O'Toole v. Heinemann

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK

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In re:

Chapter 7

FUN BOWL VACATIONS, INC.,

Case No. 21-22521 (KYP)

Debtor.

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MARIANNE T. O’TOOLE, as Trustee of the Estate

of Fun Bowl Vacations, Inc.,

Plaintiff,

-against- Adv. Pro. No. 23-07026 (KYP)

LINDA HEINEMANN, MYRNA RABOY, and

JOSEPHINE MUNDY,

Defendants.

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MEMORANDUM DECISION GRANTING IN PART AND DENYING IN PART

THE TRUSTEE’S MOTION FOR SUMMARY JUDGMENT

APPEARANCES:

WILLIAM F. MACREERY, ESQ.

Attorney for Trustee

7 Granite Springs Road

Granite Springs, NY 10527

By: William F. Macreery, Esq.

Of Counsel

KOPLEN LAW FIRM

Attorney for Defendants

14 South Main Street, Suite 4

New City, NY 10956

By: Michael A. Koplen, Esq.

Of Counsel

HONORABLE KYU YOUNG PAEK

UNITED STATES BANKRUPTCY JUDGE

INTRODUCTION

Plaintiff Marianne T. O’Toole, as Chapter 7 trustee (“Trustee”) of the estate of

Fun Bowl Vacations, Inc. (“Debtor”) has moved for summary judgment (“Motion”) on

her claims to avoid and recover certain pre-petition transfers made to, or for the benefit

of, Defendants Linda Heinemann, Myrna Raboy, and Josephine Mundy (collectively, the

“Defendants”) as constructive fraudulent transfers or preferences.1 The Defendants

oppose the Motion.2 As outlined below, the Motion is GRANTED with respect to the

2021 Transfers ($45,000) and one-half of the 2020 Transfers ($22,500), and DENIED

with respect to the other half of the 2020 Transfers ($22,500) (capitalized terms defined

below). The Trustee’s request to impose joint and several liability on the Defendants is

DENIED.

JURISDICTION

The Court has jurisdiction over the claims asserted in this adversary proceeding

pursuant to 28 U.S.C. §§ 157 and 1334 and the Amended Standing Order of Reference

(M-431), dated January 31, 2012 (Preska, C.J.) referring to the Bankruptcy Judges of the

Southern District of New York bankruptcy cases filed in this District as well as

proceedings arising under title 11 or arising in or related to a bankruptcy case. The

1 See Memorandum of Law in Support of the Trustee’s Motion for Summary Judgment, dated July

9, 2024 (“Trustee Brief”) (ECF Doc. #8). See also Reply Memorandum of Law in Further Support of the

Trustee’s Motion for Summary Judgment, dated Nov. 18, 2024 (“Trustee Reply”) (ECF Doc. # 24). “ECF

Doc. # _” refers to documents filed on the electronic docket of this adversary proceeding. “ECF Main

Case Doc. # _” refers to documents filed on the electronic docket of the Chapter 7 bankruptcy case, In re

Fun Bowl Vacations, Inc., Case No. 21-22521 (Bankr. S.D.N.Y.). “ECF p. _” refers to the page number

imprinted across the top of documents filed on the Court’s electronic filing system.

2 See Memorandum of Law in Opposition to the Chapter 7 Trustee’s Motion for Summary

Judgment, dated Sept. 27, 2024 (“Defendants Brief”) (ECF Doc. # 18-1).

claims asserted in this action are core proceedings pursuant to 28 U.S.C. § 157(b)(2)(F)

and (H).

BACKGROUND3

A. The Debtor’s Pre-Petition Business

Prior to the bankruptcy filing, the Debtor engaged in the business of arranging

and booking travel and hotel reservations for bowling leagues. (Trustee Fact Statement

¶ 5.) The Debtor had contracts with eighteen bowling leagues under which the Debtor

provided the winning bowlers in the leagues with vacations including airfare, hotel, and

other accommodations. (Deposition of Josephine Mundy, dated Oct. 25, 2022 (“Mundy

Depo.”) at 14:21-16:17; Deposition of Myrna Raboy, dated Oct. 25, 2022 (“Raboy

Depo.”) at 12:7-13:23; Deposition of Linda Heinemann, dated Oct. 25, 2022

(“Heinemann Depo.”) at 7:15-8:8.)4 The contracts generally required that the

participating bowling league make four installment payments over the course of the year

to the Debtor based on the number of bowlers in the league. The Debtor would provide

the vacation accommodations to the winning bowlers upon completion of the

3 The background is culled from the Plaintiff’s Statement of Undisputed Facts Under Local

Bankruptcy Rule 7056-1, dated July 9, 2024 (“Trustee Fact Statement”) (ECF Doc. # 8-1), the exhibits

annexed to the Affirmation of William F. Macreery in Support of Plaintiff’s Motion for Summary

Judgment, dated July 9, 2024 (“Macreery Affirmation”) (ECF Doc. # 8-2), the Defendants’ Reply to

Plaintiff’s Statement of Undisputed Facts, filed on September 29, 2024 (“Defendants Fact Statement”)

(ECF Doc. # 18), and matters for which the Court may take judicial notice. The fact statements were

submitted pursuant to Local Bankruptcy Rule 7056-1 requiring a summary judgment movant and

opponent to submit factual statements with citations to the record. See generally Bankr. S.D.N.Y. R.

