UNIT ED S TAT ES COU RT OF A PP EALS FOR THE SE CON D CIR CUIT

__________________________ August Term, 2002 (Argued: February

4, 2003 Decided: June 13, 2003)

Docket No. 02-5017

__________________________ In Re: VYTAUTAS VEBEL IUNAS, Debtor

.

ROY BABITT , Plaintiff-Appellee ,

CITI BANK, N.A., CHASE MANHATTAN BANK, Defendants-Appellees ,

- v. -

VANDA VEBEL IUNAS, individually , VANDA VEBEL IUNAS, as trustee of an Irrevocable

Vart Trust, Defendant-Appellant ,

VYTAUTAS VEBELI

UNAS, VYTAUTAS VEBEL IUNAS, as trustee of a Re vocable Vart Trust, DANIEL

LI PMAN, MELI SSA LIPMAN,

Defend ants ,

ROY BABITT , Trustee

.2

Before: JACOBS, POOLER, SOTOMAYOR, Circuit Judges

. Appeal from the judgment of the United States District Court for the Southern District of New York (Lore

tta A. Preska, District Judge ), acting in its capacity as an appellate court in a bankruptcy c ase, affirming in part and reve rsing in part the judgment of the United States Bankruptcy

Court for the Southern District of New York (Richard L . Bohanon, Bankruptcy Judge ). REVERSED JON D. KAPLON, Bra uner, B aron, Ros enzweig & Klein, LL

P, New York, New York for Plaintiff -Appelle e-Trust

ee Roy Babitt

. JEROME M. LASKY, Moses & Singer, L LP (Joel David Sharrow & Alan E. Gamza, on the brief), New York, N ew York for Defendant-Appellee Citibank, N.A. MATTHEW DOLLINGER, Dollinger, Gonski & Grossman (Leslie A. Foodim, on the brief) , Carle Place, New York for Defendant-Appellee Chase Manhattan B ank

. PE TER A. B EE, Bee Rea dy Fi shb ein Hat ter & Do nov an, LLP (Anthony V. Merlino, on the br ief), Mineola, New York for Defendant-Appellant Vanda Vebe liunas, individually, Vanda Vebeliun as, as Tr ustee of an I rrevoc able Va

rt Trust

. Pooler, Circuit Judge : Vanda Vebeliunas appeals from the judg ment of the United States District Court for the Southern District of New York (Lor etta A. Preska, District Judge ), acting in its capacity as an appellate court in a bankruptcy case, affirming in part and re versing in part the judgment of the United States Bankruptcy Court for the Southern District of New York (Richard L . Bohanon, Bankruptcy Judge ) that two properties, “Latting town Estate” and “Lot 384,” that we re held in a trust should not be considered part of the bankruptcy estate of Vy

tautas Vebeliunas (“debtor”),1 The bankruptcy court made the following findings of fac t. 3 who defaulted on two loans he obtained by misrepresenting his ownership of L attingtown Estate. The district court held that the alter ego theory of piercing applies to irrevocable trusts as a matter of law and that the trustee, Chase, and Citibank (collectively , “the appellees”) had satisfied the te st es ta bl is he d b y Morris v. New York State Department of Taxation & Financ e , 603 N.Y.S.2d 807 (N.Y. 1993), which is typica lly used to pierce the

veil of a corporation. Accordingly , the district court held that Lattingtown Estate should be tre ated as part of the bankruptcy estate. However, the district court affirmed the bankr uptcy court’s r

uling that Lot 384 should not be included in the bankruptcy estate, and the disposition of that property is not on appeal. Vanda Vebeliunas appeals the district court’s dec ision. We find that the district court erred i n holding that the tr

ust at issue

could be p ierced

based up on debtor ’s conduc t becaus e Vanda V ebeliuna s, and not d ebtor, w as the eq

uitable o wner of

the trust a

nd its prop erty . We also hold that neither V anda Ve beliunas nor her t rust is equ

itably estopped from asse

rting ow nership over Lattingtown Estate be cause Vanda Vebeliunas play ed no role in debtor’s fraud, having had no prior knowledge of his unlawful activities. Moreover, Cha se Manhattan Bank and Citibank, N.A. did not rely upon Vanda Vebeliunas’ conduct in deciding to extend the loans to debtor.

