Federal National Mortgage Association v. Olympia Mortgage Corporation et al

Filing 900

OPINION AND ORDER: On the basis of the evidence submitted and for the reasons set forth above, Olympia's motion for the entry of default judgment is granted. The crossclaims asserted against Avruhum Donner are hereby severed, and the Clerk of Court is directed to enter final judgment, on default, and pursuant to Fed. R. Civ. P. 54, as follows (see order for details). Ordered by Judge Nina Gershon on 6/6/2014. (fwd for judgment) (Fernandez, Erica)

FILED

IN CLERM'S OFFICE
U.S. DISTRICT COURT E.O.N.V.

*

JUN 10 2014

*·.

BROOKLYN OFFICE

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK

-----------------------------------------------------FEDERAL NATIONAL MORTGAGE
ASSOCIATION,

OPINION AND ORDER
04-CV-4971 (NG)(MDG)

Plaintiff,
- against OLYMPIA MORTGAGE CORPORATION,
et al.,
Defendants.

------------------------------------------------------x

OLYMPIA MORTGAGE CORPORATION,
et al.,

Crossclaim Plaintiff,
- against LEIB PINTER, et al.,
Crossclaim Defendants.

-------------------------------------------------------x
GERSHON, United States District Judge:
Crossclaim plaintiff Olympia Mortgage Corporation, through its court-appointed
Receiver ("Olympia"), moves for the entry of default judgment against crossclaim defendant
Avruhum Donner ("Donner"). Olympia seeks the entry of judgment on its claims for breach of
fiduciary duty and its claims asserted under New York Debtor and Creditor Law §§ 273 and 276.
I.

BACKGROUND
The parties' familiarity with the factual background and extended procedural history of

this matter is presumed, but I note the following relevant information. Donner is the former
I

president and a principal shareholder of Olympia, whose ownership interest in the company has
varied from 32% to 50% over the years of its existence. In connection with his role as president,
Donner's responsibilities included the quarterly review of Olympia's financial statements, and he
was an authorized signatory on the company's bank accounts.

Olympia's other principal

shareholders were Leib Pinter, Sam Pinter, and Barry Goldstein (collectively, with Donner, the
"Principals").
Olympia's efforts to obtain the resolution of its claims against Donner have been met
with continuing resistance. As of March 2013, almost all of the claims and crossclaims asserted
in this action had been resolved (or were about to be resolved) as a result of settlement, motion
practice, or previously entered defaults. 1 By that time, the only claims that remained to be tried
were those for breach of fiduciary duty, and those for fraudulent conveyance under New York
Debtor and Creditor Law §§ 273 and 276 ("Sections 273 and 276"), as asserted against Donner

1

Relatively early in this litigation, plaintiff Federal National Mortgage Association
("Fannie Mae") and Olympia entered into a consent judgment relating to Fannie Mae's breach of
contract claim. (See ECF Doc. # 394.) Fannie Mae subsequently dismissed its remaining claims
against Olympia and successfully pursued its claims against individual defendants Sam Pinter
and Leib Pinter. See Federal National Mortgage Association v. Olympia Mortgage Corp., 724
F.Supp.2d 308 (E.D.N.Y. 2010) (on motion for summary judgment, awarding damages of $44.8
million in favor of Fannie Mae and against Sam Pinter); Federal National Mortgage Association
v. Olympia Mortgage Corp., 2010 WL 3085174 (E.D.N.Y., Aug. 6, 2010) (on motion for
summary judgment, awarding damages in favor of Fannie Mae and against Leib Pinter in the
amount of $43,918,500).
Olympia has also successfully pursued its crossclaims against certain of the individual
crossclaim defendants. See, e.g., Federal National Mortgage Association v. Olympia Mortgage
Corp., 2013 WL 417352 (E.D.N.Y., Jan. 29, 2013) (on motion for summary judgment, awarding
damages in favor of Olympia and against Sam Pinter's wife, Fagie Pinter, and various of their
children in amounts ranging from $20,000 to $302,620.07). See also Federal National Mortgage
Association v. Olympia Mortgage Corp., 954 F.Supp.2d 165 (E.D.N.Y. 2013) (severing the
crossclaims asserted against bankrupt crossclaim defendants and entering final judgment in the
amounts previously awarded).
2

and co-crossclaim defendant, Barry Goldstein ("Goldstein").2 (See ECF Doc.# 823.)
Olympia submitted a proposed pretrial order on March 22, 2013.