7056-1. The Defendants Fact Statement did not include record citations; instead, it was framed as a

statement of Defendant Josephine Mundy, which was “[s]ubscribed and sworn/affirmed” and signed by

Ms. Mundy, as well as the other two Defendants, before notaries public. The Court will therefore treat the

Defendants Fact Statement as both a responsive document under Local Bankruptcy Rule 7056-1 as well as

an affidavit of Ms. Mundy submitted in opposition to the Motion. See FED. R. CIV. P. 56(c)(1)(A)

(providing, among other things, that a party may cite to affidavits or declarations including those made

solely for purposes of the summary judgment motion).

4 Copies of the Mundy Depo., Raboy Depo., and Heinemann Depo. are attached to the Macreery

Affirmation as Exhibits 3, 4, and 5, respectively.

installment payments. (See Macreery Affirmation, Ex. 7 (Debtor’s contracts with

bowling leagues).)

Each of the Defendants held an equal one-third ownership interest in the Debtor,

and each Defendant served as an officer with Ms. Heinemann serving as President, Ms.

Raboy serving as Vice President, and Ms. Mundy serving as Secretary and Treasurer.

(Mundy Depo. at 9:18-10:12; Raboy Depo. at 6:7-7:15; Heinemann Depo. at 6:4-7:14.)

The Debtor’s operations were upended by the onset of the COVID-19 pandemic.

The pandemic severely impeded the Debtor’s ability to book vacations as required under

the contracts with bowling leagues, and some of the bowling leagues ultimately

disbanded. (Mundy Depo. at 14:15-20 (Q: “Is there any single specific reason that you

can point to that caused the financial [reversal] for the company and caused it to file for

bankruptcy?” A: “Covid, we were a travel company and the cruise lines shuttered, the

hotels shuttered, the airlines shuttered and the bowling [alleys] shuttered.”); id. at

53:13-15 (“So, there was no way to continue the business between Covid and with some

of the leagues disbanding we couldn’t continue the business.”); Heinemann Depo. at

31:21-32:3.)

Between March 2021 and June 2021, several members of bowling leagues filed

formal complaints with the Office of the Attorney General of the State of New York

seeking the return of money paid to the Debtor for vacations that were never booked.

On August 10, 2021, the New York Attorney General’s office demanded that the Debtor

refund the amounts owed to the complainants, and the Debtor provided refunds totaling

$10,240.00 on or about August 15, 2021. (Trustee Fact Statement ¶ 20; see also

Complaint, dated July 24, 2023 (“Complaint”) ¶¶ 21-23 (ECF Doc. # 1); Answer to

Complaint, dated Aug. 2, 2023 (“Answer”) at 2 (ECF Main Case Doc. # 23).)

B. Pre-Petition Transfers to the Defendants

1. The 2020 Transfers

During the period between April 1 and November 30, 2020, the Debtor made ten

transfers of $1,500 to, or on behalf of, each Defendant from the Debtor’s bank account

at JPMorgan Chase Bank (collectively, the “2020 Transfers”). (Trustee Fact Statement ¶

8; Macreery Affirmation, Ex. 9 (Debtor’s Chase Bank account statements); see also

Trustee Brief at 4 (illustrative chart showing transfers to Defendants).)5 The 2020

Transfers were paid to the Defendants on a monthly basis, usually at the beginning of

the month, but sometimes at the end of the prior month. The only exceptions were the

2020 Transfers the Debtor paid to taxing authorities on November 16, 2020 on behalf of

each Defendant (one check for $1,000 to the IRS and a second check for $500 to the

New York State Department of Taxation and Finance). The 2020 Transfers comprising

a total amount of $45,000 ($15,000 for each Defendant) are summarized as follows:

DATE CHECK # RECIPIENT AMOUNT

4/1/2020 5050 Heinemann $1,500

4/1/2020 5049 Raboy $1,500

4/1/2020 5051 Mundy $1,500

5/1/2020 5058 Heinemann $1,500

5/1/2020 5060 Raboy $1,500

5/1/2020 5059 Mundy $1,500

6/1/2020 5067 Heinemann $1,500

6/1/2020 5066 Raboy $1,500

6/1/2020 5068 Mundy $1,500

7/1/2020 5073 Heinemann $1,500

7/1/2020 5075 Raboy $1,500

5 The Debtor actually wrote eleven checks to, or for the benefit of, each Defendant, but the Trustee

appears to be grouping together the checks to the IRS and the New York State Department of Taxation

and Finance because those checks were issued to the taxing authorities on behalf of the Defendants on the

same day and the combined amount of the checks was $1,500.

