U.S. Bancorp Equip. Fin., Inc. v Rubashkin
2011 NY Slip Op 50100(U)
Decided on January 31, 2011
Supreme Court, Kings County
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This opinion is uncorrected and will not be published in the printed Official Reports.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 January 31, 2011
Supreme Court, Kings County
U.S. Bancorp Equipment Finance, Inc., Petitioner,
Abraham A. Rubashkin, RIVKA RUBASHKIN, JOSEPH RUBASHKIN, GUTOL LEITER, ROSIE SANDMAN, HILGAR LIMITED, A. A. RUBASHKIN & SONS, INC., 452-53rd STREET REALTY CORP., 410 EAST 17th STREET, LLC, 404 REALTY ASSOCIATES, LLC, and JOHN DOES No. 1 - 10, Respondents.
Jonathan Borg, Esq.
Day Pitney LLP
Joseph Shochet, Esq.
Sherman Citron & Karasik, PC
Arthur M. Schack, J.
In this proceeding, petitioner U.S. BANCORP EQUIPMENT FINANCE, INC. [*2]
(US BANCORP), a judgment creditor of ABRAHAM A. RUBASHKIN (RUBASHKIN),
moves, by order to show cause, to:
(1) hold in contempt respondents RUBASHKIN, A. A. RUBASHKIN &
SONS, INC. (AARS) and 452-53rd STREET REALTY CORP. (53SRC),
pursuant to CPLR §§ 2308, 5210, 5222, 5224, 5251 and Judiciary Law
§ 753 et seq., for their failure to comply with subpoenas duces tecum
and information subpoenas issued to them;
(2) obtain leave to receive, pursuant to CPLR § 408, disclosure ofRUBASHKIN's assets;
(3) void as fraudulent, pursuant to Debtor & Creditor Law (DCL) § 270
et seq.: the conveyance by RUBASHKIN of his interest in his house,
located at 5502 15th Avenue, Brooklyn, New York to his wife, respondent
RIVKA RUBASHKIN (RIVKA); the conveyance by RUBASHKIN of
certain shares of stock and membership interests to RUBASHKIN's son
JOSEPH RUBASHKIN (JOSEPH), RUBASHKIN's daughter GUTOL
LEITER (GUTOL) and RUBASHKIN's granddaughter ROSIE SANDMAN (ROSIE); and, the mortgage given to respondent HILGAR LIMITED
(HILGAR) by RUBASHKIN and RIVKA for their house, at 5502
15th Avenue, Brooklyn, New York;
(4) award petitioner US BANCORP: a money judgment against RIVKA,
JOSEPH, GUTOL and ROSIE as a result of their aiding and abetting RUBASHKIN's fraudulent conveyances to them; and, attorney's fees from
RIVKA, JOSEPH, GUTOL and ROSIE as a result of the fraudulent nature
of RUBASHKIN's conveyances to them;
(5) direct the turnover of all sums and property due to RUBASHKIN,
pursuant to CPLR §§ 5225 and 5227, from and/or belonging to
RUBASHKIN and in the possession of respondents AARS, 53SRC,
RIVKA, JOSEPH, GUTOL, ROSIE, HILGAR, 410 EAST 17th
STREET, LLC (E17LLC), 404 REALTY ASSOCIATES, LLC
(404 LLC) and JOHN DOES #1 - 10, representing those unknown
third parties who are in possession or owe money to RUBASHKIN,
and awarding to petitioner US BANCORP a money judgment against
them for the sums due to RUBASHKIN;
(6) issue: an order of attachment, pursuant to CPLR § 6201 et seq.,
against RUBASHKIN's assets up to the sum of $902,334.44, plus interest;
and, a temporary restraining order against RUBASHKIN, JOSEPH,
GUTOL, ROSIE, RIVKA, HILGAR, AARS, 53SRC, 404 LLC and
E17LLC as to RUBASHKIN's assets, including but not limited to his
interests in certain real estate, shares of stock, and membership interests transferred by him, and moneys which would otherwise be due him had
the transfers not occurred and, upon granting the temporary restraining
order, pursuant to CPLR § 6220, direct RUBASHKIN to make disclosure
as to his other assets which may be subject to attachment; and,
(7) award to petitioner US BANCORP its contractual costs and attorney's [*3]
fees incurred in connection with its enforcement of its judgment againstRUBASHKIN.
Pending the determination of the instant order to show cause, respondents, together with their officers, employees or agents were stayed, restrained, enjoined and prohibited from encumbering, mortgaging, assigning, transferring or assisting in or suffering to permit the encumbrance, mortgage, assignment and/or transfer of: (a) any moneys or property belonging to, due to, or received from RUBASHKIN: and, (b) any interests in AARS, 53SRC, E17LLC and/or 404LLC which were transferred by RUBASHKIN and moneys which would otherwise be due to RUBASHKIN had the transfers not occurred. Further, HILGAR, together with its officers, employees, attorneys or agents, is upon the foreclosure sale of RUBASHKIN's 5502 15th Avenue, Brooklyn house, stayed, retrained, enjoined and prohibited from removing, and required to hold in its attorneys' escrow account, or deposit with the Court, $902,334.44, plus interest, due to US BANCORP.
The relief requested by petitioner US BANCORP with respect to RUBASHKIN, AARS and 53SRC complying with subpoenas duces tecum and information subpoenas issued to them and disclosure of RUBASHKIN's assets, was resolved by a so-ordered
stipulation by counsel for petitioner and counsel for respondents RUBASHKIN, AARS and 53SRC, at the October 18, 2010 oral arguments on the instant order to show cause. The Court reserved decision on the other issues in the instant order to show cause. The Court grants to an extent petitioner US BANCORP's order to show cause as will be explained in this decision and order..
