Cortes v. Juquila Mexican Cuisine Corp.

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

_____________________

No 17-CV-3942 (RER)

_____________________

PAMELLA CORTES, LETICIA GONZALEZ, AND ARIANA REYES,

on behalf of themselves and all others similarly situated

Plaintiffs,

VERSUS

JUQUILA MEXICAN CUISINE CORP. D/B/A/ JUQUILA MEXICAN CUISINE,

JUQUILA KITCHEN AND BAR CORP. D/B/A/ JUQUILA KITCHEN & BAR;

TEOFILA MENDEZ, AND CRISTOBAL BONILLA,

Defendants,

AND

SANTA CATARINA, INC.,

Respondent.

___________________

MEMORANDUM AND ORDER

March 31, 2022

___________________

RAMON E. REYES, JR., U.S.M.J.:

On April 5, 2021, this Court entered final judgment awarding damages, attorneys’ fees, costs,

and post-judgment interest (the “Judgment”) in favor of Plaintiffs Pamella Cortes, Leticia

Gonzalez, Ariana Reyes, Lucia Isabel Rivera Estrada, and Blanca Nelly Ayala (collectively,

“Plaintiffs” or “Judgment Creditors”) against their former employer, Juquila Mexican Cuisine

Corp. (“Juquila” or “Judgment Debtor”). (ECF No. 96). On November 19, 2021, Plaintiffs served

an information subpoena and restraining notice upon non-party respondent Santa Catarina, Inc.

(“Santa Catarina” or “Respondent”) seeking post-judgment discovery regarding Juquila’s assets

(ECF Nos. 99, 102; see also ECF No. 108-1 (“Subpoena and Restraining Notice”)), and now move

pursuant to Rule 69 of the Federal Rules of Civil Procedure to enforce the Judgment against Santa

Catarina as Juquila’s fraudulent transferee and garnishee (ECF No. 100 (“Turnover Mot.”)). Santa

Catarina, in turn, opposes the motion and cross-moves to quash the information subpoena pursuant

to Rule 45 of the Federal Rules of Civil Procedure, or alternatively seeks a protective order

vacating the subpoena pursuant to Rule 26 of the Federal Rules of Civil Procedure. (ECF No. 107).

After carefully reviewing the record, and for the reasons set forth herein, Plaintiffs’ motion for

a turnover order is granted to the extent that the Court finds it has jurisdiction to preside over these

proceedings and has personal jurisdiction over Respondent, but is otherwise denied at this time.

Respondent’s cross-motion to quash the information subpoena is denied in its entirety.

BACKGROUND

Although the Court assumes familiarity with the facts underlying Defendants’ liability and

Plaintiffs’ damages, details regarding the procedural history of the action and relevant facts are

provided as context for the fraudulent activities Plaintiffs allege were undertaken by Defendants

and by the Respondent during the pendency of these proceedings.

Plaintiffs commenced this action on June 30, 2017. (ECF No. 1 (“Compl.”)). After nearly a

year of proceedings and the completion of discovery, the parties informed the Court that they

reached a settlement in principle on August 1, 2018. (See ECF Nos. 28, 30; Order dated

06/20/2018). Later that month, however, Juquila filed for Chapter 11 bankruptcy. (See Bankr.

E.D.N.Y. 1:18-44976 (NHL), ECF No. 1, Voluntary Petition for Non-Individuals Filing for

Bankruptcy dated 8/29/2018). As a result of the bankruptcy, Defendants’ counsel informed the

Court that Juquila could not commit to a settlement because any offer would need to be approved

by the bankruptcy court and by the restaurant’s other creditors. (ECF No. 39). The parties

nevertheless continued to negotiate a settlement with individual defendants Cristobal Bonilla and

Teofila Mendez—the husband and wife team that owned and operated Juquila—and contemplated

settling with Juquila as a debtor in possession beginning in November 2018 and through early

2019. (ECF Nos. 44, 48, 49, 50, 51).

During those settlement negotiations, the parties consented to my jurisdiction. (ECF No. 47).

While those negotiations were taking place, Mr. Bonilla’s and Ms. Mendez’s son, Darion Mendez

(“Darion”), incorporated Santa Catarina, Inc. under the laws of the State of New York on January

3, 2019. (ECF No. 101-3 (“Cert. of Inc.”) at 5). The address provided in the certificate of

incorporation is the site of Juquila’s restaurant, 40–12 83rd Street, Elmhurst, N.Y. 11373, which

was still operating at the time. (Id. at 4).

Less than two weeks later, on January 15, 2019, Mr. Bonilla informed Juquila’s bankruptcy

counsel that he intended to close down the restaurant. (ECF No. 52). As a result, Juquila filed a

motion to dismiss the chapter 11 case. (Bankr. E.D.N.Y. 1:18-44976 (NHL), ECF No. 36 (“Bankr.

Mot. to Dismiss”)). In the motion, Juquila explained that after months of declining profitability, it

could no longer effectively reorganize or continue to operate. (Id. at 5). Juquila further explained

that it owed $48,000 in rent arrears, which, along with more than $35,000 in administrative claims,

took priority over the then-disputed, unsecured claims that formed the basis for this litigation. (Id.

at 4–5.). According to the motion:

[Juquila’s] administrative claim and the amount due for rental arrears exceed[ed]

the value of its assets. The Debtor’s only assets [we]re its bank accounts, security

deposits, supplies, kitchen equipment and restaurant furnishings. The Debtor

valued its assets at approximately $89,000 in its Schedule B, but it suspects that the

assets would bring substantially less than that amount if they were liquidated.

(Id. at 5).

On February 18, 2019, while Juquila’s motion to dismiss its Chapter 11 case was pending, Mr.

Bonilla agreed to terminate the restaurant’s lease—which was originally set to expire in September

2024—and surrendered the property to his landlord, Jose Aguera (the “Landlord”). (ECF No. 101-

1 at 8; ECF No. 66 at 7).1 According to the terms of the termination agreement, Mr. Bonilla

surrendered the lease to the Landlord “as is,” to satisfy Juquila’s outstanding debt of $83,210.54

in unpaid rent and utility bills. (ECF No. 101-1 at 8; ECF No. 66 at 7). Although the “Restaurant

Premises, Equipment & tools [were] not enough to cover even 30%” of that outstanding debt,2 the

Landlord and Mr. Bonilla agreed that “the termination of the lease and surrender of leased premises

is at the end the best decision.” (Id.).

In bankruptcy filings, Mr. Bonilla explained that he was forced to close Juquila after Ms.

Mendez terminated their marriage and left their joint business along with half of their staff. (Bankr.

E.D.N.Y. 1:18-44976 (NHL) ECF No. 41 ¶ 1). Soon after that, Mr. Bonilla “closed the doors and

returned the keys to the Landlord,” and “[s]ince virtually all of the contents belonged to the

Landlord, and [Juquila] owed him a significant amount of rent, [Mr. Bonilla] thought this was the

proper thing to do.” (Id.) (emphasis added). The Landlord’s counsel similarly informed the

bankruptcy court shortly after the termination of the lease that, based on representations made by

Mr. Bonilla through Juquila’s bankruptcy counsel, and based on representations made by the

Landlord himself, “that all of the contents of the restaurant, except for two small used

refrigerators, were in the premises when [Juquila] leased the space and the contents belonged to

the Landlord,” and that “[w]hen [Juquila] vacated the premises, he returned the premises and its

1 Mr. Aguera served as landlord to the commercial enterprise Juquila and continues to serve as Mr. Bonilla’s residential

landlord—Mr. Bonilla still lives in an apartment above the restaurant. (Pl’s Mem. at 8; see also Minute Entry dated

06/03/2019 (“Bonilla provided the Court with his new address 40-16 83rd Street, Apt. 3, Elmhurst, NY 11373[.]”; ECF

No. 60 (“Notice of Change of Address”)).

2 In other words, the surrender agreement contemplated that the restaurant premises, equipment, and tools belonged

to Juquila and were valued at some amount short of $24,963.16.

contents to the Landlord.” (Bankr. E.D.N.Y. 1:18-44976 (NHL) ECF No. 40 ¶ 2) (emphasis

added).

Around this time, in February 2019, “Santa Catarina Inc. [doing business as] Juquila” applied

for a New York State liquor license. (ECF No. 101-4 at 3) (emphasis added). In March 2019, Dr.

