Source: https://ru.scribd.com/document/51393500/Zali-UTA-Fraud-Allou-Rulling
Timestamp: 2019-09-21 23:44:28
Document Index: 208031320

Matched Legal Cases: ['§ 276', '§ 1334', '§ 157', '§ 544', '§ 276', '§ 276', '§ 305', '§ 278', '§ 273', '§ 274', '§ 275', '§ 273', '§ 274', '§ 275', '§ 272', '§ 272', '§ 276', '§ 278', '§ 548', '§ 548', '§ 548', '§ 548', '§ 551', '§ 550', '§ 550', '§ 278', '§ 1402', '§ 276', '§ 52']

Zali UTA Fraud Allou Rulling | Summary Judgment | Federal Rules Of Civil Procedure
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Beckford v. Geithner 06-1342
Shirley Mills v. First Federal Savings & Loan Association of Belvidere, 83 F.3d 833, 1st Cir. (1996)
UTA FRAUD $29.
ALLOU DISTRIBUTORS, INC., et al., Case No. 03-82321-ess
KENNETH P. SILVERMAN, as Chapter 7 Trustee
of ALLOU DISTRIBUTORS, INC., et al., and
CONGRESS FINANCIAL CORPORATION, Adv. Pro. No. 03-08482-ess
UNITED TALMUDICAL ACADEMY TORAH
VYIRAH, INC. a/k/a UNITED TALMUDICAL
ACADEMY a/k/a UNITED T.A., TALMUD
TORAH D’RABEINU YOEL S’FARDIM, INC.,
AFRICAN MARKET TRADING, INC. and
ARTHUR MEISELS a/k/a USHER MEISELS,
MEMORANDUM DECISION ON MOTION FOR PARTIAL SUMMARY JUDGMENT
OF DEFENDANT UNITED TALMUDICAL ACADEMY TORAH VYIRAH, INC.
OTTERBOURG, STEINDLER, SCHLAM STONE & DOLAN LLP
HOUSTON & ROSEN, P.C. 26 Broadway
230 Park Avenue New York, New York 10004
New York, New York 10169 Attorneys for United Talmudical Academy
Attorneys for Congress Financial Torah Vyirah, Inc.
Corporation k/n/a Wells Fargo Bank, N.A.
Attorneys for Kenneth P. Silverman, Esq., as
Chapter 7 Trustee of Allou Distributors,
UTA FRAUD $29.8 MILLION DOLLARS
HONORABLE ELIZABETH S. STONG
Before the Court is the motion of defendant United Talmudical Academy Torah Vyirah,
Inc. (“UTA”) for partial summary judgment under Bankruptcy Rule 7056 and Federal Rule of
Civil Procedure 56 on the claims asserted against it in the complaint dated January 20, 2006,
filed by Congress Financial Corporation, now known as Wells Fargo Bank, N.A. (“Congress”),
and Kenneth P. Silverman, as Chapter 7 trustee (the “Trustee”) of Allou Distributors, Inc. and
other entities (“Allou”). This motion arises in one of many adversary proceedings brought in
connection with the fraud committed by Allou’s principals, and the involuntary and voluntary
bankruptcy filings that followed.
Summary judgment is a useful tool to facilitate the progress of a dispute toward a
determination on the merits. As recently-amended Federal Rule of Civil Procedure 56
recognizes, it requires a court to enter judgment, in whole or in part, where there is no genuine
dispute as to any material fact and a party is entitled to prevail as a matter of law. In complex
matters, it promotes the just, speedy, and inexpensive resolution of litigation by eliminating the
need for a trial on all or part of a claim.
Some issues are especially well suited for determination on summary judgment,
including those where a necessary element of a claim such as the receipt of a payment can be
determined from the record at the close of discovery. But other issues, including knowledge and
intent, and issues that turn on credibility determinations, are less well suited for summary
judgment because they require the trier of fact to probe into the minds of the actors and may
need to be decided after a trial.
This complex action presents both kinds of issues. It arises from a massive fraud
perpetrated by Allou’s senior officers, and the Plaintiffs’ claims arise from almost $30 million in
scores of transactions over a six-year period among Allou, UTA, and other entities. Where UTA
shows that there is no genuine dispute as to whether it received a transfer, and the Plaintiffs do
not come forward with evidence sufficient to create a genuine dispute, then partial summary
judgment should issue. But where a genuine issue is raised by questions of knowledge and
intent, and those matters are material to the determination of the claim, then the claim should
The Plaintiffs bring Claims One, Two, and Three under theories of aiding and abetting
breach of fiduciary duty, aiding and abetting fraud, and civil conspiracy,1 based on UTA’s
alleged participation in the breach of fiduciary duty and fraud perpetrated by Allou’s former
management. The Trustee brings Claims Four through Nine under New York’s Debtor and
Creditor Law (“DCL”) Sections 276, 273, 274, and 275 and Bankruptcy Code Sections
548(a)(1)(A) and (B) to recover funds transferred to UTA by Allou, its principals, and affiliates.
Claim Four also seeks attorneys’ fees under DCL Section 276-a, based on UTA’s actual intent to
defraud Allou’s creditors. Congress brings Claims Eighteen, Nineteen, and Twenty under
theories of unjust enrichment, money had and received, and conversion to recover funds
transferred to UTA that constitute Congress’ collateral.
UTA argues that summary judgment should be granted on the aiding and abetting claims
because the Plaintiffs lack evidence sufficient to show actual knowledge and substantial
assistance, which are essential elements of those claims. Similarly, UTA contends that it is
entitled to judgment on the Trustee’s demand for attorneys’ fees under DCL § 276-a because that
Claim Three is titled “Fraud and Conspiracy to Commit Fraud.” UTA argues, and the
Plaintiffs do not dispute, that it should be treated as a claim for civil conspiracy.
statute requires a showing of actual intent that the Trustee cannot make. UTA seeks judgment
on the civil conspiracy claim on grounds that it is duplicative of the aiding and abetting claims.
And UTA argues that partial summary judgment should be granted on the remaining claims
under various theories. The Plaintiffs respond that genuine disputes as to material facts preclude
This Court has jurisdiction over this proceeding pursuant to 28 U.S.C. §§ 1334(b) and
157(b)(1). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(H). The following are
the Court’s findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure
52, made applicable here by Bankruptcy Rule 7052.
This adversary proceeding was commenced on October 29, 2003, when the Plaintiffs
filed a complaint against UTA. UTA made two motions to dismiss which were heard and
determined by the Court, and on January 23, 2006, the Trustee and Congress filed a third
amended complaint (the “Complaint”).
The Plaintiffs allege that UTA and certain of its leadership, including Arthur Meisels,
knew of and actively participated in the massive fraud perpetrated by Allou’s former
management. The Plaintiffs also allege that UTA, Mr. Meisels, and entities under his control
including African Market Trading, Inc. (“AMT”), facilitated the transfer of huge sums to further
the fraud, and that:
The funds Congress . . . advanced to Allou were transferred to entities either
controlled by the Jacobs [] such as [Talmud Torah D’Rabenu Yoel L’Sfardim,
Inc. (“TTDY”)] or to entities within their sphere of influence such as AMT and
UTA who agreed to keep or launder these funds to perpetuate the fraudulent
scheme and for purposes unrelated to Allou’s business.
The Plaintiffs allege that these activities advanced not only the personal financial
interests of the Jacobs, but also the common interests of the Jacobs and Mr. Meisels in the hotly-
contested succession dispute within the Satmar Hasidic community. As the Complaint states:
[T]here is a succession dispute involving competing supporters of two sons of
Grand Rebbe Moshe Teitelbaum. The Grand Rebbe is believed to be close to
ninety-years old, and his successor has not yet been designated. The Jacobs-
Meisels Faction supports Zalman Teitelbaum, while the competing faction
supports Aaron Teitelbaum. In order to curry favor for its choice, the Jacobs-
Meisels Faction looted Allou by transferring substantial sums to UTA, TTDY and
others, with the active participation of Meisels (the President and CEO of UTA)
and AMT (a Meisels-controlled entity).
Compl. ¶ 2.
The Plaintiffs allege that “[e]ach Defendant, as a recipient and/or transferor of funds from
Allou, aided and abetted and conspired with the Jacobs[] in perpetuating a fraudulent scheme at
Allou . . . .” Compl. ¶ 3. The Plaintiffs also allege that the defendants conspired to perpetrate
the fraud at Allou by:
(a) allowing Allou to “park” money with UTA and AMT which was then
transferred for the benefit of the conspirators; (b) deepening UTA’s complicity in
a scheme of check kiting; (c) facilitating UTA’s receipt of millions of dollars
from Allou with no legitimate business purpose; (d) [allowing] Meisels and AMT
[to] act[] as “middlemen” in the laundering of money; and (e) transferring
hundreds of thousands of dollars . . . to TTDY, an entity controlled by Victor
Jacobs that transfers hundreds of thousands of dollars to Israel[,] and at least
$50,000 to T&J Associates (“TJ”), a “real estate holding company” owned by the
Jacobs[].
Compl. ¶ 3. And the Plaintiffs allege that UTA and the other “Defendants had a unique
relationship with Victor Jacobs, such that they knew of Victor Jacobs’ role and responsibilities
as chairman of publicly-traded Allou and each conspired with Victor Jacobs to take advantage of
that relationship to aid and abet” the fiduciary breach and fraud at Allou, and to support the
Jacobs-Meisels faction. Compl. ¶ 4. The alleged relationships include that Mr. Meisels is
President and CEO of UTA and a signatory on its bank accounts, that the Meisels family and the
Jacobs are related through a recently arranged marriage, and that Victor Jacobs’ wife is related to
Mr. Meisels. The Plaintiffs allege that “[a]s a result of the fraudulent scheme, Congress has
incurred damages in excess of $150,000,000, and Allou has been damaged by more than
$200,000,000.” Compl. ¶ 1.
On February 22, 2006, UTA answered the Complaint, and on March 14, 2006, UTA
amended its answer. UTA denies that it is liable for any amounts and asserts certain affirmative
defenses, including under DCL Section 278 and Bankruptcy Code Section 548(c) and the
On June 1, 2009, the parties submitted a Joint Pre-Trial Statement (“JPTS”) setting forth
the material facts that are not in dispute, including stipulations as to the terms of many of the
transfers at issue, and their respective positions on many disputed facts.
On September 11, 2009, UTA filed this motion for partial summary judgment, together
with a memorandum of law (“UTA Mem.”), and a statement of material facts not in dispute.
UTA’s motion is supported by the affirmation of UTA’s counsel Thomas A. Kissane (the
“Kissane Decl.”), and the declaration of UTA employee Helen Greenwald.
On October 23, 2009, the Plaintiffs filed a memorandum of law in opposition to UTA’s
motion (“Pltfs’ Opp.”). The Plaintiffs’ Opposition is supported by the declaration of Congress’
counsel Richard G. Haddad (the “Haddad Decl.”) and the affirmation of Congress’ consultant
Timothy M. Puopolo. The Plaintiffs also filed a statement of contested facts pursuant to Local
Rule 7056-1.
On December 4, 2009, UTA filed a reply memorandum in further support of its motion
(“UTA Reply”), the reply declarations of Mr. Kissane and UTA employee Isaac Mandel
(“Mandel Reply Decl.”), and a reply to the Plaintiffs’ Statement and Response.
On August 4, 2010, the Court heard argument from counsel for UTA, the Trustee, and
Congress, allowed the parties to supplement the record, and reserved decision. On August 6,
2010, UTA and the Plaintiffs filed supplemental submissions.
The following findings of fact are drawn from the extensive summary judgment record
and the Court’s docket, and are construed in the light most favorable to the Plaintiffs as the
nonmoving parties.
The Debtors’ Bankruptcy Cases
On April 9, 2003, involuntary Chapter 11 petitions were filed against Allou Distributors,
Inc. (“ADI”), and three of its affiliates, M. Sobol, Inc., Direct Fragrances, Inc., and Stanford
Personal Care, Inc. (together, the “Original Debtors”), by Congress, Citibank, N.A., and LaSalle
Business Credit, LLC. The Original Debtors consented to the entry of orders for relief under
Chapter 11, and on April 10, 2003, the Court issued orders for relief in these Chapter 11 cases.
The Original Debtors are wholly-owned subsidiaries of Allou Health Care, Inc. (“AHI”), a
publicly-traded Delaware corporation. On April 18, 2003, Congress, Citibank, and LaSalle filed
an involuntary Chapter 11 petition against AHI, and on July 14, 2003, the Court entered a
consensual order for relief.
On April 18, 2003, Congress, Citibank, and LaSalle filed involuntary Chapter 11
petitions against two of ADI’s six subsidiaries, Trans World Grocers, Inc., and Rona Beauty
Supplies, Inc. (the “Subsequent Debtors”). On May 1, 2003, the Court entered orders for relief
On April 25, 2003, ADI’s four remaining subsidiaries, Core Marketing, Inc., HBA
Distributors, Inc., HBA National Sales Corp., and Pastel Cosmetic & Beauty Aids, Inc. (the
“Voluntary Debtors”) filed voluntary Chapter 11 petitions.2
By Order dated September 16, 2003, the Debtors’ Chapter 11 cases were converted to
cases under Chapter 7. Kenneth P. Silverman was appointed as the Chapter 7 trustee. The
Debtors’ cases were substantively consolidated by Order dated December 22, 2003.
The Defendant UTA
UTA is a not-for-profit corporation under the New York Religious Corporations Law,
operating as a religious school with principal offices in Williamsburg, Brooklyn. It was founded
in 1949 as the educational arm of the Satmar Hasidic community, and has approximately 7,500
students from pre-kindergarten through grade thirteen. To meet its operating expenses, UTA
solicits and accepts donations and interest-free loans, and holds an annual fundraising dinner.
Congress and the Loans to Allou
Congress was engaged in the business of commercial finance. Pursuant to a Loan and
Security Agreement dated September 4, 2001, and certain related agreements, Congress, as
lender and as agent and co-arranger for other lenders, made loans and other advances and
AHI, the Original Debtors, the Subsequent Debtors, and the Voluntary Debtors are
referred to as the “Debtors.”
provided financial accommodations to Allou of up to $200 million on a revolving basis. Under
the Loan and Security Agreement, Allou could borrow funds up to a limit of 85 percent of
eligible accounts receivable and 50 percent of eligible inventory. As of the filing of the Allou
bankruptcy petitions, Allou owed Congress approximately $178 million under the Loan and
Security Agreement and related agreements and guarantees.
Allou’s Principals and the Fraudulent Scheme
Victor Jacobs and his sons Herman Jacobs and Jacob Jacobs were controlling
shareholders of Allou. Allou’s filings with the Securities and Exchange Commission show that
the Jacobs controlled approximately 61 percent of Allou’s stock. The Jacobs served as officers
and directors of Allou, with Victor as chairman, Herman as chief executive officer, and Jacob as
executive vice president. The Jacobs guaranteed up to $10 million of Allou’s obligations to
Congress and other lenders.
From the early 1990s through 2003, the Jacobs and others orchestrated and participated
in a fraudulent scheme designed to misrepresent Allou’s financial condition and to increase the
funds available under the Congress line of credit. As part of this scheme, Allou reported inflated
inventory and false accounts receivable to its lenders, and the Jacobs transferred funds to entities
that they controlled to pay the false accounts receivable. These transfers were recorded on
Allou’s books as inventory purchases. The Jacobs-controlled companies then transferred these
funds back to Allou, and Allou recorded the transfers on its books as payments. Allou
transferred hundreds of millions of dollars of the funds advanced by Congress to other
companies owned or controlled by the Jacobs.
On June 9, 2004, Victor, Herman, and Jacob Jacobs were indicted on federal charges
including bank fraud, violations of SEC rules and regulations, and bribery of a public official.
On July 31, 2007, Herman Jacobs was sentenced to fifteen years of incarceration and three years
of supervised release, and was ordered to pay more than $176 million in restitution. The next
day, Jacob Jacobs was sentenced to seven years of incarceration and three years of supervised
release, and was ordered to pay $30 million in restitution. Victor Jacobs passed away prior to
the disposition of the criminal complaint and indictment against him.
Victor Jacobs’ Relationship with UTA and Arthur Meisels
In 1998, Victor Jacobs began to attend UTA board meetings. See Haddad Decl. Exh. 39
(Glanz. Tr. 16-17). Rabbi Lieb Glanz, the former executive director of UTA, testified that
sometime in the 1990s, Victor Jacobs became a guarantor of UTA’s line of credit with Chase
Manhattan Bank (“Chase”), and also personally guaranteed certain mortgages on UTA’s behalf.
For purposes of this motion, UTA acknowledges that Victor Jacobs was instrumental in having
Mr. Meisels serve in a position of authority at UTA and on UTA’s board of directors. Mr.