7/1/2020 5074 Mundy $1,500

7/31/2020 5080 Heinemann $1,500

7/31/2020 5082 Raboy $1,500

7/31/2020 5081 Mundy $1,500

9/1/2020 5090 Heinemann $1,500

9/1/2020 5092 Raboy $1,500

9/1/2020 5091 Mundy $1,500

10/1/2020 5096 Heinemann $1,500

10/1/2020 5098 Raboy $1,500

10/1/2020 5097 Mundy $1,500

11/1/2020 5109 Heinemann $1,500

11/1/2020 5108 Raboy $1,500

11/1/2020 5110 Mundy $1,500

11/16/2020 5118 IRS f/b/o Heinemann $1,000

11/16/2020 5116 IRS f/b/o Raboy $1,000

11/16/2020 5120 IRS f/b/o Mundy $1,000

11/16/2020 5119 NYSDT&F f/b/o Heinemann $500

11/16/2020 5117 NYSDT&F f/b/o Raboy $500

11/16/2020 5121 NYSDT&F f/b/o Mundy $500

11/30/2020 5127 Heinemann $1,500

11/30/2020 5129 Raboy $1,500

11/30/2020 5128 Mundy $1,500

TOTAL 2020 TRANSFERS: $45,000

As stated, each Defendant generally received $1,500 each month from the

Debtor, which totals $18,000 for the year.6 However, in its 2020 tax return, the Debtor

listed that the salary to each Defendant for that year was $9,000. (See Macreery

Affirmation, Ex. 12 at ECF p. 17 (Debtor’s 2020 tax return).) On this basis, the Trustee

asserts that only 50% of the 2020 Transfers should be attributed to wages and the

6 The Trustee does not seek avoidance of the $1,500 payments the Defendants presumably received

between January and March 2020.

remainder should be considered distributions on account of the Defendants’ equity

holdings. (Trustee Fact Statement ¶ 9.)

2. The 2021 Transfers

In January 2021, each Defendant received two transfers in the combined amount

of $15,000 from the Debtor’s Chase Bank account (the “2021 Transfers”). (Trustee Fact

Statement ¶ 10; Macreery Affirmation, Ex. 9 at ECF pp. 39-42 (Debtor’s January 2021

Chase Bank account statement).) None of the Defendants included the receipt of the

2021 Transfers as part of their income on their 2021 personal tax returns. (Trustee Fact

Statement ¶ 14.) The 2021 Transfers comprising a total amount of $45,000 ($15,000

for each Defendant) are summarized as follows:

DATE CHECK # RECIPIENT AMOUNT

1/2/2021 5142 Heinemann $7,500

1/2/2021 5144 Raboy $7,500

1/2/2021 5143 Mundy $7,500

1/4/2021 5145 Heinemann $7,500

1/4/2021 5147 Raboy $7,500

1/4/2021 5146 Mundy $7,500

TOTAL 2021 TRANSFERS: $45,000

C. This Adversary Proceeding and the Instant Motion

The Debtor filed a petition for relief under Chapter 7 of the Bankruptcy Code on

September 13, 2021. (ECF Main Case Doc. # 1.) Marianne O’Toole was appointed the

interim Chapter 7 trustee and became the permanent Trustee at the initial meeting of

creditors. (Trustee Fact Statement ¶ 2.)

On July 24, 2023, the Trustee commenced this adversary proceeding against the

Defendants. The Complaint included three Counts: (i) avoidance and recovery of the

2020 Transfers and 2021 Transfers (collectively, the “Transfers”) as intentional

fraudulent transfers under sections 548(a)(1)(A) and 550(a) of the Bankruptcy Code and

section 273 of the New York Uniform Voidable Transactions Act, (ii) avoidance and

recovery of the Transfers as constructive fraudulent transfers under sections

548(a)(1)(B) and 550(a) of the Bankruptcy Code and sections 273 and 274 of the New

York Uniform Voidable Transactions Act,7 and (iii) avoidance and recovery of the 2021

Transfers as preferences under sections 547 and 550(a) of the Bankruptcy Code.

(Complaint ¶¶ 25-43.)

By the instant Motion, the Trustee seeks summary judgment on Counts II and III.

She asserts that the Transfers were constructive fraudulent transfers because they were

made to, or on behalf of, the Defendants, without fair consideration, at a time when the

Debtor was insolvent. (Trustee Brief at 10-16.) Alternatively, the Trustee argues that

the Transfers made within one year of the petition date are avoidable preferences. (Id.

at 17-18.) Last, the Trustee contends that the Defendants should be held jointly and

severally liable for the judgment under New York law. (Id. at 18-19.)

The Defendants assert that the Transfers are not recoverable primarily because

they were salary payments. (Defendants Brief at 5-10.) They also assert that wages

previously earned, but not paid, should be deemed to have been held in trust by the

Debtor for the benefit of the Defendants. (Id. at 12-13.)

The Court heard oral argument on November 21, 2024 and took the matter under

advisement.

7 The Complaint also sought avoidance and recovery of certain life insurance premiums paid by the

Debtor on behalf of the Defendants as intentional and constructive fraudulent transfers (see Complaint ¶¶

29, 36), but the recovery of those payments was not included in the Motion.

