Pergament v. Cersosimo

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NEW YORK
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In Re:
Chapter 7
Lori Cersosimo,
Case No.: 	05-89735-dte
Debtor.
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Marc A. Pergament, Chapter 7 Trustee of the
Estate of Lori A. Cersosimo,
Plaintiff,
-against- 	Adv Pro. No: 07-08145-dte
Eugenio Cersosimo,
Defendant.
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AMENDED MEMORANDUM DECISION
Appearances:
Marc A. Pergament, Esq.
Weinberg Gross & Pergament LLP
Attorney for the Plaintiff
400 Garden City Plaza
Garden City, New York 11530
Bernard A Nathan, Esq.
Attorney for the Defendant
325 Wireless Boulevard
Hauppauge, NY 11788
Honorable Dorothy Eisenberg, United Stated Bankruptcy Judge
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Lori A. Cersosimo (the “Debtor”) filed for Chapter 7 bankruptcy protection on October
15, 2005. 	Thereafter Marc A. Pergament, Esq. was appointed as the Chapter 7 Trustee (the
“Trustee” or the “Plaintiff”) of the Debtor’s bankruptcy estate. Prior to her bankruptcy filing, the
Debtor and Eugenio Cersosimo (the “Defendant”), her now ex-husband, had entered into a
divorce settlement agreement (the “Agreement”) on February 9, 2001, which governed what
each spouse would receive upon the entering of a divorce decree. 	The State Court entered the
judgment of divorce on December 21, 2001. 	One of the conditions of the Agreement was that
the Debtor would transfer her interest in the marital residence to the Defendant (the “Transfer”).
The Trustee filed the instant adversary proceeding on April 13, 2007, seeking to have the
Transfer declared a fraudulent conveyance, and requests that it be set aside, or, in the alternative,
award the Plaintiff damages as a result of the Transfer. A trial was held before the Court over a
two day period, from November 20, 2008 to November 21, 2008, and the parties were authorized
to submit post-trial findings of fact and conclusions of law.
The Court has jurisdiction pursuant to 28 U.S.C. §§ 157 and 1334, and venue is proper
pursuant to 28 U.S.C. § 1409(a).
BACKGROUND
The Debtor and the Defendant were married in 1983. 	Together they purchased the real
property located at 211 Michigan Avenue, Port Jefferson, New York (the “Premises”). 	The
Debtor and the Defendant had a son and a daughter. After over 16 years of marriage, there came
a point in 1999 when the Debtor and the Defendant began to have marital difficulties and she left
their home. 1
1 The Debtor first went to a women’s shelter in Suffolk County for three months. After leaving the women’s shelter,
the Debtor ultimately ended up renting an apartment in Port Jefferson, New York.
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The Debtor commenced a divorce proceeding against the Defendant in 1999, and the
parties entered into the Agreement on February 9, 2001. 	The Agreement was adopted into the
Judgment of Divorce that was entered by the State Court on December 21, 2001. At the time of
their divorce, the Debtor was employed as an administrative assistant, and the Defendant was
employed as assistant professor at the University of Stony Brook.2 He was also a medical doctor
and a research physician.
The Agreement governed the distribution of the martial property, as well as established
which spouse would be responsible for certain debts and costs, and the custody of the children.3
One component of the Agreement was that the Defendant would receive the Debtor’s interest in
the Premises (the “Transfer”),4 however the Debtor would be allowed to live at the Premises with
their children. The Defendant was required to move out.5 The deed evidencing the Transfer was
executed on January 22, 2002, and the face of the document does not state what consideration
was given. The Agreement further states that the Defendant would refinance the Premises, and
upon the subsequent sale of the Premises, the Defendant would receive all of the sale proceeds.
In the Joint Pre-trial Memorandum the parties stipulated that the value of the Premises on
the date of the Agreement was $265,000.00, and the value on the date of the transfer was
$290,000.00. 	Furthermore, the parties agreed that the Premises were encumbered by the
following: (1) a first mortgage with an unpaid balance of $167,360.79; (2) a second mortgage
2 However, at the time the parties entered into the Agreement the Debtor was unemployed.
3 Both the Debtor and the Defendant represented in the Agreement that they were in good health, employed and
were self-supporting, and thus “hereby releases and discharges the other absolutely and forever for the rest of his or
her life from any and all claims and demands past, present and future for support and maintenance.”