The crossclaim

defendants' response to that proposal was due by April 12, 2013. Although Goldstein sought
and was granted an extension of time by which to file his response (see ECF Doc. #825), Donner
neither responded nor sought such an extension in advance of the deadline. By letter dated April
16, 2013, Olympia argued that Donner's failure to submit a response should result in the entry of
default judgment against him. (See ECF Doc.# 829.)

By letter dated April 17, 2013, Donner

opposed the entry of default and requested, inter alia, a two-week extension of time to file his
response, which request was opposed by Olympia's letter of April 18, 2013 (See ECF Docs. #
830 and 831, respectively.) By Order dated April 19, 2013, I denied Olympia's request for the
entry of default judgment and extended until April 24, 2013 - the date that had been requested by
Goldstein - the deadline by which Donner was to file his response to the proposed pretrial order.
(See ECF Doc.# 832.)

On the date that his response was due, Donner filed a petition for Chapter 13 bankruptcy
protection in the United States Bankruptcy Court for the Eastern District of New York, thus
staying the action against him here. (See ECF Doc. # 834). On June 20, 2013, I severed the
crossclaims asserted against Donner and Goldstein and entered final judgment against the other
defendants/crossclaim defendants.3 (See ECF Doc. # 846.)

2

Similar claims against Donner were the subject of prior motion practice. By Orders
dated December 12, 2011 and March 21, 2012, I granted summary judgment in the amount of
$498,575.15 in favor of Olympia and against Donner, on some of Olympia's claims of breach of
fiduciary duty and fraudulent transfer under Sections 273 and 276. (See ECF Docs. #694 and
731; see also Oral Argument Tr., Dec. 12, 2011, ECF Doc. #717.)
3
Crossclaim defendant Goldstein also filed a petition for bankruptcy protection, but his
3

By letter dated August 19, 2013, Olympia advised the court that Donner had withdrawn
his bankruptcy petition, and it renewed its application for the entry of default judgment against
him.

(ECF Doc. # 862.)

By Order dated August 27, 2013, I directed Olympia to file

documentary evidence of the dismissal of Donner's bankruptcy petition and directed Donner to
show cause, within seven days after such filing, as to why a default judgment should not be
entered.

(See ECF Doc. # 868.)

Olympia filed a copy of the Order dismissing Donner's

bankruptcy petition on August 29, 2013 (see ECF Doc.# 869), but Donner did not respond to the
order to show cause.

On September 10, 2013, Olympia again requested the entry of default

judgment, and by Order dated September 11, 2013, I authorized the present motion. (See ECF
Docs.# 871, 872.) Olympia served its moving papers on November 8, 2013, and, by letter dated
November 19, 2013, Donner requested an extension of time, from November 22 to December 13,
2013, to serve his opposition. 4 (See ECF Doc. # 889.) No such opposition was ever served,
however, and, by letter dated December 18, 2013, Olympia submitted copies of its motion papers
to the court. 5 (ECF Doc. # 891.)

petition was filed in advance of the April 24 deadline. (See ECF Doc. # 833.) Having received
no notice to the contrary, I assume that his proceeding in the U.S. Bankruptcy Court for the
Eastern District of New York is still pending. Therefore, the crossclaims asserted against him in
this action remain stayed.
4
Donner's counsel indicates in this letter that Olympia filed its moving papers on ECF,
but the ECF Document numbers to which he refers do not relate to the present motion. Although
he does not expressly state that the papers were served upon him, given counsel's request for an
extension of time to oppose the motion, it is clear that such service was accomplished, as
directed by my Order of October 29, 2013. (See ECF Docket Entry, October 29, 2013.)
5
Olympia has submitted to chambers courtesy copies of its moving papers, along with a
CD containing the rather voluminous exhibits, but it has not filed any of the moving papers on
ECF. Olympia's request to file with the Clerk's office a CD containing any exhibits that exceed
the ECF size limits is granted. However, Olympia is hereby directed to file all other papers
submitted in connection with this motion on ECF, and to ensure that the separate filing of
4

Now, by unopposed motion, Olympia seeks the entry of a default judgment against
Donner in the amount of $7,813,202.73 in connection with its claims of constructive fraud and
actual fraud under Sections 273 and 276. Olympia seeks entry of default judgment in the same
amount on its breach of fiduciary duty claim, insofar as these fraudulent transfers amount to a
breach of Donner's fiduciary duty, and also in the amount of $43,918,500 on the ground that
Donner's breach caused Olympia's insolvency to deepen, resulting in Olympia's liability to
Fannie Mae.