DISCUSSION

A. Summary Judgment Standard

Under Rule 56 of the Federal Rules of Civil Procedure, made applicable hereto

pursuant to Rule 7056 of the Federal Rules of Bankruptcy Procedure, summary

judgment is proper “if the movant shows that there is no genuine dispute as to any

material fact and the movant is entitled to judgment as a matter of law.” FED. R. CIV. P.

56(a). The movant bears the burden of establishing that no genuine issue of material

fact exists. Bustamante v. KIND, LLC, 100 F.4th 419, 432 (2d Cir. 2024) (quoting

Souza v. Exotic Island Enters., Inc., 68 F.4th 99, 108 (2d Cir. 2023)). “A fact is material

if it might affect the outcome of the suit under the governing law, and an issue of fact is

genuine if the evidence is such that a reasonable jury could return a verdict for the

nonmoving party.” Ramos v. Baldor Specialty Foods, Inc., 687 F.3d 554, 558 (2d Cir.

2012) (quoting Niagara Mohawk Power Corp. v. Hudson River-Black Regulating Dist.,

673 F.3d 84, 94 (2d Cir. 2012)).

Once the movant has carried its initial burden, “the nonmovant must set forth

specific facts showing that there is a genuine issue for trial.” Bustamante, 100 F.4th at

432 (citation omitted). When deciding whether a genuine dispute exists as to a material

fact, all ambiguities must be resolved, and all reasonable inferences must be drawn, in

favor of the nonmoving party. Tolan v. Cotton, 572 U.S. 650, 657 (2014). However,

“[c]onclusory allegations, conjecture, and speculation are insufficient to create a

genuine issue of fact.” Shannon v. New York City Transit Auth., 332 F.3d 95, 99 (2d

Cir. 2003) (quoting Kerzer v. Kingly Mfg., 156 F.3d 396, 400 (2d Cir. 1998)) (alteration

omitted); accord Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574,

586 (1986) (When the moving party has carried its burden, “its opponent must do more

than simply show that there is some metaphysical doubt as to the material facts.”). If

“the record taken as a whole could not lead a rational trier of fact to find for the non-

moving party, there is no genuine issue for trial.” Matsushita Elec. Indus. Co., 475 U.S.

at 587 (citation and internal quotation marks omitted).

B. The Constructive Fraudulent Transfer Claims

Count II seeks avoidance and recovery of the Transfers as constructive fraudulent

transfers under the Bankruptcy Code and New York law.

Pursuant to section 548(a)(1)(B) of the Bankruptcy Code:

(a) (1) The trustee may avoid any transfer . . . of an interest of the debtor in

property . . . that was made . . . within 2 years before the date of the filing

of the petition, if the debtor voluntarily or involuntarily . . .

(B) (i) received less than a reasonably equivalent value in exchange

for such transfer . . . and

(ii) (I) was insolvent on the date that such transfer was

made . . . or became insolvent as a result of such transfer . . . .

11 U.S.C. § 548(a)(1)(B).

Under section 544(b) of the Bankruptcy Code, the Trustee may assert a claim

under state fraudulent transfer law if there is an unsecured creditor who could pursue

the action.8 In that vein, the Trustee cites (see Trustee Brief at 9) section 274 of the New

York Debtor and Creditor Law, which provides as follows:

A transfer made . . . by a debtor is voidable as to a creditor whose claim

arose before the transfer was made . . . if the debtor made the transfer . . .

without receiving a reasonably equivalent value in exchange for the

transfer . . . and the debtor was insolvent at the time or the debtor became

insolvent as a result of the transfer . . . .

8 Section 544(b)(1) of the Bankruptcy Code provides that “the trustee may avoid any transfer of an

interest of the debtor in property . . . that is voidable under applicable law by a creditor holding an

unsecured claim that is allowable under section 502 of this title or that is not allowable only under section

502(e) of this title.”

N.Y. DEBT. & CRED. LAW (“N.Y. DCL”) § 274(a) (McKinney 2024).9 An action asserting a

claim under N.Y. DCL § 274(a) must be commenced no later than four years after the

transfer was made. N.Y. DCL § 278(b).

To the extent a transfer is avoided under section 544 or 548 of the Bankruptcy

Code, the Trustee may recover, “for the benefit of the estate, the property transferred,

or, if the court so orders, the value of such property, from . . . the initial transferee of

such transfer or the entity for whose benefit such transfer was made.” 11 U.S.C. §

550(a)(1).

Here, the undisputed facts establish that the Defendants received the Transfers

from the Debtor’s JPMorgan Chase Bank account (or were the intended beneficiaries in

the case of the 2020 Transfers to the taxing authorities) within the two-year reach-back

9 The Trustee invokes N.Y. DCL § 274(a) to avoid all of the Transfers except the 2020 Transfers

that occurred on April 1, 2020. That is because section 274(a) was enacted as part of the Uniform

Voidable Transaction Act, which applies to transactions that occurred on or after April 4, 2020. With

respect to the April 1, 2020 transfers, the Trustee relies on the prior iteration of New York’s constructive

fraudulent transfer statute, which provides:

Every conveyance made . . . by a person who is or will be thereby rendered insolvent is

fraudulent as to creditors without regard to his actual intent if the conveyance is made . . .

without fair consideration.

