Pergament v. Yerushalmi et al

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UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NEW YORK
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In Re:
Chapter 7
Joseph Yerushalmi,
Case No.: 07‐72816‐478
Debtor.
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Marc A. Pergament, Chapter 7 Trustee of the
Estate of Joseph Yerushalmi,
Plaintiff,
‐ against ‐ 	Adv. Pro. No.: 09‐08003‐478
Malka Yerushalmi, Joseph Yerushalmi and Malka
Yerushalmi, as Trustees for the September 7, 1995
Qualified Personal Residence Trust,
Defendants.
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MEMORANDUM DECISION AND ORDER
Appearances:
Weinberg Gross & Pergament LLP
Attorneys for the Plaintiff Marc A. Pergament, Chapter 7 Trustee
By: Marc Weingard, Esq.
400 Garden City Plaza
Garden City, New York 11530
Forchelli, Curto, Crowe, Deegan, Schwartz, Mineo & Cohn LLP
Attorneys for Defendant Joseph Yerushalmi
By: Gary M. Kushner, Esq.
330 Old Country Road
P.O. Box 31
Mineola, New York 11501
LaMonica Herbst and Maniscalco
Attorneys for Defendant Malka Yerushalmi
By: Shannon A. Scott, Esq.
3305 Jerusalem Avenue
Wantagh, New York 11793
The Honorable Dorothy T. Eisenberg, United States Bankruptcy Judge
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Before the Court is the motion of Defendant Joseph Yerushalmi to dismiss the Complaint
filed by the Chapter 7 Trustee and the Trustee’s motion to amend his Complaint. The court has
jurisdiction pursuant to 28 U.S.C. §1134(a) and (b). 	This matter is a core proceeding under 28
U.S.C. §§ 157(b)(2)(A), (E), and (O) and 11 U.S.C. §§ 541, 542, 544, 548, and 550. 	The
following constitutes the Court’s finding of fact and conclusions of law as mandated by Rule
7052 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”). For the following
reasons, the Defendant’s motion to dismiss is denied, and the Trustee’s motion to amend his
Complaint is granted.
FACTS
The Defendants, Joseph Yerushalmi (the “Debtor”) and Malka Yerushalmi (“Malka”)
were married in 1971. The couple had three children during the course of their marriage. Their
youngest son, Danny, was born in April 1983 and was diagnosed with dysautonomia, a terminal
disease. The Debtor contends that in 1989, doctors informed him that in spite of such illness and
disability Danny may outlive him and his wife. 	As a result, the Yerushalmis borrowed $1
million, secured by a first mortgage on their home at 157 West Shore Road, Great Neck, New
York (the “Marital Residence”) to implement changes to the Marital Residence primarily to
accommodate Danny’s special needs.
In 1995, the Yerushalmis consulted an estate-planning lawyer purportedly to plan for the
long-term care of Danny. The Debtor asserts that the family attorney advised him and his wife to
create a qualified personal residence trust pursuant to the grantor trust provisions under the U.S.
Internal Revenue Code. An irrevocable qualified personal residence trust (the “Trust”) was
formed pursuant to a Trust Agreement dated September 7, 1995 (the “Trust Agreement”). 	The
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Trust Agreement does not contain any language regarding the purpose or intention with respect
to the formation of the Trust.
The Debtor transferred his ownership interest in the Residence to Malka as evidenced by
a deed dated March 29, 1996 (“Transfer I”). Malka in turn transferred the entire fee interest in
the Marital Residence to the Trust by deed dated May 9, 1996 (“Transfer II”). 	The deeds
memorializing Transfers I and II were recorded several months apart. The Residence is the sole
asset of the Trust.
Malka was the grantor of the Marital Residence that was transferred to the Trust. 	She
and the Debtor were the trustees of the Trust. Pursuant to the terms of the Trust Agreement, the
grantor has the right to the exclusive use, possession and enjoyment of any personal residence
held by the Trustees. The trustees of the Trust were permitted to lease the Marital Residence to
the grantor for a term exceeding the term of the Trust on condition that the rental under such
lease shall be a fair market rental.
