Pfeifer et al v. HUDSON VALLEY BANK, N.A.

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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In re: 	: 	Chapter 11
:
MAXWELL S. PFEIFER and 	: 	Case No. 12-13852 (ALG)
MYRNA J. PFEIFER, 	:
:
Debtors. 	:
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MAXWELL S. PFEIFER and 	:
MYRNA J. PFEIFER, 	:
:
Plaintiffs, 	:
:
-against- 	: 	Adv. Pro. No. 13-1320 (ALG)
:
HUDSON VALLEY BANK, N.A. 	:
:
Defendant. 	:
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MEMORANDUM OF OPINION
A P P E A R A N C E S:
RICH MICHAELSON MAGALIFF MOSER, LLP
Counsel to the Debtors
By: 	Howard P. Magaliff, Esq.
Eric T. Moser, Esq.
340 Madison Avenue, 19th Floor
New York, New York 10173
KEVIN A. STEVENS, P.C.
Counsel to Hudson Valley Bank, N.A.
By: 	Kevin A. Stevens, Esq.
98 Lafayette Avenue
Suffern, New York 10901
ALLAN L. GROPPER
UNITED STATES BANKRUPTCY JUDGE
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Introduction
Before the Court is a motion for summary judgment filed by defendant Hudson Valley
Bank, N.A. (“Hudson”) against plaintiffs and debtors Maxwell S. Pfeifer and Myrna J. Pfeifer
(“Debtors”). Debtors brought the above-captioned adversary proceeding to avoid (i) a judgment
entered on July 9, 2012 against them in favor of Hudson in the amount of $877,457.99 (the
“Judgment”) as a preferential transfer pursuant to Bankruptcy Code § 547(b), and (ii) a mortgage
granted to Hudson by Maxwell S. Pfeifer (“Pfeifer”) and companies owned by him on or about
March 11, 2009 in the principal amount of $1,112,000 (the “Mortgage”) as a constructive
fraudulent transfer pursuant to Bankruptcy Code § 544(b)(1) and New York Debtor & Creditor
Law (the “DCL”) §§ 272 and 273. Hudson has moved for summary judgment dismissing
Debtors’ second claim for relief, contending that there was no fraudulent conveyance because the
Mortgage merely secured a valid antecedent debt, or, alternatively, that the Mortgage was
supported by Pfeifer’s receipt of fair consideration. For the reasons set forth below, Hudson’s
motion for summary judgment is granted.
Facts
There is little dispute regarding the operative facts.
Prior to September 5, 2012, Pfeifer and companies of which he was the sole shareholder
or member—including 52 Associates, Inc. (“52 Associates”), Garden Place Improvement Corp.
(“Garden Place”), and Pioneer Realty, LLC (“Pioneer”)—owned several properties in The
Bronx, New York (collectively, the “Bronx Properties”). (Amended Complaint at ¶¶ 8-12).
Pfeifer personally owned the real properties known as 714 East 241st Street, Bronx, New York
and 4643 Furman Avenue, Bronx, New York; 52 Associates owned the real property known as
700 East 241st Street, Bronx, New York; Garden Place owned the real property known as 704
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East 241st Street, Bronx, New York; and Pioneer owned the real property known as 4641
Furman Avenue, Bronx, New York. (Id.).
Hudson loaned Pfeifer $1,000,000 on or about March 25, 2004 (Loan #236092001)
(“Loan #001”) and $75,000 on or about March 19, 2008 (Loan #236092003) (“Loan #003”).
(Amended Complaint at ¶¶ 25-26). Loans #001 and #003 were secured by a portfolio of stock
owned by Pfeifer (the “Stock”). (Amended Complaint at ¶ 27). By March 2009, the value of the
Stock had declined, causing the debt to be undersecured. (Amended Complaint at ¶ 28).