N.Y. DEBT. & CRED. LAW § 273 (repealed 2019). The current iteration of the New York constructive

fraudulent transfer statute more closely tracks section 548(a)(1)(B) of the Bankruptcy Code because it

focuses on whether “reasonably equivalent value” was given in exchange for the transfer, rather than an

analysis of “fair consideration,” which was the focus of the prior New York statute. Nonetheless, the

analyses under the current and prior New York statutes are sufficiently similar such that the Court need

not perform a separate analysis solely for the April 1, 2020 transfers. See Makmudova v. Cohen, No.

521869/2016, 2024 WL 3361238, at *7 (N.Y. Sup. Ct. July 10, 2024) (“The NYDCL, with the adoption of

the UVTA, did not substantially change existing New York law . . . .”); cf. Official Comm. of Unsecured

Creditors v. Leucadia Nat’l Corp. (In re Vivaro Corp.), 524 B.R. 536, 550 (Bankr. S.D.N.Y. 2015) (“Courts

use the term ‘fair consideration’ interchangeably with ‘reasonably equivalent value,’ relevant in

Bankruptcy Code section 548 fraudulent transfer claims, when examining constructive fraud claims.”)

(citation omitted); Picard v. Madoff (In re Bernard L. Madoff Inv. Sec. LLC), 458 B.R. 87, 110 (Bankr.

S.D.N.Y. 2011) (“It has been found, ‘reasonably equivalent value’ in Section 548(a)(1)(B), and ‘fair

consideration’ in the NYDCL have the same fundamental meaning.”) (citation, internal quotation marks,

and alterations omitted).

period set forth in 11 U.S.C. § 548(a)(1) and the four-year statute of limitations set forth

in N.Y. DCL § 278(b). The Court addresses whether reasonably equivalent value was

given in exchange for the Transfers as well as the Debtor’s insolvency in the sections that

follow.

1. Reasonably Equivalent Value

Both 11 U.S.C. § 548(a)(1)(B) and N.Y. DCL § 274(a) focus on whether the debtor

received “reasonably equivalent value” in exchange for the transfer. To decide whether a

transfer is made for “reasonably equivalent value,” courts consider “whether the debtor

has received value that is substantially comparable to the worth of the transferred

property.” BFP v. Resolution Tr. Corp., 511 U.S. 531, 548 (1994). The Court “need not

strive for mathematical precision” but “must keep the equitable purposes of the statute

firmly in mind, recognizing that any significant disparity between the value received and

the obligation assumed . . . will have significantly harmed the innocent creditors.”

Kirschner v. Citigroup Glob. Mkts. Inc. (In re Tribune Co. Fraudulent Conv. Litig.), 10

F.4th 147, 172 (2d Cir. 2021) (quoting Rubin v. Mrfs. Hanover Tr. Co., 661 F.2d 979,

994 (2d Cir. 1981)), cert. denied sub nom. Kirschner v. FitzSimons, 142 S. Ct. 1128

(2022).

Generally, distributions to equity holders on account of their equity holdings are

not made in exchange for “reasonably equivalent value;” this Court has previously

explained:

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.”

Graham v. Serafis (In re Vill. Red Rest. Corp.), Adv. P. Nos. 20-01065 & 20-01066

(MEW), 2021 WL 3889793, at *10 (Bankr. S.D.N.Y. Aug. 31, 2021); accord Jacobs v.

Altorelli (In re Dewey & LeBoeuf LLP), 518 B.R. 766, 789 (Bankr. S.D.N.Y. 2014)

(“Equity distributions are not ordinarily considered transfers made on account of an

antecedent debt, and in turn, are not considered to be made in exchange for ‘reasonably

equivalent value.’”).

The Trustee contends that the 2021 Transfers ($45,000) and one-half of the

2020 Transfers ($22,500) were distributions on account of the Defendants’ equity

interests, and thus not paid in exchange for reasonably equivalent value. (Trustee Reply

at 7-9.) The Defendants respond that those distributions constituted payments of

previously earned wages, but their assertions lack evidentiary support. The Defendants

state that they had paid income taxes for these amounts (see Defendants Fact Statement

¶¶ 7, 11, and 14), but have not produced any individual tax return for any year in which

they purportedly reported (and paid taxes on) such income, any corporate tax return of

the Debtor showing that the Defendants earned any such income, or any other evidence

showing prior payment of income taxes for these transfers. The Defendants assert that

they relied on the advice of their accountant in connection with this arrangement (see

id. ¶¶ 9, 11, and 14), but have provided neither an affidavit of such accountant

confirming the existence of any deferred compensation plan nor any statute or

regulation the accountant relied upon when advising the Defendants of this

arrangement.

The Defendants contend that these amounts “were left in the corporate account

as a type of trust in favor of the [D]efendants.” (Id. ¶ 7; see also id. ¶ 14.) But, there is

no evidence that a trust was created or that any amount was held in a separate trust

account; rather, the Transfers at issue were all made from the same Chase Bank account

held by the Debtor. The Defendants cite (see Defendants Brief at 12-13) Begier v.