The Trust would terminate upon the earlier of the death of Malka or 23 years. If Malka
dies before the expiration of the 23 year term of the Trust, the Marital Residence will be
transferred to Malka’s executor or administrator to be disposed of as part of her estate. If Malka
survives the 23 year term of the Trust, then the Marital Residence would be transferred to
another trust created by the Debtor back in July of 1989.
After Danny passed away in 2002, the Yerushalmis continued to occupy the Marital
Residence. The Yerashalmis subsequently filed for divorce in 2003. In accordance with a
temporary pendent lite order dated December 1, 2003, the Debtor was directed in the divorce
action to pay, among other things, the existing mortgage and other carrying charges of the
Marital Residence. 	Thereafter, by decision and order dated March 15, 2004, the matrimonial
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court granted Malka’s application to, inter alia, direct the Debtor again to make payments for the
mortgage and all of the carrying charges associated with the Marital Residence. The Trust is still
the fee owner of the Marital Residence even though the purported purpose of its creation to
provide for Danny’s long term care no longer exists.
On March 31, 1995, prior to the establishment of the Trust and the transfer of the Marital
Residence to the Trust, the Debtor terminated his relationship with Yerushalmi, Shiboleth,
Yisraeli and Roberts, LLP (“YSYR”), a law firm of which he was a named partner. On April 10,
1998, Amon Shiboleth, one of the Debtor’s former partners, individually and on behalf of
YSYR, sought an accounting for YSYR (the “Accounting Action”) due to alleged diversions of
YSYR receivables collected by the Debtor after January 20, 1998. The Accounting Action was
filed three years after the creation of the Trust and two years after Transfers I and II.
The Accounting Action resulted in the entry of judgment dated March 7, 2007 against the
Debtor and in favor of Amon Shiboleth and YSYR in the total amount of $3,540,045.91
(“Shiboleth Judgment”). 	This amount was charged against the Debtor, individually, in the
amount of $2,036,272.09 and against the Debtor and his new firm, Yerushalmi & Associates
LLP, jointly and severely, in the amount of $1,503,773.82.
On July 25, 2007, the Debtor filed for chapter 11 relief under the Bankruptcy Code. On
October 2, 2007, the case was converted to one under Chapter 7 and Marc A. Pergament, Esq.
was appointed the Chapter 7 Trustee (the “Trustee” or Plaintiff”). 	On January 5, 2009, the
Trustee commenced this adversary proceeding by filing the Complaint alleging ten claims for
relief. 	The first four claims seek (1) to avoid Transfers I and II and recover the Marital
Residence for the benefit of the estate pursuant to 11 U.S.C. §§ 544(b) or 548 or (2) alternatively
to recover $2,500,000 plus interest in damages for the benefit of the chapter 7 bankruptcy estate
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on the grounds that Transfers I and II are fraudulent conveyances. 	Pursuant to claims five
through ten, the Trustee seeks to avoid the expense payments the Debtor personally made with
his personal funds with respect to the required monthly Mortgage payments, real estate taxes,
and insurance payments in regards to the Marital Residence.
In response, the Debtor filed a motion to dismiss the Complaint asserting that the first
four claims for relief should be denied because these claims were time barred. Under New York
state law claims for constructive and intentional fraud are governed by a six-year statute of
limitations. 	Transfers I and II occurred more than 6 years from the date the adversary
proceeding was commenced. In addition, the Debtor argues that claims five through ten should
be dismissed because (1) Trustee failed to join Citibank, N.A., the mortgagee with respect to the
Marital Residence as a proper and necessary party and (2) the expense payments were made in
exchange for fair consideration. 	In addition, the Debtor argues that the Trustee failed to plead
fraud with particularity for the ninth and tenth claims. 	Although Malka separately filed an
answer in response to the Complaint, Malka joined in the Debtor’s motion to dismiss and
asserted that the Trustee filed the Complaint in bad faith.
