# CHRISTOPHER F. GRAHAM, as Plan Administrator of th v. 135 WAVERLY REALTY, LLC

> United States Bankruptcy Court, S.D. New York · August 31, 2021

URL: https://www.frixlaw.com/law-library/cases/10460538

## Case

- **Court:** United States Bankruptcy Court, S.D. New York
- **Decided:** August 31, 2021
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10460538

## How later opinions describe it (automated extraction)

- finding salary payments were excessive and unauthorized but permitting recovery of only 75% of the payments
- noting that the purpose of prejudgment interest in a case under section 544 is to compensate the estate itself for the time it was without the use of the transferred funds
- holding that dividends, or “salary” payments that functioned as dividends and not as reasonable compensation for actual services, are just distributions to equity holders for which a company does not receive reasonably equivalent value

## Opinion text

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
---------------------------------------------------------------x
In re : Chapter 11
:
VILLAGE RED RESTAURANT CORP. d/b/a : Case No. 18-10960 (MEW)
WAVERLY RESTAURANT, :
:
Debtor. :
---------------------------------------------------------------x
CHRISTOPHER F. GRAHAM, as Plan :
Administrator of the Estate of Village Red :
Restaurant Corp., :
:
Plaintiff, :
:
-against- : Adv. Proc. No. 20-01065 (MEW)
:
CHRISTINE SERAFIS, :
:
Defendant. :
---------------------------------------------------------------x
CHRISTOPHER F. GRAHAM, as Plan :
Administrator of the Estate of Village Red :
Restaurant Corp., :
:
Plaintiff, :
:
-against- : Adv. Proc. No. 20-01066 (MEW)
:
135 WAVERLY REALTY, LLC, :
:
Defendant. :
---------------------------------------------------------------x

DECISION AFTER TRIAL

A P P E A R A N C E S:

ECKERT SEAMANS CHERIN & MELLOTT, LLC
White Plains, NY and Pittsburgh, PA
Attorneys for the Plan Administrator
By: Harry A. Readshaw, Esq.
Ren-Ann A. Wang, Esq.
MITCHELL & INCANTALUPO
Forest Hills, NY
Attorneys for Defendants
By: John A. Mitchell, Esq.

HONORABLE MICHAEL E. WILES
UNITED STATES BANKRUPTCY JUDGE

Plaintiff Christopher F. Graham is the Plan Administrator (the “Plan Administrator”)
charged with the resolution of certain matters under the confirmed plan of reorganization of Village
Red Restaurant Corp (“Village Red”). Defendant Christine Serafis was the sole owner of Village
Red. She also was the sole owner of 135 Waverly Realty, LLC (“135 Waverly”), which owned
the space that Village Red leased for the conduct of a restaurant business. The Plan Administrator
contends that Ms. Serafis received transfers from Village Red during the years 2012 through 2018
that were fraudulent as to creditors and that are recoverable by the Plan Administrator. The
Complaint asserts a variety of fraudulent transfer claims under section 548 of the Bankruptcy Code
and fraudulent conveyance claims under sections 273 through 276 of the New York Debtor and
Creditor Law (the “NY DCL”), though at trial and in its post-trial submissions the Plan
Administrator’s contentions about the prepetition payments to Ms. Serafis focused almost
exclusively on claims under sections 273 and 273-a of the NY DCL. The Plan Administrator also
contends that certain payments that Village Red made to 135 Waverly were not authorized and are
recoverable under section 549(a) of the Bankruptcy Code. Finally, the Plan Administrator
contends that the terms of the confirmed plan of reorganization bar 135 Waverly from receiving
any distribution with respect to its alleged unsecured claim and/or that the claim has been
overstated. Defendants have denied the Plan Administrator’s contentions and the matter was the
subject of a trial that was conducted on April 22, 2021. The Court received post-trial submissions
on certain issues and then took judicial notice of certain matters on May 18, 2021.
For the reasons set forth below, the Court concludes that the Plan Administrator is entitled
to: (1) the entry of judgment against Serafis in the amount of $623,459.89; (2) the entry of
judgment against 135 Waverly in the amount of $918,216.27; and (3) an order striking 135
Waverly’s claim as an unsecured creditor.
Jurisdiction and Authority to Render a Final Decision

The parties have agreed in their Joint Pretrial Order that the Court has subject matter
jurisdiction, and they have consented to the entry of a final judgment by this Court. See 28 U.S.C.
§ 157(c)(2); Wellness Int’l Network, Ltd. v. Sharif, 135 S.Ct. 1932, 1948-49 (2015).
Background
Village Red operated the Waverly Restaurant in Greenwich Village. For many years the
restaurant was managed by Nicholas Serafis, who was the father of defendant Christine Serafis.
In 2003, Nicholas Serafis caused the ownership of Village Red to be transferred to Christine
Serafis. Ms. Serafis testified that she understood that the ownership transfer had been made for
estate planning purposes. Ms. Serafis also acquired ownership of 135 Waverly prior to 2003.

Nicholas Serafis continued to manage the restaurant after 2003, but Christine Serafis was named
as President of Village Red. Mr. Serafis became ill in 2017, at which point his duties were assumed
by a Manager named John Captan, who had been a long-time employee of Village Red.
A. The Challenged Prepetition Transfers to Christine Serafis

The parties have stipulated that Village Red made ten separate dividend payments to
Christine Serafis in November and December 2017 in the total amount of $86,000. The parties
have also stipulated that Village Red made salary payments to Ms. Serafis in the following
amounts during the following years, in the total amount of $347,875:
Year Amount
2012 $42,300
2013 $59,085
2014 $63,180

2015 $63,180
2016 $63,180
2017 $45,750
2018 $11,200

The Plan Administrator contends that Ms. Serafis did not actually provide any meaningful
services to Village Red and that the salary payments, as well as the dividend payments, were made
without consideration. The Plan Administrator further contends that the salary payments and
dividend payments were made at times when Village Red was insolvent, or when Village Red had
unreasonably small capital for the conduct of its business, or when Village Red intended or
believed that it was incurring debts that it would be unable to pay. The Plan Administrator also
contends that the payments were made with the actual intent to hinder, delay or defraud creditors.1
Serafis has denied the Plan Administrator’s contentions. She contends that the salary and
dividends were warranted and reasonable in light of her responsibilities, duties, obligations and
ownership interests in Village Red and in light of various financial exposures she faced in her
capacities as owner of Village Red and as guarantor of some of Village Red’s obligations to

1 The Complaint also asserted that the dividend payments were illegal under New York law
because the Debtor was insolvent, but that claim was not addressed in the Joint Pretrial Order.
The Joint Pretrial Order is deemed to have superseded the pleadings as to the claims of the
parties. [Adv. Pro. No. 20-1065, ECF No. 14, at p. 9; Adv. Pro. No. 20-1066, ECF No. 15, at
p. 9]. Accordingly, any claim asserted in the Complaint that was not addressed in the Joint
Pretrial Order is deemed to have been dropped.
vendors. In addition, Serafis contends that as the sole owner of 135 Waverly she has the right to
offset any rent arrears owed to 135 Waverly against any liability she might have to return funds to
the Plan Administrator pursuant to the fraudulent transfer and fraudulent conveyance claims.
B. Post-Petition Transfers to Christine Serafis
The Plan Administrator alleges that salary payments to Ms. Serafis were raised to $2,000

per week after the Debtor’s bankruptcy filing, even though Ms. Serafis spent 80% of her time in
Greece and the actual management of the restaurant was handled by Mr. Captan. The Plan
Administrator contends that the salary increase was not done in the ordinary course of business
and that the payments are recoverable under section 549 of the Bankruptcy Code. Ms. Serafis
contends that the salary payments were reasonable, were made in the ordinary course of business,
and did not require Court approval.
C. Post-Petition Transfers to 135 Waverly
Village Red leased space from 135 Waverly and executed a lease dated May 1, 2013 that
had an initial term that ran through May 31, 2018. The Lease called for the payment of monthly

rent of $25,000. The parties have stipulated, however, that in fact Village Red never paid that
amount prior to its bankruptcy filing. Instead, it regularly paid $11,000 in rent. The only
explanation offered at trial was that Village Red could not afford to pay the higher amount
specified in the Lease.
Village Red issued five checks payable to 135 Waverly on January 1, 2018 in the amount
of $11,000 each for the purpose of covering rents from January 2018 through May 2018. It filed
its bankruptcy petition a few months later, on April 6, 2018.
After the bankruptcy filing, Village Red made an additional rent payment of $14,000 for
the month of May 2018, raising the rent for that month to $25,000. Its lease expired at the end of
May 2018 and Village Red did not exercise any renewal options. Beginning in June 2018, Village
Red made monthly rent payments of $53,000 per month, except that only $50,000 was paid in
September 2018 due to a decline in business. The $53,000 monthly payments continued through
confirmation of Village Red’s plan of reorganization. No Court approval for the increased rent
was sought or obtained.

After the close of evidence the Court directed the parties to consult prior transcripts of
proceedings to identify any prior statements or disclosures that had been made regarding Village
Red’s rent payments. On May 18, 2021, the Court took judicial notice of certain statements that
had been made during prior court hearings. More particularly, the Court noted that Village Red’s
rent payments had been the subject of questions by the Court during a status conference on
September 26, 2018. The Court asked at that time if Village Red had been paying rent, and counsel
to Village Red replied that the rent payment for August 2018 had been $53,000. The Court then
asked how the amount of rent had been determined if the prior lease was no longer in effect.
Village Red’s counsel responded that “[i]t’s just what they’ve been paying historically over time,

your honor.” The Court does not believe that counsel intended to be misleading, but in fact
counsel’s statement was untrue. The parties have stipulated in this proceeding that Village Red
historically had paid $11,000 per month in rent, not $53,000. The rent actually paid by Village
Red did not represent a continuation of historical practices at all, but instead represented more than
a four-fold increase in the rent that was being paid to an affiliated company.
The fact that rent payments had increased apparently did not come to the attention of other
parties in interest until 2019, in the context of an investigation performed by the NLRB, which had
made claims on behalf of certain employees. At a hearing on August 14, 2019, the Court was
informed that there might have been overpayments of rent, that there might have been payments
of real estate taxes that were not called for, and that the parties were working on finding someone
who could investigate those issues. The Court noted at the hearing that the Court had had no idea
that the post-petition rents were more than four times higher than the usual pre-petition rents and
that no party had sought approval for the increase. The Court also asked Village Red’s counsel if
he had been aware of the rent increase, and he said he had not known about it.

