Matter of DeLuca (Parente)

[*1] Matter of DeLuca (Parente) 2012 NY Slip Op 50641(U) Decided on March 30, 2012 Sur Ct, Nassau County McCarty III, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on March 30, 2012
Sur Ct, Nassau County

In the Matter of the Petition of Jeffrey E. DeLuca, Public Administrator of Nassau County, as Administrator of the Estate of William M. Parente a/k/a WILLIAM MICHAEL PARENTE, Deceased, For a Determination of the Validity and Allowed Amount of Certain Claims Filed Against said Deceased.



356816/P



Mahon, Mahon, Kerins & O'Brien

(for Petitioner, Public Administrator)

254 Nassau Boulevard

Garden City South, NY 11530

Certilman Balin Adler & Hyman

(Co-Counsel for Petitioner)

90 Merrick Avenue

East Meadow, NY 11554

Davis, Saperstein & Salomon, P.C.

(for Estate of Dorothy Book, Sanders Book and Andrew Karras)

39 Broadway, Suite 520

New York, NY 10006

John V. Salierno, Esq.

(for Marie-Jeanne Castadot)

65-12 69th Place

Middle Village, NY 11379

Kenneth L. Kutner, Esq.

(for Christine Flores and Juanita Flores)

100 Park Avenue, 20th Floor

New York, NY 10017

Rivkin Radler LLP (for Leonard Gallo, Anthony J. Salierno, Kathleen Salierno and

Anthony J. Salierno, as Trustee of Anthony J.Salierno Defined Benefit Plan)

926 Reckson Plaza

Uniondale, NY 11556

Abbey Spanier Rodd & Abrams, LLP

(for Doris B. Keeley Formicola, Dorothy Schimel and Naomi Schimel)

212 East 39th Street

New York, NY 10016

Horowitz, Tannenbaum & Silver, P.C.

(for Nicholas Longo, Nicole Longo Sims and Selena Longo Stapler

2001 Marcus Avenue

Suite N 125

Lake Success, NY 11042

Edward W. McCarty III, J.

Before the court is a motion for partial summary judgment filed by counsel for the Public Administrator of Nassau County as administrator of the estate of William M. Parente, decedent herein. Movant asks the court to grant partial summary judgment with respect to liability in connection with his application of the "net equity method,"[FN1] which was used by the Public Administrator to compute the allowed amount of each of the claims filed against this estate by creditors who had invested funds with the decedent (the "investor creditors").

C. Raymond Radigan was appointed by this court as referee to hear and report pursuant to SCPA 506 (1). He filed an interim report on January 5, 2012, in which he recommended that the court grant the motion for partial summary judgment.

BACKGROUND

The full background of the motion before the court is a complex tragedy of epic proportion, but this decision need only address that portion which is directly relevant to the present motion for partial summary judgment. Decedent perpetrated a "Ponzi" scheme, as described below, prior to his death on April 20, 2009. He obtained funds from various individuals by claiming that he would invest the funds in construction and bridge loans, financing loans, and other non-existent deals. The funds were never invested; instead, they were used for the payment of decedent's expenses and for the repayment of prior investors. The scheme was similar to the well-known Ponzi scheme perpetrated by Bernard Madoff, though not of comparable size.

After decedent's death, the investor creditors learned that they were victims of a Ponzi scheme. The claims filed against the estate were valued by the victims at $34,637,698.06 in total. At issue is the proper method for calculating the amount of each claim. The Public Administrator has filed this motion for partial summary judgment asking the court to confirm its application of the net equity method, described below, to calculate the value of the claims filed.[*2]

