The opinion of the court was delivered by: Robert P. Patterson, Jr., U.S.D.J.
On October 28, 2010, a jury returned a unanimous verdict awarding the Trustee, David Kittay ("Trustee" or "Plaintiff") $300,000 in damages from Defendant, Joseph Korff ("Korff" or "Defendant") for his receiving that sum in connection with a real estate sale (the "deal" or "transaction") by 455 Central Park West, LLC ("455 CPW") to Columbia University ("Columbia") on July 30, 2004, from an insolvent Debtor, Douglas Palermo ("Palermo" or "Debtor") without providing fair consideration. On November 4, 2010, the Defendant moved for reconsideration of the Court's determination, on the eve of trial, that the Plaintiff's Complaint ("Compl.") was timely filed. That motion for reconsideration was denied by this Court's Order and Opinion dated February 4, 2011.
On February 3, 2011, the Trustee moved this Court to determine the amount of attorneys' fees to be paid by Korff pursuant to New York Debtor-Creditor Law ("DCL") § 276-a and Fed.R.Civ.P. 54(d), and for an award of prejudgment interest pursuant to Fed.R.Civ.P. 59(e). ("Trustee Fees Mem."). The motion was accompanied by the Declaration of Lita Beth Wright, Esq. ("Wright Fees Decl."). On February 17, 2011, this Court entered judgment for the Trustee in the amount of $477,090.41 including $177,090.41 in prejudgment interest. On February 18, 2011, the Defendant submitted its memorandum in opposition to the Trustee's motion for attorneys' fees ("Def. Fees Opp. Mem.") and the Declaration of Carl W. Oberdier, Esq. ("Oberdier Fees Decl."). On February 25, 2011 the Trustee submitted its reply memorandum ("Trustee Fees Reply Mem.") and accompanying declaration of Bonnie A. Tucker, Esq. ("Tucker Fees Decl.").
On March 18, 2011, the Defendant renewed his motion for a judgment as a matter of law pursuant to Fed. R. Civ. P. 50(b), or in the alternative, for a new trial pursuant to Fed. R. Civ. P. 50(b) and 59(a). ("Def. JNOV Mem."). The Trustee submitted its memorandum of law in opposition to this motion on April 15, 2011. ("Trustee JNOV Opp. Mem."). Korff submitted his reply papers on May 3, 2011. ("Def. JNOV Reply Mem."). On May 17, 2011, the Trustee submitted the Supplemental Declaration of Lita Beth Wright, Esq. ("Supp.Wright Fees Decl.") in further support of its fees motion. This Declaration detailed the attorneys' fees and expenses incurred by the Trustee in responding to Defendant's papers since the time the Trustee's fee motion was fully submitted.
For the following reasons, the Defendant's motion for a judgment as a matter of law pursuant to Fed. R. Civ. P. 50(b), or for a new trial pursuant to Fed. R. Civ. P. 50(b) and 59(a), is denied and the Trustee's motion for attorneys' fees pursuant to DCL § 276-a and Fed. R. Civ. P. 54(d) is granted.
On October 14, 2005, the Debtor, Palermo, filed for bankruptcy. On October 12, 2007, the Trustee filed an adversary complaint naming Palermo, Korff, and others as Defendants in an action seeking to recover payments made to those individuals prior to Palermo's filing for bankruptcy but after his insolvency. (Compl. ¶ 46). The Bankruptcy Judge ordered the Trustee to file separate complaints, and on January 7, 2008, the Trustee filed the instant complaint in the United States Bankruptcy Court for the Southern District of New York seeking, pursuant to DCL § 273-76, to recover a $300,000 transfer to Korff dated July 30, 2004. (See Compl.) Korff filed an answer to the complaint through his then counsel, Cole Schotz, Meisel, Forman & Leonard, P.A. ("Cole Schotz") on February 20, 2008. (Wright Fees. Decl. at Ex. J.) On or about August 7, 2008, Korff moved to withdraw the reference from the Bankruptcy Court. (Id. at Ex. L.) On December 10, 2008, Judge Karas granted Korff's motion to withdraw the reference and directed that such withdrawal would take effect once discovery had been completed. (Id.) Judge Karas's grant of the motion was made "on the condition that no dispositive motions will be filed before trial." (Id.) Ten months later, on October 5, 2009, Korff's attorneys, Cole Schotz, moved to withdraw as his counsel. Cole Schotz's motion was granted on December 1, 2009. Over the next several months, Korff, formerly a practicing tax attorney, appeared pro se in this action. On July 20, 2010, Judge Karas ordered that a pre-trial order be filed on September 30, 2010. On September 28, 2010, by consent of both parties,*fn2 the deadline for the filing of the pre-trial order was extended to October 7, 2010. Prior to the deadline for submitting the joint pre-trial order, the case was reassigned to this Judge, who on October 1, 2010, set the trial date of October 25, 2010.
