Englander Capital Corp. v Zises

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Englander Capital Corp. v Zises 2018 NY Slip Op 31246(U) June 19, 2018 Supreme Court, New York County Docket Number: 156927/12 Judge: Jennifer G. Schecter Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication. [*FILED: NEW YORK COUNTY CLERK 06/18/2018 1] INDEX NO. 156927/2012 NYSCEF DOC. NO. 212 RECEIVED NYSCEF: 06/20/2018 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: PART 54 ----------------------------------------x ENGLANDER CAPITAL CORP., Index No. 156927/12 DECISION & ORDER Plaintiff, -against- SELIG ZISES, JAY ZISES, LAWCASH STRUCTURED SETTLEMENTS LLC n/k/a STRUCTURED SETTLEMENTS, LLC, STRUCTURED SETTLEMENT INVESTMENTS, LP, ASPYRE SETTLEMENT FUNDING, INC., STRUCTURED SETTLEMENTS LLC 2009, SSI-GP LLC a/k/a SSI-GP LLC a/k/a SSI-GP HOLDING LLC, MANGO CAPITAL, INC. f/k/a MANGOSOFT, INC., PLAINTIFF FUNDING CORP. a/k/a PLAINTIFF FUNDING HOLDING, INC. d/b/a LAWCASH, and "JOHN DOE 1" through "JOHN DOE 10," defendants being unknown to plaintiff and having or claiming an interest in or lien upon the subject assets, Defendants. ---------------------------------~------x JENNIFER G. SCHECTER, J.: Motion sequence numbers 003 and 004 are consolidated for disposition. In October (Englander) 2010, obtained a Settlement· LLC plaintiff .\ Englander Capital Corp . judgment against LawCash Structured (LawCash) for After $1,030,502.85. the judgment remained unsatisfied, Englander conunenced this action against, among others, defendants Selig Zises, Structured Settlements, Investments, LP, LLC, Jay Zises, Structured Structured Settlements Settlement 2009, LLC, SSI-GP Holding, LLC and Plaintiff Funding Holding, Inc. (collectively Defendants), alleging that transfers made to them by LawCash rendered LawCash insolvent, were fraudulent and were made in violation of New York's Debtor and Creditor Law. 1 The action was settled with and discontinued against Mango Capital Corp. (Mango) (Plaintiff's Memorandum in Support 04 (Sup Memo 04] n 1). 2 of 13 [*FILED: NEW YORK COUNTY CLERK 06/18/2018 2] INDEX NO. 156927/2012 NYSCEF DOC. NO. 212 RECEIVED NYSCEF: 06/20/2018 Index No. 156927/12 Englander Capital Corp. v Zises Page 2 Pursuant to CPLR 3212, the judgment against one another. parties move for summary Defendants' motion is granted. Background Englander (Structured wanted to sell to Settlements) Structured LawCash Settlements for $1. 8 mil lion (Memorandum in Support of Motion 004 [Sup Memo 04] at 2). and Selig Zises (the Zises) LP Jay were two of the six owners of LawCash (id.) . In September 2006, the Zises loaned LawCash $1.5 million to facilitate the transaction with Englander Support of Motion 003 [Sup Memo 03] at 1, 5). 2006, LawCash and the Zises executed a (Memorandum in On September 6, promissory note memorializing the loan (Secured Note), which was secured by a Pledge and Security Agreement) Agre~ment dated the same day (Security (Sup Memo 03 at 1; Affirmation in Support 003 [Sup 03], Exs 3, 4). The Secured Note provided: " [ t] he principal and all accrued unpaid interest under the Note shall mature and be due and payable on the date . . that is the earliest to occur of: ( i) three ( 3) year anniversary of the date hereof, and (ii) the maturity of the Note upon acceleration of maturity following an Event of Default" (Sup Memo 03 at 5). 3 of 13 [*FILED: NEW YORK COUNTY CLERK 06/18/2018 3] INDEX NO. 156927/2012 NYSCEF DOC. NO. 212 RECEIVED NYSCEF: 06/20/2018 Index No. 156927/12 Page 3 Englander Capital Corp. v Zises Pursuant to the Security Agreement, LawCash granted the Zises "a security interest and continuing lien on all of its right, title and interest" in certain collateral, including all of LawCash's interests in Structured Settlements (Sup 03, Ex The 4) • Zises filed a UCC financing statement giving notice of their secured interest two days later (Sup Aff, Ex 16) . LawCash proceeded with the purchase of Structured Settlements on September 6, 2006, paying Englander $800, 000 in cash and executing a $1.0 million note Note) (Unsecured Englander for the balance of the purchase price. Significantly, Englander did not take any security interest on its note (Sup Memo 03 at 1, 6-7). LawCash made two payments on the Unsecured Englander Note but by late obligations 2007 · or to early Englander. it 2008, Al though defaulted Lawca.sh made on reg.ular monthly payments to the Zises beginning in early 2007, September 2009, when the Zises' loan matured, its by LawCash defaulted on the Secured Note as well (Opposition Memorandum [Opp Memo] 04 at 9) . 