Kim et al v. Yoo et al
Filing
131
OPINION AND ORDER: Based on the findings of fact and conclusions of law set forth above, Ji Sung's interests in the Condo, Home, and Brooklyn Property were fraudulently conveyed and must be set aside. Plaintiffs are also entitled to a money judg ment as against Sandra as necessary to satisfy the mortgages taken out on the Home and Brooklyn Property. Plaintiffs are also awarded attorneys' fees as against Ji Sung and Sandra in connection with the intentionally fraudulent conveyances of th e Home and Brooklyn Property. The parties are instructed to confer and submit judgment on notice. In conjunction with the proposed judgment, Plaintiffs are to submit their fee application along with supporting documentation. Defendants may submit any objections to the fee application within fourteen days of Plaintiffs' application. Upon determination of the amount of attorneys' fees, this Court will enter judgment consistent with this Opinion and Order. It is so ordered. (Signed by Judge Robert W. Sweet on 4/17/2018) (js)
,...,
~
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
----------------------------------------x
TAE H. KIM, YOUNG M. CHOI, DONG M.
JU, HONG S. KIM, YOON C. KIM, CHUL G.
PARK, JIN H. PARK, EUTEMIO MORALES,
ZHE Y. SHEN, JONG H. SONG, and
R. JULIAN VENTURA,
15 Civ. 3110
OPINION and ORDER
Plaintiffs,
-againstJI SUNG YOO a/k/a JISUNG YOO a/k/a
JI S. YOO a/k/a JAY YOO, SANDRA YOO
a/k/a SANDRA YEAR KUM YOO a/k/a
YEAR KUM YOO, SAMUEL D. YOO, and
CAROLYN YOO,
Defendants.
-----------------------------------------x
APPEARANCES:
Attorneys for Plaintiffs
ASIAN AMERICAN LEGAL DEFENSE AND EDUCATION FUND
99 Hudson Street
New York, NY 10013
By:
Kenneth Kimerling, Esq.
LATINO JUSTICE/PRLDEF
99 Hudson Street
New York, NY 10013
By:
Jackson Chin, Esq.
SHEARMAN & STERLING LLP
599 Lexington Avenue
New York, NY 10002
By: Adam J. Goldstein, Esq.
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Attorneys for Defendants
LARSEN ADVOCATES P.C.
104 1 8 T Place
Brooklyn, NY 11231
By:
Kristian Karl Larsen
McCALLION & ASSOCIATES LLP
100 Park Avenue, 16th Floor
New York, New York 10017
By: Kenneth F. Mccallion, Esq.
Sweet, D.J.
Plaintiffs Tae H. Kim, Young M. Choi, Dong M. Ju, Hong S.
Kim, Yoon C. Kim, Chul G. Park, Jin H. Park, Eutemio Morales,
Zhe Y. Shen, Jong H. Song, and R. Julian Ventura (collectively,
the "Plaintiffs") are judgment creditors from a previously
adjudicated Fair Labor Standards Act litigation, Kim v. Kum
Gang, Inc., No. 12 Civ. 6344
(MHD)
(S.D.N.Y.)
(the "FLSA
Action"). Plaintiffs have alleged that one of the FLSA Action
judgment debtors, Defendant Ji Sung Yoo ("Ji Sung"), violated
fraudulent conveyance sections of the New York Debtor and
Creditor Laws
("DCL") when he transferred real property
interests to members of his family,
Defendants Sandra Yoo
("Sandra"), Samuel Yoo ("Samuel") and Carolyn Yoo ("Carolyn")
(collectively, the "Yoos" or the "Defendants")
in an attempt to
avoid paying debts.
A bench trial in this action was held before the Court
between January 22 and January 30, 2018. Based upon the prior
proceedings, the findings of fact, and conclusions of law set
forth below, Plaintiffs have proven that each property interest
Ji Sung transferred was fraudulent conveyed and entitled to be
set aside. Plaintiffs are further entitled to a money judgment
to satisfy mortgages taken out on two of the properties from the
1
transferees of those property, in addition to certain attorneys'
fees as against Ji Sung and Sandra.
I. Prior Proceedings
On April 21, 2015, Plaintiffs filed their complaint. Dkt.
No. 1. Plaintiffs' complaint alleged that Ji Sung fraudulently
conveyed three pieces of property-a home in Little Neck, New
York (the "Home"), a condominium on Fifth Avenue in Manhattan,
New York (the "Condo"), and a commercial property in the
Sheepshead Bay neighborhood of Brooklyn, New York (the "Brooklyn
Property")-to Sandra, Samuel, and Carolyn. See Compl.
~~
35-45.
Invoking the Court's ancillary enforcement jurisdiction to
secure payment on a judgment award of $2,672,657.30 entered
against Ji Sung and for Plaintiffs in the FLSA Action,
Plaintiffs sought to return the alleged fraudulently conveyed
property interests to Ji Sung's estate and require payment for
mortgages taken out on the Home and Brooklyn Properties to
return those properties to their pre-conveyance value. Compl.
~~
2, 7, 38, 42,
costs. Compl.
~~
45. Plaintiffs also sought attorneys'
38, 42, 45.
2
fees and
On September 15, 2015, Defendants moved to dismiss
Plaintiffs' Complaint, Dkt. Nos. 28, 35, which was denied on
January 19, 2016, Dkt. No. 57. On June 20, 2017, Defendants
moved for summary judgment, Dkt. No. 85, which was denied on
September 29, 2017, Kim v. Ji Sung Yoo, No. 15 Civ. 3110
2017 WL 4382078
(S.D.N.Y. Sept. 29, 2017)
(RWS),
("Summary Judgment
Opinion"). During motion practice on Defendants' summary
judgment motion, Plaintiffs stated they no longer intended to
pursue Section 276 intentional fraud claims against Carolyn or
Samuel. Dkt. Nos. 95, at 20 n.22; 107, at 9 n.8.
Evidence was presented between January 22 and January 30,
2018. Final arguments were held on March 28, 2018, at which
point the matter was marked fully submitted.
II.
Findings of Fact
Three witnesses testified at trial: Ji Sung, Sandra, and
Kang Youl Lee ("Lee"), the Yoos' financial accountant. Tr.
24:25-7. 1 Their testimony is found generally to be self-serving
and unreliable. In particular, Sandra and Lee's inconsistent and
1
Citations to "Tr." refer to the transcript of the trial
held in this matter from January 22 and January 30, 2018, and
any exhibits referenced therein.
3
often unsupported accounts offer limited corroboration to Ji
Sung's version of events, which is described in greater detail
following a brief reflection of Sandra and Lee's testimony.
Sandra's testimony seismically shifted over the course of
the litigation and appeared crafted after her deposition to
support Defendants' trial posture. This was evident during her
testimony regarding the many checks written by and to the Yoos
that she claimed supported fair consideration for the disputed
property conveyances. E.g., compare Tr. 228:22-23 (stating at
trial that she wrote a check to pay the Kum Gang rent), and Tr.
312:1-19 (stating at trial that she had made a copy of a check
before giving it to Kum Gang), and Tr. 229:8-230:17
(stating at
trial that she wrote a check to Kum Kang), and Tr. 245:24-246:10
(stating at trial that many of the checks given to Ji Sung's
restaurants were her friends who wrote out checks at her
request), with Tr. 283:8-284:8
(stating at her deposition that
the check described at Tr. 228:22-23 was given to her by an
acquaintance and not at her request), and Tr. 314:21-22
(stating
at her deposition that the check described at Tr. 312:1-19 was
obtained from Kum Gang), and Tr. 288:22-289:15 (stating at her
deposition that the check described at Tr. 229:8-230:17 was
given to her by her brother-in-law), and Tr. 319:10-16, 324:19-
4
21, 327:4-6, 328:3-9, 329:9-13, 330:12-16 (stating at trial that
the checks described at Tr. 245:24-246:10 in general were not
friends, but rather employees, and that her brother-in-law had
done the soliciting). Of particular note, Sandra had no
believable explanation for how checks she stated had come only
from her account had been altered to cover-up that the checks
had actually come from her joint account with Ji Sung. See Tr.
230:18-232:14, 292:10-11, 293:19-25; Defs.' Ex. B, at 7, 8;
Pls.' Exs. 70-71. Sandra's responses to straight-forward
questions about whether money went from Kum Gang to her
restaurant, Gum Gang, when other uncontroverted evidence
demonstrated that fact, evinced an intention to avoid contrary
facts for the sake of Ji Sung's narrative. See Tr. 306:13-16,
357:8-11; Pls.' Exs. 50-55.
Lee's testimony was similarly wavering and unreliable. Like
Sandra, Lee's testimony as to where money from Ji Sung's
restaurants came from, went to, and for what purposes shifted
over the course of trial. Lee sometimes stated that certain
monies went to Sandra, only to later refuse to state with the
same confidence that he knew anything about the same checks.
Compare Tr. 33:5-11, 34:2-10 (stating that certain ledger
entries for Ji Sung's restaurants demonstrated checks that went
5
to Sandra), with Tr. 34:23-24, 35:11-14
(stating there was no
way to know if certain check payments went to Sandra). Lee's
testimony was equivocal as to why certain ledger entries for Ji
Sung's restaurants reflected payment to Sandra as payroll or as
repayment for loans Sandra made. Compare Tr. 71:2-25
(stating
that the checks were for payroll), with Tr. 82:19-83:3
(stating
that the checks were for loan repayment, not payroll). The
manner in which Lee described the accounting of Ji Sung's
restaurants to which he testified at trial indicated that the
records were made one way and then, later, changed based on ex
post direction from Ji Sung and Sandra. Tr. 50:15-53:5, 55:863:16.
