Source: http://www.ecases.us/case/c372517/jerry-b-klein-as-trustee-for-the-liquidation-of-the-business-of-jnt/
Timestamp: 2020-04-05 15:54:26
Document Index: 741802432

Matched Legal Cases: ['§ 78', '§ 78', '§ 107', '§ 1', '§ 67', '§ 1', '§ 60', '§ 1660', '§ 78', '§ 302']

jerry-b-klein-as-trustee-for-the-liquidation-of-the-business-of-jnt, Second Circuit, US Court of Appeals Cases, Federal Courts, COURT CASE
jerry-b-klein-as-trustee-for-the-liquidation-of-the-business-of-jnt , 610 F.2d 1043 ( 1979 )
On February 15, 1972, the United States District Court for the Southern District of New York determined that JNT's customers were in need of protection under 15 U.S.C. § 78eee and appointed plaintiff trustee for the liquidation of the company's business. This liquidation was to be conducted generally "in accordance with, and as though it were being conducted under," Chapter X of the Bankruptcy Act, 15 U.S.C. § 78fff(c)(1). Following his appointment, plaintiff contended that the transfer of JNT's portfolio securities to Emmer was a fraudulent conveyance under section 67(d) of the Bankruptcy Act, 11 U.S.C. § 107(d),1 and demanded their return, which was refused. In the suit that ensued, the district court granted plaintiff's motion for summary judgment on the cause of action alleging a section 67(d) violation, reserving only the question of damages for jury determination. See Klein v. Tabatchnick, 418 F. Supp. 1368 (S.D.N.Y.1976). Damages subsequently were fixed by a jury at $73,750. For the following reasons, we believe that summary judgment should not have been granted.
Fairness of consideration is generally a question of fact. McNellis v. Raymond, 287 F. Supp. 232, 238 (N.D.N.Y.1968), Rev'd on other grounds, 420 F.2d 51 (2d Cir. 1970); See Roth v. Fabrikant Bros., Inc., 175 F.2d 665, 668 (2d Cir. 1949); Seligson v. New York Produce Exchange, 394 F. Supp. 125, 132-34 (S.D.N.Y.1975). The district court determined it as a question of law. See 418 F.Supp. at 1372. We do not believe the facts were so clearly established in plaintiff's favor that they warranted disposition in this manner.
Although the district judge was clearly correct in holding that transfers solely for the benefit of third parties do not furnish fair consideration under section 67(d)(2)(a), that statement may not be applicable to the transaction at issue. Benefit to a debtor need not be direct; it may come indirectly through benefit to a third person. See Williams v. Twin City Co., 251 F.2d 678, 681 (9th Cir. 1958); Mandel v. Scanlon, 426 F. Supp. 519, 523-24 (W.D.Pa.1977); McNellis v. Raymond, supra, 287 F.Supp. at 239; Hoflar v. Marion Lumber Co., 233 F. Supp. 540, 543 (E.D.S.C.1964). Tabatchnick was the majority shareholder of JNT, and everything he owned was in the firm. It appears from the motion papers that he operated the company as if it were his private domain. Emmer, the other substantial shareholder, denied that he participated in any way in company management. As he put it, "This whole company, JNT, was in fact Mr. Tabatchnick as far as I was concerned." The $50,000 that Tabatchnick borrowed from the bank was loaned to the company, and that loan, Tabatchnick says, would not have been renewed without the use of Emmer's collateral.
Construing the motion papers most favorably to the defendants, as we are required to do, Adickes v. S. H. Kress & Co., 398 U.S. 144, 157, 90 S. Ct. 1598, 26 L. Ed. 2d 142 (1970), we cannot say that JNT received no benefit from Tabatchnick's use of Emmer's collateral. Whether this furnished fair consideration for the transfer of JNT's own securities to Emmer depended among other things on JNT's need for the $50,000, its availability from some source other than Tabatchnick, and the value of the securities transferred to Emmer. JNT was a new underwriting firm which started in business with little or no capital and no financial track record. The motion papers show that withdrawal of Tabatchnick's $50,000 would have created a severe cash and capital problem in the company and that Emmer "provided a substantial benefit to JNT when he furnished the replacement collateral for the loan." Moreover, there was substantial dispute as to the value of the securities transferred to Emmer; Tabatchnick in particular placed a very low value upon them. Whether this value was fairly equivalent to the benefits received by JNT should not have been decided on motion papers.
Insolvency is also a factual question. Britt v. Damson, 334 F.2d 896, 902 (9th Cir. 1964), Cert. denied, 379 U.S. 966, 85 S. Ct. 661, 13 L. Ed. 2d 560 (1965); 1 Collier on Bankruptcy § 1.19 at 130.12 (14th ed. 1974); 4 Collier on Bankruptcy § 67.05 (14th ed. 1978). Moreover, a finding on the issue of insolvency often depends upon the factual inferences and conclusions of expert witnesses which, when controverted, do not lend themselves readily to summary judgment resolution. See United States v. Diebold, Inc., 369 U.S. 654, 82 S. Ct. 993, 8 L. Ed. 2d 176 (1962); Seligson v. New York Produce Exchange, supra, 394 F.Supp. at 128-32.
In order for the trustee to establish a preferential transfer, he had to show that the transferee was a creditor of the bankrupt, I. e., the owner of a demand or claim provable in bankruptcy. Richardson v. Shaw, 209 U.S. 365, 381, 28 S. Ct. 512, 52 L. Ed. 835 (1908); 11 U.S.C. § 1(11); 3 Collier on Bankruptcy § 60, at 834 (14th ed. 1977). For a debt to exist, something must be owed to the creditor. Zwick v. Freeman, 373 F.2d 110, 116 (2d Cir.), Cert. denied, 389 U.S. 835, 88 S. Ct. 43, 19 L. Ed. 2d 96 (1967). Moreover, the transferee must have become a creditor prior to the transfer, or it would not have been made "for or on account of an antecedent debt." 4 Remington on Bankruptcy § 1660, at 203 (5th ed. 1957). "Preference implies paying or securing a pre-existing debt of the person preferred." Dean v. Davis, 242 U.S. 438, 443, 37 S. Ct. 130, 131, 61 L. Ed. 419 (1917).
The only other claim of the parties meriting comment is Emmer's claim that the trial court was without jurisdiction. The complaint alleged violations of the Securities Exchange Act and tortious conduct in New York State under the pendent state claims. The district court did not err in holding that jurisdiction existed. See 15 U.S.C. § 78aa; N.Y.Civ.Prac.Law and Rules § 302(a); Mariash v. Morrill, 496 F.2d 1138, 1142-43 (2d Cir. 1974); Neilson v. Sal Martorano, Inc., 36 A.D.2d 625, 626, 319 N.Y.S.2d 480 (1971); Francis I. DuPont & Co. v. Chelednik, 69 Misc. 2d 362, 363, 330 N.Y.S.2d 149 (1971).
Citation Numbers： 610 F.2d 1043
Filed Date： 11/26/1979
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