Respondent RUBASHKIN was the sole shareholder of a corporation called AGRIPROCESSORS, INC. (AGRIPROCESSORS), which had a meat processing plant in Postville, Iowa. AGRIPROCESSORS, "founded by Aaron Rubashkin, has a storybook history whose recent chapters have turned murky. After some of RUBASHKIN's Lubavitch Hasidic family moved here [Postville] from Brooklyn in 1987, the firm became the nation's largest processor of glatt kosher beef, the strictest kosher standard. It produces kosher and non-kosher beef, veal, lamb, turkey and chicken products under such brands as Iowa Best Beef, Aaron's Best and Rubashkin's." (Spencer S. Hsu, Immigration Raid Jars a Small Town: Critics Say Employers Should Be Targeted, Washington Post, May 18, 2008).
AGRIPROCESSORS, between April 2004 and December 2004, entered into a series of lease agreements and schedules (the Lease) with U.S. BANCORP for various meat processing equipment. RUBASHKIN, on or about May 20, 2004, executed and delivered to US BANCORP a personal guaranty (the Guaranty), to provide U.S. BANCORP with security for the repayment of the Lease, by which RUBASHKIN absolutely, unconditionally and irrevocably guaranteed US BANCORP all payment and performance obligations of AGRIPROCESSORS under the Lease.
Federal Immigration and Customs Enforcement (ICE) agents, on or about May 12, 2008, raided AGRIPROCESSORS Postville facility because of alleged employment of numerous undocumented workers. This led to the filing of criminal charges against SHOLOM RUBASHKIN (SHOLOM), RUBASHKIN's son and Chief Executive Officer of AGRIPROCESSORS, as well as other officials connected with the plant. Then, the Iowa Attorney General, on or about September 9, 2008, charged AGRIPROCESSORS, RUBASHKIN, [*4]SHOLOM and other plant officials with 9,311 violations of child labor law and more than 1,500 violations relating to wages and hours worked. Subsequently, on or about October 29, 2008, the State of Iowa civilly fined AGRIPROCESSORS nearly $10,000,000.00 for labor law violations. SHOLOM, in November 2008, was arrested on federal bank fraud charges related to the diversion of millions of dollars to increase the apparent value of AGRIPROCESSORS's accounts receivable. He was subsequently convicted, in November 2009, in U.S. District Court on 86 counts, including bank fraud, making false statements to a bank, wire fraud, mail fraud and money laundering
On November 4, 2008, six days after the State of Iowa civilly fined AGRIPROCESSORS for labor law violations, AGRIPROCESSORS filed a voluntary petition in the United States Bankruptcy Court for the Eastern District of New York for relief, pursuant to Title 11, Chapter 11 of the United States Code. Venue was transferred, on December 12, 2008, to the United States Bankruptcy Court for the Northern District of Iowa.
As a result of AGRIPROCESSORS's failure to make payments to U.S. BANCORP under the Lease, from September 2008, and its subsequent bankruptcy filing, AGRIPROCESSORS defaulted under the terms of the Lease and RUBASHKIN defaulted under the terms of the Guaranty. Therefore, on December 1, 2008, US BANCORP's counsel sent a written demand (the Demand Letter) to RUBASHKIN for payment of the monies due as a result of AGRIPROCESSORS' defaults under the Lease. RUBASHKIN failed to make payment in response to the Demand Letter. Then, US BANCORP, on December 12, 2008, filed a complaint in the United States District Court for the Eastern District of New York (EDNY). (U.S. Bancorp Equipment Finance, Inc. v Abraham A. Rubashkin, No. 08-CV-5021). United States District Court Judge Jack Weinstein, on August 12, 2009, granted summary judgment to US BANCORP against RUBASHKIN. Judge Weinstein awarded U.S. BANCORP $902,334.44, plus interest from August 3, 2009. US BANCORP entered the judgment on August 14, 2009 with the EDNY Clerk.
Then, US BANCORP, on August 29, 2009, filed an abstract of the EDNY judgment in the Office of the County Clerk of Kings County, and, on September 18, 2009, served RUBASHKIN with a restraining notice, a subpoena duces tecum, and an information subpoena. Restraining notices were served upon AARS on November 24, 2009 and upon 53SRC on December 8, 2009. A subpoena duces tecum was served upon AARS on December 11, 2009 and upon 53SRC on January 12, 2010. US BANCORP claims that RUBASHKIN, AARS and 53SRC failed to comply with their obligations to produce documents and appear for examination.
Thereafter, pursuant to property executions dated December 4, 2009, US BANCORP had New York City Marshal Martin A. Bienstock levy upon RUBASHKIN's interests in and to his personal and real property, including his shares of stock in 53SRC and AARS, and his membership interests in E17LLC and 404LLC.
Subsequent to Marshal Bienstock's levy, counsel for RUBASHKIN contacted counsel for US BANCORP and Marshal Bienstock, claiming that RUBASHKIN had no assets and RUBASHKIN did not intend to make payment or take any other action in response to the executions. According to U.S. BANCORP, no payment has been made to Marshal Bienstock in response to the levy of executions, the EDNY Judgment remains unsatisfied and US BANCORP still is the owner of the EDNY Judgment and a judgment creditor of RUBASHKIN. [*5]
RUBASHKIN's counsel eventually provided documents to counsel for US BANCORP, including a judgment by confession, filed in the Office of the Kings County Clerk on December 2, 2008, entered in favor of JOSEPH, GUTOL and ROSIE for $2,255,000.00. (Joseph Rubashkin, Gutol Leiter and Rosie Sandman v Aaron Rubashkin a/k/a Abraham Aaron Rubashkin, Index No. 32372/08 [the Confession Action]). The Confession Action was based upon RUBASHKIN's confession affidavit, dated November 26, 2008, in which RUBASHKIN confessed judgement in favor of plaintiffs and against himself, "for the sum of $2,255,000." RUBASHKIN stated, in his confession affidavit, only the following regarding the alleged $2,255,000.00 debt:
This confession of judgment is to assure the plaintiffs against
my liability arising upon the following facts: JOSEPH RUBASHKIN
made a loan to me in the sum of $1,000,000 payable on demand, and
GUTOL LEITER and ROSIE SANDMAN made loans to me in the
sum of $1,255,000 payable on demand. I acknowledge that each have
them have made demand upon me for payment of the loans given to
me and that the loans have not been repaid and are in default [sic].
