Geron, as Chapter 7 Trustee of the Estate of Nanob v. Central Park Realty Holding Corp.

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK

In re: FOR PUBLICATION

NANOBEAK BIOTECH INC., Chapter 7

Debtor. Case No. 21-11600 (MG)

YANN GERON, as Chapter 7 Trustee of the

Estate of Nanobeak Biotech Inc.,

Plaintiff, Adv. Pro. Case No. 23-01172 (MG)

v.

CENTRAL PARK REALTY HOLDING

CORP.,

Defendant.

MEMORANDUM OPINION AND ORDER GRANTING IN

PART CENTRAL PARK REALTY HOLDING’S MOTION TO DISMISS

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

KLESTADT WINTERS JURELLER SOUTHARD & STEVENS, LLP

Attorneys for Plaintiff Yann Geron

200 West 41st Street, 17th Floor

New York, New York 10036

By: Fred Stevens, Esq.

Lauren C. Kiss, Esq.

Christopher J. Reilly, Esq.

REINHARDT SAVIC FOLEY LLP

Attorneys for Defendant Central Park Realty Holding Corp.

200 Liberty Street, 27th Floor

New York, New York 10281

By: Brian L. Grossman, Esq.

Stephan Savic, Esq.

MARTIN GLENN

CHIEF UNITED STATES BANKRUPTCY JUDGE

Pending before the Court is the motion (the “Motion,” ECF Doc. # 6) of defendant

Central Park Realty Holding Corp. (“CPRH” or “Defendant”) to dismiss the above-captioned

case for failure to state a claim, supported by the declaration of Brian L. Grossman (“Grossman

Declaration”). The complaint (the “Complaint,” ECF Doc. # 1) was filed by the Yann Geron

(the “Trustee” or “Plaintiff”) in his capacity as the Chapter 7 Trustee for the estate of Nanobeak

BioTech Inc. (“Nanobeak” or “Debtor”) and alleges seven causes of action, including for

fraudulent conveyance and unjust enrichment, against CPRH. The Trustee filed an opposition to

the Motion (the “Objection,” ECF Doc. # 12). CPRH filed a reply to the Objection (“Reply,”

ECF Doc. # 14). The Court held a hearing on the Motion (the “Hearing”) on December 19,

2023.

For the reasons explained below, the Court GRANTS the Motion without prejudice with

respect to Counts I, II, and III for constructive fraudulent transfers because the Plaintiff has

failed to plead insolvency, a necessary condition to a constructive fraudulent transfer claim. The

Court also GRANTS the Motion without prejudice with respect to Count IV for actual

fraudulent transfer and Count V for attorneys’ fees because the Trustee failed to plead fraudulent

intent with respect to the Transfers (as defined below). The Court DENIES the Motion with

respect to Count VI for unjust enrichment. The pleadings do not show whether Barbara occupied

the Rental Apartment for the full term for which the Debtor paid in advance. Lastly, the Court

GRANTS the Motion with respect to Count VII, for attorneys’ fees and prejudgment interest,

because it is not a standalone cause of action.

I. BACKGROUND

The Complaint alleges claims for fraudulent conveyances and unjust enrichment under

the Bankruptcy Code and NY Debtor and Creditor Law (“NYDCL”)1 against the CPRH, totaling

$100,730.00, and seeks attorneys’ fees and prejudgment interest (Complaint at 2; id. ¶ 48). The

basis for the claim is that the Debtor’s former CEO, James Barbera (“Barbera”), caused the

Debtor to make transfers to CPRH to satisfy Barbera’s personal rent obligations. (Id. ¶ 50.)

CPRH disputes its liability on the grounds that (1) CPRH was an innocent party to a “run

of the mill transaction” providing “a rental apartment in exchange for fair value,” and had no

knowledge or involvement in any “attempted hindrance or delay in paying the Debtor’s

creditors” (Motion at 1–2); (2) that the Trustee is attempting multiple recoveries via criminal

restitution and another pending adversary proceeding against Barbera (id. at 2–3); and (3) that

Barbera’s personal expenses were expressly forgiven and ratified by Debtor pursuant to a

purported resolution in the minutes from a Nanobeak board meeting (id. at 3).

A. Nanobeak’s Bankruptcy

Nanobeak, a biotechnology company purporting to develop technology focused on

detection of early-stage lung cancer, filed a voluntary petition for chapter 7 relief on September

10, 2021 (the “Petition Date”). (Complaint ¶¶ 4, 11.) Barbera established Nanobeak in 2009 and

served as its CEO from then until his resignation in October 2019. (Id. ¶ 11)

On the Petition Date, Yann Geron was appointed interim trustee of the Debtor’s estate.

(Id. ¶ 2.) On October 8, 2021, he became the permanent Trustee. (Id.)

1 In 2019, New York enacted the Uniform Voidable Transactions Act (the “UVTA”). The UVTA amended

and repealed certain portions of the NYDCL, including the sections at issue, but did not apply to transfers made

before it became effective in April 2020. Citations to the NYDCL are to the version effective when the Transfers

were made.

B. Barbera’s Actions

1. The Fraud

During his tenure as CEO, Barbera “used the Debtor as his own personal piggy bank” to

the tune of several million dollars. (/d. at 2.) Among other things, Barbera caused the Debtor to

pay various rental, mortgage, and maintenance payments for several properties, including

$100,730.00 in rent to CPRH. (Id. §¥ 20, 48.)

On February 17, 2022, Barbera was found guilty of conspiracy and fraud, for which he

was sentenced to 48 months in prison and ordered to pay $7,026,150 to the United States and

restitution (requested in the amount of $6,926,150) to his victims (/d. J 25, 30, 36.) He has

appealed. Ud. § 37.)

2. The Apartment Lease and Payments Therefor

Barbera and the CPRH entered into a lease (the “Lease”) as of March 27, 2017, whereby

CPRH agreed to lease an apartment (the “Rental Apartment’’) to Barbera for two years beginning

on May 15, 2017 with monthly rent of $7,000 for the first year and $7,210 for the second year.

(Id. § 47.) The Lease required Barbera to deliver to CPRH certified checks for the first month’s

rent ($7,000), last twelve months’ rent ($86,520) and one month’s security deposit ($7,210).