II.

DISCUSSION
A. Olympia is Entitled to the Entry of Default Judgment against Donner
Olympia's entitlement to the entry of default judgment is beyond dispute. To be sure, the

entry of default judgment is "the most severe sanction which the court may apply." New York v.

Green, 420 F.3d 99, 104 (2d Cir. 2005). And, given the "oft-stated preference for resolving
disputes on the merits," default judgments "are generally disfavored and reserved for rare
occasions." Enron Oil Corp. v. Diakuhara, 10 F.3d 90, 96 (2d Cir. 1993). Nonetheless, in
certain circumstances, such as those in which "a litigant is confronted by an obstructionist
adversary," the availability of default judgment "play[s) a constructive role in maintaining the
orderly and efficient administration of justice." Id.
Although "the typical Rule 55 case [is one) in which a default has entered because a
defendant failed to file a timely answer," default under Rule 55 of the Federal Rules of Civil
Procedure may also be entered "against a defendant [that] has failed to ... otherwise defend."

oversized documents is accurately reflected on the ECF Docket.

5

City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 129 (2d Cir. 2011) (internal
quotation marks and citation omitted) (alterations in original). The phrase "otherwise defend"
has been interpreted to encompass situations including one in which a defendant "fail[ed] to
appear for a deposition, dismiss[ ed his] counsel, [gave] vague and unresponsive answers to
interrogatories, and fail[ed] to appear for trial." Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61,
65 (2d Cir. 1981 ). The entry of default judgment was also held to be appropriate against a
defendant who twice failed to respond, as directed, to plaintiffs pretrial submission. Cotton v.

Slone, 4 F.3d 176, 178-79 (2d Cir. 1993).
Here, Donner's unexcused disappearance from this litigation provides sufficient basis for
the entry of default judgment against him. Donner elected not to respond to Olympia's Proposed
Pretrial Order; he then chose not to respond to the September 11, 2013 order to show cause; and
he has now chosen not to oppose the present motion - even after requesting and receiving an
extension of time by which to do so. Such (in)action clearly demonstrates a failure to "otherwise
defend" against the claims Olympia has been attempting to prosecute over these past many years,
and Olympia's motion for the entry of default judgment is granted.

B. Donner' Liability is Sufficiently Established
Having thus established Donner's default, all of Olympia's factual allegations relating to
liability are accepted as true, and all reasonable inferences are drawn in its favor. Au Bon Pain,
653 F.2d at 65. Moreover, once a default is established, a district court is authorized to accept
evidentiary proof in support of additional facts. See id.

Here, Olympia has offered "ample

proof' as to Donner's liability with respect to the breach of fiduciary duty claim and the claims

6

under Sections 273 and 276.

Id.

The factual bases for such liability are set forth in the

November 8, 2013 Declaration of Karen Kincaid Balmer (the "Receiver"), and the
accompanying factual submissions support in great detail the fraudulent transfers and other
schemes perpetrated or authorized by Donner. The elements of liability under Sections 273 and
276, as well as for breach of fiduciary duty, have been previously discussed on multiple
occasions during the course of this litigation and need not be repeated here. See, e.g., Federal

National Mortgage Association v. Olympia Mortgage Corp., 792 F.Supp.2d 645 (E.D.N.Y.
2011). 6 I therefore note briefly that Olympia's submissions make clear that Donner caused
Olympia to transfer funds, while it was insolvent, for less than fair consideration, in violation of
Section 273, see, e.g., United States v. Alfano, 34 F.Supp.2d 827, 844-45 (E.D.N.Y. 1999); and
also, that Donner caused Olympia to transfer funds to related persons and entities, without fair
consideration, even though he knew that Olympia was insolvent and that the transfers would
cause it to avoid making payments to its creditors, including Fannie Mae, in violation of Section
276, see, e.g., Olympia Mortgage Corp., 792 F.Supp.2d at 653-54. I am similarly satisfied, on
the basis of Olympia's submissions, that Donner owed a fiduciary duty to Olympia, that he
breached that duty, not only by causing the fraudulent transfers to be made, but also by engaging
in various schemes to disguise Olympia's financial condition, and that, as a result of this breach,
Olympia incurred damages in the form of increased indebtedness to Fannie Mae, among others.

