Finkel v. Polichuk (In re Polichuk)

• Decision Date: 27 February 2014
• Docket Number: Bankruptcy No. 08–10783 ELF.,Adversary No. 10–031.
• Parties: In re Len POLICHUK a/k/a Leonid Polichuk, Debtor. Bonnie Finkel, as Chapter 7 Trustee of the Estate of Leonard Polichuk, Plaintiff, v. Len Polichuk a/k/a Leonid Polichuk, et al., Defendants.
• Court: United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania

506 B.R. 405

In re Len POLICHUK a/k/a Leonid Polichuk, Debtor.

Bonnie Finkel, as Chapter 7 Trustee of the Estate of Leonard Polichuk, Plaintiff,

v.Len Polichuk a/k/a Leonid Polichuk, et al., Defendants.

Bankruptcy No. 08–10783 ELF.

Adversary No. 10–031.

United States Bankruptcy Court,

E.D. Pennsylvania.

Signed Feb. 27, 2014.

Aaron S. Applebaum, Gary David Bressler, Christin E. Deacon, McElroy Deutsch Mulvaney & Carpenter, Philadelphia, PA, for Plaintiff.

Ashely M. Chan, Matthew A. Hamermesh, Hangley Aronchick Segal & Pudlin, Jason Christopher Manfrey, Fox Rothschild LLP, Zachary L. Grayson, Salaman Grayson, P.C., Philadelphia, PA, Ely Goldin, Fox Rothschild, LLP, Blue Bell, PA, for Defendants.

OPINION

ERIC L. FRANK, Chief Judge.

TABLE OF CONTENTS

I.

INTRODUCTION

II.

PROCEDURAL HISTORY

III.

GENERAL FACTUAL BACKGROUND

IV.

LEGAL STANDARDS: FRAUDULENT TRANSFER

A.

Overview

B.

Badges of Intentional Fraud

C.

Constructive Fraud

D.

Statute of Limitations

V.

LEGAL STANDARDS: SUMMARY JUDGMENT

A.

Well–Established General Principles

B.

The Movant's Burden to Establish that a Non–Movant Who Has the Burden of Proof Lacks Evidence to Support an Essential Element of the Claim

VI.

THE NON–DEBTOR DEFENDANTS' MOTION

A.

Law of the Case

B.

Wielding the IRS' Power to Tax

C.

Creditor Status of IRS

VII.

ANDREW'S MOTION

A.

207 Elbridge Street

B.

415 Worthington Mill Road

C.

Fox Lake Realty

VIII.

LENA'S MOTION

A.

Transfer of the Debtor's Alleged Interest in Fox Lake Realty LP

B.

The Bank of America Account Transfers

C.

The Motostrada Claim

D.

The New Century Claim

E.

207 Elbridge Street

IX.

LARISA'S MOTION

A.

The 7348 Schwab Account

B.

The 0707 Delaware Account

X.

FLR'S MOTION

XI.

CONCLUSION

I. INTRODUCTION

In this adversary proceeding, Plaintiff Bonnie Finkel, the Chapter 7 Trustee (“the Trustee”) contends that Debtor Len Polichuk (“the Debtor”) orchestrated a massive scheme to fraudulently transfer his assets to members of his family and entities that they controlled. In her Amended Complaint, the Trustee asserts twelve (12) claims seeking to avoid numerous asset transfers, going as far back as ten (10) years prior to the commencement of the Debtor's bankruptcy case. The 368–paragraph Amended Complaint named seventeen (17) defendants, including five (5) close relatives of the Debtor: Marina Ayzenberg, Joseph Ayzenberg, Lena Polnet, Larissa Lebed and Andrew Nechiporenko (collectively, “the Polichuk Family Group”). Presently, the litigation remains active against fifteen (15) of the original defendants. ¹

The chart below identifies the remaining defendants with respect to each of the Trustee's claims.

Nature of Claim

Defendants

I

Accounting, Repayment of Funds &

(1) Debtor

Imposition of Constructive Trust

(2)-(6) Polichuk Family Group

(7) Metro Developments, LLC

(8) LAML Mangement, Inc.

(9) Fox Lake Realty Ltd. Partnership

(10) Motostrada, LLC

(11) Grey Hound Properties, LLC

(12) Letterly Realty

(14) John Does 1–10

(15) John Doe Corporations or Partnerships 1–10

II

Preference— § 547(b)

(1) Joseph Ayzenberg,

III

Fraudulent Transfer— §§ 548(a)(1)(A),

(1)-(5) Polichuk Family Group

550 & 551

(6) Metro Development LLC

(7) Motostrada LLC

(8) Grey Hound Properties, LLC

(9) Letterly Realty

IV

Fraudulent Transfer— §§ 548(a)(1)(B), 550 & 551

same as Count III

V

Fraudulent Transfer— §§ 544, 550(a), 551, 1107 and 12 Pa.C.S. § 5104

same as Count III

VI

Fraudulent Transfer— §§ 544, 550(a), 551, 1107 and 12 Pa.C.S. § 5105

same as Count III

VII

Conversion

All Defendants (except Debtor)

VIII

Turnover of Property of the Estate—

(1) Debtor

§ 542

(2) John Does 1–10

(3) John Doe Corporations or Partnerships 1–10

IX

Recovery of Property— § 550

All Defendants

X

Violation of the Automatic Stay— § 362

(1) Debtor

(2) Marina Azyenberg

XI

Avoidance of Post–Petition Transfer— §§ 549, 550, 551

(1) Marina Azyenberg

XII

Imposition of Constructive Trust

All Defendants

On August 29, 2013, the five (5) Defendants listed below filed motions for summary judgment or partial summary judgment (collectively, “the Motions”): ²

(1) all of the Non–Debtor Defendants (“the Non–Debtor Defendants' Motion”) (Doc. # 564); ³ (2) Lena Polnet (“Lena's Motion”) (Doc. # 562);

(3) Andrew Nechiporenko (“Andrew's Motion”) (Doc. # 566); and

(4) Larisa Lebed (“Larisa's Motion”) (Doc. # 568); ⁴

(5) Defendant Fox Lake Realty (“FLR”) (Doc. # 570).