(Id.)

Barbera caused Nanobeak to make the payments due under the Lease. Specifically, the

Trustee has identified the following withdrawals (the “Withdrawals”’) from Nanobeak’s JP

Morgan Chase account:

(Id.)

The funds from the Withdrawals were used for the following cashier’s checks (the

“Cashier's Checks,” and the transfers to CPRH summing to $100,730.00, the “Transfers”):

Transferee Date of Payment Amount

Cashier’s Check | Clear Date for

Cashier’s

Check

Central Park Realty Holding Corp. | March 28,2017 | June 24, 2017 $3,500.00

Central Park Realty Holding Corp. | March 29,2017 | June 12,2017 $7,000.00

Central Park Realty Holding Corp. | March 29,2017 | June 12, 2017 $3,710.00

Central Park Realty Holding Corp. March 29, 2017 | June 12, 2017 $86,520.00

Totals $100,730.00

(Id.)

The Trustee now seeks to avoid the Transfers to CPRH and recover attormey’s fees and

interest.

C. The Adversary Proceeding

1. The Complaint

The Complaint alleges seven causes of action, including for fraudulent transfers and

unjust enrichment under the Bankruptcy Code and NYDCL, and seeks attorneys’ fees and

prejudgment interest. The causes of action are as follows:

I‘ Fraudulent Conveyance by Insolvent under Bankruptcy Code §§ 544(b), 550 and

NYDCL § 273. (Ud. §§ 51-58.)

Il. Fraudulent Conveyance with Unreasonably Small Capital under Bankruptcy Code

§§ 544(b), 550 and NYDCL § 274. (id. 59-66.)

Il Fraudulent Conveyance by One Incurring Debts Beyond Ability to Pay under

Bankruptcy Code §§ 544(b), 550 and NYDCL § 275. (d. J] 67-74.)

IV. Intentional Fraudulent Conveyance under Bankruptcy Code §§ 544(b), 550 and

NYDCL § 276. (dd. 49 75-84.)

V. Attorney’s Fees for Avoidance of Conveyance Made with Intent to Defraud under

Bankruptcy Code §§ 544(b) and NYDCL § 276-a. (Ud. 4] 85-87.)

VI. Unjust Enrichment. (Id. ¶¶ 88–94.)

VII. Pre-Judgment Interest and Attorney’s Fees Bankruptcy Code § 550(a) and NY Civil

Practice Law & Rules (“NYCPLR”) §§ 5001, 5004. (Id. ¶¶ 95–96.)

The Complaint extensively details Barbera’s fraud and the resulting criminal and civil

litigation. (See id. ¶¶ 11–45).

2. The Motion to Dismiss

CPRH disputes its liability on all causes of action and advances several arguments in

support.

First, CPRH argues that the Trustee is attempting multiple recoveries via criminal

restitution and another pending adversary proceeding against Barbera, and thus this proceeding

should be “terminated in its entirety or stayed pending the other proceeding.” (Motion at 2–3,

22.)

Second, CPRH disputes liability on the intentional fraudulent transfer claim (Count IV),

attorneys’ fees for the intentional fraudulent transfer claim (Count V) and the unjust enrichment

claim (Count VI) because it was an “innocent third party” that simply “rent[ed] out an apartment

and accept[ed] rent payments for the same, without any knowledge of the allegation that Barbera

took funds from the Debtor without permission.” (Id. at 1–2.) It argues that this, in combination

with an absence of any “badges of fraud,” absolves it of any liability for an actual fraudulent

transfer claim. (Id. at 18–19.) Accordingly, CPRH argues, it should also not be liable for

attorneys’ fees for an intentional fraudulent transfer claim. (Id. at 20.) Further, CPRH maintains

that it was not unjustly enriched because it “provided an apartment in exchange for rent,” and it

would thus be “against good conscience and equity” to force disgorgement. (Id. at 21.)

Third, CPRH contests liability for the constructive fraudulent transfer claims based on (1)

inadequate pleading and (2) the Purported Board Resolution (as defined below). It argues that

the Trustee has failed to adequately plead constructive fraudulent transfers because the

Complaint does not allege facts supporting that (i) the Debtor was insolvent at the time of the

Transfers (id. at 14–15); (ii) the Transfers left the Debtor with insufficiently small capital (id. at

16), or (3) the Debtor was incurring debts beyond its ability to pay. (Id. at 18.) Because these

are each, respectively, necessary elements of Counts I, II, and III for constructive fraud, CPRH

argues that those counts should be dismissed. (Id.) Moreover, CPRH submits that Barbera’s

personal expenses were expressly “forgiven and ratified by the [Debtor]” pursuant to a resolution

in minutes from a Nanobeak board meeting2 (the “Purported Board Resolution,” Grossman

Declaration Ex. A). (Id. at 3). Because lack of fair consideration is a necessary element of the

constructive fraudulent transfer claims, and CPRH argues the Purported Board Resolution

amounted to a “three-party contract” that constituted fair consideration paid to the Debtor, CPRH

would thus not be liable on those counts. (Id. at 3, 14)

Fourth, CPRH argues that Count VII, for attorneys’ fees and interest, must be dismissed

because (1) none of the statutes that are the purported basis for the claim even mention attorneys’

fees, and (2) that while CPLRs § 5001 and CPLR § 5004 provide for interest, neither are

standalone causes of action. (Id. at 22)

2 According to CPRH, in December 2019 (after Barbera’s resignation), Nanobeak held a board meeting to

discuss the allegations that Barbera had been “using [Debtor] funds inappropriately for personal expenses.” (Motion

at 8, citing Purported Board Resolution.) During that meeting, Barbera allegedly admitted to using the Debtor’s

funds and “explained to the Board that although he may have been using [the Debtor’s] funds for personal expenses,

this was not inappropriate in light of the fact that [he] was never compensated as a regular employee of the [Debtor]

for the last seven years.” (Id.) According to CPRH, following a discussion and vote (from which Barbera

abstained) the Board unanimously approved a resolution (1) crediting Barbera for $2.1 million against any personal

expenses that the Debtor had made on behalf of Barbera; and (2) that following an investigation into the amounts

expended by the Debtor on behalf of Barbera, if the amounts expended by Barbera exceeded the $2.1 million,

Barbera would release shares back to the Debtor or compensate the Debtor by reducing his salary. (Id.; id at 8–9.)