Meisels testified that he served on UTA’s board from 1999 until December 2004. Mr. Meisels’
company AMT was also formed in 1999. And Mr. Meisels testified that his father-in-law is the
brother of Victor Jacobs’ mother-in-law.
Victor Jacobs and Mr. Meisels supported Zalman Teitelbaum in the disputed succession
to Grand Rebbe of the Satmar community. See, e.g., Haddad Decl. Exh. 39 (Glanz Tr. 21-22).
The nature and impact of this dispute have been chronicled in several court proceedings. As one
The polarization has so insidiously divided the two camps to the point that they
each dispute the other side’s legitimacy to be identified as true Satmar Chasidim.
Control [] of the Congregations’ synagogues, cemetery, assets, charitable,
educational and religious institutions and even its corporate name has been hotly
contested both in and out of the judicial forum.
Appl. of Congregation Yetev Lev D’Satmar, Inc. v. Kahan, 5 Misc. 3d 1023(A), at *3-4 (N.Y.
Sup. Ct. Kings Co. 2004).
The Direct and Indirect Transfers Among Allou, UTA, and Others
The parties stipulate that some 147 transfers took place among Allou, UTA, and others
over the six years from February 1997 to March 2003. They range in size from $250 to $3.1
million, and in the aggregate they exceed $29.8 million. This includes 57 transfers to UTA from
Allou and other entities, ranging in size from $250 to $300,000 and totaling more than $6
million. These direct and indirect transfers among Allou, UTA, and other entities lend support to
the Plaintiffs’ aiding and abetting and conspiracy claims and contribute to the damages claimed
in the Trustee’s fraudulent transfer claims, subject to the applicable statutes of limitations. And
the transfers that occurred after September 4, 2001, the date of the Loan and Security
Agreement, form the basis of Congress’ damages in its unjust enrichment, money had and
received, and conversion claims.
UTA argues that these transfers arise from donations and short-term, interest-free loans
made in a manner consistent with the practices of the Satmar and Orthodox Jewish communities.
And UTA argues that it entered into these transfers because it was in constant need of funds to
meet its operating expenses.
The Plaintiffs respond that these transfers are suspicious for many reasons. They note
that there were scores of these transfers and argue that they served no business purpose. They
argue that the transfers are questionable because they involve individuals at Allou and affiliated
entities who were involved in the fraud and fiduciary breach at Allou. The Plaintiffs also point
to questionable circumstances surrounding the transfers, including the lack of written
documentation supporting the transfers, the absence of interest charges, the short-term duration
and “round-trip” nature of the transactions, the use of intermediary entities to transfer funds from
Allou to UTA, and UTA’s repayment of funds to a different entity than the entity from which the
Direct Transfers from Allou to UTA
The Plaintiffs allege that Allou made 27 direct transfers to UTA between February 1997
and December 2002, totaling $688,350. The Plaintiffs and UTA stipulate to the date, amount,
and method of transfer of sixteen of these transfers, totaling $656,450. Nine of these transfers
were recorded on Allou’s books as donations, five were recorded as loan-and-exchange or
“L&E” transactions, one was recorded as “Officer 1099,” and one was recorded as accounts
payable. Of the eleven transfers not stipulated to, one was recorded on Allou’s books as “Bank
fees,” and ten were recorded as donations. JPTS Exh. A.
The $300,000 Round-Trip Transaction On May 3, 2002, by check number 111737, Allou
transferred $300,000 to UTA. That check was signed by Victor Jacobs and cleared on May 7,
2002. It was deposited into UTA’s account at Signature Bank. The Plaintiffs claim that the next
day, UTA issued a check signed by Mr. Meisels from Signature Bank to Allou for $300,000.
The Plaintiffs contend that UTA did not use the Signature Bank account for its ordinary day-to-
day operations. These transfers were booked to the loan-and-exchange accounts of UTA and
UTA argues that because the transfers were recorded as loan-and-exchange transactions
on Allou’s books, they could not have had the effect of improperly inflating Allou’s inventory or
receivables. The parties stipulate that UTA’s check to Allou did not clear until May 10, 2002.
And UTA contends that the clearance dates of these checks gave UTA access to the funds for
more than two business days, which is consistent with UTA’s history of short-term cash needs
and the lending practices of the Satmar and Orthodox Jewish communities.
The $100,000 March Transfer On March 2, 2001, by check number 10586, Allou
transferred $100,000 to UTA. That check was signed by Victor Jacobs. The parties stipulate
that the transfer was booked as a loan-and-exchange transaction by Allou and as a donation by
UTA. The Plaintiffs contend that the transfer served no business purpose. And the Plaintiffs
argue that UTA’s explanation – that this was a donation for the annual fundraising dinner in
December – is not credible, because the payment was made in March, several months after the
dinner occurred.
UTA argues that this transfer was recorded as a donation on its books, and that it issued a
receipt to that effect. UTA also notes that in view of the importance of the annual dinner, it is
not unusual for a donation to be made in March.
The $100,000 Transfer to UTA and TTDY Victor Jacobs controlled TTDY. See JPTS at
13. He was a signatory on a Fleet Bank account in TTDY’s name, and he signed each check
from Allou to TTDY by hand. The parties agree that “the books of Allou were manipulated to
make it appear that certain of the transfers to TTDY were in payment of invoices of Tereza
Merchandising and Cambridge Mercantile, other entities implicated in the fraud [at Allou].”
JPTS at 13.
On June 5, 2001, by check number 10804, Allou transferred $100,000 to UTA. That
check was signed by Victor Jacobs and deposited into UTA’s account at Chase. On November
15, 2001, Mr. Meisels signed a check for $100,000 drawn from UTA’s Chase account and made
out to TTDY. The Plaintiffs contend that Mr. Meisels issued the check to TTDY at the direction
of Victor Jacobs. The parties stipulate that Allou and UTA each recorded the transfer as a loan-
and-exchange transaction. The Plaintiffs also argue that UTA cannot show a business reason
why it paid funds received from Allou to another entity. And the Plaintiffs contend that sending
this payment to TTDY achieved two goals of the alleged Jacobs-Meisels faction, that is,
removing cash from Allou and furthering the agenda of the faction.
UTA argues that it recorded this transaction as the repayment of a loan, and that it was
not unusual. UTA also notes that witnesses testified that Solomon Sander, who was UTA’s
contact with Victor Jacobs, directed that the funds be paid to TTDY, not to Allou.3 And UTA
contends that “[r]epayment of a donor’s loan to a third party designated by the donor is
consistent with long-standing lending practices of the Satmar and Orthodox Jewish communities
. . . .” JPTS at 60.
The Cambridge Mercantile Transfer Allou wired $100,000 to UTA on July 1, 1999.
This transfer was listed on Allou’s books and records as “payment of an account payable” due to
“Cambridge Mercantile Corp.” in Toronto, Canada. Haddad Decl. Exh. 6. UTA booked the
transfer as a loan-and-exchange. The Plaintiffs argue:
UTA knew that there was no legitimate basis for it to receive or keep the money
earmarked for “Cambridge.” Instead, this “Cambridge” payable had to be made
to appear in Allou’s books as actually having been paid, so Victor and his cohort
Meisels agreed to transfer the money to UTA to mask the illegitimate payable and
to advance the interests of the Jacobs-Meisels Faction.
Mr. Sander was not deposed and passed away in 2006. Several witnesses testified that
Mr. Sander was responsible for obtaining loans to meet UTA’s short-term cash needs and served
as UTA’s contact with Victor Jacobs.
JPTS at 61.
UTA contends that it had no knowledge of or control over how Allou recorded
transactions, and could not know whether Allou recorded the transfer as paid to Cambridge.
UTA also notes that it returned these funds on September 15, 1999, by making a $100,000
payment to TTDY.
Direct Transfers from UTA to Allou
The Plaintiffs allege that between July 29, 1997, and May 10, 2002, UTA made seven
transfers to Allou, totaling $443,120.06. The parties stipulate to the terms of three of these
transfers, totaling $380,000, but not to the remaining four transfers, totaling $63,120.06. Allou
recorded each of these transfers in its loan-and-exchange accounts, and the three stipulated
transfers were likewise recorded as loan-and-exchange transactions by UTA.
Indirect Transfers Among Allou, UTA, and Other Entities
The Plaintiffs contend that between August 1997 and March 2003, UTA indirectly
received 53 transfers from Allou through certain other entities, totaling $5,713,230. UTA denies
that it received twelve of these transfers, totaling $276,380. The parties stipulate that UTA
received 41 of the transfers, but do not agree that all of the funds transferred originated at Allou.
The stipulated transfers were made by Impax, Crystal Clear, TTDY, Tereza, G. Bauer, Spocan
Equities, Evergreen Warehousing, A&M Enterprises, and AMT.
Transfers Involving Tereza The parties stipulate that on May 23, 2000, Tereza
transferred $100,000 to UTA. The Plaintiffs argue that in the same month, Allou transferred
$850,000 to Tereza. UTA disputes that the funds transferred to it originated at Allou. The
Plaintiffs also allege that Tereza made a $5,000 transfer to UTA. But UTA denies receiving this
transfer. The Plaintiffs contend that between January 1997 and April 2003, Tereza and its
affiliates received payments from Allou totaling $35,131,768. The Plaintiffs also argue that
most of these transfers correspond to invoices deemed “fake” by the Trustee’s forensic
accountant. Pltfs’ Opp. at 42.
Transfers Involving Crystal Clear Crystal Clear is in the business of importing glassware
and crystal lamps. It was owned and run by Rabbi Leibish Lefkowitz until his death in August
1998. For many years, he served as president and a board member of UTA. Abraham Lefkowitz
took control of Crystal Clear in August 1998, after his father died. Apart from modest sales to
Allou or Victor Jacobs, Crystal Clear did not engage in business with Allou or Victor Jacobs.
The parties stipulate that from October 1997 to January 2002, Allou made thirteen
transfers to Crystal Clear, totaling $2,564,342. Eight of the transfers were recorded by Allou as
loan-and-exchange transactions, and five others were recorded as accounts payable transactions.
Two of the transfers were designated in Allou’s books as payments to Olbex and Whitting Inc.,
Ltd., but the wire transfer and check for these transactions were directed to Crystal Clear. UTA
contends that the Olbex and Whitting transactions do not relate to UTA.
The parties stipulate that from August 1997 to June 2000, Crystal Clear made eighteen
transfers to UTA, totaling $3.4 million. The Plaintiffs claim that Crystal Clear made two
additional transfers to UTA in January 2000 and January 2002, totaling $224,630. But UTA
denies receiving these transfers. The parties stipulate to the terms of 25 transfers from UTA to
Crystal Clear between September 1997 and July 2002, totaling $4,611,109. And the parties
further stipulate to the terms of eight transfers from Crystal Clear to Allou from December 1997
to June 2000, totaling $1.9 million.
The Plaintiffs argue that there was no business justification for these transfers. And the
Plaintiffs contend that the record shows that the funds transferred from Allou to Crystal Clear
were destined for UTA.
UTA argues that the manner in which it received funds from Crystal Clear was consistent
with the long-standing lending practices of the Satmar and Orthodox Jewish communities.
According to UTA, Rabbi Lefkowitz agreed to act as an intermediary on certain loans from
Allou to UTA in order to induce Victor Jacobs to make those loans, and that after Rabbi
Lefkowitz’s death, Abraham Lefkowitz continued those lending practices.
Transfers Involving Impax Impax was controlled by the Jacobs. The parties stipulate to
the terms of eighteen transfers from Allou to Impax between November 2001 and December
2002, totaling $10,509,900. Allou recorded these transfers as accounts payable. The parties also
stipulate to the terms of nine transfers from Impax to UTA between November 2001 and
December 2002, totaling $1,104,650. And the parties stipulate to the terms of five transfers from
UTA to Impax from January 2002 to February 2003, totaling $1,050,000. The Plaintiffs claim
that Impax made four additional transfers to UTA between December 2001 and August 2002,
totaling $28,250.
The Plaintiffs argue that there was no legitimate business purpose for these transfers, and
that Impax was controlled by the Jacobs and used to perpetrate the fraud at Allou. The Plaintiffs
also contend that Impax’s sources of funds were Allou and Jacobs-related entities, and that many
of the transactions between Allou and Impax are fraudulent.
UTA does not dispute the Plaintiffs’ factual assertions, but argues that they do not create
a genuine dispute as to a material fact. And UTA argues that these transfers were largely
donations or interest-free loans that were repaid.
Transfers Involving TTDY The parties stipulate to the terms of five transfers from
TTDY to UTA between May 2001 and March 2003, totaling $82,500. UTA disputes that it
received three transfers from TTDY between September 5, 2000, and May 9, 2002, totaling
$3,500. The parties also stipulate to the terms of two $100,000 transfers from UTA to TTDY on
September 15, 1999, and November 15, 2001. And the parties stipulate to the terms of a $15,000
transfer from Allou to TTDY on May 2, 2001.
Transfers Involving AMT Three transactions took place involving Allou, AMT, and
UTA, in the amounts of $200,000, $250,000, and $200,000. Mr. Meisels, the principal of AMT,
testified that at the request of Solomon Sander, he agreed to guarantee the repayment of certain
loans made by Victor Jacobs through Allou to UTA. Mr. Meisels testified that first AMT sent
Allou a check that was post-dated by two to three months, as a form of guarantee. Next, Allou
forwarded a check in the same amount to AMT, and AMT sent a check in that amount to UTA.
Finally, two to three months later, UTA sent payment by check or wire to AMT, and Allou
deposited AMT’s original check.
AMT was not an active company at the time of these transactions. Mr. Meisels testified
that he used AMT, rather than one of his active businesses, in order to avoid problems in the
event that UTA did not timely fund AMT’s repayment to Allou. In the first two transactions,
AMT’s post-dated check “bounced” when Allou attempted to deposit it. Haddad Decl. Exh. 43
(1/4/2006 Meisels Tr. 122).
The parties dispute the purpose of these transactions, but they stipulate to the terms of
certain transfers made in connection with them, including three transfers from Allou to AMT
between November 1999 and February 2000, three transfers from AMT to Allou between
December 1999 and March 2000, three transfers from AMT to UTA between November 1999
and February 2000, and three transfers from UTA to AMT between December 1999 and March
2000. Allou recorded its transfers to AMT and two transfers that it received from AMT as loan-
and-exchange transactions. The record does not show how Allou recorded a 1999 transfer from
The Plaintiffs argue that these transactions raise several issues. As one example, the
Plaintiffs argue that the first series of transfers does not accord with Mr. Meisels’ testimony,
because the check from Allou to AMT was dated November 2, 1999, and the check from AMT
to UTA was dated one month earlier, October 5, 1999. The Plaintiffs note that according to Mr.
Meisels’ account of these transactions, the check from AMT to UTA should be dated later than
the check from Allou to AMT. At his deposition, Mr. Meisels testified that the check from AMT
to UTA bearing the October 5, 1999 date was misdated, and that he believed he signed it on
UTA argues that the AMT transactions are not unusual or suspicious. UTA states that
Mr. Meisels was acting as a guarantor on certain loans made by Victor Jacobs, through Allou, to
UTA. And UTA notes that the three AMT transactions were booked by Allou to its loan-and-
exchange account and repaid within three months of being issued.
Transfers Involving the Evergreen Warehouse UTA argues that it used the Evergreen
Warehouse for its fundraising dinners in 2001 and 2002, and that it paid Evergreen $10,000 on
July 1, 2002, and $25,000 on November 15, 2002, for this purpose. UTA’s administrator Isaac
Mandel testified that Evergreen did not donate its services because it needed the money. The
Plaintiffs question the credibility of these assertions, noting that on January 30, 2002, Evergreen
Warehouse donated $50,000 to UTA. The Plaintiffs also argue that the November 15, 2002
payment does not appear to be legitimate because the Evergreen Warehouse was destroyed by a
fire two months earlier. The Plaintiffs assert that when advised of this at his deposition, Mr.
Mandel changed his testimony after a break to indicate that the dinner was held the prior year
and, in a submission to the Court, averred that the dinner was held in a different warehouse
across the street from the Evergreen Warehouse. And the Plaintiffs argue that the timing and
amount of UTA’s transfers to Evergreen Warehouse are suspicious because the warehouse was
managed by Nachman Lichter, a co-conspirator of the Jacobs.
UTA argues that the December 2002 UTA fundraising dinner was held in a warehouse on
Evergreen Avenue, but not at the Evergreen Warehouse, removing the suspicion from the
November 2002 payment to Evergreen Warehouse. UTA also contends that the Plaintiffs’
attacks on Mr. Mandel’s credibility are unwarranted, and that the break during his deposition
was brief and arose from the videographer’s need to change the tape. UTA argues that the
Plaintiffs’ allegations concerning Mr. Lichter are not supported by evidence, and that even if
they are true, they do not raise a genuine dispute as to any material fact. And UTA notes that the
Plaintiffs do not assert a claim relating to the Evergreen Warehouse, and that if the claims are
allowed, Evergreen’s $50,000 payment to UTA in January 2002 and UTA’s $25,000 payment to
Evergreen later in 2002 do not support a claim against UTA because the Plaintiffs cannot show
that the funds came from Allou or were related to the Jacobs’ fraud.