On the eve of trial, on October 19, 2010, Carl Oberdier ("Oberdier") of Schiff Hardin LLP ("Schiff Hardin") filed an appearance as additional counsel to represent Korff in this litigation. Between October 19, 2010 and the commencement of trial one week later, Korff's new counsel made multiple in limine motions requiring response by the Trustee. (Trustee Fees Mem. at 6.) The motions concerned the "adjournment of the trial; the purported collateral estoppel effect of a decision in another adversary proceeding [against a third party] related to the Debtor['s transfer of property]; the denial of [the] use . of the July 9, 2007 decision of [the Bankruptcy Judge] denying the Debtor a discharge [as evidence at trial]; the use of depositions taken in other adversary proceedings related to the Debtor [in this] trial; the Trustee's ability to offer his bookkeeper's lay opinion testimony at trial; the timeliness of the Trustee's 11 U.S.C. § 548 claim;.the authenticity, relevance and hearsay objections to nearly all of the Trustee's trial exhibits raised by Korff the day before trial began; the issuance of a trial subpoena by alternative process to the Debtor due to the Debtor's repeated attempts to evade service; and. the dismissal [of the case] on statute of limitation grounds." (Id. at 6-7.)
The trial was held from October 25, 2010 to October 28, 2010. Prior to the submission of the case to the jury, the Defendant moved for judgment as a matter of law pursuant to Fed. R. Civ. P. 50. The Court denied the motion. (Tr. at 576.) Following the denial of Korff's motion, Plaintiff moved the Court for an order amending the complaint pursuant to Fed. R. Civ. P. 15 to add a claim for attorneys' fees pursuant to DCL § 276-a. On October 28, 2010, the Court granted Plaintiff's motion and submitted to the jury the issue of whether Korff had the actual intent to defraud the Debtor's creditors. (Tr. at 700.) On October 28, 2010, the jury returned a verdict for the Trustee on all claim including its claim under DCL § 276-a.
III.Motion for a Judgment as a Matter of Law, or in the Alternative, for a New Trial
The Court must set aside a verdict and enter judgment as a matter of law pursuant to Fed. R. Civ. P. 50(b) when "(1) there is such a complete absence of evidence supporting the verdict that the jury's finding could only have been the result of sheer surmise and conjecture, or (2) there is such an overwhelming amount of evidence in favor of the movant that reasonable and fair minded [persons] could not arrive at a verdict against [it]." Myers v. County of Orange, 157 F.3d 66, 73 (2d Cir. 1998) (citation omitted). When evaluating a Rule 50(b) motion, the reviewing Court must view the evidence in "the light most favorite to the nonmovants." Sirota v. Solitron Devices, Inc., 673 F.2d 566, 573 (2d Cir. 1982). "Credibility determinations, the weighing of evidence and the drawing of legitimate inferences from the facts are jury functions, not those of a judge." Anderson v. Liberty Lobby Inc., 477 U.S. 242, 255 (1986). A party, however, cannot raise a ground in the Rule 50(b) motion that it did not specifically raise in its motion for a directed verdict at the close of evidence. Doctor's Assocs., Inc. v. Weible, 92 F.3d 108, 112 (2d Cir. 1996); see also Cruz v. Local Union No. 3 of Int'l Broth. of Elec. Workers, 34 F.3d 1148, 1155 (2d Cir. 1994) ("[J]udgment a matter of law is limited to those issues specifically raised in [a] prior motion for a directed verdict.").
ii. Fed. R. Civ. P. 59(a)
In order to succeed on a motion for a new trial pursuant to Fed. R. Civ. P. 59(a), the movant must show that the jury reached "a seriously erroneous result or.[that] the verdict is a miscarriage of justice." Manley v. AmBase Corp., 337 F.3d 237, 245 (2d Cir. 2003). Even a "trial judge's disagreement with [the] jury's verdict is not sufficient reason to grant a new trial." Mallis v. Bankers Trust Co., 717 F.2d 683, 691 (2d Cir. 1983).