BACKGROUND 1 On June 12, 1977, debtor created North Shore Partnership (“NSP”) and installed his wife , Vanda V ebeliuna s, and othe r family members a

nd busines s associa

tes as pa rtners. One month later, L itas I nvesting Company, Inc . (“L itas”) a cquired Latti ngtown E state, a

parcel of prope rty on Long I sland’s North Shore comprised of approximately sixty-five acres. Shortly thereafter,2 The district court erroneously found that debtor created this trust on March 4, 1987. 4 debtor, an insider at Litas, and his family began residing at L attingtown Estate. Litas and NSP en

tered in to an ag reemen t on July 15, 1977 th at provid

ed that NS P would subdivide and deve lop La

ttingtow n Estate i nto lots for

sale. L itas reta ined title to the pro

perty during t he deve lopment ph ase, but u pon satisf action of the terms of the ar range ment, it wo

uld releas e specif

ic lots to e ither NSP o r the ultimate buy er. NSP an

d Lita s creat

ed sever al lots, including a five-acre lot adjoining L attingtown Estate (“Lot 384” ), after which La ttingtown Estate consisted of approximately seve nteen acres of land with a main house, a cottag e, a swimming pool, a pool house, a tennis court, and a gara ge. On March 4, 1983, debtor cre ated the “Vart Trust, a revocable, living trust” ( “Revocable Vart Trust”). 2 Almost two years later , on Februa ry 16, 1985, V anda Ve

beliunas create d the “Va

rt Trust, an irre

vocable trust” (“ Irr

evocab le Vart Tru st”). Va

nda Vebe liunas wa s the sole trustee o f the I

rrevoc able Va

rt Trust a nd under its terms, debtor was a beneficiary who was “eligible to 20% of all of the distributions from the Corpus of the Trust.” Litas subsequently conveye d Lattingtown Estate to the I rrevocable Vart Trust in exchange for Vanda Vebeliunas’ inheritance, which she contended had appre ciated th ro ug h i nv es tm en t. Th e b an kr up tc y co ur t f ou nd th at th e t ru st ee co ul d n ot es ta bl is h b y a preponderance of the evidence that the consideration Vanda Vebeliunas paid for Lattingtown Estate was inadequate. In Janu ary of 1987, d

ebtor, in critica l need of funds due

to the col lapse of

the rea l estate market, applied to Chase Manhattan Bank (“Chase ”) for a loan of $2,000,000 and pledge d Lattingtown Estate as collate ral. Although debtor represented on the loan a pplication that the Revocab le Vart T

rust, ove r which h e had co mplete co ntrol, owned La

ttingtow n Estate, Chase5

subseque ntly learne d that the

propert y w as owned

by t he I rrevoc able Va

rt Trust. Chase ag

reed to loan debtor $1,000,000, provided that debtor himself hold the title to Lattingtown Esta te. Accord ingly , debtor e

xecuted a fraudul ent deed

from “VA

RT TRUST B Y: Vy

tautas Ve beliunas ” to himself

seeking to satisfy the bank’ s conditio n. Debtor also exec uted a mor

tgag e to Chase

in which he falsely affirme d that: (1)

he lawfu lly owned L attingtown Estate ; (2) he h ad the ri ght to

mo rt ga ge th e p ro pe rt y; a nd (3 ) t he re we re no ou ts ta nd in g c la im s a ga in st th e p ro pe rt y. F in al ly, debto r exec uted a nd del ivered an “Own er’s Es topp el Cer tifi cate” f alsel y statin g that t he mor tgage was valid , as well a s a “Mort gage Affidav it” false ly s tating that he kne w of no re ason that

his title to L attingtown Estate could be d

isputed. U

pon rece ipt of thes e and othe r docume nts, Chase gave debtor a check f

or $1,000,000. Debtor also obtained a loan from Citibank, N.A. (“Citibank”) using Lattingtown Estate as collateral. After Citibank agreed dur ing the summer of 1987 to loan debtor $700,000, Citibank’s title insurer requested that debtor provide a copy of the trust that held the title to Lattingtown Estate. Although debtor provided a copy of the Revocable Vart Trust agre ement, the insurer discover ed that th e deed f