3. The Objection

The Trustee disputes each of CPRH’s contentions (except its argument that NYCPLR §§

5001 and 5004 provide for attorneys’ fees).

First, the Trustee disputes the “authenticity, accuracy and relevanc[e]” of the Purported

Board Resolution, and argues that it cannot be considered at the motion to dismiss stage, as it is

not incorporated into or relied on in the Complaint, nor does it satisfy any other factor for a

document that may be considered at this stage. (Objection at 3–4.)

Second, the Trustee argues that the fraudulent transfer claims survive, as does the claim

for attorneys’ fees on the intentional fraudulent transfer. The Trustee argues that the constructive

fraudulent transfer claims survive because it has pleaded a lack of fair consideration, and that

Nanobeak’s insolvency is a question of fact which the Court must accept as true at this stage.

(Id. at 7–8.) The Trustee argues that the intentional fraudulent transfer claims survive because

the Complaint alleged several “badges of fraud,” namely that no “plausible justification exists for

the Debtor’s payments to the Defendant,” and again details Barbera’s spending of the Debtor’s

funds on personal expenses that ultimately led to his conviction. (Id. at 11–13.) The Trustee

“recognizes that attorneys’ fees are only recoverable for the intentional fraudulent conveyance

under NYDCL § 276-a if the Trustee establishes the Defendant’s actual fraudulent intent at

trial,” but argues that it would be premature to dismiss the claim at this stage, before parties have

engaged in discovery. (Id. at 14.)

Third, the Trustee argues that the unjust enrichment claim survives because “privity is not

required,” CPRH accepted the Transfers “knowing that it was providing the Rental Apartment to

Barbera and not Debtor,” and “allowing the Defendant to retain the benefits of the Transfers

would be unjust under these circumstances when the Debtor never had any contractual or legal

obligation to make the Transfers.” (Id. at 15–16.)

Fourth, the Trustee argues that courts apply CPLR § 5001(a) and CPLR § 5004 to award

interest for fraudulent conveyances. (Id. at 17.)

Lastly, the Trustee argues that “[no] double recovery has occurred or will ever occur.”

(Id. at 20.) Though the Trustee is pursuing claims against Barbera, no portion of the Transfers

have been repaid to date, and Barbera’s restitution payments will not begin until 2028 at the

earliest; until paid, the Trustee may look to other parties to recover the same loss. (Id. at 19–20.)

4. The Reply

CPRH argues that the Purported Board Resolution, which undercuts all of the Trustee’s

claims, is admissible because the Plaintiff’s complaint “stands or falls” on it, regardless of

whether it was included in the Complaint. (Reply at 2, citing Madhu v. Socure Inc., No. 1:22-

CV-682-GHW, 2023 WL 6214807, at *6 (S.D.N.Y. Sept. 22, 2023).) CPRH reiterates its other

arguments for why the unjust enrichment and fraudulent transfer claims must be dismissed:

namely, that (1) it was not unjustly enriched because it actually provided an apartment in

exchange for market rent (id. at 8); (2) the intentional fraudulent transfer claim fails because the

Trustee has not alleged bad faith against it (id. at 5); and (3) the constructive fraudulent transfer

claims fails because the Trustee has not alleged insolvency (id. at 3). CPRH maintains that there

is no “standalone cause of action” to collect interest, and that the Trustee has only cited cases

indicating that a party “may” collect it. (Id. at 9.) Lastly, CPRH argues that there is still a “risk”

of double recovery requiring dismissal. (Id. at 10.)

II. LEGAL STANDARD

A. Motion to Dismiss

A motion to dismiss for failure to state a claim is governed by Rule 12(b)(6) of the

Federal Rules of Civil Procedure, made applicable to an adversary proceeding by Rule 7012 of

the Federal Rules of Bankruptcy Procedure (“Bankruptcy Rules”). See FED. R. BANKR. P. 7012;

FED. R. CIV. P. 12(b)(6). The “court must accept a complaint’s allegations as true,” and “[w]hen

there are well-pleaded factual allegations, a court should assume their veracity and then

determine whether they plausibly give rise to an entitlement to relief.” Ashcroft v. Iqbal, 556

U.S. 662, 663–664 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007)). Further,

when reviewing the sufficiency of a complaint, “[t]he issue is not whether a plaintiff will

ultimately prevail but whether the claimant is entitled to offer evidence to support the claims.”

Scheuer v. Rhodes, 416 U.S. 232, 236 (1974). A court’s role in evaluating a motion to dismiss is

to determine the legal feasibility of the complaint, not to weigh the evidence that may be offered

to support it. Cooper v. Parsky, 140 F.3d 433, 440 (2d Cir. 1998).

In deciding a motion to dismiss, the Court accepts a complaint’s factual allegations as

true and must draw all reasonable inferences in favor of the plaintiff. See Tellabs, Inc. v. Makor

Issues & Rights, Ltd., 551 U.S. 308, 322–23 (2007); see also Littlejohn v. City of N.Y., 795 F.3d

297, 306 (2d Cir. 2015). Although the allegations must be taken as true, the complaint must

contain more than just a formulaic recitation of the elements of a cause of action, and the court

should “identify[] allegations that, because they are mere conclusions, are not entitled to the

assumption of truth.” Iqbal, 556 U.S. at 664; Spool v. World Child Int’l Adoption Agency, 520

F.3d 178, 183 (2d Cir. 2008) (stating that “bald assertions and conclusions of law will not

suffice”). To survive a motion to dismiss for failure to state a claim, a plaintiff’s obligation to

“provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions,

and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S.

at 555. “To show facial plausibility, the Claimant must plead ‘factual content that allows the

court to draw the reasonable inference that the [defendant] is liable for the misconduct alleged.’”

In re DJK Residential LLC, 416 B.R. 100, 106 (Bankr. S.D.N.Y. 2009) (citing Iqbal, 556 U.S. at

663).

