In re Portnoy
Decision Date | 07 October 1996 |
Docket Number | Bankruptcy No. 95 B 45452 (TLB),Adv. No. 96/8312 A. |
Citation | 201 BR 685 |
Parties | In re Larry PORTNOY, Debtor. MARINE MIDLAND BANK, Plaintiff, v. Larry PORTNOY, Defendant. |
Court | U.S. Bankruptcy Court — Southern District of New York |
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Kleban & Samor, P.C. by Elliot I. Miller, Southport, CT, for Debtor.
Phillips, Lytle, Hitchcock, Blaine & Huber by William J. Brown, David J. McNamara, New York City, for Marine Midland Bank.
DECISION AND ORDER ON MOTION FOR SUMMARY JUDGMENT
At the heart of this debtor's summary judgment motion lies an irrevocable offshore trust into which he placed virtually all of his assets at a time when he knew that his personal guarantee of his corporation's indebtedness was about to be called. The debtor, Larry Portnoy, claims not only that his assets have been successfully insulated under the law of the Jersey Channel Islands ("Jersey"), but that he is entitled as a matter of law to a discharge of all debts including the indebtedness which he guaranteed. Marine Midland Bank ("Marine"), which holds Portnoy's guarantee and feels bruised by his actions, seeks to deny him a discharge under sections 727(a)(2)(A) and (a)(4) of the Bankruptcy Code on the theories that he engaged in a deliberate scheme to conceal assets and intentionally or recklessly omitted from his bankruptcy schedules his substantial "control powers" in the offshore trust. Alternatively, Marine seeks to exempt from discharge its debt alone because, it says, Portnoy willfully and maliciously transferred his assets in order to injure Marine.
In his answer to Marine's complaint, Portnoy denied that (1) I have jurisdiction over the offshore trust, the case,1 and the adversary proceeding; (2) his estate encompasses the assets in the offshore trust; (3) he owns his salary which he deposits weekly in his wife's bank account; (4) Marine was his creditor at the time he created the offshore trust; (5) after he transferred the assets to the offshore trust and deposited his salary in his wife's bank account, he was left with insufficient assets to pay his debts; (6) he has any "control powers" over the offshore trust or that such powers are material to the bankruptcy estate; (7) his bankruptcy schedules were untruthful or that he knowingly or recklessly made a false oath in connection with this case; and (8) he had any intent to conceal assets from or willfully and maliciously injure Marine. Portnoy also pleaded several affirmative defenses bottomed on my asserted lack of jurisdiction over the trust and his salary or on Marine's claimed laches and bad faith.
So far as uncontested the facts are set forth below.
In March 1987, Portnoy, the former president and sole shareholder of Mary Drawers, Inc. ("Mary Drawers"), unconditionally guaranteed any existing and future indebtedness of that entity to Marine. Just about one year later, in March 1988, Marine loaned Mary Drawers in excess of $1 million.
In August 1989, Portnoy established a trust ("the offshore trust") in St. Helier in Jersey, and executed a declaration of trust naming Jarden Morgan Trustees (Jersey) Ltd. as sole trustee ("Jarden"), as himself "Principal Beneficiary," and his two children as additional beneficiaries. Over the course of the next several months Portnoy transferred his assets to that trust. Northington Decl. ¶ 12 at 7; Ex. "3," Debtor's Dep. at 163-164 (October 3, 1995). An inference can be drawn that the timing was purposeful, for in June, two months before the trust's creation, Portnoy knew that Mary Drawers was in trouble and by December of that same year, Mary Drawers had defaulted on its obligations to Marine.
The declaration of trust provides that it shall be governed by Jersey law and purports to vest exclusive jurisdiction over the trust's interpretation in the Jersey courts. Jarden has no office, employees, or telephone listing in the United States and conducts no business here.
As identified by the parties, some of the important trust provisions include:
Ex. "14," Marine's Opp'n to Motion for Summary Judgment.
The total realizable value of the assets transferred to the trust approximated $700,000; the declared transfer value was $1,045,943. Northington Decl. ¶ 6 at 4; Marine's Statement of Facts ¶ 1(d) at 2. From 1989 to the present, Portnoy has filed required annual forms regarding the offshore trust with the United States Treasury Department.
Apparently, Portnoy was not satisfied with only removing assets from Marine's reach but decided that he had to protect his earned income as well. Starting sometime in 1990, Portnoy began, and to this day continues, to deposit all of his salary, at least $150,000 per annum, into a bank account in his wife's name. For a short period of time prior to that, Portnoy had transferred his weekly salary into an account in the name of his daughter, Melissa. Notwithstanding these transfers, Portnoy exercised sole check writing authority over the accounts.
Real property received similar treatment. In 1990 or 1991, Portnoy transferred to Mrs. Portnoy a joint interest in their home and all the proceeds from the sale of his condominium located in Florida. Ex. "9," Debtor's Dep. at 95-97 (February 2, 1995).
On February 22, 1990, Marine sued Portnoy on his guarantee in New York State Supreme Court, New York County. Ex. "16," Marine Midland Bank v. Portnoy, No. 104830/95, slip op. at 2-3 (Sup.Ct.N.Y. County Sept. 8, 1995) (Davis, J.).
In early 1991, Portnoy, Marine and their respective counsel met to discuss a possible settlement of Marine's suit. Portnoy had previously supplied Marine with a financial statement dated June 30, 1989, which indicated his net worth at $2,104,250, showing assets of cash ($242,500), real estate ($1,000,000 encumbered by a $319,000 mortgage), government and marketable securities ($141,250), sundry partnerships ($350,000), equity in a corporation ($615,000) and an Individual Retirement Account ($34,500). Ex. "5," Marine's Opp'n to Motion for Summary Judgment.3 During the settlement conference, Portnoy told Marine that he had been financially ruined by expensive experimental cancer treatments, that his assets other than real estate "were all gone," and that he had no unencumbered assets with which to satisfy his indebtedness to Marine. Notwithstanding his actual $150,000 plus annual salary, Portnoy also said he was earning only $1,700 per month as an employee in the garment industry, an amount insufficient to service his debt to Marine. Northington Decl. ¶ 22 at 12. Portnoy does not now dispute that ...
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Domestic Trusts
...interest test,” and “the fundamental policy underlying the controversy test” have all been advocated. For example, in In re Portnoy , 201 BR 685 - Bankr. Court, SD New York 1996, the bankruptcy court held: Whereas under normal circumstances, parties are free to designate what state’s or nat......