2 2 Payments to the Zises between 2007 and 2010 totaled nearly $1.4 million (Sup Memo 04 at 6-7). 4 of 13 [*FILED: NEW YORK COUNTY CLERK 06/18/2018 4] INDEX NO. 156927/2012 NYSCEF DOC. NO. 212 RECEIVED NYSCEF: 06/20/2018 Englander Capital Corp. v Zises On October 20, 2009, Index No. 156927/12 Page 4 Englander commenced an action against LawCash and moved for summary judgment pursuant to CPLR 3213 based on LawCash's Englander Note (LawCash Action) default on the Unsecured (Sup Memo 04 at 2). On November 2, 2009, the Zises sent a notice of default to LawCash demanding payment on the Secured Note (Sup 03, Ex 6) • LawCash did not cure and the Zises' debt remained. On December 4, 2009, a few months after the Secured Note matured, the Zises informed LawCash that "the Event of Default was continuing" and advised that the amount that was outstanding was $495,333.26 (Sup 03, Exs 7, 39; Sup Memo 03 at 10). The Zises proposed "to accept the Collateral, including [LawCash' s interest in Structured Settlements in full satisfaction of LawCash' s] obligations under the Secured Note, as permitted by the terms of the [Security Agreement]" (Sup Memo 03 at 10; Sup 03, Exs 39, 40). The Zises sent a copy of the proposal to Englander as a courtesy (Sup 03, Ex 38). LawCash accepted the proposal and the Zises informed Englander on December 8, 2009 (Sup Memo 03 at 11; Sup 03, Ex 10). Once the Zises foreclosed on their security interest in December 2009, LawCash became, for all intents and purposes, insolvent (Sup Memo 04 at 3). Defendants assert that the value of LawCash at the time was "de minimus because of the 5 of 13 [*FILED: NEW YORK COUNTY CLERK 06/18/2018 5] INDEX NO. 156927/2012 NYSCEF DOC. NO. 212 RECEIVED NYSCEF: 06/20/2018 Index No. 156927/12 Englander Capital Corp. v Zises Page 5 lack of anything going forward on an operational basis. that point in time, By [LawCash] had lost its line of credit, the CEO had been let go, and [LawCash] had lost its business to other structured settlement buy-out companies" (Sup Memo 03 at 11) . Ten months later, in October 2010, Englander was awarded a $1,030,502.85 judgment against LawCash (LawCash Judgment) (Sup Memo 04 at 2; Affirmation in Support 004 [Sup 04], Ex 1). The LawCash Judgment went unpaid. In 2012, Defendants Englander seeking to commenced collect the this action amount against of LawCash Judgment and alleging that conveyances between the LawCash and Defendants were fraudulent and violated the New York Debtor and Creditor Law. Englander points out that from the very outset--even before the LawCash Action was commenced--LawCash insisted that it obligations under should not be required the Unsecured Englander to satisfy its Note because it believed that Struciured Settlements was not worth the $1.8 million purchase price (Sup Memo 04 at 3-5) . Englander alleges that to avoid payment, the Zises, who together had a controlling interest in LawCash, purposefulli foreclosed on their Englander security interest before could obtain a judgment, leaving Englander ultimately unable to collect from 6 of 13 [*FILED: NEW YORK COUNTY CLERK 06/18/2018 6] INDEX NO. 156927/2012 NYSCEF DOC. NO. 212 RECEIVED NYSCEF: 06/20/2018 Index No. 156927/12 Englander Capital Corp. v Zises Page 6 LawCash (id. at 5-7). Englander maintains that the Zises used the Secured Note and alleged default as part of a deliberate sham "as a pretext for intentionally stripping LawCash of its assets and making sure that Englander never got paid" (id. at Given the interconnecting relationships between LawCash 6-7) . and the Zises and the Zises' insider status, Englander asserts that it is entitled to summary judgment and a damages award sufficient to satisfy the LawCash Judgment as well as attorneys' fees. Defendants, in contrast, contend that the Zises secured their loan in 2006 and were entitled to priority in being repaid (Sup Memo 03 at 15). They explain that