Subsequently, the Trustee filed a motion to amend his Complaint and an affirmation in
opposition to the motion to dismiss. Acknowledging that the six-year statute of limitations was a
bar to his initial Complaint, the Trustee withdrew his claims for relief on the grounds of
fraudulent conveyance and stated instead that his adversary proceeding sought a claim for relief
pursuant to 11 U.S.C. §§ 541 and 542 and that he was seeking to pierce the veil of the Trust to
declare that the Trust is the Debtor’s alter ego in order to support his action based on the
judgment obtained by Amon Shiboleth against the Debtor in the Accounting Action. 	Trustee
alleges that the Debtor used his control of the Trust to engage in fraudulent conveyances to
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shield his assets from the reach of creditors. 	Trustee asserts that as in precedent cases such as
Wm. Passalacqua, Inc., v. Resnick Developers South, Inc., 608 F. Supp. 1261, 1264 (S.D.N.Y.
1985) (“Passalacqua”), a judgment against a defendant may be enforced against an alleged alter
ego of the judgment defendant. 	The statute of limitations for the enforcement of a judgment is
twenty years versus the six year statute of limitations for actions based on 11 U.S.C. §§ 544(b) or
548.
Regarding the expense payments the Debtor made with respect to the Marital Residence,
Trustee alleges in the proposed Amended Complaint that the expense payments were made for
less than a reasonably equivalent value, the payments were made while the Debtor was insolvent
and the Debtor incurred debts beyond his ability to pay those debts. Additionally, the Amended
Complaint alleges that the expense payments were made with the actual intent to hinder, delay,
or defraud entities to which the Debtor became indebted. The Amended Complaint also asserted
that other unsecured creditors who could have avoided such expense payments existed on the
petition date.
Conversely, in his opposition motion to amend the Complaint, the Debtor argues that the
Trustee’s claims for alter ego relief as set forth are futile. The Debtor contends that the Trustee
cannot enforce the Shiboleth Judgment by piercing the Trust because the Trustee concedes that
the Appellate Division of the State Court of New York (“Appellate Division”) vacated the
Shiboleth Judgment. In the absence of a judgment, an action against the Trust as an alter ego of
the Debtor on the grounds of fraud would be time barred because a cause of action for fraud
accrues at the same time for both the judgment debtor and its alter ego. 	As a fraudulent
conveyance action against the Debtor is time barred, an action against the Trust on alter ego
grounds based upon an action for fraud would similarly be barred. Moreover, the Debtor asserts
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that (1) there was consideration, (2) no other unsecured creditors existed, (3) the use of the
Marital Residence was a right that flowed to him as a husband of the Grantor, and (4) he was not
insolvent. These are all issues of fact.
On June 30, 2009, the Court held a hearing on the Debtor’s motion to dismiss and the
Trustee’s motion to amend the Complaint. After a review of the papers submitted by the parties,
including the judgment entered by the Appellate Division on January 6, 2009, the Court notes
that while the Trustee states that the Shiboleth Judgment was vacated, the Appellate Division
only vacated the award for damages and remanded the Accounting Action back to the state trial
court for a determination as to the appropriate amount of damages. 	Indeed, the Appellate
Division affirmed the remainder of the Shiboleth Judgment other than the amount of damages.
Accordingly, this Court must take judicial notice that there is still a state court judgment against
the Debtor arising from the Accounting Action although the amount of the Accounting Action
Judgment is uncertain at this time.
DISCUSSION
Federal Rule of Civil Procedure 15(a) as made applicable by Bankruptcy Rule 7015
provides that:
(1) Amending as a Matter of Course. A party may amend the party’s pleading
once as a matter of course:
(A) before being served with a responsive pleading; or
(B) within 20 days after serving the pleading if a responsive pleading is not
allowed and the action is not yet on the trial calendar.
(2) Other Amendments. In all other cases, a party may amend its pleading only
with the opposing party’s written consent or the court’s leave. 	The court
should freely give leave when justice so requires.
See also Stanziale v. Dalmia (In re Allserve Systems Corp.), 379 B.R. 69, 73 (Bankr. D.N.J.
2007) (quoting FED. R. C IV. P. 15(a)). As the Trustee’s motion to amend the Complaint was filed
after the Debtor’s motion to dismiss was filed, the Trustee can only amend his Complaint upon
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leave of the Court. The decision by the court to allow leave to amend is discretionary. Foman v.
