Knopf et al v. Meister Seelig & Fein, LLP et al.

Filing 115

OPINION AND ORDER......MSFs January 13, 2017 motion for summary judgment is granted. The Clerk of Court is directed to enter judgment for MSF. (Signed by Judge Denise L. Cote on 4/18/2017) (gr)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------- X
:
NORMA KNOPF and MICHAEL KNOPF,
:
:
Plaintiffs,
:
-v:
:
MEISTER, SEELIG & FEIN, LLP and
:
PURSUIT HOLDINGS, LLC.,
:
:
Defendants.
:
:
-------------------------------------- X

15cv5090(DLC)
OPINION AND ORDER

APPEARANCES:
For the plaintiffs:
Eric W. Berry
Berry Law PLLC
5 Columbus Circle, 8th Floor
New York, NY 10019
For defendant Meister, Seelig & Fein, LLP:
Howard S. Koh
Randi L. Maidman
Meister Seelig & Fein LLP
125 Park Avenue, 7th Floor
New York, NY 10017
DENISE COTE, District Judge:
Defendant Meister, Seelig & Fein LLP (“MSF”) has moved for
summary judgment on the sole remaining claim against them in
this long-running dispute, a claim of constructive fraudulent
conveyance brought under the New York Debtor and Creditor Law
(“DCL”).

For the following reasons, MSF’s motion is granted.
BACKGROUND

The tortured history of this litigation is set out in two

prior Opinions, which are incorporated by reference and with
which familiarity is assumed.

Knopf v. Meister, Seelig & Fein,

LLP, 15cv5090 (DLC), 2016 WL 1166368 (S.D.N.Y. Mar. 22,
2016)(“Knopf II”); Knopf v. Meister, Seelig & Fein, LLP,
15cv5090 (DLC), 2015 WL 6116926 (S.D.N.Y. Oct. 16, 2015) (“Knopf
I”).

This Opinion summarizes only those facts relevant to the

instant motion.

The following facts are either undisputed or

taken in the light most favorable to the plaintiffs.
In brief, Norma Knopf and Michael Knopf (the plaintiffs or
“Knopfs”) made two loans at issue in this action to defendant
Pursuit Holdings, LLC (“Pursuit”).

When the Knopfs filed

litigation in state court in connection with those loans,
Pursuit and its principal Michael Sanford (“Sanford”) hired MSF
to represent them.

During that litigation, Pursuit extended a

real estate mortgage (“the Mortgage”) to MSF as security for its
obligation to pay MSF’s legal fees.

The parties now dispute

whether $300,000 of the Mortgage securing payment for future
legal services was a constructive fraudulent conveyance to MSF.
I.

Proceedings in State Court

In 2006, the Knopfs extended two loans to Pursuit:
$1,690,860 to finance the purchase of a residence located at 44
East 67th Street, Unit PHC (“PHC”), and $3,250,000 to finance
the purchase of three condominium units located at 10 Bedford
2

Street (the “Townhouses,” collectively with PHC, the
“Properties”).

The loan agreements included a provision in

which Sanford, on behalf of Pursuit, agreed not to sell,
mortgage, hypothecate, or otherwise encumber the acquired real
estate.

The Knopfs subsequently commenced an action against

Sanford and Pursuit, among others, in New York County Supreme
Court, alleging that Sanford and Pursuit had breached the loan
agreements by failing to grant them a mortgage on the
Properties.

They sought money damages as well as imposition of

a constructive trust on the Properties.
In connection with their claims in the state court action,
the Knopfs filed notices of pendency against the Properties on
September 18, 2009 (the “Initial Notices”).

While Justice

Milton Tingling refused to extend the Initial Notices, the
Appellate Division, First Department, did extend them.

Knopf v.

Sanford, 972 N.Y.S.2d 893, 894 (1st Dep’t 2013).
On April 16, 2012, Pursuit and other companies owned by
Sanford (“the Sanford Entities”) retained MSF to represent them
in defending against the Knopfs’ state court action.
executed a 2012 retainer agreement.

They

MSF ceased representing the

Sanford Entities in September 2012.
On July 29 2014, the Sanford Entities and MSF signed a
second engagement agreement (“the 2014 Engagement Agreement”)
3

for MSF to provide legal services in connection with the state
court action.