6

7

7

See also n. 2, supra.

Two such schemes, the "Check Kiting" and "Nominee Loan" schemes, are described in
detail in the Balmer Declaration. "Check Kiting" refers to the issuance of a short-term loan by
way of a post-dated check. (Balmer Deel. ~ 52.) Specifically, Donner would cause Midwood, a
credit union under his control and of which he was a principal, to transfer funds to an Olympia
7

See, e.g., Sheehy v. New Century Mortgage Corp., 690 F.Supp.2d 51, 62 (E.D.N.Y. 2010).
C. Damages

I turn, next, to the question of damages. "Even when a default judgment is warranted
based on a party's failure to defend, the allegations in the complaint with respect to the amount
of the damages are not deemed true." Credit Lyonnais Securities (USA), Inc. v. Alcantra, 183
F.3d 151, 155 (2d Cir. 1999). Rather, the district court is obligated to conduct some inquiry in
order to "determine the appropriate amount of damages, which involves two tasks: determining
the proper rule for calculating damages on such a claim, and assessing plaintiff's evidence
supporting the damages to be determined under this rule." Id. While Rule 55(b)(2) permits the
district court to "conduct such hearings or order such references as it deems necessary and
proper" to determine appropriate damages, the Rule does not require a hearing. Action SA. v.
Marc Rich & Co., Inc., 951F.2d504, 508 (2d Cir. 1991). Awards of damages have been upheld,

for example, where "the District Court relied upon detailed affidavits and documentary evidence,
supplemented by the District Judge's personal knowledge of the record, gained during four years
of involvement with the litigation, including his role as presiding judge at trial." Fustok v.
bank account. Donner would simultaneously issue a repayment check to Midwood, but, since
the Olympia bank account would not contain sufficient funds to cover the payment, Donner
would cause Midwood to hold the repayment check until the Olympia account was replenished.
(Id. 'l!'ll 52-53.) The purpose of this scheme was, first, to enable Midwood to provide illegal,
interest-free loans, and further, to enable Olympia to hide its insolvency by providing the funds
needed to pay its various creditors. (Id. 'l!'ll 58-59.)
By the Nominee Loan scheme, Donner would cause Midwood to issue loans to his own
relatives or those of the other Olympia Principals. In some cases, Olympia would receive the
funds, thus getting the benefit of the cash infusion without the corresponding liability of a loan in
its name. In other cases, Donner would have Midwood distribute the loan proceeds to the
nominal borrower, but then cause Olympia to repay the principal and interest amounts. By this
scheme, Donner enabled Olympia both to disguise its insolvency and to benefit non-employee
family members. (See id. 'll'I! 60-76.)
8

ContiCommodity Services, Inc., 873 F.2d 38, 40 (2d Cir. 1989).
Here, Olympia's application for damages is supported by the detailed Declaration of the
Receiver, which is, itself, based on her extensive investigation into Olympia's financial records, 8
and to which is attached hundreds of pages of documentary evidence setting forth the
circumstances under which Donner breached his fiduciary duty to Olympia and caused the
fraudulent transfer of millions of dollars from Olympia to various entities owned by himself, the
other Principals, or their relatives. Although the entry of default judgment and determination of
damages typically occurs in two stages, repeated efforts by the Receiver and the court to elicit
any type of response from Donner have been unsuccessful. His refusal to respond to the order to
show cause and failure to oppose this motion, along with his continual invocation of his Fifth
Amendment privilege during discovery, leaves the court with no basis upon which to dispute the
accuracy of the Receiver's comprehensive damages analysis. The level of detail contained in
Olympia's unrefuted submissions and my own personal knowledge of the parties and the claims
asserted here, developed over many years, provides a sufficient basis for determining an
appropriate damages award against Donner.
i.

