United States District Court, S.D. New York
Norma Knopf and Michael Knopf: Eric W. Berry Berry Law PLLC.
Michael Phillips: Lorraine Nadel Adam Hanan Nadel &
Michael H. Sanford: Michael H. Sanford 23 McKinley Road
OPINION AND ORDER
COTE UNITED STATES DISTRICT JUDGE.
one of three actions before this Court arising from a loan
repayment dispute between plaintiffs Norma and Michael Knopf
(collectively, the “Knopfs”) and pro se defendant
Michael Sanford (“Sanford”) and his company,
Pursuit Holdings, LLC (“Pursuit”). In this
action, the Knopfs also bring claims against defendant
Michael Phillips (“Phillips”) for his purchase of
residential property located at 44 East 67th Street
(“PHC”) from Pursuit. Phillips moves for summary
judgment on the sole remaining claim against him, a claim of
actual and constructive fraudulent conveyance brought under
the New York Debtor and Creditor Law (“DCL”). The
Knopfs move for summary judgment on their breach of fiduciary
duty and alter ego claims against Sanford and on their
allegations of Pursuit's insolvency “at all
relevant times” to this litigation. For the following
reasons, Phillips' motion is granted and the Knopfs'
motion is granted in part.
history of this litigation is described in several prior
Opinions, with which familiarity is assumed. See Knopf v.
Esposito, 17cv5833(DLC), 2017 WL 6210851 (S.D.N.Y. Dec.
7, 2017); Knopf v. Meister, Seelig & Fein, LLP,
15cv5090(DLC), 2017 WL 1449511 (S.D.N.Y. Apr. 21, 2017);
Knopf v. Phillips, 16cv6601(DLC), 2016 WL 7192102
(S.D.N.Y. Dec. 12, 2016); Knopf v. Meister, Seelig &
Fein, LLP, 15cv5090(DLC), 2016 WL 1166368 (S.D.N.Y. Mar.
22, 2016); Knopf v. Meister, Seelig & Fein, LLP,
15cv5090(DLC), 2015 WL 6116926 (S.D.N.Y. Oct. 16,
2015). This Opinion recites only those facts
relevant to the instant motions. The following facts are
undisputed unless otherwise noted.
The Knopfs' Loans to Sanford and Pursuit
Knopfs and Sanford had a business relationship before the
Knopfs extended the loans which are at issue in this action.
In 2000, Michael Knopf, through his IRA, and the Knopfs'
company, Delphi Capital Management LLC
(“Delphi”), invested in Sanford's hedge fund
(“Hedge Fund”). Delphi and Michael I. Knopf IRA
were limited partners in the Hedge Fund. Sanford
controlled the Hedge Fund's general
partner. The Hedge Fund was organized as a
Delaware limited partnership.
loans from which this litigation arises were made in 2006,
when the Knopfs made two loans to Sanford and Pursuit for the
purpose of purchasing residential real estate located in
Manhattan, New York. The first loan was for $1, 690, 860,
which Pursuit used to purchase PHC. This loan was funded with
funds withdrawn from holdings in the Hedge
Fund. The purchase price was $2, 050, 000.
Pursuit closed on the purchase of PHC on January 31, 2006.
February 9, 2006, Sanford acknowledged the loan in a signed
email to Michael Knopf:
As requested, I hereby acknowledge receipt of $1, 690, 860.00
from Michael and Norma Knopf (and/or from Delphi Capital
Management LLC, or other entity which you may designate)
which was loaned to Michael Hayden Sanford and Pursuit
Holdings LLC on January 31, 2006 so that Pursuit Holdings
could complete its purchase of condominium unit Penthouse C
at 44 East 67th Street, New York, NY 10021.
As it is understood between you and I, Pursuit will execute
an agreement evidencing this interest only loan, which will
be for a duration of not more than 24 months from inception,
and the interest rate for the first 12 months will be at 9%
per annum. The entire loan, or any portion of it, may be
repaid without penalty at any time. Pursuit will provide you
with a mortgage on Penthouse C and, if you wish, I will
provide the additional collateral of my property in
Rhinebeck, New York, known as the “Wyndclyffe
castle.” If you require that the mortgage on Penthouse
C be recorded in NYC, I will be responsible for paying 50% of
I guarantee that until which time you and I execute
agreements with respect to the loan for Penthouse C, I will
not offer for sale, mortgage, hypothecate or otherwise
encumber Penthouse C.