4 The Agreement provides, in relevant part, that “The WIFE agrees to waive all right, title and interest she may have
in the marital residence and further agrees to execute a bargain and sale deed contemporaneous with the execution of
this Settlement Agreement transferring her interest in the marital resident to the HUSBAND ….” (ECF, Docket No.
17).
5 The testimony of both the Debtor and the Defendant revealed that they essentially agreed to switch living
arrangements. The Debtor would be allowed to move back into the marital residence, and the Defendant had the
option of moving into an apartment that the Debtor had rented prior to the judgment of divorce.
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with an unpaid balance of $25,714.42; and (3) an unpaid lien of the County of Suffolk against
the Debtor in the sum of $16,665.84.6 After reducing the encumbrances on the Premises, the
remaining equity was $80,258.95 at the time of the transfer.
In exchange for the Transfer, the Defendant was obliged to continue to pay all of the
expenses of the Premises, such as the principal and secondary mortgage on the Premises, the
homeowner’s insurance, the real property taxes, and expenses for electricity, gas, water, and
garbage collection.7 The Debtor was only required to pay the phone, cable and landscaping
expenses. These payments were defined by the Agreement as being part of the Defendant’s child
support payments. The Defendant was also required to pay the Debtor $600 per month for their
son for as long as their son lived with the Debtor.8
The Agreement also provided that the Defendant would be the responsible party to pay
for the children’s college expenses, including room and board, at a college of their choosing.
The cost of college applications and summer camp were to be apportioned, with the Debtor
paying twenty-five percent (25%) and the Defendant paying seventy-five percent (75%) of these
charges.
Regarding the Defendant’s medical license, the parties, pursuant to the Agreement, made
a decision not to have it appraised, and the Debtor waived her right to appraise it. 	As an
appraisal was never done, the Court cannot place a value on what it may or may not have been
worth in economic terms. 	In exchange for the Debtor making this waiver, the Defendant was
required to pay to her one hundred percent (100%) of his 401K plan (valued at $41,645.00), one
6 The unpaid lien from Suffolk County was incurred by the Debtor for the shelter.
7 The Defendant was also required to make payments of $1,200 per month to the Debtor’s rental landlord. The
Agreement further provided that if the Debtor were to vacate the Premises, the Defendant would be required to pay
her $1,200 per month directly.
8 The Agreement does note that under the Child Support Standards Act, codified in §240 of the Domestic Relations
Law, the child support payments that could have been required were $3,250 per month. However, the parties in the
Agreement agreed not to be bound to this amount, and to be bound to the terms and conditions of the Agreement.
(ECF, Docket No. 17).
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hundred percent (100%) of his pension plan (valued at $24,700.00), and fifty percent (50%) of
his TIAA-CREF Account (valued at $23,070.00) for a combined total of $89,415.00 in cash.
The debts of the parties were to be split as follows: the Defendant was to pay the first and
secondary mortgage ($170,000.00 and $25,000.00, respectively), a Stony Brook University debt
($5,000.00), a Master Card debt ($10,000.00), a car lease ($8,700.00) and a 401K loan
($11,000.00). 	The only debt that the Agreement provides that the Debtor pay was a $5,000.00
Visa card debt. (ECF, Docket No. 17).
Upon review of the Agreement, the State Court incorporated it into the Judgment of
Divorce that it entered on December 21, 2001, and required that the parties were to comply with
every “legally enforcement term and provision of such Agreement.” (ECF, Docket No. 18).
The Trustee now seeks to have the Transfer of the Premises from the Debtor to her then
spouse, the Defendant, declared a fraudulent conveyance under New York Debtor and Creditor
Law §§ 273 and 275. 	He argues that the transfer of the Debtor’s premises was without fair
consideration and was done when the Debtor was insolvent, or as a result thereof, lacked
sufficient assets to meet her ongoing obligations.
DISCUSSION
Section 273 of the New York Debtor and Creditor law provides, in pertinent part:
Every conveyance made … by a person who is or will be thereby rendered
insolvent is fraudulent as to creditors without regard to his actual intent if the
conveyance is made … without a fair consideration.
There are three elements that must be met in order for a party to establish a fraudulent
conveyance under Section 273: 	“(1) the transfer was a conveyance within the meaning of the
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statute; (2) the conveyance was made by a person who is or will thereby be rendered insolvent; 9
and (3) the conveyance was made without fair consideration.” Hirko v. United States, 2006 U.S.
