Defendants move to dismiss the amended complaint on the grounds that Plaintiff Franklin Day ("Day") lacks standing to bring the action, the action is barred by res judicata or collateral estoppel and that certain actions are barred by the statute of limitations. Plaintiffs cross-move for sanctions.

In 1991, Day retained Gerald Zwirn, Esq. ("Zwirn") to represent him and his business in a Chapter 11 bankruptcy proceeding.

At the time, Day operated a sports bar near Madison Square Garden. Due to an asbestos abatement project at Madison Square Garden, the sports bar lost business. As a result, Day was temporarily unable to pay his rent. Day sought bankruptcy protection for himself and his business to protect his leasehold.

Zwirn's failed to file the papers necessary to protect the lease with the Bankruptcy Court. As a result, Day lost his business and its income.

Day commenced a legal malpractice action against Zwirn who moved to Florida and filed for bankruptcy under Chapter 7 of the Bankruptcy Code.

Day's legal malpractice action was removed to the United States Bankruptcy Court, Southern District of Florida. The malpractice action against Zwirn by Day's business was sold at auction in the bankruptcy proceedings and has never been prosecuted. Day's personal malpractice claim was tried in the Bankruptcy Court. On May 7, 2001, Day obtained a judgment against Zwirn in the sum of $131,012.74. This judgment remains unsatisfied.

Plaintiff Joel L. Tabas, Esq. is the trustee of the bankruptcy estate of Gerard Zwirn.

Zwirn was Defendant Joseph Passarelli's ("Joseph") attorney and business partner. Zwirn and Joseph owned two automobile dealerships, Danjo Automotive Corp. ("Danjo"), which owned and operated a Hyundai dealership in Long Island City, and Bronx Volkswagen Corp. ("Bronx VW") which operated a Volkswagen dealership in the Bronx. Although Joseph was allegedly legally prohibited from owning an interest in automobile dealerships, he owned a 50% interest in these dealerships. Zwirn owned the other 50%.

On June 6, 2001, Zwirn transferred his interest in Danjo to the corporation for $360,000. On the same date, he transferred his interest in Bronx VW to the corporation for $360,000. Zwirn did not receive any cash payment in connection with the transfer of his interest in either corporation. The entire consideration was paid by Danjo and Bronx VW each giving Zwirn a [*2]promissory note in the sum of $360,000 payable in 48 equal monthly installments of $7,500.

Joseph and Zwirn agree that only a few payments were made on the promissory notes. Danjo and Bronx VW are in default in the payment on the notes.

The promissory notes made by Danjo and Bronx VW payable to Zwirn became assets of Zwirn's bankruptcy estate. By order of the United States Bankruptcy Court, Southern District of Florida dated May 7, 2007, Day purchased 50% of the net recovery obtained in an action brought on the promissory notes.

In that action, Day and Tabas sue to recover on the promissory notes. Since the original promissory notes have been lost or destroyed, Plaintiffs herein sue under sections 71.011 and 673.3091 of the Florida Statutes to reestablish the lost promissory notes. Plaintiffs also sue to set aside transfers of assets made by Joseph and Bronx VW. More specifically, Plaintiffs seek to set aside Joseph's transfer of his home in Old Brookville to his wife, Amy Passarelli and to set aside the home equity loan secured by the property and a distribution of assets made by Bronx VW.

A.Standing

Defendants assert that only the trustee has the standing to bring an action on behalf of the bankrupt's estate. See, See, 11 U.S.C. §541(a)(1). Defendants further argue that the bankruptcy court has also previously ruled that only the trustee has standing to maintain actions on behalf of the bankrupt's estate. See, In re Zwirn, 362 B.R. 536 (S.D. Fla. 2007).

However, Defendants argument ignores the May 7, 2007 order of the Bankruptcy Court. By that order, Bankruptcy Judge A. Jay Cristol authorized Tabas, as trustee, to sell to Day the right to bring an action on the promissory notes for $50,000 plus 50% of the net recovery realized on the notes provided that the $50,000 was paid by Day within 11 days from the date of entry of the order.

Standing involves the question of whether the party bringing the action has sufficient interest in the controversy so that he or she is the proper person to bring the action. See, Siegel, New York Practice 4th §136. The Bankruptcy Court order gives Day the standing to prosecute this action on the notes.

B.Res Judicata - Collateral Estoppel

Res judicata prevents a party from relitigating a claim which has previously been decided on its merits. See, Siegel, New York Practice 4th §§443, 444.

The doctrine of collateral estoppel precludes a party from re-litigating in subsequent litigation an issue which that party had a full and fair opportunity to litigate in prior litigation. Gilberg v. Barbieri, 53 NY2d 285 (1981). Collateral estoppel involves issue preclusion. Singleton Management, Inc., v. Compere, 243 AD2d 213 (1st Dept. 1998).

In order to invoke the doctrine, the identical issue must have been presented in the prior litigation, be dispositive in the subsequent litigation and the party being precluded from litigating issue must have had a full and fair opportunity to have litigate the issue in the prior proceedings. D'Arata v. New York Central Mutual Fire Ins. Co., 76 NY2d 659 (1990); and Kaufman v. Eli Lilly and Co., 65 NY2d 449 (1985). See also, Color By Pergament, Inc. v. O'Henry's Film Works, Inc., 278 AD2d 92 (1st Dept. 2000). The party seeking to invoke the doctrine has the burden of establishing that the same issues were presented and decided in the prior litigation while the party opposing the application of the doctrine has the burden of establishing the [*3]absence of a full and fair opportunity to litigate the issue. Kaufman v. Eli Lilly and Co., supra.