The TJ Associates Transfer In July 2002, UTA transferred $50,000 to TJ Associates, a
holding company for Jacobs-owned real estate. The Plaintiffs assert that there was no business
purpose for this transfer. And the Plaintiffs contend that while UTA claims that the payment was
made for an expense in connection with its annual fundraising dinner, they do not explain what
it was for, TJ Associates did not provide services in connection with the dinner, and the
Evergreen Warehouse where they claim the dinner was held was destroyed by a fire before it
UTA argues that this transfer was recorded in its books as a payment in connection with
its annual fundraising dinner, which is its largest fundraising event and is typically attended by
some 8,000 people each December. UTA also argues that the Plaintiffs’ claim about the
warehouse burning down in September 2002 does not raise suspicion because the dinner was
held in a nearby warehouse on Evergreen Avenue in Brooklyn, and not the same Evergreen
Warehouse that was destroyed by a fire.
The G. Bauer Payment The parties stipulate that Allou issued one or more checks to G.
Bauer in the aggregate amount of $32,500. The Plaintiffs argue that there was no business
purpose for this transaction.
UTA argues that it received a donation from Victor Jacobs in March 1999 to install a new
boiler. UTA contends that this transaction is not suspicious, because G. Bauer is UTA’s usual
repair service for such matters. UTA also states that Allou’s records show that G. Bauer was
paid $32,500 for work performed at UTA, and that Victor Jacobs charged it to Allou as an
expense. UTA also notes that the Plaintiffs do not identify this transfer in the Complaint, and
argues that if this claim is considered at all, it should reduced by $18,000, corresponding to the
amount that the Trustee received from G. Bauer in settlement of a separate adversary
proceeding.4
Federal Rule of Civil Procedure 56, as amended effective December 1, 2010, provides
that “[t]he court shall grant summary judgment if the movant shows that there is no genuine
R. CIV. P. 56(a).5 A fact is “material” if it “might affect the outcome of the suit under the
governing law . . . .” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute is
“‘genuine’ . . . if the evidence is such that a reasonable jury could return a verdict for the
nonmoving party.” Anderson, 477 U.S. at 248.
To make this assessment, “a court must construe the evidence in the light most favorable
to the nonmoving party, drawing all inferences in that party’s favor.” Jeffreys v. City of New
York, 426 F.3d 549, 553 (2d Cir. 2005). And “when moving against a party who will bear the
ultimate burden of proof on an issue, ‘the movant’s burden will be satisfied if he can point to an
absence of evidence to support an essential element of the nonmoving party’s claim.’” Kwon v.
Yun, 606 F. Supp. 2d 344, 355 (S.D.N.Y. 2009) (quoting Goenaga v. March of Dimes Birth
Defects Found., 51 F.3d 14, 18 (2d Cir. 1995)). See Celotex Corp. v. Catrett, 477 U.S. 317, 323
(1986) (“The moving party is entitled to judgment as a matter of law [if] the non-moving party
The parties stipulate that UTA received transfers from A&M Enterprises totaling
$10,000 and a transfer from Spocan Equities in the amount of $7,200. These transfers are not
The Advisory Committee’s note to Rule 56 states that “genuine ‘issue’ [was changed
to] genuine ‘dispute’. . . . to better reflect[] the focus of a summary-judgment determination.”).
FED. R. CIV. P. 56 Advisory Committee’s note (2010).
has failed to make a sufficient showing on an essential element of her case with respect to which
she has the burden of proof.”) (internal quotation marks omitted).
Summary judgment is appropriate only when, “after drawing all reasonable inferences in
favor of a non-movant, no reasonable trier of fact could find in favor of that party.” Heublein,
Inc. v. United States, 996 F.2d 1455, 1461 (2d Cir. 1993) (citing Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475 U.S. 574, 587-88 (1986)). Where the plaintiff’s claim must be
established by clear and convincing evidence, “‘the issue is whether, with all conflicts in the
evidence resolved and all reasonable inferences drawn in favor of [the nonmoving party], the
record contains sufficient evidence from which a reasonable jury could find [for the nonmoving
party] under the clear and convincing standard.’” Mendelsohn v. Jacobowitz (In re Jacobs), 394
B.R. 646, 658 (Bankr. E.D.N.Y. 2008) (second alteration added) (quoting Lippe v. Bairnco
Corp., 249 F. Supp. 2d 357, 374 (S.D.N.Y.2003), aff’d, 99 Fed. Appx. 274 (2d Cir. 2004)). See
Anderson, 477 U.S. at 255 (finding that the “clear-and-convincing standard of proof should be
taken into account in ruling on summary judgment motions”).
Once the moving party satisfies its initial burden, the burden then shifts to the nonmoving
party to come forward with evidence sufficient to create a genuine dispute as to a material fact
for trial. The nonmoving party “must do more than simply show that there is some metaphysical
doubt as to the material facts.” Matsushita, 475 U.S. at 586. Rather, it must present “significant
probative evidence” that a genuine dispute as to a material fact exists. Anderson, 477 U.S. at
249 (internal quotation marks omitted). “There is no issue for trial unless there exists sufficient
evidence in the record favoring the party opposing summary judgment to support a jury verdict
in that party’s favor.” In re Jacobs, 394 B.R. at 657 (internal quotation marks omitted).
Statements in the pleadings alone are not sufficient to meet this burden. Rather,
“[e]stablishing such facts requires going beyond the allegations of the pleadings, as the moment
has arrived ‘to put up or shut up.’” In re Eugenia VI Venture Holdings, Ltd. Litig., 649 F. Supp.
2d 105, 117 (S.D.N.Y. 2008) (quoting Weinstock v. Columbia Univ., 224 F.3d 33, 41 (2d Cir.
2000), cert. denied, 540 U.S. 811 (2003)), aff’d, 370 Fed. Appx. 197 (2d Cir. 2010).
“Unsupported allegations in the pleadings thus cannot create a material issue of fact.” In re
Eugenia VI Venture Holdings, 649 F. Supp. 2d at 117 (citing Weinstock, 224 F.3d at 41).
In addition, credibility assessments are rarely appropriate at the summary judgment stage,
and should be reserved for the finder of fact at trial. As the Second Circuit observed, “[i]t is a
settled rule that credibility assessments, choices between conflicting versions of the events, and
the weighing of evidence are matters for the jury, not for the court on a motion for summary
judgment.” McClellan v. Smith, 439 F.3d 137, 144 (2d Cir. 2006) (internal quotation marks and
alterations omitted). See Kwon, 606 F. Supp. 2d at 355-56 (“A court must neither make
judgments regarding credibility or conflicting versions of events, nor engage in any weighing of
the evidence,” because on summary judgment the court is not “tasked [] with resolving disputed
issues of fact, but instead with determining whether any genuine issues of material fact remain to
be tried”).
Unsupported allegations that a witness lacks credibility are insufficient to create a
genuine dispute as to a material fact. See John Hancock Life Ins. Co. v. Perchikov, 553 F. Supp.
2d 229, 238 (E.D.N.Y. 2008) (finding that speculation about a witness’ credibility based on
“nonexistent inconsistencies between her affidavit and deposition testimony [] is unsubstantiated
and insufficient to raise an issue of material fact”); Thomas v. Great Atl. and Pac. Tea Co., 233
F.3d 326, 331 (5th Cir. 2000) (finding that “a motion for summary judgment cannot be defeated
solely by conclusional allegations that a witness lacks credibility”). At the same time, a
“well-supported suspicion of mendacity” may create a genuine dispute as to a material fact
precluding summary judgment. Thomas, 233 F.3d at 331. See Bang v. IBM Corp., 600 F. Supp.
2d 430, 436 (E.D.N.Y. 2009) (denying defendant’s motion for summary judgment where
credibility determinations were required).
While the issue of fraudulent intent ordinarily cannot be resolved on summary judgment,
“it is also well-recognized that the summary judgment rule would be rendered sterile if the mere
incantation of intent would operate as a talisman to defeat an otherwise valid motion.” In re
Jacobs, 394 B.R. at 658 (internal quotation marks and ellipses omitted). See Dister v. Cont’l
Group, Inc., 859 F.2d 1108, 1114 (2d Cir. 1988) (finding that when intent is at issue, “summary
judgment should be used sparingly” but that the “plaintiff must nevertheless offer ‘concrete
evidence from which a reasonable juror could return a verdict in his favor’”) (quoting Anderson,
447 U.S. at 256).
And finally, the denial of summary judgment in the face of a genuine dispute as to a
material fact does not amount to the court’s endorsement of the strength of a plaintiff’s claims.
As one court observed, “[w]e do not imply that plaintiffs have a strong case but rather only that
they have enough of a case to go to a jury.” Huff v. UARCO, Inc., 122 F.3d 374, 385-86 (7th Cir.
Claim Two – Aiding and Abetting Fraud
The elements of a claim for aiding and abetting fraud under New York law are the
existence of a primary fraud, the defendant’s knowledge of that fraud, and the defendant’s
substantial assistance in the achievement of that fraud. See Pension Comm. of the Univ. of
Montreal Pension Plan v. Banc of Am. Secs., LLC, 652 F. Supp. 2d 495, 502 (S.D.N.Y. 2009)
(“Pension Comm. I”) (citing Lerner v. Fleet Bank, N.A., 459 F.3d 273, 292 (2d Cir. 2006));
Stanfield Offshore Leveraged Assets, Ltd. v. Metro. Life Ins. Co., 64 A.D.3d 472, 476 (N.Y. App.
Div. 1st Dep’t 2009).
UTA seeks summary judgment on this claim on grounds that the Plaintiffs cannot show
that UTA had knowledge of the Jacobs’ fraud, or that UTA substantially assisted in the
commission of the fraud. The Court considers these elements in turn.
UTA’s Knowledge of the Fraud
The knowledge element of an aiding and abetting fraud claim calls for a plaintiff to show
that the defendant had actual, not constructive, knowledge of the underlying fraud. See Pension
Comm. I, 652 F. Supp. 2d at 503; Kolbeck v. LIT Am., Inc., 939 F. Supp. 240, 246 (S.D.N.Y.
1996) (“[A]ctual knowledge is required to impose liability on an aider and abettor under New
York law”), aff’d, 152 F.3d 918 (2d Cir. 1998).
Actual knowledge may be established by “sufficient facts to support a strong inference of
fraudulent intent.” Primavera Familienstifung v. Askin, 130 F. Supp. 2d 450, 507 (S.D.N.Y.
2001) (internal quotation marks omitted). This inference may be supported “by (1) showing a
motive for participating in a fraudulent scheme and a clear opportunity to do so, or (2)
identifying circumstances indicative of conscious behavior.” Askin, 130 F. Supp. 2d at 507. See
AHT Corp. v. BioShield Techs., Inc. (In re AHT Corp.), 292 B.R. 734, 746 (S.D.N.Y. 2003)
(construing the standard on summary judgment). “The burden of demonstrating actual
knowledge, although not insurmountable, is nevertheless a heavy one.” Chemtex, LLC v. St.
Anthony Enters., 490 F. Supp. 2d 536, 549 (S.D.N.Y. 2007) (internal quotation marks omitted).
By contrast, evidence of recklessness, conscious avoidance, or willful blindness as to
whether the primary actor is engaged in fraud is not sufficient to satisfy the knowledge element
of this claim. As one court observed, “the overwhelming weight of authority holds that . . . a
lower standard such as recklessness or willful blindness” is insufficient to satisfy this element on
aiding and abetting fraud claims. Pension Comm. of the Univ. of Montreal Pension Plan v. Banc
of Am. Secs., LLC, 446 F. Supp. 2d 163, 202 n.279 (S.D.N.Y. 2006) (“Pension Comm. II”)
(collecting cases). See Rosner v. Bank of China, 2008 WL 5416380, at *7-8 (S.D.N.Y. Dec. 18,
2008) (finding that “willful blindness” or “conscious avoidance” did not satisfy the actual
knowledge requirement), aff’d, 349 Fed. Appx. 637 (2d Cir. 2009); JP Morgan Chase Bank v.
Winnick, 406 F. Supp. 2d 247, 253 (S.D.N.Y. 2005) (finding that “recklessness” or “conscious
disregard” did not satisfying the actual knowledge requirement). And as explained in Pension
The “knowledge” element of an aiding and abetting fraud claim is not identical to
the scienter required for the underlying fraud. While a strong inference of
scienter can be satisfied by a showing of facts that constitute strong circumstantial
evidence of recklessness, aiding and abetting requires a reasonable inference of
Pension Comm. I, 652 F. Supp. 2d at 502-03 (internal quotation marks and alterations omitted).
To be sure, a defendant’s admission of actual knowledge of the underlying fraud is likely
to be rare. But such direct evidence of actual knowledge is not necessary to establish this
element of the claim. Rather, actual knowledge may be inferred from circumstantial evidence,
provided that the central inquiry remains whether the evidence permits a reasonable finder of
fact to infer that the defendant actually knew of the underlying fraud.6 See Pension Comm. I, 652
F. Supp. 2d at 503-04 (actual knowledge may be shown by circumstantial evidence and the lack
of an admission of knowledge does not entitle a defendant to summary judgment) (citing Gordon
v. New York City Bd. of Educ., 232 F.3d 111, 117 (2d Cir. 2000)).
UTA argues that the Plaintiffs cannot show that it had actual knowledge of the Jacobs’
fraud at Allou. For purposes of summary judgment, UTA does not dispute several alleged facts,
including that Victor Jacobs was instrumental in having Mr. Meisels placed in a position of
authority at UTA and on UTA’s board, that Mr. Meisels was “President and Chief Executive
Officer at UTA,” and that Mr. Meisels was a signatory on UTA’s bank accounts. UTA Mem. at
UTA argues that the Plaintiffs’ evidence in support of the actual knowledge element is no
more than “(i) Victor Jacobs lobbied to have Meisels given responsibility, and placed on the
board, at UTA; [and] (ii) Victor Jacobs’ wife is a cousin of Arthur Meisels’ father-in-law.” UTA
Mem. at 14. UTA contends that the Plaintiffs’ attempt to cast Mr. Meisels as a close friend and
associate of Victor Jacobs is not supported by the evidence because Mr. Meisels testified that he
had met or spoken with Victor Jacobs only a few times, usually at large community events.
UTA notes that its witnesses did not testify to any knowledge of the Jacobs’ fraud, and that
“UTA’s principal contacts with the Jacobs are deceased.” UTA Mem. at 19 n.12.
In the context of a fraudulent conveyance claim, circumstantial evidence may be
reviewed under a “badges of fraud” analysis, “due to the difficulty of proving actual intent to
hinder, delay, or defraud creditors.” Sharp Int’l Corp. v. State St. Bank and Trust Co. (In re
Sharp Int’l Corp.), 403 F.3d 43, 56 (2d Cir. 2005) (internal quotation marks omitted). But courts
in this Circuit have not applied the “badges of fraud” analysis to aiding and abetting fraud
claims. See, e.g., In re Sharp Int’l Corp., 403 F.3d at 49-57.
And UTA notes that the Plaintiffs’ “fundamental assertion” is that the “transactions
between Allou and UTA are inherently suspect because Allou had no legitimate business to
conduct with UTA and there is no formal documentation, such as loan agreements, that might be
expected in a commercial context.” UTA Mem. at 15 (internal quotation marks and citations
omitted). UTA argues that the only business that it conducted with Allou was the receipt and
return of interest-free loans and donations, that many of its witnesses testified that it routinely
receives such loans and donations, and that these funds are necessary to its survival as a not-for-
profit school serving the community. As one example, UTA’s former executive director testified
that before Mr. Meisels’ tenure, UTA received short-term interest-free loans from several
different companies. UTA further argues that all but one of the direct transfers and a majority of
the indirect transfers from Allou to UTA were accurately recorded by Allou as loans or
More generally, UTA argues that the Plaintiffs cannot create a genuine dispute as to
UTA’s actual knowledge by pointing to the “unusual” nature of these transactions. UTA Mem.
at 19-20. UTA notes that several courts have found that the unusual nature of transactions,
standing alone, is not sufficient to establish actual knowledge. See, e.g., Kirschner v. Bennett,
648 F. Supp. 2d 525, 545 (S.D.N.Y. 2009) (dismissing aiding and abetting claims and noting that
“[e]ven if . . . the . . . Defendants helped effectuate the round-trip loans that transformed Refco’s
uncollectible losses into receivables owed to Refco by third-parties . . . such aid is not
tantamount to the defendants’ knowing about . . . the looting of customer accounts”).