The Plan Administrator contends that Village Red never obtained Bankruptcy Court
approval to make increased rent payments after May 2018, that the proper rent should have been
only $11,000, and that the extra payments that were made to 135 Waverly (in the total amount of
$767,000) were unauthorized transfers of estate property that are subject to avoidance under
section 549 of the Bankruptcy Code. The Plan Administrator also challenges $124,000 of post-
petition property taxes paid by Village Red and $20,000 of post-petition payments that Village
Red made for repairs or renovations to its restaurant. 135 Waverly and Serafis admit that they did
not seek this Court’s approval of increased rent payments, tax payments or repair payments, but
they contend that the new rent arrangements were made in the ordinary course of business, that

the rent payments and other payments were reasonable in amounts, and that this Court’s approval
was not required.
D. 135 Waverly’s Unsecured Claim

When Village Red filed its Schedules of Assets and Liabilities it listed an unsecured claim
owed to 135 Waverly in the amount of $860,000, representing the difference between the $25,000
monthly rent specified in the underlying lease and the $11,000 monthly rents that were actually
paid from May 2013 through April 2018. See Case No. 18-10960, ECF No. 1, Schedule E/F, at
3.1. The Schedules were verified by Ms. Serafis (who owned both Village Red and 135 Waverly),
and they indicated that the debt was not contingent, unliquidated or disputed. Id.
In 2018, Village Red proposed to sell its assets to 135 Waverly in exchange for $50,000.
As noted above, the National Labor Relations Board had pursued claims on behalf of some
employees. The NLRB sought discovery and obtained permission to conduct examinations of
witnesses in connection with the proposed sale. In support of its application for permission to
conduct such discovery the NLRB noted that Village Red had made large payments to 135

Waverly, and stated that the NLRB wished to examine the parties’ dealings in order to determine
whether the proposed sale should go forward and whether 135 Waverly had received any improper
transfers. The asset sale was postponed until such time as Village Red and the NLRB agreed to a
stipulation under which the sale price would be increased to $100,000, which would be distributed
pursuant to a confirmed plan of reorganization.
In 2019, Village Red proposed a plan of reorganization. The Disclosure Statement listed
the “scheduled” and “filed” claims that would be treated as general unsecured creditor claims if
Village Red’s plan of reorganization were approved. [Case No. 18-10960, ECF No. 51-5.] Only
one unsecured claim was listed among the “scheduled” claims to be paid: namely, a $3,118.83

claim in favor of Chase Bank. All of the “filed” unsecured claims that were identified in the
various versions of the Disclosure Statement were filed by employees who had made claims under
the Fair Labor Standards Act and other federal and state labor laws. An amended version of the
Disclosure Statement similarly did not mention any unsecured claim owing to 135 Waverly. See
Case No. 18-10960, ECF No. 60-5. The proposed plan of reorganization stated that general
unsecured claims totaled $5,347,616.81, which included only the employee claims and the Chase
Bank claim. [Case No. 18-10960, ECF No. 61.]
Ms. Serafis signed the Disclosure Statement and was aware of its contents. The parties
have stipulated, and the record confirms, that 135 Waverly received copies of the proposed
Disclosure Statement and raised no issues.
The Court also took judicial notice of certain statements that had been made during prior
hearings in connection with the Court’s approval of the Disclosure Statement and confirmation of

the plan. More specifically:
 Counsel to Village Red reported on the terms of the proposed plan of reorganization
during a hearing on October 30, 2018. At that time counsel stated that the assets would
be sold for $50,000, which would provide small recoveries for unsecured creditors. He
stated that those unsecured creditors were former employees and the NLRB.
 During a hearing on August 14, 2019 counsel to the NLRB and counsel to Village Red
reported to the Court that it was possible that Village Red had paid too much to 135
Waverly during the course of the case. The Court asked at that time if the unsecured
claim recoveries that were described in the Disclosure Statement included any

payments towards claims by 135 Waverly. Counsel to Village Red stated explicitly
that the calculations assumed no such payments.
 During a hearing on September 17, 2019 counsel to Village Red confirmed that the
only administrative claims to be paid under the proposed plan of reorganization were
counsel fees; that there were no priority claims; that all of the employee claimants had
voted in favor of the plan; and that there were no other creditors except for Chase.
The Plan Administrator contends that Serafis and 135 Waverly waived any claim against
Village Red by leaving that claim out of the exhibits to the Disclosure Statement and the confirmed
plan of reorganization. The Plan Administrator also contends that the “true” agreed rent was
$11,000 (not $25,000) and that the listed claim in favor of 135 Waverly should be expunged.
Serafis and 135 Waverly contend that the listed claim reflected an obligation that was owed to 135
Waverly under the lease, that no express waiver ever occurred and that the claim should be
allowed. They also contend that the Plan Administrator should be estopped from objecting to the
claim because Village Red listed the claim in its Schedules and stated that the claim was not

contingent, unliquidated or disputed.
Discussion
1. The Plan Administrator’s Standing to Pursue Avoidance Action Claims
The Plan Administrator asserts claims under section 548 of the Bankruptcy Code. He also
asserts claims under New York State law pursuant to section 544 of the Bankruptcy Code. If the
Plan Administrator establishes that a transfer should be avoided under section 548 or section 544,
then section 550 of the Bankruptcy Code allows the Plan Administrator to recover the transfer (or
the value of the transfer) from the immediate transferee or, subject to certain standards, from
subsequent transferees. See 11 U.S.C. § 550.

The Plan Administrator admittedly stands in the shoes of the estate pursuant to the terms
of the confirmed plan of reorganization and has the right to assert claims under section 548 of the
Bankruptcy Code with respect to transfers that were made on or after April 6, 2016. The issue is
more complicated, however, with respect to claims under section 544.
Section 544(b)(1) of the Bankruptcy Code provides that “the trustee may avoid any transfer
of an interest of the debtor in property” so long as the transfer is voidable under applicable law
“by a creditor holding an unsecured claim that is allowable under [11 U.S.C. § 502] or that is not
allowable only under [11 U.S.C. § 502(e)].” The Plan Administrator’s right to pursue claims
under section 544 therefore depends on the existence at least one actual unsecured creditor who
holds an allowable claim and who would have had the right to pursue avoidance claims under the
applicable state law. In re Musicland Holding Corp., 398 B.R. 761, 777 (Bankr. S.D.N.Y. 2008)
(noting that there must be a creditor who could have avoided a transfer under state law and who
also holds an allowable claim in the bankruptcy case in order for a trustee to have standing to
pursue a state law fraudulent transfer claim under section 544(b)). A single creditor who may

pursue a particular claim is sufficient to “trigger” the Plan Administrator’s standing to pursue the
claim under section 544. Id. (citing MC Asset Recovery, LLC v. Southern Co., No. 06-cv-0417,
2006 U.S. Dist. LEXIS 97034, at *17-18 (N.D. Ga. Dec. 11, 2006). Once a trustee establishes the
existence of a triggering creditor, the trustee may seek to avoid a fraudulent transfer “not only for
the benefit of that creditor, but also for the benefit of all of the unsecured creditors of the estate.”
Silverman v. Sound Around, Inc. (In re Allou Distribs.), 392 B.R. 24, 32 (Bankr. E.D.N.Y.2008).
Village Red is a New York corporation and it had its sole place of business in New York.
The parties agree that New York law governs the state law avoidance claims that the Plan
Administrator seeks to assert. New York adopted the Uniform Voidable Transactions Act in 2019,

but the new provisions of that act are not retroactive and they apply only to transfers that have
occurred on or after April 4, 2020. All of the transfers at issue in this case that are the subjects of
the state law claims occurred prior to that date. Accordingly, the state law claims that the Plan
Administrator wishes to pursue are “fraudulent conveyance” claims that are governed by the terms
of the NY DCL as they existed prior to the passage of the Uniform Voidable Transactions Act.
In this case, the Plan Administrator has asserted claims under a number of separate
provisions of the NY DCL. These provisions differ in describing the creditors who may assert
claims, and therefore they differ in the proof that the Plan Administrator must offer in order to
show his entitlement to pursue such claims.
A. Claims Based on Alleged Insolvency – Section 273
Section 273 of the NY DCL provides that every conveyance made and every obligation
incurred by a person “who is or will be thereby rendered insolvent” is fraudulent as to “creditors,”
without regard to intent, if the conveyance is made or the obligation is incurred without a “fair
consideration.” NY DCL § 273. Section 273 refers to “creditors” generally, but unlike some other

provisions of the Debtor and Creditor Law section 273 does not specifically permit “future”
creditors to assert claims. New York courts have held that claims under section 273 may only be
asserted by persons who were creditors at the time of the challenged transfers. See United Nat.
Funding, LLC v. Volkmann, 25 Misc. 3d 1233(A), 906 N.Y.S.2d 776 (Sup. Ct. N.Y. Cty. 2009)
(permitting plaintiff’s section 273 claim to survive a motion to dismiss because allegations
suggested that the plaintiff may have been a creditor when the transfers at issue were made); see
also Official Comm. of Asbestos Claimants of G-I Holding, Inc. v. Heyman, 277 B.R. 20, 35
(S.D.N.Y. 2002) (contrasting section 273 on the one hand and sections 275 and 276 on the other
and noting that the absence of the phrase “future creditors” in section 273 means that there must

be a “present creditor” at the time of the transfer (citing In re 9281 Shore Road, 187 B.R. 837, 851
(E.D.N.Y. 1995)). The Plan Administrator therefore may only pursue claims under section 273 if
he identifies one or more persons who held creditor claims at the time of the challenged transfers
and who continued to be creditors at the time the Debtor filed its chapter 11 bankruptcy petition.
The evidence at trial showed that Village Red’s bankruptcy was precipitated by the filing
of claims by employees under the Fair Labor Standards Act and under other state and federal labor
laws. The claim of Albert Nieto covered amounts owed dating back to 2009, and the claim by
Valente Garcia covered amounts owed dating back to 2011. The claims ultimately were allowed
in the bankruptcy case and they were not paid in full. The Plan Administrator therefore has
established the existence of persons who were creditors prior to the transfers that are at issue in
this case and who remained as unpaid creditors at the time of Village Red’s bankruptcy filing.
Accordingly, the Plan Administrator has standing to pursue claims under section 273.
B. Claims Based on Payments by Litigation Defendants – Section 273-A
Section 273-a of the NY DCL provides that “[e]very conveyance made without fair

consideration when the person making it is a defendant in an action for money damages or a
judgment in such 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.” NY DCL § 273-a. Claims under section 273-a of the
NY DCL were not separately discussed in the Joint Pretrial Order (which generally referenced
claims under sections 270-276(a) of the Debtor and Creditor Law), but the Court asked about
section 273-a at trial and the Plan Administrator indicated an intent to pursue claims under section
273-a. Defendants’ counsel disputed the merits of the claim but did not object to the pursuit of the
claim and did not contend that the claim was outside the bounds of the Complaint or the Joint