The 2014 Engagement Agreement indicated that MSF

would represent Pursuit for the limited purposes of (1) moving
to cancel the notice of pendency on PHC, (2) moving for partial
summary judgment solely as to the portion of the Knopfs’
constructive trust claim relating to PHC, and (3) prosecuting a
claim on behalf of Pursuit to recover damages/expenses incurred
due to the notice of pendency filed by the Knopfs against PHC
and seeking sanctions.

MSF would also represent Pursuit or all

defendants in any appeals taken concerning these three matters
or any motion to stay any order cancelling the notices of
pendency, among other things.
With respect to fees, the 2014 Engagement Agreement
provided:
MSF agrees that the fees set forth above will be paid
out of the proceeds of the sale of the Property, and
you shall direct the closing agent or title company to
distribute them to us directly. If the lis pendens is
cancelled and the sale of the Property takes place
before the entire scope of work is completed, then you
shall deposit in the Firm’s escrow account any
remaining unpaid fees as set forth herein (but not as
to appeals not then noticed nor any funds with respect
to the one-third contingency fee relative to
damages/expenses/sanctions), which fees shall be
released to the Firm as, if and when the matters are
successfully concluded as described herein or
otherwise released to you.
You have represented to us that Pursuit owns the
Property free and clear other than a mortgage not
4

exceeding $100,000, and you have a buyer for the
Property for $2,900,000 and you will use your best
efforts to close on a sale within ninety (90) days of
an order cancelling the lis pendens. You further
agree to cause Pursuit to sign a mortgage in favor of
the Firm for $700,000 against the Property . . . .
(Emphasis supplied.)1
After the 2014 Engagement Agreement was signed, MSF filed
an Order to Show Cause seeking the cancellation of the notices
of pendency.

Through a decision by the Appellate Division on

December 11, 2014, the Knopfs won summary judgment on their
breach of contract claims.2
(1st Dep’t 2014).

Knopf v. Sanford, 1 N.Y.S.3d 18, 19

But, the Appellate Division also held that

the Knopfs had failed to establish their entitlement to summary
judgment on their constructive trust claim because they had not
made an evidentiary showing that money damages would be
inadequate.

Id. at 20.

Justice Tingling cancelled the notices

of pendency on December 23, and the Clerk noted the final
cancellation of the notices of pendency on the appropriate
minute books on December 31, 2014.
With the notices of pendency vacated, MSF and Pursuit acted
quickly to execute a mortgage on PHC (the “Mortgage”).

1

On

This $700,000 mortgage was never granted.

Despite the grant of summary judgment on their contract
claims, the Knopfs have not yet obtained a final judgment in the
state court action.
5
2

January 6, 2015, MSF and Pursuit signed an amendment to the 2014
Engagement Agreement (“the 2015 Amendment”).

It is this

document that is at the heart of the instant motion for summary
judgment.

The 2015 Amendment “supplements and modifies” the

2014 Engagement Agreement and provides, in pertinent part:
6. You will escrow $300,000 with MSF to cover future
work for Pursuit, which is to be billed and paid for
at MSF’s normal hourly rates, including:3


Motion for CPLR 6514(c) costs and rule 130
sanctions. We will endeavor to file this motion
within 30 days provided you supply us the necessary
exhibits to the motion.



Possibly a motion to dismiss the fourth cause of
action. (Arguably this cause of action has already
been effectively dismissed by the recent First
Department decision and you and we have not decided
whether to bring such a motion or simply to take
the position that the claim is no longer viable.)



By January 30, 2015, a notice of appeal and preargument statement with respect to Justice
Tingling’s recent decision cancelling the notices
of pendency, insofar as it “denied” (by not
granting) the prong of our motion seeking costs and
sanctions.



Defending any motions by Knopf seeking to restrain
the sale or refinancing of Pursuit’s properties or
for pre-judgment attachment against them.