Englander, as an unsecured second-line creditor, could n6t avail itself of any right to pursue LawCash assets prior to obtaining a judgment against LawCash and, by then, LawCash had no assets (id. at 16, 18). Defendants urge that they are entitled to a judgment because (1) a conveyance that satisfies a secured antecedent debt is not fraudulent, to Englander because, as (2) there was no prejudice secured parties, the Zises entitled to be repaid first though they were insiders, were (3) the consideration for the transfers was fair and (4) there was no actual intent to defraud Englander 7 of 13 because the transfers [*FILED: NEW YORK COUNTY CLERK 06/18/2018 7] INDEX NO. 156927/2012 NYSCEF DOC. NO. 212 RECEIVED NYSCEF: 06/20/2018 Englander Capi t.al Corp. v Zises Index No. •156927/12 Page 7 satisfied a legitimate preexisting secured debt (Sup Memo 03 at 14-22) . Analysis Plaintiff and Defendants agree that summary judgment is appropriate; they disagree on which party prevails. Defendants made a prima facie showing of Because enti tlernent to judgment as a matter of law and, in response, Englander did not establish that there is a triable issue, judgment awarded to Defendants (see Alvarez v Prospect Hosp., 320, 324 (1986]). is 68 NY2d Defendants demonstrated that the transfers from LawCash were for fair consideration to satisfy a preexisting secured debt and that there was no actual intent to defraud Englander. Constructive Fraud New York's Debtor and Creditor Law deems certain conveyances made "without fair consideration" to be fraudulent "irrespective of tendency these of moral guilt and transactions intent" to because deceive, of violate the a confidence or injure interests that the law deems worthy of special protection (Southern Indus. v Jeremias, 66 AD2d 178, 182 [1st Dept 1978]; see also Debtor and Creditor Law [DCL] §§ 273 by [conveyances by insolvent]; 8 of 13 273-a [conveyances ) [*FILED: NEW YORK COUNTY CLERK 06/18/2018 8] INDEX NO. 156927/2012 NYSCEF DOC. NO. 212 RECEIVED NYSCEF: 06/20/2018 Index No. 156927/12 Page 8 Englander Capital Corp. v Zises defendants in an action for money damages]; 274 [conveyances by party engaged in business]; 275 [conveyances by party about to incur debts)). "Fair consideration" is provided when property is given "in good faith" to satisfy a pre-existing debt "as a equivalent therefor" ( DCL 2 7 2 [a] ) . § Whether fair "fair consideration" has been exchanged must be determined based on the particular facts of each case (Commodity Futures Trading Commn. 17 NY3d 162, v Walsh, 175 [2011]). Good faith is property to an always essential. Generally, an insolvent's transfer of insider to satisfy an antecedent debt is presumed to lack good faith because it allows those aware of the insolvency to prefer themselves over others by devoting "the property of the corporation to the payment of their own debts" leaving nothing for other creditors (Southern Indus., 66 AD2d at 183-184; Farm Stores v School· Feeding Corp., 102 AD2d 249, 1984], affd 64 NY2d 1065 [1985]) . 3 254 [2d Dept The exception to that rule is when the transfer is to an insider who is legitimately a secured creditor. occurs 3 Under those circumstances, "no preference [because the] satisfaction of a secured debt It is undisputed that LawCash was insolvent. 9 of 13 [*FILED: NEW YORK COUNTY CLERK 06/18/2018 9] INDEX NO. 156927/2012 NYSCEF DOC. NO. 212 RECEIVED NYSCEF: 06/20/2018 Index No. 156927/12 Page 9 Englander Capital Corp. v Zises causes no improvement Corp., 465 BR 6, 14 of position" [WDNY 2012]; (In re Northstar Dev. see also Korea Trade Ins. Corp. v Neema Clothing, Ltd., 2015 WL 363569 [SDNY 2015]; Rebh v Rotterdam Ventures, Inc., 277 AD2d 659 [3d Dept 2000] [net· effect over of transfers judgment debtor], plaintiff not to prefer any lv denied 96 NY2d 705 has not to repay conveyance was cited a any (2001]). precedent legitimately creditor holding secured Indeed, that creditor, a who happened to be an insider, was deemed fraudulent. Here, there is no evidence that the Zises' security interest for their loan to LawCash, which partially funded the purchase of Structured otherwise invalid. Settlements, was a sham or was There is no indication that in making the secured loan and later in partially