Pretrial Order.
The evidence at trial proved that at least two lawsuits were filed against Village Red by
former employees in the United States District Court for the Southern District of New York. One
was filed by Valente Garcia and seven other plaintiffs on August 11, 2015 (Case No. 15 Civ. 6292)
and the other was filed by Alberto Nieto on March 21, 2017 (Case No. 17-cv-02037). See PX 19,
20. The evidence also showed that the District Court granted a motion for summary judgment in
the Garcia action on May 8, 2017, finding liability on the part of Village Red. The District Court
proceedings to determine the amounts of plaintiffs’ damages were not completed and were stayed
by the bankruptcy filing, but the plaintiffs filed proofs of claim in the Village Red bankruptcy case
and the final allowed amounts of their claims were determined in the bankruptcy case.
The allowance of claims in favor of the employees in the Garcia action resolved all
remaining issues between the parties to the litigation and was the equivalent of the entry of
judgments with respect to the liabilities that were the subject of the District Court actions. See In

re Dow Corning Corp., 237 B.R. 380, 390-91 (Bankr. E.D. Mich. 1999). The allowed claims have
not been paid in full. Accordingly, the Plan Administrator has standing to pursue claims under
section 273-A, though such claims would only apply to transfers made on or after the earliest date
on which the Garcia litigation was pending (August 11, 2015).
C. Claims Based on Unreasonably Small Capital – Section 274
Section 274 of the NY DCL provides that every conveyance made without fair
consideration, at a time when the person making it “is engaged or is about to engage in a business
or transaction for which the property remaining in his hands after the conveyance is an
unreasonably small capital, is fraudulent as to creditors and as to other persons who become

creditors during the continuance of such business or transaction, without regard to his actual
intent.” NY DCL § 274.2 The Plan Administrator may pursue claims under section 274 if he
identifies an unpaid creditor or creditors at the time of Village Red’s bankruptcy filing so long as
that person either was a creditor at the time of the challenged transfer or became a creditor “during
the continuance of” a business for which unreasonably small capital allegedly existed. See Official
Comm. of Asbestos Claimants of G-I Holding, Inc., 277 B.R. at 36 (holding that creditors who did
not have claims at the time of a transfer but who became creditors while the debtor continued to

2 At the outset of trial the Plan Administrator appeared to abandon this particular claim, but
then referenced it at various times during the trial itself. For completeness the Court has
addressed the claim in this Decision.
have unreasonably small capital were entitled to make claims under section 274); Laco X-Ray Sys.,
Inc. v. Fingerhut, 88 A.D.2d 425, 432, 453 N.Y.S.2d 757, 762 (1982) (noting that section 274
requires only that there was a creditor at some point in time at which the debtor had too little
capital).
As explained above, the evidence showed that there were creditors of Village Red at the

times of the relevant transfers who continued to be creditors at the time of the bankruptcy filings.
Accordingly, there were creditors at the time of the challenged transfers and/or during the
continuance of a business for which unreasonably small capital allegedly existed, and the Plan
Administrator has standing to pursue claims under section 274.
D. Claims Alleging an Intent or Belief that Debts Would Not Be Paid as They
Matured – Section 275
Section 275 of the Debtor and Creditor Law states that “[e]very conveyance made and
every obligation incurred without fair consideration when the person making the conveyance or
entering into the obligation intends or believes that he will incur debts beyond his ability to pay as
they mature” is fraudulent as to “both present and future creditors.” NY DCL § 275. Since
“future” creditors may make claims under section 275, the Plan Administrator may pursue such
claims so long as Village Red had a single unpaid unsecured creditor at the time of its bankruptcy
filing. The evidence showed that this was the case and that the Plan Administrator therefore has
standing to pursue claims under section 275.
E. Claims Alleging Actual Intent to Defraud – Section 276

Section 276 of the NY DCL provided that “[e]very conveyance made and every obligation
incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay, or
defraud either present or future creditors, is fraudulent as to both present and future creditors.”
NY DCL § 276. Since “future” creditors may make claims under section 276, the Plan
Administrator may pursue such claims so long as Village Red had a single unpaid unsecured
creditor at the time of its bankruptcy filing. The evidence showed that this was the case and that
the Plan Administrator therefore has standing to pursue claims under section 276.
2. Whether Serafis Provided Reasonably Equivalent Value or Fair Consideration for
the Prepetition Transfers She Received
A transfer is avoidable under various portions of section 548(a)(1)(B) of the Bankruptcy
Code if, among other things, the debtor received less than reasonably equivalent value in exchange
for the transfer. 11 U.S.C. § 548(a)(1)(B). For this purpose, “value” means property, or
satisfaction or securing of a present or antecedent debt of the debtor. Id. § 548(d)(2)(A). Under
state law, a transfer is avoidable under sections 273 through 275 of the NY DCL if, among other
things, the transfer is made without “fair consideration.” “Fair consideration” exists under the

following circumstances:
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.
NY DCL § 272.
The parties stipulate that Ms. Serafis received salary payments from 2012 through April
2018. Services provided in return for salary payments are presumed to constitute “fair
consideration” and “reasonably equivalent value” unless the Plan Administrator proves that the
salary payments were made in bad faith or that they were “excessive” in light of Ms. Serafis’s
actual employment responsibilities. See Sama v. Mullaney (In re Wonderwork, Inc.), 611 B.R.
169, 208 (Bankr. S.D.N.Y. 2020); Geron v. Craig (In re Direct Access Partners, LLC), 602 B.R.
495, 556-57 (Bankr. S.D.N.Y. 2019).
The extent to which Ms. Serafis provided any actual services to Village Red was the subject
of summary judgment motions in the employee litigations that are referenced above. In those
actions, the plaintiff employees contended not only that Village Red was their “employer” but also
that Nicholas Serafis and Christine Serafis should be treated as “employers” by virtue of their
control and management of Village Red’s operations. Those claims were based on the definition

of “employer” under the FLSA, which includes “any person acting directly or indirectly in the
interest of an employer in relation to an employee.” See 29 U.S.C. § 203(d). A similar argument
was made as to liability under the New York Labor Law, which uses a similarly expansive
definition of the term “employer.” See N.Y. Lab. Law § 190(3).
The Court of Appeals for the Second Circuit has ruled that the “economic reality” of the
parties’ relationship governs the determination of whether an individual is an “employer” under
the FLSA. Carter v. Dutchess Cmty. Coll., 735 F.2d 8, 12 (2d Cir. 1984). A “non-exclusive” list
of factors to be considered in determining that issue is “whether the alleged employer (1) had the
power to hire and fire the employees, (2) supervised and controlled employee work schedules or

conditions of employment, (3) determined the rate and method of payment, and (4) maintained
employment records.” Id. Evidence of “an individual’s authority over management, supervision
and oversight of a company’s affairs” also is relevant in determining the individual’s operational
control of the company’s employment of the plaintiff employees. Irizarry v. Catsimatidis, 722
F.3d 99, 110 (2d Cir. 2013).
In 2017, Ms. Serafis filed a motion for summary judgment as to the allegations that she
should be treated as an “employer” for purposes of the wage claims against Village Red. In support
of that motion she submitted a sworn affidavit dated January 17, 2017 that confirmed that she had
no role in the management and operation of Village Red. See PX 24. She stated in the affidavit,
among other things, that:
 Nicholas Serafis put the stock of Village Red in his daughter’s name “solely for estate
tax purposes” and as a gift, for which Ms. Serafis provided no consideration. Id. ¶ 4.

 Ms. Serafis asked what she would have to do as owner of the business, and her father
answered that she “did not have to do anything.” Instead, Nicholas Serafis “would
continue to operate the business the same as before,” and that Ms. Serafis could
continue to live in Greece while her father ran the restaurant. Id. ¶¶ 7-8.
 Ms. Serafis “did not assume any duties or responsibilities concerning the operation,
control or management of the Restaurant.” Id. ¶ 9.
 Ms. Serafis “never worked at the Restaurant,” only visited it 8 or 10 times (mainly to
see her father), and had “no knowledge of anything that is done at the Restaurant, either
by my father, by any members of management, or by any of the employees.” Id. ¶ 10.

 Nicholas Serafis made “all decisions concerning the employees of the Restaurant” and
the restaurant belonged to Ms. Serafis “in name only . . .” Id. ¶¶ 12-14.
 Ms. Serafis received a salary, but “it was solely my father’s decision whether to pay
me a salary and how much it should be. I did not ask to be paid. He could change the
amount I receive or stop my payments entirely, and I would not complain. He had full
authority to do as he pleased.” Id. ¶ 14.
 Although Ms. Serafis’s signature was used for checks and other matters, her father used
a rubber signature stamp containing her name, and never consulted her about its use.
Id. ¶ 17.
A supporting affidavit of John Captan dated January 26, 2017 was also submitted in support of
Ms. Serafis’s motion. (PX 25.) Mr. Captan confirmed that Ms. Serafis had never worked at
Village Red “in any capacity.” Id. ¶ 5. Nicholas Serafis submitted a separate affidavit (PX 26)
confirming that he was the “actual” owner of Village Red and that Ms. Serafis took “absolutely no
part in what goes on” at the restaurant. Id. ¶¶ 4, 13.

