Lamonica v. NEDM Payables Corp. (In re Pretty Girl, Inc.)

644 B.R. 298

IN RE: PRETTY GIRL, INC., Debtor.

Salvatore Lamonica, as Chapter 7 Trustee of Pretty Girl, Inc., Plaintiff,

v.NEDM Payables Corp., Defendant.

Salvatore Lamonica, as Chapter 7 Trustee of Pretty Girl, Inc., Plaintiff,

v.NEDM R.E. Corp., Defendant.

Case No. 14-11979 (SHL) (Jointly Administered)

Adv. Pro. No. 16-01145 (SHL)

Adv. Pro. No. 16-01146 (SHL)

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

Signed October 7, 2022

LAMONICA HERBST & MANISCALCO, LLP, Counsel for Plaintiff, Salvatore LaMonica, the Chapter 7 Trustee of Pretty Girl, Inc., 3305 Jerusalem Avenue, Wantagh, NY 11793, Phone: 516.826.6500, By: David A. Blansky, Esq., Joseph S. Maniscalco, Esq.

ROSEN & ASSOCIATES, P.C., Counsel for Defendants, 747 Third Avenue, New York, NY 10017-2803, Phone: 212.223.1100, By: Sanford P. Rosen, Esq., Christine M. Dehney, Esq.

MEMORANDUM OF DECISION

SEAN H. LANE, UNITED STATES BANKRUPTCY JUDGE

Before the Court are two motions for partial summary judgment against the defendants in the two above-captioned adversary proceedings filed by Salvatore LaMonica, of Pretty Girl, Inc., who is the Chapter 7 Trustee of Pretty Girl, Inc., the debtor in the above-captioned bankruptcy proceeding. For the reasons set forth below, the motions are granted.

BACKGROUND

The Debtor filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code in the main bankruptcy case in July 2014. [Case No. 14-11979, ECF No. 1]. Prior to the bankruptcy filing, the Debtor managed 27 retail stores selling price-conscious women's clothing. See Declaration of Albert Nigri Pursuant to Rule 1007-2 ¶ 5 [Case No. 14-11979, ECF No. 1] ("Nigri Decl."). The Debtor's case was converted from Chapter 11 to Chapter 7 in late December 2014. [Case No. 14-11979, ECF No. 142]. Salvatore LaMonica was then appointed as Chapter 7 Trustee. [Case No. 14-11979, ECF No. 143].

In late June 2016, the Trustee initiated these adversary proceedings with two nearly identical complaints against NEDM Payables Corp. (the "Payables Defendant") and NEDM R.E. Corp. (the "RE Corp Defendant.") [Adv. Pro. No. 16-01145 and Adv. Pro. No. 16-01146, respectively]. In these actions, the Trustee seeks to recover funds allegedly transferred to the Defendants. See generally, Complaint against Payables Defendant [Adv. Pro. No. 16-01145, ECF No. 1];¹ Complaint against RE Corp Defendant [Adv. Pro. No. 16-01146, ECF No. 1]. The Trustee now moves for summary judgment to recovery on theories of actual and constructive fraudulent conveyance. [Adv. Pro. No. 16-01145, ECF No. 28; Adv. Pro. No. 16-01146, ECF No. 28].²

The Payables Defendant was the recipient of $289,030.08 via six separate wire transfers in September and October 2011 and one check from the Debtor in April 2014. Trustee's SMF re Payables ¶ 6; Exh. B. The RE Corp Defendant was the recipient of $185,573.02 via three wire transfers from the Debtor in October and November 2011. Trustee's SMF re RE Corp ¶ 6; Exh. B. The business purpose of the RE Corp Defendant was to manage the real estate related matters of Debtor. Defendants’ SMF, Additional Facts ¶ 2; see also Trustee's SMF re RE Corp, Exh. G. The business purpose of the Payables Defendant was to conduct banking for the Debtor and affiliated companies. Defendants’ SMF, Additional Facts ¶ 1; see also Trustee's SMF re Payables, Exh. G.

Albert Nigri was the principal of the Debtor. See Declaration of Albert Nigri Pursuant to Rule 1007-2 ¶ 5 [Case No. 14-11979, ECF No. 1] (the "Nigri Decl."). Mr. Nigri created both of the Defendants. See Exh. G to Trustee's Statements, at 10:2-9; 15:14-16:9. As Mr. Nigri admitted, the New York City Environmental Control Board had "a judgment against [Debtor] and all the other stores, so, in order to protect ourselves from using the bank account in Chase, for Pretty Girl and the affiliate, they all had judgments, so, we opened [Payables Defendant] to take the money and use it to--for banking." Trustee's SMF re Payables ¶ 17; see also Exh. G to Trustee's Statements, at 14. Mr. Nigri testified that the RE Corp Defendant was established for the same purpose as the Payable Defendant. Trustee's SMF re: RE Corp ¶ 19; see also Exh. G to Trustee's Statements, at 16. As Mr. Nigri explained, "we were afraid to put money in our bank account in Chase because they had judgment [sic] on most of the account. So, we used that account... to put all the money in there." Trustee's SMF re Payables ¶ 17; see also Exh. G to Trustee's Statements, at 14. Defendants argue that while Nigri's action may have delayed the judgment enforcement, Defendants note that the judgment against the New York City Environmental Control Board was eventually satisfied. Defendants’ SMF ¶ 19.