The Defendant puts forth five arguments as to why he is entitled to a judgment as a matter of law pursuant to Fed. R.Civ. P. 50(b), or to a new trial pursuant to Fed. R. Civ. P. 50(b) and 59(a). Korff argues: 1) that he is entitled to judgment on the Trustee's claims pursuant to DCL §§ 273-275 because the jury could not have reasonably concluded that the $300,000 transfer lacked fair consideration and because "good faith" existed as a matter of law; 2) that he is entitled to judgment on the Trustee's claim pursuant to DCL § 276 because the jury could not have reasonably found that the Debtor, Palermo, had the actual intent to defraud his creditors; 3) that the Trustee is not entitled to an award of attorneys' fees under DCL § 276-a because the jury could not have reasonably found that Korff had the actual intent to defraud Palermo's creditors; 4) that Korff is entitled to judgment as an innocent creditor under DCL § 278; and 5) that Korff was entitled to "partial consideration" and "alter ego" instructions and that the Court's failure to give these instructions, and the Court's instruction on "constructive knowledge" were improper requiring a new trial.
These arguments will be addressed in turn.
i. Korff is Not Entitled to Judgment as a Matter of Law on the Trustee's Claims Pursuant to DCL §§ 273-75 because a Reasonable Jury Could Have Found that the Transfer Between Palermo and Korff Lacked Fair Consideration and Good Faith Did Not Exist as a Matter of Law
A transfer may be avoided as constructively fraudulent under § 272 of the DCL if it is made without fair consideration and: "1) the debtor is [or will thereby be] 'rendered insolvent' by the transfer, DCL § 273; 2) the debtor is left with unreasonably small capital for a pending or imminent business transaction, DCL § 274; or 3) the debtor intends or believes that he will incur debts beyond his ability to pay them as they mature, DCL § 275." Liberty Mut. Ins. Co. v. Horizon Bus. Co. Inc., 2011 WL 1131098 at * 5 (E.D.N.Y Feb. 22, 2011) (internal citations omitted).
a.There was evidence from which the jury could reasonably conclude that Palermo was insolvent
The evidence introduced at trial established that Palermo was insolvent well before July 29, 2004, the date of the 455 CPW closing. (Tr. 128-45, 338-42). Palermo testified on direct examination that at the time he filed for bankruptcy on October 14, 2005, he had $5,000 in personal property and over $2 million in liabilities to creditors holding unsecured priority claims. (Id.; see also Trust. Ex. 1.) Palermo also had over $6 million in liabilities to creditors holding unsecured non-priority claims. (Trust. Ex. 1.) Palermo's obligations included $832,000 to the IRS for taxes from 2001 through 2004 (tr. at 128-29, 338-40); $1,133,808 to the State of New Jersey for corporate withholding taxes prior to 2004 (id. at 129); $455,000 for a judgment entered prior to July 29, 2004 by 274 Water Street Corp (id. at 131); $363,068 for a judgment entered prior to July 29, 2004 by Dollar Dry Dock Savings Bank (id,. at 132); $310,000 for a judgment entered in 1989 by Key Borough Enterprises (id. at 144-45); $195,166 for two judgments entered prior to July 29, 2004 by MidAtlantic National Bank (id. at 137); $3,000,000 for judgments entered prior to July 29, 2004 by Morris P. Silver, LLC/Doubet (id. at 138, 227); $169,552 for a judgment entered in 1999 by Richard A. Flintoff (id. at 143); $347,558 for a judgment entered prior to July 29, 2004 by FDIC for Broadway Bank and Trust Co. (id. at 133); $189,136 for a judgment entered in 1988 by Paul Guyet (id. at 143-44); and $440,000 for a judgment entered in 1990 by Citibank (id. at 144.) (Trust. Ex. 83.)
Plaintiff's claims under DCL §§ 273-75 therefore depend on whether fair consideration was provided.
b.There was sufficient evidence for a reasonable jury to conclude that there was no fair consideration
DCL § 272 defines fair consideration:
Fair consideration is given for property, or 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 as compared with the value of the property, or obligation obtained.
As the plain language indicates, the test for fair consideration comes down to two necessary elements: 1) a fair exchange of value between the transferee and transferor; and 2) good faith. Petersen v. Vallenzano, 849 F. Supp. 228, 231 (S.D.N.Y. 1994). Thus, even "where there is a fair exchange of value to satisfy an antecedent debt, the conveyance may be set aside if good faith is lacking." In re Dr. J. Herbert Fill, 82 B.R. 200, 216, (Bankr. S.D.N.Y. 1987). When determining whether there is a claim of fair consideration, or "fair exchange of value," for a conveyance, courts look to the particular facts of each case. Petersen, 849 F.Supp. at 231.