At a deposition on September 29, 2016, MSF’s Stephen Meister
acknowledged that the future legal services described in
paragraph 6 of the 2015 Amendment were not necessarily limited
to the four items specifically listed, saying “[i]t says
including, so it’s not limited to those items if it’s for
Pursuit. If it’s for Pursuit.”
3

6

7. Funds will only be released from the $300,000
escrow account upon your written approval (via email).
MSF will not commence any of this new work before the
$300,000 escrow is established. The $300,000 sum is
not to be construed as a limit on the hourly charges,
which you agree to pay in full.
8. A $100,000 fixed fee to handle any appeal by Knopf
with respect to Tingling’s order cancelling the
notices of pendency, and, per our retainer letter, a
$25,000 fixed fee to handle any stay motion relative
thereto. The $100,000 appeal fee, if an appeal is
prosecuted or defended at your direction (along with
the hourly fees for any other work you request but
which is not mentioned above), will be payable
separately from (not out of) the $300,000 escrow, and
will be due before commencement of work; but the
$25,000 fee for opposing a stay of the lis pendens
cancellation order shall be paid from the $300,000
escrow.
. . .
11. You will today sign a mortgage against PHC in
favor of MSF for $575,000 (to secure the $275,000 fee
and the $300,000 escrow), which mortgage will be
recorded. MSF will advance the recording charges and
mortgage tax associated therewith and shall recover
such disbursements from the $300,000 escrow, along
with a fee of $1,500 to prepare the mortgage. You
have asked us to prepare similar mortgage instruments
for the Dorsey firm and for Adam Gordon, which, as an
accommodation, we will do for a fee of $1,500 each,
provided that any changes or negotiations shall be
billed hourly and such fees shall likewise be paid out
of the $300,000 escrow.
12. These agreements supercede and modify our written
retainer agreement of July 29, 2014, and the contents
hereof shall control whenever inconsistent with the
retainer letter.
(Emphasis supplied).
Pursuant to Paragraph 11 of the 2015 Amendment, Pursuit
7

executed a promissory note on January 6 in favor of MSF for up
to $575,000.

That day, also pursuant to Paragraph 11, Pursuit

signed the Mortgage in favor of MSF against PHC for $575,000.
The Mortgage provides that it is to “secure the payment of an
indebtedness in the sum of up to Five Hundred Seventy-Five
Thousand and 00/100 Dollars ($575,000).”4

(Emphasis supplied.)

On January 7, 2015, MSF’s Stephen Meister emailed a potential
buyer of PHC, writing: “I have gotten the lis pendens cancelled,
and the apartment is now freely transferrable and financeable.”
That same day, January 7, counsel for the Knopfs gave MSF
notice that the plaintiffs intended to appeal Justice Tingling’s
December 23, 2014 order cancelling the notices of pendency.

The

Knopfs’ appeal sought, among other things, a preliminary
injunction enjoining the defendants from “transferring,
mortgaging, or impairing” the Properties.

On January 8, Justice

Rolando Acosta issued an interim order staying the defendants
from “encumbering the subject property pending an expedited
motion to a full panel of this Court . . . .”
MSF continued to represent the Sanford Entities from
January 6 through September 8, 2015.

During that time MSF

successfully opposed an appeal of Justice Tingling’s December
MSF delivered the Mortgage to a title agent for filing and the
Mortgage was recorded on January 21, 2015.
4

8

23, 2014 decision cancelling the notices of pendency.

MSF also

defended two motions related to the state court action as set
forth in paragraph 6 of the 2015 Amendment and performed
additional work requested by Sanford on behalf of Pursuit.

It

is now undisputed that MSF’s work during this period surpassed
in value the $300,000 in future fees secured by the Mortgage.
On July 2, 2015, the Appellate Division affirmed Justice
Tingling’s December 2014 order cancelling the notices of
pendency.
II.

Proceedings in Federal Court
On July 1, 2015, the Knopfs filed the instant federal

diversity action against Pursuit and MSF, seeking to set aside
the Mortgage to MSF as a fraudulent conveyance.
asserted two claims.

The complaint

First, it asserted against both defendants

that the $575,000 Mortgage granted to MSF was made for less than
fair consideration and constituted a constructive fraudulent
conveyance under §§ 273, 274, and 275 of the DCL.5

The complaint

also alleged that the Mortgage was made with actual intent to
defraud the Knopfs and was therefore an actual fraudulent
conveyance under § 276 of the DCL.