ANALYSIS

1. Summary Judgment

Summary judgment may be granted only when it is clear that no triable issue of fact exists (see e.g. Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986]; Phillips v Joseph Kantor & Co., 31 NY2d 307, 311 [1972]). The court's function on a motion for summary judgment is "issue finding" rather than issue determination (Sillman v Twentieth Century-Fox Film Corp., 3 NY2d 395, 404 [1957]), because issues of fact require a hearing for determination (Esteve v Abad, 271 App Div 725, 727 [1st Dept 1947]). Consequently, it is incumbent upon the moving party to make a prima facie showing that he is entitled to summary judgment as a matter of law (CPLR 3212 [b]; Zuckerman v City of New York, 49 NY2d 557, 562 [1980]; Friends of Animals v Associated Fur Mfrs., 46 NY2d 1065, 1067 [1979]; Zarr v Riccio, 180 AD2d 734, 735 [2d Dept 1992]). The papers submitted in connection with a motion for summary judgment are always viewed in the light most favorable to the non-moving party (Marine Midland Bank, N.A. v Dino & Artie's Automatic Transmission Co., 168 AD2d 610, 610 [2d Dept 1990]). If there is any doubt as to the existence of a triable issue, the motion must be denied (Hantz v Fishman, 155 AD2d 415, 416 [2d Dept 1989]).

If the moving party meets his burden, the party opposing the motion must produce evidentiary proof in admissible form sufficient to establish the existence of a material issue of fact that would require a trial (see Zuckerman v City of New York, 49 NY2d 557, 562 [1980]). In doing so, the party opposing the motion must lay bare his proof (see Towner v Towner, 225 AD2d 614, 615 [2d Dept 1996]). "[M]ere conclusions, expressions of hope or unsubstantiated allegations or assertions are insufficient" to overcome a motion for summary judgment (Zuckerman v City of New York, 49 NY2d 557, 562 [1980]; see Prudential Home Mtge, Co., Inc. v Cermele, 226 AD2d 357, 357-358 [2d Dept 1996]).

2. Net Equity Method

Sixty-six investor creditors filed claims totaling $34,637,698.06 against the estate in connection with decedent's Ponzi scheme. The Public Administrator filed a petition in which he asked the court to approve the calculation of the amount of each claim by applying the net equity method, which deducts from (A) the cumulative amount paid by each claimant to decedent, (B) the total amount paid by decedent to claimant, to arrive at (C) the net amount (A - B = C). Computing all of the claims using this net equity method results in a 62.58% reduction of the outstanding claims, from $34,637,698.06 to $12,961,253.49. There are additional claims in excess of $1,700,000.00 filed by creditors who were not victimized by decedent's Ponzi scheme, but these claims are not relevant to this motion. It is anticipated that the estate will be insolvent, as the net distributable estate of decedent is expected to be approximately $7,800,000.00, far less than the total claims filed.

In response to the Public Administrator's verified petition to determine the validity and allowed amount of the investor creditors' claims, all of decedent's nine alleged distributees defaulted. Of the 66 investor creditors: (a) 34 signed written consents to the relief requested;[FN2] [*3](b) 16 defaulted;[FN3] (c) three subsequently withdrew their claims in accordance with stipulations which were so-ordered by this court;[FN4] and (d) two served responses in which they consented to the net equity methodology proposed by the Public Administrator, but object to the calculation of their particular claims.[FN5]

In connection with the remaining 11 investor creditors: (e) three served answers in which they reserved the right to assert affirmative defenses in the event of clawback proceedings to retain funds received by investor creditors in excess of the amounts they paid to decedent, but which do not specifically challenge the net equity method;[FN6] (f) three filed a joint answer in which they allege failure to state a cause of action and dispute one particular computation, which computation is not currently before this court, but these claimants subsequently filed a stipulation in which they withdrew their objections to the present motion and consented to the application of the net equity method;[FN7] (g) three claimants filed answers in which they asserted that it would be more reasonable to compensate each of decedent's victims based upon the amount of money owed by decedent to each victim on decedent's date of death, and further disputed the computations specific to their claims, which computations are not currently before this court, but these four claimants failed to respond to the present motion for summary judgment;[FN8] and (h) in connection with two distinct and separate claims, held by husband and wife as joint claimants, an answer was filed asserting that there are more equitable methods for calculating the amounts of the claims, without suggesting what those alternate methods might be. These joint claimants subsequently withdrew their answer and joined in the motion to confirm [*4]the applicability of the net equity method.[FN9]