Davis, 371 U.S. 178, 182 (1962). Amendments are granted liberally in order to judge claims on
the merits and prevent litigation from becoming a technical exercise in pleading. 	In re LG
Phillips Displays USA, Inc. v. JPMorgan Chase Bank (In re LG Phillips Displays USA, Inc.),
395 B.R. 864, 868 (Bankr. D. Del. 2008) (citing Dussouy v. Gulf Coast Inv. Corp., 660 F.2d 594,
598 (5th Cir. 1981)). In determining whether a party should be allowed to amend its complaint,
the court will examine whether there is prejudice to the nonmoving party, whether the
amendment is sought in bad faith, whether the leave of court would produce an undue delay in
litigation, and whether the amendment is futile. 	In re Allserve Systems Corp., 379 B.R. at 73
(citing Boileau v. Bethlehem Steel Corp., 730 F.2d 929, 938 (3d Cir. 1984)).
With respect to the prejudice factor, the court considers whether the new claim would
require the non-moving party to spend extensive resources to conduct discovery to prepare for
trial, significantly delay the resolution of the dispute, or prevent the non-moving party from
bringing a timely action in another jurisdiction. Id. (citing Block v. First Blood Assocs., 988 F.2d
344, 350 (2d Cir. 1993)). The strengthening of the moving party’s legal position does not suffice
as prejudice. 	Id. (citing Post Confirmation Trust of Fleming Cos., Inc. v. Target Corp. (In re
Fleming Cos., Inc.), 323 B.R. 144, 148 (Bankr. D. Del. 2005)).
Regarding the delay factor, absent a showing of bad faith or undue prejudice, a mere
delay does not suffice to deny amendment. Id. (citing State Teachers Retirement Bd. v. Fluor
Corp., 654 F.2d 843, 856 (2d Cir. 1981)).
Futility is directly intertwined with the standard for a motion to dismiss. 	A court may
properly deny leave to amend where the amended complaint would not withstand a Rule 12(b)(6)
motion to dismiss. In re LG Philipps Displays USA, Inc., 395 B.R. at 870 (citing Massarsky v.
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General Motors Corp., 706 F.2d 111, 125 (3d Cir. 1983)). A motion made pursuant to this rule
challenges the legal sufficiency of a claim in order to determine whether the claim should go
forward. In re Allserve Systems Corp., 379 B.R. at 75 (citing Morris v. Azzi, 866 F. Supp. 149,
152 (D.N.J. 1994)). 	Even if recovery is remote and unlikely, a complaint must nevertheless
proceed “unless it appears beyond doubt that the plaintiff can prove no set of facts in support of
his claim which would entitle him to relief.” 	Id. (citing Scheuer v. Rhodes, 416 U.S. 232, 236
(1974).
In considering a motion to dismiss, the court must accept all the factual allegations in the
complaint as true. United States v. Gaubert, 499 U.S. 315, 327 (1991). 	Additionally, all
reasonable inferences should be drawn in favor of the plaintiff. 	In re Allserve Systems Corp.,
379 B.R. at 75 (citing Gary v. Air Group, Inc., 397 F.3d 183, 186 (3d Cir. 2005)). 	While a
complaint does not require detailed allegations, the plaintiff’s complaint must provide more than
labels and conclusions and a formulaic recitation of the elements of a cause of actions will not
do. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555-56 (2007). The “pleading must contain
something more . . . than . . . a statement of facts that merely creates a suspicion of a legally
cognizable right of action”. 	Id. (quoting 5 C. Wright & A. Miller, F EDERAL P RACTICE AND
PROCEDURE §1216 PP. 2350236 (3d ed. 2004)). A complaint does not need to allege all the
evidence that would normally be required to succeed at trial. In re Allserve Systems Corp., 379
B.R. at 76 (citing Kennicott Bros. Co. v. Fidanovski (In re Fidanovski), 347 B.R. 343, 348
(Bankr. N.D. Ill. 2006)). However, if the claim does not allege enough facts to state a claim for
relief that is plausible, then a motion to dismiss is proper. Twombly, 540 U.S. at 570.