The Plaintiffs respond that the evidence creates a genuine dispute as to UTA’s actual
knowledge of the Jacobs’ fraud. The Plaintiffs argue that millions of dollars were transferred, in
dozens of transactions, among Allou, UTA and others, directly and through intermediaries, and
that a substantial portion of these funds was returned to Allou or other entities to assist the
Jacobs’ misconduct at Allou. The Plaintiffs contend that UTA benefitted from, and therefore
had a motive to participate in, these transfers because they provided it with access to large
amounts of money for no consideration, and because they enabled UTA to gain influence in the
Satmar community.
The Plaintiffs also argue that, pursuant to the Second Circuit’s decision in Ramseur v.
Chase Manhattan Bank, 865 F.2d 460, 465 (2d Cir. 1989), summary judgment is inappropriate
where motive and intent are at issue. They urge that Mr. Meisels’ and Victor Jacobs’ “state of
mind go directly to the gravamen of the complaint” and are central to the determination of
UTA, Meisels, AMT and the Jacobs actively participated in a fraudulent scheme
through which [Victor] Jacobs and Meisels used Allou corporate resources to
advance the Jacobs-Meisels faction through a series of transactions that had no
legitimate business purpose and to funnel Allou cash to the Jacobs family and its
Pltfs’ Opp. at 21. The Plaintiffs contend that “UTA had a unique relationship with Victor
Jacobs” so that:
[UTA] knew of Victor Jacobs’ role and responsibilities as chairman of publicly-
traded Allou, and [] conspired with Victor Jacobs to take advantage of that
relationship to aid and abet the Jacobs[’] breach of fiduciary duties and to further
their own illegitimate interests and those of the Jacobs-Meisels Faction to the
detriment of Congress and Allou.
Pltfs’ Opp. at 26.
And the Plaintiffs argue that there are genuine disputes as to material facts with respect to
the nature and extent of Mr. Meisel’s relationships with Victor Jacobs. The Plaintiffs note that
Mr. Meisels testified that he did not have a longstanding relationship with Victor Jacobs, while
other evidence shows that Mr. Meisels is related to the Jacobs and Mr. Meisel’s and Victor
Jacobs’ families have members in common. And the Plaintiffs argue that Mr. Meisel’s
testimony is inconsistent with UTA’s explanation of the AMT transfers – that is, that AMT acted
as a guarantor – because Mr. Meisels also testified that Victor Jacobs did not seek or receive
information about Mr. Meisels’ or AMT’s ability to repay and made the transfers without any
In addition, the Plaintiffs point to the testimony of Rabbi Lieb Glanz that Victor Jacobs
sought to have Mr. Meisels take over as UTA’s “boss,” that both Mr. Meisels and Victor Jacobs
supported Zalman Teitelbaum in the succession dispute, and that when Mr. Meisels joined UTA,
he “took over” the bookkeeping department, opened a special account, and made a large loan to
UTA. Haddad Decl. Exh. 39 (Glanz Tr. 15-27, 79-81, 106). And they note that UTA’s board
did not exercise meaningful oversight, and that this enabled Victor Jacobs, Mr. Meisels, and
others, to engage in improper activities including the laundering of funds through UTA.
The Plaintiffs argue that witness credibility is also an issue. For example, they note that
Mr. Meisels testified that after 2004, he no longer held a position of authority at UTA, and assert
that this is contradicted by a June 1, 2006, document signed by Mr. Meisels on behalf of UTA in
connection with a $1 million transaction. See Haddad Decl. Exhs. 24 and 25. But in a document
dated December 22, 2005, related to UTA’s annual fundraising dinner, Mr. Meisels is identified
as “Manager of the Institutions.” Haddad Decl. Exh. 27. The Plaintiffs also question the
credibility of Isaac Mandel based on his demeanor during his deposition. And the Plaintiffs note
that as to the Evergreen Warehouse transfers, Mr. Mandel altered his testimony after learning
that UTA’s 2002 fundraising dinner could not have been held there because the warehouse was
lost in a fire earlier that year.
The Plaintiffs also question the authenticity and reliability of certain AMT documents,
and note as one example that AMT’s 1999 financial records contain an entry dated November
15, 2004. Haddad Decl. Exhs. 26 and 26A.
The Plaintiffs point to additional evidence supporting the existence of a genuine dispute
as to material fact concerning UTA’s knowledge of the Jacobs’ fraud, including that Victor
Jacobs was the signatory on TTDY’s bank accounts (JPTS at 13); Mr. Meisels was UTA’s
President and CEO, a signatory on its bank accounts, and the principal of AMT (Haddad Decl.
Exh. 43 (Meisels Tr. 31)); transactions between Allou and AMT were in large round numbers
and undocumented (JPTS at 19, Haddad Decl. Exh. 43 (Meisels Tr. 9)); UTA transferred
$100,000 to Victor Jacobs’ personal entity, TTDY, without a business purpose and for no
consideration (JPTS at 59-61); and UTA transferred at least $50,000 to TJ Associates, a “real
estate holding company” owned by the Jacobs (Haddad Decl. Exh. 8). Pltfs’ Opp. at 27. The
Plaintiffs also argue that the $300,000 round-trip transaction between Allou and UTA is
suspicious because UTA was asked to return the funds one day after it received them.
UTA responds that the Plaintiffs’ evidence does not raise a triable issue of fact as to its
actual knowledge, and that the Plaintiffs cannot defeat summary judgment based on the bare
hope that a trier of fact may not believe testimony denying knowledge of the fraud at Allou.
UTA notes that several courts, including the Second Circuit Court of Appeals, have found that
the possibility that the trier of fact may not credit a witness’ testimony, without more, does not
create a genuine dispute as to a material fact.
UTA also discounts the Plaintiffs’ reliance on Ramseur, and disputes the proposition that
“summary judgment is particularly inappropriate when an individual’s state of mind is at issue.”
UTA Reply at 9 (internal quotation marks omitted). UTA notes that many courts have granted
summary judgment on claims for aiding and abetting both fraud and breach of fiduciary duty
based on the lack of evidence as to the defendant’s actual knowledge.
The question for this Court on summary judgment is not whether the Plaintiffs should
prevail, but whether there is a genuine dispute as to a material fact concerning UTA’s knowledge
of the fraud at Allou.
At the outset, the Court notes that over $29.8 million was transferred, in some 147
transactions, among Allou, UTA and others, directly and through intermediaries between 1997
and 2003, and more than $6 million was received by UTA. There is evidence that Victor Jacobs
began attending board meetings at UTA in 1998, and that he was instrumental in placing Mr.
Meisels into a position of power at UTA in 1999. It is undisputed that at this same time, Victor
Jacobs was engaged in a massive fraud at Allou. There is also evidence that before and during
Mr. Meisels’ tenure, UTA looked to Victor Jacobs for financial support, including in the form of
direct and indirect transfers of funds and as a guarantor of UTA’s credit line and mortgages.
And there is evidence that shows that Victor Jacobs and Mr. Meisels supported Rabbi Zalman
Teitelbaum in the contentious dispute over the selection of the successor to the Grand Rebbe.
Rabbi Glanz testified that when Rabbi Zalman Teitelbaum became involved with UTA, Victor
Jacobs “took charge” of UTA and “push[ed] . . . to get everybody [on] one side and bring in new
people . . . .” Haddad Decl. Exh. 39 (Glanz Tr. 99:13-19).
The record also shows that as a result of his position at UTA, Mr. Meisels was in charge
of UTA’s bookkeeping department and a signatory on UTA’s bank accounts. UTA received
millions of dollars directly or indirectly from Allou from February 1997 to March 2003, and
many of these transfers occurred after Mr. Meisels joined UTA. As one example, between
August 1999 and June 2000, Crystal Clear made over $1.8 million in transfers to UTA.7 As
another, Mr. Meisels created AMT in 1999 and immediately used AMT in round-trip
transactions totaling $650,000 between Allou and UTA. Mr. Meisels was similarly in place at
UTA for each of nine stipulated transfers totaling over $1.1 million from Impax, a $100,000
transfer from Tereza, the eight stipulated transfers totaling $82,500 from TTDY, and a $50,000
transfer from Evergreen Warehouse. TTDY and Impax, and perhaps Tereza and Evergreen
Warehouse, were controlled by the Jacobs. Mr. Meisels was also instrumental in a $100,000
transfer from UTA to TTDY in November 2001, and the Cambridge Mercantile transfer.
And the record shows that the parties dispute whether the receipt of short-term, interest-
free loans, repayments to third parties, and loans through intermediaries were common practices
in the Orthodox and Satmar communities and whether those transactions were commonly
undertaken by public companies within those communities. But whether or not such transactions
are common practice in that community, they may still lend support to the inference that UTA
had knowledge of the Jacobs’ fraud. That is, a reasonable trier of fact could find that those
practices and transactions were used by Victor Jacobs to advance the fraud at Allou and by Mr.
Meisels to meet UTA’s operating expenses and to further the interests of the Jacobs-Meisels
The parties stipulate that Allou transferred over $2.5 million to Crystal Clear between
October 1997 and January 2002, and Allou booked five of the thirteen transfers to Crystal Clear
as accounts payable. The parties also stipulate that Crystal Clear transferred $3.4 million to
Allou, and that UTA transferred over $4.6 million to Crystal Clear between September 1997 and
faction. Indeed, UTA acknowledges that it “does not rely on these traditional practices to
establish immunity . . . for those who might use them to engage in misconduct.” UTA Mem. at
16.8 And to the extent that UTA relies on the testimony of Mr. Meisels to refute the Plaintiffs’
arguments and evidence, that testimony should be subject to a credibility assessment at trial.
In sum, based on the entire record, and drawing all reasonable inferences in favor of the
nonmoving party, the Court finds that UTA has not established that there is no genuine dispute
as to a material fact with respect to UTA’s knowledge of the Jacobs’ fraud.
UTA’s Substantial Assistance in the Fraud
The third element of a claim for aiding and abetting fraud is substantial assistance in the
achievement of the fraud. This requirement is met when “‘a defendant affirmatively assists,
helps conceal or fails to act when required to do so, thereby enabling the . . . fraud to occur.’”
Pension Comm. I., 652 F. Supp. 2d at 503 (internal alterations omitted) (quoting Lerner, 459
F.3d at 295). See Sheehy v. New Century Mortg. Corp., 690 F. Supp. 2d 51, 72-74 (E.D.N.Y.
2010) (denying defendant’s summary judgment motion where a reasonable trier of fact could
find that defendant was not a mere “bystander,” but instead knew of and actively participated in
the fraud). “[E]ven in the absence of a duty to act or disclose information, inaction on the
alleged aider and abettor’s part can provide a basis for liability where the inaction was designed
intentionally to aid the primary fraud.” Nisselson v. Ford Motor Co. (In re Monahan Ford Corp.
For these reasons, it is not necessary to consider the admissibility of UTA’s expert
report, because it would not affect the disposition of this motion. See Raskin v. Wyatt Co., 125
F.3d 55, 66 (2d Cir. 1997) (noting that courts perform the same gatekeeper function with respect
to expert testimony on summary judgment and at trial); United States v. U.S. Gypsum Co., 340
U.S. 76, 85 (1950) (finding that while defendants “had the right to lay facts before the court that
were pertinent to the court’s decision . . . [s]uch right[] . . . did not require the trial court to admit
evidence that would not affect the outcome of the proceedings”).
of Flushing), 340 B.R. 1, 34 (Bankr. E.D.N.Y. 2006) (internal quotation marks omitted). As
explained in In re Monahan Ford Corp., “‘[w]hether the assistance is substantial or not is
measured . . . by whether the action of the aider and abettor proximately caused the harm on
which the primary liability is predicated.’” Id. (internal quotation marks omitted) (quoting
Winnick, 406 F. Supp. 2d at 256). “However, some [courts] question . . . whether the ‘proximate
cause’ standard or a lesser standard should be utilized in the context of aiding and abetting
UTA argues that its receipt and return of funds from Allou does not support a finding of
substantial assistance. UTA asserts that because Allou accurately recorded many of these
transactions to its loan-and-exchange account, those transactions did not play a role in the
Jacobs’ fraudulent scheme to inflate receivables and inventory. UTA notes that the parties
stipulate that Allou recorded each of the AMT transfers to its loan-and-exchange account. UTA
argues that its $100,000 transfer of funds to TTDY did not substantially assist the Jacobs’
scheme, because Allou recorded the initial transfer of $100,000 to UTA to its loan-and-exchange
account, and UTA recorded its transfer to TTDY as a repayment of a loan. And UTA argues that
Allou’s transfer of $100,000 to UTA on July 1, 1999, which was recorded by Allou as an
account payable to “Cambridge Mercantile,” does not support a finding of substantial assistance.
UTA argues that it had no way of knowing how Allou recorded the transfer and, in all events, at
most the transfer may amount to “‘but for’ causation (of a $100,000 loss), [but] the ‘proximate
causation’ required for substantial assistance with respect to the loss . . . lies with Allou
fiduciaries, not with UTA.” UTA Mem. at 36.
In response, the Plaintiffs point to much of the same evidence that supports their claim
that UTA had actual knowledge of the Jacobs’ fraud at Allou. That is, they argue that the record
shows that Mr. Meisels had both a motive and the opportunity to participate in the Jacobs’ fraud,
and that Mr. Meisels’ position at UTA enabled Victor Jacobs to transfer millions of dollars in
illegitimate transfers to UTA. And the Plaintiffs argue that this evidence shows that UTA was
“not merely . . . an innocent conduit . . . but . . . an active co-conspirator.” Pltfs’ Opp. at 32.
In addition, the Plaintiffs argue that transfers recorded by Allou as loan-and-exchange
transactions were part of the Jacobs’ fraud, because the fraudulent scheme involved not only
misrepresentations as to accounts receivable and inventory, but also money laundering and other
activities to further the interests of the Jacobs-Meisels faction.
Here too, the question for the Court on summary judgment is not whether the Plaintiffs
should prevail, but whether there is a genuine dispute as to a material fact concerning UTA’s
substantial assistance in the achievement of the Jacobs’ fraud at Allou.
More than $29.8 million was transferred in scores of transactions, among Allou, UTA,
and others, directly and through intermediaries, and UTA received more than $6 million. There
is evidence that Victor Jacobs was instrumental in placing Mr. Meisels into a position of
authority at UTA, and that both Mr. Meisels and Victor Jacobs supported Rabbi Zalman
There is also evidence that as a result of his position at UTA, Mr. Meisels was in charge of
UTA’s bookkeeping department and a signatory on UTA’s bank accounts. The record shows
that many of the transfers occurred after Mr. Meisels joined UTA, and there is evidence that Mr.
Meisels was directly involved in many of these transactions including the AMT transactions, the
$100,000 transfer from UTA to TTDY, and the Cambridge Mercantile transfer. This evidence,
when viewed in the light most favorable to the Plaintiffs as the nonmoving party, is sufficient to
raise a genuine dispute as to a material fact concerning whether UTA substantially assisted the
fraud at Allou.
as to a material fact with respect to whether it substantially assisted in the achievement of the
Jacobs’ fraud at Allou.9
Accordingly, UTA’s motion for summary judgment on Claim Two, for aiding and
abetting the Jacobs’ fraud, is denied.
Claim One – Aiding and Abetting Breach of Fiduciary Duty
The elements of a claim for aiding and abetting a breach of fiduciary duty under New
York law are a breach by a fiduciary, the defendant’s knowing inducement or participation in
that breach, and damages as a result of the breach. See In re Sharp Int’l Corp., 403 F.3d at 49
(citing Kaufman v. Cohen, 307 A.D.2d 113, 125 (N.Y. App. Div. 1st Dep’t 2003)); S & K Sales
Co. v. Nike, Inc., 816 F.2d 843, 847-48 (2d Cir. 1987). Cf. Design Strategy, Inc. v. Davis, 469
F.3d 284, 303 (2d Cir. 2006).
Courts recognize that these elements have much in common with the elements of a claim
for aiding and abetting fraud. As this Court observed, “[t]he elements of aiding and abetting
fraud and aiding and abetting breach of fiduciary duty have some similarities. Each claim
requires the defendant to have actual knowledge of the wrongdoing and to have substantially
This conclusion is consistent with the proximate cause standard, and therefore the
Court does not decide whether a lesser standard applies. See Winnick, 406 F. Supp. 2d at 256
assisted in the wrongdoing.” Silverman v. H.I.L. Assocs. Ltd. (In re Allou Distribs., Inc.), 387
B.R. 365, 409 (Bankr. E.D.N.Y. 2008).
that UTA knowingly induced or participated in the Jacobs’ breach of fiduciary duty.