Decedent's Ponzi scheme was similar to the one recently perpetrated by Bernard Madoff. In the Madoff case, Bankruptcy Court Judge Burton R. Lifland relied upon prior case law which applied the presumption of actual fraud in Ponzi schemes and utilized the net equity method to calculate and reduce the allowed claims (In re Bernard L. Madoff Investment Securities LLC, 424 BR 122 [Bankruptcy Ct SDNY 2010], affd 654 F3d 229, 2011 US App LEXIS 16884 [2d Cir 2011]). The Public Administrator argues that New York Debtor and Creditor Law § 276 [FN10] leads to the same result as that reached by Judge Lifland under the Federal Bankruptcy Code. Moreover, it is argued that the net equity method is a fair and equitable approach to resolve the claims of decedent's creditors. It will not allow investor creditors to retain monies paid out to them which are in excess of monies that they invested.

CONCLUSION

As there is no opposition remaining to the relief requested by movant, and the court agrees with movant's position regarding the applicability of the net equity method in computing the allowable claims of the investor creditors, the court grants the motion for partial summary judgment and directs the Public Administrator to apply the net equity method to compute the allowed amount of each investor creditor's claim.

This is the decision and order of the court.

Submit decree.

Dated: March30, 2012

Edward W. McCarty III

Judge of the

Surrogate's Court Footnotes

Footnote 1:Net equity is a method for calculating the value of individual claims filed by victims of a Ponzi scheme, as discussed more fully below.

Footnote 2:The 34 claimants are: Leonard Aloi; Ann Bonventre; Karen Bonventre; Dorothy Book Estate; Sanders Book; Julie Bradley; James and Kathryn Deal; Abraham and Joseph Feintuch; Abraham Feintuch; Joseph Feintuch; Christine Florez; Juanita Florez; Leonard Gallo; Ramona Grant; Terry and Jack Grauer; Terry Grauer; Harold Gribbin; Frank Hannibal and Jacquelyn Gilbert; Marlies Heitmann; Andrew Karras; Edward and Leila Lerner; Thomas Liebow; Judy Maniscalco; Pocantico Hills Corp.; Paul and Barbara Proscia; Joanne Redding; Robert and Kathy Connors, as co-executors of the estate of Leo Ross; Aaron Rudy and Lisa Callaghan Rudy; Cynthia Rudy; Linda Rudy; Anthony Salierno, as trustee of Anthony J. Salierno defined Benefit Plan; Anthony and Kathleen Salierno; Claudette Schaffer; and Marian Stier.

Footnote 3:The defaulting claimants are: Anthony Bianco; Richard Bianco; Martine Castadot; Ann Dacy; Helen Glaser; Rosalind Goldstein (who then filed her consent to the petition on September 19, 2011); Andrew Kay; Jonas Medney; Bruce Montaque; Paula Navas; Paula Navas as trustee under the will of Emma Bauman; Sandra Valdez Reilly; Catherine Sheridan; Marjorie Small; Daphne Vallon; and Barbara White.

Footnote 4:They are: Sandra Eisenberg; Sandra Eisenberg as personal representative of the estate of Frida Endler; and Marie Tomao.

Footnote 5:These responses were filed by Marie-Jean Castadot and Mary Ann Ciesla.

Footnote 6:These answers were filed by Dorothy Schimel; Naomi Schimel; and Doris P. Keely-Formicola.

Footnote 7:These claimants are Nicholas Longo; Nicole Longo Sims; and Selena Longo Stapler.

Footnote 8:The claimants who defaulted on this motion are Allan Kornblau; Michelle Li; and Brenda and Chester Schneider, as joint claimants on a single claim.

Footnote 9:These joint claimants are Myra and Charles Mann.

Footnote 10:This section governs conveyances which were made with an intent to defraud, and provides 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" (Debtor and Creditor Law § 276)