAC by using only PPAC assets (id. , ¶ 7).
Mr. Tharp attested that Oppenheimer provided a $30 million margin loan for the purchase price and that the remaining $7,500,000 also came from assets owned by PPAC:
12. The remainder of the purchase price, $7,500,000, also came from assets owned by P & C. On the day of the closing, PHI wire transferred $12,096,656 from account number 1920891 at First United Bank to P & C account number 5400040607 at Park Avenue Bank. The wire transfer totaling $12,096,656 was tendered by PHI to purchase the following illiquid assets, thereby providing the remaining liquidity required to close the transaction ($7.5 million):
a. One mortgage loan totaling $2,514,045;
b. One certificate of deposit totaling $5,076,186: and
c. Five bonds totaling $4,506,425
13. The remaining $7,500,000 of the purchase price was then transferred from a [PPAC] account at Park Avenue Bank having account number 5400040607 to an account of the buyer, PAl account number 5200024437 at Park Avenue Bank.
(NYSCEF Doc. No. 194).
Mr. Tharp also attested that any assertion that O2HR funds made up the remaining $7,500,000 purchase price was false (id. , ¶ 15). He further explained that shortly after the sale of PPAC, an additional $4,000,000 was transferred to O2HR presumably as a finder's fee or commission to Mr. Huff for his involvement in the transaction (id. , ¶17).
At his deposition on October 9, 2018, Mr. Tharp was asked about the origin of the $7,500,000 and he testified that it was not possible that the sum came from a third party (NYSCEF Doc. No. 450 at 43:1-7). Mr. Tharp explained that the $7,500,000 came from the sale of seven illiquid assets and was "most certainly a component of the $12,096,656" (id. at 43:10-44:5). Mr. Tharp testified that he did not know or investigate whether Park Avenue Bank and/or Mr. Lancaster had collaborated to complete the transaction in a non-chronological manner (id. at 44:6-11).
During Mr. Tharp's cross-examination by the Plaintiffs' counsel, Mr. Tharp was asked about allegations that Oppenheimer conspired with Mr. Huff and others to provide the Loan to enable Mr. Huff to take control of PPAC, to which Mr. Tharp responded that "there's no evidence of that" (id. at 49:3-20). Mr. Tharp also testified that he did not find evidence of whether Oppenheimer had a corrupt agreement with any defendants to fraudulently convey O2HR assets (id. at 50:2-15).
Mr. Tharp further testified that the remaining $7,500,000 came from seven assets owned by PPAC that were identified for sale to produce liquidity needed to pay both the remaining purchase price and a fee to Mr. Huff (id. at 52:25-53:17). Mr. Tharp explained that the certificate of deposit was liquidated, five bonds were liquidated, and the mortgage loan on a building was transferred to PHI to allow for a cash infusion in PPAC (id. at 53:18-54:3). The cash infusion occurred "in three installments from First United Bank 891 to Park Avenue Bank PPAC 607, totaling $12,096,000" on the day of PPAC's sale, January 30, 2009 (id. at 54:3-8).
Mr. Tharp testified that Mr. Huff was not a buyer or seller in the sale of PPAC, but that Mr. Huff facilitated the transaction between Mr. Lancaster and Mr. Antonucci (id. at 62:9-24). Mr. Tharp further testified that PAI was 100% owned by Mr. Antonucci (id. at 76:11-17).
3. Charles Antonucci, President of Park Avenue Bank
Mr. Antonucci provided an affidavit to Oppenheimer, sworn August 19, 2015 (NYSCEF Doc. No. 433, the Antonucci Affidavit ). He explained that he was president of Park Avenue Bank in 2008 and at that time, he and Mr. Huff devised a plan to purchase PPAC to inject cash into Park Avenue Bank (id. , ¶ 2).
After learning that the Loan left a shortfall, Mr. Antonucci attested that Mr. Lancaster agreed one of his companies would purchase assets from PPAC to inject cash into PPAC, resulting in over $12 million of cash deposited in PPAC's account on January 30, 2009, which cash was the source of the $7,500,000 that was used to pay PHI (id. , ¶ 5). Mr. Antonucci also attested that no money from O2HR or other Huff-Controlled Entities was used to pay the full purchase price of PPAC (id. , ¶ 7).