Following Hudson’s demands for additional security for Loans #001 and #003, on March 11,
2009, Pfeifer and his affiliated companies provided additional collateral for those loans to
Hudson in the form of the Bronx Properties.1 Hudson’s 7056-1 Statement ¶ 2. Simultaneously,
Hudson loaned Pfeifer $37,000 (Loan #236092004) (“Loan #004”), also secured by the
Mortgage, for closing costs and recording fees relating to the Mortgage. (Amended Complaint at
¶ 35). Additionally, on the same date, Hudson confirmed its agreement to extend by one
additional year the maturity date of an unsecured credit line (Loan #1395150989) (“Loan 0989”),
which had matured on January 31, 2009, and the maturity date of Loan #001 by five additional
years; it had been scheduled to mature on April 1, 2009. Hudson’s 7056-1 Statement ¶ 3, 9,
Exhibit I. After closing of the Mortgage transaction, Loan #0989 was paid in full by virtue of the
sale of the Stock, and Hudson confirmed its extension of Loan #001 on April 13, 2009.
Hudson’s 7056-1 Statement ¶ 7, Exhibit J.
On September 9, 2012, the Debtors filed a joint petition for relief under chapter 11 of the
Bankruptcy Code, and they remain debtors-in-possession. They filed their complaint on April 8,
2013, and Hudson filed an answer denying the allegations of the complaint on April 16, 2013.
1 While the Debtors’ solvency is not at issue in this motion, Debtors assert that at the time Pfeifer granted the
Mortgage to Hudson, the sum of Pfeifer’s outstanding debts exceeded the value of his property, at fair valuation,
exclusive of any exempt property. Pfeifer’s 7056-1 Statement ¶ 2.
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On April 17, 2013, the Debtors filed an amended complaint to add the assertion that Pfeifer was
either insolvent when he granted the Mortgage or was rendered insolvent by the Mortgage.
Hudson filed an answer denying the amended complaint’s allegations on April 18, 2013. On
May 9, 2013, Hudson filed its motion for summary judgment on the Debtors’ fraudulent
conveyance claim.
Discussion
I. 	Legal Standard
Summary judgment under Federal Rule of Civil Procedure 56, made applicable by
Federal Rule of Bankruptcy Procedure 7056, is proper where “the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a matter of
law.” Fed. R. Civ. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986);
Morenz v. Wilson-Coker, 415 F.3d 230, 234 (2d Cir. 2005). The moving party bears the burden
of demonstrating the absence of any genuine issue of material fact, and all inferences to be
drawn from the underlying facts must be viewed in the light most favorable to the party opposing
the motion. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970). However, once there is a
showing of the absence of an issue of fact, the opposing party must produce specific evidence
that raises a genuine issue. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S.
574, 586 (1986). A fact is “material” if it might affect the outcome of the suit under the
governing substantive law, and “summary judgment will not lie if the dispute about a material
fact is ‘genuine,’ that is, if the evidence is such that a reasonable jury could return a verdict for
the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
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II. 	Constructive Fraudulent Transfer Claim
Hudson argues that the securing of an antecedent debt is not avoidable as a fraudulent
conveyance as a matter of law. Alternatively, it argues that the conveyance of the Mortgage to
Hudson was supported by Pfeifer’s receipt of fair consideration. In opposition to the summary
judgment motion, the Debtors argue that (i) they did not receive fair consideration from the
maturity date extensions because Pfeifer could not service the debt regardless, and (ii) in any
event, the Court must conduct an intensive factual comparison of the value of the antecedent debt
being secured with the value of the collateral. (Opposition to Motion for Summary Judgment at
p. 2). According to the Debtors, this factual comparison raises a triable issue of fact. (Id.). This
Decision will consider each of Hudson’s arguments in turn.
Debtors’ fraudulent conveyance claims are brought pursuant to § 544(b) of the
Bankruptcy Code, which permits the trustee to use applicable state law to avoid transfers of a
debtor’s interest in property and to obtain a longer look-back period than the two-year period that
applies under § 548 of the Bankruptcy Code. There is no dispute that the applicable law here is
the New York DCL.
Pursuant to the DCL, a conveyance or obligation by a debtor is deemed constructively
fraudulent if it is made or incurred without “fair consideration.” N.Y. Debt. & Cred. Law § 273.