The sum confessed does not exceed the amount of my liability to
The confession affidavit and the judgment by confession were entered on the same day, December 2, 2008, that RUBASHKIN received the Demand Letter from US BANCORP. Then, on December 7, 2008, RUBASHKIN executed an assignment (the Corporate Assignment or Corporate Conveyance), by which he purported to transfer and assign to plaintiffs JOSEPH, GUTOL and ROSIE, in the Confession Action, all of his right, title and interest in and to certain stock certificates and membership interests, in partial satisfaction of the judgment by confession. These ownership interests (the Corporate Interests) are: 200 shares of stock in 53SRC; 79 shares of stock in AARS; 100% of the membership interest in E17LLC; and, 100% of the membership interest in 404LLC.
During the pendency of the EDNY action, on July 29, 2009, while US BANCORP and RUBASHKIN were awaiting a decision on US BANCORP's motion for summary judgment against RUBASHKIN, RUBASHKIN transferred his interest in his 5502 15th Avenue home to RIVKA, for an alleged payment of $7,500.00 (the Residential Conveyance). Prior to this, on August 1, 2008, HILGAR loaned $2,750,000.00 to AGRIPROCESSORS, which RUBASHKIN personally guaranteed on August 27, 2008. On the same day, RUBASHKIN and RIVKA executed a mortgage of their 5502 15th Avenue residence, for $2,750,000.00, to HILGAR.
In my September 27, 2010 decision and order in the Confession Action, published at 28 Misc 3d 1240 (A), in response to an order to show cause by nonparty US BANCORP, I vacated RUBASHKIN's $2,255,000.00 judgment by confession in favor of JOSEPH, GUTOL and ROSIE, because RUBASHKIN'S confession failed to meet the statutory requirements of CPLR § 3218.
In the instant proceeding, petitioner US BANCORP seeks, inter alia, to: hold RUBASHKIN, AARS AND 53SRC in contempt for their failure to comply with post- judgment discovery; void the conveyances made by RUBASHKIN to RIVKA, JOSEPH, GUTOL, ROSIE and HILGAR as fraudulent; grant a turnover of any moneys or property of RUBASHKIN or due [*6]to him, to US BANCORP, to satisfy or partially satisfy the EDNY judgment; award to petitioner US BANCORP's contractual attorney's fees; conduct disclosure from respondents to obtain additional information in support of its claims for relief; attach RUBASHKIN's nonexempt property; and, enjoin, restrain and stay respondents from transferring any of RUBASHKIN's assets which RUBASHKIN transferred to them.
Stipulation re: contempt and disclosure
Counsel for petitioner US BANCORP and counsel for respondents RUBASHKIN, RIVKA, JOSEPH, GUTOL, ROSIE, AARS, 53SRC, 410LLC and 404LLC, on October 18, 2010, appeared for oral arguments on the instant order to show cause and petition. The attorneys stipulated that: RUBASHKIN will produce the documents demanded in the September 16, 2009 subpoena duces tecum within 45 days [December 2, 2010]; RUBASHKIN will complete and return to petitioner's counsel the questionnaire accompanying the information subpoena, dated September 16, 2009, within 30 days [November 17, 2010]; AARS will produce documents requested in the December 11, 2010 subpoena duces tecum within 45 days [December 2, 2010]; 53SRC will produce documents requested in the January 10, 2010 subpoena duces tecum within 45 days [December 2, 2010]; RUBASHKIN, AARS and 53SRC will appear at the office of petitioner's counsel within thirty days after the production of documents at a mutually agreeable date and time; RUBASHKIN, AARS and 53SRC acknowledge service of the restraining notices served upon them, as alleged in the instant petition; and, the temporary restraining order shall remain in effect pending the determination of the petition. The Court so-ordered the stipulation and reserved decision upon petitioner's remaining requests for relief.
Therefore, the Court does not need to address the matters resolved in the so-
ordered October 18, 2010 stipulation dealing with respondents' compliance with subpoenas duces tecum, information subpoenas and disclosure of RUBASHKIN's assets.
Voiding the Corporate Conveyance
The following are all fraudulent conveyances, pursuant to DCL § 270 et seq.: RUBASHKIN's Corporate Conveyance to JOSEPH, GUTOL and ROSIE; RUBASHKIN's Residential Conveyance to RIVKA; and, the $2,750,000.00 HILGAR Mortgage of 5502 15th Avenue. The Rubashkin respondents, in their affirmations in opposition and opposing papers, do not dispute petitioner US BANCORP's allegations that: RUBASHKIN was insolvent at the time of, or rendered insolvent, by the Corporate Assignment, the Residential Conveyance, or the granting of the HILGAR Mortgage; RUBASHKIN was a defendant in the EDNY action at the time of the Residential Conveyance; the EDNY Judgment was thereafter entered; the EDNY Judgment has not been satisfied; RUBASHKIN was engaged in a business and was left with unreasonable small capital after the Corporate Conveyance, the Residential Conveyance and the granting of the HILGAR Mortgage; and, RUBASHKIN intended or believed that he would incur debts beyond his ability to pay as they matured at the time he made the Corporate Conveyance, the Residential Conveyance and/or granted the HILGAR Mortgage. Therefore, these allegations are deemed admitted.
