Geltzer v. Oberlin Coll. (In re Sterman)

594 B.R. 229

IN RE: Bruce STERMAN and Luba Pincus, Debtors.

Robert Geltzer, as Chapter 7 Trustee of Bruce Sterman and Luba Pincus, Plaintiff,

v.Oberlin College, Oberlin Student Cooperative Association, Nelnet, Inc., Alexandra Sterman, and Samantha Sterman, Defendants.

Case No. 16-10378 (MG)

Adv. Pro. Case No. 18-01015 (MG)

United States Bankruptcy Court, S.D. New York.

Signed December 4, 2018

ARCHER & GREINER, P.C., Counsel to the Chapter 7 Trustee Robert L. Geltzer, 630 Third Avenue, New York, NY 10017, By: Allen G, Kadish, Esq.

PAUL MILBAUER, ESQ., Counsel to Debtors Bruce Sterman and Luba Pincus and Defendants Alexandra Sterman and Samantha Sterman, 90 John Street – Suite 313, New York, NY 10038

MEMORANDUM OPINION AND ORDER GRANTING IN PART AND DENYING IN PART CROSS-MOTIONS FOR SUMMARY JUDGMENT

MARTIN GLENN UNITED STATES BANKRUPTCY JUDGE

The Chapter 7 Trustee, Robert L. Geltzer (the "Trustee"), seeks to recover as constructive fraudulent transfers amounts paid by the Chapter 7 co-debtors, Luba Pincus and Bruce Sterman (the "Debtors"), to or for the benefit of their two daughters, defendants Alexandra Sterman and Samantha Sterman (the "Defendants"), allegedly for college tuition, books and supplies, and room and board while they were students at Oberlin College. The Trustee and the Defendants filed cross-motions for summary judgment (the "Trustee's Motion," ECF Doc. # 24; the "Defendants' Motion," ECF Doc. # 22 at 11). The Defendants' Motion is supported by the affidavits of debtor Luba Pincus (the "Pincus Affidavit," ECF Doc. # 22 at 1) and debtor Bruce Sterman (the "Sterman Affidavit," ECF Doc. # 22 at 5).

The parties also entered a stipulation of undisputed facts (the "Stipulated Facts," ECF Doc. # 21). The Stipulated Facts indicate that some of the transfers to or for the benefit of Samantha were made while she was a college student before she was 21 years old and some were made while she was a college student after she was 21 years old. The Stipulated Facts indicate that the transfers to or for the benefit of Alexandra were made after she was 21 years old and had already graduated from college . According to the Stipulated Facts, since Alexandra graduated college in 2009, she has been "financially independent." (Stipulated Facts ¶ 15.)

The parties limit their cross motions to a request that the Court rule whether the Debtors received "reasonably equivalent value" for the transfers for college tuition and expenses; if the Debtors received reasonably equivalent value, the transfers would not be avoidable as constructive fraudulent transfers even if the Debtors were insolvent at the time of the transfers. There are two questions presented: first, did the Debtors receive reasonably equivalent value for their daughters' college educations and related expenses because their daughters' education will enhance their self-sufficiency; and second, does it matter whether the daughters were younger or older than 21 when the transfers were made?

For the reasons explained below, the Court grants the Trustee's Motion in part and denies it in part with respect to the transfers to or for the benefit of Samantha. The Trustee's Motion is granted with respect to the transfers to or for the benefit of Alexandra, as she was older than 21 and no longer a student when the transfers were made.

I. BACKGROUND

The Debtors, Luba Pincus and Bruce Sterman, filed a joint chapter 7 petition on February 19, 2016 (the "Petition Date"). (The Stipulated Facts ¶ 2.) The Trustee filed an adversary proceeding to recover allegedly constructively fraudulent transfers made by the Debtors to or for the benefit of their daughters. (Id. ¶ 11-12.)¹

Alexandra attended Oberlin College from 2005-2009; Samantha attended Oberlin College from 2009-2013. (Id. ¶ 15-19.) In the six years prior to the Petition Date, the Debtors made several transfers to or for the benefit of their daughters. The parties stipulate that the transfers were made in connection with the Defendants' "college educations at Oberlin College and related expenses, including school books and supplies, meals, campus housing/rent/utilities, transportation and birthday presents." (Id. ¶ 12.)

The Stipulated Facts state that Alexandra Sterman reached age 21 on January 12, 2008 and graduated from Oberlin College in 2009. (Stipulated Facts ¶¶ 13 & 14.) Exhibit A to the Complaint (ECF Doc. # 1) indicates that transfers to or for the benefit of Alexandra, totaling $15,675.00, were made between August 13, 2010 and October 13, 2015. Paragraph 12 of the Stipulated Facts states that "[t]he schedules of transfers that are attached to the Complaint as Exhibits A and B accurately describe the transfers to and/or for the benefit of the Defendants that are the subject of the Complaint." Those two exhibits list transfers between 2010-2015. Both the Stipulated Facts and the Pincus Affidavit state that Alexandra attended college between 2005 and 2009, and graduated in 2009, so it is clear under the Stipulated Facts that the transfers to or for the benefit of Alexandra all were made after she was 21 years old and after she graduated from Oberlin. The Pincus Affidavit also makes clear that "[s]ince graduation [Alexandra] has been fully employed, self sufficient and tax paying adult." (Pincus Affidavit ¶ 9.)