Sevilla Vilar and Darion entered into an oral agreement to share ownership of Santa Catarina, with

respective 90% and 10% interests. (ECF No. 110 (“Darion Mendez Decl.”) ¶ 5; ECF No. 109

(“Vilar Decl.”) ¶ 5)). On March 7, 2019, less than three weeks after Mr. Bonilla surrendered the

restaurant, Dr. Vilar and Darion signed an agreement with the Landlord on behalf of Santa Catarina

to rent the restaurant space “as is.” (ECF No. 108-2 at 1, 8, 11). The lease provided for a seven

year term at a base monthly rate of $11,000 for the first year, with 3% increases each year

thereafter. (Id. at 10). The same day that the Landlord and Santa Catarina executed the new lease,

the bankruptcy case against Juquila was dismissed. (Bankr. E.D.N.Y. 1:18-44976 (NHL) ECF No.

43).

On March 15, 2019, Plaintiffs informed the Court of their understanding that the restaurant

had closed down, that Mr. Bonilla intended to file for personal bankruptcy, and that Ms. Mendez’s

whereabouts were unknown. (ECF No. 54). Darion and Dr. Vilar report that at that time, they had

already begun operating the restaurant, and that Ms. Mendez was working there as a part-time

employee assisting with food deliveries. (Darion Mendez Decl. ¶¶ 8–9; Vilar Decl. ¶¶ 8–9).3

By May 3, 2019, Plaintiffs learned that Juquila had reopened, and believed the restaurant to be

under the same ownership and operation as before. (ECF No. 56 at 1). At that point, Mr. Bonilla

denied having any interest in the re-opened restaurant; nevertheless, Plaintiffs explained in a letter

to the Court that they believed that the corporate successor operating Juquila restaurant would be

3 Ms. Mendez’s personal bankruptcy filings indicate that she had been working not as a delivery person, but as a

cashier for Santa Catarina “since March 2019.” (Bankr. E.D.N.Y. No. 19-43521-ESS, ECF No. 9 at 13).

liable for Plaintiffs’ claims. (Id. at 1). After learning of Ms. Mendez’s personal bankruptcy filing,4

and of the dissolution of Juquila, Plaintiffs requested a stay of the proceedings in June 2019 to give

them time to “investigate and consider the option of identifying and naming, as a Defendant, the

successor corporation that currently owns and operates Juquila Mexican Cuisine.” (ECF No. 61).

In July 2019, Plaintiffs confirmed their understanding that Juquila Restaurant was taken over

by Santa Catarina, and alleged that Juquila fraudulently transferred the restaurant to Santa Catarina

for no remuneration. (ECF No. 65). Plaintiffs simultaneously notified the Court that they intended

to pursue a default judgment inquest against Juquila, and to move to reverse the conveyance or

enforce the judgment against Santa Catarina. (Id.). At a telephone conference held July 19, 2019,

Plaintiffs’ counsel reiterated their belief that fraudulent activity was afoot, and that they would

seek to reverse the conveyance or introduce Santa Catarina as a party in this matter. (See Minute

Entry dated 7/19/2019; 7/19/2019 FTR Log #12:16:00–12:16:46). Through his bankruptcy

counsel, who appeared only as a courtesy on his behalf in this litigation, Mr. Bonilla disputed the

notion that there was any fraudulent conveyance, noting that he had no interest in Santa Catarina

and that no shares of Juquila were ever transferred. (See 7/19/2019 FTR Log #12:16:54–12:17:25).

Following the conference, on July 25, 2019, Mr. Bonilla sent a letter to the Court along with

supporting documentation, confirming that he had filed for personal bankruptcy,5 dissolved

Juquila,6 surrendered Juquila’s liquor license, lease, and certificate of authority, and finalized

4 See ECF No. 1, Chapter 7 Voluntary Petition, In re Mendez-Luna, No. 1:19-43521-ESS (Bankr. E.D.N.Y. June 6,

2019).

5 See ECF No. 1, Chapter 7 Voluntary Petition, In re Bonilla, No. 1:19-43380 (NHL) (Bankr. E.D.N.Y. May 31, 2019).

6 Mr. Bonilla mailed an executed certificate of dissolution to the New York State Department of State on June 7, 2019.

(ECF No. 101-1 at 5–6). However, the Court’s review of public records indicates that Juquila Mexican Cuisine Corp.

remains active, and that the certificate of dissolution was not formally filed by the Department of State. See New York

Dep’t of State Division of Corporations Entity Filing History, https://apps.dos.ny.gov/publicInquiry/FilingHistory

(last visited Mar. 22, 2022). The Court notes that although Mr. Bonilla sent a letter from his accountants indicating

that his business was discontinued as of February 28, 2019, and surrendered his certificate of authority indicating that

Juquila’s quarterly sales tax reporting obligations. (ECF No. 66). He affirmed in the letter that he

“never transferred any assets to any persons” and disputed Plaintiffs’ fraudulent conveyance

claims. (Id.). Finally, he noted in his letter that he was unable to obtain counsel to appear on

Juquila’s behalf in these proceedings. (Id.).

On August 2, 2019, the Court directed the Clerk of the Court to enter a notation of default

against Juquila because it would not be represented by counsel and, as a corporation, could not

proceed pro se. (Order dated 08/02/2019). The Clerk of the Court subsequently entered default on

August 5, 2019. (ECF No. 68). The Court conducted an inquest hearing in August 2019, and on

July 30, 2020 awarded Plaintiffs damages against Juquila. (ECF No. 87).7 On April 5, 2021, the

Court entered final judgment in Plaintiffs’ favor against Juquila, awarding damages, attorneys’

fees, costs, and post-judgment interest. (ECF No. 96). Defendant has failed to pay any part of the

Judgment. (ECF No. 101 (“Pl’s Mem.”) at 2).

On November 19, 2021, Plaintiffs served Santa Catarina with an information subpoena and

restraining notice seeking post-judgment discovery regarding Juquila’s assets. (ECF Nos. 99, 102;

see also Subpoena and Restraining Notice). The restraining notice forbids Santa Catarina from

selling or transferring any property in which Juquila has an interest. (Subpoena and Restraining

Notice at 2–3). The information subpoena lists four questions seeking: (1) the identity of a

deponent to respond to questions contained in the subpoena, (2) the identity of its stockholders,

officers, and directors, (3) information regarding whether Respondent “has within its possession,

the business was “insolvent” and that its last date of business was February 16, 2019, Mr. Bonilla did not attach the

consent of the New York State Department of Taxation and Finance or of the New York City Commissioner of Finance

to his certificate of dissolution, as is required. (ECF No. 101-1 at 13).

7 The Court’s findings of fact and conclusions of law were limited to Juquila alone because of the automatic stay

applicable to Ms. Mendez and Mr. Bonilla under the Bankruptcy Act, 11 U.S.C. § 362. (ECF No. 87 at 2).

custody, or control any property in which [Juquila] has or had an interest,” and (4) an itemized list

of any such property. (Id. at 4–5).

The day the information subpoena was served, Plaintiffs served the motion currently before

the Court which seeks an order pursuant to Rule 69(a) requiring that Santa Catarina turn over any

property that was fraudulently transferred to them from Juquila in order to enforce the Judgment.

(Turnover Mot.). On December 20, 2021, Santa Catarina opposed Plaintiffs’ motion and cross-

moved to quash the information subpoena. (ECF Nos. 107, 111).

LEGAL STANDARDS

I. Rule 69(a) and C.P.L.R. § 5225(b) Proceedings

“A motion to enforce a money judgment is governed by Rule 69(a), which provides that

‘proceedings supplementary to and in aid of judgment or execution . . . must accord with the

procedure of the state where the court is located.’” CSX Transp., Inc. v. Island Rail Terminal, Inc.,

879 F.3d 462, 469 (2d Cir. 2018) (quoting Fed. R. Civ. P. 69(a)). New York’s law governing such

proceedings provides:

Upon a special proceeding commenced by the judgment creditor, against a person

in possession or custody of money or other personal property in which the judgment

debtor has an interest or against a person who is a transferee of money or other

personal property from the judgment debtor, where it is shown that the judgment

debtor is entitled to the possession of such property or that the judgment creditor’s

rights to the property are superior to those of the transferee, the court shall require

such person to pay the money, or so much of it as sufficient to satisfy the judgment,

to the judgment creditor and, if the amount to be so paid is insufficient to satisfy

the judgment, to deliver any other personal property, or so much of it as is of

sufficient value to satisfy the judgment, to a designated sheriff.