The Knopfs also sought a

The complaint cites to the New York Civil Practice Law and
Rules (“CPLR”) instead of the DCL. Because the parties’ other
submissions unambiguously refer to the DCL, these claims were
construed accordingly in Knopf II.
5

9

permanent injunction against Pursuit, pursuant to § 279(a) of
the DCL, enjoining it from transferring or further encumbering
the Properties.

The Knopfs filed an amended complaint on August

24, and the defendants filed their answers to the amended
complaint in September 2015.
In connection with the federal action, the Knopfs also
filed new notices of pendency on the Properties (“Second
Notices”).
pendency.

On October 16, the Court cancelled both notices of
Knopf I, 2015 WL 6116926.

On March 22, 2016, the

Court granted MSF’s motion to dismiss the Knopfs’ claim for
actual fraudulent conveyance but permitted their claims for
constructive fraudulent conveyance to proceed.

Knopf II, 2016

WL 1166368, at *8.6
On March 30, the Knopfs filed a second amended complaint
(“SAC”) asserting a single cause of action against Pursuit and
MSF for constructive fraudulent conveyance.7

The Knopfs were

permitted to amend the complaint to allow them to allege facts,
Knopf II also granted Pursuit’s motion to dismiss the
plaintiffs’ claim for a permanent injunction and denied
Pursuit’s request for attorney’s fees pending the conclusion of
the federal proceedings. Id. at *7-8.
6

On April 12, Dorsey & Whitney LLP, which had been co-counsel
for Pursuit in federal court, moved to withdraw due to Pursuit’s
non-payment of legal fees. Pursuit’s other federal counsel,
Dechert LLP, had been permitted to withdraw on April 1. Cocounsel’s motion was granted, and on May 9, the Court ordered
the Clerk to enter a default against Pursuit.
10
7

which had been recited in their memorandum in opposition to
their motion to dismiss, supporting their claim that Pursuit was
insolvent at the time the Mortgage was executed -- with its
liabilities of roughly $8.64 million exceeding its alleged
assets of $8.36 million.
Following the conclusion of discovery on the constructive
fraudulent conveyance claim, a conference was held on December
2, 2016 to discuss anticipated summary judgment practice.
Plaintiffs’ counsel explicitly abandoned any claim that the
Knopfs had a right to $275,000 of the $575,000 Mortgage.
Plaintiffs’ counsel explained that he expected to prevail at
trial with respect to the remaining $300,000 of the Mortgage
amount by demonstrating two things: (1) testimony from their
appraiser would establish that Pursuit was insolvent at the time
the Mortgage was entered, and (2) relying on HBE Leasing Corp.
v. Frank, 61 F.3d 1054 (2d Cir. 1995), the Knopfs would
establish that the $300,000 extended to MSF for future legal
services and secured by the Mortgage represented a flat fee
given by the insolvent Pursuit.

Plaintiffs’ counsel explained

that they had abandoned any claim that $275,000 of the Mortgage
amount was a constructive fraudulent conveyance since it secured
payment of fees already earned.
for future legal fees.

In contrast, the $300,000 was

Although plaintiffs’ counsel quibbled
11

with some billing entries on the MSF billing records, he also
abandoned any claim that MSF had not ultimately performed legal
work for which it was owed $300,000.

He admitted, “clearly the

amount of work done for the future services exceeds $300,000.
We couldn’t possibly contest that in good faith.”

Accordingly,

as described by plaintiffs’ counsel, the Knopfs would be able to
prevail at trial with respect to $300,000 of the Mortgage
because they would be able to establish that the $300,000
reflected a “flat” or “refundable” fee:
The question is whether the fee agreement was a flat
fee or a refundable fee. If it’s a flat fee, then
there is a strong presumption that if the client, who
pays the flat fee, is in the position that Mr. Sanford
and Pursuit were in, then it’s a fraudulent
conveyance. On the other hand, if it’s a refundable
fee, then the transfer is just a security for fees
being incurred going forward and that is probably not
a fraudulent conveyance.
On January 13, 2017, defendant MSF moved for summary
judgment on the sole remaining claim brought against MSF, the
claim for constructive fraudulent conveyance.
fully submitted on February 28.