Defendants assert that the decision in In re Zwirn, supra, bars Day from maintaining a fraudulent conveyance action.

A creditor of the bankrupt may not maintain an action to set aside a fraudulent

conveyance. See, Matter of Fletcher, 176 B.R. 445 (W.D. Mich, 1995). The proper party to maintain such an action to set aside a fraudulent transfers made by the bankrupt is the trustee of the bankrupt's estate. In re Zwirn, supra.

Tabas is the trustee of Zwirn's bankruptcy estate. He is the proper party to maintain this action. Therefore, the fraudulent conveyance action should not be dismissed.

Additionally, the fraudulent conveyance action is not brought to set aside a fraudulent conveyance made by the bankrupt. It is an action brought to set aside a fraudulent conveyance made by Joseph and Bronx VW who may owe money to the debtor.

By implication, the Bankruptcy Court's order gives Day the right to prosecute the fraudulent conveyance action. This Court believes the right to bring an action includes the right to take such actions as a reasonably necessary to enforce such a judgment. Day was granted the right to bring the action on the promissory notes, including the right

to bring such actions as might be necessary or appropriate to obtain enforcement of any judgment entered thereon.

C.Statute of Limitations

The trustee can bring an action to set aside fraudulent conveyances made by a debtor. See, 11 U.S.C. §§544, 548. The trustee must commence such an action within two years of the trustee's appointment. 11 U.S.C. §546(a). The trustee for Zwirn's bankruptcy estate was appointed on November 3, 2004. Defendants assert the statute of limitations ran on November 2, 2006, which is the latter of two years after the appointment of the trustee.

Defendants ignore a Tolling Agreement filed in the bankruptcy proceeding. That agreement, which was executed by Joseph, extended the trustee's time to commence an action brought pursuant to 11 U.S.C. §548 to May 22, 2007.

This action was commenced on May 21, 2007 when the summons and complaint were filed with the Nassau County Clerk. The date upon which Joseph or any of the other Defendants was served is irrelevant for calculating the statute of limitations. When the action was commenced, by filing the summons and complaint with the County Clerk the statute of limitation stopped running. CPLR 304.

Furthermore, it does not appear that the two year limitations period contained in 11 U.S.C. §546(a) is applicable in this case. This is not an action to void or set aside a transfer made by the debtor. This is an action to set aside a fraudulent conveyance made one who owes money to the debtor.

The cause of action asserted herein is that Joseph and Bronx VW, who owe money to Zwirn, fraudulently transferred money or property without fair consideration to avoid their obligations to Zwirn. Joseph transferred his house to his wife without consideration in 2004 and the assets of Bronx VW in 2002 or 2003. Causes of action to set aside fraudulent conveyances are subject to a six year statute of limitations. Metzger v. Yuenger Woodworking Corp., 33 AD3d 678 (2nd Dept. 2006). When the claim is based upon constructive fraud, the cause of action must be brought within six years of the fraudulent conveyance. Id.; and CPLR 213(1). Where the claim is based upon actual fraud, the action must be commenced within six years of [*4]the fraudulent transfer or two years from date when the fraud was or could have been discovered. Id.

This action was commence within six years of Joseph's transfer of his interest in Bronx VW and his house. Thus, the action is timely.

D.Sanctions

Plaintiffs cross-move for sanctions. The court may impose sanctions upon an attorney and/or a party who engages in frivolous conduct. 22 NYCRR 130-1.1. One engages in frivolous conduct if the conduct "...is undertaken primarily to delay or prolong the resolution of the litigation, or to harass or maliciously injure another." 22 NYCRR 130-1.1(c)(2). Conduct is also frivolous if "...it asserts material factual statements that are false." 22 NYCRR 130-1.1(c).

It appears to this Court that Defendants' conduct on this motion is frivolous on both accounts. Defendants ignored the May 7, 2007 order of the Bankruptcy Court which granted Day the right to proceed on the promissory notes. There is little doubt that Joseph was aware of this order. He was represented by counsel in the proceeding in bankruptcy court which resulted in the entry of that order. Additionally, the order granting Day the right to bring the action on the notes was granted in connection with the denial of Joseph's application to purchase the promissory notes by the Bankruptcy Court .

It also appears that this motion is part of Joseph's persistent effort to avoid, evade or delay the obligation to make payment on the promissory notes. Joseph has already been sanctioned by the Bankruptcy Court because of his conduct. Defendants' motion was made solely to delay the prosecution of this action.

A party against whom sanctions are to be imposed is entitled to an opportunity to be heard before the Court imposes sanctions. See, Haddad v. Haddad, 272 AD2d 371 (2nd Dept. 2000). Therefore, this matter is set down for a hearing on the issue of the appropriate sanction to be imposed upon Defendants and/or their attorneys.

Accordingly, it is,

ORDERED, that Defendants' motion to dismiss is denied in its entirety; and it is

further,

ORDERED, that Plaintiffs' motion for sanctions is granted to the extent of ordering the Defendants and their attorneys to show cause before this Court on November 2, 2007 at 9:30 a.m why sanctions should not be imposed; and it is further,

ORDERED, that Defendants shall serve an answer within twenty days of the date of this order; and it is further,

ORDERED, that counsel for the parties are directed to appear for a preliminary conference on October 19, 2007 at 9:30 a.m.

This constitutes the decision and Order of the Court.

Dated: Mineola, NY_____________________________

September 21, 2007Hon. LEONARD B. AUSTIN, J.S.C.