rom L itas was t

o the I rrevoc able Va

rt Trust. When conf

ronted with this discrep ancy , debtor f

alsely repres ented in a

n affida vit that the

deed fr om Lita s was in er

ror, as i t should have contained the word “revocable” instead of “irrevocable.” The insurer accepted debtor’s explanation, and Citibank gave him a check for $700,000 on Septembe r 1, 1987. Debtor was eventually

indicted in an unrelated matter for bank fraud, misapplica tion of credit union funds, criminal conflicts of interest, filing false loan a pplications, and related charges. I

n 1992, debtor signed an appearanc e bond for the United States District Court for the Eastern District of New York in the amount of $2,000,000 and pledg ed Lattingtown Estate as6

security. One

year la ter, debtor signed an affidavit of conf ession of judgment in favor of the United Sta

tes in whic

h he ag reed to f orfeit Lattingtown Estate

if he did n

ot appea r for his criminal trial. Debtor defaulted on the loans in 1994, and the I rrevocable Vart Trust purchase d Lot 384 from NSP in 1997. Debtor filed a Chapter 11 bankruptcy petition on May 21, 1998 in the United States Bankruptcy

Court for the Eastern District of New York. That ca se was transferred to the Southern District of New York and converted to a Chapter 7 bankruptcy c ase. Roy Ba bitt, the trustee, sought to have debtor declared the alter ego of the I

rrevocable Vart Trust and to have the trust’s assets, in particular Latting town Estate and Lot 384, treated a s part of debtor’s bankruptcy estate. The trustee based his argument upon a llegations that debtor exercised control over the trust and Lattingtown Estate. The bankruptcy

court held that the alter ego theory of “piercing the corporate veil” does not apply to trusts, b ecause

a trust do es not hav e an existe nce sepa rate an d apart f rom that of

its trustee and cannot act on its own behalf. The bankruptc y court also held that the I rrevocable Vart Trust should not be equitably estopped fr om asserting ownership over L attingtown Estate, because Vanda Vebeliunas had no knowle dge of her husband’s fraud until the banks instituted foreclosure proceedings. The district court, acting in its capacity as an appellate court in a bankruptcy case, affirme d in part a

nd rever sed in par t. The dist

rict cou rt held tha

t the alte r ego theory

may apply to the Irrevocable

Vart Trust as a matter of law. The district court then held that the a ppellees had satis fied the

two-par t test outlined in Morris v. New York State Department of Taxation & Finance , 603 N.Y.S.2d 807 (N.Y. 1993), which provides that the veil of a corporation may be7

pierced upon a showing that: (1) the owner e xercised complete domination of the corporation with respect to the transaction at issue; and (2) the owner use d this domination to commit a fraud or wrong against the plaintiff which r esulted in injury to the plaintiff. Id. at 141. The distr ict cour t conclud ed that de btor was t he alter ego of the I rrevoc able Va

rt Trust and exerc ised “co mplete do mination” over the trust with r

espect t o the tra nsaction s with Chas e and Citibank based upon the bankruptcy court’s findings that: (1) debtor and his family received and retained rent proceeds from L attingtown Estate; (2) debtor and his family lived at Lattingtown Estate without pay ing rent to the trust; (3) debtor purportedly conveye d Lattingtown Estate to himself a nd then ba

ck to the u

nspecif ied “Va rt Trust;” (4) debt or gra nted eas ements to Latti ngtown E state; (5 ) debtor and his wif

e deduc ted from t

heir personal tax re

turns re al estate taxes and interest expenses relating to Latting town Estate; (6) debtor granted mortga ges on Lattingtown Estate; (7) debtor pledged Latting

town Estate in order to obtain bail in his criminal case; and (8) debtor represente d to Chase and Citibank that the Revocable Vart Trust, over which he had complete control, owned L attingtown Estate. The district court also concluded that debtor used the Irrevoc able Vart Trust to “obscure continuously the fact that the [trust] was the true owner of Lattingtown E state.” Accordingly , the district court held that Lattingtown Estate was properly pa

rt of debtor’s bankruptcy

estate. However, the district court affirmed the bankruptcy court’s judgment to exclude Lot 384 from the ba nkruptcy estate , and the disposition of that property is not on appea