In addition to the aforementioned witness testimony, the
parties submitted documentary evidence at trial, including New
York State Department of Labor (the "DOL") records, checks
written by and given to the Yoos, the facts subject to
preclusive effect based on prior findings in the FLSA Action 2 ,
The Honorable Michael H. Dolinger's detailed Memorandum and
Order, resolving FLSA claims brought in 2012 against Ji Sung and
other managers of Kum Kang and Kum Gang, was entered into
evidence as Plaintiffs' Exhibit 1. Kim v. Kum Gang, Inc., No. 12
Civ. 6344 (MHD), 2015 WL 2222438 (S.D.N.Y. Mar. 19, 2015).
Plaintiffs rely on factual findings from the FLSA Action to
support their instant claims.
2
6
and prior sworn declarations and affidavits submitted over the
course of this proceeding. Having considered them all, this
evidence established the following facts.
Ji Sung and Sandra, husband and wife, have four children:
Carolyn, Samuel, Sue, and June. Tr. 111:9-11, 181:19-182:23.
"Collateral estoppel 'will bar the relitigation of an issue
of law or fact that was raised, litigated, and actually decided
by a judgment in a prior proceeding between the parties, if the
determination of that issue was essential to the judgment,
regardless of whether or not the two proceedings are based on
the same claim.'" McGuiggan v. CPC Int'l, Inc., 84 F. Supp. 2d
470, 477-78 (S.D.N.Y. 2000) (quoting N.L.R.B. v. United Techs.
Corp., 706 F.2d 1254, 1260 (2d Cir. 1983). "In the context of
issue preclusion, an issue can be one of fact or of law." Klein
v. City of N.Y., No. 10 Civ. 9568 (PAE) (JLC), 2011 WL 5248169,
at *6 (S.D.N.Y. Oct. 28, 2011) (internal quotation marks,
alterations, and citation omitted), report and recommendation
adopted, 2012 WL 546786 (S.D.N.Y. Feb. 21, 2012). "For issue
preclusion to apply, a prior court need not have expressly
decided the identical issue being litigated in a subsequent
case; so long as the prior court decided that issue by necessary
implication, the issue preclusion rule is satisfied." Id.
(internal quotation marks, alterations, and citation omitted).
"Trial courts have broad discretion in deciding when to permit
the offensive use of collateral estoppel." Wills v. RadioShack
Corp., 981 F. Supp. 2d 245, 264 (S.D.N.Y. 2013).
Issue preclusion is appropriate here. The issues presented
both in the FLSA Action and here are substantially similar,
those issues were as necessary to that resolution as to this
one, the issues in the FLSA Action were actually litigated to
judgment by these Plaintiffs and Ji Sung, and the FLSA Action
was fully and fairly litigated. Further support for preclusion
is found by the fact that Defendants themselves rely upon the
FLSA Action in their motion papers. See Defs.' Post-Trial Mem.
("Def s. ' Mem. ") at 1, 14, 18, 2 4 .
7
Sandra is principally at home and cares for June, who is
disabled and requires twenty-four hour care. Tr. 111:20-25;
182:12-19. The Yoos, in differing ownership arrangements, own
three properties: the Home,
located at 52-32 Leaf Place, Little
Neck, New York, Tr. 126:6-7; the Condo, located at 325 Fifth
Avenue, Manhattan, New York, Tr. 119:22-25; and the Brooklyn
Property,
located on Avenue U, Brooklyn, New York, Tr. 127:10-
12.
For the past twenty-six years,
Ji Sung has owned two Korean
restaurants in New York City: Kum Gang,
Flushing, Queens, and Kum Kang,
Inc.
Inc.
("Kum Gang"),
("Kum Kang"),
in
in Midtown
Manhattan, and during the time period at issue, he was the sole
owner.
3
Tr. 112:1-12, 112:24-113:20, 124:17-21, 138:19-20; Pls.'
Exs. 1 ("FLSA Op."), at 4, 28-31. As an owner and manager, Ji
Sung "maintain[ed] close control over their operations," FLSA
Op., at 4, and the two restaurants operated with similar
personnel and management practices and policies, Tr. 139:2-8. Ji
Sung purchased the restaurants, in part, by using a $1 million
inheritance the family received from Sandra's parents at the
3
Sandra has a restaurant, Gum Gang, as well, which was
founded in August 2012. See, e.g., Tr. 154:18-25, 157:10-12,
165:24-166:7, 380:18-20. How Sandra was able to operate a
restaurant while also caring full-time for June was never
explained or delved into at trial.
8
time of Ji Sung and Sandra's wedding. Tr. 124:22-125:2, 358:19359:3.
The nature of the inheritance was contested at trial. Both
Ji Sung and Sandra testified that Sandra exclusively inherited
the $1 million, who in turn loaned it to Ji Sung to open his
businesses. Tr. 125:3-5; 181:3-10, 187:18-20; 359:14-360:15. The
contention that Ji Sung and Sandra's marriage had a
transactional component to it is belied by other evidence in the
record, however. Most importantly, Sandra sworn previously that
the $1 million was given by her family specifically to Ji Sung
for his business endeavors. See Affidavit of Sandra Yoo dated
June 17, 2017
("Sandra Aff.") i 2, 0kt. No. 85, Ex. E. Other
evidence showed that Ji Sung and Sandra only split their
finances following Ji Sung's business problems, Tr. 362:16-21,
and other shared joint bank accounts, Tr. 296:5-8, 364:12365:10, 369:5-370:10. This evidence establishes that the two
shared undifferentiated finances. Sandra described her
relationship with her husband as "not a business relationship
between husband and wife." Tr. 361:2. The wedding inheritance
money literally could have been given to Sandra, see Tr. 359:24360:1, but the evidence established that the money was given to
9
the Yoos as a couple, and that it was spent in large part on the
restaurants.
In January 2010, the DOL began investigating Kum Kang (the
"2010 KK Investigation"). Pls.' Ex. 6A. The investigation
reviewed Kum Kang's payroll records from July 1, 2005, through
February 11, 2010. Id., at 18. Ji Sung averred at trial that he
was unaware of this investigation, Tr. 176:8-9, but that claim
is countervailed by other evidence. Ji Sung was aware at the
time that he was in violation of applicable labor laws. See FLSA
Op. 83-85 & n.54
(describing the actions taken by Ji Sung and
other FLSA Action defendants to conceal their unlawful
employment practices and concluding that the "defendants'
violation of the applicable [labor]
laws was certainly
willful"). Ji Sung was also aware of the DOL's investigation, as
evidenced by his involvement in early 2010 with manufacturing
false time cards. See FLSA Op. 50, 52-53,
60, 74, 83 & n.36
(describing the defendants' creation of false time cards during
the 2010 KK Investigation in the home of a relative of Ji Sung's
while Ji Sung hid the real time cards in his home garage).
This was not Ji Sung's first encounter with DOL
investigations. In 2007, following an investigation begun in
10
January 2005, the DOL had fined Ji Sung for failing to pay his
employees properly or to maintain proper payroll records. FLSA
Op. at 83 n.54; Tr. 115:11-14. The DOL initially fined Ji Sung
around $168,000 in actual damages, which with penalties could
have amounted to over $1 million, but ultimately settled with
him for $137,000 in damages. Tr. 115:15-116:18, 172:16-173:7;
FLSA Op. at 83 n.54.
On March 10, 2010, Ji Sung, who had a half interest in the
Condo shared with Carolyn, conveyed one-third of that interest
to Sandra. Pls.' Ex. 8; Tr. 195:10-13. The conveyance deed for
the Condo stated there was consideration of ten dollars but also
that the full sale price was for zero dollars. Pls.' Ex. 8, at
3, 9. The Condo had been appraised at $1.275 million on February
2, 2010. Ex. 9, at 4. At this time, the Condo's mortgage was
refinanced, amounting to $729,750, for which Ji Sung maintained
joint and several liability. Pls.' Ex. 10, at 3-5 (stating that
if multiple individuals signed the agreement as "Borrower" that
each is "fully and personally obligated to keep all of
Borrower's promises"); see also Tr. 120:1-121:7.
In November 2010, the DOL commenced a second investigation
into Ji Sung's restaurants, this time Kum Gang (the "2010 KG
11
Investigation"). Pls.' Ex. 6B. The investigation reviewed Kum
Gang's payroll records from February 19, 2009, through November
21, 2010. Id., at 2. Ji Sung was aware of this investigation and
similarly aware that the restaurant was engaged in labor law
violations. See Tr. 139:2-6 176:2-19; Pls.' Ex. 6B, at 2; FLSA
Op., at 85. 4
Records demonstrated that Ji Sung's restaurants were not
financially lucrative in 2010. That year, Kum Kang had a total
income of $1,147,975, but the restaurant's operating expenses
and other deductions reduced its taxable income to a loss of
$208,098. 5 Pls.' Ex. 31. Similarly, while Kum Gang had a total
income of $2,324,559, the restaurant's taxable income was
$101,772. Pls.' Ex. 28.
6
In 2010, Kum Gang had book value assets
amounting to $800,000 and liabilities of $287,310, while Kum
Kang had book value assets amounting to $725,128 and liabilities
of $191,178. See Pls.' Exs. 28, at Sch. L, 31, at Sch. L.
4
At a different point in his testimony, Ji Sung stated he
first learned that Kum Gang was being investigated by the DOL in
2015. Tr. 131:24-132:12. This account is not believed.
Kum Kang also had net operating losses in 2009 that totaled
$149,237. Pls.' Ex. 31, at 10.
5
At trial, Ji Sung represented that in 2010 and 2011, his
restaurants were, combined, valued at around $2 million. Tr.
114:12-14. There was no additional support for this assessment,
and the claim is given no weight.