Fair consideration is defined by the DCL in the following manner:
1. 	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
2. 	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.
N.Y. Debt. & Cred. Law § 272.
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Hudson’s first argument is that payments or transfers securing an antecedent debt are not
avoidable under the DCL as a matter of law. Many decisions in this District and in other
Districts applying New York law have consistently used a per se rule that the grant of collateral
for a legitimate antecedent debt is not a constructive fraudulent conveyance. For example, in
Geron v. Palladin Overseas Fund, Ltd. (In re AppliedTheory Corp.), 330 B.R. 362, 363
(S.D.N.Y. 2005) (“AppliedTheory I”), the District Court denied the appellant’s request “to reject
the per se rule consistently applied in this District, which provides that a debtor’s grant of a
security interest in its assets to a lender who has previously given the debtor a cash loan may not
be considered a fraudulent conveyance.” See also In re Handerson, 3 F. Supp. 92, 93 (S.D.N.Y.
1933) (holding that since the debtor’s only purpose in transferring a chattel mortgage to a
creditor was to “obtain security for a debt owed to it,” the transaction was “by no means
fraudulent.”); Official Comm. of Unsecured Creditors of Champion Enters. v. Credit Suisse (In
re Champion Enters.), 2010 Bankr. LEXIS 2720, at *61 (Bankr. D. Del. Sept. 1, 2010) (holding
under New York law that “security interests granted by [debtor] in respect of an antecedent debt,
like repayment of antecedent debt . . . are necessarily fair consideration.”).
Although the Bankruptcy Code’s fraudulent conveyance provisions in § 548 are not
directly at issue, many of the principles governing fraudulent conveyance law are the same,2 and
many cases under the Bankruptcy Code have similarly held that securing an antecedent debt is
not, as a matter of law, a constructive fraudulent conveyance. See Cuevas v. Hudson United
Bank (In re M. Silverman Laces, Inc.), 2002 U.S. Dist. LEXIS 20288, at *15 (S.D.N.Y. Oct. 23,
2 Section 548(a)(1)(B) of the Bankruptcy Code indicates that a transfer made within two years of the debtor’s
petition date may be avoided if, as a result of the transfer, the debtor received less than a reasonably equivalent value
and if the debtor was insolvent on the date of the transfer or became insolvent as a result of the transfer, had an
unreasonably small capital, intended to incur debts beyond its ability to pay, or made such transfer to or for the
benefit of an insider. 11 U.S.C. § 548. However, the Bankruptcy Code’s fraudulent conveyance provisions have
only a two-year look-back period, not sufficient to reach the 2009 transactions.
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2002) (holding that debtor “received ‘value’ when its antecedent debt was extended and
collateralized.”); Anand v. National Republic Bank of Chicago, 239 B.R. 511, 517 (N.D. Ill.
1999) (“The key factor to bear in mind . . . is that the debtor receives value simply by securing a
debt.”); In re Ward, 36 B.R. 794, 799 (D.S.D. 1984) (concluding that debtor gave reasonably
equivalent value by securing an antecedent debt).
The Second Circuit has also commented that preferential treatment of a creditor in
and of itself is not ordinarily a fraudulent transfer:
Even the preferential repayment of pre-existing debts to some creditors does not
constitute a fraudulent conveyance, whether or not it prejudices other creditors,
because "the basic object of fraudulent conveyance law is to see that the debtor
uses his limited assets to satisfy some of his creditors; it normally does not try to
choose among them."
Sharp Int’l Corp. v. State St. Bank & Trust Co. (In re Sharp Int’l Corp.), 403 F.3d 43, 54 (2d Cir.
2005), quoting HBE Leasing Corp. v. Frank, 48 F.3d 623, 634 (2d Cir. 1995); see also In re
Kaplan Breslaw Ash, LLC, 264 B.R. 309, 330 (Bankr. S.D.N.Y. 2001) (“If a debtor gives a
mortgage to secure a debt it already has . . . the giving of that mortgage may be a preference, but
it is not a fraudulent conveyance.”); Alan N. Resnick, Bankruptcy Law Manual § 8:34 (5th ed.