Based on the foregoing, the District Court dismissed the FLSA and New York Labor Law
claims against Ms. Serafis. (PX 27.) The District Court noted that some individual operational
control over a business is necessary to support liability as an employer, and that Ms. Serafis had
never exercised any such authority. Id. at 11.
Ms. Serafis’s sworn affidavit in the District Court action, and her motion papers and other
affidavits that she offered, make clear that she provided no actual managerial or other services to
Village Red prior to 2017 and that the “salary” payments that were paid to her were, in fact,
payments that were made without any consideration at all. Although the affidavit and motion
papers only covered the time period through early 2017, Ms. Serafis testified at trial in this matter

that her role with respect to the restaurant remained the same until after the bankruptcy filing in
April 2018. When Mr. Serafis became ill in 2017, his duties were transferred to Mr. Captan and
were handled by Mr. Captan (not Ms. Serafis), and Ms. Serafis did not become more involved until
after the bankruptcy filing. Mr. Captan confirmed during his own testimony that Ms. Serafis never
supervised his work in any way until 2018.
Serafis argued at trial that as the owner of Village Red her name was held out as the legal
owner of the business, that her signature was required for all business matters; and that she gave
her personal guaranty to certain vendors, with the result that her credit was at risk. She also argued
that as an owner she was exposed to personal liability for sales, withholding taxes and other
business matters. However, none of that constitutes “reasonably equivalent value” or “fair
consideration” for the purported salary payments that she received. Ms. Serafis provided no actual
services in return for the salary payments. She also provided no “property” (tangible or otherwise)
in exchange for those payments, and the payments were not made in satisfaction of antecedent
debts.

Ms. Serafis owned a business, but that equity ownership did not entitle her to salary
payments. An owner’s rights to receive returns are features of equity ownership that are junior to
the rights of creditors. If the business had been solvent then Ms. Serafis might have been entitled
to dividend payments with respect to her equity position, but by definition dividend payments are
payments that are made in respect of equity investments; they are not made in exchange for
property or in payment of antecedent debts, and therefore they are not made in exchange for “fair
consideration” or “reasonably equivalent value.” See Sherman v. FSC Realty LLC (In re
Brentwood-Lexford Partners, LLC), 292 B.R. 255, 267 (Bankr. N.D. Tex. 2003) (holding that
dividends, or “salary” payments that functioned as dividends and not as reasonable compensation

for actual services, are just distributions to equity holders for which a company does not receive
reasonably equivalent value); Fisher v. Hamilton (In re Teknek, LLC), 343 B.R. 850, 861 (Bankr.
N.D. Ill. 2006) (distribution of profits to an owner that is not in actual consideration for earned
salary is a transfer without reasonably equivalent value). Ms. Serafis’ position as the equity owner
did not constitute “reasonably equivalent value” or “fair consideration” for any of the prepetition
salary payments that were made to her.
Similarly, the fact that the ownership of Village Red included some risk of tax liability was
just a feature and a risk of equity ownership. It did not constitute consideration for the salary
payments that were made to Ms. Serafis. Finally, it may have been wise for Ms. Serafis to protect
her equity interests in Village Red by guaranteeing some of Village Red’s obligations, but that was
a financial undertaking. It does not mean she was entitled to a salary or that she provided
“consideration” or “reasonably equivalent value” for salary payments.
In any event, no evidence was offered as to any specific guarantees that were made by Ms.
Serafis, or as to any particular risks that Ms. Serafis allegedly faced by virtue of her ownership of

Village Red. The record shows that Ms. Serafis was a defendant in a suit filed by employees, but
she was dismissed from that suit without any liability. The mere fact that an owner might be
accused of exercising operational control of a business does not justify the payment of a salary
when, by the owner’s own admission, the owner does not actually exercise any such control.
I find based on the record at trial that Ms. Serafis provided no actual services, property or
other consideration in exchange for the salary payments that were made to her prior to the filing
of Village Red’s bankruptcy case. The salary payments were in fact gratuitous payments to an
owner, for which Village Red received nothing of value in exchange.
At one point during the trial, Ms. Serafis’s counsel suggested that Mr. Serafis had provided

services and that the total payments to Ms. Serafis and to Mr. Serafis somehow should be
combined, and compared to the value of Mr. Serafis’s services, in deciding whether fair
consideration or reasonably equivalent value was provided. I know of no authority for such an
approach, and none has been cited. In any event, there was no evidence as to just what
compensation Mr. Serafis received (not only in the form of salary but in the form of other payments
he might have taken from the business), and so the evidence would not justify a finding in favor
of the defendant even if this theory could be indulged.
The dividend payments that were made in late 2017 similarly were made without fair
consideration or the provision of reasonably equivalent value. As noted above, a dividend payment
is by definition a distribution with respect to an owner’s equity interest. See State v. First Investors
Corp., 156 Misc. 2d 209, 216, 592 N.Y.S.2d 561, 567 (Sup. Ct. N.Y. Cnty. 1992) (holding that the
payment of a dividend is a conveyance without fair consideration for purposes of the NY DCL);
see also WestLinn Paper Co. v. BTC-USA Inc., No. 13-1678, 2014 U.S. Dist. LEXIS 161747 at
*19 (D. Minn. 2014)(“[a]s to the dividend payments, however, there can be no evidence of

reasonably equivalent value because a dividend payment is by its nature not an exchange for
value”); CLC Creditors’ Grantor Trust v. Howard Sav. Bank (In re Commercial Loan Corp.), 396
B.R. 730, 746 (Bankr. N.D. Ill. 2008) (dividends are payments for which a company does not
receive reasonably equivalent value); Official Unsecured Creditors Comm. v. Microdot (In re
Valley-Vulcan Mold), No. 91-4056, 1994 Bankr. LEXIS 2347 *22 (Bankr. N.D. Oh. 1994) (a
dividend is a return on capital that by its terms is not made in exchange for valuable consideration).
There was no contention at trial that the “dividend” payments in this case were in fact anything
other than gratuitous distributions to an owner. The dividend payments were not made in exchange
for property or services and they were not made in satisfaction of any antecedent debts.

Accordingly, I find that all of the challenged pre-petition transfers to Serafis were made
without the receipt of fair consideration or reasonably equivalent value in exchange.
3. Whether the Prepetition Transfers to Christine Serafis Are Avoidable
A. Whether Village Red Was Insolvent When the Transfers Were Made
The solvency of Village Red is relevant both as to the Plan Administrator’s claims under
section 548 of the Bankruptcy Code and section 273 of the NY DCL. “Insolvency,” for purposes
of section 548 of the Bankruptcy Code, is determined by comparing the sum of an entity’s debts
to a fair valuation of its assets. Tronox v. Kerr McGee Corp. (In re Tronox Inc.), 503 B.R. 239,
296 (Bankr. S.D.N.Y. 2013). New York law similarly provides that a person is insolvent when
“the present fair salable value of his assets is less than the amount that will be required to pay his
probable liability on his existing debts as they become absolute and matured.” NY DCL § 271(1);
Tese-Milner v. Edidin & Assocs. (In re Operations NY LLC), 490 B.R. 84, 97 (Bankr. S.D.N.Y.
2013). For this purpose, “assets” include all property that is not exempt from liability for the
payment of debts, and “debts” include “any legal liability, whether matured or unmatured,

liquidated or unliquidated, absolute, fixed or contingent.” NY DCL § 270.
The solvency of a business is usually calculated based on the revenues that the business
may generate as a going concern, and not based on the present liquidation value of its assets. See
Comm. of Unsecured Creditors v. Motorola, Inc. (In re Iridium Operating LLC), 373 B.R. 283,
344 (Bankr. S.D.N.Y. 2007); In re PWS Holding Corp., 228 F.3d 224, 233 (3d Cir. 2000).
Solvency should be measured on a going concern basis unless the demise of the business is so
clearly imminent that the business is incapable of generating any ongoing revenues. See, e.g., In
re Trans World Airlines, Inc., 134 F.3d 188, 193 (3d Cir. 1998); Moody v. Sec. Pac. Bus. Credit,
Inc., 971 F.2d 1056, 1067 (3rd Cir. 1992) (proper to use sale values that presumed a going concern

unless bankruptcy was “clearly imminent”); In re Taxman Clothing Co., 905 F.2d 166, 170 (7th
Cir. 1990) (going concern valuation should be used unless the “business is on its deathbed”);
Vadnais Lumber Supply, Inc. v. Byrne (In re Vadnais Lumber Supply, Inc.), 100 B.R. 127, 131
(Bankr. D. Mass. 1989) (holding that solvency is to be measured by the going concern value of a
business and “not the liquidation value of its assets less its liabilities”); Fryman v. Century Factors,
Factor for New Wave (In re Art Shirt Ltd.), 93 B.R. 333, 341 (E.D. Pa. 1988) (going concern values
should be used unless a company is “on its deathbed”).
A plaintiff ordinarily bears the burden to prove “insolvency” for purposes of proving a
claim under section 273 of the NY DCL. See Direct Access Partners, 602 B.R. at 548; Deflora
Lake Dev. Assocs., Inc. v. Hyde Park, No. 13-CV-4811, 2016 WL 7839191, at *3 (S.D.N.Y. June
9, 2016) (the party challenging a conveyance under section 273 has to show insolvency) (quoting
Joslin v. Lopez, 309 A.D.2d 837, 838 765 N.Y.S.2d 895, 897 (2d Dep’t 2003)); Atateks Foreign
Trade Ltd. v. Dente, 2017 WL 4221085, at *5 (S.D.N.Y. Sept. 22, 2017) (elements of NY DCL
Section 273 and 274 must be proved by the plaintiff). However, if a plaintiff shows that a transfer

has been made without fair consideration there is a rebuttable presumption of insolvency under
New York law that shifts the burden to the defendant to offer evidence of solvency at the time of
the transaction and immediately thereafter. Geo-Grp. Commc’ns, Inc. v. Chopra, No. 15 CIV.
1756 (KPF), 2016 WL 390089, at *7 (S.D.N.Y. Feb. 1, 2016) (considering the issue at the pleading
stage); Geron v. Shulman (In re Manshul Constr. Corp.), No. 97 Civ. 8851 (JGK), 2000 U.S. Dist.
LEXIS 12576 at *150 (S.D.N.Y. Aug. 30, 2000); Official Comm. of Unsecured Creditors of Vivaro
Corp. v. Leucadia Nat’l Corp. (In re Vivaro Corp.), 524 B.R. 536, 551, 553 (Bankr. S.D.N.Y.
2015); Battlefield Freedom Wash, LLC v. Song Yan Zhuo, 148 A.D.3d 969, 971 (2d Dep’t 2017);
Wimbledon Fin. Master Fund, Ltd. v. Bergstein, No. 150584/2016, 2017 N.Y. Misc. LEXIS 2713