6
12
On February 10, 2011, the DOL wrote Ji Sung to inform him
that, as a result of the 2010 KK Investigation, he owed
underpayments and damages amounting to $1,176,208.30. Defs.' Ex.
J, at 659. Over the course of the month, Kum Kang employees and
the DOL adjusted the underpayment computations following
additional provided documentation, ultimately reducing the owed
total to $694,966.41 on March 11, 2011; at that time, the DOL
stated that that revised restitution amount would be final, with
no further negotiations, subject to the maximum penalties
permitted, and that three additional cited violations would be
added. See Defs.' Ex. J, at 66-68
(detailing the DOL
investigator's final report); Tr. 118:5-12 (explaining that the
DOL originally tried to fine Ji Sung "over $2 million," but that
the negotiation ended "around $600,000"). On March 16, 2011, Ji
Sung, through his and Kum Kang's counsel, informed the DOL that
he could not pay the assessed restitution amount, was
uninterested in discussing a payment plan, and continued to
believe the assessed amount was incorrect. Defs.' Ex. J , at 64,
68; see Tr. 119:1-9, 128:23-129:3.
On April 22, 2011, as a result of failing to pay the 2010
KK Investigation's assessed restitution, the DOL issued Ji Sung
13
an Order to Comply to pay damages totaling $1,950,992.84
(the
"2010 Order"). Pls.' Ex. 6A, at 2. Specifically, the DOL
determined that Ji Sung owned: $555,973.03 in owned
underpayments; $144,080.37 in interest (assessed at 16%)
7;
(25% of wage damages)
8;
and
$1,111,946.06 in civil penalties (200% of wage damages)
9•
Id.
$138,993.38 in liquidated damages
That same day, the DOL issued a second Order to Comply against
Interest was included, and the applicable rate proscribed,
pursuant to N. Y. LAB. LAW § 219 (a) (McKinney 2011) (directing that
if the Commissioner determines that wages are due, then the
order directing payment shall include "interest at the rate of
interest then in effect as prescribed by the superintendent of
financial services pursuant to section fourteen-a of the banking
law per annum from the date of the underpayment to the date of
payment").
7
8
Liquidated damages were assessed pursuant to N.Y. LAB. LAW
198 (McKinney 2011) (directing that "the commissioner may
assess against the employer an additional amount as liquidated
damages equal to twenty-five percent of the total amount of
wages found to be due, unless the employer proves a good faith
basis for believing that its underpayment of wages was in
compliance with the law").
§
9
On April 1, 2011, civil penalties were assessed at 200% of
the wage damages because, in part, Ji Sung was a previous DOL
labor law offender. See Defs.' Ex. J, at 92; see also N.Y. LAB.
LAW § 218 (McKinney 2011) (emphasis added) (directing that if a
Commissioner determines wages are due, "[i]n addition to
directing payment of wages, benefits or wage supplements found
to be due, such order, if issued to an employer who previously
has been found in violation of those provisions, rules or
regulations, or to an employer whose violation is willful or
egregious, shall direct payment to the commissioner of an
additional sum as a civil penalty in an amount equal to double
the total amount found to be due")
14
Ji Sung totaling $6,000 in civil penalties for additional labor
law violations. Defs.' Ex. J, at 60.
On June 10, 2011, Ji Sung appealed the 2010 Order to the
New York State Industrial Board of Appeals (the "IBA"). Defs.'
Ex. J, at 98-99. In his Petition for Review, Ji Sung stated that
the Order was unreasonable because it was "based on erroneous
figures provided by an accountant who has since recanted his
submissions .
[s]ince the figures upon which the Order was
based are erroneous[,] that makes the findings .
erroneous
as well." Id. at 98. Ji Sung calculated that he owed "probably
about 10% of what was assessed." Id.
On November 16, 2011, Ji Sung made two conveyances, both to
Sandra and Samuel. First, Ji Sung, who jointly owned the Home
with Sandra, conveyed his half interest in the Home to Sandra
and Samuel. Pls.' Ex. 11; Tr. 126:21-25. The conveyance deed for
the Home stated there was consideration of ten dollars but also
that the full sale price was for zero dollars. Pls.' Ex. 11, at
4, 8. The Home was appraised at $770,000 on December 21, 2011.
Ex. 9, at 2. Second, Ji Sung conveyed his full interest in the
Brooklyn Property, also to Sandra and Samuel. Pls.' Ex. 15; Tr.
127:13-17. The conveyance deed for the Brooklyn Property stated
15
there was consideration of ten dollars but also that the full
sale price was for zero dollars. Pls.' Ex. 15, at 4, 8. The
Brooklyn Property was appraised at $1.1 million on July 27,
2012. Pls.' Ex. 16, at 6. As part of his 2011 federal gift tax
report, Ji Sung listed the conveyances of the Home and Brooklyn
Property. Pls.' Ex. 36. At the time of Home and Brooklyn
Property conveyances, Sandra was aware that Ji Sung had a
"desperate need of money.
. because of the restaurant." Tr.
207:11-19. Ji Sung continued to reside in the Home following the
transfer of his interest. See Tr. 199:21-201:10.
Ji Sung's restaurants were again not lucrative in 2011.
That year, Kum Kang had a total income of $1,519,696, but the
operating expenses and other deductions reduced the restaurant's
taxable income to $0. Pls.' Ex. 32. Similarly, Kum Gang had a
total income of $2,159,818, but the restaurant's taxable income
was $22,616. Pls.' Ex. 29. The restaurants' tax returns also
show that Kum Gang had book value assets amounting to $1,053,782
and liabilities of $526,023, while Kum Kang had book value
assets amounting to $742,990 and liabilities of $165,111. See
Pls.' Exs. 29, at Sch. L, 32, at Sch. L.
16
A part of Defendants' position has been that Ji Sung
conveyed each of the properties for the purpose of mortgaging or
refinancing the mortgages of the properties under Sandra's name;
their alleged theory is that Sandra possessed better credit, and
that the money received from those mortgages were given to Ji
Sung, used by his restaurants, and counted as consideration for
the property conveyances. See, e.g., Tr. 120:11-121:4, 127:18128:2, 143:22-24, 148:23-148:17. Ji Sung and Sandra both claimed
that Sandra controlled the mortgage money, which was given to Ji
Sung upon need and request. See, e.g., Tr. 144:16-20, 150:6152:5. The parties put into evidence many checks going between
Ji Sung, Sandra, others, and their respective restaurants,
mostly from the 2013-2015 time range. See Defs.' Exs. B, F;
Pls.' Exs. 22-26, 50-55.
The totality of the checks adduced do not establish
payments made by Sandra to Ji Sung for any of the contested
conveyances; moreover, by themselves, the checks barely
establish anything at all. The mortgage proceeds from the Home
and Brooklyn Property went into accounts at Nara Bank and
Flushing Savings Bank, respectively, and totaled $950,000. Pls.'
Exs. 14, 17, 37; Tr. 306:24-307:11. However, no checks were
written from Nara Bank to Ji Sung or his restaurants, see Pls.'
17
Ex. 37; Defs.' Exs. B, F; Tr. 379:4-380:24, and only one check
from Flushing Savings Bank for $210,000 went to the same, Defs.'
Ex. B, at 5; Tr. 307:15-19.
Testimony varied widely as to the purpose of different
checks, and the given or possible reasons were often having
nothing to do with the contested properties. See, e.g., Tr.
345:8-21 (stating that a check written to Bank of America was to
repay a loan made to Kum Gang that could have been used "in
purchasing things at the supermarket"); Tr. 356:11-13, 357:8-12
(explaining how repayment was needed because Ji Sung had "opened
the line of credit, however that loan was for me [Sandra], so I
had to pay the money back"); Tr. 232:9-12, 323:21-324:12
(collecting money lent to Kum Gang from friends and family to
keep the restaurant open with the expectation of being "paid
back by the restaurant"). In addition to cash flow into Ji
Sung's restaurants, checks also demonstrate that a substantial
amount of money flowed from Kum Gang and Kum Kang to Sandra and
Gum Gang, amounting to over a $1 million and more than the
amount given by Sandra to Ji Sung and his restaurants during the
same time period. See Pls.' Exs. 22-26, 50-55.
18
Evidence was adduced that undermines the legitimacy of some
of the check evidence. On multiple occasions, Sandra testified
that checks came from her personal account and were cut to
support Ji Sung's restaurants. See Tr. 228:22-23, 230:18-232:14.
However, as noted above, it was later shown that the checks
initially proffered by Sandra were in fact altered to mask that
the checks had either come from Ji Sung or their joint bank
account. Compare Defs.' Ex. B, at 6-8, and Defs.' Ex. F, at 7,
and Tr. 351:5-13, with Pls.' Exs. 69-72. No credible explanation
for these alterations was provided. Moreover, as also described
above, Sandra's testimony as to how she acquired many of the
checks, whether personally or from family members, varied
between her trial and deposition testimony. See, e.g., Tr.
229:8-230:17, 283:4-7, 288:22-289:15, 328:6-329:13, 330:1-16,
331:4-332:7, 333:10-22, 334:17-21.
Taken all together, these checks demonstrate only that a
large amount of money was regularly shuttled between different
individuals, the Yoos, and their restaurants. What they and the
adduced testimony do not establish by a preponderance is any
other fact about them, including the purposes of any given check
or who ultimately received it.
19
It was not established that Sandra was aware of the details
of her husband's restaurant operations or financial situation,
but clear and convincing evidence established that she was aware
that Ji Sung and his restaurants had concerning financial
problems and that he was regularly borrowing money to keep his
restaurants in business. Tr. 207:11-19, 212:23-214:21. Sandra
knew enough about Ji Sung's fiscal straits to decide she wanted
to take his name off of family property to protect those assets
and to split apart their joint bank accounts into individual
accounts. Tr. 362:16-21, 374:2-375:25.