The Corporate Conveyance is fraudulent as to petitioner US BANCORP, pursuant to the constructive and actual fraudulent conveyance statutes, DCL §§ 273-276, and must be voided and set aside, pursuant to DCL § 278.
There is no documentary evidence that there was any consideration, let alone fair [*7]consideration, given to RUBASHKIN in exchange for his alleged obligation of $2,255,000.00 to JOSEPH, GUTOL and ROSIE. Both RUBASHKIN and JOSEPH admit this in their affirmations in opposition. Further, RUBASHKIN, in ¶ 13 of his affirmation in opposition in the Confession Action, alleges that the monies from JOSEPH, GUTOL and ROSIE in the Confession Action were all remitted to AGRIPROCESSORS, but states that "I, JOSEPH, GUTOL AND ROSIE DO NOT CURRENTLY HAVE WRITTEN EVIDENCE THAT THE PROCEEDS OF THE MORTGAGES AND OTHER LOANS WERE TRANSFERRED TO AGRI." Thus, the inference must be drawn from the failure to produce documentation that no documentation exists and the alleged $2,255,000.00 obligation is a fabrication. RUBASHKIN, in ¶ 16 of his affirmation in opposition, claims that his purported obligation is legitimate, but fails to come forward with proof in evidentiary form to refute petitioner US BANCORP's allegation that there was a lack of fair consideration. Therefore, the only conclusion that the Court can reach is that no fair consideration existed.
Next, RUBASHKIN, cannot rely upon the Corporate Conveyance being made in partial satisfaction of the judgment by confession as fair consideration, since the judgment by confession was vacated in my September 27, 2010 decision and order. Thus, the judgment by confession is now a nullity. RUBASHKIN'S assignment of his Corporate Interests in partial satisfaction of the judgment by confession is void since his fraudulent obligation no longer exists. If RUBASHKIN's debt was valid, as he claims, he could have transferred his Corporate Interests to JOSEPH, GUTOL and ROSIE without the need to obtain a judgment by confession. Instead, RUBASHKIN saw some purpose to have his relatives enter a judgment against him and then make the Corporate Conveyance in partial satisfaction of the judgment. Therefore, with RUBASHKIN's judgment by confession vacated, any payments made in purported partial satisfaction, including the Corporate Conveyance, are void for lack of fair consideration. Thus, RUBASHKIN, JOSEPH, GUTOL and ROSIE are put back into the positions they occupied prior to the entry of the judgment by confession, and RUBASHKIN now has ownership of the Corporate Interests, which are subject to petitioner US BANCORP's requests for turnover and attachment.
Moreover, RUBASHKIN's contention, in ¶ 13 of his affirmation in opposition in the Confession Action, that the "loan" made from JOSEPH to him was actually made from AARS to AGRIPROCESSORS, and that he and JOSEPH "considered 13.66% of these transfers aggregating over $260,000 as a loan from Joseph to me," not only smacks of fast and loose accounting but also demonstrates a lack of mutuality, making it insufficient to constitute consideration for RUBASHKIN to owe a personal debt to JOSEPH or transfer assets to JOSEPH. "In order to satisfy the requirements of mutuality, debts must be due to and from the same persons in the same capacity' (Beecher v Vogt Mfg. Co., 227 NY 468 )." (General Elec. Capital Business Asset Funding Corp. v Hakakian, 6 AD3d 705, 705 [2d Dept 2004]). (See Matter of Midland Ins. Co., 79 NY2d 253, 259 ; In re Liquidation of Realax Group, N.V., 210 AD2d 91, 93 [1d Dept 1994]).
Petitioner US BANCORP satisfies the elements of DCL §§ 273, 275 and 275 to demonstrate fraudulent conveyances. DCL § 273, "Conveyances by insolvent," states "[e]very conveyance made and every obligation incurred by a person who is or will be thereby rendered insolvent is fraudulent as to creditors without regard to his actual intent if the [*8]conveyance is made or the obligation is incurred without a fair consideration." DCL § 274, "Conveyances by persons in business," states "[e]very conveyance made without fair consideration when the person making it is engaged or is about to engage in a business or transaction for which the property remaining in his hands after the conveyance is an unreasonably small capital, is fraudulent as to creditors and as to other persons who become creditors during the continuance of such business or transaction without regard to his actual intent." DCL § 275, "Conveyances by a person about to incur debt," states "[e]very conveyance made and every obligation incurred without fair consideration when the person making the conveyance or entering into the obligation intends or believes that he will incur debts beyond his ability to pay as they mature, is fraudulent as to both present and future creditors." There is unquestionably: a lack of consideration for the Corporate Conveyance; the Rubashkin respondents admitting to RUBASHKIN's insolvency; RUBASHKIN's engagement in business with unreasonably small capital remaining; and, RUBASHKIN's belief he would be unwilling to pay his debts as they matured at the time of the Corporate Conveyance.
Therefore, the Corporate Conveyance is voided against petitioner US BANCORP, pursuant to DCL § 278, "Rights of creditors whose claims have matured," which states
1. Where a conveyance or obligation is fraudulent as to a creditor, such
creditor, when his claim has matured, may, as against any person except a purchaser for fair consideration without knowledge of the fraud at the
time of the purchase, or one who has derived title immediately or
mediately from such a purchaser, a. Have the conveyance set aside or obligation annulled to the extent
necessary to satisfy his claim, orb. Disregard the conveyance and attach or levy execution upon the
Respondents aided and abetted the fraudulent Corporate Conveyance
RUBASHKIN, in his opposition papers, repeatedly claims that he did not have actual intent to defraud petitioner US BANCORP. Further, he alleges that his purported obligation to JOSEPH, GUTOL and ROSIE was legitimate. His preference of his relatives over US BANCORP is an actual fraudulent conveyance, pursuant to DCL § 276, because actual intent to defraud can be inferred from the facts of the case and the existence of fair consideration are irrelevant to the inquiry.