*8 (Sup. Ct. N.Y. Co. July 17, 2017).
I note that some federal courts in New York have applied a similar presumption of
insolvency under section 548(a)(1)(B)(ii)(I) of the Bankruptcy Code where a plaintiff proves that
a transfer was made without reasonably equivalent value. The decisions of which we are aware
all seem to trace back to the decision in Mendelsohn v. Jacobowitz (In re Jacobs), 394 B.R. 646,
672 (Bankr. E.D.N.Y. 2008), which cited the New York rule and then applied that presumption
(without any further discussion) both to claims under section 273 of the Debtor and Creditor Law
and claims under section 548 of the Bankruptcy Code. Id. at 673. A later decision cited
Mendelsohn for the proposition that the New York presumption of insolvency “has been applied
to constructive fraudulent transfer litigation under 11 U.S.C. § 548.” See In re Operations NY
LLC, 490 B.R. at 98. At least one other decision then cited In re Operations NY LLC for the
same proposition. See McCord v. Ally Fin., Inc. (In re USA United Fleet, Inc.), 559 B.R. 41, 79
(Bankr. E.D.N.Y. 2016) (citing In re Operations NY LLC for the proposition that the New York
presumption “has been applied to constructive fraudulent transfer litigation under 11 U.S.C.

§ 548”).
The foregoing decisions are not convincing. Congress set forth a time-limited
presumption of insolvency in connection with preference recoveries under section 547 of the
Bankruptcy Code, but no similar presumption appears in section 548(a)(1)(B)(ii)(I), which
governs the avoidance of transfers made without reasonably equivalent value while a debtor is
insolvent. In addition, the presumption of insolvency that is available under section 273 of the
NY DCL is based on a long history of New York court decisions that have verified that
presumption as a matter of New York law. I am not aware of any similar line of authority with
respect to presumptions of insolvency under section 548 of the Bankruptcy Code. The few cases

cited above that have applied the presumption in this context have done so without any analysis
of whether the New York presumption should also be applicable to a claim under section 548.
Furthermore, while the Plan Administrator has argued in this case that a presumption of
insolvency is applicable to the claims under section 273, he has made no such argument as to
section 548. Perhaps further argument in a future case might convince me to the contrary, but
based on the positions taken by the Plan Administrator I will not apply the New York
presumption of insolvency to the claims under section 548(a)(1)(B)(ii)(I).
The evidence at trial about Village Red’s actual financial condition was very thin. The
Plan Administrator offered evidence that Village Red listed few assets and that its known
liabilities exceeded the value of its assets when it filed for bankruptcy. However, that does not
prove solvency or insolvency as of prior dates. Insolvency is relevant only if it existed on the
date(s) on which the challenged transfers occurred, and it “cannot be presumed from subsequent
insolvency at a later point in time.” O’Toole v. Karnani (In re Trinsum Grp.), 460 B.R. 379, 392
(Bankr. S.D.N.Y. 2011).

No documents were offered into evidence as to the profits or losses generated by Village
Red on an ongoing basis. The Plan Administrator testified that based on Village Red’s reported
post-bankruptcy operating results it would have taken forty years to repay the employee debts,
but no specifics were offered, and no evidence was offered to compare the post-petition
operating results with the pre-petition operations. The Plan Administrator testified on cross-
examination that he had seen prior tax filings but they were not offered into evidence. The Plan
Administrator also testified that he understood that Village Red was not very profitable but that it
had reported some profit in at least 2017, though no specifics were provided or as to whether all
expenses has properly been counted. There was vague evidence at trial to the effect that Village

Red paid $11,000 in rent (and not the specified $25,000) because it could not afford to pay more.
However, the Plan Administrator has also argued that $11,000 was the “real” agreed-upon rent.
The vague testimony about the reasons why $11,000 was actually paid was not sufficient to
prove insolvency.
The evidence showed that employees had claims under various labor laws that accrued
beginning in 2009 and that ultimately were allowed in the total amount of $5,347,616.81.
Village Red’s inability to pay those claims in 2017 was cited explicitly as the reason for its
bankruptcy filing. However, no evidence was offered by either party as to the amounts of such
liabilities at various times, or as to whether Village Red had sufficient value to cover these and
other liabilities at various times.
For her part, Ms. Serafis offered no meaningful evidence as to Village Red’s financial
condition. Her counsel elicited testimony to the effect that Village Red had “gross receipts” of
approximately $2,193,000 in 2016, but “gross receipts” is a meaningless figure without

consideration of the expenses that must be paid.
Whether the evidence showed that Village Red was solvent or insolvent therefore
depends on the application of relevant presumptions and the burden of proof. If the Plan
Administrator bore the burden to prove insolvency, he failed to carry it. If insolvency is
presumed and if Ms. Serafis bore the burden to offer evidence to the contrary, she failed to do
so. I find for the reasons stated above that insolvency is not presumed for purposes of the claims
under section 548 of the Bankruptcy Code and that the Plan Administrator failed to carry his
burden to prove insolvency for purposes of those claims. However, since I have found that the
prepetition payments to Ms. Serafis were made without fair consideration, there is a rebuttable

presumption (for purposes of the New York state law claims) that Village Red was insolvent at
the times of those transfers. It was Ms. Serafis’s burden to offer evidence of solvency in rebuttal
of that presumption, and she failed to do so. I therefore find that Village Red was insolvent at
the times of the challenged pre-petition transfers for purposes of the claims under section 273 of
the NY DCL. The Plan Administrator has the right to recover all of the identified prepetition
transfers to Ms. Serafis pursuant to sections 544 and 550 of the Bankruptcy Code and section
273 of the NY DCL.
B. Whether Transfers Were Made While Litigation Was Pending
The evidence plainly showed that lawsuits were pending against Village Red from as
early as August 11, 2015; that while the lawsuits were pending transfers were made by Village
Red to Serafis without fair consideration; that the District Court ruled that Village Red was liable
to the plaintiffs in the pending lawsuits; that the amounts of those liabilities have been

determined in Village Red’s bankruptcy case; and that the allowed claims have not been paid.
The Plan Administrator therefore has the right to recover all of the prepetition transfers that were
made to Serafis from and after August 11, 2015 pursuant to sections 544 and 550 of the
Bankruptcy Code and section 273-a of the NY DCL. Those claims, however, merely make up a
sub-set of the transfers that the Court has found to be recoverable under section 273.
C. Whether the Debtors Had Unreasonably Small Capital at the Relevant Times
In order to recover transfers pursuant to DCL § 274 and/or Bankruptcy Code
§548(a)(1)(B)(ii)(II) the Plan Administrator must show that, at the time of the transfers, Village
Red was engaged in or about to engage in a business or a transaction that would leave it with

unreasonably small capital. In re Operations NY LLC, 490 B.R. at 98. This test denotes a
financial condition short of actual insolvency and “is aimed at transferees that leave the
transferor technically solvent but doomed to fail.” Id. (citing MFS/Sun Life Trust-High Yield
Series v. Van Dusen Airport Services Co.), 910 F. Supp. 913, 944 (S.D.N.Y. 1995). A debtor has
“unreasonably small” assets if insolvency is inevitable in the reasonably foreseeable future.
Adelphia Recovery Trust v. FPL Grp., Inc. (In re Adelphia Communs. Corp.), 652 F. App’x 19,
21 (2d Cir. 2016). Factors that may be relevant in determining whether capital was unreasonably
small include the transferor’s debt to equity ratio, its historical capital cushion, and the need for
working capital in the transferor’s industry. In re Vivaro Corp., 524 B.R. at 551; In re Taubman,
160 B.R. 964, 986 (Bankr. S.D. Ohio 1993).
The most important consideration in determining whether a business has unreasonably
small capital is whether the business has or can generate resources from its operations or from
asset sales to sustain its operations. Moody, 971 F.2d at 1070 (“unreasonably small capital” is a

situation marked by the “inability to generate sufficient profits to sustain operations”); In re
Vadnais Lumber Supply, Inc., 100 B.R. at 137 (Courts look “to the ability of the debtor to
generate enough cash from operations or asset sales to pay its debts and still sustain itself.”).
The fact that a business actually survived for a considerable period of time after a challenged
transfer is a factor that a court may consider in deciding whether the business had unreasonably
low capital at the time of the transfer. See Moody, 971 F.2d at 1074; Daley v. J.F. Chang (In re
Joy Recovery Tech. Corp.), 286 B.R. 54, 76 (Bankr. N.D. Ill. 2002). However, it is only one of
many factors that may be relevant, and is not necessarily controlling. In re Tronox, Inc., 503
B.R. at 322.

No presumptions are applicable with respect to the Plan Administrator’s claims that the
Debtors had “unreasonably small capital.” It is the Plan Administrator’s burden to prove such
contentions. See In re Vivaro Corp., 524 B.R. at 551.
No actual proof of the results of Village Red’s ongoing operating results ever was offered.
I conclude that the Plan Administrator failed to carry his burden to prove that the Debtors had
unreasonably small capital.
D. Whether the Debtors Made Transfers Knowing They Could Not Repay Debts
A transfer is avoidable under section 548(a)(1)(B)(ii)(III) of the Bankruptcy Code if it was
made within two years prior to the filing of the bankruptcy petition, if it was made without
receiving reasonably equivalent value in return, and if the debtor “intended to incur, or believed
that the debtor would incur, debts that would be beyond the debtor’s ability to pay as such debts
matured.” 11 U.S.C. § 548(a)(1)(B)(ii)(III). Intent or belief must be proved, though they may be
inferred from other circumstances. See Official Comm. of Unsecured Creds. of Tousa, Inc. v.
Citicorp of North Am., Inc. (In re TOUSA, Inc.), 422 B.R. 783, 862-63 (Bankr. S.D. Fla. 2009).