The motion was

Relying on the representations

made by plaintiffs’ counsel at the December conference, the
motion sought to demonstrate that the $300,000 secured by the
Mortgage was a “reasonable and refundable retainer deposit for
future services to be paid from the PHC sale proceeds” and not a
flat fee.
12

Meanwhile, on February 1, 2016, Sanford had closed on a
sale of PHC.

$650,000 of the closing proceeds were escrowed

with a title agent to allow the sale to close without satisfying
the Mortgage to MSF.
DISCUSSION
Summary judgment may not be granted unless all of the
submissions taken together “show[] that there is no genuine
dispute as to any material fact and the movant is entitled to
judgment as a matter of law.”

Fed. R. Civ. P. 56(a).

“Summary

judgment is appropriate when the record taken as a whole could
not lead a rational trier of fact to find for the non-moving
party.”

Smith v. Cnty. of Suffolk, 776 F.3d 114, 121 (2d Cir.

2015) (citation omitted).

The moving party bears the burden of

demonstrating the absence of a material factual question, and in
making this determination, the court must view all facts in the
light most favorable to the non-moving party.

See Eastman Kodak

Co. v. Image Technical Servs., Inc., 504 U.S. 451, 456 (1992);
Gemmink v. Jay Peak Inc., 807 F.3d. 46, 48 (2d Cir. 2015).
“[W]here the evidentiary matter in support of the motion does
not establish the absence of a genuine issue, summary judgment
must be denied even if no opposing evidentiary matter is
presented.”

Sec. Ins. Co. of Hartford v. Old Dominion Freight

Line Inc., 391 F.3d 77, 83 (2d Cir. 2004) (citation omitted)
13

(emphasis omitted).
Once the moving party has asserted facts showing that the
non-movant’s claims or affirmative defenses cannot be sustained,
“the party opposing summary judgment may not merely rest on the
allegations or denials of his pleading; rather his response, by
affidavits or otherwise as provided in the Rule, must set forth
specific facts demonstrating that there is a genuine issue for
trial.”

Wright v. Goord, 554 F.3d 255, 266 (2d Cir. 2009)

(citation omitted); see Celotex Corp. v. Catrett, 477 U.S. 317,
322–23 (1986).

“[C]onclusory statements, conjecture, and

inadmissible evidence are insufficient to defeat summary
judgment,” Ridinger v. Dow Jones & Co. Inc., 651 F.3d 309, 317
(2d Cir. 2011) (citation omitted), as is “mere speculation or
conjecture as to the true nature of the facts.”

Hicks v.

Baines, 593 F.3d 159, 166 (2d Cir. 2010) (citation omitted).
Only disputes over material facts will properly preclude the
entry of summary judgment.
U.S. 242, 248 (1986).

Anderson v. Liberty Lobby, Inc., 477

“An issue of fact is genuine and material

if the evidence is such that a reasonable jury could return a
verdict for the nonmoving party.”

Cross Commerce Media, Inc. v.

Collective, Inc., 841 F.3d 155, 162 (2d Cir. 2016).
Summary judgment is only proper in cases involving contract
interpretation if the language of the contract is “wholly
14

unambiguous.”

Lucente v. Int’l Bus. Machs. Corp., 310 F.3d 243,

257 (2d Cir. 2002) (citation omitted).

“When the language of a

contract is susceptible to different interpretations and where
there is relevant extrinsic evidence of the parties’ actual
intent, then the contract’s meaning becomes an issue of fact
precluding summary judgment.”

Id. (citation omitted) (applying

New York law).8
Under New York law, courts determine whether the terms of a
contract are ambiguous as a matter of law.

Law Debenture Trust

Co. v. Maverick Rube Corp., 595 F.3d 458, 465 (2d Cir. 2010).
In determining whether a contract term is ambiguous, courts
construe it “in accordance with the parties’ intent.”

In re

World Trade Ctr. Disaster Site Litig., 754 F.3d 114, 122 (2d
Cir. 2014)(New York law).

The best evidence of the parties’

intent is generally the written contract itself.

Id.

