Purewal v. Estate of Kanwaldeep Kalsi et al

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
In re:
KANWALDEEP SINGH KALSI,
Debtor.
NOT FOR PUBLICATION
Chapter 7
Case No. 20-10330 (MG)
Namrita Purewal,
Plaintiff,
v.
Estate of Kanwaldeep Kalsi, The Trustee of the
Estate of Kanwaldeep Kalsi, Kanwaldeep Kalsi,
Defendants.
Adv. Pro. No. 21-01159 (MG)
MEMORANDUM OPINION AND ORDER GRANTING
TRUSTEE’S MOTION TO DISMISS
A P P E A R A N C E S:
NAMRITA PUREWAL
Plaintiff (pro se)
67 Liberty Street, Unit 5
New York, NY 10005
-and-
82 Inlet Road
Southampton, NY 11968
LAMONICA HERBST & MANISCALCO, LLP
Counsel to the Chapter 7 Trustee
3305 Jerusalem Avenue, Suite 201
Wantagh, NY 11793
By: 	Salvatore LaMonica, Esq.
Cristina M. Lipan, Esq.
LAW OFFICES OF ALLA KACHAN, P.C.
Counsel to Kanwaldeep Kalsi
2799 Coney Island Avenue, Suite 202
By: 	Alla Kachan, Esq.
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MARTIN GLENN
UNITED STATES BANKRUPTCY JUDGE
This adversary proceeding relates to real property acquired during the marriage of the
debtor in the main bankruptcy case, Kanwaldeep Kalsi (“Kalsi,” or the “Debtor”), and his
estranged wife, Namrita Purewal (“Purewal,” or the “Plaintiff”). The property in question is
located at 82 Inlet Road, Southampton, NY 11968 (the “Southampton Property”). The Debtor
commenced a divorce action against the Plaintiff in 2017. The divorce action remains pending.
It is undisputed that title to the Southampton Property is solely in the Debtor’s name.
The Plaintiff, however, lives between the Southampton Property and another property in New
York City. By this adversary proceeding, the Plaintiff requests the Court impose a constructive
trust and convey the Southampton Property to her, as she claims that she has always paid for the
Southampton Property, which the Debtor allegedly held in trust for her.
Before this adversary proceeding was filed, the chapter 7 trustee (the “Trustee”) filed a
motion in the main case seeking turnover of the Southampton Property from the plaintiff.
(“Turnover Motion,” Main ECF Doc. # 91.)1 The Turnover Motion was resolved by a stipulation
that provides, inter alia, that the Southampton Property “is property of the Debtor’s estate,” and
that “Purewal shall cooperate with the Trustee and her professionals . . . in all respects with
regard to the marketing and sale of the [Southampton] Property.” (“Stipulation,” Main ECF
Doc. # 104, ¶¶ 2–3.)
The Stipulation was so-ordered by this Court on May 13, 2021. (Id.) This adversary
proceeding was filed less than a month later, on June 9, 2021. (“Complaint,” AP ECF Doc. # 1.)
1 	References to the docket in the main case (Case No. 20-10330) are indicated by citations to “Main ECF.”
References to the docket in this adversary proceeding (Adv. Pro. 21-01159) are indicated by citations to “AP ECF.”
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On July 6, 2021, the Trustee filed a motion to dismiss the complaint. (“Motion,” AP ECF Doc. #
7.) On July 27, 2021—just over an hour before the hearing on the Motion, and well after the
deadline of 12 noon on July 26, 2021—Purewal filed a reply to the Motion. (“Reply,” AP ECF
Doc. # 21.)
The Court concludes that, due to the Stipulation and under well-settled precedent, even if
the Plaintiff’s claims are accepted as true, the Plaintiff fails to state a claim for the imposition of
a constructive trust against the Trustee with respect to the Southampton Property. Accordingly,
the Court GRANTS the motion to dismiss the constructive trust claim against the Trustee.2
I. 	BACKGROUND
A. The Debtor’s Bankruptcy
On February 3, 2020 (the “Petition Date”), the Debtor filed a voluntary petition for relief
under chapter 11 of the Bankruptcy Code. (Main ECF Doc. # 1.) On December 4, 2020, over
Purewal’s objection, the Court converted the case to one under chapter 7. (Main ECF Doc. ##
54, 57.)