UTA’s Knowing Inducement of or Participation in the Fiduciary Breach
As the Second Circuit has stated, “the ‘relevant ‘knowledge’ for liability to attach for
knowing participation in a fiduciary’s breach of duty is knowledge as to the primary violator’s
status as a fiduciary and knowledge that the primary’s conduct contravenes a fiduciary duty.’”
A.I.A. Holdings, S.A. v. Lehman Bros., Inc., 2002 WL 88226, *12 (S.D.N.Y. Jan. 23, 2002)
(quoting Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d 270, 282-83 (2d Cir. 1992)).
See In re Sharp Int’l Corp., 403 F.3d at 49 (“‘[A]lthough a plaintiff is not required to allege that
the aider and abettor had an intent to harm, there must be an allegation that such defendant had
actual knowledge of the breach of duty.’”) (quoting Kaufman, 307 A.D.2d at 125).
Substantial assistance to the primary violator is a component of participation in a
fiduciary breach. As the Second Circuit observed, “‘[a] person knowingly participates in a
breach of fiduciary duty only when he or she provides ‘substantial assistance’ to the primary
violator.’” Lerner, 459 F.3d at 294 (quoting Kaufman, 307 A.D.2d at 126). “Substantial
assistance may only be found where the alleged aider and abettor ‘affirmatively assists, helps
conceal or fails to act when required to do so, thereby enabling the breach to occur.’” In re
Sharp Int’l Corp., 403 F.3d at 50 (quoting Kaufman, 307 A.D.2d at 126). But “‘[t]he mere
inaction of an alleged aider and abettor constitutes substantial assistance only if the defendant
owes a fiduciary duty directly to the plaintiff.’” Id.10
UTA states that there is no genuine dispute as to a material fact with respect to its
knowing inducement of or participation in the Jacobs’ breach of fiduciary duty for many of the
same reasons that it argues that the Plaintiffs cannot establish their claims for aiding and abetting
fraud. In substance, UTA contends that Mr. Meisel’s limited relationship with Victor Jacobs and
its acceptance of donations and loans from Allou in a form consistent with traditional practices
are insufficient to support the Plaintiffs’ claim under the prevailing case law.
The Plaintiffs respond that there is a genuine dispute as to a material fact with respect to
UTA’s knowing inducement of or participation in the Jacobs’ breach of fiduciary duty for
several reasons that are similar to those advanced in support of their claims for aiding and
abetting fraud. They argue that based upon the relationships between Victor Jacobs and UTA’s
principals, including Mr. Meisels, it is reasonable to infer that UTA knew that the Jacobs were
officers of Allou and owed fiduciary duties to the company. The Plaintiffs contend that UTA
should have questioned why Allou, a publicly-traded company in the pharmaceutical and health
and beauty aid business, was making large transfers of funds to UTA. And they argue that the
use of intermediaries to make some of those transfers and the repayment of some of the funds to
other entities including entities controlled by Victor Jacobs should also have raised UTA’s
UTA responds that the kinship and other relationships between Mr. Meisels and Victor
As with the substantial assistance element of an aiding and abetting fraud claim, some
courts have found that the substantial assistance element of an aiding and abetting breach of
fiduciary duty claim is governed by a proximate cause standard. See, e.g., Kolbeck, 939 F. Supp.
at 249. And here too, that standard is met, so the Court does not decide whether a lesser standard
Jacobs, and UTA’s knowledge of the transfers between UTA and Allou, is insufficient to support
the inference that it had actual knowledge of the Jacobs’ breach of fiduciary duty. UTA argues
that Allou was permitted to make charitable donations under the applicable state corporation
laws, so that its practice of making short-term loans and charitable donations to UTA was not
inherently suspect, and that making a loan to a charity is not a breach of fiduciary duty. UTA
states that its acceptance of these loans is not grounds to infer that it knew of or substantially
assisted the Jacobs’ fiduciary breach, because Congress became aware of substantially the same
information during the loan underwriting process and nevertheless extended credit to Allou.
UTA notes that Congress’ representatives testified that they did not consider this practice to be
And UTA responds that it could not have known that Victor Jacobs was breaching his
fiduciary duty or assisted him in that conduct because the evidence does not show that UTA
knew how Allou recorded the transfers on its books. UTA states that its transfer of funds to
TTDY cannot be the basis for an inference of knowledge or substantial assistance, because the
evidence does not show that it knew that Victor Jacobs controlled TTDY.
As with the Plaintiffs’ claim for aiding and abetting fraud, the question for the Court on
summary judgment is not whether the Plaintiffs should prevail, but whether there is a genuine
dispute as to a material fact concerning UTA’s knowing inducement of or participation in the
Jacobs’ breach of fiduciary duty.
As described above, the record shows that over $29.8 million was transferred, in scores
of transactions, among Allou, UTA, and others, directly and through intermediaries between
1997 and 2003, and UTA received more than $6 million. Victor Jacobs began attending board
meetings at UTA in 1998, guaranteed UTA’s credit line and mortgages, handwrote checks from
Allou to UTA, and was instrumental in placing Mr. Meisels in a position of authority at UTA in
1999. And there is evidence that shows a familial relationship between Victor Jacobs and Mr.
Meisels and that both supported Rabbi Zalman Teitelbaum in the contentious dispute over the
selection of the successor to the Grand Rebbe. Further, Rabbi Glanz testified that when Rabbi
Zalman became involved with UTA, Victor Jacobs “took charge” of UTA and “push[ed] . . . to
get everybody [on] one side and bring in new people . . . .” Haddad Decl. Exh. 39 (Glanz Tr.
99:13-19).
And the record also shows that Mr. Meisels was in charge of UTA’s bookkeeping
department and a signatory on its bank accounts. UTA received millions of dollars directly and
indirectly from Allou from February 1997 to March 2003, and many of these transfers occurred
after Mr. Meisels joined UTA. For example, Mr. Meisels created AMT in 1999 and immediately
used it in round-trip transactions totaling $650,000 between Allou and UTA. And Mr. Meisels
was also in place at UTA at the time of transfers involving Crystal Clear, Impax, Tereza, TTDY,
and Evergreen Warehouse, as well as the Cambridge Mercantile Transfer.
as to a material fact with respect to UTA’s knowing inducement or participation in the Jacobs’
fiduciary breach.
Accordingly, UTA’s motion for summary judgment on Claim One, for aiding and
abetting the Jacobs’ breach of fiduciary duty, is denied.
Claim Three - Civil Conspiracy
The elements of a claim for civil conspiracy under New York law are “‘(1) the corrupt
agreement between two or more persons, (2) an overt act, (3) their intentional participation in the
furtherance of a plan or purpose, and (4) the resulting damages.’” Silverman v. K.E.R.U. Realty
Corp. (In re Allou Distribs., Inc.), 379 B.R. 5, 36 (Bankr. E.D.N.Y. 2007) (quoting Pope v. Rice,
2005 WL 613085, at *13 (S.D.N.Y. Mar. 14, 2005)).
UTA argues that this claim is duplicative of the Plaintiffs’ aiding and abetting fraud and
aiding and abetting breach of fiduciary duty claims, and therefore, should be dismissed.
The Plaintiffs respond that a civil conspiracy claim is not duplicative of other claims if it
is based on independent acts “that do not form the basis for other claims for relief.” Pltfs’ Opp.
at 35. And the Plaintiffs argue that the numerous transactions among Allou, UTA, and other
entities, and the alleged money laundering scheme to further the interests of the Jacobs-Meisels
faction, support this claim.
Courts agree that civil conspiracy claims that are duplicative of other claims, including
aiding and abetting claims, should be dismissed. For example, in Buchwald v. Renco Group (In
re Magnesium Corp.), 399 B.R. 722 (Bankr. S.D.N.Y. 2009), the court found:
Several courts have held that under New York law, where the conduct put forth in
support of a claim of conspiracy is the same conduct that supports the underlying
actionable torts, the conspiracy claim should be dismissed as duplicative. Here,
the alleged conduct in support of the conspiracy claims is identical to that alleged
in the causes of action asserted against each Defendant for breach of fiduciary
duty. Except for the conclusory allegation that each Conspiracy Defendant
“associated” and “mutually undertook” with each of the other Conspiracy
Defendants, the Trustee does not allege any independent acts beyond that conduct
supporting the relevant underlying torts. And New York Courts have consistently
required a plaintiff to allege “in addition to the conspiracy, independent overt acts
undertaken in pursuit of that conspiracy.” Absent the allegation of such
independent overt acts, the causes of action for conspiracy fail.
Buchwald, 399 B.R. at 775-76 (quoting Sec. Investor Prot. Corp. v. Stratton Oakmont, Inc. (In re
Stratton Oakmont, Inc.), 234 B.R. 293, 332 (Bankr. S.D.N.Y. 1999)). See 380544 Canada, Inc.
v. Aspen Tech., Inc., 633 F. Supp. 2d 15, 36 (S.D.N.Y. 2009) (dismissing civil conspiracy claim
as duplicative of common law fraud claim); Briarpatch Ltd. v. Geisler Roberdeau, Inc., 2007
WL 1040809, at *26 (S.D.N.Y. Apr. 4, 2007) (dismissing civil conspiracy claim on summary
judgment as duplicative of breach of fiduciary duty claim), aff’d, 312 Fed. Appx. 433 (2d. Cir.),
cert. denied, 130 S. Ct. 257 (2009); Stratton Oakmont, Inc., 234 B.R. at 332 (dismissing civil
conspiracy claim because overt acts alleged also formed basis for other claims); Kew Gardens
Hills Apartment Owners, Inc. v. Horing Welikson & Rosen, P.C., 35 A.D.3d 383, 386 (N.Y.
App. Div. 2d Dep’t 2006) (dismissing conspiracy claim as duplicative of aiding and abetting
Here, the Plaintiffs’ allegations that support their civil conspiracy claim, including the
transactions among Allou, UTA, and other entities, the alleged money laundering scheme, and
the shared interests of the Jacobs-Meisels faction, also form the basis for the Plaintiffs’ claims of
aiding and abetting fraud and aiding and abetting breach of fiduciary duty. That is, the Plaintiffs
have not identified “independent acts” in support of this claim beyond those alleged in support of
their aiding and abetting claims.
Accordingly, UTA’s motion for summary judgment on Claim Three, for civil conspiracy,
Claims Four Through Nine – Constructive and Intentional Fraudulent Transfer
Claims Four through Nine seek the avoidance and recovery of specific transfers among
Allou, UTA, and other entities. The Trustee brings Claims Four through Seven under DCL
Sections 276, 273, 274, and 275, respectively, and Bankruptcy Code Sections 544(b), 550(a),
and 551.11 And the Trustee brings Claims Eight and Nine under Bankruptcy Code Sections
548(a)(1)(A) and (B), 550(a), and 551.
Avoidance of Fraudulent Transfers Under New York’s Debtor and Creditor Law
Bankruptcy Code Section 544(b) authorizes the Trustee to “avoid any transfer of an
interest of the debtor in property or any obligation incurred by the debtor that is voidable under
applicable law by a creditor holding an unsecured claim . . . .” 11 U.S.C. § 544(b)(1). Here, the
“applicable law” is DCL Sections 273, 274, 275, and 276.
Fraudulent Transfer Under DCL Section 276 – Actual Fraud
DCL Section 276 provides that “[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.” DCL
§ 276. “To prove actual fraud under § 276, a creditor must show intent to defraud on the part of
the transferor.” In re Sharp Int’l Corp., 403 F.3d at 56 (internal quotation marks and alterations
omitted). At the same time, “‘[i]t is well accepted that intent to hinder or delay creditors is
sufficient, and intent to defraud need not be proven.’” In re Jacobs, 394 B.R. at 658 (internal
alterations omitted) (quoting Nisselson v. Empyrean Inv. Fund, L.P. (In re MarketXT Holdings
Corp.), 376 B.R. 390, 403 (Bankr. S.D.N.Y. 2007)).
“Badges of fraud” may be used to establish fraudulent intent. See Lippe, 249 F. Supp. 2d
at 374-75. These include:
1) gross inadequacy of consideration; 2) a close relationship between transferor
The Trustee brings Claim Four under DCL Section 276 to avoid specific transfers and
DCL Section 276-a to recover attorneys’ fees. The parties’ arguments concerning DCL Section
276-a are considered below.
and transferee; 3) the transferor’s insolvency as a result of the conveyance; 4) a
questionable transfer not in the ordinary course of business; 5) secrecy in the
transfer; and 6) retention of control of the property by the transferor after the
Lippe, 249 F. Supp. 2d at 375. For purposes of this motion, UTA assumes that the Trustee will
be able to show that the transfers at issue were made by Allou’s principals with the actual intent
to hinder, delay, or defraud Allou’s creditors.
Where the debtor’s “actual intent to defraud creditors is proven, the conveyance will be
set aside [under DCL Section 276] regardless of the adequacy of consideration given.” United
States v. McCombs, 30 F.3d 310, 328 (2d Cir. 1994). But DCL Section 276 also requires a
plaintiff to demonstrate injury in order to state a claim. See Lippe, 249 F. Supp. 2d at 375.
“Indeed, it is hornbook law that ‘[a] conveyance cannot be fraudulent as to creditors if the
debtor’s solvency is not affected thereby, that is, if the conveyance does not deplete or otherwise
diminish the value of the assets of the debtor’s estate remaining available to creditors.’” Lippe,
249 F. Supp. 2d at 375 (quoting 30 N.Y. Jur. 2d Creditors’ Rights & Remedies § 305 (2003)).
Even when the debtor’s actual intent is proven, the DCL offers protection to an innocent
transferee who has given less than fair consideration in exchange for the conveyance. DCL
Section 278(2) states that “[a] purchaser who without actual fraudulent intent has given less than
a fair consideration for the conveyance or obligation, may retain the property or obligation as
security for repayment.” DCL § 278(2). The transferee must “affirmatively show good faith in
order to take advantage of Section 278(2).” In re Jacobs, 394 B.R. at 659.
Fraudulent Transfer Under DCL Sections 273, 274, and 275 – Constructive Fraud
Under DCL Sections 273,12 274,13 and 27514 a transfer is deemed constructively
fraudulent if it is made without fair consideration, and one of the following conditions is met:
“(i) the transferor is insolvent or will be rendered insolvent by the transfer in
question, DCL § 273; (ii) the transferor is engaged in or is about to engage in a
business transaction for which its remaining property constitutes unreasonably
small capital, DCL § 274; or (iii) the transferor believes that it will incur debt
beyond its ability to pay, DCL § 275.”
In re Jacobs, 394 B.R. at 660 (quoting In re Sharp Int’l Corp., 403 F.3d at 53). The parties
stipulate that Allou was insolvent for purposes of these claims.
A party seeking to set aside a transfer under DCL’s constructive fraud provisions must
establish by a preponderance of the evidence that the conveyance was not made for fair
consideration. See In re Jacobs, 394 B.R. at 660. DCL Section 272 defines “fair consideration”
as being given for property or an obligation:
a. When in exchange for such property, or obligation, as a fair equivalent
therefor, and in good faith, property is conveyed or an antecedent debt is
satisfied, or
b. When such property, or obligation is received in good faith to secure a
present advance or antecedent debt in amount not disproportionately small
DCL Section 273 provides that “[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 conveyance is made or the obligation is incurred without
a fair consideration.” DCL § 273.
DCL Section 274 provides that “[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 § 274.
DCL Section 275 provides that “[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.” DCL § 275.
as compared with the value of the property, or obligation obtained.
DCL § 272. Under DCL Section 272, “‘fair consideration has two components — the exchange
of fair value and good faith – and both are required.’” SEC v. Universal Express, Inc., 2008 WL
1944803, at *5 (S.D.N.Y. Apr. 30, 2008) (quoting Lippe, 249 F. Supp. 2d at 376-77).
As such, good faith is an element of fair consideration, and the plaintiff bears the burden
to prove lack of good faith. See Nisselson v. Empyrean Inv. Fund, L.P. (In re MarketXT
Holdings Corp.), 426 B.R. 467, 476 (Bankr. S.D.N.Y. 2010); Silverman v. Actrade Capital, Inc.
(In re Actrade Fin. Techs. Ltd.), 337 B.R. 791, 802 (Bankr. S.D.N.Y. 2005) (citing McCombs, 30
F.3d at 326). And “‘for purposes of § 272, the ‘good faith’ at issue is the good faith of the
transferee, as opposed to, in the case of actual fraud under § 276, the good faith of the
transferor.’” In re Jacobs, 394 B.R. at 660 (internal alterations omitted) (quoting Lippe, 249 F.
Supp. 2d at 377).
In assessing a party’s good faith, courts have found:
“A person seeking to set aside a conveyance upon the basis of lack of good faith
must prove that one or more of the following factors is lacking: (1) an honest
belief in the propriety of the activities in question; (2) no intent to take
unconscionable advantage of others; and (3) no intent to, or knowledge of the fact
that the activities in question will hinder, delay, or defraud others. . . .” In short,
“the lack of good faith imports a failure to deal honestly, fairly and openly.”