4. Jerry Lancaster, Part Owner of PHI
Jerry Lancaster was deposed on October 4, 2017 (NYSCEF Doc. No. 445). Mr. Lancaster could not recall any discussions with Mr. Antonucci about the sale of PPAC to an entity controlled by him (id. at 45:13-19). Mr. Lancaster denied that PHI contributed any money to the purchase price of PPAC (id. at 53:3-6). Mr. Lancaster did not know whether Mr. Antonucci used any of PPAC's own money to fund the sale (id. at 53:7-12). Mr. Lancaster stated that Mr. Huff was not a shareholder of PHI and that he was not a shareholder of PPAC (id. at 53:13-16). Mr. Lancaster did not know whether Mr. Huff or his companies contributed money to the purchase price paid to PHI by Mr. Antonucci or whether O2HR contributed money to Mr. Antonucci or PAI for the purchase of PPAC (id. at 53:22-25).
Later in his deposition, Mr. Lancaster was presented with the Antonucci Affidavit and Plaintiffs' counsel asked whether Mr. Lancaster agreed with Mr. Antonucci's recollection of the events as follows:
Q. Okay. Looking at Paragraph 5, it reads, quote: In order to salvage the transaction, Jerry Lancaster agreed that one of his companies would purchase some assets from PPAC and thereby inject cash into PPAC which could be used to pay PHI the agreed cash purchase price, close quote. Do you recall making that agreement?
A. No.
Q. Did you make that agreement?
A. No.
Q. The last sentence of that paragraph reads, quote: That cash was the source of the $7,500,000 that we used to pay the entire purchase price to PHI, open parenthesis, and indirectly the Lancaster family members, close parentheses, close quote. Do you recall that to be true?
A. Not so.
Q. Sitting here today, do you believe that to be true?
A. It was not true, is not true.
(id. at 76:25-77:19)
5. Judson B. Wagenseller, Attorney for Mr. Huff
Judson B. Wagenseller, former counsel for Mr. Huff, was deposed in a companion action (Index No. 654168/2012) on August 3, 2017. Mr. Wagenseller testified that he was under the impression that Mr. Huff received approximately $4,500,000 for the sale of PPAC and although he did not know whether this was a brokerage fee or finder's fee for the transaction, the sum was used to pay down a Park Avenue Bank line of credit for O2HR (NYSCEF Doc. No. 433 at 239:2-9).
Mr. Wagenseller stated that he did not know if O2HR contributed any funds to the sale of PPAC (id. at 239:16-18). He also testified that neither Mr. Huff nor any Huff-Controlled Entity contributed funds to the purchase of PPAC (id. at 224:7-17)
6. Jeff Johnson, the Plaintiffs' Expert
The Plaintiffs' expert, Jeff Johnson, a Chartered Financial Analysis, issued a report dated July 1, 2019 (NYSCEF Doc. No. 524), tracing the flow of funds that the Plaintiffs invested in O2HR. With respect to those funds invested by Sands Brothers Venture Capital II, LLC, Sands Brothers Venture Capital III, LLC, and Sands Brothers Venture Capital IV, LLC, Mr. Johnson found that:
a portion, if not all, of the investment by Sands Brothers Venture Capital was transferred from Oxygen Unlimited II LLC's PAB account [ending 0291] to Oxygen Unlimited LLC's PAB Account [ending 0828] [o]n October 28, 2009, all funds in Oxygen Unlimited LLC's PAB account [ending 40828], totaling $6,579,897, were withdrawn via a single check. According to the bank statement the description for the withdrawal was to Oxygen Unlimited accounts ending in No.401566 and #401613, which is related to a loan.11 While bank statements for these two accounts were not available, it was identified that these accounts made a $700,000 deposit into Oxygen Unlimited LLC PAB account [ending 0725] on February 4, 2008. It was also identified that other Huff- Controlled Entities, specifically AIR and River Falls Investments made interest payments, such that of $20,333.33 on December 1, 2008 for the same #401613 loan account.