N.Y. C.P.L.R. § 5225(b) (emphasis added). In sum, “[t]his section ‘enables a judgment creditor to

initiate special proceedings against transferees to set aside fraudulent transfers made by the

judgment debtor.’” Gortat v. Capala Bros., Inc., No. 07-CV-3629 (ILG) (SMG), 2018 WL

6718680, at *2 (E.D.N.Y. Nov. 6, 2018) (quoting State Farm Mut. Auto Ins. Co. v. Grafman, 2015

WL 269529, at *2 (E.D.N.Y. Jan. 21, 2015), adopted by 2015 WL 9460131 (Dec. 23, 2015)).

Although New York law contemplates the commencement of a special proceeding, “[t]hat

mechanism . . . has no equivalent under the Federal Rules of Civil Procedure, which ‘recognize

only “one form of action—the civil action.”’” Mitchell v. Garrison Prot. Servs., Inc., 819 F.3d

363, 640 (2d Cir. 2016) (quoting Vera v. Republic of Cuba, 802 F.3d 242, 244 n.3 (2d Cir. 2015);

Fed. R. Civ. P. 2). Nevertheless, the Second Circuit has held that “a party seeking a money

judgment against a non-party garnishee may proceed by motion and need not commence a special

proceeding, as long as the court has personal jurisdiction over the garnishee.” CSX Transp., Inc.,

879 F.3d at 469.

“A motion under Rule 69(a) is treated like a summary judgment motion.” Axginc Corp. v.

Plaza Automall, Ltd., No. 14-CV-4648 (ARR) (VMS), 2021 WL 1030228, at *7 (citing Deflora

Lake Dev. Assocs., Inc. v. Hyde Park, No. 13 Civ. 4811 (CS), 2016 WL 7839191, at *2 (S.D.N.Y.

June 9, 2016), aff’d 689 F. App’x 93, 99 (2d Cir. May 3, 2017)), adopted by 2021 WL 1026497

(Mar. 17, 2021); see also Fabric Selection, Inc. v. A & T Trading US, Inc., No. 20 Misc. 864 (ARR)

(VMS), 2021 WL 811371 at *3 (E.D.N.Y. Feb. 5, 2021), adopted by 2021 WL 810340 (Mar. 3,

2021). Accordingly, “[a] court may grant summary relief where there are no questions of fact, but

it must conduct a trial on disputed issues of fact on adverse claims in a turnover matter.” Axginc

Corp., 2021 WL 1030228, at *7 (citing CSX Transp., Inc., 879 F.3d at 473; Matter of Empire Mut.

Ins. Co. (Greaney), 156 A.D.2d 154, 156 (N.Y. App. Div. 1989)); see also Allstate Ins. Co. v.

Mirvis, No. 08-CV-4405 (PKC) (PK), 2018 WL 4921631, at *5 (E.D.N.Y. Sept. 4, 2018) (“In a

turnover proceeding under Section 5225, ‘a court is authorized to make a summary determination

upon the pleadings, papers and admissions to the extent that no triable issues of fact are raised.’”)

(quoting Centerpointe Corp. Park P’ship 350 v. MONY, 946 N.Y.S.2d 354, 355 (N.Y. App. Div.

2012)).

“In determining whether a genuine issue of fact exists, the court must resolve all ambiguities

and draw all reasonable inferences against the moving party,” and must “construe[] any disputed

facts in the light most favorable to the nonmoving party.” Emerson Elec. Co. v. Holmes, No. 16-

CV-1390 (PKC) (SIL), 2020 WL 4592808, at *6 (E.D.N.Y. Aug. 11, 2020) (citing Major League

Baseball Props., Inc. v. Salvino, Inc., 542 F.3d 290, 309 (2d Cir. 2008); Adickes v. S. H. Kress &

Co., 398 U.S. 144, 157–59 (1970)). Judgment creditors seeking relief under Rule 69(a) are not

entitled to demand a trial by jury to resolve disputed issues of fact, but non-party respondents are

entitled to make such a demand. See Axginc Corp., 2021 WL 1030228, at *7 (citing Leedpak, Inc.

v. Julian, 78 Misc. 2d 519, 521 (N.Y. Sup. Ct. 1974); Colonial Surety v. Lakeview Advisors, LLC,

125 A.D.3d 1292, 1294 (N.Y. App. Div. 2015)).

To grant relief under Rule 69(a) and N.Y. C.P.L.R. § 5225, a Court must perform a two-step

analysis to determine “whether property belonging to a judgment debtor—but in the possession of

a third party—should be turned over to a judgment creditor.” Beauvais v. Allegiance Securities,

Inc., 942 F.2d 838, 840 (2d Cir. 1991); see also CSX Transp., Inc., 2016 WL 755630 at *4. To

grant relief, it must first be shown that “the judgment debtor ‘has an interest’ in the property the

creditor seeks to reach.” Beauvais, 942 F.2d at 840 (quoting N.Y. C.P.L.R. § 5225(b)). Second,

the court must find “either that the judgment debtor is ‘entitled to the possession of such property,’

or it must find that ‘the judgment creditor’s rights to the property are superior’ to those of the party

in possession of the property.” Id. (quoting N.Y. C.P.L.R. § 5225(b)). “Only after both steps of the

analysis are demonstrated may the trial court order the transferee to turn over the property to the

judgment creditor.” Id.

Some courts have held that even without a showing that the judgment debtor “has an interest”

in the property in question, Section 5225(b) still permits recovery from “‘a transferee of money or

other personal property from the judgment debtor’ if it can be demonstrated that the debtor is

entitled to the property or that the creditor’s interest is superior to that of the transferee.” Fed.

Deposit Ins. Corp. v. Conte, 204 A.D.2d 845, 846 (N.Y. App. Div. 1994) (quoting N.Y. C.P.L.R.

§ 5225(b)); see also Axginc Corp., 2021 WL 1030228, at *10–11 (distinguishing between

garnishee proceedings and transferee proceedings); Aaron v. Mattikow, 225 F.R.D. 407, 412

(E.D.N.Y. 2004) (“The proceedings authorized by C.P.L.R. § 5225(b) may be properly brought by

a judgment creditor against a garnishee or a transferee.”) (citations omitted). Put differently,

Section 5225(b) “‘furnishes a mechanism for obtaining a money judgment against the recipient of

a fraudulent conveyance.’” Axginc Corp., 2021 WL 1030228, at *11 (quoting Conte, 204 A.D. 2d

at 846; citing Mirvis, 2018 WL 4921631, at *4; Leser v. U.S. Bank Nat’l Ass’n, No. 09 Civ. 2362

(KAM), 2013 WL 3788877, at *8 (E.D.N.Y. July 18, 2013)); see also Mattikow, 225 F.R.D. 407

at 412 (addressing fraudulent conveyance claims in a § 5225(b) proceeding without first finding

judgment debtor’s interest under Beauvais).

A fraudulent conveyance, in turn, may be made with actual or constructive intent to defraud.

See, e.g., Mirvis, 2018 WL 4921631, at *5–7. The applicable law governing constructively

fraudulent conveyances provides:

Every conveyance made without fair consideration when the person making it is a

defendant in an action for money damages or a judgment in such an action has been

docketed against him, is fraudulent as to the plaintiff in that action without regard

to the actual intent of the defendant if, after final judgment for the plaintiff, the

defendant fails to satisfy the judgment.

N.Y. Debt. & Cred. L. § 273-a.8

8 As noted in Plaintiffs’ brief, § 273-a remains applicable to the alleged transfers at issue here, which occurred before

the repeal of § 273-a and the adoption of the Uniform Voidable Transactions Act became effective on April 4, 2020.

A plaintiff therefore states a claim for a constructively fraudulent conveyance under this

section where it establishes “(1) that the conveyance was made without fair consideration; (2) that

they conveyor is a defendant in an action for money damages or that a judgment in such action has

been docketed against him; and (3) that the defendant has failed to satisfy the judgment.” Mitchell

v. Garrison Protective Servs., Inc., 819 F.3d 636, 641 (2d Cir. 2016) (citations omitted). “Fair

consideration” as described in the first element is a defined term under New York’s Debtor and

Creditor law, N.Y. Debt. & Cred. L. § 272,9 and requires both “good faith and the payment of a

fair equivalent value for the property interest conveyed.” Gortat, 2018 WL 6718680, at *5 (citing

Allstate Ins. Co. v. Mirvis, 2017 WL 3981157, at *4 (E.D.N.Y. July 31, 2017), adopted by 2017

WL 6029128 (Dec. 5, 2017). “Fair consideration is determined on a case-by-case basis.” Id. (citing

Lippe v. Bairnco Corp., 249 F. Supp. 2d 357, 377 (S.D.N.Y. 2003), aff’d, 99 F. App’x 274 (2d Cir.