The Trustee claims that the transfers are constructively fraudulent. The Trustee seeks to recover $15,675.00 from Alexandra for transfers "while she was of majority age." (Stipulated Facts ¶ 16.) The Trustee seeks to recover $9,952.00 from Samantha; $2,276.00 of those transfers were made "in respect of college tuition and living expenses ... while she was a minor, and $7,676.00 were made while she was of majority age."² (Id. ¶ 18.)

For purposes of the summary judgment motions, "the parties have agreed not to put solvency at issue." (Trustee's Motion ¶ 12, ECF Doc. # 11.) Therefore, the sole question is whether the Debtors received reasonably equivalent value for the transfers to or for the benefit of their daughters.³

II. LEGAL STANDARD

A. Summary Judgment

Rule 56(a) of the Federal Rules of Civil Procedure, made applicable by Bankruptcy Rule 7056, states that "[t]he court shall grant summary judgment 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). To successfully assert that a fact is not in dispute or cannot be disputed, a movant must:

cit[e] to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials; or show[ ] that the material cited do not establish the absence or presence of a genuine dispute, or that an adverse partycannot produce admissible evidence to support the fact.

FED. R. CIV. P. § 56(c)(1).

"The party seeking summary judgment bears the burden of establishing that no genuine issue of material fact exists and that the undisputed facts establish [the movant's] right to judgment as a matter of law." In re Soliman , 515 B.R. 179, 185 (Bankr. S.D.N.Y. 2014), (citing Rodriguez v. City of New York , 72 F.3d 1051, 1060–61 (2d Cir. 1995) ).

B. Fraudulent Transfers

The Trustee claims that the transfers were constructively fraudulent pursuant to Bankruptcy Code § 544. Section 544 provides that the trustee may avoid a transfer of a debtor's property interest that is voidable under state law by a creditor holding an allowed unsecured claim. See 11 U.S.C. § 544(b)(1) ; see also Banner v. Lindsay (In re Lindsay) , Adv. 2010 WL 1780065, at *5 (Bankr. S.D.N.Y. 2010). The Trustee alleges that the transfers in question were fraudulent under the New York Debtor and Creditor Law ("NYDCL"). Under the NYDCL, a conveyance is fraudulent if it is incurred without "fair consideration." NYDCL §§ 273 and 275. "Fair consideration" is defined by the NYDCL as follows:

fair consideration is given for property, or obligation,

a. When in exchange for such property, or obligation, as a fair equivalent therefor, and in good faith, property is conveyed or an antecedent debt is satisfied, or

b. When such property, or obligation is received in good faith to secure a present advance or antecedent debt in amount not disproportionately small as compared with the value of the property, or obligation obtained.

NYDCL § 272.

Ordinarily, the plaintiff bears the burden of proving a lack of fair consideration but where, as here, "the facts regarding the nature of the consideration are within the transferee's control, the burden of proving the fairness of consideration shifts to the transferee." Ackerman v. Ventimiglia (In re Ventimiglia) , 362 B.R. 71 (Bankr. E.D.N.Y. 2007).

The Trustee also argues that the conveyances were constructively fraudulent under Bankruptcy Code § 548. Under that provision, a trustee may avoid a transfer made by the debtor within two years of the filing of the petition if the debtor did not receive "reasonably equivalent value" in the exchange. 11 U.S.C. § 548(a)(1)(b). The Bankruptcy Code defines the term "value" as "property, or satisfaction or securing of a present or antecedent debt of the debtor, but does not include an unperformed promise to furnish support to the debtor or to a relative of the debtor." 11 U.S.C.A. § 548(d)(2)(A). The Bankruptcy Code does not define the term "reasonably equivalent value." In re Gonzalez , 342 B.R. 165, 169 (Bankr. S.D.N.Y. 2006). Courts have found that the term does not require the exchange to be "mathematically equal" but "[p]urely emotional benefits, such as love and affection" will not suffice. Id. at 169, 173. Both direct and indirect benefits flowing to the debtor may be considered. In re Akanmu , 502 B.R. 124, 130–31 (Bankr. E.D.N.Y. 2013) (quoting Liquidation Trust v. Daimler AG (In re Old CarCo LLC) , No. 11 Civ. 5039(DLC), 2011 WL 5865193, at *7 (S.D.N.Y. Nov. 22, 2011) )....