The Court’s responsibility is to “assess the legal feasibility of the complaint, not to assay

the weight of the evidence which might be offered in support thereof.” Liu v. Credit Suisse First

Bos. Corp. (In re Initial Pub. Offering Sec. Litig.), 383 F. Supp. 2d 566, 574 (S.D.N.Y. 2005)

(internal quotation makers and citation omitted). See also Koppel v. 4987 Corp., 167 F.3d 125,

133 (2d Cir. 1999) (plaintiff need only allege, not prove, sufficient facts to survive a motion to

dismiss). Dismissal is only warranted where it appears beyond doubt that the plaintiff can prove

no sets of facts in support of her claim which would entitle her to relief. See Maxwell Commun.

Corp. Pub. Ltd. Co. v. Societe Generale (In re Maxwell Commun. Corp. Pub. Ltd. Co.), 93 F.3d

1036, 1044 (2d Cir. 1996). The Court considers “facts stated on the face of the complaint and in

documents appended to the complaint or incorporated in the complaint by reference, as well as to

matters of which judicial notice may be taken.” Hertz Corp. v. City of N.Y., 1 F.3d 121, 125 (2d

Cir. 1993). The court should not consider documents that are not attached to the complaint or

incorporated by reference.

Fraud claims must, however, “state with particularity the circumstances constituting fraud

or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged

generally.” F. R. CIV. P. 9(b). Atlanta Shipping Corp. v. Chem. Bank, 818 F.2d 240, 251 (2d

Cir. 1987) (stating that “averments of fraud and mistake be pleaded with particularity”); The

Responsible Person of Musicland Holding Corp. v. Best Buy Co. (In re Musicland Holding

Corp.), 398 B.R. 761, 773 (Bankr. S.D.N.Y. 2008) (“Although scienter may be pleaded

generally, the pleader must ‘allege facts that give rise to a strong inference of fraudulent

intent.’”) (quoting Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1128 (2d Cir. 1994)).

However, “even the so-called relaxed standard does not eliminate the particularity requirement. .

. the degree of particularity required should be determined in light of such circumstances as

whether the plaintiff has had an opportunity to take discovery of those who may possess

knowledge of the pertinent facts.” Devaney v. Chester, 813 F.2d 566, 569 (2d Cir. 1987).

III. DISCUSSION

Counts I, II, and III are constructive fraudulent transfer claims (under Bankruptcy Code

§§ 544(b) and 550, and NYDCL §§ 273, 274, and 275). Count IV is an intentional fraudulent

transfer claim (under Bankruptcy Code §§ 544(b) and 550, and NYDCL § 276), and Count V is

for attorneys’ fees therefor (under Bankruptcy Code § 544(b) and NYDCL § 276-a). Count VI is

for unjust enrichment. Count VII is for prejudgment interest and attorneys’ fees (under

Bankruptcy Code § 550(a) and NYCPLR §§ 5001 and 5004).

For reasons explained below, the Court GRANTS the Motion as to Counts I, II, III, IV,

V and VII, and DENIES the Motion as to Count VI.

A. The Court May Not Consider the Purported Board Resolution

CPRH relies on the Purported Board Resolution to argue for dismissal of the fraudulent

transfer claims, contending that it amounted to “a three-party contract whereby the Debtor agreed

to pay Barbera’s rent” in exchange for Barbera agreeing to “forego his salary and provide

additional stock in the event that the salary was not enough.” (Motion at 14.) However, as the

Trustee points out, the Court may not consider the Purported Board Resolution at this stage.

When deciding a motion to dismiss, courts may consider:

(1) facts alleged in the complaint and documents attached to it or

incorporated in it by reference, (2) documents ‘integral’ to the complaint

and relied upon in it, even if not attached or incorporated by reference, (3)

documents or information contained in [a] defendant’s motion papers if

plaintiff has knowledge or possession of the material and relied on it in

framing the complaint, (4) public disclosure documents required by law to

be, and that have been, filed with the Securities and Exchange Commission,

and (5) facts of which judicial notice may properly be taken under Rule 201

of the Federal Rules of Evidence.

Eaves v. Designs for Fin., Inc., 785 F. Supp. 2d 229, 244 (S.D.N.Y. 2011) (citations omitted).

The Purported Board Resolution was not (1) attached to or incorporated in the Complaint,

(2) integral to the Complaint, (3) relied on in framing the Complaint, (3) a publicly reported

document, or (5) a document of which judicial notice may properly be taken.

CPRH maintains that the Purported Board Resolution should be considered, as it is

“integral” to the allegations in the Complaint. (Reply at 1.) Specifically, CPRH argues that a

document may be considered “integral” if it contains “obligations upon which the plaintiff’s

complaint stands or falls, but which for some reason . . . was not attached to the complaint.”

Madhu, 2023 WL 6214807, at *6 (quoting Glob. Network Commc’ns, Inc. v. City of New York,

458 F.3d 150, 157 (2d Cir. 2006).) However, even Madhu recognizes that “even if a document is

integral to the complaint, it must be clear on the record that no dispute exists regarding the

authenticity or accuracy of the document.” Id. (quoting DiFolco v. MSNBC Cable L.L.C., 622

F.3d 104, 111 (2d Cir. 2010) (emphasis added).) So too for relevance. Id. Here, the Trustee

“disputes the authenticity, accuracy and relevance of the Purported Board Resolution.”

(Objection at 3.) At the Hearing, counsel for CPRH was unable to provide any other authority

supporting the inclusion of the Purported Board Resolution. Accordingly, at this stage, the Court

cannot consider CPRH’s arguments which rely on the Purported Board Resolution.

B. The Trustee Fails to Adequately Plead Constructive Fraudulent Transfers

Counts I, II, and III seek to avoid the Transfers as constructively fraudulent under

sections 544(b) and 550 of the Bankruptcy Code, which allow for recovery under applicable

law—namely, NYDCL §§ 273, 274, and 275.

A transfer is deemed a constructively fraudulent conveyance under NYDCL §§ 273, 274

and 275, if (1) it is made without “fair consideration,” and (2) one of the following conditions is

met:

(i) the transferor is insolvent or will be rendered insolvent by the transfer in

question, [NY]DCL § 273; (ii) the transferor is engaged in or is about to

engage in a business transaction for which its remaining property constitutes

unreasonably small capital, [NY]DCL § 274; or (iii) the transferor believes

that it will incur debt beyond its ability to pay, [NY]DCL § 275.