United States Internal Revenue Serv., 878 F.2d 762 (3d Cir. 1989), aff’d sub nom.

Begier v. Internal Revenue Serv., 496 U.S. 53 (1990), but that case is distinguishable.

Begier stands for the proposition that the pre-petition payment of taxes to the IRS from

an employer’s general accounts could not be avoided as a preference because funds used

to pay those taxes were not “property of the estate” within the meaning of 11 U.S.C. §

541(a)(1). Begier, 496 U.S. at 59-67. The Supreme Court’s ruling was based on specific

provisions of the Internal Revenue Code providing that certain taxes withheld by an

employer are held in trust for the United States. Id. at 60-62. Here, in contrast, there is

no applicable statute providing for the creation of a trust or any evidence that any trust

was created.

Even if the Court assumed that the Defendants left wages they had previously

earned with the Debtor, it could not conclude that the 2021 Transfers and half of the

2020 Transfers constituted deferred payments of those wages. Without any evidence of

a deferred compensation plan, the Defendants’ refusal to take compensation when

earned more closely resembles a capital contribution by equity holders to ensure the

financial health of the Debtor’s business. (Accord Defendants Brief at 1 (“Instead, [the

Defendants] left the money in the corporate account where it was held in trust for them

and provided a cushion for the corporate coffers in the event it might be needed for

corporate expenses.”) (emphasis added).) A recipient of a fraudulent transfer may not

defend against such claim by asserting that a company was merely returning a prior

capital contribution to her. Hurwitz v. Fung Holdings (1937) Ltd. (In re GBG USA

Inc.), Case No. 21-11369 (MEW), 2024 WL 5114996, at *16 (Bankr. S.D.N.Y. Dec. 15,

2024) (“The whole point of a capital contribution is that it provides resources to which

creditors (not equity holders) have first rights. Once a capital contribution is made, that

contribution has inured to the benefit of the entity’s creditors, and as equity capital it

cannot be reclaimed . . . if by doing so would be in violation of creditors’ rights under

fraudulent transfer laws. If the Defendants were right, then any [dividend payment

recipient] could assert, in defense to a fraudulent transfer claim, that the [recipient] was

merely reclaiming some of the capital contributions that it had previously made. I know

of no authority for the proposition that such a defense can be asserted, and the whole

notion defies common sense.”).

Ultimately, the notion that the 2021 Transfers and half of the 2020 Transfers

were payments of previously earned income is devoid of evidentiary support and based

solely on the Defendants’ self-serving and conclusory statements. Kobrand Corp. v.

Abadia Retuerta S.A., No. 12 Civ. 154 (KBF), 2012 WL 5851139, at *4 (S.D.N.Y. Nov. 19,

2012) (“[S]elf-serving, conclusory affidavits, standing alone, are insufficient to create a

triable issue of fact and defeat a motion for summary judgment.”).

The Defendants stand on firmer ground on the other half of the 2020 Transfers

($22,500). As stated, the Trustee concedes that half of the 2020 Transfers constituted

salary payments as set forth in the Debtor’s 2020 tax returns. The payment of salary is

presumed to be made in exchange for “reasonably equivalent value” unless the

payments were in bad faith or excessive in light of the employment responsibilities.

Sama v. Mullaney (In re Wonderwork, Inc.), 611 B.R. 169, 208 (Bankr. S.D.N.Y. 2020)

(citing Pryor v. Tiffen (In re TC Liquidations LLC), 463 B.R. 257, 268 (Bankr. E.D.N.Y.

2011)). Nonetheless, the Trustee argues that the continuation of the salary payments to

the Defendants between April and November 2020 were not for reasonably equivalent

value because the Debtor had ceased operations due to the pandemic. (Trustee Reply at

11-12.)

The Defendants have established that there is a genuine dispute of material fact

with respect to the salary transfers. They maintain that during the relevant period, they

worked “five days a week, eight hours a day” in an effort to keep the business afloat.

(Defendants Fact Statement ¶ 15; accord Heinemann Depo. at 30:3-14 (“I mean, we did

a lot of work cancelling trips, eight hours on the phone trying to get through to

companies.”).) According to the Defendants, the work included: (a) answering calls and

responding to emails, (b) canceling bookings with airlines, hotels, and cruise companies,

(c) trying to book and re-book trips for clients, (d) pay business expenses, (e)

communicating with vendors and asking when their operations would return to normal,

(f) managing client reservations, and (g) maintaining daily bookkeeping duties.

(Defendants Fact Statement ¶ 15.) Whether the Defendants provided reasonably

equivalent value in exchange for the 2020 Transfers constituting salary payments is an

issue for trial.

2. Insolvency

Claims under Bankruptcy Code § 548(a)(1)(B) and N.Y. DCL § 274(a) require that

the debtor be insolvent at the time of the transfer or became insolvent as a result of the

transfer. The Bankruptcy Code provides that an entity is “insolvent” when the “sum of

such entity’s debts is greater than all of such entity’s property, at a fair valuation . . . .”