The events of principal significance in this action took
place in and around the 2010 and 2011 conveyances, but
additional events are material to the conclusions reached.
On February 2, 2012, Sandra and Samuel conveyed one-third
of their combined interest in the Horne to Carolyn. Pls.' Ex. 13.
In May 2012, a mortgage was taken out on the Horne with
Sandra, Carolyn, and Samuel's names on it, in the amount of
$500,000, and for which each is joint and severally liable.
Pls.' Ex. 14.
20
On August 20, 2012, Plaintiffs commenced their FLSA Action
against Ji Sung, Kum Gang, and others in the Southern District
of New York. FLSA Action Dkt. No. 1; Tr. 132:6-133:5.
On January 2013, a mortgage was taken out on the Brooklyn
Property with Sandra and Samuel's names on it, in the amount of
$450,000, and for which each is joint and severally liable.
Pls.' Ex. 17.
On February 27, 2014, the IBA upheld the DOL's 2010 Order
in its entirety. See Matter of Ji Sung Yoo & Kum Kang Inc.
KumGangSan) v. The Comm'r of Lab.,
(T/A
IBA Docket No. PR 11-174,
available at http://industrialappeals.ny.gov/decisions/pdf/pr11-174.pdf. Ji Sung testified at the IBA's hearing, but
instructed his attorney not to attend. See id. at 2.
On March 20, 2014, the DOL wrote Ji Sung to inform him
that, as a result of the 2010 KG Investigation, he owed
underpayments and damages amounting to $282,885.38, and an
additional $3,000 in civil penalties for additional labor law
notice violations. Pls.' Ex. 6B, at 2-3. On June 20, 2014, as a
result of failing to make the 2010 KG Investigation's required
restitution payment, the DOL issued an Order to Comply to Ji
21
Sung pay damages amounting to $646,080.49. Pls.' Ex. 6B, at 5.
Specifically, the DOL determined that Ji Sung owned: $226,128.23
in owned underpayments; $137,291.88 in interest (assessed at
16%); $56,532.15 in liquidated damages
(25% of wage damages);
and $226,128.23 in civil penalties (200% of wage damages). Id.
That same day, the DOL also issued Ji Sung two additional Orders
to Comply: one for $511.92 for underpaid wages, interest,
damages, and civil penalties for a single additional employee,
and $3,000 for failure to maintain proper payroll records. Id.
at 14, 16.
In August 2014, the DOL visited Kum Gang as part of an
investigation into the payroll records from June 2011 to August
2014. Pls.' Ex. 6C, at 8. The investigation ultimately resulted
in the DOL assessing unpaid wages, unlawful deductions,
interest, liquidated damages, and penalties amounting to
$2,101,295.19. See Pls.' Ex. 6C, at 18, 22, 24.
By the time of the instant trial, the FLSA Action was
concluded, resulting in a final judgment of $3,449,516.90 plus
post-judgment interest against Ji Sung and in favor of
Plaintiffs. See FLSA Action, Dkt. Nos. 143, 160, 172. Only
$312,763 of the judgment has been paid as part of Kum Gang's
22
Chapter 11 plan of reorganization. Tr. 139:17-140:5; see In re
Kum Gang Inc., No. 15-42018
(CEC)
(Bankr. E.D.N.Y.).
III. Conclusions of Law
Plaintiffs have argued that three different sections of the
New York Debtor and Creditor Laws were violated by each of Ji
Sung's three real property conveyances. First, the three DCL
sections will be discussed. Then, each property conveyance will
be considered, chronologically, under each DCL section.
Subsidiary considerations like the repayment of incurred
property depreciation and awarding of attorneys' fees and costs
will follow.
a. Applicable Laws
DCL §§ 273, 275, and 276 define different types of
conveyances by a debtor that become recoverable by creditors
because the conveyances' fraudulent nature. These conveyances
fall into two distinct categories: constructively fraudulence
conveyances, such as DCL §§ 273 and 275, and actually fraudulent
conveyances, as defined by DCL § 276. See, e.g., Drenis v.
Haligiannis, 452 F. Supp. 2d 418, 428-29 (S.D.N.Y. 2006)
23
(outlining requirements for stating claims under DCL Sections
273, 275, and 276). The burden of proof for constructive fraud
claims is preponderance of the evidence. See, e.g., In re Chin,
492 B.R. 126 (Bankr. E.D.N.Y. 2013); Lippe v. Bairnco Corp., 249
F. Supp. 2d 357, 376
aff'd,
&
99 F. App'x 274
n.6
(S.D.N.Y. 2003)
(2d Cir. 2004)
(citation omitted),
(summary order). The
burden of proof for fraudulent intent for an actual fraud claim
is clear and convincing evidence. See, e.g., HBE Leasing Corp.
v. Frank, 48 F.3d 623,
639 (2d Cir. 1995).
DCL Section 273 provides that: "Every conveyance made and
every obligation incurred by a person who is or will be thereby
rendered insolvent is fraudulent as to creditors without regard
to his actual intent if the conveyance is made or the obligation
is incurred without a fair consideration." N.Y. Debt. & Cred.
Law§ 273. The Second Circuit has instructed that a conveyance
is "deemed constructively fraudulent" under DCL Section 273 only
if "two separate elements are satisfied: first,
it is made
without fair consideration, and second, the transferor is
insolvent or will be rendered insolvent by the transfer in
question." United States v. Watts, 786 F.3d 152, 164
2015)
(internal quotation marks omitted)
Int'l Corp., 403 F.3d 43, 53
(2d Cir.
(quoting In re Sharp
(2d Cir. 2005)). Constructive
24
fraudulent conveyance under DCL Section 273 is "defined
exclusively by the objective conditions of the asset transfer at
issue, without regard to the debtor's intent in making the
transfer." Arn. Federated Title Corp. v. GFI Mgmt. Servs.,
126 F. Supp. 3d 388, 400
Inc.,
(S.D.N.Y. 2015), aff'd, 2017 WL 5499156
(2d Cir. Nov. 16, 2017). "[T]he element of insolvency is
presumed when a conveyance is made without fair consideration,
and the burden of overcoming such presumption is on the
transferee." Watts, 786 F.3d at 165 (citations omitted); see
also Fed. Nat. Mortg. Ass'n v. Olympia Mortg. Corp., 792 F.
Supp. 2d 645,
651
(E.D.N.Y. 2011).
DCL Section 275 similarly provides that: "Every conveyance
made and every obligation incurred without fair consideration
when the person making the conveyance or entering into the
obligation intends or believes that he will incur debts beyond
his ability to pay as they mature, is fraudulent as to both
present and future creditors." N.Y. Debt. & Cred. Law§ 275.
Under DCL Section 275, a "plaintiff must allege both a
'lack of
fair consideration' and that 'the Defendant intended or believed
that it would incur debts beyond its ability to pay when the
debts matured.'" City of Almaty v. Ablyazov, 278 F. Supp. 3d
776, 798
(S.D.N.Y. 2017)
(quoting SungChang Interfashion Co.,
25
Ltd. v. Stone Mountain Accessories, Inc., No. 12 Civ. 7280
(ALC), 2013 WL 5366373, at *10 (S.D.N.Y. Sept. 25, 2013)).
As relevant to DCL Sections 273 and 275, "fair
consideration" is defined by DCL Section 272, which provides:
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
antecedent debt in amount not disproportionately small
as compared with the value of the property,
or
obligation obtained.
N.Y. Debt. & Cred. Law§ 272. "[F]air consideration has two
components-the exchange of fair value and good faith-and
both are required." In re Khan, No. 10 Civ. 46901 (ESS),
2014 WL 10474969, at *8
SEC v. Universal Exp.,
(E.D.N.Y. Dec. 24, 2014)
(quoting
Inc., 2008 WL 1944803, at *5
(S.D.N.Y. Apr. 30, 2008)). "[I]n most cases, the repayment
of an antecedent debt is made for fair consideration." Am.
Federated Title Corp., 126 F. Supp. 3d at 401 (citing HBE
Leasing, 48 F.3d at 639). "In the case of an intra-family
transfer, the burden of proving the lack of fair
consideration
. shifts to the transferee." Perrone v.
Amato, No. 09 Civ. 316 (AKT), 2017 WL 2881136, at *32
(E.D.N.Y. July 5, 2017)
(citations omitted). While fair
26
consideration "does not require dollar-for-dollar
equivalence," fair consideration cannot be
"disproportionately small .
. compared to the value of
the transferred property." Lippe, 249 F. Supp. 2d at 377.
Under DCL Sections 273 and 275, a debtor is considered
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." N.Y. Debt. & Cred. Law§ 271. "To determine
insolvency, courts apply a 'balance sheet' test-i.e., whether
the debtor's debt exceeds his salable assets. Accordingly, a
party is not insolvent just because he cannot pay his debts as
they become due." In re Chin, 492 B.R. at 127
(internal
citations omitted). "The operative reference point for
determining insolvency is the time at which the transfer took
place" and "insolvency of the transferor
cannot be
presumed from subsequent insolvency at a later point in time."
O'Toole v. Karnani (In re Trinsum Group, Inc.), 460 B.R. 379,
392
(Bankr. S.D.N.Y. 2011). "[O]nly assets with a present
salable value are taken into consideration in determining
insolvency. Claims that are inchoate, uncertain, and contested
have no present value and cannot be considered an asset of the
27
[transferor]." McCarthy v. Estate of McCarthy, 145 F. Supp. 3d
278, 286 (S.D.N.Y. 2015)
(second alteration in original)
(quoting First Keystone Consultants, Inc. v. Schlesinger Elec.