l. Vanda Vebeliunas now appeals the district court’s ruling that Lattingtown Estate be tre ated as part of debtor’s bankruptcy estate.3 Under the alter ego theory of piercing, the element of control is established by factors indicating that the corporation is the mere alter ego of another corporation or an individual, such as: “(1)the abse

nce of th e forma

lities and paraphe rnalia that are p art and p arcel o f the cor porate existence, i.e. , issuance of stock, election of directors, keeping of corporate records and the like, (2) inadequate capitalization, (3) whether funds ar e put in and taken out of the corporation for personal rather than corporate purpose s, (4) overlap in ownership, officers, directors, and personnel, (5) common office space, addr ess and telephone numbers of corporate entities, (6) the amount of business discretion displayed by the allegedly

dominated corporation, (7) whether the related corporations deal with the dominated corpora tion at arms length, (8) whether the corporations are treated as independe nt profit centers, (9) the pay ment or guarantee of debts of the dominated corporation by other corporations in the group, and (10) whe ther the corporation in question had property that wa s used by other of the corporations as if it were its own.” Wm. Passalacqua Builders, I

nc. v. Resnick Developers South, Inc. , 933 F.2d 131, 139 (2d Cir. 1991). 8 STANDARDOF REVIEW Although the district court acted in its capacity as an appellate court in a bankruptcy case, we must review the bankruptcy court’s findings of fact and conclusions of law inde pendently. Licensing by

Paolo, Inc. v. Sinatra , 126 F.3d 380, 390 (2d Cir. 1997). We review the bankruptcy court’s findings of fact only for clear error and exercise de novo review over its conclusions of law. Id. Mixed questions of fact and law are subject to de novo review. FDIC v. Providence Coll. , 115 F.3d 136, 140 (2d Cir. 1997) ( citi ng Travellers Int’l A.G. v. Tr ans World Airlines , 41 F.3d 1570, 1575 (2d Cir. 1994)).

DISCUSSION I. Alter Eg o Theory of Piercing The question whether the “alter eg o theory” of piercing applies to trusts is a matter of state law. See St. Paul Fire & Marine I ns. Co. v. Pepsico, Inc. , 884 F.2d 688, 700 (2d Cir. 1989). 3 The New York Court of Appeals has never r esolved whether courts may “disregard the form of a trust, whe

n the trust was not f

ormed for an illeg al purpos e and the re is the r equisite9

separation between beneficiary and trustee.” National Union Fire Ins. Co. of Pittsburgh, PA v. Eagle Equip. Tr

ust , 633 N.Y.S.2d 308, 308-09 (1st Dep’t 1995) . In the absence of controlling authority , this Court

must attem

pt to dete rmine how

the New Y ork Court o f Appea ls would resolve this issue. See In re Joi nt E. & S. Di st. As besto s Litig. , 721 F. Supp. 433, 434 (E.D.N.Y. & S.D.N.Y. 1988). The appe llees ide

ntify cases in which Ne

w York Sta

te court s have pr

eserve d the rig

ht to pierce trusts. However, those cases ar e distinguishable, as all involved allegations that the respec tive par

ties used trusts to c onceal a ssets or e ngag ed in fra

udulent c onvey

ances to shield funds from adverse judgments. For example, in Posner v. S. Paul Posne r 1976 I rrevoc able Family Trust , 688 N.Y.S.2d 548 (1st Dep’t 1999), a plaintiff sought to enforce a confession of judgment against a trust, and an intervenor f iled a counterclaim for a declara tion that the plaintiff was merely

the alter ego of the trust, which the lower c ourt dismissed. The appellate court reinstated the counterclaim, as the intervenor had a lleged that the plaintiff was merely attempting to transfer funds from the trust in an effort to render it judgment-proof in connection with the intervenor’s independent action aga inst the trust to enforce the terms of a promissory note. Id. at 549. Similarly, in Goldberg v. Goldberg , 568 N.Y.S.2d 394 (1st Dep’t 1991), the appellate court affirmed a lower court’s decision to pierce various trusts that the defendant used to convert and conceal marital assets. Papas v. Freund , 660 N.Y.S.2d 302 (N.Y. Sup. Ct. 1997) also involved allegations that a debtor used fraudulent conve yance s to conceal his own assets in a trust. By contr ast, there are no allegations in the instant case that the Irrevoca

ble Vart Trust was used to conceal a ssets from creditors. Nor is there a ny e vidence that Vand

a Vebel iunas’ purchase of La

ttingtown Estate or transfer of the property to the Irrevocable

Vart Trust was part4 The federal tax cases the appellees cite do not justify piercing in this context, as they also involve allegations that the trusts at issue were used to concea l or to shield assets owned by the taxpayer. See , e.g. , United States v. Letscher , 83 F. Supp.2d 367, 373-74 (S.D.N.Y. 1999).

