The opinion of the court was delivered by: MCCURN
MEMORANDUM-DECISION & ORDER
In this bench trial, the court is called upon to determine whether Harry E. Goetzmann, Jr. (the "Judgment Debtor") made transfers of property with the actual intent to hinder, delay, or defraud his creditors. In addition, the court must determine whether the Judgment Debtor's wife Sylvia Goetzmann ("S. Goetzmann") and son Eric Goetzmann ("E. Goetzmann") (collectively "Respondents") received the Judgment Debtor's property with the actual intent to hinder, delay, or defraud the Judgment Debtor's creditors.
This action was commenced pursuant to Rule 69(a) of the Federal Rules of Civil Procedure and Article 52 of the New York Civil Practice Law and Rules. In this action, the Trustee invokes New York's Uniform Fraudulent Conveyance Act to set aside numerous alleged fraudulent transfers totaling more than $ 5.5 million made by the Judgment Debtor to S. Goetzmann and E. Goetzmann. Essentially, the Trustee sets forth three causes of action in an effort to set aside the conveyances and reach the Judgment Debtor's assets: (1) New York Debtor and Creditor Law ("DCL")
§ 273 on the basis that the transfers rendered the Judgment Debtor insolvent and that these transfers lacked fair consideration; (2) DCL § 273-a on the basis that the Judgment Debtor made these transfers while an action was pending against him, and (3) DCL § 276 on the basis that the Judgment Debtor made these transfers with the actual intent to hinder, defraud, or delay his creditors. In addition, the Trustee sets forth a cause of action pursuant to § 276-a seeking an award of attorneys' fees.
Subsequent to filing the petition, the Trustee moved for summary judgment on all the causes of action asserted in his petition. On January 26, 1998, the court granted summary judgment to the Trustee on his causes of action pursuant to DCL §§ 273 and 273-a, setting aside nearly all of the conveyances made to S. Goetzmann and E. Goetzmann as constructively fraudulent. See Hassett v. Goetzmann, 217 B.R. 9, 20 (N.D.N.Y. 1998).
In addition, pursuant to DCL § 278, the court awarded the Trustee judgments against S. Goetzmann in the amount of $ 416,491 and against E. Goetzmann in the amount of $ 126,500, in the event the assets set aside were insufficient to satisfy the judgments. See id. at 21-22. The court denied the motion pursuant to DCL § 276 on the basis that the Judgment Debtor presented a question of fact with respect to whether he actually intended to hinder, delay, or defraud his creditors in connection with the asset transfers. See id. at 21. In addition, the court denied the Trustee's request for attorneys' fees at that stage in the litigation, primarily because they were predicated on a finding pursuant to DCL § 276 of actual intent by the Judgment Debtor to defraud his creditors. See id. at 22.
Subsequent to its decision, the court stayed enforcement of the judgments against S. Goetzmann and E. Goetzmann and set the remaining causes of action pursuant to DCL §§ 276 and 276-a down for trial which was held on June 1, 1998 through June 3, 1998. For the reasons that follow, the court finds that the Judgment Debtor, as well as S. Goetzmann and E. Goetzmann, acted with intent to hinder, delay, or defraud the Judgment Debtor's creditors in connection with the Judgment Debtor's fraudulent scheme to conceal his assets from his creditors.
On January 13, 1989, Continental Information Systems Corporation ("CIS") filed voluntary petitions in the United States Bankruptcy Court for the Southern District of New York under Chapter 11 of the United States Bankruptcy Code. See Petition at P 12. The Judgment Debtor founded CIS and prior to the appointment of the Trustee he was Chairman and Chief Executive Officer ("CEO") of CIS. See id. at P 13.
On June 11, 1990, the Trustee commenced an adversary proceeding in the Bankruptcy Court against the Judgment Debtor seeking to recover $ 364,781 in bonuses paid to the Judgment Debtor by CIS, two weeks before CIS filed for Chapter 11 protection and at a time when CIS was insolvent. See Hassett v. Goetzmann (In re CIS Corporation), 195 B.R. 251, 252 (Bankr. S.D.N.Y. 1996). Ultimately, on April 15, 1996 the Bankruptcy Court issued its decision ordering that the Trustee may recover the entire $ 364,781 payment to the Judgment Debtor plus interest dating from March 22, 1990. On July 1, 1996, the Trustee registered this final judgment in this district pursuant to 28 U.S.C. § 1963. See Docket Document No. 23.
On April 29, 1991, the Trustee commenced another adversary proceeding against the Judgment Debtor in the Bankruptcy Court seeking recovery of $ 51,700 in allegedly improper fringe benefits that CIS paid to the Judgment Debtor. See Petition at P 14. The Trustee moved for summary judgment and on November 18, 1993, the Bankruptcy Court issued an order directing the entry of a judgment against the Judgment Debtor for the sum of $ 51,700 plus pre-and post-judgment interest. See Id. at P 15. On March 10, 1995, the Trustee registered this final judgment in this district pursuant to 28 U.S.C. § 1963. See Docket Document No. 1.