Contractors, Inc., 871 F. Supp. 2d 103, 120
(E.D.N.Y. 2012)).
Debt, on the other hand, "includes any legal liability, whether
matured or unmatured, liquidated or unliquidated, absolute,
fixed or contingent." N.Y. Debt. & Cred. Law§ 270.
DCL Section 276 provides that: "Every conveyance made and
every obligation incurred with actual intent, as distinguished
from intent presumed in law, to hinder, delay, or defraud either
present or future creditors, is fraudulent as to both present
and future creditors." N.Y. Debt. & Cred. Law§ 276. Unlike DCL
Sections 273 and 275, under DCL Section 276, a transferor does
not need to receive fair consideration for a conveyance to be
fraudulent. See MFS/Sun Life Tr.-High Yield Series v. Van Dusen
Airport Servs. Co.,
910 F. Supp. 913,
934
(S.D.N.Y. 1995)
(citing HBE Leasing, 48 F.3d at 639); see also In re Sharp,
403
F.3d at 56 ("Where actual intent to defraud is proven, the
conveyance will be set aside regardless of the adequacy of the
consideration given."). Rather, under Section 276 a creditor
must show "intent to defraud on the part of the transferor" to
prevail. In re Sharp, 403 F.3d at 56.
28
However, because proving "[a]ctual intent [under DCL
Section 276] is difficult to establish through direct evidence
., the relevant intent may be inferred from the facts and
circumstances surrounding the transfer." S.E.C. v. Smith, 646 F.
App'x 42, 45 (2d Cir. 2016)
(summary order)
Cassandra Grp., 312 B.R. 491, 497
(quoting In re
(Bankr. S.D.N.Y. 2004)). These
so-called "badges of fraud" are facts and circumstances "so
commonly associated with fraudulent transfers that their
presence gives rise to an inference of intent." In re Sharp, 40
F.3d at 56 (quoting Wall St. Assocs. v. Brodsky, 684 N.Y.S.2d
244
(1st Dep't 1999)). Badges are similar to the considerations
for DCL Section 275 and include:
( 1) the lack or inadequacy of consideration; ( 2) the
family,
friendship, or close associate relationship
between the parties; ( 3) the retention of possession,
benefit, or use of the property in question; ( 4) the
financial condition of the party sought to be charged
both before and after the transaction in question; ( 5)
the existence or cumulative effect of a pattern or
series of transactions or course of conduct after the
incurring of debt, onset of financial difficulties, or
pendency or threat of suits by creditors; and (6) the
general chronology of the events and transactions
under inquiry.
Ford Motor Credit Co. LLC v. Orton-Bruce, No. 14 Civ. 5382
(KMK), 2017 WL 1093906, at *9 (S.D.N.Y. Mar. 22, 2017)
(citation omitted); see also In re Kaiser, 722 F.2d 1574,
29
1582-83 (2d Cir. 1983). Other badges sometimes included are
whether it was a "secret and hasty transfer not in the
usual course of business," the degree of "the transferor's
knowledge of the creditor's claim and the transferor's
inability to pay it," and "the use of dummies or fictitious
parties" in the transfer. MFS/Sun Life Tr., 910 F. Supp. at
935. "Depending on the context, badges of fraud will vary
in significance, though the presence of multiple indicia
will increase the strength of the inference." MFS/Sun Life
Tr., 910 F. Supp. at 935 (citations omitted).
"Under New York 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." Cadle Co. v. Newhouse, 74
F. App'x 152, 153 (2d Cir. 2003); see also Stochastic
Decisions, Inc. v. DiDomenico, 995 F.2d 1158, 1172 (2d Cir.
1993)
("The New York Court of Appeals has made it clear
that the pertinent provisions of the New York Debtor and
Creditor Law provide a creditor's remedy for money damages
against parties who participate in the fraudulent transfer
of a debtor's property and are transferees of the assets
and beneficiaries of the conveyance.").
30
b. The Condo
The first property conveyance contested by the Plaintiffs
is Ji Sung's transfer of one-third of his interest in the Condo
to Sandra on March 10, 2010. Plaintiffs contend that this
conveyance was fraudulently made under DCL Sections 273, 275,
and 276. There is no dispute that there was a conveyance. Each
DCL section will be addressed in turn.
Under both Sections 273 and 275, the inquiry starts at
whether there was fair consideration for the conveyance. Here,
there was not. From the conveyance documentation, it is of no
moment whether the amount listed as consideration is zero
dollars or ten dollars, as both are "disproportionately small"
when compared to an interest share that was worth approximately
$90,875, based on the proximately issued appraisal. Lippe, 249 F
Supp. 2d at 377; see also Deflora Lake Dev. Assocs.,
Inc. v.
Hyde Park, No. 13 Civ. 4811 (CS), 2016 WL 7839191, at *4
(S.D.N.Y. June 9, 2016)
(finding a property conveyance listed
consideration of "ten dollars" not fair consideration), aff'd,
689 F. App'x 99 (2d Cir. 2017). Ji Sung was just as liable for
the Condo's mortgage after the refinancing as before the
31
conveyance, the documentation for which did not "unequivocally"
show that anyone "assume[d] and agree[d] to pay" the mortgage as
part of the consideration. Mccombs, 30 F.3d at 327
(alterations
in original); see Pls.' Ex. 10, at 5. While myriad checks were
entered into evidence, their combined evidentiary weight does
not establish payment of consideration for the Condo, either as
antecedent debt or a present exchange. In the absence of fair
consideration, it is appropriate to apply an assumption of
insolvency, which becomes Defendants' burden to overcome. See
Watts, 786 F.3d at 165.
A back-of-the-envelope "balance sheet" calculation
indicates that, by conveying the Condo, Ji Sung was insolvent.
In re Chin, 492 B.R. at 127; see DCL § 271. Following the Condo
interest conveyance, based on valuations established at trial
and outlined above, Ji Sung retained ownership of the following
properties: one-third of the Condo, which after accounting for
the mortgage was worth around $181,750; fifty-percent ownership
in the Home 10 , worth around $385,000; and complete ownership of
10
When parties own a property in the tenancy by the entirety,
the "separate interest of one spouse is subject to rights of the
co-owner .
[therefore] we must value the debtor's interest
at something less that the interest of a single owner in fee
simple absolute." In re Bradigan, 501 B.R. 151, 154 (Bankr.
W.D.N.Y. 2013).
32
the Brooklyn Property, worth around $1.1 million. 11 The parties
have also put forward the tax returns for Ji Sung's restaurants
from 2010 and 2011 and dispute their relevance.
12
Alone, the tax
returns do not move the needle in establishing solvency, as
"[i]t is the fair saleable value of assets, not their book
11
Plaintiffs contend that the later appraisals of the Home
and Brooklyn Property should not be considered as the
properties' fair salable value in March 2010, the time of the
Condo's conveyance. While a valuation closer to the date of the
conveyance would be preferable, these are "sufficiently
contemporaneous" to establish salable value and calculate
solvency. In re Ford, 415 B.R. 51, 62 (Bankr. N.D.N.Y. 2009),
aff'd sub nom. Cmty. Bank, N.A. v. Ford, No. 09 Civ. 633 (GLS),
2009 WL 9540679 (N.D.N.Y. Dec. 8, 2009).
12
The parties' arguments as to the restaurants' tax returns
both seem to miss aspects of the returns. Defendants argue that
in 2010 and 2011 the restaurants had combined listed assets of
$1.5 and $1.8 million. See Pls.' Exs. 28-29, 31-32. As noted
above, however, a tax return book valuation of assets is not a
useful reflection of actual market value. Furthermore, it is
improper to look at a figure like assets in isolation without
accounting for any liabilities held by the restaurants at that
time. However, Plaintiffs' argument that the returns have an
equal amount of liabilities as assets on the tax return balance
sheets is unconvincing. To the extent there are comparable
values on the returns' Schedule L, it is a reflection of the
axiomatic accounting principle that, on a balance sheet, assets
must equal liabilities plus shareholders' equity. Plaintiffs do
not address the equity portion of the tax returns, which at
times is not an insignificant figure and which, as a sum
reflecting net income usually distributed as dividends, would be
Ji Sung's as the sole shareholder. See, e.g., Pls.' Ex. 28, at
2; id., at Sch. L (indicating retained earnings amounted to
$418,000, over half of the "Total liabilities and shareholders'
equity" section). In any event, dealing with any such showing of
actual salable value was Defendants' burden, not Plaintiffs',
and was not met.
33
value, that determines insolvency." Morgan Guar. Tr. Co. v.
Hellenic Lines Ltd.,
621 F. Supp. 198, 220
(S.D.N.Y. 1985)
(citing Seligson v. NY Produce Exchange, 394 F. Supp. 125
(S.D.N.Y. 1975)); see also Kenyon & Kenyon LLP v. SightSound
Techs., LLC, 58 N.Y.S.3d 298
(1st Dep't 2017)
(affirming
rejection of insolvency because evidence adduced "relied solely
on the book value of assets and tax returns, and offered no
evidence of the market ("salable") value of SST's assets")
13
Defendants provided no additional evidence to support any
finding of the restaurants' "present salable value." DCL § 271.
Therefore, Ji Sung's assets at the time of the Condo conveyance
amount to approximately $1.67 million.
Calculating Ji Sung's liabilities requires separate
analysis. Plaintiffs contend that totaling the damages
ultimately found to be owned in wages, liquidated damages, and
civil penalties by Ji Sung in the FLSA Action and various DOL
Investigations, prorated to the time of the Condo conveyance, is
13
Defendants argue that Lee's testimony as to Ji Sung's 2017
sale of certain ownership interest in Kum Gang demonstrates the
market value of the restaurant. Defs.' Mem. 22-23; see Tr. 79:980:15. Even if such uncorroborated testimony was true, it is
merely a useful indicator of the market value of Ji Sung's postbankruptcy restaurant in 2017 and offers no probative evidence
as to the pre-bankruptcy value of Kum Gang back in 2010.