The New York Debtor and Creditor Law Claims

First, with respect to the claims under Sections 273 and 276, Olympia seeks damages
relating to fraudulent transfers totaling $7,813,203.73. Under the New York Debtor and Creditor
8

See, e.g., Balmer Deel. Ex. S 1, "Receiver's Analysis of Solvency - Report of Findings,"
which discusses the Receiver's investigation into Olympia's financial condition from December
31, 1997 to October 31, 2004 and sets forth her conclusions as to Olympia's solvency during that
period; see also "Olympia Mortgage Corporation Receiver's First Report Pursuant to the
November 23, 2004 Receivership Order (Redacted)," discussing, inter alia, the background of
the Receiver's investigation and the improper relationships between Olympia and the entities and
individuals to which funds were transferred (ECF Doc. # 369).
9

Law, "a creditor may recover money damages against parties who participate in the fraudulent
transfer and are either transferees of the assets or beneficiaries of the conveyance."

9

RTC

Mortgage Trust 1995 S/NI v. Sopher, 31 Fed. Appx. 37, 38, n.2 (2d Cir. 2002); accord
Stochastic Decisions, Inc. v. DiDomenico, 995 F.2d 1158, 1172 (2d Cir. 1993). As an officer of
Olympia and signatory on its bank accounts, Donner participated in the fraudulent transfer of
millions of dollars' worth of Olympia's assets by signing checks and otherwise authorizing the
expenditures. 10 Donner was also a beneficiary of these conveyances, in ways both direct and
indirect.
Donner benefited directly from the transfers made in connection with the Nominee Loan
scheme, insofar as the churning of funds between Midwood and Olympia is what enabled
Olympia to maintain its charade of solvency and enabled Donner and his relatives to continue
reaping the financial benefits of his position as president. Donner also benefited directly from
his transfer of funds to Barring Shields, an entity in which he held an ownership interest, and to
Kahal Shomrei Hadath ("KSH"), an entity from which one of his sons received compensation.
Although not quite as directly, Donner also benefited from the fraudulent transfer of

9

I have previously concluded that, because the Receiver "seeks to recover funds
fraudulently conveyed from Olympia to other persons and entities by Olympia's management,"
she acts to protect the corporation itself and its defrauded creditors, and she therefore has
standing to pursue the fraudulent conveyance claims. Federal National Mortgage Association v.
Olympia Mortgage Corp., 2011 WL 2414685, at *7 (E.D.N.Y., June 8, 2011).
10
Jn connection with an earlier motion filed by Donner's relatives, who claimed they
were entitled to certain conveyances as compensation to Donner himself, I concluded that
Donner "did not have a large role, or spend much time working, at Olympia." Federal National
Mortgage Association v. Olympia Mortgage Corp., 792 F.Supp.2d 645, 649 (E.D.N.Y. 2011).
The undisputed evidence on this motion makes clear that Donner had the authority and the
ability to transfer vast sums of money from Olympia to various individuals and entities, as
discussed in the text.
JO

funds to Jasmine Lakes Properties Corp. ("Jasmine Lakes"), S&F Ocean Realty, Z&S Realty,
and the family members of the other Principals. The benefits enjoyed by the Olympia Principals
are, at this point, well-documented.

Each of the Principals used Olympia funds to make

payments to or on behalf of their relatives, to cover expenses such as health insurance, car
payments and mortgage payments. See, e.g., Olympia Mortgage Corp., 724 F.Supp.2d at 312,
n.8. The Principals and their relatives also "received interest payments on their own supposed
loans to Olympia at rates ranging from 10 to 14 percent." 11 Id. at 313. The transfer of funds
from Olympia to entities owned by the other Principals ensured the continued profitability of
those other entities and thus the continued enrichment of the other Principals. On the basis of the
facts previously established and the uncontested factual assertions set forth in connection with
this motion, it is reasonable to infer that the continued enrichment of one Principal inured to the
benefit of the other Principals.
Having thus both participated in and benefited from the fraudulent transfers, Donner is
liable for the amount of monies wrongfully received by the various transferees.

See, e.g.,

Federal National Mortgage Association v. Olympia Mortgage Corp., 2011 WL 9933496, at * 12
E.D.N.Y., August 5, 2011) (concluding that "money damages for the entire amount of those
transfers found to have been fraudulent are recoverable").