11 U.S.C. § 101(32). Applicable New York law has a substantially similar definition of

insolvency. N.Y. DCL § 271(a) (“A debtor is insolvent if, at a fair valuation, the sum of

the debtor’s debts is greater than the sum of the debtor’s assets.”).

The Debtor’s primary assets during the relevant period were the Debtor’s two

bank accounts at JPMorgan Chase Bank.10 (Trustee Fact Statement ¶ 16.) The monthly

statements for the account ending in 2565 had an average balance of approximately

$108,000 throughout 2020 that dropped to approximately $50,000 on December 30,

2020. (See Macreery Affirmation, Ex. 10 (bank account statements).) The monthly

statements for the account ending in 1052 show balances as high approximately

$54,000 in April 2020, which then diminished through the end of 2020. (See id., Ex. 9

(bank account statements).) From April 2020 onwards, the combined balance never

exceeded $162,000; the Debtor’s assets were generally under $160,000 when the 2020

Transfers were made and a much lower amount when the 2021 Transfers were made.

The Debtor’s primary liabilities were generated from the installment payments

made by the participating bowling leagues. To the extent amounts paid were not used to

book vacations, the leagues retained dollar-for-dollar “credits” which could presumably

be used for booking future vacations. The credits retained by each of the eighteen

leagues between 2017 and 2020 are set forth on the Debtor’s handwritten ledger, a copy

of which is attached as Exhibit 6 of the Macreery Affirmation. That ledger shows that,

by 2020, the leagues had accumulated a combined total of $479,835 in credits with the

Debtor. It is unlikely that the amount of accumulated credit owed to the leagues

10 The Debtor’s only other assets were dated furniture, a desktop computer, and telephones. The

Debtor disposed of these items when the Debtor ceased operations. (Trustee Fact Statement ¶ 16.)

changed much into 2021 as the Debtor could not book vacations – which would have

decreased the total outstanding credits – during the pandemic.

Based on foregoing, the Debtor was insolvent when the Transfers were made.11

C. The Preference Claim

Count III seeks avoidance and recovery of the 2021 Transfers as preferences

under section 547 of the Bankruptcy Code. However, the preference claim was made as

an alternative to the fraudulent transfer claim to the extent the Court found that the

2021 Transfers repaid valid obligations owed to the Defendants. (Complaint ¶ 38 (“To

the extent that any of the Defendants were owed money by the Debtor for unpaid

services rendered prior to December 31, 2021, then the [2021 Transfers] would have

been made to insiders on account of antecedent indebtedness.”); see also Trustee Brief

at 17 (“Assuming arguendo that any conceivable consideration exists for the Transfers –

which is not the case –[] the Insider Transfers in the aggregate amount of $63,000

should be avoided as preferences pursuant to Section 547 of the Bankruptcy Code.”).)12

Since the Court is granting summary judgment with respect to the 2021 Transfers

as constructive fraudulent transfers, it need not address the Trustee’s alternative theory

that such transfers were preferences.

D. Joint and Several Liability

The Trustee asserts that the Defendants should be held jointly and severally liable

for the judgment arising from the avoidance of the Transfers. (Trustee Brief at 18-19.)

11 The Debtor does not argue otherwise in the Defendants Brief or Defendants Fact Statement.

12 Count III of the Complaint seeks avoidance of the 2021 Transfers, but the Trustee Brief includes

certain of the 2020 Transfers as part of the preference claim. None of the 2020 Transfers will be deemed

included in Count III absent amendment to the Complaint.

Some courts outside of this District have ruled that a bankruptcy court has discretion to

impose joint and several liability on a fraudulent transfer claim. See 718 Arch St.

Assocs., Ltd. v. Blatstein (In re Blatstein), 260 B.R. 698, 720-21 (E.D. Pa. 2001)

(“[J]oint and several liability is an available remedy in fraudulent transfer cases. Still,

the decision to impose joint and several liability does fall within the bankruptcy court’s

discretionary authority.”); West v. Seiffert (In re Houston Drywall, Inc.), Adv. P. No.

06-03415, 2008 WL 2754526, at *29 n.36 (Bankr. S.D. Tex. July 10, 2008) (same); but

see Shamis v. Ambassador Factors Corp., No. 95 Civ. 9818 (RWS), 2001 WL 25720, at

*7 (S.D.N.Y. Jan. 10, 2001) (“[T]here is a dearth of legal support for the imposition of

joint and several liability between transferors and transferees in a fraudulent

conveyance.”); Bucki v. Singleton (In re Cardon Realty Corp.), 146 B.R. 72, 81 (Bankr.

W.D.N.Y. 1992) (denying summary judgment on the issue of joint and several liability

because the movant had not provided, and the court had not found, any authority for

such relief in fraudulent conveyance cases). The imposition of joint and several liability

for a fraudulent transfer might be appropriate against a general partner who would

otherwise be jointly and severally liable under state partnership law, see Mason v. RJK

Investors (In re Klarchek), 509 B.R. 175, 187 (Bankr. N.D. Ill. 2014), where parties were

involved in a scheme to defraud creditors, see Sweeney, Cohn, Stahl & Vaccaro v. Kane,

6 A.D.3d 72, 79 (N.Y. App. Div.), leave to appeal dismissed, 821 N.E.2d 965 (N.Y.

2004); Farm Stores, Inc. v. Sch. Feeding Corp., 102 A.D.2d 249, 256 (N.Y. App. Div.