11 Bank Statement PAB [ending 0828], Oxygen Unlimited LLC, Page 1.
(id. at 6-7).
With respect to the investment by Genesis Merchant Partners, LP, Mr. Johnson determined that that the investment by Genesis Merchant Partners, LP was transferred from Oxygen Unlimited II LLC's account [ending in 0725] to multiple Huff-Controlled Entities or bank accounts where it was subsequently used to pay taxes, pay off credits, or transferred again to commonly-controlled bank accounts (id. at 2-3). At his deposition on August 13, 2019 in a companion case (Index No. 654168/2012), Mr. Johnson testified that he did not reach any conclusions or opinions as to Oppenheimer or the sale of PPAC (NYSCEF Doc. No. 444 at 120:24-121:15).
7. Wilbur Anthony Huff
On October 18, 2017, Mr. Huff was deposed in a companion action (Index No. 654168/2012). During his deposition, Mr. Huff testified that he did not negotiate the sale of PPAC to Mr. Antonucci, but that he probably had a role in the introduction (NYSCEF Doc. No. 443 at 236:3-12). Mr. Huff stated that he did not have any role with PPAC or control Mr. Lancaster (id. at 241:24-242:5). When Mr. Huff was asked about the allegations in the Amended Complaint that Oppenheimer conspired with him and others to use O2HR derived-funds along with the Loan to enable Mr. Huff to illegally take control of PPAC, Mr. Huff replied "No" (id. at 245:18-24).
When asked about the movement of $4 million from an account of PPAC to O2HR in early February 2009, Mr. Huff explained that this was a refund to O2HR of an overfunding amount and "the transaction" resulted in O2HR becoming more solvent (id. at 248:1-13). When asked whether the $4 million was payable to O2HR as a finder's fee for putting Mr. Antonucci and Mr. Lancaster together, Mr. Huff advised that if this was the case, the fee would have been sent to W.A. Huff, LLC (id. at 248:14-20). Mr. Huff further explained that O2HR had paid the $4 million as insurance deposits, which were then returned to the company (id. at 248: 21-25).
8. Documentary Evidence
The Plaintiffs also adduce documents attached to an affirmation of their counsel as follows: (i) a bank statement of account number ending in 0891 at First United Bank (NYSCEF Doc. No. 485, the PHI Bank Statement ), (ii) a bank slip indicating a transfer of $4,000,000 dollars to O2HR (NYSCEF Doc. No. 487), and (iii) a check, dated February 11, 2009, produced in this matter by the U.S. Attorney's Office indicating a payment of $1,500,000 million to River Falls Financial Services drawable on the account of Jerry D. and Beverley Lancaster at First United Bank (NYSCEF Doc. No. 488).
Oppenheimer argues that the PHI Bank Statement is not admissible as a business record under CPLR § 4518, however, this document was produced during the litigation and therefore, presumed authentic and admissible ( CPLR § 4540-a ). Further, Oppenheimer has not adduced evidence to rebut the presumption of authenticity by a preponderance of evidence (id. ).
The PHI Bank Statement lists transactions conducted from PHI's account from January 28, 2009 to February 4, 2009 (NYSCEF Doc. No. 485). As of January 29, 2009, the balance in the account was $20,000 (id. ). On January 30, 2009, the first five transactions listed were: (i) a wire transfer credit of $37,500,000 from PAI c/o Mr. Antonucci, (ii) an account analysis charge debit of $69.28, (iii) a debit of $5,076,186 by check, (iv) a debit of $5,000,000 by check, (v) a debit of $4,506,425 by check, and (v) a debit of $2,514,045 by check.
II. Discussion
On a motion for summary judgment, the movant "must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact" ( Alvarez v. Prospect Hosp. , 68 NY2d 320, 324 [1986], citing Winegrad v. New York Univ. Med. Ctr. , 64 NY2d 851, 853 [1985] ). Once this showing is made, the burden shifts to the opposing party to produce evidence in admissible form sufficient to establish the existence of a triable issue of fact ( Zuckerman v. New York , 49 NY2d 557, 562 [1980] ).