Gowan v. The Patriot Grp., LLC (In In re Dreier LLP), 452 B.R. 391, 441 (Bankr. S.D.N.Y.

2011) (citing Sharp Int’l Corp. v. State St. Bank and Trust Co. (In re Sharp Int’l Corp.), 403 F.3d

43 (2d Cir. 2005)).

1. Fair Consideration

The first necessary element of any constructive fraudulent transfer claim is lack of fair

consideration. The Second Circuit has stated that “fair consideration” under the NYDCL

requires:

(1) the transferee must convey property in exchange for the transfer, or the

transfer must discharge an antecedent debt;

(2) what the transferee exchanges for the transfer must be of “fair

equivalent” value to the property transferred by the debtor; and

(3) the transferee must make the exchange in “good faith.”

See Sharp, 403 F.3d at 53–54 (emphasis added) (citing HBE Leasing Corp. v. Frank, 61 F.3d

1054, 1058–59 (2d Cir. 1995); see also Ede v. Ede, 193 A.D.2d 940, 941–42, 598 N.Y.S.2d 90,

92 (3d Dep’t 1993) (“fair consideration” requires not only that the exchange be for equivalent

value, but also that the conveyance be made in good faith). Because CPRH conveyed a

leasehold interest in exchange for the Transfers, the first element is satisfied. Thus, to ultimately

prevail on the claim, the Trustee must prove that one of the other two elements is lacking.

At the motion to dismiss stage, the plaintiff “need only allege a lack of ‘fair

consideration’ by pleading a lack of ‘fair equivalent’ value or a lack of good faith on the part of

the transferee.” Dreier, 452 B.R. at 443 (emphasis in original); see also Geron v. Reifer (In re

Eight-115 Associates, LLC), 650 B.R. 43, 55 (Bankr. S.D.N.Y. 2023). Thus, at the motion to

dismiss stage, to support the first element of a constructive fraudulent transfer claim—a lack of

fair consideration—the plaintiff need only plead either the transferee’s lack of good faith or a

lack of fair equivalent value.

Here, the Trustee alleges that there was no fair consideration because the Debtor did not

receive anything in exchange for the Transfers. The Trustee does not specifically allege a lack of

good faith on part of CPRH, but as discussed, he need only allege a lack of fair equivalent value

to satisfy the fair consideration prong.

a. The Trustee Has Alleged a Lack of Fair Equivalent Value

The Debtor did not receive anything in return for paying Barbera’s rent. Thus, the

Trustee argues, there was no fair equivalent value. (Objection at 7.) These facts are sufficient to

plead a lack of fair equivalent value.

The Trustee argues that the lack of fair equivalent value means that he has successfully

pleaded a constructive fraudulent transfer. (Id.) However, adequately pleading lack of “fair

equivalent value” is only sufficient to establish a lack of “fair consideration.” And lack of fair

consideration, in turn, is only one of the two necessary elements of a constructive fraudulent

transfer claim, along with one of the three “flavors” of insolvency.

Adequately pleading the lack of “fair equivalent value” at this stage satisfies the lack of

“fair consideration” prong. However, to survive a motion to dismiss, the Trustee must also plead

that at the time of the Transfers, the Debtor was either (i) insolvent, (ii) had insufficient capital,

or (iii) was incurring debts beyond its ability to pay. The Trustee has recited these elements, but

“a formulaic recitation of a cause of action’s elements will not do.” Twombly, 550 U.S. at 555.

2. Count I: Insolvency Under NYDCL § 273

Insolvency is ordinarily a question of fact. See Lawson v. Ford Motor Co. (In re Roblin

Indus.), 78 F.3d 30, 35 (2d Cir. 1996). For a claim under NYCDL § 273, the Second Circuit

recognizes a presumption of insolvency if the debtor (1) makes a voluntary transfer (2) for which

it does not receive fair consideration, and (3) had outstanding debts at the time of the transfer.

Feist v. Druckerman, 70 F.2d 333, 334 (2d Cir. 1934) (stating that “a voluntary conveyance

made when the grantor is indebted is presumptively fraudulent. . . if one indebted makes such a

transfer, it is presumed, in the absence of some proof to the contrary, that he was then

insolvent.”). See also Wilson v. Robinson, 83 F.2d 397, 398 (2d Cir. 1936) (“Where a voluntary

transfer is made when debts of the grantor are outstanding, the burden of going forward with

proof of solvency is upon the transferee”); Matter of Russo, 1 B.R. 369, 379 (Bankr. E.D.N.Y.

1979) (stating that “a conveyance made by a grantor, without consideration, at a time when he is

indebted to various creditors raises a presumption of his insolvency”); In re Ventimiglia, 362

B.R. 71, 83 (Bankr. E.D.N.Y. 2007) (stating that “a voluntary conveyance made while a debtor is

indebted to creditors is presumptively fraudulent”).

The word “insolvent” appears for the first time on page 14 of 20 of the Complaint, in the

heading of Count I. (Complaint at 14.) The only two other places it appears are in the recitation

of the cause of action: “At the time that it made the Transfers, the Debtor was insolvent or

became insolvent as a result of the Transfers.” (Id. ¶ 57). This is an a conclusory, and therefore

insufficient, allegation. The Trustee argues the Debtor is presumed insolvent because it did not

receive fair consideration for the Transfers. (Objection at 8, citing In re Khan, No. 11-01520-

ESS, 2014 WL 10474969 at *8–9 (E.D.N.Y. Dec. 24, 2014.) However, In re Khan also

recognizes the third necessary element to trigger the presumption: “If the party seeking to avoid

a transfer that was made without fair consideration demonstrates that a debtor was indebted at

the time of the transfer, the debtor is presumed to have been insolvent at that time.” In re Khan,

WL 10474969 at *17 (emphasis added). While the Trustee has adequately pleaded that the

Debtor made a voluntary conveyance for which it did not receive fair consideration, he has not

pleaded the third condition necessary to trigger the presumption of insolvency: namely, that the

Debtor had outstanding debts to creditors at the time of the Transfers.