2004)).

The burden of proof under Section 273-a is unsettled. Fed. Nat. Mortg. Ass’n v. Olympia

Mortg. Corp., No. 04-CV-4971 (NG) (MDG), 2011 WL 2414685, at *8 (E.D.N.Y. June 8, 2011)

(“There is a dispute as to the appropriate standard of proof required to prove constructive fraud

under § 273”); Piccarreto v. Mura, No. 12/11476, 2016 WL 3201863, at *3–4 (N.Y. Sup. Ct. June

6, 2016) (noting unresolved dispute in applicable burden of proof), aff’d, 158 A.D.3d 1095 (N.Y.

(Pl’s Mem. at 3 n.1 (citing 2019 N.Y. Laws, ch. 580 § 7; Varbero v. Belesis, No. 20 Civ. 2538 (LJL), 2020 WL

5849516, at *5 (S.D.N.Y., Oct. 1, 2020)).

Plaintiffs only seek relief based on § 273-a, and do not allege actual intent under N.Y. Debt. & Cred. L. § 276, which

provides that “[e]very conveyance made and every obligation incurred with actual intent . . . to hinder, delay, or

defraud either present or future creditors, is fraudulent as to both present and future creditors.” Accordingly, I will

only assess Plaintiffs’ constructive fraudulent conveyance claims.

9 N.Y. Debt. & Cred. L. § 272 (“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.”).

App. Div. 2018). Federal courts in this Circuit have generally held that a preponderance standard

applies to constructive fraud claims brought under the statute. See Piccarreto, 2016 WL 3201863,

at *3 (citing Lippe, 249 F. Supp. 2d at 376 n.6 (S.D.N.Y. 2003); In re Dreier LLP, 452 B.R. 391,

442 (Bankr. S.D.N.Y. 2011); In re Borriello, 329 B.R. 367, 373 (Bankr. E.D.N.Y. 2005)); see also

Kim v. Ji Sung Yoo, 311 F. Supp. 3d 598, 610 (S.D.N.Y. 2018) (“The burden of proof on a

constructive fraud claims is preponderance of the evidence.”) (citing In re Chin, 492 B.R. 117

(Bankr. E.D.N.Y. 2013), aff’d sub nom. Tae H. Kim v. Ji Sung Yoo, 776 F. App’x 16 (2d Cir.

2019); Schneider v. Barnard, 508 B.R. 533, 548 (E.D.N.Y. 2014) (“The party seeking to set aside

the transfers as constructively fraudulent bears the burden to prove the elements of constructive

fraud by a preponderance of the evidence.”). However, intermediate appellate courts in New York

State have applied a clear and convincing evidence standard, and the Court of Appeals has not

resolved the dispute between the two. Piccarretto, 2016 WL 3201863, at *4 (citing In re U.S.

Bancorp Equip. Fin., Inc. v. Rubashkin, 98 A.D.3d 1057, 1060 (N.Y. App. Div. 2012); Farkas v.

D’Oca, 305 A.D.2d 237, 237 (N.Y. App. Div. 2003)). For the avoidance of doubt, the Court will

apply the higher “clear and convincing evidence” standard to Plaintiffs’ claims.

II. Post-Judgment Discovery Standard

After obtaining a money judgment, a judgment creditor “may obtain discovery from any

person . . . as provided in [the Federal Rules of Civil Procedure] or by the procedure of the state

where the court is located.” Fed. R. Civ. P. 69(a)(2). Under New York law, “[a]t any time before

a judgment is satisfied or vacated, the judgment creditor may compel disclosure of all matter

relevant to the satisfaction of the judgment,” using a number of discovery tools, including by

issuing a subpoena requiring attendance at a deposition and by issuing an information subpoena

requiring that the recipient respond to enumerated questions under oath. N.Y. C.P.L.R. §§ 5223,

5224(a)(1), (3).

“The rules governing discovery in post-judgment execution proceedings are quite permissive,”

and “[t]he general rule in the federal system is that, subject to the district court’s discretion, ‘parties

may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or

defense.’” Republic of Argentina v. NML Cap., Ltd., 573 U.S. 134, 138–39 (2014) (citing Fed. R.

Civ. P. 26(b)(1); see also Axginc Corp. v. Plaza Automall, Ltd., No. 14-CV-4648(ARR) (VMS),

2018 WL 4771886, at *4 (E.D.N.Y. Oct. 2, 2018) (“Broad post-judgment discovery in aid of

execution is the norm in federal and New York state courts.”) (citations omitted). Such permissive

discovery ensures that judgment creditors are “‘given the freedom to make a broad inquiry to

discover hidden or concealed assets of the judgment debtor.’” Id. (quoting GMA Accessories, Inc.

v. Elec. Wonderland, No. 07 Civ. 3219 PKC DF, 2012 WL 1933558, at *4 (S.D.N.Y. May 22,

2012)). Although the post-judgment discovery standard is generous, courts in this District have

found that discovery should be specifically tailored toward revealing facts about the judgment

debtor’s hidden or transferred assets. See Koon Chun Hing Kee Soy & Sauce Factory, LTD. v. Star

Mark Mgmt., Inc., No. 04-CV-2293 (SMG), 2010 WL 3780275, at *1 (E.D.N.Y. Sept. 22, 2010);

Jacobson v. Moller & Moller, Inc., No. 02-CV-6316 (ERK) (MDG), 2007 WL 1989260, at *1

(E.D.N.Y. July 5, 2007).

The Federal Rules of Civil Procedure permit a court to quash or modify an overbroad subpoena.

Fed. R. Civ. P. 45(c). Additionally, “[t]he court may, for good cause, issue an order to protect a

party or person form annoyance, embarrassment, oppression, or undue burden or expense,

including . . . (A) forbidding the disclosure or discovery; . . . [and] (D) forbidding inquiry into

certain matters, or limiting the scope of disclosure or discovery to certain matters[.]” Fed. R. Civ.

P. 26(c)(1). The party seeking a protective order bears the burden of showing that good cause exists

to provide the protection requested. Sealey v. C.R. England, Inc., No. 21-CV-3189 (FB) (TAM),

2021 WL 5409893, at *2 (E.D.N.Y. Oct. 8, 2021) (citing In re “Agent Orange” Prod. Liab. Litig.,

821 F.2d 139, 145 (2d Cir. 1987); Gordon v. Target Corp., 318 F.R.D. 242, 245 (E.D.N.Y. 2016);

Giladi v. Albert Einstein Coll. of Med., No. 97 Civ. 9805 (DC), 1998 WL 183874, at *1 (S.D.N.Y.

Apr. 15, 1998)).

DISCUSSION

I. This Court Has Ancillary Jurisdiction to Hear Plaintiffs’ Turnover Motion

As a threshold matter, I find that this Court has ancillary jurisdiction to preside over Plaintiffs’

motion under Rule 69(a).

When the parties provide consent, a “magistrate judge is given plenary jurisdiction by the

district court pursuant to 28 U.S.C. § 636(c)(1).” Hunnicut v. Mangiafico, 20 F. App’x 57, 58–59

(2d Cir. 2009) (citing LoSacco v. City of Middletown, 71 F.3d 88, 92 (2d Cir. 1995)); see also

Roell v. Withrow, 538 U.S. 580, 585 (2003) (“[A] § 636(c)(1) referral gives the magistrate judge

full authority over dispositive motions, conduct of trial, and entry of final judgment, all without

district court review.”). Further, “the doctrine of ancillary jurisdiction . . . recognizes federal

courts’ jurisdiction over some matters (otherwise beyond their competence) that are incidental to

other matters properly before them.” Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375,

378 (1994).