I understand that your attorney may require that I execute a
more formal representation as to our understandings and or
may have already completed a loan agreement for me to sign. I
will cooperate with you in any way to provide the peace of
mind you need so that you know your loan principal is
second loan was for $3, 250, 000, which Pursuit used to
purchase three condominiums located at 10 Bedford Street (the
“Townhouse, ” with PHC, the
“Properties”). An agreement between Sanford and
the Knopfs executed on May 30, 2006 and “dated May 31,
Michael Hayden Sanford (“Sanford”) is hereby
authorized by Michael I. Knopf, Norma Knopf and Delphi
Capital Management, LLC (collectively “Knopf”) to
withdraw $3, 250, 000 from Knopf's limited partnership
interests in the Sanford Partners Voyager Fund, LP on or
about May 30, 2006 so that Sanford may complete its purchase
of 3 condominium units located at 10 Bedford Street, New
York, NY through Pursuit Holdings LLC, a Delaware
incorporated single member LLC established and fully owned by
It is anticipated that Sanford and Knopf will execute a long
form document memorializing both the $1, 690, 860 loan and
the $3, 250, 000 loan. Until which time such agreement is
executed by both parties, Sanford shall not sell, hypothecate
or otherwise encumber the real property he owns at either 44
East 67th Street or 10 Bedford Street without the
express written permission of Knopf.
(Emphasis supplied.) On May 30, 2006, Sanford and the Knopfs
executed a second agreement granting the Knopfs and Delphi a
20% interest in the net profits of the Hedge Fund. Pursuit
closed on the Townhouse in June 2006.
The Sale of PHC
2009, the Knopfs sued Sanford and Pursuit in the Supreme
Court of the State of New York, New York County (the
“State Court Action”) for repayment of the loans.
The complaint asserted claims for breach of contract and
breach of fiduciary duty and sought the imposition of a
constructive trust on the Properties. At the outset of the
litigation, the Knopfs filed notices of pendency against the
Properties. On October 15, 2013, the New York State Appellate
Division (“Appellate Division”) extended the
notices of pendency for a second three-year term. Knopf
v. Sanford, 972 N.Y.S.2d 893 (1st Dep't 2013).
the State Court Action was ongoing, PHC was marketed for sale
through public listings and advertisements with an asking
price between $2.7 and $3 million. One listing for PHC
stated, “REDUCED BY $1 MILLION FOR QUICK SALE. MUST BE
SOLD BY MONTH'S END.”
2013, Phillips learned that PHC was being marketed for sale.
At the time, Phillips was in the process of purchasing a
different unit -- Apartment 11A -- in the same building as
PHC. In July 2013, Phillips purchased Apartment 11A for $4,
750, 000. Phillips' spouse was unhappy with Apartment 11A
and Phillips continued looking for another
2013, Phillips made an unsolicited offer to Sanford to
purchase PHC for approximately $2.25 million. Phillips did
not know Sanford prior to learning that PHC was being
marketed for sale. In July 2013, Phillips made a second offer
to Sanford to purchase PHC for approximately $2.8 million,
which Sanford rejected. In December 2013, Phillips made a
third offer to Sanford to purchase PHC for $2.9 million,
which Sanford accepted.
December 23, 2013, Phillips and Pursuit signed a contract for
the sale of PHC for $2, 900, 000. Phillips paid a down payment
of $150, 000 as a deposit on the sale, which was placed into
escrow. Sanford disclosed to Phillips in 2013 that a notice
of pendency had been placed against PHC by the Knopfs, and
that he and Pursuit were actively seeking to vacate it.
Sanford also indicated that he intended to sell PHC to pay
attorneys to defend himself in litigation with the Knopfs. In
response, Phillips told Sanford that he would not close on
the sale of PHC while a notice of pendency remained in place.