34
greater than the assets assessed above. See Pls.' Mem. 13-14,
Dkt. No. 125. In support, Plaintiffs' principally rely on New
York Labor Law Section 191 (1) (a), which provides that: "A manual
worker shall be paid weekly and not later than seven calendar
days after the end of the week in which the wages are earned .
"N.Y. LAB. LAW§ 191(1) (a)
(McKinney 2011); see also Lanzetta
v. Florio's Enters., Inc., 763 F. Supp. 2d 615, 622 n.10
(S.D.N.Y. 2011)
(citation omitted)
("A claim for unpaid wages
accrues on the date on which the employee should have been paid
for services rendered but was not."). As such, Plaintiffs aver,
the wage debts owed to Ji Sung's workers, later calculated by
Judge Dolinger and the DOL, were "existing debts" that are
calculable "probable liability" for Ji Sung. Lippe,
at 282
99 F. App'x
(quoting DLC Section 273). Plaintiffs' tabulation puts Ji
Sung's liabilities amounting to approximately $3.78 million at
the time of the Condo conveyance. Pls.' Mem. 14.
In response, Defendants argue that Section 271's "probable"
language needs to be read to mean that liabilities are assessed
by what Ji Sung himself reasonably believed he would have to pay
at that the time of conveyance. See Defs.' Mem. 20-21.
Defendants contend that reading a transferor's subjectivity into
Section 271 is "firmly established." Defs.' Post-Trial Reply
35
Mem.
("Defs.' Reply")
3, Dkt. No. 130. However, this argument is
unavailing.
Defendants rely in their briefings and at oral argument on
only one legal authority that is, at best, ambiguous in its
support: the Honorable Denny Chin's district court opinion in
Lippe. See Defs.' Mem. 6; Defs.' Reply 3. In Lippe, the court
considered whether a debtor's conveyance of corporate assets in
the face of asbestos personal injury lawsuits violated DCL
Sections 273 and 276. Lippe, 249 F. Supp. 2d at 360. After
reviewing the asbestos civil suits against the defendant, the
court rejected a finding of insolvency, stating, in part, that
"[n]o reasonable jury could find that [the debtor] actually
believed its probable liabilities [from the asbestos lawsuits]
would exceed the amount of .
. its other substantial assets."
Id. at 379 (emphasis in original); see also id. at 381
("Of
course, it is what [the debtor] believed back in the 1980s, at
the time of the transfers, that controls, not analyses performed
now with the benefit of hindsight."). While these sentences from
Lippe could be read to support Defendants' position, the court's
analysis may relate to DCL Section 273 or 276. See id. at 377
(writing that "[t]he record does not contain sufficient evidence
to permit a jury to find, either by a preponderance of the
36
evidence [DCL Section 273's standard] or by clear and convincing
proof [DCL Section 276's standard], that [the debtor] was
insolvent at the time of the transactions or payment of
dividends or that [the debtor's] management believed that [it]
was insolvent or on the verge of insolvency"). Moreover, more
recent New York court opinions analyze insolvency without
mention of a debtor's subjective understanding of her
liabilities. See, e.g., Diebold Found., Inc. v. C.I.R., 736 F.3d
172, 190 (2d Cir. 2013)
(finding insolvency under DCL
Section 271 after corporate defendant sold assets and made a
"liquidating distribution" without discussing the company's
subjective perspective); Deflora Lake Dev. Assocs.,
WL 7839191, at *4
Inc., 2016
(rejecting finding of insolvency under DCL
Section 271 because "Plaintiff has presented no evidence that
the salable value of its assets suffices to pay its debts as
they come due" without discussion of the defendant's perception
of debt).
When Lippe was appealed to the Second Circuit, the court
there presented plaintiffs' position differently: that
plaintiffs' expert testimony was adduced below to show that the
debtor defendant "should have estimated future
[asbestos injury]
case filings far in excess of the number it actually estimated"
37
and, therefore, was insolvent at the time of the conveyance.
Lippe,
99 F. App'x at 282. The issue was not how the defendant
viewed its liability, but rather how it should have viewed its
liability. 14
Reading Section 271 as having an objectively probable
standard is consistent with the presence of DCL Section 275,
which expressly grafts a subjectivity requirement onto the
concept of insolvency. See DCL § 275. Were subjectivity already
incorporated into the definition of insolvency under Section
271, it would be unnecessary to include it again in conjunctive
provision. See Shelly v. Doe,
1998)
671 N.Y.S.2d 803, 806 (3d Dep't
("Section 275 is a constructive fraud provision which
comes into play when a person making a conveyance without fair
consideration intends or believes that he or she will incur
debts beyond his or her ability to pay them as they mature.")
14
The Second Circuit ultimately rejected the plaintiffs'
argument by resolving the issue in a different fashion. The
court found that much of the asbestos lawsuit liability that
plaintiffs argued the defendant should have calculated actually
had not accrued under New York law because the majority of the
claims were beyond the statute of limitations, therefore
rendering it inapplicable to a DCL Section 271 calculation. See
Lippe, 99 F. App'x at 282-83.
38
The question, therefore, is what Ji Sung's objectively
probable liability on his existing debt at the time of the Condo
conveyance. As found above, Plaintiffs have established that Ji
Sung willfully violated wage laws under applicable labor codes
at the time of the conveyance. Ji Sung's involvement in
manufacturing false time cards establishes that he was aware of
a DOL investigation into Kum Kang. It is therefore far from
"entirely speculative," and, rather, probable, that Ji Sung
would be required to pay liability for the wages he knew he was
improperly paying that restaurant's employees based on these
investigations. Shelly, 671 N.Y.S.2d at 806. Moreover, by the
time of the conveyance, the Kum Kang wage debts to Ji Sung's
employees had accrued and, therefore, are properly accounted as
Ji Sung's liabilities. See Lippe, 99 F. App'x at 283 ("And
because the estimates depend on unaccrued claims, they depend on
amounts that are not 'debts' under the DCL."); Lanzetta, 763 F.
Supp. 2d at 622 n.10
("A claim for unpaid wages accrues on the
date on which the employee should have been paid for services
rendered but was not.").
However, although the DOL later made additional
investigations-into Kum Gang, twice, see Pls.' Exs.
6B
&
6C-and
assessed penalties over the same period, and though those debts
39
had also accrued, there is no indication of an investigation had
begun in March 2010. As such, it cannot be said that Ji Sung had
probable liability in the context of the DOL on those debts at
the time of the Condo's conveyance. It took the DOL
investigating and assessing penalties and the FLSA Action
entering a judgment to get Ji Sung to pay lawful wages; the
evidence has not established that there was probability he would
have been "required to pay" that liability absent those actions
occurring. DCL § 271.
In addition to the owed waged, there is also the question
of additional assessments levied by the DOL, such as interest,
liquidated damages, and the civil penalty. See Pls.' Ex.
6A.
These additions were probable liabilities because they were
required under the DOL's assessment. Given the nature of Ji
Sung's wage violations, it was probable under the statutory
regime that Ji Sung would have to pay interest and liquidated
damages. See N.Y. LAB. LAW§§ 198, 219(a)
(McKinney 2011). At the
time of the conveyance, the applicable labor law also proscribed
a civil penalty of double the amount found to be due if the
violator was a repeat offender; Ji Sung knew he would be a
40
repeat offender, having received a DOL penalty in 2007. 15 Ji
Sung's probable and accrued liability from the KK 2010
Investigation alone amounts to $1.95 million, which is more than
the $1.9 million that Defendants established as assets at trial.
See Staten Island Sav. Bank v. Reddington,
(2d Dep't 1999)
687 N.Y.S.2d 707, 709
(recognizing that probable liability can be
found when "some evidence" is "proffered as to the probability,
at the time of the challenged conveyance, that a contingent
liability will be imposed and, if so, in what amount").
There is also the probable liabilities arising from claims
in the FLSA Action. Simply because the "conveyance in the
instant case occurred before any legal action was filed which
would render
[Plaintiffs] a judgment creditor of
Defendants does not necessarily preclude the constructive fraud
claim." Pfohl Bros. Landfill Site Steering Comm. v. Allied Waste
15
In its Summary Judgment Opinion, the Court indicated that
it did not believe that the civil penalty assessed as part of
the 2010 KK Investigation was probable. See Summ. J. Op. at *6
n.6. This revision has been required in part because, at that
time, the Court did not have access to the fuller DOL files
presented at trial that established that the civil penalty was
assessed because Ji Sung was a repeat offender, rather than
because Ji Sung failed to pay within a certain number of days.
See Defs.' Ex. J, at 92. The obligatory nature of the civil
penalty, as written and implemented by the DOL investigator,
places this liability into the realm of the probable.
41
Sys., Inc., 255 F. Supp. 2d 134, 173 (W.D.N.Y. 2003). The
employees who brought the FLSA Action had creditor claims "as
soon as [their] cause of action accrue[d] ." Bulkmatic Transp.
Co. v. Pappas, No. 99 Civ. 1207
*11 (S.D.N.Y. May 11, 2001)
(RBM)
(JCF), 2001 WL 882039, at
(collecting cases). Evidence adduced
as to Ji Sung's actions towards covering up the unpaid wages and
the restaurants' record-keeping of hours establish the
probability of the imposition of the contingent liability on Ji
Sung and the likely amount of that debt. Pfohl Bros., 255 F.