10 of a fraudulent convey

ance. The bankruptcy

court found insufficient evidence to establish that the consideration Vanda Vebeliunas paid for Lattingtown Estate was inadequate or that debtor actually provided the

consideration for his wife’s purchase of the pr operty. Acc ordingly, the appelle es canno t rely

upon the c ases the

y c ite, as pie

rcing t he I rrevoc able Va

rt Trust u nder the se circumstances would extend state law bey ond the parameters established by New York’s own courts. 4 As our resolution of this appeal does not require that we conclusively resolve this issue, however , we do not

decide w hether a trust may be pierc ed in the i

nstant ca se as a ma

tter of la w in New York. II. Equitable Owne rship The appellees also argue that the ve il of the Irrevoca ble Vart Trust should be pierced because debtor is the equitable owner of that trust, and, c onsequently, L attingtown Estate. Assuming that New York courts would allow the veil of a trust to be pierc ed in situations where complete domination of a trust has been shown, we nonetheless conclude tha t no such showing has been made in th

is case. To pierc e the cor porate v eil under

New Yor k law, a p laintiff

must prove that: (1) the owner exercised such control that the cor poration has become a mere instrumen tality of the ow

ner, who is the rea l actor; (2) the ow

ner used this contr

ol to commit

a fraud or “other wrong”; a nd (3) the fraud or wrong re sults in an unjust loss or injury to the plaintiff. See Freeman v. Complex Computing Co., Inc. , 119 F.3d 1044, 1052 (2d Cir. 1997) (citations omitted). See also Morris , 603 N.Y.S.2d at 810-11. Courts have recognized that the element of control may

be predicated upon the concept of equitable ow nership. See Freeman ,11

119 F.3d a

t 1051-53. Pursuant t

o this appr

oach, a n individua

l who “exe

rcise[s] c onsidera

ble authority over [the corpor ation] . . . to the point of completely disrega rding the corporate form and acting as though [its] assets [are] his alone to manage and distribute” may be deemed the equitabl e owner

of the co rporation and its a ssets, not withstand ing the f act that t he individ

ual is not a shareholder and does not occupy a formal position of authority. Id. at 1051 (citation omitted). In the instant case, the bankr uptcy court’s f

indings of fact establish that debtor was neither the equitable owner nor in control of the I rrevocable Vart Trust and its property . Rather, Vanda Vebeliunas was the equitable owner of both the trust and Lattingtown Estate. Vanda Vebeliunas purchased L attingtown Estate with her own assets, viz. , her ownership in terest in NSP and $200,000, which she earned by investing her inheritance. The bankruptcy court found that the record did not establish that this consideration was inadequate, and the a ppellees proffer no evidence that debtor, rather than his wife, fur nished the consideration. Moreover, Vanda Vebeliunas placed La

ttingtown Estate in the Irrevoc able Vart Trust. The appellees argue that debtor ’s equitable ownership and control of the I rrevocable Vart Tru st are evi den ced by th e fa ct t hat he p ers ona ll y ben efi tt ed f rom Latt in gto wn E st ate . In particular, the bankruptcy court found that: (1) while Vanda Vebeliunas was the truste e of the Irrevocable

Vart Trust, she and debtor received and ke pt rents from Lattingtown Estate; (2) debtor liv ed at L attingtown Estate with his wif

e and fa mily without pa

yin g rent t o the I rrevoc able Vart Trust; and (3) debtor and his wife took deductions on their persona l income tax returns for real estate taxes and interest relating to L attingtown Estate. These facts, however, do not establish that debtor was the e quitable owner of the12