Section 275 of the NY DCL similarly provides that a transfer is fraudulent if it is made without
fair consideration at a time when the transferor intended to incur, or believed that it was incurring,
debts that would be beyond its ability to pay as they matured. In order to prove a claim under
section 275, the Plan Administrator must show that at the time of each challenged transfer the
controlling persons at Village Red had a subjective belief that Village Red was incurring or would
incur debts beyond its ability to pay as they matured. See In re Best Prods. Co., 168 B.R. 35, 52-
53 (Bankr. S.D.N.Y. 1994), aff'd, 68 F.3d 26 (2d Cir.1995); see also Grace Plaza of Great Neck,
Inc. v. Heitzler, 2 A.D.3d 780, 781, 770 N.Y.S.2d 421, 423 (2d Dep’t 2003) (Pursuant to NY DCL
§ 275, a conveyance made by a person who has a “good indication of oncoming insolvency” is

deemed to be fraudulent); Kramer v. Chin (In re Louise Chin), 492 B.R. 117, 129 (E.D.N.Y. Bankr.
2013) (section 275 requires proof of awareness by the transferor that, as result of the conveyance,
he will not be able to pay present and future debts). So far as we are aware, the New York courts
have not adopted any presumptions with regard to such claims, and the burden of proof rests with
the Plan Administrator.
The Plan Administrator failed to prove that Village Red made transfers at a time when it
actually believed or intended that it was incurring debts that it would be unable to pay. No
evidence was offered as to the subjective beliefs of Mr. Serafis or of others in this regard, and no
facts were offered in evidence that were sufficient to support the implication that Village Red
actually intended or believed that it would be unable to pay claims as they matured. I conclude
that the Plan Administrator failed to carry his burden of proof with respect to this issue.
E. Whether Village Red Made Transfers With the Actual Intend to Defraud,
Hinder or Delay Creditors
The Plan Administrator has argued that the prepetition transfers were made with actual
intend to defraud, hinder or delay creditors and therefore that they are avoidable under section
548(a)(1)(A) of the Bankruptcy Code and/or section 276 of the NY DCL. Although this claim
was preserved in the papers and in the Joint Pretrial Order, it was not even clear at trial whether
the Plan Administrator was still pursuing it. It does not matter, however, because the evidence
failed to show any actual fraudulent intent in connection with any of the prepetition transfers.
4. Ms. Serafis’s Offset Defense

Ms. Serafis contends that she is the sole owner of 135 Waverly and that in that capacity
she should be able to offset any prepetition sums owed to 135 Waverly against any liability she
personally has to repay the prepetition transfers that she received. There are two reasons why
this contention is incorrect. First, for the reasons set forth below I have found that 135 Waverly
is not entitled to the assertion of an unsecured claim, so there is no debt owing to 135 Waverly
that could be the basis for an offset. Second, and more importantly, Ms. Serafis’s position is
simply wrong as a matter of law.
The creditor who asserts an offset defense must establish that (1) the debtor owed a debt
to the creditor that arose pre-petition; (2) the debtor must have a claim against the creditor that

arose pre-petition; and (3) the debt and the claim are mutual. See In re Manshul Constr. Corp.,
2000 U.S. Dist. LEXIS 12576, at *159-160. Here, 135 Waverly was a separate legal entity. See
New Colonial Ice Co. v. Helvering, 292 U.S. 435, 442 (1934) (“[a]s a general rule a corporation
and its stockholders are deemed separate entities”); N.Y. Limited Liability Company law § 601
(“A membership interest in the limited liability is personal property. A member has no interest
in specific property of the limited liability company.”). Any rent obligation that was allegedly
owed to 135 Waverly was not a debt owed directly to Ms. Serafis. There was no mutuality, and
therefore there could be no right to an offset. See MNC Comm. Corp. v. Joseph T. Ryerson &
Son, Inc., 882 F.2d 615, 618 n. 2 (2d Cir. 1989).

Furthermore, even if the rent obligation had been owed to Ms. Serafis directly it still
would not have entitled her to assert an offset defense. Courts have consistently held that the
obligation to repay a fraudulent transfer is a debt that is owed to the trustee (or, in this case, to
the Plan Administrator) pursuant to sections 544 and 550 of the Bankruptcy Code. The
obligation under section 550 is not a prepetition obligation that was owed directly to Village
Red, and as a matter of equity it may not be offset against other obligations owed by Village
Red. See In re Manshul Constr. Corp., 2000 U.S. Dist. LEXIS 12576 at *160-161; Kramer v.
Sooklall (In re Singh), 434 B.R. 298, 308 (Bankr. E.D.N.Y. 2010); Balabar-Strauss v. GTE
Supply (In re Coin Phones, Inc.), 153 B.R. 135, 143 (Bankr. S.D.N.Y. 1993); Hassett v. Far

West Fed. Sav. & Loan Ass’n (In re O.P.M. Leasing Services, Inc.), 40 B.R. 380, 402 (Bankr.
S.D.N.Y. 1984).
For each of the foregoing reasons the asserted offset defense is not available to Ms.
Serafis.
5. Whether the Challenged Post-Petition Payments Are Avoidable
The Bankruptcy Code requires court approval for any use of a Debtor’s assets other than
transactions made in the ordinary course of business. See 11 U.S.C. §§ 363(b) and (c). If a
debtor makes transfers of property that are not authorized by the court and not otherwise
authorized by the Bankruptcy Code then the transfers are avoidable pursuant to section 549 of
the Bankruptcy Code. See 11 U.S.C. § 549. The Plan Administrator’s claims under section 549
were filed less than two years after the transfers that are being challenged and those claims are
timely under section 549(d). Id.
The defendants contend that the post-petition salary payments that were paid to Ms.
Serafis, and the increased post-petition rent that was paid to 135 Waverly, were paid in the

ordinary course of business and were valid under sections 363 and 549 of the Bankruptcy Code.
Rule 6001 of the Federal Rules of Bankruptcy Procedure provides that the defendants, as the
parties asserting the validity of the transfers, have the burden to proof that the transfers were
proper and authorized. See Fed. R. Bankr. P. 6001.
The term “ordinary course of business” is not defined in the Bankruptcy Code but it is
used in a number of different provisions. See, e.g., 11 U.S.C. § 363 (b) and (c) (requiring court
approval of transactions that are not in the ordinary course of business but permitting uses of
property in the ordinary course of business); § 364(a) (permitting a debtor operating a business to
obtain unsecured credit and to incur unsecured debt in the ordinary course of business);

§ 503(c)(3) (providing that a court may not allow, as administrative expenses, transfers or
obligations “that are outside the ordinary course of business and not justified by the facts and
circumstances of the case”); § 547(c)(2) (providing a defense to preference claims if, among
other things, a transfer was made in the ordinary course of business); § 548(a)(1)(B)(ii)(IV)
(providing that transfers made to an insider pursuant to an employment contract and not in the
ordinary course of business, for which a debtor does not receive reasonably equivalent value in
exchange, are constructively fraudulent as to creditors); § 744 (setting time limits in a
stockbroker liquidation case for the assumption or rejection of a contract to purchase or sell a
security in the ordinary course of the debtor’s business); § 1301 (staying actions against co-
debtors in chapter 13 cases unless the co-debtor became obligated on the debt in the ordinary
course of business). In general, the purpose of the various “ordinary course” provisions is to
leave undisturbed certain normal financial relations between a debtor and other parties.
Montgomery Ward, LLC v. OTC Int’l Ltd. (In re Montgomery Ward, LLC), 348 B.R. 662, 673
(Bankr. D. Del. 2006).

Courts have used two tests in determining whether a transaction was in the ordinary
course of business under section 363: a “horizontal dimension” test and a “vertical dimension”
test. See Committee of Asbestos-Related Litigants v. Johns-Manville Corp. (In re Johns-
Manville Corp.), 60 B.R. 612, 616-618 (Bankr. S.D.N.Y. 1986). The “horizontal dimension” test
considers whether a transaction is one that would normally be entered into by a similar business
as a matter of routine. Id. at 618. The purpose is to determine whether a transaction of the kind
before the court is an abnormal or unusual one rather than a reasonably common one. Village
Red’s sales to customers at its restaurant, for example, were transactions that were made in the
regular course of business. Similarly, its regular ordering of restaurant supplies were common

and ordinary features of operating a restaurant.
The “vertical dimension” test considers whether transactions were of a type that creditors
would expect to have been made in the ordinary course of business. Manville, 60 B.R. at 616-17.
The vertical test assesses whether a creditor would have expected the debtor to enter into the
transaction at issue and whether the transaction exposes creditors to risks that differ from those
they accepted when they extended credit. Id. at 616. For this purpose, “the touchstone of
‘ordinariness’ is the interested parties’ reasonable expectations of what transactions the debtor in
possession is likely to enter in the course of its business.” Armstrong World Inds., Inc. v. James
A. Phillips, Inc. (In re James A. Phillips, Inc.), 29 B.R. 391, 394 (S.D.N.Y. 1983). Certain
transactions may be necessary to the conduct of a business but they cannot be considered
“ordinary” transactions due to their size, nature or both. Johnston v. First Street Companies, Inc.
(In re Waterfront Companies, Inc.), 56 B.R. 31, 34-35 (D. Minn. 1985).
The Bankruptcy Code permits “ordinary course” transactions without court approval
because they simply reflect the ongoing nature of a debtor’s usual business and because they do

not implicate any of the creditor protections or other principles that the Bankruptcy Code is
designed to protect. The key, no matter which test is used, is to distinguish between routine
operations (which a debtor can pursue without the need for individualized court approval) and
transactions that are sufficiently unusual, unique or significant from the perspective of creditors
that they require court approval. The freedom to conduct “ordinary course” transactions cannot
be used to permit uses of property of an estate that are “inimical to the theory and philosophy of
the Bankruptcy Code.” See Pressman v. Bank of St. Louis (In re J.T.L., Inc.), 36 B.R. 860, 862
(Bankr. E.D. Mo. 1984).
The evidence a trial showed that the post-petition salary payments to Ms. Serafis, and the

increased rent payments to 135 Waverly, were not “ordinary” transactions at all. In fact, I find it
difficult to imagine transactions that would be less qualified for characterization as “ordinary
course of business” transactions that did not require court approval.
A. Post-Petition Salary Payments to Serafis
The parties have stipulated that, beginning April 25, 2018, Ms. Serafis was paid $2,000 per
week in salary payments. The Plan Administrator asserted in the Joint Pretrial Order that the total
amount at issue was $56,000 “consisting of $2,000/week received by Ms. Serafis beginning on
April 25, 2018 to the Confirmation Date.” See Joint Pretrial Order at 17. In this case, the
confirmation date was October 17, 2019. See Confirmation Order [Case No. 18-10960, ECF No.
72.] At the conclusion of the trial, the Plan Administrator argued that the figure set forth in the
Joint Pretrial Order was a typographical error and that the actual amount at issue was $154,000.
Ms. Serafis’s counsel did not object to the correction and agreed that a salary of $2,000 per week
had been paid. If $2,000 was paid weekly beginning April 25 then by the Court’s calculations a
total of $156,000 would have been paid through and including October 16, 2017, but perhaps the