A. Conspiracy and Aiding & Abetting Fraudulent Conveyance
As discussed above, the Plaintiffs allege that Oppenheimer conspired with Mr. Huff, among others, to facilitate the sale and purchase of PPAC with $7,500,000 of fraudulently conveyed O2HR funds.
Oppenheimer argues that it should be granted summary judgment dismissing the claims for conspiracy and aiding and abetting a fraudulent conveyance because no O2HR funds made up the $7,500,000 transfer to PPAC such that there was no underlying fraudulent conveyance in the first instance. In their opposition papers, the Plaintiffs argue that there exists a triable issue of fact concerning whether O2HR was the source of the funds in the $7,500,000 transfer.
New York Debtor and Creditor Law enables a creditor to recover its debts despite efforts of a debtor to elude payment ( Hearn 45 St. Corp. v. Jano , 283 NY 139, 142 [1940] ). Thus, a plaintiff creditor may obtain recovery against the debtor or transferee who allegedly participated in the fraudulent transfer (Matter of 4042 E. Tremont Café Corp. v. Sodono , 177 AD3d 456, 458 [1st Dept 2019] ).
In sum and substance, Oppenheimer asserts that the $7,500,000 at issue here was not made up of O2HR funds because Mr. Tharp conducted a forensic analysis wherein he determined that the $7,500,000 could not have come from a third party, and instead came from the liquidation of specific PPAC assets, which provided for a cash infusion of $12,096,656 in funds that were transferred from PHI to PPAC on the day of the closing. Mr. Antonucci, the owner of the buyer entity, also recalled that the sale occurred in the manner as set forth by Mr. Tharp. Oppenheimer also relies on the deposition testimony of Mr. Antonucci, Mr. Lancaster, Mr. Wagenseller, and Oppenheimer employees where they testified that they had no knowledge of whether O2HR assets were involved in the sale and purchase of PPAC. Further, Oppenheimer emphasizes that the Plaintiffs' expert was unable to trace any O2HR funds to Oppenheimer or the sale of PPAC. In addition, Oppenheimer highlights evidence that the seller entities in the subject transaction, PHI and PPAC, were not controlled by Mr. Huff and, that the buyer, PAI was owned by Mr. Antonucci.
The Plaintiffs, in turn, rely on the testimony of Mr. Lancaster who denied that he made an agreement where one of his companies would purchase assets from PPAC to inject cash into PPAC to pay PHI the purchase price. The Plaintiffs also refer to the PHI Bank Statement which indicates that $37,500,000 was wired into PHI's bank account before the separate debits totaling $12,096,656 left the same bank account. In other words, the Plaintiffs assert that PHI must have received the $37,500,000, which contained $7,500,000 of fraudulently transferred O2HR funds, before PHI transferred the $12,096,656 cash infusion to PPAC.
Although Oppenheimer's adduced evidence to corroborate its theory of the case — i.e. that the seller of PPAC, Mr. Lancaster, liquidated specific PPAC assets to provide a cash infusion of $12,096,656 to PPAC on the day of closing — Mr. Lancaster wholly denies that this version of events occurred when confronted with the Antonucci Affidavit. In other words, there is a conflict between the testimony of the buyer and the seller with respect to the transaction at issue. Further, while Mr. Antonucci attested that the full $37,500,000 purchase price was not comprised of any money from O2HR or another Huff-Controlled Entity, Mr. Lancaster stated that he did not know whether any O2HR funds were used in the transaction. As a result, Oppenheimer has simply not met its burden in showing that no O2HR funds were involved in the $7,500,000 transfer and there remain material issues of fact concerning same.
In addition, Oppenheimer argues that the Plaintiffs' claims for conspiracy and aiding and abetting a fraudulent conveyance must be dismissed as a matter of law based on Federal Deposit Ins. Corp. v. Porco , 75 NY2d 840 [1990] and Estate of Shefner v. Beraudiere , 127 AD3d 442 [1st Dept 2015], which stand for the proposition that New York recognizes only a limited cause of action for aiding and abetting a fraudulent conveyance. Although these two cases were raised for the first time in this motion only on reply, they are nevertheless binding authorities that this court must apply.