Irr evocab le Vart T

rust and L

attingtown Estate

because none of these bene fits flowe d solely to debtor. R ather, a ll of the be

nefits de btor enjoye d from L attingtown Estate flowed jo intly

to him and his wife, which is consistent with Vanda Vebeliunas’ equitable owner ship of the property. For example, debtor did not exclusively reta in rents from Lattingtown Estate, a s the bankruptcy court fo und that de

btor and h

is wife jo intly

retaine d the ren

t procee ds. Under

these circumstances, debtor’s receipt and use of the rent proceeds does not evidence control ove r the property, a s spouses routinely share c ertain financial assets, such as streams of income. Si mi la rl y, t he me re fa ct th at de bt or li ve d a t La tt in gt ow n E st at e, al on g w it h h is wi fe an d f am il y, without pa

yin g rent d oes not div est Vand

a Vebel iunas or t

he I rrevoc able Va

rt Trust o f owner ship of the property , because a homeowner would be expected to allow he r spouse and children to live rent-free in her home. Finally , while debtor enjoye d certain tax advantages from L attingtown Estate, he did so only in the context of filing joint tax returns with his wife. Howeve r, New York is not a community property state, and the mere fact that debtor and his wife f iled joint tax returns does not indicate that ownership of L attingtown Estate transferred to debtor. See Callaway v. Commissioner of I nternal Revenue , 231 F.3d 106, 112, 1 17 (2d Cir. 2000). I n sum, none of the benefits debtor received fr om Lattingtown Estate evidence control of the trust or a transfe r in owne rship of L attingtown Estate

to debtor , becau se they

were c onsistent w

ith those benefits that would naturally f low to the spouse of the property ’s equitable owner, Vanda Vebeliunas. The appe llees als o rely

upon the f

act that d ebtor ple dged Lattingtown Estate in connection with bail proceedings in his criminal case. Howe ver, debtor and his wife did not represent in connection with debtor’s appeara nce bond that he owned La ttingtown Estate.5 The bank ruptcy court fo und that de

btor pled ged L attingtown Estate

“as if it w ere his own” on hi s appear

ance bo nd and de clared

the prope rty “to be a p ersonal

asset” on his aff

idavit of confession of judgment. These findings of f act are clearly

erroneous, as debtor never repres ented on e ither doc ument tha t he owne d Lat

tingtown Estate, a nd he pled

ged the propert y only in connection with his wife ac ting as a surety

.

13 Rather, debtor “pledge[d] home and property ” in Florida and New York, and Vanda Vebeliunas signed the bond as a surety . Similarly, debtor repre sented in his affidavit of confession of judgmen t only that the te

rms of his b ail provid

ed that Lattingtown Estate would be f

orfeite d if the court found that he did not comply w ith the requisite conditions. The mere fact that Vanda Vebeliunas pledged L attingtown Estate as security for her husband’s bond does not evidence that de bt or co nt ro ll ed th e Ir re vo ca bl e V ar t T ru st or wa s t he eq ui ta bl e o wn er of th e p ro pe rt y. 5 The appe llees fur

ther ar gue tha t debtor e xercised control o ver the t

rust and i ts proper ty because he neg otiated a

nd execute d a serie s of ease ments to L attingtown Estate and paid v

irtually all of the expenses associated with the Irr evocable Vart Trust. These acts do not evidenc e a transfer in ownership because spouses routinely administer each other’s assets and conduct business on behalf of each other. For example, the appe llees rely upon the f act that debtor himself resolved the problem that was created when L attingtown Estate was subdivided such that a portion of its tennis court became part of a neig hbor’s property . Debtor granted the neighbor an easement to Lattingtown Estate ’s lake in exchange for a lease a nd an option to purchase the land containing the other portion of the tennis court. While debtor himself handled this transaction, the appellees conceded at oral ar gument that he did so at his wife’s request. The mere f act that debtor acted as an agent for his wife does not divest her of her equitable ownership of Latti ngtown E state. As

debtor w as neithe

r the equ itable ow ner nor i n control of the I rrevoc able Vart Trust, the appellees cannot pierce the trust.6 The appellees proffer no evidenc e to establish that the bankruptcy court’s findings of fact ar e clear ly e rroneou s. 14 III. Equitable Estoppel The facts in this case establish that while the I rrevocable Vart Trust is the record ow ner of Lattingtown Estate, Vanda Vebeliunas is the equitable owner of the property , and Chase and Citibank cannot equitably estop either f rom asserting claims of ownership. 6 “Equitable estoppel is grounded on notions of fair dealing and g ood conscience and is designed to aid the law in the administration of justice where injustice would otherwise result.” In re I onosphere Clubs, Inc. , 85 F.3d 992, 999 (2d Cir. 1996). “The doctrine of equitable estoppel is prope rly invoked wher