DCL § 276, "Conveyance made with intent to defraud," states "[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." RUBASHKIN's admitted intent was to place his children and granddaughter ahead of other creditors and give them whatever property he had to hinder and prevent other creditors from executing upon such property ahead of them, which would preclude them from being repaid for their alleged loans to him.
RUBASHKIN contends that US BANCORP must show "actual intent to defraud," but this [*9]is clearly not the standard. "Under section 276 [of the DCL] intent need not be shown by direct evidence and is normally inferred from the circumstances surrounding the transfer . . . Factors to consider include close relationships among the parties, secrecy and haste in making transfer, inadequacy of consideration, and the transferor's knowledge of creditor's claims and any inability to pay them." (U.S. v Carlin, 948 F Supp 271, 277 [ED NY 1999]). The Court, in Wall Street Associates v Brodsky (257 AD2d 526 [1d Dept 1999]), instructed, at 529, that:
Due to the difficulty of proving actual intent to hinder, delay, or
defraud creditors, the pleader is allowed to rely on "badges of fraud"
to support his case, i.e., circumstances so commonly associated with
fraudulent transfers "that their presence gives rise to an inference of
intent" (Pen Pak Corp. v LaSalle National Bank of Chicago, 240
AD2d 384, 386 [2d Dept 1996], quoting MFS/Sun Life Trust-High
Yield Series v Van Dusen Airport Servs. Co., 910 F Supp 913, 935
[ED NY 1995]; Shelly v Doe, 249 AD2d 756 [3d Dept 1998]). Among
such circumstances are: a close relationship between the parties to
the alleged fraudulent transaction; a questionable transfer not in the usual
course of business; inadequacy of the consideration; the transferor's
knowledge of the creditor's claim and the inability to pay it; and
retention of control of the property by the transferor after the conveyance.
(See Kreisler Borg Florman Gen. Constr. Co. Inc. v Tower 56, LLC, 58 AD3d 694, 696 [2d Dept 2009]; Ehrler v Cataffo, 52 AD3d 414, 426 [2d Dept 2007]; Steinberg v Levine, 6 AD3d 620, 621 [2d Dept 2004]; Marine Midland Bank v Murkoff, 120 AD2d 122, 126-127 [2d Dept 1986]).
RUBASHKIN's own statements acknowledging his actual intent to hinder creditors, including petitioner US BANCORP, from recovering his property, meets the requirements for relief under DCL § 276. RUBASHKIN's Corporate Conveyance clearly hindered US BANCORP from recovering on its EDNY judgment against RUBASHKIN. Moreover, it is not necessary to establish that US BANCORP was the actual target of the Corporate Conveyance for the Court to determine that an actual fraudulent conveyance occurred, pursuant to DCL § 276, and to void such conveyance. As noted above, DCL § 276 states that a conveyance made with intent "to hinder, delay or defraud present or future creditors, is fraudulent as to both present and future creditors." (See Cottone v Selective Services, Inc., 68 AD3d 1038 [2d Dept 2009]; Kreisler Borg Florman Gen. Constr. Co. Inc. at 696). Under New York law, the elements for aiding and abetting a fraudulent conveyance are: "(1) the existence of a violation by the primary wrongdoer; (2) knowledge of the violation by the aider and abettor; and (3) proof that the aider and abettor substantially assisted the primary wrongdoer." (Chemtex, LLC v St. Anthony's Enterprises, Inc., 490 F Supp 536, 545 [ED NY 2007]). In the instant proceeding, JOSEPH, GUTOL and ROSIE agreed to have RUBASHKIN's judgment by confession entered in their favor, putting them in front of RUBASHKIN's other creditors and keeping the Corporate [*10]Interests from being paid to creditors instead of them. This demonstrates an active participation in the Corporate Conveyance for their own pecuniary gain, constituting aiding and abetting the fraudulent conveyance of the Corporate Interests and subjecting them to liability to petitioner US BANCORP for a money judgment.
Voiding the Residential Conveyance
The Residential Conveyance took place on July 22, 2009. RUBASHKIN executed
a Deed transferring his interest in 5502 15th Avenue to RIVKA, for an alleged payment of $7,500.00. Curiously, both RUBASHKIN and RIVKA in the Residential Conveyance and RUBASHKIN, JOSEPH, GUTOL and ROSIE in the Confession Action were all represented by the same attorney as in the instant proceeding. Both RUBASHKIN and RIVKA do not dispute that the Residential Conveyance was made while RUBASHKIN was a defendant in the EDNY action, which subsequently resulted in entry of the presently unsatisfied EDNY judgment.
RUBASHKIN and RIVKA both contend that at the time of the Residential Conveyance their residence was worth approximately $995,000.00 and subject to millions of dollars in mortgages and judgment liens. (RUBASHKIN affirmation in opposition, ¶ 18, and RIVKA affirmation in opposition, ¶ 1). RIVKA, also asserts, in ¶ 1 of her affirmation of opposition, that both she and RUBASHKIN had no intent to hinder, delay or defraud US BANCORP, and she considered her consent to the HILGAR Mortgage to be a loan to RUBASHKIN, with her $7,500.00 payment to RUBASHKIN more than fair consideration for his survivorship interest. However, neither RIVKA nor RUBASHKIN presents any evidence that RIVKA made the alleged $7,500.00 payment. The basis for the $995,000.00 valuation on the premises is a one page letter by a real estate broker, attached to RUBASHKIN's affirmation in opposition.