Contract

terms should be given their “plain meaning,” and a contract
should be construed so as to give “full meaning and effect to
all of its provisions.”

Olin Corp. v. Am. Home Assurance Co.,

It is undisputed that New York law governs issues of contract
interpretation in this case. The parties rely on New York law
in their briefs. Such implied consent to using New York law “is
sufficient to establish choice of law.” Santalucia v. Sebright
Transp., Inc., 232 F.3d 293, 296 (2d Cir. 2000) (citation
omitted). In addition, the 2012 retainer agreement and 2014
Engagement Agreement identify New York law as the governing law.
8

15

704 F.3d 89, 99 (2d Cir. 2012) (citation omitted)(New York law).
A contract is unambiguous when its language “has a definite and
precise meaning about which there is no reasonable basis for a
difference of opinion.”

Keiler v. Harlequin Enters. Ltd., 751

F.3d 64, 69 (2d Cir. 2014)(New York law).

By contrast, a

contract is ambiguous if its language “could objectively suggest
more than one meaning to one familiar with the customs and
terminology of the particular trade or business.”

Id.

Parol

evidence is admissible to assist in the interpretation of a
contract “only when the language of the contract is ambiguous.”
Galli v. Metz, 973 F.2d 145, 153 (2d Cir. 1992) (citation
omitted) (New York law).
The sole question presented by MSF’s motion for summary
judgment is whether $300,000 of the Mortgage was a flat fee or a
refundable retainer for future services.

As acknowledged by

plaintiffs’ counsel at the December 2016 conference, if fair
consideration is given for future legal services there is no
fraudulent conveyance even where the transferor is insolvent.
To be unlawful, both conditions must be satisfied.
Under the DCL, a conveyance by a debtor is deemed
constructively fraudulent if it is made without ‘fair
consideration,’ and (inter alia) if one of the
following conditions is met: (i) the transferor is
insolvent or will be rendered insolvent by the
transfer in question, DCL § 273; (ii) the transferor
is engaged in or is about to engage in a business
16

transaction for which its remaining property
constitutes unreasonably small capital, DCL § 274; or
(iii) the transferor believes that it will incur debt
beyond its ability to pay, DCL § 275.
In re Sharp Int’l Corp., 403 F.3d 43, 53 (2d Cir. 2005)(emphasis
supplied).
In general, the burden of proving a lack of fair
consideration is upon the party challenging the conveyance.
Joslin v. Lopez, 765 N.Y.S.2d 895, 897 (2d Dep’t 2003).

As

defined by DCL § 272(b), fair consideration is given for
property or an obligation “[w]hen 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. D.C.L. § 272(b) (emphasis supplied).

As

relevant here, for a conveyance of property to have been made
for fair consideration, therefore, the exchange must be for “a
fair equivalent of the property received; and . . . such
exchange must be in good faith.”
(citation omitted).

Sharp, 403 F.3d at 53

“[W]hat constitutes fair consideration

under section 272 must be determined upon the facts and
circumstances of each particular case.”

United States v.

McCombs, 30 F.3d 310, 326 (2d Cir. 1994) (citation omitted).
For future legal services to constitute fair consideration,
17

those services must not be of “considerably uncertain scope and
duration.”

HBE Leasing, 61 F.3d at 1061.

To demonstrate bad faith in the context of a constructive
fraudulent conveyance claim, the claimant must show more than
the transferee’s knowledge that the transferor is insolvent or
that it wrongfully obtained the transferred funds at the expense
of other creditors.

Boston Trading Grp., Inc. v. Burnazos, 835

F.2d 1504, 1512 (1st Cir. 1987).

Rather, a showing of bad faith

requires the transferor’s participation in the fraudulent
activity.

Id.

Whatever “good faith” may mean, however, we believe it
does not ordinarily refer to the transferee's
knowledge of the source of the debtor's monies which
the debtor obtained at the expense of other creditors.
To find a lack of “good faith” where the transferee
does not participate in, but only knows that the
debtor created the other debt through some form of,
dishonesty is to void the transaction because it
amounts to a kind of ‘preference’-- concededly a most
undesirable kind of preference, one in which the
claims of alternative creditors differ considerably in
their moral worth, but a kind of preference
nonetheless.
Id.