Plan Administrator treated an October 16, 2017 payment as a post-confirmation transaction. In
any event, given the parties’ agreement that $2,000 per week was paid throughout the designated
period, the Court will accept the Plan Administrator’s correction of the figures, so that the amount
at issue is $154,000 rather than $56,000.
No court approval of these payments was sought or obtained. Ms. Serafis argues that the
payment of wages and salaries to employees is part of a company’s ordinary business and that no
Court approval was required. Certainly it is true that the payment of ordinary wages to employees
is part of a company’s ordinary course of business. However, I have already determined that the
pre-petition salary payments were without consideration and were not made in exchange for actual

services. Furthermore, an immediate and large salary increase, paid by a relatively small company
just after a bankruptcy filing to a person who is also the owner of the company, is not an “ordinary”
employment transaction in the sense envisioned by section 363 of the Bankruptcy Code. It may
be “ordinary” and routine for a business to negotiate wages with employees on an arm’s-length
basis, but in this instance the sole owner (Ms. Serafis) effectively controlled both sides of the salary
negotiation. There was nothing “ordinary” or “routine” in an owner’s unilateral decision as to how
much money to take from a bankrupt company in the form of a post-petition salary.
In addition, creditors are entitled to priority in bankruptcy. An equity owner’s decision to
pay herself an increased salary (at the expense of the bankrupt company and therefore at the
expense of creditors) is something that creditors reasonably should expect will require court
approval. Transactions with insiders are subject to careful scrutiny in bankruptcy, and any
proposed increase in salary payments to Ms. Serafis should only have occurred following a
proper request for court approval.
Instead of seeking court approval for the salary payments, Village Red effectively

downplayed them. Village Red was required to file regular monthly Operating Reports that
required the separate identification of any payments that Village Red made to “insiders.” The
operating reports listed the salary payments to Ms. Serafis in the “payroll detail” sections, but
they failed to identify those as payments to “insiders” as the forms required. Instead, the forms
represented that no payments to insiders had been made. Persons who reviewed the reports
would not have known that “insider” payments were being made unless they disregarded the
“insider” disclosures in the forms and instead combed through the line-item details to discover
the payments to Ms. Serafis, as the NLRB eventually did.
Ms. Serafis’s counsel argued that the salary increase was reasonable but the evidence did

not support that contention. To the contrary: the evidence showed that the payments were
excessive and improper. Ms. Serafis testified that she devoted more of her own time and
attention to the business after the bankruptcy filing than she previously had. However, she also
confirmed that she continued to spend approximately 80% of her time in Greece. The Disclosure
Statement suggested to creditors that the actual management of the business was handled by
Nicholas Serafis and by John Captan and that they were paid $15 per hour for their services. See
Amended Disclosure Statement [Case No. 18-10960, ECF No. 60 at pdf p. 7.] The only mention
of salary payments to Christine Serafis in the Disclosure Statement were a reference to the
possibility that Village Red made unauthorized payments to her. Id. at pdf pp. 4, 9. By all
accounts Mr. Captan and Mr. Serafis performed duties that were far more significant than any
work provided by Ms. Serafis. At the rate of $15 per hour (the rate listed for payments to the
actual managers of the business), Ms. Serafis would have needed to work more than 133 hours
per week to justify compensation of $2,000 per week, and she plainly never did so.
I find that the increased post-petition salary payments to Ms. Serafis were not agreed to in

the ordinary course of business and were not paid in the ordinary course of business. There was
nothing arm’s-length or routine about them. Instead, they were self-dealing transactions that
were designed to divert value to the equity owner (Ms. Serafis) on terms that should have been
presented to the Court and that would not have been approved if they had been presented.
The Plan Administrator has sought to recover the full amounts of the post-petition salary
payments to Ms. Serafis. In response, Ms. Serafis has argued that the full payments were
appropriate, which is a contention that I have rejected for the reasons stated above. Neither party
addressed the question of whether some smaller level of compensation would have been
appropriate on a post-petition basis and therefore whether Ms. Serafis should only be liable for

the return of the “excess” payments, rather than for the return of the entire amounts of the post-
petition salary payments. Some courts have held, on equitable grounds, that only the “excess”
amounts should be recovered under sections 549 and 550. See 5 COLLIER ON BANKRUPTCY
¶ 550.02 (16th ed. 2021); Ossen v. Bernatovich (Matter of National Safe Northeast, Inc.), 76 B.R.
896, 906-07 (Bankr. D. Conn. 1987) (finding salary payments were excessive and unauthorized
but permitting recovery of only 75% of the payments). If Ms. Serafis wanted some equitable
reduction based on the “real” value of services that she provided, however, it was her burden
under Rule 6001 to offer evidence that would permit the Court to calculate the actual value of
her services. See Fed. R. Bankr. P. 6001. She did not do so. Ms. Serafis made many of the
same arguments that she made about the purported justifications for her pre-petition salary
payments, which I have rejected for the reasons stated above. She also offered vague testimony
to the effect that she devoted additional time to learning how the business functioned after the
bankruptcy filing, and that for a time she had more frequent telephone calls with Mr. Captan
about expenses to be paid. However, no time records were offered and no reliable time estimates

were provided, and Ms. Serafis admittedly continued to reside in Greece for 80% of the time.
I conclude that Ms. Serafis failed to carry her burden to prove that the $2,000 weekly
salary payments, or any particular portion thereof, were appropriate. I find that all of the post-
petition salary payments were unauthorized and are recoverable by the Plan Administrator
pursuant to sections 549 and 550 of the Bankruptcy Code.
B. Increased Post-Petition Rents Paid to 135 Waverly
As noted above, Ms. Serafis owned both 135 Waverly and Village Red. It is true that a
restaurant must either own or lease the space that it uses. However, that does not mean that the
negotiation of new lease terms is a transaction that is done in the “ordinary” course of a

restaurant’s business. There are many types of transactions in which businesses engage that are
properly regarded as “unusual” transactions rather than matters done in the “ordinary” course of
business. Significant financings, large contracts and significant leases are not “routine” and
instead fall into the “unusual” and significant category. Village Red’s prior lease had a term of
five years; certainly the negotiation of new rents to be paid for the space that the restaurant used
is of a different character than, for example, the routine ordering of food supplies. It was not part
of Village Red’s normal day-to-day operations.
Furthermore, as noted above, transactions with corporate insiders (including affiliated
companies) are subject to heightened scrutiny in bankruptcy. Creditors had the right to expect –
and frankly the Court expected – that any increase in rent that Village Red paid to an affiliated
company would be the subject of a motion for court approval, with notice to the affected creditor
body so that parties in interest could object to any improper terms. That is particularly true in
light of the size of the rent increase that occurred here. Instead, the opposite occurred. Ms.
Serafis (and perhaps others) unilaterally decided to increase the rent to $53,000 and also to

require Village Red to pay real estate taxes, which Village Red previously had not been required
to pay. Counsel to Village Red incorrectly informed this Court that the rent payments had
simply been continued in line with historical practices, which was not the case.
I find the $53,000 rent figure to be particularly galling since I also find, based on the
evidence, that the purported lease of the premises never was intended to constitute the actual
rental agreement between 135 Waverly and Village Red. Nicholas Serafis put the lease terms
together; there was no negotiation of them. There also was no intent to pay the rents that were
actually specified in the lease. The two businesses were commonly owned, and Village Red
always paid $11,000 in rent (not $25,000). The written terms of the lease were regularly and

intentionally ignored. The actual agreement and practice was that Village Red would pay rent
equal to $11,000 per month. Ms. Serafis testified that her father allegedly promised to pay the
full $25,000 at some unknown future time and that the $11,000 payments were merely “on
account,” but I find that testimony was not credible and that no such agreement existed.
Ms. Serafis argued at trial that Village Red was a “holdover” tenant and that under the
terms of the Lease the rent was supposed to double in the event of a holdover. However, as
noted above I have found that the Lease never was intended to represent the actual terms on
which Village Red leased space from 135 Waverly. Ms. Serafis also argued at trial that she was
entitled to “damages” to the extent that Village Red did not make payments in accordance with
the holdover provisions of the Lease. However, the Lease expired and Village Red never
assumed the Lease as a post-petition obligation. Any “damage” claim (if one had been asserted)
would only have constituted a pre-petition claim. It would not have justified the post-petition
payment of the increased rents that were charged. In any event, arguments about the “holdover”
terms are irrelevant. It is plain from the evidence at trial that what happened here was that Ms.

Serafis imposed the terms of a new lease on both 135 Waverly and Village Red, on terms that
were unreasonable and inconsistent with prior practices and without seeking or obtaining the
court approval that was required.
Ms. Serafis and 135 Waverly argued that higher rents were justified but their proposed
proof was excluded because they had failed to comply with applicable rules regarding the
identification and designation of proposed expert testimony. More importantly, any arguments
that they might have made about the rents should have been made in the context of a motion
seeking court approval. The increased rent payments, like the increased salary payments, were
not arm’s-length transactions and were not transactions done in the ordinary course of business.