Ostashko v. Ostashko, 2002 WL 32068357, at *22-23 (E.D.N.Y. Dec. 12, 2002) (internal
alterations and citations omitted) (quoting Southern Indus., Inc. v. Jeremias, 66 A.D.2d 178, 183
(N.Y. App. Div. 2d Dep’t 1978)), aff’d, 79 Fed. Appx. 492 (2d Cir. 2003). Where “a transferee
has given equivalent value in exchange for the debtor’s property,” the Second Circuit has
concluded that “the statutory requirement of ‘good faith’ is satisfied if the transferee acted
without either actual or constructive knowledge of any fraudulent scheme.” HBE Leasing Corp.
v. Frank, 48 F.3d 623, 636 (2d Cir. 1995). See DCL § 278(1) (setting forth that “[w]here a
conveyance . . . is fraudulent as to a creditor, such creditor” may set aside or disregard that
conveyance against anyone “except a purchaser for fair consideration without knowledge of the
fraud at the time of the purchase . . .”).
Avoidance of Fraudulent Transfers Under the Bankruptcy Code
Fraudulent Transfer Under Bankruptcy Code Section 548(a)(1)(A) – Actual Fraud
“Like DCL Section 276, Bankruptcy Code Section 548(a)(1)(A) applies to transfers made
with intent to deceive . . . .” In re Jacobs, 394 B.R. at 661. Section 548(a)(1)(A) authorizes a
trustee to avoid any transfer made by the debtor if the debtor “made such transfer . . . with actual
intent to hinder, delay, or defraud” creditors. 11 U.S.C. § 548(a)(1)(A). If the trustee proves that
the debtor made the transfer with such actual intent, then “the entirety of the transfer is
avoidable” even if reasonably equivalent value is given in exchange. Bayou Superfund, LLC v.
WAM Long/Short Fund II, L.P. (In re Bayou Group, LLC), 362 B.R. 624, 629 (Bankr. S.D.N.Y.
2007). As with a claim under DCL Section 276, a plaintiff cannot recover under Bankruptcy
Code Section 548(a)(1)(A) if it does not demonstrate an injury flowing from the transfer.
But a defendant who can show that it received the transfer in good faith and for value is
not without recourse. Bankruptcy Code Section 548(c) provides that a transferee “that takes for
value and in good faith has a lien on or may retain any interest transferred or may enforce any
obligation incurred . . . to the extent that such transferee . . . gave value to the debtor in exchange
for such transfer . . . .” 11 U.S.C. § 548(c). The transferee bears the burden of proof on this
defense. See In re Bayou Group, 362 B.R. at 631. “‘Good faith’ is not a defined term in the
Bankruptcy Code, and is properly determined on a case-by-case basis.” Comm. of Unsecured
Creditors of Interstate Cigar Co. v. Interstate Distrib., Inc. (In re Interstate Cigar Co.), 285 B.R.
789, 797 (Bankr. E.D.N.Y. 2002), aff’d, 2003 WL 22885591 (E.D.N.Y. Nov. 25, 2003).
Fraudulent Transfer Under Bankruptcy Code Section 548(a)(1)(B) – Constructive Fraud
Bankruptcy Code Section 548(a)(1) provides:
(a)(1) The trustee may avoid any transfer . . . of an interest of the debtor in
property, . . . incurred by the debtor, . . . if the debtor voluntarily or
involuntarily . . .
(B)(i) received less than a reasonably equivalent value in exchange for
(ii) (I) was insolvent on the date that such transfer was made or
result of such transfer or obligation;
(II) was engaged in business or a transaction, or was about to
engage in business or a transaction, for which any property
remaining with the debtor was an unreasonably small
(III) intended to incur, or believed that the debtor would incur,
debts that would be beyond the debtor’s ability to pay as
such debts matured; or
(IV) made such transfer to or for the benefit of an insider, or
incurred such obligation to or for the benefit of an insider,
under an employment contract and not in the ordinary
11 U.S.C. § 548(a)(1)(B). The Bankruptcy Code does not define “reasonably equivalent value.”
See Official Comm. of Unsecured Creditors of Fedders N. Am., Inc. v. Goldman Sachs Credit
Partners (In re Fedders N. Am.), 405 B.R. 527, 546 (Bankr. D. Del. 2009). “Rather, Congress
left to the courts the task of setting forth the scope and meaning of this term, and courts have
rejected the application of any fixed mathematical formula to determine reasonable
equivalence.” In re Fedders N. Am., 405 B.R. at 546.
Section 548(d)(2)(A) defines “value” as “property, or satisfaction or securing of a present
or antecedent debt of the debtor . . . .” 11 U.S.C. § 548(d)(2)(A). As one court found:
The determination of whether the debtor received reasonably equivalent value for
his interest requires the court to compare what was given with what was received.
It is not necessary that there be ‘mathematical precision’ or a ‘penny-for-penny’
exchange in order to establish reasonably equivalent value. The court must
determine whether reasonably equivalent value was exchanged based on the facts
Pergament v. Reisner (In re Reisner), 357 B.R. 206, 211 (Bankr. E.D.N.Y. 2006) (internal
quotation marks, citations, and alterations omitted). “The ‘reasonably equivalent value’ standard
of Section 548(a)(1)(B) differs from the ‘fair consideration’ standard under the DCL primarily in
that it does not contain the good faith element.” In re Jacobs, 394 B.R. at 662. And the terms
“reasonably equivalent value” and “value” as used in Bankruptcy Code Sections 548(a)(1)(B)
and (C), and “fair equivalent” and “fair consideration,” with the exception of the good faith
component, as used in DCL Sections 272 and 278 “have the same fundamental meaning . . . and
are interpreted similarly by the courts.” Balaber-Strauss v. Sixty-Five Brokers (In re Churchill
Mortg. Inv. Corp., 256 B.R. 664, 677 (Bankr. S.D.N.Y. 2000) (citing cases), aff’d, 264 B.R. 303
Recovery of Transfers Avoided Under the DCL and the Bankruptcy Code
Bankruptcy Code Section 551 provides that any transfer that is “avoided . . . is preserved
for the benefit of the estate . . . .” 11 U.S.C. § 551. The issue of whether a transfer is avoidable
is distinct from the issue of recovery. See Bruno Mach. Corp. v. Troy Die Cutting Co. (In re
Bruno Mach. Corp.), 435 B.R. 819, 847 (Bankr. N.D.N.Y. 2010). “An avoidance nullifies the
transfer. As a result, the transferred property becomes a part of the estate automatically.” In re
Bruno Mach. Corp., 435 B.R. at 847 (internal quotation marks omitted).
Bankruptcy Code Section 550(a) provides that “to the extent that a transfer is avoided . . .
the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so
orders, the value of such property . . . .” 11 U.S.C. § 550(a).15 “Section 550(a) is intended to
restore the estate to the financial condition it would have enjoyed if the transfer had not
occurred.” Hirsch v. Gersten (In re Centennial Textiles, Inc.), 220 B.R. 165, 176 (Bankr.
S.D.N.Y. 1998). See Marine Midland Bank v. Murkoff, 120 A.D.2d 122, 133 (N.Y. App. Div. 2d
Dep’t 1986) (“The creditor’s remedy in a fraudulent conveyance action is limited to reaching the
property which would have been available to satisfy the judgment had there been no conveyance
. . .”). Punitive or exemplary damages may not be recovered under Section 550, regardless of
“their possible availability under state law.” Tronox Inc. v. Anadarko Petroleum Corp. (In re
Tronox Inc.), 429 B.R. 73, 111 (Bankr. S.D.N.Y. 2010). And under Bankruptcy Code Section
550(d), “[t]he trustee is entitled to only a single satisfaction under [Section 550(a)].” 11 U.S.C.
§ 550(d).
Whether UTA Is Entitled to Judgment on the Trustee’s DCL Section 276, 273, 274, and
UTA seeks partial summary judgment on Claims Four through Seven with respect to the
Trustee’s claims to recover transfers in the aggregate amount of $6,401,580, on various grounds.
The Trustee alleges that UTA received $688,350 in direct transfers from Allou to UTA.
The parties stipulate to the circumstances of $656,450 in such direct transfers, but UTA denies
receiving the remainder, representing eleven transfers totaling $31,900 from September 1997 to
December 2002. With respect to these direct transfers, UTA seeks partial summary judgment on
DCL Section 278 provides that a fraudulent conveyance may be “set aside or . . .
annulled to the extent necessary to satisfy [the] claim . . . .” DCL § 278.
grounds that there is no genuine dispute as to a material fact with respect to whether it received
$31,900 in transfers, that the Trustee is time-barred from avoiding a $3,000 transfer made more
than six years before the petition date, and that it repaid in good faith $380,000 of the amounts
The Trustee alleges that UTA received $5,713,230 in transfers through intermediaries.
As to these indirect transfers, UTA seeks partial summary judgment with respect to transfers
involving Crystal Clear, Tereza, and AMT, in the amounts of $2,724,630, $105,000, and
$650,000, respectively. As to Crystal Clear, UTA argues that there is no genuine dispute as to a
material fact with respect to whether it received two transfers totaling $224,630, or whether eight
transfers totaling $1.3 million originated at Allou. UTA also argues that it repaid in good faith
an additional $1.2 million of the amounts transferred to it. As to Tereza, UTA contends that
there is no genuine dispute as to a material fact with respect to whether a $100,000 transfer
originated at Allou, or whether it received a $5,000 transfer. And with respect to AMT, UTA
argues that there is no genuine dispute as to a material fact with respect to whether it repaid in
good faith each transfer that it received.
Whether UTA Is Entitled to Judgment with Respect to $31,900 in Direct Transfers
UTA argues that there is no genuine dispute as to a material fact with respect to whether
it received eleven transfers from Allou totaling $31,900. UTA contends that it has no record of
receiving these transfers, and that the Trustee has not come forward with evidence sufficient to
show that it did. The Trustee argues that there is a genuine dispute as to a material fact because
each of the eleven transfers was recorded by Allou as paid to UTA, and submits eight checks and
three internal Allou payment records in support of its claim.
The record shows that three checks are payable to an entity other than UTA. Two
checks, in the amounts of $3,600 and $2,500, are payable to “UTA Preservation,” and the third,
in the amount of $7,500, is payable to “United Talmudical Academy of Monsey.” Haddad Decl.
Exh. 34. UTA denies that either entity is affiliated with it, and argues the Trustee has not come
forward with evidence sufficient to establish a genuine dispute as to a material fact concerning
whether these transfers were received by or for the benefit of UTA.
Five other checks are payable to “UTA” but were deposited or endorsed to entities other
than UTA. Two checks, each in the amount of $500, were deposited into a Fleet Bank account, a
$4,200 check was deposited into a Chase bank account, a $1,000 check was endorsed to an
account of “Machne Rav Tov” at HSBC, and a $4,000 check was endorsed to “United
Talmudical Academy of Kiryas Joel Inc.” UTA argues that these checks, while made out to an
entity with “UTA” in its title, were not deposited into a bank account affiliated with it. The three
internal Allou records show transfers from Allou totaling $8,100 made on October 1, October 11,
and October 17, 2001. Haddad Decl. Exh. 34. One record indicates a transfer of $2,500 to
“UTA Antwerp,” and two records indicate transfers to “UTA.” Haddad Decl. Exh. 34.
In his Declaration, Mr. Mandel avers that “Machne Rav Tov,” “Camp Machne [illegible]
Yoel Corp.,” “UTA Preservation,” “UTA Antwerp,” and “UTA Monsey” are not affiliated with
UTA. Mandel Reply Decl. ¶ 3. The Trustee does not respond with evidence that Machne Rav
Tov, UTA Preservation, UTA Antwerp, UTA Monsey, and United Talmudical Academy of
Kiryas Joel Inc., were affiliated with UTA. Nor does the Trustee identify evidence that the
checks payable to “UTA” were deposited into UTA’s bank accounts or were for the benefit of
UTA. And the internal Allou records indicating payment to “UTA” are insufficient to create a
triable dispute of fact as to whether payment was made to or for the benefit of the defendant
UTA. See Williams v. Congregation Yetev Lev, 2008 WL 852450, at *5 (S.D.N.Y. Mar. 31,
2008) (granting defendant Congregation Yetev Lev’s motion for summary judgment finding that
the plaintiff had “offered no evidence that any check was actually endorsed to the Brooklyn
Congregation, rather than another organization, referred to as Congregation Yetev Lev”).
It is well settled that the “law does not recognize ‘a creditor’s remedy for money
damages against parties who . . . were neither transferees of the assets nor beneficiaries of the
conveyance.’” Roselink Investors, L.L.C. v. Shenkman, 386 F. Supp. 2d 209, 226 (S.D.N.Y.
2004) (quoting F.D.I.C. v. Porco, 75 N.Y.2d 840, 842 (1990)). That is, “there can be no action
for damages against a party who did not receive any of the property sought by the creditors.”
Shenkman, 386 F. Supp. 2d at 227.
Here, based on the entire record, UTA has shown that there is no genuine dispute as to a
material fact with respect to whether it received the $31,900 in direct transfers, and the Trustee
has not come forward with evidence sufficient to create a genuine dispute as to a material fact on
this element of its claim. Accordingly, UTA’s motion for partial summary judgment with
respect to the Trustee’s claims under the DCL to recover these transfers is granted.
Whether UTA Is Entitled to Judgment with Respect to $3,000 in a Direct Transfer
the Trustee may avoid one of the stipulated direct transfers in the amount of $3,000, because it
occurred on February 3, 1997,outside of the six-year limitations period for claims under the
DCL. The Trustee does not dispute the date of the transfer or the applicable limitations period,
but argues that equitable tolling is justified because the transfers were “self-concealing.” Pltfs’
Opp. at 41 n.4.
New York state law fixes the limitations period for claims under the DCL. A claim based
on actual fraud under DCL Section 276 must be brought within the later of six years from the
date of the fraud or conveyance, or two years from the date that the fraud should have been
discovered. See Liberty Co. v. Boyle, 272 A.D.2d 380, 381 (N.Y. App. Div. 2d Dep’t 2000). A
claim based on constructive fraud must be brought within six years from the date of the
conveyance. See Liberty Co., 272 A.D.2d at 381. The two-year discovery rule applicable to
actual fraud claims does not apply to constructive fraud claims. See Wall St. Assocs. v. Brodsky,
257 A.D.2d 526, 530 (N.Y. App. Div. 1st Dep’t 1999). The defendant bears the burden of
establishing the affirmative defense that a claim is time-barred, and the plaintiff bears the burden
of establishing that an exception such as equitable tolling applies. See Lefkowitz v. Appelbaum,
258 A.D.2d 563, 563 (N.Y. App. Div. 2d Dep’t 1999).
Equitable tolling may apply where the defendant “‘actively misled’” the plaintiff or the
plaintiff was “‘in some extraordinary way . . . prevented from complying with the limitations
period.’” Shared Commc’ns Servs. of ESR, Inc. v. Goldman, Sachs & Co., 38 A.D.3d 325, 325
(N.Y. App. Div. 1st Dep’t 2007) (quoting O’Hara v. Bayliner, 89 N.Y.2d 636, 646, cert. denied,
522 U.S. 822 (1997)). A defendant may be estopped from asserting a statute of limitations
defense “where plaintiff was induced by [the defendant’s] fraud, misrepresentations or deception
to refrain from filing a timely action.” Simcuski v. Saeli, 44 N.Y.2d 442, 449 (1978). New York
courts often rely on the same analysis for these doctrines. See Meridien Int’l Bank Ltd. v. Gov’t
of Rep. of Liber., 23 F. Supp. 2d 439, 446 n.4 (S.D.N.Y. 1998).
A plaintiff asserting equitable estoppel must allege facts that support estoppel. See T & N
PLC v. Fred S. James & Co. of N.Y., Inc., 29 F.3d 57, 62 (2d Cir. 1994). But equitable estoppel
cannot be applied when the same facts form the basis of both the estoppel argument and the
underlying claim for fraud. See Kaufman, 307 A.D.2d at 122. And “[i]t is well settled that ‘[t]he
doctrine of equitable estoppel is to be invoked sparingly and only under exceptional
circumstances.’” Townley v. Emerson Elec. Co., 269 A.D.2d 753, 753-54 (N.Y. App. Div. 4th
Dep’t 2000) (quoting Matter of Gross v. N.Y.C. Health & Hosps. Corp., 122 A.D.2d 793, 794
(N.Y. App. Div. 2d Dep’t 1986)).