Dist. LEXIS 13888 (E.D.N.Y. 2006); see United States v. McCombs, 30 F.3d 310, 323 (2d Cir.
N.Y. 1994).
It is the third element of fair consideration that the instant case turns on. 	In order to
sustain a complaint under Section 273, the Trustee must prove that the Transfer of the Premises
at the time of the transfer was not made for fair consideration. See Cadle Co. v. Newhouse, 2002
U.S. Dist. LEXIS 15173 (S.D.N.Y. Aug. 15, 2002); Hassett v. Goetzmann, 217 B.R. 9, 15
(N.D.N.Y 1998); Pryor v. Fair, 142 B.R. 628, 632 (Bankr. E.D.N.Y. 1992). If the debtor, who is
insolvent or rendered insolvent by the transfer, failed to receive “fair consideration,” then the
transfer will be deemed to have been a fraudulent one. See Geltzer v. D'Antona (In re Cassandra
Group), 312 B.R. 491, 497 (Bankr. S.D.N.Y. 2004); Corporation of Lloyd's v. Funk, 246 A.D.2d
570, 572 (N.Y. App. Div. 2d Dep't 1998).
Fair consideration is defined in Section 272 of the New York Debtor and Creditor law as:
. 	. 	. 	consideration 	. 	. 	. 	given 	for 	property, 	or 	obligation:
a. 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
b. When such property, or obligation is received in good faith to secure a present
advance or antecedent debt in amount disproportionately small as compared with
the value of the property, or obligation obtained.
Whether fair consideration existed under Section 273 for a conveyance must be determined
based on the facts of each particular case. See United States v. McCombs, 30 F.3d 310, 323 (2d
Cir. N.Y. 1994) (stating that fair consideration “defies any one precise formula” and must be
9 Section 271(1) of the New York Debtor and Creditor law defines when a person is considered “insolvent.” It states
that “[a] person is insolvent when the present fair salable value of his assets is less than the amount that will be
required to pay his probable liability on his existing debts as they become absolute and matured.” (emphasis added).
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determined on a case by case basis); United States SEC v. Universal Express, Inc., 2008 U.S.
Dist. LEXIS 35342 (S.D.N.Y. Apr. 30, 2008); Pryor v. Fair, 142 B.R. 628, 632 (Bankr.
E.D.N.Y. 1992).
The Court does note that a heavy burden may be placed on the grantee to demonstrate fair
consideration, when the challenged conveyance is between family members, such as the Debtor
and her ex-husband. See Cadle Co. v. Lieberman, 1998 U.S. Dist. LEXIS 23093 (E.D.N.Y. Sept.
8, 1998). 	This requires one of two factors being present: "(1) the absence of any tangible
consideration, or (2) a clandestine transfer of property designed to conceal the nature and value
of the consideration.” 	United States v. McCombs, 30 F.3d 310, 323 (2d Cir. N.Y. 1994); see
Hirko v. United States, 2006 U.S. Dist. LEXIS 13888 (E.D.N.Y. 2006). 	Since there was no
statement of an actual transfer of cash from the Defendant to the Debtor on the deed, in exchange
for the Debtor’s interest in the Premises, the heightened burden on the Defendant has been
triggered.
Although the deed evidencing the Transfer of the Premises from the Debtor to the
Defendant does not state what consideration was given, and it does not appear that cash was
transferred for the Debtor’s interest in the Premises, this alone is not dispositive of the issue of
fair consideration. 	A review of the record shows that in exchange for the Debtor waiving her
interest in the Premises and transferring them to the Defendant, she was able to live in the marital
residence with their children until the occurrence of one of five conditions, while the Defendant
would pay the costs and expenses of the Premises. The five possible occurrences agreed to in the
Agreement were: (1) the date of August 30, 2010, at which time the Debtor would move out of
the Premises; (2) the Debtor voluntarily chooses to vacate the Premises; (3) an unrelated adult
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begins to live in the Premises; (4) the Debtor remarried; or (5) the Debtor failed to comply with
certain medical obligations.