There was sufficient evidence at trial for a reasonable jury to conclude that BTI was an entity controlled by Palermo
In his opening statement, Korff's counsel maintained that there was fair consideration for the $300,000 payment his client received because the money did not come from Palermo, but rather, from 455 CPW in exchange for the "essential advice and work that Mr. Korff did to make that deal happen." (Tr. at 120-21.)*fn3 Similarly, Korff testified that he "was entitled, because of [his] participation in the transaction, for the benefit of Columbia and McLean, to an interest in the fees that were being paid out of the transaction" and that in order to secure getting that money he "had to give them-and did not get the money until [he] gave them on July 30th, 2004, a release; because without that release, [he] would have had a claim against them for potentially a larger share of the fee." (Id. at 409.)
The exhibits at trial showed that on August 28, 2001, Butterfield Trust I ("BTI") by David Buchanan ("Buchanan"), Trustee, and Beekman Street Advisory Corp. ("BSA") by Palermo, President, contracted to provide "strategic financial advisory services" to 455 CPW in connection with its sale of property located at 455 Central Park West, New York City to Columbia. (Trust. Ex. 45, Ex. 1.) The contract provided that BTI, would receive 3% of the total amount paid by Columbia to 455 CPW, and that BSA would receive 1%. (Id.) BSA was admittedly an entity wholly owned and controlled by Palermo. (Tr. at 226-27, 266). A reasonable jury could have concluded from the evidence that BTI was also controlled by Palermo. As admitted by Palermo, BTI was not a trust, but rather, an LLC created for the benefit of Palermo's children. (Id. at 170, 294-95.) Further, Palermo admitted that he had BTI set up, (id. at 170, 178), that BTI was created just to receive a portion of the strategic financial advisory services fee on the 455 CPW transaction even though it had not provided any services to 455 CPW or Columbia (id. at 225-26), that he and BSA provided the services to 455 CPW and Columbia, (id.), and that Korff acted as a consultant "on structure" to Palermo "not directly, but privately." (Id. at 224, 226.) He also testified that BTI's trustee, Buchanan, only helped structure the arrangement between MCL companies and the entities (the "strategic financial advisory services" fee) and that Butterfield Trust did no work with bringing Columbia to the table to buy units of the building at 455 CPW or at the closing. (Id. at 170-71, 176-78.) He also testified that BTI received a fee because Palermo wanted to "segregate the payments." (Id. at 178.)
The Trustee also offered Palermo's prior testimony in which he admitted that the successor trustee of BTI could not make payments from that entity without Palermo's permission.*fn4
On October 20, 2002, the "First Amendment" to the strategic advisory services contract reduced BTI and BSA's percentages to dollar figures-BTI to receive $1,361,640 and BSA to receive $313,880 in addition to the $140,000 it had previously received-for a total fee of $1,815,520, or 4% of the total purchase price. (Trust. Ex. 45.)*fn5
On October 20, 2003, the "Second Amendment," provided that BTI's fee would be reduced by $300,000 and that this amount would be provided to Korff, a new party to the advisory fee agreement, who was not included in the collective definition of "Advisors" in the Second Amendment. (Trust. Ex. 50.) Furthermore, by letter dated July 29, 2004, 455 CPW agreed to "pay such amount directly to BTI (on behalf of the Advisors) or as BTI shall otherwise direct [455 CPW] in writing, at the time of the conveyance of the Pre-Sale Units to Columbia and the payment by Columbia of the purchase price." (Trust. Ex. 57.) From this change, a reasonable jury could conclude that Palermo had arranged that this $300,000 fee be deducted from the fee to be paid to the "trust" for his children and instead be paid to Korff. Moreover, from Palermo's testimony that he was the person who actually engaged in the work with Columbia and 455 CPW and that Korff "consulted with me not directly, but privately," (tr. at 226) a reasonable jury could conclude that Korff's claim that he was entitled to a fee from Columbia and/or 455 CPW (id. at 409) was false and that his claim was for services to Palermo not BTI.
There was sufficient evidence at trial for a reasonable jury to conclude that the $300,000 transfer was not provided from the funds due to be paid by 455 CPW or Columbia
First, the reduction of BTI's fee in the Second Amendment by $300,000, and the provision that the $300,000 be paid to Korff, strongly implies that the "trust" for Palermo's children gave its right to that sum to Korff.
