The opinion of the court was delivered by: Richard J. Holwell, District Judge:
MEMORANDUM OPINION AND ORDER
Appellant Michael O'Leary ("Trustee"), as Chapter 7 Trustee, appeals from an order of the United States Bankruptcy Court for the Southern District of New York denying his motion for summary judgment and dismissing this adversary proceeding to avoid a transfer by defendant Michael S. Pascazi ("Pascazi"), a principal of debtor Fiber Optek Interconnect Corp. ("Fiber Optek"). The Trustee argues that the Bankruptcy Court erred in declining to apply collateral estoppel to a state court judgment so as to prevent Pascazi from asserting that the transfer at issue was not fraudulent. The Trustee contends that the doctrine of collateral estoppel applies because the state court actually decided that the transfer was fraudulent and Pascazi had every opportunity to argue the contrary. For the reasons stated below, the order of the Bankruptcy Court is affirmed.
The following facts are taken from the record in the adversary proceeding, see O'Leary v. Pascazi, Adversary Proceeding 07-09015(Bankr. S.D.N.Y.), and the record in the Chapter 7 bankruptcy proceeding, see In re Fiber Optek Interconnect Corp., Ch. 7 Case No. 05-30015 (Bankr. S.D.N.Y.).*fn1
Fiber Optek supplies fiber optic network equipment and services. Its principals are Pascazi and Frank P. Zarzeka ("Zarzeka"). On February 23, 1998, Fiber Optek entered into an agreement with Optek Consultants, Inc. ("Consultants") whereby Fiber Optek agreed to pay Consultants ten percent of all gross proceeds Fiber Optek earned from contracts Consultants secured for Fiber Optek. (A.P. D.I. 128 Ex. F.) The agreement referred to one contract in particular: a contract between Fiber Optek and Five Com, Inc. whereby Fiber Optek agreed to provide materials and perform work for Five Com. (AP D.I. 115 ("Trustee Ex.") Ex. O. at 1.) It is undisputed that from October 1998 to early 2001, Fiber Optek performed under the Five Com contract and earned gross proceeds. (Id. at 2.) During that period, Five Com changed its name to Neon Optica, Inc. ("Neon"). (Id.)
In 2001, a dispute arose between Neon and Fiber Optek regarding their agreement. On August 16, 2001, Neon brought suit in this district against Fiber Optek, Pascazi, and Zarzeka, No. 01-CV-7661 ("the Neon Litigation"). (Id.) Fiber Optek brought 59 counterclaims to Neon's suit, none of which sought any compensation for Pascazi or Zarzeka. (Id. at 5.) In January 2002, the parties settled the Neon Litigation pursuant to an agreement ("Settlement Agreement") which provided that Neon would pay $350,000 to Fiber Optek and $625,000 each to Pascazi and Zarzeka. (Id.) Paragraph 1.3 of the Settlement Agreement provided that "the signature of Fiber Optek on this Settlement Agreement shall constitute direction by [Fiber Optek] to make payments of settlement funds directly to Messrs. Pascazi and Zarzeka." (Id. at 6.)
On February 1, 2002, Neon transferred funds in the amounts specified in the Settlement Agreement. (A.P. D.I. 128 Ex. F.)On February 15, 2002, Pascazi allegedly transmitted to Consultants a Final Commission Reconciliation Statement which represented that Neon had paid $350,000 to Fiber Optek as part of the settlement. (Trustee Ex. K at ¶ 41.) The Reconciliation Statement did not disclose the $1.25 million that had been paid to Pascazi and Zarzeka as part of the settlement. (Id.)
On March 22, 2002, Consultants brought suit (the "Consultants Litigation") against Fiber Optek in New York Supreme Court seeking damages for unpaid commissions unrelated to the Settlement Agreement. (See Trustee Ex. K.) After filing the initial complaint, Consultants discovered the complete terms of the Settlement Agreement and amended its complaint to add Pascazi and Zarzeka as individual defendants. In its amended complaint, Consultants asserted two claims relevant here. For its third cause of action, Consultants alleged in relevant part as follows:
that "of the fifty nine counterclaims alleged by Optek, Pascazi and Zarzeka [in the Neon Litigation], all damages alleged as against NEON were for damages allegedly suffered by Optek . . . and not damages suffered by Pascazi or Zarzeka in their individual capacities"; that "Pascazi and Zarzeka used their corporate status to direct and cause the Settlement Agreement to include a provision that both Pascazi and Zarzeka were to receive the sum of $625,000 each from NEON which was otherwise due and payable to Optek"; that the payments to Pascazi and Zarzeka were "without consideration, as demonstrated by the language included in the Settlement Agreement at [Paragraph 1.3]";
that the Final Commission Reconciliation falsely represented that Neon had paid $350,000; that Fiber Optek knew that the Final Commission Reconciliation was false; that Consultants relied on Fiber Optek's misrepresentation; that "diversion of payment to . . . Pascazi and Zarzeka, and the resulting transfer of corporate assets was done for the purpose of avoiding Optek's obligation to Fiber Consultants"; and that the "diversion of the aggregate sum of $1,250,000 by Pascazi and Zarzeka was a fraudulent conveyance." (Trustee Ex. K ¶¶ 38-48.). Consultants alleged that these actions had caused damage "in a sum not less than $125,000," or ten percent of the alleged $1.25 million fraudulent conveyance. (Id. at ¶51.)
Consultants' fourth cause of action was similar. As to that cause of action, Consultants incorporated its allegations as to its third cause of action and further alleged in relevant part as follows:
that "using their status as corporate officers, Pascazi and Zarzeka exercised their collective control over Optek, in the context of the Settlement Agreement, to direct that NEON remit directly to Pascazi and Zarzeka the aggregate sum of $1,250,000";
that "[p]ayment of the aforementioned $1,250,000 to Pascazi and Zarzeka directly was made to hinder and delay Fiber Consultants' right to collect Commissions from Optek, pursuant to the ...