See Sharp, 403 F.3d at 54-55; In re Bernard L. Madoff Inv.

Sec., LLC, 440 B.R. 243, 265 (Bankr. S.D.N.Y. 2010); In re
Actrade Fin. Techs. Ltd., 337 B.R. 791, 805 (Bankr. S.D.N.Y.
2005).
MSF has shown that the $300,000 of the Mortgage at issue
was received in good faith to secure future legal services whose
18

value would not be disproportionately small when compared to the
secured amount of $300,000.

There is no basis, for instance, to

find that the Mortgage was structured to overpay MSF in order to
deprive the Knopfs of money due to them or that it allowed MSF
to receive any funds unless it actually performed legal work
that earned payment of the funds.

Indeed, the Mortgage only

secured an indebtedness of “up to” $575,000.

If MSF did not

perform any of the outlined work in paragraph 6 of the 2015
Amendment, then the Mortgage would have entitled MSF to receive
only $275,000.

Moreover, the 2015 Amendment does not describe a

fixed fee arrangement for future legal work of uncertain scope
and duration –- it unambiguously describes a refundable retainer
to cover defined items of future legal work.

Save for a $25,000

fixed fee to oppose a stay of Judge Tingling’s order cancelling
the notices of pendency, the 2015 Amendment provided that the
payment of MSF’s future legal fees secured by the Mortgage would
be held in escrow and incurred and billed “at MSF’s normal
hourly rates.”

Thus, the Knopfs’ written approval was required

to release funds from the $300,000 escrow account.
In their opposition to MSF’s motion, the Knopfs no longer
contend that the 2015 Amendment treated the $300,000 of the
Mortgage amount as a fixed sum to which MSF would be entitled
even without performance of work.
19

Nor do they contend that MSF

failed to perform work worth $300,000 on the specific tasks
outlined in the 2015 Amendment.

They do, however, argue that

the economic benefit from the promised legal services was
“disproportionately small” at the time the Mortgage was
executed.

They reason that the economic benefit from MSF’s

legal work was disproportionately small because the anticipated
legal work was largely “meritless,” considering that (1) the
Knopfs had already won a motion for summary judgment in state
court, and (2) it is likely that the state court will allow the
Knopfs to liquidate Pursuit’s assets in the event that the
Knopfs are ever able to obtain a judgment.
incorrectly measures value.

This argument

The issue is whether the legal work

performed by MSF is fairly valued at $300,000 when measured by
the hours it reasonably took to perform the enumerated tasks
multiplied by a reasonable hourly rate.

As the Knopfs conceded

at the December 2 conference, there is no basis to suggest that
MSF did not earn $300,000 when measured by that standard.
In a related argument, the Knopfs contend that the $300,000
secured by the Mortgage may not be fair consideration since an
MSF attorney testified in his deposition that the $300,000 would
have been available to pay MSF for other future services beyond
those specifically outlined in the 2015 Amendment.

In

describing the future services covered by paragraph 6 of the
20

2015 Amendment MSF’s Stephen Meister noted, “[the 2015
Amendment] says including, so it’s not limited to those items if
it’s for Pursuit.
well.

If it’s for Pursuit.”

This argument fails as

Since MSF indisputably earned at least $300,000 by

performing the tasks delineated in the 2015 Amendment, it is
unnecessary to consider what it might have been entitled to
collect if it had not.
In their opposition to MSF’s motion, the Knopfs make three
new arguments in an effort to preserve their constructive
fraudulent conveyance claim against MSF.

These arguments were

not raised in the December 2016 conference, and therefore, were
not addressed in MSF’s motion for summary judgment.

Given the

procedural posture of this case it would be entirely appropriate
to ignore these eleventh hour arguments.

But in the interest of

finality, they will be briefly addressed.

Through these three

arguments the Knopfs assert that -- even if the $300,000 at
issue is not disproportionate to the value of services rendered
-- it is not fair consideration because MSF did not act in good
faith.
The Knopfs first argue that MSF did not act in good faith
because the 2015 Amendment did not require MSF to defend its
clients against all efforts by the Knopfs to win a judgment, but

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only required MSF to perform certain identified tasks.9

An

agreement to perform specified legal work in connection with
ongoing litigation does not mean that the services were not
offered in good faith.

