112 West 34th
Street Company, L.L.C., Petitioner,
against
Ezra A. Shamah and RACHEL SHAMAH, ,
Respondents.
|
156005/2014
For Petitioner:
Sternbach, Lawlor & Rella LLP
By: Robert A. Sternbach, Esq
274 Madison Ave, Suite 1303
(212) 661-4040
For respondents:
Jeffrey H. Roth, Esq.
200 Park Ave Suite 1700
New York, NY 10166
(212) 661-0500
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 [*2]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 NY Slip Op 07303, 2014 WL 5431569 [1st Dept 2014]; Gelbard v
Esses, 96 AD2d 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.[FN1]
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 [*3]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 Cir 2005)], 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 AD2d 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 AD2d at 576; National Communications Corp. v
Bloch, 259 AD2d 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 [*4]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 AD2d 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 AD2d 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.
Dated: October 31, 2014
New York, New York
ENTER:
/s/J.S.C.
Footnotes
Footnote 1:"[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].)