Intra-family transfers must be examined carefully by the Court. "So long as our
public policy recognizes the separate estate and power of the wife to deal directly with the husband, such dealings between them will be subjected to suspicion and strict scrutiny." (Niles v White, 163 AD 959 [2d Dept 1914]). Court's have found that the circumstances surrounding a debtor's conveyance of his interest in the marital residence to his wife, including the timing of the conveyance and the lack of consideration, can hinder, delay and defraud a plaintiff's creditor in violation of DCL § 276. (Prudential Farms of Nassau County v Morris, 286 AD2d 323, 323-324 [2d Dept 2001]).
RIVKA's contention that her consent to the HILGAR Mortgage constituted a loan from her to RUBASHKIN is without a basis in law, since her obligation was in favor of third-party HILGAR, not RUBASHKIN. This precluded fair consideration from being exchanged for the Residential Conveyance. Both RUBASHKIN and RIVKA admit that RUBASHKIN at the time of the Residential Conveyance: was insolvent; was left with unreasonably small capital; was a defendant in petitioner's US BANCORP's EDNY action; and, believed he was unable to pay his debts as they matured. Therefore, it is clear that the lack of fair consideration for the Residential Conveyance renders the Residential Conveyance fraudulent, pursuant to DCL §§ 273-275.
Moreover, the Residential Conveyance is unconvincing, invalid and void, pursuant to DCL § 276. Similar to the Corporate Conveyance, the Residential Conveyance is replete with "badges [*11]of fraud," the "circumstances that accompany fraudulent transfers so commonly that their presence gives rise to an inference of intent." (Dempster v Overview Equities, Inc., 4 AD3d 495, 498 [2d Dept 2004]). The Court in Shelley v Doe at 758, instructed:
Factors that are considered "badges of fraud" are (1) a close relationship
between the parties to the transaction, (2) a secret and hasty transfer not
in the usual course of business, (3) inadequacy of consideration, (4) the
transferor's knowledge of the creditor's claim and his or her inability to
pay it, (5) the use of dummies or fictitious parties, and (6) retention of
control of the property by the transferor after the conveyance (see,
MFS/Sun Life Trust-High Yield Series v Van Dusen Airport Servs.
Co., 910 F Supp 913, 934 [ED NY 1995].
(See NPR, LLC v Met Fin Management, Inc., 63 AD3d 1128, 1129 [2d Dept 2009]; Ehrler v Cataffo at 426; Cadle Company v Organes Enterprises, Inc., 29 AD3d 927, 928 [2d Dept 2006]; Steinberg v Levine at 621).
In the instant proceeding, the "badges of fraud" are clearly present. There is a close relationship, husband and wife, between RUBASHKIN and RIVKA. The Residential Conveyance was not made in the regular course of business or accomplished in an orderly manner, but executed almost a year after the event that allegedly precipitated the need to do so. The alleged consideration for the Residential Conveyance was only $7,500.00. RUBASHKIN and his attorney (who represented him in the EDNY action, the Residential Conveyance, the Confession Action and the entry of the voided judgment by confession) were clearly aware of RUBASHKIN's obligation to petitioner US BANCORP and RUBASHKIN's inability to pay petitioner US BANCORP. The timing of the Residential Conveyance, to avoid having a judgment lien placed on RUBASHKIN's home, was, in the words of comedian Dana Carvey's famous Church Lady character on Saturday Night Live, "How con-VEEN-ient!" The Residential conveyance took place: one month after US BANCORP filed its summary judgment motion in the EDNY action; two weeks after RUBASHKIN was due to, but did not, file opposition to US BANCORP's summary judgment motion; and, one week prior to oral argument on US BANCORP's summary judgment motion in the EDNY. Also, there is
no indication that RUBASHKIN gave up any control of the premises despite his transfer of his interest in the home. Moreover, there appears to be little, if any, benefit received by RIVKA as a result of the Residential Conveyance. RIVKA already had a survivorship interest in the premises. If the Rubashkin residence truly lacked equity and was subject to the substantial HILGAR mortgage and judgment liens, RIVKA gained nothing by the Residential Conveyance, other than the ability to prevent US BANCORP imminent judgment from becoming a lien on the Rubashkin residence. Therefore, the Residential Conveyance is voided against petitioner US BANCORP.
Attorney's fees awarded to petitioner from RUBASHKIN and RIVKA
It is clear that RIVKA willingly participated in taking title to the Rubashkin residence at [*12]5502 15th Avenue, was aware why it was done, and accomplished the Residential Conveyance for her own pecuniary gain. As such, the Residential Conveyance was and is fraudulent to as to petitioner US BANCORP, pursuant to DCL §§ 273, 273-a, 274, 275, 276 and 276. Therefore, petitioner US BANCORP is entitled to recover attorney's fees from RIVKA and RUBASHKIN as a result of the fraudulent Residential Conveyance. (See Neshewat v Salem, 365 F Supp 2d 508, 522 [SD NY 2005]; Kreisler Borg Florman Gen. Constr. Co. Inc. v Tower 56, LLC at 696; Ford v Martino, 281 AD2d 587 [2d Dept 2001]; Dillon v Dean, 256 AD2d 436, 437 [2d Dept 1998]; Apple Bank for Sav. v Contaratos, 204 AD2d 375, 376 [2d Dept 1994]).
Voiding the HILGAR Mortgage
HILGAR contends that the $2,750,000.00 mortgage of RUBASHKIN'S residence, on August 27, 2008, was a legitimate transaction for which it gave fair value, as evidenced by the HILGAR Mortgage, HILGAR Note and RUBASHKIN's guaranty. However, there are significant deficiencies with HILGAR's arguments. The HILGAR Mortgage is a fraudulent conveyance, pursuant to DCL §§ 273, 274, 275 and 276. RUBASHKIN admitted that when he executed the HILGAR Mortgage he: was insolvent; did not have the ability to pay his debts as they matured; and, was engaged in business and left with unreasonably small capital.