March 2014, Sanford informed Phillips that he lacked
sufficient funds to pay for attorneys to vacate the notice of
pendency on PHC. Phillips agreed to release $100, 000 of the
$150, 000 down payment to Sanford to enable him to engage
attorneys to vacate the notice of pendency. In exchange,
Pursuit granted Phillips a mortgage against PHC in the amount
of $100, 000. In June 2014, Phillips released the remaining
$50, 000 of the down payment to Sanford and the mortgage was
amended to reflect that fact.
December 11, 2014, the Appellate Division, reversing the
lower court, granted summary judgment in favor of the Knopfs
on their breach of contract claims. Knopf v.
Sanford, 1 N.Y.S.3d 18 (1st Dep't 2014). The
Appellate Division also held that the Knopfs had failed to
establish their entitlement to summary judgment on their
constructive trust claim because they had not made an
evidentiary showing that money damages would be inadequate.
Id. The Appellate Division, however, did not assess
damages. The Knopfs have not obtained a final judgment.
December 23, 2014, New York County Supreme Court Justice
Milton Tingling issued an order cancelling the notices of
pendency. On or around April 15, 2015, Phillips and Pursuit
executed an agreement that revised the purchase price of PHC
from $2.9 million to $3 million. On July 2, 2015, the
Appellate Division affirmed the cancellation.
the cancellation of the notices of pendency, the Knopfs took
a variety of actions aimed at preventing the sale of PHC. In
connection with this activity, on October 22, 2015, an
Appellate Division Justice issued an order that permitted the
sale of PHC but required the proceeds to be placed in escrow
(“October 2015 Order”). The October 2015 Order
reads in relevant part: “1 bedroom property may be sold
-- proceeds to be placed in escrow pending further court
order.” Subsequent orders issued by the Appellate
Division in late 2015 lifted any restraints placed on the
sale of PHC, including the escrow requirement imposed by the
October 2015 Order. See Knopf v. Esposito, 2017 WL
2015, Phillips agreed to advance Sanford an additional $400,
000 in purchase money to enable him to pay his attorneys and
agreed to accept another mortgage on PHC for that same
amount. This mortgage was not recorded but was satisfied at
the closing of the sale of PHC.
and Sanford's relationship soured at times during this
period. In a November 10, 2015 email, Sanford indicated that
Phillips was “a pathological liar and beyond
unstable.” That day, Phillips responded:
I will take this email as a notice you will seek financing
elsewhere. I am truly sorry you are in this spot, but I
cannot continue to fund your legal costs with knop[f] it has
just broken me. You are correct that I do not have anything
or own anything in nyc and the money was borrowed. I am going
to return the balance to jamestown and pay off what I am
short out of my earnings . I truly do hope you prevail in
your pursuits, and will think good thoughts on your behalf.
February 1, 2016, Phillips and Pursuit closed on the sale of
PHC at a price of $3 million. None of the proceeds of that
sale were placed in escrow.
February 8, 2016, Judicial Hearing Officer Ira Gammerman
issued a report finding that the Knopfs were entitled to
damages against Sanford in the State Court Action in the
amount of $10, 937, 850, and that Pursuit was jointly liable
for $8, 336, 488 of that amount. The report has not yet been
February 25, 2016, the Knopfs obtained an interim order from
an Appellate Division Justice requiring any proceeds
remaining from the sale of PHC to be placed in escrow.
Pursuit and Sanford have since paid $436, 227.32 of the sale
proceeds into an escrow account. On March 24, 2016, the
Appellate Division issued a preliminary injunction against
any further dissipation of the real estate assets that
Pursuit had acquired with loans from the Knopfs. Knopf v.
Sanford, 26 N.Y.S.3d 866 (1st Dep't. 2016).
2017, the Knopfs, Sanford, Pursuit, and other Sanford-related
entities entered into a consent order in the State Court
Action in which the parties agreed that “[n]o party
hereto shall further contend that any other party hereto has
heretofore acted in contempt of any court order in connection
with this action.” This resolved any claim by the
Knopfs in the State ...