The Trustee does not argue that this claim was brought within two years of when it
should have been discovered as permitted under DCL Section 276. Rather, he argues that
equitable tolling is appropriate because “the Defendants structured the transfers to make them
difficult to trace, and thereby perpetrated a fraud that was by its nature ‘self-concealing.’” Pltfs’
Opp. at 41 n.4. But the Trustee does not identify sufficient facts that are distinct from the
alleged facts in support of the underlying fraud, or that support UTA’s active concealment of the
fraud, to create a genuine dispute as to a material fact with respect to whether equitable tolling
should apply. See State of N.Y. v. Hendrickson Bros., Inc., 840 F.2d 1065, 1084 (2d Cir.)
(discussing the rule and identifying the conduct of defendants that helped conceal the fraud),
cert. denied, 488 U.S. 848 (1988); Bobash, Inc. v. Festinger, 57 A.D.3d 464, 467 (N.Y. App.
Div. 2d Dep’t 2008) (finding that estoppel argument did not apply to constructive and actual
fraud claims under the DCL because it was based on same allegations as underlying fraud
material fact with respect to whether the Trustee’s claim to recover $3,000 is barred by the
statute of limitations, and the Trustee has not come forward with evidence sufficient to create a
genuine dispute as to a material fact on whether equitable tolling or estoppel should apply.
Accordingly, UTA’s motion for partial summary judgment with respect to the Trustee’s claims
under the DCL to recover this transfer is granted.
Whether UTA Is Entitled to Judgment with Respect to $380,000 in Direct Transfers
it repaid in good faith an additional $380,000 of the direct transfers. The parties stipulate that
UTA made payments totaling $380,000 to Allou between September 1997 and May 2002.16
Relying on DCL Section 278, UTA argues that “summary judgement is . . . warranted
unless the Trustee can identify a triable issue of fact calling into question whether UTA repaid
the amounts it received in good faith.” UTA Mem. at 45. The Trustee contends that there are
triable disputes of fact concerning UTA’s good faith, and that regardless of repayment, the
transfers damaged the estate. The Trustee states that if the transfers were loans, Allou suffered a
loss in the form of foregone interest, and if the transfers were donations, then Allou lost tax
benefits because it did not report the transactions as charitable contributions. And the Trustee
states that the transfers diminished the value of the estate because they were “part of the greater
fraud at Allou leading to the liquidation of Allou and harm [to] all creditors.” Pltfs’ Opp. at 39
In response, UTA argues that the Trustee does not raise a genuine dispute as to a material
fact with respect to its good faith in taking or repaying the transfers. UTA notes that it is the
The parties stipulate that UTA paid $30,000, $50,000, and $300,000, to Allou by
checks dated September 2, 1997, May 26, 2000, and May 10, 2002, respectively.
Trustee’s burden to prove constructive fraud under the DCL, and that burden includes proving
UTA’s lack of good faith. UTA also notes that “because obligations that are repaid pre-petition
are seldom the subject of fraudulent conveyance claims (because they do not diminish the estate)
Plaintiffs’ authorities . . . do not . . . address any necessity of showing good faith in relation to
the repayment, as opposed to the original transfer.” UTA Reply at 43. And UTA argues that
because the funds were returned, the Trustee cannot demonstrate that there was a reduction in the
value of Allou’s estate that harmed its creditors.
As discussed in the context of the Plaintiffs’ aiding and abetting claims, there are genuine
disputes as to material facts with respect to whether UTA knowingly participated in the Jacobs’
misconduct at Allou. These same disputed facts are relevant to whether UTA acted in good faith
and whether it had knowledge of the Jacobs’ fraud when it received these transfers. That is,
UTA has not shown that there is no genuine dispute as to a material fact with respect to its
defense under DCL Section 278, or the good faith element of fair consideration.
Nor has UTA shown that there is no genuine dispute as to a material fact with respect to
fair value element of fair consideration. The parties stipulated that UTA received $656,450 in
sixteen direct transfers from Allou, and repaid $380,000 in three transfers. Only one of the
transfers from UTA to Allou, which was part of the $300,000 round-trip transaction, corresponds
in dollar amount to a transfer received from Allou. Whether these transfers are considered
discretely or in the aggregate, there is a genuine dispute as to a material fact with respect to
whether they amount to a fair equivalent value. Viewed discretely, there is a genuine dispute as
to a material fact with respect to whether each transaction was a gratuitous exchange or Allou
received value in return. Taken in the aggregate, there is a genuine dispute as to a material fact
with respect to fair equivalent value. For the same reasons, there is a genuine dispute as to a
material fact with respect to whether these transfers reduced the value of Allou’s estate to the
detriment of its creditors.
And finally, there is a genuine dispute as to a material fact with respect to whether UTA
should receive a credit for funds that it repaid to Allou. The determination whether to permit
such a credit “is based on principles of equity that a court . . . may apply . . . with considerable
discretion,” and the application of those principles turns on whether UTA knowingly participated
in the Jacobs’ misconduct at Allou. Goldman Sachs Execution & Clearing, L.P. v. Official
Unsecured Creditors’ Comm. of Bayou Group, LLC, --- F. Supp. 2d ---, 2010 WL 4877847, at *5
(S.D.N.Y. Nov. 30, 2010) (distinguishing cases that have granted credits from the case before it
where the defendant was not “totally innocent of wrongdoing”). See Nostalgia Network, Inc. v.
Lockwood, 315 F.3d 717, 720 (7th Cir. 2002) (finding with respect to a gratuitous transfer where
there was evidence of actual fraud that “the fact that some or for that matter all of it may later
have seeped back to the debtor does not legitimize the transfer”).
Accordingly, based on the entire record, UTA’s motion for partial summary judgment
with respect to the Trustee’s claims under the DCL on grounds that it made $380,000 in
repayments is denied.
Whether UTA Is Entitled to Judgment with Respect to $2,724,630 in Transfers Involving
UTA seeks partial summary judgment on Claims Four through Seven with respect to
indirect transfers from Crystal Clear, based on three arguments. In total, the Trustee seeks
$3,624,630 in connection with transfers from Crystal Clear.
UTA Disputes that $1.3 Million in Funds Originated at Allou UTA argues that there is
no genuine dispute as to a material fact with respect to whether $1.3 million of the funds
transferred from Crystal Clear to UTA originated at Allou. UTA also argues that the Trustee has
not shown how the disputed $1.3 million can be traced to Allou.
The Trustee argues that there is a triable dispute of fact with respect to whether these
funds originated at Allou based on the testimony of Crystal Clear’s principal Abraham Lefkowitz
that funds transferred from Allou to Crystal Clear were destined for UTA and Crystal Clear did
not otherwise conduct business with Allou. The Trustee also cites the undisputed evidence that
UTA received funds from Crystal Clear, and Crystal Clear acted as an intermediary for transfers
from Allou to UTA.
“[A] plaintiff must carry its burden to establish that the funds at issue are property of the
estate” but the plaintiff need not establish “dollar-for-dollar accounting of the exact funds at
issue.” In re Allou Distribs., Inc., 379 B.R. at 30 (internal quotation marks omitted).
As explained by the Eleventh Circuit in similar circumstances:
In an action seeking recovery, the plaintiff has the burden of tracing funds it
claims to be property of the estate. . . . [But] it is also true that proper tracing does
not require dollar-for-dollar accounting. The bankruptcy court determined that
the Trustee successfully proved by a preponderance of the evidence that the
$1.050 million transferred to [the defendant] from [intermediary] accounts,
originated solely with [the debtor]. We cannot find that conclusion clearly
erroneous. [The debtor’s principal and its counsel] perpetrated a fraud that can
only be described as massive. It is not fatal to the Trustee’s case that dollar for
dollar, the exact funds cannot be traced.
The evidence demonstrates that the funds used to purchase the [] property
originated in [the intermediary] accounts, and the monies in those accounts
originated with the Debtor. [The debtor’s principal and its counsel] cycled
substantial amounts of money through nearly two dozen entities on a regular
basis. During that time, [the debtor’s] debt increased in lock-step with [the
debtor’s principal’s] burgeoning treasure chest, all in an effort to hide assets from
creditors. That money eventually found its way to [the defendants].
IBT Int’l, Inc. v. Northern (In re Int’l Admin. Servs., Inc.), 408 F.3d 689, 708-09 (11th Cir. 2005)
Here, the parties stipulate that Allou made thirteen transfers to Crystal Clear totaling
more than $2.5 million, Crystal Clear made eighteen transfers to UTA totaling $3.4 million,
UTA made 25 transfers to Crystal Clear totaling more than $4.6 million, and Crystal Clear made
eight transfers to Allou totaling $1.9 million. Abraham Lefkowitz testified that he was “not
exactly sure” whether “every dollar that Allou gave to Crystal Clear end[ed] up going from
Crystal Clear to the UTA . . . .” Haddad Decl. Exh. 41 (Lefkowitz Tr. 34:23-35:2). And Mr.
Lefkowitz also testified that the transactions between Allou and Crystal Clear were “[l]oans that
were given to Crystal Clear that [it] should give to UTA.” Haddad Decl. Exh. 41 (Lefkowitz Tr.
33:16-17).
These facts are sufficient to create a genuine dispute as to a material fact with respect to
whether the $1.3 million originated at Allou. Accordingly, based on the entire record, UTA’s
motion for partial summary judgment with respect to the Trustee’s claims under the DCL to
recover these transfers is denied.
UTA Argues that It Repaid $1.2 Million in Good Faith UTA argues that there is no
genuine dispute as to a material fact with respect to whether it repaid in good faith $1.2 million
of the funds transferred to it from Crystal Clear. UTA notes that the parties stipulate that
between August 1997 and June 2002, UTA transferred $4,611,109 to Crystal Clear, and that $1.9
million was transferred from Crystal Clear to Allou. And UTA argues that certain stipulated
transfers from UTA to Crystal Clear correspond to stipulated transfers from Crystal Clear to
Allou. Specifically, between December 1997 and June 2000, on the same days that UTA made
transfers of $300,000, $200,000, $250,000, and $200,000 to Crystal Clear, Crystal Clear made
transfers in the same amounts to Allou. UTA also points to a transfer made on August 27, 1999,
from UTA to Crystal Clear in the amount of $250,000, and a corresponding transfer of that same
amount from Crystal Clear to Allou on September 20, 1999.
In response, the Trustee argues that there are genuine disputes as to material facts
precluding partial summary judgment with respect to UTA’s good faith and as to whether these
transfers reduced the value of Allou’s estate to the detriment of its creditors.
Here too, as discussed in the context of the Plaintiffs’ aiding and abetting claims, there
are genuine disputes as to material facts with respect to whether UTA knowingly participated in
the Jacobs’ misconduct at Allou. These same issues are relevant to whether UTA acted in good
faith and whether it had knowledge of the Jacobs’ fraud when it made and received these
transfers, and they preclude summary judgment. There is also a genuine dispute as to a material
fact with respect to the other component of fair consideration, fair equivalent value. And there is
a genuine dispute as to a material fact with respect to whether these transfers reduced the value
of Allou’s estate to the detriment of its creditors.
with respect to the Trustee’s claims under the DCL to recover these transfers is denied.
UTA Denies Receiving $224,630 UTA argues that there is no genuine dispute as to a
material fact with respect to whether it received $224,630 in two transfers from Crystal Clear,
one made on January 26, 2000, in the amount of $75,000, and another made on January 3, 2002,
in the amount of $149,630. UTA contends that it has no record of receiving these transfers, and
argues that the Trustee has not come forward with evidence sufficient to show that it did.
In response, the Trustee argues that the testimony of Abraham Lefkowitz shows that the
funds that Allou transferred to Crystal Clear were then transferred by Crystal Clear to UTA. In
particular, the Trustee notes that Mr. Lefkowitz testified that the transactions between Allou and
Crystal Clear were “[l]oans that were given to Crystal Clear that [it] should give to UTA.”
Haddad Decl. Exh. 41 (Lefkowitz Tr. 33:16-17). And as noted above, the parties stipulate that
Allou made thirteen transfers to Crystal Clear totaling more than $2.5 million, Crystal Clear
made eighteen transfers to UTA totaling $3.4 million, UTA made 25 transfers to Crystal Clear
totaling more than $4.6 million, and Crystal Clear made eight transfers to Allou totaling $1.9
million. But the Trustee has not come forward with evidence of these transfers from Crystal
Clear to UTA, including direct evidence in the form of checks, wire transfer records, or other
deposit records, to create a genuine dispute as to a material fact with respect to whether UTA
received transfers in this amount.
material fact with respect to whether it received the $224,630 in transfers from Crystal Clear,
and the Trustee has not come forward with evidence sufficient to show that Crystal Clear made
transfers in this amount to UTA. Accordingly, UTA’s motion for partial summary judgment
with respect to the Trustee’s claims under the DCL to recover these transfers is granted.
Whether UTA Is Entitled to Judgment with Respect to the Tereza Transfers
indirect transfers by Tereza, based on two arguments. The Trustee seeks to avoid and recover
two transfers by Tereza totaling $105,000, and UTA seeks judgment with respect to each
UTA Disputes that $100,000 Originated at Allou UTA argues that there is no genuine
dispute as to a material fact with respect to whether a $100,000 transfer that it received from
Tereza originated at Allou.
The Trustee argues that there are triable disputes as to material facts precluding summary
judgment based on evidence that from January 1997 to April 2003, Tereza and its affiliated
companies received payments from Allou of more than $35 million. And the Trustee notes that
the $100,000 transfer from Tereza to UTA occurred in May 2000, the same month that Allou
transferred $850,000 to Tereza.
UTA responds that the Trustee’s evidence is insufficient to create a genuine dispute as to
a material fact with respect to whether the $100,000 originated at Allou. That evidence includes
a Fleet Bank “Statement of Accounts” for Allou showing certain debits and credits, including an
$850,000 debit in May 2000, with the handwritten notation “TEREZA” next to that entry.
Haddad Decl. Exh. 36. UTA argues that the account statement does not show to whom the
payment was made and that the handwritten notation is hearsay. And UTA contends Tereza’s
May 2000 account statement does not show that Tereza received the $850,000.
Here, the record includes evidence that over $35 million was transferred from Allou to
Tereza and its affiliated companies. See Haddad Decl. Exh. 37. And it is not clear from the
record that Tereza had only one bank account. As such, based on the entire record, there is a
genuine dispute as to a material fact with respect to whether the $100,000 transfer from Tereza
to UTA originated at Allou. Accordingly, UTA’s motion for partial summary judgment with
respect to the Trustee’s claims under the DCL to recover this transfer is denied.
UTA Denies Receiving $5,000 UTA argues that there is no genuine dispute as to a
material fact with respect to whether it received a $5,000 transfer from Tereza in January 2001.
UTA contends that it has no record of receiving these funds, and argues that the Trustee has not
come forward with evidence sufficient to show that it did. In response, the Trustee relies on the
transactions between Allou and Tereza to argue that there is a genuine dispute as to a material
fact with respect to whether UTA received the disputed transfer. But the Trustee does not come
forward with specific evidence concerning a $5,000 transfer from Tereza to UTA.
material fact with respect to whether it received the $5,000 transfer, and the Trustee has not
come forward with evidence sufficient to create a genuine dispute as to a material fact on this
element of its claim. Accordingly, UTA’s motion for partial summary judgment with respect to
the Trustee’s claims under the DCL to recover this transfer is granted.
Whether UTA Is Entitled to Judgment with Respect to the AMT Transfers
UTA argues that there is no genuine dispute as to a material fact concerning its
repayment in good faith of the entire $650,000 it received in connection with the AMT transfers.
The parties do not dispute that each of the corresponding transfers from Allou was ultimately
repaid to it. As described above in the context of UTA’s repayment of other transfers, and based
on the entire record, there are genuine disputes as to material fact with respect to UTA’s good
faith, its lack of knowledge, and fair equivalent value that preclude summary judgment. There is
also a genuine dispute as to a material fact with respect to whether Allou’s estate was diminished
to the detriment of creditors.
Accordingly, UTA’s motion for partial summary judgment with respect to the Trustee’s
claims under the DCL to recover the AMT transfers is denied.
Whether UTA Is Entitled to Judgment on the Trustee’s Section 548(a)(1)(A) and (B)
UTA seeks partial summary judgment with respect to Claims Eight and Nine brought by
the Trustee under Bankruptcy Code Sections 548(a)(1)(A) and (B). In total, the Trustee seeks
$1,154,400 on these claims, representing $304,000 in direct transfers from Allou to UTA, and
$850,400 in transfers from intermediaries to UTA.17 UTA seeks partial summary judgment with
respect to the direct transfers, based on two arguments.
UTA Denies Receiving $4,000 UTA argues that there is no genuine dispute as to a
material fact with respect to whether it received a $4,000 transfer from Allou in December 2002.