e the enforcement of the rights of one pa rty would work an injustice upon the othe r party due

to the latter’s justifiable reliance upon the former’s wor ds or conduct.” Kosakow v. New Roc

helle Radiolog y A ssocs., P. C. , 274 F.3d 706, 725 ( 2d Cir. 200 1). Unde r New York law, the eleme nts of equita ble estop pel are with resp ect to the

party estopped : (1) con

duct whic h amounts t

o a false representation or concealment of mater ial facts; (2) intention that such conduct will be acted upon by the other par

ty; and (3) knowledg e of the real facts. International Minerals & Res., S.A. v. Pappas , 96 F.3d 586, 594 (2d Cir. 1996) (citations omitted). The parties asserting estoppe l must show with respect to themselves: (1) lack of knowledge a nd of the means of knowledge of the true facts; (2) reliance upon the conduc t of the party to be e stopped; and (3) prejudicial changes in their positions. Id. (citations omitted). See also 12 A M . J UR . 2 D Bills & Notes § 554 (1997). In the

instant ca se, neith er Chase nor Citiba

nk can e stablish that Vanda Vebeliun as’ conduct o r knowle dge sho

uld estop h er or the

Irr evocab le Vart T

rust from assertin g owner ship over Lattingtown Estate. The banks identify no fra

udulent conduct on the part of Vanda15

Vebeliunas, as she play

ed no role in the fraud and made no repre sentations to the banks concerning debtor’s ownership of L attingtown Estate. Nor is there any evidence that Vanda Vebeliunas affirmatively

concealed any

facts that influenced the banks to loan her husband $1.7 million. Moreover, Vanda Vebeliunas’ silence cannot g ive rise to equitable estoppel because she had no duty or opportunity to speak. See Kosakow , 274 F.3d at 725 (holding that silence may constitute an affirmative act for purposes of equitable estoppel where there was a duty to speak). The bankruptcy

court specifically

found that Vanda Vebeliunas had no knowledge of her husband’s activities until after he had perpetrated the f raud, and the appellees proffer no e vidence that this f inding is clearly errone ous. While the banks had title insurance, we are hesitant to say that they exercised due diligence in this case, as both Chase and Citibank knew when they extended the loans that neither debtor nor the Revocable Vart Trust, of which debtor was the trustee, owned La ttingtown Estate. Chase knew that the Irre

vocable Vart Trust owned the property and accepted a deed conve ying the property f

rom an unspecified “Vart Trust” to debtor. Citibank also knew that debtor was not the rec ord owne

r of the property

, but acc epted his

repres entation s that the R evocab le Vart T

rust owned the

propert y, d espite a statemen t to the co ntrary

on the pro

perty ’s deed. Regar

dless, whether the title insurers acted reasonably is not an issue that is before us. More impo rtant, however, the banks did not re ly u

pon Vanda

Vebeliun as’ cond uct in deciding to extend the loans at issue to her husband. Debtor sought the loans fr om Chase and Citibank without the assistance of his wife. Upon learning that debtor did not own L attingtown Estate prior to extending the loans, neither bank contacted Va nda Vebeliunas or required that she sign the respective mortgag e instruments. Rather, Chase extended the loan upon receiving fr om16

debtor a fraudulent deed, as well as a mortg age, an “Owner’s Estoppel Cer tificate,” and a “Mortgage Affida

vit” that misrepresented his right to mortgage the property. Citibank extended the loan after debtor represented tha t the Revocable Vart Trust owned L attingtown Estate and submitted an affidavit stating that the notation on the property ’s deed to the contrary was erroneous. As the banks extended the loans to debtor based solely upon his misrepresentations and not due to any c onduct on the part of Vanda Vebeliunas, the banks ca nnot estop her or the Irrevocable

Vart Trust from asserting ownership of Lattingtown Estate.

CONCLUSION Based upon the foregoing , the judgment of the United States District Court for the Southern D istrict of

New Yor k is REVERSED . The par ties are to bear t heir own costs.