In Federal Deposit , the Court of Appeals held that New York Debtor and Creditor Law does not create a cause of action against a defendant that merely assists a debtor in transferring assets where the defendants are neither transferees of the assets or beneficiaries of the conveyance ( 75 NY2d at 842 ; see also Estate of Shefner , 127 AD3d at 442 [1st Dept 2015] [dismissing claim that defendant assisted with fraudulent transfer of artwork because there were no facts alleged that defendant had dominion or control over artwork or benefitted from conveyance]; Stochastic Decisions, Inc. v. DiDomenico , 995 F2d 1158, 1172 [2d Cir 1993] [recognizing Court of Appeals precedent Federal Deposit, supra ] ).
The rationale for a more limited aiding and abetting fraudulent conveyance claim is that "the creditor's remedy in a fraudulent conveyance action is limited to reaching the property which would have been available to satisfy the judgment had there been no conveyance" ( Roselink Invs., L.L.C. v. Shenkman , 386 F Supp 2d 209, 226-227 [SDNY 2004] [citations omitted] ). As a result, an action for damages simply cannot be brought against a party "who did not receive any of the property sought by the creditors" (id. ). There is also no claim for conspiracy to fraudulently convey assets against non-transferees that did not assert control over the transferred assets or benefit from the conveyance ( Federal Deposit , 75 NY2d at 842 ).
The Plaintiffs do not allege that Oppenheimer itself fraudulently received the $7,500,000 as a transferee nor is there any evidence of same. Accordingly, survival of the Plaintiffs' claims for aiding and abetting a fraudulent conveyance depends on whether Oppenheimer was a beneficiary of the $7,500,000 conveyance (id. ). And, the Plaintiffs could show at trial other indirect ways that Oppenheimer might have gained by the transactions being done the way that they were done. Therefore, at this time, neither party has adduced sufficient evidence to eliminate material issues of fact concerning whether Oppenheimer received a benefit from the $7,500,000 transfer such that summary judgment must also be denied on this ground.
B. Respondeat Superior
Oppenheimer also argues that it cannot be held liable for the fraudulent actions of Mr. Reichman because he acted outside the scope of his employment in securing the Loan. In their opposition papers, however, the Plaintiffs point out that Mr. Reichman's misconduct was within his responsibilities and in any event, that Mr. Reichman did not fully abandon Oppenheimer's interests when obtaining the Loan.
Pursuant to the doctrine of respondeat superior , an employer is vicariously liable for the wrongful acts of its employee if (i) the acts further the employer's business and (ii) are within the scope of the employee's authority ( Riviello v. Waldron , 47 NY2d 297, 302 [1979] ). However, an employer is not accountable for employees "who, while ostensibly acting for their employer, in fact totally abandon the employer's interests and act entirely for their own or others' purposes" ( Prudential-Bache Secur., Inc. v. Citibank, N.A. , 73 NY2d 263, 276 [1989] ).
Factors to consider when assessing whether an employee's conduct falls within the scope of employment include: the connection between the time, place and occasion for the act; the history of the relationship between employer and employee in practice; whether the act is commonly done by such an employee; the extent of departure from normal methods of performance; and whether the specific act was one that the employer could reasonably have anticipated ( Riviello , 47 NY2d at 303 ).
In support of this branch of its motion, Oppenheimer adduces seven pages of deposition testimony from John McGuire, Oppenheimer's general counsel, along with two U.S. Department of Justice press releases regarding Mr. Reichman and Mr. Huff's guilty pleas in their Indictments (NYSCEF Doc. Nos. 439, 440, 447). This evidence is simply insufficient to establish, prima facie, that Mr. Reichman did not act within the scope of his authority (see Riviello, supra ). By way of example, the record is not clear as to the employment relationship between Oppenheimer and Mr. Reichman, the extent of deviation between Mr. Reichman's usual responsibilities and his actions in procuring the Loan, and whether Oppenheimer could have reasonably anticipated or known about Mr. Reichman's actions. Accordingly, that branch of Oppenheimer's motion for summary judgment to dismiss the Amended Complaint under the doctrine of respondeat superior is denied.
Accordingly, it is
ORDERED that Oppenheimer's motion for summary judgment is denied in its entirety.