Additionally, the Defendant agreed to pay for the college expenses of both of their
children, regardless of which college was chosen by them. 	The Debtor did receive a cash
payment of $89,415 from the Defendant although it was a negotiated sum based on other assets
that could be divided by the parties. When the Debtor conveyed her interest in the Premises to
the Defendant, she was acting in good faith pursuant to a duly negotiated and bargained for
Agreement that provided the fair consideration for the Transfer, which was then incorporated
into an order of divorce from a New York state court. In light of the evidence and a review of all
the circumstances and assets of each spouse at the time of the transfer, the Trustee has failed to
show that fair consideration was not given.
While there was much discussion at trial regarding whether or not both parties fully
disclosed their respective positions and debts, or whether they each fully complied with the terms
of the Agreement, the fact remains that the Court has before it a fully negotiated agreement
between the Debtor and the Defendant regarding the disposition of the marital assets that was
adopted and incorporated into a valid state court judgment of divorce with no showing of
collusion or intent to defraud creditors.10
A review of case law has shown that it is the rare bankruptcy court that 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. 	If the court, upon review of the conveyance, determines
that it was done to defraud creditors or was done for little to no consideration, then the court may
make a finding that the transfer was a fraudulent conveyance. See e.g., Dobin v. Hill (In re Hill),
10 See The Matter of Erlewine, 349 F.3d 205, 212-13 (5th Cir. 2003) (stating that “the divorce … was fully litigated,
without any suggestion of collusion, sandbagging, or indeed any irregularity-should not be unwound by the federal
courts merely because of its unequal division of marital property.”).
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342 B.R. 183, 208 (Bankr. D. N.J. 2006) (holding that the divorce settlement was a fraudulent
transfer when it was entered into shortly after a judgment was obtained against the debtor, was
disproportionally favorable to the nondebtor, and was designed to frustrate the judgment creditor
from collecting on its judgment); In re Hope, 231 B.R. 403, 415 (Bankr. D.D.C. 1999) (“[I]t is
now well settled that a transfer of property pursuant to a collusive divorce decree or property
settlement intended to hinder, delay or defraud creditors (or pursuant to a divorce decree or
property settlement for inadequate consideration, leaving the debtor insolvent) constitutes a
‘transfer’ as defined under § 104(54) of the Bankruptcy Code.”); In re Lawrence G. Williams,
159 B.R. 648 (Bankr. R.I. 1993).
In In re Lawrence G. Williams the debtor had divorced his wife and entered into a
divorce settlement agreement with her in which he transferred virtually all of his personal
property to her prior to filing for bankruptcy. See id. at 663. The bankruptcy court noted that the
parties had obtained a divorce in less than two months, and the nature and timing of the divorce
evidenced the fact that the divorce settlement agreement was a fraudulent conveyance, and was
done with the intent to defraud the debtor’s creditors. See id.
There has been no allegation of any such fraud or action here. 	The facts in this case
reveals that the divorce proceedings took roughly two years to come to fruition, and the parties
were both represented by counsel. Each party negotiated for terms that were beneficial for them,
which ultimately resulted in the Agreement which was adopted by the State Court. 	The
negotiated settlement reveals adequate consideration for the Debtor’s legal transfer of her interest
in the real property. Based on the facts before it, the Court holds that fair consideration did exist
for the transfer. 	Thus, the Trustee is precluded from seeking relief under Section 273 of the
Debtor and Creditor law.
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As for the Trustee’s claim under Section 275 of the New York Debtor and Creditor law,
it too requires a finding of the nonexistence of fair consideration in order for the Trustee to
prevail. 	Section 275 provides, in pertinent part, that “[e]very conveyance made … without fair
consideration when the person making the conveyance … intends or believes that he will incur
debts beyond his ability to pay as they mature, is fraudulent as to both present and future
creditors.” 	Since the Court has already determined that there was fair consideration given, it
does not need to make a determination regarding the issue of intent. At the time of the transfer,
as approved by the judgment of divorce issued by the State Court, there was no set of facts
presented to the State Court to indicate that either party believed he or she would not be able to
pay for his or her debts as they came due.
Furthermore, based upon the evidence that has been presented to this Court, this Court
cannot reach a finding that either party believed he or she would not be able to pay for his or her
debts as they came due. What happens to one’s life and economic resources after a valid transfer
of property should not be ascertained by hindsight.
CONCLUSION
Based on the above findings of fact and conclusions of law, the Trustee’s requested relief
is denied.
Dated: Central Islip, New York
September 29, 2009
s/ Dorothy Eisenberg
Honorable Dorothy Eisenberg
United States Bankruptcy Judge
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