Supp. 2d at 174; see also Lippe, 99 F. App'x at 282-83
(considering debtor's potential lawsuit claims and rejecting as
liabilities only those claims that were unaccrued); Shelly,
671
N.Y.S.2d at 805 (finding defendant's conveyance of property
absent fair consideration and with awareness of potentially
incurring debt beyond ability to pay rendered conveyance
fraudulent). At the time of the Condo's conveyance, the FLSA
Court calculated that Ji Sung owed approximately $1.67 million
in unpaid wages and liquidated damages to his employees. See
Pls.' Ex. 4. Thus, at the time of the Condo's conveyance, Ji
Sung had probable and accrued liabilities amounting to $3.48
million, well above his established assets.
42
Defendants contend that, even if Ji Sung did have unpaid
wage liabilities, his history negotiating down any such
assessments makes it probable that any payment would be
substantially lower than what was assessed. See Defs.' Mem 12.
Evidence did establish that Ji Sung had once previously
negotiated with the DOL and lowered penalty assessed against
him, but only in the tens of thousands of dollars. No evidence
showed that the earlier DOL investigation was likely to assess
civil penalties or that Ji Sung was able to negotiate those
away. By contrast, the 2010 KK Investigation was the second DOL
investigation into Ji Sung's restaurants and, therefore, had
statutory penalties that were likely to be assessed. Moreover,
aside from Ji Sung's unsupported view, Defendants have put
forward no evidence to show why Ji Sung was likely to win in any
appellate action brought against the DOL for any assessed
liability. In sum, Defendants' contention does not establish
that Ji Sung had an objective probability of bridging a
financial liabilities deficit of over $1.8 million.
Taking Ji Sung's assets against his probable and accrued
liabilities stemming from unpaid wages and penalties, the
evidence has established by a preponderance that, at the time of
the Condo conveyance, the conveyance resulted in Ji Sung's
43
insolvency and, therefore, was a violation of DCL Section 273.
See Deflora Lake Dev. Assocs., Inc., 2016 WL 7839191, at *4
(finding that "Plaintiff has presented no evidence that the
salable value of its assets [following the conveyance] suffices
to pay its debts as they come due" and therefore finding DCL
Section 273 violation).
Analyzing the Condo conveyance under DCL Section 275 is
similar to the Section 273 analysis, but different in a critical
and dispositive manner: Ji Sung's subjective intent as to
whether he "believe[d] that he .
. will incur debts behind his
. ability to pay them as they mature." Shelly, 671 N.Y.S.2d
at 806 (emphasis omitted). As described above, the Condo was not
conveyed for fair consideration. Moreover, Plaintiffs have
established that Ji Sung was aware of his unpaid wage
violations, for which he believed he would be liable for some
amount of liabilities. However, the amount of the 2010 KK
Investigation, by itself, is just as likely to have been able to
be talked down below the value of Ji Sung's assets as not, given
how close the two values were to one another. Furthermore, while
the debt as to Ji Sung's workers' unpaid wages had accrued, the
record established does not show sufficient reason for Ji Sung
himself to believe that he would be liable either for an
44
additional DOL investigations or a FLSA law lawsuit and any
consequent penalties or judgment. As such, the conveyance of the
Condo has not been established as fraudulent under Section 275.
See In re Khan, 2014 WL 10474969, at *19 (finding that, while
evidence adduced demonstrated that the debtor's insolvency, it
did not show the "subjective belief that she would incur debts
beyond her ability to pay" because such evidence was "consistent
with the Debtor's holding the subjective belief that she would
be unable to pay her debts as they came due" and "also
consistent with the Debtor holding the view that she would be
able to pay her debts in small increments").
For similar reasons,
Plaintiffs have not established that
the Condo conveyance was intentionally fraudulent and in
violation of DCL Section 276. 16 As described above, under Section
DCL 276, "[w]here actual intent to defraud creditors is proven,
the conveyance will be set aside regardless of the adequacy of
consideration given." In re Sharp Int'l Corp.,
16
403 F.3d at 56.
Plaintiffs' summation papers make no arguments as to their
Section 276 claim with regard to the Condo. See Pls.' Mem. 17-20
(including a subject header entitled "Plaintiffs Have Proven
Their DCL § 276 Claims As To The Conveyances Of The Home And The
Brooklyn Property"). However, Plaintiffs' Pretrial Memorandum
indicates that this remains one of the claims. See Dkt. No. 107.
It is addressed for the sake of completeness.
45
Looking to the badges of fraud implicated by the Condo's
conveyance, certain are clearly established: the conveyance was
between family members; there was a lack of fair consideration;
and Ji Sung was insolvent at the time. While Ji Sung retained
access to the Condo, he also retained partial ownership, so that
badges is equivocal. Moreover, while the Condo conveyance was
made shortly after the commencement of the DOL's investigation
into Kum Kang, the transfer was made not made in secret and no
evidence adduced indicated that the transfer was performed in a
hasty or otherwise unusual way. Taken together, while not
without suspicion, the evidence does not establish by the higher
standard of clear and convincing evidence that the conveyance
was made with fraudulent intent.
Accordingly, the conveyance of the Condo must be set aside
as a violation of DCL Section 273. See Grace v. Bank Leumi Tr.
Co. of NY, 443 F.3d 180, 189 (2d Cir. 2006)
(citing Geren v.
Quantum Chem. Corp., 832 F. Supp. 728, 736-37
(S.D.N.Y. 1993)
("The proper remedy in a fraudulent conveyance claim is to
rescind, or set aside, the allegedly fraudulent transfer, and
cause the transferee to return the transferred property to the
transferor.").
46
c. The Home and the Brooklyn Property
In comparison to the analysis performed with regard to the
Condo's alleged fraudulent conveyance, the analysis necessary to
determine whether the November 16, 2011, conveyances of the Home
and Brooklyn Property were fraudulent is straightforward. Like
as to the Condo, there is no dispute that there were conveyances
of these two properties. Similarly, Plaintiffs have alleged that
each conveyance was fraudulent under the same DCL sections as
the Condo. Each DCL section will be considered in turn.
Under DCL Section 273, both conveyances were fraudulent.
For the same reasons described above for the Condo, no evidence
established that either of these conveyances was made for fair
consideration. The conveyance documentation does not list
anything more than "disproportionately small" consideration for
the properties, and the many checks passed amongst the Yoos does
not establish that money obtained from subsequent mortgages was
given as payment to Ji Sung or his restaurants. Deflora Lake
Dev. Assocs., Inc., 2016 WL 7839191, at *4. That the conveyances
were given for free is reinforced by the fact that Ji Sung filed
tax paperwork in 2011 that labelled the conveyances as gifts.
Pls.' Ex. 36.
47
In the absence of fair consideration, Defendants have
failed to show solvency following the conveyances. Aside from
approximately $22,000 in profits from his restaurants,
Defendants did not establish that Ji Sung had acquired any new
salable assets between the Condo and the Home and Brooklyn
Property transfers. Rather, following the conveyances, his
assets decreased substantially, as without the Home or the
Brooklyn Property, Ji Sung only still had one-third of the value
of the Condo, amounting to $181,750. By contrast, his
liabilities had increased, and now included the fully assessed
amount from the 2010 KK Investigation, approximately $1,956,992,
the amount assessed from the 2010 KG Investigation, which Ji
Sung was aware had started a year ago and which in total
assessed approximately $649,591, and the still-present and
accrued liability from the FLSA Action, amounting to $1,674,977.
For the same reasons described above, these were existing debts
for which Ji Sung had probable liability amounting to
approximately $4.28 million. As Ji Sung's liabilities exceeded
his established salable assets following these conveyances, each
satisfies the requirements of DCL Section 273. Grace, 443 F.3d
at 189.
48
Plaintiffs' DCL Section 275 claims as to the Home and
Brooklyn Property have also been met. Unlike the Condo
conveyance, the evidence established that by the time Ji Sung
transferred interest in the Home and Brooklyn Properties, he
knew of the over $1.95 million in assessed penalties by the DOL
from the 2010 KK Investigation, which he had no reason to
believe would be reduced on appeal. He also knew about the 2010
KG Investigation, from which new liability was likely to be
assessed. It cannot be said that in November 2011 Ji Sung
believed he would have debt incurred from the FLSA Action. But
even just accounting for the two DOL investigations, they alone
establish that Ji Sung recognized that he would incur debts
amounting to somewhere around or above $2 million. Ji Sung also
knew that,
following the conveyances, his depleted real estate
assets amounted to approximately $181 750 and the value of the
7
restaurants, even viewed most charitably and somewhat
unrealistically based on the shareholders equity reflected in
2011 tax returns, amounted to approximately $1.1 million-in
total, below what his likely debts would be. Indeed, it is a
telling glimpse into Ji Sung's perception of his finances that
he transferred, in their entirety, his interests in both
properties at the same time, shortly after appealing the hefty
penalties assessed by the DOL from the 2010 KK Investigation.
49
All told, it has been shown by a preponderance that Ji Sung
was aware he would not be able to pay his future debts as a
result of the conveyances. Accordingly the elements of DCL
Section 275 have been met. See Perceptron, Inc. v. Silicon
Video, Inc., No. 06 Civ. 412
*14
(N.D.N.Y. Sept. 30, 2011)
(GTS)
(DEP), 2011 WL 4595003, at
(finding conveyance fraudulent
under DCL Section 275 when defendant debtors "were aware that
PVS would be unable to pay its debts after the transfer of its
assets"); Cadle Co. v. Lieberman, No. 96 Civ. 495 (RR), 1998 WL
1674549, at *10 (E.D.N.Y. Sept. 11, 1998)
(finding conveyance
fraudulent under DCL Section 275 when debtor's "only assets .