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I. 	Whether There Was Undue Prejudice and Delay.
Although prejudice and delay are factors to consider when deciding to grant leave to
amend, neither the Debtor nor Malka has cited prejudice or delay in their opposition to Trustee’s
motion to amend. As a result, this Court will not address them but will note there is a pending
adversary proceeding before this Court by Amon Shiboleth against the Debtor under adversary
proceeding number 08-8037, seeking a denial of the Debtor’s discharge under 11 U.S.C. § 727.
As that adversary proceeding has not yet been resolved, the proposed amendment of the
Trustee’s Complaint would not result in any prejudicial delay with respect to the Debtor’s
attempt to obtain a fresh start.
II. 	Whether Trustee Exercised Bad Faith.
While the Defendants argued that Trustee’s first Complaint was filed in bad faith, the
Trustee has a legal right pursuant to Federal Rules of Civil Procedure 15(a) to amend his
Complaint and such leave is generally given when justice so requires. Both the Debtor and
Malka failed to set forth any case law nor any evidence to support their contention that the
Trustee’s conduct rose to the level of bad faith in order to justify the dismissal of the Complaint.
With respect to the Debtor’s motion to dismiss the Trustee’s claims for relief with respect
to the property expense payments made pursuant to state court pendente lite orders, “[i]t is rare
that the bankruptcy court will intrude on a state court divorce judgment and declare a transfer
made therein to be a fraudulent conveyance. However, rare does not mean never.” Pergament v.
Cersosimo (In re Cersosimo), No. 07-8145, 2008 Bankr. LEXIS 3737, * 13 (Bankr. E.D.N.Y.
2009). 	In In re Cersosimo, this Court held that the negotiated settlements revealed adequate
consideration and there was no allegation of any fraud. 	Unlike Cersosimo, here, Trustee has
alleged fraud on the part of the Debtor in attempting to hinder, delay, and defraud creditors, that
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there were other unsecured creditors who existed and could have voided the expense payments,
and that there was no fair consideration. Although there are issues of material fact in dispute, the
Court must accept the allegations set forth in the Complaint as true and draw any reasonable
inferences in favor of the plaintiff for purposes of a motion to dismiss. 	Accordingly, the Court
cannot find that the Trustee filed the motion to amend the Complaint in bad faith at this time
without anything other than mere allegations.
III. 	Futility of the Complaint.
A court may refuse to grant leave to amend where the amendment would be futile, In re
LG Phillips Displays USA, Inc., 395 B.R. at 870, or cannot withstand a motion to dismiss,
Massarsky, 706 F.2d at 125 (3d Cir. 1983).
With respect to the Trustee’s first four claims for relief, the Debtor argues that to the
extent the Trustee is proceeding on the argument that the Trust is the Debtor’s alter ego such
action is time barred. Where a claim based on fraud does not rely on a judgment, the applicable
statute of limitations for fraud is six years and accrues at the same time, regardless of whether it
is a claim against the alter ego or the corporation. 	Passalacqua, 608 F. Supp. at 1264, n.1.
While Trustee’s argument is confusing as far as whether this is an enforcement action or a stand-
alone alter ego action, it is apparent to this Court after a review of the papers filed in this case
that this is essentially an alter ego action based on a creditor’s judgment rather than an alter ego
action based upon fraud. 	As discussed above, there is an existing judgment by the state court
that has been affirmed in part by the Appellate Division and remanded in part for a determination
as to the amount of damages. Clearly, if the state court determines that no amount is due, then
the causes of action based upon the Shiboleth Judgment would fail.
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The statute of limitations in New York for actions to enforce a judgment is twenty years.
Passalacqua, 608 F. Supp. at 1264 (citing N.Y. C.P.L.R. § 211 (McKinney 1984)); The
Commissioners of the State Ins. Fund v. Ramos, 38 A.D.3d 445 (N.Y. App. Div. 2007). 	A
plaintiff may attempt to enforce a judgment against persons or entities under the theory of
piercing the corporate veil by claiming that such an entity is the alter ego of the judgment debtor.