Olympia asserts that Donner

authorized or otherwise caused the fraudulent transfer of $7,813,203.73, broken down as set
forth below. The amounts of the first five transfers (subsections (a) through (g), below) are also
reflected as judgments entered against the various transferees in the June 21, 2013 Order and
Judgment (the "June 21 Judgment"). See Olympia Mortgage Corp., 954 F.Supp.2d at 171-72.
11

No documentation for these "supposed loans" was ever produced.
11

a. Total of transfers made to relatives of the Olympia Principals: $2,201,387.12

Total transfers to Leib Pinter's children: $1,032,646.11 12
o ChaimTaub,$299,113.54
o Moshe Pinter, $298,552.32
o Yossie Pinter, $143,232.06
o Zvi Pinter, $276,748.19
o Tova Taub, $15,000
13
(See Balmer Deel. iii! 96-97. )
Total transfers to Sam Pinter's wife and children: $766,350.48
o Fagie Pinter, $93,839.11
o Charles Pinter, $264,691.30
o Basi Niernberg, $302,620.07
o Moishe M. Pinter, $65,200 14
o Sarah Pinter, $20,000
o David Pinter, $20,000
(See Balmer Deel. iii! 98-99.)
Total transfers to three of Barry Goldstein's children: $402,390.53 15
o Shoshanna Kirschenbaum, $97,087.35
o Rachael Stein, $190,985.83
o Gillian Sax, 114,317.35
(See Balmer Deel. iii! I 00-08.)
b. Total of transfers made to KSH: $2,044,876
(See Balmer Deel. iii! 88, 117-22.)

12

With the exception of the $15,000 to Tova Taub, all of these amounts were included in
the June 21 Judgment.
13
The amounts set forth in the cited paragraphs of the Balmer Declaration have been
rounded to the nearest dollar. The exact amounts are set forth in Exhibit CF to the Balmer
Declaration.
14
The judgment previously entered against Moishe M. Pinter was in the amount of
$57,200, with interest from March 29, 2002. Olympia Mortgage Corp., 954 F.Supp.2d at 171.
This amount appears to exclude, on the basis of certain factual issues, $8,000 in interest
payments made on Moishe M. Pinter's behalf. See Olympia Mortgage Corp., 2013 WL 417352,
at *I 0. Given that there is now, however, no dispute that Donner caused Olympia to
fraudulently transfer a total of $65,200 to Moishe M. Pinter, Donner is liable for the entire
amount.
15
The claims against these defendants were dismissed by Order dated April IO, 2012, and
no judgments have been entered against them. (See ECF Doc. #736.)
12

16

c. Total of transfers to Jasmine Lakes: $447 ,952.51
(See Balmer Deel. '11'11123-26; see also Balmer Deel. Ex. CB at I.)
d. Total of transfers to S&F Ocean Realty: $148,659.59
(See Balmer Deel. '11'11 127-30.)
e. Total of transfers to Z&S Realty: $163,786.41
(See Balmer Deel. '11'11131-33.)
f.

Total of transfers made in connection with the Midwood Nominee Loans:
$2,087 ,090.06
(See Balmer Deel. '11'1166-76.)

g. Total of transfers made to Barring Shields & Co., LLC: $719,452.04
(See Balmer Deel. '11'11 109-16.)

I am satisfied that the evidence submitted demonstrates the accuracy of these figures, and
Olympia is therefore entitled to judgment against Donner in the amount of $7,813,203.73, plus
interest.
Olympia seeks, and is entitled to, a pre-judgment interest award pursuant to N. Y.
C.P.L.R. § 500l(a). Since "New York law leaves to the discretion of the court the choice of
whether to calculate prejudgment interest based upon the date when damages were incurred or a
single reasonable intermediate date, which can be used to simplify the calculation," Olympia
requests that the court fix such an intermediate date. Marfia v. T.C. Ziraat Bankasi, 147 F.3d 83,

16

The June 21 Judgment contains an award against Jasmine Lakes in the amount of
$232,723.61, with interest accruing as of June 5, 2003. Olympia Mortgage Corp., 954 F.Supp.2d
at 171. This was the amount awarded on Olympia's motion for summary judgment. See
Olympia Mortgage Corp., 2011 WL 2414685, at *8. The evidence at that time was insufficient
to show that the remaining $215,228.90 was used for the benefit of Jasmine Lakes, and I
therefore declined to include that amount in the damages awarded against that entity. Id. Now,
however, the undisputed evidence clearly demonstrates that Donner caused a total of
$447,952.51 to be fraudulently transferred to Jasmine Lakes, and Donner is thus liable for the
entire amount.
13

91 (2d Cir. 1998) (citing N.Y. C.P.L.R. § 500l(b)). Upon review of the dates on which the many
transactions at issue here occurred, the court concludes that January 1, 2002 is a reasonable
intermediate date.

