United States District Court, E.D. New York
For The Brown Publishing Company Liquidating Trust, Plaintiff: Sonya J. Brouner, Law Office of Sonya J. Brouner, Rye, NY.
For AXA Equitable Life Insurance Company, Defendant: Wendy G. Marcari, LEAD ATTORNEY, Epstein Becker & Green, P.C., New York, NY.
Sandra J. Feuerstein, United States District Judge.
On July 8, 2013, appellant The Brown Publishing Company Liquidating Trust (" appellant" or " the Trust" ), the successor in interest to The Brown Publishing Company (" BPC" ), filed in the United States Bankruptcy Court for the Eastern District of New York (" the bankruptcy court" ) a notice of appeal to this Court from a memorandum decision and order of the bankruptcy court (Eisenberg, U.S.B.J.), dated June 24, 2013, granting the motion of appellee AXA Equitable Life Insurance Company (" AXA Equitable" ) pursuant to Rule 56(c) of the Federal Rules of Civil Procedure, made applicable to bankruptcy proceedings by Rule 7056 of the Federal Rules of Bankruptcy Procedure (" the Bankruptcy Rules" ), for summary judgment dismissing the Trust's complaint against it. The notice of appeal and record on appeal were transmitted to this Court on August 19, 2013. For the reasons set forth below, the memorandum decision and order of the bankruptcy court is affirmed in part and remanded in part.
A. Factual Background
The following facts are undisputed:
On or about March 18, 2005, AXA Equitable issued a Flexible Premium Joint Survivorship Universal Life Insurance Policy, insuring the lives of Clarence J. Brown and Joyce E. Brown (" the Insureds" ) under policy number 154 225 052 (" the Policy" ), to B's Nest Ohio General Partnership (" B's Nest" ), as the owner and beneficiary of the Policy. (AXA Equitable's " Local Rule 7056-1 Statement of Undisputed Facts in Support of Motion for Summary Judgment" [" AXA's 7056-1 Stat." ], ¶ ¶ 1-3; Appellant's " Statement pursuant to Rule 7056" [" Appellant's 7056 Stat." ], ¶ ¶ 1, 4-6, 8). At all relevant times, the Insureds' sons, Roy Brown and Clarence " Clancy" Brown (collectively, " the Brown brothers" ), were the general partners of B's Nest. (Appellant's 7056 Stat., ¶ 1; Declaration of Leslie Carpenter in Support of AXA Equitable's Motion for Summary Judgment [" Carpenter Decl." ], ¶ 6).
The Policy contains the following relevant provisions:
1. " [P]remiums may be paid at any time and in any amount after an initial premium payment [of twenty-four thousand three hundred seven dollars and eighty-five cents ($24,347.85)] and subject to certain minimums and maximums[,]" (Carpenter Decl., ¶ 9(a); see Appellant's 7056 Stat., ¶ 10);
2. " [C]ertain specified deductions [are taken] from the Policy Account by AXA Equitable[,]" (AXA's 7056-1 Stat., ¶ 7), including monthly deductions in " an amount to cover an administrative charge, the cost of insurance and the cost of any benefits provided by riders to the Policy," (Carpenter Decl., ¶ 9(e); see Appellant's 7056 Stat., ¶ 13)
3. " AXA Equitable deducts from premiums received a premium charge and any overdue monthly deductions[,]" (Carpenter Decl., ¶ 9(e)), then " net premiums are deposited into B's Nest's policy account (the 'Policy Account'), which earns interest[,]" (id.; AXA's 7056-1 Stat., ¶ 4);
4. Other than those " limited deductions specified in the Policy, AXA Equitable may not deduct for itself or any other party any amount from the Policy Account except upon the direction of B's Nest as the owner of the Policy[,]" (AXA's 7056-1 Stat., ¶ 7);
5. " B's Nest may take a loan on the Policy while it has a loan value[,]" (id., ¶ 5; see Appellant's 7056 Stat., ¶ 14), and " [a]ny amount on loan is part of [B's Nest's] Policy Account[,]" (Carpenter Decl., ¶ 9(d));
6. B's Nest may also " give up the Policy for its cash surrender value at any time while either or both Insureds are living  [and] [t]he cash surrender value on any date is equal to the amount in the Policy Account on that date minus any applicable surrender charge[,]" (id., ¶ 9(c); see
Appellant's 7056 Stat., ¶ 15) and
7. " The death benefit is the greater of (a) the base policy face amount, or (b) a percentage of the amount in the Policy Account on the date of death of the second of the Insureds to die[,]" (id., ¶ 9(f)).