Passalacqua, 608 F. Supp. at 1264. 	An action to enforce a judgment against the alter ego of a
judgment defendant would also be subject to a twenty-year statute of limitations. 	Wm.
Passalacqua Builders, Inc. v. Resnick Developers South, Inc., 933 F.2d 131, 143 (2d Cir. 1991)
(holding that if the defendants were proven to be the alter egos of the developers then the
judgment would be enforceable against the defendants and the claims would not be barred by the
statute of limitations for fraud). 	See also JSC Foreign Economic Ass’n Technostroyexport v.
Int’l Dev. and Trade Servs. Inc., 295 F. Supp. 2d 366, 376–77 (S.D.N.Y. 2003).
To pierce the corporate veil under New York law, a plaintiff must prove that the owner
exercised such control that the corporation became an instrumentality of the owner and that the
owner used this control to commit a fraud, and the fraud results in an unjust loss or injury to the
plaintiff. 	Babitt v. Vebeliunas (In re Vebeliunas), 332 F.3d 85, 91-92 (2d Cir. 2003). 	If the
corporate veil is pierced, the corporation and those who have controlled the corporation are
treated as one entity and thus the same statute of limitations is applicable to both the corporation
and those who are using the corporation as an instrumentality. 	Passalacqua, 608 F. Supp. at
1264.
With respect to trusts, this Court previously stated in Pergament v. Maghazeh Family
Trust (In re Maghazeh), 310 B.R. 5, 16 (Bankr. E.D.N.Y. 2004) (citing In re Vebeliunas, 332
F.3d at 90), that the question regarding whether the alter ego theory relating to corporations is
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applicable to trusts is a question of state law. Although the Second Circuit has not conclusively
determined whether a trust may be pierced under New York law, the Second Circuit has noted
that New York state courts would pierce the trust where the court found that the parties used the
trusts to conceal assets or engage in fraudulent conveyances to avoid adverse judgments. 	Wm.
Passalacqua Builders, Inc. v. Resnick Developers South, Inc., 933 F.2d at 143.
In this case, the Trustee seeks to enforce the Shiboleth Judgment against the Trust under
claims one through four of the Amended Complaint on the ground that the Trust is the Debtor’s
alter ego. 	Trustee has set forth facts alleging that the Debtor has exercised complete dominion
and control over the Trust and has committed a fraudulent act. 	In addition, the Trustee has
alleged, inter alia, that Transfers I and II were made without consideration and at a time when
the Debtor was insolvent and such transfers diminished the assets of the Debtor’s bankruptcy
estate. 	The Debtor in turn relies on Tillman v. Lincoln Warehouse Corp., No. 83 Civ. 5381-
CSH, 1983 U.S. Dist. Lexis 10676 (S.D.N.Y. December 19, 1983) for the proposition that the
exercise of piercing the corporate veil is meaningless and futile if there is no enforceable liability
to begin with and claims that in this case there is no enforceable liability. First, Tillman involved
claims pursuant to the Debtor and Creditor Law, while the Trustee’s claims before this Court are
based on the recovery of assets pursuant to 11 U.S.C. §§ 541 and 542. 	Second, as discussed
above, a judgment does exist although the amount of the judgment is uncertain at this time. The
parties may be able to obtain the answer as to the amount of damages once the state court
considers the issue on remand. 	Thus, an enforcement action cannot be found to be futile for
purposes of amending a Complaint. Third, while the Debtor argues that there was no fraudulent
act in that the formation of the trust was for the long term care of his child and that Shiboleth had
knowledge of the Trust at the time it was formed and therefore an alter ego claim has no
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independent life without the existence of a fraudulent act, it is premature and unnecessary at this
juncture to determine whether the requisites to pierce the Trust are present at this time.