Second, prior to the Second Amendment, in February of 2003, Doubet, one of Palermo's largest judgment creditors, served a restraining notice of $2,537,436.81 on Palermo, 455 CPW, Columbia, and other parties to the transaction. (Tr. 227-28, 281, 293, Trust. Ex. 44.) At the 455 CPW closing, two additional documents-a letter agreement and a release-were executed by the parties. (Trust. Ex. 57, Def. Ex. H.) The July 29, 2004 letter agreement affirmed that Columbia had no responsibility for the payment of any fees in connection with the transaction. (Trust. Ex. 57.) By the July 29, 2004 release, BTI, BSA, N.M. Palermo, Inc., Residual Equity Corporation, Palermo, the Law Firm of Joseph Korff, and PMD Company, in consideration of the payments of fees by 455 CPW to BTI, the Law Firm of Joseph Korff, PMD Company, and the MCL Companies, released Columbia and 455 CPW from any and all causes of action arising out of or in any way connected with 455 Central Park West, New York, NY. (Def. Ex. H.)
The jury had other grounds to believe the defense on opening was misleading about Palermo's role in BTI and the reasons for the $300,000 payment to Korff on July 30, 2004.
Palermo maintained that Buchanan was an independent person who managed BTI but admitted he was equally interested.
QUESTION: Who instructed [Mr. Buchanan] to negotiate?
ANSWER: He was an independent person. *** QUESTION: What services did Butterfield Trust provide to the transaction?
ANSWER: It helped structure the arrangement between MCL companies and the entities. QUESTION: On behalf of Butterfield Trust who performed those services?
THE COURT: What part of the transaction did he provide structure?
THE WITNESS: The advisory service agreement, your Honor.he also negotiated with MCLs to what the structure of the payment would be.
THE COURT: Just the structure of the payment?
THE WITNESS: Mr. Buchanan was in my office for two years. He worked with me on an ongoing basis on many matters.
BY MS. TUCKER: QUESTION: Did you have any involvement in the negotiation of the payment? ANSWER: Yes.
QUESTION: What was your involvement?
ANSWER: The same as Butterfield Trust. *** QUESTION: Did you receive a W-2 or a 1099 from Butterfield Trust?
ANSWER: I think I did, yes (Id. at 171-72.)
*** Plaintiff's counsel then showed Palermo page 91, lines 19-22 of the transcript of his deposition on March 14, 2007.
QUESTION: .[D]oes this refresh your recollection as to the work Butterfield Trust performed with respect to Columbia University and the 455 Central Park West transaction?
ANSWER: I think your question was something else. You asked did Butterfield Trust do any work in relation to the fee agreement I think was your question-or was my answer-not in relationship to the body of work with Columbia University, but it ran to the agreement.
THE COURT: So Butterfield Trust did no work in connection--
THE WITNESS: That's correct.
THE COURT: --with the bringing of Columbia University to the table--
THE WITNESS: That's correct, your Honor. (Id. at 176-77.) *** BY MS. TUCKER: QUESTION: The companies at the top, did Butterfield Trust perform any services to Columbia or the closing after the agreement was signed?
ANSWER: No. (Id. at 178.)
Since Palermo testified that he was the person who actually engaged in the work with Columbia and 455 CPW, and that Korff only consulted with him privately, (id. at 226), a reasonable jury could conclude from this evidence that the $300,000 transfer was a deduction from the "strategic financial advisory fee" to which the preceding agreements had agreed was to be paid to BTI, an entity controlled by Palermo, that Palermo had performed the advisory services and directed that payment for his services be directed to BTI, a company he set up and controlled, and that the $300,000 was not paid to Korff for his services to Columbia or 455 CPW, as Korff's counsel had asserted in opening to the jury and as Korff stated in his testimony.*fn6 (Id. at 120-21.)
Third, Korff's own consolidated version of his payments to and receipts from Palermo corroborated that the $300,000 payment was "received from Palermo." (Def. Ex. T.) No bills for legal or other services by Korff were offered in evidence nor was any contemporary correspondence or documentary evidence showing a change in the structure of the deal offered by Korff to corroborate his claim that the $300,000, or any part of it, was owed to him by 455 CPW or Columbia for advice or services. Indeed, the Trustee also introduced testimony from a 2006 deposition in which Korff testified that he negotiated the $300,000 as "an assignment of fees that were ...