Accordingly, because the Trustee has failed to adequately plead the Debtor’s insolvency

and the presumption of insolvency is not triggered by the Complaint, the Motion to dismiss

Count I is GRANTED WITHOUT PREDJUDICE AND WITH LEAVE TO AMEND.

3. Count II: Insufficient Capital under NYDCL § 274

The elements necessary to plead a fraudulent conveyance with unreasonably small capital

remaining are the same as for fraudulent conveyance by an insolvent, except the second element

under NYDCL § 274 is that “the debtor was left with unreasonably small capital.” Paradigm

BioDevices, Inc. v. Viscogliosi Bros., LLC, 842 F. Supp. 2d 661, 666 n.2 (S.D.N.Y. 2012) (citing

In re Hydrogen, L.L.C, 431 B.R. 337, 354 (Bankr. S.D.N.Y. 2010)).

“Unreasonably small capital” is not defined in the bankruptcy Code, but it is similarly a

fact-intensive inquiry. Key considerations include “the company’s debt to equity ratio, its

historical capital cushion, and the need for working capital in the specific industry at issue;” the

reasonableness of the projections of management; the length of time a company survives

following a transaction;3 and a company’s ability to obtain financing. Weisfelner v. Blavatnik (In

re Lyondell Chem. Co.), 567 B.R. 55, 110–111 (Bankr. S.D.N.Y. 2017), aff’d, 585 B.R. 41

(S.D.N.Y. 2018) (internal citation omitted). Unlike a claim under NYDCL § 273, “[n]o

presumptions are applicable with respect to the Trustee’s claims that [the debtor] had

‘unreasonably small capital;’ it is the Trustee’s burden to prove such contentions.” Geron v.

Craig (In re Direct Access Partners), LLC, 602 B.R. 495, 536 (Bankr. S.D.N.Y. 2019).

The Complaint does not allege any facts indicating insufficient capital, other than in the

recitation of the elements of the charge. (See Complaint ¶ 65.) The Trustee has thus failed to

adequately plead insufficiently small capital.

Accordingly, because the Trustee has failed to adequately plead that the Debtor was left

with insufficiently small capital, the Motion to dismiss Count II is GRANTED WITHOUT

PREJUDICE AND WITH LEAVE TO AMEND.

4. Count III: Inability to Pay Debts Under NYDCL § 275

The elements necessary to plead a fraudulent conveyance with unreasonably small capital

remaining are the same as for fraudulent conveyance by an insolvent, except the second element

under NYDCL § 275 is that “the debtor intended or believed that it would incur debts beyond its

ability to pay as the debts matured.” Paradigm BioDevices, 842 F. Supp. at 666 n.2 (citing In re

Hydrogen, 431 B.R. at 354). “The ‘ability to pay’ test requires proof of the transferor’s

subjective intent or belief that it will incur debt it cannot pay at maturity.” Tese-Milner v. Edidin

3 While not applicable to fraudulent transfer claims, section 547(f) of the Bankruptcy Code provides a

presumption of insolvency for the 90 days prior to the petition date. In this case, the Debtors survived for over four

years after the Transfers.

& Assocs. (In re Operations NY LLC.), 490 B.R. 84, 99 (Bankr. S.D.N.Y. 2013) (citing MFS/Sun

Life Tr.-High Yield Series v. Van Dusen Airport Servs. Co., 910 F. Supp. 913 (S.D.N.Y. 1995).

Like the prior two counts, the Trustee alleges nothing about the Debtor’s intent or belief

about its ability to pay debts, other than in the recitation of the elements. (See Complaint ¶ 73.)

As with Count II, there is also no presumption to invoke. In re BICOM NY, LLC, 633 B.R. 25,

51 (Bankr. S.D.N.Y. 2021) (“New York courts have not adopted any presumptions with regard

to [NYDCL § 275] claims, and the burden of proof rests with the Trustee.”).

Accordingly, because the Trustee has failed to adequately plead that the Debtor was

incurring debts beyond its ability to pay, the Motion to dismiss Count III is GRANTED

WITHOUT PREJUDICE AND WITH LEAVE TO AMEND.

C. The Trustee Fails to Adequately Plead Intentional Fraudulent Transfer

Under section 276 of the NYDCL, “every conveyance made and every obligation

incurred with actual intent, as distinguished from intent presumed at law, to hinder, delay or

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

NYDCL § 276. In a claim for intentional fraudulent transfer, the Trustee must plead the

fraudulent intent of the transferor, not the transferee, to defraud creditors; “‘mutual fraudulent

intent’ is not necessary.” Dreier, 452 B.R. at 401. Additionally, the pleading must satisfy Rule

9(b).

However, that fraudulent intent must still be intent to defraud creditors. Though the

transferor may have generated funds fraudulently, in spending those funds, the transferor is not

necessarily acting to hinder, delay or defraud, creditors. In Direct Access Partners, the trustee,

alleging intentional fraudulent transfers under NYDCL § 276, sought to avoid salary payments to

employees made by a debtor who had engaged in extensive illegal activity. The court noted that

“illegal activity, standing alone, does not support a presumption that payments made by a

business are made with an actual intent to hinder, delay or defraud the creditors of the business. .

. . Criminal behavior in raising funds or in operating a business, while reprehensible, does not

warrant a fraudulent conveyance claim unless the perpetrators of the crime intended that

transfers of funds by the business would hinder, delay or defraud creditors.” Direct Access

Partners, 602 B.R. at 541.

The court in Bos. Trading Grp., Inc. v. Burnazos, 835 F.2d 1504, 1510 (1st Cir. 1987),

discusses the scenario where “S & K, officers of Corporation C, obtain C’s money through

dishonest means (larceny, fraud, etc.) and use it to pay a debt that S & K owe B, a transferee who

. . . did not participate in [the dishonesty].” Id. at 510 (emphasis in original). The court had

“found no modern case (nor any reference in any modern case, treatise, or article to any case in

the past 400 years) that has found a fraudulent conveyance in such circumstances. That is not

surprising, for the fraud or dishonesty in this example concerns not S & K’s transfer to B, but the

manner in which the original debt to C arose.” Id. (emphasis in original). See also Sharp Int’l,

403 F.3d at 56 (finding plaintiff’s allegations of fraud perpetrated by the transferor inadequate to

support a claim for intentional fraudulent transfer, because the fraud “relates to the manner in

which [the debtor] obtained new funding . . . not [the debtor’s] subsequent payment of part of the

proceeds to [the transferee]”); Silverman v. Actrade Cap., Inc. (In re Actrade Fin. Tech. Ltd.),

337 B.R. 791, 810 (Bankr. S.D.N.Y. 2005) (refusing to hold transferee liable on actual fraudulent

conveyance claim despite allegations that transferor engaged in fraudulent activity).