2005) (“[M]aking a preference in good faith is not a fraudulent conveyance because value is
exchanged by the cancellation of the antecedent debt.”).
The per se rule also finds support in the proposition that securing a valid antecedent debt
may assist a debtor in its attempts at rehabilitation:
At first glance, [the per se rule] seems illogical. The debtor receives nothing
tangible by securing or paying its debts; rather, it gives away tangible collateral or
cash. History and policy, however, can explain this apparent inconsistency.
Historically, fraudulent conveyance law was intended to prevent fraud, and
securing or paying a legitimate debt is not fraudulent. The rule may promote
bankruptcy policy by allowing a troubled debtor the flexibility to secure or pay its
debts in order to avoid default or reach an out-of-court settlement, thereby
facilitating its rehabilitation. Thus, even under fraudulent conveyance law itself,
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the inability to verify the equivalence of values exchanged is irrelevant to the
determination of reasonably equivalent value when the debtor secures antecedent
debt, an action that may facilitate its rehabilitation.
Steven L. Schwarcz, Rethinking Freedom of Contract: A Bankruptcy Paradigm, 77 Tex. L. Rev.
515, 592-93 (1999) (footnotes omitted). Admittedly, the DCL requires that a transfer be
supported by “fair consideration,” and fair consideration must not be “disproportionately small
as compared with the value of the property, or obligation obtained.” See N.Y. Debt. & Cred.
Law § 272. The Bankruptcy Code similarly states that a transfer is avoidable if the debtor
receives less than “reasonably equivalent value” in exchange for such transfer. See Bankruptcy
Code § 548(d)(2)(A).3 However, there is no support for the Debtors’ argument that the amount
of the collateral given must be proportionate to the amount of the debt secured, as the grant of
collateral does not expand the amount of a creditor’s debt and only prioritizes the payment of the
debt from specific assets. See Champion Enters., 2010 Bankr. LEXIS 2720, at *61-62, citing
AppliedTheory II, 323 B.R. at 842 (“The value of collateral securing antecedent debt, and the
attendant determination as to whether a lender is undersecured, is irrelevant for fraudulent
transfer purposes because the rights of a secured creditor are always limited to the amount of its
debt.”); Johnson v. First Nat’l Bank, 81 B.R. 87, 89 (Bankr. N.D. Fla. 1987) (holding that “the
extent of the interest transferred is only the amount of the loan secured by the mortgage, not the
value of the property encumbered.”).
Moreover, courts find fair consideration where, in exchange for the grant of collateral, a
debtor obtains maturity date extensions. These holdings provide support for Hudson’s second
3 The Bankruptcy Code’s “reasonably equivalent value” and the DCL’s “fair consideration” are similar, if not
identical requirements. “[C]ourts typically use these terms interchangeably, and do not usually make a distinction
between the standard required for reasonably equivalent value, on the one hand, and fair consideration, on the
other.” Geron v. Palladin Overseas Fund, Ltd. (In re AppliedTheory Corp.), 323 B.R. 838, 840 (Bankr. S.D.N.Y.
2005) (“AppliedTheory II”).
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argument that Pfeifer received value for his grant of collateral to Hudson, even if a per se rule
did not apply.
For example, in M. Silverman Laces, the “[debtor] was in default, and it is undisputed
that as a consequence [the creditor] could have demanded immediate payment and taken steps to
collect on all of [the debtor’s] obligations.” M. Silverman Laces, 2002 U.S. Dist. LEXIS 20288,
at *15. In exchange for a security interest in the debtor’s inventory, the creditor “instead waived
its rights to immediately pursue its remedies and it agreed to extend [the debtor’s] obligations.”
Id. “By agreeing to forbear and to extend the loans, [the creditor] gave [the debtor] ‘breathing
room’ – an opportunity to avoid default, to facilitate its rehabilitation, and to avoid bankruptcy.”
Id. at *17. The Court concluded that the creditor’s forbearance and loan extension in exchange
for a security interest in the debtor’s collateral constituted reasonably equivalent value. Id.