“[A] federal court may exercise ancillary jurisdiction ‘(1) to permit disposition by a single

court of claims that are, in varying respects and degrees, factually interdependent and (2) to enable

a court to function successfully, that is, to manage its proceedings, vindicate its authority, and

effectuate its decrees.’” Epperson v. Ent. Express, Inc., 242 F.3d 100, 104–05 (2d Cir. 2001)

(quoting Peacock v. Thomas, 516 U.S. 349, 354 (1996)). Where, as here, a judgment creditor seeks

to void an allegedly fraudulent conveyance from a judgment debtor to a non-party to ensure the

collectability of an existing judgment, such proceedings fall within the scope of the ancillary

enforcement jurisdiction of the district court. Id. at 106–07; see also RCA Corp. v. Tucker, 696 F.

Supp. 845, 850 (E.D.N.Y. 1988) (“[T]he authorities are unanimous that a federal court maintains

ancillary jurisdiction to enforce its own judgments, and that, under Rule 69, Fed. R. Civ. P., no

independent jurisdictional basis is necessary to commence an enforcement proceeding against a

garnishee not a party to the original suit.”).10

Although no court has specifically examined a magistrate judge’s ancillary jurisdiction in this

context where judgment was entered by that magistrate judge on consent of the parties, courts in

this Circuit have found that a magistrate judge presiding on the consent of the parties can exercise

ancillary jurisdiction affecting non-parties in other contexts. See, e.g., S.E.C. v. Smith, 798 F. Supp.

2d 412, 422 (N.D.N.Y. 2011) (finding that magistrate judge had jurisdiction over SEC’s motion

for sanctions in a civil enforcement action, even though wife of the investigation’s target had not

consented to magistrate judge’s jurisdiction, where motion involved assets in which she had an

10 While ancillary jurisdiction extends to post-judgment fraudulent conveyance claims, there is disagreement among

courts in this jurisdiction regarding whether ancillary jurisdiction extends to actions by a judgment creditor seeking to

establish a third party’s independent liability under an alter ego or veil-piercing theory. See Epperson, 242 F.3d at 106

(distinguishing post-judgment proceedings to void a fraudulent conveyance and collect an existing judgment from

claims asserted under an alter ego or veil piercing theory “that raise an independent controversy with a new party in

an effort to shift liability”); see also C.G. Holdings, Inc. v. Rum Jungle, Inc., 582 F. Supp. 2d 385, 388 (E.D.N.Y.

2008) (“[C]ourts in this circuit have found that enforcement of a judgment against a third party that is predicated on

alter-ego and veil-piercing theories falls outside the ancillary jurisdiction of the court.”). But see Trust v. Kummerfeld,

153 Fed. App’x 761, 762–63 (2d Cir. 2005) (“In New York, veil-piercing actions may be initiated as supplementary

special proceedings under New York Civil Practice Law and Rules (CPLR) § 5225(b), rather than as plenary actions.”)

(citing Morris v. N.Y. State Dep’t of Taxation & Fin., 82 N.Y.2d 135, 141 (1993); O’Brien–Kreitzberg & Assocs. v.

K.P., Inc., 218 A.D.2d 519, 520 (N.Y. App. Div. 1995)).

Although they have not pled successor or alter-ego liability, Plaintiffs’ arguments suggest that they believe Santa

Catarina should be held responsible for Juquila’s judgment as a successor entity. To the extent that Plaintiffs seek to

hold Santa Catarina responsible as a successor to or alter-ego of Juquila, rather than obtain a turnover order for

Juquila’s property in Santa Catarina’s possession, the exercise of jurisdiction here would likely be inappropriate. To

obtain relief under such a theory, Plaintiffs would need to file a separate suit against Santa Catarina.

interest, where actual parties to action previously consented to magistrate judge’s jurisdiction for

any and all proceedings and to enter final order, where SEC’s motion for sanctions was ancillary

to its motion for preliminary injunction, and where the motion for sanctions was non-dispositive),

aff’d in part, dismissed in part, 710 F.3d 87 (2d Cir. 2013); United States v. O’Brien, No. 11 CR.

652 (SLC), 2021 WL 3550230, at *6 (S.D.N.Y. Aug. 10, 2021) (finding magistrate judge had

jurisdiction to enter order of garnishment where “the garnishment proceeding was a post-judgment

remedy within an underlying criminal case,” the government and the defendant consented to the

magistrate judge’s jurisdiction in the underlying criminal case, and defendant’s consent to

magistrate judge’s jurisdiction over the garnishment proceeding “may not have been necessary in

the first instance because the parties to the garnishment were the Government and [defendant’s

employer], not [defendant].”).

In Smith, the District Court noted that even if the motion for sanctions was “deemed dispositive

and additional consent is required for a magistrate judge to determine the SEC’s motion for

sanctions, which has not been required here, th[e] decision may be deemed a report-

recommendation under § 636(b) and reviewed de novo by the district court or the court of appeals.”

Smith, 798 F. Supp. 2d at 422 (citing Kiobel v. Millson, 592 F.3d 78, 79 (2d Cir.2010)). And

notably, on appeal, the Second Circuit upheld the findings of the magistrate judge, affirmed the

decision on sanctions, and remanded to the magistrate judge for further proceedings on

effectuating the sanctions. Id. at 98–99.

Given that (1) magistrate judges have plenary jurisdiction over cases where the parties consent,

(2) the parties have consented to my jurisdiction, (3) enforcement proceedings to void a fraudulent

conveyance fall within a court’s ancillary jurisdiction, and (4) a magistrate judge hearing a case

on consent can exercise ancillary jurisdiction affecting non-parties, I find that this Court’s exercise

of ancillary jurisdiction is appropriate to assess Plaintiffs’ fraudulent conveyance claims to enforce

its judgment against Juquila. As in Smith, this decision may, if needed, be deemed a report and

recommendation and may be reviewed de novo by the district court or the court of appeals.

II. This Court Has Personal Jurisdiction Over Respondent Santa Catarina

As a second threshold matter, I find that this Court has personal jurisdiction over Santa Catarina

such that Plaintiffs’ Rule 69(a) motion is properly before the Court.

In the Second Circuit, “a party seeking a money judgment against a non-party garnishee may

proceed by [Rule 69(a)] motion and need not commence a special proceeding [under CPLR

§ 5225(b)], as long as the court has personal jurisdiction over the garnishee.” CSX

Transportation, Inc. v. Island Rail Terminal, Inc., 879 F.3d 462, 469 (2d Cir. 2018) (quoting N.Y.

C.P.L.R. § 5225(b) (emphasis added). Since this Court sits in New York, New York law provides

the basis for exercising personal jurisdiction. See, e.g., Chufen Chen v. Dunkin’ Brands, Inc., 954

F.3d 492, 497–98 (2d Cir. 2020) (“In the absence of a federal statute specifically directing

otherwise, and subject to limitations imposed by the United States Constitution, we look to the law

of the forum state to determine whether a federal district court has personal jurisdiction over a

foreign corporation.”) (quoting Brown v. Lockheed Martin Corp., 814 F.3d 619, 624 (2d Cir.

2016)).

It is well established in New York and elsewhere that “‘[w]ith respect to a corporation, the

place of incorporation and principal place of business are paradigm . . . bases for general

jurisdiction’ because these are places where a corporation ‘is fairly regarded as at home.’” Aybar

v. Aybar, 37 N.Y.3d 274, 289 (2021) (quoting Daimler AG v. Bauman, 571 U.S. 117, 137 (2014));

see also Ford Motor Co. v. Montana Eighth Jud. Dist. Ct., 141 S. Ct. 1017, 1024 (2021). This

Court’s general personal jurisdiction over Santa Catarina, Inc., a corporation incorporated under

the laws of New York State (see Cert. of Inc.), with a principal place of business at a restaurant in

New York State, is both uncontested and unquestionable.

This Court’s personal jurisdiction over Santa Catarina is also contingent on proper service of

process. “Motions pursuant to Federal Rule of Civil Procedure 69 must be served on a transferee

or garnishee ‘in the same manner as a summons in an action.’” Fabric Selection, Inc., 2021 WL

811371, at *5 (quoting Saregama India, Ltd. v. Mosley, 12 Misc. 45 (LAK), 2012 WL 955520, at

*2 (S.D.N.Y. Mar. 20, 2012)); see also N.Y. C.P.L.R, § 5225(b) (“Notice of the proceeding shall

also be served upon the judgment debtor in the same manner as a summons or by registered or

certified mail, return receipt requested.”). Cf. LaBarbera v. Audax Const. Corp., 971 F. Supp. 2d

273, 282 (E.D.N.Y. 2013) (denying motions for turnover orders for lack of personal jurisdiction

due to failure to serve process on non-party garnishees). Here, Plaintiffs properly served Santa

Catarina with notice of the motion via the Secretary of State of the State of New York pursuant to

N.Y. Bus. Corp. L. § 306. (ECF No. 105).