Thus, to adequately plead a claim for actual fraudulent transfer under NYDCL § 276, the

complaint must allege fraudulent intent related to the transaction at issue. Those allegations

must be made with particularity to satisfy Rule 9(b). Am. Tissue, Inc. v. Donaldson, Lufkin &

Jenrette Secs. Corp., 351 F. Supp. 2d 79, 106–07 (S.D.N.Y. 2004). In assessing the

circumstances, courts consider the “badges of fraud,” which include:

(1) the lack or inadequacy of consideration;

(2) the family, friendship or close associate relationship between the parties;

(3) the retention of possession, benefit or use of the property in question;

(4) the financial condition of the party sought to be charged both before and

after the transaction in question;

(5) the existence or cumulative effect of a pattern or series of transactions

or course of conduct after the incurring of debt, onset of financial

difficulties, or pendency or threat of suits by creditors;

(6) the general chronology of the event and transactions under inquiry;

(7) a questionable transfer not in the usual course of business; and

(8) the secrecy, haste, or unusualness of the transaction.

Pereira v. Grecogas Ltd. (In re Saba Enters., Inc.), 421 B.R. 626, 643 (Bankr. S.D.N.Y. 2009).

Section 548(c) of the Bankruptcy Code provides a “good faith” affirmative defense to an

otherwise avoidable transfer, whether actually or constructively fraudulent: “a transferee or

obligee of such a transfer or obligation that takes for value and in good faith has a lien on or may

retain any interest transferred or may enforce any obligation incurred, as the case may be, to the

extent that such transferee or obligee gave value to the debtor in exchange for such transfer or

obligation.” 11 U.S.C. § 548(c).

“An affirmative defense may be raised by a pre-answer motion to dismiss under Rule

12(b)(6), without resort to summary judgment procedure, if the defense appears on the face of

the complaint.” Pani v. Empire Blue Cross Blue Shield, 152 F.3d 67, 74 (2d Cir. 1998).

However, a plaintiff need not plead a defendant’s bad faith (or lack of good faith) at the motion

to dismiss stage. Dreier, 452 B.R. at 425.

5. Barbera’s Other Fraudulent Activity Does Not Establish Requisite Intent

The Trustee has shown that Barbera was engaged in a massive fraud, and he argues that

“every conveyance made and every obligation incurred with actual intent . . . to hinder, delay or

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

(Objection at 9, citing Actrade Fin., 337 B.R. at 808.) However, as discussed above, fraud and

illegality in obtaining the funds does not support a finding that spending the funds was done with

intent to hinder, delay, or defraud creditors. The Trustee “relies solely on an inapplicable

presumption of all-encompassing fraudulent intent,” pleading facts that only “go to the way [the

debtor] was operated, to the detriment of its own lenders and investors.” Stoebner v. Ritchie

Cap. Mgmt. LLC (In re Polaroid Corp.), 543 B.R. 888, 912 (Bankr. D. Minn.), aff’d sub nom.

Stoebner v. Opportunity Fin., LLC, 562 B.R. 368 (D. Minn. 2016), aff’d, 909 F.3d 219 (8th Cir.

2018) (emphasis in original).

Accordingly, the Motion to dismiss Count IV for intentional fraudulent conveyance is

GRANTED. However, for the reasons explained below, that dismissal is without prejudice.

6. Unalleged Badges of Fraud Are Present

Federal Rule of Civil Procedure 9(b), made applicable to these proceedings through

Bankruptcy Rule 7009, requires that claims of intentional fraudulent conveyance be pleaded with

particularity. See FED. R. BANKR. P. 7009; FED. R. CIV. P. 9(b). CPRH states that it entered into

a lease in the ordinary course of business, a “run of the mill” transaction, and the Complaint does

not contain any allegations that could apprise it of any alleged participation in Barbera’s fraud.

(Motion at 2; Reply at 5.) In its current form, Count IV fails because the Complaint did not raise

any badges of fraud related specifically to the Transfers. However, as discussed during the

Hearing, the terms of the Lease provide a foothold for the Trustee to make such a claim.

The Lease required the entire second year to be paid in full, in cashier’s checks.

(Complaint ¶ 47.) At the Hearing, counsel for the Defendant was unsure whether CPRH

regularly entered into leases with similar terms (and counsel acknowledged that he had never

leased an apartment on similar terms). Payment in full in advance for a second year of a

residential lease may be sufficiently unusual to make the entire transaction suspect. And while it

is not unheard of for a company to pay some living expenses for executives, this arrangement—

by which the Debtor directly paid for several years of Barbera’s rent—in combination with the

odd Lease terms raises flags that implicate at least two Saba factors. Specifically, the facts raise

questions about the “unusualness” of the transaction and may support the inference that it was “a

questionable transaction not in the usual course of business.” Saba Enters., 421 B.R. at 643.

Indeed, the Motion itself concedes that the Transfers “may not have been ‘in the usual course of

business.’” (See Motion at 19.)

However, the Complaint alleges none of these facts. Therefore, the Motion is

GRANTED WITHOUT PREJUDICE AND WITH LEAVE TO AMEND.

D. Count V: Attorneys’ Fees Under NYDCL § 276-a

Section 276-a of the NYDCL allows a trustee to recover attorneys’ fees in an action

seeking to set aside an intentional fraudulent transfer claim, “where such conveyance is found to

have been made by the debtor and received by the transferee with actual intent, as distinguished

from intent presumed in law, to hinder, delay or defraud either present or future creditors.”

NYDCL § 276-a (emphasis added). As stated above, Federal Rule of Civil Procedure 9(b)

requires that claims of intentional fraud must be pleaded with particularity. See FED. R. CIV. P.