For the reasons set forth below, the first motion listed above, the Non–Debtor Defendants' Motion, will be denied. Lena's, Andrew's and Larisa's Motions will be granted in part and denied in part. The fifth motion, the FLR Motion, will be granted in part and deferred in part.

II. PROCEDURAL HISTORY

The procedural history may be summarized concisely as follows.

The Debtor filed a voluntary petition under chapter 7 on January 31, 2008. The Trustee commenced this adversary proceeding by filing a Complaint on January 29, 2010.

The Non–Debtor Defendants and the Debtor filed motions to dismiss the original Complaint, which was granted in part and denied in part on November 23, 2010. The Trustee filed an Amended Complaint on January 14, 2011. After a Motion to Dismiss the Amended Complaint was granted in part and denied in part on July 1, 2011, the Non–Debtor Defendants against whom a default judgment as to liability had not been entered, see n. 1 supra, and the Debtor filed their Answers to the Amended Complaint on July 21 and July 22, 2011 respectively.

Once the pleadings closed, the court entered an initial pretrial order on July 28, 2011. Since then, completion of pretrial discovery has been delayed by: (1) an unsuccessful attempt to achieve a mediated settlement; (2) the parties' eventual, joint recognition that the broad scope of the claims asserted required a substantial amount of discovery; and (3) a series of discovery disputes, several of which necessitated hearings and court rulings. As a result, I have extended the pretrial deadlines on several occasions, usually by agreement and joint request of the parties.

Pursuant to Pretrial Order # 9, discovery concluded on August 8, 2013. The Motions were filed on August 29, 2013. The Movants and the Trustee filed memoranda and reply memoranda, the last of which was submitted on October 18, 2013.

III. GENERAL FACTUAL BACKGROUND

By way of introduction and to provide some context to the discussion that follows, I will set out a few background facts that are not in dispute. The facts more closely related to the summary judgment motions will be discussed later in the Opinion.

The Debtor was trained as an engineer in Russia. After coming to the United States in 1989, he held a number of jobs at different companies including working as a computer programmer for the Taj Mahal Casino and as a programmer for CIGNA. The Debtor also was involved in a number of businesses including pharmacies and health care facilities before embarking, from about 1999 until late in 2003, on ownership and management of automobile dealerships, along with a partner, Serge Naumovsky. During this time period, the Debtor also set up a company called MarinaReinsurance, to sell warranty insurance policies to the auto dealership customers. In 2003, the Debtor sold his interest in the dealerships to another individual, Nicholas Reinhart.

The balance of the factual matter in this adversary proceeding revolves around various transfers of or from: (1) real estate; (2) businesses and (3) financial accounts, in which the Debtor is alleged to have had some type of ownership interest. The other parties in these transactions are members of the Debtor's family or businesses those family members own or control. The family members are:

(1) Marina Ayzenberg (“Marina”), who is alleged to be the Debtor's spouse (a material fact that is contested by the Trustee, see Part VII.B.3, infra );

(2) Joseph Ayzenberg, (“Joseph”), who is Marina's father;

(3) Lena Polnet (“Lena”), who is the Debtor's sister;

(4) Larisa Lebed (“Larisa”), who is the Debtor's sister; and

(5) Andrew Nechiporenko, a/k/a Andrew Polnet (“Andrew”), who is the Debtor's putative brother-in-law (married to Lena).

Many of the transactions occurred after the Debtor divested himself of his interest in the automobile dealerships. The Trustee maintains that this is no coincidence. She believes that the Debtor had substantial liabilities arising from the auto dealership operations and had a strong incentive to insulate his remaining assets from creditor claims. Thus, she depicts the numerous insider transactions that took place as a web of fraudulent transfers, purposely designed to hinder and delay creditors.⁵ In response, the Debtor and the Non–Debtor Defendants contend that the transactions at issue (a) were designed to permit the Debtor's family to control his business interests and assets at a time when he was hospitalized with a psychological condition rendering him incapable of handling his affairs (the Trustee disputes this) or (b) otherwise were legitimate business transactions.

IV. LEGAL STANDARDS: FRAUDULENT TRANSFER

Most of the Trustee's claims derive from her contention that particular transactions are avoidable as fraudulent transfers. Therefore, it is helpful to set out, briefly, the legal standards that apply to these claims.

A. Overview

The Trustee's fraudulent transfer claims arise under two provisions of the Bankruptcy Code. The first is the Code's fraudulent transfer provision, 11 U.S.C. § 548(a)(1).⁶ The second is the Code's transfer avoidance provision which allows the bankruptcy trustee to stand in the shoes of an actual creditor who may avoid a transfer under applicable nonbankruptcy law, 11 U.S.C. § 544(b).⁷ With respect to the § 544(b) claim, the Trustee invokes the Pennsylvania Uniform Fraudulent Transfer Act, 12 Pa.C.S. §§ 5101– 5110 (“PUFTA”) as the applicable nonbankruptcy law.⁸

The Trustee asserts two (2) distinct fraudulent transfer theories of liability. First, she asserts that the Debtor's asset transfers were intentionally fraudulent, i.e., motivated by an intent to hinder and delay creditors. Second, she asserts that the transfers...