According to AXA Equitable, " B's Nest had exclusive dominion and control over the Policy Account and in fact exercised such dominion and control by taking loans against the Policy Account's cash value[,]" (AXA's 7056-1 Stat., ¶ 14), whereas it " was not free to use the monies [in the Policy Account] as it wished[.]" (Id. ¶ 15).
Pursuant to the terms of a Split Dollar Life Insurance Agreement between BPC and B's Nest, BPC made four (4) premium payments to AXA Equitable on account of the Policy on December 22, 2006, December 20, 2007, January 26, 2009 and October 1, 2009, in the aggregate amount of three hundred thousand dollars ($300,000.00) (" the Transfers" ). (Appellant's 7056 Stat., ¶ 2). According to AXA Equitable, " [i]n accordance with the terms of the Policy, [it] deposited the net premiums into [the] interest-bearing [P]olicy [A]ccount * * * owned by * * * B's Nest * * *." (AXA's 7056-1 Stat., ¶ 12). The Policy Account " earns interest at rates declared by [AXA Equitable] periodically[,] * * * not * * * less than 3% on an annual basis." (Appellant's 7056 Stat., ¶ 9).
On April 30, 2010, BPC filed in the bankruptcy court a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code (" the Bankruptcy Code" ). (Compl., ¶ 8 & n. 1).
Between August 20, 2010 and February 28, 2012, B's Nest took four (4) loans on the Policy, (AXA's 7056-1 Stat., ¶ 5), in the total amount of one million seventy-five thousand dollars ($1,075,000.00), (Carpenter Decl., ¶ 12), of which they repaid four hundred forty-five thousand one hundred seventy-four dollars and ninety-six cents ($445,174.96) on December 17, 2010. (Id., ¶ 13).
On June 16, 2011, the bankruptcy court confirmed BPC's Plan of Reorganization,
(Compl., ¶ 9), which became effective on June 22, 2011. (Compl., ¶ 10). Pursuant to paragraph nine (9) of the Confirmation Order, and certain articles of the Plan, " all property of [BPC's] estate * * * that [BPC] * * * and/or [its Estate] may hold against any Person * * * vested in the [Trust] and the Liquidating Trustee was given the sole and absolute discretion 'to pursue or not to pursue, settle, compromise or abandon any and all claims and Causes of Action as he determines is in the best interests of the beneficiaries of the [Trust] and consistent with the purposes of [the] [Trust].'" (Compl., ¶ 12).
B. Procedural History
On April 30, 2012, the Trust commenced an adversary proceeding against AXA Equitable in the bankruptcy court pursuant to, inter alia, 11 U.S.C. § § 544(b) and 548, and Ohio Rev. Code 1336.04, seeking to avoid the Transfers on the basis, inter alia, that they were fraudulent conveyances by BPC on behalf of B's Nest. The third cause of action in the complaint alleges, inter alia, that appellant " is entitled to avoid each Transfer * * * pursuant to sections 544(b) and 548 of the Bankruptcy Code and [AXA Equitable] is the initial, immediate or mediate transferee with respect to such Avoided Transfers within the meaning of section 550 of the Bankruptcy Code." (Compl., ¶ 24).
In its answer, dated July 13, 2012, AXA Equitable generally denies the allegations in the complaint and raises thirteen (13) defenses, including, inter alia, that appellant " may not recover the alleged [T]ransfers described in the Complaint pursuant to 11 U.S.C. Section 550(b)." (Ans., ¶ 37).
On or about February 4, 2013, AXA Equitable moved in the bankruptcy court pursuant to Rule 56 of the Federal Rules of Civil Procedure, as made applicable to the bankruptcy court by Rule 7056 of the Bankruptcy Rules, for summary judgment dismissing the complaint in the adversary proceeding against it on the basis that it " was the 'mere conduit' of the Equitable Transfers and therefore as a matter of law cannot be held liable for the Equitable Transfers under Bankruptcy Code section 550." (AXA Equitable's " Memorandum of Law in Support of Motion for Summary Judgment" [" SJ Mem." ] at 3). In opposition, the Trust contended that AXA Equitable is an initial transferee within the meaning of section 550 of the Bankruptcy Code because it has dominion and control over the premiums paid to it by BPC and the money in the Policy Account, insofar as, inter alia, it " had the authority to decline premium payments, to decline partial withdrawals to B's Nest, to reject withdrawal of the Policy Account and to defer payment of net cash surrender value for up to six months after requested ...