Olympia is therefore entitled to the entry of a default judgment on its

crossclaims against Donner under Section 273 in the amount of $7,813,203.73, with statutory
prejudgment interest on this amount to run from January 1, 2002.
Olympia is likewise entitled to the entry of default judgment on its crossclaims against
Donner under Section 276 in the amount of $7,813,203.73, with statutory prejudgment interest
on this amount to run from January 1, 2002.
ii.

The Breach of Fiduciary Duty Claim

I turn, next, to Olympia's breach of fiduciary duty claim. In connection with this claim,
Olympia seeks two separate damages awards: one in the amount of $43,918,500.42, which is the
amount of Olympia's liability to Fannie Mae; and another in the amount of $7,813,203.73,
representing the amount of the fraudulent transfers. The fraudulent transfers set forth above
were clearly undertaken in breach of Donner's fiduciary duties to Olympia, and damages in this
amount are therefore appropriate in connection with this claim.
With respect to the $43,918,500.42 claim, Olympia argues that Donner used the Check
Kiting, Nominee Loan and other schemes to infuse cash into the company and to hide its
liabilities, thus enabling Olympia to continue operating even though it was insolvent. Olympia
further asserts that this continued appearance of solvency permitted the continued perpetration of
the fraud against Fannie Mae, resulting in the increase of Olympia's liability to Fannie Mae from
around $3 million in December 1997 to around $43 million in October 2004, and that Donner is

14

liable for the entire increased amount. (See Balmer Deel.

iii! 77-82.)

The theory on which Olympia relies, "deepening insolvency," posits that an "insolvent
corporation suffers a distinct and compensable injury when it continues to operate and incur
more debt." In re Global Service Group, LLC, 316 B.R. 451, 457 (Bankr. S.D.N.Y. 2004).
Some courts have found deepening insolvency to provide an independent cause of action, while
others have treated it as a theory of damages. See id at 457-58 (collecting cases). In this
Circuit, deepening insolvency is considered "a basis for damages that may result from the
commission of a separate tort." In re Allou Distributors, Inc., 395 B.R. 246, 264-65 (Bankr.
E.D.N.Y. 2008). Thus, one seeking to recover under this theory "must show that the defendant
prolonged the company's life in breach of a separate duty, or committed an actionable tort that
contributed to the continued operation of a corporation and its increased debt." Global Service

Group, 316 B.R. at 458. Here, there can be no doubt that Donner's participation in the Check
Kiting and Nominee Loan schemes amounted to a breach of his fiduciary duty.

And the

evidence submitted provides an adequate basis upon which to infer that the perpetration of these
schemes served not only to prolong the life of an already insolvent Olympia, but also to increase
its debt to Fannie Mae while simultaneously depleting the assets available for repayment. I am
satisfied that Olympia's $43,918,500.42 liability to Fannie Mae was caused, in no small part, by
Donner's breach of his fiduciary duty, and Olympia's motion for the entry of default judgment in
that amount is granted.
III.

CONCLUSION
On the basis of the evidence submitted and for the reasons set forth above, Olympia's

15

motion for the entry of default judgment is granted.
The crossclaims asserted against Avruhum Donner are hereby severed, and the Clerk of
Court is directed to enter final judgment, on default, and pursuant to Fed. R. Civ. P. 54, as
follows:
On Olympia's claim of fraudulent transfer under N.Y. Debtor and Creditor Law § 273,
judgment against Donner and in favor of Olympia in the amount of $7,813,203. 73, with statutory
prejudgment interest, as calculated by the Clerk of Court, to run from January 1, 2002;
On Olympia's claim of fraudulent transfer under N.Y. Debtor and Creditor Law § 276,
judgment against Donner and in favor of Olympia in the amount of$7,813,203.73, with statutory
prejudgment interest, as calculated by the Clerk of Court, to run from January 1, 2002;
On Olympia's claim of breach of fiduciary duty, judgment against Donner and in favor of
Olympia in the amount of $43,918,500, which sum includes liability in the amount of
$7,813,203.73, as set forth above.

SO ORDERED.
I

Dated: June& , 2014
Brooklyn, New York

s/Nina Gershon
NINA GERSHON
United States District Judge

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