9(b). Here the Complaint does not allege that CPRH received Transfers with actual intent.

Therefore, the Motion to Dismiss Count V is GRANTED WITHOUT PREJUDICE AND

WITH LEAVE TO AMEND.

E. The Record Does Not Unequivocally Require Dismissal of the Claim for Unjust

Enrichment

The elements needed to plead an unjust enrichment are “(1) the other party was enriched,

(2) at that party’s expense, and (3) that ‘it is against equity and good conscience to permit [the

other party] to retain what is sought to be recovered.’” Mandarin Trading Ltd. v. Wildenstein, 16

N.Y.3d 173, 182 919 N.Y.S.2d 465, 944 N.E.2d 1104 (2011) (citing Citibank, N.A. v. Walker, 12

A.D.3d 480, 481 (2d Dept. 2004) and Baron v. Pfizer, Inc., 42 A.D.3d 627, 629–630 (3rd Dept.

2007)) (insertion in original). However, “[t]he essential inquiry in any action for unjust

enrichment or restitution is whether it is against equity and good conscience to permit the

defendant to retain what is sought to be recovered.” Paramount Film Distrib. Corp. v. State of

New York, 30 N.Y.2d 415, 421 (1972).

The Trustee argues that CPRH was “unjustly enriched” because the “Debtor made the

Transfers to [CPRH], [CPRH] accepted the same while knowing that it was providing the Rental

Apartment to Barbera and not the Debtor, [CPRH] was enriched at the expense of the Debtor.”

(Objection at 15.)

However, this analysis obfuscates the relevant inquiry. If CPRH provided the Rental

Apartment under the Lease for its full two-year term, it was not unjustly enriched. The Trustee

does not allege that the rent was exorbitant, the terms unfair, or in any way “off market” such

that CPRH obtained more from the Debtor than it would have while leasing the Rental

Apartment to anyone else. Thus, Count VI turns on a straightforward factual question: did

Barbera occupy the Rental Apartment for the full two years? If he did not—and because the

second year had been prepaid in full—CPRH would have been unjustly enriched. If he did

occupy the Rental Apartment for the full term, then CPRH provided the Rental Apartment in

exchange for fair value, and it would be against equity and good conscience to order

disgorgement. Neither party’s pleadings indicate whether Barbera occupied the Rental

Apartment for the full term, nor could either party definitively confirm this fact at the Hearing.

Accordingly, because the facts are unclear on whether Barbera occupied the Rental

Apartment for the full Lease term, Count VI for unjust enrichment cannot be dismissed, and the

Motion is Count VI is DENIED.

F. Pre-Judgment Interest and Attorneys’ Fees

Section 5001(a) of the NYCPLR provides that:

(a) Interest shall be recovered upon a sum awarded because of a breach of

performance of a contract, or because of an act or omission depriving or

otherwise interfering with title to, or possession or enjoyment of, property,

except that in an action of an equitable nature, interest and the rate and date

from which it shall be computed shall be in the court's discretion.

NYCPRL § 5001(a). Sections 5001(b) and 5001(c) speak to the date from which to compute

interest. Section 5004(a) speaks to the rate of interest (9%, with some caveats). NYCPRL §

5001(a). Nowhere in either section are attorneys’ fees mentioned, which CPRH correctly points

out. (Motion at 22.) The Trustee does not respond to this. Accordingly, the Motion to Dismiss

Count VII with respect to attorneys’ fees is GRANTED.

As CPRH also points out, awarding interest is not a standalone cause of action, but a

remedy that courts award when a plaintiff has been successful on a cause of action that supports

such an award. “Courts applying § 5001(a) have without qualification awarded interest as a

matter of right whenever any tortious conduct causes pecuniary damage to tangible or intangible

property interests.” Geltzer v. Artists Marketing Corp. (In re Cassandra Grp.), 338 B.R. 583,

600 (Bankr. S.D.N.Y. 2006). Fraudulent conveyance is “but one species of tortious conduct for

which the Second Circuit has held that prejudgment interest is recoverable.” Id. (citing Shamis v.

Ambassador Factors Corp., No. 95 Civ. 9818 (RWS), 2001 WL 25720, at *6 (S.D.N.Y. Jan. 10,

2001).

In exercising discretion on whether to award prejudgment interest, courts in the Second

Circuit consider the following factors: “(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.” In re 1031 Tax Grp., LLC, 439 B.R. 84, 87 (Bankr. S.D.N.Y.

2010) (citing Wickham Cont. Co., Inc. v. Local Union No. 3, Int’l Bd. of Elec. Workers, AFL–

CIO, 955 F.2d 831, 833–34 (2d Cir. 1992)).

Because Count VII is not a standalone cause of action, the Motion to dismiss Count VII

is GRANTED. However, if the Trustee is successful in proving the claim of unjust enrichment,

or (following a renewed motion) a claim for fraudulent transfer, the Court would then weigh the

Wickham factors in considering whether to make such an award.

G. Double Recovery is Not a Concern

“It is well settled that until finally paid, litigants may look to multiple parties to recover

the same loss.” Jones v. Brand (In re Belmonte), 551 B.R. 723, 732 (Bankr. E.D.N.Y. 2016)

(citing Fed. Ins. Co. v. PGG Realty, LLC, 529 F. Supp. 2d 460, 463 (S.D.N.Y. 2008)). The

Trustee avers that the Debtor’s estate is administratively insolvent. (Objection at 19.) The

adversary proceeding against Barbera is currently stayed, and restitution payments will not be

required until Barbera’s release from prison, scheduled to occur sometime in 2028. (Id. at 20.)

Thus, there is no imminent risk of double recovery.

IV. CONCLUSION

For the reasons stated above, the Motion is GRANTED with respect to Counts I, II, and

III (the constructive fraudulent transfer claims); Counts IV and V (intentional fraudulent transfer

claim and attorneys’ fees therefor); and Count VII (attorneys’ fees and prejudgment interest).

The Motion is DENIED with respect to Count VI (unjust enrichment).

Dated: January 16, 2024

New York, New York

Martin Glenn

MARTIN GLENN

Chief United States Bankruptcy Judge