The Judgment Debtor maintains that he lacks any assets and therefore cannot satisfy the judgments against him for essentially two reasons. First, the Judgment Debtor conveyed everything that he owned of value to family members around the time CIS was under financial distress. In March of 1989, after he received his bonuses and fringe benefits from CIS-- and just two months after CIS filed for bankruptcy--the Judgment Debtor entered into an oral agreement with S. Goetzmann to transfer nearly all of his tangible assets to her. Subsequent to the oral agreement and at the request of S. Goetzmann, the Judgment Debtor drafted and executed a written acknowledgment of the oral agreement ("Assignment Agreement"). See Trustee's Exhibit ("Exh.") "1" (Assignment Agreement). Although this Assignment Agreement is dated "as of" March 15, 1989, the Judgment Debtor admits that the Assignment Agreement was actually prepared and executed sometime after that date.
The Judgment Debtor contends that the assets listed in the Assignment Agreement were transferred to S. Goetzmann in consideration for her pledging to Merchants National Bank and Trust Company of Syracuse ("MNB") her one-half interest in the marital residence and an adjacent parcel of undeveloped lakefront property held by the Goetzmanns in tenancy by the entirety. The total estimated value of the assets transferred to S. Goetzmann exceeded $ 5 million,
while the value of the assets pledged by S. Goetzmann approximated $ 800,000.
See Trustee's Exhs. "1," "45" (financial statements). The Judgment Debtor testified that S. Goetzmann demanded that the assets be transferred to her and that the Judgment Debtor transferred them to her in large part because it "was the only fair thing to do."
In addition to the assets that were transferred to S. Goetzmann, the Judgment Debtor also transferred nearly $ 400,000 to E. Goetzmann. In November 1988, at a time when CIS was under financial distress, the Judgment Debtor delivered to E. Goetzmann $ 195,000 and requested that E. Goetzmann open a checking account at Citibank in E. Goetzmann's name and tax identification number. See Trustee's Exh. "7" (Citibank account statement). In the period between November 22, 1988 and December 19, 1988, the Judgment Debtor transferred $ 261,000 to E. Goetzmann for deposit in the Citibank account. See Trustee's Exh. "7." Significantly, the Judgment Debtor explained that the purpose of transferring this money to E. Goetzmann was to prevent MNB from exercising its right of offset in the event the Judgment Debtor defaulted on his loans from MNB.
At the time of the transfers, E. Goetzmann was 25 years old, held a bachelor's degree in business administration from Miami University in Oxford, Ohio, and was working at First Albany Corp. as a money manager. The Judgment Debtor testified that he did not tell his son why he wanted him to open the account and that his son did not inquire why his father wanted the account opened. E. Goetzmann testified that he was never told why his father wanted the account opened and that after he opened the account, he signed books of blank checks on his account and then delivered the signed blank checks to the Judgment Debtor. E. Goetzmann also testified that at the time he set up this account arrangement at Citibank he was unaware of his father's financial situation and unaware of his father's specific creditors although he "assumed" that his father owed money because "everyone has creditors." Notably, E. Goetzmann was aware that his father was the CEO of CIS and that he "may have read about claims of [his father's] creditors" in the local newspapers around the time he set up the account at Citibank, but that these newspaper articles did not "mean much" to him. The statements for his Citibank account were received at a post office box in Skaneateles, New York, where they were apparently picked up by the Judgment Debtor. See Trustee's Exh. "7." E. Goetzmann denied that the reason he set up this arrangement was so that the money appeared to be in his name, and not the Judgment Debtor's name. E. Goetzmann testified that he never intended to hinder, delay, or defraud any of his father's creditors.
In addition to transferring all of his assets, the second reason the Judgment Debtor lacks assets to satisfy the judgments against him is that he generates no income although he is employed and works between "35 and 125 hours a week." Currently, the Judgment Debtor is the president of Schomann International Corp. ("SIC"), a closely-held corporation that was incorporated by S. Goetzmann in June 1991. S. Goetzmann is also an officer of SIC and its majority shareholder. SIC was capitalized by S. Goetzmann using the proceeds from her sale of Schomann Entertainment Corporation and its subsidiaries-- which sold for an amount in excess of $ 5 million.
See Trustee's Exh. "36" (stock purchase agreement); Exh. "37" (asset purchase agreement). The Judgment Debtor handles all of the finances for SIC and has check writing authority for SIC, which has a cash-on-hand position of more than $ 1 million. While SIC currently pays only the Judgment Debtor's expenses, the Judgment Debtor and S. Goetzmann hope to reap the benefits of their efforts in the future. The Judgment Debtor has no ownership interest in SIC, nor does he maintain a claim for deferred compensation.