In Anand, the debtor assigned his 60 percent interest in a property to a bank as collateral
to secure prior loans. Anand, 239 B.R. at 514. The bank agreed to forbear from exercising its
rights, to waive a past-due principal payment, and to extend the maturity date of an outstanding
loan. Id. The debtor argued that “he really received nothing” in exchange for his conveyance.
Id. at 517. However, the Court “look[ed] to the other value, beyond the loan, that the debtor
received in conjunction with the transfer.” Id. at 518. It further observed that “debtors generally
do not collateralize an antecedent debt unless they are in default, and under pressure from the
creditor to provide security for the loan.” Id. Accordingly, because the creditor “gave [the
debtor] forbearance, a revised maturity date, and waiver of the principal payment, [these
considerations] must all be counted as value received by [the debtor].” Id. at 519.
Similarly, in Ward, the debtors provided a creditor with a second mortgage on their home
to secure a delinquent open account in exchange for the creditor agreeing to forbear any
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collection action against them. Ward, 36 B.R. at 796. The Court held that “the promise of
forbearance supported the mortgage in an amount of the debt outstanding” and constituted
reasonably equivalent value. Id. at 799.
The record indicates that circumstances here are similar to those in M. Silverman Laces,
Anand, and Ward. There is no dispute on this record that Pfeifer and his affiliated companies
granted the Mortgage to Hudson in order to secure Loans #001 and #003, that Hudson requested
this additional security because the Stock had decreased in value, and that upon receipt of the
Mortgage, Hudson extended the maturity date of Loan #0989 by one year and Loan #001 by five
years. Without Hudson’s voluntary extension of the maturity dates of Loans #001 and #0989,
Pfeifer might have defaulted, which would have enabled Hudson to demand immediate payment.
It is speculation whether Debtors could have repaid the loans regardless of any maturity date
extension, and the Debtors in fact argue that they could not. It is not speculation that they
obtained “breathing room,” M. Silverman Laces, 2002 U.S. Dist. LEXIS 20288, at *17, and it is
too late for them to have second thoughts today. Hudson’s extension of the maturity dates of two
existing loans qualifies as fair consideration for the grant of collateral.
The cases cited by the Debtors—which hold that a determination of fair consideration is
inappropriate to decide under summary judgment—are not on point. In Klein v. Tabatchnick,
610 F.2d 1043, 1046 (2d Cir. 1979), the president of the debtor obtained a personal loan from a
bank using a shareholder’s common stock in another company as collateral. To protect the
shareholder against loss, the president of the debtor delivered to the shareholder certain
portfolios of the debtor. Id. The trustee alleged that this transfer of securities was a fraudulent
conveyance. Id. The Second Circuit reversed the lower court’s grant of summary judgment
against the president and shareholder, holding that “fairness of consideration is generally a
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question of fact.” Id. at 1047. However, unlike the instant case, the debtor in Klein “owed no
antecedent debt.” Id. at 1049. There was a real question of insider dealing and disputed issues
of fact. Id. at 1047-1048. Here, there is no allegation that the Debtors engaged in insider
dealings, and the Debtors have not otherwise raised any material issues of fact. Similarly, in
United States v. McCombs, 30 F.3d 310, 314-315 (2d Cir. 1994), one of the debtors transferred
property already mortgaged to two banks to her daughters. The government sought to set aside
this conveyance as fraudulent. Id. at 315. However, this transfer did not secure or satisfy an
antecedent debt since the debtor’s daughters held no preexisting claim against the debtor. Id. at
327. Additionally, the Second Circuit reviewed the trial court’s decision following a full bench
trial; its decision does not discuss whether summary judgment is an appropriate vehicle for
determining a fraudulent conveyance claim involving the securing of an antecedent debt. Under
the facts of this case, it is.
Conclusion
For the reasons set forth above, Hudson’s motion for summary judgment dismissing the
second claim for relief in the amended complaint is granted. Hudson’s counsel shall settle an
order on three days’ notice.
Dated: 	New York, New York
July 23, 2013
/s/ Allan L. Gropper
UNITED STATES BANKRUPTCY JUDGE
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