Moreover, it is clear that the HILGAR Mortgage lacked fair consideration. The dates contained in the HILGAR Mortgage, HILGAR Note and RUBASHKIN's guaranty are inconsistent. The HILGAR Mortgage refers to a $2,750,000.00 loan, on August 1, 2008, from HILGAR to AGRIPROCESSORS and a note, on August 1, 2008, for that amount made by AGRIPROCESSORS in favor of HILGAR. However, these documents do not exist. The purported loan proceeds were actually disbursed prior to August 1, 2008 or after August 1, 2008. The HILGAR Note is dated August 27, 2008. HILGAR, in support of the existence of the loan, submitted copies of five wire transfer receipts for the benefit of AGRIPROCESSORS from Bank Julius Baer & Co., Ltd. of Zurich, Switzerland. The wire transfers were: $500,000.00 on August 28, 2007; $500,000.00 on June 6, 2008; $500,000.00 on July 9, 2008; $500,000.00 on August 15, 2008; and, $750,000.00 on August 21, 2008. However, only the first wire transfer, for $500,000.00 on August 28, 2007, was made by HILGAR. The other four were made by Joseph Schochet, an officer of HILGAR. Thus, there was an absence of fair consideration for RUBASHKIN and RIVKA to have mortgaged their residence to HILGAR to secure RUBASHKIN's guaranty of AGRIPROCESSORS' debt.
The $500,00.00 wire transfer, dated August 28, 2007, made by HILGAR for AGRIPROCESSORS, was executed almost one year prior to the date of the HILGAR Note and RUBASHKIN's guaranty. There is no evidence that there was any loan agreement executed between HILGAR and AGRIPROCESSORS at the time RUBASHKIN agreed to guaranty the obligations to HILGAR. There was no antecedent debt due from RUBASHKIN to HILGAR when RUBASHKIN signed the guaranty in favor of HILGAR. AGRIPROCESSORS had already received $500,000.00 from HILGAR. RUBASHKIN was not liable for third-party AGRIPROCESSORS' debt to HILGAR and both RUBASHKIN and RIVKA were not given fair consideration for executing and granting the HILGAR Mortgage. It was fraudulent for RUBASHKIN and RIVKA to mortgage their house with HILGAR when they owed no debt to secure the antecedent debt of third-party AGRIPROCESSORS. (See Lippitt v Gilmartin, 37 AD [*13]411 [1d Dept 1899]).
In view of the lack of funding by HILGAR and the artificially increased amount of the HILGAR Mortgage, it appears that the August 27, 2008-mortgage was given by RUBASHKIN and RIVKA to HILGAR with the actual intent, as opposed to the intent presumed by law, to hinder, delay, and/or defraud RUBASHKIN's present or future creditors, including petitioner US BANCORP. HILGAR's participation in the $2,750,000.00 mortgage with RUBASHKIN and RIVKA was a fraudulent conveyance for its own pecuniary gain, to obtain additional security for repayment of its debts over otherwise unsecured creditors of RUBASHKIN, including US BANCORP. Therefore, this constitutes aiding and abetting in a fraudulent conveyance. Petitioner US BANCORP is entitled to a money judgment against HILGAR.
Petitioner US BANCORP seeks the turnover of RUBASHKIN's property, whether in his possession or in the possession of third-parties, pursuant to CPLR §§ 5225 and 5227.The only objection made by the Rubashkin respondents to the turnover is their assertion that there is nothing subject to turnover because RUBASHKIN has no equity in nonexempt assets. However, this argument constitutes no meaningful opposition. Further, with the voiding of the Corporate Conveyance, the Residential Conveyance and the HILGAR Mortgage, RUBASHKIN's ownership interests are reinstated, and petitioner US BANCORP is entitled to the turnover of RUBASHKIN's assets or property interests. HILGAR argues that turnover is inappropriate because petitioner US BANCORP cannot establish that its rights are superior to those of HILGAR and that the HILGAR Mortgage is a fraudulent conveyance. As explained above, the HILGAR Mortgage is a fraudulent conveyance.
Petitioner US BANCORP, pursuant to CPLR §§ 5225 and 5227, is entitled to an order directing the turnover, of any moneys or property of RUBASHKIN and/or any money or property owed by RUBASHKIN or due to him, to petitioner US BANCORP or to the Sheriff or City Marshal, to be sold with the proceeds being used to satisfy or partially satisfy the EDNY judgment. The voiding of the Corporate Conveyance, the Residential Conveyance and the HILGAR Mortgage reinstate RUBASHKIN as the owner of the Corporate Interests and the one-half owner of the 5502 15th Avenue premises, unencumbered by the HILGAR Mortgage.
In addition to the Corporate Interests and its equity value, such ownership interests will provide RUBASHKIN with the right to moneys or other things of value, including but not limited to distributions, dividends or other income. However, the prior failure of the Rubashkin respondents to comply with post judgment discovery prevented petitioner US BANCORP from determining the exact nature of the property owned by RUBASHKIN, the parties in possession of such property and the amounts to which the Corporate Interests would entitle RUBASHKIN. If the resolution of disclosure by the October 18, 2010 so-ordered stipulation does not result in sufficient information disclosed to petitioner US BANCORP, leave is granted to petitioner US BANCORP to seek disclosure. If the October 18, 2010 so-ordered stipulation successfully results in the providing of disclosure, leave is granted to petitioner US BANCORP to seek the turnover of any additional property owned by RUBASHKIN or owed to RUBASHKIN.