. were his earned income, the bulk of which he transferred to
his wife" and that, at the time, "he was indebted to a host of
creditors including plaintiff" and by "transferring his earnings
to his wife, he thereby rendered himself unable to meet his
obligations to these creditors"); Shelly, 671 N.Y.S.2d at 806.
Lastly, Plaintiffs' DCL Section 276 claim as to the Home
and Brooklyn Property has been proven. Turning to the badges of
fraud,
see Mccombs, 30 F.3d at 328, two badges are again clearly
present at the outset: conveyances between family members and
made without fair consideration. In the context of the Home and
50
Brooklyn Property conveyances, additional badges support a
finding of intentional fraud: that the conveyances were made on
the same day, in the wake of a sizable DOL penalty assessment
and the instigation of a second DOL investigation into Ji Sung's
other restaurant; that Sandra was aware of Ji Sung's desperate
need for money and wanted to get his name off of family assets;
and that Ji Sung continued to reside at the Home in the same
fashion following the transfer as before. While one badge points
in the opposite direction-the conveyances were not made in
secret-taken together, these multiple badges of indicia persuade
that by the end of 2011, Ji Sung had determined he was going to
owe more money than he had; by off-loading his real estate
interests, Ji Sung was attempting to "hinder, delay, or defraud"
creditors he believed would be knocking at his door in the
future.
DCL § 276. Accordingly, Plaintiffs have established by
clear and convincing that the requisite intent for a DCL Section
276 claim existed as to the Home and Brooklyn Property
conveyances. See Cadle Co., 1998 WL 1674549, at *13.
Accordingly, the conveyances of the Home and the Brooklyn
Property must be set aside as violations of DCL Sections 273,
275, and 276. See DCL § 278
("Where a conveyance or obligation
is fraudulent as to a creditor, such creditor, when his claim
51
has matured, may, as against any person except for a purchaser
for fair consideration without knowledge of the fraud at the
time of the purchase .
[h]ave the conveyance set aside or
obligation annulled to the extent necessary to satisfy his
claim, or
[d]isregard the conveyance and attach or levy
execution upon the property conveyed.").
d. Satisfaction of the Home and Brooklyn Property Mortgages
Plaintiffs also seek a money judgment against Defendants to
satisfy the mortgages taken out on the Home and Brooklyn
Properties and return those properties to the value they had
prior to the fraudulent conveyances and subsequent mortgages
taken out on them by transferees. Plaintiffs rely upon the
Court's "equitable power" to provide them "full relief" as part
of its fraudulent conveyance action. See Pls.' Reply 17, Dkt.
No. 129. Defendants contend that the transferee Defendants'
individual assets may not be reached to restore any diminution
of value from the mortgage because there was no participation or
knowledge of Ji Sung's fraudulent intent. See Defs.' Mem. 25. 17
17
To the extent that this is another attempt to argue this
Court's jurisdiction over Defendants other Ji Sung, that
52
"As a general rule, 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." Newhouse, 20 F. App'x at 73; see also Marine
Midland Bank v. Murkoff, 508 N.Y.S.2d 17, 25 (2d Dep't 1986)
("[T]he defrauded creditor is not entitled to an enhancement of
position beyond what it was before the fraud.
."). However,
"[a] money judgment against the grantee is sometimes an
available form of relief." Murkoff, 508 N.Y.S.2d at 24
(collecting cases); see also McGillicuddy v. Laidlaw, Adams &
Peck, No. 88 Civ. 4928
Aug. 14, 1995)
(LBS), 1995 WL 1081307, at *7
(S.D.N.Y.
(discussing money judgments for fraudulent
conveyance actions and collecting cases). "[M]oney judgments are
available where assets have been sold and commingled with a
transferee's assets or when the grantee has disposed of the
wrongfully conveyed property or depreciated it." Paradigm
BioDevices, Inc. v. Viscogliosi Bros., LLC, No. 11 Civ. 3489
(JMF), 2014 WL 516695, at *2
(S.D.N.Y. Feb. 10, 2014)
(internal
citations and quotation marks omitted); see also Citibank, N.A.
v. Benedict, No. 97 Civ. 9541 (AGS), 2000 WL 322785, at *15
argument has already been addressed in previous opinions of the
Court and need not be discussed again. See Summ. J. Op., 2017 WL
4382078, at *4 n.3.
53
(S.D.N.Y. Mar. 28, 2000)
(internal citations, quotation marks,
and alterations omitted)
(observing that when a "transferee has
disposed of the property or has damaged it, the creditor should
have personal judgment against the transferee for value .
limited to the amount of plaintiff's claim, limited only by the
value of the transferred property"). To that end, courts
sometimes impose money judgments against transferees in the
amount of the depreciated or encumbered property. See United
States v. Bushlow, 832 F. Supp. 574, 582-83 (E.D.N.Y. 1993)
(holding transferee son liable for mortgage taken out on
conveyed house); see also Mallouk v. Arn. Exch. Nat'l Bank, 142
N.Y.S. 724, 726 (1st Dep't 1913)
("It is true that in an action
to set aside a fraudulent conveyance a court of equity may award
a money judgment against as fraudulent grantee, provided he has,
by some act of his own, depreciated the value or by sale put it
out of his power to reconvey. In such case the judgment may be
either for the value of the property at the time of the
conveyance, or for the proceeds received by the grantee when he
disposed of it."), aff'd, 216 N.Y. 670
(1915).
Equity merits a money judgment here. No evidence has been
submitted to indicate that the banks from which the mortgages
were received taken out on the Horne and Brooklyn Property were
54
aware of Ji Sung and Sandra's fraudulent intentions. As such,
the ability to set aside interest given to the banks as to those
properties fraudulent conveyances stops at the Yoos. See N.Y.
Debt. & Cred. Law§ 278(1). To return the properties to Ji
Sung's estate as-encumbered would allow the transferees to keep
fruits of the fraudulent transfers. The purpose of New York's
fraudulent conveyance laws is to return properties to the status
quo ante and to hold transferees who alter that status quo,
such
as by taking out mortgages, "liable for any depreciation in the
value of the property attributable to the
. mortgage[s]
"
Bushlow, 832 F. Supp. at 582-83; see also 30 N.Y. Jur. 2d
Creditors' Rights§ 451
(with regard to the New York Debtor and
Creditor Law, "the general equity powers of a court remain
largely unimpaired, enabling a court to afford relief which is
equitable in nature."); cf. Travelers Ins. Co. v.
Assocs.,
973 F.2d 82, 87
(2d Cir. 1992)
633 Third
("However, to the extent
plaintiff would have been entitled, absent the conveyance, to
obtain an equitable decree enjoining the [debtor] to apply its
cash assets in a manner to preserve the property's value, it may
likewise "reach" the cash assets for the same purpose in the
fraudulent conveyance action .
It does not seek to create
any new rights to property by this action. Unlike the creditor
55
in Murkoff,
[the creditor] seeks only to preserve the property
rights it had prior to the conveyance.").
The total assessed value of the unencumbered properties
exceeds the amount of the unpaid portion of the FLSA Action
judgment owed to Plaintiffs as judgment creditors in the FLSA
Action. As described above, Sandra was complicit in Ji Sung's
fraudulent conveyance of the properties and jointly and
severally liable for the mortgages taken out. Accordingly,
Sandra is liable for whatever amounts are necessary to satisfy
the mortgages on the Home and Brooklyn Property. See Bushlow,
832 F. Supp. at 582-583.
e. Attorneys' Fees
Plaintiffs seek attorneys'
fees and costs in bringing this
action. Such an award is not recoverable for claims brought
under constructive fraud statutes like DCL Sections 273 or 275.
See, e.g., In re Stephen Douglas, Ltd., 174 B.R. 16, 22
(Bankr.
E.D.N.Y. 1994). However, attorneys' fees are awarded pursuant to
DCL Section 276-a when there has been a finding, by clear and
convincing evidence, that "where such conveyance is found to
56
have been made by the debtor and received by the transferee with
actual intent .
. to hinder, delay or defraud either present
or future creditors." DCL § 276-a; see also Newhouse, 20 F.
App'x at 74
Cir. 1991)
(quoting Carey v. Crescenzi, 923 F.2d 18, 20
(2d
(stating that "under§ 276-a attorney's fees may not
be awarded against a defendant, who is a grantee of a fraudulent
conveyance, without a specific finding that he was aware of and
participated in the actual fraud").
The evidence described above established by clear and
convincing evidence that the Home and Brooklyn Property were
conveyed between Ji Sung and Sandra with the intent to defraud
"present or future creditors." DCL § 273. Accordingly, upon a
properly supported application, Plaintiffs shall be entitled to
recover reasonable attorneys' fees for their DCL Section 276
claims against those two properties as to Defendants Ji Sung and
Sandra. See First Keystone Consultants, Inc., 871 F. Supp. 2d at
123-24.
57
•
IV.
Conclusion
Based on the findings of fact and conclusions of law set
forth above, Ji Sung's interests in the Condo, Home, and
Brooklyn Property were fraudulently conveyed and must be set
aside. Plaintiffs are also entitled to a money judgment as
against Sandra as necessary to satisfy the mortgages taken out
on the Home and Brooklyn Property. Plaintiffs are also awarded
attorneys' fees as against Ji Sung and Sandra in connection with
the intentionally fraudulent conveyances of the Home and
Brooklyn Property.
The parties are instructed to confer and submit judgment on
notice. In conjunction with the proposed judgment, Plaintiffs
are to submit their fee application along with supporting
documentation. Defendants may submit any objections to the fee
application within fourteen days of Plaintiffs' application.
58
. .
Upon determination of the amount of attorneys' fees, this
Court will enter judgment consistent with this Opinion and
Order.
It is so ordered.
11
New York, NY
2018
April
ROBERT W. SWEET
U.S.D.J.
59
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