In addition to the judgment of the Environmental Control Board, the Debtor was conducting business in the shadow of another judgment. Prior to the bankruptcy proceeding, Osama Hazza Saleh filed a complaint against Debtor and three co-defendants in the United States District Court for the Eastern District of New York, Case No. 09-cv-1769 (RER). Trustee's SMF re Payables ¶ 20. In June 2014, a judgment was entered awarding Mr. Saleh $3.365 million (the "Saleh Award"). Id. ¶ 21, Exh. H to Trustee's Statements. The Saleh Award was unsatisfied as of the petition date in the main bankruptcy proceeding. Id. ¶ 22. Indeed, the Saleh Award was included on the schedule of the 20 largest unsecured claims annexed as Exh. A to the Nigri Decl. Id. ¶ 23, Exh. I to Trustee's Statements.³

The Trustee maintains—and the Defendants have provided no evidence to dispute—that none of the transfers at issue here were on account of antecedent debt owed by the Debtor to the Defendants, the Debtor was not a guarantor of any debt owed by a third party to either Defendant on the date of any transfer, neither Defendant was a creditor of the Debtor at the time of any transfer, and neither Defendant directly repaid the amount of any transfer. Trustee's SMF re Payables ¶ 16; Trustee's SMF re RE Corp ¶ 16; see also Exh. E to Trustee's Statements (Defendant's Response to Plaintiff's Request for Admission Nos. 10 – 15); Defendants’ SMF ¶¶ 7, 14–15 (confirming that the transfers occurred and that the cited bank records are accurate). Rather, Defendants say that these were payments on the Debtor's account to its landlord and other creditors and, therefore, were indirect payments to the Debtor. Defendants’ SMF ¶ 16.

In late August 2020, the Trustee filed the motion for summary judgment against the Payables Defendant and the Motion for Summary Judgment against the RE Corp Defendant on its second, third, and sixth claims for relief. [Adv. Pro. No. 16-01145, ECF No. 28] ("Payables SJ Motion"); [Adv. Pro. No. 16-01146, ECF No. 28] ("RE Corp SJ Motion"). As the two cases raise similar issues, the Chapter 7 Trustee filed nearly identical memorandums of law [Adv. Pro. No. 16-01145, ECF No. 27; Adv. Pro. No. 16-01146, ECF No. 27] and Trustee's Statements. Defendants filed a single memorandum of law in opposition to both of Plaintiff's motions, [Adv. Pro. No. 16-01145, ECF No. 31; Adv. Pro. No. 16-01146, ECF No. 31] and the Trustee filed a single reply [Adv. Pro. No. 16-01145, ECF No. 33; Adv. Pro. No. 16-01146, ECF No. 34] (the "Trustee's Reply").

DISCUSSION

A. Legal Standards

1. Summary Judgment

Federal Rule of Civil Procedure 56 provides 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. 56.⁴ "[S]ummary judgment is proper ‘if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the [movant] is entitled to a judgment as a matter of law.’ " Celotex Corp. v. Catrett , 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (quoting Fed. R. Civ. P. 56 ). "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." Rodriguez v. City of New York , 72 F.3d 1051, 1060–61 (2d Cir. 1995). If "the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no ‘genuine issue for trial.’ " Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (quoting First Nat'l Bank of Ariz. v. Cities Serv. Co. , 391 U.S. 253, 288, 88 S.Ct. 1575, 20 L.Ed.2d 569 (1968) ). At this point, the burden then shifts to the non-moving party to produce "sufficient specific facts to establish that there is a genuine issue of material fact for trial." Lipton v. Nature Co., 71 F.3d 464, 469 (2d Cir. 1995) (citation omitted).

"A fact is material when it might affect the outcome of the suit under governing law." McCarthy v. Dun & Bradstreet Corp. , 482 F.3d 184, 202 (2d Cir. 2007). "In deciding whether material factual issues exist, all ambiguities must be resolved and all reasonable inferences must be drawn in favor of the nonmoving party." In re Ampal-Am. Israel Corp. , 2015 WL 5176395, *10, 2015 Bankr. LEXIS 2934, *31 (Bankr. S.D.N.Y. 2015) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ).

A party opposing a properly supported motion for summary judgment may not rest upon allegations or denials of pleadings but must set forth specific facts showing there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). "[T]here is no issue for trial unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Id. at 249, 106 S.Ct. 2505. The nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co....