satisfying it, Defendants and LawCash did not act honestly, fairly and openly. In fact, plaintiff was on notice of the Secured Note by virtue of the UCC Financing Statement filed on September 8, 2006 and it could have secured itself but did not do so (Sup 03, Exs 16, 36, 38, 41). As holders of a legitimate secured obligation, Defendants were entitled to the assets that they received to satisfy their outstanding secured debt. Because plaintiff failed to show that LawCash's bona fide transfers--many of which were made before Englander even commenced the LawCash 10 of 13 [*FILED: NEW YORK COUNTY CLERK 06/18/2018 10] INDEX NO. 156927/2012 NYSCEF DOC. NO. 212 RECEIVED NYSCEF: 06/20/2018 Index No. 156927/12 Page 10 Englander Capital Corp. v Zises Action--were anything other than value being exchanged for the discharge of a secured debt, the conveyances were made in good faith and for fair consideration (see In re Northstar Dev. Corp., 465 BR 6; 363569 [genuine contrast Korea issue of fact Trade Ins. about Corp., status as a creditor precluded judgment as a matter of law]; Panmedix 18 Inc., consideration F and Supp lack 3d 486 of good [SDNY 2014] faith 2015 WL secured Priestly v [inadequate justified summary judgment in judgment creditor's favor]). Actual Fraud New York Debtor and Credi tor Law every "conveyance made 2 7 6 provides that § . with actual intent to hinder, delay or defraud either present or future creditors, is fraudulent Because as intent, to by both its through direct proof, present nature, can and future rarely be creditors." established the law recognizes certain "badges of fraud" giving rise to an inference of intent (Wall St. Assocs. v Brodsky, 257 AD2d 526, 529 [1st Dept 1999]). include a close relationship between the These "badges" parties to the alleged fraudulent transaction, inadequacy of consideration, the transferor's knowledge of the 11 of 13 creditor's claim and [*FILED: NEW YORK COUNTY CLERK 06/18/2018 11] INDEX NO. 156927/2012 NYSCEF DOC. NO. 212 RECEIVED NYSCEF: 06/20/2018 Index No. 156927/12 Page 11 Englander Capital Corp. v Zises inability to pay it as well as the transferor's retention of control over the property after the conveyance (id.). Though there was a close relationship between LawCash and Defendants and other circumstances, "badges" plaintiff may failed that intentionally practiced to to present, meet frustrate under the its burden in engaged Defendants establishing be "deception [Englander's] of legal rights" (Southern Industries, Inc., 66 AD2d at 181). To the contrary, Defendants proved that (1) the Zises loaned money to LawCash for Englander, the (2) purchase the security interest Zises of Structured Settlements contemporaneously in LawCash' s property, (3) took a from valid LawCash made payments to the Zises consistently even before the LawCash Action was commenced, (4) the Zises notified LawCash of its default (and even informed plaintiff) soon after the Secured Note matured and (5) the consideration was adequate. and Defendants, moreover, were always candid LawCash about the existence of the loan and the obligation to repay it (contrast Priestly, 18 F Supp 3d at 503-504 [security agreement that post dated creditor's judgment was not bona fide and there were "overwhelming" indicia of fraud]). In the end, Defendants established that the transfers were not fraudulent. 12 of 13 [*FILED: NEW YORK COUNTY CLERK 06/18/2018 12] INDEX NO. 156927/2012 NYSCEF DOC. NO. 212 RECEIVED NYSCEF: 06/20/2018 Englander Capital Corp. Index No. 156927)12 Page 12 v Zises Accordingly, it is ORDERED that the motion for summary judgment 003) by defendants Settlements, LLC, Selig Zises, Structured Structured Settlements 2009, Jay Zises, Settlement LLC, (sequence Structured Investments, SSI-GP Holding, LP, LLC and Plaintiff Funding Holding, Inc. is GRANTED and the complaint is dismissed with costs and disbursements to these defendants as taxed by the Clerk upon the submission of an appropriate bill of costs; it is further ORDERED that plaintiff's motion for summary judgment the Clerk is di.rected to enter jydgment (sequence 004) is DENIED; and it is further ORDERED that accordingly. Dated: June 19, 2018 HON. JENNI ) 13 of 13

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