Instead, they were self-dealing transactions that were designed to divert value to an affiliated
company (also owned by Ms. Serafis) to the detriment of the creditors of Village Red. I agree
with the Plan Administrator’s contention that the entire increase in the rent payments (above the
$11,000 that historically had been paid) was unauthorized and is subject to avoidance and
recovery under sections 549 and 550 of the Bankruptcy Code.
Village Red also paid real estate taxes as part of its “new” rent arrangement. Those
payments were the equivalent of increased rent payments for which Court approval was required
but was not obtained, and they also are recoverable. However, the evidence at trial did not
suffice to show that Village Red paid for repairs that should have been the responsibility of 135
Waverly or that should have required Court approval, and the Plan Administrator’s claim to
recover such “repair” costs is denied. The total of the “excess” post-petition rent and real estate
tax payments that the Plan Administrator is entitled to recover from 135 Waverly is $891,000
($767,000 in rent and $124,000 in real estate taxes).
6. The Objections to 135 Waverly’s Unsecured Claim

Christine Serafis signed the Disclosure Statement on behalf of Village Red. She was
aware of its contents. The Disclosure Statement and the Plan made no provision for any
distribution to 135 Waverly as an unsecured creditor. The projected recoveries for unsecured
creditors plainly assumed that 135 Waverly would not share in those recoveries. Counsel to
Village Red (whose hiring had been arranged by Ms. Serafis and whose retainer was paid by Ms.
Serafis) also confirmed on the record that there were no creditors who were entitled to participate
as unsecured creditors under the Plan except for employees, the NLRB and Chase Bank.
It was quite clear to the Court, when the NLRB negotiated changes to the terms on which
135 Waverly would purchase the assets of Village Red, that the purpose of the price increase was

to ensure that significant value would be available for employee claims rather than being
diverted to 135 Waverly itself. It was also quite clear that the Disclosure Statement and Plan
contemplated that no portion of the amounts paid by 135 Waverly would come back to 135
Waverly itself through distributions on purported claims that 135 Waverly held against Village
Red. For this reason, at the Disclosure Statement hearing, the Court expressly asked whether any
of the unsecured claim recoveries would be available to 135 Waverly. Village Red’s counsel
confirmed that the only creditors entitled to payment as unsecured creditors would be the
employees who held allowed claims and Chase Bank.
I find based on the evidence that Village Red, 135 Waverly and Ms. Serafis consciously
elected not to pursue any unsecured claim on behalf of 135 Waverly and elected instead to
propose a plan under which the entire consideration that 135 Waverly had paid for the Village
Red assets would be available for the payment of claims held by persons other than 135
Waverly. They obtained confirmation of the plan of reorganization based on those terms (and

based on their explicit assurances to this Court) and I hold that they are bound by those terms.
Ms. Serafis and 135 Waverly conceded at trial that parties may object to claims even if
the claims have been scheduled and even if the claims are not listed as contingent, unliquidated
or disputed. They also conceded at trial that the Plan Administrator has the authority to object to
claims and that the Plan Administrator’s objections to claims asserted by 135 Waverly were
timely. They nevertheless argued that Village Red had admitted the debt owed to 135 Waverly
because Village Red listed that debt in its Schedules of Liabilities, and that the Plan
Administrator therefore should be estopped from pursuing his objection. Notably, the person
who verified the Schedules on behalf of Village Red was Ms. Serafis herself. Effectively, she

listed a debt as being owed to her own business. I do not see how equitable notions of estoppel
could properly be invoked against the Plan Administrator under these circumstances. The Plan
Administrator represents the interests of all creditors, and in performing his duties he is not
bound or estopped by self-serving “admissions” made by Ms. Serafis as to amounts that Village
Red allegedly owed to another one of Ms. Serafis’s wholly-owned companies.
More importantly: even if a debt to 135 Waverly had originally been properly scheduled,
and even if a debt had been owed to 135 Waverly, the plan of reorganization plainly
contemplated that it would not be included among the unsecured claims that would be entitled to
distributions. If 135 Waverly wanted to be treated as a general unsecured creditor under the
Plan, it should have ensured that the Plan provided for such treatment, or it should have objected
to the Disclosure Statement and the Plan. It failed to do so. The Plan was confirmed long ago,
and the order confirming the Plan cannot be revoked at this time. See 11 U.S.C. § 1144. The
Confirmation Order also stated that the terms of the Plan are binding on all parties in interest
(including 135 Waverly), and it is far too late for 135 Waverly to seek any relief from that Order.

See Confirmation Order at 6-7.
I find that the terms of the confirmed plan of reorganization do not permit any recovery
by 135 Waverly as part of the general unsecured class of creditors and for the foregoing reasons I
sustain the Plan Administrator’s objection to the claim.
7. Prejudgment Interest
The Plan Administrator exercised the rights granted to him by section 544 of the
Bankruptcy Code to pursue claims that creditors could have pursued under New York law.
Successful plaintiffs in litigation in the state courts may recover prejudgment interest at the rate
of 9%. See N.Y.C.P.L.R. § 5004. The Court of Appeals for the Second Circuit has held,

however, that when a trustee pursues New York fraudulent conveyance claims under the
authority granted by section 544 of the Bankruptcy Code the trustee does not have an automatic
right to 9% interest under the CPLR, and that instead the award of interest is subject to the
discretion of the trial court. See Kittay v. Korff (In re Palermo), 739 F.3d 99 (2d Cir. 2014).
Under prevailing Second Circuit authorities, the Court has discretion as to whether to award
prejudgment interest at all and, if it does, to choose the appropriate rate and the date(s) from
which interest should accrue. Id. The Court similarly has discretion as to whether to award
prejudgment interest on the claims asserted under section 549 of the Bankruptcy Code and, if so,
as to the appropriate rate and the date(s) from which interest should accrue.
In order to determine whether prejudgment interest should be awarded the Court must
consider “(i) the need to fully compensate the wronged party for actual damages suffered, (ii)
considerations of fairness and the relative equities of the award, (iii) the remedial purpose of the
statute involved, and/or (iv) such other general principles as are deemed relevant by the court.”
Wickham Contracting Co. v. Local Union No. 3, Int'l Brotherhood of Elec. Workers, AFL-CIO,

955 F.2d 831, 834 (2d Cir. 1992). In this regard, the purpose of prejudgment interest is to make
the plaintiff whole rather than to punish defendants or to provide plaintiff with a windfall. Jones
v. UNUM Life Ins. Co. of Am., 223 F.3d 130, 139 (2d Cir. 2000) (citations and quotations
omitted). Although the award of prejudgment interest is discretionary, it should ordinarily be
granted absent a sound reason to deny it. McHale v. Boulder Capital LLC (In re 1031 Tax Grp.,
LLC), 439 B.R. 84, 87 (Bankr. S.D.N.Y. 2010).
A. Prejudgment Interest As To The Prepetition Transfers
An award of prejudgment interest is appropriate as to the prepetition transfers to Ms.
Serafis because there is a time value to money and the Plan Administrator (and the creditors of

the estate) are entitled to compensation for delays in recovering funds. However, I do not agree
with the suggestion that interest should accrue from the date(s) of the original transfers. While
creditors might have had authority to challenge the transfers on those dates, the Plan
Administrator acquired the right to do so only upon the commencement of the Village Red
bankruptcy case. Since the claim under section 544 accrued upon the commencement of the
case, I believe that the commencement date is the appropriate date from which to measure the
accrual of prejudgment interest. This is consistent with other authorities. See McHale, 439 B.R.
at 89; see also In re Zohdi, 234 B.R. 371, 385 (Bankr. M.D. La. 1999) (noting that the purpose of
prejudgment interest in a case under section 544 is to compensate the estate itself for the time it
was without the use of the transferred funds).
As Judge Glenn observed in the McHale case, courts have adopted many different
methodologies for determining an appropriate prejudgment interest rate. Some courts prefer to
use the treasury-bill rate that is used in computing post-judgment interest on federal judgments;

others have used the New York statutory rate, and still others have used prime or other market
interest rates. Id. at 88-89. I do not believe that use of the 9% New York statutory rate would be
appropriate in this case. The 9% rate was put in place at a time when market interest rates were
much higher than they are now. Awarding interest at a 9% rate would over-compensate the Plan
Administrator for delays in obtaining funds, and would simply punish the defendants and grant a
windfall to the Plan Administrator. On the other hand, the current federal post-judgment interest
rate (which is only .08%) is lower than the rates in effect between 2018 and today and would not
adequately compensate the estates for the actual time value of money during the periods when
these cases were pending.

The federal post-judgment interest rate on the date of the commencement of these cases
was 2.09%. While other interest rates may have been higher, the federal judgment rate on the
date these cases were filed most closely approximates what the estates could have earned if cash
had been available to them, and I find it is the most appropriate way in this case to measure the
damages the estates suffered from not having the transferred funds available.
Accordingly, as to the avoided prepetition transfers to Ms. Serafis I will award prejudgment
interest at the simple (not compounded) rate of 2.09% from and after April 6, 2018, which was the
date on which Village Red filed its bankruptcy petition.
B. Post-Petition Transfers
The Plan Administrator offered evidence of the total amounts of the increased salary
payments made to Ms. Serafis and the total amounts of the increased rent payments made to 135
Waverly but did not offer evidence as to the date of each relevant payment. In the absence of
clearer proof I will award prejudgment interest on the post-petition transfers from and after the

date on which the Plan of reorganization was confirmed, which was October 17, 2019. The federal
judgment interest rate as of that date was 1.63%. That rate closely approximates the earnings that
the Plan Administrator could have obtained and is the appropriate interest rate to use in computing
prejudgment interest on the claims to recover post-petition transfers.
Conclusion

Based on the foregoing, the Court finds that the Plan Administrator is entitled to the entry
of judgments against Serafis and 135 Waverly in the following amounts:
Entity Principal Prejudgment Totals
Interest
$433,875 (Prepetition) $30,880.85
Serafis $623,459.89
$154,000 (Postpetition) $4,704.05
135 Waverly $891,000 $27,216.27 $918,216.27

The Court also finds that the Plan Administrator is entitled to the entry of an order sustaining the
objections to the prepetition unsecured claims asserted by 135 Waverly. The Court will enter an
order directing the Clerk of the Court to enter judgments that reflect the foregoing rulings.
Dated: New York, New York
August 31, 2021

/s/ Michael E. Wiles
Honorable Michael E. Wiles
United States Bankruptcy Judge

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10460538. Public record. Not legal advice.