All the Trustee is required to do to survive a motion to dismiss is set forth a legally
cognizable claim that is plausible on its face. 	The Trustee is not required to detail in his
proposed Amended Complaint information or evidence that is normally required to succeed at
trial because in considering a motion to dismiss, the Court is required to accept as true all factual
assertions set forth in the proposed Amended Complaint and the Court needs to allow all
reasonable inferences in favor of the Trustee. 	Morris v. Azzi, 866 F. Supp. at 152 (stating that
the question before the court is not whether the plaintiff will ultimately prevail but whether he
can prove any set of facts in support of his claims that would entitle him to relief).
The Debtor raises the question of whether the Trustee has standing to enforce a judgment
of a single creditor. Under New York law, a trustee may assert alter ego claims and other similar
claims when the claims benefit the entire bankruptcy estate and are not particular to one creditor
or group of creditors. Green v. Bate Records, Inc. (In re 10th Avenue Record Distributors, Inc.),
97 B.R. 163, 165-66 (S.D.N.Y. 1989). 	See also Kalb, Voorhis & Co. v. American Fin. Corp.,
No. 92 Civ. 7754 (RPP), 1993 WL 180368, *6-7 (S.D.N.Y. May 24, 1993); Keene Corp. v.
Coleman (In re Keene Corp.), 164 B.R. 844, 851-852 (Bankr. S.D.N.Y. 1994); Goldhaber v. Tri-
Equities, Inc. (In re Partridge Jr. & Sons, Inc.), 112 B.R. 593, 596 (Bankr. S.D.N.Y. 1990). In
this case, to the extent the Trustee does succeed on his claims to show that the Residence Trust is
the alter ego of the Debtor and that the Transfers I and II were inappropriate, then his interest in
the Marital Residence would become property of the Debtor’s bankruptcy estate under 11 U.S.C.
§ 541. 	Therefore, the Trustee’s causes of action to enforce the Shiboleth Judgment under the
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theory of alter ego would benefit not just Shiboleth but all the Debtor’s unsecured creditors.
Accordingly, the Trustee has standing to bring claims one through four.
Similarly, with respect to claims five through ten, the Trustee has alleged that the expense
payments made by the Debtor for the benefit of the Trust were made without consideration,
while the Debtor was insolvent or incurred debts beyond his ability to pay, and were made with
the intent to hinder, delay or defraud persons to which the Debtor had become indebted. While
the Debtor also disputes these allegations, the Court again must draw all inferences in favor of
the Trustee. The Trustee will have a heavy burden to prove the allegations made. The Debtors
have presented allegations of good defenses.
However, there are questions of material fact as to, inter alia, whether Shiboleth knew of
Transfers I and II and waived any right to complain, whether the Trust was established in order
to avoid creditors, whether the Yerushalmis maintained the Trust even after their child passed
away in order to shield assets from creditors, whether consideration was given for Transfers I
and II and the expense payments made on behalf of the Trust with respect to the Marital
Residence, whether a creditor other than Shiboleth exists who would be entitled to bring an
action to avoid the transfers, whether the Debtor was insolvent at the time of the transfers and
whether the transfers diminished the assets available for the Debtor’s bankruptcy estate. 	The
Trustee may not be able to support the allegations made in his Amended Complaint at trial.
However, because the Court finds that the Trustee has set forth legally cognizable claims and
such claims may not be futile, the Trustee should be allowed to amend his Complaint and be
given an opportunity to proceed to obtain evidence needed in order to resolve these disputed
facts. In addition, as the outcome of this adversary proceeding would affect assets available for
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16
distribution to all the Debtor’s creditors, justice would require that the Trustee be given an
opportunity to amend his complaint and prove his claims.
As to the Defendants’ allegations that the Trustee has wrongfully omitted the mortgagee
from this adversary proceeding, the Court finds that the mortgagee is not a necessary party to this
proceeding.
CONCLUSION
Based on the foregoing, the Debtor’s motion to dismiss the Complaint is denied and the
Trustee’s motion to amend his Complaint is granted.
So ordered.
Dated: Central Islip, New York
September 14, 2009
s/Dorothy Eisenberg_________
Dorothy Eisenberg
United States Bankruptcy Judge
Case 8-09-08003-reg Doc 36 Filed 09/14/09 Entered 09/14/09 13:36:39