1984), aff’d, 479 N.E.2d 222 (N.Y. 1985), or where a transfer was made into a joint bank

account held by multiple individuals. See Lichtenstein v. Buttery (In re Comput.

Personalities Sys., Inc.), Nos. 01-14231, 01-1017 (DWS), 2002 WL 31988134, at *7

(Bankr. E.D. Pa. Dec. 23, 2002).

Assuming that the Court may impose joint and several liability on fraudulent

transfer claims, the Trustee has failed to provide a valid reason as to why such liability

should apply here. Only the constructive fraudulent transfer claims (and not the

intentional fraudulent transfer claims) are subject to this Motion, the Transfers (except

for the transfers to the taxing authorities) were made into each individual Defendant’s

bank account, and each Transfer should generally be evaluated as a separate

transaction. Maxus Liquidating Tr. v. YPF S.A. (In re Maxus Energy Corp.), 641 B.R.

467, 531 (Bankr. D. Del. 2022) (“In general, fraudulent transfer law requires each

transfer to be evaluated as a separate transaction.”) (quoting Mills v. Everest

Reinsurance Co., 410 F. Supp. 2d 243, 254-55 (S.D.N.Y. 2006)) (internal quotation

marks and alteration omitted). Thus, the Trustee must look to the specific transferee of

the avoided Transfer for recovery. See 11 U.S.C. § 550(a).

Instead, the Trustee argues that N.Y. BUS. CORP. LAW (“N.Y. BCL”) §§ 719(a) and

510(a) (McKinney 2024) support the imposition of joint and several liability. N.Y. BCL

§ 719(a) “creates a cause of action against members of the board of directors of a

corporation who authorize a dividend in contravention of” N.Y. BCL § 510. Atlanta

Shipping Corp. v. Chem. Bank, 631 F. Supp. 335, 349 (S.D.N.Y. 1986), aff’d, 818 F.2d

240 (2d Cir. 1987). N.Y. BCL § 510(a), in turn, “prohibits a corporation from declaring

or paying a dividend to shareholders if the corporation is insolvent or would thereby be

rendered insolvent.” Atlanta Shipping Corp., 631 F. Supp. at 349.

N.Y. BCL §§ 719(a) and 510(a) have no application to the claims asserted here.

The Complaint does not allege that the Defendants were directors or were involved in a

process to authorize dividends. Atlanta Shipping Corp., 631 F. Supp. at 349 (“By its

own terms, [N.Y. BCL § 719(a)] applies only ‘to directors of a corporation who vote for or

concur in’ the prohibited transaction.”) (quoting N.Y. BCL § 719(a)). Indeed, the

Complaint does not allege a claim under any specific section of the N.Y. BCL. Therefore,

the Trustee may not import the joint-and-several-liability framework of N.Y. BCL §

719(a) to her fraudulent transfer claims. See Planned Consumer Mktg., Inc. v. Coats &

Clark, Inc., 127 A.D.2d 355, 369 (N.Y. App. Div. 1987) (“Even if petitioner were the

proper party to bring an action under section 719, a further substantive problem with

this cause of action is that section 719 permits a corporation to bring an action to hold

directors personally liable for their misconduct and does not authorize an action to set

aside unlawful conveyances or transfers of corporate assets.”), aff’d, 522 N.E.2d 30

(N.Y. 1988).

CONCLUSION

For the reasons stated, the Court GRANTS summary judgment in favor of the

Trustee on her claim to avoid and recover as constructive fraudulent transfers under 11

U.S.C. § 548(a)(1)(B), N.Y. DCL § 274(a), and 11 U.S.C. § 550(a) as follows:

 The 2021 Transfers totaling $45,000 are avoided and recoverable against the

Defendants in the following amounts: (i) Linda Heinemann: $15,000, (ii) Myrna

Raboy: $15,000, and (iii) Josephine Mundy: $15,000.

 One-half of the 2020 Transfers totaling $22,500 are avoided and recoverable

against the Defendants in the following amounts: (i) Linda Heinemann: $7,500,

(ii) Myrna Raboy: $7,500, and (iii) Josephine Mundy: $7,500. The Trustee’s

Motion is DENIED with respect to the other half of the 2020 Transfers

constituting salary payments.

The Trustee’s request for summary judgment on her claim to avoid and recover the 2021

Transfers as preferences under 11 U.S.C. §§ 547 and 550(a) is DENIED as moot. The

Trustee’s request for a finding of joint and several liability among the Defendants is

DENIED.

The Trustee shall submit an Order on notice pursuant to Local Bankruptcy Rule

9074-1 consistent with this Memorandum Decision. The parties shall meet and confer

about the disposition of the remaining claims in this action and contact chambers to

schedule a status conference with the Court.

/s/ Kyu Y. Paek

Poughkeepsie, New York Hon Kyu ¥. Pack

, a, cf U.S. Bankruptcy Judge

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