B. The Southampton Property
It is undisputed that title to the Southampton Property is solely in the Debtor’s name, and
was solely in the Debtor’s name on the Petition Date. Purewal states that, despite these
undisputed facts, she has always paid for the Southampton Property, including the down
payment, mortgage payments, and tax payments. (Complaint ¶¶ 12–15.)
On April 23, 2021, the Trustee filed a motion seeking turnover of the Southampton
Property to the Trustee. (Turnover Motion.) The Trustee represents that the Turnover Motion
was filed “after Plaintiff failed to cooperate with the Trustee in her efforts to market and sell the
2 	As the Debtor has not filed a motion to dismiss, but instead filed an answer to the Complaint, the case will
remain pending against the Debtor.
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Southampton Property.” (Motion ¶ 17.) On April 30, 2021, Purewal filed a motion to dismiss
the Debtor’s bankruptcy case for substantial abuse. (“MTD for Abuse,” Main ECF Doc. # 97.)
After a hearing held on May 5, 2021, to consider the Turnover Motion, the Trustee and Purewal
entered into a stipulation which provides that the Southampton Property “is property of the
Debtor’s estate,” and that “Purewal shall cooperate with the Trustee and her professionals . . . in
all respects with regard to the marketing and sale of the [Southampton] Property.”
(“Stipulation,” Main ECF Doc. # 104, ¶¶ 2–3.) The Court so-ordered the stipulation on May 13,
2021. (Id.) On May 26, 2021, Purewal withdrew the MTD for Abuse. (Main ECF Doc. # 107.)
On June 9, 2021, Purewal filed this adversary proceeding. (Complaint.) On June 23,
2021, Purewal filed a “Stay Order Preventing the Trustee or Her Associates on My Property.”
(AP ECF Doc. # 4.) The Court held a hearing on this filing on July 8, 2021. At the hearing,
Purewal inconsistently represented (i) that she saw the first three pages of the Stipulation, but did
not agree with what was on them, and (ii) that she only saw the last two pages of the Stipulation
before the Court approved it.3 Purewal’s counsel, Aaron Cahn, Esq., represented at the hearing
that he provided the full Stipulation to Purewal before the Court approved it. The Court
construed the filing at AP ECF Doc. # 4 as a request for a temporary restraining order or
preliminary injunction and denied the request. (AP ECF Doc. # 13.)
C. The Liberty Street Property
The Debtor acquired fee title to 67 Liberty Street, Unit 5, New York, NY 10005 (the
“Liberty Street Property”) in August 2013. (Adv. Pro. 21-01177 ECF Doc. # 1 ¶ 13.) On March
12, 2021, the secured creditor filed a motion to lift the stay with respect to the Liberty Street
Property. (“Liberty Lift-Stay Motion,” Main ECF Doc. # 83.) On July 19, 2021, the Trustee
3 	The Stipulation is five pages long.
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filed a complaint against Purewal for turnover of the Liberty Street Property. (Adv. Pro. 21-
01177.) That adversary proceeding remains pending. On July 20, 2021, after several
adjournments, the Court held a hearing on the Liberty Lift-Stay Motion, and denied it without
prejudice due to a substantial equity cushion. (Main ECF Doc. # 118.)
As with the Southampton Property, Purewal alleges that she has always paid for the
Liberty Street Property, despite title being solely in the Debtor’s name. (Complaint ¶¶ 12–15.)
However, Purewal states that she has “no issues with the Trustee selling” the Liberty Street
Property, but “adamantly and respectfully must make a demand to the courts for the return of my
property located at 82 Inlet Drive, Southampton, NY.” (Id. ¶ 30.)
D. The Marital Dispute
On December 12, 2012, the Debtor and Purewal were married. (Reply ¶ 4.) In 2017, the
Debtor commenced a divorce action in the Supreme Court of New York, Suffolk County, which
remains pending. (Motion ¶ 7.) On March 31, 2020, the Court lifted the stay to permit the
divorce action to continue but it retained jurisdiction over distribution of property of the estate.
(Main ECF Doc. # 27.) There has never been a judgment of divorce entered, and the parties
therefore remain married. (Motion ¶ 8.)
E. Purewal’s Bankruptcy
On January 27, 2017, Purewal filed a voluntary petition for relief under chapter 13 of the
Bankruptcy Code. (“Purewal Bankruptcy,” Case No. 17-10164 (CGM).) Purewal listed neither
the Southampton Property nor the Liberty Street Property as assets on her petition, despite listing
the Liberty Street Property as her residential address. (Purewal Bankruptcy ECF Doc. # 1 at 2.)