The Knopfs, who carry the burden of

proving their claim have offered no authority to support the
proposition that a law firm in circumstances like those faced by
MSF may only recover legal fees if they make an open-ended
commitment to represent their client until the end of the
litigation and to forego all compensation if their client does
not prevail.
Second, the Knopfs assert that MSF did not receive the
Mortgage in good faith because (1) it knew at the time the
Mortgage was executed that Sanford had promised the Knopfs in
2006 not to encumber PHC, and (2) that the Mortgage would have
placed Sanford in breach of that commitment and would assist
Pursuit in placing assets beyond the reach of its judgment
creditors.

This argument also fails.

As described above, bad

faith does not exist merely because one creditor receives
payment knowing that the transferor is insolvent and the payment
could have gone to pay other creditors.

Moreover, the Knopfs

have presented no evidence of MSF’s participation in any
This argument by the plaintiffs is in tension with their prior
assertion that the $300,000 represented a flat fee as opposed to
a fee for specific categories of work.
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9

fraudulent activity associated with the 2006 loans.
even begin to represent Pursuit until 2012.

MSF did not

Finally, it bears

noting that as of the date the Mortgage was executed, litigation
concerning the original loan agreements had been ongoing in
state court for more than five years and no judgment had been
issued.

In fact, no judgment has been issued as of today, more

than two years after the Mortgage was given to MSF.

Moreover,

the Knopfs’ requests to encumber PHC had been considered and
ultimately rejected by the state court –- twice.

The lis

pendens were removed on December 23, 2014, and after their
reinstatement, they were removed once again on July 2, 2015.
The Knopfs have cited no case in which bad faith has been found
in such circumstances.10
Finally, the Knopfs argue that the recording of the
Mortgage on January 21, 2015, after Justice Acosta’s January 8,
2105 Order prohibiting any encumbering of PHC, constitutes MSF’s
bad faith.

At the time the Mortgage was issued to MSF, no court

order prevented its issuance.

The Knopfs have not shown that

the subsequent recording of the Mortgage, which merely gives
public notice of the encumbrance, is an act taken in bad faith.
The plaintiffs’ reliance on Motorola, Inc. v. Abeckaser, No.
07-CV-3963 (JG) (SMG), 2010 WL 415290, at *6 (E.D.N.Y. Jan. 29,
2010), is misplaced. Motorola addressed the circumstances in
which a bona fide purchaser of real property may have the
conveyance set aside under Real Property Law § 266. Id. at *6.
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10

See Fairmont Funding, Ltd. v. Stefansky, 754 N.Y.S.2d 54, 56 (2d
Dep’t 2003); 92 N.Y. Jur.2d Records and Recording § 131
(“The general purpose of recording acts and recording is to give
notice to the world that the title to property has been
transferred, and thus prevent the fraudulent sale of the same
property more than once to different purchasers.

The recording

of an instrument affecting property is constructive notice to
all subsequent purchasers, lienors, and other interested parties
of its existence and contents.”).

As MSF points out, Justice

Acosta’s order forbade “encumbering the subject property pending
an expedited motion to a full panel of this Court . . . .”

The

act of encumbering PHC with the Mortgage took place before that
order was issued.

See Dime Sav. Bank of New York, FSB v.

Roberts, 563 N.Y.S.2d 253, 255 (1990) (“[M]ortgages become liens
when they are executed”).11

Since the plaintiffs have not

presented evidence from which a fact finder could conclude that
the Mortgage was given without fair consideration, summary
judgment is granted.

The Knopfs’ reliance on S.E.C. v. Haligiannis, 608 F. Supp.
2d 444 (S.D.N.Y. 2009), is misplaced. There, the debtor made an
“inside” sale of property to a relative, who did not act in good
faith in recording a mortgage. Id. at 450, 452.
11

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CONCLUSION
MSF’s January 13, 2017 motion for summary judgment is
granted.

The Clerk of Court is directed to enter judgment for

MSF.
Dated:

New York, New York
April 18, 2017
__________________________________
DENISE COTE
United States District Judge

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