Since the Court has personal jurisdiction and the motion has been properly served, the Court

may proceed in determining whether Plaintiffs are entitled to summary relief. See Axginc Corp.

2021 WL 1030228, at *9.

III. Plaintiffs’ Motion for Turnover Order is Denied

As noted above, summary relief under Rule 69(a) and C.P.L.R. § 5225(b) may only be granted

if a judgment creditor can show by clear and convincing evidence that the requirements of N.Y.

C.P.L.R. § 5225(b) are satisfied and that there are no genuine disputes of material fact. Plaintiffs

have not made such a showing here.

A. Plaintiffs Have Not Established Juquila’s Interest in Any Property Sought

The first step of the turnover test under Beauvais requires a showing that “the judgment debtor

‘has an interest’ in the property the creditor seeks to reach.” Beauvais, 942 F.2d at 840 (quoting

N.Y. C.P.L.R. § 5225(b)). A “‘judgment debtor’s interest in property must be understood to mean

a direct interest in the property itself which, while it may require a court determination, is leviable

and not an indirect interest in the proceeds of the property.’” Amtrust N. Am., Inc. v. Preferred

Contractors Ins. Co. Risk Retention Grp., LLC, No. 15 Civ. 7505, 2016 WL 6208288, at *6

(S.D.N.Y. Oct. 18, 2016) (quoting Sumitomo Shoji New York, Inc. v. Chem. Bank New York Trust

Co., 47 Misc. 2d 741, 746 (N.Y. Sup. Ct. 1965)); see also Mohammad Ladjevardian, Laina Corp.

v. Republic of Argentina, 663 F. App’x 77, 79 (2d Cir. 2016) (affirming denial of turnover order

by judgment creditor bondholders against non-party financial institution and finding that judgment

debtor had no interest in proceeds from bond sales where it unambiguously and “irrevocably

assigned” legal title to those funds to the non-party as a trustee pursuant to a settlement agreement);

In re Navigator Gas Transp. PLC, 358 B.R. 80, 88–89 (Bankr. S.D.N.Y. 2006) (denying turnover

where judgment creditors failed to show property sought was “actually subject to a beneficial

interest held by” the judgment debtor).

Plaintiffs seek the turnover of “any property and assets formerly owned by Juquila, and now

owned by Santa Catarina, Inc. as a result of . . . fraudulent transfer.” (Pl’s Mem. at 6). However,

they do not identify any particular property that Juquila previously owned, do not identify any

property in which Juquila has a present interest, and through their information subpoena have only

just initiated the process of identifying any such property. (See Subpoena and Restraining Notice).

Further, as Respondent correctly notes, Plaintiffs misapply the first step of the Beauvais standard

by focusing on their own interest in the property in Santa Catarina’s possession, rather than

Juquila’s interest in such property. (See Pl’s Mem. at 6 (arguing that Santa Catarina “is in

possession of the property in which Plaintiffs have an interest as a result of the judgment in their

favor against Juquila.”); ECF No. 111 (“Resp’s Opp.”) at 7). In their reply brief, Plaintiffs admit

the error, but respond that it is not fatal because the motion “read as a whole, is clearly premised

on Juquila Mexican Cuisine Corp.’s fraudulent conveyance of its property to Santa Catarina Inc.,”

and because § 5225(b) “does not require a showing of the judgment debtor’s interest in the subject

property at all under circumstances where a fraudulent conveyance has occurred.” (ECF No. 113

(“Pl’s Reply”) at 2). They further note that Juquila’s “interest in the property is clear—the property

and assets belonged to Juquila . . . until such point as they were (fraudulently) conveyed to Santa

Catarina Inc.” (Id.).

A similar set of circumstances occurred in Axginc Corp., 2021 WL 1030228, at *10. There, a

judgment creditor incorrectly stated the threshold element of the Beauvais turnover test to be the

judgment creditor’s interest in the money at issue, rather than the judgment debtors, and

improperly “argue[d] in its reply for the first time that its motion [was] not for a garnishee turnover

and that Beauvais’s two-step test does not apply.” Id. Because the plaintiff’s memorandum of law

and exhibits were “not organized in a way such that [d]efendant and [r]espondents could fairly

oppose the proposed transferee test,” id., the Axginc court recommended denying plaintiff’s

request for a turnover order with leave to renew the motion on a properly presented transferee

theory, id. at *12.

Unlike in Axginc, Plaintiffs here accurately stated the test under Beauvais in their opening

brief, but proceeded to misapply the test. (Compare Pl’s Mem. at 6 with ECF No. 98-8, Axginc

Corp. v. Plaza Automall, Ltd., No. 14-CV-4648 (E.D.N.Y. Feb. 13, 2020) (“First, the creditor must

be shown to have an interest in the money or property.”). Additionally, unlike in Axginc,

Respondent here had an opportunity to oppose Plaintiffs’ transferee theory: Santa Catarina filed a

reply brief in support of its cross-motion to quash two days after Plaintiffs’ reply was served,

wherein it repeats its arguments regarding Plaintiffs’ failure under the first step of Beauvais, and

addresses Plaintiffs’ constructive fraudulent conveyance claims without addressing any

distinctions between a garnishee and transferee turnover standard. (ECF No. 114 (“Resp’s Reply”)

at 2–3). And, in recognition of the fact that the applicability of the first step under Beauvais in a

fraudulent conveyance case was not the focus of their initial brief, Plaintiffs also invited further

briefing from their adversary. (Pl’s Reply at 2 n.1). Respondent did not seek leave to file such

briefing.

Since Respondent had an opportunity to argue the issue, the Court does not find it appropriate

to deny relief on the basis of Plaintiffs’ failure to satisfy step one under Beauvais alone.

Accordingly, I will move on to assess whether, even absent a showing of the judgment debtors’

current interest in the property, Plaintiffs have sufficiently “demonstrated that [their] interest is

superior to that of” Santa Catarina, such that they are entitled to recovery from Santa Catarina as

“‘a transferee of money or other personal property from the judgment debtor.”

B. Disputed Issues of Material Fact Preclude Summary Relief Under a Fraudulent

Conveyance Theory

As noted above, Section 5225(b) may be used “‘as the means to set aside a transfer made by a

judgment debtor to defraud his creditors,’” and permits recovery of “a money judgment against

the recipient of a fraudulent conveyance who has, in the interim, spent or dissipated the property

conveyed.” Leser, 2013 WL 3788877, at *8 (quoting Gelbard v. Esses, 96 A.D.2d 573, 575 (N.Y.

App. Div. 1983); citing Conte, 204 A.D.2d at 846)). A plaintiff proves a claim for a constructively

fraudulent conveyance where it establishes by clear and convincing evidence “(1) that the

conveyance was made without fair consideration; (2) that they conveyor is a defendant in an action

for money damages or that a judgment in such action has been docketed against him; and (3) that

the defendant has failed to satisfy the judgment.” Garrison Protective Servs., Inc., 819 F.3d at 641

(citations omitted). The second and third elements of Plaintiffs’ constructive fraudulent

conveyance claim are generally undisputed: at the time of the purported conveyance, Juquila was

a defendant in this action, and Juquila has since failed to satisfy the judgment entered against it.

(Pl’s Mem. at 8; Pl’s Reply at 4). Accordingly, the dispute between Plaintiffs and Respondent

centers around the adequacy of consideration underlying the transactions at issue. In particular,

Plaintiffs argue that Juquila conveyed ownership of the restaurant and the property inside to Santa

Catarina for no remuneration and in bad faith in order to avoid paying the judgment levied against

it in this case, and that the conveyance in fact rendered the judgment unenforceable. (Pl’s Mem. at

6–8).

“Fair consideration” requires both “good faith and the payment of a fair equivalent value for

the property interest conveyed,” and “is determined on a case-by-case basis.” Gortat, 2018 WL

6718680, at *5 (citing Mirvis, 2017 WL 3981157, at *4; Lippe, 249 F. Supp. 2d at 377). “[W]hen

seeking to set aside a [constructively fraudulent] conveyance for an absence of good faith, a

plaintiff in New York is often required to prove that a transferee lacked at least one of the

following: ‘(1) an honest belief in the propriety of the activities in question; (2) no intent to take

unconscionable advantage of others; and (3) no intent, or knowledge of the fact that the activities

in question will hinder, delay, or defraud others.’” In re Xiang Yong Gao, 560 B.R. 50, 62 (Bankr.