UTA contends that it has no record of receiving these funds, and that the Trustee has not come
forward with evidence sufficient to show that it did. The Trustee points to a check payable to
“UTA” that was deposited into the account of “United Talmudical Academy of Kiryas Joel, Inc.”
Haddad Decl. Exh. 34. But as noted above with respect to the Trustee’s DCL claims, the Trustee
has not identified evidence indicating that this check was payable to or for the benefit of the
defendant UTA.
material fact with respect to whether it received the $4,000 transfer, and the Trustee has not
come forward with sufficient evidence to create a genuine dispute as to a material fact on this
The reach back period under Bankruptcy Code Sections 548(a) is shorter than the
limitations period applicable to claims under the DCL. The Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005 increased the Section 548 reach back period from one year to
two years, but only for cases commenced after April 20, 2006. Bankruptcy Abuse Prevention
and Consumer Protection Act of 2005, Pub. L. No. 109-8, §§ 1402(1),1406(b)(2) (2005). This
case was filed in 2003, so the applicable reach back period for these claims is one year.
the Trustee’s claims under the Bankruptcy Code to recover this transfer is granted.
UTA Argues that It Repaid $300,000 in Good Faith UTA argues that there is no genuine
dispute as to a material fact concerning whether it repaid in good faith $300,000 to Allou as part
of the round-trip transaction.
As with its arguments in connection with the Trustee’s DCL claims, UTA asserts that
there is no genuine dispute as to a material fact with respect to whether it repaid the sums in
good faith and provided value, which would serve as a defense under Bankruptcy Code Section
548(c). And UTA argues that the Trustee cannot maintain a claim under Section 548(a) because
funds that are repaid do not diminish the estate to the detriment of creditors.
The Trustee argues that there are genuine disputes as to material facts with respect to
UTA’s good faith and the harm to Allou and its creditors that preclude judgment.
As described above in the context of the Trustee’s DCL claims and UTA’s repayment of
other transfers, and based on the entire record, there are genuine disputes as to material facts
concerning UTA’s good faith, the value given in exchange, and whether these transfers
diminished Allou’s estate to the detriment of creditors.
claims under the Bankruptcy Code to recover this transfer is denied.
Claim Four – Attorneys’ Fees Under DCL Section 276-a
In Claim Four, the Trustee seeks attorneys’ fees under DCL Section 276-a, in addition to
the avoidance of transfers under DCL Section 276.
DCL Section 276-a provides:
In an action . . . brought by a creditor . . . [or] trustee in bankruptcy, . . . to set
aside a conveyance by a debtor, where such conveyance is found to have been
made by the debtor and received by the transferee with actual intent, as
distinguished from intent presumed in law, to hinder, delay or defraud either
present or future creditors, in which action . . . the creditor . . . [or] trustee in
bankruptcy . . . shall recover judgment, the justice . . . presiding at the trial shall
fix the reasonable attorney’s fees of the creditor . . . [or] trustee in bankruptcy . . .
in such action . . . and the creditor . . . [or] trustee in bankruptcy shall have
judgment therefor against the debtor and the transferee who are defendants in
addition to the other relief granted by the judgment.
DCL § 276-a.
Here, the relevant inquiry under DCL Section 276-a is whether Allou made transfers, and
UTA received those transfers, with the actual intent to hinder, delay, or defraud either present or
future creditors. See In re Jacobs, 394 B.R. at 670-71; In re All Am. Petroleum Corp., 259 B.R.
at 19 (“Under New York law, an award of attorneys’ fees in a fraudulent conveyance action is
not appropriate in the absence of a showing of actual intent on the part of the defendant.”).
Unlike the aiding and abetting claims brought by the Plaintiffs, actual intent under Section 276-a
may be shown under a badges of fraud analysis. See In re Jacobs, 394 B.R. at 670-71.
UTA argues that the evidence does not show that it had “actual knowledge” of the fraud
at Allou, and therefore summary judgment is warranted. UTA Mem. at 57. The Trustee argues
that there is a genuine dispute as to a material fact with respect to UTA’s actual knowledge of
the fraud at Allou.
As discussed above in the context of the Plaintiffs’ aiding and abetting claims, the
Trustee has come forward with evidence sufficient to show that there is a genuine dispute as to
material facts with respect to UTA’s knowing participation in the fraud at Allou. This evidence
includes the amount, number, and circumstances of transactions involving Allou and UTA,
directly and through intermediaries, the role played by Victor Jacobs in placing Mr. Meisels in a
position of authority at UTA, the support of both Victor Jacobs and Mr. Meisels for Rabbi
Zalman Teitelbaum in the contentious dispute over the selection of the successor to the Grand
Rebbe, and Mr. Meisels’ role at UTA and his involvement in many of the transactions at issue in
this case. That same evidence creates a genuine dispute as to a material fact concerning whether
UTA received transfers from Allou with the actual intent to hinder, delay, or defraud Allou’s
present or future creditors.
Accordingly, based on the entire record, UTA’s motion for summary judgment with
respect to the Trustee’s claim for attorney’s fees under DCL Section 276-a is denied.
Claims Eighteen, Nineteen, and Twenty – Unjust Enrichment, Money Had and Received, and
Congress brings Claims Eighteen, Nineteen, and Twenty under New York common law
theories of unjust enrichment, money had and received, and conversion, to recover funds
transferred directly and indirectly to UTA after it entered into the Loan and Security Agreement
dated September 4, 2001. The amounts that Congress seeks to recover are the same as those
sought by the Trustee to the extent that transfers occurred after September 4, 2001.
A claim for unjust enrichment under New York law “require[s] proof that (1) defendant
was enriched, (2) at plaintiff’s expense, and (3) equity and good conscience militate against
permitting defendant to retain what plaintiff is seeking to recover.” Briarpatch Ltd. v. Phoenix
Pictures, Inc., 373 F.3d 296, 306 (2d Cir. 2004), cert. denied, 544 U.S. 949 (2005). As the
Second Circuit notes, “[t]he ‘essence’ of such a claim ‘is that one party has received money or a
benefit at the expense of another.’” Kaye v. Grossman, 202 F.3d 611, 616 (2d Cir. 2000)
(quoting City of Syracuse v. R.A.C. Holding, Inc., 258 A.D.2d 905, 906 (N.Y. App. Div. 4th
Dep’t 1999)). “A person may be unjustly enriched not only where he receives money or
property, but also where he otherwise receives a benefit. . . . [such as] where his debt is satisfied
or where he is saved expense or loss.” Blus Cross of Cent. N.Y., Inc. v. Wheeler, 99 A.D.2d 995,
996 (N.Y. App. Div. 4th Dep’t 1983).
Generally, the measure of damages in a case for unjust enrichment is the reasonable value
of the benefit conferred on the defendant by the plaintiff. See Manhattan Telecomms. Corp. v.
Global NAPS, Inc., 2010 WL 1326095, at *4 (S.D.N.Y. Mar. 31, 2010) (citing Giordano v.
Thomson, 564 F.3d 163, 170 (2d Cir. 2009)); Mayer v. Bishop, 158 A.D.2d 878, 881 (N.Y. App.
Div. 3d Dep’t) (“In situations where the defendant receives a benefit, but the plaintiff’s loss is
difficult to measure, proper restitution is the amount by which the defendant is enriched”),
appeal denied, 76 N.Y.2d 704 (1990). Recovery under an unjust enrichment theory is “premised
on the principle that recovery is to be had ex aequo et bono, according to what is equitable and
good.” T.D. Bank, N.A. v. JP Morgan Chase Bank, N.A., 2010 WL 4038826, at *4 (E.D.N.Y.
Oct. 4, 2010). Because the claim is equitable in nature, courts consider factors such as whether
the defendant still retains that benefit, whether the defendant’s conduct was tortious or
fraudulent, and whether there was a change in position by the defendant, in determining the
extent of recovery. See Paramount Film Distrib. Corp. v. State, 30 N.Y.2d 415, 421 (1972)
(“The essential inquiry in any action for unjust enrichment or restitution is whether it is against
equity and good conscience to permit the defendant to retain what is sought to be recovered”),
cert. denied, 414 U.S. 829 (1973); St. John’s Univ. v. Bolton, --- F. Supp. 2d. ---, 2010 WL
5093347, at *29 (E.D.N.Y. Dec. 10, 2010) (citing Merrill Lynch, Pierce, Fenner & Smith, Inc. v.
Chipetine, 221 A.D.2d 284, 286-87 (N.Y. App. Div. 1st Dep’t 1995)); Mayer, 148 A.D.2d at 880
(“[T]o determine whether there has indeed been unjust enrichment the inquiry must focus on the
human setting involved, not merely upon the transaction in isolation”) (internal quotation marks
Finally, courts may reduce the amount of a claim for unjust enrichment based on
repayment. See Kleinman v. E.L. Tool & Die Co., 30 A.D.3d 1123, 1127 (N.Y. App. Div. 1st
Dep’t 2006). And a claim for unjust enrichment may be dismissed if the funds sought have been
returned. See Apollon Waterproofing & Restoration Corp. v. Bergassi, 241 A.D.2d 347, 348
(N.Y. App. Div. 1st Dep’t 1997) (affirming dismissal of unjust enrichment claim on summary
judgment where defendants had returned the subject funds and “therefore did not retain any
benefit unjustly”).
The elements of a claim for money had and received under New York law are (1) the
defendant received money belonging to the plaintiff; (2) the defendant received a benefit from
the receipt of the money; and (3) under principles of equity and good conscience, the defendant
should not be permitted to keep the money. See Aaron Ferer & Sons Ltd. v. Chase Manhattan
Bank, N.A., 731 F.2d 112, 125 (2d Cir. 1984). A claim for money had and received “is an
obligation which the law creates in the absence of agreement when one party possesses money
that in equity and good conscience he ought not to retain and that belongs to another . . . .”
Parsa v. State, 64 N.Y.2d 143, 148 (1984). “The action depends upon equitable principles in the
sense that broad considerations of right, justice and morality apply to it, but it has long been
considered an action at law.” Parsa, 64 N.Y.2d at 148. As with a claim for unjust enrichment,
this claim is premised on the principle that recovery is to be had according to what is equitable
and good. See T.D. Bank, N.A., 2010 WL 4038826, at *4. And the Court of Appeals of New
York has found that the damages available in a claim for money had and received are those
necessary to make the plaintiff whole. See Bd. of Educ. of Cold Spring Harbor Cent. Sch. Dist.
v. Rettaliata, 78 N.Y.2d 128, 140 (1991) (finding that “under any consideration of ‘right, justice
and morality’ plaintiffs, in order to be made whole, should be permitted to assert a claim to
recover any interest that may be due them”) (quoting Parsa, 64 N.Y.2d at 148).
A plaintiff cannot state a claim for money had and received if the defendant did not
receive the plaintiff’s money. See Bietola v. McCue, 308 A.D.2d 416, 417 (N.Y. App. Div. 1st
Dep’t 2003). Courts may reduce the amount available to a plaintiff based on partial repayment.
See Kleinman, 30 A.D.3d at 1127. And a cause of action for money had and received may be
dismissed if the defendant returned the entirety of the funds sought by the plaintiff. See Fesseha
v. TD Waterhouse Investor Servs., 305 A.D.2d 268, 269 (N.Y. App. Div. 1st Dep’t 2003) (“We
note that even if there had been no contract between the parties providing for commissions in
connection with liquidation sales, plaintiff’s claim for money had and received would still have
been properly dismissed since the commissions were returned to plaintiff.”).
Under New York law, the common law tort of conversion is the “unauthorized
assumption and exercise of the right of ownership over goods belonging to another to the
exclusion of the owner’s rights . . . .” State v. Seventh Regiment Fund, Inc., 98 N.Y.2d 249, 259
(2002) (internal quotation marks omitted). The plaintiff must show that the defendant received
and retained the plaintiff’s goods in order to state a claim. See, e.g., In re Harley, 293 A.D.2d
131, 139-40 (N.Y. App. Div. 1st Dep’t 2001); L.H.P. Realty Co. v. Rich, 2001 WL 1537744, at
*3 (Sup. Ct. N.Y. Co. Aug. 28, 2001). Good faith is not a defense in a conversion action. See 23
N.Y. Jur. 2d Conversion § 52 (2010).
Damages for conversion are usually the value of the property at the time of conversion,
plus interest. See Fantis Foods, Inc. v. Standard Importing Co., 49 N.Y.2d 317, 326 (1980). If
funds are returned, the recovery available on a conversion claim may be reduced. See Culinary
Connection Holdings, Inc. v. Culinary Connection of Great Neck, Inc., 1 A.D.3d 558, 559 (N.Y.
App. Div. 2d Dep’t 2003). “Profits lost are generally disallowed, though they may be
recoverable if they may reasonably be expected to follow from the conversion . . . .” Fantis
Foods, Inc., 49 N.Y.2d at 326 (internal citations omitted).
Whether UTA Is Entitled to Judgment with Respect to the Common Law Claims
UTA seeks partial summary judgment on Claims Eighteen, Nineteen, and Twenty
arguing that Congress may not recover damages for amounts that UTA did not receive or were
repaid, because each of Congress’ common law claims is premised on a defendant’s unjustified
retention of funds. In total, Congress seeks to recover $1,762,530, representing direct
transactions totaling $322,000 and indirect transactions totaling $1,440,530. UTA seeks
judgment as to $313,000 in direct transfers and $149,650 in transfers from Crystal Clear.
UTA Denies Receiving $13,100 UTA argues that there is no genuine dispute as to a
material fact with respect to whether it received $13,100 in direct transfers from Allou after
September 4, 2001. UTA denies that it received these funds, and argues that Congress has not
come forward with evidence sufficient to show that it did. These transfers are included within
the $31,900 in transfers discussed in connection with the Trustee’s fraudulent transfer claims,
and are comprised of transfers in the amounts of $2,000, $3,600, $2,500, $500, $500, and
$4,000. As discussed above, the evidence presented by Congress with respect to these transfers
is insufficient to create a genuine dispute as to a material fact concerning UTA’s receipt of
$13,100. And each of the common law claims requires that the defendant received the funds at
material fact with respect to whether it received the $13,100, and Congress has not come forward
with evidence sufficient to create a genuine dispute as to a material fact concerning UTA’s
receipt of these funds. Accordingly, UTA’s motion for partial summary judgment with respect
to Congress’ claims under New York common law to recover these funds is granted.
UTA Argues that it Repaid $300,000 UTA argues that there is no genuine dispute as to a
material fact concerning whether it repaid $300,000 to Allou in connection with the round-trip
transaction. Congress does not dispute that UTA repaid this amount, but argues that as a matter
of equity and good conscience, UTA should not receive a credit for this repayment because it
was involved in the Jacobs’ fraudulent scheme.
Courts may weigh the equities of a case in considering the appropriate measure of
damages on a claim for unjust enrichment or money had and received. Here, as discussed above
in connection with the Plaintiffs’ aiding and abetting claims there are genuine disputes as to
material facts concerning whether UTA was a knowing participant in the Jacobs’ misconduct.
And there is a genuine dispute as to a material fact with respect to the benefit conferred upon
UTA and the measure of damages necessary to make Congress whole with respect to these
But these equitable considerations do not have the same role in considering the
appropriate measure of damages on a conversion claim. As a result, based on the entire record,
UTA has shown that there is not a genuine dispute as to a material fact with respect to whether
this repayment should be taken into account in fixing damages with respect to Congress’
conversion claim, and Congress has not come forward with evidence sufficient to create a
genuine dispute as to a material fact with respect to this matter.
Accordingly, based on the entire record, UTA’s motion for partial summary judgment on
grounds that it made $300,000 in repayments with respect to Congress’ unjust enrichment and
money had and received claims is denied and with respect to Congress’ conversion claim is
UTA Denies Receiving $149,650 UTA argues that there is no genuine dispute as to a
material fact concerning whether it received a $149,650 transfer from Crystal Clear. UTA
contends that it has no record of receiving these transfers, and that Congress has not come
forward with evidence sufficient to show that it did.
As discussed above in connection with UTA’s request for partial summary judgment on
the Trustee’s DCL claims to recover two transfers from Crystal Clear totaling $224,630, the
evidence presented with respect to this transfer, which was made after September 4, 2001, is
insufficient to create a genuine dispute as to a material fact concerning UTA’s receipt of it. And
each of the common law claims requires that the defendant receive the funds at issue.
material fact with respect to whether it received $149,650 from Crystal Clear, and Congress has
not come forward with sufficient evidence to create a genuine dispute as to a material fact
concerning this element of its claims. Accordingly, UTA’s motion for partial summary
judgment with respect to Congress’ claims under New York common law to recover these funds
For the reasons stated herein, and based on the entire record, UTA’s motion for partial
summary judgment is granted in part and denied in part as reflected in this Memorandum
Decision. An order in conformity with this Memorandum Decision shall be entered
S/ Elizabeth S. Stong
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