Attachment and temporary restraining order against respondents
Petitioner US BANCORP, in the instant petition and affirmation of its counsel,
based upon his personal knowledge of the facts alleged in the petition, alleges facts which meet [*14]the statutory requirements for attachment. CPLR Rule 6212 states:
On a motion for an order of attachment, or for an order to confirm
an order of attachment, the plaintiff shall show, by affidavit and
such other written evidence as may be submitted, that there is a
cause of action, that it is probable that the plaintiff will succeed on
the merits, that one or more grounds for attachment provided in
section 6201 exist, and that the amount demanded from the defendant
exceeds all counterclaims known to the plaintiff.
In DLJ Mortg. Capital, Inc. v Kontogiannis (594 F Supp 2d 308 [ED NY 2009]), at 318-319, the Court instructed:
Under New York law, a plaintiff may obtain an order of attachment
if it demonstrates that (1) it has stated a claim for a money judgment;
(2) it has a probability of success on the merits; (3) the defendant,
"with the intent to defraud his creditors or frustrate the enforcement of
a judgment that might be rendered in plaintiff's favor, has assigned,
disposed of, encumbered, or secreted property, or removed it from the
state or is about to do any of these acts," and (4) the amount demanded
from the defendant is greater than the amount of all counterclaims
known to plaintiff. NY C.P.L.R. §§ 6212 (a), 6201 (3).
Petitioner US BANCORP, in the instant proceeding, demonstrates the four required elements. First, petitioner US BANCORP has a money judgment from EDNY. Second, the filing of the EDNY judgment with the Office of the Kings County Clerk makes it probable that petitioner US BANCORP will succeed on the merits for the substantive relief it seeks, such as injunctive relief to enjoin, restrain and stay all respondents from transferring or permitting the transfer of property or other assets owned by RUBASHKIN or in which RUBASHKIN has an interest. Third, petitioner US BANCORP has valid claims for relief, pursuant to CPLR § 6201 (3), in that RUBASHKIN "with intent to defraud his creditors or frustrate the enforcement of a judgment that might be rendered in plaintiff's favor, has assigned, disposed of, encumbered or secreted property" and, pursuant to CPLR § 6201 (5), in that "the cause of
use of action is based on a judgment, decree or order of a court of the United States." Fourth, this is a post judgment proceeding and any counterclaims or defenses should have been asserted in the EDNY action.
Therefore, with this Court voiding the Corporate Conveyance, the Residential
Conveyance and the HILGAR Mortgage, petitioner US BANCORP is awarded an order of attachment attaching, and a temporary restraining order, pursuant to CPLR § 6210, prohibiting respondents from transferring, those assets in which RUBASHKIN's interests are reinstated or in which RUBASHKIN has an interest owing to him.
A temporary restraining order may be granted when the movant can demonstrate "(1) the likelihood of success on the merits; (2) irreparable injury absent granting the preliminary injunction; and (3) a balancing of the equities." (W. T. Grant Co. v Srogi, 52 NY2d 496, 517 ). (See CPLR § 6301; Nobu Next Door, LLC v Fine Arts Housing, Inc., 4 NY3d 839 ; Aetna Ins. Co. v Capasso, 75 NY2d 860, 862 ; Doe v Axelrod, 73 NY2d 748, 750 ; Ricca v Ouzounian, 51 AD3d 997 [2d Dept 2008]; Kelly v Garuda, 36 AD3d 593 [2d [*15]Dept 2007]). The instant special proceeding is based upon the EDNY judgment filed in the Office of the Kings County Clerk. Therefore, petitioner US BANCORP has a substantial likelihood of success on the merits and is entitled to a temporary restraining order to stay respondents from transferring, or permitting the transfer of any other assets, accounts or other property owned by RUBASHKIN or in which RUBASHKIN has an interest, including the assets of any company in which RUBASHKIN has an interest. The transfer of any of RUBASHKIN's assets would cause irreparable injury to petitioner US BANCORP and the equities balance in favor of petitioner US BANCORP.
Moreover, pursuant to CPLR § 6220, upon entry of an order of attachment and a temporary restraining order, pursuant to CPLR § 6210, respondents are ordered to disclose any additional property in which RUBASHKIN has an interest or any other debts owed by them to RUBASHKIN.
Accordingly, it is
ORDERED, that the order to show cause of petitioner U.S. BANCORP
EQUIPMENT FINANCE, INC. is granted, with:
(1) the following conveyances voided as fraudulent, pursuant to Debtor &
Creditor Law§ 270 et seq.,
(a) the July 22, 2009 conveyance, for $7,500.00, by respondent ABRAHAM A. RUBASHKIN of his interest in his house,
located at 5502 15th Avenue, Brooklyn New York (Block
5685, Lot 34, County of Kings), to his wife, respondent RIVKA RUBASHKIN, and the deed for this conveyance, recorded on
July 29, 2009, in the Office of the City Register of the City of
New York, City Register File Number 2009000234205, cancelled
(b) the conveyance by ABRAHAM A. RUBASHKIN of 200 shares
of stock in 452-53rd STREET REALTY CORP., 79 shares of stock
in A. A. RUBASHKIN & SONS, INC., 100% of the membership
interest in 410 EAST 17th STREET, LLC; and, 100% of the
membership interest in 404 REALTY ASSOCIATES, LLC, to his
son, respondent JOSEPH RUBASHKIN, his daughter, respondent
GUTOL LEITER, and his granddaughter, respondent ROSIE
(c) the $2,750,000.00 mortgage, executed on August 27, 2008,
given to respondent HILGAR LIMITED by respondents
ABRAHAM A. RUBASHKIN and RIVKA RUBASHKINfor their house, located at 5502 15th Avenue, Brooklyn,
New York (Block 5685, Lot 34, County of Kings), and recorded
on September 5, 2008, in the Office of the City Register of the
City of New York, City Register File Number 2008000354147,
cancelled and discharged;