E.D.N.Y. 2016) (citing S. Indus. v. Jeremias, 411 N.Y.S.2d 945, 949 (N.Y. App. Div. 1978);

Ostashko v. Ostashko, 00–CV–7162 (ARR), 2002 WL 32068357, at *23 (E.D.N.Y. Dec. 12,

2002); In re Rego Crescent Corp., 23 B.R. 958, 969 (Bankr. E.D.N.Y. 1982)). “Under this

standard, an intent to defraud is sufficient to establish bad faith, but it is by no means necessary.”

Id. (citing Jeremias, 411 N.Y.S.2d at 949).11 A creditor may also use a “‘transferee’s knowledge

of the transferor’s unfavorable financial condition at the time of the transfer’” to establish bad

faith. Id. (quoting Ostashko, 2002 WL 32068357, at *23).

To support its claim of bad faith, Plaintiffs point to a number of suspicious circumstances

involving Juquila’s surrender and Santa Catarina’s takeover of the leased premises, including

allegations (1) that the restaurant was left as-is; (2) that the “value of the lease and the fixtures in

the restaurant far exceed[ed] the unpaid rent balance” owed to the Landlord; (3) that Santa Catarina

was charged a reduced rent when compared with Juquila’s rent, despite the Landlord’s significant

loss weeks before executing the lease; (4) that Mr. Bonilla and Ms. Mendez remained involved

with the operations of the restaurant; (5) that Mr. Bonilla continues to live above the restaurant;

(6) that “[t]he conveyance was made from father to son in [the] midst of an ongoing litigation[;]”

and (7) that Mr. Bonilla represented to the Court that the restaurant was owned by Dr. Vilar, rather

than his son, Darion Mendez. (Pl’s Mem. at 7–8; Pl’s Reply at 3).

Despite these multiple indicia of fraud, Santa Catarina argues that Plaintiffs’ allegations rest

on the incorrect premise that a conveyance was made from Juquila to Santa Catarina. (Resp’s Opp.

at 7). Instead, they argue, two separate transactions occurred: (1) Juquila surrendered its lease of

11 Although Plaintiffs do not allege actual fraud under § 276, Courts frequently look to “badges of fraud” to establish

an inference of fraudulent intent in cases brought under an actual intent theory. Such badges of fraud include: “(1) a

close relationship between the parties to the transaction, (2) a secret and hasty transfer not in the usual course of

business, (3) inadequacy of consideration, (4) the transferor’s knowledge of the creditor’s claim and his or her inability

to pay it, (5) the use of dummies or fictitious parties, and (6) retention of control of the property by the transferor after

the conveyance.” Mirvis, 2018 WL 4921631 at *5 (quoting Olympia Mortg. Corp., 2011 WL 2414685, at *8). “While

the presence or absence of any particular badges of fraud is not determinative in finding fraudulent intent, ‘the presence

of multiple indicia will increase the strength of the inference.’” Id. (quoting MFS/Sun Life Tr.-High Yield Series v.

Van Dusen Airport Servs. Co., 910 F. Supp. 913, 935 (S.D.N.Y. 1995)). “‘Transfers among family members raise

special concerns, and receive different scrutiny.’” Id. (quoting Perrone v. Amato, No. 09-CV-316 (AKT), 2017 WL

2881136, at *28 (E.D.N.Y. July 5, 2017)).

Because these badges of fraud are relevant to the assessment of intent, and because a showing of intent to defraud is

sufficient to establish bad faith, these badges of fraud are also relevant to determine whether the parties acted in bad

faith here.

the premises to the Landlord on February 18, 2019 in exchange for his forgiveness of Juquila’s

overdue rent and utility payments, and (2) Santa Catarina in good faith entered into a new lease of

the premises with the Landlord on March 7, 2019 for consideration in the form of rental payments.

(Id. at 8). Because “Plaintiffs . . . concede that there was no ‘direct transfer’ of the restaurant

between” Juquila and Santa Catarina, Respondent argues that the fraudulent transfer statute is

inapplicable. (Resp’s Reply at 2).

Assuming that Respondent is correct that there was technically no direct transfer between

Juquila and Santa Catarina, “fraudulent conveyance law looks at substance, not form.” In re

Tronox, Inc., 503 B.R. 239, 276 (Bankr. S.D.N.Y.2013) (citing Orr v. Kinderhill Corp., 991 F.2d

31, 35 (2d Cir.1993); MFS/Sun Life Trust–High Yield Series v. Van Dusen Airport Services Co.,

910 F.Supp. 913 (S.D.N.Y.1995)); see also Mitchell v. Lyons Pro. Servs., Inc., 109 F. Supp. 3d

555, 568–69 (E.D.N.Y. 2015) (“If there is one area of the law that has little regard for form over

substance, it is fraudulent conveyance law, for parties and their lawyers frequently demonstrate

ingenuity in attempting to camouflage the economic reality of transactions with distressed

companies.”), aff’d sub nom. Mitchell v. Garrison Protective Servs., Inc., 819 F.3d 636 (2d Cir.

2016); Kinderhill Corp., 991 F.2d at 36 (courts “will not turn a blind eye to the reality” that a

challenged conveyance “constituted a single, integrated transaction.”). With that maxim in mind,

“[i]t is well established that multilateral transactions may under appropriate circumstances be

‘collapsed’ and treated as phases of a single transaction for analysis under the [Uniform Fraudulent

Conveyance Act].” HBE Leasing Corp. v. Frank, 48 F.3d 623, 635 (2d Cir. 1995).

While “a lack of good faith may serve as an independent ground to set aside a conveyance,” In

re Xiang Yong Gao, 560 B.R. at 62 (citing In re Palermo, No. 08–CV–7421 (RPP), 2011 WL

3874866, at *13 (S.D.N.Y. Sept. 2, 2011); In re Dr. J. Herbert Fill, 82 B.R. 200, 216 (Bankr.

S.D.N.Y. 1987), aff’d, 549 Fed. App’x 38 (2d Cir. 2014)), a Court may not collapse a transaction

on the basis of bad faith alone; rather, “the transferee in the leg of the transaction sought to be

voided must have actual or constructive knowledge of the entire scheme that renders her exchange

with the debtor fraudulent.” Frank, 48 F.3d at 635–36 (citing Kupetz v. Wolf, 845 F.2d 842, 847–

49 (9th Cir.1988); Atlanta Shipping Corp. v. Chemical Bank, 818 F.2d 240, 249 (2d Cir.1987);

United States v. Tabor Court Realty Corp., 803 F.2d 1288, 1296 (3d Cir.1986); Crowthers McCall

Pattern, Inc. v. Lewis, 129 B.R. 992, 998 (S.D.N.Y.1991); Wieboldt Stores, Inc. v. Schottenstein,

94 B.R. 488, 502–03 (N.D. Ill.1988)). This knowledge requirement “protect[s] innocent creditors

or purchasers for value who have received the debtor’s property without awareness of any

fraudulent scheme,” but knowledge may be attributed as a matter of law to a transferee who was

“aware of circumstances that should have led them to inquire further into the circumstances of the

transaction, but who failed to make such inquiry.” Id. at 636.

Key issues here, then, are the knowledge and intent of the transferees—the Landlord and Santa

Catarina—with respect to the conveyance of the restaurant premises, and the equipment and tools

therein. The record before the Court as gleaned through the parties’ briefing and the public dockets

contains conflicting narratives regarding the adequacy of consideration received in exchange for

Juquila’s surrender of the lease (i.e., whether Juquila owned some tools and equipment that could

have been liquidated to satisfy the Judgment versus whether substantially all of the contents of the

restaurant belonged to the Landlord) such that the structure and good faith of the transactions may

be in question. And even if actual knowledge is lacking, the Landlord should have been aware of

the circumstances of Juquila’s poor financial condition and its impending judgment debt to

Plaintiffs as a co-creditor in Juquila’s bankruptcy. Further, Santa Catarina should have been aware

of Juquila’s poor financial condition and impending judgment debt because it is partially owned

by the individual Defendants’ son and because the individual Defendants have played some role

in Santa Catarina’s operations.