On August 28, 2017, Jeffrey Sapir, the chapter 13 trustee, filed a motion to dismiss the
Purewal Bankruptcy for the following reasons:
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3. The debtor failed to comply with the provisions of 11 U.S.C.
§1307(c)(1) and (c)(4).
4. The debtor is in violation of §521(e)(2)(A)(i) of the Bankruptcy
Code which requires the debtor to provide seven (7) days prior to
the §341(a) meeting of creditors, copies of federal and state tax
returns 	for 	certain 	of 	the 	most 	recent 	years 	preceding 	the
commencement of the case, to wit, 2016.
5. The debtor has failed to remit timely plan payments to the trustee,
having remitted but one payment, and being, at this juncture, six
month(s) in arrears.
6. The debtor’s plan is not feasible in that the debtor is unable to
remit monthly payments as required under 11 U.S.C. §1325(a)(6)
and §1326(a)(1).
7. Upon information and belief, the plan has failed to be served upon
creditors.
8. The debtor has failed to provide the trustee with certain of the
required documentation, to wit, a real estate appraisal and a third-
party affidavit of contribution.
9. The delay created by the debtor is prejudicial to creditors.
(Id. ECF Doc. # 20 at 3.) On September 27, 2017, Purewal filed a notice stating that “Due to
change of circumstances, the debtor supports the trustee’s motion to dismiss the case and let the
case be dismissed forthwith.” (Id. ECF Doc. # 24.) On October 23, 2017, Chief Judge Morris
dismissed the Purewal Bankruptcy. (Id. ECF Doc. # 25.)
II. 	DISCUSSION
A. Motion to Dismiss Under Rule 12(b)(6)
To survive a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil
Procedure, made applicable here by Rule 7012 of the Federal Rules of Bankruptcy Procedure, a
complaint must allege “enough facts to state a claim for relief that is plausible on its face.”
Vaughn v. Air Line Pilots Ass’n, Int’l, 604 F.3d 703, 709 (2d Cir. 2010) (emphasis in original)
(citing Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).
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Courts use a two-prong approach when considering a motion to dismiss. Pension Benefit
Guar. Corp. v. Morgan Stanley Inv. Mgmt., 712 F.3d 705, 717 (2d Cir. 2013) (stating that the
motion to dismiss standard “creates a ‘two-pronged approach’ . . . based on ‘[t]wo working
principles’” (quoting Iqbal, 556 U.S. at 678–79)); McHale v. Citibank, N.A. (In re 1031 Tax
Grp., LLC), 420 B.R. 178, 189–90 (Bankr. S.D.N.Y. 2009).
First, the court must accept all factual allegations in the complaint as true, discounting
legal conclusions clothed in factual garb. See, e.g., Iqbal, 556 U.S. at 677–78 (noting that courts
“are not bound to accept as true a legal conclusion couched as a factual allegation”); Kiobel v.
Royal Dutch Petroleum Co., 621 F.3d 111, 124 (2d Cir. 2010) (stating that a court must
“assum[e] all well-pleaded, nonconclusory factual allegations in the complaint to be true”)
(citing Iqbal, 556 U.S. at 678). “A pleading that offers ‘labels and conclusions’ or ‘a formulaic
recitation of the elements of a cause of action will not do.’” Id. (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007)). “Threadbare recitals of the elements of a cause of action,
supported by mere conclusory statements, do not suffice.” Id.
Second, the court must determine if these well-pleaded factual allegations state a
“plausible claim for relief.” Iqbal, 556 U.S. at 679. Courts do not make plausibility
determinations in a vacuum; rather, it is a “context-specific task that requires the reviewing court
to draw on its judicial experience and common sense.” Id.
A claim has facial plausibility when the pleaded factual content
allows the court to draw the reasonable inference that the defendant
is liable for the misconduct alleged. The plausibility standard is not
akin to a probability requirement, but it asks for more than a sheer
possibility 	that 	a 	defendant 	has 	acted 	unlawfully. 	Where 	a
complaint pleads facts that are merely consistent with a defendant’s
liability, it stops short of the line between possibility and plausibility
of entitlement to relief.
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Id. at 678 (internal quotation marks and citations omitted). “The pleadings must create the
possibility of a right to relief that is more than speculative.” Spool v. World Child Int’l Adoption
Agency, 520 F.3d 178, 183 (2d Cir. 2008) (citation omitted).