Moreover, while New York law does not generally consider the granting of a preference to one

creditor over another to be either actually or constructively fraudulent, see Dussault v. Republic of

Argentina, 616 F. App’x 26, 28 (2d Cir. 2015) (citing In re Sharp Int’l Corp., 403 F.3d 43, 56 (2d

Cir.2005); Frank, 48 F.3d at 634), New York courts recognize “one exception to the rule that

preferential payments of pre-existing obligations are not fraudulent conveyances: preferences to a

debtor corporation’s shareholders, officers, or directors are deemed not to be transfers for fair

consideration.” Frank, 48 F.3d at 634. Accordingly, the identities of both Juquila’s and Santa

Catarina’s shareholders, officers, and directors, and the extent of any overlap between the two, is

directly relevant.

The knowledge and intent of those shareholders, officers, and directors, is also of key

importance. While Respondent maintains that Santa Catarina was a good faith purchaser and was

unaware of any intent to defraud Juquila’s judgment creditors (Resp’s Opp. at 9),12 their argument

largely focuses on the formal distinction between the two legs of the transaction by which it was

able to take possession of Juquila and its equipment (along with the restaurant’s name, menu, and

employees) to the potential detriment of Juquila’s creditors without directly addressing the various

badges of fraud to which Plaintiffs point to indicate bad faith in the transaction when viewed as a

whole. For example, Santa Catarina fails to explain why greater scrutiny regarding the interfamily

aspects of the transaction is unwarranted, fails to address the fact that Mr. Bonilla omitted his son’s

12 Respondent also notes that a second statute, Debt. & Cred. L. § 278, gives priority to fair value purchasers without

knowledge of a vendor’s fraud who obtain property before the judgment creditor obtained a lien over the property.

(Def’s Opp. at 4). Plaintiffs note in response that Santa Catarina had knowledge of the pending lawsuit when Santa

Catarina was formed and when it took ownership and operation of the restaurant, and notes that “‘[w]here the

transferee is aware of an impending enforceable judgment against the transferor, they conveyance does not meet the

statutory good faith requirement and generally will be set aside as constructively fraudulent.’” (Pl’s Reply at 4 (quoting

Sardis v. Frankel, 978 N.Y.S.3d 135, 143 (N.Y. App. Div. 2014)).

involvement in the operation of Santa Catarina in reporting that Juquila was under new ownership,

fails to address the fact that Santa Catarina was incorporated with an address of Juquila restaurant

before Juquila exited bankruptcy and closed down, fails to address the fact that Santa Catarina

applied for a liquor license in February 2019 before Juquila was closed and before Dr. Vilar

purportedly entered an oral agreement to own and operate the company, and fails to plausibly

address Mr. Bonilla’s and Ms. Mendez involvement in the operation of Santa Catarina’s business,

albeit in more limited capacities as advisor to Dr. Vilar and as a cashier or delivery person,

respectively.

Suffice it to say, there are a number of open questions with respect to the key players’ good

faith, knowledge, intent, and potential participation in a scheme to defraud Juquila’s judgment

creditors by transferring the restaurant’s lease and equipment through the Landlord to Santa

Catarina. These issues of material fact are in dispute, such that summary relief would be

inappropriate. Accordingly, an evidentiary hearing is necessary to determine whether the

transaction, viewed as a whole, should be treated as a fraudulent conveyance. See, e.g., Disney

Enterprises, Inc. v. Finanz St. Honore, B.V., No. 13-CV-6338 (NG) (SMG), 2020 WL 489530, at

*5 (E.D.N.Y. Jan. 30, 2020) (deferring ruling on turnover motion to hold evidentiary hearing

where disputed issues of fact preclude summary relief, and ordering evidentiary hearing to

determine whether relevant agreement constituted a fraudulent conveyance); Advanced Video

Techs. LLC v. HTC Corp., 11 Civ. 6604 (CM), 2019 WL 4198769, at *1 (S.D.N.Y. Aug. 12, 2019)

(denying summary relief and ordering evidentiary hearing to assess alter ego claims brought in

Rule 69(a) and § 5225(b) proceeding); Irving & William H. Stark, Inc. v. Milberg Factors, Inc.,

38 A.D.2d 526 (N.Y. App. Div. 1971) (per curiam) (finding that while judgment creditor did not

sustain its burden of proving as a matter of law that funds sought from respondent belonged to

judgment debtor, “the interests of justice” required that judgment creditor “should have an

opportunity of developing facts at a hearing where respondent and holder of security interest “can

be examined with respect to the source and ownership” of the property).

Accordingly, Plaintiffs’ motion for a turnover order is denied, with leave to refile after disputed

issues of fact have been resolved.

IV. Santa Catarina’s Cross-Motion to Quash Plaintiffs’ Subpoena Is Denied

Respondent argues that they are entitled to relief from compliance with Plaintiffs’ information

subpoena because it is overbroad, because “Santa Catarina’s responses will not lead to evidence

that could bear on any issue in this case,” and because “Santa Catarina’s confidential information

sought by Plaintiffs is not relevant to claims and defenses in this action.” (Resp’s Opp. at 9–10). I

disagree.

Plaintiffs’ information subpoena lists just four questions, seeking: (1) the identity of a deponent

to respond to the questions contained in the subpoena, (2) the identity of Respondent’s

stockholders, officers, and directors, (3) information regarding whether Respondent “has within

its possession, custody, or control any property in which [Juquila] has or had an interest,” and (4)

an itemized list of any such property. (Subpoena and Restraining Notice at 4–5).

Taking into account the generous post-judgment discovery standard applicable here, these

questions are quite narrowly tailored toward the identification of Juquila’s hidden assets. See NML

Cap., Ltd., 573 U.S. at 138–39; Koon Chun Hing Kee Soy & Sauce Factory, LTD., 2010 WL

3780275, at *1. Contrary to Respondent’s objections, the identity of property to which Juquila has

or had an interest is undoubtedly relevant here, as that it the property that might be available to

satisfy Plaintiffs’ outstanding judgment. Further, as noted above, the identity of Santa Catarina’s

officers, shareholders, and directors is relevant to the existence of a constructively fraudulent

conveyance. Accordingly, the Court finds that Plaintiffs’ subpoena is not overly broad and that

Santa Catarina’s responses will likely lead to relevant evidence in this case such that quashing or

modifying the subpoena is unwarranted.

As noted above, the party seeking a protective order bears the burden to show good cause for

the entry of such an order. See Sealey, 2021 WL 5409893, at *2. The Court is unpersuaded by

Respondent’s conclusory statements that that a four question information subpoena is “an

overbroad, invasive, harassing, and illegal fishing expedition to obtain . . . confidential

information” warranting a protective order, and that disclosure of the information sought “would

result in irreparable and unreasonable prejudice, expense, annoyance, and disadvantage to Non-

Party, Santa Catarina.” (Resp’s Opp. at 10.). Indeed, Respondent provides no explanation at all for

its conclusion that irreparable harm and unreasonable prejudice, expense, or annoyance will be

visited upon Santa Catarina by answering four straightforward questions, and does not explain

why the information Plaintiffs seek should be considered confidential and merits protection. See,

e.g., Rofail v. United States, 227 F.R.D. 53, 57 (E.D.N.Y. 2005) (“[D]espite moving under Rule

26(c), defendant does not attempt to establish good cause, by specific facts or articulated reasoning,

to justify the grant of a protective order.”).

Because Respondent has not presented any specific facts that would establish good cause for

the entry of a protective order, the cross-motion is denied.

CONCLUSION

For the reasons set forth above, Plaintiffs’ motion for a turnover order is granted to the extent

that the Court finds it has jurisdiction to preside over these Rule 69(a) and § 5225(b) proceedings,

and has personal jurisdiction over Respondent, but is otherwise denied at this time. Respondent’s

cross-motion to quash is denied in its entirety. Respondent is therefore directed to comply with

Plaintiffs’ information subpoena by April 29, 2022. After Santa Catarina has served responses to

the information subpoena on Plaintiffs, the Plaintiffs, Defendants, and Respondent are directed to

confer and to present to the Court, by May 27, 2022: (1) an agreed statement of facts relating to

the dispute, (2) a statement indicating what issues of fact remain, and (3) a statement of what

additional discovery, if any, will be needed to resolve those issues. The parties shall then attend a

status conference by telephone on June 1, 2022 at 12:00 PM.

SO ORDERED.

RAMON E. REYES, JR.

United States Magistrate Judge

Dated: March 31, 2022

Brooklyn, NY

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