B. Purewal Fails to State a Claim for Constructive Trust
Purewal has stipulated that the Southampton Property is property of the Debtor’s estate.
The Stipulation—signed by the Trustee’s counsel, Purewal’s counsel, and Purewal herself—
provides: “The [Southampton] Property is property of the Debtor’s estate, and therefore, the
Trustee is authorized to market the [Southampton] Property for sale.” (Stipulation ¶ 2.) In
addition, it is undisputed that title to the Southampton Property was in the name of the Debtor on
the Petition Date.
Purewal gives no reason for why the Stipulation should be set aside (and does not even
request this relief), but even if the Stipulation were set aside, the Southampton Property would
still be property of the estate. Under New York law, “marital property” includes “all property
acquired by either or both spouses during the marriage and before the execution of a separation
agreement or the commencement of a matrimonial action, regardless of the form in which title is
held.” N.Y. DOM . REL . L. § 236(B)(1)(c). The Second Circuit has explained:
A spouse without legal title has no interest in marital property prior
to obtaining a judgment creating such an interest . . . . In New York,
a spouse enforcing an equitable distribution award does not seek
judicial recognition of an inchoate, prejudgment interest in the
property. Rather, the spouse, like a judgment creditor, seeks to
enforce an equitable remedy ordered in the judgment. . . .
“If bankruptcy intervenes before the state court enters the [divorce]
judgment, the trustee’s status as hypothetical lien creditor cuts off
the non-debtor spouse’s inchoate rights in marital property, and
leaves [the non-debtor spouse] with a general unsecured claim.”
Musso v. Ostashko, 468 F.3d 99, 105–06, 108 (2d Cir. 2006) (quoting In re Cole, 202 B.R. 356,
360 (Bankr. S.D.N.Y. 1996)).
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Furthermore, Jackman v. Tese-Milner (In re Aiolova), 496 B.R. 123 (Bankr. S.D.N.Y.
2013), is directly on point with respect to the viability of a claim for constructive trust against a
trustee in bankruptcy. In that case, Judge Lifland stated:
As one of the strong-arm powers enunciated in the Bankruptcy Code,
a trustee is given the status of a hypothetical bona fide purchaser of
real property. See In re Potter, 313 F.3d 93, 95 (2d Cir. 2002). The
purpose of this status is “to cut off unperfected security interests,
secret liens and undisclosed prepetition claims against the debtor’s
property as of the commencement of the case.” In re Canney, 284
F.3d 362, 374 (2d Cir. 2002) (quoting COLLIER ON BANKRUPTCY ¶
544.03 (15th ed. rev. 2001)). 	Specifically, Section 544(a)(3)
provides:
The trustee shall have, as of the commencement of the case,
and without regard to any knowledge of the trustee or of any
other creditor, the rights and powers of, or may avoid any
transfer of property of the debtor or any obligation incurred
by the debtor that is voidable by . . . a bona fide purchaser of
real property . . . from the debtor . . . that obtains the status
of a bona fide purchaser and has perfected such transfer at
the time of the commencement of the case, whether or not
such a purchaser exists.
See 11 U.S.C. § 544(a)(3). 	In evaluating the trustee’s rights as a
hypothetical bona fide purchaser of real property, the court looks to
the substantive state law pertaining to the property that is the subject
of the proceeding, in this case the law of New York. See Mosello v.
ALI, Inc. (In re Mosello), 190 B.R. 165, 170 (Bankr. S.D.N.Y. 1995).
Under New York law, a bona fide purchaser is protected from any
prior, unrecorded interests in the purchased property. See N.Y. RPL
§ 291; see also Simonds v. Simonds, 45 N.Y.2d 233, 242, 380 N.E.2d
189, 408 N.Y.S.2d 359 (1978) (“A bona fide purchaser of property
upon which a constructive trust would otherwise be imposed takes
free of the constructive trust, but a gratuitous donee, however
innocent, does not.”).
Jackman, 496 B.R. at 132–33.
Accordingly, even if the Court accepts all of the allegations in the Complaint, Purewal’s
claim for constructive trust fails, as the Southampton Property is property of the estate, and the
Trustee takes the Southampton Property free of any prior unrecorded interests in purchased
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property, including a constructive trust. The Court therefore GRANTS the motion to dismiss the
constructive trust claim against the Trustee.
IT IS SO ORDERED.
Dated: 	August 12, 2021
New York, New York
______Martin Glenn______
MARTIN GLENN
United States Bankruptcy Judge
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